Tarmac has 'sound start'

by John Leitch



Tarmac chief executive Roy Harrison said: "We've made a sound start" as he announced the group's first financial results last week. Now demerged from Carillion, the pure aggregates business is thriving on its new independence. "I wish we'd demerged earlier," Harrison said.

"I'm delighted with the way the management team has been invigorated by the move," Harrison said, pointing to a jump in operating margins, 0.6 percentage points higher at 10.4 per cent.

With Carillion needing to be debt-free, the demerged aggregates business was launched with £500 million of debt. "We are comfortable with that debt," Harrison said. "We are choosing not to reduce that, but to buy other businesses."

Tarmac looks to spend £100 million a year on organic growth and acquisitions. "There are lots of opportunities," he said. At the top end, the biggest deal Tarmac could look at would be worth £30-50 million. Analysts speculate that for Tarmac to play a major role in the restructuring of the aggregates industry it will have to be involved in a merger rather than a bid.

One analyst said Tarmac's inability to launch a major take-over bid was not necessarily a bad thing, pointing out that in the late 80s (before Harrison's time at the helm) the group lost a lot of money through questionable deals in America.

Tarmac commenced trading on the Stock Exchange as a pure building materials company on 30 July 1999. After stripping out financial figures from Carillion, the former construction division, Tarmac's results (six months to 30 June 1999) show a pre-tax profit of £50 million on a turnover of £660 million.

In the UK, performance was ahead of its rivals, with Tarmac's profit rise of 11 per cent beating the achievements at Aggregate Industries (profit up 4 per cent), RMC (no change) and Hanson (profit down 3 per cent).

However, the position was reversed in the US. Tarmac logged a profit improvement of 14 per cent (after allowing for the effect of period-end exchange rates), well behind the profit increases at RMC (114 per cent higher), Aggregate Industries (up 78 per cent) and Hanson (62 per cent ahead).