CRH PLC (CRH) 2017 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

I'd like to welcome you to the 2017 interim results for CRH here this morning in London.

My name is Albert Manifold.

I'm the Chief Executive of CRH.

And I'm joined here this morning for the presentation by Senan Murphy, our Finance Director.

Good morning.

And Senan and myself, for the next 20 minutes or so, are going to take you through a short presentation to give you the background and context of our results, to give you a sense of what delivered the numbers.

We're also going to talk about some of the development activity we've been busy with in the first 6 months of this year, and this has been a busy 6 months on that front, as you all have seen this morning.

And at the end of the presentation, we'll give you a sense of how the year is going to play out for our major markets, where we see us going as the year evolves into 2017.

At the end of that, as normal, we'll come back for some questions and answers in the room initially here first, and then down the wires.

So let me just give you some of the key headlines with regards to our business for the first half of this year.

We guided you in our AGM statement at the end of April that we felt that the first half of the year will be a year of progress, and we felt that EBITDA will be ahead against a very strong 2016 number.

I'm delighted to say despite the inclement weather, we actually have managed to deliver on that commitment, and EBITDA and sales are both ahead for the first half of the year, a really good performance by our businesses in the face of some headwinds.

We're also going to comment and talk about some of the significant development activity that we've been busy with in the first half of the year.

Two deals separately announced this morning.

We've acquired a business called Fels in Germany, a lime business for EUR 600 million.

And we have, this morning, announced the disposal of a very fine business we've had for many years, our Americas Distribution business.

And also, some other news that Senan will take you through, that we were happy to say we have an increase in our dividend of about 2%, so very glad to see that coming through.

Just looking through the overall numbers.

You've got them there in front of you, and you've got them in the wires and our presentation.

But just again, reiterating, sales and EBITDA ahead on both a reported and a like-for-like basis.

And against -- I want to say that's against a very strong first half in 2016.

We've had a lot of inclement weather across North America for the first half of this year.

We have nowhere near as many work days in 2017 as we had in 2016, and yet, we still managed to see growth in our business.

It's very encouraging to see.

Margins holding firm again, which we're pleased to see, and EPS well ahead.

Just turning to the trading environment in our major markets.

The overall environment in Europe is slowly recovering.

The European economy, the pace of growth that we've seen through the back end of last year continues this year.

All the confidence indicators, all the sentiment indicators are broadly positive in the major markets.

GDP is ahead.

Unemployment, happily, at last, is starting to fall.

I should say that the construction growth recovery is being led primarily in most markets by the residential markets, as you would expect it to be.

But at last, we're starting to see some growth coming to the nonresidential and, indeed, the infrastructure markets across Europe.

And all of this against an increasing cost environment, which we'll talk about as we go through the presentation.

Looking specifically at the numbers here, you can see across, again, the major markets, pretty much all our major markets ahead on a volume basis.

The volumes increases that we saw in 2016 are building pace and momentum.

Pricing is a bit slow and patchy, but it's coming through.

But we have always said in CRH, volumes have to come back first before pricing comes back.

We saw it in the U.S. in 2011, '12 and '13, and we think we're starting to see it coming through here now.

If I can highlight a couple of countries that people will have interest in, I'm sure.

The United Kingdom, which is our second most important market in CRH, it accounts, on an annual basis, for about 12% of EBITDA.

The first half of the year, we've seen a solid performance across our businesses.

And as we look out for the remainder of this year and, indeed, into 2018, it looks to be fairly stable.

So we're pleased to see that against the uncertainty that there was last year after the Brexit vote in June.

Another country I'd like to highlight is Switzerland, which has been a very strong country for us over the years.

It's had some difficult times over the last 3 years.

It continues difficult again this year.

However, as we look at the project work and the anticipated volume increases next year, we believe this year will be the low point in Switzerland as we see a recovery coming through there starting next year.

So by and large, a volume-led recovery against some quite stiff cost inflation, primarily on the energy front, which impacts upon our cement businesses.

But we've been able to get some price recovery, and against that background, we've seen sales and EBITDA increase across our European businesses on a like-for-like basis against the first half of last year, so pleasing to see that coming through.

Turning to the Americas.

Overall, the confidence levels and the indicators in the United States and Canada are broadly more positive.

Looking to the United States, first, I mean, the economic and business [fundaments] there are very solid.

Good solid GDP growth, north of 2%.

The U.S. has been at full employment now for almost 2 years.

It has an incredible statistic out there.

The first 7 months of this year, the United States created 1.3 million new net jobs.

That only -- not only drives the economy, it drives construction, which is very important for us; not only nonresidential, but infrastructure and residential.

And when you've got that dynamic in an industry, you can see that there is good, strong construction growth going forward for the periods ahead.

And an economy which, as you can see by the slide here, is still at levels significantly below long-term demand levels and, indeed, long-term needs, which gives us optimism for the future.

Pricing environment in the United States, again, was very challenging on the energy front, and we'll talk about how we managed that on next slide.

Canada, too, an important country for us, the third most important country in terms of profitability, has shown good strong growth this year against, again, a very tough weather comparison.

It was a long, cold winter.

And in fact, we really didn't start getting back to work -- it was almost May before we started.

[Limes] were a bit back because of that, but the Canadian economy is in good shape.

Our business is not really impacted upon by the oil-affected state problems as that's the west.

We're more an Ontario, Québec business, underpinned by a fairly solid, robust residential business and, indeed, a growing infrastructure project backlog, which is very good.

So switching to the overall business and how the Americas business has traded in their entirety.

I would say, against very challenging comparisons, a very satisfactory performance.

Overall, like-for-like volumes were back.

However, with regard to good pricing and good commercial management, we've managed to price in and offset those high cost increases we've seen on the energy side, and we have managed to recover and increase our profitability by 6%, which I think is a very good performance.

And crucially, for me, I always watch the margins businesses.

