CRH PLC (CRH) 2008 Q4 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen and welcome to CRH preliminary results 2008. At this time, all telephone participants are in a listen-only mode. (Operator Instructions). And just to remind you, this conference is being recorded. I would now like to hand over to today's Chairperson, Myles Lee. Please begin your meeting and I will be standing by.

Okay, thank you and good afternoon, everybody, here in Dublin and also listening in on the web call. I am joined here this afternoon by my colleagues, senior CRH management team. On my right hand side here with Albert Manifold, our Chief Operating Officer. Next to him is Mark Towe, who is head of our overall operations in the Americas, both the materials and the products distribution division. And then on the far right, Henry Morris, who is Chief Executive of the Europe materials operations. And on my left I have Glenn Culpepper, our Chief Financial Officer, and Mairtin Clark who is head of our Europe products and distributions operations and I will be asking them to help me out afterwards in the question-and-answer session.

So the first piece of business today is the presentation of the 2008 results, and the questions afterward will be confined to the 2008 results for regulatory reasons.

Looking first of all at an overview of the results for 2008. You have obviously seen them, came out this morning. We believe that CRH has delivered robustly in 2008 in a year of significant challenge, and the results are very much in line with the detailed guidance that we provided in our trading statement on the 6th of January and indeed in line with the interim management statement that we had back in November.

The key changes you can see there profits before tax down 14%, a lesser decline of 11% in earnings per share reflecting a lower tax charge percentage and also reflected the buyback, which we carried out in the earlier part of the year, but which we terminated following the major financial fallout in markets in the autumn.

The dividend is increasing once again for the 25th consecutive year, up 1.5% in 2008, and obviously 2008 has been a year of significant challenges across the business. We have implemented, as we announced with our trading statement in January, significant cost reduction programs across our operations with cumulative savings through '07, '08 and '09 of the order of EUR900 million before once-off rationalization costs. Roughly EUR400 million of those benefits came through in our results in 2008. We have an incremental EUR380 million to come through in 2009, and that is based on actions taken through the end of 2008.

There are further measures being implemented around the business as we speak in response to the market climate. And the once-off rationalization costs reflected in these 2008 results, which are taken in each of the segment performances, amount in total to about EUR75 million. So I think once again in 2008, we have seen that CRH is balanced in terms of geography, in terms of the sectoral end-use exposures, continue to underpin our performance and our cash flow.

Dividend delivery and long-term dividend delivery is a key hallmark of CRH. As I mentioned, 25 consecutive years of dividend growth up to 2008. Back two years ago in presenting our '06 results, we indicated that we were going to implement a phased reduction in dividend cover and a phased increase in our payout ratio. And we have delivered on that moving from a payout ratio of under 20% in 2005, or just over 20% in 2005, to approximately 30% for 2008, and moving the cover down from 4.8 times to 3.4 times in '08, just below the target level that we set two years ago. And that has given rise to a EUR0.30 increase in dividend compared with 2005, EUR0.69 for '08 versus EUR0.39 in '05.

The current strong level of dividend cover provides us with significant flexibility as we look forward into more challenging circumstances in 2009, and we have the ability to accommodate dividend cover in the range of 2.5 to 3 times as we look out over the next year or so. And that is similar to the pattern in dividend cover that we demonstrated back in the early 1990s when we were faced with very difficult market circumstances. So I think we have a very strong record in dividend growth. We have had a very progressive dividend policy. Our focus is on continuing to maintain that over the years to come.

Development activity, as was seen from the announcements back in January as well, that our 2008 spend was of the order of EUR1 billion -- EUR700 million in the first half, EUR300 million in the second half. From the middle of the year when we saw circumstances becoming more difficult across our markets, we deliberately curtailed our development expenditure. We saw valuations, which were failing to take into account the deteriorating market outlook. We saw necessity across our businesses to avoid being distracted by the pursuit of acquisition targets and by the integration of acquisition targets and the need to focus really on cost reduction right across our business. And that is the mode we have been in since the middle of the year.

Despite that, we had some good transactions listed here in 2008 and a lot of bolt-ons right across the group. And I think the time is coming when it will be appropriate to reengage with our traditional pool of development opportunities. Many of these family businesses are still there. Nobody else has been in acquisition mode for them at the moment and we maintain our linkages, even though our development teams have been very much refocused on operational issues and helping the cost-cutting program across the group. They continue to maintain contact with a lot of these targets so that we are ready to reengage at the appropriate point in time.

Our capital expenditure levels have also been adjusted to reflect the lower demand environment. Even though our capital expenditure in total in 2008 was similar to 2007 at about EUR1 billion, there was a greater element in the current year expenditure of major commitment on major cement projects of EUR250 million compared to EUR100 million in 2007.

