Good morning. Welcome everybody. Just by way of introduction, as usual, we have Peter Tom, our Chairman, and Pat Ward, Group Chief Executive, Rob Wood, Group Finance Director. Welcome to everybody on the call and everybody in the room, and we'll start by handing over to Peter Tom. Peter?
Thank you, Steve. Morning, everyone. Thank you very much for coming this morning. Before we start, I would like to introduce three of our colleagues. Terry Lagan, the first one over there, who looks after the Lagan business in the Republic of Ireland. Jude Lagan, who looks after our cement business, and Aidan Mullan, who looks after the Whitemountain business, which is based in the North. We've asked them to join us this morning, and I'm sure they'll be happy to have a chat with you after the meeting and stuff. I think we started out on the Breedon journey 10 years or so ago, and without a doubt, the year that's just finished was the toughest one that we've had to deal with.
Awful weather for the first four months of the year, then a significant increase right across our input costs from carbon, utilities, oil, and everything. Then we completed the acquisition of the Lagan business in late April. I think the success of the integration, which has gone extremely well, is really shown in the cash flow performance. I just would like to say how brilliantly our colleagues throughout the business have performed. This result that we're going to go through in detail in a minute is a huge debt of gratitude to the guys who worked and ladies who worked and all sorts of other levels. I'll now hand you over to Rob Wood, who will run through the numbers.
Thank you, Peter. Good morning, everyone. Before I run you through the numbers, I just wanted to explain how we've reported our results for 2018. We have updated our operating segments to reflect the new structure of management reporting following the Lagan acquisition. The updated operating segments are now Great Britain, comprising the trade previously reported in Breedon Northern and Breedon Southern, along with the building products businesses acquired with Lagan. Ireland, comprising of the construction materials business and contracting services businesses on the island of Ireland, which were acquired with Lagan. Cement, comprising the trade previously reported in Breedon Cement, along with the cementitious operations acquired with Lagan. We've restated the 2017 segmental analysis on a like for like basis, this 2017 restatement is really just an aggregation of Breedon Northern and Breedon Southern to form Great Britain. Turning to the numbers now.
As you can see from the financial highlights, it's been another year of progress for the group. We have delivered revenue growth of 32%, underlying EBIT growth of 29%, and achieved an underlying EBIT margin of 12.0%. Excluding the impact of acquisitions, revenue was up 2%. However, underlying EBIT was down 6% and reflected the difficult trading conditions in Great Britain and increased input costs. In terms of acquisitions, Lagan's performance has been strong since its acquisition last April and benefited from the more favorable market conditions, particularly in the Republic of Ireland. Underlying profit before tax was up 12%, and underlying basic EPS growth of 14% reflected this. The group continued to generate strong cash flows, and these were reflected in the closing net debts of GBP 310 million.
The 2018 closing leverage of 2.0x being a substantial reduction from the pro forma leverage of 2.6x at the time of the Lagan acquisition last April. Revenue, which at GBP 862.7 million, was up 32% on 2017. Excluding the impact of acquisitions, it was up 2%. At the earnings level, underlying EBIT, which we cut after associates and joint ventures line, of GBP 103.5 million, was up 29% on 2017. Excluding the impact of acquisitions, it was down 6% for the reasons already mentioned, being the difficult trading conditions in Great Britain and the increased input costs. The increased interest costs of GBP 11.8 million in 2018 reflected the high level of net debt post the acquisition of Lagan.
The non-underlying items of GBP 11.8 million in 2018 primarily comprised of Lagan acquisition related costs, which included acquisition costs and also amortization in respect of acquired intangibles. Resulting profit before tax at GBP 79.9 million was up 12% on 2017. The tax charge of GBP 15.3 million reflected the tax charge of 19%. The underlying charge was 17%, which was lower than the standard U.K. rate of 19% due to the impact of the profits generated by the Lagan business in the Republic of Ireland, where the standard rate is 12.5%. This all translated into an underlying basic earnings per share of GBP 0.047, up 14% on 2017. Great Britain's performance reflected the difficult trading conditions, these primarily being the severe winter weather in the first quarter and the increased import costs, but also an element of Brexit uncertainty.
