CRH plc (CRH) Q4 2013 Earnings Report, Transcript and Summary

Good day, and welcome to the CRH plc 2013 Year-end Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Mr. Albert Manifold, CEO. Please go ahead.

Okay. Good morning, ladies and gentlemen. And my name is Albert Manifold, and I'm the Chief Executive of CRH, and I'm very pleased to welcome you here this morning to my first results presentation for CRH, the results of 2013. I'm joined here on the stage this morning by our Finance Director, Maeve Carton.

Good morning, everybody.

And just -- during the course of this morning, just to give you a running order for what we're planning to do, we're going to take you through our trading results, I'll take you through that; and Maeve was then going to go on and go through the financial highlights of the year, also looking at our cost-reduction program and what we did in that. I want to leave plenty of room then to go through the whole portfolio review process and update you on that, what we're trying to do, what our intention is, where we are in the process and, indeed, what our objectives are. And at the end, I want to go through just our sense of where we see 2014 evolving, in terms of giving an outlook. We're then going to go to Q&A at the end of that. We're going to be joined on stage at that time by the Head of our U.S. operations, Mark Towe, who's sitting here in the audience with us. And all told, I think we'll be done by about 10:00 a.m. or thereabouts. Okay, so just starting to look at some key points for 2013 and just looking at what we saw. Well, you would have seen some results already out there from the industry. And it was a very challenging year, 2013, principally because of a very tough weather pattern in the first half of the year. Our 2 key geographies, being the United States and Europe, were faced with a very long, prolonged winter. But we saw a much and better trending performance in the second half of the year which influenced the year. And we'll go to that, and you'll see that cycle repeat through many of our businesses. There were some marked differences, not just in the regional performance between the U.S. and Europe, but also end-use markets again, and again, we'll look at those dynamics. We saw a modest recovery, which we saw coming through in 2012, continuing on through 2013, which is good to see in the U.S., but significantly, we saw some signs of stabilization at last after 5 or 6 years of precipitous declines coming through our European operations. And making a very clear statement at the bottom there, we see 2013 as a trough in the earnings of CRH and looking forward to build a growth going forward. And again, we'll talk about that. Just to give you the headline numbers we're looking at here. Sales were flat at EUR 18 billion. EBITDA came in slightly ahead of guidance, which was good to see at EUR 1.48 billion. And EPS just a touch under EUR 0.60 per share. A very good performance in cash generation during the course of the year. Net debt, happy to say came in just below EUR 3 billion which we were delighted to see. And we've spent EUR 700 million developing and investing in our businesses, acquiring businesses through the year to build our business going forward. And happy to say, for the 30th consecutive year, we keep our dividend going, which we think and we know is very important to you, our shareholders. Just looking at the overall group numbers there. As the EBITDA came in ahead of guidance, and it's a tale of 2 stories in terms of the geographies, we saw progress in the United States, and I'll talk in a lot more detail about that when we go through that part of the business. And we saw continuing challenges in Europe. But you can see there a 6% decline in our EBITDA, but that doesn't quite tell the full picture of what happens during last year. And I really have to look at first half and second half comparisons. And you can see a very significant shift in momentum in the second half of the year where both revenues and EBITDA were ahead. And it's been a while since we've seen that in the building materials sector. Looking at Europe overall, very tough challenges and, again, significant decline in EBITDA over the year, of course, with the weather impact, and I'll talk about that. But there were significant market headwinds that came through in our Materials business in our major economies of Netherlands and Poland. Our Products business, which is foursquare in Northern Europe and the decline that, that saw, it continue to be very tough during 2013, and we continued to rationalize and reorganize our businesses in response to that. And the Distribution businesses, normally, they're fairly resilient businesses, but they have a very large part of their business in the Netherlands which suffered from continuing weak consumer confidence. And again, that challenged our business there which delivered those numbers. But again, when you look at Europe, you see a very different story of 2 halves. The first half, there was weakness there for sure, but the weather exacerbated it. But a better sense of performance in the second half of the year, and good to see the top line ahead, again, only small, but again, that sense of stabilization coming through our European businesses. And this is something you will see repeated as you go through all the European business, that first half-second half differentiation. Our Materials business, and we just wanted to give you a bit of sense where we make our profitability in our European business. About 90% of the EBITDA for Europe materials is made in those 4 countries of Finland, Poland, Switzerland and Ukraine. And they had tough markets and tough headwinds. There was a very competitive pricing environment. It's been very difficult to move prices in the last few years in Europe. And in fact, pricing went slightly backwards in our Materials business overall for last year. Now the 2012 figures there are favored and helped by the fact we had one-off CO2 and pension gains in 2012 of about EUR 43 million. And that actually meant that the EBITDA decline was actually more 10% like-for-like. But again, if you look at the first half-second half comparisons, very significant change of business. And a true barometer of activity levels in any construction sector is the base materials, cement and aggregates. And look at the cement volumes in the second half of the year, up 5% on 2012. When there was no weather clouding, no weather noise, we at last got a sense that these markets were starting to stabilize. Looking at our Products business. And again, just trying to give you a sense of insight where we are in the cycle. You can see our Products business, Belgium, the Netherlands and France there, historically, those businesses used to contribute 50% of our EBITDA. About 5 years ago, our distribution -- they were there for that -- they contributed that amount of profitability. Actually, now those businesses only contribute about 25%. They are at historic lows in terms of activity levels, so it's been really tough for us in this sector. So we'd have pressures on pricing and margins during the course of 2013. And again, we just went back and restructured and reorganized and reset our businesses for the activity levels that we saw. And the fruit of that is coming through. Again, a better performance first half, second half. But significantly, on a flat top line, we saw an improving bottom line. And margins were ahead in the second half, at last seeing the benefit of all the hard work we've done on the way down. Looking at our Distribution business and, again, giving you a sense of where the split of businesses is. Across the top, GBM is General Builders Merchants, that contributes 45% of our profitability. And our SHAP, our specialty heating and plumbing business, which is a new area of growth for us over the last 5 years or so, that contributing about 25%, with DIY the remaining 30%. So again, that business, which is really quite centered around the Dutch economy where weak consumer confidence impacted upon us, as you can see, it was 30% of EBITDA last year. Again, that weighed down on the division there as well. But we had good performance in Germany and France, and our SHAP business continued to make the progress that it did in previous years. And again, the first half, second half, you can see the differences there. A lot of weather noise in the first half, but at last, starting to see some good real trends coming through the second half. So looking at Europe as a whole, you can see, it was -- there was a lot of noise there, but the second half showed signs of stability. And the interesting thing is for the first couple of weeks or first few weeks of this year, that has continued on to 2014 across all the businesses, which gives us a sense, at least, we're moving into a different cycle now. Changing things across to the Americas, a very different feel about the place. And it's much earlier in terms of the recovery and may be at least 1 or 2 years ahead of where Europe is. And the great thing, as you can see here, revenues, EBITDA and margins are all ahead. And in fact, in dollar terms, EBITDA was ahead 10%, and good to see that margin's advancing. I should say, and we'll go into it in detail a little bit later on, most of that has been driven by our Products business because our Products business is driven by the residential market. The U.S. economy is firing -- U.S. construction market is firing on only 1 of their 3 cylinders, and that's residential in 2013. And I'll talk about that later on. But then again, the first half, second half. You would have heard us talk about it, particularly at our interims, the significant interims we had of the late winter and indeed the very bad wet weather we had in the early summer, which really hit our numbers in June and July. But again, we had a very good set of weather, and we did get good weather, we did get good weather all the way up through Thanksgiving. But that's not something that happens every now and then, it can happen a lot and it helped our businesses, and we saw good trends coming through for the second half of the year. Looking at our Materials business, our biggest and most important division. We saw like-for-like aggregates which, again, are a good indicator of the industry, were flat, actually, they we're ahead with acquisition contributions and a good price performance coming through 2013. Our asphalt volumes were hit by that wet weather in June, July and the first 2 weeks of August. Those 10 weeks are the 10 most important weeks of our business there because we make 2/3 of our profitability in those periods of June, July, August and a little bit of September, so we lost 10 weeks. But we recovered well, and we got back some of those volumes, but not enough. But we managed our margins well, managed our cost well and we maintained our margins in the asphalt business. And as I said, we had good contributions coming through from acquisitions and good to see the margins coming through there. And again, you see the first half, second half. Really tough first half, earnings very significantly hit by the weather but a good flow through of business and good margin management the second half, great to see those margins blooming ahead at last in our Materials business in the U.S. And looking to our Products business. Really, the star performer, I suppose, of CRH last year driven by the fact this -- the strong residential recovery we saw coming through in the U.S. Now this has benefited from acquisition contributions as well. But as you can see there, we advanced in all segments. All parts of our business our strong. I should say this is probably a volume-led recovery rather than a price-led recovery. We did get some price increases but only in selected markets and only in selected product areas. So it's quite modest pricing benefit coming through there, but good to see the leverage on the way back up. That's why we stick with these businesses. That's why we believe in the future because we've suffered on the way down with leverage. We have a lot of capacity -- spare capacity in our businesses and as it comes back in through, we see can the leverage coming back. And the first half, second half splits, a different story to what you've seen before, attesting much more to the sustained delivery by this Products business and the sustained growth of our residential markets in the United States delivering this first half and second half performance. And our Americas Distribution business. Just to give you a sense of where we make our profitability in that area. Exterior Products, which is 70%, which is mainly a North American repair and maintenance and improvement business doing roofing and siding, contributing about 70% of EBITDA. And we would assume in the first half of 2013, a lot of increased activity doing repair work from Hurricane Sandy. And the other part of our business, our Interior Products business which is effectively wallboard, interior fit-outs, refurbishing of non-residential construction, actually, that benefited from the increase of multi-family home-building and the increased proportion that was of the overall residential market last year showing good delivery for us. And again, looking at the first half-second half, the real surge in the first half profitability was that Hurricane Sandy effect there. But other than that, a more progressive solid delivery during the 2 halves of the year. So a good performance by our U.S. businesses coming through. Glad to see it coming through as the U.S. economy is only firing on 1 of 3 particular parts of this construction industry, and we'll talk about that later on when we talk about the outlook. So I think a solid year, good delivery in the second half, but after a really tough first half. So maybe I might just pass over to Maeve now who might take us through the financial implications of those trading results. Maeve?