So when you look at the underlying expenditure net of those major projects, it declined in 2008. And this will decline further in 2009 as we continue to be very sparing in relation to our capital expenditure levels, and we have indicated that we would expect capital expenditure in 2009 to be well below depreciation. And we have indicated a maximum likely number for CapEx in '09 of about EUR750 million and that will compare with depreciation of over EUR800 million. And we retain flexibility to (inaudible) further into that capital expenditure forecast for 2009, depending on the market circumstances.

But I would emphasize that the curtailment, (technical difficulty) expenditure and the curtailment in capital expenditure is a response to the market environment. It is not the result of any pressures on cash flow or pressures on debt levels; it is just the sensible response in a tougher economic climate. And it is similar to the responses we have taken in similar slowdowns in periods in the past. So that is just some brief overview.

Again, with the results and you have the details, we have presented very clearly the performance of each of the individual business segments in the course of 2008. We have analyzed, as usual, the change in sales and operating profits between the underlying organic effects, the incremental acquisition impact on foreign exchange.

And very briefly, I think there is probably enough detail in the reports and we can deal with any detail in questions afterwards, but just a quick look at those particular segments. For Europe overall, you can see there our sales up 4%, operating profit down 5% for the year, margins down just over one percentage point at 9.4%. Very solid performance and a good increase in operating profit in Central and Eastern Europe, particularly in our materials segment, but generally weaker elsewhere across Europe and weakening as the year progressed.

Our materials business faced significant declines in Ireland and Spain, had a very good year in Central and Eastern Europe, but a slower pace there in the second half of the year. Our products business, as you'll see in a moment, suffered from weak trends, particularly from midyear, across their businesses in the euro zone and distribution also suffered, but to a lesser extent than in the products area because it has a good DIY exposure, which proved more robust through the second half of the year and this builders merchanting activity with a heavy repair and maintenance and improvement component, but not as affected as some of the newbuild businesses in our products areas.

Looking at the individual segments, in Europe, looking at the heavy end, Europe materials, cement aggregates, heavy concrete products, vertically integrated businesses in peripheral markets in Europe -- Ireland, Finland, Poland, Switzerland, you are familiar with them. We are looking here at an operating profit increase of 8%, sales up 1%.

If you look at the organic column there and you see an underlying organic sales decline of the order of EUR200 million. That reflects sharp setback in sales in Ireland and in Spain in lower margin activities than in our Eastern European businesses where margins are higher and where sales were growing. And that mix of margins, despite the organic sales decline, has delivered a EUR4 million increase in underlying operating profit. So good performance in Eastern Europe and higher margin activities, profits moving ahead, but declines obviously in Ireland and Spain. Those weighing that on the sales side and offsetting us very much at the operating profit level.

Good contributions from acquisitions. As you can see them in the bar chart as we analyze the mix of operating profit, you can see a sharp decline there in Ireland with general volumes down over 20% in the year. Western Europe profits moving ahead in total. Good, very good and very strong growth in Central and Eastern Europe. And our new regions in China and in India, the operating profit for those businesses because it falls under the Europe materials management team who have expertise in cement is classified here in these new regions here.

Looking at products, residential/nonresidential, mainly in the core euro-zone countries. We indicated in January a decline in operating profit of the order of 30% for the year. The actual operating profit was down 27%. Sales increased slightly. Very difficult business, particularly in clay in the course of the year. You can see there on the bar chart very sharp drop in profitability in the clay businesses from profits in '07 into modest losses in '08, a function of significant rationalization and plant closures in our UK production network, very high energy costs with high gas prices in the UK in the course of 2008, and relatively modest price increases in the UK brick business in 2008.

So that was down. Concrete also suffered. Our products businesses, which would be mainly into the non-res segment, had a good performance in the course of the year. We do expect a better performance from clay in 2009 following the rationalization measures of 2008.

On the distribution side in Europe, a modest or less severe decline on operating profit, down 8%. Acquisition contributions there, somewhat disappointing contribution from '07 acquisitions resulting from additional integration costs in Switzerland, but a good contribution from '08 acquisitions in Germany and Switzerland in heating and plumbing products. Overall, operating profit down, as I said, 8%. You can see the Benelux profits have dropped back. Switzerland similar, Western Europe similar as well in distribution. So there are the three segments on the European side.

If we move on to look at the overall Americas (technical difficulty) for the year. In dollar terms, operating profits were down 13%. A good performance reflecting the balance that we have across residential and nonresidential and infrastructures. In euro terms, we suffered as a result of the weaker US dollar. We translated our results in '08 at a 1.47 rate to the euro versus 1.37 to the euro in 2007. So in sales down 6%, operating profit down 19%. Margins also down.