Our performance in Ireland was strong and benefited from the more favorable market conditions. In cement, whilst our performance was also affected by weather in the first quarter for the year, the year as a whole, it performed in line with our expectations. Revenue in Great Britain was up 6% on 2017. Underlying EBIT was down GBP 3.1 million or 5%, and the underlying EBIT margin was 10.1%. Revenue in Ireland was GBP 156.3 million, and underlying EBIT was GBP 20.9 million, and the underlying EBIT margin was 13.4%. Revenue in cement was up 25% on 2017. Underlying EBIT was up GBP 5.6 million or 22%, and the underlying EBIT margin was 17.8%. Lagan's contribution has been strong, but it's worth noting that it was not acquired until April last year, after the severe weather in the first quarter. It's also an appropriate time to comment on the Lagan integration.
We've moved quickly to integrate the business and have delivered savings of GBP 2 million in 2018, the run rate being GBP 3 million. This puts us on track to deliver to our commitment of GBP 5 million of synergies within three years. Lastly, central administration costs are broadly in line with 2017, as expected. Turning to our products. Reported aggregates volumes grew by 22% on 2017. On a like-for-like basis, the increase was 4%. Reported asphalt volumes grew by 50% on 2017, on a like-for-like basis, this increase was 2%. Reported concrete volumes declined by 3% on 2017, but on a like-for-like basis, they were flat. That really reflects the impact of the Tarmac swap. In accordance with the Cement Market Data Order 2016, we have historically been unable to report our U.K. cement volumes.
However, following the acquisition of Lagan and the adoption of our new reporting segments, we are now able to report group cement volumes for 2018, which totaled 2.0 million tons. In terms of pricing, increases by product category were in the 0%-3% range in 2018, Pat will comment further on the market shortly. Turning to net debt, which stands at GBP 310.7 million at the end of the year. This movement reflected the underlying EBITDA of GBP 154.4 million, non-underlying costs of GBP 7.6 million, a GBP 12.2 million working capital inflow, interest and tax paid of a combined GBP 25.7 million, a GBP 44.1 million CapEx outflow, which is net of disposal proceeds, and net acquisition spend of GBP 290.1 million, being net of the equity issued of GBP 171.2 million, primarily in respect of the acquisition of Lagan.
As a result of this, the closing leverage was 2.0x. As already mentioned, this was a substantial reduction from the pro forma leverage of 2.6x at the time of the acquisition and clearly demonstrates the highly cash generative nature of the group. Last on the subject of net debt, the adoption of IFRS 16 in 2019 will not have a material impact on the income statement at the underlying profit before tax level. However, an increase in underlying EBIT will be offset by increased depreciation and interest costs. It will also not have a material impact on the balance sheet at the net asset level, but an increase in PP&E will be offset by additional debt. We expect this additional debt to be approximately GBP 45 million. On a pro forma basis, this would increase leverage at the 31st December 2018 to 2.2x .
This increase in debt will not impact our ability to comply with the covenants associated with our banking facility, as these are tested by reference to the accounting policies that were in place at the time that the facility was entered into. Whilst not a group key performance indicators, we do track return on invested capital. Year-end return on invested capital, defined as underlying profit from operations after tax divided by the sum of net assets and net debt, was 7.9%, down from 10.1% in 2017. The reduction year-on-year was primarily due to the Lagan acquisition. Using average invested capital, it was 9.9%. Notwithstanding the modest anticipated decline, our ROIC reflects the high level of capital invested in the group and more than covers our cost of capital. In summary, it's been a year of further progress for the group.
With a Brexit caveat, we are confident that we will continue to make progress in 2019. Whilst talking about 2019, it's worth commenting on current market expectations. We understand that market consensus for underlying EBIT, CapEx, and net debt, respectively, to be approximately GBP 115 million, GBP 60 million, and GBP 265 million. We are comfortable with the EBIT and CapEx expectations, but we now expect closing net debt to be in the region of GBP 250 million pre-IFRS 16 or GBP 295 million post IFRS 16. I'll now pass you over to Pat Ward to take you through his group and operational review.
