CRH cuts costs and eyes emerging markets

CRH cuts costs and eyes emerging markets
21 November 2012

CRH showcased a credible, bottom-up cost savings plan during its recent analyst day in London, UK. Cost savings are expected to offset more than 75% of the impact of lower volumes as the group presented an additional E450m of cost savings during 2012-15.

“Targets appear achievable and weighted towards the heavy-side Materials businesses in Europe and the Americas, where logistics, procurement, back office efficiency and energy appear to be the key levers,” said JP Morgan in its latest research note.

However, the company’s near-term outlook remains challenging as Europe continues to decelerate with CRH’s key Benelux and Poland markets in for a tough time. While Germany, France and Switzerland appear stable, the uncertainty causes concern among investors. On the positive side, the US private sector is showing signs of improvement, particularly in the residential area. Nevertheless, infrastructure spending, crucial to CRH, can only look forward to a flat trend for 2013.

The emerging markets remain a significant opportunity for CRH, which has traditionally grown in developed markets. India presents a key focus for the building materials producer, particularly the southern region. The group’s recent interest in the Jaypee assets underline management interest in the market and suggest that in time, the company may well expand outside of Andhra Pradesh.

Furthermore, when in early 2013 the option to increase its holding in Yatai Cement, China, from 26 to 49% becomes available, it is likely that CRH will make the most of it. The establishment of a Singapore office and its assessment of Southeast Asia – especially Myanmar, Philippines and Indonesia – as a potential market also point to an interest in emerging countries, which could reduce the group’s cyclicality and expand cashflows.

However, for CRH to become more balanced between developed and emerging markets, considerable investment will need to be made over the coming years. “Joint venture entry into new markets and the proven strategy of measured vertical expansion from platform investments are likely to remain the order of the day, a strategy with which we remain very comfortable,” comments JP Morgan.

Published under Cement News

Tagged Under: market entry Cost-cutting CRH