2009 Annual Report - CRH

asphalt plants and paving operations.
This represents a geographic
expansion of our profitable Utahbased
operations into a steadily
growing, natural resource rich region
of the state.
The Lafarge assets in central and
eastern Missouri provide 123 million
tonnes of well-located reserves along
the I-70 interstate between Kansas
City and St. Louis.
In addition, the Division completed six
other transactions adding another 162
million tonnes of aggregates reserves.
Our operations are geographically
organised, segmented into East and
West sectors, each containing four
divisions.
East
The Northeast division (ME, NH, VT,
MA, RI, NY, NJ, CT) delivered a mixed
performance. The Pike group
capitalised on early ARRA bid lettings
in Maine and New Hampshire and
Market leadership
positions
Aggregates
No.3 national producer
in United States
Asphalt
No.1 national producer
in United States
Readymixed Concrete
Top 5 in United States
delivered record operating profits with
improved margins and solid asphalt
volumes and construction revenues.
Massachusetts and Upstate New York
also moved operating profits ahead
strongly with good overall infrastructure
demand. The metropolitan
New York operations suffered primarily
from dramatic commercial activity
declines while lower volumes and
intense market competition continued
in New Jersey. In Connecticut,
continued softness in residential and
commercial activity outweighed
improvements in infrastructure
construction activity. Overall the
Northeast division operating profit was
lower than the prior year.
The Mid-Atlantic division (PA, DE, VA,
WV, KY, TN, NC, MA) suffered
operating profit declines in
Pennsylvania and Delaware as these
markets continued to deteriorate.
Operating profits in Virginia, West
Virginia, Kentucky, Tennessee and
North Carolina also fell off from
excellent levels in 2008 due to volume
declines. Aggressive pricing initiatives
and cost reductions resulted in margin
improvement throughout the
Mid-Atlantic division, moderating the
operating profit decline.
A strong stimulus programme in
Michigan along with sound pricing
initiatives, good bitumen purchasing
and excellent cost controls in both
Michigan and Ohio enabled our
Central division to achieve improved
profit margins. While volumes
declined in line with the Materials
Division averages, operating profit
was within 15% of the record 2008
outcome.
The Southeast division (GA, AL, SC,
FL) experienced another difficult year
leading to a sharp fall in operating
profit. Continued declines in the
Florida residential and commercial
markets negatively impacted the
readymixed concrete operations
acquired in late 2007 and our new
cement joint venture (American
Cement Company) which began
production in June. Additionally,
significant state budget deficits in
both Florida and Alabama adversely
affected highway lettings and
consequently the volumes of asphalt
and rail-transported aggregates in
both states.
West
The Southwest division (MS, TX, OK,
AR, MO, KS, TN) was impacted by
volume declines for all products and
lower construction sales. However,
margin increases in all product lines,
coupled with aggressive fixed cost
reductions, more than offset lower
volumes and construction margins,
leading to a good advance in overall
operating profit.
In the Rocky Mountain/Midwest
division (IA, SD, MT, WY, CO, NM, ID,
MN, NE, IL), operating profit declined
in 2009 due to weak demand and
lower construction margins. Our
Midwest businesses experienced
good asphalt demand in Iowa from
significant ARRA projects and
achieved margin improvements from
pricing and cost initiatives. However,
these advances in the Midwest
division were more than offset by
reduced highway activity in
Minnesota, Idaho and Montana, and
overall operating profit was below the
2008 level.
In the Northwest division (ID, WA,
OR), worsening economies in
northern Idaho and Oregon impacted
volumes and operating profits despite
strong pricing and significant benefits
from cost controls and restructuring.
The Staker Parson operations (UT, ID,
AZ, NV) saw a significant decline in
volumes reflecting a weakening
economy in all regions. The continued
slide in residential and commercial
construction led to reduced demand
for readymixed concrete and
aggregates and drew additional
competition to the highway
construction business. Profit margins
were maintained, but operating profit
declined.
Outlook
The ARRA Federal stimulus bill will
provide increased construction activity
in 2010, however there is much
uncertainty concerning the
reauthorisation of a long-term Federal
highway bill and/or the passage of a
second job stimulus bill. This
uncertainty has caused many
fiscally-challenged states to become
even more cautious with their highway
programmes. Overall, we would
anticipate the combined Federal and
state spending on highway
construction in 2010 to be similar to
2009. Residential activity should
improve modestly from a low level,
likely showing gains in the second half
of 2010. The important non-residential
sector will decline further in 2010 from
weak 2009 levels due to continued
tight credit, high vacancy rates and
high unemployment.
Overall we expect ongoing product
volumes and construction revenues to
be flat in 2010. Margins in
construction are expected to be lower
due to increased competition and
intense bidding for limited work,
however product margins should
improve with product price increases
and cost-efficiency improvements.
These efforts coupled with continued
reductions in fixed overhead and
contributions from 2009 acquisitions
should result in a good advance in
operating profit for Americas Materials
in 2010.
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