20-F 1 d144241d20f.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, 2015

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)

       

Belgard Castle, Clondalkin, Dublin 22, Ireland

(Address of principal executive offices)

       

Senan Murphy

Tel: +353 1 404 1000

Fax: +353 1 404 1007

Belgard Castle, Clondalkin, Dublin 22, 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      Name of Each Exchange On Which Registered 
CRH plc  
Ordinary Shares/Income Shares of €0.34 each   The New York Stock Exchange*
American Depositary Shares, each representing the right to receive one   The New York Stock Exchange
Ordinary Share  
  CRH America Inc.    
4.125% Notes due 2016 guaranteed by CRH plc   The New York Stock Exchange
6.000% Notes due 2016 guaranteed by CRH plc   The New York Stock Exchange
8.125% Notes due 2018 guaranteed by CRH plc   The New York Stock Exchange
5.750% Notes due 2021 guaranteed by CRH plc   The 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 **

     823,911,253   

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).*** Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  X  Accelerated filer  ¨  Non-accelerated filer  ¨

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

*** This requirement does not yet apply to the registrant.


Table of Contents
                                       

CRH Annual Report on Form 20-F | 2015

 

CRH plc Annual Report on Form 20-F

in respect of the year ended 31 December 2015

 

Table of Contents    Page
Cross Reference to Form 20-F Requirements      1     
Chairman’s Introduction      5     
A. Introduction    7    
B. Strategy Review    43    
C. Business Performance Review    65    
Current Year Review      66     
Prior Year Review      80     
D. Governance    95    
Board of Directors      96     
Corporate Governance      100     
Directors’ Remuneration Report      114     
E. Consolidated Financial Statements    153    
Report of Independent Registered Public Accounting Firm      154     
Consolidated Financial Statements      156     
F. Shareholder Information    245    
  
  
Listing of Exhibits      257     
Signatures      260     
 

 


Table of Contents
                                  

CRH Annual Report on Form 20-F |  2015

 

Cross Reference to Form 20-F Requirements

This table has been provided as a cross reference from the information included in this Annual Report to the requirements of this 20-F.

 

                Page  
 Introduction and Performance Measures      8   
 PART I                 
 Item 1.  

Identity of Directors, Senior

Management and Advisors

     n/a   
 Item 2.   Offer Statistics and Expected Timetable      n/a   
 Item 3.   Key Information   
  A -   Selected financial data      11, 248   
  B -   Capitalisation and indebtedness      n/a   
  C -   Reasons for the offer and use of proceeds      n/a   
    D -   Risk factors      54   
 Item 4.   Information on the Company   
  A -   History and development of the Company      14   
  B -   Business overview      12, 15, 19   
  C -   Organisational structure      14   
    D -   Property, plants and equipment      38   
 Item 4A.   Unresolved Staff Comments      None   
 Item 5.   Operating and Financial Review and Prospects   
  A -   Operating results      44, 66   
  B -   Liquidity and capital resources      67   
  C -   Research and development, patent and licences, etc.      41   
  D -   Trend information      45, 66   
  E -   Off-balance sheet arrangements      68   
  F -   Tabular disclosure of contractual obligations      69   
    G -   Safe Harbor      12   
 Item 6.   Directors, Senior Management and Employees   
  A -   Directors and senior management      96   
  B -   Compensation      114   
  C -   Board practices      100   
  D -   Employees      41   
    E -   Share ownership      132   
 Item 7.   Major Shareholders and Related Party Transactions   
  A -   Major shareholders      247   
  B -   Related party transactions      234   
    C -   Interests of experts and counsel      n/a   
 Item 8.   Financial Information   
  A -   Consolidated statements and other financial information      153, 248   
     -   Legal proceedings      41   
     -   Dividends      248   
    B -   Significant changes      68   
 Item 9.   The Offer and Listing   
  A -   Offer and listing details      246   
    B -   Plan of distribution      n/a   
                Page  
  C -   Markets      246   
  D -   Selling shareholders      n/a   
  E -   Dilution      n/a   
    F -   Expenses of the issue      n/a   
 Item 10.   Additional Information   
  A - Share capital      n/a   
  B -   Memorandum and articles of association      254   
  C -   Material contracts      41   
  D -   Exchange controls      256   
  E -   Taxation      251   
  F -   Dividends and paying agents      n/a   
  G -   Statements by experts      n/a   
  H -   Documents on display      256   
    I -   Subsidiary information      n/a   
 Item 11.   Quantitative and Qualitative Disclosures about Market Risk      68   
 Item 12.   Description of Securities Other than
Equity Securities
  
  A -   Debt securities      n/a   
  B -   Warrants and rights      n/a   
  C -   Other securities      n/a   
    D -   American depositary shares      250   
 PART II         
 Item 13.   Defaults, Dividend Arrearages and Delinquencies      None   
 Item 14.   Material Modifications to the Rights of Security Holders and Use of Proceeds      None   

 Item 15.

 

 

Controls and Procedures

 

     111   

 Item 16A.

 

  Audit Committee Financial Expert      97   

 Item 16B.

 

  Code of Ethics      112   

 Item 16C.

 

  Principal Accountant Fees and Services      256   
 Item 16D.  

Exemptions from the Listing Standards

for Audit Committees

     n/a   
 Item 16E.   Purchases of Equity Securities by the Issuer and Affiliated Purchasers      248   

 Item 16F.

 

  Change in Registrant’s Certifying
Accountant
     None   

 Item 16G.

 

  Corporate Governance      100   

 Item 16H.

 

  Mine Safety Disclosures      38   
 PART III         

 Item 17.

 

  Financial Statements      n/a   

 Item 18.

 

  Financial Statements      153   

 Item 19.

 

  Exhibits      257   
 

 

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Table of Contents
                                       

CRH Annual Report on Form 20-F | 2015

 

 

Our business

 

 

CRH creates value by maintaining a balanced portfolio. Our product mix spans the breadth of building materials demand and sectoral end-use, thereby minimising exposure to any one single demand driver. In addition, the Group offsets cyclical economic risk by maintaining a geographically diversified portfolio across its key regions of North America and Europe, as well as in the emerging regions of Asia and South America.

 

 

Heavyside Materials

 

 
LOGO  

    Aggregates – crushed stone

 

    Cement – primary binding agent

 

    Asphalt – road and highway surfaces

 

    Readymixed Concrete – pourable pre-mixed, aggregates, cement and water based compound

 

    Precast Concrete – structural floors, beams, vaults

 

    Architectural Concrete – blocks, bricks, pavers

 

Lightside Products

 

 
LOGO  

    Glass & Glazing Systems – engineered products for external and internal use

 

    Construction Accessories – engineered fixing, connecting and anchoring solutions

 

    Shutters & Awnings – solar shading, terrace roof and window protection solutions

 

    Fencing & Security – outdoor security and protection systems

 

    Cubis – composite access chambers

 

Building Materials

Distribution

 

 
LOGO  

    Builders Merchants – channel for distribution of building materials to the professional contractor

 

    SHAP – specialist distribution of sanitary, heating and plumbing products

 

    DIY – providing decorative and home improvement products to the consumer

 

 

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Table of Contents
                                  

CRH Annual Report on Form 20-F |  2015

 

 

CRH at a glance

 

 

CRH plc is a leading global diversified building materials group, employing 89,000 people at over 3,900 operating locations in 31 countries worldwide.

 

CRH is a top two building materials company globally and the largest in North America. The Group has leadership positions in Europe as well as established strategic positions in the emerging economic regions of Asia and South America.

 

CRH is committed to improving the built environment through the delivery of superior materials and products for the construction and maintenance of infrastructure, residential and commercial projects.

 

A Fortune 500 company, CRH is listed in London and Dublin and is a constituent member of the FTSE100 and the ISEQ 20 indices. CRH’s American Depositary Shares are listed on the New York Stock Exchange. CRH’s market capitalisation at 31 December 2015 was approximately 22 billion.

 

 

 

   Our vision:

 

   To be the leading building materials

   business in the world

 

 

2015 Performance highlights

 

 

 

 

 

LOGO   23.billion   LOGO   1.billion  
  Sales     Profit Before Tax  
LOGO   2.billion   LOGO   89.cent  
       
  EBITDA (as defined)*     Earnings Per Share  
LOGO   1.billion   LOGO   62.cent  
       
  Operating Profit   Dividend Per Share  

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

 

 

 

3


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LOGO

 

4


Table of Contents
                                  

CRH Annual Report on Form 20-F |  2015

 

 

LOGO

 

 

 

Chairman’s Introduction

 

LOGO

Dear Shareholder,

2015 was a very significant year for CRH, with a strong performance in our heritage businesses, continued progress in our portfolio review, total disposal proceeds in the year of circa 1 billion and the completion of two strategically important acquisitions. The Board is recommending a final dividend of 44c per share, which, if approved at the 2016 Annual General Meeting, will maintain the full year dividend at 62.5c per share.

On behalf of the Board, I would like to acknowledge the support from shareholders for the acquisition of assets from Lafarge S.A. and Holcim Limited (the ‘LH Assets’) in a 6.5 billion deal. In early February 2015, we completed a placing of 74 million shares which raised 1.6 billion as part of the financing of this transaction. Also in March, shareholders approved the acquisition at an Extraordinary General Meeting, with a very positive level of support (99.999%) indicating shareholders’ views on the value and strategic importance of this acquisition for CRH. The transaction was slightly different in that we acquired a portfolio of assets across the globe from two companies, with no central head office or organisational structure. In order to mitigate the resulting challenges, the executive team developed a thorough integration plan, which I am pleased to report is well under way. Given the importance of the integration, a specific committee of the Board was set up to oversee the process and report on progress.

Also in 2015, we acquired C.R. Laurence (“CRL”) for a total consideration of $1.3 billion. CRL is North America’s leading manufacturer and distributor of custom hardware and installation products for the professional glazing industry. CRL provides CRH with an exceptional strategic fit for our BuildingEnvelope® business in the Americas and, over time, a scalable international growth platform.

In addition to the two large acquisitions referred to above, we completed 20 smaller “bolt-on” acquisitions and investments, bringing our total acquisition spend to approximately 8 billion.

Looking forward to 2016, the Board will be visiting a number of the newly acquired businesses. We will continue to maintain our strong focus on financial discipline and prudent financial management, and the Board is committed to restoring our debt metrics to normalised levels.

With employee numbers now at approximately 89,000, keeping our people safe is a strategic priority for the Group. The Board and executives throughout the Group maintain a relentless focus on improving our safety programmes. During a recent visit to our operations in Utah, the Board had a demonstration of one new innovative safety technology which increases the safety of our employees and contractors by alerting them to work zone intrusions by third party vehicles that can result in serious accidents and fatalities.

This time last year I wrote about the introduction of a new Chairman’s award for safety excellence in the Group. Inaugural ceremonies for these awards were held during the summer of 2015. The energy and commitment shown in this vital area, by the men and women in our business, is inspiring and I look forward to the next series of award events in 2016.

I would like to record my appreciation for the significant time commitment my non-executive colleagues give to CRH, particularly during the course of last year. Bill Egan and Utz-Hellmuth Felcht will retire from the Board at the conclusion of the Annual General Meeting to be held on 28 April 2016, following completion of three 3-year terms as non-executive Directors. On behalf of my colleagues, I extend our gratitude to them for their substantial contribution to CRH during their time on the Board. The Corporate Governance Report on pages 100 to 113, contains details in relation to the Board’s ongoing renewal process.

Finally, I would like to take the opportunity to thank Albert Manifold and all staff throughout the Group for their significant achievements over the past year.

Nicky Hartery

Chairman

March 2016

 
 

 

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LOGO

 

6


Table of Contents

LOGO

 

    

Introduction                
Introduction and Performance Measures      8                                                                                                                        
History, Development and Organisational Structure of the Company      14      
Business Overview      15      
Operational Snapshot      16      
Operational Reviews      18      
Mineral Reserves      36      
Property, Plants and Equipment      38      
Development Review      39      
The Environment and Government Regulations      40      

 

 

 

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Table of Contents
                                       

CRH Annual Report on Form 20-F | 2015

 

Introduction and Performance Measures

 

                                                                                                                                                        

 

Reconciliation of EBITDA (as defined)* and Operating Profit (by segment) to Group Profit

 

  

     Year ended 31 December  
     Group operating profit before                                            
     depreciation and amortisation      Depreciation, amortisation                       
     (EBITDA (as defined)*)      and impairment      Group operating profit(i)      
     2015      2014      2013      2015      2014      2013      2015      2014      2013  
      €m      m      m      €m      m      m      €m      m      m  
Europe Heavyside      334         380         326         199         229         721         135         151         (395)   
Europe Lightside      100         94         71         25         23         43         75         71         28   
Europe Distribution      171         190         186         77         78         80         94         112         106   
Europe      605         664         583         301         330         844         304         334         (261)   
Americas Materials      912         609         557         301         254         331         611         355         226   
Americas Products      391         263         246         142         118         178         249         145         68   
Americas Distribution      140         105         89         29         22         22         111         83         67   
Americas      1,443         977         892         472         394         531         971         583         361   
LH Assets      171         -         -         169         -         -         2         -         -   
Total Group      2,219         1,641         1,475         942         724         1,375         1,277         917         100   
Profit on disposals                        101         77         26   
Finance costs less income                        (295)         (246)         (249)   
Other financial expense                        (94)         (42)         (48)   
Share of equity accounted investments’ profit/(loss)                  44         55         (44)   
Profit/(loss) before tax                        1,033         761         (215)   
Income tax expense                                                            (304)         (177)         (80)   
Group profit/(loss) for the financial year                                             729         584         (295)   

 

(i)  Throughout this document, Group operating profit as shown in the Consolidated Financial Statements excludes profit on disposals.

 

 

     

 

Calculation of EBITDA (as defined)* Net Interest Cover

 

  

                                               2015      2014      2013  
                                                      €m      m      m  
Interest                           
Finance costs(i)                        303         254         262   
Finance income(i)                                                            (8)         (8)         (13)   
Net interest                                                            295         246         249   
EBITDA (as defined)*                        2,219         1,641         1,475   
                                               Times  
EBITDA (as defined)* net interest cover (EBITDA (as defined)* divided by net interest)         7.5         6.7         5.9   

 

(i) These items appear on the Consolidated Income Statement on page 156.

 

*

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

 

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CRH Annual Report on Form 20-F |  2015

 

 
Sales and EBITDA (as defined)* from continuing operations   
Sales    2014         

2015

            
     

As
reported

bn

    

Exclude
divested
businesses

bn

    

Exclude
one-offs

bn

    

Continuing
operations

bn

        

As
reported

€bn

    

Exclude
divested
businesses

€bn

    

Exclude
one-offs

€bn

    

Continuing
operations

€bn

         % change
continuing
operations
 
Europe      8.8         (0.5)                 8.3           8.7         (0.1)                 8.6           3%   
Americas      10.1         (0.6)                 9.5             12.5         (0.2)                 12.3             30%   

Subtotal

     18.9         (1.1)                 17.8           21.2         (0.3)                 20.9           17%   

LH Assets

                                          2.4                                         

Total Group

     18.9                                      23.6                                         

 

EBITDA (as defined)*

   2014         

2015

            
     

As
reported

m

    

Exclude
divested
businesses

m

    

Exclude
one-offs

m

    

Continuing
operations

m

        

As
reported

€m

    

Exclude
divested
businesses

€m

    

Exclude
one-offs

€m

    

Continuing
operations

€m

         % change
continuing
operations
 

Europe

     664         (70)         15         609           605         (11)         41         635           4%   

Americas

     977         (38)         27         966           1,443         (1)         14         1,456           51%   

Subtotal

     1,641         (108)         42         1,575           2,048         (12)         55         2,091           33%   

LH Assets

                                          171                                         

Total Group

     1,641                                      2,219                                         

 

Non-GAAP Performance Measures

CRH uses a number of non-GAAP performance measures to monitor financial performance. These are summarised below and discussed later in this report.

EBITDA (as defined). 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’ result after tax and is quoted by management to aid investors in their analysis of the performance of the Group and to assist investors in the comparison of the Group’s performance with that of other companies. EBITDA (as defined) and operating profit results by segment are monitored by management in order to allocate resources between segments and to assess performance. Given that net finance costs and income tax are managed on a centralised basis, these items are not allocated between operating segments for the purpose of the information presented to the Chief Operating Decision Maker.

Sales and EBITDA (as defined)* from continuing operations. Sales and EBITDA (as defined)* from continuing operations are defined as those reported in note 1 to the Consolidated Financial Statements, excluding the impact of entities divested in 2014 and 2015 together with the impact of one-off items and LH Assets as appropriate (see table above). 2015 was a year which included a major acquisition and significant divestment activity for the Group, and therefore management consider that results from continuing operations provide a useful comparison of the performance of the Group’s ongoing operations year-on-year. Continuing operations as defined above is distinct from the continuing operations contained in IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” and referenced in the Consolidated Financial Statements and the Selected Financial Data on page 11.

Net Debt. Net debt is used by management as it gives a more complete picture of the Group’s current debt situation than total interest-bearing loans and borrowings. Net debt is provided to enable investors to see the economic effect of gross debt, related hedges and

cash and cash equivalents in total. Net debt is a non-GAAP measure and comprises current and non-current interest-bearing loans and borrowings, cash and cash equivalents and current and non-current derivative financial instruments. A reconciliation of total interest-bearing loans and borrowings to net debt is set out in note 20 to the Consolidated Financial Statements.

EBITDA (as defined)* Net Interest Cover. EBITDA net interest cover is used by management as a measure which matches the earnings and cash generated by the business to the underlying funding costs. EBITDA (as defined)* net interest cover is presented to provide a greater understanding of the impact of CRH’s debt and financing arrangements and, as discussed in note 23 to the Consolidated Financial Statements, is a metric used in lender covenants. It is the ratio of EBITDA (as defined)* to net interest and is calculated on page 8.

The definitions and calculations used in lender covenant agreements include certain specified adjustments to the amounts included in the Consolidated Financial Statements. The ratios as calculated on the basis of the definitions in those covenants are disclosed in note 23 to the Consolidated Financial Statements.

 

 

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

 

 

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CRH Annual Report on Form 20-F | 2015

 

Introduction and Performance Measures | continued

 

Return on Net Assets (RONA) (as defined). Return on Net Assets is a key internal pre-tax measure of operating performance throughout the CRH Group. The metric measures management’s ability to generate profits from the net assets required to support that business, focusing on both profit maximisation and the maintenance of an efficient asset base; it encourages effective fixed asset maintenance programmes, good decisions regarding expenditure on property, plant and equipment and the timely disposal of surplus assets, and also supports the effective management of the Group’s working capital base. RONA is calculated by expressing Operating Profit as a percentage of average net assets; net assets comprise total assets by segment less total liabilities by segment as shown in note 1 to the Consolidated Financial Statements, and exclude equity accounted investments and other financial assets, net debt (see definition on page 9) and tax assets and liabilities. The average net assets for the year is the simple average of the opening and closing balance sheet figures.

Organic Revenue, Organic Operating Profit. CRH pursues a strategy of growth through acquisitions and investments, with approximately 8 billion spent on acquisitions and investments in 2015 (2014: 188 million). Acquisitions completed in 2014 and 2015 contributed incremental sales revenue of 2,738 million and operating profit of 28 million in 2015. Proceeds from divestments and non-current asset disposals amounted to 0.9 billion (net of cash disposed and deferred proceeds) (2014: 345 million). The sales impact of divested activities in 2015 was a negative 855 million and the disposal impact at operating profit level was a negative of 69 million.

 

During 2015, most major currencies strengthened in value compared with the euro, the US Dollar strengthened 20% from an average of 1.33 versus the euro in 2014 to an average of 1.11 in 2015, while the Swiss Franc strengthened from an average of 1.21 in 2014 to 1.07 in 2015. These movements, partly offset by the weakening of certain other currencies, particularly the Ukrainian Hryvnia, resulted in a favourable foreign currency translation impact on our results; this is the principal factor behind the exchange effects disclosed on page 67.

Because of the impact of acquisitions, divestments, exchange translation and other non-recurring items on reported results each year, the Group uses organic revenue and organic operating profit as additional performance indicators to assess performance of pre-existing (also referred to as underlying, heritage, like-for-like or ongoing) operations each year.

