Company Quick10K Filing
CRH Public
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 843 $21,017
20-F 2020-03-06 Annual: 2019-12-31
20-F 2019-03-08 Annual: 2018-12-31
20-F 2018-03-09 Annual: 2017-12-31
20-F 2017-03-10 Annual: 2016-12-31
20-F 2016-03-16 Annual: 2015-12-31
20-F 2015-03-12 Annual: 2014-12-31
20-F 2014-03-13 Annual: 2013-12-31
20-F 2013-03-27 Annual: 2012-12-31
20-F 2012-03-28 Annual: 2011-12-31
20-F 2011-03-31 Annual: 2010-12-31
20-F 2010-04-01 Annual: 2009-12-31
CRH 2019-12-31
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EX-13 d790396dex13.htm
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CRH Public Earnings 2019-12-31

CRH 20F Annual Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CRH 21,017 35,173 18,619 0 0 0 0 20,203 0%
LOMA 6,407 32,866 16,313 0 0 0 0 5,601 0%
USG 6,090 3,842 1,923 3,336 606 196 444 6,851 18% 15.4 5%
JHX 5,799 4,033 3,058 0 0 0 0 7,056 0%
CPAC 4,145 2,863 1,412 0 0 0 0 4,145 0%
EXP 3,917 2,269 1,214 1,370 310 44 249 4,779 23% 19.2 2%
CBPX 889 660 324 518 136 67 137 1,046 26% 7.6 10%
USCR 799 1,450 1,105 1,475 144 17 170 1,491 10% 8.8 1%
CSTE 456 617 150 0 0 0 0 362 0%
FRTA 277 1,878 1,779 1,476 264 -34 73 1,515 18% 20.8 -2%

20-F 1 d790396d20f.htm 20-F 20-F
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

(Mark One)   WASHINGTON, D.C. 20549           

FORM 20-F

 REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

          For the fiscal year ended: December 31, 2019

OR

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

          For the transition period from     to

OR

  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

          Date of event requiring this shell company report

Commission file number: 001-32846

             

CRH public limited company

(Exact name of Registrant as specified in its charter)

             

Republic of Ireland

(Jurisdiction of incorporation or organisation)

             

Stonemason’s Way, Rathfarnham, Dublin 16, Ireland

(Address of principal executive offices)

             

Senan Murphy

Tel: +353 1 404 1000

mail@crh.com

Stonemason’s Way, Rathfarnham, Dublin 16, Ireland

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

             

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class   Trading symbol(s)      Name of each exchange on which registered 

CRH plc

       

 

Ordinary Shares/Income Shares of 0.34 each

     

 

New York Stock Exchange*

American Depositary Shares, each representing the right to receive one Ordinary Share   CRH   New York Stock Exchange
CRH America Inc.        
5.750% Notes due 2021 guaranteed by CRH plc   CRH/21   New York Stock Exchange

  *

Not for trading but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act. None

             

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None

             

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

Ordinary Shares/Income Shares of 0.34 each **  

      

799,640,338

5% Cumulative Preference Shares of 1.27 each  

                50,000

7% ‘A’ Cumulative Preference Shares of 1.27 each   

              872,000

  **

Each Income Share is tied to an Ordinary Share and may only be transferred or otherwise dealt with in conjunction with such Ordinary Share.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes X No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes No X

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  X   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  X  Accelerated filer    Non-accelerated filer    Emerging Growth Company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP      International Financial Reporting Standards as issued by the    Other   
     International Accounting Standards Board   X       

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X


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2019 Annual Report    

and Form 20-F    

 

 

 

 

 

 


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Contents

 

                         
       Overview        Business Performance       Financial Statements  
  CRH at a glance     2               Business Overview     32                Independent Auditor’s Reports   125
  Chairman’s Introduction     4        Finance Director’s Review     33       Consolidated Income Statements   128
  Strategy Review        Segmental Reviews     40       Accounting Policies   133
  Why Invest in Us     8        Governance       Notes on Consolidated
Financial Statements
 

145

  Our Executive Leadership     9        Board of Directors     56    
  Chief Executive’s Review     10        Corporate Governance Report     60       Supplementary
20-F Disclosures
 
  Market Backdrop     12        Directors’ Remuneration Report     74       224
  Strategy     14        Directors’ Report     102       Shareholder Information   248
  Business Model     16              Other Information   260
  Measuring Performance     18              Cross Reference to Form 20-F   267
  Sustainability     20              Index   270
  Risk Governance     26               

 

Our Business

 

CRH is the leading building materials business in the world. Our global footprint spans

30 countries, employing c. 80,300 people at over 3,100 operating locations, serving

customers across the breadth of the building materials spectrum.

 

              

This document constitutes the Annual Report and Financial Statements in accordance with Irish and UK requirements and the Annual Report on Form 20-F in accordance with the US Securities Exchange Act of 1934, for CRH plc for the year ended 31 December 2019. A cross reference to Form 20-F requirements is included on page 267.

 

The Directors’ Statements (comprising the Statement of Directors’ Responsibilities, the Viability Statement and the Directors’ Compliance Statement on pages 104 to 106), the Principal Risks and Uncertainties (on pages 108 to 113), the Independent Auditor’s Report (on pages 116 to 124)

 

and the Parent Company financial statements of CRH plc (on pages 216 to 221) do not form part of CRH’s Annual Report on Form 20-F as filed with the Securities and Exchange Commission (SEC).

 

Forward-Looking Statements

 

This document contains forward-looking statements, which by their nature involve risk and uncertainty. Please see Disclaimer/Forward-Looking Statements on page 103 for more information about these statements and certain factors that may cause them to prove inaccurate.

      

 

                                                                   

View the Report on our website:

www.crh.com/investors/annual-reports/

 

Ergon, part of CRH’s Europe Materials Division, supplied 10,300m² of hollow-core floor slabs and 289 concrete beams
and columns for the construction of a new 15,000m² plumbing and heating distribution centre in Merelbeke, Belgium.

 

 


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CRH ANNUAL REPORT AND FORM 20-F I 2019    

 

 

   1     

 

 

2019 Performance Highlights

 

 

 

 

During 2019 the Europe Distribution business was classified as discontinued operations under IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations (refer to note 3 to the Consolidated Financial Statements for further information). Accordingly, all references to income statement data are on a continuing operations basis throughout the Overview, Strategy Review and Business Performance sections (pages 2 to 51), unless otherwise stated.

 

*  EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

1. Details of how non-GAAP measures are calculated are set out on pages 225 to 228.

 

 

 


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2    

 

    CRH ANNUAL REPORT AND FORM 20-F I 2019

 

 

CRH at a glance

 

Our global business operates
across three Divisions: Americas
Materials, Europe Materials and
Building Products.

 

 

 

 

 

 

 

    


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LOGO

 

I succeeded Nicky Hartery as Chairman on 1 January 2020. On behalf of the Board and my fellow shareholders, I would like to pay tribute to Nicky for his leadership and commitment in his seven and a half years as Chairman and to thank him for the advice and support which he has generously provided to me during the transition process. During Nicky’s tenure as Chairman, CRH’s market capitalisation increased from 11 billion to 28 billion. CRH also achieved significant profits in 2019 and is well set for further growth.

My Priorities

On taking over the role of Chairman my priorities are as follows:

 

  Supporting the continued successful implementation of CRH’s strategy, which has been communicated previously and which is set out on pages 14 to 17 of the Strategy Review section;

 

  Ensuring that your Board and Management continue to keep this strategy under review so that it remains appropriate in a constantly evolving external environment and enables long-term sustainable value creation;

 

  Ensuring that the ongoing Board renewal process, which is discussed in the Nomination & Corporate Governance Committee Report on pages 68 to 70, is aligned with the strategic priorities of the business and that the Board is composed of Directors with the necessary qualities, capabilities, experience and dedication to
 

protect and promote your interests and those of other stakeholders in CRH;

 

  Providing constructive challenge to, and support for, CRH’s committed, capable and dynamic management team, while at the same time having a robust succession planning process in place for senior executive roles;

 

  Enabling a continued strong focus on safety, sustainability and CRH’s purpose and values for the benefit of our shareholders, our customers, employees, suppliers and wider stakeholders; and

 

  Ongoing engagement with stakeholders, particularly shareholders, to ensure that their perspectives are understood.

2019 Performance

2019 was another year of strong delivery on a range of strategic and operational initiatives, whilst maintaining momentum for further value creation. We continued to reshape the portfolio through the divestment of our Europe Distribution business and our 50% interest in My Home Industries Limited (MHIL), a cement manufacturer based in India. These divestments were in line with our focus on reallocating capital to sectors, geographies and businesses more aligned with our current strategy and business model.

During the year there was also a continued focus on successfully integrating recent acquisitions, such as Ash Grove Cement

Company (Ash Grove), and rigorous attention to continually improving CRH’s operational performance and customer offerings with a comprehensive range of initiatives being implemented.

The reshaping of our portfolio in 2019, ongoing business improvement programmes and trading performance in the year led to operating cash generation of 3.5 billion in 2019, of which 1.2 billion was deployed on maintenance and expansionary/development capital expenditure, 0.7 billion on acquisitions and 1.4 billion was distributed to shareholders via dividends and share buybacks. At the same time, CRH’s balance sheet strength was enhanced resulting in a Net Debt/EBITDA (as defined)*2 ratio of 1.7x at the year end.

Reflecting the strong performance in 2019, CRH’s robust financial position and our confidence for future sustainable growth, your Board is recommending that a final dividend of 63.0c per share be paid, subject to shareholder approval at the Annual General Meeting (AGM). If approved, this would represent a 15% increase in the full year dividend to 83.0c.

The Environment

Following the announcement of my appointment as Chairman Designate in September 2019, I met with a number of shareholders representing c. 30% of CRH’s share capital. One of the principal themes in those meetings was investors’ keen interest in understanding CRH’s approach

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

1.

See cautionary statement regarding forward-looking statements on page 103.

2.

Net Debt/EBITDA (as defined)* is a non-GAAP measure as defined on page 227. The GAAP figures that are most directly comparable to the components of Net Debt/EBITDA (as defined)* include: interest-bearing loans and borrowings (2019: 9,014 million; 2018: 9,316 million) and profit after tax (2019: 1,638 million; 2018: 1,345 million). In line with the purpose of the metric, as set out on page 228, to “assess the Company’s level of indebtedness relative to its profitability and cash-generating capabilities”, the 2019 calculation is based on a continuing operations basis. For 2018, the Group net debt position includes debt related to operations discontinued in 2019 and therefore for comparability purposes the 2018 calculation uses EBITDA (as defined)* from continuing and discontinued operations.


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CRH ANNUAL REPORT AND FORM 20-F I 2019    

 

     5  

 

to environmental matters. In 2018, the Board created a new Safety, Environment and Social Responsibility (SESR) Committee. The operation of this Committee and its work in 2019 on environmental sustainability is highlighted in the Corporate Governance Report on pages 60 to 63.

 

In addition, the excellent work of our sustainability team in this area is outlined in detail on pages 20 to 25.

 

CRH is on track to achieve a range of targets underpinning its sustainability performance by year-end 2020. The Group has already achieved its target to reduce specific CO2 emissions by 25% compared to 1990 levels. Utilising our own experience, expert advice and relevant external benchmarks, further ambitious targets and goals have been set for 2030 and will be overseen by the Board and the SESR Committee. Further details in relation to these stretch targets are set out on page 21.

 

Your Board

 

Henk Rottinghuis and Pat Kennedy, who joined the Board in 2014 and 2015 respectively, are not seeking re-election and will be stepping down from the Board at the conclusion of the 2020 AGM. The Company and Board are grateful to Henk and Pat for their significant contributions and exemplary service during a period of transformational change for CRH.

 

During 2019, Johan Karlström and Shaun Kelly joined your Board. Johan’s most recent executive role was as Chief Executive Officer of Skanska AB, the international construction company, whilst Shaun was until September 2019 Chief Operating Officer of KPMG International, based in the United States (US). Both Johan and Shaun bring very strong skill sets and relevant global experience to complement the Board and support the Group.

 

CRH Employees

 

The significant profit which CRH achieved in 2019 reflects the skills, initiative, qualities and commitment of CRH’s employees, led by our Chief Executive, Albert Manifold. Your Board is grateful to Albert and his colleagues for all of their contributions and their relentless drive to continue to deliver sustainable value.

 

Richie Boucher

Chairman

27 February 2020

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*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 

 

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Inclusion and diversity is an important focus area for all CRH operating companies. Staker Parson Materials
& Construction, part of CRH’s Americas Materials Division, supports an inclusive and diverse environment
at its operations in Ogden, Utah, where it employs 300 people.
 

 

 


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Strategy Review

 

Why Invest in Us      8                  
Our Executive Leadership      9     
Chief Executive’s Review      10     
Market Backdrop      12     
Strategy      14     
Business Model      16     
Measuring Performance      18     
Sustainability      20     
Risk Governance      26     

 

 

    


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    CRH ANNUAL REPORT AND FORM 20-F I 2019

 

 

Why Invest in Us

 

LOGO

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

1.

TSR represents the total accumulated value delivered to shareholders (via gross dividends reinvested and share appreciation).


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CRH ANNUAL REPORT AND FORM 20-F I 2019   

 

 

 

9

 

    

 

Our Executive Leadership

 

LOGO

 

 

 

Edwin Bouwman

Chief Human Resources Officer

 

Edwin joined CRH in 2009 as CFO of our Products and Distribution businesses in Europe and later as CFO Europe. Edwin became a member of CRH’s global leadership team in 2014, was appointed Chief Administrative Officer in 2018 and in August 2019 took on the role of Chief Human Resources Officer. Prior to joining CRH, Edwin’s career included a number of senior leadership roles in multi-operating company, multi-country environments (such as Royal Dutch Shell), and later as CFO and Board Member for Roto Smeets Group, a listed company in the Netherlands.

Qualifications: Drs. Economics.

        

 

Senan Murphy

Group Finance Director

 

Appointed to the Board:

January 2016

 

Senan has over 30 years’ experience in international business across financial services, banking and renewable energy. He joined CRH from Bank of Ireland Group plc where he was the Chief Operating Officer and a member of the Group’s Executive Committee. He previously held positions as Chief Operating Officer and Finance Director at Ulster Bank, Chief Financial Officer at Airtricity and numerous senior financial roles in GE, both in Ireland and the US.

Qualifications: BComm, FCA.

        

 

Onne van der Weijde

President, Europe Materials

 

Onne joined CRH in January 2018 as Chief Operating Officer for our Europe Materials Division and was appointed Divisional President in July 2018 with responsibility for our cement, lime, asphalt, aggregates and concrete operations in mainland Europe and in Asia. Onne has extensive cement industry experience, having worked across four continents, including roles as the CEO of Dangote Cement in Nigeria and CEO of Ambuja Cements Ltd. in India, prior to joining CRH.

Qualifications: Bachelor of Economics and Accounting, MBA.

        

 

Jim Mintern

Executive Vice President, Chief of Staff to the Chief Executive

 

Jim has over 30 years’ experience in the building materials industry, nearly 20 years of which have been with CRH. Jim joined CRH as Finance Director for Roadstone and since then has held a number of positions across the Group, including Managing Director of each of the Western and Eastern regions of our Europe Materials Division and prior to that as Country Manager for Ireland. Working closely with Divisional and operational leadership, Jim has oversight of our Performance, Group Technical Services, and Safety activities.

Qualifications: BComm, FCA.

  
                      
   

 

Randy Lake

President, Americas Materials

 

Randy joined CRH in the Americas in 1996 and has held several senior operating positions across multiple CRH businesses, initially in Architectural Products, then in Materials. In 2008 he was appointed President of our Americas Materials Performance group, and prior to his current role he led the launch of our Building Solutions business. Randy is actively involved in the Materials industry in North America and served as Chairman of the US National Stone, Sand & Gravel Association in 2018.

Qualifications: BS (Business Administration), MBA.

     

 

Albert Manifold

Group Chief Executive

 

Appointed to the Board:

January 2009

 

Albert was appointed a CRH Board Director in January 2009. He joined CRH in 1998. Prior to this, he was Chief Operating Officer of a private equity group. While at CRH he has held a variety of senior positions, including Finance Director of the Europe Materials Division, Group Development Director and Managing Director of Europe Materials. He became Chief Operating Officer in January 2009 and was appointed Group Chief Executive with effect from 1 January 2014.

Qualifications: FCPA, MBA, MBS.

 

     

 

Keith Haas

President, Building Products

 

Keith began his business career as an engineer at Amoco Chemical Company and joined CRH’s North American business in 1995. While at CRH, he has served in a number of business development and executive leadership roles, including President of our Architectural Products Group and subsequently President of our Americas Products Division between 2012 and 2018. Keith is also on the Board of Directors of the National Association of Manufacturers in the US.

Qualifications: BE (Mechanical), MBA.

 

     

 

David Dillon

President, Global Strategy & Business Development

 

David joined CRH in 1998 in the US, where he was Controller of the Americas Materials Division. He returned to Europe in 2003, initially as Development Manager for the Europe Materials Division. He has since held a number of senior operational and leadership roles across the Group, including Country Manager Finland in the Europe Materials Division and Managing Director Europe Lightside. He was Divisional President of Europe Lightside & Distribution until the end of 2018. Prior to joining CRH he held various financial roles in the airline industry.

Qualifications: BComm, FCA.

 

  

 

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As the leading building materials business in the world, CRH has a long and proven track record of consistently delivering for our shareholders through the cycle. Our ability to do so is underpinned by three core principles: improving performance, growing our business and creating value. Our relentless focus on these principles supports the continuous delivery of superior margins, returns and cash for our shareholders.

Our strong performance in 2019, with significant profit growth and positive momentum across our business, has been made possible by the strategic reshaping of CRH over recent years.

In 2019 we significantly reshaped our business into three Divisions: Americas Materials, Europe Materials and a new global Building Products Division, ensuring CRH is better positioned to meet the changing needs of construction.

We also continued our focus on refining and reshaping our portfolio to position our business for higher growth and more sustainable returns. CRH generated 2.1 billion of proceeds from divestments in the year (2018: 3.0 billion) which included 1.6 billion from the divestment of our Europe Distribution business at an attractive valuation.

Our new structure provides us with a narrower and deeper focus, enabling us to better leverage our global scale and drive value above and beyond the sum of our individual businesses.

Our ongoing strong cash generation capabilities and balance sheet strength gives us significant optionality, facilitating the return of 1.4 billion (2018: 1.3 billion) of cash to shareholders in 2019 through dividends and our share buyback programme. We invested 1.9 billion (2018: 4.7 billion) in our business through bolt-on acquisitions (0.7 billion) and capital investment (1.2 billion), as well as significantly reducing our year-end Net Debt/EBITDA (as defined)* to 1.7x (2018: 2.1x).

We saw further benefits from our ongoing focus on continuous margin improvement, particularly in the second half of the year. The business achieved an EBITDA (as defined)* margin expansion of 230 basis points from continuing and discontinued operations during the year and we expect further progress in 2020.

Performance Highlights

Revenue from continuing and discontinued operations increased by 6% to 28.3 billion (2018: 26.8 billion) driven by positive underlying construction demand and a favourable pricing environment in our core markets in Europe and North America.

EBITDA (as defined)* from continuing and discontinued operations was ahead of 2018, increasing by 25% to 4.2 billion (2018: 3.4 billion). Reported profit after tax was 1.9 billion (2018: 2.5 billion), reflecting a further year of progress for the Group given the prior year included an after-tax gain of 1.1 billion on certain divestment activity.

Continuous business improvement and good commercial management resulted in improved returns. Return on Net Assets (RONA)2 for the year was 10.1% (2018: 9.6%).

Earnings per share (EPS) for the year advanced 25% to 202.2c (2018: 161.2c) and the Board has proposed to increase the dividend to 83.0c per share, an increase of 15% on the previous year’s level of 72.0c per share.

Operational Highlights

Supported by a positive economic backdrop in the US, our businesses experienced good momentum in underlying construction activity. Sales in our Americas Materials Division increased by 16% to 10.4 billion (2018: 9.0 billion) and EBITDA (as defined)* increased by 31% to 2.0 billion (2018: 1.5 billion).

The Division has good exposure to the infrastructure, residential and non-residential sectors and performed well across key markets despite increased raw material costs. Weather-related headwinds experienced in the first half of the year were offset by a good performance in the second half of the year, driven by volumes improvement, commercial and operational initiatives and pricing progress.

