2009 Annual Report - CRH

Glass
The Glass group is the market-leading
supplier of Building Envelope Solutions
for commercial, institutional and
multi-storey residential construction,
including custom-engineered curtain
wall, custom-fabricated architectural
glass, high-performance windows,
architectural skylights, and storefronts
and doors. With 79 locations in 23
states and four Canadian provinces,
the Glass group is the largest supplier
of high-performance architectural
glass and engineered aluminium
glazing systems in North America.
In 2009, the architectural glass
business experienced unprecedented
declines in demand, as sales volumes
decreased 24% compared to 2008.
Pricing was intensely competitive in all
North American markets and the
group’s largest privately-held
competitor filed for bankruptcy
reorganisation in November. Also the
group experienced competition from
non-traditional sources as many
smaller glass fabricators directed
underutilised residential capacity to
serving commercial markets. In this
difficult trading environment, the Glass
group focussed on building market
share, tightening cost control
and closing 11 operating locations
to better balance capacity with
depressed market demand.
Operating profit fell steeply.
While the engineered products
business experienced a 26% decline
in sales compared to 2008, operating
profit was near 2008 record levels due
to a strong performance from our
Canadian locations, favourable
backlog pricing and lower aluminium
costs. 2010 is expected to be a much
more challenging year for the
engineered products business as
project backlog continues to decline.
MMI
Market leadership positions
MMI has 76 locations, 16 of which are
manufacturing, across 29 states and
a plant in Mexico. Although its fencing
products are often used in residential
applications, most of MMI’s products
(construction accessories, welded
Precast Concrete Products
No.1 in United States
Architectural Concrete Products
No.1 masonry, paving and patio in United States
No.1 paving and patio in Canada
No.2 packaged concrete mixes in United States
No.2 packaged lawn & garden products in United States
Clay Products
No.1 brick producer in northeast and midwest United States
No.1 rooftiles in Argentina
No.2 wall and floor tiles in Argentina
No.3 clay block producer in Argentina
Glass Fabrication
No.1 architectural glass fabrication in United States
Glazing Systems
No.1 engineered aluminium glazing systems in United States
Construction Accessories
No.2 in United States
Welded Wire Reinforcement
No.2 in United States
Fencing Products
No.2 manufacturer and distributor in United States
Distribution
No.4 roofing/siding distributor in United States
No.4 interior products distributor in United States
wire reinforcement and fencing
products) are used in non-residentialoriented
projects, particularly in
conjunction with the use of concrete.
The accelerating decline in nonresidential
construction activity led to
a 40% decrease in MMI’s sales from
2008 levels. The combination of
high-priced steel inventory, lower
sales volumes, and dramatically falling
sales prices contributed to a
significant operating loss for the year.
Management modified its steel
purchasing strategy to reduce future
volatility and reacted to declining
volumes by instituting extensive
cost-reduction measures across all
businesses and scaling back the size
of its distribution network.
Distribution
Oldcastle Distribution, trading
primarily as Allied Building Products
(“Allied”), has 184 branches focussed
on major metropolitan areas in 31
states. It comprises two divisions which
supply contractor groups specialising in
Exterior (roofing and siding) and Interior
(wallboard, steel studs and acoustical
ceiling systems) Products.
Exterior Products is the group’s
traditional business and Allied is one
of the top four distributors in this
segment in the United States.
Demand is largely influenced by
residential and commercial
replacement activity with the key
products having an average life span
of roughly 25 years. This repair,
maintenance and improvement
aspect provides a solid underpinning
of baseline roofing demand.
The Interior Products division, being
relatively immune to weather, has low
exposure to replacement activity and
demand is therefore largely
dependent on the new commercial
construction market. Allied is the
fourth largest Interior Products
distributor in the United States.
Both segments of the business
declined greatly in 2009, roughly in
proportion to the overall market. In the
Exterior Products business, overall US
asphalt roofing shingle shipments
were down 15% in 2009, a level of
decline that was somewhat offset by
storm activity in a number of regions.
Allied did not specifically benefit from
these storms, but outperformed
competitors in its market areas. For
the Interior Products business,
gypsum wallboard shipments are a
barometer of activity and these
declined by about 7 billion square feet
or 28% in 2009, comparable with a
decline of 31% in Allied’s Interior
Products sales.
Acquisition activity for Americas
Distribution was limited to the addition
of one small interior products
distributor in Salt Lake City.
South America
The South American group faced
difficult economic conditions in 2009,
particularly in Argentina, and
management focussed on initiating
significant cost-reduction
programmes. Operating profit from
our Argentine ceramic tile and glass
businesses was at break-even for the
year. The start-up of a greenfield floor
and wall tile manufacturing facility in
Cordoba was completed in October.
Our Chilean glass business
experienced a more moderate decline
in operating profit. The Santiagobased
distribution business acquired
in early 2008 was negatively impacted
by the adverse economic conditions
and operating profit declined.
Outlook
While there are signs that the overall
US economy appears to have
stabilised, the growth outlook remains
weak. Homebuilding appears set to
make a slightly positive contribution in
the second half of the year. Further
declines are however expected in
non-residential construction due to
continuing stresses in financial and
credit markets. While residential repair,
maintenance and improvement
activity is historically less cyclical,
constrained consumer spending
because of high unemployment,
sluggish income growth and declines
in household wealth will translate into
weak private domestic demand.
Against this backdrop, our businesses
will continue to focus on new and
ongoing cost-reduction initiatives and
the generation of strong cash flow, as
we leverage further the benefits of our
extensive location network and the
Divisions’ product diversity and broad
sectoral exposure.
CRH 35