Breedon Group plc (BREE) Earnings Call Transcript & Summary

Good morning, everybody. Thank you for coming today. I'll hit some highlights for the year here, and then Rob will take you through some of the financials, and then I'll follow-up with some dialogue on the business overall. I think it's fair to say it's an excellent performance in challenging conditions for Breedon in 2019. I think the numbers speak for themselves. But if they don't, I'll reiterate. Again, we consider them to be an excellent result for the year. We improved results in all 3 divisions, that's GB, Ireland and Cement. And continued tremendous cash flow. The integration of Lagan was largely completed. And the part that isn't completed was our decision to delay some of it based on some other priorities we had in the business. And we were pleased that some -- on the acquisition side, there were still some smaller transactions done. We acquired Roadway in North Wales. So we finally got the plant in Wrexham that we've been talking about for 6 years. And we're delighted to be involved in a joint venture with Capital Concrete in London to give us access to the London market and some critical mass. We spent a lot of time during the year and ultimately agreed an acquisition for a portfolio of assets from CEMEX in the U.K. I'll talk a little more detail about that as we go forward. And as we grow and mature as a business, the next 2 points, I think, are particularly relevant. One, sustainability, climate change is becoming a big part of our business. I think we did a reasonable job at it, but we never quite told that story. So we have made a commitment to the GCCA's Sustainability Charter. And then we are delighted to announce our current intention to declare a maiden dividend with our 2021 interims. So all in all, a very good year.

