CRH Diversification

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Introduction

CRH plc is one of the top five building materials groups in the world. It is

also one of Ireland’s largest industrial companies. CRH operates in 28

countries across three continents and employs around 90,000 people.

The company has three closely related core businesses:

• Primary materials (cement, aggregates, asphalt, etc)

• Value-added building products (bricks, rooftiles, insulation, etc)

• Specialist distribution (Builders’ Merchants, DIY stores, etc)

CRH was founded in 1970 following the merger of two Irish

companies, Cement Ltd. and Roadstone Ltd. During four decades of

solid growth, they have expanded their operations by a combination of

shrewd internal investment and by buying small companies in the

same industry. This case study will examine CRH’s strategy for growth

over its history and on into the future.

Growth strategies

Learning outcomes

• Performance and growth

• Identifying new opportunities

• Expansion and diversification.

Business 2000

ELEVENTH edition


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Expansion

In the early 1970s CRH set out a strategy it would retain until the

present day: to invest in similar businesses and products overseas.

At the time, this was not the only possible strategy for CRH to follow.

They could have focused exclusively on their operations in Ireland. But

this strategy would have carried risks. The Irish construction market at

the time was small and prone to cyclical changes. In other words, the

sector might boom one year and bust the next. A downturn in the Irish

market could damage CRH’s profitability. But by acquiring foreign

operations, they could spread the risk and opportunities across a

number of countries. That way a poor market in Ireland might be offset

by a booming market in the Netherlands. And by the time there is a

downturn in the Netherlands, the Irish market might be booming

again. The likelihood of all the markets busting at the same time gets

lower and lower as you move into more and more markets. This

principle is called diversification.

Not only does CRH diversify in its geographical locations, it also

diversifies its products. Starting as a cement, aggregates and concretecompany, the group soon moved into complementary product

opportunities, such as other building materials. However, CRH did not

diversify outside of its core business into unfamiliar sectors where they

did not have the same level of expertise.

Organising growth

While this strategy has evolved over the years, the broad thrust is still the

same. CRH has operations throughout Europe and North America and

platforms for further growth in South America and Asia. Less than 10%

of CRH operations are now based in Ireland. While the bulk of its activities

are outside Ireland, CRH is still very much an Irish company. A small head

office team in Dublin sets the broad strategy for the group.

CRH growth strategies

CRH has expanded through both organic and inorganic growth.

Types of growth

• Organic growth is internal growth financed from the reserves

of the company.

• Inorganic growth occurs when a firm acquires other companies,

merges with other firms or forms alliances.

CRH is a decentralised group with many subsidiary companies

operating under a wide range of names. Its strategy has been to build

leadership positions in regional and local markets. The organisation

has done this by acquiring existing mid-sized companies, continuously

improving their performance, adding to their productive capacity and

efficiency and developing new products and markets. Occasionally

larger companies are acquired. These become platforms on which to

build future growth.

The point of all this growth is to increase value for shareholders (those

who have invested in CRH by buying the company’s shares). And this

CRH has done extremely well. The company has consistently

delivered superior long-term growth in total shareholder return,

averaging over 19.5% per year for the last 36 years.

This kind of consistency would not be possible without a long-term

strategy. A business strategy provides overall direction to the whole

enterprise.

The company must first define its objectives. Then it must develop

policies and plans to achieve those objectives, and allocate resources

so as to implement the plans.

Growth is achieved

CRH has a three-part strategy for fostering new growth

across its operations.

• Invest in new capacity

• Develop new products and markets

• Acquire and grow mid-sized companies

CRHGrowth Strategies

CRH Group operating divisions chart

EuropeMaterials

EuropeProduct &

Distribution

AmericasProduct &

Distribution

AmericasMaterials

Materials Products Distribution DistributionMaterials Products

Reporting

Segments

Chief Executive

Group FunctionsFinance • Development • Human Resources • Environment • Health & Safety

Operating Divisions



Investment

Investment is central to growth. CRH is making four fundamental types

of investments that will make continued growth possible:

• Invest in its employees

• Upgrade production facilities

• Improve efficiency• Manage performance

Invest in people

The success of CRH is very much due to having talented, committed,

enthusiastic and well-qualified people throughout the Group. They

encourage and support the continuous professional development of

the CRH team and its members.