Again, the margin expansion by 40 basis points here, a very strong delivery by the Americas businesses.

And all of this is, again, trying to deal with higher input cost in a business in a short period of time, which is always very challenging.

So a good performance by Americas businesses.

Moving to Asia, which is our smallest division, it accounts for less than 5% of group EBITDA.

And I mean, here, we see highlighting the volatility one sees in emerging markets.

Principally, our business out here, our consolidated business, is the business we have in the Philippines.

And we've had challenges here in this year, which are going to -- in terms of competitive pressures and some uncertainty.

Our 2 other businesses, our associated businesses in India and China, have shown some improvement off a low base.

Specifically dealing with the Philippines, and just to remind people, this is a 6 million-tonne-plus cement business that we own in the Philippines in a 20 million-tonne-market.

We bought this business as part of the Lafarge-Holcim acquisition 2 years ago.

Last year, in a full year of ownership, this was a very good performer.

It did very well for us.

While this year, unfortunately, we've been caught in a perfect storm.

It's the first year of the new administration, and as often is the case, a new administration finds it hard to guess the blockage -- there are blockages in the system, and they find it hard to get infrastructure spend.

And there's an uncertainty with regard to how the administration is going to finance and build confidence within the economy.

Growth rates have been at about 6%, 7% per annum for the last 5 or 6 years.

It's about 3% this year.

On top of that, we see increasing imports into the country.

Imports have risen to over 1.2 million tonnes.

And with those imports, prices have dropped.

So with the imports coming in, all domestic suppliers, as you will have heard from our peers, have suffered falls in volume, prices have been down, and then to complete it all, prices have gone up for our major energy costs.

Coal is going to be almost 50%.

So we've really been squeezed in the middle, and the returns [and the] profits in this business are down probably at EUR 20 million, EUR 22 million in the first half of the year, and that's not going to improve in the second half of the year.

So a disappointing performance by the Philippines in the first half of the year, and it's going to take a couple of years to unwind.

India and China, as I say, off a low base, they have actually done reasonably well with both volumes and prices ahead.

So that's just a quick summary of the backdrop to our businesses.

There's a lot of detail in our announcement this morning in terms of the detail of the countries and how we've done.

So what I'm now going to do, I'm going to pass you over to Senan, who's going to take you through what's behind the delivery of the profits in terms of the components of performance and, indeed, crucially, for CRH, how we have managed our cash in the first 6 months of the year.

Senan?

Thank you, Albert.

Good morning, everybody.

So as Albert said in the introduction, a satisfactory first half for CRH, and that's reflected here in our financial performance.

As you can see, sales are up 2% to EUR 13 billion in the first 6 months of the year, and the EBITDA is up 5% to EUR 1.175 billion.

So as you would expect, there's a number of key drivers behind that growth in both sales and in EBITDA.

What I'd like to do for next few minutes is just pick out a few of those drivers and just talk to you about them in terms of some of the background to them.

I'm going to start with Asia.

Even though it is our smallest division, as Albert mentioned, we've had a very challenging first half there in the Philippines.

And obviously, we've had impact in terms of volume.

We've had challenges on price.

We've had challenges in terms of input costs.

And when you convert that into the earnings or EBITDA impact, which you can see here in the first half of the year, is effectively a EUR 22 million decline in EBITDA year-on-year in terms of the performance of the Philippines business.

Now as you look out to the second half of the year, we would actually expect and anticipate further declines in that business.

So as we now think about the full year EBITDA impact for the Philippines business, we're expecting to be somewhere between EUR 50 million and EUR 60 million behind the performance delivered from that business last year.

Now by splitting out Asia, what it allows us to do, obviously, is show you the organic performance of our Americas and our European divisions.

When you look at the organic sales growth, it's modest in the first number of months.

However, what you're seeing here across those divisions is very strong operating leverage.

The operating leverage over the first 6 months works out at 21% across the average of those businesses.

What that operating leverage means is that when you look at the organic EBITDA growth in the first 6 months, we end up

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As you can see, we've had a very busy first half of the year on M&A activity.

And what you see reflected here in both our sales and our EBITDA is the

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closed in the first half of the year.

It's a modest enough number, as you would expect, given, one, the timing of those acquisitions; and two, the fact that those acquisitions really deliver more profits in the second half of the year given the seasonal nature of that business.

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the currency impact is neutral to our earnings.

Of course, as you look out to the second half of the year, there are significant headwinds there.

If you go back to where we were back in January and February and you look at the exchange rates that were forecast at that point, we actually anticipated that this year, currency would be a positive for us.

Sizing that from the earnings perspective, we expected a positive of somewhere of EUR 70 million to EUR 80 million of tailwinds this year.

However, as you all know, over the last 6 months, there's been a significant weakening of both the dollar and sterling, which are 2 big currencies for us.

And the impact of that now, if you look at the exchange rates that are forecast now for the second half of the year, is that currency for us now going into the second half of the year is a headwind.

And sizing that, it's somewhere between EUR 70 million and EUR 80 million of size.

So a significant swing, about EUR 150 million of swing, in our view, between where we were back in January and where we are now.

I guess, if you summarize all that in terms of earnings, in terms of what it means for us in the first half, the way I would summarize it is, 5% reported growth in EBITDA.

The shortfall in our Philippines business at the moment is being offset by the nonrecurrence of one-off integration costs that we had in 2016.

So I might just now talk about our cash performance in the first 6 months and our net debt position as of June.

Again, a number of drivers behind that in terms of

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managing our cash continues to be a discipline that's very strong and very -- gets a lot of focus.

As you can see here, on the operating cash line, we had an outflow in the first half of the year of EUR 49 million.

That is very consistent with what you've seen from us in previous years.

It reflects the seasonal flows of our business.

In the first half of the year, we always have working capital outflows, which is the largest component of that, and that really is a reflection of us ramping up our

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inventory we carry.

