CRH to focus on cashflow and cost-cutting to meet EUR 900m maturities

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CRH, the Ireland-listed cement and aggregates giant, is to focus on cashflow and cost savings to meet a EUR 900m debt burden coming due in the next year, group chief executive Myles Lee told mergermarket.

In an exclusive interview, Lee said: “The group has a good maturity profile and strong levels of cashflow, so I don’t anticipate any problems. We’re very comfortable with our debt profile and there are no issues around covenants.”

At end-June 2009 CRH’s gross debt – including its share of joint ventures – stood at about EUR 6.5bn, against which the group had EUR 1.1bn of cash and undrawn committed facilities of EUR 1.5bn. Some EUR 900m of facilities are due to be repaid over the next twelve months, of which some EUR 600m is due later this year. The group’s two main covenants are based on a net debt to EBITDA threshold of 3.5x and interest cover of 4.5x. Lee said the rolling 12-month EBITDA/net interest cover was expected to remain at 6.0x.

Earlier this week, CRH upped its cost savings target by another EUR 555m, bringing the total to EUR 1.45bn for the period 2007-10. Lee said the board would focus on headcount reduction – the group has already cut around 20% of its workforce – while improved purchasing power, lower energy costs and a drive towards more renewable and alternative energy sources would also bring the cost base down. “Headcount reduction will be the major driver,” a credit analyst said, agreeing that falling energy costs would also save significant costs.

With further sales of non-core asset also expected, Lee said the board was targeting around EUR 100m of disposals in 2009. “As part of the focus on cash flow, we’ll be looking to maximise the sale of surplus assets,” he said.

CRH has been active in the capital markets this year, raising EUR 1.24bn with a rights issue in March and issuing a EUR 750m bond in May. Lee said the group was eyeing acquisition opportunities in Europe, “watching closely” the ongoing restructuring moves being undertaken by some of the major players in the sector. HeidelbergCement, the German building products and aggregate company, is in the midst of a radical restructuring programme and looking to offload assets to pay down debt, while Austrian group Wienerberger has also been mentioned as a possible target for CRH.

Lee refused to comment on whether CRH would be interested in Weinerberger or Hanson (UK), which HeidelbergCement is believed to be preparing for sale.

“We’re always looking for suitable acquisitions and there may be some opportunities arising from the fallout from the restructuring moves in Europe, especially in the heavyside building materials sector,” he added.

“We’re seeing an increasing flow of opportunities and the proceeds from the rights issue leaves us well placed to look for suitable bolt-on opportunities over the next six-to-eighteen months,” he continued. One construction banker said his understanding was that CRH had looked at assets in cement, aggregates, asphalts, plastics and roofing in recent months.

CRH spent EUR 26m on six deals in the first half of 2009 - excluding the acquisition of the 26% stake in Yatai Cement in China for EUR 225m. This is down on the rate of spend last year, which totalled EUR 273m in the second half and EUR 342m in the first six months.

The construction banker believes CRH will take a more cautious view on acquisitions over the next few months, preferring instead to concentrate on its cost-savings programme and debt reduction. He felt the group would be more likely to prioritise maintaining its investment programme, adding capacity where necessary, rather than making a big acquisitive push.

A Moody’s analyst recently told this news service a big splurge on acquisitions could cause some concerns with the rating agencies, especially in view of CRH’s declining EBITDA, with a fall of around 40% estimated for H109.

Lee said he was not aware of any impending downgrade and said CRH had a strong debt matrix that deserved to be rated at the top of the sector.

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