Wednesday 24 January 2018

Future business is the key for new CEO

John Mulligan

John Mulligan

The challenge facing CRH's incoming chief executive Albert Manifold will be to identify the businesses that have, for CRH at least, run their course and to pin his colours to the mast on where he believes CRH's long-term future growth prospects lie.

CRH has been hit in recent years by the downturn in its core US and European markets, which account for the bulk of its revenues.

Although it is one of the world's largest building materials firms, the so-called developed markets account for 85pc of CRH's €1.64bn in earnings before interest, tax, depreciation and amortisation (EBITDA) last year, with emerging markets such as Ukraine, China and India accounting for just 15pc.

In the United States, CRH is the third biggest supplier of asphalt used in the making of roads. But by last year, the volumes of aggregates and asphalt being sold there by the industry as a whole had slumped to 1995 levels, despite the population having grown 20pc in the meantime. The volumes of plasterboard used in the US, usually for housing, had plunged to levels not seen since 1983.

In Ireland last year, the volume of cement used in the market (which comprises a tiny part of the CRH business) was at pre-1980s levels.

Elsewhere in Europe, CRH was fighting a battle with declining construction activity and reduced consumer demand and cut costs in response.

Across seven Europe countries, CRH controls a total of 238 DIY stores (it's number one in the Netherlands), 426 builders' merchants outlets (it's the top operator in Austria, the Netherlands, Switzerland and northern Germany), and 119 sanitary, heating and plumbing stores (number two in Belgium and Switzerland).

That European distribution business (the biggest division in revenue terms in Europe) saw sales fall 5pc last year to €4.1bn (out of total group revenue of €18.6bn), while EBITDA declined 14pc to €230m.

One can only imagine that some of these low-growth or no-growth operations could be closely examined as part of the review now under way.

Outgoing CEO Myles Lee told the Irish Independent last year that CRH had been right to be cautious rather than gung-ho about investing in emerging markets.

"Investors have seen where large-scale merger and acquisition activity has got people due to the very significant over-valuations that were paid," he said.

"Many of the companies that have been consolidators in the sector are now deconsolidating." The question now is whether that process throws up new opportunities for the Irish group.

Irish Independent

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