CRH Annual Report 2012 | Quarterlytics

Plain-text annual report

Annual Report 2012 H T W O R G & E C N A M R O F R E P 13/03/2013 09:36 plc, a FTSE 100 and Fortune 500 company, is a diversiﬁed international building materials group which manufactures and distributes a diverse range of products servicing the breadth of construction needs, from the fundamentals of heavy materials and elements to construct the frame, through value-added exterior products that complete the building envelope, to distribution channels which service construction ﬁt-out and building renewal. CRH employs approximately 76,000 people at over 3,500 locations in 35 countries worldwide. CRH’s strategic vision is to be a responsible international leader in building materials, delivering superior and sustained shareholder returns. The Group is committed to managing all aspects of its business – relating to employees, customers, suppliers, neighbours, local communities, shareholders and other stakeholders – in a sustainable and responsible manner. Sustainability and corporate social responsibility concepts are embedded as integral components of the Group’s performance and growth strategy. CRH is a constituent member of FTSE 100, ISEQ 20, Euro Stoxx 50 the Euro Stoxx Select Dividend 30 equity indices, and its shares are listed on the London, Dublin and New York stock exchanges. CRH is also ranked among sector leaders by a number of Socially Responsible Investment (SRI) rating agencies for its sustainability and corporate social responsibility performance. Page The Year 1 2 4 6 8 10 13 17 21 24 36 38 54 68 71 72 76 83 Key Financial Figures 2012 Market Leadership Positions Product Range and End-use CRH: Sustainable, Responsible, Ethical Chairman’s Statement CRH Executive Management Team Chief Executive’s Review Finance Review Group Operations Operations Reviews Board of Directors Governance Corporate Governance Report Report on Directors’ Remuneration Directors’ Report Financial Statements Independent Auditor’s Report Consolidated Financial Statements Accounting Policies Notes on Consolidated Financial Statements Other Information 122 Shareholder Information 124 Group Financial Summary 126 Management 128 Principal Subsidiary Undertakings 134 Principal Joint Venture Undertakings 135 Principal Associated Undertakings 136 Index 138 Notice of Meeting 2013_Cover008.indd 2 I S L A R E T A M S T C U D O R P I N O T U B R T S D I I Key Financial Figures 2012 € million Sales 18,659 +3% EBITDA 1,640 -1% Operating proﬁt (EBIT) 845 -3% Proﬁt before tax 674 -5% cent Earnings per share 76.5 -7% Cash earnings per share 206.8 +7% Dividend per share 62.5 maintained times Net Debt/EBITDA 1.8 EBITDA/Net interest cover 6.4 EBIT/Net interest cover 3.3 Dividend cover 1.2 CRH 1 An international, national and regional leader North America 50% of Group* No.1 Asphalt No.3 Aggregates Top 3 Readymixed concrete No.1 Concrete products No.2 Construction accessories No.3 Rooﬁng/siding distributor 2 CRH Western Europe 35% of Group* Top 10 Cement Regional leadership in aggregates and readymixed concrete No.1 Concrete products No.1 Construction accessories Top 3 Building materials distributor Developing Economies 15% of Group* No.1 Building materials in Poland No.1 Cement in northeast China (26% CRH share) No.2 Cement in Andhra Pradesh, India (50% CRH share) * Based on 2012 EBITDA CRH 3 Residential – New Non-residential – New Infrastructure – New Our diverse product range services the breadth of construction needs Materials – 59% of Group* CRH operates strong vertically-integrated primary materials businesses which have strategically located long-term reserves, balanced end-use exposure and leading market positions in all of the Group’s major markets. This business model enables CRH to interact with the market at many levels and to earn proﬁt at multiple stages of the supply chain with the pull-through of aggregates and cement into a broad range of downstream products. This is underpinned by long-term permitted reserves which totalled over 15 billion tonnes at end-2012. In addition the business model provides a broad balance of exposure to end-use demand drivers and multiple platforms for growth. CRH continuously invests in plant and equipment for safety, quality, efﬁciency and customer service while also seeking out value-creating expansion opportunities via greenﬁeld development and acquisitions in selected markets. Products – 22% of Group* CRH manufactures products for use in residential, non-residential and, to a lesser extent, infrastructure construction applications. These include building systems and engineered concrete solutions for use in the electrical, transportation, and communications industries; architectural concrete products to enhance the facade and surroundings of buildings; and construction accessories to assist in the construction process. Complementary value-added exterior products include architectural glass, aluminium glazing systems, clay brick and block, outdoor security products and shutters and awnings. Focussed on growth opportunities in stable markets, these businesses offer customers a broad range of engineered products and innovative building solutions to service both new build and the growing repair, maintenance and improvement (RMI) demand in mature economies. Materials Distribution – 19% of Group* CRH distributes building materials to general building contractors, specialist Sanitary, Heating and Plumbing (SHAP) contractors and Do-It-Yourself (DIY) customers in Europe and to professional rooﬁng/ siding and interior products contractors in the United States. The business model centres on building an extensive network of locations that penetrate major metropolitan areas and which, with strong category and logistics management, maximise the franchise potential. With a network of over 780 branches in Europe and over 180 branches in the United States, CRH is a leading international player in building materials distribution with exposure to the growing RMI markets in Western Europe and in the United States. Sector Exposure* End-use* Infrastructure Residential 35% 35% Non- residential 30% RMI 50% New 50% * Based on 2012 EBITDA 4 CRH Residential – RMI Non-residential – RMI Infrastructure – RMI Residential New: Vendome pavers manufactured by Oldcastle Architectural’s Canadian subsidiary, Permacon, and Belgard Hardscape pavers from our United States-manufactured Old World Collection were used in the driveway of this construction project in Quebec, Canada, helping to blend the new property into a neighbourhood where houses have been established for nearly a century. The pavers of the driveway are intended to replicate old streets paved with granite cobblestones. RMI: Quester is the number one builders merchants in Austria with a prime focus on professional contractors. In summer 2012 they opened a highly energy efﬁcient tile store in Wien-Auhof (shown) in co-operation with the sanitary wholesalers SHT. Non-residential New: The uGate, a cantilever sliding gate made of aluminum which can be operated by hand or mechanically, was introduced by Heras, the Netherlands- based outdoor security specialist, in June 2012. This gate has maximum dimensions of 12 metres width and 2.5 metres height, making it suitable for many different applications. This picture shows a uGate at a BMW dealer in Lochristi, Belgium. Heras distributes gates and fences throughout Europe. RMI: The Monarch 1 building in The Hague was the ﬁrst major renovated building in the Netherlands to receive BREEAM sustainability certiﬁcation, the world’s foremost environmental assessment method and rating system for buildings. The building was selectively deconstructed to the concrete skeleton and rebuilt. To preserve climate control of the building 1,000 solar shading elements were mounted on the facade; the horizontal proﬁles in the system were developed by AVZ and the complete screens were assembled by Smits Rolluiken, both part of Europe Products’ Shutters & Awnings business. Europe Materials’ Cementbouw business supplied the concrete for the renovation. Infrastructure New: The transformation into a motorway of the E18 road is one of the most extensive road projects ever in Finland and is due to open in 2015. The 53 kilometres Koskenkylä section (shown) will have six interchanges and 68 new bridges. Rudus, Europe Materials’ Finnish aggregates and readymixed concrete subsidiary, will be delivering 150,000 m³ of concrete and concrete products (pipes, wells, railings) to this project. RMI: Telluride Gravel, an Americas Materials company, performing full-depth road reconstruction and embankment slide repairs on Colorado State Highway 145 at Lizard Head Pass, Trout Lake, Colorado. CRH 5 CRH: Sustainable, Responsible, Ethical interactions and is ﬁrmly committed to the Group’s core values of integrity, honesty and respect for the law. The Code of Business Conduct and related policies set out clear guidance on conducting business in an ethical and responsible way and conﬁrm the long-standing Group commitment to human and labour rights. Through a Group-wide compliance and ethics programme, CRH ensures employees are appropriately trained, have access to secure channels to report genuine issues and have additional support available if needed. A detailed review of corporate governance, including further details on the compliance and ethics programme, is provided on pages 38 to 53 of this Report. People and Community At the heart of CRH are the people and communities which both support and are supported by Group companies operating at over 3,500 locations worldwide. CRH believes that continued sustainable business success depends on the excellent relationships maintained with stakeholders – employees, customers, suppliers, neighbours and others. CRH provides signiﬁcant employment, encourages personal development and aims to create opportunities for employees at all levels as it meets the leadership challenge of sustainable performance and growth. CRH is rooted in local communities and through both its core business activities and a variety of local social initiatives the Group supports community enterprises and projects across all of its global operations. Communications CRH attaches great importance to communications with all stakeholders and in 2012 maintained its open door policy on stakeholder engagement, holding open days at many of its facilities, communicating regularly with key stakeholder groups and encouraging feedback on a broad range of issues. In November 2012, the Group organised capital markets days for investors and sector analysts in London and New York. These events included presentations on various aspects of CRH’s operations and strategy and, in keeping with the Group’s practice of open dialogue, provided an opportunity for attendees to meet with the senior executive and Divisional management team. CRH remains committed to reporting on its sustainability performance in a complete and transparent manner, and to publishing performance indicators on key identiﬁed sustainability areas. An annual Sustainability Report, in line with Global Reporting Initiative (GRI) guidelines, is published separately and is available on www.crh.com. The independently-veriﬁed 2012 CRH Sustainability Report will be available by mid-2013. External Endorsements In 2012, CRH maintained its distinguished record of being ranked among sector leaders by a number of Socially Responsible Investment (SRI) rating agencies. CRH continues as a constituent member of several sustainability indices including the Dow Jones Sustainability Indexes and the FTSE4Good Index. In addition, many Group companies have won high-ranking accolades for excellence in sustainability achievements. CRH’s success over 40 years of operation has been based on a solid foundation and commitment to the fundamentals of doing business in a sustainable and responsible manner. These fundamentals of business – strong customer and supplier relationships, value-added products, efﬁcient production processes and targeted markets – are managed within an established sustainability framework with a strong focus on four key areas: Health and Safety, Environment and Climate Change, Governance, and People and Community. In each of these areas, CRH sets and implements policies, develops management systems, monitors performance and incorporates stakeholder feedback, aiming for continuous improvement across all of its activities. CRH has formal structures in place to identify, evaluate and manage potential risks and opportunities in sustainability areas and the Group’s performance in this regard is reviewed regularly by the Board of Directors. As the global impacts of resource scarcity, climate change and changing demographics become more apparent, CRH is committed to playing its part in addressing these challenges while also generating business opportunities through investment, development and innovation across its range of products and throughout its processes. This approach is fully aligned with CRH’s strategic vision – to be a responsible international leader in building materials, delivering superior and sustained shareholder returns. Health and Safety The health and safety of everyone working for CRH continues to receive a high priority and in 2012 further progress was made in reducing the number of accidents. New initiatives were introduced during the year to augment existing safety systems and further heighten awareness of safety, with the aim of fully embedding a culture of safety at every level of the organisation. Safety in emerging regions, contractor safety and transport safety remain key focus areas. Despite these safety improvements, CRH deeply regrets that three fatalities (two employees and one contractor) occurred in Group subsidiary companies during 2012. The circumstances around each of these individual tragedies have been examined and the lessons learned have been communicated across all businesses and operations. The elimination of fatalities is a fundamental objective of CRH. Environment and Climate Change With ever increasing demands on world resources and mounting pressures on the global environment, CRH continues to focus on achieving the highest standards of environmental management and control and on reducing its environmental impact. Throughout the Group extensive programmes are in place to improve energy efﬁciency, increase the use of alternative fuels, achieve targeted air emission reductions, optimise water use, reduce waste and increase recycling. CRH remains on target to meet its commitment to reduce speciﬁc cement plant carbon emissions by 15% on 1990 levels by 2015 and is also fully committed to the restoration of worked-out pits and quarries and maintaining biodiversity in the locations in which it operates. Developments in all of these areas, which are of increasing importance to customers and other stakeholders, are ongoing and core to CRH’s activities. Governance CRH is widely recognised as operating to the highest levels of corporate governance. The CRH Board complies fully with the requirements of the 2010 UK Corporate Governance Code and also with the applicable provisions of the Sarbanes-Oxley Act. CRH places ethics at the forefront of all business 6 CRH The Occupational Safety and Health Administration (OSHA) establishes, issues and enforces national workplace safety regulations in the United States. In May 2012, Oldcastle Precast’s Idaho Falls location was awarded the prestigious VPP Star worksite status for the second time after a rigorous review of safety and health management systems, ongoing performance and thorough on-site evaluation by OSHA’s Voluntary Protection Program’s (VPP) team of safety and health professionals. A green roof regeneration scheme in London, UK, was installed by Cityroofs, part of Europe Products’ concrete landscaping business. An indigenous mix of wildﬂowers and grasses was planted to encourage the diversity of ﬂora and fauna in the area. Cityroofs provides complete elevated landscape solutions which beneﬁt the built environment and contribute towards sustainable development. CRH/Oldcastle in the United States supports Habitat for Humanity in its mission to provide affordable housing. In 2012 Oldcastle sponsored its third Habitat home- build, donating building materials for a project in Atlanta, Georgia. Pictured with the homeowner are a number of the employee volunteers who assisted in the project over a seven-week period. CRH 7 Chairman’s Statement CRH’s operations across the globe faced mixed economic circumstances during 2012. In our main markets, there was an ongoing improvement in overall economic activity in the United States, which saw a welcome recovery in residential construction, while consumer and investor conﬁdence continued to slow in European economies, particularly in the Netherlands. Against this backdrop, Group proﬁt before tax amounted to €674 million and earnings per share were 76.5c. The proﬁt and earnings per share outturns represented declines of 5% and 7% respectively, compared with 2011 outturns of €711 million and 82.6c. The Group’s results and the performance of the separate business segments are covered in detail in the Chief Executive’s review and in the Finance and Operations reviews which follow. Dividend In August 2012 the Board decided to maintain the interim dividend of 18.5c. This took into account anticipated strong second-half cash ﬂows and the Group’s strong balance sheet. With full-year operating cash ﬂow before dividends of €0.5 billion and taking into account 2012 proﬁt, capital expenditure, development activity and portfolio rationalisation, the Board is recommending a ﬁnal dividend of 44c per share. If approved at the Annual General Meeting in May 2013, this will maintain the full year 2012 dividend of 62.5c per share. Development Activity “CRH’s operations across the globe faced mixed economic circumstances during 2012. Management continue to focus on implementing cost savings initiatives and on operational excellence. In the medium to longer term, as economic growth returns, the Group is well positioned to beneﬁt from the signiﬁcant efforts made over recent years.” Total acquisition activity for 2012 was over €0.6 billion, including deferred consideration of approximately €0.1 billion. This reﬂects CRH’s long- in India, through our My Home Industries Limited 50% joint venture, which term value-based approach to developing our balanced portfolio. The has a state-of-the-art, highly efﬁcient, cement plant in Andhra Pradesh. India Materials transactions in the United States, including the acquisition of a currently has a low per capita cement usage, which provides CRH with an majority shareholding in Trap Rock Industries, an integrated aggregates opportunity to grow with the industry and to build a signiﬁcant presence over and asphalt business in New Jersey, bring strong asset-backed resource time. In Russia we have a dedicated base in Moscow focussed on identifying positions and, when combined with existing operations, provide signiﬁcant development opportunities. In addition, we are in the process of opening a opportunities for vertical integration. In Europe we added to our downstream regional headquarters in Singapore, details of which are set out in the Chief materials activities in Finland strengthening our presence in that country. Executive’s review on page 13. In the Products segment the 2012 acquisitions included seven concrete paving facilities in Canada and Florida and a signiﬁcant Shutters & Awnings Portfolio Review enterprise in Germany. These acquisitions reﬂect our focus on RMI and Signiﬁcant portfolio changes occurred during 2012. These included the sustainability segments and on the optimisation of production networks in sale of CRH’s 49% shareholding in our Portuguese cement joint venture, core regions. Our Distribution additions similarly reﬂected an RMI emphasis Secil, in May. Our European Products segment also disposed of Magnetic with the ongoing development of our Sanitary, Heating and Plumbing Autocontrol which manufactures and supplies access control products. Total business in Europe. Developing Regions proceeds from disposals in 2012 amounted to €0.86 billion. Board and Senior Management CRH’s strategy in developing regions is to achieve leading regional market Myles Lee, Group Chief Executive, has conﬁrmed to the Board his intention positions, initially through premium resource-backed assets and, over time, to retire from CRH at the end of 2013 having reached the age of 60, and to pursue vertical integration and develop downstream activities. CRH is following completion of a 5 year term as Chief Executive and 10 years as an a 26% shareholder in Yatai Building Materials (YBM). YBM is the largest Executive Director. Myles joined CRH in 1982, joining the Board in November cement producer in northeast China, with operations in the provinces of Jilin, 2003 as Finance Director, later becoming Chief Executive in January 2009. Heilongjiang and Liaoning. Since CRH’s purchase of its 26% shareholding in Myles has contributed very signiﬁcantly over an extended period to the early-2009, the business has nearly doubled in size. CRH also has operations development and progress of CRH and continues to do so. By advising the 8 CRH of our Architectural Products, Precast and Building Envelope activities. Keith joined Oldcastle in 1995 and previously had responsibility for our combined APG and Precast activities. This capacity to build from within shows the strength and depth of our management team. Our European management team has continued to focus on cost savings initiatives, cash generation and operational excellence in meeting the particularly severe economic downturn in Europe. I thank Myles Lee and all CRH employees for their contribution and commitment to the success of the Group. Communication with Shareholders My Board colleagues and I place great importance on communicating with shareholders and I was pleased to receive investor feedback during 2012 commending CRH on its corporate governance performance. The various means by which we communicate with shareholders are set out on page 52. A schedule of documents and presentations available on the CRH website is included on page 53. In November 2012, CRH organised capital markets days in London and New York. These events provided an opportunity for investors to engage with CRH’s senior executive and Divisional management team. I attended both events, which gave me an opportunity to hear the views of investors in relation to the Group’s performance, strategy and engagement with the investment community. The full suite of presentations and a video recording of executive presentations is available on the CRH website. Board of his decision well in advance of retirement, Myles has, in line with long-established CRH practice, facilitated the planning and management of Conclusion Management’s views on the outlook for 2013 are set out in the Chief Executive’s review and the various Operations Reviews. Overall, we expect continued progress in our US and Canadian markets during 2013 and another challenging year for our European Divisions. Management will continue to focus on implementing identiﬁed cost savings initiatives and on operational excellence. In the medium to longer term, as economic growth returns, the Group is well positioned to beneﬁt from the signiﬁcant efforts made by management over recent years. Nicky Hartery 25 February 2013 his succession in an ordered and timely fashion. The Board has appointed a Committee, which I will chair, to conduct the search for a successor to Myles. Kieran McGowan retired from the Board and the Chairmanship following the Annual General Meeting in May 2012. He joined the Board in 1998 and became Chairman in 2007. Kieran’s contribution to CRH was signiﬁcant during that period and his leadership of the Board during his ﬁve years as Chairman was exceptional. Heather Ann McSharry became a non-executive Director in February 2012. Further details in relation to the Board are set out in my letter to shareholders in the Corporate Governance section of this Report on page 38. Management and Staff Important management changes occurred in the early part of 2012 in the United States. Doug Black was appointed President and Chief Operating Ofﬁcer, Oldcastle, Inc. (the holding company for CRH’s operations in the Americas), reporting to Mark Towe, Chief Executive Ofﬁcer of Oldcastle. Randy Lake succeeded Doug as Chief Executive Ofﬁcer of Americas Materials. Randy, who joined Oldcastle in 1996, most recently served as Chief Executive Ofﬁcer of Oldcastle Building Solutions, which focusses on strategic and national accounts. Keith Haas was appointed Chief Executive Ofﬁcer of an expanded Oldcastle Building Products group, which consists CRH 9 Left to right: Doug Black, Albert Manifold, Mark Towe, Myles Lee, Henry Morris, Maeve Carton, Erik Bax 10 CRH CRH Executive Management Team Erik Bax Managing Director Europe Products & Distribution Albert Manifold Chief Operating Ofﬁcer Nationality: Dutch Nationality: Irish Skills and experience: Erik joined CRH in 1984 and has worked in operational and commercial roles in various operating companies. He has held a number of senior management positions including Managing Director Europe Building Products from 2003 and Managing Director Europe Distribution from 2007. Erik was appointed Managing Director of Europe Products & Distribution in 2010. Skills and experience: Albert was appointed Chief Operating Ofﬁcer of CRH and to the CRH Board with effect from 1 January 2009. He joined CRH in 1998. Prior to joining CRH he was Chief Operating Ofﬁcer with a private equity group. He has held a variety of senior positions, including Finance Director of the Europe Materials Division and Group Development Director of CRH. Prior to his current appointment, he was Managing Director of Europe Materials. Qualiﬁcations: B Eng, MBA. Qualiﬁcations: FCPA, MBA, MBS. Doug Black President and Chief Operating Ofﬁcer Oldcastle, Inc. Henry Morris Managing Director Europe Materials Nationality: United States Nationality: Irish Skills and experience: Doug started his career with CRH in 1995 as Vice President of Business Development in Oldcastle, and the following year he helped create the Oldcastle Distribution division. Doug was President of Oldcastle Precast Southeast division from 1996 to 2000, was promoted to Chief Operating Ofﬁcer, Oldcastle Architectural in 2000 where he held the position of President and Chief Executive Ofﬁcer from 2002 to July 2006. Doug then moved to Oldcastle Materials where he served two years as President before being appointed Chief Executive Ofﬁcer in 2008. He was appointed to his current position of President and Chief Operating Ofﬁcer, Oldcastle, in February 2012. Qualiﬁcations: BS, MBA. Skills and experience: Henry joined Irish Cement Ltd. as a graduate. He held a number of operational roles in CRH’s cement business prior to his appointment as Managing Director of CRH’s Aerobord business in 1990. Henry left to join Barlo Group plc in 1993 and returned to CRH in 2001 as Regional Director, Finland and Switzerland. He was appointed Chief Operating Ofﬁcer, Europe Materials in 2007 and Managing Director of the Europe Materials Division in January 2009. Qualiﬁcations: BE, MBA. Maeve Carton Finance Director Mark Towe Chief Executive Ofﬁcer Oldcastle, Inc. Nationality: Irish Nationality: United States Skills and experience: Since joining CRH in 1988, Maeve has held a number of roles in the Group Finance area and was appointed Group Controller in 2001, Head of Group Finance in January 2009 and to the position of Finance Director in May 2010. She has broad-ranging experience of CRH’s reporting, control, budgetary and capital expenditure processes and has been extensively involved in CRH’s evaluation of acquisitions. Prior to joining CRH, she worked for a number of years as a chartered accountant in an international accountancy practice. Qualiﬁcations: MA, FCA. Skills and experience: Mark joined CRH in 1997 and was appointed a CRH Board Director with effect from July 2008. In 2000, he was appointed President of Oldcastle Materials, Inc. and became the Chief Executive Ofﬁcer of this Division in 2006. He was appointed to his current position of Chief Executive Ofﬁcer of Oldcastle, Inc. (the holding company for CRH’s operations in the Americas) in July 2008. With approximately 40 years of experience in the building materials industry, he has overall responsibility for the Group’s aggregates, asphalt and readymixed concrete operations in the United States and its products and distribution businesses in the Americas. Myles Lee Chief Executive Nationality: Irish Skills and experience: Myles joined CRH in 1982. Prior to this he worked in a professional accountancy practice and in the oil industry. He was appointed General Manager Finance in 1988 and to the position of Finance Director in November 2003. A civil engineer and chartered accountant, he has 30 years’ experience of the building materials industry and of CRH’s international expansion. He was appointed Group Chief Executive with effect from 1 January 2009. Qualiﬁcations: BE, FCA. CRH 11 Signiﬁcant energy efﬁciencies, clinker factor improvements and emissions reductions are being achieved following the commissioning of the new Podilsky Cement plant, now the lowest cost cement producer in Ukraine following its 2012 wet to dry process conversion. 12 CRH Chief Executive’s Review Key Aspects of 2012 Results Reported sales at €18.7 billion showed an increase of 3%. Underlying like-for-like sales fell 2% comprising a 3% increase in the Americas outweighed by a 6% decline for European operations. EBITDA amounted to €1,640 million, a 1% decline compared with the €1,656 million reported for 2011. EBITDA is stated after charging costs of €60 million (2011: €61 million) associated with the Group’s ongoing restructuring efforts. Operating proﬁt fell 3% to €845 million (2011: €871 million) after combined restructuring and impairment charges of €88 million (2011: €82 million). A €175 million increase in profit on disposals was outweighed by a €32 million increase in ﬁnance costs and a €154 million reduction in our share of associates’ results due primarily to impairment charges in our Spanish associate, Uniland. These movements combined with the €26 million decline at operating proﬁt level resulted in a €37 million, or 5%, fall in reported PBT to €674 million (2011: €711 million). Reported earnings per share were 7% lower at 76.5c (2011: 82.6c). Although earnings per share fell back, strong cash generation and a robust balance sheet saw the dividend unchanged at 62.5 cent; over the past 29 years CRH has delivered compound growth in dividend of 11.8% annually, with no dividend reduction over that extended period. Dividend cover amounted to 1.2 times (2011: 1.3 times); before impairment charges dividend cover was 1.6 times (2011: 1.4 times). Year-end net debt at just under €3 billion was lower than the end-2011 level of €3.5 billion, while year-end net debt to EBITDA was also lower at 1.8 times (2011: 2.1 times). 2012 Operations Results for 2012 reﬂect progress from our Americas operations helped by a strong recovery in residential construction and improving overall economic activity in the United States. Like-for-like sales grew by 3% while, with the beneﬁt of acquisitions and a stronger US Dollar exchange rate, reported sales for our Americas activities rose by 15% and reported EBITDA of €0.85 billion was 12% higher (2011: €0.76 billion). Americas Materials reported a 7% increase in EBITDA at €0.57 billion; while underlying volumes were slightly behind 2011 levels, acquisition effects resulted in ﬂat overall volumes in aggregates and a modest increase in asphalt and readymixed concrete volumes. With the subdued volume backdrop, markets remained competitive and margins declined somewhat. Americas Products reported a 24% increase in EBITDA to €0.20 billion as private markets outpaced infrastructure while EBITDA in Americas Distribution moved ahead by 28% to €0.08 billion; both of these segments saw improvements in margins in 2012. In contrast to the trading experience in the Americas, our European businesses had to contend with weakening consumer and investor conﬁdence within the Eurozone. Like-for-like sales for these Divisions fell by 6%. Reported sales, including the impact of acquisitions and divestments, fell by 7% and reported EBITDA of €0.79 billion was 12% lower (2011: €0.90 billion). “The Group has built, and continues to develop, a portfolio that is balanced by geography, by product and by end-use sector – across residential, non-residential and infrastructure – with a good equilibrium between new build and RMI segments.” Myles Lee CRH 13 Chief Executive’s Review | continued Europe Materials EBITDA fell by 7% to €0.41 billion; the decline primarily reﬂected the disposal of our stake in Portuguese joint venture, Secil, which was effected in May 2012. Good operational and restructuring efforts saw margins broadly maintained at 2011 levels. Particularly tough trading in the Netherlands impacted reported EBITDA in Europe Products (€0.15 billion, down 22%) and in Europe Distribution (€0.23 billion, down 14%). Although the second half of the year saw some margin stabilisation, most especially in Distribution, full-year margins fell in both segments. During 2012 we continued to advance the signiﬁcant cost reduction initiatives which have been progressively implemented since 2007 and which by year-end had generated cumulative annualised savings of €2.2 billion. Total restructuring costs associated with these initiatives and reﬂected in reported EBITDA, amounted to €60 million in 2012 (2011: €61 million) and were once again heavily focussed on our European Divisions (€43 million versus €47 million in 2011). Of particular note during 2012 was a substantial step-up in alternative fuel usage in our European cement operations and increased usage of recycled asphalt in our paving activities in North America. These initiatives mitigated cost inﬂation in energy-related inputs. While overall cost inﬂation was not as severe as in 2011, recovery of cost increases continued to be challenging. This was particularly the case in European markets as economic growth weakened through the year. However, on a more positive note, we saw an improving price/cost dynamic in our operations in the United States as the year progressed. Group Strategy and Business Model For Distribution, the strategy is directed at building size and scale in core RMI markets; driving value through scalable processes, enhanced procurement opportunities and building new channel opportunities. In developing markets, we see Materials opportunities as providing the most suitable initial entry point for CRH given the basic building needs in these regions. However, as these markets become more sophisticated The Group has built, and continues to develop, a portfolio that is balanced our development horizons will expand to consideration of Products and by geography, by product and by end-use sector – across residential, Distribution opportunities but this takes time and will depend on the pace of non-residential and infrastructure – with a good equilibrium between new maturation of individual national and regional markets. build and RMI segments. Across the various business segments our approach is to combine the In developed markets, our build and grow approach aims to create clustered large scale disciplines of CRH with the entrepreneurial skills of our local groups of businesses with signiﬁcant local market positions, augmented management. from time to time by larger step-out transactions to create new platforms for expansion. For our Materials operations, the foundation is in extensive reserves of stone to feed our cement, aggregates, asphalt and readymixed concrete activities. In building the Group we have always prioritised ﬁnancial returns both in CRH’s bolt-on development activity in existing markets and in our step-outs into new product segments and into new markets. We seek to build vertically-integrated operations generating signiﬁcant Strategy in Action 2012 in-house demand for our resource-backed outputs while leveraging capabilities and expertise across local, regional and national markets. Development activity completed during 2012, which amounted to €0.65 billion, was very much aligned with the strategy outlined above. For Products our focus is to optimise our production networks in core regions through selective acquisition activity, capital investment and, where Of the €0.33 billion of Materials development activity, roughly 70% arose in the United States where we added a total of 0.6 billion tonnes of strategically necessary, restructuring. This involves an ongoing portfolio review process located aggregates reserves most particularly through the acquisition of a aimed at identifying those businesses which we wish to actively develop, majority share of New Jersey-based Trap Rock Industries. In Europe, we those we wish to sustain for their ongoing cash generating characteristics and substantially increased our presence in the Finnish readymixed concrete and those which it is appropriate to divest. Product innovation and sustainability is concrete products market, strengthening CRH’s vertically-integrated cement a key consideration in this review process. and downstream positions in this resilient market. 14 CRH Oldcastle Precast developed prestressed concrete post-tension box girders for the City of Rancho Cucamonga outside of Los Angeles, California. The bridge includes a 33-foot and a 52-foot girder, together carrying two railroad tracks over Haven Avenue. Compliance and Ethics Despite the worldwide downturn in our sector, the regulatory environment in which CRH operates is continually changing and placing increased responsibility on our personnel at all levels throughout the organisation. Ensuring that our managers and employees act in a manner consistent with CRH’s core values, and with the various local legal requirements with which our operations throughout the world must comply, is a responsibility that we take very seriously. Over the past few years we have enhanced our existing compliance structures and undertaken a thorough review of the Group’s Code of Business Conduct to ensure that our procedures and processes reﬂect our commitment to integrity, honesty and respect for the law and that we have a consistency of approach across key governance areas. Our updated Code of Business Conduct and the subsidiary policies relating to Ethical Procurement, Anti-Fraud, Anti-Bribery, Shares & Securities and Competition/Anti-Trust Compliance have been widely circulated throughout CRH supplemented by intensive compliance brieﬁngs and training. 2013 Outlook After a slower second quarter, GDP in the United States picked up strongly in the third quarter of 2012. However, some once-off factors contributed to a weaker ﬁnal quarter with GDP growth currently estimated at approximately 2% for 2012 as a whole. Despite this variable pattern, we believe that the fundamentals are in place for continued positive momentum in the US economy in 2013, although the moderate ﬁscal tightening resulting from payroll tax increases may weigh somewhat on ﬁrst-half economic growth. Against this backdrop we expect our Americas operations to show progress Total 2012 development spend in the Products segment amounted to €0.27 billion with a focus on RMI and sustainability segments and on the optimisation of production networks in core markets. In Europe we signiﬁcantly expanded our RMI-oriented Shutters & Awnings business through the acquisition of a major German player while, in North America, businesses acquired from other public players in our sector served to strengthen core in 2013. operations in packaged products, concrete pavers and precast products in both the United States and Canada. Distribution acquisitions in Europe totaled €0.05 billion during 2012 with the bulk of this expenditure incurred on the expansion of our Sanitary, Heating and Plumbing channel in Belgium. Organisation and People The realigned management structure for our operations in the Americas, outlined in last year’s Chief Executive Review, is now well embedded and is, as expected, accelerating the capture of market growth opportunities as United States construction recovers and is facilitating further streamlining of common business processes and functions across our businesses. During 2012 management took the decision to establish a regional CRH headquarters in Singapore to oversee the expansion of our existing interests in India and China and to pursue further development opportunities in the wider region. This ofﬁce will be led by Ken McKnight, Managing Director Asia, who has transferred from our Europe Materials Division where he had responsibility for Europe West and our operations in India and China. Ken will report directly to Group Chief Operating Ofﬁcer Albert Manifold while Europe Materials will continue to support activity in the region from its operating resources. We view the establishment of the Singapore ofﬁce as a further step in the evolution of CRH and an important catalyst for growth in Asia in the medium term. In contrast to the United States, economic growth in Europe turned negative in the second quarter and full-year GDP for the European Union as a whole is estimated to have fallen slightly. Current forecasts suggest only modest growth at best for 2013. On the positive side, however, the strong commitment from the European Central Bank to providing support for peripheral Eurozone economies has resulted in a more stable ﬁnancial backdrop which is encouraging from a conﬁdence building perspective and is an essential prerequisite for European economic recovery. Nevertheless, 2013 will be another challenging year for our European Divisions with signiﬁcant actions, as already announced, being implemented to counteract market weakness. Assuming no major ﬁnancial or energy market dislocations, we expect that ongoing improvements in our businesses in the Americas combined with further proﬁt improvement initiatives throughout our operations will outweigh continuing trading pressures in our European segments, enabling the Group to achieve progress in 2013. CRH 15 Our Belgian structural companies Ergon and Prefaco are major suppliers to the new Athletic Association Ghent soccer stadium, due to open in summer 2013. The construction involves almost 10,500 tailor-made pieces, including columns, beams, seats, walls, ﬂoors and stairs, engineered and manufactured by our Prefaco/Ergon team. 16 CRH Finance Review The key aspects of CRH’s 2012 results are highlighted in the Chief Executive’s overview on page 13. Improved trading for our Americas segments, reﬂecting an overall pick-up in economic activity and a strong recovery in residential construction, was more than offset by the impact of slowing momentum in the economies of our major European markets. Table 1 overleaf analyses the change in results from 2011 to 2012. The Group remains in a very strong and ﬂexible ﬁnancial position with €1.8 billion of cash, cash equivalents and liquid investments together with €1.8 billion of undrawn committed bank facilities at year-end; year-end cash balances would cover all debt maturities in 2013 and 2014. Net debt of just under €3 billion at year-end 2012 was €0.5 billion lower than year-end 2011. The net debt to EBITDA ratio at end-2012 was 1.8 times (2011: 2.1 times) and, based on net debt-related interest costs of €258 million (excluding non-debt-related ﬁnancial expenses of €31 million (2011: €28 million), EBITDA/net interest cover for the year was 6.4 times (2011: 7.2 times). Key Components of 2012 Performance Table 1 on page 18 summarises the key components of CRH’s performance in 2012. Additional detail on the sales, EBITDA and operating proﬁt for each of CRH’s six reporting segments is set out in the reviews on pages 24 to 35. An 8% strengthening of the US Dollar over 2011 has been the main factor in the positive exchange effects for 2012, adding approximately 4% to both sales and pre-tax proﬁts. Acquisitions completed in 2011 and 2012 contributed incremental sales revenue of €603 million and operating proﬁt of €33 million in 2012. The impact of divested activities was a negative €389 million in sales and €23 million at operating proﬁt level. We continue to review and, when required, extend our cost reduction programme. Costs of €60 million incurred in 2012 to implement these savings were similar to last year (2011: €61 million). Total impairment charges for 2012 at €174 million were signiﬁcantly higher than last year (2011: €32 million), and included €146 million related to our 26% associate stake in Uniland, the Spanish cement producer. The associates’ impairment of €11 million in 2011 related to our investment in French distribution business Trialis which was divested in March 2011. Revenue from ongoing operations decreased by €384 million (2%) in 2012, with Europe segments declining 6% whereas Americas segments grew 3%. Competition remained intense, limiting our ability to recover input cost increases, and as a result organic operating proﬁt declined by €62 million. Total net ﬁnance costs of €289 million included discount unwinding and pension-related ﬁnancial expenses of €31 million (2011: €28 million). Interest on net debt increased to €258 million (2011: €229 million), due to the stronger US Dollar, the ending of interest capitalisation on major cement plant projects, the additional cost of our early-2012 €500 million bond issue and lower interest income. “The Group remains in a very strong and ﬂexible ﬁnancial position with €1.8 billion of cash, cash equivalents and liquid investments together with €1.8 billion of undrawn committed bank facilities at year-end. Year-end cash balances would cover all debt maturities in 2013 and 2014.” Maeve Carton CRH 17 Finance Review | continued Table 1 Key Components of 2012 Performance € million Revenue EBITDA Operating proﬁt Proﬁt on disposals Finance costs Associates’ proﬁt after tax Pre-tax proﬁt 2011 as reported Exchange effects 2011 at 2012 exchange rates Incremental impact in 2012 of: - 2012 and 2011 acquisitions - 2012 and 2011 divestments - Restructuring costs - Impairment charges Ongoing operations 2012 % change 18,081 748 18,829 603 (389) - - (384) 18,659 +3% 1,656 68 1,724 60 (46) 1 - (99) 1,640 -1% 871 32 903 33 (23) 1 (7) (62) 845 -3% 55 2 57 - 160 - - 13 230 (257) (12) (269) (3) 2 - - (19) (289) 42 3 45 - - - (135) (22) (112) 711 25 736 30 139 1 (142) (90) 674 -5% Earnings per share declined by 7% to 76.5c (2011: 82.6c), reﬂecting the lower The effective tax rate of 17.8% of pre-tax proﬁt was higher than 2011 (16%), pre-tax proﬁt for the year. Excluding non-cash depreciation, amortisation and reﬂecting the mix of Group proﬁts by geographical region. impairment charges, cash earnings per share increased by 7% to 206.8c (2011: 194.0c). Financial Performance Indicators Some key ﬁnancial performance indicators which, taken together, are a measure of performance and ﬁnancial strength are set out below in table 2. Table 2 Financial Performance Indicators EBITDA margin Operating proﬁt margin EBITDA/net interest cover Effective tax rate Shareholder return Net debt as % of total equity Net debt as % of market capitalisation 2012 2011 8.8% 4.5% 6.4x 9.2% 4.8% 7.2x 17.8% 16.0% 4% 28% 27% 3% 33% 32% The share price at 31 December 2012 was €15.30, little changed from the 2011 closing price (€15.36); however, with the 2012 dividend at 62.5c, the net return for shareholders for the year was a positive 4%. This follows returns of +3% in 2011, -16% in 2010 and +22% in 2009. At year-end 2012, CRH’s market capitalisation was €11.1 billion (2011: €11 billion), ranking the Group at number four in its building materials peer group. Total shareholders’ equity remained unchanged at €10.6 billion, with the net comprehensive income for the year of €0.4 billion offset by dividends of €0.4 billion. Year-end net debt of just under €3 billion was €0.5 billion lower than year-end 2011, and accordingly the percentage of net debt to total equity reduced to 28% (2011: 33%). With year-end market capitalisation broadly in line with year-end 2011, the debt/market capitalisation percentage was also lower at 27% (2011: 32%). Liquidity and Capital Resources Table 3 summarises the main cash ﬂows for 2012 and 2011. Cash ﬂows from operations Total operating cash inﬂows amounted to €1,469 million in 2012, a reduction of €27 million compared with 2011, largely as a result of the 5% reduction in The Group EBITDA margin declined by 0.4 percentage points as the proﬁt before tax. signiﬁcant increase in input costs was not fully recovered in selling prices; operating proﬁt margin similarly declined to 4.5%. Management believes that the EBITDA/net interest cover ratio is useful to investors because it matches the earnings and cash generated by the business to the underlying funding costs. With a higher level of net interest in 2012, the multiple of EBITDA to debt-related interest reduced to 6.4 times (2011: 7.2 times), well in excess Operating cash outﬂows decreased to €1,424 million (2011: €1,470 million) mainly due to a lower net working capital outﬂow. Working capital levels are driven by trends in overall sales and also by seasonal weather patterns. CRH believes that its working capital is sufﬁcient for the Group’s present requirements. of our covenant level of 4.5 times and in keeping with our commitment to Payments during 2012 to address deﬁcits in the Group’s deﬁned beneﬁt maintaining an investment grade rating. pension schemes were €50 million higher than 2011. Stable capital 18 CRH Table 3 Summarised Cash Flow Inﬂows Proﬁt before tax Depreciation/amortisation (including impairment) Outﬂows Working capital outﬂow Tax payments Pension payments Dividends (before scrip dividends) Capital expenditure Other non-cash items 2012 2011 €m 674 795 €m 711 785 1,469 1,496 (31) (134) (152) (450) (575) (82) (161) (96) (102) (445) (576) (90) (1,424) (1,470) the year-end exchange rate of the US Dollar versus the euro, from 1.2939 at end-2011 to 1.3194 at end-2012. Borrowings and Credit Facilities An analysis of the components of net debt, together with information on the currency and maturity proﬁle of our debt and on the interest rates applicable to that debt, are set out in notes 21 to 25 to the ﬁnancial statements. In January 2012 the Group issued €500 million in 7-year Eurobonds at a coupon rate of 5%, the Group’s lowest-ever coupon for a maturity greater than 5 years. CRH believes that its current cash and liquid resources of €1.8 billion and committed and undrawn facilities of an additional €1.8 billion are sufﬁcient to meet its capital expenditure and other expenditure requirements for 2013. The Group’s major bank facilities and debt issued pursuant to Note Purchase Agreements in private placements require the Group to maintain certain ﬁnancial covenants, details of which are set out in note 24 to the ﬁnancial statements. CRH was in full compliance with its ﬁnancial covenants Operating cash inﬂow 45 26 throughout 2012 and 2011. Acquisitions and investments (526) (610) Proceeds from disposals Share issues (including scrip dividend) Translation Decrease/(increase) in net debt 859 104 37 519 492 141 (59) (10) expenditure of €575 million represented 3.1% of Group revenue (2011: 3.2%), amounting to 77% of depreciation (2011: 78%) as we continue to maintain our discipline while investing in the structure of the business. Operating cash outﬂows include an adjustment to eliminate non-cash items (such as share of results of associates, proﬁt on disposals and share-based CRH remains committed to maintaining an investment grade credit rating. CRH does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on CRH’s ﬁnancial condition. Financial Risk Management The Board sets the treasury policies and objectives of the Group, which include controls over the procedures used to manage ﬁnancial market risks. Details of these policies are set out in note 22 to the ﬁnancial statements. The Group manages its cash transmission, collection and holding policies and practices in order to minimise the risks arising from continued ﬁnancial market stresses. Sarbanes-Oxley Act compensation expense) which are included in arriving at proﬁt before tax. For the year ended 31 December 2011, management concluded that internal control over ﬁnancial reporting was effective; Ernst & Young audited the effectiveness of these controls and issued an unqualiﬁed opinion thereon. The 2012 assessment and related auditor’s report will be included in the 2012 Annual Report on Form 20-F which will be ﬁled with the Securities and Exchange Commission by the end of the ﬁrst quarter of 2013. Cash ﬂows from investing and ﬁnancing activities The Group completed 36 acquisitions and investment transactions in 2012 at a total cost of €649 million. Excluding net deferred payments of €123 million, the cash outﬂow for the year was €526 million (2011: €610 million). Proceeds (including net debt assumed by purchasers) from disposal of non-current assets and businesses amounted to €859 million (2011: €492 million), primarily reﬂecting the divestment in May 2012 of our 49% stake in the Portuguese cement business Secil and the disposal of our wholly-owned Magnetic Autocontrol business in April 2012. Net proceeds from share issues include €88 million (2011: €135 million) arising on the take-up of shares in lieu of dividends, together with proceeds of €16 million (2011: €6 million) from issues under the Group’s share option and share participation schemes. Exchange rate movements during 2012 reduced the euro amount of net foreign currency debt by €37 million principally due to the 2% weakening in CRH 19 Americas Products’ EnduraMax™ High-Performance Wall System was used in the construction of the West Wood High School in Blythewood, South Carolina, a state-of-the-art 340,000 sq. ft. building, providing an unmatched R-13.6 insulation factor. 20 CRH Group Operations Safety receives a high priority across the Group. During 2012, we implemented further strategies and initiatives to enhance safety performance and increase awareness throughout our operations. To address the signiﬁcant challenges in emerging regions, a rigorous benchmarking process was completed during the year which will enhance our existing structures and support our safety strategies in these regions. Trading conditions in many of our key markets remained challenging in 2012. We responded with a continued focus on improving efﬁciencies, adjusting our cost base and increased attention to procurement across the Group. In addition, we continued to adjust our portfolio of investments to strengthen the Group. We concentrated on actions within our control, scaling our capacity and managing our costs to adapt to changing demand patterns across our businesses. We remain resolute in managing our cost base. Having delivered over €2.2 billion of cost savings in the past 5 years, we have identiﬁed further cost reductions of €0.3 billion in the three-year period to the end of 2015. Our operational teams continued to focus on initiatives to maximise our performance and improve product quality and service to our customers. Examples range from the increased use of alternative fuels in our cement plants and recycled asphalt paving in our heavyside business, through to providing engineered solutions to our customers in building products and delivery optimisation in our distribution networks. In addition, we achieved further progress through Group-wide initiatives, leveraging our size, scale and expertise. Our global procurement programme continued to deliver signiﬁcant beneﬁts through increased co-ordination and further investment in processes and technology. Above all, the key to the success of these programmes is in the calibre of our teams and collaboration across the Group. For 2013, we will continue to focus on cost effectiveness and operational performance by combining strong local operations with an effective sharing of Group resources and capabilities. We are conﬁdent that these targeted actions taken by CRH will provide sustained beneﬁts to the Group in the years ahead. “Our operations teams continued to focus on initiatives to maximise our performance and improve product quality and service to our customers. In addition, we achieved further progress through Group-wide initiatives, leveraging our size, scale and expertise.” Albert Manifold CRH 21 CRH operational snapshot 2012 Europe Materials Europe Products Europe Distribution € million % of Group € million % of Group € million % of Group Sales 2,685 14 % margin Sales 2,481 13 % margin Sales 4,140 22 % margin EBITDA EBIT 405 246 25 29 15.1 9.2 EBITDA EBIT 152 18 9 2 6.1 0.7 EBITDA EBIT 230 154 14 18 5.6 3.7 Geography and products* Stable Economies 45% Developing Economies 50% Lightside Building Products 40% Concrete Products 50% Austerity Economies 5% Clay 10% Sector Exposure* Residential Non-residential Infrastructure 15% 25% 60% Builders Merchants 50% DIY 30% SHAP 20% 20% 80% 40% 30% 30% 20% 80% New End-use* RMI 35% 30% 65% 70% Annualised Production Volumes Annualised Production Volumes Outlets Architectural concrete – 5.0m tonnes Precast concrete – 5.6m tonnes Clay – 2.0m tonnes Fencing and security – 3.5m lineal metres Builders merchants – 426 DIY – 238 SHAP – 119 Cement – 11.3m tonnes* Aggregates – 45.0m tonnes Asphalt – 2.3m tonnes Readymixed concrete – 7.9m cubic metres Lime – 1.0m tonnes Concrete products – 3.8m tonnes *Excludes CRH share of cement (c. 6.1m tonnes) and readymixed concrete (c. 0.6m cubic metres) attributable to associates, Uniland in Spain (26%), Mashav in Israel (25%) and Yatai Building Materials in China (26%). 