Friday 27 April 2018

CRH manages to drop a big clanger at an otherwise cheerful half-year results party

LAST week marked the peak of the interim results season with no fewer than seven Irish-quoted companies reporting their first-half results. After the gloom of recent years all of the companies reporting, with one notable exception, were more optimistic about their future prospects.

First out of the traps was building-materials company Kingspan, which published its interim results on Monday. The word from Kingspan was positive, with operating (pre-interest) profits up 9 per cent to €33m -- the first increase in three years -- and net debt down by €95m to €135m and a resumption of dividend payments. For the second half Kingspan is promising "a robust sales performance".

Aer Lingus reported its first-half results on Tuesday. Under new boss Christoph Mueller, the former State-owned airline seems to be gradually getting to grips with its many problems. While sales fell by 3 per cent at the airline in the first half, operating costs fell by 14 per cent. This meant that operating losses fell from €93m to just €19m. Even better news was that the cash drain from Aer Lingus seems to have been staunched, with its cash reserves stabilising at around €400m.

The future outlook at Aer Lingus also seems to be positive, with Mr Mueller promising that the company will break even at the operating level for the full year and, while he shied away from predicting profits in 2011, he did promise "ongoing improvements in our cost base", which probably amounts to the same thing.

On Wednesday, it was the turn of dairy processor Glanbia and farmer-controlled insurance company FBD to report their first-half results.

Despite the failure of a sufficient majority of the co-op shareholders to approve a divorce from the PLC last May, Glanbia reported a strong first-half performance with sales up almost 10 per cent to €1.3bn, while operating profits, boosted by stronger dairy commodity prices, were up by 39 per cent to €66m.

And there is almost certainly more good news to come from the Kilkenny-based firm, with chief executive John Moloney now promising 20 per cent growth in earnings (after-tax profits) per share for the full year.

The word from FBD, which also reported on Wednesday, was more subdued. It reported a 13 per cent decrease in operating profits to €11.3m while, with the insurance market tightening, the best that chief executive Andrew Langford could offer shareholders was either static or slightly increased full revenue.

On Friday, both media group Independent News and Media and ferry company Irish Continental Group (ICG) unveiled their first-half figures.

Once again, both companies delivered excellent first-half performances, with INM first-half sales up almost 8 per cent to €656m and operating profits powering ahead by 29 per cent to almost €29m. And the outlook for the rest of the year is also positive, with Independent boss Gavin O'Reilly promising an increase in full-year operating performance in line with market expectations.

Unlike both Aer Lingus and Ryanair, both of whom were hit by the disruption caused by the Icelandic volcanic ash cloud last April and May, ICG was one of the beneficiaries as travellers switched from air to sea travel to ensure they reached their destinations.

As a result, ICG delivered a storming first-half performance with passenger numbers up by 12 per cent to 695,000 and operating profits soaring by 24 per cent to €8.8m. However, chairman John McGuckian's comments on ICG's likely full-year prospects were surprisingly downbeat, telling shareholders that the company was "cautious" about the economic prospects for the second-half of the year.

Somehow I can't help feeling that, after an excellent first-half performance, ICG was deliberately massaging full-year expectations downwards.

While six of the seven companies reporting last week had good news for their shareholders, it was a different story at CRH -- Ireland's largest industrial company and, until it was recently overtaken by Tullow, the most valuable -- whose shares were traded on the Irish Stock Exchange.

CRH published its interim results on Tuesday and boy were they a shocker.

While the 8 per cent drop in sales to €7.6bn and the halving in operating profits to just €118m were not unexpected, it was what chief executive Myles Lee had to say about CRH's second-half prospects that stunned the market.

Blaming lower-than-expected levels of construction activity in the United States and the translation effects of a weaker dollar against the euro, Mr Lee predicted that full-year EBIDTA (earnings before interest, depreciation, taxation and amortisation), which CRH had been reckoning would be higher in 2010 than the 2009 level of €1.8bn, would be 10 per cent lower.

The announcement unleashed a heavy bout of CRH share sales with the price falling as low as €11.70. At that price, CRH shares were down almost 50 per cent on the levels reached last April. The current share price values the company at just €8.5bn, leaving it potentially vulnerable to a predator.

The dreadful news from CRH ensured that, despite six of the seven companies reporting last week having relatively good stories to tell, the index of non-industrial Irish shares fell by more than 3 per cent. When the two banks were toppled from their pedestals, investors consoled themselves with the thought that there was always CRH. A few more stinkers like we had last week and will CRH also be laid low?

Sunday Independent

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