20-F 1 d353734d20f.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, 2017

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.  

   
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 **  

       838,958,469

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  X   No

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

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

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act Yes No X

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

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

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

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

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


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  Contents   
1.   Overview   
  Our Global Business in 2017      2  
  Our Balanced Portfolio      4  
  Chairman’s Introduction      5  

 

 

2.

  Strategy Review   
  Chief Executive’s Review      8  
  Strategy      10  
  Business Model      12  
  Measuring Performance      14  
  Sustainability      16  
  Risk Governance      20  

 

                             3.

  Business Performance   
  Business Overview      24  
  Finance Director’s Review      25  
  Segmental Reviews      30  
            
4.   Governance                                                    
  Board of Directors      59     
  Corporate Governance Report      62     
  Directors’ Remuneration Report      72     
  Directors’ Report      96     

 

5.

  Financial Statements      
  Independent Auditor’s Reports      118     
  Consolidated Financial Statements      120     
  Accounting Policies      125     
  Notes on Consolidated Financial Statements      135     
6.   Additional Information      
  Supplementary 20-F Disclosures      206     
  Shareholder Information      232     
  Other Information      244     
  Cross Reference to Form 20-F Requirements      253     
  Index      254     
 

 

 

 

CRH is now the number one building materials company in Florida following its acquisition of Suwannee American Cement together with certain other materials assets, in 2017. This dry batch plant at Prestige Concrete Products, Port Manatee (south of Tampa), is one of 18 readymixed concrete plants acquired as part of the deal. Florida is one of the fastest growing states in the United States.


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CRH at a glance

 

CRH plc is a leading global diversified building materials group, employing 85,000 people at over 3,600 operating locations in 32 countries worldwide.

CRH is the second largest building materials company worldwide and the largest in North America. The Group has leadership positions in Europe, where it is the largest heavyside materials business, 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, housing and commercial projects.

A Fortune 500 company, CRH is a constituent member of the FTSE 100 index, the EURO STOXX 50 index, the ISEQ 20 and the Dow Jones Sustainability Index (DJSI) Europe. CRH’s American Depositary Shares (ADSs) are listed on the New York Stock Exchange (NYSE).

CRH’s market capitalisation at 31 December 2017 was approximately 25 billion.

 

 

Our Vision

     
 

To be the leading building

materials business in the world

 
     

2017 Performance highlights

 

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During 2017 the Americas Distribution segment was classified as discontinued operations under IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations (refer to note 2 to the Consolidated Financial Statements for further information). Accordingly, all references to income statement data are on a continuing operations basis throughout the Overview, Strategy Review and Business Performance sections (pages 2 to 53), unless otherwise stated.

 

 

 

     

LOGO

Visit our Investor Relations Centre

www.crh.com/investors

 

View Annual Report and Form 20-F Online

www.crh.com/reports/2017-annual-report-20-f.pdf

     
     
*  

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

 

   
p  

Details of how non-GAAP measures are calculated are set out on pages 210 to 213.

 

   
  Profit after tax and earnings per share are as reported in the Consolidated Income Statement on page 120.    
 


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CRH Annual Report and Form 20-F | 2017

    

 

Our Global Business in 2017

CRH’s global footprint spans 32 countries and over 3,600

operating locations, serving customers across the entire

building materials spectrum, on five continents, worldwide.

 

 

LOGO

 

 

2    « Our discontinued operations Americas Distribution employed approximately 3,900 people, across over 200 locations in 31 US states in 2017.


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Our Balanced Portfolio

Building a balanced portfolio is a core constituent of our strategy and a key determinant of value creation for CRH.

 

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Chairman’s Introduction

 

 

Dear Shareholder,

 

I am pleased to report that 2017 was a year of further growth for CRH, with improvements in sales and profits in our Americas and Europe Divisions.

 

2017 has also been another significant year of development for CRH, with a total of 34 acquisition and investment transactions. In line with the Group’s strategy of continually pursuing value creation opportunities through the efficient allocation and reallocation of capital, in August we announced the divestment of our Americas Distribution business (Allied Building Products). The sale, to a highly respected industry player, for US$2.6 billion, was concluded in January 2018.

 

Subsequently, in late 2017, we acquired Suwannee American Cement together with certain other materials assets in Florida and announced an agreement to purchase Ash Grove Cement, a leading cement producer in the United States (US), which is due to close during 2018. Combined with the acquisition of Fels, a leading European lime producer, these transactions position the Group to pursue further growth opportunities in key markets.

 

As you would expect, financial discipline continued to be a key focus for the Board, with year-end net debt/EBITDA (as defined)* cover remaining strong at 1.8x (2016: 1.7x). Further details on the performance of the Group, its strategy and business model are set out on pages 6 to 53.

 

Based on the performance in 2017, the Board is recommending a final dividend of 48.8c per share, which, if approved at the 2018 Annual General Meeting (AGM), will result in an increase in the full year dividend of 5% to 68.0c per share.

 

I look forward to the opportunity to update you further on the Group’s performance at the AGM, which will be held on Thursday, 26 April 2018. Notice of the AGM will be posted to shareholders on 28 March 2018 and is available on the CRH website.

   

 

Details in relation to the business of the meeting are set out in the Directors’ Report on pages 96 to 100.

 

The Governance section of the Report on pages 59 to 71 provides biographical details for each Director and details of the priorities and focus of the Board. In addition, this section contains important updates in relation to board renewal and diversity, the tendering of CRH’s external audit, the implementation of CRH’s remuneration policy and shareholder engagement.

 

In August, Maeve Carton retired from the Board and CRH. Maeve joined CRH in 1988, joined the Board in 2010 and held a number of senior executive roles, including Finance Director and Group Transformation Director. Throughout her exemplary career with the Group, she contributed to the development and progress of CRH, and we wish her well in her retirement.

 

In December 2017, Ernst Bärtschi resigned from the Board. Ernst joined the Board in October 2011. Over his two terms of three years as a non-executive Director and, in particular, as Chairman of the Audit Committee since September 2013, Ernst committed significant time and effort to CRH. I would like to thank him for his exemplary service and I wish him every success in the future.

 

I am delighted that Richie Boucher will join the Board with effect from 1 March 2018. I believe that he will be an excellent addition and I look forward to working with him.

 

I would like to express my appreciation to my non-executive colleagues on the Board for their input and time commitment in 2017.

 

Finally, on behalf of the Board, I would like to thank the CRH management team, led by Albert Manifold, for the progress and significant achievements made over the past year.

 

Nicky Hartery

Chairman

 

28 February 2018

       
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Financial discipline continued to be a key focus for the Board

    

    

Nicky Hartery, Chairman

 

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

 

   Net debt/EBITDA (as defined)* from continuing and discontinued operations is a non-GAAP measure as defined on page 212. The GAAP figures that are most directly comparable to the components of net debt/EBITDA (as defined)* include: interest-bearing loans and borrowings (2017: €7,976 million; 2016: €7,790 million) and profit after tax (2017: €1,919 million; 2016: €1,270 million). Details of how non-GAAP measures are calculated are set out on pages 210 to 213.

 

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Strategy Review   
Chief Executive’s Review      8                      
Strategy      10                      
Business Model      12                      
Measuring Performance      14                      
Sustainability      16                      
Risk Governance      20                      

 

 

 

 

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Chief Executive’s Review

 

At CRH, one of the key factors in our success, is a proven track record in taking the right step forward at the right time. For almost 50 years, the Group has carefully taken each of the steps that have built CRH into the global leader it is today. With a portfolio balanced across geography, sector and end-use, our businesses serve the needs of customers right across the building materials spectrum. In doing so, we create new opportunities for growth, while preserving existing shareholder value.

In 2017, we continued to focus on identifying, acquiring and integrating businesses that enhance and add value to our existing portfolio. We also pursued opportunities to reallocate capital from low growth to high growth areas. This included our decision to crystallise the value we had built up in our Americas Distribution business, where we saw limited prospects for further growth. Instead, through our acquisition of Suwannee American Cement together with certain other materials assets in Florida, and our agreement to purchase Ash Grove Cement, we are investing in cement and aggregates businesses in the South of the US and west of the Mississippi, where there is a broader base, high population growth, and thus, high demand.

We also maintained our emphasis on continuous improvement across our existing businesses through operational and commercial excellence initiatives. With this dual approach to developing our business, we continued to make progress towards our goal of making CRH the leading building materials business in the world and a leading global industrial company.

Performance Highlights

The Group delivered a strong performance again in 2017 with revenues increasing 2% to 25.2 billion, driven primarily by the continuing strength of the economy in the US, along with ongoing recovery in our key European markets.

Good profit growth continued, with the Group generating record EBITDA (as defined)* of 3.3 billion, from continuing and discontinued operations, a 6% increase on the previous year (2016: 3.1 billion), despite significant

currency and weather headwinds. Profit after tax increased 51% to 1.9 billion (2016: 1.3 billion).

Our continued focus on performance initiatives, along with improvements in pricing in certain key markets, resulted in strong operational leverage, which saw a further increase in margins and returns. Return on Net Assets (RONA) for the year improved from 9.7% in 2016 to 10.6%.

Despite significant acquisition activity, net debt/EBITDA (as defined)* remained strong at 1.8x (2016: 1.7x).

Earnings per share (EPS) for the year advanced 51% to 226.8c (2016: 150.2c) and the Board has proposed to increase the dividend to 68.0c per share, an increase of 5% compared with last year’s level of 65.0c per share.

Operational Highlights

Overall trading conditions across all Divisions remained broadly positive. In the Americas, where total sales increased 4% to 12.3 billion, a strong US economy with good momentum in the residential and non-residential market segments, underpinned increased revenues.

In our Americas Materials Division, revenues increased 5% to 8.0 billion. Infrastructure activity remained stable in our markets, while our Americas Products Division benefited from stable market fundamentals in southern and western US states.

Despite the impact of significant weather headwinds, the trading environment in the US remained positive overall, with volume growth achieved.

In Europe, where overall sales increased 1% to 12.5 billion, our Heavyside Materials Division benefited from increased demand in certain key markets as the European economy continued to recover at a modest pace. Challenges remained in Switzerland, while in the United Kingdom (UK), despite uncertainty around the impact of Brexit, the performance of our materials business, Tarmac, remained resilient.

Our European Lightside Division, which is favourably exposed to export activity, benefited from growth in key markets. In our European Distribution Division, sales were broadly stable overall and slightly ahead in certain key markets.

In Asia, we continue to take a long-term view in relation to the Philippines, where the challenging pricing environment persisted throughout 2017, despite robust underlying market fundamentals. Our equity accounted investments in China and India both benefited from improvements in pricing during the year.

Overall, a very satisfactory year and while our materials businesses currently account for almost two-thirds of Group operating profit, the strategic importance of our products businesses continues to increase as market demand for building materials evolves and construction methods and technologies change.

Sustainability and Safety

Sustainability and Corporate Social Responsibility (CSR) are essential components of our business and our ongoing commitment to global sustainable development resulted in the Group’s inclusion in the 2017 Dow Jones Sustainability Index (DJSI) Europe. The index represents the gold standard for corporate sustainability and CRH’s inclusion comes as a result of a lengthy evaluation based on strict economic, environmental, social and long-term shareholder related criteria.

We also maintained our uncompromising focus on making our work environments safe for our people. This approach has yielded very positive outcomes in recent years. Despite our progress however, in 2017 a number of fatalities at our operations underlined the need for us to do even more to ensure that all of our people return home safe to their families at the end of each working day.

Development

Having paused major acquisition activity during 2016, to focus our efforts on effectively integrating the businesses acquired during the previous 12 months, CRH again returned

 

 

†  See cautionary statement regarding forward-looking statements on page 97.

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

  Profit after tax and earnings per share are as reported in the Consolidated Income Statement on page 120.

  RONA from continuing and discontinued operations is a non-GAAP measure as defined on page 211. The GAAP figures that are most directly comparable to the components of RONA include: Group operating profit (2017: €2,095 million; 2016: €1,908 million), total assets and total liabilities respectively (2017: €31,633 million and €16,656 million respectively; 2016: €31,594 million and €17,151 million respectively). Details of how non-GAAP measures are calculated are set out on pages 210 to 213.

 

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to significant acquisition activity during 2017, completing 34 deals. Total acquisition spend for the period was 1.9 billion, while proceeds from disposals amounted to 222 million.

 

In Europe, the acquisition of Fels, a leading German lime and aggregates business, is an excellent addition to our portfolio of heavyside businesses and gives us a platform for further growth in the highly attractive European lime market. Lime is a resilient, high-margin business with a customer base extending beyond construction to applications in agriculture and industry. Fels had been an acquisition target for CRH for many years, and our patience and persistence ensured that we acquired it at the right time and at the right multiple.

 

In the Americas we made a decision to divest our Americas Distribution business, Allied Building Products. The sale of Allied, which closed in January 2018, generated US$2.6 billion and provided the Group with the opportunity to exit the business at a high multiple and recycle the proceeds into opportunities that offer better long-term prospects for value creation and growth.

 

We reached an agreement with the Board of Ash Grove Cement to acquire a significant portfolio of cement and other materials assets. This deal is due to close in 2018 and will give CRH a leading market position in the North American cement market for the first time.

 

Like many of the businesses we have acquired in the US over the years, Ash Grove is a family run business with similar values to CRH. Our Americas Materials business is currently the biggest customer of Ash Grove and CRH’s relationship with the company extends back as far as the 1970s.

  

Ash Grove is the number two cement producer west of the Mississippi. Its eight cement plants, extensive readymixed concrete, aggregates and associated logistics operations are excellent assets, providing important exposure to high-growth urban environments in states such as Texas.

 

In Florida, another strategically important state due to its strong population growth, CRH became the largest supplier of building materials following our acquisition of Suwannee American Cement together with certain other materials assets.

 

Our focus now is on integrating these businesses. We will, however, continue to identify value-adding bolt-on acquisitions that we can quickly integrate into our business and that offer good potential for synergies, vertical integration and downstream opportunities.

 

This value-creating acquisition activity, along with CRH’s strong operational performance during 2017, ensures the Group is well positioned for further growth in 2018.

 

Outlook

 

In the US, GDP growth in 2018 is expected to be similar to 2017, supported by steady gains in overall job creation, improving consumer confidence and a slight easing of credit terms. We anticipate continued growth in US housing construction and that non-residential construction will also improve. While the infrastructure market remains broadly stable, there is upside potential due to the growing economy and increased state spending on transportation improvements. With a continuing favourable pricing environment, a sustained emphasis on operating efficiency and benefits from our recent development activity, we expect progress to continue in 2018 in our Americas business.

  

In Europe, we expect that economic recovery will gather momentum in most countries in 2018. Against a backdrop of increasing demand, particularly in the residential sector, our focus is building upon pricing improvements and efficiency gains achieved in 2017 and as a result, we expect our European business to advance further in 2018.

 

In Asia, with expectations for continued economic growth in the Philippines, we anticipate some stabilisation of the cement market in 2018, however results from our business will remain challenged.

 

With a balanced portfolio of businesses, CRH is well positioned to capitalise on ongoing economic growth and our focus remains on consolidating and building upon the gains made in 2017. Against this backdrop, we believe 2018 will be a year of further progress for the Group.

 

Albert Manifold

Chief Executive

 

28 February 2018

 

    

 

    

    

    

    

    

    

    

    LOGO
LOGO   We will continue to identify value-adding bolt-on acquisitions that we can quickly integrate into our business and that offer good potential for synergies, vertical integration and downstream opportunities.   LOGO  
 

 

Albert Manifold, Chief Executive

 
     
     
     
     
     
     

 

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Strategy

Becoming the global leader in building materials

Our vision is to become the leading building materials business in the world and in doing so, to maximise long-term value and deliver superior returns for all our stakeholders.

 

At CRH our operations benefit from a relentless focus on continuous improvement, which enables us to build better businesses and generate enhanced returns for shareholders. By maximising the value we extract from our core businesses we ensure the Group is positioned to take advantage of opportunities that arise to strategically develop new platforms for investment and growth.

In pursuing our growth agenda, we maintain a constant focus on financial discipline and strong cash generation. At the heart of this approach is ensuring that above all we protect the customer loyalty and trust we have built up over decades of operation. To do so, we work hard to better understand the unique needs

of customers in the local markets in which we operate. This allows us to deliver in a better way for our customers and provide them with a locally tailored service underpinned by a level of quality and excellence consistent with a global company of our scale.

As we have grown in scale and diversified into new product areas and geographic markets, we have evolved and optimised our approach accordingly. The scale of our operations allows us to pursue economies across a range of operational areas. In addition, a pivotal feature of our approach to development is the identification and integration of bolt-on acquisitions which strengthen existing market positions and provide opportunities for vertical integration.

To continue to successfully execute our strategy in pursuit of our vision of becoming the global leader in building materials, we maintain an ongoing focus on identifying, recruiting, developing and retaining individuals with the potential to become the next generation of leaders for our businesses.

Delivery of the Group’s strategy is centred on:

 

  Optimising performance and returns in our business

 

  Enhancing our balanced portfolio of diversified products and geographies

 

  Conducting our business in a responsible and sustainable manner
 

 

We are guided by a number of strategic imperatives:

LOGO          Continuous Improvement
    Drive continuous improvement and value realisation through operational, commercial and financial excellence
LOGO     Disciplined and Focused Growth
    Maintain 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
LOGO     Extracting the Benefits of our Scale
    Leverage Group capabilities and scale to build leadership positions in local markets
LOGO     Leadership Development
    Attract, develop and empower the next generation of performance-orientated, innovative and entrepreneurial leaders
   
   

 

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Strategy in action

 

 

 

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Business Model

How we create value and growth

CRH delivers its strategy through a dynamic business model which is focused on value creation and growth. Since 1970 CRH has delivered an industry-leading compound Total Shareholder Return (TSR) of 15.8%. 100 invested in CRH shares in 1970, with dividends reinvested, would now be worth 97,000.

 

 

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CRH’s business model is centered on making its core businesses better through continuous improvement so that they realise their full potential and create further value.

This is in addition to a continuous focus on the identification of new geographical platforms in our core businesses along with complementary product opportunities which support our efforts to maintain a balanced portfolio and to

establish additional platforms from which to deliver performance and growth.

By balancing our portfolio across geography, product, sector and end-use, we seek to ensure the Group is protected from the impact of low demand at the bottom of any one economic cycle.

The recycling of capital into areas offering better returns and/or superior growth is deeply

embedded into our business model. In this way, we constantly monitor how capital is deployed to create maximum long-term value.

Our focus on maintaining strong financial discipline and cash generation allows us to further invest in our businesses and to take advantage of opportunities for value-adding investments as they arise.

 

 

LOGO

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

p 2016 comparatives for EBITDA (as defined)* and RONA were €3.0 billion and 9.7% respectively.

Profit after tax and earnings per share are as reported in the Consolidated Income Statement on page 120.

 

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Measuring Performance

CRH believes that measurement fosters positive behaviour and performance improvement. As part of the Group’s strategic focus on continuous business improvement, CRH uses a number of financial and non-financial Key Performance Indicators (KPIs) to measure progress across our organisation.

 

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

EBITDA (as defined)* net interest cover is a non-GAAP measure as defined on page 212. The GAAP figures that are most directly comparable to the components of EBITDA (as defined)* net interest cover include: profit after tax: €1,919 million (2016: €1,270 million), finance costs: €301 million (2016: €325 million) and finance income: €12 million (2016: €8 million). Details of how non-GAAP measures are calculated are set out on pages 210 to 213.

 

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Sustainability

Achieving long-term success through sustainability

We believe that a strong sustainability performance is fundamental to achieving our vision of becoming the leading building materials business in the world. As part of our strategy to maximise long-term value and deliver superior returns, we embed sustainability principles in all areas of our business. As we deliver on our strategy, we have a unique opportunity to contribute to some of the key sustainable development challenges facing society.

 

Our approach

We take a risk-based, collaborative, strategic approach to responding to global trends in the areas of demographic change, urbanisation, climate change, resource scarcity and technological developments. Risks related to sustainability, including climate-related risks, are fully embedded in our Enterprise Risk Management (ERM) Framework, described on page 20, and details of sustainability risks are given on page 104.

Sustainability principles are embedded in all areas of our business strategy. At Group level, we set policies in key sustainability areas and the delivery of these is the responsibility of management.

We have strong governance structures in place. Policy implementation, effectiveness

and performance against our medium-term objectives as well as long-term ambitions is monitored and reviewed regularly by the Board of Directors. Acquired businesses are rapidly integrated into our processes.

Our annual Sustainability Report, which is prepared in line with the Global Reporting Initiative Standards, is published following external independent assurance and is available at www.crh.com.

