Higher prices and an acquisition spree fuelled profits at brickmaker Hanson by 24 per cent - even though it saw energy costs rise by more than a fifth.
The group posted a surplus of £429.3 million, although it warned demand was likely to weaken in the UK and Australia this year.
Turnover increased almost ten per cent to £3.71 billion in 2005, helped by the impact of 11 acquisitions worth £342 million and an increase in selling prices to cover the overheads that Hanson could not recoup through cost cutting measures.
Operating profits excluding acquisitions grew by 13.6 per cent, driven by a 39 per cent improvement at the UK aggregates business and offsetting difficult markets for UK building products and in continental Europe.
Hanson warned that demand for both its bricks and aggregates such as concrete was likely to be subdued in 2006, with "significantly" higher costs.
Infrastructure needs for the 2012 London Olympics would increase demand in the medium term, it added.
The heavy building materials group announced plans to significantly increase selling prices in an effort to mitigate the impact of high energy and raw material costs.
Looking ahead, Hanson, which makes aggregates and concrete products, said market demand in the UK would remain subdued, with input costs expected to be "significantly" higher this year than in 2005.
"We are working to mitigate these factors by reducing capacity, improving productivity through capital expenditure and hedging costs such as gas, where economic. Despite these measures, it is anticipated that significant price increases will be necessary in 2006 to recover our earnings," it said.
Costs and overheads rose 9.5 per cent to £284.6 million in 2005, largely due to the 20 per cent rise in energy costs. The increase also reflected higher prices of raw inputs like cement, bitumen and steel.
Margins managed to hold up well, improving by about 0.3 percentage points overall during the year, due mainly to increased selling prices.
Alan Murray, chief executive, said the next round of selling price adjustment would "not materially move" margins this year.
Hanson is the UK's largest brick and second largest aggregates producer and one of the top three producers of ready-mixed concrete.
It annually produces more than 37 million tonnes of crushed rock, sand, gravel and asphalt, five million cubic metres of concrete and mortar and 800 million bricks.
In the West Midlands it has 11 quarries, eight asphalt plants, 12 ready-mixed concrete plants, one concrete product factory and two rail depots.
Hanson took "difficult but necessary" steps as it responded to the surging fuel bills and lower demand in its UK building products division. This involved closing five factories across its product range in late 2005 and early this year.
In December and January, it substantially cut back production at four sites, while temporarily laying off staff at five more brick factories and its three Thermalite plants at Newbury, West Thurrock and Sutton Coldfield.
Thermalite was one of its 2005 acquisitions along with Marshalls Clay Products with sites in Accrington, Barnsley and Swillington in Yorkshire.
Elsewhere, Hanson said it expects demand in the US to remain strong, offsetting the weakness in Australia, and the rest of Asia to remain difficult. In Europe, it will continue to focus on both acquisitions and initiatives to improve margins.
Despite the cost pressures, Mr Murray said it won't be cutting back on capital spending.
"We are in fact increasing it," he said.
Last year, it invested £192 million on various projects.
That was on top of the acquisitions spree, a strategy which it will continue to pursue this year.
Mr Murray was non-committal on the company's plans to further repurchase shares, stressing that the buyback programme was subject to a regular review in the context of the group's cash flow, capex and acquisition plans. Turning to the asbestos claims issue, the group estimates that average annual cost before insurance over the next eight years should be around $60 million, equivalent to £21 million after tax.
Hanson this month reached a settlement with insurers covering 20 per cent of its present costs over asbestos actions and claims.
In 2005, it booked gross cost of asbestos, before insurance, of $43.2 million as against $59.3 million last time.