Skip to main contentSkip to main navigationSkip to section navigationSkip to site services Home  |  Stay Informed  |  Download Library  |  Site Map  | Contacts  
 
About CRHOur DivisionsInvestor RelationsNews & MediaOur ResponsibilityGroup Directory


Print Page (opens in a new window)Print Page
Email UsEmail Us
Bookmark Page - JavaScript requiredBookmark Page
Our Divisions
Europe Materials

Overview

Europe Materials experienced a change in economic conditions during 2008. After a positive first half, when continuing advances in eastern Europe more than compensated for declines in Ireland and Spain, the deteriorating global economic environment impacted second-half performance. Overall, operating profit for the year was up 8% on a record 2007 performance.

In response to the deteriorating economic backdrop and the unprecedented rise in energy costs, initiatives were put in place to proactively adjust the cost base to the changing demand environment. These included an intensified focus on operating efficiency, purchasing benefits and energy optimisation, together with adapting the level of bought-in services to match lower demand levels.

We continued to progress our capital expenditure programme to modernise and expand three cement plants in Ireland, Poland and Ukraine. The Irish Cement plant was completed in December and has created an ultra-modern, energy-efficient plant meeting world best practice emissions standards which will generate increased fuel and energy savings in 2009. The investment in Ukraine is progressing well and will deliver significant efficiency savings and reduced CO2 emissions when commissioned in 2010. We are reviewing the timing of the requirement for additional cement capacity in Poland and have therefore postponed further expenditure on the project at present.

In addition to seven traditional bolt-on acquisitions during the year, we acquired a 50% stake in My Home Industries Limited (MHIL). MHIL is a cement company with headquarters in Hyderabad and markets in the Andhra Pradesh region of southeast India. MHIL represents CRH’s entry into the Indian cement market and to date has performed ahead of our expectations.

Ireland

Construction demand in Ireland fell significantly in 2008. The decline of the residential sector, which commenced in 2007, accelerated through the year. Our sales to the commercial sector, which were strong in the first half, weakened considerably in the second half. The infrastructure and agricultural sectors continued to see strong demand throughout 2008.

Inflation in energy and fuel reached unprecedented levels during the year and was not wholly recovered. Cost reduction programmes were intensified across all businesses, with consequent one-off rationalisation costs reducing profits. While progress was achieved in adjusting the operating base to the new market circumstances, overall operating profit in Ireland declined compared with 2007.

Benelux

Cementbouw, our cement trading, readymixed concrete and aggregates business, consolidated into Europe Materials in 2007, had a good first full year in the Division and exceeded target returns. A rationalisation of joint venture companies within this business has improved management focus and helped to grow profits in 2008.

Central and Eastern Europe

The Polish economy expanded at a slower rate than in 2007 with GDP growth at 4.8%. Inflation rose to an average 4.2% while unemployment declined to 9.5%. Interest rates were increased in the first half to help curb inflation and dampen property prices.

The Polish construction market experienced a good year and output grew by 11%. Increases in commercial and industrial construction compensated for a decline in infrastructure and public non-residential building and also in housing activity in the main cities.

Cement volumes remained at 2007 levels. The concrete products businesses performed very well with increased volumes in readymixed concrete and pavers, although walling products were impacted by a slowdown in the residential sector.

The delay in the road programme resulted in lower aggregates and blacktop volumes, although profitability improved through cost saving initiatives.

Lime volumes were also down but profits improved with the completion of a new lime kiln investment coupled with cost saving measures. Overall in Poland, improved efficiencies and good input cost recovery resulted in improved margins across our balanced operations and operating profit was up significantly on 2007 levels.

In Ukraine, GDP grew by 2.1% in 2008. Cement volumes grew strongly in the first half but fell back in the second half as political and economic difficulties intensified. Better pricing and the use of coal in place of high cost natural gas resulted in a higher operating profit for the year.

Finland and the Baltics

Finland’s economy grew at a more modest rate of 0.9% in 2008 following the strong expansion of recent years. Overall construction demand continued to advance during the first half of the year; however, the second half saw slowing non-residential construction activity, an accelerating decline in residential output and the completion of a number of infrastructure projects. As a result, demand for our products was at a lower level than in 2007. Nevertheless, improved operating efficiencies and strong cost control led to increased operating profit in our Finnish business.

The Baltic States experienced a difficult year with Latvia showing a double-digit decline in construction activity. Sharp volume declines were partly offset by aggressive cost reduction programmes in both Estonia and Latvia, but overall profit was down. Our operations in St. Petersburg benefited from lower input costs in 2008, but weaker second-half demand resulted in lower profit when compared with 2007.

Switzerland

GDP grew by just under 2% in 2008. Exports grew by 4.2% and private consumption by 2.1%. Unemployment fell to just 2.5%. Construction volumes were slightly up on the previous year. Infrastructure and public non-residential spending increased and more than compensated for declines in housing and industrial activity. Cement volumes were in line with 2007 levels but significant fuel cost increases were not fully recovered resulting in cement profits behind 2007. Margins in our readymixed concrete and aggregrates business increased and the outcome was ahead of 2007. Our combined Swiss operations delivered a satisfactory performance in 2008.

Iberia and Eastern Mediterranean

In Spain, construction activity fell significantly with volumes down regionally between 20-30%. While there were delays, newly-started infrastructural projects in Catalonia benefited our operations in the second half of the year. However, the residential and non-residential sectors were particularly affected and despite adjusting capacity by consolidating operating locations, our Spanish operating profit declined significantly compared with 2007.