Organic revenue and organic operating profit is arrived at by excluding the incremental revenue and operating profit contributions from current and prior year acquisitions and divestments, the impact of exchange translation and the impact of any non-recurring items. In the Business Performance Review section which follows, changes in organic revenue and organic operating profit are presented as additional measures of revenue and operating profit to provide a greater understanding of the performance of the Group. A reconciliation of the changes in organic revenue and organic operating profit to the changes in total revenue and operating profit for the Group and by segment is presented with the discussion of each segment’s performance in tables contained in the segment discussion commencing on page 70.

CRH Website

Information on or accessible through our website, www.crh.com, other than the item identified as the Annual Report on Form 20-F, does not form part of and is not incorporated into this document. References in this document to other documents on the CRH website are included only as an aid to their location. The Group’s website provides the full text of the Annual and Interim Reports, the Annual Report on Form 20-F, which is filed annually with the United States Securities and Exchange Commission, trading statements, interim management statements, copies of presentations to analysts and investors and circulars to shareholders. News releases are made available, in the News & Events section of the website, immediately after release to the Stock Exchanges.

Key Information

The Consolidated Financial Statements of CRH plc have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the International Accounting Standards Board.

Selected financial data has been presented for the five years ended on 31 December 2015 on page 11. For the three years ended 31 December 2015, the selected financial data is qualified in its entirety by reference to, and should be read in conjunction with, the audited Consolidated Financial Statements, the related Notes and the Business Performance Review section included elsewhere in this Annual Report on Form 20-F (“Annual Report” or “Form 20-F”).

 

 

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Selected Financial Data

 

                                            

Year ended 31 December (amounts in millions, except per share data and ratios)

 

  

     
     2015      2014      2013(i)      2012(ii)      2011(ii)  
     €m      m      m      m      m  
Consolidated Income Statement Data               
Revenue      23,635         18,912         18,031         18,084         18,081   
Group operating profit      1,277         917         100         805         871   
Profit/(loss) attributable to equity holders of the Company      724         582         (296)         538         580   
Basic earnings/(loss) per Ordinary Share      89.1c         78.9c         (40.6c)         74.6c         81.2c   
Diluted earnings/(loss) per Ordinary Share      88.7c         78.8c         (40.6c)         74.5c         81.2c   
Dividends paid during calendar year per Ordinary Share      62.5c         62.5c         62.5c         62.5c         62.5c   
Average number of Ordinary Shares outstanding(iii)      812.3         737.6         729.2         721.9         714.4   
Ratio of earnings to fixed charges (times)(iv)      2.9         2.6         0.7(v)         2.6         2.4   
All data relates to continuing operations               
Consolidated Balance Sheet Data               
Total assets      32,007         22,017         20,429         20,900         21,384   
Net assets(vi)      13,544         10,198         9,686         10,589         10,593   
Ordinary shareholders’ equity      13,014         10,176         9,661         10,552         10,518   
Equity share capital      281         253         251         249         247   
Number of Ordinary Shares(iii)      823.9         744.5         739.2         733.8         727.9   
Number of Treasury Shares and own shares(iii)      1.3         3.8         6.0         7.4         8.9   
Number of Ordinary Shares net of Treasury Shares and own shares(iii)      822.6         740.7         733.2         726.4         719.0   

 

(i) Group operating profit includes asset impairment charges of 650 million in 2013, with an additional 105 million impairment charge included in loss attributable to equity holders of the Company in respect of equity accounted investments. Details are contained in note 2 to the Consolidated Financial Statements.

 

(ii) On 1 January 2013, the Group adopted IFRS 11 Joint Arrangements and IAS 19 Employee Benefits (revised). As a result, the prior year comparatives were restated as required by IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

 

(iii) All share numbers are shown in millions of shares.

 

(iv) For the purposes of calculating the ratio of earnings to fixed charges, in accordance with Item 503 of Regulation S-K, earnings have been calculated by adding: profit/(loss) before tax adjusted to exclude the Group’s share of equity accounted investments’ result after tax, fixed charges and dividends received from equity accounted investments; and the fixed charges were calculated by adding interest expensed and capitalised, amortised premiums, discounts and capitalised expenses related to indebtedness, an estimate of the interest within rental expense and preference security dividend requirements of consolidated subsidiaries.

 

(v) The amount of the deficiency in 2013 was US$183 million.

 

(vi) Net assets is calculated as the sum of total assets less total liabilities.

 

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Introduction and Performance Measures | continued

 

Forward-Looking Statements

In order to utilise the “Safe Harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, CRH public limited company (the “Company”), and its subsidiaries (collectively, “CRH” or the “Group”) is providing the following cautionary statement.

This document contains certain forward-looking statements with respect to the financial condition, results of operations and business of CRH and certain of the plans and objectives of CRH including the statements under: “Strategy Review – Chief Executive’s Introduction – Outlook for 2016”; in the “Business Performance Review – Finance Director’s Introduction” with respect to our belief that the Group has sufficient resources to meet its debt obligations and capital and other expenditure requirements in 2016; in the “Business Performance Review” section with respect to our expectations regarding economic activity and fiscal developments in our operating regions; our expectations for the residential, non-residential and infrastructure markets; and our expectation regarding synergies to be realised in connection with the acquisitions of the LH Assets and CRL; statements relating to our strategies for individual segments and business lines in the section entitled “Operational Reviews” and statements relating to our commitment to restore debt metrics to normalised levels. These forward-looking statements may generally, but not always, be identified by the use of

words such as “will”, “anticipates”, “should”, “expects”, “is expected to”, “estimates”, “believes”, “intends” or similar expressions.

By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future and reflect the Company’s current expectations and assumptions as to such future events and circumstances that may not prove accurate. A number of material factors could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, certain of which are beyond our control and which include, among other things: economic and financial conditions generally in various countries and regions where we operate; the pace of recovery in the overall construction and building materials sector; demand for infrastructure, residential and non-residential construction in our geographic markets; increased competition and its impact on prices; increases in energy and/or raw materials costs; adverse changes to laws and regulations; adverse political developments in various countries and regions; failure to complete or successfully integrate acquisitions; and the specific factors identified in the discussions accompanying such forward-looking statements and under “Risk Factors” in this document.

 

Statements Regarding Competitive Position and Construction Activity

Statements made in the Description of the Group in the Business Performance Review sections and elsewhere in this document referring to the Group’s competitive position are based on the Group’s belief, and in some cases rely on a range of sources, including investment analysts’ reports, independent market studies and the Group’s internal assessment of market share based on publicly available information about the financial results and performance of market participants.

Unless otherwise specified, references to construction activity or other market activity relate to the relevant market as a whole and are based on publicly available information from a range of sources, including independent market studies, construction industry data and economic forecasts for individual jurisdictions.

Seasonality

Activity in the construction industry is characterised by cyclicality and is dependent to a considerable extent on the seasonal impact of weather in the Group’s operating locations, with activity in some markets reduced significantly in winter due to inclement weather. First-half sales accounted for 40% of full-year 2015 (2014: 44%) and 44% excluding the LH Assets, while EBITDA (as defined)* for the first six months of 2015 represented 25% of the full-year out-turn (2014: 31%) and 27% excluding the LH Assets.

 

 

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

 

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Exchange Rates

In this Form 20-F, references to “US$”, “US Dollars” or “US cents” are to the United States currency, references to “euro”, “euro cent”, “cent”, “c” or “” are to the euro currency and “Stg£” or “Sterling” are to the currency of the United Kingdom of Great Britain and Northern Ireland (“United Kingdom” or “UK”). Other currencies referred to in this Form 20-F include Polish Zloty (“PLN”), Swiss Franc (“CHF”), Canadian Dollar (“CAD”), Chinese Renminbi (“RMB”), Indian Rupee (“INR”), Ukrainian Hryvnia (“UAH”), Philippine Peso (“PHP”), Romanian new Leu (“RON”) and Serbian Dinar (“RSD”).

For the convenience of the reader, this Form 20-F contains translations of certain euro amounts into US Dollars at specified rates. These translations should not be construed as representations that the euro amounts actually represent such US Dollar amounts or could be converted into US Dollars at the rate indicated. The Federal Reserve Bank of New York Noon Buying Rate (the “FRB Noon Buying Rate”) on 31 December 2015 was 1 = US$1.0859 and on 11 March 2016 was 1 = US$1.118.

 

The table below sets forth, for the periods and dates indicated, the average, high, low and end-of-period exchange rates in US Dollars per 1 (to the nearest cent) using the FRB Noon Buying Rate. These rates may vary slightly from the rates used for translating foreign currencies into euro in the preparation of the Consolidated Financial Statements (see page 171).

For a discussion on the effects of exchange rate fluctuations on the financial condition and results of the operations of the Group, see the Business Performance Review section beginning on page 66.

 

 

                                                                                                                                                                                       

 

Exchange Rates

                                   

US Dollar/euro exchange rate

 

  

        
Years ended 31 December    Period End      Average Rate(i)      High      Low  
2011      1.30         1.40         1.49         1.29   
2012      1.32         1.29         1.35         1.21   
2013      1.38         1.33         1.38         1.28   
2014      1.21         1.32         1.39         1.21   
2015      1.09         1.10         1.20         1.05   
2016 (through 11 March 2016)      1.12         1.10         1.14         1.07   

Months ended

           
September 2015      1.12         1.12         1.14         1.11   
October 2015      1.10         1.12         1.14         1.10   
November 2015      1.06         1.07         1.10         1.06   
December 2015      1.09         1.09         1.10         1.06   
January 2016      1.08         1.09         1.10         1.07   
February 2016      1.09         1.11         1.14         1.09   
March 2016 (through 11 March 2016)      1.12         1.10         1.12         1.08   
(i) The average of the US Dollar/euro exchange rate on the last day of each month during the period or in the case of monthly averages, the average of all days in the month, in each case using the FRB Noon Buying Rate.

 

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History, Development and Organisational Structure of the Company

 

CRH public limited company is the parent company of a diversified international group of companies which provide building materials across the spectrum of the construction industry – from building foundations to frame and roofing, to fitting out the interior space and improving the exterior environment, onsite works and infrastructural projects, our materials and products are used extensively.

The Group resulted from the merger in 1970 of two leading Irish public companies, Cement Limited (established in 1936) and Roadstone, Limited (incorporated in 1949). Cement Limited manufactured and supplied cement while Roadstone, Limited was primarily involved in the manufacture and supply of aggregates, readymixed concrete, mortar, coated macadam, asphalt and contract surfacing to the Irish construction industry.

The Company is incorporated and domiciled in the Republic of Ireland. CRH is a public limited company operating under the Companies Act of Ireland 2014. The Group’s worldwide headquarters are located in Dublin, Ireland. Our principal executive offices are located at Belgard Castle, Clondalkin, Dublin 22 (telephone: +353 1 404 1000). The Company’s registered office is located at 42 Fitzwilliam Square, Dublin 2, Ireland and our US agent is Oldcastle, Inc., 900 Ashwood Parkway, Suite 600, Atlanta, Georgia 30338.

The Company is the holding company of the Group, with direct and indirect share and loan interests in subsidiaries, joint ventures and associates. From Group headquarters, a small team of executives exercise strategic control over our decentralised operations.

CRH, which has a premium listing on The London Stock Exchange Limited (“London Stock Exchange”), is also one of the largest companies, based on market capitalisation, quoted on The Irish Stock Exchange Limited (“Irish Stock Exchange”) in Dublin.

CRH’s American Depositary shares are listed on the New York Stock Exchange (“NYSE”) in the United States. The market capitalisation of CRH as of 31 December 2015 was 22 billion.

CRH is a constituent member of the FTSE100 index and the ISEQ 20.

As outlined in note 1 to the Consolidated Financial Statements, following the acquisition of the LH Assets, the Group is organised into seven business segments reflecting the Group’s organisational structure in 2015. These segments are outlined further in the sections that follow.

In the detailed description of the Group’s business that follows, estimates of the Group’s various aggregates and stone reserves have been provided by engineers employed by the individual operating companies. Details of product end-use by sector for each reporting segment are based on management estimates.

As a result of planned geographic diversification since the mid-1970s, the Group has expanded by acquisition and organic growth into an international manufacturer and supplier of building materials. CRH is now a leading global diversified building materials group employing approximately 89,000 people at over 3,900 operating locations in 31 countries worldwide. For over four decades, the Group has developed and implemented a proven model of business improvement. By building better businesses across our international operations, we are the second largest building materials company globally and the largest in North America. The Group has leadership positions in Europe as well as established strategic positions in the emerging economic regions of Asia and South America.

The principal subsidiary undertakings and equity accounted investments are listed in Exhibit 8 to this Annual Report on Form 20-F, which is incorporated herein by reference.

 

 

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Business Overview

The percentage of Group revenue and operating profit for each of the seven reporting segments for 2015, 2014 and 2013 is as follows:

 

                                                                                                                             

 

Business Overview

 

  

                 
     2015      2014      2013  
      Revenue      Operating profit      Revenue      Operating profit      Revenue      Operating profit  

Share of revenue and operating profit

                 
Europe Heavyside(i)      15%         11%         21%         16%         21%         (395%)   
Europe Lightside      4%         6%         5%         8%         5%         28%   
Europe Distribution      18%         7%         21%         12%         22%         106%   
Americas Materials      27%         48%         27%         39%         26%         226%   
Americas Products      16%         19%         17%         16%         17%         68%   
Americas Distribution      10%         9%         9%         9%         9%         67%   
LH Assets(ii)      10%         0%         -         -         -         -   
Total      100%         100%         100%         100%         100%         100%   
(i) See “Business Operations in Europe” on page 20 for details of non-European countries grouped with Europe for reporting purposes.

 

(ii) The post-acquisition operating profit for LH Assets reported by CRH in 2015 is stated after charging transaction costs of €144 million (see note 30) and other one-off costs of €53 million.

 

  A cement kiln at CRH Serbia’s Novi Popovac production plant, which produced 520,000 tonnes of cement and 360,000 tonnes of clinker in 2015.   LOGO

 

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Operational Snapshot

Sector exposure and end-use based on 2015 annualised EBITDA (as defined)*

 

LOGO

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

 

** Net Assets at 31 December 2015 comprise segment assets less segment liabilities as disclosed in note 1 to the Consolidated Financial Statements.

 

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LOGO

1

Throughout this document annualised volumes have been used which reflect the full-year impact of acquisitions made during the year and may vary from actual volumes produced.

 

2

Throughout this document tonnes denote metric tonnes (i.e. 1,000 kilogrammes).

 

Including equity accounted investments; the volumes quoted above for Europe Heavyside also include the Group’s share of production volumes in the businesses in China and India in which CRH has equity accounted investments.

 

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LOGO

 

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CRH in Europe*

 

CRH is a regional leader in the manufacture and supply of building

materials to construction markets in Europe and strives to maintain

No. 1 and No. 2 market positions in its various product segments

across a range of European countries.

 

     

The European operations are comprised of three divisions: Heavyside, Lightside and Distribution. The Heavyside operations produce cement, aggregates, asphalt, readymixed concrete, precast concrete and concrete landscaping. Our Lightside operations manufacture construction accessories, shutters and

 

     

awnings, fencing and composite access chambers. In Distribution, we are a leading player in builders merchanting, DIY and sanitary, heating and plumbing.

 

Operating across Western and Eastern Europe, more than 32,000 people are employed by our businesses at approximately 1,500 locations.

     
LOGO         LOGO         LOGO
               
The limestone quarry at Trzuskawica’s plant at Sitkówka. The plant is located near the city of Kielce, an area rich in limestone. This is one of the biggest quarries in Poland, with yearly extraction of up to 6m tonnes of high quality limestone in peak years.         Metal Inert Gas (MIG) welding of a stainless steel brick cladding support system at Ancon’s 6,500m2 manufacturing facility in Sheffield, UK. Ancon, part of Europe Lightside, is a two-time winner of the Queen’s Award for Enterprise.         Raboni, a general builders merchant, supplies a wide range of building materials to professional contractors in the Normandy and Paris regions of France.
               
               
               
               
               
               

 

 

* A map showing the countries, including in Europe, where the newly acquired LH Assets are located is shown on page 32.

 

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Business Operations in Europe

 

Europe Heavyside

Europe Heavyside’s strategic goal is to be the leading vertically integrated heavyside business in Europe, building leading regional positions in businesses that have the potential to grow further in the large European construction markets. With a balanced approach to demand exposure, product penetration and maximising the benefits of scale and best practice, our business is well differentiated in the marketplace. Enhanced alignment and collaboration leads to value creation throughout our extensive network of well-invested facilities across the division.

Europe Heavyside comprises cement, aggregates, asphalt and concrete operations organised into two regional divisions: Western Europe, which includes primarily Switzerland, Germany, Benelux, France, Denmark, Ireland and Spain; and Eastern Europe which includes Poland, Ukraine and Finland. The business model of vertical integration is founded in resource-backed cement and aggregates assets, which support the manufacture and supply of cement, aggregates, readymixed and precast concrete, concrete landscaping and asphalt products. As a result, extending reserves is an ongoing process and a key focus for the Heavyside business. We place great emphasis on performance improvement initiatives across the business and seek to create value through optimisation of the asset base, maximising Group synergies and leveraging commercial and operational excellence. The scale of our operations provides economies in purchasing and logistics management and our commitment to sustainability is evidenced by greater use of alternative fuels and the manufacture of low carbon cements.

The Europe Heavyside development strategy is currently focused on integration of our recent acquisitions, maximising the synergies to be gained. We remain focused on bolt-on acquisitions for synergies, reserves and further vertical integration, in addition to opportunities in contiguous regions to extend and strengthen regional positions. Our portfolio is managed through a focus on value creation, with a strong pipeline of opportunities across regions, including developing markets in Eastern Europe that offer long-term growth potential. As part of CRH’s ongoing strategy to optimise our portfolio, Europe Heavyside completed a total of 14 divestments in 2015, including the disposal of its 25% equity interest in Mashav, the holding company for the sole producer of cement in Israel, in December 2015.

In total Europe Heavyside employs approximately 16,100 people at close to 700 locations in 19 countries.

Cement

Cement is a primary building material used in the construction industry. It is manufactured by reacting limestone with small quantities of other materials in a kiln through a carefully controlled high temperature process. This produces clinker, which is then milled into a fine powder to become cement. Cement production is capital-intensive. Cement is used principally as a binding agent to bind other materials together – most commonly it is mixed with sand, stone or other aggregates and water. Cement customers primarily comprise concrete producers and merchants supplying construction contractors and others. Where CRH has both cement and concrete operations, a significant portion of cement sales is supplied to those concrete operations. While cement or clinker may be imported from other countries, competition comes mainly from other large cement producers located within each country. CRH’s cement activities in Belgium and the Netherlands relate to clinker grinding and cement transport and trading respectively.

 

 

 

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Aggregates

Aggregates are naturally occurring sand, gravel or crushed stone deposits such as granite, limestone and sandstone. Recycled (end-of-life) concrete increasingly features as an aggregate. CRH cement plants are generally located at or near the limestone reserves used to supply the plants. In Finland, CRH buys the aggregate raw materials for its two cement plants, as the Group does not own limestone reserves near the plants. For additional information on the location and adequacy of all of the Group’s mineral reserves, see the Mineral Reserves section on pages 36 and 37.

Readymixed Concrete and Concrete Products

In addition to readymixed concrete, CRH manufactures other concrete products for two principal end-uses: pavers, tiles and blocks for architectural use, and floor and wall elements, beams and vaults for structural use. In addition, sand-lime bricks are produced for the residential market. Principal raw materials include cement, crushed stone and sand and gravel, all of which are readily available locally.

Aggregates, asphalt and related services are sold principally to local government highway authorities and to contractors. Readymixed concrete and concrete products (manufactured mainly at locations with aggregates on site and including block, masonry, pipe, rooftiles and paving) are sold to both the public and private construction sectors. Competition comes mainly from other large aggregates, asphalt, readymixed concrete and concrete products producers, as well as from a variety of smaller manufacturers in local economies.

Joint Venture Interests

CRH holds a 50% equity interest in My Home Industries Limited (“MHIL”), a cement producer headquartered in Hyderabad serving the Andhra Pradesh and Telangana regions of southeast India.

