Annual Report 2014 PERFORMANCE & GROWTH The International Building Materials Contents Group Page 2 Chairman’s Introduction Strategy Review 4 Chief Executive’s Introduction 7 Strategic Report 10 Business Model 14 Measuring Performance 17 Sustainability and Governance Business Performance Review 22 Finance Director’s Introduction 26 Operational Snapshot 28 Europe 38 The Americas CRH provides building materials 48 Asia across the spectrum of the construction industry – from building Governance foundations to frame and roofing, 51 Board of Directors to fitting out the interior space and 54 Corporate Governance Report improving the exterior environment, 72 Directors’ Remuneration Report on-site works and infrastructural 96 Directors’ Report projects, our materials and products are used extensively. Financial Statements 101 Independent Auditor’s Report 104 Consolidated Financial Statements 108 Accounting Policies 115 Notes on Consolidated Financial Statements Other Information 158 Shareholder Information 160 Management 162 Principal Subsidiary Undertakings 166 Principal Equity Accounted Investments 167 Group Financial Summary 168 Index The value created from our strategic approach translates into superior growth which has enabled our shareholders to enjoy a euro compound annual Total Shareholder Return (TSR) of 15.7% since our formation in 1970. We are committed to improving the built environment and we understand the wider impact our businesses can make in supporting human activity through the delivery of superior building materials and products for use in buildings, roads, public spaces, infrastructure and other construction areas. Our geographic footprint is wide. We operate in 34 countries and are the largest building materials company in North America, a regional leader in Europe, and have strategic positions in Asia. For over four decades, CRH has developed and implemented a proven model of business improvement. By building better businesses across our international operations, we have grown to be a leader in the global building materials industry. A Fortune 500 ranked company, CRH is a constituent member of the FTSE 100 index and the ISEQ 20. Our shares are listed on the London and Dublin stock exchanges, and on the New York stock exchange in the form of American Depositary Shares. CRH 1 34 countries 3,300 locations 76,000 people 15 billion tonnes of Chairman’s Introduction aggregates reserves Dear Shareholder, In the Chief Executive’s introduction to last year’s Annual 300 million Report, Albert Manifold set out the areas of focus for tonnes of management in 2014. He highlighted dynamic portfolio manufactured management together with maintaining CRH’s traditional tight cost control, capital discipline and focus on returns product as being key to driving growth and to rebuilding margins in the coming years. 115,000 A significant amount of progress has been made in the past Distribution 12 months, which is reflected in the results and performance for 2014. In particular, we are pleased with progress in the SKUs multi-year divestment programme and the related reshaping of the Group’s portfolio. The Group’s financial strength was further enhanced during the year by two bond issuances, co-ordinated by Maeve Carton, our Finance Director, and her team, in the amounts of €600 million and CHF330 million. The record low coupons achieved by the Group for these bonds reflect our track record in debt markets and the value that results from our investment grade credit ratings. In respect of 2014, the Board is recommending a final dividend of 44c per share. If approved at the 2015 Annual General Meeting, this will maintain the full-year dividend at 62.5c per share. During the last year, my non-executive colleagues and I have spent a considerable amount of time working with the executive Directors and the wider management team on reviewing and refining the Group’s strategy in the context of Silver Towers, New York City New York Silver Towers, the evolution of key markets and products over time and in setting the priorities for the Group. On 1 February 2015 we announced that CRH had entered into a binding commitment to acquire certain assets from Lafarge S.A. (“Lafarge”) and Holcim Limited (“Holcim”) for a total enterprise value of €6.5 billion, subject to (i) CRH shareholder approval at an Extraordinary General Meeting to be held on 19 March 2015; (ii) the successful completion of the proposed merger 2 CRH of Lafarge and Holcim; and (iii) the completion of certain made by the Secretariat. In doing so, we maintain our initial local reorganisations by Lafarge and Holcim in advance of assessment that the case is ill-founded and that the proposed the acquisition. The Board believes that this acquisition, fine in respect of the Group is unjustified. which arises from regulatory requirements for industry Two new non-executive Directors joined the Board in recent deconsolidation in connection with the merger of Lafarge months. Pat Kennedy was appointed