Morning, everybody. Thank you for coming today. I'll hit some highlights for the year here, and then Rob will take us through some of the financials, and then I'll follow up with some dialogue on the business overall. I think it's fair to say it was an excellent performance in challenging conditions for Breedon in 2019. I think the numbers speak for themselves, but if they don't, I'll reiterate it again. We considered it to be an excellent result for the year. We improved results in all three divisions. That's GB, Ireland, and Cement, and continued tremendous cash flow. The integration of Lagan was largely completed, and the part that isn't completed was our decision to delay some of it based on some other priorities we had in the business. We were pleased that on the acquisition side, there was still some smaller transactions done.
We acquired Roadway in North Wales, so we finally got the plant in Wrexham that we've been talking about for six years. We're delighted to be involved in a joint venture with Capital Concrete in London to give us access to the London market and some critical mass. We spent a lot of time during the year and ultimately agreed an acquisition for a portfolio of assets from Cemex in the U.K. I'll talk a little more detail on that as we go forward.
As we grow and mature as a business, the next two points I think are particularly relevant. One, sustainability. Climate change is becoming a big part of our business. I think we did a reasonable job at it, but we never quite told that story. We have made a commitment to the GCCA's Sustainability Charter, and then we were delighted to announce our current intention to declare a maiden dividend with our 2021 interims. All in all, a very good year.
Good morning, everyone. As you can see from the financial highlights, we have once again reported an improved performance. We've delivered revenue growth of 8%, underlying EBIT growth of 13%, and achieved an underlying EBIT margin of 12.5%. Excluding the impact of acquisitions and disposals, revenue was up 1% and underlying EBIT improved by 10%. This reflected an excellent performance in challenging market conditions, selling price improvements, a generally more benign input cost environment and ongoing self-help. Profit before tax was up 18%, and on an underlying basis, it was up 12%. This all translated into an underlying basic EPS growth of 8%. These results incorporate the adoption of IFRS 16 in respect of leases, but as reported at the half year, the impact of this on the income statement is not material.
Again, as reported at the half year, the impact on the balance sheet and specifically net debt is more material. At the year-end, the closing net debt of GBP 290.3 million includes an IFRS 16 element of GBP 43.6 million and represents leverage of 1.6 x. Excluding the impact of IFRS 16, net debt was GBP 246.7 million and leverage was 1.4 x, compared to 2.6 x at the time of the Lagan acquisition in April 2018, only 20 months ago. This deleveraging clearly demonstrates the highly cash generative nature of the group. For complete transparency in respect to IFRS 16, we have also prepared the financial highlights on a pre-IFRS 16 basis, and as you can see, the only material impact is the yellow box in respect of net debt.
Turning to the income statement and revenue, which at GBP 929.6 million was up 8%. Excluding the impact of acquisitions and disposals, it was up 1%. At the earnings level, underlying EBIT of GBP 116.6 million was up 13%. Again, excluding the impact of acquisitions and disposals, it was up 10% for the reasons already mentioned. The increased interest cost to GBP 14 million primarily reflects the adoption of IFRS 16. Non-underlying items of GBP 8 million mainly comprised of acquisition costs, including some in respect of the Cemex acquisition, amortization costs and reorganization costs.
The resulting profit before tax of GBP 94.6 million was up 18%, and the tax charge of GBP 16.6 million reflects the tax rate of just under 18%. The charge was lower than the U.K. standard rate of 19% due to the impact of profits generated in the Republic of Ireland, where the standard rate is 12.5%. All this translated into an underlying basic earnings per share of GBP 0.0508, up 8% of 2018.
Turning to the segmental performance, we are pleased to report that all three of our divisions produced an improved performance in 2019. The political uncertainty created by Brexit overshadowed all our markets during the year. In Ireland, in addition to Brexit, market conditions in the North were compounded by the absence of the Northern Ireland executive. While activity in the South was more positive. In Cement, the Irish market remained challenging throughout 2019, with all regions relatively muted apart from Dublin, which continued to grow strongly. While in GB, market conditions were broadly stable. In Great Britain, revenue was up 1%, underlying EBIT was up GBP 1.4 million, or 2%, the underlying EBIT margin was 10.2%. In Ireland, revenue was up 29%, underlying EBIT was up GBP 5.9 million, or 28%, the underlying EBIT margin was 13.3%.