Our US cement operations performed well in 2019 with strong price realisation across major markets and good synergy delivery. The integration of Ash Grove is now complete and the business is performing well.

In Europe, despite higher input costs, Western European markets performed well.

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

1.

See cautionary statement regarding forward-looking statements on page 103.

2.

RONA is a non-GAAP measure as defined on page 226. The GAAP figures that are most directly comparable to the components of RONA include: Group operating profit (2019: 2,494 million; 2018: 2,071 million), total assets and total liabilities, respectively (2019: 37,310 million and 19,830 million respectively; 2018: 35,173 million and 18,619 million respectively). Details of how non-GAAP measures are calculated are set out on pages 225 to 228.


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CRH ANNUAL REPORT AND FORM 20-F I 2019   

 

  11

    

 

 

Eastern Europe benefited from higher levels of growth, particularly in new build activity. Construction activity in the United Kingdom (UK) declined amidst Brexit-related uncertainty.

Overall, our Europe Materials Division experienced a positive year with sales increasing by 6% to 8.5 billion (2018: 8.0 billion). Price increases and a strong contribution from performance improvement initiatives implemented across the Division supported an increase of 15% in EBITDA (as defined)* to 1.1 billion (2018: 0.9 billion).

Against a solid demand backdrop in both North America and Europe, as well as a focus on commercial excellence, our newly established Building Products Division reported sales of 6.2 billion (2018: 6.2 billion), 2% ahead on a like-for-like1 basis.

With an emphasis on continuous business improvement across the Division, we saw positive performances across all four product groups which supported an increase of 22% in EBITDA (as defined)* to 1.0 billion (2018: 0.8 billion).

Portfolio Management and Capital Allocation

Ongoing portfolio management is an embedded practice at CRH which allows us to reallocate capital to higher growth markets where we see greater value-creation opportunities.

The acquisition of Ash Grove for 2.9 billion in 2018 strengthened our footprint in high growth regions of the US and provided a platform for future bolt-on activity. Our focus in 2019 was on integrating Ash Grove into our existing operations while continuing to leverage synergies and drive value for our shareholders.

Bolt-on acquisitions are a fundamental part of CRH’s growth strategy, generating above average returns and complementing the organic growth within our business. We completed 62 small and medium sized bolt-on deals for 0.7 billion in 2019 (2018: 0.7 billion) at attractive valuations.

Our vertically integrated business model ensures that these deals enable us to provide a full range of products and services to our customers, while offering significant synergy potential, delivering operational efficiencies and driving value through the supply chain.

 

The majority of our divestment activity in 2019 related to the sale of our Europe Distribution business in October for 1.6 billion. In addition, we also completed the divestment of our European Shutters & Awnings business for 0.3 billion and our Perimeter Protection business for 0.1 billion. In December we divested our share of MHIL, our Indian joint venture, for a total deferred consideration of 0.3 billion.

Future Focus

We continue to actively invest in and allocate capital to initiatives which improve our existing businesses, including investment in capacity upgrades and efficiency improvements.

The further refinement of our portfolio in 2019, in addition to the establishment of our new Building Products Division has resulted in a narrower, deeper and more focused Group and together with ongoing performance improvement initiatives across our businesses, positively positions CRH to capitalise on opportunities as they arise in the future. Management is focused on using every lever available to create further value for our shareholders in 2020 and beyond.

Building a Sustainable Future

CRH is a global leader in sustainable building materials and has a long history of producing high-performing, climate-friendly materials and products which play an important role in shaping a more sustainable built environment. This includes our concrete which is among the most sustainable building materials in existence when evaluated on a full life-cycle basis. Concrete is fundamental to human development and will continue to shape the world we live in for generations to come.

As part of our longstanding focus on improving the environmental performance of our materials and products we have committed to further reducing the CO2 intensity of our cement to 520kg CO2 /tonne of cementitious product by 2030. This represents a 33% reduction in specific net CO2 emissions compared with 1990 levels and covers the portfolio of cement plants owned by CRH in 2019. In addition, the Group has set an ambition to achieve carbon neutrality along the cement and concrete value chain by 2050 and we are committed to playing our part in delivering a carbon neutral future.

We are also committed to partnering with our customers to deliver sustainable solutions and have set a target of generating 50% of all product revenue from products with enhanced sustainability attributes by 2025. These are products which incorporate recycled materials, use alternative fuels or energy sources, have sustainability end-use, or a lower carbon footprint.

See page 21 for full details of CRH’s 2030 sustainability targets.

Safety

At all of our sites, the number one priority is the safety of our people and our approach to workplace safety is uncompromising. I am pleased to report that in 2019, 94% of our locations were accident-free. We deeply regret that there was one third-party fatality during the year which underlines the need for us to do even more to ensure the safety of anyone coming into contact with our operations. We are determined to continue to do all we can to achieve our target of zero harm at our operations.

Outlook

In our Americas Materials Division, supported by continuing favourable economic conditions, we expect growth in the US residential and non-residential market sectors with positive momentum in infrastructure activity, underpinned by state and federal funding.

In our Europe Materials Division, we anticipate positive construction demand in key markets with steady progress in Western Europe and good growth in Eastern Europe. While Brexit has created uncertainty in the UK construction market, we expect some stabilisation in 2020.

Against a positive backdrop in North America and Europe, we expect further growth in Building Products aided by ongoing commercial and operational performance initiatives.

For the Group overall, with a continued focus on portfolio refinement, margin expansion, cash generation and enhanced returns for shareholders, we believe that 2020 will be a year of further progress.

Albert Manifold

Chief Executive

27 February 2020

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

1.

Details of how non-GAAP measures are calculated are set out on pages 225 to 228.

 

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Market Backdrop

There is a natural demand for CRH’s materials and products which is driven by population and economic growth and the need to continually build and maintain the built environment.

 

CRH manufactures and supplies a range of building materials, products and innovative solutions for the construction industry.

 

From primary materials that we extract, process and supply, to products that are highly engineered and high-value added, CRH is uniquely positioned to address evolving trends in global construction markets.

 

Our products can be found throughout the built environment in a wide range of construction projects from major public infrastructure to commercial buildings and residential structures.

 

Demand for CRH’s materials and products is driven by three primary demand fundamentals: population growth, economic development and the need to continually repair and maintain the built environment.

 

Population Growth

 

Our materials and products are an essential enabler of the built environment around the world. This means there is a natural market for our products wherever there is growth in population and the associated construction demand can be expected to drive day-to-day organic growth for our businesses.

 

Economic Development

 

There is a strong correlation between population growth and economic growth in developed markets around the world. In addition, economic development and growth drives investment in residential, infrastructure and commercial projects from the houses, roads, bridges, ports and airports that serve our growing cities to office blocks, retail centres and industrial and leisure complexes.

 

Ongoing Repair and Maintenance

 

There is a recurring need to continually repair and maintain the existing built environment as structures age over time.

 

At CRH we aim to have a portfolio which is appropriately exposed to each of these primary demand fundamentals, thereby ensuring we benefit from growth and value-creation opportunities associated with each.

 

Future Trends in Construction

 

In addition to the primary market fundamentals driving our business today, CRH also monitors the trends shaping the nature of construction in the future. These include increasing urbanisation and the growth of cities, demand for more sustainable forms of construction and the influence of technology and digitisation. Adapting our business to the opportunities and challenges created by these trends is a constant focus for CRH and an important factor in how we allocate our resources.

 

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Our Balanced

Portfolio

 

Building a balanced portfolio is a core constituent of our strategy and helps to insulate our business from the impact of cyclical fluctuations in any one of our markets.

   

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Market Development

 

Where appropriate, CRH operates a vertically integrated business model. Organic growth is complemented by identifying suitable businesses which can be acquired and integrated into CRH through bolt-on acquisitions.

 

Backed by a reserves network (23.1 billion tonnes) that is difficult to replicate and strong leadership positions in local markets, our materials businesses are well positioned to capitalise on value creating opportunities for consolidation and expansion of existing operations.

 

Our biggest market, the US, is largely unconsolidated. For example the top ten aggregates businesses account for less than one third of production. Fragmentation across the industry creates opportunities for consolidation through acquisitions which provide the potential to drive further growth and value creation for our shareholders.

 

North America

 

In North America, which includes the world’s largest economy, the US, CRH is the largest building materials business. Growth in North America is underpinned by solid fundamentals and positive demographics with the population growing by 30 million people every decade, driving associated construction growth.

 

In recent years we have reshaped and redirected our businesses in the US to increase our exposure to positive demand fundamentals in the southern and western areas of the country.

 

Europe

 

In Europe, where the European Union (EU) is the largest economic bloc in the world, CRH is a leading heavyside building materials business. In Western Europe, there is an attractive mix of stable developed markets which continue to deliver. In Eastern Europe higher growth markets offer opportunities for growth through acquisition activity.

 

Other Markets

 

CRH is a leading building products business globally. This business produces high-value-added, highly engineered products that can be economically transported longer-distances, opening up important export markets for CRH beyond our core geographic footprint.

 

 

 

  Introducing Building Products

 

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Oldcastle BuildingEnvelope®, part of CRH’s Building Products Division, supplied skylight and architectural glass for the Leadership in Energy and Environmental Design (LEED©) gold-certified Tepper School of Business at Carnegie Mellon University in Pittsburgh. The products were critical to achieve the thermal performance needed for the building’s LEED© certification.

 

 

 

The nature of construction is changing as the industry evolves to meet the demands of economic growth, shifting demographics and sustainable development. Labour constraints mean that businesses need to adapt and bring products to market that ease and speed up the pace of construction while an increasing demand for more sustainable, integrated and value-added solutions is driving innovation, productivity and technological advancement across the industry.

As a leading supplier of building products globally, CRH is at the forefront of that change. Our businesses manufacture, supply and deliver a wide range of high quality, value-added, innovative products and solutions needed to shape and enhance the built environment for modern communities.

Recognising the changing needs of construction and the impact of those changes on demand for our products, CRH has established a new Building Products Division to bring together related products businesses across Europe, North America and Asia Pacific into one global platform, providing greater alignment on strategies for performance improvement, development and growth.

By establishing a single Division built upon clusters of excellence across Architectural Products, Building Envelope, Infrastructure Products and Construction Accessories, we can leverage our scale and network capabilities to build upon our well-established positions in existing markets and across our core product groups.

The new Division will also increase vertical integration and collaboration opportunities not only within the Division itself but also with our materials businesses in Europe and North America.

A key feature of the Division is its exposure to attractive end-use markets offering higher growth prospects and balance through the cycle, while the lower capital intensity of these businesses delivers superior returns and good cash conversion.

The Building Products Division is well positioned to adapt and grow as markets continue to evolve.

 

 

 

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Strategy

Targeting superior growth and returns

CRH is the leading building materials business in the world. Our focus is on creating long-term value and delivering superior returns for our shareholders.

 

     
   

 

OUR STRATEGY

Our strategy is to grow and improve our business in a sustainable and responsible way, through a relentless focus on performance improvement, focused growth and value creation for the benefit of all our stakeholders.

 

FOUR PILLARS

CRH’s strategy is underpinned by four strategic objectives, which drive our ability to generate superior margins, returns and cash on a continuous basis.

 

DRIVING PERFORMANCE, GROWTH AND VALUE

 

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TAKING A RESPONSIBLE AND SUSTAINABLE APPROACH

In executing our strategy, CRH is at all times focused on ensuring every lever we utilise to create value for our shareholders is done so in a disciplined, responsible and sustainable manner, thereby mitigating potential risks.

        
     
 


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*  EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 

 

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Business Model

How we create value and growth

CRH’s vertically integrated business model benefits from the efficient allocation of capital and continuous business improvements across the Group.

 

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*  EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 

        

 

 

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Measuring Performance

CRH uses a number of financial and non-financial Key Performance Indicators (KPIs) to measure performance across our business. KPIs are a consistent feature of how we operate and fundamental to how we track progress towards achieving our strategic objectives.

Sustainability Performance

We believe sustainability and corporate social responsibility are fundamental to CRH being the leading building materials business in the world. We understand that a strong sustainability performance is a key driver in a competitive market and can lead to increased business opportunities. To drive transparency and progress, we are committed to reporting on the breadth of our sustainability performance. A selection of KPIs relating to three of our sustainability priority areas are below:

 

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1.

CO2 emissions subject to final verification under the European Union Emissions Trading Scheme (EU ETS). CO2 emissions data includes Scope 1 (2019: 33.9m tonnes, 2018: 35.4m tonnes, 2017: 25.6m tonnes) and Scope 2 (2019: 2.6m tonnes, 2018: 2.7m tonnes, 2017: 2.6m tonnes) emissions. Scope 1 and Scope 2 emissions are as defined by the World Resources Institute Greenhouse Gas Protocol.

2.

We are highlighting the percentage of females in the senior management cohort as a KPI. Please refer to page 23 for further information on inclusion and diversity, including additional indicators.

 


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Financial Performance

As part of our strategic focus on continuous improvement, CRH uses financial KPIs to measure our progress and foster positive performance behaviour. A selection of KPIs relating to four of our financial priority areas are below:

 

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*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

1.

EBITDA (as defined)* Net Interest Cover is a non-GAAP measure as defined on page 227. The GAAP figures that are most directly comparable to the components of EBITDA (as defined)* Net Interest Cover include: profit after tax: 1,638 million (2018: 1,345 million), finance costs: 346 million (2018: 339 million) and finance income: 20 million (2018: 34 million). Details of how non-GAAP measures are calculated are set out on pages 225 to 228.

 

 

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Sustainability

Delivering long-term value

Developing a more sustainable built environment is one of the biggest contributions we can make to society. Our ambition is to continue to drive improvement and growth across all areas of sustainability, creating financial and non-financial value.

 

How We View Sustainability

We aim to positively contribute to society through the delivery of materials and products that enhance the sustainability of structures and consider the needs of our communities. We believe that meeting these needs in a manner that respects sustainability principles and addresses potentially negative impacts will create lasting value for all our stakeholders, including investors, customers, employees, partners, suppliers and local communities. Sustainability is fundamental to achieving our vision and is embedded in our business strategy and approach.

How We Create Sustainable Value

Our objective is to create sustainable value by providing industry-leading products and solutions to meet the construction needs of our customers around the world. By considering the full life-cycle of our products and innovating to drive more sustainable outcomes in the built environment, we aim to have a positive impact on wider society and the environment while increasing our ability to drive profits and long-term value.

As well as being beneficial for our business, these ambitions also have an outward focus.

Our actions are intended to contribute to the delivery of key initiatives, such as the UN Sustainable Development Goals (SDGs) and the Paris Climate Agreement.

CRH is ranked among sector leaders by leading Environmental, Social and Governance (ESG) rating agencies. We are a constituent member of indices including the FTSE4Good Index, the STOXX® Global ESG Leaders Index and the Dow Jones Sustainability Index as well as a long-term participant in CDP (formerly Carbon Disclosure Project). In addition, many of our operating companies have achieved awards for excellence in sustainability.

How We Manage Sustainability

We take a risk-based, collaborative and strategic approach to responding to global trends in ESG areas including climate change, urbanisation, resource scarcity, demographic changes and technological advancements. We regularly review our non-financial policies and these were updated in 2019.

Risks related to sustainability are recognised in our ERM Framework, described on pages 26 and 27, and details of sustainability risks are included on pages 110 and 111. Our non-financial due diligence processes are well established, and we made no material changes to these in 2019.

Our key sustainability priorities are determined through a range of internal and external processes to identify the ESG issues that are most relevant to our business, society and key stakeholders. These include annual sustainability reporting by our businesses to Group, review of issues raised through ERM processes and regular formal materiality assessment reviews. In 2019, we completed a formal materiality assessment review, the outcome of which will inform our reporting and our evolving approach.

How We Report on Our Performance

We are committed to reporting on the breadth of our sustainability performance and to publishing performance indicators, ambitions and outcomes in key sustainability areas. We publish an annual independently-assured Sustainability Report, which is prepared in line with the Global Reporting Initiative Standards and available on www.crh.com. The 2019 Sustainability Report will be published in March 2020. Key performance indicators on sustainability are included on page 18 and throughout this section.

 

 

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CRH 2030 ambitions

To ensure that we continue to create sustainable value, we have set ambitious targets that are aligned to the issues of most importance to our businesses and stakeholders. These ambitions represent the areas in which we believe we can effect the most change.

 

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Sustainability - continued

Managing our key priority areas

 

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OPTERRA, part of CRH’s Europe Materials Division, supplied concrete for this ‘green bridge’ on the Bundesstraße motorway project in Southern Bavaria, Germany. The project, which runs through a forest area, includes a new motorway as well as 14 additional structures. The green bridge, completed in May 2019, will enable wildlife to cross the busy motorway, thus reducing the impact of the project on the area’s biodiversity.

 

                             

 

 

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Sustainability - continued

 

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Risk Governance

Effective risk governance supports the realisation of our strategic objectives and the continued success of our business. Our ERM framework is a core component of our performance orientated culture, with leadership guided by a clear line of sight on risks and opportunities across the strategic planning horizon. Embedding ERM into our business processes creates an environment where leaders take a disciplined and focused view on risks to inform and hone our strategy.

 

Adding Value to Decision-Making

 

ERM in CRH is a forward-looking, strategy-centric approach to managing the risks inherent in decision-making. It is a tool readily employed by the Board and the wider business leadership, firstly, when considering and setting strategic objectives, and secondly, during strategic execution to ensure we are dynamic and responsive to threats and opportunities for the Group.

 

Risk informed strategic planning is fundamentally important to successfully address the myriad of challenges we face in our relentless focus on value creation. We are becoming a narrower, deeper, more focused Group and strategic decisions, such as the divestment of our Europe Distribution business, are comprehensively analysed with a risk lens during consideration and execution.

    

As the leading building materials business in the world we hold ourselves to stringent standards, governed by our robust ERM framework. Our framework allows us to add new depth to our understanding of our customers and markets, so we can buy better, run our assets better and sell better than anyone else. It also gives us insight to strengthen our existing platforms and confidence to step into new markets.

 

 

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ERM Framework

 

Our framework, embedded across the Group, ensures a standardised, global system of identification, management and reporting of risks and sets out a structured and consistent approach to threats and opportunities throughout all our operations.

 

We employ the Three Lines of Defence governance model to support the Board in its responsibilities for risk management. Clarity of ownership and responsibility is pervasive throughout the Group, supported by a robust governance structure.

 

Our risk framework is reinforced by integrated processes which harness the collective risk intelligence of the Group. The maturity of our risk structures has integrated our bottom, middle and top line perspectives, ensuring transparency of threats, opportunities and controls in the context of individually and collectively held strategic objectives.

 

Integrated Risk Process

 

Given the dynamic nature of risk and the evolutionary nature of ERM, the framework operates as a business process at all levels of the Group. Integration with strategy and performance agendas, in addition to ongoing management processes, ensures a robust and effective risk environment assisting in maximising the performance of our businesses.

 

Uncertainties that present themselves as downside risks are assessed in line with the Group’s risk appetite and those which present themselves as opportunities are sufficiently explored and captured, where possible.

 

To reflect the Group’s diverse risk landscape and thoroughly understand potential risks that may materialise over the coming years, the Group Risk function facilitates risk workshops and Risk Committee meetings, supplemented, for example, by seminars and regional risk champion forums.

    

    

 

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  At CRH we believe

we realise reward

when we manage

risk effectively.  

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2019 Highlights

 

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  Risk Committee     LOGO   Risk Strategy     LOGO   Risk Oversight     LOGO   Risk Champion Network  

Robust schedule with executive representation, fostering wide-ranging discussion and informing strategy.

 

The Risk Committee provides oversight, leadership and challenge to the processes in place across the Group to identify, assess and manage risks inherent in strategic decision-making and execution.

   

Redefined five year risk strategy setting a roadmap for improvement in risk management frameworks, principles and practices.

 

Five key themes have been identified to achieve our targeted maturity, bringing risk closer to our businesses, improving risk governance and delivering value creation.

   

c. 3,000 risks being managed through our global ERM framework, enabling full visibility, capability and execution of strategy.

 

Our bottom-up reporting process garners comprehensive risk insights to ensure appropriate execution of risk management and that opportunities to leverage scale are identified and acted upon.

   

c. 90 Risk Champions appointed at all levels of the Group to support and coordinate risk management activities.

 

Our networks enhance the maturity of the ERM framework locally and globally by sharing risk profiles, mitigation strategies and best practice from around the Group. Physical forums and virtual tools ensure robust supports for this cooperative community.