22 CRH Americas Materials Americas Products Americas Distribution € million % of Group € million % of Group € million % of Group Sales 4,971 27 % margin Sales 2,806 15 % margin Sales 1,576 9 % margin EBITDA EBIT 566 282 35 34 11.4 5.7 EBITDA EBIT 204 86 12 10 7.3 3.1 EBITDA EBIT 83 59 5 7 5.3 3.7 Geography and products* Building Envelope 20% Precast 25% Architectural Products 50% South America 5% Interior 25% Exterior 75% Sector Exposure* Residential Non-residential Infrastructure 10% 35% 55% 50% 50% West 35% East 65% 10% 25% 65% New End-use* RMI 35% 35% 65% 65% 55% 45% Annualised Production Volumes Annualised Production Volumes Outlets Aggregates – 124.9m tonnes Asphalt – 40.7m tonnes Readymixed concrete – 6.1m cubic metres Concrete masonry, patio products, pavers and rooftiles – 8.1m tonnes Pre-packaged concrete mixes – 2.2m tonnes Clay bricks, pavers and tiles – 0.9m tonnes Pre-packaged lawn & garden products – 3.6m tonnes Precast concrete products – 1.0m tonnes Pipe and prestressed concrete – 0.4m tonnes Building envelope products – 9.6m metres2 glass Fencing products – 10.7m lineal metres Exterior products – 136 Interior products – 48 * Based on 2012 EBITDA CRH 23 Operations Review – Materials Europe Materials CRH operates strong vertically-integrated primary materials businesses which have strategically located long-term reserves, balanced end-use exposure and leading market positions in all its major markets. Top: Finnsementti’s new cement terminal in Vihreäsaari harbour, Oulu, opened in May 2012. It stands 46 metres high with storage capacity of 14,000 tonnes. Bottom: CRH Tilcon employees at work on the iconic George Washington Bridge, New York. The project included the removal and replacement of deck panels using c.2,000 tonnes of speciality asphalt mix. 24 CRH Europe Materials’ strategy is to build strong vertically-integrated regional positions. Operating in 17 countries, the business is founded in resource-backed cement and aggregates assets which support the manufacture and supply of cement, aggregates, concrete and asphalt products. With a network of well-invested facilities, Europe Materials focuses on operational excellence initiatives which include production efﬁciencies, greater use of alternative fuels and manufacture of low carbon cements, while the scale of our operations provides economies in purchasing and logistics management. Development focus is centred on bolt-on acquisitions for synergies, reserves and further vertical integration in addition to opportunities in contiguous regions to extend and strengthen regional positions. Europe Materials has championed CRH’s entry into developing markets that offer long-term growth potential, with entry via cement and aggregates assets and the potential to roll out its operational excellence programmes and vertical-integration approach over time. In total, Europe Materials employs approximately 10,700 people at close to 590 locations. Americas Materials Americas Materials’ strategy is to build strong regional leadership positions underpinned by well-located, long-term reserves. Operating in 44 states with 13 billion tonnes of permitted aggregates reserves of which c.80% are owned, this business is vertically- integrated from primary resource quarries into aggregates, asphalt and readymixed concrete products. With 65% exposure to infrastructure, the business is further integrated into asphalt paving services through which it is a principal supplier of product to highway repair and maintenance demand. Our national network of operations and deep local market knowledge drive local performance and national synergies in procurement, cost management and operational excellence. In a largely unconsolidated sector where the top ten industry participants account for just 30% of aggregates production, 25% of asphalt production and 20% of readymixed concrete production, CRH is structured and positioned to participate as the industry consolidates further. Americas Materials employs approximately 18,300 people in over 1,200 operating locations. Northeastern China Market leadership positions Reserves Cement Top10 Western Europe Finland, Ireland No.1 Switzerland No.2 Poland, Ukraine No.3 Aegean Region - Turkey (50%) No.1 Northeast China (26%) No.1 Andhra Pradesh, India (50%) No.2 Andhra Pradesh, India Aggregates No.1 Finland, Ireland, Asphalt No.1 Ireland Readymixed concrete No.1 No.2 Finland, Ireland Switzerland Physical location Proven & probable Years to million tonnes depletion Cement Ireland Poland Switzerland Ukraine Other Aggregates Finland Ireland Poland Spain Other Lime 130 64 10 104 234 188 875 249 61 245 86 17 7 53 73 12 78 28 48 30 Ireland/Poland 49 42 Agricultural & chemical lime Total Europe 2,209 No.1 No.2 Ireland Poland Concrete products No.1 No.1 Blocks and rooftiles, Ireland Pavers, Poland Market leadership positions Reserves Asphalt No.1 National producer Aggregates No.3 National producer Readymixed concrete Top 3 National producer Physical location Proven & probable Years to million tonnes depletion Aggregates East West Cement 8,789 4,198 129 87 American Cement 10 39 Total Americas 12,997 Total Materials 15,206 CRH 25 Europe Materials Results € million Sales revenue EBITDA Operating proﬁt EBITDA/sales Op.proﬁt/sales % Change -10% -7% -7% Total Change -300 -31 -18 2012 2,685 405 246 15.1% 9.2% 2011 2,985 436 264 14.6% 8.8% Analysis of change Organic Acquisitions Divestments Restructuring Exchange -222 -11 -8 +78 +14 +9 -182 -40 -24 - +6 +6 +26 - -1 EBITDA and operating proﬁt exclude proﬁt on disposals Gains from CO² trading were €31 million (2011: €38 million) Pension curtailment gains were €30 million (2011: €12 milllion) Restructuring costs amounted to €13 million (2011: €19 million) No impairment charges were incurred (2011: nil) A slowdown in construction activity in central Europe together with continuing declines in western and southwestern Europe resulted in a reduction of 7% in like-for-like sales. The impact of divestments during the year exceeded contributions from acquisitions, and both EBITDA and operating proﬁt were lower than last year. The results reported above include gains from pension curtailments and CO² trading. Despite lower volumes, margins excluding these gains, which are also excluded from the regional comments below, were similar to 2011 reﬂecting the beneﬁt of our continued focus on cost containment and efﬁciency measures. Development spend of €103 million comprised four acquisitions/investments, the more signiﬁcant of which were the acquisition of a readymixed concrete and concrete products business in Finland together with further investment in our associate Yatai Building Materials as it continued to expand its presence in northeastern China. The divestment of the Group’s 49% holding in Secil in Portugal was completed in May. Central and Eastern Europe (40% of EBITDA) Construction activity in Poland contracted during 2012, reﬂecting completion of projects associated with the June 2012 European football championship and a sharp decline in infrastructure road projects as a number of contractors experienced ﬁnancial difﬁculties. Notwithstanding this, construction activity in infrastructure remained at a level consistent with 2011. The residential market continued to be sluggish with the tightening of mortgage lending criteria and some weakening in residential prices. While national cement volumes for the year were down 17%, our volumes declined by 11%. Pricing remained under pressure throughout the year in most of our product lines and overall operating proﬁt declined. In Ukraine the strong increase in cement volumes in the ﬁrst half was reversed in the second half of the year, affected by the completion of European football championship projects and the national cement market ﬁnished down 5% compared with 2011. However, with the beneﬁt of our new cement plant and the acquisition in Odessa that was completed in 2011, our volumes increased by 32% and operating proﬁt improved signiﬁcantly due to better pricing and our low cost producer advantage. Switzerland, Finland, Benelux (45% of EBITDA) Overall construction spend in Switzerland was up slightly in 2012. The downstream businesses of aggregates and readymixed concrete remained strong; however, cement volumes were down 8% due mainly to poor weather in the early part of the year. Sales prices, particularly in cement, remained under pressure due to the strong Swiss Franc, and operating proﬁt was lower than in 2011. In Finland, construction output declined in 2012 mainly due to lower residential starts, and our cement volumes declined by 6%. While our businesses delivered price increases in cement, aggregates and readymixed concrete, operating proﬁt was lower than in 2011. In the Benelux, our readymixed concrete and aggregates business in the Netherlands was impacted by a 7% decline in construction activity levels and operating proﬁt was lower than in 2011. In Belgium the cement grinding business acquired in mid-2011 performed somewhat behind expectations. Ireland, Spain (5% of EBITDA) Construction activity in Ireland continued to fall with domestic cement volumes 17% lower than in 2011. Our cost and capacity reduction programmes continued during the year and with this lower cost base, operating losses reduced. In Spain, while construction activity fell by a further 30% with declines across all sectors, with the beneﬁt of the signiﬁcant cost reduction initiatives implemented in prior years our results were in line with 2011. Eastern Mediterranean, Asia (10% of EBITDA) In Turkey, while domestic volumes for our 50% joint venture in the Aegean region were in line with 2011, export volumes increased resulting in a total volume increase of 3%; however, operating proﬁt was lower due mainly to domestic pricing pressure in the second half. Cement volumes in our 50% joint venture in Southern India increased as the business continued to broaden its market scope; while selling prices also improved, higher input and transport costs resulted in an operating proﬁt similar to 2011. In China a general slowdown in residential, non-residential and infrastructure construction saw a year-on-year decline of 21% in cement demand across the northeast region consequently proﬁts were lower. Outlook The 2012 decline in Polish cement volumes is expected to moderate with some potential for improvement as the affected road contracts, currently being re-tendered, should add to construction materials volumes in the second half of 2013. We anticipate ﬂat demand in Ukraine but expect further improvements in margin through cost efﬁciencies from our new cement plant. In Switzerland we expect an improvement in construction spend in 2013. While a slight decline is expected in Finland, our business will beneﬁt from rationalisation of our readymixed concrete, paving and precast concrete operations following the concrete products acquisition in September 2012. The outlook remains challenging for Ireland and Spain with further volume declines expected in 2013; however, ongoing capacity reduction, cost efﬁciencies and increased use of alternative fuels should help our businesses to maintain margins. In Southern India relatively ﬂat demand is anticipated in our main Andhra Pradesh market while cement demand in northeast China is expected to pick up in the second half of the year as government spending on infrastructure projects recommences. 26 CRH Americas Materials Results € million Sales revenue EBITDA Operating proﬁt EBITDA/sales Op.proﬁt/sales % Change +13% +7% +7% Total Change +576 +36 +18 2012 4,971 566 282 11.4% 5.7% 2011 4,395 530 264 12.1% 6.0% Analysis of change Organic Acquisitions Divestments Restructuring Exchange +40 -25 -12 +168 +20 +12 - - - - -5 -5 +368 +46 +23 EBITDA and operating proﬁt exclude proﬁt on disposals Restructuring costs amounted to €14 million (2011: €9 million) No impairment charges were incurred (2011: nil) Benign weather conditions early in the year contributed to increased ﬁrst-half volumes. However, second-half trading proved more challenging with a slower pace of highway contract awards and severe disruption to activity in the northeastern United States in late October/early November due to Hurricane Sandy. Despite this challenging backdrop, which saw a slight reduction in underlying volumes and higher input costs, the combination of focussed commercial and cost actions with solid acquisition contributions resulted in US Dollar operating proﬁt being broadly in line with 2011. Americas Materials completed 16 acquisitions in 2012 at a total cost of €230 million (spend €108 million net of deferred payments), adding 560 million tonnes of reserves, seven operating quarries, 17 asphalt plants and 11 readymixed concrete plants with annual production of 4.6 million tonnes of aggregates, 1.8 million tonnes of asphalt and 0.4 million cubic metres of readymixed concrete. Energy and related costs: The proportion that these costs represented of sales was maintained at 2011 levels due to efﬁciency improvements combined with increased use of recycled materials. The price of bitumen, a key component of asphalt mix, rose by 7% in 2012 following a 14% increase in 2011. Prices for diesel and gasoline, important inputs to aggregates, readymixed concrete and paving operations, increased by 3% and 2% respectively. The price of energy used at our asphalt plants, consisting of fuel oil, recycled oil, electricity and natural gas, decreased by 9% as many of our facilities converted to lower cost natural gas. Recycled asphalt and shingles accounted for 20% of total asphalt requirements, an increase from 18% in 2011. Wider use of warm mix asphalt continues to deliver cost beneﬁts while also providing customers with a more workable and eco-friendly product. Aggregates: Total volumes including acquisitions were ﬂat, with like-for-like volumes down 2%. Compared with 2011, average prices increased by 2% on both an overall and like-for-like basis; however, margins declined slightly due to higher input costs. Asphalt: While total volumes increased by 2%, like-for-like volumes fell by 2%. Despite the 7% increase in bitumen costs, we were able to limit unit cost increases to 4% due to lower energy input costs and greater use of recycled materials. With an average like-for-like asphalt price increase of 5%, our overall asphalt margin improved in 2012. Readymixed Concrete: Total volumes including acquisitions increased by 2%, with like-for-like volumes ﬂat compared with 2011. In a very competitive environment, average like-for-like prices increased by 1% but, with a 3% increase in unit cost, margins declined. Operating proﬁt was similar to 2011 driven by acquisitions and lower ﬁxed overhead. Paving and Construction Services: Overall sales revenue increased by 5% and by 1% on a like-for-like basis. Pricing remained under pressure in a competitive bidding environment; however, efﬁciency improvements enabled us to maintain overall margins in this segment at 2011 levels. Regional Performance East (65% of EBITDA) The East region, comprising operations in 22 states, the most important being Ohio, New York, Florida, Michigan, New Jersey, Pennsylvania and West Virginia, is organised into four divisions. Our Central division delivered improved proﬁts with price increases and moderate volume growth offsetting higher costs. Our Mid-Atlantic division was bolstered by new acquisitions in 2012 as we focussed on expanding operations in this key market. An improving residential market positively impacted our Southeast division and led to better volumes, prices and proﬁt growth. The Northeast division experienced a decline in operating proﬁt due mainly to the disruption caused by Hurricane Sandy. Overall US Dollar operating proﬁt in our East region was slightly lower than in 2011. West (35% of EBITDA) The West region also has operations in 22 states, the most important of which are Utah, Texas, Washington, Missouri, Iowa, Kansas and Mississippi, and is organised into three divisions. Both the core Central West and the Mountain West divisions delivered higher operating proﬁt driven by strong asphalt pricing. The Northwest division experienced difﬁcult market conditions in 2012 and the absence of large infrastructure projects combined with a tepid residential market led to lower proﬁts. Overall operating proﬁt for our West region was maintained in 2012. Outlook We expect GDP growth in 2013 to be similar to 2012 and the residential market to continue its recovery. The approval of MAP-21 during 2012 provides stability and certainty regarding levels of highway funding through September 2014. In addition, the increase in the Transportation Infrastructure Finance and Innovation Act (TIFIA) funding will give states greater opportunity to beneﬁt from private sector involvement in highway projects; however, the actual impact on near-term investment remains to be seen. With the roll-off of the ﬁnal element of the ARRA stimulus package, we expect federal funding to be slightly down in 2013; this is expected to be mostly offset by higher state spending on much needed repair and maintenance. Overall, we expect 2013 volumes for our mix of business to be relatively ﬂat compared with 2012. Our focus is to achieve further price increases and efﬁciency improvements and, given a continuation of the relative stability seen in the energy markets over recent months, for operating margin to move ahead. CRH 27 Operations Review – Products Europe Products CRH manufactures products for use in residential, non-residential and, to a lesser extent, infrastructure construction applications. Complementary value-added exterior products include architectural glass, aluminium glazing systems, clay brick and block, outdoor security products and shutters and awnings. Top: CRH companies Calduran and Dycore came together in the construction of the Eenspan project in Zeewolde, Netherlands. Calduran constructed and assembled the walls of the ofﬁce block/storage units in Calduran Limestone whilst Dycore supplied the slab ﬂooring. Bottom: Oldcastle BuildingEnvelope™ played a key role in a major expansion and renovation of Iowa State University’s student recreation centre in Ames, Iowa, using products that allow for high thermal performance and maximum use of natural light. 28 CRH Europe Products’ strategy is to build and grow scalable businesses in the large European construction markets. The strategy is pursued by increasing the penetration of CRH products, developing positions to beneﬁt from scale and best practice. We create competitive advantage through product, process and end-use innovation, while maintaining a balanced exposure to demand drivers. Operating in 21 countries, this business is a regional leader in concrete products, concrete landscaping, clay products, construction accessories and outdoor security. Leveraging the beneﬁts of our regional platforms, we realise operational and procurement synergies across the network. Pan-European product development provides construction solutions which increase efﬁciencies on site, creating more design freedom for architects while enhancing the built environment and reducing energy consumption of buildings. Europe Products’ development strategy is to further penetrate the growing RMI markets of developed Europe and to broaden the product range in developing regions as construction markets in those regions become more sophisticated. This segment employs approximately 16,100 people at close to 400 operating locations. Americas Products Americas Products Americas Products’ strategy is to build an optimised portfolio of businesses which offer leadership positions across a balanced range of product markets and end-use segments. Our activities are organized into three product groups under the Oldcastle name: Architectural Products (concrete masonry and hardscapes, clay brick, packaged lawn and garden products, packaged cement mixes, fencing), Precast (utility, drainage and structural precast, construction accessories) and BuildingEnvelope™ (glass and aluminium glazing systems). A coordinated approach at both a national and regional level achieves economies of scale and facilitates sharing of best practices which drive operational and commercial improvement. Through Oldcastle’s North American research and development centres, a continuous pipeline of innovative value-added products and design solutions is maintained. Operating in 40 states, CRH has the breadth of product range and national footprint to provide a national service to customers with the personal touch of a local supplier. Focussing on strategic and national accounts, the new Oldcastle Building Solutions initiative provides an additional platform for growth as it is uniquely positioned in the industry to offer solutions to customers across all phases of building construction. Employees total approximately 15,500 at over 400 locations. Inner Mongolia Market leadership positions Malaysia Architectural concrete products No.1 paving products: Benelux, France, Slovakia No.1 paving/landscape walling: Germany No.1 architectural masonry: UK No.2 paving products: Denmark Structural concrete products No.1 precast ﬂooring: Benelux No.1 precast architectural concrete: Denmark No.2 utility precast: France No.1 precast structural elements: Hungary, Switzerland No.1 concrete fencing and lintels: UK Clay products No.1 facing bricks: UK No.3 facing bricks, pavers and blocks: Europe Australia AUSTRALIA Construction accessories No.1 Western Europe Fencing & security No.1 security fencing and perimeter protection: Europe Shutters & awnings No.1 Netherlands No.3 Germany Market leadership positions Architectural products No.1 paving and patio: North America No.1 masonry: United States No.2 packaged cement mixes: United States No.2 packaged lawn and garden products: United States Precast concrete products No.1 precast concrete utility products: United States Clay products No.1 brick: northeast and midwest United States No.1 rooftiles: Argentina No.3 ﬂoor and wall tiles: Argentina South America No.1 North America Building envelope solutions Construction accessories No.2 United States Fencing products No.2 fencing distributor and manufacturer: United States CRH 29 Europe Products Results € million Sales revenue EBITDA Operating proﬁt EBITDA/sales Op.proﬁt/sales % Change -6% -22% -73% 2012 2,481 152 18 6.1% 0.7% 2011 2,648 194 66 7.3% 2.5% Analysis of change Total Change -167 -42 -48 Organic Acquisitions Divestments Restructuring/ Impairment Exchange -111 -51 -48 +125 +15 +9 -207 -6 +1 - -3 -12 +26 +3 +2 EBITDA and operating proﬁt exclude proﬁt on disposals Pension curtailment gains were nil (2011: €17 milllion) Restructuring costs amounted to €27 million (2011: €24 million) Impairment charges of €24 million were incurred (2011: €15 million) Europe Products experienced very difﬁcult trading conditions in 2012. In particular, the ﬁrst quarter was signiﬁcantly impacted by an extremely harsh winter and Eurozone economic difﬁculties continued to affect business conﬁdence, especially in the Netherlands. Although the negative trend eased somewhat in the second half of the year, overall like-for-like sales were down 4% on 2011. In response to these difﬁcult trading conditions, we implemented signiﬁcant cost reductions, rationalisation and plant closures. Acquisition spend for the year amounted to €151 million on a total of four transactions, of which the largest was the acquisition of a European RMI-oriented Shutters & Awnings business in Germany. The divestments impact above mainly reﬂects the sale in 2011 of our Insulation and Climate Control business together with the disposal in 2012 of our German-based access controls business. Concrete Products (50% of EBITDA) Concrete Products was signiﬁcantly affected by difﬁcult trading conditions in the Netherlands, Germany, Belgium and France, but the impact was partly offset by improvements in Denmark and Eastern Europe. Further signiﬁcant cost reduction initiatives have been implemented across all activities and countries. Lower trading combined with restructuring costs resulted in operating proﬁt falling signiﬁcantly below last year. The Architectural operations (tiles, pavers, blocks) were negatively impacted by the deteriorating market backdrop in the Netherlands, Belgium and France. Sales were lower than in 2011 due to continuing weak consumer conﬁdence and lower government spending in landscaping and civil network products in France, in particular. Despite lower sales and operating proﬁt compared with 2011, our German landscaping activities performed better than expected given the challenging market conditions. Our Structural business experienced very difﬁcult market conditions in the Netherlands where residential and non-residential construction activity declined. Further restructuring initiatives were announced and are being implemented in order to adjust our cost base and production footprint to the changed market conditions. In Belgium we also saw a negative impact on sales and operating proﬁt due to continuing market deterioration, but this was partly offset by the continued strong performance of our specialities business, which supplies the residential, industrial and agricultural sector. Our business in Denmark continued to perform strongly and showed further improvement in operating proﬁt compared with last year. Trading conditions for our activities in Eastern Europe, especially Hungary and Poland, showed improvement and operating proﬁt increased. 30 CRH Clay Products (10% of EBITDA) Both new and repair and maintenance activity declined in the United Kingdom in 2012 and industry brick volumes were down 3% versus last year. While we also saw lower volumes at our UK brick business we achieved higher average prices and, excluding the pension gain in 2011, operating proﬁt was maintained broadly in line with last year. Difﬁcult trading conditions were experienced in Mainland Europe, with particularly challenging markets in the Netherlands. This resulted in lower overall sales and operating proﬁt for our Clay business. Lightside Building Products (40% of EBITDA) Lightside Building Products activities also showed a decline compared with 2011 but not to the same extent as our Concrete and Clay Products activities. The Outdoor Security business was negatively impacted by the very difﬁcult trading conditions across Europe, as sales and operating proﬁt in the Netherlands, Germany, France and the UK declined. However, the performance of our Nordic and Mobile Fencing activities was broadly in line and Germany in particular has begun to beneﬁt from restructuring activities started in 2011. During 2012, our footprint in the attractive RMI-focussed Shutters & Awnings segment was signiﬁcantly expanded by an acquisition in Germany. The underlying Shutters & Awnings business in the Netherlands was impacted by negative economic sentiment and operating proﬁt, while still at a satisfactory level, was lower than in 2011. In Construction Accessories operating proﬁt was lower due to strong price competition in Mainland European markets. In contrast, the UK market experienced increased levels of activity in the London area. Our activities in China, after a difﬁcult start, are making progress. In April 2012, we acquired a business in southeast Asia, expanding our footprint in this developing region. Outlook Our Products businesses are predominantly located in the Netherlands, Germany, Belgium and France and are principally exposed to new construction. We expect 2013 to be another difﬁcult year with little progress on 2012. We believe that market conditions in the Netherlands, Belgium, UK and France will be challenging and we are cautious about Germany. We are more positive about Denmark, the Nordic countries and growth outside of Europe, especially in Asia. Against this backdrop, we will continue our efforts to reduce our cost base, rationalise our manufacturing footprint and adapt to market conditions. Americas Products Results € million Sales revenue EBITDA % Change +18% +24% Operating proﬁt +105% EBITDA/sales Op.proﬁt/sales 2012 2,806 204 86 7.3% 3.1% 2011 2,378 164 42 6.9% 1.8% EBITDA and operating proﬁt exclude proﬁt on disposals 2012 saw good progress for our Americas Products segment helped by a strong recovery in residential construction in the United States and an ongoing pick-up in overall economic activity. Like-for-like sales were 7% ahead of last year. The combination of input cost pressures and very competitive pricing required a continued tight focus on operational excellence initiatives. Nevertheless, with the beneﬁt of organic growth, market share gains and cost reduction initiatives, the segment achieved a signiﬁcant increase in US Dollar operating proﬁt and growth in both EBITDA and operating proﬁt margins. Americas Products completed 9 acquisitions in 2012 for a total spend of €112 million. Of particular note was the acquisition by our Architectural Products Group (APG) of paver plant facilities in Ontario, Canada (3) and in Florida (4), increasing our market share in Ontario and extending the reach of our Florida operations to the southwest of the state with resultant transportation beneﬁts. The acquisition of 5 packaged cement mix plants in Texas further strengthened APG’s national presence in packaged concrete products. The Precast group acquired 5 plants in California further consolidating its leadership position in this large market and facilitated our objective of expanding into new precast product segments in this state, including bridge girders, manholes and box culverts. Architectural Products (50% of EBITDA) APG supplies a broad range of concrete masonry and hardscape products, packaged products, clay brick, fencing and lightweight aggregates to the construction industry, with the DIY and professional RMI segments being signiﬁcant end-users. The business beneﬁted from good weather early in 2012 and from an improving residential construction market although APG’s non-residential construction market segments remained weak. Activity was more robust in the west and the south but remained challenged in the northeast and midwest. The improving housing market, product innovation and effective marketing drove gains across our business, while further cost reduction measures were implemented to offset the impact of higher input costs. Overall, APG recorded an increase in operating proﬁt for the year on a 3% increase in like-for-like sales. Precast (25% of EBITDA) The Precast business saw an improved market environment in 2012 and registered solid gains as targeted growth initiatives began to deliver. Improvements were seen in all regions with particular progress in many hard-hit Sunbelt markets. Commercial and infrastructure markets remained subdued but energy and environment-related markets were positive. In our Analysis of change Total Change +428 +40 +44 Organic Acquisitions Divestments Restructuring/ Impairment Exchange +174 +21 +39 +67 +5 +1 - - - - +2 +2 +187 +12 +2 Restructuring costs amounted to €2 million (2011: €4 million) Impairment charges of €4 million were incurred (2011: €4 million) traditional precast products, volumes increased 19% over 2011. Our enclosures business showed further improvement in proﬁtability and the construction accessories business posted better results. Overall the Precast group’s like-for-like sales increased by 12% and operating proﬁt advanced signiﬁcantly. BuildingEnvelope™ (20% of EBITDA) Commercial building activity showed only a modest improvement in 2012, resulting in another year of challenging market conditions for this business. Despite these conditions, our initiatives to gain market share and differentiate the business through innovative technology drove top-line growth. The pricing environment remained difﬁcult, especially for larger project work. However, organic sales rose 8% with improvements well balanced across regions. Our Engineered Glazing Systems business, which had held up well as large projects were completed during 2011, was impacted by somewhat lower activity levels in 2012. Our traditional Architectural Glass and Storefronts business beneﬁted from a focus on increased commercial RMI spend. Our focus on tight cost controls, quality and improved processes resulted in higher overall operating proﬁt for the business. South America (5% of EBITDA) Results for our operations in Argentina were slightly lower than in 2011, with improved results in our clay block operation offset by continuing price competition and cost inﬂation pressures in our tile business. Our Chilean businesses had another year in which operating proﬁt improved. Overall, sales for our South American operations were higher and operating proﬁt was slightly better than in 2011. Outlook A gradual recovery in residential construction activity is underway. The non-residential and infrastructure sectors typically lag residential demand and are therefore expected to be stable with only modest growth in the near term. Given our business mix, we expect further organic sales growth in 2013. This growth, combined with the impact of recent acquisitions and further beneﬁts from the cost reduction measures taken in recent years, is expected to contribute to further improvement in our operating proﬁt and margins in the year ahead. CRH 31 Operations Review – Distribution Europe Distribution CRH distributes building materials to general building contractors, Sanitary, Heating and Plumbing (SHAP) specialist contractors and Do-It-Yourself (DIY) customers in Europe and to professional rooﬁng/siding and interior products contractors in the United States. Top: CRH Bouwmaat, builders merchants in the Netherlands, provide a one-stop wholesale cash and carry facility with a wide range of products to meet the needs of contractors in the RMI market. Bottom: Allied, CRH’s distribution brand in the United States, supplied the tiles needed to reconstruct the roof of New Hope Presbyterian Church in Castle Rock, Colorado, following a severe hail storm in June 2012. 32 CRH Europe Distribution’s strategy is to seek opportunities to increase its network density in the largely unconsolidated core European markets while also investing in other attractive segments of building materials distribution. Organisational initiatives leverage expertise between DIY and builders merchants and use best-in-class IT to deliver operational excellence, optimise the supply chain and provide superior customer service. From a solid base in the Netherlands, CRH has expanded its leading Builders Merchants positions in Switzerland, Germany, Austria and France in addition to growing its DIY “Gamma” format in the Benelux. Substantial opportunities remain to increase our existing network in core European markets and to establish new platforms aimed at growing our exposure to RMI market demand. An example is CRH’s entry into the developing SHAP distribution market through the acquisition of a Swiss provider of high-end sanitary ware, since replicated in contiguous markets in Germany and Belgium. Europe Distribution employs approximately 11,900 people at over 780 operating locations. Americas Distribution Americas Distribution’s strategy is focussed on being the supplier of choice to the professional rooﬁng and siding contractor and to applying this successful distribution model to the Interior Products segment. Demand in the Exterior Products business is largely inﬂuenced by residential and commercial replacement activity with the key products having an average life span of 25 years. The Interior Products division has less exposure to replacement activity as demand is largely driven by the new commercial construction market. State-of-the-art IT, disciplined and focussed cash management and well-established procurement and commercial systems support supply chain optimisation and enable CRH to provide superior customer service. Operating in 31 States, growth opportunities include investment in new regions, in complementary private label and energy-saving product offerings, and in other attractive building materials distribution segments that service professional dealer networks. Employees total approximately 3,500 at over 180 operating locations. Market leadership positions Builders merchants No.1 Austria No.1 Netherlands No.1 Switzerland No.1 Northern Germany No.1 France: Burgundy, Franche-Comte and Rhône-Alps No.2 Ile-de-France DIY stores No.1 Netherlands* No.3 Belgium* No.5 Germany** No.2 (joint) Portugal (50%) * Member of Gamma franchise ** Member of Hagebau franchise SHAP No.2 Belgium No.3 Northern Germany No.2 Switzerland Market leadership positions Rooﬁng/siding distributor No.3 United States Interior products distributor No.3 United States Alaska Hawaii CRH 33 Analysis of change Total Change -200 -37 -36 Organic Acquisitions Divestments Restructuring/ Impairment Exchange -294 -42 -42 +65 +2 +1 - - - - +1 +3 +29 +2 +2 Americas Distribution Restructuring costs amounted to €3 million (2011: €4 million) No impairment charges were incurred (2011: €2 million) conﬁdence also under pressure in Germany during the latter part of the year, operating proﬁt for our 48-store DIY network in Germany declined. Despite a very difﬁcult economic environment in Portugal, operating proﬁt was in line with 2011. Sanitary, Heating and Plumbing (‘SHAP’) (20% of EBITDA) Our SHAP business services the specialist needs of plumbers, heating specialists and installers, and of gas and water technicians. With a total of 119 branches in three countries and annualised turnover of almost €600 million, this business is developing in line with our strategy to build a European platform in this growing RMI-focussed channel. With the beneﬁt of acquisitions during the year, operating proﬁt was well ahead of 2011. Our businesses in Germany and Switzerland performed well in 2012 delivering improvements in sales and operating proﬁt compared with 2011. The business in Belgium performed strongly and once more exceeded expectations. Outlook After a difﬁcult 2012 we believe that market conditions will remain weak in 2013, albeit at different levels in the various markets we operate in. Our expectations for the German, Austrian, Swiss and Belgian markets are more favourable than our outlook for the markets in the Netherlands and France. We therefore expect 2013 to be challenging, due mainly to the difﬁcult outlook for the Dutch economy, and we remain focussed on delivering further savings from our operational excellence programmes. Europe Distribution Results € million Sales revenue EBITDA Operating proﬁt EBITDA/sales Op.proﬁt/sales % Change -5% -14% -19% 2012 4,140 230 154 5.6% 3.7% 2011 4,340 267 190 6.2% 4.4% EBITDA and operating proﬁt exclude proﬁt on disposals Adverse weather conditions in the early months of 2012 combined with weaker market demand in the Netherlands and Switzerland resulted in a sharp decline in ﬁrst-half proﬁts. However, despite continuing market weakness, a disciplined approach to pricing combined with strong cost and procurement management delivered a robust second-half trading performance with both EBITDA and operating proﬁt margins in line with the period from July to December 2011. As a result, the full-year EBITDA decline was limited to 14% (down 26% in the ﬁrst-half) while full-year operating proﬁt fell 19% compared with a ﬁrst-half decline of 35%. In 2012 Europe Distribution continued to expand its Sanitary, Heating and Plumbing business and added two Belgian specialist merchants with a total of 16 branches, strengthening our market presence in what is a key market for the segment. In the Netherlands we acquired a specialist merchant of ﬁnishing products, adding 6 branches to the Dutch Professional Builders Merchants business. Professional Builders Merchants (50% of EBITDA) With 426 locations in six countries, Professional Builders Merchants has strong market positions in all of its regions. Overall operating proﬁt for this business was lower than in 2011. Markets in the Benelux were weak in 2012 and this resulted in lower sales and operating proﬁt. Sales levels in France were slightly lower compared with 2011 but operating proﬁt was maintained due to the strong focus on costs, purchasing and pricing. Our operations in Switzerland saw a decline in sales impacted by the severe winter weather and the strength of the Swiss Franc which affected competitiveness; however, strict cost control measures alleviated the impact on operating proﬁt. Austria again showed a strong performance and for the fourth year in a row reported an increase in operating proﬁt. In Germany like-for-like sales decreased during 2012 due to poor early weather and a weak garden season; as a result, proﬁts fell short of 2011 levels. DIY (30% of EBITDA) Our DIY platform in Europe operates a network of 238 stores under four different brands; Gamma and Karwei in the Benelux, Bauking in Germany and MaxMat in Portugal. Overall operating proﬁt for DIY was behind 2011. In the Netherlands, continued weakness in consumer conﬁdence put pressure on sales levels; however, the adverse impact on operating proﬁt was lessened due to speciﬁc purchasing initiatives and good cost control. In Belgium our network of 19 stores reported an increase in operating proﬁt as a result of continued progress realised on operational effectiveness. With consumer 34 CRH Americas Distribution Results € million Sales revenue EBITDA Operating proﬁt EBITDA/sales Op.proﬁt/sales % Change +18% +28% +31% Total Change +241 +18 +14 2012 1,576 83 59 5.3% 3.7% 2011 1,335 65 45 4.9% 3.4% Analysis of change Organic Acquisitions Divestments Restructuring Exchange +29 +9 +9 +100 +4 +1 - - - - - - +112 +5 +4 EBITDA and operating proﬁt exclude proﬁt on disposals Restructuring costs amounted to €1 million (2011: €1 million) No impairment charges were incurred (2011: nil) Interior Products (25% EBITDA) Allied is also the third largest Interior Products distributor in the United States. This business sells wallboard, steel studs and acoustical ceiling systems to specialised contractors, and has low exposure to weather-driven replacement activity. It is heavily dependent on the new commercial construction market which has been at historically low levels in recent years. Activity in this business ﬁnished the year on a strong note. Wallboard volumes and prices increased in 2012 which resulted in higher sales across all regions and, combined with the beneﬁts of cost reduction programmes undertaken in previous years, contributed to an improvement in operating proﬁt. Outlook The overall outlook for 2013 is encouraging as commercial and residential construction is expected to show improvement. While the full effect of Hurricane Sandy on our business in New York/New Jersey is not yet known, we do expect it to give rise to increased activity in 2013 as repairs to the extensively damaged residential areas in coastal New Jersey, New York and Long Island gather momentum. Another year of growth is expected in the Interior Products business, as wallboard volumes and pricing are expected to increase. From a development perspective, our deal pipeline remains robust in both segments of the business. Overall, with the continued beneﬁt of consolidation and cost reduction measures, we are looking to a year of further progress in 2013. Americas Distribution, trading as Allied Building Products (‘Allied’), saw contrasting patterns across its main trading activities in 2012. Our Exterior Products business had a strong ﬁrst half due to an unusually warm winter and momentum from prior year, but experienced a more challenging second half as re-rooﬁng demand weakened and competition for work intensiﬁed. In contrast, the Interior Products business showed continuing improvements in both volumes and pricing throughout the year. With total like-for-like sales up by 2%, and incremental contributions from acquisitions completed in 2011, overall US Dollar sales and operating proﬁt were ahead of last year. The ongoing evolution of Allied’s organisational structure provided further consolidation and efﬁciency opportunities. Management maintained its focus on logistics, pricing initiatives and administrative rationalisation to enable greater control and scalability. As we continued to simplify our branch operating structure, smaller regions were merged in order to improve acquisition integration and enhance operating synergies. The result of the ongoing efforts in these areas is evident in the improvement in both EBITDA and operating proﬁt margins. Development activity in 2012 was quiet following a busy year in 2011. Two greenﬁeld locations were added to strengthen existing market positions and provide scope for further growth. The acquisition impact shown above primarily reﬂects the 15-branch Minnesota-headquartered Exterior Products distributor that was acquired in December 2011. TriBuilt, Allied’s proprietary private label brand (5% of sales), continued to show strong growth in 2012. In addition, new customer service initiatives were implemented to further differentiate Allied in the marketplace. Overall, progress was made in 2012 to increase brand recognition and build strong customer loyalty. Exterior Products (75% of EBITDA) Allied is the third largest rooﬁng and siding distributor in the United States. Demand is inﬂuenced by residential and commercial replacement activity (75% of sales volume is RMI-related) with key products having an average life span of 25 years. All regions within the Exterior Products business were proﬁtable in 2012 and the full-year impact of 2011 acquisitions added to the sales and operating proﬁt of the northern plains/upper midwest markets. However, competitive pressures across the industry in the second half of 2012 impacted margins in both acquired and heritage businesses. In late-October 2012, our operations in the New York/New Jersey area were severely impacted by Hurricane Sandy but December saw some beneﬁt as post-hurricane repair and refurbishment work commenced. CRH 35 Board of Directors Executive Directors M. Lee Chief Executive Appointed to the Board: November 2003 Age: 59 Committee membership: Acquisitions Committee Finance Committee External appointments: Non-executive director of IBEC Limited, a business and employers organisation. A. Manifold Chief Operating Ofﬁcer Appointed to the Board: January 2009 Age: 50 Committee membership: Acquisitions Committee M. Carton Finance Director Appointed to the Board: May 2010 Age: 54 Committee membership: Acquisitions Committee Finance Committee External appointments: Director of The British Irish Chamber of Commerce, a business and employers organisation. M. Towe Chief Executive Ofﬁcer Oldcastle, Inc. Appointed to the Board: July 2008 Age: 63 Committee membership: Not applicable Biographies of the Executive Directors are shown on page 11 36 CRH Ernst Bärtschi Non-executive Director Utz-Hellmuth Felcht Non-executive Director Appointed to the Board: October 2011 Appointed to the Board: July 2007 Nationality: Age: Swiss 60 Nationality: Age: German 65 Committee membership: Audit Committee (Financial expert) Skills and experience: Ernst was Chief Executive of Sika AG, a manufacturer of speciality chemicals for construction and general industry, until 31 December 2011. Prior to joining Sika, he worked for the Schindler Group and was Chief Finance Ofﬁcer between 1997 and 2001. Over the course of his career he has gained extensive experience in India, China and the Far East generally. Qualiﬁcations: LIC.OEC.HSG External appointments: Member of the board of Bucher Industries AG, a mechanical and vehicle engineering company based in Switzerland and a member of the advisory board of China Renaissance Capital Investment Inc., a private equity investment company in Hong Kong, China. Committee membership: Acquisitions Committee; Finance Committee Skills and experience: Utz-Hellmuth was, until May 2011, Chairman of the Supervisory Board of Süd-Chemie Aktiengesellschaft. He was also Chief Executive of Degussa AG, Germany’s third largest chemical company, until May 2006. External appointments: Partner in the private equity group One Equity Partners Europe GmbH; Chairman of the Supervisory board of German rail company Deutsche Bahn AG; director of Jungbunzlauer Holding AG. William (Bill) Egan Non-executive Director Nicky Hartery Chairman Appointed to the Board: January 2007 Appointed to the Board: June 2004 Nationality: Age: United States Nationality: 67 Age: Irish 61 Committee membership: Nomination and Corporate Governance Committee; Remuneration Committee Skills and experience: Bill is founder and General Partner of Alta Communications and Marion Equity Partners LLC, Massachusetts-based venture capital ﬁrms. He is past Chairman of Cephalon Inc, and past President and Chairman of the National Venture Capital Association. Qualiﬁcations: BA, MBA. External appointments: Director of the Irish venture capital company Delta Partners Limited and also serves on the boards of several communications, cable and information technology companies. Committee membership: Acquisitions Committee; Finance Committee; Nomination and Corporate Governance Committee; Remuneration 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 United States. Qualiﬁcations: C.Eng, FIEI, MBA. External appointments: Chief Executive of Prodigium, a consulting company which provides business advisory services; non-executive director of Musgrave Group plc, a privately owned international food retailer, and of Eircom Limited, a telecommunications services provider in Ireland. Taken during a visit to the APG Research and Development facility in Montreal, Canada. Left to right: Bill Egan, Mark Towe, Maeve Carton, Albert Manifold Dan O’Connor, John Kennedy, Nicky Hartery, Jan Maarten de Jong, Utz-Hellmuth Felcht, Ernst Bärtschi, Myles Lee, Heather Ann McSharry. Board Committees Length of service on Committee Acquisitions N. Hartery, Chairman M. Carton U-H. Felcht M. Lee A. Manifold D. O’Connor 0.5 years 2.5 years 1 year 9 years 4 years 6.5 years Jan Maarten de Jong Non-executive Director Heather Ann McSharry Non-executive Director Audit Appointed to the Board: January 2004 Appointed to the Board: February 2012 Nationality: Age: Dutch 67 Nationality: Age: Irish 51 Committee membership: Audit Committee (Financial expert) Committee membership: Audit Committee Skills and experience: Jan Maarten is a member of the Supervisory Board of Heineken N.V. He is a former member of the Managing Board of ABN Amro Bank N.V. and following his retirement he continued to be a Special Advisor to the board of that company until April 2006. External appointments: Director of a number of European banking, insurance and industrial holding companies, including AON Groep Nederland B.V. and Nutreco N.V. Skills and experience: Heather Ann is a former Managing Director Ireland of Reckitt Benckiser and Boots Healthcare and was previously a non-executive director of Bank of Ireland plc. Qualiﬁcations: BComm, MBS. External appointments: Non-executive director of Greencore Group plc; Chairman of the Bank of Ireland Pension Fund Trustees Board; director of Ergonomics Solutions International, IDA Ireland and the Institute of Directors. John Kennedy Non-executive Director Dan O’Connor Non-executive Director* Appointed to the Board: June 2009 Appointed to the Board: June 2006 Nationality: Age: Irish 62 Nationality: Age: Irish 53 Committee membership: Nomination and Corporate Governance Committee; Remuneration Committee Skills and experience: John is past Chairman of Wellstream Holdings plc. In a 40 year career, he has served as Executive Vice President of Halliburton Company, President of Dresser Enterprises and Chief Operations Ofﬁcer of Brown and Root Services. He is a past director of the UK Atomic Energy Authority and Integra Group. Qualiﬁcations: M.Sc, BE, C.Eng, FIEE. Committee membership: Acquisitions Committee; Finance Committee; Nomination and Corporate Governance Committee; Remuneration Committee Skills and experience: Dan is a former President and Chief Executive Ofﬁcer of GE Consumer Finance - Europe and a former Senior Vice-President of GE. He was Executive Chairman of Allied Irish Banks, plc until October 2010. Qualiﬁcations: BComm, FCA. * Dan O’Connor is Senior Independent Director External appointments: Non-executive Chairman of Lamprell plc, Maxwell Drummond International Limited, Hydrasun Holdings Limited, Welltec A/S and BiFold Group Limited. J.M. de Jong, Chairman* E. Bärtschi* H.A. McSharry 9 years 1 year 1 year Finance N. Hartery, Chairman M. Carton U-H. Felcht M. Lee D. O’Connor 0.5 years 2.5 years 5.5 years 9 years 0.5 years Nomination and Corporate Governance N. Hartery, Chairman W. Egan J. Kennedy D. O’Connor Remuneration D. O’Connor, Chairman W. Egan N. Hartery J. Kennedy 8.5 years 5.5 years 3.5 years 0.5 years 0.5 years 5.5 years 8.5 years 3.5 years Senior Independent Director D. O’Connor * Audit Committee Financial Expert CRH 37 Nicky Hartery Chairman Governance Contents Page 38 38 40 40 40 40 40 41 41 41 41 41 41 41 41 42 42 43 43 44 48 50 50 50 50 51 51 52 52 52 52 53 53 53 53 54 68 Corporate Governance Report Chairman’s Introduction Listings and Corporate Governance Codes Board of Directors – Responsibilities – Roles of Chairman and Chief Executive – Membership – Succession and diversity – Independence – Chairman – Senior Independent Director – Company Secretary – Terms of appointment of non-executive Directors – Induction, training and development – Performance appraisal and Board evaluation – External Board evaluation – Directors’ retirement and re-election – Board meetings – Securities dealing policies and codes Audit Committee Nomination and Corporate Governance Committee Remuneration Committee Acquisitions Committee Finance Committee Risk Management and Internal Control Compliance and Ethics Attendance at Board/Committee meetings Sustainability and Corporate Social Responsibility Substantial Holdings Communications with Shareholders General Meetings Memorandum and Articles of Association Going Concern Compliance Statement Documents and presentations available on CRH website Report on Directors’ Remuneration Directors’ Report CRH plc has a secondary listing on The Irish Stock Exchange. For this reason, CRH plc is not subject to the same ongoing listing requirements as those which would apply to an Irish company with a primary listing on the Irish Stock Exchange including the requirement that certain transactions require the approval of shareholders. For further information, shareholders should consult their own ﬁnancial adviser. Further details on the Group’s listing arrangements, including its primary listing on the London Stock Exchange, are set out on page 40. 38 CRH Corporate Governance Report Chairman’s Introduction The CRH Board is responsible for the leadership, oversight, control, development and long-term success of the Group. We are also responsible for instilling the appropriate culture, values and behaviour throughout the organisation and are committed to maintaining very high standards of corporate governance and ethical business conduct. The Corporate Governance Report sets out in detail CRH’s key corporate governance principles and practices, details the way in which the Board operates and outlines how the 2010 UK Corporate Governance Code, which applies to the Company, is implemented. I have highlighted below some of the more important elements of our governance structures and those areas for which I have speciﬁc responsibility as Chairman. Board effectiveness and evaluation As a non-executive Director since 2004, and Senior Independent Director from May 2008 to May 2012, I have found the CRH Board to be highly effective, composed of knowledgeable individuals with a wide range of business experience, who enjoy working together towards common goals, in an environment where no aspect of the Group and its operations is off-limits for debate and which is characterised by positive interaction between executive and non-executive Directors. One of the many attributes of my predecessor as Chairman, Kieran McGowan, was his ability to foster and support this environment, particularly against the fast-evolving, uncertain economic and ﬁnancial backdrop of recent times. When I became Chairman following the Annual General Meeting in May 2012, one of my primary goals was to ensure that the effectiveness of the Board was maintained and, where possible, enhanced and that the Board remains resolutely focussed on fulﬁlling its responsibilities. I was, therefore, very interested in the feedback from the external Board evaluation exercise carried out in 2012. The outcome, which was very positive, together with the relatively small number of recommendations (outlined on page 42), supported my view that the Board operates very effectively. The outcome was also in line with the results of annual internal Board evaluation exercises. Each Board member participated fully in the external evaluation process and felt that the resulting report and recommendations were helpful and practical. All of the recommendations have been implemented or will, for timing reasons, be implemented during 2013. From my perspective, having an external “sense-check” on the performance of the Board was very useful; it reminded us all that while the Board’s performance is “very good”, relatively minor and focussed adjustments, for example in the Group’s strategic planning processes, can provide a basis for further performance improvements and enable us to better utilise the diverse skills and abilities of individual Board members. The Board and induction It has been CRH’s practice since the formation of the Group in the 1970s that the roles of Chairman and Chief Executive are not combined. A summary of our respective responsibilities are set out on page 40. It is also our practice that a majority of the Board comprises non-executive Directors. My non- executive Director colleagues are expected to challenge management proposals constructively and to examine and review management performance in meeting agreed objectives and targets. In addition, they are expected to draw on their experience and knowledge in respect of any challenges facing the Group and in relation to the development of proposals on strategy. Ernst Bärtschi and Heather Ann McSharry were appointed to the Board in late-2011 and early-2012 respectively. In order to provide them with an in-depth understanding of the Group, Kieran McGowan agreed a comprehensive induction programme with each of them, which was designed to cover their ﬁrst year on the Board. Following my appointment as Chairman, I met with Ernst and Heather Ann approximately half way through the programme to ensure that it was meeting their needs. I would like to thank both of them and the senior management team for the time and effort they invested in the programme, the details of which are set out on page 42. My colleagues and I are committed to ensuring that the Board is sufﬁciently diverse and appropriately balanced, and these are core elements taken into account by the Nomination and Corporate Governance Committee when it makes recommendations on Board appointments. The renewal policy is described in detail on page 41. Recent appointments have been very much in keeping with these principles. Performance appraisal, independence and re-election I have conducted a formal evaluation of the performance of individual Directors, which included training needs where appropriate. I can conﬁrm that each of the Directors continues to perform effectively and to demonstrate strong commitment to the role. Jan Maarten de Jong was appointed a Director in January 2004 and has entered his tenth year on the Board. Notwithstanding his tenure, we consider him to be independent. In forming this view, we have taken into account his performance as a non-executive Director in terms of the judgement, objectivity and commitment he brings to the Board. We have invited him to serve as a Director for a further period of one year, with the position to be reviewed in 2014. In accordance with the policy adopted in 2011, each Director will retire at the Annual General Meeting on 8 May 2013. I strongly recommend that each of them be re-elected. Meetings and time commitment I work closely with the Chief Executive and Company Secretary in setting the agendas of the Board to ensure that sufﬁcient time is allocated to strategy setting and review, performance monitoring, portfolio management, including acquisitions and divestments, succession planning and talent management. The papers for scheduled Board meetings are circulated electronically in the week prior to the meeting. The papers are regarded by the non-executive Directors as being comprehensive. However, following the feedback from the external evaluation process, we have focussed over the past year on rationalising the documentation circulated to the Board. Further details in relation to the agenda items dealt with by the Board throughout the year are set out on page 43. The Board makes two visits each year to Group operations; one in Europe and one in North America. Each visit lasts between three and ﬁve days and incorporates a scheduled Board meeting. In 2012, these visits were to Belgium in Europe and to Montreal in Canada. Since my appointment as Chairman, I have also visited our joint venture in India and in the coming months I will be visiting our operations in Ukraine and our joint venture in China. Prior to their appointment, potential non-executive Directors are made aware of the calendar of meetings and are asked to conﬁrm that they are able to allocate sufﬁcient time to meet the expectations of their role. My agreement is required before a non-executive Director accepts additional commitments that might impact adversely on the time he or she is able to devote to CRH. Risk management and ethics Risk management continues to be the focus of much attention in the context of both the recessionary environment and high proﬁle failures of risk systems in global organisations. The principal strategic risks which the Group faces are set out in the Directors’ Report on pages 68 and 69. The Board has delegated responsibility for the monitoring of risk management and internal controls to the Audit Committee¹. However, the Board retains ultimate responsibility for determining the Group’s “risk appetite” and annually considers a report in relation to the monitoring, controlling and reporting of identiﬁed risks and uncertainties. In recent years management has undertaken a signiﬁcant review of the Group’s risk management framework to ensure that the systems in place are appropriately robust and reﬂect the organisation structure and diversity of the Group. The Board and management are satisﬁed that appropriate risk management and internal controls are in place throughout the Group. The international regulatory environment in which the Group operates continues to evolve in the area of compliance and ethics, with a signiﬁcant step-up in enforcement activity around the world. Our stakeholders demand transparency from us in terms of business ethics, particularly as we develop a more diverse, global footprint. The Group’s policies and procedures are designed to reinforce our high standards of business conduct and ensure our employees everywhere act in a manner consistent with CRH’s core values to safeguard our excellent reputation. As outlined on page 46, the Head of Compliance and Ethics reports regularly to the Audit Committee. Conclusion In summary, I believe that your Board operates very effectively and that the Board’s governance structures outlined above and in the remainder of this report are appropriate and robust. As Chairman, I am focussed on ensuring that CRH remains at the forefront of best practice in this area. Nicky Hartery Chairman February 2013 ¹ In accordance with Section 91(6)(b) of the EC (Directive 2006/43) Regulations 2010 CRH 39 Corporate Governance Report | continued Listings and Corporate Governance Codes CRH, which is incorporated in Ireland and subject to Irish Company Law, has a premium listing on the London Stock Exchange, a secondary listing on the Irish Stock Exchange and its American Depositary Shares are listed on the New York Stock Exchange. This report describes CRH’s governance principles and practice and the Group’s risk management and internal control systems. The report also sets out how CRH applies the main and supporting principles of the 2010 UK Corporate Governance Code (the UK Code) and takes into account the disclosure requirements set out in the corporate governance annex to the listing rules of the Irish Stock Exchange. A copy of the UK Code can be obtained from the Financial Reporting Council’s website, www.frc.org.uk. Board of Directors includes Board appointments, approval of the Annual Report, the Interim Results, the annual budget, major acquisitions, signiﬁcant capital expenditure and the strategic plans for the Group. The Group’s strategy, which is regularly reviewed by the Board, and its business model are summarised on page 14. The Board has delegated some of its responsibilities to Committees of the Board. The work of each Committee is set out on pages 44 to 50 of this report. 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. How do the roles of the Chairman and Chief Executive differ? What are the responsibilities of the Board? There is a formal schedule of matters reserved to the Board for consideration and decision. This The Board has delegated responsibility for the management of the Group, through the Chief Executive, to executive management. There is a clear division of responsibilities, which is set out in writing and has been approved by the Board, between the roles of the Chairman and the Chief Executive. A summary of the respective roles is set out in the table below. What is the membership structure of the Board? At present, there are four executive and eight non-executive Directors. Biographical details are set out on pages 11, 36 and 37. We consider the current size and composition of the Board to be within a range which is appropriate. We also believe that the current size of the Board is sufﬁciently large to enable its Committees to operate without undue reliance on individual non-executive Directors, while being dynamic and responsive to the needs of the Company. 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 Company. None of the executive Directors is a non-executive director of a listed company. Membership of the CRH Board Independence (determined by CRH Board annually) Tenure of non-executive Directors (excluding Chairman) 33% 67% 14% 28% 29% 29% Independent Non-independent Years on CRH Board: 0-3 years 3-6 years 6-9 years 9+ years Gender diversity Geographical spread (by residency) 17% 83% Male Female 40 CRH 17% 8% 25% 50% Ireland Mainland Europe UK US Responsibilities of Chairman and Chief Executive Chairman is responsible for The efﬁcient and effective working of the Board Ensuring that Board agendas cover the key strategic issues confronting the Group, that the Board reviews and approves management’s plans for the Group and that the Directors receive accurate, timely, clear and relevant information Making certain that the Board applies sufﬁcient challenge to management proposals and examines and reviews management performance in meeting agreed objectives and targets Overseeing the search for new Board members Chief Executive is responsible for Full day-to-day operational and proﬁt performance of the Group and is accountable to the Board for all authority delegated to executive management Executing strategy agreed with the Board and reporting regularly on the progress and performance of the Group Co-ordinating and overseeing the proﬁtable growth of a diverse group of international businesses Maximising the contribution of senior management to business planning, operational control and proﬁt performance Corporate Governance Report | continued How does the Board plan for succession and what is its policy on diversity? The Board plans for its own succession with the assistance of the Nomination and Corporate Governance Committee. For non-executive appointments, independent consultants are engaged to search for suitable candidates. The process to identify, evaluate and appoint a non-executive Director with the suitable experience, skills and time commitment takes into account both the needs of CRH and the tenure and skills of existing board members. As a result, non-executive renewal and refreshment is a continuous process. The non-executive Directors meet regularly with the Chief Executive to discuss senior management succession planning to ensure appropriate talent management structures are in place to provide a pool of potential candidates for key executive Director appointments. External consultants are engaged for executive Director recruitment if, and when, required. 