Associate Interests

CRH holds a 26% equity interest in Yatai Building Materials Company’s cement operations (“Yatai Cement”), with cement and concrete operations in Jilin, Heilongjiang and Liaoning provinces in northeastern China.

 

 

Products and Services -Locations(i)

 

 

Cement

Belgium, Finland, Ireland, Netherlands, Poland, Spain, Switzerland, Ukraine, United Kingdom

 

 

Aggregates

Estonia, Finland, Ireland, Netherlands, Poland, Slovakia, Spain, Switzerland, Ukraine

 

 

Asphalt

Ireland, Poland, Switzerland

 

 

Readymixed Concrete

Estonia, Finland, Ireland, Netherlands, Poland, Spain, Switzerland, Ukraine

 

 

Lime

Ireland, Poland

 

 

Concrete Products

Belgium, Denmark, Finland, France, Germany, Hungary, Ireland, Netherlands, Poland, Romania, Slovakia, Spain, Ukraine

 

 

Clay Products

Germany, Netherlands, Poland

 

 

 

  (i) Excludes joint venture and associate interests. Results for these entities are equity accounted in the Consolidated Financial Statements.

 

 

 

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Business Operations in Europe | continued

 

Europe Lightside

Europe Lightside’s strategy is to build and grow scalable businesses in construction markets across a range of products and end-use segments. We operate a portfolio of business platforms which focus on increasing the penetration of our range of high-quality, value-added products, and create competitive advantage through strong customer relationships and service.

We realise commercial, operational and procurement synergies across the larger network to benefit from scale and best practice, and leverage a range of flagship brands at a regional, European and global level. There is a continuous focus on product innovation and development and we work with specialist end-users, such as architects and engineers, to develop design solutions that are approved and certified for individual target markets.

The Division is organised into three business areas: Construction Accessories, Shutters & Awnings, and Fencing & Cubis Access Chambers. Our development strategy is to deepen our positions in existing business platforms in developed Europe, to broaden our differentiated product portfolio through selected new growth platforms, and to expand our presence in developing regions as construction markets in those regions become more sophisticated. This strategy complements CRH’s aim to provide innovative solutions that meet the longer-term opportunities presented by economic development, changing demographics and sustainability.

We draw upon an established record of enabling mature and high-growth businesses alike to expand their offerings, and develop their markets. Lightside has historically achieved consistently attractive returns; this reflects active, balanced management of our product range and our geographic and business cycle exposures.

Employees total approximately 4,800 people at over 100 operating locations in 16 countries.

Construction Accessories

Our Construction Accessories business supplies a broad range of connecting, fixing and anchor systems to the construction industry.

Shutters & Awnings

Shutters & Awnings serve the attractive RMI and residential end-use markets, supplying solar shading, terrace roof and window protection solutions.

Fencing & Security

Fencing designs, manufactures and installs fully integrated perimeter security solutions.

Cubis

Cubis manufactures composite access chambers and access covers for telecoms, rails, roads, water and power.

Competition comes mainly from a number of multi-country Lightside suppliers as well as from a variety of smaller manufacturers in local economies and from more traditional products/solutions (substitutes).

 

Products and Services -Locations

 

 

Construction Accessories

Australia, Austria, Belgium, China, France, Germany, Ireland, Italy, Malaysia, Netherlands, Norway, Poland, Spain, Switzerland, Sweden, United Kingdom

 

 

Shutters & Awnings

Germany, Netherlands, United Kingdom

 

 

Fencing & Security and Cubis (Composite Access Chambers)

Australia, France, Germany, Ireland, Netherlands, Sweden, United Kingdom

 

 

 

 

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Europe Distribution

Europe Distribution’s strategy is to increase its network density in the largely unconsolidated core European markets while also investing in other attractive segments of building materials distribution. Organisational initiatives leverage expertise between DIY and Builders Merchants and use best-in-class IT to deliver operational excellence, optimise the supply chain and provide superior customer service.

From an established base in the Netherlands, CRH has expanded its leading Builders Merchants positions in Switzerland, Northern Germany, Austria and France servicing the growing repair, maintenance and improvement construction sector. Our Professional Builders Merchants sell a range of bricks, cement, roofing and other building products mainly to small and medium-sized builders.

In addition Europe Distribution is growing its DIY “GAMMA” format in the Benelux. The DIY Europe platform operates under four different brands: GAMMA (the Netherlands and Belgium), Karwei (the Netherlands), Hagebau (Germany) and Maxmat (Portugal) selling to DIY enthusiasts and home improvers.

We believe substantial opportunities remain to expand our existing network in core European markets and to establish new platforms aimed at increasing our exposure to growing RMI market demand. An example is CRH’s entry in recent years into the developing Sanitary, Heating and Plumbing (“SHAP”) distribution market, which has since replicated and expanded to service the specialist needs of plumbers, heating specialists and installers, and of gas and water technicians.

Europe Distribution employs approximately 11,400 people at over 650 locations across 7 countries.

Professional Builders Merchants

Professional Builders Merchants cater to the heavyside sector and competition is encountered primarily from other merchanting chains and local individual merchants. In the Netherlands and Switzerland, the Group has a strong position as the leading builders merchant. CRH is a major regional distributor in France, with 56 locations. The Group also has a strong regional presence in the northwest of Germany.

DIY

CRH operates 134 Karwei and GAMMA DIY stores in the Netherlands and 19 GAMMA stores in Belgium. The stores operate within the Intergamma franchise organisation, the largest DIY group in the Benelux. Buying and advertising is undertaken by Intergamma, which is owned by its franchisees. In Germany, Bauking operates 30 DIY stores under the brand name Hagebau. In Portugal, Maxmat is a 50% joint venture cash and carry DIY chain with 31 stores.

Sanitary, Heating and Plumbing (“SHAP”)

Our SHAP distribution business has been key to strengthening our exposure to growing RMI market demand. It operates in Belgium, Germany and Switzerland. CRH is a leading SHAP distributor in Belgium where the group now has over 40 locations. In Switzerland, the Group has a strong position as a country-wide supplier of SHAP products.

Associate Interests

CRH holds a 21.13% equity interest in Samse S.A., a publicly-quoted distributor of building materials to the merchanting sector in the Rhône-Alpes region.

 

Products and Services -Locations(i)

 

 

Professional Builders Merchants

Austria, Belgium, France, Germany, Netherlands, Switzerland

 

 

Sanitary, Heating and Plumbing (SHAP)

Belgium, Germany, Switzerland

 

 

DIY Stores

Belgium, Germany, Netherlands

 

 

 

  (i) Excludes joint venture and associate interests. Results for these entities are equity accounted in the Consolidated Financial Statements.
 

 

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CRH in the Americas

 

CRH is the largest building materials company in North America. We operate in all 50 US states and in six Canadian provinces.

 

     

Our Americas operations comprise Materials, Products and Distribution divisions. In Materials, we are the largest producer of asphalt and third largest producer of aggregates and readymixed concrete in the United States. Our Products operations, with their national footprint and broad product range, are the leading supplier of concrete products and

 

     

architectural glazing systems in North America. In Distribution, we are a leading supplier of product to the specialist Exterior roofing/siding contractor and also the Interior ceilings/walls demand segments.

 

Close to 40,000 people are employed by CRH in the Americas, with operations at over 1,700 locations.

     
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The Shelly Company’s Smith Concrete, supplied 35,000 cubic yards of concrete for the US$45 million Bridge of Honor. The bridge is a cast-in-place segmental concrete edge girder system with transverse floor beams. The bridge, which has a span of 675-feet, connects the cities of Pomeroy, Ohio, and Mason, West Virginia, across the Ohio River.         A rigorous quality assurance process at the Anjou Plant in Quebec, Canada, ensures that our customers receive world-class quality products and service. For more than 60 years, Oldcastle Architectural has been Canada’s leader in concrete products, offeringing leading-edge design options for residential and commercial applications.         Tri-Built Materials Group, the private-label division of Allied Building Products, has been well received and now includes more than 30 residential and commercial accessory products.
               
               
               
               
               
               

 

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Business Operations in the Americas

 

Americas Materials

Americas Materials’ strategy is to build strong regional leadership positions underpinned by well-located, long-term reserves. We are the largest producer of asphalt and the third largest producer of both aggregates and readymixed concrete in the United States. We operate nationally in 44 states with over 13 billion tonnes of aggregates reserves of which circa 80% are owned. The business is vertically integrated from primary resource quarries into aggregates, asphalt and readymixed concrete products. With 55% exposure to infrastructure, the business is further integrated into asphalt paving services through which it is the leading supplier of product to highway repair and maintenance demand in the United States.

Our national network of operations and deep local market knowledge drive local performance and national synergies in procurement, cost management and operational excellence. In a largely unconsolidated sector where the top ten industry participants account for just 35% of aggregates production, 25% of asphalt production and 25% of readymixed concrete production, CRH’s strategy is to position the business to participate as the industry consolidates further.

Americas Materials employs approximately 18,500 people at close to 1,200 operating locations.

For additional information on the location and adequacy of all the Group’s mineral reserves, see the Mineral Reserves section on pages 36 and 37.

Americas Materials is broadly self-sufficient in aggregates and its principal purchased raw materials are liquid asphalt and cement used in the manufacture of asphalt and readymixed concrete respectively. These raw materials are available from a number of suppliers. There is a continued focus on improving bitumen and energy purchasing and we continue to source the lowest cost alternative energy for use in asphalt production.

Federal, state and local government authority road and infrastructural projects awarded by public bid represent a significant proportion of work carried out by the Division. Americas Materials also has a broad commercial base, supplying stone, readymixed concrete and asphalt for industrial, office, shopping mall and private residential development and refurbishment.

Americas Materials is organised geographically into East and West, divided into four further sub-regions.

East

Northeast (including operations in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, New York, New Jersey and Connecticut);

Mid-Atlantic (Pennsylvania, Delaware, Virginia, West Virginia, Maryland, Kentucky, North Carolina and Tennessee);

Central (Ohio, Indiana and Michigan); and

Southeast (Alabama, Georgia, Mississippi, South Carolina and Florida).

West

Great Plains (Oklahoma, Arkansas, Missouri, Kansas, Iowa, Nebraska, Minnesota, Illinois and South Dakota);

Southwest (Texas);

Mountain West (Colorado, Wyoming, Utah, New Mexico, southern Idaho, Nevada and Arizona); and

Northwest (Washington, Oregon, Montana and northern Idaho).

 

 

Products and Services -Locations

 

 

Aggregates

United States

 

 

Asphalt

United States

 

 

Readymixed Concrete

United States

 

 

 

 

 

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Business Operations in the Americas | continued

 

Americas Products

Americas Products’ strategy is to build a portfolio of businesses which have leading market positions across a balanced range of products and end-use segments. Our activities are organised into three product groups under the Oldcastle brand: Architectural Products (concrete masonry and hardscapes, packaged lawn and garden products, packaged cement mixes); Precast (utility, drainage and structural precast, construction accessories); and BuildingEnvelope® (architectural glass, aluminium glazing systems, customised hardware products to glass and glazing industry). The Group’s commitment to building better businesses is reflected in its coordinated approach at national and regional levels to achieve economies of scale and to facilitate the sharing of best practices which drive operational and commercial improvement. Innovation is a hallmark of the business and through Oldcastle’s North Americas research and development centres, a pipeline of value-added products and design solutions is maintained.

The CRL acquisition completed in September 2015 includes 28 operating locations in the US, five in Canada, four in Europe and two in Australia.

In the context of the detailed review of the portfolio undertaken by the Group in 2014, CRH completed multiple divestments in 2015, including our Merchants Metals fencing business and a lightweight aggregates division, both in the United States. In addition, CRH’s operations in South America were also divested.

A national business operating in 38 US states and six Canadian provinces, CRH has the breadth of product range and national footprint that combines providing a national service to customers with the personal touch of a local supplier. Focusing on strategic accounts and influencers in the construction

supply chain, the Oldcastle Building Solutions group provides an additional avenue for growth as it is well-positioned in the industry to create value for stakeholders across all phases of construction.

The number of employees in this division totals approximately 17,900 at over 350 locations.

Building Products

Architectural Products Group (“APG”) services the United States and Canada from 184 operating locations in 35 states and six Canadian provinces. The residential and non-residential sectors combined account for nearly all of APG’s output, a significant proportion of which is used in the RMI and Do-It-Yourself (“DIY”) sectors. Competition for APG arises primarily from other locally-owned products companies. Principal raw material supplies are readily available.

APG’s concrete masonry products are used for cladding, walls and foundations. Hardscape products comprise pavers, retaining wall products and patio products. Lawn and garden products, mainly bagged and bulk mulch, soil and specialty stone products, are marketed to major DIY and homecenter chains across the United States. Cement mixes, marketed under brands such as Sakrete® and Amerimix®, are also an important product line.

The Precast group produces precast, prestressed and polymer concrete products, small plastic box enclosures and concrete pipe in the United States and Canada with 78 operating locations in 25 states and the province of Quebec.

The most significant precast concrete products are underground vaults sold principally to water, electrical and telephone utilities. Other precast items include drainage and sanitary sewer products such as pipe, manholes, inlets and catch basins, and street and highway products such as median barriers, culverts and short span bridges.

 

 

 

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In many instances, precast products are an alternative to poured-in-place concrete, which is a significant competing product. Plastic enclosures are also supplied to water, electrical and telephone utilities. Polymer trench is sold to the electric and railroad markets.

The Precast group’s Building Systems and Modular business manufactures and installs prestressed concrete flooring plank, modular precast structures and other products. These products are used mainly in structures such as hotels, apartments, dormitories and prisons.

Concrete pipe is used for storm and sanitary sewer applications, which are largely local government projects. Competing materials include corrugated steel pipe and high-density polyethylene pipe in storm sewer applications and plastic pipe in sanitary sewer applications.

Precast also includes the Meadow Burke operation, which supplies thousands of specialised products used in concrete construction activities.

BuildingEnvelope® (“OBE”) custom manufactures architectural glass and engineered aluminium glazing systems for multi-storey commercial, institutional and residential construction. With over 6,000 people and 89 locations in 23 states and four Canadian provinces, OBE is the largest supplier of high-performance glazing products and services in North America, delivering to all of the top 50 Metropolitan Statistical Areas (MSAs) in the United States and to Canada.

Tempered glass and engineered aluminium glazing systems are building products with major applications in the RMI construction sector and have a wide range of architectural applications. The architectural glass product range includes insulated, spandrel, laminated, security and sound control glass manufactured in a variety of shapes, thicknesses, colours and qualities.

Engineered aluminium glazing systems include a broad range of storefront and entrances, curtain wall and architectural windows.

Our new CRL business designs, engineers, and manufactures frameless shower door hardware and a wide range of architectural hardware, including commercial and residential architectural railings and hardware for “all-glass” commercial entrances. In addition, CRL distributes glass installation tools, supplies and equipment to professional glaziers and glass shops which service commercial and residential markets.

 

 

Products and Services -Locations

 

 

Architectural Concrete

Canada, United States

 

 

Precast Concrete, Pipe and Prestress Products

Canada, United States

 

 

Glass Fabrication

Canada, United States

 

 

Glazing Systems

Canada, United States

 

 

Concrete Accessories

United States

 

 

Custom Door Hardware and Glazing Installation Products

Australia, Canada, Denmark, Germany, United Kingdom, United States

 

 

 

 

 

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Business Operations in the Americas | continued

 

 

Americas Distribution

Americas Distribution strategy is focused on being the supplier of choice to specialty contractors of Exterior Products, (roofing and siding), and Interior Products, (ceilings and walls), as well as primarily residential Solar Roofing panels.

Demand in the Exterior Products business is largely influenced by residential and commercial replacement activity with the key products having an average lifespan of 25 to 30 years.

Demand for Interior Products is primarily driven by the new residential, multi-family and commercial construction markets.

Through CRH’s commitment to continuously making businesses better, we employ state-of-the-art customer facing IT technologies, disciplined and focused cash and asset management, and well established procurement and commercial systems to support supply chain optimisation and enable us to provide superior customer service.

Americas Distribution operates in 31 states, with growth opportunities which include investment in new and existing markets, in complementary private label and energy-saving product offerings, and in other attractive building materials distribution segments that service professional dealer networks.

The division employs approximately 3,900 people at close to 200 locations.

 

Allied Building Products delivering the PVC Roofing System for the new 500,000 square foot Fresh Direct distribution centre and corporate headquarters at the Harlem River Yards in the South Bronx, New York.

 

Americas Distribution, trading as Allied Building Products (“Allied”) is a large distributor in the roofing, siding and interior products segments in the United States. Allied’s Exterior Products segment distributes both commercial and residential roofing, siding and related products and accounts for approximately 60% of annualised Distribution sales. Allied’s Interior Products segment distributes primarily to specialised contractors who are involved in new residential, multi-family and commercial construction.

 

 

Products and Services -Locations

 

 

Exterior Products

United States

 

 

Interior Products

United States

 

 

 

 

 

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LH Assets

 

CRH’s vision is to be the leading building materials business in the world. To achieve this vision, the Group makes large or transformational acquisitions from time to time when the strategic rationale and opportunity is compelling.

During 2015, the opportunity arose for CRH to acquire certain assets from Lafarge S.A. and Holcim Limited for a total enterprise value of 6.5 billion. These assets have leading market positions and produce cement, aggregates, readymixed concrete and asphalt and related construction activities globally. The products produced by the LH Assets are broadly the same as those products produced by our Europe Heavyside segment, described on pages 20 to 21.

For CRH there were five compelling rationales for this acquisition: the quality of the assets being acquired; their strategic fit with our existing range of businesses; the timing of the acquisition at the right point of the cycle; the value creation potential inherent in the deal; and maximising returns through capital efficiencies.

 

The newly acquired heavyside assets delivered four regional platforms for growth in one global deal. We are now the second largest global provider of aggregates with a circa 45% increase in volumes, while our cement volumes have more than doubled.

The four regional platforms are: Western Europe (UK, France/La Reunion, Germany), Central and Eastern Europe (Romania, Slovakia, Hungary, Serbia), the Americas (Canada, United States, Brazil) and Asia (Philippines), and a programme of integration to CRH’s existing business is well underway.

CRH holds a 50% equity interest in a number of joint ventures. These joint ventures are mainly located in the UK. Our joint venture operations are principally engaged in the manufacture and supply of cement and aggregates products.

As at 31 December 2015, LH Assets employs 16,000 people, at over 700 locations, in 11 countries.

 

 

Products and Services -Locations(i)

 

 

Cement

Brazil, Canada, France (including La Reunion), Germany, Hungary, Philippines, Romania, Serbia, Slovakia, United Kingdom, United States

 

 

Aggregates

Canada, France (including La Reunion), Philippines, Romania, Slovakia, Serbia, United Kingdom

 

 

Asphalt

Canada, United Kingdom

 

 

Readymixed Concrete

Canada, France (including La Reunion), Germany, Hungary, Romania, Slovakia, United Kingdom

 

 

Lime

United Kingdom

 

 

 

  (i) Excludes joint venture and associate interests. Results for these entities are equity accounted in the Consolidated Financial Statements
 

 

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CRH in China & India

Equity Accounted Investments

CRH has established strategic footholds in China and India over the last eight years. Our strategy is to build select leading regional positions to enable us to benefit from industrialisation, urbanisation and population growth in these developing economies over the coming decades.

 

    

The Group has a 26% stake in associate Yatai Building Materials, which is a market leader in building materials in Northeast China. In India, we have a 50% Joint Venture with My Home Industries Limited (“MHIL”) which is a leading player in the southern state of Andhra Pradesh and Telangana. In 2013, we also opened a regional headquarters in Singapore.

CRH operations in China and India employ circa 10,000 people.

China

Market conditions in 2015 were very challenging as the Chinese economy moves towards a more sustainable level of growth. This has impacted negatively on the construction industry. Performance at our 26% associate, Yatai Building Materials, which is a market leader in Northeast China with a capacity of 32 million tonnes of cement, continues to be affected by lower volumes and selling prices, partially offset by lower energy costs.

