Case Study Overv iew

M  anagement activities - planning and organising Expansion - organic and inorganic growth Categories of industry International/Global business

INTERNATIONAL PERFORMANCE AND GROWTH

I NTRODUCTION
CRH plc is an Irish-owned global business which was founded in 1970 following the merger of two Irish companies, Cement Limited (established in 1936) and Roadstone Limited (established in 1949). The group was originally called Cement Roadstone Holdings and later abbreviated to CRH. In 1970, CRH had sales of approximately 26m, 95% in Ireland. It is now one of the largest businesses in its sector in the world and employs approximately 76,000 people at over 3,600 locations in 36 countries worldwide. This case study will examine how it has achieved this phenomenal growth.

Strategic p l ans
Strategic plans are long-term plans prepared by the senior managers, covering a period of five years or more. They outline how the long-term goals of the business are to be achieved and can help businesses to establish acquisition opportunities. CRHs strategy is to sustain and grow a geographically diversified business which caters for all segments of construction demand. This enables CRH to achieve its mission of being a responsible international leader in building materials.

Tactical p l ans
Tactical plans are short-term plans which break the strategic plan into shorter, more manageable objectives. They are usually drawn up by middle managers. Tactical plans benefit a business by helping it to achieve its overall strategic plan or long-term goals. Examples of tactical plans include reducing operational costs or reducing employee turnover.

C R H GROU P STR ATEGY

Successful businesses plan for the future. Many people are familiar with the phrase fail to plan, plan to fail. Different types of planning exist, including mission statements, strategic plans, tactical plans and manpower planning. Planning is the setting down of specific goals and objectives and the putting in place of strategies that allow the business to achieve its stated goals and objectives. Many businesses draw up a mission statement, which is displayed in the head office and written in company reports and on their website. Mission statements are visionary statements outlining who the business is, what the business does and where the business is going. It gives an insight to the stakeholders of the business into what makes the business tick.
Mission To be a responsible international leader in building materials, delivering superior performance and growth.

C R H G ROU P OV ERV I EW
Based on market capitalisation, CRH is among the top three building materials companies in the world. The group operates in three product segments (materials, products and distribution) in each of its regional markets (Europe and Americas). The organisation structure of CRH is a combination of functional, geographic and product structures (see organisation chart below). Organisation chart for CRH

Products
CRH manufactures products for use in residential, nonresidential and infrastructure construction projects. These include building systems and engineered concrete solutions for use in the electrical, transportation and communications industries as well as architectural products to enhance the faade and surroundings of buildings, e.g. pre-cast concrete products, concrete blocks, masonry, pavers, roof tiles, patio products, security gates, fencing and glass fabrication. These products can be used for new buildings as well as to repair and maintain existing buildings. Eu rop e P ro ducts 12% of EB ITDA  Europe Products is divided into three groups of manufacturing businesses. It operates in 19 European countries, with the Netherlands, Belgium, UK, France, Germany and Switzerland being the main markets. Approximately 16,600 people are employed at close to 400 locations.
Development

Chief Executive

Finance

Human Resources

Environment, Health & safety

Europe

Americas

Amer icas P rod ucts 10% of Grou p EB ITDA  Americas Products operates mainly in the United States, although it has a significant presence in Canada. It is subdivided into Building Products (pre-cast and architectural concrete, concrete accessories, clay, fencing products, etc.) and Building Envelope solutions (glass and aluminium glazing systems). Americas Products is also a leading producer of clay building products in Argentina and operates glass fabrication in Argentina and Chile. Approximately 15,000 people are employed at close to 380 locations.

Materials Products Distribution

Materials Products Distribution

D istri b ution
CRH distributes building materials to general contractors and DIY customers in Europe and to professional contractors in the United States. With almost 750 branches in Europe and 180 in the USA, CRH is a leading building materials distributor, which concentrates on building an extensive network of locations in major cities. It concentrates on the growing RMI (repair, maintenance and improvement) market. Eu rop e D istr ibution 16% of EB ITDA  Europe Distribution encompasses professional builders merchants, heating and plumbing distributors and DIY stores and operates in seven countries, including Belgium, Switzerland, Austria, Germany and France. Approximately 12,100 people are employed in over 760 locations. Amer icas D istr ibution 4% of EB ITDA  Americas Distribution operates mainly in the United States. Approximately 3,300 are employed at over 180 locations.

