CRH Unable To Build On Solid Foundations

Operating profit flat despite increased sales.

CRH (LSE: CRH) (NYSE: CRH.US) revealed in its interim results a headline profit before tax of €117 million, an increase of 23% on the previous year.

The building materials company saw its sales revenue increase by 5% to €8.6 billion but could not flow this through to operating profit, which was stable at €184 million. The encouraging sales figures were boosted by the performance in the Americas, which increased sales by 20% to €4 billion and EBITDA by 26% to €216m. In Europe, sales were down 5% to €4.6 billion and EBITDA reduced 13% to €352 million.

The pre-tax profit was aided by profits on the disposals of Secil and the German access control business totalling €196m. Overall, the profit before tax, excluding impairment charges and disposals, was down 45% to €52 million. The company has made progress in improving their bottom line with cumulative annualised savings of €2.1 billion from cost savings initiatives implemented since 2007, but will be hoping that they can keep a tighter control of their cost base going forward.

However, the dividend per share was maintained at 18.5 cents. The market reaction this morning showed a 4.43% drop of 54p to 1,165p.

Myles Lee, chief executive, said today:

"Problems in the Eurozone, which have intensified over the past six months, continue to erode consumer and business confidence in the wider European economy. In the Americas, current trends suggest that the benign early weather in the United States has resulted in some pull-forward of construction demand, while after good early momentum, the pace of economic growth has tempered over recent months. Against this backdrop, we expect that EBITDA for the year as a whole will be similar to last year's level.

"Across the Group, we are advancing further our cost and efficiency programmes, adjusting our cost base in response to evolving market demand. In addition, in the face of ongoing margin pressures, sharpening our commercial focus remains a key priority. We continue to optimise our cash generation capacity through close attention to working capital management and capital expenditure, while also maintaining our strong and flexible balance sheet."

Going forward, CRH completed a total development spend of €256 million, up from €163 million in 2011, on 18 acquisitions and investments. These are expected to contribute annualised sales of €260 million, of which €81 million has already been reflected in the interim 2012 results.

The eurozone remains the challenge for CRH with consumer and business confidence still unstable. A chink of light coming from the Americas may be the saving factor this year.

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Source The Motley Fool