CRH PLC (CRH) 2023 Q2 法說會逐字稿

Hello, and welcome to the CRH 2023 Interim Results Call. All lines are placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions) I will now turn the conference over to Albert Manifold, CEO. Please go ahead.

Hello, everyone. Albert Manifold here, CRH Group Chief Executive, and you're all very welcome to our conference call and webcast presentation, which accompanies the release of our 2023 interim results earlier today. Joining me on the call is Jim Mintern, our Group CFO; Randy Lake, Chief Operating Officer; and Tom Holmes, Head of Investor Relations. Over the next 30 minutes or so, Jim, Randy and I will take you through a brief presentation on the results we published this morning, highlighting the key drivers of our trading performance for the first 6 months of 2023 as well as providing you with an indication of our expectations for the remainder of the year. We also spent some time discussing our strong track record of financial delivery and how we've strategically positioned our business to continue to deliver superior growth and value creation going forward. In addition, we will provide you an update on our transition to a U.S. primary listing in September. Afterwards, we'll be available to take any questions that you may have. And all told, we should be done in less than an hour.

So at the outset on Slide 2, let me take you through some of the key messages of the year so far. We delivered a record first half performance with further growth in EBITDA, cash flow and margin. The efficient and disciplined allocation of our capital is a core component of how we create value for our shareholders, and this year is no different in that regard. In March, we announced our intention to substantially increase our share buyback program to $3 billion over the next 12 months. This decision reflects the strength of our balance, have significant cash generation capabilities and the confidence we have in the outlook of our business going forward. Most recent tranche completed in June, bringing total share repurchases to $1 billion in the first half of the year. And we recently accelerated our buyback program with a further $1 billion clients to be completed before the end of September. I'm also pleased to report that we are referring an interim dividend of $0.25 per share, a 4% increase on the prior year and in line with our progressive dividend policy.

In the year-to-date, we've invested approximately $600 million on 12 strategic bolt-on acquisitions, further developing our integrated solutions strategy in the areas of road infrastructure (inaudible) infrastructure and outdoor living. Looking ahead to the remainder of the year, the outlook for our business is positive, supported by the continued benefits of our differentiated strategy, good underlying demand across our key end-use markets and further commercial progress.

Overall, we expect full year group EBITDA of approximately $6.2 billion, representing another strong year of delivery to CRH. Finally, we were pleased to see the overwhelming support of our shareholders to transition to a U.S. primary stock exchange listing. This is an important milestone in our development and work that will enable CRH to fully participate in the significant growth opportunities that lie ahead. We expect the transition to take effect on the 25th of September, and I will update you on that in more detail a little later.

Turning to Slide 3 and our financial highlights for 6 months of the year. Overall, a strong performance across all key metrics with sales, EBITDA, margin, earnings per share and cash flow, all well ahead of the prior year period. Total sales of $16.1 billion were 8% ahead, reflecting the benefits of our diverse sales strategy, good underlying demand and further commercial progress across our businesses.

This enabled us to deliver $2.5 billion of EBITDA, 14% ahead, reflecting good organic growth and a strong contribution from prior year acquisitions. Despite contending to some inflation cost pressures, particularly in the areas of raw materials, labor and logistics, I'm pleased to report further improvement in our margin, 90 basis points ahead of the prior year. All of this translated strong growth in our earnings per share, up over 30% on the prior year period. We've also continued to deliver strong levels of cash generation. During the first 6 months of the year, we generated $1 billion of operating cash flow.

Our performance that underpins the strength of our balance sheet and provides significant opportunities to create further value to our shareholders going forward.

Now at this point, I'll hand you over to Randy to take you through the trading performance of each of our businesses in the first half of the year.

Thanks, Albert, and hello, everyone. Turning to Slide 5, the trading performance of Americas Materials Solutions, which delivered a strong first half performance. Total sales and EBITDA were 9% and 13% ahead of prior year, respectively. Despite continuing with some challenging weather conditions which impacted our operations in the Western and Southern regions of the United States. And against an inflationary input cost environment, I'm pleased to see good commercial disciplines from our team in the ground, securing double-digit price increase across all product lines during the first half of the year. Together with strong cost control has enabled us to deliver further improvement in our underlying margin performance, 60 basis points ahead of the prior year period.

Overall, the superior growth and performance of our business in recent years reflects the continued benefits of our differentiated strategy. Providing our customers, not just with high-quality based materials, but the value-added products and services they need and one fully integrated end-to-end solution that solves their specific project needs. Infrastructure represents our largest end market in North America and in the United States, the funding backdrop is robust, and demand underpinned by increasing levels of investment at the federal and state level. As we look ahead for the remainder of the year, a good momentum in our backlogs.

Next to America's Building Solutions on Slide 6, which has also delivered profit growth and further margin expansion in the first 6 months of the year, supported by good contributions from recent acquisitions as well as further organic progress. Our Building and Infrastructure Solutions business continues to benefit from positive momentum in our key Non-Residential segments, underpinned by significant public investment in water and energy utility infrastructure as well as higher levels of onshoring activity, which is supporting large-scale construction in the manufacturing sector.

