CRH reaps the rewards of cost-cutting

The interim results for the first half of this year released yesterday by CRH show its sales revenue increased by 4 per cent when compared with the same period last year, but that its earnings before interest, taxes, depreciation, and amortisation (Ebitda) jumped 27 per cent.

Asked about this yesterday, chief executive Albert Manifold said it was a reflection of the very significant adjustments made to the CRH business during the crisis.

The “good work” done on the way down reaps its rewards when the volumes return to what is a cyclical business with many fixed costs, he said, pointing out that the first six months of 2014 saw a €317 million increase in sales (to €8.32 billion), and a €108 million increase in Ebitda (to €505 million). “€100 million of that is solid organic growth.”

Enhanced margins

Cost-cutting, greater focus on maximising the use of existing capacity rather than purchasing new capacity, and the ordered sale of assets that are non-core or that do not meet the group’s “financial objectives”, means that if, as seems to be the case, the sector is coming up out of the cyclical trough, the margins achieved will be enhanced.

CRH expects to reach savings of €100 million this year and a further €75 million next year, making for total cutbacks since 2007 of €2.6 billion. It is also involved in what it calls an orderly, multiyear divestment programme of €1.5 billion to €2 billion.

Finance director Maeve Carton pointed out that net debt was down by half a billion euro, to €3.7 billion, and that a month ago the group raised €600 million of seven-year money on the eurobond market at 1.75 per cent, the lowest rate ever paid by CRH or any group in the sector.

This money, and that raised from two bonds issued last year, carries a combined interest rate of just 3 per cent. The company has €1.1 billion in cash on the balance sheet, and undrawn facilities, so that the overall liquidity available to “take advantage of opportunities” is €4.3 billion.

Terrible weather in the United States earlier this year hit the business there, with the change to the CRH business mix since the downturn serving to increase the effect of such developments on profits.

Nevertheless, Manifold expects a full-year outcome of approximately 4 per cent in revenue growth in the group’s most important market.

Benign weather in Europe helped sales in the first four months of the year, but the level of business began to moderate recently.

But Manifold said he wasn’t concerned and that he expected the year to end up approximately 3 per cent ahead. Overall the message was one of 2013 being a trough year, and 2014 being the year of returning to profit growth.

Growth expectations

As to acquisitions and asset sales, it is clear that the US, with its demographic and economic growth expectations, is the focus for the group, while Europe, and western Europe in particular, is seen as a region with mixed prospects and relatively pallid demand for new build business.

In time, said Manifold, the group will increase its interest in emerging markets also.

Closer to home, the chief executive said the Irish economy was “at last” starting to show some signs of growth, with the pick-up being led by the residential market in the greater Dublin area, though there was also signs of increasing demand for infrastructural work and agricultural building.

The two executives were in London all day yesterday briefing institutional shareholders and journalists, a first for a day on which interim, as against full-year results, were released and a further indication of the global nature of the Tallaght-headquartered Irish plc.