What attracts people to CRH? A competitive pay package, the

opportunity to travel, a good working environment, the ‘team’ philosophy,

flat organisation structure, challenging work assignments and internal

training programmes to prepare the next generation of leaders.

Upgrade production facilities

CRH re-invests capital in their existing facilities to improve energy and

operational efficiency and to expand capacity to meet future demand

growth. In other words, a plant producing 500 tonnes of cement a day

could easily meet local demand in 1990, but years later, the demand

could skyrocket due to a building boom. If the plant does not upgrade

to increase its capacity, then competitors will. Like all other technologies,

methods of production can become obsolete. It takes substantial capital

to re-tool an entire factory with newer, better machines, but regular

upgrading is necessary to maintain and improve competitiveness.

Improve efficiency

One way to get more out of existing factories is to make sure they are

being used to the maximum. A low capacity utilisation results in

higher fixed costs per unit, which means lower profitability. Low

capacity utilisation can be a result of over-supply in the market or

seasonal fluctuations of demand.

In Portugal, for example, the economy is going through a difficult

period with construction down approximately 3.9% for 2007, reflecting

reduced activity in housing and a significant reduction in public capital

expenditure. However, all three of CRH’s Portugese cement plants

operated at full capacity by taking advantage of strong export

markets. Investment in efficiency and environmental improvement

programmes, to offset higher input costs and improve performance,

continued at all three locations.

Manage performance

A strong focus on achievement against targets is part of CRH’s

objective of performance and growth. The ability of key players to

deliver is paramount. CRH has adopted a strong performance

management and appraisal process.

The key elements include:

1. Planning - Clear expectations and goals are set and so plans

develop to achieve these. Jobs, and how they relate to the strategic

objectives of CRH, are looked at. These plans set out key steps and

measures for staff. The A-SMART criteria are used, i.e. Aligned,

Specific, Measurable, Action-oriented, Realistic and T ime-bound.

2. Coaching - Observing and documenting performance, conducting

reviews, as well as identifying training and development needs all

provide feedback and support, and ultimately promote better

performance achievement and growth. Having a mentor or coach can

help staff to learn and develop, and reinforces effective and active

communication and performance.

3. Reviewing - Achieving results is a critical aspect of CRH’s high-

performance culture. ‘What’ the individual achieves as well as ‘How’,

are assessed and reviewed. Self-assessment, collection of

information, appraisal and a review meeting all drive performance

improvement. Employees have an opportunity to respond to

feedback. Regular formal reviews of management development

strategy are carried out by each Division, with guidance and support

provided by the Group Human Resources function.

Developing newproducts and markets

CRH has activities in 28 countries but there is still plenty of room for

expansion within those markets, and in neighbouring regions. The

Group’s wide spread across countries, regions and construction

sectors helps to smooth the effects of industry and economic cycles.

That wide spread of activities creates opportunities for further growth.

Each of the Group’s diverse operations across three continents is seen

as a platform on which to build. CRH tailors its strategy to suit each

country it operates from.

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Acquisitions

CRH has a history of aggressive inorganic growth. Throughout the 1970s

and 1980s CRH’s expansion overseas concentrated on business areas in

which the group operated in Ireland – building materials and products. The

group entered Spain in 1987 and benefited significantly in the run-up to

the Barcelona Olympics. Entry to Germany, France, Belgium and Portugal

followed during the 1990s. Many successful additions to the group were

in the US, where the company has acquired operations in over 700

locations across 46 states. By 2000, operations on the other side of the

Atlantic accounted for almost 63% of the group’s turnover.

