Xella Group Annual Bond Report 2012largest producer in Europe of autoclaved aerated concrete (“AAC”) by capacity and of calcium silicate units (“CSU”) by number of production

Xella Group Annual Bond Report 2012

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Table of Contents

1. Summary ...................................................................................................................................................1

2. Group Structure.........................................................................................................................................4 2.1. Overview ...................................................................................................................................4 2.2. Corporate Structure...................................................................................................................5 2.3. Management .............................................................................................................................5 2.4. Our Shareholders ......................................................................................................................7

3. Our Business and Our Industry.................................................................................................................9 3.1. Overview ...................................................................................................................................9 3.2. Building Materials ....................................................................................................................10 3.3. Dry Lining ................................................................................................................................14 3.4. Lime.........................................................................................................................................16 3.5. Research and Development....................................................................................................19 3.6. Information Technology...........................................................................................................19 3.7. Intellectual Property.................................................................................................................19 3.8. Employees...............................................................................................................................19 3.9. Insurance.................................................................................................................................20 3.10. Legal and Regulatory Proceedings .......................................................................................20 3.11. Industry..................................................................................................................................22 3.12. Our Strengths ........................................................................................................................28 3.13. Our Strategy ..........................................................................................................................30

4. Management’s Discussion and Analysis of Financial Condition and Results of Operation....................32 4.1. Market Development in Fiscal Year 2012 ...............................................................................32 4.2. Developments 2012 ................................................................................................................33 4.3. Condensed Consolidated Statement of Income .....................................................................34 4.4. Selected Consolidated Balance Sheet....................................................................................41 4.5. Key Production Performance Indicators..................................................................................42 4.6. Liquidity and Capital Resources..............................................................................................43 4.7. Factors Affecting Our Results of Operations...........................................................................48

5. Certain Relationships and Related Party Transactions ..........................................................................55

6. Description of Certain Other Indebtedness .............................................................................................56

7. Risk Factors.............................................................................................................................................66 7.1. Risks Related to the Notes and Our Structure........................................................................66 7.2. Risks Related to Our Business and Our Industry ...................................................................72

8. Forward-Looking Statements ..................................................................................................................87

9. Presentation of Financial and Other Information.....................................................................................89

10. Certain Definitions .................................................................................................................................91

11. Disclaimer..............................................................................................................................................94 12. Financial Information ............................................................................................................................95 Annex 1: Xefin Lux S.C.A. - Audited Financial Statements 2012 Annex 2: Xefin Lux S.C.A. - Audited Financial Statements May 16 to December 31, 2011 Annex 3: Xella International S.A. - Consolidated Financial Statement 2012 Annex 4: Xella International S.A. - Consolidated Financial Statement 2011

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1. Summary

Building Materials Dry Lining Lime

(1) EBITDA of Xella International S.A. (single entity) included in total Normalized EBITDA, but not shown in bars above (Q1-4/2012: €-0.3 million; Q1-4/2011: €-0.5 million).

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Group Key Figures

€ million (if not stated otherw ise) Q4/2011 Q4/2012 Change Q1-4/2011 Q1-4/2012 Change

Sales 307.2 303.0 (1.4%) 1,271.2 1,282.5 0.9%

EBITDA 34.0 35.4 4.3% 202.1 207.0 2.4%

Normalized EBITDA 39.1 42.4 8.3% 208.0 217.3 4.4%

Normalized EBITDA margin 12.7% 14.0% - 16.4% 16.9% -

Net income/loss (10.2 ) (36.2 ) <(100%) (22.5 ) (38.6 ) (71.1%)

Cash flow from operating acitivities 178.7 148.7 (16.8%)

Free cash flow (1) 129.9 97.4 (25.0%)

Capital Expenditures (1) 86.4 91.4 5.8%

€ million (if not stated otherw ise) December 31, 2011

December 31, 2012

Change

Trade working capital (1) 140.8 152.5 8.3%

Cash and cash equivalents 124.0 124.5 0.4%

Net financial debt (1) 604.7 589.4 (2.5%)

Number of employees (FTE) 6,946 6,869 (1.1%) (1) For definitions please refer to section 4.6 of this report.

Business Highlights Fiscal Year 2012 Building Materials

Sales development supported by price increases realized in 2011 and further in 2012.

Strong positive impacts on sales from the positive market environment in Germany and Russia and the new plant in Italy (acquired in Q4/2011).

Acquisition of an AAC plant in Czech Republic from H+H International. Due to the current weak market environment we have decided to immediately close the plant and to serve the local market from our existing plants in Czech Republic.

EBITDA above full year 2011 driven by higher net average revenues and a strict cost management.

Dry Lining

Introduction of new pricing model in Germany accompanied with higher net average revenues as from January 2012 led to temporary loss of sales volumes.

Sales on previous years level, despite lower sales volume of gypsum fibre boards which are compensated by positive development of cement-bonded boards as well as by increased net average revenues.

Favourable business development particularly in Switzerland, Scandinavia and Czech Republic.

Sales volumes as well as sales of cement-bonded boards above previous year’s level.

Start up of gypsum fibre board plant in Spain on schedule.

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Lime

In Germany stable demand from industry and building materials sector (except for civil engineering segment). Demand from the environmental sector slightly weaker than in 2011.

In Czech Republic tense economic situation with weak market demand of the industrial and building material sector.

Very positive development in Russia with continuously growing demand from industry and building materials sector. Fourth kiln brought into operation in Q3/2012.

Higher net average revenues for all product groups and across all countries led to higher sales in 2012. EBITDA supported by organic growth in Russia and the sale of CO2 certificates in Q4/2012 (€2.4 million).

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2. Group Structure

2.1. Overview

We are a leading European multi-brand manufacturer of wall-building materials and premium dry lining products and a leading European lime producer. With our Ytong, Hebel and Silka brands, we are the largest producer in Europe of autoclaved aerated concrete (“AAC”) by capacity and of calcium silicate units (“CSU”) by number of production plants. We offer a broad range of wall-building material and dry lining products for use in residential, industrial and commercial construction, as well as lime and limestone for a variety of applications. We are strongly represented in established markets like Germany, The Netherlands and Belgium as well as in growing markets with considerable medium and long-term growth potential like many Eastern European countries as well as in selected regions in Russia and China. As of December 31, 2012, we operated 90 plants in 19 different countries, sold our products in more than 30 countries on three continents and had 6,869 employees (full-time equivalents). In the fiscal year 2012, we generated total sales of €1,282.5 million (with Western Europe, Central and Eastern Europe and Asia/Americas accounting for 75.2%, 20.5% and 4.3% of our total sales, respectively) and Normalized EBITDA of €217.3 million. Our business is organized in three business units:

• Building Materials. Our Building Materials business unit primarily focuses on the production and sale of technically advanced, high-quality materials used for wall-building in new construction projects as well as renovation, remodeling and modernization projects. In addition to our AAC and CSU products, our building material product portfolio comprises, among others, mineral insulation boards and pre-fabricated compound units made of AAC. Key features of our wall-building material products include a high degree of thermal insulation, energy efficiency, load-bearing capacity, fire resistance and sound insulation. Our products offer several advantages in the construction process, in particular, versatility, ease of handling and dimensional accuracy. We market and sell most of our wall-building material products under the Ytong, Silka and Hebel brands. In addition to the production and sale of wall-building material products, we offer several add-on products, such as mortar, tools and accessories, and provide our customers with a variety of consulting (e.g., planning advice, training in product handling and sharing of know-how for sustainable building) and other services. For the fiscal year ended December 31, 2012, our Building Materials business unit generated external sales of €840.4million (or 64.0% of our total sales) and Normalized EBITDA of €119.7 million (or 55.0% of our total Normalized EBITDA).

• Dry Lining. Our dry lining products address high-end demand for premium dry lining materials and are mainly used in applications for walls, flooring and ceilings with higher requirements for sound insulation, fire protection, moisture resistance and load-bearing capacities, such as in schools, hospitals, timber-frame construction and home improvement. We market and sell gypsum fiber boards and cement-bonded boards under the Fermacell brand and fire protection boards under the Fermacell-Aestuver brand. We also offer various products for healthier living, such as a newly developed gypsum fiber board that reduces and neutralizes unhealthy substances and odors from the ambient air by permanently bonding pollutants and odors in the air. In addition to our branded dry lining products, we offer similar add-on products and consulting services to our Dry Lining customers as we offer to our Building Materials customers. For the fiscal year ended December 31, 2012, our Dry Lining business unit generated external sales of €208.5 million (or 15.6% of our total sales) and Normalized EBITDA of €34.6 million (or 15.9% of our total Normalized EBITDA).

• Lime. In our Lime business unit, we produce and sell high-quality lime and limestone products primarily in Germany, the Czech Republic and Russia for diverse industrial applications (e.g., in the steel, glass, building materials, chemicals and food industries) and environmental applications (e.g., flue gas desulphurization and agriculture). We market and sell our lime products primarily under the Fels brand. We also supply our Building Materials business unit with lime and mortar. For the fiscal year ended December 31, 2012, our Lime business unit generated external sales of €233.6 million (or 20.4% of our total sales) and Normalized EBITDA of €63.2 million (or 29.1% of our total Normalized EBITDA).

We consider research and development to be among the key factors for further development of our product offerings and brands. Our research and development activities primarily aim at continuously adding innovative functions and applications to our products and optimizing the quality and

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complimentary nature of our product portfolio and application services, particularly by developing energy-efficient building solutions and by facilitating installation processes. We have centralized our research and development activities at our technology and research centre near Potsdam, Germany. 2.2. Corporate Structure

The following diagram depicts in simplified form our corporate and financing structure.

(1) Xella International Holdings S.à r.l. extended subordinated shareholder loans to Xella International S.A. in the form of

preferred equity certificates (“PECs”) in connection with the acquisition of the Xella Group in 2008.

(2) According to IFRS the issuer of the Notes, Xefin Lux S.C.A., is included in the consolidation group of Xella International S.A.

2.3. Management

Xella International S.A.

Xella International S.A. (formerly Xella International S.à r.l.) is a public company limited by shares (société anonyme) incorporated under the laws of Luxembourg on May 26, 2008 as a private limited liability company (société à responsabilité limitée) and registered with the Register of Commerce and Companies (Registre de Commerce et des Sociétés) of Luxembourg under registration number B139488. It serves as a holding company for our Group. It is controlled by Xella International Holdings S.à r.l., and it is the Facility D Borrower.

Xella International S.A. is managed by a one-tier board structure consisting of a board of directors, currently comprising five directors appointed by the shareholders of the company. The articles of association of Xella International S.A. provide that it may be represented in dealings with third parties by the joint signature of one class A director and one class B director. Resolutions by the board of directors may be passed with simple majority of the directors present or represented. The board of directors is provided with the broadest powers to perform all acts in compliance with the corporate purpose. The table below sets out the names and ages of the members of the board of directors and the year of their appointment. There is no time limitation on the terms of the directors.

Name Age Position Year first appointed

Marielle Stijger.............................................................................................. 43 Director A 2012David Richy .................................................................................................. 33 Director A 2011Jan Buck-Emden .......................................................................................... 48 Director B 2008Oliver Esper.................................................................................................. 48 Director B 2008Heiko Karschti .............................................................................................. 45 Director B 2008Boudewijn van den Brink.............................................................................. 58 Director B 2012

PAI Partners Goldman Sachs Capital Partners

Xella International Holdings S.à r.l

Xella International S.A.(1)

Senior Facility Guarantors

Non-Guarantors

Xefin Lux S.C.A.(2)

€300.0 million 8% Senior Secured

Notes due 2018

Senior Facility

Facility D1

Consolidation Group

Haniel Vendor Loan

Senior Facilities Agreement

(Facilities A,B,C)

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Marielle Stijger. Ms. Stijger was born in 1969 and is a member of the board of directors of Xella International S.A., which she joined in 2012. Ms. Stijger graduated from the Maastricht University in 1995 with a degree in Law. Before Ms. Stijger joined Xella International S.A., she was a Manager Legal Department at Whitehall Management Service BV in The Netherland, Amsterdam. Since June 2012, Ms. Stijger has been serving as general manager for GS Lux Management Services S.à r.l., Luxembourg. Ms. Stijger also serves on the board of managers of Xella International Holdings S.à r.l.

David Richy. Mr. Richy was born in 1979 and is a member of the board of directors of Xella International S.A., which he joined in 2011. Mr Richy graduated from HEC-ULg (2001) and from a Master in Business Administration and Finance program at HEC-ULg. Before Mr. Richy joined Xella International S.A., he spent five years from 2005 to 2010 as manager specializing in the private equity industry in a corporate and trust services company in Luxembourg and has four years of experience as financial auditor at Ernst & Young Luxembourg from 2001 to 2005. Since November 2010, Mr. Richy has been serving as manager for PAI Partners in Luxembourg. Mr. Richy also serves on the board of managers of Xella International Holdings S.à r.l.

Jan Buck-Emden. Mr. Buck-Emden was born in 1964 and is the Chief Executive Officer of our Group. He joined Xella International GmbH, formerly a subsidiary of Franz Haniel & Cie. GmbH, in 2001 and has held several management positions in our Group. Since July 2005, Mr. Buck-Emden is a member of the management board and was appointed chairman of the management board and Chief Executive Officer in April 2007. Prior to joining Xella International GmbH, Mr. Buck-Emden spent 17 years in various management positions with companies in the building industry and serving as managing director for the calcium silicate business units in Germany at Heidelberger Cement AG from 1998 to 2001. Mr. Buck-Emden also serves on the management boards of Xella International S.A., XI (BM) Holdings GmbH, XI (DL) Holdings GmbH, XI (RMAT) Holdings GmbH and Xella Baustoffe GmbH and on the supervisory boards of Xella CZ s.r.o., Xella Deutschland GmbH, Fels-Werke GmbH, Xella Thermopierre S.A. and Xella Nederland B.V.

Heiko Karschti. Mr. Karschti was born in 1967 and since December 2007 is the Chief Financial Officer of our Group and also serves as Commercial Director of Xella Baustoffe GmbH. During his eleven years with our Group, he has held several management positions in our Group. Mr. Karschti started his professional career at Haniel Group in 1994. Mr. Karschti holds a degree in business administration (Diplom-Kaufmann) from the University of Lüneburg. Mr. Karschti also serves on the management boards of Xella International S.A., XI (BM) Holdings GmbH, XI (DL) Holdings GmbH, XI (RMAT) Holdings GmbH and Xella Baustoffe GmbH and on the supervisory boards of Xella CZ s.r.o., Xella Deutschland GmbH, Xella Baustoffwerke Rhein-Ruhr GmbH, Fels-Werke GmbH and Xella Thermopierre S.A.

Oliver Esper. Mr. Esper was born in 1964 and is the Chief Technology Officer of our Group and also serves as Technical Managing Director of Xella Baustoffe GmbH and Fels-Werke GmbH. In his function, Mr. Esper leads our Group’s technical areas comprising the Building Materials, Dry Lining and Lime business units. Following his graduation from RWTH Aachen (Diplom-Ingenieur), Mr. Esper embarked on an industry career which included six years with the Rheinkalk limestone company. Since joining our Group in 2001, Mr. Esper has served in a number of executive and management positions overseeing production and technology at Xella Deutschland GmbH. Mr. Esper also serves on the management boards of Xella International S.A., XI (BM) Holdings GmbH, XI (RMAT) Holdings GmbH, Xella Baustoffe GmbH and Fels-Werke GmbH and on the supervisory boards of Xella Deutschland GmbH and Xella Thermopierre S.A.

Boudewijn van den Brink. Mr. van den Brink was born in 1954 and since March 2012 is the Chief Operating Officer of Xella International GmbH and Xella Baustoffe GmbH. He had already worked for Xella Group during the period July 2001 to September 2004 in his capacity as Managing Director of the former Haniel Baustoff-Industrie Kalksandstein GmbH. Mr van den Brink holds a degree as engineer for ship building mechanics from H.T.S. Rotterdam, The Netherlands and a degree in international business from University of Nyenrode, Breukelen. Prior to joining Xella Group, Mr. van den Brink spent several years in management positions with companies in the building industry. Mr van den Brink also serves on the management boards of Xella International S.A. and is chairman of the board of directors of Shanghai Ytong Co.,Ltd., Shandong Xella New Building Materials Co., Ltd. and of Xella Shanghai Investment Consulting Co., Ltd.an member of the board of directors of Xella Baoding, Changxing Ytong Co. Ltd and Xella Building Material (Tianjin) Co., Ltd.

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Xella International GmbH

Xella International GmbH is the main management holding company of our Group. Xella International GmbH is managed by its management board consisting of four managing directors (Geschäftsführer) who are appointed by shareholders’ resolutions.

The articles of association (Gesellschaftsvertrag) of Xella International GmbH provide that any two members of the management board or one member of the management board together with a holder of a general power of attorney (Prokura) may represent Xella International GmbH in dealings with third parties.

Members of the Management Board

The following table shows the current members of the management board, including their age, the year in which they were appointed and the end of their term:

Name Age Position Year firstappointed Year term expires

Jan Buck-Emden 48 Chief Executive Officer (CEO) 2005 June 2014, with automatic renewal for consecutive three-year terms subject to termination upon twelve months prior notice

Heiko Karschti 45 Chief Financial Officer (CFO) 2007 December 2013, with automatic renewal for consecutive three-year terms subject to termination upon twelve months prior notice

Oliver Esper 48 Chief Technical Officer (CTO) 2008 No fixed term, subject to termination upon twelve months prior notice

Boudewijn van den Brink

58 Chief Operating Officer (COO) 2012 No fixed term, subject to termination upon twelve months prior notice

The management board of Xella International GmbH consists of the four directors which are also represented as class B directors in the management board of Xella International S.A.

Messrs. Buck-Emden, Karschti, Esper and van den Brink have entered into service agreements with Xella International GmbH. We believe that these service agreements provide for payments and benefits that are in line with customary market practices. The compensation for each of managing director consists of a fixed salary and certain performance-related components. Upon resigning from our Group, each member of the management board is entitled to a transitional payment.

2.4. Our Shareholders

Xella International Holdings S.à r.l.

The parent company of Xella International S.A. is Xella International Holdings S.à r.l., a private limited liability company (société à responsabilité limitée) organized under the laws of Luxembourg and registered with the Register of Commerce and Companies of Luxembourg (Registre de Commerce et des Sociétés) under number B139489. Xella International Holdings S.à r.l. serves as the holding company for our Group and indirectly controls all consolidated Group companies.

The following table sets out certain information with regard to the beneficial ownership of Xella International Holdings S.à r.l. The shares rank equally for income and capital and each share has one vote.

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Beneficial Owner

Percentage of Outstanding

Shares Goldman Sachs Capital Partners(1) ................................................................................. 50PAI partners(2).................................................................................................................. 50Total ................................................................................................................................ 100

(1) GS Capital Partners VI Fund L.P., a Cayman limited partnership, is represented by its general partner GSCP VI

Advisors, LLC, GS Capital Partners VI Offshore Fund, L.P., a Delaware limited partnership, is represented by its general partner GSCP VI Offshore Advisors, LLC, a Delaware limited liability company, GS Capital Partners VI Parallel, L.P., a Delaware limited partnership, is represented by its general partner GS Advisors VI, LLC, a Delaware limited liability company, and GS Capital Partners VI GmbH & Co. KG, a German limited partnership (Kommanditgesellschaft), is represented by its general partner (Komplementär) Goldman, Sachs Management GP GmbH, a German limited liability company, and its managing limited partner (geschäftsführender Kommanditist) GS Advisors VI, LLC, a Delaware limited liability company.

(2) Each of PAI EUROPE V-1 FCPR, PAI EUROPE V-2 FCPR, PAI EUROPE V-3 FCPR and PAI EUROPE V-B FCPR is represented by PAI partners SAS as its management company.

Goldman Sachs Capital Partners is managed by the Principal Investment Area of The Goldman Sachs Group, Inc. and its subsidiaries (“PIA”), which is one of the world’s largest private equity and mezzanine investors, having invested more than $70 billion in over 775 companies globally since 1986. Goldman Sachs Capital Partners comprises the funds for direct private equity investments. The current GS Capital Partners VI Fund was raised in 2007 and is the sixth global private equity fund of The Goldman Sachs Group, Inc. and its subsidiaries with a total capital of $20.3 billion. Goldman Sachs Capital Partners has a strong track record of investing in German blue chip companies, including Kion, Messer Griesheim, Cognis and Kabel Deutschland. PIA has significant experience in the building materials industries, through investments including Ahlsell, Nien Made and Tarkett as well as mezzanine investments in Frans Bonhomme, Materis, and Terreal. PAI Partners is a leading European private equity firm with offices in Paris, Copenhagen, London, Luxembourg, Madrid, Milan and Munich. PAI Partners manages and advises dedicated buyout funds with combined commitments in excess of around €7 billion. Since 1998, PAI Partners has completed 43 leveraged buyout transactions in nine European countries, representing more than €35 billion in transaction value. PAI Partners has a significant number of investments in the construction industry, and has successfully contributed to the growth of a large number of leading players in this sector. Recent examples of PAI Partners led leveraged buyouts in the construction industry include Spie, Gerflor and Frans Bonhomme. PAI Partners has also been a long-term investor in Eiffage and Poliet, a group active in the manufacturing and distribution of building materials that controlled Weber Broutin, Terreal, Point P and Lapeyre. PAI Partners is characterized by its industrial approach to ownership combined with strong sector expertise. PAI Partners provides portfolio companies with the financial and strategic support required to pursue their development and enhance their strategic value. Management Participation Program

XI Management Beteiligungs GmbH & Co. KG, a German limited partnership (Kommanditgesellschaft), has been established within the framework of a management participation program and as of December 31, 2012 owned a total of 10.2% of the shares in Xella International S.A. The limited partners (Kommanditisten) of XI Management Beteiligungs GmbH & Co. KG are certain managers of Xella International S.A. and other employees and their close family members. The shares in Xella International S.A. were acquired at market value and at the same price as Goldman Sachs Capital Partners and PAI partners acquired their shares.

The management participation program is governed by a partnership agreement, documentation relating to certain preferred equity certificates and a shareholders and co-investment agreement regarding the implementation of a management partnership plan for our Group that was concluded among Xella International Holdings S.à r.l., XI Management Beteiligungs GmbH & Co. KG, XI MPP Verwaltungs GmbH, the participants in the management participation program and Xella International S.A. on November 17, 2008. Within the framework of the management participation program, Goldman Sachs Capital Partners and PAI partners offered the opportunity to invest in our Group in order to better align the interests of employees and shareholders.

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3. Our Business and Our Industry

3.1. Overview

We manufacture and sell a broad range of wall-building materials and premium dry lining products for residential, commercial and industrial new construction, renovation, remodeling and modernization projects. Our building materials products primarily consist of AAC, CSU, mineral insulation boards and dry lining, such as gypsum fiber boards and cement-bonded boards. We also produce and supply lime and limestone for various industrial and environmental applications. Our lime products consist of high-quality lime and crushed limestone of different granularity, quality, reactivity and chemical composition. In each of our business units, we also provide a broad range of add-on products and value- added services, such as planning advice, customer training sessions in product handling and joint product development with customers.

We market and sell our products under different brands, including AAC and CSU under the Ytong, Hebel and Silka brands, dry lining products under the Fermacell and Fermacell-Aestuver brands, and lime and limestone products under the Fels brand. AAC, marketed and sold under the Ytong and Hebel brands, constitutes our largest product group, contributing 47.4% to our total product sales (i.e., sales excluding service sales, trading goods, transportation and inter-segment sales) in 2012. Silka CSU accounted for 15.9% of our total product sales in 2012. Our Fermacell and our Lime products accounted for 14.0% and 15.4% of our total product sales during the same period, respectively.

We have divided our business into three business units: (i) Building Materials, (ii) Dry Lining and (iii) Lime. Our various brands are organized under the relevant business units.

The following diagram depicts in simplified form our corporate structure with our three business units and our operational subsidiaries:

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The following table shows our total sales and Normalized EBITDA by business unit in the financial year ended December 31, 2012:

3.2. Building Materials

Product Offerings

In our Building Materials business unit, which is our largest business unit measured by sales and Normalized EBITDA, we offer wall-building materials, such as AAC and CSU, as well as mineral insulation boards for residential, commercial and industrial end-users. We also offer add-on products, such as mortar, tools and accessories, consulting and other services, such as planning advice and calculations for customers, and training in product handling and energy-efficient building. In particular, we closely cooperate with our customers in developing tailor-made solutions that address the specific requirements of particular building projects. As a means to avoid scrap and waste-depositing cost, we are recycling AAC granulate for new applications, such as cat litter, oil-binding agents and floor-level bulk. Not all our products or services are offered in all countries served.

Autoclaved Aerated Concrete

We offer most of our AAC building materials under the Ytong and Hebel brands. Ytong is our main brand for AAC. We offer a broad range of Ytong products, such as various sizes of blocks, assembly components (roof slabs, ceiling slabs and wall panels), lintels (door and window coverings) and cinder blocks (stairs).

Our Ytong building materials are made from minerals and natural raw materials (sand, lime, cement, gypsum and water), and an aerating agent. Through its distinct structure, Ytong achieves superior thermal insulation, both protecting against cold in winter and against heat in summer, without any additional insulation materials. We market AAC for its ability to reduce energy consumption for heating and cooling, and the related carbon dioxide emissions in buildings. The AAC structure is also designed to give Ytong a high degree of solidity at comparatively low weight, making Ytong particularly resistant to shocks and earthquakes, user-friendly and improving the speed of construction. Ytong offers up to three hours of protection against fire and qualifies for the A1 fire protection classification, the highest fire protection class for building materials in Europe.

The Ytong modular structure and the breadth of our product portfolio make Ytong well suited for a variety of construction projects, from residential to non-residential new buildings, as well as for renovation, remodeling and modernization projects. Historically, Ytong’s main application has been in new residential construction projects, where builders particularly value its strong thermal insulation properties for monolithic exterior walls. Furthermore, Ytong is used for interior walls in both residential and non-residential construction.

Especially in Germany, The Netherlands, Belgium and France (and to a lesser extent in other countries), we also offer large AAC assembly components (panels) under the Hebel brand, which is

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targeted at large-scale industrial end-users. Hebel is made using the same production method as Ytong and has the same product characteristics (particularly high thermal insulation), except that Hebel components are large in size and have an additional steel reinforcement to provide greater structural strength. Due to the large size of single components, Hebel is designed to allow for fast and cost-efficient construction of large industrial buildings, such as warehouses and distribution centers. Our Hebel products’ fire resistance characteristics are similar to those of our Ytong products, and as a result, Hebel walls can be used for areas with high fire safety and explosion protection requirements within industrial buildings. In Mexico and the United States, the Hebel brand is also used for blocks and reinforced panels in residential and non-residential construction.

In 2012, our AAC products generated product sales of €482.3 million, which represented 72.8% of total product sales for Building Materials.

Calcium Silicate Units

We sell our CSU primarily under the Silka brand. CSU is produced by mixing sand, lime and water. We offer our CSU in various sizes, from small and mid-sized blocks for hand installation, to large-sized units, which can be moved by small cranes. Our CSU can be applied for diverse load-bearing functions and construction formats and are used in a variety of construction sectors, including new residential and commercial construction. Our CSU are primarily used in new construction of multi-family houses and light commercial buildings, as they allow developers to maximize floor space while at the same time building thin but load-bearing and sound-insulating walls. Even slender walls of solid CSU can support very high loads compared to other wall-building materials. Depending on their thickness, CSUs can bear between 40 and 910 tons of weight. Furthermore, wall-building materials made of CSU have high heat-storing capacity and thereby contribute to a more balanced and pleasant interior climate.

In most countries, we sell AAC and CSU as stand-alone products. Due to similar deformation characteristics and dimensions, AAC and CSU may also be used for combined building solutions. A combination of both products in residential buildings can achieve both high-quality thermal and sound insulation and high load-bearing capacity. Due to our market presence with both AAC and CSU plants in The Netherlands, Germany and Poland, our customers in these countries may also benefit from a simplified supply chain as both types of wall-building materials can be sourced from one supplier.

In 2012, our CSU generated product sales of €161.6 million, which represented 24.4% of total product sales for Building Materials.

Mineral Insulation Board

We market and sell our mineral insulation board product offering under the Ytong Multipor brand. The Ytong Multipor board is a thin, pressure-resistant, silicate insulating material made from lime, sand, water and cement, with the addition of an aerating agent. Ytong Multipor board combines thermal insulation characteristics with stability, pressure resistance and strong fire protection properties. Based on its material properties, Ytong Multipor board can be used for applications in residential and non-residential new buildings, such as interior insulation, insulation of ceilings, basements and garages, solid steep roofs and mounted, ventilated facades. Ytong Multipor board is especially suited to adapt older buildings to new technical standards of thermal insulation in renovation projects and provides additional thermal insulation against heat and cold to walls made of other building materials, such as clay brick and aerated concrete. Our Ytong Multipor insulation products are specifically designed to protect against humidity damage and qualify for the A1 fire resistance classification in Europe, for use in areas with high fire safety requirements, such as roofs and basements.

In 2012, our Ytong Multipor insulation products generated product sales of €18.6 million, which represented 2.8% of total product sales for Building Materials.

Customers

Our sales activities focus on decision makers and intermediaries as the two main target groups. Therefore, our business in Building Materials is frequently characterized by a two-stage sales model. While our sales and marketing activities are directed at decision makers, such as architects, construction companies, developers and private builders, we typically do not maintain contractual relationships with these decision makers. Instead, sales are primarily made through builder merchants, as intermediaries, that also are our invoice recipients. Builder merchants account for the largest part of our sales; they frequently organize in purchasing co-operations that provide marketing and billing services for the individual builder merchants and negotiate annual framework contracts with us,

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including payment terms and discounts. Two large co-operations in Europe have approximately 500 and 260 independent builder merchants as members. Direct business with construction companies occurs less frequently, typically, in the commercial and industrial construction sector (Hebel) and in emerging markets lacking established builder merchant structures. In the fiscal year ended December 31, 2012, our top five customers (excluding co-operations) represented 6.0% of total external sales in our Building Materials business unit.

Logistics and Distribution

Depending on our customers’ requirements, building materials are either sold for pick up at our production facilities or delivered directly to the respective construction site or to the builder merchant’s warehouse.

Our logistics management focuses on improvements in service and inventory levels along our supply chain, i.e., the movement of goods from our suppliers, and of products to our customers. Delivery times to the builder merchant’s warehouse or the respective customer’s construction site depend on the type of product and final destination. The primary means of transportation are trucks, as we usually distribute our products within a radius of 100 to 400 kilometers around our plants. To the extent required, in particular with transportation over longer distances, we also transport our products by train or ship. Our plants in Burcht (Belgium) and Shanghai (China) have their own harbor facilities. For transportation, we generally use third-party transportation and logistics sub-contractors.

Sales and Marketing

Sales. We sell our building material products in more than 30 countries through 26 sales offices on three continents. In the fiscal year ended December 31, 2012, Western Europe, Central and Eastern Europe and Asia/Americas represented 69.5%, 24.1% and 6.4% of our external sales in Building Materials, respectively. In several European countries, our Ytong and Silka products are sold through a joint sales force which, we believe, is essential in leveraging the broad recognition that our brands enjoy with many decision makers and intermediaries. In Germany, Hebel is sold through a separate sales team for industrial customers. Our sales representatives, which are mostly our own employees, negotiate prices with the customers primarily on the basis of project-specific contracts and typically conduct billing either through builder merchants (indirect business) or less frequently directly with end-customers (direct business). Our agents also engage in price negotiations with builder merchants on the basis of annual framework contracts. The compensation of our sales force is partly performance-based. As of December 31, 2012, we had 1,128 employees in sales, distribution and marketing.

Marketing. Our Building Materials sales and marketing strategy is designed to reach all decision makers responsible for the use and purchase of building materials. We focus on project business and our sales teams target decision makers, such as builders, constructors, architects, developers, civil engineers and builder merchants, depending on the particular markets. We aim to consult and cooperate with decision makers at an early phase of the relevant building project. In the decision-making process for the choice of building materials, we believe that we benefit from the broad recognition of our brands and their reputation for quality and superior material characteristics, and our offering of customer-specific building solutions. We use several types of marketing measures, including trade fairs, work shops, advertisements and public relations. Training, brochures, technical documentation and the internet (central and regional websites as well as social websites) also play an important role in our marketing activities. The majority of our marketing activities are developed specifically for each market.

Another key element of our sales and marketing strategy is to safeguard and enhance our Ytong, Silka and Hebel brands by a combination of centralized initiatives and local measures. The brand positioning of Ytong and Silka is focused on the values of simplicity, reliability and farsightedness, with an emphasis on solutions for energy efficient building. The primary focus for our AAC product offering under the Ytong brand is on single-family houses in the new residential construction sector, while our CSU product offering under the Silka brand is primarily targeted at new construction of multi-family houses and light commercial buildings. The Hebel brand, mainly targeted at the European industrial buildings sector, is positioned with the key characteristics being economic efficiency, competence and fire protection. We track consumer and customer preferences and potential interest in our product offerings through a standardized customer dialogue satisfaction measurement system.

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Production

As of December 31, 2012, we operated a total of 76 production plants in 19 countries (with 42 AAC, 2 Multipor and 32 CSU production plants). We have a particularly dense production plant network in Western Europe with a total of 41 plants, and in the Central and Eastern European countries with a total of 28 plants. We have also established plants in China (four plants) and one plant in Mexico that also serves the southern United States.

In the fiscal year ended December 31, 2012, the Western European production plants accounted for approximately 54% of our total product output by volume, while our production plants in the Central and Eastern European countries and Asia/Americas accounted for approximately 37% and 9%, respectively. In the year ended December 31, 2012 the average utilization of our total production capacity was 68.4%, with our plants in Western Europe, Central and Eastern Europe and Asia/Americas operating at 66.7%, 69.3% and 76.0% of capacity, respectively.

We aim to enhance our operations through constant improvements in product quality and properties, delivery performance and efficiency of our production processes. We aim to achieve cost efficiency primarily through efficient raw material and energy management (including, for example, the use of different kinds of combustibles), the optimization of our plant network and production processes, as well as implementation of best practices and new technologies across our plant network. We have implemented a worldwide benchmarking database with all relevant key performance indicators to identify fields for further optimization, and take action to make necessary improvements. One of our advantages is our flexibility in adjusting production capacity to changes in demand for our products by increasing or reducing the number of shifts and the use of temporary labor in our production plants and making adjustments in the production process. Thus, we can more quickly meet actual market demand and mitigate negative effects of low capacity utilization.

Procurement and Purchasing

As purchasing is of strategic importance for our competitive position, we have optimized our processes over the last several years. In order to leverage the purchasing power and benefit from volume-based discounts, purchases of important raw materials, such as lime and cement, energy supplies and logistics services are centrally managed or centrally coordinated. For these strategic input factors, we follow a global purchasing strategy, which is overseen by a price and action controlling system maintained by our central purchasing team for all three business units, whereas non-critical product groups are handled by local purchasing teams.

We aim to integrate the best available market, method and technology know-how to optimize our cost base and improve our operational performance. To mitigate fluctuations of raw material prices, we enter into supply agreements covering significant portions of our raw material requirements for periods typically between 12 and 36 months. We do not generally enter into financial derivatives.

Competition

We face intense competition in the markets for our wall-building material products from larger-scale global manufacturers and regional and specialized competitors as well as with horizontally integrated suppliers of wall-building materials. In the European markets for wall-building materials, our AAC and CSU products mainly compete with clay brick, concrete block and pumice stone, but also with alternative wall-building materials, such as wood, pre-cast concrete walling units and gypsum carton boards. Market shares for wall-building materials and demand for AAC and CSU vary considerably by country and may be subject to strong regional variations due to differences in traditions of construction methods and availability of raw materials. In the interior wall-building sector, our AAC products also compete with dry-wall solutions. Large-size elements under the Hebel brand compete with different cladding materials and other alternative wall-building materials for industrial and commercial buildings.

In Building Materials, our major international competitors include Wienerberger, HeidelbergCement, CRH, and H+H International. Wienerberger produces and sells clay bricks, which compete with our AAC and CSU products. We also compete with certain divisions of both CRH (AAC and CSU) and HeidelbergCement (CSU) in the Benelux countries, Poland and Germany. H+H International is a medium-size Danish producer of AAC products that has historically focused on markets in Scandinavian countries and the United Kingdom, but also has a presence in Germany. Recently, H+H International has expanded into selected Central and Eastern European countries, including Poland, Russia and the Czech Republic. In January 2011, Xella International S.à r.l. (which was converted into Xella International S.A. on May 17, 2011) publicly confirmed its continued intention to make a cash

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offer for all shares in H+H International which would be carried out through its subsidiary Xenia S.à r.l. See “—Legal and Regulatory Proceedings—Antitrust”.

We believe that in the new residential construction sector mainly targeted by our AAC and CSU products and mineral insulation boards, the most important competitive factors, in addition to price, include (i) the offering of solutions addressing important trends in energy efficient and ecological construction based on stand-alone or combined applications of CSU, AAC and mineral insulation boards, (ii) product quality and innovation, (iii) the offering of customer-specific application services, (iv) a dense and comprehensive plant network allowing us to shift production capacity flexibly and (v) strong brands recognized by decision makers and intermediaries.

3.3. Dry Lining

Product Offerings

In our Dry Lining business unit, we offer premium dry lining products that are targeted at high-end markets in residential, commercial and industrial new construction, renovation, remodeling and modernization projects, mainly in Germany, Switzerland, France, The Netherlands, Austria, Scandinavia and the United Kingdom. We sell gypsum fiber boards and cement-bonded boards under our Fermacell brand and fire protection boards under our Fermacell-Aestuver brand. We also offer add-on products and services to provide customers with planning advice and training in product handling.

Gypsum fiber boards are made of gypsum and cellulose paper fibers, which are mixed with water and pressed into stable boards, then dried and cut to size. Due to the addition of paper fiber to the gypsum mix in the production process, gypsum fiber boards are more solid than plaster boards and are characterized by high resistance to pressure and increased stability. Our Fermacell gypsum fiber boards are mainly used for interior wall applications, flooring and ceiling. The product range includes complete systems for interior construction in flooring and wall applications in the residential and non-residential sectors. Moreover, Fermacell gypsum fiber board can be used as a load-bearing, fire or weatherproof board for external walls with timber sub-structures. As a result, gypsum fiber board is used in residential and commercial new construction and renovation, remodeling and modernization projects. Fermacell cement-bonded board can be used for all residential, office and industrial wet areas for both new construction and renovation, remodeling and modernization projects. To meet anticipated regulatory trends and customer requirements, we develop innovative and customer-specific solutions for ecological and fire-resistant products and systems. The ecological features of Fermacell products have increasingly become a key factor for the positioning of our Fermacell brand in the market. For example, under our Fermacell GreenLine brand, we have recently introduced our greenline board which is coated on both sides with an active component based on keratin. Through its material properties, our greenline boards actively absorb harmful substances, such as formaldehyde, or unpleasant odors from the room air, in a natural process and convert these into safe substances. Another innovation is the development of the A1 fire classification Firepanel board, complying with the higher European regulation for fire protection in combination with non-combustibility.

In 2011, our Fermacell products generated product sales of €142.2 million, which represented 88.2% of total product sales for Dry Lining.

Fermacell-Aestuver fire protection board is cement-bonded and glass-fiber reinforced to achieve a high degree of fire resistance. The board is enriched with hollow glass balls that do not absorb water, which makes the board highly resistant to both fire and frost and allows it to be exposed to the elements. In addition, the board is characterized by high abrasion resistance, which creates a smooth and easily cleanable surface. Due to its product characteristics, Fermacell-Aestuver fire protection board is often used in the construction of fire-resistant cable ducts and fire-resistant doors. Other Fermacell-Aestuver cement-bonded boards are primarily used in tunnel projects that require a board combining stability and resistance to the elements.

In 2012, our Fermacell-Aestuver products generated product sales of €10.5 million which represented 6.5% of total product sales for Dry Lining.

Customers

We market and sell our premium dry lining products primarily to end-users, timber-frame construction companies, dry lining installers, original equipment manufacturers and producers of pre-fabricated houses. Sales to the various target groups are primarily made through builder merchants and do-it-

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yourself retail chains. We market and sell our Fermacell-Aestuver fire protection boards primarily to large-scale projects and original equipment manufacturers. In the fiscal year ended December 31, 2012, our 10 and 20 largest customers (excluding co-operations) accounted for 8.2% and 13.1%, respectively, of our total Dry Lining sales by value.

Demand for gypsum fiber boards has historically been less cyclical than demand for AAC, CSU and other wall-building materials, as gypsum fiber boards are also used in the less cyclical construction sectors of renovation, remodeling and modernization.


Similar to the distribution system we maintain in Building Materials, we distribute our premium dry lining products mostly through builder merchants and only to a lesser extent directly to original equipment manufacturers and pre-fabricated house producers. Most of our dry lining products are delivered to the warehouses of the relevant builder merchants. In the fiscal year ended December 31, 2012, we estimate that we distributed approximately 93% of our dry lining products sales by value through indirect sales and 7% through direct sales, respectively.

Our supply chain management focuses on improvements in service and inventory levels along our supply chain. In total, we operate 13 warehouses in Europe (including plant storage) with an aggregate capacity of approximately 2.1 million square meters. Each warehouse can store the complete range of products. Delivery times to builder merchants depend on the type of product and final destination and can range from 24 hours to three days and, under certain circumstances, one week. We transport our dry lining products primarily by truck and generally use third-party transportation and logistics sub-contractors. Whenever possible we try to use intermodal transportation or train, e.g. to Italy and Sweden.

Sales and Marketing

Sales. We sell our dry lining products in more than 30 countries through 13 sales offices in Europe and, since 2011, one in the Middle East. Our German sales force is organized in four regional sales offices and a separate dedicated sales team for the do-it-yourself business. Our other sales offices are located in the Benelux countries, France, the United Kingdom, Poland, Italy, the Czech Republic, Austria, Switzerland, Denmark, Sweden and the United Arab Emirates. As of December 31, 2012, we had 215 employees in sales and 42 in logistics and services.

Sales activities in Dry Lining primarily focus on pre-sales to the various target groups comprising end-users, timber-frame construction companies, dry lining installers, original equipment manufacturers and producers of pre-fabricated houses. With our pre-sales activities, we aim to ensure that Fermacell products are included in binding project specifications and to support our various target groups throughout relevant projects. The sales activities of our agents, who conduct their sales activities mainly indirectly, also include price negotiations with builder merchants on the basis of annual framework contracts. While the relevant builder merchants are typically the recipients of our invoices in indirect sales activities, they are also often responsible for billing matters for direct sales to end-customers.

Marketing. Our Dry Lining sales marketing strategy is designed to reach all decision makers responsible for the use and purchases of wall-building materials in new residential and commercial construction and renovation, remodeling and renovation projects. As a supplier for the high-end market in the European dry lining business, Fermacell concentrates on specific market sectors in which the strengths of our Fermacell product offerings matches the customers’ requirements. Important construction sectors for Fermacell include timber-frame construction, flooring elements, end-user residential applications and customary dry lining at schools and hospitals. Our sales force maintains strong relationships with key decision makers, such as developers and architects, who determine building specifications and building material types, in order to promote Fermacell and Fermacell-Aestuver products.

Another key element of our sales and marketing strategy is to safeguard and enhance our Fermacell and Fermacell-Aestuver brands by advertising and press coverage, as well as independent and corporate events. We track consumer and customer preferences and potential interest in our products through an external project data base that is backed by a dedicated call center.

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Production

We maintain four Dry Lining production plants, three of which are located in Germany and one in The Netherlands. Our plant in The Netherlands and two of our German plants are dedicated Fermacell plants. Our plant in Calbe, Germany, is a plant dedicated to the production of cement-bonded boards with two production lines. Based on the high demand for cement-bonded boards we have increased the production capacity of the plant in Calbe in the course of 2012. The new production capacities will start its operation in the first quarter of 2013.

In the fiscal year ended December 31, 2012, the German plants accounted for approximately 73% of our total product output by volume, while the Dutch plant accounted for approximately 27%. In the fiscal year ended December 31, 2012, the average utilization of our total standard production capacity was 119.5%, with our German plants operating at 124.0% of capacity and our Dutch plant operating at 109.0% of capacity. The total maximum capacity of all dry lining plants amounts to 42 million square meters.

We aim to improve product quality and material properties, delivery performance and efficiency of the manufacturing processes, and to introduce new and innovative products. We also aim to achieve cost efficiency primarily through efficient raw materials management and improvements in productivity at our facilities.


The raw materials we use in the dry lining production comprise gypsum, water, recycled paper and recycled Fermacell board. We procure gypsum and recycled paper externally and store gypsum in silos on the respective production plant’s premises, except for our plant in The Netherlands where we operate a calcination facility ourselves. We secure the procurement of recycled paper for Dry Lining through our subsidiary Fels Recycling GmbH and a significant volume of calcinated gypsum through our subsidiary Fels-Werke GmbH. In order to reduce our dependency on paper suppliers and paper prices, we are exploring the use of alternative fiber in our Fermacell gypsum fiber boards.

Competition

We face intense competition in the market segments for our dry lining products from larger-scale global manufacturers. With respect to gypsum board, large-scale manufacturers, such as Knauf, Saint Gobain (primarily under the local brands like Rigips, Placoplatre and Gyproc) and Lafarge Gypsum, which are the only producers of gypsum boards combining a global network of production plants with local sales organizations, are our main competitors in all market segments for dry lining systems. While these competitors primarily focus on the sale of plasterboard, their product offerings also include gypsum fiber boards (Saint Gobain and Knauf) or special plasterboards (all competitors), which directly compete with our Fermacell products.

The European gypsum board market segment is characterized by the predominant use of plasterboard. Of the total market volume in Europe in 2011, we estimate that plasterboard products accounted for approximately 97%, leaving gypsum fiber boards (such as Fermacell) with an average share of approximately 3%. The use of gypsum fiber boards generally varies by country between 1% and 30%, with a 9% share in the German market. With respect to fire protection boards, we market and sell our products under our Fermacell-Aestuver brand, which is in direct competition with the Etex group’s products that are marketed under the Promat brand in Europe.

We believe that in the high-end market segment mainly targeted by our premium dry lining products, the most important competitive factors, in addition to price, are a strong sales force focusing on both pre- and after-sales activities, the performance of products and systems, a high degree of brand awareness and a focused premium product strategy.

3.4. Lime

Product Offerings

In our Lime business unit, we offer high-quality lime and crushed limestone of different granularity and quality for a large variety of industrial applications, including in the steel industry (pig iron, crude steel and secondary metallurgy), chemical industry (calcium carbide, aluminum, neutralizations and sugar), building materials industry (AAC, CSU and dry mortars), environmental applications (flue gas desulphurization, water and waste water treatment) and agriculture (various uses). Lime also produces

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dry mortars and gypsum and supplies lime and limestone products to Building Materials and Dry Lining. Sales to our other business units accounted for 14.5% of Lime’s total sales during the fiscal year ended December 31, 2012.

Our lime and limestone product portfolio covers the entire range of demand for industrial lime and limestone applications (except for lime for precipated calcium carbonate (PCC) which, as an example, is required for the production of special papers). We focus on high-value added products such as lime, hydrated lime, burnt dolomite and milled limestone. To a limited extent, we also provide crushed limestone of different granularity and quality for use in road construction and civil works and offer dry mortar as well as gypsum and slag from blast furnaces. We also offer customer-specific application services and, in close cooperation with our customers, develop highly customized product solutions with distinct chemical properties tailored to the customers’ production processes. We market and sell our lime products under our established Fels brand in Germany and increasingly in Russia and under our well-known Vapenka Vitosov brand in the Czech Republic.

In 2012, our lime and limestone products generated external product sales of €156.6 million and €37.4 million, which represented 80.7% and 19.3% of total external product sales for Lime, respectively.

Customers

In the fiscal year ended December 31, 2012, our top five and top ten largest customers accounted for 35% and 44% of our total Lime sales by value (excluding intra-Group sales), respectively.

Lime has a diverse customer base in Germany, the Czech Republic and Russia. Most of our industrial customers are well positioned in their respective markets, with advanced production facilities and established products. Among our new customers are power plants using combustibles from alternative sources instead of fossil fuels.


We transport our products by rail (approximately 41%) and by truck (approximately 59%). In most cases, we serve our industrial customers on a “ddp” (delivered, duty paid) basis, while customers in road construction are mainly being served on an “ex works” basis and are responsible for collecting their orders at our production facilities.

Sales and Marketing

Sales. In the fiscal year ended December 31, 2012, the total external sales in our Lime business unit amounted to €233.6 million. Our external sales in Germany, in the Czech Republic and in Russia amounted to €191.5 million, €28.1 million and €14.0 million, respectively.

We sell our products directly to end-users and, except for road construction activities, generally do not engage builder merchants for sales and marketing purposes. In the fiscal year ended December 31, 2012, we estimate that our product sales by value were generated approximately 96% by direct sales and 4% through builder merchants. As of December 31, 2012, our sales organization in Lime consisted of approximately 64 employees, of which 27 are involved in sales activities and 37 in logistics and services. We do not have external sales agents. Billing is conducted on a daily basis. Several large accounts, mainly in the industrial sector, are invoiced on a weekly or monthly basis.

Marketing. The Lime business is characterized by the business-to-business nature of its operations. Thus, we do not maintain a special marketing division in Lime. We rather aim to attract our customers and maintain long-term relationships by advanced product quality, a high degree of security of supply, customer-specific application services, innovation and personal contacts, all of which constitute key competitive factors in the lime industry. We have an application and support team consisting of several engineers, who provide customer-specific add-on services focused on solving operational problems and implementing innovative products and solutions. For example, such services include detailed advice on the selection and use of lime products for laboratory-scale and industrial-scale process trials. In this respect, we are one of the leading providers of application know-how in the lime industry in Germany and operate more than 30 pilot installations and machinery, which we can make available to new and existing customers. Our application advice typically covers the entire process from planning and organization to the evaluation of the relevant results of the trials.

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Production

We operate nine production plants in Germany, one in the Czech Republic and one in Russia. In Germany, five of our plants are located in the vicinity of our Lime headquarters in Goslar, one close to Berlin and one near Regensburg. Our plant in the Czech Republic is located in Vitosov. Our plant in Russia is located in Tovarkovo.

In the fiscal year ended December 31, 2012, the German plants accounted for approximately 80.2% of our total lime product output by volume, while the Czech plant accounted for approximately 12.6% and the Russian plant for 7.2%, respectively. Production output amounted to 2.1 million tons of lime and 3.0 million tons of limestone, respectively.

In the fiscal year ended December 31, 2012, the average utilization rate of our total production capacity was 76.1%, with our German plants operating at 76.5% of capacity and our Czech and Russian plants operating at 73.4% and 75.4% of capacity, respectively. For the fiscal year ended December 31, 2012, the total capacity of all our Lime plants amounted to approximately 2.7 million tons of lime and 8.1 million tons of limestone excavation.

We aim to optimize our production processes through improvements of product quality and properties, delivery performance and efficiency of the production processes, as well as the implementation of new and innovative products (e.g., highly reactive hydrate). We aim to achieve cost efficiency primarily through efficient energy management and the optimization of production processes. We have implemented a benchmarking database with all relevant key performance indicators and identified areas for further optimization on a regular basis. As energy cost accounted for 28.5% of sales in the fiscal year ended December 31, 2012, we regard energy-saving investments to be crucial to our profitability. We have recently made investments into new energy-efficient kilns that have reduced our exposure to volatility in energy, oil and gas prices and have created more flexibility for our Lime business unit with respect to the sources of energy applied. Additionally, since 2006, we have used pulverized lignite as a source of energy in certain of our plants. Assuming constant annual production levels, we estimate that high-quality lime deposits in our quarries will on average last for approximately 150 years.


The basic raw material we use in our lime production plants is limestone, which we mainly excavate from our own quarries on site or nearby our production plants. In the fiscal year ended December 31, 2012, we have additionally procured limestone from third-party suppliers accounting for 18.2% of our produced lime. We externally procure all other means of production, in particular, energy, that are necessary for the lime refinement process. Energy is the major input and cost factor for our operations. It is sourced in the form of electricity, gas, oil, pulverized lignite (used in five of our plants, partially sourced under long-term supply agreements) and hard coal from various suppliers in order to maintain flexibility in the energy sources.

Competition

Although we estimate that the three major suppliers (Rheinkalk, the German subsidiary of Groupe Lhoist, our subsidiary Fels-Werke and Schaefer Kalk) account for approximately 75% of annual German production, while approximately 20 smaller producers account for the remainder, at a regional level, lime production in Germany is fragmented. Geographically, Rheinkalk has a strong presence in the western part of Germany. Our subsidiary Fels-Werke has a strong presence in the eastern part of Germany, but is also present in southern and northern Germany. Schaefer Kalk holds a strong position in central Germany, featuring the highest quality levels of lime that are available in Germany. Innovative and customized lime products are primarily being offered by the three largest producers. As a consequence of high capital requirements for the maintenance and modernization of production facilities and increased cost of environmental compliance, the German market for lime products has already undergone a certain degree of consolidation, including closures of several plants by Rheinkalk, Schaefer Kalk and smaller producers, as well as the acquisition in 2010 by Rettig Group of the remaining 51% stake in Nordkalk. As average sales prices for unburnt products are significantly lower than for burnt products, transportation cost and proximity to customers play a relatively greater role for unburnt products. As most customers are not able to store larger quantities of lime and limestone products, supply-chain management and logistical solutions are competitive factors.

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3.5. Research and Development

We consider research and development to be among the key factors for the further development of our product offerings and brands. Our research and development activities primarily aim at adding innovative functions and applications to our products and optimizing the quality and complimentary nature of our product portfolio and application services, particularly by developing energy-efficient building solutions and by facilitating installation processes.

We have centralized our research and development activities at our technology and research center near Potsdam in Germany, which steers and coordinates research and product development across our business units. Our technology and research center specializes in the fields of construction physics, applications, products and processes, as well as fundamental research, and has state-of-the-art equipment from full-scale test facilities to indoor testing facilities and laboratories. The direct proximity to one of our AAC plants enables us to conduct large-scale tests, if required. Approximately 40 highly qualified specialists are employed in our research and development center. In addition, our Dry Lining and Lime business units maintain smaller research and development teams for business unit specific aspects. One of our main research and development projects is pursuant to a joint venture in our Lime business unit, focusing on the zero-emissions production of fuel gas from waste in a synthesis gas plant.

In order to accelerate our innovation processes, the Xella Innovation Circle, an international, interdisciplinary and cross-hierarchical network of about 40 employees from 18 countries has been established to facilitate the exchange of innovative ideas across our organization.

3.6. Information Technology

Due to our decentralized group structure with three business units operating independently from each other, we generally have a non-unified information technology system landscape. Certain information technology solutions, applications and know-how are, however, provided on a centralized basis, such as the operation of a global consolidation and reporting system, a central customer-relationship management system, a global SAP-based enterprise resource planning template, as well as certain other proprietary strategic information technology solutions for production and logistics. In this regard, Building Materials as our largest business unit provides certain information technology services for our other business units. The hosting of our central information technology systems and our central information technology infrastructure is mainly outsourced to external providers.

3.7. Intellectual Property

We currently own approximately 500 registered trademarks worldwide. These trademarks particularly relate to our Ytong, Silka, Ytong Multipor, Hebel, Fermacell, Aestuver and Fels brand names and logos, as well as certain others trademarks (e.g., Siporex). Our most important trademarks are Ytong, Hebel, Silka and Fermacell. We have licensed our Ytong and Hebel trademarks in some countries to third parties on an exclusive basis. We own approximately 285 registered patents, utility models and registered designs worldwide, approximately 98 of which are registered in Germany. We actively use only a limited number of our patents and utility models in our production processes and product offerings. Protection of process innovations and other technology is essential to our business. We rely upon unpatented proprietary expertise, continuing technological process innovations and other trade secrets to develop and maintain our competitive position.

We are not aware of any major legal proceedings that have been brought against us for infringement of a patent or trademark or of any proceedings brought against any of our patents that could have a material adverse effect on our business if we would not prevail in such proceedings. We have regularly taken action to assert our intellectual property rights and we cooperate with local authorities against product piracy. We have not entered into any licensing agreements regarding intellectual property rights (except for the Ytong and Hebel trademarks in some countries), neither as licensor nor as licensee, that are material to our business.

3.8. Employees

The following table sets forth information on the number of our employees (full-time equivalents) by business unit and function and excluding temporary employees as of December 31, 2011 and 2012.

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Full-Time Equivalents

December 31, 2011

December 31, 2012 Change

Building Materials 5,332 5,176 (2.9%)Production 3,608 3,425 (5.1%)Distribution and Marketing 1,110 1,128 1.6% Administration 613 624 1.7%

Dry Lining 600 676 12.5% Production 327 378 15.4% Distribution and Marketing 242 258 6.5% Administration 31 40 29.3%

Lime 1,014 1,017 0.2% Production 846 842 (0.5%)Distribution and Marketing 67 69 3.0% Administration 101 106 4.5%

Total 6,946 6,869 (1.1%)Production 4,781 4,644 (2.9%)Distribution and Marketing 1,419 1,455 2.5% Administration 746 770 3.2%

We have not suffered any material work stoppages or strikes in recent years, and we consider relations with our employees, works councils and unions to be satisfactory. We are subject to mandatory collective bargaining agreements (Tarifverträge) with most of our employees in our German production facilities and strikes may always occur in Germany and elsewhere. As German law prohibits asking employees whether they are members of unions, we do not know how many of our employees are unionized. In general, our employees in Germany fall within the scope of the German Dismissal Protection Act (Kündigungsschutzgesetz), which limits our ability to terminate individual employment relationships unilaterally. We also comply with the German Anti-Discrimination Act (Allgemeines Gleichbehandlungsgesetz) and comparable legislation in other countries in which we operate.

We operate a number of company-sponsored supplementary long-term defined benefit pension arrangements. These pension plans and individual pension commitments provide for the payment of old-age, long-term disability and survivors’ benefits (spouses’ and orphans’ pensions). Subject to certain conditions, an employee’s rights under those pension plans and individual pension commitments vest. In most cases, benefits payable are determined on the basis of an employee’s length of service, earnings and position in our company. The largest part of the pension liabilities relate to German pension plans (91% as of December 31, 2012), with most of the defined benefit plans currently closed for new entrants.

In addition, employees in Germany may participate in defined contribution schemes (Direktversicherung or Pensionskasse) which are generally financed by employee contributions and supplemented by employer subsidies (20% of employees’ contributions) that are mainly financed by corresponding savings in employer contributions to the German social security system.

3.9. Insurance

We have obtained liability, product liability, property, directors’ and officers’ and other insurance coverage, to the extent we believe necessary, to operate our business. We believe our liability insurance is sufficient to meet our needs in light of potential future litigation and claims asserted against us. For certain risks that we believe are minor, we are self-insured and have, when deemed commercially reasonable, insurance policies with deductibles. We regularly review our insurance program together with our insurance broker. We cannot guarantee, however, that we will not incur losses beyond the limits or outside the coverage of our insurance policies. In addition, longer interruptions of business in one or more of our plants can, even if insured, result in loss of sales, profit, customers and market share.

3.10. Legal and Regulatory Proceedings

Litigation

We are party to various legal proceedings arising in the ordinary course of business. We are not currently involved in any legal proceedings nor are we aware of any threatened claims against us

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which we expect to have a material adverse effect on our financial position and results of operations.

We are currently facing potential warranty, product liability and damage claims by several house owners in connection with the delivery of building materials by Haniel Baustoffwerke GmbH (a predecessor of Xella Deutschland GmbH) from certain plants in Northrhine-Westphalia, Germany, between 1988 and 1996. The potential claims are based on the insufficient durability and water resistance of calcium silicate units that had been produced in the relevant period applying an alternative production method, which substituted another product for lime. As this resulted in a lack of quality compared to the material properties of high-quality calcium silicate units (such as our CSU), damages to the masonry of houses occurred in several instances. While we believe that the legal situation is uncertain and despite the fact that 22 legal proceedings for damages and 37 proceedings for the preservation of evidence (selbständiges Beweisverfahren) have so far been initiated against us, we have renovated 205 houses and have made commitments for the renovation of an additional damaged 107 buildings (partially already under renovation), but it is uncertain how many additional buildings may require renovation. Despite the fact, that the press had already reported about the production of calcium silicate units from slurry from scrubbers for a number of years, they were the subject of extensive press coverage and the latest reports at the end of 2011 have led to a rise in the number of reported cases. Such new potential cases have led to a significant increase of the respective provision already in 2011 and to a minor extent in 2012. The total provision for potential claims amounted to €72.4 million shown in the statement of financial position as at December 31, 2012 (December 31, 2011: €67.5 million). In the Share Purchase Agreement, our former shareholder has agreed to hold us harmless for such claims. See “Risk Factors—Risk Relating to Our Business and Our Industry—We may incur material cost as a result of warranty and product liability claims which could adversely affect our profitability”. Antitrust

In January 2011, Xella International S.à r.l. (which was converted into Xella International S.A. on May 17, 2011) publicly confirmed its continued intention to make a cash offer for all stakes in H+H International, one of our competitors in the wall-building materials industry, which would be carried out through its subsidiary Xenia S.à r.l. This announcement followed an offer that Xella International S.à r.l. submitted earlier to the board of directors of H+H International regarding the proposed acquisition by Xenia S.à r.l. of all outstanding shares in H+H International for cash and subject to certain conditions. The board of directors of H+H International rejected this offer in November 2010, but we may continue to seek the recommendation of the offer by the board of directors following receipt of necessary regulatory approvals. In order to accelerate the process and to increase transaction certainty for a potential acquisition of H+H International, we have made certain regulatory filings. Additionally, we have received consent from lenders under the Senior Facilities Agreement to temporarily increase our leverage ratio and make up to two acquisitions of companies, see “Description of Certain Other Indebtedness—Senior Facilities Agreement”. Whether or not a decision to submit a tender offer will be made, any such tender offer would be subject to certain prerequisites, including formal clearance of the proposed transaction by relevant authorities or the involved courts and the execution of financing documentation. If and when Xella International S.A. makes a tender offer, such decision will be announced in accordance with Section 4(2) of the Danish Executive Order No. 221 of March 10, 2010 on takeover bids.

In January 2011, we submitted to the European Commission a referral request concerning the potential acquisition of H+H International A/S by Xenia S.à r.l., a wholly-owned subsidiary of Xella International Holdings S.à r.l., pursuant to Article 4(4) of Council Regulation (EC) No 139/2004 of January 20, 2004 on the control of concentrations between undertakings (EU Merger Regulation). The objective of the referral request is to obtain a partial referral of the German aspects of the acquisition to the German Federal Cartel Office (Bundeskartellamt). Following the European Commission’s referral decision dated March 1, 2011, and the filing of a German merger notification on March 9, 2011, the German Federal Cartel Office issued in March 2012 a prohibition decision with respect to the German related aspects of the potential acquisition. We have appealed this decision to the Düsseldorf Court of Appeals. The hearing related to this appeal will be in August 2013. The European Commission will, upon formal merger control filing, conduct the merger control proceeding relating to four other countries where Xella’s and H+H International’s combined market shares in the wall-building materials markets exceed a certain threshold, namely in Belgium, The Netherlands, Poland and Slovakia. In addition, on March 18, 2011, we submitted a merger notification to the Federal Antimonopoly Service of Russia to initiate a merger control proceeding with regard to Xella’s and H+H International’s activities in Russia. In this respect we received a clearance decision on June 2, 2011.

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3.11. Industry

Introduction

Our three business units reflect the markets in which we compete with our products.

• Building Materials includes the production and sale of modern high-quality materials for wall-building (AAC and CSU), mostly under the Ytong, Silka and Hebel brands. We also offer thermal insulation materials for internal and external walls, ceilings and roofs under the Ytong Multipor brand as well as add-on products, such as mortar, tools and accessories, and a variety of consulting (e.g., planning advice, training in product handling and sharing of know-how for sustainable building) and other services.

• Dry Lining includes the production and sale of premium dry lining materials targeted at high-end markets in residential and commercial construction. Our dry lining products are sold under the Fermacell brand (gypsum fiber boards and cement-bonded boards) and the Fermacell Aestuver brand (fire protection boards). In addition to our branded products, we offer similar add-on products and services to our Dry Lining customers as we offer to our Building Materials customers.

• Lime includes the production and sale of high-quality lime and limestone products, mostly under the Fels brand. Our lime and limestone products have diverse industrial applications (e.g., in the steel, glass, building materials, chemicals and food industries) and environmental applications (e.g., flue gas desulphurization, water treatment and agriculture).

Building Materials Industry

Market Structure

The development of the market for building materials is closely linked to the level of construction activities which have historically shown a strong correlation with general economic growth. However, residential and non-residential construction activities may decrease earlier in general economic downturns and may also experience cyclical recoveries with some delay. Activity levels in the construction industry and demand for building materials are influenced by various factors, such as GDP levels and growth rates, housing starts, long-term interest rates, inflation, population growth, unemployment rates and consumer confidence. Demographic developments, local building regulations and trends in the construction industry may also have a direct impact on the building materials industry. In addition, government spending, stimulus packages and tax policies may have certain stimulating or weakening effects on demand for construction, particularly in infrastructure projects. The cyclical nature of the construction industry has been characterized by periods of growth that were followed by stagnation or downturns. Historically, cycles in major geographic markets have not occurred in parallel as a result of which manufacturers of building materials active in different geographic markets have, to a certain degree, benefited from offsetting effects. In the recent global economic and financial crisis, however, construction activities across all major geographic markets, except for China, decreased at the same time, albeit at different rates.

In the cyclical development of the construction industry, 2007 represented the end of an extended period of growth that culminated in the 2006 peak, when construction in Europe grew faster than GDP (3.8% in construction compared against 3.0% in GDP growth) (Euroconstruct, June 2008). During that period of growth, residential construction activities accounted for approximately half of the European construction market and increased by an average of 1.9% per year (Euroconstruct, December 2010). We believe that the best indicator of demand in terms of volume for wall-building materials, such as AAC and CSU, is the new residential construction sector, which has recently been severely affected by strong declines in demand. From 2008 to 2010, the European market for new residential construction has declined by more than 20% (Euroconstruct, November 2011). The decline in residential construction activities has been particularly significant in those countries that previously experienced high levels of new residential construction activities, such as Spain, Ireland and the United Kingdom. Growth and subsequent decline in the European markets for residential renovation, new commercial construction and commercial renovation have historically been less cyclical. While particularly the German new residential building sector is in a phase of robust recovery since 2010 and even benefited from the Euro crisis, the building sectors in most other European countries were softening in 2012. Notably most Eastern European countries remain stuck in stagnation or even recession for the time

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being and their return to the path of growth is expected not before 2014/2015 (Euroconstruct, December 2012).

The graph below shows the development of new residential construction output in the 19 Euroconstruct countries.

Source: Euroconstruct, December 2012 (2012 figures: estimation)).

Demand

AAC and CSU are mainly used for wall-building in residential, industrial and commercial construction. In certain markets, AAC products are also used for ceilings and roofs. AAC and CSU are largely substitutable with other building materials, particularly concrete, light concrete, clay bricks, steel, wood and plaster boards. Typically, the choice of building materials used in construction activities varies by market and depends to a considerable degree on regional and local building traditions, exterior climate and applicable technical and legal construction requirements. In addition to specific requirements in the geographic markets, the choice of building material also depends on design requirements, relative product price, transportation and construction cost and brand and product awareness.

Distribution

Building materials in mature markets are predominantly sold through builder merchants and do-it-yourself retail stores and, to a lesser degree and subject to differences by regional markets, through direct sales to customers. Builder merchants are generally medium-sized companies, although several larger companies, such as Saint Gobain (Raab Karcher), Wolseley, CRH and BayWa hold substantial market shares. Particularly in the German market, many builder merchants have formed purchasing co-operations, such as Eurobaustoff, Hagebau and Baustoffring, that provide marketing and billing services for the individual builder merchants and negotiate annual framework contracts with manufacturers of building materials, including payment terms and discounts. Direct business with end

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customers is predominant in emerging markets and for reinforced AAC panels used in large-scale industrial construction projects.

Sales activities of manufacturers of building materials are frequently characterized by a two-stage sales model and focus on decision makers and intermediaries as the two main target groups. While sales and marketing activities are primarily directed at the relevant decision makers, such as architects, developers, construction companies, private builders and investors, manufacturers of building materials typically do not maintain contractual relationships with these decision makers. Instead, sales are primarily made through builder merchants as intermediaries. However, sales and marketing activities are targeted at decision makers to influence bid invitations and the determination of building material types in project specifications. Direct business with construction companies occurs less frequently, typically, in the commercial and industrial construction sector and in emerging markets lacking established builder merchant structures. The graph below shows the relationships between manufacturers of building materials, builder merchants, customers and various groups of decision makers in mature markets (dotted lines indicating relationships between parties other than with manufacturers).

Supply

The wall-building materials industry is characterized by many regional manufacturers and a number of major manufacturers with an international presence. This fragmented supplier structure reflects the regional nature of the business due in large part to high transportation cost given the considerable weight of CSU and, to a lesser degree, AAC. Among the wall-building materials manufacturers with an international presence and broad product portfolios, Wienerberger, CRH, H+H International, HeidelbergCement, Knauf Gips, Lafarge and Saint Gobain are our main competitors. Wienerberger is one of the world’s largest manufacturers of clay bricks, facade bricks and roof tiles focusing primarily on Europe and the United States. CRH offers a broad product portfolio comprising AAC, CSU, concrete and clay blocks and is primarily active in Europe, the United States and Asia. HeidelbergCement manufactures, among others, AAC, CSU, clay bricks and concrete and has operations in Europe, the United States and Asia. H+H International operates only in Europe, including Russia, and manufactures AAC products, whereas Saint Gobain and Knauf Gips both produce gypsum boards that may, to a certain degree, also be used in wall-building applications. The product portfolio of Lafarge comprises, among others, gypsum boards, cement and concrete. Moreover, we face regional competition from a larger number of regional suppliers.

The production of AAC and CSU is capital intensive and characterized by a significant portion of fixed cost. Therefore, capacity utilization rate for each plant is a competitive factor. In recent years, the high level of capital investment initially required to establish operations, together with stagnant or declining demand, has resulted in a limited number of new competitors entering our markets. Raw materials for manufacturing AAC and CSU wall-building materials are generally available in all our markets. Typically, plants are located in close proximity to suitable raw material supplies and demand for

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products, thus naturally limiting the number of available first-class locations. An important component of cost is energy, which results in a high dependency of the industry on energy prices, especially natural gas and, in certain countries, coal.

Key Industry Trends

In addition to a potential cyclical recovery in the residential, commercial and industrial construction sectors, the wall-building materials industry is influenced by the following key trends:

Sustainability and Energy Efficiency Regulation

In light of high and increasing energy prices and commitments to reduce carbon dioxide emissions, governments, the construction industry and building owners are increasingly focusing on the modernization of existing buildings and improving the energy efficiency of new buildings. To that end, the reduction of energy consumption and elimination of unnecessary emissions from buildings are among the main objectives of the European Union’s Energy Performance of Buildings Directive, which requires member states to amend existing building regulations and to introduce energy certification schemes for buildings by July 2011. Under the Energy Performance of Buildings Directive and enacting legislation at the member state level, building materials producers will be under pressure to further develop and improve their products so that they meet, among others, regulatory requirements in terms of thermal insulation, carbon dioxide emissions and reduction of waste. In particular, AAC offers high thermal insulation and fire protection whereas CSU has high load-bearing capacity and sound protection properties. We expect that innovative wall-building materials, such as AAC, may have an advantage over other building materials, such as clay bricks, concrete or wood, although these competing products are also being improved to meet the evolving requirements.

Demographic Trends, Higher Quality Construction and Renovation Activities

In light of expected future economic developments and the continued aging of populations in many European countries, many countries rely on the migration of skilled workers, which may stimulate the demand for new residential construction. At the same time, the number of households is increasing, primarily driven by a trend towards a lower average number of persons per household, particularly in Western European countries. In order to facilitate and expedite construction activities and economize on operating cost of buildings, flexible building material solutions that combine ease of handling, pre-fabricated elements and superior product properties play an increasing role. Similarly, in many Central and Eastern European countries, as a result of historic underinvestment the existing housing stock still requires considerable new construction as well as renovation and modernization to meet the higher building standards prevailing in Western European countries. Future GDP growth in many Central and Eastern European countries may therefore have a positive impact on pent-up demand and the evolution of new construction as well as renovation and modernization activities.

Importance of Emerging Markets and China for the Construction Industry

Demand for innovative building materials offering thermal insulation, sound protection and fire resistance in many emerging markets is expected to grow in line with increasing regulatory requirements and higher living standards. In particular, growth in the Chinese construction industry, despite regional differences in growth rates, continues to be positively affected by large-scale infrastructure projects, ongoing urbanization and new regulatory trends as well as increasing wealth. The Chinese government is increasingly implementing regulations to promote energy efficiency in the construction industry, resulting in increased demand for fire resistant building materials offering thermal insulation properties. Moreover, the Chinese government is increasingly seeking to restrict the production of clay bricks to protect the agricultural use of land where clay earth has been mined for brick production.

Dry Lining Industry

Market Structure

Compared to the market for wall-building materials, such as AAC and CSU, the market for dry lining products is more focused on the application of non-load bearing constructions for walls, ceilings and flooring in the interior design of buildings. The main products used for such dry lining constructions are plasterboards, gypsum fiber boards and, more recently, cement-bonded boards. In the dry lining market, gypsum fiber boards are a premium product for dry lining applications and target high-end markets in residential and commercial construction.

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Similar to the market for wall-building materials, the development of the market for dry lining products is closely linked to the level of construction activities which have historically shown a strong correlation with general economic growth. The main difference between the market for wall-building materials and the market for dry lining products is the larger share of sales in the latter attributable to renovation, remodeling and modernization activities in residential and non-residential construction, which has historically been less susceptible to cyclicality than new construction.

Demand

While the specifications and demand for dry lining constructions vary by geographic market, the types of constructions in which dry lining products are used are similar. Plasterboards are commodity products, albeit offered in a variety of qualities. Cement-bonded boards are primarily used in wet areas, such as indoor swimming pools, leisure applications and specific production facilities. Gypsum fiber boards are a premium product for interior construction in residential and non-residential sectors and can also be used as load-bearing, fire- and weather-proof board in external walls with timber sub-structures.

New residential construction in Germany and many other geographic markets is traditionally characterized by the use of solid wall-building materials, although we estimate that the share of alternative wall-building materials, such as wood and dry lining products, has increased over time. Accordingly, in the European markets plasterboard is still predominantly used in non-residential construction whereas its use in residential construction is to date mainly limited to pre-fabricated housing, timber-frame housing and renovation and refurbishment activities.

Distribution

Distribution of dry lining products is similar to the distribution of building materials. Dry lining products are mainly distributed through builder merchants or do-it-yourself retail stores. Additionally, direct deliveries occur to original equipment manufacturers, such as producers of pre-fabricated wall-building elements, producers of pre-fabricated houses and construction sites with special logistical requirements. The functions of the builder merchants are similar to those in the building materials industry.

Supply

The leading European plasterboard producers are Saint Gobain (under the local brands like Rigips, Placoplatre or Gyproc), Knauf (under the Knauf brand) and Lafarge (although taken over by the Etex Group, still operating under the Lafarge Gypsum brand). The European plasterboard industry has been undergoing consolidation, including the acquisition by Saint Gobain of BPB (2005) and by Nefinsa of Uralita (2007, 43.5% of shares previously owned by Nefinsa) In 2011 the acquisition of the European gypsum activities of Lafarge by the Etex-Group created a third major player offering plasterboards, fire protection boards and cement fiber boards.

Unlike CSU and, to a lesser degree, AAC, transportation cost for dry lining products are lower in relation to product prices so that transportation over longer distances is commercially feasible. As a result, the supplier structure for dry lining products is less fragmented and competition is less regional in nature than in the wall-building materials industry.