With its significant exposure to Residential RMI activity, our Outboard Living Solutions business also continues to perform well, driven by resilient underlying demand, good pricing momentum and the contributions from Barrette Outdoor Living, which we acquired in July last year. The integration of that business is progressing well with good synergy delivery and trading very much in line with our expectations.

So for Americas Building Solutions overall, total sales growth of 21% translated into a 25% increase in EBITDA and a further 80 basis points of margin improvement.

Moving across to Europe on slide 7 and first to the performance of our Europe Materials Solutions business. Notwithstanding some softer activity levels and the impact of adverse weather conditions, our business delivered a good first half performance with like-for-like sales and EBITDA 5% and 14% ahead of the prior year, respectively. Also pleased to see further margin improvement, 140 basis points ahead of the prior year, reflecting strong commercial management and disciplined cost control across our businesses. We're now in our sixth consecutive year of positive pricing momentum in Europe with pricing ahead across all products and markets during the first half of the year.

Next to the performance of Europe Building Solutions on Slide 8. Overall, a challenging first half trading environment impacted by subdued residential activity and compounded by extended winter weather across many of our markets. Activity levels in nonresidential and infrastructure, however, remain resilient, supported by good levels of government and EU funding. We continue to focus on maintaining disciplined commercial management and strict cost control across our businesses to protect our profitability, and we expect trading trends to improve in the second half of the year. And at this point, I'll hand you over to Jim, who will take you through our financial performance and capital allocation in further detail.

Thanks, Randy, and hello, everyone. As you've heard from Albert earlier, we've had a strong first half, and this is reflected in our financial performance as outlined on Slide 10. Let me briefly take you through the main drivers of our EBITDA performance, moving from left to right on the slide. Starting first with the organic growth of $163 million, 7% ahead on a like-for-like basis, reflecting good underlying demand in our key markets, further commercial progress amid an inflationary input cost environment and the continued benefits of our differentiated strategy.

Moving next to our development activity. And as you can see on the slide, acquisitions net of divestments contributed $165 million of EBITDA in the first 6 months of the year, reflecting good contributions from prior year acquisitions, particularly Barrette Outdoor Living, North America's leading provider of sensing and railing systems for the outdoor living space, which we acquired in the second half of last year.

Finally, to currency translation for a stronger U.S. dollar relative to our other currency exposures resulted in a small headwind during the first half of the year. So overall, we delivered $2.5 billion of EBITDA, a 14% increase ahead of the prior year period and representing a record first half performance for the group. Turning now to Slide 11, where I will just take a moment to highlight some of the key components of our net debt position and our strong and flexible balance sheet. As Albert mentioned, we have generated $1 billion of operating cash during the first half of the year, a strong performance, which reflects our relentless focus on cash generation and conversion across our business. Acquisitions net of disposals and other items resulted in an outflow of approximately $300 million during the first 6 months of 2023.

In the year-to-date, we have invested approximately $600 million on 12 small and medium-sized bolt-on acquisitions, the largest of which was Hydro International, a leading provider of products, services and data solutions in the area of water management. This is an excellent strategic fit for our existing business, supporting our vision to be a leading provider of solutions at the circular water economy and complementing our Building & Infrastructure Solutions businesses in both the U.S. and Europe.

We also continue to invest to support further growth in our existing businesses and CapEx investments during the period resulted in an outflow of approximately $800 million. Consistent with our focus on increasing cash returns to our shareholders, we have returned over $1.7 billion in the form of dividends and share buybacks in the first half of 2023. We -- taking all of this into account results in a net debt position of $6.9 million at the end of the first half, representing a net debt to EBITDA of approximately 1.2x on a really 12-month basis. This is a historically strong balance sheet providing us with significant optionality for further value creation going forward.

At this point, I'd like to take a step back for a moment and to discuss our progressive disciplined approach to capital allocation set out on Slide 12. This has been a real hallmark of sea over many years. Every dollar of capital deployment is analyzed and assessed through the lens of maximizing value for our shareholders.

As you can see here on the slide, over the last 5 years, we have allocated over $20 billion of capital. We've invested significantly in our business over that time, allocating approximately 60% or $12 billion in value-accretive M&A and expansionary CapEx projects, investments that will drive further growth and value creation for years to come.

We've also returned significant amounts of cash to our shareholders, approximately $8 billion in the former progressive dividends and share buybacks, and that is before the substantial increase in our buyback program, which we announced earlier this year. All of this together and disciplined M&A, CapEx investments and increasing cash returns demonstrates our efficient and disciplined approach to capital allocation to maximize value for our shareholders.

Thanks, Jim. A good update there. We highlighting the financial strength and discipline of the group. Of course, what underpins all of this is our strong track record of financial delivery. And as you can see on Slide 14, on any key metric, we have delivered consistent profitable growth over the last decade. We delivered strong EBITDA growth equivalent to an annual growth of over 10% and 900 basis points of margin improvement.

