CRH predicts rise in interim profits

Building firm's share price jumps 2 per cent as analysts sharply upgrade full-year profit forecast

Jane O'Sullivan,

Markets Correspondent

Analysts have upgraded their full-year forecasts for CRH after the building-materials company indicated that pre-tax profits at the half-year stage would be €100 million ahead of last year's levels.

In a trading update released yesterday, CRH said it expected to report pre-tax profits of around €260 million, 62 per cent ahead of the first half of 2003 when trading was hit by bad weather.

CRH, which will release its interim results on August 31st, said the generally favourable trading seen in the early part of 2004 had continued throughout May and June while acquisitions made last year were contributing well to the group.

The company, led by chief executive Mr Liam O'Mahony, is the second-largest building-materials group in the world after France's Lafarge. CRH said its second-half performance last year was boosted by catch-up from a weather-affected first half. Nonetheless, it expects full-year pre-tax profit to show "a healthy advance" on the 2003 level of €864 million.

CRH shares added nearly 2 per cent yesterday to €17.98 after the release of the update.

Company broker Davy said that the market consensus forecast for 2004 pre-tax profits of €940 million now needed upgrading as it would imply a decline in second-half profitability.

"Were CRH simply to repeat last year's second-half performance, then the full-year 2004 pre-tax profits would be in the region of €964 million," Davy analyst Mr Joe Burnell said.

He is now pencilling in full-year pre-tax profits of €980 million, NCB forecasts profits of €970 million while Merrion has raised its forecast to €985 million or earnings per share of 157 cents.

However, analysts said there was a possibility that, if all went well, the company could deliver €1 billion in profits this year. This would make it the first Irish company aside from the two main banks to reach this landmark.

"If market conditions remain healthy, the €1 billion level is a realistic possibility," Merrion analyst Mr John Mattimoe said.

In its trading update, CRH said that the US economy and its construction market continued to improve while there were signs of progress in the European economies, although they remained subdued.

It said profits from its European operations in Poland, Switzerland, Finland and Spain would be significantly better than a year ago, helped in part by more normal weather conditions in the first half.

The group's British earnings are expected to be slightly better, helped by some strengthening in sterling while. In Ireland, operating profits are expected to be on a par with 2003 levels. However, CRH's Irish margins are expected to slip slightly as price rises for materials failed to keep pace with cost increases.

In the US, CRH said its materials division had entered the seasonally more important second half with strong backlogs, while its products and distribution business was benefiting from continued growth in residential construction and evidence of a recovery in the non-residential construction sector.

The main risks on the horizon lie in continued high energy prices and currency exposure, the company said. If the current dollar/euro exchange rate of $1.23 continued, it would have an adverse full-year impact of around €32 million on pre-tax profits.

This would predominantly affect profits in the second half, with just €4 million of it being felt at the interim stage. But the exchange-rate drag should be partially offset by the impact of recent acquisitions.