Key Industry Trends

In addition to the potential cyclical recovery in the residential, commercial and industrial construction sectors, the dry lining industry is influenced by the following key trends

Trends in Construction Industry

There are several trends in the construction industry that may favor the increased use of dry lining products. In order to economize on time and cost in the construction process, there is a trend towards the use of pre-fabricated elements for residential and non-residential construction. At the same time, the construction industry is seeking materials that provide greater sustainability, lower maintenance and energy cost, fire resistance, durability, sound performance and environmental protection. Similar to trends in the market for building materials in general, more stringent energy efficiency requirements in residential and commercial renovation, remodeling and modernization activities may increase demand for dry lining products with improved product characteristics. Similarly, increasingly higher standards for

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fire protection in residential and non-residential construction in many markets may result in higher demand for fire protection and cement-bonded boards.

Demographic Trends and Renovation

Population growth in many markets results in increased demand for dry lining products. In addition, dry lining applications are typically used for the interior design of non-residential buildings, such as schools and hospitals. In many mature markets, the aging building stock requires ongoing renovation, remodeling and modernization activities in which dry lining products are used. Unlike new residential and non-residential construction, renovation, remodeling and modernization activities in residential and non-residential construction have historically been less susceptible to cyclicality than new construction.

Lime Industry

Market Structure

In the market for lime and limestone products, two major groups of products exist: burnt products (lime and dolime) and unburnt products (limestone and dolomite). In both product groups, limestone (or dolomite) serves as the base mineral and is excavated mainly from open-pit operations. Lime is obtained from the thermal decomposition of limestone in lime kilns. Limestone is derived from the quarried material and physically processed in beneficiation plants with no thermal or chemical treatment.

Demand

Lime is used in a large variety of industrial applications (e.g., in the steel, glass, building materials, chemicals and food industries) and environmental applications (e.g., flue gas desulphurization, water treatment and agriculture). Milled limestone, which is part of the unburnt products group, possesses distinct chemical properties and sells at comparatively higher prices and margins than ordinary crushed limestone. The German lime market is a mature market with relatively constant volumes and prices.

Distribution

Distribution in the lime and limestone industry is characterized by direct sales to large-scale industrial end-customers. Unlike in the building materials and dry lining markets, builder merchants do not play a significant role in the market for lime and limestone products.

Supply

Lime producers typically focus on burnt products and to a lesser degree on milled limestone. At a regional level, lime production in Germany is fragmented, although we estimate that the three major suppliers (Rheinkalk, the German subsidiary of Groupe Lhoist, our subsidiary Fels-Werke and Schaefer Kalk) account for approximately 75% of annual German production, while approximately 20 smaller producers account for the remainder of German sales.

Geographically, Rheinkalk has a strong presence in the Western part of Germany. In the Southwestern and Southeastern parts of Germany, imports from other Lhoist plants in France and the Czech Republic occur. Our subsidiary Fels-Werke has a strong presence in the Eastern part of Germany, but is also present in Southern and Northern Germany. Fels-Werke exports to Poland, mainly as inter-company supplies to production plants of our Building Materials business unit. Schaefer Kalk holds a strong position in central Germany, featuring the highest quality levels of lime that are available in Germany. Whereas Rheinkalk, Fels-Werke and Schaefer Kalk engage in research and development activities to provide application support services to customers, smaller producers of lime products typically limit themselves to commodity products. Innovative and customized lime products are therefore primarily being offered by the three largest producers. As a consequence of high capital requirements for the maintenance and modernization of production facilities and increased cost of environmental compliance, the German market for lime products has already undergone a certain degree of consolidation, including closures of several plants by Rheinkalk, Schaefer Kalk and smaller producers as well as the acquisition in 2010 by Rettig Group of the remaining 51% stake in Nordkalk. As average sales prices for unburnt products are significantly lower than for burnt products, transportation cost and proximity to customers play a relatively greater role for unburnt products. As most customers are not able to store larger quantities of lime and limestone products, suppliers are frequently expected to provide logistical solutions and supply-chain management.

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Key Industry Trends

Two major trends in the lime and limestone industry have occurred over the past several decades. Demand from the building materials industry, including producers of AAC and CSU, decreased from approximately 2.8 million tons in 1995 to approximately 1.1 million tons since 2009 due to reduced levels of construction activities. However, this decline has been partly offset by new lime applications in environmental settings, such as flue gas desulphurization and water treatment. In 2011, the main sources of demand for lime products from domestic production were the steel industry (approximately 2.3 million tons, or 36% of total lime sales from domestic production), environmental applications (approximately 1.4 million tons, or 22%), the construction industry (approximately 1.1 million tons, or 17%), the chemical and other industry (approximately 0.7 million tons, or 11%) and export (approximately 0.7 million tons, or 11%). A cyclical recovery in the steel industry and further environmental applications for lime products, particularly flue gas desulphurization in waste incineration plants and water treatment may result in greater demand for lime products. At the same time, industrial and environmental customers increasingly require higher quality lime products and customer-specific application services. Additionally, innovative products with distinct chemical properties, such as quick lime that reacts particularly fast, result in demand from new applications. The increasing share of renewable energy in German electricity market has an great impact on utilization of fossil power plant. This leads the fluctuating demand.

3.12. Our Strengths

We believe that the following strengths and, in particular, their combination, differentiate us from our competitors and provide us with competitive advantages in the markets in which we operate: High-quality and Innovative Product Portfolio with Advanced Technical Standards, Supported by Strong Brands Our product portfolio and customer solutions are characterized by high quality and superior material properties addressing specific customer requirements. For example, key material properties of our AAC wall-building material products include a significantly lower weight compared to ordinary concrete, as well as strong thermal insulation and fire protection properties. Our CSU wall-building material products offer high load-bearing capacity and sound insulation as well as strong heat-storing capacity designed to contribute to a balanced interior climate. Our products address ongoing regulatory trends and developments in the building industry, particularly in light of increasingly stringent energy efficiency requirements. Throughout our business, our product portfolio enjoys an established reputation for product quality, advanced technical standards and customer support through specific application services. With a strong combined sales force, we market and sell the products in our Building Materials business unit under well-known brands that are widely recognized to embody the key properties associated with our wall-building material products and which, we believe, allow us to achieve premium pricing. In Germany, Ytong enjoys the highest brand recognition of all major building materials brands. Similarly, Fermacell and Hebel enjoy high brand recognition among construction industry professionals in the countries where those products are being marketed. Our raw materials brands, Fels and Vapenka Vitosov, are well-known in the lime industry in Germany and the Czech Republic. Business Model and Product Portfolio Aligned with Favorable Long-term Industry Dynamics Our business model and product portfolio are aligned with strong global trends in the construction industry for technically advanced products and environmentally friendly building material products and processes. Customer demand for such products is mainly driven by new regulatory requirements in the building industry, especially in light of energy efficiency requirements, and growing political and social awareness of the need to preserve energy. In response to these regulatory developments, we have developed and offer, in addition to our established AAC wall-building materials which have high natural thermal insulation capacities, under our Ytong Multipor brand a mineral insulation board with special thermal protection and sound-absorbing features. Our product portfolio also addresses the increasing environmental awareness of our customers. Our AAC and CSU wall-building materials which are produced mainly from mineral and natural raw materials, i.e., lime, cement, sand and water, have received several green nature awards. Moreover, increasing living standards in many countries in which we operate have resulted in increased demand for advanced building solutions. Due to these factors, we believe that our technologically advanced wall-building products may over time become more important than traditional wall-building materials, in particular, wood, clay bricks and concrete blocks, that possess some but not all of the key characteristics of AAC and CSU wall-building products, such as strong thermal insulation, energy efficiency, load-bearing capacity, fire resistance, sound

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insulation, low weight and a higher degree of versatility. The demographic trends in many countries in which we operate generally result in a growing number of households. Moreover, several countries in which we are expanding our business are experiencing a population shift from rural to urban areas, which also bears considerable potential for new residential construction in urban areas. Strongly Represented in Both Established Markets and Growing Regions In our Building Materials business unit, we are a leading producer of AAC and CSU. As the inventors of AAC, our brand Ytong benefits from significant customer recognition. With our wall-building materials AAC and CSU, we are strongly represented in established markets like Germany, The Netherlands and Belgium, as well as in growing markets with considerable medium and long-term growth potential like many Eastern European countries as well as in selected regions in Russia and China. In our Lime business unit, we are a leading producer of lime and limestone in Germany and the Czech Republic, with secured high-quality mineral deposits expected to last for more than 150 years. Additionally, we opened our first lime plant in Russia. In our Dry Lining business unit, we hold strong market positions in Germany, Austria, The Netherlands, Belgium and Switzerland with respect to gypsum fibre board and have realized growth in numerous other European markets. Product and Geographic Diversification Within and Across our Three Business Units, Reducing the Negative Effects of Cyclicality We believe that our geographic diversification and broad product range across and within our three business units make us less vulnerable to cyclicality in construction activities in any single country and decreases in demand in any single product group. In the fiscal year ended December 31, 2012, we derived 75.2%, 20.5% and 4.3% of our total external sales from Western Europe, Central and Eastern Europe and Asia/Americas, respectively, reflecting the geographic diversification of our business. Among our three business units, our Lime business unit is relatively independent of cyclicality in the construction industry due to its broad range of industrial and environmental applications. Our Lime business unit also benefits from greater planning visibility through long-term contracts with key customers. Additionally, our Dry Lining business unit has a strong position in the residential renovation, remodeling and modernization sector which has historically been less susceptible to cyclicality than new residential construction. Our network of production plants is designed to provide us with the flexibility to adjust capacity to meet customer demand, as our AAC and CSU wall-building materials production does not require continuous throughput of a kiln or oven and can operate profitably even below full capacity utilization. Well-invested Business in Capital-intensive Industries With investments of approximately €730 million in the years 2006 to 2012, thereof €480 million from 2008 to 2012, we benefit from a dense network of modern production plants. Based on our successful restructuring and integration program, our balanced product portfolio and expansion in emerging markets, mainly with greenfield projects, we believe to be well positioned to take advantage of a potential cyclical recovery in the residential, commercial and industrial construction sectors. In recent years, the high level of capital investment initially required to establish operations in the building materials, dry lining and lime and limestone industries, together with stagnant or declining demand, has resulted in a limited number of new competitors entering our markets. Availability of first-class plant locations, with access to high-quality raw materials, energy and other inputs and proximity to markets is naturally limited, and together with transportation cost and logistical capabilities, constitute key factors for operating success in each of our markets. Strong Management Team Our senior management team has more than 50 years of collective experience in the industries in which we are active and a successful track record through the economic cycle. It has successfully implemented our comprehensive restructuring and integration program following the major acquisitions of Fels/Hebel and Ytong, thereby creating a leaner cost base and enhancing our growth opportunities and operational effectiveness. Key results achieved by our management team include a strong focus on the markets we operate in, a high degree of flexibility in capacity adjustments and use of different sources of energy, improvements in the management of capital expenditures and working capital, our international expansion, improvements to our network of production plants, the successful introduction of new products to our markets, and further professionalization of our sales force using state-of-the art tools for effective market penetration and customer retention. These achievements have translated into

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enhanced brand recognition, increased quality of product innovation and reduced time-to-market for new products, accelerated penetration of markets and significant cost savings. 3.13. Our Strategy

We believe we have a strong business platform across all three of our business units. Our main strategic goal is to further strengthen our business platform by focusing on the following principal strategies: Continue Product Differentiation and Innovation and Develop Additional Products and Services We intend to further expand and diversify our product portfolio across our business units, including the development and offering of specific wall-building material solutions in response to increasing customer demand for technically advanced and sophisticated products and solutions. In implementing this strategy, we intend to continue to expand our product innovation and research and development efforts, particularly addressing increasingly stringent regulatory requirements, heightened environmental awareness and growth opportunities from increasing living standards in many countries. We intend to maintain our broad base of customers across various industries and improve our logistical capabilities. We intend to apply and explore advanced technologies, share expertise across our business units and maintain and promote research projects, including in direct collaboration with certain of our customers. For example, with our Ecoloop project we are targeting production of fuel gas from waste in a synthesis gas plant intended to replace fossil fuels. We have commenced the test operation of a pilot reactor in the second half of 2012 and expect to gain additional knowledge in the operation of such pilot reactor in the course of 2013. Our innovation strategy also includes the introduction of new value-added application services and add-on products to complement our product portfolio, such as consulting services and construction planning support, dry lining solutions and specialized tools and mortars meeting highly customer-specific requirements. Our research and development center is focused on product innovation as well as monitoring and improving the quality, technical standards and ease of use of our products, ensuring compliance with existing regulatory requirements and addressing regulatory trends and developments, especially in the area of energy efficiency and reduction of carbon dioxide emissions. Further Improve our Cost Structure and Cash Flows We intend to further improve our cost structure and take advantage of economies of scale in our sales, administration, procurement and production processes. Our strategy for existing businesses is to accomplish continuous optimization and create growth potential through improvements of products, customer service and the efficiency of our business processes. We aim to achieve cost efficiencies and increases in productivity primarily through efficient energy sourcing, optimization of our plant network and production processes and the use of new technologies, such as the recently introduced technology for gypsum recycling in our Dutch Fermacell plant and the optimized lubrication of moulds in several AAC plants in order to reduce the oil consumption. We also intend to continue to streamline the management of our supplier relationships, optimize our procurement structure to further improve our cost base and to focus on working capital management and capital expenditure planning to improve our operating cash flows. In order to decrease volatility in our operating cash flows, we intend to continue the expansion of both our Dry Lining business unit that is less susceptible to cyclicality compared to our Building Materials business unit and our Lime business unit that is relatively independent of cyclical developments in the construction industry due to the broad range of industrial and environmental applications for its products. Selectively Participate in Consolidation and Expand Further Internationally In line with our historic strategy, we intend to selectively participate in the consolidation of the building materials industry and to continue our international expansion in all our business units. We intend to further leverage our existing Building Materials business platform mainly in Central and Eastern European countries, and continue the expansion of our business in Asia by further expanding our operations in China and neighboring markets. In implementing this strategy, we are pursuing both organic growth and evaluating the market for potential acquisitions of building materials production facilities and other companies. We may also leverage our dense network of production plants to develop new markets through exports. To gain further market share in regions where we plan to expand, we intend to continue to transfer know-how from our established operations and utilize our experience gained through several successful greenfield investments and acquisitions in the past several years. In our Dry Lining business unit, we aim to increase market penetration in existing

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markets and to expand our market position in selected large mature dry lining markets, particularly in France and the United Kingdom, to gradually reduce our Group’s dependence on new residential construction stemming from our Building Materials business unit. Further, we expect increasing customer demand for gypsum fibre as well as cement-bonded boards in established and emerging markets, such as the United Arab Emirates, and thus intend to expand our sales force. To support this growth we have decided to further expand our production capacity in our cement-bonded board plant in Calbe, Germany with an investment of €19.4 million until 2013. In order to further strengthen our Dry Lining business we have acquired an unfinished gypsum fiber board plant in Orejo, Spain for a consideration of €14.5 million in April 2012. In our Lime business unit, we intend to continue to examine opportunities for new reserves and mining rights as well as investment opportunities. Strengthen and Leverage our Well Regarded Brands We aim to further strengthen the awareness of, and preference for, our Ytong, Silka, Hebel and Fermacell brands and their recognition for high-quality and technically-advanced wall-building materials and dry lining products. Ytong is particularly well regarded in Germany and other European countries as well as regionally in China, Silka in Germany, the Benelux countries and Poland, and Fermacell in the major European dry lining markets. By leveraging on our established brand positions, our strong joint sales force for Ytong and Silka branded products, and the sales force for our premium dry lining products, we intend to increase sales and market shares in markets where we are active, and expand into new markets while maintaining our ability to achieve premium prices for our branded product offerings. By targeting key decision makers and intermediaries utilizing our established brands, we also intend to address selected new markets by establishing greenfield operations, acquiring businesses and granting licenses.

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4. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The discussion and analysis below provides information that we believe is relevant to an assessment and understanding of our historical consolidated financial condition and results of operations. You should read this discussion in conjunction with our selected historical consolidated financial data, consolidated financial statements and related notes, and the other financial information included elsewhere in this report.

The consolidated financial statements and interim consolidated financial statements included in this report have been prepared in accordance with the International Financial Reporting Standards, as adopted by the European Union (“IFRS”). In this report, financial information has been derived from the audited consolidated financial statements and the notes thereto of Xella International S.A. as of and for the fiscal years ended December 31, 2011 and 2012, the audited consolidated financial statements and the notes thereto of Xella International S.A. Information for the three-month periods ended December 31, 2011 and 2012 is unaudited.

Consolidated segment information from the audited consolidated financial statements and the notes thereto of Xella International S.A. as of and for the fiscal years ended December 31, 2011 and 2012 eliminates effects of certain inter-segment sales, primarily in connection with lime supplied by the Lime business unit to the Building Materials business unit and certain building materials supplied by the Building Materials business unit to the Dry Lining business unit. In this report, percentages relating to the portion of total sales and total Normalized EBITDA attributable to each of the three segments include effects from such inter-segment sales and do not include any necessary eliminations. As a result, percentages for sales and Normalized EBITDA by segment may add up to more than 100%.

The auditor’s reports of PricewaterhouseCoopers S.à r.l., Luxemburg with respect to the consolidated financial statements as of and for the fiscal years ended December 31, 2011 and 2012 are included in this report as annexes 1 to 4.

This section includes forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by such forward-looking statements. See “Forward-Looking Statements” and “Risk Factors”.

4.1. Market Development in Fiscal Year 2012

The global economy cooled down markedly in the course of 2012. The European sovereign debt crisis and the crisis in the banking sector, particularly in the south of Europe, led to a significant cool down in many markets where Xella is present. However, Xella generates almost half of its sales on the German market which proved itself comparatively robust towards the impacts of the crisis. Core business of our BU Building Materials is the new residential building industry. In Germany, this sector showed a high level of resilience due to historically low interest rates and due to the fact that large amounts of (partly foreign) investment capital from the financial markets was redeployed to the German real estate and building sectors. Correspondingly, Market research agency Heinze reports an increase of 3.4% in the number of building permissions in Germany in 2012 compared to 2011. In contrast, the building industries in most other European markets were softening. Among others, Poland, France, Czech Republic and the Netherlands in particular suffered from a weak development of the building sector. Latest Euroconstruct figures (December 2012) estimate a decline in the building output of 5.9% compared to 2011 for the Euroconstruct countries. Outside the Euroconstruct Zone, the Russian market and namely the greater Moscow area, where Xella is present, continued to show considerable growth. Overall, our Business Unit Building Material benefited from the strong German and Russian new residential building market which almost offset the impacts of the weak market developments in other markets. Xella not only supplies the market for new building construction but is also active on the market for renovation work. A major part of the sales volume of the Business Unit Dry Lining is realized within this sector. The renovation market is less volatile than the new building market: both positive and negative market movements impact demand less than the new building market. As a result of the tightening markets, the volume of renovation work decreased only slightly in 2012: Euroconstruct estimates a

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decline of -2.3% but the renovation volume in the two biggest Fermacell markets, Germany and Switzerland, remained almost stable in 2012 compared to 2011. Lime (and quicklime in particular) is a product that can be used in extremely diverse applications which makes it an important raw material for the iron and steel industry, the construction industry and many others. In 2012 our BU Lime once again benefited from this diversification. Demand for lime from the environmental segment was slightly below prior year but sales of lime in the construction industry and the industry segment in 2012 were on 2011 levels. The Russian lime market has recorded double digit growth while prices developed extremely positive. Summing up, the Xella markets experienced mixed results in 2012. The Xella Group again benefited from the diversification of its business activities across the regions, different market and customer segments. 4.2. Developments 2012

SFA amendment

In the third quarter of 2012 we have agreed with our SFA financing syndicate on a covenant reset of the leverage covenant which is based on an updated business plan and which . Furthermore, we have agreed to reschedule in total €40.0 million of repayments scheduled for 2013 and 2014 (€20 million each) into 2015. Both amendment requests have been approved by 100% of the lending syndicate. The SFA amendment has become effective in December 2012 and provides the Xella Group with additional financial flexibility for the years 2013 and 2014.

Acquisition of AAC plant in Czech Republic

In September 2012, Xella had agreed with H+H International A.S. to take over 100% of the shares in H+H CZ s.r.o. for a total cash consideration of €15 million which includes the existing debt of the company. The target company had run an AAC plant in Most, Czech Republic in the north-western part of Czech Republic, close to the German border. The acquisition has been closed on October 31, 2012. In the context of the announced restructuring plan of its AAC production capacities in Czech Republic Xella has immediately closed the plant and has shifted the production volumes of the Most plant to the other existing Xella AAC plants in Czech Republic.

Acquisition of gypsum fibre-board plant in Spain

In April 2012, we have made an important step for the further international growth of our Dry Lining business unit by acquiring a gypsum fibre board plant in Spain through a public auction for a consideration of €14.5 million. With additional capital expenditures of around €8 million we will increase our production capacity for gypsum fibre-boards by up to 12 million square meters per year. The plant will mainly serve markets in France, Scandinavia and UK. Only a small portion of production volumes is foreseen to be delivered into the Spanish market. The new plant will start its operation already in May 2013. Potential warranty claims related to faulty CSU

Despite the fact, that the press had already reported about the production of calcium silicate units from slurry from scrubbers for a number of years, they were the subject of extensive press coverage and the latest reports at the end of 2011 led to a rise in the number of reported cases. Such new potential cases have led to a significant increase of the respective provision already in 2011 and to a minor extent in 2012. The total provision for potential claims amounted to €72.4 million shown in the statement of financial position as at December 31, 2012 (December 31, 2011: €67.5 million). In the Share Purchase Agreement, our former shareholder has agreed to hold us harmless for such potential claims with the effect that a corresponding receivable has been recorded. Xella Maintains its Interest in H+H

As publicly announced, Xella’s intention is to make a cash offer for all stakes in H+H International, one of our competitors in the wall-building materials industry. In January 2011 we submitted a referral request to the European Commission concerning the potential acquisition of H+H International A/S by Xella. The objective of the referral request was to obtain a partial referral of the German aspects of the acquisition to the German Federal Cartel Office (Bundeskartellamt). Following the European Commission’s referral decision dated March 1, 2011, and the filing of a German merger notification on March 9, 2011, the German Federal Cartel Office issued in March 2012 a prohibition decision with

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respect to the German related aspects of the potential acquisition. We have appealed this decision to the Düsseldorf Court of Appeals. The hearing related to this appeal will be in August 2013. The European Commission will, upon our next formal merger control filing, conduct the merger control proceeding relating to the other relevant markets, e.g. Benelux and Poland. To avoid a lengthy Phase II proceeding, we withdrew our initial filing with the Commission, and are currently clarifying open issues. After completion of this process we will resubmit a new formal merger control filing. In addition, on March 18, 2011, we submitted a merger notification to the Federal Antimonopoly Service of Russia to initiate a merger control proceeding with regard to Xella’s and H+H International’s activities in Russia and obtained respective merger clearance for this market on June 2, 2011. 4.3. Condensed Consolidated Statement of Income

Key Income Statement Items

Introduction to Nature of Expense Method

Our consolidated income statement is presented pursuant to the nature of expense method (Gesamtkostenverfahren). The nature of expense method involves the determination of operating results by comparing income and total expenses incurred during a period in connection with operating output. Since all expenses for the entire period are shown on the expense side, the nature of expense method primarily involves classification according to types of expense, i.e., operating expenses are broken down according to materials expenses, staff expenses, depreciation and amortization expenses, and other expenses. Total expenses are compared with income expressed as total operating output, which includes not only sales but also a change in finished goods and work in progress as well as certain assets produced during the period that are shown as “own work capitalized”. Inventory of finished goods and work in progress are measured at cost of manufacture. Any changes in inventory of finished goods and work in progress increase or decrease the total output of the relevant period. In contrast, the cost-of-sales method (Umsatzkostenverfahren) is revenue-based. Revenue is compared with expenses incurred through the production or purchasing of goods sold. The presentation of the types of operating expenses is based on a secondary classification that distinguishes between the functional areas of production, administration and sales. This approach does not take into account unsold goods. The operating profit and net income/loss for the year are the same under both methods and are not affected by the choice of method.

Sales and Total Output

Sales that result from our operating output are recognized as sales revenue when the risks of ownership have passed to the buyer. Sales are primarily derived from trade sales and service sales to third parties. Revenue is recognized on a net basis, i.e., amounts collected on behalf of third parties, such as sales taxes, goods and services taxes and value added taxes are not included, whereas incidental services, such as packaging and shipping cost, customs duties, freight out, transport insurance and advances, are included in revenue; rebates, discounts, bonuses and reimbursements are deducted from sales. Changes in finished goods and work in progress (including changes in finished good and unfinished goods resulting from the change in the quantities and values of the inventories at the beginning and the end of the relevant period, write-downs on finished goods and write-downs of raw materials and supplies and merchandise) and own work capitalized (expenses that are capitalized as own work under non-current assets, such as internally constructed buildings and internally produced tools and equipment) are added to, or subtracted from, sales to arrive at total output.

Materials Expenses

Materials expenses include expenses for raw materials, such as lime, cement, sand, gypsum and anhydrite, aluminum, paper, steel, energy used in our production processes (electricity, gas, coal and coke, diesel and other fuels), transportation expenses relating to the shipping of finished products, packaging materials (foil, pallets, packaging tape, shock edges and sacks), auxiliary materials and supplies (form oil, lubricating oil, hydraulic oil, fat, grinding balls and mill linings) as well as expenses for merchandise and services rendered to us.

Other Income

Other income includes operating income (including income from leasing, licenses and other operating income), neutral income (such as profits from disposals of assets, reversals of impairments from prior periods, release of negative goodwill, results from fair value adjustments (step-up acquisitions),

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reversals of impairments on assets held for sale and amortizations of governments grants) and the total result from disposals of affiliates and associates held at equity. Other income also includes income resulting from higher potential receivables against the former shareholder Haniel in connection with hold-harmless agreements resulting from the sale of Xella in 2008.

Staff Expenses

Staff expenses include wages and salaries, social security expenses, other employee benefits and pension expenses in connection with defined benefit and defined contribution plans.

Other Expenses

Other expenses include energy expenses for non-production activities, repairs and maintenance expenses, expenses for advertising and marketing, insurance premiums, commissions paid to third parties, travel expenses, fees for consulting and audit services, telecommunication expenses, expenses for information technology service providers, expenses for temporary workers, operating lease expenses, non-income taxes, impairments of receivables and other operating and administrative expenses (including expenses for recultivation of land for exploitation, waste disposal, office supplies and pending legal proceedings). Additionally other expenses include additions to warranty provisions.

EBITDA

EBITDA is the total balance of total income (total output less materials expenses and plus other income), staff expenses and other expenses before depreciation, amortization, impairment expenses, financial result and income taxes.

Depreciation and Amortization Expenses

Depreciation and amortization expenses include expenses related to the depreciation of buildings, land for exploitation (lime quarries and sand pits), plants, machinery, vehicles and equipment as well as to the amortization of development expenses previously capitalized and impairments of goodwill, brands and other intangible and tangible assets.

Financial Result

Financial result is the balance from the result from investments in associates (at equity), results from other investments, finance costs and other financial result. Finance costs specifically include interest expenses for our existing indebtedness, interest expenses for finance lease liabilities, interest expenses for net pension provisions and other non-current provisions and fees for financial activities (transaction and commission expenditures).

Income Taxes

Income taxes are the balance from current income taxes and deferred taxes. Current income taxes include income taxes that arose during the current year and previous years, results from tax allocations and current taxes on the sale of discontinued operations. Deferred taxes are the balance from changes of deferred tax liabilities and deferred tax assets. The tax expenses shown for our Group are the total of the taxes that arise for the legal entities in the various jurisdictions in which we operate. Thus, income taxes may vary from period to period depending on shifts in taxable income by legal entity, country-specific changes in tax legislation, the availability of tax loss carry-forwards in particular jurisdictions and the specific contribution of each legal entity on a consolidated basis.

Segment Reporting

Our Group’s three business units correspond to our reporting segments under IFRS. In accordance with IFRS 8, we have identified three reportable segments (Building Materials, Dry Lining and Lime), which are largely separately organized and managed according to the products sold and services provided, the trademarks, the production processes, the sales channels and the customer profiles. Consolidated segment information from the audited consolidated financial statements and the notes thereto of Xella International S.à r.l. (which was converted to Xella International S.A. on May 17, 2011) as of and for the fiscal years ended December 31, 2010 and 2011 eliminates effects of certain inter-segment sales, primarily in connection with lime supplied by the Lime business unit to the Building Materials business unit and certain building materials supplied by the Building Materials business unit to the Dry Lining business unit. However, the percentages relating to the portion of total sales and total Normalized EBITDA attributable to each of the three segments include effects from such inter-segment

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sales and do not include any such eliminations. As a result, percentages for sales and Normalized EBITDA by segment may add up to more than 100%. Result of Operations

The following table sets out certain information with respect to our condensed consolidated income statement for the fiscal year ended December 31, 2012 and comparing with the corresponding periods in 2011.

Condensed Consolidated Statement of Income

€ million Q4/2011 Q4/2012 Change Q1-4/2011 Q1-4/2012 Change

Sales 307.2 303.0 (1.4%) 1,271.2 1,282.5 0.9% Changes in finished goods and work in progress 12.9 0.4 (96.8%) 10.2 4.8 (53.0%)

Own work capitalized 0.9 1.2 32.1% 1.8 2.3 31.3%

Total Output 321.1 304.7 (5.1%) 1,283.2 1,289.6 0.5% Materials expenses (153.3 ) (142.1 ) 7.3% (593.0 ) (592.3 ) 0.1%

Gross profit 167.8 162.6 (3.1%) 690.2 697.4 1.0% Other income 66.2 6.1 (90.8%) 86.1 34.5 (59.9%)

Total income 233.9 168.7 (27.9%) 776.3 731.9 (5.7%)Staff expenses (78.0 ) (78.4 ) (0.5%) (298.6 ) (306.4 ) (2.6%)

Other expenses (121.9 ) (54.8 ) 55.0% (275.6 ) (218.4 ) 20.8%

EBITDA 34.0 35.4 4.3% 202.1 207.0 2.4%

Normalized EBITDA 39.1 42.4 8.3% 208.0 217.3 4.4%

Depreciation and amortization expenses (31.4 ) (26.4 ) 15.8% (107.4 ) (102.6 ) 4.4%

EBIT 2.6 0.2 (91.7%) 94.7 95.6 1.0%

Financial result (26.9 ) (34.0 ) (26.6%) (122.3 ) (120.0 ) 1.9%

Profit/loss before tax (24.3 ) (33.8 ) (39.2%) (27.6 ) (24.4 ) 11.8%

Income taxes 14.1 (2.4 ) <(100%) 5.1 (14.2 ) <(100%)

Net income/loss (10.2 ) (36.2 ) <(100%) (22.5 ) (38.6 ) (71.1%) Normalized EBITDA

Our Normalized EBITDA increased by €9.2 million, or 4.4%, from €208.0 million in 2011 to €217.3 million in 2012. We present EBITDA and Normalized EBITDA as further supplemental measures of our performance. Normalized EBITDA represents EBITDA as adjusted for items that are considered by management to be non-recurring or unusual to our business. Normalized EBITDA is presented because we believe it is a relevant measure for assessing the performance of our business since it is adjusted for non-recurring items and thus aids in an understanding of EBITDA in a given period. Accordingly, this information has been disclosed in this report to permit a more complete and comprehensive analysis of our operating performance. Other companies may calculate Normalized EBITDA differently than we do. EBITDA, EBIT and Normalized EBITDA are not measures of financial performance under IFRS and should not be considered as measures of liquidity or alternatives to profit or any other performance measure derived in accordance with IFRS.

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The reconciliation between Normalized EBITDA and EBITDA is as follows:

€ million Q4/2011 Q4/2012 Q1-4/2011 Q1-4/2012

EBITDA 34.0 35.4 202.1 207.0 Adjustments

Divestments and unusual asset disposals(1) (0.5 ) (0.3 ) (2.6 ) (1.8 )Gains and losses due to restructuring and severance 1.0 2.7 2.7 4.1

Costs related to M&A activities(2) 0.6 0.8 1.7 2.5 Costs related to unusual litigation 0.9 0.7 0.9 1.3

Warranty claims relating to prior years(3) 2.9 0.4 2.9 0.4

Other(4) 0.2 2.7 0.3 3.8

Normalized EBITDA 39.1 42.4 208.0 217.3

Reconciliation EBITDA to Normalized EBITDA

(1) Divestments and unusual asset disposals mainly includes income from the sale of a plant in Poland (in 2012) as well as the

sale of properties in Germany which were no longer used (in 2011).

(2) Mainly refers to costs related to the acquisitions of a gypsum fiberboard manufacturing plant in Spain, an aerated concrete plant in the Czech Republic (both in 2012) and Xella Pontenure in Italy (in 2011).

(3) Refers to warranty claims (net of insurance coverage) of a Dutch subsidiary.

(4) Refers to several other unusual or non-recurring transactions.

Segment reporting

The following table sets out our sales (including inter-segment sales) and Normalized EBITDA by segment:

€ million Q1-4/2011 Q1-4/2012 Change

Building MaterialsSales 847.8 854.3 0.8% Normalized EBITDA 115.4 119.7 3.7%

Dry LiningSales 207.6 208.5 0.4% Normalized EBITDA 34.1 34.6 1.6%

LimeSales 267.9 272.3 1.6% Normalized EBITDA 59.0 63.2 7.1%

Consolidation/HoldingInter�segment sales (52.2 ) (52.7 ) (0.9%)Normalized EBITDA (0.5 ) (0.6 ) (41.6%)

TotalConsolidated sales 1,271.2 1,282.5 0.9% Normalized EBITDA 208.0 217.3 4.4%

Consolidated Segment Income Statement Information

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Our sales by geographic regions are as follows:

Sales by Geographic Region (1)

€ million Q1-4/2011 Q1-4/2012 Change Share 2011 Share 2012

Germany 558.6 571.4 2.3% 43.9% 44.6%

Netherlands 142.3 138.6 (2.6%) 11.2% 10.8%

France 82.6 74.4 (9.9%) 6.5% 5.8%

Czech Republic 78.4 71.3 (9.1%) 6.2% 5.6%

Belgium 64.3 61.8 (3.9%) 5.1% 4.8%

Poland 62.3 56.6 (9.1%) 4.9% 4.4%

Switzerland 44.8 45.9 2.5% 3.5% 3.6%

Other 156.6 171.2 9.3% 12.3% 13.3%

Europe 1,189.9 1,191.2 0.1% 93.6% 92.9%

China 45.6 41.5 (9.0%) 3.6% 3.2%

Russia 22.7 36.2 59.5% 1.8% 2.8%

Other 13.0 13.6 4.6% 1.0% 1.1%

Non-Europe/Emerging markets

81.3 91.3 12.3% 6.4% 7.1%

Xella Group 1,271.2 1,282.5 0.9% 100.0% 100.0% (1) Allocation of sales according to domicile of invoicing units in BUs Building Materials and Lime.

In BU Dry Lining the allocation has been made according to the country in which sales have been generated. The following comments refer to the IFRS figures set out in the consolidated statement of income. Q4/2012 Compared to Q4/2011 Sales

The Xella group sales in the fourth quarter of 2012 amounted to €303.0 million and were €4.2 million, or 1.4% below the corresponding period of 2011. Besides weaker market environment in several European countries and tightening measures of the Chinese government, the early onset of winter negatively impacted our sales volumes in the fourth quarter of 2012. However higher net average revenues and strong business activities in Russia could partly offset missing sales volumes. The sales in our Building Materials business decreased by €9.5 million; or 5%; compared to the corresponding period of 2011. Our Dry Lining business unit increased sales by €0.9 million, or 1.8%, compared to the corresponding period of 2011. The sales growth in the fourth quarter of 2012 was driven by overall higher net average revenues and significantly higher sales volumes of fire protection board products. Sales in our Lime business unit in the fourth quarter increased by €4.6 million, or 7.1%, compared to the corresponding period in 2011. This positive development was mainly based on higher net average revenues combined with strong contribution from Russia, based on the increased production capacity and significantly higher prices. Materials Expenses

Materials expenses in the fourth quarter of 2012 declined by 7.3% from €153.3 million in the corresponding period of 2011 to €142.1 million, which is mainly a result of the decreased production volumes in our Building Materials business unit. Gross Profit Margin

In the fourth quarter of 2012 we faced higher market prices for our production’s input factors, particularly for lime, sand and energy. Thus, the gross profit margin declined from 54.6% to 53.6%,compared to the corresponding period of 2011.

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Other Income

Other income in the fourth quarter of 2012 decreased by €60.0 million from €66.2 million in the fourth quarter of 2011 to €6.1 million in the fourth quarter of 2012. The decrease is mainly resulting from the decrease of the receivable against our former shareholder, Franz Haniel & Cie. GmbH, Duisburg / Germany in the amount of €2.2 million in the fourth quarter of 2012 compared to an increase in the amount of €56.4 million in the corresponding period of 2011. This receivable represents a number of potential claims against Haniel which were agreed on by the buyer and seller during the sale of the Xella Group. They relate to hold-harmless agreements for certain tax obligations, warranty obligations and other risks. Other income in the fourth quarter of 2012 was positively affected by the sale of CO2 certificates. Staff Expenses

Staff expenses increased only marginally by €0.4 million, or 0.5%, from €78.0 million in the fourth quarter 2011 to €78.4 million in the fourth quarter of 2012. Other Expenses

Other expenses decreased by €67.1 million from €121.9 million in the fourth quarter of 2011 to €54.8 million in the fourth quarter of 2012. The higher other expenses in 2011 were mainly attributable to expenses which are covered by a receivable against Franz Haniel & Cie. GmbH, Duisburg/ Germany (corresponding increase of income in other income). EBITDA and EBITDA Margin

EBITDA increased from €34.0 million in the fourth quarter 2011 to €35.4 million in the fourth quarter of 2012. The EBITDA margin of 11.7% in the last quarter 2012 increased compared to the corresponding period of 2011 (11.1%). Adjusted for non-recurring or unusual items, our Normalized EBITDA increased from €39.1 million in the fourth quarter of 2011 to €42.4 million in the last three months of 2012. This mainly resulted from the sale of CO2 certificates in 2012 which contributed €2.4 million to EBITDA in the fourth quarter of 2012. Depreciation and Amortization Expenses

Depreciation and amortization expenses in the fourth quarter of 2012 amounted to €26.4 million and decreased by €5.0 million compared to the corresponding period of 2011. Financial Result

The financial result of the fourth quarter increased from €26.9 million in the last three months of 2011 by €7.1million to €34.0 million in the fourth quarter of 2012. The higher interest expenses are mainly related to the decreased interest rate for discounting of non-current provisions. Further reason is the impairment of a minority investment (€2.7 million) in the fourth quarter of 2012. Income Taxes

Income taxes changed by €16.5 million from €14.1 million tax income in the fourth quarter of 2011 to €2.4 million tax expenses in the fourth quarter of 2012. Current tax expenses decreased by €1.7 million. This decrease was overcompensated by a decrease in deferred tax income by €18.2 million mainly related to a change from deferred tax income to deferred tax expenses from the development of taxes on tax loss carry-forwards. Q1-4/2012 compared to Q1-4/2011

Sales

Sales in 2012 increased by €11.3 million, or 0.9%, from €1,271.2 million in 2011 to €1,282.5 million with positive contributions from all three business units. Sales in our Building Materials business unit increased by €6.6 million, or 0.8%, compared to 2011. The increase was primarily driven by higher net average revenues, which overcompensated slightly weaker sales volumes. Positive sales deviations are mainly coming from Germany, Russia and the expanded business activities in Italy, compensating market-induced lower sales in other markets. The net average revenues benefited from successful implemented price increases in some core markets in second half of 2011 and further in the course of 2012. Sales in our Dry Lining business unit increased by €0.8 million, or 0.4%, compared to 2011. This

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positive development was driven by increased sales volumes of cement-bonded board products and favourable development of net average revenues in general, compensating lower sales volumes of gypsum fibre board products, with negative sales volume deviations especially in Germany and the Benelux. In full year 2012 sales in our Lime business unit increased by €4.4 million, or 1.6%, compared to 2011, as higher net average revenues overcompensated weaker sales volumes. The sales volumes were negatively impacted by reduced activities in civil engineering, after the strong business in 2011, however with a satisfactory demand from industrial and building materials sector. Very positive sales contribution from our lime operations in Russia and stable development in Germany were able to offset lower sales in Czech Republic. Materials Expenses

Materials expenses in 2012 amounted to €592.3 million, remaining stable compared to €593.0 million in 2011. The decline from lower production volumes, in line with lower sales volumes, was partly offset by higher prices for input factors (in particular, for energy, lime and packaging materials), which caused an increase of specific production costs in the business units Building Materials and Lime Gross Profit Margin

The gross profit margin stabilized from 54.3% in 2011 to 54.4% in 2012, as we successfully managed to pass on higher specific production costs to customers in our key markets. Other Income

Other income decreased by €51.6 million from €86.1 million in 2011 to €34.5 million in 2012, mainly resulting from a lower increase of the receivable against the former shareholder, Franz Haniel & Cie. GmbH, Duisburg / Germany in the amount of €10.5 million compared to €58.0 million in 2011. This receivable represents a number of potential claims against Haniel which were agreed on by the buyer and seller during the sale of the Xella Group. They relate to hold-harmless agreements for certain tax obligations, warranty obligations and other risks. A positive effect in other income is related to the sale of CO2 certificates in 2012. Staff Expenses

Staff expenses increased from €298.6 million in 2011 by 2.6% to €306.4 million in 2012. This increase was primarily driven by a higher number of FTEs (on average +73) particularly related to new plants and expansion projects as well as to tariff increases. Other Expenses

In 2012, other expenses amounted to €218.4 million, which was a decrease by €57.2 million compared to 2011 (€275.6 million). The higher other expenses are mainly attributable to expenses which are covered by a receivable against Franz Haniel & Cie. GmbH, Duisburg/ Germany (corresponding increase of other income) and are additionally impacted by increased expenses for legal & consulting fees (especially related to new projects) as well as higher labour leasing expenses incurred in connection with the Angola project. EBITDA and EBITDA Margin

Our EBITDA increased by €4.9 million, or 2.4%, from €202.1 million in 2011 to €207.0 million in 2012. Our EBITDA margin improved from 15.9% in 2011 to 16.1% in 2012. Adjusted by non-recurring or unusual items, our Normalized EBITDA increased from €208.0 million in 2011 to €217.3 million in 2012, benefiting from positive results in all three business units. The Normalized EBITDA margin (16.9%) slightly increased compared to 2011 (16.4%). Depreciation and Amortization Expenses

Depreciation and amortization expenses in 2012 amounted to €102.6 million and decreased by €4.8 million compared to 2011. Financial Result

The financial result decreased by €2.4 million, or 1.9%, from €122.3 million in 2011 to €120.0 million in 2012. This decrease is primarily due to the issuance of the notes and the refinancing of the term loans in the second quarter of 2011. The repayment of term loans in an amount of €250 million resulted in an

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exceptional depreciation of capitalized financing fees on such term loans in the amount of €9.1 million in 2011. Furthermore, external fees of €1.6 million have been incurred in connection with the issuance of the notes in 2011. In 2012 this effect was partly offset by the higher interest rate of the notes compared to the interest rate on the term loans as well as higher interest expenses related to the decreased interest rate for discounting of non-current provisions. Income Taxes

Income taxes decreased by €19.3 million from €5.1 million tax income in 2011 to tax expenses of €14.2 million in 2012. Current tax expenses decreased by €2.8 million while deferred tax income decreased in the amount of €22.1 million mainly due to the development of deferred taxes on tax loss carry-forwards. 4.4. Selected Consolidated Balance Sheet

€ million (audited)December 31, 2011

December 31, 2012

Non-current assets 1,842.8 1,818.7

thereofProperty, plant and equipment 1,123.2 1,116.3 Intangible assets 597.4 594.4 Financial assets 79.1 81.6

Current assets 503.2 492.2 thereof

Inventories 178.9 174.2 Trade and other receivables 146.1 139.0 Financial assets 39.8 42.0 Cash and cash equivalents 124.0 124.5

Total assets 2,346.0 2,310.9

Non-current liabilities 1,948.7 1,951.4 thereof

Non-current financial liabilities 1,558.7 1,581.4 Deferred tax liabilities 150.0 129.7 Pension provisions 126.5 127.7 Other provisions 107.8 105.8

Current liabilities 387.5 390.2 thereof

Other provisions 89.8 86.8 Trade and other accounts payable 250.0 238.4

Total equity 9.8 (30.7 )thereofShareholders’ equity (19.2 ) (61.4 )Non-controlling interests 29.0 30.7

Total shareholders’ equity and liabilities 2,346.0 2,310.9

Selected Consolidated Balance Sheet Information

Total assets fell slightly as of December 31, 2011, dropping by €35 million to €2,311 million.

The composition of non-current assets is an expression of the fact that Xella is a manufacturing company that owns and operates numerous facilities and quarries as well as a number of valuable brands. Non-current assets fell by a total of €24 million to €1,819 million in comparison to December 31, 2011.

Of this decrease, property, plant & equipment accounted for €7 million. This mainly resulted from depreciation exceeding additions in the year. The fall of €3 million in intangible assets contains impairment losses of €9 million recorded on goodwill in 2012 for the region of southeastern Europe. In addition, deferred tax assets dropped by €13 million.

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Current assets dropped by a total of €11 million.

This includes a fall of €5 million in inventories which closed the year at €174 million as of December 31, 2012. Trade receivables and other receivables dropped by a total of €7 million to €139 million as of December 31, 2011. Cash and cash equivalents remained on the prior year’s level. Other disclosures can be found in the analysis of the cash flow statement.

Equity dropped by €41 million as of December 31, 2012 to a deficit of €31 million. The decrease is primarily a result of the net loss generated in the year 2012.

Non-current liabilities as of December 31, 2012 remained more or less unchanged on the prior year, rising just €3 million to €1,951 million after taking account of contrary movements.

Non-current financial liabilities rose by €23 million. Although additional repayments of bank loans were made in the fiscal year, the interest accrued on the shareholder loans in the fiscal year exceeded these repayments. On the other hand, deferred tax liabilities dropped by €20 million.

Taking account of contrary effects, current liabilities rose only slightly by a total of €3 million. As a result, current financial liabilities increased by €18 million. On the other hand, trade and other accounts payable dropped by €12 million, in addition to other effects.

4.5. Key Production Performance Indicators

Production Volumes

thousands Q1-4/2011 Q1-4/2012

Building MaterialsAAC (in m³) 7,244 6,978 CSU (in m³) 2,201 2,053

Dry LiningGypsum Fibre Boards (in m²) 32,931 32,653 Cement-bonded Boards (in m²) 1,429 1,593

LimeLime Products (in t) 2,174 2,130 Limestone (in t) 3,267 3,015

Capacity Utilization Rates

Q1-4/2011 Q1-4/2012

Building Materials(1)

AAC 74.9% 72.4%CSU 59.2% 57.6%

Dry Lining(1)

Gypsum Fibre Boards 119.5% 118.0%Cement-bonded Boards 149.4% 165.0%

LimeGermany 79.2% 76.5%Czech Republic 80.7% 73.4%Russia 85.7% 75.4%

(1) Capacity utilization rates are based on standard capacity, which means operation of plants for 24 hours a day for five days per week, as opposed to maximum capacity, which means operation of plants for 24 hours a day for seven days per week.

Production volumes as well as capacity utilization rates in BU Building Materials have been slightly decreased in connection with reduced production volumes in several market areas. In BU Lime the reduction in production volumes of limestone relates to the particularly strong demand for road construction and the sugar industry in 2011. Production volumes of burnt lime products decreased mainly related to the environmental sector due to lower utilization rates and the shutting down of power plants whereas the demand from the building materials market segment remained largely stable. BU

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Dry Lining benefited from the ongoing strong demand for cement-bonded boards and the growth in sales volumes outside of Germany. 4.6. Liquidity and Capital Resources

Our principal sources of funds have been cash generated from our operating activities and borrowings under the Senior Facilities Agreement. Our principal uses of cash are to fund capital expenditures, working capital and debt service obligations.

€ million

Cash and cash equivalents at the beginning of the period 109.3 124.0

Cash flows from operating activities 178.7 148.7

Cash flows from investing activities (72.2 ) (72.2 )

Cash flows from financing activities (91.6 ) (77.1 )

Change in cash and cash equivalents 14.9 (0.6 )Foreign exchange differences in cash and cash equivalents (0.2 ) 1.1

Cash and cash equivalents at the end of the period 124.0 124.5

Condensed Statement of Cash Flows

Q1-4/2011 Q1-4/2012

Cash Flows from Operating Activities

In the fiscal year ended December 31, 2012, cash generated by operating activities totalled €148.7 million, as compared to €178.7 million of cash generated by operating activities in the fiscal year 2011. Positive cash flow from operating activities in 2012 is mainly a result of the business development of the second and third quarter. The decrease in cash generated by operating activities by €30.0 million was mainly attributable to the negative change in trade and other working capital. Cash Flows from Investing Activities

In the fiscal year 2012, cash used by investing activities totalled €72.2 million, unchanged to €72,2 million in 2011. The amount used in 2012 included spending for the acquisition of an AAC plant the Czech Republic and of a Dry Lining plant in Spain as well as further capacity expansion measures in the Dry lining business while in 2011 the amount used included spending for the acquisition of a CSU plant in Poland and of an AAC plant in Italy, both in the Building Materials business unit, for the Ecoloop project as well as for further expansion in the Russian market regarding our lime plant in Tovarkovo in the Lime business unit, and for capacity expansion measures in the Dry Lining business unit. Cash Flows from Financing Activities

In 2012, cash used by financing activities totaled €77.1 million, as compared to €91.6 million in fiscal year 2011. The decrease by €14.5 million was mainly due to a reduction of net repayments by €7.4 million and of interest payments including financing fees by €7.4 million. For reporting purposes we are using free cash flow derived from the condensed statement of cash flows according to IAS 7. We define and calculate free cash flow as follows:

€ million Q1-4/2011 Q1-4/2012

Cash flows from operating activities 178.7 148.7

Adjustment for income taxes 23.5 21.0

Cash flows from investing activities (72.2 ) (72.2 )

Adjustment for step-up acquisitions (0.1 ) (0.1 )

Free cash flow 129.9 97.4

Free Cash Flow based on IAS 7

Major Financing Arrangements / Net Financial Debt

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Since the issuance of the Notes and the extension of the proceeds therefrom through the Facility D1 Loan under the Senior Facilities Agreement in the second quarter of 2011, we have the following financing arrangements outstanding: the Senior Facilities Agreement (including Facility D1) and subordinated shareholder loans in the form of PECs extended to Xella International S.A. As of December 31, 2012, we had €44.9 million of available capacity under our €75 million Revolving Facility and an additional €9.0 million of undrawn ancillary facilities. The following table shows net financial debt as at December 31, 2011 and 2012, respectively:

Net Financial Debt (1)

€ millionDecember 31,

2011December 31,

2012 Change

Facility A term loans (2) 174.0 159.8 (8.2%)

Facility B term loans (2) 122.1 125.0 2.4%

Facility C term loans (2) 87.1 90.0 3.3%

Facility D1 loan (2) 300.0 300.0 - Capex/Acquisition Facility loan 35.0 30.0 (14.3%)Total liabilities under Senior Facilities Agreement 718.2 704.8 (1.9%)Finance lease liabilities 10.5 9.1 (13.3%)Total financial debt 728.7 713.9 (2.0%)Cash and cash equivalents (124.0 ) (124.5 ) (0.4%)Net financial debt 604.7 589.4 (2.5%)

(1) Financial Debt does not include subordinated shareholder loans and certain other financial liabilities. (2) Amount refers to principal amount without accrued interest.

Net financial debt decreased from €604.7 million as at December 31, 2011 to €589.4 million as at December 30, 2012. The slight decrease is primarily related to the capital expenditures spent in the course of 2012, which are overcompensated by generated free cash flow. Working Capital

Our working capital generally mirrors developments in our operating business and certain seasonal patterns may therefore cause material fluctuations in our working capital. We monitor and attempt to optimize the level of working capital and have completed several improvement projects since 2008. For example, we have significantly improved the management of our trade payables through a group-wide reporting system. As a key performance indicator, we have introduced a weighted ratio that takes into account payment days and payment discounts at the same time. The level of our inventories is primarily affected by the level we deem necessary to cover expected sales and ensure prompt delivery to our customers. In managing inventory levels we also take into consideration certain production processes, such as efficiency optimizations and plant standstills during vacation periods or for scheduled maintenance work. Strategic purchases of larger quantities of raw materials, such as before previously announced price increases by our suppliers become effective, may increase inventory levels. Inventories are also affected by carbon dioxide emission certificates resulting from realized carbon dioxide emission certificate transactions. For these reasons, the development of inventory levels does not necessarily mirror sales development to the same degree as trade payables and, particularly, trade receivables. Trade receivables generally develop in line with the development of sales. During the recent financial and economic crisis, in many markets we experienced a trend towards longer payment days. We monitor on group-wide basis the terms of trade with our customers, with the main focus on generating sales at acceptable payment conditions.

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The following information is a summary of our trade working capital as derived from the condensed statements of financial position of Xella International S.A. as of December 31, 2011 and 2012, respectively.

Trade Working Capital (1)

€ millionDecember 31, 2011

December 31, 2012

Inventories (without CO2 emission certificates) 165.0 173.7

Trade accounts receivable (2) 113.9 109.9

Trade liabilities (3) (138.1 ) (131.1 )

Trade working capital 140.8 152.5 (1) Trade working capital as shown in the table above does not correspond to the definition of trade working capital in the

consolidated statement of cash flows pursuant to IAS 7.

(2) Trade accounts receivable include customers’ credit balances offset against trade receivables and short-term portions of non-current trade receivables.

(3) Trade liabilities comprise trade payables, short-term portions of non-current trade liabilities, suppliers’ debit balances offset against trade payables and invoices not yet received.

Compared to December 31, 2011 inventories increased mainly based on the preparation of maintenance production stops at our BU Dry Lining scheduled for the beginning of 2013. Additional effects relate to higher inventories due to an expanded product portfolio, acquired finished goods of the AAC plant Most, CZ and a higher valuation of inventories in general due to higher prices. Lower trade accounts receivables and trade liabilities compared to prior year are driven by lower business volume at year end 2012. Capital Expenditures

In general, we finance our capital expenditures in property, plant and equipment primarily from cash flow from operations. The following table is a summary of our capital expenditures in 2011 and 2012:

Capital Expenditures (1)

€ million Q1-4/2011 Q1-4/2012

Replacement and Others(2) 41.4 41.4

Optimization(3) 10.4 6.5

Expansion(4) 34.6 43.5

Total Capital Expenditures 86.4 91.4 (1) Capital expenditures shown in this table are not identical with cash flows from investing activities as shown under this

chapter. The main differences are the following: on the one hand, (i) capital expenditures as shown does not include cash received from disposals and from interest and investment income; (ii) loans and financial receivables are not taken into account; (iii) cash received from government grants is not offset against cash paid for corresponding investing activities; and (iv) timing differences from purchase price payables are not reflected. On the other hand, (i) capital expenditures as shown include payments made for the acquisition of shares in subsidiaries without effecting a change of control, which pursuant to IFRS 7 (revised 2008) are presented in cash flow from financing activities.

(2) Replacement and others includes replacement investments necessary to maintain production (except for optimization investments) and other investments required by health, safety or environmental laws and regulations as well as investments in information technology, administration and distribution.

(3) Optimization includes optimization investments made in existing plants for purposes of capacity increases, rationalization and production capability for new products or quality improvements.

(4) Expansion includes construction of new facilities and new product lines, material modernizations of plants, acquisitions and post-acquisition capital expenditures.

The capital expenditure of the Xella Group increased to €91.4 million (+5.8%) due to additional expansion projects in the 2012.

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Major investments were the acquisition of an AAC plant in Czech Republic (€14.8 million) and an unfinished gypsum fibreboard plant in Spain (€14.5 million) where we have spent additional expansion Capex related to the preparation of the production start (€3.9 million). Furthermore, we have invested €6.6 million in the capacity increase in our cement-bonded boards plant in Calbe, Germany. In our Lime business unit we have continued the Ecoloop project (€2.7 million) as well as the expansion in the Russian plant in Tovarkovo (€0.8 million). Selected optimization projects were also implemented in 2012. However, investments in optimization projects decreased compared to the 2011. As a provider of premium products, maintenance work and replacements to the plant and equipment in our facilities is absolutely critical to maintain our high quality standards at all times. Replacement investment in 2012 matched that of the prior year. In addition, we invested in our production plant and equipment to improve our productivity, quality and energy efficiency as well as to tailor our capacity and product portfolio to market requirements. Investment of Surplus Cash

Due to the decentralized nature of our business, cash within our Group is generally kept and invested by each local entity. Cash requirements of our subsidiaries in various jurisdictions may thus be met mostly at a local level. Our subsidiaries are, however, required to transfer excess amounts of cash to their respective parent company and ultimately to Xella International GmbH where it will be invested in over-night funds or fixed-term deposits mainly at our lender banks under the Senior Facilities Agreement. Group Cash Management

To manage liquidity within our Group, Xella International GmbH maintains intra-Group clearing accounts for most of our subsidiaries. These intra-Group clearing accounts facilitate the settlement of intra-Group receivables and liabilities without utilizing banks. In addition, we have implemented a cash pooling system in the form of zero balancing with several banks in Germany for most of our German subsidiaries and in France for our French entities. We have introduced our cash management systems, including our cash pooling system, to provide our management with key information on our liquidity, to optimize our Group’s surplus liquidity and to realize interest benefits by pooling liquidity and subsequently allocating to those entities requiring cash. Cash pooling accounts of our subsidiaries are consolidated on a regular basis and automatically transferred to the master account. Cash requirements at our subsidiaries not participating in the cash pooling system are generally met through inter-company loans with the holding company of the respective subsidiary. In addition, Xella International GmbH and Xella Finance GmbH may act as lenders in such inter-company financings. Contractual Obligations

Financing Arrangements

As of December 31, 2012, the maturity profile of our third-party financing arrangements was as follows:

Third-Party Financing Arrangements

€ million 0-1 years 1-5 years over 5 years Total

Senior Facilities Agreement (Facilities A, B and C)(1) 33.3 341.5 - 374.8

Senior Facilities Agreement (Facility D1 Loan)(1) - - 300.0 300.0

Senior Facilities Agreement (Capex/Acquisition Facility)(1) 6.9 23.1 - 30.0

Finance lease liabilities 1.6 6.9 0.7 9.1

Total 41.8 371.5 300.7 713.9

Payments due by Period

(1) Amounts refer to principal amounts. Other Contractual Obligations

In addition, we have other contractual obligations incurred in the ordinary course of business, such as purchase commitments for production and non-production materials, including supplies, services, hedging contracts and capital expenditures. As of December 31, 2012, the maturity profile of our other contractual obligations was as follows:

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Other Contractual Obligations

€ million 0-1 years 1-5 years over 5 years Total

Purchase obligations for property, plant and equipment 2.3 - - 2.3Operating leases 10.6 17.9 27.7 56.1

Total 12.8 17.9 27.7 58.4

Payments due by Period

Pension Obligations

In addition to the obligations shown in the table above, we have significant pension obligations. We operate both funded and unfunded defined-benefit pension schemes for beneficiaries under arrangements that have been established in the various countries in which we offer employee pension benefits. As of December 31, 2012, we had total pension obligations of €289.3 million, of which €177.0 million (61.2%) were unfunded. Our defined benefit obligations are based on certain actuarial assumptions that can vary by country, including discount rates, life expectancies, long-term rates of return on invested plan assets and rates of increase in compensation levels. To the extent that the funded plans are not fully funded, the difference has been provided for. If actual results, especially discount rates, life expectancies or rates of return on plan assets were to differ from our assumptions, our pension obligations could be higher than expected and we could incur actuarial gains and losses. Changes in all assumptions or under-performance of plan assets could also adversely affect our financial condition and results of operations. Under IAS 19, actuarial gains and losses are not posted to income until they lie outside a corridor of 10% of the higher present value of the pension obligation and the plan assets. Any amount above such corridor is amortized over the average remaining period of service of the workforce. Differences between estimated and actual returns on plan assets can require us to record additional expenses. If invested pension plan assets perform negatively or below assumptions we would incur actuarial losses and we could have to revise our assumptions. Future declines in the value of plan assets or lower-than-expected returns may require us to make additional current cash payments to pension plans or non-cash charges to our income statement. IAS 19, Employee benefits, was amended in June 2011 as a result of a long series of discussion. IAS 19 eliminates the so-called corridor approach and mandates recognition of all actuarial gains and losses directly in OCI as they occur. Furthermore, all past service costs are to be recognized immediately. Besides, the current approach to assess interest cost and expected return on plan assets will be replaced by compulsory application of a uniform, market-based discount rate to both the defined benefit liability and any corresponding plan asset (‘net interest approach’). The new standard is expected to increase volatility in equity. The revised IAS 19 is expected to be applied in 2013, with corresponding retrospective application in 2012. Environmental Obligations

As of December 31, 2012, we had provisions for environmental obligations of €38.0 million. Provisions for environmental obligations primarily relate to recultivation obligations to cover the cost of recultivating lime quarries and sand pits to environmentally acceptable conditions once exploitation has been finished. The provision is created in instalments over the prospective operating life of the respective quarry or pit in keeping with the scope of the quarry’s or pit’s annual output. The provision is measured on the basis of the estimated cost for recultivating the sites on the basis of the actual output to date in relation to the total estimated resources at the site.

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4.7. Factors Affecting Our Results of Operations

Our results of operations are affected by the following factors, among others. Market Trends, General Economic Conditions, Construction Activities and Competition

The building materials industry in any geographic market is dependent on the level of activity in the construction sector of that geographic market. The construction industry is cyclical in nature and dependent on the level of construction-related expenditures in the residential, industrial and commercial sectors, public investments and public and private spending on infrastructure projects. The construction industry is particularly sensitive to factors such as GDP growth, interest rates and cost of mortgage financing for residential, commercial and industrial construction, inflation as well as other macro-economic factors. Political instability or changes in government policy may also affect the construction industry. Our Building Materials business unit, particularly with respect to sales volume for AAC and CSU, is dependent to a large extent on developments in new residential construction activities, with new housing starts and building permits showing a strong correlation with demand for our AAC and CSU products, and to a lesser degree, also on developments in new non-residential construction. Our Dry Lining business unit has historically been less cyclical due to its significant exposure to the more stable residential and commercial renovation markets. Due to its diversified customer base with customers in various industries, long-term supply contracts and limited exposure to the more cyclical construction industry, our Lime business unit has also historically been less exposed to cyclicality. We have been affected by fluctuations in the economic conditions of the markets in which we sell our products. During the recent global financial and economic crisis, our business was particularly affected in Western Europe (including Germany), Central and Eastern Europe, the Americas and, to a limited degree, China. Among our three business units, Building Materials has been affected most significantly. Countries that recorded a significant decline in building construction investments included Spain, Ireland and Greece, where we do not have a presence or are only active to a limited extent, as well as several Central and Eastern European countries, most notably Hungary, Romania and Bulgaria. Generally, competition in the building materials industry is geographically limited as transportation cost constitute a significant part of overall product cost. While we believe that historically a combination of brand recognition among customers, customer-specific application services, innovative products from our research and development and product quality has allowed us to achieve premium pricing, decreases in demand may result in at least temporary excess capacity and increased competition by regional and other competitors. In 2009 and 2010, we experienced increased price competition in AAC and CSU building materials in several countries that resulted in lower net average revenues and decreases in our margin. In the course of 2011 and 2012 we were able to successfully implement price increases in core markets. Seasonality and Weather Conditions

The construction industry, and therefore demand for building materials, is seasonal in nature and dependent on weather conditions as periods of frost, snow or heavy rain negatively affect construction activities. Lower demand for building materials occurs in periods of cold weather and other unfavorable weather conditions, which also leads to a volatile development of our quarterly financial results. Historically, our sales in the second and third quarters have been significantly higher than in the other quarters of the year, particularly the first quarter. For example, in 2010 large parts of Europe experienced extreme winter conditions in the first and the fourth quarter, which had stronger seasonal effects than in previous years. It is widely believed that climate change may contribute to the occurrence of extreme weather events. Such adverse weather conditions can materially adversely affect our business, financial condition and results of operations if they occur with unusual intensity, during abnormal periods, or last longer than usual in our major markets, especially during peak construction periods. While primarily our Building Materials business unit is subject to strong seasonal effects, the same applies to a lesser degree to our Dry Lining and Lime business units. Public holidays and vacation periods constitute an additional factor that may exacerbate certain seasonality effects, as building projects or industrial production processes may temporarily cease. Results of a single financial quarter might therefore not be a reliable basis for the expectations of a full fiscal year and may not be comparable with the results in the other financial quarters in the same year or previous years. Prices of Raw Materials and Energy

Our most important products, AAC, CSU, mineral insulation board, gypsum fibre board, fire protection board, cement-bonded board and lime and limestone are to a large degree commodity products.

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Therefore, our profitability critically depends on operating cost and our ability to manage such operating cost. In addition to operational efficiency, prices for input factors are the most important factor determining variable operating cost. Prices for lime, cement, sand, gypsum and anhydrite, aluminum, paper and steel, which are the most important raw materials for building materials and dry lining products, have in the past fluctuated significantly and, together with other input factors, accounted for 17.4% of our sales for the full year 2012. Our production processes require large quantities of energy from various sources. Our energy cost, which mainly consist of cost for the supply of electricity, gas, coal, coke, diesel and other fuels incurred in connection with the production of our products, also account for a high percentage of our cost basis. In 2012 our energy cost amounted to a total of €152.2 million, or 11.9% of our total sales. Our energy costs are affected by various factors, including the availability of supplies of particular forms of energy, energy prices and regulatory trends and decisions. In particular, prices for oil and gas have been extremely volatile during the last four years, with prices ranging between US$40 and more than US$140 per barrel of oil. In addition, if we will be required to acquire additional emissions certificates for carbon dioxide to maintain our production at current levels or to meet additional demand, our total energy cost may increase considerably in the third trading period of the EU Emission Trading System beginning in 2013. In order to manage risks from fluctuations in raw material prices, we enter into supply agreements covering significant portions of our expected requirements for certain raw materials, such as cement, lime and, to a lesser degree, sand, for periods typically between 12 and 36 months. Similarly, we attempt to mitigate risks of fluctuating energy prices by entering into supply agreements with significant portions of our expected energy requirements for periods typically between 24 and 36 months while maintaining the ability in several of our production processes to use different types of combustibles. For 2013, we have covered a significant part of our expected requirements for raw materials with supply contracts, particularly cement (76.2%), lime (54.6%) and aluminum (65.4%) (subject to certain price adjustments), and 62.0% of our expected energy requirements through existing supply agreements (subject to certain price adjustments). For 2014 and 2015, we have already contracted 21.9% and 20.8% of our expected requirements for lime (subject to certain price adjustments) and 43.0% and 41.0% of our expected energy requirements by entering into supply agreements (subject to certain price adjustments). If raw material or energy prices decline after we have entered into supply agreements for such raw material or energy supplies, we may have to pay prices in excess of prevailing spot market prices, which may adversely impact our results of operations. Because we enter into new supply agreements on a rolling basis, the average price that we pay under those contracts generally reflects market trends on a trailing basis. Generally, we do not use financial derivatives to hedge against risks from fluctuating raw material and energy prices. Ability to Increase Prices and Pass on Increased Cost

The primary factor affecting our margin, in addition to the structure of our cost base, the absolute level of cost and our ability to manage our operating cost, are the prices that we can charge to our customers for our products. Historically, we have generally been able to pass on price increases of raw materials, energy and other input factors to our customers. Due to our high-quality portfolio of technologically advanced products and customer-specific application services, our strong sales force focusing on construction projects and customer-specific solutions, and the strength of our brands, we believe that we have in the past been able to achieve premium prices. However, our ability to increase prices to pass on increased production cost may be limited by the level of competition in the relevant market. Our competitors’ pricing policies may be influenced by, among other things, general economic conditions and more specifically the conditions of the building industry, the number of competitors and their production capacities, our competitors’ cost base and general business strategy. For example, in the course of the recent global financial and economic crisis, the level of competition in the building materials industry in many countries increased due to the decline of demand and temporary excess capacity. Our Building Materials business unit thus faced intense price competition, resulting in a decline of margins in the fiscal years ended December 31, 2009 and 2010, as optimization in our production cost structure, benefits from strategic purchasing initiatives as well as cost saving programs were insufficient to fully offset the reduced price levels for our building material products. With the second quarter of 2011, we have started to implement price increases across our product portfolio to pass on increased cost in raw materials, energy and other input factors to our customers and to compensate for negative effects of increased price competition in the fiscal years ended December 31, 2009 and 2010. There can, however, be no assurance that these and any future price increases will be accepted by our customers, that we will be able to pass on further increases in the cost for raw materials, energy and other input factors in a sustainable manner or at all or that we will be able to maintain premium prices for our products. To the extent that we implement price increases, our sales

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volumes and market share may be adversely affected, at least temporarily, if competitors do not increase their prices or only do so with delay. Flexibility of Our Cost Structure

Our production cost include cost of raw materials and other input factors, staff, energy, repairs and maintenance of our production facilities and other fixed and variable cost. In our Building Materials business unit, our most cyclical segment, approximately one-half of our cost within EBITDA are variable (comprising, among others, raw materials, energy, merchandise and other input materials as well as transportation cost) and 31% relate to personnel and maintenance. Similarly, in our Dry Lining business unit, 57% of our cost within EBITDA are variable and 27% relate to personnel and maintenance, while more than 60% of cost within EBITDA in our Lime business unit are variable, with 29% relating to personnel and maintenance. Our production processes allow for flexible shift systems and capacity adjustments to meet increased or decreased demand for our products. In connection with the global financial and economic crisis, we reduced the number of employees in our Building Materials business unit by more than 900 (full-time equivalents), mainly in our production processes through a reduction of shifts and adjustments within shifts and reduced our expenses for repairs and maintenance by €11.1 million between 2007 and 2010. Our efforts to streamline our delivery chain benefited from our dense network of production plants in several European countries. With the recovering economic situation in 2011, we increased our production capacities. The number of employees rose by nearly 200 (full-time equivalents). Currency Fluctuations

We conduct business in approximately 20 currencies and prepare our consolidated financial statements in euro. In 2012, we generated approximately 26.8% of our sales in currencies other than the euro, mainly Czech koruna (5.6% of our total sales) and Polish zloty (4.4% of our total sales), and we expect the percentage of our sales generated in currencies other than the euro to increase in the future. As most of our purchases are conducted in the same currency as we invoice our sales, we face only a limited transactional currency risk in our core operations. Changes in foreign currency exchange rates can affect the value of our foreign assets, sales, liabilities and cost when reported in euro and, therefore, our financial condition and results of operations. Based on our 2012 sales denominated in Czech koruna and Polish zloty, a decrease in the euro to Czech koruna and Polish zloty exchange rates of 1% would have resulted in a decrease in our consolidated sales of approximately €0.7 million and €0.6 million, respectively. Therefore, if the euro appreciates, in particular in relation to the Czech koruna and Polish zloty, and our sales and expenses denominated in foreign currencies remain the same, or, in some cases, even if our sales increase or our expenses decrease, our revenues and profits in euro will decline. As of December 31, 2012, we had financial liabilities denominated in Polish zloty in an amount of PLN 359.3 million which provides an additional hedge against a depreciation of the Polish zloty against the euro. We manage the remaining net exchange rate risk by partly hedging current receivables and future sales as well as sourcing in currencies other than the functional currency of our foreign subsidiaries, and by partly hedging current receivables and future sales with forward foreign exchange contracts that in general cover significant parts of our currency exposure for each fiscal year. This policy has been established to enable management to plan future cash flows in functional currencies from anticipated foreign currency sales and related accounts receivable more effectively. The hedge period for expected sales is generally up to one year. We may, however, extend or shorten the hedge period at any time depending on expectations as to the development of foreign currency exchange rates and the assessment of aggregate risk. While our hedging strategy enables us to partly mitigate the effects on our cash flows of an appreciation of the value of the euro compared to the respective functional currencies of our foreign subsidiaries over a period of up to one year, it does not enable us to mitigate the risk of a long-term appreciation of the euro compared to the respective functional currencies of our foreign subsidiaries. Interest Rate Fluctuations

We have a significant amount of long-term debt and are exposed to interest rate risk from these debt instruments. In order to hedge against higher interest expenses due to increased interest rates, we have entered into interest rate hedging transactions with interest rate caps for a total notional amount of €400 million with a cap strike rate of 3.5% and a maturity date March 31, 2013. Given that all interest rate cap transactions by definition only have a positive market value or a minimum of zero, we will not incur break cost if such interest rate hedging instruments are terminated. An increase of variable interest rates by 100 basis points would have resulted in additional interest expenses of approximately €3.9 million in 2012.

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Acquisitions, Greenfield Investments and Capital Expenditures

Among the production plants we established between 2008 and 2010, our plants in Romania (Ploesti), China (Tianjin), Bosnia-Herzegovina (Tuzla) and Russia (Tovarkovo). In 2011 we increased our stake in the Pontenure AAC plant in Italy to 100% and made an acquisition in the Building Materials business by purchasing one CSU production plant in Teodory, Poland. In 2012 we acquired an AAC plant in Czech Republic from H+H International A/S which will be integrated in our existing Business Materials business in Czech Republic. In our Dry Lining business unit we have acquired an unfinished gypsum fibre-board plant in Spain and are currently expanding our capacity for the production of cement bonded boards at our plant in Calbe, Germany. Operations in new markets frequently have longer periods of start-up losses as it may take several years for greenfield operations (typically five to seven years) or acquired plants, subject to developments in the relevant geographic markets, to become profitable. In 2012, we have incurred start up losses of €6.6 million (PY: €3.0 million) which are mainly related to the new gypsum fibre board plant in Spain and the Ecoloop project. In 2013, we will continue our maintenance measures and selected optimization projects in accordance with our observation of current market developments. Further we plan to finalise the construction of the new gypsum-fibre board plant in Spain, expected to start operation in May 2013. In our Dry Lining business unit, the second phase of a planned capacity increase in our cement-bonded boards plant in Calbe, Germany has started its testing phase in the first quarter of 2013.

New International Financial Reporting Standards and Interpretations

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accompanying interpretations issued by the International Financial Reporting Interpretations Committee (IFRIS-IC). The following pronouncement has been adopted by the group to the extent that it has been endorsed in the European Union (EU) and it is mandatorily effective for periods beginning on or after January 1, 2012:

Amendment to IFRS 7, Disclosures - Transfer of Financial Assets by the EU as of July 1, 2011

The pronouncement had no material impact on the Group`s financial position, cash flows or results of operation. Issued, but not yet effective IFRS and IFRIC

The following table summarizes all issued new IFRS pronouncements until these annual consolidated financial statements have been authorized for issue, though irrespective of their date of mandatory or optional initial application. Where considered relevant for an understanding of the potential future impact of these new rules, additional guidance is being provided at the bottom of this table. Application in FY 2013

Amendment to IFRS 1, Severe Hyperinflation and Removal of Fixed Dates for first-time Adopters by the EU as of January 1, 2013

Amendment to IAS 12, Deferred Tax: Recovery of Underlying Assets by the EU as of January 1, 2013

IFRS 13, Fair Value Measurement by the EU as of January 1, 2013

Amendment to IAS 1, Presentations of Items of Other Comprehensive Income by the EU as of July 1, 2012

IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine by the EU as of January 1, 2013

Amendments to IAS 19 Employee Benefits by the EU as of January 1, 2013

Improvements to IFRS 2009-2011 Cycle by the EU as of January 1, 2013

IFRS 1 - Permit the repeated application of IFRS 1, borrowing costs on certain qualifying assets

IAS 1 - Clarification of the requirements for comparative information

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IAS 16 - Classification of servicing equipment

IAS 32 - Clarify that tax effect of a distribution to holders of equity instruments should be accounted for in accordance with IAS 12 Income Taxes

IAS 34 - Clarify interim reporting of segment information for total assets in order to enhance consistency with the requirements in IFRS 8 Operating Segments

Amendment to IFRS 7, Disclosures - Offsetting Financial assets and Financial liabilities by the EU as of January 1, 2013

Application in FY 2014 or later

IFRS 10, Consolidated Financial Statements by the EU as of January 1, 2014

IFRS 11, Joint Arrangements by the EU as of January 1, 2014

IFRS 12, Disclosure of Interests in Other Entities by the EU as of January 1, 2014

Revision of IAS 27, Separate Financial Statements by the EU as of January 1, 2014

Revision of IAS 28, Investments in Associates and Joint Ventures by the EU as of January 1, 2014

Amendments to IFRS 10, IFRS 12 and IAS 27, Investment Entities by the EU as of January 1, 2014

Amendment to IAS 32, Offsetting Financial assets and Financial liabilities by the EU as of January 1, 2014

IFRS 9, Financial Instruments: Classification and Measurement: Financial Assets by the EU as of January 1, 2015

IFRS 9, Financial Instruments: Classification and Measurement: Financial Liabilities by the EU as of January 1, 2015

Amendments to IFRS 9 and IFRS 7, Mandatory Effective Date and Transitional Disclosure Requirements by the EU as of January 1, 2015

IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 has been issued in two parts yet, and once a third part with an amended set of hedge accounting rules has been issued, these new requirements will replace the existing IAS 39 in its entirety. IFRS 9 (part I) requires financial assets to be classified into two measurement categories - those measured as at fair value and those measured at amortized cost. The determination is made at initial recognition and depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, IFRS 9 (part II) retains most of the existing IAS 39 requirements. The main change is that, in cases where the so-called fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in Other Comprehensive Income (OCI) rather than in the income statement, unless this creates a so-called accounting mismatch. The Group is yet to assess IFRS 9’s full impact. IFRS 9 (parts I, II and III yet to be issued) are expected not to be applied before 2015, with corresponding retrospective application and additional transitional rules not before 2014 year ends.