Regional and product group managers identify opportunities for

acquisition in their areas. These opportunities are then evaluated. If

CRH chooses to go ahead with the acquisition, it negotiates the terms

with the acquired company. Then the two companies work together to

integrate their operations.

Traditionally, CRH has acquired mid-sized companies, but it does

make 1-2 very large acquisitions per annum. The aim is to build up

leadership positions in local markets by either adding to existing

activities or moving into new markets. Acquisitions are often family

businesses that fit with the Group’s existing operations.

With its deep knowledge of the construction industry CRH can bring new

products, management and financial resources to help develop and

expand the businesses it acquires. It is organised on a product basis with

a regional focus so that it is easier to share expertise across the Group –

expertise that can be tailored to suit local product or cultural needs.

Measurement is seen as another key element in the success of CRH. It

uses its broad knowledge of the construction industry to set targets and

measure the performance of the businesses within the Group. In that way

it seeks to standardise best practice across the Group encouraging local

managers to learn from their colleagues elsewhere in the Group.

Good internal communication is seen as essential to achieving the

Group’s objectives. To ease the transfer of information and expertise

across the Group the top 100 managers are brought together each

year to agree strategy and debate important issues. These meetings

also help managers to get to know one another so that a manager can

pick up a phone and call or visit a colleague if he or she has something

new to teach or to learn.

Some of CRH’s 2007 acquisitions

Plastybeton (Italy): plastic spacers and formwork accessories

Halfen-Frimeda (Norway): metal-based construction accessories

distributor

Sodeco (France): magnetic accessories products for the

construction industry

Tuvan Stängsel (Sweden): fencing, gates, outdoor security and

access control systems.

OREP (France): perimeter fence detection systems

Cinor (France): load-bearing walls and reinforced and

pre-stressed concrete beams and columns

Dalton (Denmark): concrete stairs and balconies

Ergon (Poland): structural concrete operations

Anderton Concrete Products (England):precast concrete fencing

products

Conclusion

CRH’s long-term growth strategy has delivered extremely good results

consistently for 36 years. Their three-part approach of invest, develop

and acquire will continue to inform them as they move forward into

new markets, new products and new opportunities.

Word Search

1. CRH was formed through the _______ of two companies. (6)

2. Internal growth financed from a company’s own reserves is

known as what type of growth. (7)

3. When a firm acquires, mergers or forms alliances with other

companies this is known as _____ growth. (9)

4. Those who invest in company by buying the company’s

shares are known as _______? (12)

5. When CRH decides to acquire a company, it __________ the

terms with the acquired company. (10)

Student activity

Capacity utilisation: A firm’s productive capacity is the total

level of output or production that it could produce in a given time

period. Capacity utilisation is the percentage of the firm’s total

possible production capacity that is actually being used.

Capital expenditure: Funds used to acquire or upgrade physical

assets such as property, industrial buildings or equipment.

Diversification: Spreading assets across geographical locations,

markets, industries or products. This decreases the risk of big

losses, but also makes it harder to outperform the overall market.

Turnover: Turnover is s imply the volume of business (total sales

revenue) over a period of time.

Glossary

N G N G U P X U F L F

X E C I N A G R O E C

R W G E F S I B F Z I

S E G O T K P N N S N

E L G W T P Y Z X N A

F L X R O I F N U U G

D V X X E V A H G R R

E J T G K M Y T T K O

Y U Y U D G K Z E X N

C Y L M Q R R Y D S IS H A R E H O L D E R

W h i l e e v e r y e f f o r t h a s b e e n m a d e t o e n s u r e t h e a c c u r a c y o f i n f o r m a

t i o n c o n t a i n e d i n t h i s c a s e s t u d y , n o l i a b i l i t y s h a l l a t t a c h

t o e i t h e r T h e I r i s h T i m e s L t d . o r W o o d g r a n g e T e c h n o l o g i e s L t d .

f o r a n y e r r o r s o r o m i s s i o n s i n t h i s c a s e s t u d y .

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CRH Diversification