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

Our view

With our extensive global presence and industry leadership positions, we are very aware of our role in the many communities in which we operate. Our materials and products are found throughout the built environment – from critical infrastructure and iconic commercial real estate buildings to family homes in suburban neighbourhoods.

Our business activities provide materials that are needed to fulfil the basic human need of shelter, together with the infrastructure that is needed for our societies to thrive. We believe that meeting these needs in a manner that respects sustainability principles will create long-term value for all our stakeholders including; investors, customers, employees, partners, suppliers, neighbours and local communities.

 

 

LOGO

CRH Americas Products businesses Oldcastle Architectural, Oldcastle BuildingEnvelope® and Oldcastle Precast all provided products to the Mercedes-

Benz Stadium in Atlanta, Georgia. The stadium is the first professional stadium in North America to achieve Leadership in Energy and Environmental Design (LEED®)

platinum certification.

 

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Our sustainable value

creation model

As we work towards our vision of becoming the leading building materials business in the world, we are careful to ensure that this is not simply about achieving size and scale. It is about building resilient businesses that are the best at what they do, that create sustainable value for all stakeholders and that deliver growth for our shareholders.

Our aim is to create sustainable value by providing industry-leading products and solutions to satisfy the construction needs of our customers around the world. By considering the full life cycle of our products and innovating to drive more sustainable

outcomes in the built environment, we can have a positive impact on wider society and the environment while delivering profitable growth.

As well as being beneficial for our business, these ambitions also have an outward focus. In collaboration with our stakeholders, our actions also contribute to the delivery of key initiatives. These include the World Business Council for Sustainable Development’s Low Carbon Technology Partnership Initiative, to which we are a signatory, and the United Nations’ (UN) Sustainable Development Goals.

CRH is ranked among sector leaders by leading Environmental, Social and Governance (ESG) rating agencies. We are a constituent

member of indices including the FTSE4Good Index, the STOXX® Global ESG Leaders Indices and the Dow Jones Sustainability Indices. In addition, many operating companies have achieved accolades for excellence in sustainability achievements.

 

 

Our sustainable products in the built environment

 

LOGO

 

1   Balcony connector products that reduce thermal bridging, delivering energy saving

 

2   Concrete Masonry Units with recycled content

 

3   Concrete with low embodied energy and carbon savings supported by life cycle analysis and locally sourced

 

4   Skylights with energy saving from solar heat gain

 

5   Glass with energy saving from solar heat gain

 

6   Precast concrete flooring and walling elements delivering energy savings

 

7   High performance glass and glazing products that incorporate innovative thermal break technologies for superior thermal performance and solar heat gain control while providing essential daylight and ventilation for the building

 

8   Vaulted ceilings with improved thermal comfort, daylight and ventilation, containing recycled content and lower embodied energy

 

9   Lower carbon warm-mix asphalt with high recycled content and sustainable run-off design

 

10  Permeable paving connected to sustainable urban drainage systems

 

11  Shutters and awning products, reducing solar heat gain

 

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Sustainability - continued

Progressing our key priority areas

 

LOGO

 

LOGO   Embedding a culture of safety

Safety has long been a strategic priority for CRH. There are multiple safety risks and hazards associated with our industry, therefore, our focus on safety is unrelenting. Our global network of safety officers works closely with our businesses in implementing policy and best practice across all of our operations.

In 2017, 94% of active locations were accident free. The accident frequency rate (number of accidents per million manhours) continued to decline and has reduced by an average of 12% per annum over the last decade. We are however deeply saddened to report that there were three employee fatalities and seven contractor fatalities at our operations during 2017. Of these fatalities, three were road traffic accidents. We deeply regret this loss of life and extend our sincere sympathies to the families of each individual. All fatalities are independently investigated and we continue to implement our Fatality Elimination Plan, which remains a cornerstone of our safety strategy and which proved effective in eliminating employee fatalities in both 2014 and 2015.

We also continue to invest in initiatives targeted at promoting and maintaining a strong culture of safety and in the past five years over 160 million has been invested in this area.

 

LOGO

 

LOGO   Creating solutions for our customers

Every day, in 32 countries worldwide, our employees deliver solutions for customers in the residential, non-residential and infrastructure market segments. We work with our customers to create products that deliver specific sustainability and performance goals, solve problems through innovative design, products and processes, and create added value for their businesses.

We maintain a strong focus on the development of climate-friendly building materials such as lower carbon cements, warm-mix asphalt and recycled aggregates. Not only does this help to reduce CO2 emissions, it also minimises construction waste. Approximately 75% of our US asphalt volume in 2017 was lower carbon warm-mix asphalt, as defined by the National Asphalt Pavement Association, and recycled asphalt pavement and shingles provided a fifth of raw materials requirements in this business. In addition, products such as concrete and building envelope products can also contribute to a more energy-efficient, resilient and sustainable built environment.

LOGO

 

LOGO   Collaborating and engaging for sustainability

Business is about people, and at CRH we believe success is built on developing transparent and trusting relationships with all stakeholders. We take an inclusive, collaborative and responsive approach to developing stakeholder relationships, taking care to maintain transparency throughout.

Our businesses are rooted in local communities and it is our aim to create real and lasting value for our stakeholders. Whether serving our customers, participating in community initiatives or partnering with each other, we know that in today’s increasingly complex world, we can achieve much more when we collaborate with others.

In 2017 our Group companies hosted 1,100 stakeholder events in keeping with our policy to engage in an open, honest and proactive way. The outcomes from these stakeholder engagement processes inform our continuous improvement activities.

 

 

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LOGO

 

LOGO   Developing and empowering our people

With operations in 32 countries, CRH is not only multinational but also multicultural. Our aim is to attract and develop a workforce that is as diverse as our customers and our communities, recognising that people are critical to sustaining competitive advantage and long-term success. We believe that employing people from a broad range of ethnicities, backgrounds, experiences and perspectives creates an inclusive workforce, which provides us with competitive advantage.

The building materials industry traditionally attracts more male than female employees. In 2017, 17% of employees overall were female, while of operational staff, 11% were female and of clerical and administrative staff, 41% were female. Within senior management, 9% were female. As at 28 February 2018, 30% of the Directors of CRH plc were female.

In 2017, we continued with our focused diversity programmes, which are aimed at increasing social diversity, not only of employees, but also of the pool of talent available to take up opportunities in CRH. Going beyond this, we endeavour to ensure equal access to rewarding career and personal development experiences for employees worldwide.

In 2017, we continued to place an emphasis on training and skills learning, as well as developing and recruiting talented leaders to guide our evolving and growing Group.

LOGO

 

LOGO   Protecting the environment

While potential impacts and risks vary across our businesses, excellence in environmental management, together with a proactive approach to addressing the challenges and opportunities of climate change, is fundamental to our continuous improvement approach.

We work with stakeholders including customers and the wider building materials industry in promoting energy and resource efficiency, emissions reductions and biodiversity enhancements. For example, by incorporating alternative raw materials into our products we reduced our reliance on virgin raw materials by 30 million tonnes in 2017.

Climate change is a key societal challenge and we have governance structures that provide oversight, assessment and management of climate-related risks and opportunities. Our climate strategy, which is integrated with our business strategy, focuses on providing building solutions that reduce emissions and promote climate resilience, recognising the long-term durability, resilience and carbon benefits of concrete construction during the lifetime of buildings. We also focus on reducing our own emissions and hence the carbon footprint of our products.

We are on-track to achieve our commitment to reduce specific net CO2 emissions by 25% on 1990 levels by 2020; 2017 emissions were 22% below 1990 levels. Key performance indicators in this area are included on page 14.

 

LOGO

 

LOGO   Building a resilient and sustainable business

We view integrity and good governance as fundamental to long-term business success and we are committed to meeting the highest standards of business conduct and corporate governance.

We implement our comprehensive Code of Business Conduct (CoBC), which is underpinned by our policies including Anti-Fraud & Anti-Theft, Anti-Bribery and our Competition Code. In addition, we have implemented an Ethical Procurement Code and Supplier Code of Conduct, with the aim of extending our positive influence along the value chain.

We endorse human and labour rights and support the principles set out in the articles of the UN’s Universal Declaration of Human Rights and the International Labour Organisation’s Core Labour Principles. We continue to improve our processes and policies in line with evolving best practices and ensure our coverage incorporates all stakeholder groups, paying special attention to vulnerable groups such as children, women, minorities and migrant groups.

We foster an open culture of ethical behaviour driven from the top of the business, communicating to employees what is expected of them and equipping them with the tools they need to ensure compliance. We embrace a ‘speak-up’ culture where employees are encouraged to inform us immediately of any actual or suspected unethical behaviour or a possible breach of conduct.

 

 

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Risk Governance

Creating value through risk management

The goal 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, capturing opportunities, achieving regulatory compliance and in promoting effective decision making.

 

Effectively managing risk is of vital importance in CRH and the Group’s Enterprise Risk Management (ERM) Framework is the basis for identifying, assessing and managing risks associated with business and strategic corporate decisions. ERM in CRH is a forward-looking, strategy-centric 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 integrates

 

strategic decision making and risk taking in order to preserve and/or enhance value and reputation.

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’) addresses 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.

 

 

CRH Risk Management Framework

Our Three Lines of Defence

 

LOGO

 

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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 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 which is highlighted on page 20.

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 Audit Committee in turn monitors the activities of various functions including; Group Regulatory, Compliance & 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.

The Board and Audit Committee receive, on a regular basis, reports from management on the key strategic, operational, compliance, financial and other 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 102 to 107.

Our Risk Assessment Process

CRH’s risk management process operates to ensure a comprehensive evaluation of risks is performed and is the subject of continuous improvement. CRH operates both a top-down and bottom-up risk assessment to ensure that risks presented to the Audit Committee and Board are representative of the risks faced by our business in strategy execution. The risk management cycle operates as follows:

 

LOGO

Identify and Assess

Management identifies risks as part of their day-to-day activities and is required to conduct a robust assessment of these risks. 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 in the event that the risk materialises

 

  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 is required to assess all risks which could have an impact on the current or future operation of the business and to 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 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, highlights those risks which may impede the realisation of core strategic objectives. The risks are fed up from our businesses through the bottom-up assessment which forms the basis of our Register. Additional strategic and Group-related risks are added to ensure the risks highlighted on pages 102 to 107 of this report are reflective of the barriers to the realisation of our business strategy. These risks form the basis of Board and Audit Committee communications and discussions.

 

 

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Business Performance   
Business Overview      24                      
Finance Director’s Review      25                      
Segmental Reviews      30                      

 

 

 

 

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Business Overview

The percentage of Group revenue and operating profit for each of the reporting segments for 2017, 2016 and 2015 is as follows:

Revenue

 

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Operating Profit

 

LOGO

 

 (i) During 2017 the Americas Distribution segment was classified as discontinued operations. Comparative amounts for 2016 and 2015 have been restated.

 

(ii) During 2017, our dedicated European landscaping businesses previously included within our Europe Heavyside segment were reorganised to form a new platform, Architectural Products, within our Europe Lightside segment. Comparative segment amounts for 2016 and 2015 have been restated where necessary to reflect the new format for segmentation.  

 

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Finance Director’s Review 2017

 

2017 was a year of growth for CRH with increases in underlying demand in the Americas, and continued positive momentum in Europe, while very competitive market conditions remained in Asia. With a constant focus on performance in all our businesses, coupled with our vertically integrated business model for heavyside materials, good operational leverage underpinned improved margins and returns in our American and European Divisions. The Group also maintained a focus on cash generation and appropriate deployment of capital as operating cash flow for the year amounted to 2.2 billion (2016: 2.3 billion) and year-end net debt increased by 0.5 billion to 5.8 billion (2016: 5.3 billion) despite acquisition spend net of disposal proceeds increasing to 1.7 billion (2016: net inflow 0.1 billion).

 

Key Components of 2017 Performance

 

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

 

Despite hurricane activity and record levels of rainfall during the year, our Americas operations benefited from the continuation of stable market fundamentals in the US and good underlying demand. An organic salesp increase of 3% in our Americas Materials Division was supported by continued growth in the residential and non-residential sectors, while infrastructure remained relatively stable in our markets. In Americas Products, sales were broadly in line with prior year as good growth along the West Coast and parts of the South and Southeast were partly offset by more modest trading in Canada and parts of the Northern US.

 

In Europe, total sales were up 1% compared with 2016 and organic sales were 2% ahead due to continued recovery in key markets. Europe Heavyside’s outturn was positive, with a broad-based recovery in Ireland, France, Poland and Finland more than offsetting more subdued activity in Switzerland and the UK. Europe Lightside experienced a year of further progress as good performances in a number

   

of our main markets resulted in sales finishing 3% ahead of 2016. The backdrop at Europe Distribution was stable as a strong contribution from the Netherlands together with solid demand in Belgium and Germany was partly offset by continued challenges in Switzerland.

 

In Asia, economic growth and market fundamentals remained robust in the Philippines, with both residential and non-residential demand stable, though infrastructure investment was slower than expected and pricing remained very competitive. In India, a favourable economic backdrop continued to drive demand, while reduced construction activity in China had a negative impact on volumes but this was more than offset by stronger pricing.

 

Americas Distribution, which has been classified as discontinued operations for reporting purposes, benefited from good underlying demand, particularly for Exterior Products.

 

EBITDA (as defined)* from continuing and discontinued operations for the year amounted to 3.3 billion, a 6% increase on 2016 (2016: 3.1 billion) and reported profit after tax was 1.9 billion (2016: 1.3 billion).

 

The euro strengthened against most major currencies during 2017, particularly towards the end of the year resulting in the average euro/Pound Sterling rate weakening from 0.8195 in 2016 to 0.8767 in 2017 and the US Dollar weakening from an average 1.1069 in 2016 to 1.1297 in 2017. Overall currency movements resulted in an unfavourable net foreign currency translation impact on our results as shown on the table on page 26. The average and year-end 2017 exchange rates of the major currencies impacting on the Group are set out on page 134.

 

The underlying results for the year were augmented by two one-off items; a past service credit of 81 million due to changes in a Swiss pension scheme and a 447 million

     

reduction in the Group’s net deferred tax liabilities due to changes in tax legislation related to the enactment of the “Tax Cuts and Jobs Act” in the US during 2017.

 

 
          LOGO  

2017 was a year

of growth for CRH, with increases in underlying demand

in the Americas and continued positive momentum in Europe

    

    

Senan Murphy, Finance Director

 

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  †   See cautionary statement regarding forward-looking statements on page 97.

  * EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, asset impairment

       charges, profit on disposals and the Group’s share of equity accounted investments’ profit after tax.

 p  Details of how non-GAAP measures are calculated are set out on pages 210 to 213.

  ‡   Profit after tax and earnings per share are as reported in the Consolidated Income Statement on page 120.

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

 

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Finance Director’s Review 2017 - continued

Key Components of 2017 Performance

 

     Sales        EBITDA            Operating        Profit on        Finance            Assoc. and            Pre-tax  
million          revenue            (as defined)*        profit            disposals            costs (net)        JV PAT (i)        profit  
2016      24,789          2,980          1,908          53          (383)          42          1,620  

Exchange effects

 

    

 

(479)

 

 

 

      

 

(74)

 

 

 

      

 

(53)

 

 

 

      

 

(1)

 

 

 

      

 

6

 

 

 

      

 

1

 

 

 

      

 

(47)

 

 

 

2016 at 2017 rates      24,310          2,906          1,855          52          (377)          43          1,573  
Incremental impact in 2017 of:                                 
- 2016/2017 acquisitions      596          60          14          -          (8)          -          6  
- 2016/2017 divestments      (204)          (21)          (14)          (3)          1          -          (16)  
- LH Assets integration costs (ii)      -          45          45          -          15          -          60  
- Swiss pension past service credit (iii)      -          81          81          -          -          -          81  
- Early bond redemption      -          -          -          -          (18)          -          (18)  

- Organic

 

    

 

518

 

 

 

      

 

75

 

 

 

      

 

114

 

 

 

      

 

7

 

 

 

      

 

38

 

 

 

      

 

22

 

 

 

      

 

181

 

 

 

2017

 

    

 

25,220

 

 

 

      

 

3,146

 

 

 

      

 

2,095

 

 

 

      

 

56

 

 

 

      

 

(349)

 

 

 

      

 

65

 

 

 

      

 

1,867

 

 

 

% Total change

 

    

 

2%

 

 

 

      

 

6%

 

 

 

      

 

10%

 

 

 

                                       

 

15%

 

 

 

% Organic change

 

    

 

2%

 

 

 

      

 

3%

 

 

 

      

 

6%

 

 

 

                                       

 

12%

 

 

 

 

(i) CRH’s share of after-tax profits of joint ventures and associated undertakings.
(ii) LH Assets integration costs of 45 million were incurred in 2016. In addition, following the related debt restructuring, finance costs reduced by 15 million in 2017.
(iii) 2017 includes a one-off past service credit of 81 million due to changes in the Group’s pension scheme in Switzerland.

 

Liquidity and Capital Resources - 2017 compared with 2016

The comments that follow refer to the major components of the Group’s cash flows for 2017 and 2016 as shown in the Consolidated Statement of Cash Flows on page 124.

Throughout 2017 the Group remained focused on cash management. Operating cash flow decreased marginally to 2.2 billion (2016: 2.3 billion) with net working capital outflow for the year of 209 million (2016: 56 million inflow) reflecting trends in overall sales, seasonal weather patterns and the impact of acquisitions in the final quarter of the year. Working capital of 1.8 billion at year end (2016: 2.1 billion) represented just 7.2% of sales (2016: 8.5%), continuing the downward movement in this metric for the Group since 2011. CRH believes that its current working capital is sufficient for the Group’s present requirements.

Focused spending on property, plant and equipment in markets and businesses with increased demand backdrop and efficiency requirements, particularly in the Americas, resulted in higher cash outflows of 1.0 billion (2016: 853 million), with spend in 2017 representing 104% of depreciation (2016: 85%).

During the year the Group spent 1.9 billion on 34 transactions (2016: 213 million) which was partly financed by divestment and disposal proceeds of 222 million (net of cash disposed and deferred proceeds) (2016: 283 million).

Cash dividend payments of 477 million (2016: 360 million) reflect the Group’s continued focus on returns to shareholders. Net proceeds of 42 million from share issues in 2017 were similar to last year (2016: 52 million).

Year-end interest-bearing loans and borrowings increased by 0.2 billion to 8.0 billion (2016: 7.8 billion). At year end,

the stronger euro against both the US Dollar and Pound Sterling had a positive translation impact on net debt.

Reflecting all these movements, net debt of 5.8 billion at 31 December 2017 was 0.5 billion higher than year-end 2016 (5.3 billion). The Group is in a good financial position. It is well funded and net interest cover (EBITDA (as defined)*/net debt related interest costs) is 10.9x (2016: 9.4x). As set out in note 24 to the Consolidated Financial Statements the Group is significantly in excess of the minimum requirements of its covenant agreements.

In May 2017, the Group successfully issued a total of US$1.0 billion dollar bonds comprised of a US$0.6 billion 10-year bond at a coupon rate of 3.4% and a US$0.4 billion 30-year bond at a coupon rate of 4.4%. Concurrently, an any-and-all tender offer was made for the US$0.65 billion bond due in 2018, with the final result being that US$0.36 billion were validly tendered and accepted for purchase, which

 

 

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

 

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gave rise to a one-off charge of 18 million. The early redemption of these Notes results in overall net interest savings for the Group in 2017 and 2018.

The 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 2017 with total liquidity of 5.7 billion comprising 2.1 billion of cash and cash equivalents on hand and almost 3.6 billion of undrawn committed facilities (which are available until 2022). At year end the cash balances were enough to meet all maturing debt obligations for the next 3.6 years and the weighted average maturity of the remaining term debt was 10.5 years.

CRH also has a US$1.5 billion US commercial paper programme and a 1.5 billion Euro commercial paper programme. The purpose of these programmes is to provide short-term liquidity at attractive terms. There was no commercial paper outstanding under either of these programmes at 31 December 2017.

Contractual obligations and Off-Balance Sheet arrangements are disclosed on page 214 of this Annual Report and Form 20-F.

Segmental Reviews

The sections on pages 30 to 53 outline the scale of CRH’s continuing operations in 2017, and provide a more detailed review of performance in each of CRH’s reporting segments. As set out in note 1 to the Consolidated Financial Statements (page 135), following the agreement to sell the Americas Distribution business, the Group has six reporting segments. A review of the discontinued operations, Americas Distribution, is also included on pages 54 and 55 for information.