Thank you, Albert. When we started this presentation, we showed a sales number that's similar to last year and an EBITDA number that was ahead of the guidance which we gave in November 2012. I should say that both of those numbers and, indeed, all the 2012 numbers that we're talking about today and in our announcement have been restated for the change in accounting for our joint ventures and pensions, so that was the change announced during the year. So all our prior year numbers are restated here. In the movement for those sales and PBITDA, there were a number of moving parts which are presented here. I'm just going to draw your attention to a small number of the movements here. The first one, acquisitions and divestments. Later on, Albert is going to talk to you about acquisitions in recent times. So I get to give you a sneak preview here of the performance in 2013, where you can see there, the acquisitions in 2012 -- I'm sorry, the 2013, gave some very good contributions to trading in 2013, an EBITDA margin there of 11.6%. So very strong margins, and I'll say, Albert will go into that in a little bit more detail. The second number I'd like to draw your attention to is the pensions and CO2 gains. Again, Albert mentioned, in the context of our Europe Materials business, some significant year-on-year movements there. In total, last year, we had gains from these pension curtailments and CO2 trading of EUR 61 million. The figure for 2013 was EUR 32 million, so the negative year-on-year impact is EUR 29 million that we show there. And of course, the organic trading. You saw as we talked through the segment's results that there was a distinct trend of things improving in the second half of the year in both Americas and in Europe and the effect of that trend is shown here. The EBITDA movement included a shortfall of EUR 105 million by the end of June and during -- the second half of the year, we saw some good contributions and progress relative to 2012 with an extra EUR 20 million ahead, and that gives us the EUR 85 million that you have there. If we move to the more technical end of the income statement, there are also a number of moving parts here. And I'm just going to draw your attention to the key movements. As you can see there, a change in profit before tax of EUR 280 million, some significant movements in addition to the organic trading. And the biggest factor was the gains on disposal. You'll probably remember last year, we had the disposal of our Secil joint venture in Portugal and also of our access controls business that's based in Germany. And those 2 transactions on their own generated profits on disposal of EUR 187 million. So in the absence of those 2 transactions, a significant reduction in profits and disposal in 2013 which is the other major factor. Since the downturn began in 2007, CRH was one of the first companies in our sector to think about looking at the business to scale back the operations and manage our cost in the light of the changing market circumstances that we were experiencing. And in that context, we've been talking to you about cost savings for the last number of years. This year, the savings generated year-on-year amounted to EUR 197 million, so that's significantly ahead of the guidance that we gave back in November 2012 at the Capital Markets Day, when we were talking -- we indicated that we expected approximately EUR 125 million of savings for 2013. So a significant outperformance in 2013, mainly, I suppose, in the European operations where, in the light of the continuing very tough market conditions that we experienced during 2013 that Albert spoke to you about, we upped our efforts in terms of cost savings and initiatives there. And as you can see, the split of the initiatives are -- more and more of the initiatives relative to the huge [ph] number are accounted for by process and structural changes, so a significant permanent savings there. If we look at the 4-year period that we talked about on the Capital Markets Day, we had given a target for the 4-year period 2012 to 2015 of incremental savings of EUR 450 million. With the benefit of the overachievement in 2013 and, indeed, in 2012, we've revised our 4-year target to EUR 535 million. So the targets for 2014 and 2015 remain unchanged, and we're still very committed to delivering those and believe we can do that. If we look at the savings that we've achieved to date, there's about EUR 2.4 billion of cumulative savings achieved since the end of 2007. About 50% of those are structural -- or rather are permanent in nature, that is they are costs that we used to incur which we just don't incur anymore. And that's relating to the structures of the operation taking layers of the organization out, focusing on efficiencies, alternative fuel usage and a myriad of measures all aimed at positioning the group in such a way that we will be able to benefit and deliver stronger margins and returns as markets begin to pick up. That same focus and attention and introspection that gave rise to the cost savings exercise has also been the precursor of the portfolio review which Albert is also going talk to you about in a bit more detail. And what I'm going to talk about is the financial or the accounting impact of the portfolio review to date. And the first or initial phase of that portfolio review is now complete. That has identified 45 businesses where we believe the -- which will not meet those criteria that we have of being able to deliver improved margins and growth into the future. And in that -- because of the -- those 45 businesses accounted for about 3% of our EBITDA, a little bit less than that, up to 3% of our EBITDA, in 2013 and about 10% of our assets at the end of 2013. And as a result of that decision to exit these businesses, we needed to look at the valuation of those businesses in the context our balance sheet at the end of the year. And that exercise of valuing the businesses with an eye towards a divestment in the medium term gave rise to an impairment charge of EUR 755 million at the end of 2013. As you can see here, that impairment is biased significantly towards our Products business. And within Products, the lighter blue there is the European business, so the -- a significant bias towards our Europe Products business which accounted for about 50% of the total charge and about 2/3 of the charge at the operation profit level. The impairment charge, the impairment part of our portfolio review is now complete. As Albert will be talking to you about, we still have more work to do on our portfolio review. But looking at things as we see them now in terms of the outlook and the conditions that we're in, we do not see any further impairments arising as the rest of the portfolio review gets underway and is completed. Impairment, of course, is a noncash item, and you'll all know from previous years that cash and cash generation is one of my favorite topics. So if we come back to the cash generation in 2014 -- or 2013 rather, you'll see some significant improvement in cash generated from operations in 2013. The things that I would draw your attention to, particularly, are a continued focus on capital expenditure and maintaining very tight control of expenditure on -- in the current environment. We still -- in spite of that tight control, we still spent EUR 500 million on capital expenditure. So we are continuing to invest in our businesses to make sure that our businesses are well placed to benefit from the market conditions as we see them improving. But at the same time, we're monitoring that very closely and keeping very tight control of it, so that capital expenditure there is about 74% of depreciation. So still well under the depreciation charge for 2013. The other number that I'm very proud of on this slide is the working capital movement. As you can see, some good inflows from working capital. Working capital at the end of 2013 accounted for about an 11.2% of our sales for the year. That's a reduction on last year around the 2012 closing position. And I think, over the course of the downturn, one of the things I've been very proud of is that effort and work right through the group to focus on working capital which has meant that none of our working capital metrics deteriorated over the -- through the downturn. And I think that's a pretty good achievement given all the headwinds that we faced in the business. And so, overall, the business has generated almost EUR 0.75 billion of cash from the operations to use on the dividends and acquisition spend. As you can see here, this is -- the slide here, you'll have seen the layout of this slide before. That very strong cash generation in 2013 has resulted in a cash balance of EUR 2.5 billion in our balance sheet at the end of 2013. That's shown in the chart there by the dark blue column. So the group is in a very strong liquid position in terms of that cash balances available at the end of the year. And when you add to that, the facilities that we have available of almost EUR 2 billion of committed facilities, we've got EUR 4.5 billion of liquidity available to the group at the end of the year, which is both a strong position to be in, but also gives us great flexibility in terms of taking action when we need to in terms of acquisitions and development opportunities. Another measure of the financial strength of the group is our ability to raise money in the capital markets. And during 2013, we raised -- we were able to go to the capital market -- the debt capital markets twice. We raised a total of EUR 1.5 billion of money in the euro bond market, there was 2 issues. And those issues were at coupons or interest rates that are the lowest CRH has ever achieved in the capital market. And again, that puts CRH in a very strong position going forward because we've secured now very low interest rates for the future. So as we grow and continue, we have a cost base that is contained and is well controlled. The year-end net debt came in below what we were expecting back in November with a very strong focus on cash flows towards the end of the year and that, at 2x EBITDA, puts CRH in an extremely strong position for -- to fund future growth and development opportunities. So before I hand you over to Albert, a quick summary of the financials. A very tight control of capital expenditure and working capital which generated good cash flows for us and puts us in an extremely strong position in terms of our liquidity at the end of the year, which gives us great flexibility and strength. We also continue our efforts on cost savings and increased our savings in the current year. We have maintained our dividend. 2013 represents the 30th year of no dividend reduction in CRH, so that's 26 consecutive years of dividend growth followed by maintained dividends in the last couple of years. That's a record that we're very proud of and that we -- it distinguishes us in the sector we're in. And the impairment exercise that we've talked about is now complete. And I'll hand you over to Albert to talk about the rest of the portfolio review.