IFRS 10, Consolidated Financial Statements, builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess, inter alia by providing detailed prescriptive guidance on substantial rights. IFRS 10 supersedes the existing IAS 27 and SIC-12 requirements for consolidation, though without significantly changing the overall rational. The Group is yet to assess IFRS 10’s full impact and will adopt IFRS 10 in 2014 under consideration of accompanying transitional requirements for 2013.

IFRS 11, Joint Arrangements, sets out requirements for the classification and accounting of joint ventures and joint operations by introducing new criteria. IFRS 11 supersedes IAS 31 based on which application of the proportionate consolidation of legal entity joint ventures will no longer be permitted. However, classification of certain arrangements as joint operations may lead to the recognition of rights and obligations and corresponding income and expenses in the consolidated financial statements of

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the venture. The Group is yet to assess IFRS 11’s full impact and will adopt IFRS 11 in 2014, with corresponding retrospective application in 2013.

IFRS 12, Disclosures of Interests in other Entities, includes disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose entities and other off balance sheet vehicles. The Group is yet to assess IFRS 12’s full impact and will adopt IFRS 12 in 2014, with corresponding retrospective application in 2013.

IFRS 13, Fair Value Measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement with additional disclosure requirements for use across various effective IFRSs. The requirements, now largely aligned between IFRS and US GAAP, do not mandate or extend the use of fair value accounting but provide guidance on how to apply fair value measurement where already required or permitted by other standards. The Group expects no significant impact on its net assets, financial position and results of operations.

IAS 19, Employee benefits, was amended in June 2011 as a result of a long series of discussion. IAS 19 eliminates the so-called corridor approach mandates recognition of all actuarial gains and losses directly in OCI as they occur. Furthermore, all past service costs are to be recognized immediately. Besides, the current approach to assess interest cost and expected return on plan assets will be replaced by compulsory application of a uniform, market-based discount rate to both the defined benefit liability and any corresponding plan asset (‘net interest approach’). The revised IAS 19 will be applied in 2013, with corresponding retrospective application in 2012. Based on preliminary calculations the retrospective application will result in a decrease of equity as of January 1, 2013, of approximately €50 million resulting from the increase of the pension provisions and related deferred taxes. In 2013 the new standard is expected to increase the volatility of equity. In 2013 the actual development will mainly depend on interest rates as well as on other actuarial assumptions. For the funded pension plans, the development of the pension provisions will further depend on the performance of the plan assets. Based on the information available, the effects of the application of the net interest approach as well as changes in the treatment of past service costs are not expected to have a significant influence on the financial statements of 2013.

In 2012, the Group did not opt for voluntary early adoption of either of the aforementioned IFRS pronouncements. Adoption of any of the aforementioned IFRS pronouncements is subject to prior endorsement by the European Parliament.

Critical Accounting Policies and Estimates

Estimates

Our consolidated financial statements and interim consolidated financial statements have been prepared in accordance with IFRS. The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales, income and expenses during the relevant period. Although these estimates and assumptions are based on management’s best knowledge of current events and circumstances, the actual results ultimately may differ from those estimates and assumptions. We evaluate such estimates and assumptions on an ongoing basis based upon historical results and experience, in consultation with experts and using other methods we consider reasonable in the particular circumstances, as well as our forecasts regarding future changes. Estimates and assumptions are particularly necessary for the measurement of property, plant and equipment, lime quarries and intangible assets, such as trademarks and goodwill and non-current CO2 certificate as well as for the measurement of deferred taxes and warranty provisions.

Purchase Price Allocation

Purchase price allocations are an integral part for the accounting of business combinations in accordance with IFRS which require significant management judgement and the use of estimates. Particularly in connection with the Acquisition, we were required to estimate the fair values of the Group’s assets and liabilities. Beyond the determination of fair values and useful lives for property, plant and equipment, the measurement of provisions for pensions, other provisions and an indemnification receivable against the former shareholder, particularly the measurement of intangible assets and deferred taxes required a substantial degree of management estimates and assumptions.

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Trademark and Goodwill

Upon the Acquisition, we identified certain brands with indefinite lives and recorded as goodwill the difference between the purchase price and net assets acquired measured at fair value. In subsequent periods, we test brands and goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate that brands or goodwill might be impaired. An impairment charge is recognized if the carrying amounts of brands or goodwill exceed their fair values. The future cash flows used to determine the fair values of brand and goodwill are based on current business expectations and discount rates. Changes in future projected cash flows and discount rates applied may lead to impairment charges in future periods.

Deferred Taxes

Deferred tax assets and liabilities under IFRS are recognized for temporary differences between the carrying amounts in the consolidated balance sheet and the tax base of respective assets and liabilities as well as on tax loss carry-forward. We have recorded significant deferred tax assets and liabilities, which are expected to affect operating results over future periods. Significant assumptions may include the probability of sufficient future taxable income being available to realize deferred tax assets recognized. If actual tax laws that would impose restrictions on the realization of the deferred tax assets should occur or there would not be sufficient taxable income available in the future, an adjustment to the recorded amount of deferred tax assets would affect operating results.

Pension Obligations and Other Employee Benefits

Provisions for pensions relate to obligations to employees. Liabilities for defined benefit plans are measured using the projected unit credit method, which involves various assumptions by management that affect the amount of the provision. This method involves considering biometric parameters and long-term interest rates as well as the latest assumptions on future salary and benefit increases. Plan assets established to cover the pension obligations are deducted from pension provisions. Actuarial gains and losses are not posted to income until they lie outside a corridor of 10% of the higher of the present value of the pension obligation and the plan assets (corridor method). Any amount above this corridor is amortized over the average remaining period of service of the workforce.

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5. Certain Relationships and Related Party Transactions

In the course of our ordinary business activities, we regularly enter into agreements with or render services to related parties. In turn, such related parties may render services or deliver goods to us as part of their business. Purchase and supply agreements between subsidiaries and affiliated companies and with associated companies or shareholders of such associated companies that are not part of our Group are entered into on a regular basis within the ordinary course of business. Such transactions include, but are not limited to, the supply of raw materials (lime, sand and cement) for the production of our products and the sale of our products and the products manufactured by any entity described above. Furthermore, financing agreements and cash pooling agreements with and among subsidiaries and affiliated companies are entered into during the ordinary course of business.

We believe that all transactions with affiliated companies and persons with which members of our board of management or our supervisory board are affiliated are negotiated and conducted on a basis equivalent to those that would have been achievable on an arm’s-length basis, and that the terms of these transactions are comparable to those currently contracted with unrelated third-party suppliers, manufacturers and service providers.

In addition to the foregoing ordinary course transactions, we have also entered into the following transactions with related parties:

• A management equity participation program in which selected managers of Xella International S.A. and other employees and their close family members participate. For a description of the management equity participation program and the investment vehicle that has been established in connection therewith, see “Our Shareholders—Management Participation Program”.

• The following debt instruments with Xella International Holdings S.à r.l.

• Preferred Equity Certificates Series A, dated August 28, 2008 with an aggregate par value of €552.6 million (in two tranches);

• Preferred Equity Certificates Series A, dated August 28, 2008 with an aggregate par value of €5.0 million;

• Preferred Equity Certificates Series B, dated August 28, 2008 with an aggregate par value of €164.0 million; and

• Preferred Equity Certificates Series B, dated March 4, 2010 with an aggregate par value of €10.0 million.

See “Description of Certain Other Indebtedness—Shareholder Loans”.

• Two monitoring service agreements with Goldman Sachs International and PAI partners SAS entered into in connection with the Acquisition under which Goldman Sachs International and PAI partners SAS provide (i) certain services and advice on agreements, contracts, documents and instruments to be entered into by us, (ii) strategic, financial, managerial and operational advice, and (iii) other services which may include financial and strategic planning and analysis, consulting services, human resources and executive recruitment services.

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6. Description of Certain Other Indebtedness

The following contains a summary of the material terms of certain financing arrangements to which Xella International S.A. and certain of its subsidiaries are a party. The following summaries are not complete and are subject to the full text of the documents described below.

Senior Facilities Agreement

General

Pursuant to the Senior Facilities Agreement dated August 27, 2008, as amended and restated on October 10, 2008 and as amended on November 24, 2008, February 5, 2009 and February 8, 2010 and as amended and restated pursuant to an amendment deed dated on May 26, 2011 and amended and restated pursuant to an amendment and restatement agreement dated on December 13, 2012 (the “Senior Facilities Agreement”) among, inter alios, (i) Xella International S.A., (ii) certain subsidiaries of Xella International S.A. as borrowers and together with Xella International S.A. as guarantors (collectively, the “Senior Facility Guarantors”), (iii) UniCredit Bank AG (formerly Bayerische Hypo- und Vereinsbank AG), BNP Paribas S.A.—Niederlassung Frankfurt am Main, Crédit Agricole Corporate and Investment Bank Deutschland, Niederlassung einer französischen société anonyme (formerly Calyon Deutschland, Niederlassung einer französischen société anonyme), Landesbank Baden-Württemberg and The Royal Bank of Scotland plc, Frankfurt Branch, as mandated lead arrangers, (iv) UniCredit Bank AG, London Branch (formerly Bayerische Hypo- und Vereinsbank AG, London Branch), BNP Paribas S.A.—Niederlassung Frankfurt am Main, Crédit Agricole Corporate and Investment Bank Deutschland, Niederlassung einer französischen société anonyme (formerly Calyon Deutschland, Niederlassung einer französischen société anonyme), Landesbank Baden-Württemberg and The Royal Bank of Scotland plc, Frankfurt Branch, as underwriters, (v) UniCredit Bank AG, London Branch (formerly Bayerische Hypo- und Vereinsbank AG, London Branch), as agent, security agent and issuing bank, and (vi) UniCredit Bank AG (formerly Bayerische Hypo- und Vereinsbank AG), BNP Paribas S.A.—Niederlassung Frankfurt am Main, Crédit Agricole Corporate and Investment Bank Deutschland, Niederlassung einer französischen société anonyme (formerly Calyon Deutschland, Niederlassung einer französischen société anonyme), Landesbank Baden-Württemberg and The Royal Bank of Scotland plc, Frankfurt Branch, as bookrunners, certain funds were made available to Xella International S.A. and its subsidiaries in connection with the funding of the Acquisition. Subject to certain conditions of the Senior Facilities Agreement, subsidiaries of Xella International S.A. may accede as additional borrowers and additional guarantors to the Senior Facilities Agreement.

The facilities under the Senior Facilities Agreement consist of:

• a Euro term loan facility in an aggregate amount of €270.0 million (the “Facility A”) in three tranches in an amount of €230.8 million (the “Tranche A1” and “Deferred Tranche A”) and €39.2 million (the “Tranche A2”) (as of December 31, 2012 outstanding €105.8 million (Tranche A1), €33.8 million (Deferred Tranche A) and PLN 82.3 million (Tranche A2)) ;

• a Euro term loan facility in an aggregate amount of €275.0 million (the “Facility B”) in two tranches in an amount of €235.0 million (the “Tranche B1”) and €40.0 million (the “Tranche B2”) (as of December 31, 2012 €91.0 million (Tranche B1) and PLN 138.5 million (Tranche B2));

• a Euro term loan facility in an aggregate amount of €275.0 million (the “Facility C” and together with Facility A and Facility B, the “Original Facilities”) in two tranches in an amount of €235.0 million (the “Tranche C1”) and €40.0 million (the “Tranche C2”) (as of December 31, 2012 outstanding €56.0 million (Tranche C1) and PLN 138.5 million (Tranche C2));

• a committed term loan facility in an amount of €300 million (the “Facility D”) (as of December 31, 2011 outstanding €300.0 million (Tranche D1);

• a multi-currency term loan facility in an original amount of €75.0 million, €35.0 million of which have been voluntarily cancelled in accordance with the Senior Facilities Agreement (the “Capex/Acquisition Facility” and, together with Facility A, Facility B, Facility C and Facility D, the “Term Facilities”) (as of December 31, 2012 outstanding €23.8 million (Capex/Acquisition Facility Tranche 1) and €6.2 million (Deferred Capex/Acquisition Facility Tranche)); and

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• a multi-currency revolving credit facility in an amount of up to €75.0 million (the “Revolving Facility” and, together with the Term Facilities, the “Senior Facilities”).

On May 26, 2011 the Issuer has acceded to the Senior Facilities Agreement as lender under Facility D.

A borrower or its affiliate may request an ancillary facility under the Revolving Facility in the form of (i) overdraft facilities, (ii) short-term loan facilities, (iii) performance bond, guarantee, bonding or documentary or standby letter of credit facilities, (iv) derivative or foreign exchange facilities or (v) other facilities or accommodation as may be required in connection with the business of Xella International S.A and its subsidiaries on the terms agreed between the relevant lender and relevant borrower or its affiliate (as of December 31, 2011 €20.0 million fronted ancillary facilities and €9.0 million ancillary facilities have been existing under the Senior Facilities Agreement).

References below to EBITDA mean EBITDA as defined in the Senior Facilities Agreement.

Limitations on Use of Proceeds

The amounts under the original term facilities were permitted to be used directly or indirectly for, inter alia, the funding of the Acquisition, the financing costs and expenses relating thereto, the refinancing of existing debt, and to a certain extent funding the business of our Group. Any amounts under Facility D to the extent funded from the Notes were permitted to be used to make an amount of €50 million available to Xella International Holdings S.à r.l. to be used to partially prepay or redeem outstanding indebtedness under the Haniel Vendor Loan, and towards prepayments of utilizations under Facility B and Facility C in certain amounts. If Facility D is funded from proceeds of notes other than the Notes, it must be used for the funding of preapproved acquisitions and discharging of debt of the relevant target group. Any amounts drawn under the Revolving Facility are permitted to be used for working capital and other general corporate purposes of Xella International S.A. and its subsidiaries.

Conditions to Borrowings

Drawdowns under the Senior Facilities are subject to conditions precedent that, among other things, on the date the drawdown is requested and on the drawdown date, (i) no default is continuing or would occur as a result of that utilization, (ii) in the case of rollover loans under the Revolving Facility, the agent under the Senior Facilities Agreement has not accelerated the loans under the Revolving Facility, and (iii) certain representations and warranties are true and correct in all material respects.

Repayments

Amounts outstanding under Tranche A1 and Tranche A2 of Facility A and under Capex/Acquisition Facility Tranche 1 of the Capex/Acquisition Facility must be repaid in semi-annual installments (commencing on June 30, 2009 and June 30, 2012 respectively) until the seventh anniversary of the date on which the Acquisition closed (the “Acquisition Closing Date”). Loans drawn under Facility B, under Deferred Tranche A and under Deferred Capex/Acquisition Facility Tranche 1 must be repaid in full on the eighth anniversary of the Acquisition Closing Date. Loans drawn under Facility C must be repaid in full on the ninth anniversary of the Acquisition Closing Date. Loans drawn under Facility D must be repaid on the repayment date specified in the relevant Facility D1 Commitment Letter (which must not be a date earlier than six months after the termination date of Facility C). No borrower under the Term Facilities may re-borrow any part that has been repaid, other than specified payments under the Capex/Acquisition Facility subject to certain conditions. The borrowers under the Revolving Facility are permitted to make up to a specified number of drawdowns under the Revolving Facility, which may be made for terms of, at the borrower’s election, one, two, three or six months or, with the consent of the agent under the Senior Facilities Agreement, such other term as agreed with Xella International S.A., but not beyond the final maturity date of the Revolving Facility. Drawdowns under the Revolving Facility must be repaid at the end of the relevant interest period for each drawdown and in full on the seventh anniversary of the Acquisition Closing Date.

Interest Rates

The interest rate on each loan (other than a Facility D loan) under the Senior Facilities Agreement for each interest period is the percentage rate per annum, which is equal to the aggregate of (i) the margin, (ii) LIBOR or in relation to any loan in euro, EURIBOR, or in relation to loans in polish zloty, WIBOR and (iii) any mandatory costs. Interest accrues daily from and including the first day of an interest period and is payable on the last day of each interest period (unless the interest period is

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longer than six months, in which case interest is payable on the dates falling at six monthly intervals after the first day of the interest period).

The margin in relation to Tranche 1 and 2 of Facility A, the Capex/Acquisition Facility Tranche 1 and the Revolving Facility is 3.00% per annum, in relation to the Deferred Tranche A, the Deferred Capex/Acquisition Tranche and to Facility B 3.75% per annum, and in relation to Facility C 4.25% per annum. The applicable margin is subject to adjustment from time to time based on specified leverage ratios, as follows:

Margin Margin Margin

(% per annum) (% per annum) (% per annum)

Leverage Ratio (as defined)

Facility A (Tranche A1 and Tranche A2 only,

Capex/Acquisition Facility (Capex/Acquisition Tranche 1 only) and

Revolving Credit Facility

Facility A (Deferred Tranche A only,

Capex/Acquisition Facility (Deferred

Capex/Acquisition Tranche only) Facility B

Greater than 2.75:1 3.00 3.75 3.75Greater than 2.50:1 but less than or equal to 2.75:1 2.75 3.50 3.50Greater than 2.25:1 but less than or equal to 2.50:1 2.50 3.25 3.25Less than or equal to 2.25:1 2.25 3.00 3.25

With respect to any available but undrawn amounts under the Revolving Facility, Xella International S.A. is obligated to pay a commitment fee in the base currency on such undrawn amounts of 1.00% per annum.

The interest rate relating to each Facility D loan must be the applicable interest rate to the underlying notes that funded the Facility D loan plus any additional de minimis margin required under applicable law or regulation in order to obtain or maintain a tax exempt status of a Facility D lender.

Guarantees and Security

Subject to certain security principles as described below, Xella International S.A. and certain of its subsidiaries are borrowers, guarantors and security providers of the obligations of each obligor under the Senior Facilities Agreement and related finance documents. Xella International S.A. must ensure, subject to the security principles described below, that guarantors (excluding for the purpose of EBITDA calculation and to the extent only that its EBITDA is less than zero, Xella Baustoffe GmbH) represent at least 85% of EBITDA of the Group and 75% of consolidated gross assets of the Group (in each case tested annually, as evidenced in the most recent annual or quarterly financial statements). The guarantors under the Senior Facilities Agreement have provided security over certain of their respective assets, subject to agreed security principles as described in more detail below. Such assets include but are not limited to:

• all present and future capital stock of the guarantors (other than Xella Baustoffe GmbH);

• certain bank accounts of the guarantors;

• certain inter-company and other receivables held by certain of the guarantors; and

• real property owned by certain of the guarantors.

Under the terms of the Intercreditor Agreement (as defined below), the proceeds of any enforcement of the security interests will be applied to repayment of the Senior Facilities and certain hedging obligations prior to being applied to repayment of other indebtedness.

Security Principles

The security principles limit the obligation to provide security and guarantees under the Senior Facilities Agreement based on certain legal and practical difficulties in obtaining effective security or guarantees from relevant companies in jurisdictions in which the company operates, and include, among others:

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• general statutory limitations, financial assistance, corporate benefit, fraudulent preference, “thin capitalization” rules, retention of title claims and similar principles may limit the ability of a member of the Group to provide a guarantee or security or may require that the guarantee be limited by an amount or otherwise;

• the applicable cost which shall not be disproportionate to the benefit to the lenders of obtaining such security;

• any assets subject to third-party arrangements which may prevent security being granted over those assets will be excluded from any relevant security document (so long as the relevant company providing security is required in certain circumstances to use reasonable endeavors to obtain such consent);

• Xella International S.A. and its subsidiaries will not be required to provide guarantees or enter into security documents if:

• it is not within the legal capacity of the relevant entity to do so;

• if the same would conflict with the fiduciary duties of the directors (or other officers) of the relevant entity; or

• to do so would contravene any applicable legal prohibition or have the potential to result in a material risk of personal or criminal liability on the part of any director (or other officer) of the relevant entity provided that the relevant entity shall use reasonable endeavors to overcome any such obstacle; and

• the giving of a guarantee or the granting, creation or perfection of security will not be required if it would restrict the ability of the relevant obligor to conduct its operations and business in the ordinary course as otherwise permitted by the finance documents.

No perfection action will be required if it could or is reasonably likely to have a material adverse effect on the commercial relationship of the relevant obligor or on its ability to conduct its operations and business in the ordinary course as otherwise permitted by the finance documents.

The security principles also set forth certain details regarding the provisions applicable to the guarantees and security. In the case of guarantees, this includes matters relating to the extent of the guarantee, the governing law and the applicability of corporate benefit restrictions. In the case of security, this includes matters relating to the time of enforcement, third-party notification requirements and restrictions, powers of attorney and the scope of the obligations to be included under the security documentation.

Mandatory Prepayment

The Senior Facilities Agreement includes mandatory prepayment provisions which, upon the occurrence of certain events, require Xella International S.A. to make prepayments and cancellation of the Senior Facilities (other than Facility D). In particular, but without limitation, Xella International S.A. is required to (i) prepay all amounts outstanding under the Senior Facilities (other than Facility D) promptly upon the occurrence of a change of control or a sale of substantially all of the business and assets of the Group (ii) prepay any lender (other than the Facility D Lender), ancillary lender or issuing bank who has informed the agent that it can no longer lawfully perform its obligations under the Senior Facilities Agreement and (iii) make prepayments of the Senior Facilities (other than Facility D) out of, among others, net sale proceeds, proceeds of insurance claims, recovery claims in respect of the Acquisition, and, for each financial year, a percentage of excess cash flow (which percentage decreases as the leverage ratio decreases).

None of such mandatory prepayment provisions apply to Facility D. If any amount of the Notes becomes repayable, prepayable or subject to repurchase or redemption prior to its originally scheduled maturity under the Notes (other than by reason of acceleration of any Notes), an equivalent amount of loans under Facility D with the same scheduled maturity as the Notes must at the same time be prepaid by Xella International S.A. under the Senior Facilities Agreement, provided that, in the case of an optional redemption, such mandatory prepayment is limited to optional redemption of the Notes (i) out of the proceeds of one or more equity offerings up to a maximum of 40% of the aggregate principal amount of the Notes, (ii) where the amount paid in optional redemption of the Notes is made

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pro rata to a voluntary prepayment of terms loans (other than loans under Facility D) under the Senior Facilities Agreement) or (iii) where payments under the Notes become subject to withholding tax (or increased withholding tax) due to a change in laws.

Undertakings

The Senior Facilities Agreement contains certain negative undertakings that, subject to certain customary and other agreed exceptions, limit our ability to, among others:

• make any substantial changes to the general nature of our business, taken as a whole;

• make any amendments to our constitutional documents;

• carry on any material business on the level of Xella International S.A.;

• make any disposals of all or any part of our assets;

• enter into acquisitions of shares or assets;

• form or enter into or acquire any joint venture;

• reorganize, amalgamate, merge or consolidate into any other person;

• incur or permit to subsist any financial indebtedness (other than permitted indebtedness);

• grant or make available any guarantee of financial indebtedness;

• create security;

• make any loans or grant any credit to or for the benefit of any other person;

• enter into any material agreement or arrangement with another members of the Group or any direct or indirect investors in Xella International S.A. or any of their respective affiliates other than on an arms’-length basis;

• issue any shares, or make any distribution or pay any dividend, return on capital, repayment of capital contributions or other distributions in respect of our or our affiliates’ shares; and

• optionally repay, prepay, repurchase or redeem any amount under the Notes and any additional notes (other than as specified above under “—Mandatory Prepayment”).

In respect of the negative undertakings relating to acquisitions of shares or assets, the agreed exceptions under the Senior Facilities Agreement cover (i) any acquisition of shares in any member of the Group and any acquisition of a controlling stake in a joint venture which is permitted under the Senior Facilities Agreement; (ii) any acquisition that Xella International GmbH or any of its subsidiaries was legally committed to make pursuant to arrangements existing at the date on which the Acquisition closed; and (iii) any other acquisition where the target is a business that is, taken as a whole, the same as or similar, complementary or related to the business of the Group and the acquisition is the acquisition of either the material assets of that business or a controlling stake in the entity that carries on (or owns) that business and where certain other conditions (as specified in the Senior Facilities Agreement) are complied with, including certain look-forward financial covenant compliance tests and, in relation to certain acquisitions, the provision of legal due diligence reports. In addition, the Group is permitted to raise additional financial indebtedness by way of issuance of additional senior secured notes or additional subordinated notes to fund not more than two acquisitions, each with a consideration of more than €75 million, provided that the ratio of net debt to EBITDA of the Group (pro forma to take account of the incurrence of such financial indebtedness and the use of the proceeds thereof) does not exceed 3.35:1 and certain other conditions are satisfied.

The Senior Facilities Agreement also requires each Senior Facility Guarantor to observe certain affirmative undertakings subject to materiality and other customary and agreed exceptions. Such undertakings relate to, among others, (i) maintenance of relevant authorizations, (ii) the compliance with relevant laws, including environmental laws, (iii) payment of taxes, (iv) preservation of fixed

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assets, (v) access to the books, accounts and records of Xella International S.A. and its affiliates, (vi) insurance, (vii) pari passu ranking, (viii) maintenance of intellectual property (ix) pensions, (x) provision of certain information, such as annual financial statements, quarterly accounts and monthly management statements, (xi) provision of compliance certificates, (xii) provision of annual budgets, (ix) information required for “know your customer” checks, and (xii) certain other information (including material litigation, arbitration and notice of default).

Financial Covenants

The Senior Facilities Agreement contains certain financial covenants which require us to, among others:

• maintain a minimum ratio of EBITDA to net cash interest (which shall be not less than 3.70 as of December 31, 2011 and thereafter);

• maintain a ratio of cash flow to total debt service of 1.0:1.0 at all times;

• maintain a maximum ratio of net debt to EBITDA (which shall be not more than 3.47 as of December 31, 2011, 3.78 as of March 31, 2012, 3.37 as of June 30, 2012, 2.82 as of September 30, 2012, 3.00 as of December 31, 2012, 3.35 as of March 31, 2013, 3.35 as of June 30, 2013, 3.13 as of September 30, 2013, 3.00 as of December 31, 2013, 3.28 as of March 31, 2014, 3.22 as of June 30, 2014, 2.88 as of September 30, 2014, 2.71 as of December 31, 2014, 2.94 as of March 31, 2015, 2.79 as of June 30, 2015, 2.70 as of September 30, 2015 and 2.50 thereafter); and

• not exceed certain annual capital expenditure levels.

Events of Default

The Senior Facilities Agreement contains customary events of default, including (i) the non-payment of amounts payable under the Senior Facilities Agreement or any finance document relating thereto, (ii) inaccuracy of any representation, warranty or statement when made or repeated, (iii) failure to comply with financial covenants, (iv) breach of any other obligation under the finance documents, (v) cross-default, including non-payment under, and acceleration of, the Notes and the occurrence of an event of default under the Covenant Agreement, (vi) insolvency of Xella International S.A. or any of its material subsidiaries, (vii) unlawfulness of the finance documents, (viii) cessation of business, (ix) commencement of certain litigation (x) breach of the Intercreditor Agreement, and (xi) material adverse change. Any such event of default would permit the lenders under the Senior Facilities Agreement (other than the Facility D Lender) to accelerate all obligations outstanding under the Senior Facilities Agreement, cancel their commitments thereunder and declare that amounts outstanding under the Senior Facilities Agreement are payable on demand. The rights of the Issuer as lender under Facility D to accelerate amounts outstanding under Facility D are subject to the voting restrictions applying to the Facility D lender set out in the Senior Facilities Agreement. In the event that amounts due under the Notes are accelerated, there is non-payment of amounts due under the Notes, or there is an event of default under the Covenant Agreement, the Senior Facilities Agreement provides that the agent under the Senior Facilities Agreement must, if so instructed by the Issuer as Facility D Lender, declare that all or any part of any amount outstanding under Facility D are immediately due and payable and payable on demand by Xella International S.A.

Specifics of Facility D

The Issuer, as lender under Facility D, is not entitled to rely or benefit from the provisions relating to representations, information undertakings, financial covenants, general undertakings or events of default, except for certain acceleration rights as described in the preceding paragraph. Furthermore, certain restrictions relating to voting rights of the Facility D Lender exist.

Intercreditor Agreement

On August 27, 2008 (as amended and restated pursuant to an amendment deed dated on May 26, 2011) Xella International S.A., Xella International Holdings S.à r.l. and certain other obligors entered into an intercreditor agreement (the “Intercreditor Agreement”) as original obligors with, inter alios, UniCredit Bank AG, London Branch (formerly Bayerische Hypo- und Vereinsbank, London Branch), as agent and security agent, the lenders under the Senior Facilities Agreement (including the Issuer as

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Facility D Lender), certain hedging banks and certain inter-company lenders and borrowers to establish relative rights of certain of the creditors of the Group.

The Intercreditor Agreement sets out, among others:

• the ranking of certain debts of the Group;

• the ranking of transaction security granted by Xella International S.A. and its subsidiaries;

• turnover provisions;

• terms pursuant to which indebtedness will be subordinated upon the occurrence of certain insolvency events;

• certain provisions with respect to enforcement action; and

• when security and guarantees will be released to permit a sale of assets subject to the transaction security.

The following briefly summarizes certain provisions of the Intercreditor Agreement. Only the Intercreditor Agreement in its entirety defines the rights and restrictions of the parties thereto and is available upon request.

Ranking and Priority

The Intercreditor Agreement subordinates intra-Group debt and investor debt (the “Subordinated Debt”) to the debt incurred pursuant to the Senior Facilities Agreement, including Facility D (the “Senior Debt”) and hedging debt. The Senior Debt and hedging debt rank pari passu in right and payment and without any preference between them. The Intercreditor Agreement does not purport to rank the Subordinated Debts as between themselves.

Collateral

The lenders under the Senior Facilities Agreement (including the Facility D Lender) and the hedging banks benefit from a common guarantee and security package. The guarantees and security granted to the holders of the Senior Debt and hedging debt and the proceeds of its enforcement also rank pari passu in right and payment and without any preference between them.

Subordinated Debt is and must remain unsecured and may not be guaranteed, subject to certain exceptions.

Permitted Payments

No member of the Group may make payments or distributions or exercise rights of set-off in respect of Subordinated Debt unless permitted pursuant to the Senior Facilities Agreement and no declared default is continuing. There are also restrictions on payments to hedging banks except certain specified permitted payments. Failure to comply with these restrictions would cause an event of default under the Senior Facilities Agreement (subject to applicable grace periods).

Turnover

Subject to certain exclusions, if the lenders under the Senior Facilities Agreement or the hedging banks receive or recover any amount after a declared default or an insolvency event (including by way of set-off) otherwise than in accordance with the payment waterfall described in “—Application of Proceeds” below, such person must hold that amount on trust for the security agent and promptly pay that amount to the security agent for application in accordance with the Intercreditor Agreement.

Enforcement

The security agent must act in relation to enforcement and the transaction security documents in accordance with the instructions of the majority lenders under the Senior Facilities Agreement. The voting rights of the Facility D Lender are subject to the restrictions set out in clause 38.3 “Voting Rights of Facility D Lender” of the Senior Facilities Agreement.

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Application of Proceeds

All amounts received pursuant to the turnover provisions described under “—Turnover” above, all proceeds of enforcement of the transaction security, all recoveries received or turned over to the security agent under guarantees of debt, and all other amounts paid to the security agent under the Intercreditor Agreement must be applied as follows:

• first in payment of fees, costs and expenses of the security agent and any advisor, receiver, delegate, attorney or agent in connection with the Intercreditor Agreement or transaction security documents;

• second pari passu in payment of costs and expenses of the lenders under the Senior Facilities Agreement and hedging banks in connection with the enforcement of the transaction security documents;

• third pari passu to the agent under the Senior Facilities Agreement for application towards the Senior Debt (including Facility D) and the hedging banks for application towards the hedging debt; and

• fourth in payment to the relevant member of the Group or other person entitled thereto.

Release of Guarantees and Security

If a member of the Group disposes of an asset in accordance with the Senior Facilities Agreement, the security agent is authorized to release any transaction security granted over such asset (and, if such asset comprises shares in an obligor or holding company of an obligor, to release (a) that obligor and each of its subsidiaries from any liabilities it may have as guarantor under the Senior Facilities Agreement and other finance documents and (b) any transaction security granted over the assets of that obligor and any shares in or assets of any subsidiary of that obligor).

Amendments

Subject to certain exceptions, the Intercreditor Agreement may be amended with the consent of the majority lenders under the Senior Facilities Agreement and, if such amendment would materially and adversely affect the rights or impose or vary any obligation of the hedging banks, with the consent of the hedging banks.

The voting rights of the Facility D Lender are subject to the restrictions set out in clause 38.3 “Voting Rights of Facility D Lender” of the Senior Facilities Agreement.

Haniel Vendor Loan

In the course of the Acquisition, Xella International Holdings S.à r.l. (formerly XI Holdings I S.à r.l.), our Parent, issued, inter alia, on August 29, 2008, an unsecured registered instrument due 2018, certifying that Franz Haniel & Cie. GmbH, the former shareholder of Xella International GmbH, is the registered holder of an amount of €164.0 million. Further additional unsecured instruments have been issued by our Parent to Franz Haniel & Cie. GmbH so that the total amount held by Franz Haniel & Cie. GmbH thereunder is €200.0 million. The Haniel Vendor Loan is issued as a registered instrument (Namensschuldverschreibung). The applicable interest rate is 9.0% per annum and interest is payable at the final maturity date. The Haniel Vendor Loan was amended on May 14, 2011. A portion of the proceeds from the bond issuance have been used to repay €50 million of the PECs described below, which repayment has then be used by Xella International Holdings S.à r.l. to repay €56 million under the Haniel Vendor Loan. As of December 31, 2012 €227.9 million have been outstanding under the Haniel Vendor Loan.

The Haniel Vendor Loan matures on August 29, 2018 when our Parent must redeem each instrument at par together with all interest accrued to the date of redemption or otherwise unpaid. The Haniel Vendor Loan must be redeemed early upon the occurrence of, among others, (i) a change of control of the Parent, (ii) an initial public offering of the shares in the Parent, (iii) a substantial asset sale of the Parent, or (iv) a re-leveraging acquisition, i.e., an acquisition with an enterprise value in excess of €200 million and the Senior Facilities Agreement being refinanced, principal amount thereof being increased or other financial indebtedness being incurred, in each case for the purpose of financing such acquisition, resulting in a ratio of Net Debt (as defined in the Senior Facilities Agreement) as of

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the date of such acquisition to pro forma EBITDA (for the twelve-month period ending on the date of such acquisition) in excess of 4.5:1.

The Haniel Vendor Loan contains certain customary representations. Furthermore, it includes certain information undertakings in relation to financial information by the Parent, among others, to provide annual financial statements, quarterly accounts, monthly management accounts, information relating to certain disposals or acquisitions of assets, and any notices provided by the agents under the Senior Facilities Agreement. In addition, the Parent must comply with certain negative and affirmative covenants, in particular restrictions on further financial indebtedness of the Parent and of Xella International S.A., that substantially correspond to the covenants under the Senior Facilities Agreement.

Under the Haniel Vendor Loan, Franz Haniel & Cie. GmbH may terminate the agreement if one of the following events occurs: (i) non-payment of amounts payable under the Haniel Vendor Loan, (ii) failure to comply with the obligations under the information undertakings or covenants, (iii) failure in any representation in any material respect when made, (iv) insolvency of the Parent, (v) acceleration under the Senior Facilities Agreement, or (vi) it becomes unlawful to perform the obligations under the Haniel Vendor Loan. Any such event of default would permit and require the acceleration of all obligations outstanding under the Haniel Vendor Loan.

Shareholder Loans

In connection with the Acquisition, Xella International S.A. issued two series of unsecured registered interest bearing preferred equity certificates (“PECs”) on August 29, 2008 in exchange for an aggregate amount of €721.6 million to Xella International Holdings S.à r.l. Each PEC has a nominal value of €0.01 and entitles Xella International Holdings S.à r.l. to receive certain interest payments.

The PECs series A are divided in two tranches of non-convertible certificates and represent a total principal amount of €557.6 million (as of December 31, 2012) and bear non-cash interest at a rate of 6% per annum. Total non-cash interest on such PECS series A accrued to €160.8 million as of December 31, 2012.

PECs series B have been issued on August 29, 2008 to Xella International Holdings S.à r.l. in a private offering and represented €164.0 million. In March 2010, Xella International S.A. issued a second tranche of PECs series B with a nominal value of €0.01 and a total issue amount of €10.0 million. These certificates were also issued in a private offering to Xella International Holdings S.à r.l. and have substantially the same terms and conditions as the PECs series B issued in August 2008. Certificates under PECs series B are non-convertible and bear non-cash interest at an interest rate of 9.0625% per annum. PECs series B’s provisions correspond to the terms for PECs series A. We have repaid €50 million of PEC series B with a portion of the proceeds from the Notes Offering. The total amount outstanding under the PECs series B including the accrued non-cash interest amounts to €196.3 million as of December 31, 2012.

The terms and conditions of the PEC series A and series B were amended in May 2011 so that they qualify as Deeply Subordinated Funding as defined under the Indenture. The PECs have the following features:

• they are subordinated to all debt, including the Notes, and Xella International S.A. will not issue any securities having, upon or following its liquidation, any right to payment prior to the payment in full of the par value plus all accrued and unpaid interest on each PEC;

• they must be redeemed on December 31, 2058 (mandatory redemption);

• subject to the conditions immediately below, they may be redeemed at any time at a certain redemption price which consists of the par value of a PEC plus the accrued but unpaid interest (the “Redemption Price”), provided that the Redemption Price will be payable only to the extent that (i) (a) Xella International S.A. will not be insolvent after making such payment and (b) Xella International S.A. will have sufficient funds available to pay or repay in full all amounts (whether principal, interest, fees or otherwise) due under the Finance Documents (as defined in the Senior Facilities Agreement) or if permitted by and in the manner set forth in, the Finance Documents and the Senior Secured Note Documents (as defined in the Senior Facilities Agreement) or any document in respect of the Notes, and (ii) the redemption is carried out in a manner as to maintain the same

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participation levels of the holder of PEC series B in instruments or agreements relating to the shares in Xella International S.A. (including conversion into such shares), debt instruments or PECs or giving rights to participate in the reserves and/or earnings or otherwise in the assets of Xella International S.A. as those which existed immediately prior to the redemption;

• no amortization, redemption or other repayment of the PECs shall occur prior to the 90th day following the maturity of the Notes and all other amounts due under the Indenture;

• subject to the conditions immediately below, interest may only be due and payable, inter alia, if Xella International S.A. has sufficient funds available to settle its liabilities to all other creditors, whether privileged, senior, subordinated, pari passu, secured or unsecured, including, without limitation, to pay or repay in full all amounts (whether principal, interest, fees or otherwise) due under the Finance Documents, or if permitted by and in the manner set forth in, the Finance Documents and the Senior Secured Note Documents or any document in respect of the Notes, after any such payment;

• interest shall not be paid in cash prior to the full discharge of the Notes or if permitted by and in the manner set forth in, the Finance Documents and the Senior Secured Note Documents or any document in respect of the Notes; and

• they have events of default, but they do not trigger an acceleration of the PECs and, except for the insolvency of liquidation proceedings of Xella International S.A., shall not be effective prior to the 90th day following the maturity of the Notes and all other amounts due under the Indenture and shall not result in an event of default prior to the 90th day following the maturity of the Notes and all other amounts due under the Indenture.

Letters of Credit

In general, most of the guarantees issued by and on behalf of Xella International S.A.’s subsidiaries are to secure recultivation obligations resulting from excavation of lime quarries and sand pits. In addition, guarantees have been issued for the fulfillment of certain contractual obligations, such as rental payments or for warranties. Those guarantees have been issued mainly through two of our principal banks and some have been provided by subsidiaries in the form of corporate guarantees.

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7. Risk Factors

An investment in the Notes involves a high degree of risk. In addition to the other information contained in this report, you should carefully consider the following risk factors before purchasing the Notes. The risks and uncertainties we describe below are not the only ones we face. Additional risks and uncertainties of which we are not aware or that we currently believe are immaterial may also adversely affect our business, financial condition or results of operations. If any of the possible events described below occurs, our business, financial condition or results of operations could be materially and adversely affected. If that happens, we may not be able to pay interest or principal on the Notes when due and you could lose all or part of your investment.

This report also contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks described below and elsewhere in this report. See “Forward-Looking Statements”.

7.1. Risks Related to the Notes and Our Structure

The Issuer is an unaffiliated financing vehicle and will depend on payments under the Facility D1 Loan to provide it with funds to meet its obligations under the Notes.

The Issuer has been formed as a financing vehicle established for the primary purpose of facilitating the Offering of the Notes. The Issuer has no material business operations, no subsidiaries and no employees and its only material assets are its rights as the lender under the Facility D1 Loan and the Senior Facilities Agreement. Furthermore, the Indenture prohibits the Issuer from engaging in any activities other than certain limited activities permitted under the heading. As such, the Issuer is wholly dependent upon payments from the Facility D Borrower under the Facility D1 Loan in order to service its payment obligations under the Notes. If the Facility D Borrower fails to make scheduled payments under the Facility D1 Loan, the Issuer will not have any other source of funds to meet its payment obligations under the Notes. In such circumstances, holders of the Notes would have to seek to enforce remedies under the Facility D1 Loan in order to recover payments due on the Notes, which is subject to the certain restrictions.

Our substantial leverage and debt service obligations could materially adversely affect our business, financial condition and results of operations and preclude us from satisfying our obligations under the Facility D1 Loan.

We are highly leveraged and have significant debt service obligations. As of December 31, 2012 we had total financial debt (excluding shareholder loans) in the amount of €714.0 million, with an additional €44.9 million of total availability under our Revolving Facility (and an additional €9.0 million of undrawn ancillary facilities). We anticipate that our high leverage will continue to exist for the foreseeable future and our strategy to improve our financial risk profile, in particular by reducing our net indebtedness, may be unsuccessful. We may also undertake acquisitions or make investments which increase our level of indebtedness and leverage.

Our substantial level of indebtedness presents the risk that we might not generate sufficient cash to service our indebtedness or that our leveraged capital structure could limit our ability to finance acquisitions, projects or general corporate purposes. In particular, we might not have sufficient funds to meet our obligations under the Facility D1 Loan, which is the only source of funds that the Issuer may use to satisfy its obligations under the Notes.

The degree to which we will be leveraged could have important consequences to holders of the Notes, including, but not limited to:

• making it more difficult for us to satisfy our obligations with respect to the Facility D1 Loan to enable the Issuer to satisfy its obligations with respect to the Notes and other debt and liabilities;

• increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions;

• requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability

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of such cash flow to fund working capital, capital expenditures, acquisitions, joint ventures, product research and development, or other general corporate purposes;

• restricting us from pursuing acquisitions or exploiting business opportunities;

• limiting our flexibility in planning for, or reacting to, changes in our business, the competitive environment and the industry in which we operate;

• negatively impacting credit terms with our suppliers and other creditors;

• exposing us to interest rate increases;

• placing us at a competitive disadvantage compared to our competitors that are not as highly leveraged; and

• limiting our ability to obtain additional financing to fund future operations, capital expenditures, business opportunities, acquisitions and other general corporate purposes and increasing the cost of any future borrowings.

Any of these or other consequences or events could have a material adverse effect on our ability to satisfy our obligations, including under the Facility D1 Loan. If we do not satisfy our debt obligations under the Facility D1 Loan, the Issuer will be unable to satisfy its obligations under the Notes.

We may incur substantial additional indebtedness in the future, which may make it difficult for us to service our debt, including the Facility D1 Loan, and impair our ability to operate our business.

We and our subsidiaries may incur substantial additional indebtedness in the future, including in connection with any future acquisition or joint venture. Although the Senior Facilities Agreement, the Indenture and the Covenant Agreement contain restrictions on the incurrence of additional indebtedness, the restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If we incur new debt or other obligations, the related risks that we now face, as described above in “—Our substantial leverage and debt service obligations could materially adversely affect our business, financial condition and results of operations and preclude us from satisfying our obligations under the Facility D1 Loan” and elsewhere in these “Risk Factors” could intensify. In addition, the Senior Facilities Agreement, the Indenture and the Covenant Agreement will not prevent us from incurring obligations that do not constitute indebtedness as defined under those agreements.

We require a significant amount of cash to service our debt, and our ability to generate sufficient cash depends on many factors, some of which are beyond our control.

We will require a significant amount of cash to service our debt obligations. Our ability to make payments on, and to refinance, our debt and to fund future operations and capital expenditures will depend on our future operating performance and ability to generate sufficient cash. This ability depends, to some extent, on general economic, financial, competitive, market, legislative, regulatory and other factors, many of which are beyond our control, as well as the other factors discussed in these “Risk Factors”.

We cannot assure that our business will generate sufficient cash flows from operations, that currently anticipated cost savings, sales growth and operating improvements will be realized or that future debt and equity financing will be available to us in amounts sufficient to enable us to pay the principal, premium, if any, and interest on our indebtedness, including the Facility D1 Loan, or that future borrowings will be available to us in amounts sufficient to enable us to service and repay the Facility D1 Loan and our other indebtedness or to fund our other liquidity needs. As experienced in the recent past, volatility in credit markets may make it difficult for companies to refinance existing debt or to obtain additional financing. Moreover, regulations in certain jurisdictions in which we have our operating subsidiaries may restrict the ability of such operating subsidiaries from paying dividends to us.

If our future cash flows from operations and other capital resources (including any additional indebtedness permitted under the Senior Facilities Agreement, the Indenture and the Covenant

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Agreement) are insufficient to pay our obligations as they mature, or to fund our liquidity needs, we may be forced to:

• reduce or delay our business activities and capital expenditures;

• sell assets;

• obtain additional debt or equity capital; or

• restructure or refinance all or a portion of our debt, including the Notes, on or before maturity.

If we are not able to accomplish the above, we may not be able to satisfy our debt obligations, including our obligations under the Facility D1 Loan, which would prevent the Issuer from being able to satisfy its obligations under the Notes. In that event, borrowings under other debt agreements or instruments that contain cross-default or cross-acceleration provisions may become payable on demand, and we may not have sufficient funds to repay all our debts, including under the Facility D1 Loan. In addition, any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. There can be no assurance that any assets which we could be required to dispose of can be sold or that, if sold, the timing of such sale and the amount of proceeds realized from such sale will be acceptable.

Portions of our existing debt mature before the Notes and we may not be able to extend or refinance our debt on favorable terms or at all.

Amounts outstanding under Facility A and under the Capex/Acquisition Facility under our Senior Facilities Agreement must be repaid in several installments until August 2015. Loans drawn under Facility B and Facility C must be repaid in full in August 2016 and 2017, respectively. No borrower under the Term Facilities may re-borrow any part that has been repaid. The Haniel Vendor Loan matures on August 29, 2018, when the Parent must redeem the instrument at par together with all interest accrued to the date of redemption or otherwise unpaid. An early redemption of the Haniel Vendor Loan must occur upon the occurrence of, among others, (i) a change of control of the Parent, (ii) an initial public offering of the shares in the Parent, (iii) a substantial asset sale of the Parent, or (iv) a re-leveraging acquisition, i.e., an acquisition with an enterprise value in excess of €200 million and the Senior Facilities Agreement being refinanced, principal amount thereof being increased or other financial indebtedness being incurred, in each case for the purpose of financing such acquisition, resulting in a ratio of Net Debt (as defined in the Senior Facilities Agreement) as of the date of such acquisition to pro forma EBITDA (for the twelve-month period ending on the date of such acquisition) in excess of 4.5:1.

We may not be able to refinance or extend all or any of our debt.

Xella International S.A. issued on August 28, 2008 and March 4, 2010 two series of PECs for an aggregate amount of €552.6 million (series A in two tranches), €5.0 million (series A), €164.0 million (series B tranche 1) and €10.0 million (series B tranche 2). The PECs issued by Xella International S.A. qualify as “Deeply Subordinated Funding” as defined in the Indenture. See “Description of Certain Other Indebtedness—Shareholder Loans”. Our ability to pay and refinance debt and our ability to fund working capital and capital expenditures will depend on our future operating performance and ability to generate sufficient cash. No assurance can be given that any refinancing will be accomplished on a timely basis or on satisfactory terms. In addition, the terms of our debt may limit our ability to pursue refinancing alternatives.

We are subject to significant restrictive debt covenants, which limit our operating flexibility.

The Indenture and the Covenant Agreement contain, and any future debt instrument we may enter into may contain covenants that significantly restrict our ability to, among other things:

• incur or guarantee additional indebtedness and issue certain preferred stock;

• create or incur certain liens;

• make certain restricted payments;

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• prepay or redeem subordinated debt or equity;

• make certain investments;

• impose restrictions on the ability of our subsidiaries to pay dividends or make other payments to us;

• engage in certain transactions with affiliates;

• consolidate or merge with other entities;

• impair the security interests for the benefit of the holders of the Notes; and

• amend the Senior Facilities Agreement.

Each of these covenants will be subject to significant exceptions and qualifications. These covenants could limit our ability to finance our future operations and capital needs and our ability to pursue acquisitions and other business activities that may be in our interest.

The Senior Facilities Agreement also contains certain financial covenants that require us to, among other things, maintain a minimum ratio of EBITDA to net cash interest, a ratio of cash flow to total debt service, maintain maximum ratio of net debt to EBITDA and not to exceed certain annual capital expenditures levels. In addition, debt instruments that we may assume in connection with acquisitions in the future may contain similar financial and other covenants. Our ability to meet these financial ratios may be affected by events beyond our control, including those described in the “Risk Factors”, and, as a result, we cannot assure that we will be able to meet these ratios and tests. In the event of a default under these facilities or certain other defaults under other agreements, the lenders could terminate their commitments and declare all amounts owed to them to be due and payable. In addition, a default under the Indenture could result in a cross-default or cross-acceleration under our existing debt facilities and debt instruments we may assume in the future. Borrowings under other debt instruments that contain cross-default or cross-acceleration provisions, including the Notes, may, as a result, also be accelerated and become due and payable. Our then immediately available liquid funds and short-term cash flow may not be sufficient to fully repay these debts in such circumstances.

The Issuer may not have the ability to raise the funds necessary to finance an offer to repurchase Notes upon the occurrence of certain events constituting a change of control as required by the Indenture, and the change of control provisions may not protect you against certain events or transactions.

The Indenture contains provisions relating to certain events constituting a change of control of Xella International S.A. and the Issuer. Upon the occurrence of certain events constituting a change of control, the Issuer will be required to offer to repurchase all outstanding Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest and additional amounts, if any, to, but not including, the date of repurchase. The Issuer’s ability to repurchase the Notes upon such a change of control event will be limited by its access to funds from prepayments by Xella International S.A. under the Facility D1 Loan. The ability of Xella International S.A. to make such prepayments may be limited. Upon a change of control event, we may be required to immediately repay the outstanding principal, any accrued interest on and any other amounts owed by us under any one or more of our current or future credit facilities or other financings. The source of funds for these repayments would be our available cash or cash generated from other sources. However, we cannot assure you that we will have sufficient funds available upon a change of control to make any of these repayments, including prepayments under the Facility D1 Loan. Without prepayments of the Facility D1 Loan, the Issuer will not be able to make any required repurchases of tendered Notes.

In addition, the change of control provisions in the Indenture may not protect you from certain important corporate events, such as a leveraged recapitalization (which would increase the level of our indebtedness), reorganization, restructuring, merger or other similar transaction with respect to Xella International S.A. Such a transaction may not involve a change in voting power or beneficial ownership or, even if it does, may not involve a change that constitutes a “change of control” as defined in the Indenture that would trigger the Issuer’s obligation to repurchase the Notes. If an event occurs that does not constitute a “change of control” as defined in the Indenture, the Issuer will not be required to make an offer to repurchase the Notes and you may be required to continue to hold your Notes despite the event.

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The insolvency laws of Luxembourg, Germany, The Netherlands and other local insolvency laws may not be as favorable to you as the U.S. bankruptcy laws and may preclude holders of the Notes from recovering payments due on the Notes.

The Issuer is established under the laws of Luxembourg, and certain of the Senior Facility Guarantors are established under the laws of Luxembourg, Germany, The Netherlands, Poland and the Czech Republic. Consequently, in the event of a bankruptcy or insolvency of the Issuer or any of the Senior Facility Guarantors, insolvency proceedings with respect to the Issuer or the Senior Facility Guarantors would most likely be based on and governed by the insolvency laws of the jurisdiction under which the relevant entity is established. The insolvency laws of Luxembourg, Germany, The Netherlands, Poland, the Czech Republic and the other jurisdictions under which the Senior Facility Guarantors are established may be less favorable to your interests as creditors than the bankruptcy laws of the United States or another jurisdiction with which you may be familiar, in particular with respect to priority of creditors, ability to obtain post-petition interest and the duration of the insolvency proceedings. The application of these laws, and any conflict between them, may limit your ability to recover payments due on the Notes to an extent exceeding the limitations arising under other insolvency laws.

However, pursuant to the Council Regulation (EC) No. 1346/2000 on insolvency proceedings (the “EU Insolvency Regulation”), the court that has jurisdiction to open insolvency proceedings in relation to a company is the court of the member state (other than Denmark) where the company concerned has its “centre of main interest” as the term is used in article 3(1) of the EU Insolvency Regulation. Where a company conducts business in more than one Member State of the European Union, the jurisdiction of the relevant courts may be limited if the company’s “centre of main interests” is found to be in a Member State other than its place of incorporation. There are a number of factors that are taken into account to ascertain the center of main interests, which should correspond to the place where the company conducts the administration of its interests on a regular basis and is therefore ascertainable by third parties. The point at which this issue will be determined is at the time when the relevant insolvency proceedings are opened. The determination of where the Issuer or any of the Senior Facility Guarantors has its “center of main interests” would be a question of fact on which the courts of the different EU Member States may have differing and even conflicting views. It should also be noted that no final decisions have been taken in cases that have been brought before the European Court of Justice in relation to questions of interpretation or the effects of the EU Insolvency Regulation throughout the European Union. Furthermore, “centre of main interests” is not a static concept and may change from time to time.

The Issuer is incorporated in Luxembourg and, accordingly, insolvency proceedings with respect to the Issuer may proceed under, and be governed by, Luxembourg insolvency laws. The following is a brief description of certain aspects of the Luxembourg insolvency laws. Under Luxembourg insolvency laws, the following types of proceedings (together referred to as insolvency proceedings) may be opened against the Issuer:

• bankruptcy proceedings (faillite), the opening of which may be requested by the Issuer or by any of its creditors. Following such a request, the courts having jurisdiction may open bankruptcy proceedings, if the Issuer (a) is in default of payment (cessation de paiements) and (b) has lost its commercial creditworthiness (ébranlement de crédit). If a court considers that these conditions are satisfied, it may also open bankruptcy proceedings, absent a request made by the Issuer or a creditor. The main effect of such proceedings is the suspension of all measures of enforcement against the Issuer, except, subject to certain limited exceptions, only for secured creditors and the payment of the creditors in accordance with their rank upon realization of the assets;

• controlled management proceedings (gestion contrôlée), the opening of which may only be requested by the Issuer and not by its creditors; and

• composition proceedings (concordat préventif de la faillite), the opening of which may be requested only by the Issuer and not by its creditors. The court’s decision to admit a company to the composition proceedings triggers a provisional stay on enforcement of claims of creditors.

In addition to these proceedings, the ability of the holders of Notes to receive payment on the Notes may be affected by a decision of a court to grant a reprieve from payments (sursis de paiements) or to put the Issuer into judicial liquidation (liquidation judiciaire). Judicial liquidation proceedings may be opened at the request of the public prosecutor against companies pursuing an activity violating criminal

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laws or that are in serious violation of the Luxembourg act dated August 10, 1915 on commercial companies, as amended, or the Luxembourg Code of Commerce. The management of such liquidation proceedings will generally follow similar rules as those applicable to bankruptcy proceedings. The liabilities of the Issuer in respect of the Notes will, in the event of a liquidation of the Issuer following bankruptcy or judicial liquidation proceedings, rank after the cost of liquidation (including any debt incurred for the purpose of such liquidation) and those of the debts of the Issuer that are entitled to priority under Luxembourg law. Preferential debts under Luxembourg law for instance include, among others:

• certain amounts owed to the Luxembourg Revenue;

• value-added tax and other taxes and duties owed to the Luxembourg Customs and Excise;

• social security contributions; and

• remuneration owed to employees.

Assets over which a security interest has been granted will in principle not be available for distribution to unsecured creditors (except after enforcement and to the extent a surplus is realized). The Luxembourg act of August 5, 2005 on financial collateral arrangements (the “Collateral Act 2005”) expressly provides that all financial collateral arrangements (including pledges) as well as the enforcement events are valid and enforceable even if entered into during the pre-bankruptcy period, against all third parties including supervisors, receivers, liquidators and any other similar persons or bodies irrespective of any bankruptcy, liquidation or other situation, national or foreign, of composition with creditors or reorganization affecting anyone of the parties, save in case of fraud.

Luxembourg insolvency laws may also affect transactions entered into or payments made by the Issuer during the pre-bankruptcy period, the so-called suspect period (période suspecte) which is a maximum of six months preceding the judgment declaring bankruptcy, the beginning of such period being determined by the court. In particular:

• pursuant to Article 445 of the Luxembourg Code of Commerce, some specific transactions (such as, in particular, the granting of a security interest for antecedent debts, save in respect of financial collateral arrangements within the meaning of the Collateral Act 2005; the payment of debts which have not fallen due, whether payment is made in cash or by way of assignment, sale, set-off or by any other means; the payment of debts which have fallen due by any means other than in cash or by bill of exchange; the sale of assets without consideration or with substantially inadequate consideration) entered into during the suspect period (or the ten days preceding it) must be set aside or declared null and void, if so requested by the insolvency receiver;

• pursuant to Article 446 of the Luxembourg Code of Commerce payments made for matured debts as well as other transactions concluded for consideration during the suspect period are subject to cancellation by the court upon proceedings instituted by the insolvency receiver if they were concluded with the knowledge of the bankrupt’s cessation of payments; and

• in case of bankruptcy, Article 448 of the Luxembourg Code of Commerce and Article 1167 of the Luxembourg Civil Code (action paulienne) give the insolvency receiver (acting on behalf of the creditors) the right to challenge any fraudulent payments and transactions, including the granting of security with an intent to defraud, made prior to the bankruptcy, without any time limit.

In principle, a bankruptcy order rendered by a Luxembourg court does not result in automatic termination of contracts except for intuitu personae contracts, that is, contracts for which the identity of the company or its solvency was crucial. The contracts, therefore, subsist after the bankruptcy order. However, the insolvency receiver may choose to terminate certain contracts.

However, as of the date of adjudication of bankruptcy, no interest on any unsecured claim will accrue vis-à-vis the bankruptcy estate. The bankruptcy order provides for a period of time during which creditors must file their claims with the clerk’s office of the Luxembourg district court sitting in commercial matters.

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Declarations of default and subsequent acceleration (upon the occurrence of an event of default) will not be enforceable during controlled management proceedings, except where this acceleration involves netting, set-off or the realization of financial collateral arrangements, all of which are protected against the effects of insolvency proceedings pursuant to the Collateral Act 2005.

After having converted all available assets of the company into cash and after having determined all the company’s liabilities, the insolvency receiver will distribute the proceeds of the sale to the creditors further to their priority ranking as set forth by law, after deduction of the receiver fees and the bankruptcy administration costs.

Any international aspects of Luxembourg bankruptcy, controlled management and composition proceedings may be subject to the EU Insolvency Regulation. Insolvency proceedings may hence have a material adverse effect on the Issuer’s obligations under the Notes. See also “Certain Considerations on Insolvency Laws and Local Law Limitations on Senior Facility Guarantees and Senior Facility Collateral” for additional information on the insolvency laws of Luxembourg and the EU Insolvency Regulation.

A material decrease in the net earnings of our business or parts of our business may result in the insolvency of Xella International S.A.

Other than its financing activities as the Facility D1 Borrower, the principal activity of Xella International S.A. is the holding of shares in certain Group holding companies. Xella International S.A. may be subject to insolvency proceedings in Luxembourg if it falls in a situation of default of payment (cessation de paiements) and absence of access to credit (ébranlement de crédit) within the meaning of Article 437 of the Luxembourg Code of Commerce. Such condition could arise, for example, as a result of lower net earnings of XI (BM) Holdings GmbH, XI (RMAT) Holdings GmbH and XI (DL) Holdings GmbH than currently anticipated. Such losses could arise, for example, if certain Group companies would have to record impairment losses on their investment in other Group companies as a result of lower net earnings of the respective Group companies.

The interests of our principal shareholders may conflict with your interests.

Currently, Goldman Sachs Capital Partners VI L.P, a fund managed by the Principal Investment Area of The Goldman Sachs Group, Inc. and its subsidiaries, and PAI Partners collectively beneficially own 100% of the equity of Xella International Holdings S.à r.l., the parent entity of Xella International S.A. As a result, these shareholders have and will continue to have, directly or indirectly, the power, among other things, to affect our legal and capital structure and our day-to-day operations, as well as the ability to elect and change our management and to approve any other changes to our operations. The interests of our shareholders, in certain circumstances, may conflict with your interests as holders of the Notes. For example, the shareholders could vote to cause us to incur additional indebtedness or to sell certain material assets, in each case, as permitted under the Indenture. Incurring additional indebtedness would increase our debt service obligations and selling assets could reduce our ability to generate revenues, each of which could affect you adversely. Even if these shareholders and their affiliates make divestitures such that they control less than a majority of the equity in our Parent, they may still be able to effectively control or strongly influence our decisions. In addition, such divestitures may not trigger a change of control under the Indenture. See “Management” and “Principal Shareholders”.

7.2. Risks Related to Our Business and Our Industry

Difficult conditions in the general economy and the global financial markets may materially adversely affect our business, financial condition and results of operations.

Our results of operations are materially affected by conditions in the general economy and the global financial markets. Since 2008, the stress and disruptions experienced by global financial markets increasingly affected other sectors of the economy resulting in a global economic downturn. In particular, the construction industry in the markets in which we sell our products has been adversely affected by the global economic downturn. 2012 was characterized by a heterogeneous volume development in our key European building materials markets. While volumes in some countries, such as The Netherlands, the Czech Republic, Poland and China, declined further, some markets, such as Russia and Italy, experienced higher sales volumes than in 2011. Our Building Materials business unit, which is our largest business unit by sales and Normalized EBITDA, is particularly dependent on developments in new residential construction activities that have historically and in the recent global

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financial and economic crisis been more susceptible to cyclicality than renovation, remodeling and modernization activities, which play a relatively greater role in our Dry Lining business unit.

We currently operate plants in 19 countries, and sell our products in more than 30 countries, and some markets and regions account for a significant portion of our total sales. If our key geographic markets, in particular Germany, The Netherlands, the Czech Republic, Belgium, Poland and France, were to experience a reoccurrence, continuation or further worsening of the difficult economic conditions, the level of construction activity can be expected to decline, which will likely result in reduced demand for our products and adversely affect our ability to pass on increases in raw material and energy cost to our customers. Further, while the regions in which we operate have been affected differently by the recent global economic downturn, there can be no assurance that any weakening in economic growth will not affect the construction market globally or that negative economic conditions in one or more regions will not affect the construction markets in other regions. As a result, our business, financial condition and results of operations will be materially adversely affected by a continued or further downturn in construction activities on a global scale or in significant markets in which we operate.

The construction industry is cyclical in nature and subject to seasonality.

The building materials industry in any geographic market is dependent on the level of activity in the construction sector of that geographic market. The construction industry tends to be cyclical and is dependent on the level of construction-related expenditures in the residential, industrial and commercial sectors, public investments and public and private spending on infrastructure projects. The construction industry is particularly sensitive to factors such as GDP growth, interest rates and cost of mortgage financing for residential, commercial and industrial construction, inflation as well as other macroeconomic factors. Political instability or changes in government policy may also negatively affect the construction industry. Moreover, demand in the construction industry may be affected by demographic trends, such as ageing and declining populations in many mature markets, such as Germany, changes in the average number of persons living in one household or migration trends. Our Building Materials business unit, which is our largest business unit by sales and Normalized EBITDA, is more susceptible to cyclicality in the construction industry than our Dry Lining business unit that has a higher percentage of sales in connection with renovation, remodeling and modernization activities.

Moreover, the construction industry is dependent on weather conditions and subject to seasonality. Lower demand for building materials occurs in periods of cold weather and other unfavorable weather conditions, which also leads to a volatile development of our quarterly financial results. Historically, sales in the second and third quarters have been significantly higher than in the other quarters of the year, particularly the first quarter. Our Building Materials business unit is subject to strong seasonal effects; the same applies to a lesser degree to our Dry Lining and Lime business units. Results of a single financial quarter might therefore not be a reliable basis for the expectations of a full fiscal year and may not be comparable with the results in the other financial quarters. Seasonality effects may also increase our working capital requirements. It is widely believed that climate change may contribute to the occurrence of extreme weather events. Such adverse weather conditions can materially adversely affect our business, financial condition and results of operations if they occur with unusual intensity, during abnormal periods, or last longer than usual in our major markets, especially during peak construction periods.

We operate in a highly competitive industry and our results may be adversely affected by competition.

Competition in the building materials industry, and more specifically, the markets for the products we produce and sell in our Building Materials business unit and, to a lesser degree, in the Dry Lining and Lime business units, is intense. Competition is based on many factors, including brand recognition and customer loyalty, product quality and reliability, breadth of product range, product design and innovation, manufacturing capabilities, distribution channels, scope and quality of services, and price. Further, the markets for our products, especially the markets for lime and wall-building materials, are characterized by many regional manufacturers and a number of major manufacturers with an international presence. Competitive factors include the number of competitors in a certain market, their degree of vertical integration and pricing policies, the development of demand and capacity as well as the access to and cost of raw materials and other inputs. Prices are subject to changes in response to relatively minor fluctuations in supply and demand, general economic conditions, and other market conditions beyond our control. In 2010, for example, we and one of our competitors have been engaged in significant price competition for market share in Germany and certain markets in

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Scandinavia and Central and Eastern Europe. Any significant decline in terms of volume, margin or price could have material adverse effects on our business, financial condition and results of operations.

In addition, the foregoing factors are often subject to varying developments in the regions and countries in which we operate. Individual regional and local competitive factors could in the future deteriorate and result in further significantly intensified competition in such regions or countries. For example, competitors may expand their capacities or enter or expand in markets in other regions. The consequences of such changes or of other possible changes in the competitive environment could have material adverse effects on our competitive position, business, financial condition and results of operations. Competitors could also further improve the functionality or performance of their products and production processes leading to additional competitive pressure on prices for our products and services and potential decreases of sales volumes and market share.

In order to maintain or reinforce our competitive position, we rely on continuous investments in product development, production processes, brands, services and distribution network. Our three business units are active in industries that are capital intensive and require continuous capital expenditures in maintenance and optimization of existing production facilities. During the global economic and financial crisis, we have temporarily reduced our investments in the marketing of our products and the maintenance and optimization of our production facilities. In the future, we may need to increase our marketing and capital expenditures to levels before the global economic and financial crisis and may not have adequate resources to make investments and may not have sufficient access to qualified personnel in order to continue to successfully compete in the marketplace. Our competitors may have greater financial and personnel resources or know-how, may react more quickly to the changing needs and requirements of customers or better succeed in marketing their products than we do. Each of these factors could lead to a loss of market share and have material adverse effects on our business, financial condition and results of operations.

A significant decrease in demand or an increase of production capacities might lead to overcapacity, a reduction of the utilization rates of our production plants and increased competition.

It is important for us to strike the right balance between our production capacity and the demand for our products in each of our production plants and in each of the markets in which we are active. In this regard, our capacity management is aimed at flexibly adjusting our production volumes in response to changing levels of demand, particularly in cyclical and seasonal downturns, by reducing or increasing the number of production shifts which can range between one and four. Moreover, we have additional flexibility in countries where we operate more than one plant. Within certain distances, we are able to transport products from our plants into regions with higher demand. A significant decrease in demand, such as due to a cyclical weakness of the construction industry, and delays in the capacity adjustment process may result in overcapacity and a reduction in the utilization rates of our plants in the respective geographic regions. Decreases in demand and increases in production capacity that result in overcapacity may also lead to increased price competition. Should we in such a situation not succeed in reducing overcapacity at reasonable cost, for example by temporary or permanent plant closures, thereby lowering our cost base and helping to minimize the excess supply, we may face a further decline in profitability, cash flows and results of operations. Even if we successfully reduce our capacity, such reduction may lead to significant extraordinary cost, particularly in connection with plant closures or other restructuring measures. In addition, the pricing and production policies of competitors are unpredictable and could frustrate our efforts. Moreover, declining prices in a market situation with significant oversupply may also affect neighboring regions, thereby causing further declines in sales, cash flows and results of operations. There is also a risk that we could establish or acquire additional production capacities which cannot be appropriately used, for example as a result of an inaccurate evaluation of market developments. Any failure to adequately utilize our production capacities could lead to extraordinary depreciation on production equipment and significant impairment charges on goodwill and thus have negative consequences for our profitability due to our relatively high level of fixed cost. If one or more of the aforementioned risks materializes, this could have material adverse effects on our business, financial condition and results of operations.

Our products compete with a variety of different products many of which we do not produce and, as a result, we may lose market shares to such alternative products.

Our wall-building materials products compete with several other types of building materials, notably other masonry building materials but also other alternative building materials that we do not produce. Other types of wall-building materials may be or become more popular or may be perceived as having

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superior characteristics in terms of environmental protection, thermal insulation, load-bearing capacity, durability, fire protection, safety, appearance, price or other respects. The degree of substitution by other types of building materials may vary by region and from time to time and may also be driven by local building and construction traditions, preferences and regulatory requirements. If the environmental, energy or other characteristics of other products improve, any competitive advantage our building materials products enjoy may diminish. Any significant replacement of any of our specific products by other types of products which we do not produce may adversely impact our business, financial condition and results of operations.

Interruptions in operations at our facilities could have a material adverse effect on our business, financial condition and results of operations.

We operate a total of 90 production plants in 19 countries plus additional industrial facilities, such as lime quarries, sand pits and stock grounds, and our results of operations are dependent on the continued operation of our production facilities and the ability to complete construction and maintenance projects on schedule. Our production processes are complex as they need to be adapted to variations in the properties of certain raw materials and use combustibles and other dangerous materials, such as pulverized aluminum and pulverized lignite. Significant interruptions in operations at our production plants, such as due to explosions, fires or other accidents, may significantly reduce the productivity and profitability of a particular production facility, or our business as a whole, during and after such interruptions. Although we hold several types of insurance policies (including insurance against fire and business interruptions), our insurance coverage may be inadequate. Furthermore, our insurance coverage may not continue to be available on commercially reasonable terms and our insurance carriers may not have sufficient funds to cover all potential claims.

Our business may be negatively affected by volatility in raw and other material prices, our inability to retain or replace our key suppliers, unexpected supply shortages and disruptions of the supply chain.

The cost and availability of raw material supplies is critical to our operations. Our profit margins are largely a function of the relationship between the prices that we are able to charge for our products and the cost of the raw materials and other inputs we require to produce these products. The raw materials and other inputs we depend on include lime, limestone, cement, sand, aluminum, paper, steel, energy, gypsum and other materials, such as grinding balls, form oil, rust protection, palettes and foil. In 2012, the cost of these raw materials and other inputs (excluding energy cost) amounted to a total of €222.8 million, or 17.4% of our sales. The prices of the raw materials that we use tend to be cyclical and highly volatile. Supply costs represent a substantial portion of our operating expenses. The availability and prices of raw materials are influenced by factors that we cannot control, such as market conditions, general global economic prospects, production capacity in the relevant markets, production constraints on the part of our suppliers, infrastructure failures, regulations, including carbon dioxide emission regulations applicable to our suppliers and the amounts of emission allowances available to them, and other factors. Although we aim to mitigate risks from fluctuating raw material prices by entering into supply agreements covering significant portions of our expected raw material requirements for periods typically between 12 and 36 months, these measures may turn out to be inadequate.

Furthermore, interruptions of our operations resulting from supply shortages of certain raw materials or other inputs can significantly affect our profitability. If any of our suppliers is subject to a major disruption in its production or is unable to meet its obligations under our existing supply agreements, we may be forced to pay higher prices to obtain the necessary raw materials from other sources. We purchase certain raw materials, such as aluminum, from a limited number of suppliers, and we may not be able to find acceptable alternative sources or adapt our production processes sufficiently to differing qualities of raw materials and the process of locating and securing such alternative sources might be disruptive to our business. Any extended unavailability of a necessary raw material or other input could cause us to cease manufacturing one or more of our products for a certain period of time.

While we attempt to match price increases of raw materials and other inputs with corresponding product price increases, our ability to pass on increases in the cost of raw materials to our customers is, to a large extent, dependent upon our contractual relationships and market conditions, and we may not be able to raise product prices immediately or at all, and we may not succeed in passing on the entire cost increase to our customers. Our ability to pass on price increases of raw materials and other inputs may also be affected by a temporary decline in demand for our products in the markets in which we are active and increased price competition for market share. Sales in our Building Materials and Dry

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Lining business units are primarily made through builder merchants as intermediaries. Builder merchants frequently organize in purchasing co-operations that provide marketing and billing services for the individual builder merchants and negotiate annual framework contracts with us, including payment terms and discounts. While our top five customers (excluding co-operations) represented 6.0% of total external sales in our Building Materials business unit for the year ended December 31, 2012, the purchasing power of co-operations may impair our ability to pass on increases in the cost of raw materials. Any inability or delay in passing on increases in raw materials cost to our customers would have a negative effect on our cash flows, which could materially adversely affect our business, financial condition and results of operations.

Increased energy cost or disruptions in energy supplies could have a material adverse effect on our business, financial condition and results of operations.

