CRH has come a long way since it was formed through the merger of Cement Limited and Roadstone in 1970. At that time it was the sole producer of cement in Ireland, and 95 per cent of sales came from Ireland. Now it employs around 76,000 people at 3,600 locations across 36 countries, and its product range has increased substantially to include asphalt, aggregates, concrete, construction accessories and roofing. And its revenue stream is usefully divided - roughly three ways between residential, non-residential and infrastructure.
- US operation grows
- Further cost reductions planned
- Shares expensively rated
- European markets weak
- Overall growth this year expected to be near zero
- Dividend threatened
However, all is not well. While first-half sales in the US rose 20 per cent to €4.02bn (£3.2bn), sales in Europe fell 5 per cent to €4.6bn. On a like-for-like basis - which excludes the impact of acquisitions, disposals and exchange rate movements - underlying group sales were flat, as were operating profits at €184m.
In the US, benign weather at the start of the year was responsible for much of the growth on the materials side - which includes aggregates, asphalt and concrete - and the pace of growth was slowing by the end of the first half. A similar trend was seen in the products division, which produces pre-cast concrete products; while the distribution side, which trades as Allied Building Products, delivered like-for-like sales growth of 5 per cent. But overall, CRH's bosses reckon that growth rates will continue to slow for the rest of the year.
By contrast, European operations struggled to cope with lousy weather. February's extremely low temperatures meant that, even with an element of catch-up, like-for-like sales on the materials side slipped 2 per cent. Meanwhile, price rises of around 2 per cent were insufficient to recoup higher input costs, but operational efficiencies left underlying profit margins little changed. The products division was worse hit, with like-for-like sales down 5 per cent, reflecting a particularly poor performance in the Netherlands and France. The usual culprits played a part, with declining consumer confidence and cutbacks in government and municipal spending providing the gloomy backdrop. On the distribution side, a resilient performance in Germany (20 per cent of sales) was swept away by declines in Switzerland and the Netherlands (60 per cent of sales). Developments in Spain added more gloom, prompting CRH to write down the value of its 26 per cent stake in construction group Uniland by €130m.
| CRH (CRH) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,188p | MARKET VALUE: | £8.58bn | |
| TOUCH: | 1,188-1,189p | 12-MONTH HIGH: | 1,414p | LOW: 960p |
| DIVIDEND YIELD: | 4.2% | PE RATIO: | 19 | |
| NET ASSET VALUE: | 1,151p | NET DEBT: | 37% | |
| Year to 31 Dec | Turnover (€bn) | Pre-tax profit (€bn) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2008 | 20.9 | 1.63 | 210.2 | 62.2 |
| 2009 | 17.4 | 0.73 | 88.3 | 62.5 |
| 2010 | 17.2 | 0.53 | 61.3 | 62.5 |
| 2011 | 18.1 | 0.71 | 82.6 | 62.5 |
| 2012* | 18.7 | 0.66 | 77.4 | 62.5 |
| % change | +3 | -7 | – | nil |
Normal market size: 2,000 Matched bargain trading Beta: 1.6 *Numis estimates (profits and earnings not comparable with historic figures) £1 = €1.257 | ||||
CRH has responded to the weak outlook by extending its cost-reduction programme into next year. It delivered savings of €50m in the first half of this year, bringing cumulative annualised savings since 2007 of €2.1bn, of which over 40 per cent is recurring.
And CRH's dividend delivers a decent enough yield, but the payout, which hasn't been increased since 2009, is under pressure. In 2007, the 61.3¢ payout was covered 3.9 times by earnings. But last year cover was down to 1.3 times and, on forecasts from broker Numis, it will be just 1.2 times for 2012.
But CRH has an established business. Last year it ranked as number one for sales of asphalt and concrete products in the US, with similar high standings in Europe and developing areas, such as Poland and China. It's also busy adding bolt-on acquisitions, spending €256m in the first half on 18 such investments, a marked acceleration from the €163m spent a year earlier. This should leave the group well placed when economic conditions improve, but there is little indication that trading is about to improve in the US or Europe. True, the US Federal Reserve has introduced further stimuli through another round of quantitative easing, but that indicates that the US economy is closer to stalling than reviving.
