Tarmac paves road to future profit

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The Independent Online
UNDERLYING profits at Tarmac quadrupled last year as the UK's largest quarrying, housebuilding and construction group bounced back from 1992's record pounds 350m loss.

Neville Simms, chief executive, said the 'remedial phase' of Tarmac's recovery plan was now over but added he was not satisfied with the company's return on sales.

'Tarmac is now refocused, with debt significantly reduced and profitability improving,' he said. 'But we should be doing much better than a 3 per cent pre-tax margin.'

A reported loss of pounds 43.1m included a pounds 96.5m exceptional charge, relating to the roofing business Ruberoid, which was floated off last year. New accounting rules mean any goodwill written off when a business is acquired must be taken back through the profit-and-loss account on disposal.

The flotation of Ruberoid completed a pounds 300m disposal program initiated by Mr Simms in response to a fall from peak profits in 1988 of pounds 389m to 1992's loss of pounds 350m.

Ignoring the exceptional charge, the jump in pre-tax profits from pounds 13.6m to pounds 55.7m was driven by a 43 per cent rise in profits from the housing division where margins improved from 5.9 per cent to 9.1 per cent.

Mr Simms confirmed that a third of last year's pounds 215m rights issue proceeds would now be used to expand Tarmac's 11,000-plot land bank to meet an expected upturn in demand in 1995 and 1996.

Average house selling prices rose 4 per cent to pounds 81,600, while land is being replaced at an average cost of pounds 20,000 a plot.

Profits from quarry products fell from pounds 26.6m to pounds 20.3m due to lower volumes of coated stone, less contracting work and a poor contribution from France. Price rises of between 5 and 10 per cent came too late in the year to reverse the downturn.

Both building products, mainly bricks and concrete blocks, and Tarmac America bounced back from losses in 1992 to small profits last year. Construction margins remained high by depressed industry standards to maintain profits broadly unchanged at pounds 21.1m.

At the group level, the loss per share was reduced from 36.4p to 11.3p although, if exceptional items are stripped out, underlying earnings per share rose from 0.4p to 3.1p. The dividend was maintained at 5.5p.

Following the disposal program and rights issue, borrowings fell from pounds 577m to pounds 194m. Gearing was reduced from 63 per cent to 18 per cent.

Tarmac's shares, which fell to a low of 57p at the end of 1992, closed 7p lower yesterday at 179p.

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