In Cement, revenue was up 6%, underlying EBIT was up GBP 4.9 million, or 16%, and the underlying EBIT margin was 19.5%. As already mentioned, we improved our group underlying EBIT margin by 0.5 percentage points. We continue to target 15% in the medium term. We do not believe that the pursuit of this target in isolation is in the interests of our shareholders. We have therefore introduced two additional KPIs, return on capital employed and free cash flow, which we believe will ensure better shareholder alignment going forward. Lastly, it's probably an appropriate time to comment on the status of the Lagan synergies. The integration of Lagan is now largely complete. Our current annual cost synergy run rate has hit the target of GBP 5 million.
Turning to our products, reported aggregate volumes grew by 4%. On a like-for-like basis, there was a decrease of 3%. Reported asphalt volumes grew by 6%. On a like-for-like basis, there was a decrease of 4%. Reported concrete volumes declined by 7%. On a like-for-like basis, there was a decrease of 4%. Lastly, reported cement volumes grew 3%. On a like-for-like basis, the decrease was 3%. Market declines of aggregate, asphalt, and concrete volumes were 2%, 1%, and 4%, respectively. Over and above these market declines, our like-for-like aggregate and asphalt volumes were impacted by the phasing of major projects in Scotland and the shift towards higher value aggregates in England. In terms of pricing, progression in excess of inflation has generally been achieved during the year. Pat will comment further shortly on the markets.
Now turning to net debt, which stands at GBP 290.3 million at the year-end. Net debt has reduced by GBP 20.4 million from GBP 310.7 million at the end of 2018 to GBP 290.3 million. This movement reflected an underlying EBIT of GBP 180.2 million, a GBP 10.3 million working capital outflow, and which was GBP 32.9 million outflow at the half year. Interest and tax paid of a combined GBP 30.3 million, a GBP 55.8 million CapEx outflow, which is net of disposal proceeds, net acquisition spend of GBP 15.9 million, and lastly, debt assumed on the adoption of IFRS 16 of GBP 47.0 million. As a result, the closing leverage was 1.6, and as I said before, 1.4 x on a pre-IFRS 16 basis. In addition to reporting on 2019 results today, we have also taken the opportunity to set out our capital allocation priorities.
In summary, we prioritize the maintenance of a strong balance sheet and will deploy our capital responsibly, allowing us to commit significant organic investment to our business while continuing to pursue acquisitions to accelerate our strategic objectives. This conservative approach to financial management will enable us to continue pursuing capital growth for our shareholders while also supporting the dividend policy announced today. In summary, it's been a year of further improvement for the group, and we have built on our track record of delivering both organic and acquisitional growth. Breedon is in excellent shape, and following the acquisition of the Cemex asset portfolio, our GB platform will be significantly strengthened. While talking about the Cemex acquisition, it is worth commenting on the 2020 market expectations.
On a pre-Cemex basis, we understand that market consensus for underlying EBIT, CapEx, and net debt is approximately GBP 125 million, GBP 62 million, and GBP 217 million, respectively. We are comfortable with these numbers. In addition, we propose that investors continue to follow our guidance from January and assume completion of the Cemex assets at the half year, and that the impact on the 2020 results will be to increase revenue by GBP 89 million, increase underlying EBIT by GBP 5 million, and increase December 2020 net debt to approximately GBP 400 million.
We will provide a further update once the acquisition has completed. Lastly, we just wanted to flag that the U.K. government have indicated that the corporation tax reduction from 19%-17% will be canceled in today's budget. The impact of this would be to increase our deferred tax liabilities at December 2019 by GBP 5 million. It would also impact our future tax forecasts. I'll now pass you on to Pat to take you through his group and operational review. He will also give you an update on the status of the Cemex acquisition as part of this.
