Ladies and gentlemen, welcome to the CRHIGHT Insurance Results Call. For the duration of the call, you will be on listen only. However, you may submit your questions at the end of the call I will now hand you over to your host, Albert Manasol.
Good morning, everyone. Albert Manifel here, C. H. Group Chief Executive, and you're all very welcome to our conference call and webcast presentation, which accompanies the release of our 2019 interim results this morning. I'm joined on the call by Senan Murphy, our Group Finance Director and David Dillon, President of Noble Strategy And Business Affairs, and also Frank Isaacan's Head of Investor Relations.
Over the next 13 minutes or so, where we will take you through a brief presentation of the results we've published this morning, Hi, I think the key drivers of our trading performance for the 1st 6 months of 2019 as well as providing you with an indication of our expectations through the second half of the year. We'll also take a few moments to update you on some of the key developments from our across the group during the first half and the progress we're making against our strategic objectives. Afterwards, we'll be available to take any questions you may have. At the outset on Slide 2, let me take you through some of the key highlights of the year so far. I'm pleased to report a record first half profit performance for TRH, with EBITDA and excess of 1,000,000,000, 5% ahead on a like for like basis, underlined with our previous guidance.
Now despite some significant weather disruption impacted construction activity in part of Europe and North America during the second quarter, the underlying demand environment in our core markets remains positive and leaves us well positioned as we enter a second half of the year. As you know, active portfolio management is a key component how we create value for our shareholders and 2019 has been no different in that regard. We've announced approximately 1,000,000 of divestments in the year to date. Including an agreement to divest our European distribution business for net wide value in excess of 1,000,000,000 by presenting an excess of 1,000,000,000 of over 10 times EBITDA. In addition, this stands approximately 1,000,000 and projects like small and medium sized bolt on transactions in the year to date.
The average multiple on these deals with 8 times EBITDA that before we generate the normal savings and synergies, we expect to continue to make these businesses into our portfolio. Continue to focus on the efficient and disciplined allocation of our capital to maximize value for our shareholders, and this is demonstrated by our ongoing share buyback program, which has returned EUR550 million and shareholders in the year to date. Our Board is planning to communicate our share buyback program with a further tranche of up to EUR 350,000,000 to be completed by the end of the year, and signed up with more details of this later on. Of course, all of this is underpinned by our electric focus on continuous business improvement. A commitment to excellence is deeply embedded into CRH DNA.
And I'm pleased to report that the implementation of our profit proven program targeting a structural improvement in our margins, returns and cash generation is progressing very much as planned. I can turn now to Slide 3, excuse me, on a time to highlight the 1st 6 months of the year. Overall, I found a healthy first half performance. Sales, EBITDA and margin, all ahead of the prior year, benefiting from good organic deliveries and contribution from acquisitions. Also currency tailwinds and the transitional impact of the new lease accounting standard.
The good performance in the country has some significant weather disruption across of our businesses through the second half through the second quarter, excuse me, and some challenging trading conditions in the United Kingdom. All of this translates into a 51% increase in our earnings per share, reflecting improved operational and financial performance for the first half. On a profit on disposals, which were ahead of the prior year. I'm also pleased to report a 2% increase in our interim dividend reflecting our ongoing commitment to a progressive dividend policy and a sign of the financial strength of the acquisition of Commerce Credit Suisse. Before I take you to the trading performance of the business, I'd like to give you a brief overview of the market backlog and the trading environment across our major markets.
Looking after the press slide 5, and we continue to experience positive underlying momentum in construction activity. Of course, I may mark in North America And Continental Europe. While in the UK, construction activity continues to be impacted by ongoing political and Brexit relations uncertainty. In OpenMedica, acquired 4 stars for the year, due to affordability and supply effects constraints across the residential construction industry, Underlying demand remains solid, and we see good growth in our more residential focused businesses. And on the non residential side, year 2, we are seeing good underlying demand on our order books are strong.
Good momentum in U. S. Infrastructure activity continues to be at the end, but federal and state cyber funding initiatives. Highly and street construction spending is well ahead of the prior year and strong contract awards, data across our footprint for the 1st 6 months of the year, transfer of continuation of positive trends. After the result of positive in Europe with low to mid single digit growth expected to post residential nonresidential infrastructure markets and even stronger levels of growth in East East And Europe, led by new goes infrastructure activity in particular.
And while we continue to experience some inflationary pressures in our businesses, the environment in Europe and North America continues to support further progress on pricing. And also businesses. So moving on and again, that's back up. I'll now take you through the financial performance of our business for the 1st 6 months of the year. Let me refresh the performance of our Connected Materials division on Slide 7.
Our business delivered a good first half with like for like sales and EBITDA 2% and 6% ahead with reflection of the positive underlying demand environment I mentioned earlier. And this was delivered against the backdrop of some significant world disruptions and parts of the U. S. Midwest during the second quarter, primarily impacting our central division. Allison results are like for like as we have announced the volumes were slightly behind at the half year stage, but we would expect it to recover our cost volume in the second half of the year.
Pricing momentum continues to be strong with good price increases achieved across all products during the first half of the year, more than offsetting higher input costs. As a result, our EBITDA margin increased by 20 basis points on a like for like basis, a good outcome in the context of the weather shipments we experienced across parts were opened during the period. And as we look ahead to the second half of the year, firstly, see good momentum in our order books. Both in terms of volumes and margins, but towards continuation of the positive underlying demand environment from those end markets. I'll also please report that the integration of Ash Grove and Swannie Cementback fields into our existing portfolio is progressing well.
And these businesses are trading very much in line with our expectations. They were important deals with CRH, strengthening our footprint in high growth markets. Providing significant synergy potential through integration with our existing operations and our platform for future bolt or activity, all of which will deliver significant value our shareholders going forward. Turning to the performance of Highguard Materials business on Slide 8. Our overall like for like sales and EBITDA were 6% and 2% ahead, respectively, a solid performance and in a number of headwinds, which impacted our business in the first After a particularly strong start to the year, our volumes were impacted by some adverse weather during May June.
