Americas Materials had another good year, with continuing
success in recovering higher energy and other input costs and in
delivering an improvement in heritage operating profit margin for
the third consecutive year. After a record net acquisition spend of
€1.1 billion (US$1.4 billion) in 2006, our main development
focus during the first half of 2007 was on integrating APAC, the
major 2006 transaction, which performed well ahead of expectations
in 2007. The significant incremental contribution from APAC,
combined with a 2007 acquisition spend of €0.6 billion (US$0.9
billion) arising mainly in the second half of the year, and the
strong organic heritage performance, resulted in another record
year of sales and operating profit for the Division.
Despite record high crude oil prices bitumen costs increased a
relatively modest 5%. Energy used at our asphalt plants, consisting
of fuel oil, recycled oil and natural gas, had a composite cost
decrease of 7%. The cost of diesel fuel and gasoline used to power
our mobile fleet increased by 6%. Against this backdrop, overall
prices increased 7% for aggregates, 8% for readymixed concrete and
12% for asphalt, the product most impacted by input cost
increases.
Non-residential demand continued to improve and somewhat offset
the significant decline in new residential construction. Overall
funding available for highway projects showed further growth on
2006 levels. However, with relatively fixed highway budgets, the
volume of activity was again impacted by the strong price increases
necessary to recover continuing higher input costs. Total volumes,
including acquisition effects, increased 5% for aggregates, 2% for
readymixed concrete and 14% for asphalt. Heritage volumes declined
7% for aggregates, 13% for readymixed concrete, and 13% for
asphalt.
The overall 2007 Divisional margin of 10.5% (2006: 9.9%) again
reflected the dampening effect of APAC’s profitable but lower
margin business mix. The operating margin excluding APAC again
advanced to 12.1% (2006: 11.2%).
The acquisition of APAC has resulted in an optimisation of our
regional operating structure. The newly formed Mid-Atlantic region
comprises our operations in Pennsylvania, Delaware and Michigan,
which previously reported as part of our Central region. We have
merged APAC’s operations in western North Carolina, eastern
Tennessee and Virginia, which represent approximately 20% of
APAC’s total operations, into a redefined Central operating
region together with our heritage operations in Ohio, Kentucky,
West Virginia, North Carolina and Virginia. We have created two
APAC operating regions, the Southeast operations in Alabama,
Florida, Georgia and Mississippi and the Southwest comprising
operations in Arkansas, Missouri, Kansas, western Tennessee,
Oklahoma and Texas.
With a total investment of approximately US$0.9 billion, 2007
was another very busy year in acquisition terms for the Division.
Major transactions included the acquisition of Conrad Yelvington
Distributors (CYDI) and the purchase of certain assets in Florida
and Arizona formerly owned by Cemex. CYDI is the largest rail
distributor of aggregates in the southeast United States and, with
a major presence in Florida, is a strong geographic and
complementary fit with APAC’s Florida activities and also
with CRH’s extensive local Precast and Architectural Products
businesses in the southeast United States. The former Cemex assets
fit well with our expanding interests in Florida and offer
development opportunities in Arizona. In addition the Division
completed 17 other transactions which included some significant
moves in the western states and in Pennsylvania, and commencement
of a bolt-on acquisitions programme across the APAC platform.
Construction of the 1.1 million tonne joint venture greenfield
cement plant in central Florida is progressing well with completion
scheduled for end 2008.
New England
In 2007, New Hampshire and Vermont enjoyed good trading in solid
markets. Massachusetts had another favourable year with good demand
and a continuing positive pricing environment. The states of Maine
and Connecticut both reduced highway spending and higher prices
impacted volumes at the municipal and local level resulting in
profit declines in these areas. Overall, profits improved.
September saw the acquisition of Burgess Brothers based in
Bennington, Vermont, which establishes a presence for our business
in a new market area in the state.
New York/New Jersey
Our New York/New Jersey businesses had record results mainly due
to asphalt margin expansion. In Upstate New York, our Albany
operations once again increased profits despite challenging market
conditions. Recent years have seen significant contraction in the
Rochester region with many large local employers continuing to
scale back their activities. However, 2007 brought some improvement
in local demand and our Rochester operations reported higher
profits. Work continued on our major project to double aggregates
production capacity at our key West Nyack quarry, just north of New
York City; this will further enhance our ability to service the New
York Metro market. A readymixed concrete producer based in Utica,
New York was acquired in July.
