Strong performances in its Irish and American businesses were the driving forces behind a record performance last year by building materials group CRH, with pre-tax profits up 27 per cent to €409 million (£322 million). Sales were up 23 per cent to €5.2 billion (£4.1 billion)
While the results from CRH were comfortably ahead of market forecasts, some mildly cautious comments on the outlook for 1999 from chief executive Don Godson saw the share price weaken from the overnight €16.76 to €16.45.
Pre-tax profits rose from €321 million to €409 million, with €49 million of the additional profits coming from organic growth, a further €18 million from 1997 acquisitions, €5 million from 1998 acquisitions, €3 million from disposal and €14 million from the strength of the American dollar.
The results do not include any contribution from CRH's biggest acquisition to date, the €550 million (£433 million) acquisition of the British brick-maker Ibstock. This acquisition has still to be completed but will have a significant impact on trading in the current year.
"Ibstock offers an excellent strategic fit giving CRH a joint leadership position in clay facing brick in the UK and a concrete masonry business that gives critical mass to Forticrete," said Mr Godson. CRH's performance in the current year will also be influenced by the sale of the Keyline merchanting chain in the UK. This is likely to generate over £200 million for CRH as the group concentrates on businesses where it can be a major player.
In Ireland, CRH benefited from the double-digit growth in construction output and generated operating profits of €102.6 million on sales of €540.9 million. This compares with 1997 sales of €483.5 million and operating profits of €90.9 million. Cement sales in the Republic were up 10 per cent, contrasting with the Northern Ireland market where cement volumes were down 10 per cent. The only blot on the Irish operations was a 11 per cent fall in volumes at Premier Periclase due to unprecedented levels of steel imports into western Europe from recession-hit producers in Russia and the Far East.
In the UK and Northern Ireland, sales increased from €673.5 million to €770.2 million while operating profits rose from €25.4 million to €36.9 million although demand weakened towards the end of the year. The Keyline merchanting business, which has now been offered for sale, generated record profits but does not have the scale that CRH requires, hence the decision to hold an auction. Mr Godson said a decision on Keyline is likely in April or May.
Poor weather in the key April-June season and heavy rains in November and December had a severe impact on CRH's operations in mainland Europe, and according to Mr Godson: "Weatherwise, 1998 was the most difficult year in memory for the building industry in Northern Europe." Sales in mainland Europe did rise from €986.2 million to €1.14 billion, but operating profits slumped from €69.4 million to €65.9 million.
The American operations put in another bumper performance, boosted by a 3 per cent growth in the construction market, buoyant house building and the 45 per cent increase in federal funding for highway construction. Turnover in the Americas - which also takes in CRH's now 100 percent-owned business in Argentina jumped from €2.09 billion to €2.76 billion while operating profits soared from €172 million to €246.4 million.
Despite spending €691 million on acquisitions last year, CRH ended 1998 in strong financial shape with a debt/equity ratio of just over 39 per cent and interest covered 10.5 times by operating profits. CRH's enormous free cash flow of €341 million, up from €242 million in 1997 and €150 million in 1996, is the key to CRH's financial strength and ability to spend heavily on acquisitions and capital expenditure without putting the group under any pressure.
Shareholders are being rewarded with a 15 per cent increase in the dividend to 17.14 cents per share, the 16th consecutive year of dividend increase.