Development Review

2017

In 2017, the Group spent a total of 1.9 billion (including deferred and contingent consideration in respect of prior year acquisitions) (2016: 0.2 billion) on 34 (2016: 24) acquisition/investment transactions. On the divestment front, the Group realised business and asset disposal proceeds of 0.2 billion (2016: 0.3 billion).

In the Americas, c. 1.3 billion was spent on 21 acquisitions and one investment. Our Materials Division completed the largest 2017 acquisition at the end of November with the acquisition of Suwannee American Cement together with certain other materials assets in Florida. The total assets acquired consist of a 1 million tonne cement plant in North Central Florida, 18 readymixed concrete plants, an aggregates quarry, two block plants and nine gunite facilities. The Materials Division also completed 12 further bolt-on acquisitions, including two in Canada, adding c. 2.5 billion tonnes of additional aggregates reserves. The Products Division completed eight acquisitions and one investment in 2017 at a cost of c. 0.2 billion.

In Europe, c. 0.6 billion was spent on ten acquisitions and two investments. This is split between eight acquisitions and one investment in Europe Heavyside and two acquisitions and one investment in Europe Distribution.

 

 

 

The largest acquisition in Europe in 2017 was that of the Fels lime business which was acquired at the end of October 2017. Fels has significant high-quality limestone reserves and 11 production locations; nine in Germany and one in both the Czech Republic and Russia. The majority of production capacity is situated in the Harz region of East Germany, providing a strong platform for future growth.

Business divestments during 2017, all in Europe, generated net proceeds of c. 85 million. The remaining clay products businesses in Europe (Belgium, Germany, Netherlands and Poland) were divested and our Heavyside Division also sold its civil prefabricated concrete businesses in the Benelux, along with seven other small non-core businesses. In addition to these business divestments, the Group realised proceeds of c. 137 million from the disposal of surplus property, plant and equipment.

As previously announced, CRH completed the sale of its Americas Distribution business on 2 January 2018 for proceeds of US$2.6 billion. In addition, we reached an agreement with the Board of Ash Grove Cement to acquire a portfolio of cement and other materials assets. The deal is due to close in 2018 and will give CRH a market leadership position in the North American cement market for the first time.

 

 

 
 

 

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Finance Director’s Review 2016

 

The overall trading backdrop in 2016 was positive with good momentum in both the Americas and Europe, albeit at different paces, supported by a good performance from the newly established Asia Division. In addition, our businesses benefited from favourable weather patterns in the Americas at the start of 2016. With a relentless focus on performance in all our businesses, coupled with our vertically integrated business model for heavyside materials, good operational leverage underpinned improved margins and returns. Following the two major acquisitions of the LH Assets and CRL in the second half of 2015, the Group focused in 2016 on completing their integration, extracting synergies and on prudent financial management to return debt metrics to nomalised levels. With this focus, 89 million of synergies were realised while operating cash flow for the year amounted to 2.3 billion (2015: 2.2 billion) and year-end 2016 net debt finished at 5.3 billion (2015: 6.6 billion).

Key Components of 2016 Performance

Overall sales of 24.8 billion for 2016 were 16% ahead of 2015 reflecting the inclusion of full-year 2016 results from the two major acquisitions, while organic sales from operations were up 3%, reflecting positive momentum in the Group’s major markets.

An increase of 9% in the Americas’ sales reflected the inclusion of the Canadian element

of the LH Assets and CRL. Organic sales from operations increased 2% in 2016 benefiting from favourable early weather with more normalised demand patterns experienced in the second half of 2016. Americas Materials benefited from stable federal funding underpinned by increased state spending and improved non-residential activity. At Americas Products, continued positive momentum in construction markets was supported by low interest rates and increasing employment. With higher sales and good cost control, profits and margins improved in our Americas segments. Our former reporting segment Americas Distribution (now disclosed as discontinued operations) also benefited from the good underlying demand.

In Europe total sales were up 20% compared with 2015 and organic sales were 4% ahead on the back of continued recovery in some key markets. In addition to the full-year 2016 contributions from the LH Assets in the UK and mainland Europe, Europe Heavyside faced a mixed backdrop, benefiting from a broad-based recovery in the Netherlands, Ireland, Finland and Ukraine with more subdued activity in Switzerland and Poland. Europe Lightside experienced strong demand in key markets while Europe Distribution benefited from improving demand in the Netherlands with a more challenging backdrop in Switzerland.

The Asia Division reflects results from the Philippines operations acquired as part of the

LH Assets in the second half of 2015 together with CRH Asia’s divisional costs. Separately, the Group’s investments in India and China are equity accounted. In the Philippines, construction demand was supported by good economic growth, strong domestic consumption and low inflation. In India, a favourable economic backdrop continued to drive construction demand but pricing remained challenging while reduced construction activity in China had a negative impact on volumes and prices.

EBITDA (as defined)* for 2016 amounted to 3.0 billion, a 43% increase on 2015 (2.1 billion) and reported profit after tax was 1.3 billion (2015: 0.7 billion).

In 2016, the euro strengthened versus most major currencies, particularly the Pound Sterling which weakened from an average 0.7258 in 2015 to 0.8195 in 2016. The effect of this was only partially offset by a small change in the average euro/US Dollar rate, which, despite strengthening towards the end of 2016, averaged 1.1069 for 2016 and was broadly similar to 2015 (1.1095). Overall currency movements resulted in an unfavourable net foreign currency translation impact on our results as shown in the table below. The average and year-end 2016 exchange rates of the major currencies impacting on the Group are set out on page 134.

 

 

Key Components of 2016 Performance

 

     Sales      EBITDA          Operating      Profit on      Finance          Assoc. and              Pre-tax  
million        revenue          (as defined)*      profit          disposals          costs (net)      JV PAT (i)      profit  
                                                              
2015      21,406        2,079        1,166        99        (389)        44        920  
Exchange effects      (338)        (29)        (11)        (7)        3        1        (14)  
                                                              
2015 at 2016 rates      21,068        2,050        1,155        92        (386)        45        906  
Incremental impact in 2016 of:                     
- 2015/2016 acquisitions      3,624        546        337        -        (33)        2        306  
- 2015/2016 divestments      (506)        (29)        (13)        (51)        3        (14)        (75)  
- LH Assets integration costs (ii)      -        152        152        -        -        -        152  
- Swiss fine      -        32        32        -        -        -        32  
- Early bond redemption      -        -        -        -        38        -        38  
- Organic      603        229        245        12        (5)        9        261  
                                                              
2016      24,789        2,980        1,908        53        (383)        42        1,620  
                                                              
% Total change      16%        43%        64%                 76%  
                                                              
% Organic change      3%        11%        21%                 29%  
                                                              

 

(i) CRH’s share of after-tax profits of joint ventures and associated undertakings.
(ii) LH Assets integration costs of 45 million were incurred in 2016 (2015: 197 million).

 

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

 

  Profit after tax and earnings per share are as reported in the Consolidated Income Statement on page 120.

 

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The two major 2015 acquisitions (the LH Assets and CRL) account for the vast majority of the acquisition impact included in the table on page 28.

Liquidity and Capital Resources – 2016 compared with 2015

The comments that follow refer to the major components of the Group’s cash flows for 2016 and 2015 as shown in the Consolidated Statement of Cash Flows on page 124.

Following the significant acquisition spend in 2015, prudent financial management to return debt metrics to normalised levels was a key objective for 2016. The Group focused on working capital in particular, and operating cash flow increased to 2.3 billion (2015: 2.2 billion). Year-end 2016 working capital of 2.1 billion delivered a net positive movement (inflow) for the year of 56 million (2015: 585 million).

Strong control of spending on property, plant and equipment concentrating on markets and businesses with increased demand backdrop and efficiency requirements resulted in lower cash outflows of 853 million (2015: 882 million).

During 2016 the Group spent 213 million on 24 bolt-on transactions (2015: 7.4 billion) which was financed by divestment and disposal proceeds of 283 million (net of cash disposed and deferred proceeds) (2015: 889 million).

Cash dividend payments of 360 million (2015: 383 million) reflect the Group’s continued focus on returns to shareholders. Net proceeds of 52 million from share issues in 2016 was significantly less than 2015 proceeds of 1.6 billion due to the 74 million shares placed in February of that year in connection with the acquisition of LH Assets.

Year-end 2016 interest-bearing loans and borrowings decreased by 1.4 billion to 7.8 billion (2015: 9.2 billion). The strengthening of the US Dollar versus the euro at 31 December 2016 (versus 31 December 2015) had a negative impact on net debt, but this was offset by the positive translation impact of a weakening Pound Sterling, such that the net translation impact was broadly neutral.

 

 

Development Review

2016

In 2016, the Group completed 21 bolt-on acquisitions and three investment transactions for a total spend of 213 million (including deferred and contingent consideration in respect of prior year acquisitions). In Europe, eight acquisitions and two investments with a total spend of c. 43 million were completed. Our Heavyside business acquired 11 readymixed concrete plants in the UK, three quarries in Ireland, an aggregates terminal in Belgium and entered into a sand & gravel joint venture in France, adding reserves of 11 million tonnes. Further investments were also made to buy out a minority position in Spain and add to an existing joint venture in Ireland. Our Lightside Division completed two acquisitions in the UK. The Distribution Division acquired a small builders merchant in Austria. In the Americas, c. 170 million was spent on 13 acquisitions and one investment. Our Materials Division completed eight bolt-on acquisitions and one investment in 2016. The principal acquisition was of a significant aggregates and asphalt operation in Utah. Seven further bolt-on acquisitions were completed. In total 93 million tonnes of permitted reserves were added during the year. The Products Division completed five acquisitions, the largest of which was of a Canadian exterior surfaces company which was a strong addition to the core hardscape business of our Architectural Products Group (APG). Three precast bolt-on operations were also acquired. Finally, a glass hardware company was added in Perth, Australia.

On the divestment front, the Group completed 13 transactions and realised total business and asset disposal proceeds of 283 million in 2016. Business divestments during 2016 generated net proceeds of 123 million. In Europe, our Distribution Division disposed of a roofing products company in the Netherlands while the Heavyside business divested of operations in Poland, Switzerland and Romania. Two small joint venture holdings in France and Germany were also divested. The Americas Materials Division disposed of select aggregates and asphalt operations in Missouri, a small waterproofing business in Michigan and a readymixed concrete operation in Iowa and Minnesota. Certain aggregates assets in Oregon and Montana were also disposed in a cash

 

neutral swap. Finally, our Americas Products Division disposed of a pavement products operation, certain precast operations in Canada and the assets of a burial vaults business.

2015

In 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 (including debt arising in acquired companies).

In Europe, four bolt-on acquisitions and one investment with a total cost of 20 million were completed. Our Lightside business completed two acquisitions; one in Australia and a concrete paviour production plant in Poland, as well as a small further investment in the Netherlands. Our Heavyside operations set up a new joint venture with its existing readymixed concrete operations in St. Petersburg, Russia. Our Distribution business acquired the plumbing operations of a steel and tool merchant in Switzerland. Ten bolt-on acquisitions and two investments were completed by our Americas Materials Division in 2015 adding over 253 million tonnes of aggregates reserves. Our Americas Products Division completed three transactions in 2015.

A total of 30 divestments, together with asset disposals generated proceeds of 1 billion in 2015; the largest of which was the sale of clay and certain concrete products operations in the UK and the Group’s clay business in the US for 0.43 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 US, 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.

 
 

 

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LOGO

 

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LOGO

 

  Segmental Reviews     
  Europe Heavyside    32        
  Europe Lightside    36        
  Europe Distribution    40        
  Americas Materials    44        
  Americas Products    48        
  Asia    52        
  Americas Distribution (Discontinued Operations)    54        

 

 

 

 

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CRH Annual Report and Form 20-F | 2017

    

 

Europe Heavyside

 

With market leading positions and a wide geographic reach, CRH is the number one Heavyside Materials business in Europe. Our Europe Heavyside Division comprises aggregates, cement, lime, concrete products operations and asphalt.   LOGO

 

What we do:

 

Europe Heavyside’s vertically integrated business is founded in resource-backed cement and aggregates assets, which support the manufacture and supply of aggregates, asphalt, lime, cement and readymixed concrete. Our materials are used extensively in a wide range of construction projects from major public infrastructure, to commercial buildings and residential structures. Customers typically range from national, regional and local governments, to building contractors and other construction product and service providers. In addition to an ability to leverage the benefits of scale and best practice, our businesses are differentiated in their markets by a proven track record in understanding the unique needs of local customers and successfully delivering for those customers.

 

How we create value:

 

Our portfolio of businesses is managed through a focus on value creation. We place great emphasis on performance improvement initiatives across our businesses 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. Our commitment to sustainability is evidenced by extensive use of alternative fuels and the manufacture of low carbon cements. Enhanced alignment and collaboration leads to value creation throughout our extensive network of well-invested facilities. With a strong pipeline of opportunities across regions, our development strategy is focused on identifying and integrating bolt-on acquisitions for synergies, reserves and further vertical integration, in addition to opportunities in contiguous regions to extend and strengthen regional positions.

 

How we are structured:

 

The Division is organised into six primarily geographical regions to leverage market synergies and economies of scale, with a small number of central support functions. The regions are 1) Tarmac (UK); 2) UK Cement & Lime, Ireland and Spain; 3) France, Benelux and Denmark; 4) Switzerland and Germany; 5) North East: Finland, Estonia, Poland, Ukraine; 6) South East: Hungary, Romania, Serbia and Slovakia. Europe Heavyside employs approximately 24,400 people at close to 1,150 locations.

 

LOGO

 

Aggregates

 

Aggregates are naturally occurring mineral deposits such as granite, limestone and sandstone. Our Europe Heavyside businesses extract these deposits and process them for sale. They are supplied as a range of aggregates products principally for use in general construction and civil engineering projects and are also used in a variety of additional CRH product lines including asphalt and readymixed concrete. Recycled concrete also increasingly features as an aggregate. For additional information on the location and adequacy of all of the Group’s mineral reserves, see the Mineral Reserves section on pages 216 and 217.

   

 

Cement

 

Cement is a primary building material used in the construction industry. It is used principally as an agent to bind other materials together. Most commonly it is mixed with sand, stone or other aggregates and water to form concrete. The Europe Heavyside Division has cement operations in 15 countries across Europe. Cement customers are mainly concrete producers, including CRH concrete operations and builders merchants supplying construction contractors and others. While cement may be imported from other countries, competition comes mainly from other large cement producers located within each country.

     

 

Lime

 

Europe Heavyside’s lime businesses produce and supply a wide range of specialist products for the agricultural, environmental, industrial and construction sectors. CRH Lime has operations in the UK, Ireland and Poland, with further operations added during 2017 in Germany, Czech Republic and Russia through the Fels acquisition. CRH is now the second largest producer of lime in the European market.

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

  ** Net Assets at 31 December 2017 comprise segment assets less segment liabilities as disclosed in note 1 to the Consolidated Financial Statements.

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

 

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Products and Services Locations

 

LOGO

 

LOGO

 

Readymixed Concrete

 

Readymixed concrete is a highly versatile building material comprised of aggregates bound together with cement and water. Europe Heavyside’s businesses sell annual volumes of over 16 million cubic metres, manufactured mainly at locations with aggregates on site, and delivered to construction sites in fluid form.

   

 

Concrete Products

 

In addition to readymixed concrete, CRH manufactures other concrete products, primarily floor and wall elements, beams and vaults for structural use. Principal raw materials include cement, crushed stone and sand and gravel, all of which are readily available locally. Readymixed concrete and concrete products are sold to both the public and private construction sectors. Competition comes mainly from other readymixed concrete and concrete products producers, as well as from a variety of smaller manufacturers in local economies.

   

 

Asphalt

 

Asphalt is the primary building material used in road surfacing and other infrastructure including airport runways. It consists of aggregates bound together with bitumen, a by-product of the oil industry. Europe Heavyside’s businesses in the UK (under the Tarmac brand), Ireland, Poland and Switzerland are involved in the production and supply of asphalt. Customers are typically government and local authorities involved in the construction and maintenance of national road networks.

       
       
       
       
       

 

  † 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 sold.

†† Including the Group’s share of equity accounted investments.

 

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Operations Review - Europe Heavyside

Prior Year 2016

 

Results                  Analysis of change                       
                                                                         
million    2015          Exchange          Acquisitions          Divestments          LH Costs            Organic          2016          % change  
                                                                         
Sales revenue      4,813        -224        +2,129        -111        -        +338        6,945        44%  
EBITDA (as defined)*      424        -21        +299        -11        +89        +1        781        84%  
Operating profit      120        -3        +183        -7        +89        +4        386        222%  
EBITDA (as defined)*/sales      8.8%                           11.2%     
Operating profit/sales      2.5%                                                     5.6%           

LH integration costs of €32 million were incurred in 2016 (2015: €121 million)

The LH integration costs refers to the businesses acquired from LafargeHolcim in 2015

 

During 2017, our dedicated European landscaping businesses previously included within our Europe Heavyside segment were reorganised to form a new platform, Architectural Products, within our Europe Lightside segment. Comparative segment amounts for 2016 and 2015 have been restated where necessary to reflect the new format for segmentation.

Trends were mixed across our major European markets in 2016 with more challenging conditions in our businesses in Switzerland and Poland contrasted by evident market recovery in Ireland, Ukraine, Finland and the Netherlands.

Sales and operating profit were well ahead of 2015, reflecting stable results in our heritage businesses and a full year’s trading and synergy benefits of 2015 acquisitions. Organic profit in the heritage businesses was assisted by volume improvements and by ongoing cost saving and efficiency measures which largely offset the impact of a challenging pricing environment in some of our key markets.

Tarmac (UK)

With a full year of trading included in the results, volumes in our aggregates and readymixed concrete business lines in the UK grew in 2016 against a stable construction backdrop. Price increases were achieved in all products except asphalt where the impact of lower prices was compensated by lower input (bitumen) costs. Despite uncertainty surrounding the UK construction market in light of the decision of the electorate in June to exit the European Union, 2016 was a year of progress for Tarmac.

UK Cement & Lime, Ireland and Spain

Despite an overall backdrop of modest growth in the cement market, the UK cement and lime operations delivered strong volumes and prices in all product categories. Together with the Irish and Spanish cement businesses, the focus on network optimisation resulted in the achievement of synergies in 2016.

In Ireland, while cement volumes grew strongly (18%), domestic pricing in particular remained under pressure due to overcapacity in the market.

With the benefit of improved cement pricing on exports to the UK, stronger overall volumes and improved domestic concrete and aggregates prices, operating profit was ahead of 2015.

In Spain, the macroeconomic situation remained weak but stable, with some regional recovery. Prices remained under pressure, and despite some improvement in cement and readymixed concrete volumes, operating profit was lower than 2015.

France, Benelux and Denmark

Our French cement operations delivered growth in volumes, primarily due to the inclusion of a full year of ownership of the LH Assets, as well as the positive impact of synergies with CRH heritage businesses and a modest recovery in the cement market, although prices remained under pressure due to strong competition and overcapacity.

Continued challenging pricing also impacted our precast business in France, although a focus on cost reduction initiatives across the business more than offset the underlying operating profit impact.

In the Netherlands, strong recovery of the residential market and an increase in centrally funded infrastructure projects delivered higher volumes in our readymixed and structural concrete operations. Readymixed concrete prices remained under continued pressure. There was some improvement in volumes and prices in Belgium.

In Denmark, with the benefit of a strong non-residential market and a year of growth in new residential construction, both volumes and prices in our structural business improved. Sales and operating profit were well ahead of 2015.

Switzerland and Germany

Stable economic and construction output combined with an early start to the season in Switzerland led to growth in readymixed concrete volumes. However, cement prices declined

against a backdrop of continued pricing pressure arising from imports, and sales and operating profit were below 2015.

Strong cement volumes in our German operations reflected a full year of ownership of the LH Assets and growth in construction output, boosted mainly by new build multi-family housing. However, pricing remained under pressure in our cement business.

North East

In Poland, weaker than expected activity adversely affected pricing in our cement and readymixed concrete products. Both sales and operating profit were behind 2015 due to the significant decline in cement volumes year-on-year.

In Finland, construction activity recovered strongly in 2016, and all our product categories reported growth in volumes; pricing remained under pressure due to overcapacity in readymixed concrete and increased cement imports. With the benefit of continued cost and efficiency initiatives, overall operating profit was ahead of 2015.

Despite the ongoing political conflict, construction activity in Ukraine increased year-on-year and our operations delivered strong trading, and operating profit was ahead of 2015. Cement volumes were up 11%, with prices also increasing in 2016. Inflation stabilised somewhat, positively impacting costs and operating profit.