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 and 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 in which it intends to expand; – skills, knowledge and expertise in areas relevant to the operation of the Board; – diversity, including nationality and gender; – the need for an appropriately sized Board. During the ongoing process of Board renewal, each, or a combination, of these factors can take priority. Consequently, to date the Board has not set speciﬁc objectives in relation to diversity. What criteria are used to determine the independence of non-executive Directors? The independence of non-executive Board members is considered annually. The Board is assisted in this by the annual review carried out by the Senior Independent Director which addresses the independence of the individual members of the Board (see Performance appraisal and Board evaluation section on this page), and by the work of the Nomination and Corporate Governance Committee, which annually reviews each Board member’s directorships and considers any relevant business relationships between Board members. We have concluded that all of the non-executive Directors bring independent judgement to bear on issues of strategy, performance, resources, key appointments and standards, and have determined that each of the non-executive Directors is independent. In reaching that conclusion, we considered the principles relating to independence contained in the UK Code, together with the guidance provided by a number of shareholder voting agencies, and have taken the view that independence is determined by a Director’s character, objectivity and integrity. Those principles and guidance highlight a number of factors that might appear to affect the independence of Directors, including former service as an executive, extended service on the Board and cross- directorships, while making it clear that a Director may be considered independent notwithstanding the presence of one or more of these factors. When was the Chairman appointed and does he have non-CRH commitments? Nicky Hartery was appointed Chairman of the Group following the conclusion of the 2012 Annual General Meeting. On his appointment as Chairman, he met the independence criteria set out in the UK Code. Although Nicky Hartery holds a number of other directorships (see details on page 36), the Board considers that these do not interfere with the discharge of his duties to CRH. There has been no change in his non-CRH commitments since his appointment as Chairman. Who is the Senior Independent Director? Dan O’Connor was appointed as Senior Independent Director in 2012. He is available to shareholders who have concerns that cannot be addressed through the Chairman, Chief Executive or Finance Director. Who is the Company Secretary? Neil Colgan was appointed Company Secretary in June 2009. The appointment and removal of the Company Secretary is a matter for the Board. All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are complied with. What are the terms of appointment of non- executive Directors? Non-executive Directors are typically expected to serve two three-year terms, although they may be invited to serve for further periods. The standard terms of the letter of appointment of non-executive Directors are available for inspection at the Company’s registered ofﬁce and at the Annual General Meeting. How are the induction, training and development needs of Directors catered for? New Directors are provided with extensive brieﬁng materials on the Group and its operations, the procedures relating to the Board and its Committees and their duties and responsibilities as Directors under legislation and regulations that apply to the Company. The Chairman agrees a tailored and comprehensive induction programme with each new Director. A typical induction programme, which generally takes place over the ﬁrst year of a Director’s appointment, would cover the topics set out in the Induction Programme panel on page 42. Sessions are held with the Chairman at which progress is reviewed and feedback is sought. New Directors also meet with the Group’s stockbrokers. For newly-appointed members of the Audit Committee, training arrangements would include the topics set out in the Induction Programme panel on page 42. New members of the Remuneration Committee meet with the Committee’s remuneration consultants in the year of their appointment to the Committee. Directors can also avail of opportunities to hear the views of and meet with the Group’s investors and analysts. Directors regularly receive copies of research and analysis conducted on CRH and the building materials sector. The Board receives regular updates from the external auditors in relation to regulatory and accounting developments. Updates in relation to other relevant matters, for example, changes in company law, are provided from time to time. What processes are in place for appraising the performance of Directors and for evaluating the effectiveness of the Board? An annual review of individual Directors’ performance is conducted by the Chairman and each Director is provided with feedback gathered from other members of the Board. Performance is assessed against a number of measures, including the ability of the Director to contribute to the development of strategy, to understand the major risks affecting the Group, to contribute to the cohesion of the Board, to commit the time required to fulﬁl the role and to listen to and respect the views of other Directors and the management team. As part of that review process the Chairman discusses with each individual their training and development needs and, where appropriate, agrees suitable arrangements to be put in place to address those needs. Each year, the Senior Independent Director conducts an annual review of corporate governance, the independence of Board members, the operation and performance of the Board and its Committees and the effectiveness of Board communications. This is achieved through discussion in one-to-one sessions with each Director. The meetings, which cover speciﬁc topics and allow for free-ranging discussion, provide a forum for an open and frank discourse. The Senior Independent Director circulates a written report to the Board each year, which summarises the outcome of the review and sets out any CRH 41 Corporate Governance Report | continued recommendations from Board members in relation to areas where improvements can be made. Consideration of the Senior Independent Director’s report is a formal agenda item at a scheduled Board meeting each year. Led by the Senior Independent Director, the non-executive Directors meet at least annually in the absence of the Chairman to review his performance. During 2012, the Board evaluation process was facilitated by a UK-based service provider, ICSA Board Evaluation (‘ICSA’), which has an extensive record in facilitating Board evaluations in large listed companies both in Ireland and the UK. While ICSA is part of an organisation which also supplies software solutions to the Group, the Nomination and Corporate Governance Committee, which oversaw the external evaluation selection process, was satisﬁed that the annual value of the relevant contracts was not material to either CRH or ICSA. What was the outcome of the external Board evaluation carried out in 2012? The overall outcome of the assessment was very positive, with the Board’s performance being rated as “very good” on a six point scale, ranging from poor to excellent, as illustrated below. ICSA presented the outcome of the evaluation process to the Board and made eight recommendations to further improve the effectiveness of the Board. The recommendations related to the following: – enhancing the existing processes in place regarding strategy reviews, outcome tracking, Board renewal and Director development; – providing for an increased number of non-executive Director meetings without executives present; – taking fuller advantage of the opportunities afforded by Board visits for employee engagement; – rationalising Board documentation and updating Board protocols to take account of advances in technology and communications. A timetable for the implementation of the recommendations has been agreed by the Board. What are the requirements regarding Directors’ retirement and re-election? All Directors retire at each Annual General Meeting and, unless they are stepping down from the Board, submit themselves to shareholders for re-election. Re-appointment is not automatic. Directors who are seeking re-election are subject to a satisfactory performance appraisal. All Directors are subject to the Memorandum and Articles of Association of the Company (a summary of provisions in the Memorandum and Articles of Association relating to the Directors is set out on page 53). 42 CRH Induction Programme Board Members Topic Group strategy and ﬁnance: Group strategy, the current challenges facing the Group and the trading backdrop Financial reporting, trading results, acquisition models, funding sources/ debt maturity, group treasury and credit rating metrics Divisional strategy and structure: Divisional strategy and organisational structure Development priorities IT strategy Senior management team: Succession planning Leadership development programmes Remuneration trends Directors’ legal duties and responsibilities: Legal duties and responsibilities Management of inside information Dealings in CRH securities Listing rule requirements Sessions with Chief Executive, Chief Operating Ofﬁcer, Finance Director, Head of Group Finance, Group Treasurer Chief Executive, Heads of Divisions Chief Executive, Group Human Resources Director Finance Director, Company Secretary and the Group’s legal advisors Compliance and ethics, health and safety, investor relations and risk management: Compliance and ethics policies and the structures in place to ensure ongoing compliance Health and safety, including the fatality elimination programme, and the Group’s Corporate Social Responsibility policies Investor Relations programme and the views of the Group’s major investors CRH risk register, insurance arrangements and captive insurance programme Finance Director, Head of Compliance and Ethics, Head of Investor Relations, Group Sustainability Manager, Group Strategic Financial Risk Manager Audit Committee External Audit Audit planning Auditors’ responsibilities Internal Audit Strategy and workplan IT audit Outcome of 2012 External Board Evaluation Finance Director, Head of Internal Audit and External auditors 0-20 Poor 21-40 Below average 41-55 Fair 56-70 Good 71-90 Very good 91-100 Excellent Corporate Governance Report | continued Typical Board Agenda Items Recurring items on each agenda: – Minutes – Board matters (including Board Committee updates) – Trading results and cost saving initiatives – Acquisitions Periodic agenda items during the year: – Full-year/Interim ﬁnancial results and reports – Group budget – Group strategy and Divisional strategy updates – Performance review of acquisitions against the original Board proposal following three years of Group ownership – Human resources and succession planning – Risk management and internal controls – Compliance and ethics – Health and safety review, with a particular focus on the Group’s fatality elimination programme – Environmental review – Investor interaction and feedback How often does the Board meet? There were eight full meetings of the Board during 2012. Details of Directors’ attendance at those meetings are set out in the table on page 51. Each year additional meetings to consider speciﬁc matters are held when and if required. How are Board agendas determined? The Chairman sets the agenda for each meeting, in consultation with the Chief Executive and Company Secretary. Board agendas typically cover items set out in the table to the right. The non-executive Directors generally meet before or after each Board meeting without executives being present. Are the Directors subject to securities dealing policies or codes? Details of the CRH shares held by Directors are set out on page 67. CRH has a policy on dealings in securities that applies to all Directors and senior management. Under the policy, Directors are required to obtain clearance from the Chairman and Chief Executive before dealing in CRH securities. Directors and senior management are prohibited from dealing in CRH securities during designated periods and at any time that the individual is in possession of inside information (as deﬁned in the Market Abuse (Directive 2003/6/EC) Regulations 2005). The policy adopts the terms of the Model Code, as set out in the Listing Rules published by the UK Listing Authority (which has been amended in relation to Irish company law and taxation references). What are the Committees of the Board? The Board has established ﬁve permanent Committees to assist in the execution of its responsibilities. These are the Acquisitions Committee, the Audit Committee, the Finance Committee, the Nomination and Corporate Governance Committee and the Remuneration Committee. 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 current membership of each Committee and each member’s length of service is set out on page 37. Attendance at meetings held in 2012 is set out in the table on page 51. Chairmen of the Committees attend the Annual General Meeting and are available to answer questions from shareholders. CRH 43 Jan Maarten de Jong Committee Chairman Ernst Bärtschi Heather Ann McSharry Audit Committee Chairman’s overview The Audit Committee currently consists of three non-executive Directors, considered by the Board to be independent. As can be seen from the biographical details on pages 36 and 37, the members of the Committee bring to it experience and expertise from a wide range of industries, including ﬁnancial services and sectors closely related to building materials. The role and responsibilities of the Committee are summarised on page 46 along with the typical calendar of meetings. I would like to thank my colleagues on the Committee, senior management and the auditors for their signiﬁcant commitment to the efﬁcient and effective operation of the Committee. Ernst Bärtschi and Heather Ann McSharry joined the Committee in March 2012. They participated in an induction programme for new Audit Committee members, details of which are set out on page 42. Dan O’Connor stepped down from the Committee on his appointment as Senior Independent Director in May 2012 and I would like to express my sincere appreciation to Dan for his signiﬁcant contribution to the work of the Committee since his appointment in 2006. Ernst Bärtschi and I have been determined by the Board to be the Committee’s ﬁnancial experts. Review of Principal Activities in 2012 The Committee met nine times during the course of 2012. The external auditors attend the majority of Committee meetings and report on any issues they believe should be brought to the attention of the Committee; in addition, they have direct access to me as Chairman at all times. In 2012, the Committee met with the Head of Internal Audit and with the external auditors in the absence of management. 44 CRH Audit Committee’s time allocation in 2012 4% 2% 26% 26% 17% 25% Financial reporting/results announcements/ impairment/audit results External auditors: planning; independence; management letters Internal audit/IT/control environment Internal controls and risk management/ enterprise risk management/pensions Compliance and ethics/governance developments Review of Committee’s performance The work of the Committee is outlined on page 46. During 2012, we gave particular emphasis to the following matters: – the impairment charges recorded in the 2012 ﬁnancial statements, in particular, in respect of the Group’s minority stake in Corporación Uniland, S.A. (‘Uniland’). For further details, please see note 10 to the ﬁnancial statements on page 90; – the models used for, and the outcome of, the goodwill impairment and sensitivity analysis referred to in note 15 to the ﬁnancial statements; – the plans and initiatives in place to mitigate the Group’s pension scheme liabilities; – the implementation of signiﬁcant IT projects across the Group; – the Group’s enterprise risk management systems; – the rules of the Public Company Accounting Oversight Board (‘PCAOB’) and, in particular, the potential effects on auditor independence of Ernst & Young providing those tax-related services included in the Group’s policy on non-audit services. The Committee also met with senior ﬁnance personnel from the Group’s operations to discuss inter-alia, internal audit review ﬁndings, the implementation of resulting changes to control structures, work in relation to improving the control environment in each Division, co-ordination with the work of the external auditors and actions being taken to prevent fraud. In addition, the Committee met with the Head of Compliance and Ethics to review the Group’s compliance and ethics programme, including the compliance organisation, new or revised codes and policies and the core training modules (incorporating Code of Business Conduct, Anti-Bribery Corruption & Fraud and Competition Law). As part of its response to the difﬁcult trading conditions in recent years, the Group has implemented a programme of cost savings and has periodically announced updates on the annualised savings under that programme. The Head of Internal Audit reviews these savings, and the related implementation costs, and reports his ﬁndings each year to the Committee. Governance developments Updates to the UK Corporate Governance Code, which are effective for accounting periods beginning on or after 1 October 2012, were published in September 2012. Among the changes introduced in the revised Code was a requirement that FTSE350 companies should put the external audit out to tender at least once every 10 years. To avoid any major disruptions to the audit market resulting from a large number of companies tendering at the same time, the UK Financial Reporting Council (FRC) has suggested some transitional arrangements whereby the timing of audit tenders would be aligned with the cycle for rotating the audit engagement partner, which for CRH would be after the 2015 audit. We will consider the new provisions in detail during the course of 2013, when forthcoming additional guidance on this matter is published by the FRC. We also await, with interest, clariﬁcation on EU proposals in the area of audit tenure, which may require mandatory audit rotation after a set period. Other changes to the UK Corporate Governance Code included revised provisions regarding reporting to the Board and to shareholders. Terms of reference In order to take account of the updates to the UK Corporate Governance Code referred to above, the Committee’s Terms of Reference have been updated. Jan Maarten de Jong Audit Committee Chairman February 2013 CRH 45 Corporate Governance Report | continued Role and Responsibilities The primary responsibilities of the Audit Committee are to: Typical Audit Committee Calendar Date Activity – monitor the ﬁnancial reporting process, the February integrity of the ﬁnancial statements, including the Annual and Interim Reports, preliminary results announcements, interim management statements and any other formal announcement relating to the ﬁnancial performance of the Company, and to review signiﬁcant ﬁnancial reporting issues and judgements which they contain; – monitor the audit of the ﬁnancial statements; – keep under review the effectiveness of the Company’s internal controls and the internal control and risk management systems and review and approve statements to be included in the Annual Report regarding internal control and risk management; – review the Company’s arrangements for its employees to raise concerns, in conﬁdence, about possible wrongdoing in ﬁnancial reporting or other matters and review the Company’s procedures and systems for detecting fraud and preventing bribery; – keep under review the adequacy of the Group’s compliance function; – monitor and review the effectiveness of the internal audit function; – review the effectiveness of the audit process and the independence and objectivity of the external auditors; – develop and monitor the policy on non-audit services to be provided by the external auditors; – approve the remuneration and terms of engagement of the external auditors; – make recommendations to the Board in relation to the appointment or removal of the external auditor (see provisions regarding the re- appointment of auditors under Irish company law which are referred to on page 47). The responsibilities of the Audit Committee are set out in full in its terms of reference, which are available on the CRH website. A typical calendar of meetings for the Audit Committee, which includes a general outline of the main agenda items, is set out above. The Finance Director, Head of Group Finance and the Head of Internal Audit generally attend Committee meetings. The external auditors, Ernst & Young, attend the majority of meetings. Other attendees are noted against the relevant agenda item. Internal Audit The Head of Internal Audit attends the majority of the meetings of the Audit Committee. The Committee agrees the Internal Audit strategy, its 46 CRH Attendees by invitation Chief Executive – Consideration of the ﬁnancial Statements (including report from the external auditors on Integrated Audit Results and Communications) – Approval of external audit fee – Internal Audit review of savings announced under the Group’s cost reduction programme – Annual assessment of risk management and internal control systems Group Strategic Financial Risk Manager – Approval of Internal Audit workplan – Review of reports on the operation of the CRH Code of Business Conduct, the Competition/ Anti-trust Compliance Code and the arrangements in place to enable employees to raise concerns, in conﬁdence, in relation to possible wrongdoing in ﬁnancial reporting or other matters Head of Compliance and Ethics March – Review of Annual Report on Form 20-F May July – Review of interim management statement* Chairman, Chief Executive – Preliminary consideration of interim results Chief Executive – Approval of the external audit plan – Updates on accounting and auditing developments – Update on Internal Audit work/activities August – Review of interim results announcement Chairman, Chief Executive September – Meeting with senior ﬁnance personnel from the Senior ﬁnance personnel Americas Divisions – Preliminary review of goodwill impairment and sensitivity analysis October – Meeting with senior ﬁnance personnel from the Senior ﬁnance personnel European Divisions – Preliminary review of interim management statement November – Review of interim management statement* Chairman, Chief Executive December – Review of outcome of goodwill impairment and sensitivity analysis – Update on Internal Audit work/activities – Approval of non-audit fees provided by external auditors * A Committee of the Group Chairman, Audit Committee Chairman, Chief Executive and Finance Director are authorised from time to time to review and approve the release of interim management statements. charter and the annual workplan, which is developed on a risk-based approach. In recent years there has been a signiﬁcant increase in the resources allocated to IT Audit. The Committee meets regularly with the senior IT Audit Manager to discuss IT Audit strategy, the key areas of focus and agrees the annual IT Audit workplan. The Head of Internal Audit reports to the Audit Committee on the ﬁndings of internal audit reviews and related follow-ups and the outcome of control testing in connection with Section 404 of the Sarbanes- Oxley Act 2002. Assessments of the Internal Audit function are carried out periodically by management and validated by an independent third party assessor. The most recent assessment was conducted in late-2009, during which no major weaknesses were identiﬁed; the assessment did result in a number of recommendations, most of which have been implemented, and the Committee receives updates on the status of the implementation of the remaining recommendations. Corporate Governance Report | continued Risk management and internal controls Percentage of Audit and Non-audit Fees (see note 4 to the ﬁnancial statements) The Board has delegated responsibility for monitoring the effectiveness of the Group’s risk management and internal control systems to the Audit Committee. Further details in relation to the Committee’s work in this area are set out in the section on Risk Management and Internal Controls on pages 50 and 51. 2012 2011 2010 81% 81% 78% 19% 19% 22% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Audited services Non-audited related services External auditors: appointment, tenure and independence Under its terms of reference, the Audit Committee makes recommendations to the Board in relation to the appointment of the external auditors. The factors taken into account by the Audit Committee in assessing whether to recommend the auditors for re-appointment are: – the quality of reports provided to the Audit Committee and the Board; – the quality of advice given by the auditors; – the level of understanding demonstrated of the Group’s business and industry; – the objectivity of the auditors’ views on the ﬁnancial controls around the Group and their ability to co-ordinate a global audit; – the results of formal evaluations of the auditors. Section 160(2) of the Companies Act, 1963 provides that the auditor of an Irish company shall be automatically re-appointed at a company’s annual general meeting unless the auditor has given notice in writing of his unwillingness to be re-appointed or a resolution has been passed at that meeting appointing someone else or providing expressly that the incumbent auditor shall not be re-appointed. In this respect, Irish company law differs from the requirements that apply in other jurisdictions, for example in the UK, where auditors must be re-appointed annually by shareholders at the annual general meeting. Therefore, the Directors have not proposed a resolution to re-appoint Ernst & Young, Chartered Accountants, who are willing to continue in ofﬁce, as such a resolution can have no effect under Irish company law. A resolution authorising the Directors to ﬁx the remuneration of the auditors will be submitted to the Annual General Meeting. Ernst & Young have been the Group’s auditors since 1988. Following an evaluation carried out in 2009, the Committee recommended to the Board that Ernst & Young be retained as the Group’s external auditors. The Committee monitors the implementation of the recommendations made as part of the evaluation process. There are no contractual obligations which act to restrict the Audit Committee’s choice of external auditor. The Committee has considered the risk of withdrawal by Ernst & Young from the market and the potential impact on the Group, were that eventuality to materialise. The Audit Committee has put in place safeguards to ensure that the independence of the audit is not compromised. Such safeguards include: – seeking conﬁrmation from the external auditors that they are, in their professional judgement, independent from the Group; – obtaining from the external auditors an account of all relationships between the auditors and the Group; – monitoring the Group’s policy prohibiting the employment of former staff of the external auditors, who were part of the CRH audit team, in senior management positions until two years have elapsed since the completion of the audit; – monitoring the number of former employees of the external auditors currently employed in senior positions in the Group and assessing whether those appointments impair, or appear to impair, the auditors’ judgement or independence; – considering whether, taken as a whole, the various relationships between the Group and the external auditors impair, or appear to impair, the auditors’ judgement or independence; – reviewing the economic importance of the Group to the external auditors and assessing whether that importance impairs, or appears to impair, the external auditors’ judgement or independence. The Group external audit engagement partner is replaced every ﬁve years and other senior audit staff are rotated every seven years. The Group has a policy governing the conduct of non-audit work by the auditors. The policy, which was updated in 2012, is available on the CRH website. Under the policy, the external auditors are prohibited from performing services where they: – may be required to audit their own work; – participate in activities that would normally be undertaken by management; – are remunerated through a “success fee” structure; – act in an advocacy role for the Group. Other than the above, the Group does not impose an automatic ban on the external auditors undertaking non-audit work. The external auditors are permitted to provide non-audit services that are not, or are not perceived to be, in conﬂict with auditor independence, provided they have the skill, competence and integrity to carry out the work and are considered by the Committee to be the most appropriate to undertake such work in the best interests of the Group. The engagement of the external auditors to provide any non-audit services must be pre- approved by the Audit Committee or entered into pursuant to pre-approval policies and procedures established by the Committee. The pre-approval policy speciﬁes the services that are prohibited and the services which have general pre-approval. The Committee has delegated to the Finance Director responsibility for conﬁrming whether a service which has general pre-approval can be provided by Ernst & Young. In addition, Internal Audit reviews the pre-approval process to ensure that it is robust in addressing the requirements of the PCAOB and does not impinge on Ernst & Young’s independence. The Finance Director reports regularly to the Committee on services which have been approved. In 2012, the external auditors provided a number of audit-related, including Sarbanes-Oxley Section 404 attestation, and non-audit services, including due diligence services associated with proposed acquisitions and disposals. They were also engaged during 2012 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 Audit 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 Ernst & Young for non-audit work, which amounted to 19% of the total fee in 2012, 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 ﬁnancial statements on page 86. CRH 47 Nicky Hartery Committee Chairman Bill Egan John Kennedy Dan O’Connor Nomination and Corporate Governance Committee Chairman’s overview The Nomination and Corporate Governance Committee consists of four non-executive Directors, all of whom are considered by the Board to be independent. Our primary responsibilities are to assist the Board in relation to the composition of the Board and its Committees, ensuring phased renewal and refreshment and overseeing succession planning for the Board and for senior management. To facilitate the search for suitable candidates to serve as non-executive Directors, the Committee uses the services of independent consultants. When prospective candidates have been identiﬁed, each member of the Committee meets with them. In addition, we keep corporate governance developments under review and make recommendations to the Board when action is required. We consult the Chief Executive on issues considered by the Committee and he is invited to attend meetings of the Committee, when appropriate. Further details regarding the operation of the Committee are set out in the Role and Responsibilities section on page 50. In the past 12 months, we have allocated our time broadly as set out in the panel opposite. As reported in the 2011 Corporate Governance Report, the Committee recommended to the Board that Heather Ann McSharry be appointed as a non-executive Director in February 2012 and the Committee led the process which resulted in my appointment as Chairman in May 2012. During the remainder of 2012 and in the year to date, we have continued to work with various recruitment agencies in relation to the ongoing process of Board renewal and refreshment. Bill Egan and Jan Maarten de Jong were appointed to the Board in 2007 and 2004 respectively. Following a comprehensive performance review, on the recommendation of the Committee, the Board has asked Bill to continue on the Board for a third three year term and Jan Maarten has been asked to serve a further period of one year, with the position to be reviewed in 2014. Jan Maarten de Jong joined the Audit Committee in 2004 and has acted as its Chairman since 2007. 48 CRH Nomination and Corporate Governance Committee’s time allocation in 2012 5% 20% 10% 65% Board renewal/succession planning/ Committee composition Board evaluation Corporate governance developments/report to shareholders Review of Committee’s performance In accordance with its terms of reference, he will step down as a member of the Audit Committee following the Annual General Meeting in May 2013. On the recommendation of the Nomination and Corporate Governance Committee the Board has appointed Ernst Bärtschi to succeed Jan Maarten as Audit Committee Chairman. Ernst has been a member of the Audit Committee since March 2012 and is one of that Committee’s designated ﬁnancial experts. We will be reviewing the membership of the Audit Committee in the coming months. As reported to shareholders in the 2011 Annual Report, we recommended that the Board appoint a UK-based service provider to facilitate the external evaluation of the Board. The Committee agreed the terms of reference of the chosen provider, ICSA Board Evaluation (ICSA). The outcome of the evaluation and ICSA’s recommendations are set out on page 42. The next external evaluation will be carried out in 2015. We also considered developments in the area of corporate governance. In relation to the changes to the UK Corporate Governance Code published by the FRC in September 2012 and which will apply to CRH for the ﬁnancial year ending on 31 December 2013, we have considered whether the Audit Committee should undertake additional work to provide advice to the Board on whether the Annual Report and accounts, taken as a whole, is fair, balanced and understandable. We concluded that, at present, this should remain the collective responsibility of the full Board. However, this matter will be kept under review. Key areas of focus for 2013 During 2013 we will continue our work on Board renewal and refreshment. In addition, we will monitor developments in the EU regarding the implementation of the corporate governance plan announced in December 2012. This may lead to the introduction of new measures aimed at enhancing transparency and increasing shareholder engagement, although some of the proposals cover issues where CRH already has suitable measures in place. Nicky Hartery Nomination and Corporate Governance Committee Chairman February 2013 CRH 49 Corporate Governance Report | continued Role and Responsibilities Remuneration Committee Acquisitions Committee Under its terms of reference, the Nomination and Corporate Governance Committee is responsible for: – regularly reviewing the size, structure and composition (including skills, knowledge, experience and diversity) of the Board and making recommendations to the Board regarding any changes; – giving consideration to succession planning for Directors and senior executives; – identifying and recommending candidates to ﬁll Board vacancies; – in respect of the appointment of a chairman, preparing a job speciﬁcation including the time commitment expected; – keeping under review the leadership needs of the organisation; – approving the terms of reference for external board evaluations; – keeping under review corporate governance developments with the aim of ensuring that CRH’s governance policies and practices continue to be in line with best practice; – ensuring that the principles and provisions set out in the UK Code (and any other governance code that applies to the Company) are observed; – reviewing the disclosures and statements made in the Corporate Governance Report to shareholders. The Committee reviewed its terms of reference in December 2012 and proposed minor updating amendments, which the Board approved. The factors taken into account by the Nomination and Corporate Governance Committee in considering the composition of the Board are set out in the policy for Board renewal which is detailed on page 41. The Committee establishes processes for the identiﬁcation of suitable candidates for appointment to the Board and oversees succession planning for the Board and senior management. As referred to in the section dealing with the independence of non-executive Directors on page 41, each year the Committee reviews details of the non-CRH directorships of each Director, including any relationship between those companies and the Group. The Committee also reviews any business relationships between individual Board members. 50 CRH The Report on Directors’ Remuneration on page 54 contains an overview of the operation of the Remuneration Committee from Committee Chairman Dan O’Connor. The Acquisitions Committee has been delegated authority by the Board to approve acquisitions, divestments and capital expenditure projects within certain limits. Role and Responsibilities Finance Committee Under its terms of reference, the Remuneration Committee must be made up of at least three members, all of whom must be independent non-executive Directors. Members of the Committee can serve for up to a maximum of three terms of three years. The CRH Chairman may be a member of the Committee provided his/her tenure on the Board does not exceed 12 years. Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chairman, if not a member of the Committee, the Chief Executive, the Group Human Resources Director and external advisers may be invited to attend for all or part of any meeting as and when appropriate. The Chief Executive is fully consulted about remuneration proposals. The primary responsibilities of the Remuneration Committee are as follows: – to determine and agree with the Board the remuneration policy for the Chairman and executive Directors having regard to remuneration trends across the Group; – to recommend and monitor the level and structure of remuneration for senior management; – within the terms of the agreed policy and in consultation with the Chairman and/or Chief Executive, as appropriate, to determine the total remuneration package of the Chairman and each executive Director, including bonuses, incentive payments and share options or other share awards; – to approve the design of, and the targets and level of awards made under, the Group’s performance-related incentive plans; – to review the design of all share incentive plans for approval by the Board and shareholders; – to approve the vesting levels for share scheme awards; – to oversee any major changes to employee beneﬁt structures; – to authorise the release of deferred share awards; – to determine the policy for pension arrangements for executive Directors and senior management; – to establish the criteria for selecting, appointing and setting the terms of reference of remuneration consultants that advise the Committee. The Committee reviewed its terms of reference in December 2012 and proposed minor updating amendments, which the Board approved. The Finance Committee is responsible for: – advising the Board on the ﬁnancial requirements of the Group and on appropriate funding arrangements; – considering and making recommendations to the Board in relation to the issue and buy-back of shares and debt instruments and to the Group’s ﬁnancing arrangements; – considering and making recommendations to the Board in relation to dividend levels on the Ordinary shares; – keeping the Board advised of the ﬁnancial implications of Board decisions in relation to acquisitions; – assisting management, at their request, in considering any ﬁnancial or taxation aspect of the Group’s affairs; – reviewing the Group’s insurance arrangements. Risk Management and Internal Control The Board has delegated responsibility for the monitoring of the effectiveness of the Group’s risk management and internal control systems to the Audit Committee¹. Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and, in the case of internal control systems, can provide only reasonable and not absolute assurance against material misstatement or loss. The consolidated ﬁnancial statements are prepared subject to the oversight and control of the Finance Director, ensuring correct data is captured from Group locations and all required information for disclosure in the consolidated ﬁnancial statements is provided. An appropriate control framework has been put in place around the recording of appropriate eliminating journals and other adjustments. The consolidated ﬁnancial statements are reviewed by the CRH Financial Review and Disclosure Group prior to being reviewed by the Audit Committee and approved by the Board of Directors. The Directors conﬁrm that the Group’s ongoing process for identifying, evaluating and managing its principal risks and uncertainties (as outlined in the Directors’ Report on pages 68 and 69) is in accordance with the updated Turnbull guidance (Internal Control: Revised Guidance for Directors on the Combined Code) published in October 2005. The process has been in place throughout the accounting period and up to the date of approval of the Annual Report and ﬁnancial statements. ¹ In accordance with Section 91(6)(b) of the EC (Directive 2006/43) Regulations 2010 Corporate Governance Report | continued Group management has responsibility for major strategic development and ﬁnancing decisions. Responsibility for operational issues is devolved, subject to limits of authority, to product group and operating company management. Management at all levels is responsible for internal control over the business functions that have been delegated. This embedding of the system of internal control throughout the Group’s operations ensures that the organisation is capable of responding quickly to evolving business risks and that signiﬁcant internal control issues, should they arise, are reported promptly to appropriate levels of management. During the year, the Board and Audit Committee received, on a regular basis, reports from management on the key risks to the business and the steps being taken to manage such risks. They also considered whether the signiﬁcant risks faced by the Group were being identiﬁed, evaluated and appropriately managed, having regard to the balance of risk, cost and opportunity. In addition, the Audit Committee met with internal auditors on a regular basis and satisﬁed itself as to the adequacy of the Group’s internal control system; met with the Chairman of the Remuneration Committee to ensure that the Group’s remuneration policies and structures were in line with the Group’s “risk appetite” (which the Board has determined to be low) and reviewed the principal risks and uncertainties outlined in the Directors’ Report. The Audit Committee also met with, and received reports from, the external auditors. The Chairman of the Audit Committee reported regularly to the Board on all signiﬁcant issues considered by the Committee and the minutes of its meetings were circulated to all Directors. The Directors conﬁrm that, in addition to the monitoring carried out by the Audit Committee under its terms of reference, they have reviewed the effectiveness of the Group’s risk management and internal control systems up to and including the date of approval of the ﬁnancial statements. This had regard to all material controls, including ﬁnancial, operational and compliance controls that could affect the Group’s business. Compliance and Ethics The revised Code of Business Conduct was approved by the Board in February 2012, translated into 21 languages and distributed across the Group. It sets out clear guidelines on the application of the Group’s core values of integrity, honesty and respect for the law, requiring all employees to put business ethics at the forefront of dealings with customers, partners, suppliers and our communities and to treat all our people with respect and to embrace our responsibilities in the areas of health, safety and the environment. The Code of Business Conduct has been supplemented with the following new or updated policies: – Anti-Fraud Policy; – Competition/Anti-Trust Compliance Code; – Shares and Securities Dealing Policy; – Anti-Bribery Policy (in line with the requirements of the UK Bribery Act and the US Foreign Corrupt Practices Act); – Ethical Procurement Code; – Compliance and Ethics Mergers, Acquisitions and Joint Venture Due Diligence Programme. These codes and guidelines have been widely distributed across the Group with related training programmes underway. They have also been integrated into standard internal audit procedures and form part of an annual management certiﬁcation process. A multilingual 24/7 “hotline” facility is also in place as a secure channel for employees to report ethical issues that concern them or suspected violations of these codes. Attendance at Board and Board Committee meetings during the year ended 31 December 2012 Board Acquisitions Audit Finance Nomination Remuneration A B A B A 8 B 8 A B A B A B E. Bärtschi M. Carton W. Egan U-H. Felcht N. Hartery J.M. de Jong J. Kennedy M. Lee K. McGowan* H.A. McSharry** A. Manifold D. O’Connor M. Towe 8 8 8 8 8 8 8 8 2 8 8 8 8 8 8 8 7 8 7 8 8 2 8 8 8 8 5 4 3 5 2 5 5 5 2 3 5 2 5 5 5 5 3 5 2 3 5 5 3 5 2 3 1 9 8 3 1 8 8 3 4 4 4 1 1 2 4 4 4 1 1 2 4 4 4 4 4 4 2 2 Column A - indicates the number of meetings held during the period the Director was a member of the Board and/or Committee. Column B - indicates the number of meetings attended during the period the Director was a member of the Board and/or Committee. * Retired May 2012 ** Appointed February 2012 CRH 51 Corporate Governance Report | continued The Compliance and Ethics organisation supports these initiatives, with designated Compliance Coordinators in place in every market where CRH has a business presence. Their role is to support local management to ensure that the conduct of employees complies with the law and our codes, and to help sustain the overriding message that in CRH “there is never a right business reason to do the wrong thing”. Sustainability and Corporate Social Responsibility Sustainability and Corporate Social Responsibility (CSR) concepts are embedded in all CRH operations and activities. Excellence in the areas of health and safety, environment and climate change, governance, and people and community is a daily key priority of line management. The Group’s policies and implementation systems are summarised on page 6 and are described in detail in the Sustainability Report, which is typically published in June in respect of the previous calendar year and is available on the Group’s website. During 2012, CRH was again recognised by several leading socially responsible investment (SRI) agencies as being among the leaders in its sector in these areas. 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 different voting rights. Between 31 December 2012 and 25 February 2013, the Company has been advised that The Substantial Holdings Capital Group Companies, Inc. has decreased its holding to 28,182,547 (3.87%) and that BlackRock, Inc. has increased its holding to 35,977,552 (4.95%). Communications with Shareholders Communications with shareholders are given high priority and we communicate with shareholders in a number of ways. There is regular dialogue with institutional shareholders and proxy voting agencies, as well as presentations and webcasts at the time of the release of the annual and interim results. Conference calls are held following the issuance of interim management statements and major announcements by the Group, which afford Directors the opportunity to hear investors’ reactions to the announcements and their views on other issues. Interim management statements are issued in May and November. Major acquisitions are notiﬁed to the Stock Exchanges in accordance with the requirements of the Listing Rules. In addition, development updates, giving details of other acquisitions completed and major capital expenditure projects, are usually issued in January and July each year. In November, the Chairman and senior executives hosted a capital markets day for investors and sector analysts in London, which was repeated in New York. The day included presentations on various aspects of CRH’s operations and strategy, and provided an opportunity for investors and analysts to meet with CRH’s senior executive and divisional management team. The full suite of presentations and a video recording of executive presentations is available on the CRH website. During 2012, the Board received and considered reports on the issues raised by investors in the course of the presentations and meetings. News releases are made available in the Media section of the website immediately after release to the Stock Exchanges. Webcasts of key investor brieﬁngs are broadcast live and are made available as recordings in the Media section. In addition, we respond throughout the year to correspondence from shareholders on a wide range of issues. The Chief Executive presented an overview of CRH strategy to shareholders at the 2012 Annual General Meeting. General Meetings The Company’s Annual General Meeting (AGM), which is held in Ireland, affords individual shareholders the opportunity to question the Chairman and the Board. All Directors attended the 2012 AGM. The Notice of the AGM, which speciﬁes the time, date, place and the business to be transacted, is sent to shareholders at least 20 working days before the meeting. At the meeting, resolutions are voted on by way of a poll using an electronic voting system. The votes of shareholders present at the meeting are added to the proxy votes received in advance and the total number of votes for, against and withheld for each resolution are announced. This information is made available on the Company’s website following the meeting. All other general meetings are called Extraordinary General Meetings (EGMs). An EGM called for the As at 31 December 2012, the Company had received notiﬁcation of the following interests in its Ordinary share capital: Name 31 December 2012 31 December 2011 31 December 2010 Holding/Voting Rights % at year end Holding/Voting Rights % at year end Holding/Voting Rights % at year end BlackRock, Inc.* 28,961,677 3.98% 28,961,677 4.02% 28,235,082 3.98% The Capital Group Companies, Inc. (‘CGC’)** 35,763,581 4.92% - - - - Capital Research & Management Company (‘CRMC’)** - - 69,367,916 9.64% 77,242,667 10.89% Harbor International Fund Legal & General Group Plc 21,999,275 3.02% 21,999,275 3.05% 22,496,003 3.09% - - - - - - Norges Bank (The Central Bank of Norway) 21,543,277 2.96% 21,543,277 2.99% 21,707,149 3.06% Templeton Global Advisors Limited 21,503,171 2.96% 21,503,171 2.99% - - UBS AG 26,380,604 3.63% 26,380,604 3.66% 26,380,604 3.72% * 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. ** In 2012, CGC advised the Company that, with effect from 1 September 2012, the holdings of CRMC and Capital Group International, Inc. (‘CGII’), which were previously reported separately, would be reported in aggregate by CGC, the parent of both CRMC and CGII. 52 CRH to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the ﬁnancial statements. Compliance Statement In the period under review, CRH complied with the provisions of the 2010 UK Corporate Governance Code. The Company also complied with the rules issued by the United States Securities and Exchange Commission to implement the Sarbanes-Oxley Act 2002, in so far as they apply to the Group. Corporate Governance Report | continued passing of a special resolution must be called by at least 21 clear days’ notice. A quorum for a general meeting of the Company is constituted by ﬁve or more shareholders present in person and entitled to vote. The passing of resolutions at a meeting of the Company, other than special resolutions, requires a simple majority. To be passed, a special resolution requires a majority of at least 75% of the votes cast. Shareholders have the right to attend, speak, ask questions and vote at general meetings. In accordance with Irish company law, the Company speciﬁes record dates for general meetings, by which date shareholders must be registered in the Register of Members of the Company to be entitled to attend. Record dates are speciﬁed in the notes to the Notice of a general meeting. Shareholders may exercise their right to vote by appointing a proxy/proxies, by electronic means or in writing, to vote some or all of their shares. The requirements for the receipt of valid proxy forms are set out in the notes to the Notice convening the meeting and in the notes on the proxy form. A shareholder, or a group of shareholders, holding at least 5% of the issued share capital of the Company, has the right to requisition a general meeting. A shareholder, or a group of shareholders, holding at least 3% of the issued share capital of the Company, has the right to put an item on the agenda of an AGM or to table a draft resolution for inclusion in the agenda of a general meeting, subject to any contrary provision in Irish company law. alone and not jointly with any other person of 1,000 Ordinary Shares in the capital of the Company. A Director may act before acquiring his qualiﬁcation but must acquire the shares within two months of his/her appointment or election. Going Concern The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive’s Review and in the Directors’ Report on pages 13 to 15 and pages 68 to 70. The ﬁnancial position of the Company, its cash ﬂows, liquidity position and borrowing facilities are described in the Finance Review on pages 17 to 19. In addition, notes 21 to 25 to the ﬁnancial statements include the Company’s objectives, policies and processes for managing its capital; its ﬁnancial risk management objectives; details of its ﬁnancial instruments and hedging activities; and its exposures to credit, currency and liquidity risks. The Company has considerable ﬁnancial resources and a large number of customers and suppliers across different geographic areas and industries. In addition, the local nature of building materials means that the Group’s products are not usually shipped cross-border. Having assessed the relevant business risks, the Directors believe that the Company is well placed to manage these risks successfully and have a reasonable expectation that the Company, and the Group as a whole, have adequate resources Memorandum and Articles of Association Documents Available on Website The Company’s Memorandum of Association sets out the objects and powers of the Company. The Articles of Association detail the rights attaching to each share class; the method by which the Company’s shares can be purchased or re-issued and the provisions which apply to the holding of and voting at general meetings. Details of transactions in the Company’s own shares are included on pages 69 and 70 of the Directors’ Report. The Articles of Association also set out the rules relating to Directors, including their appointment, retirement, re-election, duties and powers. The Articles provide that no person other than a Director retiring at the meeting shall, unless recommended by the Directors, be eligible for election to the ofﬁce of Director at any General Meeting unless not less than seven nor more than 21 days before the day appointed for the meeting there shall have been left at the registered ofﬁce notice in writing, signed by a member duly qualiﬁed to attend and vote at the meeting for which such notice is given, of his intention to propose such person for election and also notice in writing signed by that person of his willingness to be elected. The Articles also require that the qualiﬁcation of a Director shall be the holding The following are available on the CRH website, www.crh.com: Corporate Governance section: – Terms of reference of Acquisitions Committee (amended December 2010) – Terms of reference of Audit Committee (amended December 2012) – Terms of reference of Finance Committee (amended February 2004) – Terms of reference of Nomination and Corporate Governance Committee (amended December 2012) – Terms of reference of Remuneration Committee (amended December 2012) – The Memorandum and Articles of Association of the Company – Pre-approval policy for non-audit services provided by the auditors – Compliance and ethics statement, Code of Business Conduct and Hotline contact numbers Investor’s section: – Annual and Interim Reports, the Annual Report on Form 20-F, the CSR Report, Interim Management Statements and copies of presentations to analysts and investors – News releases – Presentations and video recordings of executive presentations at capital markets days in London and New York in November 2012 – Webcast recordings of key investor 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 CRH 53 Dan O’Connor Committee Chairman Senior Independent Director Bill Egan Nicky Hartery John Kennedy Report on Directors’ Remuneration Remuneration Committee Chairman’s overview The Remuneration Committee currently consists of four non-executive Directors considered by the Board to be independent. I believe that the Directors’ biographical details, on pages 36 and 37, demonstrate that the members of the Committee bring the range of experience of large organisations and public companies, including experience in the area of senior executive remuneration, to enable the Committee to fulﬁl its role. Our main focus as a Committee is to determine and agree with the Board the Group’s policy on executive remuneration and to consider and approve salaries and other terms of the remuneration packages for the executive Directors and the Chairman. In addition, we recommend and monitor the level and structure of remuneration for senior management. We review, on an ongoing basis, the constituent elements of the Group’s remuneration policy and we oversee the preparation of this Report on Directors’ Remuneration. As a Committee, we focus on ensuring that CRH’s remuneration structures are fair and responsible. In considering remuneration levels for executive Directors particularly, we take into account remuneration trends across the Group, which has a diverse range of operations in 35 countries, in geographic regions which are often at different stages in the economic cycle. Additional details in relation to the Committee, its role and responsibilities and how it operates are included in the Remuneration Committee section of the Corporate Governance report on page 50. The Chief Executive attends meetings except when his own remuneration is being discussed. In the past 12 months the Remuneration Committee met ﬁve times. We allocated our time broadly as set out in the panel opposite. We considered the level of fees/salaries paid to the Chairman and the executive Directors and determined that, with effect from 1 January 2013: – the Chairman’s fees be restored to the level which applied in 2008; – the salaries paid to executive Directors be increased by between 2.6% and 3.8%. 