Our business is dependent on the steady supply of significant amounts of energy in various forms, such as electricity, gas, coal, pulverized lignite and diesel, at commercially reasonable terms. In particular, the operation of our autoclaves in the production process of our Building Materials business unit and the heating of our lime kilns in our Lime business unit require considerable amounts of energy. Our energy cost, which mainly consists of cost for the supply of electricity, gas, coal and diesel incurred in connection with the production of our products, accounts for a high percentage of our cost basis. In 2012, our energy cost amounted to a total of €152.2 million, or 11.9% of our sales. Energy cost is affected by various factors, including the availability of supplies of particular sources of energy, energy prices and regulatory decisions. In particular, prices for oil and gas have been extremely volatile during the last four years with prices ranging between US$40 and more than US$140 per barrel of oil. Such volatility may increase as a result of current political instability, such as the unrest currently occurring in several countries in the Middle East and North Africa. Although we attempt to mitigate risks of fluctuating energy prices by entering into supply agreements for significant portions of our expected energy requirements with periods typically between 24 and 36 months and having the ability in several of our production processes to use different types of combustibles, these measures may turn out to be inadequate. Also, the suppliers under these agreements may default on their obligations. Any significant increase in market prices, transportation cost or other cost associated with the supply of energy would increase our operating cost and, thus, may negatively affect our results of operations if we are not able to pass the increased cost fully and without delay on to our customers. Our ability to pass on energy price increases may also be affected by a decline in demand for our products in the markets in which we are active and increased price competition for market share. Any inability or delay in passing on increases in energy cost to our customers or any interruption or shortage of energy supply may negatively impact our business, financial condition and results of operations.

The availability of and any significant increase in the cost of transportation represent a significant risk for our business.

Transportation plays an important part in our supply chain as we ship our products, mainly by truck and to a lesser extent by rail or ship, to our customers. Further, most of the raw materials need to be transported to our production facilities. Any material disruption in or lack of availability of transportation or significant increases in fuel or energy prices, road tolls or demand-driven market prices resulting in higher transportation cost as well as increasing cost relating to emissions control requirements that have been or may be imposed in the future, particularly due to climate change-related legislation, could have a material adverse effect on our business, financial condition and results of operations. In 2012, our transportation cost, which include freight for deliveries from our plants or other stocks to customers as well as intra-group transfers of finished products but exclude transportation cost arising from purchases of raw materials and other inputs, amounted to a total of €146.4 million, or 11.4% of our sales.

We generally rely upon third-party service providers for the transportation of our products to customers. Our ability to service our customers at commercially reasonable cost depends, in many cases, upon our ability to negotiate commercially reasonable terms with carriers, including railroads and trucking and barge companies. To the extent that third-party carriers increase their rates, including reflecting higher labor, maintenance, fuel or other cost they may incur, we may be forced to pay such increased rates sooner than we are able to pass on such increases to our customers, if at all. Any material increases in our transportation cost that we are unable to pass on to customers fully and in a timely manner could materially adversely affect our business, results of operations, financial condition and prospects.

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We may not be able to successfully manage future growth, including by way of potential acquisitions which may expose us to additional risks.

Over the past decade, we have expanded our business through organic growth and acquisitions, in particular in South, Central and Eastern Europe, China and the Americas, and we intend to selectively participate in the consolidation of the building materials industry and to continue our international expansion in all our business units, with a particular focus on our core Building Materials business unit. In implementing this strategy, we are pursuing both organic growth and evaluating the market for potential acquisitions of building materials production facilities and other companies. Our growth has placed and will continue to place a strain on our management systems, infrastructure and resources. Our ability to manage this planned growth and integrate operations, technologies, products and personnel depends on our administrative, financial and operational controls, our ability to create the infrastructure necessary to exploit market opportunities for our products and our financial capabilities. We may also reach limits under applicable antitrust merger control laws when attempting to further grow through acquisitions in certain markets. In order to compete effectively and to grow our business profitably, we will need to maintain our financial and management controls, reporting systems and procedures, implement new systems as necessary, attract and retain adequate management personnel, and hire a qualified workforce that we can train and manage. Acquisitions pose additional risks, including that we may pay a too high price to acquire a business, assume unexpected liabilities in connection with the acquisition, lose customers or employees following the acquisition and be unable to successfully integrate the acquired business with our existing business. Moreover, our plans to acquire additional businesses in the future are subject to the availability of suitable opportunities. Our competitors may also follow similar acquisition strategies and may have greater financial resources available for investments or may have the capacity to accept less favorable terms than we can accept which may prevent us from acquiring the businesses that we target and reduce the number of potential acquisition targets. If we establish new production plants as greenfield operations, we may initially incur start-up losses due to lower levels of capacity utilization and ramp-up and training cost and face additional challenges in entering new markets, including locating and securing suitable plant sites. Start-up losses for production plants in new markets typically are incurred for the first five to seven years of operation. Furthermore, we expect that as we continue to introduce new products in our markets, we will be required to manage an increasing number of relationships with various customers and other third parties. The failure or delay of our management in responding to these challenges could have a material adverse effect on our business, financial condition and results of operations.

We may need to write down goodwill and brands, which would adversely affect our financial results.

As of December 31, 2012, 26% of our total group assets were intangible assets, with 15% and 10% of our total group assets corresponding to goodwill and brands, respectively. Goodwill is recognized as an intangible asset and is subject to an impairment test, at least annually or upon the occurrence of significant events or changes in circumstances that indicate an impairment has occurred. As of December 31, 2012, we recognized goodwill or brand impairment losses amounting to €8.8 million. An adverse development in our business activities may require us to recognize additional significant impairment charges and write-off all or a substantial part of the carrying amount of our goodwill and brands. A write-off of all or a part of our goodwill and brands would adversely affect our financial results.

We believe that our brands are important to our ongoing success, and damage to our brands could harm our business results and reputation.

In 2012, we generated 77.2% of our product sales (i.e., sales excluding service sales, trading goods, transportation and inter-segment sales) from products marketed under the Ytong, Silka, Fermacell and Hebel brands. We believe that the brand awareness, preference and loyalty that some professional and end-user customers exhibit for these brands in many markets in which we operate are an important competitive advantage. The maintenance and protection of our Ytong, Silka, Fermacell and Hebel brands are therefore important for our future success. If we are unable to protect and promote our brands effectively, our brands might not continue to be recognized by our relevant customer groups for their high quality and advanced technical standards. This could have a material adverse effect on our reputation, business, financial condition and results of operations.

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Any threat to, or impairment of, our intellectual property rights could cause us to incur cost to defend these rights.

As a company that manufactures and markets branded products, we rely on trademark protection to protect our brands. We also have obtained and applied for patents for certain of our technologies. These protections may not adequately safeguard our intellectual property and we may incur significant cost to defend our intellectual property rights, which may adversely affect our results of operations. There is a risk that third parties, including our current competitors, will infringe on our intellectual property rights, in which case we would have to defend these rights. There is also a risk that third parties, including our current competitors, will claim that our products infringe on their intellectual property rights. These third parties may bring infringement claims against us or our customers, which may adversely affect our results of operation, our customer relationships and our reputation.

Currency rate and interest rate fluctuations might adversely affect our financial position and results of operations.

Due to our international business activities, we are exposed to a variety of financial risks. In particular, these include risks related to changes in foreign currency exchange rates and interest rates. Although we attempt to mitigate these risks in part by using derivatives to hedge against interest rate and currency risks, we may misjudge the extent to which such hedges are required and, accordingly, be required to pay rates exceeding the prevailing market price under our hedging agreements to effect certain transactions.

Interest rate risks exist as a result of potential changes in the market interest rate and might lead to a change in fair value in the case of fixed interest-bearing financial instruments, and to fluctuations in interest payments in the case of variable interest-bearing financial instruments. Our interest risks arise primarily from short-term deposits and draw-downs on cash loan facilities. As of December 31, 2012 approximately €405.0 million of our third-party indebtedness would have had a floating interest rate. With regard to variable interest-bearing financial instruments, changes in market rates have an impact on our interest expense. In order to hedge against higher interest expenses due to increased interest rates, we have entered into interest rate hedging transactions with interest rate caps for a total notional amount of €400 million with a cap strike rate of 3.5% and a maturity date March 31, 2013. Even though we have hedged a significant amount of our variable interest-bearing loans through interest hedging arrangements, increasing interest rates might result in higher interest cost and could adversely affect our financial position. For the twelve-month period ended December 31, 2012, a 100 basis point increase in interest rates would have impacted our interest expense by approximately €3.9 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures about Market Risk—Exchange Rate Exposure and Currency Risk Hedging”.

Our functional and reporting currency is the euro. Currency risk arises through fluctuations of the exchange rate of the currencies of countries that are not part of the European Monetary Union and their impact on our results of operations and balance sheet positions as we translate the financial results from our subsidiaries in those countries to the euro. We also face transactional currency exchange rate risks if income generated in one currency is accompanied by cost in another currency. Net currency exposure from sales denominated in foreign currencies arises to the extent that we do not incur corresponding expenses in the same foreign currencies.

The principal currencies we transact in (other than the euro) are inter alia Czech koruna, Polish zloty, Russian ruble and Swiss franc. We attempt to absorb short and medium-term exchange rate fluctuations through hedging transactions by entering into currency forward purchase agreements covering our expected exposure to currency exchange rate risks for up to one year and require our subsidiaries to follow standardized group procedures and guidelines. Such currency forward purchase agreements in general cover significant parts of our expected net foreign currency exposure in a fiscal year. Furthermore, currency exchange rate risks exist in connection with inter-company financing activities between Group companies with different functional currencies. Exchange rate risks related to such inter-company financings are generally also hedged by entering into currency forward purchase agreements covering the outstanding principal amount of such inter-company loans (including interest due at maturity). As of December 31, 2012, for such purposes we had outstanding currency forward agreements amounting in total to €89.8 million. As of December 31, 2012, we also had financial liabilities denominated in Polish zloty in an amount of PLN 359.3 million, which provides an additional hedge against a depreciation of the Polish zloty against the euro. However, these hedging transactions may prove to be insufficient. In the context of such transactions, we are also exposed to the risk of the

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insolvency of the relevant counterparty. Furthermore, it is impossible to hedge completely against exchange rate fluctuations. The business activities of our foreign competitors could be favored by exchange rate advantages, meaning that we may lose customers and suffer a decline in sales. As the foreign exchange markets are characterized by high volatility, exchange rate fluctuations could in the future have a material adverse effect on our net assets, financial position and results of operations. Should we be unable to structure our earnings capacity more independently of exchange rate fluctuations, this could have negative effects on our sales and results of operations.

We have obligations to our employees relating to retirement and other obligations, the calculations of which are based on a number of assumptions, including discount rates, life expectancies and rates of return on plan assets, which may differ from actual rates in the future.

We operate both funded and unfunded defined-benefit pension schemes for beneficiaries under arrangements that have been established in the various countries in which we offer employee pension benefits. As of December 31, 2012, we had total pension obligations of €289.3 million, of which €177.0 million (61.2%) were unfunded. Our defined benefit obligations are based on certain actuarial assumptions that can vary by country, including discount rates, life expectancies, long-term rates of return on invested plan assets and rates of increase in compensation levels. To the extent that the funded plans are not fully funded, the difference has been provided for. If actual results, especially discount rates, life expectancies or rates of return on plan assets were to differ from our assumptions, our pension obligations could be higher than expected and we could incur actuarial gains and losses. Changes in all assumptions or under-performance of plan assets could also adversely affect our financial condition and results of operations. Under IAS 19, actuarial gains and losses are not posted to income until they lie outside a corridor of 10% of the higher present value of the pension obligation and the plan assets. Any amount above such corridor is amortized over the average remaining period of service of the workforce. Differences between estimated and actual returns on plan assets can require us to record additional expenses. If invested pension plan assets perform negatively or below assumptions we would incur actuarial losses and we could have to revise our assumptions. Future declines in the value of plan assets or lower-than-expected returns may require us to make additional current cash payments to pension plans or non-cash charges to our income statement. Significantly increased contribution obligations could have adverse effects on our financial condition and results of operations. Moreover, local funding rules might require additional contributions to avoid underfunding. The major part of the plan assets lies with one of the world’s largest providers of life insurance, pensions and long-term savings. An insolvency of this provider could have a negative impact on our financial condition and results of operations. In the fiscal years ended December 31, 2008, 2009, 2010, 2011, and 2012, pension cost (expenses) amounted to €13.2 million (aggregated), €11.3 million, €10.6 million, €11.5 million, and €10.3 million respectively, while pension payments and fund allocations amounted to €9.6 million, €12.6 million, €14.1 million, €10.6 million, and €11.1 million, respectively.

We are dependent on qualified personnel in key positions and employees having special technical knowledge.

Qualified and motivated personnel is one of the key factors for the further development of our business, in particular our further technological development and geographic expansion. There is a risk that we may not be able to attract key personnel to fill vacancies or that we fail to retain key employees. Personnel shortages and the loss of key employees could negatively influence our further business development. In addition, there are risks related to our dependence on individual persons in key positions, particularly at the level of the managing board as well as in the areas of development, distribution, service, production, finance and marketing. The loss of management personnel or employees in key positions would lead to a loss of know-how, or under certain circumstances, to the passing on of this know-how to our competitors. If one or more of these risks materialize, this could adversely affect our business, financial condition and results of operations.

Our business may be affected by the default of counterparties in respect of money owed to us.

As a consequence of our regular operations, we are often owed significant amounts of money by numerous counterparties. In addition, we often hold significant cash balances on deposit with financial institutions or invested on a short-term basis. These contractual arrangements, deposits and other financial instruments give rise to credit risk on amounts due from such counterparties. During the financial crisis and the economic downturn, we were increasingly exposed to the default of counterparties, including financial institutions and customers with bad debts. If the economic conditions

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do not improve or continue to worsen, this could have a material adverse effect on our financial condition and results of operations.

We depend on efficient and uninterrupted operations of our information and communication technology.

The operation of our production facilities as well as our sales and service activities depend on the efficient and uninterrupted operation of complex and sophisticated computer, telecommunication and data processing systems. Computer and data processing systems and related infrastructure (data center, hardware and wide and local area networks) are generally exposed to the risk of disturbances, damage, electricity failures, computer viruses, fire, other disasters, hacker attacks and similar events. Disruptions to operations or interruptions in operations involving the systems may occur in the future and have occurred in individual cases in the past. Although administration and production networks are separated, an interruption in the operations of computer or data processing systems could adversely affect our ability to efficiently maintain our production processes and to ensure adequate controls. Disruptions to or interruptions in operations could lead to production downtime which, in turn, could result in lost sales. Information and communication technology-related risks are particularly relevant since our information technology landscape is partly decentralized and influenced by a history of acquisitions of businesses which operated proprietary information technology systems. In addition, some of the software used by us is end user-developed by local personnel. As a consequence, the different platforms in use for key processes may lead to inefficiencies, such as problems with interoperability, malfunctions and higher cost. Further, our standard groupwide information technology systems may be disturbed, damaged or disrupted. If one or more of these risks materializes, this could materially adversely affect our business, financial condition and results of operations.

Our risk management and internal controls may not prevent or detect violations of law.

Our existing compliance processes and controls may not be sufficient in order to prevent or detect inadequate practices, fraud and violations of law by our intermediaries, sales agents and employees. In certain business transactions, we cooperate with intermediaries or sales agents whose activities we are not able to control, especially in connection with promoting business in certain countries and in connection with mergers and acquisitions. We pay the intermediaries customary commissions. We also cooperate with consultants in relation to the expansion of our business activities, such as in certain Asian markets.

In the case that any intermediaries, consultants, sales agents or employees with whom we cooperate receive or grant inappropriate benefits or generally use corrupt, fraudulent or other unfair business practices, we could be confronted with legal sanctions, penalties and loss of orders and harm to our reputation. Especially given our global alignment, complex group structure, size and the extent of our cooperation with intermediaries, consultants and sales agents, our internal controls and procedures, policies and our risk management may not be adequate, which could have a material negative impact on our reputation, business activities, financial position and results of operations.

We are exposed to local business risks in many different countries.

Our growth strategy involves expanding outside of our core European markets, in particular into further Central and Eastern European and Asian countries, and a significant portion of our current operations is conducted and located outside of Germany. Further, we believe that sales generated outside of Germany in particular and, more generally, outside of the European Union, will increasingly account for a material portion of our total sales in the foreseeable future. Accordingly, our business is subject to risks resulting from differing legal, political, social and regulatory requirements and economic conditions and unforeseeable developments in a variety of jurisdictions, including in emerging markets. These risks include, among other things:

• political instability;

• social instability and frequency of crimes and corrupt practices;

• differing economic cycles and adverse economic conditions;

• disruption of our operations, e.g., by strikes or governmental action;

• unexpected changes in the regulatory environment;

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• varying tax regimes, including with respect to the imposition of withholding taxes on remittances and other payments by our joint ventures or partnerships;

• fluctuations in currency exchange rates;

• inability to collect payments or seek recourse under or comply with ambiguous or vague commercial or other laws;

• changes in distribution and supply chains;

• varying degrees of concentration among suppliers and customers as well as co-operations;

• insufficient protection against product piracy and other violations of our intellectual property rights;

• foreign exchange controls and restrictions on repatriation of funds; and

• difficulties in attracting and retaining qualified management and employees, or further rationalizing our work force.

Our expansion into markets outside of our core European markets requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global business depends to a considerable extent on our ability to anticipate and effectively manage differing legal, political, social and regulatory requirements and economic conditions and unforeseeable developments. We may not continue to succeed in developing and implementing policies and strategies which will be effective in each location where we do business or may do business in the future.

We are exposed to risks in connection with joint ventures and other associated companies.

We conduct certain of our business operations through joint ventures and associated companies in which we hold an interest, some of which are minority interests. In the twelve-month period ended December 31, 2012, we had consolidated sales of €123.6 million in subsidiaries in which we hold equal to or more than 50% but less than 99.5% of the shares. We may in the future also enter into further joint ventures or acquire participations in associated companies. Some joint ventures or participations constitute financial investments, and we have only limited influence on the business success of the companies concerned. With respect to other joint ventures, such as joint ventures in Germany, Bosnia-Herzegovina and Russia, our ability to fully exploit the strategic potential in markets in which we operate through joint ventures or associated companies would be impaired if we were unable to agree with our joint venture partners or joint shareholders on a strategy and its implementation. The interests of our joint venture partners or joint shareholders could generally conflict with our interests or the interests of the holders of the Notes. Minority shareholders in certain joint ventures and associated companies may also have approval or other rights under applicable corporate law or the applicable joint venture or shareholder agreements or other organizational documents. The interests of these minority shareholders may differ from our economic interests and prevent us from pursuing our preferred business strategies with the relevant subsidiary. Our ability to implement organizational measures and pursue our preferred financial policies (in particular, dividend policies, capital expenditure plans and allocation of company assets) may also be impeded. Further, in certain operating companies we hold a significant, but not a controlling interest. For certain material decisions we may not be able to influence the decision making or may need to obtain the consent of other shareholders. Such limitations could constrain our ability to pursue our corporate and economic objectives in the future and, thus, could have a material adverse effect on our business, financial condition and results of operations. In addition, our joint venture partners or joint shareholders could under certain conditions terminate contractual relationships, exercise option rights to acquire or sell interests in our joint ventures (especially through the exercise of “deadlock” provisions to the extent contained in the underlying joint venture or shareholder agreement) or otherwise influence the day-to-day business of our joint ventures or other associated companies. When a joint venture is dissolved or terminated, we may be required to make payments to our partners in such joint venture. Furthermore, we could be subject to fiduciary or contractual obligations to our joint venture partners or joint shareholders, which could prevent or impede our ability to unilaterally expand in a business area in which such a joint venture or associated company operates. We also need to carry out any joint venture activity and any other cooperation in compliance with applicable antitrust laws which may limit the scope of such joint venture activity or cooperation. Each of these factors may have a material adverse effect on our business, financial condition and results of operations.

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We currently hold a majority interest in a Russian company operating a lime plant and a minority share in a Russian company operating a limestone quarry, which supplies among others the operating company with limestone, in the form of a joint venture. Total sales of our Lime business in Russia in 2012 amounted to €14.0 million. Currently, a variety of disputes among the joint venture parties exist about raw material supply and transfer of shares in the lime plant company. We successfully filled suits against our joint venture partner. Some decisions of court are still outstanding. The dissolution of the Joint Venture is intended. The disputes with our joint venture partner may further intensify, which may eventually result in a loss of our investment in the lime plant company. In addition, we may not be able to continue our business operations in Russia. End of 2011 we have implemented a capital measure which secures the financing of the joint venture. Beside the disputes with our joint venture partner we face a number of operational and permit issues for parts of our lime plant. If we are not successful in solving this issues this would prevent us from operating parts of our plant with negative impact on our profits.

We may incur material cost as a result of warranty and product liability claims which could adversely affect our profitability.

Our products are subject to express and implied warranty claims. Because of the long useful life of certain of our products, it is possible that latent defects might not appear for several years. For example, we are currently facing potential warranty, product liability and damage claims by several house owners in connection with the delivery of building materials by Haniel Baustoffwerke GmbH (a predecessor of Xella Deutschland GmbH) from certain plants in Northrhine-Westphalia, Germany, between 1988 and 1996. The potential claims are based on the insufficient durability and water resistance of calcium silicate units that had been produced in the relevant period applying an alternative production method, which substituted another product for lime. As this resulted in a lack of quality compared to the material properties of high-quality calcium silicate units (such as our calcium silicate units (“CSU”)), damages to the masonry of houses occurred in several instances. While we believe that the legal situation is uncertain and despite the fact that 22 proceedings for damages and 37 proceedings for the preservation of evidence (selbständiges Beweisverfahren) have so far been initiated against us, we have renovated 205 buildings and have made commitments for the renovation of an additional damaged 107 buildings (partially already under renovation). It is uncertain how many additional buildings may require renovation. Despite the fact, that the press had already reported about the production of calcium silicate units from slurry from scrubbers for a number of years, they were the subject of extensive press coverage and the latest reports at the end of 2011 led to a rise in the number of reported cases. Such new potential cases have led to a significant increase of the respective provision already in 2011 and to a minor extent in 2012. The total provision for potential claims amounted to €72.4 million shown in the statement of financial position as at December 31, 2012 (December 31, 2011: €67.5 million). In the Share Purchase Agreement, our former shareholder has agreed to hold us harmless for such potential claims. See “Business—Legal and Regulatory Proceedings—Litigation”. Additionally, the load-bearing capacity of AAC in general mainly depends on tobermorite, a crystalline calcium silicate hydrate phase. Under wet conditions, certain non-crystalline calcium silicate hydrate phases in AAC may chemically react with carbon dioxide in the surrounding air, which may result in cracks, decrease of compressive strength and a significant increase in dry density. In particular, reinforced AAC panels and components may deformate over time. This so-called carbonization process may be prevented by higher concentrations of tobermorite through the addition of sulfate as a catalyst in the crystallization process and longer autoclaving times. However, in the 1970s AAC and reinforced AAC panels were produced industry-wide without using sulfate as a catalyst. There are presently no legal proceedings for damages, and to our knowledge there has been no structural danger to buildings.

We may not be successful in maintaining or reducing the historical level of warranty claims and claims in connection with the supply of our products may increase significantly. Additionally, defects in our products may result in product liability claims, product recalls, adverse customer reactions and negative publicity about us or our products. Product failures, in particular of building materials produced by us or our predecessors or acquired businesses, could result in substantial harm to people or property. While we hold insurance for product liability risks or have contractual arrangements to hold us harmless against such claims, such insurance and contractual arrangements may not adequately cover any such matter, insurance coverage may not continue to be available on commercially reasonable terms or the insurance carrier or the contractual partner may not have sufficient funds to cover all claims, if at all. Defects may also require expensive modifications to our products and may adversely affect our reputation. If any of these events occur, our reputation, business, financial condition and results of operations could be materially adversely affected, even if we are not legally liable for particular claims.

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Our insurance coverage may not be adequate to cover all the risks we may face and if we were no longer covered by our existing insurance, it may be difficult to obtain replacement insurance on acceptable terms or at all.

Due to the nature of the building materials, dry lining and lime industries, companies and their operations are generally difficult and expensive to insure. Our production plants, equipment and other assets are insured for property damage and business interruption risks, and our business as a whole is insured for products liability risks. We believe that these insurance policies are generally in accordance with customary industry practices, including deductibles and limits of cover, but we cannot be fully insured against all potential hazards incident to our business, including losses resulting from risks of war or terrorist acts, certain natural hazards (such as earthquakes), environmental damages or all potential losses, including damage to our reputation. If we were to incur a significant liability for which we were not fully insured, or if premiums and deductibles for certain insurance policies were to increase substantially as a result of any incidents for which we are insured, our business, financial condition and results of operations could be materially adversely affected.

We are subject to risks from legal proceedings.

We are involved in litigation in the ordinary course of business and could become involved in additional legal and arbitration disputes in the future which may involve substantial claims for damages or other payments, including damage claims by customers in connection with past or future violations of antitrust laws. The outcome of currently pending or potential future proceedings is difficult to predict with any certainty. In the event of a negative outcome of any material legal or arbitration proceeding, whether based on a judgment, award or a settlement, we could be obligated to make substantial payments. In addition, the cost related to litigation and arbitration proceedings may be significant. If any of these risks materializes, our business, financial condition and results of operations could be materially adversely affected.

We are subject to certain competition and antitrust laws.

Our business is subject to applicable competition and antitrust laws, rules and regulations. In general, these laws are designed to preserve free and open competition in the marketplace in order to enhance competitiveness and economic efficiency. While we believe we are in compliance with all applicable competition and antitrust laws, rules and regulations we may become subject to investigations and proceedings by national and supranational competition and antitrust authorities for alleged infringements of competition or antitrust laws. This may result in fines or other forms of liability, which could have a material adverse effect on our reputation, business, financial condition and results of operations.

We are subject to numerous environmental, building, health and safety regulations and technical standards.

We are subject to a number of European Union, national, state and municipal environmental, building and occupational health and safety laws, rules and regulations and technical standards relating to the protection of the environment and natural resources, including those governing air emissions, energy performance of buildings, hazardous substances and waste, water discharges, transportation, remediation of contamination and workplace health and safety. Several of the regulatory requirements that apply to our business operations have in the recent past become more stringent, and we expect some of them to become even more stringent in the future. For example, several product features of our Building Materials products (such as thermal insulation) address increasing energy performance requirements for buildings. In May 2010, the European Parliament and the Council adopted the new Directive 2010/31/EU on the energy performance of buildings which aims at extending the scope of the current Directive 2002/91/EC by setting and strengthening a legal framework to revise the national building codes and by launching a policy of increasing the number of highly energy-efficient buildings by 2020.

Compliance with environmental, health and safety laws and regulations as well as technical standards applicable to our business operations entails and is expected to continue to require considerable capital expenditures and other cost. In addition, any violation of or liability under these laws and regulations, such as future contaminations of air, surface water, groundwater, sediments or soil, could result in substantial penalties and remediation cost, temporary or permanent shutdowns of certain of our production facilities, temporary or permanent prohibitions on the marketing and sale of certain products, third-party claims and negative publicity. Any of these factors could have a material adverse

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effect on our business, financial condition and results of operations. See “—Obligations resulting from environmental conditions at our current and former production and other sites could have a material adverse effect on our business, financial condition and results of operations”.

We are also required to obtain and maintain permits from governmental authorities for many of our operations. These permits are subject to modification, renewal and revocation by governmental authorities. We have in the past incurred, and will in the future incur, significant cost for capital and operating expenditures to obtain and maintain necessary permits. However, we cannot ensure that we will also in the future be able to obtain and finance all permits which we require for our business operations. Any such failure or any violation of the terms and conditions of such permits could have a material adverse effect on our business, financial condition and results of operations.

Regulations regarding carbon dioxide emissions could have a material adverse effect on our business, financial condition and results of operations.

We operate a total of 90 plants plus other industrial facilities. Our operations result in the release of substantial quantities of carbon dioxide, in particular in the lime production process. The emission of carbon dioxide is subject to a constantly developing body of laws and regulatory requirements addressing the challenges of global climate change by reducing greenhouse gas emissions, promoting higher efficiency in the use of energy from conventional sources and increasing the use of energy from renewable sources. In the European Union, regulations attempt to both reduce greenhouse gas emissions and to establish a mechanism for trading in carbon dioxide emission allowances. For the carbon dioxide emission allowances trading period beginning in 2013, the quantity of emission allowances allocated each year under the EU Emission Trading System (“ETS”) will be most likely reduced by a linear factor of 1.74% annually as compared to the average annual total quantity of emission allowances issued in the European Union between 2008 and 2012. In addition, from 2013 onwards, a full auctioning of emission allowances will be gradually introduced for the manufacturing sector by reducing the allocation of emission allowances free of charge from 80% in 2013 to 30% in 2020 and to 0% in 2027. As a result, we will need to purchase a significant, and steadily increasing, share of emission allowances in auctions from 2013 onwards, which will result in substantial additional cost. The impact of these requirements may be aggravated by a mechanism in the allocation of emission allowances that implements a benchmark system with an adjusting factor, which has not yet been set, in the determination of the amount of emission allowances for each plant. An exemption from the general auctioning mechanism will be available for certain energy-intensive industries which are exposed to a significant risk of relocation of plants to countries with less stringent climate protection laws, a phenomenon known as “carbon leakage”. Although all our Lime plants in Germany and the Czech Republic are subject to the ETS, they benefit from the current carbon leakage exemption and will therefore initially be allocated emission allowances free of charge. The European Commission will determine every five years which industries are threatened by carbon leakage. Thus, there is no certainty that the lime industry will again be considered as being threatened by carbon leakage. If the European Commission concludes that no such threat exists in 2015 or at the time of any later determination, the regular emissions reduction scheme would also apply to our Lime plants and we would be required to purchase emission allowances in the amount required for our production purposes. According to the previous estimates by the European Commission, the application of the revised emission trading scheme could result in an increase of production cost for lime by more than 30%.

Our Building Materials business unit is currently not affected by the ETS as the thermal capacity does not exceed 20 MW in any of the plants. In our Dry Lining business unit, only the Fermacell plant in Münchehof, Germany and the new plant in Orejo, Spain are affected and will be required to purchase emission allowances in future auctions (20% in 2013, 70% in 2020 and 100% in 2027) to cover its carbon dioxide emissions. Compliance with existing, new or proposed regulations governing such emissions might lead to a need to reduce carbon dioxide emissions, to purchase rights to emit carbon dioxide from third parties, or to make other changes to our business, all of which could result in significant additional cost or could reduce demand for our products. In addition, we require large quantities of energy in various forms for our production processes. Existing, new and proposed regulations relating to the emission of carbon dioxide by our energy suppliers could result in materially increased energy cost for our operations and we may be unable to pass on these increased energy cost to our customers, which could have a material adverse effect on our business, financial condition and results of operations. See “—Increased energy cost or disruptions in energy supplies could have a material adverse effect on our business, financial condition and results of operations”.

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Obligations resulting from environmental conditions at our current and former production and other sites could have a material adverse effect on our business, financial condition and results of operations.

Many of our current and former facilities and properties have long histories of industrial operations, some of which were of a different nature than our current operations. In addition, we have responsibility for a large number of sites relating to companies we acquired, owned or operated in the past that had businesses and operations unrelated to those presently carried out by us. On many of these sites, now or in the past, waste and hazardous substances have been used, stored or released in significant quantities. Contaminations have been detected at some of these sites. Although our remedial responsibilities at these sites have not been material to date, the ultimate cost of remediation is difficult to accurately predict, and we could incur significant additional cost as a result of the discovery of additional contaminations or the imposition of additional remediation obligations at these or other sites, including related governmental fines or other sanctions and claims for property damages or personal injury. In addition, with respect to plants and sites that we have acquired in the past, we may have failed to properly identify and assess potential risks in this regard. In such a case, we might not succeed in claiming damages or indemnification against the relevant seller. Furthermore, there is only limited insurance coverage for financial liabilities arising from soil, water and other forms of contamination. Any of these risks could have a material adverse effect on our business, financial condition and results of operations. For example, we are liable for the contamination of a property sold by us in the past. As the maximum amount of the claim is limited by the underlying contract and subject to a contractual indemnification claim against a third party, we believe that our total exposure under the claim will not exceed €2.0 million. We could incur additional cost, however, if the third party is unwilling or unable to meet its indemnification obligation.

We are subject to significant reclamation and recultivation obligations in connection with lime quarries and sand pits.

We operate several quarries and pits in which we excavate limestone and sand. With these operations, certain reclamation, recultivation and occasionally renaturation obligations arise, which may lead to cash outflows upon complete or partial closure of a quarry or pit. As of December 31, 2012, we had made provisions for any such measures in a total amount of €24.3 million. However, the estimated provisions resulting from reclamation, recultivation and renaturation obligations could change and the amount of cost not covered by provisions could increase if the assumptions underlying our estimates are inaccurate, actual cost differ from our assumptions or the underlying facts or governmental requirements change. This could require us to spend greater amounts than anticipated and could have a material adverse effect on our business, financial condition and results of operations. See “Regulation—Excavation of Raw Materials”.

In addition, in many jurisdictions we are required to secure certain of our reclamation and closure obligations for our quarries and pits primarily through the use of financial assurance mechanisms, such as bonds and bank guarantees. In the event of a material adverse change in our financial condition, or in response to the recent economic downturn and volatility in the financial markets, financial assurance providers may have the right and could decide not to issue or renew the financial assurances, to demand additional collateral upon renewal, or to require us to obtain a discharge of the financial assurance provider’s liability under the financial assurances or to provide cash or letters of credit equal to 100% of the amount of the outstanding financial assurances. A failure to maintain or renew, or the inability to acquire or provide a suitable alternative for, any such financial assurances and any exercise of rights the financial assurance providers have to require us to discharge the related liability or to provide additional collateral would have a material adverse effect on our business, financial condition and results of operations.

The adoption of new or revised International Financial Reporting Standards may have material effects on our future consolidated financial statements.

The International Financial Reporting Standards (IFRS) comprise IFRS issued by the International Accounting Standards Board, the International Accounting Standards (IAS) as well as the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC). Our consolidated financial statements included elsewhere in this report comply with the IFRS as adopted by the European Union as of the date of such financial statements. In the future, the adoption of new or revised standards or interpretations relating to the presentation of net assets, our financial position or results of operation may have a material effect on our future consolidated financial statements. For example, new standards relating to the accounting for

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leases may result in significant shifts between “other expenses”, “depreciation and amortization expenses” and “financial result” in our consolidated income statement as well as between “fixed assets” and “financial liabilities” in our consolidated balance sheet.

Pending and future tax audits within our Group and changes in fiscal regulations could lead to additional tax liabilities.

Xella International S.A. and its subsidiaries are subject to routine tax audits by the respective local tax authorities. Xella International S.A. and its German subsidiaries are currently subject to a tax audit by the German tax authorities covering corporate income tax, trade tax, real estate transaction tax, VAT and certain investment subsidies for the assessment periods 2003 through 2005. As the tax audit has not yet been finalized, we cannot exclude that actual tax payment obligations arising from the tax audit may exceed the amount reflected in our financial statements. In the Share Purchase Agreement, our former shareholder has agreed to hold us harmless for certain tax obligations, warranty obligations and other risks.

Future tax audits in Germany or other jurisdictions may result in additional tax and interest payments which would negatively affect our financial condition and results of operations. Changes in fiscal regulations or the interpretation of tax laws by the courts or the tax authorities in Germany or foreign jurisdictions in which we are conducting our business may also have adverse consequences for us.

Due to restrictions on the deduction of interest expenses or forfeiture of interest carry-forwards under German law, we may be unable to fully deduct interest expenses on our financial liabilities.

A certain amount of our Group’s annual financing expenses (interest payments) is not deductible under the German interest barrier rules (Zinsschranke). Subject to certain prerequisites, the German interest barrier rules impose certain restrictions on the deductibility of interest for tax purposes. The German interest barrier rules generally provide for a limitation on the deduction of net interest expenses exceeding 30% of tax-adjusted EBITDA. For purposes of the interest barrier rules, all businesses belonging to the same fiscal unity (Organschaft) for corporate income and trade tax purposes are treated as one single business. Any non-deductible amount exceeding the threshold of 30% is carried forward and may be, again subject to the interest barrier rules, deductible in future fiscal years. An interest carry-forward may be forfeited in part or in full in connection with certain measures, such as a change of the ownership structure. The restriction of the deductibility of interest expenses for tax purposes may have adverse consequences for our financial condition and results of operations.

Restrictions of the utilization of our tax loss carry-forwards may have an adverse effect on our financial condition and results of operations.

Certain of our German subsidiaries have considerable tax loss carry-forwards which have mainly been capitalized as deferred tax assets in the consolidated financial statements for the fiscal year ending on December 31, 2012. The use of such existing tax loss carry-forwards and ongoing losses for German corporate income and trade tax purposes may be forfeited in case of a direct or indirect transfer of shares, subject to certain limited exceptions. Such restriction, applying to both corporate income and trade tax, depends on the percentage of share capital or voting rights transferred within a five-year period to one acquirer or person(s) closely related to the acquirer or a group of acquirers with a common interest. If more than 25% of the share capital or voting rights are transferred to such an acquirer, tax loss carry-forwards and current losses will be forfeited on a pro rata basis while a transfer of more than 50% will result in total forfeiture. To the extent that the utilization of tax losses is restricted, they cannot be set-off against future tax profits which would result in increased future tax burdens. In addition, any such restriction may require a write-down of the deferred tax assets in our consolidated financial statements. This would negatively impact our financial condition and results of operations.

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8. Forward-Looking Statements

This report includes forward-looking statements within the meaning of the securities laws of applicable jurisdictions. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this report, including, without limitation, those regarding

• our strategy, outlook and growth prospects, including our operational and financial targets;

• the economic outlook in general and, in particular, economic conditions in the Western European, Central and Eastern European, North American and Asian markets;

• the competitive environment in which we operate;

• the expected growth of the markets in which we operate;

• growth in demand for our products, increases in the penetration of our products into their respective markets, substitution of, or by, other building materials, or similar measures;

• our expansion plans, including planned expansion into and growth in mature and emerging markets and potential acquisitions;

• our ability to obtain necessary regulatory approvals for our newly developed products; and

• our ability to develop, market and launch attractive new products and services.

In some cases, you can identify forward-looking statements by terminology such as “aim”, “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “forecast”, “intend”, “may”, “plan”, “potential”, “predict”, “project”, “should”, or “will” or the negative of such terms or other comparable terminology. The forward-looking statements used herein are based on a number of assumptions and estimates and are subject to known and unknown risks, uncertainties and other factors that may or may not occur in the future. As such, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, including our financial condition and liquidity and the development of the industry in which we operate, may differ materially from those expressed or implied by our forward-looking statements. Important risks, uncertainties and other factors that could cause these differences include, among others, those listed under the captions “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Industry” and “Business” and relate to, among others:

• global or regional economic conditions in the markets in which we produce or sell our products;

• the success of our principal product offerings;

• acceptance of our products by decision makers in the construction industry;

• changes in currency exchange rates;

• loss of key suppliers or change in the availability or cost of raw materials or components used in our products;

• natural or man-made disasters affecting our manufacturing facilities;

• inadequate protection of our intellectual property rights;

• changes to or enforcement of governmental and environmental regulations and health and safety requirements applicable to our operations and products;

• our ability to expand our business, complete acquisitions and successfully integrate acquired businesses;

• actions taken by legislators and regulatory authorities with respect to requirements in terms of energy efficiency;

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• litigation we may be involved in from time to time; and

• our level of indebtedness and capital structure and the terms of the Notes and our other financing instruments.

We urge you to read the sections of this report entitled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Industry” and “Business” for a more complete discussion of the factors that could affect our future performance and the markets in which we operate. The forward-looking statements herein speak only as of the date on which the statements were made. We undertake no obligation, and do not intend, to update or revise any forward-looking statement, whether as a result of new information, future events or developments or otherwise.

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9. Presentation of Financial and Other Information

Financial Information

The consolidated financial statements in this report have been prepared in accordance with the International Financial Reporting Standards, as adopted by the European Union (“IFRS”). In this report, financial information has been derived from the audited consolidated financial statements and the notes thereto of Xella International S.A. as of and for the fiscal years ended December 31, 2011 and 2012. Information for the three-month periods ended December 31, 2011 and 2012 is unaudited.

Further, the Share Purchase Agreement (as defined below) provides Xella International S.A. with an indemnification claim against our former shareholder for certain risks relating to the period before the Acquisition. See note 4 to our consolidated financial statements as of and for the fiscal year ended December 31, 2011 and December 31, 2012. An indemnification receivable was recognized at the date of the Acquisition and subsequent value changes in the years ended December 31, 2011 and 2012 recorded in other income and other expenses.

Consolidated segment information from the audited consolidated financial statements and the notes thereto of Xella International S.A. as of and for the fiscal years ended December 31, 2011 and 2012 eliminates effects of certain inter-segment sales, primarily in connection with lime supplied by the Lime business unit to the Building Materials business unit and certain building materials supplied by the Building Materials business unit to the Dry Lining business unit. In this report, percentages relating to the portion of total sales and total Normalized EBITDA attributable to each of the three segments include effects from such inter-segment sales and do not include any necessary eliminations. As a result, percentages for sales and Normalized EBITDA by segment may add up to more than 100%. In this report, amounts of external sales for each of our three business units eliminate effects from certain inter-segment sales.

The auditor’s reports of PricewaterhouseCoopers with respect to the consolidated financial statements as of and for the fiscal years ended December 31, 2011 and 2012 are included in this report as annexes 1 to 4.

Non-IFRS Financial Measures

This report contains non-IFRS measures and ratios, including EBITDA, EBIT, Normalized EBITDA, Normalized EBITDA margin, Free Cash Flow, working capital, net debt and leverage and coverage ratios, which are not required by, or presented in accordance with, IFRS. We present non-IFRS measures because we believe that they and similar measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. The non-IFRS measures may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under IFRS. Non-IFRS measures and ratios, such as EBITDA, EBIT, Normalized EBITDA, Normalized EBITDA margin, Free Cash Flow, working capital, net debt and leverage and coverage ratios are not measurements of our performance or liquidity under IFRS and should not be considered as alternatives to operating profit or profit for the year or any other performance measures derived in accordance with IFRS or any other generally accepted accounting principles or as alternatives to cash flows from operating, investing or financing activities. See “—Financial Information”.

Certain numerical figures set out in this report, including financial data presented in millions or thousands and percentages describing market shares, have been subject to rounding adjustments and, as a result, the totals of the data in this report may vary slightly from the actual arithmetic totals of such information. Percentages and amounts reflecting changes over time periods relating to financial and other data set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are calculated using the numerical data in the consolidated financial statements of Xella International S.A. or the tabular presentation of other data (subject to rounding) contained in this report, as applicable, and not using the numerical data in the narrative description thereof. The non-IFRS measures we present may also be defined differently than the corresponding terms under the Indenture. Some of the limitations of these non-IFRS measures are:

• they do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

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• they do not reflect changes in, or cash requirements for, our working capital needs;

• they do not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments on our debt;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often need to be replaced in the future and EBITDA does not reflect any cash requirements that would be required for such replacements; and

• some of the exceptional items that we eliminate in calculating Normalized EBITDA and Adjusted EBITDA reflect cash payments that were made, or will in the future be made.

Operating Data

Except as otherwise indicated, in this report the amounts or percentages, as the case may be, of our production volumes, capacity utilization rates, the number of our employees and the proportion of fixed and variable cost in our three business units are based on management estimates and are unaudited. Actual amounts and percentages may differ from the amounts and percentages presented based on such management estimates. Capacity utilization rates for our Building Materials and Dry Lining business units are based on standard capacity, which means operation of plants for 24 hours a day for five days per week, as opposed to maximum capacity, which means operation of plants for 24 hours on a day for seven days per week. As a result, capacity utilization rates may exceed 100%.

Capital expenditures presented and discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Expenditures” are not identical with cash flows from investing activities as shown under “—Liquidity and Capital Resources”. The main differences are the following: on the one hand, (i) capital expenditures as shown do not include cash received from disposals and from interest and investment income; (ii) loans and financial receivables are not taken into account; (iii) cash received from government grants is not offset against cash paid for corresponding investing activities; and (iv) timing differences from purchase price payables are not reflected. On the other hand, capital expenditures as shown include payments made for the acquisition of shares in subsidiaries without effecting a change of control, which pursuant to IFRS 7 (revised 2008) are included as financing activities in the fiscal years ended December 31, 2010 and 2011.

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10. Certain Definitions

Unless otherwise specified or the context requires otherwise in this report:

“Acquisition” means the acquisition of Xella International GmbH and other companies of our Group by Xella International S.A. pursuant to the Share Purchase Agreement and effective as of August 30, 2008.

“Building Materials” means our Building Materials business unit.

“Central and Eastern Europe” means Albania, Austria, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, the European part of Russia, Serbia, Slovakia, Slovenia and the Ukraine.

“Company” means Xella International S.A. or Xella International S.A. and its subsidiaries, as the case may be.

“Covenant Agreement” means the covenant agreement dated June 1, 2011, among the Issuer, the Company, the other Senior Facility Guarantors and the Trustee, whereby each of Company and the other Senior Facility Guarantors will agree to be bound by certain covenants that benefit the Facility D1 Tranche of the Senior Facilities Agreement.

“Dry Lining” means our Dry Lining business unit.

“EBITDA” means earnings before interest, taxes, depreciation, amortization, results from associates and other investments and other financial results.

“Europe” means Western Europe and Central and Eastern Europe.

“Facility D” means the additional facility under the Senior Facilities Agreement upon accession of the Issuer to the Senior Facilities Agreement.

“Facility D Borrower” means the Company.

“Facility D1 Commitment Letter” means the commitment letter under the Senior Facilities Agreement pursuant to which the Facility D Lender has been made available to the Facility D Borrower the Facility D1 Tranche.

“Facility D Lender” means the Issuer in its capacity as lender of the Facility D1 Loan.

“Facility D1 Loan” means the term loan that the Issuer will fund to the Facility D Borrower under the Facility D1 Tranche of Facility D to on-lend the gross proceeds from the Offering.

“Facility D1 Tranche” means a new tranche under Facility D that the Issuer will use to fund the Facility D1 Loan.

“Goldman Sachs Capital Partners” collectively refers to GS Capital Partners VI Fund L.P., GS Capital Partners VI Offshore Fund, L.P., GS Capital Partners VI Parallel, L.P. and GS Capital Partners VI GmbH & Co. KG.

“Haniel Group” means Franz Haniel & Cie. GmbH and its subsidiaries.

“Haniel Vendor Loan” means the unsecured registered instrument issued on August 29, 2008 by Xella International Holdings S.à r.l. (formerly XI HOLDINGS I S.à r.l.) in an aggregate amount of up to €200 million that has been registered on behalf on Franz Haniel & Cie. GmbH, as amended on May 14, 2011.

“IFRS” means the International Financial Reporting Standards of the International Accounting Standards Board, as adopted by the European Union.

“Issue Date” means June 1, 2011.

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“Issuer” means Xefin Lux S.C.A., a newly formed corporate partnership limited by shares (société en commandite par actions) incorporated under the laws of the Grand Duchy of Luxembourg with registered offices at 16, Avenue Pasteur, L-2310 Luxembourg and registered with the Register of Commerce and Companies (Registre de Commerce et des Sociétés) in Luxembourg under number B 160860.

“Lime” means our Lime business unit.

“Limited Partner” means Xefin Charitable Trust, a newly formed charitable trust organized under the laws of the Island of Jersey.

“Manager” means Xefin S.à r.l., a newly formed private limited liability company (société à responsabilité limitée) incorporated under the laws of the Grand Duchy of Luxembourg with registered offices at 16, Avenue Pasteur, L-2310 Luxembourg and registered with the Register of Commerce and Companies (Registre de Commerce et des Sociétés) in Luxembourg under number B 160859, acting as the manager and general partner of the Issuer.

“Normalized EBITDA” means EBITDA, as adjusted for items that our management considers to be non-recurring or unusual due to their nature.

“Notes Collateral” means the property and assets of the Issuer or any other person over which a lien has been granted to secure the obligations of the Issuer under the Notes and the Indenture pursuant to the Notes Security Documents.

“PAI partners” collectively refers to PAI EUROPE V-1 FCPR, PAI EUROPE V-2 FCPR, PAI EUROPE V-3 FCPR and PAI EUROPE V-B FCPR.

“Revolving Credit Facility” means the multi-currency revolving credit facility in an amount of €75 million which has been made available to our Group under the Senior Facilities Agreement.

“Senior Facilities Agreement” means the secured credit facilities agreement dated August 27, 2008 (as amended and restated on October 10, 2008 and as amended on November 24, 2008, February 5, 2009 and February 8, 2010 and as amended and restated on May 26, 2011) among, inter alios, (i) Xella International S.A., (ii) certain subsidiaries of Xella International S.A. as borrowers and together with Xella International S.A. as guarantors, (iii) UniCredit Bank AG (formerly Bayerische Hypo- und Vereinsbank AG), BNP Paribas S.A.—Niederlassung Frankfurt am Main, Crédit Agricole Corporate and Investment Bank Deutschland, Niederlassung einer französischen société anonyme (formerly Calyon Deutschland, Niederlassung einer französischen société anonyme), Landesbank Baden-Württemberg and The Royal Bank of Scotland plc, Frankfurt Branch, as mandated lead arrangers, (iv) UniCredit Bank AG, London Branch (formerly Bayerische Hypo- und Vereinsbank AG, London Branch), BNP Paribas S.A.—Niederlassung Frankfurt am Main, Crédit Agricole Corporate and Investment Bank Deutschland, Niederlassung einer französischen société anonyme (formerly Calyon Deutschland, Niederlassung einer französischen société anonyme), Landesbank Baden-Württemberg and The Royal Bank of Scotland plc, Frankfurt Branch, as underwriters, (v) UniCredit Bank AG, London Branch (formerly Bayerische Hypo- und Vereinsbank AG, London Branch), as agent, security agent and issuing bank, and (vi) UniCredit Bank AG (formerly Bayerische Hypo- und Vereinsbank AG), BNP Paribas S.A.—Niederlassung Frankfurt am Main, Crédit Agricole Corporate and Investment Bank Deutschland, Niederlassung einer französischen société anonyme (formerly Calyon Deutschland, Niederlassung einer französischen société anonyme), Landesbank Baden-Württemberg and The Royal Bank of Scotland plc, Frankfurt Branch, as bookrunners, under which certain funds were made available to Xella International S.A. (formerly Xella International S.à r.l.) and its subsidiaries in connection with the funding of the Acquisition.

“Services Agreement” means the services agreement entered into on June 1, 2011 between the Issuer and the Company pursuant to which the Issuer’s ongoing operating and related costs and expenses, as well as fees, commissions, costs, expenses or similar amounts (including taxes) incurred by the Issuer in connection with or otherwise related to the Offering and the amendment and restatement of the Senior Facilities Agreement will be paid by the Company to the Issuer.

“Share Purchase Agreement” means the share purchase agreement dated July 8, 2008, as amended on July 10, 2008, pursuant to which Xella International S.A. acquired Xella International GmbH and other companies of our Group from Franz Haniel & Cie. GmbH.

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“U.S. Securities Act” means the U.S. Securities Act of 1933.

“Western Europe” means Andorra, Belgium, Cyprus, Denmark, France, Finland, Germany, Greece, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Malta, Monaco, The Netherlands, Norway, Portugal, San Marino, Spain, Sweden, Switzerland, United Kingdom and the Vatican.

In this report, the terms “Group”, “we”, “us” and “our” refer collectively to Xella International S.à r.l. and its subsidiaries and, after the conversion of Xella International S.à r.l. into a public company limited by shares (société anonyme), Xella International S.A. and its subsidiaries and, before the Acquisition, to Xella International GmbH and its directly and indirectly held wholly-owned subsidiaries as well as majority and minority participations as acquired by Xella International S.A. (formerly Xella International S.à r.l.) pursuant to the Share Purchase Agreement, as the case may be.

Information contained on any website named in this report is not incorporated by reference in this report and is not part of this report.

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11. Disclaimer

The consolidated financial statements included in this report have been prepared in accordance with the International Financial Reporting Standards, as adopted by the European Union (“IFRS”). The consolidated financial statements and the explanatory notes thereto of Xella International S.A. as of and for the fiscal year ended December 31, 2012 and 2011 are audited. Please note that not all information contained in this report with respect to this period is also audited. Quarterly figures for the fourth quarter 2012 and 2011 are unaudited. The audited consolidated financial statements and the explanatory notes thereto of Xella International S.A. as of and for fiscal year 2012 eliminates effects of certain inter-segment sales, primarily in connection with lime supplied by the Lime business unit to the Building Materials business unit and certain building materials supplied by the Building Materials business unit to the Dry Lining business unit. In this report, percentages relating to the portion of total sales and total Normalized EBITDA attributable to each of the three segments include effects from such inter-segment sales and do not include any necessary eliminations. As a result, percentages for sales and Normalized EBITDA by segment may add up to more than 100%. In this report, amounts of external sales for each of our three business units eliminate effects from certain inter-segment sales. Certain numerical figures set out in this report, including financial data presented in millions or thousands and percentages describing market shares, have been subject to rounding adjustments and, as a result, the totals of the data in this report may vary slightly from the actual arithmetic totals of such information.

This report contains non-IFRS measures and ratios, including EBITDA, EBIT, Normalized EBITDA, EBITDA margin, gross profit margin, Free Cash Flow, trade working capital, net financial debt, that are not required by, or presented in accordance with, IFRS. We present non-IFRS measures because we believe that they and similar measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. The non-IFRS measures may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under IFRS. Some of the limitations of these non-IFRS measures are: (i) they do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) they do not reflect changes in, or cash requirements for, our working capital needs; (iii) they do not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments on our debt; (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often need to be replaced in the future and EBITDA does not reflect any cash requirements that would be required for such replacements; and (v) some of the exceptional items that we eliminate in calculating Normalized EBITDA reflect cash payments that were made, or will in the future be made. The non-IFRS measures we present may also be defined differently than the corresponding terms under the bond reporting.

We operate in an industry for which it is difficult to obtain precise industry and market information. Market data and certain economic and industry data and forecasts used, and statements regarding our position in the industry made, in this report were estimated or derived based upon assumptions we deem reasonable, from internal estimates and surveys, market research, government and other publicly available information, reports prepared by consultants and independent industry publications. While we believe these statements to be reliable, they have not been independently verified, and we do not make any representation or warranty as to the accuracy or completeness of such information set forth in this report. Additionally, industry publications and such reports generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed and in some instances state that they do not assume liability for such information. We cannot therefore assure you of the accuracy and completeness of such information as we have not independently verified such information.

This report includes forward-looking statements within the meaning of the securities laws of applicable jurisdictions. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this report. The forward-looking statements herein speak only as of the date on which the statements were made. We undertake no obligation, and do not intend, to update or revise any forward-looking statement, whether as a result of new information, future events or developments or otherwise.

The report is provided to you on the basis that you are a person into whose possession the report may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver the report to any other person.

Xefin Lux S.G.A.Soci6t6 en Gommandite par Actions

Annual accounts

for the financial year ended December 31,2012

Registered office:16, avenue PasteurL-2310 LuxembourgLuxembourg Trade and Companies Register number: B 160 860Share capital: EUR 31,000

VBlech

Schreibmaschinentext

Annex 1

Xefin Lux S.C.A.Soci6t6 en Commandite Par Actions

Table of contents

Pages

Audit report

Balance sheet

Profit and loss account

Notes to the accounts

&wc

Audit report

To the Shareholders ofXefin Lux S.C.A.

We have audited the accompanyrng annual accounts of Xefin Lux S.C.A., which comprise the balancesheet as at 3r December 2or2, the profit and loss account for the year then ended and a summary ofsignificant accounting policies and other explanatory information.

Manager's responsibility for the annual accounts

The Manager is responsible for the preparation and fair presentation of these annual accounts inaccordance with Luxembourg legal and regulatory requirements relating to the preparation of theannual accounts, and for such internal control as the Manager determines is necessary to enable thepreparation of annual accounts that are free from material misstatement, whether due to fraud orerror.

Responsibility of the "Rd:uiseur d'entreprises agr,E6"

Our responsibility is to express an opinion on these annual accounts based on our audit. We conductedour audit in accordance with International Standards on Auditing as adopted for Luxembourg by the"Commission de Surveillance du Secteur Financier". Those standards require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance about whether theannual accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the annual accounts. The procedures selected depend on the judgment of the "R6viseur d'entreprisesagr6,6", including the assessment of the risks of material misstatement of the annual accounts, whetherdue to fraud or error. In making those risk assessments, the "R6viseur d'entreprises agr66" considersinternal control relevant to the entity's preparation and fair presentation of the annual accounts inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity's internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by the Manager, as well as evaluating the overall presentation of the annual accounts.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

iPricewaterhouseCoopers, Soci6td coopiratiue, 4oo Route d'Esch, B,P. t443, L-tot4 LuxembourgT: 452 494848 t,F: +3gz 494848 29oo,www.pwc.Iu

Cabinet de r4uision agrCC. Eq)ert-comptable (autorisation gouuernementale n"tooz8z56)R.C.S. Luxembourg B 65 472 - TVA LU25482518

,repwc

Opinion

In our opinion, the annual accounts give a true and fair view of the financial position- of

Xefin Lux S.C.A. as of 3r December 2012, and of the results of its operations for the year then ended in

accordance with LuxeLbourg legal and regulatory requirements relating to the preparation of the

annual accounts.

PricewaterhouseCoopers, Soci6t6 coop6rative Luxembourg, zo March zor3

Represented by

Alain Maechling

Annual Accounts Helpdesk :

Tel. : (+352) 26 428-1Email :[email protected]

JYSFRSP20l 301 29Tr 5 r4r 20r _001 Page 1t4

RCSLNT.: B160860 Matricule: 201 I 2300 466

eCDF entry date:

BALANCE SHEET

Financlalyear from ol a't/01/20't2 to o, 31/12/2012tin o: EUR

Xefin Lux S.C.A.

16, Avenue PasteurL-2310 Luxembourg

A5SET5

Flnanclal year Prevlous flnanclal year

Subscrlbed capltal unpaid

L Subscribed capital not called

ll. Subscribed capital called but not paid

Formatlon expenses

Fixed assets

l. lntangible assets

1. Costs of research and development

2. Concessions, patents, licences, trade marksand similar rights and assets, if they were

a) acquired for valuable consideration and need not be shownunder C.1.3

b) created bythe undertaking itself

3. Goodwill, to the extent that it was acquired for valuableconsideration

4. Payments on account and intangible fixed assets under

300.000.000,00 300.000.000,00

development

Tangible assets

1. Land and buildings

2. Plant and machinery

3. Other fixtures and fittings, tools and equipment

4. Payments on account and tangible assets in courseof construction

Financial assets

l. Shares in affiliated undertakings

2. Loans to affiliated undertakings

3. Shares in undertakings with which the company is linkedby virtue of participating interests

4. Loans to undertakings with which the company is linkedby virtue of participating interests

5. lnvestments held as fixed assets

6. Loans and claims held as fixed assets

7. Own shares or own corporate units

A.

110

ll2

ll4

118

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124

126

128

130

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138

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103

105

109

lll

113

117

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llt.

'| 02

lg

B.

c.

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123

127

129

l3l

133

135

1J7

139

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143

145

147

149

300,000.000,00 300.000.000,00

14

16

148

150

300.000.000,00 300.000.000,00

JYSFRSP20I 301 29Tl 5 141 201 _001 Page

RCSLNT.:8160860 Matricule: 2011 23004f'6

160

162

lg

l6

168

170

172

174

116

't 78

180

182

1g

186

ls

ls

192

lq

151

153

155

157

159

16r

161

165

16?

169

2.

3.

4.

ilt.

D. Current assets

l. Stocls'1. Raw materials and consumables

2. Work and contracts in Progress

3. Finished goods and goods for resale

4. Payments on account

ll. Debtors

1. Trade debtors

2. Own shares or own corporate units

3, Other investments

lV. Cash at bank and in hand

E. Prepayments

Flnanclal year

2.227.863,87

2.227.863,87

n 2.219.480,42

n 2,219,480,42

175

Prevlous flnanclal year

,t-wt54

2.091.669,69

2.091.669,69

2.091,669,69

'le8 21 '063,66

158

a) becomlng due and payable after lessthan one year

b) becoming due and payable after more than one year

Amounts owed by affiliated undertakings

a) becoming due and payable after less than one year


Amounts owed by undertakings with which the companyis linked by virtue of participating interests



Other debtors



lnvestments

1. Shares in affiliated undertakings and in undertakings withwhich the company is linked by virtue of participatinginterests

177

179

181

183

185

187

189

191

193

195

197

199

8.383,45

8.383,45

TOTAL (ASSETS) ,o,

-j02lzf-Sjd,'

JYSFRSP2oI 30129T15141201 001 Page

RCSLNT.:8160860 Matricule: 2011 230046,6

LIABILITIES

A. Capital and reserves

L Subscribed capital

ll. Share premium and similar premiums

lll. Revaluation reserves

lV. Reserves

1, Legal reserve

2. Reserve for own shares

3. Reserves provided for by the articles of association

4, Other reserves

V, Profit or loss brought forward

Vl. Result for the financial year

Vll. lnterim dividends

Vlll. lnvestment subsidies

lX, lmmunisedappreciation

B. Subordinated creditors

Provisions

1. Provisions for pensions and similar obligations

2. Provisions for taxation

3. Other provisions

Non subordinated debts

i. Debenture loans

a) Convertlble loans

c.

306

J6

310

312

314

316

318

320

326

328

305

307

309

3tt

313

315

317

125

127

332

334

336

338

34

346

l4a

t4J

145

t47

D.

358

30

3A

3g

166

368

370

361

l6l

369

371

3.

4.

Flnanclal year

,o'==€99303 31.000,00

1.048,30

1.048,30

n 19.917,59

r2t 44'866,10

323

329

331

133

135

337

,,0iJ,!!:.9fL99r4r 302.000.000,00

:+s 302.000.000,00

:sr 2.000.000'00

:s: 300.000.000,00

ss 223,52

s* 223,52

359

367 51.340,94

Plevlous flnanclal year

,or-@gg3n 31'000,00

:a: 20,965,89

324

'*-wi42 302.000'000,00

:so 302.000'000,00

3s2 2.000.000,00

354 300.000.000,00

156

6.440,00

2.

l) becoming due and payable after less than one year

ii) becomlng due and payable after more than one year

b) Non convertible loans

i) becomlng due and payable after less than one year

ii) becomlng due and payable after more than one year

Amounts owed to credit institutions

a) becomlng due and payable after less than one year

b) becomlng due and payableaftermorethanoneyear

Payments received on account of orders in so far as theyare not shown separately as deductions from stocks

a) becoming d ue and payable after less than one year


Trade creditors

a) becoming due and payable after lessthan one year


51 .340,94 6.440,00

JYSFRSP20I 30',I 29Tl 5141 201 _001 Page

RCSLNT.: 8160860 Matricule: 2011 230046,6


374

376

378

3&

352

384

386

3A

3735.

6.

Bills of exchange payable

a) becoming due and payable after lessthan one year

b) becoming due and payableafter morethanoneyear

Amounts owed to affiliated undertakings

a) becomlng due and payable after lessthan one year


Amounts owed to undertakings with which the companyis linked by virtue of participating interests

a) becoming d ue and payable after less than one year


Tax and social securitY

a) Tax

b) Social security

Other creditors


b) becoming due and payableaftermorethanoneyear

377

379

38r

383

385

387

389

391

393

395

391 22.076,14

22.076,143ss 29.244,83

401

oor-J,99 n'--@99

TOTAL (LlABrLrTrES) oot@

7.

E. Deferred income

8. 25.222,59 3s2 7.251,32

3s4 7,251,32t).ztz,Jv

396

398

400

402

9. 29.244,83

Annual Accounts Helpdesk :

Tel. : (+352) 26 428-1Email :[email protected]

JYSFRSP20130I29TI5263501-001 Page 1/2

RCSLNT.:8160860 Matricule: 201 1 2300 M6

eCDF entry date:

PROFITAND IOSS ACCOUNT

Financiaf yearfrom o1 A1/01/2012 to o, 31/12/20't2tin o: EUR )

Xefin Lux S.C.A.

16, Avenue PasteurL-2310 Luxembourg

A. CHARGES


1. Raw materials and consumables

2. Other external charges

3. Staffcosts

a) Wages and salaries

b) Social security costs

c) Social security costs relating to pensions

d) Other social security costs

4. Value adjustments

a) on formation expenses and on tangible and intangible fixedassets

b) on elements of current assets

5. Other operating charges

6. Value adJustments and fair value adJustments onfinancial fixed assets

7. Value adjustments and falr value adjustments onfinanclal current assets. Loss on dlsposal of transferablesecurlties

8. Interest payable and similar charges

a) concerningafflliated undertakings

b) other interest payable and similar charges

9. Extraordinarycharges

10. Tax on proflt or loss

I l. Other taxes not included in the prevlous captlon

1 2. Profit for the financial year

uor$ eor 168.018'87

605 606

607

609

6ll

613

urr@628@629 630

o:r 24.000.000,00 o:z 14.000.00Q00

633

*-JZ 'ureutrJ99 618-

o:s-Jlg u-]j,49

608

6t0

612

614

618

620

617

6t9

621

TOTAL CHARGES u1 24.121.786,93 642 14.196.23608

JYSFR5P20l 301 29T1 s263501 _001 Page

RCSLNT.:8160860 Matricule: 2011 230046,6

B.INCOME

Flnan<lal year Prevlous flnanclal year

1.

2.

Net turnover

Change in inventories of finished goods and of workand contracts in progress

Fixed assets under develoPment

Reversal of value adjustments

a) on formation expenses and on tangible and intangible fixedassets

b) on elements of current assets

Other operating income

lncome from financial fixed assets

a) derived from affiliated undertakings

b) other income from participating interests

lncome from financial current assets


b) other income

Other interests and other financial income


b) other interest receivable and similar income

710

112

703

705

707

709

71t

3.

4.

724

730

732

723

5.

6.

7.

711

8.

"'---2@99717 24.ooo.ooo,oo

719

,rrre72s 12'1.786,93

731

',uJ9!99Qt18 14.000.000,00

zza [email protected],08

9. Extraordinary income

10. Loss for the financial year

7A133

t:t-J 736-J

TOTATINCOME ,,,@ z:a--J29&99

Xefin Lux S.C.A.

Soci6t6 en Commandite par Actions

Notes to the accountg(expre3sed in EUR)

Note 1 - General lntormation

Xefin Lux S.C.A., hereinafter the "Company", was incorporated on May 16, 201 1 and is organisBd under th€ lsws of Luxambourg as a "soci6t6 encommandite par actions " for an unlimited period.

The rsgistersd offlce of tha Company is established in Luxembourg City and is registered at ths Trade and Compani€s register in Luxembourg underthe number 8160 860.

The financial year of ths Company starls on January 1 and ends on Deember 3 1 of each ysar.

Ths object of ths Company is the holding of pariicipations, in any form whatsoever, in Luembourg and foraign companles, or other businoss gntities,

the acquisition by purchase, substription, or in any othgr manner as w6ll as the transfer by sale, exchange or othseise of stock, bonds, debenturss,notos and other securities of any kind, and the ownership, administration, devslopmenl and management of its portfolio. The Company may also holdinterests in partnerships and csrry out its business through branches in Luxembourg or abroad.

The Company may borrow in any fom and proceed by private pla€menl or public issuo to the issus of bonds, prefered equity certificatss, whetherconvertible or not, warants, notes and debenturss as well as any other typs or kind of s6curities or instruments.

In a general fashion it may grant assistanc€ (by way of loans, advances, guarantees or securities or otheMise) to companies or oth6r enterprises inwhich the Company has a direct or indiroct interest or which forms part of the group of @mpani6s to which lhe Company belongs or such othercompany as ths Company deems fit, take any controlling and supervisory measures and carry out any operation which it mgy de€m useful in theaccomplishment and development of lts purposes.

Finally, tha Company can perform all @mmercial, technical and financial or oih6r operations, connected directly or indirectly in all arsas in order tofacilitata tha accomolishment of its gurDose.

The company is included in ths consolidated accounts of Xella Intemational Holdings S.a rl. forming at onc6 the largest and the smallest body ofunderlakings of wich the company foms a part as a direcuindirect subsidary undsrtakings.

The registred office of that mmpany is locatsd 12, rue Guillaum€ Schneider, L-2522 Lqembourg, where th6 consolidatsd financial statemsnts areavailabls.

Note 2 - Summary of significant accounting policies

Basia of prsparation

These annual sccounts have been prepared in accordance with Luxembourg legal and regulatory requirsmsnts under the historical cost convention.Accounting policios and valuation rules aro, besides tho ones laid doM by the law of Dffimber 19, 2002, as amended (the "Law"), determined andapplied by the Manager of the Company.

The preparation of annual accounts requires th6 use of c€rtain critical accounting sstimates. lt atso rgquires th€ manager to exercise its judgement inthe procass of applying the accounting policies. Chang€s in assumptions may have a significant impact on the annual a@ounts in the p€riod in whichth€ assumptions changed. The manager beligv€s that the undorlying assumptions are appropriat6 and that the annual ac@unts therefore prosent thefinancial position and results fairly.

Ths Company mak6s estimates and assumptions that affact the reporled amounts of assets and liabilities in the next financial year. Estimates andjudgsmonts are continually svaluated and are based on historical expsrience and other factors, including sxpectations ol futuro events that arebelieved to be reasonable under the circumstances.

Following the Grand-Ducal Regulation of June 10, 2009 determining the content, the presentation and the numbering ot the Luxembourg standardchart of Accounts, it has been decided to amgnd the presentation and lhe wordings of the balance sheet and profit and loss account of the @mpanyfor the year ended Oecember 31, 201 2.ln addition, in order to ensurs adequate comparability across financial years, certain comparativ€ figures in respect of the financial year endedDecember 31, 201 t have baen reclassified:- the "othsr provisions" for an amount of EUR 6,440.00 havs been reclassified to'Trad€ creditors becoming dus and payabls aftsr less than oneyear and- the "other opsrating income" for an amounl EUR 35,000.00 have be6n reclassified to "other interests and oth€r financial in@me derived fromafUliated undsrtakings"The comparative figuros disclose tha profit and loss acaount for the period from May 1 6, 201 1 (date of incorporation) to December 31 , 20 1 1.

Page 9

Xefin Lux S.C.A.

Soci6t6 en Commandlto pat Actions

Notes to the accounts(exprssssd in EUR)

-Continued-

Note 2 - Summary of signiflcant accountlng policies (continued)

Signlflcant accountlng policieE

The main valuation rul6s applisd by the Company are the following:

Findncial lixed assets

Sharos in affiliatgd undertakings or participating inter€sts, loans to these undertakings / invastments held as fix6d assets end othar loans are valu€d

rgspectivoly at purchase price and nominal value (loans and claims) including the expenses incidontal thareto.

In the case of durabls depreciation in value according to tho opinion of the Manager valus adjustments are made in rospect of financial fixed assets,

so that they are valued at the lower figure to b€ attributed to thsm at the balance sheet date. These value adjustments are not continued if the

roasons for which thoy wer€ mads have €ased to apply.

Debto6

D€btors are valued at thsir nominal value. Th6y ars subjact to vslue adjustments where thsir remvery is compromissd. These valus adjustmonts are

not continued if the reasons for which they were made have ceased to apply

F oreig n c urre ncy tra n sl atio n

The Company maintains its accounting remrds in Euro (EUR) and the balan@ sheet end the profit and loss accounts are sxpressed in this curr€ncy

Transactions sxpressed in enencigs other than EUR are translated into EUR at ths exchange rats sftsctive at the time of the transaction.

Long l€rm assets exprssssd in currgnciss other than EUR aro translatsd into EUR at the €xchange rste effoctivs et ths tims of the transaction. At the

balance shgst dat6, th6ss asssls remain mnvertsd using the exchange rate at the tims of the transaction (the "historical exchangs rate").

Cash at bank is translated at ths exchang€ rale sffoctive at the balanco sheet date. Exchange lossss and gains are rsmrdsd in the profit and loss

account of the year.

Oth€r assets and liabilities are translalsd sEparataly, al the lower or at the higher of the value converted using the histori€l exchange rate and tho

value convsrted using the exchango rate at the balance sheet dato. Consequently, both realised and unrealised exchange losses are recorded in th€

profit and loss account whil€ exchange gains are recorded in the profit and loss a@unt when realisad only.

Whsrs there is an sconomic link between an asssl and a liability, thssE are valued in total according to the method described above and the net

unrealised lossos are recordod in the profit and loss account while ths net unrealisad gains are not re@gnisad.

Provls,bns

provisions are intended to cover losses or dabts, the nature of which is clearly defined and which, at the date of thg balan@ sheet ars eithsr likely to

be incursd or certain to be incuned but uncertain as to thsir amouni or as to the date at which they will aris6.

provisions may also bo seated to covsr charges which originate in the financial year under review or in a previous financial year, th€ nature of which

is clsarly definsd and which at the dat€ of the balancE shset ars either likely to be incuned or certain to bs incurred but uncertain as to their amount

or the date at which thoy will ariss.

Cwrent tax provisions

provisions for taxation coresponding to th6 tax liability sstimatsd by the Company for the tinancial ysars for which tho tax r€turn has not yet been

filed are rocorded under the caption 'Tax d6bts". Ths advancs payments are shM in the asssts of the balan@ she€t under the €ption "Othar

d6btors", it applicabls.

Subotdinated and non subordinated debts

Debts are re@rdad at their reimbursment value. Where the amount repayable on account is greatsr than th6 amount r6ceivod, ths differen€ is

shown as an assel and is written ofi over the period of tho debt based on a linear method.

Debts are re@rded under subordinated dsbts when their status is subordinated to unsodred debts.

Page l0

Xefin Lux S.C.A.

Soci6t6 6n Commandit6 par Actlons

Notes to the accounts(expr$lad in EUR)

-Continued-

Note 2 - Summary of significant accountlng policles (continued)

Slgnificant accounting pollcies (contlnued)

Deferred income

This liability item comprises income rec€ived during the financial year but relating to a subsequent financial y€ar

Note 3 - Financlal assets

c) Ths loan to the affiliated undertaking are detailed as follows:

At the balanc sheet date, thg Manager assesssd ths valuation of th6 undarlying operations and concluded that no valus adjustrnent is deemedneessary on the loan.

Note 4 - Debtors

This item is detailed as follows:

Note 5 - Capital and reserves

Subscribed capital

The share €pital of the Company amounts to EUR 31,000 and is divided into 3 1,000 shares tully paid up with a nominal valua of EUR 1.00 6ach

The movements on ths "Subscribed capital " item during ths year are as tollows:

Logal res6rve

Luxembourg companies are required to allo€te to a legal reserue a minimum of 5% of its annual ngt profit until this reserue equals 10% ot th6subscribed share €pital. This reserue may not b6 distributed.

Nst book value Nel book YalusNominal Interost rate Starting date Maturity 2012 2011

EUR EUR

international S.A. 300,000,000 80/6 01t06,t2o11 o116t2018 300,000,000.00 300,000,000.00

and payable after less than one year:

advances - Xella International S.A 219.44042 91.669.692,000,000.00 2,000,000.00on Loan - Xella International S.A.

debtors 8,383.452,227,863.87 2,091,669.69

Numborof NumberofOrdinary Management Total

Sharc capltal Shares Shares of

Opening bal.nceSubssiptions for the year

31,000.00 30,999.00 , o: 31,000.00

forbalance 1.00

Page 1 1

Xefin Lur S.C.A.

Soci6t6 on Commandite Par Actiont

Notes to the accounts{€xprossod in EUR}

-Continued-

Note 6 - Non subordinated debts

. Aner r6s3 ,*i"lflfii"lTj Afrer morsrhrn on€ year - - " -

;;; than flvs yearsTotd2012EUR

Coroorate income tax - estimated taxMunicipal bunisess til - estimated taxNst wealth tax - estimated ta

2,000,000.00223.52

31,622.6419,718.30

20,872.593,780.00

570.0029,244.83

302,000,000.00225.32

31,622.64'19,718.30

20,872.593,780.00

570.0029,244.83

302,000,000.00

6,440.00

o,czv.u/722.25

22.076.14

Tho company issued a I % Senior Saar€d Note on June 1, 201 1 which matures on Juno '1, 2018

Accrued interest on the loan amounts to EUR 2,000,000.00 as at D€ember 31, 2012.

Note 7 - Other external charge3


Arcounting and domiciliation feesAudit f6esLegal and administralion feesTax return fessBank servicing fees

Note 8 - Inter$t payable and similar charges

This it€m is detailed as follows:

Intorest charg€ on the 8% Senior Secured Notes

Note 9 - Income from flnancial fixed assets


Interest income on the loan granted to Xella Intsmational S.A.

