CRH revises 2011 EBITDA guidance, changes primary listing

CRH revises 2011 EBITDA guidance, changes primary listing
Published: 08 November 2011

CRH published its 3Q11 Interim Management Statement with like-for-like sales showing growth of approximately four per cent in the 3Q. Overall sales for the quarter were up three per cent ahead of last year (2010: €5.1bn), with cumulative sales for the nine months to September now five per cent up (2010: €12.8bn).

On a constant currency basis, EBITDA in the third quarter registered a five per cent decline. This, combined with an adverse impact of exchange rate movements, resulted in overall EBITDA for the quarter of €0.65bn, leaving cumulative EBITDA for the first nine months in line with last year (2010: €1.2bn).

Due to inclement weather conditions in the US during September CRH now expects to report 2011E EBITDA of EUR1.6bn, which is around eight per cent below JP Morgan estimates and consensus. The company has revised its target to deliver total gross savings of EUR150m this year (previously: EUR136m) with costs associated to implement them remaining at c. EUR36m.

Since its Interim Results announcement in mid-August CRH have completed a further eight transactions bringing year-to-date acquisition and investment expenditure to approximately €450m, split broadly evenly between its Europe and Americas operations. In the absence of further acquisitions for the remainder of 2011, it expect year-end debt to be lower than the €3.5bn at end-2010.

CRH reported a moderation in European group growth as like-for-like sales improved by 3% in Q3, following a 7% improvement in H1-2011. The company expects full year EBITDA for these operations to be ahead of last year (2010: €0.84bn). While activity in the austerity economies of Ireland, Portugal and Spain continued to decline, construction activity in the more stable Finland and Switzerland markets continued at relatively strong levels. Following the positive start to the year in Poland, with first-half volumes benefitting from more normal weather patterns, the rate of YoY increase in cement volumes moderated as expected in the third quarter but remained well ahead of 2010. In Ukraine, the commissioning of the new dry-process cement plant is progressing well but higher running costs on the existing wet-process facility continued to have a negative impact on trading in the third quarter. Strong performance on the back of good pricing continued to benefit joint ventures in India and the associate in China. Despite the benefits of price increases implemented during the first half, higher input costs continued to put pressure on margins, and EBITDA for the quarter was broadly in line with 2010. CRH expect full year EBITDA from the division to be similar to last year (2010: €423m).

America Materials is expected to report a 10% decline in 2011E EBITDA. Like-for-like revenues from CRH’s Americas operations improved by 3% in the quarter. The group expects to report EBITDA at similar levels to last year on a constant currency basis (US$1.0bn). Despite higher contributions from the Products and Distribution divisions, the Materials division is expected to report a 10% decline for the full year mainly as a result of adverse weather in the US in

Going forward, JP Morgan notes that CRH’s business requires good conditions in the US construction and infrastructure industries, which remain soft. A new multi-year Highways Bill would make a significant difference to the outlook, the prospects for which seem to be improving but whether it arrives sooner rather than later is hard to forecast. While there are some signs of better housing demand and spots of light in the gloom of commercial construction, it is nowhere near enough to fuel growth in the US business.

Outside the US, growth in the group’s Western and Eastern European businesses is likely to ease somewhat and its Indian and Chinese exposure is more challenging than it was six months ago. However, the group has a strong balance sheet and perhaps the weaker global conditions could throw out some opportunities for M&A at attractive prices. It is hard to see the shares outperforming the sector until signs of improving conditions in the US are seen, in JP Morgan’s view.

Meanwhile, CRH said it is to apply for inclusion in London’s FTSE 100 index. As part of the move, CRH, which is currently  listed on Dublin’s Iseq, will move its primary listing from Dublin to London.

In a statement today, the company said that from 9 November its ordinary shares listed in London will trade in sterling pence rather than in euro. Its ordinary shares will continue to trade in euro in Dublin.

CRH said that in recent years, as the international operations and  profile of CRH plc have grown, the proportion of the group’s shares held by overseas investors has increased significantly. In addition the majority of trading in CRH’s Ordinary shares now takes place on the London Stock Exchange (LSE) with trading of CRH on other London based  platforms also increasing.

The company said it believed FTSE inclusion would result in a further increase in UK and international investor awareness of CRH. Chief executive Myles Lee said: “We believe that these listing arrangements are in the best long-term interests of CRH and will increase the group’s attractiveness to a wider international investor base.