CRH not worried by global economic turmoil

 

Despite the turmoil in world stock markets, and questions marks over the global economy, CRH is confident that it will continue to record strong growth. "Overall, we expect good growth in profits and earnings for the year as a whole" is how chief executive, Mr Don Godson, views the future. "We are in products that don't go out of favour", said finance director, Mr Harry Sheridan, noting that the bulk of its profits are in the stronger currencies. CRH had a positive currency translation of £2 million the first half and on present rates, there would be a further £10 million in the second half, he added.

Following the better-than-expected interim results, the group is now poised to exceed brokers' predictions which are now likely to be upgraded. The bulk of the profits are earned in the second half and CRH should have little difficulty in pushing up full year profits from £253 million to around £305 million, representing a growth of 20 per cent plus. In normal market circumstance that would warrant an upgrading of the shares; but the market is more preoccupied with the repercussions from the Russian financial crisis. The group's shares have fallen by more than 100p to 770p (they were as low as 720p at one stage yesterday) over the past week. Mr Sheridan noted that after the 1987 crisis the groups' shares "bounced back quickly again".

Growth generated by CRH in the second six months is unlikely to be even. Strong growth should continued to be generated in the Republic, there are uncertainties over the British construction industry, mainland Europe should continue to grow, albeit at a much lower rate than in the Americas where substantial growth should continue. With the domestic economy destined to grow strongly over the foreseeable future, the group is gearing up to cope with the higher demand. It is increasing the capacity of its Platin and Limerick cement plants by about 200,000 tonnes by the end of this year. The price of cement has not been increased since June, 1996, and no increase is envisaged over the foreseeable future.

Asked about the new proposed capacity from the Lagan Group, CRH's general manager finance, Mr Myles Lee, said it remained to be seen how the market developed, noting that the proposal is for white cement which would be exported. "It depends how demand levels out," Mr Godson said. "It is competition and we are good at it."

The British and Northern Ireland operations account for only 13.5 per cent of the group's trading profit. While some growth is expected in the industry, the outcome is uncertain. Nevertheless CRH remains relatively optimistic about this market.

In mainland Europe, CRH has noted that the economic outlook in the Benelux countries is generally positive but capacity expansions in its sectors are leading to increased competition.

In North America, group operations continue to benefit from the strength of the US economy "underpinned by the re-authorisation of the Federal Highway Programme, an important driver for our US materials business".

CRH remains on the acquisition trail, having spent £189 million last year. It has already paid £94 million for acquisitions in the first half .