Good morning. Okay, I'm going to give some comments on the market. Most of you will be aware of the market background, for Great Britain, when we sat here last year, we said we'd be quite comfortable if the market was flat. We're comfortable with that in our business, and essentially that's what happened. Construction output was broadly flat. Significant variations and probably more so in ready-mix than anywhere, and that will be somewhat impacted by activities in the London market, which as you know, we are less exposed to the London market, so that has less impact on us. Ultimately, going forward, the assets, what we did with Tarmac realigned some of our activities in ready-mix. For us, we're very comfortable with the GB market where it was.
In Ireland, in the north and in the south, construction output was up 2.3% in the north and estimated to have grown 6.1% in the south. I'm not quite sure how Terry Lagan influenced those numbers to keep the southern one at 6.1%, but he's adamant that's the number. Great numbers for us. It's exciting to be involved in such a positive market, both of those are primarily driven by housing and infrastructure projects. From the overall business perspective, I'll talk about the group and then a bit more detailed comment about the actual businesses. As Rob said, better-than-expected performance and difficult trading conditions. Start of the year was tough with weather. The middle of the year was tough as input costs rose dramatically. As normal in our sector, traction on price increase takes about a time as it lags to come through.
We did start to see some improvement in the back end of the year, and we would expect that to continue into 2019. Strong cash flows enabled the reduction in post-Lagan net debt and leverage. Significant investment in minerals and capacity and operational improvements. I think what's important here is we have around 900 million ton of mineral reserve and resource, which underpins this business. You add to that two highly invested cement plant and then a population of aggregate, ready-mix, and asphalt facilities around the country. We're in good shape as far as our assets are concerned and also our people. We've over 3,000 engaged colleagues in the business now. Lagan integration is well underway. The asset swap was completed with Tarmac, and two bolt-on acquisitions were completed.
In the second half of the year, we had quite a dramatic increase in lost time incidents in the business. Every injury or incident is an issue for us. Thankfully, there was nothing dreadfully serious, but it's still too many incidents in our business. I'm absolutely committed to the path we are on as far as engagement goes and supporting our colleagues driving it forward. We're not going to try and reinvent the wheel and throw out everything we're doing because we're convinced that what we're doing will get us where we want to go in the future.
Interestingly enough, if you looked at the type of injuries that caused these lost times and you looked at our sector 20 years ago, it would be the same type of injuries. There's people trapping fingers and hands and falling and stumbling and tripping up. Some fundamentals will change that. Housekeeping will change it and engagement with employees. There'll be some investment in the business as well, but this is primarily a cultural change in our business that we have to drive through, so it doesn't happen overnight. In the actual business reviews, Great Britain, the start of the year was tough for us in weather. Rising cost impacted us. We continue to invest in the business. We're so committed to the long-term future of this business that we had some significant investments.
I've noted here, Dowlow, we put an asphalt plant, which we'd been working on for the last six months, which gave us, it infilled some capacity shortage we had on the asphalt market. We invested money at Raisby Quarry up in the northeast. Following the successful opening of North Drumboy Quarry, which is a hard stone quarry about 11 mi outside Glasgow, the closest hard stone quarry to Glasgow. We subsequently invested GBP 1 million and replaced the large ready-mix plant that we have in the city center of Glasgow. That's part of Breedon's story. We got the aggregate reserve, we invest further downstream to use the aggregates, use the cement. We acquired Blinkbonny Quarry in the southeast of Scotland, the mini-mix offer was strengthened by Staffs Concrete.
I think what's important here is, these weren't significant investments, these type of investments and acquisitions will always be very important to Breedon. As you look to the scale of our company now, it would be easy to lose sight of some of these transactions, these are very important and these will continue to be a focus for us going forward. In Ireland, the market in the south continues to progress. It started stronger than this, over the course of the year, there was a 65% increase in government maintenance tenders. Very positive. I think at the start of the year, it was probably closer to 90%, it evened out as the year went. That's something we expect to continue to improve as the year goes on. With our Whitemountain business in the north, they've always participated in projects in GB.
