FALLING DEMAND in key markets and a weak dollar are set to cut profits at building materials group CRH by 10 per cent this year, the company said yesterday.

The Dublin-based multi-national released interim results yesterday showing that profit before tax for the first six months of this year fell 10 per cent to €606 million from €670 million in 2007.

Chief executive Liam O'Mahony said the group now expected profits before tax for the full year to be down by around 10 per cent on the record €1.9 billion it reported for 2007.

In a statement, CRH said it expected operating profits in Europe would show a slight increase on the €1.16 billion it earned last year.

In the US it is forecasting that the €980 million it earned in operating profits in 2007 will fall by 20 per cent this year.

This estimate factors in the dollar's weakness against the euro, which is expected to cost the group €60 million this year, and which cut first-half profits by €21 million.

The forecast 10 per cent fall in profits for the full year is worse than the situation the group predicted in a trading statement last month.

This stated that CRH expected "a high single-digit percentage decline", that is, less than 10 per cent, in this year's profit before tax.

Around 5,000 jobs have been lost in the group's operations around the world, largely as a result of individual businesses within CRH cutting staff numbers.

Finance director and chief executive designate Myles Lee said yesterday that these measures were not the result of a concerted campaign at group level, but instead were the result of decisions taken by individual management teams on the ground.

Mr O'Mahony blamed the global credit squeeze and higher interest rates for slowing demand for building products in CRH's main markets, Europe and the US, which together account for 84 per cent of its business.

"Clearly what it is is the continued negative news flow around economic developments and the financial markets," Mr O'Mahony said.

He added that a recovery in the US would depend on signs that the credit squeeze was coming to an end. "We need some visibility on that, although there are some signs that the US housing market may have bottomed out."

Mr O'Mahony pointed out that less than one million new homes would be built in the US this year, around half what the market actually required. He argued that once it has worked through the current crisis, construction activity there would inevitably increase.

First-half sales in the group's Americas business fell 10 per cent on the same period in 2007 to €4.18 billion. Operating profits dropped 29 per cent to €197 million.

A foreign exchange charge of €35 million contributed to the €79 million fall in profits.

Sales in its European businesses were up 9 per cent on the same period in 2007 at €5.5 billion. Operating profits grew 4 per cent to €515 million, an increase of €20 million.

The group's figures show acquisitions made during 2007 and earlier this year were responsible for all European growth, and that there was an underlying decline of 14 per cent in profits.

Mr O'Mahony said it became clear during the second quarter that demand in a number of European markets was slowing. On the positive side, countries like Poland and the Ukraine continued to grow, while Portugal recovered during the period.

CRH spent €700 million on acquisitions during the first half.

Around €600 million of this went on two businesses, Pavestone in the US and a stake in Yatai in China. The group is waiting for regulators in both countries to approve these deals.

Mr O'Mahony is due to step down as chief executive on December 31st. Mr Lee will succeed him the following day.