Thanks, Maeve. What I really like about, as CEO of the business, those last 2 slides Maeve shows in cash generation and liquidity, it just attests to the potential capacity we have in our balance sheet for future growth. But you probably knew all that anyway. And that takes me onto the whole area of talking about the portfolio because that really is what's important here, is not that we the capacity but what we spend, how we spend it and, really importantly, why we invest in these areas. And that's what I want to try and do now with the next 15 minutes or so at this moment in time to update you on our process. But to do that, just let me take you a little back -- back a little bit in time and show you the history of CRH, a history you all know quite well. This chart will be familiar to some of you. It shows the gray bar. It shows the returns generated by our industry over the last 12 years across all our peers. And the dark blue bar shows the returns that CRH has generated over that period as well. And 2 things stand out. First of all, the dreadful impact of the global recession we saw in 2007 on everybody, CRH included. But the second thing is actually CRH, broadly speaking, have produced industry-leading returns through the cycles that are there. So we're doing something right. But how did that happen? Well, you've heard it for years, the proven model of performance and growth. In CRH, we pride ourselves as being really good operators. That's what we focus on. And we actually have across our businesses really good models for making businesses that have solid business improvement. You've heard us talk about returns. We have an incredible focus on returns, what you care about, what we care about. And we had a unique and have a unique acquisition model, a bolt-on acquisition model. Over those 12 years, we spent over EUR 24 billion across 650 deals, so almost a deal a week on investing in your businesses and our businesses. And the resulting legacy is we've got some tremendous positions around the world. But over the last few years, some interesting observations and trends became apparent to us and some concerns about the returns of some of those businesses. And let me go back to the last chart. This time line we've put some lines and some returns overlaying on top of it. And that looks to the returns of our Materials business being the red line, our Distribution business being the light blue line and the green line showing the returns of our Products businesses. And as you can see, up to about 2004, broadly speaking, they all contributed, for better or worse, to the overall growth of CRH. And then we started seeing a nudge down there, a little bit of a divergence in performance coming from our Products business. And but hey, that was the global crisis. It was coming in different -- parts at different times. But in particular, about 2007, we realized something more challenging was happening to these businesses. And you can see the real diversion that came at that point in time. And that principally was our European Products business returns. So we've now started seeing a variable delivery across divisions. And to get into that, we have to go back and look and see where we had invested and what caused that. So let's go back in time to when we had bought a lot of these businesses. In fact, the business we've identified for sale this morning, about 70% of them were acquired between the periods 2000 to 2006. And what happened during that period? Well, it was a period of very strong construction growth, built on the fact that there was easy credit available and everybody grew into that. We, our industry, all grew. It created huge profitability, huge cash which we reinvested in our businesses. But it also created bubbles and unsustainable trends. And we, like a lot of other people, invested into some of those businesses. And now, we found ourselves, as the crisis evolved, those businesses were cruelly exposed. The trend that we invested -- the original investment thesis no longer applied. Sometimes, we actually just invested in growth and forgot the core principle of CRH which was, we used to make businesses better. Now I should say, the vast majority of the businesses we invested in were solid businesses for CRH. That's why when we look at the assets, they only represent 3% of profitability and 10% of net assets. So we did an awful lot more right than wrong, but at least we started to understand where we went wrong. We put our hand up and said, "Yes, we made a mistake". But we've learned our lessons and we will never again go down the road of buying market trends, buying market growth and not understanding how we make businesses better. So why now? Why are we going through this process now at this stage? It's because you got a new CEO? Not at all. In fact, this work started at -- in fact, end of 2012, we started looking at this in-depth, and it evolved through 2013. It happened because of this -- the cycle that you see in front of you. And that god awful cycle in the center, they are CAGR declines. The U.S. business came 50% off the peak. Cement demand fell from 120 million tons to 60 million tons. European markets fell by between 30% and 80%. We've never seen anything like it in 80 years. None of our lives have ever seen a recession like this. But what we are seeing now is we're seeing an inflection point. It's not just the economic indicators. You've seen it across so many sectors, there's a turn. The U.S. has actually made a bit of a turn and is in a moderate growth cycle. And now with Europe coming through, the indicators are good going forward. And we're starting to see stability in our business. And what we're doing now is we're moving ahead of that trend to reset our business for the next -- the coming cycle which is a growth cycle. And that's why we're doing this now. And by resetting ourselves for growth, we're setting ourselves up with key objectives here. Number one, we are we resetting ourselves for growth by focusing on how we can add value to businesses, how we make businesses better. That's what we do best in CRH. We don't need to change. We don't need to new -- be new. CRH just need to be CRH. And we will do so with a focus on, of course, our key geographies, and I'm going to talk about our footprint later on, I actually think we're very well placed. I wouldn't want to be anywhere else other than our key geographies, and I'll talk about that in a moment. But we're going to do so with a renewed focus on capital discipline. And that would be just not only on the allocation of capital, but on the reallocation of capital. We've always managed our businesses well. But now, we're going to manage our portfolio very well. And I think that will end up in a way that we're going to see a narrow portfolio of businesses but deeper investment and a tried and tested way of improving value and making those businesses better. And a very clear statement across the bottom by the senior management team and by me, the new Chief Executive. Our objective is to bring back returns and margins back to peak in the coming cycle. And where we are in the process? Well, as Maeve has discussed this morning, we finished the initial phase. Actually, we've done a deep dive in all our business units, and we've identified those businesses that do not meet our returns criteria going forward. And we've decided to exit those businesses. As Maeve said this morning, they make about 10% of our net assets. And where necessary, we've marked those businesses down to market value. Our review process is ongoing. We think we'll be finished by about quarter 3 of 2014, and we will focus on the core businesses and then reset our business for going forward and delivering returns. And looking exactly at the background of where we see -- and this is just a snapshot in time because this is an evolving process. But the snapshot in time as we come to you here today, we can say, look, broadly speaking, about 10% of the net assets, as we say, have been set already for disposal. On the other side of it, we're saying, actually, we feel very comfortable that about 65% to 70% of our business are fundamentally core to CRH. We drive value through these businesses and they will remain solid core to CRH. There are about 20% in the middle that are still under review. That doesn't mean we haven't got to them, we have. There are no bad businesses in there. We're just deciding exactly what is the potential for those businesses. Sometimes, it's down to markets, market growth rates, market structures or indeed what we improve in the business themselves. So some we will fix, some we'll grow, some we'll invest and some we may exit, but probably exit over time. We're in the trough of the cycle there. It doesn't make a whole lot of sense to go out and do a fire sale. This is not a fire sale. We don't need the cash. This is about an orderly managed disposal and if there are businesses in there, we're very comfortable. The carrying asset value of those businesses is at least what we would obtain if we went to market with them. And we'll update you further on that process when we come back to you at around the time of our AGM. I should say, we talked a lot about bringing returns and margins back to peak and the portfolio is an important part of that, managing that portfolio. But we shouldn't just stand back and forget what happened in the industry. The precipitous declines you've seen in markets have to recover so much to get margins back to peak. We don't need to go back to where we came from, we never will. But we need to go back somewhere towards that, and pricing. I was looking at a dreadful chart about 6 weeks ago, looking back over since the start of the crisis. We have taken about EUR 2.4 billion of cost increases, and we passed on about EUR 1.2 billion of them. Now this is an industry that, in the last 50 years, lives and dies by passing on cost increases. That's what we do for a living and one hand has been tied behind our back. And that will have to come back and will come back. That's what we do. It's just going to take time. And the last part, the history of CRH, making businesses better. The small little things we eke out every day, the small pennies and cents that make the difference that we do it week after week across millions of tons of aggregates, millions of tons of asphalt, millions of tons of cement, be it through commercial synergies, operational synergies or through network logistics, somehow or other, we just make those businesses better. That's what's going to deliver the returns for us going forward and build us having a better business profile going forward. Now we haven't looked just only at our businesses in isolation. Of course, we looked at markets and our market structures and our market positions, and how that affects our business going forward and looked inside of that. And I want to give you a snapshot of how we're thinking about that at this moment in time. Just to inform you as to how we see this impacts upon the portfolio review. Let me start with our biggest business, the United States. Our biggest market, 55% plus of EBITDA for CRH. Very strong fundamental in this country. 315 million people. The population grows by 30 million people every 10 years. That's a good-sized European country. And the demographics, 35% of the U.S. population is under the age of 25. All of that is going to fuel long-term construction growth going forward. And uniquely in the world, they actually fund infrastructure programs. We give out about the fact they don't increase them, but they actually have funded infrastructure programs which guarantees continued delivery of those infrastructure and construction projects. And if you look at any of the forecast going forward, take McGraw-Hill, take Dodge, take PCA, they would give you a number for the next 3 to 5 years of CAGR of between 5% and 10% construction growth. And who are we? We're the #1 building materials business in all 50 states. We've got 8% market share. Actually, the top 10 guys have got less than 30% market share. So we see significant organic growth and we see significant acquisition growth going forward. I wouldn't want to be anywhere else at this moment in time. But there's not one national building materials market in the United States. You've got to look at it regionally and to see exactly how we sit in those markets to see exactly whether we fit that profile or not, whether we feel the growth is right for us. So let's just take a little quick tour of the U.S. Look at the Northeast, the powerhouse of the U.S. economy. Almost 45% of U.S. GDP is generated up here. 100 million people. I'm not too interested in those charts. I'm interested in the other charts. 