Morning, everybody. Welcome to those on the webcast this morning, and welcome to our interim results for the first half of 2018. Presentation this morning by Peter Tom, Group Chairman, Pat Ward, Group Chief Executive, and Rob Wood, our Group Finance Director. We'll hand over to Peter Tom for some introduction. Peter?
Thank you, Steve. Morning, everyone. Thank you very much for coming. It's been well documented by lots of other people that it was a fairly tough first half of the year in our industry with the weather and rising input costs. We're very, very pleased under those circumstance with what we think is a very resilient set of results. As you know from these meetings, we are very much concentrating on cash. Again, as you look through the numbers, there was a strong cash flow generation in the first half. We've only had the Lagan business for 4 months or so, and obviously only 10 weeks are in these numbers. We've been extremely pleased with the way in which we've been received.
We've got a whole group of new people and colleagues who've joined the business who have welcomed us and have put in a very strong performance since we acquired the business. Our colleagues in the English and Scottish business have done very well in very difficult circumstances. We're pleased with the way the integration's gone, and I'll pass over to Rob, who will run through the numbers.
Great.
Thank you, Rob.
Thank you, Peter, and good morning, everybody. Before I run you through the numbers, I just wanted to explain how we've reported our results for the first half of 2018. In addition to our existing three businesses, Breedon Northern, Breedon Southern, and Breedon Cement, we have, following the acquisition in April 2018, added a Lagan Group reporting segment to the group, which contains all of the businesses we acquired as part of that transaction. We anticipate that we will continue to report Lagan as one segment for the rest of 2018, but that we will then integrate elements of it within our Breedon businesses in 2019. As you can see from the financial highlights, it's been another half of progress for the group. We have delivered revenue growth of 16%, underlying EBIT growth of 17%, and achieved an underlying EBIT margin of 11.1%.
Excluding the impact of acquisitions, revenue and underlying EBIT were marginally down on the first half of 2017. Reflected the challenging market conditions in Great Britain, the severe weather in the first quarter, and rising input costs. In terms of acquisitions, Lagan's performance in the first 10 weeks of our ownership was encouraging and benefited from more favorable trading conditions, particularly in the Republic of Ireland. Underlying profit before tax is up 15% and more modest underlying basic EPS growth of 7% reflects this. Also reflects the GBP 170 million equity placement we undertook at the time of the acquisition. Lastly, net debt has increased significantly due to the Lagan acquisition being partly debt funded. At the same time, after allowing for the seasonality of the business, the group has continued to be strongly cash generative.
Turning to the income statement and revenue, which at GBP 378.4 million, was up 16% on 2017. Excluding the impact of acquisitions, it was marginally down. At the earnings level, underlying EBIT, which we cut after the associate joint venture line of GBP 42 million, was up 17% on 2017. Again, excluding the impact of acquisitions, it was marginally down. The increase in interest costs to GBP 4.6 million in 2018 reflects the high level of debt post the acquisition of Lagan. Non-underlying items of GBP 7 million in 2018 primarily comprise of Lagan acquisition related costs, which included acquisition costs and the amortization of acquired intangibles. Additional acquisition costs of GBP 3.7 million in respect of the associated equity placement have been taken to equity. Debt arrangement fees of approximately GBP 4 million have been taken to debt.
In total, the Lagan acquisition costs are within the GBP 15 million guidance we gave in April. Profit before tax at GBP 30.4 million is marginally down on 2017 after taking into account the non-underlying items. The tax charge of GBP 7.1 million reflects a tax charge of 24%. This is the result of the fact that the majority of the non-underlying items are disallowable for tax, the underlying tax charge being 19%. This all translated into an underlying basic EPS of GBP 0.0196, up 7% on 2017. Now turning to the divisional performance. Breedon Northern's results reflected the subdued markets in which it has been operating. Nevertheless, we supplied several new and existing projects, including the final phase of AWPR. Breedon Southern also traded in weaker markets, with volumes under pressure, particularly in ready-mix concrete.