Thank you, Pat, and good morning, everyone. As you can see from the financial highlights, we have once again reported an improved performance. We've delivered revenue growth of 8%, underlying EBIT growth of 13% and achieved an underlying EBIT margin of 12.5%. Excluding the impact of acquisitions and disposals, revenue was up 1% and underlying EBIT improved by 10%. And this reflected an excellent performance in challenging market conditions, selling price improvements, a generally more benign input cost environment and ongoing self-help. Profit before tax was up 18%, and on an underlying basis, it was up 12%. This all translated into an underlying basic EPS growth of 8%. These results incorporate the adoption of IFRS 16 in respect of leases. But as reported at the half year, the impact of this on the income statement is not material. However, again, as reported at the half year, the impact on the balance sheet, and specifically, net debt, is more material. At the year-end, the closing net debt of GBP 290.3 million includes an IFRS 16 element of GBP 43.6 million and represents a leverage of 1.6x. Excluding the impact of IFRS 16, net debt was GBP 246.7 million and leverage was 1.4x, compared to 2.6x at the time of the Lagan acquisition in April 2018, only 20 months ago. This deleveraging clearly demonstrates the highly cash generative nature of the group. For complete transparency in respect to IFRS 16, we have also prepared the financial highlights on a pre-IFRS 16 basis. And as you can see, the only material impact is the yellow box in respect of net debt. Turning to the income statement and revenue, which at GBP 929.6 million was up 8%. Excluding the impact of acquisitions and disposals, it was up 1%. At the earnings level, underlying EBIT of GBP 116.6 million was up 13%. Again, excluding the impact of acquisitions and disposals, it was up 10% for the reasons already mentioned. The increased interest cost of -- to GBP 14 million primarily reflects the adoption of IFRS 16. Non-underlying items of GBP 8 million mainly comprised of acquisition costs, including some in respect of the CEMEX acquisition, amortization costs and reorganization costs. The resulting profit before tax of GBP 94.6 million was up 18% and the tax charge of GBP 16.6 million reflects the tax rate of just under 18%. The charge was lower than the U.K. standard rate of 19% due to the impact of profits generated in the Republic of Ireland, where the standard rate is 12.5%. All this translated into an underlying basic earnings per share of 5.08p, up 8% from 2018. Now turning to the segmental performance. And we are pleased to report that all 3 of our divisions produced an improved performance in 2019. However, the political uncertainty created by Brexit overshadowed all our markets during the year. In Ireland, in addition to Brexit, market conditions in the north were compounded by the absence of the Northern Ireland executive, whilst activity in the south was more positive. In cement, the Irish market remained challenging throughout 2019, with all regions relatively muted, apart from Dublin which continued to grow strongly, whilst in GB, market conditions were broadly stable. In Great Britain, revenue was up 1%, underlying EBIT was up GBP 1.4 million or 2%, and the underlying EBIT margin was 10.2%. In Ireland, revenue was up 29%, underlying EBIT was up GBP 5.9 million or 28%, and the underlying EBIT margin was 13.3%. In the Cements, revenue was up 6%, underlying EBIT was up GBP 4.9 million or 16%, and the underlying EBIT margin was 19.5%. As already mentioned, we improved our group underlying EBIT margin by 0.5 percentage points. We continue to target 15% in the medium term, but we do not believe that the pursuit of this target in isolation is in the interest of our shareholders. We have therefore introduced 2 additional KPIs, return on capital employed and free cash flow, which we believe will ensure better shareholder alignment going forward. Lastly, it's probably an appropriate time to comment on the status of the Lagan synergies. The integration of Lagan is now largely complete and our current annual cost synergy run rate has hit the target of GBP 5 million. Turning to our products. Reported aggregate volumes grew by 4%. On a like-for-like basis, there was a decrease of 3%. Reported asphalt volumes grew by 6%. And on a like-for-like basis, there was a decrease of 4%. Reported concrete volumes declined by 7%. But on a like-for-like basis, there was a decrease of 4%. And lastly, reported cement volumes grew 3%. And on a like-for-like basis, the decrease was 3%. Market declines of aggregate, asphalt and concrete volumes were 2%, 1% and 4%, respectively. Over and above these market declines, our like-for-like aggregates and asphalt volumes were impacted by the phasing of major projects in Scotland and the shift towards higher value aggregates in England. In terms of pricing, progression in excess of inflation has generally been achieved during the year. And Pat will comment further shortly on the markets. Now turning to net debt, which stands at GBP 290.3 million at the year-end. Net debt has reduced by GBP 20.4 million from GBP 310.7 million at the end of 2018 to GBP 290.3 million. And this movement reflected an underlying EBIT of GBP 180.2 million; a GBP 10.3 million working capital outflow and -- which was GBP 32.9 million outflow at the half year; interest and tax paid of a combined GBP 30.3 million; a GBP 55.8 million CapEx outflow, which is net of disposal proceeds; net acquisition spend of GBP 15.9 million; and lastly, debt assumed on the adoption of IFRS 16 of GBP 47.0 million. As a result, the closing leverage was 1.6x. And as I said before, 1.4x on a pre-IFRS 16 basis. In addition to reporting on 2019 results today, we have also taken the opportunity to set out our capital allocation priorities. In summary, we prioritize the maintenance of a strong balance sheet and will deploy our capital responsibly, allowing us to commit significant organic investment to our business whilst continuing to pursue acquisitions to accelerate our strategic objectives. This conservative approach to financial management will enable us to continue pursuing capital growth for our shareholders whilst also supporting the dividend policy announced today. In summary, it's been a year of further improvement for the group and we have built on our track record of delivering both organic and acquisitional growth. Breedon is in excellent shape. And following the acquisition of CEMEX assets -- the CEMEX asset portfolio, our GB platform will be significantly strengthened. Whilst talking about the CEMEX acquisition, it is worth commenting on the 2020 market expectations. On a pre-CEMEX basis, we understand that market consensus for underlying EBIT, CapEx and net debt is approximately GBP 125 million, GBP 62 million and GBP 217 million, respectively. We are comfortable with these numbers. In addition, we propose that investors continue to follow our guidance from January and assume completion of the CEMEX assets at the half year. And that the impact on the 2020 results will be to increase revenue by GBP 89 million, increase underlying EBIT by GBP 5 million and increase December 2020 net debt to approximately GBP 400 million. We will provide a further update once the acquisition has completed. Lastly, we just wanted to flag that the U.K. government have indicated that the corporation tax reduction from 19% to 17% will be canceled in today's budget. The impact of this will be to increase our deferred tax liabilities at December 2019 by GBP 5 million. It would also impact our future tax forecasts. I'll now pass you on to Pat to take you through his group and operational review. He will also give you an update on the status of the CEMEX acquisition as part of this.