 

India

CRH has a cement capacity of 8 million tonnes across three locations in Southern India, where it operates through a 50% Joint Venture, MHIL. The regional market has a cement consumption of 76 million tonnes and MHIL is the market leader in southern states of Andhra Pradesh and Telangana.

In 2015, MHIL sales grew by 5% helped by better pricing and the benefit of clinker exports to Sri Lanka and Bangladesh. The lower cost of raw materials and fuels and the focus on commercial and operational excellence also resulted in higher trading profits in 2015.

 

 

 

    

Products and Services - Locations

    

    

Cement

 

China, India

    

    

Aggregates

 

China, India

    

    

Readymixed Concrete

 

China, India

    

    

Precast Concrete

 

China

    

 

 

 

Commissioned in 2009, this 3.7km conveyor belt feeds crushed limestone to two 5,000 tonne per day kilns in Shuangyang Cement Plant which is located in the northeast of China.

  

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Mineral Reserves

 

 

Activities with Reserves Backing(i)

 

 

              Property acreage                 % of mineral        
              (hectares)(ii)                 reserves by rock type        
        No. of                 Proven &                             2015  
    Physical   quarries/                 probable     Years to     Hard     Sand &           Annualised  
     Location   pits     Owned     Leased     Reserves(iii)     Depletion(iv)     rock     gravel     Other     Extraction(v)  

Europe Heavyside

                   
  Ireland     2        249        -        215        109        100%        -        -        2.4   
  Poland     2        293        -        185        46        93%        6%        1%        4.2   

Cement

  Spain     1        33        -        85        366        100%        -        -        0.4   
  Switzerland     3        93        6        31        21        91%        -        9%        1.4   
  Ukraine     3        279        -        158        51        81%        -        19%        3.0   
                                                                             
  Finland     151        640        436        192        17        70%        30%        -        11.0   
  Ireland     125        5,110        70        1,073        94        88%        12%        -        12.9   

Aggregates

  Poland     4        273        -        182        40        96%        4%        -        4.6   
  Spain     11        138        167        96        44        99%        1%        -        1.8   
  Other     36        214        559        172        23        76%        24%        -        7.9   
                                                                             

Lime

  Ireland, Poland     3        105        -        161        160        100%        -        -        1.4   
                                                                             

Clay

  Poland     13        1,851        28        32        115        -        17%        83%        0.3   
                                                                             

Subtotals

      354        9,278        1,266        2,582          88%        10%        2%     
                                                                             

Americas Materials

                   

Aggregates

  East     287        25,823        5,633        9,286        120        87%        13%        -        84.6   
  West     452        19,517        15,256        3,888        69        45%        55%        -        57.4   
                                                                             

Subtotals

      739        45,340        20,889        13,174          75%        25%        -     
                                                                             

LH Assets

                   
  Brazil     3        1,072        -        169        89        100%        -        -        2.2   
  Canada     2        691        -        300        106        100%        -        -        3.0   
  France     3        376        -        155        81        100%        -        -        1.9   
  Germany     3        321        -        164        54        100%        -        -        3.0   
  Philippines     11        2,061        17        189        31        100%        -        -        6.6   

Cement

  Romania     5        -        881        241        79        73%        -        27%        3.7   
  Serbia     2        81        42        109        185        100%        -        -        0.6   
  Slovakia     5        193        318        307        113        92%        -        8%        2.1   
  UK     7        1,498        150        251        63        100%        -        -        4.0   
  United States     4        527        19        31        76        100%        -        -        0.4   
                                                                             
  Canada     23        3,035        94        481        29        81%        19%        -        16.8   
  France     47        552        1,017        250        24        67%        33%        -        10.3   
  La Reunion     3        -        54        4        4        -        100%        -        1.0   

Aggregates

  Romania     24        -        922        121        50        94%        6%        -        2.4   
  Slovakia     4        554        -        19        25        -        100%        -        0.8   
  UK     177        11,223        6,407        1,438        33        89%        11%        -        43.6   
                                                                             

Lime

  UK     1        209        3        39        36        100%        -        -        1.1   
                                                                             

Subtotals

      324        22,393        9,924        4,268          90%        8%        2%     
                                                                             

Group totals

      1,417        77,011        32,079        20,024          79%        20%        1%     
                                                                             

 

(i) The disclosures made in this category refer to those facilities which are engaged in on-site processing of reserves in the various forms.

 

(ii) 1 hectare equals approximately 2.47 acres.

 

(iii) Where reserves are leased, the data presented above is restricted to include only that material which can be produced over the life of the contractual commitment inherent in the lease; the totals shown pertain only to amounts which are proven and probable. All of the proven and probable reserves are permitted and are quoted in millions of tonnes.

 

(iv) Years to depletion is based on the average of the most recent three years annualised production.

 

(v) Annualised extraction is quoted in millions of tonnes.

 

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The Group’s reserves for the production of primary building materials (which encompass cement, lime, aggregates (stone, sand and gravel), clay products, asphalt, readymixed concrete and concrete products) fall into a variety of categories spanning a wide number of rock types and geological classifications – see the table on the previous page setting out the activities with reserves backing.

Reserve estimates are generally prepared by third-party experts (i.e. geologists or engineers) prior to acquisition; this procedure is a critical component in the Group’s due diligence process in connection with any acquisition. Subsequent to acquisition, estimates are typically updated by company engineers and/or geologists and are reviewed annually by corporate and/or divisional staff. However, where deemed appropriate by management, in the context of large or strategically important deposits, the services of third-party consultant geologists and/or engineers may be employed to validate reserves quantities outside of the aforementioned due diligence framework on an ongoing basis.

The Group has not employed third-parties to review reserves over the three-year period ending 31 December 2015 other than in business combination activities and specific instances where such review was warranted.

Reserve estimates are subject to annual review by each of the relevant operating entities across the Group. The estimation process distinguishes between owned and leased reserves segregated into permitted and unpermitted as appropriate and includes only those permitted reserves which are proven and probable. The term “permitted” reserves refers to those tonnages which can currently be mined without any environmental or legal constraints. Permitted owned reserve estimates are based on estimated recoverable tonnes whilst permitted leased reserve estimates are based on estimated total recoverable tonnes which may be extracted over the term of the lease contract.

 

Proven and probable reserve estimates are based on recoverable tonnes only and are thus stated net of estimated production losses and other matters factored into the computation (e.g. required slopes/benches). In order for reserves to qualify for inclusion in the “proven and probable” category, the following conditions must be satisfied:

 

  the reserves must be homogeneous deposits based on drill data and/or local geology; and

 

  the deposits must be located on owned land or on land subject to long-term lease.

None of CRH’s mineral-bearing properties is individually material to the Group.

 

 

Pennsy Supply’s Prescott Quarry in Lebanon, Pennsylvania, was recognised by Oldcastle Materials Group’s Aggregates National Performance Committee as Most Improved in the National Large Quarry Category in 2015. Local management successfully adjusted its operations plan to achieve higher volumes while reducing cost.    LOGO

 

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Property, Plants and Equipment

 

At 11 March 2016, CRH had a total of 2,999 building materials production locations and 861 Merchanting and DIY locations. 1,749 locations are leased, with the remaining 2,111 locations held on a freehold basis.

The significant subsidiary locations are the cement facilities in the Philippines, Poland, Ukraine, the UK, Romania, Canada, Slovakia, Ireland, Germany, France and Brazil. The capacity for these locations is set out in the table below. Further details on locations and products manufactured are provided in the Business Operations sections on pages 20 to 35. None of CRH’s individual properties is of material significance to the Group.

CRH believes that all the facilities are in good condition, adequate for their purpose and suitably utilised according to the individual nature and requirements of the relevant operations. CRH has a continuing programme of improvements and replacements to properties when considered appropriate to meet the needs of the individual operations. Further information in relation to the Group’s accounting policy and process governing any impairment of property, plant and equipment is given on page 161 and in note 13 to the Consolidated Financial Statements on page 188.

 

 

 

Significant Locations – Clinker Capacity

 

  

              Number of      Clinker Capacity  
Subsidiary    Country        plants      (tonnes per hour)  
Republic Cement      Philippines           5         613   
Grupa Ożarów      Poland           1         342   
OJSC Podilsky Cement      Ukraine           1         313   
Tarmac      UK           3         306   
CRH Romania      Romania           2         305   
CRH Canada      Canada           2         294   
CRH Slovakia      Slovakia           2         290   
Irish Cement      Ireland           2         288   
Opterra      Germany           2         268   
Eqiom      France           3         243   

CRH Brazil

 

    

 

Brazil

 

  

 

      

 

3

 

  

 

    

 

200

 

  

 

 

 

Sources and Availability of Raw Materials

CRH generally owns or leases the real estate on which its main raw materials, namely, aggregates are found. CRH is a significant purchaser of certain important materials or resources such as cement, liquid bitumen, steel, gas, fuel and other energy supplies, the cost of which can fluctuate significantly and consequently have an adverse impact on CRH’s business. CRH is not generally dependent on any one source for the supply of these materials or resources, other than in certain jurisdictions with regard to the supply of gas and electricity. Competitive markets generally exist in the jurisdictions in which CRH operates for the supply of cement, bitumen, steel and fuel.

Mine Safety Disclosures

The information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act is included in Exhibit 99.1 to this Annual Report on Form 20-F.

 

 

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Development Review

 

2015

During 2015, the Group completed 20 bolt-on acquisition and investment transactions. These deals, together with the acquisition of the LH Assets, the CRL acquisition and net deferred consideration payments, brought development spend for 2015 to approximately 8 billion. Further details on the LH Assets acquisition is included in the Business Performance Review on page 79.

In Europe, four bolt-on acquisitions and one investment with a total cost of 20 million were completed. Our Lightside business completed one acquisition in Australia and a small further investment in the Netherlands, accelerating the introduction of the Cubis access chamber range to Australia’s growing market and adding annualised sales of 24 million. Our Heavyside operations set up a new joint venture with its existing readymixed concrete operations in St. Petersburg, Russia in addition to acquiring a concrete paviour production plant in Poland. Our Distribution business acquired the plumbing operations of a steel and tool merchant in the Bern area of Switzerland.

Ten bolt-on acquisitions and two investments were completed by our Americas Materials Division in 2015 adding annualised sales of US$200 million and over 253 million tonnes of aggregates reserves. Our Americas Products Division completed three transactions in 2015 adding annualised sales of US$55 million.

A total of 30 divestments, together with asset disposals during the year, generated proceeds of 1 billion; the largest of which was the sale of the clay and concrete products operations in the UK and the Group’s clay business in the US for 0.43 billion, bringing the cumulative proceeds from the divestment programme since mid-2014 to 1.4 billion.

Our Europe Heavyside business completed 13 further divestments in 2015, the largest of which was the disposal of CRH’s 25% equity stake in its Israeli operation. Other disposals comprised a number of non-core readymixed concrete and concrete products businesses. One small disposal was completed by the Europe Lightside Division, while the Distribution Division disposed of its 45% stake in Doras, a builders merchant in France.

In the Americas, our Materials Division disposed of five non-core operations. Our Products Division sold six operations across the United States, including the disposal of Merchants Metals, a national distributor of fencing systems and perimeter control products. The Products Division also divested of all of its businesses in Argentina and Chile.

We remain focused on optimising our portfolio to meet our financial objectives and prioritising the allocation and reallocation of capital to support profitable growth.

2014

Total acquisition and investment activity for 2014 amounted to 188 million on a total of 21 bolt-on transactions. Our Heavyside operations in Europe acquired selected readymixed concrete and aggregates assets of Cemex Ireland (including 12 million tonnes of high quality reserves) and a precast concrete business in Denmark. Our Europe Distribution business completed six acquisitions in the Benelux, France and Germany which added a total of nine branches to our network.

Eight bolt-on acquisitions were completed by our Americas Materials Division in 2014 across the United States adding over 230 million tonnes of aggregates reserves. Our Americas Products Division completed five transactions in the Precast, Architectural Products and Construction Accessories businesses.

 

A total of 16 divestments, together with asset disposals, generated proceeds of 345 million in 2014.

In Europe, the disposal of CRH’s 50% equity stake in Denizli Çimento, the Group’s only involvement in the Turkish construction market, was the largest single divestment to complete in 2014, realising proceeds of 170 million. The Heavyside Division also disposed of a number of readymixed concrete and concrete products businesses, while all three European Divisions realised proceeds from the disposal of surplus assets. As most of the divested entities had been equity accounted by CRH, the impact of these divestments on 2014 Group sales was not material.

 

In the Americas, our Materials Division disposed of several non-core operations across the United States. The Products Division sold five operations in the Precast, Architectural Products and Building Envelope businesses.

2013

Total acquisition and investment activity for 2013 amounted to 720 million on a total of 28 bolt-on transactions. Eight transactions were completed by our Europe Heavyside operations, including the acquisition of Cementos Lemona in Spain as part of the asset swap in which we divested our 26% stake in Corporacion Uniland. In September 2013 the Group became the leading cement producer in Ukraine with the acquisition of Mykolaiv Cement in the Lviv region. Two other transactions strengthened our aggregates position in Northern Ireland and expanded our network of cement import facilities in Britain while an acquisition in Belgium established the Group as market leader in the pre-stressed hollowcore flooring segment. Three acquisitions in the Europe Distribution segment added 13 branches to our network of builders merchants across the Benelux and France. Our joint venture business in India also strengthened its market position in Southern India with the acquisition of Sree Jayajothi Cements in August 2013.

In the Americas, the Materials Division completed ten bolt-on transactions across its operations in 2013, adding 457 million tonnes of strategically-located aggregates reserves, primarily in the Eastern region of the United States. Our Products business significantly expanded its presence in the high growth region of Western Canada with an acquisition which complements the footprint of our existing North American architectural products business and forms a platform for further bolt-on opportunities. Three other acquisitions in the Products segment strengthened our local market positions. The Distribution business completed three acquisitions adding eight locations to our network.

Proceeds from divestments during 2013, amounted to 283 million.

 

 

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The Environment and Government Regulations

 

The most important environmental government regulations relevant to CRH as a building materials company are those environmental laws and regulations relevant to our extractive and production processes. In the European Union, operations are subject to national environmental laws and regulations, most of which now emanate from European Union Directives and Regulations. In the United States, operations are subject to Federal and State environmental laws and regulations. In other jurisdictions, national environmental laws apply.

Environmental Compliance Policy

In order to comply with environmental regulations, CRH has developed the following Group environmental policy, approved by the CRH Board and applied across all Group companies, which is to:

 

  comply, as a minimum, with all applicable environmental legislation and continuously improve our environmental stewardship, aiming all the time to meet or exceed industry best practice;

 

  ensure that our employees and contractors respect their environmental responsibilities;

 

  address proactively the challenges and opportunities of climate change;

 

  optimise our use of energy and all resources;

 

  promote environmentally driven product innovation and new business opportunities; and

 

  develop positive relationships and strive to be good neighbours in every community in which we operate.

Achieving our environmental policy objectives at all our locations is a management imperative; this line responsibility continues right up to CRH Board level. Daily responsibility for ensuring that the Group’s environmental policy is effectively implemented lies with individual location managers, assisted by a network of Environmental Liaison Officers (“ELOs”).

At each year-end, the ELOs assist the Group Corporate Social Responsibility “CSR” & Sustainability team in carrying out a detailed assessment of Group environmental performance, which is reviewed by the CRH Board.

Addressing Climate Change

CRH recognises that climate change is a major challenge facing humanity and is committed to playing its part in developing practical solutions. CRH is a core member of the Cement Sustainability Initiative (“CSI”) of the World Business Council for Sustainable Development (“WBCSD”). The CSI is a voluntary initiative by the world’s major cement producers, promoting greater sustainability in the cement industry.

Having achieved its initial CO2 reduction commitment three years ahead of target in 2012, CRH has now pledged a 25% reduction in specific net CO2 cement plant emissions by 2020, compared to 1990 levels. The Group is progressing successfully towards achieving this commitment, which is supported by a strategic investment programme and covers a defined portfolio of Group cement plants. CRH is currently working to integrate its newly acquired cement capacity into its carbon reduction roadmap.

Through its membership of the CSI of the WBCSD and regional industry associations including the European Cement Association (CEMBUREAU) and the European Lime Association (EuLA) in Europe and the National Asphalt Pavement Association (NAPA) and the Portland Cement Association (PCA) in the United States, CRH is actively involved in global and regional discussions on the climate change agenda. Relevant facilities in Europe operate within the EU Emission Trading Scheme for Greenhouse Gas emissions through actively implementing carbon reduction strategies.

CRH has implemented capital expenditure programmes in its cement operations to reduce carbon emissions in the context of national and international commitments to reduce greenhouse gas emissions.

The European Union has binding targets to reduce greenhouse gases, on 1990 levels, by 20% by 2020 and by 40% by 2030. In addition, the European Union has an objective to reduce emissions by 80-95% by 2050 compared to 1990. Achieving such reductions would represent a significant extra constraint on cement operations in Europe. US Federal and State laws are developing proactively to address carbon emissions and CRH notes the US pledge to cut its emissions to 26-28% below 2005 levels by 2025. The Group will incur costs in monitoring and reporting emissions. Ultimately a “cap and trade” scheme may be implemented; depending on the scope of the legislation, this could significantly impact asphalt operations in the United States. As of 11 March 2016, the Group is not aware of any schemes that would materially affect its US operations.

Possible Environmental Liabilities

At 11 March 2016 there were no material pending legal proceedings relating to site remediation which are anticipated to have a material adverse effect on the financial position or results of operations or liquidity of the Group, nor have internal reviews revealed any situations of likely material environmental liability to the Group.

Governmental Policies

The overall level of government capital expenditures and the allocation by state entities of available funds to different projects, as well as interest rate and tax policies, directly affect the overall levels of construction activity. The terms and general availability of government permits required to conduct Group business also has an impact on the scope of Group operations. As a result such governmental decisions and policies can have a significant impact on the operating results of the Group.

 

 

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Material Contracts

On 10 July 2015, CRH entered into an amended and restated agreement among Holcim Ltd., Lafarge S.A., CRH International, CRH Fünfte Vermögensverwaltungs Gmbh and CRH plc for the sale and purchase of a global portfolio of assets of Lafarge S.A. and Holcim Ltd (the “Global SPA”), and on 3 August 2015 CRH entered into an amended and restated put and call options agreement among Lafarge Holdings (Philippines) Inc., Calumboyan Holdings Inc., Round Royal Inc., Southwestern Cement Ventures Inc., CRH International and CRH plc with respect to certain assets located in the Philippines (the “Philippines Agreement” and, together with the Global SPA, the “LH Agreements”). CRH completed the majority of the acquisition on July 31, 2015 (except for the acquisition of the Philippines assets, which was completed on September 15, 2015). The acquired assets consist of over 700 locations in 11 countries: Brazil, Canada, France (including La Reunion), Germany, Hungary, the Philippines, Romania, Serbia, Slovakia, the United Kingdom and the United States.

Under the LH Agreements, the total consideration payable by CRH was an enterprise value of 6.5 billion, subject to certain agreed upon adjustments (including with respect to working capital, debt and agreed debt-like items at closing). The LH Agreements contained customary warranties, including compliance with law, antitrust, environmental matters, litigation, tax and material contracts. As part of the transaction, the CRH Group is also indemnified against any pre-closing tax liabilities subject to certain exclusions and limitations. CRH has agreed that, for a period of not less than one year from the relevant closing date of the LH Agreements, it will maintain LH Assets employee benefits on at least as favourable terms to the current terms, to not close a plant in that period, and not to engage in any collective redundancy programme or mass lay-off. In addition, where CRH disposes of any business (in whole or in part) within the LH Assets Group within 18 months of closing of the

agreement, it has agreed to share any profit on disposal equally with the relevant seller(s).

Legal Proceedings

Group companies are parties to various legal proceedings, including some in which claims for damages have been asserted against the companies. Having taken appropriate advice, we believe that the aggregate outcome of such proceedings will not have a material effect on the Group’s financial condition, results of operations or liquidity.