M ateria ls
CRH continuously invests in plant and equipment to ensure quality, efficiency and customer service while seeking out expansion opportunities through developing greenfield sites and acquiring businesses. Eu ro pe Mate r ia ls 2 6 % o f E B ITDA  Europe Materials is a major producer of primary building materials (including cement, aggregates, asphalt, ready mixed concrete and lime) and operates in 20 countries. Europe Materials is actively involved in CRHs development efforts in Asia. Major markets are Poland, Finland, Switzerland, Spain, Ukraine and Ireland together with India and China in Asia and Turkey in the Mediterranean. Europe Materials employs approximately 11,600 people at close to 650 locations. Ame r icas Mater i a ls 3 2 % o f E B ITDA  Americas Materials operates in 44 out of 50 American states. Operations are geographically organised. The main products are aggregates, asphalt and ready-mixed concrete with asphalt paving services. Americas Materials employs approximately 17,800 people at close to 1,200 locations.

CRH
International Performance and Growth

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ORGAN IC AN D I NORGAN IC GROWTH

CRH has become a global business by constantly expanding. The two main methods of expanding are organic growth and inorganic growth. Organic growth is the growth that comes from a companys existing businesses, e.g. opening a new branch, increasing sales by selling to new markets or by selling new products and by franchising or licensing the businesses products. Inorganic growth on the other hand is the quick expansion of a business which is achieved by merging with, taking over or forming an alliance with another business. CRH has chiefly used inorganic methods of expansion to achieve rapid growth in its sector. 1.  A merger is a friendly/voluntary amalgamation of two firms for their mutual benefit. It involves the mutual consent of two equal companies to combine and become one entity. A single legal entity is formed once the merger is approved by shareholders and neither business has control over the other. In 1970 Cement Limited and Roadstone Limited merged to become Cement Roadstone Holdings. 2.  A takeover (also known as an acquisition) occurs when 51% (or more) of the shares in a business have been purchased in either a hostile or friendly manner. The acquiring company absorbs the other company, which may lose its identity after the acquisition, becoming part of the acquiring company. The cost of a takeover can be very expensive, as it may be necessary for the acquirer to pay more than the nominal value of the company to achieve control. Benefits of mergers and takeovers include:  Quick method of expansion compared with organic growth  Although mergers and takeovers are expensive, in the long-run costs will be lower due to availing of economies of scale and sharing of costs and resources.  By merging/taking over a business in another country, CRH can access new markets quickly, e.g. giving CRH instant access to markets in China and India.  Possible spreading of risk by diversifying into new product areas. This avoids a business having all its eggs in one basket. Risks of mergers and takeovers include:  Different organisational cultures can lead to conflict between different management teams who are used to their own styles and systems. These risks can be reduced by having a comprehensive integration plan.  There will often be redundancies, which can cause industrial relations problems.

The benefits of alliances as a form of expansion are:  It is a cost effective method, as resources are shared and costs are divided between the parties. The risks of expansion are shared between the partners.  It provides each business involved with an extended business network and market.

O P E R ATI N G A N I NTE R N ATI O N AL B U S I N E S S TH E C R H B U S I N E S S MO D EL

CRH consistently reinvests its existing assets and acquires wellrun businesses while also diversifying into new development opportunities. CRH typically acquires small to mid-sized companies although occasionally it engages in larger deals. In developed economies, CRHs strategic plan is to continue to reinvest in its established businesses to improve efficiency, product quality and customer service as well as to develop the existing business through acquisitions and take-overs. In Western Europe and North America, CRH has built up a range of businesses which supply building materials for the construction industry. CRH has chosen to diversify its product range to provide a wide range of goods to its customers.

