RMC makes first issue in 29 years
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The City yesterday welcomed a pounds 459m rights issue from RMC, its first call on shareholders for 29 years. Although the cash call was pitched at 950p, the shares, which might normally be expected to fall on the news, closed 30p higher at 1,139p.
The one-for-four issue will be used to buy a minority stake in RMA, RMC's 63.6 per cent-owned German subsidiary. Analysts said the deal, which at pounds 356m represented only 8.4 times historic earnings, had been struck at an extremely attractive price.
Jim Owen, the company's chairman who steps down at the end of the year, described the acquisition as "an important step in the development of RMC in continental Europe". Having entered the German market in 1954, RMC is one of its leading manufacturers of concrete and cement.
The acquisition had first been mooted about a year ago by RMC's German partners which had no control over the company and received a relatively small dividend. Although the price paid appears small, for the German shareholders it represented 14 years' dividends which they believed they could reinvest more profitably elsewhere.
RMC also announced interim figures, confirming the group's continuing recovery from recession. Pre-tax profits jumped 32 per cent to pounds 130.3m, earnings per share increased by 31 per cent to 32.1p and the half-way dividend rose 10 per cent to 7.7p. Yesterday's share price rise followed a strong run since February when they traded at 910p.
Out of total operating profits of pounds 150.7m, the German operation contributed pounds 65.2m, easily RMC's largest geographical division. Activity levels remained high as the effort to rebuild Germany following unification continued.
RMC was one of the first companies to invest heavily in Germany. To begin with, the division's development was slow, but it accelerated rapidly with the onset of the country's post-war economic recovery.
Originally a producer of ready mixed concrete, RMA moved in the 1960s to secure its supplies of aggregates; in the 1970s it moved into cement manufacture. Following the reunification of Germany in 1990, RMC moved quickly to establish a big building materials business in the former east. It will have invested more than pounds 500m in sites around Berlin.
Elsewhere, RMC's UK operations increased operating profits 16 per cent, but the company warned that the improvement in volumes experienced in the second half of 1994 had not continued after April. The biggest drag on sales had been the new housing market which had affected all RMC's UK operations.
RMC's expansion over the past 10 years has been funded from operating cash flow and borrowings. However, in the past year, the company has spent pounds 140m on a number of acquisitions and it felt that a further pounds 356m would restrict its future plans. Other acquisitions are in the pipeline.
Investment Column, page 20
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