 

 

Risk Governance Framework            

 

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Climate-related Disclosures

With our global presence and industry leadership positions, we are very aware of our role in maintaining sustainability principles while we fulfil the needs of each communities’ stakeholders. We welcome the development of recommendations for improving climate-related disclosures and an increasing focus from both regulators and shareholders on our non-financial performance. As a Group we will continue to be diligent in ensuring transparency and responsiveness to climate-related risks and opportunities.

 

CRH is participating in a World Business Council for Sustainable Development (WBCSD) and Task Force on Climate- related Financial Disclosures (TCFD) convened “Preparer Forum” for the construction sector to review current levels of disclosure and develop guidelines for the sector with respect to TCFD reporting.

 

We take a risk-based, collaborative and strategic approach to responding to climate change. The identification, assessment and effective management of climate-related risks and opportunities are fully embedded in our dynamic risk management process and our Climate Change and Policy Principal Risk is described in detail on pages 110 and 236.

 

We are committed to reporting on the breadth of our sustainability performance and to publishing performance indicators, ambitions and outcomes in key sustainability areas. We publish an annual independently-assured Sustainability Report, which is prepared in line with the Global Reporting Initiative Standards and available on www.crh.com.

 

   
              
     
     
     

 

 

 

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Risk Governance - continued

 

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The Joliette cement plant in Quebec, Canada, part of CRH’s Americas Materials Division, supplies more than ten types of cement to customers across Canada and the Northeastern US. The plant has 180 employees and has been in operation for more than 50 years. It is a pioneer in the use of Alternative Fuels and Raw Material (AFR) in the cement production process, with more than 30% of fossil fuels replaced by alternative fuels.  

 

 


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Business Performance   
     
32 - 53        Business Overview      32
       Finance Director’s Review      33
       Segmental Reviews      38

 

 

    


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Business Overview

An overview of Group revenue and operating profit for each of the reporting segments for 2017, 2018 and 2019 is as follows:

 

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(i)

As set out in note 2 to the Consolidated Financial Statements on page 147 the Group has three reporting segments; Americas Materials, Europe Materials and Building Products. Comparative segment amounts for 2017 and 2018 have been restated where required to reflect the new format for segmentation.

(ii)

During 2019 the Europe Distribution business was classified as discontinued operations. Comparative amounts for 2017 and 2018 have been restated.

 


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2019 was another year of growth for CRH, supported by a positive demand backdrop in the Americas and in key regions in Europe. With good contributions from acquisitions and tailwinds from currency exchange movements, sales of 28.3 billion from continuing and discontinued operations for the period were 6% ahead of 2018.

 

Year-end net debt of 6.7 billion

(2018: 7.0 billion) was reflective of our strong operating cash generation and continued portfolio refinement with net disposal proceeds after acquisition spend of 1.4 billion (2018 outflow: 0.6 billion) offset by total distributions to shareholders of 1.4 billion (2018: 1.3 billion). Net Debt/EBITDA (as defined)* was 1.7x (2018: 2.1x).

 

Key Components of 2019 Performance

 

Economic growth continued in the US in 2019, with improvements in the infrastructure sector and solid fundamentals in key residential and non-residential markets. Headwinds driven by flooding and wet weather in the first half of the year were offset by a stronger second half and like-for-like sales in Americas Materials for the full year increased 4% over 2018.

 

In Europe Materials, organic sales were 5% ahead due to good activity in key markets and pricing progress across all product lines. Performance was positive for our businesses in Eastern and Western Europe, which

 

 

 

offset challenging trading conditions in the UK as construction activity declined amidst Brexit-related uncertainty.

 

Building Products saw continued improvements in 2019 reflecting a positive demand and pricing backdrop and like-for-like sales were 2% ahead of 2018. Underlying trends in residential and non-residential activity were positive in the West Coast and Southern regions of the US and our main markets in Europe also experienced good demand.

 

Our Europe Distribution business was divested at the end of October 2019 and was classified as discontinued operations for reporting purposes. The business experienced continued demand in mainland Europe aided by milder weather conditions, partly offset by challenges in Switzerland.

 

EBITDA (as defined)* from continuing and discontinued operations of 4.2 billion was 25% ahead of 2018 (2018: 3.4 billion) with the benefit of solid underlying growth, continued focus on operational and commercial performance, margin-enhancing acquisition activity and the impact of IFRS 16 Leases2. Reported profit after tax was 0.6 billion behind 2018 at 1.9 billion (2018: 2.5 billion), as the prior year’s profit after tax was augmented by the 1.1 billion after tax profit on disposal on the sale of our Americas Distribution business.

 

The euro weakened against most major currencies during 2019 resulting in the average euro/US Dollar rate strengthening from 1.1810 in 2018 to 1.1195 in 2019 and the Pound Sterling strengthening from an average 0.8847 in 2018 to 0.8778 in 2019. Overall currency movements resulted in a favourable net foreign currency translation impact on our results as shown on the table on page 34. The average and year-end 2019 exchange rates of the major currencies impacting on the Group are set out on page 144.

 

Change in Reporting Currency to US Dollar

 

Within our current portfolio of businesses, our euro denominated earnings, while sizeable, are a relatively lower proportion of overall earnings. To reduce the potential for foreign exchange volatility in our future reported earnings, the Group has decided to change its reporting currency to US Dollar effective from 1 January 2020.

 

*  EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

1. See cautionary statement regarding forward-looking statements on page 103.

2. The impact of IFRS 16 Leases on EBITDA (as defined)* is 378 million from continuing and discontinued operations.

 

 

 

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Finance Director’s Review 2019 - continued

Key Components of 2019 Performance

 

                                                                                                                                                                                            
million    Sales
revenue
    EBITDA
(as defined)*
    Operating
profit
    Loss on
disposals
    Finance
costs (net)
    Assoc. and
JV PAT (i)
     Pre-tax
profit
 
2018      23,241       3,216       2,071       (27     (351     48        1,741  
Exchange effects      764       127       91       1       (12     2        82  
2018 at 2019 rates      24,005       3,343       2,162       (26     (363     50        1,823  
Incremental impact in 2019 of:                
- 2018/2019 acquisitions      923       164       70       -       (44     -        26  
- 2018/2019 divestments      (629     (52     (18     34       2       -        18  
- Leases (ii)      -       311       40       -       (62     -        (22
- Organic      830       234       240       (9     29       10        270  
2019      25,129       4,000       2,494       (1     (438     60        2,115  
% Total change      8     24     20                              21
% Organic change      3     7     11                              15

 

(i)

CRH’s share of after-tax profits of joint ventures and associated undertakings.

(ii)

Excludes the impact of IFRS 16 Leases on discontinued operations which is 67 million on EBITDA (as defined)*, 4 million on operating profit and 7 million on finance costs.

 

Liquidity and Capital Resources - 2019 compared with 2018

The comments that follow refer to the major components of the Group’s cash flows for 2019 and 2018 as shown in the Consolidated Statement of Cash Flows on page 132.

Throughout 2019, the Group remained focused on cash management, targeting working capital in particular. Management delivered a net working capital outflow of 64 million (2018: 463 million), and together with 2019’s improved profitability and the positive impact of the non-reoccurrence of cash outflows related to the Americas Distribution discontinued operation (primarily the tax paid on the profit on disposal) the Group’s operating cash flow increased to 3.5 billion (2018: 1.9 billion).

Working capital was 2.1 billion at year end (2018: 2.5 billion) representing 8.5% of continuing sales (2018: 9.4% on a continuing and discontinued basis). CRH believes that its current working capital is sufficient for the Group’s present requirements.

Focused investment in property, plant and equipment in markets and businesses with increased demand backdrop and efficiency requirements, resulted in higher cash outflows of 1.2 billion (2018: 1.1 billion), with spend in 2019 representing 102% of depreciation on owned assets (2018: 105%).

Reflective of the ongoing strategy of active portfolio management, the Group invested 0.7 billion on 62 transactions (2018: 3.6 billion) which was financed by divestment and disposal proceeds of 2.1 billion (net of cash disposed and deferred proceeds) (2018: 3.0 billion).

The Group continued its share buyback programme and, in 2019, 27.4 million (2018: 27.9 million) ordinary shares were repurchased on the London Stock Exchange (LSE) and Euronext Dublin for a total consideration of 0.8 billion (2018: 0.8 billion), at an average price of 28.87 (2018: 28.24) per share. The Group announced a further 0.2 billion tranche of the share buyback programme on 7 January 2020 to be completed no later than 31 March 2020. These buybacks, together with cash dividend

payments of 0.6 billion (2018: 0.5 billion), reflect the Group’s continued commitment to returning excess cash to shareholders.

Year-end interest-bearing loans and borrowings decreased by 0.3 billion to 9.0 billion (2018: 9.3 billion). At year end, the weaker euro against the US Dollar had a negative translation impact on net debt.

Reflecting all these movements, net debt of 6.7 billion at 31 December 2019 was 0.3 billion lower than year-end 2018 (7.0 billion). The Group is in a good financial position. It is well funded and Net Interest Cover (EBITDA (as defined)*/net debt related interest costs) is 12.3x (2018: 10.5x).

The Group ended 2019 with total liquidity of 7.4 billion, comprising 3.8 billion of cash and cash equivalents on hand and 3.6 billion of undrawn committed facilities which are available until 2024. At year end, the Group had sufficient cash balances to meet all maturing debt obligations (including leases) for the next four years and the weighted average maturity of the remaining term debt was

11.6 years.

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 

 


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In April 2019, the Group successfully carried out an amendment and extension of its 3.5 billion revolving credit facility.

The Group also has a US$2 billion US Dollar Commercial Paper Programme and a 1.5 billion Euro Commercial Paper Programme of which there were no outstanding issued notes at year end. The purpose of these programmes is to provide short-term liquidity at attractive terms.

Contractual obligations and Off-Balance Sheet arrangements are disclosed on page 229 of this Annual Report and Form 20-F.

Segmental Reviews

The sections on pages 38 to 51 outline the scale of CRH’s continuing operations in 2019 and provide a more detailed review of performance in each of CRH’s reporting segments. A review of the discontinued operations, Europe Distribution, is also included on pages 49 and 52 for information.

Development Review

 

   

 

 

2019

 

 

Demonstrating CRH’s strategy of active portfolio management, the Group invested 0.7 billion in 62 acquisition/investment transactions in 2019 (including deferred and contingent consideration in respect of prior year acquisitions).

 

The Building Products Division completed a total of 16 bolt-on acquisitions at a cost of c. 460 million. Four of these acquisitions were completed in Europe and one in Australia at a cost of 65 million, while the remaining 11 were completed in North America for consideration of c. 395 million. One of the largest acquisitions in 2019 was the November acquisition of Torrent Resources, Inc. for c. 75 million. This acquisition strengthens CRH’s storm water and water management presence in Western US and offers significant commercial and operational synergy potential to our Infrastructure Products business.

 

The Americas Materials Division completed 27 bolt-on acquisitions and two investments at a cost of c. 210 million, the majority of which were designed to bolster our operational footprint through the addition of c. 260 million tonnes of mineral reserves. The most significant acquisition in Americas Materials was that of Windsor Rock Products for c. 30 million. Windsor Rock

 

Products is a strong fit with our existing operations in Oregon and adds c. 25 million tonnes of reserves to our portfolio.

 

The Europe Materials Division completed 15 bolt-on acquisitions and two investments at a cost of c. 55 million.

 

On the divestment front, the Group completed 11 transactions and realised business and asset disposal proceeds of 2.1 billion. The majority of divestment proceeds related to the divestment of the Europe Distribution business in October 2019 for a final agreed consideration of 1.6 billion. Other transactions in 2019 included the divestment of the European Shutters & Awnings business for a total consideration of 0.3 billion in June, the divestment of the Perimeter Protection business in Europe in September 2019 for 0.1 billion together with seven smaller business divestments completed in the US and UK.

 

On 31 December 2019, the Group divested of its share of the Indian joint venture, MHIL, for a total deferred consideration of

0.3 billion.

 

In addition to these business divestments, the Group realised proceeds of 0.1 billion from the disposal of surplus property, plant and equipment.

 

 

 

 

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Finance Director’s Review 2018

 

The overall trading environment for the Group in 2018 was positive with good demand and favourable market fundamentals in the Americas coupled with positive underlying momentum in Europe; both experienced against a backdrop of energy-related input cost inflation and significant weather disruption throughout 2018. The Group continued to focus on cash generation and appropriate deployment of capital. Operating cash flow for 2018 amounted to 1.9 billion (2017: 2.2 billion) impacted by the tax paid on the divestment of Americas Distribution. Year-end 2018 net debt finished under 7.0 billion (2017: 5.8 billion) after acquisition spend net of disposal proceeds of 0.6 billion (2017: 1.7 billion) and total distributions to shareholders of 1.3 billion (2017: 0.5 billion).

Key Components of 2018 Performance

The overall sales movement in 2018 was a combination of the performance of each of the individual segments as noted below.

Despite harsh winter weather conditions experienced in the early months and record levels of rainfall during 2018, our Americas Materials’ operations benefited from a positive macroeconomic backdrop and good underlying

demand in the US. An organic sales increase of 4% was supported by growth across all sectors in our markets.

Organic sales were up 5% in Europe Materials, with a positive performance for our operations in Ireland, the Benelux, Denmark and Poland partly offset by more challenging trading conditions in the UK, due to continued Brexit uncertainty. The Philippine economy continued to perform amidst inflationary pressures. However, the resultant volume and price progress was more than offset by cost increases, particularly in energy.

Building Products saw growth in the US along the West Coast and in parts of the South, due to good residential and non-residential construction, partly offset by softness in some Northern US regions. With organic sales 3% ahead of 2017, it was a year of progress for the Division further boosted by acquisitions in all of the product groups.

Europe Distribution, which was classified as discontinued operations for reporting purposes, had a mixed performance with positive momentum in the Netherlands, partly offset by first half challenges in Switzerland and Belgium.

 

EBITDA (as defined)* for 2018 amounted to 3.2 billion, a 10% increase on 2017 (2017: 2.9 billion) as the benefit from acquisitions and underlying growth was partly offset by energy-related input cost inflation. Reported profit after tax was 0.6 billion ahead of 2017 at 2.5 billion (2017: 1.9 billion), with 2018 profit augmented by the profit on disposal of our Americas Distribution business partly offset by two non-recurring one-off items in 2017; a past service credit due to changes in a Swiss pension scheme and a 440 million reduction in the Group’s net deferred tax liabilities1 due to changes in tax legislation in the US.

The euro strengthened against most major currencies during 2018 resulting in the average euro/US Dollar rate weakening from 1.1297 in 2017 to 1.1810 in 2018 and the Pound Sterling weakening from an average 0.8767 in 2017 to 0.8847 in 2018. Overall currency movements resulted in an unfavourable net foreign currency translation impact on our results as shown in the table below. The average and year-end 2018 exchange rates of the major currencies which impacted on the Group are set out on page 144.

 

 

Key Components of 2018 Performance

 

                                                                                                                                                                                            
million    Sales
revenue
     EBITDA
(as defined)*
     Operating
profit
     (Loss)/profit
on disposals
     Finance
costs (net)
     Assoc. and
JV PAT (i)
     Pre-tax
profit
 
2017      21,653        2,930        1,927        54        (348)        52        1,685  
Exchange effects      (644)        (98)        (67)        (2)        9        (2)        (62)  
2017 at 2018 rates      21,009        2,832        1,860        52        (339)        50        1,623  
Incremental impact in 2018 of:                     
- 2017/2018 acquisitions      1,746        355        225        -        (57)        -        168  
- 2017/2018 divestments      (348)        (36)        (26)        (72)        2        -        (96)  
- Swiss pension past service credit (ii)      -        (20)        (20)        -        -        -        (20)  
- Early bond redemption      -        -        -        -        17        -        17  
- Organic      834        85        32        (7)        26        (2)        49  
2018      23,241        3,216        2,071        (27)        (351)        48        1,741  
% Total change      7%        10%        7%                                   3%  
% Organic change      4%        3%        2%                                   3%  

 

(i)

CRH’s share of after-tax profits of joint ventures and associated undertakings.

(ii)

2018 included the impact of the non-reoccurrence of a one-off past service credit of 81 million in 2017 due to Swiss pension plan amendments, 20 million classified as continuing operations with the remaining 61 million classified as discontinued operations.

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

1.

Net deferred tax liabilities of 447 million is stated on a continuing (440 million) and discontinued (7 million) basis.

 


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Liquidity and Capital Resources - 2018 compared with 2017

The comments that follow refer to the major components of the Group’s cash flows for 2018 and 2017 as shown in the Consolidated Statement of Cash Flows on page 132.

The Group maintained its focus on cash management in 2018. Operating cash flow in 2018 was 1.9 billion (2017: 2.2 billion) which included cash outflows of 469 million related to the Americas Distribution discontinued operation, primarily the tax paid on the profit on disposal. Net working capital outflow for 2018 of 463 million (2017: 209 million outflow) reflected trends in overall sales, seasonal weather patterns and the impact of acquisitions.

Focused spending on property, plant and equipment in markets and businesses with increased demand backdrop and efficiency requirements, resulted in higher cash outflows of 1.1 billion (2017: 1.0 billion).

During 2018 the Group spent 3.6 billion on 46 transactions (2017: 1.9 billion) which was partly financed by divestment and disposal proceeds of 3.0 billion (net of cash disposed and deferred proceeds) (2017: 222 million).

Between 2 May and 31 December 2018, 27.9 million ordinary shares were repurchased on the LSE and Euronext Dublin for a total of 789 million, at an average price of 28.24 per share. This buyback, together with cash dividend payments of 533 million in 2018 (2017: 477 million) reflected the Group’s continued focus on returns to shareholders. Net proceeds from share issues in 2018 was 11 million (2017: 42 million).

Year-end 2018 interest-bearing loans and borrowings increased by 1.3 billion to 9.3 billion (2017: 8.0 billion). At year end 2018, the weaker euro against the US Dollar had a negative translation impact on net debt.

Development Review

 

   

 

 

2018

 

 

 

 

2017

 

In 2018, the Group spent a total of c. 3.6 billion (including deferred and contingent consideration in respect of prior year acquisitions) on 46 acquisition/investment transactions. On the divestment front, the Group realised business and asset disposal proceeds of c. 3.0 billion.

 

The most significant acquisition in 2018 was the June acquisition of Ash Grove, which gave CRH a market leadership position in the North America cement market, allowing for greater vertical integration with our existing aggregates, asphalt and readymixed concrete businesses. In addition to the acquisition of Ash Grove, our Americas Materials Division completed 23 bolt-on acquisitions and one investment throughout the US and Canada for consideration of c. 370 million.

 

Our Europe Materials Division completed ten acquisitions across the UK, Ireland and France, and one investment in Poland for a total spend of c. 60 million. Our Building Products Division completed an acquisition in the UK, Germany, Belgium and Australia, in addition to six bolt-on acquisitions in the US at a total cost of c. 220 million. The acquisitions of Coral Industries and SIGCO extended Building Envelope’s geographic footprint and product offerings in the Southeast and Northeast US, respectively. Similarly, the Concrete Specialties acquisition and the Ash Grove packaging division added geographic exposure to Central US markets.

 

The majority of divestment proceeds related to the divestment of our Americas Distribution business in January 2018 for a final agreed consideration of c. 2.4 billion. In July 2018, the Group completed the divestment of our DIY business in the Netherlands and Belgium, together with certain related property assets, for total consideration of c. 0.5 billion. A further 18 smaller business divestments were completed across all segments demonstrating our continued focus on portfolio management. In addition to these business divestments, the Group realised proceeds of c. 0.1 billion from the disposal of surplus property, plant and equipment.

 

 

In 2017, the Group spent a total of 1.9 billion (including deferred and contingent consideration in respect of prior year acquisitions) on 34 acquisition/investment transactions. The Group realised business and asset disposal proceeds of 0.2 billion.

 

Our Americas Materials Division completed the largest 2017 acquisition at the end of November with the acquisition of Suwannee American Cement together with certain other materials assets in Florida. The total assets acquired consisted of a 1 million tonne cement plant in North Central Florida, 18 readymixed concrete plants, an aggregates quarry, two block plants and nine gunite facilities. The Americas Materials Division also completed 12 further bolt-on acquisitions, including two in Canada, adding c. 2.5 billion tonnes of additional aggregates reserves resulting in a total spend of c. 1.1 billion in 2017.

 

Our Europe Materials Division spent c. 0.6 billion on eight acquisitions and one investment, including the largest acquisition in Europe of the Fels lime business which was acquired at the end of October 2017. Fels’ assets included significant high-quality limestone reserves and 11 production locations; nine in Germany and one in both the Czech Republic and Russia.