However, overall, our cement volumes were 2% ahead for the 1st 6 months of the year. I'm also encouraged to see pricing momentum in the year continue to accelerate. Our overall cement pricing was 6% ahead of the prior year, with all markets clearly positive pricing movements. However, despite the good progress we made on the volume and pricing front, input costs had dividends and typical trading conditions in the United Kingdom, results in a reduction in our underlying margin. And we're very much focused on cost recovery on margin improvement in the second half of the year.
And finally, comments in Asia, at our cement business in the Philippines, Tier 2 will be the good first half of volumes, prices and profitability, all ahead of the prior year. Next, the Drilling Products on Slide 9, which has delivered a strong first half performance. On pricing, Our strong focus on cost control contributed to an 8% increase in light point of EBITDA and a 60 basis point improvement in our margin reflecting the strong operating leverage in the business. We also continue to benefit from our global electronics platform starting to come through as we run all our products businesses in a more integrated manner. We've also spoken in the past of our how we are constantly reviewing and refining our portfolio of businesses in an effort to become a more focused and more integrated group.
And we've made significant progress in that regard, reaching agreements to divest our non recourse federal annuities, financial protection, and Europe distribution businesses to enable us to focus our areas where we have core competencies. Both of us also important to remember that we have been active acquirers in the product space in the recent years. Spending of a 1,000,000,000 acquiring businesses, but the integration businesses benefits from our existing portfolio are now starting to come through. And as we continue to refine and tighten our portfolio of product businesses, we're focused on the parts of our business with higher growth or our skill set of products, so that we can get the benefits of integration both across and within our businesses. This combined with our focus on strong operational excellence provides us with a platform create further value for our showers.
Now at this point, I'm going
to have 2 percentage who's going to take you through the financial performance in further detail. Thank you, Albert. Good morning, everyone. So, Albert mentioned earlier, we had a satisfactory start to the year and this is reflected in our financial performance, which is outlined on Slide 11. EBITDA of EUR 1,540,000,000 is a record first half performance for the group and it's in line with the guidance we gave back in April.
Let me take you through briefly some of the main drivers of this performance. Starting with organic growth, a 5% like for like improvement over last year, a good result in the context of some difficult weather and also the challenging trading conditions we faced in the UK. Moving on, maybe focusing on our development activities. As you can see on this slide, acquisitions net of divestments contributed million of EBITDA the 1st 6 months of the year. This primarily consists of the half year contribution from the acquisition of Ash Grove, which completed in June of last year, which also reflects the impact of the divestments of our Benelux DIY business, which was completed in July 2018.
Next, the currency translation for a stronger U. S. Dollar relative to the euro and the primary contributor to the EUR 50,000,000 currency tailwinds in the first half of the year. And then finally, our reported results reflect the impact of the group's transition to IFRS 16, new lease accounting standard, which came into effect on the 1st January 2019. The impact of this change resulted in 1,000,000 uplift in our reported EBITDA in the first half.
Turning to our cash flow performance on Slide 12, As you can see, we reported a net cash inflow of EUR 270,000,000 for the 1st 6 months. That's an improvement of almost EUR 600,000,000 compared to prior year. And this is a good performance as we would not typically expect to report an inflow at this stage of the year given the seasonal nature of our business. Our seasonal working capital outflow for the first half reduced by over 1,000,000. This reflects the working capital control across the business.
Particularly given our higher sales and higher activity levels. While our interest costs increased by EUR 44,000,000 compared to the prior year, reflecting the higher average debt levels, our tax outflow reduced by over EUR 100,000,000 in the period And that reduction reflects the non recurrence of capital gains tax paid on the divestment of our American distribution business, which was completed in January of last year. Looking ahead, we remain very focused on cash management in our business and we anticipate a significant inflow of cash for the second half of the year. Now on Slide 13, you can see the consistency of our focus on cash delivery in our business. Everything we do is focused on generating and maximizing the level of cash from the assets that we own.
That is what our shareholders want and indeed expect from us at CRH. We're an extremely cash generative business, consistently generating over 1,000,000 of free cash each year, representing an industry leading 80% conversion on EBITDA into cash. On a cumulative basis, you can see over the last five years, that translates into over 1,000,000,000 of free cash generation. And it is this strong level of cash generation that provides us with significant adoptionality for our future value creation for our shareholders. But it is cash is allocated to CapEx investments, value of lease M and A, our return to shareholders in the form of dividends or share buybacks.
Our focus on cash delivery also underpins our strong financial position. You can see on Slide 14, the key components to form our year end net debt expectations. Let me briefly take you through some of those key building blocks. The end of 2018 with a net debt position of just under EUR 7,000,000,000 and a net debt to EBITDA of less than 2.1 times. As mentioned earlier, that the customers announced year to date are expected to generate approximately 1,000,000,000 of proceeds by year end.
We've also been active on the acquisition front, spending close to EUR 500,000,000 on 36 bolt on acquisitions in the year to date. We also expect 2019 to be another strong year of cash generation for the group. That would enable us to return approximately EUR 1,500,000,000 to shareholders in the form of dividends and share buybacks. This concludes our intention as we announced this morning. To continue our share buyback program with a further tranche of up to EUR 350,000,000 to be completed by the end of this year.
As you can see on the slide, we expect these combined movements to result in a significant reduction in our year end net debt position. And that's before the impact of the group's transition to IFRS 16. To include this transition impact, we expect our reported net debt position to finish 2019 is approximately 1,000,000,000 or below 2 times net debt to EBITDA.
This is consistent with
our strong investments at grades credit rating. And as we've seen in recently, the rating agency Fitch has upgraded the group's credit rating to Tripoli plus So now we have a BBB plus or equivalent rating, which each of the 3 main rating agencies, and that reflects the strong financial position of the group. On slide 15, a strong focus on maintaining our financial discipline has been the hallmark of CRH for many years. And it's something that we as a management team are absolutely focused on. Despite the level of acquisitions and growth that the group has delivered in recent years, We consistently maintained a strong investment balance sheet.
