01—Abstract
Summary
Summary of the 20-F filed May 13, 2008. Cited figures are marked; the original filing is the authoritative source.
CRH plc's 2007 Form 20-F (filed May 2008) shows a year of continued growth in revenue and profit despite a sharp slowdown in U.S. residential construction.
Revenue rose 12%a to €20.99 billion and Group operating income rose 18% to €2.09 billion, with operating margin expanding from 9.4% to 9.9%. Net income attributable to equity holders grew about 18% to €1.43 billion, and diluted EPS reached 260.4 cents. Growth was driven largely by acquisitions (over €2 billion spent in each of 2006 and 2007), while organic revenue growth was only about 1%, with Europe up 8% and the Americas down 5%.
The balance sheet became more leveraged. Net debt rose to €5.16 billion, the debt ratio climbed to 64.9%b from 63.6%, and EBITDA interest cover eased to 9.4x from 9.7x. Management says the covenant floor is 4.5x, so headroom remains comfortable.
The company also has a €2.7 billion revolving facility position and €1.6 billion of undrawn committed facilities. Europe Materials and the Europe Products & Distribution division were the main earnings engines. The Americas Products & Distribution division, particularly MMI and Americas Distribution, was hit hard by the residential downturn.
Management's 2008 outlook is mixed. Europe is expected to be similar to 2007, supported by Eastern European growth, while the Americas is behind 2007 due to residential weakness.
Management acknowledged that the further U.S. dollar depreciation and weaker market trends made another year of income growth more challenging. The company is also pursuing expansion in China, India and Turkey and has announced a 5%c share buyback program along with several acquisitions in early 2008.
02—Key points
Key Highlights
- Revenue up 12% to €20,992m; Group operating income up 18% to €2,086m; operating margin 9.9% vs 9.4% in 2006.
- Net income attributable to equity holders up about 18% to €1,430m; diluted EPS 260.4 cents (2006: 222.4 cents).
- Organic revenue growth only about 1% (Europe +8%, Americas -5%), so most growth came from acquisitions adding €2,851m of revenue.
- Net debt rose to €5,163m; debt ratio 64.9% (2006: 63.6%); EBITDA interest cover 9.4x vs 4.5x covenant minimum.
- Full-year 2007 dividend of 68.0 cents (up 31%), with dividend cover of 3.9x and a stated target of 3.5x for 2008.
- Americas Products & Distribution operating income fell 6% on residential weakness; Europe Materials operating income rose 39%.
- Management guided to a more challenging 2008 as U.S. dollar weakness and softer markets pressure results; a share buyback of up to 5% of shares is underway.
03—Questions
Frequently Asked Questions
How did CRH's profitability change in 2007?
Operating income grew 18% to €2,086m and operating margin improved to 9.9% from 9.4%. Pre-tax income grew 19% to €1,904m. Much of this came from acquisitions, while organic operating income increased by about €164m, supported by strong Europe Materials and Eastern European results.
How much of growth came from acquisitions versus organic operations?
Acquisitions contributed incremental revenue of €2,851m and operating income of €222m versus 2006. Organic revenue grew only about 1% (€238m), though organic operating income rose €164m. Investors should note that the company relies heavily on acquisitions for top-line expansion.
Is CRH's debt level a concern for investors?
Net debt increased to €5.16bn and the debt ratio rose to 64.9%. EBITDA interest cover of 9.4x remains well above the 4.5x covenant minimum, and the company reports €1.6bn in undrawn committed facilities. Leverage is higher, but coverage and liquidity appear adequate.
What is the outlook for 2008?
Management expects a positive market outlook in Europe, particularly Eastern Europe, but expects the Americas to be behind 2007 due to residential weakness. Management noted that further U.S. dollar depreciation and weaker market trends make another year of earnings growth more challenging.
What are the main risks highlighted in the filing?
Key risks include cyclical construction demand, exposure to U.S. residential markets, currency translation (about 65% of shareholders' funds are in non-euro currencies, mainly U.S. dollars), reliance on acquisitions for growth, environmental liabilities, and goodwill of €3,482m that could be impaired if conditions deteriorate.
04—Continue