Thank you, Rob. This is the season for these results. So I know you're well aware of the construction output numbers. But I think key points for us here. Infrastructure was still quite strong, and that for us is a positive area. We benefited from improving selling prices and more benign input costs. So overall, we were able to demonstrate the margins moving forward. Delays doing A9 have continued. We anticipated doing a substantial part of the A9 last year in H2. It never really started. And to be honest, it hasn't really started this year, but that what's not going to go away. So I anticipate after a very wet February in Scotland, that as we enter spring, we'll start to see activities rising on the A9, which suits us as well because it's a more efficient time to be -- for your productivity during spring and summer than in the winter months. Pleasing for us is, as you see, I talked about the Roadway acquisition for the asphalt plant in Wrexham and then the joint venture with Capital Concrete. But in aligned with that, we're continuing to invest organically to grow the business. We invest in new asphalt and ready-mix capacity in the business. So again, that parallel stream of organic and acquisition spend. And our priorities for 2020 in GB were at least -- we aim to at least retain market share. We'll continue to improve prices and margins, and we'll continue to focus on organic improvement. Basically, it's Breedon's story of self-help. When a market doesn't help us, we've always been able to help ourselves. And I can see that continuing through 2020. Ireland was a bit of a different story. The RoI very strong, strong activity, straight forward in that business. North of Ireland, relatively flat, somewhat impacted by New Ross assembly, it's [ star mine ], and we're hoping now that, that's come back in place. I think following the U.K. budget, we might start to see some activity in the north of Ireland. So again, nothing drastic there, but the RoI business has continued on a pace that we're delighted with. We completed a couple of significant projects in Ireland, the New Ross Bypass and Dublin Airport. And we'll continue to expand the quality of network in the RoI. We discussed it last year. And even when we did the Lagan acquisition about the dormant quarries, and we're continuing at pace to develop those quarries, and we'll see more internalization of aggregates in the RoI businesses as we self-supply aggregates to the asphalt business. We completed the Colley Lane project in Somerset, and we were successful in winning some work in London with DP World. And we've got some major investment in the north of Ireland at Temple quarry. So for 2020, we'll continue to exploit the demand, the strong growth for the Lagan business. We'll continue to seek opportunities in GB for Whitemountain and particularly aligned with areas where Breedon is strong in materials and we can satisfy self-supply to those projects. And particularly in the south, we'll pursue bolt-on acquisitions. The pipeline is fairly healthy. We have now had the best part of a couple of years now where we've started to participate in the business in the RoI. The guys over there were very good at developing these relationships and identifying these opportunities. So I would anticipate some of those coming to fruition in the near future, which will be a positive move for us in the RoI. Cement market, it's pretty stable in GB, but the Irish market was challenging outside Dublin. And obviously, those areas outside of Dublin where we participate more. So there was challenges there. On the positive side, all 3 shutdowns for the kilns were carried out on time and carried out safely. And the performance of those 2 plants at Kinnegad and Hope continued to be world-class. I think, for reference, the alternative fuel usage at Kinnegad is 72%. And if we take Hope at 30-odd percent, then the average between the 2 plants is 43%. And I think that stands up well against most of our competition. But what it should be an indication of is when we get our plant in Ireland running at 72% alternative fuel usage, you can see that we have that expertise and technical competence, and that bodes well for the future of Hope. So our priorities for 2020. We'll continue to implement price increases. We got several projects running at Hope, particularly along the lines of supplementary raw materials and delivery systems. And that's really future-proof in that business. And if we align that to the potential for alternative fuel improvement there, then I see the changes in carbon pricing, and I see that the potential headwinds of those input costs changing, and I can see it's a very compelling investment opportunity, which is a change from maybe 2 years ago. I'll now -- we discussed this one a few months ago, but I'll just remind you of the CEMEX opportunity. We're now in a process of the TUPE process and some technology aspects of the transaction. And once we complete those, the deal will happen. So we still fully anticipate this deal to be complete in Q2. The CMA process is becoming a bit longer than we anticipated. I don't expect that the outcome will change. It may just take a bit longer. But I'll remind everybody here, the deal was not conditional on CMA, the CMA review or CMA approval. This deal will complete in Q2. We have a very limited access to it because of their completely separate businesses running independently of each other. The TUPE process has gone very well. And I think a lot of the colleagues who'll be joining from this business are very