35% of the total road network of the United States is located in this region, and 95% of those roads are asphalt. And then you've got the North American winter. The freeze -- frost cycle that destroys and degrades roads every 7 years. Every 7 years those roads have to be re-laid. And that's why 90% of every cent -- $1 they spend there is spent on repairing roads. And our business there is structured to be a fundamentally strong materials business supporting those projects and that construction growth. We're the #1 on aggregates. We're the #1 on asphalt. We're the #1 in building products and #1 in distribution. We have a strong lockdown in this region. And this region plays -- it's like a bond for us, it pays out every year. So we feel very fundamentally positive about this region up here. Going to the Southeast, slightly different dynamics in the southeast. This market is driven by immigration and migration. Actually, it's the fastest-growing region by population of the United States, those 7 states. It's also the fastest-growing hardware supplier in residential and non-residential markets. And we've set our businesses up accordingly. Overall, we're the biggest building materials business in the Southeast. But then again, that doesn't surprise you. But we're the #1 in building products which is a residentially and non-residentially exposed business underpinned by a great position distribution and in aggregates and aggregates distribution as well. And going out West. 150 million people west of the Mississippi. Huge geography, but it actually -- it's about strong regional markets, 6 states, California, Colorado, Texas, Arizona, Utah and Washington make up about 65% of total construction spend. And look at our position there, about 60% of our regional spend is actually in those states. And across the Sun Belt states, Texas, Arizona, New Mexico, California, that attracts 30% of all the immigration and 20% of all migration. Again, this is -- what drives that? They drive residential and nonresidential markets. And our position there is that we have 65% of our product sales in that Sun Belt region. And in the Northwest, those specific states in the Northwest in which you got a population growth about 1.5x the U.S. average. Again, about 40% of our total regional sales in Materials business are into those sectors. So this is a growth area for us going forward. We believe we positioned our businesses very well for those strong regional markets. So we fundamentally believe we have a really strong footprint in the U.S. and really good businesses and good market structures which will be key towards driving returns going forward. Now let me just take a quick look at -- as we go across Europe. Some people are very quick to write off Europe. Of course, it's had some very challenging times, but it's probably right to remind ourselves of some of the fundamentals about Europe. We have solid developed markets in the Western part of Europe. There is significant growth potential to the East of Europe. And in these most challenging times, there are very robust governance structures. We shouldn't forget that. It's good to get your money out. It's good to make cash, real money. And there is a growing population. Now there are different dynamics within Europe. Western Europe, you've got a situation there where you can see debt levels remain high. But not in all countries. Our 3 biggest countries, Switzerland, the Netherlands and Germany actually have got low debt levels, and we think that positions our businesses in those countries to perform well in the early part of the recovery cycle. But the most interesting trend of what's happening in Western Europe is the shift to RMI. And this has been a shift that's been going on for about 15 years. It's now 55% of total construction spend in Western Europe is RMI. You don't use cement or aggregates or concrete in RMI. You're refurbishing old buildings. You're remodeling. That's what goes into those products and you have to produce and sell different products to service that market. And what we have done over the last 15 years, it's about the building distribution business which is #2 in Europe across 7 countries, great short-term returns and great potential for growth to fit into that particular market growth profile. Looking at Eastern Europe, a different profile there. Growing populations, strong construction growth. In our key markets, construction growing at about 5% per annum, and this is a newbuild market. 2/3 of all construction here is actually newbuild. And look at our positions, very strong integrated heavy side businesses in Poland, Finland and Ukraine. And again, we fundamentally feel that we're positioned in the right places for growth in the East of Europe as well. And looking to emerging markets. 5 years ago, a lot of people would have said, "You guys have underinvested in emerging markets". Today, you'd probably pat us on the back and say, "We're glad you're not in emerging markets". Both of those 2 comments, we believe, are wrong. Emerging markets are a long-term play and they are volatile in nature, and we believe you should try and call the cycle, to invest through the cycle. But you invest in a measured way, balancing returns with the need for long-term growth. We have a very well proven track record in emerging markets. People forget we stepped out into Poland in the early '90s. Actually, that was an emerging market. And as we stepped across Eastern Europe, we built our position slowly but surely, and we've got strong positions in Poland and Ukraine. Over the last decade, we've gone out to Asia because we have $1 billion invested across India and China. Last year, we've stepped up again and bought another cement business in southern India. We will continue to invest out there, but we do so because we choose to invest out there. We're very fortunate in CRH. We have got lots of platform for growth closer to home that make more stable returns. We choose to go there not because we have to go there. And again, we will continue to commit ourselves to investing in emerging markets, and they will become an increasingly bigger part of our business. The focus of the world is changing. The nucleus of the world is shifting East. Half of all humanity lives in India and China. And if you want to be in the building materials business in the long term, you have to be there. But be there in a sensible way at a sensible pace, at a sensible time. That industry is only growing and growth with lots of room for further investment, and we aim to be there for it. So a quick summary in terms of our businesses and what we see. Fundamentally, we think we're in great position in the U.S. I've taken you through our market positions, our structures, our key businesses there. I think there will be some trimming, product-wise or region-wise, but you'd expect that. I think Europe is a little bit different. We've got some very strong businesses. But there's changing trends and the review is ongoing and we just have to finish that out, and we'll come back and talk to you about that later on. And our emerging markets, we retain our shape, that measured, progressive approach that over time has built businesses into leadership position of the past and will do so again as we expand further out into Asia. Now I've talked enough about what we had done, why we did it, what we're going to do, but let me talk to you a little bit about the last 3 years and just go back to this presentation 3 years ago and think of how tough it was. We'd come off the back 2 years of the global crisis where we were looking down a corridor of further depression of further growth. And what did we do in CRH? Over the last 3 years, we invested over EUR 1.6 billion in acquisitions across 96 deals. 60% of them in the Materials business where it's very tough to earn short-term returns. But the returns we earned in that of EUR 1.6 billion were about 11% RONA. Now we're encouraged by that. I said to you earlier on, we learned our lessons well. Something happened that in the last number of years, CRH, we focused back to those core principles, back to its roots of focusing on making businesses better. We'd bought into falling markets, we were catching falling lines all over the place and yet we still managed to eke out an 11% RONA. So we must be doing something right. So just a quick summary in terms of where we are. We discussed about what our approach is going to be and I've taken you through the process. But it's unique in the history of CRH and everything is about returning CRH to its core principles back to its roots with 1 objective and 1 objective alone, bringing returns and margins back to peak in the coming cycle. And just a little bit about -- a word about CRH. I'm very fortunate today to be able to stand here and talk to you about the returns we generated over the last 12 years. The balance sheet we have, the capacity of the balance sheet, the leading market positions we have, the returns we generated in the last 3 years, but none of this happens by accident. It happens because we're more than the sum of our parts. At the core of us, we are 1 company, we are 1 group. And at the group, we are responsible for the carefully crafted strategy that delivers those results. And underpinning that comes a commitment to a model of business improvement, building better businesses, making businesses better. That's what we do best in CRH. And as we enter this new coming cycle, we are refocusing back on combining both a disciplined approach to the allocation of capital and indeed, now the reallocation of capital back across the portfolio. This not a one-stop event. This is not something we're doing for 3 months, 6 months, 9 months. This is going to be a constant part of CRH management going forward, the efficient use of capital across our portfolio of businesses. Testing, challenging and demanding our business to produce returns or reallocating back into businesses that can produce those returns. So with that, I want to just bring you to how we see the world into 2014 and the short term. But I think short-term returns will be driven by our regional positions and the recovery of those cyclical markets and, of course, by continued cost control within our businesses. If we look at 2014 across the U.S., well, we've seen continued momentum through 2013 of what we saw at the end of 2012, and we think that's going to continue on into 2014. We think it won't be just residential anymore. We see signs of a nonresidential market starting to deliver. It's going to be slow. It's going to be moderately paced. But actually, we're going to see growth. The infrastructure, broadly speaking will be flat, we'll get into that in the Q&A. But I think there's signs of potential growth driven on the back of increased state funding. And in Europe, we're not out of the woods yet. The challenges remain, debt levels are high, but Europe is a patchwork quilt and all countries are not going to recover at the same pace. For me, it's about your footprint, your geographic footprint and the businesses you have in those footprint. We've seen signs of stabilization coming to our businesses, and we think and we looked at the first results in the first 2 months of the year, again, that has continued on into 2014 which makes us feel good, but it's early season yet and let's see how the year evolves. So with those trends evolving, we think we're going to see some positive momentum in Europe for 2014. And the portfolio review is ongoing. I'd say this is not something we're going to do, start and stop. This is something we've started, we've initiated. We'll get this phase to a finish, but it's something, for years and years, is going to continue on and be part of the mindset of CRH. And very clearly at the end we say, we see 2013 being the trough, and we think 2014 is going to be a year of profit growth. Okay, so we're now going to move to Q&A. And I'm going to invite Mark Towe who heads our U.S. Operations to join us here on stage. And we're going to go to the floor first and then, onto the wires. If I can just ask one request, if you're speaking from the floor, if you can just wait until the microphone gets to you, please, because the people on the wires can't hear the question down the web. So if I can just ask the ladies who could bring the microphone to you and then we'll deal with your questions as best we can. I think we'll take Barry up front here, please, so.

