The Queensferry Crossing near Edinburgh used 100,000 rebar couplers manufactured by CRH subsidiary Ancon © Getty
CRH, a global building materials supplier, takes sustainability seriously. In a recent report on the subject, the FTSE 100 company committed to “yield optimisation, increased recycling, waste reduction, energy efficiency”. And it seems that what works for our shared environment works for shareholder emolument, too. Recycling capital is also cutting waste and yielding much more efficient results.
CRH on Thursday revealed its latest way of optimising the yield from its businesses: selling its US distribution operation to Beacon Roofing Supply for $2.6bn, or 16 times earnings before interest, tax, depreciation and amortisation, and buying German lime and buying aggregates business Fels for €600m, or just 7 times ebitda.
Chief executive Albert Manifold described the process as simply disposing at double digit multiples and reinvesting at single-digit multiples — a level from which it is possible to create value for shareholders. UBS analysts praised it as sensible “asset rotation” — which one would hope for in a company that handles millions of tonnes of cement. This rotation “unlocks material value considering CRH’s own trading multiple of 8.5-9 times”, they noted.
Dublin-based CRH actually began its capital recycling process a few years ago, after the financial crisis left it with something of a clean-up operation.
Since 2013, it has divested itself of €2bn of businesses, and sought acquisitions that deliver more obvious opportunities for efficiency. A $6.5bn acquisition of cement assets being sold by the merging Lafarge and Holcim in 2015 brought economies of scale. A $1.3bn deal for CR Laurence, a US glazing company, complemented CRH’s other materials operations. Total shareholder return in the past four years has been 113 per cent.
Such efficiencies are still needed. In the six months to June 30, sales were up only 2 per cent, and it was margin improvement that helped lift ebitda growth to 5 per cent.
But demand — particularly in the US where CRH derives nearly two-thirds of earnings — looks robust. Although the group had been a beneficiary of president Obama’s FAST policy for fixing US infrastructure, future work is not dependent on his successor’s priorities, or resort properties. A 10 per cent increase in state and federal funding for 2017-21, to $455bn, has already been secured. US residential property construction is similarly underpinned by a population growth rate of 30m every 10 years.
CRH just needs to keep recycling its capital in the same way certain Irish analysts do their old jokes. One can almost sense their delight in being able to write, yet again, that “cement . . . was more mixed”, while “aggregate volumes declined”.
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