They tend not to be in just chasing high revenue projects. They look at projects where they can bring a particular set of skills to a project, and that was prominent in Colley Lane and Somerset, a project in Kettering, and a project in Wellingborough. We continue to see this being an area of the business that we can continue to help Whitemountain develop. We also participated in key infrastructure projects in the south. In cement, all cementitious operations in GB and Ireland are now integrated, and that allows us to look at supplies out of Kinnegad and supplies in Hope and sort of optimize our supply pattern, including any external purchases that we were making. Traditionally, we would have bought cement from Spain and imported it into Dundee in the northeast of England. That gives us a lot more flexibility going forward.
Major investment in the transport fleet for cement and in the mobile plant up at Hope Quarry, which feeds the cement plant at Hope. For 2019, certainly 2019 can be a challenge pending the outcome of Brexit. For me personally, I'm in a much better position today than I would've been 12 months sitting here. I think we talked about it last year, we took some of the pain of the input cost increases. I believe you don't save your way out of these kind of cost increases. I'm convinced that there'll be price improvement in the marketplace. I think, as I said, we've seen traction at the back end of the year, and we'll continue to see it this year. Safety will continue to be a focus for us.
Engagement will be a focus, investment in safety, and I'm not talking a lot of money, but small investments in plant and equipment and housekeeping will pay dividends from a safety perspective in our business. For the medium-term outlook, we're very comfortable where we are and where the U.K. will be in infrastructure and housing. HS2, we're starting to see some projects awarded there. That's not a project that we would expect to be front and center on. We won't be chasing high volumes on HS2, but some of the work that comes in its sort of wake. That's the type of work that we think we can bring value and bring some of our expertise there. It's good to see that activity starting to pick up. Our entry into Ireland has diversified our market exposure and has given us a new platform for growth.
That's not to say that the businesses in Ireland, in Terry's and in Aidan's business, were growing anyway. They'd started to build a platform for their own growth. For us, it's quite an easy transition. Maybe at this point, I would say that we're delighted with the contribution of Lagan, the Lagan business for 2018. It's all down to Lagan. It's all down to the quality of that business. It's all down to the quality of those people. It's down to the quality of those assets and the markets they're in. There's very little influence that have come from Breedon. That delights me that the two businesses in their own right are delivering value. That speaks for itself that I think we've a more talented and experienced management team today than we did 12 months ago.
I see that as it gives us a great deal of confidence going forward. The Hope integration, when we closed Hope, the integration went smoothly and probably quicker than most people expected, and the cash generation was significant and the debt reduction rate was probably better than anticipated. We're seeing the same picture with Lagan. As we move forward and look at other opportunities, which we're always doing, I have every confidence, again, that this management team's capable of moving forward, and we have the bandwidth to take on more. As always, we're very active for acquisitions, be they bolt-on acquisitions or be they more significant than that. That will always be a focus for us because it takes time to develop these relationships and sort of execute these transactions.
We haven't been distracted by the level of work in the integration and some of the sort of disruption in the marketplace. That's still a key element of every day for us. If the market doesn't help us, and again, I'm comfortable with a flat market. If the market doesn't help us, we have a much bigger platform now. We can go back to our sort of what's in our DNA in self-help. We can make operational improvements. We'll continue to invest capital, to the levels we always have recently, up to around 100% of depreciation. That will continue. We've confidence there. We've confidence that the type of projects that we'll be investing in will bring a great return. What's particularly pleasing is we don't have to search high and low for these projects.
These projects come from the business, we get the opportunity to challenge the projects and invest the money where we know we'll get the return. We're not short of projects for organic investment in our business. I guess the last point I would make, Rob sort of caveated it with Brexit. As we look at risk, we don't see the Brexit impact being material. They're fairly local businesses. There's not a lot of cross-border work. As we've looked at it, we don't see huge materiality to the potential impact for Brexit. I'll go further than Rob, and I won't caveat it with Brexit, but I'm very confident that we'll continue to make significant progress in 2019. With that, I think we're closed from that perspective, and we're happy to take questions.