Thank you, Rob. This is the season for these results, so I know you're well aware of the construction output numbers. I think key points for us here, infrastructure was still quite strong, and that for us is a positive area. We benefited from improving selling prices and more benign input costs. Overall, we were able to demonstrate the margins moving forward. Delays to the A9 have continued. We anticipated doing a substantial part of the A9 last year in H2, never really started, and to be honest, it hasn't really started this year, but that work's not going to go away.
I anticipate after a very wet February in Scotland that as we get into spring, we'll start to see activities rising on the A9, which suits us as well because it's a more efficient time for your productivity during spring and summer than in the winter months. Pleasing for us is, as you see, I talked about the Roadway acquisition for the asphalt plant, Wrexham, and then the joint venture with Capital Concrete. Aligned with that, we continue to invest organically to grow the business. We invest in new asphalt and ready-mix capacity in the business. Again, that parallel stream of organic and acquisition spend. Our priorities for 2020 in GB, we'll aim to at least retain market share. We'll continue to improve prices and margins, and we'll continue to focus on organic improvement. Basically, it's Breedon's story of self-help.
When a market doesn't help us, we've always been able to help ourself, and I can see that continuing through 2020. Ireland was a bit of a different story. The ROI, very strong. Strong activity, strides forward in that business. North of Ireland, relatively flat, somewhat impacted by no assembly at Stormont. We're hoping now that that's come back in place, I think following the U.K. budget, we might start to see some activity in the North of Ireland. Again, nothing drastic there, but the ROI business has continued on at a pace that we're delighted with. We completed a couple of significant projects in Ireland, the new Ross bypass and Dublin Airport. We continue to expand the quarry network in the ROI.
We discussed it last year, and even when we did the Lagan acquisition, about the dormant quarries, and we're continuing at pace to develop those quarries, and we'll see more internalization of aggregates in the ROI businesses as we self-supply aggregates to the asphalt business. We completed the Colley Lane project in Somerset, and we were successful in winning some work in London with DP World. We got some major investment in the North of Ireland in Temple Quarry. For 2020, we'll continue to exploit the demand, the strong growth for the Lagan business. We'll continue to seek opportunities in GB for Whitemountain, and particularly aligned with areas where Breedon are strong in materials and we can satisfy self-supply to those projects. Particularly in the South, we'll pursue bolt-on acquisitions. The pipeline's fairly healthy.
We've now had the best part of a couple of years now where we've started to participate in the business in the ROI. The guys over there were very good at developing these relationships and identifying these opportunities. I would anticipate some of those coming to fruition in the near future, which will be a positive move for us in the ROI. Thanks, Rob. Cement market was pretty stable in GB, but the Irish market was challenging outside Dublin, and obviously there's areas outside of Dublin where we participate more. There was challenges there. On the positive side, all three shutdowns for the kilns were carried out on time and carried out safely. The performance of those two plants at Kinnegad and Hope continue to be world-class. I think for reference, the alternative fuel usage at Kinnegad is 72%.
If we take Hope at 30 %-odd, the average between the two plants is 43%, and I think that stands up well against most of our competition. What it should be an indication of is when we can have a plant in Ireland running at 72% in terms of fuel usage, you can see that we have that expertise and technical competence, and that bodes well for the future of Hope. Our priorities for 2020, we'll continue to implement price increases. We got several projects running at Hope, particularly along the lines of supplementary raw materials and delivery systems. That's really future-proofing that business. If we align that to the potential for alternative fuel improvement there, I see the changes in carbon pricing.
I see the potential headwinds of those input costs changing, and I can see it as a very compelling investment opportunity, which is a change from maybe two years ago. We discussed this one a few months ago, but I'll just remind you of the Cemex opportunity. We're now in a process of the TUPE process and some technology aspects of the transaction. Once we complete those, the deal will happen. We still fully anticipate this deal to be complete in Q2. The CMA process is becoming a bit longer than we anticipated. I don't expect that the outcome will change. It may just take a bit longer, but I'll remind everybody here, the deal is not conditional on CMA, the CMA review or CMA approval. This deal will complete in Q2.