Materials business, very strong pricing to recover higher input costs, but an inevitable impact on volume. In products, weaker year in residential obviously and towards the back end of the year, nonresidential, which had previously been pretty strong began to soften. Our architecture products business and our precast business were the most affected, as you will see later.

Distribution this time last year, we flagged distribution after a very good year in '07 was likely to see lower margins in 2008. I think they decided to prove us wrong and in fact, delivered an increase and a very strong performance in distribution in 2008. I will come back to that later.

Looking at materials a bit more closely and you are familiar with this area. It is about 60% focused on infrastructure and the remaining 40%, a mix of residential and nonresidential. Operating profit down 19% in euro terms, down 13% in dollar terms. Very significant cost pressures here in the third quarter. The spike in oil prices in June fed through July and August into very high liquid asphalt costs for our asphalt business, as we were pressured to move prices ahead to recover those higher input costs. And didn't fully recover them, which impacted profits.

And also those very high prices that we had to put through resulted in lower volumes because the infrastructure spend for the year was relatively fixed with fixed budgets and couldn't adapt. But I think when we compare our US dollar operating profit decline of 13%, when we compare it with the other heavy side players in the industry who are looking at operating profit declines in dollar terms of 20% and higher, I think our American materials team did very well in delivering in 2008.

On the products side, as I mentioned, mainly res and non-res, a 30% decline in operating profit in euro terms, down 25% in dollar terms. Significant organic decline in sales and in operating profit, and as you can see in the bar chart on the bottom of this page, precast very much affected; significant rationalization costs taken in the course of the year, which set the business up for a significantly better I think 2009. And then architectural products, very sharp setback there in 2008 compared to 2007.

Our glass business though, which has more a nonresidential focus and is focused on products which come in later in the nonresidential cycle, did very well. Underlying improvement in profit and the good contribution from a major acquisition undertaken in the mid part of 2007. And our MMI business, which we bought in '06 and had a troubled year in 2007, bounced back very strongly in terms of profitability. But overall, a tough market for our Americas product in 2008.

Distribution, I mentioned. They proved us wrong big time in 2008. Margin slide showing 3% in 2007. We indicated early last year it could be as low as 4%. They came out at 6.4%. Very good performance here on the cost side in terms of sales and price management. Also it has to be said some benefits from acquisitions, as you can see there in the 2007 column. But also I think some help from a lot of storm damage in the US in the middle of the year, which drove up prices for our roofing and siding products and enabled us to capitalize on those prices.

As a distributor, we take a margin on the selling price. So our profits in exterior products, which would be roofing and siding, moved ahead very strongly as you can see on the bar chart there.

In interior products, our underlying profits fell back due to significant price deflation in wallboard. And as a distributor there, we take a margin on sales and with lower sales value, our margin declined. That was offset by the contribution from the '07 acquisitions that you see there in the analysis of the numbers.

So distribution, very strong growth in difficult markets. And again, what you see coming through in the overall US performance is the balance of operations, distribution, very much focused on repair, maintenance and improvement compared with like the products area, which is a mix of newbuild and RMI. So balance again coming to the fore for our operations in 2008.

So that is the results if you like by each of the business segments. I will ask Glenn now to deal with some of the financial aspects of performance during 2008, particularly dealing with cash flow, and then I will come back and say a few words about the outlook as we see it currently for 2009.

Thank you, Myles. Our overall financial review. 2008 sales came in at EUR20.9 billion. It was about a half of 1% decrease on 2007 with organic sales down about 6%. Overall, as Myles mentioned, our PBT was 14% below 2007, but with the foreign currency exchange accounting for EUR50 million of that, it is really, without foreign currency effects, an 11% decrease in PBT.

Turning to our funds flow, we had very robust operating cash flow during 2008. Our inflows of almost EUR2.5 billion were lower than 2007, but as you can see here, we actually did better in 2006. So a decrease from a record year in 2007, but still very strong cash flow. Our net operating cash flow of EUR571 million is after over EUR1 billion of expenditure and after paying our dividend of EUR369 million. So once again, very strong performance after accounting for increasing dividends and capital expenditure during the year.

Our strong funds flow allowed us to limit our debt increase to only a EUR928 million increase in net debt during the year. This comes after acquisitions and CapEx of over EUR2 billion. Also in there is our share repurchases of almost EUR400 million, a negative on the translation of the currency and again our dividends of EUR369 million. So to limit our debt increase to EUR928 million, those outflows is we think a very strong performance for 2008.