D ev eloping and emerging mar k ets

In developing and emerging economies, CRHs strategic plan is to work in partnership with strong local businesses with good regional market positions. In the mid-1990s, CRH used this approach to enter the Polish market and now it is the leading building materials company in Poland. CRH is now using a similar approach in India and China, two major markets for building and construction. In the early 2000s, CRH began a review of Asian markets to identify possible opportunities to enter the building materials sector in the region. Market size and scale, population growth and GDP were used as leading indicators for success in the construction industry. China and India, with their cement markets were identified as being of particular interest. Both countries have strong population growth, GDP growth of between 7 - 9% and are becoming increasingly urbanised, so the potential for growth in these markets was clear and CRH chose them as the primary targets for entry into Asia.

3.  A strategic alliance or joint venture is an agreement between two or more businesses to share resources and/or expertise and work together over a specified period of time to complete a specific project. Unlike mergers and acquisitions, all parties maintain their separate identities. With strategic alliances/ joint ventures all the businesses involved benefit from sharing complementary expertise and skills and increased resources.

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In China, CRH purchased Harbin Sanling Cement Company in February 2007 in northeast China. In early 2009, it acquired a 26% shareholding in Yatai Building Materials Company, the leading construction suppliers in Chinas northeastern provinces of Heilongjiang, Jilin and Liaoning and one of the top ten cement suppliers in China. Since early 2009, Yatai has increased its production capacity from 14 million tonnes to nearly 26 million tonnes. In India, CRH entered the market in mid-2008 with a 50% joint venture in My Home Industries Limited (MHIL), which is a cement producer with modern production facilities, a strong market position and excellent reserves in Andhra Pradesh state. Since then MHIL has increased annual cement production from 3 million to 4.2 million tonnes due to the addition of a new grinding plant. CRHs focus in Asia is driven by increasing shareholder value and return on investment. As the Chinese and Indian markets develop, more sophisticated construction markets will emerge and as CRHs experience in Poland has shown, a wide range of value-added construction products will be required, enabling further expansion.

Conc lusion
Since 1970, CRH has grown from the merger of two Irish businesses to being one of the leading companies of its kind in the world. Despite the extremely challenging economic situation of the last five years, CRH has continued to grow successfully by engaging in joint ventures, mergers and takeovers, in its traditional markets and in the developing economies of China and India.

G lossary
Aggregates: A broad category of materials used in construction, including sand, gravel and crushed stone. EBITDA: An accounting acronym which stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. GDP: Gross Domestic Product is the market value of all the goods and services produced in a country during a given period. It is considered a good indicator of the standard of living in a country. Listing Rules: A set of rules applicable to any company listed on the Stock Exchange. They set out the mandatory requirements for any company that wishes to list its shares for sale to the public.

COM MU N ICATION WITH SHAR EHO L DERS

CRH believes in the importance of communicating effectively with shareholders. There is regular communication between CRH and its shareholders and presentations are made at the release of interim and annual reports. Technology has made this process more efficient and effective in a number of ways. Conference calls are held following the interim management statements being issued and major announcements by CRH. These communications allow the company directors to hear investors reactions to their announcements and their views on other issues. Interim management statements are issued in May and November. Major acquisitions are notified to the Stock Exchanges to meet the requirements of Listing Rules. Development updates of acquisitions completed and major capital expenditure projects are issued in January and July of each year. CRHs website, www.crh.com provides the full text of the annual and interim reports for all stakeholders, the Corporate Social Responsibility (CSR) report, trading statements, interim management statements and copies of presentations to analysts and investors. News releases are made available in the News and 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 Investor Relations section of the website.

Student Activity
1.  CRH has concentrated on using inorganic methods of expansion to become a global leader in construction materials. Many other Irish businesses use organic methods of expansion, e.g. franchising, licensing or opening new branches. Outline the benefits and drawbacks of franchising for the franchisor and franchisee. 2.  By expanding the business through mergers and takeovers, CRH has become a global business. Companies involved in global business face additional marketing challenges. Outline four of these challenges, using examples to support your answer.

Find out more on:

www.crh.com