South East

After a promising start, 2016 was a mixed year in Romania, and mid-year construction activity slowed as a result of lower government spending and unfavourable weather conditions.

Strong growth in volumes and prices was delivered by our cement operations in Serbia due to ongoing large motorway projects in the south of the country. Similar to 2015, overcapacity and import pressure remained a threat in the region.

Although both Hungary and Slovakia experienced a drop in infrastructure spend, growth was solid in the residential market, with improved cement volumes and prices.

 

 

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

  profit after tax.

 

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Current Year 2017

 

Results                  Analysis of change                       
                                                                         
million    2016          Exchange          Acquisitions          Divestments      LH Costs/
  Pension Credit
           Organic      2017            % change  
                                                                         
Sales revenue      6,945        -203        +95        -110        -        +175        6,902        -1%  
EBITDA (as defined)*      781        -26        +3        -17        +52        +46        839        7%  
Operating profit      386        -16        -3        -14        +52        +73        478        24%  
EBITDA (as defined)*/sales      11.2%                             12.2%     
Operating profit/sales      5.6%                       6.9%     
                                                                         

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

LH integration costs of €32 million were incurred in 2016

The LH integration costs refers to the businesses acquired from LafargeHolcim in 2015

 

The commentary below excludes the impact of a past service credit due to pension plan amendments in Switzerland.

Overall the 2017 outturn for Heavyside was positive with market recovery in Ireland, France, Poland and Finland in particular compensating for more subdued trading conditions in Switzerland and the UK. Although total sales declined, modest year-on-year organic growth resulted in improved operating profit, due to strong operating leverage arising from volume growth in some key countries, signs of progress on pricing and a continued focus on performance improvement initiatives and synergies.

Tarmac (UK)

Despite ongoing political and economic uncertainty in the UK, organic sales in our Tarmac business were ahead of 2016, with growth in building products and contracting sales and modest improvements in pricing for aggregates, asphalt and readymixed concrete compensating for a slight decline in overall volumes. Operating profit was slightly behind the prior year, with increased bitumen costs in the asphalt division not fully compensated by increased sales and the impact of performance improvement initiatives.

UK Cement & Lime, Ireland and Spain

The UK cement and lime operations maintained stable pricing against a backdrop of modest economic growth, while improvements in production processes and synergies, achieved through network optimisation, further contributed to operating profit growth.

In Ireland, both sales and operating profit were ahead of 2016 mainly due to market recovery, particularly in the residential and commercial sectors, and the resulting growth in cement, aggregates and readymixed concrete volumes; positive trends on pricing across key products also contributed to sales and operating profit.

The performance in Spain advanced on prior year, with an improving macroeconomic situation.

France, Benelux and Denmark

Both sales and operating profits in France benefited from increased volumes in all major products, particularly cement and readymixed concrete, driven by growth in the residential sector, although pricing remained challenging.

Organic sales in the Benelux grew in 2017 with a strong contribution from some larger projects in the Belgian structural business and continued growth in the Dutch residential sector; operating profit declined, impacted by a one-off cost in the structural business.

The 2017 outturn in Denmark was positive, with sales and operating profit significantly ahead of prior year supported by residential construction in major cities, some large non-residential projects and overall modest economic growth.

Switzerland and Germany

Both sales and organic operating profit were behind prior year in Switzerland due to difficult market conditions, with overall domestic cement consumption also impacted by poor weather early in the year. With continued pricing pressure arising from imports, cement prices declined.

Lower cement volumes were experienced in our German operations due to reduced demand in key rural markets, a competitive landscape and individual project delays; results were behind 2016. Our new lime acquisition, Fels, performed in line with expectations.

North East

Improvement in the residential sector and an overall positive economic backdrop resulted in cement volumes in Finland finishing ahead of 2016 and, despite competition from importers negatively affecting cement pricing, operating profit increased.

Overall economic growth was experienced in Poland, driven by private consumption and supported by EU-financed public spending. In addition, execution of previously delayed infrastructure projects resulted in growth in cement volumes and both sales and operating profit were well ahead of 2016.

Both sales and operating profit in Ukraine increased in 2017, with pricing improvement mitigating the impact of inflation and compensating for a decline in cement volumes, which were affected by an increased level of imports.

South East

Our operations in Hungary and Slovakia benefited from solid economic and construction growth in 2017. Improved sales and operating profits were driven by higher cement and readymixed concrete volumes, some positive signs on pricing and an emphasis on performance improvement.

Although the mix of products and projects in Serbia negatively affected cement pricing, overall sales and operating profit were ahead of 2016, supported by both ongoing infrastructure projects and some residential growth.

Organic sales in Romania were slightly ahead of 2016, with poor weather in the early part of the year and slower than anticipated commencement of major infrastructure projects compensated by stronger volumes in the last quarter. Operating profits were ahead of 2016, positively impacted by continued price improvement and by performance improvement initiatives.

 

 

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

  profit after tax.

 

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Europe Lightside

 

CRH’s Europe Lightside Division is comprised of businesses engaged in the manufacture and supply of high quality, value-added, innovative products and solutions for customers in construction markets globally.

 

 

LOGO

What we do:

 

We operate a portfolio of value-added product platforms across four business areas; Construction Accessories, Shutters & Awnings, Network Access Products & Perimeter Protection and Architectural Products. Customer understanding, product and process innovation and the relative ease with which certain of our products can be transported long distances, are all key features of this Division’s business.

 

Our strategy is to build and grow scalable businesses, balanced across a range of products, geographies and end-use sectors, through increasing the penetration of our range of value-added products and creating competitive advantage through strong customer relationships, brand leadership and service. Our development strategy is to deepen our positions in existing business platforms, to broaden our differentiated product portfolio through selected new growth platforms that are exposed to attractive global megatrends, 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.

 

How we create value:

 

We realise commercial, operational and procurement synergies across the wider CRH network to benefit from scale and best practice. We also 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.

 

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

 

How we are structured:

 

CRH Europe Lightside is organised into four business areas: Construction Accessories, Shutters & Awnings, Network Access Products & Perimeter Protection and Architectural Products. The Division employs approximately 7,300 people at close to 180 locations.

 

 

LOGO

Construction Accessories

 

CRH’s Construction Accessories business is a leading global manufacturer and supplier of high-value innovative products and engineered solutions for challenging construction projects.

 

Construction Accessories products include a broad range of engineered anchoring, fixing and connection solutions as well as lifting systems, formwork accessories and general accessories for construction applications.

 

    

 

From our manufacturing footprint located mostly in Northern Europe, we export products across the world, targeting large-scale projects through project specification.

 

Construction Accessories products have been specified and used in many high-profile projects globally including skyscrapers, stadiums and infrastructure developments.

 

Network Access Products

& Perimeter Protection

 

The Network Access Products operation designs and manufactures technical systems for the access and protection of buried and above ground infrastructure, including composite access chambers and covers, and meter boxes. Due to the lightweight composite design, these products offer a time-saving alternative to traditional methods of construction.

 

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

      investments’ profit after tax.

  ** Net Assets at 31 December 2017 comprise segment assets less segment liabilities as disclosed in note 1 to the Consolidated Financial Statements.

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

 

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Products and Services Locations

 

LOGO

 

LOGO

 

    

 

 

Our Perimeter Protection business designs, manufactures, installs and services fully integrated outdoor security and detection solutions. This includes permanent and temporary fencing, entrance control and perimeter intrusion detection systems (PIDs).

 

 

Architectural Products

 

CRH’s landscaping businesses in Europe (formerly reported as part of Europe Heavyside) are now structured as a new Architectural Products platform within Europe Lightside.

 

The Architectural Products business is a leading producer of exterior hardscape products across six European countries. It produces pavers, kerbs, retaining walls and slabs for both private and public use. Products are sold to General Builders Merchants and Do-It-Yourself (DIY) outlets as well as to municipalities and large contractors.

 

 

Shutters & Awnings

 

The Shutters & Awnings business designs, manufactures and supplies roller shutters, awnings, terrace roofs and related products for sun protection and outdoor living. Our companies offer energy-efficient products and solutions which contribute to a secure, sustainable and comfortable environment. Shutters & Awnings is well positioned to take advantage of a number of trends in the European building industry such as higher RMI spending, energy-efficiency, heightened security concerns, outdoor living and the emergence of “smart” homes.

 

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CRH Annual Report and Form 20-F | 2017

    

 

Operations Review - Europe Lightside

Prior Year 2016

 

Results            Analysis of change                  
million        2015          Exchange          Acquisitions          Divestments              Organic                  2016              % change  
Sales revenue      1,404        -32        +30        -50        +40        1,392        -1%  
EBITDA (as defined)*      136        -4        +2        -3        +6        137        1%  
Operating profit      90        -9        +2        -1        +10        92        2%  
EBITDA (as defined)*/sales      9.7%                    9.8%     
Operating profit/sales      6.4%                                            6.6%           

 

During 2017, our dedicated European landscaping businesses previously included within our Europe Heavyside segment were reorganised to form a new platform, Architectural Products, within our Europe Lightside segment. Comparative segment amounts for 2016 and 2015 have been restated where necessary to reflect the new format for segmentation.

Although reported sales declined 1% driven by exchange and divestments, 2016 was a year of good underlying sales growth for Europe Lightside due to strong performances in key markets combined with some favourable weather patterns in the first-half of 2016. Our UK-based businesses continued to benefit from strong activity levels, with a robust residential construction sector in particular. In the Netherlands and France, recovery in construction activity was evident. Swiss market circumstances were challenging, while Germany and Belgium were ahead. Operating profit increased through a combination of growing demand, continuous product innovation, delivery on cost optimisation initiatives and margin expansion activities.

Construction Accessories

Like-for-like sales in the Construction Accessories platform grew by 5%, mainly resulting from a combination of continued innovation in key product lines and strong demand in some of our main markets, such as the UK and Germany. While competitive pressure in Switzerland intensified, activity levels in our other European markets and Australia picked up, resulting in strong organic growth across the platform. Our Southeast Asia business recorded a solid performance despite challenging trading conditions. Overall operating profit progressed well, reflecting a combination of organic sales growth and the positive impact arising from internal efficiency improvement initiatives undertaken in 2016.

Shutters & Awnings

The Shutters & Awnings business recorded flat like-for-like sales in 2016. The German Awnings business saw an increase in sales through a combination of benign weather patterns and the introduction of a number of new products to the market. The German Shutters business delivered a solid performance in relatively flat markets, increasing profitability as a result of the impact of continued performance optimisation measures. The UK business reported a stable organic performance, which was further aided by a complementary acquisition. Despite a decline in like-for-like sales, the Netherlands showed solid profit performance as margins increased in a competitive environment.

Network Access Products

& Perimeter Protection

Network Access Products recorded an increase in both organic sales and operating profit through positive demand trends in the UK market in particular. Results were also supported by a positive contribution from its newly acquired UK-based business.

The permanent Perimeter Protection business saw a decline in sales, but still showed improvement in performance and continued progress following the restructuring of both its German and UK businesses. Our mobile fencing operation benefited from good demand particularly in its export business with a resultant increase in sales and profitability.

Architectural Products

Architectural Products sales progressed on 2015, however overall operating profit was behind. At our German business, sales were ahead of 2015 but operating profit was behind mainly as a result of product mix. Our Polish business experienced lower sales than 2015 whilst in Belgium and the Netherlands sales were ahead of 2015 reflecting improving economic conditions.

 

 

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

 

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Current Year 2017

 

Results            Analysis of change                  
million      2016                  Exchange                    Acquisitions                         Organic      2017                    % change  
Sales revenue      1,392        -15        +7        +56                      1,440        3%  
EBITDA (as defined)*      137        -2        +1        +7        143        4%  
Operating profit      92        -2        +1        +11        102        11%  
EBITDA (as defined)*/sales      9.8%                 9.9%     
Operating profit/sales      6.6%                                   7.1%           

 

Europe Lightside experienced a year of further growth as good performances in a number of key markets resulted in total sales for the Division finishing 3% ahead of 2016. Strong activity levels in the UK market underpinned demand, particularly for our Construction Accessories and Network Access Products businesses. Economic recovery continued in the Netherlands and Poland resulting in good growth, while activity in other key markets, including Belgium and Germany, was stable. Against this overall favourable market backdrop, a focus on continued cost optimisation and margin enhancement resulted in an 11% operating profit increase for the Division.

Construction Accessories

The year was one of progress for the Construction Accessories platform with strong organic sales due to robust activity levels across core markets and further product innovation. Operating profit also expanded, despite restructuring charges taken as part of the platform’s optimisation of its production network. Our UK-based engineered accessories business experienced strong demand for its products, supported by good activity levels and both sales and operating profit were ahead of prior year. In Germany, the business also advanced, as positive trading conditions resulted in increased demand. For our Swiss business, reasonable activity levels saw sales finish ahead of prior year. Activities in the Netherlands and France benefited from ongoing economic recovery while sales in our Belgian business advanced in competitive markets. Our export markets proved challenging as project delays impacted performance, though our Australian business saw organic growth due to good demand for its products.

Shutters & Awnings

The Shutters & Awnings business recorded a 3% increase in sales compared with the prior year. The Netherlands, supported by underlying market activity and benefiting from operational improvements, reported a good trading performance. Our German businesses experienced challenges arising from tighter labour markets and increasing input costs; however, sales across the businesses advanced. The UK business reported a solid trading performance despite currency pressure. Operating profit for the platform remained in line with 2016.

Network Access Products

& Perimeter Protection

The Network Access Products business, with operations in the UK, Ireland and Australia and a growing export base, had another year of growth in both sales and operating profit. Positive underlying infrastructure demand continued, particularly in its UK-based business; in addition, ongoing focus on optimising costs and product profile resulted in positive margin development for the business.

The permanent fencing business overall had a positive year as it reported both sales and operating profit ahead of prior year. Continued cost focus at our UK businesses resulted in improved sales and profitability and margins advanced in the Netherlands, despite competitive markets. The mobile fencing business, after a strong prior year, experienced another year of growth benefiting from improved building activity in its core markets.

Architectural Products

Despite a good demand backdrop across the platform’s main markets and sales progression, operating profit finished behind last year as a result of a lower margin product profile in some markets. In the Benelux, trading advanced in an overall positive economic environment. For our German business, trading was broadly in line with last year while results were positively impacted by improved pricing and operational performance. In Poland, our operations experienced strong demand, albeit for some lower margin products, and with good volume growth sales finished ahead of the prior year.

 

 

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

  profit after tax.

 

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CRH Annual Report and Form 20-F | 2017

    

 

Europe Distribution

 

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

 

What we do:

 

Europe Distribution is involved in the sale and supply of a wide range of building materials, catering to different local markets and varied customer groups.

 

Our development strategy is focused on increasing the network density of our existing businesses in our core markets, while also investing in new platforms and formats in other attractive segments of building materials distribution.

 

Substantial opportunities remain to improve our existing network in our core markets and to establish new propositions aimed at increasing our exposure to growing RMI market demand.

 

How we create value:

 

We operate a portfolio of local brands that focus on building deep customer relationships through quality of our service, reliability and focused propositions aimed at selected market segments.

 

 

We innovate around the changing needs of our customers through the introduction of additional product categories, new formats and technology supporting our interaction with customers.

 

Collective expertise from across our various business segments is leveraged to optimise the supply chain, with just-in-time logistics, a category-management-based approach to procurement and focused IT systems.

 

How we are structured:

 

The Division is active in three business areas: General Builders Merchants (GBM), Sanitary, Heating and Plumbing (SHAP), and DIY (Do-It-Yourself). The Division also 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. Europe Distribution employs approximately 11,000 people at over 650 locations.

 

 

LOGO

 

General Builders

Merchants (GBM)

 

GBM distributes heavy building materials and a wide range of other products to professional customers, mainly small and medium sized builders from 352 locations. Europe Distribution has strong regional positions in GBM, based on a comprehensive branch coverage, wide product offering and high stock availability.

   

 

Sanitary, Heating & Plumbing (SHAP)

 

SHAP businesses specialise in servicing the needs of plumbers and heating, gas, water, and ventilation technicians at 134 locations. The businesses are organised around public-facing showrooms to facilitate product choice, central warehousing and a wide network of pick-up locations for installers to collect or co-ordinate delivery.

 

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

      investments’ profit after tax.

  ** Net Assets at 31 December 2017 comprise segment assets less segment liabilities as disclosed in note 1 to the Consolidated Financial Statements.

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

 

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Products and Services Locations

 

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LOGO

   

 

DIY (Do-It-Yourself)

 

Addressing the residential RMI segment, our DIY business sells decorative and home improvement products direct to the consumer from 198 easily-accessible retail locations. The DIY platform in Europe operates under four different brands: GAMMA (the Netherlands and Belgium), Karwei (the Netherlands), Hagebaumarkt (Germany) and our Maxmat joint venture (Portugal).

 

 

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CRH Annual Report and Form 20-F | 2017

    

 

Operations Review - Europe Distribution

Prior Year 2016

 

Results            Analysis of change                  
million        2015                Exchange            Divestments            Swiss Fine                    Organic                        2016                % change  
Sales revenue      4,158        -24        -53        -        -15        4,066        -2%  
EBITDA (as defined)*      171        -1        -2        +32        +6        206        20%  
Operating profit      94        -1        -1        +32        +6        130        38%  
EBITDA (as defined)*/sales      4.1%                    5.1%     
Operating profit/sales      2.3%                                            3.2%           

 

Europe Distribution was impacted in 2016 by mixed market circumstances in its main geographies, resulting in slightly reduced sales. However, performance improvement initiatives, strong cost control across the Division and the non-recurrence in 2016 of a one-off provision of 32 million in 2015 for a Swiss Competition Commission fine led to an increase in overall profitability. The Netherlands continued to show positive momentum in the new build residential market, while Belgium improved and Germany remained generally stable compared to 2015. The Swiss business faced a challenging market backdrop, with competitive pressures and the impact of new laws on second homes.

General Builders Merchants

Overall, like-for-like sales for our General Builders Merchants business declined in 2016 but operating profit remained stable. Challenging market circumstances in the Swiss business, where margin improvements and strong cost control could not fully compensate for lower sales levels, resulted in a decline in profitability. Trading in the Netherlands was strong as a result of increasing overall demand and delivery on performance improvement projects. Sales at our German business were stable, in line with market circumstances. Despite a recovering trend in the new residential market, performance in the French business was impacted by unfavourable weather patterns (including flooding) in the Paris area and a competitive market which resulted in a decline in sales and profitability compared to 2015. In Austria, improvements in pricing and product mix, as well as the closure of some branches led to improved results.

DIY (Do-It-Yourself)

Strong competitive pressures resulted in lower sales, but overall operating profit improved. In the Netherlands, DIY is more exposed to the late-cycle RMI market, therefore it did not benefit from an improving new residential market to the same extent as the builders merchants business. Although consumer confidence has improved, competition has also increased, in part due to new entrants. Despite lower sales levels, operating profit increased due to a range of performance improvement measures. The Belgian business suffered from reduced consumer confidence in 2016, leading to lower sales and operating profit. The German DIY business experienced flat sales and profitability, which was in line with market developments.

Sanitary, Heating and Plumbing (SHAP)

Sales for our SHAP business were flat compared to 2015, with good progress in Belgium and Germany offset by the challenging market backdrop in Switzerland. Significant cost reductions were realised in Switzerland, which partially compensated for the lower sales. Operating profit in the German and Belgian businesses improved, benefiting from higher sales levels in addition to operational improvements and procurement initiatives.

 

 

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

 

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Current Year 2017

 

Results            Analysis of change                  
million        2016                Exchange          Acquisitions          Pension Credit                    Organic            2017                % change  
Sales revenue          4,066        -20        +28        -        +71                4,145        2%  
EBITDA (as defined)*      206        -1        -        +61        +3        269        31%  
Operating profit      130        -1        -        +61        +17        207        59%  
EBITDA (as defined)*/sales      5.1%                    6.5%     
Operating profit/sales      3.2%                                            5.0%           

Swiss pension plan past service credit of €61 million in 2017

 

The commentary below excludes the impact of a past service credit due to pension plan amendments in Switzerland.

Europe Distribution experienced stable sales and profit development but with mixed performances across our businesses. Overall sales were slightly ahead with a strong contribution from our General Builders Merchants business in the Netherlands which benefited from an increase in residential building volumes. In addition, our SHAP businesses in Germany and Belgium continued to gain market share in consolidating markets. These positive developments were partly offset by difficult market conditions in Switzerland.