You can also see how we've significantly increased the level of cash we're generating, reflecting our relentless focus on cash conversion and returns, a key performance metric for all of our businesses increased by 750 basis points since 2013, a good performance, but still plenty of room for further acumen. So we're a growing business. Post we're also becoming more efficient, demonstrated by the further improvements in the margins, returns and cash that we are generating. On Slide 15, you can see that on a relative basis, we have delivered consistent outperformance against some of the best operators in our industry. Over the last 5 years, we've delivered an over 60% increase in profitability, 550 basis points of margin expansion at almost 80% improvement in cash generation and 260 basis points of improvement in returns.

We could look at many other metrics or primaries. But the messages here, our business is delivering superior performance for our shareholders. On Slide 16, let me briefly take you through some of the key drivers behind this performance. We have built leading positions in attractive high-growth markets, regions such as the South and West of the United States and Central and Eastern Europe, which have significant construction needs as a result of population growth and migration trends.

Our integrated solutions strategy is also enabling us to differentiate (inaudible) for the rest of the industry, transitioning away from being a sole supplier of based materials to a provider of interest and value-added materials, products and services, bespoke solutions that solve the increasingly complex needs of our customers and generate higher growth and value for our shareholders. Our unique portfolio of businesses also provide us with attractive opportunities for future growth, both organically and through acquisitions, opportunities to expand and enhance our offering to customers, thereby opening up new markets around user growth that wouldn't otherwise be available to us.

We've delivered 9 consecutive years of margin improvement, supported by our focus on continuous business improvement year-over-year and be strategic reshaping and repositioning of our businesses through active portfolio management. Our business has generated $20 billion of cash over the last 5 years, representing approximately 80% conversion of EBITDA and providing significant optionality future growth and value creation.

We have a proven track record of value increased M&A, supported by our disciplined and manifold approach as well as our ability and agility to allocate capital for both short-term performance and long-term line. In fact, since 2014, we have invested $12 billion of businesses at an average multiple of 11x EBITDA, and we have required $22 billion of this just at an average most EBITDA. Overall, we have built a structurally better business, a simpler, leaner and more focuses that is less cyclical and less capital taxes, generating higher growth, cash and returns for our shareholders. Now let's take a moment to look at how our businesses are positioned going forward.

First, to North America and to infrastructure, which at approximately 40% of sales represents a larger exposure in the region. Here, we have a $1.2 trillion Infrastructure Investment and Jobs Act, or IIJA, which is the most transformative public investment program since 1930s, underpinning U.S. infrastructure demand for the next 5 years and beyond. This provides approximately a 50% increase in road and highway funding as well as over $200 million for water, power and technology infrastructure.

Here it is uniquely positioned through our whole service offering for road and critical utility infrastructure, and we will be the biggest beneficiary of this increased into investments in future growth.

Next to nonresidential on Slide 19, which represents approximately 30% of our North American sales. Here, we're beginning to see the benefits of a significant increase in onshoring activity, which will drive demand to 2030 and beyond. As you can see on the right-hand side of the slide, investments totaling over $200 million already been announced by some of the world's major corporations, focus on bringing critical manufacturing back to the United States. The value of these projects alone represents over 2.5 plans in starlike annual manufacturing spend, driving strong growth in construction activity as well as supporting significant future investments and job creation.

All of this is underpinned by $650 billion of federal funding support for increased investments in clean energy, crystal utilities and high-tech manufacturing following the passing of the inflation reduction and the chips of Science. Through our integrated solutions strategy, we are uniquely positioned to benefit from these trends. In fact, you're already a partner of choice by many of these types of projects across our markets.

These are some of the most complex and technically challenging construction projects in the world, and we have the capabilities and the expertise to provide our customers with innovative, value-added solutions they need by integrating materials, products and services over the entire project life cycle. Moving to the residential market on Slide 20, where the pace of new build construction has been impacted as a result of rising interfaces and affordability constraints. However, the long-term fundamentals of this market remain very attractive, supported by a significant level of underbuilt over the last decade, which has resulted in a net deficit of around 5 million homes today, a shortage of favorable homes in the market and aging housing stock we need to repair as well as favorable demographics and migration trends.

What we are experiencing in the moment are short-term challenges due to interest rates. It's not a demand issue, and we believe the fundamentals in the U.S. residential market are supportive of robust long-term growth. Moving to Europe on Slide 21, where we have the largest building materials business in the region. Europe is the most regulated and technically advanced construction market in the world, a market with exacting building specifications focused on driving innovation and advancing sustainability in construction.

And there are significant benefits to operating in such an environment. Our experience and capabilities and the use of recycled materials, alternative fuels, in development of low carbon cement and high-performance countries as well as smartphones and buildings are all transferred and developed into solutions of scale in North America. This is a real competitive advantage for our business and one that keeps a forefront range. Similar to the U.S., this region is also benefiting from increasing onshoring activity with over $200 billion of high-tech manufacturing projects and significant government and EU let funding for critical infrastructure. So putting all of that together on Slide 22.