We've had very limited access to it because they're completely separate businesses running independently of each other. The TUPE process is going very well, and I think colleagues who will be joining from this business are very pleased to be coming across to Breedon. It will be a bit more time before we get in and really see what's going on there. We'll undoubtedly run it as a hold separate after we close it. From our perspective, I think we've made our own mind up and we'd probably run it internally as a hold separate through to the end of the year, just so that we can focus on delivering here in year one, but also not distracting the business from delivering in Breedon Northern and Breedon Southern.
I would say there's nothing here. I'm very positive about this deal, and I've seen nothing so far that suggests it's not as good or better than we anticipated at the time. It's an exciting point for us. As we mature as a business, we've had many conversations on ESG, and I think we didn't help ourself because I don't think we told a very good story about ESG and where we were. We knew we were doing a lot of good things here. We're now, with the help of some advisors, we're now starting to get a storyboard together. What's important is, it needs to be real. It's not a veneer, we won't tell a story for the sake of telling a story. These need to be embedded in our business, and they need to be meaningful. We're making progress.
We've confirmed our commitment to the GCCA Sustainability Charter, as we talked about. Our reporting for greenhouse gas emissions, we're 12 months early on that, and the scope of our reporting is more wide-ranging than we're required to be. We have a non-executive chairman we talked about last year, and we've got two new non-executive directors welcomed into the business who bring different skill sets. Again, it's a positive for us. We've appointed a group head of health and safety and environment. I think we're very close to appointing a group head of sustainability. Exciting times for us. We also, over the period, it became apparent to us that we were at a risk of developing several disparate cultures throughout Breedon as the different businesses come in and there are different maturity levels on purpose and value.
We had delayed it 12 months, but following a wide-ranging engagement survey with our colleagues, we've launched Breedon's purpose and values. It's been rolled out to the business overall, and I have to say that I'm delighted with the engagement we're getting through our organization. I think you'll start to see more of this from Breedon's perspective now that we start to become language that is meaningful as we move forward. Another area that as we mature and being a bit more transparent on is our group strategy. What you see here is for the first time, but it will start to become commonplace, are the six pillars of our strategy. These will be clearly communicated priorities for the business, and it will allow us to monitor our progress against them.
I won't go into much more detail here, but there's more detail in the various reports that you'll see, and we're happy to discuss them and they'll become more obvious and they'll be signposts for where we want to take this business going forward. The outlook overall, in GB, relatively flat in 2020, growing into 2021. I think inevitably, we all believe infrastructure will grow. We just don't know if it's six months or nine months or 12 months, but when it goes, we'll be ready. As always, there'll be significant regional variations.
I think this is how neat the solution with Capital Concrete is because we're retaining a position in London, we're growing that position in London, but we are able to focus on the regional businesses and regional markets where we've always been successful and where particularly the Cemex business, the regional presence in that Cemex business will help us there. In Ireland, the ROI continues to go along at a pace. As we develop that aggregate business, or indeed we're successful in completing some acquisitions in the ROI, that will only strengthen our position there. Not expecting too much from the North of Ireland, but again, if Stormont gets moving and we start to get some investment there, we'll be ready as well. Breedon overall, Breedon is in excellent shape. Our colleagues, the engagement level is high.
I think people generally enjoy working at Breedon, and I would say that in certain parts, we have our pick of who we would like to come into the business. We pay a lot of attention to that because we're bringing the Cemex business in. Wonderful assets and great people. To me, it's about how you manage and how you allow people to make decisions so you have enough control. There's enough process that you get a degree of control, but you don't stifle the entrepreneurial spirit that we'll bring in. That's why we are able to take assets that other people have and deliver a superior result from then. Again, I anticipate that. Other than that, I think it's just reinforcing self-help. It's a sort of double-edged sword.
If the market takes off and volumes rise, that gives us less time and less ability and less resource to do the self-help. Again, the market will help us. If the market doesn't help us, we can turn our resource and our efforts to self-help, and that's sort of worked well for us over the years, and it will be a fundamental of our business going forward. On that basis, we're extremely confident that we'll continue to make further progress in 2020. Thank you, we're happy to take questions from the usual suspects, I guess.
