RMC cuts forecast for Germany

Shares in RMC, one of Europe's leading suppliers of building products, were hit when it warned of a slowdown in German demand in the aftermath of reunification. The group also said sterling's buoyancy could cost it pounds 30m in the full year. Magnus Grimond writes.
Click to follow
The Independent Online
RMC's forecast that German volumes would be down between 4 and 6 per cent this year helped send the share price falling yesterday, leaving it 55.5p down at 998.5p. But Peter Young, chief executive, described the market reaction as "quite ill-informed", pointing out that RMC had leading or strong positions in a market which was nearly three times the size of the UK market.

He said the decline, which had been anticipated, had been hidden in the first six months of the year by bad weather in 1996 which disrupted normal operations from January through to April and meant RMC was comparing five months output this year with only 2.5 months last time.

The fall-off in demand in Germany, RMC's second-most profitable area, comes as a huge surge in demand for everything from aggregates to ready- mixed concrete tails off in the wake of reunification. Housebuilding, which peaked at 600,000 a year two years ago, has fallen to around 450,000.

Even so, Mr Young defended the group's DM500m (pounds 175m) project to buy and in effect rebuild the Rudersdorf cement works 20 miles from Berlin in the old East Germany which has created one of Europe's biggest cement producers and is only now building up to full capacity.

"We bought the business in 1990 as soon as we could when the wall came down and in no way do I regret that investment," he said. Given the impending move of the German capital to Berlin, it was adjacent to "the biggest building site in Europe". His only regret was that others did the same thing, leading to over-capacity in the east, he added.

His comments came as RMC reported a 19 per cent rise in pre-tax profits to pounds 116m in the six months to June, which would have been a 30 per cent advance but for a pounds 10m impact from translating overseas results. Assuming sterling remained strong, there would be a further pounds 20m hit in the second half, the company said.