CRH seen beating cost savings target as focus turns to Tarmac

Building material giant CRH, which spent €6.5 billion on its largest-ever deal in 2015, is likely to beat its own savings target from the transaction as it turns its focus to taking out head-office costs in Tarmac, the UK's largest quarrying company, according to analysts.

Tarmac, which analysts estimate has between €2.5 billion and €3 billion of sales last year, was a key part of the group of businesses CRH acquired from European rivals Lafarge and Holcim in 2015 as they sought regulatory approval for their own merger. On a conference call with analysts last week, after CRH reported a 41 per cent surge in operating earnings to a record €3.13 billion for 2016, the group signalled it was in the middle of a "pretty serious review" of Tarmac costs at the moment.

"CRH may be able to achieve around €10 million of cost savings from its review of Tarmac, which will mainly be focused on taking out administrative and central costs within the UK," said Gerard Moore, an analyst with Investec in Dublin.

Synergies target

Another analyst, who declined to be identified, estimated that savings from the project could be as high as €20 million, and that the group may also look at selling small parts of the Tarmac business if they are underperforming. While CRH last year raised its synergies target from the Lafarge-Holcim deal by a third to €120 million, Goodbody Stockbrokers analysts estimate the group’s final benefit will reach €150 million.

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Wolverhampton-based Tarmac has been through a series of changes in recent years. Founded in 1903, the once-FTSE 100 component was acquired by UK mining group Anglo American in 1999. Anglo American merged the business with French group Lafarge's UK operations in 2013 to form Lafarge Tarmac. CRH acquired the business a year later as part of its €6.5 billion deal with Lafarge and Holcim and renamed the unit Tarmac.

“Tarmac, when we bought the joint venture Lafarge Tarmac as part of the deal, was in the process of being set up for an IPO [initial public offering],” said Kenneth McKnight, president of CRH’s European heavyside business, signalling that the group was looking at taking out head-office costs above the operating companies.

Meanwhile, CRH said that while the Tarmac business, which has effectively made the UK the group’s second most important market after the US, had seen a bit of a slowdown in activity last summer as a result of the Brexit vote, demand had picked up from September, driven by the infrastructure and residential markets.