Yeah, as always. Could I just ask you to tell us your name and your firm for the benefit of the people on the call, please? Thank you.
Hi, Clyde Lewis from Peel Hunt. I think I've got three, if I may. Rob, you flagged the two new metrics in terms of targets, free cash flow and return on invested capital. You didn't put any numbers on those, though. Would you like to flesh that out a little bit? Particularly, I suppose, whether you've got any preference as to margins, free cash flow, or ROIC as to which one of those three, is there a preference, I suppose?
The second one I had was on cost pressures that you're expecting to see for 2020. If you can run us through what the key pressures are in the business and maybe talk a little bit about the prices relative to that? The third one I had was on the Irish cement market. You've obviously flagged strong performance in Dublin, but could you maybe flesh out a little bit sort of what's happening ex- Dublin for the cement market there?
Happy to get the first couple. In terms of the first one and the metrics, the margin target, as we said, in the past has been something we focused on. If you remember, when we go back into the history and you look at when we closed Hope and it was a single-digit margin, we then started to make progress again. We then closed Lagan and we went back into a single-digit margin again. Technically, when you looked at those transactions in isolation and just on that one metric, you could have argued, why were you doing those transactions? They have delivered, and they've delivered in terms of free cash flow. They've delivered in terms of return on invested capital. We've introduced these two metrics for that reason. In terms of hard targets, you're right, we haven't.
On the free cash flow, one, it's all part of the capital allocation discussion, and it's all part of the ability for us to commence the distribution policy. It's allowing us to have significant free cash flow to fund the business, to fund the M&A, and then to be able to start that dividend policy in 2021. In terms of return on invested capital, what we say is that we want to cover our cost of capital over the cycle. As we sit here at the end of 2019, when you look at the annual report and you look at the KPI tables, you will see that we are ahead of that at this stage in the cycle. In terms of the cost pressures, 2019 was a more benign environment for cost pressures. As we've entered into 2020, again, we've seen it more benign.
We talk really short term and the events over the last few weeks, you could argue that there's quite a lot of deflationary cost pressure. As we've always said, for our strategic cost base, we progressively hedge into the market. As we look into 2020, most of our major costs are largely secured and hedged. There are benefits, we will look to lock those in. The one cost that doesn't go down and has continued to move forward is carbon. Pat talked about how projects and things for the future start to be more compelling from a sustainability point of view.
From cement in Ireland, I guess what I would say is our position is we don't have much of a position in Dublin. It's obviously the fastest-growing and the strongest market there, it's a little frustrating to be sitting on the sidelines somewhat with it. For us, we still sort of supplement the Irish cement business by bringing cement from Kinnegad over to GB and to Scotland and England.
Ultimately, our goal would be as the Irish market grows, either through just general growth in the market or we start to establish a position in other parts of Ireland, we would repatriate those tons and sell them locally to get rid of the logistics of transshipping through terminals and on boats over to GB. I think it's maybe more a reflection on our lack of strength in certain parts of the market over there. That's clearly one we won't rush into, but clearly one that's on our agenda.
Thanks. David O'Brien from Goodbody. A couple from me, please. Firstly, on Lagan, you said the integration is complete. Is that to say you've extracted all the efficiencies that you see there? Is there more to go? On that point, you mentioned dormant quarries, I think there were seven at the stage you bought the business. Can you give us a sense of how many of those have been open at this stage? On the dividend as well, could you just give us a little more color about how we should think about, on a medium-term basis, the payout ratio, etc? Then finally, you touched on encouraging and fostering that entrepreneurial spirit. Can you just give us a little bit more color? How do you actually do that when you go into new businesses?
Yeah, from the aggregate perspective in Ireland, we're moving north of 1 million tons now. When you take into account when we first got involved, that business was probably sub- 300. It's starting to move. It could move quicker, but one of the areas that the team over there have been very successful is adding reserves before they start to get the facility established. Get some minerals and try to get planning adjacent to them.
