Profitability and Earnings
2009 posed exceptionally difficult operating challenges for CRH. Demand levels were severely impacted by weakened economic activity and by the most extreme winter for many years across our major markets of Europe and North America. During the year, the shift in CRH’s short-term focus, initiated as markets deteriorated during 2008, continued with the implementation of further wide-ranging cost reduction measures across the Group.
Against this background, the Group produced a profit before tax of €732 million and earnings per share of 88.3 cent after restructuring and impairment costs. The profit and earnings outturns represent declines of 55% and 58% compared with the 2008 outturn of €1.6 billion and 210.2 cent respectively. Despite the reduction in profits, net debt at the end of the year was €3.7 billion compared with €6.1 billion at the end of 2008. This was the result of an intensified focus on cash generation, excellent working capital management and restrained capital expenditure across the Group, together with reduced development expenditure and the proceeds from the €1.2 billion Rights Issue in March 2009.
Details of the challenges faced by the Group during 2009 and of the performances of the separate Divisions are given in the Chief Executive’s Review and in the Operations and Finance Reviews which follow.
Dividend
With good first-half operating cash flow delivery and expected strong second-half inflows, the Board decided last August that it was appropriate to maintain the interim dividend at 18.5 cent (2008 adjusted for 2009 Rights Issue: 18.48 cent).
Second-half cash generation has exceeded our August expectations and the Group has delivered full year operating cash flow before dividends of over €1.5 billion. Accordingly, the Board has decided that it is appropriate to pay a final dividend of 44.0 cent per share, a slight advance on 2008’s Rights-adjusted final dividend of 43.74 cent.
This gives a total dividend for the year of 62.5 cent (2008: 62.2 cent), an increase of 0.5%, representing the 26th consecutive year of dividend growth. It is proposed to pay the final dividend on 10th May 2010 to shareholders registered at the close of business on 12th March 2010.
The dividend of 62.5 cent represents a gross cash outlay of approximately €435 million. Deducting the €57 million scrip take-up on the 2009 interim dividend, and assuming no scrip take-up on the final dividend, would result in a net cash outlay close to €378 million, 4.1 times covered by 2009 operating cash flow pre-dividends of over €1.5 billion.
Reported 2009 dividend cover of 1.4 times increases to 2.0 times when asset impairment and implementation costs associated with the Group’s cost reduction efforts are excluded.
Cost Reduction Programme
In response to weakening markets over the past three years, the Group has implemented a range of measures, which are projected to deliver total annualised gross savings of approximately €1.65 billion over the period 2007-2010 with total costs to implement of €312 million. A total of approximately €205 million of restructuring charges were taken in 2009 and it is expected that a further €45 million of implementation costs will be incurred in 2010.
Development Activity
Total acquisition spend for 2009 was approximately €0.46 billion. First-half expenditure included the purchase of a 26% stake in Yatai Cement, the leading cement producer in north- eastern China, along with six other bolt-on acquisitions across the Group’s Materials and Distribution businesses. During the second half of the year a further 10 transactions were completed totalling €0.18 billion, details of which were announced in the Development Strategy Update in January 2010. These will add substantial aggregates reserves, with clear opportunities for operating and purchasing synergies, to our American Materials business, as well as adding to our presence in northeastern China and in Poland.
Financing Expansion
As a result of the Group’s intense focus on cash generation and substantial equity injection achieved by the Rights Issue in March 2009, CRH has the financial strength to take advantage of acquisition opportunities that enhance our strategic positioning and represent exceptional value for money.
CRH remains well positioned in terms of debt facilities with year-end net debt of under €4 billion, which has an attractive maturity profile. In May 2009, the Group raised €0.75 billion with a debut issue on the Eurobond market.
Market Indices
During 2009, the Company joined the Dow Jones EURO STOXX 50® Index, which comprises 50 of the leading blue-chip companies in the Eurozone and is licensed to financial institutions. Also in 2009, CRH was added to the Dow Jones EURO STOXX® Select Dividend 30 Index. CRH is also a component of a number of other indices, including the ISEQ 20, the FTSEurofirst 300 and the S&P Europe 250.