in January 2015 while and Holcim, represents a compelling strategic opportunity Lucinda Riches has been appointed with effect from 1 for the Group, and that our financial, capital and operational March 2015. Their biographies, along with those of the rest discipline has positioned the Group to take advantage of this of the Board are set out on pages 51 to 53. Further details unique opportunity at this time. The placing of approximately on the on-going process of Board renewal are set out in the 74 million shares in CRH plc, which completed on 5 February Nomination & Corporate Governance Committee Report on 2015, raised €1.6 billion as part of the financing of this pages 66 and 67. acquisition. All Directors will retire at the Annual General Meeting on In 2015, in addition to the integration plan for the Lafarge / Thursday, 7 May 2015, with those eligible offering themselves Holcim assets, on the approval of shareholders, the Board for re-election. I strongly recommend that shareholders vote in will continue to focus on talent management, cyber security, favour of each of the individuals putting themselves forward and working towards the achievement of sustainability, safety for re-election. and environmental priorities. In relation to safety, 2015 will see the introduction of a new Chairman’s award for safety As part of the Board’s planned renewal process, John Kennedy excellence in the Group. and Dan O’Connor will step down from the Board at the conclusion of the 2015 Annual General Meeting on 7 May 2015. During 2014, the Board redoubled its ongoing focus on the On behalf of the Board, I would like to thank John and Dan for area of compliance and ethics to ensure that CRH’s processes their commitment and great service to CRH over many years. are robust and in line with best practice across the Group. In the current training cycle, over 32,000 employees have Finally, I would like to take the opportunity to thank Albert and participated in Code of Business Conduct training and a his team for their significant achievements over the past year. further 11,000 have undertaken advanced instruction on the prevention of breaches of competition law, anti-bribery and corruption laws. We remain vigilant in our business practices Nicky Hartery, Chairman in this area and are responsive to all regulatory agencies. February 2015 Notwithstanding this work, as we announced in May 2014 the Swiss Competition Commission has an open investigation in respect of practices in the sanitary building products sector in Switzerland and its Secretariat has recommended that the industry, of which certain CRH group companies are members, be fined. Engagement with the Swiss Competition Commission is ongoing and CRH is responding vigorously to the allegations CRH 3 Strategy Review Chief Executive’s Introduction When I joined CRH in 1998, I quickly learned that a Throughout recent times, the Group has maintained its philosophy of business improvement is ingrained in the commitment to ongoing cost control, strong cash generation history of the Group. At CRH, we seek to build better efficiency and disciplined financial management. Further businesses each and every day. As the construction industry progress was achieved in these areas in 2014 including an emerges from a tumultuous few years, our approach has never additional €118 million of targeted cost savings delivered by been more relevant and there is nowhere I would rather be at year-end. this moment in time than in this Group, in this industry, at The reorganisation of our European businesses was largely this point in the business cycle. completed during the year and we now have an integrated 2014 was a year of good progress for CRH. We were able to use heavyside materials and products organisation that is the underlying strength of our business to capitalise on the providing synergies across our operating plant network in recovering markets and deliver a return to profit and margin European markets. growth. Development spend in 2014 was €0.19 billion on This progress was made possible by the hard decisions and 21 transactions, a lower spend than in previous years. hard work undertaken by the Board, management and staff During 2014 we completed a detailed review of our portfolio of CRH over the course of the previous seven years since the and commenced a multi-year divestment programme, of onset of the global financial crisis. As a result of this, the businesses which no longer meet our returns and growth Group ended 2014 in a position of real strength across our key criteria, or for which we believe CRH is no longer the best metrics – strategic, operational and financial. long-term owner. We remain focussed on optimising our portfolio to meet our financial objectives and prioritising the It is particularly pleasing to report that improvements allocation and reallocation of capital as we reset for growth in performance were achieved last year across all of our and restore margins and returns to peak levels.