CRH expects 2014 profit growth

Irish building materials major CRH said 2013 represented a trough in its profits and expects growth in 2014 encouraged by improving trends in the USA and signs of stabilisation in Europe.

Full-year turnover eased by an underlying 0.3 per cent in 2013 to EUR18,031m while the EBITDA declined by 5.6 per cent to EUR1,475m. The trading profit before charging EUR650m of impairments was down by 10.0 per cent to EUR750m, with European building products accounting for nearly two thirds of this charge. The net interest charge declined by 2.6 per cent to EUR297m and a EUR26m gain on disposals, compared with EUR230m in 2012, gave rise to a pre-tax loss of EUR215 compared with a EUR646m profit. Ignoring the impairment charge, the underlying pre-tax profit would have been 32.7 per cent lower at EUR435m.

The net attributable result swung from a EUR538m profit to a loss of EUR296m. Net debt at the end of December was 2.0 per cent lower at EUR3,000m with the gearing level rising from 29.0 per cent to 31.0 per cent, as shareholder's funds declined by 8.5 per cent to EUR9662m as a result of the impairments charged.

Capital expenditure was reduced by 8.6 per cent to EUR497m and is expected to remain in the region of EUR500m for 2014. European turnover, which includes the still relatively modest contribution from the Asian operations, declined by 2.7 per cent to EUR8,578m, while in the Americas turnover increased by two per cent to EUR9453m. In terms of EBITDA, the European contribution again declined by double digits, or by a further 19.2 per cent to EUR583m, while the American contribution improved by 8.8 per cent to EUR892m.

Europe
The European heavy building materials turnover declined by another 4.9 per cent to EUR2266m, but the EBITDA fell by 21.0 per cent to EUR278m. Finland, Switzerland, Poland and the Ukraine were the main profit contributors. The contribution from the sale of emission rights was EUR23m lower at EUR8m.

Cement volumes in Switzerland increased by 12 per cent, though there was some price weakness because of the strength of the Swiss currency. Ukrainian cement deliveries were boosted by the acquisition of Mykolaiv Cement from Lafarge in September and rose by 13 per cent in a market that was down by three per cent. A very weak start to the year left Polish cement deliveries down by 11 per cent, in spite of a good second half improvement. Difficult conditions left volumes lower in the Benelux, Spain, now a wholly-owned subsidiary, Finland and Ireland, though the reduction in Ireland was now down to a modest percentage.

Aggregates and ready-mixed concrete shipments were lower in most markets, with the notable exception of Switzerland, but even in Switzerland the volumes were only modestly higher. The 26 per cent-owned associate in China sold 22m tonnes of cement, compared with a capacity of 27Mt.

European building products saw turnover decline by 4.1 per cent to EUR2,376m and the EBITDA fell by 21.7 per cent to EUR119m. Concrete products, which account for roughly half the profits, saw underlying turnover decline by some seven per cent, with activity levels being lower in the Dutch, Danish, German and French markets. Clay operations represented five per cent of EBITDA as the improvement in Great Britain was more than offset by the reduced profitability in Poland and in The Netherlands. Elsewhere, structural concrete in Belgium was stable, but other operations showed lower volumes. The European distribution activities saw turnover ease by 0.5 per cent to EUR3,936m and the EBITDA declined by 14.3 per cent to EUR186m. General builders' merchants accounted 45 per cent of the EBITDA from its 349 branches, while plumbing and heating contributed 25 per cent from its 126 outlets. The DIY business, which operates 196 stores, down from 238 stores a year ago, accounted for the remaining 30 per cent of the EBITDA.

North America
The North Americas heavy building materials turnover was some four per cent ahead in local currency, but, on conversion eased by 3.4 per cent to EUR4,721m but the EBITDA did edge ahead by 0.4 per cent to EUR557m. The 10 acquisitions during the year cost EUR77m and added 13 active quarries and 457m tonnes of reserves, seven batching plants and six asphalt plants. Volumes were slightly ahead at the underlying level and rose by seven per cent when including acquisitions, with average prices improving by two per cent, or by three per cent on a comparative basis.

Underlying ready-mixed concrete volumes declined by two per cent but increased by two per cent, once acquisitions are included and prices improved by five per cent overall and margins improved. Asphalt volumes suffered from adverse weather until August and declined by five per cent ahead, and excluding acquisitions were down by six per cent. Bitumen costs declined by four per cent ad other costs were also lower, not less notably so. Turnover from paving and construction services eased by five per cent because of wet weather delaying many projects.

Turnover in building products advanced by a further 9.3 per cent to EUR3,068m and the EBITDA rose by 20.6 per cent to EUR246m. Architectural products, which account for half of the divisional EBITDA, again saw an underlying sales growth of three per cent, better margins and good contributions from recent acquisitions. The trading profit, however, declined by 20.9 per cent.

Pre-cast products, which represent a quarter of EBITDA, was helped by improving markets and increased turnover by 6 per cent and registered a useful widening of margins. The architectural glass and storefronts business represents 20 per cent of building products sales improved volumes and margins. The South American operations in Argentina and Chile accounted for the remaining five per cent of the EBITDA, with profits improving in Argentina, but declining in Chile.

Finally, the American distribution business improved turnover by 5.6 per cent to EUR1,664m and the EBITDA emerged 7.2 per cent higher at EUR89m, with exterior products accounting for 70 per cent of the EBITDA.

Outlook
“We are encouraged by second-half activity levels in 2013 and by the fact that, while it is still early in the season, trading so far in 2014 has been ahead of last year.” Chief Executive Albert Manifold said.??"We believe that 2013 represents the trough in our profits, and that 2014 will be a year of profit growth," Mr Manifold, who took over last month following the retirement of Myles Lee, added.