The Portuguese economy grew by 0.2% in 2008; however, construction declined by about 3.0%, with lower activity in all sectors. Our Secil joint venture, with three cement plants, operated at full capacity taking advantage of strong export markets. Secil also enjoyed a good performance in its activities outside Portugal and reported a good uplift in operating performance due to a favourable pricing environment and efficiencies in production.

Construction demand in the southwest Aegean region of Turkey was somewhat negative and this combined with increased competition resulted in declining volumes and prices from our joint venture, Denizli Cement, resulting in lower operating profit. Profits were also adversely impacted by the sudden collapse of exports to Russia in July.

Asia

Sanling Cement’s first full year of operation under CRH ownership resulted in record sales volumes. The business performed to our expectations and factory efficiency improved. However, competitive pricing in the region resulted in a lower outcome.

Our 50% joint venture investment in My Home Industries (MHIL) has been included in our consolidated results from May 2008. The significant economic and construction growth in the Andhra Pradesh markets continued as anticipated and the performance of the company was ahead of our expectations.

Outlook

Construction demand in Ireland is set to fall further in 2009. Weak consumer demand, government fiscal constraints, and restricted credit availability are expected to continue to impact activity. Further adjustments to our capacity and the cost base are being implemented.

Cementbouw’s markets in the Netherlands are expected to show a modest decline in 2009 due mainly to weaker residential and non-residential construction. It is expected that a number of infrastructural projects will ensure some compensating growth.

In Finland, GDP is forecast to decline 2.2% and a rise in unemployment is expected. The construction trends seen during the second half of 2008 are forecast to continue into 2009 and demand for our products is projected to fall further despite an expected pick-up in infrastructure demand towards the end of the year. We expect our operations in the Baltic States and St. Petersburg to see further declines but to show improved margins on a reduced scale of activity.

Polish GDP is now forecast to grow by between 1.2% and 1.7%. Declining interest rates and lower inflation will help construction demand. We expect that increased activity in infrastructure, where EU-funded contracts are proceeding, will be offset by declines in other sectors.

In Ukraine, the decline in construction activity due to the economic crisis is expected to continue into 2009 resulting in a significant reduction in cement demand.

In Portugal, construction is expected to show a further decline due to reduced activity levels in domestic housing. Cost efficiencies and improved usage of alternative fuels should help maintain margins, but export markets will be more challenging.

While overall volumes in Spain are expected to decline further in 2009, we anticipate that the profit impact will be limited following the capacity adjustments made in 2008.

Modest growth is expected in Swiss construction due to increased residential and infrastructural activity with demand from tunnelling projects underpinning volumes from our cement operations.

Construction in Turkey is expected to show a further reduction in 2009, which we anticipate will result in our Denizli plant operating below full capacity.

While it is anticipated that cement demand may slow somewhat in greater China, we expect further growth in the northeastern provinces due to infrastructural projects. Our wholly-owned Sanling plant should again operate at full capacity.

The completion in January 2009 of the purchase of 26% of Yatai Cement Company considerably expands our presence in the Chinese cement industry. The operations of Yatai Cement comprise four cement plants and two grinding stations in the Jilin and Heilongjiang provinces in northeastern China, with a current cement capacity of 14 million tonnes per annum. A major investment programme to increase annual cement capacity to 18 million tonnes is well underway.

In India, we anticipate lower but still significant growth. The reduction in credit availability could adversely impact market growth and MHIL also faces increased competition from additional regional capacity. The launch of slag cement when MHIL’s new mill is commissioned in the second half of 2009 should more than compensate for this and volumes are expected to grow.

The slowdown in economic growth, the continuing financial turmoil and the lack of bank credit create a high level of uncertainty as we enter 2009. We continue to adjust capacity to market demand, to focus on cost reduction and performance to maintain margins and to curtail capital expenditure to maximise cash flow. While falling interest rates, government intervention through increased infrastructure spending and declining fuel and energy costs should all help to offset the impact of volume declines, we expect a more demanding trading environment than in 2008 for Europe Materials.

Activities   Market leadership positions
Cement
China, Finland, India (50%), Ireland, Lebanon (25%),
Netherlands, Poland, Portugal (49%), Switzerland,
Tunisia (49%), Turkey (50%), Ukraine

16.5m tonnes*

No.1: Finland, Ireland
No.2: Portugal, Switzerland
No.3: Poland, Ukraine
Aggregates
Estonia, Finland, Ireland, Latvia, Netherlands,
Poland, Portugal (49%), Slovakia, Spain,
Switzerland, Ukraine
76.2m tonnes* No.1: Finland, Ireland
Asphalt
Ireland, Finland, Poland, Switzerland
4.2m tonnes* No.1: Ireland
Readymixed Concrete
Estonia, Finland, Ireland, Latvia, Netherlands,
Poland, Portugal (49%), Russia, Spain,
Switzerland, Tunisia (49%), Turkey (50%)
12.9m cubic metres* No.1: Finland, Ireland, Poland
No.2: Portugal, Switzerland
Agricultural & Chemical lime
Ireland, Poland
1.4m tonnes* No.1: Ireland
No.2: Poland
Concrete Products
Estonia, Finland, Ireland, Poland,
Portugal (49%), Spain, Tunisia (49%), Ukraine
7.1m tonnes* No.1: blocks and rooftiles, Ireland
No.1: paving, Poland

*CRH share of annualised production volumes.
Cement and readymixed concrete volumes exclude CRH share of associates: Uniland in Spain (26.3%) and Mashav in Israel (25%). CRH’s share of annualised production volumes for these businesses amounts to approximately 2.6m tonnes of cement and 0.6m cubic metres of readymixed concrete.




Accessibility   |   Privacy   |   Disclaimer