 

The Building Products Division completed eight acquisitions and one investment in the US in addition to two acquisitions and one investment in Europe in 2017 at a total cost of c. 0.2 billion.

 

Business divestments during 2017, all in Europe Materials, generated net proceeds of c. 85 million. The remaining clay products businesses in Europe (Belgium, Germany, Netherlands and Poland) were divested and the Division also sold its civil prefabricated concrete businesses in the Benelux, along with seven other small non-core businesses. In addition to these business divestments, the Group realised proceeds of c. 0.1 billion from the disposal of surplus property, plant and equipment.

 

 

 

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Roadstone, part of CRH’s Europe Materials Division, developed over 4,500m³ of high-strength concrete for The Rose Fitzgerald Kennedy Bridge in Ireland, which opened in January 2020. The three-tower, 887m extrados bridge is the longest of its type in the world. Extending more than 230m over the River Barrow, and with a 36-metre clearance, it provides vital connectivity for surrounding communities and for shipping navigation to the Port of New Ross.  

 

 


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Segmental Reviews   
     
40 - 53        Americas Materials      40
       Europe Materials      44
       Building Products      48

 

 

    


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Americas Materials

 

LOGO     

CRH’s Americas Materials Division is the leading building materials business in North America with operations in 46 US states, six Canadian provinces and three Brazilian states.

 

What We Do

 

Our Americas Materials Division is a vertically integrated supplier of building materials used widely in construction projects throughout North America. Typically, these materials are resource-backed in mineral deposits found within our extensive network of quarry locations where they are processed for supply as aggregates, asphalt, cement and readymixed concrete.

 

Our operating companies across North America supply these materials to customers including national, regional and local governments, contractors, homebuilders, homeowners and sub-contractors, for use in a broad range of construction projects including major public infrastructure, commercial buildings and residential structures.

 

Over several decades CRH has built up market leading positions throughout North America in aggregates and readymixed concrete while currently being the largest producer of asphalt. CRH is also a leading producer of cement in North America with operations across Florida, Texas, the Midwest and Western US, and Canada.

 

In addition, the Division is a leading supplier to highway construction projects in the US and a significant proportion of our business is awarded by public tender for federal, provincial, state and local government authority road and infrastructure projects.

 

How We Create Value

 

Our Americas Materials businesses have established strong relationships with customers in local markets and a deep market knowledge that drives performance. This focus on operational excellence at the local level is supported by strategic oversight provided through a lean centre which allows CRH to leverage talent, procurement synergies, cost management and operational excellence.

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

1.

Geography, sector exposure and end-use balance are based on sales.

2.

Net Assets at 31 December 2019 comprise segment assets less segment liabilities excluding lease liabilities as defined on page 226.

3.

Throughout this document annualised volumes have been used which reflect the full-year impact of development activity during the year and may vary from actual volumes sold.

 


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Our vertically integrated business model helps us capture value at multiple points along the value chain. Selling materials internally to other CRH businesses helps us drive company-wide growth and efficiency while ensuring that we are maximising the use of our assets.

Materials produced by our aggregates and cement businesses for example are purchased by our downstream materials businesses for products such as readymixed concrete and asphalt. This focus on vertical integration is embedded in our development strategy and we typically concentrate our acquisition activity on businesses which can be quickly integrated within our existing network.

The US building materials sector is largely unconsolidated; the top ten aggregates businesses account for less than one third of production. Backed by a reserves network that is very difficult to replicate and strong leadership positions in local markets, our materials businesses are well positioned to capitalise on value creating opportunities for consolidation and expansion of existing integrated operations.

The recent expansion of the Division’s footprint in the North American cement market for example allows for greater integration with our existing aggregates and readymixed concrete businesses. It also increases our exposure to the high growth states in the Southern and Western US where there is high population growth and demand for our materials.

How We Structure our Operations

Our Americas Materials Division operates across three countries (the US, Canada and Brazil). The Division has a network of close to 1,450 operating locations and employs approximately 28,600 people across 46 US states, six Canadian provinces and three Brazilian states.

Annualised Sales Volumes3: Aggregates: 192.2m tonnes; Cement: 15.0m tonnes; Readymixed Concrete: 13.2m m3; Asphalt: 45.5m tonnes

Our Vertically Integrated Business

 

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Operations Review - Americas Materials

Prior Year 2018

 

                                                                                                                                                                                                                        
Results            Analysis of change                  

million

  

2017

    

Exchange

    

Acquisitions

    

Divestments

    

Organic

    

2018

    

% change

 
Sales revenue      7,970        -356        +1,026        -26        +337        8,951        12%  
EBITDA (as defined)*      1,270        -56        +267        -12        +24        1,493        18%  
Operating profit      858        -37        +176        -9        +21        1,009        18%  
EBITDA (as defined)*/sales      15.9%                    16.7%     
Operating profit/sales      10.8%                                            11.3%           

 

Following significant development activity in 2018 and the latter half of 2017, Americas Materials operating profit was 1.0 billion in 2018, 18% ahead of 2017. Organic sales were 4% ahead of 2017, while organic operating profit grew 3% as the Division experienced pricing progress, with improvements across all products. However, margins were impacted by poor weather in key markets and ongoing cost inflation, with notable increases in bitumen, a key input in asphalt production, and energy costs, including diesel and gasoline.

Continued economic growth in the US residential, non-residential and infrastructure sectors drove underlying demand. Canada had moderate GDP growth in 2018, with solid jobs growth. The economy lost some momentum in the second half of 2018 due to a slowdown in business and government spending.

Continued political uncertainty in Brazil, particularly in relation to the presidential elections as well as a truck drivers strike, impacted the Brazilian economy during 2018. The weakness in the construction market continued.

Together with the Ash Grove acquisition, Americas Materials spent 3.3 billion in 2018 on 24 bolt-on transactions, adding c. 1.6 billion tonnes of reserves to the business.

Building Materials

Total aggregates volumes including acquisitions increased 8% in 2018, with the impact of inclement weather impacting like-for-like volumes, which were 1% ahead. Average prices increased 3% on a like-for-like basis and 2% overall compared with 2017, however margins were under pressure due to increased input costs.

With a later start to paving projects across some key regions and further weather-related delays experienced in the third quarter in the North and Central divisions, like-for-like asphalt volumes

were down 3% with total volumes down 2%. Like-for-like prices improved 10%, but higher bitumen costs negatively impacted margins.

Total readymixed concrete volumes were 29% ahead of 2017 due to acquisition activity, and prices improved 3%. Like-for-like volumes were impacted by the unfavourable weather, though margins improved as management continued to focus on operational performance.

Overall paving and construction services revenue for 2018 increased 6% and like-for-like revenue was up 4%, mainly driven by the South division, which benefited from a good paving season that extended into the last quarter of 2018. Input cost pressure, particularly in raw materials and energy, negatively impacted overall margins in 2018.

Regional Performance

Like-for-like sales in the North division increased 4%, mainly due to improved US aggregates volumes and prices, as well as greater construction sales. Adverse weather however impacted volumes across all businesses in Canada. This together with increased input costs resulted in operating profit finishing behind 2017.

Like-for-like South division sales increased 11%, benefiting from increased construction activity with several new projects undertaken in key states. Volumes and price increases across all products resulted in a strong operating profit performance in 2018.

With record levels of rainfall and flooding in the Central division, like-for-like sales decreased 4%. Reduced volumes and margin pressure resulted in operating profit finishing behind 2017.

With strong pricing across all products and volumes growth aided by acquisitions, West division sales increased 12% during 2018. Although delayed funding in certain states impacted like-for-like aggregates and asphalt volumes, operating profit was ahead of 2017.

Cement

The acquisition of Ash Grove in June 2018 gave CRH a market leadership position in the North American cement market, and including the partial year of ownership with our operations in Florida, Canada and Brazil, resulted in total cement volumes in 2018 of over ten million tonnes.

Our US cement operations delivered higher volumes in 2018 primarily due to the acquisition of Ash Grove and a full year of ownership of the Suwannee American Cement business. Strong price realisation across our major markets and synergies with CRH’s heritage businesses contributed good operating profits in 2018. Integration of the Ash Grove business progressed well and the business performed in line with expectations.

Cement volumes and prices in Canada were behind 2017 due to the exit of the Maritimes market and competitive cement market conditions. The business continued to optimise its terminal network and to further penetrate US markets.

CRH Brazil cement volumes were stable, in line with consumption trends in the Southeast region. Selling price increases were achieved in a higher input cost environment.

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 

 


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Current Year 2019

 

                                                                                                                                                                                                                                                       
Results            Analysis of change                  

million

  

2018

    

Exchange

    

Acquisitions

    

Divestments

    

Leases

    

Organic

    

2019

    

% change

 
Sales revenue      8,951        +460        +657        -26        -        +343        10,385        16%  
EBITDA (as defined)*      1,493        +84        +135        -5        +98        +155        1,960        31%  
Operating profit      1,009        +60        +61        -4        +9        +136        1,271        26%  
EBITDA (as defined)*/sales      16.7%                       18.9%     
Operating profit/sales      11.3%                                                     12.2%           

 

2019 was a strong year for Americas Materials, generating operating profit of 1.3 billion, 26% ahead of 2018. Headwinds driven by wet weather and increased raw materials costs in the first half of the year were offset by a stronger second-half performance reflecting increased volumes, positive pricing and reduced operating expenses. Organic sales were 4% ahead of 2018, while organic operating profit grew 13%.

Economic activity in the US remained favourable during 2019 with the infrastructure sector supported by the FAST Act as well as a significant number of local and state funded transportation projects. The Canadian market experienced growth during the year and economic expansion is expected to continue at a moderate pace.

Americas Materials completed 29 acquisitions/ investments in 2019 at a cost of c. 210 million, strengthening its operational footprint through the addition of c. 260 million tonnes of mineral reserves.

Building Materials

Total aggregates volumes benefited from acquisitions and finished 5% ahead of prior year, while like-for-like volumes were 1% ahead as a strong performance in the West was partly offset by a focused reduction in lower margin contracts in the South division. Average prices increased 5% on a like-for-like basis and 4% overall compared with 2018 and margins were maintained against a backdrop of increased input costs.

Like-for-like and total asphalt volumes were 1% behind 2018 as flooding and tropical storms negatively impacted our Central and South divisions, partly offset by strong demand in the North. Like-for-like prices improved 5%, more than offsetting higher input costs and resulted in strong margin expansion.

Total readymixed concrete volumes were 9% ahead of 2018 and prices improved 4%. Like-for-like volumes were 2% ahead as poor weather in the first half of the year for Central and West was offset by strong volumes in the South division. Readymixed concrete margins were impacted by increased input costs.

Total paving and construction services revenues were 3% ahead, 2% on a like-for-like basis, as overall margins improved driven by favourable regional mix and increased higher margin work in the South and West divisions, partly offset by challenging first-half weather in Canada.

Regional Performance

The North division comprises operations in 13 states, with key operations in Ohio, New York, New Jersey and Michigan. Total sales in the North division increased 5% primarily due to favourable volumes and prices across our product range, as well as greater construction revenue. This improved revenue coupled with strong cost control resulted in a good operating profit performance.

The South division comprises operations in 12 states with key operations in Florida, West Virginia and North Carolina. Total sales in the division increased 1% with improved pricing in all products largely offset by lower construction revenue due to the timing of major projects in key states. Strong pricing together with focused management of operating expenses resulted in a solid operating profit performance.

The Central division has operations in ten states, with key operations in Texas, Arkansas and Kansas. Weather challenges continued in the division with flooding and record levels of rainfall in the first half of the year; however, a strong performance later in the year and contributions from acquisitions helped drive a total sales increase of 20%, 7% ahead on a like-for-like basis. Like-for-like operating profit finished ahead

of prior year as weather challenges were offset by favourable second-half volumes and pricing.

The West division has operations in ten states with key operations in Utah, Idaho, Washington and Colorado. Strong pricing across all products and volumes growth in aggregates and readymixed concrete supported the West division’s total sales increase of 5%, 2% on a like-for-like basis. Despite challenges from weather and higher input costs, mainly bitumen and labour, favourable pricing across all products and tight cost control resulted in operating profit well ahead of 2018.

Cement

Like-for-like sales volumes in our US operations were ahead in 2019. Despite adverse weather, strong price realisation across major markets and good synergy delivery supported robust operating profits. The integration of Ash Grove is now complete and the business is performing well.

Despite poor weather conditions in the first half of the year, cement volumes and prices in Canada were ahead of 2018, driven by solid market conditions.

Cement consumption in Southeast Brazil improved in 2019 enabling CRH to achieve volumes growth supported by a consistent focus on key customer segments. A strong emphasis on logistics optimisation and price realisation drove improved performance.

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 

 

 

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Europe Materials

 

LOGO     

With market leading positions across a broad geographic footprint and a highly integrated portfolio of businesses, our Europe Materials Division is a leading heavyside materials business in Europe.

 

What We Do

 

Our Europe Materials Division manufactures and supplies a broad range of materials for use in construction projects including aggregates, cement, lime, asphalt, readymixed concrete and concrete products.

 

This vertically integrated business is founded in resource-backed assets engaged in the production and supply of cement and aggregates along with downstream material products such as readymixed concrete, concrete products and asphalt.

 

These materials are used extensively in a wide range of construction applications from major public infrastructure projects to commercial buildings and residential structures.

 

Our businesses are established players in local markets and have long-standing relationships with customers which typically range from national, regional and local governments, to building contractors and other construction product and service providers.

 

With an extensive network in the strong and stable markets of Western Europe, a strong footprint in growing Eastern European markets and an attractive position in Asia, the Division is geographically balanced and has broad exposure to residential, non-residential and infrastructure sectors.

 

We have leading positions and a broad range of well-established brands in most markets across Western Europe, from Ireland and the UK to France, Germany, Denmark, Finland, Switzerland and Benelux. In Eastern Europe, we have built up a strong portfolio of businesses across eight different countries. While cement is our core product in these Eastern European markets, we have also developed strong positions in the lime, readymixed concrete, precast and aggregates sectors in recent years.

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

1.

Geography, sector exposure and end-use balance are based on sales.

2.

Net Assets at 31 December 2019 comprise segment assets less segment liabilities excluding lease liabilities as defined on page 226.

3.

Throughout this document annualised volumes have been used which reflect the full-year impact of development activity during the year and may vary from actual volumes sold.

 


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In 2019, the Division was reorganised to include Asia, which comprises cement operations in the Philippines where we are the second biggest producer, along with an equity-accounted investment in Northeast China.

How We Create Value

Value creation is an area of continuous focus for our Europe Materials Division and we place great emphasis on performance improvement initiatives and collaboration across the Division.

In addition to understanding and meeting the unique needs of local customers, our deep market knowledge drives performance and our extensive network allows us to leverage talent, synergies for procurement, cost and logistics management and drive both commercial and operational excellence.

Our vertically integrated business model means that we can maximise the use of our assets through a combination of self-supply to our downstream operations as well as sales to our customers. With a strong pipeline of opportunities across regions, our development strategy is focused on identifying and integrating bolt-on acquisitions for synergies, reserves and further vertical integration, in addition to opportunities to extend and strengthen existing regional positions.

We have a strong track record in adding businesses for vertical integration and to strengthen regional positions, ensuring we are competitive in all individual product lines and our combined business delivers a stronger return on assets and generates more cash.

How We Structure Our Operations

Our Europe Materials Division spans 19 countries in Europe and two in Asia and is organised across five operational clusters (Tarmac (UK), Europe North, Europe West, Europe East and Asia).

Europe Materials employs approximately 27,250 people at over 1,160 locations. A further 5,650 people are employed in our equity accounted investment in China.

Annualised Sales Volumes3: Aggregates: 115.0m tonnes; Cement: 33.5m tonnes; Readymixed Concrete: 18.1m m3; Asphalt: 11.6m tonnes; Lime: 7.4m tonnes; Concrete Products: 6.7m tonnes

Where Our Products Are Used

 

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Operations Review - Europe Materials

Prior Year 2018

 

                                                                                                                                                                                                                                                       
Results            Analysis of change                  

million

  

2017

    

Exchange

    

Acquisitions

    

Divestments

    

Pension Credit1

    

Organic

    

2018

    

% change

 
Sales revenue      7,338        -90        +511        -53        -        +336        8,042        10%  
EBITDA (as defined)*      891        -16        +65        -1        -20        +17        936        5%  
Operating profit      493        -10        +36        -        -20        -12        487        -1%  
EBITDA (as defined)*/sales      12.1%                       11.6%     
Operating profit/sales      6.7%                                                     6.1%           

1Swiss pension plan service credit of €20 million in 2017

 

The 2018 trading performance for the Europe Materials Division was mixed with positive results in our operations in Ireland, the Benelux, Denmark and Poland, with more challenging trading conditions in the Philippines and UK. The year-on-year organic sales growth reflected continued price progression, however cost inflation, which was a feature across all markets resulted in a decrease in operating profit.

Tarmac (UK)

Despite challenging weather conditions earlier in 2018 and ongoing political and economic uncertainty as to the impact on construction activity following the Brexit vote, sales in our Tarmac business were ahead of 2017, underpinned by growth in contracting sales and more modest growth in other materials. Overall, operating profit was behind compared with 2017 as continued progress on performance improvement measures was offset by increased input costs and a challenging market environment.

Europe North

A positive performance in the UK lime business as a result of strong environmental volumes partially offset the decline in cement volumes, resulting in overall UK sales and operating profit being behind 2017. In Ireland, sales and operating profit were ahead of 2017 mainly due to the continued market recovery, particularly in the Dublin region. Volumes increased and positive pricing trends were evident across key products, offsetting increased input costs, particularly energy.

Although cement and readymixed concrete volumes in Finland were slightly behind in 2018, aggregates volumes were higher, positively impacted by project activity. The concrete products business also performed well due to good market demand, particularly residential, and overall sales and operating profit finished ahead of 2017.

Europe West

Sales and operating profit in France benefited from favourable trading conditions, as good underlying demand resulted in increased volumes and a positive pricing environment for key products, with the exception of the precast concrete business, which was impacted by project delays. Sales in the Benelux were ahead of 2017, as a positive contribution from the structural businesses reflected good demand in the residential sector, together with improved readymixed concrete pricing. Operating profit finished ahead of 2017, benefiting from good underlying market demand and one-off income.

In Denmark, sales and operating profit finished ahead of 2017, as the business benefited from good underlying demand and progress in pricing achieved during 2018. In Spain, results advanced on 2017, with improved pricing in cement and readymixed concrete partly offset by lower cement volumes, due to severe weather at the beginning of 2018 and the conclusion of a major project during 2018.

Despite a significant increase in cement volumes in Switzerland, benefiting from solid construction growth, sales and operating profit were behind 2017 due to a decline in cement and readymixed concrete prices, reflecting strong competition. In Germany, improved cement pricing as well as the contribution of our lime business Fels, resulted in sales and operating profit ahead of 2017.

Europe East

Trading in Poland was ahead of 2017 with good performance in all businesses. Healthy volumes were supported by the economy and the construction sector, which continued to grow at high rates. In addition, good price development was achieved across all activities in a competitive market, contributing to the positive performance in 2018. In Ukraine, pricing improved in all businesses in 2018 resulting in organic sales finishing ahead year-on-year, however cement volumes declined due to increased market

capacity and unfavourable weather conditions during the first quarter, which combined with cost inflation and logistical constraints resulted in operating profit being behind 2017. Continued solid economic and construction growth in 2018 contributed to improved sales in Hungary and Slovakia. Despite increasing input costs, operating profit was ahead of 2017, mainly as a result of higher volumes across the businesses.

In Serbia, cement and readymixed concrete volumes increased compared to 2017 and overall sales and operating profit were ahead, supported by performance improvement initiatives. In Romania, after a slow start to 2018, affected by very poor weather conditions, cement volumes recovered and were ahead of 2017. In addition good pricing and margin progression contributed to sales and operating profit growth.

Asia

Against a backdrop of strong domestic demand and accelerated government infrastructure spending, the Philippine economy continued to perform despite inflationary pressures and tighter global financial conditions. Organic revenue performance advanced due to positive prices and ongoing demand from all segments. However, notwithstanding this, operating profit was significantly behind 2017 primarily due to higher fuel and power costs, which were only partially offset by continued commercial excellence and operational performance initiatives.