Thank you, Pat. Could I just ask the guys in the room, when you ask a question, could you just give your name and your house for the benefit of the people on the call? Just wait for the mic to be passed to you. Thanks very much indeed.
David O'Brien from Goodbody. Just a couple from me, please. Firstly, on energy costs, can you give us a sense of what the headwind year-over-year will be? More broadly speaking, given the traction you're seeing on pricing towards the tail end of the year and into the start of this year, how should we think of price cost spreads in both the U.K. and Ireland for 2019? You've touched on if there's other acquisitions in the pipeline. Can you give us a sense of the differences in opportunities in the U.K. and Ireland at the moment, and whether or not you're comfortable transacting during 2019, given the integration of Lagan? Also maybe a little bit more color on the opportunities around the delivery of high Polished Stone Value stone into Great Britain from Whitemountain.
You want to take it first, then?
If I do the energy cost, if I lump it into input costs more generally, do it by reference to 2018, it will just really relate to the legacy Breedon business. As we've talked before about where hydrocarbon costs have gone from the, I don't know, from the circa GBP 50 up to the circa GBP 70, whether we talk about carbon that's gone from less than EUR 10 to north of EUR 20, or whether you talk about electricity, where it's been widely trailed, the increases that have come through. The results in 2018 were probably impacted somewhere between GBP 5 million-GBP 10 million by that. When you take that into context of the resilient Great Britain performance, you can see that even though we had those headwinds and we had the weather in the first quarter, we have moved that business forward.
In terms of pricing, if you then look forward in terms of input costs, as we look out there today, there's still inflationary pressure, it is not the step change that we saw. There's been a shift in the markets, we wouldn't expect the same magnitude of cost to flow through again. In terms of pricing, do you want to touch on pricing or?
Go ahead with that.
Well, I mean ultimately, it's like everything, we need to recover cost from 2018. We've always quite often talked about lag times on things like bitumen and cost recovery. We need to seek those recovery in 2019, and we will be moving prices forward.
We have a bit more visibility in the input costs as we moved forward through the year. We're confident that what we're attracting levels of price increase will contribute to the numbers that Rob talked about for the business overall. We're comfortable we don't have that exposure in compressing the margin for 2019. As far as high PSV goes, reputationally, Whitemountain is a great high PSV stone. Traditionally, they've supplied only G.B. Most of us have been customers with them at some point. They've expanded the facilities where they can bring material in. I think for us, the opportunity becomes, we are a significant asphalt paver in the north. We're significant in the south of Ireland and the north of Ireland. We're not in southern England. We're not in England. We see that as an opportunity.
As we start to grow, in fact, Whitemountain does probably more paving in England than we do as Breedon at the moment, or certainly at times in those projects. We see if we can leverage the skills in Whitemountain and the expertise in Whitemountain and help leverage our asphalt business in the south. You could see we did the Highways England project with BO. I think we can gain a couple of years in the development of our paving business in England, and we can align that with looking at specific projects and utilizing the high PSV stone. It might not move more high PSV stone over, but it may internalize more, which gives us the opportunity for contribution at various levels in the supply chain. Was there another part?
Well, our priority right now is to pay down some debt down and demonstrate that we can generate the cash and reduce leverage. You can't always choose when the acquisitions come, and I think that's why we've been quite prudent in our statement on dividend at this point, because we feel there's certainly enough potential acquisitions out there that we want to make sure we keep our powder dry, that we don't miss an opportunity. As I say, the acquisitions will be dictated by cash, essentially, and debt, not by management bandwidth and opportunity. I'm equally comfortable whether those acquisitions are in Ireland or in GB because we have quite rigorous protocols in place before we do a transaction. We won't do a transaction for the sake of doing one.
If we do one in Ireland or we do one in GB, it's because it's sort of passing our hurdle rates.
Next question. Sorry. Howard. Switch this one on. Okay.
Is it me? Okay. Howard Shore from S hore Capital Group. A couple if I could, mate, please. Firstly, on the pricing, just looking at the sort of the larger aggregates companies out there that clearly seem to have done an awful lot worse than you have and taking costs out, et cetera. Two things on that. Do you perceive that they would similarly be looking for price increases? Secondly, strategically, as they're doing that, does that provide more potential acquisitive opportunities for you in the medium term? You don't seem particularly wedded to the market.
