CRH back on acquisitions trail after 41% earnings jump

CRH could spend as much as €3 billion on acquisitions over the next 1½ years , the building materials giant's chief executive said yesterday. The financial headroom would come after the group spent last year focused on cutting its debt burden and would follow a period of record expenditure in 2015.

Albert Manifold, who has led CRH for three years, made the comments after Ireland's largest publicly quoted company posted 41 per cent earnings growth in for 2016. Earnings before interest, tax, depreciation and amortisation (ebitda) rose to a record €3.13 billion, meeting analysts' expectations and beating the company's own guidance that it would be in excess of €3 billion.

“2016 was a year of significant growth for CRH, with margins and returns ahead of last year in every division,” Mr Manifold said. “We benefited from positive momentum in the Americas, and also in Europe, particularly in the northern and eastern regions where we operate.”

The company slashed its net debt by €1.3 billion to €5.3 billion, or 1.7 times ebitda, from a ratio of 3 times a year earlier. At the end of 2016, it had €2.5 billion in cash and €3 billion in undrawn committed lending facilities.

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Mr Manifold said the group, which spent a record €8 billion on acquisitions in 2015, is now back on the hunt for deals, with capacity to spend between €2 billion and €3 billion over the next 18 months.

Market value

CRH has already committed €500 million on eight deals in North America this year, more than twice its expenditure for 2016 as a whole. In the first two months of the year, CRH raised €400 million from the sale of six unwanted businesses in Europe, bringing total divestments since 2014 to €2 billion.

On Wednesday, the market value of CRH surged by as much as 5.8 per cent, to €28 billion, bringing its gains since Donald Trump’s election as US president in November to 15 per cent. The stock had been buoyed by hopes that it would be among the main beneficiaries from the new administration’s plans to spend $1 trillion on infrastructure.

Mr Trump reiterated his infrastructure plans to a joint session of the US Congress late on Tuesday evening.

“While the exact detail is still lacking, this speech shows that infrastructure is still a core priority for Trump,” said Gerard Moore, an analyst with Investec in Dublin. “We estimate a blue-sky scenario that a $1 trillion stimulus could boost CRH’s 2018 earnings per share by 17 per cent.”

In the meantime, CRH said it is well placed, as the largest building materials group in North America, to benefit from the existing $300 billion-plus Fast Act highway spending programme as well as additional infrastructure spending approved by voters in a number of states in November.

Hived off assets

CRH went through a transformational year in 2015, spending €8 billion on acquisitions. These included the €6.5 billion purchase of assets hived off by European cement giant LafargeHolcim to appease competition authorities.

CRH’s sales rose 15 per cent last year to €27.1 billion, but would have been up only 4 per cent on a pro forma basis had the assets purchased during 2015 belonged to the group for the entirety of that year.

Broken down by geographical area, sales in the Americas grew by a pro forma 5 per cent as they benefited from “continued positive construction markets supported by low interest rates and increasing employment”. European sales grew 4 per cent as key markets continued to recover. Sales in the Philippines, a key part of the new Asian division, increased by 1 per cent.

While CRH broke a seven-year stint of stagnant dividends to increase its full-year planned payment by just 4 per cent to 65 cent per share, analysts at Davy said that the low rate of increase indicates “a renewed focus on investment”.