Blue Circle plans to raise cement prices: RMC to respond with increase in price of concrete

BLUE CIRCLE and RMC, Britain's largest suppliers of cement and concrete respectively, are planning to increase prices, spurred by an improvement in demand since the start of the year.

The increases will be attempted despite expectations of a further fall in demand this year as commercial construction remains in the doldrums. Blue Circle, which suffered a 12 per cent fall in volumes in 1992, believes that demand will fall a further 5 per cent this year. RMC, whose volumes dropped 8 per cent last year, expects the decline to continue - albeit at a slower rate - in 1993.

Blue Circle is to increase prices of bagged and bulk cement from 1 May. It would not disclose the likely increase, but analysts expect about 4 per cent. Ian McKenzie, chief executive of the cement division, said he expected the majority of the group's customers to support the rise.

'They are looking for increases (in their own products) themselves. It could be that the cement increase is the catalyst they are looking for,' he said.

The reaction from RMC - Blue Circle's largest customer - bore out Mr McKenzie's claim. John Cooper, an RMC director, said: 'The cement industry has shed capacity so I have an uncomfortable feeling that, if they do go for an increase, it is unlikely to be undermined this time round.'

He added that RMC intended to increase prices of sand and gravel by 6 to 7 per cent from May, with a similar increase in concrete prices within the next few months.

The price warnings came as both companies revealed results ravaged by the construction downturn. At Blue Circle, UK operating profits fell from pounds 88.3m to pounds 33.8m - the main reason for a 20 per cent drop in operating profits to pounds 131.4m, despite a pounds 12.2m contribution from Celsius, the heating company acquired last summer.

Pre-tax profits fell 4.8 per cent to pounds 93.8m, but the performance was flattered by a pounds 59.7m profit on disposals - mainly on its South African business - which offset a pounds 71.5m charge for restructuring the cement business and writing down group properties. Restructuring charges last year were pounds 42.1m.

Earnings more than halved from 8.6p to 4p, partly because of the impact of the pounds 241m rights issue for the Celsius deal, but also because of surplus ACT and lower capital expenditure, But the dividend was maintained at 11.25p after a 7.5p final.

RMC's British businesses - which include the General Mills do-it-yourself chain, builders' merchants and aggregates supply as well as readymix concrete - made only pounds 10.2m profit, down from pounds 34.9m the year before.

But its western German business powered ahead, increasing profits by 36 per cent to pounds 123.2m, which meant that pre-tax profits were steady at pounds 166.6m.

The eastern German business, which is still treated as an associated company, also performed well, accounting for the bulk of the increase in the contribution from associates from pounds 6.7m to to pounds 14.1m.

Earnings per share fell from 36p to 31.2p, partly because of the minority interests in the German companies. The final dividend was maintained at 13.4p for an unchanged 20p total.

John Camden, a director for 30 years and chairman of the group since 1974, is to retire at the end of the month due to ill-health. He will be replaced by Jim Owen, whose current role as managing director will be filled by his deputy, Peter Young.

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