Over the last ten years, our average net debt to EBITDA ratio stands at around two times. And we remain committed to maintaining a strong financial position and our investment grade credit rating going forward. Irrespective of where we are in the cycle to one constant in CRH is our unerring focus on cash in our business and the discipline on our balance sheet. You can also see that discipline in the way we allocate capital. Over the last 5 years, we've generated approximately EUR 7,000,000 from divestments.
At an average of exit multiple of 11 times EBITDA. And we have reinvested those proceeds into higher growth and higher returning opportunities as an average multiple of 8 times. We're focused on the efficient allocation of capital in our and reallocation of capital for superior returns and cash generation of our business and in doing so have created significant value for our shareholders. At this point, David is going to provide you with an update on some of the key developments from across our business.
Turning to Slide 17, where we summarized some of the key initiatives that are underway across the group, all fully aligned with our objective of building another business. Versus our active approach to portfolio management, the continuous process by which we are reshaping our business, constantly refining our portfolio to deliver superior returns, growth
and cash generation. 2nd is
the area of synergy delivery, creating value by integrating businesses into our existing portfolio and leveraging our global scale and best practice programs to extract operational and commercial improvements. And of course, core to both of these is our focus on continuous business improvement. A deeply embedded practice of making our business better, both existing and acquired businesses through incremental improvements across the group. And for areas of focus, all with the same goal or purpose in mind, to deliver structurally higher margins, returns and cash. We're beginning with portfolio management on Slide 18, and we've made significant progress on our divestment program in the year to date reaching agreements on approximately 1,000,000,000 of divestments.
Includes 3 businesses in our building products division, Europe distribution, Sugar and Ownings and perimeter protection. All good businesses which have delivered well for us over the years by divesting now at attractive valuations, we're able to crystallize a significant amount of value for our shareholders. Our largest investments in the year to date was Europe Distribution. In July, we announced that following a comprehensive strategic review and recent agreements to divest with the business, financialized value of over 1,000,000,000, representing an exit multiple of over 10 times EBITDA. This significant level of development activity, care execution of our strategy to deliver value, productivity to managing our portfolio and becoming a narrower, deeper and more focused group.
I've made significant progress repositioning our portfolio in recent years, but we will continue to refine and reshape our business all across the group to generate superior returns and cash. Next to integration on Slide 19 and our recent acquisitions of Ash Grove and Solani was a represents a major expansion in U. S. Cement. Combined this is the 2nd largest acquisition we've ever done at over $4,000,000,000.
It provided a significant overlap with our existing business and value creation opportunities, for decades to come. The success of these acquisitions was predicated on our ability to deliver value through the quick and efficient integration of the businesses into our existing network. Our ability to leverage our global expertise and best practice from across the group. The integration of these businesses is progressing well synergies are coming through ahead of expectations. At the time of acquisition, we have initially identified a combined $100,000,000 of synergies over a 3 year period So as we started to integrate them into our existing business, we were able to identify further operational and commercial improvements.
This has enabled us to increase our current synergy target to $145,000,000, $45,000,000 of additional value over and above our original expectations. And turning to Slide 20 and continuous business improvement. A deeply embedded practice of making our businesses better through incremental improvement initiatives across the group,
a core part of what we do at CRH.
Please head out in our 2018 results presentation in February we manage the performance of our individual business units on a margin basis.
So we also showed
that our comparable business units were best in class
operators. However, we also set out
that we've managed the overall group to maximize returns in cash, which we believe is the true measurements
of overall business performance. We've ambitious goals
to further improve the margins, returns and cash in our business. And as we look ahead to the next phase of growth and performance for the group, I'm pleased to report that our business improvement programs are progressing as planned. This has been enabled by the significant repositioning of our business in recent years. Focusing on improving efficiency and productivity through procurement, process and structural initiatives and driving greater integration across our businesses. We talked about Ashgrove and Suwani and how we buy these businesses and integrate them, but it is only when we fully immerse them into our group programs and we get the full benefits over time.
We've always said that the current business improvement programs will deliver some small businesses towards the back end of this year, and that will build through 2020 and beyond. We are pleased with the progress we've seen today and are confident we are on track to deliver against our targets. The continued refinement improving of the portfolio will allow us to increase our focus in this area, extracting the maximum amount of value from our businesses, are resulting in higher margins, better returns and better cash for our shareholders.
Thanks, David. Some really good progress there and good feedback that will be coming through. And as well, I'll look on our expectations for our businesses during the second half of the year. If I can ask you to turn to Slide 22, and here we can see The underlying trading environment in our Americas Materials business remains positive and for the second half of the year, we expect an increased rate of EBITDA growth on a like for like basis. Europe Materials.
While we expect continued positive momentum across most of our major markets, we do expect the UK to remain challenged for the remainder of the year. Overall, we expect the second half of like for like you could direct with us at a similar pace to that what we've seen in the first half of the year. Given products, we expect the strong and positive momentum in the first half of the year to continue into H2.
The group will call, we
expect further growth like to like EBITDA in the second half of the year and another year of progress for CRH. Before I turn it over and A. Just looking at Slide 23, I just want to leave you with a few key takeaways from this morning's presentation. We had a record start to the year with EBITDA of 1,000,000,000 we expect further progress in the second half. The profit improvement program is progressing well, focusing on improving efficiency and productivity through greater integration across our businesses, delivering higher margins, returns and cash for all of our shareholders.
And as I've said earlier, we will continue to allocate capital to deliver superior value by cash generation for all of our shareholders. We have continued to report that we share that business to active portfolio of management, reaching the agreement of approximately 1,000,000,000 divestments, outstanding over 1,000,000 on 36 foldable acquisitions into year to date. We are focused on the efficient allocation of capital to maximize value for our shareholders. We returned 1,350,000,000 since the inception of a buyback program in May of last year, and we intend to return and a further figure of $50,000,000 to shareholders by the end of 2019. As you will have seen through the generations of Sage Management, we are relatively focused on maintaining a strong sexual balance sheet and benefiting from the optionality this provides in the years ahead.
So that concludes this part of the presentation morning, and we're now happy to take your questions. May I ask you please state your name and the institution that you represent before posing your
questions
I'm now going to hand you back to the moderator to coordinate the Q And A session of our call.
