Business context and reporting period
CRH plc is an Ireland-incorporated global building materials group operating in 32 countries. This Form 20-F reports the fiscal year ended December 31, 2017; it is an annual filing, not a standalone fourth-quarter report. Financial statements are prepared under IFRS as issued by the IASB and presented in euros.
Americas Distribution was classified as discontinued operations after CRH agreed to sell Allied Building Products. Accordingly, much of the management discussion presents continuing operations, while some headline measures include both continuing and discontinued operations.
Key financial metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue, continuing operations | €25.220bn | €24.789bn |
| Revenue including discontinued operations | €27.563bn | €27.104bn |
| Operating profit, continuing operations | €2.095bn | €1.908bn |
| EBITDA, company-defined, continuing operations | €3.146bn | €2.980bn |
| EBITDA, company-defined, including discontinued operations | €3.310bn | €3.130bn |
| Profit after tax, continuing operations | €1.812bn | €1.189bn |
| Group profit after tax, including discontinued operations | €1.919bn | €1.270bn |
| Basic EPS, total / continuing operations | 226.8c / 214.0c | 150.2c / 140.4c |
| Net cash from operating activities | €2.189bn | €2.340bn |
| Capital expenditure on property, plant and equipment | €1.044bn | €0.853bn |
| Net debt at year-end | €5.796bn | €5.297bn |
| Cash and cash equivalents | €2.115bn | €2.449bn |
| Undrawn committed facilities | €3.554bn | €3.034bn |
Continuing-operations operating margin was approximately 8.3% (2016: 7.7%), calculated as operating profit divided by revenue. Company-defined EBITDA margin was approximately 12.5% (2016: 12.0%). Net debt / EBITDA, including discontinued operations, was 1.8x (2016: 1.7x); EBITDA net interest cover was 10.9x (2016: 9.4x).
Material changes versus the prior comparable year
- Continuing revenue increased 2%; continuing operating profit rose 10% and company-defined continuing EBITDA rose 6%. Management cited better demand and operational leverage in the Americas and Europe, partly offset by adverse currency translation and weather.
- Total profit after tax and total EPS each increased 51%, but reported results included a €440m non-cash deferred tax credit from US tax legislation and an €81m Swiss pension past-service credit. Excluding those one-off benefits, adjusted basic EPS was 166.2c, versus reported EPS of 226.8c.
- Operating cash flow declined to €2.2bn from €2.3bn. Working capital was a €209m cash outflow, compared with a €56m inflow in 2016; capital spending and acquisition activity increased.
- Net debt increased by €0.5bn, despite strong cash generation, reflecting acquisitions and investment. Interest-bearing borrowings were €7.976bn, compared with €7.790bn.
- CRH completed 34 acquisition and investment transactions and reported approximately €1.9bn of acquisition spend. Major additions included Fels, a European lime and aggregates business, and Suwannee American Cement and related Florida assets.
- Americas Distribution’s 2016 and 2015 results were recast as discontinued operations. The business generated 2017 revenue of €2.343bn and profit after tax of €107m. Its sale for US$2.6bn closed January 2, 2018.
Outlook, commentary, risks and unusual items
Management expected further progress in 2018. It anticipated continued US housing growth and improving non-residential construction, with infrastructure broadly stable but potential upside from state spending. In Europe, it expected recovery and demand to strengthen. In the Philippines, management expected some cement-market stabilisation but acknowledged continuing pressure on results. These are forward-looking expectations, not guarantees.
- Strategic transactions: The agreed acquisition of Ash Grove Cement and related assets was expected to close in 2018, subject to regulatory approval. Management said the transaction would strengthen CRH’s North American cement position. Integration of recent acquisitions remains a priority.
- Operating and market risks: Construction cyclicality, severe weather, competitive pricing, input and energy costs, labour availability, infrastructure funding, and political and economic uncertainty—including Brexit—could affect performance.
- Financial risks: Foreign exchange movements affected reported results; leverage, refinancing, interest rates, liquidity, counterparty exposure and covenant compliance remain relevant. The company reported that it was well funded, materially above covenant minimums and had no commercial paper outstanding at year-end.
- Safety and sustainability: CRH reported three employee and seven contractor fatalities in 2017, including three road-traffic fatalities. It reported 94% of active locations as accident-free. Environmental regulation and climate transition risks may also affect costs and operations.
- Contingencies and controls: CRH recorded a €29m provision related to a contested Swiss competition-law fine. Management said other legal proceedings were not expected to have a material aggregate effect. Auditors gave unqualified opinions on the financial statements and internal controls; the internal-control assessment excluded 2017 acquisitions, which represented 6.4% of total assets.
- Accounting change: CRH expected IFRS 16, effective in 2019, to materially affect its balance sheet and income statement. Operating lease commitments were €2.191bn at year-end 2017. The company expected no material transition impact from IFRS 9 or IFRS 15.
Important facts for investors to verify
- Confirm whether comparisons use continuing operations or include the discontinued Americas Distribution business, and distinguish annual results from any fourth-quarter-only data.
- Assess the sustainability of earnings growth after removing the US tax-law and Swiss pension one-off benefits; reconcile reported EPS of 226.8c with adjusted basic EPS of 166.2c.
- Review acquisition spending, financing, integration progress and the completion and proceeds of the Allied sale; verify the status and final terms of the Ash Grove transaction.
- Monitor cash conversion, working capital, capital expenditure and net debt following the increase in investment and year-end net debt.
- Evaluate demand, pricing and input-cost trends by region, particularly US weather and labour constraints, European recovery, and Philippine cement-market conditions.
- Review safety performance, environmental and legal provisions, pension funding, lease exposure under IFRS 16, and the effect of foreign exchange movements.