3rd Jan 2007 07:00
CRH PLC03 January 2007 FULL YEAR 2006 TRADING UPDATE STATEMENT CRH plc, the international building materials group, today issues this tradingstatement for the year ended 31 December 2006. The Preliminary Results for 2006are due to be announced on Tuesday 6 March 2007. Highlights Against a background of higher input costs and declining US residentialconstruction, CRH has once again performed strongly in 2006 to deliver recordfull year organic growth and a significant incremental contribution fromacquisition activity of euro 3.3 billion over the past eighteen months. As aresult, full year profit before tax is expected to be approximately euro 300million ahead of the euro 1,279 million reported for 2005; this would representan increase of over 23%. Total acquisition expenditure in the second half of 2006 amounted to euro 1.3billion (net of selective APAC disposals) resulting in a record full yearacquisition spend of approximately euro 2.1 billion. In Europe Materials, after a good first half operating profit improvement,stronger momentum in the more profitable second half is expected to result in avery satisfactory profit advance for 2006. With Europe Products experiencing good acquisition contributions and strongerunderlying second half trading we anticipate a much improved full year operatingprofit outturn and a welcome step-up in operating margin. Europe Distribution operating profit is expected to be substantially ahead of2005 levels reflecting satisfactory acquisition contributions and good organicgrowth. Americas Materials achieved significant success in the recovery of higher inputcosts and, despite softer volumes, we expect a substantial organic operatingprofit advance in 2006 and a further recovery in underlying operating margin.This combined with good acquisition contributions is expected to result in anexcellent outcome for 2006. Americas Products is expected to deliver a good full year profit advance and animproved underlying operating profit margin, excluding acquisition effects. Against a generally positive backdrop, full year operating profit from AmericasDistribution is expected to show good growth with margins similar to theexcellent level achieved in 2005. With an ongoing focus on price and cost effectiveness across our operations,further benefits from the record 2006 acquisition spend and a sustained emphasison development, we expect to achieve further progress in the year ahead. This trading statement contains certain forward-looking statements as definedunder US legislation. By their nature, such statements involve uncertainty; as aconsequence, actual results and developments may differ from those expressed inor implied by such statements depending on a variety of factors including thespecific factors identified in this trading update and other factors discussedin our Annual Report on Form 20-F filed with the SEC. CRH will host an analysts' conference call at 8.00am GMT on 3 January 2007 todiscuss this statement and the Development Strategy Update. The dial-in-numberis +44 20 7162 0025. A recording of the conference call will be available from10.00am GMT on 3 January 2007 by dialling +44 20 7031 4064. The security codefor the replay will be 731031. Contact CRH at Dublin 404 1000 (+353 1 404 1000) Liam O'Mahony Chief ExecutiveMyles Lee Finance DirectorEimear O'Flynn Head of Investor RelationsMaeve Carton Group Controller Overview CRH performed strongly in 2006. First half activity benefited from an especiallystrong performance from our operations in the Americas and an improvedperformance in Europe resulting in a euro 143 million increase in profit beforetax to euro 526 million (2005: euro 383 million). In the second half, tradingacross our European businesses gathered momentum and, although US residentialconstruction declined, our American operations continued to perform well.Contributions from our 2006 acquisitions were in line with expectations but thehigh level of acquisition spend, coupled with rising interest rates, resulted ina significant increase in financing costs. Against this backdrop and helped bygenerally favourable weather in the final months, profit before tax in theseasonally more significant second half will show a very satisfactory advance.As a result full year profit before tax is expected to be approximately euro 300million ahead of the euro 1,279 million reported for 2005; this would representan increase of over 23%. The average 2006 US$/euro exchange rate of 1.2556 showed relatively littlechange compared with 2005 (1.2438). Europe Materials In Ireland, the continuing strong residential market was again the main driverof activity. The commercial and industrial sectors remained strong while theNational Development Plan continued to deliver good roads and infrastructureactivity. Our operations in Finland benefited from stronger housing demand,increased commercial and industrial construction and a number of majorinfrastructure projects resulting in good volume increases, better prices andimproved profitability. Our businesses in the Baltic States and St. Petersburgalso delivered a better outcome. Construction demand in Poland during the year proved particularly robust with anincrease of over 20% in our cement volumes. Although pricing remainedcompetitive, good marginal contributions on higher volumes in cement anddownstream operations resulted in a significant advance in operating profit. Inthe Ukraine better volumes, efficiency gains and improved pricing more thanoffset the impact of severe gas cost increases resulting in higher operatingprofit. In Switzerland, as expected, the completion of the concrete-intensive stages ofthe major Loetschberg alpine tunnel led to a reduction of approximately 10% inour cement volumes. However, with better cement prices and a good advance inprofitability in downstream readymixed concrete, aggregates and asphaltoperations overall results improved. While our Spanish readymixed concrete and concrete products operations hadhealthy volume increases due to strong residential and infrastructure demand,higher input costs and increased competition put pressure on margins resultingin a profit outcome broadly similar to 2005. The Group's 26.3% associate stakein Spanish cement producer Corporacion Uniland