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News : Irish Last Updated: Aug 14, 2012 - 10:34 AM

CRH reports 23% rise in pre-tax profits to €117m in H1 2012
By Finfacts Team
Aug 14, 2012 - 7:53 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). About 90% of CRH's shares are held outside Ireland. CRH's has a payroll of 79,000 and less than 2,000 are located in Ireland. It moved its primary stock exchange listing to London late last year and is a FTSE 100 company.

CRH plc, which is headquartered in Dublin, Ireland and is the second-biggest building materials supplier in the world, and the market leader in the United States, today reported pre-tax profits of €117m for the first half of  2012 (H1) - - up 23% on €95m reported in the same period last year. Revenues for the six months rose by 5% to €8.59bn from €8.17bn.

The group said trading results reflect a positive start to the year for our Americas operations which benefited from favourable early weather conditions and a generally firmer tone in construction markets in the United States. In Europe however, trading was adversely impacted by very severe weather conditions in February, and by deteriorating confidence as uncertainty continued regarding Eurozone economic issues.

In the period, CRH spent a total of €256m on 18 acquisitions and investments, up from a figure of €163m the same time in 2011.

Myles Lee, Chief Executive, said today: “Problems in the Eurozone, which have intensified over the past six months, continue to erode consumer and business confidence in the wider European economy. In the Americas, current trends suggest that the benign early weather in the United States has resulted in some pull-forward of construction demand, while after good early momentum, the pace of economic growth has tempered over recent months. Against this backdrop, we expect that EBITDA for the year as a whole will be similar to last year’s level.Across the Group, we are advancing further our cost and efficiency programmes, adjusting our cost base in response to evolving market demand. In addition, in the face of ongoing margin pressures, sharpening our commercial focus remains a key priority. We continue to optimise our cash generation capacity through close attention to working capital management and capital expenditure, while also maintaining our strong and flexible balance sheet.”

Results detail

Barry Dixon of Davy commented: "The company reported EBITDA (earnings before interest, taxes, depreciation, and amortization) of €568m for the period, 4% below our €590m forecast and slightly below the €574m reported in the same period last year.

There was a marked difference in the performance of the European and Americas divisions, with profits from the European operations falling by 13% while profits from the Americas divisions increased by 26% in the period. A few observations are worth noting:

European Materials EBITDA increased by 11% year-on-year (6% organic growth), driven by strong volume growth in Ukraine (+28%). Volumes in Poland declined by 2%, significantly outperforming the market which was down 11% in H1. Volumes declined by a disappointing 13% in Switzerland while volumes in the Chinese associate declined by over 20% in H1. Margins in the division increased by 20bps excluding an €18m positive impact of pension restructuring gains.

Profits in European Products declined by 18% on an organic basis, driven by a 5% fall in like-for-like (LFL) revenues. The decline in revenues is similar to that experienced in the first four months of the year with Benelux particularly weak.

Profits in the European Distribution division fell by 29% on an organic basis on revenues which were 7% lower on a LFL basis. Weakness in the Netherlands, as well as increased price pressure in Switzerland, were among the main causes of the deterioration.

Americas Materials enjoyed a better-than-expected performance driven by 6% growth in asphalt volumes and a 5% increase in prices. Combined with higher aggregate volumes and prices, this resulted in organic EBITDA growth of 12%. Margins increased by 20bps.

Profits from the Americas Products division increased by 15%, driven by a strong performance from the pre-cast business. Profits in the Americas Distribution division were lower than our forecast, increasing by 27% on an organic basis, driven by 5% top-line growth. Margins increased by 20bps.

The company impaired its 26% investment in Uniland (Spain) by €130m — the original investment was €300m — and reported a profit on disposal (mainly its stake in Semapa) of €196m.

In terms of outlook, management indicated that top-line growth in its European operations is likely to be worse than the 5% decline reported in H1. In the Americas, LFL revenue growth is expected to be well below the 8% growth reported in H1.

On this basis, full-year EBITDA is expected to be broadly in line with the 2011 out-turn. This is c.5% below our current (and consensus) forecast. It is likely therefore that we will reduce our FY 2012 and FY 2013 forecasts by 4-5%.

Net debt was just over €3.9bn, in line with the level reported at the end of June 2011 and above the €3.5bn reported at the end of December. This includes the impact from the inflow of proceeds from the Semapa acquisition, offset by the normal seasonal uplift in working capital, capex of €314m, acquisition spend of €227m and a negative currency translation impact of €73m in the first six months of the year.

The company has maintained its interim dividend of 18.5c.

DAVY VIEW: The results and outlook reflect a more cautious (and realistic) view of the European construction sector with American markets also showing some signs of moderation from the strong first half. A 5% reduction in our FY 2012 forecasts implies an EPS of c.87-88c for FY 2012. At the current price of 1550c per share, this results in a P/E of over 17.5 times which is at the upper end of the sector range. While the company continues to have one of the strongest balance sheets in the sector and its robust cash generation will continue to support an unchanged dividend, the valuation is pricing in an imminent recovery in construction markets which at the moment is difficult to see."

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