General Builders Merchants

Our General Builders Merchants business showed 3% sales growth in 2017, with stable operating profit excluding depreciation. Continued increasing demand in the Netherlands combined with delivery on performance improvement projects resulted in further growth of the Dutch operating profit. Our German business showed sales growth against a flat RMI market backdrop, with profit impacted by acquisition-related costs. Market conditions in Switzerland remained challenging due to sluggish residential demand, and cost savings initiatives could not fully offset the impact of lower sales and increased pressure on trade margins. Our French business benefited from an improving residential sector and the performance in our Austrian business improved due to continued focus on our cost base.

DIY (Do-It-Yourself)

Our DIY business operates in the Netherlands, Belgium and Germany. Despite improving consumer confidence in these countries, competitive pressures and an increasing trend towards online sales contributed to declining store sales. Operating profit in our Netherlands business improved due to a continued focus on overhead costs and personnel productivity initiatives. Despite the opening of a new store in the Brussels area, sales and operating profit remained stable in a competitive environment. Our German DIY business performed in line with 2016, although trading was impacted by some unfavourable weather conditions at the beginning of the year.

Sanitary, Heating and Plumbing (SHAP)

Continued sales growth from additional pick-up locations and further investments in showrooms led to market share improvement in our German and Belgian SHAP businesses. Operating profit decreased due to declining results in Switzerland, which were partly offset by operational improvement, procurement initiatives and growth in Belgium and Germany.

 

 

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

 

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CRH Annual Report and Form 20-F | 2017

    

 

Americas Materials

 

CRH’s Americas Materials Division is the leading vertically integrated supplier of aggregates, cement, asphalt, readymixed concrete and paving and construction services in North America.   LOGO

 

What we do:

 

CRH’s Americas Materials Division is the number one producer of aggregates and asphalt and the second largest producer of readymixed concrete in North America.

 

CRH Americas Materials is a leading producer of cement in Canada. During 2017, it expanded its cement operations with the acquisition of assets in Florida. In Brazil, CRH is a major supplier of cement to the Rio de Janeiro and Belo Horizonte markets.

 

A significant portion of our business is awarded by public tender for federal, provincial, state and local government authority road and infrastructural projects. CRH Americas Materials also has a broad commercial customer base, supplying aggregates, cement, asphalt and readymixed concrete for industrial, office, shopping mall and private residential development and refurbishment. The Division is strongly resource-backed and broadly self-sufficient in aggregates with over 15 billion tonnes of reserves, of which approximately 80% are owned.

 

Our principal purchased raw materials are liquid asphalt and cement used in the manufacture of asphalt and readymixed concrete respectively.

 

 

How we create value:

 

In a largely unconsolidated sector where the top ten aggregates, asphalt and readymixed concrete participants account for less than one third of overall production, our businesses build strong regional leadership positions in local markets underpinned by well-located, long-term reserves. Our deep market knowledge drives performance in local markets, while our extensive network allows us to leverage talent, synergies for procurement, cost management and operational excellence.

 

Americas Materials is vertically integrated in aggregates, asphalt, cement, readymixed concrete and paving and construction services. Approximately 30% of the aggregates we produce are sold internally, helping to drive company-wide growth and efficiency.

 

How we are structured:

 

CRH Americas Materials is organised geographically into six divisions (North, South, Central, West, Canada and Brazil). The Division has a network of operations at close to 1,300 locations across 44 US states and six Canadian provinces, employing approximately 24,100 people.

 

 

LOGO

       

 

Aggregates

 

Aggregates, including sand, gravel and crushed stone, are essential ingredients in a wide range of construction materials. They can be found in everything from the asphalt pavements used to make roads, to the concrete used in bridges and foundations, to the sand traps in golf courses. With sales of 170 million annualised tonnes, Americas Materials is the number one producer of aggregates in North America.

   

 

Cement

 

Cement is a primary building material and used as a binding agent in the production of a range of products for the construction industry. Americas Materials, a leading producer of cement in Canada sold 3 million tonnes of cementitious product in 2017 and a further 2 million tonnes in Brazil. We also acquired a 1 million tonne cement plant in Florida to expand our cement operations in the US.

 

   

 

Asphalt

 

Asphalt is used in building roads, highways, runways and parking lots. Americas Materials is the number one asphalt producer in North America, selling 47 million annualised tonnes. We ensure value for our customers through quality control and rigorous product testing. We are committed to sustainability, with heavy investment in recycled materials and innovative warm-mix asphalt technologies that consume less fuel and release fewer emissions.

   

Because cement requires an energy-intensive manufacturing process, we have established a range of initiatives to reduce our carbon footprint and incorporate reusable, recyclable material.

   

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

      investments’ profit after tax.

  ** Net Assets at 31 December 2017 comprise segment assets less segment liabilities as disclosed in note 1 to the Consolidated Financial Statements.

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

 

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Products and Services Locations

 

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LOGO

     
 

 

Readymixed Concrete

 

Readymixed concrete is comprised of aggregates, cement and water. It is strong, customisable, versatile and durable, making it the world’s most popular building material. Americas Materials sells approximately 10 million annualised cubic metres of readymixed concrete. Our readymixed concrete is produced to customer specifications and is delivered in a timely manner from our extensive network of locations.

   

 

Paving and Construction Services

 

Americas Materials is the leading supplier of product for road construction and repair/maintenance demand in North America. Annually, our crews complete approximately 3.8 billion in paving and construction projects.

  † 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 sold.

†† Including the Group’s share of equity accounted investments.

 

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Operations Review - Americas Materials

Prior Year 2016

 

Results                  Analysis of change                       
                                                                         
million    2015          Exchange          Acquisitions          Divestments             LH Costs             Organic      2016          % change  
                                                                         
Sales revenue      7,018        -4        +715        -78        -        -53        7,598        8%  
EBITDA (as defined)*      955        -        +72        -7        +50        +134        1,204        26%  
Operating profit      620        -        +23        -3        +50        +128        818        32%  
EBITDA (as defined)*/sales      13.6%                               15.8%     
Operating profit/sales      8.8%                       10.8%     
                                                                         

LH integration costs of €7 million were incurred in 2016 (2015: €57 million)

The LH integration costs refers to the businesses acquired from LafargeHolcim in 2015

 

With continued volume improvement, operational efficiencies and reduced energy costs, Americas Materials had another year of good profit growth in 2016 and delivered a strong organic operating profit. Residential and non-residential demand continued to improve, while publicly funded infrastructure activity remained stable resulting in an overall improvement in trading conditions in the US. Organic sales were down 1% but like-for-like operating profit increased 21%, with positive real price improvements experienced across all products. 2016 also represented the first full year of results from the LH Assets acquired in 2015, which saw mixed regional results from Canada alongside more challenging market conditions in Brazil.

Total volumes, including acquisition effects, increased 9% for aggregates, 3% for asphalt and 22% for readymixed concrete. This volume growth, together with a 3% average price increase in aggregates, a 4% average price increase in readymixed concrete in the US and efficient cost control resulted in margin improvements in 2016. Despite price declines of 8% in asphalt, strong leverage on increased volumes and the beneficial impact of lower energy prices contributed to margin expansion. Construction sales increased 6%, driven by the Canadian business as bidding continued to be competitive in the US despite limited increased infrastructure spending across some states. Good cost control enabled margin expansion. Demand in our North American cement markets increased as declines in Western Canada were more than offset by increases in Quebec and the US market. Average prices were steady despite strong external downward pricing pressures in the Canadian regions.

While the main focus in 2016 was on successfully integrating our Canadian and Brazilian acquired assets, eight bolt-on acquisitions and one investment were also completed in 2016 at a total

cost of 112 million. The principal acquisition was of a significant aggregates and asphalt operation in Utah which added three asphalt plants, one readymixed concrete plant and lease rights to 16 aggregates sites. In total 93 million tonnes of permitted reserves were added in 2016. Business and asset disposals in 2016 generated proceeds of 107 million, continuing the optimisation of our strategic footprint.

United States

Like-for-like aggregates volumes rose 4% from 2015 while average prices increased by 3%. Asphalt volumes increased 1% on a like-for-like basis while input cost decreases more than offset like-for-like price declines of 8% compared to 2015. US readymixed concrete volumes increased 4% compared with 2015 and average prices increased 4%. Like-for-like sales in our paving and construction services business decreased 3%, but this was offset by overall margin expansion of 140 basis points in 2016. Performance was positively impacted by the lower energy cost environment experienced throughout 2016.

Operations in the US were reorganised at the beginning of 2016 into four divisions; North, South, Central and West. The North division’s sales were down from 2015; however, with the benefit of operating efficiencies, strong cost controls and lower energy costs, operating profit in the division improved significantly in 2016. Heritage sales in the South division were 1% ahead in 2016, despite record flooding in West Virginia and Kentucky, and the impact of hurricane Matthew. Operating profit was also well ahead in the division with increased volumes contributing to margin growth. With resilient market growth in Texas in both the public and private sectors, the Central division delivered a heritage sales increase of 8% along with strong margin improvement. Like-for-like volumes in the division were ahead

of 2015, with Texas in particular showing strong growth. With strong operating and overhead cost management across each product line, the West division reported heritage sales 2% ahead of 2015 along with margin and operating profit increases.

Canada

Sales and operating profit were ahead of 2015 with the impact of a full year of ownership of the LH Assets in 2016 augmented by a series of major projects including the Highway 407 extension in Ontario and the Turcot Highway Interchange in Montreal as well as strong backlogs. There were mixed results across different product lines and regions, with improvements in our core markets of Ontario and Quebec partially offset by margin pressures and weaker demand in our Western Canada businesses.

Brazil

The construction market weakened in 2016 as a result of deteriorating macroeconomic and political conditions, with overall cement consumption down 12% in the Southeast region and selling prices under continued pressure in a very competitive environment.

 

 

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

 

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Current Year 2017

 

Results           Analysis of change                
                                                                         
million    2016          Exchange          Acquisitions          Divestments            LH Costs            Organic      2017          % change  
                                                                         
Sales revenue      7,598        -123        +379        -80        -        +196        7,970        5%  
EBITDA (as defined)*      1,204        -24        +46        -5        +7        +42        1,270        5%  
Operating profit      818        -19        +12        -2        +7        +42        858        5%  
EBITDA (as defined)*/sales      15.8%                               15.9%     
Operating profit/sales      10.8%                       10.8%     
                                                                         

The LH integration costs refers to the businesses acquired from LafargeHolcim in 2015

 

2017 was a year of progress in Americas Materials, supported by continued economic growth across residential and non-residential sectors, while infrastructure remained stable in our markets. Despite record levels of rainfall during the year and hurricane activity experienced in Florida and Texas, both sales and operating profit increased 5%, as selling price increases were achieved across all products in North America.

Aggregates had a strong finish to 2017 and together with the positive impact of acquisitions during the year, total volumes were 7% ahead, while like-for-like volumes were flat. Average price increases of 6% on a like-for-like basis combined with efficient cost control resulted in margin expansion.

Margin improvement was also experienced in our readymixed concrete operations as like-for-like volumes increased 4% while overall volumes were 3% ahead, impacted by 2016 divestments in our Central division. Both like-for-like and total average prices increased by 3%.

Although like-for-like asphalt volumes increased 2% and 6% on an overall basis, asphalt margins were under pressure with like-for-like average price increases unable to offset higher input costs.

With pockets of increased state infrastructure spending, like-for-like sales for paving and construction services increased 1% with overall sales 7% ahead. Construction margin improved slightly in 2017, despite the ongoing competitive bidding environment.

Our cement business in North America saw total volumes 3% ahead and marginal price increases, supported by stronger demand in the US. Against the backdrop of a favourable US price environment, Americas Materials continued to optimise its terminal network and market penetration by repositioning more volumes to the US from Canada, where competitive market conditions remain, especially in Quebec.

Americas Materials continued to strengthen its position in existing and complementary markets throughout North America in 2017 and completed 13 acquisitions for a combined total of 1.1 billion. The principal acquisition, which was completed at the end of November 2017 and therefore had a limited contribution to current year trading, was Suwannee American Cement together with certain other materials assets; consisting of a 1 million tonne cement plant in Florida, 18 readymixed concrete plants, an aggregates quarry, two block plants and nine gunite facilities.

United States

Trading benefited from solid demand in the US and, despite some unfavourable weather, total volumes and prices increased across all products. Like-for-like sales saw a resulting 4% increase in 2017. Operating profit also increased though margin expansion in aggregates and readymixed concrete was partly offset by a decline in asphalt margins due to higher bitumen prices, a key component of asphalt mix.

Our US operations are divided into four main divisions: North, South, Central and West. The North division comprises operations in 13 states, with key operations in Ohio, New York, New Jersey and Michigan. With significant precipitation as well as softer markets in Michigan and Connecticut, volumes were down across all products, although increased pricing and improved construction sales resulted in a like-for-like sales increase. Operating profit was further impacted by increased input costs, and margin declined. The South division comprises operations in 12 states with key operations in Florida, North Carolina and West Virginia. Like-for-like South division sales and operating profit were ahead 7% and 14% respectively, despite the impact of hurricane Irma which caused downtime at several locations in Florida and Georgia. Improvements were mainly driven by increased construction activity and margin, as well as price increases across all products.

The Central division has operations in nine states, with the key states being Texas, Arkansas and Minnesota. Like-for-like Central division sales were down 3% mainly due to unfavourable weather during the summer which continued into autumn, along with the impact of hurricane Harvey; however, with strong cost control and the benefit of operating efficiencies, overall operating profit improved over prior year. The West division has operations in ten states, the most important of which are Utah, Idaho, Washington and Colorado. Overall demand was strong across the division, with improved volumes across all product lines resulting in like-for-like sales up 11% compared with the prior year. Operating profit was also well ahead in the division, with aggregates and readymixed concrete price increases taking hold and driving increased margin.

Canada

The overall Canadian economy expanded in 2017, led by robust gains in the core markets of Ontario, Quebec and Alberta. The pace of growth was largely fuelled by improvements in oil prices and continued spending by Canadian consumers. Despite the positive environment and increases of volumes across all products, like-for-like sales were muted by regional variations in pricing and the performance within the construction business, which was impacted by adverse weather conditions and the non-recurrence of key projects.

Brazil

Weakness in the construction market continued during 2017 due to the unfavourable economic and political situation; however, more recently, lower interest rates and a reduction in inflation have started to have a positive impact. While cement consumption was down 5% in the Southeast region, CRH saw volume improvements through a focus on key customer segments; however, selling prices continued to fall below 2016 levels.

 

 

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

 

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Americas Products

 

CRH’s Americas Products Division is one of North America’s leading suppliers of construction products. Its businesses manufacture, supply and deliver the products needed to shape and enhance the built environment for modern communities.   LOGO

 

What we do:

 

CRH Americas Products is a leading supplier of value-added building products, primarily to residential, and non-residential construction projects across the US and Canada. Our broad product range and extensive geographic footprint allow us to serve large national customers as well as providing smaller customers with the personal touch of a local supplier. Our architectural, precast concrete and building envelope products businesses serve the needs of local customers mainly in the residential and non-residential building sectors.

 

How we create value:

 

As part of our ongoing focus on value creation we consistently invest in talent development, commercial and operational excellence processes, innovation and technology to ensure continuous improvement in everything we do. Our commitment to building better businesses is demonstrated in our approach at national and regional levels to facilitate best practice sharing. We leverage our unique scale, breadth and capabilities to build competitive advantage in key segments and channels. We maintain a

 

 

pipeline of innovative and value-added products and design-solutions through our research and development centres.

 

Americas Products’ development strategy is to build a portfolio of networked and scalable businesses with leading market positions across a balanced range of products and end-use markets. Focusing strategic accounts and influencers in the construction supply chain on CRH’s broader product and capability portfolio, our Building Solutions group provides an additional avenue for market share growth.

 

How we are structured:

 

Americas Products is organised into three strategic product groups, Architectural Products, Precast and BuildingEnvelope® which maintain distinct organisations for their business-specific strategies, with the centre supporting finance, talent management, business development and strategy, strategic account development and procurement. Each group has smaller national or regional positions in product lines that support and complement its core businesses. The Division employs approximately 17,100 people at nearly 350 locations.

 

 

LOGO

 

Architectural Products

 

The Architectural Products Group (APG) is North America’s leading supplier of concrete masonry, hardscape and related products for residential, commercial and DIY (Do-It-Yourself) construction markets. APG has 182 operating locations in 36 states and five Canadian provinces.

 

Competition for APG arises primarily from other locally owned building products companies. Principal raw material supplies are readily available.

 

APG’s concrete masonry products are used for veneers, walls and foundations. Hardscape products comprise pavers, retaining wall and patio products.

 

 

Dry cement mixes, marketed under brands such as Sakrete® and Amerimix®, are also an important product offering of our business.

 

Lawn & garden products, mainly bagged and bulk mulch, soil and speciality stone products, are marketed to major DIY and homecenter chains across the US. Composite decking products, marketed under the ChoiceDekTM and MoistureShieldTM brands, are another key outdoor living offering in our portfolio.

 

 

Precast

 

Our Precast group is one of North America’s leading manufacturers of precast concrete and related products with 77 locations across North America predominantly in 26 US states. The group employs approximately 4,100 employees.

 

Precast manufactures a range of concrete and polymer-based products such as underground vaults, drainage pipe and structures, utility enclosures and modular precast structures which are supplied to the water, electrical, telephone and railroad markets and to select non-residential building applications.

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

  ** Net Assets at 31 December 2017 comprise segment assets less segment liabilities as disclosed in note 1 to the Consolidated Financial Statements.

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

 

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Products and Services Locations

 

LOGO

 

LOGO

     

 

    

 

The Precast group also includes the construction accessories business, which supplies specialised products used in concrete construction activities. In many instances, precast products are an alternative to poured-in-place concrete, which is a significant competing product.

   

 

BuildingEnvelope®

 

Our Oldcastle BuildingEnvelope® (OBE) business is a leading integrated supplier of products specified to close the building envelope, including architectural glass, storefront systems, custom engineered curtain wall and window wall, architectural windows, doors and skylights. OBE is also the largest supplier of architectural railings, glazing hardware and high performance glass installation products in North America.

 

 

    

 

Our products are specified across all market segments from single-storey storefronts to intermediate multi-storey commercial structures to high-rise, monumental buildings. OBE employs approximately 6,700 people and serves every major North American metropolitan and regional market through its 82 operating locations along with further operating locations across Europe (4) and Australia (3).

† 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 sold.

 

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CRH Annual Report and Form 20-F | 2017

    

 

Operations Review - Americas Products

Prior Year 2016

 

Results            Analysis of change                  
million    2015            Exchange          Acquisitions          Divestments             Organic          2016            % change  
Sales revenue      3,862        -48        +390        -214        +290        4,280        11%  
EBITDA (as defined)*      391        -3        +80        -6        +81        543        39%  
Operating profit      249        +2        +58        -1        +103        411        65%  
EBITDA (as defined)*/sales      10.1%                              12.7%     
Operating profit/sales      6.4%                                            9.6%           

 

Our Products business in the Americas is mainly located in the US and Canada. 2016 saw good progress especially in the first-half, helped by an ongoing pick-up in US macroeconomic fundamentals, including stronger labour markets and good consumer sentiment, which have strengthened private new residential construction and RMI. There was good growth in the South, East Coast and West Coast markets due to an improving non-residential construction sector.

Input cost inflation was more than offset by the effects of improved operational efficiencies, procurement initiatives, favourable product mix and targeted price increases. Benefiting from strong acquisition trading results and synergies from the CRL acquisition, as well as good organic growth across the Division, Americas Products achieved a 65% increase in operating profit and margins improved.

The acquisition of Techniseal, a manufacturer of packaged products for hardscapes installation, added a product capability complementary to APG’s core hardscape business. In addition, four other small bolt-on acquisitions were completed and APG divested its non-core Gemseal business, a manufacturer and supplier of pavement maintenance products, along with two other smaller divestments.

Architectural Products

With the benefit of favourable weather early in 2016, APG showed increased activity in the RMI sector, with continued improvement from residential and commercial construction. Sales volumes were strong across the US but were more steady in Canada. The favourable selling environment, together with product innovation and commercial initiatives, drove gains across all major product categories and channels resulting in an increase in like-for-like sales compared with 2015. APG focused on both product portfolio management and cost reduction efforts to maximise returns. Overall, APG recorded a strong improvement in operating profit for 2016.

BuildingEnvelope®

In 2016, non-residential building activity experienced increases in both institutional and commercial markets, though contract square footage decreased slightly. Sales growth was driven by favourable glass pricing and product mix, and enhanced production capabilities in architectural glass. These, coupled with actions to differentiate the business through innovative products and technology, enabled OBE to achieve substantial growth in margins and operating profit.

