Tarmac PLC

views updated May 21 2018

Tarmac PLC

Hilton Hall
Essington, Wolverhampton WV11 2BQ
United Kingdom
(0902) 307407
Fax: (0902) 307408

Public Company
Incorporated: 1903 as TarMacadam (Purnell Hooley’s Patent) Syndicate Limited
Employees: 32,000
Sales: £3.53 billion (US$5.69 billion)
Stock Exchange: London

Tarmac is the United Kingdom’s largest representative of the construction and building materials industries. In a sector exposed more than most to fluctuations in economic cycles, the company is reliant to a large degree upon government expenditure. Tarmac has achieved its success more through assiduous management strategy than through rapid volume growth. Each of the company’s seven divisions is a separate profit center. The company has developed and maintained a somewhat conservative corporate image, despite dramatic diversification and expansion, particularly toward the end of the 20th century. With divisions leading the British markets in quarrying, construction, housing, and building materials, Tarmac has been transformed into a widespread and growing company.

In 1901, the county surveyor of Nottingham, E. Purnell Hooley, noticed a dustless, unrutted patch of road as he was leaving an iron works. Inquiries revealed that a barrel of tar had burst and the spillage had been covered with slag. Immediately grasping its potential, Hooley began to experiment. A British patent for the process of mixing tar with slag was obtained in 1903, and by the middle of the year a length had been laid in an area where traffic was particularly heavy. In the following year, a local newspaper, the Newark Advertiser, reported that the area was “as good today as when new.” The new material was christened “tarmac.”

In conjunction with John Parker, Hooley incorporated Tar-Macadam (Purnell Hooley’s Patent) Syndicate Limited in June 1903, and became its chairman. Despite the support of the natural roadstone industry, for whom Hooley’s invention was simply a profitable way of selling aggregate, the syndicate began to fail. An agreement with Alfred Hickman Ltd., a large iron works, forced Parker and Hooley to relinquish a large part of their holding in exchange for an injection of capital by Hickman. In 1905, Hickman took control and changed the syndicate’s name to Tarmac Limited. Parker resigned, but Hooley was retained as a consultant on a large fee.

With increased use of automobiles at the beginning of the century the road-covering industry boomed. Unlike all its competitors, Tarmac Ltd. confined itself to one product: tarmac. When D. G. Comyn was made secretary in 1908, Tarmac was well established within the road-building and slag industries. To raise capital for the expansion of its transport stock, the company was liquidated and the assets transferred to a new company. Tarmac Ltd. was reregistered under the same name in 1913.

Tarmac’s profits fell by 25% during World War I, as a result of cuts in government road expenditure. Comyn’s friendship with the head of the government’s road board led to Tarmac’s being given contracts to supply the crushed slag needed to build roads through French battlefields. Newly erected works in Yorkshire were handed over for military use, the acute labor shortage being compensated for by several hundred German prisoners of war.

By 1918, Tarmac was drawing up plans for large-scale expansion. The intention to build crushed-slag depots and adjacent tarmac plants on the south coast, owing to a fear of over-production of slag in the Northeast, was thwarted by the high cost of sea freight. Comyn was, however, generally optimistic about postwar demand, having determined government plans to increase road expenditure. In 1919 the company bought existing slag tips in the Midlands and erected new coating plants nearby. Tarmac’s first natural-stone quarry, Ffrith in North Wales, was acquired in 1919 but was never developed and was sold in 1951. In 1919 the company also began diversification within the construction industry. The acquisition of the patent on Vinculum, a process for binding the raw materials of concrete using waste slag dust, led to a contract to build houses in Wolverhampton and Birmingham, and the Vinculum division was established.

The 1920s began with extensive geographical and production capacity expansion. This heavy spending on acquisitions and expansion of railroad stock created a need for more capital. At the same time, prices of tarmac were falling despite a sharp increase in the cost of tar largely caused by the occupation of the Ruhr which was a major source of this substance. Comyn refused to raise the price of tarmac, believing that the company and his business connections were sufficiently established to survive a period of poor sales, while Tarmac’s smaller competitors would fail. Comyn retired in 1926, due to ill health, in the only year that Tarmac has made a loss.

Comyn’s successor, Cecil Martin, reacted to the decline in sales by halving directors’ salaries and reducing head office staff numbers by 20%. The company was reorganized and in 1929 a civil engineering division was established. It engaged in road construction and the building of military airfields. An experiment in shipping pre-coated tarmac from northeast plants to Gravesend was unsuccessful, and it was decided to revert to Comyn’s plans to build coating plants on the south coast. Preemption by Tarmac’s largest rival, Crow Catchpole, which it later acquired, left Tarmac owning only three seaboard plants and with too much slag to dispose of. A series of convoluted deals with rival companies averted potentially crippling losses.

