Comment: The sudden departure of Joe Doyle, managing director of building supplies group, Readymix, has placed a much needed focus on the company. Its financial record has been poor, and when judged against a booming industry, dismal is a more appropriate word. Worse, it is an anachronism. That begs the question, should it have a public quotation for its shares?
It would be easy to class it as being not very important. That would be wrong.
Granted it has one of the lowest profiles on the Irish Stock Exchange. And its weighting in the market is a mere 0.29 per cent of the quoted companies.
However, it has one of the more easily recognisable names in the building industry. It employs 1,200 people and has an estimated 20 per cent of the domestic readymixed concrete market. The dark side is that it has always been enveloped by a strait-jacket.
With 76 per cent of the shares being held by the British RMC Group (the ultimate parent is now Cemex, the Mexican building products group which acquired RMC last year), it has been constrained - unlike CRH and Grafton - from developing internationally. It just might be acceptable having a parent which is a holding group in non-competing products. But it is hardly acceptable for a publicly quoted company to have a parent trading in the same products.
Ironically, had RMC succeeded with its bid for Roadstone 30 years ago, there would be no CRH today - it arose from the merger of Roadstone and Irish Cement. Instead it would be merely a domestic operator; what a thought!
At one stage, it looked as if Readymix was being allowed to expand when it acquired the RMC Caterwood business from RMC. That gave it an entrée into the Northern Ireland and Isle of Man markets, which accounted for 35 per cent of last year's turnover. It also has a small concrete flooring operation in south east England and recently acquired SJ Martin, a quarry operator in Ballynahinch, Co Donegal.
However, Readymix has not been able to compete in RMC's markets. Such restrictions have not been in the interests of Readymix's minority shareholders. Is there not a clear conflict of interest between what is best for the minority shareholders, and what is beneficial for the parent company, RMC, and the ultimate parent, Cemex?
Clearly in terms of equity, Cemex should mop up the minority Readymix shares. In this age of transparency, share structures such as Readymix/Cemex are inappropriate.
Cemex, the world's third largest cement producer, appears to be a much more dynamic group than RMC, which has had a number of closures and sales over the past few years.
As announced last week, pending the appointment of a full-time successor to Joe Doyle, the slot has been taken over by Roger Gonzalez, a Cemex man who is Readymix's finance director, and who took over that position from Frank Lynch, who resigned just two months ago. With two of the most senior executives gone, Cemex is undoubtedly clearing the decks to do it its own way.
The Readymix statement, announcing the resignation of Joe Doyle by "mutual agreement", said the "interim management team will continue to drive the implementation of a range of performance improvement measures and initiatives approved by the board earlier this year". It added that the plans to "reshape the business, to reduce costs and improve margins are progressing apace". But it also badly needs to increase sales - not explicitly mentioned in the statement.
Looking at its record over the past five years, radical measures are needed. In a time of a booming construction industry its sales have shown virtually no growth between 2000 and 2004, pre-tax profit has been down, as have earnings per share. However, the dividends increased from 5.36 cent to 7.05 cent, benefiting the parent, as well as the minority shareholders, but was that prudent? This policy led to a dwindling of the cover from 3.7 to a mere 1.2.
And the latest figures for the six months to June 30th, 2005, don't inspire much confidence either. Sales were marginally up from €122.6 million to €126.0 million. Pre-tax profit jumped from €10.1 million to €27.6 million, but this was boosted by the inclusion of a €20.98 million profit from the sale of its disused quarry at Augury, Co Antrim. If this is excluded then profits, in effect, dropped to €6.6 million.
Also, the landfill operation at this quarry generated pre-tax profit of €1.2 million in 2004, so the company will be without this prop this year. Despite this, the interim dividend was maintained at 1.65 cent per share.
Readymix has said its fortunes are improving. They better be, otherwise a maintained final dividend might have to be paid out of reserves (excluding non-trading profits).
Readymix is in a relatively strong financial position. It had an operating net cash flow of €13.8 million in the first six months but the interim dividend of €5.9 million took almost half of that. It has a pension fund deficit of €8.5 million but net borrowings of €36.8 million gives it a low gearing of 27 per cent and plenty of financial flexibility.
With the emphasis on costs, it seems inevitable that there will be a pruning of employees. Most are employed outside the domestic market but 500 are employed in this State.
Readymix has been in slumber land for some time. Moves are afoot to change that. But will Cemex view Readymix as merely a subsidiary that does what it is told by only developing in its existing markets, or do the right thing and buy out the minority shareholders?
