CRH to spend big on back of €2.2bn US sale

Building materials giant CRH has said it is ready to act further on what it sees as “a strong pipeline” of acquisition opportunities in light of selling part of its US operations for $2.6bn (€2.2bn).

The Dublin-headquartered group yesterday dovetailed a strong set of interim results with the announcement that it has agreed the $2.6bn sale of its Americas Distribution division subject to regulatory approval.

It has also agreed to acquire German lime and aggregates business Fels, for €600m; a business it has courted for some time and which will fit with the group’s European Heavyside division.

“We have the balance sheet capacity and fully intend to use it,” CRH chief executive Albert Manifold said yesterday, adding that while the deal pipeline is strong the group will remain “careful and selective” in its choices.

It is most likely to buy further in existing product areas and geographies – namely Europe and the Americas – with Mr Manifold saying CRH is “highly unlikely to do anything heroic in emerging markets anytime soon” - largely due to challenging conditions in the Philippines.

CRH spent €632m on 13 acquisitions in the first half of the year; the Fels deal now boosting this year’s spend to over €1.2bn with more likely to come. Analysts suggest the group has headroom for up to €4bn worth of deals, while management is keeping with its €2bn-€3bn spend capacity for 2017-2019.

“CRH has now completed €1.2bn of acquisitions at an earnings-enhancing multiple. With €4bn financial capacity, CRH’s acquisition options are now significantly greater. We expect further bolt-on deals over the coming months,” said Darren McKinley at Merrion Private.

The sale of the Americas Distribution business – part of the wider CRH group for the past 20 years – has come about due to the lack of acquisition opportunities impacting on growth.

The division has performed well of late but has, historically, based its growth strategy around acquisitions.

The first six months of this year saw CRH generate total group revenue of just under €13bn, 2% up on the same period last year.

Pre-tax profits were up 27%, on a year-on-year basis, at €517m and operating profit was ahead by 10% at €647m.

Earnings – on an EBITDA basis – grew 5%, year-on-year, to €1.17bn. Basic earnings per share were 29% ahead at 43.5c and a 2% increase in the interim dividend per share – to 19.2c – was awarded.

Net debt was reduced by €700m to €6.4bn and the group’s debt is now down to 1.3 times earnings on the back of the latest sale.

The first half saw solid revenue growth across its three Americas divisions (including the distribution arm) and stabilising growth trends in key European markets. Mr Manifold said management expects to see better year-on-year earnings in the second half and “another year of progress” as a whole.

“For the second half of the year, despite currency headwinds and continuing challenging conditions in the Philippines, we expect a continuation of the first half momentum experienced in Europe and EBITDA growth in the Americas, which will result in another year of progress for the group,” he said.

Down nearly 8% since the start of the year, CRH’s share price was up nearly 4% yesterday.


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