You. Session. Your
first question comes in from
the line of Gregor Kulich calling from UBS. Please go ahead.
Hi. Good morning. I've got
three questions, please, two, a bit more short term and one a little bit longer term. So the short term ones, can you just give us a sense on, energy costs? How they trended? Kind of if you blend it all in in the first half and and how that evolves into the 2nd half. I guess particularly bitumen would
be interesting, but but on
and secondly, on the UK, so obviously, it's been a big drag in the first half. I think you do the math, maybe you also 20 percent down or something like that in EBITDA terms. Can
you just give us a sense
of what's really happening? Obviously, we've heard some some delays in general, but it does seem like a pretty big drop, perhaps there was some hedging, I think, last year for memory. So if you could just elaborate. And Finally, switching back to your
midterm, margin targets, which
I think we're set for 2021 of a 300 basis point improvement. I think last year was kind of 0 this year. It looks like it's going to be up a little bit. I guess I want to kind of gauge your confidence on how that starts feeding into next year in particular. And how confident you are, you're pacing at that rate.
And then just for the avoidance of doubt, that margin target doesn't include any of the the accretive benefits from asset rotations,
for instance, the sale of the distribution business? Yeah. Thanks, Gregor. I have 3 questions there, on energy costs. So I
think you came to put on
the margin targets. I'll take the first 2 myself, and then I'll ask David Dylan, who's because he had this morning to talk about the March numbers at the end. Excuse me. And with regard to the energy costs, as you like to say, there are some headwinds with regard to energy in the first half of this year, primarily in the areas of intermittent electricity. Now when I have to say that the energy has always been there for us.
The cost that are are reliable, and we have to manage those costs. And those costs have been up in the first half of the year. Primarily as a result of some four contracts that we had in place as they unwind. But as overall, I expect to continue with the oil prices, you would expect energy prices to be starting to decline. And, however, of course, our extended price revenue went up as well.
So if if we we're used to managing our cost base and I post the answer to all of that, it's also going up So our selling prices, if you look at our margins, you can see they're responsive to the 2, the senior net margin increases across our businesses. And then at the Richmond area, should you specifically ask us with regards to the United States and people which are not big users of Richmond. We're already seeing net margin increases at this time of the year. We're starting to unwind and start to see the benefits higher throughputs, and our lower bitumen costs are coming through. So again, overall, for the full year, we expect the second half energy costs to be lesser than the first half of the year.
And overall, in CRH, it tends to be about 9% of revenues on an annualized basis after they were in 2018. Correct. It's an energy cost to be about 9% of revenues in 2019 as Yes. Secondly, with regard to your question, we've worked through the UK and, for example, I think it's sort of driving the results. The UK is an important part of our business.
Don't get to run, but it created only 7% of EBITDA. The volumes are back at this, probably it's down a bit for me, it's more of a lost opportunity rather than if we're paying a payment of reduction in the in the EBITDA number, primarily the slowdown as we've seen since the vote in 2016 has been pullback in the area of infrastructure. Actually, residential, I think, quite resilient, as indeed, has not risen in that non residential, but that has been pulling back over the last 18 months or so. And our business is about 50% exposed to infrastructure and but volumes have been relatively resilient to put the basis of good residential and and non residential market for security with the UK. So the Luminess should say in the UK, the mix of businesses being less favorable as far as impact is upon our ability to get your call stand because we are having to reprocess materials a second time, rather than it won't be wiped stone required.
You're breaking as many and sizes. And if you don't have the the big gift fixed off, it just starts to work for you. If you gotta put the boxes again for smaller stuff or concrete, etcetera. So the mix of business has caused higher cost base and also lower lower selling prices. And that's, I think, based upon our businesses.
Hard to say what's going forward. We've come back off off by the peak in 2015. I think that's the level now whereby it's continuing on at this level. I'm not sure we get some certainty regarding the property after end of October. I think it's safe back to those kind of levels.
And with regard to your third question on the the profit and problem we haven't paid, I'd like to remind everybody before I pass it to David. But the program really, well, this is we announced this last year, and this really was as a result of a number of things. We have been changing the shape of CFH over the past several years, and I would be shutting down certain businesses and reinvesting back within our core areas of competency and capability. And really as a as a result of that and as a result of really running our business in a more centralized manner, we were and are looking to improve the overall internal these within our businesses, and we've targeted an improvement in doing so. Now the actual program, the program itself ends over 3 years, I'm gonna pass it over to David just to take you through in terms of where we are, and our program will be we should expect over the next couple of years there.
Yeah, just on the specifics. I think I said, a few minutes ago, very pleased with the progress overall, a great engagement across, right, across our businesses. Important to note that it's centrally managed but delivered locally and CRS is a business of over 3000 locations. So with all those things, you have smaller items that build up to a larger, big number. And 70% of the improvement is internal self help, kind of classic CRH in many ways, detailed focus of what we know and what we do.
And this is, as Robert said, through the refinement of the portfolio, which allows us to run services in a more unified way. But when you get into the details, there's lots and lots of things. I mean, I'm just going to pick out a couple. If you look operational excellence. We take one of our business lines where we have hundreds of locations with aggregates where you're looking at improving throughput, setting up blasting, rock yields, cost per ton, maintenance cost logistics.
I mean, the list goes on. I suppose there's been a very, very good start. Again, we're starting to see it come through towards the back end of this year. That will accelerate as we go through 2020 2021.
I think we were always clear that we said this was primarily 2020 to 2021 before you start to see We do expect to see it come through in the
back end of this year
when you see the full level letter. Remember, our business is good seasonal, 1 third, 2 thirds, 1st half, second half, at the back end of the year, you know, when the full year results come in, I I expect you to see some demonstrable, demonstrable achievements with regard to a margin improvement. Thank you. Thank you.
The next question comes in from the line of Robert Gardiner calling from Davy. Please go ahead.
Good morning. 2 for me, please. 1, just wanted to ask on, CAPT's allocation. I should be taking it as as the pitfalls of the business. Should we be thinking about more buybacks, more bolt ons, or a mix about?
