Higher interest costs and lower profits from North America were the primary factors behind CRH's modest 2 per cent rise in pre-tax profit to £65.7 million in the six months ended June 30th, 1997. The results from the building products group, however, are better-than-expected, as it had predicted a slight drop in profit at the annual general meeting last May.
Group sales grew by 38.4 per cent to £1.39 billion. While profit before interest rose by 11.1 per cent, the gross margins contracted from 6.98 per cent to 5.5 per cent. Higher tax charges led to a fall in from earnings from 13.95p to 13.20p. Despite this fall, shareholders are to benefit with a 12 per cent increase in the interim dividend from 3.08p to 3.45p.
CRH said the latest results reflect the seasonal trading pattern of its enlarged North American operations and higher financing costs following 1996 acquisition activity. Currency translations had an adverse impact of £0.6 million compared with the first half of 1996. CRH recorded profit growth in all its main geographical areas with the exception of North America. The domestic market remains the most important in terms of profits, accounting for 36.2 per cent of the total, but only 12.5 per cent of sales. Trading profit in the Republic grew by 22.2 per cent to £27.7 million, while sales rose at the lower rate of 15.7 per cent to £173.7 million. Profit margins increased from 15.1 per cent to 16.0 per cent. This was attributed to good cost control by the chief executive, Mr Don Godson. There was only a modest price increase of 1 per cent, he said. CRH benefited from the strong construction activity in the domestic market. In contrast to the first half of 1996, demand was greatest outside Dublin. The exception to the general buoyancy, said CRH, was Premier Periclase. Profits declined because of weak pricing in international refractory markets and re-organisation costs to cope with difficult markets. The operations in Britain and Northern Ireland enjoyed good growth. Sales rose from £218.9 million to £263.1 million, while trading profit went up from £7.97 million to £10.63 million. In Britain, CRH benefited from rising housing starts which led to higher demand for building materials. Keyline recorded stronger sales and improved margins. The Forticrete Group was assisted by a rationalisation programme and "modest price improvements". Combat Polystyrene had an "excellent" first half, while in Northern Ireland, T.B.F. Thompson made a smaller contribution due to competition.
The businesses in mainland Europe saw a rise in sales from £322.1 million to £332.3 million and growth in trading profit from £19.9 million to £23.9 million. CRH noted that the major investment programme in recent years, together with better results, helped the operations in the Benelux countries. Spain, however, was the odd man out, with a decline in profits due to a "fiercely competitive market". The North America operations were also disappointing. Although sales almost doubled from £313.0 million to £620.7 million, trading profits fell from £18.4 million to £14.4 million. As a result, margins contracted from 5.9 per cent to 2.3 per cent. The decline is put down to a first-time inclusion of traditional seasonal first-half and first-quarter losses at Tilcon and Parson, which were acquired. There was also a slower-than-usual start to the construction season in the north-west. The Precast Group experienced strong performances in some states but these were more than offset by weaker results from other areas. In contrast, the Architectural Products group reported an "excellent profit growth" and the Distribution Group exceeded expectations. The group's associated companies in Germany and France had to contend with difficult markets. The Max Mat building materials joint venture in Portugal did well. Poland is "very exciting", said Mr Godson, and this could be built into a "very sizeable" operation in four to five years.