2012EUR

4,928.8014,680.0023,051.254C tnn nn

789.51

-- 58,14136

2012EUR

24,000,000

24,000,000

2012EUR

24,000,000

,4,OOOpOO

2011EUR

22,076.1417,480.00

125,284.40

168,0't8.87

201'lEUR

14,000,000

---{,ooo,ooo

2011EUR

14,000,000

14,000,000

Note 10 . Other interests and otherfinancial income

Othsr interests ild other financial income are @mposed ol fees linked to the issue of the senior socursd Notes and reinvoiced to Group Companies.

Note 11 - Taxatlon

The Company is subject to th€ genersl td r€gulalion appli€ble to all Luembourg "@mmercial companies".

Paga 12

Xefin Lux S.C.A.

Soci6t6 en Commandite par Actlons

Notes to the accountg(exprs$od in EUR)

-Continu6d-

Note 12 - Off balance sheet commitments and contingencies

All bank accounts of tha Company are pladged to third parties.

According to th6 E% senior secured Not6s indenture, the Company is obliged to fulfill certain so called incurren€ bassd @venants. The compliancewith such covenants negds to be provgn in case of th€ ocurrenca of certain defined events.

Note 13 - Cash flow statement

Cash Flow Statement for the Period from January 1, 2012 to Decembor 31, 2012

Jatr I ..-.. t)rc 31,

-' ,,o12 :

',v,N ta,:9qc lt,

2otl

Net onutuKtta tot me veat a4a6!.10Incoma and exDens€s from income tax6s 17.971.27 7.251.32

nancial result o 31

Chrndes in lEde rcaaivables -1)7 410 73 -c,t 66c 69hanoes rn trade ogvables 51.340.94 14

Chanoes in othsr cungnt assets €.383.455 440 00 6 4!O OO

henoes rn other cutrsnt liabilrties

Cash oaid tor additions to olher nondrant financial 0.00 -300,000,000.00

1 raerved from interest income 24 000 000 12,OOO,O21.73ttffiC.sh trd tr re@ived from eouitv @ntnbutions o 3l

uasn recerveo rom tne rssug 0l other non{urentfiMnciel liahilitiec 0.00 300,000.000.00

Cash aeeiveal from drnhl bank .letrl )r3 5) 0.00I oed lor interest exoenses -24 000 000 1

ash and €sh eouivalenis et the beoinnino of th6 2'l oo0Net chanoe in cash and c€sh eouivalents -21.(Xt3.6tt 21.063

2t-063-

Page 1 3

Xefin Lux S.C.A.Société en Commandite par Actions

Annual accounts for the financial period from May 16, 2011

(date of incorporation) to December 31, 2011

Registered office:16, avenue PasteurL-2310 LuxembourgLuxembourg Trade and Companies Register number: B 160 860Share capital: EUR 31,000

VBlech


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Annex 2

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Rechteck

Xefin Lux S.C.A.

Société en Commandite par Actions

Table of contents

Page

Audit report 1

Balance sheet 3

Profit and loss account 4

Notes to the accounts 5

31.12.2011

ASSETS Note EUR

FIXED ASSETS

Financial assets 3 Loans to affiliated undertakings 300,000,000

300,000,000

CURRENT ASSETS

Debtors 4Amounts owed by affiliated undertakings becoming due and payable after less than one year 2,091,670

Cash at bank and in hand 21,064

TOTAL ASSETS 302,112,734

31.12.2011

LIABILITIES EUR

CAPITAL AND RESERVES 5

Subscribed capital 31,000 Result for the financial period 20,966

51,966

PROVISIONS

Other provisions 6,440 6,440

NON-SUBORDINATED DEBTS 6

Debenture loans Non convertible loans becoming due and payable after less than one year 2,000,000 becoming due and payable after more than one year 300,000,000

302,000,000

Tax and social security Tax 7,251

Other creditors becoming due and payable after less than one year 22,077

ACCRUALS AND DEFERRED INCOME 25,000

TOTAL LIABILITIES 302,112,734

(expressed in EUR)

Xefin Lux S.C.A.


Balance sheet as at December 31, 2011

The accompanying notes form an integral part of these annual accounts.

Page 3


Page 3

Period from

16.05.2011 to

31.12.2011

CHARGES Note EUR

Other external charges 7 168,019

Interest payable and similar charges 8 other interest payable and similar charges 14,000,000

Tax on profit or loss 7,251

Profit for the financial period 20,966

TOTAL CHARGES 14,196,236

Period from

16.05.2011 to

31.12.2011

INCOME EUR

Other operating income 35,000

Income from financial fixed assets 9 derived from affiliated undertakings 14,000,000

Other interests and other financial income 10 derived from affiliated undertakings 161,236

TOTAL INCOME 14,196,236

(expressed in EUR)

Xefin Lux S.C.A.


Profit and loss account for the financial period from May 16, 2011 (date of

incorporation) to December 31, 2011


Page 4

Note 1 - General information

Basis of preparation

Significant accounting policies

The registered office of the Company is located in Luxembourg city.

The Company may borrow in any form and proceed by private placement or public issue to the issue of bonds, preferred equity certificates,whether convertible or not, warrants, notes and debentures as well as any other type or kind of securities or instruments.

The object of the Company is the holding of participations, in any form whatsoever, in Luxembourg and foreign companies, or other businessentities, the acquisition by purchase, subscription, or in any other manner as well as the transfer by sale, exchange or otherwise of stock,bonds, debentures, notes and other securities of any kind, and the ownership, administration, development and management of its portfolio.The Company may also hold interests in partnerships and carry out its business through branches in Luxembourg or abroad.

Xefin Lux S.C.A., hereinafter the "Company", was incorporated on May 16, 2011 and is organised under the laws of Luxembourg as a "sociétéen commandite par actions" for an unlimited period.

The financial year of the Company starts on January, 1 and ends on December, 31 of each year. Exceptionally, the first financial period runsfrom the date of incorporation to December 31, 2011.

Note 2 - Summary of significant accounting policies

The main valuation rules applied by the Company are the following:

These annual accounts have been prepared in accordance with Luxembourg legal and regulatory requirements under the historical costconvention. Accounting principles and valuation rules are, besides the ones laid down by the Law, determined and applied by the Manager ofthe Company.

Xefin Lux S.C.A.


Notes to the 2011 annual accounts(expressed in EUR)

Debtors are valued at their nominal value. They are subject to value adjustments where their recovery is compromised. These valueadjustments are not continued if the reasons for which they were made have ceased to apply.

Debtors

Shares in affiliated undertakings or in undertakings with which the company is linked by virtue of participating interests, loans to theseundertakings, investments held as fixed assets and loans and claims held as fixed assets are valued respectively at purchase price andnominal value (loans and claims) including the expenses incidental thereto.

In case of durable depreciation in value according to the opinion of the Manager, value adjustments are made in respect of fixed assets, so thatthey are valued at the lower figure to be attributed to them at the balance sheet date. These value adjustments are not continued if the reasonsfor which they were made have ceased to apply.

Financial fixed assets

In a general fashion it may grant assistance (by way of loans, advances, guarantees or securities or otherwise) to companies or otherenterprises in which the Company has a direct or indirect interest or which forms part of the group of companies to which the Company belongsor such other company as the Company deems fit, take any controlling and supervisory measures and carry out any operation which it maydeem useful in the accomplishment and development of its purposes.

Finally, the Company can perform all commercial, technical and financial or other operations, connected directly or indirectly in all areas in orderto facilitate the accomplishment of its purpose.

The Company is included in the consolidated accounts of Xella International Holdings S.à r.l. forming at once the largest and the smallest bodyof undertakings of which the company forms a part as a direct/indirect subsidary undertaking.

Page 5 Notes to the accounts

Xefin Lux S.C.A.



Foreign currency translation

Note 3 - Financial assets

Loan granted toNominal

EUR

Interest

RateStarting Date Maturity

Net book

value

2011

EUR Xella International S.A. 300,000,000 8% 01.06.2011 01.06.2018 300,000,000

Total 300,000,000

The Company maintains its accounting records in Euro (EUR) and the balance sheet and the profit and loss accounts are expressed in thiscurrency.

In accordance with prudence principles found within generally accepted accounting principles in Luxembourg ("LuxGaap"), other assets aretranslated separately, at the lower of the value converted using the historical exchange rate and the value converted using the exchange rate atthe balance sheet date. Conversely, other liabilities are translated separately, at the higher of the value converted using the historical exchangerate and the exchange rate at the balance sheet date. Consequently. both realised and unrealised exchange losses are recorded in the profitand loss account while exchange gains are recorded in the profit and loss account at the moment of their realisation only.

Non-subordinated debts

As at the end of the period, the Manager estimates that financial assets do not present any permanent loss in value.

Where there is an economic link between an asset and a liability, these are valued in total according to the method described above and the netunrealised loss is recorded in the profit and loss account and the net unrealised exchange gains are not recognised.

Debts are recorded under subordinated debts when their status is subordinated to unsecured debts.

Debts are recorded at their reiumbursment value. Where the amount repayable on account is greater than the amount received, the differenceis shown as an asset and is written off over the period of the debt based on a linear method.

Financial fixed assets can be summarized as follows:

Provisions are intended to cover losses or debts, the nature of which is clearly defined and which, at the date of the balance sheet are eitherlikely to be incurred or certain to be incurred but uncertain as to their amount or as to the date on which they will arise.

Provisions may also be created to cover charges which originate in the financial year under review or in a preivous financial year, the nature ofwhich is clearly defined and which at the date of the balance sheet are either likely to be incurred or certain to be incurred but uncertain as totheir amount or the date on which they will arise.

Provisions

Cash at bank is translated at the exchange rate effective at the balance sheet date. Exchange losses and gains are recorded in the profit andloss account of the year.

Long term assets expressed in currencies other than EUR are translated into EUR at the exchange rate effective at the time of the transaction.At the balance sheet date, these assets remain converted using the exchange rate at the time of the transaction (the "historical exchangerate").

Transactions expressed in currencies other than EUR are translated into EUR at the exchange rate effective at the time of the transaction.


Xefin Lux S.C.A.



Note 4 - Debtors

Debtors are detailed as follows: 2011

EUR

Becoming due and payable within one year

Cash advances - Xella International S.A. 91,670 Interests on Loan - Xella International S.A. 2,000,000

Total debtors 2,091,670

Note 5 - Capital and reserves

Subscribed capital

2011

Number of

Ordinary

Shares

Number of

Management

Shares

Total number

of Shares

EUR

Subscribed capital - opening balance - - - -

Subscriptions for the period 31,000 30,999 1 31,000

Subscribed capital - closing balance 31,000 30,999 1 31,000

Legal reserve

Note 6 - Debenture Loans

Within one

year

After one year

and within five

years

Interest Rate Starting Date MaturityTotal

2011

EUR

Debenture loan 2,000,000 300,000,000 8% 01.06.2011 01.06.2018 302,000,000

Total 2,000,000 300,000,000 302,000,000

Note 7 - Other external charges

This item is detailed as follows: 2011

EUR

Domiciliation fees 11,489 Accounting fees 10,588 Audit fees 26,582 Costs related to the bond issuance 119,361 Total 168,019

The movements on the "Subscribed capital " item during the year are as follows:

Accrued interest on the loan amounts to EUR 2,000,000 as at December 31, 2011.

The Company issued a 8% Senior Secured Notes due 2018 on June 1, 2011.

The subscribed capital of the Company amounts to EUR 31,000 and is divided into 31,000 shares fully paid up with a nominal value of EUR 1each.

Luxembourg companies are required to allocate to a legal reserve a minimum of 5% of the annual net income until this reserve equals 10% ofthe subscribed share capital. This reserve may not be distributed.


Xefin Lux S.C.A.



Note 8 - Interest payable and similar charges2011

This item is detailed as follows: EUR

Interest charge on the 8% Senior Secured Notes 14,000,000

Total 14,000,000

Note 9 -Income from financial fixed assets2011

This item is detailed as follows: EUR

Interest income on the loan granted to Xella International S.A. 14,000,000

Total 14,000,000

Note 10 - Other interests and other financial income

Note 11 - Off balance sheet commitments

Note 12 - Cash flow statement

Period from

16.05.2011 to

31.12.2011

€

Net profit/loss for the year 20,966 Income and expenses from income taxes 7,251 Financial result 3,156 EBITDA 31,373

Changes in trade receivables (91,670) Changes in trade payables 22,076 Change of trade working capital (69,594) Changes in current provisions 6,440 Changes in other current liabilities 25,000 Change in other working capital 31,440 Cash flow from operating activities (6,780)

Cash paid for additions to other non-current financial assets(300,000,000) Cash received from interest income 12,000,022 Cash flow from investing activities (287,999,978)

Cash received from equity contributions 31,000 Cash received from the issue of other non-current financial liabilities300,000,000 Cash paid for interest expenses (12,003,178) Cash flow from financing activities 288,027,822

Cash and cash equivalents at the beginning of the period 0Net change in cash and cash equivalents 21,064 Cash and cash equivalents at the end of the period 21,064

NameDirector / Manager

Other interests and other financial income are composed of fees linked o the issue of senior secured Notes and reinvoiced to Group Companies

All bank accounts of the Company are pledged to third parties.According to the 8% senior secured Notes indenture, the Company is obliged to fulfill certain so called incurrence based covenants. Thecompliance with such covenants needs to be proven in case of the occurrence of certain defined events.


IFRS Consolidated Financial Statements of


for 2012

VBlech

Rechteck

VBlech


Annex 3


Table of contents

Consolidated Financial Statements 2012

Consolidated Statement of Financial Position ............................................................................ 8

Consolidated Statement of Income – by nature of expense........................................................ 9

Consolidated Statement of Comprehensive Income ................................................................. 10

Consolidated Statement of Changes in Equity.......................................................................... 11

Consolidated Statement of Cash Flows.................................................................................... 12

Notes to the Consolidated Financial Statements 2012

A. Background.......................................................................................................................... 13

B. Notes to the Consolidated Statement of Financial Position .................................................. 28

1 . Property, Plant and Equipment ........................................................................................ 28

2 . Intangible Assets ............................................................................................................. 29

3 . Investments in Associates (At Equity) .............................................................................. 30

4 . Financial Assets............................................................................................................... 31

5 . Deferred Taxes ................................................................................................................ 32

6 . Inventories ....................................................................................................................... 34

7 . Trade and Other Receivables .......................................................................................... 35

8 . Cash and Cash Equivalents............................................................................................. 36

9 . Equity............................................................................................................................... 37

10 . Financial Liabilities......................................................................................................... 38

11 . Pension Provisions ........................................................................................................ 41

12 . Other Provisions ............................................................................................................ 45

13 . Deferred Income ............................................................................................................ 47

14 . Trade and Other Accounts Payable ............................................................................... 48

C. Notes to the Consolidated Statement of Income – By Nature of Expense............................ 48

15 . Sales.............................................................................................................................. 48

16 . Other Income................................................................................................................. 49

17 . Staff Expenses............................................................................................................... 49

18 . Other Expenses ............................................................................................................. 50

19 . Result from Other Investments....................................................................................... 51

20 . Finance Costs................................................................................................................ 52

21 . Other Financial Result.................................................................................................... 52

22 . Income Taxes ................................................................................................................ 53

D. Other Notes to the Consolidated Financial Statements ........................................................ 54

23 . Financial Risk Management........................................................................................... 54

24 . Contingencies ................................................................................................................ 60


25 . Corporate Acquisitions and Divestments........................................................................ 61

26 . Consolidated Statement of Cash Flows ......................................................................... 62

27 . Segment Reporting ........................................................................................................ 64

28 . Related Parties .............................................................................................................. 67

29 . List of shareholdings ...................................................................................................... 70

30 . Significant Events After the End of the Financial Year ................................................... 73


8

Consolidated Statement of Financial Position

Dec. 31, 2012 Dec. 31, 2011

k€ k€

Property, plant & equipment (1) 1,116,300 1,123,206Intangible assets (2) 594,436 597,440Investments in associates (at equity) (3) 15,753 21,780Financial assets (4) 81,568 79,064Trade and other receivables 2,397 0Tax assets 1,079 1,197Deferred tax assets (5) 7,179 20,118Non-current assets 1,818,712 1,842,805

Inventories (6) 174,243 178,927Trade and other receivables (7) 139,031 146,080Tax assets 9,365 11,351Financial assets (4) 41,961 39,786Cash and cash equivalents (8) 124,512 124,016Deferred expenses 3,079 3,051Current assets 492,191 503,211

Total assets 2,310,903 2,346,016

Dec. 31, 2012 Dec. 31, 2011

k€ k€

Shareholders' equity (61,363) (19,178)Non-controlling interests 30,652 28,994Total equity (9) (30,711) 9,816

Financial liabilities (10) 1,581,424 1,558,666Deferred tax liabilities (5) 129,710 150,038Pension provisions (11) 127,679 126,482Other provisions (12) 105,788 107,842Trade and other accounts payable 186 0Deferred income (13) 6,641 5,696Non-current liabilities 1,951,428 1,948,724

Financial liabilities (10) 51,611 33,173Tax liabilities 13,251 14,325Other provisions (12) 86,840 89,849Trade and other accounts payable (14) 238,444 249,977Deferred income 40 152Current liabilities 390,186 387,476

Total equity and liabilities 2,310,903 2,346,016

Equity and Liabilities Note

NoteAssets

The accompanying notes are an integral part of these Consolidated Financial Statements.


9

Consolidated Statement of Income – By Nature of Expense

Jan. 1st -

Dec. 31, 2012

Jan. 1st -

Dec. 31, 2011

k€ k€

Sales (15) 1,282,501 1,271,199Change in finished goods & work in progress 4,803 10,226Own work capitalised 2,327 1,771Total output 1,289,631 1,283,196

Materials expenses (592,279) (593,000)Gross profit 697,352 690,196

Other income (16) 34,513 86,118Total income 731,865 776,314

Staff expenses (17) (306,449) (298,617)Other expenses (18) (218,389) (275,606)EBITDA 207,027 202,091

Depreciation & amortization expenses (102,647) (107,404)Impairment of goodwill (8,791)EBIT 95,589 94,687

Result from associates (at equity) 1,390 1,233Result from other investments (19) (1,490) 502Finance costs (20) (124,615) (124,111)Other financial result (21) 4,748 49Financial result (119,967) (122,327)

Profit/ loss before tax (24,378) (27,640)

Current income taxes (22,085) (24,860)Deferred taxes 7,903 29,958Income taxes (22) (14,182) 5,098

Net income/ loss (38,560) (22,542)

Net income/ loss attributable to shareholders (42,730) (26,717)Net income/ loss attributable to non-controlling interests 4,170 4,175

NoteConsolidated Statement of Income



10

Consolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive Income Jan. 1st -

Dec. 31, 2012

Jan. 1st -

Dec. 31, 2011

k€ k€

Net income / loss (38,560) (22,542)

Currency adjustment 884 (33)Change of available-for-sale investments* 1Other comprehensive income 884 (32)

Total comprehensive income (37,676) (22,574)

Total comprehensive income attributable to shareholders (42,102) (26,686)Total comprehensive income attributable to non-controlling interests 4,426 4,112* Recognition of deferred taxes and/ or reclassifications to net income/ loss: 0 k€



11

Consolidated Statement of Changes in Equity

Consolidated Statement of Changes in

Equity 2012Revaluation reserves

Available-for-

sale investments

(OCI)

Hedge of net

investment in

foreign

operations (OCI)

Translation

reserves

k€ k€ k€ k€ k€ k€ k€ k€ k€ k€

As of January 1st 31 98,382 (5) 2,688 7,916 10,599 (128,190) (19,178) 28,994 9,816

Dividends (2,775) (2,775)

Additions / disposals ConsGroupSubsequent Acquisition with existing control (83) (83) 7 (76)

Capital increase/ decreaseCurrency adjustment 628 628 628 256 884

Addition to/ release of OCI (not affecting consolidated income statement)Net income/ loss (42,730) (42,730) 4,170 (38,560)

Total comprehensive income 628 628 (42,730) (42,102) 4,426 (37,676)

Book value as at December 31 31 98,382 (5) 2,688 8,544 11,227 (171,003) (61,363) 30,652 (30,711)



Available-for-

sale investments

(OCI)

Hedge of net

investment in

foreign

operations (OCI)

Translation

reserves

k€ k€ k€ k€ k€ k€ k€ k€ k€ k€

As of January 1st 13 98,400 (6) 2,688 7,886 10,568 (101,165) 7,816 26,732 34,548

Dividends (2,089) (2,089)

Additions / disposals ConsGroup 239 239

Subsequent Acquisition with existing control (308) (308) (308)

Capital increase/ decrease 18 (18)Currency adjustment 30 30 30 (63) (33)

Addition to/ release of OCI (not affecting consolidated income statement) 1 1 1 1

Net income/ loss (26,717) (26,717) 4,175 (22,542)

Total comprehensive income 1 30 31 (26,717) (26,686) 4,112 (22,574)

Book value as at December 31 31 98,382 (5) 2,688 7,916 10,599 (128,190) (19,178) 28,994 9,816

Subscribed

capital

Subscribed

capital

Capital

reserves

Revaluation

reserves

Capital

reserves

Revaluation

reserves

Non-

controlling

interests

Total equityRetained

earnings

Total equity

Shareholder'

s equity

Non-

controlling

interests

Retained

earnings

Shareholder'

s equity

The accompanying notes are an integral part of these Consolidated Financial Statements. Please refer to note 25 for information about

corporate acquisitions and divestments in the year under review.


12

Consolidated Statement of Cash Flows

Jan. 1st -

Dec. 31,

2012

Jan. 1st -

Dec. 31,

2011

k€ k€

Net loss for the period including non-controlling interests (38,560) (22,542)

Depreciation, amortization and impairment of property, plant and equipment as well as of intangible assets

111,438 107,404

Income and expenses from changes in deferred taxes (7,903) (29,958)Income and expenses from income taxes 22,085 24,860Financial result 119,967 122,327EBITDA 207,027 202,091

Changes in inventories (5,425) (12,924)Changes in trade receivables 3,076 (14,450)Changes in trade payables (7,373) 26,787Change of trade working capital (9,722) (587)

Changes in pension provisions (6,864) (6,435)Changes in other non-current provisions and liabilities (14,788) 2,267Changes in other current assets 3,136 (3,363)Changes in current provisions 3,771 750Changes in other current liabilities (6,130) 9,343Change in other working capital (20,875) 2,562

Income taxes (21,014) (23,450)Non-cash income and expenses (3,155) 909Income and expenses from the disposal of non-current assets (3,522) (2,842)Cash flow from operating activities 148,739 178,683

Cash paid for investments in property, plant and equipment and intangible assets (74,769) (74,830)Cash received from the disposal of property, plant and equipment and intangible assets

4,677 4,411

Cash paid for the acquisition of consolidated entities and other business units (14,745) (10,026)Cash paid for additions to investments in associated entities at equity and other financial assets

(379) (983)

Cash received from disposals of investments in associated entities at equity and other financial assets

9,426 6,777

Cash received from interest and investment income 3,569 2,469Cash flow from investing activities (72,221) (72,182)

Payments made to non-controlling interests (2,775) (2,089)Payments made for the acquisition of shares in subsidiaries without change of control

(75) (98)

Cash received from the issue of non-current financial liabilities 828 341,605Cash received from the issue of current financial liabilities 1,035 579Cash paid for the scheduled repayment of financial liabilities (2,514) (17,069)Cash paid for interest expenses (49,557) (56,968)Cash paid for the unscheduled repayment of financial liabilities (24,021) (357,224)Cash paid / received for derivative financial instruments (13) (314)Cash flow from financing activities (77,092) (91,578)

Cash and cash equivalents at the beginning of the period 124,016 109,330

Net change in cash and cash equivalents (574) 14,923Net foreign exchange difference 1,070 (237)Cash and cash equivalents at the end of the period 124,512 124,016



Please see note 26 for more information on the Statement of Cash Flows.


13

Notes to the 2012 Consolidated Financial Statements

A. Background

Xella International S.A., which has its registered office at 12, Rue Guillaume Schneider,

L-2522 Luxembourg, Grand Duchy of Luxembourg, holds Xella Group which is a leading player

in the European market for building materials. It manufactures and markets building materials

and supplies lime under the umbrella of Xella (Ytong, Silka, Hebel, Multipor, Fermacell and Fels

trademarks). The company is in turn a subsidiary of Xella International Holdings S.à r.l., which is

jointly managed by an equal number of representatives from Goldman Sachs Capital Partners

and PAI Partners. Besides, selected managers of Xella International S.A., Luxembourg, and

other employees and their close family members have acquired shares in Xella International

S.A., Luxembourg, via XI Management Beteiligungs GmbH & Co KG, Duisburg / Germany

within the framework of the management participation program.

In 2011 Xella International S. à r.l. was converted into a Société Anonyme (S.A.) and increased

its subscribed capital from 12,500 € to 31,000 €.

The financial year of the Xella Group commenced on January 1, 2012 and ended on December

31, 2012.

These Consolidated Financial Statements have been prepared in accordance with International

Financial Reporting Standards as adopted by the European Union and in accordance with the

Luxembourg Law of December 19, 2002, as amended.

The Consolidated Financial Statements have been prepared in euro (€) and the figures are

generally stated in thousand euros (k€). For calculatory reasons, some of the tables may

include rounding differences of up to one unit. For additional clarity, a number of items have

been summarized both in the Consolidated Statement of Financial Position and in the

Consolidated Statement of Income. These are discussed in detail in the notes to the Financial

Statements. The items in the Consolidated Statement of Financial Position have been classified

as current or non-current items in line with IAS 1. The Statement of Income has been prepared

using the nature of expense method.

Since 2012 reporting structures for other provisions have been adjusted in order to better reflect

the Group’s legal and constructive obligations. In the statement of other provisions certain

positions were added (e.g. CO2-certificates), others were not shown anymore due to materiality

(e.g. provisions for return pallets).

The Consolidated Financial Statements were authorized for issue by the board of directors at

March 20, 2013 and were signed on its behalf.


14

Consolidation Principles

Subsidiaries over which Xella International S.A., Luxembourg, has either direct or indirect

control as defined by IAS 27 have been fully consolidated in the Consolidated Financial

Statements. Associates are valued using the equity method pursuant to IAS 28. Other equity

investments are recognized at fair value in accordance with IAS 39 or, if no market value is

available and fair value cannot be reliably determined, at acquisition cost.

All consolidated companies have the same reporting date as the balance sheet reporting date of

the Consolidated Financial Statements of December 31, 2012. The Financial Statements of

Luxembourgish, German and other foreign subsidiaries included in the Consolidated Financial

Statements have all been prepared using uniform accounting policies.

Business combinations are recognized using the purchase method and measured at their

acquisition-date with fair values (IFRS 3). That portion of the purchase price which is made in

anticipation of expected future economic benefits from the acquisition and cannot be allocated

to defined or identifiable assets in the course of purchase price allocation is reported as goodwill

under intangible assets. Three immaterial subsidiaries were not consolidated (PY: two).

Pursuant to IFRS 3, goodwill is not amortized. Rather, the cash-generating unit (CGU) to which

goodwill has been allocated is tested for impairment annually or during the year if there is

indication of an impairment. If impaired book value of goodwill is written down to net recoverable

amount which corresponds to the higher of value in use or net realizable value. In principle, any

impairments of goodwill are posted through profit or loss. A cash-generating unit is the smallest

identifiable group of assets that generates cash inflows that are largely independent of the cash

inflows from other assets or group of assets.

IAS 27 and IFRS 3 prescribe the mandatory application of the economic entity approach for

accounting transactions involving acquisitions and disposals of shares resulting in a controlling

interest being obtained or retained. Non-controlling transactions are viewed as transactions with

shareholders and recognized in equity. Disposals of shares which result in the loss of a

controlling interest are reported as a gain or loss on disposal in the Statement of Income.

If an interest is still held after the disposal of the controlling interest, the remaining investment

is measured at fair value. The difference between the former carrying amount of the remaining

investment and its fair value is recognized in income as a gain or loss on disposal and

presented separately with the fair value of the remaining investment. Parents acquiring an

additional stake in a subsidiary resulting in control being obtained

(“step acquisition”) must remeasure the initially held interest at fair value with differences to

book value recognized in the Consolidated Statement of Income.


15

Intercompany profits and losses, sales, income and expenses as well as all receivables and

liabilities between consolidated companies are offset against each other. Intercompany profits

contained in non-current assets and inventories originating from intercompany deliveries are

eliminated unless they are immaterial.

Consolidated Entities and Changes in the Consolidated Group

The changes in the number of consolidated entities were as follows:

Consolidated entities and changes in the consolidated group 2012 2011

As at January 1st 99 95Addition from the acquisition of shares 2 2Addition from formation 1 3Disposal from merger and liquidation (1)As at December 31 102 99

Foreign Currency Translation

The presentation currency of Xella International S.A., Luxembourg, is the euro. Currency

translation of subsidiaries reporting in a country with a currency other than euro is performed in

accordance with IAS 21 using the functional currency method. Due to the fact that all

subsidiaries operate financially, economically and also organizationally in their primary

economic environment, their respective local currency is their functional currency. Transactions

in foreign currency in the separate financial statements are translated to the functional currency

at the spot rate prevailing on the transaction date. Gains and losses from the settlement of such

business transactions and from the translation of monetary assets and liabilities are recognized

in the Statement of Income. The assets and liabilities reported in the financial statements of

companies based in a country which does not have the euro as currency are translated at the

closing rate, whereas the line items in the Statement of Income are translated at the annual

average exchange rate for the period. Goodwill arising from purchase accounting and any

hidden reserves and liabilities uncovered in the course of applying the purchase method are

allocated to the acquired entity and translated using the closing rate.

Any foreign exchange differences are posted to other comprehensive income without affecting

earnings. Such differences arise when the assets and liabilities of Group entities whose

functional currency is not the euro are translated to the presentation currency and the exchange

rate differs from the one applied in the prior year. They also arise when the Statement of

Income and the Statement of Financial Position are translated and the average exchange rate

differs from the closing rate.


16

The relevant exchange rates for non-euro countries (1 € = x local currency) are:

Dec. 31, 2012 Dec. 31, 2011 2012 2011

Bosnia 1.9558 1.9558 1.9558 1.9558Bulgaria 1.9558 1.9558 1.9558 1.9558China 8.2207 8.1588 8.1014 8.9867Croatia 7.5575 7.5370 7.5214 7.4383Czech Republic 25.1510 25.7870 25.1445 24.5767Denmark 7.4610 7.4342 7.4437 7.4507Hungary 292.3000 314.5800 289.0031 278.4548Mexico 17.1845 18.0512 16.8935 17.2476Norway 7.3483 7.7540 7.4732 7.7929Poland 4.0740 4.4580 4.1825 4.1087Romania 4.4445 4.3233 4.4578 4.2372Russia 40.3295 41.7650 39.9115 40.8515Serbia 112.3000 106.9200 112.8520 101.8362Sweden 8.5820 8.9120 8.6989 9.0283Switzerland 1.2072 1.2156 1.2053 1.2301USA 1.3194 1.2939 1.2839 1.3908Ukraine 10.6700 10.3730 10.3805 11.1000

Country Closing rate Average rate

Accounting Policies

The Consolidated Financial Statements are prepared in accordance with the historical cost

convention with the exception of certain financial assets, financial liabilities and derivative

financial instruments, which are measured at fair value.

Property, plant and equipment is measured at acquisition or production cost less depreciation

and any impairment losses. If the reasons for an impairment no longer apply in future, the

assets are written up accordingly. In addition to direct costs, the cost of internally constructed

property, plant and equipment includes an appropriate portion of overheads that can be directly

allocated to the production of the asset. Borrowing costs that are directly attributable to the

construction or production of a qualifying asset are recognized by the Xella Group as part of the

cost of that asset. This practice is also applicable for intangible assets.

Property, plant and equipment are depreciated over their economic life using the straight-line

method. Depreciation is based on the following useful lives:

Buildings 8 to 50 years

Plant and machinery 4 to 25 years

Vehicles and equipment 2 to 15 years

The criteria of IAS 17 for classification as finance lease are met where the Group bears the


17

significant opportunities and risks incidental to ownership within the framework of a lease

transaction, and is therefore deemed to have economic title to the asset. In these cases, the

respective property, plant and equipment is recognized at fair value or the lower net present

value of the minimum lease payments and depreciated over the economic life of the asset or

over the shorter term of the lease respectively, using the straight-line method. A lease liability in

the amount of the resulting net present value of future minimum lease payments is recognized

under current and non-current financial liabilities respectively. Buildings and plant and

machinery acquired under finance leases generally have customary purchase options attached

for the end of the lease. The leases are all based on market interest rates at the time the leases

were entered into.

In addition to the finance leases, the Group entered into rental agreements under which the

economic title to the assets remains with the lessor (operating leases). The payments on these

leases are posted to profit and loss. Depending on the type of assets, the leases contain the

customary rental conditions and right of first refusal.

Intangible assets purchased for a consideration are recognized at cost less straight-line

amortization and any impairment losses. Intangible assets are amortized over the contractual

term or the estimated useful life of the asset. Licenses and similar rights are amortized over two

to ten years. Xella is not planning to cease use of the trademarks reported in the Consolidated

Statement of Financial Position. Moreover, there is no indication that the useful life of the

trademarks is finite. The trademarks reported in the Consolidated Statement of Financial

Position therefore have an indefinite useful life. This also applies for the non-current CO2-

certificates. All other useful lives are finite. Internally generated intangible assets from which

future benefits are likely to flow to the Group and whose cost can be reliably measured are

recognized at the cost of production. Internally generated intangible assets are amortized over

two to ten years. The cost of production includes all costs directly allocable to development as

well as an appropriate portion of allocable overheads.

Research costs are expensed as incurred and not capitalized. Development costs are

capitalized, if the criteria of IAS 38 are met.

Goodwill, trademarks and non-current CO2-certificates with an indefinite useful life are subject to

an impairment test (impairment-only approach). The recoverability of the goodwill recognized in

the Statement of Financial Position is reviewed once every reporting period on the basis of

cash-generating unit pursuant to IAS 36 (or during the year if there is an indication of an

impairment). Within the framework of the impairment tests, the carrying amounts of the

individual or groups of cash-generating units are compared to the recoverable amount which is

defined as the higher of fair value less costs to sell and value in use. The fair value reflects the


18

best possible estimate of the amount that an independent third party would pay to acquire the

cash-generating units on the balance sheet date. The costs incurred to make such a sale are

deducted from this amount. In each of the CGU of the Xella Group, the recoverable amount is

generally based on its value in use.

The value in use for each cash-generating unit is determined by discounting future estimated

cash flows which are derived from a detailed plan (usually of five years) and a subsequent

terminal value. The detailed plan, approved by management, is based on historical

developments as well as on future market estimations. The management key assumptions are

generally consistent with external information sources. In the detailed plan the key assumptions

for each CGU include e.g. expected selling and procurement prices, investments and market

growth rates. The detailed plan is based on economic assumptions derived from external

sources, e.g. external market studies, as well as from internal assumptions.

The terminal value considers an average growth rate of 2% p.a. (PY: 2% p.a.). The resulting

cash flows are then discounted using the weighted average cost of capital determined for the

respective cash-generating unit. The weighted average cost of capital before tax used in each

CGU of the Xella Group is as follows:

in % in %

Building Materials Business Unit

CGU North West Europe 9.0 8.9CGU Middle West Europe/Scandinavia 9.7 9.4CGU South West Europe 9.2 8.9CGU South East Europe 11.1 11.0CGU Central East Europe 9.5 9.7CGU North East Europe 9.9 10.0CGU Alpe Adria 11.8 10.2CGU Emerging Markets and Others 9.9 11.2CGU Dry Lining 9.1 9.0CGU Lime 9.2 9.1

20112012Weighted average cost of capital

before taxes

If the recoverable amount of the cash-generating unit or group of cash-generating units is less

than the carrying amount an impairment loss is recognized on goodwill and, if necessary, of the

remaining assets as well.

Scenarios relating to key assumptions were analyzed during the financial year with respect to

the CGUs which were on significance due to their operating performance, low excess of value in

use over the carrying amounts in prior impairment tests, when indicated, or the amount of

goodwill allocated to them. No hypothetical need for an impairment loss resulted from this

analysis.


19

At balance sheet date the following goodwill and trademarks existed in the cash-generating

units:

Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2012 Dec. 31, 2011

k€ k€ k€ k€


CGU North West Europe 91,500 91,500 39,000 39,000CGU Middle West Europe/Scandinavia 42,798 42,788 58,400 58,400CGU South West Europe 19,399 19,399 20,700 20,700CGU South East Europe 8,556 19,597 18,209CGU Central East Europe 72,472 64,173 27,537 26,858CGU North East Europe 5,398 5,061 26,319 24,052CGU Alpe Adria 302 320 14,700 14,700CGU Emerging Markets and Others 1,488 1,524 10,785 10,856CGU Dry Lining 40,670 40,667 12,700 12,700

CGU Lime 66,951 66,667

Total 340,978 340,655 229,738 225,475

Selected intangible assets Goodwill Trademarks

Associates are valued using the equity method pursuant to IAS 28. Beginning with the

historical cost at the time of acquisition of the shares, the respective carrying amount of the

investment is increased or decreased by any changes in the attributable equity of the

investment, regardless of their impact on profit or loss. The goodwill included in the carrying

amounts of the investments, determined in accordance with the policies applying to fully

consolidated subsidiaries, is not subject to amortization. An impairment test is carried out if

there is any indication that the total carrying amount of the investment has to be impaired.

In addition to loans, financial assets consist of investments in associates and securities. The

financial assets further include potential claims against Xella’s former shareholder Haniel which

were agreed on by the buyer and seller during the sale of the Xella Group. The potential claims

against Haniel relate to hold-harmless agreements.

Upon initial recognition, loans are recognized at fair value plus the incidental costs of the

transaction and subsequently at amortized cost by applying the effective interest rate method.

Pursuant to IAS 39, investments and securities are categorized as those that are available for

sale, those that are valued at fair value through profit or loss and those that are held to maturity.

The relevant category is determined upon acquisition and reviewed on each balance sheet

date. Purchases and sales of investments and securities in all categories of financial assets are

recognized on their settlement date.

Financial assets in the category available for sale are initially measured at fair value plus

transaction costs and subsequently at their respective fair value on balance sheet date. The

resulting unrealized gains and losses are recorded directly in equity taking deferred taxes into


20

account. If there is no listed market price and fair value cannot be reliably determined, the

assets are recognized at cost. If there are indications of an impairment, they are written down

through profit or loss. If the reasons for an impairment no longer exist, the asset is written up to

fair value. For equity instruments, the adjustment is posted to other comprehensive income

without affecting earnings. For debt instruments, the adjustment is posted to profit or loss,

provided the criteria in IAS 39 are met. When the asset is sold, the adjustments previously

recorded in equity are released to profit or loss.

Financial assets in the category of fair value through profit or loss are valued using the mark-to-

market method on balance sheet date. Any transaction costs are charged to profit and loss

when posted. Fluctuations in fair value are recognized directly in the Statement of Income.

Financial assets in the held to maturity category are initially measured at fair value plus

transaction costs and subsequently at amortized costs on balance sheet date using the effective

interest rate method. If there are objective indications of an impairment, the assets are written

down to their lower present value on the basis of the original effective interest rate.

The following cash and cash equivalents are recorded in the Consolidated Statement of

Financial Position: cash on hand, checks, bank deposits and funds in transit.

Inventories are recognized at cost. In addition to materials and direct production costs,

production-related portions of the necessary materials and production overheads as well as the

depreciation expense attributable to property, plant and equipment is included. If historical cost

is higher on closing date than net realizable value, inventories are written down to the latter.

Depending on the circumstances of the industry, different cost methods are applied to measure

the consumption of inventories. The weighted average method is most commonly used by the

Xella Group.

CO2 emission certificates which are purchased as well as allowances allocated free of charge

are both stated at cost. A provision is recognized to cover the obligation to deliver CO2 emission

allowances to the respective authorities; this provision is measured at the carrying amount of

the CO2 allowances capitalized for this purpose. If a portion of the obligation is not covered with

the available allowances, the provision for this portion is measured using the market price of the

emission allowances on the balance sheet date.

Trade receivables, receivables from investments and other assets that qualify as loans and

receivables are measured at fair value upon initial recognition and thereafter measured at

amortized cost. Appropriate allowances are established for any existing risks.

Long-term construction contracts are measured in accordance with the percentage-of-

completion method. This involves recognizing sales and expenses associated with long-term

construction contracts on the basis of the degree to which the contract has been completed.


21

The degree of completion is measured as the ratio of the costs already incurred by the balance

sheet date in proportion to the total estimated costs of the contract (cost to cost method). If the

result of a long-term construction contract cannot be determined reliably, sales are only

recognized at the amount of the contract costs incurred (“zero profit method”). Losses on

customer-specific long-term construction contracts are posted immediately in the period in

which the loss becomes apparent regardless of the percentage of completion. Borrowing costs

that are directly attributable to the production of a qualifying asset are recognized as part of the

cost of that asset by the Xella Group.

Tax receivables and tax liabilities are measured at the amount expected to be received or paid

to the tax authorities. Long-term tax receivables are recognized at net present value.

Derivative financial instruments such as forward contracts, options and swaps are used

solely to hedge foreign currency exposure and interest exposure.

Financial instruments are accounted for as of the settlement date for both sales and purchases.

Pursuant to IAS 39, all derivative financial instruments are accounted for at fair value

irrespective of the purpose or intention for which they were concluded. Changes in the fair value

of the derivative financial instruments for which hedge accounting is used are either disclosed in

net interest (fair value hedge) or, in the case of a cash flow hedge or net investment hedge, in

equity under other comprehensive income, taking deferred taxes into account.

Derivatives are currently solely used in order to hedge against future cash flow risks originating

from existing underlying or planned transactions. None of the existing derivative transactions

are accounted for under IFRS hedge accounting. All changes in the market value of derivative

financial instruments are posted immediately in full to profit or loss.

Non-current assets and groups of assets are categorized as held for sale when the carrying

amount of an operation will be recovered principally through a sales transaction and not through

continuing use. This condition is deemed to have been fulfilled if sale is highly probable, the

asset or disposal group is available for immediate sale and it is expected that sale will occur

within one year of allocation to the category. Assets and disposal groups which are classified as

held for sale are no longer written off systematically but are carried at the lower of carrying

amount and fair value less the costs to sell. The assets and disposal groups categorized as held

for sale and their related liabilities (disposal groups) are reported in the Consolidated Statement

of Financial Position separately from other assets and liabilities, each in a separate item under

current items. If the disposal group is a significant operation, the result of the discontinued

operation is reported separately in the Statement of Income. The result of such discontinued

operations consists of the result of the valuation mentioned above, the current result of the

operation and the gain or loss upon sale. The Statement of Income from the prior year is


22

adjusted accordingly. The main groups of assets and liabilities that are classified as held for

sale and the result from discontinued operations are explained separately in the notes if the

criteria are met.

Deferred tax assets and deferred tax liabilities are recognized for all temporary differences

between the tax base of the individual entities in the Group and the IFRS Consolidated

Statement of Financial Position – with the exception of goodwill that cannot be recognized for

tax purposes – and for unused tax losses. Deferred tax assets were only recognized for the

unused tax losses to the extent that their utilization is sufficiently certain. Deferred taxes are

determined on the basis of the tax rates which, under the current legislation, will apply in future.

Deferred taxes are netted in accordance with IAS 12.

Provisions for pensions and similar obligations are determined using the actuarial projected

unit credit method in accordance with IAS 19. This method involves considering the biometric

parameters and the respective long-term interest rates on the capital markets as well as the

latest assumptions on future salary and pension increases. Plan assets established to cover the

pension obligations are deducted from pension provisions. Actuarial gains and losses are not

posted to profit and loss until they lie outside a corridor of 10% of the higher of the present value

of the pension obligation and the plan assets (corridor method). Any amount above this corridor

is amortized over the average remaining period of service of the workforce. The interest portion

contained in the pension expense and the expected income from the plan assets are reported

under financial expenditure.

With the exception of the other employee-related provisions calculated in accordance with IAS

19, all other provisions are recognized in accordance with IAS 37 where there is a legal or

constructive obligation to a third party based on a past event. The flow of economic benefits

required to settle the obligation must be probable and reliably measurable. Significant

provisions with a residual term of more than one year are discounted at market interest rates

which reflect the risk and period until the obligation is met.

With the exception of derivative financial instruments, liabilities are initially recognized at fair

value less transaction costs and subsequently measured at amortized cost using the effective

interest rate method. Changes in contractual stipulations regarding repayments, considerations,

and interest rates lead to a recalculation of the carrying amount. The restated carrying amount

is equal to the present value computed at the original effective interest rate. The respective

present value changes are recognized in profit or loss as income or expense. There are no

liabilities held for trading according to IAS 39 except for the market value of derivative financial

instruments. Liabilities from finance leases are measured at the net present value of the future


23

minimum lease payments using the interest rate implicit in the lease and taking account of any

repayments made in the meantime.

Foreign currency liabilities are translated using the closing rate.

Sales comprise the proceeds from the sale of goods and services, less discounts and rebates.

Sales are recognized upon the transfer of risk to the customer unless they are recognized using

the percentage of completion method or zero-profit method under IAS 11. Other income is

recorded if it is likely there will be a flow of economic resources to the entity and this amount

can be reliably determined.

Pursuant to IAS 20, government grants are only recognized at their fair value if there is

reasonable assurance that the conditions attached to them will be met and they will be

collected. Grants to cover expenses are posted through profit or loss and offset in the period in

which the expenses are incurred for which the grants were made. Investment grants relating to

property, plant and equipment are deducted from the acquisition cost of the corresponding

assets. Government tax grants are shown as non-current deferred income and are credited to

the Statement of Income on a straight-line basis over the expected useful lives of the related

assets.

The preparation of financial statements in accordance with IFRS requires the use of estimates

and assumptions that affect the reported amounts of assets and liabilities, the disclosure of

contingent assets and liabilities at the date of the financial statements and the reported amounts

of sales, income and expenses during the relevant period. Although these estimates and

assumptions are based on management’s best knowledge of current events and circumstances,

the actual results ultimately may differ from those estimates and assumptions. We evaluate

such estimates and assumptions on an ongoing basis based upon historical results and

experience, in consultation with experts and using other methods we consider reasonable in the

particular circumstances, as well as our forecasts regarding future changes. Estimates and

assumptions are particularly necessary for the measurement of property, plant and equipment,

lime quarries and intangible assets, such as trademarks, goodwill and non-current CO2-

certificates as well as for the measurement of deferred taxes and warranty provisions.

Purchase price allocations are an integral part for the accounting of business combinations in

accordance with IFRS which require significant management judgment and the use of

estimates. Beyond the determination of fair values and useful lives for property, plant and

equipment, the measurement of provisions for pensions, other provisions and an

indemnification receivable against the former shareholder, particularly the measurement of

intangible assets and deferred taxes require a substantial degree of management estimates and

assumptions.


24

Upon the acquisition of the Xella Group in 2008, certain brands were identified with indefinite

lives and the difference between the purchase price and net assets acquired measured at fair

value was recorded as goodwill. In subsequent periods, brands and goodwill are tested for

impairment on an annual basis or whenever events or changes in circumstances indicate that

brands or goodwill might be impaired. An impairment charge is recognized if the carrying

amounts of brands or goodwill exceed their fair values. The future cash flows used to determine

the fair values of brand and goodwill are based on current business expectations and discount

rates. Changes in future projected cash flows and discount rates applied may lead to

impairment charges in future periods.

Deferred tax assets and liabilities under IFRS are recognized for temporary differences between

the carrying amounts in the consolidated balance sheet and the tax base of respective assets

and liabilities as well as on tax loss carry-forward. Significant assumptions may include the

probability of sufficient future taxable income being available to realize deferred tax assets

recognized. If actual tax laws that would impose restrictions on the realization of the deferred

tax assets should occur or there would not be sufficient taxable income available in the future,

an adjustment to the recorded amount of deferred tax assets would affect operating results.

Shares in assets and liabilities whose residual terms are less than one year are reported under

current assets on principle.


Application of issued and effective IFRS and IFRIC in FY 2012

These consolidated financial statements have been prepared in accordance with International

Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board

(IASB) and accompanying interpretations issued by the International Financial Reporting

Interpretations Committee (IFRIS-IC). The following pronouncement has been adopted by the

group to the extent that it has been endorsed in the European Union (EU) and it is mandatorily

effective for periods beginning on or after January 1, 2012:

• Amendment to IFRS 7, Disclosures - Transfer of Financial Assets by the EU as of July 1, 2011

The pronouncement had no material impact on the Group`s financial position, cash flows or

results of operation.

Issued, but not yet effective IFRS and IFRIC

The following table summarizes all issued new IFRS pronouncements until these annual

consolidated financial statements have been authorized for issue, though irrespective of their


25

date of mandatory or optional initial application. Where considered relevant for an

understanding of the potential future impact of these new rules, additional guidance is being

provided at the bottom of this table.

Application in FY 2013

• Amendment to IFRS 1, Severe Hyperinflation and Removal of Fixed Dates for first-time Adopters by the EU as of January 1, 2013

• Amendment to IAS 12, Deferred Tax: Recovery of Underlying Assets by the EU as of January 1, 2013

• IFRS 13, Fair Value Measurement by the EU as of January 1, 2013

• Amendment to IAS 1, Presentations of Items of Other Comprehensive Income by the EU as of July 1, 2012

• IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine by the EU as of January 1, 2013

• Amendments to IAS 19 Employee Benefits by the EU as of January 1, 2013

• Improvements to IFRS 2009-2011 Cycle by the EU as of January 1, 2013

• IFRS 1 - Permit the repeated application of IFRS 1, borrowing costs on certain qualifying

assets

• IAS 1 - Clarification of the requirements for comparative information

• IAS 16 - Classification of servicing equipment

• IAS 32 - Clarify that tax effect of a distribution to holders of equity instruments should be

accounted for in accordance with IAS 12 Income Taxes

• IAS 34 - Clarify interim reporting of segment information for total assets in order to

enhance consistency with the requirements in IFRS 8 Operating Segments

• Amendment to IFRS 7, Disclosures - Offsetting Financial assets and Financial liabilities by the EU as of January 1, 2013


• IFRS 10, Consolidated Financial Statements by the EU as of January 1, 2014

• IFRS 11, Joint Arrangements by the EU as of January 1, 2014

• IFRS 12, Disclosure of Interests in Other Entities by the EU as of January 1, 2014

• Revision of IAS 27, Separate Financial Statements by the EU as of January 1, 2014

• Revision of IAS 28, Investments in Associates and Joint Ventures by the EU as of January 1, 2014

• Amendments to IFRS 10, IFRS 12 and IAS 27, Investment Entities by the EU as of January 1, 2014

• Amendment to IAS 32, Offsetting Financial assets and Financial liabilities by the EU as of January 1, 2014


26

• IFRS 9, Financial Instruments: Classification and Measurement: Financial Assets by the EU as of January 1, 2015

• IFRS 9, Financial Instruments: Classification and Measurement: Financial Liabilities by the EU as of January 1, 2015

• Amendments to IFRS 9 and IFRS 7, Mandatory Effective Date and Transitional Disclosure Requirements by the EU as of January 1, 2015

IFRS 9, Financial instruments, addresses the classification, measurement and recognition of

financial assets and financial liabilities. IFRS 9 has been issued in two parts yet, and once a

third part with an amended set of hedge accounting rules has been issued, these new

requirements will replace the existing IAS 39 in its entirety. IFRS 9 (part I) requires financial

assets to be classified into two measurement categories - those measured as at fair value and

those measured at amortized cost. The determination is made at initial recognition and depends

on the entity’s business model for managing its financial instruments and the contractual cash

flow characteristics of the instrument. For financial liabilities, IFRS 9 (part II) retains most of the

existing IAS 39 requirements. The main change is that, in cases where the so-called fair value

option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit

risk is recorded in Other Comprehensive Income (OCI) rather than in the income statement,

unless this creates a so-called accounting mismatch. The Group is yet to assess IFRS 9’s full

impact. IFRS 9 (parts I, II and III yet to be issued) are expected not to be applied before 2015,

with corresponding retrospective application and additional transitional rules not before 2014

year ends.

IFRS 10, Consolidated Financial Statements, builds on existing principles by identifying the

concept of control as the determining factor in whether an entity should be included within the

consolidated financial statements of the parent company. The standard provides additional

guidance to assist in the determination of control where this is difficult to assess, inter alia by

providing detailed prescriptive guidance on substantial rights. IFRS 10 supersedes the existing

IAS 27 and SIC-12 requirements for consolidation, though without significantly changing the

overall rational. The Group is yet to assess IFRS 10’s full impact and will adopt IFRS 10 in 2014

under consideration of accompanying transitional requirements for 2013.

IFRS 11, Joint Arrangements, sets out requirements for the classification and accounting of

joint ventures and joint operations by introducing new criteria. IFRS 11 supersedes IAS 31

based on which application of the proportionate consolidation of legal entity joint ventures will

no longer be permitted. However, classification of certain arrangements as joint operations may

lead to the recognition of rights and obligations and corresponding income and expenses in the

consolidated financial statements of the venture. The Group is yet to assess IFRS 11’s full

impact and will adopt IFRS 11 in 2014, with corresponding retrospective application in 2013.


27

IFRS 12, Disclosures of Interests in other Entities, includes disclosure requirements for all

forms of interests in other entities, including joint arrangements, associates, special purpose

entities and other off balance sheet vehicles. The Group is yet to assess IFRS 12’s full impact

and will adopt IFRS 12 in 2014, with corresponding retrospective application in 2013.

IFRS 13, Fair Value Measurement, aims to improve consistency and reduce complexity by

providing a precise definition of fair value and a single source of fair value measurement with

additional disclosure requirements for use across various effective IFRSs. The requirements,

now largely aligned between IFRS and US GAAP, do not mandate or extend the use of fair

value accounting but provide guidance on how to apply fair value measurement where already

required or permitted by other standards. The Group expects no significant impact on its net

assets, financial position and results of operations.

IAS 19, Employee benefits, was amended in June 2011 as a result of a long series of

discussion. IAS 19 eliminates the so-called corridor approach mandates recognition of all

actuarial gains and losses directly in OCI as they occur. Furthermore, all past service costs are

to be recognized immediately. Besides, the current approach to assess interest cost and

expected return on plan assets will be replaced by compulsory application of a uniform, market-

based discount rate to both the defined benefit liability and any corresponding plan asset (‘net

interest approach’). The revised IAS 19 will be applied in 2013, with corresponding retrospective

application in 2012. Based on preliminary calculations the retrospective application will result in

a decrease of equity as of January 1, 2013, of approximately 50 m€ resulting from the increase

of the pension provisions and related deferred taxes. In 2013 the new standard is expected to

increase the volatility of equity. In 2013 the actual development will mainly depend on interest

rates as well as on other actuarial assumptions. For the funded pension plans, the development

of the pension provisions will further depend on the performance of the plan assets. Based on

the information available, the effects of the application of the net interest approach as well as

changes in the treatment of past service costs are not expected to have a significant influence

on the financial statements of 2013.

In 2012, the Group did not opt for voluntary early adoption of either of the aforementioned IFRS

pronouncements. Adoption of any of the aforementioned IFRS pronouncements is subject to

prior endorsement by the European Parliament.


28

B. Notes to the Consolidated Statement of Financial Position

1. Property, Plant and Equipment

Property, plant and equipment developed as follows:

Land & buildings Land for

exploitation

Plant &

machinery

Vehicles &

equipment

Assets under

construction &

prepayments

Property, plant &

equipment

k€ k€ k€ k€ k€ k€

As at January 1st 410,883 223,108 698,794 37,896 60,730 1,431,411

Currency adjustment 2,587 4,119 333 803 7,842

Addition 8,406 23,189 4,470 40,391 76,456

Disposal (1,095) (149) (1,139) (1,734) (321) (4,438)

Acquisitions of businesses 6,245 8 6,253Transfer 20,526 587 30,623 1,153 (52,592) 297

Accumulated costs as at December 31 441,307 223,546 761,831 42,118 49,019 1,517,821

As at January 1st (58,000) (6,508) (226,497) (16,204) (996) (308,205)

Currency adjustment (428) (1,406) (107) (10) (1,951)

Depreciation/ Amortisation (16,087) (2,029) (69,653) (6,546) (94,315)

Impairment (20) (249) (141) (410)

Reversal of impairment 6 32 38

Disposal 481 107 950 1,518 267 3,322Transfer 193 (193)

Accumulated depreciation as at December 31 (74,048) (8,679) (296,522) (21,532) (739) (401,521)

Net book value as at January 1st 352,883 216,600 472,297 21,692 59,734 1,123,206

Net book value as at December 31 367,259 214,867 465,309 20,586 48,279 1,116,300

Thereof finance lease assets: 3,795 2,490 162 6,447

Statement of Property, Plant and Equipment 2012


exploitation

Plant &

machinery

Vehicles &

equipment

Assets under

construction &

prepayments

Property, plant &

equipment

k€ k€ k€ k€ k€ k€

As at January 1st 394,823 223,263 661,068 33,465 37,537 1,350,156

Currency adjustment (2,248) (4,099) (314) (438) (7,099)

Addition 3,954 353 12,624 5,990 42,935 65,856

Disposal (2,955) (508) (2,641) (2,851) (150) (9,105)

Acquisitions of businesses 13,939 17,497 300 14 31,750Transfer 3,370 14,345 1,306 (19,168) (147)


As at January 1st (40,325) (5,478) (160,906) (12,440) (373) (219,522)

Currency adjustment 424 1 1,710 163 4 2,302


Impairment (3,313) (321) (1,477) (75) (246) (5,432)

Reversal of impairment 48 1,273 62 1,383

Disposal 1,033 19 2,543 2,705 55 6,355Transfer 2 434 (436)






In 2012 there were no relevant additions or disposals due to finance leases. The accumulated

depreciation on assets recognized under finance leases amounts to 5,099 k€ (PY: 4,462 k€).

The carrying amount of property, plant and equipment used to secure the financial liabilities of

the Group amounts to 426,613 k€ (PY: 439,555 k€).

The purchase obligations for property, plant and equipment amount to 8,167 k€ (PY: 16,926

k€). The reduction mainly refers to the Business Units Lime and Dry Lining.

Substantial additions to property, plant and equipment mainly result from assets under

construction and prepayments, particularly relating to Fermacell Spain, S.L.U. (15,327 k€) as

well as to the extension of capacity of the cement-bonded boards production in Calbe (Business

Unit Dry Lining) (6,891 k€). The total carrying amounts shown in assets under construction and


29

prepayments as at December 31, 2012 for Fermacell Spain, S.L.U. amounted to 15,125 k€ and

for the extension of capacity of the cement-bonded board production in Calbe amounted to

11,857 k€.

Besides, the acquisition of H+H Ceská republica s.r.o., Most/ Czech Republic (now Hebel CZ

s.r.o.) led to an increase of property, plant and equipment in the amount of 6,253 k€.

All impairment charges are shown as depreciation/ amortization expenses in the Consolidated

Statement of Income.

Assets for which impairment losses have been recognized have been written down to their fair

values less costs to sell which have been determined based on market values. In 2012

impairment losses are solely attributable to the Business Unit Building Materials and mainly

relate to not usable contaminated sand in Germany.

2. Intangible Assets

Intangible assets developed as follows:

Goodwill Customer lists/

contracts

Development

expenses

Trademarks Software

licences

Other

intangible

assets

Prepayments

on intangible

assets

Intangible

assets

k€ k€ k€ k€ k€ k€ k€ k€

As at January 1st 340,655 14,367 1,601 225,475 31,749 10,461 1,220 625,528

Currency adjustment 1,908 338 2 4,263 152 7 1 6,671

Addition 1,299 63 894 2,256

Disposal (31) (31)

Acquisitions of businesses 7,170 660 130 7,960Transfer 32 426 (3,126) (280) (2,948)

Accumulated costs as at December 31 349,733 15,365 1,635 229,738 33,725 7,405 1,835 639,436

As at January 1st (5,895) (137) (21,662) (319) (75) (28,088)

Currency adjustment 36 (213) (2) (110) (5) (294)

Depreciation/ Amortisation (1,264) (297) (6,218) (143) (7,922)

Impairment (8,791) (8,791)

Disposal 30 30Transfer (683) 685 63 65

Accumulated depreciation as at December 31 (8,755) (7,372) (1,119) (27,275) (404) (75) (45,000)

Net book value as at January 1st 340,655 8,472 1,464 225,475 10,087 10,142 1,145 597,440

Net book value as at December 31 340,978 7,993 516 229,738 6,450 7,001 1,760 594,436

Statement of Intangible Assets 2012


contracts

Development

expenses

Trademarks Software

licences

Other

intangible

assets

Prepayments

on intangible

assets

Intangible

assets

k€ k€ k€ k€ k€ k€ k€ k€

As at January 1st 332,768 14,833 1,599 230,956 29,884 897 994 611,931

Currency adjustment (2,214) (466) 2 (5,481) (181) (5) (1) (8,346)

Addition 1,550 6,763 661 8,974

Disposal (79) (1) (80)

Acquisitions of businesses 10,101 2,801 12,902Transfer 575 6 (434) 147


As at January 1st (4,393) (82) (15,362) (158) (19,995)

Currency adjustment 339 (1) 168 2 508


Impairment (75) (75)Disposal 79 79

Accumulated depreciation as at December 31 (5,895) (137) (21,662) (319) (75) (28,088)

Net book value as at January 1st 332,767 10,440 1,518 230,955 14,522 739 995 591,936

Net book value as at December 31 340,655 8,472 1,464 225,475 10,087 10,142 1,145 597,440


In 2012 the substantial part of the additions to goodwill (7,166 k€) refers to the acquisition of

H+H Ceská republica s.r.o., Most / Czech Republic.

In 2012 the addition to prepayments on intangible assets mainly results from a project to

standardize the ERP systems and processes in the Building Materials Business Unit.


30

A transfer from other intangible assets to Trade and Other Receivables refers to claims in

connection with a local sand supply and led to a decrease of the intangible assets in the amount

of 2,585 k€.

As in the prior year, there were no purchase obligations for intangible assets.

Intangible assets that serve as collateral for certain financial liabilities of the Group amounted to

68,355 k€ (PY: 66,915 k€).

The weak market development in South East Europe led to a goodwill impairment loss in the

respective cash generating unit (CGU) which is part of the Building Materials segment. The

goodwill shown in this CGU (8,791 k€) was completely impaired. The determination of the

recoverable amount in this CGU was derived from the value in use based on a discount rate of

11.1%.

3. Investments in Associates (At Equity)

2012 2011

k€ k€

As at January 1st 21,780 26,749Impairments (857)Proportional share of net income/ loss 2,248 1,233Dividends (1,186) (984)Proportionale share of Other Comprehensive IncomeDisposals (5,218)Transfers (6,232)Net book value as at December 31 15,753 21,780

Investments in associates (at equity)

The proportional income of Shandong Xella Gather Calcium Silicate New Building Materials

Co., Ltd., Tengzhou /China was recognized and immediately impaired as Xella does not expect

dividends to be realizable in the foreseeable future. The transfers contain the reclassification of

the Russian investment “DSZ” OOO (BSW), Tovarkovo /Russia to available-for-sale

investments (non-current financial assets) due to a lack of significant influence.

The following entities are valued using the equity method pursuant to IAS 28. The carrying

amounts of their assets, liabilities, sales and net results are as follows:

Book value Assets Liabilities Sales Net result

k€ k€ k€ k€ k€

Türk Ytong Sanayi A.Ş., Istanbul, Turkey 1) 8,284 44,723 14,167 49,097 4,580Kalksandsteinwerk Rückersdorf GmbH & Co. KG,

Rückersdorf, Germany 1) 3,749 3,478 2,040 4,889 827

Kalksandsteinwerk Wendeburg, Radmacher GmbH & Co.

KG, Wendeburg, Germany 1) 3,719 9,240 2,466 11,742 377

Shandong Xella Gather Calcium Silicate New Building

Materials Co., Ltd., Tengzhou, China 1) 0 15,829 8,521 9,581 869

Total 15,753

Name of investment Dec. 31, 2012


31

Book value Assets Liabilities Sales Net result

k€ k€ k€ k€ k€

Türk Ytong Sanayi A.Ş., Istanbul, Turkey 2) 8,284 45,750 12,124 42,755 4,439

"DSZ" OOO (BSW), Tovarkovo, Russia 2) 6,028 12,031 1,915 18,574 954Kalksandsteinwerk Rückersdorf GmbH & Co. KG,

Rückersdorf, Germany 2) 3,749 3,632 1,376 4,440 656

Kalksandsteinwerk Wendeburg, Radmacher GmbH & Co.

KG, Wendeburg, Germany 2) 3,719 9,051 2,091 9,464 (802)

Shandong Xella Gather Calcium Silicate New Building

Materials Co., Ltd., Tengzhou, China 2) 0 13,549 7,210 7,684 1,084

Total 21,780

1) Financial statement Dec. 31, 20112) Financial statement Dec. 31, 2010


Please consider that the figures in the table above are the companies’ numbers (not Xella’s

share).

4. Financial Assets

Dec. 31, 2012 Dec. 31, 2011

k€ k€

Loans 3,011 3,085Net pension assets (non-current) 110Other investments 15,932 12,290Claims against former shareholder 62,515 63,689Total 81,568 79,064

Financial assets (non-current)

Non-current financial assets include the non-current part of a receivable carried by XI (BM)

Holdings GmbH, Duisburg / Germany against the former shareholder, Franz Haniel & Cie.

GmbH, Duisburg / Germany of 62,515 k€ (PY: 63,689 k€). This receivable comprising a non-

current and a current portion represents a number of claims against Haniel which were agreed

on by the buyer and seller during the sale of the Xella Group. They relate to hold-harmless

agreements for certain tax obligations, warranty obligations and other risks. Regarding the

receivables attributable to new warranty claims for possibly damaged buildings please refer to

note 12.

Besides the non-current portion of the receivable from Franz Haniel & Cie. GmbH the non-

current financial assets mainly consist of shares in entities where no significant influence is

exercised. These assets are classified as available-for-sale financial assets 15,923 k€ (PY:

12,281 k€). They primarily consist of shares in Baustoffwerke Münster-Osnabrück GmbH & Co.

KG, Osnabrück / Germany in the amount of 7,400 k€ (PY: 7,400 k€) and in Anker

Kalkzandsteenfabriek B.V., Kloosterhaar / Netherlands in the amount of 2,030 k€ (PY:

2,030 k€). In both cases legal requirements prevent a significant influence. The Russian

investment “DSZ” OOO (BSW), Tovarkovo was reclassified from investment in associates (at

equity) to available-for-sale investments due to a lack of significant influence. The transferred


32

book value amounted to 6,232 k€. In the course of the reclassification the Russian investment

was measured at fair value (3,547 k€) according to IAS 28.

The current financial assets are as follows:

Dec. 31, 2012 Dec. 31, 2011

k€ k€

Derivatives 185 2,421Receivables from associates (at equity) (current) 447 1,021Receivables from shareholders (current) 926 1,454Claims against former shareholder 39,013 32,418Other financial assets 1,390 2,472Total 41,961 39,786

Financial assets (current)

The decrease of derivatives especially relates to FX forwards (2,234 k€). In the prior year there

was an increase of 1,758 k€ related to FX forwards.

Receivables from associates especially refer to receivables from unpaid dividends. The

decrease mainly derives from a reduction of receivables from Kalksandsteinwerk Rückersdorf

GmbH & Co. KG, Rückersdorf.

Receivables from shareholders are from Xella International Holdings S.à r.l., Luxembourg (52

k€, PY: 298 k€) and from shareholders with a non-controlling interest of Xella Baustoffwerke

Rhein-Ruhr GmbH, Duisburg / Germany, as well as of Kalksandsteinwerke Thörl & Meyer

GmbH & Co. KG, Seevetal and Xella Kalksandsteinwerk Griedel GmbH & Co KG, Butzbach-

Griedel (874 k€, PY: 1,156 k€).

The increase of claims against former shareholder refer to higher potential receivables from

Franz Haniel & Cie. GmbH of 39,013 k€ (PY: 32,417 k€).

The allowance on financial assets can be summarized as follows:

2012 2011

k€ k€

As at January 1st (888) (895)Utilization 6Releases 1Book value as at December 31 (888) (888)

Allowance on financial assets

The financial assets that serve as collateral for certain financial liabilities of the Group amount to

2,055 k€ (PY: 2,155 k€).

5. Deferred Taxes

Deferred taxes are calculated at the respective local tax rates. Deferred taxes recognized on

temporary differences arising from consolidation entries are calculated using the Group’s tax

rate of 29.4 % (PY: 29.0 %).


33

The changes to the tax rates enacted at the balance sheet date have already been considered.

The income tax rates in the individual countries range between 10.0% and 37.9%.

The following table shows the deferred tax assets and liabilities derived from recognition and

measurement differences of individual IFRS versus tax balance sheet items and from tax losses

carried forward:

Tax assets Tax liabilities Tax assets Tax liabilities

k€ k€ k€ k€

Non-current assets 2,421 179,738 3,246 186,562

Property, plant & equipment 2,331 134,219 2,565 138,190Intangible assets 35 44,987 21 47,671Investments in associates (at equity) 8 28Financial assets 47 344 515Trade and other receivables 188 660 158Current assets 4,268 3,153 1,825 5,194

Inventories 2,494 845 241 2,245Trade and other receivables 1,442 1,703 1,274 1,182Financial assets 275 605 153 1,473Deferred expenses 57 157 294Non-current liabilities 21,477 6,587 9,294 8,053

Financial liabilities 610 5,386 734 5,232Pension provisions and other provisions 20,770 1,076 8,560 2,761Deferred income 97 125 60Current liabilities 7,504 273 11,636 76

Financial liabilities 2,965 6 3,718 2Other provisions 3,996 264 7,156 39Trade and other accounts payable 543 762 18Deferred income 3 17Deferred tax assets on losses carried forward 31,550 43,964

Offsetting (60,041) (60,041) (49,847) (49,847)

Book value 7,179 129,710 20,118 150,038

Dec. 31, 2012 Dec. 31, 2011Deferred taxes

Of these totals, deferred tax assets of 13,337 k€ (PY: 16,064 k€) and deferred tax liabilities of

19,193 k€ (PY: 22,048 k€) are likely to be realized within one year.

The relatively high deferred tax liabilities in comparison to deferred tax assets are generally due

to fair value adjustments of non-current assets associated with the acquisition of the Xella

Group on August 30, 2008.

Deferred tax assets on temporary differences were written down by allowances of 3,387 k€

(PY: 4,671 k€).

In the financial year 2012 deferred taxes of 7,490 k€ (PY: 6,740 k€) were recognized for seven

(PY: nine) loss-making entities. However, due to planned or ongoing restructuring, these

unused tax losses are expected to be utilized.

The Group also carries unused tax losses for which no deferred tax assets were recognized as

it is not highly probable, from today’s perspective, that they will be realized.


34

< 5 years 5 - 10 years 10 - 20 years unlimited

k€ k€ k€ k€ k€

Tax losses carried forward 24,707 22,856 31,716 85,216 164,495

Interest capping rule 192,798 192,798


k€ k€ k€ k€ k€

Tax losses carried forward 16,081 16,653 29,366 33,524 95,624

Interest capping rule 143,915 143,915

Dec. 31, 2011 Expiry date Total

Expiry date TotalDec. 31, 2012

No deferred tax liabilities are recognized for profits retained by subsidiaries and other

comprehensive income from hedges of a net investment. Tax liabilities of 2,222 k€

(PY: 2,670 k€) would arise in the event of future profit distributions or a sale of the investment.

6. Inventories

Dec. 31, 2012 Dec. 31, 2011

k€ k€

Raw materials & supplies 62,247 73,884Work in progress 1,126 1,157Finished goods 99,407 92,729Merchandise 10,612 9,333Prepayments on inventories 851 1,824Total 174,243 178,927

Inventories

The allowances recognized on inventories developed as follows:

2012 2011

k€ k€

As at January 1st (3,572) (2,800)Currency adjustments (23) 32Additions (1,012) (1,688)Utilization 289 133Releases 713 751Book value as at December 31 (3,605) (3,572)

Allowance on Inventories

Raw materials and supplies include CO2 emission certificates. The costs for these certificates

are considered part of the production costs. As of December 31, 2012, CO2 emission

certificates amounts to 515 k€ (PY: 13,882 k€). The decrease resulted from lower market

valuation to the net realizable value.

Raw materials and supplies include spare and replacement parts of 28,686 k€ (PY: 26,297 k€).

The increase of finished goods is mainly related to preparation of maintenance production stops

at BU Dry Lining, higher valuation of inventories in general due to higher prices, expanded

product portfolio and acquired finished goods of the plant in Most, Czech Republic.


35

Additions to allowances on inventories include additions from Xella Thermopierre S.A. (418 k€)

as well as allowances from other entities.

At the balance sheet date, inventories of 23,152 k€ (PY: 23,680 k€) were assigned as collateral

for certain financial liabilities.

7. Trade and Other Receivables

The balance of current trade and other receivables as at December 31, 2012 is shown in the

following table:

Dec. 31, 2012 Dec. 31, 2011

k€ k€

Trade receivables (current) 112,611 116,567Receivables from construction contracts 548 1,306Other receivables (current) 25,872 28,207Total 139,031 146,080

Trade and other receivables

Trade and other receivables of 57,778 k€ (PY: 65,610 k€) were assigned as collateral for

certain financial liabilities of the Group.

In the Business Unit Building Materials the current trade receivables decreased by 6,221 k€

compared to prior year. On the other hand the trade receivables slightly increased in the

Business Units Lime and Dry Lining.

The receivables from construction contracts refer to construction services in the Netherlands

and are on a lower level compared with December 31, 2011.

Other receivables include VAT reimbursement claims in the amount of 8,331 k€ (PY: 7,289 k€)

and mineral oil and energy tax reimbursement claims in the amount of 5,233 k€ (PY: 6,888 k€).

Allowances on current trade and other receivables developed as follows over the period:

2012 2011

k€ k€

As at January 1st (7,490) (6,628)Currency adjustments 11 (63)Additions (2,934) (2,837)Utilization 549 954Releases 708 1,084Book value as at December 31 (9,156) (7,490)

Allowance on trade and other receivables

The bad debt allowances contain specific valuation allowances and portfolio-based allowances

for specific categories of receivables. As soon as a receivable becomes uncollectable, the


36

allowance account is utilized to write it off. Subsequent collections of bad debts are posted to

profit or loss.

Additions to allowances include new allowances mainly recognized in Italy and in the Czech

Republic.

Releases of allowances refer reversals, in particular in the Netherlands, China and Belgium.

Additions to allowances are reported under other operating and administrative expenses

(see note 18). The releases of allowances are posted to other operating income (see note 16).

The aging structure of trade receivables at the balance sheet date is presented below:

Total 0-3

months

3-6

months

6-12

months

>12

months

k€ k€ k€ k€ k€ k€ k€ k€

112,611 3,140 92,305 17,165 14,201 1,147 419 1,398

Receivables not reduced by allowances but

overdue

Total book value

of trade

receivables as at

Dec. 31, 2012

Receivables

reduced by

allowances

(overdue and

not overdue)

Receivables

not

reduced by

allowances

and

not overdue

Total 0-3

months

3-6

months

6-12

months

>12

months

k€ k€ k€ k€ k€ k€ k€ k€

116,567 9,022 91,503 16,042 12,621 973 432 2,017

Total book value

of trade

receivables as at

Dec. 31, 2011

Receivables

reduced by

allowances

(overdue and

not overdue)

Receivables

not

reduced by

allowances

and

not overdue

Receivables not reduced by allowances but

overdue

With regard to trade receivables not written down but overdue, there is no indication that the

respective debtors will not be able to meet their payment obligations.

8. Cash and Cash Equivalents

The following table shows the composition of cash and cash equivalents:

Dec. 31, 2012 Dec. 31, 2011

k€ k€

Cash in hand 184 209Bank balances 124,328 123,807Total 124,512 124,016

Cash and cash equivalents

Cash and cash equivalents comprised cash in hand and bank balances with a short maturity.