Yeah. If I take the last part first, yeah, we've always thought a s well as independent acquisition opportunities that there may be. The Tarmac swap we did was a good example of it, where it was beneficial to both businesses. As the majors look and maybe refine their footprints, absolutely that's an area we'd be very comfortable looking at. I would hope that those companies see us as a natural acquirer of those. Pricing. I think you saw the input cost rising. We certainly see people in the market taking headcount down, that's because there was too many people in the business. We have quite a flat structure, and our people work very hard, we don't have to take those layers out with our business. There's only so much that will cover. People aren't going to save their way through 2019.
In order for them to deliver to meet their shareholders' expectation, we have to see top-line improvement in the marketplace.
Thank you. Secondly, just ask on cement. Clearly, it's an industry driven by the technology, just trying to get a feel for the dynamic last year, obviously, Lagan Cement wasn't in for the full year, therefore there's potentially an additional cost from that. As you look at the two plants, is the capability to get margin gains through sharing technology, et cetera, best in class, or are they fairly similarly matched in the context of underlying performance?
I think some of the easy improvements for us will be in logistics and distribution, That's something we can go at quickly. Undoubtedly, Hope will have some investment opportunities in the future, sort of piggybacking off of some of the technological advances that Lagan have made in Kinnegad. Some of it will be opportunistic and won't take huge chunks of capital, Some will be significant multi-year projects. They don't need to happen. These will be projects that'll be a significant payback that will sort of encourage us to make that investment. We drew the bit at the end, There's always stuff around the edges where, in fact, Jude, very quickly, they organized teams between Hope and Kinnegad, not at the most senior levels, but at process engineer levels and various other parts where they're sharing best practice across the business.
That's happening sort of throughout it now. Initially, it was something Jude had to drive, It's starting to happen more and more. Yeah, some of the improvements, however, I don't think we know about yet. Clearly, it's an area that we see opportunity, we also see it in aggregates between Lagan and Breedon. We also see it in asphalt between Lagan and Breedon. I think we got a lot to learn on paving from Terry's business and from Aidan's business. Those are the areas that are just part of our everyday job. There could be 40 levers that we're working on to influence margin in our business.
Okay, great. Thank you.
Next question comes from Mark.
Good morning. Robert Carter from Davy. A couple from me. One, you mentioned in the documentation, you talk about the consolidation opportunity in aggregates in Ireland. I'm just wondering, what's the kind of size scale of that? Is it just small stuff, or is there more you can do there? Two, you mentioned, again, in the piece there, you talked about competition moving out of central U.K. into Scotland, and I'm just wondering what kind of competitive dynamics are like in the first months of 2019. Are projects being deferred, delayed? How that's working. Three, you also mentioned your margin target, the 15% EBIT margin target. I'm just wondering how that chops and changes with Lagan in there.
Also wondering, again, on the ROIC, you show us the 9.9%, but how does that look with a 15% EBIT margin target, or how do you think about that?
I think our priority in aggregates in Ireland at the moment is sort of leveraging where Lagan have gone already. Lagan had started to, over the last probably three or four years, had started to buy some dormant aggregate assets and acquire some land and minerals around them. I think our initial priority will be to help Terry execute the plan that he had in place to build an aggregate business in his own right. He has some of those assets in place. Beyond that, I would expect there to be small bolt-on opportunities in aggregate. I don't see wholesale change in that market, but bits and pieces around the edges. We're not incredibly active at the moment because there's a lot on our plate to sort of help get up and running.
Opportunities will come to us, I think, but I don't see them being wholesale. I see them being sort of small regional bolt-ons, whether it's aggregates in Ireland. What was the second part? Sorry.
Competition in the U.K.
Yeah.
Competition in the U.K.?
You mentioned competition moving out of the central regions into Scotland. I was wondering in terms of the first months of the year, have you seen delays, deferrals to major project work?
