As CRH resumes strong profit growth in the second six months, it also intends to return to the takeover trail after bedding down last year's US acquisitions. CRH, whose shares rose 10p to 742p yesterday, has spent only £48 million on acquisitions and development so far this year compared with £418 million in 1996. The goal this year was to bed down Tilcon and Allied Building Products and to look around and dispose of non-strategic businesses, said the chief executive, Mr Don Godson. It sold off businesses amounting to £43 million that did not have a long-term strategic fit and "we'll be back on the buy side in the second half and in 1998", he added. Mr Godson said he would be surprised if the group did not spend at least £100 million on acquisitions this year.
CRH made its largest ever acquisition last year when it purchased US construction materials company, Tilcon, for £203 million. It paid £75.6 million for Allied.
The group has 12 acquisition teams looking at opportunities in North America and western Europe. It is also interested in Poland, Argentina and Chile, "where we are looking very hard".
The acquisitions have made a small dent in its balance sheet. Gearing has disimproved from 40.3 per cent to 45.5 per cent and interest cover has been cut from 7.38 to 4.79 in the first half.
Nevertheless, CRH remains in a strong financial position and its gross cash flow increased from £110.8 million to £161.5 million in the first half, partly reflecting disposals. Outflows, however, were bigger and this is reflected in the increase in borrowings.
Cash-flow per share rose by 10 per cent to 25.96p. This covers the increased interim dividend a very comfortable 7.5 times. After the pedestrian 2 per cent profit growth in the first half, the group has resumed strong growth in the second half. Overall, pre-tax profit could rise by some 20 per cent to £230 million pushing earnings per share up from 40.6p to about 47p.
All geographical areas, with the exception of Spain, should make a positive contribution. The greatest potential is in North America, where the operations suffered from a fall in trading profits from £18.4 million to £14.4 million, even though sales doubled from £313 million to £620.7 million in the first half. This debilitating trend was reflected in the severe contraction in profit margins from 5.9 per cent to 2.3 per cent.
The group's North American operations are continuing to benefit from the favourable economic background. This, together with strong orders and contributions from the acquisitions, should reverse the trend. Domestic operations account for 36 per cent of profits and should, in common with other building materials companies, benefit from the boom conditions. British operations are continuing to benefit from the recovery in that market, but CRH has cautioned that higher interest rates may dampen the rate of growth in the second half.