On the synergies one, David, as I said, we have hit the GBP 5 million run rate. We won't stop there, but it will just accrue into the earnings of the business going forward and is consistent with how we've done it on the Hope acquisition as well. The benefits will continue to come, but they'll just flow through the organic growth of the business. The dividend, what we're intending to do is to probably, over a three-year period, is to get to a level of dividend which has a payout ratio in line with our peers.
I think for guidance for the analysts now would be, we're going to start modestly and grow. I think it would be not unreasonable to put GBP 0.01 in for 2021 and assume that 1/3 of that gets paid in year as the interim and 2/3 of it gets paid in 2022. I think that should give you the start point on the trajectory you need.
On the Cemex deal, maybe not from an entrepreneurial perspective, but one of the sort of quick wins for us there is the business has probably been starved of capital investment over the years. It's either running older equipment or rented equipment or subcontracted equipment. I would think very quickly, if we apply Breedon's methodology of organically investing in the business, generally when you buy new equipment now and you're putting it in, you get a productivity improvement and you get some energy efficiency.
I think you win the hearts and minds of the people in the business when they start to see that you're putting equipment into their business and you're listening to. These are the guys and girls that understand where the opportunities are in this business. I think we did it in Breedon, we do it with the acquisition we have. We'll be doing it in Cemex, but it will be like six regional businesses. It's like six bolt-ons for us. That's a quick win. It's a good return and it's relatively low risk when we are putting that kind of investment in equipment.
Thank you. Christen Hjorth from Numis. A few from me. First of all, following that comment on the potential investment in the Cemex assets, but also maybe tying in some of the sustainability investment at Hope, how should we look at CapEx over the medium term? Will those be covered by existing maintenance levels or should we assume a step up? The second one, on HS2 and maybe a bit of color on a potential impact on industry volumes over the medium term. The final one on pricing, where you think pricing is across the product categories in real terms, really, and whether there's more to go for over the medium term?
I did the first one. Christen, we've consistently communicated that we will at least invest in line with depreciation. We will continue to do that. That's one of the things that's differentiated us as a business. We don't see any requirement to change the guidance into the marketplace at this stage. If there are compelling investments in the years to come, ultimately with great payback, they will just be prioritized.
From HS2, we're starting to see inquiries coming in earnest now. We've always maintained that we didn't want to be a sort of early player in HS2. Our core business, our existing customer base was important to us. For us, any participation in HS2, and there will be some when I see the level of inquiries we're getting, will not be to the detriment of our existing business. Market overall, if the volumes they're talking about and the timing they're talking about come to fruition, there'll be challenges on supply in that part of the market and you would anticipate there'll be pricing improvement in that part of the market. The logistics will have to be put in place because the current infrastructure won't be able to deliver that project without investment.
On pricing, going into the product level is probably a level of detail that, A, we wouldn't probably want to do, but B, when we get to cement, we're not allowed to talk about pricing in the U.K. Generally, 2019 saw pricing in excess of inflation. You have to put it into context. If you look at the back end of 2018, if you look at the track record slide that we put up before, the business went backwards and we had those exceptional cost increases running through. It's been about recovering costs. We will continue to try and progress and ensure we are covering our costs.
Kevin Cammack at Cenkos. Just looking at the margin improvement you've reported and the breakdown divisionally, it's pretty clear that the big impetus has come in the cement division. There's two questions around that. One, I just wonder what sort of lies behind specifically that 170 basis points improvement. Secondly, just looking forward, I guess it's pretty clear to all of us how you can potentially see further margin improvement in GB and Ireland, and the operational gearing that volume growth might deliver. On the cement side, how close to capacity are you? What other things could be done to lift the margin even higher in that particular operation?
I'm happy to talk about the margin. Capacity and cement might not be something we can talk too much on, but I'm sure Pat will say something. On the margin, the improvement in the cement business, a lot of these costs I was just talking about in 2018, were hitting our cement business. Whether you're talking about utility costs, whether you're talking about hydrocarbon costs, whether you're talking about carbon costs going up. You're really looking at the 2018 margin being depressed by those factors. I think that, Kevin, the recovery of those costs in 2019 is what's driving the improvement in margins.
