Wednesday 28 November 2018

AI’s profits down 56% in 2017; Breedon’s profits up 52%

If the way Aggregate Industries has run its planning application for Straitgate Farm – spending years and goodness knows how much money going after an ever diminishing amount of sand and gravel some 23 miles away from where it would be processed – is any indication of how the wider company operates, is it any wonder that newly filed accounts from LafargeHolcim’s UK subsidiary show pre-tax profits falling 56% to £46.2m for the year to 31 December 2017, down from £105m in the previous 12 months?


Today, LafargeHolcim’s CEO Jan Jenisch was wooing investors at AI’s Bardon Hill Quarry in Leicestershire on its Capital Markets Day.


Investors may need some convincing. In that same 12 month period that AI reported profits falling 56%, Breedon – a competitor run by Peter Tom, a former chairman and chief executive of AI – announced pre-tax profits increasing 52% to £71.2 million, up from £46.8 million in the previous 12 months. Breedon’s profits were achieved on sales of £652 million, AI’s profits were on sales of £1.2 billion. Both companies operate around 60 quarries each, but evidently, based on these results, Breedon is running the more efficient operation, with a pre-tax margin of almost 11%, compared with AI's of less than 4%.

At the time Breedon released its results, it said: "We look to 2018 and beyond with confidence and optimism." At the time AI released theirs, the company predicted that in 2018 "demand levels for our products and services will be, at best, flat." And not just that:
…the slowing economy and the uncertainty emanating from the decision to leave the European Union is expected to suppress investment in the short term.
In addition, it is anticipated that input costs, particularly oil related and energy will increase at levels well above inflation.
Clearly, AI has some problems on its hands, as it sails into the stormy seas caused by Brexit. It does however have a cunning plan:
… we have instigated a number of initiatives aimed at reducing the overall cost base of the business. These are focussed, principally, in the operational excellence, procurement, logistics and sales and general administration functions.
If logistics still includes their expensive 2.5 million mile haulage plans for East Devon, you do wonder what difference any of those initiatives will make.