CRH plc, the international building materials group, today announces 31 acquisition initiatives totalling euro 400 million undertaken during the second half of 2006.
These initiatives are in addition to the acquisition of a 50% stake in American Cement Company for a cash outlay of US$ 50 million (euro 39 million) announced on 1 August 2006 and the acquisition of Ashland Paving & Construction (APAC), announced on 21 August 2006, for US$ 1.3 billion (euro 1.0 billion). Taking into account subsequent selective disposals of non-core APAC asphalt and contracting activities for US$195 net of tax, announced on 12 December 2006, total net acquisition spend for the second half of 2006 amounted to approximately euro 1.3 billion.
This combined with a first half acquisition spend of euro 0.8 billion results in a record net acquisition spend of approximately euro 2.1 billion for 2006.
Commenting on these developments, Liam O’Mahony, CRH Chief Executive, said:
“Development momentum in 2006 has been very strong with a total 69 acquisitions concluded, including APAC, the largest single transaction completed by the Group. This record euro 2.1 billion acquisition spend will be an important factor in further driving growth across all CRH divisions.”
The initiatives contained in this Development Strategy Update are as follows:
- Europe Materials - 4 acquisitions and 1 joint venture investment for euro 47 million
Four bolt-on transactions were completed, further expanding existing operations in Ireland, eastern Europe and Portugal. In addition, the Division invested in bitumen storage facilities in Ireland. - Europe Products - 7 acquisitions for euro 121 million
The Concrete Products group completed CRH’s first acquisition in Italy and acquired three other businesses in Germany, Belgium and France. The Building Products group expanded its construction accessories platform with the acquisition of an Irish business; entered a new niche sector by acquiring a leading Dutch roller shutter and awnings business; and purchased a fencing business in the UK. - Europe Distribution - 3 acquisitions for euro 18 million
Three acquisitions in the Netherlands, Switzerland and France added a total of four builders merchants outlets to our existing branch network in Europe. - Americas Materials - 7 acquisitions for euro 69 million
Four bolt-on acquisitions were completed by Americas Materials in the Central region and a further three acquisitions strengthened its operations in the West. - Americas Products - 5 acquisitions for euro 53 million
The Precast Group completed two acquisitions, one in Georgia and one in California. The Architectural Products Group also completed two acquisitions, in Iowa and North Carolina. The Glass Group acquired a leading Toronto-based manufacturer of curtain wall systems. - Americas Distribution - 4 acquisitions for euro 92 million
Three interior product acquisitions were completed by the Distribution Group; one in Texas and two in Florida. A roofing and siding distributor on the Hawaiian Islands was also acquired. These four transactions added 12 locations to the Distribution Group's existing branch network.
Full year 2006 Trading update statement
CRH plc, the international building materials group, today issues this trading statement for the year ended 31 December 2006. The Preliminary Results for 2006 are due to be announced on Tuesday 6 March 2007.
Highlights
- Against a background of higher input costs and declining US residential construction, CRH has once again performed strongly in 2006 to deliver record full year organic growth and a significant incremental contribution from acquisition activity of euro 3.3 billion over the past eighteen months. As a result, full year profit before tax is expected to be approximately euro 300 million ahead of the euro 1,279 million reported for 2005; this would represent an increase of over 23%.
- Total acquisition expenditure in the second half of 2006 amounted to euro 1.3 billion (net of selective APAC disposals) resulting in a record full year acquisition spend of approximately euro 2.1 billion.
- In Europe Materials, after a good first half operating profit improvement, stronger momentum in the more profitable second half is expected to result in a very satisfactory profit advance for 2006.
- With Europe Products experiencing good acquisition contributions and stronger underlying second half trading we anticipate a much improved full year operating profit outturn and a welcome step-up in operating margin.
- Europe Distribution operating profit is expected to be substantially ahead of 2005 levels reflecting satisfactory acquisition contributions and good organic growth.