will be accounted for using theequity method in reporting 2006 results. In Portugal, construction declinedreflecting reduced activity in housing and a significant reduction in publicexpenditure. Despite this decline in domestic demand, our Secil joint venture incement and downstream products had a satisfactory year helped by strong demandin export markets and tight cost control. After a good first half operating profit improvement, stronger momentum in themore profitable second half is expected to result in a very satisfactory profitadvance for 2006. Europe Products Our Products operations benefited from improving markets particularly in thesecond half of 2006 In Concrete Products, structural operations (floor & wall elements, beams,vaults and drainage products) delivered excellent results with better marketdemand in Netherlands, Belgium, France, Denmark and Poland. Despite a slow startour architectural operations (pavers, tiles and blocks) were well ahead of lastyear helped by advances in Belgium, Denmark and Slovakia and by a full year'scontribution in France from Stradal, which was acquired in August 2005. Marketconditions in Germany continued to be difficult but our focus on internalimprovements and sales prices resulted in a better performance. These positivetrends far outweighed the adverse impact of continued price competition in ourDutch architectural operations and poor UK market conditions. With benefits from2005 and 2006 acquisitions and excellent organic growth, overall profitabilityin Concrete Products advanced strongly. n Clay Products, while UK brick demand continued to decline during 2006 andproduction shutdowns implemented early in the year negatively impacted firsthalf profitability, good cost control and price increases resulted in maintainedsecond half profitability. The overall decline in UK profitability was offset bya better outcome from our Mainland European operations with our Polish and Dutchbusinesses delivering good improvements. In Building Products, although Insulation operations continued to experiencesevere volatility in raw material costs, restructuring initiatives and good costcontrol delivered an improved performance. The enlarged Construction Accessoriesbusiness benefited from the Halfen-Deha acquisition, completed in May, and fromincreased profit in heritage operations. Fencing & Security turned in betterresults despite competitive markets and higher input costs. Against a continuingcompetitive trading backdrop Daylight & Ventilation maintained 2005 operatingprofit levels. With good acquisition contributions and stronger underlying second half tradingwe anticipate a much improved full year operating profit outturn and a welcomestep-up in operating margin. Europe Distribution DIY: despite improved consumer confidence, the DIY market in the Benelux showedonly moderate growth for 2006 as a whole. Against this backdrop our branchnetwork reported another satisfactory year with improved profitability. Bauking,the German builders merchant and DIY business in which CRH acquired a 48% stakein December 2005, delivered sales and profits in line with expectations. Our DIYjoint venture in Portugal made good progress opening one further locationfollowing five such openings in 2005. Builders Merchants: With a strong recovery in new housing activity, 2006 sawincreased momentum and profitability in our Dutch businesses. Our Frenchoperations also advanced with good market demand and benefits from profitimprovement measures of recent years. Our Swiss businesses delivered asignificant increase in profitability through a combination of acquisitionbenefits and organic growth. While Quester, the leading Austrian buildersmerchant acquired in October 2005, had a disappointing start to the year,following first-half re-organisation measures the business delivered a muchimproved performance in the second half. In Germany, Bauking's buildersmerchanting activities benefited from better demand and with rigorous costcontrol results exceeded expectations. Operating profit in Europe Distribution is expected to be substantially ahead of2005 levels, reflecting satisfactory acquisition contributions and good organicgrowth. Americas Materials The Americas Materials Division had an excellent outcome achieving significantsuccess in recovering higher energy and other input costs with average priceincreases ranging from approximately 10% in aggregates to well over 20% inasphalt. Non-residential demand continued to improve and while overall fundingavailable for highway programmes showed a satisfactory improvement on 2005levels, with relatively fixed budgets the volume of activity was impacted by thestrong price increases. Against this background, and as expected, heritagevolumes registered a decline of approximately 3% to 4% in aggregates and asphaltand of approximately 2% in readymixed concrete. In New England, a very strong year in Massachusetts and improved trading in NewHampshire and Vermont more than offset a lower outcome in Connecticut and Maineas both states reduced highway spending. In New York/New Jersey our businessesserving the New York metro area delivered record results reflecting stabledemand, real price increases and internal cost efficiencies, while in UpstateNew York both our Albany and Rochester businesses advanced. The Central region delivered record results with strong price improvements andbenefits from its bitumen winter-fill programme which mitigated significantbitumen cost increases during the busy highway paving season. Although activityin Michigan continued to suffer from poor public and private markets, ourbusinesses made progress. Mountain Companies, acquired at end-October 2005 andnow part of Central region's Appalachian Mountain Group, had a satisfactoryyear, although volumes were somewhat lower than anticipated due to higherproduct prices. The West region delivered another excellent outcome as, with theexception of Iowa, local economies remained strong contributing to generallybuoyant demand and an improved pricing environment. Integration of Ashland Paving And Construction (APAC), acquired at end-August,has progressed well with the ongoing realisation of near-term synergies andselective disposals of peripheral contracting and asphalt units. Underlyingtrading