At the balance sheet date, cash and cash equivalents of 88,603 k€ (PY: 95,689 k€) were

assigned as collateral for certain financial liabilities. Nevertheless, these pledged cash balances

are not restricted and available for operational purposes of the respective Xella Group

companies. Only an amount of 1,429 k€ was restricted for the use of the Group (PY: 2,818 k€).


37

In addition to the above mentioned cash balances as at December 31, 2012 the Xella Group

has committed and unutilized credit facilities from a bank syndicate amounting to 53,870 k€

(PY: 62,116 k€).

9. Equity

The subscribed capital was paid cash and consists of 3,100,000 shares with a nominal value of

0.01 € each.

The translation reserve reports the differences arising from translating assets and liabilities

carried by Group companies whose functional currency is not euro. In 2012 positive currency

adjustments of the equity related in particular to Hungary amounting to 2,109 k€, The Czech

Republic amounting to 2,912 k€ and Mexico amounting to 398 k€. Negative currency

adjustments related to Poland amounting to 4,141 k€, China amounting to 322 k€ and other

countries amounting to 72 k€ each led to a reduced Group equity.

Capital reserves include the premium paid by shareholders for share issues and other additional

paid-in capital.

The reserves also include changes in the fair value of available-for-sale financial assets

(securities) and derivative financial instruments.

As at December 31, 2012 an amount of 2,688 k€ (PY: 2,688 k€) has been posted to OCI related

to a net investment hedge which has been terminated in 2009.

Capital Management

Efficient capital structure management is one of the Xella Group’s priority objectives, whereby

the composition of this structure is closely linked with the capital-intensive nature of the Building

Materials business.

Within the framework of the sale of the Xella Group in 2008, a Secured Facility Agreement

(SFA) was entered into by Xella and a syndicate of banks to finance the transaction.

The SFA includes financial covenants (such as the ratio of EBITDA to Net Cash Interest, Cash

Flow to Total Debt Service, Net Debt to EBITDA as well as the amount of capital expenditures)

which the Xella Group is obliged to comply with. No equity-based financial covenants are

included in the SFA.

The liabilities in the Consolidated Statement of Financial Position related to the SFA amounted

to 394,208 k€ (PY: 408,880 k€) as at December 31, 2012.

In 2011 the Xella Group has drawn an additional loan under the existing SFA (Facility D Loan).

This loan has been funded from the issuance of Senior Secured Notes in the amount of 300,000

k€, issued by a special purpose entity, Xefin Lux S.C.A..


38

According to the bond indenture and the respective covenant agreement the Xella Group is

obliged to fulfill certain covenants. The covenants under the bond indenture are defined as so

called incurrence based covenants. The compliance with such covenants needs to be proven in

case of the occurrence of certain defined events, whereas the financial covenants under the

SFA are defined as maintenance covenants. Compliance with these maintenance covenants

must be reviewed at the end of every quarter by means of defined tests and confirmation of

compliance provided to the banks.

The financial crisis has led the company to place a special focus on the maintenance and

consolidation of an appropriate equity base and compliance with the covenants. KPI for financial

performance is Normalized EBITDA. Xella’s management has maintained its strong focus on

cost and capital expenditure management.

As in prior years, in 2012 all covenant tests confirmed compliance with the financial covenants.

From the SFA syndicate’s as well as from the bond investor’s point of view, the shareholder

loans granted by Xella International Holdings S.à r.l., Luxembourg, are subordinated in relation

to the SFA and bond debt and therefore treated as equity substitutes by the banks involved in

the SFA.

10. Financial Liabilities

Financial liabilities include derivatives of 1,405 k€ (PY: 1,366 k€). The change of derivatives is

entirely due to fair value changes related to interest rate and FX rate changes.

The underlying FX forwards and interest caps are recognized at Xella International GmbH,

Duisburg / Germany for itself and for other subsidiaries.

The various categories and terms of current and non-current financial liabilities are shown in the

following table:

Dec. 31, 2012

0-1 year 1-5 years >5 years

k€ k€ k€ k€

Bank liabilities 394,262 38,123 356,139Bond liabilities 289,590 289,590Finance lease liabilities 9,111 1,560 6,899 652Liabilities to investments 85 85Liabilities to shareholders 926,550 827 950 924,773Other financial liabilities 12,032 9,611 2,343 78Total 1,631,630 50,206 366,331 1,215,093

Book value

Financial liabilities

(without derivatives) Maturity


39


k€ k€ k€ k€

Bank liabilities 409,394 18,865 303,750 86,779Bond liabilities 288,096 288,096Finance lease liabilities 10,531 1,555 6,351 2,625Liabilities to investments 87 87Liabilities to shareholders 869,000 517 868,483Other financial liabilities 13,365 10,783 986 1,596Total 1,590,473 31,807 311,087 1,247,579

Book valueMaturity


(without derivatives)

Dec. 31, 2011

Bank liabilities mainly consist of loans in the amount of 394,208 k€ (PY: 408,878 k€) which were

incurred in the course of the sale of the Xella Group. Bond liabilities amounted to 289,590 k€

(PY: 288,096). The combined SFA / Bond liabilities decreased by 13,177 k€. The SFA liabilities

contain 30,000 k€ (PY: 35,000 k€) drawn under the Capex / Acquisition Facility. Repayments on

SFA liabilities amounted to 21,289 k€. This reduction is partly compensated by currency

translation effects of 7,700 k€ and by the net release of the accrued borrowing costs in the

amount of 172 k€.

The maturity of the financial liabilities shown above is based on the maturity date of the

underlying credit facilities.

There is one significant finance lease of non-current assets of the Europor aerated concrete

facility (lease liability of 7,146 k€ (PY: 8,392 k€)) expiring on December 31, 2017.

The future minimum lease payments due to finance leases and their net present values are

summarized in the following table:

Dec. 31, 2012

0-1 year 1-5 years > 5 years

k€ k€ k€ k€

Minimum lease payments 10,509 1,961 7,832 716Interest (1,398) (402) (933) (63)

Present value 9,111 1,559 6,899 653

Maturity

Present value of future

minimum

lease paymentsTotal

Dec. 31, 2011


k€ k€ k€ k€

Minimum lease payments 12,366 1,992 7,587 2,787Interest (1,835) (437) (1,236) (162)

Present value 10,531 1,555 6,351 2,625

Maturity


minimum lease

paymentsTotal

Liabilities to shareholders consist of shareholder loans of 914,724 k€ (PY: 857,261 k€) granted

by Xella International Holdings S.à r.l., Luxembourg, and XI Management Beteiligungs GmbH &


40

Co. KG, Germany, to Xella International S.A., Luxembourg, within the framework of the

acquisition of the Xella Group. The shareholder loans are subordinated in relation to the bond

liabilities as well as to the SFA loans. The increase results from the accumulation of interest

amounting to 57,463 k€.

Liabilities to shareholders also include the portion of equity attributable to certain minority

shareholders which are classified as liabilities in accordance with IAS 32 in the amount of

10,113 k€ (PY: 10,272 k€).

Other financial liabilities include purchase price liabilities from acquisitions of 2,250 k€ (PY:

2,150 k€).

The following table contains an analysis of all financial liabilities on the basis of the respective

interest hedges.



Fixed

interest

period

Book value as

at Dec. 31, 2012

in k€

Type

of

interest

Weighted average

interest rate on the

basis of carrying

amount in %

3,463 fixed 6.4740,987 floating 2.2610,192 fixed 4.82

276,117 floating 3.501,215,015 fixed 6.97

EUR liabilities 1,545,773

thereof covered by interest hedges5,704 floating 7.00

80,022 floating 7.93PLN liabilties 85,726

thereof covered by interest hedges52 floating 8.0078 fixed 5.50

Other foreign currency liabilities 130

thereof covered by interest hedgesTotal financial liabilities (without derivatives) 1,631,630

Carrying amount of fixed interest financial liabilities 1,228,748

> 5 years

0- 1 year

1-5 years

> 5 years

0- 1 year1-5 years

0- 1 year


41



Fixed

interest

period

Book value as

at Dec. 31, 2011

in k€

Type

of

interest

Weighted average


basis of carrying

amount in %


256,070 floating 4.091,160,721 fixed 6.97

55,877 floating 5.33EUR liabilities 1,508,616

thereof covered by interest hedges 337,4263,139 floating 7.52

47,679 floating 7.9930,902 floating 9.02

PLN liabilties 81,720





0- 1 year

1-5 years

> 5 years

> 5 years

0- 1 year1-5 years

0- 1 year> 5 years

The carrying amounts of the floating rate financial liabilities generally correspond to their

respective fair values. The carrying amounts of fixed-interest financial liabilities relate to market

value of 1,418,716 k€ (PY: 1,366,812 k€).

The bank liabilities are secured by liens of 666,556 k€ (PY: 693,605 k€) in connection with the

SFA. The bond investors also indirectly benefit from the SFA security package. For further

information of the pledged assets please refer to the notes to the different asset categories. The

carrying amounts of investments in affiliates as well as intercompany receivables as shown in

the single entity financial statements are not considered in the determination of pledged assets,

although they are also pledged as collateral. Following the concept of the economic entity

(IAS 27.4) intercompany assets were eliminated.

11. Pension Provisions

Pension provisions are recognized to cover the obligations from current benefits and benefit

plans for old age, disability and surviving dependants’ pensions. The Group’s benefits vary

according to the prevailing local legal, tax and economic conditions in the respective country.

The post-employment benefits of the Xella Group include both defined contribution plans and

defined benefit plans. Other than the required premiums and contributions, defined contribution

plans do not lead to any further commitment. The contributions are reported under staff

expenses and amounted to 1,173 k€ (PY: 2,810 k€) in 2012.


42

Pension provisions for defined benefit plans are calculated on the basis of actuarial principles

using the projected unit credit method. The following parameters were applied for the German

companies, which account for the majority of the pension provisions:

Actuarial assumptions (German companies) Dec. 31, 2012 Dec. 31, 2011

% %

Discount rate 3.0 4.8Rate of pension progression 1.9 1.9Rate of salary-/ career increase 2.5 2.5

For the non-German companies, these assumptions vary from country to country and have the

following range:

• 1.8 % to 7.8 % (PY: 3.6% to 7.8%) for the discount rate,

• 1.9 % to 4.5 % (PY: 2.0% to 4.5%) for the salary trend,

• 1.0 % to 4.5 % (PY: 1.0% to 4.5%) for the pension trend.

Net pension provisions developed as follows:

2012 2011

k€ k€

DBL as at January 1st 126,482 124,576

Addition (+)/ disposal (-) Consolidation Group 435Currency adjustment 44 (103)Transfer from current staff provisions 792 580Total neutral entries 836 912

Current service costs 3,007 3,565Amortisation of actuarial gains (-)/ losses (+) 214 563Amortisation of past service costs (11)Effects of curtailments/ settlements (312)Effects from changes in asset ceiling (143) 245Staff expenses 3,067 4,061

Gross interest expenses 10,468 10,550Expected return on plan assets for the reporting period (3,244) (3,130)Interest costs 7,224 7,420

Pension payments and fund allocation (11,065) (10,567)Other changes 1,135 80DBL as at December 31 127,679 126,482

Development of provision (DBL)

The pension costs consist of the following components:

2012 2011

k€ k€

Staff expenses 3,067 4,061Gross interest costs 10,468 10,550Expected return on plan assets for the reporting period (3,244) (3,130)Pension costs 10,291 11,481

Composition of pension costs


43

The defined benefit obligation developed as follows:

2012 2011

k€ k€

DBO as at January 1st 217,490 211,335

Addition (+)/ disposal (-) Consolidation Group 435Currency adjustment 44 (103)Transfer from current staff provisions 792 580Total neutral entries 836 912

Experience adjustments of DBO 1,458 (7,733)Effects from changes in actuarial assumptions 61,609 821Total actuarial gains (-)/ losses (+) 63,067 (6,913)

Current service costs 3,007 3,565Effects of curtailments/ settlements (312)Gross interest expenses 10,468 10,550Employee contributions to DBO 1,493 1,058Current payments (11,680) (10,628)Other changes 4,591 7,922DBO as at December 31 289,272 217,490

Development of obligation (DBO)

In 2012 the increase in the defined benefit obligation is mainly due to actuarial losses which

result to a large part from decreasing interest rates during the financial year.

In 2011 and 2012 “other changes” to the defined benefit obligation mainly relate to the

reclassification of defined contribution plans to defined benefit plans.

The net pension provisions have been derived as follows:

2012 2011

k€ k€

DBO, unfunded 177,040 138,487DBO, funded 112,232 79,003DBO as at December 31 289,272 217,490

Effects from asset ceiling as at January 1st 463 218Effects from changes in asset ceiling as at December 31 (381) 245Total effects from asset ceiling 82 463

Fair value of plan assets as at December 31 (104,728) (82,803)Accumulated actuarial gains (+)/ losses (-) (57,057) (8,668)Others 110DBL as at December 31 127,679 126,482

Reconciliation of DBO to DBL


44

The development and the composition (portfolio) of the plan assets have been derived as

follows:

2012 2011

k€ k€

Fair value of plan assets as at January 1st 82,803 65,087

Experience adjustments of plan assets 14,409 5,529Expected return on plan assets for the reporting period 3,244 3,130Employee contribution to plan assets 1,493 1,058Employer contribution to plan assets 2,729 2,232Payments out of plan assets (3,345) (2,293)Other changes 3,395 8,060Fair value of plan assets as at December 31 104,728 82,803

Equity instruments 17,524 11,684Fixed-income securities 75,353 52,940Other components 11,851 18,179Fair value of plan assets as at December 31 104,728 82,803

Development of plan assets

In 2011 and 2012 “other changes” to plan assets mainly result from the reclassification of

defined contribution plans to defined benefit plans.

The plan assets do not contain any financial instruments issued by the Xella Group or assets

used by the Group.

The plan assets and the status of the financing of the pensions developed as follows:

Dec. 31, 2012 Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2009 Dec. 31, 2008

k€ k€ k€ k€ k€

DBO, unfunded 177,040 138,487 141,255 133,953 125,391DBO, funded 112,232 79,003 70,080 65,023 75,545Fair value of plan assets (104,728) (82,803) (65,087) (58,526) (66,520)Funded status excl. asset ceiling 184,544 134,687 146,248 140,450 134,416

Effects from asset ceiling 82 463 3,129Funded status incl. asset ceiling 184,626 135,151 146,248 140,450 137,545

Funded status

The calculation of the fair value of plan assets as of balance sheet date is reflected in the

expected return on plan assets. The expected return on plan assets is based on the expected

average returns from the investment categories in the past and those expected in future, which

are compared to the expectations of external sources.

2012 2011

% %

Equity instruments 6.0 6.0Fixed-income securities 2.7 3.0Other components 3.2 3.8

Expected rate of return on plan assets

2012 2011

k€ k€

Expected employer contribution to plan assets(expected for the following year)

3,127 2,674

Other disclosures for plan assets


45

The following table compares the expected and the actual return on plan assets and shows the

experience adjustments on DBO and plan assets:

2012 2011 2010 2009 2008*

k€ k€ k€ k€

Actual return on Plan Assets 17,653 8,671 2,782 2,777 1,564Expected Return on Plan Assets 3,244 3,130 2,835 2,774 1,272Experience adjustments on Plan Assets 14,409 5,529 (53) 3 292Experience adjustments on DBO 1,458 (7,733) (2,733) (1,185)* 4 months included

Return on plan assets and

experience adjustments

The actual return from plan assets can diverge from the expected return on plan assets if the

capital markets do not develop as expected.

12. Other Provisions

Other provisions developed as follows:

Statement of Provisions 2012 As of January

1st

Currency

adjustment

Acquisitions of

businesses

Discount effect Addition Transfer Release Utilization Book value as

at Dec. 31,

2012

k€ k€ k€ k€ k€ k€ k€ k€ k€

Staff 35,303 108 143 22,560 (792) (3,913) (20,171) 33,238

Environment 27,343 60 5,665 2,048 (1,551) (575) (984) 32,006

Warranty 90,260 2 15 3,999 10,692 (2,492) (7,582) 94,894

Restructuring 3,944 (1) 799 (567) (554) 3,621

CO2 - Certificate 13,882 16 (13,387) 511

Other 26,959 46 617 113 2,935 1,551 (1,816) (2,047) 28,358

Total other provisions 197,691 231 632 9,920 39,034 (792) (9,363) (44,725) 192,628

Statement of Provisions 2011 As of January

1st

Currency

adjustment

Acquisitions of

businesses

Discount effect Addition Transfer Release Utilization Book value as

at Dec. 31,

2011

k€ k€ k€ k€ k€ k€ k€ k€ k€

Staff 33,493 (180) 105 36 23,889 (730) (2,850) (18,460) 35,303

Environment 26,306 (92) 1,715 1,129 1,931 (2,050) (1,596) 27,343

Warranty 27,299 (2) 68,735 (1,468) (4,304) 90,260

Restructuring 4,196 (3) 575 150 (303) (671) 3,944

CO2 - Certificate 17,224 (31) 661 (3,972) 13,882

Other 25,866 (49) 108 4,569 (1,407) (2,128) 26,959

Total other provisions 134,384 (357) 1,820 1,273 100,360 (580) (8,078) (31,131) 197,691

Since 2012 reporting structures for other provisions have been adjusted in order to reflect the

Group’s legal and constructive obligations better.

Staff provisions particularly include obligations for jubilee benefits and the early retirement

scheme. Besides, the staff provisions include bonuses and obligations from social (redundancy)

plans and severance payments.

Provisions for environmental obligations relate to recultivation and restoration obligations to

cover the cost of restoring quarries to an environmentally acceptable condition once exploitation

is finished. The provision is created in installments over the prospective operating life of the

respective quarry in keeping with the scope of the quarry’s annual output. The provision is

measured on the basis of the estimated costs for removing the conveying equipment and

recultivating the sites on the basis of the actual output to date in relation to the total estimated

resources at the site. The increase of the environmental provisions mainly results from

discounting effects due to a decrease of interest rates.


46

In principle, warranty provisions include provisions to remedy possible damages to buildings

where there is a legal, contractual or constructive obligation.

Xella is currently facing potential warranty, product liability and damage claims by several

building owners in connection with the delivery of building materials by former Haniel

Baustoffwerke from three plants in North Rhine-Westphalia, Germany, between end of 1987

and the beginning of 1996, which have been closed down in the meantime. Calcium silicate

units had been produced in the relevant period applying an alternative production method,

which substituted another product for lime. Although the relevant calcium silicate units displayed

the required compressive strength immediately after production, over the years some of the

calcium silicate units lost their compressive strength after being exposed to permanent moisture

with cracks resulting in the finished masonry.

The Xella successor companies do not perceive a general liability to pay damages.

Nevertheless, taking account of the situation of each specific case, Xella generally agreed to

absorb the actual costs of the damages in the structure of the buildings. On balance sheet date,

the (constructive) provision amounted to 72,370 k€ (PY: 67,468 €). The increase resulted from a

higher number of cases communicated to us and discounting effects due to the decrease of

interest rates.

Court cases were brought against Xella in which building owners sought damages also in

addition to the cost of repairs for the alleged fall in the resale value of their buildings. These

cases are still pending.

In the course of selling the Xella Group in 2008, the vendor, Haniel agreed to hold the Xella

Group harmless for all costs, expenses and liabilities directly related to these cases. Please

refer to note 4. Due to the fact that Haniel is liable under the purchase agreement for any

losses, Haniel and Xella have agreed that Haniel will be solely responsible within the internal

relation for processing all potential claims in future.

Warranty provisions also include a provision recognized at Fels-Werke GmbH, Goslar /

Germany due to a potential contamination of a French gravel pit which was sold in 2004. The

provision amounts to 12,559 k€ (PY: 12,634 k€) and is also partly covered by hold-harmless

agreements with Haniel.

The restructuring provisions cover all estimated costs for restructuring selected entities and

industries on the basis of restructuring plans. Expenses for the closure of business locations

over the past years (IAS 37.70 (b)) are considered first and foremost by recording impairment

losses on the assets concerned.

The provisons for CO2 certificates decreased by 13,387 k€ due to lower market prices for the

so-called Certified Emission Reductions (CER) at the balance sheet date.


47

Other provisions include tax risks relating to a past acquisition in the amount of 10,719 k€

(PY: 10,719 k€) which are covered by hold-harmless agreements with Haniel.

As there have been transfers from staff provisions to pension provisions, transfers do not add

up to zero.

According to current information the expected utilization of the provisions can be summarized

as follows:

Maturity


Staff 33,238 25,298 4,172 3,768Environment 32,006 1,008 5,678 25,320Warranty 94,894 34,524 60,370Restructuring 3,621 3,621Co2 - Certificate 511 511Other 28,358 21,878 6,093 387Total 192,628 86,840 76,313 29,475

Other provisions Book value

as at Dec.

31, 2012

Warranty provisions in this table represent possible future cash outflows that would partly lead

to cash inflows for Xella because certain risks are covered by the hold-harmless agreement with

Haniel.

13. Deferred Income

Non-current deferred income in the amount of 6,641 k€ (PY: 5,696 k€) mainly includes

government tax grants related to the purchase of property, plant and equipment. In order to

fulfill all the conditions attached to grants there is usually a binding period during which the

assets need to remain part of the entity’s property, plant and equipment. For any grant shown

as deferred income there is no indication that any conditions attached to the grants will not be

fulfilled.


48

14. Trade and Other Accounts Payable

Dec. 31, 2012 Dec. 31, 2011

k€ k€

Trade liabilities (current) 96,664 103,279Accrued expenses for invoices not yet received 38,539 38,583Customers with credit balances 2,690 2,633Subtotal 137,893 144,495

Advance payments by customers 2,702 5,040Liabilities from construction contracts 2,239 3,072Accrued expenses for customer bonuses 42,631 45,213Accrued expenses for overtime 3,535 3,645Accrued expenses for holidays not yet taken 7,988 7,855Accrued audit fees 1,710 1,751Interest payable 3,474 3,426Sundry liabilities 36,272 35,480Total 238,444 249,977

Trade and other accounts payable (current)

The decrease of trade liabilities at cut-off date was mainly attributable to higher capital

expenditure at the end of the financial year 2011. The reduction of advance payments by

customers on the cut-off date was primarily due to less payments in advance for a project of our

Dutch subsidiary in Africa.

Sundry liabilities include, among others, tax liabilities in the amount of 11,628 k€ (PY: 11,479

k€), social security liabilities amounting to 6,225 k€ (PY: 7,313 k€), VAT liabilities in the amount

of 2,973 k€ (PY: 2,131 k€) and payroll liabilities in the amount of 3,263 k€ (PY: 3,231 k€).

C. Notes to the Consolidated Statement of Income – By Nature of Expense

The Statement of Income has been prepared using the nature of expense method.

15. Sales

The composition of sales (trade and service sales) is shown in the following table:

Jan. 1st -

Dec. 31,

2012

Jan. 1st -

Dec. 31,

2011

k€ k€

Trade sales 1,242,587 1,222,161Service sales 39,914 49,038Total 1,282,501 1,271,199

Sales

All three Business Units increased sales compared to prior year. The Building Materials

Business Unit was able to implement price increases in several core markets in order to


49

compensate lower sales volumes affected by weaker market demand in certain countries. The

sales development of the Dry Lining and the Lime Business Unit was also supported by a

positive sales price development.

Please refer to note 27 for the allocation of sales to segments.

16. Other Income

Jan. 1st -

Dec. 31,

2012

Jan. 1st -

Dec. 31,

2011

k€ k€

Rental and similar income 2,159 1,966Income from disposal of non-current assets 3,827 3,386Income from refund of electricity and mineral oil tax 617 346Other operating income 27,910 80,420Total 34,513 86,118

Other income

The decrease of other income results from lower other operating income. This relates to lower

increase of the receivables in the amount of 10,150 k€ (PY: 58,014 k€) carried by XI (BM)


GmbH, Duisburg / Germany. This receivable represents mainly a number of potential claims

against Haniel which were agreed on by the buyer and seller during the sale of the Xella Group.

They relate to hold-harmless agreements for certain tax obligations, warranty obligations and

other risks. Please refer to note 4.

17. Staff Expenses

Jan. 1st -

Dec. 31,

2012

Jan. 1st -

Dec. 31,

2011

k€ k€

Wages & salaries (w/o release of staff provisions) (248,588) (239,437)Social security expenses (51,502) (49,176)Other employee benefits (6,032) (5,984)Pension expenses (4,240) (6,871)Release of staff provisions 3,913 2,851Total (306,449) (298,617)

Staff expenses

Pension expenses include pension expenses for defined benefit plans of 3,067 k€ (PY:

4,061 k€) (see note 11).

With respect to the release of staff provisions please refer to note 12.

At the balance sheet date the Group had 7,306 employees (headcount) (PY: 7,297).


50

The Group employed 6,869 full time equivalents (PY: 6,946) broken down by category as

follows: production 4,644 (PY: 4,781), sales 1,445 (PY: 1,419) and administration 770 (PY:

746).

18. Other Expenses

The composition of other expenses is shown in the following table:

Jan. 1st -

Dec. 31,

2012

Jan. 1st -

Dec. 31,

2011

k€ k€

Other taxes (7,155) (6,716)Impairment of receivables (2,951) (2,837)Loss from disposal of non-current assets (305) (544)Legal and consulting fees (14,857) (10,249)Repairs & maintenance (46,603) (51,615)Advertising & marketing expenses (21,724) (22,812)Labour leasing & freelancer (14,997) (12,500)Result from foreign exchange transactions (operating activ) 71 57Insurance (4,936) (4,747)Travelling expenses (11,552) (10,851)Data and telecommunication expenses (3,745) (3,551)Expenses for IT service providers (8,607) (9,223)Expenses for human resource development and recruitment (3,983) (3,931)Material testing, examination & monitoring (3,628) (3,716)Waste disposal expenses (2,112) (2,234)Cleaning expenses (3,451) (3,991)Additions to warranty provisions (10,692) (68,735)Other operating and administrative expenses (57,162) (57,411)Total (218,389) (275,606)

Other expenses

The Group’s other expenses positions are partly related to our business activities. For example,

repairs & maintenance decreased following the lower production and sales volume compared to

prior year.

Another reason for the decrease of other expenses is the development of the warranty

provisions. Additions to warranty provisions are mainly attributable to new warranty claims for

damaged buildings 7.741 k€ (PY: 61,042 k€). Please refer to note 12. This amount is covered

by a receivable against Franz Haniel & Cie. GmbH, Duisburg/ Germany (corresponding

increase of income in Other Income).

Other taxes include, among others, real estate tax and car tax.

Impairments of receivables include impairments of trade and other receivables of 2,934 k€

(PY: 2,837 k€). Please refer to note 7.


51

Other operating and administrative expenses comprise many different items, such as energy

expenses (non-production), audit fees, charges and contributions, commissions and expenses

for office supplies.

According to current information, the expected future minimum payments for operating leases in

the coming years amount to:

Maturity

Total 0-1 year 1-5 years > 5 years Total 0-1 year 1-5 years > 5 years

k€ k€ k€ k€ k€ k€ k€ k€

56,106 10,550 17,860 27,696 57,878 10,506 17,702 29,670

2011Total future

minimum

lease

payments

2012

The operating leases relate primarily to real estate (plants as well as the Axel-Erikson office

building in Duisburg / Germany), vehicles and other leasing expenses, e.g. fork lifts.

Centralized in Xella Technologie- und Forschungsgesellschaft mbH, Emstal / Germany, the

Group’s expenses for research and development amounted to 3,965 k€ (PY: 3,688 k€). Staff

expenses in the amount of 2,496 k€ were included (PY: 2,221 k€), whereas depreciation is

excluded.

19. Result from Other Investments

Jan. 1st -

Dec. 31,

2012

Jan. 1st -

Dec. 31,

2011

k€ k€

Income from available-for-sale investments 1,202 780Expenses from available-for-sale investments (51)Impairment of available-for-sale investments (2,692) (227)Total (1,490) 502

Result from other investments

Income from available-for-sale investments in the amount of 1,202 k€ (PY: 780 k€) mainly

pertains to dividends from investments accounted for at cost. The impairment of the available-

for-sale investments mainly refers to the Russian investment “DSZ” OOO (BSW), Tovarkovo

which was reclassified from investment in associates (at equity) to available-for-sale

investments due to a lack of significant influence. In the course of the reclassification the

Russian investment was measured at fair value according to IAS 28.


52

20. Finance Costs

Jan. 1st -

Dec. 31,

2012

Jan. 1st -

Dec. 31,

2011

k€ k€

Interest expenses (third parties) (81,663) (98,010)Interest expenses for debentures & other bonds (24,000) (14,000)Interest expenses for net pension provisions (7,224) (7,420)Interest expenses for other provisions (9,920) (1,273)Others (1,808) (3,408)Total (124,615) (124,111)

Finance Costs

During the period borrowing costs in the amount of 837 k€ (PY: 619 k€) were capitalized which

reduced interest expenses (third parties). Due to the fact that no direct financing is allocable to

the investments, the respective interest rates derived from the Group’s average borrowing

interest rate of the current period; this rate amounts to 6.4% for fiscal year 2012 (PY: 6.5%).

Interest expenses (third parties) includes an amount of 57,463 k€ (PY: 55,370 k€) pertaining to

the accumulation of accrued interest for shareholder loans. Further major effects relate to

interest on bank liabilities which were taken out in the course of the sale of the Xella Group.

Interest expenses for debentures and other bonds relate to Senior Secured Notes issued on

June 1, 2011. For both effects please refer to note 10.

Please refer to the explanations in notes 11 and 12 with regard to interest expenses for pension

and other provisions.

21. Other Financial Result

Jan. 1st -

Dec. 31,

2012

Jan. 1st -

Dec. 31,

2011

k€ k€

Interest income 1,872 1,853Result from non-hedge derivatives (financial activities) (2,290) 835Profit from foreign exchange transactions (financial activities) 10,458 11,098Loss from foreign exchange transactions (financial activities) (9,291) (13,737)Others 3,999Total 4,748 49

Other financial result

The result from non-hedge derivatives mainly relates to fair value changes of currency and

interest instruments.

In 2012, the financial income shown in “Others” result from a decrease in interest rates in

connection with the discounting of non-current receivables.


53

22. Income Taxes

In 2012 deferred tax assets of 12,981 k€ on unused tax losses were released, while in the prior

year a total of 20,176 k€ were set up. In 2012 no impairments (PY: 942 k€) on deferred tax

assets were posted and prior impairments were reversed in the amount of 1,515 k€ (PY: 1,762

k€).

The expected tax rate for the Xella Group is 29.4 % (PY: 29.0 %).

The reported current tax burden is reconciled to the imputed tax burden based on a tax rate of

29.4 % (PY: 29.0 %) in the table below:

Jan. 1st -

Dec. 31,

2012

Jan. 1st -

Dec. 31,

2011

k€ k€

Profit/ loss before tax (24,378) (27,640)Expected income taxes 7,167 8,016

Foreign tax rate differential 553 (631)Tax effect from non-deductible expenses (2,505) (2,526)Tax effect from tax-exempt income 3,485 18,879Addition to/ release of allowances 1,515 738Effects from tax rate and tax law changes 697 2,006Deferred tax asset not recognized on taxable loss of the current year (9,671) (6,515)Effects resulting from the use of loss carryforwards previously not recognized as tax assets 80 862Taxes for prior years (1,138) 457Tax effect from interest capping rules including effects from interest deduction carryforwards (14,433) (13,441)Special tax effects Germany (305) (942)Special tax effects other countries (117) (222)Other tax effects 490 (1,583)Reported income taxes (14,182) 5,098

Group income tax rate for the reporting year (%) 29.40 29.00

Tax rate reconciliation

The increase of the reported income taxes mainly derives from the negative development of tax-

exempt income in Germany (Building Materials segment).

Income taxes include corporate income tax, the solidarity surcharge and trade tax, to the extent

that German companies are required to pay them.


54

D. Other Notes to the Consolidated Financial Statements

23. Financial Risk Management

In the course of its operating activities, the Xella Group is exposed to financial risks. These

chiefly relate to liquidity risks, credit risks, risks from changes of interest rates and exchange

rates as well as other market risks such as price movements on the commodity markets. The

goal of financial risk management is to reduce financial risks.

The management sets the general guidelines for financial risk management and determines the

general procedure for hedging against financial risks. The Xella Group has its own treasury

department which, after identifying, analyzing and assessing the financial risks, takes action to

avoid or mitigate such risks. It advises subsidiaries and, in addition to its own hedging activities,

also enters into hedge relationships for the subsidiaries.

Liquidity Risk

Liquidity risk is understood as the risk of the Xella Group not being in the position to meet its

ongoing payment obligations at any time. The liquidity risk is managed by means of centralized

financial planning which provides the required funding for operations and capital expenditures.

Within the framework of the acquisition of the Xella Group, the owners agreed on a Secured

Facility Agreement with a large number of banks to secure fixed financing. The credit lines

under the agreement have terms of up to 2017. The repayment obligations from these lines of

credit are moderate in scope. For example, only 40,187 k€ (PY: 41,352 k€) is scheduled for

2013. In addition, the high amount of unused credit lines as well as the available cash secures

adequate financing to fund operating business and other investments.

Credit Risk

Credit risk is understood as the risk that a debtor of the Xella Group is not in the position to

meet its payment obligations. Xella is exposed to credit risks from both its operating business,

from the use of financial instruments and from deposited cash.

Based on the Group’s internal assessment of the risks, loans to associates and other loans (in

the current year mainly consisting of the non-current portion of the indemnity receivable from

Franz Haniel & Cie. GmbH, Duisburg / Germany) of 63,126 k€ (PY: 64,283 k€) are exposed to a

low level of credit risk.

The diversification of the Xella Group and the number of existing customers with low individual

receivables results in no concentration of credit risks associated with trade receivables and

similar receivables. For this reason, the Group considers credit risk exposure to be immaterial.


55

At worst case the maximum credit risk from such receivables amounts to total receivables less

existing trade credit insurances:

The credit risk associated with derivative financial instruments does not exceed the fair value of

the positive market values of the derivatives entered into. Due to the fact that derivative financial

instruments are only entered into with banks with solid credit ratings, these risks are low. There

are no identifiable concentrations of credit risk from business relationships with single debtors or

groups of debtors.

Interest Risk

Interest risks are understood as the negative impact of fluctuating interest rates on the net profit

of the Group. Derivative financial instruments are used to limit the interest risk. At present these

consist solely of interest caps. The decision on whether to use derivative financial instruments is

based on the projected debt and the expected interest rates. The interest hedging strategy is

reviewed at regular intervals and new targets are defined. As at December 31, 2012 interest

rate hedges in form of interest rate caps with a cap strike rate of 3,50% existed for a nominal

value of 400,000 k€ (PY: 400,000 k€). The Facility D Loan funded from the Senior Secured

Notes issued in 2011 has a fixed interest rate of 8% which reduces the interest risk, additionally.

The interest sensitivity analysis presented below shows the hypothetical effects which a change

in the market interest rate at the balance sheet date would have had on the pre-tax profit and on

equity. It is assumed here that the exposure at the balance sheet date is representative of the

year as a whole and that the assumed change in the market interest rate at the balance sheet

date was possible.

Hypothetical increases/decreases of one percentage point in the market interest rate would

have had the following impact on the profit/loss before tax and on equity:

Profit/ loss

before taxEquity

Profit/ loss

before taxEquity

k€ k€ k€ k€

(3,906) (2,757) 3,906 2,757

Effect of change in interest rate 2012

Increase Decrease

Profit/ loss

before taxEquity

Profit/ loss

before taxEquity

k€ k€ k€ k€

(4,866) (3,455) 4,866 3,455


Increase Decrease


56

Currency Risk

Currency risks arise from investing and financing activities conducted in foreign currency as well

as from operating activities due to the purchase and sale of merchandise in foreign currency. In

general, forward exchange contracts and currency options are used to hedge against currency

risks.

Foreign exchange exposure is mainly secured by micro-hedges. This involves a direct hedge of

the underlying transaction by means of a foreign exchange derivative, generally a forward

exchange contract. In addition, currency derivatives are used to hedge forward transactions in

foreign currency. This involves selecting the currency derivative (or a combination of several

derivatives) which best reflects the likelihood of occurrence and timing of the forward

transaction.

The sensitivity analysis of foreign exchange exposure shows the theoretical impact of a change

in the key exchange rates for the Xella Group on the pre-tax result and equity. This foreign

exchange sensitivity analysis is based on the primary and derivative financial instruments on the

balance sheet date. It is assumed that the exchange rates on the balance sheet date change by

the percentage stated. Movements over time and the changes in other market parameters

observed in reality are not considered in this analysis.

Hypothetical increases/decreases of 10% in the relevant exchange rates at Xella (CZK, PLN

and RUB) would have had the following impact on the profit/loss before tax and on equity:

Profit/ loss

before taxEquity

Profit/ loss

before taxEquity

k€ k€ k€ k€

CZK (1,517) (1,213) 1,854 1,483PLN 1,311 1,062 (2,367) (1,918)RUB 2,627 2,102 (3,211) (2,569)

Effect of changes in exchange rates 2012

Currency

Increase Decrease

Profit/ loss

before taxEquity

Profit/ loss

before taxEquity

k€ k€ k€ k€

CZK (1,137) (910) 1,390 1,112PLN 2,199 1,781 (2,688) (2,177)RUB 2,020 1,616 (2,468) (1,975)

Currency

Increase Decrease



57

Other Market Risks

Other market risks relate to the risk of price fluctuations in the commodities markets which are

partly secured against by means of long-term supply agreements.

Derivative Financial Instruments

A breakdown of derivative financial instruments in accordance with the hedge strategy pursued

by Xella is provided below:

Derivative financial instruments Dec. 31,

2012

Dec. 31,

2011

Fair value Fair value

k€ k€

Interest instruments with a positive market value 2Currency instruments with a positive market value 185 2,419Total 185 2,421

Currency instruments with a negative market value 1,405 1,366Total 1,405 1,366

The next table shows the contractually agreed, undiscounted debt service payments due on the

primary financial liabilities and derivative financial assets and liabilities over time:

Debt service payments* 2013 2014 2015-2017 2018-2022 2023 and

thereafter

k€ k€ k€ k€ k€

Bank liabilities (58,489) (58,414) (347,768)Bond liabilities (24,000) (24,000) (72,000) (312,000)Finance lease liabilities (1,943) (1,856) (5,866) (813)Liabilities to investments (85)Liabilities to shareholders (827) (1,111,749) (19,696)Other financial liabilities (10,370) (3,203) (78)Financial liabilities (without derivatives) (95,715) (84,270) (1,540,586) (332,587)

(20,158)20,327

(72,370)69,740

Derivative financial instruments (2,460)

* (-) payments made/ (+) payments received

Derivative financial assets

Derivative financial liabilities

Cash flows related to liabilities to shareholders taken in relation to the sale of the Xella Group in

2008 have been calculated based on the assumption that full repayment will occur on

December 31, 2015 (i.e. diverging from the contractually agreed maturity date which is

December 31, 2058). The contractually agreed cash flows on these shareholder loans would be

21,760,149 k€ in 2058 (instead of 1,111,749 k€ in 2015).

On call liabilities have been allocated to the earliest possible period in the table.


58

Reconciliation of Financial Instruments to IAS 39 Categories / IFRS 7 Valuations Levels –

Assets

Book value as

at Dec. 31,

2012

Financial assets

at fair value

through profit

and loss

Financial

assets held for

trading

Loans and

receivables

Available-for-

sale

investments

No IAS 39

category/

Outside the

scope of IFRS 7

Fair value IFRS 7 valuation

level

k€ k€ k€ k€ k€ k€

Loans 3,011 3,011 3,011 n.a.Net pension assets (non-current) 110 110 110 n.a.Other investments 15,932 9 15,923 15,932 VL 1 , VL 3Other financial assets (non-current) 62,515 62,515 62,515 n.a.Financial assets (non-current) 81,568 9 3,011 78,438 110 81,568

Trade and other receivables (non-current) 2,397 2,397 2,397

Trade receivables (current) 112,611 112,611 112,611 n.a.Receivables from construction contracts 548 548 548 n.a.Other receivables (current) 25,872 10,204 15,668 25,872 na.Trade and other receivables (current) 139,031 123,363 15,668 139,031

Derivatives 185 185 185 VL 2Receivables from associates (at equity) (current) 447 447 447 n.a.Receivables from shareholders (current) 926 926 926 n.a.Other financial assets (current) 40,403 40,403 40,403 n.a.Financial assets (current) 41,961 185 41,776 41,961

Cash and cash equivalents 124,512 124,512 124,512 n.a.

Reconciliation of financial assets

to IAS 39 categories

Book value as

at Dec. 31,

2011

Financial assets

at fair value

through profit

and loss

Financial

assets held for

trading

Loans and

receivables

Available-for-

sale

investments

No IAS 39

category/

Outside the

scope of IFRS 7


level

k€ k€ k€ k€ k€ k€

Loans 66,774 66,774 66,774 n.a.Other investments 12,290 9 12,281 12,290 VL 1 , VL 3Financial assets (non-current) 79,064 9 66,774 12,281 79,064

Trade and other receivables (non-current)

Trade receivables (current) 116,567 116,567 116,567 n.a.Receivables from construction contracts 1,306 1,306 1,306 n.a.Other receivables (current) 28,207 12,292 15,915 28,207 n.a.Trade and other receivables (current) 146,080 130,165 15,915 146,080

Derivatives 2,421 2,421 2,421 VL 2Receivables from associates (at equity) (current) 1,021 1,021 1,021 n.a.Receivables from shareholders (current) 1,454 1,454 1,454 n.a.Other financial assets (current) 34,890 34,890 34,890 n.a.Financial assets (current) 39,786 2,421 37,365 39,786

Cash and cash equivalents 124,016 124,016 124,016 n.a.

Reconciliation of financial assets

to IAS 39 categories / IFRS 7 Valuation Levels

The fair value of financial instruments traded on an active market is based on the market price

on balance sheet date. As at December 31, 2012 other investments include investments valued

at stock market prices of 1,126 k€ (PY: 1,048 k€) (IFRS 7 valuation level 1).

The above listed derivatives are valued on the basis of observable market data such as interest

rates and foreign exchange rates (level 2 of the IFRS 7 valuation categories).

The fair value of financial instruments that are not based on observable market data

(unobservable inputs) is determined with the aid of valuation techniques, primarily the

discounted cash flow method (IFRS 7 valuation level 3).


59

Reconciliation of Financial Instruments to IAS 39 Categories / IFRS 7 Valuations Levels –

Liabilities

Book value as

at Dec. 31,

2012

Financial

liabilties held

for trading

Other financial

liabilities

No IAS 39

category/

Outside the

scope of IFRS 7


level

k€ k€ k€ k€ k€

Bank liabilities (non-current) 356,139 356,139 356,139 n.a.Bond liabilities (non-current) 289,590 289,590 416,350 n.a.Finance lease liabilities (non-current) 7,551 7,551 8,715 n.a.Liabilities to shareholders (non-current) 925,723 925,723 1,113,182 n.a.Other financial liabilities (non-current) 2,421 2,421 3,179 n.a.Financial liabilities (non-current) 1,581,424 1,573,873 7,551 1,897,565

Trade and other liabilities (non-current) 186 186 186 n.a.

Trade liabilities (current) 96,664 96,664 96,664 n.a.Advance payments by customers 2,702 2,702 2,702 n.a.Liabilities from construction contracts 2,239 2,239 2,239 n.a.Other liabilities (current) 34,816 9,201 25,615 34,816 n.a.Trade and other liabilities (current) 136,421 105,865 30,556 136,421

Bank liabilities (current) 38,123 38,123 38,123 n.a.Finance lease liabilities (current) 1,560 1,560 1,560 n.a.Liabilities to investments (current) 85 85 85 n.a.Liabilities to shareholders (current) 827 827 827 n.a.Derivatives 1,405 1,405 1,405 VL 2Other financial liabilities (current) 9,611 9,611 10,363 n.a.Financial liabilities (current) 51,611 1,405 48,646 1,560 52,363

Reconciliation of financial liabilities


Book value as

at Dec. 31,

2011

Financial

liabilties held

for trading

Other financial

liabilities

No IAS 39

category/

Outside the

scope of IFRS 7


level

k€ k€ k€ k€ k€

Bank liabilities (non-current) 390,529 390,529 390,529 n.a.Bond liabilities (non-current) 288,096 288,096 411,575 n.a.Finance lease liabilities (non-current) 8,976 8,976 10,090 n.a.Liabilities to shareholders (non-current) 868,483 868,483 1,061,231 n.a.Other financial liabilities (non-current) 2,582 2,582 3,707 n.a.Financial liabilities (non-current) 1,558,666 1,549,690 8,976 1,877,133

Trade and other liabilities (non-current)

Trade liabilities (current) 103,279 103,279 103,279 n.a.Advance payments by customers 5,040 5,040 5,040 n.a.Liabilities from construction contracts 3,072 3,072 3,072 n.a.Other liabilities (current) 33,762 9,171 24,591 33,762 n.a.Trade and other liabilities (current) 145,153 112,450 32,703 145,153

Bank liabilities (current) 18,865 18,865 18,865 n.a.Finance lease liabilities (current) 1,555 1,555 1,555 n.a.Liabilities to investments (current) 87 87 87 n.a.Liabilities to shareholders (current) 517 517 517 n.a.Derivatives 1,366 1,366 1,366 VL 2Other financial liabilities (current) 10,783 10,783 11,505 n.a.Financial liabilities (current) 33,173 1,366 30,252 1,555 33,895

Reconciliation of financial liabilities


The fair values of the non-current financial liabilities are generally determined by discounting

future contractually agreed cash flows at the current market rate. The fair value for non-current

liabilities to shareholders stated above has been calculated based on the assumption that full

repayment will occur on December 31, 2015 (i.e. diverging from the contractually agreed

maturity date which is December 31, 2058). The fair value based on contractually agreed

maturity date would be 7,583,541 k€ instead of 1,113,182 k€. Bond liabilities and liabilities to

shareholders are accounted for at amortized cost. For both financial instruments the deviation

between book value and fair value is based on the contractually agreed fixed interest rate which

is fixed on a higher level than the corresponding actual market interest rate as per year-end

2012.


60

Due to their short terms, the fair value of current trade and other liabilities and current financial

liabilities correspond to their carrying amounts.

The net result of IAS 39 categories breaks down as follows:

Jan. 1st -

Dec. 31,

2012

Jan. 1st -

Dec. 31,

2011

k€ k€

Result from financial assets held-for-trading (2,289) 835Result from available-for-sale investments (1,490) 502Result from loans and receivables (299) 159Result from other financial liabilities (103,142) (118,676)Total (107,220) (117,180)

Net result of IAS 39 categories

The net result of the above categories under IAS 39 is distributed among the following line items

of the Statement of Income: other income, other expenses, result from other investments,

financial expenditure, other financial result. Result from other financial liabilities mainly consists

of interest expenses to third parties of 78,631 k€ (PY: 85,843 k€), interest expenses on bond

liabilities of 24,000 k€ (PY: 14,000 k€) and 3,869 k€ (PY: 12,786 k€) amortization of financing

fees incurred in connection with the SFA financing in 2008.

24. Contingencies

As far as exact figures can be estimated, as at December 31, 2012 there are contingent

liabilities of 4,100 k€ (PY: 4,040 k€) and contingent assets of 3,540 k€ (PY: 3,540 k€).

Because of the long useful life of certain of the products, it is possible that latent defects might

not appear for several years. In isolated cases this may lead to obligations which cannot be

estimated at present in terms of amount or their impact on the net assets, financial position and

results of earnings.



Baustoffwerke from three plants in North Rhine-Westphalia, Germany, between end of 1987

and the beginning of 1996. Calcium silicate units had been produced in the relevant period

applying an alternative production method, which substituted another product for lime. Although

the relevant calcium silicate units displayed the required compressive strength immediately after

production, over the years some of the calcium silicate units lost their compressive strength

after being exposed to permanent moisture with cracks resulting in the finished masonry.

All identifiable risks are covered by appropriate provisions such as the (constructive) provisions

for possible building damages (see note 12) in connection with the delivery of these calcium


61

silicate units. In this special case, payments exceeded the provision may (according to the SPA)

be claimed back by XI (BM) Holdings GmbH, Duisburg / Germany from Franz Haniel & Cie.

GmbH, Duisburg / Germany as it is covered by respective hold-harmless agreements (see note

4).

Contingent liabilities also include an amount of 3,540 k€ (PY: 3,540 k€) due to the

contamination of a French gravel pit. In this context a provision has also been recognized in the

Consolidated Statement of Financial Position. The exceeded maximum risk is presented as

contingent liability. XI (BM) Holdings GmbH, Duisburg / Germany, holds contingent assets in the

same amount relating to the contingent liability for the French gravel pit. If the amount is paid by

Fels-Werke GmbH, Goslar / Germany the money may be claimed back by XI (BM) Holdings

GmbH, Duisburg / Germany as it is covered by respective hold-harmless agreements with

Haniel. For further details please also refer to note 4.

25. Corporate Acquisitions and Divestments

In the reporting period, the Xella Group’s Building Materials segment acquired control of H+H

Ceská republica s.r.o., Most / Czech Republic (today Hebel CZ s.r.o.), 100.0%, October 31,

2012, and the Dry Lining segment of Fermacell S.LU., Cantabria / Spain (100.0%, April 25,

2012).

The following assets and liabilities were acquired in connection with business combinations in

the financial year 2012.

Carrying

amountRevaluation Fair value

k€ k€ k€

Property, plant and equipment 18,049 (11,793) 6,256Intangible assets 134 656 790

Non-current assets 18,183 (11,137) 7,046

Inventories 1,485 (16) 1,469Trade and other receivables 783 783Tax assets 11 11Cash and cash equivalents 357 357Deferred expenses 34 34

Current assets 2,659 (5) 2,654

Total assets 20,842 (11,142) 9,700

Non-current liabilities

Financial liabilities 7,562 7,562Tax liabilities (11) 11Other provisions 14 618 632Trade and other accounts payable 714 297 1,011

Current liabilities 8,279 926 9,205

Total liabilities 8,279 926 9,205

Assets and liabilities acquired in connection

with business combinations


62

Trade and other receivables acquired amounted to 783 k€ and were reduced by bad debt

allowances of 13 k€. As at the acquisition date, the bad debt amount was not expected to be

recovered. No contingent liabilities were provided for in the course of first consolidation. The

acquired entities are initially consolidated on the basis of provisional figures. If applicable, the

final figures will be restated within one year in compliance with IFRS 3.45 et seq. No changes

were made in respect of acquisitions made in 2011.

Since initial consolidation the stand-alone contribution of the acquired entities was 626 k€ in

sales and 732 k€ in losses. Had the entities been consolidated as at January 01, 2012 the

acquired companies would have contributed sales of 7,261 k€ and net loss after taxes of 7,189

k€ during the reporting period. In this calculation, synergies are not included.

The decisions to acquire the above companies were based on market and growth opportunities,

general strengthening of the market position, and synergy effects.

Total acquisition costs were 15,102 k€ of which 15,002 k€ was paid in cash. An amount of 100

k€ has not yet been paid.

In total, these acquisitions resulted in additions to goodwill of 7,170 k€ based on synergy

effects, a strengthening of the market position and growth opportunities.

In addition to the aforementioned acquisitions the Group’s Building Materials segment acquired

additional shares in Siporex dd, Tuzla, Bosnia-Herzegovina increase from an 93.32% to

93.95%, Cegielnie Bydgoskie S.A., Warsaw / Poland from 99.11% to 99.48%, and Xella

Teodory S.A., Warsaw / Poland from 93.70 % to 100.0% holding by means of transactions not

leading to changes of control. The purchase price of 75 k€ was paid in cash for shares held by

owners of non-controlling interest in the amount of (7) k€ and allocated to profit reserves.

26. Consolidated Statement of Cash Flows

The Consolidated Statement of Cash Flows pursuant to IAS 7 presents the changes in cash

and cash equivalents of the Group in the course of the reporting period due to cash inflows and

cash outflows. It is classified by cash flows from operating, investing, and financing activities.

The cash flows from operating activities are derived using the indirect method from the

consolidated net profit or loss for the year. Cash Flows from investing and financing activities

are determined using the direct method.

The balance of cash and cash equivalents reported on balance sheet date is the sum of cash

in hand and bank balances with a short maturity and checks.

Changes of trade working capital and changes in other working capital are largely included in

the notes to the Consolidated Statement of Financial Position and to the Statement of Income.


63

Foreign exchange effects, non-cash changes of CO2 certificates, interest components of

pension liabilities and other non-current provisions as well as other non-cash effects are

eliminated. Also eliminated are the non-cash effects of the changes of non-current and current

receivables from the indemnity by Franz Haniel & Cie. GmbH, Duisburg / Germany, and of the

provisions related thereto.

The cash flow from operating activities contained taxes paid on income of 21,014 k€ (PY:

23,450 k€).

Non-cash investments in non-current property, plant and equipment in the form of finance

leases amounted to 151 k€ (PY: 0 k€).

In the year under review, cash flow from investing activities included the acquisition of one

company in the Czech Building Materials segment and one company in the Spanish Dry lining

segment. For details reference is made to note 25. Cash compensation for the business

combinations was 15,102 k€ while acquired cash amounted to 357 k€.

The acquisition of additional shares in consolidated subsidiaries without change of control is

shown under financing activities as stipulated by IAS 7 revised 2008.

In the previous year, cash flows from investing activities included the acquisition of a Polish and

an Italian company, both in the Building Materials segment. Cash compensation for the

business combinations was 10,074 k€ while acquired cash amounted to 15 k€. An amount of

2,000 k€ was still unpaid as at December 31, 2012. Xefin Lux S.C.A., Luxembourg, was

consolidated as a special purpose entity for the first time in the prior year and contributed 31 k€

in acquired cash.

Additions to other non-current and current financial assets (379 k€, PY: 983 k€), mainly loans,

also contained additions to available-for-sale investments (20 k€, PY: 109 k€).

Disposals of other non-current and current financial assets (9,426 k€, PY: 6,793 k€) mainly

related to the repayment of various loans and other financial receivables as well as dividends

received from associated companies at equity in the amount of 1,186 k€ (PY: 984 k€).

The cash flow from investing activities contains interest received of 1,785 k€ (PY: 1,740 k€) and

dividends received of 1,785 k€ (PY: 780 k€).

Cash paid and received from financing activities in the reporting year does not include capital

contributions (PY: 0 k€). Payments made to non-controlling interests comprise dividends of

corporations (2,775 k€, PY: 2,089 k€).

Acquisitions of additional shares in a Bosnian and two Polish Building Materials companies

were paid in cash (75 k€). In the previous year, the cash purchase prices of acquisitions of


64

additional shares in companies already consolidated in the Building Materials segment totaled

98 k€.

Cash interest payments amounted to 49,557 k€ (PY: 56,967 k€) including financing fees (4,809

k€, PY: 13,846 k€). 837 k€ was capitalized as part of capital expenditure (PY: 619 k€).

Currently, the Xella Group is not required to pay accrued interest on shareholder loans under

the Shareholder Loan Agreements.

In the prior year, Xella completed the offering of 300,000 k€ aggregate principal amount of 8%

Senior Secured Notes due 2018 in a private placement to qualified institutional buyers. The

gross proceeds of the offering of the Senior Secured Notes were used to refinance an

aggregate principal amount of 250,000 k€ under the existing Senior Facilities Agreement and

50,000 k€ of shareholder loans. Further, Acquisition Facilities of 40,000 k€ were drawn in the

prior year under the Senior Facilities Agreement 5,000 k€ of which were repaid during the same

period.

Unscheduled repayments of financial debt in total amounted to 24,021 k€ (PY: 357,224 k€)

including minority shares in the profit distribution of limited partnerships of 224 k€ (PY: 0 k€) in

accordance with IAS 32.

27. Segment Reporting

As at December 31, 2009, Xella adopted IFRS 8 “Operating Segments”. According to IFRS 8

Xella applies the management approach for segment reporting. Accordingly, the operating

segment information is reported based on the internal organization and management structure,

which is the internal financial reporting to the Chief Operating Decision Makers, and is

represented by the Management Board of Xella.

Xella identified three reportable segments (Building Materials, Lime, Dry Lining), which are

separately organized and managed according to the products sold and services provided, the

trademarks, the production processes, the sales channels and the customer profiles. The

segment directors, responsible for the segment operating result, report directly to the chief

decision makers of Xella.

Xella mainly produces and markets building materials (calcium silicate units, autoclaved aerated

concrete and mineral insulation), gypsum fiber boards and cement-bonded boards as well as

lime. The product trademarks in the Building Materials segment are Silka, Ytong, Hebel and

Multipor, for the Dry Lining segment Fermacell and Fels in the Lime segment.

The Holding segment mainly contains the Group holding company Xella International S.A.,

Luxembourg, which is responsible for strategic management decisions with respect to the

segments. In addition the Holding segment includes Xefin Lux S.C.A., Luxembourg, a special


65

purpose financing entity established for the primary purpose of facilitating the offering of Senior

Secured Notes.

Xella assesses the performance of the operating segments based on a measure of normalized

earnings before interest, income taxes, depreciation, amortization and impairment losses

(Normalized EBITDA). This measurement basis excludes the effects of unusual or non-

recurring income and expenses, e.g. material restructuring costs or expenses for attempted

acquisitions or divestments.

The inter-segment transactions are concluded at arm’s length. The sales from external parties

reported to the Management Board of Xella are measured in a manner consistent with that in

the Statement of Income.

The segment information for the reportable segments is as follows:

Building

Materials BU

Lime BU Dry Lining BU Holding Total

k€ k€ k€ k€ k€ k€

Sales from external customers and associates 840,441 233,600 208,460 0 0 1,282,501Inter-segment sales 13,897 38,741 18 0 (52,656) 0Segment sales 854,338 272,341 208,478 0 (52,656) 1,282,501Material income / expense items from

Inventory write-down* (494) (12) (20) 0 0 (526)Impairment of property, plant & equipment* (410) 0 0 0 0 (410)

Profit / loss (-) from disposal of property, plant & equipment* 1,382 471 14 0 0 1,867

Reversals of provisions* 6,419 290 557 0 0 7,266

EBITDA* 119,676 63,243 34,605 (269) 0 217,255*) after normalization

Segment information - Jan. 1st - Dec. 31, 2011 Building

Materials BU


k€ k€ k€ k€ k€ k€


Inventory write-down* (860) (13) (6) 0 0 (879)Impairment of property, plant & equipment* (5,433) 0 0 0 0 (5,433)

Profit / loss (-) from disposal of property, plant & equipment* 698 166 (4) 0 0 860



Consoli-

dation

Segment information - Jan. 1st - Dec. 31, 2012 Consoli-

dation

Material non-cash items are explained in note 26.


66

Profit/loss before tax was derived as follows:

Jan. 1st -

Dec. 31,

2012

Jan. 1st -

Dec. 31,

2011

k€ k€

Normalized EBITDA 217,255 208,016

Normalization (10,228) (5,925)EBITDA Group 207,027 202,091

Depreciation, amortisation and impairment of property, plant and equipment and intangible assets (excluding goodwill) (102,647) (107,404)Impairment of goodwill (8,791) 0Financial result (119,967) (122,327)Profit / Loss before tax (24,378) (27,640)

Reconciliation from Normalized EBITDA

to Profit / Loss before tax

In the year under review normalizations mainly included restructuring and severance costs of

4,058 k€ (PY: 2,719 k€) and costs related to M&A activities of 2,544 k€ (PY: 1,656 k€).

In 2012 sales from external customers can be divided up in the following product categories:

calcium silicate units 161,550 k€ (PY: 167,453 k€), autoclaved aerated concrete 501,085 k€

(PY: 483,394 k€), gypsum fibre boards 139,035 k€ (PY: 138,139 k€), cement-bonded boards

22,309 k€ (PY: 20,365 k€), burned lime products 156,586 k€ (PY: 150,256 k€), limestone

16,728 k€ (PY: 17,835 k€), limestone powder 20,637 k€ (PY: 19,616 k€), services 147,680 k€

(PY: 148,664 k€) and others 116,891 k€ (PY: 125,477 k€).

Selected financial information by geographic regions is as follows:

Dec. 31, 2011 Jan. 1st - Dec.

31, 2011

k€ k€

Germany 879,916 903,032 571,411 558,561Netherlands 190,830 194,474 138,578 142,253Belgium 42,648 44,569 61,841 64,302Czech Republic 136,608 124,558 71,278 78,356France 50,295 52,014 74,447 82,627Poland 70,862 67,223 56,561 62,282Other countries 358,807 357,753 308,385 282,818Total 1,729,966 1,743,623 1,282,501 1,271,199

Selected financial information by

geographic regions

Non-current assets

k€

Sales to external customers

and associates

Dec. 31, 2012 Jan. 1st - Dec.

31, 2012

k€

Non-current assets include intangible assets, property plant and equipment, investments in

associates and the non-current portion of other assets. In the Business Units Building Materials

and Lime sales were allocated according to domicile of the invoicing unit. At the Business Unit

Dry Lining longer transportation distances are possible, therefore we have allocated the sales

according to the domicile of the customer since 2012.


67

Due to the structure of the customer base and the diversity of Xella’s business activities, there

was no concentration of risk relating to one single customer, region or segment in the years

reported.

28. Related Parties

Selected managers of Xella International S.A., Luxembourg, and other employees and their

close family members have acquired shares in Xella International S.A., Luxembourg, via

XI Management Beteiligungs GmbH & Co KG, Duisburg / Germany within the framework of the

management participation program. The shares were acquired at market value.

The management participation plan is governed in the “Shareholders and Co-Investment

Agreement regarding the Implementation of Management Partnership Plan for the Xella Group“

that was concluded between Xella International Holdings S.à r.l., Luxembourg, XI Management

Beteiligungs GmbH & Co. KG, Duisburg / Germany, XI MPP Verwaltungs GmbH, Duisburg/

Germany, the participants of the program and Xella International S.A., Luxembourg, and

notarized on November 17, 2008. Within the framework of the management participation

program, Goldman Sachs Capital Partners and PAI partners offered the employees listed above

the chance to participate in the Xella Group. This investment leads to a far-reaching

harmonization of the interests of employees and the investors. In principle, the shares can be

acquired subject to the same terms and conditions under which the shareholders acquired the

shares.

Notwithstanding other provisions in the articles of incorporation and bylaws, Xella International

S.A., Luxembourg, has the right (option) to demand that any employee participating in the

program who leaves an entity in the Xella Group prior to a defined “exit event”, sells and

transfers all indirectly held shares to Xella International S.A., Luxembourg. If this option is

exercised, the leaver has the right to compensation which, depending on the reason for his

departure, can vary in relation to the amount paid in and the market value of the shares, which

can lie below the amount paid in. In the case of a “leaver event”, there is a basic commitment on

the part of Xella International Holdings S.à r.l, Luxembourg, to pay the respective amount.

In the case of an “exit” event, the compensation for the shares held depends on their current

market value, whereby the employee can generally sell the shares held directly to the market.

This means that the program, together with the “leaver” and “exit” events, is treated in

accordance with the standards for equity-settled plans. In this case, the date on which the

benefit was granted has to be determined and the benefit distributed over the time terminating

with the occurrence of an exit event. Due to the fact that the employee acquires the shares at


68

market value, the fair value of the grant is zero, implying that the management incentive

program does not trigger any expense at any time.

Other related parties of the Xella Group are its associates and non-consolidated subsidiaries.

As at December 31, 2012 current receivables from associates amounted to 447 k€ (PY: 1,021

k€) (see note 4). This relates primarily to unpaid dividends of Kalksandsteinwerk Rückersdorf

GmbH & Co. KG, Rückersdorf / Germany. All business relations with non-consolidated entities

and associates are transacted at arm’s length.

Other related parties of the Xella Group are the non-controlling interests of consolidated

subsidiaries. As at December 31, 2012 the Group carried current receivables from non-

controlling interests of 874 k€ (PY: 1,156 k€) (see note 4).

Liabilities to non-controlling interests (see note 10) include liabilities of 11,826 k€

(PY: 11,739 k€). Furthermore with regard to various contracts that were made on or close to

August 28, 2008, the Xella Group reports liabilities to XI Management Beteiligungs GmbH & Co.

KG of 6,442 k€ (PY: 6,076 k€) and liabilities to Xella International Holdings S.à r.l., Luxembourg,

of 908,482 k€ (PY: 851,185) which can be broken down as follows:

• 552,600 k€ (nominal value) from the issue of Tranche 1 PECs Series A (Preferred Equity Certificates Series A Subscription Agreement with Xella International Holdings S.à r.l., Luxembourg, dated August 28, 2008)

• 5,000 k€ (nominal value) from the issue of Tranche 2 PECs Series A (Preferred Equity Certificates Series A Subscription Agreement with Xella International Holdings S.à r.l., Luxembourg, dated August 28, 2008)

• 164,000 k€ (nominal value) from the issue of PECs Series B (Preferred Equity Certificates Series B Subscription Agreement with Xella International Holdings S.à r.l., Luxembourg, dated August 28, 2008)

• 10,000 k€ (nominal value) from the issue of Tranche 2 PECs Series B (Preferred Equity Certificates Series B Subscription Agreement with Xella International Holdings S.à r.l., Luxembourg, dated March 4, 2010)

As at December 31, 2012 receivables against Xella International Holdings S.à r.l. totalled

52 k€ (PY: 298 k€).

Interest of 57,098 k€ (PY: 55,026 k€) was incurred in the reporting period on the interest-

bearing portion of these liabilities against Xella International Holdings S.à r.l. Interest of 366 k€

(PY: 344 k€) was incurred on the liabilities against XI Management Beteiligungs GmbH & Co.

KG.

Liabilities against Goldman Sachs International, London / Great Britain and PAI partners SAS,

Paris/ France mainly refer to Monitoring Service Agreements in the total amount of 2,600 k€


69

(PY: 2,000 k€) for the period August 29, 2008 to December 31, 2012 and were shown in the

Consolidated Statement of Financial Position as trade liabilities.

All transactions with shareholders and non-controlling interests are made at arm’s length.

Otherwise, no transactions requiring disclosure were conducted by the Xella Group with

members of the management or with entities in whose executive or supervisory board any such

persons are represented. The same applies for members of these persons’ close families.

Persons in key positions at Xella International S.A., Luxembourg, are the members of the

Management Board. The remuneration paid to this group of persons in the current year

amounted to 2,636 k€ (PY: 1,841 k€). Of this total amount, 2,554 k€ (PY: 1,764 k€) was

attributable to benefits falling due in the short-term, 82 k€ (PY: 78 k€) to post-retirement benefits

and 0 k€ (PY: 0 k€) to benefits on account of a termination of the employment relationship. The

present benefit obligation of this group of persons comes to 2,624 k€ (1,425 k€) as of balance

sheet date. The current service cost of pensions, added to pension provisions, for members of

the management amounted to 82 € (PY: 78 k€) in the reporting period.


70

29. List of shareholdings

Fully consolidated Group companies

No. Name and domicile of the companyEquity

in k€ 1)

Net result

in k€ 1)

Share-

holdings

in %

HLU0400 Xefin Lux S.C.A., Luxembourg 52 21

HDE0025 YTONG Bausatzhaus GmbH, Duisburg 3,947 3) HDE0561 100.00HDE0057 Kalksandsteinwerke Thörl & Meyer GmbH, Munster 70 5 HDE0561 50.00HDE0058 Kalksandsteinwerke Thörl & Meyer GmbH & Co. KG, Seevetal 1,669 127 HDE0561 59.00HDE0500 XI (BM) Holdings GmbH, Duisburg 215,215 201,160 HLU0200 100.00HDE0501 Xella International GmbH, Duisburg 162,066 3) HDE0500 100.00HDE0510 Xella Baustoffwerke Rhein-Ruhr GmbH, Duisburg 20,855 2,718 HDE0561 61.50HDE0519 Kalksandsteinwerk Griedel Verwaltungsgesellschaft mbH, Butzbach-Griedel 60 2 HDE0561 51.00HDE0520 Xella Kalksandsteinwerk Griedel GmbH & Co. KG, Butzbach-Griedel 6,330 (156) HDE0561 51.00HDE0530 Xella Finance GmbH, Duisburg 26 3) HDE0501 100.00

HDE0561 Xella Deutschland GmbH, Duisburg 151,168 3) HDE0564 100.00HDE0563 KS-INVEST Unternehmensbeteiligungs- und Vermögensverwaltungs GmbH, Duisburg 312 (55) HDE0561 100.00HDE0564 Xella Baustoffe GmbH, Duisburg 942,636 3) HDE0501 100.00

HDE0569 Xella Merchandising GmbH, Duisburg 24 3) HDE0564 100.00HDE0593 KS Baustoffwerke Blatzheim Verwaltungsgesellschaft mit beschränkter Haftung, Kerpen 44 2 HDE0510 50.00HDE0594 KS Baustoffwerke Blatzheim GmbH & Co. KG, Kerpen 7,896 704 HDE0510 50.00HDE0681 XSBB Verwaltungsgesellschaft mbH, Duisburg 30 1 HDE0501 51.00HDE0682 XSBB Immobilien- und Handelsgesellschaft mbH & Co. KG, Duisburg 3,870 35 HDE0501 51.00HDE0769 SILIKALZIT Marketing GmbH, Munich 103 3) HDE0564 100.00HDE0771 Porenbetonwerk EUROPOR GmbH, Boxberg 553 33 HDE0774 51.00HDE0773 Xella Technologie- und Forschungsgesellschaft mbH, Emstal 2,106 3) HDE0501 100.00

HDE0774 Xella Aircrete Systems GmbH, Duisburg 541 3) HDE0564 100.00

HAT0035 Xella Porenbeton Österreich GmbH, Loosdorf, Austria 2,553 184 HAT0037 85.00HAT0037 Xella Baustoffe Alpe-Adria Holding GmbH, Loosdorf, Austria 9,390 155 HDE0564 100.00HBA0338 Xella BH doo, Tuzla, Bosnia-Herzegovina 8,207 (715) HAT0037 76.00HBA0339 Siporex dd, Tuzla, Bosnia-Herzegovina (5,126) (473) HBA0338 93.95

HNL0598 79.64HNL0540 20.28HNL0545 0.07HNL0029 0.01

HBG0042 XELLA Bulgaria EOOD, Sofia, Bulgaria 17,511 (2,874) HDE0564 100.00HCH0036 Xella Porenbeton Schweiz AG, Zurich, Switzerland 1,070 692 HDE0564 100.00HCN0345 Shanghai Ytong Co., Ltd., Shanghai, China 16,232 750 HDE0564 79.00HCN0402 Changxing Ytong Co. Ltd., Changxing, China 8,945 707 HDE0564 100.00HCN0403 Xella Building Materials (Tianjin) Co., Ltd., Tianjin, China 8,190 313 HDE0564 100.00HCN0405 Xella Shanghai Investment Consulting Co., Ltd., Shanghai, China 1,265 (49) HDE0564 100.00HCN0555 Baoding Xella Xiangfeng Calcium Silicate New Building Materials Co., Ltd., Baoding, China (868) (479) HDE0564 100.00HCZ0034 Xella CZ, s.r.o., Hrušovany u Brna, Czech Republic 11,411 7,159 HDE0564 100.00HCZ0055 Hebel CZ s.r.o., Most, Czech Republic, Czech Republic 10,867 (1,638) HCZ0034 100.00HDK0082 Xella Danmark A/S, Løsning, Denmark (163) (2,382) HDE0564 100.00HES0041 Xella España Hormigón Celular S.A., El Prat de Llobregat, Spain 161 (25) HDE0564 100.00HFR0772 Xella Thermopierre S.A., Saint Savin, France 13,886 2,741 HDE0564 99.99HHR0032 XELLA POROBETON Hrvatska, d.o.o., Zagreb, Croatia (2,147) (3) HAT0037 100.00HHR0332 Ytong porobeton d.o.o., Zagreb, Croatia (68) (71) HDE0564 100.00HHU0031 Xella Magyarország KFt., Budapest, Hungary 4,534 (1,448) HDE0564 100.00

HIT0038 Ytong s.r.l. in liquidazione, Bologna, Italy (225) 5 HDE0564 100.00HIT0039 Xella Italia s.r.l., Grassobbio, Italy 590 350 HDE0564 100.00HIT0053 Xella Pontenure s.r.l., Pontenure, Italy 6,171 (2,851) HDE0564 100.00

HDE0564 99.99HDE0501 0.01HDE0564 98.00HDE0501 2.00

HNL0029 Xella Cellenbeton Nederland B.V., Vuren, the Netherlands 26,617 9,336 HNL0595 100.00HNL0503 Van Herwaarden Beheer B.V., Hillegom, the Netherlands 32,699 1,610 HNL0596 66.67- B.V. Exploitatie Maatschappij Oosterduinen, Hillegom, the Netherlands 2) 2) HNL0503 100.00- B.V. Exploitatie Maatschappij Reticulum, Hillegom, the Netherlands 2) 2) HNL0503 100.00

- B.V. Exploitatie Maatschappij Zilkvaart, Hillegom, the Netherlands 2) 2) HNL0503 100.00

- B.V. Maatschappij tot Exploitatie van Gronden "Veenenburg Elsbroek", Hillegom, the Netherlands 2) 2) HNL0503 100.00

- Xella Kalkzandsteenfabriek Van Herwaarden B.V., Hillegom, the Netherlands 2) 2) HNL0503 100.00- Zandexploitatie Hillegom B.V., Hillegom, the Netherlands 2) 2) HNL0503 100.00HNL0540 Van den Brink Group B.V., Koningsbosch, the Netherlands 3,900 913 HNL0595 100.00HNL0542 Xella Kalkzandsteenfabriek Hoogdonk B.V., Liessel, the Netherlands 5,616 2,005 HNL0596 100.00HNL0543 Xella Kalkzandsteenfabriek Rijsbergen B.V., Huizen, the Netherlands 6,349 2,647 HNL0596 100.00HNL0545 Befin Nederland B.V., Koningsbosch, the Netherlands 1,442 9 HNL0540 100.00HNL0590 Xella Kalkzandsteen Verkoop B.V., Vuren, the Netherlands 797 151 HNL0596 100.00

96,015

XELLA BELGIË N.V., Zwijndrecht, Belgium

Parent

company

Holding

(772)

Building Materials BU

HMX0791 Xella Mexicana SA de CV, Nuevo León, Mexico 4,885

HLU0200

11,346HBE0030

Xella International S.A., Luxembourg

4,260

(1,311)

(108)HMX0795 213

Luxembourg

Germany

Outside Germany

Xella Servicios SA de CV, Nuevo León, Mexico


71


in k€ 1)

Net result

in k€ 1)

Share-

holdings

in %

HNL0595 Xella Nederland B.V., Koningsbosch, the Netherlands 101,303 23,355 HNL0598 100.00HNL0596 Xella Kalkzandsteen B.V., Koningsbosch, the Netherlands 41,440 11,876 HNL0595 100.00HNL0597 Xella Kalkzandsteenfabriek De Hazelaar B.V., Koningsbosch, the Netherlands 16,412 6,333 HNL0596 100.00HNL0598 Xella Bouwmaterialen Holding B.V., Koningsbosch, the Netherlands 91,535 19,301 HNL0600 100.00HNL0599 Fluidbed B.V., Koningsbosch, the Netherlands (33) 0 HNL0540 100.00HNL0600 XI Dutch Holdings B.V., Koningsbosch, the Netherlands 26,549 706 HDE0500 100.00HNL0754 Hebel Nederland B.V., Vuren, the Netherlands 2,470 51 HNL0595 100.00HNL0755 Hebel Cellenbeton B.V., Vuren, the Netherlands 2) 2) HNL0754 100.00HNO0088 Xella Norge A/S, Drammen, Norway 67 (104) HDE0564 100.00HPL0081 Xella VdB Zebrzydowa Sp. z o.o. w likwidacji, Warsaw, Poland 13 (28) HPL0602 100.00HPL0098 Cegielnie Bydgoskie S.A., Warsaw, Poland 3,295 171 HPL0602 99.41HPL0342 Xella Radom Sp. z o.o., Warsaw, Poland 903 (11) HPL0602 99.96HPL0602 Xella Polska Sp. z o.o., Warsaw, Poland 29,177 (13,270) HDE0500 100.00HPL0796 Xella Teodory S.A., Warsaw, Poland (52) (287) HPL0602 100.00HPT0040 Ytong Ibérica - Materiais de Construção, Unipessoal, LDA, Porto, Portugal 45 (8) HDE0564 100.00

HDE0564 99.99HHU0031 0.01

HRU0343 ZAO "Xella-Aeroblock-Zentrum Mozhaisk", Moscow, Russia 3,901 1,005 HDE0564 100.00HSE0092 Xella Sverige AB, Malmö, Sweden (331) (476) HDE0564 100.00HSI0044 XELLA porobeton SI, d.o.o., Kisovec, Slovenia 3,136 (899) HAT0037 99.77HSK0758 Xella Slovensko, spol. s.r.o., Šaštín-Stáže, Slovakia 4,174 1,602 HDE0564 100.00

HDE0564 65.00HPL0602 35.00

HUS0792 Xella AAC Texas, Inc., Cibolo, U.S.A. (1,156) (1) HMX0791 100.00HUS0793 Xella Aircrete North America, Inc., Atlanta, U.S.A. (8,608) (581) HDE0564 100.00HYU0045 Xella Srbija d.o.o., Vreoci, Serbia 0 (1,035) HAT0037 100.00HYU0336 Xella Kosova L.L.C., Lipjan, Kosovo (8,210) (5,296) HAT0037 100.00

HDE0700 XI (RMAT) Holdings GmbH, Duisburg 10,589 137 HLU0200 100.00HDE0701 Fels-Werke GmbH, Goslar 142,925 4) HDE0700 100.00

HDE0703 Kalkwerke Meister GmbH, Großenlüder 385 4) HDE0701 100.00

HDE0705 Fels Netz GmbH, Elbingerode 601 4) HDE0701 100.00HDE0710 Fels International GmbH, Goslar 57 4) HDE0701 100.00HDE0715 Ecoloop GmbH, Goslar (673) 413 HDE0701 50.00

HCZ0708 VÁPENKA - VITOŠOV, s.r.o., Zabreh, Czech Republic 30 8 HDE0701 75.00HDE0701 99.00HDE0703 1.00HDE0701 99.00HDE0703 1.00

HRU0711 OOO "Fels Izvest", Tovarkovo, Russia 6,474 2,775 HDE0710 99.99

HDE0704 FELS RECYCLING GmbH, Wolfsburg 1,437 498 HDE0729 51.00HDE0720 XI (DL) Holdings GmbH, Duisburg 21,429 8,059 HLU0200 100.00HDE0729 Fermacell GmbH, Duisburg 50,096 5) HDE0720 100.00

HES0730 Fermacell Spain, S.L.U., Spain 3 0 HDE0729 100.00HFR0731 Fermacell SAS, Rueil-Malmaison, France 50 0 HFR0549 100.00HNL0726 Fermacell B.V., Nijmegen, the Netherlands 13,734 3,734 HDE0729 100.00

Parent

company

1

Germany

Outside Germany

(175)

11,010

Outside Germany

47

Fels Sp. z o.o., Warsaw, PolandHPL0709

HFR0549 SNC Parc 3, Bartenheim, France 205

HUA0331 Xella Ukraina TOV u lіkvіdacії, Odessa, the Urkraine (2)

(4,338)

Lime BU

HRO0047 XELLA RO S.R.L., Bucharest, Romania

0

Dry Lining BU

Germany


72

Investments with shareholdings exceeding 20%


in k€3)

Net result

in k€3)

Share-

holdings

in %

XDE058A Baumaterial Recyclinggesellschaft mbH, Seevetal 266 53 HDE0058 50.00XDE561A Kalksandsteinwerk Rückersdorf GmbH & Co. KG, Rückersdorf 1,437 827 HDE0561 50.00XDE561E Geschäftsführungsgesellschaft Mörtel-Union mbH i.L., Wedemark-Mellendorf 37 3 HDE0561 47.60XDE561F Mörtel-Union GmbH & Co. KG i.L., Wedemark-Mellendorf 88 262 HDE0561 47.57

HDE0561 15.15HDE0564 8.98

XDE561H Nord-KS GmbH + Co. KG i.L., Kaltenkirchen 741 26 HDE0561 50.00XDE563A Kalksandsteinwerk Wendeburg, Radmacher GmbH & Co. KG, Wendeburg 6,773 377 HDE0563 28.00

XCN0406 Shandong Xella New Building Materials Co., Ltd., Tengzhou, China 7,308 869 HDE0564 40.00XDE564C Türk Ytong Sanayi A.Ş., Istanbul, Turkey 30,556 4,580 HDE0564 25.41

HNL0503 11.50HNL0597 18.50HNL0542 7.00HNL0590 7.00HNL0543 6.00XNL596A 11.50

XNL596A Anker Kalkzandsteenfabriek B.V., Kloosterhaar, the Netherlands 27,273 276 HNL0596 33.33

XDE701A Kalksandsteinwerk Winsen/Aller Dr. Hubrig GmbH & Co. KG, Winsen/Aller (41) (1) HDE0701 50.00HDE0701 35.40HDE701A 29.00

XDE710A OOO "DSZ" (BSW), Tovarkovo, Russia 10,883 783 HDE0710 25.10

Germany

Parent

company

Outside Germany

Baustoffwerke Münster-Osnabrück GmbH & Co. KG, Osnabrück


15,959 4,210XDE561J

Germany

XNL503ACoöperatieve Verkoop-en Produktievereniging Van Kalkzandsteenproducenten (CVK) U.A. in liquidatie, Hilversum, the Netherlands

108

Lime BU

-28

Dr. Hubrig GmbH, Winsen / Aller 0 0

Outside Germany

XDE701B

Non-consolidated companies


in k€3)

Net result

in k€3)

Share-

holdings

in %

HDE0740 XI (EC) Holdings GmbH, Duisburg 13 0 HLU0200 100.00

XDE564A Siporex, S.A., Barcelona, Spain 0 0 HDE0564 100.00XFR772A EURL Construction, Saint Savin, France 9 0 HFR0772 100.00

1) According to last available local GAAP year end financial statements (mainly December 31, 2011)2) Fully consolidated within the preparation of financial statements of the respective holding3) Profit and loss transfer agreement with HDE0500 - XI (BM) Holdings GmbH, Duisburg4) Profit and loss transfer agreement with HDE0700 - XI (RMAT) Holdings GmbH, Duisburg5) Profit and loss transfer agreement with HDE0720 - XI (DL) Holdings GmbH, Duisburg

Parent

company

Germany

Outside Germany


73

30. Significant Events After the End of the Financial Year

In the course of the optimization of plant capacities in the Central East European market area of

the Building Materials Business Unit, Xella plans a temporary shut-down of the production in the

Slowakian plant of Sastin. This measure is expected to increase productivity in this market area

in spite of restructuring expenses and potential impairments. Restarting production will depend

on the market development in Central East Europe.