The picture, as always, is varied across our regions, with busier markets in the Midlands contrasting with muted demand in London and the Southeast. Although revenue reflected the softness of the ready-mixed concrete market, Breedon Cement delivered a sound performance. In Northern, revenue was up 6% on 2017. Underlying EBIT was down GBP 0.8 million or 7% on 2017, and the underlying EBIT margin was 9.5%. In Southern, revenue was down 2%, underlying EBIT was down GBP 3.3 million or 15%, and the underlying EBIT margin was 10.4%. In Cement, revenue was down 4%, underlying EBIT was up GBP 0.7 million, and the underlying EBIT margin was 14.4%. As already mentioned, Lagan's first contribution has been encouraging. Lastly, central administration costs for the first half are on track to end the year in line with the 2018 full year guidance given out at the time of the 2017 results of flat versus 2017.
Turning to our products, as you're aware, under the terms of the Cement Market Data Order 2016, we are not permitted to disclose information in respect of cement. In terms of our other products, reported aggregate volumes grew by 17% on 2017. Excluding acquisitions, the increase was 7%. Reported asphalt volumes grew 28% on 2017. Excluding acquisitions, this increase was 2%. Reported concrete volumes declined 7% on 2017, and again, excluding the acquisitions, the decline was 10%. In terms of pricing, increases by product category were in the 0%-2% range. Pat will comment further on the market shortly. Now turning to net debt.
The net debt, which now stands at GBP 383.6 million, has increased by GBP 273.8 million in the first half and reflects the underlying EBITDA of GBP 66 million, the cash element of non-underlying costs of GBP 5.9 million, a GBP 31.3 million seasonal working capital outflow, interest and tax paid of a combined GBP 11.7 million, a GBP 10.9 million CapEx outflow, and a net acquisition spend of GBP 281 million, this being after the equity issued of GBP 171.2, primarily in respect of the acquisition of Lagan. Based on the closing net debt of GBP 383.6 million and taking into account Lagan pro forma earnings, leverage is now 2.3 times EBITDA. In summary, it's been a half of further progress for the group. Turning to the second half and the full year, we believe that the market in Great Britain will remain challenging.
Expect market conditions in Ireland to be healthier, but also see continuing pressure from rising input costs. Having said that, we remain comfortable with the current market expectations, which we understand to be GBP 102 million at the underlying EBIT level. I'll now pass you on to Pat, who will take you through his group and operational review.
In case you didn't pick it up from Rob and Peter, it was quite a challenging first six months in the year. What I would say is I'm particularly delighted with the performance of the company and our colleagues in the businesses in Scotland, England, Wales, and Ireland. In general, if you look at the statistics, the market was fairly flat, maybe down a little bit in areas. From our perspective, Breedon Group performed very well in the aggregate and asphalt markets from an activity basis. Up 7% in aggregates and up 2% on asphalt on the legacy business. Concrete was substantially different for us. Concrete, we were down about 10% year-on-year, which the market is projecting about 6%. That's for a variety of reasons. There's a regional impact, which is specific impact in certain areas for us where we're strong in ready mix.
There's the delays to the Tarmac deal, the Lagan deal, and that's primarily because as parts of your business know that they're exiting, maybe the focus drifts a little bit and you're not as competitive in the market. Maybe some of the staff moved across. So that had an impact. The third one is, for us, it's not a race to the bottom. Quite prudent pricing in certain market areas may resulted in some market share erosion for us, but that was a conscious decision because of pricing pressures in certain parts of the market. Ireland itself, particularly positive for us, particularly in the south. So that sort of outweighed some of the challenges we've had in GB over the period. From a performance perspective. Oh. That's kind of you guys, considering I moved them for you.
Performance, strong contribution from the acquisitions, particularly offsetting the weaker GB outturn, as demonstrated in the numbers that Rob Wood put forward. Peter Tom talked about the strong cash generation. That continues, and that will continue going forward in the business. We continue to invest organically in the business, as well as some bolt-on acquisitions. So those continue. Very pleased about the underlying EBIT margin being maintained, and a strong contribution from the Lagan business from an EBIT margin perspective in the 10 weeks that we include the results here. More specifically, the Lagan Group was acquired during the period, and integration commenced and is progressing well. I would say that the results that you're seeing in the Lagan Group are really the way Lagan Group performed. There's very little impact from our interactions with the group.