In summary, we are uniquely positioned for future growth in our industry. Our differentiated strategy, transforming the Sentry materials into innovative later solutions is delivering for our customers and improving the way we build our work. Looking ahead, as notwithstanding the current focus in the residential activity, we expect the strength of our major markets to continue for the remainder of the year and indeed through 2024, driven by robust infrastructure demand and increasing momentum in nonresidential consortium.

As Jim outlined earlier, we have a robust balances, and we have a strong active pipeline of acquisition opportunities, we will never lose our discipline. As ever, we remain in a relevancy focus on our operational delivery, our cash generation and the disciplined allocation of our capital. Overall, we look at the strength of our business today, our growth profile and the level of cash we're generating and the strength of our balance sheet, and we believe we will generate financial capacity in the order of $35 billion over the next 5 years. Turning now to outlook and our full year financial expectations. Overall, assuming normal weather patterns for the remainder of the year and absent any major dislocations in the macroeconomic environment, we expect full year group EBITDA of approximately $6.2 billion, representing another record year for CRH.

In addition, as a result of our ongoing focus on strong cash generation and balance sheet discipline, we expect to deliver approximately $5 billion of operating cash flow and a year-end net debt-to-EBITDA ratio of 1.1 to 1.3x. Now before I hand you over to Q&A, let me briefly update you on the transition to our primary listing to the New York Stock Exchange. In March of this year, we announced that following a review of our stock exchange listing structure, we come to conclusion is in the best interest of our business and our shareholders to pursue a U.S. prime listing together with U.S. equity index execution as soon as possible.

Through the active reshaping and repositioning of our businesses over the last decade, our exposure to North America steadily increased from 50% of EBITDA 10 years ago to 75% today. The U.S. is expected to be a key driver for our future growth for CRH. And our exposed to this market is likely to increase further, driven by substantial increases in infrastructure company, a renewed drive for the onshoring manufacturing activity and significant levels of underdose in the residential construction products. We believe the U.S. private listing will bring increased commercial, operational and acquisition opportunities for CRH, further accelerating our successful integrated solution strategy and delivering even higher levels of profitability, reforms and cash for our shareholders.

Following a period of extensive shareholder engagement and the extraordinary general meeting held in June, we obtained over 95% approval from our shareholders to transition to U.S. primary listing. As part of the transition, our AD program on the New York Stock Exchange will be canceled and converted to a listing of ordinary shares. Our premium listing on the London Stock Exchange was step down to a standard listing, and we will do this from Euro next in Dollar.

These changes are expected to take effect on Monday, the 25th of September and to coincide with this event, we are planning to hold an investor presentation in New York. This is an exciting time for CRH, and we want to discuss the surface today, but our investor presentation will provide us with the opportunity to expand further on the key components of our future growth strategy. In terms of format, it will be an in-person event hosted by the CRE senior executive team and there'll be an opportunity to participate in new webcast for analytes at end of the day. There'll also be fancy time for interaction and Q&A. And overall, I expect it will last for approximately 2 hours or so.

Registration details will be made available on the website. But for now, please hold the days to (inaudible), I will look forward to updating you in due course. So that concludes our presentation this morning. I would now happy to take your questions. May I ask you please to state your name and institution that you represent before closing questions. In consideration of others on the line and to make the best use of time we have available, can I ask you to please limit your questions to one each where possible. I'll now hand you back to the moderator to coordinate the Q&A session of our call.

(Operator Instructions) Your first question comes from the line of Ross Harvey of Davy.

My question relates to pricing. Obviously, you've achieved very strong progression in the first half. I'm just wondering what are your thoughts for the second half?

Yes, look, we've had good progress in pricing in the first half of this year. I think it's maybe important to remember the backdrop to why we had to really push pricing along this year. Last year, we saw very significant price increases across all our major areas, input cost, particularly on the energy side, logistics and labor as well. In fact, we probably had 4 to 5 years of cost increases coming through in 9 to 10 months. I mean some of our energy costs were almost 40% to 50%. We don't going to work or we can cover that back in 1 year. In fact, it's going to take us several years to recover that back. So we had shown good progress last year, some progress this year, there'll be further price increases in this year. And that helps us, of course, continue to deliver across our business. Maybe by just maybe -- I'll talk about Europe in a moment. But Randy, you might just talk about what's happening here in the U.S. in the first half, and in particular, what's coming in the second half of (inaudible)

Yes. Thanks, Albert. Ross, as you've seen, we made good progress in the first half of the year. And as Albert said, those input costs take a period of time for us to recover. Specifically to maybe the question around aggregates in the United States, I think our expectations as we get into the second half of the year is for aggregate pricing, depending on the region of the country to continue to move forward in some regions, 4% to 5% all the way up to low double digits in other parts of the country. And then I think important as it relates to that is that the nature of the projects that we have are multiyear, and so that has allowed us to continue to move pricing forward. I think that momentum will continue into '24, specifically because of the type of projects that we're undertaking.

