CRH warns 2009 will be 'extremely challenging'

INVESTOR CONFIDENCE that building materials giant CRH is poised to benefit from government spending in the US sent its shares higher yesterday despite a warning from the company that it faces a tough year ahead.

CRH said 2008 profits fell by 16 per cent to €1.6 billion and warned in a trading statement that the first half of 2009 would be challenging. The group also revealed that it spent €1 billion on expanding the business last year, just 45 per cent of the €2.2 billion it spent on acquisitions in 2007.

However, its shares gained €1.07 – more than 5 per cent – on the Irish Stock Exchange yesterday to close at €19.87, making it one of the best performers among the market’s leading stocks.

Brokers said investors were pinning their hopes on the incoming Barack Obama presidency spending large amounts of cash on highway construction and other public building projects in a bid to stimulate the US economy.

CRH itself singled out the increased likelihood that the new administration would seek to boost the US economy through infrastructure spending as one of the few positives of the year ahead.

However, it said the influence of this was unlikely to be felt before the second half of the year and would not offset the problems facing the group over the next six months.

The Irish company is the biggest supplier of building materials in the US. Through its subsidiary, Apac, it is also a leading producer of asphalt, which is used to surface roads. As a result, CRH is likely to benefit from any infrastructure spending in the US.

A federal highway building programme undertaken by the Bush administration helped boost the performance of CRH’s American divisions in the early part of the decade.

In its trading statement yesterday, CRH said the €1.6 billion pretax profit it expected to deliver for 2008 represented a “midteen percentage decline on the 2007 outcome of €1.904 billion”.

Its predictions were in line with an earlier statement issued in November and with general market expectations.

CRH said it expected a lesser decline in earnings per share as a result of a share buyback programme it ran between January and November and a lower tax charge.

But the group warned that the outlook for 2009 was “extremely challenging, given the severe impact of ongoing turmoil in financial markets in both developed and emerging economies across the world”.

It added that there were several positives, along with the likelihood of increased US infrastructure spending, including lower energy costs and falling interest rates.

CRH spent €273 million buying up smaller rivals in the second half of 2008, bringing its total acquisition outlay for the year to €1 billion. In Europe, it bought four businesses for a total of €230 million, and in the US it purchased nine companies for €43 million.

Newly appointed chief executive Myles Lee said CRH significantly cut development activity in 2008. “Management’s emphasis is firmly concentrated on operational delivery,” he said.