CRH commits to UK business as it defends itself against activist criticism

CRH commits to UK business as it defends itself against activist criticism
CRH chief executive Albert Manifold

CRH has said it remains committed to its UK business, despite falling profits and a looming Brexit, and has defended itself against recent criticism from one of its key shareholders.

In June, the head of Cevian Capital - Europe's largest activist investor which bought into CRH early this year - said the Irish building materials group is "too complex" and needed to implement extensive structural improvements to significantly boost its value.

Speaking on the back of a strong set of financial results, CRH chief executive Albert Manifold said the group is a constantly changing business; dependent on two regions - of North America and mainland Europe - actively disposing of non-core assets; and generating more than 80% of its earnings from cement, aggregates, asphalt and concrete.

CRH has previously said it has "good interaction" with all shareholders, but has already seen fit to defend its organic growth capabilities after it was suggested Cevian viewed its growth as being too acquisition-focused.

The results showed CRH generated record earnings of €1.54bn for the first half of the year. That figure was up 36% on the same period last year. First half revenue showed an 11% improvement to €13.2bn. Mr Manifold said further progress is expected in the second half, with "good momentum" continuing into the third quarter of the year, particularly in North America, which also drove first half growth.

The Americas Materials division grew first half revenues and earnings by 26% and 69% respectively. In comparison, the Europe Materials businss saw 7% revenue growth and a 17% improvement in earnings. The group's shares fell by nearly 2% on the back of the results.

CRH's main European focus is on the central and eastern part of the continent. However, it said it remains committed to its UK operations, despite a darkening mood around Brexit. UK sales volumes were largely down, in the first half, against a backdrop of lower commercial, housing and retail construction activity. That said, price increases and acquisitions boosted revenues, although higher input costs and squeezed volumes dragged operating profit down.

Mr Manifold refused to comment on potential further asset disposals - the group's divestment strategy raising €7bn over the past five years - but said CRH has no plan to offload its UK business, saying it remains a core element and it is still not clear how much Britain intends to invest on infrastructure after leaving the EU.

CRH also used its half-year results to, as expected, announce a third share buyback round in a little over a year. Another €350m in surplus cash will be returned to shareholders by the end of this year. The group has already returned €1.35bn to investors - over two buyback rounds - since May of last year.

This move, management said, will not dent further acquisition intentions. So far this year, CRH has spent nearly €500m on bolt-on acquisitions - €320m on 28 deals in the first half and a further €150m on eight more deals since the end of June.

"We have a mandate to grow our business; we won't buy-back our way to success," Mr Manifold said.

He said the group has "plenty of options" to deal with positive cash generation including re-investing in the business, paying dividends and buying back shares. However, he said the group will continue to grow via acquisitions as well.

While continued smaller bolt-ons are the likely route, in that regard, Mr Manifold did not rule out further big-ticket purchases, although stressed that no deal of huge scale is currently on the cards.

"That's not to say we mightn't be tempted...We can't rule anything out," he said.

Mr Manifold said CRH's history is based on being opportunistic.

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