I'm just wondering what part are you thinking about a good topic in 2020. And secondly, just wondering then, in terms of your guidance for a new price rate of growth in Americas Materials in the second of the year. So just wondering what's behind that, does that speak to your backlogs or pipeline or the strength of trading in July, August? Thanks a lot. Two questions here.
One on, you know, it sounds about a creation from the general times of education questions in terms of how we've been able to actually generating it, if I can just maybe not be able to go to the U. S. At this moment in time. Look, we've we've had a further indication this year that we we, we focus very much on value creation across a range of initiatives know, an increase in the dividends, again, for the buybacks, of course, we'll give you total buybacks this year to over 900,000,000 if we can pick the full problem, which we expect to go. And of course, there's around $470,000,000 of bolt ons, which just come through the door every day, 36 deals from the first half of the year.
I don't see that pace changing for the remainder of the year. And our primary focus I have to say going forward, actually, at this moment of time, is actually on the intern of the business. And we have a lot of work to do as David's outline a profit improvement program. We have some really good businesses, and that made changes to our business, building a better business by setting down peripheral areas and so in areas where we do call capability overlap and our competence. Our primary focus is going to be heavily in the business with higher profitability, higher returns, and higher cash.
It's it's the first world problem to have to to deal with excess cash within the business and ask that question unless you receive the opportunities open in front of you. One thing we are determined to do in CRH is we are very much focused on being a gold orientated company. Right. And at the moment, that quote has been created is to organic growth within our
businesses and actually help out with that purpose.
It is when the time is live to to be back to organic growth within a large order of opportunities presented, plus we will return to that. Of course, if you focus the cycle, the opportunities we see are the cash
we have in touch with us,
but we we we cannot address what we see, but our focus is very much on the inside of our business. We continue to do buybacks and use that cash to be completely, you know, to do with this moment of time, with that the cash is available to us. And focusing on the bolt on cycle will be for the next 12 to 24 months. And with regard to your question with regard to where the U. S.
And our guidance of increased pace of growth Well, we had about okay first half of the year. The demand levels are there in our US business. And in fact, you know, US actually Construction markets are actually fundamentally in a good place. Of course, we have some difficult weather in the second quarter, particularly in Central Division County, Texas, which is a big area for us. Well, we have condensed through July, and it is into, obviously, if we receive a good volume picked up across our businesses.
And really our business has started seeing during this period of time. I remember our Meredith Materials business makes 2 thirds of profitability in the July over September because we get high volume throughput. We're working 247 at good no cost base. The work is there. Is living well.
Prices are good, and it's US construction market deployment has been in a good place at this moment in time. And looking at our our our business itself, the backlogs and the businesses are strong. They're ahead of last year. The margin, those knockouts are ahead of last year. So it's not only a common working at this quarter, but for the remainder of the year, I have to say, is that looking for the first half of next year, we should have what I talked about for construction.
We have got reasonable visibility pretty much it's a it's a Q1, Q2 of next year, but it for the US, it looks to be continuing at the same pace of deals that we're seeing. Which is encouraging, and the US infrastructure plan is due to reach by 12% over the next 2 years. So the following year thereafter in particular, which is 50% off the demand. You know, it's happening is that, you know, well below peak levels, 1,200,000 homes. It's just wallowing at that level.
It's continuing on a a slow pace of gold. And US non res on the back of at the end of the day, there's a lot of naysayers with the US economy, but we just look at the fundamentals here. We're 2,000,000 net new jobs to be created in the United States this year. That's homes on seats working effectively, working in office space, and I believe they're not gonna be billed. Because the economy is growing at 2.4 percent unemployment 3.7 percent.
The place is 2.72.2 percent, and you've got a support of Fed ready to react if need be, as I would have read in the statements that were published last night from last Friday's meeting. So fundamentally, you think the US construction partner in some place, our loaner books have looked fairly robust And it's a question for us, you know, just making sure we get the weather to go to work. And so far this quarter has been doing well. That's right. Thank you very much.
The next question comes in from the line of Chromehead calling from Exane BNP Paribas.
Have 2, if I may. My first one is, looking ahead with your eyes on the Edge 2 Bridge you maybe help us in understanding the profit drivers and what you're expecting for scope effects at turn spots. And my second question is on the Building Products side. You've had quite an impressive margin performance in each one. And you're guiding for the improvements we've contributed to.
Could you maybe help us in understanding what are the products which are driving this margin and any growth improvements And we if we can expect a similar trend into the morning spectrum in English 2, versus last year, thank you very much.
Yes, thank you, Adi. There are two questions there. 1 on the H2 litigation terms of the staff here. Our last sentence is detailed by question in a moment and the first question was on the billing product side. Maybe I'll take that one first in terms of what's driving that performance.
I mean, the building products group now is it's fairly young and it's it's infancy within CRA the global products business. And I might remind you that, and the products that itself 75 to 50% of profitability in our products businesses are generated by products that are made from companies. This is a core capability of CRH. I mean, you should remember with CRH, 80% of the profits of CRH are generated by its immense, and good customers and conquer your concrete products. It's a very focused profiler business.
And our building products business was formed, so there was a really It all allows the global initiatives across businesses, but that's in Europe. We're doing very well. It's all the back into the US and in the US back into Europe, and we're seeing the benefits of this coming through. There's there's no one item driving the success of
building products. It's it's across it. Right?
You know, a reasonable volume growth across our 2 major markets. Commercial management, it's from cost management, restructuring, reform, if they would refer to it around the operational improvements It's all down through the P and L account that's showing a very strong growth at the bottom line. And I and we expect that to continue. We're very encouraged by the go from that business. And of course, we can build upon the capability of that integrating that further our products business, particularly in the United States and in Europe, but our new cement footprints over the last 3 or 4 years is a big fuss to us as well.
