Redland to create European tile giant

TOM STEVENSON

City Editor

Redland yesterday announced plans for a radical overhaul of its building materials operations that will create Europe's largest roof tiles manufacturer with sales of DM3bn (pounds 1.33bn). Details of the deal, which will involve a merger of its own interests with those of its successful German subsidiary, Braas, are likely to be unveiled within the next few weeks.

Robert Napier, chief executive, also said negotiations were at an advanced stage with four potential buyers of its UK bricks arm. In addition, discussions are in train to sell Redland's US brick operations, which will complete a reversal of the company's expansion in bricks early in the 1990s when it bought rival Steetley. Mr Napier admits now that Redland overpaid for that deal.

The ambitious deal with Braas comes as that company's core German activities face a rapid slowdown in construction activity. The underlying weakening in trading has been exacerbated in the early months of 1996 by poor weather across Europe, and Redland warned that first-half profits will not match those achieved in 1995.

Although Braas has given Redland exposure to the recent post-unification building surge in Germany, recession is taking its toll and Redland believes now is the right time to simplify the relationship between the two companies and reduce duplication of investment.

The shape of the proposed deal is still uncertain, but it is understood that Redland will inject its tile businesses, based in the UK, France, Spain and the Low Countries, into Braas, which focuses further east, in exchange for a mixture of cash and Braas shares.

Currently Redland owns 50.8 per cent of Braas and it is thought that the German company's minority shareholders are prepared to see that stake rise to about 60 per cent. A newly named company will be created, probably headed by a Braas-nominated chairman and with a board of directors taken from both Braas and Redland.

News of the restructuring accompanied full-year figures which underlined the difficult trading conditions facing Redland last year. Pre-tax profits before exceptional items fell 5 per cent to pounds 355.1m (pounds 373m), which Mr Napier said represented a strong management performance in the face of volume falls in most of its markets of up to 10 per cent. Price rises in line with inflation were pushed through and cost-cutting largely offset the volume-induced margin fall.

The reported profit figure of pounds 273.2m was hit further by an pounds 81.9m exceptional charge, mainly made up of book value write-offs at Genstar, Redland's aggregates operation in Maryland. A maintained final dividend of 11.2p, following the interim reduction, resulted in a full year total of 16.7p (19.4p).

In the UK, where Mr Napier said "the phones stopped ringing last March", volumes of sand, gravel, dry stone and ready mixed concrete all fell by more than 10 per cent. Higher prices offset much of the damage but the weaker housing market also hit brick demand, leading to a fall in UK profits from pounds 41m to pounds 35.2m.

Germany, the dominant profit contributor, saw an 11 per cent fall in DM profits, although currency movements limited the fall to pounds 3.6m, down to pounds 191m.