CRH plc, (formerly known as Cement Roadstone Holdings plc.), has reported that the first four months of 2010 saw like-for-like sales in Europe fall by 14%. The results which were announced in their interim report on the 5th of May highlight the decline in profitability of CRH in recent years.
The company, which has had a financially tumultuous couple of years, says that extreme weather conditions caused a drop in sales in the early months of this year, especially in Ireland and the Ukraine.
The company also blamed the bad weather conditions of the United States, especially those experienced in the southern states on a 13% decline in like-for-like sales there also. The poor weather explanation seems plausible; in January and February, the two months with the harshest weather saw sales in North Europe drop by 23% but stabilising to 14% by the end of April and 25% in theUSrising to 13% by the end of April.
The decline in like-for-like sales comes after a disastrous end of year report by the company. The company which is the second largest building materials supplier in the world and first in theUS, posted an end of year decline in share value of 58% from €2.33 to 88cent.
End of year operating profit fell 48% from €1,841 million to €955 million. A substantial loss in profit (11%) was due to restructuring and impairment costs. Impairment charges constituted a large portion of the drop in profit at €41 million.
Myles Lee, chief executive, acknowledged that 2009 had been a difficult year for construction and indicated that the recession had caused CRH difficulties.
“The extreme turbulence experienced in financial markets in the second half of 2008 took its toll on world economic activity in 2009, most particularly in Europe and the US. Construction activity in these regions was hard hit as residential and non-residential markets declined, with government-funded infrastructure investment only partially compensating,” he said.
Government-funded infrastructure in the United States has helped to maintain profits for CRH and the stimulus has benefited the company.
“The materials business in the US has been very well supported by the infrastructure stimulus launched earlier in the year and that has had greater impact as we moved through 2009, and will contribute more funding for highways and bridges in 2010 as well”, Lee said.
The decline in profits in Poland have also been somewhat mitigated by the preparations for the Euro 2012 as the country works to improve infrastructure and stadiums and Lee expects Poland to be a profitable source of income throughout 2010.
“In Poland, which has weathered the economic downturn better than many other European countries, our operations are well-placed to benefit from infrastructure-driven growth in 2010,” he said.
The company also hopes to exploit currencies’ weaknesses this year and Lee anticipates that the weak performance of the euro will increase profits. “Recent euro-weakness and the relative strengthening of the Polish Zloty and US Dollar compared with 2009 will, if maintained, be beneficial in 2010,” he said.
Goodbody’s note that the acceleration of the infrastructure stimulus, the American Recovery and Reinvestment Act (ARRA) is likely to have a great impact on CRH as its spending begins to accelerate in the coming months.
“With funds fully apportioned, the trend in obligated funds should accelerate in the coming months as the states need to distribute all the funds by the end of September, otherwise, it is redistributed to other states. Such momentum, along with the ARRA funds, underpins solid construction activity for infrastructure in the coming 18 months, a segment that represents over a third of CRH’s US business,” they said today.
With the USbranch of CRH accounting for almost 45% of its sales, the coming influx of stimulus money should prove very favourable for CRH and its profits. This should hopefully have a knock-on effect on share prices which remain very changeable at the moment.
Share prices have begun to rally recently with share prices reaching highs of €21.779 on May 4th, the day before the interim report but closing yesterday at €18.305. The drop in sales comes after a disastrous 2009 which saw the company warn of an expected 55% drop in revenue in January 2010. However, despite an encouraging reduction in debt, from €5.1 billion in June to €4 billion in January, the company does not expect to increase year end profits on last year.
The company expects to decrease its operation costs significantly again this year. 2009 saw them cut €643 million from their running costs and they have stated that they are aiming to cut a further €260 million this year.
However, things are beginning to improve for CRH and as of May 10th, they expect to increase core profits for the second half of the year. A large proportion of this profit is likely to come from the ARRA stimulus which should help to maintain profitability for at least eighteen months.
The second half of the year is also expected to bring other changes to CRH as managing director of Europeproducts and distribution, Máirtín Clarke, is due to step down on May 31st. He will be replaced by Erik Bax, who is the current managing director of CRH’s European Distribution Business.
Shareholders should remain cautiously optimistic as the second-half of 2010 promises to be better overall for CRH plc.
–Erica Mills Media
ERICA MILLS 