The early 1930s proved to be a stable period for Tarmac. A new product, Settite (bitumen macadam), believed to be superior to slag-based tarmac for road covering, was introduced in 1932. Diversifications into gravel and asphalt production were not successful, but were compensated for by the new spirit of camaraderie among mutually dependent industries. An important feature of this period was the price cooperation among blacktop producers. Where Comyn had sought to outwit his competitors, Martin favored a more amicable approach and was respected in the industry as a man of integrity. His efforts to help create a federation of slag producers in 1934 were eventually rewarded by a price agreement that guaranteed profits on the northeast slag plants. This brought new and lucrative contracts to the company.

By 1935, Tarmac’s three divisions—roadstone, civil engineering and Vinculum—were well established, although the company image was still predominantly that of a slag business. Where World War I had been difficult for Tarmac, World War II infused new life into the company. The occupation of France presaged the need for more airports in the United Kingdom, and Tarmac gained contracts from the U.S. Army and Airforce. Since military demand for tarmac was greater than for asphalt, the company’s profits rose by over 30% in the first year of the war, and by 43% in the second. By this time, the company had plants in northern England, north Wales, and Scotland, as well as a large transport stock. The increased mechanization of its plants compensated for the labor shortage. The civil engineering division won government contracts of £6 million and produced 5 million tons of road and runway material during the war. The Vinculum division also benefited from government demand for concrete blocks to build air raid shelters.

Despite steadily declining orders after August 1944, Tarmac anticipated an upsurge in demand as a result of the government’s rearmament program. Tarmac consequently embarked on a £2 million program of reinvestment and development. New plants were commissioned in Yorkshire in 1949, existing plants were reconstructed and mechanized, and the transport stock was entirely replaced.

In 1954 the company pursued considerable and risky expansion. A new iron foundry was being built in the northeast, and Tarmac proposed to build a massive works, including a wharf for ships of up to 3,000 tons, to deal with the slag produced. In the same year, the company stepped up its transport conversion program, replacing rail wagons with trucks. With the promise of a contract in 1956 to build Britain’s first, eight-mile stretch of motorway, Tarmac was in need of capital. A rights issue raised £1 million to pay for this growth.

Cecil Martin decided to retire on his 65th birthday in 1957. No chairman was appointed during the period of reorganization which followed Martin’s retirement, although his son, Robin, was made managing director of the roadstone division. It was decided to make Tarmac into a holding company with three main subsidiaries: Tarmac Roadstone, Tarmac Civil Engineering, and Tarmac Vinculum. Most of the group’s profits came from Tarmac Roadstone. Robin Martin, who managed the subsidiary, had inherited a sound business, albeit one with geographical gaps and no natural stone resources.

A proposed merger of Tarmac and its largest rivals, Amalgamated Roadstone Corporation and Crow Catchpole—a large London-based tar distiller—broke down in 1958, but Tarmac bought Crow Catchpole the following year. With a toe-hold in London and the Southeast, Tarmac entered another phase of growth. The acquisition of Tarslag, a major Midlands-based road materials company, marked Tarmac’s first major quarrying venture, and the company rapidly became one of the three largest quarry owners in the Midlands. The consequent boost to Tarmac’s construction activities led to the formation in 1960 of an industrial division. Further expansion was restricted during this period to allow the company to focus on internal restructuring, and the formation of a series of localized construction teams.

Robin Martin became group managing director in 1963, when the worst winter weather in 100 years threatened to slow considerably the output of all Tarmac’s divisions. Strains on finance and problems with integration of Tarmac’s divided structure, coupled with government cuts in roadwork expenditure, dampened the optimism of the early 1960s. In anticipation of a decline in the availability of slag, Tarmac sought to strengthen its quarrying resources. The group’s over-dependence on slag sales was relieved by the acquisition, in 1966, of three large granite quarries in the North. Having secured the market for natural stone. Tarmac concentrated on procuring supplies of bitumen, its other main raw material. The opening in conjunction with Phillips Petroleum of Oklahoma of a refinery in Cheshire secured Tarmac’s supply of bitumen. In 1968, the company merged with Derbyshire Stone and William Briggs, a large bitumen and building materials supplier and contractor in Scotland. Over the decade, group profits increased sixfold.

