Increased costs halve profits at Readymix

High costs halved profits at building supplies group Readymix last year, according to results published yesterday.

The company, which supplies readymixed concrete and other products to builders, admitted that its financial results were disappointing, but pointed out that it had flagged this fact in a profit warning last December.

Sales last year grew 7 per cent to €247.5 million from €231.5 million in 2003. However, profits slumped to €11.4 million from €22.5 million over the same period. The company is 63 per cent owned by RMC plc.

Earnings per share (eps) dropped at a similar rate, coming in at 8.5 cent, as against 16.9 cent in 2003. This was broadly in line with expectations, stockbrokers NCB recently predicted earnings of 8.4 cent per share.

The sharp fall in earnings was attributed to the high cost of raw materials like cement and aggregates; and in labour and energy.

NCB analyst, John Sheehan, pointed out yesterday that despite strong growth in the Irish building sector last year, the market for supplies remained competitive.

"They just weren't able to get a price increase," he said. "Volumes are at record levels, but costs increased at a faster rate than the selling price." Mr Sheehan added that CRH, which reports today, has said that it experienced the same pressures in the Irish market.

Readymix's dividend remained unchanged at 7.05 cent. However, this meant that the company's dividend cover - the ratio of dividend per share to eps - halved to 1.2 compared with 2.4 in 2003.

Its balance sheet remained strong. The company had a debt to assets ratio of 31 per cent at the end of last year. Shareholders' funds increased by €1 million to €129.2 million, while net borrowings stood at €40 million.

Readymix is facing further pressure with another 7 per cent rise in cement prices due in the early part of this year. Mr Sheehan warned that this would increase the pressure on the company's costs.

"They need to take out costs and they need to get price hikes," he said. Readymix has promised a review of its cost base, but this is unlikely to have an impact until later in the year.

However, sales will remain strong as the construction sector looks set for another good year. Mr Sheehan predicted that earnings could improve to around 10.4 cent a share by the end of 2005. NCB gave it a "reduce" rating while Goodbody recommended selling at €2.15.

Readymix shed four cent to close at €2.06 in Dublin last night.