CRH reports 27% jump in earnings as sales improve

CRH overturned a first half loss in 2013 to report pre-tax profit of €61 million in the six months to June 30th 2014, as the construction giant benefited from improving sales margins. The Dublin and London listed company pointed to a "rise" in activity in its Irish operations as it forecast second-half earnings to be "somewhat ahead" of last year.

Earnings (EBITDA) increased 27 per cent to € 505 million, in line with guidance provided in May this year, giving an EBITDA margin of 6.1 per cent (up from 5 per cent in the same period last year).

Sales revenue increased by 4 per cent, up to €8.3 billion; up 7 per cent in Europe and up 1 per cent in the Americas. Like-for-like sales were up 5 per cent.

The group benefited from strong operating leverage on 4 per cent sales growth, with EBITDA/sales margins improving in five of its six reporting segments.

Albert Manifold, chief executive, said that the year got off to an encouraging start with favourable weather in Europe and continuing recovery in the US.

“We are pleased with the strong operating leverage which is reflected in margin improvement for the period,”he said.

“ Assuming normal weather patterns and no major market dislocations, and with the benefit of contributions from acquisitions and cost saving measures, we continue to expect second-half group EBITDA to be somewhat ahead of last year (H2 2013: € 1.08 billion).”

In Ireland, CRH said that construction activity has begun to rise, “albeit from a very low base”.

“With the benefit of cost reduction initiatives and the resizing of our businesses over the past number of years, overall profit and margin improved and we are in a strong position to leverage from the modest growth,” the company said of its Irish operations.

In Europe, “better volumes and capacity utilisation, together with the benefits of our profit improvement initiatives, resulted in improved margins in all three business segments”, the company said. In the Americas, the products business was most impacted by the early weather disruptions and saw its EBITDA/sales margin decline; this was offset by higher margins in both the materials and distribution businesses.

CRH said it is conducting “an orderly, multi-year divestment programme, amounting to c. € 1.5 billion to € 2 billion”, for businesses which no longer meet its returns and growth criteria, or for which it believes CRH is no longer the best long-term owner.

“We are now focusing on our core businesses (c. 80% net assets, c. 90% EBITDA), optimising the portfolio to meet our financial objectives, and prioritising the allocation and reallocation of capital as we reset for growth and restore margins and returns to peak levels,” the company said.

The company’s cost reduction programme remains on target, and it said is on track to deliver € 100 million for 2014 and a further € 75 million in 2015, which will bring cumulative savings by end-2015 to € 2.6 billion.

Net debt of € 3.7 billion at 30 June 30th 2014 was € 0.5 billion lower than the figure reported at end-June 2013, “reflecting the group’s strong focus on cash management and rigorous discipline with regard to capital expenditure and working capital”. The group has € 1.1 billion of cash and cash equivalents at end-June.

CRH kept its dividend per share at 18.5 cent.

In a note, Davy Stockbroker said that CRH’s results were in line with market expectations and that the benefits of the company’s substantial cost restructuring programme over the past five years now appears to be paying off with high operating leverage.

Given CRH’s financial position, Davy said that with additional proceeds from disposals, it will have by far the strongest balance sheet in the sector - enabling it to take advantage of returns-enhancing opportunities.

“This is one of the reasons why we think the stock should trade at a premium to the sector and this informs our ‘outperform’ rating,” the broker said.