With Tarmac’s 1971 takeover of Limmer and Trinidad Limited, a London-based quarry-products business with an asphalt lake in Trinidad, it became the largest road-surfacing contractor and blacktop producer in the United Kingdom. The acquisition of Limmer marked the beginning of another period of diversification, particularly in Tarmac’s quest to develop strength in the brick and concrete production markets. A growing need for a wider range of aggregates, including sand and gravel, and the acquisitions of several large hybrid companies, precipitated another company reorganization. The existing roadstone and bitumen divisions were renamed Quarry products and building products, to reflect more accurately their activities. Two new divisions were formed from the construction division, and by the middle of the 1970s, Tarmac was operating in five divisions: quarry products, building products, construction, properties and housing, and international. The regrouping reflected not only a new administrative strategy, but also an attempt to change Tarmac’s image. Known traditionally as a road-surfacing contractor and producer of blacktop, the company was keen to reaffirm its position as a broad-based construction and building materials producer.

The company’s activities during the 1970s are difficult to evaluate. It was a period of dramatic expansion against a background of economic instability in Britain. The housing and properties division was established in 1974, following the acquisition of John McLean and Sons Limited, a leading housebuilder, the previous year. Within a few years, and without any major acquisitions, Tarmac became the third-largest housebuilder in Britain. Eric Fountain, chairman of the Tarmac group, joined the company as chief executive of McLeans and became chief executive of the housing division. Under his leadership and with a policy of slow expansion and rigid financial controls, the housing division thrived. By the end of the decade, one-third of Tarmac’s profits came from house building. The division became the management model for the rest of the company and set the precedent for the decentralization program at the end of the decade. The housing division prospered despite adverse economic conditions. The construction division continued its program of rapid expansion and diversification throughout the 1970s.

On the other hand, with the potential for growth in the United Kingdom restricted by the threat of recession, Tarmac began bidding for companies with established assets overseas. Having developed specialist construction skills in marine, soft, and rock tunneling with the takeovers of Mitchell Construction and Kinear Moodie in 1971, Tarmac seemed well placed to expand abroad. The new international division was set up to oversee the group’s foreign projects. Few of the construction division’s efforts on this front were successful, and it was not until the mid-1980s that the division began to recover from the ill-effects of entering too many high-risk ventures abroad. The acquisition of the Holland Hannen and Cubitts construction company in 1976 was a cautionary event in Tarmac’s history of foreign investment; Cubitts Nigeria, a failing African asset which had been overlooked at the time of acquisition, had to be be sold off. It cost Tarmac £16 million.

Despite a successful joint venture with the Egyptian company Arab Contractors in 1977 to build a tunnel under the Suez Canal, and participation in a long-term international consortium on an irrigation scheme in Peru, Tarmac withdrew from most of its overseas projects having incurred several significant losses. By the end of the decade, the performance of the construction division was threatening the stability of the Tarmac group. The company’s growing dependence on its housing and quarry products divisions at a time when the almost static British economy was adversely affecting the construction industry precipitated a dramatic fall in share price in 1977.

On balance, the events of the 1970s, although potentially disastrous for Tarmac, prompted the reorganization which has made the company the largest in its field in the United Kingdom. After a purge of top management in 1979, Eric Fountain was appointed chief executive of the Tarmac group. He had distinguished himself as director of the housing division and it was generally accepted that the growth of this division, despite an unfavorable economy, was almost entirely attributable to Fountain’s management style and commitment to decentralization. He was the only director with previous experience as chief executive of a public company. He had joined Tarmac, he said, to make a big business work like a small business. Fountain’s was an attitude strongly endorsed by Prime Minister Margaret Thatcher’s government when it came to power in 1979, and Fountain was knighted in 1985, in recognition of his determination that Tarmac succeed despite the precarious economy of the early 1980s.

The most significant change at Tarmac under Fountain’s leadership was the implementation of the decentralization program. Convinced that the company’s difficulties in the previous decade were the result of poor management. Fountain implemented the strategy which made the housing division Britain’s largest housebuilder in the ten years since its inception. Believing that divisional managers were better placed to assess prospective acquisitions than a board of directors, responsibility for growth and diversification was handed down to individual divisions. Decentralized organization clearly benefited the company, with profits increasing tenfold over the decade.

Reluctant to depend on domestic markets alone, and in view of the slow growth potential for the construction and quarrying industries in the United Kingdom, Tarmac in 1980 embarked on an expensive and ambitious program of acquisitions and development in the United States. The acquisition of the Hoveringham Group in 1981 marked the company’s entry into the brick, tile, building-block, and concrete markets. Hoveringham owned quarries in the United States and its takeover gave Tarmac a firm quarrying base in the United States. The £150 million acquisition of Lone Star Industries’ ready-mix and concrete-block plants in Florida in 1984, and the takeover of a large underwater limestone quarry at Pennsuco, gave Tarmac control of 10% of Florida’s total aggregate, or natural-stone, output. With a source of stone assured, the company began buying ready-mix concrete and brick-building plants throughout the southern states. In 1986 Tarmac paid £263 million for a 60% share in Lone Star Industries, and the following year Tarmac America was established. Several smaller plant and quarry acquisitions followed, giving Tarmac a significant standing in the U.S. aggregates and concrete industries. However, falling oil prices in Texas and severe weather conditions in Virginia in the late 1980s disrupted Tarmac America’s activities and by the end of the decade, the division represented only one-fifth of the group’s total turnover.

