CRH defends Philippines plans amid sales slump
Philippines business stands out as weak spot in otherwise strong CRH trading update
CRH chief executive Albert Manifold: “the performance of the Philippines does emphasise the volatility of emerging markets”. Photograph: Cyril Byrne
CRH chief executive Albert Manifold has been forced to defend the building materials group’s €300 million-plus investment plans in the Philippines as its sales in the country, which it entered in 2015, slumped as the market was flooded with cheap cement imports.
A trading update from Ireland’s largest publicly quoted company on Tuesday reported a 12 per cent drop in like-for-like sales in the Philippines for the first quarter of the year, compared to the same period in 2015, impacted by poor weather and competitive market conditions.
Under questioning from analysts on a conference call, Mr Manifold said about a quarter of the Philippines’ cement needs are now being met by cheap imports from southeast Asia, which is pulling down pricing across the market. However, he insisted that local producers, including CRH, will have an advantage as they ramp up capacity and supply in the coming years.
“Onshore [producers] have surety and security of supply and guaranteed regulation and certification. That’s something that’s very difficult for importers,” Mr Manifold said, adding that Filipino cement buyers are naturally inclined to purchase from local, well-known producers. “Brand matters over there.”
However, Mr Manifold added later in the call that “the performance of the Philippines does emphasise the volatility of emerging markets”.
The Philippines was a weak spot for CRH in an otherwise strong trading update, with the company confounding an expectation among some analysts that US sales would fall as a result of harsh weather in the first quarter. Like-for-like sales grew by 2 per cent in the US, in spite of the fact the same period last year was particularly strong.
While overall sales were flat in the broader Americas division, Mr Manifold said the performance would improve as CRH progressed through the first half. First-quarter sales grew by 6 per cent in Europe during the period “supported by stabilising trends in certain key markets and the timing of Easter holidays, which occurred in the first quarter of 2016”, it said.
CRH, which holds its annual general meeting in Dublin on Thursday, expects earnings before interest, tax, depreciation and amortisation (Ebitda) for the “seasonally less significant” first half of the year to be ahead of the €1.12 billion posted for the same period in 2016. It forecast further earnings “progress” in the second half compared to the €2.01 billion of Ebitda posted in the second six months of last year.
CRH has said it plans to get back on the acquisitions trail after focusing on cutting its debt burden last year following a record €8 billion on deals in 2015, including the transformative €6.5 billion purchase of assets hived off by European cement giants Lafarge and Holcim to appease competition authorities under their own merger.
The Dublin-based group said in February it has the capacity to spend between €2 billion and €3 billion on transactions by the middle of next year. Agreed deals so far this year amount to about €500 million, group finance director Senan Murphy indicated to analysts on Wednesday.
CRH’s foray into the Philippines in 2015 was down to assets purchased from Lafarge and Holcim. The group valued its 40 per cent equity stake in Philippines business at €472 million at the end of last year. It has a 55 per cent controlling economic interest in the operation, which is the Philippines’ second-largest cement player.
Mr Manifold said in March that the group plans to invest between €300 million and €350 million in the Philippines over the next two to three years. He said on Wednesday its initial expenditure will be €90-€100 million over the next 12 months or so.