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CRH: Little impact from Holcim Lafarge

Wednesday, May 07 17:16:37

Ireland's CRH does not expect the merger of Holcim and Lafarge to have a big impact cement industry competition nor raise antitrust issues for its own diversified materials business, its CEO said today.

CRH, which said it expects earnings to rise in 2014 after sales grew sharply in its struggling European market in the first four months of the year, is embarking on a disposal plan of its own as it streamlines operations under new Chief Executive Albert Maniford.

As part of the industry's biggest tie up, Holcim and Lafarge will sell businesses worth 10 to 15 percent of their earnings before interest, tax, depreciation and amortisation (EBITDA) to satisfy antitrust concerns - or about 5 billion euros in total.

The merger, which is expected to close in the first half of 2015, will create a global cement player with $44 billion in annual sales, dwarfing the 18 billion euros of revenue CRH roughly splits between its American and European operations.

"We've got good market positions throughout Europe and the United States, I don't think it's going to have a huge effect on the competitive dynamic within the industry quite frankly." Manifold told reporters at the company's annual general meeting.

"There's always been a large number of competitors and the cement industry throughout the world is extremely fragmented anyway. This merger is a very significant move within the cement industry. Of course CRH is not a cement business."

The building materials and products group, whose cement operations represent about 15 percent of earnings, said it did not operate in many of the markets where Holcim and Lafarge would overlap, nor would the businesses the pair have to sell as a result conflict with its own divestment plans.

After announcing a review of its portfolio last year, CRH said in February that it would sell 45 businesses representing 10 percent of net assets and would continue to keep a watch on other operations accounting for 20 percent of assets.

It said today it was still assessing half of those businesses and would complete the review in quarter three.

CRH, which is targeting a return to profit growth this year, saw sales rise 10 percent in Europe in the period to the end of April, driven by better weather conditions and improving underlying market conditions.

In the United States, where CRH is the leading producer of asphalt for highway construction, cold weather hit early season activity but stronger housing activity and a strengthening economic background saw revenue rise by 2 percent.

The Dublin-based group said it expects EBITDA in the seasonally less significant first half of the year to rise to 500 million euros from 400 million a year ago.

Earnings in the second-half should be somewhat ahead of last year, it added, with an uptick seen in commercial and state-sponsored projects in the United States such as schools and hospitals.

The company's London-listed shares were down 3.8 percent by 1530 GMT, as other building stocks fell on Wednesday in a 1.5 percent weaker European construction sector

CRH said that it had seen limited impact on trading to date from the political unrest in Ukraine, one of its main Eastern European markets that accounted for 24 million euros of EDITDA in 2013, with cement volumes up 30 percent to end-April.

The outlook remains very uncertain however and Manifold said that although most of its 1,500 employees are based in the western half of the country that has been less impacted by the conflict, it was inevitable that there would be a slowdown.

He was also careful not to overplay the European recovery.

"We are not seeing a very significant uptick in volumes yet so it's quite a weak recovery across a number of sectors and it is patchy. There is no major work restarting yet, it's slow and progressive out of a very deep recession but it seems to be moving in the right way," Manifold said. (Reuters)