Tuesday 25 June 2019

Samantha McCaughren: 'CRH in it for the long haul with Scandinavian activist investor'

CRH chief executive Albert Manifold
CRH chief executive Albert Manifold
Samantha McCaughren

Samantha McCaughren

Stake-building by Scandinavian activist shareholder Cevian in CRH will not be taken lightly by the Irish building materials heavyweight.

Cevian is not cut from the same cloth as aggressive US activist shareholders who often like to swoop in brashly and yell for change. Arguably Cevian is a more frightening beast, coming in to companies with its claims to be a 'constructive' activist - although last week one British newspaper described it "as one of the world's nastiest investors".

Why should CRH be fearful? For one thing, its interest in CRH is no flash in the pan.

The Stockholm-based operation prides itself in thoroughness and market sources say that Cevian has been closely examining the Irish giant for up to a year, carrying out hundreds of interviews which may not have overtly prodded at CRH but which where very much intelligence gathering on the firm. It seems very likely that CRH would have known that a serious activist had been circling for some time.

Cevian, which manages around €13bn does not spread around its cash. It makes only one to three investments a year and is a major shareholders in some of the largest industrial companies in Europe, including stakes of between 5pc and 18pc in companies such as ABB, Ericsson, ThyssenKrupp, and, until December 2017, Volvo.

Unlike some of the US activist funds, Cevian has never entered into proxy fights or 'legal wars' with companies, or publicly attacked a company. However, market sources would not rule this out.

In any case, there are other means of exacting change, although to date the fund has not spelled out its wish list at CRH. It has a 3pc stake now which is worth around €600m and indications are that it would be willing to spend up to €2bn should it feel the need.

If this were to happen, it would be very hard for CRH boss Albert Manifold and his management team to ignore its new investor.

It seems very likely that Cevian will want a board seat and its immediate focus seems to be on CRH's margins, which trails those of peers such as LafargeHolcim.

Some seasoned observers of CRH say that extracting that margin growth at the group will be more difficult than it looks. CRH is made up of hundreds of individual businesses, most of them servicing very local markets. The nature of building materials is that products tend not to travel very far.

Unlike a large industrial company, for example, it is not a case of chiselling out improved margins across a small number of large plants. It is far more complex to eke out better margins across the very many individual CRH operations across the globe. Other activist-type investors have looked at the business over the years and decided that such a task would be more trouble than it's worth.

Does this apparent margin bind mean that all these businesses are not best-suited to being in a single conglomerate? That will be a key question for Cevian, with speculation growing that it may see the biggest opportunity in breaking up CRH, or at the very least putting parts of the business on the block.

Manifold will not take this challenge lying down. Cevian is in for the long haul. Interesting times ahead.


Aryzta threw its doors open to journalists last week, the latest step in its rehabilitation journey. After years of minimal engagement with media and shareholders, the Cusine de France owner is ushering in a new era of openess.

The new broom - led by chairman Gary McGann and CEO Kevin Toland - has taken longer to come to the grips with the problems at Aryzta than they or anyone else expected. After the recent controversial equity raise by the company, both have been quite frank about the task they took on at Aryzta. Last month McGann confessed that he doesn't know if he would have taken on the role if he had known just how bad the problems were.

However, Toland believes that management now has a handle on the challenges ahead for the par-baked bread and sweet treats company. But the proof will be in the pudding, so to speak.

Even if Toland does manage to deliver on his strategy, there are some potential headwinds facing the business down the road. The company is very aware of healthy eating trends such as clean eating, paleo diets and veganism. Aryzta isn't overly concerned about these at the moment. Doughnuts, pastries, cookies and even doughy bread can be a weekend indulgence rather than an everyday treat, as management told us last week.

But just look at a recent note from Berenberg on C&C. It warned that an Instagram-loving new generation is forsaking alcohol for selfie-suitable bodies.

Where will par-baked treats fit in this new world? Aryzta has a wide customer base, supplying goods such as McDonald's burger buns, convenience store baguettes and forecourt cookies. It also has delivers artisan breads for the likes of Marks and Spencer.

But it would be no harm to keep a close eye on how its product lines sit with the eating trends emerging from a new breed of social-media mad consumers.

Sunday Indo Business

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