pleased to be coming across to Breedon. But it will be a bit more time before we -- and then really see what's going on there. We'll undoubtedly run it as a whole separate after we close it. But from our perspective, I think we had made our own mind up. We'd probably run it internally as a whole separate through to the end of the year, just so that we can focus on delivering here in year one, but also not distracting the business from delivering in Breedon North and Breedon Southern. But I would say there's nothing here. I mean I'm very positive about this deal. And I have seen nothing so far that suggests it's not as good or better than we anticipated at the time. So it's an exciting point for us. As we mature as a business, we've had many conversations on ESG. And I think we sort of -- we didn't help ourselves because I don't think we told a very good story about ESG and where we were. And we knew we were doing a lot of good things here. So we're now -- with the help of some advisers, we're now starting to get our story board together. What's important is it needs to be real. It's not a veneer. This is -- we won't tell a story for the sake of telling a story. These need to be embedded in our business. They need to be meaningful. But we're making progress. We've confirmed our commitment to the GCCA's Sustainability Charter, as we talked about. Our reporting for greenhouse gas emissions, we're 12 months early in there. And the scope of our report is more wide-ranging than were required to be. We have a Non-Executive Chairman, we talked about it last year. And we've 2 new Non-Executive Directors Welcomed into the business who bring different skill sets. So again, it's a positive for us. We've appointed a Group Head of Health and Safety and Environment. And I think we're very close to appointing a Group Head of Sustainability. So exciting times for us. We also -- over the period, it became apparent to us that we were at risk of development of several disparate cultures throughout Breedon as the different businesses come in and there are different maturity levels on purpose and value. So we've delayed it 12 months. But following a sort of wide-ranging engagement survey with our colleagues, we've launched Breedon's purpose and values. It's been rolled out to the business overall. And I have to say that I'm delighted with the engagement we're getting through our organization. And I think you'll start to see more of this from Breedon's perspective and what will start to become a language that is meaningful as we move forward. Another area that we are -- as we mature and be a bit more transparent on is our group strategy. And what you see here is for the first time that it will start to become commonplace. So the 6 pillars of our strategy. These will be clearly communicated priorities for the business, and it allows to monitor our progress against them. I won't go any much more detail here. But there's more detail in the various reports that you'll see, and we're happy to discuss them and you -- and they'll become more sort of obvious and sort of -- the same poised for where we want to take this business going forward. So the outlook overall. In GB, relatively flat in 2020, growing into '21. I think, inevitably, we all believe infrastructure will grow. We just don't know if it's 6 months or 9 months or 12 months. But when it grows, we'll be ready. But as always, there will be significant regional variations. I think this is where -- this is how neat the solution with Capital Concrete as because we're retaining a position in London, we're growing that position in London. But we are able to focus in the regional business and regional markets where we've always been successful and where, particularly the CEMEX business, the regional presence in that CEMEX business will help us there. In Ireland, the RoI continues to go along at pace. And as we develop that aggregate business or indeed, we're successful in completing some acquisitions in the RoI, that will only strengthen our position there. And not expecting too much from the north of Ireland. But again, if [ star mine ] gets moving and we start to get some investment there, we'll be ready as well. So Breedon, overall. Breedon is in excellent shape. Our colleagues, the engagement level is high. I think people generally enjoy working at Breedon. And I would say that in certain parts, we have a pack of who we would like to commend on the business. And we pay a lot of attention to that because we're bringing the CEMEX business in, wonderful assets and great people. But to me, it's about how you manage and how you allow people to make decisions, so you have enough control. There's enough process. You get a degree of control, but you don't stay for the entrepreneurial spirit that we'll bring in. So that's why we are able to take assets that other people have and deliver a superior result from them. And again, I anticipate that. Other than that, I think it's just reinforcing self-help. It's a sort of double-edged sword. If the market takes off and volumes rise, that gives us less time and less ability and less resource to do the self-help. But again, the market will help us. The market doesn't help us, we can turn our resource and our efforts to self-help. And that's sort of what worked well for us over the years, and it will be a fundamental of our business going forward. And on that basis, we are extremely confident that we'll continue to make further progress in 2020. Thank you. We're happy to take questions from the usual suspects, I guess.