 

Integration of the CRL and OBE businesses has been very successful and both CRL and OBE have continued to benefit from significant synergies through an increased common customer base and fixed cost efficiencies. With a full year of ownership, CRL had strong sales and profit growth and showed an improvement in margins in 2016.

Precast

In 2016, strong sales growth was achieved as specific commercial initiatives continued to deliver, along with improved demand for both private construction and public infrastructure. Operating profit increases were achieved in most markets across all concrete product lines with a particularly strong performance in the West. Overall, like-for-like sales increased, operating profit advanced significantly and backlogs remained strong.

 

 

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

 

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Current Year 2017

 

Results            Analysis of change                  
million    2016            Exchange          Acquisitions          Divestments             Organic      2017            % change  
Sales revenue      4,280        -79        +87        -14        +53        4,327        1%  
EBITDA (as defined)*      543        -10        +10        +1        +29        573        6%  
Operating profit      411        -8        +4        +2        +26        435        6%  
EBITDA (as defined)*/sales      12.7%                              13.2%     
Operating profit/sales      9.6%                                            10.1%           

 

Continued improvement in macroeconomic conditions positively impacted construction; however, activity was limited by historically high levels of precipitation in 2017, supply-side factors such as the shortage of skilled construction labour and competitive markets. Americas Products saw good growth along the West Coast and parts of the South and Southeast due to improving residential and non-residential construction, partly offset by more modest trading in Canada and parts of the Northern US. Contributions from improved operational efficiencies, improved product and project mix, procurement initiatives and targeted price increases more than offset the impact of input cost inflation. Benefiting from the contribution of acquisitions and continued synergies from the CRL acquisition, Americas Products achieved a 6% increase in operating profit and margins improved.

Americas Products completed eight acquisitions and one joint venture investment for total consideration of 0.2 billion. The acquisition of Advanced Environmental Recycling Technologies, Inc. (AERT), a manufacturer of composite decking, added an outdoor living product complementary to APG’s Belgard hardscapes and retaining wall products. Also, the acquisition of Block USA extended APG’s masonry footprint into Alabama, Mississippi and the Gulf Coast.

Architectural Products

With the benefit of acquisitions, APG saw increased activity, especially in the residential RMI sector. Growth was at a more measured pace than last year, with volumes affected by unfavourable weather and installation labour shortages. Activity was good across most of the US but more moderate in Canada. Solid demand from major products and distribution channels, together with product innovation and commercial initiatives, drove a modest increase in like-for-like sales compared with 2016. APG continued to focus on operating cost reduction efforts to maximise returns. Overall, APG saw good operating profit growth for the year.

BuildingEnvelope®

In 2017, non-residential building activity saw continued advancement but at a slower pace than prior years. OBE experienced relatively flat sales revenue in 2017 because of more challenging market conditions, more selective bidding on larger projects and tighter skilled labour markets. However, OBE recorded improved operating profits because of better sales mix, improved operational performance and continued synergies from the integration of the CRL and OBE businesses.

Precast

Sales growth was achieved in 2017 but was limited by unfavourable weather and relatively slower demand growth for both private construction and public infrastructure in certain markets. Precast recorded increased operating profits, due to better operational performance at construction project businesses, partly offset by margin impacts from increased input costs. In addition, backlogs remained strong in 2017.

 

 

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

 

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Asia

 

CRH’s Asia Division is comprised of cement operations in the Philippines, Northeast China and Southern India. These positions represent strategic growth platforms which provide us with exposure to industrialisation, urbanisation and population related construction demand in the region’s developing economies.   LOGO

What we do:

 

CRH is the second largest producer of cement in the Philippines. The Group also has strategic footholds in regional cement markets in China and India. The Group is committed to investing in, and developing its leadership positions in the region.

 

CRH’s Asia Division is focused on maximising performance and returns in its businesses, expanding its balanced portfolio of diverse products and geographies and conducting its businesses responsibly and sustainably.

 

How we create value:

 

CRH Asia creates value by identifying and establishing select positions with strong long-term prospects in regional markets.

 

Using CRH’s proven acquisition model, we are focused on building on our existing platforms and on making our businesses better. Since

 

our initial entry into the Chinese and Indian markets, we have increased capacity more than threefold through both organic growth and the successful integration of new bolt-on acquisitions. Our joint venture in India recently commissioned its new grinding unit at Tuticorin in the southern state of Tamil Nadu, which gives us access to new markets.

 

CRH Asia achieves benefits of scale and other synergies in areas such as Health & Safety, operational efficiency, commercial excellence, energy-efficiency and procurement.

 

How we are structured:

 

In the Philippines our operations span 12 different operating locations. Our country level head-offices in China and India report to CRH’s regional headquarters in Singapore. The Division employs approximately 1,400 people, with a further 7,500 in our equity accounted investments.

 

 

LOGO

   

 

Aggregates

 

In the Philippines, CRH’s operations include the production and supply of aggregates used in concrete for housing, buildings and infrastructure.

 

 

Cement

 

Republic Cement, the second largest cement producer in the Philippines has six strategically located cement production facilities across the

country which contribute to a total capacity of 7.5 million tonnes.

 

CRH’s operations in China consist of a 26% stake in Yatai Building Materials, a market leader in cement in Northeast China, with a cement capacity of 32 million tonnes

 

 

    

 

and operations in the three provinces of Heilongjiang, Jilin and Liaoning.

 

My Home Industries Limited (MHIL) is our 50% joint venture cement producer in Southern India. It has a leading position in the states of Andhra Pradesh and Telangana, with a total capacity of 9.6 million tonnes across four locations.

   

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

  ** Net Assets at 31 December 2017 comprise segment assets less segment liabilities as disclosed in note 1 to the Consolidated Financial Statements.

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

  † 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 sold.

†† Including the Group’s share of equity accounted investments.

 

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Operations Review - Asia

Current Year 2017

 

Results            Analysis of change                  
million    2016                  Exchange                  LH Costs                  Organic      2017                  % change  
Sales revenue      508        -39        -        -33        436        -14%  
EBITDA (as defined)*      109        -11        +6        -52        52        -52%  
Operating profit      71        -7        +6        -55        15        -79%  
EBITDA (as defined)*/sales      21.5%                             11.9%     
Operating profit/sales      14.0%                                   3.4%           

The LH integration costs refers to the businesses acquired from LafargeHolcim in 2015

 

The Asia Division was formed following the acquisition of the Philippines operations as part of the LH Assets transaction in 2015. The table above includes the results from these operations together with CRH Asia’s divisional costs.

In addition to our subsidiary businesses in the Philippines, the Group also has a share of profit after tax from our stakes in Yatai Building Materials in China and MHIL in India, which are reported within the Group’s equity accounted investments as part of profit before tax.

Philippines

While economic growth and market fundamentals remain robust, with both residential and non-residential demand stable, major infrastructure projects progressed at a slower pace in 2017. Despite this, the long-term outlook for the construction industry in the Philippines remains strong.

Although volumes increased in 2017, driven by a strong performance in the Visayas and Mindanao (VisMin) housing sector, overall sales were behind, as prices were impacted by additional capacities in the market and aggressive competitor pricing. The impact of lower selling prices combined with increased fuel and power costs resulted in lower operating profit than 2016.

Equity Accounted Investments

China

Despite volumes being under pressure in Northeast China, prices significantly recovered in the market, with both cement and clinker prices in Yatai Building Materials well ahead of 2016. The higher prices more than offset increased coal prices and resulted in improved performance in 2017.

India

Despite recording higher cement volumes and marginally higher prices, MHIL ended 2017 with operating profit behind prior year due to increased fuel prices, as well as lower sales of power to third parties.

 

 

Prior Year 2016

 

Results            Analysis of change                  
million    2015              Exchange            Acquisitions               LH Costs               Organic      2016                % change  
Sales revenue      151        -6        +360        -        +3        508        236%  
EBITDA (as defined)*      2        -        +93        +13        +1        109        n/m  
Operating profit/(loss)      -7        -        +71        +13        -6        71        n/m  
EBITDA (as defined)*/sales      1.3%                    21.5%     
Operating profit/sales      -4.6%                                                      14.0%           

LH integration costs of €6 million were incurred in 2016 (2015: €19 million)

n/m not meaningful percentage movements

The LH integration costs refers to the businesses acquired from LafargeHolcim in 2015

 

Philippines

The construction market remained strong in the Philippines in 2016, with growth in cement demand largely due to increased construction activities in the private sector and government infrastructure spending. Despite competitive markets, operating profit was ahead due to higher selling prices and lower variable costs which benefited from a decrease in the price of imported clinker and lower prices of fuel and power.

Equity Accounted Investments

China

Yatai Building Materials continued to be affected by lower volumes and selling prices. Cement prices were down 3% due to lower levels of construction activities and overcapacity in the market.

India

Sales at MHIL decreased by 8% due to lower cement prices, increased competition and new capacities in the region. This coupled with lower clinker exports was only partly offset by improved cement volumes, and operating profit was lower in 2016.

 

 

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

 

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Americas Distribution (Discontinued Operations)

 

Americas Distribution was a leading distributor of roofing, siding, drywall, ceiling systems and related accessories to speciality contractors in residential and commercial construction in the United States.

 

  LOGO

In August 2017, the Group entered into a sales agreement to divest of its 100% holding in Allied Building Products, the trading name of our Americas Distribution Division. The transaction closed on 2 January 2018. In accordance with IFRS 5, the Division is reported as discontinued operations for 2017 (see note 2 to the Consolidated Financial Statements). The business description and trading performance that follows is provided for information purposes only.

 

Americas Distribution, was a leading supplier to speciality contractors of Exterior Products (roofing and siding), and Interior Products (ceilings and walls), as well as Solar Roofing panels, primarily for the residential market.

 

The business, which was characterised by a strong commitment to both customers and manufacturers, was cyclical in nature and sensitive to changes in general economic conditions, specifically to fluctuations in housing and construction-based markets.

 

 

Americas Distribution deployed state-of-the-art customer-facing IT technologies, disciplined and focused cash and asset management systems, and well established procurement and commercial systems to support supply chain optimisation and enabled it to provide superior customer service.

 

The Division established the private label Tri-Built Materials Brand to help differentiate from competitors in the marketplace, establish a unique brand identity and expand margins. This initiative grew to include more than 30 residential and commercial accessory products.

 

Americas Distribution was structured as two divisions: Exterior Products and Interior Products and operated in 31 states across over 200 locations, employing approximately 3,900 people.

 

 

LOGO

       

 

Exterior Products

 

Exterior Products distributed both commercial and residential roofing, siding and related products. Additionally, two locations were dedicated to the distribution of Solar Roofing panels. Demand in the Exterior Products business was largely influenced by residential and commercial replacement activity with key products

   

 

 

 

 

 

 

 

having an average lifespan of 25 to 30 years. Commercial roofing products included single-ply membranes and various asphalt-based roll roofing products along with complementary products, such as sealants, vapour barriers and roof cements and coatings.

     

 

Interior Products

 

Interior Products distributed gypsum wallboard, metal studs and acoustical tile and grid. Demand for Interior Products was primarily driven by the new residential, multi-family and commercial construction markets. Interior Products’ customers consisted of interior partition and commercial ceiling contractors. Sales trended slightly toward commercial construction and were

         

predominantly focused on new construction for both residential and commercial-based projects.

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

** Activities, sector exposure and end-use balance are based on 2017 sales.

 

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Operations Review - Americas Distribution (Discontinued Operations)

Current Year 2017

Solid revenue and strong operating profit growth was achieved in 2017, predominantly in the Exterior Products division. Sales in the Interior Products business, while remaining healthy, finished the year behind prior year levels.

Demand for Exterior Products, specifically residential roofing, was very strong in the hail-affected markets of Minnesota, Colorado, Maryland, Virginia and Chicago. Continued economic improvement and focused growth in the Northeast markets (New York, New Jersey, Pennsylvania), Michigan and Florida were additional performance drivers for the Exterior Products division. Following a very robust 2016 multi-family demand in the Hawaiian Interior Products market, 2017 sales volumes

returned to a more normalised level. This was partly offset by gains in the California and Colorado Interior Products markets. Recent facility investments in the Solar business fuelled growth in that segment also.

In 2017, management remained highly focused on cost control and maintaining gross margin through improved procurement initiatives and the persistent monitoring of non-essential expenses. Business process improvements and the regional service area model continued to mature, enabling further economies of scale. Five new greenfield locations were opened in 2017 and the Tri-Built private label business continued to be developed.

Exterior Products

Most of the residential roofing products continued to grow in 2017, both in line with the market and due to concentrated efforts to improve the residential product mix. The storm-affected areas experienced significant roofing growth and overall the Exterior Products division reported solid sales and improved operating profits in 2017.

Interior Products

Sales in this division were tempered in most markets compared with prior year, with the largest slowdown in the Hawaiian market coming off a very robust 2016. A focused approach to cost control and gross margin improvement enabled operating profits to remain in line with prior year.

 

 

Prior Year 2016

2016 was a year of solid profit delivery on increased sales and both the Exterior Products and Interior Products divisions advanced and recorded sales and profit growth.

Strong demand in the Florida, Chicago and Atlantic markets, focused growth in Iowa, Ohio and Michigan markets and storm driven demand in Texas were the drivers of performance in the Exterior Products division. Against a strong performance in 2015, sales in Northeast markets were marginally behind 2015.

The Interior Products division continued to experience volume growth throughout 2016. The strongest gains were in Western markets, particularly California and Hawaii where increased demand continued to be driven by robust multi-family construction, offsetting softer Carolinas markets.

In 2016, management remained highly focused on gross margins in a very competitive environment through improved procurement initiatives. Margin discipline and optimised working capital were maintained while growing organically. Technology investments made

in 2016 included a customer relationship management tool, a transportation management tracking system and a highly functional mobile application for customers, all of which served to differentiate in the marketplace. The regional service area model continued to mature, and the drive towards simplifying business processes through continuous improvement all added to the potential for greater economies of scale as the business expanded.

Although no acquisitions were completed in 2016, the opening of five new locations continued to strengthen the greenfield and service centre strategy. This continued focus allowed improvement in the area of customer service, cost control and more efficiently leveraging existing assets. Sales and product offerings of the Tri-Built private label brand continued to grow in 2016. This, combined with investments in technology and the ongoing effort and expansion of the service centre network, continued to differentiate the business in the marketplace.

Exterior Products

Commercial roofing continued to experience modest industry-wide growth while growth in the residential sector was largely due to the high level of hail storm activity experienced in specific markets in the US, particularly in Texas. While most of Exterior Products residential roofing markets grew in line with the market, concentrated efforts resulted in an improved residential product mix. The Exterior Products division reported solid sales and improved operating profits in 2016.

Interior Products

Performance in this business was strong in most markets with increased demand of core products contributing to higher sales and operating profit. The strong growth of multi-family construction and a shift towards more urbanisation led to particularly strong results in the Southeast and West Coast markets. Focused investments in new locations and operational excellence initiatives helped to achieve solid sales growth and higher operating margins.

 

 

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  Governance     
  Board of Directors      59    
  Corporate Governance Report      62    
  Directors’ Remuneration Report      72    
  Directors’ Report      96    

 

 

 

 

 

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CRH Annual Report and Form 20-F | 2017

    

 

    

Board of Directors

 

 

Nicky Hartery

        

Non-executive Chairman

 

Appointed to the Board:

June 2004

 

Nationality:

Irish

 

Age:

66

 

Committee membership:

Acquisitions Committee;

Finance Committee;

Nomination & Corporate

Governance Committee

  

Skills and experience: Nicky was Vice President of Manufacturing and Business Operations for Dell Inc.’s Europe, Middle East and Africa (EMEA) operations from 2000 to 2008. Prior to joining Dell, he was Executive Vice President at Eastman Kodak and previously held the position of President and Chief Executive Officer at Verbatim Corporation, based in the US.

 

Qualifications: C.Eng, FIEI, MBA.

 

External appointments: Listed: Non-executive Director of Finning International, Inc., the world’s largest Caterpillar equipment dealer.

Non-listed: Chief Executive of Prodigium, a consulting company which provides business advisory services; non-executive Chairman of Musgrave Group plc, a privately-owned international food retailer.

 

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Albert Manifold

        

Chief Executive

 

Appointed to the Board:

January 2009

 

Nationality:

Irish

 

Age:

55

 

Committee membership:

Acquisitions Committee

  

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

 

Qualifications: FCPA, MBA, MBS.

 

External appointments: Listed: Not applicable.

Non-listed: Not applicable.

 

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Senan Murphy

        

Finance Director

 

Appointed to the Board:

January 2016

 

Nationality:

Irish

 

Age:

49

 

Committee membership:

Acquisitions Committee;

Finance Committee

 

  

Skills and experience: Senan has over 25 years’ experience in international business across financial services, banking and renewable energy. He joined CRH from Bank of Ireland Group plc where he was the Chief Operating Officer and a member of the Group’s Executive Committee. He previously held positions as Chief Operating Officer and Finance Director at Ulster Bank, Chief Financial Officer at Airtricity and numerous senior financial roles in GE, both in Ireland and the US.

 

Qualifications: BComm, FCA.

 

External appointments: Listed: Not applicable.

Non-listed: Not applicable.

 

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CRH Annual Report and Form 20-F | 2017

    

 

 

Patrick J. Kennedy

   

Non-executive Director

 

Appointed to the Board:

January 2015

 

Nationality:

Irish

 

Age:

64

 

Committee membership:

Acquisitions Committee;

Nomination & Corporate

Governance Committee;

Remuneration Committee

  

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

 

Qualifications: BComm, MBS.

 

External appointments: Listed: Not applicable. Non-listed: Member of the Supervisory Board of SHV Holdings N.V.

 

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Donald A. McGovern, Jr.*

   

Non-executive Director

 

Appointed to the Board:

July 2013

 

Nationality:

United States

 

Age:

67

 

Committee membership:

Nomination & Corporate

Governance Committee;

Remuneration Committee

  

Skills and experience: Don retired from PricewaterhouseCoopers (PwC) in June 2013, following a 39 year career with the firm. During that time he was Vice Chairman, Global Assurance at PwC, a position he had held since July 2008 and directed the US firm’s services for a number of large public company clients. He also held various leadership roles in PwC and was, from July 2001 to June 2008, a member of, and past lead Director for, the Board of Partners and Principals of the US firm as well as a member of PwC’s Global Board.

 

Qualifications: CPA, MBA.

 

External appointments: Listed: Director of Cars.com, Inc.

Non-listed: Director of Neuraltus Pharmaceuticals, Inc. and eAsic Corporation.

 

* Senior Independent Director

 

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Heather Ann McSharry

   

Non-executive Director

 

Appointed to the Board:

February 2012

 

Nationality:

Irish

 

Age:

56

 

Committee membership:

Audit Committee;

Remuneration Committee

  

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

 

Qualifications: BComm, MBS.

 

External appointments: Listed: Non-executive Director of Greencore Group plc and Jazz Pharmaceuticals plc. Non-listed: Director of Ergonomics Solutions International and the Institute of Directors.

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Gillian L. Platt

   

Non-executive Director

 

Appointed to the Board:

January 2017

 

Nationality:

Canadian

 

Age:

64

 

Committee membership:

Nomination & Corporate

Governance Committee;

Remuneration Committee

  

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

 

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

 

External appointments: Listed: Non-executive Director of Interfor Corporation, a Canadian listed company, which is one of the world’s largest providers of lumber. Non-listed: Not applicable.

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CRH Annual Report and Form 20-F | 2017

    

 

 

Lucinda J. Riches

   

Non-executive Director

 

Appointed to the Board:

March 2015

 

Nationality:

British

 

Age:

56

 

Committee membership:

Nomination & Corporate

Governance Committee;

Remuneration Committee

  

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

 

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

 

External appointments: Listed: Non-executive Director of Ashtead Group plc, Diverse Income Trust plc and ICG Enterprise Trust plc.

Non-listed: Non-executive Director of UK Financial Investments Limited, which manages the UK government’s investments in financial institutions, and the British Standards Institution and DIT Income Services Limited.

 

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Henk Th. Rottinghuis

   

Non-executive Director

 

Appointed to the Board:

February 2014

 

Nationality:

Dutch

 

Age:

62

 

Committee membership:

Acquisitions Committee;

Audit Committee

  

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

 

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

 

External appointments: Listed: Not applicable. Non-listed: Member of the Supervisory Board of the retail group Blokker Holding B.V., Chairman of Koole Terminals B.V. Henk also holds several non-profit board memberships.

 

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William J. Teuber, Jr.