There were no other events subsequent to balance sheet date that would have had a significant

impact on the net assets, financial position and results of operations of the Group.


Luxembourg, March 20, 2013

The Management Board

Jan Buck-Emden Heiko Karschti

Oliver Esper Boudewijn van den Brink

Marielle Stijger David Richy

IFRS Consolidated Financial Statements of


for 2011

VBlech


Annex 4


2

Table of contents

Audit Report

Consolidated Financial Statements 2011

Consolidated Statement of Financial Position............................................................................. 6

Consolidated Statement of Income – by nature of expense........................................................ 7

Consolidated Statement of Comprehensive Income ................................................................... 8

Consolidated Statement of Changes in Equity............................................................................ 9

Consolidated Statement of Cash Flows.................................................................................... 10

Notes to the Consolidated Financial Statements 2011

A. Background.......................................................................................................................... 11

B. Notes to the Statement of Financial Position........................................................................ 26

1 . Property, Plant and Equipment ........................................................................................ 26

2 . Intangible Assets ............................................................................................................. 27

3 . Investments in Associates (At Equity) .............................................................................. 28

4 . Financial Assets............................................................................................................... 29

5 . Deferred Taxes ................................................................................................................ 30

6 . Inventories ....................................................................................................................... 32

7 . Trade and Other Receivables .......................................................................................... 33

8 . Cash and Cash Equivalents............................................................................................. 34

9 . Equity............................................................................................................................... 35

10 . Financial Liabilities......................................................................................................... 36

11 . Pension Provisions ........................................................................................................ 40

12 . Other Provisions ............................................................................................................ 43

13 . Deferred Income ............................................................................................................ 46

14 . Trade and Other Accounts Payable ............................................................................... 47

C. Notes to the Statement of Income – by nature of expense................................................... 47

15 . Sales.............................................................................................................................. 47

16 . Other Income................................................................................................................. 48

17 . Staff Expenses............................................................................................................... 48

18 . Other Expenses ............................................................................................................. 49

19 . Result from Other Investments....................................................................................... 50

20 . Finance Costs................................................................................................................ 51

21 . Other Financial Result.................................................................................................... 51

22 . Income Taxes ................................................................................................................ 52

D. Other Notes to the Consolidated Financial Statements ........................................................ 53


3

23 . Financial Risk Management........................................................................................... 53

24 . Contingencies ................................................................................................................ 59

25 . Corporate Acquisitions and Divestments........................................................................ 60

26 . Consolidated Statement of Cash Flows ......................................................................... 61

27 . Segment Reporting ........................................................................................................ 63

28 . Related Parties .............................................................................................................. 66

29 . List of Companies .......................................................................................................... 69

30 . Significant Events After the End of the Financial Year ................................................... 72

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6

Consolidated Statement of Financial Position

Dec. 31, 2011 Dec. 31, 2010

k€ k€

Property, plant & equipment (1) 1,123,206 1,130,634Intangible assets (2) 597,440 591,936Investments in associates (at equity) (3) 21,780 26,749Financial assets (4) 79,064 15,326Trade and other receivables 0 182Tax assets 1,197 1,323Deferred tax assets (5) 20,118 26,519Non-current assets 1,842,805 1,792,669

Inventories (6) 178,927 167,239Trade and other receivables (7) 146,080 128,934Tax assets 11,351 14,335Financial assets (4) 39,786 48,113Cash and cash equivalents (8) 124,016 109,330Deferred expenses 3,051 3,274Current assets 503,211 471,225

Total assets 2,346,016 2,263,894

Dec. 31, 2011 Dec. 31, 2010

k€ k€

Shareholders' equity (19,178) 7,816Non-controlling interests 28,994 26,732Total equity (9) 9,816 34,548

Financial liabilities (10) 1,558,666 1,510,929Deferred tax liabilities (5) 150,038 189,550Pension provisions (11) 126,482 124,576Other provisions (12) 107,842 44,120Deferred income (13) 5,696 6,396Non-current liabilities 1,948,724 1,875,571

Financial liabilities (10) 33,173 41,767Tax liabilities 14,325 15,840Other provisions (12) 89,849 90,264Trade and other accounts payable (14) 249,977 205,889Deferred income 152 15Current liabilities 387,476 353,775

Total equity and liabilities 2,346,016 2,263,894

Note

NoteEquity and Liabilities

Assets



7

Consolidated Statement of Income – by nature of expense

Jan. 1st -

Dec. 31, 2011

Jan. 1st -

Dec. 31, 2010

k€ k€

Sales (15) 1,271,199 1,145,909Change in finished goods & work in progress 10,226 10,721Own work capitalised 1,771 2,938Total output 1,283,196 1,159,568

Materials expenses (593,000) (525,666)Gross profit 690,196 633,902

Other income (16) 86,118 34,058Total income 776,314 667,960

Staff expenses (17) (298,617) (284,453)Other expenses (18) (275,606) (179,500)EBITDA 202,091 204,007

Depreciation & amortisation expenses (107,404) (112,471)EBIT 94,687 91,536

Result from associates (at equity) 1,233 2,002Result from other investments (19) 502 558Finance costs (20) (124,111) (107,823)Other financial result (21) 49 (205)Financial result (122,327) (105,468)

Profit/ loss before tax (27,640) (13,932)

Current income taxes (24,860) (22,574)Deferred taxes 29,958 9,029Income taxes (22) 5,098 (13,545)

Net income/ loss (22,542) (27,477)

Net income/ loss attributable to shareholders (26,717) (30,940)Net income/ loss attributable to non-controlling interests 4,175 3,463

NoteConsolidated Statement of Income



8

Consolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive Income Note Jan. 1st -

Dec. 31, 2011

Jan. 1st -

Dec. 31, 2010

k€ k€

Net income / loss (22,542) (27,477)

Currency adjustment (9) (33) 9,609Change of available-for-sale investments* (9) 1 15Change of hedge of net investment in foreign operations* (9)Other comprehensive income (32) 9,624

Total comprehensive income (22,574) (17,853)

Total comprehensive income attributable to shareholders (26,686) (22,185)Total comprehensive income attributable to non-controlling interests 4,112 4,332* Recognition of deferred taxes and/ or reclassifications to net income/ loss: 0 k€



9

Consolidated Statement of Changes in Equity



Available-for-

sale

investments

(OCI)

Hedge of net

investment

in foreign

operations

(OCI)

Translation

reserves

k€ k€ k€ k€ k€ k€ k€ k€ k€ k€

As of January 1st 13 98,400 (6) 2,688 7,886 10,568 (101,165) 7,816 26,732 34,548

Dividends (2,089) (2,089)

Additions / disposals ConsGroup 239 239

Subsequent Acquisition with existing control (308) (308) (308)

Capital increase/ decrease 18 (18)Currency adjustment 30 30 30 (63) (33)

Addition to/ release of OCI(not affecting consolidated income statement) 1 1 1 1

Net income/ loss (26,717) (26,717) 4,175 (22,542)Total comprehensive income 1 30 31 (26,717) (26,686) 4,112 (22,574)

Book value as at December 31 31 98,382 (5) 2,688 7,916 10,599 (128,190) (19,178) 28,994 9,816



Available-for-

sale

investments

(OCI)

Hedge of net

investment

in foreign

operations

(OCI)

Translation

reserves

k€ k€ k€ k€ k€ k€ k€ k€ k€ k€

As of January 1st 13 98,400 (19) 2,688 (856) 1,813 (64,082) 36,144 20,424 56,568

Dividends (1,158) (1,158)

Additions/ disposals ConsGroup (6,143) (6,143) 3,134 (3,009)

Capital increase/ decreaseCurrency adjustment 8,742 8,742 8,742 867 9,609

Addition to/ release of OCI(not affecting consolidated income statement) 13 13 13 2 15

Net income/ loss (30,940) (30,940) 3,463 (27,477)Total comprehensive income 13 8,742 8,755 (30,940) (22,185) 4,332 (17,853)

Book value as at December 31 13 98,400 (6) 2,688 7,886 10,568 (101,165) 7,816 26,732 34,548

Non-

controlling

interests

Total equityRetained

earnings

Total equity

Shareholders'

equity

Non-

controlling

interests

Retained

earnings

Shareholder's

equity

Subscribed

capital

Subscribed

capital

Capital

reserves

Revaluation

reserves

Capital

reserves

Revaluation

reserves


Please refer to note 25 for information about corporate acquisitions and divestments in the year

under review.


10


Jan. 1st -

Dec. 31,

2011

Jan. 1st -

Dec. 31,

2010

k€ k€

Net loss for the year including non-controlling interests (22,542) (27,477)

Depreciation and amortization of property, plant and equipment and intangible assets

107,404 112,471

Income and expenses from changes in deferred taxes (29,958) (9,029)Income and expenses from income taxes 24,860 22,574Financial result 122,327 105,468EBITDA 202,091 204,007

Changes in inventories (12,924) (13,643)Changes in trade receivables (14,450) 5,087Changes in trade payables 26,787 24Change of trade working capital (587) (8,532)

Changes in pension provisions (6,435) (11,053)Changes in other non-current provisions and liabilities 2,267 (15,178)Changes in other current assets (3,363) 5,363Changes in current provisions 750 (4,796)Changes in other current liabilities 9,343 2,774Change in other working capital 2,562 (22,890)

Income taxes (23,450) (26,914)Non-cash income and expenses 909 (6,874)Income and expenses from the disposal of non-current assets (2,842) (2,572)Cash flow from operating activities 178,683 136,225

Cash paid for investments in property, plant and equipment and intangible assets (74,830) (50,153)Cash received from the disposal of property, plant and eqipment and intangible assets

4,411 3,949

Cash received from the disposal of property, plant and eqipment held-for-sale 189Cash paid for the acquisition of consolidated entities and other business units (10,026) (6,231)Cash received from the disposal of consolidated entities and other business units 2,528Cash paid for additions to investments in associated entities at equity and other financial assets

(983) (825)

Cash received from disposals of investments in associated entities at equity and other financial assets

6,777 5,955

Cash received from interest and investment income 2,469 1,705Cash flow from investing activities (72,182) (42,883)

Payments made to shareholders (2,089) (752)Payments made for the acquisition of shares in subsidiaries without change of control

(98) (2,912)

Cash received from the issue of non-current financial liabilities 341,605 10,000Cash received from the issue of current financial liabilities 579 7,775Cash paid for the scheduled repayment of financial liabilities (17,069) (8,214)Cash paid for interest expenses (56,968) (42,405)Cash paid for the unscheduled repayment of financial liabilities (357,224) (57,902)Cash paid / received for derivative financial instruments (314) (1,644)Cash flow from financing activities (91,578) (96,054)

Cash and cash equivalents at the beginning of the period 109,330 111,043

Net change in cash and cash equivalents 14,923 (2,712)Net foreign exchange difference (237) 999Cash and cash equivalents at the end of the period 124,016 109,330



Please see note 26 for more information on the Statement of Cash Flows.


11

Notes to the 2011 Consolidated Financial Statements

A. Background

Xella International S.A., which has its registered office at 12, Rue Guillaume Schneider,

L-2522 Luxembourg, Grand Duchy of Luxembourg, holds Xella Group which is a leading player

in the European market for building materials. It manufactures and markets building materials

and supplies lime under the umbrella of Xella (Ytong, Silka, Hebel, Fermacell and Fels

trademarks).

In the second quarter of 2011 Xella International S. à r.l. was converted into a Société Anonyme

(S.A.) and increased its subscribed capital from 12,500 € to 31,000 €.

The financial year of the Xella Group commenced on January 1, 2011 and ended on December

31, 2011.

These Consolidated Financial Statements have been prepared in accordance with International

Financial Reporting Standards as adopted by the European Union and in accordance with the

Luxembourg Law of December 19, 2002, as amended.

The Consolidated Financial Statements have been prepared in euro (€) and the figures are

generally stated in thousand euros (k€). For calculatory reasons, some of the tables may

include rounding differences of up to one unit. For additional clarity, a number of items have

been summarized both in the Consolidated Statement of Financial Position and in the

Consolidated Statement of Income. These are discussed in detail in the notes to the Financial

Statements. The items in the Consolidated Statement of Financial Position have been classified

as current or non-current items in line with IAS 1. The Statement of Income has been prepared

using the nature of expense method.

Reporting structures were adjusted in the non-current provision. A new account “warranty

provisions” was added resulting from the increase of these provisions in financial year 2011.

The accounts “other provisions” (current and non-current) have been renamed “other short-term

provisions” resp. “other long term provisions”.

The Consolidated Financial Statements were authorized for issue by the board of directors at

March 27, 2012 and were signed on its behalf.

Consolidation Principles

Subsidiaries over which Xella International S.A., Luxembourg, has either direct or indirect

control as defined by IAS 27 have been fully consolidated in the Consolidated Financial

Statements. Associates are valued using the equity method pursuant to IAS 28. Other equity


12

investments are recognized at fair value in accordance with IAS 39 or, if no market value is

available and fair value cannot be reliably determined, at acquisition cost.

All consolidated companies have the same reporting date as the balance sheet reporting date of

the Consolidated Financial Statements of December 31, 2011. The Financial Statements of

Luxembourgish, German and other foreign subsidiaries included in the Consolidated Financial

Statements have all been prepared using uniform accounting policies.

Business combinations are recognized using the purchase method and measured at their

acquisition-date fair values (IFRS 3). That portion of the purchase price which is made in

anticipation of expected future economic benefits from the acquisition and cannot be allocated

to defined or identifiable assets in the course of purchase price allocation is reported as goodwill

under intangible assets. As in the previous year, two immaterial subsidiaries were not

consolidated.

Pursuant to IFRS 3, goodwill is not amortized. Rather, goodwill is tested for impairment annually

or during the year if there is indication of an impairment. If impaired book value of goodwill is

written down to net recoverable amount which corresponds to the higher of value in use or net

realizable value. In principle, any impairments of goodwill are posted through profit or loss.

IAS 27 and IFRS 3 prescribe the mandatory application of the economic entity approach for

accounting transactions involving acquisitions and disposals of shares resulting in a controlling

interest being obtained or retained. Non-controlling transactions are viewed as transactions with

shareholders and recognized in equity. Disposals of shares which result in the loss of a

controlling interest are reported as a gain or loss on disposal in the Statement of Income.

If an interest is still held after the disposal of the controlling interest, the remaining investment

is measured at fair value. The difference between the former carrying amount of the remaining

investment and its fair value is recognized in income as a gain or loss on disposal and

presented separately with the fair value of the remaining investment. Parents acquiring an

additional stake in a subsidiary resulting in control being obtained

("step acquisition") must remeasure the initially held interest at fair value with differences to

book value recognized in the Consolidated Statement of Income.

Intercompany profits and losses, sales, income and expenses as well as all receivables and

liabilities between consolidated companies are offset against each other. Intercompany profits

contained in non-current assets and inventories originating from intercompany deliveries are

eliminated unless they are immaterial.

Consolidated Entities and Changes in the Consolidated Group

The changes in the number of consolidated entities were as follows:


13

Consolidated entities and changes in the consolidated group 2011 2010

As at January 1st 95 99Addition from the acquisition of shares 2 3Addition from formation 3Disposal from sale of shares (1)Disposal from merger and liquidation (1) (6)As at December 31 99 95

Foreign Currency Translation

The presentation currency of Xella International S.A., Luxembourg, is the euro. Currency

translation of subsidiaries reporting in a country with a currency other than euro is performed in

accordance with IAS 21 using the functional currency method. Due to the fact that all

subsidiaries operate financially, economically and also organizationally in their primary

economic environment, their respective local currency is their functional currency. Transactions

in foreign currency in the separate financial statements are translated to the functional currency

at the spot rate prevailing on the transaction date. Gains and losses from the settlement of such

business transactions and from the translation of monetary assets and liabilities are recognized

in the Statement of Income. The assets and liabilities reported in the financial statements of

companies based in a country which does not have the euro as currency are translated at the

closing rate, whereas the line items in the Statement of Income are translated at the annual

average exchange rate for the period. Goodwill arising from purchase accounting and any

hidden reserves and liabilities uncovered in the course of applying the purchase method are

allocated to the acquired entity and translated using the closing rate.

Any foreign exchange differences are posted to other comprehensive income without affecting

earnings. Such differences arise when the assets and liabilities of Group entities whose

functional currency is not the euro are translated to the presentation currency and the exchange

rate differs from the one applied in the prior year. They also arise when the Statement of

Income and the Statement of Financial Position are translated and the average exchange rate

differs from the closing rate.


14

The relevant exchange rates for non-euro countries (1 € = x local currency) are:

Dec. 31, 2011 Dec. 31, 2010 2011 2010

Bosnia 1.9558 1.9558 1.9558 1.9558Bulgaria 1.9558 1.9558 1.9558 1.9558China 8.1588 8.8220 8.9867 8.9537Croatia 7.5370 7.3830 7.4383 7.2886Czech Republic 25.7870 25.0610 24.5767 25.2726Denmark 7.4342 7.4535 7.4507 7.4473Hungary 314.5800 277.9500 278.4548 275.3186Mexico 18.0512 16.5475 17.2476 16.7054Norway 7.7540 7.8000 7.7929 8.0025Poland 4.4580 3.9750 4.1087 3.9931Romania 4.3233 4.2620 4.2372 4.2108Russia 41.7650 40.8200 40.8515 40.2038Serbia 106.9200 105.9270 101.8362 102.7591Sweden 8.9120 8.9655 9.0283 9.5272Switzerland 1.2156 1.2504 1.2301 1.3774USA 1.2939 1.3362 1.3908 1.3230Ukraine 10.3730 10.6510 11.1000 10.5165

Country Closing rate Average rate

Accounting Policies

The Consolidated Financial Statements are prepared in accordance with the historical cost

convention with the exception of financial assets, financial liabilities and derivative financial

instruments, which are measured at fair value.

Property, plant and equipment is measured at acquisition or production cost less depreciation

and any impairment losses. If the reasons for an impairment no longer apply in future, the

assets are written up accordingly. In addition to direct costs, the cost of internally constructed

property, plant and equipment includes an appropriate portion of overheads that can be directly

allocated to the production of the asset. Borrowing costs that are directly attributable to the

construction or production of a qualifying asset are recognized by the Xella Group as part of the

cost of that asset. This practice is also applicable for intangible assets.

Property, plant and equipment are depreciated over their economic life using the straight-line

method. Depreciation is based on the following useful lives:

Buildings 8 to 50 years

Plant and machinery 4 to 25 years

Vehicles and equipment 2 to 15 years

The criteria of IAS 17 for classification as finance lease are met where the Group bears the


15

significant opportunities and risks incidental to ownership within the framework of a lease

transaction, and is therefore deemed to have economic title to the asset. In these cases, the

respective property, plant and equipment is recognized at fair value or the lower net present

value of the minimum lease payments and depreciated over the economic life of the asset or

over the shorter term of the lease respectively, using the straight-line method. The resulting net

present value of future minimum lease payments is recognized under current and non-current

financial liabilities respectively. Buildings and plant and machinery acquired under finance

leases generally have customary purchase options attached for the end of the lease. The

leases are all based on market interest rates at the time the leases were entered into.

In addition to the finance leases, the Group entered into rental agreements under which the

economic title to the assets remains with the lessor (operating leases). The payments on these

leases are posted to profit and loss. Depending on the type of assets, the leases contain the

customary rental conditions and right of first refusal.

Intangible assets purchased for a consideration are recognized at cost less straight-line

amortization and any impairment losses. Intangible assets are amortized over the contractual

term or the estimated useful life of the asset. Licenses and similar rights are amortized over two

to ten years. Xella is not planning to cease use of the trademarks reported in the Consolidated

Statement of Financial Position. Moreover, there is no indication that the useful life of the

trademarks is finite. The trademarks reported in the Consolidated Statement of Financial

Position therefore have an indefinite useful life. This also applies for the non-current CO2-

certificates. All other useful lives are finite. Internally generated intangible assets from which

future benefits are likely to flow to the Group and whose cost can be reliably measured are

recognized at the cost of production. Internally generated intangible assets are amortized over

two to ten years. The cost of production includes all costs directly allocable to development as

well as an appropriate portion of allocable overheads.

Research costs are expensed as incurred and not capitalized. Development costs are

capitalized, if the criteria of IAS 38 are met.

Goodwill, trademarks and non-current CO2-certificates with an indefinite useful life are subject to

an impairment test (impairment-only approach). The recoverability of the goodwill recognized in

the Statement of Financial Position is reviewed once every reporting period on the basis of

cash-generating unit pursuant to IAS 36 (or during the year if there is an indication of an

impairment). Within the framework of the impairment tests, the carrying amounts of the

individual or groups of cash-generating units are compared to the recoverable amount which is

defined as the higher of fair value less costs to sell and value in use. The fair value reflects the

best possible estimate of the amount that an independent third party would pay to acquire the


16

cash-generating units on the balance sheet date. The costs incurred to make such a sale are

deducted from this amount. Value in use is based on the detailed plan of the cash flows from

the cash-generating unit. Value in use includes any necessary replacement investment or

maintenance for a period of five years plus the terminal value of the cash-generating unit for the

period after the detailed plan. The detailed plan is based on the financial plan approved by

management which generally comprises a planning horizon of five years and is used for internal

purposes. The detailed plan is based on past developments and expectations of future market

developments. The terminal value considers a growth rate of 2% p.a. (PY: 2% p.a.) The

resulting cash flows are then discounted using the weighted costs of capital determined for the

respective cash-generating unit to arrive at the recoverable amount of the cash-generating unit.

The weighted average costs of capital used in the Xella Group are between 7.0% and 10.2%

(PY: 6.8% and 10.7%). If the recoverable amount of the cash-generating unit or group of cash-

generating units is less than the carrying amount an impairment loss is recognized on goodwill

and, if necessary, of the remaining assets as well.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The

allocation is made to those cash-generating units or groups of cash-generating units that are

expected to benefit from the business combination in which the goodwill arose identified

according to operating segment.

Possible changes in the major assumptions on which the calculation of recoverable amount is

based have not led to the recoverable amount of the cash-generating units falling below their

carrying amount.

At balance sheet date the following goodwill and trademarks existed in the cash-generating

units:

Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010

k€ k€ k€ k€


CGU North West Europe 91,500 91,500 39,000 39,000CGU Middle West Europe/Scandinavia 42,788 42,749 58,400 61,102CGU South West Europe 19,399 10,167 20,700 20,700CGU South East Europe 8,556 9,035 18,209 20,609CGU Central East Europe 64,173 65,470 26,858 27,636CGU North East Europe 5,061 4,521 24,052 26,975CGU Alpe Adria 320 324 14,700 14,700CGU Emerging Markets and Others 1,524 1,342 10,856 7,533CGU Dry Lining 40,667 40,667 12,700 12,700

CGU Lime 66,667 66,992

Total 340,655 332,767 225,475 230,955

Selected intangible assets Goodwill Trademarks


17

Associates are valued using the equity method pursuant to IAS 28. Beginning with the

historical cost at the time of acquisition of the shares, the respective carrying amount of the

investment is increased or decreased by any changes in the equity of the investment,

regardless of their impact on profit or loss, that are attributable to shares of Xella International

S.A., Luxembourg, in the associate. The goodwill included in the carrying amounts of the

investments, determined in accordance with the policies applying to fully consolidated

subsidiaries, is not subject to amortization. An impairment test is carried out if there is any

indication that the total carrying amount of the investment has to be impaired.

In addition to loans, financial assets consist primarily of investments in associates and

securities as well as potential claims against Xella’s former shareholder Haniel which were

agreed on by the buyer and seller during the sale of the Xella Group. They relate to hold-

harmless agreements.

Upon initial recognition, loans are recognized at fair value plus the incidental costs of the

transaction and subsequently at amortized cost by applying the effective interest rate method.

Pursuant to IAS 39, investments and securities are categorized as those that are available for

sale, those that are valued at fair value through profit or loss and those that are held to maturity.

The relevant category is determined upon acquisition and reviewed on each balance sheet

date. Purchases and sales of investments and securities in all categories of financial assets are

recognized on their settlement date.

Financial assets in the category available for sale are initially measured at fair value plus

transaction costs and subsequently at their respective fair value on balance sheet date. The

resulting unrealized gains and losses are recorded directly in equity taking deferred taxes into

account. If there is no listed market price and fair value cannot be reliably determined, the

assets are recognized at cost. If there are indications of an impairment, they are written down

through profit or loss. If the reasons for an impairment no longer exist, the asset is written up to

fair value. For equity instruments, the adjustment is posted to other comprehensive income

without affecting earnings. For debt instruments, the adjustment is posted to profit or loss,

provided the criteria in IAS 39 are met. When the asset is sold, the adjustments previously

recorded in equity are released to profit or loss.

Financial assets in the category of fair value through profit or loss are valued using the mark-to-

market method on balance sheet date. Any transaction costs are charged to profit and loss

when posted. Fluctuations in fair value are recognized directly in the Statement of Income.

Financial assets in the held to maturity category are initially measured at fair value plus

transaction costs and subsequently at amortized costs on balance sheet date using the effective


18

interest rate method. If there are objective indications of an impairment, the assets are written

down to their lower present value on the basis of the original effective interest rate.

The following cash and cash equivalents are recorded in the Consolidated Statement of

Financial Position: cash on hand, checks, bank deposits and funds in transit.

Inventories are recognized at cost. In addition to materials and direct production costs,

production-related portions of the necessary materials and production overheads as well as the

depreciation expense attributable to property, plant and equipment is included. If historical cost

is higher on closing date than net realizable value, inventories are written down to the latter.

Depending on the circumstances of the industry, different cost methods are applied to measure

the consumption of inventories. The weighted average method is most commonly used by the

Xella Group.

CO2 emission certificates which are purchased as well as allowances allocated free of charge

are both stated at cost. A provision is recognized to cover the obligation to deliver CO2 emission

allowances to the respective authorities; this provision is measured at the carrying amount of

the CO2 allowances capitalized for this purpose. If a portion of the obligation is not covered with

the available allowances, the provision for this portion is measured using the market price of the

emission allowances on the balance sheet date.

Trade receivables, receivables from investments and other assets that qualify as loans and

receivables are measured at fair value upon initial recognition and thereafter measured at

amortized cost. Appropriate allowances are established for any existing risks.

Long-term construction contracts are measured in accordance with the percentage-of-

completion method. This involves recognizing sales and expenses associated with long-term

construction contracts on the basis of the degree to which the contract has been completed.

The degree of completion is measured as the ratio of the costs already incurred by the balance

sheet date in proportion to the total estimated costs of the contract (cost to cost method). If the

result of a long-term construction contract cannot be determined reliably, sales are only

recognized at the amount of the contract costs incurred (“zero profit method”). Losses on

customer-specific long-term construction contracts are posted immediately in the period in

which the loss becomes apparent regardless of the percentage of completion. Borrowing costs

that are directly attributable to the production of a qualifying asset are recognized as part of the

cost of that asset by the Xella Group.

Tax receivables and tax liabilities are measured at the amount expected to be received or paid

to the tax authorities. Long-term tax receivables are recognized at net present value.


19

Derivative financial instruments such as forward contracts, options and swaps are used

solely to hedge foreign currency exposure, interest exposure and the risks of price fluctuations

inherent in the operating business.

Financial instruments are accounted for as of the settlement date for both sales and purchases.

Pursuant to IAS 39, all derivative financial instruments are accounted for at fair value

irrespective of the purpose or intention for which they were concluded. Changes in the fair value

of the derivative financial instruments for which hedge accounting is used are either disclosed in

net interest (fair value hedge) or, in the case of a cash flow hedge or net investment hedge, in

equity under other comprehensive income, taking deferred taxes into account.

Derivatives are currently solely used in order to hedge against future cash flow risks originating

from existing underlying or planned transactions. None of the existing derivative transactions

are accounted for under IFRS hedge accounting. All changes in the market value of derivative

financial instruments are posted immediately in full to profit or loss.

Non-current assets and groups of assets are categorized as held for sale when the carrying

amount of an operation will be recovered principally through a sales transaction and not through

continuing use. This condition is deemed to have been fulfilled if sale is highly probable, the

asset or disposal group is available for immediate sale and it is expected that sale will occur

within one year of allocation to the category. Assets and disposal groups which are classified as

held for sale are no longer written off systematically but are carried at the lower of carrying

amount and fair value less the costs to sell. The assets and disposal groups categorized as held

for sale and their related liabilities (disposal groups) are reported in the Consolidated Statement

of Financial Position separately from other assets and liabilities, each in a separate item under

current items. If the disposal group is a significant operation, the result of the discontinued

operation must be reported separately in the Statement of Income. The result of such

discontinued operations consists of the result of the valuation mentioned above, the current

result of the operation and the gain or loss upon sale. The Statement of Income from the prior

year is adjusted accordingly. The main groups of assets and liabilities that are classified as held

for sale and the result from discontinued operations must be explained separately in the notes if

the criteria are met.

Deferred tax assets and deferred tax liabilities are recognized for all temporary differences

between the tax base of the individual entities in the Group and the IFRS Consolidated

Statement of Financial Position – with the exception of goodwill that cannot be recognized for

tax purposes – and for unused tax losses. Deferred tax assets were only recognized for the

unused tax losses to the extent that their utilization is sufficiently certain. Deferred taxes are


20

determined on the basis of the tax rates which, under the current legislation, will apply in future.

Deferred taxes are netted in accordance with IAS 12.

Provisions for pensions and similar obligations are determined using the actuarial projected

unit credit method in accordance with IAS 19. This method involves considering the biometric

parameters and the respective long-term interest rates on the capital markets as well as the

latest assumptions on future salary and pension increases. Plan assets established to cover the

pension obligations are deducted from pension provisions. Actuarial gains and losses are not

posted to profit and loss until they lie outside a corridor of 10% of the higher of the present value

of the pension obligation and the plan assets (corridor method). Any amount above this corridor

is amortized over the average remaining period of service of the workforce. The interest portion

contained in the pension expense and the expected income from the plan assets are reported

under financial expenditure.

With the exception of the other employee-related provisions calculated in accordance with IAS

19, all other provisions are recognized in accordance with IAS 37 where there is a legal or

constructive obligation to a third party based on a past event. The flow of economic benefits

required to settle the obligation must be probable and reliably measurable. Significant

provisions with a residual term of more than one year are discounted at market interest rates

which reflect the risk and period until the obligation is met.

With the exception of derivative financial instruments, liabilities are initially recognized at fair

value less transaction costs and subsequently measured at amortized cost using the effective

interest rate method. Changes in contractual stipulations regarding repayments, considerations,

and interest rates lead to a recalculation of the carrying amount. The restated carrying amount

is equal to the present value computed at the original effective interest rate. The respective

present value changes are recognized in profit or loss as income or expense. There are no

liabilities that serve trading purposes. Liabilities from finance leases are measured at the net

present value of the future minimum lease payments using the interest rate implicit in the lease

and taking account of any repayments made in the meantime.

Foreign currency liabilities are translated using the closing rate.

The preparation of financial statements in accordance with IFRS requires the use of estimates

and assumptions that affect the reported amounts of assets and liabilities, the disclosure of

contingent assets and liabilities at the date of the financial statements and the reported amounts

of sales, income and expenses during the relevant period. Although these estimates and

assumptions are based on management’s best knowledge of current events and circumstances,

the actual results ultimately may differ from those estimates and assumptions. We evaluate

such estimates and assumptions on an ongoing basis based upon historical results and


21

experience, in consultation with experts and using other methods we consider reasonable in the

particular circumstances, as well as our forecasts regarding future changes. Estimates and

assumptions are particularly necessary for the measurement of property, plant and equipment,

lime quarries and intangible assets, such as trademarks and goodwill as well as for the

measurement of deferred taxes and warranty provisions.

Purchase price allocations are an integral part for the accounting of business combinations in

accordance with IFRS which require significant management judgment and the use of

estimates. Beyond the determination of fair values and useful lives for property, plant and

equipment, the measurement of provisions for pensions, other provisions and an

indemnification receivable against the former shareholder, particularly the measurement of

intangible assets and deferred taxes require a substantial degree of management estimates and

assumptions.

Upon the acquisition of the Xella Group in 2008, certain brands were identified with indefinite

lives and the difference between the purchase price and net assets acquired measured at fair

value was recorded as goodwill. In subsequent periods, brands and goodwill are tested for

impairment on an annual basis or whenever events or changes in circumstances indicate that

brands or goodwill might be impaired. An impairment charge is recognized if the carrying

amounts of brands or goodwill exceed their fair values. The future cash flows used to determine

the fair values of brand and goodwill are based on current business expectations and discount

rates. Changes in future projected cash flows and discount rates applied may lead to

impairment charges in future periods.

Deferred tax assets and liabilities under IFRS are recognized for temporary differences between

the carrying amounts in the consolidated balance sheet and the tax base of respective assets

and liabilities as well as on tax loss carry-forward. Significant assumptions may include the

probability of sufficient future taxable income being available to realize deferred tax assets

recognized. If actual tax laws that would impose restrictions on the realization of the deferred

tax assets should occur or there would not be sufficient taxable income available in the future,

an adjustment to the recorded amount of deferred tax assets would affect operating results.

Shares in assets and liabilities whose residual terms are less than one year are reported under

current assets on principle.

Sales comprise the proceeds from the sale of goods and services, less discounts and rebates.

Sales are recognized upon the transfer of risk to the customer unless they are recognized using

the percentage of completion method or zero-profit method under IAS 11. Other income is

recorded if it is likely there will be a flow of economic resources to the entity and this amount

can be reliably determined.


22

Pursuant to IAS 20, government grants are only recognized at their fair value if there is

reasonable assurance that the conditions attached to them will be met and they will be

collected. Grants to cover expenses are posted through profit or loss and offset in the period in

which the expenses are incurred for which the grants were made. Investment grants relating to

property, plant and equipment are deducted from the acquisition cost of the corresponding

assets. Government tax grants are shown as non-current deferred income and are credited to

the Statement of Income on a straight-line basis over the expected useful lives of the related

assets.


The Consolidated Financial Statements have been prepared in accordance with IFRS as

endorsed by the EU. The IFRS comprise the IFRS issued by the International Accounting

Standards Board, the International Accounting Standards (IAS) as well as the interpretations of

the International Financial Reporting Interpretations Committee (IFRIC) and the Standing

Interpretations Committee (SIC). The accounting policies applied comply with all the standards

and interpretations endorsed by the EU as of December 31, 2011 and mandatorily effective for

periods beginning on or after January 01, 2011:

Application of issued and effective IFRS and IFRIC in 2011

IFRS pronouncement

Amendment of IAS 32, Financial Instruments: Classification of Rights Issues by the EU as of

February 22, 2012

Amendment of IFRS 1, Limited Exemptions from Comparative IFRS 7 Disclosures for First-time

Adopters by the EU as of July 1, 2010

Amendment of IAS 24, Related party disclosure by the EU as of January 1, 2011

IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments by the EU as of July 1,

2010

Amendment of IFRIC 14: Prepayments of a Minimum Funding Requirement by the EU as of

January 1, 2011

Annual Improvements to IFRS (May 2010): by the EU as of January 1, 2011

IFRS 1 - First-time Adoption of IFRS

IFRS 3 - Business Combinations

IFRS 7 - Financial Instruments: Disclosures (amendments to the credit risk disclosures)


23

IAS 1 - Presentation of Financial Statements (amendment relating to the statement of

changes in equity and the disclosures of other comprehensive income)

IAS 34 - Interim Financial Reporting

IFRIC 13 Customer Loyalty Programs

Transition requirements for amendments arising as a result of IAS 27 Consolidate and

Separate Financial Statements

The amended IAS 24 provides further clarification of the definition of related parties and the

disclosures required by companies which are government-related. Secondly, the new IAS 24

includes any subsidiary undertakings held by the reporting entity’s joint ventures and associates

in the definition of reportable related parties. Neither of the other aforementioned IFRS

pronouncements had material impact on the Group’s financial position, cash flows or results of

operation.

Issued, but not yet effective IFRS and IFRIC

The following table summarizes all issued new IFRS pronouncements until these annual

consolidated financial statements have been authorized for issue, irrespective of their date of

mandatory or optional initial application. Where considered relevant for an understanding of the

potential future impact of these new rules, guidance is being provided at the bottom of this table.

IFRS pronouncement

Application in FY 2012

Amendment of IFRS 7, Disclosures - Transfer of Financial Assets by the EU as of July 1, 2011

Amendment of IFRS 1, Severe Hyperinflation and Removal of Fixed Dates for First-time

Adopters by the EU as of July 1, 2011

Amendment of IAS 12, Deferred Tax: Recovery of Underlying Assets by the EU as of July 1,

2012


IFRS 9, Financial Instruments: Classification and Measurement: Financial Assets by the EU as

of January 1, 2015

IFRS 9, Financial Instruments: Classification and Measurement: Financial Liabilities by the EU

as of January 1, 2015

IFRS 10, Consolidated Financial Statements by the EU as of January 1, 2013


24

IFRS 11, Joint Arrangements by the EU as of January 1, 2013

IFRS 12, Disclosure of Interests in Other Entities by the EU as of January 1, 2013

IFRS 13, Fair Value Measurement by the EU as of January 1, 2013

Revision of IAS 27, Separate Financial Statements by the EU as of January 1, 2013

Revision of IAS 28, Investments in Associates and Joint Ventures by the EU as of January 1,

2013

Amendment of IAS 1, Presentations of Items of Other Comprehensive Income by the EU as of

July 1, 2012

Amendments of IAS 19 Employee Benefits by the EU as of January 1, 2013

IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine by the EU as of January 1,

2013

Amendments of IFRS 9 and IFRS 7, Mandatory Effective Date and Transitional Disclosure

Requirements by the EU as of January 1, 2015

Amendment of IAS 32 and IFRS 7, Disclosures - Offsetting Financial assets and Financial

liabilities by the EU as of January 1, 2013

IFRS 9, Financial instruments, addresses the classification, measurement and recognition of

financial assets and financial liabilities. IFRS 9 has been issued in two parts yet, and once a

third part with an amended set of hedge accounting rules has been issued, these new

requirements will replace the existing IAS 39 in its entirety. IFRS 9 (part I) requires financial

assets to be classified into two measurement categories - those measured as at fair value and

those measured at amortized cost. The determination is made at initial recognition and depends

on the entity’s business model for managing its financial instruments and the contractual cash

flow characteristics of the instrument. For financial liabilities, IFRS 9 (part II) retains most of the

existing IAS 39 requirements. The main change is that, in cases where the so-called fair value

option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit

risk is recorded in Other Comprehensive Income (OCI) rather than in the income statement,

unless this creates a so-called accounting mismatch. The Group is yet to assess IFRS 9’s full

impact. IFRS 9 (parts I, II and III yet to be issued) are expected not to be applied before 2015,

with corresponding retrospective application and additional transitional rules not before 2014

year ends.

IFRS 10, Consolidated Financial Statements, builds on existing principles by identifying the

concept of control as the determining factor in whether an entity should be included within the


25

consolidated financial statements of the parent company. The standard provides additional

guidance to assist in the determination of control where this is difficult to assess, inter alia by

providing detailed prescriptive guidance on substantial rights. IFRS 10 supersedes the existing

IAS 27 and SIC-12 requirements for consolidation, though without significantly changing the

overall rational. The Group is yet to assess IFRS 10’s full impact and will adopt IFRS 10 in 2013

under consideration of accompanying transitional requirements for 2012.

IFRS 11, Joint Arrangements, sets out requirements for the classification and accounting of

joint ventures and joint operations by introducing new criteria. IFRS 11 supersedes IAS 31

based on which application of the proportionate consolidation of legal entity joint ventures will

no longer be permitted. However, classification of certain arrangements as joint operations may

lead to the recognition of rights and obligations and corresponding income and expenses in the

consolidated financial statements of the venture. The Group is yet to assess IFRS 11’s full

impact and will adopt IFRS 11 in 2013, with corresponding retrospective application in 2012.

IFRS 12, Disclosures of Interests in other Entities, includes disclosure requirements for all

forms of interests in other entities, including joint arrangements, associates, special purpose

entities and other off balance sheet vehicles. The Group is yet to assess IFRS 12’s full impact

and will adopt IFRS 12 in 2013, with corresponding retrospective application in 2012.

IFRS 13, Fair Value Measurement, aims to improve consistency and reduce complexity by

providing a precise definition of fair value and a single source of fair value measurement with

additional disclosure requirements for use across various effective IFRSs. The requirements,

now largely aligned between IFRS and US GAAP, do not mandate or extend the use of fair

value accounting but provide guidance on how to apply fair value measurement where already

required or permitted by other standards. The Group is yet to assess IFRS 13’s full impact and

will adopt IFRS 13 in 2013, with corresponding retrospective application in 2012.

IAS 19, Employee benefits, was amended in June 2011 as a result of a long series of

discussion. IAS 19 eliminates the so-called corridor approach mandates recognition of all

actuarial gains and losses directly in OCI as they occur. Furthermore, all past service costs are

to be recognized immediately. Besides, the current approach to assess interest cost and

expected return on plan assets will be replaced by compulsory application of a uniform, market-

based discount rate to both the defined benefit liability and any corresponding plan asset (‘net

interest approach’). The new standard is expected to increase volatility in equity. The revised

IAS 19 is expected to be applied in 2013, with corresponding retrospective application in 2012.

In 2011, the Group did not opt for voluntary early adoption of either of the aforementioned IFRS

pronouncements. Adoption of any of the aforementioned IFRS pronouncements is subject to

prior endorsement by the European Parliament.


26

B. Notes to the Statement of Financial Position

1. Property, Plant and Equipment

Property, plant and equipment developed as follows:


exploitation

Plant &

machinery

Vehicles &

equipment

Assets under

construction &

prepayments

Property, plant &

equipment

k€ k€ k€ k€ k€ k€

As at January 1st 394,823 223,263 661,068 33,465 37,537 1,350,156

Currency adjustment (2,248) (4,099) (314) (438) (7,099)

Addition 3,954 353 12,624 5,990 42,935 65,856

Disposal (2,955) (508) (2,641) (2,851) (150) (9,105)

Additions/ disposals ConsGroup 13,939 17,497 300 14 31,750Transfer 3,370 14,345 1,306 (19,168) (147)


As at January 1st (40,325) (5,478) (160,906) (12,440) (373) (219,522)

Currency adjustment 424 1 1,710 163 4 2,302


Impairment (3,313) (321) (1,477) (75) (246) (5,432)

Reversal of impairment 48 1,273 62 1,383

Disposal 1,033 19 2,543 2,705 55 6,355Transfer 2 434 (436)







exploitation

Plant &

machinery

Vehicles &

equipment

Assets under

construction &

prepayments

Property, plant &

equipment

k€ k€ k€ k€ k€ k€

As at January 1st 381,466 222,631 624,921 30,511 27,681 1,287,210

Currency adjustment 5,827 2 7,289 417 463 13,998

Addition 1,772 15,519 4,321 26,391 48,003

Disposal (1,501) (209) (933) (2,020) (12) (4,675)

Additions/ disposals ConsGroup 4,804 623 498 (89) 5,836Transfer 2,455 216 13,774 325 (16,986) (216)


As at January 1st (20,577) (1,946) (91,024) (7,355) (266) (121,168)

Currency adjustment (255) (721) (101) 3 (1,074)


Impairment (4,693) (1,619) (2,112) (244) (100) (8,768)

Reversal of impairment 170 16 (1) 185

Disposal 251 9 781 1,668 2,709

Additions/ disposals ConsGroup 480 2,943 138 3,561Transfer 191 (194) (51) 63 (9)






In 2011 there were no relevant additions or disposals due to finance leases. The accumulated

depreciation on assets recognized under finance leases amounts to 4,462 k€ (PY: 3,248 k€).

The carrying amount of property, plant and equipment used to secure the financial liabilities of

the Group amounts to 439,555 k€ (PY: 488,984 k€).

The purchase obligations for property, plant and equipment amount to 16,926 k€ (PY:

9,349 k€). This increase results from the extension of capacity of cement-bonded boards in

Calbe at Fermacell GmbH, Duisburg / Germany.

Substantial additions to property, plant and equipment mainly result from assets under

construction and prepayments, particularly relating to a reactor targeting the production of

synthesis gas from waste (Ecoloop) and the extension of capacity of cement bounded boards.


27

Furthermore the acquisition of Xella Pontenure S.r.l., Pontenure/ Italy led to an increase of

property, plant and equipment in the amount of 30,501 k€.

The net disposals of property, plant and equipment amounting to 2,750 k€ (PY: 1,967 k€)

mainly relate to the sale of a property in Groß-Gerau at XSBB Immobilien- und

Handelsgesellschaft mbH & Co. KG, Duisburg / Germany.

All impairment charges are shown as depreciation/ amortization expenses in the Consolidated

Statement of Income.

Assets for which impairment losses have been recognized have been written down to their fair

values less costs to sell which have been determined based on market values. Impairment

losses relate mainly to Xella Kosova L.L.C., Lipjan / Kosovo, (Building Materials segment) due

to a negative market development. In this regard, impairment losses of 2,315 k€ were

recognized on land and buildings, 321 k€ on land for exploitation, 1,230 k€ on plant and

machinery and 59 k€ on vehicles and equipment.

Reversals on impairment mainly result from a better access to lime reserves in Saal / Germany

(1,273 k€). These refer to the Lime segment.

The most significant items reported as assets under construction and prepayments as at

December 31, 2011 are the “Ecoloop project” at the Lime Business Unit amounting to 14,730 k€

and the further expansion of the Fels Izvest OOO facility in Tovarkovo / Russia in the amount of

12,635 k€ (PY: 12,705 k€).

2. Intangible Assets

Intangible assets developed as follows:


contracts

Development

expenses

Trademarks Software

licences

Other licences Other

intangible

assets

Prepayments

on intangible

assets

Intangible

assets

k€ k€ k€ k€ k€ k€ k€ k€ k€

As at January 1st 332,768 14,833 1,599 230,956 29,884 897 994 611,931

Currency adjustment (2,214) (466) 2 (5,481) (181) (5) (1) (8,346)

Addition 1,550 6,763 661 8,974

Disposal (79) (1) (80)

Additions/ disposals ConsGroup 10,101 2,801 12,902Transfer 575 6 (434) 147


As at January 1st (4,393) (82) (15,362) (158) (19,995)

Currency adjustment 339 (1) 168 2 508


Impairment (75) (75)Disposal 79 79

Accumulated depreciation as at December 31 (5,895) (137) (21,662) (319) (75) (28,088)


Net book value as at December 31 340,655 8,472 1,464 225,475 10,087 10,142 1,145 597,440



28


contracts

Development

expenses

Trademarks Software

licences

Other licences Other

intangible

assets

Prepayments

on intangible

assets

Intangible

assets

k€ k€ k€ k€ k€ k€ k€ k€ k€

As at January 1st 325,775 14,487 1,594 228,433 28,108 5 764 169 599,335

Currency adjustment 3,349 346 6 2,522 163 10 2 6,398

Addition 1,454 195 935 2,584

Disposal (131) (4) (135)

Additions/ disposals ConsGroup 3,642 (8) (1) (100) 3,533Transfer 298 29 (111) 216

Accumulated costs as at December 31 332,768 14,833 1,599 230,956 29,884 897 994 611,931

As at January 1st (2,369) (26) (8,848) (5) (163) (11,411)

Currency adjustment (34) (2) (52) (4) (92)


Impairment (10) (70) (80)

Disposal 131 4 135Additions/ disposals ConsGroup 8 1 100 109

Accumulated depreciation as at December 31 (4,393) (82) (15,362) (158) (19,995)


Net book value as at December 31 332,767 10,440 1,518 230,955 14,522 739 995 591,936


The substantial addition to goodwill (9,232 k€) in 2011 results from the acquisition of Xella

Pontenure S.r.l., Pontenure / Italy.

Development expenses mainly include two projects in connection with the implementation of IT

systems.

In 2011 the addition to other intangible assets mainly results from the recognition of CO2

emission certificates in the amount of 6,733 k€. The addition due to first time consolidation

(“ConsGroup”) refers to the acquisition of Xella Pontenure S.r.l., Pontenure / Italy.

As in the prior year, there were no purchase obligations for intangible assets.

Impairment losses relate to Xella Kosova L.L.C., Lipjan / Kosovo.

Intangible assets that serve as collateral for the liabilities of the Group amounted to 66,915 k€

(PY: 71,409 k€).

The goodwill impairment test performed during the year 2011 did not lead to any impairment

losses at the level of the Cash Generating Units. For more information on the impairment test

please see the comments under “Accounting Policies”.

3. Investments in Associates (At Equity)

2011 2010

k€ k€

As at January 1st 26,749 27,985Proportional share of net income/ loss 1,233 2,002Dividends (984) (1,224)Disposals (5,218) (2,014)Net book value as at December 31 21,780 26,749

Investments in associates (at equity)

The following entities are consolidated using the equity method. The carrying amounts of their

assets, liabilities, sales and net results are as follows:


29

Book value Assets Liabilities Sales Net result Ref.

k€ k€ k€ k€ k€

Türk Ytong Sanayi A.Ş., Istanbul, Turkey 8,284 45,750 12,124 42,755 4,439 1)"DSZ" OOO (BSW), Tovarkovo, Russia 6,028 12,031 1,915 18,574 954 1)Kalksandsteinwerk Rückersdorf GmbH & Co. KG, Rückersdorf, Germany

3,749 3,632 1,376 4,440 656 1)

Kalksandsteinwerk Wendeburg, Radmacher GmbH & Co. KG, Wendeburg, Germany

3,719 9,741 2,447 9,397 126 2)

Shandong Xella Gather Calcium Silicate New Building Materials Co., Ltd., Tengzhou, China

9,477 4,697 4,534 (382) 2)

Total 21,780


Book value Assets Liabilities Sales Net result Ref.

k€ k€ k€ k€ k€

Türk Ytong Sanayi A.Ş., Istanbul, Turkey 8,284 39,971 8,753 32,377 1,994 2)RDB Hebel S.p.A., Pontenure, Italy 5,217 62,445 52,579 36,847 1,644 2)"DSZ" OOO (BSW), Tovarkovo, Russia 5,779 12,326 2,951 21,510 2,888 2)Kalksandsteinwerk Rückersdorf GmbH & Co. KG, Rückersdorf, Germany

3,749 3,931 1,546 4,573 680 2)

Kalksandsteinwerk Wendeburg, Radmacher GmbH & Co. KG, Wendeburg, Germany

3,719 9,741 2,447 9,397 126 2)

Shandong Xella Gather Calcium Silicate New Building Materials Co., Ltd., Tengzhou, China

9,477 4,697 4,534 (382) 2)

Total 26,749

1) Last available financial statement Dec. 31, 20102) Last available financial statement Dec. 31, 2009

Dec. 31, 2010Name of investment

Please consider that the figures in the table above are the companies’ numbers (not Xella’s

portion).

4. Financial Assets

Non-current financial assets include the non-current part of a receivable carried by XI (BM)


GmbH, Duisburg / Germany of 63,689 k€ (PY: 0 k€). This receivable comprising a non-current

and a current portion represents a number of claims against Haniel which were agreed on by

the buyer and seller during the sale of the Xella Group. They relate to hold-harmless

agreements for certain tax obligations, warranty obligations and other risks. The increase of the

non-current portion of this receivable is mainly attributable to new warranty claims for possibly

damaged buildings (61,042 k€). Please also refer to note 12.

Besides the non-current portion of the receivable from Franz Haniel & Cie GmbH the non-

current financial assets mainly consist of shares in entities where no significant influence is

exercised. These assets are classified as available-for-sale financial assets 12,281 k€ (PY:

12,442 k€). They primarily consist of shares in Baustoffwerke Münster-Osnabrück GmbH & Co.

KG, Osnabrück / Germany in the amount of 7,400 k€ (PY: 7,400 k€) and in Anker

Kalkzandsteenfabriek B.V., Kloosterhaar / Netherlands in the amount of 2,030 k€ (PY:

2,030 k€). In both cases legal requirements prevent a significant influence.


30

The current financial assets are as follows:

Dec. 31, 2011 Dec. 31, 2010

k€ k€

Bank balances (with no short maturity) 262Derivatives 2,421 1,201Receivables from associates (at equity) (current) 1,021 984Receivables from other investments (current) 36Receivables from shareholders (current) 1,454 1,260Other financial assets 34,890 44,370Total 39,786 48,113

Financial assets

The increase of derivatives especially relates to FX forwards (1,758 k€, PY: 224 k€).

Receivables from associates especially refer to receivables from unpaid dividends. The

increase mainly derives from Kalksandsteinwerk Rückersdorf GmbH & Co. KG, Rückersdorf.

Receivables from shareholders are from Xella International Holdings S.à r.l., Luxembourg (298

k€, PY: 172 k€) and from shareholders with a non-controlling interest of Xella Baustoffwerke

Rhein-Ruhr GmbH, Duisburg / Germany, as well as of Kalksandsteinwerke Thörl & Meyer

GmbH & Co. KG, Seevetal and Xella Kalksandsteinwerk Griedel GmbH & Co KG, Butzbach-

Griedel (1,156 k€, PY: 1,088 k€).

Other current financial assets especially refer to the current portion of the receivable from Franz

Haniel & Cie GmbH of 32,417 k€ (PY: 43,133 k€).

The allowance on financial assets can be summarized as follows:

2011 2010

k€ k€

As at January 1st (895) (888)Additions (7)Utilization 6Releases 1Book value as at December 31 (888) (895)

Allowance on financial assets

The financial assets that serve as collateral for the liabilities of the Group amount to 2,155 k€

(PY: 2,155 k€).

5. Deferred Taxes

Deferred taxes are calculated at the respective local tax rates. Deferred taxes recognized on

temporary differences arising from consolidation entries are calculated using the Group’s tax

rate of 29.0 % (PY: 29.0 %).

The changes to the tax rates enacted at the balance sheet date have already been considered.

The income tax rates in the individual countries range between 10.0% and 37.9%.


31

The following table shows the deferred tax assets and liabilities derived from recognition and

measurement differences of individual IFRS versus tax balance sheet items and from tax losses

carried forward:

Tax assets Tax liabilities Tax assets Tax liabilities

k€ k€ k€ k€

Non-current assets 3,246 186,562 2,465 196,246

Property, plant & equipment 2,565 138,190 1,812 148,559Intangible assets 21 47,671 625 47,232Investments in associates (at equity) 28 4 24Financial assets 515 24 274Trade and other receivables 660 158 157Current assets 1,825 5,194 1,578 5,020

Inventories 241 2,245 209 1,022Trade and other receivables 1,274 1,182 708 187Financial assets 153 1,473 51 3,811Deferred expenses 157 294 610Non-current liabilities 9,294 8,053 8,064 5,416

Financial liabilities 734 5,232 627 4,436Pension provisions and other provisions 8,560 2,761 7,287 964Deferred income 60 150 16Current liabilities 11,636 76 7,287 145

Financial liabilities 3,718 2 3,742 56Other provisions 7,156 39 3,534 39Trade and other accounts payable 762 18Deferred income 17 11 50Deferred tax assets on losses carried forward 43,964 24,402

Offsetting (49,847) (49,847) (17,277) (17,277)

Book value 20,118 150,038 26,519 189,550

Dec. 31, 2011 Dec. 31, 2010Deferred taxes

Of these totals, deferred tax assets of 16,064 k€ (PY: 13,678 k€) and deferred tax liabilities of

22,048 k€ (PY: 24,545 k€) are likely to be realized within one year.

The relatively high deferred tax liabilities in comparison to deferred tax assets are generally due

to fair value adjustments of non-current assets associated with the acquisition of the Xella

Group on August 30, 2008.

Deferred tax assets on temporary differences were written down by allowances of 4,671 k€

(PY: 5,757 k€).

In the financial year 2011 deferred taxes of 6,740 k€ (PY: 1,372 k€) were recognized for nine

loss-making entities. However, due to planned or ongoing restructuring, these unused tax

losses are expected to be utilized.

The Group also carries unused tax losses for which no deferred tax assets were recognized as

it is not highly probable, from today’s perspective, that they will be realized.


32


k€ k€ k€ k€ k€

Tax lossescarried forward

16,081 16,653 29,366 33,524 95,624

Interest capping rule

143,915 143,915


k€ k€ k€ k€ k€

Tax lossescarried forward

30,151 16,757 24,810 14,223 85,941

Interest capping rule

77,765 77,765

Dec. 31, 2010

Expiry date Total

Expiry date Total

Dec. 31, 2011

No deferred tax liabilities are recognized for profits retained by subsidiaries and other

comprehensive income from hedges of a net investment. Tax liabilities of 2,670 k€

(PY: 1,750 k€) would arise in the event of future profit distributions or a sale of the investment.

6. Inventories

Dec. 31, 2011 Dec. 31, 2010

k€ k€

Raw materials & supplies 73,884 73,248Work in progress 1,157 1,158Finished goods 92,729 82,996Merchandise 9,333 8,924Prepayments on inventories 1,824 913Total 178,927 167,239

Inventories

The allowances recognized on inventories developed as follows:

2011 2010

k€ k€

As at January 1st (2,800) (3,688)Currency adjustments 32 (65)Additions (1,309) (1,245)Utilization 133 1,961Releases 751 223Transfers 14Book value as at December 31 (3,193) (2,800)

Allowance on Inventories

Raw materials and supplies include CO2 emission certificates. The costs for these certificates

are considered part of the production costs. As of December 31, 2011, CO2 emission

certificates amounts to 13,882 k€ (PY: 17,224 k€).

The remaining raw materials und supplies slightly increased. Raw materials and supplies

include spare and replacement parts of 26,297 k€ (PY: 25,184 k€).


33

The increase of finished goods is mainly related to the German Building Materials business,

especially to new business activities in Italy and in connection with an African project executed

in the Netherlands.

Additions to allowances on inventories include additions from Xella Thermopierre S.A., Saint

Savin (567 k€) as well as smaller allowances from other entities .

The main deviation in releases of allowances was linked to Xella Building Materials Co., Ltd.,

Tianjin (545 k€), as older finished goods have been sold.

At the balance sheet date, inventories of 23,680 k€ (PY: 23,004 k€) were assigned as collateral

for liabilities.

7. Trade and Other Receivables

The balance of current trade and other receivables as at December 31, 2011 is shown in the

following table:

Dec. 31, 2011 Dec. 31, 2010

k€ k€

Trade receivables (current) 116,567 103,465Receivables from construction contracts 1,306 1,342Other receivables (current) 28,207 24,127Total 146,080 128,934

Trade and other receivables

Trade and other receivables of 65,610 k€ (PY: 52,559 k€) were assigned as collateral for the

liabilities of the Group.

The increase of trade receivables is primarily due to the positive development of sales within the

Xella Group.

The receivables from construction contracts refer to construction services in the Netherlands.

Other receivables include VAT reimbursement claims in the amount of 7,289 k€ (PY: 7,748 k€)

and mineral oil and energy tax reimbursement claims in the amount of 6,888 k€ (PY: 5,664 k€).

Allowances on current trade and other receivables developed as follows over the period:

2011 2010

k€ k€

As at January 1st (6,628) (5,040)Currency adjustments (63) (59)Additions (2,837) (3,473)Utilization 954 1,154Releases 1,084 790Book value as at December 31 (7,490) (6,628)

Allowance on trade and other receivables


34

The bad debt allowances contain specific valuation allowances and portfolio-based allowances

for specific categories of receivables. As soon as a receivable becomes uncollectable, the

allowance account is utilized to write it off. Subsequent collections of bad debts are posted to

profit or loss.

Additions to allowances include new allowances recognized in the Netherlands, in Italy and in

the Czech Republic.

Releases of allowances refer reversals, in particular in the Netherlands and Belgium.

Additions to allowances are reported under other operating and administrative expenses

(see note 18). The releases of allowances are posted to other operating income (see note 16).

The aging structure of trade receivables at the balance sheet date is presented below:

Total 0-3

months

3-6

months

6-12

months

>12

months

k€ k€ k€ k€ k€ k€ k€ k€

116,567 9,022 91,503 16,042 12,621 973 432 2,017

Trade receivables not written down but

overdue

Total book value

of trade

receivables as at

Dec. 31, 2011

Trade

receivables

written

down

Trade

receivables

not written

down and

not overdue

Total 0-3

months

3-6

months

6-12

months

>12

months

k€ k€ k€ k€ k€ k€ k€ k€

103,465 3,444 83,724 16,298 14,226 1,457 278 337

Total book value

of trade

receivables as at

Dec. 31, 2010

Trade

receivables

written

down

Trade

receivables

not written

down and

not overdue

Trade receivables not written down but

overdue

With regard to trade receivables not written down but overdue, there is no indication that the

respective debtors will not be able to meet their payment obligations.

8. Cash and Cash Equivalents

The following table shows the composition of cash and cash equivalents:

Dec. 31, 2011 Dec. 31, 2010

k€ k€

Cash in hand 209 177Bank balances 123,807 109,153Total 124,016 109,330

Cash and cash equivalents

Cash and cash equivalents comprised cash in hand and bank balances with a short maturity.

At the balance sheet date, cash and cash equivalents of 95,689 k€ (PY: 89,441 k€) were

assigned as collateral for liabilities. Nevertheless, these pledged cash balances are not


35

restricted and available for operational purposes of the respective Xella Group companies. Only

an amount of 2,818 k€ was restricted for the use of the Group.

In addition to the above mentioned cash balances as at December 31, 2011 the Xella Group

has committed and unutilized credit facilities from a bank syndicate amounting to 62,116 k€.

9. Equity

In the second quarter of 2011 Xella International S.A. increased its subscribed capital from

12,500 € to 31,000 €. This capital was paid cash and consists of 3,100,000 shares with a

nominal value of 0.01 € each.

The translation reserve reports the differences arising from translating assets and liabilities

carried by Group companies whose functional currency is not euro. In 2011 positive currency

adjustments of the shareholders’ equity related in particular to Hungary amounting to 3,572 k€,

Czech Republic amounting to 3,030 k€ and Mexico amounting to 725 k€. Negative currency

adjustments related to Poland amounting to 4,835 k€ and China amounting to 2,868 k€ each led

to a reduced shareholders’ equity.

Capital reserves include the premium paid by shareholders for share issues and other additional

paid-in capital.

The reserves also include changes in the fair value of available-for-sale financial assets

(securities) and derivative financial instruments.

As at December 31, 2011 an amount of 2,688 k€ (PY: 2,688 k€) has been posted to OCI related

to a net investment hedge which has been terminated in 2009.

Capital Management

Efficient capital structure management is one of the Xella Group's priority objectives, whereby

the composition of this structure is closely linked with the capital-intensive nature of the Building

Materials business.

Within the framework of the sale of the Xella Group in 2008, a Secured Facility Agreement

(SFA) was entered into by Xella and a syndicate of banks to finance the transaction.

The SFA includes financial covenants (such as the ratio of EBITDA to Net Cash Interest, Cash

Flow to Total Debt Service, Net Debt to EBITDA as well as the amount of capital expenditures)

which the Xella Group is obliged to comply with. No equity-based financial covenants are

included in the SFA.


36

On June 1, 2011 the Xella Group has drawn an additional loan under the existing SFA (Facility

D Loan). This loan has been funded from the issuance of Senior Secured Notes in the amount

of 300,000 k€, issued by a special purpose entity, Xefin Lux S.C.A.. The Facility D Loan / Bond

proceeds were used to fund a prepayment of Term Loan B and Term Loan C amounting to

125,000 k€, each. The remaining 50,000 k€ has been used to partly repay existing shareholder

loans granted by Xella International Holdings S.à r.l. to Xella International S.A. The liabilities in

the Consolidated Statement of Financial Position related to the SFA amounted to 408,880 k€

(PY: 663,397 k€) as at December 31, 2011.

According to the bond indenture and the respective covenant agreement the Xella Group is

obliged to fulfill certain covenants. The covenants under the bond indenture are defined as so

called incurrence based covenants. The compliance with such covenants needs to be proven in

case of the occurrence of certain defined events, whereas the financial covenants under the

SFA are defined as maintenance covenants. Compliance with these maintenance covenants

must be reviewed at the end of every quarter by means of defined tests and confirmation of

compliance provided to the banks.

The financial crisis has led the company to place a special focus on the maintenance and

consolidation of an appropriate equity base and compliance with the covenants. Due to

restrictive arrangements in the SFA, Xella adapted its financial targets to the financial

covenants. KPI for financial performance is Normalized EBITDA. Xella’s management has

maintained its strong focus on cost management and prudent capital expenditure.

As in prior years, in 2011 all covenant tests confirmed compliance with the financial covenants

as defined by the SFA.

From the SFA syndicate's as well as from the bond investor’s point of view, the shareholder

loans granted by Xella International Holdings S.à r.l., Luxembourg, are subordinated in relation

to the SFA and bond debt and therefore treated as equity substitutes by the banks involved in

the SFA.

10. Financial Liabilities

Financial liabilities include derivatives of 1,366 k€ (PY: 1,295 k€). The change of derivatives is

entirely due to fair value changes related to interest rate and FX rate changes.

The underlying FX forwards and interest caps are recognized at Xella International GmbH,

Duisburg / Germany for itself and for other subsidiaries.

The various categories and terms of current and non-current financial liabilities are shown in the

following table:


37

Dec. 31, 2011


k€ k€ k€ k€

Bank liabilities 409,394 18,865 303,750 86,779Bond liabilities 288,096 288,096Finance lease liabilities 10,531 1,555 6,351 2,625Liabilities to investments 87 87Liabilities to shareholders 869,000 517 868,483Other financial liabilities 13,365 10,783 986 1,596Total 1,590,473 31,807 311,087 1,247,579

Dec. 31, 2010


k€ k€ k€ k€

Bank liabilities 664,734 29,330 181,820 453,584Finance lease liabilities 12,275 1,847 6,081 4,347Liabilities to investments 128 88 40Liabilities to shareholders 863,659 633 863,026Other financial liabilities 10,605 8,574 1,955 76Total 1,551,401 40,472 189,896 1,321,033

Book value


(without derivatives) Maturity


(without derivatives)Book value

Maturity

Bank liabilities mainly consist of loans in the amount of 408,878 k€ (PY: 663,397 k€) which were

incurred in the course of the sale of the Xella Group. Bond liabilities amounted to 288,096 k€.

The combined SFA / Bond liabilities increased by 33,578 k€. The SFA liabilities contain

35,000 k€ drawn under the Capex / Acquisition Facility which has been utilized in 2011 for the

first time. Repayments on SFA liabilities amounted to 296,148 k€ whereof 250,000 k€ were

related to the issue of the Bonds. An additional reduction of SFA liabilities is related to currency

translation effects of 10,646 k€. This reduction is partly compensated by the release of the

accrued borrowing costs in the amount of 12,275 k€ related to the repayments of 250,000 k€.

The maturity of the financial liabilities shown above is based on the maturity date of the

underlying credit facilities.

There is only one significant finance lease of non-current assets of the Europor aerated

concrete facility (lease liability of 8,392 k€ (PY: 9,634 k€)) expiring on December 31, 2017.

The future minimum lease payments due to finance leases and their net present values are

summarized in the following table:


38

Dec. 31, 2011


k€ k€ k€ k€


Present value 10,531 1,555 6,351 2,625

Maturity


minimum lease

paymentsTotal

Dec. 31, 2010


k€ k€ k€ k€


Present value 12,275 1,847 6,081 4,347


minimum lease

paymentsTotal

Maturity

Liabilities to shareholders consist of shareholder loans of 857,261 k€ (PY: 851,892 k€) granted

by Xella International Holdings S.à r.l., Luxembourg, and XI Management Beteiligungs GmbH &

Co. KG, Germany, to Xella International S.A., Luxembourg, within the framework of the

acquisition of the Xella Group. The shareholder loans are subordinated in relation to the bond

liabilities as well as to the bank loans granted in connection with the sale of the Xella Group in

2008. The increase results from the accumulation of interest amounting to 55,370 k€ partly

compensated by a partial repayment amounting to 50,000 k€ in connection with the issuance of

Senior Secured Notes on June 1, 2011.

Liabilities to shareholders also include the portion of equity attributable to certain minority

shareholders which are classified as liabilities in accordance with IAS 32 in the amount of

10,219 k€ (PY: 10,184 k€).

Other financial liabilities include purchase price liabilities of 2,150 k€ (PY: 150 k€).

The following table contains an analysis of all financial liabilities on the basis of the respective

interest hedges.


39



Fixed

interest

period

Book value as

at Dec. 31, 2011

in k€

Type

of

interest

Weighted average


basis of carrying

amount in %


256,070 floating 4.091,160,721 fixed 6.97

55,877 floating 5.33EUR liabilities 1,508,616








0- 1 year

1-5 years

> 5 years

> 5 years

0- 1 year1-5 years

0- 1 year> 5 years

Financial liabilities (without derivatives) Fixed

interest

period

Book value as

at Dec. 31, 2010

in k€

Type

of

interest

Weighted average


basis of carrying

amount in %


159,081 floating 3.80867,448 fixed 6.74384,452 floating 4.78

EUR liabilities 1,454,577




thereof covered by interest hedges1,735 floating 5.33

Other foreign currency liabilities 1,735


Carrying amount of fixed interest financial liabilities 878,444

0- 1 year

1-5 years

> 5 years

> 5 years

0- 1 year1-5 years

0- 1 year

The carrying amounts of the floating rate financial liabilities generally correspond to their

respective fair values. The carrying amounts of fixed-interest financial liabilities relate to market

value of 1,366,812 k€ (PY: 1,156,852 k€).

The bank liabilities are secured by liens of 693,605 k€ (PY: 727,553 k€) in connection with the

SFA. The bond investors also indirectly benefit from the SFA security package. For further

information of the pledged assets please refer to the notes to the different asset categories. The

carrying amounts of investments in affiliates as well as intercompany receivables as shown in


40

the single entity financial statements are not considered in the determination of pledged assets,

although they are also pledged as collateral. Following the concept of the economic entity

(IAS 27.4) intercompany assets were eliminated.