Yes. As always, could I -- can I just ask you to tell us your name and your house for the benefit of the people on the call, please? Thank you.

Clyde Lewis, Peel Hunt. I think I've got 3, if I may. Rob, you flagged the 2 new metrics in terms of targets: free cash flow and return on invested capital. You didn't put any numbers on those though. Would you sort of like to sort of flesh that out a little bit? And particularly, I suppose, whether you've got any preference as to sort of margins, free cash flow or ROIC, as to which one of those 3 -- is there a preference, I suppose? The second one I had was on sort of cost pressures that you're expecting to see for 2020. If you can run us through sort of what the key pressures are in the business and maybe talk a little bit about the prices relative to that. And the third one I had was on the Irish cement market. You've obviously sort of flagged strong performance in Dublin, but could you maybe sort of flesh out a little bit sort of what's happening ex-Dublin for the cement market there?

So I'll pick up the first couple.

So in terms of the first one and the metrics. I mean the margin target, as we said in the past, has been something we focused on. And if you remember, when we go back into the history and you look at when we closed Hope, and it was a single digit margin, we then start to make progress again. We then closed Lagan. And I mean went back into a sub -- a single-digit margin again. And so technically, when you looked at those transactions in isolation and just on that one metric, you could have argued why were you doing those transactions, but they have delivered, and they've delivered in terms of free cash flow, they've delivered in terms of return on invested capital. So we've introduced these 2 metrics for that reason. In terms of hard targets, you're right, we haven't. But on the free cash flow, one, it's all part of the capital allocation discussion, and it's all part of the ability for us to commence the distribution policy. So it's allowing us to have significant free cash flow to fund the business, to fund the M&A and then to be able to start that dividend policy in 2021. In terms of return on invested capital, what we say is that we want to cover our cost of capital over the cycle. And as we sit here at the end of '19, when you look at the annual report and you look at the KPI tables, you will see that we are ahead of that at this stage in the cycle. And in terms of the cost pressures, I mean 2019 was a more benign environment to cost pressures. As we've entered into 2020, again, we've seen it more benign. I mean if we talk really short-term and the events over the last few weeks, I mean you could argue that there's quite a lot of deflationary cost pressure. But as we've always said, for our strategic cost base, we progressively hedge into the markets. And so as we look into 2020, most of our major costs are largely secured and hedged. If there are benefits, we will look to lock those in. I mean the one cost that doesn't go down and has continued to move forward is carbon. And Pat talked about how projects and things for the future start to be more compelling from a sustainability point of view.

From cement in Ireland, I guess, what I would say is our position is we don't have much of a position in Dublin. It's obviously the fastest growing and the strongest market there. And it's a little frustrating to be sitting on it, to say late somewhat with it. So for us, we still start to supplement the Irish cement business by bringing cement from Kinnegad over to GB and to Scotland then in England. And ultimately, our goal would be, as the Irish market grows either through just general growth in the market or we start to establish a position in other parts of Ireland, we would repatriate those tonnes and sell them locally and get ready the logistics of transshipping through terminals and on boats over to GB. So I think it's maybe more a reflection on our lack of strength in certain parts of the market over there. But that's clearly one we won't rush into, but clearly one that's on our agenda.

David O'Brien from Goodbody. Couple for me, please. Firstly, on Lagan, you said the integration is complete. Is that to say you've extracted all the efficiencies that you see there? Is there more to go? And on that point, and you mentioned dormant quarries, I think there was 7 at the stage you bought the business. Can you give us a sense of how many of those have been opened at this stage? On the dividend as well, could you just give us a little bit more color about how we should think about on a medium-term basis the payout ratio, et cetera, et cetera? And then finally, you touched on encouraging and fostering that entrepreneurial spirit. Can you just give us a little bit more color how do you actually do that when you go into new businesses.

Yes. From the aggregate perspective in Ireland, we're moving north of 1 million tonnes now. And when you take into account, when we were -- when we first got involved, that business was probably sub 300. So it's time to move. It could move quicker, but one of the areas that the team over there have been very successful is adding reserves before they start to get the facility established to buy -- to get some minerals and try to get planning adjacent to them, so yes.