Albert, it's Barry Dixon from Davy. Just a couple of questions here, if you don't mind, Albert. I mean, you talked about the portfolio review with the objective, I suppose, being to restore peak margins and returns. I mean, should we think about how -- that the returns will structurally improve through the cycle? So we can all look back at what peak returns were in the last cycle and say, "Okay, that's great. We'll get back to that". But I suppose how should we think about returns through the cycle, and do you have a target in your mind for a group return on capital, either RONA or a return on invested capital? A second and maybe related part to that then is if you look out sort of 3 to 5 years from here, I mean, how do you see the structure of the business? I mean, it's very much -- I'm sorry, it's well over 50% heavy side weighted at this point, there's a very -- a strong distribution business which has no impairment charge associated which would suggest that that's a keeper in terms of businesses. So if you were to look out 3 to 5, how do you see the business split between sort of that heavy side, light side and then the products part in the middle? And then, I suppose, the third element to the question is just in terms of the whole U.S. infrastructure side which is clearly a very important part of the business. Does this mean that the focus of that businesses now will be very much on the Northeast of the U.S. or do you see opportunities to -- as time goes on, to sort of grow that business out into other parts of -- or regions of the U.S.?

Okay, thanks, Barry. Maybe I'll leave the last part of that question to Mark Towe to talk about U.S. infrastructure and where see the growth potential going forward. And the first question you asked is about peak returns, where do we see it coming and the time frame we'll see it coming back. Well, historically, if you look back at CRH, peak returns were about 12%, 13% returns, and that's our target, to return back to that. But as I said in the presentation, that's going to be dependent upon a number of factors. One of which, of course, is the portfolio review. It will be dependent on market growth. It will be dependent on pricing coming back and it will be dependent on our ability to get back into the businesses in terms of when we're buying business and making them better. I'm confident of actually focusing on the last part of it. What I'm not in control of is the market or indeed the pricing. What I am encouraged to see though is the leverage we have seen coming back to our Products business this year, and where we are in the cycle in doing that. It's just a question of where are we in the cycle in terms of things. I think Europe is just literally flat. And there's a good -- I was in the U.S. there 2 weeks ago. I was just talking to one of our customers. I was out west in Phoenix and they gave me a very good snapshot in terms of what they're feeling. Now Phoenix is pretty much a kind of mid-recovery residential market. It went very hot, it went very cold. At the peak, they were building about 80,000 homes a year in Phoenix. At the trough, they were down to 4,000. Now back to about 15,000 or 16,000. The long-term sustainability for Phoenix is about 30,000 by the way. So that's where they need to get back to. And if you look at our Products business, our Products business just put against that profile. At the peak our Products business, which is a residentially exposed business, made by about $450 million EBIT. At the trough, it went down to $35 million. This year, about $250 million. So on that small level of recovery, the leverage coming through has been a big contributor to our bottom line. And that's what's going to drive the leverage and the margins coming back. So there's a number of factors, Barry. It's very hard to actually say it's going to back to this margin by this time. But given the normal recovery cycle we see, we think that there's a very strong probability we'll get back to those peak margins during the course of the next cycle. Now the second question you're asked me, indeed, in terms of the structure of the business in the next 3 to 5 years, we'll wait to finish out the portfolio review. I think one thing that's coming through in the portfolio review is that we made some bad calls during those very early 2000s, as a lot of people did, but we did much more right than wrong. Fundamentally, our businesses are well structured. They're well invested and we bought well and we've invested well. As I said to you and we've talked about this morning about assets involving a EUR 1.5 billion which have been written down by EUR 755 million but we invested EUR 24 billion. So we did a lot more right than wrong. And I don't see there'll be a very significant shift in that. I think the portfolio will get a bit narrower and maybe a bit deeper, but probably inside those core businesses. And looking to our line of sales, we're developing trends. We did that in distribution 15 years ago. We did that going to Eastern Europe 5 years before that. We did that going to the United States 20 years before that. We're looking at where the trends are going. So I can't anticipate that now. We'll go through and finish the portfolio review and then that will evolve in time. Maybe, Mark, I might ask you to comment on the concentration of growth in the Northeast or not, as the case may be.

Yes, Barry, I think the focus on Northeast will continue. That's where our big returns are. We'll continue to grow that area. There are bolt-on acquisitions there. But I think -- our opportunities, we think, going forward really is a middle Atlantic stake. I mean, we have a very good position in Ohio, Pennsylvania and whatever -- other growth opportunities as well, so we'll continue to take a look at that area. We've talked about in the past about where we wanted to grow in Texas which we've done in the last 3 or 4 years. There's a lot of opportunities there, so we continue to look across -- I think the Northeast is very important but I think our growth opportunities are really across the U.S.

Sorry, I had to take Yuri who was just in front, excuse me.

Yes, Yuri Serov from Morgan Stanley. A couple of questions on your disposals that you have identified. One, just to clarify, when you're saying that the businesses identified for disposal make up 10% of your assets, is that before the impairments or after the impairments? And if it's before the impairments, what would it be after the impairments? And then a related question is can you give us an idea as to how much within that asset pool comes from consolidated subsidiaries versus associates and JVs? The second question related to disposals. I don't know how much you can reveal, but it'd be quite useful for us to get a sense as to -- from which business lines those disposals are likely to come? Again, it depends on how much you can tell us. And then just the final bit. Back on the returns, just a clarification. You were talking about returns in the plural sense which suggests that you're kind of committing to get back to peak returns in all your businesses. Is that correct? Are you planning to get to peak returns in Europe as well, and can you discuss how that can happen and over what period of time?

Okay. Thanks, Yuri. Maybe I'll take the second and third part of that question, and go back to Maeve at the end to talk about the impairment and the breakdown between subsidiaries and associate companies. Just on your first point in terms of a breakdown of where those -- the impairment is coming, we've just given a...

Disposals [indiscernible]

Sorry, the disposals, excuse me -- the disposals in terms of where they're coming, we've given the breakdown of that as far as we're going to go. We've identified that it's largely within Europe and largely within Europe products. I don't think it serves anybody well for us to go start listing out companies’ name-by-name, this is what we're going to dispose of, they've got employees, customers, suppliers. And our goal now is an orderly exit from these businesses and to optimize value for our shareholders. And as and when we move through that disposal process and sell them, we will come back and we'll tell you. So that's as far as we're going to go with regard to on that. With regard to returns, the issue on returns is these are group returns we're targeting because there are different moving parts of our business. So am I saying that all of our businesses are going to get back to peak returns at the same time? Absolutely not. But overall, our group blended return will get back to peak. And when we look at our business going forward, that's our objective. There are a number of factors that will impact upon us. That, as I said to you, is about market, pricing and recovery and that's why I went through the exercise of a setting up here just the market outlook but very importantly, our positions within those markets. Because some of the factors that are within our control where you got structured markets and strong leading positions, you can influence pricing and commercial initiatives as much as you can influence all the parts of quality and quality development within the business, and that's important to us. We know how we'll do well within that so that's an overall group number and an overall group target. Maeve, I might ask you to comment on the impairments?