As of 30th of June, we had higher inventory this year relative to last year, and that's simply down to the disruptive weather patterns that we had and weather issues we faced.

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capital expenditure.

You can see here, over EUR 500 million invested in the first half of the year around the group.

As a percentage of depreciation, this year, it's actually 104%; last year, it was at 82%.

So a step-up and again

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something first 6 months of the year.

What you see on this slide here is the net outflow on acquisitions, EUR 487 million.

In our view, money well spent, good quality assets acquired and platforms for growth into the future.

This time, it's a positive.

So again, the weakening of dollar and sterling means that we benefit to the tune of about EUR 300 million year-on-year in terms of our current -- our net debt balances.

So in summary, on cash and debt, the way I would read this is, year-on-year, our net debt position has improved by about EUR 700 million

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positions in the first half of the year, and also, we've invested more in capital expenditure.

So where does that leave us as we look out to the second half of the year?

Well, as you would expect from us, we'll have significant cash inflows in the second half of the year.

That will leave us with a very healthy balance sheet, and it will leave us with a balance sheet that is well positioned to be able to support our developments.

I'm going to hand back to you, Albert, to talk about our development update.

Thanks, Senan.

If you can just hold that slide there for a second.

At CRH, we talk about a lot of things.

We talk about performance and growth, and a lot of the growth in CRH comes through being able to finance that growth through acquisitions.

And a cash performance like this again from CRH, even though strong capital expenditures, strong step-up in acquisitions, again, showing the ability to give us the capacity in our balance sheet

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for us in the last 12 to 24 months.

And in the last 6 months, as our debt levels have come down, we've managed to execute on the pipeline of deals that we've seen and we

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in the first 6 months of this year.

Of course, we have 2 major transactions that we discussed and we have announced this morning, and I will discuss those in a moment.

But the day to day business of CRH

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is the 11 smaller deals that we did in the first 6 months.

Over EUR 600 million of the money is invested in our businesses.

All contiguous, all integrating, all creating synergy

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EUR 5 million of assets and businesses.

Most of those businesses were largely in the area of the clay -- the old clay business in Europe that we sold earlier, and we've just cleaned up what's -- what was left.

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The first one, stepping into the German lime industry, a very fine business called Fels, which we spent EUR 600 million on, and I'll talk about that in detail in a moment.

And a very large disposal for CRH, our Distribution business in America, which has been a long-term part of our business, which we have disposed of to Beacon Roofing, announced this morning, for $2.6 billion.

And all of this really just reiterates once again what we've been consistently saying, that portfolio management and the efficient management of our capital base is what good managers do and should do.

That's what we do in CRH.

It's an embedded part of how we think about our businesses, making sure we put our money to work in the best possible places.

Turning to the largest transaction we've announced this morning, the divestment of our Americas Materials business.

Let me explain to you a little bit about the strategy and what's behind the thinking behind this deal.

Let me go back 20 years.

In 1995, 1996, we looked at investing in this business because it represented an opportunity which we looked and search for in CRH.

Our strategy is to invest in growing construction markets.

These markets were exposed to the residential and nonresidential markets of the United States, and we'd like to do so in industries where there's a fragmented market structure.

And the reason why we want the fragmented market structure is because that gives us the capacity and ability to acquire businesses.

Because as you recall, in CRH, 2/3 of the profit growth in CRH has to [start being] created, directly or indirectly, through the acquisition process.

If we have acquisition pipeline, we can create more value above and beyond organic growth.

And that largely was the story of Allied, our Distribution business in the United States, for 15 years.

A very successful business that starts out in New Jersey and rolled up across all the north parts of the United States and across the northern plains.

A strong, large regional play.

We had good proper growth.

We did lots of deals.

We delivered lots of values.

But as the crisis unwound at the end of 2011, 2012, it became evident that some of the bigger players in the space, some large American public corporations and, indeed, some larger private businesses, started to become very aggressive and consolidated that sector in a very fast and at very, very high prices.

And we found ourselves in that consolidation phase with very, very few and limited opportunities to acquire businesses at values that could create value for shareholders.

And hence, we found ourselves, within a short space of time, a distant #4 in this industry.

In an industry where size and scale matters, where procurement costs matter, where logistics costs matter, where having a national footprint matters.

And we were subscale, and we were cost-disadvantaged.

So as part of our portfolio review, we had a look at this business and we looked at what our alternatives were.

We looked at merging with somebody.

We looked at buying somebody.

But in the end, we entered into negotiation with Beacon Roofing, and we agreed a deal to sell this business for 16x EBITDA.

And at that value, we looked at crystallizing that value now, and we said was that we could not create that value for our shareholders in the years ahead.

And therefore, we were better off taking that money off the table and allocating that capital back into areas of higher opportunity and higher growth.

And we've done that with Fels.

Fels is a business that we've known for a long time.

Many years ago, when I had less gray hair and I was a young development executive in 1998, I led (inaudible) team to try and buy this business.

Three times since then, we as a group have tried to buy this business, and we're delighted to say that we've finally landed this prize.

This is a very fine business.

It's got 9 operations in Germany, 1 in the Czech Republic, a small operation just outside of Moscow.

It integrates very well with our existing lime businesses in Ireland, United Kingdom and Poland.

And we are now the second-largest lime producer in Europe, a very strong attractive growth platform.

It's got a diverse market exposure.

It's not just exposed to the building materials in the construction sector.

It supplies products to the pharmaceutical, to the chemical industry, but also to water and air treatment -- water and air purification, which is a growing trend.

So there's lots of organic growth and significant acquisition opportunities as well.

There's some strong integration synergistic benefits, things we look for at the core when you buy a business, within this.

We're not setting them out here this morning because some of them are quite commercially sensitive.

But all I can tell you, the overall parameters of the deal is we've had about EUR 600 billion -- EUR 600 million for this business and about 7x post synergies.

We're very much where we'd like to pitch businesses within CRH.