On the synergies one, David, I mean we -- as I said, we have hit the GBP 5 million run rate. We won't stop there. But it will just accrue into the earnings of the business going forward, and it's consistent with how we've done it on the Hope acquisition as well. That the benefits will continue to come, but they'll just flow through the organic growth of the business. The dividend, what we're sort of intending to do is to probably over a 3-year period is to get to a level of dividend which has a payout ratio in line with our peers. And I think for guidance for the analysts now would be we're going to start modestly and grow. I think it would be not unreasonable to put a penny in for '21 and assume that 1/3 of that gets paid in here as the interim and 2/3 of it gets paid in '22. But I think that should give you the start point on the trajectory you need.

On the CEMEX deal, maybe not from an entrepreneurial perspective, but one of the sort of quick ones for us there is the business is probably been started with capital investment over the years. So it's either running older equipment or rented equipment or subcontracted equipment. And so I would think very quickly, if we apply sort of Breedon's methodology of organically investing in the business. Generally, when you buy new equipment, and you're -- and you get productivity improvement and you get some energy efficiency. And then I think you get -- you win the hearts and minds of the people in the business when they start to see that you're putting equipment into their business and you can actually -- you're listening to how the -- because these are the guys and girls who understand where the opportunities are in this business. So I think we did it in Breedon. We do it with the acquisition we have. We'll be doing it in CEMEX. But it will be like 6 regional businesses that we are -- it's like 6 bolt-ons for us, so -- and that's a quick win. It's a good return. And it's relatively low-risk when we are putting that kind of investment in any plant equipment.

Christen Hjorth from Numis. A few for me. First of all, following that comment on potential investments in the CEMEX assets, but also maybe tying in some of the sustainability investment at Hope. I mean how should we look at CapEx over the medium term? Will those be covered by existing maintenance levels? Or should we assume a step-up? The second one, just on HS2, and maybe just a bit of color on the potential impact on industry volumes over the medium term. And then just a final one on pricing. Just where you think pricing is across the product categories in real terms really and whether there's more to go for over the medium term?

So I'll do the first one. So Christen, we've consistently communicated that we will at least invest in line with depreciation. We will continue to do that. And that's one of the things that's differentiated us as a business. We don't see any requirement to change the guidance into the marketplace at this stage. We -- if there are compelling investments in the years to come, ultimately, with great payback, they would just be prioritized.

From HS2, I mean it -- we're starting to see inquiries coming in and the analysts know. We've always maintained that we didn't want to be a sort of early player in HS2. Our core business, our existing customer base are what's important to us. So for us, any participation in HS2, and there will be some. When to see the level of inquiries we're getting will not be to the detriment of our existing business. Market overall. If the volumes we're talking about and attainment we're talking about are coming to fruition, there will be challenges on supply in that part of the market. And you would anticipate there will be pricing improvement in that part of the market. And it's -- the logistics will have to be put in place because the current infrastructure won't be able to deliver that project without investment.

On pricing, going into the product levels, probably a level of detail that, a, we wouldn't probably want to do, but b, when we get to cement, we're not allowed to talk about pricing in the U.K. But generally, 2019 saw pricing in excess of inflation. But you have to put it into context. If you look at the back end of 2018 and if you look at the track record slide that we put up before, the business went backwards, and we have those exceptional cost increases running through. So it's been about recovering costs. But we will continue to try and progress and ensure we are covering our costs.

It's Kevin Cammack at Cenkos. Just looking at the margin improvement you've reported and the breakdown divisionally, it's pretty clear that the big impetus has come in the cement division. And I just -- well, it's 2 questions around that. One, I just wonder what sort of lies behind specifically that 170 bps improvement? And secondly, just looking forward, I guess it's pretty clear to all of us how you can potentially see further margin improvement in GB and Ireland and the operational gearing that volume growth might deliver. But on the cement side, how close to sort of capacity are you? And what other things could be done to lift the margin even higher in that particular operation?

So I'm happy to talk about the margin and the capacity in the cement. It might not be something we can talk too much on, but I'm sure Pat will say something. But on the margin improvement in the cement business, a lot of these costs, I was just talking about in '18, we're hitting our cement business, whether you're talking about utility costs, whether you're talking about hydrocarbon costs, whether you're talking about carbon costs going up. So you're really looking at the '18 margin being depressed by those factors. And I think that, Kevin, the recovery of those costs in '19 is what's driving the improvement in margins.