- Americas Materials achieved significant success in the recovery of higher input costs and, despite softer volumes, we expect a substantial organic operating profit advance in 2006 and a further recovery in underlying operating margin. This combined with good acquisition contributions is expected to result in an excellent outcome for 2006.
- Americas Products is expected to deliver a good full year profit advance and an improved underlying operating profit margin, excluding acquisition effects.
- Against a generally positive backdrop, full year operating profit from Americas Distribution is expected to show good growth with margins similar to the excellent level achieved in 2005.
- With an ongoing focus on price and cost effectiveness across our operations, further benefits from the record 2006 acquisition spend and a sustained emphasis on development, we expect to achieve further progress in the year ahead.
Overview
CRH performed strongly in 2006. First half activity benefited from an especially strong performance from our operations in the Americas and an improved performance in Europe resulting in a euro 143 million increase in profit before tax to euro 526 million (2005: euro 383 million). In the second half, trading across our European businesses gathered momentum and, although US residential construction declined, our American operations continued to perform well. Contributions from our 2006 acquisitions were in line with expectations but the high level of acquisition spend, coupled with rising interest rates, resulted in a significant increase in financing costs. Against this backdrop and helped by generally favourable weather in the final months, profit before tax in the seasonally more significant second half will show a very satisfactory advance. As a result full year profit before tax is expected to be approximately euro 300 million ahead of the euro 1,279 million reported for 2005; this would represent an increase of over 23%.
The average 2006 US$/euro exchange rate of 1.2556 showed relatively little change compared with 2005 (1.2438).
Europe Materials
In Ireland, the continuing strong residential market was again the main driver of activity. The commercial and industrial sectors remained strong while the National Development Plan continued to deliver good roads and infrastructure activity. Our operations in Finland benefited from stronger housing demand, increased commercial and industrial construction and a number of major infrastructure projects resulting in good volume increases, better prices and improved profitability. Our businesses in the Baltic States and St. Petersburg also delivered a better outcome.
Construction demand in Polandduring the year proved particularly robustwith an increase of over 20% in our cement volumes. Although pricing remained competitive, good marginal contributions on higher volumes in cement and downstream operations resulted in a significant advance in operating profit. In the Ukraine better volumes, efficiency gains and improved pricing more than offset the impact of severe gas cost increases resulting in higher operating profit.
In Switzerland, as expected, the completion of the concrete-intensive stages of the major Loetschberg alpine tunnel led to a reduction of approximately 10% in our cement volumes. However, with better cement prices and a good advance in profitability in downstream readymixed concrete, aggregates and asphalt operations overall results improved.
While our Spanish readymixed concrete and concrete products operations had healthy volume increases due to strong residential and infrastructure demand, higher input costs and increased competition put pressure on margins resulting in a profit outcome broadly similar to 2005. The Group’s 26.3% associate stake in Spanish cement producer Corporacion Uniland will be accounted for using the equity method in reporting 2006 results. In Portugal, construction declined reflecting reduced activity in housing and a significant reduction in public expenditure. Despite this decline in domestic demand, our Secil joint venture in cement and downstream products had a satisfactory year helped by strong demand in export markets and tight cost control.
After a good first half operating profit improvement, stronger momentum in the more profitable second half is expected to result in a very satisfactory profit advance for 2006.
Europe Products
Our Products operations benefited from improving markets particularly in the second half of 2006
In Concrete Products, structural operations (floor & wall elements, beams, vaults and drainage products) delivered excellent results with better market demand in Netherlands, Belgium, France, Denmark and Poland. Despite a slow start our architectural operations (pavers, tiles and blocks) were well ahead of last year helped by advances in Belgium, Denmark and Slovakia and by a full year’s contribution in France from Stradal, which was acquired in August 2005. Market conditions in Germany continued to be difficult but our focus on internal improvements and sales prices resulted in a better performance. These positive trends far outweighed the adverse impact of continued price competition in our Dutch architectural operations and poor UK market conditions. With benefits from 2005 and 2006 acquisitions and excellent organic growth, overall profitability in Concrete Products advanced strongly.
