Tarmac faces long, winding road

Three years into the task of turning around Tarmac,Neville Simms, chief executive, can be justifiably proud of the results so far.

Figures announced yesterday held few surprises, given the trading update released at the beginning of the year. They show that pre-tax profits have continued the recovery started in 1993, rising from £43.1m to £107m in the 12 months to December.

The comparison was flattered by a £95.2m write-off on the demerger of the Ruberoid business the previous year, but operating profits still showed a useful rise from £92.8m to £139m.

Despite its own strenuous efforts, Tarmac got a fair wind from the market last year. Quarry products saw operating profits more than double to £45.5m, driven by strong demand and pricerises of up to 10 per cent, almost doubling margins in the process.

There was a similar story in building materials such as bricks and concrete blocks, with prices there showing double-figure percentage gains and margins more than tripling to close to 11 per cent. Profits of £14.6m, up from £3.2m, should mean Tarmac can up the ante in its current talks to sell its brick interests to Ibstock Johnsen, about which it was saying nothing yesterday.

The difficult state of the housing market was reflected in a near-15 per cent fall in unit sales to 6,267 last year, but the group still managed to driveprofits forward as it cleaned out virtually all of its old expensive land bank. Margins jumped from 9.1 per cent to just short of 12 per cent, lifting profits from £55.2m to £61.1m.

The black spot is still construction, where profits dipped £2.8m to £18m, with the £3.8m cost of withdrawing from an eastern German venture being more than offset by £4.1m profits from the sale of Eurotunnel shares.

Mr Simms is upbeat about the prospects for most areas of the business, with price rises being sustained in quarry products. The new design, build, finance and operate projects being put out to let this year by the Government could also bring business worth£1bn to Tarmac over the next few years.

But Mr Simms admits construction markets will remain tough this year and Tarmac's black-top business is having to contend with the savaging of the road-building programme. In the meantime,the new professional services division - Tarmac's attempt to cash in on the current fad for outsourcing - could take five years to be producing decent profits, say around the £20m mark.

On group profits expected to be about £131m this year, the shares, down 3p at 113p, stand on a prospective multiple of just over 12 and are likely to remain dull performers.