Yes. And I think across Europe has been very several. We've been good pricing across the first half year and we expect to see further continued pricing progress in the second half of the year. Again, Ross, if you want to go back and say like some of the cost inputs we got last year, we're very very significant. Energy was sort of almost 50% and yet still not having managed to get the pricing back to where it should be. That will take a couple of years more, at least, we still managed to deliver higher margins across our business, and that really attest the strength in reshaping the repositioning of our business entity how solutions and delivering across (inaudible). So happy with the performance, but I think convenient process are required for maybe this year and indeed to '24 and probably '25 as well.

Your next question comes from the line of Gregor Kuglitsch of UBS.

A couple of questions or maybe one question sort of on free cash flow generation and the debt guidance and maybe timing into that sort of the outlook for M&A. I think you're guiding to 1.1 to 1.3x net debt to EBITDA. Could you just tell us what baked into that number? Obviously, it's given us free cash of $5 billion, but any other component, please, especially M&A? And then, I guess, related to that, how do you sort of see the shape of the pipeline and sort of M&A activity in the market right now?

Maybe I'll ask Tim to comment on that as well. But just in terms of the pipeline, the pipeline is good and strong, Gregor. Again, we're being very selective. We did $600 billion deals in the first half of the year. And our discipline was maintained and we've given a lot of flexibility on year-end net debt, but maybe I'll pass it to Jim to maybe you might come.

Absolutely. We've guided to year-end net debt to EBITDA of about 1.1 to 1.3x. It's difficult to predict exactly the timing of M&A opportunities. As Albert said, we've made good progress in the first year-to-date position in terms of CapEx or M&A spend year-to-date to $600 billion, 12 million bolt-on acquisitions. We've really been continuing to build out our integrated solutions strategy. And maybe just to give a bit of color on some of the deals we've done in the first half of this year. Firstly, Hydro International.

This is the leading provider of auto management solutions, and it's an excellent fit with our existing U.S. storm water solutions business and a very good entry point into the European market. Also, we did a very nice deal ebb up in Sweden. This is a leading provider of highly engineered specified modular off-site precast concrete systems. And both of these acquisitions are bringing significant knowledge and expertise into the CRH group. I just said, Gregor, we have a strong flexible balance sheet right now, and we expect to generate approximately $5 billion in free cash flow this year. We will continue to invest for future growth and our M&A pipeline is strong at the moment. But as ever, we're going to, of course, maintain our financial discipline. Every dollar of capital deployment is analyzed and assessed through the lens of maximizing value of our shareholders at all times.

I think, Greg, just to add to that, I think the deals Jim mentioned, I mean, of course, we always want to grow profitability. That's what we're here for growth in our business. But for me, I think the continued improvement in the quality of the businesses that we have in CRH, that's really is the most pleasing factor we have seen there. And that manifests itself by the continued increase in cash generation and the continued increase in the returns.

So look about the turns we've generated in CRH. I mean it's industry-beating. There's nobody else in our industry because anywhere near that attest to the disciplined careful powerful strategic build-out of our portfolio businesses. And it bodes well to the future because good quality businesses delivering good times and bad times. And that's what you see in (inaudible). Remember, last year, (inaudible) showed continued progress when everyone has took a step backwards. And again, we show industry-leading progress [in ambition]. But that's down to the quality business to continue to build out not just to labor on the businesses.

Your next question comes from the line of Anthony Petrone of Citi.

IIn Americas Materials, I was wondering if it's possible to say how much weather may have impacted volumes in the first half either for aggregates and/or cement? And looking at your outlook for the full year, what level of second half volume growth, does the full year guidance kind of assume for Americas Materials. And I guess, also, are you seeing IIJA spending positively impact those volumes right now? Or is that more sort of a 4Q event or maybe first half of next year event? Any kind of color on that timing or cadence would be helpful.

A number of questions there with regard to really the fundamental volume out for U.S. as I ask maybe comment on. But just to specifically answer with regard to the first half and you look at the weather was quite slow by January, I should say, in the first half or first quarter of this year and that impacts our volumes to pop. So -- and then, of course, you saw some -- we had very warm weather down the south and southwest and very well up here during the crucially important month of June.

And yet, we still showed really good delivery across our business. Volumes are back a bit, but are back because of residential, not because of infrastructure or in the industrial nonres. It's the residentially in the U.S. that's quite subdued. That's why the volumes are back, but only that by a couple of percent. And I think that trend is going to continue for the remainder of the year with regard to the volumes, but strong pricing coming through and really U.S. business area is only firing in 2 of the 3 cylinders with infrastructure and nonres which are both well ahead. It's nonres holding the overall volumes back. But happy with the position. And I think it's what the trends we're seeing year-to-date will continue. With regard to the IAA, Randy, maybe in terms of what you're seeing in the marketplace, the tenders that are coming through, where -- what are we seeing actually in the ground?

