CRH expands into Scandanavia with £327m acquisition

CRH has completed a major strategic move to expand its operation into Scandinavia and eastern Europe with the acquisition of Scancem's Finnsementti and Rudus operations for €415 million (£327 million).

It is CRH's second biggest acquisition ever, behind the £369 million paid for British brick manufacturer Ibstock last year and will expand the group's operations to Finland, the Baltic states of Estonia and Latvia as well as a small operation in St Petersburg in Russia. It will also add substantially to CRH's operations in Poland where the group already is a major manufacturer of cement.

Finnsementti and Rudus, which have combined sales of €245 million (£193 million), earnings before interest, tax and depreciation of €64 million (£50.4 million) and trading profits of €51 million (£40 million) are being sold by Scancem separately from the German and British businesses sold to German group Heidelberger last week for £1.5 billion.

CRH had been touted as an interested party in the businesses bought by Heidelberger, but CRH finance director Mr Harry Sheridan said yesterday: "We never made any secret of the fact that these (Finnsementti and Rudus) were the operations we were interested in."

Mr Sheridan said: "It's a very good deal for us, a clean deal not needing shareholder approval and we had the cash in place," he said. He added that the €415 million represents a multiple of 6.5 times EBITDA (earnings before interest, tax and depreciation) - broadly in line with other deals in the sector in recent months. It is understood that the underbidder for Finnsementti and Rudus was the Danish group FLS.

CRH organises its business on a product rather than a geographical basis and Finnsementti and Rudus will come under the European materials division which includes operations in Ireland, Spain and Poland. "It's a good, profitable business and is strongly cash-generative, it gives us a good base in the region and has a strong management team which has successfully expanded into the Baltic states," said Mr Sheridan.

Mr Sheridan said that the Rudus aggregate and readymix operations in Poland would eventually be integrated with CRH's existing Ozarow cement business. He added that the Rudus operations in St Petersburg were modest but are the only such operations in the region operated by a western company. "We're not going to go charging into Russia," he added.

In Finland, Finnsementti is the sole cement producer and produces 1.4 million tonnes of cement from two plants, with five terminals around the country. As well as being the second biggest manufacturer of concrete in Finland with 42 depots, Finnsementti also has 90 aggregates operations in the country.

The next biggest Rudus operations are in Poland where the group has 10 aggregates quarries, five aggregates depots, three readymix operations and a cement distribution centre. The expansion into Estonia and Latvia took place in 1997 and so far the investment has been modest.

Mr Sheridan said after the acquisition, CRH's debt-equity ratio will still be no more than 50 per cent with the interest charge covered six times by operating profits. "That means that we don't have to stand still, we have 14 teams in the world looking for add-on acquisitions and we will be able to fund those."