German housing slump hits Redland and RMC

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The Independent Online

City Editor

Bricks and roof tiles group Redland warned yesterday that a continuing slump in the western-German housing market, from which it earns about half its operating profit, would mean 1995 profits below expectations. Its shares, which have underperformed sharply over the past year, slipped 7p to 381p

The announcement came ahead of meetings with analysts later this week to discuss last year's trading and prospects for the current year. Although analysts had expected the news from Germany to be poor, yesterday's announcement also hit RMC, the concrete company that also earns a large proportion of its profits in that market. RMC fell 31p to 935p.

Brokers, who had expected profits to edge ahead from pounds 373m in 1994 to about pounds 380m, yesterday scaled back their expectations to between pounds 360m and pounds 365m. Profits this year are forecast to be of the same order, justifying the decision early last year to cut the dividend by a third.

After a small fall in the first half, the German housing market fell more sharply in the second six months. During the year as a whole, roof- tile volumes were 10 per cent down and analysts now expect a further 12 per cent slide this year.

In acknowledgement of the decline in the market a program of cost cutting has been implemented and profits for 1995 will suffer from a pounds 5m hit to pay for redundancies.

Germany was not the only poor market last year. France was also hit by industrial action following on from political uncertainty leading to lower construction activity.

On UK trading, the company said: "As reported in our interim statement, volumes were satisfactory in the first quarter of 1995 but showed a significant decline in the second quarter. In general, market conditions continued to weaken in the second half with volume falls a little greater than in the second quarter."

In 1995 as a whole, volumes of Redland's aggregates and other downstream products registered declines of between 7 and 13 per cent. Bricks were 14 per cent down and concrete roof tiles were 4 per cent lower.

The only bright spot appeared to be pricing, where the increases pushed through in the first half of the year were largely held. Engineering bricks, accounting for 16 per cent of volumes, saw price falls, however, and the annual end-of-year brick-production shut down was extended to keep supply in line with lower demand.