A good, strong, attractive growth platform going forward for us.

So that gives you a sense of the 2 big deals that we did and give you a sense, and I'm sure we'll go to more of that in the Q&A.

If I can just briefly turn to the -- at the outlook for the remainder of the year and how we've seen July and August, the trade and how is the rest of the year going.

Well, broadly speaking, the recovery that we spoke about across Europe continues in July and August, as we have seen in the first 6 months.

And we see that momentum continuing on for the remainder of the year at the existing pace.

In the Americas, there are solid and sound fundamentals.

The backlogs are stronger than they were last year.

I would expect them to be.

So the work is there.

What we need is now some good weather patterns and good weather days to get out and be able to do the work.

That's the key for us now in the Americas.

July was a bit mixed weather-wise.

August has been very good.

Let's see how September and October play out.

What we do believe is that in the Americas, we shall see second half year -- second half EBITDA ahead of last year.

Senan has mentioned the pace of decline, the rate of decline we're seeing in the Philippines.

That's not going to change this year, and it's going to take a couple of years to unwind.

There are things in place that will cause that to change over the course of the next couple of years, and I'm sure we'll discuss that later.

But it's going to take a couple of years to unwind.

However, when we put the European, Americas and the Asian business together, we're confident that the second half year -- EBITDA for half 2 in 2017 will be ahead of the corresponding period last year.

And overall, 2017 will be another year of progress for CRH.

So with that, I'm now going to move to the questions and answers, initially, here in the room.

There are ladies moving around the room with some microphones.

So I ask you to please raise your hand and give your name and the name of your institution first.

We've also got quite a lot of questions coming in on the wire, so we're going to take them as well.

So after a period of time, we're going to break away.

But we'll start with the room here first.

So maybe, Robert, I'll start with you first.

Robert Eason from Goodbody.

Just on the whole capital allocation story in terms of -- you sold U.S. distribution.

What should we think about European distribution just given the commonality in the name?

Should we be -- should we get carried away with ourselves with that?

Secondly, in terms of your capacity now to allocate capital over the next number of years, where is your appetite levels to spend that capital on a regional basis, given how your various regions are performing currently?

At one end of the spectrum, you've got the Americas.

At the other end, you've got Asia and kind of Europe in the middle.

So how do you see capital allocation and -- given that?

And they're my 2 key questions.

Thanks, Robert.

I'll leave Senan to go back to the very end with the amount of money we think we can spend, but I'll just talk to you about the overall principle for where our European distribution sits and then also the issue about how and where we look to allocate the capital.

One of the fundamental principles we have when we invest in businesses is we look to invest in growth markets, but significantly, they must have acquisition opportunities.

Of course, we've got some cash cows in our business, but generally speaking, we don't hold them too long and we like to see growth in the business.

We're here for growth.

That's why shareholders buy our stock, that's why we're in business.

And as you know, acquisitions are a key part of that story.

Effectively, we had run out of road in the acquisition business and the Distribution business in the United States.

It had consolidated around us.

It had become very narrow at the top.

It had run its term.

It had run its cycle.

And this was just active management of that cash out of that industry back into another area.

Europe is completely different.

The European Distribution business is, I suppose, characterized by a number of strong regional players, not even national players on the builders merchant scale.

So it has to even consolidate on a national scale first, and then it has to consolidate on an international scale.

So there's still quite a bit of road ahead of us.

And that's evident by the fact that we are consistently active in the area of distribution in the U.S. and buying businesses.

We have a big business call option next year with a business called SAMSE in France, which we -- hopefully we will execute upon.

So -- and we've also got our SHAP business there as well, which gives us another spur for growth.

So although it carries the same name, the characteristics of the market are entirely different.

So it's no reflection and we still are committed to the Distribution business in Europe, and we think it's a fine business.

With regard to how and where, before I pass to Senan with regard to how much, I would go back and look at the principles.

From a CRH perspective, we create value best by buying business in known areas and in known industries.

Not because we can just run it better, which we can, but because we integrate them with our existing business, and we get extra synergies and extra value, either through cross-sharing, cross-selling, integration, procurements, take your pick.

So I think it's fair to say you will see us buying in familiar industries, in familiar territories.

And for us, that largely speaking is the Americas and Europe.

I would be very surprised if you saw CRH make a very big and brave move in the developing markets in the short term, given the way those markets are trending.

In terms of the dimension, the size and scale of where we are, Senan?

Yes, in terms of the amount, I think the way I would look at it, Robert, is we started out the year with net debt-to-EBITDA at 1.7x.

We would have articulated at that point that we probably felt we had EUR 2 billion to EUR 3 billion of capacity spend over the next 18, 24 months.

Obviously, with the transactions announced to date and looking at the activity in the first half of the year, if I was to simply just add them in and pro forma our net debt to EBITDA, it probably moves us down to somewhere in the region of about 1.3x.

So in effect what you're doing is, the net proceeds, if you want to look at it from what you see here today, is something that I would add to our previous guidance of EUR 2 billion to EUR 3 billion in terms of the

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Bob?

It's Robert Gardiner from Davy.

So 2 for me as well.

One, just you mentioned in the presentation, you faced inflationary costs in the first half, energy in particular.

So I was just wondering, could you give us a bit more color on that and how you see the outlook there and how confident you are of recovering those inputs, presumably through price through the rest of the year.

And then second, maybe just come back on your comments on Americas Materials where you talked about your pipeline order books, how that looks.

So maybe if you could give us some color around the strength of those order books, how you see the kind of the political situation.

Is that impeding work on the ground?

Is there any issues around public spend as a result?

So any color around that would be great.

Okay.

A number of questions there.

Just on the overall input costs first, and I'll go back to the U.S. situation with regard to the funding.

Just to remind people, the first 6 months are interesting, but let me talk about the numbers in the entirety of the full year.