It helps that division. So that I expect that to continue. I think it's good story. It's good story of growth for CRH. Regards to the H2 bridge,
you know, maybe
the best way to explain last one is if you look at, slide 11 that we present this morning, which is the half one bridge and gives you the same headings. So you work maybe right to left on that bridge, the IFRS 16 translation impacts in the first half. I would take that number and double for the full year impact. So the half 2 should be the same number. In terms of the currency translation, as you see, with 50,000,000 of off care wins in the first half, And again, using kind of spot rates today, you'd expect that to convert to double for
the full year in terms
of the impact. Acquisition investments in the first half, you saw we had 111,000,000 contribution. In summary, that's the half owned contribution of cash flow from last year, which we didn't own until the mid year, 2018. The the bolt on deals and the divestment activity are a net 0 will be in the first half. We'd expect them to be a net 0 in the second half as well.
And how is the Ash Grove now moved into the organic in the second half of the year in the sense that we owned it for all of the second half of last year? So you'll see the performance, you know, this year in the second half where where we would be comparing that to full year ownership last year. The only thing on the horizon that will small impact on the acquisition investment side would be the timing of the closing of the European Commission sale. So, obviously, at the moment, such as scheduled to close in the fourth quarter, that flows as of 31st December, we'll see a full 12 month earnings impact this year. If it closes a few months earlier, then obviously that will be reduced accordingly.
And then obviously, as I said, the last bridge really is really around the organic growth. We talked about and we've given guidance in terms of expectations as to where
you'd expect to see that in the second half.
The next question comes from the line of David O'Brien calling from Credit Suisse. Please go ahead.
Hey, guys. Two two areas made for me, please. First interest on on Europe, I guess, the rhetoric around forms of Continental, seems reasonable to be of peace. I'm just trying to contextualize margins are down 40 basis points and a like
for like. If we were to
strip out your or, sorry, the UK from that, what was the margin progression and the content of the year, if not like. And indeed, when we think about price costs, it's pretty aggressive rents and then pricing, you pointed to lower costs in terms of energy headwinds in the second half should be seen a material step up in terms of underlying leverage and the content in in H2. And finally, just in terms of, maybe following up on capital capital allocation, surplus capital. Are you saying tax metrics would be below normalized levels at year end? If we use your guidance of 7,000,000,000 cash, a consensus north of, 4,000,000,000 free, but, we could get to a point of 1.7 times ish you know, theft EBITDA level, giving you scope for maybe a 1,000,000,000, surplus capital by year end.
Is that the kind of right framework to think about it?
Thanks, Deborah. It's my most easy questions, Mark. I believe the last person on debt to expect 50% and I'll just take the first two questions from Mark Europe and for Europe is and your specific question about the UK and also the pricing of Cementicos Europe. Look, generally speaking, I think the activity levels in our key markets across Europe are think we're good. That's the they've been a a few short term headwinds few pockets, and then and, of of course, you need a bit slow, but they tend
to be a project that
makes more than actual indications of slowdowns or anything else. You said it's the one area where we have seen a group of flat lining or a slight decline in overall performance. Our performance in in Europe, material suite is down 40 basis points. But if I strip out the UK, which is a good question, actually, the overall performance for the rest of your occupied is actually up 40 basis which is encouraging in terms of how we're managing our costs and our margin and idea of selling prices. And specifically with regards to the selling prices across Europe, you've heard me say for quite some time, volumes have to come first across Europe.
And then, in terms of volume, a police outcome, and then prices would follow and and here, we've been seeing that coming through. Right? It's the last couple of years I've been seeing it coming through strongly this year. It's my contention, and my and my belief that there are 7 years of cactus and cement prices across Europe. There has been a fundamental disconnect and the evidence is there, the empirical evidence there to compare cement pricing across Europe the cement pricing in the US, which didn't have this dislocation.
And you can see that I'm gonna catch up that you raised. So I believe given that the demand environment we're seeing, of course, our European markets on the activity was in there, particularly in Eastern Europe, where you're in for a, you know, a a a run of good years of cement pricing as we catch up on the cost increases that we as an industry have to absorb for 7 years without the ability to pass those on. With regard to the debt metrics in terms of
what I mean for year ending cash? Yeah. I think Davis actually, I mean, your your commentary is
is, certainly occurs. I wouldn't contradictus. I think
as we've highlighted on the slide there, year end, you know, outlook at this point in time based on acquisitions to date and the estimates announced to date with trading and with, with dividend buyback and the IFRS 16 impact, contacting that to be in the region of about 7,000,000,000. And, as you rightly pointed out, that would result in a net debt EBITDA metric of 2 times. And would create, as we've mentioned a few times, possibly in terms of optionality
as to what we
do and how we invest in capital
I think in terms
of capital allocation and what we do with that capital, I'd like to go back to the answer that Tyler gave earlier in terms of the options we have available in terms of you know, buybacks, dividends, you know, Google tons and and continuing to invest in our business.
The next question comes in from the line of Arnold Layman calling from Bank of America. Please go ahead.
Thank you very much. Good morning, Doctor. Man, Arnaud Lehman from Bank of America. Firstly, maybe a strategic question. So you've ended up are you in the process of selling your distribution?
And obviously you sold a few few months ago, the US distribution why why did you feel that these 2 distribution business didn't fit into CRH? Do you see any kind of strategic challenges for for distribution going forward? Or was it just just a question of capital allocation and an opportunity to to sell them at a decent valuation. That's my first question. My second question is on the UK, not on the short term performance, but more around around Brexit.
Are you doing any specific preparations? Obviously, who knows what's going to happen? But considering the risk of of a of a no deal Brexit. Do you how do you prepare your your UK business, for what's potentially coming in the in the coming months? And are there are there any any friction that you do you import anything, or is there a risk that some, you you're gonna have to do a bit more paperwork to get your business going, after Brexit.
That's my second question. And just, just to, the last one, hopefully, fairly brief on emerging markets. They're almost a footnote now when you look at when you look at where your Asia operation or your Brazilian operation, they're relatively small, My understanding is that you're not backing anymore to have a big exposure outside of of Europe and North America, but please please let me know if I'm wrong.
Thanks, Arnold. I have 3, 3, 4 questions. 1 on distribution, 1 on break, we can't figure out, you know, sort of emerging markets and capital allocation. With regard to distribution, efforts and foremost, I have to say, we sold what we are essentially good businesses. And from my point of view is we have a range of assets for open to us to to invest with and through.