What you're seeing is a solid set of results from the Lagan business as the Lagan business, and the commitment that our new colleagues have to the group overall. As well as Lagan Group and as well as Lagan completion, we also had two bolt-on acquisitions, a Minimix business and an aggregate quarry in the Scottish Borders, and a ready-mix plant there as well. I know always we talk about safety. We continue to make improvements in the safety performance of the business. We continue to become even more highly engaged with our colleagues on safety, but we continue to be disappointed at the level of results we got, and that will continue to be a focus for us going forward. We, as a surfacing business in Breedon Southern, won our first framework contract with the Highways Agency, where we're a joint venture partner with Bauer in the Midlands.
That's probably worth, all things being equal, probably GBP 40 million over the course of a four or five-year period, depending on phasing. That's pleasing for us as well, and it continues, I think, to show the maturity that the company's beginning to develop. Rob Wood talked about the variance in numbers, particularly in the Breedon Southern and Breedon Northern business, and maybe more specifically, I can talk about some of the items that occurred there. For me, it's incredible performance in subdued markets. The teams on the ground, be it commercially, be it operationally, or be it our transactional people, have done a wonderful job in difficult conditions, and we continue to be pleased at the support we're getting from these colleagues in the business. We have had some notable projects that we've been supplying or completed supplies to, notably the AWPR, coming to the final phase.
That's been a positive project for us, and we've learned a lot in it, and we've contributed, I think, to the overall value of the project. Woodsmith, the potash mine at Woodsmith Mine, Peterhead Harbour, and East Midlands Gateway have been other projects that we participated in. Again, for us, we don't mind doing larger projects, but it's not about chasing price through the projects and chasing volume. It's about can we bring value to the project? Can we enhance the project and the client relationship? I talked about the organic investment and maybe a couple of examples. There's a replacement asphalt plant commissioned at Furnace in Scotland. An installation of an asphalt plant is almost complete now at our Dowlow Quarry in the Peak District. We talked in March and we talked in April about a new quarry. We opened 11 miles from Glasgow.
Physically, it'll be the closest hard stone quarry to Glasgow. In order to complement that, we're investing substantial monies in our (Portlandas), our city center Glasgow ready-mix plant, which will of course, will be a recipient of the materials that will come out of the North Benvie Quarry in Ayrshire, just outside Newton Mearns. Blinkbonny Quarry and Staffs Concrete are the business I talked about we acquired. Breedon Cement. Breedon Cement is a really good performance as far as I'm concerned. You see the volumes are down, and the volumes were impacted a little bit by the demand internally. Is ready-mix down 10%? That has an impact on the pull-through. What drives the performance and the improved profitability is the operational performance in the business has improved dramatically. The sort of availability of the plant, performance of the plant overall.
We're benefiting from improved production and stock management, and that continues to be a focus each year. I know that the team up at Hope Cement plant put a lot of effort into how they manage stock, particularly at that point because they were an individual plant and didn't have support within the business. What we can see now is that we have support from the Kinnegad plant outside Dublin, and we have opportunities there to bring cement into our terminals in the northeast of England, which again, allows us to be a bit more flexible and sort of robust in our planning going forward. We continue to develop our bag cement strategy. Lagan Group, can't really say enough about the Lagan Group. They performed ahead of expectations. The new management structure is in place.
Again, I always make the point that I love working with my Breedon colleagues, but Aggregate Industries have good employees and Tarmac have good employees. What we're seeing here is a bunch of people who have joined us from the Lagan Group and who are contributing and their delivery of performance is high octane. They haven't missed a beat. It's a big change for the organization, but they haven't missed a beat. I'm delighted with the support we're getting in management and the relationships we've been developing in the business. It's coming through in the numbers and it's coming through in the cash generation. The next point on the management structure. Maybe the point worth noting is when I sat here in April, two of these positions were interim.
We had an interim managing director in Southern, and we had an interim managing director in Cement, and both of those positions have been filled full-time. What we have now is a solid in-place management team to take the business forward. Outlook. It will remain challenging. We see G.B. continue to remain challenging for 2018. I think it's compounded by Brexit, by the uncertainty there, and that continues to be a daily issue. There may be some confidence in areas of the market. If the market's flat, as we always say, as Breedon, we are happy with that because there's a lot of self-help we can bring to the table and a lot of focus we can put internally. I think it's inevitable, whether it's early 2019 or late 2019 or beyond, there'll be infrastructure spend, there'll be continued investment in house building in the medium term.