Yes, Yuri, the 10% is the pre-impairment and post-impairment will be about half of that, around 5% of assets.

So curious [indiscernible]

There's probably the -- your question was in relation to the...

The breakdown.

The break -- yes, there was about EUR 105 million in relation to JVs and Associates?

[indiscernible] of disposals. You're saying 10% of the assets are [indiscernible] disposals were 5% after the impairments. Within that what's the split between JVs versus consolidations that you're seeing?

The proportion of the financial assets will be higher than the 10%, so it was a greater proportion of those. If you look at our total financial assets at the end -- in the balance sheet were something like EUR 1.3 billion and that's after an impairment of EUR 105 million.

Ian Osburn from Cantor Fitzgerald. Just a bit more to push you on the portfolio review and the next phase. It seems the next phase could be up to EUR 2 billion worth of assets. Just how -- what you can tell us what's in there really? Is that a similar sort of profile Europe focused and products and materials-focused or is this second phase just far more across the businesses. And a second question which may be impossible to answer, just on the pace of recovery a bit more, the example you gave which I think was American products highlighted the operational gearing. Do you think that's going to be the main driver in which case we could see a recovery that's quite front end loaded, but your comments on capacity suggests that there's spare capacity in the industry and it will be a more slow progress through the cycle. And if there's a slow progress through the cycle, I'm assuming about a doubling of profits over the next 6 years which implies around 15% profit growth per annum, which -- just your thoughts on that, is that way off or in line with your thinking?

Okay, just on the 20%. Let me be absolutely clear. That's something that's still under review. Actually, it encompasses the business from all divisions and all parts of our business. There are no bad businesses in there. The only question is either we fix, stay, invest or, in time, go. And I think it's more, if we do go, it's in time go, not immediately go. And we're going through that process and we'll come to you in May because actually, this is a work in progress. We only started this in real detail in the fall of last year so we're going through that process. With regard to -- in terms of the pace of recovery and what we see coming through, again, I said it in the presentation that what we have seen in the U.S. has been a volume-led recovery, not really -- pricing hasn't come back yet. And that's really interesting the fact that -- and I use that again to highlight, we've taken about EUR 2.4 billion of price cost increases and have been slow and only able to get back about half of those, by the way, I'd say that's a similar trend across all building materials businesses. And that really attests to the volume weakness and the impact that has on the recovery of pricing. And I think you're going to have to see a more sustained recovery in volumes first before pricing comes back. But we've been here before, in very prolonged at times, not so concentrated, not so coordinated across global economies, and our business has a history of being able to recover back prices in time. We're quite good at doing it. And in fact, it's interesting, you're starting to see in some of the major materials providers and just take the U.S. market as an example coming through, the cement business in the U.S. last year for the first year got about a 5% price increase. The glass business has got a strong price increase. The wallboard, the lumber guys, all got strong price increases where you got concentrations of suppliers saying, on the back of an evolving and improving market, we can get price increases. And actually, that's very good for the industry because it flows down through the industry. We just need to give it time to flow down. So that's kind of the pace of it, it's more volume-led and in time pricing comes through but we're starting to see that those major components, those major raw material businesses, that's the key. That's the start to it and the pricing across the general products will follow after that.

It's Paul Roger from Exane BNP. A couple of questions, really, firstly on capital allocation. Obviously, you've got quite a strong balance sheet already. You're potentially talking about selling up to potentially EUR 3 billion of assets. That's quite a lot of firepower. Do you have a target level of gearing, and what would happen if you fell below that? You've always had a history of bolt-ons. Would look at something bigger? Maybe we can talk a bit about the importance of dividends and buybacks within that. And then secondly, on European Products. We've talked a lot today about some of the structural issues. But, clearly, it's not one business line. I wonder if it's possible to give us a bit more detail in terms of your view on returns for the different businesses within the division?

Maybe I might just add -- just talk about in terms of the disposals and the proceeds that you come forward. You're coding a figure of EUR 3 billion. I presume you're adding 10% and 20% together, something like that. Be absolutely clear. That 20% in no way I was suggesting these are set for disposal. This is something we're just getting -- it's still under review. Some of them may be disposed in time. My gut feel is, actually, most of them will be retained within the business. We just got to figure out where they fit in the cycle. Some may be retained for 2 years, some may be retained for 5 years, some may be long term. The only business we've identified for disposal at this moment in time is the 10%. We're getting to the 20% and when we get through that exercise, we'll come back and we'll tell you. So I don't want to build up that expectation that there's EUR 3 billion out there. With regard to -- and in terms of acquisition opportunities out there, we think there's lots out there. We've spent EUR 1.5 billion over the last 3 years. And actually, in very tough times, we've been very measured and constrained in doing that, so there's deals out there and we feel we can do value-added deals when we go out there. Looking as in terms of generating excess funds for buybacks, et cetera, et cetera, that's not in our agenda going forward. If we can generate those returns on acquisitions, if we can generate those returns into a growing market, actually, we can create far more value for our shareholders by investing those moneys back into our businesses. With regard to dividends, we were very clear. For the last 30 years, we've been solid on our dividend. We understand how important that is, now of all times. Cash is king. People expect CRH to be delivering dividends, and we know that. We have the capacity to do that. Of course, each year is different. It's a forward-looking statement of how you feel about things. Our dividend cover is down below 1 now. But we've been very clear in our guidance. We will rebuild back our dividend cover, profits recover. Now we're talking about 2014 being a year of profit growth. So all of those things at least give you comfort in that area again. With regard to gearing in debt levels, Maeve, if I may just pass it to you?

Yes. Hi, Paul. Broadly speaking, the financial metric that we look at very closely in terms of managing our finances, would be the level of interest cover. And we've talked over a last number of years of about a 6x EBITDA interest cover being broadly consistent with our rating levels, which we're proud of in terms of, in particular our S&P rating, which has remained unchanged since we first got it back in 2000. So we're very focused on that. So that's the kind of level that we monitor carefully to see -- we'd like to stay within that, broadly, in that area of cover as well. And our debt-to-EBITDA has remained around the 2x, again, over a very long period, and that's a level that is broadly consistent with our rating and with our financial strengths. So those are the kind of metrics we'd be looking at to keep an eye on to make sure that we stay within that broad range.

Then just a follow-up on the European Products. In terms of the different business lines, whether there are big contrasts in terms of the returns between pre-cast or construction accessories. Maybe you can just maybe say a bit more by business line within that division?

I think, when we finish our portfolio review, we'll go and set that out because I started saying to you the important question that we're asking ourselves and you should ask us is; "Why you are investing in this because going forward?" We have got some very good high returning businesses in Europe Products. We have some poor businesses in Europe Products. When we finish our review process and we will come back to you and identify, this is why we're staying in Europe products in these businesses because this is where we see the growth and this where we see the returns. But we'll come back to you later on during the year when we get to that, Paul.

It's Will Jones from Redburn. Three if I could, please. Americas Materials, the EBITDA margin in the second half, 90 basis points higher. I assume falling liquid asphalt costs and cost savings were 2 helps, then it looks like they're both features again for this year. So is your confidence on margin improvement or drop-through strong on that front for that division in 2014? Secondly on Americas Products, you talked about making a volume recovery to get the pricing. You've had a couple of good years of volume now. Where are we in terms of spare capacity in that division, and is it going to be a better year for pricing in '14? And then lastly, weather in the first half of last year, I think the group quantified EUR 80 million EBITDA here in the first half of last year from weather-estimated. Do you think that any of that came back your way in the second half? If not, do you think that when we get the 4 month update with like-for-like sales, should we be expecting acceleration of say, to 2% in the second half of last year as you make back what you lost in the first half of last year?