We spend about EUR 1.8 billion, EUR 1.85 billion every year, or we did last year, on energy.

About half of that is bitumen, both in

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an increase of about 4% to 5% on that number for 2016.

Now we can't be precise because we started to make predictions with regard to where coal

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for this year.

But it seems to be in that range of about 4% to 5%.

About half of that will be in bitumen.

In the first half of the year, about 40% of that will have drifted through in the first half of the year, because, obviously, the second half of the year is much more weighted to that with regard to the United States and North America.

We manage that as best we can.

And I should say steel prices have also gone up, which has impacted upon our product businesses

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are more used to the fact that we're pricing products on the back of cost inflation.

Europe, it's a little more advanced than that.

So therefore -- it's not as advanced, I should say, and therefore, we have not had that strength to do so.

So we had -- that's where the margins have been squeezed a little bit in some of the European businesses, but I think this is just a timing and a lag issue more than anything else.

But that's the dimension of the size and scale of them.

With regard to the Americas Materials businesses in terms of where we're seeing the overall demand and the backlogs, I'm not surprised the backlogs are up.

They should be up because we haven't done as much work in the first half of the year as we should have done, so they should be up.

However, backing out that, they're still up.

Overall, they're ahead, broadly speaking, by about somewhere between 3% to 5% across the range of businesses.

On a more normalized basis, I would expect that to be kind of sort of 2%, 2.5% ahead because we're a bit behind on volumes as where we would expect to be at this half of the year.

With regard to the overall funding environment, and where we see it, look, what goes on in the current administration is just noise.

It doesn't really affect us on the ground, quite frankly.

And the real news in our industry was in November 2015 when the FAST Act was put in place.

The real news in our industry is the initiatives that keep getting put in place by the states where we operate and how they increase funding going forward.

And if you track that, we can see, broadly speaking, for the 4 years ending last year, it was about EUR 420 billion invested in highway funding and infrastructure.

That will rise to a committed funding now to over EUR 450 billion in the next 4 years.

So there's a significant increase, almost 10% of an increase in the next 4 years, which, from our position, that's really good for us because we're positioned well in some big states that are well funded and that positions us as the #1 player in the United States to benefit from that.

Gregor in the front?

I have few questions as well.

I suppose in the U.S., you're selling at sort of 15x, in Europe, you're buying at 7 or 8. I guess it begs the question whether you could do more of that.

I appreciate you don't want to start selling down your entire U.S. business, but presumably, there are other opportunities within that.

And in that context, can you perhaps give us a little bit of color on acquisitions?

I believe there were

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Does that suggest your appetite to buy in the U.S. essentially at the current pricing is a bit lower, and the shift therefore, goes a little bit back to Europe?

And then perhaps on the U.S., I think it's kind of been difficult to read the data because it's been weather impacted.

As we look forward today over a more longer time period rather than 6 months, what's your view on the degree of growth and mostly focused on the materials, but to an extent, products as well?

Okay.

A number of questions there.

Just I'll take the overall question in terms of multiples, what we buy, what we sell at.

I, you, we all live in the results-driven business, so these are the results we have here today.

The best indications of what we're going to do in the future is what we did in the past.

That means that we're going to retain our discipline on how we acquire businesses.

I mean, you just know, anybody who follows CRH, we are never going to go out and overpay for businesses.

We'd rather not do deals than do that.

That's just not what we're going to do.

We cannot create value for our shareholders paying stupid prices.

And yet, year after year, we get challenged, can you go and buy businesses?

Are you running out of road?

Is it all over?

And year after year, we keep delivering.

We keep delivering because we stay very close to our business.

Today, we have fully 16 to 17 development teams out on the road today, constantly knocking on doors, constantly searching for businesses.

The Fels business is a good example.

We've been following that business for 20 years.

Many of those businesses -- the C.R. Laurence business we bought 2 years ago was a 25-year game.

All of those things are constantly running through.

So from our point of view, we retain our discipline, we retain our focus.

I don't think you'll ever see CRH paying stupid multiples for any business, anywhere.

We've got to create value if we're going to invest money.

With regard to what we sell a business for, the same actually applies.

A business is worth something in our eyes.

If somebody's prepared to come along and create value beyond what we can create and they're prepared to pay for that, we're open to that offer.

And that was the situation of this industry and this business with regard to the Americas Distribution, particularly as it was faced with the challenges that I've outlined already.

With regards to in terms of, does this imply a shift away from the United States given the multiples that you're referring to and there has been some risky multiples, there's risky multiples in Europe as well.

From our point of view, what we look at is buying businesses that we know and seeing exactly how, with the synergies and integration benefits that we see with those businesses, we can make those into better-performing business that create value for our shareholders.

That's where our focus is.

We turned down so many deals because of that.

But we still managed to execute, as you've seen this morning, and quite a lot.

So we're still confident that we can go out and do deals, and the CRH story remains robust and the pipeline is still good and strong.

And then finally, in terms of the weather impact at U.S., in terms of what are the long-term growth rates, I suppose the best way to do that is maybe take you on a little bit of a geographic tour of the United States and look at what parts of the U.S. have not been impacted by weather and what parts have to give you the run rates and compare them to previous years to see where they are in the cycle.

So our business, if I can just quarter the United States into North, South, East and West.

It doesn't quite work that way, but broadly it does.

The northeastern part of the United States, which is our most important market, is the one which has been significantly impacted by weather in the first half of this year.

In fact, aggregate volumes are down by almost 6% in the first half of this year.

Now the U.S. may be many things, but it's not in a market that's contracting by 6%.

If I go down to the Southeast, which is a higher-growth market, we see volumes of products there ahead by almost 9%.

West, again ahead.

And if I combine the Southeast and the West, the 2 high-growth parts of the United States, combined they're ahead by about 6%.

But then I would expect them to be at the higher end of where nationally the U.S. is.

