CRH chief executive sees construction sector growth

This year represents the nadir of the collapse in the Irish construction industry, and growth in the sector should pick up next year, according to Myles Lee, chief executive of the building materials group CRH, which reported interim results yesterday.

Despite the improved outlook in its home market, CRH reported a slide in its half-year revenues of 3 per cent to €18.7 billion. The €11.9 billion behemoth, the largest company on the Irish Stock Exchange, saw its operating profits for the period fall from €162 million to €41 million.

Erratic weather
Erratic weather in the US during the first six months, coupled with weakness across CRH's Europe markets, led the company to revise downwards its earnings guidance for the second half of 2013.

CRH said earnings over the next six months would be flat, after previously guiding an improved performance over the same period in 2012.

The downward trend appears to be tapering off, however, in a breakdown of the figures provided by the company. Its US materials division saw like-for-like sales fall 10 per cent between January and April, but this had moderated to a dip of 3 per cent by July.

Its European materials division saw a slide of 17 per cent in the first four months, but by last month this had reduced to a fall of 3 per cent.

The company’s share price opened the day’s trading on the Irish Stock Exchange down 6 per cent, but rallied later in the day to close down about 2.5 per cent.

CRH, which has been slower than its peers to invest in developing markets in recent years, has focused heavily on cost-cutting since 2007. It said yesterday it made savings of €2.3 billion in the last five years, and plans to accelerating the programme. It will take out about €185 million of costs this year, up from previous guidance of €125 million.

Albert Manifold, CRH's chief operating officer who takes over the top job from Mr Lee in January, told analysts in a conference call yesterday morning that most of the savings came from "mothballing, closing and merging operations". He said that "about 70 per cent" of the reductions were permanent in nature, while almost three-quarters are derived from its operations in moribund European markets.

Mr Lee said the second half would remain "challenging" in Europe. "In terms of pricing we found May and June a bit tougher than anticipated. It will be a tough second half for everybody in Europe." With activity picking up in the US, Mr Lee said, CRH had implemented price increases there of "2 per cent to 3 per cent".

Guidance
Robert Eason, head of research at Goodbody stockbrokers, said the financial results were "largely in line" with what was expected, following guidance given by CRH management in May. "The second half revision to forecasts wasn't a total surprise, especially given what has been reported recently by CRH's competitors in relation to the impact of the weather."