Over the same period, the housing division increased its output from 4,000 homes in 1980 to 11,000 in 1987, contributing with the quarry products division over three-quarters of the group’s turnover. Diversification within the building-products division led to the creation of the industrial products division with roofing, construction, and oil interests in both the United Kingdom and the United States.

By the beginning of the 1990s, Tarmac’s diversification strategy of the last 20 years had given the company a leading presence in many industrial sectors. Despite what is generally regarded as a cautious approach to expansion and a poor track record overseas, Tarmac has grown dramatically. The company’s involvement in the English Channel tunnel project, due for completion in 1995, seems certain to improve Tarmac’s standing as an international concern. Tarmac’s growth in Europe is likely to expand after the creation of the single European market in 1992 by necessity, if not design.

As one analyst wrote in the Financial Weekly, ’Tarmac has shown with repeated small acquisitions... that it is a group that likes to do more of what it knows, even when markets are static.”

Principal Subsidiaries

Tarmac Quarry Products Limited; John McLean & Sons Limited; Tarmac Industrial Products Limited; Tarmac Construction Limited; Tarmac Properties Limited; Tarmac Building Materials Limited; Tarmac America, Inc. (U.S.A.).

Tarmac plc

views updated May 14 2018

Tarmac plc

Hilton Hall
Essington
Wolverhampton, West Midlands WVII 2BQ
United Kingdom
(01902) 307407
Fax: (01902) 307408
Web site: http://www.tarmac.co.uk

Public Company
Incorporated : 1903 as Tar-Macadam (Purnell Hooley’s Patent) Syndicate Limited
Employees : 24,369
Sales : £3.16 billion (US$4.91 billion) (1998)
Stock Exchanges : London
NAIC : 212312 Crushed & Broken Limestone; 212313 Crushed & Broken Granite Mining & Quarrying; 212319 Other Crushed & Broken Stone Mining & Quarrying; 23332 Commercial & Institutional Building Construction; 23411 Highway & Street Construction; 23491 Water, Sewer, & Pipeline Construction; 23499 All Other Heavy Construction; 23591 Structural Steel Erection Contractors; 324121 Asphalt Paving Mixtures & Block Manufacturing; 32731 Cement Manufacturing; 327331 Concrete Block & Brick Manufacturing; 32739 Other Concrete Product Manufacturing; 32732 Ready-Mix Concrete Manufacturing; 327991 Cut Stone & Stone Product Manufacturing; 54133 Engineering Services; 56121 Facilities Support Services

Tarmac plc is one of the leading heavy building materials and construction services groups in Europe, with additional operations in North America, southeast Asia, and the Pacific Rim. In the building materials sector, the company is a leading supplier of asphalt, crushed rock, sand, gravel, ready-mix concretes, mortars, specialist concrete, and precast concrete products. In construction, Tarmac is the largest building contractor in the United Kingdom, with additional operations in civil engineering, railway engineering, and major projects in the process, water, energy, and infrastructure sectors. In early 1999 Tarmac announced its intention to demerge these two business streams into two separately traded public companies, with the heavy building materials side retaining the Tarmac name.

Founded Through Invention of Tarmac

In 1901 the county surveyor of Nottingham, E. Purnell Hooley, noticed a dustless, unrutted patch of road as he was leaving an iron works. Inquiries revealed that a barrel of tar had burst and the spillage had been covered with slag. Immediately grasping its potential, Hooley began to experiment. A British patent for the process of mixing tar with slag was obtained in 1903, and by the middle of the year a length had been laid in an area where traffic was particularly heavy. In the following year a local newspaper, the Newark Advertiser, reported that the area was “as good today as when new.” The new material was christened “tarmac.”

In conjunction with John Parker, Hooley incorporated Tar-Macadam (Purnell hooley’s Patent) Syndicate Limited in June 1903 and became its chairman. Despite the support of the natural roadstone industry, for whom Hooley’s invention was simply a profitable way of selling aggregate, the syndicate began to fail. An agreement with Alfred Hickman Ltd., a large iron works, forced Parker and Hooley to relinquish a large part of their holding in exchange for an injection of capital by Hickman. In 1905 Hickman took control and changed the syndicate’s name to Tarmac Limited. Parker resigned, but Hooley was retained as a consultant on a large fee.