And I mean there's still opportunity ahead in cement margins, I feel, Kevin. One, we talked about it last year. The cost of carbon is fully embedded in Breedon's business. I'm not sure that's the case in every other cement business. So you'd have to anticipate, as they start to truly reflect the cost of carbon in the cement business, they're going to have to recover it through pricing. And then in the sort of midterm, some of these capital projects that we will look at, as I say, 2 years ago, we may have looked at them as a burden. But I think today, when you look at the price of carbon, where it is and where it's going, I think we'll be pushing on and seeing actually these aren't a burden, these are a significant opportunity for us. So value-enhancing rather than kind of stay in business.

And how -- I mean obviously, without putting specific numbers on it. But how important ultimately could be -- if you have the opportunity to reverse some of the exports back into the Irish market, is that quite a significant potential factor for profitability?

We haven't really done it yet. We're probably still doing it with the same amount in a [ TV ] that we were, but that is -- it's a reasonable amount, and we can repatriate those tonnes as the market improves. As you see, I mean you're shipping stuff to Glasgow. So there's a cost that's much easier to ship at once in a truck to your customers in Ireland than as to ship it to your terminal, to load on your ship, to put in on any another terminal and then deliver it by road. So there's a decent opportunity there.

John Messenger from Redburn. Just following on from Kevin's question. Of the 3 shutdowns that you experienced in 2019, would that -- did that not have a financial impact as well? I'm just thinking, is there a decent recovery that, that should help kick on in 2020? Or were those effectively costs capitalized that spread out going forward? Just to understand if there was a decent impact there. Second one was just -- coming back to this point about the change in metrics for judging yourselves. The free cash flow measure, is that going to be an absolute or is that a kind of conversion measure you're going to use? And on the return on invested capital, clearly, markets haven't been great in terms of backdrop. But when you look at your returns, you've lost 480 bps since 2015. For shareholders, is the 8.8 that you've just done, is that a floor? Or is that something that you're prepared to go further down on? Because I'm just thinking if -- clearly, acquisitions have been a dilutive factor in there, does a better market kind of need to come along to support that return to then allow you to make more acquisitions? Just to understand the dynamics there. And then finally, on your asphalt kind of purchases, given the storage and kind of how you operate in Ireland, is there a risk that you're caught with a higher asphalt price just in terms of the oil price reaction so far? Clearly, we'll see how that develops into asphalt, liquid asphalt pricing. But where are you on your asphalt kind of supply for [ year-end ] hedging?

Okay. The shutdowns in the cement business, so we have 3 a year. And if you remember, in 2018, one of those, the Kinnegad one was done pre-acquisition. So it didn't impact. In '19, you've got the cost of all 3 of those running through the income statement. And in 2020, you'll have exactly the same. We've actually done the first 2 already in 2020. And the last one will be in the second half. The free cash flow will be an absolute measure. We considered it as an absolute measure. We also looked at it from a per share. But in light of the capital allocation, and we decided that the absolute measure was probably the clearest measure for everyone. The ROIC, the M&A, you mean -- really, you mean the deterioration has been caused ultimately by the M&A. And the fact that, in the current environment and the regulation from an accountancy point of view that we run through, ultimately, the goodwill and the fair value adjustments all go on to your balance sheet. Gone are the days when the goodwill gets charged to reserves. So given that and given they all come on the balance sheet at sort of cost and acquisition cost, there is downward pressure on the ROIC. If you compare us against a business who had acquired very little but grown just organically, you would see a very, very different return on invested capital. And John, the example I often cite is if we acquired a quarry and we spent GBP 10 million to, let's say, get 10 million tonnes of reserve, there's GBP 10 million on the mineral value on the balance sheet. But if we spend GBP 100,000 getting an extra 10 million tonnes granted at an existing quarry, there's GBP 100,000 on the balance sheet. But they both -- and they have 2 materially different return on invested capital. So it's -- the balance sheet and the metric in isolation can be quite sort of misleading. I think the key thing is that the floor is that we've set it so we will not go below WACC, and we will look to improve it. But it will always take a dip post an acquisition and post-delivery of synergies and business improvement. We would then look to see that accelerating ahead of WACC.

