RMC eyes US and Europe for growth
Thursday 01 April 1999
The world's largest producer of ready-mixed concrete said it would add to last year's pounds 256m acquisition spending in an bid to reduce its dependence on Germany, where demand and prices have slumped, and the UK, where volumes are unlikely to grow.
Peter Young, chief executive, said RMC would strive to exploit the boom in the US market, where a $200bn (pounds 127bn) infrastructure programme will boost demand for the next five years. The US now accounts for about 18 per cent of group profits, compared with more than half from the UK and Germany. Mr Young said he wanted the US contribution to reach 20 per cent for the next two or three years.
RMC's US ambitions pleased the market and triggered an 11 per cent rise in the shares to 838.5p. The group underlined its commitment to the US yesterday with the purchase of two ready-mixed concrete companies with operations in Texas, Nevada and New Mexico for a total pounds 72.1m. The acquisitions raise RMC's US coverage from nine to 12 states.
RMC could significantly boost its American presence if it succeeds in buying Scancem, the Scandinavian building materials group that owns several US assets. RMC yesterday received unexpected help in the race for Scancem; Lennart Johansson, a Scancem board member, said RMC was "willing to buy whole or part" of the group, which owns Castle Cement, Britain's second- largest cement maker.
RMC is understood not to have reached a decision yet on whether to bid for Scancem, but Mr Young said the company was looking at a range of acquisition opportunities. These included expanding in Eastern Europe and in Western European countries apart from Germany.
The poor performance of the German operations was chiefly responsible for a 14 per cent fall in 1998 pre-tax profits to pounds 264.5m on sales up by 1.8 per cent to pounds 4.4bn. The results, flagged in a warning in January, suffered from a collapse in the east German market where volumes for RMC products fell 24 per cent, hit by overcapacity in the building industry. The slump is expected to continue into 1999, with volumes set to fall by a further 6 to 7 per cent, the company said.
Germany is set to weigh heavily on RMC's future prospects, despite the shrinking size of its profit contribution, and the shares are no more than a hold at present. As one analyst said, the shares, on around 12 times a 1999 profit forecast of pounds 290m, "look quite cheap, but there is still this problem in Germany."
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