In Clay Products, while UK brick demand continued to decline during 2006 and production shutdowns implemented early in the year negatively impacted first half profitability, good cost control and price increases resulted in maintained second half profitability. The overall decline in UK profitability was offset by a better outcome from our Mainland European operations with our Polish and Dutch businesses delivering good improvements.
In Building Products, although Insulation operations continued to experience severe volatility in raw material costs, restructuring initiatives and good cost control delivered an improved performance. The enlarged Construction Accessories business benefited from the Halfen-Deha acquisition, completed in May, and from increased profit in heritage operations. Fencing & Security turned in better results despite competitive markets and higher input costs. Against a continuing competitive trading backdrop Daylight & Ventilation maintained 2005 operating profit levels.
With good acquisition contributions and stronger underlying second half trading we anticipate a much improved full year operating profit outturn and a welcome step-up in operating margin.
Europe Distribution
DIY: despite improved consumer confidence, the DIY market in the Benelux showed only moderate growth for 2006 as a whole. Against this backdrop our branch network reported another satisfactory year with improved profitability. Bauking, the German builders merchant and DIY business in which CRH acquired a 48% stake in December 2005, delivered sales and profits in line with expectations. Our DIY joint venture in Portugal made good progress opening one further location following five such openings in 2005.
Builders Merchants: With a strong recovery in new housing activity, 2006 saw increased momentum and profitability inour Dutch businesses. Our French operations also advanced with good market demand and benefits from profit improvement measures of recent years. Our Swiss businesses delivered a significant increase in profitability through a combination of acquisition benefits and organic growth.WhileQuester, the leading Austrian builders merchant acquired in October 2005, had a disappointing start to the year, following first-half re-organisation measures the business delivered a much improved performance in the second half. In Germany, Bauking’s builders merchanting activities benefited from better demand and with rigorous cost control results exceeded expectations.
Operating profit in Europe Distribution is expected to be substantially ahead of 2005 levels, reflecting satisfactory acquisition contributions and good organic growth.
Americas Materials
The Americas Materials Division had an excellent outcome achieving significant success in recovering higher energy and other input costs with average price increases ranging from approximately 10% in aggregates to well over 20% in asphalt. Non-residential demand continued to improve and while overall funding available for highway programmes showed a satisfactory improvement on 2005 levels, with relatively fixed budgets the volume of activity was impacted by the strong price increases. Against this background, and as expected, heritage volumes registered a decline of approximately 3% to 4% in aggregates and asphalt and of approximately 2% in readymixed concrete.
In New England, a very strong year in Massachusetts and improved trading in New Hampshire and Vermont more than offset a lower outcome in Connecticut and Maine as both states reduced highway spending. In New York/New Jersey our businesses serving the New York metro area delivered record results reflecting stable demand, real price increases and internal cost efficiencies, while in Upstate New York both our Albany and Rochester businesses advanced.
The Central region delivered record results with strong price improvements and benefits from its bitumen winter-fill programme which mitigated significant bitumen cost increases during the busy highway paving season. Although activity in Michigan continued to suffer from poor public and private markets, our businesses made progress. Mountain Companies, acquired at end-October 2005 and now part of Central region’s Appalachian Mountain Group, had a satisfactory year, although volumes were somewhat lower than anticipated due to higher product prices. The West region delivered another excellent outcome as, with the exception of Iowa, local economies remained strong contributing to generally buoyant demand and an improved pricing environment.
Integration of Ashland Paving And Construction (APAC), acquired at end-August, has progressed well with the ongoing realisation of near-term synergies and selective disposals of peripheral contracting and asphalt units. Underlying trading in the business, for our first four months of ownership, was in line with expectations and we expect a satisfactory operating profit contribution, post-integration costs. APAC’s structurally lower margins and integration costs will of course impact the overall Americas Materials operating margin.