54 CRH Remuneration Committee’s time allocation during 2012 2% 10% 20% 28% 40% Fee & salary reviews/annual bonus levels Share scheme operation/consultation/ awards/vesting levels Review of policy and remuneration trends Shareholder reporting/consultation Review of Committee’s performance Key areas of focus for 2013/2014 New regulations will come into force in the UK in 2013 in relation to remuneration, which will result in revised disclosure requirements for UK incorporated companies, a new requirement for a binding vote on remuneration policy and an advisory vote on the implementation of remuneration policy at annual general meetings. While CRH, as an Irish incorporated company, will not be subject to the new requirements, the Remuneration Committee is committed to ensuring that CRH’s remuneration structures and procedures remain at the forefront of best practice in this area and intends to implement the changes to the extent that they are not inconsistent with Irish company law. In the light of these changes, we have determined that it is an opportune time to undertake a review of CRH’s remuneration policy and, in particular, the Group’s share incentive plan arrangements to ensure they reﬂect current FTSE100 best practice in terms of structure and adaptability. As the outcome of the review is likely to result in either proposed amendments to the existing long-term share incentive plans or a new plan(s), a shareholder consultation process will be undertaken in the fourth quarter of 2013 in order that proposals can be submitted to shareholders for approval at the 2014 Annual General Meeting. Dan O’Connor Remuneration Committee Chairman February 2013 In 2008, the total remuneration paid to the CRH Chairman was €450,000. The then Chairman, Kieran McGowan, elected to take a voluntary 10% reduction in his fees to €405,000 in 2009. The Remuneration Committee acceded to this request at the time and the reduced annual fee was paid until Mr. McGowan retired from the Board in May 2012. Nicky Hartery’s fee level on his appointment was the same as that of the out-going Chairman. The Remuneration Committee re-considered the level of the Chairman’s remuneration during 2012 and requested analysis and advice from its remuneration consultant, Mercer. The Remuneration Committee considered the outcome of Mercer’s review in the context of CRH’s inclusion in the FTSE100 Index and concluded that the 2008 fee level should be restored. The Committee has also agreed with the Board that, going forward, the Chairman’s fees should be reviewed every three years. The salary increases for executive Directors, which for Irish-based executives have remained unchanged since 2009¹, are in line with general trends in CRH operations around the world. The members of the Remuneration Committee believe that the executive Directors’ salary increases are appropriate and measured. Nicky Hartery and Myles Lee were not present when their respective remuneration was discussed. We also determined the 2012 payment for each executive Director under the annual incentive plan; the structure of the plan is set out on page 58 of this report. The bonus levels for 2012 reﬂect for Maeve Carton, Myles Lee and Albert Manifold the achievement of individual strategic and personal goals and the continuing good performance in terms of Group cashﬂow generation, an important metric of the annual incentive plan since 2009. Mark Towe’s bonus similarly reﬂects the achievement of individual and strategic goals and a good cashﬂow generation performance, and also resulted from the improvement in the performance of the Americas Divisions, which led to a payout under the proﬁt and return on net assets metrics. ¹ with the exception of the Finance Director who was appointed in 2010 CRH 55 Report on Directors’ Remuneration | continued Remuneration Policy – reﬂect the risk policies of the Group. The Remuneration Committee’s approach to remunera- tion is to make sure that CRH’s pay structures are fair, responsible and competitive, in order that CRH can attract and retain staff of the calibre necessary for it to compete in all of its markets. When setting remuneration policy for executive Directors, the Remuneration Committee review and have regard to the remuneration trends across the Group. The Group’s remuneration structures are designed to drive performance and link rewards to responsibility and the individual contribution of executives. It is policy to grant participation in the Group’s performance-related plans to key management to encourage identiﬁcation with shareholders’ interests and to create a community of interest among different regions and nationalities. The purpose of this report is to: – set out the Group’s remuneration policy; – explain the purpose and link of each component of remuneration to the Group’s strategy; – outline the factors taken into account in salary reviews; – provide details in relation to the structure of the Group’s annual and share incentive plans. The report contains details of awards made to executive Directors under the Group’s share incentive plans and the level of vesting where relevant. Total remuneration paid to each Director in 2012, including the value of vested share awards, is set out on page 61. The policy on Directors’ remuneration, which is derived from the overall Group policy, is designed to: – help attract and retain Directors of the highest calibre who can bring their experience and independent views to the policy, strategic decisions and governance of CRH; – properly reward and motivate executive Directors to perform in the long-term interest of the shareholders; – provide an appropriate blend of ﬁxed and variable remuneration and short and long-term incentives for executive Directors; – complement CRH’s strategy of fostering entrepreneurship in its regional companies by rewarding the creation of shareholder value through organic and acquisitive growth; – reﬂect the spread of the Group’s operations so that remuneration packages in each geographical area are appropriate and competitive for that area; AGM Votes on Report on Directors’ Remuneration The Remuneration Committee has clawback arrange- ments in place. The Remuneration Committee has adopted a policy whereby executives are required to build-up (and maintain), within ﬁve years of appointment, a minimum holding in CRH shares which is equivalent to one times basic salary. For existing executive Directors this level must be achieved by 31 December 2015. The current shareholding levels as a multiple of basic salary are shown on page 61. In setting remuneration levels, the Remuneration Committee takes into consideration the remuneration practices of other international companies of similar size and scope and trends in executive remuneration generally in each of the regions in which the Company operates. The Remuneration Committee also takes into account the EU Commission’s recommendations on remuneration in listed companies. CRH actively engages with shareholders in relation to the design of share plans and the Remuneration Committee takes into account shareholder views generally regarding remuneration levels. In addition, the Remuneration Committee believes that shareholders are entitled to have an annual “say on pay” and, accordingly, although not required under Irish company law, the Report on Directors’ Remuneration has been presented to shareholders at Annual General Meetings since 2010 for the purposes of an advisory vote. The votes cast on the Report on Directors’ Remuneration are set out in the table below. Remuneration Consultants The Remuneration Committee receives advice from Mercer, a leading compensation and beneﬁt consultant. Mercer also provides actuarial advice to the Group and they are actuaries and investment advisers to a number of the Group’s pension schemes. Risk Policies and Systems The Chairman of the Remuneration Committee meets with the Audit Committee annually to review the Group’s remuneration structures and to ensure they are in line with its risk policies and systems. Executive Directors’ Remuneration The typical elements of the remuneration package for executive Directors are set out in the table opposite. Each component is also outlined in detail on pages 58 to 60. 2012 2011 2010 96.6% 96.4% 98.5% 3.4% 3.6% 1.5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% For Against 56 CRH Report on Directors’ Remuneration | continued Remuneration components Component Purpose and link to strategy Operation Metrics Opportunity (i) Basic Salary and Beneﬁts Competitive salaries and beneﬁts help to attract and retain staff with the experience and knowledge required to enable the Group to compete in its markets Reviewed annually; changes are generally effective on 1 January Set by reference to competitive market practice Employment-related beneﬁts include the use of company cars, medical/life assurance and relocation costs, where necessary (ii) Annual Performance- related Incentive Plan The annual incentive plan drives and rewards the achievement of Group and personal targets. A deferral element ties the portion of any annual reward exceeding target performance to the longer-term performance of the CRH share price and aligns executives with shareholder interests (iii) Chief Executive long-term incentive plan (LTIP) The purpose of the LTIP is to incentivise superior performance over the long term and the successful execution of Group strategy (iv) Participation in long-term share incentive plans (Share Plans) The performance metrics for the long-term share incentive plans align executives with shareholder interests, incentivise long-term superior performance and help attract and retain key executives (v) Pension Arrangements Pension arrangements provide competitive and appropriate retirement plans Target performance is 80% of basic salary (90% for US-based executives) Payouts in excess of target are deferred for three years and payable in CRH shares The LTIP, which covers the ﬁve-year period 2009-2013, follows the same structure for LTIPs put in place for previous CRH chief executives Any payments under the plan will be made in cash and will not be pensionable. While accruals are made on an annual basis, there is no commitment to any payment until after the end of the ﬁve-year period Involves conditional awards of shares and share options. Executive Directors receive awards under both share plans The vesting period for the Share Plans is three years Awards are made annually after the ﬁnal results announcement The percentage of share capital which can be issued complies with institutional guidelines Irish-based executive Directors participate in a deﬁned beneﬁt scheme. With effect from 1 January 2012, the deﬁned beneﬁt schemes are based on career average salary. The deﬁned beneﬁt scheme which the Directors participate in is closed to new entrants US-based executive Director participates in a deﬁned contribution scheme and in an unfunded Supplemental Executive Retirement Plan Consideration is given to: (i) scope of role and responsibility; (ii) personal performance; (iii) company performance; (iv) step changes in responsibility; (v) experience; (vi) potential retention issues; (vii) remuneration trends across the Group Set at a level which the Committee considers appropriate taking into consideration the individual’s skills, experience and performance and to ensure it is appropriately positioned against peers. This will be sufﬁcient to attract and retain directors of required quality but the Committee avoids paying more than is necessary for this purpose Maximum payout of 1.5 times target, i.e. 120% (135% for US based executives) The total maximum earnings potential is 40% of aggregate basic salary The performance-related incentive plan is based on achieving clearly deﬁned and stretch annual targets and strategic goals c. 80% of the plan is weighted towards the achievement of ﬁnancial and return targets while c. 20% relates to personal/ strategic goals The LTIP incorporates challenging goals in respect of: (i) TSR by comparison with a peer group; (ii) (iii) growth in earnings per share; and the strategic development of the Group. The 2006 Performance Share Plan (PSP) is TSR-based, while the 2010 Share Option Scheme (Option Scheme) is EPS-based The metrics applied for awards under PSP and the Option Scheme are set out on pages 59 and 60 PSP: 150% of basic salary Option Scheme: Currently limited to 150% of basic salary; no award since the approval of the Option Scheme by shareholders has exceeded that threshold Not applicable Two thirds of career average salary at retirement for full service CRH 57 Report on Directors’ Remuneration | continued (i) Basic salary and beneﬁts The basic salaries of executive Directors are reviewed annually. The factors taken into account in the annual review are set out in the table on page 57. Basic salary for Irish-based executives has remained unchanged since 2009 (with the exception of the Finance Director who was appointed in 2010). The Remuneration Committee reviewed salary levels in early-2013 and determined that salary increases for executive Directors in the range of 2.6% to 3.8% were appropriate. The increases, which are effective from 1 January 2013, are in line with general trends in CRH operations around the world. The salary increases are set out in the upper table. As reported to shareholders in the 2011 Report on Directors’ Remuneration, Mark Towe received an increase in US Dollars in 2012, which was broadly in line with trends in senior executive remuneration in the US. Employment-related beneﬁts include the use of company cars, medical/life assurance and relocation costs, where necessary. No fees are payable to executive Directors. (ii) Performance-related incentive plan The structure of CRH’s annual incentive scheme is set out in the middle table. Performance-related rewards, based on measured targets, are a key component of CRH’s remuneration structure. The Annual incentive plan is designed to reward the creation of shareholder value through operational excellence, organic and acquisitive growth. The bonus levels for 2012 reﬂect for Maeve Carton, Myles Lee and Albert Manifold the achievement of individual strategic and personal goals and the continuing good performance in terms of Group cashﬂow generation, an important metric of the annual incentive plan since 2009. Mark Towe’s bonus level similarly reﬂects the achievement of individual and strategic goals and a good cashﬂow generation performance, and also resulted from the improvement in the performance of the Americas Divisions, which led to a payout under the proﬁt and return on net assets metrics. As the 2012 bonus levels were less than Target Performance, the payment is entirely in cash. The bonus outcome for 2012 is summarised in the lower table. (iii) Chief Executive long-term incentive plan (LTIP) In addition to the annual performance incentive plan, the Chief Executive, Myles Lee, has a special long-term incentive plan (LTIP) incorporating targets set for the ﬁve-year period 2009-2013. The plan, the structure of which is the same as for LTIPs put in place for previous CRH chief executives, incorporates 58 CRH Outcome of Executive Director Salary Review Executive Director M. Carton, Finance Director M. Lee, Chief Executive A. Manifold, Chief Operating Ofﬁcer M. Towe, Chief Executive Oldcastle, Inc.* * in US Dollars Annual Incentive Plan Components: (i) Personal, safety and strategic goals } 20% individual Approx. weighting } 80% proﬁts, cashﬂow and returns (ii) Proﬁt and EPS growth targets (iii) Cash ﬂow generation targets (iv) Return on net assets targets Target Performance: Europe-based executive Directors – 80% of basic salary US-based executive Directors – 90% of basic salary Deferral Element: % Increase 2013/12 % Increase 2012/11 3.6% 2.6% 3.1% 3.8% 0.0% 0.0% 0.0% 4.0% The performance-related incentive plan is totally based on achieving clearly deﬁned and stretch annual targets and strategic goals A maximum payout of 1.5 times these levels (i.e. 120%/135%) is payable for a level of performance well in excess of target – Any portion of the annual bonus that exceeds Target Performance is deferred (i.e. up to 1/3 of the annual bonus) – The deferred bonus is payable in CRH shares which are held in trust for 3 years, after which executives are entitled to beneﬁcial ownership of the shares – Depending on the circumstances, leavers may forfeit deferred shares 2012 Bonus Levels Executive Director Salary % Payout Metrics M. Carton, Finance Director 33.3% Group cashﬂow; achievement of personal and strategic goals M. Lee, Chief Executive 33.3% Group cashﬂow; achievement of personal and strategic goals A. Manifold, Chief Operating Ofﬁcer 33.3% Group cashﬂow; achievement of personal and strategic goals M. Towe, Chief Executive Oldcastle, Inc. 70% Americas cashﬂow, proﬁt and return on net assets; achievement of personal and strategic goals challenging goals in respect of Total Shareholder Return by comparison with a peer group, growth in earnings per share and the strategic development of the Group, with a total maximum earnings potential of 40% of aggregate basic salary. The purpose of the LTIP is to incentivise superior performance by the Group over the long term and the successful execution of Group strategy. Any payments under the plan will be made in cash and will not be pensionable. While accruals are made on an annual basis, there is no commitment to any payment until after the end of the ﬁve-year period. Report on Directors’ Remuneration | continued (iv) Share Plans Long-term incentive plans involving conditional awards of shares and share options are a common part of executive remuneration packages, motivating high performance and aligning the interests of executives and shareholders. 2006 Performance Share Plan The Performance Share Plan (PSP), which was approved by shareholders in May 2006, is tied to Total Shareholder Return (TSR). The structure of the PSP is as follows: – Awards are made in the form of conditional shares; – Half of the award is assessed against TSR for a group of global building materials companies and the other half against TSR for the constituents of the Euroﬁrst 300 Index; – The vesting period is 3 years; vesting only occurs once an initial TSR performance target has been reached and, thereafter, is dependant on performance; – The maximum award under the PSP is 150% of basic salary per annum; – Participants are not entitled to any dividends (or other distributions made) and have no right to vote in respect of the shares subject to the award, until such time as the shares vest. The Scheme currently has approximately 160 active participants. The performance criteria for the Performance Share Plan are set out in the upper table. Details of awards to Directors under the Plan are provided on page 65. In 2012, awards made to Directors ranged between 125% and 140% of basic salary. Awards levels for 2013 are expected to be broadly similar. The rules of the Performance Share Plan provide that no award, or portion of an award, which has satisﬁed the TSR performance criteria should be released unless the Remuneration Committee has conﬁrmed the validity of the TSR performance and reviewed EPS performance to assess its consistency with the objectives of the assessment. During 2012, the Remuneration Committee determined that 16.6% of the award made under the Performance Share Plan in 2009 had vested. The Company’s TSR performance, which was veriﬁed by the Remuneration Committee’s remuneration consultants, was between the 50th and the 75th percentiles referred to above when assessed against the building materials sector (as set out in the two centre tables above), while TSR performance was below the median in relation to the Euroﬁrst 300 Index. Prior to making its vesting determination in each case, the Remuneration Committee satisﬁed itself that the TSR outcome was valid and had not been signiﬁcantly affected by unusual events or extraneous factors. Performance Share Plan (PSP) Metrics 3-year TSR* performance compared to peer group/ Euroﬁrst 300 Index Equal to or greater than 75th percentile Vesting level 100% Between 50th and 75th percentile Straight line between 30% and 100% Equal to 50th percentile Below 50th percentile 30% 0% * The methodology for calculating TSR assumes all dividends are reinvested on the ex-dividend date at the closing share price on that day; the open and close price is based on the closing price on the last day before the start of the performance period and the ﬁnal day of the performance period respectively. TSR Performance Tests for PSP Award which Vested in 2012 Peer Group Test (below): Euroﬁrst 300 Index Test: Total Vested/Lapsed in 2012: TSR performance 2009-2011: Between 50th & 75th Percentile TSR performance 2009-2011: Below Median – 16.6% vested – 0% vested – 33.4% lapsed – 50% lapsed Vested: 16.6% Lapsed: 83.4% Peer group used to assess TSR performance for PSP Award which Vested in 2012 Boral Buzzi Unicem Cemex Home Depot Italcementi Titan Cement Travis Perkins Kingspan Group Vulcan Materials Grafton Group Lafarge Weinerberger Heidelberg Cement Martin Marietta Materials Wolseley Holcim Saint Gobain The above peer Group applies for the awards made in 2010 to 2012 inclusive and will apply for the award made in 2013. Historic Vesting of PSP Awards 2006 award; vested/lapsed in 2009 75.0% 25.0% 2007 award; vested/lapsed in 2010 2008 award; vested/lapsed in 2011 50.0% 46.2% 50.0% 53.8% 2009 award; vested/lapsed in 2012 16.6% 2010 award; vested/lapsed in 2013 83.4% 100% Average vested/lapsed 37.6% 62.4% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Vested Lapsed In February 2013, the Remuneration Committee determined that the award made under the Performance Share Plan in 2010 had lapsed as, over the three-year period 2010 - 2012, CRH’s TSR performance was below the median of both the peer group and the Euroﬁrst 300 Index. CRH 59 Report on Directors’ Remuneration | continued Share Option Scheme Metrics Compound EPS* growth performance over three years (per annum) 2013/2012 Award 2011/2010 Award Equal to or greater than 20% Equal to or greater than 27.5% Between 13% and 20% Between 10% and 13% Equal to 10% Less than 10% Between 17.5% and 27.5% Between 12.5% and 17.5% Equal to 12.5% Less than 12.5% Vesting Level 100% Straight line between 40% and 100% Straight line between 20% and 40% 20% 0% * The EPS ﬁgure used for the purposes of the 2010 Scheme is the basic consolidated earnings per share of the Company for the accounting period concerned as shown in the Annual Report issued by the Company for that accounting period. 2010 Share Option Scheme At the 2010 Annual General Meeting, shareholders approved the introduction of the current Earnings Per Share (EPS) based share option scheme (the 2010 Scheme) with 97.5% of the votes cast in favour of the 2010 Scheme. The structure of the 2010 Scheme is set out below: – Options are granted at the market price of the Company’s shares at the time of grant; – To ensure transparency, grants are made after the ﬁnal results announcement; – The 2010 Scheme is based on one tier of options with a single vesting test; – The vesting period is 3 years; vesting only occurs once an initial EPS performance target has been reached and, thereafter, is dependant on performance; – Awards are currently limited to 150% of salary. The Scheme has approximately 750 active participants, c. 50% of whom are US employees. The performance criteria for the 2010 Scheme were agreed with the Irish Association of Investment Managers (the IAIM), which also approved the Scheme, and are set out in the table above. The performance targets are designed to provide for proportionately more vesting for higher levels of EPS growth. Details of awards to Directors under the 2010 Scheme are provided on pages 65 and 66. In 2012, awards made to Directors ranged between 132% and 138% of basic salary. Award levels for 2013 are expected to be broadly similar. Vesting levels are subject to any reduction which the Remuneration Committee deems appropriate in the context of the overall results of the Group. The initial grant of options under the 2010 Scheme made in 2010 will not meet the EPS performance criteria set out above and, accordingly, the options will lapse on the third anniversary of the date of grant. 60 CRH As advised to shareholders in the 2011 Report on Directors’ Remuneration, in order to address the erosion in the incentive element of the 2010 Scheme, the Remuneration Committee reviewed the EPS performance criteria applied for the 2010 and 2011 option grants in the light of the economic circumstances and trading backdrop at that time. Following that review, and with the approval of the IAIM, the performance targets for the option award made in April 2012 were adjusted. In February 2012, the Chairman of the Remuneration Committee wrote to major shareholders regarding the proposed change, the rationale therefore and the consultation process with the IAIM. The adjusted performance targets (set out in the table above), which are considered by the Remuneration Committee to remain very challenging, will be applied for the option grant in April 2013. The Remuneration Committee has discretionary powers regarding the implementation of the rules of the 2010 Scheme. These powers have not been exercised since the adoption of the Scheme. (v) Pensions Maeve Carton, Myles Lee and Albert Manifold are participants in a contributory deﬁned beneﬁt plan which is based on an accrual rate of 1/60th of pensionable salary1 for each year of pensionable service and is designed to provide two-thirds of career average salary2 at retirement for full service. There is provision for Ms. Carton, Mr. Lee and Mr. Manifold to retire at 60 years of age. The Finance Act 2006 established a cap on pension provision by introducing a penalty tax charge on pension assets in excess of the higher of €5 million (in the Finance Act 2011, this threshold was reduced to €2.3 million) or the value of individual accrued pension entitlements as at 7 December 2005. As a result of these legislative changes, the Remuneration Committee decided that Ms. Carton, Mr. Lee and Mr. 1 Pensionable salary is deﬁned as basic annual salary and excludes any ﬂuctuating emoluments. 2 With effect from 1 January 2012. Manifold should have the option of continuing to accrue pension beneﬁts as previously, or of choosing an alternative arrangement – by accepting pension beneﬁts limited by the cap – with a similar overall cost to Group. They have chosen to opt for the alternative arrangement which involves capping their pensions in line with the provisions of the Finance Act 2006 and receiving a supplementary taxable non- pensionable cash allowance in lieu of pension beneﬁts foregone. These allowances are similar in value to the reduction in the Company’s liability represented by the pension beneﬁts foregone. They are calculated based on actuarial advice as the equivalent of the reduction in the Company’s liability to each individual and spread over the term to retirement as annual compensation allowances. The allowances for 2012 are detailed in note (iii) on page 63. Mr. Towe participates in a deﬁned contribution retirement plan in respect of basic salary; and in addition participates in an unfunded deﬁned contribution Supplemental Executive Retirement Plan (SERP) also in respect of basic salary, to which contributions are made at an agreed rate, offset by contributions made to the other retirement plan. Directors’ Remuneration and Interests in Share Capital The total remuneration for individual executive Directors in the year ended 2012, including basic salary and beneﬁts, annual bonus, vested Share Plan awards and pension payments is summarised in the centre table opposite. Details of Directors’ remuneration charged against proﬁt in the year are given in the table on page 62. Details of individual remuneration for all Directors for the year ended 31 December 2012, including explanatory notes, are given on page 63. Directors’ share options and performance shares are shown on pages 65 and 66. Directors’ shareholdings are shown on page 67. Report on Directors’ Remuneration | continued Executive Director Shareholding Levels The current shareholdings of the executive Directors as a multiple of 2012 salary are as shown in the table to right. Directors’ Service Contracts No executive Director has a service contract, has a notice period in excess of 12 months, or is entitled to any beneﬁts on termination of employment. The Remuneration Committee’s policy in this area is that service contracts will be put in place for newly appointed executive Directors and in cases where there is a signiﬁcant step change in a Director’s responsibilities. Non-executive Directors serve under letters of appointment, copies of which are available for inspection at the Company’s Registered Ofﬁce and at the Annual General Meeting. Non-executive Directors’ Remuneration The remuneration of non-executive Directors is determined by the Board of Directors as a whole. The Remuneration Committee determines the remuneration of the Chairman within the framework or broad policy agreed with the Board. Total executive Directors’ remuneration in 2012 Current shareholdings* of the executive Directors M. Carton, Finance Director 1.3 x M. Lee, Group Chief Executive 5.6 x A. Manifold, Chief Operating Ofﬁcer 0.7 x M. Towe, Chief Executive Oldcastle, Inc. 1.2 x * The calculation in the above table is based on shares held by the executive Directors; it excludes holdings of unvested performance share plan awards and unexercised/unvested share options. Remuneration is set at a level which will attract individuals with the necessary experience and ability to make a substantial contribution to the Company’s affairs and reﬂect the time and travel demands of their Board duties. The non- executive Directors do not participate in any of the Company’s performance-related incentive plans or share schemes. As referred to in the overview by the Committee Chairman, with effect from 1 January 2013, the Chairman’s fee level will be restored to €450,000, the level which applied in 2008 (2012: €405,000). Executive Director M. Carton, Finance Director M. Lee, Chief Executive A. Manifold, Chief Operating Ofﬁcer M. Towe, Chief Executive Oldcastle, Inc. Basic salary and beneﬁts €000 563 1,173 831 1,073 Annual incentive plan €000 183 383 266 708 Retirement beneﬁt expense €000 175 980 288 202 Value of vested share awards* Total remuneration in 2012 €000 37 184 125 200 €000 958 2,720 1,510 2,183 Total €000 921 2,536 1,385 1,983 * based on a market value on the date of vesting of €15.79 per share for Directors resident in Ireland and €15.85 for Directors resident outside Ireland. TSR performance since 2002 1 TSR performance since 2007 1,2 € 300 250 200 150 100 50 0 1 2 CRH FTSE100 Euroﬁrst 300 € 120 100 80 60 40 20 0 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 For the purposes of comparability, the FTSE100 Index has been converted to euro using the closing exchange rate at each year end This ﬁve year TSR graph provides information on CRH’s TSR performance, which UK incorporated listed companies are required to provide under company law in that jurisdiction (in accordance with the requirements of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008). The FTSE100 and Euroﬁrst 300 indices have been chosen as they are broadly based and CRH is a constituent member of both (FTSE100 since December 2011) Compound TSR growth since the formation of the Group in 1970 (assuming the reinvestment of dividends) is 15.5%. CRH 61 Report on Directors’ Remuneration | continued A committee of the Chairman and the executive Directors reviews the remuneration of the non-executive Directors. That committee has recommended to the Board that the fees payable to non-executive Directors remain unchanged for the present. However, as the fee levels have remained unchanged since 2008, the committee has recommended that a comprehensive review of the current fee levels be carried out. In accordance with the Articles of Association, shareholders set the maximum aggregate amount of the fees payable to non-executive Directors. The current limit was set by shareholders at the Annual General Meeting held in 2005. It is the Board’s policy that non-executive Directors do not receive pensions. 1 Directors’ Remuneration Notes Executive Directors Basic salary Performance-related incentive plan – cash element – deferred shares element Retirement beneﬁts expense Beneﬁts 2012 €000 2011 €000 3,512 3,398 1,540 1,559 - - 1,645 1,727 128 6,825 135 6,819 Executives’ External Appointments Myles Lee is a non-executive Director of IBEC Limited (the Irish Business and Employers Confederation). Maeve Carton is a non-executive Director of the British and Irish Chamber of Commerce. Neither Mr. Lee nor Ms. Carton receives fees for carrying out these roles. Total Shareholder Return The value at 31 December 2012 of €100 invested in 2002 and 2007 respectively, compared with the value of €100 invested in the Euroﬁrst 300 Index and the FTSE100 Index (which CRH joined in December 2011) is shown in graphs on the previous page. Employee share ownership The Group also operates share participation plans and savings-related share option schemes for eligible employees in all regions where the regulations permit the operation of such plans. In total there are approximately 6,500 employees of all categories who are shareholders in the Group. 2 Provision for Chief Executive long-term incentive plan 460 460 Total executive Directors’ remuneration 7,285 7,279 Average number of executive Directors 4.00 4.00 Non-executive Directors Fees Other remuneration Total non-executive Directors’ remuneration 557 656 578 659 1,213 1,237 Average number of non-executive Directors 8.20 8.52 3 Payments to former Directors Total Directors’ remuneration 29 47 8,527 8,563 Notes to Directors’ remuneration 1 See analysis of 2012 remuneration by individual on page 63. 2 As set out on page 58, the Chief Executive has a special long-term incentive plan tied to the achievement of exceptional growth and key strategic goals for the ﬁve-year period 2009 to 2013 with a total maximum earnings potential of 40% of aggregate basic salary. While accruals are made on an annual basis, there is no commitment to any payment until the end of the ﬁve-year period. 3 Consulting and other fees paid to a number of former directors. 62 CRH Report on Directors’ Remuneration | continued Individual remuneration for the year ended 31 December 2012 Basic salary and fees (i) €000 Incentive Plan Cash element (ii) €000 Deferred shares (ii) €000 Retirement beneﬁts expense (iii) Other remuneration (iv) Beneﬁts (v) €000 €000 €000 Executive Directors M. Carton M. Lee A. Manifold M. Towe Non-executive Directors E. Bärtschi (vi) W. Egan U-H. Felcht N. Hartery (vii) J.M. de Jong J. Kennedy K. McGowan (vii) H.A. McSharry (viii) D. O'Connor J. O'Connor (viii) W. O'Mahony (viii) 550 1,150 800 1,012 3,512 68 68 68 68 68 68 23 58 68 - - 557 183 383 266 708 1,540 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 175 980 288 202 1,645 - - - - - - - - - - - - - - - - - 37 52 37 237 71 37 122 19 44 - - 656 13 23 31 61 128 - - - - - - - - - - - - Total 2012 €000 921 2,536 1,385 1,983 6,825 105 120 105 305 139 105 145 77 112 - - 1,213 Total 2011 €000 1,050 2,689 1,537 1,543 6,819 15 120 105 124 139 105 405 - 90 31 103 1,237 (i) Basic salary and fees Salary levels for Irish-based executive Directors were unchanged in 2012 as were fee levels for non-executive Directors. Mark Towe received a 2012 salary increase in US Dollars which was broadly in line with trends in senior executive remuneration in the United States. (ii) Performance-related Incentive Plan Under the executive Directors’ incentive plan for 2012, a bonus is payable for meeting clearly deﬁned and stretch targets and strategic goals. The structure of the 2012 incentive plan is set out on page 58. (iii) Retirement beneﬁts expense The Irish Finance Act 2006 effectively established a cap on pension provision by introducing a penalty tax charge on pension assets in excess of the higher of €5 million or the value of individual prospective pension entitlements as at 7 December 2005. This cap was further reduced by the Irish Finance Act 2011 to €2.3 million as at 7 December 2010. As a result of these legislative changes, the Remuneration Committee has decided that Executive Directors who are members of Irish pension schemes should have the option of continuing to accrue pension beneﬁts as previously, or of choosing an alternative arrangement - by accepting pension beneﬁts limited by the cap - with a similar overall cost to the Group. Maeve Carton, Myles Lee and Albert Manifold have chosen to opt for the alternative arrangement which involves capping their pensions in line with the provisions of the Finance Acts and receiving a supplementary taxable non-pensionable cash allowance in lieu of prospective pension beneﬁts foregone. These allowances are similar in value to the reduction in the Company’s liability represented by the pension beneﬁt foregone. They are calculated based on actuarial advice as the equivalent of the reduction in the Company’s liability to each individual and spread over the term to retirement as annual compensation allowances. For 2012 the compensation allowances amount to €980,000 (2011: €980,000) for Myles Lee; €288,117 (2011: €335,195) for Albert Manifold and €174,931 (2011: €231,954) for Maeve Carton. (iv) Other Remuneration Includes remuneration for Chairman, Board Committee work and allowances for non-executive Directors based outside of Ireland. (v) Beneﬁts These relate principally to the use of company cars and medical/life assurance. (vi) Ernst Bärtschi became a Director on 26 October 2011. (vii) Nicky Hartery became Chairman on 9 May 2012 succeeding Kieran McGowan who retired as a non-executive Director on the same date. (viii) Heather Ann McSharry became a Director on 22 February 2012. Joyce O’Connor retired on 4 May 2011, while Liam O’Mahony retired on 31 December 2011. CRH 63 Report on Directors’ Remuneration | continued Pension entitlements – deﬁned beneﬁt Executive Directors M. Carton M. Lee A. Manifold Increase in accrued personal pension during 2012 (i) Transfer value of increase in dependants’ pension (i) Total accrued personal pension at year-end (ii) €000 €000 €000 - - - 10 - 23 266 287 273 (i) As noted on page 60, the pensions of Myles Lee, Albert Manifold and Maeve Carton have been capped in line with the provisions of the Irish Finance Acts. However, dependants’ pensions continue to accrue resulting in Greenbury transfer values which have been calculated on the basis of actuarial advice. These amounts do not represent sums paid out or due, but are the amounts that the pension scheme would transfer to another pension scheme in relation to beneﬁts accrued in 2012 in the event of these Directors leaving service. (ii) The accrued pensions shown are those which would be payable annually from normal retirement date. Pension entitlements – deﬁned contribution The accumulated liablilities related to the unfunded Supplemental Executive Retirement Plan for Mark Towe are as follows: As at 31 December 2011 2012 contribution €000 €000 2012 Notional interest (iii) €000 Translation adjustment As at 31 December 2012 €000 €000 Executive Director M. Towe 1,511 190 67 (37) 1,731 (iii) Notional interest, which is calculated based on the average bid yields of United States Treasury ﬁxed-coupon securities with remaining terms to maturity of approximately 20 years, plus 1.5%, is credited to the above plans. 64 CRH Report on Directors’ Remuneration | continued Directors’ awards under the Performance Share Plan (i) 31 December 2011 Granted in 2012 Released in 2012 (ii) Lapsed in 2012 (ii) 31 December 2012 Performance Period Release date Market Price in euro on award M. Carton M. Lee A. Manifold M. Towe 14,000 10,000 42,000 - 66,000 70,000 75,000 88,000 - 233,000 47,500 55,000 62,000 - 164,500 76,000 60,000 68,000 - 204,000 - - - 50,000 50,000 - - - 100,000 100,000 - - - 70,000 70,000 - - - 90,000 90,000 2,324 - - - 2,324 11,623 - - - 11,623 7,887 - - - 7,887 12,620 - - - 12,620 11,676 - - - 11,676 58,377 - - - 58,377 39,613 - - - 39,613 63,380 - - - 63,380 - 10,000 42,000 50,000 102,000 - 75,000 88,000 100,000 263,000 - 55,000 62,000 70,000 187,000 - 60,000 68,000 90,000 218,000 01/01/09 - 31/12/11 01/01/10 - 31/12/12 01/01/11 - 31/12/13 01/01/12 - 31/12/14 March 2012 March 2013 March 2014 March 2015 01/01/09 - 31/12/11 01/01/10 - 31/12/12 01/01/11 - 31/12/13 01/01/12 - 31/12/14 March 2012 March 2013 March 2014 March 2015 01/01/09 - 31/12/11 01/01/10 - 31/12/12 01/01/11 - 31/12/13 01/01/12 - 31/12/14 March 2012 March 2013 March 2014 March 2015 01/01/09 - 31/12/11 01/01/10 - 31/12/12 01/01/11 - 31/12/13 01/01/12 - 31/12/14 March 2012 March 2013 March 2014 March 2015 17.00 18.51 16.52 15.19 17.00 18.51 16.52 15.19 17.00 18.51 16.52 15.19 17.00 18.51 16.52 15.19 (i) Performance Share Plan This is a long-term share incentive plan under which share awards are granted in the form of a provisional allocation of shares for which no exercise price is payable. The structure of the Performance Share Plan is set out on page 59. (ii) In 2012, the Remuneration Committee determined that 16.6054% of the 2009 award vested and that portion of the award was released to participants. The balance of the 2009 award lapsed. The market value per share for tax purposes on the date of release was €15.79 for Directors resident in Ireland and €15.85 for Directors resident outside Ireland. Directors’ share options Details of movements on outstanding options and those exercised during the year are set out in the table below: 31 December 2011 Granted in 2012 Lapsed in 2012 Exercised in 2012 31 December 2012 Options exercised during 2012 Weighted average option price at 31 December 2012 € Weighted average exercised price € Weighted average market price at date of exercise € M. Carton M. Lee A. Manifold M. Towe 55,831 32,161 77,500 1,752 318,435 110,900 175,000 1,752 166,445 42,142 122,500 1,752 - 216,256 127,535 140,000 1,589,961 - - 50,000 - - - 100,000 - - - 70,000 - 2,236 - - 90,000 312,236 - 7,763 - - 27,725 - - - 8,872 - 1,752 - 27,725 27,725 - - - - 10,000 - - - - - - - - 27,725 49,905 101,562 87,630 55,831 24,398 127,500 1,752 308,435 83,175 275,000 1,752 166,445 33,270 192,500 - 2,236 160,806 49,905 230,000 1,713,005 (a) (b) (c) (d) (a) (b) (c) (d) (a) (b) (c) (d) (e) (a) (b) (c) 25.75 13.61 16.47 18.39 19.56 13.36 16.57 18.39 21.97 13.46 16.57 - 13.64 22.78 15.09 16.53 - - - - 11.86 - - - - - - - - 11.96 11.96 - - - - - 14.07 - - - - - - - - 15.36 15.36 - CRH 65 Report on Directors’ Remuneration | continued Options by Price € 17.7454 17.7454 11.8573 11.8573 11.9565 11.9565 15.0674 15.0674 15.0854 15.0854 18.7463 18.8545 26.1493 29.4855 29.8643 21.5235 16.58 18.39 16.38 15.19 18.3946 13.64 31 December 2011 Granted in 2012 Lapsed in 2012 Exercised in 2012 31 December 2012 Earliest exercise date Expiry date 27,725 72,085 33,270 72,085 27,725 49,905 38,815 68,758 27,725 49,905 72,085 27,725 105,355 86,502 36,043 143,997 130,000 250,000 265,000 - - - - - - - - - - - - - - - - - - - - 310,000 27,725 72,085 - - - - - - - - - - - - - - - - - - 5,256 - 1,752 - 2,236 - - - 10,000 - 27,725 49,905 - - - - - - - - - - - - - - - - - - 23,270 72,085 - - 38,815 68,758 27,725 49,905 72,085 27,725 105,355 86,502 36,043 143,997 130,000 250,000 265,000 310,000 3,504 2,236 (a) (b) (a) (b) (a) (b) (a) (b) (a) (b) (a) (a) (a) (a) (a) (a) (a) (c) (c) (c) (d) (e) February 2013 February 2013 April 2013 April 2013 February 2013 February 2013 February 2013 February 2013 April 2014 April 2014 April 2014 April 2014 April 2015 April 2015 April 2016 April 2017 April 2017 April 2018 April 2019 May 2020 April 2021 April 2022 July 2013 December 2013 August 2017 January 2018 1,589,961 312,236 101,562 87,630 1,713,005 The market price of the Company’s shares at 31 December 2012 was €15.30 and the range during 2012 was €12.99 to €16.79. (a) Granted under the 2000 share option scheme, these options are only exercisable when EPS growth exceeds the growth of the Irish Consumer Price Index by 5% compounded over a period of at least three years subsequent to the granting of the options. (b) Granted under the 2000 share option scheme, these options are only exercisable if, over a period of at least ﬁve years subsequent to the granting of the options, the growth in EPS exceeds the growth of the Irish Consumer Price Index by 10% compounded and places the Company in the top 25% of EPS performance of a peer group of international building materials and other manufacturing companies. If below the 75th percentile, these options are not exercisable. (c) Granted under the 2010 share option scheme. Vesting will only occur once an initial performance target has been reached and, thereafter, will be dependent on performance. The performance criteria are set out in the table on page 60. (d) Granted under the 2000 savings-related share option scheme. (e) Granted under the 2010 savings-related share option scheme. 66 CRH Report on Directors’ Remuneration | continued Directors’ interests in share capital at 31 December 2012 The interests of the Directors and Secretary in the shares of the Company as at 31 December 2012, which are beneﬁcial unless otherwise indicated, are shown below. The Directors and Secretary have no beneﬁcial interests in any of the Group’s subsidiary, joint venture or associated undertakings. Ordinary Shares Directors E. Bärtschi M. Carton W. Egan - Non-beneﬁcial U-H. Felcht N. Hartery J.M. de Jong J. Kennedy M. Lee H.A. McSharry A. Manifold D. O'Connor M. Towe Secretary N. Colgan 31 December 2012 31 December 2011 2,000 45,654 16,112 12,000 1,285 1,389 15,288 1,009 403,758 3,676 34,934 16,416 73,025 10,747 637,293 2,000 42,343 16,112 12,000 1,285 1,302 14,672 1,009 372,401 3,556 * 29,215 15,883 55,405 9,174 576,357 There were no transactions in the above Directors’ and Secretary’s interests between 31 December 2012 and 25 February 2013. Of the above holdings, the following are held in the form of American Depositary Receipts: W. Egan - Non-beneﬁcial M. Towe * Holding as at date of appointment. 31 December 2012 31 December 2011 15,000 12,000 3,397 15,000 12,000 3,397 CRH 67 Directors’ Report The Directors submit their report and ﬁnancial statements for the year ended 31 December 2012. Trap Rock Industries, an integrated aggregates and asphalt business in New Jersey. Accounts and Business Review Sales revenue for 2012 of €18.7 billion was 3% higher than in 2011 (€18.1 billion). Operating proﬁt for the Group decreased by 3% to €845 million after restructuring and impairment charges totalling €88 million (2011: €82 million). In CRH’s European segments operating proﬁt decreased by €102 million to €418 million, a decrease of 20%, reﬂecting the slowing momentum in European economies and the impact of divestments. In the Americas operating proﬁt increased by €76 million (22%) to €427 million (2011: €351 million). Overall operating proﬁt margin for the Group decreased to 4.5% (2011: 4.8%). Proﬁt on disposal of non-current assets at €230 million was signiﬁcantly higher than last year (€55 million) due primarily to the signiﬁcant proﬁt recorded on the divestment of our 49% stake in Secil. Proﬁt before tax amounted to €674 million, a decrease of €37 million (5%) on 2011. After providing for tax, Group proﬁt for the ﬁnancial year amounted to €554 million (2011: €597 million). Basic earnings per share amounted to 76.5c compared with 82.6c in the previous year, a decrease of 7%. Comprehensive reviews of the ﬁnancial and operating performance of the Group during 2012 are set out in the Chief Executive’s Review on pages 13 to 15, the Finance Review on pages 17 to 19 - which includes Key Financial Performance Indicators on page 18 - and the separate Operations Reviews for each of the business segments on pages 24 to 35. The treasury policy and objectives of the Group are set out in detail in note 22 to the ﬁnancial statements on page 101. Dividend An interim dividend of 18.5c (2011: 18.5c) per share was paid in October 2012. The Board is recommending a ﬁnal dividend of 44c per share, in line with the ﬁnal dividend for 2011. This gives a total dividend of 62.5c for the year, maintaining last year’s level. It is proposed to pay the ﬁnal dividend on 13 May 2013 to shareholders registered at the close of business on 8 March 2013. A scrip dividend alternative will be offered to shareholders. Development Activity The €0.65 billion of development activity during 2012 reﬂects CRH’s long-term, value-based approach to developing the Group’s balanced portfolio. Excluding net deferred payments, spend for 2012 amounted to €526 million (2011: €610 million) on a total of 36 bolt-on transactions which will contribute annualised sales of approximately €680 million, of which €274 million has been reﬂected in our 2012 results. Our pipeline of acquisition opportunities remains healthy. Expenditure of €256 million in the ﬁrst half of 2012 included 18 acquisition and investment initiatives which strengthened our existing market positions and added valuable and well-located aggregates reserves. The second half of the year saw a step-up in the level of development activity with 18 transactions at a total cost of €390 million (€270 million cash spend excluding deferred payments), with the largest transaction being a majority stake in 68 CRH Total proceeds from completed disposals in 2012 amounted to €859 million. The major disposals were the divestment in May 2012 of our 49% stake in Portuguese cement producer Secil and the sale in April of our wholly-owned Magnetic Autocontrol business. The sales impact of these disposals, and of the 2011 disposal of Europe Products’ Insulation and Climate Control business, was €389 million in 2012. The Group’s strategy and its business model are summarised on page 14. 2013 Outlook After a slower second quarter, GDP in the United States picked up strongly in the third quarter of 2012. However, some once-off factors contributed to a weaker ﬁnal quarter with GDP growth currently estimated at approximately 2% for 2012 as a whole. Despite this variable pattern, we believe that the fundamentals are in place for continued positive momentum in the US economy in 2013, although the moderate ﬁscal tightening resulting from payroll tax increases may weigh somewhat on ﬁrst-half economic growth. Against this backdrop we expect our Americas operations to show progress in 2013. In contrast to the United States, economic growth in Europe turned negative in the second quarter and full-year GDP for the European Union as a whole is estimated to have fallen slightly. Current forecasts suggest only modest growth at best for 2013. On the positive side, however, the strong commitment from the European Central Bank to providing support for peripheral Eurozone economies has resulted in a more stable ﬁnancial backdrop which is encouraging from a conﬁdence building perspective and is an essential prerequisite for European economic recovery. Nevertheless, 2013 will be another challenging year for our European Divisions with signiﬁcant actions, as already announced, being implemented to counteract market weakness. Assuming no major ﬁnancial or energy market dislocations, we expect that ongoing improvements in our businesses in the Americas combined with further proﬁt improvement initiatives throughout our operations will outweigh continuing trading pressures in our European segments enabling the Group to achieve progress in 2013. Corporate and Social Responsibility As set out in the Corporate Social Responsibility (CSR) section on page 6, the Group is fully committed to operating ethically and responsibly in all aspects of its business relating to employees, customers, neighbours and other stakeholders. Details of CRH’s policies and performance relating to Health and Safety, Environment and Climate Change, and People and Community matters are set out in the separately published annual CSR Reports which are available on the Group’s website at www. crh.com. Principal Risks and Uncertainties Under Irish Company law (Regulation 5(4)(c)(ii) of the Transparency (Directive 2004/109/EC) Regulations 2007), the Group is required to give a description of the principal risks and uncertainties which it faces. These risks and uncertainties reﬂect the international scope of the Group’s operations and the Group’s decentralised structure. The list provided in the 2011 Annual Report has been updated to group the key strategic risks facing the Group separately from the key ﬁnancial and reporting risks. Principal strategic risks and uncertainties Industry cyclicality: The level of construction activity in local and national markets is inherently cyclical being inﬂuenced by a wide variety of factors including global and national economic circumstances, ongoing austerity programmes in the developed world, governments’ ability to fund infrastructure projects, consumer sentiment and weather conditions. The Group’s ﬁnancial performance may also be negatively impacted by unfavourable swings in fuel and other commodity/ raw material prices. The adequacy and timeliness of management’s response to unfavourable events are of critical importance. Political and economic uncertainty: As an international business, CRH operates in many countries with differing, and in some cases potentially fast-changing, economic, social and political conditions. Changes in these conditions, including the possibility of disintegration of the eurozone and/or a failure to resolve current ﬁscal and budgetary issues in the United States, or in the governmental and regulatory requirements in any of the countries in which CRH operates (with particular reference to developing markets), may, for example, adversely affect CRH’s business thus leading to possible impairment of ﬁnancial performance and/or restrictions on future growth opportunities. Commodity products and substitution: CRH faces strong volume and price competition across its product lines. In addition, existing products may be replaced by substitute products which CRH does not produce or distribute. Against this backdrop, if CRH fails to generate competitive advantage through differentiation across the supply chain (for example, through superior product quality, engendering customer loyalty or excellence in logistics), market share, and thus ﬁnancial performance, may decline. Acquisition activity: Growth through acquisition is a key element of CRH’s strategy. CRH may not be able to continue to grow as contemplated in its business plan if it is unable to identify attractive targets (including potential new platforms for growth), execute full and proper due diligence, raise funds on acceptable terms, complete such acquisition transactions, integrate the operations of the acquired businesses and realise anticipated levels of proﬁtability and cash ﬂows. Joint ventures and associates: CRH does not have a controlling interest in certain businesses (i.e. joint ventures and associates) in which it has invested and may invest; the greater complexity inherent in these arrangements accompanied by the need for proactive relationship management may restrict the Group’s ability to generate adequate returns and to develop and grow its business. Directors’ Report | continued Human resources: Existing processes to recruit, develop and retain talented individuals and promote their mobility within a decentralised Group may be inadequate thus giving rise to management attrition and difﬁculties in succession planning and potentially impeding the continued realisation of the Group’s core strategy of performance and growth. Corporate communications: As a publicly-listed company, CRH undertakes regular communication with its stakeholders. Given that these communications may contain forward-looking statements, which by their nature involve uncertainty, actual results and developments may differ from those communicated due to a variety of external and internal factors giving rise to reputational risk. Corporate Social Responsibility: CRH is subject to stringent and evolving laws, regulations, standards and best practices in the area of Corporate Social Responsibility (comprising corporate governance, environmental management and climate change (speciﬁcally capping of emissions), health and safety management and social performance) which may give rise to increased ongoing remediation and/or other compliance costs and may adversely affect the Group’s reported results and ﬁnancial condition. Laws and regulations: CRH is subject to many laws and regulations (both local and international), including those relating to competition law, corruption and fraud, throughout the many jurisdictions in which it operates and is thus exposed to changes in those laws and regulations and to the outcome of any investigations conducted by governmental, international and other regulatory authorities, which may result in the imposition of ﬁnes and/or sanctions for non-compliance and may damage the Group’s reputation. Principal ﬁnancial and reporting risks and uncertainties Financial instruments: CRH uses ﬁnancial instruments throughout its businesses giving rise to interest rate, foreign currency, credit/counterparty and liquidity risks. A downgrade of CRH’s credit ratings may give rise to increases in funding costs in respect of future debt and may impair the Group’s ability to raise funds on acceptable terms. In addition, against the backdrop of heightened uncertainties, in particular in the eurozone, insolvency of the ﬁnancial institutions with which CRH conducts business (or a downgrade in their credit ratings) may lead to losses in CRH’s liquid investments, derivative assets and cash and cash equivalents balances or render it more difﬁcult either to utilise the Group’s existing debt capacity or otherwise obtain ﬁnancing for the Group’s operations. Deﬁned beneﬁt pension schemes: CRH operates a number of deﬁned beneﬁt pension schemes in certain of its operating jurisdictions. The assets and liabilities of these schemes may exhibit signiﬁcant period-on-period volatility attributable primarily to asset valuations, changes in bond yields and longevity. In addition to future service contributions, signiﬁcant cash contributions may be required to remediate deﬁcits applicable to past service. Insurance counterparties: In its worldwide insurance programme, the Group carries appropriate levels of insurance for typical business risks (including product liability) with various leading insurance companies. However, in the event of the failure of one or more of its insurance counterparties, the Group could be impacted by losses where recovery from such counterparties is not possible. Foreign currency translation: CRH’s activities are conducted primarily in the local currency of the country of operation resulting in low levels of foreign currency transactional risk. The principal foreign exchange risks to which the consolidated ﬁnancial statements are exposed pertain to adverse movements in reported results when translated into euro (which is the Group’s reporting currency) together with declines in the euro value of the Group’s net investments which are denominated in a wide basket of currencies other than the euro. Goodwill impairment: Signiﬁcant under-performance in any of CRH’s major cash-generating units may give rise to a material write-down of goodwill which would have a substantial impact on the Group’s income and equity. Inspections by Public Company Accounting Oversight Board (‘PCAOB’): Our auditors, like other independent registered public accounting ﬁrms operating in Ireland and a number of other European countries, are not currently permitted to be subject to inspection by the PCAOB, and as such, investors are deprived of the beneﬁts of PCAOB inspections. The principal ﬁnancial and reporting risks and uncertainties are subject to further disclosure in the notes to the consolidated ﬁnancial statements and the accompanying accounting policies. As demonstrated by CRH’s proven record of superior performance, the Group’s management team has substantial and long experience in dealing with the impact of these risks. The mechanisms through which the principal risks and uncertainties are managed are addressed in the “Risk Management and Internal Control” section of the Corporate Governance Report. Report on Directors’ Remuneration Resolution 3 to be proposed at the Annual General Meeting deals with the Report on Directors’ Remuneration, as set out on pages 54 to 67, which the Board has decided to present to shareholders for the purposes of a non-binding advisory vote. This is in line with international best practice and the Directors believe that the resolution will afford shareholders an opportunity to have a “say on pay”. Board of Directors Mr. K. McGowan retired from the Board on 9 May 2012. Ms. H.A. McSharry was appointed to the Board on 22 February 2012. Under the Company’s Articles of Association, co-opted Directors are required to submit themselves to shareholders for election at the Annual General Meeting following their appointment and all the Directors are required to submit themselves for re-election at intervals of not more than three years. However, in accordance with the provisions contained in the UK Corporate Governance Code, the Board has decided that all Directors eligible for re-election should retire at each Annual General Meeting and offer themselves for re-election. Auditors Section 160(2) of the Companies Act, 1963 provides that the auditor of an Irish company shall be automatically re-appointed at a company’s annual general meeting unless the auditor has given notice in writing of his unwillingness to be re-appointed or a resolution has been passed at that meeting appointing someone else or providing expressly that the incumbent auditor shall not be re-appointed. In this respect, Irish company law differs from the requirements that apply in other jurisdictions, for example in the UK, where auditors must be re-appointed annually by shareholders at the Annual General Meeting. The Auditors, Ernst & Young, Chartered Accountants, are willing to continue in ofﬁce. As required under Irish law, a resolution authorising the Directors to ﬁx the remuneration of the Auditors will be submitted to the Annual General Meeting. Disapplication of Pre-emption Rights A special resolution will be proposed at the Annual General Meeting to renew the Directors’ authority to disapply statutory pre-emption rights in relation to allotments of shares for cash. In respect of allotments other than for rights issues to ordinary shareholders and employees’ share schemes, the authority is limited to Ordinary/Income Shares (including the re-issue of Treasury Shares) having a nominal value of €12,474,000, representing 5% approximately of the issued Ordinary/Income share capital at 25 February 2013. This authority will expire on the earlier of the date of the Annual General Meeting in 2014 or 7 August 2014. The Directors intend to follow the Pre-Emption Group’s Statement of Principles in that allotments of shares for cash and the re-issue of Treasury Shares on a non pre-emptive basis, other than for rights issues to ordinary shareholders and employees’ share schemes, will not exceed 7.5% of the issued Ordinary/Income share capital within a rolling three year period without prior consultation with shareholders. Transactions in Own Shares During 2012, 1,317,872 (2011: 287,950) Treasury Shares were re-issued under the Group’s Share Schemes. In addition, 226,617 (2011: 150,330) Ordinary Shares were transferred to the Trustees of the CRH plc Employee Beneﬁt Trust at €15.82 per Ordinary Share for the purpose of satisfying the release of awards, made under the CRH 2006 Performance Share Plan, which vested in 2012. As at 25 February 2013, 7,360,558 shares were held as Treasury Shares, equivalent to 1.01% of the Ordinary Shares in issue (excluding Treasury Shares). A special resolution will be proposed at the 2013 Annual General Meeting to renew the authority of the Company, or any of its subsidiaries, to purchase up to 10% of the Company’s Ordinary/ Income Shares in issue at the date of the Annual General CRH 69 Directors’ Report | continued Regulatory Information This section contains information which is required to be provided for regulatory purposes. 2009 Corporate Governance Regulations: For the purpose of Statutory Instrument 450/2009 European Communities (Directive 2006/46) Regulations 2009, as amended by Statutory Instrument 83/2010 European Communities (Directive 2006/46/EC) (Amendment) Regulations 2010, the Corporate Governance report on pages 38 to 53 is deemed to be incorporated in this part of the Directors’ Report. Details of the Company’s employee shares schemes and capital structure can be found in notes 8 and 29 to the ﬁnancial statements on pages 88 and 89 and 113 and 114 respectively. 2006 Takeover Regulations: For the purpose of Regulation 21 of Statutory Instrument 255/2006 European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006, the rules relating to the appointment and replacement of Directors are summarised in the section on “Board of Directors” in this Report on page 69 and in the following sections of the Corporate Governance Report: “Membership of the Board” on page 40, “Directors’ retirement and re-election” on page 42 and “Memorandum and Articles of Association” on page 53. The Company’s Memorandum and Articles of Association, which are available on the CRH website, are deemed to be incorporated in this part of the Directors’ Report. The Group has certain banking facilities and bond issues outstanding which may require repayment in the event that a change in control occurs with respect to the Company. In addition, the Company’s share option schemes and Performance Share Plan contain change of control provisions which can allow for the acceleration of the exercisability of share options and the vesting of share awards in the event that a change of control occurs with respect to the Company. 2007 Transparency Regulations: For the purpose of Statutory Instrument 277/2007 Transparency (Directive 2004/109/ EC) Regulations 2007, the report on Corporate Social Responsibility as published on the CRH website is deemed to be incorporated in this part of the Directors’ Report, together with the following sections of this Annual Report: the Chairman’s Statement on pages 8 and 9, the Chief Executive’s review on pages 13 to 15, the Finance Review on pages 17 to 19, the Operations Reviews on pages 24 to 35, the details of earnings per Ordinary Share in note 13 to the consolidated ﬁnancial statements, details of derivative ﬁnancial instruments in note 25, the details of the re-issue of Treasury Shares in note 29 and details of employees in note 6. 