And we have to consider what the opportunities are to generate income from those assets. When we look at the capabilities that we have within our business and we felt strongly we have the capability to run distribution businesses but we had better capability, and we more overlap, more confidence in in our in in all the trusted businesses. It made sense to us to crystallize the value that was available to in that particular time and reinvest those proceeds back in businesses where it's easier for us to make money and we have a better chance of making higher returns and cash for our shareholders. So it truly, truly was a capital allocation decision, a dispatch decision, which we we should make across our business, and we keep all of our businesses currently under review because at the end of the day, No business in CRH subsidizes any other business. They all sound of the room through fees.
Distribution was a good business. It's a good business. It's just that we have more capability and more optionality by investing in a capacity area to a greater capability and open up. We're going to look. We have been preparing a budget now 3 years.
And the level of of activities in the UK and you don't keep our business. I've been slipping down for the last 3 years. But of course, I think
we're at a level now
that it's it's just waiting to see what happens post October. We have a number of contingency plans at first because if anybody's guest has to have this chance to play out you could take you can take a bold view of it. Instead of post Brexit, there will be a significant investment program of cost without a key infrastructure. So he has those great needs. Attention to bear with you that it's gonna bleed to collapse with you, you can't call me.
I I think it's gonna be someone in between you two. So all I can tell you is working in this industry for the past 40 years. Now I enter it for the past 50 years are well used to adapting our cost base to to deal with the changing environments because a positive or a negative situation and we have preparations in place and possibilities to do so as well. And at the end of the day, with regard to the issue about whether we're impacted by imports or not in case may be, all of our business, whether in the UK, Europe, or just all the local businesses selling generic products that they manufacture locally, and are sold locally. So we don't really have to give exposure to issues that improve our exports as well.
And because your last question to emerging markets, emerging markets are a small focus of our business only about 2% of EBITDA. The focus of our business is very much on developed markets at this moment, sir. It's fair because like everybody else, we had a good look at emerging markets at 10 or 15 years all remember the word that Jim O'Neil And Bricks and how this is gonna change the world. And, of course, we see we see enormous growth in the big companies and in developing world. A challenge for people in our industry and in any industry, but particularly around the industry, it's the difficulty of making consistent profitability and good returns in those areas and we just can't figure out how to do that.
There's too much disruption, too much dislocation, too much uncertainty, and particularly, but again, you're faced with a capital allocation decision of investing in Europe or North America, if its stability, certainty, overlap capability, versus 12% rate is more exotic. The returns you need you need to generate to just have a high level risk or extraordinary. We just don't see it. So our focus here, absolutely, right, is, for the kind of market businesses, how much of what we have in the developing world in an appropriate manner that we have to see going forward?
That's great. Thank you very much.
Thank you.
Question comes in from the line of Alodi Wall calling from JP Morgan. Please go ahead.
Hi, good morning. Thanks for taking my question. So a lot have been asked already. So maybe I can ask if you have a tricky one. On the overall guidance.
So you have a stronger views on America's materials, or you're at least from very confident, and you have 6 similar trends in Europe. So does it mean that for the full year, we could expect like for like EBITDA growth or at least in H2 to be at least as much as each one should be at least 5% for like. And then a question on your margin improvement, the 300 basis targets that you have, basis points that you have. How much do you think we could see this year? You started to mention that we could see some impact in H2.
Overall, how much would you expect there? Can I see a last one on central divestment from here? I mean, everything seems quite lean and clear. For any, candidate within your portfolio for a potential, that this month. Thank you very much.
Hey, Todgy. I have three questions there. 1 in terms of just giving things that are more specific on driving for the second half of the year. Do you have comments with the US to the market today, which seems to be in a good place? Second thing, a question was about just a bit more commentary with regard to between the previous points and what we should have changed the procedure.
And the third question is just It gives them, I guess, some directional view on terms of adjustments going forward. Well, look, look, Melody, we are we are in the middle of our busy period. All we could do with all honesty and certain is to give you and communicate to the activity levels we're seeing in our markets as of today, August 22nd, and to help you see loading up the process. Once that we'll translate into, ultimately, I won't be able to give you an informed view that at least until November, because, like, at the end of the day, July, August, September, are already busy because of COVID, very busy response. We get those results, and we'll see how it all planned out.
Honestly, I don't need to be guessing other than that. Let us know that I think we're gonna have a stronger second half of the year than the first half of the year, the extent best. We will we will see what that is, and we're aware we're connected to this as well. The second point is with regards to the 300 basis points. Again, a lot of talk, a lot of, commentary with regard to this.
The series is a company that said that is is a quite conservative cautious company. We don't say things without having some belief that we can deliver upon these things. I mean, we're very clear. We we the first all around can you deliver soon 19, deliver ticket number? We've been very clear about this.
This is a a a program that looks at the reshaping and good positioning of our business. As David mentioned, there's a lot of people that go down to the hundreds of initiatives running across all of our businesses. I will fully deliver this over the course of the next 3 years. You will see some delivery on this at the back end of this year. I think that whatever you at the back end of this year will give you confidence that ultimately, over the 3 year program, we will deliver what we said and will deliver.
Of the extent that we'll be able to have to wait until the end of this year because it depends on how a number of factors coming our way. Our team's kicking in. If they don't kick in by December, they're kicking in by March of our June, but but they will kick in. We're confident that the work we're
doing will deliver on for the program. But for the
closing of this can't give you a view now as of the year end. Other than I would expect you to see, agents where you'll say, okay, that shows me progress. Thirdly, with regards to divestments, most of our divestments have tend to be in the area of products and distribution. It's not all better. And but don't mistake that for one second, that the whole program of a constant review of our portfolio of over, in fact, it's only just begun the easy work has been done.