And our sense is that we have a continuation of the trend that we saw last year, which is probably speaking, the volume trends of between 2%, 3%, 4% in volume growth across the United States.

And that seems to be substantiated when you back out the weather impact if you look to the longer-term trend.

So that's where we see the volumes in the businesses.

It's how we're planning our businesses and it's what we see where the weather impact is not there.

I think that's it.

Thank you.

Phil Roseberg from Bernstein.

Just a couple of questions, please.

The first on Fels.

Is it possible to give us sort of an acquisition multiple without the synergies?

But linked to that is, could you tell us a little bit how this acquisition falls into your criteria of growth markets plus acquisition potential?

And of course then, what synergies you might be getting?

So a little bit more detail to understand what the potential is there.

And the second question is, you've now got a very nice cash capacity there.

It's now up to EUR 3 billion to EUR 4 billion over the next 18 to 24 months.

And I notice that the dividend has increased by about 2%.

Is there going to be any of that cash capacity aimed back at shareholders?

And what's your view on buybacks, increasing in dividends and so forth?

Okay, Phil, there are 2 questions, and I will leave the dividend question to Senan at the end and I'll just talk about the general Fels transaction.

I don't really want to go into detail.

If I give you the pre-synergy multiple, I'm going to give you the synergies, which is the very thing I'm trying to avoid.

All I can say is the synergies in this deal are, broadly speaking, keeping with the normal type of synergies quantum you would expect for CRH.

They're in the obvious areas of procurement, process improvement, commercial and structural, primarily on process and procurement.

This business sells -- in Germany, sells about 2.2 million tonnes of lime and about 3 million tonnes of aggregates, and they would be a lime producer and we would see significant opportunities in the operational sense of how they extract the limestone quarry, how they process with regard to that.

We also think we've not baked into any of the numbers the reason why it's so attractive to us is because lime is a high-growth area.

It's used -- it doesn't have any substitute products out there available.

It effectively is used to adjust the acidity in manufacturing processes of many products in terms of whether it's chemical, pharmaceutical, water or indeed air purification processes.

It's used in agriculture, it's used in construction.

And what's happening is, it's -- they're processing lime in such -- so many diverse ways, it's adding value to the process.

And so from our point of view, the knowledge that we have in our U.K. and Irish businesses, which they are a lot of the developed, value-add manufacturing facilities in those 2 countries, has been transferred over to Poland in recent years.

And we see the opportunity to transfer that into Germany to be very significant, and some of the knowledge that they have in Germany because, obviously, they have knowledge of those industries in Germany, being transferred out to be very significant pursuits.

So they are the general areas of where the synergies would be.

In terms of an attractive growth platform, I've explained the organic growth platform.

We believe there are other acquisition opportunities for us in Europe and beyond.

When we have that knowledge, have that scale and level of strength, we will be able to execute on them.

So that's why we see it as a good growth platform and it gives us more balance and more diversity across our European businesses.

Senan, I'll...

Dividend, Phil.

First of all, you see some further progression on dividend today in terms of an increase.

What I would say on dividend is, there's obviously a balance between yield for shareholders and growth, and we recognize that and it's important -- both are important to shareholders.

I think in terms of dividend, first of all, on cover, our ambition is to build cover back up and we're talking to kind of 2.5, 3x levels, and we've highlighted that previously.

So you would expect to see faster EPS growth than you would expect to see dividend-per-share growth.

I think to your question about buybacks and such items.

I would say, and based on what Albert has talked about in terms of our development pipeline and what we see on the M&A front, I think that we don't have that issue today.

I think we have a healthy pipeline, and as a result, the priority for us would be to reinvest that capital into value-creating opportunities in the business rather than doing anything in terms of share buyback or special dividends.

So I would expect to see a continuation of what you've seen from us in the last while, progress last year, further progress this year, and that's sort of the message in terms of rebuilding cover and what people should expect.

Will Jones from Redburn.

Can I ask around Americas Materials the -- how do you -- updates and how the asphalt business is faring amid the higher oil backdrop?

And in particular, is your winter fill program this year set to be more profitable perhaps than it was in 2016?

And perhaps you can wrap that into a more general comment around margins in that division.

I think last year, you were back at peak when we compared that to, I think, 2009.

Is that comparison relevant?

Or do you still think that Americas Materials has got good runway ahead of it for the next few years?

And then, the other question is really just an update on the Lafarge-Holcim assets.

I appreciate they're integrated into the various businesses, but could you just give us an update on anything that might be relevant?

Particularly, I'm thinking Tarmac in the U.K. And do the synergies there extend into 2019 or -- 2018, sorry, or is this year the final year of the cost savings?

Thanks, Will.

I had forgotten they were called Lafarge-Holcim assets at one stage.

They're CRH assets now.

It's 2 years.

And just very briefly, I say they're not Lafarge-Holcim anymore.

We don't even think like that anymore.

And the synergies are rolling out, as we said.

Our plan for synergies this year and, indeed, last year, they were EUR 40 million.

We're on track to deliver those.

And in fact, last year, as we reported, actually delivering EUR 71 million against that EUR 40 million.

Some of that was pulled forward, but we're on track to deliver those.

And as I said, the U.K. has had a fairly solid first half of the year and looks to be pretty stable for the remainder of the year, if we're specifically talking about the U.K.

Just add to that as well.

In terms of, you talked about does it extend out.

We talked about the synergies over a 3-year period.

So obviously, last year, this year, and there's another year, yes, next year in terms of that coming through.

With regard to specific, the winter fill, you're asking about the winter fill.

The winter fill program was very profitable last year.

It is not as profitable this year.

And that has been factored into what I've just spoken to you about.

The rack pricing, broadly speaking, in the early season, has been flat with last year.

So any diminution has been seen with regard to the winter fill, but that's just the way it goes.

Last year was a very strong year, as I said, and that's mentioned in the numbers I gave you already with regard to the asphalt pricing.