70 CRH Meeting. If approved, the minimum price which may be paid for shares purchased by the Company shall not be less than the nominal value of the shares and the maximum price will be 105% of the higher of the last independent trade in the Company’s shares (or current independent bid, if higher) and the average market price of such shares over the preceding ﬁve days. A special resolution will also be proposed for the purpose of setting the maximum and minimum prices at which Treasury Shares (effectively shares purchased and not cancelled) may be re-issued off-market by the Company. If granted, both of these authorities will expire on the earlier of the date of the Annual General Meeting in 2014 or 7 August 2014. As at 25 February 2013, options to subscribe for a total of 24,332,209 Ordinary/Income Shares are outstanding, representing 3.35% of the issued Ordinary/lncome share capital (excluding Treasury Shares). If the authority to purchase Ordinary/ Income Shares was used in full, the options would represent 3.72% of the remaining shares in issue. The Directors do not have any current intention of exercising the power to purchase the Company’s own shares and will only do so if they consider it to be in the best interests of the Company and its shareholders. Annual General Meeting Your attention is drawn to the Notice of Meeting set out on pages 138 and 139. Your Directors believe that the resolutions to be proposed at the Meeting are in the best interests of the Company and its shareholders as a whole and, therefore, recommend you to vote in favour of the resolutions. Your Directors intend to vote in favour of the resolutions in respect of their own beneﬁcial holdings of Ordinary Shares, amounting in total, on 25 February 2013, to 614,546 Ordinary Shares, representing approximately 0.09% of the issued Ordinary share capital of your Company. Subsidiary, Joint Venture and Associated Undertakings The Group has over 1,000 subsidiary, joint venture and associated undertakings. The principal ones as at 31 December 2012 are listed on pages 128 to 135. Statement of Directors’ Responsibilities The Directors, whose names are listed on pages 36 and 37, are responsible for preparing the Annual Report and Financial Statements in accordance with applicable laws and regulations. Company law in the Republic of Ireland requires the Directors to prepare ﬁnancial statements for each ﬁnancial year which give a true and fair view of the state of affairs of the Parent Company and of the Group and of the proﬁt or loss of the Group for that period (consolidated ﬁnancial statements). In preparing the consolidated ﬁnancial statements, the Directors are required to: – select suitable accounting policies and then apply them consistently; – make judgements and estimates that are reasonable and prudent; – comply with applicable International Financial Reporting Standards as adopted by the European Union, subject to any material departures disclosed and explained in the ﬁnancial statements; and – prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are also required by the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland to include a management report containing a fair review of the business and a description of the principal risks and uncertainties facing the Group. The Directors conﬁrm that they have complied with the above requirements in preparing the 2012 Annual Report and consolidated ﬁnancial statements. The considerations set out above for the Group are also required to be addressed by the Directors in preparing the ﬁnancial statements of the Parent Company (which are set out on pages 118 to 121, in respect of which the applicable accounting standards are those which are generally accepted in the Republic of Ireland. The Directors have elected to prepare the Parent Company’s Financial Statements in accordance with Generally Accepted Accounting Practice in Ireland (Irish GAAP) comprising the ﬁnancial reporting standards issued by the Accounting Standards Board and promulgated by the Institute of Chartered Accountants in Ireland, together with the Companies Acts, 1963 to 2012. The Directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the ﬁnancial position of the Parent Company and which enable them to ensure that the consolidated ﬁnancial statements are prepared in accordance with applicable International Financial Reporting Standards as adopted by the European Union and comply with the provisions of the Companies Acts, 1963 to 2012 and Article 4 of the IAS Regulation. The Directors have appointed appropriate accounting personnel, including a professionally qualiﬁed Finance Director, in order to ensure that those requirements are met. The books and accounting records of the Company are maintained at the principal executive ofﬁces located at Belgard Castle, Clondalkin, Dublin 22. The Directors are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. On behalf of the Board, N. Hartery, M. Lee, Directors 25 February 2013 Independent Auditor’s Report to the members of CRH public limited company We have audited the ﬁnancial statements of CRH plc for the year ended 31 December 2012 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Balance Sheets, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Accounting Policies, the related notes 1 to 33 (Group) and the related notes 1 to 12 (Company). The ﬁnancial reporting framework that has been applied in the preparation of the Group Financial Statements is Irish law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The ﬁnancial reporting framework that has been applied in the preparation of the Company Financial Statements is Irish law and accounting standards issued by the Financial Reporting Council and promulgated by the Institute of Chartered Accountants in Ireland (Generally Accepted Accounting Practice in Ireland). – The Company Balance Sheet is in agreement with the books of account. – The net assets of the Company, as stated in the Company Balance Sheet are more than half of the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 31 December 2012 a ﬁnancial situation which under section 40(1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the Company. – In our opinion the information given in the Directors’ Report is consistent with the ﬁnancial statements and the description in the Corporate Governance Report of the main features of the internal control and risk management systems in relation to the process for preparing the Group Financial Statements is consistent with the Group Financial Statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Acts 1963 to 2012 we are required to report to you if, in our opinion, the disclosures of Directors’ remuneration and transactions speciﬁed by law are not made. Under the Listing Rules we are required to review: – the Directors’ Statement in relation to going concern; – the part of the Corporate Governance Report relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code speciﬁed for our review; and – certain elements of the disclosures in the report by the Board on Directors’ remuneration. Breffni Maguire for and on behalf of Ernst & Young Dublin 25 February 2013 This Report is made solely to the Company’s members, as a body, in accordance with section 193 of the Companies Act, 1990. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this Report, or for the opinions we have formed. Respective responsibilities of Directors and Auditors As explained more fully in the Statement of Directors’ Responsibilities the Directors are responsible for the preparation of the ﬁnancial statements giving a true and fair view. Our responsibility is to audit and express an opinion on the ﬁnancial statements in accordance with Irish law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the ﬁnancial statements An audit involves obtaining evidence about the amounts and disclosures in the ﬁnancial statements sufﬁcient to give reasonable assurance that the ﬁnancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group and the Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of signiﬁcant accounting estimates made by the Directors; and the overall presentation of the ﬁnancial statements. In addition, we read all the ﬁnancial and non-ﬁnancial information in the Annual Report to identify material inconsistencies with the audited ﬁnancial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our Report. Opinion on ﬁnancial statements In our opinion: – the Group Financial Statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s affairs as at 31 December 2012 and of its proﬁt for the year then ended; – the Company Balance Sheet gives a true and fair view in accordance with Generally Accepted Accounting Practice in Ireland of the state of the Company’s affairs as at 31 December 2012; and – the ﬁnancial statements have been properly prepared in accordance with the requirements of the Companies Acts 1963 to 2012 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. Matters on which we are required to report by the Companies Acts 1963 to 2012 – We have obtained all the information and explanations which we consider necessary for the purposes of our audit. – In our opinion proper books of account have been kept by the Company. CRH 71 Consolidated Income Statement for the ﬁnancial year ended 31 December 2012 Notes 1 Revenue 3 Cost of sales Gross proﬁt 3 Operating costs 1,4,6,7 Group operating proﬁt 1,5 Proﬁt on disposals Proﬁt before ﬁnance costs 9 Finance costs 9 Finance income 9 Other ﬁnancial expense 10 Share of associates' (loss)/proﬁt 1 Proﬁt before tax 11 Income tax expense Group proﬁt for the ﬁnancial year Proﬁt attributable to: Equity holders of the Company Non-controlling interests Group proﬁt for the ﬁnancial year 2012 €m 2011 €m 18,659 (13,562) 5,097 (4,252) 845 230 1,075 (277) 19 (31) (112) 674 (120) 554 552 2 554 18,081 (13,179) 4,902 (4,031) 871 55 926 (262) 33 (28) 42 711 (114) 597 590 7 597 13 Basic earnings per Ordinary Share 76.5c 82.6c 13 Diluted earnings per Ordinary Share 76.4c 82.6c All of the results relate to continuing operations. Consolidated Statement of Comprehensive Income for the ﬁnancial year ended 31 December 2012 Notes Group proﬁt for the ﬁnancial year Other comprehensive income Currency translation effects 28 Actuarial loss on Group deﬁned beneﬁt pension obligations 25 Gains/(losses) relating to cash ﬂow hedges 11 Tax on items recognised directly within other comprehensive income Net expense recognised directly within other comprehensive income Total comprehensive income for the ﬁnancial year Attributable to: Equity holders of the Company Non-controlling interests Total comprehensive income for the ﬁnancial year N. Hartery, M. Lee, Directors 72 CRH 2012 €m 2011 €m 554 597 (51) (171) 1 28 (193) 361 360 1 361 107 (278) (7) 58 (120) 477 470 7 477 Consolidated Balance Sheet as at 31 December 2012 Notes ASSETS Non-current assets 14 Property, plant and equipment 15 Intangible assets 16 Investments accounted for using the equity method 16 Other ﬁnancial assets 18 Other receivables 25 Derivative ﬁnancial instruments 27 Deferred income tax assets Total non-current assets Current assets 17 Inventories 18 Trade and other receivables 16 Asset held for sale Current income tax recoverable 25 Derivative ﬁnancial instruments 23 Liquid investments 23 Cash and cash equivalents Total current assets Total assets EQUITY Capital and reserves attributable to the Company's equity holders 29 Equity share capital 29 Preference share capital 29 Share premium account 29 Treasury Shares and own shares Other reserves Foreign currency translation reserve Retained income Non-controlling interests Total equity LIABILITIES Non-current liabilities 24 Interest-bearing loans and borrowings 25 Derivative ﬁnancial instruments 27 Deferred income tax liabilities 19 Other payables 28 Retirement beneﬁt obligations 26 Provisions for liabilities Total non-current liabilities Current liabilities 19 Trade and other payables Current income tax liabilities 24 Interest-bearing loans and borrowings 25 Derivative ﬁnancial instruments 26 Provisions for liabilities Total current liabilities Total liabilities Total equity and liabilities N. Hartery, M. Lee, Directors 2012 €m 2011 €m 8,448 4,446 710 161 86 120 197 14,168 2,397 2,592 143 17 52 31 1,768 7,000 8,936 4,488 948 177 62 181 290 15,082 2,286 2,663 - 8 24 29 1,295 6,305 21,168 21,387 249 1 4,133 (146) 182 (169) 6,287 10,537 36 10,573 4,239 14 1,301 296 674 257 6,781 2,841 181 676 6 110 3,814 247 1 4,047 (183) 168 (119) 6,348 10,509 74 10,583 4,463 20 1,492 204 664 252 7,095 2,858 201 519 10 121 3,709 10,595 10,804 21,168 21,387 CRH 73 Consolidated Statement of Changes in Equity for the ﬁnancial year ended 31 December 2012 Notes At 1 January 2012 Group proﬁt for the ﬁnancial year Other comprehensive income Total comprehensive income 29 8 Issue of share capital (net of expenses) Share-based payment expense - Performance Share Plan (PSP) 29 Treasury/own shares reissued Share option exercises 12 5 29 8 Dividends (including shares issued in lieu of dividends) Non-controlling interest in joint ventures disposed Acquisition of non-controlling interests for the ﬁnancial year ended 31 December 2011 At 1 January 2011 Group proﬁt for the ﬁnancial year Other comprehensive income Total comprehensive income Issue of share capital (net of expenses) Share-based payment expense - share option schemes - Performance Share Plan (PSP) 29 Treasury/own shares reissued Share option exercises 12 31 Dividends (including shares issued in lieu of dividends) Non-controlling interests arising on acquisition of subsidiaries Acquisition of non-controlling interests Attributable to the equity holders of the Company Issued share capital €m Share premium account €m Treasury Shares/ own shares €m Other reserves €m Foreign currency translation reserve €m Retained income €m Non- controlling interests €m Total equity €m 248 4,047 (183) 168 (119) 6,348 74 10,583 - - - 2 - - - - - - - - - 86 - - - - - - - - - - - 37 - - - - - - - - 14 - - - - - - (50) (50) - - - - - - - 552 (142) 410 - - (37) 16 (450) - - 2 (1) 1 - - - - (5) (32) (2) 554 (193) 361 88 14 - 16 (455) (32) (2) 245 3,915 (199) 147 (226) 6,446 83 10,411 - - - 3 - - - - - - - - - - 132 - - - - - - - - - - - - - 16 - - - - - - - - 9 12 - - - - - - 107 107 - - - - - - - - 590 (227) 363 - - - (16) 6 (445) - (6) 7 - 7 - - - - - (9) (2) (5) 597 (120) 477 135 9 12 - 6 (454) (2) (11) At 31 December 2012 250 4,133 (146) 182 (169) 6,287 36 10,573 At 31 December 2011 248 4,047 (183) 168 (119) 6,348 74 10,583 N. Hartery, M. Lee, Directors 74 CRH Consolidated Statement of Cash Flows for the ﬁnancial year ended 31 December 2012 Notes Cash ﬂows from operating activities Proﬁt before tax 9 Finance costs (net) 10 Share of associates' result 5 Proﬁt on disposals Group operating proﬁt 3 Depreciation charge 3 Amortisation of intangible assets 8 Share-based payment expense Other (primarily pension payments) 20 Net movement on working capital and provisions Cash generated from operations Interest paid (including ﬁnance leases) 21 (Increase)/decrease in liquid investments Corporation tax paid Net cash inﬂow from operating activities Cash ﬂows from investing activities 5 Proceeds from disposals (net of cash disposed) Interest received Dividends received from associates 14 Purchase of property, plant and equipment 31 Acquisition of subsidiaries and joint ventures (net of cash acquired) 16 Other investments and advances 20 Deferred and contingent acquisition consideration paid Net cash outﬂow from investing activities Cash ﬂows from ﬁnancing activities Proceeds from exercise of share options Acquisition of non-controlling interests Increase in interest-bearing loans, borrowings and ﬁnance leases Net cash ﬂow arising from derivative ﬁnancial instruments Repayment of interest-bearing loans, borrowings and ﬁnance leases 12 Dividends paid to equity holders of the Company 12 Dividends paid to non-controlling interests Net cash outﬂow from ﬁnancing activities Increase/(decrease) in cash and cash equivalents Reconciliation of opening to closing cash and cash equivalents 21 Cash and cash equivalents at 1 January Translation adjustment Increase/(decrease) in cash and cash equivalents 21 Cash and cash equivalents at 31 December Reconciliation of opening to closing net debt 21 Net debt at 1 January Increase/(decrease) in liquid investments 31 Debt in acquired companies 5 Debt in disposed companies Increase in interest-bearing loans, borrowings and ﬁnance leases Net cash ﬂow arising from derivative ﬁnancial instruments Repayment of interest-bearing loans, borrowings and ﬁnance leases Increase/(decrease) in cash and cash equivalents Mark-to-market adjustment Translation adjustment 21 Net debt at 31 December N. Hartery, M. Lee, Directors 2012 €m 674 289 112 (230) 845 748 47 14 (152) (75) 1,427 (264) (4) (134) 1,025 751 19 18 (575) (420) (32) (30) (269) 16 (2) 502 13 (419) (362) (5) (257) 499 1,295 (26) 499 1,768 (3,483) 4 (42) 108 (502) (13) 419 499 9 37 (2,964) 2011 €m 711 257 (42) (55) 871 742 43 21 (109) (211) 1,357 (239) 4 (96) 1,026 442 32 20 (576) (507) (24) (21) (634) 6 (11) 101 (63) (552) (310) (9) (838) (446) 1,730 11 (446) 1,295 (3,473) (4) (47) 50 (101) 63 552 (446) (18) (59) (3,483) CRH 75 Accounting Policies (including key accounting estimates and assumptions) Statement of Compliance The Consolidated Financial Statements of CRH plc have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board (IASB). IFRS as adopted by the European Union differ in certain respects from IFRS as issued by the IASB. However, the Consolidated Financial Statements for the ﬁnancial years presented would be no different had IFRS as issued by the IASB been applied. References to IFRS hereafter should be construed as references to IFRS as adopted by the European Union. CRH plc, the Parent Company, is a publicly traded limited company incorporated and domiciled in the Republic of Ireland. Basis of Preparation The Consolidated Financial Statements, which are presented in euro millions, have been prepared under the historical cost convention as modiﬁed by the measurement at fair value of share-based payments, retirement beneﬁt obligations and certain ﬁnancial assets and liabilities including derivative ﬁnancial instruments. The accounting policies set out below have been applied consistently by all the Group’s subsidiaries, joint ventures and associates to all periods presented in these Consolidated Financial Statements. Certain prior year disclosures have been amended to conform to current year presentation. In accordance with Section 148(8) of the Companies Act, 1963 and Section 71 (A) of the Companies (Amendment) Act, 1986, the Company is availing of the exemption from presenting its individual proﬁt and loss account to the Annual General Meeting and from ﬁling it with the Registrar of Companies. Adoption of IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations (i) IFRS and IFRIC interpretations adopted during the ﬁnancial year The Group has adopted the following new and revised IFRS in respect of the 2012 year-end: – IAS 12 Income Taxes (amendment) – IFRS 7 Financial Instruments: Disclosures (amendment) The application of the above standards and interpretations did not result in material changes in the Group’s Consolidated Financial Statements. (ii) IFRS and IFRIC interpretations being adopted in 2013 A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these Consolidated Financial Statements as they are not yet effective for the Group. The Group will adopt these standards from 1 January 2013. – IFRS 10 Consolidated Financial Statements* IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the Consolidated Financial Statements of the Group. Based on the preliminary analyses performed, IFRS 10 is not expected to have a material impact on the currently held investments of the Group. – IFRS 11 Joint Arrangements*, IAS 28 Investments in Associates and Joint Ventures IFRS 11 replaces IAS 31 Interests in Joint Ventures. The Group currently uses proportionate consolidation to account for its joint ventures. The Group has performed an assessment of IFRS 11 and has concluded that our principal joint arrangements are joint ventures as deﬁned under IFRS 11. With the application of the new standard, the Group’s investments in joint ventures will be accounted for using the equity method of accounting. The change to equity accounting will have no impact on the Group’s proﬁt after tax, but will impact each line item in the Consolidated Income Statement. The impact of IFRS 11 on the current period (which will be the comparative period as of 31 December 2013) will be to increase the Group’s share of equity-accounted investments (which currently only include the results of our associate investments) by €28 million, decrease revenue by €575 million and operating proﬁt by €40 million, and reduce ﬁnance costs and income tax expense by €2 million and €10 million respectively. The Group’s Consolidated Balance Sheet will also be impacted on a line by line basis. The Group’s investments accounted for using the equity method will increase by €587 million. The Group’s non-current assets will decrease by €71 million and non-current liabilities will decrease by €165 million. The impact on current assets and current liabilities will be a reduction of €191 million and €97 million respectively. – IFRS 12 Disclosure of Interests in Other Entities* IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated ﬁnancial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. IFRS 12 has no impact on the Group’s ﬁnancial performance. – IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine IFRIC 20 provides guidance on the accounting treatment for stripping costs incurred during the production phase of a surface mine used to extract mineral resources. The Group currently expenses all stripping costs as incurred. Under IFRIC 20 the Group is required to capitalise (as a non-current asset) any current period stripping costs that provide economic beneﬁts beyond the current period. This would result in a reduction in operating expenses which would be offset by an increased depletion charge. IFRIC 20 will not have a material impact on the Group’s ﬁnancial position or performance. – IAS 19 Employee Beneﬁts (revised) The application of the revised standard will result in a number of amendments to the Group’s current accounting for retirement beneﬁt obligations, including a change to the calculation of the net interest expense in the Consolidated Income Statement, adjustments to the current service cost for risk sharing between employer and employees and the adoption of generational-based mortality tables across all schemes. The most signiﬁcant change is in how net interest expense will be calculated. Currently the Group’s Consolidated Income Statement includes a credit for the expected return on assets and an interest expense in respect of the pension liability. Under the revised standard the Group will no longer take a credit for the expected return on assets and the net interest expense will be calculated by multiplying the year-end discount rate by the year-end net pension liability. Under this method the 2013 interest expense will be approximately €21 million (2012: increase in interest expense recorded of approximately €18 million). The other amendments to IAS 19 are anticipated to have a less signiﬁcant impact on the Group and primarily affect the Group’s Swiss retirement beneﬁt obligations. Additional disclosure requirements relating to the sensitivity of the deﬁned beneﬁt obligation to changes in each signiﬁcant actuarial assumptions will also be required. – IAS 1 Presentation of Financial Statements - amendments The amendments to IAS 1 changes the grouping of items presented in Other Comprehensive Income. The amendments affect presentation only and have no impact on the Group’s ﬁnancial performance. – IFRS 7 Financial Instruments: Disclosures - amendments * CRH prepares its Consolidated Financial Statements in compliance with IFRS as issued by the EU and prepares its form 20-F in compliance with IFRS as issued by the IASB. IFRS 10, 11 and 12 have an effective date of 1 January 2014 for IFRS as issued by the EU. The IASB has an effective date for these standards of 1 January 2013. To ensure consistency between the 2013 Annual Report and form 20-F, CRH will early adopt IFRS 10, 11 and 12 in 2013. 76 CRH These amendments require an entity to disclose information about rights to set- off and related arrangements (e.g. collateral agreements). These amendments will not impact the Group’s ﬁnancial position or performance. – IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 will not have a material impact on the Group’s ﬁnancial position or performance. – Annual Improvements May 2012 These improvements will not have a material impact on the Group. (iii) IFRS and IFRIC interpretations effective subsequent to the CRH 2013 ﬁnancial year-end: – IFRS 9 Financial Instruments - Classiﬁcation and Measurement effective 1 January 2015 IFRS 9, as issued, reﬂects the ﬁrst phase of the IASB’s work on the replacement of IAS 39 and applies to classiﬁcation and measurement of ﬁnancial assets and ﬁnancial liabilities as deﬁned in IAS 39. In subsequent phases, the IASB will address hedge accounting and impairment of ﬁnancial assets. The Group will quantify the effect in conjunction with the other phases, when the ﬁnal standard including all phases is issued. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. Key Accounting Policies which involve Estimates, Assumptions and Judgements The preparation of the Consolidated Financial Statements in accordance with IFRS requires management to make certain estimates, assumptions and judgements that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses at the end of the reporting period. Management believes that the estimates, assumptions and judgements upon which it relies are reasonable based on the information available to it at the time that those estimates, assumptions and judgements are made. In some cases, the accounting treatment of a particular transaction is speciﬁcally dictated by IFRS and does not require management’s judgement in its application. Management consider that their use of estimates, assumptions and judgements in the application of the Group’s accounting policies are inter-related and therefore discuss them together below. The critical accounting policies which involve signiﬁcant estimates or assumptions or judgements, the actual outcome of which could have a material impact on the Group’s results and ﬁnancial position outlined below, are as follows: Provisions for liabilities – Note 26 A provision is recognised when the Group has a present obligation (either legal or constructive) as a result of a past event, it is probable that a transfer of economic beneﬁts will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group anticipates that a provision will be reimbursed, the reimbursement is recognised as a separate asset only when it is virtually certain that the reimbursement will arise. The expense relating to any provision is presented in the Consolidated Income Statement net of any reimbursement. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation. The increase in the provision due to passage of time is recognised as interest expense. Provisions arising on business combination activity are recognised only to the extent that they would have qualiﬁed for recognition in the ﬁnancial statements of the acquiree prior to acquisition. Provisions are not recognised for future operating losses. Rationalisation and redundancy provisions Provisions for rationalisation and redundancy are established when a detailed restructuring plan has been drawn up, resolved upon by the responsible decision- making level of management and communicated to the employees who are affected by the plan. These provisions are recognised at the present value of future disbursements and cover only expenses that arise directly from restructuring measures, are necessary for restructuring and exclude costs related to future business operations. Restructuring measures may include the sale or termination of business units, site closures, and relocation of business activities, fundamental reorganisation of changes departments or business units. in management structure or a Environmental and remediation provisions The measurement of environmental and remediation provisions is based on an evaluation of currently available facts with respect to each individual site and considers factors such as existing technology, currently enacted laws and regulations and prior experience in remediation of sites. Inherent uncertainties exist in such evaluations primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, the protracted length of the clean-up periods and evolving technologies. The environmental and remediation liabilities provided for in the Consolidated Financial Statements reﬂect the information available to management at the time of determination of the liability and are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. Due to the inherent uncertainties described above, many of which are not under management’s control, the accounting for such items could result in different amounts if management used different assumptions or if different conditions occur in future accounting periods. Legal contingencies The status of each signiﬁcant claim and legal proceeding in which the Group is involved is reviewed by management on a periodic basis and the Group’s potential ﬁnancial exposure is assessed. If the potential loss from any claim or legal proceeding is considered probable, and the amount can be estimated, a liability is recognised for the estimated loss. Because of the uncertainties inherent in such matters, the related provisions are based on the best information available at the time; the issues taken into account by management and factored into the assessment of legal contingencies include, as applicable, the status of settlement negotiations, interpretations of contractual obligations, prior experience with similar contingencies/claims, the availability of insurance to protect against the downside exposure and advice obtained from legal counsel and other third parties. As additional information becomes available on pending claims, the potential liability is reassessed and revisions are made to the amounts accrued where appropriate. Such revisions in the estimates of the potential liabilities could have a material impact on the results of operations and ﬁnancial position of the Group. Retirement beneﬁt obligations – Note 28 Costs arising in respect of the Group’s deﬁned contribution pension schemes are charged to the Consolidated Income Statement in the period in which they are incurred. The Group has no legal or constructive obligation to pay further contributions in the event that the fund does not hold sufﬁcient assets to meet its beneﬁt commitments. The liabilities and costs associated with the Group’s deﬁned beneﬁt pension schemes (both funded and unfunded) are assessed on the basis of the projected unit credit method by professionally qualiﬁed actuaries and are arrived at using actuarial assumptions based on market expectations at the balance sheet date. The discount rates employed in determining the present value of the schemes’ liabilities are determined by reference to market yields at the balance sheet date on high-quality corporate bonds of a currency and term consistent with the currency and term of the associated post-employment beneﬁt obligations. When the beneﬁts of a deﬁned beneﬁt scheme are improved, the portion of the increased beneﬁt relating to past service by employees is recognised as an expense in the Consolidated Income Statement on a straight-line basis over the average period until the beneﬁts become vested. To the extent that the enhanced beneﬁts vest immediately, the related expense is recognised immediately in the Consolidated Income Statement. The net surplus or deﬁcit arising on the Group’s deﬁned beneﬁt pension schemes, together with the liabilities associated with the unfunded schemes, are shown either within non-current assets or non-current liabilities in the Consolidated Balance Sheet. The deferred tax impact of pension scheme surpluses and deﬁcits is disclosed separately within deferred tax assets or liabilities as appropriate. Actuarial gains and losses are recognised immediately in the Consolidated Statement of Comprehensive Income. CRH 77 Accounting Policies | continued The deﬁned beneﬁt pension asset or liability in the Consolidated Balance Sheet comprises the total for each plan of the present value of the deﬁned beneﬁt obligation less the fair value of plan assets out of which the obligations are to be settled directly. Plan assets are assets that are held by a long-term employee beneﬁt fund or qualifying insurance policies. Fair value is based on market price information and, in the case of published securities, it is the published bid price. The value of any deﬁned beneﬁt asset is limited to the present value of any economic beneﬁts available in the form of refunds from the plan and reductions in the future contributions to the plan. The Group’s obligation in respect of post-employment healthcare and life assurance beneﬁts represents the amount of future beneﬁt that employees have earned in return for service in the current and prior periods. The obligation is computed on the basis of the projected unit credit method and is discounted to present value using a discount rate equating to the market yield at the balance sheet date on high-quality corporate bonds of a currency and term consistent with the currency and estimated term of the post-employment obligations. Assumptions The assumptions underlying the actuarial valuations from which the amounts recognised in the Consolidated Financial Statements are determined (including discount rates, expected return on plan assets, rate of increase in future compensation levels, mortality rates and healthcare cost trend rates) are updated annually based on current economic conditions and for any relevant changes to the terms and conditions of the pension and post-retirement plans. These assumptions can be affected by (i) for the discount rate, changes in the rates of return on high-quality corporate bonds; (ii) for the expected return on plan assets, changes in the pension plans’ strategic asset allocations to various investment types or to long-term return trend rates in the capital markets in which the pension fund assets are invested; (iii) for future compensation levels, future labour market conditions and (iv) for healthcare cost trend rates, the rate of medical cost inﬂation in the relevant regions. The weighted average actuarial assumptions used and sensitivity analysis in relation to the discount rates employed in the determination of pension and other post-retirement liabilities are contained in Note 28 to the Consolidated Financial Statements. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the obligations and expenses recognised in future accounting periods. The assets and liabilities of deﬁned beneﬁt pension schemes may exhibit signiﬁcant period- on-period volatility attributable primarily to asset valuations, changes in bond yields and longevity. In addition to future service contributions, signiﬁcant cash contributions may be required to remediate past service deﬁcits. Taxation – current and deferred – Notes 11 and 27 Current tax represents the expected tax payable (or recoverable) on the taxable proﬁt for the year using tax rates enacted for the period. Any interest or penalties arising are included within current tax. Where items are accounted for outside of proﬁt or loss, the related income tax is recognised either in other comprehensive income or directly in equity as appropriate. Deferred tax is recognised using the liability method on temporary differences arising at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; in addition, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable proﬁt or loss. No provision has been made for temporary differences applicable to investments in subsidiaries and interests in joint ventures as the Group is in a position to control the timing of reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Due to the absence of control in the context of associates (signiﬁcant inﬂuence only), deferred tax liabilities are recognised where appropriate in respect of CRH’s investments in these entities on the basis that the exercise of signiﬁcant inﬂuence would not necessarily prevent earnings being remitted by other shareholders in the undertaking. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets and liabilities are not subject to discounting. 78 CRH Deferred tax assets are recognised in respect of all deductible temporary differences, carry-forward of unused tax credits and unused tax losses to the extent that it is probable that taxable proﬁts will be available against which the temporary differences can be utilised. The carrying amounts of deferred tax assets are subject to review at each balance sheet date and are reduced to the extent that future taxable proﬁts are considered to be inadequate to allow all or part of any deferred tax asset to be utilised. The Group’s income tax charge is based on reported proﬁt and expected statutory tax rates, which reﬂect various allowances and reliefs and tax planning opportunities available to the Group in the multiple tax jurisdictions in which it operates. The determination of the Group’s provision for income tax requires certain judgements and estimates in relation to matters where the ultimate tax outcome may not be certain. The recognition or non-recognition of deferred tax assets as appropriate also requires judgement as it involves an assessment of the future recoverability of those assets. In addition, the Group is subject to tax audits which can involve complex issues that could require extended periods for resolution. Although management believes that the estimates included in the Consolidated Financial Statements and its tax return positions are reasonable, no assurance can be given that the ﬁnal outcome of these matters will not be different than that which is reﬂected in the Group’s historical income tax provisions and accruals. Any such differences could have a material impact on the income tax provision and proﬁt for the period in which such a determination is made. Property, plant and equipment – Note 14 The Group’s accounting policy for property, plant and equipment is considered critical because the carrying value of €8,448 million at 31 December 2012 represents a signiﬁcant portion (40%) of total assets at that date. Property, plant and equipment are stated at cost less any accumulated depreciation and any accumulated impairments except for certain items that had been revalued to fair value prior to the date of transition to IFRS (1 January 2004). Repair and maintenance expenditure is included in an asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic beneﬁts associated with the item will ﬂow to the Group and the cost of the item can be measured reliably. All other repair and maintenance expenditure is charged to the Consolidated Income Statement during the ﬁnancial period in which it is incurred. Borrowing costs incurred in the construction of major assets which take a substantial period of time to complete are capitalised in the ﬁnancial period in which they are incurred. In the application of the Group’s accounting policy, judgement is exercised by management in the determination of residual values and useful lives. Depreciation and depletion is calculated to write off the book value of each item of property, plant and equipment over its useful economic life on a straight-line basis at the following rates: Land and buildings: The book value of mineral-bearing land, less an estimate of its residual value, is depleted over the period of the mineral extraction in the proportion which production for the year bears to the latest estimates of mineral reserves. Land other than mineral-bearing land is not depreciated. In general, buildings are depreciated at 2.5% per annum (“p.a.”). Plant and machinery: These are depreciated at rates ranging from 3.3% p.a. to 20% p.a. depending on the type of asset. Plant and machinery includes transport which is, on average, depreciated at 20% p.a. Depreciation methods, useful lives and residual values are reviewed at each ﬁnancial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic beneﬁts embodied in the asset are accounted for by changing the depreciation period or method as appropriate on a prospective basis. Impairment of long-lived assets and goodwill – Notes 14 and 15 Impairment of property, plant and equipment and goodwill The carrying values of items of property, plant and equipment are reviewed for indicators of impairment at each reporting date and are subject to impairment testing when events or changes in circumstances indicate that the carrying values may not be recoverable. Goodwill is subject to impairment testing on an annual basis and at any time during the year if an indicator of impairment is considered to exist. In the year in which a business combination is effected and where some or all of the goodwill allocated to a particular cash-generating unit arose in respect of that combination, the cash-generating unit is tested for impairment prior to the end of the relevant annual period. Property, plant and equipment assets are reviewed for potential impairment by applying a series of external and internal indicators speciﬁc to the assets under consideration; these indicators encompass macroeconomic issues including the inherent cyclicality of the building materials sector, actual obsolescence or physical damage, a deterioration in forecast performance in the internal reporting cycle and restructuring and rationalisation programmes. Where the carrying value exceeds the estimated recoverable amount (being the greater of fair value less costs to sell and value-in-use), an impairment loss is recognised by writing down the assets to their recoverable amount. In assessing value-in-use, the estimated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset for which the future cash ﬂow estimates have not been adjusted. The estimates of future cash ﬂows exclude cash inﬂows or outﬂows attributable to ﬁnancing activities and income tax. For an asset that does not generate largely independent cash inﬂows, the recoverable amount is determined by reference to the cash-generating unit to which the asset belongs. Impairment losses arising in respect of goodwill are not reversed once recognised. Goodwill relating to associates is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. Where indicators of impairment of an investment arise in accordance with the requirements of IAS 39 Financial Instruments: Recognition and Measurement, the carrying amount is tested for impairment by comparing its recoverable amount with its carrying amount. The impairment testing process requires management to make signiﬁcant judgements and estimates regarding the future cash ﬂows expected to be generated by the use of and, if applicable, the eventual disposal of, long-lived assets and goodwill as well as other factors to determine the fair value of the assets. Management periodically evaluates and updates the estimates based on the conditions which inﬂuence these variables. A detailed discussion of the impairment methodology applied and key assumptions used by the Group in the context of long-lived assets and goodwill are provided in Notes 14 and 15 to the Consolidated Financial Statements. The assumptions and conditions for determining impairments of long-lived assets and goodwill reﬂect management’s best assumptions and estimates, but these items involve inherent uncertainties described above, many of which are not under management’s control. As a result, the accounting for such items could result in different estimates or amounts if management used different assumptions or if different conditions occur in future accounting periods. Other Signiﬁcant Accounting Policies Basis of consolidation The Consolidated Financial Statements include the ﬁnancial statements of the Parent Company and all subsidiaries, joint ventures and associates, drawn up to 31 December each year. The ﬁnancial year-ends of the Group’s subsidiaries, joint ventures and associates are co-terminous. Subsidiaries The ﬁnancial statements of subsidiaries are included in the Consolidated Financial Statements from the date on which control over the operating and ﬁnancial decisions is obtained and cease to be consolidated from the date on which the Group loses control. The existence and effect of potential voting rights that are currently exercisable or convertible are considered in determining the existence or otherwise of control. A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. Non-controlling interests represent the portion of the equity of a subsidiary not attributable either directly or indirectly to the Parent Company and are presented separately in the Consolidated Income Statement and within equity in the Consolidated Balance Sheet, distinguished from Parent Company shareholders’ equity. Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as equity holders and therefore no goodwill is recognised as a result of such transactions. On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. Joint ventures – Note 2 The Group’s share of results and net assets of joint ventures (jointly controlled entities which are entities in which the Group holds an interest on a long-term basis and which are jointly controlled by the Group and one or more other venturers under a contractual arrangement) are accounted for on the basis of proportionate consolidation from the date on which the contractual agreements stipulating joint control are ﬁnalised and are derecognised when joint control ceases. The Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash ﬂows on a line-by-line basis with similar items in the Consolidated Financial Statements. Loans to joint ventures (after proportionate elimination) are classiﬁed as loans and receivables within ﬁnancial assets and are recorded at amortised cost. Associates – Note 10 Entities other than subsidiaries and joint ventures in which the Group has a participating interest, and over whose operating and ﬁnancial policies the Group is in a position to exercise signiﬁcant inﬂuence, are accounted for as associates using the equity method and are included in the Consolidated Financial Statements from the date on which signiﬁcant inﬂuence is deemed to arise until the date on which such inﬂuence ceases to exist. Under the equity method, the Consolidated Income Statement reﬂects the Group’s share of proﬁt after tax of the related associates. Investments in associates are carried in the Consolidated Balance Sheet at cost adjusted in respect of post-acquisition changes in the Group’s share of net assets, less any impairment in value. If necessary, impairment losses on the carrying amount of an investment are reported within the Group’s share of associates’ proﬁt after tax in the Consolidated Income Statement. If the Group’s share of losses exceeds the carrying amount of an associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate. Transactions eliminated on consolidation Intra-group balances and transactions, income and expenses, and any unrealised gains or losses arising from such transactions, are eliminated in preparing the Consolidated Financial Statements. Unrealised gains arising from transactions with joint ventures and associates are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same manner as unrealised gains, but only to the extent that there is no evidence of impairment in the Group’s interest in the entity. Revenue recognition Revenue represents the value of goods and services supplied and is net of trade discounts and value added tax/sales tax. Other than in the case of construction contracts, revenue is recognised to the extent that revenue and related costs incurred or to be incurred are subject to reliable measurement, that it is probable that economic beneﬁts will ﬂow to the Group and that the signiﬁcant risks and rewards of ownership have passed to the buyer, usually on delivery of the goods. Construction contracts The Group engages primarily in the performance of ﬁxed price contracts, as opposed to cost plus contracts, and recognises revenue in accordance with the percentage-of-completion method, with the completion percentage being computed generally by reference to the proportion that contract costs incurred at the balance sheet date bear to the total estimated costs of the contract. Contract costs are recognised as incurred. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be proﬁtable, contract revenue is recognised over the period of the contract. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred where it is probable that these costs will be recoverable. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately as an expense. Revenue and/or costs in respect of variations or contracts claims and incentive payments, to the extent that they arise, are recognised when it is probable that the amount, which can be measured reliably, will be recovered from/paid to the customer. CRH 79 Accounting Policies | continued If circumstances arise that may change the original estimates of revenues, costs or extent of progress towards completion, estimates are revised. These revisions may result in increases or decreases in revenue or costs and are reﬂected in income in the period in which the circumstances that give rise to the revision became known by management. Segment reporting – Note 1 Operating segments are reported in a manner consistent with the internal organisational and management structure and the internal reporting information provided to the Chief Operating Decision-Maker who is responsible for allocating resources and assessing performance of the operating segments. Share-based payments – Note 8 The Group operates both Share Option Schemes and a Performance Share Plan. Its policy in relation to the granting of share options and the granting of awards under the Performance Share Plan together with the nature of the underlying market and non-market performance and other vesting conditions are addressed in the Report on Directors’ Remuneration on page 59. The Group’s employee share options and shares awarded under the Performance Share Plan are equity-settled share-based payments as deﬁned in IFRS 2 Share-Based Payment. Share options For share option awards, the Group measures the services received and the corresponding increase in equity at fair value at the grant date using the trinomial model (a lattice option-pricing model in accordance with IFRS 2). Fair value is determined on the basis that the services to be rendered by employees as consideration for the granting of share options will be received over the vesting period, which is assessed as at the grant date. The share options granted by the Company are at market value at date of grant and are not subject to market- based vesting conditions within the meaning of IFRS 2. The cost is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulﬁlled. The cumulative expense recognised at each reporting date until the vesting date reﬂects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The Consolidated Income Statement expense/credit for a period represents the movement in cumulative expense recognised at the beginning and end of that period. The cumulative charge to the Consolidated Income Statement is reversed only where the performance condition is not met or where an employee in receipt of share options leaves service prior to completion of the expected vesting period and those options forfeit in consequence. No expense is recognised for awards that do not ultimately vest, except for share-based payments where vesting is conditional upon a non-vesting condition which is treated as vesting irrespective of whether or not it is satisﬁed, provided that all other performance and/or service conditions are satisﬁed. Where an award is cancelled, it is treated as if it is vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the Company or the employee are not met. All cancellations of awards are treated equally. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. The dilutive effect of outstanding options is reﬂected as additional share dilution in the determination of diluted earnings per share. To the extent that the Group receives a tax deduction relating to the services paid in shares, deferred tax in respect of share options is provided on the basis of the difference between the market price of the underlying equity as at the date of the ﬁnancial statements and the exercise price of the option; where the amount of any tax deduction (or estimated future tax deduction) exceeds the amount of the related cumulative remuneration expense, the current or deferred tax associated with the excess is recognised directly in equity. The Group has no exposure in respect of cash-settled share-based payment transactions and share-based payment transactions with cash alternatives. 80 CRH Awards under the Performance Share Plan The fair value of shares awarded under the Performance Share Plan is determined using a Monte Carlo simulation technique and is expensed in the Consolidated Income Statement over the vesting period. The Performance Share Plan contains inter alia a total shareholder return-based (and hence market-based) vesting condition; accordingly, the fair value assigned to the related equity instruments at the grant date is adjusted so as to reﬂect the anticipated likelihood as at the grant date of achieving the market-based vesting condition. Awards are treated as vesting irrespective of whether or not the market condition is satisﬁed, provided that all other performance and/or service conditions are satisﬁed. Business combinations – Note 31 The Group applies the acquisition method in accounting for business combinations. The cost of an acquisition is measured as the aggregate of the consideration transferred (excluding amounts relating to the settlement of pre- existing relationships), the amount of any non-controlling interest in the acquiree and, in a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously-held equity interest in the acquiree. Transaction costs that the Group incurs in connection with a business combination are expensed as incurred. To the extent that settlement of all or any part of a business combination is deferred, the fair value of the deferred component is determined through discounting the amounts payable to their present value at the date of exchange. The discount component is unwound as an interest charge in the Consolidated Income Statement over the life of the obligation. Where a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the amount of the adjustment is included in the cost at the acquisition date at fair value. The fair value of contingent consideration at acquisition date is arrived at through discounting the expected payment (based on scenario modelling) to present value. In general, in order for contingent consideration to become payable, pre-deﬁned proﬁt and/or proﬁt/net asset ratios must be exceeded. Subsequent changes to the fair value of the contingent consideration will be recognised in proﬁt or loss unless the contingent consideration is classiﬁed as equity, in which case it is not remeasured and settlement is accounted for within equity. The assets and liabilities (and contingent liabilities, if relevant) arising on business combination activity are measured at their acquisition-date fair values. In the case of a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously-held equity interest in the acquiree is remeasured to fair value as at the acquisition date through proﬁt or loss. When the initial accounting for a business combination is determined provisionally, any adjustments to the provisional values allocated to the identiﬁable assets and liabilities (and contingent liabilities, if relevant) are made within the measurement period, a period of no more than one year from the acquisition date. Goodwill – Note 15 Goodwill arising on a business combination is initially measured at cost being the excess of the cost of an acquisition over the net identiﬁable assets and liabilities assumed at the date of acquisition and relates to the future economic beneﬁts arising from assets which are not capable of being individually identiﬁed and separately recognised. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. If the cost of the acquisition is lower than the fair value of the net assets of the subsidiary acquired, the identiﬁcation and measurement of the related assets and liabilities and contingent liabilities are revisited and the cost is reassessed with any remaining balance recognised immediately in the Consolidated Income Statement. Goodwill applicable to jointly controlled entities is accounted for on the basis of proportionate consolidation and is therefore included in the goodwill caption in the Consolidated Balance Sheet, net of any impairment. The carrying amount of goodwill in respect of associates is included in investments in associates (i.e. within ﬁnancial assets) under the equity method in the Consolidated Balance Sheet. Where a subsidiary is disposed of or terminated through closure, the carrying value of any goodwill which arose on acquisition of that subsidiary is included in the determination of the net proﬁt or loss on disposal/termination. Intangible assets (other than goodwill) arising on business combinations – Note 15 An intangible asset is capitalised separately from goodwill as part of a business combination at cost (fair value at date of acquisition) to the extent that it is probable that the expected future economic beneﬁts attributable to the asset will ﬂow to the Group and that its cost can be measured reliably. Subsequent to initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The carrying values of deﬁnite-lived intangible assets (the Group does not currently have any indeﬁnite-lived intangible assets other than goodwill) are reviewed for indicators of impairment at each reporting date and are subject to impairment testing when events or changes in circumstances indicate that the carrying values may not be recoverable. The amortisation of intangible assets is calculated to write off the book value of deﬁnite-lived intangible assets over their useful lives on a straight-line basis on the assumption of zero residual value. In general, deﬁnite-lived intangible assets are amortised over periods ranging from one to ten years, depending on the nature of the intangible asset. Amortisation periods, useful lives, expected patterns of consumption and residual values are reviewed at each ﬁnancial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic beneﬁts embodied in the asset are accounted for by changing the amortisation period or method as appropriate on a prospective basis. Other ﬁnancial assets – Note 16 All investments are initially recognised at the fair value of the consideration given plus any directly attributable transaction costs. Where equity investments are actively traded in organised ﬁnancial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date. Unquoted equity investments are recorded at historical cost and are included within ﬁnancial assets in the Consolidated Balance Sheet given that it is impracticable to determine fair value in accordance with IAS 39 Financial Instruments: Recognition and Measurement. Where non- derivative ﬁnancial assets meet the deﬁnition of “loans and receivables” under IAS 39, such balances are, following initial recognition, recorded at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in proﬁt or loss when the loans and receivables are derecognised or impaired as well as through the amortisation process. Leases – Notes 4 and 30 Leases where the lessor retains substantially all the risks and rewards of ownership are classiﬁed as operating leases. Operating lease rentals are charged to the Consolidated Income Statement on a straight-line basis over the lease term. Inventories and construction contracts – Note 17 Inventories are stated at the lower of cost and net realisable value. Cost is based on the ﬁrst-in, ﬁrst-out principle (and weighted average, where appropriate) and includes all expenditure incurred in acquiring the inventories and bringing them to their present location and condition. Raw materials are valued on the basis of purchase cost on a ﬁrst-in, ﬁrst-out basis. In the case of ﬁnished goods and work-in-progress, cost includes direct materials, direct labour and attributable overheads based on normal operating capacity and excludes borrowing costs. Net realisable value is the estimated proceeds of sale less all further costs to completion, and less all costs to be incurred in marketing, selling and distribution. