CRH has sold its Americas distribution business for $2.63bn
Operating profit increased by 10% to €647m, firm’s interim results show
Albert Manifold, CRH chief executive. Photograph: Cyril Byrne / THE IRISH TIMES
Building materials giant CRH has sold its Americas distribution business for $2.63 billion (€2.2 billion) due to a lack of a visible route to market leadership in the sector.
Americas distribution reported pre-tax profit of €121 million in 2016 and Thursday’s sale to Beacon Roofing Supply comes as the group no longer believe the company presents value adding acquisition opportunities.
Announcing its half-yearly results, Ireland’s largest company said the divestment in the US would be used to fund future acquisitions. In that context, a part of the company’s European business agreed to buy Fels, a German lime and aggregates business, for €600 million. Fels is a company that CRH has been seeking to buy for around 20 years, the company’s chief executive, Albert Manifold, said on a call with journalists.
The latest acquisition brings CRH’s total development spend of over €1.2 billion so far this year.
“We are pleased that our Americas Distribution business is being acquired by a highly respected industry player and we wish our colleagues every success as they enter this new phase of their development. At the same time we see significant value creation potential from the Fels acquisition announced today, which will also be an exciting new development platform for CRH,” said Mr Manifold.
Asked whether the company’s significant cash pile will be a hindrance on the acquisition trail, Mr Manifold told The Irish Times, “we’re careful, disciplined inquirers of business...you’ll never find CRH overpaying.”
On a call with journalists the company’s chief executive spoke of growth in the Irish market which was residentially led. He noted that the growth was clustered around Dublin, something they’d like to see change: “We’d love to see more infrastructure spend, the country needs it.”
CRH also said Thursday that operating profit in the six months to the end of June increased by 10 per cent to €647 million. On that basis the company decided to increase investors’ interim dividend by 2.1 per cent to 19.2 cent a share.
Net debt by June 30th stood at €6.4 billion, a drop of €700 million on the same period in 2016 which, the company says, reflects “the strong focus on cash and debt management.”
However, although like-for-like sales were up in Europe and the Americas, sales in Asia dropped by 8 per cent as “major infrastructure projects did not progress as quickly as expected.” The group specifically singled out a challenging market environment in the Philippines which, it said, would continue into the second half of this year.
While group earnings before interest, taxes, depreciation and amortisation was up 2 per cent on a like-for-like business compared to the same period in 2016, the same metric in Asia was 39 per cent below the first half of last year.
Looking toward the latter half of the year, the company expects European growth to be ahead of that in 2016. In America, while CRH is positive on president Trump’s infrastructure announcements, it also expects higher input costs. However, it still expects US earnings to be ahead of 2016 levels.
Referring to the Fixing America’s Surface Transportation (FAST) Act, Mr Manifold said: “It’s clear that infrastructure funding in the states will be around 10 per cent above the funding that has been there [in the past number of years].”
“Despite currency headwinds and continuing challenging conditions in the Philippines, we expect a continuation of the first half momentum experienced in Europe and EBITDA [earnings before interest, taxes, depreciation and amortisation] growth in the Americas, which will result in another year of progress for the Group,” Mr Manifold said.
Analysts were broadly positive on the news with Investec analyst Gerard Moore writing: “In our view the market will like this decision as it will see the Group clearly taking an active approach to portfolio management.”
Davy analysts Robert Gardiner and Barry Dixon advised clients that the Americas distribution sale highlighted “compelling value in the current share price.” However, Goodbody analyst Robert Eason said that they were “likely to be nudging down forecasts” due to the challenging Asian market and higher US input costs.