And of course, asphalt pricing, our margin has been squeezed by the rising costs.

We have escalators in place, and this is just the natural time lag that we had in all our businesses.

Our margins are getting squeezed on the cement side, both in Europe and in Canada, and indeed, the Philippines.

This is just a natural lag you have where you've got sharp increases in energy, diesel, gasoline, coal, pet coke, gas, bitumen, oil.

When they come in, it takes a while, particularly when they're sharp and large, to price them back in again.

They will come back in.

It's just a natural time lag you've seen.

With regards to the runway, with regard to highway funding, the overall materials business in the United States.

I would say to you, I'd go back to the comment I said.

That environment is defined by the federal and state funding going forward.

The good thing about the United States is publicly available information sets out to you the funding that there is going to be for the next 4 years.

And as I said, it's over EUR 450 billion, which is an almost 10% increase in the previous 4 years.

So we're planning for that.

We're starting to see that come through, and I think that's how we think of our business for the next 4 years or so.

Hello, it's Christen Hjorth from Numis.

Just a couple of quick ones from me.

First of all, you touched on the state-level infrastructure initiatives.

I was just wondering if there's any more likely to come through or expected to come through and what the general rhetoric is around in regards to that.

And then secondly, clearly, last year had very strong, good weather in the first half of the year in the Americas.

It's been poor in areas this year.

Could you maybe talk through the seasonality of your businesses over there and the expectations of this year's H1, H2 split versus long-run averages and, I suppose, last year as well?

Okay.

With regard to the state's initiatives, well, of course, these are constantly rolling through.

As the American economy improves and state finances improve, you're seeing more and more monies being allocated to various resources.

I think this year alone, we've seen 24 different initiatives across the states where we operate for further and increased funding coming through.

And that's over and above what I've talked about already, the EUR 450 billion.

So that funding environment seems to be improving all the time.

And it's interesting that the federal government, I think, goes up by about EUR 1 billion a year for the next 4 years.

Most of the increases are coming through on the state, which is a bit more (inaudible) and good to see.

And with regards to the seasonality of our business, our business is very much a "second half of the year" business, primarily by the issue with regard to the Americas Materials business.

And in fact, the period, say, the last two weeks of July, August, September, the first weeks of October, we make 2/3 of all of our profitability in the Materials business in the United States in that period.

So that's why weather in this period is very crucial.

We can lose more by losing a week in August than by losing the month of February.

So that's why it's so crucial to us at this time, and it's tough while we're here talking about results at this particular time, right in the middle of that time, because you're making forecasts with regard to weather.

But as I say, August has been quite good.

So we're very much a back-end business that tends to be a 2/3 second half, 1/3 first half, which you see by the profitability of our business this year.

And I'm just watching the time here.

I've got a number of questions coming in from the wire.

So I'll take one more question from the room here and then I'm going to have to go to the wires because, in fairness, the people have been telling them (inaudible).

It's Sofia from Exane.

Just 2 quick questions.

First, a bit of color on pricing environment in the European Heavyside within you -- price movements we've been seeing.

And secondly, you've had your first entry in Russia now with Fels, and whether this could be used as a platform to do other things in the country or not?

The pricing environment, if I can take that last -- that question first, generally speaking, I think that the impetus on we're seeing in the marketplace is probably not reflected in the numbers yet.

And the -- we've got 4 main markets we've seen price improvements this year, that are United Kingdom here, Romania, Hungary, and indeed, in the Ukraine, where we've seen prices move ahead.

In all other markets, we've seen prices static or contract.

But I've seen strong volume growth in those other markets.

And our experience tells us that as the volume comes through and the sentiment in the market is much more positive towards pricing, on top of the fact we've got a rising cost environment, I believe that this -- at the back end of this year, we'll see some price increases come through, and certainly for next year, we'll see more of it come through.

It will be patchy and it will be slow, but it was exactly like that in the United States in 2012.

So we believe it's going to improve, and it is improving.

I wouldn't look into anything about a comment on Russia with regard to the investment of Fels.

We did not buy Fels because 3% of the sales were in the Russian land.

We bought it because 85% of its earnings were in Germany.

So it's nothing to do with Russia.

And our appetite for Russia is neither increased nor diminished by German Fels.

It just happened to come with the transaction.

Now I'm just going to have to go to the wires, if you don't mind please, and I've just got a few questions that were passed to me here, and I would pass them between Senan and myself here.

There was a question coming in.

There was a significant increase in the Americas Products business EBITDA and margin on flat sales.

And just to get the main drivers for that.

I can answer, but I think, Senan, you have [a shot] at that as well so...

Products.

Sure.

On the Americas Products business, when you look within Americas Products business, just to remind you, there's really 3 elements or 3 components to it.

The first one up is the Architectural Products group, which is the outdoor -- living outdoor paving activity.

The performance in the first half of the year in that business has been flat to down 1% in terms of top line growth.

The second business, which is, again, similar in terms of earning size, is our Oldcastle BuildingEnvelope business, which includes the C.R. Laurence acquisition.

That business has had a very, very good first half and it is the main driver behind the profitability growth that you see in the Americas Products business.

And then the third element to that is our Precast business.

And again, the Precast business is actually doing well, particularly on the West in the U.S., and has a good pipeline, good backlog, and has had a healthy start to the year.

But I think when you look at Products overall, you see in the numbers, good year-on-year EBITDA growth off pretty much a flat top line, and a lot of that is coming from product mix, pricing, synergy delivery in the C.R. Laurence acquisition and a really good performance overall from our BuildingEnvelope business there.

Thanks.

Just a couple of questions here, just go through them very quickly.

Some of the highway contract awards in the United States have been quite weak in recent times and are we concerned by them?

We saw those trends, too, but it's very patchy and it's state by state.

And 3 of our big 6 states, Florida, Ohio and Michigan, have some significant increases in contract awards in the last 6 months.

So we don't see any reason for concern with regard to that.