Cement demand remained subdued in Northeast China. Price increases partially offset lower volumes and increased coal prices, however Yatai Building Materials’ 2018 performance was lower than 2017. Strong growth in MHIL volumes in India was driven mainly by a sustained pick up in infrastructure spend in Andhra Pradesh and Telangana. However, prices continued to be under pressure due to competition and large institutional sales. Increased fuel prices were exacerbated by adverse foreign exchange rates. As a result, MHIL ended 2018 with operating profit lower than 2017.

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 

 


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Current Year 2019

 

                                                                                                                                                                                                                                                       
Results            Analysis of change                  

million

  

2018

    

Exchange

    

Acquisitions

    

Divestments

    

Leases

    

Organic

    

2019

    

% change

 
Sales revenue      8,042        +70        +35        -27        -        +374        8,494        6%  
EBITDA (as defined)*      936        +10        +2        +1        +113        +17        1,079        15%  
Operating profit      487        +6        -1        +2        +16        +45        555        14%  
EBITDA (as defined)*/sales      11.6%                       12.7%     
Operating profit/sales      6.1%                                                     6.5%           

 

Overall Europe Materials experienced a positive year with good sales growth and particularly strong performances in Eastern Europe, the Philippines, France and Ireland. Operating profit was ahead of 2018 as price increases and a good contribution from performance improvement initiatives offset higher input costs and the impact of more challenging trading conditions in the UK.

Tarmac (UK)

Ongoing political and economic uncertainty as a result of Brexit negatively impacted Tarmac’s trading environment as volumes in our aggregates and asphalt businesses finished lower than 2018. Operating profit declined as progress from performance improvement initiatives was offset by challenging market conditions and input cost inflation.

Europe North

Sales and operating profit in our UK cement and lime business were behind 2018 as Brexit uncertainty impacted activity levels. In Ireland, sales and operating profit were well ahead of 2018 as the business benefited from continued market growth, underpinned by strong demand and some large projects in the Dublin region. Good volumes and price growth for all key products was achieved.

Sales and operating profit in Finland were behind 2018 impacted by reduced demand in the residential and infrastructure sectors. Lower cement and readymixed concrete volumes were partly offset by project-related aggregates sales growth.

Europe West

Sales and operating profit in France benefited from favourable trading conditions as good underlying demand in the non-residential and civil engineering sectors resulted in volumes growth and a positive pricing environment for key

products. Ongoing performance improvement initiatives and cost savings also positively impacted profitability. Sales in the Benelux were ahead of 2018, with a positive contribution from our Dutch precast businesses reflecting good demand in the residential sector, while improved readymixed concrete pricing was partly offset by weaker volumes in the Belgian precast business. Excluding the impact of one-off income in 2018, operating profit finished ahead of prior year.

In Denmark, sales were ahead of 2018, as the business benefited from good demand aided by additional production capacity together with progress in pricing. Operating profit finished broadly in line with prior year impacted by the non-recurrence of one-off income in 2018. In Spain, increased demand resulted in improved readymixed concrete volumes and prices and despite lower cement volumes, sales and operating profit finished ahead of 2018.

Lower cement and readymixed concrete volumes resulted in lower sales for Switzerland; however, operating profit benefited from cost savings and good delivery of performance initiatives. In Germany, sales were marginally ahead of 2018 while operating profit was behind as cement pricing progress was offset by lower volumes in our lime business.

Europe East

Trading in Poland was strong with a good overall performance for 2019. Robust cement volumes and positive pricing supported by cost savings initiatives resulted in operating profit ahead of 2018. In Ukraine, continued growth in cement volumes reflected good market demand. Strong price progression was partly offset by slightly higher input costs and sales and operating profit finished ahead of 2018.

Stable economic and construction growth in 2019 contributed to improved sales in Hungary and Slovakia. Operating profit was ahead of 2018, mainly as a result of advances in pricing, cost optimisation and savings initiatives across the businesses. In Serbia, sales and operating profit were ahead of 2018 with higher cement volumes driven by continued strong construction activity, pricing progress and cost benefits of enhanced production facilities. In Romania, results were ahead of 2018 due to improved pricing combined with stronger volumes in cement and readymixed concrete.

Asia

Domestic demand for cement in the Philippines remained strong; however, delays in government infrastructure spending impacted cement volumes. While overall sales were in line with prior year, advances in pricing, performance improvement initiatives and cost savings resulted in operating profit well ahead of 2018.

CRH’s operations include a 26% stake in Yatai Building Materials in North Eastern China. Strong volumes growth was only partly offset by lower prices, driven by intense local competition and lower margins on exports, resulting in higher operating profit than prior year.

On 31 December 2019, the Group divested of its share of the Indian joint venture, MHIL, for a total deferred consideration of 0.3 billion. During the year, reduced demand in housing negatively impacted cement demand in MHIL’s key markets in Andhra Pradesh and Telangana; despite this, operating profit was ahead of prior year as pricing improved.

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 

 

 

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    CRH ANNUAL REPORT AND FORM 20-F I 2019

 

    

 

    

Building Products

 

LOGO

 

LOGO

CRH’s Building Products Division is a leading manufacturer and supplier of highly engineered and high value-added building products in 19 countries around the world.

What We Do

Building Products is a new Division established by CRH in 2019 as part of our strategy to create a more simplified and focused business which is better positioned to exploit opportunities presented by economic development, changing demographics, sustainability and other evolving trends in construction markets globally.

The Division brings together related products businesses in Europe, North America and Asia Pacific across four strategic product groups for growth: Architectural Products, Building Envelope, Infrastructure Products and Construction Accessories.

These businesses are leading suppliers of a wide range of high quality, value-added, innovative building products and solutions, spanning multiple construction applications from residential and commercial structures to public spaces and infrastructure.

Typically, they involve a high focus on understanding the needs of our customer, more process and product innovation and a portfolio of products that is exportable to a range of markets globally.

From the glazing systems that hold glass in place, to the masonry supports that keep walls standing, our products play a vital role in completing construction projects big and small. They include the products that house the electronics that keep roads moving and connect water and electricity to homes, offices and factories. We supply the pavers, blocks and patio products used to create outdoor living spaces and pave city centres.

Bringing these related products together under one Division provides important opportunities to better leverage our scale, capabilities and people to bring more consistent focus on value.

How We Create Value

Establishing a single Building Products Division enables us to place a consistent focus on value creation and drive sustainable growth. The Division is organised around similar product groups designed to leverage scale, drive strategy and performance excellence and advance our digital and innovation capabilities globally.

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

1.

Products, sector exposure and end-use balance are based on sales.

2.

Net Assets at 31 December 2019 comprise segment assets less segment liabilities excluding lease liabilities as defined on page 226.

 


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Creating Value Through Our Global Scale

 

Our businesses have deep technical expertise and the ability to customise solutions with international market reach. With leadership positions in high growth segments, our strategy is to build and grow scalable businesses, balanced across products, geographies and end-use sectors, increasing the penetration of our range of value-added products and creating competitive advantage through strong customer relationships, brand leadership and service.

 

Our development focus aims to deepen our position in existing business product groups and to broaden our differentiated product portfolio through new growth platforms that are exposed to global megatrends. By operating as one global Building Products Division we can adapt and grow as our markets continue to evolve.

 

How We Structure Our Operations

 

Our Building Products Division is structured around four core product groups: Architectural Products, Building Envelope, Infrastructure Products and Construction Accessories.

 

The Division employs approximately 24,450 people at over 490 locations across 19 countries.

    LOGO
 
 

 

Building Products

(Discontinued Operations)

 

CRH’s Europe Distribution businesses supplied building materials to professional builders, specialist heating and plumbing contractors, and DIY customers through a network of trusted local and regional brands across a number of mature markets in Western Europe.

 

In July 2019, following a comprehensive strategic review, the Group entered into a sales agreement to divest of its Europe Distribution business. The transaction closed on 31 October 2019. In accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, the business is reported as discontinued operations for 2019 (see note 3 to the Consolidated Financial Statements). Europe Distribution consisted of three primary business areas: German DIY (Do-It-Yourself), General Builders Merchants (GBM) and Sanitary, Heating and Plumbing (SHAP).

 

 
 
 

 

 

 

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Operations Review - Building Products

Prior Year 2018        (Continuing Operations)

 

Results        Analysis of change          
million   2017    Exchange   Acquisitions   Divestments   Organic    2018   % change

Sales revenue

  6,345    -198   +209   -269   +161    6,248   -2%

EBITDA (as defined)*

  769    -26   +23   -23   +44    787   2%

Operating profit

  576    -20   +13   -17   +23    575   -

EBITDA (as defined)*/sales

  12.1%            12.6%  

Operating profit/sales

  9.1%                    9.2%    

 

The commentary below excludes the trading performance of Europe Distribution which, following its divestment, has been classified as a discontinued operation. Its trading performance is detailed on page 52.

Following the disposal of Europe’s DIY business in Benelux, Building Products sales declined 2% in 2018. However, the Division experienced underlying growth, with organic sales 3% ahead of 2017. Targeted price increases, operational efficiencies, procurement initiatives and overhead cost reductions all helped deliver improved margins despite cost increases in raw materials, labour, and logistics. Operating profit increased by 4% on an organic basis as a result of the improved sales performance and a continued focus on cost optimisation and margin enhancement.

Construction activity in the US benefited from the improved macroeconomic backdrop; however, US volumes were impacted by bad winter and wet fall weather, continued supply-side factors such as labour and construction cost inflation, and competitive markets. Growth was seen along the West Coast of the US and in parts of the South due to good residential and non-residential construction activity, partly offset by softness in Canada and parts of the Northern US, due to weather and slower growth markets.

The Netherlands saw a significant improvement in performance as the economy expanded. Activity levels in Australia were good and the Polish market also benefited from a strong increase in demand. Sales in the key markets of Germany and the UK remained stable, where the UK incurred some headwinds on profitability driven by the under-performance of the now divested Plaka UK business and a changing customer mix.

Architectural Products

In North America, Architectural Products saw modest sales growth in 2018, benefiting from healthy residential RMI demand, but volumes were limited by adverse weather, as well as contract labour shortages. Demand for most products was particularly strong along the West Coast, which together with commercial initiatives, drove a small

increase in like-for-like sales compared with 2017. Overall, the business saw solid operating profit growth due to acquisition results and cost reduction initiatives, which more than offset the unfavourable impacts from rising logistics and input costs.

As a result of a favourable economic environment in certain key markets, sales and operating profit in Europe finished ahead of 2017. In Poland, operations experienced strong demand and an improvement in performance, through increased sales of higher margin products and overall price improvement. Despite the disruptive weather conditions early in 2018, sales in the German business finished ahead of 2017, however, operational challenges and an unfavourable sales mix resulted in operating profit below 2017. The French business was divested in November. The Benelux operations benefited from higher demand in public markets.

The Shutters & Awnings business recorded a 1% increase in sales compared with 2017, whilst operating profit remained flat. Operations in the Netherlands were assisted by a positive economic environment, supported by favourable weather conditions, while a focus on improvement initiatives and an increased online presence in the UK business resulted in sales and margin growth. Our German businesses were impacted by lower margins due to increased input and labour costs in a more competitive environment.

Building Envelope

Non-residential building activity in 2018 was muted by higher building materials costs, increasingly tight skilled labour markets and higher interest rates. Building Envelope saw relatively flat organic revenue in 2018 because of a strategic shift away from larger projects. However, increased operating profits were achieved due to improved trading results at its metals and glazing hardware businesses and the inclusion of acquisition results, which more than offset the effects of higher labour and raw material costs.

Infrastructure Products

Sales growth in North America advanced in 2018 due to good demand for both private construction and public infrastructure, particularly in the

Southeast, West and Mountain states of the US. Our Infrastructure Products business recorded significantly increased operating profits, due to reductions in fixed overheads, better operational execution, and good acquisition performance. Infrastructure Products was also able to pass on price increases to offset input cost inflation, and the business saw backlog growth in 2018.

Network Access Products had another year of growth in sales and operating profit. The Australian business experienced growth driven by a robust construction market. The French market also saw improvements, while the underlying performance in the UK was behind 2017 due to a change in customer mix, which was partly offset by an acquisition in the second quarter of 2018.

The Perimeter Protection business showed a solid increase in sales and operating profit. In the permanent fencing business, performance was driven by the Netherlands, which benefited from the strong economy, while improvement in the mobile fencing business was driven by strong trading across most of our key markets.

Construction Accessories

It was another year of solid organic sales and operating profit growth, primarily driven by improvements in Western European markets. In Germany, labour shortages on building sites and resulting project delays impacted overall performance. Excluding the divested Plaka business, trade in our UK business saw growth. The Australian business benefited from demand in the high-rise residential market and was boosted by an acquisition earlier in 2018. The export market remained important but challenging due to further project delays, however performance in the Chinese and US markets improved.

DIY

While DIY sales in the Benelux were down on a like-for-like basis driven by the ongoing trend towards online sales, focus on operational productivity resulted in improved underlying profits. The business was divested in July 2018.

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 

 


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Current Year 2019

 

Results        Analysis of change          
million   2018    Exchange   Acquisitions   Divestments   Leases   Organic    2019   % change

Sales revenue

  6,248    +234   +231   -576   -   +113    6,250   -

EBITDA (as defined)*

  787    +33   +27   -48   +100   +62    961   22%

Operating profit

  575    +25   +10   -16   +15   +59    668   16%

EBITDA (as defined)*/sales

  12.6%              15.4%  

Operating profit/sales

  9.2%                        10.7%    

 

The table above and commentary below exclude the trading performance of Europe Distribution which, following its divestment, has been classified as a discontinued operation. Its trading performance is detailed on page 52.

Building Products saw continued organic growth in 2019, with sales 2% ahead of 2018, while operating profit increased organically by 10% as a result of increased sales and continued emphasis on margin optimisation. Initiatives, which included production efficiencies, commercial excellence, procurement savings and overhead cost control also helped to deliver improved margins.

Solid macroeconomic conditions in the US continued to provide a positive backdrop for construction demand. Volumes growth, especially new residential construction activity, was limited by higher interest rates entering 2019, as well as continued supply-side factors such as labour availability and construction cost inflation. Similar to prior years, growth primarily occurred along the West Coast, Southeast and South Central US due to good non-residential construction activity and positive residential RMI demand.

In Europe, markets in the Netherlands and Poland continued to benefit from good demand. Despite Brexit uncertainties, our businesses in the UK showed resilience with solid performances in the residential and telecoms sectors. Results in Germany were impacted by slower markets and increased competition.

2019 saw further refinement of the portfolio, including the divestment of Europe Distribution, the Shutters & Awnings and Perimeter Protection businesses in Europe, together with 16 bolt-on acquisitions, primarily at our Infrastructure and Architectural Products businesses.

Architectural Products

Architectural Products in North America experienced good sales growth, capitalising on solid residential RMI demand and favourable weather in most markets, especially in Eastern US. Product mix optimisation and targeted selling prices helped to recover input cost inflation

in most markets, but trading was partly offset by challenging market conditions in Canada. Overall, the business delivered strong operating profit growth, bolstered by operating efficiencies, contributions from recent acquisitions and cost reduction initiatives.

The European businesses recorded strong sales and profits in the first half of 2019, supported by good weather, operational improvements and selling price advancement. Demand slowed during the second-half in Western Europe, with wet weather being a contributory factor. Overall sales and profits for the year were mixed, with a strong performance in Poland partly offset by some softness in Western Europe.

The Shutters & Awnings business, which was divested in June, recorded results similar to the comparable period in the prior year, with the positive impact of more benign weather conditions in the first half of the year offset by increased competition in Germany.

Building Envelope

Building Envelope saw like-for-like sales growth driven by good demand and increased selling prices in our C.R. Laurence and aluminium glazing businesses. Sales growth was limited by competitive markets in the fabricated glass business. In addition to revenue growth, higher operating profits were achieved due to more stable aluminium input costs, a strategic shift away from larger lower margin projects and focus on self-help initiatives.

Infrastructure Products

Our Infrastructure Products business in North America recorded healthy sales growth in 2019 due to good demand for both private construction and public infrastructure, particularly in the Southeast and West regions of the US. Building on progress from the prior year, Infrastructure Products was successful at delivering price increases in excess of input cost inflation. The business recorded significantly increased operating profit due to improved operational

efficiencies, commercial initiatives and overhead cost control. The business also experienced another year of backlog growth in 2019.

Our European and Australian business (formerly Network Access Products) delivered another year of solid growth. Performance in Europe was well ahead of the prior year due to increased sales to the telecom and rail sectors. However, Australian sales were below prior year due to challenging market conditions in the telecom sector. Overall operating profit finished ahead of 2018.

The Perimeter Protection business was divested in September. Compared with the same period in 2018, the business recorded lower sales while operating profits advanced due to cost improvements.

Construction Accessories

The US business achieved strong organic sales and operating profit growth due to increased volumes and prices against the backdrop of a solid US non-residential market. The Construction Accessories business in Europe recorded a 4% increase in like-for-like sales compared with prior year, along with higher operating profit, driven by commercial excellence initiatives and positive market trends in certain geographies. Revenue growth was driven by the UK, France, the Netherlands and Switzerland. Our German business was impacted by increased competition and market uncertainty during the second half of the year.

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 

 

 

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Operations Review - Building Products

  (Discontinued Operations)

Current Year 2019

 

The commentary below refers to the trading results of Europe Distribution for the first ten months of 2019 prior to its divestment on 31 October 2019.

Europe Distribution experienced modest sales and profit growth during 2019 but with mixed performances across the businesses. Overall sales were slightly ahead with a strong contribution from the GBM business in Germany, which benefited from increased end-user demand. In addition, the SHAP businesses in Germany and Belgium continued to gain market share in consolidating markets. These positive developments were partly offset by difficult market conditions in Switzerland and slowing residential demand in the Netherlands.

General Builders Merchants

The GBM business showed 2% sales growth in the first ten months of 2019, with stable operating profit. Despite slowing residential demand in the Netherlands, overall sales in the Dutch business were marginally ahead of 2018 and, with continued focus on performance improvement projects, operating profit was also ahead.

The German business showed sales growth against an improving RMI market backdrop; however, with an increasing portion of demand coming from lower margin direct sales, margins were under pressure which resulted in operating profit being slightly behind. Market conditions in Switzerland remained challenging as increased competition on trade margins more than offset stabilising demand. The French business benefited from an improving residential sector while sales in the Austrian business declined due to market pressure in all channels; however, operating profit improved due to continued focus on our cost base.

Sanitary, Heating & Plumbing

Continued sales growth from additional pick-up locations and further investments in showrooms led to market share improvement in our German and Belgian SHAP businesses. Operating profit was ahead, benefiting from increased volumes together with operational improvement and procurement initiatives, partly offset by declining results in Switzerland.

DIY

The substantial part of our European DIY footprint was disposed in July 2018. The remaining business, part of our overall German Distribution operations, was divested with the wider Europe Distribution business in October. Results in 2019 prior to disposal were positive with like-for-like sales ahead of 2018 for the ten months to October.

 

 

 

Prior Year 2018

 

Europe Distribution realised modest like-for-like sales growth in 2018, excluding the change in treatment of certain direct sales. This increase was driven mainly by our GBM business, with ongoing positive momentum in the Netherlands, particularly in residential construction activity. Furthermore, our SHAP business in Germany continued to gain market share in a relatively flat market. These positive developments were partly offset by challenging market conditions in a competitive environment across our Swiss business, particularly in the first half of 2018. Operating profit was further impacted by the non-recurrence of the one-off Swiss pension scheme credit in 2018.

General Builders Merchants

Our GBM business realised solid like-for-like sales, excluding the change in treatment of certain direct sales, and improved like-for-like operating profit. Positive market conditions and performance improvement initiatives led to continued growth of operating profit in the Netherlands, while sales and profit growth in Germany was partly attributable to 2017 acquisitions. Underlying sales in Switzerland were marginally behind 2017, with the residential market remaining challenging due to a tendency towards multi-family homes, which contributed to lower margin levels. Our businesses in France and Austria were impacted by adverse weather in the beginning of 2018 and increased competition from new entrants.

Sanitary, Heating and Plumbing

Our SHAP business in Germany continued to realise growth and gained further market share, benefiting from additional pick-up locations and showrooms. Our Belgian business faced some challenges in a somewhat slower market, which negatively impacted results. Sales and profit at our business in Switzerland were below 2017, due to continued challenges in the residential market and increased competition.

Our SHAP business completed acquisitions in Germany and Belgium in the second half of 2018. These bolt-on acquisitions had a modest impact on sales and operating profit in 2018.