There's still opportunity ahead in cement margins, I feel, Kevin. One, we talked about it last year. The cost of carbon is fully embedded in Breedon's business. I'm not sure that's the case in every other cement business. You'd have to anticipate, as they start to truly reflect the cost of carbon in their cement business, they're going to have to recover it through pricing. In the midterm, some of these capital projects that we'll look at, as I say, two years ago, we might have looked at them as a burden. I think today, when you look at the price of carbon, where it is and where it's going, I think we'll be pushing on and seeing, actually, these aren't a burden. These are a significant opportunity for us. Value enhancing rather than kind of stay in business.
How, obviously without putting specific numbers on it, but how important, ultimately, could be if you have the opportunity to reverse some of the exports back into the Irish market? Is that quite a significant potential factor for profitability?
We haven't really done it yet. We're probably still doing about the same amount into GB that we were. It's a reasonable amount if we can repatriate those tons as the market improves. As you say, when you're shipping stuff to Glasgow. There's a cost in that. Much easier to ship it once in a truck to your customers in Ireland than it is to ship it to a terminal, to load onto a ship, to put it in another terminal, and then deliver it by road. There's decent opportunity there.
Thank you.
Thanks. John Messenger from Redburn. Just following on from Kevin's question, of the three shutdowns that you experienced in 2019, did that not have a financial impact as well? Is there a decent recovery that should help kick on in 2020? Were those effectively costs capitalized that spread out going forward? To understand if there was a decent impact there. Second one was coming back to this point about the change in metrics for judging yourselves. The free cash flow measure, is that going to be an absolute or is that a kind of conversion measure you're going to use? On the return on invested capital, clearly markets haven't been great in terms of backdrop. When you look at your returns, you've lost 480 basis points since 2015.
For shareholders, is the 8.8 that you've just done, is that a floor, or is that something that you're prepared to go further down on? I'm just thinking if, clearly acquisitions have been a dilutive factor in there. Does a better market kind of need to come along to support that return to then allow you to make more acquisitions? Just to understand the dynamics there. Finally, on your asphalt kind of purchases, given the storage and kind of how you operate in Ireland, is there a risk that you're caught with a higher asphalt price, just in terms of the oil price reaction so far? Clearly, we'll see how that develops into asphalt, liquid asphalt pricing, where are you on your asphalt kind of supply for the year and hedging? Thank you.
Okay. The shutdowns in the cement business, we have three a year. If you remember in 2018, one of those, the Kinnegad one was done pre-acquisition. It didn't impact. In 2019, you've got the cost of all three of those running through the income statement. In 2020, you'll have exactly the same. We've actually done the first two already in 2020, and the last one will be in the second half. The free cash flow will be an absolute measure. We considered it as an absolute measure. We also looked at it from a per share, but in light of the capital allocation, and we decided that the absolute measure was probably the clearest measure for everyone.
The ROIC, the M&A, really, the deterioration is being caused ultimately by the M&A and the fact that, in the current environment and the regulation from an accountancy point of view that we run through, ultimately, the goodwill and the fair value adjustments all go onto your balance sheet. Gone are the days when the goodwill gets charged to reserves. Given that, and given they all come on the balance sheet at sort of cost and acquisition cost, there is downward pressure on the ROIC.
If you compared us against a business who had acquired very little, but grown just organically, you would see a very different return on invested capital. John, the example I often cite is if we acquired a quarry and we spent GBP 10 million to, let's say, get 10 million tons of reserve, there is GBP 10 million on the mineral value on the balance sheets.
If we spent GBP 100,000 getting an extra 10 million tons granted at an existing quarry, there's GBP 100,000 on the balance sheets. They have two materially different return on invested capitals. It's the balance sheets and the metric in isolation can be quite sort of misleading. I think the key thing is that the floor is that we've set it so we will not go below WACC, and we will look to improve it. It will always take a dip post an acquisition and post delivery of synergies and business improvement, we would then look to see that accelerating ahead of WACC.
