How much did CRH grow in 2006 and was the growth profitable?

Revenue grew 29.7% to €18.7bn and operating income grew 27% to €1.77bn, so profitability grew in line with sales. Operating margin edged down to 9.4% from 9.6%, mainly because newly acquired businesses such as APAC and MMI carry structurally lower margins, plus integration costs and a €50m goodwill impairment. Net income attributable to shareholders rose 21% to €1.21bn.

How leveraged is CRH after its 2006 acquisitions?

Net debt rose to €4.49bn from €3.45bn, and the net debt to equity ratio rose to 63.6% from 55.7%. Interest cover remains comfortable, with EBITDA interest cover of 9.7x compared with a covenant minimum of 4.5x. About 69% of gross debt is at fixed rates, and 97% of gross debt sits in committed facilities.

What were the main risks highlighted in the filing?

The main risks are cyclical construction demand and government infrastructure spending, weaker U.S. residential construction, and rising energy and raw material costs such as bitumen, steel and fuel. Other risks include currency translation (about 62% of shareholders' funds are in non-euro currencies), acquisition integration risk, and the Cementbouw joint venture, which is in breach of a debt covenant and in discussions with its lenders.

What is the dividend outlook?

The total 2006 dividend was 52.00c per share, up from 39.00c in 2005, including a proposed final dividend of 38.50c. Management said cash generation and interest cover allow for a higher payout ratio while still funding growth. The company has increased its dividend every year since 2002.

What is the 2007 outlook?

Management expects further progress in 2007, supported by a significant contribution from 2006 acquisitions (about €3.5bn of annual revenue net of APAC disposals), capital expenditure somewhat higher than 2006's €832m, and continued bolt-on acquisitions. It expects U.S. new residential demand to remain weak into mid-2007, with non-residential and infrastructure demand offsetting it, and expects Europe Materials and Europe Products & Distribution to continue growing.

CRH 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 20-F filed May 3, 2007. Cited figures are marked; the original filing is the authoritative source.

CRH plc's 2006 Form 20-F (filed May 2007) shows a strong year of growth driven by acquisitions and organic gains.

Revenue rose 29.7% in euro terms to €18,737.4m (U.S.$25,464.1^am at the April 26, 2007 rate), group operating income rose 27% to €1,766.8m, and net income attributable to equity holders grew 21.3% to €1,210.2m. Basic EPS was 224.3c under IFRS (196.6c under U.S. GAAP). Operating margin slipped modestly to 9.4% from 9.6% because of low-margin acquisitions such as APAC and MMI, integration costs, and a €50.0m goodwill impairment on the Cementbouw joint venture.

The balance sheet absorbed a heavy acquisition program. Net debt rose to €4,492.0m from €3,448.3m, lifting the net debt to equity ratio to 63.6% from 55.7%. The main deal was the roughly €1.0bn (U.S.$1.3bn^b) purchase of Ashland Paving and Construction (APAC), later reduced to about €0.85bn after disposals.

Total 2006 acquisition spending was about €2.3bn, and management reports EBITDA interest cover of 9.7x^c, comfortably above the 4.5x covenant. The company is also guiding to higher 2007 results. It expects a significant incremental contribution from 2006 acquisitions, roughly €3.5bn of annual revenue, and it proposed a final dividend of 38.50c, which takes the 2006 total to 52.00c, up 33%.

Key risks flagged include exposure to cyclical construction markets, particularly U.S. residential construction, which is declining. Other risks are rising energy and bitumen input costs, foreign exchange translation (about 62%^d of shareholders' funds are in non-euro currencies), leverage from debt-funded acquisitions, and the Cementbouw joint venture's covenant breach. Management says it can accommodate a higher dividend payout while continuing its development program.

02—Key points

Key Highlights

Revenue grew 29.7% to €18,737.4m, driven by acquisitions and 9% organic growth; operating income rose 27% to €1,766.8m.
Operating margin dipped to 9.4% from 9.6%, reflecting lower-margin APAC and MMI businesses, APAC integration costs, and a €50.0m Cementbouw goodwill impairment.
Net income attributable to equity holders rose 21.3% to €1,210.2m; basic EPS was 224.3c (IFRS) versus 196.6c under U.S. GAAP.
Net debt climbed to €4,492.0m (debt ratio 63.6% vs. 55.7%), but EBITDA interest cover stayed strong at 9.7x against a 4.5x covenant.
Record 2006 development spend of about €2.3bn, including the ~€1.0bn APAC acquisition, which is expected to add roughly €3.5bn of annual revenue to 2007.
Total 2006 dividend of 52.00c per share (up 33% year on year, with a proposed 38.50c final), and management signals capacity for a higher payout.
Risks include cyclical end markets, declining U.S. residential construction, rising energy and bitumen costs, FX translation exposure (~62% of shareholders' funds in non-euro currencies), and a Cementbouw JV debt covenant breach.

03—Questions

Frequently Asked Questions

How much did CRH grow in 2006 and was the growth profitable?
Revenue grew 29.7% to €18.7bn and operating income grew 27% to €1.77bn, so profitability grew in line with sales. Operating margin edged down to 9.4% from 9.6%, mainly because newly acquired businesses such as APAC and MMI carry structurally lower margins, plus integration costs and a €50m goodwill impairment. Net income attributable to shareholders rose 21% to €1.21bn.
How leveraged is CRH after its 2006 acquisitions?
Net debt rose to €4.49bn from €3.45bn, and the net debt to equity ratio rose to 63.6% from 55.7%. Interest cover remains comfortable, with EBITDA interest cover of 9.7x compared with a covenant minimum of 4.5x. About 69% of gross debt is at fixed rates, and 97% of gross debt sits in committed facilities.
What were the main risks highlighted in the filing?
The main risks are cyclical construction demand and government infrastructure spending, weaker U.S. residential construction, and rising energy and raw material costs such as bitumen, steel and fuel. Other risks include currency translation (about 62% of shareholders' funds are in non-euro currencies), acquisition integration risk, and the Cementbouw joint venture, which is in breach of a debt covenant and in discussions with its lenders.
What is the dividend outlook?
The total 2006 dividend was 52.00c per share, up from 39.00c in 2005, including a proposed final dividend of 38.50c. Management said cash generation and interest cover allow for a higher payout ratio while still funding growth. The company has increased its dividend every year since 2002.
What is the 2007 outlook?
Management expects further progress in 2007, supported by a significant contribution from 2006 acquisitions (about €3.5bn of annual revenue net of APAC disposals), capital expenditure somewhat higher than 2006's €832m, and continued bolt-on acquisitions. It expects U.S. new residential demand to remain weak into mid-2007, with non-residential and infrastructure demand offsetting it, and expects Europe Materials and Europe Products & Distribution to continue growing.

04—Continue

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