We'll be ready for that. Maybe more than activity level, because I was never terribly worried about it, is the competitive situation in the market should improve. Each of the businesses are facing significant cost increases as input materials, particularly bitumen and energy rises. There's always a lag between when you're hit with these increases to you recover them in the marketplace. I expect to see continued progress over the next few months into 2019 and beyond, where we start to recover some of the lag in these cost increases. We continue to watch those, and we anticipate maybe further pressure on those. In Ireland, we believe we'll see continued growth in Ireland. The projections for the Republic of Ireland are 28% growth through 2020. Northern Ireland is growing modestly in spite of no real government there.
We're now starting to see some projects moving. Some major projects are starting to place orders. We expect to see activity levels in the North rise a bit, and at past rates. There's parts of the maintenance program in the Republic where we're seeing inquiry levels almost double what they were this period 12 months ago. We don't see that changing in the short term over there, and I think that will continue to offset any risk of any weakness that we may have in G.B. As I said, in relation to the weakness in G.B., we have self-help we can give ourself operationally. I think if we are surgical in our pricing, we will see margin improvement as we recover the cost increases through pricing.
In the three months, May to July, just as an indication, because one of the benefits of being this late in our results is you get to see a flavor of some of the conversations that have been had. From our perspective, there was an improvement in volumes in quarter two. We did recover some of the shortfall in Q1, which reinforces the fact that it was primarily weather driving for us at the start of the year. We will continue to be mindful of pressure from rising input costs. We'll focus on self-help. Breedon has been focusing on self-help for seven, eight years, and nothing's changed. We have a bigger platform that we can focus on self-help with. Traditionally it's always been from an operational perspective, but we invested a little bit of money recently in a commercial tool.
As the business grows, we always say whilst we have a national presence now for us, the money's in the local market, so we have to be diligent in how we are pricing locally in the markets. In order to do that, we've invested a little bit of money in a commercial tool to help us evaluate and move pricing forward in each of those markets. One of the areas of exciting development for a quarry person like myself is the Republic of Ireland, where they have a sort of embryonic aggregate business. They had some sites, there were some dormant sites, and they also acquired some distressed assets over the course of the last few years. Those individuals over there are ready to push forward aggressively on developing this business. I think we've all agreed that speed is not the key for us here.
For us, we'd like the business to be developed slowly, because in an aggregate business or a quarry development, if you make sort of quick decisions and you move too quickly, you can end up spending years trying to recover that position. From our perspective, whilst our colleagues are keen to press on, we would rather we just take smaller steps as we develop that business in the Republic of Ireland. That would be a good contributor to the business in future years. To reinforce Rob's point, we are comfortable with 2018 market expectations. If you look at the headwinds we face with Brexit, with the weather, construction issues in general, Carillion. Even our activities on AWPR were impacted. The perception of our activities there were impacted by Carillion.
From our perspective, in the face of all those, our colleagues delivered at the start of the year. I believe our colleagues will deliver for 2018. I have every confidence that with the enlarged management team we have and the enlarged group of colleagues, that we'll continue delivering in the years going forward. Okay. With that, Peter, Rob, myself are happy to take whatever questions. I would prefer someone gets one in before John Messenger, but just to get us warmed up.
Could I just ask for the benefit of people on the call, when you ask a question in the room, could you please give us your name and your house, please? Thank you.
Good morning, everyone. It's Robert Eason from Goodbody. Just on the input cost headwind in the first half, can you just help us to understand the scale of that headwind and how you see it kind of unwinding in the second half? What I mean by unwinding, it's more the price cost spread rather than the absolute unwind of it. That's kind of question one. Just in relation to kind of Lagan, you've already alluded to the opportunity on the aggregate side, and you're going to take it slowly to make sure you're starting at the right
Right, you don't have headwinds further down the road. Can you just talk through the scope around the cement optimization of the whole network now between terminals and your actual plants, and how should we see that? Also the opportunity around the asphalt import terminals that you got there, again, just optimizing the whole network across the two jurisdictions and the two questions.
