Market responds positively despite CRH profit warning

BUILDING MATERIALS group CRH yesterday announced it expected its full-year profits to fall by the low to mid-teens in percentage terms.

This represents a deterioration since August when it was predicting a 10 per cent fall in pretax profits.

However the group, among the largest builders' suppliers in the world, revealed it was taking steps to rein in spending, including acquisition spending, in order to strengthen its balance sheet. It also cancelled its share buyback scheme.

The market responded positively and the CRH share price ended the day up 3.49 per cent, at €17.19.

In the interim management statement the group noted the greater decline in expected profits was due to the fallout from the US subprime crisis in European markets in the period since August.

Since August, the group said, "financial markets have been impacted by an unprecedented series of events which have contributed to an increasingly cautious business climate across the world.

"This change in sentiment has been most marked in Europe, which had previously been only moderately affected by the fall-out from the sub-prime crisis in the United States, resulting in weaker than anticipated September/ October trading in a number of European markets.

"In contrast overall trading in our American activities has, despite the increased financial market turmoil, evolved broadly along the lines anticipated in our August outlook".

The group said that while "the outlook for 2009 is challenging given the growing impact of ongoing turmoil in financial markets on the broader world economy, there are some positives with declining energy costs, world-wide interest rate reductions, a potential US infrastructure stimulus package and translation benefits of a stronger US dollar.

"Our attention and actions are resolutely focused on ensuring that our businesses are strongly positioned to cope with whatever circumstances may evolve and on further strengthening our existing financial flexibility."

Davy analyst Barry Dixon said: "It is one of the strongest balance sheets in the sector. There had also been concern about its refinancing requirements, but they have said they have refinanced €1.5 billion of €2.8 billion outstanding and are close to completing the remainder."

He said the market had also been encouraged by the possibility of an infrastructure stimulus package in the United States.

The group's debt figure at year-end was likely to be between €6 billion and €6.5 billion, but this was well within the company's debt covenants, finance director Myles Lee told analysts on a conference call.

He said the firm would call a halt to its long-running takeover spree until markets improved. "There will be compelling value to be seen in the sector, but it will probably take a lot longer to materialise . . . into 2009, or even 2010," he said.

In its comments regarding Europe the group said construction growth in Poland and Ukraine, which more than compensated for declines in the Irish and Spanish markets in the first half of the year, has slowed over recent months.