CRH profits increase by 71% to Eur275m

Mild weather boosted CRH's European operations over the first half of the year and helped to lift group pre-tax profits by 71 per cent to €275 million.

The growth came on sales of €5.7 billion, which was 22 per cent ahead of the first six months of 2003, when business across Europe was hit by summer storms.

CRH chief executive Mr Liam O'Mahony described the performance as "particularly strong" and heralded a "healthy" full-year result.

Mr O'Mahony's confidence was reflected in the 9.6 cent interim dividend to be awarded to CRH shareholders. This was 17 per cent higher the same period of 2003 and surpassed most analysts' expectations.

Mr O'Mahony said a similar increase should be delivered for the full year, remarking that a "higher ongoing dividend increase is appropriate".

The company's shares failed to benefit from the confident outlook however, with investors choosing instead to take their profits. CRH closed at €18.66, down 24 cents.

Analysts pointed out that the firm is trading on a historically low forward price/earnings multiple, with CRH's own broker, Davy, setting a 12-month price target of €24. Citigroup Smith Barney was more cautious however, setting a target of just €18.50.

Mr O'Mahony highlighted strong oil prices as a risk to business over the remainder of the year, explaining that rapid, concentrated increases would be hard to pass on in the market.

"If it settled down at $40 or $45, or even $50, it wouldn't be so bad as long as it settled down," he said. Mr O'Mahony also warned that, at current exchange rates, the company would take a €26 million currency hit in the second half.

CRH had prepared the market for a solid first half when it issued a trading update at the start of July, but yesterday's numbers still surpassed most expectations.

Operating profits were up by 57 per cent at €385 million, with organic growth accounting for almost half of the increase. The remainder came from acquisitions, with adverse currency movements knocking €6 million off the total.

CRH spent €700 million on acquisitions over the period. Mr O'Mahony said he would be disappointed if further "successes" did not follow before the end of the year, but declined to comment on specific deals. He did however express an interest in entering the booming Chinese market over the longer term.

A breakdown of interim operating profits showed that high costs ate into the bottom line in the Republic, where profits were flat at €68 million.

Mr O'Mahony said the Irish market had become increasingly competitive, thus preventing the company from passing on higher prices to its customers.

CRH is expecting continued strong Irish residential construction in the second half. An improving economic outlook should also help to stimulate non-housing construction activity, Mr O'Mahony said.

Results were also flat in the UK, where profits came in at €32 million, up from €30 million.

Continental Europe, where profits suffered in 2003 due to sustained poor weather, was the star of this year's first half.

Turnover rose by 56 per cent to €1.7 billion in CRH's European products and distribution division, while operating profits more than doubled from last year's low base to reach €121 million. The firm's European materials division was also a solid performer, with profits rising by 91 per cent to €63 million on sales of €567 million.

Mr O'Mahony said he expected a solid full-year outcome in operations across the continent.

Business was also firm in the Americas, where profits climbed by 76 per cent to €106 million in favourable markets.