Do you want to stay on the input cost? I'll deal with the first one we can move onto the other side. In terms of, as a backdrop, the easiest indicator would somebody be like, as a proxy for something like bitumen, would be like Brent crude and for freight costs. If you look at sort of the Brent crude H1 2017 to H1 2018, it's gone up by a third. It's gone up from mid GBP 50s to sort of low GBP 70s. Then actually post half year, Robert, it's gone up even further. It gives you an understanding of the challenges that we face as a business. As we've talked before, we do have a strategic purchasing plan in place for some of our key cost bases.
We do look to hedge a proportion of whether it's bitumen, whether it's energy costs. Ultimately, you can only beat the market for so long. Whilst we have some comfort and we have some hedging in place, ultimately, as you look more distant in the future, the impact of that hedging becomes less. In terms of amounts, we're talking millions. We're not talking tens or hundreds of thousands. We're talking the impact of bitumen on this business is significant. The impact of electricity usage is material. I mean, a subject dear to John's heart will be carbon. Look at where carbon's gone over the last 12 months. It's just unbelievable the trajectory of the carbon costs. The headwinds are there. We do, as a team, attempt to mitigate it through hedging. Those headwinds remain.
Thanks.
Rob. Maybe on the other question, Robert, we usually take pride in not answering questions we don't want to, I didn't expect it to be from you. The cement and bitumen are really work in progress for us. Clearly, Lagan brought cement into GB, and they have over the years, they also put it into Europe at some point. We see that continuing. We see it been able to support the Breedon network of plants and support Hope. What that means is we have to evaluate our terminal strategy. Clearly, it's very limited what we can do with it with a terminal in Blyth and a terminal in Dundee. A live topic for us today is where do we develop those terminals, and where is it going to complement our business here? You're spot on, but it's live today. It's a work in progress.
So is bitumen. We talked about it can help our negotiation. We also talked about we can replicate potentially the terminals in GB, or we can try and ship it from Dublin or Belfast over to GB and projects, which they did. They've got a history of the Belfast terminal supplied into Ayrshire to supply all the asphalt on the M8 project, and the Dublin terminal supplied into RAF Valley. They have experience of it. What I would say, maybe without being too specific, is that the Irish businesses have had much more success in pushing through the bitumen cost increases because of their ability to run the terminals and be supplying to the market. That clearly reinforces that that's a potential option for us. That, again, is part of our strategic discussions and a live topic right now.
We haven't come to a landing on it, I think we have to be nimble on both to make sure we get most of our opportunities, even in this interim period, until we decide what it looks like at the end.
Okay. Howard Seymour from Numis. Two questions if I may. One is actually following up on the input costs. Just the thought process in the context of what you're saying there on recovery relative to the industry. Do you perceive there's any dynamic change in the competitive environment of the industry whereby you wouldn't expect others to try and pass this on as well? The second one, not surprisingly, on cement, if that's okay. Just on that, just to sort of get the dynamics on the cement business that happened in the first half, because you allude to the fact that concrete sales down, therefore internal sales, they're down as well.
The productivity gains that you saw elsewhere, I know you can't talk about specific volumes, but does that suggest that the overall tonnages would have been broadly flat in the business in the first half?
John. You answer. Passing the hospital balls. From a competitive landscape, those of us who've been in the business a long time know it can take 6-9 months sometimes to recover dramatic increases. There's a school of thought that says they'd much rather see bitumen going up GBP 100 a ton than GBP 10 a ton increments because it forces people to go to the market and recover it. I don't quite subscribe to that because it's still GBP 100 however it comes. No, I have absolutely no doubt in my mind that, businesses, they have to make a return if they want to continue to invest in the business. On that basis, I have no doubt that the market will continue to move forward and people will recover and improve the margins relative to input costs. Did you, was there something?
The other was about the cement performance and the volumes. We're not going to talk volumes.
No.
I think the key thing behind the cement performance is, and I think we've talked about it before, about when we acquired the Hope business, the 2 planned shutdowns were very tightly managed together, and it tended to be done in advance of the busy season in the second quarter. So it put massive strains on the supply chain and cement availability. And what we've done is we've broadened that gap and spaced them. And thereby, you've actually been able to manage the stock management and cement availability more productively.