Our cash flow, again, was very strong in the second half. As you can see here in the first half, we had a very significant working capital outflow of just over EUR600 million. But in the second half, we were able to claw most of that back and we ended the year with a negative working capital outflow of EUR62 million. Given that the markets were cooling at the end of 2008, this is a very good performance.

We have been proactive on our financing program. We had EUR3 billion of refinancing initiatives in 2008. We had two bond offerings. We had a sterling bond of GBP250 million, a seven-year facility and a US dollar bond issue, a 10-year facility at $650 million. We arranged EUR0.5 billion of new bank term finance with a three-year maturity and we renewed EUR1.7 billion of facilities, existing facilities, and extended them. We ended 2008 with unutilized committed facilities in excess of EUR1 billion at the end of the year, and our EBITDA to net interest cover ratio was 7.8 times in 2008. So again, very strong. We are, of course, very committed to maintaining our investment credit rating.

We are very well-positioned in terms of debt maturity. Our net debt at the end of the year includes EUR7 billion of gross debt of which bond debt was EUR4.2 billion and drawn bank facilities were EUR2.8 billion. Again, our credit metrics were very good at the end of the year and very importantly, our maturity profile is very strong. You can see that over the next five years, we don't have any big chunks of debt that come in any one particular year. They'd have to be refinanced. And in fact, they are pretty uniform or pretty evenly distributed over the next five years. So that puts us in a position where we don't have to face a big refinanced obligation in one particular year.

Thanks, Glenn. Just on the outlook, first of all, taking a look at the outlook in Europe as we see things currently. I think it is clear obviously that in Ireland, we are facing into another tough year in 2009. Last year, overall activity probably declined by the order of 20% and we are looking at a similar level of decline if not slightly higher in 2009. Spain was also difficult last year. We had made some major rationalization in our Spanish operation and as we look to '09, it is going to be tough, but we do have a greater level of infrastructure work coming through in our main market in Catalonia, which would be helpful to us in '09.

The Euroconstruct numbers also predict declines in overall activity in Finland and Portugal, but it is going to be much less severe than what we are likely to see in either Ireland or Spain. Switzerland has been very robust for us in 2008, particularly in the second half of the year where we saw good pickup in infrastructure activity on roads and on tunnel and rail networks, and we are expecting that to continue through 2009. So Switzerland looks fairly solid for 2009.

Polish markets, you have seen our profitability analyzed. An additional disclosure there in relation to profitability in Poland. We are looking at similar to maybe slightly lower overall construction output in Poland in 2009. Euroconstruct back in December were forecasting 8% growth. That seemed to us much too positive at the time, and obviously events since have also somewhat (inaudible). So flat to slightly down would be our view at the moment in Poland.

Our view is mainly based on a significant pickup in infrastructure activity in Poland as they finally begin to mobilize and to push a lot of the EU structural funding that they have been receiving over recent years as they manage to put that into effect on the ground. But that is likely to be offset by lower residential activity, particularly in the major cities. Once-off housing around the country remains good, but housing in the city has slowed dramatically. And non-res is also I think going to decline in 2009, because foreign direct investment has also slowed with the credit crunch.

Ukraine, I think political and economic difficulties there. It is going to be a much tougher market in 2009, a very different market to Poland obviously. Poland is sustained by EU membership, much better finances, much more stable government, but Ukraine has its issues. We have been there for 10 years now. We have made profits every year in the Ukraine with a very good cost base in our cement facility, which is coal versus others who are gas-based. We believe we will have a continuing good but lower result in Ukraine in '09.

Currency weakness in those countries has become more pronounced over recent months. So the translation of those profits will be at less favorable rates versus taking them back into euro in 2009. So that is going to be a negative effect in euro. But significantly outweighed by the positive effects of the dollar on translation as a result of where the dollar is at the moment.

Also on the materials side, we are going to benefit from lower fuel and energy costs in our cement-intensive operations during the course of 2009. That is a benefit as there is a savings that will be coming through from the cost reduction measures that we have been putting in place in '08, and further measures that have been implemented in '09.

On products and distribution, products and distribution had a good first half last year, a mild winter, good start, good momentum coming in from 2007; lower demand environment this year right across the main euro-zone countries. So residential lower almost everywhere. Non-res still at reasonable levels, but declining. Some good spots in infrastructure in countries such as Hungary and Romania in products focused on the repair and maintenance and improvement and in DIY, which appear to be more resilient as we look at things at the moment.