Okay. Maybe what I might do is, I may just deal with the weather and the products since you've given an overview on the margin evolution, and I'll maybe ask Mark to give an overview in terms of how we see the business going forward into 2014. Just on the weather. We think about 1/2 the EUR 80 million that lie in the first half came back in the second half. We had a very strong run of weather all the way through to Thanksgiving. It wasn't just weather, it was a very fine weather in that time in the U.S., and that certainly helped us. So about 1/2, we think came back well. With regard to your second question, in terms of products and pricing. Well, actually, we saw almost no pricing power in 2012, even though volumes were coming back. We saw some pricing power and some sweet spots, particularly, in Florida, Georgia, Texas, Arizona, and North and South California. That's -- they were our sweet spots for residential construction. This is not a national residential market recovery. This was in certain sweet spots. And in those areas, we got good pricing. It was tough in other areas. But again, as volumes recover and it becomes more sustained, you're going to get more of a chance with that. So we think we've got stronger pricing power in 2014 over '13, as we did '13 over '12. And with regards to the margins coming through, I'll let Mark -- I kind of just add my own observation as well, though, is that you should also look us -- in terms of our business, we produced in our aggregates business many different grades of stone. And stone, is -- different prices or grades of stone are used for different end uses. When you get an imbalance, what happens is you got to go back and reprocess stone. So a very large stone, for instance, will be used in aggregate and readymixed concrete, very small fine stone in asphalt. But when we crush down, it falls out in different sizes. If we have no readymixed business or less readymixed business, we got to reprocess that stone, which is extra cost. What we saw coming back in higher volumes was a much more balanced recovery where all products were rising, and that efficiency runs through our plants, and that is a function of some of our margins coming back. Mark, I don't know how you feel about that in terms of...

No, I think a couple of things to follow-up on the product side. We've a rough time. We get pricing. We did get price up in the second half of the year, and we'll continue to do that. We'd be -- part of the thing are our Home Center business were pretty much flat, and we can -- that's a tough sale. But I think one of the things that you have to remember now that, Maeve talked a little bit about the cost reduction, even though we haven't been able to get price up like we'd like to get to at this point, it's coming, but we've been able to have our margins go up, because we've been able to get our cost reductions through there. So that's been very important for us. And it will improve as we go forward as the volume comes up. On the asphalt piece that you asked about the part of the piece -- the big piece for us is liquid bitumen, we don't see any problem. We think it'll be flat again this year. It's a little bit lower last year. So we think that, even with that last year, our margins were better than we had the year before. So we're hoping to have a price increase in 2014. It's just so early in the season, right now we really haven't started bidding yet. We will start doing that in March and April, and we'll see where we are mid of the year. But we'd be optimistic on the pricing going forward. It's modest, but it's is going to make improvement.

Arnaud Lehmann from Bank of America Merrill Lynch. Three questions, if I may. Firstly, coming back on your disposals program -- I mean, over the last few years, obviously, CRH has done a few hundred million euros of acquisitions and disposals every year. I know we are talking about 3% of EBITDA and 5% of net assets to be disposal just -- which would imply a few hundred million euro as well. So could you come back on this and explain me what is different this time and what you, as a new CEO, are going to do differently from Mr. Lee? My second question is on -- you speak about a EUR 29 million loss, I think on pensions and CO2. Could you please split pensions and CO2? I understand that's probably a gain on pension and the loss on CO2? And lastly, I mean the topic there and what has been the impact of the ongoing revolution on your business so far?

Okay. Thanks, Arnaud. I'll take 1 and 3, and I'll ask Maeve to give you some detail on the pensions and CO2. Just on the Ukraine, I'd like to take that one first. Last year, we made about EUR 18 million EBIT in Ukraine. We actually employ across 3 locations in Western Ukraine, about 1,500 people. And actually, that's our first and primary concern is the people, employees that work for us. Also, indeed, we've been talking to, and our job is to support, our customers and our suppliers as they go through what is a very challenging time for the country. It's very uncertain at this moment in time. And I don't want to rush to judgment. It's clearly evolving on a day-by-day basis. It's early season for us. Actually, we're still selling, still producing, and our plants are still working. But we just have to take a moment and just let -- see how the situation evolves before we can get a better picture of what's going to happen, so that's the size and scale of what we have there, what we do, and actually our priorities are our people and our locations, which are all fine, and we'll just see exactly how the year evolves. And with regard to the CO2 and pensions, Maeve is going to come back to the last one?

Yes. It's not so much a loss this year as a lower gains. Last year, there was about EUR 30 million each of gains on trading for CO2 and gains for pension curtailments. This year, the pension curtailments -- by this year I mean, of course, 2013, our pension curtailments were about EUR 24 million, and the CO2 gains were about EUR 8 million. So that's the reduction -- the year-on-year reduction, that's the EUR 29 million that we spoke about.

And going back to your last point, Arnaud, about how much money we have and is this just something that we're fiddling around the edges in terms of the portfolios that was behind it; actually, from a CRH point of view, this is about capital allocation and then reallocation of capital. We're not short of money to spend. We've got sufficient capacity in our balance sheet to spend. But it's about understanding how and how -- where and why we create value. We have identified 10% of assets that we will dispose. In time, in that 20%, there will be other disposals in that 20% that will fall out. I just can't tell you at the moment, we're working through that exercise. But most of those businesses will evolve and will happen and be disposed of over time. I suppose the most important principle I'm saying to you is that we're now talking about active portfolio management going forward. There is a cycle in which CRH makes money. We make about 60% of our profitable growth in CRH directly or indirectly through the acquisition process. When we buy businesses, we create great growth directly or indirectly in that process, so we can have strong organic growth markets but if we don't have acquisition opportunities going forward, we tie one hand behind our backs. So there's a natural time for which CRH should be a holder of businesses. And when the market is consolidated and you lose out and there are no further acquisition opportunities, actually, you got to decide whether you're going to hold that business, whether it's a cash cow or whether it's time to crystallize the value in that and reallocate back down the portfolio. That's probably the ethos we're trying to communicate you now. Rather than saying we're going to sell off a 1/3 or 1/4 of the series, that's not the case. We don't have that many bad businesses. But what we are seeing is a process where we're starting a more active allocation and reallocation as we go forward. And that will become a fundamental part of what we do going forward.

It's Gregor Kuglitsch from UBS. Just 2 questions. Can you just -- on the margins and ROIC going back to peak representing 12%, 13% as a post-tax number firstly; and then on the margin side, I think you did say slightly shy of 10% on an EBIT basis. Is that what you're, basically, talking about? Obviously, there are some mix differences with more distribution over recent years. Obviously, there is a little bit of an adjustment to make some -- or maybe just clarify on that. And then of the 20% that you sort of still thinking about, if I'm not mistaken, can you just maybe give us -- told us 5% -- 3% of EBITDA for the 10%, how much profit contribution comes from the 20%? Obviously, you're telling me they are good business, so therefore, I presume they're probably more in line with that sort of 20%. And then maybe one quick for Maeve. You've, obviously, done very well on cash flow. You've done sort of slightly shy of EUR 750 million. Is that a number you think you can repeat, or all said, as clearly that's quite important? And then finally, if you can just maybe give us a little bit more granularity country by country in Europe, what your expectations are going into '14? Obviously, the core countries -- Benelux, Switzerland, Finland and so on and so forth, if you could just give us sort of a rundown of that, that will be helpful?

Okay. Thanks, Gregor. May we -- maybe I'll ask Maeve to comment maybe on the issue with regard to the margins and the EBIT cash, and I'll come back and circle back on the country overview and the other issues here.

Okay. Well, I'll start with the cash flow. The operating cash flow for 2013, was you said, just under EUR 0.50 billion. Obviously, the exact number will depend on profitability in 2014 as well, but I think we do see profits improving in 2014. We will continue in 2014 to maintain a very tight control of capital expenditure. We've spoken in the past of the fact that while we maintained tight control, we have invested very well in our assets when -- in the good years. And also, the lower levels of activity, particularly in our heavy materials businesses, the lower levels of activity in the past number of years has meant lower wear and tear on the heavy equipment, and therefore, a lower requirement for CapEx. So we've -- our assets are well-invested and in good shape, so it's not that we have a huge burden of spend to continue to wait to be spent very quickly. So we'll keep control on capital expenditure. One of the things that to watch is, as we see activities picking up, there is a tendency for working capital to increase as the result of that. What we've found is working capital can also -- year-end working capital can be very sensitive to weather in the last month or 2 of the year. But so there's a lots of moving parts in the answer, but I suspect -- we would expect progress on cash flow. On the margin side, the 10% EBITDA margin -- or EBIT margin that historically we've achieved is part of -- is in our thinking in terms of where we would see things returning to. So that's -- the composition of that has, obviously, reflect a mix of businesses from history, which is going to be different from our mix of businesses in the future. So the timing of where we get -- how we get to there will depend on the pace of recovery in the different markets we're in. But broadly speaking, in overall terms, that's the kind of peak -- that's what we have in our mind when we're thinking of peak returns. And very lastly. Sorry, John. The last as -- you are correct that ROIC is an after-tax number.

And just to come back to of equity -- it's about, of those of the 20%, it depends on when you measure it. It is delivered in a range from a low of about 11% to the high of about 17% of total EBITDA, and it depends where you pick the cycle on that and such.

Last year?