Also, we have to be grateful to Hope as well, because they went on a capital investment-
Yeah
program just before we bought it, and we got the tail end of it to finish. So, our assets today are better than our assets were 12 months ago and 24 months ago.
Yeah.
The assets that we picked up in Ireland are some tremendous assets over there. So for me, as well as having a talented group of colleagues to work with, the fact that we have such robust assets and such a good asset base gives me every confidence going forward.
Excellent.
Can I just ask one more just on Aberdeen? Obviously, as you said, tailing off now and finishing Hope, from all concerned, except you maybe. Does that create a hole for you in the context of the Northern business? Was the scale of it so significant for you that actually now that product has to find a home elsewhere?
Yeah. It's life when you're in a project like that and it finishes. We've had success in projects in Dundee. We've had success picking up projects in maybe Lossiemouth and Edinburgh. Whilst it's a big hit as an individual project, over the course of the A9, next phase of the A9's just been let to Balfour. I think we'll replace it, and we have replaced it, but maybe in other ways, Howard.
Yeah.
It won't be a one-off project that we can point to, but it will be made up of a variety of projects, and our participation there will really recover the whole.
Okay. Thank you.
Thanks.
Thank you.
It's Kevin Cammack at Cenkos. I've actually got four, if that's all right, but they're all fairly straightforward.
Sorry, Kevin, could you speak up just a bit?
Yeah, sorry. Is this not on? Is it on? Yeah. Just two in relation to Lagan. I assume, obviously, at this early stage, there is no inclusion of any of the GBP 5 million cost savings that were identified.
Yeah, they're minimal in the sense of period.
Is there any change to the likely crediting of that number over the next two to three years? At this stage, you're not bringing it forward or pushing it out, increasing it, decreasing it?
No, we're still holding to the same guidance that it will be delivered by the third full year. However, we're not going to sit on our laurels, and we've commenced that journey, and we'll provide further updates later in the year.
There's no surprises or nothing that we've uncovered there that would suggest it's not achievable.
Thank you. Just for comparative purposes going forward, was there a maintenance shutdown done in the first quarter, or is that yet to happen in the second?
You're talking about the Lagan business?
Yeah. Sorry. Yes.
Yeah.
Lagan.
The planned shutdown on their cement kiln was done in the first quarter, which was pre-acquisition for us.
Is it a sort of similar size, scale, number-wise as it was in-
Yeah. No, it is. It is.
Thank you.
Kevin, maybe just to sort of reinforce, we're proud of Hope, but we're also very proud of Kinnegad. You have a relatively young plant that has alternative fuel usage in the range of just over 70%. It's world-class in its performance. From my prior experience, I know where Hope stands as far as world-class performance as cement plants, and I think we're very lucky we have two of them in the business now.
Okay. Third question I had was just about, you obviously cited three factors behind the variance of the Breedon Northern and Breedon Southern business. Obviously, one of those was the asset swap. I assume going forward that eradicates itself pretty immediately. In ranking terms, would you have said that was the biggest factor in the deficit of EBIT?
No. I would say that some of the regional variations, but also some of the conscious decisions we made not to participate in certain parts of the market because of the pricing levels. I think all of them contributed to it. I actually think maybe not from absolute financial perspective right away, but I'm not sure everybody quite gets how good a deal that transaction is for us to rebalance our ready-mixed business, which unfortunately was deteriorating as we moved towards it. I would think the flip side, because Tarmac maybe lost a bit of their focus on the plants that we got in Daviot and Minffordd.
Okay
Borras and Low Plains, we're going to have to recover that market position there as well, because I would say volumes there are probably impacted a bit in the same way our ready-mixed ones were. That's a really exciting deal from my perspective.
The last one I had, and maybe it's not for now, but in view of what's been happening to the sort of regional demand down in London and the Southeast, and in view of, obviously, the fact that bigger opportunities that Lagan gives you terminal-wise, et cetera, could you just comment at all on whether there's any change in the strategy on bagged cement within the U.K.?
No, there's no change in strategy. For us, it's the balance. If we can make a better margin selling bagged cement over bulk, we'll do it.
Yeah.