With increased use of automobiles at the beginning of the century, the road covering industry boomed. Unlike all its competitors, Tarmac Ltd. confined itself to one product: tarmac. When D.G. Comyn was made secretary in 1908, Tarmac was well established within the road building and slag industries. To raise capital for the expansion of its transport stock, the company was liquidated and the assets transferred to a new company. Tarmac Ltd. was reregistered under the same name in 1913.

Tarmac’s profits fell by 25 percent during World War I, as a result of cuts in government road expenditure. Comyn’s friendship with the head of the government’s road board led to Tarmac’s being given contracts to supply the crushed slag needed to build roads through French battlefields. Newly erected works in Yorkshire were handed over for military use, the acute labor shortage being compensated for by several hundred German prisoners of war.

By 1918 Tarmac was drawing up plans for large-scale expansion. The intention to build crushed-slag depots and adjacent tarmac plants on the south coast, owing to a fear of overproduction of slag in the northeast, was thwarted by the high cost of sea freight. Comyn was, however, generally optimistic about postwar demand, having determined government plans to increase road expenditure. In 1919 the company bought existing slag tips in the Midlands and erected new coating plants nearby. Tarmac’s first natural stone quarry, Ffrith in North Wales, was acquired in 1919 but was never developed and was sold in 1951. In 1919 the company also began diversification within the construction industry. The acquisition of the patent on Vinculum, a process for binding the raw materials of concrete using waste slag dust, led to a contract to build houses in Wolverhampton and Birmingham, and the Vinculum division was established.

The 1920s began with extensive geographical and production capacity expansion. This heavy spending on acquisitions and expansion of railroad stock created a need for more capital. At the same time, prices of tarmac were falling despite a sharp increase in the cost of tar caused in large part by the occupation of the Ruhr, which was a major source of this substance. Comyn refused to raise the price of tarmac, believing that the company and his business connections were sufficiently established to survive a period of poor sales, while Tarmac’s smaller competitors would fail. Comyn retired in 1926, because of ill health, in the only year that Tarmac made a loss, until 1992.

Expanded into Civil Engineering Between the Wars

Comyn’s successor, Cecil Martin, reacted to the decline in sales by halving directors’ salaries and reducing head office staff numbers by 20 percent. The company was reorganized and in 1929 a civil engineering division was established. It engaged in road construction and the building of military airfields. An experiment in shipping precoated tarmac from northeast plants to Gravesend was unsuccessful, and it was decided to revert to Comyn’s plans to build coating plants on the south coast. Preemption by Tarmac’s largest rival, Crow Catchpole, which it later acquired, left Tarmac owning only three seaboard plants and with too much slag to dispose of. A series of convoluted deals with rival companies averted potentially crippling losses.

The early 1930s proved to be a stable period for Tarmac. A new product, Settite (bitumen macadam), believed to be superior to slag-based tarmac for road covering, was introduced in 1932. Diversifications into gravel and asphalt production were not successful, but were compensated for by the new spirit of camaraderie among mutually dependent industries. An important feature of this period was the price cooperation among blacktop producers. Whereas Comyn had sought to outwit his competitors, Martin favored a more amicable approach and was respected in the industry as a man of integrity. His efforts to help create a federation of slag producers in 1934 were rewarded eventually by a price agreement that guaranteed profits on the northeast slag plants. This brought new and lucrative contracts to the company.

By 1935 Tarmac’s three divisions—roadstone, civil engineering, and Vinculum—were well established, although the company image was still predominantly that of a slag business. Whereas World War I had been difficult for Tarmac, World War II infused new life into the company. The occupation of France presaged the need for more airports in the United Kingdom, and Tarmac gained contracts from the U.S. Army and Air Force. Since military demand for tarmac was greater than for asphalt, the company’s profits rose by more than 30 percent in the first year of the war, and by 43 percent in the second. By this time, the company had plants in northern England, north Wales, and Scotland, as well as a large transport stock. The increased mechanization of its plants compensated for the labor shortage. The civil engineering division won government contracts of £6 million and produced five million tons of road and runway material during the war. The Vinculum division also benefited from government demand for concrete blocks to build air raid shelters.

Postwar Expansion

In 1954 the company pursued considerable and risky expansion. A new iron foundry was being built in the northeast, and Tarmac proposed to build a massive works, including a wharf for ships of up to 3,000 tons, to deal with the slag produced. In the same year the company stepped up its transport conversion program, replacing railwagons with trucks. With the promise of a contract in 1956 to build Britain’s first, eight-mile stretch of motorway, Tarmac was in need of capital. A rights issue raised £1 million to pay for this growth.

Company Perspectives

Tarmac is the UK’s leading heavy building materials and construction services group, and is committed to increasing shareholder value through the provision of best in class products and services.

Tarmac’s businesses cover every aspect of the built environment from the supply of construction materials, through civil engineering and building, to refurbishment, maintenance, operation and facilities management.