We've seen both. We were awarded some further works on Woodsmith, the Sirius Minerals mine. The A9 in Perth was awarded. There's delays, but I don't see them as Brexit related delays. Four years ago, there was delays because of execution of the National Infrastructure Plan. There are delays, but those delays are the last amounted bidding is probably delayed a month or two. There's other projects that were delayed last year are being executed now. I don't see a step change in project execution in our marketplace right now. I think that's probably one of the areas that's helping pricing move forward in the marketplace. Last year, I think there might have been an overreaction to the sort of shortage of work at the first quarter, which was primarily more weather-related than market-related.
Some things, people jump the gun and take remedial action, not realizing the market is going to be flat.
Your last question was on the margin targets. We hold 15% as our margin targets. We say the medium term. As we've always said, the team have all been in businesses where we've achieved those. The Lagan business does have an impact on mix. As we said at the time of Hope, ultimately, the mix has a short-term impact, but it doesn't actually change the target. It might just change the year of achievement of that target. I think quite clearly, I don't have the number in front of me, but quite clearly, if we achieve that margin, the ROIC moves well into double digits.
Rob, some of the sort of legacy Breedon businesses, you are moving rapidly towards 14% at this point. It resets when you bring in an acquisition that's dilutive, that just again, gives us a platform we move forward.
John Messenger from Redburn. Three, I think, if I could. First one was just coming back on Lagan. When we think about the four-month contribution to kick in in the year ahead, we can see there is about GBP 48 million of sales increment last year. Last year, it lost money in that first four months. Clearly, there was the weather, hydrocarbon, et cetera. With the run rate of savings, just to give us a feel, is Lagan in a four-month period like that, is it reasonably profitable? Just to understand what we should be thinking of that kicks through in the current year.
Yeah.
Second one was just around cement pricing. Thanks to the new breakout, it is good to have an average cement price across Northern Ireland and the U.K., which is about GBP 88.25. To have a feel, is that very different from that side of the water to this side? Secondly, did you move pricing up during last year? We normally think of April, actually, because of the hydrocarbon effect, were you putting through price increases as the year evolved? I know it is a sensitive topic, is there any way you can give us some kind of view on what you are pushing for this year in terms of that? The other question on that was, with 1 million tons of production, do you produce about 1 million tons of carbon or just over?
Did Lagan with, I think, Jude possibly having a bit of dowry of carbon credits, were you kind of covered in 2018 and will you be covered again in 2019 in terms of carbon already acquired to cover you?
Well, I trust you to get us in less trouble with this one.
Shall I do this?
Yeah.
I've tried to scribble. Question number one.
Yeah.
First quarter. Three things that you need to bear in mind for the first quarter of 2018. One was in Terry's business, particularly Republic of Ireland, is on a fiscal year in terms of work awards, and historically, Q1 has been a loss-making quarter in that part of the business. Two was the major Kinnegad shutdown historically happens in the first quarter, the cement plant. Three, as I sort of alluded to in my part of the presentation, the Irish market wasn't immune to the impact of the Beast from the East. Those are the three sorts of numbers you need to take into account of what the first quarter would be. I think from that, you'll see that we benefited from eight months of strong performance without those costs in the first quarter. Two, in terms of cement pricing, no comment.
It would be wrong for us to say any more and split it lower than the group. We have the ability now to give you a group level disclosure and some group level volumes, but we're still required to comply with the Cement Market Data Order 2016 in respect of the U.K. It'd be inappropriate to say any more. Where were we then? I sort of lost track of your questions then.
Carbon.
As you know, the carbon emissions information, as you personally know well, is public information. Across the two plants, we do have a requirement for somewhere in the region of 300,000-400,000 tons of carbon permits per annum. We do have a strategic purchasing and hedging program in place, John, that means that without disclosing how much, we have an element of hedging in place in respect to both plants.
