2009 Annual Report - CRH

offset by the decline in the average
Polish Zloty exchange rate which at
4.3276 was 19% weaker (2008:
3.5121). Currency movements in total
had a net negative impact of €44
million at profit before tax level. The
average and year-end exchange rates
used in the preparation of CRH’s
financial statements are included
under Accounting Policies on page 66
of this Report.
Incremental Impact of Acquisitions
Acquisitions completed in 2008 and
2009 contributed incremental
operating profit of €24 million on
additional sales of €298 million, an
effective incremental operating profit
margin of approximately 8%.
The Group’s European segments
accounted for the bulk of the
acquisition impact in 2009, generating
an incremental €20 million in
operating profit on additional sales of
€244 million. This reflected the
full-year impact of the sanitary ware,
heating and plumbing acquisitions by
the Distribution group in Germany and
Switzerland in mid-2008, and of the
Group’s joint venture cement
investment in India in May 2008.
In the Americas, the incremental
impact from acquisitions was, as
expected, relatively modest, with an
incremental €4 million in operating
profit on sales of €54 million.
CRH’s 2010 results are expected to
reflect a modest incremental impact
from 2009 acquisitions, which on a
combined basis, have annualised
sales of approximately €200 million.
Non-recurring items – Restructuring
and Impairment Costs
The ongoing focus on operational
excellence initiatives to deliver cost
savings continued throughout 2009
and the related savings generated
from these initiatives are discussed by
the Chief Operating Officer on page
19 of this Report. The costs incurred
to implement this 4-year cost saving
programme amounted to €205 million
in 2009 (2008: €62 million).
Impairment charges of €41 million
were recorded against the carrying
value of property, plant and
equipment and intangible assets – the
corresponding charge in 2008 was
€14 million.
Ongoing Operations
2009 organic sales declined by
€4,103 million, a reduction of
approximately 19% following a fall of
approximately 6% in 2008. Overall
organic sales declined by 17% in
Europe while the reduction was 22%
in the Americas; this compared with
2008 which saw organic sales decline
by approximately 4% in Europe and
by 8% in the Americas. Underlying
operating profit fell by €708 million,
Table 2 Key Financial Performance Indicators
2009 2008
Operating profit margin (%)
Interest cover
5.5 8.8
– EBITDA basis (times) 6.1 7.8
– EBIT basis (times) 3.2 5.4
Effective tax rate (%) 18.3 22.5
Net debt as a percentage of total equity (%) 38.3 74.7
Net debt as a percentage of year-end market
capitalisation (%)
28.1 64.1
Return on average capital employed (%) 6.6 12.9
Return on average equity (%) 6.7 15.6
EBITDA – earnings before finance costs, tax, depreciation, impairment
charges and intangible asset amortisation
EBIT – earnings before finance costs and tax (trading profit)
Both EBITDA and EBIT exclude profit on disposal of non-current assets
more than double the €301 million fall
in organic operating profits in 2008.
Underlying operating profit for our
European operations fell by
€389 million on an underlying sales
reduction of €1,845 million, reflecting
challenging trading conditions in
almost all our markets. Our Materials
businesses suffered from the impact
of significant volume declines in all its
major markets except Switzerland
and organic operating profit fell by
€260 million. Our businesses in the
Products segment experienced
difficult trading conditions throughout
2009, with like-for-like sales down
19% compared with 2008; however,
the benefits from the ongoing
restructuring programme began to
come through in the second half
when underlying operating profit
was slightly ahead of 2008, while
the decline for the full year was
€74 million. Declining consumer
confidence and weaker new
residential construction activity
resulted in an overall decline in
underlying profits of €55 million in
Distribution, with the second-half
decline being slightly lower than the
first half.
Our operations in the Americas had a
challenging year reporting a decline of
€2,258 million in underlying sales and
a decline of €319 million in like-for-like
operating profit. While lower private
sector demand in 2009 had a
significant negative impact on
volumes for the Materials Division,
infrastructure activity gained
momentum through the second half.
With lower input costs for energy and
the benefit of targeted cost reduction
measures and price increases, the
Division reported improved margins in
2009 in spite of a 19% decline in
ongoing sales revenues; ongoing
operating profit was €72 million lower
than 2008. The combination of weak
residential markets and ongoing
reductions in non-residential
construction activity had a major
impact on our Products businesses in
the Americas which reported falls of
€881 million in sales and €170 million
in operating profits from underlying
operations. Our Distribution
operations suffered primarily from the
decline in residential and commercial
construction, with underlying
operating profit falling €77 million
behind 2008.
Finance Costs
Net finance costs for the year of
€297 million were lower than last year
(2008: €343 million) reflecting strong
operating cash flow for the year and
the benefits of the Rights Issue.
Financial Performance Indicators
Some key financial performance
indicators which, taken together, are a
measure of performance and financial
strength are set out in Table 2.
Operating Profit Margin
Overall operating profit margin for the
Group fell by 3.3 percentage points in
2009 to 5.5%, with all segments
except Americas Materials
experiencing margin declines.
Interest Cover
Management believes that the
EBITDA interest cover based ratio is
useful to investors because it matches
the earnings and cash generated by
the business to the underlying funding
costs. As set out in note 23 on page
95 of the financial statements, the
Group’s major bank facilities and debt
issued pursuant to Note Purchase
Agreements in private placements
require the Group to maintain
EBITDA/net interest (excluding share
of joint ventures) at no lower than
4.5 times for twelve-month periods
ending quarterly on 31st March,
30th June, 30th September and
31st December in each year.
Non-compliance with financial
covenants would give the relevant
lenders the right to demand early
repayment of the related debt thus
impacting the maturity profile of the
Group’s debt and the Group’s liquidity.
While EBITDA/net interest cover for
the year reduced to 6.1 times (2008:
7.8 times), it remained comfortably
above the Group’s covenant levels
and within the Group’s comfort range
of 6 to 6.5 times.
Tax Rate
The tax charge at 18.3% of Group
profit before tax decreased compared
with 2008 (22.5%). The decline in the
tax charge largely reflects lower
taxable profits in a number of
jurisdictions where higher tax rates
apply.
CRH 37