Cecil Martin decided to retire on his 65th birthday in 1957. No chairman was appointed during the period of reorganization that followed Martin’s retirement, although his son, Robin, was made managing director of the roadstone division. It was decided to make Tarmac into a holding company with three main subsidiaries: Tarmac Roadstone, Tarmac Civil Engineering, and Tarmac Vinculum. Most of the group’s profits came from Tarmac Roadstone. Robin Martin, who managed the subsidiary, had inherited a sound business, albeit one with geographical gaps and no natural stone resources.

A proposed merger of Tarmac and its largest rivals, Amalgamated Roadstone Corporation and Crow Catchpole—a large London-based tar distiller—broke down in 1958, but Tarmac bought Crow Catchpole the following year. With a toehold in London and the southeast, Tarmac entered another phase of growth. The acquisition of Tarslag, a major Midlands-based road materials company, marked Tarmac’s first major quarrying venture, and the company rapidly became one of the three largest quarry owners in the Midlands. The consequent boost to Tarmac’s construction activities led to the formation in 1960 of an industrial division. Further expansion was restricted during this period to allow the company to focus on internal restructuring and the formation of a series of localized construction teams.

Robin Martin became group managing director in 1963, when the worst winter weather in 100 years threatened to slow considerably the output of all Tarmac’s divisions. Strains on finance and problems with integration of Tarmac’s divided structure, coupled with government cuts in roadwork expenditure, dampened the optimism of the early 1960s. In anticipation of a decline in the availability of slag, Tarmac sought to strengthen its quarrying resources. The group’s overdependence on slag sales was relieved by the acquisition, in 1966, of three large granite quarries in the north. Having secured the market for natural stone, Tarmac concentrated on procuring supplies of bitumen, its other main raw material. The opening in conjunction with Phillips Petroleum of Oklahoma of a refinery in Cheshire secured Tarmac’s supply of bitumen. In 1968 the company merged with Derbyshire Stone and William Briggs, a large bitumen and building materials supplier and contractor in Scotland. Over the decade, group profits increased sixfold.

Diversified Further in the 1970s

With Tarmac’s 1971 takeover of Limmer and Trinidad Limited, a London-based quarry products business with an asphalt lake in Trinidad, it became the largest road surfacing contractor and blacktop producer in the United Kingdom. The acquisition of Limmer marked the beginning of another period of diversification, particularly in Tarmac’s quest to develop strength in the brick and concrete production markets. A growing need for a wider range of aggregates, including sand and gravel, and the acquisitions of several large hybrid companies, precipitated another company reorganization. The existing roadstone and bitumen divisions were renamed quarry products and building products, to reflect more accurately their activities. Two new divisions were formed from the construction division, and by the middle of the 1970s Tarmac was operating in five divisions: quarry products, building products, construction, properties and housing, and international. The regrouping reflected not only a new administrative strategy, but also an attempt to change Tarmac’s image. Known traditionally as a road surfacing contractor and producer of blacktop, the company was keen to reaffirm its position as a broad-based construction and building materials producer.

The company’s activities during the 1970s are difficult to evaluate. It was a period of dramatic expansion against a background of economic instability in Britain. The housing and properties division was established in 1974, following the acquisition of John McLean and Sons Limited, a leading housebuilder, the previous year. Within a few years, and without any major acquisitions, Tarmac became the third largest housebuilder in Britain. Eric Pountain, chairman of the Tarmac group, joined the company as chief executive of McLeans and became chief executive of the housing division. Under his leadership and with a policy of slow expansion and rigid financial controls, the housing division thrived. By the end of the decade one-third of Tarmac’s profits came from housebuilding. The division became the management model for the rest of the company and set the precedent for the decentralization program at the end of the decade. The housing division prospered despite adverse economic conditions. The construction division continued its program of rapid expansion and diversification throughout the 1970s.

On the other hand, with the potential for growth in the United Kingdom restricted by the threat of recession, Tarmac began bidding for companies with established assets overseas. Having developed specialist construction skills in marine, soft, and rock tunneling with the takeovers of Mitchell Construction and Kinear Moodie in 1971, Tarmac seemed well placed to expand abroad. The new international division was set up to oversee the group’s foreign projects. Few of the construction division’s efforts on this front were successful, and it was not until the mid-1980s that the division began to recover from the ill effects of entering too many high-risk ventures abroad. The acquisition of the Holland Hannen and Cubitts construction company in 1976 was a cautionary event in Tarmac’s history of foreign investment; Cubitts Nigeria, a failing African asset that had been overlooked at the time of acquisition, had to be sold off. It cost Tarmac £16 million.

