CRH sees ‘light at end of tunnel’ in Philippines

CRH chief executive Albert Manifold has said he sees "light at the end of the tunnel" for the group's embattled business in the Philippines, which it inherited three years ago as part of its biggest ever deal.

The building materials giant said on Thursday that “ongoing challenges” in the Philippines market, as well as tough weather conditions on both sides of the Atlantic earlier this year served to dampen its earnings growth rate in the first half to 1 per cent.

Earnings before interest, tax, depreciation and amortisation (ebitda) increased to €1.13 per cent, with like-for-like ebitda up 1 per cent in Europe, ahead by 3 per cent in the Americas but down 59 per cent in Asia.

CRH entered the Philippines in 2015 through its transformative €6.5 billion of assets globally from European cement peers Lafarge and Holcim as they sought to appease competition authorities under their own merger. The loss-making Philippines operation has been hit in recent times by a temporary decline in infrastructure spending, rising local competition, a flood of cheap imports and rising costs.

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However, Mr Manifold said on Thursday that demand and cement pricing are “picking up” in the market. He predicted “substantial growth in profitability” at the unit in the coming years, even though 2018 will be “challenging”.

The CRH head said that he expects “another year of progress for the group” for the full year, as momentum in Europe and north America continues, despite continuing currency headwinds and challenging conditions in the Philippines.

Goodbody Stockbrokers analyst Robert Eason, who estimates CRH’s ebitda will come to €3.4 billion this year, said that the group’s first-half figures were “strong”, particularly as it managed to increase its prices across a number of recovering European markets against a backdrop of rising costs, including oil.

CRH launched its first share buyback programme in a decade in April, aimed at repurchasing up to €1 billion of its stock, to take advantage of its weak share price as the group takes a breather from major acquisitions. Still, the company has signalled that it plans to spend between €500 million and €1 billion on smaller deals this year, having allocated almost €4.8 billion for purchases last year.

CRH said on Thursday that it has spent €350 million to date buying back its own stock. The business has also spent €265 million on bolt-on acquisitions in the US and Canada as well as €80 million in Europe in the first half. It has also completed €150 million of deals since then.

In July, the group completed the divestment of its DIY business in the Netherlands and Belgium, together with certain related property assets, for a total consideration of €510 million, bringing total proceeds to date in 2018 to €2.9 billion. The figure includes money received from the sale of its former Americas distribution business, Allied Buildings Products, agreed last year and completed in January.

Mr Manifold signalled that the sale of the Benelux DIY business did not represent the conclusion of a strategic review into the group’s wider European business, which it first announced in May.

While analysts have speculated that the review will result in the sale of the low-margin operation and raise more than €2 billion, the chief executive told reporters that the company is also looking at acquisitions that could “add value” to the business.

Still, he said that it will likely be next year before final decisions are made on the matter.