Again, benefits from structuring. Lower energy costs as I mentioned, the plant closures that we did in our clay business in the UK in '08, and better pricing in clay. And we are getting better price increases in the UK brick market this year because we have to, and the rest of the industry has to as well after last year's underrecovery on energy. So I think clay is going to be a better performance in '09 as we stand at the moment, but it is going to be much tougher for our concrete businesses than for our building products business.

So overall for Europe, with the pace, declining pace of growth that we saw from the middle of last year and the weather effects that we have seen versus the very mild winter in the first months of '08, it is going to be a much more demanding trading environment across Europe for 2009.

If we look at the Americas outlook and look at the materials, I mean the good news of recent weeks has been obviously the signing of the Economic Recovery Act with a significant element in that for highway and bridge reconstruction. And we are well-placed to benefit from that. A lot of it is targeted at jobs that can be initiated quickly in terms of repaving and resurfacing highways, and we look to a good stimulus from that ourselves in the second half of the year.

And our materials business is about 60% focused on infrastructure. On the res and nonresidential side of it, however, we are going to see further erosion of volumes for our materials business in '09.

Another plus for this business is the moderation in bitumen and energy costs. Everything we see in the energy markets at the moment suggests a much greater degree of stability through 2009. That is going to be very helpful for a business that is very much dependent on diesel and other fuels for trucking heavy products around quarries and out to jobsites, and also which is a major input cost in bitumen, which is linked into the price of oil. We are continuing to focus on cost efficiency and price improvement. So I think a lot of positives there, but not sure as yet what the overall volume picture is going to be. But we feel that the positives should partly offset the impact on US dollar profits in materials of any likely volume declines in 2009.

Products and distribution, a tough year in '08, another tough year in '09. There is no sign of any halt in the decline in residential demand in the US when we look at recent statistics. Although I would say that statistics that come out in the winter months and from November through to February can be influenced by weather patterns. So I would just say have a word of caution with regard to some of the statistics you see coming out in the US at the moment with regard to investment in residential and nonresidential, particularly given the energy backdrop -- or the weather backdrop we have had over the last two months. But I think res will fall further in '09 in the US.

Residential repair and maintenance is also likely to decline although to a lesser degree. I think part of the upside for us in distribution could be that the current very bad weather will create opportunities in terms of repair later on in the season. Nonresidential is going to fall given the weaker economy. Lack of funding is going to impact on private nonresidential activity in 2009.

Public nonresidential activity should be more robust, and one of the features of the recent Economic Recovery Act is that when you go through all of the elements of that Recovery Act embedded within it, people have tended to focus on the highway component. But embedded within a lot of the funding that is there, there is quite a bit of public nonresidential expenditure in areas such as health, education, energy conservation. And I think that probably is something that we will see coming through perhaps in 2010, because there are somewhat longer leadtimes for those projects than there is on the highway side. But we could see benefits from that occurring, not in '09. We could see benefits from that as we move out into 2010 and 2011.

So overall, the view at the moment on the US in dollar terms, it is going to be a weaker performance in 2009 compared to 2008. I think our balance will still sustain us strongly through another difficult year there, but with the stronger dollar rate, I think we are looking to a relatively more favorable outcome in euro terms for the US as a whole in 2009.

So in terms of bringing it all together in terms of the overall, as we said back in January with the trading statement on the 6th of January, the outlook for 2009 is extremely challenging. Since then, we have had perhaps the most severe winter, perhaps the first winter for many years in Europe and the US, which has impacted demand in the early season.

So as a result of that and the tough comparison versus the relatively good fast in Europe in the first half of 2008, our first-half results are going to be sharply lower, but the second half of the year is much more important for us in terms of profit terms because of the seasonality of our business, particularly in heavy materials in the US.

And there are some positives, although you would search hard to find them in the newspapers at the moment. They are so permeated with gloom. But I mean we are seeing substantially lower energy costs worldwide. We are seeing interest rate reductions, not just in official interest rates, but also in a degree of stability returning into LIBOR markets and into interbank markets, which is positive. We've had the US stimulus package, which I have mentioned.

I think all of these factors should encourage activity as the year progresses, so we expect that the like-for-like declines will be more moderate in the second half of the year than they are in the first half.

While it's challenging, we are very focused right across the business on commercial delivery and that involves not just cost reduction, but also looking at what we can do on the pricing side and particularly retaining as much of our pricing as possible with this declining input cost base. We are strengthening our financial flexibility through the scaling back of the middle of last year on development activity and through a scaling back of capital expenditure to take advantage of what we see is going to be a likely increased flow of development opportunities across the sector as we look out over the next six to 18 months.