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made, taking into consideration ﬂuctuations of price or cost directly relating to events occurring after the end of the period, the likelihood of short-term changes in buyer preferences, product obsolescence or perishability (all of which are generally low given the nature of the Group’s products) and the purpose for which the inventory is held. Materials and other supplies held for use in the production of inventories are not written down below cost if the ﬁnished goods, in which they will be incorporated, are expected to be sold at or above cost. Amounts recoverable on construction contracts, which are included in receivables, are stated at the net invoiced value of the work done less amounts received as progress payments on account. Cumulative costs incurred, net of amounts transferred to cost of sales, after deducting foreseeable losses, provisions for contingencies and payments on account not matched with revenue, are included as construction contract balances in inventories. Cost includes all expenditure directly related to speciﬁc projects and an allocation of ﬁxed and variable overheads incurred in the Group’s contract activities based on normal operating capacity. Trade and other receivables – Note 18 Trade receivables are carried at original invoice amount less an allowance for potentially uncollectible debts. Provision is made when there is objective evidence that the Group will not be in a position to collect the associated debts. Bad debts are written-off in the Consolidated Income Statement on identiﬁcation. Cash and cash equivalents – Note 23 Cash and cash equivalents comprise cash balances held for the purpose of meeting short-term cash commitments and investments which are readily convertible to a known amount of cash and are subject to an insigniﬁcant risk of change in value. Bank overdrafts are included within current interest-bearing loans and borrowings in the Consolidated Balance Sheet. Where the overdrafts are repayable on demand and form an integral part of cash management, they are netted against cash and cash equivalents for the purposes of the Consolidated Statement of Cash Flows. Liquid investments – Note 23 Liquid investments comprise short-term deposits and current asset investments which are held as readily disposable stores of value and include investments in government gilts and commercial paper and deposits of less than one year in duration. As the maturity of these investments is greater than three months, these investments are treated as ﬁnancial assets and are categorised as either “held-for-trading” or “loans and receivables”. Where relevant, the fair value of liquid investments is determined by reference to the traded value of actively traded instruments. Derivative ﬁnancial instruments and hedging practices – Note 25 In order to manage interest rate, foreign currency and commodity risks and to realise the desired currency proﬁle of borrowings, the Group employs derivative ﬁnancial instruments (principally interest rate swaps, currency swaps and forward foreign exchange contracts). At the inception of a derivative transaction, the Group documents the relationship between the hedged item and the hedging instrument together with its risk management objective and the strategy underlying the proposed transaction. The Group also documents its assessment, both at the inception of the hedging relationship and subsequently on an ongoing basis, of the effectiveness of the hedging instrument in offsetting movements in the fair values or cash ﬂows of the hedged items. Derivative ﬁnancial instruments are stated at fair value. Where derivatives do not fulﬁl the criteria for hedge accounting, changes in fair values are reported in the Consolidated Income Statement. The fair value of interest rate and currency swaps is the estimated amount the Group would pay or receive to terminate the swap at the balance sheet date taking into account interest and currency rates at that date and the creditworthiness of the swap counterparties. The fair value of forward exchange contracts is calculated by reference to forward exchange rates for contracts with similar maturity proﬁles and equates to the quoted market price at the balance sheet date (being the present value of the quoted forward price). Fair value and cash ﬂow hedges The Group uses fair value hedges and cash ﬂow hedges in its treasury activities. For the purposes of hedge accounting, hedges are classiﬁed either as fair value hedges (which entail hedging the exposure to movements in the fair value of a recognised asset or liability or an unrecognised ﬁrm commitment that could affect proﬁt or loss) or cash ﬂow hedges (which hedge exposure to ﬂuctuations in future cash ﬂows derived from a particular risk associated with a recognised asset or liability, or a highly probable forecast transaction that could affect proﬁt or loss). Where the conditions for hedge accounting are satisﬁed and the hedging instrument concerned is classiﬁed as a fair value hedge, any gain or loss stemming from the re-measurement of the hedging instrument to fair value is reported in the Consolidated Income Statement. In addition, any gain or loss on CRH 81 Accounting Policies | continued the hedged item which is attributable to the hedged risk is adjusted against the carrying amount of the hedged item and reﬂected in the Consolidated Income Statement. Where the adjustment is to the carrying amount of a hedged interest- bearing ﬁnancial instrument, the adjustment is amortised to the Consolidated Income Statement with the objective of achieving full amortisation by maturity. Where a derivative ﬁnancial instrument is designated as a hedge of the variability in cash ﬂows of a recognised asset or liability or a highly probable forecast transaction that could affect proﬁt or loss, the effective part of any gain or loss on the derivative ﬁnancial instrument is recognised as other comprehensive income, net of the income tax effect, with the ineffective portion being reported in the Consolidated Income Statement. The associated gains or losses that had previously been recognised as other comprehensive income are transferred to the Consolidated Income Statement contemporaneously with the materialisation of the hedged transaction. Any gain or loss arising in respect of changes in the time value of the derivative ﬁnancial instrument is excluded from the measurement of hedge effectiveness and is recognised immediately in the Consolidated Income Statement. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualiﬁes for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised as other comprehensive income remains there until the forecast transaction occurs. If a hedged transaction is no longer anticipated to occur, the net cumulative gain or loss previously recognised as other comprehensive income is transferred to the Consolidated Income Statement in the period. Net investment hedges Where foreign currency borrowings provide a hedge against a net investment in a foreign operation, and the hedge is deemed to be effective, foreign exchange differences are taken directly to a foreign currency translation reserve. The ineffective portion of any gain or loss on the hedging instrument is recognised immediately in the Consolidated Income Statement. Cumulative gains and losses remain in equity until disposal of the net investment in the foreign operation at which point the related differences are transferred to the Consolidated Income Statement as part of the overall gain or loss on sale. Interest-bearing loans and borrowings – Note 24 All loans and borrowings are initially recorded at the fair value of the consideration received net of directly attributable transaction costs. Subsequent to initial recognition, current and non-current interest-bearing loans and borrowings are, in general, measured at amortised cost employing the effective interest methodology. Fixed rate term loans, which have been hedged to ﬂoating rates (using interest rate swaps), are measured at amortised cost adjusted for changes in value attributable to the hedged risks arising from changes in underlying market interest rates. The computation of amortised cost includes any issue costs and any discount or premium materialising on settlement. Borrowings are classiﬁed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Emission rights Emission rights are accounted for such that a liability is recognised only in circumstances where emission rights have been exceeded from the perspective of the Group as a whole and the differential between actual and permitted emissions will have to be remedied through the purchase of the required additional rights at fair value; assets and liabilities arising in respect of under and over-utilisation of emission credits respectively are accordingly netted against one another in the preparation of the Consolidated Financial Statements. To the extent that excess emission rights are disposed of during a ﬁnancial period, the proﬁt or loss materialising thereon is recognised immediately within cost of sales in the Consolidated Income Statement. Foreign currency translation Items included in the ﬁnancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The Consolidated Financial Statements are presented in euro, which is the presentation currency of the Group and the functional currency of the Parent Company. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All currency translation differences are taken to the Consolidated Income Statement with the exception of all monetary items that provide an effective hedge for a net investment in a foreign operation. These are recognised in other comprehensive income until the disposal of the net investment, at which time they are recognised in the Consolidated Income Statement. Results and cash ﬂows of subsidiaries, joint ventures and associates with non- euro functional currencies have been translated into euro at average exchange rates for the year, and the related balance sheets have been translated at the rates of exchange ruling at the balance sheet date. Adjustments arising on translation of the results of non-euro subsidiaries, joint ventures and associates at average rates, and on restatement of the opening net assets at closing rates, are recognised in a separate translation reserve within equity, net of differences on related currency borrowings. All other translation differences are taken to the Consolidated Income Statement. On disposal of a foreign operation, accumulated currency translation differences are recognised in the Consolidated Income Statement as part of the overall gain or loss on disposal. Goodwill and fair value adjustments arising on acquisition of a foreign operation are regarded as assets and liabilities of the foreign operation, are expressed in the functional currency of the foreign operation, are recorded in euro at the exchange rate at the date of the transaction and are subsequently retranslated at the applicable closing rates. The principal exchange rates used for the translation of results, cash ﬂows and balance sheets into euro were as follows: Gains and losses are recognised in the Consolidated Income Statement through amortisation on the basis of the period of the loans and borrowings. euro 1 = Average Year-end 2012 2011 2012 2011 Borrowing costs arising on ﬁnancial instruments are recognised as an expense in the period in which they are incurred (unless capitalised as part of the cost of property, plant and equipment). Share capital and dividends – Notes 12 and 29 Treasury Shares and own shares Ordinary Shares acquired by the Parent Company or purchased by the Employee Beneﬁt Trust on behalf of the Parent Company under the terms of the Performance Share Plan are deducted from equity and presented on the face of the Consolidated Balance Sheet. No gain or loss is recognised in proﬁt or loss on the purchase, sale, issue or cancellation of the Parent Company’s Ordinary Shares. Dividends Dividends on Ordinary Shares are recognised as a liability in the Consolidated Financial Statements in the period in which they are declared by the Parent Company. US Dollar Pound Sterling Polish Zloty 1.2848 0.8109 4.1847 1.3922 0.8679 4.1212 1.3194 1.2939 0.8161 0.8353 4.0740 4.4580 Ukrainian Hryvnya 10.3933 11.1202 10.6259 10.3752 Swiss Franc Canadian Dollar Argentine Peso Turkish Lira Indian Rupee 1.2053 1.2842 5.8492 2.3135 1.2326 1.3763 5.7508 2.3388 1.2072 1.2156 1.3137 1.3215 6.4890 5.5746 2.3551 2.4432 68.5973 64.9067 72.5600 68.7130 Chinese Renminbi 8.1052 8.9968 8.2207 8.1588 82 CRH Notes on Consolidated Financial Statements 1. Segment Information CRH is a diversiﬁed international building materials group which manufactures and distributes a range of building materials products from the fundamentals of heavy materials and elements to construct the frame, through value-added products that complete the building envelope, to distribution channels which service construction ﬁt-out and renewal. Based on these key strategic drivers across the value chain, the Group is organised into six business segments comprising Europe Materials (including activities in China and India), Europe Products, (including activities in Australia and Southeast Asia), Europe Distribution, Americas Materials, Americas Products and Americas Distribution. No operating segments have been aggregated to form these segments. Materials businesses are predominantly engaged in the production and sale of a range of primary materials including cement, aggregates, readymixed concrete, asphalt/bitumen and agricultural/chemical lime. Products businesses are predominantly engaged in the production and sale of architectural and structural concrete products, clay products, fabricated and tempered glass products, construction accessories and the provision of a wide range of inter-related products and services to the construction sector. Distribution businesses encompass builders merchanting activities and Do-It-Yourself (DIY) stores engaged in the marketing and sale of supplies to the construction sector and to the general public. The principal factors employed in the identiﬁcation of the six segments reﬂected in this note include the Group’s organisational structure, the nature of the reporting lines to the Chief Operating Decision-Maker (as deﬁned in IFRS 8 Operating Segments), the structure of internal reporting documentation such as management accounts and budgets, and the degree of homogeneity of products, services and geographical areas within each of the segments from which revenue is derived. The Chief Operating Decision-Maker monitors the operating results of segments separately in order to allocate resources between segments and to assess performance. Segment performance is predominantly evaluated based on operating proﬁt. As performance is also evaluated using operating proﬁt before depreciation and amortisation (EBITDA (as deﬁned)*), supplemental information based on EBITDA (as deﬁned)* is also provided below. Given that net ﬁnance costs and income tax are managed on a centralised basis, these items are not allocated between operating segments for the purposes of the information presented to the Chief Operating Decision-Maker and are accordingly omitted from the detailed segmental analysis below. There are no asymmetrical allocations to reporting segments which would require disclosure. A. Operating segments disclosures - Consolidated Income Statement data Revenue Europe Americas Continuing operations - year ended 31 December Materials Products Distribution Total Group 2012 €m 2011 €m 2012 €m 2011 €m 2012 €m 2011 €m 2012 €m 2011 €m 2,685 4,971 7,656 2,985 4,395 7,380 2,481 2,806 5,287 2,648 2,378 5,026 4,140 1,576 5,716 4,340 1,335 5,675 9,306 9,353 18,659 9,973 8,108 18,081 Group operating proﬁt before depreciation and amortisation (EBITDA (as deﬁned)*) Europe Americas Depreciation and amortisation Europe Americas Group operating proﬁt (EBIT) Europe Americas Proﬁt on disposals (i) Finance costs less income Other ﬁnancial expense Share of associates' (loss)/proﬁt (ii) Proﬁt before tax 405 566 971 159 284 443 246 282 528 436 530 966 172 266 438 264 264 528 152 204 356 134 118 252 18 86 104 194 164 358 128 122 250 66 42 108 230 83 313 76 24 100 154 59 213 267 65 332 77 20 97 190 45 235 787 853 1,640 897 759 1,656 369 426 795 418 427 845 230 (258) (31) (112) 674 377 408 785 520 351 871 55 (229) (28) 42 711 Asset impairment charges of €28 million (2011: €21 million) are included in depreciation and amortisation above and relate to Europe Products €24 million (2011: €15 million), Europe Distribution €nil million (2011: €2 million) and Americas Products €4 million (2011: €4 million). (i) Proﬁt on disposals (note 5) Europe Americas (ii) Share of associates’ (loss)/proﬁt (note 10) Europe Americas 148 24 172 (122) 1 (121) 14 14 28 41 1 42 54 1 55 - - - 20 - 20 - - - 3 - 3 9 - 9 7 - 7 - - - 205 25 230 (113) 1 (112) 41 14 55 41 1 42 * EBITDA is deﬁned as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, proﬁt on disposals and the Group’s share of associates’ proﬁt after tax. CRH 83 1. Segment Information | continued B. Operating segments disclosures - Consolidated Balance Sheet data Total assets Europe Americas Continuing operations - year ended 31 December Materials Products Distribution Total Group 2012 €m 2011 €m 2012 €m 2011 €m 2012 €m 2011 €m 2012 €m 2011 €m 3,944 5,971 9,915 4,604 5,916 10,520 2,476 2,403 4,879 2,422 2,368 4,790 2,361 814 3,175 2,298 827 3,125 8,781 9,188 17,969 9,324 9,111 18,435 Reconciliation to total assets as reported in the Consolidated Balance Sheet: Investments accounted for using the equity method Other ﬁnancial assets Derivative ﬁnancial instruments (current and non-current) Asset held for sale Income tax assets (current and deferred) Liquid investments Cash and cash equivalents Total assets as reported in the Consolidated Balance Sheet 710 161 172 143 214 31 1,768 21,168 948 177 205 - 298 29 1,295 21,387 Total liabilities Europe Americas 1,132 898 2,030 1,290 767 2,057 717 580 1,297 702 523 1,225 624 227 851 591 226 817 2,473 1,705 4,178 2,583 1,516 4,099 Reconciliation to total liabilities as reported in the Consolidated Balance Sheet: Interest-bearing loans and borrowings (current and non-current) Derivative ﬁnancial instruments (current and non-current) Income tax liabilities (current and deferred) Total liabilities as reported in the Consolidated Balance Sheet 4,915 20 1,482 10,595 4,982 30 1,693 10,804 C. Operating segments disclosures - other items Additions to non-current assets Europe: Property, plant and equipment (note 14) Financial assets (note 16) Americas: Property, plant and equipment (note 14) Financial assets (note 16) D. Entity-wide disclosures 119 30 222 - 371 189 18 192 5 404 84 1 69 - 154 77 - 54 - 131 73 1 8 - 82 51 1 13 - 65 276 32 299 - 607 317 19 259 5 600 Section 1: Information about products and services The Group’s revenue from external customers in respect of its principal products and services is analysed in the disclosures above. Segment revenue includes €3,486 million (2011: €3,171 million) in respect of revenue applicable to construction contracts. The bulk of our construction activities are performed by our Americas Materials reportable segment, are for the most part short-term in nature and are generally completed within the same ﬁnancial reporting period. Revenue derived through the supply of services and intersegment revenue is not material to the Group. The transfer pricing policy implemented by the Group between operating segments and across its constituent entities is described in greater detail in note 32. In addition, due to the nature of building materials, which exhibit a low value-to-weight ratio, the Group’s revenue streams include a low level of cross-border transactions. Section 2: Information about geographical areas and customers CRH has a presence in 35 countries worldwide. The revenues from external customers and non-current assets (as deﬁned in IFRS 8) attributable to the country of domicile and all foreign countries of operation are as follows; regions which exceed 10% of total external Group revenue have been highlighted separately on the basis of materiality. Year ended 31 December Revenue by destination As at 31 December Non-current assets Country of domicile - Republic of Ireland Benelux (mainly the Netherlands) Americas (mainly the United States) Other Group totals 2012 €m 2011 €m 2012 €m 2011 €m 274 2,388 9,370 6,627 18,659 308 2,593 8,125 7,055 18,081 499 1,492 6,926 4,934 13,851 530 1,351 6,930 5,800 14,611 There are no material dependencies or concentrations on individual customers which would warrant disclosure under IFRS 8. The individual entities within the Group have a large number of customers spread across various activities, end-uses and geographies. 84 CRH 2. Proportionate Consolidation of Joint Ventures The Group’s share of its joint ventures for the years ended 31 December 2012 and 2011 which are proportionately consolidated in the Consolidated Financial Statements, are as follows: Impact on Consolidated Income Statement 2012 €m 2011 €m Group share of: Revenue Cost of sales Gross proﬁt Operating costs Operating proﬁt Proﬁt on disposals Proﬁt before ﬁnance costs Finance costs (net) Proﬁt before tax Income tax expense Group proﬁt for the ﬁnancial year Depreciation Impact on Consolidated Balance Sheet Group share of: Non-current assets Current assets Total assets Total equity Non-current liabilities Current liabilities Total liabilities Total equity and liabilities Net debt* included above Analysis of net debt Liquid investments and cash and cash equivalents Derivative ﬁnancial instruments Interest-bearing loans and borrowings (amounts due to CRH) Interest-bearing loans and borrowings (amounts due to others) Analysis of net debt included above * As deﬁned in note 21. Future purchase commitments for property, plant and equipment Contracted for but not provided in the ﬁnancial statements Authorised by the Directors but not contracted for A listing of the principal joint ventures is contained on page 134. In May 2012, CRH disposed of its Portuguese joint venture Secil (see note 5 (i)). 575 (401) 174 (134) 40 - 40 (2) 38 (10) 28 37 658 191 849 587 165 97 262 849 (55) 52 - (63) (44) (55) 7 1 707 (482) 225 (165) 60 2 62 (6) 56 (11) 45 53 1,302 306 1,608 1,051 371 186 557 1,608 (148) 77 (1) (71) (153) (148) 9 110 CRH 85 3. Cost Analysis Cost of sales analysis Raw materials and goods for resale Employment costs (note 6) Energy conversion costs Repairs and maintenance Depreciation, amortisation and impairment (i) Change in inventory (note 20) Other production expenses (primarily sub-contractor costs and equipment rental) Total Operating costs analysis Selling and distribution costs Administrative expenses Other operating expenses Other operating income Total (i) Depreciation, amortisation and impairment analysis Depreciation and depletion (note 14) Impairment of property, plant and equipment (note 14) Impairment of intangible assets (note 15) Amortisation of intangible assets (note 15) Total 4. Operating Proﬁt Disclosures Operating lease rentals* - hire of plant and machinery - land and buildings - other operating leases Total Auditor’s remuneration* 2012 €m 2011 €m 8,086 1,960 733 425 590 (100) 1,868 13,562 7,994 1,791 780 416 556 (69) 1,711 13,179 2,984 1,204 70 (6) 4,252 2,804 1,175 82 (30) 4,031 Cost of sales Operating costs Total 2012 €m 2011 €m 569 21 - - 590 556 - - - 556 2012 €m 154 4 3 44 205 2011 €m 170 16 5 38 229 2012 €m 723 25 3 44 795 2011 €m 726 16 5 38 785 2012 €m 2011 €m 99 192 70 361 98 173 49 320 In accordance with statutory requirements in Ireland, fees for professional services provided by the Group’s independent auditors in respect of each of the following categories were: E&Y Ireland (statutory auditor) E&Y (network ﬁrms) Total Audit of the Group accounts (i) Other assurance services (ii) Tax advisory services Total 2012 €m 2 12 14 2011 €m 2 11 13 2012 €m 2011 €m 2012 €m 2011 €m - 2 2 1 1 2 - 1 1 - 1 1 2012 €m 2 15 17 2011 €m 3 13 16 (i) Audit of the Group accounts includes Sarbanes-Oxley attestation, parent and subsidiary statutory audit fees, but excludes €1 million (2011: €2 million) paid to auditors other than E&Y. (ii) Other assurance services includes attestation and due diligence services that are closely related to the performance of the audit. * Figures include the Group’s proportionate share of amounts in joint ventures. 86 CRH 5. Proﬁt on Disposals Disposal of subsidiaries and joint ventures Disposal of associate investments (iii) Disposal of other non-current assets Total 2012 (i) €m 2011 (ii) €m 2012 €m 2011 €m 2012 €m 2011 €m 2012 €m 2011 €m Assets/(liabilities) disposed of at net carrying amount: - non-current assets (notes 14,15,16) - cash and cash equivalents - working capital and provisions (note 20) - current tax - non-controlling interests - interest-bearing loans and borrowings - deferred tax (note 27) - pension liabilities (note 28) Net assets disposed Re-classiﬁcation of currency translation effects on disposal Total Proceeds from disposals (net of disposal costs) Proﬁt on disposals Net cash inﬂow arising on disposal Cash proceeds Less: cash and cash equivalents disposed Total 607 36 45 (6) (32) (108) (73) (18) 451 14 465 652 187 652 (36) 616 206 38 35 1 - (50) (9) - 221 2 223 250 27 250 (38) 212 - - - - - - - - - - - - - - - - 128 - - - - - - - 128 - 128 128 - 128 - 128 92 - - - - - - - 92 - 92 135 43 135 - 135 74 - - - - - - - 74 - 74 102 28 102 - 102 699 36 45 (6) (32) (108) (73) (18) 543 14 557 787 230 787 (36) 751 408 38 35 1 - (50) (9) - 423 2 425 480 55 480 (38) 442 (i) This relates principally to the disposal in May 2012 of our 49% investment in our Portuguese joint venture Secil (which was part of the Europe Materials segment) to our former joint venture partner, Semapa, following the ruling of the Arbitral Tribunal in Paris. Proceeds from this disposal amounted to €564 million (with a further €73 million net debt disposed) resulting in a proﬁt of €138 million. As disclosed in our 2011 Annual Report, Semapa initiated legal proceedings in November 2011 to appeal against the Tribunal ruling and this continues to be the case. No provision has been made in respect of these proceedings in the numbers shown above. (ii) This relates principally to the disposal of the Insulation and Climate Control business in Europe Products. (iii) This relates to the disposal of our 35% associate investment in the Trialis distribution business in France. 6. Employment The average number of employees (including the Group’s proportionate share of employees in joint ventures) is as follows: Year ended 31 December 2012 Europe Americas Total Year ended 31 December 2011 Europe Americas Total Employment costs charged in the Consolidated Income Statement (including the Group’s proportionate share of joint ventures’ costs) are analysed as follows: Wages and salaries Social welfare costs Other employment-related costs Share-based payment expense (note 8) Total pension costs (note 28) Total Total charge analysed between: Cost of sales Operating costs Finance costs (net) - applicable to deﬁned beneﬁt pension schemes (note 9) Total Materials Products Distribution 10,707 18,324 29,031 16,146 15,546 31,692 11,920 3,532 15,452 Total Group 38,773 37,402 76,175 11,649 17,805 29,454 16,636 14,895 31,531 12,147 3,301 15,448 40,432 36,001 76,433 2012 €m 2,924 369 439 14 164 3,910 1,960 1,943 7 3,910 2011 €m 2,692 344 378 21 158 3,593 1,791 1,795 7 3,593 CRH 87 7. Directors’ Emoluments and Interests Directors’ emoluments (which are included in administrative expenses in note 3) and interests are given in the Report on Directors’ Remuneration on pages 54 to 67 of this Annual Report. 8. Share-based Payment Expense Share option expense Performance Share Plan expense Total 2012 €m - 14 14 2011 €m 9 12 21 Share-based payment expense is reﬂected in operating costs in the Consolidated Income Statement. Share option schemes In May 2010, shareholders approved the adoption of new share option and savings-related share option schemes, which replaced schemes approved by shareholders in May 2000. The general terms and conditions applicable to the new share option and savings-related share option schemes were set out in a circular issued to shareholders on 31 March 2010, a copy of which is available on www.crh.com. Due to the immateriality of the savings-related schemes’ expense and the level of savings-related share options outstanding, detailed ﬁnancial disclosures have not been provided in relation to these schemes. Details of options granted under the share option schemes (excluding savings-related share option schemes) Outstanding at beginning of year Granted (a) Exercised (b) Lapsed Outstanding at end of year Exercisable at end of year Weighted average exercise price Number of options 2012 Weighted average exercise price Number of options 2011 €19.13 €15.19 €11.98 €18.68 23,591,756 3,889,100 (1,010,780) (3,174,121) €18.84 €16.24 23,295,955 3,364,448 €19.38 €16.38 €13.36 €18.30 23,515,521 3,558,500 (229,898) (3,252,367) €19.13 €16.03 23,591,756 6,497,695 (a) Granted in April 2012 (2011: April), the level of vesting of these options will be determined by reference to certain performance targets (see page 59). If the performance criteria have been met, these options, or portion thereof as appropriate, may be exercised after the expiration of three years from their date of grant. All options granted have a life of ten years. (b) The weighted average share price at the date of exercise of these options was €14.95 (2011: €15.11). Weighted average remaining contractual life for the share options outstanding at 31 December (years) Euro-denominated options outstanding at the end of the year (number) Range of exercise prices (€) Sterling-denominated options outstanding at the end of the year (number) Range of exercise prices (Stg£) 2012 5.69 2011 5.53 23,182,257 11.86-29.86 23,473,569 11.86-29.86 113,698 8.17-20.23 118,187 8.17-20.23 The CRH share price at 31 December 2012 was €15.30 (2011: €15.36). The following analysis shows the number of outstanding share options with exercise prices lower/higher than the year-end share price: Number of options with exercise prices lower than year-end price: Exercisable Not exercisable Number of options with exercise prices higher than year-end price: Exercisable Not exercisable Total options outstanding 88 CRH 1,677,365 5,382,296 2,780,082 1,613,397 7,059,661 4,393,479 1,687,083 14,549,211 16,236,294 3,717,613 15,480,664 19,198,277 23,295,955 23,591,756 8. Share-based Payment Expense | continued Fair values The weighted average fair value assigned to the 3-year euro-denominated options granted in 2012 under the 2010 share option scheme was €3.43 (2011: €4.03). The fair values of these options were determined using the following assumptions: Weighted average exercise price Risk-free interest rate Expected dividend payments over the expected life Expected volatility Expected life in years 2012 2011 €15.19 0.80% €3.25 33.8% 5 €16.38 2.68% €3.25 32.9% 5 The expected volatility was determined using a historical sample of 61 month-end CRH share prices. Share options are granted at market value at the date of grant. The expected lives of the options are based on historical data and are therefore not necessarily indicative of exercise patterns that may materialise. Other than the assumptions listed above, no other features of option grants were factored into the determination of fair value. No relevant modiﬁcations were effected to either the 2010 share option scheme or the previously approved 2000 share option scheme during the course of 2012. Performance Share Plan The Group operates a Performance Share Plan which was approved by shareholders in May 2006. The expense of €14 million (2011: €12 million) reported in the Consolidated Income Statement has been arrived at through applying a Monte Carlo simulation technique to model the combination of market-based and non-market-based performance conditions in the Plan. Granted in 2009 Granted in 2010 Granted in 2011 Granted in 2012 Share price at date of award Period to earliest release date Number of Shares Initial award Cumulative lapses/releases to date* Net outstanding Fair value €17.00 3 years 1,658,000 (1,658,000) - €8.29 €18.51 3 years 1,459,750 (210,500) 1,249,250 €10.01 €16.52 3 years 1,684,250 (88,000) 1,596,250 €9.72 €15.63 3 years 2,079,000 - 2,079,000 €7.77 * In February 2012, 226,617 (16.6% of the initial award net of lapses) of the shares awarded under the Performance Share Plan in 2009 vested and accordingly were released to the participants of the scheme. The fair value of the shares awarded was determined using a Monte Carlo simulation technique taking account of peer group total shareholder return, volatilities and correlations, together with the following assumptions: Risk-free interest rate (%) Expected volatility (%) The expected volatility was determined using a historical sample of 37 month-end CRH share prices. 2012 2011 0.33 35.4 2.08 38.6 CRH 89 9. Finance Costs and Finance Income Finance costs Interest payable on borrowings Net income on interest rate and currency swaps Mark-to-market of derivatives and related ﬁxed rate debt: - interest rate swaps (i) - currency swaps and forward contracts - ﬁxed rate debt (i) Net gain on interest rate swaps not designated as hedges Net ﬁnance cost on gross debt including related derivatives Finance income Interest receivable on loans to joint ventures and associates Interest receivable on liquid investments, cash and cash equivalents and other Finance income Finance costs less income Other ﬁnancial expense Unwinding of discount element of provisions for liabilities (note 26) Unwinding of discount applicable to deferred and contingent acquisition consideration Pension-related ﬁnance cost (net) (note 28) Total 2012 €m 2011 €m 333 (47) 22 3 (34) - 277 (2) (17) (19) 258 15 9 7 31 335 (65) 12 (2) (15) (3) 262 (3) (30) (33) 229 15 6 7 28 (i) The Group uses interest rate swaps to convert ﬁxed rate debt to ﬂoating rate. Fixed rate debt, which has been converted to ﬂoating rate through the use of interest rate swaps, is stated in the Consolidated Balance Sheet at adjusted value to reﬂect movements in underlying ﬁxed rates. The movement on this adjustment, together with the offsetting movement in the fair value of the related interest rate swaps, is included in ﬁnance costs in each reporting period. 10. Share of Associates’ (Loss)/Proﬁt The Group’s share of associates’ result after tax is equity-accounted and is presented as a single-line item in the Consolidated Income Statement; it is analysed as follows between the principal Consolidated Income Statement captions: Group share of: Revenue Proﬁt before ﬁnance costs and impairments Impairments (i) Finance costs (net) (Loss)/proﬁt before tax Income tax expense (Loss)/proﬁt after tax 2012 €m 2011 €m 978 68 (146) (26) (104) (8) (112) 1,095 92 (11) (19) 62 (20) 42 An analysis of the result after tax by operating segment is presented in note 1. The aggregated balance sheet data (analysed between current and non-current assets and liabilities) in respect of the Group’s investment in associates is presented in note 16. (i) As a result of a worsening macro-economic outlook for Spain, together with a less positive forecast for Spanish construction activity in the medium term, and in the context of restructuring measures currently being implemented by the company, we have recorded an impairment charge of €146 million in respect of our 26% investment in our associate Uniland (part of the Europe Materials segment). The resulting carrying value of €143 million for this investment has been reclassiﬁed to Asset held for sale in the Consolidated Balance Sheet at 31 December 2012 (see note 16 (ii)). The Group completed its annual impairment review in relation to its other associate investments; no further impairments were recorded as a result of this review. 90 CRH 11. Income Tax Expense Recognised within the Consolidated Income Statement (a) Current tax Republic of Ireland Overseas Total current tax expense (b) Deferred tax Origination and reversal of temporary differences: Deﬁned beneﬁt pension obligations Share-based payment expense Derivative ﬁnancial instruments Other items (2011: primarily in relation to tax losses carried forward) Total deferred tax expense/(income) Income tax expense reported in the Consolidated Income Statement Recognised within equity (a) Within the Consolidated Statement of Comprehensive Income: Deferred tax - deﬁned beneﬁt pension obligations Deferred tax - cash ﬂow hedges Income tax recognised directly within equity Reconciliation of applicable tax rate to effective tax rate Proﬁt before tax (€m) Tax charge expressed as a percentage of proﬁt before tax (effective tax rate): - current tax expense only - total income tax expense (current and deferred) The following table reconciles the applicable Republic of Ireland statutory tax rate to the effective tax rate (current and deferred) of the Group: Irish corporation tax rate Higher tax rates on overseas earnings Other items (comprising items not chargeable to tax/expenses not deductible for tax) Total effective tax rate Factors that may affect future tax charges and other disclosure requirements 2012 €m (4) 113 109 24 1 (9) (5) 11 120 28 - 28 2011 €m - 194 194 27 - 5 (112) (80) 114 56 2 58 674 711 16.2% 17.8% 27.3% 16.0% % of proﬁt before tax 12.5 12.5 4.2 4.6 1.1 (1.1) 17.8 16.0 Excess of capital allowances over depreciation Based on current capital investment plans, the Group expects to continue to be in a position to claim capital allowances in excess of depreciation in future years. Investments in subsidiaries and associates and interests in joint ventures Given that participation exemptions and tax credits would be available in the context of the Group’s investments in subsidiaries and joint ventures in the majority of the jurisdictions in which the Group operates, the aggregate amount of temporary differences in respect of which deferred tax liabilities have not been recognised would be immaterial. Proposed dividends There are no income tax consequences for the Company in respect of dividends proposed prior to issuance of the Consolidated Financial Statements and for which a liability has not been recognised. Other considerations The total tax charge in future periods will be affected by any changes to the corporation tax rates in force in the countries in which the Group operates. The current tax charge will also be impacted by changes in the excess of tax depreciation (capital allowances) over accounting depreciation and the use of tax credits. CRH 91 12. Dividends As shown in note 29, the Company has various classes of share capital in issue comprising Ordinary Shares, 5% Cumulative Preference Shares and 7% ‘A’ Cumulative Preference Shares. The dividends paid and proposed in respect of these classes of share capital are as follows: Dividends to shareholders Preference 5% Cumulative Preference Shares €3,175 (2011: €3,175) 7% 'A' Cumulative Preference Shares €77,521 (2011: €77,521) Equity Final - paid 44.00c per Ordinary Share (2011: 44.00c) Interim - paid 18.50c per Ordinary Share (2011: 18.50c) Total Dividends proposed (memorandum disclosure) Equity Final 2012 - proposed 44.00c per Ordinary Share (2011: 44.00c) Reconciliation to Consolidated Statement of Cash Flows Dividends to shareholders Less: issue of scrip shares in lieu of cash dividends Dividends paid to equity holders of the Company Dividends paid by subsidiaries to non-controlling interests Total dividends paid 13. Earnings per Ordinary Share The computation of basic and diluted earnings per Ordinary Share is set out below: Numerator computations Group proﬁt for the ﬁnancial year Proﬁt attributable to non-controlling interests Proﬁt attributable to equity holders of the Company Preference dividends Proﬁt attributable to ordinary equity holders of the Company - numerator for basic/diluted earnings per Ordinary Share Amortisation of intangible assets Impairment of ﬁnancial assets Depreciation charge Numerator for "cash" earnings per Ordinary Share (i) Denominator computations Denominator for basic earnings per Ordinary Share Weighted average number of Ordinary Shares (millions) outstanding for the year (ii) Effect of dilutive potential Ordinary Shares (employee share options) (millions) (ii) and (iii) Denominator for diluted earnings per Ordinary Share Basic earnings per Ordinary Share Diluted earnings per Ordinary Share "Cash" earnings per Ordinary Share (i) 2012 €m 2011 €m - - 317 133 450 - - 312 133 445 320 316 450 (88) 362 5 367 2012 €m 554 (2) 552 - 552 47 146 748 1,493 721.9 0.3 722.2 76.5c 76.4c 206.8c 445 (135) 310 9 319 2011 €m 597 (7) 590 - 590 43 11 742 1,386 714.4 0.3 714.7 82.6c 82.6c 194.0c (i) Computed by adding amortisation of intangible assets, depreciation and asset impairment charges to proﬁt attributable to ordinary equity holders of the Company and is presented here for information as management believes it is a useful indicator of the Group’s ability to generate cash from operations. “Cash” earnings per Ordinary Share on a diluted earnings basis amounted to 206.7c (2011: 193.9c). This is not a recognised measure under generally accepted accounting principles. (ii) The weighted average number of Ordinary Shares included in the computation of basic and diluted earnings per Ordinary Share has been adjusted to exclude shares held by the Employee Beneﬁt Trust and Ordinary Shares repurchased and held by the Company (CRH plc) as Treasury Shares given that these shares do not rank for dividend. The number of Ordinary Shares so held at the balance sheet date is detailed in note 29. (iii) Contingently issuable Ordinary Shares (totalling 24,856,007 at 31 December 2012 and 21,429,061 at 31 December 2011) are excluded from the computation of diluted earnings per Ordinary Share where the conditions governing exercisability have not been satisﬁed as at the end of the reporting period. 92 CRH 14. Property, Plant and Equipment At 31 December 2012 Cost/deemed cost Accumulated depreciation (and impairment charges) Net carrying amount At 1 January 2012, net carrying amount Translation adjustment Reclassiﬁcations Additions at cost Arising on acquisition (note 31) Disposals at net carrying amount Depreciation charge for year Impairment charge for year (ii) At 31 December 2012, net carrying amount The equivalent disclosure for the prior year is as follows: At 31 December 2011 Cost/deemed cost Accumulated depreciation (and impairment charges) Net carrying amount At 1 January 2011, net carrying amount Translation adjustment Reclassiﬁcations Additions at cost Arising on acquisition (note 31) Disposals at net carrying amount Depreciation charge for year Impairment charge for year (ii) At 31 December 2011, net carrying amount At 1 January 2011 Cost/deemed cost Accumulated depreciation Net carrying amount Land and buildings (i) €m Plant and machinery €m Assets in course of construction €m 6,188 (1,587) 4,601 4,785 (34) 31 76 156 (265) (140) (8) 4,601 6,372 (1,587) 4,785 4,775 45 51 64 140 (129) (153) (8) 4,785 6,170 (1,395) 4,775 8,976 (5,419) 3,557 3,535 (28) 356 415 97 (218) (583) (17) 3,557 8,773 (5,238) 3,535 3,591 28 86 284 199 (72) (573) (8) 3,535 8,446 (4,855) 3,591 290 - 290 616 1 (387) 84 1 (25) - - 290 616 - 616 526 - (137) 228 - (1) - - 616 526 - 526 Total €m 15,454 (7,006) 8,448 8,936 (61) - 575 254 (508) (723) (25) 8,448 15,761 (6,825) 8,936 8,892 73 - 576 339 (202) (726) (16) 8,936 15,142 (6,250) 8,892 (i) The carrying value of mineral-bearing land included in the land and buildings category above amounted to €1,918 million at the balance sheet date (2011: €2,087 million). (ii) The impairment charge for 2012 of €25 million (2011: €16 million) represents charges across a number of business units in the Group, none of which is individually material. Future purchase commitments for property, plant and equipment Contracted for but not provided in the ﬁnancial statements Authorised by the Directors but not contracted for 2012 €m 183 83 2011 €m 198 183 CRH 93 15. Intangible Assets At 31 December 2012 Cost/deemed cost Accumulated amortisation (and impairment charges) Net carrying amount At 1 January 2012, net carrying amount Translation adjustment Arising on acquisition (note 31) Disposals Reclassiﬁcations Amortisation charge for year Impairment charge for year At 31 December 2012, net carrying amount The equivalent disclosure for the prior year is as follows: At 31 December 2011 Cost/deemed cost Accumulated amortisation (and impairment charges) Net carrying amount At 1 January 2011, net carrying amount Translation adjustment Arising on acquisition (note 31) Disposals Amortisation charge for year Impairment charge for year At 31 December 2011, net carrying amount At 1 January 2011 Cost/deemed cost Accumulated amortisation (and impairment charges) Net carrying amount Other intangible assets Goodwill €m Marketing- related €m Customer- related (i) €m Contract- based €m 4,295 (55) 4,240 4,301 (36) 165 (175) (13) - (2) 4,240 4,358 (57) 4,301 4,113 50 207 (65) - (4) 4,301 4,223 (110) 4,113 51 (34) 17 14 - 8 - - (5) - 17 44 (30) 14 17 - 1 - (4) - 14 42 (25) 17 414 (236) 178 161 - 56 - - (38) (1) 178 361 (200) 161 161 5 27 - (32) - 161 327 (166) 161 22 (11) 11 12 (1) 1 - - (1) - 11 24 (12) 12 14 - 1 - (2) (1) 12 23 (9) 14 Total €m 4,782 (336) 4,446 4,488 (37) 230 (175) (13) (44) (3) 4,446 4,787 (299) 4,488 4,305 55 236 (65) (38) (5) 4,488 4,615 (310) 4,305 (i) The customer-related intangible assets relate predominantly to non-contractual customer relationships. Goodwill The net book value of goodwill capitalised under previous GAAP (Irish GAAP) as at the transition date to IFRS (1 January 2004) has been treated as deemed cost. Goodwill arising on acquisition since that date is capitalised at cost. Cash-generating units Goodwill acquired through business combination activity has been allocated to cash-generating units (CGUs) that are expected to beneﬁt from synergies in that combination. The cash-generating units represent the lowest level within the Group at which the associated goodwill is monitored for internal management purposes and are not larger than the operating segments determined in accordance with IFRS 8 Operating Segments. A total of 24 (2011: 27) cash-generating units have been identiﬁed and these are analysed between the six business segments in the Group below. The reduction in the number of CGUs in 2012 relates to an organisational change in our Europe Products segment and the disposal of our Portuguese joint venture in Europe Materials. All businesses within the various cash-generating units exhibit similar and/or consistent proﬁt margin and asset intensity characteristics. Assets, liabilities, deferred tax and goodwill have been assigned to the CGUs on a reasonable and consistent basis. Signiﬁcant under-performance in any of CRH’s major cash-generating units may give rise to a material write-down of goodwill which would have a substantial impact on the Group’s income and equity. Europe Materials Europe Products Europe Distribution Americas Materials Americas Products Americas Distribution Total cash-generating units 94 CRH Cash-generating units Goodwill (€m) 2012 2011 10 1 1 8 3 1 24 11 3 1 8 3 1 27 2012 728 679 634 1,250 629 320 4,240 2011 858 615 641 1,234 627 326 4,301 15. Intangible Assets | continued Impairment testing methodology and results Goodwill is subject to impairment testing on an annual basis. The recoverable amount of each of the 24 CGUs is determined based on a value-in-use computation, which is the only methodology applied by the Group and which has been selected due to the impracticality of obtaining fair value less costs to sell measurements for each reporting period. The cash ﬂow forecasts are based on a ﬁve-year strategic plan document formally approved by senior management and the Board of Directors and speciﬁcally exclude the impact of future development activity. These cash ﬂows are projected forward for an additional ﬁve years to determine the basis for an annuity-based terminal value, calculated on the same basis as the Group’s acquisition modelling methodology. As in prior years, the terminal value is based on a 20-year annuity, with the exception of certain long-lived cement assets, where an assumption of a 40-year annuity has been used. The projected cash ﬂows assume zero growth in real cash ﬂows beyond the initial evaluation period. The value-in-use represents the present value of the future cash ﬂows, including the terminal value, discounted at a rate appropriate to each CGU. The real pre-tax discount rates used range from 7.6% to 12.6% (2011: 7.0% to 11.8%); these rates are in line with the Group’s estimated weighted average cost of capital, arrived at using the Capital Asset Pricing Model. Key sources of estimation uncertainty The cash ﬂows have been arrived at taking account of the Group’s strong ﬁnancial position, its established history of earnings and cash ﬂow generation and the nature of the building materials industry, where product obsolescence is very low. However, expected future cash ﬂows are inherently uncertain and are therefore liable to material change over time. The key assumptions employed in arriving at the estimates of future cash ﬂows factored into impairment testing are subjective and include projected EBITDA (as deﬁned)* margins, net cash ﬂows, discount rates used and the duration of the discounted cash ﬂow model. Signiﬁcant goodwill amounts The goodwill allocated to the Europe Products, Europe Distribution and the Oldcastle Building Products (Americas Products segment) CGUs accounts for between 10% and 20% of the total carrying amount of €4,240 million. The goodwill allocated to each of the remaining CGUs is less than 10% of the total carrying value in all other cases. The additional disclosures required for the 3 CGUs with signiﬁcant goodwill are as follows: Europe Products Europe Distribution Oldcastle Building Products 2012 2011 2012 2011 2012 2011 Goodwill allocated to the cash-generating unit at balance sheet date €679m €615m €634m €641m €469m €465m Discount rate applied to the cash ﬂow projections (real pre-tax) Average EBITDA (as deﬁned)* margin over the initial 5-year period 9.1% 9.4% 9.6% 11.6% 9.7% 6.9% 9.7% 7.3% 11.6% 10.4% 11.5% 10.7% Value-in-use (present value of future cash ﬂows) €1,847m €2,193m €2,242m €2,306m €1,674m €1,669m Excess of value-in-use over carrying amount €140m €506m €684m €646m €260m €150m The key assumptions and methodology used in respect of these three CGUs are consistent with those described above. The values applied to each of the key estimates and assumptions are speciﬁc to the individual CGUs and were derived from a combination of internal and external factors based on historical experience and took into account the cash ﬂows speciﬁcally associated with these businesses. The cash ﬂows and 20-year annuity-based terminal value were projected in line with the methodology disclosed above. Europe Distribution and Oldcastle Building Products are not included in the CGUs referred to in the “Sensitivity analysis” section. Given the magnitude of the excess of value-in-use over carrying amount, and our belief that the key assumptions are reasonable, management believe that it is not reasonably possible that there would be a change in the key assumptions such that the carrying amount would exceed the value-in-use. Consequently no further disclosures relating to sensitivity of the value-in-use computations for the Europe Distribution or Oldcastle Building Products CGUs are considered to be warranted. Sensitivity analysis for Europe Products is presented below. Sensitivity analysis Sensitivity analysis has been performed and results in additional disclosures in respect of 4 of the 24 CGUs. The key assumptions, methodology used and values applied to each of the key assumptions for these cash-generating units are in line with those outlined above. These 4 CGUs had aggregate goodwill of €1,142 million at the date of testing. The table below identiﬁes the amounts by which each of the following assumptions may either decline or increase to arrive at a zero excess of the present value of future cash ﬂows over the book value of net assets in the 4 CGUs selected for sensitivity analysis disclosures: Reduction in EBITDA (as deﬁned)* margin Reduction in proﬁt before tax Reduction in net cash ﬂow Increase in pre-tax discount rate Europe Products Remaining 3 CGUs 0.5 percentage points 9.5% 8.0% 1.2 percentage points 0.7 to 1.3 percentage points 6.0% to 9.5% 5.7% to 7.7% 0.8 to 1.1 percentage points The average EBITDA (as deﬁned)* margin for the aggregate of these 4 CGUs over the initial 5-year period was 10%. The aggregate value-in-use (being the present value of the future net cash ﬂows) was €3,072 million and the aggregate carrying amount was €2,842 million, resulting in an aggregate excess of value-in-use over carrying amount of €230 million. * EBITDA is deﬁned as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, proﬁt on disposals and the Group’s share of associates’ proﬁt after tax. CRH 95 16. Financial Assets At 1 January 2012 Translation adjustment Investments and advances Disposals and repayments Reclassiﬁcations Transfer to asset held for sale (ii) Retained loss At 31 December 2012 The equivalent disclosure for the prior year is as follows: At 1 January 2011 Translation adjustment Investments and advances Disposals and repayments Reclassiﬁcations Retained proﬁt At 31 December 2011 The total investment in associates is analysed as follows: Non-current assets Current assets Non-current liabilities Current liabilities Net assets Investments accounted for using the equity method (i.e. associates) Share of net assets €m Loans €m Total €m Other (i) €m 939 (8) 28 5 13 (143) (130) 704 1,026 30 8 (128) (19) 22 939 9 - - (3) - - - 6 11 - 1 (3) - - 9 948 (8) 28 2 13 (143) (130) 710 1,037 30 9 (131) (19) 22 948 2012 €m 843 641 (194) (580) 710 177 (2) 4 (18) - - - 161 149 4 15 (10) 19 - 177 2011 €m 1,245 632 (402) (527) 948 A listing of the principal associates is contained on page 135. The Group holds a 21.13% stake (2011: 21.13%) in Samse S.A., a publicly-listed distributor of building materials to the merchanting sector in France which is accounted for as an associate investment above. The fair value of this investment was €39 million (2011: €41 million) as at the balance sheet date. (i) Other ﬁnancial assets primarily comprise loans extended by the Group to joint ventures and trade investments carried at historical cost. The balance in respect of loans to joint ventures as at 31 December 2012 was €125 million (2011: €141 million). (ii) Asset held for sale The Group intends to dispose of its 26% associate investment in Uniland. Having satisﬁed the criteria under IFRS 5 at the balance sheet date, the carrying value of this associate (€143 million) has been recorded on the basis of fair value less cost to sell and has been reclassiﬁed as an asset held for sale. 96 CRH 17. Inventories Raw materials Work-in-progress (i) Finished goods Total inventories at the lower of cost and net realisable value 2012 €m 643 91 1,663 2,397 2011 €m 648 88 1,550 2,286 (i) Work-in-progress includes €1 million (2011: €8 million) in respect of the cumulative costs incurred, net of amounts transferred to cost of sales under percentage-of-completion accounting, for construction contracts in progress at the balance sheet date. An analysis of the Group’s cost of sales expense is provided in note 3 to the ﬁnancial statements. Write-downs of inventories recognised as an expense within cost of sales amounted to €12 million (2011: €14 million). None of the above carrying amounts has been pledged as security for liabilities entered into by the Group. 18. Trade and Other Receivables Current Trade receivables Amounts receivable in respect of construction contracts (i) Total trade receivables, gross Provision for impairment Total trade receivables, net Other receivables (ii) Amounts receivable from associates Prepayments and accrued income Total Non-current Other receivables 2012 €m 1,755 406 2,161 (126) 2,035 387 3 167 2,592 2011 €m 1,879 417 2,296 (153) 2,143 357 2 161 2,663 86 62 The carrying amounts of current and non-current trade and other receivables approximate their fair value largely due to the short-term maturities and nature of these instruments. (i) Includes unbilled revenue at the balance sheet date in respect of construction contracts amounting to €137 million (2011: €121 million). (ii) Other receivables include retentions held by customers in respect of construction contracts at the balance sheet date amounting to €66 million (2011: €70 million). Provision for impairment The movements in the provision for impairment of receivables during the ﬁnancial year were as follows: At 1 January Translation adjustment Provided during year Written-off during year Recovered during year At 31 December Information in relation to the Group’s credit risk management is provided in note 22 to the ﬁnancial statements. Aged analysis The aged analysis of gross trade receivables and amounts receivable in respect of construction contracts at the balance sheet date was as follows: Neither past due nor impaired Past due but not impaired: - less than 60 days - 60 days or greater but less than 120 days - 120 days or greater Past due and impaired (partial or full provision) Total 153 - 41 (65) (3) 126 151 1 56 (50) (5) 153 1,608 1,731 225 117 55 156 2,161 232 107 49 177 2,296 Trade receivables and amounts receivable in respect of construction contracts are in general receivable within 90 days of the balance sheet date. CRH 97 19. Trade and Other Payables Current Trade payables Construction contract-related payables (i) Deferred and contingent acquisition consideration Other payables Accruals and deferred income Amounts payable to associates Total Non-current Other payables Deferred and contingent acquisition consideration due as follows: - between one and two years - between two and ﬁve years - after ﬁve years Total 2012 €m 2011 €m 1,512 97 105 404 686 37 2,841 104 38 64 90 296 1,579 120 28 404 683 44 2,858 81 33 61 29 204 (i) Construction contract-related payables include billings in excess of costs incurred together with advances received from customers in respect of work to be performed under construction contracts and foreseeable losses thereon. Other than deferred and contingent consideration, the carrying amounts of trade and other payables approximate their fair value largely due to the short-term maturities and nature of these instruments. The fair value of total contingent consideration is €141 million (2011: €50 million) and deferred consideration is €156 million (2011: €101 million). There have been no signiﬁcant changes in the possible outcomes of contingent consideration recognised on acquisitions completed in 2011 or prior years. 20. Movement in Working Capital and Provisions for Liabilities Trade and other receivables €m Trade and other payables €m Provisions for liabilities €m Inventories €m 2,286 (15) 98 (72) - - - 100 2,397 2,187 32 53 (55) - - - 69 2,286 2,725 (9) 103 (76) - - - (65) 2,678 2,419 38 62 (90) - - 1 295 2,725 (3,062) 12 (57) 100 (153) 30 (31) 24 (3,137) (2,849) (38) (49) 102 (42) 21 (11) (196) (3,062) (373) 3 (1) 3 - - (15) 16 (367) (387) (7) (15) 8 - - (15) 43 (373) Total €m 1,576 (9) 143 (45) (153) 30 (46) 75 1,571 1,370 25 51 (35) (42) 21 (25) 211 1,576 At 1 January 2012 Translation adjustment Arising on acquisition (note 31) Disposals Deferred and contingent acquisition consideration: - arising on acquisitions during year (note 31) - paid during year Interest accruals and discount unwinding Increase/(decrease) in working capital and provisions for liabilities At 31 December 2012 The equivalent disclosure for the prior year is as follows: At 1 January 2011 Translation adjustment Arising on acquisition (note 31) Disposals Deferred and contingent acquisition consideration: - arising on acquisitions during year (note 31) - paid during year Interest accruals and discount unwinding Increase/(decrease) in working capital and provisions for liabilities At 31 December 2011 98 CRH 21. Analysis of Net Debt Components of net debt Net debt is a non-GAAP measure which we provide to investors as we believe they ﬁnd it useful. Net debt comprises cash and cash equivalents, liquid investments, derivative ﬁnancial instrument assets and liabilities and interest-bearing loans and borrowings and enables investors to see the economic effects of these in total (see note 22 for details of the capital and risk management policy employed by the Group). Net debt is commonly used in computations such as net debt as a % of total equity and net debt as a % of market capitalisation. As at 31 December 2012 As at 31 December 2011 Fair value (i) including share of joint ventures €m Book value including share of joint ventures €m Book value excluding share of joint ventures €m Fair value (i) including share of joint ventures €m Book value including share of joint ventures €m Book value excluding share of joint ventures €m Cash and cash equivalents (note 23) Liquid investments (note 23) Interest-bearing loans and borrowings (note 24) Derivative ﬁnancial instruments (net) (note 25) Group net debt 1,768 31 (5,249) 152 (3,298) 1,768 31 (4,915) 152 (2,964) 1,747 - (4,808) 152 (2,909) 1,295 29 (5,051) 175 (3,552) 1,295 29 (4,982) 175 (3,483) 1,246 1 (4,758) 176 (3,335) (i) The fair values of cash and cash equivalents and ﬂoating rate loans and borrowings are based on their carrying amounts, which constitute a reasonable approximation of fair value. The carrying value of liquid investments is the market value of these investments with these values quoted on liquid markets. The carrying value of derivatives is fair value based on discounted future cash ﬂows at current foreign exchange and interest rates. The fair value of ﬁxed rate debt is calculated based on actual traded prices for publicly traded debt or discounted future cash ﬂows reﬂecting market interest rate changes since issuance for other ﬁxed rate debt. The following table shows the effective interest rates on period-end ﬁxed, gross and net debt: As at 31 December 2012 As at 31 December 2011 Weighted average ﬁxed period Years €m Interest rate Weighted average ﬁxed period Years €m Interest rate Interest-bearing loans and borrowings nominal - ﬁxed rate (ii) Derivative ﬁnancial instruments - ﬁxed rate Net ﬁxed rate debt including derivatives Interest-bearing loans and borrowings nominal - ﬂoating rate (iii) Adjustment of debt from nominal to book value (ii) Derivative ﬁnancial instruments - currency ﬂoating rate Gross debt including derivative ﬁnancial instruments Cash and cash equivalents - ﬂoating rate Liquid investments - ﬂoating rate Net debt including derivative ﬁnancial instruments (4,531) 1,314 (3,217) (174) (210) (1,162) (4,763) 1,768 31 (2,964) 6.3% 4.4 5.2% (4,446) 2,010 (2,436) (289) (247) (1,835) (4,807) 1,295 29 (3,483) 6.3% 6.3 4.7% (i) Of the Group’s nominal ﬁxed rate debt at 31 December 2012, €2,087 million (2011: €2,309 million) was hedged to ﬂoating rate at inception using interest rate swaps. In accordance with IAS 39 Financial Instruments: Recognition and Measurement, hedged ﬁxed rate debt is recorded at amortised cost adjusted for the change in value arising from changes in underlying market interest rates and the related hedging instruments (interest rate swaps) are stated at fair value. Adjustments to ﬁxed rate debt values and the changes in the fair value of the hedging instrument are reﬂected in the Consolidated Income Statement. The balance of nominal ﬁxed rate debt of €2,444 million (2011: €2,137 million) pertains to ﬁnancial liabilities measured at amortised cost in accordance with IAS 39. (ii) Floating rate debt comprises bank borrowings and ﬁnance leases bearing interest at rates set in advance for periods ranging from overnight to less than one year largely by reference to inter-bank interest rates (US$ LIBOR, Sterling LIBOR, Swiss Franc LIBOR and Euribor). CRH 99 21. Analysis of Net Debt | continued Currency proﬁle The currency proﬁle of the Group’s net debt and net worth (capital and reserves attributable to the Company’s equity holders) as at 31 December 2012 is as follows: euro €m US Dollar €m Pound Sterling €m Swiss Franc Other (iv) €m €m Total €m Net debt by major currency including derivative ﬁnancial instruments (883) (1,889) (48) (3) (141) (2,964) Non-debt assets and liabilities analysed as follows: Non-current assets Current assets Non-current liabilities Current liabilities Non-controlling interests 3,586 1,790 (581) (1,153) (20) 6,732 2,200 (1,356) (1,287) (3) Capital and reserves attributable to the Company's equity holders (v) 2,739 4,397 The equivalent disclosure for the prior year is as follows: 521 234 (150) (196) - 361 874 358 (263) (211) (11) 744 2,335 14,048 567 (178) (285) (2) 5,149 (2,528) (3,132) (36) 2,296 10,537 Net debt by major currency including derivative ﬁnancial instruments (1,002) (2,200) (29) (134) (118) (3,483) Non-debt assets and liabilities analysed as follows: Non-current assets Current assets Non-current liabilities Current liabilities Non-controlling interests 4,313 1,629 (774) (1,171) (24) 6,751 2,145 (1,238) (1,199) (7) Capital and reserves attributable to the Company's equity holders (v) 2,971 4,252 497 219 (188) (201) - 298 891 366 (233) (243) (10) 637 2,449 14,901 598 (179) (366) (33) 4,957 (2,612) (3,180) (74) 2,351 10,509 (iv) The principal currencies included in this category are the Polish Zloty, the Indian Rupee, the Ukrainian Hryvnya, the Chinese Renminbi, the Turkish Lira, the Canadian Dollar, the Israeli Shekel and the Argentine Peso. (v) Gains and losses arising on the retranslation of net worth are recorded in the Consolidated Statement of Comprehensive Income. Transactional currency exposures arise in a number of the Group’s operations and these result in net currency gains and losses which are recognised in the Consolidated Income Statement and are immaterial. 