CRH PLC Record EBITDA delivered at €3.37 billion

CRH PLC (LON:CRH)  today announced 2018 Full Year Results

Key Points

· Record EBITDA1 delivery at €3.37 billion

· Continued profit growth and margin improvement amid weather disruption and an inflationary cost environment

· Strong financial discipline maintained with €2.4 billion operating cash flows from continuing operations and year-end net debt/EBITDA of <2.1x

· Share buyback programme continues; €0.8 billion returned to shareholders in 2018

· Dividend per share increased 6% to 72.0c

· Profit improvement programme progressing well

Trading Highlights

· Sales of €26.8 billion, 6% ahead of 2017

· Like-for-like sales ahead 3%; up 2% in Europe, 4% in the Americas and 8% in Asia

· EBITDA of €3.37 billion, 7% ahead of 2017

· Like-for-like EBITDA ahead 3%; up 3% in Europe and the Americas and down 44% in Asia

· EBITDA margin of 12.6% (2017: 12.5%)

· EPS from continuing operations of 172.0c per share, 11% ahead of 2017 adjusted EPS (excluding 2017 one-off gains)

Albert Manifold, Chief Executive, said today:

“2018 was another year of record profit delivery for CRH. We benefited from good demand and continued favourable market fundamentals in the Americas coupled with positive underlying momentum in Europe. Both were experienced against a backdrop of energy-related input cost inflation and significant weather disruption throughout the year but with a continued focus on performance improvement and operational delivery, margins were ahead of last year. Supported by strong cash generation, we continued to deliver value through efficient capital management, completing €3.6 billion of acquisitions and €3.0 billion of disposals, while returning €0.8 billion to shareholders in the year through our share buyback programme. CRH remains well positioned to build upon the gains made in 2018. With a relentless focus on continuous business improvement, margin expansion, cash generation and returns for shareholders, together with continued strong financial discipline and efficient allocation of capital, we believe 2019 will be a year of progress and further growth for the Group.”

Overview

The overall trading environment for the Group in 2018 was positive with good demand and continued favourable market fundamentals in the Americas coupled with positive underlying momentum in Europe; both experienced against a backdrop of energy-related input cost inflation and significant weather disruption throughout the year.

Sales of €26.8 billion for the period were 6% ahead of 2017 and 3% ahead on a like-for-like basis, reflecting the benefit of acquisitions together with different dynamics in each of the Group’s regions and Divisions.

Despite harsh winter weather conditions experienced in the early months and record levels of rainfall during the year, our Americas operations benefited from a positive macroeconomic backdrop and good underlying demand in the United States (US). An organic sales increase of 4% in our Americas Materials Division was supported by continued growth across all sectors in our markets. Americas Products saw growth along the West Coast and in parts of the South, due to good residential and non-residential construction, partly offset by softness in some Northern US regions. Overall sales improved by 2% compared to 2017.

In Europe, total sales were up 4% compared with 2017 and organic sales were 2% ahead due to ongoing improvement in key markets. Performance for Europe Heavyside was positive, particularly for our operations in Ireland, the Benelux, Denmark and Poland with more challenging trading conditions in the United Kingdom (UK), due to continued Brexit uncertainty during the year. With sales 5% ahead of 2017, it was a year of progress for Europe Lightside, boosted by acquisitions in the Network Access Products and Construction Accessories platforms. Europe Distribution had a mixed performance with ongoing positive momentum in the Netherlands, particularly in residential construction, partly offset by first half challenges in Switzerland and Belgium.

In Asia, against a backdrop of strong domestic demand and accelerating government infrastructure spending, the Philippine economy continued to perform amidst inflationary pressures. However, the resultant volumes and price progress was more than offset by cost increases, particularly energy.

EBITDA for the year amounted to €3.37 billion, a 7% increase on 2017 (2017: €3.15 billion) as the benefit from acquisitions and underlying growth was partly offset by energy-related input cost inflation and the non-recurrence of a one-off past service credit of €81 million due to changes in the Group’s pension scheme in Switzerland in 2017.