So that is the overall presentation on the 2008 results. I think what we will now do is take questions on the 2008 results and confine the questions totally to the 2008 results. So we are happy to start with Barry. You have your hand up there, and then maybe to bring the rest of my colleagues in, in terms of responding to your questions.

Thanks, Myles. Three questions. (inaudible). First, of course, just in terms of -- you talked about pricing. Can you just talk about cement price in particular in Europe and in the US? Obviously you're a producer here in Europe and a big consumer of cement in the US. In the context of the big increases in capacity that we are seeing coming on over the next -- this year and next year, are you seeing any pressure coming on prices in any particular location?

The second question is for Mark specifically, just looking and obviously there has been a lot of good news about the infrastructure package. You might just give us an update in terms of is it actually having any impact on the ground at the moment, and what is your own sense in terms of the industry's ability to meet what could be a big increase in demand either in 2009 or 2010?

And then a third question in terms of that you alluded to the fact that you think that maybe you're getting closer to the time when you will start to look at acquisition activity again. Can you just remind us or maybe just sort of review what your hurdle rates are in terms of acquisitions?

I know you required in the past that they were earnings and cash accretive in year one, and you had specific hurdle rates (inaudible) that you might just give us some sense as to what (inaudible).

Okay. Well, on the hurdle rates, I mean they haven't changed in terms of the hurdle rates that we look for on acquisitions. We are very much focused both on long-term metrics for acquisitions, but then also on the short-term returns and we do long-term forecasts for each acquisition target. We discount those back to present day. We're looking at the DCF internal rate of return. And what we are looking for when we have done all that with careful modeling is we are looking for projects, which offer us a 1% to 2% return over our weighted average cost of development. So that is still, as far as one of the basic metrics in our acquisition e valuation and we adjust our cost of capital to reflect changes in debt markets and also changes in equity markets.

I think also a very key measure for us in looking at the projected returns for acquisitions is to see how does the EBIT return on total investment evolve over the life of the project and particularly over the first 10 years of the project. And I think that is a sanity check on financial models because if you see returns developing very, very rapidly, there is obviously something very [suspicious] about some of the underlying assumptions. And what we're trying to do across our business is to find targets, which satisfy our long-term DCF internal rate requirements, but also give us EBIT returns on total investment, which, within three to five years post acquisition, are getting up into the low to mid-teens.

DCF is very open to -- I won't say manipulation, but to be impacted by assumptions with regard to terminal values and projections later out in the lifecycle that you are projecting. Whereas -- and can give you -- you can get very good answers in DCF, but you can have pretty poor short-term returns and I think what is capital-sensible in our acquisitions has been the focus on those shorter returns on the EBIT return on assets because when we have looked at all of the major deals that have been conducted over the last three to five years, and when we have tried to make sense of the prices that have been paid, we have never been able to see those projects getting anywhere near our EBIT return requirements in the early years of any projections we can do. So still the same fundamental approach.

With regard to the other questions maybe on the pricing side on cement, maybe Henry Morris who is head of Europe materials, he has a lot of cement operations under his wing and (technical difficulty) say about how you are seeing the pricing environment as the cement producer at the moment.

Good evening, everybody. On the cement price of the [cost to patch], we would have entered the year with a challenge to rise prices to recover cost increases. And as it varies from country to country, we have secured price increases in most regions. We have not seen price decrease anywhere. As the year goes by and as the energy cost increases and some of the other cost increases reduce, I think we will have (inaudible) challenge. But for the time being, I think we're fairly positive on what we are seeing.

On the infrastructure side, Mark? Maybe you might talk to Barry on that.

Yes, Barry. There is a lot of activity going on right now. We expect probably EUR10 billion to be spent in 2009. What we are seeing right now, some of the states have taken a lead here -- Missouri, Oklahoma, Utah -- some of the businesses of some of the states that we have a lot of operations in, we are already doing work immediately and the states really don't have the funding from the Fed yet, but they know they are going to get that and they want to get started to get their people to work. That has been a very positive piece.

So we would expect the activity on the bidding -- we are seeing all that -- just getting ready to go out in March and probably April is going to be the big month on that, so they are moving very quickly on that. We have been very active with the states with the DoTs and have been very active up in Washington as far as how do you do this.

The other question you had there on the capacity, certainly the aggregate business has the capacity now to take care of this this year and next year. We have no problem doing that.

Robert Eason, Goodbody Stockbrokers. I just wanted to ask a question to expand on the pricing one. If you just go through the businesses, what businesses do you see gross margin pressure, vis-a-vis prices coming down from the costs going up or where do you see the balance on that kind of gross margin line across the businesses? Also I wouldn't mind a comment on the working capital given that organic sales came in roughly about EUR1.2 billion, working capital a bit of a disappointment at year-end given that there should have been a natural inflow. Just kind of a technical point in terms of net assets given that the currency effect added to your net debt, I was a bit surprised it had the opposite effect on your net assets. But if you can just explain the dynamic there.