   

Non-executive Director

 

Appointed to the Board:

March 2016

 

Nationality:

United States

 

Age:

66

 

Committee membership:

Audit Committee

(Financial Expert);

Finance Committee

  

Skills and experience: Until September 2016, Bill was the Vice Chairman of EMC Corporation. In previous roles he was responsible for EMC’s global sales and distribution organisation (2006-2012) and served as Chief Financial Officer (1996-2006). Prior to joining EMC he was a partner in the audit and financial advisory services practice of Coopers & Lybrand LLP.

 

Qualifications: MBA degree from Babson College, a Masters of Science in Taxation from Bentley College and a Bachelors degree from Holy Cross.

 

External appointments: Listed: Member of the Board of Directors of Popular, Inc. a diversified financial services company, and Inovalon Holdings, Inc., a healthcare technology company. Non-listed: Director of Accedian Networks, a technology company and BGP Bravo Holdings, a technology services company.

 

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Richard Boucher

   

Non-executive Director

 

Appointed to the Board:

With effect from 1 March 2018

 

Nationality:

Irish

 

Age:

59

 

Committee membership:

Not Applicable

  

Skills and experience: Richie has extensive experience in all aspects of financial services and was Chief Executive of Bank of Ireland Group plc between February 2009 and October 2017. He also held a number of key senior management roles within Bank of Ireland, Royal Bank of Scotland and Ulster Bank. Richie is a consultant for Fairfax Financial Group and acts as its nominee on the boards of investee companies. He is a past President of the Institute of Banking in Ireland and of the Irish Banking Federation.

 

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

 

External appointments: Listed: Director of Atlas Mara Limited, a company with investments in banks in Africa, and Eurobank Ergasias SA, a bank based in Athens, Greece which has operations in Greece and several other European countries. Non-listed: Not applicable.

 

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CRH Annual Report and Form 20-F | 2017

    

 

Corporate Governance Report

 

Chairman’s Overview

The Corporate Governance report contains details of CRH’s governance structures and highlights the main areas of focus for the Board during 2017. Details of CRH’s general governance practices, which are largely unchanged from prior years, are available in the governance appendix on CRH’s website, www.crh.com (the “Governance Appendix”)*.

CRH implemented the 2016 UK Corporate Governance Code (the ‘2016 Code’) and complied with its provisions in 2017. A copy of the 2016 Code can be obtained from the Financial Reporting Council’s website, www.frc.org.uk.

Shareholder Engagement

During the course of 2017, we again saw an increased level of dialogue with institutional shareholders in relation to corporate governance and board effectiveness. As part of our governance engagement process, in the first half of 2017 I met with shareholders together with Don McGovern, Senior Independent Director, and Neil Colgan, Company Secretary. I also had further

 

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meetings later in the year with shareholders who expressed an interest in continuing our dialogue. The broad areas of discussion during these meetings were the resolutions to be considered at the 2017 AGM, auditor independence, succession planning for the Board and the policy for non-executive Director appointments, the Board’s role in the area of talent management, CRH’s focus on diversity, both in terms of Board appointments and across the Group generally, the timing of the Board’s input in relation to acquisition projects, risk management and the Group’s remuneration policy. We also noted an increased focus on environmental and social issues and I was pleased to facilitate a meeting between our sustainability team and a shareholder who wished to gain an in-depth understanding of our processes and policies.

During the course of 2018, the Audit

Committee will be conducting a tender process for the appointment of a new external auditor to replace Ernst & Young (EY), who must rotate off the CRH audit by 2021 in accordance with European Union rules. Further details on this process are included in the Audit Committee section of this report (on page 64). The governance meetings scheduled for 2018 will provide a forum for discussion of this process with those shareholders who have a particular interest in this issue.

The Directors’ Remuneration Report (on page 72) provides further detail in relation to shareholders’ perspectives on CRH’s remuneration structures.

Board Focus Areas and Priorities

During the course of 2017, the Board continued to focus on risk management, IT and cyber security, talent management, succession planning and strategy. In relation to talent management, in particular, the Board receives regular updates from the Chief Executive and a committee of a small group of non-executive Directors works closely with him in relation to key senior executive appointments. The Board also continues to monitor developments in relation to negotiations regarding the UK ceasing to be a member of the European Union.

Safety continues to be a key area of focus for the Board. In addition to regular updates throughout the year, during Board visits to our operations in France and Canada in 2017 we had an opportunity to obtain a detailed understanding of various projects, safety initiatives and investment priorities in this critical area. We also had an in-depth review of safety across the Group with the senior management team during the year, with a particular focus on safety strategy and fatality elimination.

Diversity and Board Renewal

Diversity at Board level has been a focus for the Nomination & Corporate Governance Committee and the Board for a number of years and is a key factor when considering Board renewal. The diversity policy for Board appointments is set out on page 68, together with a summary of the number of female Directors on the Board since 2014. Building diversity below Board level has been slower. To some degree this is related to the nature of CRH’s industry. Nevertheless, diversity is one of the main areas of focus for the executive leadership team. The Group is in the process of appointing diversity officers. In addition, in 2018 there will be a number of initiatives focused on improving diversity.

LOGO Diversity at Board level has been a focus for the Nomination & Corporate Governance Committee and the Board for a number of years and is a key factor when considering Board renewal                   LOGO

 

 

Nicky Hartery

 

 

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Details on Board changes during 2017 and to date in 2018, and the Board renewal process generally, are set out in the Nomination & Corporate Governance section of this report. This section also contains an update on the process to identify my successor as Chairman.

Independence and Re-election of Directors

The Nomination & Corporate Governance Committee has reviewed the interests of each Director and the Board has determined that each non-executive Director remains independent. In addition, I have evaluated the performance of each Director and I recommend that shareholders vote in favour of the re-appointment of each Director at the 2018 AGM.

Conclusion

In an ever changing world, it is vital to have a clear insight into the perspectives of our shareholders regarding corporate governance matters. I very much appreciate the time many of you have given to discuss CRH’s governance structures and procedures with us over the course of the last year. Our usual process of engagement will continue in 2018.

Nicky Hartery

Chairman

February 2018

 

 

* The Governance Appendix is published in conjunction with the Directors’ Report in compliance with Section 1373 of the Companies Act 2014. For the purposes of Section 1373 (2) of the Companies Act 2014, the Governance Appendix and the risk management disclosures pages 20, 21 and 102 to 107 form part of, and are incorporated by reference into, this Corporate Governance Report.

The primary (premium) listing of CRH plc is on the London Stock Exchange (LSE), with the listing on the Irish Stock Exchange (ISE) characterised as secondary. For this reason, CRH plc is not subject to the same ongoing listing requirements as would apply to an Irish company with a primary listing on the ISE. For further information, shareholders should consult their financial adviser. Further details on the Group’s listing arrangements, including its premium listing on the LSE, are set out on page 70.

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CRH Annual Report and Form 20-F | 2017

    

 

Corporate Governance Report - continued

Audit Committee Report

    

Chairman’s Overview

The Board has appointed me as Chairman of the Audit Committee to replace Ernst Bärtschi, who recently resigned from the Board. I would like to thank Ernst for his significant contribution to the work of the Committee during his tenure.

On behalf of the Committee, I am pleased to introduce the Audit Committee Report for the year ended 31 December 2017. The purpose of this report is to provide shareholders with an insight into the workings of, and principal matters considered by, the Committee in 2017. General details in relation to the roles and responsibilities of the Committee, its operation and the policies applied by it can be found in the Governance Appendix.

Table 1 on page 65 outlines the key areas that the Committee focused on in 2017.

Audit Committee Membership

The Committee currently consists of three non-executive Directors considered by the Board to be independent*. The biographical details of each member are set out on pages 60 and 61. Together, the members of the Committee bring a broad range of relevant experience and expertise from a variety of industries which is vital in supporting effective governance.

 

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External Auditors

Tender/Rotation of Audit

As outlined in last year’s Audit Committee Report, the Committee has recommended to the Board that a tender process for the external audit be conducted during 2018. During 2017, the Committee considered the proposed format of the tender process and an assessment was carried out to identify suitable candidates to participate in the process. A detailed Request for Proposal will be issued in 2018.

Effectiveness

The Committee, on behalf of the Board, is responsible for the relationship with EY and for monitoring the effectiveness and quality of the external audit process. The Committee’s primary means of assessing the effectiveness of the external audit process is by monitoring performance against the agreed audit plan. Each year the Committee considers the experience and knowledge of the EY audit team and the results of post-audit interviews with management and the Audit Committee Chairman. These annual procedures are supplemented by periodic formal reviews of the performance of EY. All of the above initiatives have indicated a high level of satisfaction with EY and the services provided by them to CRH. Further details in relation to the external auditors, including information on how auditor objectivity and independence are maintained, are included in Section 2 of the Governance Appendix.

Non-audit Fees

In order to ensure auditor independence and objectivity, the Committee has a policy on the provision of audit and non-audit services by the external auditor. Following the adoption of the European Union Audit Reform Regulation in June 2016, the Committee approved a number of amendments to the policy in 2017 to ensure compliance with the new requirements.

In 2017, the external auditors provided a number of audit-related services, including Sarbanes-Oxley Section 404 attestation**, and non-audit services, including due diligence

services associated with proposed acquisitions and disposals. EY were also engaged during 2017 in a number of jurisdictions in which the Group operates to provide help with local tax compliance, advice on taxation laws and other related matters; assignments which typically involve relatively small fees. The Committee is satisfied that the external auditors’ knowledge of the Group was an important factor in choosing them to provide these services. The Committee is also satisfied that the fees paid to EY for non-audit work in 2017, which amounted to 2 million and represented 11% of the total fees for the year, did not compromise their independence or integrity. Details of the amounts paid to the external auditors during the year for audit and other services are set out in note 4 to the Consolidated Financial Statements on page 141 (see also table 2 on page 65). Further details in relation to the Group’s policy regarding non-audit fees are set out in Section 2 of the Governance Appendix.

Internal Audit Effectiveness

In December 2016, the Committee received and approved the Internal Audit plan for 2017. During the year, the Committee received regular updates from the Head of Internal Audit outlining the principal findings from the work of Internal Audit and management’s responses thereto.

The Committee also considered and approved the proposed Internal Audit strategy for the next five years, which included detailed consideration of the focus, structure and resources required by the Internal Audit function.

Audit Committee Effectiveness and Priorities for 2018

During 2017, the Committee and the Board reviewed the operation, performance and effectiveness of the Committee and I am pleased to confirm that the Committee continues to operate effectively. As outlined in the Nomination & Corporate Governance Committee section, an external evaluation of the effectiveness of the Board and its Committees, will be carried out in 2018.

 

 

William J. Teuber, Jr.

Chairman of Audit Committee

Audit Committee Financial Expert (as determined by the Board)

 

    * The Board has determined that all of the non-executive Directors on the Audit Committee are independent according to the requirements of Rule 10A.3 of the rules of the SEC.
  ** A copy of Section 404 of the Sarbanes-Oxley Act 2002 can be obtained from the SEC’s website, www.sec.gov.
 

 

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I would like to thank my fellow Committee members for their commitment and input to the work of the Committee during 2017.

While the external audit tender process will obviously be an important issue for the Committee in 2018, the Committee will also continue to focus on internal control, external

 

audit planning, IT governance and cyber security and enterprise risk management.

William J. Teuber, Jr.

Chairman of Audit Committee

February 2018

 

 

Key Areas of Focus in 2017   Table 1

Issue

 

 

Description

 

Financial Reporting

and External Audit

 

We reviewed the 2017 Annual Report and Form 20-F, together with the annual, half-year and trading statements for recommendation to the Board.

 

In July, we met with EY to agree the 2017 external audit plan. Table 3 on page 66 outlines the key areas identified as being potentially significant and how we addressed these during the year.

 

 

 

Impairment Testing  

Through discussion with both management and EY, we reviewed management’s impairment testing methodology and processes. We found the methodology to be robust and the results of the testing process appropriate. There were no impairments in 2017.

 

 

 

New Accounting

Standards

 

In conjunction with management, the Committee considered the proposed timeframes for the Group to implement new accounting standards in relation to Revenue from Contracts with Customers (IFRS 15), Financial Instruments (IFRS 9) and Leases (IFRS 16). Please see pages 125 and 126 for further information on the implementation of these new standards.

 

 

 

Enterprise Risk

Management

 

 

The Committee continued to monitor and review the Group’s Enterprise Risk Management framework and the methodology and process underlying the Viability Statement included on page 98 of the Directors’ Report (further details in relation to CRH’s risk governance are outlined on pages 20 and 21).

 

We also considered an assessment of the Group’s risk management and internal control systems. This had regard to all material controls, including financial, operational and compliance controls that could affect the Group’s business.

 

 

 

IT Governance and

Cyber Security

 

 

We continued to monitor progress in refining the Group’s IT governance and information security programme and cyber security capabilities.

 

 

 

External Auditors

 

 

EY have been the Group’s external auditors since 1988. Following an assessment of EY’s continued independence, objectivity and performance, and having received confirmation of their willingness to continue in office, the Committee has recommended to the Board their continuance in office for the 2018 financial year. As in prior years, their continuance in office will be subject to a non-binding advisory vote at the 2018 AGM. Pat O’Neill has been the Group’s lead audit engagement partner with effect from the financial year beginning 1 January 2016.

 

As outlined above, the Committee will conduct an external audit tender during 2018.

 

 

Percentage of audit and non-audit fees

 

   Table 2

 

 

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CRH Annual Report and Form 20-F | 2017

    

 

Corporate Governance Report - continued

Audit Committee Report - continued

    

 

Areas identified for focus during the 2017 External Audit Planning Process   Table 3

Area of Focus

 

  Audit Committee Action
Impairment of Goodwill  

For the purposes of its annual impairment testing process, the Group assesses the recoverable amount of each of CRH’s cash-generating units (CGUs – see details in note 15 to the Consolidated Financial Statements) based on a value-in-use computation or fair value less costs to sell. The annual goodwill impairment testing was conducted by management, and papers outlining the methodology and assumptions used in, and the results of, that assessment were presented to the Audit Committee. Following its deliberations, the Audit Committee was satisfied that the methodology used by management (including the growth rates) and the results of the assessment, together with the disclosures in note 15, were appropriate.

 

 

 

Impairment of Property,

Plant and Equipment,

and Financial Assets

 

In addition to the goodwill impairment testing process discussed above, the Group also undertook its annual assessment of the need for impairment of other non-current assets (property, plant and equipment and financial assets) as and when indicators of impairment exist. The Audit Committee considered the methodology used by management in that process and was satisfied that it was appropriate.

 

 

 

Contract Revenue

Recognition

 

IAS 11 Construction Contracts requires revenue and expenses to be recognised on uncompleted contracts, with the underlying principle that, once the outcome of a long-term construction contract can be reliably estimated, revenue and expenses associated with that contract should be recognised by reference to the stage of completion of the contract activity at the balance sheet date. If it is anticipated that the contract will be loss-making, the expected loss must be recognised immediately. Following discussions with management and EY, the Audit Committee was satisfied that contract revenue recognition was not a material issue for the Group in 2017 as the majority of contracts were completed within the financial year.

 

 

 

Accounting for Acquisitions

and Divestments -

appropriate application of IFRS 5 Non-current Assets

Held for Sale and

Discontinued Operations

 

 

During 2017, the Group completed 34 acquisitions and investments at a total cost of 1.9 billion. Following discussion with management and EY, the Committee was satisfied that the accounting treatment applied to acquisitions during 2017 was appropriate. During 2017, the Group also announced its decision to divest its Americas Distribution business for US$2.6 billion. As at 31 December 2017, Americas Distribution met the Held for Sale and Discontinued Operations criteria and has been classified as such in the Consolidated Financial Statements (see note 2 for more details). Following discussion with management and EY, the Committee was satisfied that the treatment applied to Americas Distribution was correct.

 

 

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CRH Annual Report and Form 20-F | 2017

    

 

    

    

    

    

Nomination & Corporate Governance Committee Report

    

Chairman’s Overview

 

During 2017, the Nomination & Corporate Governance Committee has focused on the renewal and refreshment of the Board, particularly in the context of Chairman succession, and the role and composition of the Board’s Committees.

 

Board Renewal/Chairman Succession

 

As part of the Board renewal process, the Committee uses a skills matrix to map the current skills of the Board. This facilitates the identification of skills gaps, areas of expertise and knowledge which may be lost to the Board due to retirements. This also provides a framework when establishing priorities for appointments and developing role specifications.

 

As a result of recent Board changes in 2017 and to date in 2018, the number of female directors will reduce from 33% to 27%. This is intended to be short term in nature. CRH’s policy on diversity in respect of Board appointments and the percentage of female Directors on the Board since 2014 is set out on pages 68 and 69. During the year the Committee noted the Parker Review initiative to improve ethnic diversity on Boards and will consider this as the renewal policy evolves.

 

In August 2017, Maeve Carton retired from the Board and as an executive. In December 2017, Ernst Bärtschi also left the Board.

 

The Committee recommended to the Board that Pat Kennedy and Lucinda Riches who had both completed their initial three year term as non-executive Directors each be appointed for a second three year term. The Committee has also recommended that Heather Ann McSharry be appointed for a third term of three years.

 

In 2017, the Committee engaged Irish and international recruitment agencies to identify candidates for the role of non-executive Director. As a result of that process, Richard Boucher will be appointed to the Board with effect from 1 March 2018. We also identified some candidates who were not available to join the Board at the present time but who will remain part of our longer term pipeline of prospective candidates. Amongst the factors reflected in the terms of reference agreed with the agencies for the recruitment process were the blend of skills required by the Board, both now and in the next few years, the need to ensure appropriate levels of gender diversity on the Board and the

  

desire of the Board to have a strong pool of candidates for key non-executive positions.

 

Last year I reported that the Committee had commenced a process to consider the requirements for the appointment of my successor as Chairman. Led by the Senior Independent Director, Don McGovern, the Committee put in place a detailed job specification for the role. A thorough and robust process to identify my successor is ongoing. In order to aid the transition in due course, the Board has asked me to extend my term as Chairman, which was due to expire in April this year. I have acceded to this request to act as a bridge until my successor has been identified and a timeline for induction and appointment has been agreed.

 

External agents (Korn Ferry and Leaders Mores) were used to identify candidates during the course of 2017 and to date in 2018. Korn Ferry provide other services to the Group in the area of human resources.

 

Safety, Environmental & Social Responsibility Committee

 

In CRH, safety and sustainability issues are important to our employees, the management team and the Board. To reflect this, and to ensure that the Board gives an appropriate level of focus to monitoring and supporting various initiatives, the Board has decided to put in place a dedicated Safety, Environmental & Social Responsibility Committee during 2018.

 

Committee Composition

 

Following Ernst Bärtschi’s resignation from the Board, the Committee recommended that Bill Teuber be appointed as Chairman of the Audit Committee. Bill has been a member of the Audit Committee since 2016 and has previously been designated as the Audit Committee’s financial expert.

 

During the course of 2018, the Committee will consider the composition of the Board’s Committees, including the new Safety, Environmental & Social Responsibility Committee.

 

Time Commitment

 

With effect from 1 January 2018, I have taken over the role of non- executive Chairman of Musgraves, a non-listed food retailing company which I have been a director of for a number of years. I am satisfied that the incremental

  

responsibilities resulting from this new position will not impact on my time commitment to CRH. Prior to accepting the role, I discussed the nature of, and the time requirement associated with, the position with the Nomination & Corporate Governance Committee.

 

Board Effectiveness

 

In accordance with the Board’s procedures, the Senior Independent Director has interviewed all Directors to evaluate the effectiveness of the operation of the Board and its Committees. Action points and recommendations arising from the resulting report will be addressed during the course of 2018. In addition, each of the Committees reviewed its own performance during the course of the year. An externally facilitated Board evaluation in relation to the effectiveness of the Board and its Committees will be carried out later this year.

 

Nicky Hartery

 

Chairman of Nomination & Corporate Governance Committee

 

February 2018

 

    

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Corporate Governance Report - continued

 

Nomination & Corporate Governance Committee Membership

The Nomination & Corporate Governance Committee consists of five non-executive Directors, considered by the Board to be independent. The biographical details of each member are set out on pages 59 to 61. The Chief Executive normally attends meetings of the Committee.

Board of Directors

Membership Structure of the Board

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

Role and Responsibilities of the Board

The Board is responsible for the leadership, oversight, control, development and long-term success of the Group. It is also responsible for instilling the appropriate culture, values and behaviour throughout the organisation. There is a formal schedule of matters reserved to the Board for consideration and decision. This includes the matters set out in table 4.

The Group’s strategy, which is regularly reviewed by the Board, and business model are summarised on pages 10 to 13.