Despite a successful joint venture with the Egyptian company Arab Contractors in 1977 to build a tunnel under the Suez Canal and participation in a long-term international consortium on an irrigation scheme in Peru, Tarmac withdrew from most of its overseas projects, having incurred several significant losses. By the end of the decade the performance of the construction division was threatening the stability of the Tarmac group. The company’s growing dependence on its housing and quarry products divisions at a time when the almost static British economy was adversely affecting the construction industry precipitated a dramatic fall in share price in 1977.

Key Reorganization Launched in 1979

On balance, the events of the 1970s, although potentially disastrous for Tarmac, prompted the reorganization that made the company the largest in its field in the United Kingdom by the late 1980s. After a purge of top management in 1979, Eric Pountain was appointed chief executive of the Tarmac group. He had distinguished himself as director of the housing division and it generally was accepted that the growth of this division, despite an unfavorable economy, was almost entirely attributable to Pountain’s management style and commitment to decentralization. He was the only director with previous experience as chief executive of a public company. He had joined Tarmac, he said, to make a big business work like a small business. Pountain’s was an attitude strongly endorsed by Prime Minister Margaret Thatcher’s government when it came to power in 1979. In 1985 Pountain was knighted, in recognition of his determination that Tarmac succeed despite the precarious economy of the early 1980s.

The most significant change at Tarmac under Pountain’s leadership was the implementation of the decentralization program. Convinced that the company’s difficulties in the previous decade were the result of poor management, Pountain implemented the strategy that made the housing division Britain’s largest housebuilder ten years after its inception. Believing that divisional managers were better placed to assess prospective acquisitions than a board of directors, responsibility for growth and diversification was handed down to individual divisions. Decentralized organization clearly benefited the company, with profits increasing tenfold over the decade.

Reluctant to depend on domestic markets alone, and in view of the slow growth potential for the construction and quarrying industries in the United Kingdom, Tarmac in 1980 embarked on an expensive and ambitious program of acquisitions and development in the United States. The acquisition of the Hoveringham Group in 1981 marked the company’s entry into the brick, tile, building block, and concrete markets. Hoveringham owned quarries in the United States and its takeover gave Tarmac a firm quarrying base in the United States. The £150 million acquisition of Lone Star Industries’ ready-mix and concrete block plants in Florida in 1984, and the takeover of a large underwater limestone quarry at Pennsuco, gave Tarmac control of ten percent of Florida’s total aggregate, or natural stone, output. With a source of stone assured, the company began buying ready-mix concrete and brick-building plants throughout the southern states. In 1986 Tarmac paid £263 million for a 60 percent share in Lone Star Industries, and the following year Tarmac America was established. Several smaller plant and quarry acquisitions followed, giving Tarmac a significant standing in the U.S. aggregates and concrete industries. Nevertheless, falling oil prices in Texas and severe weather conditions in Virginia in the late 1980s disrupted Tarmac America’s activities and by the end of the decade the division represented only one-fifth of the group’s total turnover.

Over the same period the housing division increased its output from 4,000 homes in 1980 to 11,000 in 1987, contributing with the quarry products division more than three-quarters of the group’s turnover. Diversification within the building products division led to the creation of the industrial products division with roofing, construction, and oil interests in both the United Kingdom and the United States.

Sharp Downturn, Major Restructurings Marked the 1990s

By the late 1980s Tarmac’s diversification strategy of the previous 20 years had given the company a leading presence in many industrial sectors. At the same time, however, the company’s expansion into the U.K. housing market and its broad expansion in the United States turned nearly disastrous after the U.K. and U.S. construction markets collapsed in the late 1980s. The company’s policy of decentralization also proved troublesome as central management was unable to respond quickly to the property recession and pull-back on land purchases for housing and commercial property joint ventures. The result was a 1992 pretax loss of £350.3 million, the largest ever recorded in the U.K. construction industry—a deep downfall from the heady days of 1988, when Tarmac posted pretax profits of £393 million. Early in that dark year of 1992, Neville Simms was appointed chief executive, having previously served as head of the construction division. Pountain remained nonexecutive chairman until early 1994, when John Banham took over that position.

Simms was charged with restructuring the company and fixing a balance sheet that had become dangerously debt-loaded. Tarmac’s new strategy would involve a concentration on three core areas: housebuilding, construction, and quarry products. A number of peripheral businesses were sold off; by early 1994, 21 businesses had been divested, representing nearly £1 billion in turnover. Among the jettisoned operations were the commercial property development activities. By mid-1995 Tarmac also had exited from brick making. Through severe cost-containment efforts and the divestment program, the company was able to effect a substantial reduction in debt, cutting it from £677 million. The company also reinstated a greater degree of central control over investments by its units.

