Shares in CRH nudged ahead by 20 cent to €25.50 after the building materials group shrugged off tough conditions in Europe to project record pretax profits of more than €1.25 billion for 2005, up €150 million in the year.
A year after CRH broke the €1 billion profit threshold, the projection in a trading statement came after an acceleration in development spending in the second half of the year. This brought CRH's overall expenditure on acquisitions and capital projects to €1.45 million.
Group chief executive Liam O'Mahony told analysts that CRH expects a positive out-turn for 2006 in spite of the challenges it faces after big energy price rises last year and subdued conditions in some European markets. CRH enjoyed "better success" last year in passing on higher energy costs by raising the price of its own products, he said.
Mr O'Mahony was speaking in a conference call after the group said the outlook for 2006 was "on the whole positive" given signs of a pick-up in the Dutch economy, a new highway bill in the US and its increased acquisition activity.
With profits on the rise or steady in most business units, the only black spot for the group was a projected fall in operating profits in the European products division. This was due to tough conditions in the clay, insulation and architectural products section of that unit.
CRH said it took the benefit from strong organic growth in the Americas in the first half and "coped well" with higher energy costs there and a moderation in construction growth in the second half. Even though a sharp rise in third-quarter energy costs in the Americas material business absorbed pricing benefits in the first half of the year, CRH said the division will report higher full-year operating profits and an improved profit margin.
The Americas product business is projected to deliver a "good improvement" in full-year operating profits, despite slower second-half growth. Significant margin and profit improvements are expected in the precast product unit while glass group profits saw strong organic sales and profit growth. However, the architectural products were held back by slower second-half demand and tighter margins.
CRH also said the Americas development products unit saw a significant rise in second-half business after a quiet first half.
Trading in the European units improved in the second half of the year, it said.
Full-year operating profits in the European materials business would show a satisfactory improvement, with continued strength in Ireland and a second-half improvement in Finland and the Baltics. Cement volumes improved in Switzerland, the Spanish market remained strong while Portuguese cement maker Secil saw some softening in demand after a positive first half.
Operating profits in the European distribution unit are expected to be similar to 2004 given lower profits in the Benelux DIY business and a difficult first half in its Dutch and French builders' merchant operations.
NCB analyst John Sheehan said in a note that he expected to increase his earnings per share forecast by 3-4 per cent to 185 cent as a result of the statement. The expenditure on acquisitions was €200 million higher than forecast, he said.
"This will provide significant support entering 2006 and we expect to upgrade our forecast of 201 cent to circa 205 cent."
Analyst Joe Burnell at house broker Davy said it was encouraged by the increase in acquisition activity. He said the new deals disclosed yesterday should give a boost to the European products and distribution unit after its failure to make progress in 2005.