100 CRH 22. Capital and Financial Risk Management Capital management Overall summary The primary objectives of CRH’s capital management strategy are to ensure that the Group maintains a strong credit rating to support its business and to create shareholder value by managing the debt and equity balance and the cost of capital. No changes were made in the objectives, policy or processes for managing capital during 2012. The Board periodically reviews the capital structure of the Group, including the cost of capital and the risks associated with each class of capital. The Group manages and, if necessary, adjusts its capital structure taking account of underlying economic conditions; any material adjustments to the Group’s capital structure in terms of the relative proportions of debt and equity are approved by the Board. In order to maintain or adjust the capital structure, the Group may issue new shares, dispose of assets, amend investment plans, alter dividend policy or return capital to shareholders. The Group is committed to optimising the use of its balance sheet within the conﬁnes of the overall objective to maintain an investment grade credit rating. Dividend cover for the year ended 31 December 2012 amounted to 1.2 times (2011: 1.3 times). The capital structure of the Group, which comprises net debt and capital and reserves attributable to the Company’s equity holders, may be summarised as follows: Capital and reserves attributable to the Company's equity holders Net debt Capital and net debt Financial risk management objectives and policies 2012 €m 10,537 2,964 13,501 2011 €m 10,509 3,483 13,992 The Group uses ﬁnancial instruments throughout its businesses: interest-bearing loans and borrowings, cash and cash equivalents, short-dated liquid investments and ﬁnance leases are used to ﬁnance the Group’s operations; trade receivables and trade payables arise directly from operations; and derivatives, principally interest rate and currency swaps and forward foreign exchange contracts, are used to manage interest rate risks and currency exposures and to achieve the desired proﬁle of borrowings. The Group does not trade in ﬁnancial instruments nor does it enter into any leveraged derivative transactions. The Group’s corporate treasury function provides services to the business units, co-ordinates access to domestic and international ﬁnancial markets, and monitors and manages the ﬁnancial risks relating to the operations of the Group. The Head of Group Finance reports to the Finance Director and the activities of the corporate treasury function are subject to regular internal audit. Systems are in place to monitor and control the Group’s liquidity risks. The Group’s net debt position forms part of the monthly documentation presented to the Board of Directors. The main risks attaching to the Group’s ﬁnancial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. Commodity price risk arising from ﬁnancial instruments is of minimal relevance given that exposure is conﬁned to a small number of contracts entered into for the purpose of hedging future movements in energy costs. The Board reviews and agrees policies for the prudent management of each of these risks as documented below. Interest rate risk The Group’s exposure to market risk for changes in interest rates stems predominantly from its long-term debt obligations. Interest cost is managed using a mix of ﬁxed and ﬂoating rate debt. With the objective of managing this mix in a cost-efﬁcient manner, the Group enters into interest rate swaps, under which the Group contracts to exchange, at predetermined intervals, the difference between ﬁxed and variable interest amounts calculated by reference to a pre-agreed notional principal. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued ﬁxed rate debt and the cash ﬂow exposures of issued ﬂoating rate debt. The majority of these swaps are designated under IAS 39 to hedge underlying debt obligations and qualify for hedge accounting; undesignated ﬁnancial instruments are termed “not designated as hedges” in the analysis of derivative ﬁnancial instruments presented in note 25. The following table demonstrates the impact on proﬁt before tax and total equity of a range of possible changes in the interest rates applicable to net ﬂoating rate borrowings, with all other variables held constant. These impacts are calculated based on the closing balance sheet for the relevant period and assume all ﬂoating interest rates and interest curves change by the same amount. For proﬁt before tax, the impact shown is the impact on closing balance sheet ﬂoating rate net debt for a full year while for total equity the impact shown is the impact on the value of ﬁnancial instruments. Percentage change in cost of borrowings Impact on proﬁt before tax Impact on total equity +/- 1% +/- 0.5% +/- €5m -/+ €8m +/- €2m -/+ €4m +/- €1m +/- €2m +/- €0.5m +/- €1m 2012 2011 2012 2011 CRH 101 22. Capital and Financial Risk Management | continued Foreign currency risk Due to the nature of building materials, which in general exhibit a low value-to-weight ratio, CRH’s activities are conducted primarily in the local currency of the country of operation resulting in low levels of foreign currency transaction risk; variances arising in this regard are reﬂected in operating costs or cost of sales in the Consolidated Income Statement in the period in which they arise. Given the Group’s presence in 35 countries worldwide, the principal foreign exchange risk arises from ﬂuctuations in the euro value of the Group’s net investment in a wide basket of currencies other than the euro; such changes are reported separately within the Consolidated Statement of Comprehensive Income. A currency proﬁle of the Group’s net debt and net worth is presented in note 21. The Group’s established policy is to spread its net worth across the currencies of its various operations with the objective of limiting its exposure to individual currencies and thus promoting consistency with the geographical balance of its operations. In order to achieve this objective, the Group manages its borrowings, where practicable and cost effective, to hedge a portion of its foreign currency assets. Hedging is done using currency borrowings in the same currency as the assets being hedged or through the use of other hedging methods such as currency swaps. The following table demonstrates the sensitivity of proﬁt before tax and equity to selected movements in the relevant €/US$ exchange rate (with all other variables held constant); the US Dollar has been selected as the appropriate currency for this analysis given the materiality of the Group’s activities in the United States. The impact on proﬁt before tax is based on changing the €/US$ exchange rate used in calculating proﬁt before tax for the period. The impact on total equity and ﬁnancial instruments is calculated by changing the €/US$ exchange rate used in measuring the closing balance sheet. Percentage change in relevant €/US$ exchange rate Impact on proﬁt before tax Impact on total equity* * Includes the impact on ﬁnancial instruments which is as follows: +/- 5% +/- 2.5% 2012 2011 -/+ €14m -/+ €8m -/+ €7m -/+ €4m 2012 -/+ €210m -/+ €108m 2011 -/+ €203m -/+ €104m +/- €90m +/- €46m 2012 2011 +/- €105m +/- €54m Financial instruments include deposits, money market funds, bank loans, medium term notes and other ﬁxed term debt, interest rate swaps, commodity swaps and foreign exchange contracts. They exclude trade receivables and trade payables. Credit/counterparty risk In addition to cash at bank and in hand, the Group holds signiﬁcant cash balances which are invested on a short-term basis and are classiﬁed as either cash equivalents or liquid investments (see note 23). These deposits and other ﬁnancial instruments (principally certain derivatives and loans and receivables included within ﬁnancial assets) give rise to credit risk on amounts due from counterparty ﬁnancial institutions (stemming from their insolvency or a downgrade in their credit ratings). Credit risk is managed by limiting the aggregate amount and duration of exposure to any one counterparty primarily depending on its credit rating and by regular review of these ratings. Acceptable credit ratings are high investment-grade ratings - generally counterparties have ratings of A2/A or higher from Moody’s/ Standard & Poor’s ratings agencies. The maximum exposure arising in the event of default on the part of the counterparty (including insolvency) is the carrying value of the relevant ﬁnancial instrument. In its worldwide insurance programme, the Group carries appropriate levels of insurance for typical business risks (including product liability) with various leading insurance companies. However, in the event of the failure of one or more of its insurance counterparties, the Group could be impacted by losses where recovery from such counterparties is not possible. Credit risk arising in the context of the Group’s operations is not signiﬁcant with the total bad debt provision at the balance sheet date amounting to 5.8% of gross trade receivables (2011: 6.7%). Customer credit risk is managed at appropriate Group locations according to established policies, procedures and controls. Customer credit quality is assessed in line with strict credit rating criteria and credit limits established where appropriate. Outstanding customer balances are regularly monitored and a review for indicators of impairment (evidence of ﬁnancial difﬁculty of the customer, payment default, breach of contract etc.) is carried out at each reporting date. Signiﬁcant balances are reviewed individually while smaller balances are grouped and assessed collectively. Receivables balances are in general unsecured and non-interest-bearing. The trade receivables balances disclosed in note 18 comprise a large number of customers spread across the Group’s activities and geographies with balances classiﬁed as neither past due nor impaired representing 74% of the total trade receivables balance at the balance sheet date (2011: 75%); amounts receivable from related parties (notes 18 and 32) are immaterial. Factoring and credit guarantee arrangements are employed in certain of the Group’s operations where deemed to be of beneﬁt by operational management. Liquidity risk The principal liquidity risks faced by the Group stem from the maturation of debt obligations and derivative transactions. A downgrade of CRH’s credit ratings may give rise to increases in funding costs in respect of future debt and may impair the Group’s ability to raise funds on acceptable terms. The Group’s corporate treasury function ensures that sufﬁcient resources are available to meet such liabilities as they fall due through a combination of liquid investments, cash and cash equivalents, cash ﬂows and undrawn committed bank facilities. Flexibility in funding sources is achieved through a variety of means including (i) maintaining cash and cash equivalents and liquid resources only with a diversity of highly-rated counterparties; (ii) limiting the maturity of such balances; (iii) borrowing the bulk of the Group’s debt requirements under committed bank lines or other term ﬁnancing; and (iv) having surplus committed lines of credit. The undrawn committed facilities available to the Group as at the balance sheet date are quantiﬁed in note 24; these facilities span a wide number of highly-rated ﬁnancial institutions thus minimising any potential exposure arising from concentrations in borrowing sources. The repayment schedule (analysed by maturity date) applicable to the Group’s outstanding interest-bearing loans and borrowings as at the balance sheet date is also presented in note 24. 102 CRH 22. Capital and Financial Risk Management | continued The tables below show the projected contractual undiscounted total cash outﬂows (principal and interest) arising from the Group’s trade and other payables, gross debt and derivative ﬁnancial instruments. The tables also include the gross cash inﬂows projected to arise from derivative ﬁnancial instruments. These projections are based on the interest and foreign exchange rates applying at the end of the relevant ﬁnancial year. Within 1 year €m Between 1 and 2 years €m Between 2 and 3 years €m Between 3 and 4 years €m Between 4 and 5 years €m After 5 years €m At 31 December 2012 Financial liabilities - cash outﬂows Trade and other payables Finance leases Interest-bearing loans and borrowings Interest payments on ﬁnance leases Interest payments on interest-bearing loans and borrowings Cross-currency swaps - gross cash outﬂows Gross projected cash outﬂows Derivative ﬁnancial instruments - cash inﬂows Interest rate swaps - net cash inﬂows Cross-currency swaps - gross cash inﬂows Gross projected cash inﬂows The equivalent disclosure for the prior year is as follows: At 31 December 2011 Financial liabilities - cash outﬂows Trade and other payables Finance leases Interest-bearing loans and borrowings Interest payments on ﬁnance leases Interest payments on interest-bearing loans and borrowings Interest rate swaps - net cash outﬂows Cross-currency swaps - gross cash outﬂows Other derivative ﬁnancial instruments Gross projected cash outﬂows Derivative ﬁnancial instruments - cash inﬂows Interest rate swaps - net cash inﬂows Cross-currency swaps - gross cash inﬂows Other derivative ﬁnancial instruments Gross projected cash inﬂows 2,841 3 657 1 289 2,201 5,992 (57) (2,216) (2,273) 2,858 3 511 1 286 1 1,207 2 4,869 (70) (1,197) (1) (1,268) 145 3 906 1 227 29 1,311 (34) (27) (61) 117 3 564 1 268 - 428 1 1,382 (53) (471) - (524) 41 1 349 - 179 343 913 (25) (332) (357) 23 3 920 1 208 - 24 1 1,180 (32) (24) - (56) 13 1 1,257 1 141 8 1,421 (20) (8) (28) 24 2 355 1 158 - 327 - 867 (24) (307) - (331) 21 6 - - 96 - 123 (11) - (11) 25 1 1,290 1 120 - - - 1,437 (18) - - (18) Total €m 3,179 17 4,688 4 1,207 2,581 11,676 118 3 1,519 1 275 - 1,916 (7) - (7) (154) (2,583) (2,737) 38 13 1,070 5 327 1 - 2 1,456 3,085 25 4,710 10 1,367 2 1,986 6 11,191 (15) - - (15) (212) (1,999) (1) (2,212) Commodity price risk The fair value of derivatives used to hedge future energy costs was €2 million unfavourable as at the balance sheet date (2011: €3 million unfavourable). 23. Liquid Investments and Cash and Cash Equivalents Liquid investments and cash and cash equivalents balances are spread across a wide number of highly-rated ﬁnancial institutions with no material concentrations in credit or liquidity risk. The credit risk attaching to these items is documented in note 22. Liquid investments Liquid investments held-for-trading (fair value through proﬁt or loss) Loans and receivables Total Cash and cash equivalents 2012 €m 31 - 31 2011 €m 28 1 29 Cash and cash equivalents, are included in the Consolidated Balance Sheet and Consolidated Statement of Cash Flows at fair value and, are analysed as follows: Cash at bank and in hand Investments (short-term deposits) Total 623 1,145 1,768 429 866 1,295 Cash at bank earns interest at ﬂoating rates based on daily deposit bank rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. CRH 103 24. Interest-bearing Loans and Borrowings Loans and borrowings outstanding 2012 2011 Bank overdrafts Bank loans Leases Bonds and private placements Other Interest-bearing loans and borrowings* Including share of joint ventures Excluding share of joint ventures Including share of joint ventures Excluding share of joint ventures €m 60 68 17 4,676 94 4,915 €m 54 48 17 4,670 19 4,808 €m 64 155 25 4,620 118 4,982 €m 49 40 23 4,614 32 4,758 * Including loans of €3 million (2011: €9 million) secured on speciﬁc items of property, plant and equipment; these ﬁgures do not include ﬁnance leases. Maturity proﬁle of loans and borrowings and undrawn committed facilities At 31 December 2012 Within one year Between one and two years Between two and three years Between three and four years Between four and ﬁve years After ﬁve years Total The equivalent disclosure for the prior year is as follows: At 31 December 2011 Within one year Between one and two years Between two and three years Between three and four years Between four and ﬁve years After ﬁve years Total Including share of joint ventures Excluding share of joint ventures Loans and borrowings €m Undrawn committed facilities** €m Loans and borrowings €m Undrawn committed facilities** €m 676 934 351 1,316 6 1,632 4,915 519 604 957 356 1,357 1,189 4,982 150 - 40 1,626 - 1 1,817 135 237 1 37 1,500 28 1,938 647 928 347 1,314 5 1,567 4,808 459 580 941 341 1,345 1,092 4,758 150 - 40 1,626 - 1 1,817 132 184 1 - 1,500 1 1,818 ** The Group manages its borrowing ability by entering into committed borrowing agreements. Revolving committed bank facilities are generally available to the Group for periods of up to ﬁve years from the date of inception. The ﬁgures shown above are the undrawn committed facilities available to be drawn by the Group at 31 December 2012. Guarantees The Company has given letters of guarantee to secure obligations of subsidiary undertakings as follows: €4.8 billion in respect of loans, bank advances, derivative obligations and future lease obligations (2011: €4.7 billion), €289 million in respect of letters of credit (2011: €427 million) and €7 million in respect of other obligations (2011: €9 million). Pursuant to the provisions of Section 17, Companies (Amendment) Act, 1986, the Company has guaranteed the liabilities of its wholly-owned subsidiary undertakings and the Oldcastle Finance Company and Oldcastle North America Funding Company general partnerships in the Republic of Ireland for the ﬁnancial year ended 31 December 2012 and, as a result, such subsidiary undertakings and the general partnerships have been exempted from the ﬁling provisions of Section 7, Companies (Amendment) Act, 1986 and Regulation 20 of the European Communities (Accounts) Regulations, 1993 respectively. Lender covenants The Group’s major bank facilities and debt issued pursuant to Note Purchase Agreements in private placements require the Group to maintain certain ﬁnancial covenants. Non-compliance with ﬁnancial covenants would give the relevant lenders the right to terminate facilities and demand early repayment of any sums drawn thereunder thus altering the maturity proﬁle of the Group’s debt and the Group’s liquidity. Calculations for ﬁnancial covenants are completed for twelve-month periods half-yearly on 30 June and 31 December. The Group was in full compliance with its ﬁnancial covenants throughout each of the periods presented. The Group is not aware of any stated events of default as deﬁned in the Agreements. The ﬁnancial covenants are: (1) Minimum interest cover (excluding share of joint ventures) deﬁned as PBITDA/net interest (all as deﬁned in the relevant agreement) cover at no lower than 4.5 times. As at 31 December 2012 the ratio was 6.5 times (2011: 7.4 times); (2) Minimum net worth deﬁned as total equity plus deferred tax liabilities and capital grants less repayable capital grants being in aggregate no lower than €5.1 billion (2011: €5.0 billion) (such minimum being adjusted for foreign exchange translation impacts). As at 31 December 2012 net worth (as deﬁned) was €11.9 billion (2011: €12.1 billion). 104 CRH 25. Derivative Financial Instruments The fair values of derivative ﬁnancial instruments are analysed by year of maturity and by accounting designation as follows: Fair value hedges Cash ﬂow hedges Net investment hedges Not designated as hedges €m €m €m €m At 31 December 2012 Derivative assets Within one year - current assets Between one and two years Between two and three years Between three and four years Between four and ﬁve years After ﬁve years Non-current assets Total derivative assets Derivative liabilities Within one year - current liabilities Between one and two years Between two and three years Between three and four years Between four and ﬁve years After ﬁve years Non-current liabilities Total derivative liabilities 48 24 - 45 - 51 120 168 - - - - - - - - Net asset arising on derivative ﬁnancial instruments 168 The equivalent disclosure for the prior year is as follows: At 31 December 2011 Derivative assets Within one year - current assets Between one and two years Between two and three years Between three and four years Between four and ﬁve years After ﬁve years Non-current assets Total derivative assets Derivative liabilities Within one year - current liabilities Between one and two years Between two and three years Between three and four years Between four and ﬁve years After ﬁve years Non-current liabilities Total derivative liabilities 6 62 32 - 46 41 181 187 - - - - - - - - Net asset arising on derivative ﬁnancial instruments 187 - - - - - - - - (1) (1) (13) - - - (14) (15) (15) 1 - - - - - - 1 (2) (1) - (17) - (2) (20) (22) (21) 4 - - - - - - 4 (5) - - - - - - (5) (1) 12 - - - - - - 12 (8) - - - - - - (8) 4 Total excluding share of joint ventures €m Total €m 52 24 - 45 - 51 120 52 24 - 45 - 51 120 172 172 (6) (1) (13) - - - (14) (20) (6) (1) (13) - - - (14) (20) 152 152 24 62 32 - 46 41 181 205 (10) (1) - (17) - (2) (20) (30) 23 62 32 - 46 41 181 204 (10) (1) - (17) - - (18) (28) - - - - - - - - - - - - - - - - - 5 - - - - - - 5 - - - - - - - - 5 175 176 CRH 105 25. Derivative Financial Instruments | continued Fair value hedges consist of interest rate swaps and currency swaps. These instruments hedge risks arising from changes in asset/liability fair values due to interest rate and foreign exchange rate movements. Cash ﬂow hedges consist of forward foreign exchange and commodity contracts and interest rate and currency swaps. These instruments hedge risks arising to future cash ﬂows from movements in foreign exchange rates, commodity prices and interest rates. Cash ﬂow hedges are expected to affect proﬁt and loss over the period to maturity. Net investment hedges comprise cross-currency swaps and hedge changes in the value of net investments due to currency movements. The proﬁt/(loss) arising on fair value, cash ﬂow, net investment hedges and related hedged items reﬂected in the Consolidated Income Statement is shown below: Cash ﬂow hedges - ineffectiveness Fair value of hedge instruments Fair value of the hedged items Components of other comprehensive income - cash ﬂow hedges Losses arising during the year: Commodity forward contracts Interest rate swaps Reclassiﬁcation adjustments for losses/(gains) included in: - the Consolidated Income Statement Total Fair value hierarchy 2012 €m (3) (16) 21 2011 €m 2 12 (17) - - 1 1 (4) (1) (2) (7) The table below analyses ﬁnancial instruments carried at fair value, by valuation method. The different levels have been deﬁned as follows: – Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities – Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) – Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) As at 31 December 2012 As at 31 December 2011 Level 1 €m Level 2 €m Total €m Level 1 €m Level 2 €m Assets measured at fair value Fair value hedges - cross currency and interest rate swaps Cash ﬂow hedges Net investment hedges - cross currency swaps Not designated as hedges (held-for-trading) - interest rate swaps Held-for-trading (fair value through proﬁt or loss) Total Liabilities measured at fair value Cash ﬂow hedges - cross currency and interest rate swaps Net investment hedges - cross currency swaps Total - - - - 31 31 - - - 168 168 - 4 - - 172 (15) (5) (20) - 4 - 31 203 (15) (5) (20) - - - - 28 28 - - - 187 1 12 5 - 205 (22) (8) (30) Total €m 187 1 12 5 28 233 (22) (8) (30) During the reporting periods ending 31 December 2012 and 31 December 2011 there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. 106 CRH 26. Provisions for Liabilities Net present cost 31 December 2012 Insurance (i) Environment and remediation (ii) Rationalisation and redundancy (iii) Other (iv) Total Analysed as: Non-current liabilities Current liabilities Total 199 88 13 73 373 252 121 373 The equivalent disclosure for the prior year is as follows: 31 December 2011 Insurance (i) Environment and remediation (ii) Rationalisation and redundancy (iii) Other (iv) Total Analysed as: Non-current liabilities Current liabilities Total 207 81 28 71 387 253 134 387 At 1 January €m Translation adjustment €m Arising on acquisition €m Provided during year €m Utilised during year €m Disposed during year €m Reversed unused €m Discount unwinding (note 9) €m At 31 December €m (3) - - - (3) 5 2 - - 7 - - - 1 1 51 2 48 15 116 (45) (4) (35) (8) (92) - 1 1 13 15 51 8 26 15 (47) (4) (40) (15) 100 (106) - (1) - (2) (3) - - (2) (6) (8) (22) (4) (1) (13) (40) (26) (2) (1) (8) (37) 10 2 1 2 15 9 2 1 3 190 83 26 68 367 257 110 367 199 88 13 73 15 373 252 121 373 (i) This provision relates to actual and potential obligations arising under the self-insurance components of the Group’s insurance arrangements which comprise employers’ liability (workers’ compensation in the United States), public and products liability (general liability in the United States), automobile liability, property damage, business interruption and various other insurances; a substantial proportion of the total provision pertains to claims which are classiﬁed as “incurred but not reported”. Due to the extended timeframe associated with many of the insurances, a signiﬁcant proportion of the total provision is subject to periodic actuarial valuation. The projected cash ﬂows underlying the discounting process are established through the application of actuarial triangulations, which are extrapolated from historical claims experience. The triangulations applied in the discounting process indicate that the Group’s insurance provisions have an average life of six years (2011: ﬁve years). (ii) This provision comprises obligations governing site remediation and improvement costs to be incurred in compliance with either local or national environmental regulations together with constructive obligations stemming from established best practice. Whilst a signiﬁcant element of the total provision will reverse in the medium-term (two to ten years), the majority of the legal and constructive obligations applicable to long-lived assets (principally mineral-bearing land) will unwind over a 30-year timeframe. In discounting the related obligations, expected future cash outﬂows have been determined with due regard to extraction status and anticipated remaining life. (iii) These provisions relate to irrevocable commitments under various rationalisation and redundancy programmes, none of which is individually material to the Group. In 2012, €48 million (2011: €26 million) was provided in respect of rationalisation and redundancy activities as a consequence of undertaking various cost reduction initiatives across all operations. These initiatives included removing excess capacity from manufacturing and distribution networks and scaling operations to match market supply and demand; implementation of these initiatives resulted in a reduction in stafﬁng levels in all business segments over recent years. The Group expects that these provisions will be utilised within one to two years of the balance sheet date (2011: two years). (iv) This includes provisions relating to guarantees and warranties of €13 million (2011: €13 million) throughout the Group at 31 December 2012. The Group expects that these provisions will be utilised within two to three years of the balance sheet date (2011: two years). Discount rate sensitivity analysis All provisions are discounted at a rate of 5% (2011: 5%), consistent with the average effective interest rate for the Group’s borrowings. The impact on proﬁt before tax of a 1% change in the discount rate applicable to provisions, with all other variables held constant, is €1 million (2011: €nil million). CRH 107 27. Deferred Income Tax The deductible and taxable temporary differences in respect of which deferred tax has been recognised are as follows: Reported in balance sheet after offset Deferred tax liabilities Deferred tax assets Net deferred income tax liability Deferred income tax assets (deductible temporary differences) Deﬁcits on Group deﬁned beneﬁt pension obligations (note 28) Revaluation of derivative ﬁnancial instruments to fair value Tax loss carryforwards Share-based payment expense Provisions for liabilities and working capital-related items Other deductible temporary differences Total 2012 €m 2011 €m 1,301 (197) 1,104 1,492 (290) 1,202 139 21 129 1 183 48 521 140 12 131 2 209 35 529 Deferred income tax assets have been recognised in respect of all deductible temporary differences, with the exception of some tax loss carryforwards. The amount of tax losses where recovery is not probable and is therefore not recognised in the Consolidated Balance Sheet is €378 million (2011: €376 million). The vast majority will expire post 2017 (2011: 2016). Deferred income tax liabilities (taxable temporary differences) Taxable temporary differences principally attributable to accelerated tax depreciation and fair value adjustments arising on acquisition (i) Revaluation of derivative ﬁnancial instruments to fair value Rolled-over capital gains Total 1,592 15 18 1,625 1,697 14 20 1,731 (i) Fair value adjustments arising on acquisition principally relate to property, plant and equipment. Movement in net deferred income tax liability At 1 January Translation adjustment Net expense/(income) for the year (note 11) Arising on acquisition (note 31) Disposal (note 5) Movement in deferred tax asset on Group deﬁned beneﬁt pension obligations Movement in deferred tax liability on cash ﬂow hedges At 31 December 1,202 1,308 (17) 11 9 (73) (28) - 14 (80) 27 (9) (56) (2) 1,104 1,202 108 CRH 28. Retirement Beneﬁt Obligations The Group operates either deﬁned beneﬁt or deﬁned contribution pension schemes in all of its principal operating areas. Scheme assets are held in separate trustee-administered funds. The Group operates deﬁned beneﬁt pension schemes in the Republic of Ireland, Britain and Northern Ireland, the Netherlands, Belgium, Germany, Switzerland and the United States; for the purposes of the disclosures which follow, the schemes in the Republic of Ireland, the Netherlands, Belgium and Germany have been aggregated into a “Eurozone” category on the basis of common currency and ﬁnancial assumptions. In line with the principle of proportionate consolidation, the assets, liabilities, income and expenses attaching to deﬁned beneﬁt pension schemes in joint ventures are reﬂected in the ﬁgures below on the basis of the Group’s share of these entities. The majority of the deﬁned beneﬁt pension schemes operated by the Group are funded as disclosed in the analysis of the deﬁned beneﬁt obligation presented below with unfunded schemes restricted to one scheme in each of the Netherlands and the United States and three schemes in Germany. Provision has been made in the ﬁnancial statements for post-retirement healthcare obligations in respect of certain current and former employees principally in the United States and for long-term service commitments in respect of certain employees in the Eurozone and Switzerland. These obligations are unfunded in nature and the required disclosures form part of this note. The cumulative actuarial gains and losses attributable to the Group’s deﬁned beneﬁt pension scheme obligations at 1 January 2004 (the date of transition to IFRS) were recognised in full as at that date and adjusted against retained income. Actuarial gains and losses and the associated movement in the net deferred tax asset are recognised via the Consolidated Statement of Comprehensive Income. Actuarial valuations - funding requirements The funding requirements in relation to the Group’s deﬁned beneﬁt schemes are assessed in accordance with the advice of independent and qualiﬁed actuaries and valuations are prepared in this regard either annually, where local requirements mandate that this be done, or at triennial intervals at a maximum in all other cases. In Ireland and Britain, either the attained age or projected unit credit methods are used in the valuations. In the Netherlands and Switzerland, the actuarial valuations reﬂect the current unit method, while the valuations are performed in accordance with the projected unit credit methodology in Germany. In the United States, valuations are performed using a variety of actuarial cost methodologies - current unit, projected unit and aggregate cost. The dates of the actuarial valuations range from December 2008 to December 2012. The assumptions which have the most signiﬁcant effect on the results of the actuarial valuations are those relating to the rate of return on investments and the expected rates of increase in salaries and expected inﬂation. In the course of preparing the funding valuations, it was assumed that the pre-retirement rate of return on investments would, on average, exceed annual salary increases by 2.5% and the post-retirement rate of return on investments would, on average, exceed annual inﬂation by 2% per annum. In general, actuarial valuations are not available for public inspection; however, the results of valuations are advised to the members of the various schemes. Financial assumptions - IAS 19 The ﬁnancial assumptions employed in the valuation of the deﬁned beneﬁt liabilities arising on pension schemes, post-retirement healthcare obligations and long-term service commitments applying the projected unit credit methodology are as follows: Scheme liabilities The major long-term assumptions used by the Group’s actuaries in the computation of scheme liabilities as at 31 December 2012 and 31 December 2011 are as follows: Rate of increase in: - salaries - pensions in payment Inﬂation Discount rate Medical cost trend rate Eurozone 2012 % 2011 % Britain and Northern Ireland 2012 2011 % % Switzerland 2012 % 2011 % United States 2012 % 2011 % 4.00 2.00 2.00 3.80 n/a 4.00 4.00 4.00 2.00 3.00-3.40 3.00-3.40 2.00 5.00 5.25 3.00 4.50 n/a 3.00 4.70 n/a 2.25 0.25 1.25 1.85 n/a 2.25 0.25 1.25 2.35 n/a 3.50 3.50 - 2.00 3.75 6.25 - 2.00 4.60 7.00 The mortality assumptions employed in determining the present value of scheme liabilities under IAS 19 are in accordance with the underlying funding valuations and represented actuarial best practice in the relevant jurisdictions taking account of mortality experience and industry circumstances. With regard to the most material of the Group’s schemes, the future life expectations factored into the relevant valuations based on retirement at 65 years of age for current and future retirees, are as follows: Current retirees - male - female Future retirees - male - female The above data allow for future improvements in life expectancy. Republic of Ireland 2012 2011 Britain and Northern Ireland 2012 2011 Switzerland 2012 2011 22.9 24.9 22.5 24.1 22.5 24.4 22.7 25.3 19.7 22.0 19.6 21.9 25.5 26.9 25.3 26.5 24.4 26.4 24.1 26.7 19.7 22.0 19.6 21.9 CRH 109 28. Retirement Beneﬁt Obligations | continued Scheme assets The long-term rates of return used in the calculation of the expected return on scheme assets for the years ended 31 December 2012 and 31 December 2011 respectively, determined in conjunction with the Group’s actuaries and analysed by class of investment, are as follows: Equities Bonds Property Other Eurozone 2012 % 7.50 3.50 6.50 1.00 2011 % 7.50 4.00 6.50 2.50 Britain and Northern Ireland 2011 % 2012 % Switzerland 2012 % 2011 % United States 2012 % 2011 % 7.50 4.00 6.50 1.00 7.50 4.50 6.50 2.50 6.05 2.05 4.75 1.50 6.35 2.35 4.75 1.75 7.50 4.00 6.50 1.00 7.50 5.00 6.50 2.50 The methodology applied in relation to the expected return on equities is driven by prevailing risk-free rates in the four jurisdictions listed and the application of an equity risk premium (which varies by country) to those rates. The differences between the expected return on bonds and the yields used to discount the liabilities in each of the four jurisdictions listed are attributable to the fact that the bond assets held by many of the Group’s schemes comprise an amalgam of government and corporate bonds. The property and “other” (largely cash holdings) components of the asset portfolio are not signiﬁcant. In all cases, the reasonableness of the assumed rates of return is assessed by reference to actual and target asset allocations in the long-term and the Group’s overall investment strategy as articulated to the trustees of the various deﬁned beneﬁt pension schemes in operation. Impact on Consolidated Income Statement The total expense charged to the Consolidated Income Statement in respect of deﬁned contribution and deﬁned beneﬁt pension schemes, post-retirement healthcare obligations and long-term service commitments is as follows: Total deﬁned contribution expense Total deﬁned beneﬁt expense Total expense in Consolidated Income Statement 2012 €m 2011 €m 143 21 164 134 24 158 At year-end 2012, €38 million (2011: €40 million) was included in other payables in respect of deﬁned contribution pension liabilities. Analysis of deﬁned beneﬁt expense The total deﬁned beneﬁt expense (comprising funded and unfunded deﬁned beneﬁt pension schemes and unfunded post-retirement healthcare obligations and long-term service commitments) is analysed as follows: Eurozone 2012 €m 2011 €m Britain and Northern Ireland 2011 €m 2012 €m Switzerland 2012 €m 2011 €m United States 2012 2011 €m €m Total Group 2012 €m 2011 €m Charged in arriving at Group proﬁt before ﬁnance costs*: Current service cost Past service cost Settlement/curtailment gain Subtotal Included in ﬁnance revenue and ﬁnance costs respectively: Expected return on scheme assets Interest cost on scheme liabilities Subtotal Net charge to Consolidated Income Statement* 7 (3) (30) (26) (31) 44 13 (13) 11 (2) (13) (4) (33) 44 11 7 16 - - 16 (32) 31 (1) 15 14 - (15) (1) (30) 30 - (1) 25 1 - 26 (24) 17 (7) 19 21 1 (1) 21 (23) 18 (5) 16 (2) - - (2) (9) 11 2 - 1 - - 1 (10) 11 1 2 46 (2) (30) 14 (96) 103 7 21 47 (1) (29) 17 (96) 103 7 24 Actual return on pension scheme assets 86 (24) 61 12 48 5 17 (1) 212 (8) * Impact of scheme disposals shown separately in note 5. During 2012, the Group implemented changes to the terms of a number of its deﬁned beneﬁt pension schemes in the Eurozone giving rise to a gain of €30 million in the Consolidated Income Statement. The Group will adopt IAS 19 Employee Beneﬁts (revised) effective 1 January 2013. Details of the impact of adopting this standard on the accounting for the Group’s retirement beneﬁt obligations are contained in the Accounting Policies on page 76. No reimbursement rights have been recognised as assets in accordance with IAS 19 Employee Beneﬁts. 110 CRH 28. Retirement Beneﬁt Obligations | continued Impact on Consolidated Balance Sheet The net pension liability (comprising funded and unfunded deﬁned beneﬁt pension schemes and unfunded post-retirement healthcare obligations and long-term service commitments) as at 31 December 2012 and 31 December 2011 is analysed as follows: Equities Bonds Property Other Bid value of assets Actuarial value of liabilities (present value) Recoverable deﬁcit in schemes Related deferred income tax asset Net pension liability Split of asset values Equities Bonds Property Other Total Eurozone 2012 €m 2011 €m Britain and Northern Ireland 2011 €m 2012 €m Switzerland 2012 €m 2011 €m United States 2012 2011 €m €m Total Group 2012 €m 2011 €m 357 246 29 78 710 (1,055) (345) 51 (294) % 50.3 34.6 4.1 11.0 100 323 196 31 16 566 (926) (360) 54 (306) % 57.1 34.6 5.5 2.8 100 333 210 42 12 597 (705) (108) 25 (83) % 55.8 35.2 7.0 2.0 100 254 225 37 9 525 (652) (127) 33 (94) % 48.4 42.9 7.0 1.7 100 191 224 133 113 661 (785) (124) 25 (99) % 28.9 33.9 20.1 17.1 100 190 240 129 69 628 (715) (87) 17 (70) % 30.3 38.2 20.5 11.0 100 91 73 1 9 174 (271) (97) 38 (59) % 52.3 42.0 0.5 5.2 100 96 58 - 5 159 (249) (90) 36 (54) % 60.4 36.5 - 3.1 100 972 753 205 212 2,142 (2,816) (674) 139 (535) % 45.3 35.2 9.6 9.9 100 863 719 197 99 1,878 (2,542) (664) 140 (524) % 45.9 38.3 10.5 5.3 100 The asset values above include €nil million in respect of investment in Ordinary Shares of the Company (CRH plc) as at 31 December 2012 (2011: €1 million). An increase of 25 basis points in the rate of return on scheme assets would have increased scheme assets by €5 million and hence reduced the pension deﬁcit before deferred tax to €669 million. Analysis of liabilities - funded and unfunded Funded deﬁned beneﬁt pension schemes Unfunded deﬁned beneﬁt pension schemes Total - deﬁned beneﬁt pension schemes Post-retirement healthcare obligations (unfunded) Long-term service commitments (unfunded) Actuarial value of liabilities (present value) (1,009) (39) (1,048) - (7) (1,055) (876) (36) (912) (7) (7) (926) (705) - (705) - - (705) (652) - (652) - - (652) (780) - (780) - (5) (785) (710) - (710) - (5) (715) (260) (7) (267) (4) - (271) (236) (6) (242) (7) - (249) (2,754) (46) (2,800) (4) (12) (2,816) (2,474) (42) (2,516) (14) (12) (2,542) The impact of a reduction of 25 basis points in the discount rates applied would be as follows (with a corresponding increase in discount rates being inversely proportional): Revised discount rate Revised liabilities ﬁgure 3.55 (1,099) 4.75 (960) 4.25 (740) 4.45 (687) 1.60 (821) 2.10 (746) 3.50 (280) 4.35 (258) n/a (2,940) n/a (2,651) Post-retirement healthcare beneﬁts - sensitivity analysis on key actuarial assumptions The impact of the sensitivity analysis on the key actuarial assumptions employed in the valuation of post-retirement healthcare beneﬁts as required under IAS 19 Employee Beneﬁts is not material to the Group. History of scheme assets, liabilities and actuarial gains and losses Bid value of assets Actuarial value of liabilities (present value) Recoverable deﬁcit Actual return less expected return on scheme assets % of scheme assets Experience gain/(loss) arising on scheme liabilities (present value) % of scheme liabilities (present value) 2012 €m 2011 €m 2010 €m 2009 €m 2008 €m 2,142 (2,816) (674) 1,878 (2,542) (664) 1,815 (2,289) (474) 1,605 (2,059) (454) 1,414 (1,828) (414) 116 (104) 5.4% (5.5%) 33 1.8% 113 (477) 7.0% (33.7%) 16 (0.6%) 31 (1.2%) 36 (1.6%) (13) 0.6% (15) 0.8% CRH 111 28. Retirement Beneﬁt Obligations | continued Analysis of amounts recognised in the Consolidated Statement of Comprehensive Income Eurozone 2012 €m 2011 €m Britain and Northern Ireland 2011 €m 2012 €m Switzerland 2011 €m 2012 €m United States 2012 2011 €m €m Total Group 2012 €m 2011 €m Actual return less expected return on scheme assets Experience (loss)/gain arising on scheme liabilities (present value) Assumptions loss arising on scheme liabilities (present value) Actuarial (loss)/gain recognised 55 (4) (177) (126) (57) 23 (102) (136) 29 11 (23) 17 (18) 4 (33) (47) 24 10 (73) (39) (18) 5 (48) (61) 8 (1) (30) (23) (11) (1) (22) (34) 116 16 (303) (171) (104) 31 (205) (278) Actuarial gains and losses recognised in the Consolidated Statement of Comprehensive Income Actual return less expected return on scheme assets % of scheme assets 55 (57) 7.7% (10.1%) 29 (18) 4.9% (3.4%) 24 (18) 3.6% (2.9%) 8 (11) 4.6% (6.9%) 116 (104) 5.4% (5.5%) Experience (loss)/gain arising on scheme liabilities (present value) % of scheme liabilities (present value) (4) 23 0.4% (2.5%) 11 (1.6%) 4 (0.6%) 10 (1.3%) 5 (0.7%) (1) 0.4% (1) 16 0.4% (0.6%) 31 (1.2%) Actuarial (loss)/gain recognised % of scheme liabilities (present value) (126) 17 (136) 11.9% 14.7% (2.4%) (47) 7.2% (39) 5.0% (61) 8.5% (23) (34) 8.5% 13.7% (171) (278) 6.1% 10.9% Since transition to IFRS on 1 January 2004, the cumulative actuarial loss recognised in the Consolidated Statement of Comprehensive Income amounts to €788 million (2011: €617 million). Reconciliation of scheme assets (bid value) At 1 January Movement in year Translation adjustment Arising on acquisition Disposals Settlement/curtailment Employer contributions paid Contributions paid by plan participants Beneﬁt payments Actual return on scheme assets At 31 December Reconciliation of actuarial value of liabilities At 1 January Movement in year Translation adjustment Arising on acquisition Disposals Current service cost Contributions paid by plan participants Beneﬁt payments Past service cost Interest cost on scheme liabilities Actuarial (loss)/gain arising on: - experience variations - changes in assumptions Settlement/curtailment At 31 December 566 610 525 440 628 606 159 159 1,878 1,815 - - (15) (3) 114 3 (41) 86 710 - 3 - - 17 3 (43) (24) 566 12 - - - 20 - (21) 61 597 16 - - (3) 77 - (17) 12 525 4 - (15) - 18 11 (33) 48 661 17 - - - 20 12 (32) 5 628 (4) - - (1) 14 - (11) 17 174 5 - - - 5 - (9) (1) 159 12 - (30) (4) 166 14 (106) 212 2,142 38 3 - (3) 119 15 (101) (8) 1,878 (926) (844) (652) (594) (715) (635) (249) (216) (2,542) (2,289) - - 29 (7) (3) 41 3 (44) - (3) - (11) (3) 43 2 (44) (15) - - (16) - 21 - (31) (20) - - (14) - 17 - (30) (5) - 19 (25) (11) 33 (1) (17) (18) - - (21) (12) 32 (1) (18) 6 - - 2 - 11 - (11) (7) - - (1) - 9 - (11) (14) - 48 (46) (14) 106 2 (103) (45) (3) - (47) (15) 101 1 (103) (4) (177) 33 (1,055) 23 (102) 13 (926) 11 (23) - (705) 4 (33) 18 (652) 10 (73) - (785) 5 (48) 1 (715) (1) (30) 1 (271) (1) (22) - (249) 16 (303) 34 (2,816) 31 (205) 32 (2,542) Employer contributions payable in the 2013 ﬁnancial year (expressed using year-end exchange rates for 2012) are estimated at €126 million. The difference between the actual employer contributions paid of €166 million in 2012 and the expectation of €98 million included in the 2011 Annual Report is largely attributable to accelerated funding requirements in certain of the Group’s schemes which could not have been anticipated at the time of preparation of the year-end 2011 ﬁnancial statements. Employer contributions are reﬂected in the reconciliation of scheme assets as paid. 112 CRH 29. Share Capital and Reserves Equity Share Capital Authorised At 1 January 2012 and 31 December 2012 (€m) 2012 2011 Ordinary Shares of €0.32 each (i) Income Shares of €0.02 each (ii) Ordinary Shares of €0.32 each (i) Income Shares of €0.02 each (ii) 320 20 320 20 Number of Shares at 1 January 2012 and 31 December 2012 ('000s) 1,000,000 1,000,000 1,000,000 1,000,000 Allotted, called-up and fully paid At 1 January (€m) Issue of scrip shares in lieu of cash dividends (iii) At 31 December (€m) 233 2 235 14 - 14 230 3 233 14 - 14 The movement in the number of shares (expressed in ‘000s) during the ﬁnancial year was as follows: At 1 January Issue of scrip shares in lieu of cash dividends (iii) At 31 December 727,897 5,924 733,821 727,897 5,924 733,821 718,508 9,389 727,897 718,508 9,389 727,897 (i) The Ordinary Shares represent 93.68% of the total issued share capital. (ii) The Income Shares, which represent 5.85% of the total issued share capital, were created on 29 August 1988 for the express purpose of giving shareholders the choice of receiving dividends on either their Ordinary Shares or on their Income Shares (by notice of election to the Company). The Income Shares carried a different tax credit to the Ordinary Shares. The creation of the Income Shares was achieved by the allotment of fully paid Income Shares to each shareholder equal to his/her holding of Ordinary Shares but the shareholder is not entitled to an Income Share certiﬁcate, as a certiﬁcate for Ordinary Shares is deemed to include an equal number of Income Shares and a shareholder may only sell, transfer or transmit Income Shares with an equivalent number of Ordinary Shares. Income Shares carry no voting rights. Due to changes in Irish tax legislation since the creation of the Income Shares, dividends on the Company’s shares no longer carry a tax credit. As elections made by shareholders to receive dividends on their holding of Income Shares were no longer relevant, the Articles of Association were amended on 8 May 2002 to cancel such elections. Share schemes The aggregate number of shares which may be committed for issue in respect of any share option scheme, savings-related share option scheme, share participation scheme, performance share plan or any subsequent option scheme or share plan, may not exceed 10% of the issued Ordinary share capital from time to time. Share option schemes Details of share options granted under the Company’s share option schemes and the terms attaching thereto are provided in note 8 to the ﬁnancial statements and on page 60 of the Report on Directors’ Remuneration. Options exercised during the year (satisﬁed by the reissue of Treasury Shares) Number of Shares 2012 2011 1,163,827 248,806 Share participation schemes As at 31 December 2012, 7,272,632 (2011: 7,118,587) Ordinary Shares had been appropriated to participation schemes. In the ﬁnancial year ended 31 December 2012, the appropriation of 154,045 shares was satisﬁed by the reissue of Treasury Shares (2011: 39,144). The Ordinary Shares appropriated pursuant to these schemes were issued at market value on the dates of appropriation. The shares issued pursuant to these schemes are excluded from the scope of IFRS 2 Share- based Payment and are hence not factored into the expense computation and the associated disclosures in note 8. Performance Share Plan In accordance with the terms of the Performance Share Plan (see note 8), Ordinary Shares have been purchased by the Employee Beneﬁt Trust on behalf of CRH plc. The number of these shares held as at the balance sheet date was as follows: At 1 January Released by the Employee Beneﬁt Trust to the participants of the Performance Share Plan At 31 December - - - 163,226 (163,226) - In 2012, 226,617 Ordinary Shares were acquired by the Employee Beneﬁt Trust by way of the reissue of Treasury Shares by CRH plc to satisfy the release of shares in respect of the 2009 award under the Performance Share Plan. (iii) Issue of scrip shares in lieu of cash dividends: May 2012 - Final 2011 dividend (2011: Final 2010 dividend) October 2012 - Interim 2012 dividend (2011: Interim 2011 dividend) Total Number of Shares Price per Share 2012 2011 2012 2011 2,653,368 3,270,169 5,923,537 6,950,139 2,438,854 9,388,993 €15.40 €14.27 €15.35 €11.50 CRH 113 29. Share Capital and Reserves | continued Preference Share Capital Authorised At 1 January 2012 and 31 December 2012 Allotted, called-up and fully paid At 1 January 2012 and 31 December 2012 5% Cumulative Preference Shares of €1.27 each (iv) 7% ‘A’ Cumulative Preference Shares of €1.27 each (v) Number of Shares (‘000s) 150 50 €m - - Number of Shares (‘000s) 872 872 €m 1 1 There was no movement in the number of cumulative preference shares in either the current or the prior year. (iv) The holders of the 5% Cumulative Preference Shares are entitled to a ﬁxed cumulative preference dividend at a rate of 5% per annum and priority in a winding-up to repayment of capital, but have no further right to participate in proﬁts or assets and are not entitled to be present or vote at general meetings unless their dividend is in arrears. Dividends on the 5% Cumulative Preference Shares are payable half-yearly on 15 April and 15 October in each year. The 5% Cumulative Preference Shares represent 0.03% of the total issued share capital. (v) The holders of the 7% ‘A’ Cumulative Preference Shares are entitled to a ﬁxed cumulative preference dividend at a rate of 7% per annum, and subject to the rights of the holders of the 5% Cumulative Preference Shares, priority in a winding-up to repayment of capital, but have no further right to participate in proﬁts or assets and are not entitled to be present or vote at general meetings unless their dividend is in arrears or unless the business of the meeting includes certain matters, which are speciﬁed in the Articles of Association. Dividends on the 7% ‘A’ Cumulative Preference Shares are payable half-yearly on 5 April and 5 October in each year. The 7% ‘A’ Cumulative Preference Shares represent 0.44% of the total issued share capital. Treasury Shares/own shares At 1 January Treasury Shares/own shares reissued At 31 December 2012 €m (183) 37 (146) 2011 €m (199) 16 (183) As at the balance sheet date, the total number of Treasury Shares held was 7,374,706 (2011: 8,919,195); the nominal value of these shares was €3 million (2011: €3 million). During the year ended 31 December 2012, 1,317,872 shares were reissued (2011: 287,950) to satisfy exercises and appropriations under the Group’s share option and share participation schemes. In addition, 226,617 (2011: 150,330) shares were reissued to the CRH plc Employee Beneﬁt Trust in connection with the release of the award under the Performance Share Plan. These reissued Treasury Shares were previously purchased at an average price of €24.11 (2011: €24.17). No Treasury Shares were purchased during 2012 or 2011. Reconciliation of shares issued to net proceeds Shares issued at nominal amount: - scrip shares issued in lieu of cash dividends Premium on shares issued Total value of shares issued Issue of scrip shares in lieu of cash dividends (note 12) Net proceeds from issue of shares Share Premium At 1 January Premium arising on shares issued At 31 December 30. Commitments under Operating and Finance Leases Operating leases Future minimum rentals payable under non-cancellable operating leases at 31 December are as follows: Within one year After one year but not more than ﬁve years More than ﬁve years Finance leases Future minimum lease payments under ﬁnance leases are not material for the Group. 114 CRH 2 86 88 (88) - 4,047 86 4,133 3 132 135 (135) - 3,915 132 4,047 2012 €m 274 661 401 1,336 2011 €m 251 615 384 1,250 31. Business Combinations and Acquisitions of Joint Ventures The principal acquisitions completed during the year ended 31 December 2012 by reportable segment, together with the completion dates, are detailed below; these transactions entailed the acquisition of an effective 100% stake except where indicated to the contrary: Europe Materials: Finland: Lemminkainen Rakennustuotteet (28 September); Isle of Man: assets of Cemex (20 December). Europe Products: Germany: Alulux Erhardt (4 April); Malaysia: Moment Group (24 April, also Singapore, Philippines and India); United Kingdom: Anchor Bay Construction Products (4 January) and Heliﬁx (3 December). Europe Distribution: Belgium: Sani-Design (10 August) and Lambrechts (19 December); the Netherlands: Wijck’s Afbouwmaterialen (11 June). Americas Materials: Colorado: Mud Creek reserves (17 February), DeBeque reserves (5 March) and Otter Creek (23 March); Delaware: Heritage JV (50%, 30 January, also Maryland and Pennsylvania); Massachusetts: Morse (31 October); Nebraska: Omni Engineering (2 March) and KMG Partners (20 March); New Jersey: Trap Rock Industries (31 December); North Carolina: Rhodes Brothers Paving (13 January); Ohio: Sidwell Materials (31 December); Pennsylvania: certain assets of Haines and Kibblehouse (27 December, also Maryland); Tennessee: Concrete Materials (28 December); Texas: Knife River (30 March); West Virginia: Alcon (23 February), Arrow Construction (15 June) and BTI (50%, 6 July). Americas Products: Ontario: paver plant assets of Hanson Hardscapes (17 August, also Florida); California: precast assets of US Concrete (20 August); Florida: Corbitt Manufacturing (5 June, also Louisiana and Texas); Maryland: L&L Brick Supply (31 July); Michigan: Surface Coatings (14 December); Oregon: Bowco Industries (18 October) and selected production assets of Hanson Precast (13 December, also Washington); Rhode Island: Park Avenue Cement Block (24 February); Texas: packaged products assets of TXI (16 April). The identiﬁable net assets acquired, including adjustments to provisional fair values, were as follows: 2012 €m 2011 €m Assets Non-current assets Property, plant and equipment Intangible assets Deferred income tax assets Total non-current assets Current assets Inventories Trade and other receivables (i) Cash and cash equivalents Total current assets Liabilities Non-current liabilities Deferred income tax liabilities Provisions for liabilities (stated at net present cost) Non-current interest-bearing loans and borrowings and ﬁnance leases Total non-current liabilities Current liabilities Trade and other payables Current income tax liabilities Provisions for liabilities (stated at net present cost) Current interest-bearing loans and borrowings and ﬁnance leases Total current liabilities Total identiﬁable net assets at fair value Goodwill arising on acquisition (ii) Excess of fair value of identiﬁable net assets over consideration paid Non-controlling interests* Total consideration Consideration satisﬁed by: Cash payments Deferred consideration (stated at net present cost) Contingent consideration (iii) Total consideration * Measured at the non-controlling interests’ proportionate share of the acquiree’s identiﬁable net assets. Net cash outﬂow arising on acquisition Cash consideration Less: cash and cash equivalents acquired Total 254 65 10 329 98 103 19 220 (19) (1) (5) (25) (57) (3) - (37) (97) 427 165 - - 592 439 77 76 592 439 (19) 420 339 29 2 370 53 62 24 139 (29) (14) (33) (76) (49) - (1) (14) (64) 369 207 (5) 2 573 531 14 28 573 531 (24) 507 CRH 115 31. Business Combinations and Acquisitions of Joint Ventures | continued None of the acquisitions completed during the ﬁnancial year were considered sufﬁciently material to warrant separate disclosure of the attributable fair values. The initial assignment of fair values to identiﬁable net assets acquired has been performed on a provisional basis in respect of certain acquisitions; any amendments to these fair values made during the subsequent reporting window (within the measurement period imposed by IFRS 3) will be subject to subsequent disclosure. (i) The gross contractual value of trade and other receivables as at the respective dates of acquisition amounted to €106 million (2011: €65 million). The fair value of these receivables is €103 million (all of which is expected to be recoverable) (2011: €62 million) and is inclusive of an aggregate allowance for impairment of €3 million (2011: €3 million). (ii) The principal factor contributing to the recognition of goodwill on acquisitions entered into by the Group is the realisation of cost savings and other synergies with existing entities in the Group which do not qualify for separate recognition as intangible assets. Due to the asset-intensive nature of operations in the Materials business segments, no signiﬁcant intangible assets are recognised on business combinations in these segments. €106 million of the goodwill recognised in respect of acquisitions completed in 2012 is expected to be deductible for tax purposes (2011: €82 million). (iii) The fair value of contingent consideration recognised at date of acquisition is €76 million. On an undiscounted basis, the corresponding future payments for which the Group may be liable range from €nil million to a maximum of €118 million. Acquisition-related costs amounting to €4 million (2011: €3 million) have been included in operating costs in the Consolidated Income Statement (note 3). No contingent liabilities were recognised on the acquisitions completed during the ﬁnancial year or the prior ﬁnancial years. The carrying amounts of the assets and liabilities acquired determined in accordance with IFRS before completion of the acquisition, together with the adjustments made to those carrying values to arrive at the fair values disclosed above, were as follows: Non-current assets Current assets Non-current liabilities Current liabilities Identiﬁable net assets acquired Goodwill arising on acquisition (see (ii) above) Total consideration Book values €m Fair value adjustments €m Accounting policy alignments €m Adjustments to provisional fair values €m 178 218 (8) (87) 301 290 591 155 2 (18) (1) 138 (138) - - - - (1) (1) 1 - (4) - 1 (8) (11) 12 1 Fair value €m 329 220 (25) (97) 427 165 592 The following table analyses the 34 acquisitions (2011: 43 acquisitions) by reportable segment and provides details of the goodwill and consideration ﬁgures arising in each of those segments: Reportable segments Europe Materials Europe Products Europe Distribution Americas Materials Americas Products Americas Distribution Group totals Adjustments to provisional fair values Total consideration Number of Acquisitions 2012 2011 2 4 3 16 9 - 34 5 4 5 19 4 6 43 Goodwill Consideration 2012 €m 26 68 8 37 14 - 153 2011 €m 99 4 8 55 5 29 200 2012 €m 58 151 40 230 112 - 591 1 592 2011 €m 213 9 26 214 28 77 567 6 573 116 CRH 31. Business Combinations and Acquisitions of Joint Ventures | continued The post-acquisition impact of acquisitions completed during the year on Group proﬁt for the ﬁnancial year was as follows: Revenue Cost of sales Gross proﬁt Operating costs Group operating proﬁt Loss on disposals Proﬁt before ﬁnance costs Finance costs (net) Proﬁt before tax Income tax expense Group proﬁt for the ﬁnancial year 2012 €m 274 (203) 71 (57) 14 - 14 (2) 12 (4) 8 2011 €m 157 (111) 46 (30) 16 (1) 15 (4) 11 (3) 8 The revenue and proﬁt of the Group for the ﬁnancial year determined in accordance with IFRS as though the acquisitions effected during the year had been at the beginning of the year would have been as follows: Revenue Group proﬁt for the ﬁnancial year Pro-forma 2012 2012 acquisitions €m CRH Group excluding 2012 acquisitions €m Pro-forma consolidated Group €m 676 26 18,385 19,061 546 572 Pro-forma 2011 €m 18,389 600 There have been no acquisitions completed subsequent to the balance sheet date which would be individually material to the Group, thereby requiring disclosure under either IFRS 3 or IAS 10 Events after the Balance Sheet Date. Development updates, giving details of acquisitions which do not require separate disclosure on the grounds of materiality, are published in January and July each year. 32. Related Party Transactions The principal related party relationships requiring disclosure in the Consolidated Financial Statements of the Group under IAS 24 Related Party Disclosures pertain to: the existence of subsidiaries, joint ventures and associates; transactions with these entities entered into by the Group; and the identiﬁcation and compensation of key management personnel. Subsidiaries, joint ventures and associates The Consolidated Financial Statements include the ﬁnancial statements of the Company (CRH plc, the ultimate parent) and its subsidiaries, joint ventures and associates as documented in the accounting policies on pages 76 to 82. The Group’s principal subsidiaries, joint ventures and associates are disclosed on pages 128 to 135. Sales to and purchases from joint ventures are immaterial in 2012 and 2011. Loans extended by the Group to joint ventures and associates (see note 16) are included in ﬁnancial assets (whilst the Group’s share of the corresponding loans payable by joint ventures is included in interest-bearing loans and borrowings due to the application of proportionate consolidation in accounting for the Group’s interests in these entities). Sales to and purchases from associates during the ﬁnancial year ended 31 December 2012 amounted to €21 million (2011: €25 million) and €452 million (2011: €488 million) respectively. Amounts receivable from and payable to associates (arising from the aforementioned sales and purchases transactions) as at the balance sheet date are included as separate line items in notes 18 and 19 to the Consolidated Financial Statements. Terms and conditions of transactions with subsidiaries, joint ventures and associates In general, the transfer pricing policy implemented by the Group across its subsidiaries is market-based. Sales to and purchases from joint ventures and associates are conducted in the ordinary course of business and on terms equivalent to those that prevail in arm’s-length transactions. The outstanding balances included in receivables and payables as at the balance sheet date in respect of transactions with associates are unsecured and settlement arises in cash. No guarantees have been either requested or provided in relation to related party receivables and payables. Loans to joint ventures and associates (the respective amounts being disclosed in note 16) are extended on normal commercial terms in the ordinary course of business with interest accruing and, in general, paid to the Group at predetermined intervals. Key management personnel For the purposes of the disclosure requirements of IAS 24, the term “key management personnel” (i.e. those persons having authority and responsibility for planning, directing and controlling the activities of the Company) comprises the Board of Directors which manages the business and affairs of the Company. Key management remuneration amounted to: Short-term beneﬁts Post-employment beneﬁts Share-based payments - calculated in accordance with the principles disclosed in note 8. Total Other than these compensation entitlements, there were no other transactions involving key management personnel. 