Can I just come back? Just one thing. On cement, though, within the bounds, last year, because we normally think cement prices get struck in that spring season. Clearly, your business is not as tied to some of those longer contracts, and you've got a bit of flex. Did the cement price sequentially, did you achieve rising prices through the year? Or is this year the year you need to get a decent step up in cement prices? For you guys, which is the bigger cost, electricity or fuel? Because of the use of alternative fuel. I'm just thinking electric is more discreet in that you're grinding clinker, everyone's going to incur broadly similar electric costs. Therefore, everyone should want to push that through.
Just a bit of a feel as to how competitive you think it's going to be or how successful, to your point, Pat, you're not going to cost save your way out of this. It's got to be about putting the top line up.
I think from a timing perspective, I don't think our cement business is any different than most. You tend to have a lever over a broad period, a sort of a period during the year. I guess all I can say about how the other part is, the programs Rob was talking about, we have really good visibility, be it power or be it carbon or be it bitumen. I'm confident that what we're seeing and what we're experiencing will get us where we need to be in relation to the cost. We have more visibility in cost than we would have had, and I'm comfortable that we can take our business forward in pricing relative to costs.
Thank you.
Is that vague enough, John?
Yeah.
John, just on the split of costs and things. As you quite rightly say, electricity is a significantly more material cost than carbon.
Yeah.
It's Kevin Cammack at Cenkos Securities. Just one wrapping question on Ireland. Well, two things, actually. In the new divisional split, could you just broadly confirm that it's still true that it's roughly 50/50, north and south within the new Irish split? Secondly, I wonder if you could comment on the sort of outlook for growth in the Republic generally, whether those construction output figures that you gave for 2018, what sort of trends are for 2019 and whether it affects certain businesses more strongly or less strongly than others in terms of the products and segments of where that growth is coming, just to give us a real confident feel about where Ireland is heading.
just the first part of that question, you were trying to understand the element in GB, the proportion between northern and southern ?
No, I mean within Ireland.
Oh, within Ireland.
Whitemountain .
Is it roughly 50/50 between north and south?
Are you ignoring cement or are you [crosstalk].
Ignoring cement, just in the new split of Ireland.
I think [crosstalk].
When the acquisition was done.
Yeah.
We sort of talked about.
Yeah.
Broadly speaking, a third, a third, a third.
Yeah, you're right. When we did that, we did a third, a third, a third, then 10% for Welsh Slate. I think where we are, it's quite clearly that the growth is coming through the south much more than the north. As we move forward, you'd expect more of the growth to be coming from the south.
Rob, you got some of those recent numbers yesterday on Ireland.
Yeah, there were some numbers yesterday that are relatively recent, but this was the investment in building and construction, I think in 2018, was going to be EUR 26 billion in the south, up 20% on 2017, and that 2019 is forecast to be EUR 30 billion, which is an increase of 14%. One statistic that was quite interesting was that in 2019 they expect 25 major infrastructure projects to be started, and they refer to a pipeline of 271 in the future. You mean the forward-looking outlook for the south is very strong.
Would you say that's faster growing than residential, for example?
Well, residential's going to be a big driver of the growth in the south as well. I haven't got that stat in front of me, actually, but I think it's something like 25% of the spending is residential at the moment.
We need to be a wee bit careful with that because obviously a significant aspect is Dublin. Dublin, we are not a massive player in the Dublin market.
Any further questions?
It's Charlie Campbell at Liberum. You've given some pretty clear guidance on net debt for the year, clearly. Just to think about the moving parts within that, is there anything in the cash flow, particularly in 2018, that was in any sense one-off in nature? Very strong working capital movement, but anything one-off that might reverse or you expect to keep those gains and maybe even move on from that?
Well, nothing particularly in terms of one-off. What we have said is that we had a very strong performance and we've said, in terms of the guidance we've given, is that we believe we're going to hold on to an element of that and it'll be ongoing improvements. I think the beat was approximately GBP 30 million, and we've moved forward the guidance that GBP 15 should be shaved off the forecast for next year. I think that gives you an indication of.
Yeah.
You wouldn't expect to get a GBP 12 million positive working capital benefit year in, year out.
If there's no further questions, there are some sticky buns and coffee and things at the back, and we'll carry on from there. Thank you very much for coming, and the six-month results will be on July 25th. Thank you.
Thank you.