Tarmac’s results improved to an aftertax loss of £58.8 million in 1993, followed by an aftertax profit of £74.7 million in 1994. Nonetheless, the company was barely profitable in 1995 and 1996, and even more dramatic changes were to come as management attempted to turn the group’s fortunes around. In August 1995 Tarmac announced that it would sell its housebuilding division to concentrate on its building materials and other construction activities. Then in November of that year Tarmac and George Wimpey PLC, a U.K. housebuilding firm, reached an agreement on a £600 million asset swap, completed in March 1996, whereby Tarmac exchanged its housing division for Wimpey’s quarrying and contracting businesses. Through this one deal, Tarmac was able to exit from a sector that had nearly caused its collapse, while at the same time bolster its two remaining core areas. Wimpey Minerals was one of the leading producers of U.K. construction materials and was the fifth largest aggregates producer and fifth largest coated stone producer in the United Kingdom. The unit also had significant operations in the United States, and smaller operations in the Republic of Ireland, the Czech Republic, the Middle East, and the Far East. Wimpey Minerals had revenues of £266.1 million and operating profits of £6.4 million in 1994. Wimpey Construction was one of the leading construction businesses in the United Kingdom, engaging in a wide range of building and civil engineering activities, with overseas activities in Canada and the Middle East. In 1994 the unit generated revenues of £667.7 million while posting an operating loss of £10.5 million. Soon after the swap, Tarmac cut more than 1,400 jobs from its workforce in a rapid rationalization of the merged businesses.

Tarmac returned to more robust profitability in 1997 and 1998, posting aftertax profits of £80.7 million and £92 million, respectively. Pressure from shareholders concerned over a falling stock price, coupled with a trend toward consolidation in the building materials industry, led to discussions in late 1998 between Tarmac and rival U.K. building materials firm Aggregate Industries about a merger to create one of the largest U.K. building materials companies. These talks made substantial progress, including a plan to spin off Tarmac’s construction division following the merger, but in December 1998 the deal fell apart, due in part to disagreements over Simms’s role in what would have been called Tarmac Aggregate International. The acrimonious end to the proposal led to further shareholder rancor.

Continuing to feel pressure to increase shareholder value, the company responded in February 1999 with an announcement of a proposed demerger of its two core areas—heavy building materials and construction services—into two separately traded public companies. Retaining the Tarmac plc name would be the heavy building materials unit, with Banham as nonexecutive chairman and Roy Harrison, head of the unit, becoming chief executive. Simms would serve as chairman and chief executive of the new construction services company. Tarmac would thus exit the 1990s a much slimmer and more focused company than the one that had entered the decade.

Principal Subsidiaries

GROUP CENTRE: Tarmac International (Investments) Limited; Tarmac International Holdings BV (Netherlands); Tarmac France (Jersey) Limited; Tarmac Industrial Products Limited; Tarmac France S.A. HEAVY BUILDING MATERIALS: Tarmac Heavy Building Materials UK Limited; Tarmac Roadstone Holdings Limited; Tarmac Minerals Limited; Tarmac Quarry Products Limited; Tarmac Topmix Limited; Tarmac Concrete Products Limited; Tarmac Topblock Limited; Tarmac Precast Concrete Limited; Richard Lees Limited; East Coast Slag Products Limited (51%); Midland Quarry Products Limited (50%); Cambrian Stone Limited (51%); Tarmac Routes et Carrières S.A. (France); Tarmac Materiaux de Construction S.A. (France; 95.3%); Soprefa S.A. (France); Etablissements Hecquet, S.A. (France); Tarmac Matériaux de Construction (Belgique) S.A. (Belgium); Ain Agglo SA (France); Tarmac Fleming Quarries Limited (Ireland); Tarmac Severokamen A.S. (Czech Republic; 73%); Tarmac Asphalt Hong Kong Limited (80%); Tarmac Pusheng Bitumen Concrete Co. Limited (China; 60%); Tarmac America, Inc. (U.S.A.); Wroclawskie Kopalnie Surowcow Min-eralnych s.a. (Poland). CONSTRUCTION SERVICES: Tarmac Construction Limited; Tarmac Professional Services Limited; Crown House Engineering Limited; Sovereign Harbour Limited; Tarmac International Limited; The Expanded Piling Company Limited; Tarmac Construction Overseas Limited; Tarmac Construction (Contracts) Limited; Centrac Limited; Schal International Management Limited; Pasco International Limited; Stanger Limited; TPS Consult Limited; Tarmac Services Limited; Cimage Enterprise Systems Limited; TPS Consult Asia Limited (Hong Kong); Stanger Asia Limited (Hong Kong); Tarmac (PFI) Limited; Nord France Travaux Publics S.A. (France); Tarmac BTP S.A. (France); Tarmac Canada, Inc.