If it can allow us to replace some of the cement (re-limestone) and change the capacity in the site, we'll do it. We're not hung up on the volume, Kevin. I really am quite relaxed on what volume of bagged cement we do. I'm not relaxed on how much money we make from it. We're going to drive towards whichever one will generate the best return for the business. We're not going to get hung up on a theoretical bagged tonnage that was maybe set in the past. That will be dynamic. That will be an annual adjustment for us in the budget process, or it may be a change during the year. What we do have to take into account is Lagan sells bagged cement into GB also, and they have done.
We need to understand how that fits together, and I think it'll be a dynamic model for us.
Okay, thank you very much.
Thank you, Kevin. Anybody else?
Thanks. John Messenger from Redburn. Just two, if I could. On the asset swap, can you just give us an idea, I know there's a degree of commercial limit as to what you'll say, but in terms of the revenue that's shifting out and the revenue that's coming in, how big is the drop in terms of that move, the ready mix out to the aggregates and the new asphalt plant coming in, just on an annualized basis for a rough idea? The second one was just you mentioned, Pat, about a commercial tool in the U.K. in terms of what Breedon's going to use. Can I just understand what It's not as if there are list prices or internet to scrape out there in terms of data.
Is this a bunch of guys in a room ringing around getting quotes to try and work out what prices are doing? Just to give us a flavor as to what you can do, because I'm just thinking how does that really work? Is that about more your cost to serve and how you're working out where you can make the best margin?
Do you want to do the first one?
Yeah. On the first one, on an annualized basis, allowing for the 23 versus the original 27 in terms of concrete plants, the delta is about GBP 20 million. In a half year, you'd expect probably GBP 10 million.
The other one is, it's nothing too sophisticated, John. All it is, with the amount of volume we do these days, in the past, some of our salespeople probably were more spreadsheet based than they were. What you find is emotion drives a lot of the pricing decisions. When you lose a job last week, then maybe there's no discipline in where we lost the job. It's really about it's gathering that data in a form where they can use that in their pricing decisions going forward, where we can look at segmentation of the customers by product or by segment of their business. It's the same pricing decisions we're making. It's just trying to bring a bit more process and discipline to it rather than fag packet.
That's right. Just on that.
Not that we ever did that.
No, no. On the pricing point, when you think about the price pressure in the market, has that been as much independents or is that kind of the big guys who've been moving? Because bizarrely, some of the players, the international players, are rewarding their people not on EBIT or EBITDA, but on sales growth this year, which is slightly strange. Is that something that's played through in terms of what you're actually seeing on the ground, in that there is price being given away for share, basically?
I don't lay a lot of the pricing challenges at independent businesses across it. It's pretty much all over the map.
Hi. Graham Kyle, Shore Capital. Kind of following on from John's question there. Just on concrete in the Southeast, has the market share erosion, it sounds like it was predatory pricing, as John was saying. Is there overcapacity in that specific region? If there is, how do you expect that to play out?
The impact on us is really not Southeast related because we're not terribly active in the Southeast at the moment. We've made little inroads into it. The big variance, our 10%, is not massively driven by the Southeast market.
Okay. Another region, is there overcapacity?
No. Capacity in ready mix is primarily trucking.
Yeah.
Very rarely is the ready mix plant the constraint in volume. You put a truck on the road and the capacity increases. It could be because of the lack of confidence in the market. When there's a dynamic change in the market like that, it's very hard for people to understand where the market is currently. People can chase volume. You come out of the bad weather like that, you tend to see sometimes an overreaction in the market with people aggressively chasing work. I don't think it's a change in capacity. I don't think it's a structural change in the market. It's a behavioral change in the market.
Okay. The second question relates to acquisitions post Lagan. Can you just describe the potential in Republic of Ireland now that you have Lagan on board?
It's early days for us on that. Obviously, our colleagues over there have a view on how we should grow the business. For us, it's a new market for us. It's an existing market for Lagan. I think the same approach that we'll take to developing the quarries, we'll find our way into it. We spend a fair amount of time over there now. We're evaluating opportunities. We're looking to understand how the markets work in each region. Clearly, it's early for us, but clearly, there'll be opportunities over there for us. Along the same vein as a lot of the opportunities we've had in GB in the past.
Anybody else? Thank you all very much. The trading update on the 21st of November, and full year on the 6th of March. Thanks.