In July 2015, the Swiss Competition Commission (“ComCo”) announced its decision to impose fines of approximately CHF 80 million on the Association of Swiss Wholesalers of the Sanitary Industry (the “Association”) and on major Swiss wholesalers including certain subsidiaries of CRH in Switzerland. The full decision of ComCo, setting out the basis of its findings, is expected to be available in late March 2016 at which time CRH has the option to appeal the decision to the Federal Administrative Tribunal, and ultimately to the Federal Supreme Court. While the Group is of the view that the position of ComCo is fundamentally ill-founded and that the fine imposed on CRH is unjustified, a provision of 32 million (CHF 34 million), representing the full amount of the fine attributed to the Group’s subsidiaries, has been recorded in the 2015 Consolidated Financial Statements.

In May 2012 the Group disposed of its 49% investment in its Portuguese joint venture Secil to our former joint venture partner, Semapa (SGPS, S.A.), following the ruling of the Arbitral Tribunal in Paris that the exercise of a call option for the purchase of CRH’s 49% shareholding in Secil by Semapa was valid and both parties were therefore obligated to complete the sale and purchase of CRH’s share in Secil.

As disclosed in our previous Annual Reports, Semapa initiated legal proceedings in November 2011 to appeal against the Tribunal ruling and these proceedings were dismissed by the Cour D’Appel on 10 September 2013. On 12 February 2014, Semapa filed an appeal with the Cour de cassation. The appeal was rejected on 18 March 2015 which brings the arbitration process to a close.

Research and Development

Research and development is not a significant focus of the Group. CRH’s policy is to expense all research and development costs as they occur.

Employees

The average number of employees for the past three financial years is disclosed in note 5 to the Consolidated Financial Statements on page 179. No significant industrial disputes have occurred at any of CRH’s factories or plants during the past five years. The Group believes that relations with its employees and labour unions are satisfactory.

 

 

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LOGO

 

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LOGO

 

    

              
   Strategy Review                                                                                  
  

Chief Executive’s Review

     44      
  

Strategy

     46      
  

Business Model

     48      
  

Sustainability

     50      
  

Risk Factors

     54      

 

 

 

 

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Chief Executive’s Review(i)

 

LOGO

Our ambition to be the leading building materials business in the world can be traced back to the very earliest roots of CRH and a commitment to excellence in how we deliver for our customers. Since 1970, that commitment to excellence, along with entrepreneurial flair, hard work and a relentless focus on value creation, has come to define our Group. Each new generation has continued to build on that heritage by pursuing opportunities that advance shareholder returns and take us closer to realising our ambition.

There have been many significant steps along the way, including our step-out into Europe, our entry into the North American market and more recently our entry into Asia. In 2015, CRH took another significant step forward with the 6.5 billion acquisition of certain assets from Lafarge S.A. and Holcim Limited (LH Assets). This deal saw us double our cement capacity to become the second largest building materials company in the world and the number two provider of aggregates in the world.

This was a compelling acquisition for CRH due to its significant value creation potential and the strategic fit with our legacy businesses. The acquired assets include businesses with market leading positions and they bring to CRH four new regional platforms for growth in cement, aggregates and readymixed concrete.

In addition to the LH Assets, we also concluded the $1.3 billion acquisition of CRL, North America’s leading manufacturer and distributor of custom hardware and installation products for the professional glazing industry. This business provided an exceptional operational fit with our existing glass business in North America and is an excellent example of targeting focused and balanced growth across our portfolio. These strategic acquisitions widen our global footprint and will have a significant impact on our future growth trajectory.

Reflecting on our operational performance, I am pleased to report that 2015 was a very satisfactory year for CRH. Construction activity in the United States continued to strengthen in line with the domestic economy, and the signing into law of a new five-year highway bill provides certainty in relation to large scale infrastructure projects including roads, bridges and mass-transit systems. In Europe, where trading conditions were more mixed, our businesses maintained a steady performance.

Overall sales increased 25% to 23.6 billion while EBITDA (as defined)* was up 35% to 2.2 billion and profit before tax at 1.0 billion was 36% ahead. Strong profit growth was attributable to both acquisition activity and the performance of our heritage businesses. Importantly, sales from continuing operations increased with margins ahead in all divisions.

Our relentless focus on operational performance in all of our businesses helped deliver Return on Net Assets (RONA) of 7.6% (2014: 7.4%). When adjusted to take account of non-recurring costs (197 million) relating to the acquisition of the newly acquired LH Assets, Group RONA in 2015 was 8.8%, well ahead of the previous year.

Earnings Per Share were also ahead despite the Group issuing an additional 74 million shares following February’s equity placing and we have again maintained our dividend, thereby extending CRH’s track record for dividend delivery to 32 years.

Looking at our primary operating regions; in Europe, against a mixed economic backdrop, with challenging conditions persisting in several key markets, we were pleased to see further top line improvement, across continuing operations, along with good profit delivery, continued strong cost management and crucially, margins ahead in all divisions.

 

 

(i) See cautionary statement regarding forward-looking statements on page 12.

 

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

 

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Our Heavyside business saw some encouraging signs of market recovery with overall cement volumes up on 2014. While this was a step in the right direction, pricing remained a challenge. Our Lightside business delivered healthy sales and profit growth following a pick-up in project activity and export demand. In Distribution, there was a strong finish to the year, in part due to mild weather, which saw sales and profits both ahead.

In the Americas, the continuing positive economic conditions underpinned strong top line growth and with disciplined pricing and cost control, we delivered significant margin expansion. The Group also benefited from a favourable currency translation effect during the year.

In our Americas Materials Division, margins were ahead in all product lines as overall economic recovery continued to drive construction demand across all regions. Our Products business across both residential and non-residential sectors also benefited from the positive trading environment, with sales from continuing operations ahead in all categories, while the newly acquired CRL business performed in line with expectations. In Distribution, we have been able to deliver good profit growth and margin improvement in competitive markets.

In line with our expectations, the LH Assets delivered an EBITDA (as

defined)* contribution in 2015 of 0.37 billion before taking into account one-off transaction costs and accounting policy adjustments of 0.2 billion.

Against the backdrop of the two major acquisitions completed during 2015, it is important to remember how CRH creates value. We do so by maintaining strong financial discipline which includes an ongoing focus on good cash management and strong cash generation. This in turn supports our ability to fund new value creating acquisitions and to deliver improved returns for shareholders. We remain committed to protecting our investment grade credit ratings and we are

on track to deliver on our target to restore debt metrics to normalised levels in 2016.

For both acquisitions, we have been resolutely focused on integration. In the case of the LH Assets, the operational integration is now largely complete and these businesses will be fully incorporated into CRH’s 2016 reporting structures. To ensure transparency in this report, we have presented the partial year 2015 contribution from LH Assets separately from our existing operations.

Integration of the Group’s second major acquisition during 2015, CRL, into our Americas Products Division, is also very well advanced, with management now firmly focused on delivering the performance and synergy targets identified.

Portfolio management, and in particular the reallocation of capital from lower growth areas into core businesses for growth, is a cornerstone of our value creation model. We are pleased with our progress in 2015, which brought cumulative proceeds from our multi-year divestment programme to almost 1.4 billion, while the targeted bolt-on investments completed during the year, strengthened our existing businesses. Total acquisition spend for 2015 was approximately 8 billion, comprising our two major transactions and 20 smaller bolt-ons.

During 2015 we again maintained a constant focus and uncompromising approach to safety at every level in our business.

Outlook for 2016

The backdrop in Europe is expected to be broadly stable in 2016, although there are regional variations. We expect markets in Switzerland, Belgium, Germany and France to be flat. Continued growth is expected in the UK, Ireland and the Netherlands, and we are seeing positive trends in Poland and Finland.

We expect the US economy to continue to grow in 2016 at a pace similar to recent trends. Funding for infrastructure is expected to increase moderately with improving State finances and the passing in 2015 of a new federal programme (FAST) which secures highway funding until 2020. We expect continued growth in US housing construction and that non-residential construction will also show gains. In Canada, we expect current good demand to continue in the Ontario market, while the Quebec market will remain subdued. Overall, we expect the market in Canada to be steady in 2016. In Asia, we expect continued good growth in the Philippines driven by residential and infrastructure demand.

As a result of good performance from our heritage businesses and contributions from acquisitions, 2015 was a year of significant profit growth for CRH. Strong cash generation resulted in our year-end debt metrics being ahead of target, and we are well on track to restoring these metrics to normalised levels during 2016. Recently there has been some uncertainty about the pace of global growth. Our focus remains on consolidating and building upon the gains made in 2015, and against this backdrop we believe 2016 will be a year of continued growth for the Group.

Albert Manifold

Chief Executive

March 2016

 

 

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

 

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Becoming the global leader

in building materials

CRH’s vision is to be the leading building materials business in the

world and in doing so to create value and deliver superior returns for

all our stakeholders.

 

Since the Group’s foundation in 1970, CRH has successfully refined and honed its strategy, in continuously evolving market environments. We have implemented this strategy by strengthening existing positions and developing new platforms for growth. While the Group continues to grow in scale, we remain resolutely focused on serving the unique needs of our customers in local and regional markets around the world. We provide a world class service with the personal touch of a local supplier. This focus on delivery for customers through strong local businesses is a key factor in enabling CRH to realise its vision of becoming the global leader in building materials.

Delivery of the Group’s strategy is centred on:

 

  Maximising performance and returns in our business

 

  Conducting our business responsibly and sustainably

 

  Expanding our balanced portfolio of diversified products and geographies

In this way, we ensure that risk and return is carefully balanced in order to deliver sustainable levels of growth for the long-term. The link between risk governance and value creation is outlined on pages 52 and 53.

We are guided by a number of strategic imperatives:

 

  Continuous Business Improvement

Make our businesses better through operational, commercial and financial excellence

 

  Disciplined and Focused Growth

Maintain financial discipline, use our strong balance sheet, cash generation capability and focused allocation of capital to achieve optimum growth

 

  Leadership Development

Attract, develop and empower the next generation of performance orientated, innovative and entrepreneurial leaders

 

  Extracting the Benefits of our Scale

Leverage Group scale to fund expansion by acquisition and to build leadership positions in local markets

Today, CRH’s businesses are key parts of the building materials supply chain in their local markets. We manufacture and supply a range of materials and products spanning the breadth of the building materials spectrum. The practical application of our strategy is in identifying such businesses, acquiring them, integrating them into our Group and making them better performing businesses that deliver sustainable and superior returns for our shareholders.

 

 

LOGO

 

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Strategy in action

 

Continuous Business Improvement  

Our relentless focus on operational and commercial performance in all of our businesses in 2015 helped deliver improved returns.

 

In financial terms this resulted in Return on Net Assets (RONA) of 7.6% in 2015. This reflects improved margins, on a continuing operations basis, in each of our six legacy divisions. When adjusted to take account of non-recurring costs (197 million) relating to the acquisition of our newly acquired LH Assets, Group RONA in 2015 was 8.8%, ahead of 2014 (7.4%).

 

 

Disciplined and

Focused Growth

 

 

Portfolio management, and in particular the recycling of capital from lower growth areas into core businesses for growth, is a cornerstone of our value creation model. In 2015, we continued to manage our portfolio carefully, recording total disposal proceeds of approximately 1 billion.

 

While net debt levels of 6.6 billion at year-end 2015 reflect the significant 8 billion acquisition spend during the year, we continued to maintain financial discipline through careful working capital management and capital expenditure controls. The Group is committed to restoring its debt metrics to normalised levels in 2016.

 

 

Leadership

Development

 

 

2015 was an active year for talent injection and promotion throughout the Group. This ensures that CRH is attracting the very best talent in the market and promoting talented individuals from within.

 

The Group also maintained its focus on leadership development with high performers selected to participate in a range of leadership development programmes.

 

Mobility opportunities continue to expand as the Group seeks to offer rewarding career and personal development experiences at different operating locations worldwide.

 

 

Extracting the

Benefits of Scale

 

 

In 2015, the newly acquired LH Assets more than doubled the Group’s cement production volumes and made CRH the second largest building materials player globally and the world No. 2 in aggregates. The transaction enabled the Group to establish new leadership positions in certain heavyside materials markets globally. For example, CRH is now the market leader in the UK, has regional leadership positions in Canada, Germany and the Philippines, and has established top three positions in Romania, Slovakia, Hungary and Serbia.

 

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Creating value and growth

CRH delivers on its strategy through the execution of a dynamic business model which is focused on value creation and growth. This has allowed CRH to deliver an industry-leading Total Shareholder Return of 16.1% since 1970. 100 invested in CRH shares in 1970, with dividends reinvested, would now be worth 83,000.

 

CRH’s business model revolves around continuously making our core businesses better and then identifying and acquiring strong businesses that complement and add value.

By maintaining a balanced portfolio, we ensure that these businesses are diversified across a number of products, geographies and end-uses, while also spanning multiple different demand cycles, thereby mitigating the impact of low demand at the bottom of any one cycle.

We work hard to improve these businesses so that they realise their full potential and help us create further value.

We constantly monitor how capital is deployed across the Group and strive to identify where capital can be recycled into areas offering optimum returns and/or superior growth.

 

We do all of this while maintaining strong financial discipline that enables efficient funding of value adding investments which generate consistent and superior returns for shareholders.

CRH operates this business model across its growing global footprint in 31 countries and at over 3,900 operating locations. Every day, our 89,000 employees in our three primary business areas – Heavyside Materials, Lightside Products and Building Materials Distribution – serve customers in the residential, non-residential and infrastructure market segments.

 

 

LOGO                         

 

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Business Model in action

 

Balanced Portfolio  

CRH creates value by maintaining a balanced portfolio. Our product mix spans the breadth of building materials demand and sectoral end-use, thereby reducing exposure to any one single demand driver. The Group also offsets cyclical economic risk by maintaining a geographically diversified portfolio across its key regions of North America and Europe, as well as the emerging regions of Asia and South America.

 

In 2015 the Group’s sector exposure was split 35% residential, 35% non-residential and 30% infrastructure. End-use was balanced equally between New Build and RMI.

 

 

LOGO

 

 

Making Businesses Better

 

 

CRH’s emphasis on making better businesses is a key component of its focus on value creation and growth. We have a proven track record in acquiring new businesses and bringing the Group’s collective knowledge and experience to bear in working with the local management teams of those businesses to deliver improvements in performance.

 

The Group supports the delivery of such improvements through targeted investment in measures that improve capacity, quality and efficiency.

 

Over time these improvements help us build better businesses that deliver stronger returns on capital invested.

 

 

 

LOGO

 

 

Proven Acquisition

Model

 

 

CRH creates value and growth by identifying and acquiring strong businesses that complement our existing portfolio of operations. Typically we specialise in acquiring small and mid-sized companies, releasing value through synergies and network optimisation. From time to time the Group also evaluates and concludes larger transactions where the strategic rationale is compelling.

 

We excel at integrating businesses and ensuring that they are appropriately positioned and resourced to succeed as part of the CRH Group.

 

 

 

LOGO

 

 

Dynamic

Capital Management

 

 

CRH constantly strives to ensure that capital is recycled from low growth areas into core parts of our business that offer the potential for stronger growth and returns.

 

With a portfolio which is diversified across many products, geographies and end-uses, we allocate capital to the areas best positioned to take advantage of developing growth cycles and new areas that offer improved value creation and growth potential.

 

 

LOGO

 

 

Financial Strength

 

 

The Group maintains a constant focus on financial discipline and strong cash generation which in turn supports our ability to fund new value creating acquisitions and returns for shareholders.

 

Our strong financial position reduces the cost of capital. In 2015, we raised over 2.5 billion at historically low interest rates for the Group; with an eight-year bond for 600 million at 1.875%, a ten-year bond for $1.25 billion at 3.875%, a 14-year bond of £400 million at 4.125% and a 30-year bond for $500 million at 5.125%.

 

 

LOGO

 

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Building a sustainable business

 

Corporate Social Responsibility and Sustainability concepts are embedded in the heart of our business and are fundamental to achieving our vision of becoming the leading building materials business in the world.  

LOGO   LOGO

 

Our Approach

 

CRH is committed to delivering a built environment that is sustainable and of value to the communities we serve. Our extensive global presence and industry leadership puts the Group in a strong position to influence transformative innovation that improves the sustainability of the built environment. Applying a strategic approach to deriving tangible long-term business value from sustainability, we collaborate with stakeholders to ensure our medium-term objectives and long-term ambitions are achieved. The Group does this while also being sensitive and responsive to our stakeholders as well as to the environment in which we operate.

 

Sustainability Performance

 

CRH has formal structures in place to identify, evaluate and manage potential risks and opportunities in sustainability areas. Group performance and effectiveness is reviewed regularly by the Board of Directors.

 

We are committed to reporting on the breadth of our sustainability performance in a comprehensive and transparent manner and to publishing performance indicators and ambitions in key identified sustainability areas.

 

 

CRH continues to be ranked among sector leaders by leading Sustainable and Responsible Investment (SRI) rating agencies and continues as a constituent member of several sustainability indices including the FTSE4Good Index, the STOXX® Global ESG Leaders Indices and the Vigeo World 120 Index. In addition, many Group locations have won high-ranking accolades for excellence in sustainability achievements.

 
 

 

LOGO   LOGO

 

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Health & Safety

 

92%

locations

accident free

Health & Safety is a strategic priority for CRH. With a global workforce of 89,000 people, the Group adopts an unwavering approach to safety at every level of the organisation, from frontline employees through to operational management and senior executives. Our global network of safety officers oversees the implementation of policy and best practice across all our operations. In 2015, particular attention was paid to integrating acquired businesses into Group safety systems.

CRH continues to invest in initiatives targeted at promoting and maintaining a strong culture of safety. Over the past five years 138 million has been invested in this area.

In 2015, 92% of active locations were accident free. The accident frequency rate has continued to decline and has reduced by an average of 16% per annum over the last decade.

CRH’s Fatality Elimination Plan, which remains a cornerstone of our safety strategy, proved very effective in eliminating employee fatalities in both 2014 and 2015. However, there were two fatalities involving contractors at Group operations during 2015. We deeply regret the loss of these lives and extend our sincere sympathies to the families of these individuals. We continue to focus on all aspects of contractor safety within the Group’s control.

 

 

 

 

Environment & Climate Change

 

23million

tonnes of alternative

raw materials

CRH believes that excellence in environmental management, together with a proactive approach to addressing the challenges and opportunities of climate change, is fundamental to making our businesses better. The Group works with stakeholders including customers and the wider building materials industry to implement programmes that promote energy and resource efficiency, achieve targeted emissions reductions, enhance biodiversity and realise environmentally driven product and process innovation.

In 2015 CRH products incorporated a significant 23 million tonnes of externally sourced alternative raw materials. Recycled asphalt pavement and shingles together now provide a fifth of asphalt

requirements in our US operations, while lower carbon warm-mix asphalt now accounts for approximately 40% of the Group’s US asphalt sales. We also provide low carbon cement for sustainable construction applications.

In 2013 CRH committed to reduce specific net CO2 emissions by 25% by 2020, relative to 1990, from the portfolio of cement plants owned at that time. To date 79% of the commitment has been achieved. The Group has also endorsed the World Business Council for Sustainable Development’s Low Carbon Technology Partnership Initiative (LCTPi), a statement of ambition, which seeks a reduction in Global Cement CO2 emissions in the range of 20 to 25% by 2030.

 

 

 

 

People & Community

 

800+

stakeholder

engagement

events held

CRH believes that continued sustainable business success is built on maintaining excellent relationships with all stakeholders. Our philosophy is to develop and nurture all employees, recognising that people are critical to sustaining competitive advantage and to achieving focused growth over the long-term.

In 2015 we continued to place an emphasis on training and skills learning, while strengthening our focus on developing and recruiting talented leaders to guide our evolving and growing Group. CRH is committed to fostering respect in the workplace and to developing an inclusive workforce based on merit and ability. In 2015, 18% of CRH’s employees were female. The building materials industry traditionally attracts more male than female employees and CRH has a number of programmes in place aimed at increasing gender diversity. CRH has exceeded its target of 25% for Board gender diversity by the end of 2015 and currently has four female directors.

We also recognise a wider responsibility beyond our core business activities in the communities in which Group companies operate. In 2015 Group companies hosted over 800 stakeholder events in keeping with our policy to engage in an open, honest and proactive way. CRH assists local community initiatives, in addition to supporting programmes in education, environmental protection and job creation.