2012 €m 6 2 2 10 2011 €m 6 2 2 10 33. Board Approval The Board of Directors approved and authorised for issue the ﬁnancial statements on pages 72 to 117 in respect of the year ended 31 December 2012 on 25 February 2013. CRH 117 Company Balance Sheet as at 31 December 2012 Notes Fixed assets 2 Financial assets Current assets 3 Debtors Cash at bank and in hand Total current assets Creditors (amounts falling due within one year) 4 Trade and other creditors Corporation tax liability Bank loans and overdrafts Total current liabilities Net current assets Net assets Capital and reserves 7 Called-up share capital 7 Preference share capital 8 Share premium account 8 Treasury Shares and own shares 8 Revaluation reserve 8 Other reserves 8 Proﬁt and loss account Shareholders' funds N. Hartery, M. Lee, Directors 2012 €m 2011 €m 538 526 6,394 172 6,566 1,126 - 2 1,128 6,494 167 6,661 1,881 1 3 1,885 5,438 4,776 5,976 5,302 249 1 4,137 (146) 42 172 1,521 5,976 247 1 4,051 (183) 42 158 986 5,302 118 CRH Notes to the Company Balance Sheet 1. Accounting Policies Basis of accounting The ﬁnancial statements have been prepared under the historical cost convention in accordance with the Companies Acts, 1963 to 2012 and Generally Accepted Accounting Practice in the Republic of Ireland (“Irish GAAP”). The following paragraphs describe the principal accounting policies under Irish GAAP, which have been applied consistently. Operating income and expense Operating income and expense arises from the Company’s principal activities as a holding company for the Group and are accounted for on an accruals basis. Financial assets Fixed asset investments, including investments in subsidiaries, are stated at cost (and at valuation at 31 December 1980 for those investments in existence at that date) less any accumulated impairments and are reviewed for impairment if there are indications that the carrying value may not be recoverable. Foreign currencies The reporting currency of the Company is euro. Transactions in foreign currencies are translated at the rates of exchange ruling at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into euro at the rates of exchange ruling at the balance sheet date, with a corresponding charge or credit to the proﬁt and loss account. Share issue expenses and share premium account Costs of share issues are written off against the premium arising on issues of share capital. Share-based payments The Company has applied the requirements of FRS 20 Share-based Payment. The accounting policy applicable to share-based payments is consistent with that applied under IFRS and is accordingly addressed in detail on pages 76 to 82 of the Consolidated Financial Statements. Cash ﬂow statement The Company has taken advantage of the exemption afforded by FRS 1 Cash Flow Statements not to provide a statement of cash ﬂows. Treasury Shares and own shares Treasury Shares Own equity instruments (i.e. Ordinary Shares) acquired by the Company are deducted from equity and presented on the face of the Company Balance Sheet. No gain or loss is recognised in proﬁt or loss on the purchase, sale, issue or cancellation of the Company’s Ordinary Shares. Own shares Ordinary Shares purchased by the Employee Beneﬁt Trust on behalf of the Company under the terms of the Performance Share Plan are recorded as a deduction from equity on the face of the Company Balance Sheet. Dividends Dividends on Ordinary Shares are recognised as a liability in the Company’s Financial Statements in the period in which they are declared by the Company CRH 119 2. Financial Assets The Company’s investment in its subsidiaries is as follows: At 1 January 2012 at cost/valuation Capital contribution in respect of share-based payments At 31 December 2012 at cost/valuation The equivalent disclosure for the prior year is as follows: At 1 January 2011 at cost/valuation Disposals Capital contribution in respect of share-based payments At 31 December 2011 at cost/valuation Shares (i) €m Other €m 371 - 371 374 (3) - 371 155 12 167 135 - 20 155 Total €m 526 12 538 509 (3) 20 526 (i) The Company’s investment in shares in its subsidiaries was revalued at 31 December 1980 to reﬂect the surplus on revaluation of certain property, plant and equipment (land and buildings) of subsidiaries. The original historical cost of the shares equated to approximately €9 million. The analysis of the closing balance between amounts carried at valuation and at cost is as follows: At valuation 31 December 1980 At cost post 31 December 1980 Total 2012 €m 47 324 371 2011 €m 47 324 371 Pursuant to Section 16 of the Companies (Amendment) Act, 1986, a full list of subsidiaries, joint ventures and associated undertakings will be annexed to the Company’s Annual Return to be ﬁled in the Companies Registration Ofﬁce in Ireland. 3. Debtors Amounts owed by subsidiary undertakings 4. Trade and Other Creditors Amounts falling due within one year Amounts owed to subsidiary undertakings 2012 €m 2011 €m 6,394 6,494 2012 €m 2011 €m 1,126 1,881 5. Auditor’s Remuneration (Memorandum Disclosure) In accordance with section 161D of the Companies Act, 1963, the fees paid in 2012 to the statutory auditor for work engaged by the parent company comprised audit fees of €20,000 (2011: €20,000) and other assurance services of €108,000 (2011: €247,000). 6. Dividends Proposed (Memorandum Disclosure) Details in respect of dividends proposed of €320 million (2011: €316 million) are presented in the dividends note (note 12) on page 92 of the notes to the Consolidated Financial Statements. 7. Called-up Share Capital Details in respect of called-up share capital, Treasury Shares and own shares are presented in the share capital and reserves note (note 29) on pages 113 and 114 of the notes to the Consolidated Financial Statements. 120 CRH 8. Movement in Shareholders’ Funds At 1 January 2012 Issue of share capital (net of expenses) Proﬁt after tax before dividends Treasury/own shares reissued Share option exercises Share-based payment expense Dividends (including shares issued in lieu of dividends) Issued share capital €m 248 2 - - - - - Share premium account €m Treasury Shares/ own shares €m Revaluation reserve €m Other reserves €m Proﬁt and loss account €m 4,051 86 - - - - - (183) - - 37 - - - 42 158 - - - - - - - - - - 14 - 172 986 - 1,006 (37) 16 - (450) 1,521 Total equity €m 5,302 88 1,006 - 16 14 (450) 5,976 At 31 December 2012 250 4,137 (146) 42 The equivalent disclosure for the prior year is as follows: At 1 January 2010 Currency translation effects Issue of share capital (net of expenses) Proﬁt after tax before dividends Treasury/own shares reissued Share option exercises Share-based payment expense Dividends (including shares issued in lieu of dividends) 245 3,919 (199) 42 137 1,387 5,531 - 3 - - - - - - 132 - - - - - - - - 16 - - - - - - - - - - - - - - - 21 - 158 1 - 53 (16) 6 - (445) 986 1 135 53 - 6 21 (445) 5,302 At 31 December 2011 248 4,051 (183) 42 In accordance with section 148(8) of the Companies Act, 1963 and section 7(1A) of the Companies (Amendment) Act, 1986, the Company is availing of the exemption from presenting its individual proﬁt and loss account to the Annual General Meeting and from ﬁling it with the Registrar of Companies. The proﬁt for the ﬁnancial year dealt with in the Company Financial Statements amounted to €1,006 million (2011: €53 million). 9. Share-based Payments The total expense of €14 million (2011: €21 million) reﬂected in note 8 to the Consolidated Financial Statements attributable to employee share options and the Performance Share Plan has been included as a capital contribution in ﬁnancial assets (note 2) in addition to any payments to/from subsidiaries. 10. Section 17 Guarantees Pursuant to the provisions of Section 17, Companies (Amendment) Act, 1986, the Company has guaranteed the liabilities of its wholly-owned subsidiary undertakings and the Oldcastle Finance Company and Oldcastle North America Funding Company general partnerships in the Republic of Ireland for the ﬁnancial year ended 31 December 2012 and, as a result, such subsidiary undertakings and the general partnerships have been exempted from the ﬁling provisions of Section 7, Companies (Amendment) Act, 1986 and Regulation 20 of the European Communities (Accounts) Regulations, 1993 respectively. Details in relation to other guarantees provided by the Company are provided in the interest-bearing loans and borrowings note (note 24) on page 104 of the notes to the Consolidated Financial Statements. 11. Related Party Transactions The Company has taken advantage of the exemption in FRS 8 not to disclose transactions with wholly-owned subsidiaries. 12. Approval by Board The Board of Directors approved and authorised for issue the Company Financial Statements on pages 118 to 121 in respect of the year ended 31 December 2012 on 25 February 2013. CRH 121 Shareholder Information Dividend payments An interim dividend of 18.5c was paid in respect of Ordinary Shares on 19 October 2012. A ﬁnal dividend of 44c, if approved at the 2013 Annual General Meeting, will be paid in respect of Ordinary Shares on 13 May 2013 to shareholders on the Register of Members as at the close of business on 8 March 2013. A scrip alternative will be offered to shareholders. Dividend Withholding Tax (DWT) must be deducted from dividends paid by an Irish resident company, unless a shareholder is entitled to an exemption and has submitted a properly completed exemption form to the Company’s Registrars, Capita Registrars (Ireland) Limited (“Capita Registrars”). DWT applies to dividends paid by way of cash or by way of shares under a scrip dividend scheme and is deducted at the standard rate of Income Tax (currently 20%). Non-resident shareholders and certain Irish companies, trusts, pension schemes, investment undertakings and charities may be entitled to claim exemption from DWT. Copies of the exemption form may be obtained from Capita Registrars. Shareholders should note that DWT will be deducted from dividends in cases where a properly completed form has not been received by the record date for a dividend. Individuals who are resident in Ireland for tax purposes are not entitled to an exemption. Shareholders who wish to have their dividend paid direct to a bank account, by electronic funds transfer, should complete the required dividend mandate form and submit it to Capita Registrars. A copy of the mandate form can be obtained from the shareholder services section of the CRH website, www.crh.com, under “Equity Investors”. Alternatively, shareholders can contact Capita Registrars to obtain a mandate form (see contact details below). Tax vouchers will be sent to the shareholder’s registered address under this arrangement. Dividends are generally paid in euro. However, in order to avoid costs to shareholders, dividends are paid in Sterling and US Dollars to shareholders whose address, according to the Share Register, is in the UK and the United States respectively, unless they require otherwise. Dividends in respect of 7% ‘A’ Cumulative Preference Shares are paid half-yearly on 5 April and 5 October. Dividends in respect of 5% Cumulative Preference Shares are paid half-yearly on 15 April and 15 October. CREST Transfer of the Company’s shares takes place through the CREST system. Shareholders have the choice of holding their shares in electronic form or in the form of share certiﬁcates. As the above mentioned dividend payment arrangements can be inﬂexible for institutional shareholders, where shares are held in CREST, dividends are automatically paid in euro unless a currency election is made. CREST members should use the facility in CREST to make currency elections. Such elections must be made in respect of entire holdings as partial elections are not permissible. 122 CRH Share price data Website 2012 € Stg£ 2011 € Stg£* Share price at 31 December 15.30 12.48 15.36 12.80 Market capitalisation 11.1 bn 9.1 bn 11.0 bn 9.2 bn Share price movement during year: - high - low 16.79 12.99 14.09 10.52 17.00 14.27 10.50 9.03 * With effect from 9 November 2011, CRH Ordinary Shares listed on the London Stock Exchange traded in Sterling GB pence rather than in euro. The Sterling high and low prices referred to above have been converted from euro at the exchange rate prevailing on the relevant dates. Shareholdings as at 31 December 2012 Ownership of Ordinary Shares Geographic location* Europe/Other Ireland North America Retail United Kingdom Treasury Number of shares held ‘000s 134,156 27,834 303,056 114,339 147,061 7,375 733,821 % of total 18.28 3.79 41.30 15.58 20.04 1.01 100 The Group’s website, www.crh.com, provides the full text of the Annual and Interim Reports, the Annual Report on Form 20-F, which is ﬁled annually with the United States Securities and Exchange Commission, interim management statements and copies of presentations to analysts and investors. News releases are made available, in the Media section of the website, immediately after release to the Stock Exchanges. Electronic communications Following the introduction of the 2007 Transparency Regulations, and in order to adopt a more environmentally friendly and cost effective approach, the Company provides the Annual Report to shareholders electronically via the CRH website, www.crh.com, and only sends a printed copy to those shareholders who speciﬁcally request a copy. Shareholders who choose to do so can receive other shareholder communications, for example, notices of general meetings and shareholder circulars, electronically. However, shareholders will continue to receive printed proxy forms, dividend documentation and, if the Company deems it appropriate, other documentation by post. Shareholders can alter the method by which they receive communications by contacting Capita Registrars. Electronic proxy voting Shareholders may lodge a proxy form for the 2013 Annual General Meeting electronically. Shareholders who wish to submit proxies via the internet may do so by accessing Capita Registrars’ website as described below. CREST members wishing to appoint a proxy via CREST should refer to the CREST Manual and the notes to the Notice of the Annual General Meeting. * This represents a best estimate of the number of shares controlled by fund managers resident in the geographic regions indicated. Private shareholders are classiﬁed as retail above. Registrars Enquiries concerning shareholdings should be addressed to: Holdings Number of shareholders 1 - 1,000 1,001 - 10,000 10,001 - 100,000 100,001 - 1,000,000 Over 1,000,000 15,408 8,986 1,169 302 86 25,951 Stock Exchange listings % of total Number of shares held ‘000s 59.37 34.63 4.51 1.16 0.33 100 5,321 26,194 32,286 104,248 565,772 733,821 % of total 0.73 3.57 4.40 14.20 77.10 100 CRH has a premium listing on the London Stock Exchange and a secondary listing on the Irish Stock Exchange. The Group’s American Depositary Shares (ADSs), each representing one Ordinary Share, are listed on the New York Stock Exchange (NYSE). The ADSs are evidenced by American Depositary Receipts. Financial calendar Announcement of ﬁnal results for 2012 26 February 2013 Ex-dividend date Record date for dividend Latest date for receipt of scrip forms Interim Management Statement Annual General Meeting 6 March 2013 8 March 2013 25 April 2013 8 May 2013 8 May 2013 Capita Registrars P.O. Box 7117 Dublin 2 Ireland Telephone: +353 (0) 1 553 0050 * Fax: +353 (0) 1 224 0700 * * Contact numbers have changed with effect from 28 January 2013 Shareholders with access to the internet may check their accounts by accessing Capita Registrars’ website, www.capitaregistrars.ie and selecting “Shareholder Portal”. This facility allows shareholders to check their shareholdings and dividend payments, register e-mail addresses, vote electronically and download standard forms required to initiate changes in details held by Capita Registrars. Shareholders will need to register for a User ID before using some of the services. American Depositary Receipts (ADRs) The ADR programme is administered by the Bank of New York Mellon and enquiries regarding ADRs should be addressed to: The Bank of New York Mellon P.O. Box 358516 Pittsburgh PA 15252-8516 U.S.A. Telephone: Toll Free Number (United States residents): 1-888-269-2377 International: +1 201-680-6825 E-mail: shrrelations@bnymellon.com Website: www.bnymellon.com/shareowner Dividend payment date and ﬁrst day of dealing in scrip dividend shares Announcement of interim results for 2013 Interim Management Statement 13 May 2013 20 August 2013 12 November 2013 Frequently Asked Questions (FAQ) The Group’s website contains answers to questions frequently asked by shareholders, including questions regarding shareholdings, dividends payments, electronic communications and shareholder rights. The FAQ can be accessed in the Investors’ section of the website under “Equity Investors”. CRH 123 Group Financial Summary (Figures prepared in accordance with Irish GAAP) Turnover including share of joint ventures 2,520 3,354 4,234 5,211 6,734 8,870 10,444 10,794 11,080 12,820 1995 €m 1996 €m 1997 €m 1998 €m 1999 €m 2000 €m 2001 €m 2002 €m 2003 €m 2004 €m EBITDA (as deﬁned)* Group operating proﬁt Goodwill amortisation Proﬁt on disposal of ﬁxed assets Exceptional items Proﬁt on ordinary activities before interest Net interest payable Proﬁt on ordinary activities before taxation Taxation on proﬁt on ordinary activities Taxation on exceptional items Proﬁt on ordinary activies after taxation Employment of capital Fixed assets - Tangible assets - Intangible asset - goodwill - Financial assets Net working capital Other liabilities Total Financed as follows Equity shareholders' funds Preference share capital Minority shareholders' equity interest Deferred tax Net debt Convertible capital bonds Total Purchase of tangible assets Acquisitions and investments Total capital expenditure 305 224 - 1 - 225 (21) 204 (42) - 162 895 - 118 133 (25) 1,121 868 1 12 49 189 2 1,121 109 164 273 387 283 - 1 - 284 (28) 256 (58) - 198 1,236 - 127 255 (36) 1,582 1,056 1 13 70 442 - 1,582 150 532 682 478 349 - 9 - 358 (36) 322 (76) - 246 1,519 - 132 313 (72) 1,892 1,308 1 14 104 465 - 1,892 147 241 388 608 442 (1) 11 - 452 (43) 409 (100) - 309 2,288 138 53 512 (306) 2,685 1,553 1 285 116 730 - 2,685 232 604 836 951 1,314 1,517 1,575 1,580 1,843 676 (19) 7 64 728 (93) 635 (152) (26) 457 3,226 629 66 608 (449) 4,080 2,201 1 37 172 1,669 - 4,080 360 1,421 1,781 919 (44) 13 - 888 (191) 697 (194) - 503 4,551 955 104 915 (487) 6,038 3,074 1 36 307 2,620 - 6,038 430 1,605 2,035 1,020 (61) 17 - 976 (173) 1,049 (70) 16 - 995 (139) 1,046 (76) 13 - 983 (118) 1,247 (101) 11 - 1,157 (140) 803 (217) - 586 856 (227) - 629 865 (218) - 647 1,017 (247) - 770 5,150 1,153 316 1,040 (495) 7,164 4,734 1 135 400 1,894 - 7,164 452 1,080 1,532 5,004 1,154 275 1,078 (457) 7,054 4,747 1 111 485 1,710 - 7,054 367 992 1,359 5,145 1,475 349 1,116 (442) 7,643 4,758 1 90 486 2,308 - 7,643 402 1,615 2,017 5,320 1,443 702 1,244 (440) 8,269 5,217 1 82 528 2,441 - 8,269 520 922 1,442 (a) (b) (c) (d) Depreciation and goodwill amortisation 81 104 129 166 275 395 497 526 534 596 Earnings per share after goodwill amortisation (cent) Earnings per share before goodwill amortisation (cent) Dividend per share (cent) Cash earnings per share (cent) Dividend cover (times) (e) (e) (e) (e),(f) (g) 37.1 37.1 9.49 55.9 3.9 43.9 43.9 10.64 67.1 4.1 52.4 52.4 12.21 80.2 4.3 65.0 65.3 14.08 100.3 4.6 87.5 91.6 16.43 145.4 5.3 102.6 111.6 18.73 184.0 5.5 104.0 114.8 20.74 192.7 5.0 107.5 119.5 22.90 198.2 4.7 109.9 122.8 25.34 201.4 4.3 129.8 147.1 29.76 231.2 4.4 Notes to Irish GAAP ﬁnancial summary data (a) Excluding bank advances and cash and liquid investments which are included under net debt (see note (c) below). (b) Including deferred and contingent acquisition consideration due after more than one year and provisions for liabilities and charges and excluding deferred tax. (c) Net debt represents the sum of loans (including ﬁnance leases) and overdrafts falling due within one year, bank loans (including ﬁnance leases) falling due after more than one year less cash and liquid investments. (d) Including supplemental interest. (e) Per share amounts for 1995 to 2004 have been restated for the bonus element of the Rights Issue in March 2009. (f) Cash earnings per share equals the sum of proﬁt for the year attributable to ordinary shareholders, depreciation and goodwill amortisation divided by the average number of Ordinary Shares outstanding for the year. (g) Excluding exceptional net gains in 1999. 124 CRH Group Financial Summary (Figures prepared in accordance with IFRS) Restated Revenue EBITDA (as deﬁned)* Group operating proﬁt Proﬁt on disposals Proﬁt before ﬁnance costs Net ﬁnance costs (funding/cash) Other ﬁnancial expense Share of associates' proﬁt/(loss) Proﬁt before tax Income tax expense 2004 €m 2005 €m 2006 €m 2007 €m 2008 €m 2009 €m 2010 €m 2011 €m 2012 €m 12,755 14,449 18,737 20,992 20,887 17,373 17,173 18,081 18,659 1,740 1,957 2,456 2,860 2,665 1,803 1,615 1,656 1,640 1,220 1,392 1,767 2,086 1,841 955 698 871 845 11 20 40 57 69 26 55 55 230 1,231 (143) (3) 19 1,104 (232) 1,412 (149) (10) 26 1,279 (273) 1,807 (237) (15) 47 1,602 (378) 2,143 (296) (7) 64 1,904 (466) 1,910 (337) (6) 61 1,628 (366) 981 (270) (27) 48 732 (134) 753 (218) (29) 28 534 (95) 926 (229) (28) 42 711 (114) 1,075 (258) (31) (112) 674 (120) Group proﬁt for the ﬁnancial year 872 1,006 1,224 1,438 1,262 598 439 597 554 Employment of capital Non-current and current assets Property, plant and equipment Intangible assets Investments in associates/other ﬁnancial assets Net working capital Other liabilities - current and non-current Total Capital and reserves excluding preference share capital Preference share capital Non-controlling interests Net deferred income tax liability Net debt (h) (i) (j) (k) 5,831 1,774 292 1,540 (1,048) 6,824 2,252 635 1,944 (1,255) 7,480 2,966 651 2,420 (1,109) 8,226 3,692 652 2,469 (880) 8,888 4,108 870 2,650 (1,140) 8,535 4,095 1,090 1,991 (1,096) 8,892 4,305 1,186 1,920 (1,111) 8,936 4,488 1,125 2,091 (1,372) 8,448 4,446 1,014 2,148 (1,415) 8,389 10,400 12,408 14,159 15,376 14,615 15,192 15,268 14,641 4,944 1 34 652 2,758 6,194 1 39 718 3,448 7,062 1 41 812 4,492 7,953 1 66 976 5,163 8,086 1 70 1,128 6,091 9,636 1 73 1,182 3,723 10,327 10,508 10,536 1 36 1,104 2,964 1 74 1,202 3,483 1 83 1,308 3,473 Total 8,389 10,400 12,408 14,159 15,376 14,615 15,192 15,268 14,641 Purchase of property, plant and equipment Acquisitions and investments Total Depreciation of property, plant and equipment Amortisation of intangible assets Earnings per share after amortisation of intangible assets (cent) Earnings per share before amortisation of intangible assets (cent) Dividend per share (cent) Cash earnings per share (cent) Dividend cover (times) (l) (l) (l) (l), (m) (n) Notes to IFRS ﬁnancial summary data 551 1,019 1,570 516 4 147.5 148.1 29.76 236.1 5.0 652 1,298 1,950 556 9 168.3 170.0 35.17 263.7 4.8 832 2,311 3,143 664 25 202.2 206.5 46.89 317.5 4.3 1,028 2,227 3,255 739 35 236.9 242.7 61.31 365.1 3.9 1,039 1,072 2,111 781 43 210.2 217.4 62.22 348.9 3.4 532 458 990 794 54 88.3 96.3 62.50 214.7 1.4 466 567 576 599 575 524 1,033 1,175 1,099 786 131 61.3 79.9 62.50 194.6 1.0 742 43 82.6 88.6 62.50 194.0 1.3 748 47 76.5 83.0 62.50 206.8 1.2 (h) Represents the sum of investments in associates (including assets held for sale included in current assets) and other ﬁnancial assets. (i) Represents the sum of inventories and trade and other receivables (included in current assets) less trade and other payables (included in current liabilities). (j) Represents the sum of current income tax liabilities, current and non-current provisions for liabilities, non-current other payables and retirement beneﬁt obligations less the sum of current income tax recoverable and non-current other receivables. (k) Represents the sum of current and non-current interest-bearing loans and borrowings and derivative ﬁnancial instrument liabilities less the sum of liquid investments, cash and cash equivalents and current and non-current derivative ﬁnancial instrument assets. (l) Per share amounts for restated 2004 to 2008 have been restated for the bonus element of the Rights Issue in March 2009. (m) Cash earnings per share represents proﬁt attributable to equity holders of the Company less preference dividends paid plus depreciation of property, plant and equipment, amortisation of intangible assets and, where applicable, asset impairments divided by the average number of Ordinary Shares outstanding for the year. (n) Represents earnings per Ordinary Share divided by dividends per Ordinary Share. * Deﬁned as earnings before interest, taxes, depreciation, amortisation, asset impairment charges, proﬁt on disposals and the Group’s share of associates’ proﬁt after tax. CRH 125 Management Executive Directors/Secretary Europe Materials Henry Morris Managing Director Alan Connolly Finance Director Eamon Geraghty Technical Director Philip Wheatley Development Director John Corbett Human Resources Director John McKeon Procurement Director Adrian Streuli Cement Operations Manager Michael O’Sullivan RMC & Aggregates Operations Manager Grainne McKenna Head of Finance Europe West Jim Mintern Regional Director Europe West Barry Leonard Managing Director Irish Cement Larry Byrne Managing Director Clogrennane Lime Jim Farrell Managing Director Roadstone-Wood Group Eamonn Sweeney Managing Director Northstone Seamus Lynch Country Manager Benelux Myles Lee Chief Executive Albert Manifold Chief Operating Ofﬁcer Maeve Carton Finance Director Mark Towe Chief Executive Ofﬁcer Oldcastle, Inc. Neil Colgan Company Secretary Senior Group Staff Human Resources, Risk Jack Golden Group Human Resources Director John Byrne Head of Internal Audit Ros O’Shea Head of Compliance & Ethics Declan Condren Group Strategic Financial Risk Manager Strategy, Sustainability Noel O’Mahony Head of Group Strategy & Development Pat McCleery Group Sustainability Manager Communications, Investor Relations Éimear O’Flynn Corporate Communications Frank Heisterkamp Head of Investor Relations Finance, Tax, Treasury Rossa McCann Head of Group Finance Paul Barry Group Controller Pat O’Shea Group Taxation Director Anthony Fitzgerald Group Treasurer 126 CRH Sebastia Alegre Managing Director Beton Catalan – Spain Central Europe Owen Rowley Regional Director Central Europe Urs Sandmeier Country Manager Switzerland Mariusz Bogacz Country Manager Finland Products & Distribution Erik Bax Managing Director Edwin Bouwman Finance Director Ivo Wetsels Human Resources Director Products Francisco Irazusta Managing Director Products Kalervo Matikainen Managing Director Finnsementti – Finland Kees Verburg Business Development Director Products Lauri Kivekäs Managing Director Rudus – Finland Mark Lowry Country Manager Poland Mossy O’Connor Cement Director Poland Dominik Piskorski Concrete Products Director Poland Brian Walsh Lime, RMC, Aggregates & Blacktop Director Poland & Slovakia Europe East Declan Maguire Regional Director Europe East David Dillon Country Director Russia Declan Maguire Country Director Ukraine Marc Asselberg Chief Information Ofﬁcer Products Jean-Luc Bernard Managing Director Construction Accessories Kees-Jan van ‘t Westeinde Managing Director Shutters & Awnings Gerben Stilma Managing Director Netherlands Dirk Vael Managing Director Belgium Edwin van den Berg Managing Director Central & Eastern Europe Wayne Sheppard Managing Director UK Alain Kirchmeyer Managing Director France Distribution Marc St. Nicolaas Managing Director Distribution Peter Erkamp Finance Director Distribution Erik de Groot Organisation Development Director Distribution Tom Beyers Development Director Distribution Erik de Groot Managing Director Builders Merchants Switzerland Ulrich Paulmann Managing Director Builders Merchants Austria Peter Stravers Managing Director Builders Merchants Benelux Khaled Bachir Managing Director Builders Merchants France Emiel Hopmans Managing Director DIY Europe Christoph Lehrmann Managing Director Bauking Germany Taco van Vroonhoven Managing Director Sanitary ware, Heating & Plumbing Asia Ken McKnight Managing Director CRH Asia Oliver Mahon Country Director India Peter Buckley Country Director China Ee Ming Wong Country Manager China The Americas North America Mark Towe Chief Executive Ofﬁcer Materials Doug Black President & Chief Operating Ofﬁcer Michael O’Driscoll Chief Financial Ofﬁcer Gary Hickman Senior Vice President Tax & Risk Management Michael Lynch Executive Vice President Development Bill Miller Vice President & General Counsel Joe Myers President Building Solutions Mark Schack Executive Vice President Talent Management John Keating President & Chief Operating Ofﬁcer, East Mark Snyder President MidA Randy Lake Chief Executive Ofﬁcer Charles Brown Chief Financial Ofﬁcer Pascal Convers Senior Vice President Development Doug Radabaugh Chief Financial Ofﬁcer, East John Parson President & Chief Operating Ofﬁcer, West Jeff Schaffer Executive Vice President, West Northeast Chris Madden President Northeast Division Christian Zimmermann President New England North Dan Stover President New England South John Cooney, Jr. President New York Region George Thompson Chairman Tilcon New Jersey Sean O’Sullivan President Tilcon New Jersey William Stavola President Trap Rock Central John Powers President Central Division Ty Nofziger President Shelly Rich Umbel President Southwest Region Gregg Campbell President Michigan Paving & Material Bob Rowberry President Jack B. Parson Mid-Atlantic Central West Dan Cooperrider President Mid-Atlantic Division Kirk Randolph President Central West Division Chris Lodge President AR/OK & TN/MS Raymond Lane President Texas Region Craig Lamberty President Midwest Region Willie Crane President AMG – North Kevin Bragg President AMG – South Bob Quinn Chief Administrative Ofﬁcer Eric Farinha Chief Financial Ofﬁcer BuildingEnvelope™ Ted Hathaway Chief Executive Ofﬁcer Brian Reilly Chief Administrative Ofﬁcer Jim Avanzini Chief Operating Ofﬁcer Architectural Glass & Storefronts Mary Carol Witry Chief Operating Ofﬁcer Engineered Glazing Systems Distribution Robert Feury, Jr. Chief Executive Ofﬁcer Southeast Building Products Rob Duke President Southeast Division David Church President Mid-South Materials Northwest Jim Gauger President Northwest Division Mark Murphy Vice President East Region Craig Mayﬁeld Vice President Central Region Mountain West Scott Parson President Mountain West Division Randy Anderson President Staker Parson North Michael Kurz President Staker Parson South Keith Haas Chief Executive Ofﬁcer Frank Furia Chief Financial Ofﬁcer Paul Valentine Chief Financial Ofﬁcer Jamie Kutzer Chief Administrative Ofﬁcer Doug Crawford Vice President Development & Strategy John McLaughlin President Exterior Products Ron Pilla President Interior Products South America Juan Carlos Girotti Managing Director CRH Sudamericana & Canteras Cerro Negro Bernardo Alamos Managing Director Vidrios Dell Orto & South American Glass Group Federico Ferro Managing Director Cormela Architectural Products Rick Mergens President Mike Schaeffer Chief Financial Ofﬁcer Tim Ortman President Masonry & Hardscapes Eoin Lehane President National Group Peter Kiley Executive Vice President Strategic Sales Precast Dave Steevens President CRH 127 Principal Subsidiary Undertakings as at 31 December 2012 Incorporated and operating in % held Products and services Europe Materials Belgium V V M N.V. 100 Cement transport and trading, readymixed concrete, clinker grinding Britain & Northern Ireland Northstone (NI) Limited (including Farrans, Ready Use Concrete, R.J. Maxwell & Son, Scott (Toomebridge) Limited) 100 Aggregates, readymixed concrete, mortar, coated macadam, rooftiles, building and civil engineering contracting China Finland Premier Cement Limited 100 Marketing and distribution of cement T.B.F. Thompson (Properties) Limited 100 Property development Harbin Sanling Cement Company Limited* 100 Cement Finnsementti Oy Rudus Oy 100 Cement 100 Aggregates, readymixed concrete and concrete products Ireland Irish Cement Limited 100 Cement Clogrennane Lime Limited Roadstone Wood Limited 100 Burnt and hydrated lime 100 Aggregates, readymixed concrete, mortar, coated macadam, concrete blocks and pipes, asphalt, agricultural and chemical limestone and contract surfacing Netherlands Cementbouw B.V. 100 Cement transport and trading, readymixed concrete and aggregates Poland Bosta Beton Sp. z o.o. 90.3 Readymixed concrete Drogomex Sp. z o.o.* . arów S.A. z Grupa O Grupa Prefabet S.A.* Masfalt Sp. z o.o.* O.K.S.M. S.A. Polbruk S.A. 99.94 Asphalt and contract surfacing 100 Cement 100 Concrete products 100 Asphalt and contract surfacing 99.96 Aggregates 100 Readymixed concrete and concrete paving ZPW Trzuskawica S.A. 100 Production of lime and lime products Spain Beton Catalan S.A. Cabi S.A. 100 Readymixed concrete 99.99 Cementitious materials Cantera de Aridos Puig Broca S.A. 99.81 Aggregates Explotacionde Aridos Calizos S.A. 100 Aggregates Formigo i Bigues S.A. Formigons Girona S.A. Suberolita S.A. Tamuz S.A. 99.81 Aggregates 100 Readymixed concrete and precast concrete products 100 Readymixed concrete and precast concrete products 100 Aggregates Switzerland JURA-Holding AG 100 Cement, aggregates and readymixed concrete Ukraine LLC Cement* 51 Cement and clinker grinding OJSC Podilsky Cement 98.89 Cement 128 CRH Incorporated and operating in % held Products and services Europe Products & Distribution Austria Distribution Belgium Products Quester Baustoffhandel GmbH 100 Builders merchants Britain & Northern Ireland Douterloigne N.V. Ergon N.V. Marlux Klaps N.V. Oeterbeton N.V. Prefaco N.V. Remacle S.A. Schelfhout N.V. 100 Concrete ﬂoor elements, pavers and blocks 100 Precast concrete structural elements 100 Concrete paving, sewerage and water treatment 100 Precast concrete 100 Precast concrete structural elements 100 Precast concrete products 100 Precast concrete wall elements J. De Saegher Steenhandel N.V. 100 Clay brick factors Plakabeton N.V. Distribution Lambrechts N.V. Sax Sanitair N.V. 100 Construction accessories 100 Builders merchants 75 Sanitary ware, heating and plumbing Schrauwen Sanitair en Verwarming BVBA 100 Sanitary ware, heating and plumbing Van Neerbos België N.V. 100 DIY stores Products Anchor Bay Construction Products 100 Construction accessories Ancon Limited 100 Construction accessories Broughton Controls Limited 100 Access control systems CRH Fencing & Security Group (UK) Limited 100 Security fencing FCA Wholesalers Limited 100 Construction accessories Forticrete Limited Geoquip Limited Heliﬁx Limited 100 Concrete masonry products and rooftiles 100 Perimeter intrusion detection systems 100 Construction ties, ﬁxings and masonry repair systems Ibstock Brick Limited 100 Clay brick manufacturer Kevington Building Products Limited 100 Specialist brick fabricator Manchester Brick and Precast Limited 100 Brick-clad precast components Supreme Concrete Limited 100 Concrete fencing, lintels and ﬂoorbeams TangoRail Limited Trinity Bricks Limited 100 Non-welded railing systems 100 Clay brick factors West Midland Fencing Limited 100 Security fencing Denmark Products Betongruppen RBR A/S CRH Concrete A/S 100 Concrete paving manufacturer 100 Structural concrete products France Products Béton Moulé Industriel S.A. 99.95 Precast concrete products Heras Clôture S.A.R.L. 100 Temporary fencing Marlux 100 Concrete paving manufacturer Plakabeton France S.A.S. 100 Construction accessories Ste. Heda S.A. Stradal Distribution 100 Security fencing 100 Utility and infrastructural concrete products CRH Ile de France Distribution 100 Builders merchants CRH 129 Principal Subsidiary Undertakings continued Incorporated and operating in % held Products and services Europe Products & Distribution continued Germany Products Alulux Beckhoff GmbH & Co. KG 100 Roller shutter and awning systems CRH Clay Solutions GmbH 100 Clay brick, pavers and rooftiles EHL AG 100 Concrete paving and landscape walling products ERHARDT Markisenbau GmbH 100 Roller shutter and awning systems Halfen GmbH 100 Construction accessories Hammerl GmbH & Co. KG 100 Construction accessories Heras-Adronit GmbH Reuss-Seifert GmbH Rhebau Rheinische Beton-und Bauindustrie GmbH & Co. KG 100 Security fencing and access control 100 Construction accessories 100 Water treatment and sewerage products Distribution Bauking AG 98.25 Builders merchants, DIY stores Paulsen & Bräuninger GmbH 100 Sanitary ware, heating and plumbing Hungary Products Ferrobeton Beton-és Vasbetonelem gyártó Zrt. 100 Precast concrete structural elements Ireland Products Italy Products Plaka Ireland Limited 100 Construction accessories Halfen S.R.L., Società Unipersonale 100 Construction accessories Plaka Group S.R.L. 100 Construction accessories Netherlands Products Aluminium Verkoop Zuid B.V. 100 Roller shutter and awning systems Calduran Kalkzandsteen B.V. 100 Sand-lime bricks and building elements CRH Kleiwaren Beheer B.V. 100 Clay brick manufacturer CRH Structural Concrete B.V. 100 Precast concrete structural elements Dycore B.V. Heras B.V. Hylas B.V. 100 Concrete ﬂooring elements 100 Security fencing and perimeter protection 100 Roller shutter and awning systems Kooy Baksteencentrum B.V. 100 Clay brick factors Mavotrans B.V. 100 Construction accessories Struyk Verwo Groep B.V. 100 Concrete paving products Distribution CRH Bouwmaten B.V. 100 Cash & Carry building materials CRH Bouwmaterialenhandel B.V. 100 Builders merchants N.V.B. Ubbens Bouwstoffen B.V. 100 Builders merchants Royal Rooﬁng Materials B.V. 100 Rooﬁng materials merchant Stoel van Klaveren Bouwstoffen B.V. 100 Builders merchants Van Neerbos Bouwmaterialen B.V. 100 Builders merchants Van Neerbos Bouwmarkten B.V. 100 DIY stores Wij©k's B.V. Products Halfen AS 100 Builders merchants 100 Construction accessories Norway 130 CRH Incorporated and operating in % held Products and services Europe Products & Distribution continued Poland Products CRH Klinkier Sp. z o.o. Ergon Poland Sp. z o.o. 100 Clay brick manufacturer 100 Structural concrete products Romania Products CRH Structural Concrete SRL 100 Structural concrete products Slovakia Elpreco S.A. Products 100 Architectural concrete products Ferrobeton Slovakia, s.r.o. 100 Precast concrete structural elements Premac, spol. s.r.o. 100 Concrete paving and ﬂoor elements Spain Products Plakabeton S.L.U. 100 Construction accessories Sweden Products Switzerland Products Tuvan Heras Stängsel AB 100 Security fencing Element AG Schweiz F.J. Aschwanden AG Distribution 100 Prefabricated structural concrete elements 100 Construction accessories BR Bauhandel AG (trading as BauBedarf and Richner) 100 Builders merchants, sanitary ware and ceramic tiles Gétaz Romang Holding AG (trading as Gétaz Romang and Miauton) 100 Builders merchants Regusci Reco S.A. (trading as Regusci and Reco) 100 Builders merchants CRH 131 Principal Subsidiary Undertakings continued Incorporated and operating in % held Products and services Americas Materials United States Oldcastle Materials, Inc. 100 Holding company APAC Holdings, Inc. and Subsidiaries 100 Aggregates, asphalt, readymixed concrete and related construction activities Callanan Industries, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities CPM Development Corporation 100 Aggregates, asphalt, readymixed concrete, prestressed concrete and related construction activities Dolomite Products Company, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities Eugene Sand Construction, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities Evans Construction Company 100 Aggregates, asphalt, readymixed concrete and related construction activities Hills Materials Company 100 Aggregates, asphalt, readymixed concrete and related construction activities Michigan Paving and Materials Company 100 Aggregates, asphalt and related construction activities Mountain Enterprises, Inc. 100 Aggregates, asphalt and related construction activities OMG Midwest, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities Oldcastle Southern Group, Inc. 100 Aggregates, asphalt, readymixed concrete, aggregates distribution and related construction activities Oldcastle SW Group, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities Pennsy Supply, Inc. Pike Industries, Inc. P.J. Keating Company 100 Aggregates, asphalt, readymixed concrete and related construction activities 100 Aggregates, asphalt, readymixed concrete and related construction activities 100 Aggregates, asphalt and related construction activities Staker & Parson Companies 100 Aggregates, asphalt, readymixed concrete and related construction activities The Shelly Company Tilcon Connecticut, Inc. Tilcon New York, Inc. Trap Rock Industries, LLC* West Virginia Paving, Inc. 100 Aggregates, asphalt, readymixed concrete and related construction activities 100 Aggregates, asphalt, readymixed concrete and related construction activities 100 Aggregates, asphalt and related construction activities 60 Aggregates, asphalt and related construction activities 100 Aggregates, asphalt and related construction activities 132 CRH Incorporated and operating in % held Products and services Americas Products & Distribution Argentina CRH Sudamericana S.A. 100 Holding company Canteras Cerro Negro S.A. 99.98 Clay rooftiles, wall tiles and ﬂoor tiles Cormela S.A. Superglass S.A. 100 Clay blocks 100 Fabricated and tempered glass products Canada Building Products Oldcastle BuildingEnvelope™ Canada, Inc. 100 Custom fabricated and tempered glass products and curtain wall Oldcastle Building Products Canada, Inc. (trading as Décor Precast, Groupe Permacon and Oldcastle Enclosure Solutions) 100 Masonry, paving and retaining walls, utility boxes and trenches Chile Vidrios Dell Orto, S.A. 99.90 Fabricated and tempered glass products Transpavé, Inc. 100 Hardscape and patio products United States Americas Products & Distribution, Inc. 100 Holding company Comercial Duomo Limitada 99.90 Wholesaler and retailer of specialised building products CRH America, Inc. Oldcastle, Inc. Building Products 100 Holding company 100 Holding company Oldcastle Architectural, Inc. 100 Holding company Oldcastle Building Products, Inc. 100 Holding company Big River Industries, Inc. 100 Lightweight aggregates Bonsal American, Inc. Glen-Gery Corporation Merchants Metals, Inc. Meadow Burke, LLC Oldcastle APG Northeast, Inc. (trading principally as Anchor Concrete Products and Trenwyth Industries) Oldcastle APG South, Inc. (trading principally as Adams Products, Georgia Masonry Supply and Northﬁeld Block Company) Oldcastle APG West, Inc. (trading principally as Amcor Masonry Products, Central Pre-Mix Concrete Products, Texas Masonry Products, Miller Rhino Materials, Sierra Building Products and Superlite Block) 100 Premixed cement and asphalt products 100 Clay bricks 100 Fabrication and distribution of fencing products 100 Concrete accessories 100 Specialty masonry, hardscape and patio products 100 Specialty masonry, hardscape and patio products 100 Specialty masonry and stone products, hardscape and patio products Oldcastle BuildingEnvelope™, Inc. 100 Custom fabricated architectural glass Oldcastle Lawn & Garden, Inc. 100 Patio products, bagged stone, mulch and stone Oldcastle Precast, Inc. 100 Precast concrete products, concrete pipe, prestressed plank and structural elements Oldcastle Surfaces, Inc. 100 Custom fabrication and installation of countertops Distribution Mahalo Acquisition Corp. (trading as G. W. Killebrew) 100 Holding company Oldcastle Distribution, Inc. 100 Holding company Allied Building Products Corp. 100 Distribution of rooﬁng, siding and related products, wallboard, metal studs, A.L.L. Rooﬁng & Building Materials Corp. 100 Distribution of rooﬁng and related products acoustical tile and grid AMS Holdings, Inc. 100 Distribution of drywall, acoustical ceiling systems, metal studs and commercial door solutions CRH 133 Principal Joint Venture Undertakings as at 31 December 2012 Incorporated and operating in % held Products and services Europe Materials India Ireland Turkey My Home Industries Limited 50 Cement Kemek Limited* 50 Commercial explosives Denizli Çimento Sanayii T.A. . 50 Cement and readymixed concrete Europe Products & Distribution France Netherlands Distribution Doras S.A.* Distribution 57.85 Builders merchants Portugal Distribution Bouwmaterialenhandel de Schelde B.V. 50 DIY stores Modelo Distribuição de Materials de Construção S.A. 50 Cash & Carry building materials Americas Materials United States American Asphalt of West Virginia, LLC* 50 Asphalt and related construction activities American Cement Company, LLC* 50 Cement Boxley Aggregates of West Virginia, LLC* 50 Aggregates Cadillac Asphalt, LLC* HMA Concrete, LLC* Piedmont Asphalt, LLC* Southside Materials, LLC* 50 Asphalt 50 Readymixed concrete 50 Asphalt 50 Aggregates 134 CRH Principal Associated Undertakings as at 31 December 2012 Incorporated and operating in % held Products and services Europe Materials China Israel Spain Jilin Yatai Group Building Materials Investment Company Limited* 26 Cement Mashav Initiating and Development Limited 25 Cement Corporación Uniland S.A.* 26.30 Cement, aggregates, readymixed concrete and mortar Europe Products & Distribution France Netherlands Distribution Samse S.A. Distribution 21.23 Builders merchants and DIY stores Intergamma B.V. 48.57 DIY franchisor Americas Materials United States Buckeye Ready Mix, LLC* 45 Readymixed concrete * Audited by ﬁrms other than Ernst & Young Pursuant to Section 16 of the Companies Act, 1986, a full list of subsidiaries, joint ventures and associated undertakings will be annexed to the Company’s Annual Return to be ﬁled in the Companies Registration Ofﬁce in Ireland. CRH 135 Index A Accounting policies Acquisitions Committee American Depositary Receipts Americas Distribution - 2012 Results Americas Distribution - Operations Review Americas Materials - 2012 Results Americas Materials - Operations Review Americas Products - 2012 Results Americas Products - Operations Review Amortisation - Intangible assets (note 15) - Segment information (note 1) Associated undertakings, principal Associates’ (loss)/proﬁt, Share of (note 10) Audit Committee Auditors, Report of Independent Auditor’s remuneration (note 4) B Balance sheet - Company - Consolidated Board approval of ﬁnancial statements (note 33) Board Committees Board of Directors Business combinations and acquisitions of joint ventures (note 31) Business Model C Capital and ﬁnancial risk management (note 22) Cash and cash equivalents (note 23) Cash ﬂow statement, Consolidated Cash ﬂow - summary Chairman’s Statement Changes in Equity: issued share capital, share premium account, Treasury Shares/own shares, other reserves, foreign currency translation, retained income and non-controlling interest Chief Executive’s Review Communications Compliance and ethics Compliance statement Corporate governance report Corporate social responsibility Cost analysis (note 3) CREST D Debt, Analysis of net (note 21) Deferred acquisition consideration payable (note 19) Deferred income tax - Expense (note 11) - Assets and liabilities (note 27) 136 CRH 76 Depreciation 37, 50 123 35 35 27 27 31 31 94 83 135 90 - Cost analysis (note 3) - Property, plant and equipment (note 14) - Segment analysis (note 1) Derivative ﬁnancial instruments (note 25) Development activity Directors’ emoluments and interests (note 7) Directors’ interests in share capital Directors’ interests - share options Directors’ remuneration, Report on Directors’ Report Directors’ responsibilities, Statement of Distribution Dividend payments (shareholder information) 37, 44 Dividends (note 12) 71 86 118 72 117 Dow Jones Sustainability Indexes E Earnings per Ordinary Share (note 13) Employees, average numbers (note 6) Employment costs (note 6) End-use - Americas Distribution 37, 43 - Americas Materials - Americas Products - Europe Distribution - Europe Materials - Europe Products Environment and climate change Europe Distribution - 2012 Results Europe Distribution - Operations Review Europe Materials - 2012 Results Europe Materials - Operations Review Europe Products - 2012 Results Europe Products - Operations Review Exective Management Team Exchange rates F Finance Committee Finance costs and income (note 9) Finance leases (note 30) Finance Review Financial assets (note 16) Financial calendar Financial summary, Group (1995-2012) Frequently asked questions FTSE4Good 36 115 14 101 103 75 19 8 74 13 123 51 53 38 6, 52 86 122 99 98 91 108 86 93 83 105 8 88 67 65 54 68 70 32 122 92 6 92 87 87 23 23 23 22 22 22 6 34 34 26 26 30 30 11 82 37, 50 90 114 17 96 123 124, 125 123 6 G General Meetings Going concern Governance Group operations Group strategy P Pensions, retirement beneﬁt obligations (note 28) Products Proﬁt on disposals (note 5) Property, plant and equipment (note 14) Provisions for liabilities (note 26) 52 53 38 21 14 Guarantees (note 24; note 10 to Company Balance Sheet ) 104, 121 Proxy voting, electronic H Health and safety I Income Statement, Consolidated Income tax expense (note 11) Intangible assets (note 15) Inventories (note 17) J Joint venture undertakings, principal Joint ventures, proportionate consolidation (note 2) K Key components of 2012 performance Key ﬁnancial ﬁgures 2012 Key ﬁnancial performance indicators L Leadership positions Leases, commitments under operating and ﬁnance (note 30) Liquid investments (note 23) Loans and borrowings, interest-bearing (note 24) M Management Materials Memorandum and Articles of Association N Nominations & Corporate Governance Committee Notes on consolidated ﬁnancial statements Notice of Meeting O Operating costs (note 3) Operating leases (note 30) Operating proﬁt disclosures (note 4) Operational snapshot 2012 Operations Reviews: - Americas Distribution - Americas Materials - Americas Products - Europe Distribution - Europe Materials - Europe Products R 6 Registrars Regulatory information Related party transactions (note 32) Remuneration Committee Retirement beneﬁt obligations (note 28) Risk management and internal control S Sector exposure and end-use Segment information (note 1) Senior Independent Director Share-based payments (note 8) Share capital and reserves (note 29) Share options - Directors - Employees Share price data Shareholder communication Shareholder information Shareholdings as at 31 December 2012 Statement of Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Statement of Directors’ responsibilities Stock Exchange listings Subsidiary undertakings, principal 72 91 94 97 134 85 18 1 18 2 114 103 104 126 24 53 Substantial holdings 37, 48 Summarised cash ﬂow 83 – 117 138 86 114 86 22 35 27 31 34 26 30 T Total Shareholder Return Trade and other payables (note 19) Trade and other receivables (note 18) V Volumes, annualised production - Americas Distribution - Americas Materials - Americas Products - Europe Distribution - Europe Materials - Europe Products W Website Working capital, movement during year and provision for liabilities (note 20) 109 28 87 93 107 123 123 70 117 37, 50, 54 109 50 5, 22 83 37, 41 88 113 65 88 123 52 122 123 72 74 70 123 128 52 19 62 98 97 23 23 23 22 22 22 123 98 CRH 137 Notice of Meeting The Annual General Meeting of CRH plc will be held at the Royal Marine Hotel, Marine Road, Dun Laoghaire, Co. Dublin at 11.00 a.m. on Wednesday, 8 May 2013 for the following purposes: 1. To consider the Company’s ﬁnancial statements and the Reports of the Directors and Auditors for the year ended 31 December 2012. 2. To declare a dividend on the Ordinary Shares1. 3. To consider the Report on Directors’ Remuneration for the year ended 31 December 20122. 4. To re-elect the following Directors3: Mr. E. Bärtschi Ms. M. Carton Mr. W. Egan Mr. U-H. Felcht Mr. N. Hartery Mr. J.M. de Jong Mr. J. Kennedy Mr. M. Lee Ms. H.A. McSharry Mr. A. Manifold Mr. D. O’Connor Mr. M. Towe 5. To authorise the Directors to ﬁx the remuneration of the Auditors4. 6. To consider and, if thought ﬁt, to pass as a Special Resolution5: That, in accordance with the powers, provisions and limitations of Article 11(e) of the Articles of Association of the Company, the Directors be and they are hereby empowered to allot equity securities for cash provided that the sum of the nominal value of all allotments made pursuant to this authority in accordance with sub-paragraph (iii) of Article 11(e) and all Treasury Shares (as deﬁned in Section 209 of the Companies Act, 1990) re-issued pursuant to Resolution 8 in the Notice of this meeting shall not exceed an aggregate nominal value of €12,474,000. This authority shall expire at the close of business on the earlier of the date of the Annual General Meeting in 2014 or 7 August 2014. 7. To consider and, if thought ﬁt, to pass as a Special Resolution: That the Company be and is hereby authorised to purchase Ordinary Shares on the market (as deﬁned in Section 212 of the Companies Act, 1990), in the manner provided for in Article 8A of the Articles of Association of the Company up to a maximum of 10% of the Ordinary Shares in issue at the date of the passing of this Resolution. This authority shall expire at the close of business on the earlier of the date of the Annual General Meeting in 2014 or 7 August 2014. 8. To consider and, if thought ﬁt, to pass as a Special Resolution: That the Company be and is hereby authorised to re-issue Treasury Shares (as deﬁned in Section 209 of the Companies Act, 1990), in the manner provided for in Article 8B of the Articles of Association of the Company. This authority shall expire at the close of business on the earlier of the date of the Annual General Meeting in 2014 or 7 August 2014. For the Board, N. Colgan, Company Secretary, 42 Fitzwilliam Square, Dublin 2. 25 March 2013 138 CRH (10) Pursuant to Section 134A of the Companies Act, 1963 and Regulation 14 of the Companies Act, 1990 (Uncertiﬁcated Securities) Regulations, 1996, the Company hereby speciﬁes that only those shareholders registered in the Register of Members of the Company as at 6.00 p.m. on Monday, 6 May 2013 shall be entitled to attend, speak, ask questions and vote at the Annual General Meeting in respect of the number of shares registered in their name at that time. (11) Pursuant to Section 133B(1)(a) of the Companies Act, 1963 and subject to any contrary provision in company law, shareholders, holding at least 3% of the Company’s issued share capital, or at least 3% of the voting rights, have the right to put an item on the agenda, or table a draft resolution for an item on the agenda, of a general meeting. In the case of the 2013 Annual General Meeting, the latest date for submission of such requests/resolutions will be 27 March 2013. Further information in relation to shareholders’ rights can be obtained from the CRH website, www.crh. com. (12) Shareholders entitled to attend the Annual General Meeting have the right to ask questions relating to items on the agenda. (13) Pursuant to Section 138 of the Companies Act, 1963, where a poll is taken at the Annual General Meeting, a shareholder, present in person or by proxy, holding more than one share need not cast all his/her votes in the same way. (14) A copy of this Notice and copies of documentation relating to the 2013 Annual General Meeting, including proxy forms, are available on the CRH website, www. crh.com. To access these documents, select AGM under “Equity Investors” in the Investors section of the website. (1) The ﬁnal dividend, if approved, will be paid on the Ordinary Shares on 13 May 2013 to persons who were registered as shareholders at the close of business on 8 March 2013. (2) Resolution 3 is an advisory resolution and is not binding on the Company. (3) In accordance with the provisions of the U.K. Corporate Governance Code, all Directors retire and offer themselves for re-election. Biographical details for each Director are set out on pages 11, 36 and 37 in the 2012 Annual Report. (4) Resolution 5 authorises the Directors to ﬁx the remuneration of the Auditors. Section 162(2) of the Companies Act, 1963 provides that the auditor of an Irish company shall be automatically re-appointed at a company’s annual general meeting unless the auditor has given notice in writing of his unwillingness to be re-appointed or a resolution has been passed at that meeting appointing someone else or providing expressly that the incumbent auditor shall not be re-appointed. The Auditors, Ernst & Young, Chartered Accountants, are willing to continue in ofﬁce and, accordingly, will be automatically re-appointed at the conclusion of the 2013 Annual General Meeting. (5) Resolution 6 proposes to renew the Directors’ authority to dis-apply statutory pre-emption rights in relation to allotments of shares up to a maximum of 5% of the issued Ordinary/Income share capital of the Company at 25 February 2013. This limit is in accordance with generally accepted best practice. The Directors intend to follow the Pre-Emption Group’s Statement of Principles in that allotments of shares for cash and the re-issue of Treasury Shares on a non pre-emptive basis, other than for rights issues to ordinary shareholders and employee share schemes, will not exceed 7.5% of the issued Ordinary/Income share capital within a rolling three year period without prior consultation with shareholders. (6) Any member entitled to attend, speak, ask questions and vote at this Meeting may exercise his or her right to vote by appointing one or more proxies. A member may appoint the Chairman or another person, who need not be a member(s) of the Company, as a proxy, by electronic means or in writing, to vote some or all of their shares. A proxy form is enclosed. Appointment of a proxy does not preclude a member from attending, speaking and asking questions at the meeting should they subsequently wish to do so. (7) To be valid, proxy forms must be delivered in writing, together with any power of attorney or other authority under which it is signed or a certiﬁed copy thereof, to the Company’s Registrar, Capita Registrars (Ireland) Limited (“Capita Registrars”), to P.O. Box 7117, Dublin 2 (if delivered by post) or to 2 Grand Canal Square, Dublin 2 (if delivered by hand), not later than 11.00 a.m. on Monday, 6 May 2013. Shareholders who wish to submit proxies by electronic means may do so up to the same deadline by accessing the Registrars’ website, www.capitaregistrars.ie and selecting “Shareholder Portal”. Shareholders who do not receive a proxy form by post, or who wish to be sent paper copies of documents relating to the meeting, should contact Capita Registrars (Tel. +353 1 553 0050). (8) CREST members may appoint one or more proxies through the CREST electronic proxy appointment service in accordance with the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members who have appointed a voting service provider(s) should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. Further information on CREST procedures and requirements is contained in the CREST Manual. The message appointing a proxy(ies) must be received by the Registrar (ID 7RA08) not later than 11.00 a.m. on Monday, 6 May 2013. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp generated by the CREST system) from which the Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. The Company may treat as invalid a proxy instruction in the circumstances set out in Regulation 35(5)(a) of the Companies Act, 1990 (Uncertiﬁcated Securities) Regulations, 1996. (9) ADR holders wishing to attend the meeting must obtain a proxy form from The Bank of New York Mellon (BNY), which will enable them to attend and vote on the business to be transacted. ADR holders may instruct BNY as to the way in which the shares represented by their ADRs should be voted by completing and returning the voting card provided by BNY in accordance with the instructions given. CRH 139 . n u R t n i r P y b d e t n i r P . e r y t n c M I t n u L y b d e c u d o r p d n a d e n g s e D i The International Building Materials Group CRH plc Belgard Castle Clondalkin Dublin 22 Ireland Telephone: +353 1 404 1000 Fax: +353 1 404 1007 E-mail: mail@crh.com Website: www.crh.com Registered Ofﬁce 42 Fitzwilliam Square Dublin 2 Ireland Telephone: +353 1 634 4340 Fax: +353 1 676 5013 E-mail: crh42@crh.com CRH® is a registered trade mark of CRH plc. 13/03/2013 09:36 Loaded CSX railcars leave Oldcastle Materials’ newest greenﬁeld quarry – Warren County – located in Camak, Georgia, USA. With an annual capacity of 3.2 million tonnes, this quarry serves the immediate market and, through Conrad Yelvington Distributors, also serves the broader region including eastern Georgia, coastal South Carolina and northern Florida by railcar. In addition to Oldcastle Materials, ﬁve other Oldcastle companies were engaged during the development of the quarry: Georgia Masonry Supply, Merchant Metals, Oldcastle BuildingEnvelope and Oldcastle Surfaces; Oldcastle Precast manufactured 3,000 linear feet of reinforced concrete pipe as well as the concrete rail crossing. 2013_Cover008.indd 1

Continue reading text version or see original annual report in PDF format above