CRH says pretax profits for 2006 are likely to be more than 23% ahead, beating the €1.28bn recorded in 2005 by about €300m.
All parts of the European business have done well: after a good first half, materials gained momentum in the more profitable second half; products saw stronger underlying trading to contribute higher profits and margins; distribution saw profits substantially ahead thanks to acquisitions and organic growth.
More surprising is that CRH has done well in the Americas despite the US housing downturn. Materials is said to have achieved significant success in recovering higher input costs despite lower volumes while products and distribution will both chip in with higher profits.
Better weather in the second half, when CRH makes more of its profits, certainly helped, as did acquisitions, but it is clear that the business overall is thriving, making headway where trading conditions are favourable and more than holding its own against any setbacks.
In Ireland, the continuing strong residential market was again the main driver of activity, chief executive Liam O'Mahony says. The commercial and industrial sectors remained strong while the country’s National Development Plan continued to boost roads and other infrastructure.
Finland benefited from stronger housing demand, increased commercial and industrial construction and a number of major infrastructure projects.
Construction demand improved in Poland with an increase of over 20% in cement volumes. In the Ukraine, higher sales and prices more than offset severe price rises for gas.
Switzerland shrugged off the completion of the concrete-intensive stages of the major Loetschberg alpine tunnel by increasing prices and pushing readymixed concrete, aggregates and asphalt.
Only in Iberia were profits held down to the previous year’s levels.
Across the Atlantic, results were more patchy thanks to varying local conditions but the overall picture is one of improvement in sales and profits with margins holding steady.
CRH has expanded rapidly through acquisitions, which have boosted revenue by €3.3bn over the past 18 months. It spent €1.3bn on buying up more than 30 other companies in the second half of the year, even after deducting €200m revenue from selective disposals, taking the full year total to a record €2.1bn.
The second half saw the completion of the group's largest ever transaction, the acquisition of Ashland Paving and Construction, a leading US aggregates, asphalt and heavy highway construction company, for $1.3bn. Non-core asphalt and highway construction units were quickly sold off.
This spending will push up borrowing costs but the past year’s interest bill will be covered a comfortable nine times by earnings so more acquisitions are likely.
For this year, O'Mahony says the overall outlook for European construction demand in 2007 remains positive. In the US, the decline in new residential construction, which accounts for less than 10% of group turnover, will affect construction demand but other parts of the business should make up the shortfall.
Results for 2006 are due to be announced on 6 March.
The shares eased 18 cents this morning to €31.37 despite the strong trading statement, though they are still well up from the 12-month low of €23 in June.
The forward PE is not particularly demanding at 13.1 but the prospective yield is a little offputting at only 1.7%. UK investors should bear in mind that the shares are quoted in euros so the equivalent price in sterling can fluctuate with exchange rates.