The Group endorses human and labour rights and supports the principles set out in the articles of the United Nations’ Universal Declaration of Human Rights and the International Labour Organisation’s Core Labour Principles. CRH operates a comprehensive Code of Business Conduct and has additionally implemented an Ethical Procurement Code and Supplier Code of Conduct, with the aim of extending the Group’s positive influence along the value chain.

 

 

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Creating value through Risk Governance

 

The aim of Enterprise Risk Management is to deliver increased shareholder value for CRH. Effective governance, which is considered fundamental in CRH, is critical to success, supporting management in executing strategy, managing costs, responding to risks, attracting investment, achieving regulatory compliance and in promoting effective decision making.

 

Managing risk is of vital importance and CRH has a formal Enterprise Risk Management (“ERM”) Framework as the basis for assessing and managing risks associated with business and strategic corporate decisions. From a CRH perspective, ERM is a forward-looking, strategy-centric, risk-based approach to managing the risks inherent in decision making. It recognises the linkage between business objectives and strategies, and their associated risks and opportunities, and hence integrates strategic decision making and risk taking in order to preserve and/or enhance value and reputation.

While the Board of CRH is ultimately responsible for risk management, it has delegated some of its responsibilities to the Audit Committee. The Audit Committee in turn monitors the activities of various functions including Group Regulatory, Compliance and Ethics, Group IT Governance, Group Finance and Group Risk. Group Internal Audit is charged with independently assessing and reporting on the risk management initiatives implemented by these functions. There is regular reporting to the Board and the Audit Committee on key strategic, operational, compliance, financial and other risks and uncertainties.

With our balanced portfolio, the decentralised and geographically dispersed structure of the Group provides some natural mitigation for some of the significant risks and uncertainties faced, such as industry cyclicality, political and economic uncertainty and damage to corporate reputation.

 

ERM Framework

The ERM Framework (“the Framework”) encompasses risks across the various strands of CRH’s strategy – driving performance, executing organic and acquisitive growth, protecting information assets, monitoring compliance with all laws and regulations (including an unwavering commitment to health & safety), sustainability, leadership development and talent management and finance.

 

In formalising CRH’s approach to risk management through ERM, a key requirement has been to ensure that the Framework continues to deliver value for management by providing visibility on strategic priorities and the linkages to the associated risks and opportunities. The key risks identified are reported periodically through the Framework to the Audit Committee and the Board with the risks being subject to common, standardised and repeatable processes of assessment, evaluation, management and monitoring.

In line with international best practice, CRH follows a “three lines of defence” model for risk management and internal control.

 

 

LOGO

 

 

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Roles and Responsibilities

The Board is ultimately responsible for risk management within CRH. The Board has delegated responsibility for the monitoring of the effectiveness of the Group’s risk management and internal control systems to the Audit Committee. Such systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives.

The Board and Audit Committee receive, on a regular basis, reports from management on the key risks to the business and the steps being taken to manage/mitigate such risks. They also consider whether the significant risks faced by the Group are being identified, evaluated and appropriately managed. The Audit Committee reviews the list of principal risks and uncertainties disclosed on pages 54 to 63.

Risk Management

Lines of Defence

First Line of Defence

Operating company/business leaders are responsible for ensuring that a risk control environment is established as part of their day-to-day operations. Proactive risk engagement and management is critical to quick identification and response.

Second Line of Defence

CRH has various Group oversight functions such as Group Sustainability, Group Regulatory, Compliance and Ethics, Group IT Governance, Group Finance and Group Risk. These functions are responsible for setting policies and ensuring that they are implemented throughout the Group.

Third Line of Defence

Group Internal Audit provides independent assurance. It reports on the effectiveness of the risk management and internal control frameworks to the Audit Committee on a regular basis.

Our Risk Assessment Process

CRH’s risk management process operates to ensure a comprehensive evaluation is performed and is the subject of continuous improvement. The risk management cycle operates as follows:

 

LOGO

Identify and Assess

Management identify risks as part of their day-to-day activities and are required to conduct a robust assessment of these risks. Robust assessment ensures the following factors are taken into consideration:

 

  The nature and extent of risks facing the Group, including emerging risks

 

  Risk appetite and risk tolerance

 

  The likelihood of the risk materialising

 

  The impact and velocity should the risk materialise

 

  The mitigation strategies implemented in order to manage the risks

 

  The monitoring processes in place to determine and respond to the effectiveness of mitigation strategies.

Management are required to assess all risks which could have an impact on the current or future operation of their business and document these risks in a standardised template. Risks are assessed in terms of their financial and operational impact should they occur and their likelihood of occurrence, using a defined risk scoring methodology. Risk velocity, the speed at which a risk impacts the business, is an important constituent of this evaluation.

Manage and Monitor

In line with our ongoing focus on continuous process improvement, risks are assessed by management on an inherent/gross basis (prior to mitigation strategies) and a residual/ net basis (post mitigation strategies). Where the gross risk score determines the risk to be material, appropriate mitigation strategies are implemented to bring the residual risk to a level which is within Risk Appetite and Tolerance levels approved by the CRH Board.

The Risk Appetite and Tolerance Framework is a critical component of CRH’s risk governance system through defining the key risk parameters within which strategic decision making takes place. The Board approves the Risk Appetite and Tolerance Framework on an annual basis in line with best corporate governance practice.

Report

The Group-level Risk Register, which is compiled by the Group Risk function, identifies those risks which may impede the realisation of core strategic objectives. The risks listed on pages 54 to 63 constitute this register, which forms the basis of Board and Audit Committee communications and discussions.

 

 

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Risk Factors

 

 

This section describes the principal risks and uncertainties that could affect the Group’s business. If any of these risks occur, the Group’s business, financial condition, results of operations and prospects could be materially adversely affected. The risks

 

and uncertainties listed below should be considered in connection with any forward-looking statements in this Form 20-F and the cautionary statements contained in “Introduction and Performance Measures – Forward-Looking Statements”.

The Risk Factors have been grouped to focus on key strategic, operational and compliance risks and key financial and reporting risks.

 

Key Strategic, Operational and Compliance Risk Factors

 

 

Industry cyclicality: strategic

 

 

 

  Risk Factor

 

 

Discussion

 

Description:

 

The level of construction activity in local and national markets is inherently cyclical being influenced by a wide variety of factors including global and national economic circumstances, ongoing austerity programmes in the developed world, governments’ ability to fund infrastructure projects, consumer sentiment and weather conditions. Financial performance may also be negatively impacted by unfavourable swings in fuel and other commodity/raw material prices.

 

The Group’s operating and financial performance is influenced by general economic conditions and the state of the residential, industrial and commercial and infrastructure construction markets in the countries in which it operates, particularly in Europe and North America.

 

In general, economic uncertainty exacerbates negative trends in construction activity leading to postponement in orders. Construction markets are inherently cyclical and are affected by many factors that are beyond the Group’s control, including:

Impact:

 

Failure of the Group to respond on a timely basis and/or adequately to unfavourable events beyond its control may adversely affect financial performance.

 

  the price of fuel and principal energy-related raw materials such as bitumen and steel (which accounted for approximately 8% of annual Group sales revenues in 2015);

 

  the performance of the national economies in the 31 countries in which the Group operates;

 

  monetary policies in the countries in which the Group operates — for example, an increase in interest rates typically reduces the volume of mortgage borrowings thus impacting residential construction activity;

 

  the allocation of government funding for public infrastructure programmes, such as the development of highways in the United States under the Fixing Americas Surface Transportation Act (FAST Act); and

 

  the level of demand for construction materials and services, with sustained adverse weather conditions leading to potential disruptions or curtailments in outdoor construction activity.

 

While economic conditions appear to be improving in the United States, a prolongation of or further deterioration in economic performance in Europe may result in further general reductions in construction activity in that area. Against this backdrop, the adequacy and timeliness of the actions taken by the Group’s management team are of critical importance in maintaining financial performance at appropriate levels.

 

Each of the above factors could have a material adverse effect on the Group’s operating results and the market price of CRH plc’s Ordinary Shares.

 

 

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Political and economic uncertainty: strategic

 

 

 

  Risk Factor

 

 

Discussion

 

Description:

 

As an international business, the Group operates in many countries with differing, and in some cases, potentially fast-changing economic, social and political conditions. These conditions could include political unrest, currency disintegration, strikes, civil disturbance and other forms of instability including natural disasters, epidemics, widespread transmission of diseases and terrorist attacks. These factors are of particular relevance in developing/emerging markets.

 

Impact:

 

Changes in these conditions, or in the governmental or regulatory requirements in any of the countries in which the Group operates, may adversely affect the Group’s business, results of operations, financial condition or prospects thus leading to possible impairment of financial performance and/or restrictions on future growth opportunities.

 

The adverse developments in eurozone economic performance in recent years, together with ongoing austerity programmes in various countries in Europe and the growth of international terrorism, have contributed to heightened global uncertainty. While various actions have been taken by central banks and other institutions to stabilise the economic situation, the success of these actions cannot be guaranteed.

 

The Group currently operates mainly in Western Europe and North America as well as, to a lesser degree, in developing countries/emerging markets in Eastern Europe, the Philippines, Brazil, China and India. The economies of these countries are at varying stages of socioeconomic and macroeconomic development which could give rise to a number of risks, uncertainties and challenges and could include the following:

 

  changes in political, social or economic conditions;

 

  trade protection measures and import or export licensing requirements;

 

  potentially negative consequences from changes in tax laws;

 

  labour practices and differing labour regulations;

 

  procurement which contravenes ethical considerations;

 

  unexpected changes in regulatory requirements;

 

  state-imposed restrictions on repatriation of funds; and

 

  the outbreak of armed conflict.

 

With regard to Ukraine, where the Group has significant business interests, the outlook remains uncertain and the implications for construction activity in 2016 and beyond are unclear.

 

 

 

 

 

Commodity products and substitution: strategic

 

 

 

  Risk Factor

 

 

Discussion

 

Description:

 

The Group faces strong volume and price competition across its product lines. In addition, existing products may be replaced by substitute products which the Group does not produce or distribute.

 

Impact:

 

Against this backdrop, if the Group fails to generate competitive advantage through differentiation and innovation across the value chain (for example, through superior product quality, engendering customer loyalty or excellence in logistics), market share, and thus financial performance, may decline.

 

The competitive environment in which the Group operates can be significantly impacted by general economic conditions in combination with local factors including the number of competitors, the degree of utilisation of production capacity and the specifics of product demand. Across the multitude of largely local markets in which the Group conducts business, downward pricing pressure is experienced from time to time, and the Group may not always be in a position to recover increased operating expenses (caused by factors such as increased fuel and raw material prices) through higher sale prices.

 

A number of the products sold by the Group (both those manufactured internally and those distributed) compete with other building products that do not feature in the existing product range. Any significant shift in demand preference from the Group’s existing products to substitute products, which the Group does not produce or distribute, could adversely impact market share and results of operations.

 

 

 

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Key Strategic, Operational and Compliance Risk Factors | continued

 

 

Acquisition activity: strategic

 

 

 

  Risk Factor

 

 

Discussion

 

Description:

 

Growth through acquisition and active management of the Group’s business portfolio are key elements of the Group’s strategy with the Group’s balanced portfolio growing year on year through bolt-on activity occasionally supplemented by larger and/or step-change transactions. In 2015, the Group completed the largest transaction in its history, namely the acquisition of the LH Assets across 11 countries. In addition, the Group may be liable for the past acts, omissions or liabilities of companies or businesses it has acquired.

 

Impact:

 

The Group may not be able to continue to grow as contemplated in its business plans if it is unable to identify attractive targets (including potential new platforms for growth), execute full and proper due diligence, raise funds on acceptable terms, complete such acquisition transactions, integrate the operations of the acquired businesses and realise anticipated levels of profitability and cash flows. If the Group is held liable for the past acts, omissions or liabilities of companies or businesses it has acquired, those liabilities may either be unforeseen or greater than anticipated at the time of the relevant acquisition.

 

The Group’s acquisition strategy focuses on value-enhancing mid-sized acquisitions supplemented from time to time by larger strategic acquisitions into new markets or new building products.

 

The realisation of the Group’s acquisition strategy is dependent on the ability to identify and acquire suitable assets at appropriate prices thus satisfying the stringent cash flow and return on investment criteria underpinning such activities. The Group may not be able to identify such companies, and, even if identified, may not be able to acquire them because of a variety of factors including the outcome of due diligence processes, the ability to raise funds (as required) on acceptable terms, the need for competition authority approval in certain instances and competition for transactions from peers and other entities exploring acquisition opportunities in the building materials sector. In addition, situations may arise where the Group may be liable for the past acts or omissions or liabilities of companies acquired; for example, the potential environmental liabilities addressed under the “Sustainability” Risk Factor below. The Group’s ability to realise the expected benefits from acquisition activity depends, in large part, on its ability to integrate newly-acquired businesses in a timely and effective manner. Even if the Group is able to acquire suitable companies, it still may not be able to incorporate them successfully into the relevant legacy businesses and, accordingly, may be deprived of the expected benefits thus leading to potential dissipation and diversion of management resources and constraints on financial performance.

 

 

 

 

 

Joint ventures and associates: strategic

 

 

 

  Risk Factor

 

 

Discussion

 

Description:

 

The Group does not have a controlling interest in certain of the businesses (i.e. joint ventures and associates) in which it has invested and may invest. The absence of a controlling interest gives rise to increased governance complexity and a need for proactive relationship management, which may restrict the Group’s ability to generate adequate returns and to develop and grow these businesses.

 

Impact:

 

These limitations could impair the Group’s ability to manage joint ventures and associates effectively and/or realise the strategic goals for these businesses. In addition, improper management or ineffective policies, procedures or controls for non-controlled entities could adversely affect the business, results of operations or financial condition of the relevant investment.

 

Due to the absence of full control of joint ventures and associates, important decisions such as the approval of business plans and the timing and amount of cash distributions and capital expenditures, for example, may require the consent of partners or may be approved without the Group’s consent.

 

These limitations could impair the Group’s ability to manage joint ventures and associates effectively and/or realise the strategic goals for these businesses. In addition, improper management or ineffective policies, procedures or controls for non-controlled entities could adversely affect the business, results of operations or financial condition of the relevant investment and, by corollary, the Group.

 

 

 

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Human resources: strategic

 

 

 

  Risk Factor

 

 

Discussion

 

Description:

 

Existing processes to recruit, develop and retain talented individuals and promote their mobility may be inadequate thus giving rise to employee/management attrition, difficulties in succession planning and inadequate “bench strength”, potentially impeding the continued realisation of the core strategy of performance and growth. In addition, the Group is exposed to various risks associated with collective representation of employees in certain jurisdictions, these risks could include strikes and increased wage demands with possible reputational consequences.

 

Impact:

 

In the longer term, failure to manage talent and plan for leadership and succession could impede the realisation of core strategic objectives around performance and growth.

 

The identification and subsequent assessment, management, development and deployment of talented individuals is of major importance in continuing to deliver on the Group’s core strategy of performance and growth and in ensuring that succession planning objectives for key executive roles throughout its international operations are satisfied. Programmes designed to focus on performance management skills and leadership development may not achieve their desired objectives.

 

The maintenance of positive employee and trade/labour union relations is key to the successful operation of the Group. Some of the Group’s employees are represented by trade/labour unions under various collective agreements. For unionised employees, the Group may not be able to renegotiate satisfactorily the relevant collective agreements upon expiration and may face tougher negotiations and higher wage demands than would be the case for non-unionised employees. In addition, existing labour agreements may not prevent a strike or work stoppage with any such activity creating reputational risk and potentially having a material adverse effect on the results of operations and financial condition of the Group.

 

 

 

 

Corporate communications: strategic

 

 

 

  Risk Factor

 

 

Discussion

 

Description:

 

As a publicly-listed company, the Group undertakes regular communications with its stakeholders. Given that these communications may contain forward-looking statements, which by their nature involve uncertainty, actual results and developments may differ from those communicated due to a variety of external and internal factors giving rise to reputational risk.

 

Impact:

 

Failure to deliver on performance indications and non-financial commitments communicated to the Group’s variety of stakeholders could result in a reduction in share price, reduced earnings and reputational damage.

  The Group places great emphasis on timely and relevant corporate communications with overall responsibility for these matters being vested in senior management at the Group Head Office (largely the Chief Executive, the Finance Director, the Group Transformation Director, the Head of Investor Relations and the Group Director, Corporate Affairs) supported by engagement with highly experienced external advisors, where appropriate. The strategic, operational and financial performance of the Group and of its constituent entities, is reported to the Board on a monthly basis with all results announcements and other externally-issued documentation (e.g. the Annual Report on Form 20-F) being discussed by the Board/Audit Committee prior to release.

 

 

 

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Key Strategic, Operational and Compliance Risk Factors | continued

 

 

Sustainability: operational

 

  Risk Factor

 

 

Discussion

 

Description:

 

The Group is subject to stringent and evolving laws, regulations, standards and best practices in the area of sustainability (comprising corporate governance, environmental management and climate change (specifically capping of emissions), health and safety management and social performance).

 

Impact:

 

Non-adherence to such laws, regulations, standards and best practices may give rise to increased ongoing remediation and/or other compliance costs and may adversely affect the Group’s business, results of operations, financial condition and/or prospects.

 

The Group is subject to a broad and increasingly stringent range of existing and evolving laws, regulations, standards and best practices with respect to governance, the environment, health and safety and social performance in each of the jurisdictions in which it operates giving rise to significant compliance costs, potential legal liability exposure and potential limitations on the development of its operations. These laws, regulations, standards and best practices relate to, amongst other things, climate change, noise, emissions to air, water and soil, the use and handling of hazardous materials and waste disposal practices. Given the above, the risk of increased environmental and other compliance costs and unplanned capital expenditure is inherent in conducting business in the building materials sector and the impact of future developments in these respects on the Group’s activities, products, operations, profitability and cash flow cannot be estimated; there can therefore be no assurance that material liabilities and costs will not be incurred in the future or that material limitations on the development of its operations will not arise.

 

Environmental and health and safety and other laws, regulations, standards and best practices may expose the Group to the risk of substantial costs and liabilities, including liabilities associated with assets that have been sold or acquired and activities that have been discontinued. In addition, many of the Group’s manufacturing sites have a history of industrial use and, while strict environmental operating standards are applied and extensive environmental due diligence is undertaken in acquisition activity, some soil and groundwater contamination has occurred in the past at a limited number of sites. Although the associated remediation costs incurred to date have not been material, they may become more significant in the future. Despite the Group’s policy and efforts to comply with all applicable environmental and health and safety laws, it may face increased remediation liabilities and legal proceedings concerning environmental and health and safety matters in the future.

 

Based on information currently available, the Group has budgeted capital and revenue expenditures for environmental improvement projects and has established reserves for known environmental remediation liabilities that are probable and reasonably capable of estimation. However, the Group cannot predict environmental and health and safety matters with certainty, and budgeted amounts and established reserves may not be adequate for all purposes. In addition, the development or discovery of new facts, events, circumstances or conditions, including future decisions to close plants, which may trigger remediation liabilities, and other developments such as changes in laws or increasingly strict enforcement by governmental authorities, could result in increased costs and liabilities or prevent or restrict some of the operations of the Group, which in turn could have a material adverse effect on the reputation, business, results of operations and overall financial condition of the Group.

 

For additional information see also “Introduction – The Environment and Government Regulations”.

 

 

 

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Cyber and information technology: operational

 

  Risk Factor

 

 

Discussion

 

Description:

 

As a result of the proliferation of information technology in the world today, the Group is dependent on the employment of advanced information systems and is exposed to risks of failure in the operation of these systems. Further, the Group is exposed to security threats to its digital infrastructure through cyber-crime. Such attacks are by their nature technologically sophisticated and may be difficult to detect and defend in a timely fashion.

 

Impact:

 

Should a threat materialise, it might lead to interference with production processes, manipulation of financial data, the theft of private data or misrepresentation of information via digital media. In addition to potential irretrievability or corruption of critical data, the Group could suffer reputational losses, regulatory penalties and incur significant financial costs in remediation.

