CRH credit rating ‘safe’ despite €2bn share buy-back plan
Shareholders hear group will sell up to €2 billion worth of underperforming assets
CRH chief executive Albert Manifold: “No good business is going to subsidise a bad business in CRH.” Photograph: Nick Bradshaw
CRH’s chief executive, Albert Manifold, has said the building materials giant’s prized “investment-grade” credit rating is safe, even as it plans to spend up to €2 billion over the next year buying back shares and doing small bolt-on acquisitions.
“We have a very thoughtful dialogue with the ratings agencies and where we are going,” Mr Manifold told reporters after the company’s annual general meeting in Dublin on Thursday. “We could spend between €1.5 billion and €2 billion on acquisitions over the next 12 to 18 months and do the €1 billion buy-back and still not have an issue with the ratings agencies.”
While CRH said this week that it planned to carry out its first share buy-back programme in a decade as it takes a breather from major deals. The group still plans to spend between €500 million and €1 billion on “bread-and-butter” smaller deals this year, according to Mr Manifold. The group spent almost €4.8 billion on purchases last year.
CRH has the equivalent of a BBB+ rating with two of the world’s largest credit-ratings firms, three steps above “junk status” and seven rungs below a top-notch AAA grade.
Speaking to shareholders earlier at the AGM, Mr Manifold, who has led the group for the past four years, said he expected the European market, which generated 37 per cent of group operating profits in 2017, to eventually return towards half of group earnings, as the economy continued to bounce back. The Americas provided 62 per cent of total earnings last year, even through Europe and the Americas each accounted for 49 per cent of sales.
Having sold its US distribution unit, Allied Building Products, in January for $2.6 billion (€2.1 billion), after hitting a wall trying to find right-priced deals to add to the scale of the business, CRH committed on Wednesday to generating a further €1.5 billion to €2 billion from the sale of underperforming assets or businesses that no longer fit its model.
“No good business is going to subsidise a bad business in CRH,” Mr Manifold said.
“Over the decades CRH has made so many mistakes, it’s embarrassing. We’re not the smartest guys in the room but we’re not too stupid either – and we learn by experience and we learn by our mistakes,” he told shareholders.
The chief executive indicated that the group would set out in the coming months its “scale and ambition” for the years ahead, focusing on shareholder value, capital allocation policy and cash generation. The group converted about 70 per cent of its €3.3 billion of record earnings before interest, tax, depreciation and amortisation into cash last year.
Meanwhile, group finance director Senan Murphy said the board was considering whether to halt its scrip dividend policy, which allows investors to reinvest their dividends into new shares, as it continues its share buy-back programme next year.