Depreciation and amortisation charges in 2018 amounted to €1.13 billion (2017: €1.05 billion). In addition, an impairment charge of €56 million (2017: €nil million) was recognised in 2018 in respect of the carrying value of certain property, plant and equipment and intangible assets, including €20 million related to the disposal of the Group’s DIY business in the Netherlands and Belgium, completed in July 2018.

Divestments and asset disposals from continuing operations during the period generated a total loss on disposals of €24 million (2017: profit of €56 million). The profit after tax on the divestment of our Americas Distribution business in January 2018 amounted to €1.1 billion and is included in profit after tax from discontinued operations.

The Group’s €60 million share of profits from equity accounted investments was behind the prior year (2017: €65 million), reflecting mixed performance across the markets in which these investments operate.

After net finance costs of €351 million (2017: €349 million), the Group reported profit before tax from continuing operations of €1.9 billion in 2018 (2017: €1.9 billion). Earnings per share for the period were 33% higher than last year at 302.4c (2017: 226.8c). Continuing operations earnings per share for the year were 172.0c or 11% ahead of 2017 adjusted earnings per share from continuing operations, that also excluded the one-off impact of changes in corporate tax rates in the US and a Swiss pension plan past service credit.

Note 2 on page 18 analyses the key components of 2018 performance on a continuing operations basis.

Dividend

CRH’s capital allocation policy reflects the Group’s strategy of generating industry leading returns through value-accretive allocation of capital, while delivering long-term dividend growth for shareholders.

Further to the 5% dividend increase in 2017, an interim dividend of 19.6c (2017: 19.2c) per share was paid in September 2018. The Board is recommending a final dividend of 52.4c per share. This would give a total dividend of 72.0c for the year (2017: 68.0c), an increase of 6% over last year. The earnings per share for the year were 302.4c, representing a cover of 4.2 times the proposed dividend for the year while continuing operations earnings per share for the year were 172.0c, representing a cover of 2.4 times the proposed dividend for 2018.

It is proposed to pay the final dividend on 30 April 2019 to shareholders registered at the close of business on 15 March 2019. In connection with the share buyback programme, CRH announced the suspension of the scrip dividend scheme on 2 May 2018. Therefore the final dividend will be paid wholly in cash.

While the Board continues to believe that a progressive dividend policy is appropriate for the Group, our target is to build dividend cover to 3 times before one-off items over the medium-term and accordingly, any dividend increases in coming years will lag increases in earnings per share.

Share Buyback Programme
On 25 April 2018, the Group announced its intention to repurchase ordinary shares of up to €1.0 billion over the forthcoming 12 months. Between 2 May and 31 December 2018, 27.9 million ordinary shares were repurchased on the London Stock Exchange and Euronext Dublin for a total of €789 million, at an average price of €28.24 per share. The Group remains committed to the programme and it is expected that it will complete over the timeframe indicated.

Finance
Total net finance costs of €351 million were broadly in line with last year (2017: €349 million) as the cost of higher average debt levels in the period compared with 2017 was offset by the non-recurrence in 2018 of a one-off charge of €18 million relating to the early redemption of a portion of US dollar bonds in 2017. Finance costs included discount unwinding and pension-related financial expenses of €46 million (2017: €42 million). Excluding these non-cash expenses and the one-off charge, net debt-related interest amounted to €305 million (2017: €289 million).

The tax charge of €426 million for the year (2017: €55 million) equated to an effective tax rate (tax charge as a % of pre-tax profit) of 22.9%, compared with 2.9% in 2017. The 2017 effective tax rate was influenced by a one-off reduction of €440 million in the Group’s net deferred tax liabilities, due to changes in tax legislation related to the enactment of the “Tax Cuts and Jobs Act” in the US during 2017; excluding this, the underlying effective tax rate for 2017 was 26.5%.

Reflecting our relentless focus on cash management, the Group generated net cash flow from operating activities of €1.9 billion for the year (2017: €2.2 billion) or €2.4 billion excluding cash outflows related to the Americas Distribution discontinued operation, primarily the tax paid in respect of the profit on disposal. Year-end net debt of under €7.0 billion (2017: €5.8 billion) was in line with guidance provided in November, benefiting from strong inflows from operations and disciplined capital expenditure. Net debt to EBITDA was below 2.1x (2017: 1.8x) and, based on net debt-related interest costs, EBITDA net interest cover for 2018 was 11.0x (2017: 10.9x).