Mid-Atlantic
The newly formed Mid-Atlantic region delivered positive results.
Despite continued poor markets in Michigan, our operations
delivered good results reflecting strong cost control and reduced
fixed overhead. The slowing economy in Pennsylvania and Delaware
resulted in sales declines for heritage operations, although cost
and price initiatives achieved earnings on par with prior year. At
end-August, McMinn’s Asphalt and Prospect Aggregates, a
vertically integrated materials business based near Lancaster,
Pennsylvania was acquired, adding approximately 170 million tonnes
of well-located reserves and providing a good growth platform for
further vertically integrated expansion. Other transactions
included the Delaware component of the readymixed concrete and
concrete products assets, acquired from US Concrete in November,
and the January purchase of a crushing facility adjacent to an
existing Materials Division quarry in Virginia.
Central
This region delivered record results in the year with solid
contributions from APAC’s operations in the region,
improvements in pricing and good benefits from its winter-fill
programme. Our bitumen storage capacity in this region mitigated
significant bitumen cost increases during the busy highway paving
season. Transactions completed during 2007 included the April
purchase of a 1 million tonne per annum Cleveland, Ohio-based
asphalt producer; the August acquisition of a small asphalt
producer based in Ridgeland, South Carolina; and in November the
addition of the Knoxville, Tennessee component of the readymixed
concrete and concrete products assets acquired from US
Concrete.
West
Our West region had another excellent year. Local economies were
mixed, but overall remained strong with solid non-residential and
highway markets offsetting weak residential demand. Once again,
Utah and Idaho saw significant profit gains due to a better pricing
environment in solid markets for all products, and volume gains
associated with major projects. In Washington, results improved
significantly. Our operations in Wyoming, Montana, South Dakota,
Colorado, and New Mexico had another record year. Our Iowa
operations suffered profit declines as a result of weak residential
demand. The major acquisitions completed during 2007 were the
purchase in August of Eugene Sand & Gravel, based in Eugene,
Oregon and of Cessford Construction, which operates in central and
eastern Iowa and in west central Illinois; in November we acquired
HK Contractors, based in Idaho Falls. These combined with five
smaller bolt-on deals plus the acquisition of former Cemex assets
in Arizona contributed to a busy development year in this
region.
APAC
We achieved significant synergies through overhead reductions
and by shifting the business emphasis from construction to
materials. Although APAC’s structurally lower margins (due to
higher revenue, lower margin construction sales) again impacted
Americas Materials’ overall operating margin in 2007,
underlying trading in the business for 2007 was well ahead of
expectations. The integration programme was completed on schedule
and overall performance was well ahead of expectations.
CYDI and the former Cemex assets in Florida acquired during 2007
complement APAC’s operations in the state. In addition two
other acquisitions during 2007 served to expand APAC’s
aggregates and asphalt activities in Texas and Oklahoma
respectively.
Outlook 2008
Infrastructure is the key end-use for Americas Materials and
while funding for highway projects is forecast to increase further
in 2008, volumes and activity levels will continue to be influenced
by input cost movements and associated product pricing trends.
The key focus in 2008 is to continue the improving underlying
trend in operating profit margin through prudent cost and overhead
savings, combined with the ongoing achievement of efficiency gains
and additional price improvements.
With a continuing favourable pricing environment, a sustained
emphasis on operating efficiency and with benefits from our record
2006/07 development spend we look forward to another year of
progress for this Division.
The Americas Materials Division operates in 44 states in the
United States through six regional business units. CRH is the third
largest aggregates producer, the largest asphalt producer and a top
10 readymixed concrete producer in the United States. It owns
integrated aggregates and asphalt operations thoughout the United
States with strategically located long-term aggregates reserves.
Integrated readymixed concrete operations are spread throughout
many states, with particular concentration in the west. The
Division is currently developing a greenfield joint venture cement
plant in Florida. Americas Materials employs approximately 23,500
people at over 1,200 locations.