Well, I suppose on the net asset side of things, the sterling obviously would have weakened quite a bit during the course of 2008. So there would have been a negative adjustment on our sterling net assets in the course of 2008 and also towards year-end in relation to our Polish assets where we have a significant asset base, which has been very cash-generative and has relatively modest debt. And there would've been a negative impact there on the net assets without a compensating adjustment on the debt side.

In relation to your other point I suppose on the gross margin, I suppose again you can probably see it in the results for the year. The areas where the gross margins have been under most pressure have been in some of our products businesses, particularly in clay, but also in some of the commodity concrete products.

Can you expand that into the current year, where do you see that?

I think probably those pressures are going to continue in 2009. As we look at things currently, obviously there are some of the areas where we've most focused our cost reduction efforts over the last six months.

With regard to working capital, I think you are right. I think we did well on working capital management in the course of 2008 in the receivables and in the payables side. I think there is much more that can be done on the inventory side. There is inevitably a lag when demand begins to fall in relation to adjusting the inventory levels and that is one of our key focuses across the business for 2009 to obtain significant inflows on the inventory management side. And that goes -- that's right across the board in the operations.

Kevin McConnell from Bloxham. Just two quick questions there. Just in terms of the magnitude of cost savings that you have generated from the business thus far in your rationalization program, spending EUR80 million to generate EUR800 million in cost savings. Is there significantly more scope for you to take out costs in the business over the next year or so given the pressures generally in the economic environment?

And then second of all, just in terms of the impact of falling energy prices, what is the magnitude of the benefit to you in terms of bitumen and transport costs in the coming year?

Well, I suppose it is very difficult on the energy side to predict at this stage how everything is going to work out for the current year, but I suppose if one looks at the trends between '07 and '08, energy costs and input costs which are related to energy would've been somewhere between 9% and 9.5% of sales in 2007 and would have increased to about 11% of turnover in 2008. Obviously with the trends we see at the moment, that should be a lesser percentage in 2009, but we don't have full visibility yet on how all of those cost items will work out in the course of the year, but it should be lower. I think one example maybe then you might give us, which is related just to the diesel fuel requirements is materials and all.

Yes, in 2008, we had a 60% increase in our average cost of diesel. It was up roughly $1 a gallon in the US and thus far this year in 2008, diesel has gone back down to kind of 2007 levels. So we are probably -- current rates have EUR0.80 to EUR0.90 per gallon better pricing than we did in '08. And we use a lot of diesel. We use about 70 million gallons of diesel a year. So that is just one example of where --. How much of that goes to the bottom line? It depends on pricing of your products, but a very significant portion of that, two-thirds is incurred inside the fence of our operations. It's diesel used in the manufacture of our products. So if our product pricing continues to move forward, we will collect that advantage.

And that is just related to the diesel function in the US materials?

Just in the US, yes.

I think, Kevin, on the cost side, there is obviously significant further cost reduction initiatives, which have already been implemented and further on the way right across the business, so we haven't quantified that, but it is something we will be updating the market on in mid year probably with our July interim trading segment. But there is significant further activity across the group in response to the emerging market environment.

John Sheehan, NCB. Just a few brief questions. I think it was early on in the presentation on dividends, you made the comparisons obviously with the early '90s downturn. You have had different companies saying this is going back to -- is it the '70s, is it the '80s, is it the '20s. What is just your own sense of the state of markets and is the '90s a fair enough comparison? I think you should be going back further to let's say maybe to the '80s, '70s, just a sense on that.

Maybe secondly, just following on from the earlier question on Poland and Ukraine, could you give us just an idea of what the net asset investment in those regions is at the end of the year?

Thirdly, then just EBITDA, your interest cover previously had indicated that kind of pushed that up given the environment from 6 to 6.5 times. Just wondering if that is still a view that should be taken going forward.

And then finally just on the pension side of the income, I know a lot of companies have had a fairly significant increase in the net liability on the balance sheet. Any implications for funding?

Okay. Thanks, John. A number of questions there. I am not sure if I remember them all. I suppose in relation to the net assets that we would have in Eastern Europe, we would probably have of the order of EUR500 million net worth in Poland across all the operations and probably somewhere less than EUR100 million or so in the Ukraine, which you will remember, we bought our Ukrainian cement plants back in the late '90s for $12 million. So we have 2 million tons of capacity there, origin based $12 million. We have invested in a coal mill there and coal burning, which probably has brought it up to about 50 and we are obviously investing there at the moment in a modern plant, which will further increase the investment.