I guess, as I think we called out last year, the IIJA Act, we would begin to see some money flowing through at the beginning part of the year in bidding activity, and we have. I think, if you look at the context of that legislation, it was over a 5-year period of time, a substantial increase, almost to 50% increase in underlying funding. I think that's going to probably extend out over 7 years. It's not necessarily just going to be contained in a 5-year period of time. But our greatest window into that is really our backlogs, and that gives us kind of a 6 to 9 month period of time.

And overall, our backlogs are up in dollar terms and margin terms, which is encouraging. Oftentimes, we overlook, it's not just the road solution, which is important obviously. We're the largest road paver in North America, but it's also our critical infrastructure business that underground utility water and energy that is actually in combination with a lot of the work that's taking place. And the backlogs in that business as well are up as well as margins. One of the unique things that we're seeing, which you would expect, both at the state and the federal level is that the quantum of funding, it's probably given local DOTs or municipalities confidence in longer-term projects.

So that's a unique attribute we're seeing. So that gives us maybe a little longer view in terms of activity levels. And so as we look at '23, it will be positive. The momentum will continue in the second half and then even into 2024, both from a bidding, work secured and pricing perspective.

I think one other thing, Anthony, that's important to note is that has been well flagged. I mean that's a very welcome sugar rush for the industry, and it's absolutely necessary to really backfill the lack of infrastructure spending over many, many years here in the United States, and it will fix some of the problems. I think really, the observation I'd like to make with regard to the United States is and indeed to Europe, and we showed in our presentation here is really the changing dynamics in the heavy industrial and nonresidential. The changing geopolitics in our world has meant that the large economic blocks of the world, mainly in the United States and many Europe are offering significant subs and (inaudible) through the chips and Science active indeed to the inflation of reduction acting in the United States to reattract back and reshore an onshore critical supply chain manufacturing.

And we're seeing this in Europe as well. I mean the amount of fundings go to the road program through the IIJA is $350 billion, which is a 50% increase in the previous 5 years. But the numbers in the slide that we showed earlier on. In the United States there are currently $200 billion of privately funded investments in heavy industrial non-best construction happening at this time in the United States. And that's going to continue until 2030. And by the way, it's a $200 billion number also in Europe, and that really actually is a much more sustained and drive for the U.S. economy and in the European economy because you're actually starting to build out critical manufacturing base across the United States. And that really is going to more -- deliver more in a more sustained way for companies like ourselves involve construction. You're seeing multiple structural growth drivers working in our favor across our 2 major markets, both in terms of infrastructure expenditure and indeed heavy industrial nonresidential, which plays right into our sweet spot.

I mean CRH makes its most money is best business in heavy bespoke complex technical construction and that's infrastructure and heavy industrial nonres, which makes up here in the U.S. 70%, 75% of total construction. And that allows us to deliver the record performance we are even talking today. Even when nonres is sitting out of ask. So just imagine when that gets going in interest is normal at the level of potential for our business is. So we're very pleased to see it there. It's our job to ensure we've got the capacity to deliver into these markets and as the largest player here in the United States to maximize on the opportunity for our shareholders.

Your next question comes from the line of Elodie Rall of JPMorgan.

SSo I'll ask one on buyback. I know you completed $1 billion already. You have $1 billion planned for Q3. But given the low leverage at 1.2x that you expect for this year, you have clearly a room for more buyback, especially given the expected outflows in September from the in any consideration on potential increase there?

Elodie, it's Jim here. Yes, our current tranche of the buyback will finish later in the 22nd of September, and but certainly update the market at that point as to the next tranche. But as you know, we're in the middle of a $3 billion buyback over a 12-month period. But as I said, overall, I think the buyback is just one part of our capital allocations. I explained earlier about the good M&A activity in the first half of this year, spending $600 billion on 12 good outlook in terms of pipeline. We spent $800 million of CapEx in the first half (inaudible) and good organic expansion in CapEx to and the more of those projects, we can secure the better they're some of the lowest risk and highest returning projects that we actually get in CRH. The runway on those projects is very attractive out in the future as well from that perspective. We announced this morning a 4% step up on our dividend. That's our 42 consecutive year of steadier increasing dividends in CRH which the record (inaudible). So the buyback is just one element of that capital (inaudible) again in around the end of September for the quantum of the next tranche.

Your next question comes from the line of Kathryn Thompson of TRG.

Focusing more on mega projects, both on the public side and on the private side. And understand that design build, while it is more common in Europe is embraced only with certain states in the U.S. Are you seeing an increase in demand for design build projects on states as a way to address increased project demand, rising cost and labor shortages? And along with that, how much with -- you talked about IIJA, but the inflation Production Act and the Chips act also helped to fuel megaprojects on the private side. And to what extent can you leverage your expertise and design build on the private side for these mega projects?