DIY

In Germany, our DIY business recovered from the inclement weather conditions in the beginning of 2018 and realised stable sales and profit levels.

 
 


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Stradus, part of CRH’s Building Products Division, supplied c.1,000 Hydro Lineo XL grass tiles to pave the surroundings of an office complex in Doornik, Belgium. The lattice structure allows water to slowly drain away, keeping the surface free from water while not overloading drainage systems.

 

 

 


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HALFEN, part of CRH’s Building Products Division, supplied 200 panel anchors to affix the facade of

the new Pavilion 6 of the Paris Expo Porte de Versailles exhibition centre. The centre, which is Europe’s

largest conference venue, welcomes more than 7.5 million visitors and hosts 200 events each year.

 

 


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Governance

 

 

  
  56 - 113    Board of Directors      56                  
     Corporate Governance Report      60     
     Directors’ Remuneration Report      74     
     Directors’ Report      102     
          

 

 

    


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  Board of Directors      
           
           
           
           
           
           
           
           
           
           
 

Richie

Boucher

   

Albert

Manifold

   

Senan

Murphy

 
 

Chairman

   

Chief Executive

   

Group Finance Director

 
 

Appointed to the Board: March 2018

   

Appointed to the Board: January 2009

   

Appointed to the Board: January 2016

 
 

Nationality: Irish Age: 61

   

Nationality: Irish Age: 57

   

Nationality: Irish Age: 51

 
 

Committee membership:

   

Committee membership:

   

Committee membership:

 
           
           
           
           
           
 

Skills and experience:

 

Richie has extensive experience in all aspects of financial services and was Chief Executive of Bank of Ireland Group plc between February 2009 and October 2017. He also held a number of key senior management roles within Bank of Ireland, Royal Bank of Scotland and Ulster Bank. He is a past President of the Institute of Banking in Ireland and of the Irish Banking Federation.

 

Qualifications: Bachelor of Arts (Economics) from Trinity College, Dublin; Fellow of the Institute of Banking in Ireland.

 

External appointments:

 

Listed: Director of Kennedy-Wilson Holdings, Inc., a global real estate investment company, and Eurobank Ergasias S.A., a bank based in Athens, Greece which has operations in Greece and several other European counties.

 

Non-listed: Not applicable.

   

Skills and experience:

 

Albert joined CRH in 1998. Prior to joining CRH, he was Chief Operating Officer with a private equity group. While at CRH he has held a variety of senior positions, including Finance Director of the Europe Materials Division, Group Development Director and Managing Director of Europe Materials. He became Chief Operating Officer in January 2009 and was appointed Group Chief Executive with effect from 1 January 2014.

 

Qualifications: FCPA, MBA, MBS.

 

External appointments:

 

Listed: Non-executive Director of LyondellBasell Industries N.V., one of the largest plastics, chemicals and refining companies in the world.

 

Non-listed: Not applicable.

   

Skills and experience:

 

Senan has extensive experience in international business across financial services, banking and renewable energy. He joined CRH from Bank of Ireland Group plc where he was the Chief Operating Officer and a member of the Group’s Executive Committee. He previously held positions as Chief Operating Officer and Finance Director at Ulster Bank, Chief Financial Officer at Airtricity and numerous senior financial roles in GE, both in Ireland and the US.

 

Qualifications: Fellow of Chartered Accountants Ireland. Senan also holds a Bachelor of Commerce and Diploma in Professional Accounting from University College Dublin.

 

External appointments:

 

Listed: Not applicable.

 

Non-listed: Not applicable.

 

 

 

    


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Gillian L.

Platt

   

Johan

Karlström

   

Shaun

Kelly

 
 

Senior Independent Director

   

Non-executive Director

   

Non-executive Director

 
 

Appointed to the Board: January 2017

   

Appointed to the Board: September 2019

   

Appointed to the Board: December 2019

 
 

Nationality: Canadian Age: 66

   

Nationality: Swedish Age: 63

   

Nationality: Dual United States and Irish

 
 

Committee membership:

 

   

Committee membership:

 

   

Age: 60 Committee membership:

 

 
           
           
           
           
           
 

Skills and experience:

 

During the course of her executive career, Gillian has held a number of senior leadership positions in a variety of industries, geographies and roles including human resources, corporate affairs and strategy. Most recently she was Executive Vice President and Chief Human Resources Officer at Finning International, Inc. (the world’s largest Caterpillar equipment dealer) with global responsibility for human resources, talent development and communications. She previously held senior executive roles at Aviva, the multinational insurance company, as Executive Vice President Human Resources and Executive Vice President Strategy and Corporate Development.

 

Qualifications: Bachelor of Arts from the University of Western Ontario and a Masters of Education from the University of Toronto.

 

External appointments:

 

Listed: Non-executive Director and Chair of the Management Resources & Compensation Committee of Interfor Corporation, a Canadian listed company, which is one of the world’s largest providers of lumber.

 

Non-listed: Not applicable.

   

Skills and experience:

 

Johan was President and Chief Executive Officer of Skanska AB, a leading multinational construction and project development company until 2017. Over a thirty-year career with Skanska, he held a variety of leadership roles in Europe and America, before becoming President and Chief Executive in 2008. He also served as President and Chief Executive Officer of BPA (now Bravida), a listed mechanical and installation group from 1996 to 2000.

 

Qualifications: Masters degree in Engineering from the KTH Royal Institute of Technology, Sweden.

 

External appointments:

 

Listed: Non-executive Director of Sandvik AB.

 

Non-listed: Not applicable.

   

Skills and experience:

 

Shaun was until September 2019, the Global Chief Operating Officer of KPMG International, where he was responsible for the execution of the firm’s global strategy and for the delivery of various global initiatives. Over a thirty-year career with KPMG, the majority of which was spent in the US, he held a variety of senior leadership positions, including Partner in Charge, US Transaction Services (2001-2005), Vice Chair and Head of US Tax (2005 to 2010) and Vice Chair Operations and Chief Operating Officer Americas (2010 to 2015), before his appointment as Global Chief Operating Officer in 2015.

 

Qualifications: Fellow of Chartered Accountants Ireland and a US Certified Public Accountant. Shaun also holds a Bachelor of Commerce and Diploma in Professional Accounting from University College Dublin and an honorary doctorate from Queen’s University Belfast.

 

External appointments:

 

Listed: Not applicable.

 

Non-listed: Shaun holds a number of non-profit board memberships.

 

*Audit Committee Financial Expert as determined by the Board.

 

 

 

    


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  Board of Directors - continued  
           
           
           
           
           
           
           
           
           
           
 

Patrick J.

Kennedy

   

Heather Ann

McSharry

   

Mary K.

Rhinehart

 
 

Non-executive Director

   

Non-executive Director

   

Non-executive Director

 
 

Appointed to the Board: January 2015

   

Appointed to the Board: February 2012

   

Appointed to the Board: October 2018

 
 

Nationality: Irish Age: 66

   

Nationality: Irish Age: 58

   

Nationality: United States Age: 61

 
 

Committee membership:

   

Committee membership:

   

Committee membership:

 
           
           
           
           
           
 

Skills and experience:

 

Pat was Chairman of the Executive Board of Directors of SHV Holdings (SHV), a large family-owned Dutch multinational company with a diverse portfolio of businesses, including the production and distribution of energy, the provision of industrial services, heavy lifting and transport solutions, cash and carry wholesale and the provision of private equity. During a 32 year career with SHV, he held various leadership roles across SHV’s diverse portfolio of businesses, while living in various parts of the world, and was a member of the Executive Board of SHV from 2001, before becoming Executive Chairman in 2006. He retired from SHV in mid-2014.

 

Qualifications: BComm, MBS.

 

External appointments:

 

Listed: Not applicable.

 

Non-listed: Member of the Supervisory Board of SHV Holdings N.V.

   

Skills and experience:

 

Heather Ann is a former Managing Director Ireland of Reckitt Benckiser and Boots Healthcare and was previously a non-executive Director of Bank of Ireland plc and IDA Ireland.

 

Qualifications: BComm, MBS.

 

External appointments:

 

Listed: Non-executive Director of Greencore Group plc, Jazz Pharmaceuticals plc and Uniphar Group plc.

 

Non-listed: Director of the Institute of Directors in Ireland.

   

Skills and experience:

 

Mary is Chairman, Chief Executive Officer and President of Johns Manville Corporation, a Berkshire Hathaway company, which is a leading global manufacturer of premium-quality building products and engineered specialty materials. Over nearly 40 years with Johns Manville she has held a wide range of global leadership roles, encompassing responsibility for business management and strategic business development and was also Chief Financial Officer. Mary was until recently a non-executive Director of Ply Gem Holdings Inc., a leader in exterior building products in North America, and lead Director of CoBiz Financial Inc.

 

Qualifications: Bachelor’s degree in Finance from the University of Colorado; MBA from the University of Denver.

 

External appointments:

 

Listed: Not applicable.

 

Non-listed: Chairman, Chief Executive Officer and President of Johns Manville Corporation and member of the Board of Trustees of the University of Denver.

 

*Audit Committee Financial Expert as determined by the Board.

 

 

 

    


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Lucinda J.

Riches

   

Henk Th.

Rottinghuis

   

Siobhán

Talbot

 
 

Non-executive Director

   

Non-executive Director

   

Non-executive Director

 
 

Appointed to the Board: March 2015

   

Appointed to the Board: February 2014

   

Appointed to the Board: December 2018

 
 

Nationality: British Age: 58

   

Nationality: Dutch Age: 64

   

Nationality: Irish Age: 56

 
 

Committee membership:

   

Committee membership:

   

Committee membership:

 
           
           
           
           
           
 

Skills and experience:

 

Lucinda spent the majority of her career in investment banking, including 21 years in UBS Investment Bank and its predecessor firms where she worked until 2007. She held senior management positions in the UK and the US, including Global Head and Chairman of UBS’ Equity Capital Markets Group and Vice Chairman of the Investment Banking Division.

 

Qualifications: Masters in Philosophy, Politics and Economics and a Masters in Political Science.

 

External appointments:

 

Listed: Non-executive Director of Ashtead Group plc, Greencoat UK Wind plc and ICG Enterprise Trust plc.

 

Non-listed: Non-executive Director of the British Standards Institution.

   

Skills and experience:

 

Henk has a background in distribution, wholesale and logistics. Until 2010, he was Chief Executive Officer at Pon Holdings B.V., a large, privately held international company which is focused on the supply and distribution of passenger cars and trucks, and equipment for the construction and marine sectors. He was also a member of the Supervisory Boards of the Royal Bank of Scotland N.V., the food-retail group Detailresult Groep, the retail group Blokker Holding B.V. and Chairman of the Supervisory Board of Stork Technical Services B.V.

 

Qualifications: Masters degree in Dutch Law; PMD Harvard Business School.

 

External appointments:

 

Listed: Not applicable.

 

Non-listed: Chairman of Koole Terminals B.V. Henk also holds several non-profit board memberships.

   

Skills and experience:

 

Siobhán is Group Managing Director of Glanbia plc, a global nutrition company with operations in 32 countries, a position she has held since 2013. She has been a member of the Glanbia Board since 2009 and was previously Finance Director, a role which encompassed responsibility for Glanbia’s strategic planning. Prior to joining Glanbia, she worked with PricewaterhouseCoopers in Dublin and Sydney.

 

Qualifications: Fellow of Chartered Accountants Ireland; Bachelor of Commerce; Diploma in Professional Accounting from University College Dublin.

 

External appointments:

 

Listed: Group Managing Director of Glanbia plc.

 

Non-listed: Director of the Irish Business Employers Confederation (IBEC).

 

*Audit Committee Financial Expert as determined by the Board.

 

 

 

    


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Chairman’s Overview

The Corporate Governance report contains details of CRH’s governance structures and highlights areas of focus for the Board and its Committees during 2019. In keeping with prior years, details of CRH’s general governance practices are available in the governance appendix on CRH’s website, www.crh.com (the ‘Governance Appendix’)1. CRH implemented the 2018 UK Corporate Governance Code (the ‘2018 Code’) and this Report explains how the principles of the 2018 Code have been applied. A copy of the 2018 Code can be obtained from the Financial Reporting Council’s website, www.frc.org.uk.

Shareholder Engagement

As Chairman, a core part of my role is shareholder engagement. Therefore, following the announcement of my appointment as Chairman Designate in September 2019, I contacted CRH’s largest shareholders, representing over 50% of CRH’s issued share capital, offering to meet with them. In addition to an initial introduction, the purpose was to set out my thinking in relation to the main areas of focus for the Board and, equally importantly, to gain an understanding of their perspectives on CRH. I very much appreciate that a significant number of shareholders, representing around 30% of the shares in issue, gave freely of their time for this engagement.

The priority areas of Board focus that I discussed with shareholders in those meetings are set out in my introduction to this Annual Report and Form 20-F on page 4.

The feedback I received was consistent in a number of respects, with support for CRH’s strategy and a widespread view that CRH had a strong and effective management team led by our Chief Executive, Albert Manifold, alongside a recognition of the importance of having succession plans in place for key executive roles. Shareholders also expressed a range of views on topics such as the optimal approach to capital allocation, the Group’s organisation structure and portfolio, and CRH’s remuneration structures. There was a good understanding of the Board’s approach to sustainability, and I was particularly pleased to hear that shareholders were very complimentary in respect of our approach to this critical area and positive regarding the opportunities for CRH to differentiate itself from other companies in the sector. The detailed feedback from the meetings has been considered by the Board and relevant Committees.

Safety, Environment and Social Responsibility Committee

In last year’s Corporate Governance Report, Nicky Hartery reported that the Board had set up a new permanent Committee, the Safety, Environment & Social Responsibility (SESR) Committee, to ensure that sufficient time, energy and focus was allocated to these strategically important matters. A detailed summary of the principal topics considered by the Committee in 2019 is set out in table 1.

 

During 2019, the Board and the SESR Committee monitored developments in the area of safety, including considering reports on the background to (and learnings from) serious accidents, the implementation of recommendations from an external advisory panel, the rollout of CRH’s frontline leadership programme, the implementation of policies in relation to contractor management and energy isolation and the ongoing work to reinforce roles, responsibilities and expectations in the area of safety. Further details on the Group’s approach to safety, and our ongoing objective of zero fatalities and ambition of zero harm at every location across our business, are set out in the Sustainability section on pages 20 to 25.

Given that the topic of sustainability has become a key element of shareholder and wider stakeholder engagement, and the increased focus on workforce engagement and corporate purpose following the introduction of the 2018 Code, the section below highlights some of the important initiatives in these areas that fall under the remit of the SESR Committee. The various ways in which CRH engages with its stakeholders is summarised in the Sustainability section on page 25. Feedback from stakeholder engagement is reported to, and carefully considered by, the Board.

Sustainability

The Board believes that sustainability and corporate social responsibility are fundamental to CRH being the leading building materials business in the world. CRH is ranked amongst industry leaders by ESG rating agencies.

 

 

 

1.

The Governance Appendix is published in conjunction with the Directors’ Report in compliance with Section 1373 of the Companies Act 2014. For the purposes of Section 1373(2) of the Companies Act 2014, the Governance Appendix and the risk management disclosures on pages 26 to 29 and 108 to 113 form part of, and are incorporated by reference into, this Corporate Governance Report.

The primary (premium) listing of CRH plc is on the LSE, with the listing on Euronext Dublin characterised as secondary. For this reason, CRH plc is not subject to the same ongoing listing requirements as would apply to an Irish company with a primary listing on Euronext Dublin. For further information, shareholders should consult their financial adviser. Further details on the Group’s listing arrangements, including its premium listing on the LSE, are set out on page 72.


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In addition, many of our operating companies have been recognised for excellence in this area. Our 2030 sustainability targets, which have recently been agreed, are set out on page 21 in the Sustainability section.

I am pleased to report that we have achieved one year ahead of time our 2020 target of a 25% reduction in specific net CO2 cement plant emissions, compared with 1990 levels. Looking forward, our stretching and industry leading 2030 CO2 reduction targets have been independently verified to be in line with the Paris Climate Agreement.

Our Chief Executive, Albert Manifold was the inaugural president of the Global Cement & Concrete Association (GCCA). Sustainable development of our industry is at the core of the GCCA’s work. We strongly believe that collaboration like this, both within and outside of our industry, is key to addressing global construction challenges and sustainable development goals while ensuring the value of concrete as a sustainable construction material is recognised.

Inclusion & Diversity

CRH’s inclusion and diversity (I&D) vision is set out in table 4 on page 62. The SESR Committee is responsible for working with management, and monitoring progress, in relation to I&D below Board level. The approach to I&D is based on four initial workstreams:

 

  Communication;

 

  Education & Awareness;

 

  People & Practices; and

 

  Data & Measures

and includes the development of programmes to address unconscious bias, toolkits to supplement recruitment guidelines, best practices and KPIs. The Committee receives regular reports on progress towards each priority objective on the I&D roadmap.

Workforce Engagement

The Board has designated the SESR Committee with responsibility for stakeholder engagement, including with the workforce. Given the footprint of CRH with c. 80,300 employees in 30 countries, we believe this is the best and most effective way of ensuring that the views of employees are understood and are taken into consideration in our decision-making process.

 

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Corporate Governance Report - continued

 

To facilitate its work in this area, which will evolve over time, the Committee has identified a number of key areas for regular updates and reporting.

The SESR Committee has also commenced a number of important initiatives:

 

  In addition to the interaction Board members have with employees during visits to operations in Europe and the US, the Committee utilised the opportunity during a Board visit to operations in Spain to pilot a session with employees in an open forum to discuss their views of CRH. The conversation focussed on the importance of safety, training and development, I&D, the environment and engaging with the community. It is intended that there will be similar engagements in other countries or regions to focus on themes relevant to employees, and on culture and values in particular;
  A workforce engagement project team, made up of a cross section of employees from across our global business, has been established under the Chief Executive’s sponsorship. This is a key initiative as only a small number of such projects operate globally each year to address critical business issues or opportunities. The team has been tasked with recommending priorities and developing an implementation plan. The outputs will be reported to the SESR Committee; and

 

  During 2020, members of the SESR Committee will have opportunities to attend employee development programmes, forums, conferences and other events in their local regions.

Additional information on training provided to employees on the CoBC and relevant compliance policies and on the role of Internal Audit in investigating material matters raised by employees, is set out on page 72.

Corporate Purpose

CRH’s purpose is expressed in our values, set out in table 3 below, and is delivered through our strategy, which is summarised on page 14. It encompasses many different aspects, ranging from propositions for investors, employees, suppliers and customers, to the sustainable operations of our companies and the products we manufacture. Connected to all of these elements, and to the articulation of CRH’s purpose, is CRH’s brand. The SESR Committee is currently working with management on a project to connect these different but complementary concepts. The aim is to set out CRH’s purpose in a way that captures our aspirations beyond financial returns, communicates the unique nature of CRH, inspires our people, guides our actions, is true to our culture and underpins our dialogue with our stakeholders. In addition, the work on corporate

 

 

 

   Our Values   Table 3    

 

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purpose, together with CRH’s approach to I&D and employee engagement, will further facilitate the Board’s assessment of the alignment of CRH’s purpose, values and strategy with our culture.

Re-election of Directors

I have evaluated the performance of each Director standing for re-election and am satisfied that each Director is committed to their role, provides constructive challenge and devotes sufficient time and energy to contribute effectively to the performance of the Board.

Table 11 on page 69 provides a summary of competencies, important to the long-term success of the Group, that each Director seeking re-election at the 2020 AGM brings to the Board. Their full biographies are set out on pages 56 to 59. I recommend that shareholders vote in favour of the re-appointment of each Director going forward for re-election at the 2020 AGM.

Conclusion

The Board is committed to ensuring that CRH is an industry leader in areas such as CO2 emissions reduction and to making the investments in technology and knowledge required to achieve this. We are also committed to continuing our focus on safety, I&D and stakeholder engagement and on the alignment of CRH’s purpose, values and culture. I strongly believe that CRH is well positioned to meet our challenges and to grasp strategic opportunities for the benefit of our shareholders and stakeholders.

Richie Boucher

Chairman

27 February 2020

 

 

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The Board met on six occasions during 2019. This included site visits to Cementos Lemona S.A. in Spain and Tilcon New York Inc in the US. Such visits are an important opportunity for the Board to meet and interact with management and employees at our operating businesses as well as in our central support functions.