With regard to your final question there, which related to pensions. Yes, we have an increased pension deficit in the current year, which is driven very much by IAS 19, which is a particular technical standard. The actual pension fundings are driven by different actuarial methods, which do flag an increasing funding requirement for those pension schemes. But IAS 19, and you'll see if you look back over the last five years, has produced very wide fluctuations from year to year because of the particular methodology there. The funding mechanisms and the actuarial methodologies used there produce a smoother outcome in terms of funding.

With regard to the 1990s, is that the equivalent of what we're going through at the moment? I mean who knows. We won't be able to tell for some considerable time in relation to that, but certainly I think in the degree of credit dislocations that we have seen over the last 12 months and which is continuing at far greater than anything we would have seen in similar setbacks in the 1990s or indeed in the 1980s, so that is a different dynamic.

On the other hand, I suppose the government response has been on a much larger scale than anything we have seen in previous recessions. I suppose particular rising at then to CRH if we go back to the early 1990s, I mean CRH essentially, its operations were represented by five countries. We are now spread across 35 countries. The balance of the group is much more diverse, so I think that brings in greater stability to the business than we had in the early 1990s when we were very much dependent on Ireland, UK, Netherlands, Spain and the US. So obviously very different times, a lot of the precise parallels, we can't be sure. But it is a different group as well and a much more robust one than it was back then. I think I may have missed one of your --.

Just in terms of the interest cover.

Interest cover. No, the targets would still be very much the same. We are consistent in wanting CRH to maintain a strong investment grade credit rating with an EBITDA net interest cover in the 6 to 6.5 times range.

John Mattimoe from Merrion Stockbrokers. My first question is just on the products and distribution operations and apologies if this is confused with the start of the weather in the early months. But I was just wondering if you can get a sense from your order intake trends on what the like-for-likes in the early months of the year are going to be compared to the second half of 2008?

The next question is just those three points on the US infrastructure side. Stimulus plan, you mentioned $10 billion, Mark, in relation to 2009. Could you tell us how you see the rest of the $28 million odd cash being spread out? And then in relation to the $10 billion in 2009, do you see CRH's materials business benefiting proportionately? So if there is an extra one-eighth onto the spend from the $10 billion, would your sales into the highway segment of the US go up by approximately one-eight as well?

And then lastly in that area, is there any structures being put in place in the plan to disincentivize or discourage states from using the stimulus funds to substitute funds from work they might have done?

Maybe Mark might answer the infrastructure question there first, John and then may be Mairtin, you might say how you are seeing the -- depends on the (inaudible) side in Europe.

Yes, well, I think obviously we feel like the funding -- what we are trying to do right off the bat is to do projects that they can do quickly. That is what they are trying to do to get everybody to work, which really comes to us because we can do a lot of asphalt overlays and so forth. We have got those ready to go. We are trying to help push those things as we go. So those are the kinds of things probably that will help us in 2009. As far as what some of the bridge work and so forth may take a little bit longer to get ready. It will carry over into probably 2010.

I think our business mix compared to what you normally would read about for the peer companies in the US, most of them are really pure aggregate players. I think we are positioned to do better there because we also have the asphalt piece of it and the construction laydown part of that as well. So we would be pretty excited about what happens right away on that. So I think some of the stuff that is going to happen in the next year really are going to be the bigger projects and so forth that has longer leadtimes, whatever. But I think we will just see how well -- how quickly it goes. We will be very positive about what happens in 2009.

I think the other point would be we operate in materials across over 40 states in the US. So I mean we're well-positioned to pick up a significant portion of those -- the allocations to the states.

I think when we look at the first two months of 2008, January and February, they are tremendous months in terms of weather and also momentum coming out of a very strong second half of 2007. The first two months of this month, the weather has been extremely poor. If we look for example across Europe, for the first time in about 13 years, we have had the opportunity to ice skate on rivers and on lakes. So breaking open ground and mixing concrete has been very difficult. And in the UK, I think the first time in the last nine years they have been able to give out a fuel subsidy to senior citizens.

So I think the weather has been very poor and nevertheless, the momentum -- the negative momentum that was building up towards the end of the year does continue. So trading is still going to be a challenge for the year. And it just means that we are going to have to look further at trying to reduce costs, improve purchasing bonuses to get through this year. So the weather certainly an effect, but there is also continuing signs of difficult market circumstances.

So I would just like to thank those who are listening on the air for dialing in this afternoon. And if you have any queries, you know where to contact us at Investor Relations at CRH.com. So thanks again.