Last year? Between 11% and 17% greater. We'll taken it now later in the moment. But it depends -- I'm looking forward in terms future potential what they can generate. That's the real focus in terms of future growth. And just the other issue, just a quick tour of Europe in terms of where we see Europe, just going back. We have set it out in our statement, but just to clarify it. In terms of looking in our main markets to Switzerland, which is our biggest country in terms of profitability and top line in Europe, we look at that being a very solid performance in Europe, of progress again in 2014, and I see no reason why it shouldn't be. And actually, we think the Netherlands will be broadly stable. We don't see it continue on down as it has done in the past. All the forecasts and all our indications are it will be broadly flat. Belgium, broadly slightly up. Germany, slightly up. Poland, we think slightly up as well, which it’s good to see. Finland would be flat. France, maybe slightly down. Ireland, Spain, broadly flat in terms of where they are. So that's kind of the flat, slightly up have kind of [indiscernible] absolutely up or like together. I just need to be curt in my time, I'm just going to John [ph] here if I can, because I've got to take some calls from the conference call as well. So maybe I'll take 1 or 2 my questions from the floor.

I think, pretty quick. Just two points of clarity. One is, on the EUR 750 million that's been written down, or the EUR 650 million plus the EUR 105 million is, is about all against businesses that are in the portfolio that will be subject to disposal or some of it within the ongoing businesses? Also, is it a goodwill write-off or will this hit the assets in terms of fixed assets, et cetera, and therefore, knocks you on depreciation when we think about how the businesses will look for a potential acquirer, or is just really a goodwill write-down that will be visual to a CRH shareholder? And then finally, the 10% of net asset. Again, just to be completely clear, net asset value, which one are we talking about -- as in EUR 9.8 billion of equity plus EUR 3 billion of debt, or are we thinking of a net asset number, because the RONAs aren't in the slide [ph] back?

Okay. Maeve, I'll give you all 3.

Lots of questions there, John. The first one is the write-off of the EUR 755 million, EUR 650 million of that is at operating profit level, and about EUR 380 million of that is goodwill, and the balance is plant and equipment, buildings to a certain extent. And the question about the -- can you remind me your next question now?

The net assets.

The net assets. The figure -- the growth number, where the net asset number we're using calculating that 10% is around EUR 15.5 billion. So it's equity, plus debt, plus adding back some of the [indiscernible] this year.

Okay. I'm sorry. I'm going to have to go to the phone lines, because there are people beeping at me here and I am trying to fair to everybody who is in the room, and also those who dialed in as well. I think we've got some calls coming in the lines. And if I don't get you here in the room, I'll be here afterwards so we can pick up with you afterwards.

We have a question from Robert Eason from Goodbody.

Just a few questions. Firstly, on the U.S. nonresidential market. Now over the last 6 months, we've kind of had a mixed signals from the ABI. I just want to get your feelings on how the non-res markets is developing for yourself and your prognosis for the current year? Just points of clarification in terms of the other queries. What should we put in for CapEx for 2014? And you talked about that due to your bond issuance last year that your average charge is coming down for debt. Can you just give us an indication of where the average charge will be for this year? Or just you can give us an indication of where the total financial charge will be? And my last question is in relation to you 26% stake in China. Can you just give us an indication of the quantum, the size of that business now from an EBITDA perspective? Remind us about the option that you have in terms of purchasing and move about business?

Okay. I'm just going to repeat those questions because they may not necessarily heard them on the lines. Robert has asked; to quantify the 26% in China in terms of what the size and scale of that business and where we are over the option, he asked to clarify our debt costs and our debt charge with regard to our bonds for last year, clarification on CapEx for 2014, and also just a commentary on U.S. nonresidential in terms of how we see the market evolving in 2014. Or maybe if I take China, I'll pass the U.S. question to Mark, and let me handle the 2 financial questions. Just the size and scale of that business, that business has the capacity in China, which we have a 26% stake in, of about total capacity of 27 million tons of cement. Last year, it sold about 22 million tons of cement. So a very big business. Dimensionally, the EBITDA of that business was somewhere between EUR 250 million and EUR 300 million EBITDA last year in a tough market. Our option actually expires at January 2015, and the question we have is whether it's a fixed hard option or whether we want to extend that option and go on. I think, there's a number of options open to us in the table. We have a fixed option, but we have a close relationship with our partner. And our key focus, actually, is working with our partner to improve returns. When we spoke about emerging markets, we spoke about balancing returns and long-term growth. I don't want to go down the road of just buying growth or buying, putting flags on maps, this business is all about returns. And what we're doing at the moment is working with our partners to an agreed objective of improving returns to a point where we feel confident and they feel confident that it's the right time for us to step in. So we'll update you in that as we go through the course of the year. Maybe if I just pass the U.S., Mark, with regards to nonresidential of where we are on the cycle?

Yes, Rob, that's a good question, because we're confused as well with the mixed signals that we get on ABI. So what we've taken to is take a look through the business that we play in that area, our Distribution business. Their view would be -- this is on the interior piece. Their view would be non-res, probably that their growth we'd look at 6% to 7% for 2014 where they play. And then on the product size, would be similar to that. So that will be our view. Right now, it's kind of early in this season, but that will be our view. It's going to be up.

Okay. And quickly, Robert, to comment about the lower interest costs, it's really a kind of a medium to long-term comment that -- the securing the bonds at the lowest interest rates, the lowest coupons we have ever achieved sets us up very well for the future. For 2014, I would expect interest, the total financial cost to be fairly similar to last year, so around a EUR 300 million mark. And in terms of capital expenditure, again, the same answer. Roughly, we're going to continue to keep very tight control of capital expenditure in 2014. So my current estimate is that around the same level as 2013, so around the EUR 500 million mark.

Thanks, Maeve. And I'll take one more question from the call, because they're winding up here at the back is there one more question on the lines we can take?

We have a question now from Tom Holmes from Investec. Tom Holmes - Investec Securities (UK), Research Division: Just 2 from me, if I could. Just keeping with the U.S., with MAP-21 due to expire at the end of September, would you be optimistic of a long-term replacement funding program being agreed or should we expect to see a series of short-term extensions similar to those that follow the expiry of its predecessor in September '09? And then just one briefly for Maeve. Could you give us an update, please, on the expected tax rate for 2014?

Maeve, you might take the tax rate; and I'll pass MAP-21 to Mark, please.

Hi, Tom. I think, our expectation would be with an improving situation in the U.S., on U.S. accounting for greater proportion of profits, that has a natural tendency to increase our tax charge. So I would be expecting it to be in the 20s, probably 22 -- somewhere between 22% and 24% for 2014.

Mark, MAP-21?

Tom, on the MAP-21, you're right. We're funded through September of 2014. The Congress now is getting ready to start, have a debate about extending this thing. It, in my view at this point, probably nothing will happen. We'll probably get an extension at the end of September until we get passed the 2014 elections. Then we'll have the debate in 2015. There has been a lot of talk about the infrastructure play. President Obama has talked about this, one of his initiatives, right now is to figure out how to keep fund that. So I think it's a lot of debate. I think, the view is that the infrastructure needs to be looked at. If there is a need to have higher funding. At this point, we just have to see where we are. We're not worried about it at all, not getting it extended. So we'll be comfortable. But the funding at EUR 41 billion will continue to go forward, I think, and the upside will be if we could get a long-term bill.

Okay, listen, they're frantically winding me up at the back, so I'm sorry, we have to cut it there. If anybody on the wires, on the webcast or anybody in the room didn't get a chance to ask a question, please feel free to contact our Investor Relations in Belgard Castle in Dublin. Or indeed, my colleagues and I will be here afterwards just to go through any questions you have. I just want to leave you with a couple of thoughts in terms of how we see the year running up in front of us. We've been very clear. We see a fairly moderate pace recovery coming forward in the U.S. Last year was on one cylinder, we think the second cylinder is going to start firing this year and that will be in nonresidential. We see signs of stabilization in Europe, and that is carried forward into the early weeks of 2014, which is encouraging to see, very good to see. We think we've shown to you in the benefits of leverage that come back through the business, which really is, actually, a result of all the good work we've done on the way down. We're going to look like idiots on the way down, or we did look like idiots on the way down, and we're going to look like heroes on the way back up. But both of those statements are wrong, by the way, you just do your job. And we've got very good financial strength in our balance sheet, great capacity to do deals, but we'll do so in a disciplined manner, the portfolio review will ensure that, and we're very much focused now going forward on refocusing CRH back to its core principles of returns and growth, and that's how you should think about us going forward. So we have our AGM. Our IMS will be -- our AGM in early May, and we'll also update you with regard to where we are with the portfolio review at that time. So thank you very much for your time and your attention today for you in the room and those on the wires, and we look forward to talking to you again in May. Thank you very much.