 

  Security and cyber threats are becoming increasingly sophisticated and are continually evolving. Such attacks may result in interference with production software, corruption or theft of sensitive data, manipulation of financial data accessible through digital infrastructure, or reputational losses as a result of misrepresentation via social media and other websites. While the Group has made a significant investment in upgrading its digital infrastructure and governance processes with the overall objective of further enhancing system security, there can be no assurance that future attacks will not be successful due to their increasing sophistication and the difficulties in detecting and defending against them in a timely fashion.

 

 

 

 

Laws and regulations: compliance

 

  Risk Factor

 

 

Discussion

 

Description:

 

The Group is subject to many local and international laws and regulations, including those relating to competition law, corruption and fraud, across many jurisdictions of operation and is therefore exposed to changes in those laws and regulations and to the outcome of any investigations conducted by governmental, international or other regulatory authorities.

 

Impact:

 

Potential breaches of local and international laws and regulations in the areas of competition law, corruption and fraud, among others, could result in the imposition of significant fines and/or sanctions for non-compliance, and may inflict reputational damage.

 

The Group is subject to various statutes, regulations and laws applicable to businesses generally in the countries and markets in which it operates. These include statutes, regulations and laws affecting land usage, zoning, labour and employment practices, competition, financial reporting, taxation, anti-bribery, anti-corruption, governance and other matters. The Group mandates that its employees comply with its Code of Business Conduct which stipulates best practices in relation to regulatory matters. The Group cannot guarantee that its employees will at all times successfully comply with all demands of regulatory agencies in a manner which will not materially adversely affect its business, results of operations, financial condition or prospects.

 

While the Group has put in place significant internal controls and compliance policies and procedures (including with respect to the Foreign Corrupt Practices Act in the United States and the Bribery Act in the United Kingdom), there can be no assurance that such established policies and procedures will afford adequate protection against fraudulent and/or corrupt activity and any such activity could have a material adverse effect on the Group’s business, results of operations, financial condition or prospects.

 

 

 

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Key Financial and Reporting Risk Factors

 

 

 

Financial instruments

 

(interest rate and leverage, foreign currency, counterparty, credit ratings and liquidity)

 

 

  Risk Factor

 

 

 

Discussion

 

Description:

 

The Group uses financial instruments throughout its businesses giving rise to interest rate and leverage, foreign currency, counterparty, credit rating and liquidity risks. A significant portion of the cash generated by the Group from operational activity is currently dedicated to the payment of principal and interest on indebtedness. In addition, the Group has entered into certain financing agreements containing restrictive covenants requiring it to maintain a certain minimum interest coverage ratio and a certain minimum net worth.

 

Impact:

 

A downgrade of the Group’s credit ratings may give rise to increases in funding costs in respect of future debt and may impair the Group’s ability to raise funds on acceptable terms. In addition, insolvency of the financial institutions with which the Group conducts business (or a downgrade in their credit ratings) may lead to losses in derivative assets and cash and cash equivalents balances or render it more difficult either to utilise existing debt capacity or otherwise obtain financing for operations.

 

Interest rate and leverage risks: The Group’s exposures to changes in interest rates result from investing and borrowing activities undertaken to manage liquidity and capital requirements and stem predominantly from long-term debt obligations. Borrowing costs are managed through employing a mix of fixed and floating rate debt and interest rate swaps, where appropriate. As at 31 December 2015, the Group had outstanding net indebtedness of approximately 6.6 billion (2014: 2.5 billion). On foot of acquisition activity in 2015, the Group has significantly greater outstanding indebtedness, which may impair its operating and financial flexibility over the longer term and could adversely affect its business, results of operations and financial position. This high level of indebtedness could give rise to the Group dedicating a substantial portion of its cash flow to debt service thereby reducing the funds available in the longer term for working capital, capital expenditure, acquisitions, distributions to shareholders and other general corporate purposes and limiting its ability to borrow additional funds and to respond to competitive pressures. In addition, the increased level of indebtedness may give rise to a general increase in interest rates borne and there can be no assurance that the Group will not be adversely impacted by increases in borrowing costs in the future.

 

For the year ended 31 December 2015, PBITDA/net interest (all as defined in the relevant agreements as discussed in note 23 to the Consolidated Financial Statements), which is the Group’s principal financial covenant, was 8.5 times (2014: 7.0 times). The prescribed minimum PBITDA/net interest cover ratio under such agreements is 4.5 times and the prescribed minimum net worth is 5.6 billion.

 

Foreign currency risks: If the euro, which is the Group’s reporting currency, weakens relative to the basket of foreign currencies in which net debt is denominated (principally the US Dollar, Canadian Dollar, Swiss Franc, Philippine Peso and Pound Sterling), the net debt balance would increase; the converse would apply if the euro was to strengthen. The Group’s established policy to spread its net worth across the currencies of its operations, with the objective of limiting its exposure to individual currencies and thus promoting consistency with geographical balance, may not be successful.

 

Counterparty risks: Insolvency of the financial institutions with which the Group conducts business, or a downgrade in their credit ratings, may lead to losses in derivative assets and cash and cash equivalents balances or render it more difficult either to utilise existing debt capacity or otherwise obtain financing for operations. The maximum exposure arising in the event of default on the part of the counterparty (including insolvency) is the carrying amount of the relevant financial instrument.

 

The Group holds significant cash balances on deposit with a variety of highly-rated financial institutions (typically invested on a short-term basis) which, together with cash and cash equivalents at 31 December 2015, totalled 2.5 billion (2014: 3.3 billion). In addition to the above, the Group enters into derivative transactions with a variety of highly-rated financial institutions giving rise to derivative assets and derivative liabilities; the relevant balances as at 31 December 2015 were 109 million and 24 million respectively (2014: 102 million and 23 million respectively). The counterparty risks inherent in these exposures may give rise to losses in the event that the relevant financial institutions suffer a ratings downgrade or become insolvent. In addition, certain of the Group’s activities (e.g. highway paving in the United States) give rise to significant amounts receivable from counterparties at the balance sheet date; at year-end 2015, this balance was 0.7 billion (2014: 0.5 billion). In the current business environment, there is increased exposure to counterparty default, particularly as regards bad debts.

 

 

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Financial instruments | continued

   

(interest rate and leverage, foreign currency, counterparty, credit ratings and liquidity)

 

 

  Risk Factor

 

 

 

Discussion

 

   

Credit rating risks: A downgrade of the Group’s credit ratings may give rise to increases in funding costs in respect of future debt and may, among other concerns, impair its ability to access debt markets or otherwise raise funds or enter into letters of credit, for example, on acceptable terms. Such a downgrade may result from factors specific to the Group, including increased indebtedness stemming from acquisition activity, or from other factors such as general economic or sector-specific weakness or sovereign credit rating ceilings.

 

Liquidity risks: The principal liquidity risks stem from the maturation of debt obligations and derivative transactions. The Group aims to achieve flexibility in funding sources through a variety of means including (i) maintaining cash and cash equivalents with a number of highly-rated counterparties; (ii) limiting the maturity of such balances; (iii) meeting the bulk of debt requirements through committed bank lines or other term financing; and (iv) having surplus committed lines of credit. However, market or economic conditions may make it difficult at times to realise this objective.

 

For additional information on the above risks see note 21 to the Consolidated Financial Statements.

 

        

 

Defined benefit pension schemes and related obligations

 

 

  Risk Factor

 

 

 

Discussion

 

 

Description:

 

The Group operates a number of defined benefit pension schemes and related obligations (for example, termination indemnities and jubilee/long-term service benefits, which are accounted for as defined benefit) in certain of its operating jurisdictions. The assets and liabilities of defined benefit pension schemes may exhibit significant period-on-period volatility attributable primarily to asset values, changes in bond yields/discount rates and anticipated longevity.

 

Impact:

 

In addition to the contributions required for the ongoing service of participating employees, significant cash contributions may be required to remediate deficits applicable to past service. Further, fluctuations in the accounting surplus/deficit may adversely impact credit metrics thus harming the Group’s ability to raise funds.

 

 

The assumptions used in the recognition of pension assets, liabilities, income and expenses (including discount rates, rate of increase in future compensation levels, mortality rates and healthcare cost trend rates) are updated based on market and economic conditions at the respective balance sheet date and for any relevant changes to the terms and conditions of the pension and post-retirement plans. These assumptions can be affected by (i) for the discount rate, changes in the rates of return on high-quality fixed income investments; (ii) for future compensation levels, future labour market conditions and anticipated inflation; (iii) for mortality rates, changes in the relevant actuarial funding valuations or changes in best practice; and (iv) for healthcare cost trend rates, the rate of medical cost inflation in the relevant regions. The weighted average actuarial assumptions used and sensitivity analysis in relation to the significant assumptions employed in the determination of pension and other post-retirement liabilities are disclosed on pages 214 to 223. A prolonged period of financial market instability or other adverse changes in the assumption mentioned above would have an adverse impact on the valuations of pension scheme assets.

 

In addition, a number of the defined benefit pension schemes in operation throughout the Group have reported material funding deficits thus necessitating remediation either in accordance with legislative requirements or as agreed with the relevant regulators. These obligations are reflected in the contracted payments disclosure on page 69. The extent of such contributions may be exacerbated over time as a result of a prolonged period of instability in worldwide financial markets or other adverse changes in the assumption mentioned above.

 

     

 

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Key Financial and Reporting Risk Factors | continued

 

 

Adequacy of insurance arrangements and related counterparty exposures

 

 

  Risk Factor

 

 

 

Discussion

 

 

Description:

 

The building materials sector is subject to a wide range of operating risks and hazards, not all of which can be covered, adequately or at all, by insurance; these risks and hazards include climatic conditions such as floods and hurricanes/cyclones, seismic activity, technical failures, interruptions to power supplies, industrial accidents and disputes, environmental hazards, fire and crime. In its worldwide insurance programme, the Group provides coverage for its operations at a level believed to be commensurate with the associated risks.

 

Impact:

 

In the event of failure of one or more of the Group’s counterparties, the Group could be impacted by losses where recovery from such counterparties is not possible. In addition, losses may materialise in respect of uninsured events or may exceed insured amounts.

 

 

Insurance protection is maintained with leading, highly-rated international insurers with appropriate risk retention by wholly-owned insurance companies (captive insurers) and by insured entities in the context of the deductibles/excesses borne. The coverage includes property damage and business interruption, public and products liability/general liability, employer’s liability/workmens’ compensation, environmental impairment liability, automobile liability and directors’ and officers’ liability. Adequate coverage at reasonable rates is not always commercially available to cover all potential risks and no assurance can be given that the insurance arrangements in place would be sufficient to cover all losses or liabilities to which the Group might be exposed. The occurrence of a significant adverse event not covered, or only partially covered, by insurance could have a material adverse impact on the business, results of operations, financial condition or prospects of the Group.

 

As at 31 December 2015, the total insurance provision, which is subject to periodic actuarial valuation and is discounted, amounted to 244 million (2014: 208 million); a substantial proportion of this figure pertained to claims which are classified as “incurred but not reported”.

 

 

 

Foreign currency translation

 

 

  Risk Factor

 

 

 

Discussion

 

 

Description:

 

The principal foreign exchange risks to which the Consolidated Financial Statements are exposed pertain to adverse movements in reported results when translated into euro (which is the Group’s reporting currency) together with declines in the euro value of net investments which are denominated in a wide basket of currencies other than the euro.

 

Impact:

 

Adverse changes in the exchange rates used to translate these and other foreign currencies into euro have impacted and will continue to impact retained earnings. The annual impact is reported in the Consolidated Statement of Comprehensive Income.

 

 

 

A significant proportion of the Group’s revenues, expenses, assets and liabilities are denominated in currencies other than the euro, principally US Dollars, Canadian Dollars, Swiss Francs, Polish Zlotys, Philippine Pesos and Pounds Sterling. From year to year, adverse changes in the exchange rates used to translate these and other foreign currencies into euro have impacted and will continue to impact consolidated results and net worth. For additional information on the impact of foreign exchange movements on the Consolidated Financial Statements for the Group for the year ended 31 December 2015, see the Business Performance Review section commencing on page 65 and note 21 to the Consolidated Financial Statements.

 

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Goodwill impairment

 

 

  Risk Factor

 

 

 

Discussion

 

 

Description:

 

Significant under-performance in any of the Group’s major cash-generating units or the divestment of businesses in the future may give rise to a material write-down of goodwill.

 

Impact:

 

A write-down of goodwill could have a substantial impact on the Group’s income and equity.

 

 

An acquisition generates goodwill to the extent that the price paid exceeds the fair value of the net assets acquired. Under IFRS, goodwill and indefinite-lived intangible assets are not amortised but are subject to annual impairment testing. Other intangible assets deemed separable from goodwill arising on acquisitions are amortised. A detailed discussion of the impairment testing process, the key assumptions used, the results of that testing and the related sensitivity analysis is contained in note 14 to the Consolidated Financial Statements on pages 189 to 192.

 

Whilst a goodwill impairment charge does not impact cash flow, a full write-down at 31 December 2015 would have resulted in a charge to income and a reduction in equity of 7.4 billion (2014: 4.0 billion).

 

 

 

Inspections by the Public Company Accounting Oversight Board (“PCAOB”)

 

 

  Risk Factor

 

 

 

Discussion

 

Description:

 

Our auditors, like other independent registered public accounting firms operating in Ireland and a number of other European countries, are not currently permitted to be subject to inspection by the PCAOB.

 

Impact:

 

Investors who rely on the audit report prepared by the Group’s auditors are deprived of the benefits of PCAOB inspections to assess audit work and quality control procedures.

 

As a public company, our auditors are required by United States law to undergo regular PCAOB inspections to assess their compliance with United States law and professional standards in connection with their audits of financial statements filed with the SEC. Under Irish law, the PCAOB is currently unable to inspect and evaluate the audit work and quality control procedures of auditors in Ireland. Accordingly investors who rely on our auditors’ audit reports are deprived of the benefits of PCAOB inspections of auditors.

 

 

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LOGO

 

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LOGO

 

    

              

 

Business Performance Review

  

       

Current Year Review

     66                                                                                                             

- Finance Director’s Introduction

     66      

- Contractual Obligations

     69               

- Operating Segment Reviews

     70      

Prior Year Review

 

    

 

80

 

  

 

  
          

 

 

 

 

 

 

 

 

 

 

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Finance Director’s Introduction(i)

 

LOGO

As noted in the Chief Executive’s review on page 44, 2015 was a year of growth for CRH, with continued positive momentum in the Americas and more mixed market conditions in Europe. The Group also benefited from more normal weather patterns in the Americas at the start of the year compared with 2014 and the favourable conditions through to the end of the year in all markets. The post-acquisition contribution from the LH Assets was ahead of expectations. The Group continued to focus on cash generation with operating cash flow for the year amounting to 2.2 billion (2014: 1.2 billion) and year-end net debt finished at 6.6 billion. This was achieved with significant acquisition spend of almost 8 billion being partly offset by the strong cash inflows from operations, net proceeds from disposals of 889 million and a net 1.6 billion from shares issues, relating to the 74 million shares placed in February 2015.

Key Components of 2015 Performance

Reported sales of 23.6 billion for the period were 25% ahead of 2014. On a continuing operations basis, excluding the impact of divestments and the LH Assets and with the benefit of positive currency impacts, sales were 17% higher than 2014. An increase of 30% in the Americas reflected the strength of the US Dollar versus the euro and the continued positive momentum in construction markets, while sales from continuing operations in Europe were 3% ahead of last year. Profits and margins from continuing operations increased in all six segments with good operating leverage also delivered. EBITDA (as defined)*

from continuing operations in the Americas was 51% ahead of 2014, with our continuing European operations delivering EBITDA (as defined)* growth of 4%. The LH Assets delivered profits ahead of expectations in the post-acquisition period, with reported EBITDA (as defined)* of 171 million stated after charging transaction/one-off costs of 197 million. Including this contribution, and the impact of divestments, EBITDA (as defined)* for the year amounted to 2,219 million, a 35% increase on 2014.

During 2015, most major currencies strengthened in value compared with the euro, the US Dollar strengthened 20% from an average of 1.33 versus the euro in 2014 to an average of 1.11 in 2015, while the Swiss Franc strengthened from an average of 1.21 in 2014 to 1.07 in 2015. These movements, partly offset by the weakening of certain other currencies, particularly the Ukrainian Hryvnia, resulted in a favourable foreign currency translation impact on our results; this is the principal factor behind the exchange effects shown in the table on page 67. The average and year-end 2015 exchange rates of the major currencies impacting on the Group are set out on page 171.

We continued to advance the significant cost-reduction initiatives which have been progressively implemented since 2007 and which by year-end 2015 had generated cumulative annualised savings of over 2.5 billion. Total restructuring costs associated with these initiatives (which generated gross savings of 110 million in 2015) amounted to 29 million in 2015 (2014: 51 million).

 

 

(i) See cautionary statement regarding forward-looking statements on page 12.

 

As disclosed in note 20 to the Consolidated Financial Statements, net debt comprises interest-bearing loans and borrowings, cash and cash equivalents, and derivative financial instruments.

 

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

 

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  Key Components of 2015 Performance

 

 

  € million    Sales
revenue
     EBITDA
(as defined)*
     Operating
profit
     Profit on
  disposals
       Finance
costs
(net)
         Assoc. and
JV PAT**
       Pre-tax
profit
 
  2014      18,912         1,641         917         77         (288)         55         761   
  Exchange effects      2,198         218         137         6         (27)         4         120   
                                                                
  2014 at 2015 rates      21,110         1,859         1,054         83         (315)         59         881   
  Incremental impact in 2015 of:                     

    2014/2015 acquisitions

     2,738         215         28         -         (50)         1         (21)   

    2014/2015 divestments

     (855)         (100)         (69)         20         6         (10)         (53)   

    Restructuring/Impairment

     -         22         27         -         -         -         27   

    Swiss fine/Pension/CO2

     -         (35)         (35)         -         -         -         (35)   

    Early bond redemption

     -         -         -         -         (38)         -         (38)   

    Organic

     642         258         272         (2)         8         (6)         272   
                                                                
  2015      23,635         2,219         1,277         101         (389)         44         1,033   
  % Total change      25%         35%         39%                                    36%   
  % Organic change      3%         14%         26%                                    31%   

 

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

 

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

 

Liquidity and Capital

Resources – 2015

compared with 2014

The comments that follow refer to the major components of the Group’s cash flows as shown in the Consolidated Statement of Cash Flows on page 160.

Throughout 2015 the Group remained focused on cash management, targeting in particular working capital and capital expenditure, and overall operating cash flow increased to 2.2 billion (2014: 1.2 billion). Year-end working capital of 2.1 billion represented just 8.9% of sales, an

improvement compared with year-end 2014 (10.6%). This performance delivered a net positive movement (inflow) for the year of 585 million (2014: 35 million). CRH believes that its current working capital is sufficient for the Group’s present requirements.

Controlled spending on property, plant and equipment, focusing on markets and businesses with increased demand backdrop and efficiency requirements, particularly the Americas, resulted in increased cash outflows of 882 million

(2014: 435 million), with spend in 2015 representing 105% of depreciation

(2014: 69%). Capital expenditure in acquired LH businesses amounted to 155 million in the post-acquisition period (95% of depreciation) while the currency translation impact due to the weakening euro was 85 million.

During the year the Group spent 7.4 billion (excluding net debt arising on acquisition) on 20 bolt-on transactions together with acquisition of the LH Assets and CRL (2014: 181 million) which was partly offset by divestment and disposal proceeds of 889 million (net of cash disposed and deferred proceeds) (2014: 345 million).

 

 

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Finance Director’s Introduction | continued

 

Cash dividend payments of 383 million (2014: 357 million) and net proceeds of 1.6 billion (2014: nil) from share issues (relating to the 74 million shares placed in February 2015) reflected the Group’s focus on balanced financing and returns to shareholders.

Year-end interest-bearing loans and borrowings increased by 3.3 billion to 9.2 billion (2014: 5.9 billion). At year-end the stronger US Dollar (1.0887 versus the euro compared with 1.2141 at year-end 2014) was the main factor in the negative translation and mark-to-market impact of 138 million on net debt. Reflecting all these movements net debt of 6.6 billion at 31 December 2015 was 4.1 billion higher than year-end 2014. The Group is in a good financial position. It is well funded and net interest cover (EBITDA (as defined)*/net debt related interest costs) of 7.5x is significantly higher than the minimum requirements in the Group covenant agreements. Further details are set out in note 23 to the financial statements.