With significant success in the recovery of higher input costs, and despite softer heritage volumes, we expect a substantial organic operating profit advance in 2006 and a further recovery in heritage operating margin. This continues the strong progress achieved in 2005 which combined with good acquisition contributions is expected to result in an excellent outcome for 2006.
Americas Products
Following a very strong first half, the demand backdrop and underlying growth rates for our Americas Products operations moderated through the second half of the year as residential construction activity declined. However, overall second half demand remained broadly positive helped by strong and growing non-residential markets which offset the ongoing residential decline. Regionally, our operations in the western and southeastern states performed particularly well in strong overall markets, while the Midwest operations improved on 2005. Results from northeastern operations were weaker.
The Architectural Products group (APG) faced tougher residential markets in the second half, particularly in Northeast and Midwest but delivered a robust performance for 2006 as a whole, despite a disappointing performance in bagged soil and mulch activities which operated in a very difficult pricing environment. Our Precast businesses had another record year with growth in commercial and infrastructure construction, good cost control and effective price management leading to improved profits and margins. The Glass Group had an excellent year with increased non-residential activity and demand for energy efficient and laminated architectural glass products contributing to very strong organic growth. MMI, our new mainly non-residential oriented product platform acquired at end-April, was affected by weakness in its less significant residential product segments. Due to its particular business mix, MMI's operating profit margin is much lower than in our existing APG, Precast, and Glass activities.
Overall, these activities are expected to deliver a good full year profit advance and an improved underlying operating profit margin, excluding acquisition effects.
Americas Distribution
While the latter months of the year saw declining demand in the new-build segment, 2006 was another year of growth for Americas Distribution with good performances from both heritage and acquired businesses. Replacement demand, particularly for roofing/siding products, remained generally robust throughout the year. Florida roofing/siding experienced a decline in the second half of 2006, following 24 months of unusually high activity levels generated by extensive storm damage during the 2004 and 2005 hurricane seasons. The last two years have seen a major expansion of our interior products activities (wallboard, steel studs and acoustical ceiling systems) and 2006 had the benefit of excellent incremental sales and operating profit contributions from acquisitions in this segment.
Against a generally positive backdrop, full year operating profit is expected to show good growth with margins similar to the excellent level achieved in 2005.
Acquisitions
First half acquisition spend amounted to euro 0.8 billion. This included the purchase of MMI Products, a US manufacturer of fencing products, welded wire reinforcement and construction accessories, and Halfen-Deha, a leading European producer of metal construction accessories used in commercial, civil engineering and residential construction, along with 34 other acquisitions across our various product segments.
The second half of the year was notable for the completion of the Group’s largest ever transaction with the acquisition of Ashland Paving And Construction, Inc. (APAC), a leading US aggregates, asphalt and heavy highway construction company, for a total consideration of $1.3 billion. Subsequent selective disposals prior to year end of non-core asphalt and highway construction units in line with the re-focusing of APAC’s activities reduced the net outlay to approximately $1.1 billion. In addition the Group invested $50 million in a 50% equity stake in American Cement Company which was formed to develop and operate a new cement plant in central Florida. These, combined with 31 other second half acquisitions at a cost of euro 0.4 billion, resulted in total second half acquisition expenditure of euro 1.3 billion and a record full year acquisition spend of approximately euro 2.1 billion.
Financial
While cash generation has remained strong, development activity and rising interest rates will result in a substantially higher full year interest charge compared with 2005. However, with improved profitability, Group EBITDA/net interest cover for 2006 is expected to exceed 9 times providing significant ongoing capacity to avail of attractive acquisition opportunities as they arise.
Outlook
Against a background of higher input costs and declining US residential construction, CRH has once again performed strongly in 2006 to deliver record full year organic growth and a significant incremental contribution from acquisition activity of euro 3.3 billion over the past eighteen months.