Kathryn. 2 question, 2 very important questions there. Maybe I might talk about the mega projects both in Europe and the United States and my task to you guys talk specifically about the public infrastructure and in terms of the United States here. The answer to that question is look, our customer base, the people who were actually, helping construct these major projects for both the same customers, both in Europe and the United States. And very often, what you do, we said in our script there, we are the partner of choice, and we are about partner to us. We get invited into those projects, private customer, by the end customer. I mean, there's a major automobile company, which is involved in building out the electric battery manufacturing facilities up of the Midwest, which we just helped complete over a big 3-year project, and they're starting to build a hole a brand-new project down in the Carolina's, we don't really have any business down there, but we do now because, guess what, they want us to do and I don't want anybody else to do. So we'll build facilities in around that for the next 3 or 4 years for them to provide materials without some of the major technology firms, the pharmaceutic and Bioscience that we do business with in Europe are also identical to what they're doing in Europe and the United States. Some of them do us with regards to the focus on building originally, some of them do it on a global basis. But our ability to be able to understand what their needs are and to come back and work with the contractors to help design the modular fabricated construction units that are required, which (inaudible) which are some of the most complex and technically challenging construction projects there actually are certainly in these mega projects because what they're doing is obviously, they're manufacturing chips, semiconductors, pharmaceutical, roads, life science, bioscience. All of these are very currently controlled environments and the construction of those buildings is hugely complicated. So absolutely, we're involved from the very early stage, and that's where our solutions business really comes to the fore and delivers for us and it's been drilling now at the moment, and we'll continue to deliver 3 years ahead. With regards (inaudible) that the public infrastructure brokers here in the United States.

Yes. I think, Kathryn, it's been an evolution of our business, I'd say, over the last decade where we were traditionally 10 years ago, supply materials, we supply a ton of aggregate. We supply a ton of asphalt. I think what we've learned over the years and what actually the DOTs are asking for are more in line with what you're asking. -- from a design standpoint, design build. So over the last 10 years, we've reshaped the business to participate very early in the construction value chain.

So into the design and engineering of a road service in combination with other materials, whether that be storm water capture systems, whether that be on ramp, bridges, anything that is incorporated into some of those more complex long-term projects we now participate early on. So it's not just the design and engineer, it's then the installation, it's the maintenance of that roadway. And then ultimately, at the end of its useful life will recircle and recirculate that material back into a usable product in the future. And the DOTs especially appreciate that from a performance standpoint versus just a prescriptive standpoint. So the level of activity has increased from a design build standpoint. And part of that is has to be with partnership with other large general contractors and then with the DOTs themselves. So we're seeing that momentum pick up certainly over the last 5 years and just the nature of some of the projects that are underway, multiyear projects gives us the opportunity to leverage all those strengths and the capabilities we've built over the last 10 years.

In fact, Kathryn , for anybody listening on the call as well, we did an Investor Day presentation earlier this year. And in fact, there were 2 very important mega projects. One was how we built out LAX and that really helps in terms of how we designed the water management system for that new runway system out there. And then also in Michigan, that new project, I-69 working with the DOT there, and they talked about how we helped conceive and designed the solution of what is a very complex problem for them as well. And of course, in Europe, we had a very difficult complex construction projects in -- right in the center of a major city Warsaw and the contractor they talked about how we helped them from the very start conceived the idea how they would deal with the problems and we supply the materials but also not just the materials advise and how they do this. And that really addresses those -- the topics that you're raising across those 3 case studies. You'll read through them in 5 minutes, but they're quite interesting and it's actually our customers explaining exactly how important our design, expertise, knowledge and engineering skills work in helping to conceive the ideas and solutions to things that have to solve those problems.

Your next question comes from the line of David O'Brien of Goodbody.

You've given us some color on the near-term challenges, Albert, on U.S. new residential construction. I wonder if I could push you a little bit more just to see what are your thoughts around the potential timing of a recovery in U.S. new res. And maybe just give us a little color on the RMI market at the same time given it looks like it's pretty resilient. And within that sphere, how is the Barrette business plugging into the CRH model. We were talking about revenue synergies, how does that process gone for you?

Okay. Maybe I might ask Randy may comment on the U.S. actually. I'll come back and talk about Europe as well in terms of nonresidents.

Yes. I think in the presentation, we're in a couple of interesting things on the U.S. res. Certainly, we see the res market as being soft this year. You can see housing starts are down 12% year-over-year. But it's really a single issue problem. It's really about affordability. It's not a demand issue. It's certainly related directly to the movement of interest rates are at a 20-year high in the U.S. And I think the expectation we would have is that the level of activity would remain subdued as we finish out 2023 and into 2024. Underneath that, what underpins kind of our outlook over the long term is pretty attractive still. When you think about the economy in the U.S. as a whole, employment at record levels in terms of low unemployment, there is a structural underbuild. There's 5 million residential unit GAAP, low inventory today. Actually, housing values have remained relatively strong, and there's household formation, kind of the favorable demographics that will certainly kick in over the next number of years. So I think long term, the fundamentals are there. Short term, we're going to -- it will be a little subdued over the next 12 to 18 months.

