Monday 11 November 2019

CRH raises cost-savings target after profits plummet to €750m

Joe Brennan

Building materials behemoth CRH yesterday hiked its cost-savings targets as it signalled pre-tax profits fell 54pc to €750m last year and warned that trading conditions would remain difficult in 2010.

But chief executive Myles Lee told analysts in a conference call that he has €1.5bn of firepower to carry out deals over the next 18 months, helped by a €1.24bn rights issue share sale last March.

Shares in the country's largest publicly quoted company fell 3.8pc during the Dublin trading session to €18.75.

The 2009 profit guidance, which is broadly in line with market expectations, could be further impacted by impairment charges to be finalised over the coming months, Mr Lee said.

He indicated the charges should come as CRH assesses whether plant closures in 2008 will be permanent, rather than on the back of writing down the value of billions of euro of assets acquired when the global economy was in full flight.

A four-year cost-cutting programme is now expected to yield €1.65bn of savings, up €200m from what it predicted last summer. Chief operating officer Albert Manifold said the target may jump again as CRH continues to eye outgoings.

About 40pc of the current target is set to comprise permanent cost cutting, as it streamlines group administration, centralises procurement and increases fuel efficiency.

Analysts were impressed that CRH, which spent $214m (€146m) on seven bolt-on acquisitions in its American materials division in the second half, was able to execute deals valued at as low as four times earnings before interest, tax, depreciation and amortisation (EBITDA).

"This is a very attractive multiple for aggregate businesses and reflects CRH's skill at completing attractively priced, bolt-on deals," said Barry Dixon, analyst with Davy, in a note to clients.

They compare with an average multiple of 6.5 times EBITDA in 2007 and 2008. But Mr Lee cautioned analysts not to expect late last year's bargain multiples to become the new norm. "That was somewhat exceptional," he said.

CRH's deal-making focus is on aggregates, asphalt and heavy concrete products businesses, which have the ability to buoy earnings from the time they are struck. But Mr Lee also said that the group was "also keeping a very close eye on targets we would have parked" during the economic crisis.

Turning to emerging markets, the company is looking to use its recently acquired interests in China and India to expand its presence in fast-growing regions.

Chinese associate

Its Chinese associate Yatai Cement, in which it acquired a 26pc stake early last year and rights to up this to 49pc, carried out two investments in the northeastern part of the country in the second half of 2010. Mr Lee suggested that Yatai would act as a regional consolidator over the coming years.

Meanwhile, analysts noted that CRH's comments that its 2008 EBITDA should fall 40pc and 25pc in European and America, respectively, were in line with previous guidance.

"Trading conditions remain difficult and the timing of any sustained pick-up in developed world construction demand is unclear," CRH said.

But on a positive note, Mr Lee highlighted that $11bn (€7.6bn) of a total $27.5bn allocated for roads, motorways and bridges under a US economic stimulus plan was set to be spent in 2010. Only $5bn of the package was spent last year.

On this side of the Atlantic, the group sees additional infrastructure spend in Poland and Finland. But approvals for new infrastructure projects are set to drop significantly in Ireland as the Government tightens its purse strings, said Mr Lee.

Irish Independent

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