Comment here.

On your statement this morning, you seemed to be very upbeat in France.

What's driving your business there and what do you believe -- why you are so upbeat about it?

Again, our French business, as anybody who has been exposed to the French market, has seen a good increase over the course of the last six months.

It's primarily residential driven.

What we are seeing now is some of the big projects, the Grand Paris Project, which is a well-funded project for transportation in and around the Paris area, coming good.

And we've seen it with the strong volume increases across our businesses there, and again, we believe prices will follow with regard to that.

And we've good exposure to France and I think that those markets will go well.

And maybe, Senan, you and I can do this one.

Are you still planning to expand capacity in the Philippines?

And how much will it cost?

Maybe I'll just take the principle of what we're looking to do there and maybe, Senan, you can talk about the monies involved.

You hold the purse strings.

Obviously, the Philippines are in a tough place, and we did announce last year that we were planning to expand capacity there.

But people might recall, we are still -- we ourselves are importing over 1 million tonnes of cement into the market to supply our market.

And what we want to do is to debottleneck our production facilities there across 4 locations to increase the production of those existing facilities.

And I still think that makes sense because that's import substitution.

Now in terms of the timing of that, Senan, and in terms of the cost to us...

Yes, I think, in terms the cost, what we outlined was a spend of somewhere in the region of EUR 250 million to EUR 300 million over the next 3 years.

The way we consider it now is the first phase of that, which is the debottlenecking activity, is money well spent and that probably comes in at somewhere in the region of about EUR 125 million in terms of the first phase.

I'd say about 25% of that will be incurred this year, with the rest of it coming in mostly in 2018.

I would say the second phase of that, really, that we're in a pause mode and let's look and see how the market's performing in 2018 before we actually go and commit to that spend in terms of just making sure the capacity is there and we can get a good return on that investment.

And Senan, while you're there, the question is, EBITDA is only ahead by 5%, yet earnings per share is ahead by 29%.

Can you just take us through the walk between those 2 numbers please?

Okay, yes.

So we had, obviously, as you saw on the slides earlier on and you see in the release, strong growth in earnings per share.

Obviously, EBITDA is a big driver of that, but as you move below EBITDA, what you can see in our income statement is obviously a reduction in our interest costs as a result of paying down some debt, and obviously, refinancing at lower interest rates.

What you can also see is a flat depreciation charge year-on-year.

Also, I think the gains on our disposals in the first half of this year relative to last year have doubled.

So I think the number has gone from about EUR 20 million to EUR 40 million in total.

And so when you look at the combination of those items, it means that you're getting, again, good leverage below the EBITDA line and that's effectively converting into strong EPS growth.

One last question.

In fact, I've got about 5 or 6 questions here, which are all about the portfolio, the disposal, the acquisition, and they're all really summarized there.

They're generally big-picture questions, I suppose.

Is there a shift away from the strategy of diversity and portfolio balance with regard to CRH?

And maybe I can just speak for a minute with regard to that.

We have seen the benefit of balance in our businesses through the years.

The reason why we stand here today, presenting the numbers that we do, with the cash balance that we do, is because the way we handled the crisis.

And we handled that crisis that way because our strategy was good and well thought.

And we have balanced exposure across our markets and they don't all move in a synchronized way.

And therefore, we handled the cycle better than most people.

And we exited the cycle in a better position.

Hence, we've got strength and cash to do things.

That does not change.

That has been the story of CRH.

In a cyclical industry, bringing a level of smoothing of the cycle and a balance to that makes common sense.

And that's still inherent in what we've done this morning.

Our Distribution business makes up about 5% of our group EBITDA and about 4% of our gross assets.

It does not shift the needle.

It's not a very significant play.

I don't envisage any large-scale major divestments in the short to medium term going forward.

This was a unique opportunity for a unique business within CRH.

But we don't just seek balance for itself.

Our first and primary concern is growth and value for our shareholders.

We believe we've delivered that through diversity.

We believe we've delivered that through balance, but it's about value and growth.

And there are so many different ways we look at balance across CRH.

Please don't think about balance as being a product we produce.

Balance is about geographies because geographic economies move at different times and in different ways.

We look at end markets within those geographies; the residential, the nonresidential, the infrastructure market.

That's the balance we think of, not the product that we supply.

It's the chain into that balanced use that we seek.

And that's what we're looking for all the time: Areas of business that we can acquire in familiar industries, that we know how to operate if things go wrong or things go right; businesses that we can integrate with our existing businesses to create value, to drive further profitability, to bring further acquisition opportunities and to do so in a way that provides balanced growth across regions and end-use markets.

That has been the strategy for CRH for 50 years, and I hope it is for the next 50 years as well.

So with that, I'm just watching the time here.

I'm going to just summarize, if you don't mind, and just leave you with some quick thoughts with regard to what we've talked about this morning.

In April, we set out that we felt half one EBITDA was going to be ahead of 2016.

A tough piece but in line with guidance.

I'm glad to say we delivered those.

And we've said to you very clearly, we think the second half is going to be ahead of the prior year last year.

We've had some significant development activity that indicates to you we're agile and fleet of foot with regard to our asset base.

As much as many people who are listening to this call and are in the room here today are active managers of capital, so are we.

There's a time to invest, there's a time to reap the reward and there's a time to leave the stage.

And we're constantly looking at the allocation and reallocation of capital in our businesses to ensure we maximize returns and value for our shareholders, and we've demonstrated that this morning.

And all the while, we have the capacity to do deals.

Sometimes, people talk about paint your strategy, can you give me the long-term view?

Sometimes just being there, watching the game, being informed and having the capacity is the single-most important thing in our industry.

We've shown that time and time again.

And we're here, we're ready, with a strong pipeline of deals, and we have significant capacity to do deals.

So thank you for your time this morning, and I look forward to talking to you all again in November with a better sense of how the year rolled out.

Thank you very much.