The WACC is at the moment. Then just on M&A, because obviously there's talk about international expansion. Should we think of that going South or going West? Just to have a rough idea of where you might be. I assume it doesn't include just on the definition, probably Algeria. It's a supplementary question. I'm just thinking of some of the countries out there, but obviously, it excludes a few. Just to have a rough idea of where you think most likely you'll end up going in terms of given the history. I'd assume it might have been West, but maybe realistically, Africa more South.
I'll deal with the WACC one. We'll come on to the WACC one. It's mid to high sevens. Do you want to do the asphalt question? Should I do the asphalt purchasing?
Yeah, sure.
In terms of the asphalt purchasing, we do have some storage, but it's not material in the context of the Group. Over in the island of Ireland, as we said before, we do hedge an element of our forward purchasing on asphalt, but we're not speculators, we don't take a position, a speculative position. We do not, we will not end up with material exposures.
On expansion, I said we'd be somewhat transparent. I didn't say we'd be totally transparent. I think for us, we've Amit Bhatia here today as our Chairman, and we have a completely reconfigured board. We have the strategy pillars, and what I would say is that in the spring, we'll be starting those conversations and board and challenging our non-executive board and our executives on what's right for Breedon. Not avoiding it, we just don't have all the answers yet, but we know what the signposts are, and we know what the criteria would be should we decide to pursue opportunities.
Morning. It's Charlie Campbell at Liberum. I got sort of two or three. First couple on Cemex, then the other one on GB Aggregates. On Cemex, there's lots of people coming through, you talked about TUPE. Does that mean there's any pension liabilities coming across as well? Second question on Cemex, with the CMA, I don't know if you can talk about it, does that sort of imply that there might be disposals, there might be some risk to the upside that you get from those assets?
On the GB Aggregates side, you can't really talk about cement capacity, you could sort of talk about GB Aggregates capacity. Just how easily would it be to ramp up volume production into supposing we get an expanding market in the U.K., at what point do you need to put extra CapEx to get, I don't know, quarries open or expand crushers or whatever it is to deal with that extra demand?
The TUPE process has gone well, but we won't have any pension liability coming across with Cemex, so there's no issue there for us. What was the second part?
Divestments.
Divestments. When we did the evaluation, Breedon has a relatively decent track record in evaluating the new acquisitions from the perspective of CMA. We've always anticipated that there would be some divestments through the required remedies. We still feel the same, but we don't consider them to be material in the context of the transaction. We're pretty comfortable with that. Other than, as I said, it's taking a bit longer to make progress with the CMA. The third one was?
Third one, Aggs, GB Aggs capacity.
Yeah, GB Aggs capacity. I think we have in different regions, we have a different level of ability to grow. It won't always require a lot of capital because we have a sort of method of running some of our aggregate facilities where we took out some of the old plant and equipment and we bought sort of customized mobile crushing spreads. We have that capability in-house to be able to move these crushing spreads and supplement manufacturing capacity at individual sites. If the market took off overall, we have the ability to increase our aggregate production without throwing silly money at it.
Sorry, can I have a follow-up? Just very simple one. What's your best guess now in terms of end markets that you're serving? If you can give us a little bit of help as to how much is GB infrastructure, how much is GB housing, GB commercial, and then sort of Irish end markets as well.
Yeah, our best estimate is 50% infrastructure, roads, 20% housing, and 30% a mix of commercial and industrial. The one thing, guys, it's relatively dynamic.
I mean, maybe I can say again, if you look at our results in isolation of financial results, I think they're a tremendous result. If you align that to the challenging market, if you align it to the level of activity to get the Cemex deal through to signing, Roadway, integration of Lagan.
The JV in London.
The JV in London. It's a testament to the quality of colleagues that we have in Breedon. From what I'm hearing, I think we'll have the same level of quality colleague coming in with the Cemex transaction as well. I think it bodes extremely well for us. My arms being crossed is not a reflection on you.
Okay, no more questions. Just remind everybody the presentation's up on the site, and also there'll be a full recording of this presentation a bit later on this morning. Thanks, everybody.