CRH plc — 2018 Annual Report on Form 20-F
Reporting period: Fiscal year ended December 31, 2018. Although the request identifies 2018 Q4, this filing reports annual results; it does not provide a distinct Q4 financial summary. Figures are in euros unless otherwise stated. CRH manufactures and distributes building materials and products across 32 countries.
Financial performance
| Metric | 2018 | 2017 | Change / context |
|---|---|---|---|
| Revenue from continuing operations | €26.790bn | €25.220bn | +6% reported; +3% organic |
| EBITDA (company-defined, non-GAAP) | €3.365bn | €3.146bn | +7%; margin approximately 12.6% vs. 12.5% |
| Operating profit, continuing operations | €2.177bn | €2.095bn | +4%; operating margin approximately 8.1% vs. 8.3% |
| Profit before tax, continuing operations | €1.862bn | €1.867bn | Approximately flat |
| Profit after tax, continuing operations | €1.436bn | €1.812bn | Down; 2017 included a substantial one-off U.S. deferred-tax benefit |
| Group profit after tax, including discontinued operations | €2.521bn | €1.919bn | +31%; 2018 included €1.085bn after tax from the Americas Distribution disposal |
| Basic EPS, total / continuing operations | 302.4c / 172.0c | 226.8c / 214.0c | Total EPS rose; continuing-operations EPS declined |
| Operating cash flow | €1.899bn | €2.189bn | Lower, including cash outflows related to tax on the Americas Distribution disposal |
| Capital expenditure | €1.121bn | €1.044bn | Approximately 105% of depreciation |
| Net debt at year-end | €6.984bn | €5.796bn | Net Debt/EBITDA 2.1x vs. 1.8x |
Year-end cash and cash equivalents were €2.346bn; undrawn committed facilities were €3.583bn, for total liquidity of approximately €5.9bn. Gross interest-bearing loans and borrowings were €9.316bn. Management reported 11.0x EBITDA-to-net-interest cover; the covenant calculation was 11.2x, against a 4.5x minimum. The company stated it was in compliance with covenants and had adequate resources for its requirements.
Material changes and portfolio activity
- CRH acquired Ash Grove Cement Company in June for approximately €2.9bn, with a six-month contribution to results. Management said integration was progressing well and performance was in line with expectations.
- Acquisitions and investments totaled approximately €3.6bn across 46 transactions. Disposal proceeds were approximately €3.0bn, including €2.4bn from Americas Distribution and €0.5bn from the Benelux DIY business.
- The Americas Distribution sale closed January 2, 2018. Its €1.563bn pre-tax disposal gain drove much of the increase in total profit, while discontinued-operations profit after tax was €1.085bn.
- Americas revenue increased 9% to €13.4bn; Europe revenue increased 4% to €13.0bn. Americas Materials benefited from Ash Grove and posted €1.493bn EBITDA, up 18%. Asia EBITDA fell 52% to €25m amid fuel and power cost pressure.
- Reported Europe Distribution revenue and EBITDA were affected by the Benelux DIY sale and the IFRS 15 change to agency accounting for certain direct sales. Excluding the approximately €175m revenue presentation adjustment, like-for-like sales were 2% ahead of 2017.
- Effective January 1, 2019, CRH reorganized its businesses into three divisions: Europe Materials, Americas Materials and Building Products.
Outlook, risks and unusual items
- Management expected progress in 2019, citing continued favorable U.S. market conditions, growth in U.S. housing and non-residential construction, expected increases in federal infrastructure funding, a positive but regionally variable European backdrop, and improvement in Canada and the Philippines. These are expectations, not quantified earnings guidance.
- A multi-year improvement initiative targets 300 basis points of EBITDA margin improvement by 2021. A strategic review of European Distribution was continuing into 2019.
- The Board proposed a final dividend of 52.4c per share, taking the 2018 full-year dividend to 72.0c, up 6% from 68.0c. Approval was subject to the 2019 AGM. Management said future dividend increases may lag earnings growth while it targets medium-term dividend cover of 3.0x before one-off items.
- The company repurchased 27.9m shares for €789m during 2018 under a buyback of up to €1bn. The scrip dividend scheme was suspended during the buyback program.
- Key risks include construction-market cyclicality, adverse weather, energy and raw-material inflation, competition and price pressure, Brexit uncertainty, foreign-exchange movements, acquisition integration, reserves and permitting, safety, climate and environmental regulation, cyber risk, and debt and liquidity exposures.
- Six fatalities occurred in 2018: three employees and three contractors. The filing reports 94% of active locations as accident-free.
- The 2018 effective tax rate was 22.9%, compared with 2.9% in 2017; the prior year included a €440m deferred-tax credit related to U.S. tax legislation. IFRS 16 adoption from January 1, 2019 was expected to recognize approximately €2.0bn of lease liabilities and right-of-use assets, affecting reported income statement and balance sheet measures.
- Provisions included €279m for insurance and €484m for environmental and remediation matters. CRH reported a €30m provision for a Swiss competition-law fine under appeal. It stated there were no material pending site-remediation legal proceedings expected to materially affect its financial position, results or liquidity.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The internal-control assessment excluded 2018 acquisitions, which represented 4.6% of revenue and 4.2% of group profit; Ash Grove alone represented 2.4% and 3.5%, respectively.
Important facts for investors to verify
- Separate recurring continuing-operations earnings from the Americas Distribution disposal gain when assessing growth: total profit and EPS rose while continuing-operations profit and EPS fell.
- Review cash conversion and working-capital trends: operating cash flow declined to €1.899bn, with a €463m working-capital outflow and tax paid relating to the disposal.
- Assess post-acquisition leverage, Ash Grove integration and returns on the approximately €3.6bn of 2018 development spending, alongside the ongoing buyback and proposed dividend.
- Track whether the 300-basis-point margin-improvement target is achieved, and examine its baseline, implementation costs and progress by division.
- Check the effects of IFRS 16 on 2019 EBITDA, operating profit, leverage and covenant calculations; the filing expected approximately €2.0bn of lease liabilities at transition.
- Monitor energy and raw-material costs, weather, Brexit-related exposure, Asia profitability, pension and remediation provisions, and the outcome of the Swiss competition fine appeal.