In March 2018, the Group successfully issued a total of US$1.5 billion dollar bonds, comprised of a US$0.9 billion 10-year bond at a coupon rate of 3.95% and a US$0.6 billion 30-year bond at a coupon rate of 4.5%. Concurrently, the Group redeemed the US$0.29 billion bond due in July 2018 at a make-whole price. The bond issues reflect CRH’s commitment to prudent management of our debt and the timing of the related maturities and also to maintaining an investment grade credit rating.

The Group ended 2018 with total liquidity of €5.9 billion comprising €2.3 billion of cash and cash equivalents on hand and almost €3.6 billion of undrawn committed facilities (which are available until 2023). At year end, the cash balances were enough to meet all maturing debt obligations for the next 3.1 years and the weighted average maturity of the remaining term debt was 11.5 years.

CRH also has a US$1.5 billion US commercial paper programme and a €1.5 billion Euro commercial paper programme. The purpose of these programmes is to provide short-term liquidity at attractive terms. There was no commercial paper outstanding under either of these programmes at 31 December 2018.

Development Update
In 2018, the Group spent a total of c. €3.6 billion (including deferred and contingent consideration in respect of prior year acquisitions) on 46 acquisition/investment transactions. On the divestment front, the Group realised business and asset disposal proceeds of c. €3.0 billion, which demonstrates CRH’s commitment to active portfolio management as part of our strategy to deliver improved margins and returns. Our strategic review of the European Distribution business is ongoing.

2018 Acquisitions

The most significant acquisition in 2018 was the June acquisition of Ash Grove Cement Company (Ash Grove), which gives CRH a market leadership position in the North America cement market, allowing for greater vertical integration with our existing aggregates, asphalt and readymixed concrete businesses.

In addition to the acquisition of Ash Grove, our Americas Materials Division completed 23 bolt-on acquisitions and one investment throughout the US and Canada for consideration of c. €370 million. The Americas Products Division also completed six bolt-on acquisitions in 2018 at a cost of c. €160 million.

In Europe, 14 acquisitions and one investment with a total spend of c. €120 million were completed. Our Europe Heavyside business completed ten acquisitions across the UK, Ireland and France, and one investment in Poland. Our Europe Lightside Division completed an acquisition in both the UK and Australia, while our Europe Distribution Division completed an acquisition in both Belgium and Germany, complementing our existing operations in these countries.

2018 Divestments and disposals

The majority of divestment proceeds relate to the divestment of our Americas Distribution business in January 2018 for a final agreed consideration of c. €2.4 billion. In July, the Group completed the divestment of our DIY business in the Netherlands and Belgium, together with certain related property assets, for total consideration of c. €0.5 billion. A further 18 smaller business divestments were completed across all segments demonstrating our continued focus on portfolio management. In addition to these business divestments, the Group realised proceeds of c. €0.1 billion from the disposal of surplus property, plant and equipment.

Outlook

Supported by continued favourable market dynamics, we expect the US economy to continue to advance in 2019 at a similar pace to recent trends. We expect continued growth in US housing construction and that non-residential construction will also show gains. Federal funding for infrastructure in 2019 is expected to increase, while state fiscal conditions continue to improve, with more states introducing additional infrastructure funding measures. In Canada, we anticipate the overall market to be ahead in 2019.

The backdrop in Europe is expected to be positive with continued progress in key markets, albeit with regional variations. While Brexit has created a level of uncertainty, against an overall backdrop of increasing demand, particularly in the residential sector, we expect progress in Europe to continue in 2019. In the Philippines, with the benefit of continued economic growth we expect progress in the cement market in 2019.

CRH remains well positioned to build upon the gains made in 2018. With a relentless focus on continuous business improvement, margin expansion, cash generation and returns for shareholders, together with continued strong financial discipline and efficient allocation of capital, we believe 2019 will be a year of progress and further growth for the Group.