Litigation
In December, we received notification from the Polish Office for Competition and Consumer Protection that, arising from an investigation into the Polish cement industry, it had concluded that seven companies, including CRH subsidiary Grupa O.z arów S.A., had been involved in anti-competitive practices. As a result, fines were levied, including a fine of PLN 104.97 million (approximately €25.6 million) on Grupa O.· arów. The conclusions of the investigation are a matter of serious concern to CRH. The Group’s Code of Business Conduct sets clear standards for the conduct of its operations in the various territories in which the Group operates and expressly prohibits any anti-competitive behaviour. We always understood that Grupa Oz. arów conducted an independent commercial policy, which has been verified by analysis undertaken, at the request of CRH, by leading Polish economic experts. We have appealed the conclusions of the investigation and the fine.
Corporate Governance
A statement setting out CRH’s key governance principles and practices is provided in the Corporate Governance Report section. The Board and Management of CRH are committed to achieving the highest standards of Corporate Governance and ethical business conduct and are satisfied that appropriate systems of internal control are in place throughout the Group.
From 2010, the Board has decided to present the Report on Directors’ Remuneration to shareholders for the purposes of an advisory vote. There is no legal obligation on the Company to do this and the outcome of the vote is not binding on the Company. The Board believes that such a resolution is good practice and is an acknowledgement of shareholders’ entitlement to have a ‘say on pay’.
Board and Senior Management
Terry Neill will retire from the Board at the conclusion of the Annual General Meeting on 5th May 2010. Terry has been a non-executive Director since 2004 and Chairman of the Remuneration Committee since 2008. He has made a very significant contribution to the effectiveness of the Board and I wish to thank him for his valued advice and commitment to the interests of shareholders.
John Kennedy was co-opted to the Board on 24th June 2009 as a non-executive Director. John is Chairman of Wellstream Holdings plc, a UK listed company and during a 30 year career in the international industrial and energy services related sectors he has served as Executive Vice President of Halliburton Company, President of Dresser Enterprises and Chief Operations Officer of Brown and Root Services. He brings valuable international experience to the Board and his appointment continues the process of Board renewal at a pace which is consistent with the maintenance of the Board’s teamwork and core values.
As provided for in the Company’s Articles of Association, John Kennedy is proposed for election at the Annual General Meeting on 5th May 2010. Also in accordance with the Articles of Association and best practice in relation to the re-election of Directors, Utz-Hellmuth Felcht, Dan O’Connor and Liam O’Mahony will retire from the Board and seek re-election at the Annual General Meeting. I have conducted a formal evaluation of the performance of all Directors and can confirm that each of the Directors continues to perform effectively and to demonstrate commitment to the role. Notwithstanding Liam O’Mahony’s former service as an executive, the Board considers him to be independent. In forming this view, the Board has reviewed his performance in his capacity as a non-executive Director since January 2009. Based on this review, the Board is satisfied that Liam’s ability to exercise independent judgement, and to act in the best interests of the Group, is in no way compromised by his former service as an executive. I strongly recommend that John Kennedy, Utz-Hellmuth Felcht, Dan O’Connor and Liam O’Mahony be re-elected to the Board.
Angela Malone retired as Group Company Secretary during the year after 14 years in that role and I wish to thank her for her very significant contribution to the work of the Board over that time. She was replaced as Group Company Secretary by Neil Colgan and I wish Neil every success in that position.
The Board notes with regret the death, in November 2009, of Paddy Dempsey, a former executive Director of the Company. Paddy had a record of long and distinguished service and made a major contribution to CRH over that time.
Management and Staff
The performance of CRH during 2009, particularly in relation to cost reduction, cash generation and overall operational excellence, demonstrated once again the strength, depth and resilience of our management and staff. There is a unique culture of performance and achievement throughout the Group and this will ensure that even in the current exceptionally difficult economic environment CRH has the capacity to deliver superior performance. On behalf of the Board, I thank Myles Lee and all CRH employees for their commitment to the success of the Group.
Conclusion
Management’s views on the outlook for 2010 are set out more comprehensively in the Chief Executive’s Review and the various Operations Reviews. The overall trading outlook for 2010 remains challenging given forecasts for a slow pace of recovery from the global recession and the lag effect for recovery in construction markets. Against the background of this environment, our attention and efforts will be focussed strongly on ensuring that our businesses are well positioned, through continuing cost reduction, cash generation and excellence in operational management, to deal with whatever trading circumstances may evolve.
Kieran McGowan
1st March 2010