The Group took advantage of the low interest rate environment in 2015 to raise the equivalent of over 2.5 billion in the debt capital markets during the year. In May, dollar bonds totalling US$1.75 billion were issued, comprising a US$1.25 billion 10-year bond at a coupon rate of 3.875% and a US$0.5 billion 30-year bond at a coupon rate of 5.125%. Part of the proceeds from these US Dollar issues were used to make an early redemption of US$0.97 billion of the total US$1.6 billion bonds due in 2016, resulting in overall interest savings for the Group in 2015 and 2016. In December a 600 million 8-year bond was issued with a coupon of 1.875% along with a 14-year GBP£400 million bond with a coupon of 4.125%.

These 2015 bond issues reflect CRH’s commitment to prudent management of our debt and the timing of the related maturities and also to maintaining an investment grade credit rating.

The Group ended 2015 with total liquidity at end 2015 of 5.6 billion comprising 2.5 billion of cash and cash equivalents on hand and 3.1 billion of undrawn committed facilities, 2.8 billion of which do not mature until 2020. These cash balances were enough to meet all maturing debt obligations for the next two and a half years and the weighted average maturity of the remaining term debt was nine years.

Significant Changes

No significant changes have occurred since the balance sheet date.

Business Performance Reviews

The sections on pages 70 to 79 outlines the scale of CRH’s business in 2015, and provides a more detailed review of performance in each of CRH’s six legacy reporting segments. For transparency we have presented the partial year contribution from LH Assets separately from our existing operations in a seventh segment. See further details in note 1 to the Consolidated Financial Statements.

Quantitative and Qualitative Information about Market Risk

The Group addresses the sensitivity of the Group’s interest rate swaps and debt obligations to changes in interest rates in a sensitivity analysis technique that measures the estimated impacts on the

income statement and on equity of either an increase or decrease in market interest rates or a strengthening or weakening in the US Dollar against all other currencies, from the rates applicable at 31 December 2015, for each class of financial instrument with all other

variables remaining constant. The technique used measures the estimated impact on profit before tax and on total equity arising on net year-end floating rate debt and on year-end equity, based on either an increase/decrease of 1% and 0.5% in floating interest rates or a 5% and 2.5% strengthening/weakening in the US$/ exchange rate. The US$/ rate has been selected for this sensitivity analysis given the materiality of the Group’s activities in the United States. This analysis, set out in note 21 to the Consolidated Financial Statements, is for illustrative purposes only as in practice interest and foreign exchange rates rarely change in isolation.

Quantitative and Qualitative information and sensitivity analysis of market risk is contained in notes 20 to 24 to the Consolidated Financial Statements.

Off-Balance Sheet Arrangements

CRH does not have any off-balance sheet arrangements that have, or are reasonably likely to have a, current or future effect on CRH’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

 

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

 

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Contractual Obligations

An analysis of the maturity profile of debt, finance and operating leases, purchase obligations, deferred and contingent acquisition consideration and pension scheme contribution commitments at 31 December 2015 is as follows:

 

 

 Contractual Obligations

 

                                       
                    Less than                            More than  
  Payments due by period    Total      1 year              1-3 years              3-5 years      5 years  
     €m      €m      €m      €m      €m  
                               
  Interest-bearing loans and borrowings(i)      9,142         760         2,161         1,250         4,971   
  Finance leases      15         2         4         4         5   
  Estimated interest payments on contractually-committed      2,524         317         548         387         1,272   
  debt and finance leases(ii)               
  Deferred and contingent acquisition consideration      288         46         172         58         12   
  Operating leases      2,116         370         561         354         831   
  Purchase obligations(iii)      860         497         142         82         139   
  Retirement benefit obligation commitments(iv)      73         20         38         4         11   
                                              
  Total      15,018         2,012         3,626         2,139         7,241   
                               

 

  (i) Of the 9.1 billion total gross debt, 0.4 billion is drawn on revolving facilities which may be repaid and redrawn up to the date of maturity. The interest payments are estimated assuming these loans are repaid on facility maturity dates.

 

  (ii) These amounts have been estimated on the basis of the following assumptions: (a) no change in variable interest rates; (b) no change in exchange rates; (c) that all debt is repaid as if it falls due from future cash generation; and (d) none is refinanced by future debt issuance.

 

  (iii) Includes contracted for capital expenditure. A summary of the Group’s future purchase commitments as at 31 December 2015 for capital expenditure are set out in note 13 to the Consolidated Financial Statements. These expenditures for replacement and new projects are in the ordinary course of business and will be financed from internal resources.

 

  (iv) Represents the contracted payments related to our pension schemes in the United Kingdom and Ireland. See further details in note 27 to the Consolidated Financial Statements.

 

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Europe Heavyside

 

 

 

 

Results

 

              

Analysis of change

 

€ million  

 

%
Change

    2015     2014    

 

Total
Change

               Organic     Acquisitions      Divestments     

 

Restructuring/
Impairment

    

 

Pension/
CO2

     Exchange  
 
Sales revenue     -8%        3,607        3,929        -322               -30        +5         -386         -         -       +89  
 
EBITDA (as defined)*     -12%        334        380        -46               +1        -         -62         +9         -3       +9  
 
Operating profit     -11%        135        151        -16               +7        -         -45         +18         -3       +7   
 
EBITDA (as defined)* margin       9.3%        9.7%                            
 
Operating profit/sales             3.7%        3.8%                                                                  
                                                      

 

 

 

 

 

 

 

 

 

 

 

Restructuring costs amounted to €6 million (2014: €15 million)

 

Impairment charges of €26 million were incurred (2014: €35 million)

 

Pension restructuring gains amounted to €4 million (2014: nil)

 

Gains from CO2 trading amounted to €2 million (2014: €9 million)

 

 

 

2015 was characterised by mixed trends across our major European markets with challenging market conditions in our businesses in Switzerland, France, Germany and Finland offsetting increased activity in Ireland, Poland, Denmark and the Netherlands. As a result, like-for-like sales for the year were slightly behind 2014, with like-for-like EBITDA (as defined)* broadly in line with 2014 due to ongoing cost savings initiatives and improved capacity utilisation. While reported margins for 2015 were slightly behind 2014, margins for Heavyside’s continuing operations (excluding the impact of divestments and one-off items), were ahead of last year. In addition to the divestment of the UK’s clay and products operations, Heavyside completed 13 divestments in 2015. The commentary below excludes the impact of these divestments.

Western Europe

The strong Swiss Franc created challenging market conditions in Switzerland. Combined with the slight slowdown in residential construction and decline in infrastructure spend, this resulted in pricing pressure in all markets.

Sales volumes in both our cement and downstream businesses declined, and operating profit was below 2014.

In Belgium, our cement and readymixed concrete businesses continue to face competitive trading conditions while curtailed public spending and lower exports to France affected our landscaping business in particular. Our structural concrete business has seen some improvement in sales, however operating profit was flat. Construction activity in the Netherlands improved, mainly due to strong growth in the residential market. This was reflected in sales and operating profit growth in our structural concrete business. While sales of other products were adversely impacted by the competitive trading environment, ongoing cost reduction programmes resulted in improved operating profit.

In Ireland, construction growth was supported by improvements across all sectors, primarily non-residential, albeit from a low base. While cement volumes grew by 17%, pricing was under pressure in competitive markets. With the benefit of

higher volumes and the positive impact of cost savings initiatives in previous years, operating profit was ahead of 2014.

With the benefit of a continued strong non-residential market and growth in new residential construction in Denmark, both volumes and prices in our structural concrete business improved. Sales and operating profit were ahead of 2014.

Volumes in our concrete products businesses in Germany and France were under pressure as lower government spending contributed to subdued construction markets. While sales declined, the effect on operating profit has been moderate due to vigorous implementation of cost reduction programmes. Overall, the macro-economic situation in Spain has stabilised but there are some regional variations. In the regions in which we operate, both cement and readymixed concrete volumes have been under pressure with difficult trading conditions, resulting in sales below 2014. However, operating results have shown improvement due to ongoing cost reductions.

 

 

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

 

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CRH Annual Report on Form 20-F |  2015

 

 

Eastern Europe

In Poland, cement volumes improved, with growing momentum in the second half of the year; however prices remained under pressure with overcapacity in the market. Both sales and operating profit were ahead of the prior year with the benefit of cost savings, disposal of non-performing assets and increased readymixed concrete activity.

Construction activity in Finland was somewhat down in 2015, and our cement operations reported a 6% decline in volumes, with pricing also under pressure. Readymixed concrete volumes were also lower than 2014 while aggregates and the concrete products businesses have benefited from a number of large projects.

With the benefit of cost and efficiency initiatives, overall operating profit was ahead of 2014.

Our Ukraine operations are based in the West of the country, which continues to be less impacted than Eastern Ukraine by the ongoing political conflict. Cement volumes were up 2% year-on-year, with volume growth of 8% in the second half of the year compensating for a slower start to 2015. Local inflation negatively impacted input costs and operating profit was lower than last year impacted by the weakening of the local currency.

 

 

Studentencomplex Johanna is a student accommodation building in Utrecht, the Netherlands. Zoontjens supplied its Drenoliet® rooftop terrace tiles for communal areas, producing a landscape that is aesthetically pleasing and capable of withstanding high loads.  

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CRH Annual Report on Form 20-F | 2015

 

Europe Lightside

 

 

 

 

Results

 

             

 

 

Analysis of change

 

 

€ million

 

 

%

Change

            2015             2014    

Total

      Change

                      Organic     

 

Acquisitions

       Restructuring            Exchange
 
Sales revenue     +5%        961        913      +48              +3         +12         -       +33
 
EBITDA (as defined)*     +6%        100        94      +6              +2         -         -       +4
 
Operating profit     +6%        75        71      +4              -         -         -       +4
 
EBITDA (as defined)* margin       10.4%        10.3%                         
 

Operating profit/sales

 

           

 

7.8%

 

  

 

   

 

7.8%

 

  

 

                                           
                                          

 

 

 

 

Restructuring costs amounted to €5 million (2014: €5 million)

 

 

Europe Lightside saw further growth in 2015 with total sales 5% ahead, reflecting a good performance in key markets and the benefit of favourable weather conditions in the second half of the year. The UK market experienced growth, particularly in residential construction. Market circumstances in France and the Netherlands remained challenging, while overall activity in Germany, Belgium and Switzerland was relatively stable. Export markets outside of Europe were robust. With the benefit of new product innovation and process improvements, operating profit increased.

Construction Accessories

Construction Accessories supplies a broad range of connecting, fixing and anchor systems to the construction industry. Like-for-like sales grew by 2% in 2015, with an increase in operating profit. Engineered Accessories benefited from new product innovation and favourable market conditions in the UK. Our businesses in Germany and the UK continued to deliver growth in operating profit. Our Swiss business recorded stable sales and profits in spite of the negative exchange rate impact on market demand. Building Site Accessories results were mixed, with a satisfactory performance in the UK, Belgium, the Netherlands and Spain offset by more difficult trading in Germany and France.

The German Building Site Accessories business was divested at the end of 2015. The Southeast Asia business was affected by more difficult trading conditions and exchange rate effects but recorded an improvement in operating profit.

Shutters & Awnings

Shutters & Awnings is focused on the attractive RMI and residential end-use segments. Overall, like-for-like sales increased by 4% and the business achieved higher operating profit. Our German Awnings businesses benefited from the introduction of new products and favourable weather conditions, and recorded significant growth in both sales and profits. The German Shutters business recorded stable sales and substantially higher profits as a result of previous restructuring measures. The UK business also showed improved sales and margins. Our business in the Netherlands recorded a stable and satisfactory performance in a relatively flat RMI market.

 

Fencing & Cubis Access Chambers

Our Permanent Fencing business continued to experience difficult trading conditions, especially in the non-residential markets in the Netherlands and Germany and some export markets. Profits were also affected by restructuring measures in Germany. Against a backdrop of mixed markets, Mobile Fencing recorded strong growth in sales and profits through various commercial and operational excellence measures. The innovation focused Cubis Access Chambers business had another good year despite some challenges in France, increasing sales and operating profits due to strong UK demand and a positive contribution from the newly acquired business in Australia.

 

 

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

 

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CRH Annual Report on Form 20-F |  2015

 

Europe Distribution

 

 

 

 

Results

 

            

Analysis of change

 

  € million  

 

%

Change

        2015         2014    

Total

    Change

                 Organic     Acquisitions    

  Restructuring/

Impairment

   

 

Swiss
Fine

        Exchange
 
  Sales revenue     +4%        4,158        3,999      +159             -21        +27        -        -      +153
 
  EBITDA (as defined)*     -10%        171        190      -19             +4        +1        -        -32      +8
 
  Operating profit     -16%        94        112      -18             +10        -        -1        -32      +5
 
  EBITDA (as defined)* margin       4.1%        4.8%                       
 

  Operating profit/sales

 

           

 

2.3%

 

  

 

   

 

2.8%

 

  

 

                                               
                                         

 

 

 

 

 

 

Restructuring costs amounted to €4 million (2014: €4 million)

 

Impairment charges of €1 million were incurred (2014: nil)

 

 

The market backdrop for Distribution remained mixed in 2015, with improving sentiment in the Netherlands partly offset by weaker markets in France and Switzerland, leaving full year organic sales flat on 2014. Swiss sales in particular were negatively impacted by a softening residential market and exchange rate movements. Encouraging sales in our Dutch businesses have been driven by a recovery in new residential markets together with commercial excellence initiatives to drive market share growth, particularly in our general merchants business. Excluding the impact of the provision for the Swiss Competition Commission fine of 32 million overall profitability was ahead of the prior year with performance improvement and cost savings measures offsetting challenging markets.

Professional Builders Merchants

Like-for-like results for our wholly-owned professional builders merchants business, which operates 347 branches in six countries, were slightly behind 2014 with pricing pressure in competitive markets a feature in 2015. Sales ended slightly behind 2014 partly due to strong prior year comparatives which benefited from very mild weather in Q1 2014. Our Swiss business experienced a difficult market environment in 2015 due to a softening of residential activity and the negative market impact of the Swiss

National Bank decision in early 2015 to unpeg the Swiss Franc to the euro. Margin improvement initiatives together with cost savings measures helped protect profits to leave results only slightly behind 2014. Sales growth in our Dutch businesses were driven by a recovering new residential market in addition to commercial excellence initiatives to capture market share growth. Strong leverage on these higher sales coming from margin improvement measures (e.g. procurement initiatives, private label growth) and cost savings delivered operating profit progress. Without the recurrence of the very mild weather which benefited the first half of 2014, sales and operating profit in Germany were slightly behind 2014.

DIY

Our wholly-owned DIY business operates 183 stores in the Netherlands, Germany and Belgium. Overall sales were slightly ahead due to improving sales in our Dutch business with profit progress coming from higher volumes and margins. In the DIY business, which is more exposed to RMI compared to our builders merchants business, sales showed moderate progress with improving consumer confidence a key factor behind the growth in the Dutch market. Strong leverage on these sales from procurement excellence initiatives helped to deliver good operating profit growth in 2015.

Germany saw broadly flat sales with very little growth seen in the market. Overall operating profit for DIY was ahead of 2014.

Sanitary, Heating and Plumbing (“SHAP”)

Sales for our SHAP business, which operates 134 branches, were ahead of 2014. Despite very challenging markets in Switzerland, sales ended only slightly behind 2014 with profitability ahead due to margin improvement initiatives, purchasing benefits from a stronger Swiss Franc, and cost savings measures. Sales in Belgium showed good progress as we consolidated market share leaving operating profit ahead of prior year. In Germany, the benefit of moderate sales growth was offset by lower margins and profit was broadly in line with 2014. Overall operating profit for our SHAP activities was ahead of 2014 due to higher sales and commercial excellence initiatives.

 

 

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

 

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CRH Annual Report on Form 20-F | 2015

 

Americas Materials

 

 

 

 

Results

 

              

Analysis of change

 

 
  € million   

 

%
Change

     2015      2014     

 

Total
Change

               Organic      Acquisitions      Divestments      Restructuring      Exchange  
 
  Sales revenue      +26%         6,400         5,070         +1,330               +342         +80         -95         -         +1,003   
 
  EBITDA (as defined)*      +50%         912         609         +303               +170         +14         -7         +1         +125   
 
  Operating profit      +72%         611         355         +256               +176         +11         -3         +1         +71   
 
  EBITDA (as defined)* margin         14.3%         12.0%                           
 
  Operating profit/sales               9.5%         7.0%                                                               
                                                           

 

 

 

 

Restructuring costs amounted to €8 million (2014: €9 million)

 

 

  

 

 

2015 was a year of good growth across all regions for Americas Materials, with the benefit of reduced energy costs, along with improved weather patterns in most markets. Trading conditions improved with increased demand in key market areas, led by improved residential and non-residential segments and stable infrastructure. US Dollar revenues grew 5% and US Dollar EBITDA (as defined)* increased 25% compared to 2014. Positive trends in pricing continued for aggregates and readymixed concrete, with asphalt pricing declines more than offset by lower input costs in 2015.

10 acquisitions and two investments were completed in 2015 at a total cost of 86 million, adding over 253 million tonnes of aggregates reserves, 6 operating quarries, 18 asphalt plants and 1 aggregates terminal, with annual production of 2.3 million tonnes of aggregates and 1.3 million tonnes of asphalt. Business and asset disposals during the year generated proceeds of 109 million.

 

Energy and related costs

The price of bitumen, a key component of asphalt mix, decreased by 18% in 2015 following a 3% increase in 2014. Prices for diesel and gasoline, important inputs to our aggregates, readymixed concrete and paving operations, decreased by 28% and 29% respectively. The price of energy used at our asphalt plants, consisting of fuel oil, recycled oil, electricity and natural gas, decreased by 25%. Recycled asphalt and shingles accounted for approximately 22% of total asphalt requirements in 2015, lessening demand on virgin bitumen.

Aggregates

Both like-for-like and overall volumes rose 4% from 2014. Average prices increased by 5% on a like-for-like basis and 4% overall compared with 2014. These price and volume increases, together with efficient cost control, resulted in improved margin for our aggregates business.

Asphalt

Volumes increased 6% on a like-for-like basis and 7% overall compared to 2014. Despite price declines of 4%, volume increases together with efficient cost control contributed to an overall asphalt margin expansion.

Readymixed Concrete

Like-for-like volumes increased 2% while total volumes including the impact of acquisitions and divestments were down 1% compared with 2014. Average prices increased 5% on both a like-for-like and an overall basis, contributing to margin expansion for this business.

Paving and Construction Services

With flat federal funding and pockets of increased state infrastructure spending, like-for-like sales increased 6%. Bidding continued to be under pressure in a competitive environment. However, efficient cost controls enabled overall margin to improve slightly in 2015.

 

 

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

 

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CRH Annual Report on Form 20-F |  2015

 

 

Regional Performance

East

The East region comprises operations in 24 states, the most important of which are Ohio, New York, Florida, Michigan, New Jersey, Pennsylvania and Connecticut. With the benefit of lower bitumen costs, operating profit in the Northeast division increased strongly compared with 2014. The Central division benefited from increased transportation spending in Ohio, along with favourable bitumen costs. Operating profit was also ahead in the Mid-Atlantic division despite closure of coal mines and a slowdown in natural gas exploration in the region. The strong residential and non-residential markets in the Southeast division contributed to higher asphalt and readymixed concrete volumes and better prices resulting in significant margin growth. Overall volumes for the East region were 7% ahead of prior year for aggregates, 11% ahead for asphalt and 1% behind for readymixed concrete.

West

The West region has operations in 20 states, the most important of which are Utah, Texas, Washington, Kansas, Arkansas and Colorado. With strong operating and overhead cost management across the product lines, all divisions reported significant margin increases. With resilient market growth in Texas in both the public and private sectors, the Southwest division delivered higher margins, while the Northwest division benefited from increased commercial demand. Volumes in the Great Plains division were impacted by state spending cuts which were offset by strengthening residential and commercial sectors. Overall West volumes were flat for aggregates and decreased 2% from 2014 for both asphalt and readymixed concrete respectively.

 

 

A CAT 988K wheel loader, loads a