The WACC is there at the moment. And then just on M&A because obviously, there's talk about international expansion. Should we think of that going south or going west? Just to have a rough idea of where you might be. I see it doesn't include just on the definition probably how...

In the supplement.

Algeria. I'm just thinking of some of the countries out there, but obviously, it excludes a few. But just to have a rough idea of where you think most likely you'll end up going in terms of -- given the history, I'd assume it might have been west, but maybe realistically as to more south.

So I'll deal with the WACC one. We're coming on to the WACC one too. It's mid to high 7s. So do you want to do the asphalt question? So I'll do the asphalt purchasing?

Yes. Sure.

So in terms of the asphalt purchasing, we do have some storage, and we -- but it's not material in the context of the group. We are -- over in the island of Ireland, as we said before, we do hedge an element of our forward purchasing on asphalt. But we're not speculators, and so we don't take a position, a speculative position. So we do not -- we will not end up with material exposures.

And on expansion. I said we'd be somewhat transparent. I didn't say we'd be totally transparent. And I think for us -- I mean we have Amit Bhatia here today. He's our Chairman. And we have a completely reconfigured board. So we have the strategy pillars. And what I would say is that, in the spring, we'll be starting those conversations in board and challenging our nonexecutive board and our executives on what's right for Breedon. So not avoiding it. We just don't have all the answers yet. But we know what the same ports are and we know what the criteria would be should we decide to pursue opportunities.

It's Charlie Campbell at Liberum. I've got sort of 2 or 3. First couple on the CEMEX and then the other one on GB aggregates. On CEMEX, there's lots of people coming through, and you've talked about GP. Does that mean there's any pension liabilities coming across as well? Second question on CEMEX. With the CMA -- I don't know if you can talk about it. But does that sort of imply that there might be disposals, so there might be some risk to the upside that you get from those assets? And then on the GB aggregate side, you can't really talk about cement capacity, but you could sort of talk about GB aggregate capacity. Just how easily would it be to ramp up volume production into? Supposing we get an expanding market in the U.K., at what point do you need to put extra CapEx to get, I don't know, quarries open or expand crushers or whatever it is to deal with that extra demand there?

So the TUPE process is going well, but we won't have any pension liability coming across with CEMEX. So there's no issue there for us. What was the second part of it?

Disposals.

Divestments. When we did the evaluation -- and we have -- I mean Breedon has a relatively decent track record in evaluating the new acquisitions from the perspective of CMA. So we've always anticipated that there would be some divestments through the required remedies. We still feel the same, but we don't consider them to be material in the context of the transaction. So we're pretty comfortable with that. Other than, as I said, it's taking about longer to make progress with the CMA. So -- and the third one was?

Third one. X -- GBX capacity?

Yes. GBX capacity. I think we have -- in different regions, we have a definite level of ability to grow. And it won't always require a lot of capital because we have a sort of method of running some of our aggregate facilities where we took out some of the old plant equipment and we bought customized crusher -- mobile crushing spreads. So we have that capability in-house to be able to move these crushing spreads and supplement manufacturing capacity at individual sites. So if the market took off overall, we have the ability to increase our aggregate production without throwing -- selling money at it.

Sorry. Can I have a follow-up? Just very simple one. What's your best guess now in terms of end markets that you're serving? If you can give us a little bit of help as to how much is GB infrastructure, how much is GB housing, GB commercial and then sort of Irish end markets as well.

So yes, our best estimate is 50% infrastructure roads, and 20% housing, and 30% a mix of commercial and industrial. The one thing, Clyde, it's relatively dynamic.

I mean maybe I can say, again, if you look at our results in isolation, the financial results, I think a tremendous result. But if you align that to the challenging market, if you align it to the level of activity to get the CEMEX deal through designing, Roadway, integration of Lagan, it's...

JV in London.

JV in London. It's a testament to the quality of colleagues that we have in Breedon. And from what I'm hearing, I think we'll have the same level of quality colleague coming with the CEMEX transaction as well. So I think it bodes extremely well for us. And my arms being crossed, it's not a reflection.

Okay. No more questions. Just to remind everybody, the presentation is up on the sites, and also, there'll be a full recording of this presentation a bit later on this morning. Thanks, everybody.

Good.