CRH likely to expand business in Spain despite profit problems

The ready-mixed concrete businesses operated by CRH in Spain continue to be a problem for the group. "It is very difficult to make profits there," according to Mr Brian Hill, group managing director, CRH mainland Europe. With the benefit of hindsight "we probably paid too much (for Beton Catalan) . . . it is impossible to make up when you pay too much up-front", Mr Harry Sheridan, CRH's finance director, said. However, he noted that the Spanish operations had produced a "few good years".

The Spanish market is highly competitive. Nevertheless, CRH is likely to expand in that market rather than contract. Speaking during a tour of CRH's operations in Belgium and Holland this week, Mr Hill said the option of pulling out of the Spanish market "could be very expensive" and in any event it "could come right over time". In five to 10 years' time "we could be optimistic about Spain". The likelihood is that CRH will expand in Spain, though not in ready-mixed concrete because of over-capacity. Instead, it could be interested in moving into quarrying and cement. The group would look at the mix of its Spanish businesses and "improve what we have there".

Sales generated by the group's operations in mainland Europe fell from £651.5 million in 1995 to £619.0 million in 1996 (the Benelux companies account for 75 per cent). Trading profits fell from £47 million to £43.1 million. This decline has been reversed in the first half of this year. Sales grew from £322.1 million to £332.3 million while trading profits rose from £19.9 million to £23.9 million. More importantly, while the mainland European operations are contributing less in percentage terms, as can be seen from the graph, they are now providing a greater proportion of profits.

Sales accounted for only 23.9 per cent of group turnover in the first half of this year, but trading profit contributed 31.2 per cent, up from a range of 20.9 per cent to 28.7 per cent in the five years 1992 to 1996. The benefits came from an investment programme combined with better weather.

And Mr Hill appears to be in an expansionist mood about the mainland European operations. Asked about the possibility of a major acquisition, he said the group never excluded a major development. Noting that the pattern has been on small to medium-sized acquisitions, he conceded there was a "need to do something big in Germany and France".

The group is already in the German market through its 50 per cent stakes in AKA Ziegelwerke and Die Steinmacher, two building products companies. He noted that the German operations were very small compared with the operations in Benelux which were eight times larger. However, Mr Hill cautioned that the group is not going to buy anything unless it fits the CRH criteria of bringing value to shareholders. Only one company out of every 100 approaches is acquired. "We say no to a lot" at the initial stages. After that there is a lot of "filtering".

Another area of expansion will be Belgium. This is a "prime target". The market in the Netherlands is very static so the only way to grow in that market is by acquisition, according to Mr Jan van Dongen, of Dycore Verwo Systems, the group's Dutch concrete flooring subsidiary CRH made its first acquisition in mainland Europe when it purchased Van Neerbos, a Dutch builders merchant in 1973. It had sales of 70 million Dutch guilders (£24 million) and employed 250 people. Following acquisitions and greenfield investments, it now generates 950 million guilders (£329 million) and employs 1,500 people.