You mentioned RMI, and I think that has been and you called it out, it has been very resilient. If you think about our business, which is really the outdoor living space, which is the channel through our retail customers as well as the professional install. We've seen demand really stable in the area and you think about the evolution of that business since the pandemic, which was a very high growth, a lot of intensity in kind of building out your backyard, those levels of activity have remained very, very strong into this year as well. And I guess one of the other -- the other side of the RES equation is that almost 70 -- actually greater than 70% of the current mortgages are locked in under 4%, and the housing stock for sale relatively low. So the trade-up is probably lower, which is encouraging more RMI. And we've seen that actually both in our sell-throughs in the retail outlets, but in the professional channels, our Belgard business, the backlogs of that have remained very steady. So I think it certainly has highlighted the benefits of our focus on RMI.

And David, just talking about Europe and in as Martin said, look, actually, the fundamentals are there. I mean you know from our own country, the needs for housing haven't gone away. It's just an affordability and it's down to interest rates. And as soon as that interest rate situation eases, we feel confident by the fact that we will see an increase in the messy just can view on at the current levels. But it's also worth reflecting that again, if you look at that, the fact that residential is subdued in both Europe and the United States. But if you go back and look at the delivery in the first half of the year and our outlook for the second half of the year, a record year for sure, that's on the basis of how we have strategically redesigned the shape of our business over the last 10 years. We have focused on 2 most profitable regions in the world for construction in Europe and United States. We have focused on publicly funded infrastructure because there's consistent funding for that going forward, absent an economic cycles. And we are focused on complex technically challenging industrial nonresidential, which with the largest corporations of the world, the ones who have the money and the need to do that now with resuring and entering, we're seeing a very significant increase in the demand there. And so really only -- with 2 of the 3 cylinders of serpin across both of our major markets, we're delivering that and delivering that kind of result. So again, it's all about building a resilient business that delivers through the side of not just with the cycle.

Your last question comes from the line of Arnaud Lehmann of Bank of America.

Just wanted to follow up on one of your previous comments talking about as we hear about labor shortages across the industry. Has it been affecting your business? And my other question was just coming back on the $35 billion over 5 years that you mentioned in the slide that $75 billion per annum. Does that compare with the $5 billion operating cash that you're guiding for this year? And does it include any future asset disposals?

I'll deal with the second question first. The $75 billion, really, if you recall earlier this year in March, we mentioned a $30 billion figure. Well, we've increased it because guess what, we've increased our earnings this year beyond what we thought we would achieve, and we see a more sustained continuation of that higher level of earnings and the higher level of translating that into cash. So that's where it comes from.

Do we expect to just continue to dispose of business to work the portfolio Yes, we do a significant improvement in CRH in the last decade has been reshaping and repositioning of our business. We don't have any really bad businesses let at CRH. But we're always looking for a cost for better opportunities to deploy our capital for higher profits, higher margin and higher cash. I think it's a very healthy way of doing that. As I've said many times, you do not want to be in the bottom of 20% of performing businesses in CRH because we're constantly looking to reshape and reposition not just for higher profits, but to address that, the needs of our society and the changing needs in construction. So I expect that to continue on.

I expect that the 60% of the $20 billion that we generated in the last 5 years, which went into M&A and CapEx. I expect that to inch up over the course of the next 5 years because I do think we're facing a 5-year period of good sustained growth going forward. And and in growing markets, as I saw in CRH in 2013 to 2018 in growing markets, that's a time when you can be -- you can acquire more business because it's not occupied, that's important. It's when you buy it as well.

And buying you into a growth market for CRH means that I think we'll focus maybe perhaps more on M&A and internal catalysts in particular as you grow out our footprint into rising markets. Specifically, combine your first question in terms of labor shortage and how we think about how impacts our business, it affects everybody. It's not just (inaudible) problem in the industry, what the problem was society, but -- and there are challenges for that. But for us, there are opportunities that this is not a new problem. We were aware of this a decade ago. You can see the fact that the labor force is shrinking and the challenges that for construction were very significant. And really contracted were coming to us with a problem that they needed to find a way where when they could build cheaper, quicker, faster and with less labor.

And through that and genesis of solutions whereby we took and started to manufacture components of construction oxide into motor prefabricated units that allow them to build with less labor, and they build quicker and cleaner and smarter and more sustainably.

So it's that addressing the future needs and the future and prouder out there, obviously, the opportunity for us because, as I said, having the ability to do that, there's a huge different stores and a differentiation strategy against everybody else in our industry. So they may act as a constraint in a break in the near term and the output. But from a CRH perspective, it's actually all of opportunity for us. And we think from our perspective, it really endorses the solution strategy for ourselves going forward, which comes through in the numbers that we've reported here today.

This concludes today's conference call. You may now disconnect.