11. Pension Provisions

Pension provisions are recognized to cover the obligations from current benefits and benefit

plans for old age, disability and surviving dependants’ pensions. The Group’s benefits vary

according to the prevailing local legal, tax and economic conditions in the respective country.

The post-employment benefits of the Xella Group include both defined contribution plans and

defined benefit plans. Other than the required premiums and contributions, defined contribution

plans do not lead to any further commitment. The contributions are reported under staff

expenses and amounted to 2,810 k€ (PY: 3,155 k€) in 2011.

Pension provisions for defined benefit plans are calculated on the basis of actuarial principles

using the projected unit credit method. The following parameters were applied for the German

companies, which account for the majority of the pension provisions:

Actuarial assumptions (German companies) Dec. 31, 2011 Dec. 31, 2010

% %

Discount rate 4.8 4.9Rate of pension progression 1.9 1.9Rate of salary-/ career increase 2.5 2.5

For the non-German companies, these assumptions vary from country to country and have the

following range:

• 3.6% to 7.8% (PY: 4.1% to 7.8%) for the discount rate,

• 2.0% to 4.5% (PY: 2.0% to 4.5%) for the salary trend,

• 1.0% to 4.5% (PY: 1.0% to 3.5%) for the pension trend.


41

Net pension provisions developed as follows:

2011 2010

k€ k€

DBL as at January 1st 124,576 127,394

Addition (+)/ disposal (-) Consolidation Group 435Currency adjustment (103) 136Transfer from current staff provisions 580 611Total neutral entries 912 747

Current service costs 3,565 2,793Amortisation of actuarial gains (-)/ losses (+) 563 277Amortisation of past service costs (7)Effects of curtailments/ settlements (312)Effects from changes in asset ceiling 245Staff expenses 4,061 3,063

Gross interest expenses 10,550 10,322Expected return on plan assets for the reporting period (3,130) (2,835)Interest costs 7,420 7,488

Pension payments and fund allocation (10,567) (14,116)Difference employee contribution DBO and plan assetsOther changes 80DBL as at December 31 126,482 124,576

Development of provision (DBL)

The pension costs consist of the following components:

2011 2010

k€ k€

Staff expenses 4,061 3,063Gross interest costs 10,550 10,322Expected return on plan assets for the reporting period (3,130) (2,835)Pension costs 11,481 10,550

Composition of pension costs

The defined benefit obligation developed as follows:

2011 2010

k€ k€

DBO as at January 1st 211,335 198,977

Addition (+)/ disposal (-) Consolidation Group 435Currency adjustment (103) 136Transfer from current staff provisions 580 611Total neutral entries 912 747

Experience adjustments of DBO (7,733) (2,733)Effects from changes in actuarial assumptions 821 11,548Total actuarial gains (-)/ losses (+) (6,913) 8,815

Current service costs 3,565 2,793Effects of curtailments/ settlements (312)Gross interest expenses 10,550 10,322Employee contributions to DBO 1,058 785Current payments (10,628) (10,729)Past service costsOther changes 7,922 (375)DBO as at December 31 217,490 211,335

Development of obligation (DBO)

The increase of “Other changes” to the DBO mainly results from the reclassification of a defined

contribution plan to a defined benefit plan in 2011.


42

The net pension provisions have been derived as follows:

2011 2010

k€ k€

DBO, unfunded 138,487 141,255DBO, funded 79,003 70,080DBO as at December 31 217,490 211,335

Effects from asset ceiling as at January 1st 218Effects from changes in asset ceiling as at December 31 245Total effects from asset ceiling 463

Fair value of plan assets as at December 31 (82,803) (65,087)Other amounts recognised in the statement of financial positionAccumulated actuarial gains (+)/ losses (-) (8,668) (21,672)Past service costsDBL as at December 31 126,482 124,576

Reconciliation of DBO to DBL

The development and the composition (portfolio) of the plan assets have been derived as

follows:

2011 2010

k€ k€

Fair value of plan assets as at January 1st 65,087 58,526

Experience adjustments of plan assets 5,529 (53)Expected return on plan assets for the reporting period 3,130 2,835Employee contribution to plan assets 1,058 785Employer contribution to plan assets 2,232 5,524Payments out of plan assets (2,293) (2,137)Effects of curtailments/ settlementsOther changes 8,060 (393)Fair value of plan assets as at December 31 82,803 65,087

Equity instruments 11,684 11,626Fixed-income securities 52,940 44,027Real estateOther components 18,179 9,433Fair value of plan assets as at December 31 82,803 65,087

Development of plan assets

The increase of “Other changes” to plan assets mainly results from the reclassification of a

defined contribution plan to a defined benefit plan in 2011.

The plan assets do not contain any financial instruments issued by the Xella Group or assets

used by the Group.

The plan assets and the status of the financing of the pensions developed as follows:

Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2009 Dec. 31, 2008

k€ k€ k€ k€

DBO, unfunded 138,487 141,255 133,953 125,391DBO, funded 79,003 70,080 65,023 75,545Fair value of plan assets (82,803) (65,087) (58,526) (66,520)Funded status excl. asset ceiling 134,687 146,248 140,450 134,416

Effects from asset ceiling 463 3,129Funded status incl. asset ceiling 135,151 146,248 140,450 137,545

Funded status


43

The calculation of the fair value of plan assets as of balance sheet date is reflected in the

expected return on plan assets. The expected return on plan assets is based on the expected

average returns from the investment categories in the past and those expected in future, which

are compared to the expectations of external sources.

2011 2010

% %

Equity instruments 6.0 6.5Fixed-income securities 3.0 4.0Other components 3.8 4.5

Expected rate of return on plan assets

2011 2010

k€ k€

Expected employer contribution to plan assets (expected for the following year)

2,674 2,261

Other disclosures for plan assets

The following table compares the expected and the actual return on plan assets and shows the

experience adjustments on DBO and plan assets:

2011 2010 2009 2008*

k€ k€ k€ k€

Actual return on Plan Assets 8,671 2,782 2,777 1,564Expected Return on Plan Assets 3,130 2,835 2,774 1,272Experience adjustments on Plan Assets 5,529 (53) 3 292Experience adjustments on DBO (7,733) (2,733) (1,185)* 4 months included

Return on plan assets and experience adjustments

The actual return from plan assets can diverge from the expected return on plan assets if the

capital markets do not develop as expected.

12. Other Provisions

Other provisions developed as follows:

As of

January 1st

Currency

adjustment

Additions/

disposals

ConsGroup

Discount

effect

Addition Transfer Release

(p&l)

Utilisation Book value

as at Dec.

31, 2011

k€ k€ k€ k€ k€ k€ k€ k€ k€

Staff provisions 12,929 (36) 105 36 3,518 580 (728) (3,459) 12,945

Provisions for environmental obligations 22,229 (82) 1,715 1,042 1,584 (512) (548) (1,109) 24,319

Provisions for vacating & demolition 2,411 (1) 87 176 512 (427) (339) 2,419

Warranty provisions (non-current) 61,545 61,545

Other long term provisions 6,551 108 12 (45) (12) 6,614

Other provisions (non-current) 44,120 (119) 1,820 1,273 66,835 535 (1,715) (4,907) 107,842

Staff provisions 20,564 (144) 20,371 (1,310) (2,122) (15,001) 22,358

Provisions for pending legal suits 3,638 (13) 1,320 (718) (776) 3,451

Warranty provisions (current) 27,299 (2) 7,190 (1,468) (4,304) 28,715

Restructuring provisions 4,196 (3) 575 150 (303) (671) 3,944

Provisions for onerous contracts 947 1 61 (114) (79) 816

Provisions for return pallets 3,124 (38) 2,976 (563) (1,186) 4,313

Provisions for production waste disposal 1,666 (9) 171 (1,075) (148) 605

Other short term provisions 28,830 (30) 861 45 (4,059) 25,647

Other provisions (current) 90,264 (238) 33,525 (1,115) (6,363) (26,224) 89,849

Total other provisions 134,384 (357) 1,820 1,273 100,360 (580) (8,078) (31,131) 197,691

Statement of Provisions 2011


44

As of

January 1st

Currency

adjustment

Additions/

disposals

ConsGroup

Discount

effect

Addition Transfer Release

(p&l)

Utilisation Book value

as at Dec.

31, 2010

k€ k€ k€ k€ k€ k€ k€ k€ k€

Staff provisions 13,541 5 250 3,513 (453) (3,927) 12,929

Provisions for environmental obligations 31,574 31 18 517 1,565 (10,743) (733) 22,229

Provisions for vacating & demolition 4,389 263 (483) 491 750 (2,868) (131) 2,411

Other long term provisions 8,314 104 (1,595) (272) 6,551

Other provisions (non-current) 57,818 36 531 138 5,569 750 (15,659) (5,063) 44,120

Staff provisions 22,275 71 (329) 17,937 (611) (2,218) (16,561) 20,564

Provisions for pending legal suits 3,834 (23) 660 (258) (575) 3,638

Warranty provisions (current) 26,935 9 49 6,378 (2,784) (3,288) 27,299

Restructuring provisions 6,988 7 (291) 822 (750) (789) (1,791) 4,196

Provisions for onerous contracts 1,182 4 63 (105) (197) 947

Provisions for return pallets 3,042 37 7 1,604 (623) (943) 3,124

Provisions for production waste disposal 1,439 (2) 319 (90) 1,666

Other short term provisions 28,242 (52) 2,933 (1,259) (1,034) 28,830

Other provisions (current) 93,937 51 (564) 30,716 (1,361) (8,126) (24,389) 90,264

Total other provisions 151,755 87 (33) 138 36,285 (611) (23,785) (29,452) 134,384

Statement of Provisions 2010

Non-current staff provisions particularly include obligations for jubilee benefits and the early

retirement scheme. The current staff provisions include bonuses and obligations from social

(redundancy) plans and severance payments.

Provisions for environmental obligations relate to recultivation and restoration obligations to

cover the cost of restoring quarries to an environmentally acceptable condition once exploitation

is finished. The provision is created in installments over the prospective operating life of the

respective quarry in keeping with the scope of the quarry's annual output. The provision is

measured on the basis of the estimated costs for removing the conveying equipment and

recultivating the sites on the basis of the actual output to date in relation to the total estimated

resources at the site.

Warranty provisions include provisions to remedy possible damages to buildings where there is

a legal, contractual or constructive obligation. From the end of 1987 to the beginning of 1996

former Haniel Baustoffwerke produced calcium silicate units at the plants in Issum, Ratingen,

and Kalscheuren (North Rhine-Westfalia). In primarily small format CSU the quicklime was

partially or totally replaced by a recycled product. The recycled product referred to was sourced

from the slurry left from scrubbing sulfur dioxide from the flue gas of power plants. The calcium

silicate units were tested using the customary technical processes of the day and passed all the

inspections. Although they displayed the required compressive strength after production, over

the years some of the calcium silicate units lost their compressive strength after being exposed

to permanent moisture with cracks resulting in the finished masonry. The plants named above

were closed down in the second half of the nineties on account of the general decline in the

construction industry.

When the damage first became apparent independent expert reports were commissioned.

These reports confirmed that there was no danger for the inhabitants of buildings that had been

constructed from the faulty bricks. The reports ruled out the sudden collapse of such buildings.


45

The Xella successor companies do not perceive a general liability to pay damages.

Nevertheless, taking account of the situation of each specific case, Xella generally agreed to

absorb the costs of the damage.

In 2011 two court cases were brought against Xella in which building owners sought damages

in addition to the cost of repairs for the alleged fall in the resale value of their buildings. These

cases were reported extensively in the media. Xella is aware that other building owners lodged

cases against Xella before the end of 2011. Most of these cases are independent proceedings

to clarify the evidence with the courts (Beweisverfahren) and declaratory proceedings

(Feststellungsverfahren).

Despite the fact, that the press had already reported about the production of calcium silicate

units from slurry from scrubbers for a number of years, they were the subject of extensive press

coverage and the latest reports and a joint declaration released by Xella and Haniel at the end

of 2011 led to a rise in the number of reported cases. This rise led us to increase the provision

for non-contractual payments for the cases communicated to us to 67,468 €. Thereoff 61,545 €

are classified as non-current and 5,923 € as current provisions. The higher number of cases

lodged in the meantime has not changed our assessment that there is, in fact, no general

liability to pay damages in these cases.

In the course of selling the Xella Group in 2008, the vendor, Haniel agreed to hold the Xella

Group harmless for all costs, expenses and liabilities directly related to these cases. Please

refer to note 4. Due to the fact that Haniel is liable under the purchase agreement for any

losses, Haniel and Xella have agreed that Haniel will be solely responsible for processing all

potential claims in future.

Current warranty provisions also include a provision recognized at Fels-Werke GmbH, Goslar /

Germany due to the contamination of a French gravel pit which was sold in 2004. The provision

amounts to 12,634 k€ (PY: 12,634 k€) and is also partly covered by hold-harmless agreements

with Haniel.

Additionally, we expect claims by building owners in connection with certain panels which had

been produced in a Dutch plant until 2006. Problems with the reinforcement could arise if these

panels are exposed to temperature fluctuations to a certain extent. Under certain circumstances

this can lead to cracks in the panels. The amount recognized as current warranty provision

(4,377 k€) is the best estimate of costs to settle potential legal or constructive obligations. This

amount is not netted against the partial insurance coverage.

The restructuring provisions cover all estimated costs for restructuring selected entities and

industries on the basis of restructuring plans. Expenses for the closure of business locations


46

over the past years (IAS 37.70 (b)) are considered first and foremost by recording impairment

losses on the assets concerned.

Other short term provisions include a provision for CO2 certificates in the amount of 13,882 k€

(PY: 17,224 k€) recognized at Fels-Werke GmbH, Goslar/ Germany. The decrease mainly

relates to lower market prices of CO2 certificates at the balance sheet date.

The other short term provisions also include tax risks relating to a past acquisition in the amount

of 10,719 k€ (PY: 10,719 k€) which are covered by hold-harmless agreements with Haniel.

As there have been transfers from current staff provisions to pension provisions, transfers do

not add up to zero.

According to current information the expected utilization of the other non-current provisions can

be summarized as follows:

Maturity


Staff provisions (non-current) 12,945 3,631 5,707 3,607Provisions for environmental obligations 24,319 1,395 4,144 18,780Provisions for vacating & demolition 2,419 350 1,432 637Warranty provisions (non-current) 61,545 61,545Other long term provisions 6,614 128 6,111 375Total 107,842 5,504 78,939 23,399

Other provisions (non-current)Book value

as at Dec.

31, 2011

Warranty provisions in this table represent possible future cash outflows that would partly lead

to cash inflows for Xella because certain risks are covered by the hold-harmless agreement with

Haniel.

13. Deferred Income

Deferred income in the amount of 5,696 k€ (PY: 6,396 k€) mainly includes government tax

grants related to the purchase of property, plant and equipment. In order to fulfill all the

conditions attached to grants there is usually a binding period during which the assets need to

remain part of the entity’s property, plant and equipment. For any grant shown as deferred

income there is no indication that any conditions attached to the grants will not be fulfilled.


47

14. Trade and Other Accounts Payable

Dec. 31, 2011 Dec. 31, 2010

k€ k€

Trade liabilities (current) 103,279 73,386Accrued expenses for invoices not yet received 38,583 32,943Customers with credit balances 2,633 3,298Subtotal: 144,495 109,627

Advance payments by customers 5,040 2,430Liabilities from construction contracts 3,072 7,212Accrued expenses for customer bonuses 45,213 38,298Accrued expenses for overtime 3,645 3,072Accrued expenses for holidays not yet taken 7,855 7,214Accrued audit fees 1,751 1,759Interest payable 3,426 836Sundry liabilities 35,480 35,441Total 249,977 205,889

Trade and other accounts payable (current)

The increase in trade liabilities and accrued expenses for invoices not yet received on the cut-

off date was mainly driven by higher liabilities related to capital expenditure as well as in general

higher purchasing activities, following increased business.

Sundry liabilities include other tax liabilities in the amount of 11,479 k€ (PY: 12,363 k€), social

security liabilities amounting to 7,313 k€ (PY: 7,054 k€), VAT liabilities in the amount of 2,131 k€

(PY: 2,807 k€) and payroll liabilities in the amount of 3,231 k€ (PY: 2,386 k€).

C. Notes to the Statement of Income – by nature of expense

The Statement of Income has been prepared using the nature of expense method.

15. Sales

The composition of sales (trade and service sales) is shown in the following table:

Jan. 1st -

Dec. 31,

2011

Jan. 1st -

Dec. 31,

2010

k€ k€

Trade sales 1,222,161 1,096,734Service sales 49,038 49,175Total 1,271,199 1,145,909

Sales

Sales increased significantly compared to prior year. In the Building Materials Business Unit

Xella was able to implement price increases in its core markets. Higher demand led to

significant growth in sales especially in Germany, other Western European countries, Poland,

Russia and China. In the Dry Lining Business Unit there was also a positive development in all


48

core markets with a growing share of sales outside of Germany. In particular, the cement

bonded boards business developed very positive in the reporting year. The Lime Business Unit

showed a strong performance in 2011 with sales volumes on a very high level compared to prior

years.

Please refer to note 27 for the allocation of sales to segments.

16. Other Income

Jan. 1st -

Dec. 31,

2011

Jan. 1st -

Dec. 31,

2010

k€ k€

Rental and similar income 1,966 2,113Income from disposal of non-current assets 3,386 3,727Income from refund of electricity and mineral oil tax 346 79Other operating income 80,420 28,139Total 86,118 34,058

Other income

The increase of other income results from higher other operating income. This relates to the

increase of the receivable in the amount of 58,014 k€ (PY: 1,518 k€) carried by XI (BM)


GmbH, Duisburg / Germany. This receivable represents a number of potential claims against

Haniel which were agreed on by the buyer and seller during the sale of the Xella Group. They

relate to hold-harmless agreements for certain tax obligations, warranty obligations and other

risks. Please refer to note 4.

17. Staff Expenses

Jan. 1st -

Dec. 31,

2011

Jan. 1st -

Dec. 31,

2010

k€ k€

Wages & salaries (w/o release of staff provisions) (239,437) (229,095)Social security expenses (49,176) (46,799)Other employee benefits (5,984) (5,012)Pension expenses (6,871) (6,218)Release of staff provisions 2,851 2,671Total (298,617) (284,453)

Staff expenses

Pension expenses include pension expenses for defined benefit plans of 4,061 k€ (PY:

3,063 k€) (see note 11).

With respect to the release of staff provisions please refer to note 12.

At the balance sheet date the Group had 7,297 employees (headcount) (PY: 7,107).


49

The Group employed 6,946 full time persons (PY: 6,747) broken down by category as follows:

production 4,781 (PY: 4,609), sales 1,419 (PY: 1,385) and administration 746 (PY: 753).

18. Other Expenses

The composition of other expenses is shown in the following table:

Jan. 1st -

Dec. 31,

2011

Jan. 1st -

Dec. 31,

2010

k€ k€

Other taxes (6,716) (6,744)Impairment of receivables (2,837) (3,480)Loss from disposal of non-current assets (544) (1,156)Legal and consulting fees (10,249) (10,219)Repairs & maintenance (51,615) (46,439)Advertising & marketing expenses (22,812) (21,058)Labour leasing & freelancer (12,500) (8,627)Result from foreign exchange transactions (operating activ) 57 249Insurance (4,747) (5,480)Travelling expenses (10,851) (10,122)Data and telecommunication expenses (3,551) (3,685)Expenses for IT service providers (9,223) (8,466)Expenses for human resource development and recruitment (3,931) (2,695)Material testing, examination & monitoring (3,716) (3,016)Waste disposal expenses (2,234) (2,077)Cleaning expenses (3,991) (3,616)Additions to warranty provisions (68,735) (6,143)Other operating and administrative expenses (57,411) (36,726)Total (275,606) (179,500)

Other expenses

Many of Xella’s other expenses positions are in general related to our business activities

(for example repairs & maintenance as well as labour leasing). Therefore expenses increased

compared to prior year, as our sales volume increased.

Other taxes include real estate tax, car tax etc.

Impairments of receivables include impairments of trade and other receivables of 2,837 k€

(PY: 3,473 k€). Please refer to note 7.

The losses from disposals of non-current assets relate mainly to the loss from disposal of

intangible assets (418 k€).

Additions to warranty provisions are mainly attributable to new warranty claims for damaged

buildings (61,042 k€ / PY: 3,863 k€). Please refer to note 12. This amount is covered by a

receivable against Franz Haniel & Cie. GmbH, Duisburg/ Germany (corresponding increase of

income in Other Income).

Other operating and administrative expenses comprise many different items, such as energy

expenses (non-production), audit fees, charges and contributions, commissions and expenses


50

for office supplies. The increase of other operating and administrative expenses mainly relates

to a higher release of provisions for recultivation at the Lime segment in 2010 comparing to

2011. These provisions are included in the provisions for environmental obligations (see note

12).

According to current information, the expected future minimum payments for operating leases in

the coming years amount to:

Maturity

Total 0-1 year 1-5 years > 5 years Total 0-1 year 1-5 years > 5 years

k€ k€ k€ k€ k€ k€ k€ k€

57,878 10,506 17,702 29,670 56,692 10,028 16,158 30,506

2010

Total future

mimium lease

payments

2011

The operating leases relate primarily to real estate (plants as well as the central office building

in Duisburg-Huckingen/Germany), vehicles and other leasing expenses e.g. fork lifts.

Centralized in Xella Technologie- und Forschungsgesellschaft mbH, Duisburg/ Germany,

Xella’s expenses for research and development amounted to 3,688 k (PY: 3,796 k€). Staff

expenses in the amount of 2,221 k€ were included (PY: 2,415 k€), whereas depreciation is

excluded.

19. Result from Other Investments

Jan. 1st -

Dec. 31,

2011

Jan. 1st -

Dec. 31,

2010

k€ k€

Income from available-for-sale investments 780 567Expenses from available-for-sale investments (51)Impairment of available-for-sale investments (227) (9)Total 502 558

Result from other investments

Income from available-for-sale investments in the amount of 780 k€ (PY: 567 k€) mainly

pertains to dividends from investments accounted for at cost. The biggest portion relates to

Baustoffwerke Münster-Osnabrück GmbH & Co. KG, Osnabrück / Germany, which distributed a

dividend of 623 k€ (PY: 482) k€. The impairment of (227 k€) relates to a Greek investment.


51

20. Finance Costs

Jan. 1st -

Dec. 31,

2011

Jan. 1st -

Dec. 31,

2010

k€ k€

Interest expenses (third parties) (98,010) (91,439)Interest expenses for debentures & other bonds (14,000)Interest expenses for net pension provisions (7,420) (7,488)Interest expenses for other provisions (1,273) (1,467)Others (3,408) (7,429)Total (124,111) (107,823)

Finance Costs

Interest expenses (third parties) includes an amount of 55,370 k€ (PY: 54,562 k€) pertaining to

the accumulation of accrued interest for shareholder loans. Further major effects relate to

interest on bank liabilities which were taken out in the course of the sale of the Xella Group as

well as to the interest on bond liabilities related to the issuance of Senior Secured Notes on

June 1, 2011. For both effects please refer to note 10.

Please refer to the explanations in notes 11 and 12 with regard to interest expenses for pension

and other provisions.

21. Other Financial Result

Jan. 1st -

Dec. 31,

2011

Jan. 1st -

Dec. 31,

2010

k€ k€

Interest income 1,853 969Result from non-hedge derivatives (financial activities) 835 (134)Profit from foreign exchange transactions (financial activities) 11,098 8,487Loss from foreign exchange transactions (financial activities) (13,737) (10,856)Others 1,329Total 49 (205)

Other financial result

The result from non-hedge derivatives mainly relates to fair value changes of currency and

interest instruments.

In 2010 other financial income was due to an increase in interest rates for non-current

provisions.


52

22. Income Taxes

In 2011 deferred tax assets of 20,176 k€ (PY: 3,619 k€) were recognized on unused tax losses

with an effect on income. Impairments of 942 k€ (PY: 2,805 k€) were recorded on deferred tax

assets in 2011 while prior impairments in the amount of 1,762 k€ (PY: 397 k€) were reversed.

The expected tax rate for the Xella Group is 29.0 % (PY: 29.0 %).

The reported current tax burden is reconciled to the imputed tax burden based on a tax rate of

29.0 % (PY: 29.0 %) in the table below:

Jan. 1st -

Dec. 31,

2011

Jan. 1st -

Dec. 31,

2010

k€ k€

Profit/ loss before tax (27,640) (13,932)Expected income taxes 8,016 4,040

Foreign tax rate differential (631) 389Tax effect from non-deductible expenses (2,526) (3,353)Tax effect from tax-exempt income 18,879 1,832Addition to/ release of allowances 738 (2,409)Effects from tax rate and tax law changes 2,006 1,291Deferred tax asset not recognized on taxable loss of the current year (6,515) (6,142)Effects resulting from the use of loss carryforwards previously not recognized as tax assets 862 666Taxes for prior years 457 2,595Tax effect from interest capping rules including effects from interest deduction carryforwards (13,441) (9,899)Special tax effects Germany (942) (1,813)Special tax effects other countries (222)Other tax effects (1,583) (742)Reported income taxes 5,098 (13,545)

Group income tax rate for the reporting year (%) 29.00 29.00

Tax rate reconciliation

The decrease of the reported income taxes mainly derives from the positive development of tax-

exempt income in the German Building Materials segment.

Income taxes include corporate income tax, the solidarity surcharge and trade tax, to the extent

that German companies are required to pay them.


53

D. Other Notes to the Consolidated Financial Statements

23. Financial Risk Management

In the course of its operating activities, the Xella Group is exposed to financial risks. These

chiefly relate to liquidity risks, credit risks, risks from changes of interest rates and exchange

rates as well as other market risks such as price movements on the commodity markets. The

goal of financial risk management is to reduce financial risks.

The management sets the general guidelines for financial risk management and determines the

general procedure for hedging against financial risks. The Xella Group has its own treasury

department which, after identifying, analyzing and assessing the financial risks, takes action to

avoid or mitigate such risks. It advises subsidiaries and, in addition to its own hedging activities,

also enters into hedge relationships for the subsidiaries.

Liquidity Risk

Liquidity risk is understood as the risk of the Xella Group not being in the position to meet its

ongoing payment obligations at any time. The liquidity risk is managed by means of centralized

financial planning which provides the required funding for operations and capital expenditures.

Within the framework of the acquisition of the Xella Group, the owners agreed on a Secured

Facility Agreement with a large number of banks to secure fixed financing. The credit lines

under the agreement have terms of up to 2017. The repayment obligations from these lines of

credit are moderate in scope. For example, only 41,352 k€ (PY: 29,147 k€) was scheduled for

2012. On December 30, 2011 an amount of 20,408 k€ of this repayments due in 2012 have

already been prepaid. The outstanding repayment obligation on SFA debt has therefore been

reduced to 20,944 k€. In addition, the high amount of unused credit lines as well as the

available cash secures adequate financing to fund operating business and other investments.

Credit Risk

Credit risk is understood as the risk that a debtor of the Xella Group is not in the position to

meet its payment obligations. Xella is exposed to credit risks from both its operating business,

from the use of financial instruments and from deposited cash.

Based on the Group’s internal assessment of the risks, loans to associates and other loans (in

the current year mainly consisting of the non-current portion of the indemnity receivable from

Franz Haniel & Cie. GmbH, Duisburg / Germany) of 64,283 k€ (PY: 3,901 k€) are exposed to a

low level of credit risk.

The diversification of the Xella Group and the number of existing customers with low individual

receivables results in no concentration of credit risks associated with trade receivables and


54

similar receivables. For this reason, the Group considers credit risk exposure to be immaterial.

At worst case the maximum credit risk from such receivables amounts to total receivables less

existing trade credit insurances:

The credit risk associated with derivative financial instruments does not exceed the fair value of

the positive market values of the derivatives entered into. Due to the fact that derivative financial

instruments are only entered into with banks with solid credit ratings, these risks are low. There

are no identifiable concentrations of credit risk from business relationships with single debtors or

groups of debtors.

Interest Risk

Interest risks are understood as the negative impact of fluctuating interest rates on the net profit

of the Group. Derivative financial instruments are used to limit the interest risk. At present these

consist solely of interest caps. The decision on whether to use derivative financial instruments is

based on the projected debt and the expected interest rates. The interest hedging strategy is

reviewed at regular intervals and new targets are defined. As at December 31, 2011 interest

rate hedges in form of interest rate caps with a cap strike rate of 3,50% existed for a nominal

value of 400,000 k€ (PY: 1,000,000 k€). The Facility D Loan funded from the Senior Secured

Notes issued in 2011 has a fixed interest rate of 8% which reduces the interest risk, additionally.

The interest sensitivity analysis presented below shows the hypothetical effects which a change

in the market interest rate at the balance sheet date would have had on the pre-tax profit and on

equity. It is assumed here that the exposure at the balance sheet date is representative of the

year as a whole and that the assumed change in the market interest rate at the balance sheet

date was possible.

Hypothetical increases/decreases of one percentage point in the market interest rate would

have had the following impact on the profit/loss before tax and on equity:

Profit/ loss

before taxEquity

Profit/ loss

before taxEquity

k€ k€ k€ k€

(4,866) (3,455) 4,866 3,455


Increase Decrease

Profit/ loss

before taxEquity

Profit/ loss

before taxEquity

k€ k€ k€ k€

(6,551) (4,651) 6,551 4,651

Increase Decrease



55

Currency Risk

Currency risks arise from investing and financing activities conducted in foreign currency as well

as from operating activities due to the purchase and sale of merchandise in foreign currency.

Forward exchange contracts and currency options are used to hedge against currency risks.

Foreign exchange exposure is mainly secured by micro-hedges. This involves a direct hedge of

the underlying transaction by means of a foreign exchange derivative, generally a forward

exchange contract. In addition, currency derivatives are used to hedge forward transactions in

foreign currency. This involves selecting the currency derivative (or a combination of several

derivatives) which best reflects the likelihood of occurrence and timing of the forward

transaction.

The sensitivity analysis of foreign exchange exposure shows the theoretical impact of a change

in the key exchange rates for the Xella Group on the pre-tax result and equity. This foreign

exchange sensitivity analysis is based on the primary and derivative financial instruments on the

balance sheet date. It is assumed that the exchange rates on the balance sheet date change by

the percentage stated. Movements over time and the changes in other market parameters

observed in reality are not considered in this analysis.

Hypothetical increases/decreases of 10% in the relevant exchange rates at Xella (CZK, HUF,

and PLN) would have had the following impact on the profit/loss before tax and on equity:

Profit/ loss

before taxEquity

Profit/ loss

before taxEquity

k€ k€ k€ k€

CZK (1,137) (910) 1,390 1,112HUF 670 536 (819) (655)PLN 2,199 1,781 (2,688) (2,177)


Currency

Increase Decrease

Profit/ loss

before taxEquity

Profit/ loss

before taxEquity

k€ k€ k€ k€

CZK (1,526) (1,236) 1,865 1,510HUF 951 770 1,162 (941)PLN 1,955 1,583 (2,389) (1,935)

Currency

Increase Decrease



56

Other Market Risks

Other market risks relate to the risk of price fluctuations in the commodities markets which are

partly secured against by means of long-term supply agreements.

Derivative Financial Instruments

A breakdown of derivative financial instruments in accordance with the hedge strategy pursued

by Xella is provided below:

Derivative financial instruments Dec. 31,

2011

Dec. 31,

2010

Fair value Fair value

k€ k€

Interest instruments with a positive market value 2 540Currency instruments with a positive market value 2,419 661Total 2,421 1,201

Currency instruments with a negative market value 1,366 1,295Total 1,366 1,295

The next table shows the contractually agreed, undiscounted debt service payments due on the

primary financial liabilities and derivative financial assets and liabilities over time:

Debt service payments* 2012 2013 2014-2016 2017-2021 2022 and

thereafter

k€ k€ k€ k€ k€

Bank liabilities (45,050) (79,545) (296,659) (91,142)Bond liabilities (24,000) (24,000) (72,000) (336,000)Finance lease liabilities (1,994) (1,918) (5,494) (2,934)Liabilities to investments (87)Liabilities to shareholders (517) (1,111,749) (20,097)Other financial liabilities (11,534) (1,750) (2,230)Financial liabilities (without derivatives) (83,183) (107,213) (1,485,902) (452,403)

(49,970)52,122

(69,757)64,607

Derivative financial instruments (2,998)

* (-) payments made/ (+) payments received

Derivative financial assets

Derivative financial liabilities

Cash flows related to liabilities to shareholders taken in relation to the sale of the Xella Group in

2008 have been calculated based on the assumption that full repayment will occur on

December 31, 2015 (i.e. diverging from the contractually agreed maturity date which is

December 31, 2058). The contractually agreed cash flows on these shareholder loans would be

21,760,149 k€ in 2058 (instead of 1,111,749 k€ in 2015).


57

On call liabilities have been allocated to the earliest possible period in the table.

Reconciliation of Financial Instruments to IAS 39 Categories – Assets

Book value as

at Dec. 31,

2011

Financial assets

at fair value

through profit

and loss

Financial

assets held for

trading

Loans and

receivables

Available-for-

sale

investments

No IAS 39

category/

Outside the

scope of IFRS 7

Fair value

k€ k€ k€ k€ k€ k€

Loans 60,041 60,041 60,041Other investments 12,290 9 12,281 12,290Financial assets (non-current) 72,331 9 60,041 12,281 72,331

Trade and other receivables (non-current)

Trade receivables (current) 116,567 116,567 116,567Receivables from construction contracts 1,306 1,306 1,306Other receivables (current) 26,936 11,021 15,915 26,936Trade and other receivables (current) 144,809 128,894 15,915 144,809

Derivatives 2,421 2,421 2,421Receivables from associates (at equity) (current) 1,021 1,021 1,021Receivables from shareholders (current) 1,454 1,454 1,454Other financial assets (current) 34,733 34,733 34,733Financial assets (current) 39,629 2,421 37,208 39,629

Cash and cash equivalents 124,017 124,017 124,017

Reconciliation of financial assets to IAS 39

categories

Book value as

at Dec. 31,

2010

Financial assets

at fair value

through profit

and loss

Financial

assets held for

trading

Loans and

receivables

Available-for-

sale

investments

No IAS 39

category/

Outside the

scope of IFRS 7

Fair value

k€ k€ k€ k€ k€ k€ k€

Loans 2,875 2,875 2,875Other investments 12,451 9 12,442 12,451Financial assets (non-current) 15,326 9 2,875 12,442 15,326

Trade and other receivables (non-current) 182 182 182

Trade receivables (current) 103,465 103,465 103,465Receivables from construction contracts 1,342 1,342 1,342Other receivables (current) 24,127 9,736 14,391 24,127Trade and other receivables (current) 128,934 114,543 14,391 128,934

Bank balances with no short maturity 262 262 262Derivatives 1,201 1,201 1,201Receivables from associates (at equity) (current) 984 984 984Receivables from other investments (current) 36 36 36Receivables from shareholders (current) 1,260 1,260 1,260Other financial assets (current) 44,370 44,370 44,370Financial assets (current) 48,113 1,201 46,912 48,113

Cash and cash equivalents 109,330 109,330 109,330

Reconciliation of financial assets to IAS 39

categories

The fair value of financial instruments traded on an active market is based on the market price

on balance sheet date. As at December 31, 2011 other investments include investments

valued at stock market prices of 1,048 k€ (PY: 1,084 k€) (IFRS 7 valuation level 1).

The above listed derivatives are valued on the basis of observable market data such as interest

rates and foreign exchange rates (level 2 of the IFRS 7 valuation categories).

The fair value of financial instruments that are not based on observable market data

(unobservable inputs) is determined with the aid of valuation techniques, primarily the

discounted cash flow method (IFRS 7 valuation level 3).


58

Reconciliation of Financial Instruments to IAS 39 Categories – Liabilities

Book value as

at Dec. 31,

2011

Financial

liabilties held

for trading

Other financial

liabilities

No IAS 39

category/

Outside the

scope of IFRS 7

Fair value

k€ k€ k€ k€ k€

Bank liabilities (non-current) 390,529 390,529 390,529Bond liabilities (non-current) 288,096 288,096 411,575Finance lease liabilities (non-current) 8,976 8,976 10,090Liabilities to shareholders (non-current) 868,483 868,483 1,061,231Other financial liabilities (non-current) 2,582 2,582 3,707Financial liabilities (non-current) 1,558,666 1,549,690 8,976 1,877,133


Trade liabilities (current) 103,279 103,279 103,279Advance payments by customers 5,040 5,040 5,040Liabilities from construction contracts 3,072 3,072 3,072Other liabilities (current) 33,762 9,171 24,591 33,762Trade and other liabilities (current) 145,153 112,450 32,703 145,153

Bank liabilities (current) 18,865 18,865 18,865Finance lease liabilities (current) 1,555 1,555 1,555Liabilities to investments (current) 87 87 87Liabilities to shareholders (current) 517 517 517Derivatives 1,366 1,366 1,366Other financial liabilities (current) 10,783 10,783 11,505Financial liabilities (current) 33,173 1,366 30,252 1,555 33,895

Reconciliation of financial liabilities to IAS 39

categories

Book value as

at Dec. 31,

2010

Financial

liabilties held

for trading

Other financial

liabilities

No IAS 39

category/

Outside the

scope of IFRS 7

Fair value

k€ k€ k€ k€ k€

Bank liabilities (non-current) 635,404 635,404 656,106Finance lease liabilities (non-current) 10,428 10,428 11,172Liabilities to investments (non-current) 40 40 40Liabilities to shareholders (non-current) 863,026 863,026 1,138,272Other financial liabilities (non-current) 2,031 2,031 3,400Financial liabilities (non-current) 1,510,929 1,500,501 10,428 1,808,991


Trade liabilities (current) 73,386 73,386 73,386Advance payments by customers 2,430 2,430 2,430Liabilities from construction contracts 7,212 7,212 7,212Other liabilities (current) 34,689 9,674 25,015 34,689Trade and other liabilities (current) 117,717 83,060 34,657 117,717

Bank liabilities (current) 29,330 29,330 30,286Finance lease liabilities (current) 1,847 1,847 1,979Liabilities to investments (current) 88 88 88Liabilities to shareholders (current) 633 633 633Derivatives 1,295 1,295 1,295Other financial liabilities (current) 8,574 8,574 9,207Financial liabilities (current) 41,767 1,295 38,625 1,847 43,487

Reconciliation of financial liabilities to IAS 39

categories

The fair values of the non-current financial liabilities are generally determined by discounting

future contractually agreed cash flows at the current market rate. The fair value for non-current

liabilities to shareholders stated above has been calculated based on the assumption that full

repayment will occur on December 31, 2015 (i.e. diverging from the contractually agreed

maturity date which is December 31, 2058). The fair value based on contractually agreed

maturity date would be 6,689,894 k€ instead of 1,061,231 k€.

Due to their short terms, the fair value of current trade and other liabilities and current financial

liabilities correspond to their carrying amounts.


59

The net result of IAS 39 categories breaks down as follows:

Jan. 1st -

Dec. 31,

2011

Jan. 1st -

Dec. 31,

2010

k€ k€

Result from financial assets held-for-trading 835 (134)Result from available-for-sale investments 516 558Result from loans and receivables 214 (1,471)Result from other financial liabilities (117,849) (99,907)Total (116,298) (100,954)

Net result of IAS 39 categories

The net result of the above categories under IAS 39 is distributed among the following line items

of the Statement of Income: other income, other expenses, result from other investments,

financial expenditure, other financial result. Result from other financial liabilities mainly consists

of interest expenses to third parties of 85,843 k€ (PY:88,515 k€), interest expenses on bond

liabilities of 14,000 k€ (PY: 0 k€) and 12,786 k€ (PY: 2,923 k€) amortization of financing fees

incurred in connection with the SFA financing in 2008.

24. Contingencies

As far as exact figures can be estimated, as at December 31, 2011 there are contingent

liabilities of 4,040 k€ (PY: 4,345 k€) and contingent assets of 3,540 k€ (PY: 4,148 k€).

Because of the long useful life of certain of the products, it is possible that latent defects might

not appear for several years. In isolated cases this may lead to obligations which cannot be

estimated at present in terms of amount or their impact on the net assets, financial position and

results of earnings.



Baustoffwerke from certain plants in North Rhine-Westphalia, Germany, between end of 1987

and the beginning of 1996. Calcium silicate units had been produced in the relevant period

applying an alternative production method, which substituted another product for lime. Although

the relevant calcium silicate units displayed the required compressive strength immediately after

production, over the years some of the calcium silicate units lost their compressive strength

after being exposed to permanent moisture with cracks resulting in the finished masonry.

All identifiable risks are covered by appropriate provisions such as the (constructive) provisions

for possible building damages (see note 12) in connection with the delivery of these calcium

silicate units which had been produced in the relevant period applying an alternative production

method, which substituted another product for lime. In this special case, payments exceeded


60

the provision may (according to the SPA) be claimed back by XI (BM) Holdings GmbH,

Duisburg / Germany from Franz Haniel & Cie. GmbH, Duisburg / Germany as it is covered by

respective hold-harmless agreements (see note 4)

Contingent liabilities include an amount of 3,540 k€ (PY: 3,540 k€) due to the contamination of a

French gravel pit. In this context a provision has also been recognized in the Consolidated

Statement of Financial Position. The exceeded maximum risk is presented as contingent

liability. XI (BM) Holdings GmbH, Duisburg/ Germany, holds contingent assets in the same

amount relating to the contingent liability for the French gravel pit. If the amount is paid by Fels-

Werke GmbH, Goslar / Germany the money may be claimed back by XI (BM) Holdings GmbH,

Duisburg/ Germany as it is covered by respective hold-harmless agreements with Haniel. For

further details please also refer to note 4.

25. Corporate Acquisitions and Divestments

In the reporting period, the Xella Group's Building Materials segment acquired control of the

companies Xella Pontenure s.r.l., Pontenure / Italy (100.0%, September 30, 2011) and Xella

Teodory S.A., Warsaw / Poland (93.7%, March 02, 2011).

The following assets and liabilities were acquired in connection with business combinations in

the financial year 2011.

Carrying

amountRevaluation Fair value

k€ k€ k€

Property, plant and equipment 34,502 (2,751) 31,751Intangible assets 3,680 (880) 2,800Deferred tax assets 1,383 965 2,348

Non-current assets 39,565 (2,666) 36,899

Inventories 95 1,043 1,138Trade and other receivables 619 299 918Cash and cash equivalents 15 15Deferred expenses 8 8

Current assets 737 1,342 2,079

Total assets 40,302 (1,324) 38,978

Financial liabilities 23,921 (6,926) 16,995Pension provisions 532 (97) 435Other provisions 1,820 1,820

Non-current liabilities 26,273 (7,023) 19,250

Financial liabilities 354 6,926 7,280Trade and other accounts payable 827 4,372 5,199Deferred income 59 59

Current liabilities 1,240 11,298 12,538

Total liabilities 27,513 4,275 31,788

Assets and liabilities acquired in connection

with business combinations


61

Trade and other receivables as well as current financial assets acquired amounted to 1,068 k€

and were reduced by bad debt allowances of 168 k€. As at the acquisition date, the bad debt

amount was not expected to be recovered. No contingent liabilities were provided for in the

course of first consolidation. The acquired entities are initially consolidated on the basis of

provisional figures. If applicable, the final figures will be restated within one year in compliance

with IFRS 3.45 et seq. No changes were made in respect of acquisitions made in 2010.

Since initial consolidation the stand-alone contribution of the acquired entities was 3,375 k€ in

sales and 1,215 k€ in losses. Had the entities been consolidated as at January 01, 2011 the

acquired companies would have contributed sales of 19,586 k€ and net loss after taxes of 142

k€ during the reporting period.

The decisions to acquire the above companies were based on market and growth opportunities,

general strengthening of the market position, and synergy effects.

Total acquisition costs were 17,388 k€ of which 10,074 k€ was paid in cash. An amount of

2,000 k€ has not yet been paid.

The shareholding in Xella Pontenure s.r.l., Pontenure / Italy, in which Xella had already held an

indirect 44% share were increased to 100% now directly held. Part of the acquisition costs

therefore consisted of the investment already existing in the previous year. The fair value of the

shares already held prior to first consolidation was close to the carrying amount.

In total, these acquisitions resulted in additions to goodwill of 10,101 k€ based on synergy

effects, a strengthening of the market position and growth opportunities.

In addition to the aforementioned acquisitions the Group acquired additional shares in Siporex

dd, Tuzla, Bosnia-Herzegovina (also Building Materials segment - increase from an 88.51% to

93,32% holding) by means of transactions not leading to changes of control. The purchase price

of 98 k€ was paid in cash for shares held by owners of non-controlling interest in the amount of

(210) k€. The difference was allocated to profit reserves applying IAS 27 revised 2008.

26. Consolidated Statement of Cash Flows

The Consolidated Statement of Cash Flows pursuant to IAS 7 presents the changes in cash

and cash equivalents at Xella International S.A., Luxembourg, in the course of the reporting

period due to cash inflows and cash outflows. It is classified by cash flows from operating,

investing, and financing activities.

The cash flows are derived using the indirect method from the consolidated net profit or loss for

the year.


62

The balance of cash and cash equivalents reported on balance sheet date is the sum of cash in

hand and bank balances with a short maturity and checks.

Changes of trade working capital and changes in other working capital are largely included in

the notes to the Consolidated Statement of Financial Position and to the Statement of Income.

Foreign exchange effects, non-cash changes of CO2 certificates, interest components of

pension liabilities and other non-current provisions as well as other non-cash effects are

eliminated. Also eliminated are the non-cash effects of the changes of non-current and current

receivables from the indemnity by Franz Haniel & Cie GmbH, Duisburg / Germany, and of the

provisions related thereto.

The cash flow from operating activities contained taxes paid on income of 23,451 k€ (PY:

26,914 k€).

Non-cash investments in non-current property, plant and equipment in the form of finance

leases did not occur in the reporting year (PY: 0 k€).

In the year under review, cash flows from investing activities included the acquisition of two

companies in the Polish and Italian Building Materials segment. Cash compensation for the

business combinations was 10,074 k€ while acquired cash amounted to 15 k€. Xefin Lux

S.C.A., Luxembourg, was consolidated as a special purpose entity for the first time without

being held by the Group and contributed 31 k€ in acquired cash.

The acquisition of additional shares in consolidated subsidiaries without change of control is

shown under financing activities as stipulated by IAS 7 revised 2008.

In the prior year, one company in the German Building Materials segment and one in the Lime

segment were acquired. Cash compensation for the business combinations was 5,615 k€ while

acquired cash amounted to 34 k€. A payment of 650 k€ still outstanding at 2009 balance sheet

date was effected for a previous business combination in the prior year. One Chilean Building

Materials unit was sold for a cash consideration of 2,644 k€. The cash disposed of in the course

of such sale was 116 k€.

Additions to other non-current and current financial assets (983 k€, PY: 825 k€), mainly loans,

also contained additions to available-for-sale investments (109 k€, PY: 10 k€).

Disposals of other non-current and current financial assets (6,793 k€, PY: 5,955 k€) mainly

related to the repayment of various loans and other financial receivables as well as dividends

received from associated companies at equity in the amount of 984 k€ (PY: 1,223 k€).

The cash flow from investing activities contains interest received of 1,740 k€ (PY: 826 k€) and

dividends received of 780 k€ (PY: 972 k€).


63

Cash paid and received from financing activities in the reporting year does not include capital

contributions (PY: 0 k€). Payments made to non-controlling interests comprise dividends of

corporations (2,089 k€, PY: 752 k€).

Acquisitions of additional shares in a Bosnian Building Materials company were paid in cash (98

k€). In the previous year, the cash purchase prices for the remaining shares in a Russian and a

German Building Materials company as well as for other acquisitions of additional shares in

companies already consolidated in the Building Materials segment totaled 2,912 k€.

Cash interest payments amounted to 56,967 k€ (PY: 42,405 k€) including financing fees

(13,846 k€, PY: 0 k€). 619 €k was capitalized as part of capital expenditure (PY: 0 k€). The

Xella Group is not required to pay accrued interest on shareholders loans under the

Shareholder Loan Agreements.

On June 1, 2011 Xella successfully completed the offering of 300,000 k€ aggregate principal

amount of 8% Senior Secured Notes due 2018 in a private placement to qualified institutional

buyers. The gross proceeds of the offering of the Senior Secured Notes were used to refinance

an aggregate principal amount of 250,000 k€ under the existing Senior Facilities Agreement and

50,000 k€ of shareholder loans.

Acquisition Facilities of 40,000 k€ were drawn under the Senior Facilities Agreement 5,000 k€ of

which were repaid during the reporting period. No additional shareholder loans were granted in

the year under review (PY: 10,000 k€).

Unscheduled repayments of financial debt in total amounted to 357,224 k€ (PY: 57,902 k€)

including no minority shares in the profit distribution of limited partnerships (PY: 148 k€) in

accordance with IAS 32.

27. Segment Reporting

As at December 31, 2009, Xella adopted IFRS 8 “Operating Segments”. IFRS 8 requires the

management approach for segment reporting. Accordingly, the operating segment information

is reported based on the internal organization and management structure, which is the internal

financial reporting to the chief operating decision makers, and is represented by the

Management Board of Xella.

Xella identified three reportable segments (Building Materials, Lime, Dry Lining), which are

separately organized and managed according to the products sold and services provided, the

trademarks, the production processes, the sales channels and the customer profiles. The

segment managers, responsible for the segment operating result, report directly to the chief

operating decision makers of Xella.


64

Xella mainly produces and markets building materials (CSU, AAC and mineral insulation),

gypsum fiber boards and cement-bonded boards, and lime. The product trademarks in the

Building Materials segment are Silka, Ytong and Hebel, for the Dry Lining segment Fermacell

and Fels in the Lime segment.

The Holding segment mainly contains the Group holding company Xella International S.A.,

Luxembourg, which is responsible for strategic management decisions with respect to the

segments and for the governance of Xella. In addition the Holding segment includes Xefin Lux

S.C.A., Luxembourg, a special purpose financing entity established for the primary purpose of

facilitating the offering of Senior Secured Notes. The consolidation column contains the

elimination of inter-segment transactions.

Xella assesses the performance of the operating segments based on a measure of normalized

earnings before interest, income taxes, depreciation, amortization and impairment losses

(Normalized EBITDA). This measurement basis excludes the effects of unusual or non-

recurring income and expenses, e.g. material restructuring costs or expenses for attempted

acquisitions or divestments.

The inter-segment transactions are concluded at arm's length. The sales from external parties

reported to the Management Board of Xella are measured in a manner consistent with that in

the Statement of Income.

The segment information for the reportable segments is as follows:

Building

Materials BU


k€ k€ k€ k€ k€ k€


Inventory write-down* (860) (13) (6) 0 0 (879)Impairment of property, plant & equipment* (5,433) 0 0 0 0 (5,433)

Profit / loss (-) from disposal of property, plant & equipment* 698 166 (4) 0 0 860



Building

Materials BU


k€ k€ k€ k€ k€ k€


Inventory write-down* (174) (4) (12) 0 0 (190)Impairment of property, plant & equipment* (6,790) (1,977) 0 0 0 (8,767)

Profit / loss (-) from disposal of property, plant & equipment* 210 329 8 0 0 547




dation


dation

Material non-cash items are explained in note 26.


65

Profit/loss before tax was derived as follows:

Jan. 1st -

Dec. 31,

2011

Jan. 1st -

Dec. 31,

2010

k€ k€

Normalized EBITDA 208,016 192,914

Normalization (5,925) 11,093EBITDA Group 202,091 204,007

Depreciation, amortisation and impairment of property, plant and equipment and intangible assets (excluding goodwill) (107,404) (112,471)Financial result (122,327) (105,468)Profit / Loss before tax (27,640) (13,932)

Reconciliation from Normalized EBITDA

to Profit / Loss before tax

Normalizations in the year under review mainly included additions to provisions due to warranty

claims (2,875 k€ net of insurance coverage) at Xella Cellenbeton Nederland B.V., Vuren /

Netherlands, a reduction of receivables from Franz Haniel & Cie GmbH, Duisburg / Germany

(3,465 k€) at XI (BM) Holdings GmbH, Duisburg / Germany, restructuring and severance costs

(2,719 k€) mainly at German affiliates, income from the sale of property (2,579 k€) at various

German entities, and income from the release of a provision from a legal suit (1,200 k€) at Xella

Deutschland GmbH, Duisburg / Germany.

2010 normalisations essentially referred to income from valuation updates of recultivation

provisions (10,278 k€), the increase of a vacating provision (450 k€) and the profit from a CO2

swap (1,060 k€) at Fels-Werke GmbH , Goslar / Germany, the profit from the sale of Xella Chile

S.A., Santiago de Chile / Chile (2,010 k€), the release of a provision for the restoration of a

bridge at Van Herwaarden Beheer B.V., Hillegom / Netherlands (1,500 k€), closing expenses for

Xella Aircrete North America, Inc., Adel GA / USA (1,572 k€), restructuring costs at Xella

Thermopierre S.A:, St. Savin / France (742 k€) and Xella Deutschland GmbH, Duisburg /

Germany (474 k€).

In 2011 sales from external customers can be divided up in the following product categories:

Calcium silicate blocks 167,453 k€ (PY: 148,031 k€), Autoclaved Aerated Concrete 483,394 k€

(PY: 439,370 k€), Fermacell 138,139 k€ (PY: 119,549 k€), Aestuver 20,365 k€ (PY: 15,471 k€),

Lime Products 150,256 k€ (PY: 134,947 k€), Limestone 17,835 k€ (PY: 15,152 k€), Limestone

Powder 19,616 k€ (PY: 18,378 k€), Services 148,664 k€ (PY: 161,322 k€) and Others 125,477

k€ (PY: 93,689 k€).


66

Selected financial information by geographic regions is as follows:

Dec. 31, 2010 Jan. 1st - Dec.

31, 2010

k€ k€

Germany 903,032 912,503 653,810 576,792Netherlands 194,474 199,593 139,890 133,242Belgium 44,569 46,688 64,303 53,805Czech Republic 124,558 133,907 73,261 75,856France 52,014 53,751 62,903 60,040Poland 67,223 74,228 59,612 53,414Other countries 357,753 330,154 217,420 192,760Total 1,743,623 1,750,824 1,271,199 1,145,909

Selected financial information by

geographic regions

Non-current assets

k€

Sales to external customers

and associates

Dec. 31, 2011 Jan. 1st - Dec.

31, 2011

k€

Non-current assets include intangible assets, property plant and equipment, investments in

associates and the non-current portion of other assets.

Due to the structure of the customer base and the diversity of Xella's business activities, there

was no concentration of risk relating to one single customer, region or segment in the years

reported.

28. Related Parties

Selected managers of Xella International S.A., Luxembourg, and other employees and their

close family members have acquired shares in Xella International S.A., Luxembourg, via

XI Management Beteiligungs GmbH & Co KG, Duisburg / Germany within the framework of the

management participation program. The shares were acquired at market value.

The management participation plan is governed in the “Shareholders and Co-Investment

Agreement regarding the Implementation of Management Partnership Plan for the Xella Group“

that was concluded between Xella International Holdings S.à r.l., Luxembourg, XI Management

Beteiligungs GmbH & Co. KG, Duisburg / Germany, XI MPP Verwaltungs GmbH, Duisburg/

Germany, the participants of the program and Xella International S.A., Luxembourg, and

notarized on November 17, 2008. Within the framework of the management participation

program, Goldman Sachs Capital Partners and PAI partners offered the employees listed above

the chance to participate in the Xella Group. This investment leads to a far-reaching

harmonization of the interests of employees and the investors. In principle, the shares can be

acquired subject to the same terms and conditions under which the shareholders acquired the

shares.


67

Notwithstanding other provisions in the articles of incorporation and bylaws, Xella International

S.A., Luxembourg, has the right (option) to demand that any employee participating in the

program who leaves an entity in the Xella Group prior to a defined “exit event”, sells and

transfers all indirectly held shares to Xella International S.A., Luxembourg. If this option is

exercised, the leaver has the right to compensation which, depending on the reason for his

departure, can vary in relation to the amount paid in and the market value of the shares, which

can lie below the amount paid in. In the case of a “leaver event”, there is a basic commitment on

the part of Xella International Holdings S.à r.l, Luxembourg, to pay the respective amount.

In the case of an “exit” event, the compensation for the shares held depends on their current

market value, whereby the employee can generally sell the shares held directly to the market.

This means that the program, together with the “leaver” and “exit” events, is treated in

accordance with the standards for equity-settled plans. In this case, the date on which the

benefit was granted has to be determined and the benefit distributed over the time terminating

with the occurrence of an exit event. Due to the fact that the employee acquires the shares at

market value, the fair value of the grant is zero, implying that the management incentive

program does not trigger any expense at any time.

Other related parties of the Xella Group are its associates and non-consolidated subsidiaries.

As at December 31, 2011 current receivables from associates amounted to 1,021 k€ (PY: 984

k€) (see note 4). This relates primarily to unpaid dividends of Kalksandsteinwerk Rückersdorf

GmbH & Co. KG, Rückersdorf / Germany (472 k€) and “DSZ” OOO (BSW), Tovarkovo / Russia

(549 k€).

All business relations with non-consolidated entities and associates are transacted at arm’s

length.

Other related parties of the Xella Group are the non-controlling interests of consolidated

subsidiaries. As at December 31, 2011 the Group carried current receivables from non-

controlling interests of 1,156 k€ (PY: 1,088 k€) (see note 4).

Liabilities to non-controlling interests (see note 10) include liabilities of 11,739 k€

(PY: 11,767 k€) (of which 11,222 k€ (PY: 11,134 k€) were non-current). Furthermore with

regard to various contracts that were made on or close to August 28, 2008, the Xella Group

reports liabilities to XI Management Beteiligungs GmbH & Co. KG of 6,076 k€ (PY: 5,732 k€)

and liabilities to Xella International Holdings S.à r.l., Luxembourg, of k€ 851,185 (PY: 846,159)

which can be broken down as follows:

• 552,600 k€ from the issue of Tranche 1 PECs Series A (Preferred Equity Certificates Series A Subscription Agreement with Xella International Holdings S.à r.l., Luxembourg, dated August 28, 2008)


68

• 5,000 k€ from the issue of Tranche 2 PECs Series A (Preferred Equity Certificates Series A Subscription Agreement with Xella International Holdings S.à r.l., Luxembourg, dated August 28, 2008)

• 164,000 k€ from the issue of PECs Series B (Preferred Equity Certificates Series B Subscription Agreement with Xella International Holdings S.à r.l., Luxembourg, dated August 28, 2008)

• 10,000 k€ from the issue of Tranche 2 PECs Series B (Preferred Equity Certificates Series B Subscription Agreement with Xella International Holdings S.à r.l., Luxembourg, dated March 4, 2010)

As at December 31, 2011 receivables against Xella International Holdings S.à r.l. totalled

298 k€ (PY: 172 k€).

Interest of 55,026 k€ (PY: 54,237 k€) was incurred in the reporting period on the interest-

bearing portion of these liabilities against Xella International Holdings S.à r.l. Interest of 344 k€

(PY: 324 k€) was incurred on the liabilities against XI Management Beteiligungs GmbH & Co.

KG.

Liabilities against Goldman Sachs International, London/ Great Britain and PAI partners SAS,

Paris/ France mainly refer to Monitoring Service Agreements in the total amount of 2,000 k€

(PY: 1,400 k€) for the period August 29, 2008 to December 31, 2011 and were shown in the

Consolidated Statement of Financial Position as trade liabilities.

All transactions with shareholders and non-controlling interests are made at arm’s length.

Otherwise, no transactions requiring disclosure were conducted by the Xella Group with

members of the management or with entities in whose executive or supervisory board any such

persons are represented. The same applies for members of these persons’ close families.

Persons in key positions at Xella International S.A., Luxembourg, are the members of the

Management Board. The remuneration paid to this group of persons in the current year

amounted to 1,841 k€ (PY: 2,695 k€). Of this total amount, 1,764 k€ (PY: 2,626 k€) was

attributable to benefits falling due in the short-term, 78 k€ (PY: 69 k€) to post-retirement benefits

and 0 k€ (PY: 0 k€) to benefits on account of a termination of the employment relationship. The

present benefit obligation of this group of persons comes to 1,425 k€ (1,270 k€) as of balance

sheet date. The current service cost of pensions, added to pension provisions, for members of

the management amounted to 78 k€ (PY: 69 k€) in the reporting period.


69

29. List of Companies

Investments in affiliates (consolidated)

Country Name and domicile of the investmentEquity

in k€ 1)

Net result

in k€ 1)

Shares in

capital %

HLU0100 4) 89.84

HDE0300 4) 10.16LU HLU0400 Xefin Lux S.C.A., Luxembourg 66 37

DE HDE0025 YTONG Bausatzhaus GmbH, Duisburg 3,956 200 HDE0561 100.00DE HDE0057 Kalksandsteinwerke Thörl & Meyer GmbH, Munster 70 5 HDE0561 50.00DE HDE0058 Kalksandsteinwerke Thörl & Meyer GmbH & Co. KG, Seevetal 1,669 125 HDE0561 59.00DE HDE0500 XI (BM) Holdings GmbH, Duisburg 309,694 273,827 HLU0200 100.00DE HDE0501 Xella International GmbH, Duisburg 158,194 244,864 HDE0500 100.00DE HDE0510 Xella Baustoffwerke Rhein-Ruhr GmbH, Duisburg 35,834 4,055 HDE0561 61.50DE HDE0519 Kalksandsteinwerk Griedel Verwaltungsgesellschaft mbH, Butzbach-Griedel 60 (1) HDE0561 51.00DE HDE0520 Xella Kalksandsteinwerk Griedel GmbH & Co KG, Butzbach-Griedel 8,113 35 HDE0561 51.00DE HDE0530 Xella Finance GmbH, Duisburg (98) (2,714) HDE0501 100.00DE HDE0561 Xella Deutschland GmbH, Duisburg 223,042 (40,230) HDE0564 100.00DE HDE0563 KS-INVEST Unternehmensbeteiligungs- und Vermögensverwaltungs GmbH, Duisburg 312 (55) HDE0561 100.00DE HDE0564 Xella Baustoffe GmbH, Duisburg 653,868 (31,358) HDE0501 100.00DE HDE0569 Xella Merchandising GmbH, Duisburg 24 (213) HDE0564 100.00DE HDE0593 KS Baustoffwerke Blatzheim Verwaltungsgesellschaft mit beschränkter Haftung, Kerpen 44 2 HDE0510 50.00DE HDE0594 KS Baustoffwerke Blatzheim GmbH & Co. KG, Kerpen 8,817 766 HDE0510 50.00DE HDE0681 XSBB Verwaltungsgesellschaft mbH, Duisburg 30 1 HDE0501 51.00DE HDE0682 XSBB Immobilien- und Handelsgesellschaft mbH & Co. KG, Duisburg 3,948 (555) HDE0501 51.00DE HDE0769 SILIKALZIT Marketing GmbH, Munich 103 2,007 HDE0564 100.00DE HDE0771 Porenbetonwerk EUROPOR GmbH, Boxberg 3,792 333 HDE0774 51.00DE HDE0773 Xella Technologie- und Forschungsgesellschaft mbH, Emstal 2,370 878 HDE0501 100.00DE HDE0774 Xella Aircrete Systems GmbH, Duisburg 11,340 (2,598) HDE0564 100.00

AT HAT0035 Xella Porenbeton Österreich GmbH, Loosdorf 3,840 210 HAT0037 85.00AT HAT0037 Xella Baustoffe Alpe-Adria Holding GmbH, Loosdorf 20,428 91 HDE0564 100.00BA HBA0338 Xella BH doo, Tuzla 8,201 (850) HAT0037 76.00BA HBA0339 Siporex dd, Tuzla (3,958) (118) HBA0338 93.32

HNL0598 79.64HNL0540 20.28HNL0545 0.08

BG HBG0042 XELLA Bulgaria EOOD, Sofia 16,921 (2,912) HDE0564 100.00CH HCH0036 Xella Porenbeton Schweiz AG, Zurich 1,740 1,284 HDE0564 100.00CN HCN0345 Shanghai Ytong Co., Ltd., Shanghai 15,561 952 HDE0564 79.00CN HCN0402 Changxing Ytong Co. Ltd., Changxing 9,356 727 HDE0564 100.00CN HCN0403 Xella Building Materials (Tianjin) Co., Ltd., Tianjin 14,301 313 HDE0564 100.00CN HCN0405 Xella Shanghai Investment Consulting Co., Ltd., Shanghai 1,265 49 HDE0564 100.00CN HCN0555 Baoding Xella Xiangfeng Calcium Silicate New Building Materials Co., Ltd., Baoding (868) (479) HDE0564 100.00CZ HCZ0034 Xella CZ, s.r.o., Hrušovany u Brna 34,638 6,022 HDE0564 100.00DK HDK0082 Xella Danmark A/S, Løsning 2,309 (2,211) HDE0564 100.00ES HES0041 Xella España Hormigón Celular S.A., El Prat de Llobregat 161 (25) HDE0564 100.00FR HFR0772 Xella Thermopierre S.A., Saint Savin 35,344 2,427 HDE0564 99.9994HR HHR0032 XELLA POROBETON Hrvatska, d.o.o., Zagreb 1,578 199 HAT0037 100.00HR HHR0332 Ytong porobeton d.o.o., Zagreb (60) (63) HDE0564 100.00HU HHU0031 Xella Magyarország Építıanyagipari KFt., Budapest 24,364 697 HDE0564 100.00IT HIT0038 Ytong s.r.l. in liquidazione, Bologna (227) 2 HDE0564 100.00IT HIT0039 Xella Italia s.r.l., Grassobbio 656 420 HDE0564 100.00IT HIT0053 Xella Pontenure s.r.l., Pontenure 6,026 (1,079) HDE0564 100.00

(401)

3,810

LU HLU0200 Xella International S.A., Luxembourg 96,386

BE HBE0030 XELLA BELGIË N.V., Zwijndrecht 17,849

Held by

Holding


Germany

Outside Germany


70

HDE0564 99.9999HDE0501 0.0001HDE0564 98.00HDE0501 2.00

NL HNL0029 Xella Cellenbeton Nederland B.V., Vuren 36,677 8,012 HNL0595 100.00NL HNL0503 Van Herwaarden Beheer B.V., Hillegom 33,933 1,659 HNL0596 66.67NL - B.V. Exploitatie Maatschappij Oosterduinen, Hillegom 2) 2) HNL0503 100.00

NL - B.V. Exploitatie Maatschappij Reticulum, Hillegom 2) 2) HNL0503 100.00

NL - B.V. Exploitatie Maatschappij Zilkvaart, Hillegom 2) 2) HNL0503 100.00

NL - B.V. Maatschappij tot Exploitatie van Gronden "Veenenburg Elsbroek", Hillegom 2) 2) HNL0503 100.00

NL - Xella Kalkzandsteenfabriek Van Herwaarden B.V., Hillegom 2) 2) HNL0503 100.00

NL - Zandexploitatie Hillegom B.V., Hillegom 2) 2) HNL0503 100.00NL HNL0540 Van den Brink Group B.V., Koningsbosch 5,299 616 HNL0595 100.00NL HNL0542 Xella Kalkzandsteenfabriek Hoogdonk B.V., Liessel 6,191 1,646 HNL0596 100.00NL HNL0543 Xella Kalkzandsteenfabriek Rijsbergen B.V., Huizen 6,379 2,600 HNL0596 100.00NL HNL0545 Befin Nederland B.V., Koningsbosch 1,442 9 HNL0540 100.00NL HNL0590 Xella Kalkzandsteen Verkoop B.V., Vuren 275 (12) HNL0596 100.00NL HNL0595 Xella Nederland B.V., Koningsbosch 161,969 1,406 HNL0598 100.00NL HNL0596 Xella Kalkzandsteen B.V., Koningsbosch 9,368 (336) HNL0595 100.00NL HNL0597 Xella Kalkzandsteenfabriek De Hazelaar B.V., Koningsbosch 20,816 6,237 HNL0596 100.00NL HNL0598 Xella Bouwmaterialen Holding B.V., Koningsbosch 81,063 (202) HNL0600 100.00NL HNL0599 Fluidbed B.V., Koningsbosch (33) (2) HNL0540 100.00NL HNL0600 XI Dutch Holdings B.V., Koningsbosch 79,918 (10,525) HDE0500 100.00NL HNL0754 Hebel Nederland B.V., Vuren 2,453 51 HNL0595 100.00NL HNL0755 Hebel Cellenbeton B.V., Vuren 2) 2) HNL0754 100.00NO HNO0088 Xella Norge A/S, Solbergelva 327 122 HDE0564 100.00PL HPL0081 Xella VdB Zebrzydowa Sp. z o.o. w likwidacji, Warsaw (36) (1) HPL0602 100.00PL HPL0098 Cegielnie Bydgoskie S.A., Warsaw 3,229 197 HPL0602 99.11PL HPL0342 Xella Radom Sp. z o.o., Warsaw 958 (12) HPL0602 99.96PL HPL0602 Xella Polska Sp. z o.o., Warsaw 42,581 (7,774) HDE0500 100.00PL HPL0796 Xella Teodory S.A., Warsaw (49) (136) HPL0602 93.70PT HPT0040 Ytong Ibérica - Materiais de Construção LDA, Porto 45 (8) HDE0564 100.00

HDE0564 99.9999HHU0031 0.0001

RU HRU0343 ZAO "Xella-Aeroblock-Zentrum Mozhaisk", Moscow 534 2,632 HDE0564 100.00SE HSE0092 Xella Sverige AB, Malmö (265) (411) HDE0564 100.00SI HSI0044 XELLA porobeton SI, d.o.o., Kisovec 3,025 (907) HAT0037 99.774SK HSK0758 Xella Slovensko, spol. s.r.o., Šaštín-Stráže 6,208 573 HDE0564 100.00

HDE0564 99.00HPL0602 1.00

US HUS0792 Xella AAC Texas, Inc., Cibolo (1,156) (1) HMX0791 100.00US HUS0793 Xella Aircrete North America, Inc., Atlanta (8,608) (581) HDE0564 100.00RS HYU0045 Xella Srbija d.o.o., Vreoci 1,085 (1,225) HAT0037 100.00YU HYU0336 Xella Kosova L.L.C., Lipjan (8,210) (5,296) HAT0037 100.00

DE HDE0700 XI (RMAT) Holdings GmbH, Duisburg 16,858 735 HLU0200 100.00DE HDE0701 Fels-Werke GmbH, Goslar 202,788 18,226 HDE0700 100.00DE HDE0703 Kalkwerke Meister GmbH, Großenlüder 608 (273) HDE0701 100.00DE HDE0705 Fels Netz GmbH, Elbingerode 909 (138) HDE0701 100.00DE HDE0710 Fels International GmbH, Goslar 2,410 (6,989) HDE0701 100.00DE HDE0715 Ecoloop GmbH, Goslar (463) (203) HDE0701 50.00

CZ HCZ0708 VÁPENKA - VITOŠOV, s.r.o., Zabreh 33,428 5,795 HDE0701 75.00HDE0701 99.00HDE0703 1.00HDE0701 99.00HDE0703 1.00

RU HRU0711 "Fels Izvest" OOO, Tovarkovo 302 760 HDE0710 99.999

DE HDE0704 FELS RECYCLING GmbH, Wolfsburg 2,131 452 HDE0729 51.00DE HDE0720 XI (DL) Holdings GmbH, Duisburg 24,352 8,380 HLU0200 100.00DE HDE0729 Fermacell GmbH, Duisburg 77,295 18,880 HDE0720 100.00

NL HNL0726 Fermacell B.V., Niftrik 21,559 3,334 HDE0729 100.00

MX

(177)

47

MX HMX0795 Xella Servicios SA de CV, Nuevo León 215 (8)

HMX0791 Xella Mexicana SA de CV, Nuevo León 8,026 (1,474)

RO HRO0047 XELLA RO S.R.L., Bucharest 10,695 (4,555)

31

Lime BU

UA HUA0331 Xella Ukraina TOV, Odessa

Outside Germany

0PL HPL0709 Fels Sp. z o.o., Warsaw

Germany

Outside Germany

Dry Lining BU

Germany

1

FR HFR0549 SNC Parc 3, Bartenheim 205


71

Investments (non-consolidated) with shares in capital exceeding 20%


in k€3)

Net result

in k€3) Held byShares in

capital %

DE XDE058A Baumaterial Recyclinggesellschaft mbH, Seevetal 297 56 HDE0058 50.00

DE XDE561A Kalksandsteinwerk Rückersdorf GmbH & Co. KG, Rückersdorf 2,256 656 HDE0561 50.00

DE XDE561E Geschäftsführungsgesellschaft Mörtel-Union mbH, Wedemark-Mellendorf 34 2 HDE0561 47.60

DE XDE561F Mörtel-Union GmbH & Co. KG, Wedemark-Mellendorf 307 285 HDE0561 47.57

DE XDE561H Nord-KS GmbH + Co. KG i.L., Kaltenkirchen 741 26 HDE0561 50.00

HDE0561 15.15

HDE0564 8.98

DE XDE563A Kalksandsteinwerk Wendeburg, Radmacher GmbH & Co. KG, Wendeburg 7,294 126 HDE0563 28.00

CN XCN0406 Shandong Xella Gather Calcium Silicate New Build.Mat. Co., Ltd., Tengzhou, China 4,780 (382) HDE0564 40.00

TR XDE564C Türk Ytong Sanayi A.Ş., Istanbul, Turkey 33,626 4,439 HDE0564 25.41

HNL0503 11.50HNL0597 18.50HNL0542 7.00

HNL0590 7.00

HNL0543 6.00

XNL596A 11.50

NL XNL596A Anker Kalkzandsteenfabriek B.V., Kloosterhaar 29,653 8,975 HNL0596 33.33

DE XDE701A Kalksandsteinwerk Winsen/Aller Dr. Hubrig GmbH & Co. KG, Winsen/Aller (40) (2) HDE0701 50.00

HDE0701 35.40

HDE701A 29.00

RU XDE710A "DSZ" OOO (BSW), Tovarkovo, Russia 10,116 954 HDE0710 25.10

Germany


Outside Germany

DE XDE561J Baustoffwerke Münster-Osnabrück GmbH & Co. KG, Osnabrück 15,987 1,695

0

Lime BU

Germany

NL XNL503ACoöperatieve Verkoop-en Produktievereniging Van Kalkzandsteenproducenten (CVK) U.A. in liquidatie, Hilversum

5 0

DE XDE701B Dr. Hubrig GmbH, Winsen / Aller 0

Outside Germany

Investments in affiliates (non-consolidated)


in k€3)

Net result

in k€3) Held byShares in

capital %

ES XDE564A Siporex, S.A., Barcelona 0 0 HDE0564 100.00

FR XFR772A EURL Construction, Saint Savin 9 0 HFR0772 100.00

1) IFRS figures 31/12/2011 including PPA push-downs2) Fully consolidated within the preparation of financial statements of the respective holding3) Last available financial statement4) HLU0100 = Xella International Holdings S.à r.l., Luxembourg; HDE0300 = XI Management Beteiligungs GmbH & Co. KG, Duisburg

Abbreviations:

AT AustriaBA Bosnia-HerzegovinaBE BelgiumBG BulgariaCH SwitzerlandCN ChinaCZ Czech RepublicDE GermanyDK DenmarkES SpainFR FranceHR CroatiaHU HungaryIT ItalyLU LuxembourgMX MexicoNL NetherlandsNO NorwayPL PolandPT PortugalRO RomaniaRS SerbiaRU RussiaSE SwedenSI SloveniaSK SlovakiaTR TurkeyUA UkraineUS USAYU Serbia and Kosovo


72

30. Significant Events After the End of the Financial Year

There were no events subsequent to balance sheet date that would have had a significant

impact on the net assets, financial position and results of operations of the Group.

Luxembourg, 27 March 2012

The Management Board

Jan Buck-Emden Heiko Karschti Oliver Esper

Nicole Götz David Richy