IRELAND: CRH faces up to its sins of the past

Albert Manifold was unequivocal yesterday in diagnosing the group’s boomtime errors that led to the decision to sell off a tenth of its poorest-performing assets, with the future of a further 20 per cent up in the air.

“We invested in unsustainable trends. We forgot the core principle of CRH, which is that we used to make businesses better. We invested in bubbles.”

Manifold highlighted that 70 per cent of the business units heading for the door were bought between 2000 and 2006, the binge before the bang. As he spoke alongside his finance director Maeve Carton in London, it did not escape the notice of some that the period the new chief executive had chosen to highlight fell entirely under the rein of former boss Liam O’Mahony.

Myles Lee, Manifold’s immediate predecessor, was O’Mahony’s finance chief for much of that time.

Manifold continued: “Those businesses were cruelly exposed as the crisis hit. We will never again go down the road of buying market trends and growth, instead of understanding how to make those businesses better. At least now we have started to understand what went wrong. ”

So what did go wrong?

CRH, perhaps Ireland’s most conservative listed company, was swept along in the euphoria of unsustainable European housing booms, not least the one that decimated its home country. It lost its focus on returns.

Its portfolio review has directly resulted in the decision to sell 45 business units worth €1.5 billion.The future of others worth more than €3 billion is unclear, although Manifold expects most of those to be retained after “fixing”.

It has taken a €755 million write down on the businesses already tagged for sale. Manifold would not be drawn on the identity of the damned, but an analysis of where the impairments fell gives some clues.

Half of the writedowns are in its European products division, which manufactures accessories and solutions such as wall boards and tiles. The division, according to CRH’s website, is 60 per cent exposed to housebuilding, with extensive operations in the Benelux countries, France, Spain, the UK and Ireland.

Another quarter of the writedown goes to its European materials division, which produces materials such as cement. Half the writedown of its products division, and half of its exposure to housebuilding: just 30 per cent.

The rest of the writedown is accounted for by some “trimming” of its US operations.

CRH’s roll of press releases and announcements for 2000-2006 reveals some of the activity that it may now be looking to redress.

The December 2006 decision to invest €200 million in a cement plant in Drogheda looks, in hindsight, like poor timing. As do O’Mahony’s contemporaneous comments about “an expanding Irish economy and construction sector”.

CRH also acquired DIY chains in countries such as Belgium, another market that is now performing poorly.

Ireland accounts for 1 per cent of the group’s sales, but its proportion of the disposals are likely to be higher. Britain is also heavily represented in the products division that will see the biggest slice of the sell-off.

Drill further into the distribution of the €755 million writedown, however, and you can see that they have their problems too. Just €380 million of the writedown of its subsidiaries is accounted for by goodwill, which exists only on paper. The rest is a writedown on the value of the actual assets themselves.

It could have been a lot worse for CRH given the state of some of its peers. Manifold denied that there was anything strategically “wrong” with the company in the run up to 2006. “We made mistakes. We are only human,” he said.

Confirmation, if it was needed, that the errors were made by people.