RE:RE:RE:RE:RE:To FoldingGreenSo the way that the accounting works is that because these contracts were acquired by CRH at the time of acquisition, GAAP/IFRS accounting requires that the Company ascribe a value to the acquired contracts between the anesthesia entities and the GIs. This is discussed in Section 3(h) and Section 4 in the notes to the 2016 financial statements. Because the contracts technically have a finite life, GAAP/IFRS further requires that the value ascribed to the acquired contracts be amortized every year based on the life of the contract. That is the amortization expense that is running through the income statement and that is the main difference between free cash flow and net income.
I have spoken in depth with management about the contracts, as have other folks I know who are long the stock, and the reality is that CRH has made a substantial effort to ensure that these contracts renew at expiration (something I've discussed in prior posts and happy to discuss further in DM). Management's experience so far suggests that the contracts renew without any trouble, which means that the amortization expense associated with the contract is not a real economic expense.
At the time of the renewal of the contract, simply because of the way that GAAP/IFRS works, the newly renewed contract is not put back on the balance sheet as an intangible asset, and thus there is no longer an amortization expense line item associated with the renewed contract. At this point, you would see a convergence between free cash flow and net income, and the concerns of folks on this board who keep complaining about the low net income would be rendered moot.
Of course, because CRH keeps doing deals, we are going to keep having this amortization expense line item that we have to adjust, but as I've kept arguing, I don't believe that it's a real expense, and thus you should feel fine adding it back to net income to get the real earnings number for the business. And eventually (hopefully at some point far into the future), CRH will have consolidated the industry enough that there are no more deals to do, and the "problem" of the difference between FCF and NI goes away for good.