The Board has delegated some of its responsibilities to Committees of the Board. While responsibility for monitoring the effectiveness of the Group’s risk management and internal control systems has been delegated to the Audit Committee*, the Board retains ultimate responsibility for determining the Group’s risk appetite and tolerance, and annually considers a report in relation to the monitoring, controlling and reporting of

identified risks and uncertainties. In addition, the Board receives regular reports from the Chairman of the Audit Committee in relation to the work of that Committee in the area of risk management.

Individual Directors may seek independent professional advice, at the expense of the Company, in the furtherance of their duties as a Director.

The Group has a Directors’ and Officers’ liability insurance policy in place.

Chairman

Nicky Hartery was appointed Chairman of the Group in 2012. On his appointment as Chairman, he met the independence criteria set out in the 2016 Code. Although he holds a number of other directorships, the Board has satisfied itself that these do not impact on his role as Chairman. Changes in Mr. Hartery’s time commitments in the past 12 months are outlined in the Nomination & Corporation Governance Committee section on page 67.

Policy on Diversity

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

 

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

 

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

 

  diversity, including nationality and gender; and

 

  the need for an appropriately sized Board

During the ongoing process of Board renewal, each, or a combination, of these factors can take priority.

In 2014, the Board set itself a goal of increasing the number of female Directors to 25%. The progress made since is shown in table 6.

To date, the Board has not set any policy regarding age. The ages of the Directors range from 49 to 67, which the Nomination & Corporate Governance Committee believes is appropriate at the current time.

Committees

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

 

  Acquisitions

 

  Audit

 

  Finance

 

  Nomination & Corporate Governance

 

  Remuneration

In addition, a Safety, Environmental & Social Responsibility Committee will be set up during the course of 2018. Ad-hoc Committees are formed from time to time to deal with specific matters.

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

Each of the Committees has reviewed their respective Terms of Reference.

The Terms of Reference of each Committee are available on the CRH website, www.crh.com.

 

Matters reserved to the Board

 

 

Table 4

 

  Appointment of Directors

 

  Strategic plans for the Group

 

  Annual budget

 

  Major acquisitions and disposals

 

  Significant capital expenditure

 

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

 

  Approval of the interim results

 
     
 

 

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

** The Terms of Reference of these Committees comply fully with the 2016 Code; CRH considers that the Terms of Reference are generally responsive to the relevant NYSE rules, but may not address all aspects of these rules.

 

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Membership of the CRH Board (as at 28 February 2018)

 

 

Table 5

 

 

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% Female Directors at 31 December

 

           

Table 6

 

2013

 

   

2014

 

   

2015

 

   

2016

 

   

2017

 

15%

 

      23%       29%       33%       30%

 

Attendance at meetings during the year ended 31 December 2017

 

  

Table 7

 

Name    Board    Acquisitions    Audit    Finance    Nomination &
Corporate Governance
   Remuneration
                               
       Total        Attended        Total        Attended        Total        Attended        Total        Attended        Total        Attended        Total        Attended  
  

 

  

 

  

 

  

 

  

 

  

 

E.J. Bärtschi (i)    6    6    -    -    7    7    5    5    -    -    -    -
M. Carton (ii)    4    4    4    4    -    -    3    3    -    -    -    -
N. Hartery    6    6    5    5    -    -    5    5    5    5    -    -
P.J. Kennedy    6    6    5    5    -    -    -    -    5    5    9    9
D.A. McGovern, Jr.    6    6    -    -    -    -    -    -    5    5    9    9
H.A. McSharry    6    6    -    -    7    7    -    -    -    -    9    9
A. Manifold    6    6    5    5    -    -    -    -    -    -    -    -
S. Murphy    6    6    5    5    -    -    5    5    -    -    -    -
G.L. Platt (iii)    6    6    -    -    -    -    -    -    4    4    6    6
L.J. Riches    6    6    -    -    -    -    -    -    5    5    9    9
H. Th. Rottinghuis    6    6    5    5    7    7    -    -    -    -    -    -
W.J. Teuber, Jr.    6    6    -    -    7    7    5    5    -    -    -    -
  

 

  

 

  

 

  

 

  

 

  

 

 

(i) Resigned December 2017
(ii) Retired August 2017
(iii) Appointed January 2017

All Directors attended the 2017 AGM.

 

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Corporate Governance Report - continued

 

Substantial Holdings

The Company is not owned or controlled directly or indirectly by any government or by any corporation or by any other natural or legal person severally or jointly. The major shareholders do not have any special voting rights. Details of the substantial holdings as at 31 December 2017 are provided in table 8. The Company has not been advised of any changes in holdings since 31 December 2017.

Stock Exchange Listings

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

Regulatory, Compliance

& Ethics

CRH’s Regulatory, Compliance & Ethics (RCE) programmes support the Group in operating sustainably and consistently to its core values of integrity, honesty and respect for the law.

RCE provides support on a range of matters including compliance risk assessments, export controls and sanctions processes, monitoring of hotline calls, competition/antitrust law as well as preparation for the implementation of the European Union General Data Protection Regulations (GDPR).

Awareness and Training

In line with our commitment to maintain high ethical business standards, the Code of Business Conduct (CoBC) and Advanced

Compliance Training (ACT - including Anti-bribery, Anti-Fraud, Anti-theft and Competition/Antitrust) e-Learning modules were reviewed, redesigned and distributed in 23 languages during the year.

In addition, new GDPR and Data Privacy e-Learning modules were developed for general awareness amongst the CRH businesses and also for specific business functions.

During 2017, RCE has worked with HR, IT, legal and business teams to develop policies, guidance and implementation plans as part of preparations to address the impact of GDPR. A robust communication plan is in place to complement the training programmes and promote awareness among employees.

Hotline

A 24/7 multi-lingual confidential “Hotline” facility called “Speak Up” is available to employees to report issues that concern them, for example issues concerning business ethics or conduct. The “Hotline” is maintained by an independent operator.

All reports received via the Hotline (or through other channels) are investigated with appropriate actions taken based on investigation findings. The collective goal is to ensure that the message is clearly understood that at CRH “there is never a good business reason to do the wrong thing”.

Communications with Shareholders

Communications with shareholders are given high priority and the Group devotes considerable time and resources each year to

shareholder engagement. We recognise the importance of effective dialogue as an integral element of good corporate governance. The Investor Relations team, together with the Chief Executive, Finance Director and other senior executives, regularly meet with institutional shareholders (each year covering over 60% of the shareholder base). Detailed reports on the issues covered in those meetings and the views of shareholders are circulated to the Board after each group of meetings. Table 10 provides a brief outline of the nature of the activities undertaken by our Investor Relations team.

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

During 2017, the Chairman, Senior Independent Director and Company Secretary again participated in a number of meetings with some of the Group’s major shareholders, details of which are set out in the Chairman’s letter on page 62.

We also respond throughout the year to correspondence from shareholders on a wide range of issues.

 

 

Substantial Holdings    Table 8

 

As at 31 December 2017, the Company had received notification of the following interests in its Ordinary Share capital, which were equal to, or in excess of, 3%:

 

    

31 December 2017

  

31 December 2016

  

31 December 2015

Name   

Holding/

    Voting Rights

  

% at

    year end

  

Holding/

    Voting Rights

  

% at

year end

  

Holding/

    Voting Rights

  

% at

    year end

  

 

  

 

  

 

Baillie Gifford Overseas Limited and Baillie Gifford & Co.            Holding below 3%    33,171,299    3.98    41,193,797    5.00
BlackRock, Inc. (i)    75,119,286    8.95    74,809,499    8.98    74,030,167    8.99
Standard Life Aberdeen plc.    25,643,747    3.05            Holding below 3%            Holding below 3%
UBS AG    26,380,604    3.14    26,380,604    3.16    26,380,604    3.20
  

 

  

 

  

 

 

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

 

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US Listing - Additional Information

 

  

Table 9

 

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

Section 1 - Frequently Asked Questions

 

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

 

    Page 3: What are the requirements for the retirement and re-election of Directors?

Section 2 - Operation of the Board’s Committees

 

    Page 6: Audit Committee: Role and Responsibilities

 

    Page 6: Audit Committee: Meetings

 

    Page 8: Audit Committee: Non-audit Fees

In addition, details of the executive Directors’ service contracts and the policy for loss of office are set out in the 2016 Directors’ Remuneration Policy, a copy of which has been filed as an exhibit to the Annual Report on Form 20-F as filed with the SEC and is incorporated by reference herein.

 

Investor Relations Activities

 

  

Table 10

 

 

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

 

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

 

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

 

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

 

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

 

The following are available on the CRH website (www.crh.com)

 

  

Table 11

 

 

Corporate Governance

 

    Governance Appendix

 

    Directors’ Remuneration Policy (2016 - 2019)

 

    Terms of Reference of the Acquisitions, Audit, Finance, Nomination & Corporate Governance and Remuneration Committees

 

    Memorandum and Articles of Association of the Company

 

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

 

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

Investors

 

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

 

  News releases  

 

  Webcast recordings of results briefings  

 

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

 

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

 

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Directors’ Remuneration Report

 

Chairman’s Overview

Introduction

As Chairman of the Remuneration Committee, I am pleased to present the Directors’ Remuneration Report for the year ended 31 December 2017. As in previous years, the main report is split into three sections:

 

  this Chairman’s Statement (pages 72 and 73);

 

  a summary of the main features of the Directors’ Remuneration Policy (the “Policy”) approved by shareholders at the 2016 AGM (pages 76 to 83). The full Policy is detailed in the Group’s 2015 Annual Report (pages 95 to 106); and

 

  the Annual Report on Remuneration (pages 84 to 95)

We have also included a remuneration summary on page 73, which provides an overview of the key remuneration outcomes for 2017, as well as the proposed remuneration arrangements for 2018.

2017 Performance

2017 was a year of continued profit growth for CRH. With a focus on performance improvement and operational delivery, margins

 

LOGO

and returns were ahead of 2016 in our Americas and Europe Divisions. Supported by strong operational cash generation we continued to deliver value through efficient capital management.

 

2017 Performance Highlights

 

 

Earnings Per Share:

     226.8 cent  

Operating Cash Flow:

     2.2 billion  

Return on Net Assets:

     10.6%  

Total Shareholder Return*:

 

    

 

17.2%

 

 

 

 

* Annualised three-year Total Shareholder Return to 31 December 2017

Incentive Outcomes for 2017

The Group’s performance in 2017, as well as individual performance during the year, has translated into annual bonus payouts of between 90% and 96% of the maximum opportunity.

The Committee also determined that 78.7% of the awards made in 2015 under the 2014 Performance Share Plan (PSP) had met the relevant performance criteria as performance in relation to TSR (75% of the award) and cumulative cash flow (25% of the award) metrics exceeded the relevant threshold targets for vesting. The Committee considers that the vesting outcome is reflective of the Group’s underlying performance over the applicable performance period (1 January 2015 to 31 December 2017). In accordance with the Policy, the 2015 awards for the executive Directors will vest in 2020 on completion of an additional two-year hold period (see page 84 for more details).

Further details in relation to the remuneration received by the executive Directors are set out in the Annual Report on Remuneration on pages 75 to 95.

Shareholder Engagement

The Committee is committed to engaging with shareholders to understand their views on remuneration. Prior to the AGM in 2017 we received feedback from investors holding approximately one third of the shares in issue on a range of topics including the Policy and its implementation. We continued to engage with shareholders in 2017; we subsequently contacted investors holding 70% of the shares in issue and received valuable feedback not only on the Committee’s specific proposals for 2018 but on our

approach to remuneration generally. I appreciate the time taken by shareholders to engage with the Committee on remuneration matters.

The outcome of the vote on the Annual Report on Remuneration at the 2017 AGM is shown in table 15. We will consider the full range of views from shareholders when we begin the process of reviewing the Remuneration Policy, which is scheduled to be voted on by shareholders at the 2019 AGM.

Remuneration in 2018

In 2017, the Committee carried out a review of Senan Murphy’s Finance Director remuneration package. The drivers for the review were as follows:

 

  Senan was appointed as Finance Director in January 2016 on a significantly below-market salary, with the expectation that his salary would increase over time;

 

  Since his appointment Senan has performed exceptionally well and grown significantly in his role, and is a key member of the Group’s executive leadership team; and

 

  2017 was a year of change for the executive team at CRH, with Mark Towe (Chairman, CRH Americas) and Maeve Carton (Group Transformation Director) retiring from the Board on 31 December 2016 and 31 August 2017 respectively. Following these changes, Senan’s remit expanded to include certain areas that previously fell within Maeve’s responsibility in her Group Transformation Director role. However, he retained responsibility for his existing functions (which includes performance management, a function that did not previously report to his predecessors)

The review highlighted that Senan’s current overall remuneration package was significantly below market when compared to similar roles in FTSE 50 companies (excluding financial services) and sector peer companies, driven primarily by a lower quartile salary compared with market.

The Committee, therefore, believed an adjustment was necessary and consulted with shareholders on a proposal to increase his base salary to broadly bring him into line with the market. While the majority of shareholders who responded to the consultation were in favour of the proposal put forward, a number

 

 

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of shareholders queried whether the level of salary increase proposed was appropriate in a single year, particularly following the percentage increase he received in 2017. In addition, we received feedback suggesting that any adjustments should increase shareholder alignment.

Taking all of the feedback into account, the Committee decided to increase Senan’s salary by 9.8%, which is materially less than initially proposed. In addition, the Committee has taken steps to increase shareholder alignment by increasing Senan’s PSP award level in 2018 by 25% of salary, while at the same time increasing his shareholding requirement from one times salary to two times salary to be achieved within five years. The revised proposal results in a position whereby Senan’s total expected remuneration remains significantly below market. Overall, the Committee believes that the changes are fair, balanced and to the extent possible are reflective of the full range of feedback received from the consultation process.

For 2018, Albert Manifold will receive an increase in salary of 3%, which is broadly consistent with the average increases for executives in CRH’s core geographies and the increase for the wider workforce. The other elements of his remuneration will remain unchanged.

As outlined above, Senan Murphy’s salary will increase by 9.8%, taking his salary to 775,000. In addition, his PSP award for 2018 will increase to 225% of salary (previously 200% of salary).

2018 Annual Bonus Plan

The metrics for the 2018 annual bonus are unchanged from last year, and are set out in table 13.

2018 Performance Share Plan Awards

The metrics and targets for awards to be made under the PSP in 2018 are set out in table 29 on page 87.

The Committee is aware that a number of shareholders would like to see a returns based metric introduced when possible. At present, the Committee believes that the focus on TSR and Cashflow remains appropriate in terms of the Group’s current strategic priorities. Return on Net Assets (RONA) remains a core element of the Annual Bonus Plan and will continue to be an underpin for the TSR element of PSP

awards made in 2018, whereby at the end of the performance period the Committee will carefully consider the RONA performance of the business. The PSP outcome may be adjusted downwards if RONA performance has not met the expectations of the Board.

The Committee will continue to evaluate the mix of metrics for the PSP and, in particular, will take this issue into consideration when considering the updated Remuneration Policy to be put to shareholders for consideration in 2019.

Board changes

Maeve Carton retired from the Board and from CRH on 31 August 2017. All elements of Maeve’s remuneration have been treated in line with the Remuneration Policy and relevant plan rules. Details are outlined in table 16 on page 74. Maeve has also entered into an agreement to provide consultancy services to the Group for a maximum of 40 days per year at a rate of 2,500 per day. As a result, the Group will retain

access to Maeve’s significant knowledge of the industry and she may continue to represent CRH in key strategic relationships.

Conclusion

The Committee believes that the remuneration paid to the executive Directors in respect of 2017 is appropriate and is well aligned with the performance of the Company and the value delivered for shareholders. We hope to receive your support for the Annual Report on Remuneration at the 2018 AGM. In addition, I look forward to engaging further with shareholders as we undertake a review of our Policy later this year.

Donald A. McGovern, Jr.

Chairman of Remuneration Committee

28 February 2018

 

 

 Executive Directors’ Remuneration Summary

 

2017 Remuneration Snapshot

 

(full details of 2017 remuneration are set out in table 17 on page 75)

 

 

  

Table 12

 

   

 

 
    

 

Fixed

  

 

Performance Related Variable Remuneration

   
  

 

  

 

 
      Director        Salary       

  Annual Bonus   

(% of max)

  

 

  Value of PSP awarded

in 2015 (ii) (% of max)

 

   
  

 

  

 

 
Albert Manifold            1,442,000            96%    78.7%  
Maeve Carton (i)    470,475    90%    78.7%  

Senan Murphy

 

  

705,713

 

   96%    Not applicable (iii)  

 

 

 

  (i) Retired from the Board and from CRH on 31 August 2017. The salary in the table above is pro-rated for service to her retirement. The equivalent salary for 12 months would be 705,713. Details of her remuneration arrangements on retirement are set out in table 16 on page 74.  

 

  (ii) The awards, for which performance was measured over the three-year period to end 2017, will vest at 78.7% in 2020 following the completion of a two-year holding period. Further details in relation to the estimated value of the awards, split between the value created for performance and the value created through share price growth, are included in table 17 on page 75. The market value per share on the date of award (March 2015) was 24.42.  

 

  (iii) Appointed to the Board in January 2016.  

 

2018 Remuneration Snapshot

 

            

Table 13

 

       
Director    Salary           

 

Max. Annual

Bonus

(% of salary)

  

Metrics for

2018 Award

    

 

2018 PSP

Award

(% of salary)

    

Metrics for

2018 PSP

Award

       
Albert Manifold    1,485,260        

+3%        

   225%     

 

 EPS (25%)

 

  RONA (25%)

 

 

 

     365%       
   
            
  Operating cash
   flow (30%)
 
 
       

 

 TSR (50%) (i)

 

  Cash flow (50%)

 

 

 

 
   
Senan Murphy    775,000         

+9.8%        

   150%     

  Personal/
   Strategic
   (20%)
 
 
 
     225%             

 

(i)  Subject to a RONA underpin.

          
 

 

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TSR Performance (2008 - 2017)

 

  

Table 14

 

 

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(i) For the purposes of comparability, the FTSE100 Index is converted to euro using the closing exchange rate at each year-end.

 

2017 AGM – Remuneration Related Votes (i)

 

  

Table 15

 

     Year of        %        %        No. of        Total No. of Votes Cast        % of issued share
    

 

AGM

 

 

 

    

 

in Favour

 

 

 

    

 

Against

 

 

 

    

 

votes withheld

 

 

 

    

 

(incl. votes withheld)

 

 

 

    

 

capital voted

 

 

 

Directors’ Remuneration Report (“Say on Pay”)

 

     2017        82.31        17.69        8,260,492        522,037,881        62.45  

 

(i) The outcome of the remuneration related votes at the 2016 AGM is set out on page 94 of the 2016 Annual Report and Form 20-F.

 

Maeve Carton – Remuneration Arrangements on Retirement

 

 

Table 16

 

Salary  

Maeve received her normal salary up to the date of her retirement.

 

 

 

Bonus  

Maeve received a pro-rated bonus in respect of performance from 1 January 2017 to her date of retirement. The bonus was paid entirely in cash.

 

 

 

Pension  

As outlined in table 17 on page 75, Maeve received her normal supplementary taxable non-pensionable cash allowance, pro-rated for service from 1 January 2017 to her date of retirement.

 

 

 

 

2014 Performance Share    

Plan

  Unvested Awards: Maeve’s oustanding unvested awards (i.e. the awards made in 2015, 2016 and 2017) will be released on their normal release dates subject to performance (to be measured at the normal time) and will be subject to the normal two-year holding period.
 

Vested Awards: Maeve’s vested awards (i.e. the award made in 2014) will be released at the normal release date following the completion of the two-year holding period.

 

 

 

Deferred Share Awards  

Maeve’s outstanding awards (i.e. the awards in relation to her 2015, 2016 and 2017 bonuses), adjusted for dividends accruing from the date of award, were released to her in November 2017.

 

 

 

2010 Savings-related Share Option Scheme

 

  Maeve’s outstanding award (i.e. the award granted in 2014) will remain in force and will vest at the normal vesting date in 2019.

 

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CRH Annual Report and Form 20-F | 2017

    

 

    

Individual Executive Remuneration for the year ended 31 December 2017 (Audited)    Table 17

 

     Albert Manifold          Maeve Carton(i)          Senan Murphy(ii)          Mark Towe(iii)  
     2017      2016      2015          2017      2016      2015          2017      2016      2015          2017      2016      2015  
Fixed Pay    000      000      000          000      000      000          000      000      000          000      000      000  
Basic Salary (iv)      1,442        1,400        1,290          470        689