CRH revenues expected to recover in 3Q20

Following the release of CRH's 2020 interim results last Friday, ICR now takes a deeper look at what the underlying trends have been for the company's trading performance during this challenging period.

First-half sales for the group were five per cent behind, with like-for-like (LfL) sales three per cent behind the 1H20, as a positive performance in the first quarter was followed by significant disruption in the second quarter. EBITDA of US$1.59bn down when compared with 2019 (1H19: US$1.62bn) and impacted by US$65m of one-off costs, primarily due to COVID-19-related restructuring items. On a LfL basis group EBITDA was two per cent ahead of 2019.

Albert Manifold, CRH CEO, said, "Our first-half performance is testament to the hard work and dedication of all our people during a very challenging and uncertain period. As ever, health and safety is our number one priority and our primary focus is to provide a safe working environment for all of our employees. As a group we took swift and comprehensive action in response to the COVID-19 crisis, and our ability to flex our cost base and deliver improved profitability, margins and cash generation in a rapidly evolving environment demonstrates the strength and resilience of our business. The outlook for the rest of the year and into 2021 remains uncertain and is dependent on an improving health situation across our markets."

Regional markets
Americas Materials
Cement sales volumes in the USA were four per cent ahead of 2019 on a total and LfL basis, as strong volume trends in west supported by growth in CRH's downstream businesses drove performance. Strong price realisation across all markets, operational improvements and synergy delivery resulted in improved operating profits. Sales revenue amounted to US$4479, down one per cent from US$4533 in the same period of 2019. 


Cement operations in Canada were impacted by COVID-19-related lockdown measures from the beginning of April. The timing and impact of restrictions varied across regions with volumes behind prior year. However, prices were ahead of prior year with all regions showing positive or stable prices.

Demand for cement in Brazil has been resilient to the impacts of the pandemic, and volumes and prices were ahead of prior year.

Europe Materials
Europe Materials' sales reached US$4070, down 12 per cent from US$4615 in the same period of 2019. Operating profit fell to US$62m from US$236m in the same period of 2019, reflecting the impact of site closures with the onset of lockdowns between March and May in the UK, Ireland, France.

Construction in Ireland was severely impacted by government restrictions in response to COVID-19 with volumes in all products behind prior year. Pricing remained resilient with improvements on prior year and, despite a significant pick-up in demand in June, sales and operating profit for the first half of the year finished behind 2019.

In France volumes were down across the materials businesses due to the impact of COVID-19 lockdowns. Price improvements, strong volumes in the company's precast business at the beginning of the year and stringent cost control partly offset the impacts on sales and operating profit, which finished behind 2019.

Poland benefitted from a mild winter, maintaining solid cement volumes and higher aggregates and asphalt volumes. Price growth offset lower ready-mixed concrete volumes delivering LfL sales and operating profit ahead of 2019.

In Ukraine improved cement pricing more than offset lower cement volumes, which were impacted by competitive pressure from imports and a decline in residential construction. Lower input costs and tight cost control further contributed to higher operating profit than 2019.

A strong performance was achieved in Romania, with sales and operating profit ahead of 2019 driven by robust pricing, cost savings initiatives and higher volumes due to favourable weather in the first quarter of the year, a strong pipeline of projects and increased demand in the residential sector. In Hungary and Slovakia, LfL sales and operating profit increased from the 1H19, with price progression and good cement volumes driven by strong infrastructure demand and mild weather earlier in the year. Cement volumes were in line with 2019 in Serbia due to a strong first quarter, which offset lower volumes in the second quarter. Improved pricing and cost savings initiatives positively impacted operating profit which finished ahead of 2019.

Asia
Cement volumes in the Philippines declined as a result of COVID-19 related plant shutdowns. Reduced volumes and lower prices resulted in sales and operating profit behind the 1H19. However, the impact on profitability was partly offset by lower costs. Despite continued pricing pressure for Yatai Building Materials in China, sales and operating profit were ahead of the 1H19, due to higher volumes driven by government stimulus packages and reduced costs.

Outlook
Based on recent trading trends LfL sales in the third quarter are expected to be lower than in the same period of 2019, with Americas Materials slightly behind, Building Products broadly in line and Europe Materials down on prior-year levels. Overall EBITDA for the third quarter is expected to be in line with the 3Q19.There is limited visibility for the fourth quarter of the year and as a result the group is not in a position to provide full-year guidance at this time, says CRH.

The longer-term prospects for CRH remain positive, benefitting from significant financial strength and resilience together with a portfolio of high-quality assets in attractive markets.