in the business, for our first four months of ownership, was in linewith expectations and we expect a satisfactory operating profit contribution,post-integration costs. APAC's structurally lower margins and integration costswill of course impact the overall Americas Materials operating margin. With significant success in the recovery of higher input costs, and despitesofter heritage volumes, we expect a substantial organic operating profitadvance in 2006 and a further recovery in heritage operating margin. Thiscontinues the strong progress achieved in 2005 which combined with goodacquisition contributions is expected to result in an excellent outcome for2006. Americas Products Following a very strong first half, the demand backdrop and underlying growthrates for our Americas Products operations moderated through the second half ofthe year as residential construction activity declined. However, overall secondhalf demand remained broadly positive helped by strong and growingnon-residential markets which offset the ongoing residential decline.Regionally, our operations in the western and southeastern states performedparticularly well in strong overall markets, while the Midwest operationsimproved on 2005. Results from northeastern operations were weaker. The Architectural Products group (APG) faced tougher residential markets in thesecond half, particularly in Northeast and Midwest but delivered a robustperformance for 2006 as a whole, despite a disappointing performance in baggedsoil and mulch activities which operated in a very difficult pricingenvironment. Our Precast businesses had another record year with growth incommercial and infrastructure construction, good cost control and effectiveprice management leading to improved profits and margins. The Glass Group hadan excellent year with increased non-residential activity and demand for energyefficient and laminated architectural glass products contributing to very strongorganic growth. MMI, our new mainly non-residential oriented product platformacquired at end-April, was affected by weakness in its less significantresidential product segments. Due to its particular business mix, MMI'soperating profit margin is much lower than in our existing APG, Precast, andGlass activities. Overall, these activities are expected to deliver a good full year profitadvance and an improved underlying operating profit margin, excludingacquisition effects. Americas Distribution While the latter months of the year saw declining demand in the new-buildsegment, 2006 was another year of growth for Americas Distribution with goodperformances from both heritage and acquired businesses. Replacement demand,particularly for roofing/siding products, remained generally robust throughoutthe year. Florida roofing/siding experienced a decline in the second half of2006, following 24 months of unusually high activity levels generated byextensive storm damage during the 2004 and 2005 hurricane seasons. The last twoyears have seen a major expansion of our interior products activities(wallboard, steel studs and acoustical ceiling systems) and 2006 had the benefitof excellent incremental sales and operating profit contributions fromacquisitions in this segment. Against a generally positive backdrop, full year operating profit is expected toshow good growth with margins similar to the excellent level achieved in 2005. Acquisitions First half acquisition spend amounted to euro 0.8 billion. This included thepurchase of MMI Products, a US manufacturer of fencing products, welded wirereinforcement and construction accessories, and Halfen-Deha, a leading Europeanproducer of metal construction accessories used in commercial, civil engineeringand residential construction, along with 34 other acquisitions across ourvarious product segments. The second half of the year was notable for the completion of the Group'slargest ever transaction with the acquisition of Ashland Paving AndConstruction, Inc. (APAC), a leading US aggregates, asphalt and heavy highwayconstruction company, for a total consideration of $1.3 billion. Subsequentselective disposals prior to year end of non-core asphalt and highwayconstruction units in line with the re-focusing of APAC's activities reduced thenet outlay to approximately $1.1 billion. In addition the Group invested $50million in a 50% equity stake in American Cement Company which was formed todevelop and operate a new cement plant in central Florida. These, combined with31 other second half acquisitions at a cost of euro 0.4 billion, resulted intotal second half acquisition expenditure of euro 1.3 billion and a record fullyear acquisition spend of approximately euro 2.1 billion. Financial While cash generation has remained strong, development activity and risinginterest rates will result in a substantially higher full year interest chargecompared with 2005. However, with improved profitability, Group EBITDA/netinterest cover for 2006 is expected to exceed 9 times providing significantongoing capacity to avail of attractive acquisition opportunities as they arise. Outlook Against a background of higher input costs and declining US residentialconstruction, CRH has once again performed strongly in 2006 to deliver recordfull year organic growth and a significant incremental contribution fromacquisition activity of euro 3.3 billion over the past eighteen months. The overall outlook for European construction demand in 2007 remains positive.In the US, while the decline in new residential construction, which accounts forless than 10% of annualised CRH Group turnover, will impact overall constructiondemand, we expect to benefit from our broad geographic, product and end-usediversity. Notwithstanding recent US$ weakness, with an ongoing focus on priceand cost effectiveness across our operations, further benefits from the record2006 acquisition spend and a sustained emphasis on development, we expect toachieve further progress in the year ahead. * * * * CRH plc, Belgard Castle, Clondalkin, Dublin 22, IrelandTELEPHONE +353.1.4041000 FAX +353.1.4041007E-MAIL [email protected] WEBSITE www.crh.comRegistered Office, 42 Fitzwilliam Square, Dublin 2, Ireland This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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