As we as we prune the peripheral businesses, Bausch, and just as really because we're not the consultants, though, it was really just back in the business doesn't mean that our work is based. For me, the work goes into the materials business and further deeper inside the products business now because not all of our business are as good as they should be. We're not the best owners of all of those businesses, and we will continue to refine and reshape the portfolio because we need to and we have to our industry in our world is changing, and we have to change with that. And we have to reposition ourselves and possibly position ourselves in the next 10 years, not the past 10 years. I don't have any dogs at business, dogs business within CRH, but there's businesses that I think we can reposition and reshape to improve portfolio management, and I think we will do so and continue to do so.
So a better portfolio management is just an intrinsic part of good business management. If you go in terms of how you manage assets and how we manage assets, and it's an essential part of how we manage to reach going forward. And it's a big part of our improvement and our margin improvement and our strategic approach to our business I would expect to continue to come forward.
Thanks very much.
I just I'm waiting at the math here. I think we I just have one more quick if you don't mind, please.
Okay. Sure. So the final question comes from the line of Will Jones calling from Redburn. Please go ahead.
Good morning. Thanks for taking the question. 3, if I could please. The first, just exploring, the Europe and next deck outside that you can think about the and clearly quite a bit of debate around the picture there as well. Are there any countries where you're thinking differently about road feature, I guess, in age two?
H 1 trying to, strip out, obviously, and whether benefits came back in the 1st quarter period. The second was just on synergies. I think it was 50 basis points 300 were attributed to synergies previously, maybe that's a shade higher today, the higher, Ash Grove, yeah, guys, please help us on that one. Hopefully, it's not accounted mechanic in terms of how that 50 or 60 basis points, essentially flows into the detail. Is that is that still unsurety beyond you know, is that a bit more deliberate from there?
And then the last one, I guess, was just more strategically a few references to the product division today. I mean, do you think on a maybe 3, 5 year view. That's gonna become a bigger part of the group. It's all part of the group, and then I guess a set of questions on that. The 75% or so is concrete linked.
Do you do you want to keep that kind of ratio or do you with other other products that are outside the concrete arena where you think actually you might want to speak to over time. Thanks.
Thanks. Well, three questions. First one, in terms of the big Europe and any concerns for any particular markets. So if you note upon the issue of that synergies and how it fits, it's just a few of the basis points that I've sent it to come to that at 8 AM. The third question with regard to building products and maybe our focus on our business, but for a variety of business as
we see focus on that.
Of course, you're actually generally speaking, but other than the UK, actually, markets are pretty resilient, actually, despite some of the the country. We do know some of the countries that's in recent time about Germany. So it's because we've got a small market for us, and and Our problem is in Germany, and we we're called different issues with that. Our volume numbers are pretty much okay, but hold on. I'm just hang on Other than you've had, you're actually Europe seems to be pretty okay, actually.
It's it's a residential event, non residential, coming up from us. Infrastructure needs in Europe. So no, actually, pretty good shape, actually. If I'm building products business, the shape of building products business has been designed and positioned to cater for the changing phase of construction demand going forward. And and as construction demand goes forward, we will adapt to shape our portfolio save, serve that market.
We, this is a part of the profitability of CRH now. This will continue to grow and be a bigger part of CRH because construction markets are beginning to grow in in this particular area. We generate 2
thirds of our profits when
we do stuff out of the ground and sell them at the time. But this area here is an area whereby we have a core capability where we use a lot of those products and form them into higher value added products. Which gives higher margin better returns and and and and good cash. And this is adding probably should continue to invest, and we will follow those trends as we see them in front of us. We don't have a bat.
No one ever bought the tires, and we don't get 10 out of 10. Right? So we may invest in more various. I I as long as we get 8 out of town, 10 of those areas are fine. Right?
And we'll continue to grow in those particular areas. My own sense is that he will continue to be strongly be a company based business over the next 5, 10, 15 years all the products will aligns to and associate with countries will become part of that. So I'll take an example. 2.95 businesses with construction accessories and network access. Neither of them are used accomplished, but they are closely aligned to and sold with the actual process.
They're serving between the customer. We can make very good returns and very good capabilities in that area to our engineering skills and our knowledge. And that's the answer we should build out. And it's very resilient platform because it's not only just new build, but it's all on my well.
So I'd say this being
a broader footprint servicing higher growth markets with better returns and cash and building, then a bigger and better division
That's part of a a a
newer soon as going forward in the years ahead. And I think it's an expanded track to part of our business going forward. I mean, they can call me at services to be invested. With regard to synergies?
Yeah. Just on synergies, I got the comments, Will. First of all, you're absolutely correct. I mean, the synergies are a part of performance improvement for us in the business. They are part of the 300 basis points, as you rightly called out, and David updated earlier on the synergy delivery specifically in Ash Grove and Swannie in terms of where we're at and how those programs are going to read you well.
Do you remember those businesses, when we were acquiring them back in 2017, AdEx on a combined basis for the businesses made about $400,000,000 of EBITDA. In 2019, we'll be way ahead of us in terms of, EBITDA delivery. And that's really down to the strong performance on the synergies card, but also the good organic tool getting out of those businesses. So, Talbert mentioned earlier on, you would see, you know, margin improvements by the end of 2019. And obviously some of that margin improvement that's coming through is coming through as a result of the strong delivery of synergies that you're seeing in those in those business.
Specifically enough on the last point I'm making up that. And that that we spoke before about our capability within our cement business in Europe and how we dedicate, you know, very significant resources of nonprofit people. In North America on the cemetery. They made a tremendous focus on that business in terms of lowering our unit costs, improving our throughput, and that work will carry to make sure you
use that and really demonstrate
that it's not actually doing business and doing deals in areas where you've got a core competency and a core capabilities, which is select for us, being able to bring that I don't know if it came from Turkey from Europe to US. It'd be a big plus to us, as you said, being driving the performance of that business, but I'm happy to use. Ladies and gentlemen. Thank you. Thanks very much.
Uh-uh. Listen, Dennis. That's that's always time frame, I'm afraid. It's just letting me up here at the moment. I want to thank you for your attention this morning.
We've managed to answer some or all of your questions, but the the Frank Chrysler Campus team are available to answer any follow-up questions you might have for today. I'm gonna forward to talking to you again in November, and we'll provide you a trading update for the 9 month period, which is end of December 3 2019. Thank you.