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News : Irish Last Updated: May 6, 2009 - 3:09:30 PM


CRH says trading in the first four months of 2009 "extremely challenging"; Underperformance anticipated in the first half is expected to moderate
By Finfacts Team
May 6, 2009 - 7:21:26 AM

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CRH, the global building materials group, was formed through a merger in 1970 of two leading Irish public companies, Cement Limited (established in 1936) and Roadstone Limited (1949). CRH accounts for about one third of market capitalisation on the Irish Stock Exchange and more than 80% of CRH's shares are held outside Ireland. About 2,000 of CRH's payroll of more than 94,000, are located in Ireland.

CRH plc, the international building materials group, which is the biggest building materials supplier in the United States, today issued an Interim Management Statement, in advance of its Annual General Meeting (AGM) which is being held today at 11.00 am in Dublin. CRH said trading in the first four months of 2009 has proved extremely challenging compared with the equivalent period in 2008 which benefited from generally positive trading in Europe and a relatively mild winter. However, the company said underperformance anticipated in the first half is expected to moderate in the seasonally more profitable second half of the year.

CRH said said demand patterns across most markets have been impacted by weakening economic activity; this has been exacerbated by the most severe winter for many years in both Europe and North America, and by continuing inclement weather through March and April in a number of our regions. As a result the normal seasonal second quarter demand pick-up has to-date not been as strong as expected and the profit outcome for the first half of this year will show a sharper decline than that previously anticipated.

CRH says the continuation of a more stable backdrop for energy and other input costs together with benefits from the infrastructure stimulus package in the United States should encourage activity as the year progresses and the underperformance anticipated in the first half is expected to moderate in the seasonally more profitable second half of the year.

It said the very challenging trading backdrop, CRH's operating cash flow to-date is in line with 2008 reflecting tight working capital control and ongoing capital expenditure restraint.

"We continue to advance actively the various commercial and cost initiatives already underway across our operations, and to identify new measures, to ensure that the Group is positioned to deal with whatever trading circumstances may evolve over the coming months," the statement said.

CRH said the recent Rights Issue which raised €1.24 billion, net of expenses, combined with the pre-existing financing capacity, leaves CRH well placed to take advantage of appropriate development opportunities in our traditional rigorous and disciplined fashion.

Interim Management Statement

Goodbody analyst Robert Eason commented:"In a trading statement for the first four months CRH has highlighted the difficult start to year, reflecting weak underlying markets which were compounded by poor weather. “As a result the normal seasonal second quarter demand pick-up has to-date not been as strong as expected and the profit outcome for the first half of the year will show a sharper decline than previously anticipated”. However, despite the difficult start to the year, operating cashflows are in line with last year, reflecting restraint on capex and ongoing working capital control. At a divisional level the main points are as follows: (i) Europe Materials (34% of group profits) - Poland and Finland were impacted the most from the harsh weather (cement volumes down by over 33%), while economic contraction has compounded the problem in Ireland and the Ukraine (volumes down c.50%).

Switzerland produced the strongest performance with cement sales ahead of last year on the back of major tunnel projects; (ii) Europe Products (13% of group profits) - Sales on a lfl basis are down 20% in the four months to end of April, which represents an improvement on the -25% in January/February; (iii) Europe Distribution (11% of group profits) - This division has proved to be more resilient with lfl declines about half that of Products, reflecting the rmi exposure and good DIY trading over Easter; (iv) US Materials (25% of group profits) - Volumes in this division are down 30% in the first four months. However, pricing has been strong (high-single digit), which coupled with good cost control and an anticipated pick-up in activity from the stimulus package bodes well for the more seasonally important H2; (v) US products (13% of group profits) - This division continues to be impacted by the downturn in residential and the slowdown in non-residential has become more evident, resulting in lfl down 20%; and (vi) US Distribution (5% of group profits) has had a more difficult first half than we anticipated with a high-teen percentage decline in sales, reflecting intense price competition, weak consumer confidence and poor weather. Overall, the statement is broadly in line with our expectations, as a result we do not envisage making any material changes to our forecasts for earnings of 135c for FY09, down 37% yoy (versus consensus of circa 145c).

All seeing the same difficulties in Q1

Over the last 24 hours we have had a number of results that just reinforce how difficult the start of the year has been for building materials companies. These are summarised as follows: (i) Martin Marietta misses consensus but keeps FY guidance – Martin Marietta reported Q1 losses per share yesterday of $0.14 which was behind consensus for a positive outturn of $0.13. This compared to $0.50 in Q108 and the yoy deterioration reflected volume declines of 21% (versus -14% in Q4 and -21% in Q3), which was only partly offset by 4% pricing and lower fuel costs. Despite the slow start to the year, management has left FY earnings guidance unchanged at $3.70-4.30 (plus $0.50-0.75 for the stimulus) reflecting volume declines of 9-12% and pricing of 4-6%; (ii) Holcim Q1 results behind and refrains from giving FY guidance - Holcim has reported operating profit of CHF343m for the first quarter (14% behind consensus of CHF401m and down over 50% yoy) on sales of CHF4,523m (2% behind consensus). The latter is on the back of a lfl sales decline of 8.5% versus -2.7% in Q4 and +4.0% in Q3, with particular weakness in Europe and US (lfl -26% and -23%, respectively), reflecting weaker underlying markets, which were compounded by poor weather.

 The other regions of Latin America, Africa Middle East and Asia Pacific, all reported lfl growth albeit at a slower pace to last year. On the outlook, management continues to not give FY guidance due to the uncertain environment but says that the Q1 outturn confirms that 2009 will be a difficult year. Furthermore, it will not be until the next few months of activity before it can conclude the extent to which declines in Europe / US are down to the recession or weather; (iii) Lafarge’s Q1 losses less than expected but pulls back FY cement forecasts – Lafarge has reported a Q1 net loss of €17m (versus a positive outturn of €150m in Q108) on sales down 9%, ahead of consensus forecasts for losses of €27m. As with Holcim, the results reflect weakness in Europe and US (cement volumes down 31% in Western Europe, -36% in Eastern Europe and US -26%), which was partly offset by strength in other regions (cement volumes +13% Middle East, Africa +9% and Asia +6%). Lafarge has also refrained from giving FY guidance but has downgraded its expectations on cement volume growth from -3% to 0% to -2% to -5%.

This is driven by revised forecasts for Western Europe (now -20% to -15%, was -15% to -10%) and Central/Eastern Europe (now -15% to -10%, was -5% to 0%). Lafarge expect pricing to remain firm and expects stimulus plans to effect its businesses more in 2010; and (iv) Wienerberger results hit by weak markets and severe weather in Q1 – Wienerberger has reported an 82% (versus -41% in Q4) yoy decline in EBITDA to €16.2m on sales down 37% (versus -15% in Q4) to €360.3m, as all markets were impacted by the deterioration in macroeconomic conditions and severe weather. As highlighted in its Q4 outlook, Central and Eastern Europe, was the most heavily affected region with revenues down 54% (versus -32% in Q4) and EBITDA down 85% (versus -45% in Q4). In terms of outlook, Wienerberger states that its markets will “definitely contract” in 2009, however, management notes that it is difficult to say by how much. Its focus for the remainder of the year is to strengthen liquidity and to align its capacity and cost structures to sales levels."

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