 

   

 

 

 

 

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Chairman’s Overview

I was appointed to the Board and as Chairman of the Audit Committee in December 2019. I would like to thank Bill Teuber, who chaired the Committee from February 2018 until June 2019 and Heather Ann McSharry who acted as Interim Audit Committee Chair until my appointment and with whom I have worked closely since my appointment.

On behalf of the Committee, I am pleased to introduce the Audit Committee Report for the year ended 31 December 2019. The purpose of this report is to provide shareholders with an insight into the workings of, and principal matters considered by, the Committee in 2019. General details in relation to the roles and responsibilities of the Committee, its operation and the policies applied by it, can be found in the Governance Appendix.

Table 5 outlines the key areas that the Committee focused on in 2019.

Audit Committee Membership

The Committee currently consists of seven non-executive Directors considered by the Board to be independent1. The biographical details of each member are set out on pages 57 to 59. Together, the members of the Committee bring a broad range of relevant experience and expertise from a variety of industries which is vital in supporting effective governance. Mary Rhinehart, Siobhán Talbot and I have been designated by the Board as the Committee’s financial experts and meet the specific requirements for recent and relevant financial experience, as set out in the 2018 Code.

 

External Auditors

Change of External Auditors

A key focus for the Committee for 2019 was monitoring the plans and progress in relation to the transition of the external audit from EY to Deloitte with effect from the financial year commencing 1 January 2020.

During 2019, we had regular discussions and interactions with management, EY and Deloitte on the status of work being undertaken across the Group to ensure that Deloitte are well prepared for their engagement as external auditors. Briefly, the audit transition work has included the following:

 

  Meetings across the Group between management, Deloitte and EY, in order to increase Deloitte’s knowledge and understanding of CRH;

 

  Deloitte completing a review of EY’s working papers in respect of the 2018 year-end audit (Deloitte will also review, in due course, the relevant papers from the 2019 year-end audit); and

 

  Regular updates and reports from management to the Committee on the status of the transition process and activities, including the work to monitor the termination of services previously provided by Deloitte, which will be prohibited when Deloitte become CRH’s external auditor. Deloitte has confirmed to the Committee that it has achieved the relevant independence status.

On behalf of the Committee and the wider Board, I would like to take this opportunity to thank EY for their professional approach over the years, and for their ongoing engagement during the transition period.

Effectiveness

The Committee, on behalf of the Board, is responsible for the relationship with the external auditors and for monitoring the effectiveness and quality of the external audit process. The Committee’s primary means of assessing the effectiveness of the external audit process is by monitoring performance against the agreed audit plan. In addition, we consider the experience and knowledge of the external audit team and the results of post-audit interviews with management and the Audit Committee Chairman. These annual procedures are supplemented by periodic formal reviews of the performance of the external auditor.

Further details in relation to the external auditors, including information on how auditor objectivity and independence are maintained, are included in Section 2 of the Governance Appendix.

All of the above procedures indicated a high level of satisfaction with the services provided by EY to CRH during 2019.

Non-audit Fees

In order to ensure auditor independence and objectivity, the Committee has a policy governing the provision of audit and non-audit services by the external auditor.

In 2019, EY provided a number of audit services, including Sarbanes-Oxley Section 404 attestation2, and non-audit services, including due diligence services associated with proposed acquisitions and disposals. EY was also engaged during 2019 in a number of jurisdictions in which the Group operates to provide help with local tax compliance, advice on taxation laws and other

 

 

 

1.

The Board has determined that all of the non-executive Directors on the Audit Committee are independent according to the requirements of Rule 10A.3 of the rules of the Securities and Exchange Commission (SEC) and Provision 10 of the 2018 Code.

2.

A copy of Section 404 of the Sarbanes Oxley Act 2002 can be obtained from the SEC’s website, www.sec.gov.


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Key Areas of Focus in 2019   Table 5  

 

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Areas Identified for Focus during the 2019 External Audit Planning Process   Table 6  

 

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related matters; assignments which typically involve relatively low fees. The Committee is satisfied that the external auditors’ knowledge of the Group was an important factor in choosing them to provide these services. The Committee is also satisfied that the fees paid to EY for non-audit work in 2019, which amounted to 1.1 million and represented 6% of the total fees for the year, did not compromise their independence or objectivity. Details of the amounts paid to the external auditors during the year for audit and other services are set out in note 5 to the Consolidated Financial Statements on page 153 (see also table 7 on page 66). Further details in relation to the Group’s policy regarding non-audit fees are set out in Section 2 of the Governance Appendix.

Internal Audit Effectiveness

In December 2018, the Committee received and approved the Internal Audit Charter and audit plan for 2019. During the year, the Committee received regular updates from the Head of Internal Audit outlining the principal findings from the work of Internal Audit and management’s responses thereto.

External Quality Assessments of Internal Audit are conducted periodically to ensure that the Internal Audit function continues to work efficiently and effectively and in compliance with good practice standards.

Audit Committee Effectiveness and Priorities for 2020

During 2019, the Committee and the Board reviewed the operation, performance and effectiveness of the Committee and I am pleased to confirm that the Committee continues to operate effectively. I would like to thank my fellow Committee members for their commitment and input to the work of the Committee during 2019.

Looking ahead to 2020, the Committee will continue to focus on external audit planning, and specifically the change of external auditors from EY to Deloitte, together with the key ongoing areas outlined in table 5 page 65.

Shaun Kelly

Chairman of Audit Committee

27 February 2020

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In 2019 our Americas Materials Division launched a communications campaign to celebrate the people and teams across the Division that collectively make it successful. The campaign featured six employees and their families in a three-part video series, and profiled this Environmental Health & Safety (EHS) Coordinator from ICON Materials in Auburn, Washington, who has been with the company for over 30 years.

 

      

 

 

LOGO
 


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LOGO

 

Chairman’s Overview

Following my appointment as CRH Chairman, the Board appointed me as Chairman of the Nomination & Corporate Governance Committee with effect from 1 January 2020 and I am pleased to present the report of the Committee for the year ended 31 December 2019. The report outlines the main areas of focus of the Committee in the past year and the areas of priority going forward.

The Board has designated responsibility to the SESR Committee for working with management and monitoring improvements in I&D below Board level. The SESR Committee’s work in this area is summarised on pages 60 to 63.

Committee Membership

The Committee currently consists of five non-executive Directors, considered by the Board to be independent. The biographical details of each member are set out on pages 56 to 58. The Chief Executive normally attends meetings of the Committee.

Board Composition & Renewal

Renewal of the CRH Board is an ongoing and dynamic process, with the focus of the Committee being on ensuring that the Board includes a diverse group of individuals based on a broad set of factors and that renewal is aligned with CRH’s strategy and the needs of the business.

During 2019, the Committee recommended to the Board that the following be appointed as non-executive Directors:

 

  Johan Karlström (September 2019); and

 

  Shaun Kelly (December 2019)

Johan Karlström was President and Chief Executive Officer of Skanska AB, a leading multinational construction and project development company until 2017. Over a thirty-year career with Skanska, he held a variety of leadership roles in Europe and America, before becoming President and Chief Executive in 2008. His background and his knowledge of our industry will be an important addition to the collective skills and experience of the Board.

Shaun Kelly was, until September 2019, the Global Chief Operating Officer of KPMG International, where he was responsible for the execution of the firm’s global strategy and for the delivery of various global initiatives. Over a thirty-year career with KPMG, the majority of which was spent in the US, he held a variety of senior leadership positions. Through his career with KPMG, Shaun has extensive knowledge and experience in auditing, financial reporting, strategic development and operational management.

Following a recommendation from the Committee the Board asked Gillian Platt, who has completed her initial three-year term as a non-executive Director, to serve a second term.

At the conclusion of the 2020 AGM, Pat Kennedy and Henk Rottinghuis will retire from the Board. In addition to Nicky Hartery, who retired at year end, during 2019 Don McGovern and Bill Teuber stepped down from the Board. I would like to thank each of them for their service and commitment to CRH.

Going forward, ensuring that the Board continues to have the requisite skills to support the Company’s strategy will be a priority for my tenure as Chairman. A particular area of focus for renewal in the next two to three years will be on

further enhancing the Board’s expertise through having additional colleagues, from diverse backgrounds, join the Board who have extensive experience of capital intensive businesses with similar activities in North America or Europe.

As shown in table 9, the Board is balanced in terms of tenure with five non-executive Directors in their first term of three years; four in their second term and one undertaking a third term of three years.

The Committee uses the services of external search agents for Board searches. The agencies used for the appointments of Johan Karlström and Shaun Kelly were Egon Zehnder and Leaders Mores. Neither firm has any other connection with CRH other than, in the case of Egon Zehnder, the provision of executive recruitment services from time to time and in connection with the Chairman succession process outlined below.

Chairman Succession

Nicky Hartery retired as Chairman on

31 December 2019. The process which resulted in my appointment as Chairman was led by Gillian Platt, Senior Independent Director, who chaired the Nomination & Corporate Governance Committee and the Board when Chairman succession was being dealt with. As part of that process, a specification for the role of Chairman was developed by the Board and both internal and external candidates were considered. Gillian met with a number of shareholders prior to the Board’s decision on the next Chairman to hear their views on the process and the key attributes required for the role. Their feedback was considered by the Committee and the Board.

 


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Board of Directors

 

 

Summary of Board Changes - 2019/2020

  Table 8  
 

Retirement/Resignation:

  Appointments:   Renewal of Three Year Terms:   Not seeking re-election at 2020 AGM:
 

Don McGovern - April 2019

  Johan Karlström - September 2019   Gillian Platt - February 2020   Patrick Kennedy - April 2020
 

Bill Teuber - June 2019

  Shaun Kelly - December 2019     Henk Rottinghuis - April 2020
 

Nicky Hartery - December 2019

       
 
       
 
       
 
       
 

Membership of the CRH Board (as at 31 December 2019)

  Table 9  
 

Independence

(determined by CRH Board annually)

 

Tenure of Non-executive

Directors

 

Geographical Spread

(by residency)

 
LOGO   LOGO   LOGO
 
     
 

Gender Diversity - % of Female Directors (as at 31 December)

  Table 10    
 

 

LOGO

 
   
 
   
 

Summary of Director Competencies

        Table 11    
 
    

Accounting,

Internal

Control &

Financial

Expertise

 

Financial

Services

  Governance  

Industry

Expertise

 

IT & Cyber

Security

 

M&A,

Private

Equity,

Emerging

Markets

 

Org change,

succession

planning, talent

management

  Remuneration  

Safety &

Sustainability

  Strategy  
 
R. Boucher       LOGO   LOGO           LOGO   LOGO   LOGO         LOGO  
 
J. Karlström           LOGO   LOGO                   LOGO     LOGO  
 
S. Kelly   LOGO       LOGO       LOGO   LOGO   LOGO             LOGO  
 
P.J. Kennedy                       LOGO           LOGO     LOGO  
 
H.A. McSharry           LOGO                   LOGO         LOGO  
 
A. Manifold   LOGO           LOGO       LOGO           LOGO     LOGO  
 
S. Murphy   LOGO   LOGO       LOGO   LOGO   LOGO           LOGO     LOGO  
 
G.L. Platt           LOGO               LOGO   LOGO   LOGO     LOGO  
 
M.K. Rhinehart   LOGO       LOGO   LOGO           LOGO       LOGO     LOGO  
 
L.J. Riches       LOGO   LOGO           LOGO       LOGO         LOGO  
 
H.Th. Rottinghuis           LOGO   LOGO       LOGO           LOGO     LOGO  
 
S. Talbot   LOGO                   LOGO           LOGO     LOGO  
                                             

 

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Nomination Committee Report - continued

 

Inclusion and Diversity

Inclusion and diversity are key factors in the specifications given to search agents when developing long and short lists of candidates for consideration by the Committee. The percentage of women directors has increased from 15% in 2013 to 42% at 31 December 2019 and will be 50% at the conclusion of the 2020 AGM. In addition to gender, the Board’s focus on diversity includes social and ethnic backgrounds, business and geographic experience, as well as cognitive and personal strengths. This objective is embedded in the Board’s policy on diversity which is set out on pages 71 and 72.

Committee Composition

During the year, the Committee considered and made recommendations to the Board regarding changes to the composition of the Board’s Committees. On the recommendation of the Committee, Shaun Kelly was appointed as permanent Audit Committee Chairman on his appointment to the Board. Heather Ann McSharry acted as interim Audit Committee Chair in the period between Bill Teuber’s resignation from the Board and Shaun’s appointment. Heather Ann McSharry has succeeded me as Chairman of the Remuneration Committee. She was a member of the Remuneration Committee for a number of years prior to her appointment as the CRH Remuneration Committee Chairman.

The current committee memberships of each Director are set out on pages 56 to 59.

Senior Executive Succession

The area of senior executive succession is a priority for the Board. An external agency is currently working with the management team and provides updates to the Board on assessment and development programmes for c. 100 CRH individuals, with the objective of ensuring maximum flexibility when considering appointments for key roles. Consideration of the benefits of the recruitment of external hires to complement and enhance our management teams is an important component of CRH’s strategy to ensure the Company has a management team of the highest calibre and quality. In addition, the Nomination & Corporate Governance Committee is leading, on behalf of the Board, a related process in relation specifically to senior executive succession. The overall approach of the Committee is to consider succession planning over short, medium and long term timelines.

Board Effectiveness

As reported in the 2018 Annual Report and Form 20-F, the most recent external evaluation of the effectiveness of the Board and its Committees was carried out by Independent Audit, which met Board members, the Head of Internal Audit, the Company Secretary and a number of the senior executive management team in one-to-one interviews. During 2019, as part of the annual internal Board evaluation, the Senior Independent Director undertook an internal Board evaluation review which built upon the priorities identified as part of the Independent Audit review, reinforced the areas of focus for future Board renewal outlined above, and identified ways to further enhance the strategic planning process and the efficient workings of the Board.

Additional Directorships

The Chief Executive, Albert Manifold, was appointed as a non-executive Director of LyondellBasell Industries N.V., one of the world’s largest plastics, chemicals and refining companies in April 2019. Prior to him accepting the position he discussed the requirements of the role with the Nomination & Corporate Governance Committee and the Board. The Committee and the Board were satisfied that this external position would not have an adverse impact on his responsibilities as CRH Chief Executive and was of the view that the additional perspectives obtained would be beneficial to him and to the Company.

The Board also considered the appointments of Heather Ann McSharry and Lucinda Riches as non-executive Directors of Uniphar Group plc and Greencoat UK Wind plc, respectively, during 2019 and was satisfied that the responsibilities resulting from these new positions would not adversely impact on their time commitment to CRH.

Corporate Governance

The Committee is responsible for reviewing the independence of Board members and has recommended to the Board that all of the non-executive directors be deemed to be independent. The Committee also monitors developments in best practice in relation to corporate governance and makes recommendations to the Board in relation to changes and enhancements to current procedures. Each year the Chairman, Senior Independent Director and Remuneration Committee undertake an extensive engagement with shareholders prior to the AGM to hear their views on AGM proposals and on governance topics of interest to shareholders. In 2019, shareholders representing 20% of the share register took up the offer of a meeting. The Committee and the Board considered the feedback from these sessions and from other shareholder interactions during the year.

Richie Boucher

Chairman of the Nomination

& Corporate Governance Committee

27 February 2020

 
 


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Board of Directors

Membership Structure of the Board

We consider the current size and composition of the Board to be within a range which is appropriate. The spread of nationalities of the Directors reflects the geographical reach of the Group and we consider that the Board as a whole has the appropriate blend of skills, knowledge and experience, from a wide range of industries, regions and backgrounds, necessary to lead the Group. Section 1 of the Governance Appendix on the CRH website (www.crh.com) contains further details on the Board’s structures and the Board’s policies with regard to the appointment and retirement of Directors.

Role and Responsibilities

The Board is responsible for the leadership, oversight, control, development and long-term success of the Group. It is also responsible for instilling the appropriate culture, values and behaviour throughout the organisation. There is a formal schedule of matters reserved to the Board for consideration and decision. This includes the matters set out in table 12.

The Group’s strategy, which is regularly reviewed by the Board, and business model are summarised on pages 14 to 17.

Matters Reserved
to the Board

  Table 12  

 

    Appointment of Directors

 

    Strategic plans for the Group

 

    Annual budget

 

    Major acquisitions and disposals

 

    Significant capital expenditure

 

    Approval of full-year results and the Annual Report and Form 20-F

 

    Approval of the interim results

 

 

The Board has delegated some of its responsibilities to Committees of the Board. While responsibility for monitoring the effectiveness of the Group’s risk management and internal control systems has been delegated to the Audit Committee1, the Board retains ultimate responsibility for determining the Group’s risk appetite and tolerance, and annually considers a report in relation to the monitoring, controlling and reporting of identified risks and uncertainties. In addition, the Board receives regular reports from the Chairman of the Audit Committee in relation to the work of that Committee in the area of risk management. Individual Directors may seek independent professional advice, at the expense of the Company, in the furtherance of their duties as a Director. The Group has a Directors’ and Officers’ liability insurance policy in place.

Independence of Directors

The Nomination & Corporate Governance Committee has reviewed the interests of each Director and the Board has determined that each non-executive Director remains independent.

Chairman

Richie Boucher was appointed Chairman of the Group with effect from 1 January 2020. On his appointment as Chairman, he met the independence criteria set out in the 2018 Code. Although he holds other directorships, the Board has satisfied itself that these do not adversely impact on his role as Chairman.

Policy on Diversity

We are committed to ensuring that the Board is sufficiently diverse and appropriately balanced. In its work in the area of Board renewal and succession planning, the Nomination & Corporate Governance Committee looks at the following four criteria when considering non-executive Director roles:

 

  international business experience, particularly in the regions in which the Group operates or into which it intends to expand;
 

 

Attendance at Meetings during the year ended 31 December 2019

  Table 13  

 

Name   Board       Acquisitions       Audit       Finance       Nomination (i)       Remuneration       SESR (ii)
      Total       Attended           Total       Attended           Total       Attended           Total       Attended           Total       Attended           Total       Attended           Total       Attended  
R. Boucher   6   6     7   7     -   -     4   4     -   -     6   6     -   -
J. Karlström (iii)   2   2     -   -     1   1     -   -     -   -     1   1     1   1
S. Kelly (iv)   1   1     -   -     1   1     -   -     -   -     -   -     -   -
N. Hartery   6   6     7   7     -   -     4   4     13   13     -   -     5   5
P.J. Kennedy   6   6     -   -     -   -     -   -     13   12     6   6     5   5
D.A. McGovern, Jr. (v)   1   1     -   -     1   1     -   -     5   5     2   2     -   -
H.A. McSharry   6   6     -   -     6   6     -   -     13   13     6   5     -   -
A. Manifold   6   6     7   7     -   -     -   -     -   -     -   -     5   5
S. Murphy   6   6     7   6     -   -     4   4     -   -     -   -     -   -
G.L. Platt   6   6     -   -     -   -     -   -     13   13     6   6     5   5
M.K. Rhinehart   6   6     -   -     5   5     -   -     11   11     -   -     4   3
L.J. Riches   6   6     7   7     6   6     4   4     -   -     -   -     -   -
H. Th. Rottinghuis   6   6     7   6     6   6     -   -     -   -     -   -     5   5
S. Talbot   6   5     6   6     3   3     3   3     -   -     -   -     2   2
W.J. Teuber, Jr. (vi)   3   2     -   -     1   1     1   1     -   -     -   -     -   -

 

(i)   Nomination & Corporate Governance Committee.    (v)   Retired April 2019.
(ii)   Safety, Environment & Social Responsibility Committee.    (vi)   Resigned June 2019.
(iii)   Appointed September 2019.     
(iv)   Appointed December 2019.     

 

 

1. In accordance with Section 167(7) of the Companies Act 2014.

 

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  skills, knowledge and expertise (including education or professional background) in areas relevant to the operation of the Board;

 

  diversity in all aspects, including nationality, gender, social and ethnic backgrounds, cognitive and personal strengths; and

 

  the need for an appropriately sized Board

During the ongoing process of Board renewal, each, or a combination, of these factors can take priority. To date, the Board has not set any policy regarding age. The ages of the Directors range from 51 to 66, which the Nomination & Corporate Governance Committee believes is appropriate at the current time.

Committees

The Board has established six permanent Committees to assist in the execution of its responsibilities. The current permanent Committees are:

 

  Acquisitions;

 

  Audit;

 

  Finance;

 

  Nomination & Corporate Governance;

 

  Remuneration; and

 

  Safety, Environment & Social Responsibility

Ad-hoc Committees are formed from time to time to deal with specific matters.

Each of the permanent Committees has Terms of Reference1, under which authority is delegated to them by the Board. The Chairman of each Committee reports to the Board on its deliberations and minutes of all Committee meetings are circulated to all Directors. The Chairmen of the Committees attend the AGM and are available to answer questions from shareholders.

Each of the Committees has reviewed their respective Terms of Reference. The Terms of Reference of each Committee are available on the CRH website, www.crh.com.

Substantial Holdings

The Company is not owned or controlled directly or indirectly by any government or by any corporation or by any other natural or legal person severally or jointly. The major shareholders do not have any special voting rights. Details of the substantial holdings as at 31 December 2019 are provided in table 14 below. The Company has not been advised of any changes in holdings since 31 December 2019.

Stock Exchange Listings

CRH, which is incorporated in Ireland and subject to Irish company law, has a premium listing on the London Stock Exchange (LSE), a secondary listing on Euronext Dublin (formerly the Irish Stock Exchange) and its American Depositary Shares are listed on the New York Stock Exchange (NYSE).

Legal and Compliance

CRH’s Legal and Compliance programmes support the Group in operating sustainably and consistently with its values. CRH’s Legal and Compliance team provides advice, guidance and support to executive and operational management and works closely with them to provide training to our employees. Legal and Compliance provides support on a range of matters including establishing policies and procedures, providing compliance training and communications, providing legal advice on compliance and business issues, monitoring and investigating Hotline calls,

competition/antitrust law, and ensuring the Group is informed of any changes to regulation and/or reporting requirements. During 2019, Legal and Compliance priorities included antitrust/competition law, international trade compliance, Hotline awareness and policy refresh.

Code of Business Conduct

The foundation of Legal and Compliance programmes is the Code of Business Conduct (CoBC) and supporting policies, which sets out our standards of legal, honest and ethical behaviour. The CoBC complies with the applicable code of ethics regulations of the SEC arising from the Sarbanes-Oxley Act and it also reinforces the fundamental CRH principle that “there is never a good business reason to do the wrong thing.” The CoBC is applicable to all employees of the CRH Group, including the Chief Executive and senior financial officers. A detailed review and benchmarking exercise has resulted in recommendations for refresh and the CoBC will be updated in the first half of 2020.

CRH’s Internal Audit function works side-by-side with Legal and Compliance in monitoring compliance with the CoBC and supporting policies, and in providing an integrated approach to assurance. This cross-functional collaboration supports CRH’s goal: to ensure CRH leads with integrity.

Awareness and Training

In line with our commitment to maintain high ethical business conduct standards, the CoBC and Advanced Compliance Training (which includes Anti-bribery, Anti-fraud, Anti-theft and Competition/Antitrust topics) e-Learning modules were enhanced to include both a first time and refresher element to the programme in 23 languages.

 

 

Substantial Holdings

  Table 14  

As at 31 December 2019, the Company had received notification of the following interests in its Ordinary Share capital, which were equal to, or in excess of, 3%:

 

     31 December 2019           31 December 2018           31 December 2017  
Name  

Holding/

    Voting Rights

   

% at

    year end

         

Holding/

    Voting Rights

   

% at

    year end

         

Holding/

    Voting Rights

   

% at

    year end

 
BlackRock, Inc. (i)     53,813,273       6.82         65,387,207       8.01         75,119,286       8.95  
Standard Life Aberdeen plc.     Holding below 3%         Holding below 3%         25,643,747       3.05  
UBS AG     26,380,604       3.34         26,380,604       3.23         26,380,604       3.16  

 

(i)

BlackRock, Inc. has advised that its interests in CRH shares arise by reason of discretionary investment management arrangements entered into by it or its subsidiaries.

 

 

 

1.

The Terms of Reference of these Committees comply fully with the 2018 Code; CRH considers that the Terms of Reference are generally responsive to the relevant NYSE rules, but may not address all aspects of these rules.

 


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CRH Hotline

CRH engages an external service provider to administer an independent 24/7 multi-lingual confidential “Hotline” facility. The CRH Hotline allows employees, customers, suppliers and or other external stakeholders to raise good faith concerns that may be relevant to the CoBC, inappropriate or illegal behaviour or violations of any CRH policies or local laws. All concerns are handled discreetly and are professionally investigated with appropriate actions taken based on investigation findings. CRH is committed to creating an atmosphere where employees feel empowered to speak up when they have good faith concerns. Retaliation or reprisals are not tolerated at CRH.

Communications with Shareholders

Communications with shareholders are given high priority and the Group devotes considerable time and resources each year to shareholder engagement. We recognise the importance of effective dialogue as an integral element of good corporate governance. The Investor Relations team, together with the Chief Executive, Finance Director and other senior executives, regularly meet with institutional shareholders (each year covering over 60% of the shareholder base). Detailed reports on the issues covered in those meetings and the views of shareholders are circulated to the Board after each group of meetings. Table 16 provides a brief outline of the nature of the activities undertaken by our Investor Relations team.

In addition to the above, major acquisitions and disposals are notified to the Stock Exchanges in accordance with the requirements of the Listing Rules and development updates, giving details of other acquisitions or disposals completed and major capital expenditure projects, are issued periodically.

During 2019, the former Chairman, Senior Independent Director and Company Secretary again participated in a number of meetings with some of the Group’s major shareholders, in advance of the 2019 AGM. Also, as outlined on page 60, Mr Boucher met with a significant portion of the Group’s shareholders following his appointment as Chairman designate. There was also continued engagement with the Group’s major shareholders on remuneration matters.

 

  US Listing - Additional Information   Table 15    
 

Additional details in relation to CRH’s general corporate governance practices are set out in the Governance Appendix, which has been filed as an exhibit to the Annual Report on Form 20-F as filed with the SEC. For the purposes of the Annual Report on Form 20-F, the Governance Appendix, and in particular the following sections thereof, are incorporated by reference herein:

 
   

Section 1 – Frequently Asked Questions

 

  Page 3: For what period are non-executive Directors appointed?

 

  Page 5: What are the requirements regarding the retirement and re-election of Directors?

 

Section 2 - Operation of the Board’s Committees

 

  Page 6: Audit Committee: Role and Responsibilities

 

  Page 6: Audit Committee: Meetings

 

  Page 8: Audit Committee: Non-audit Fees

 

Details of the executive Directors’ service contracts and the policy for loss of office are set out on page 81 of the 2018 Annual Report and Form 20-F.

 
        
  Investor Relations Activities   Table 16    
   

  Formal Announcements: including the release of the annual and interim results and the issuance of trading statements. These announcements are typically accompanied by presentations and webcasts or conference calls

 

  Investor Roadshows: typically held following the release of formal announcements, provide an opportunity for the management team to meet existing and/or potential investors in a concentrated set of meetings

 

  Industry Conferences: attendance at key sector and investor conferences affords members of the senior management team the opportunity to engage with key investors and analysts

 

  Investor Briefings: in addition to regular contact with investors and analysts during the year, the Company periodically holds capital market days, which include presentations on various aspects of CRH’s operations and strategy and provides an opportunity for investors and analysts to meet with CRH’s wider management team

 

  Media Briefings: each year, the Company provides media briefings on numerous issues

 
        
  The following are available on www.crh.com   Table 17    
   
Corporate Governance  

Investors

 
   

  Governance Appendix

 

  Directors’ Remuneration Policy

 

  Terms of Reference of the Acquisitions, Audit, Finance, Nomination & Corporate Governance, Remuneration and Safety, Environment & Social Responsibility Committees

 

  Memorandum and Articles of Association of the Company

 

  Pre-approval policy for non-audit services provided by the auditors

 

  Compliance & Ethics statement, Code of Business Conduct and Hotline contact numbers

 

  Annual and Interim Reports, the Annual Report and Form 20-F (separate documents up to 2015) and the annual Sustainability Report

 

  News releases

 

  Webcast recordings of results briefings

 

  General Meeting dates, notices, shareholder circulars, presentations and poll results

 

  Answers to Frequently Asked Questions, including questions regarding dividends and shareholder rights in respect of general meetings

 

 

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Chair’s Overview

Introduction

I succeeded Richie Boucher as Committee Chair in January 2020 following his appointment as Group Chairman. On behalf of the Remuneration Committee, I am pleased to introduce the Directors’ Remuneration Report (the ‘Report’) for the year ended 31 December 2019. Similar to prior years, the Report is split into three sections:

 

  this Chair’s Statement (pages 74 to 78), which sets out:

 

 

the Committee’s approach to setting remuneration; and

 

 

a high-level summary of the Group’s performance in 2019, related remuneration outcomes and the way in which we intend to implement remuneration in 2020

 

  a summary of the Directors’ Remuneration Policy (the ‘Policy’) (pages 80 to 86), which was approved by shareholders at the 2019 AGM and is available at www.crh.com; and

 

  the Annual Report on Remuneration (pages 88 to 100), which sets out in detail the remuneration paid to Directors in respect of 2019 and how the Policy will operate for 2020.

Committee’s Approach to Remuneration

The key principles underpinning the Committee’s approach to remuneration are that remuneration should be set at a level that:

 

  is fair and balanced;

 

  is market competitive, enabling the Company to recruit and retain talented executives;

 

  incentivises executives in a way that focuses on delivering the Company’s strategic objectives; and

 

  aligns the interests of the executive team with those of shareholders

The Committee also seeks to ensure that updates to the Policy take into account the views of shareholders and evolving best practice.

The Board and the Committee are regularly updated on the perspectives of our employees and take these perspectives into account when making remuneration decisions. Further details in relation to workforce engagement on remuneration matters are set out on page 96.

The Committee also has oversight of remuneration policy across the Group and endeavours to keep the principles and structure of remuneration consistent in so far as is possible given CRH’s international footprint.

Generally speaking, total remuneration is more variable (and, in particular, weighted towards

long-term performance) for roles with greater levels of responsibility and scope.

In setting the remuneration policy and practices for executive Directors, the Committee also takes into consideration the six pillars outlined in the 2018 Code; clarity, simplicity, risk, predictability, proportionality and alignment to culture, and is satisfied that the Policy addresses each of these areas.

2019 Performance

2019 was a year of significant profit growth and positive momentum across our businesses, with EBITDA (as defined)* from continuing and discontinued operations of 4.2 billion (+25%). A total of 0.8 billion was returned to shareholders via the ongoing share repurchase programme while the full year dividend per share was increased by 15%. At the same time, CRH’s balance sheet strength was enhanced with the ratio of Net Debt to EBITDA (as defined)* of 1.7x as at 31 December 2019 (2018: 2.1x).

Incentive Outcomes for 2019

The Group’s strong performance in 2019 is reflected in the executive Directors’ remuneration for 2019, which is summarised on table 22 on page 79 and set out in detail on pages 88 to 100.

 

 

 

 

*

EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 

    

 


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  Summary of Key Decisions Activities   Table 18  

 

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Chair’s Overview - continued

Executive Directors’ Remuneration Summary

 

 
  2019 Remuneration Snapshot (full details of 2019 remuneration are set out in table 22 on page 79)   Table 19    
 
                                                 Fixed     Performance Related Variable Remuneration  
 
Director   Salary      

Annual Bonus

(% of Max)

  2017 PSP Award (i) (% of Max)  
 
Albert Manifold   1,522,500     86%   70.7%  
 
Senan Murphy   794,500       86%   70.7%  
 

(i)  The awards, for which performance was measured over the three-year period to end 2019, will vest at 70.7% in 2022 following the completion of a two-year holding period. Further details in relation to the estimated value of the awards, split between the value created for performance and the value created through share price growth, are included in table 22 on page 79. The market value per share on the date of award (in March 2017) was 30.97.

 
 
  2020 Remuneration Snapshot   Table 20    
 
Director   Salary  

Max. Annual Bonus

(% of salary)

  Metrics for 2020 Bonus Award  

2020 PSP Award

(% of Salary)

  Metrics for 2020 PSP Award    
 
Albert Manifold   1,564,400 (+2.75%)   225%  

EPS (25%)

 

RONA (25%)

  365%  

Cashflow (50%)

 

TSR (25%)

   
 
Senan Murphy   816,350 (+2.75%)   150%  

Operating Cashflow (30%)

 

Personal Strategic (20%)

  225%   RONA (25%)    
 
                         
 
  Alignment of Executive Remuneration with Strategy   Table 21    
 

Performance Measure

 

 

Annual Bonus

 

 

PSP

 

 

Reason for Selection

 

 
 

EPS

        EPS is a key measure of the underlying profitability  
 

Cash Flow

      Operating cashflow is a key measure of CRH’s ability to generate cash to fund organic and acquisitive growth and provide returns to our shareholders via dividends and share buybacks  
 

RONA

      RONA is a key measure of CRH’s ability to create value through excellence in operational performance  
 

TSR

        TSR is a key measure of CRH’s returns to shareholders through the cycle  
 

Personal Strategic Objectives

        Personal strategic objectives enable a focus on specific factors aligned with CRH’s short and medium-term strategic objectives that promote long-term performance  
 


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Incentive Outcomes for 2019 - continued

In respect of 2019, the Committee determined that, based on the achievement of performance targets, the annual bonus plan should pay out at 86% of the maximum opportunity for the Chief Executive and the Finance Director. Further details in relation to the annual bonus plan, including the relevant targets on which the 2019 plan was based, are set out on page 88. The Committee also determined that 70.7% of the maximum awards made in 2017 under the PSP will vest, based on the achievement of relevant performance criteria for the period 2017-2019. Further details in relation to the 2017 Awards, including details of the applicable targets and performance for each of the components of the 2017 Awards, are set out on page 90.

In assessing performance against the relevant metrics for the annual bonus plan and PSP, consistent with prior years we excluded certain non-recurring ‘one-off’ items.

Following consideration of the financial performance referred to above, and the Company’s underlying performance, the Remuneration Committee did not exercise any discretion over the incentive outcomes for 2019 and is satisfied that the outcomes are appropriate and balanced.

Alignment between Pay, Performance and Strategy

The Committee is satisfied that there was a strong alignment between the pay outcomes outlined above and the execution of our value creation strategy and the achievement of strategic objectives. The connections between the metrics used by the Committee to incentivise management and CRH’s strategy are summarised in table 21.

Approach to Remuneration from 2020

Pensions

In 2019, CRH’s Remuneration Policy was updated to the effect that pension-related contributions/allowances for newly hired executive Directors will be in line with the general practice for new recruits, across the workforce, in the individual’s home jurisdiction or, if applicable, the jurisdiction in which the individual is to be based in their executive Director role. For example, in Ireland and the UK such contributions range from 8% to 12% of base salary depending on the rules of the

relevant scheme. There was a recognition at the time, in our discussions with shareholders prior to the 2019 AGM, that addressing this issue for new hires was more achievable than seeking to change the contracts for incumbent executive Directors, although we committed to keeping the matter under review.

Since the 2019 AGM, there has been an evolution in investor views on the issue of pension contributions/allowances for incumbent executives. The Chief Executive has considered the matter and has voluntarily offered to reduce the monetary value of the pension contribution/allowance to which he is contractually entitled by 10% per annum in 2020 and 2021, with a further reduction such that his pension allowance will be below 25% of salary in January 2022. His pension entitlement will cease in August 2022 when he reaches age 60. The Finance Director’s pension contribution is currently 25% of salary. Taking into account his continued strong performance and the positioning of his total remuneration, which is lower quartile compared to the FTSE 50 excluding financial services companies which CRH uses for benchmarking purposes, the Committee was of the view that a change to his pension contribution would not be fair and balanced in the circumstances. Nevertheless, having considered the matter, the Finance Director has voluntarily offered to permanently cap his entitlement at the monetary level due in respect of 2020. The Committee has accepted the Chief Executive’s and Finance Director’s waiver of their contractual entitlements and welcomes their positive initiative in this regard.

Post-employment shareholdings

The 2018 Code requires companies to develop policies for post-employment shareholding requirements. Prior to the 2019 AGM, we discussed with shareholders the Committee’s view that the current holding period on our vested PSP awards provides a considerable de facto post-employment shareholding requirement as it continues to apply post-cessation of employment.

Since then investor views on approaches to post-employment shareholdings for executive Directors have also evolved. Having considered the matter in detail, we have decided to introduce a new requirement whereby the Chief Executive will be required to hold shares equivalent to two times salary for a period of two years post-employment. Until the two times limit is achieved, commencing in 2020, Deferred Share or PSP awards which vest

will be transferred on a net of tax basis to a third party to be held in trust for Mr. Manifold’s benefit. The shares will be held in trust on a rolling basis, until his employment ceases and a subsequent two-year period has elapsed. The Committee will retain discretion on a case by case basis to release these shares in exceptional circumstances. A similar structure will apply to the Finance Director, except that the requirement in his case will be one times salary.

2020 Remuneration

Salary

For 2020, Mr. Manifold and Mr. Murphy will each receive a 2.75% increase, which is broadly in line with average workforce increases in CRH’s core countries.

Annual Bonus

The structure and metrics for the 2020 annual bonus are unchanged from 2019, and are set out in table 20 on page 76. The targets will be disclosed in the 2020 Annual Report and Form

20-F.

Pensions

As outlined above, the monetary value of the pension contribution/allowance for Mr. Manifold will be reduced by 10% in 2020 such that his allowance will be c. 600,000 (2019: 667,000) and the contributions/allowance for Mr. Murphy will be capped permanently at 204,000 (25% of his 2020 salary).

Performance Share Plan

In 2019, the Committee introduced RONA as a metric in the long-term PSP, to reflect a strong desire amongst shareholders for the introduction of a returns measure. A range of views had been expressed regarding the form of returns measure to be used. The Committee chose RONA as it is the metric used in the business and the measure that the management team communicate to shareholders. Following the 2019 AGM, we received feedback from a small number of shareholders that they would prefer an alternative returns measure. The Committee has also considered this matter further. Recognising that there are arguments in favour of other methodologies, the Committee continues to strongly believe that RONA is the most appropriate measure in an incentive context and has decided to retain it as the returns metric for PSP awards in 2020.

 

 

 

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Chair’s Overview - continued

 

The Committee has also considered feedback from some shareholders on the peer group used to measure TSR performance in relation to whether consideration should be given to the introduction of certain companies, that compete in individual markets in which CRH operates but do not operate internationally, into the peer group. Other shareholders asked whether the relatively small market capitalisation of some companies in the peer group could unduly influence the performance outcome. The Committee has considered these views. It is satisfied that the existing peer group achieves a robust measurement of TSR performance against industry peers that have similar geographic exposure to CRH. In addition, the peer group is weighted by market capitalisation to reduce the influence of smaller companies. Therefore, it is proposed to retain the existing peer group for PSP awards in 2020. However, shareholder views will be kept under review for future awards.

 

In engagement with shareholders and wider stakeholders on sustainability matters, the potential for introducing an environmental target into the PSP was raised. As outlined in the Sustainability section on page 21, the Board has set a series of ambitious environmental targets which are in line with the Paris Climate Agreement. However, given the very long-term nature of those sustainability targets, the Committee determined that it was not currently feasible to develop robust, measurable and stretching performance targets on an annual or three-year performance cycle at this time. However, this will be kept under review going forward.

 

Further details in relation to the structure, metrics and targets for the PSP awards to be made in 2020 are set out in table 39 on page 96.

 

Non-executive Directors

 

No changes are proposed to the fees paid to the Chairman or the non-executive Directors in 2020. Details of the fees currently payable are set out in table 37 on page 95.

      

LOGO

 

 

Tarmac, part of CRH’s Europe Materials Division, was responsible for resurfacing the world-famous racetrack at Silverstone, home of the British Grand Prix, where Lewis Hamilton clinched a record sixth British Grand Prix victory in 2019. The surface was designed specifically to withstand the extremes of braking and cornering generated by high-performance racing cars and motorbikes. Tarmac used cutting-edge technology and processes to complete the project, including the first use of 3D GPS-guided asphalt planing in the UK as well as state-of-the-art BPO ASPHALT management system software.

 

 

 

Conclusion

 
 

The Committee believes that the remuneration paid to the executive Directors in respect of 2019 is appropriate and is well aligned with the performance of the Company and the value delivered for shareholders. We hope to receive your support for the Annual Report on Remuneration at the 2020 AGM.

 

                                                   
  Heather Ann McSharry  
 

Chair of the Remuneration Committee

27 February 2020

 
 


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  Individual Executive Remuneration for the year ended 31 December 2019 (Audited)             Table 22  
     Albert Manifold                                Senan Murphy  
     2019                2018                2017           2019                2018                2017  
Fixed Pay      000        000        000           000        000        000