CRH - H1 2023

Transcript

Operator (participant)

Hello, and welcome to the CRH 2023 interim results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, again, just star one. We'll now turn the conference over to Albert Manifold, CEO. Please go ahead.

Albert Manifold (CEO)

Hello, everyone. Albert Manifold here, CRH Group Chief Executive, and you're all very welcome to our conference call and webcast presentations, which you got recently released on 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 key drivers of our trading performance for the first six months of 2023, as well as providing you with an indication of our expectations for the remainder of the year. We'll also spend 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 two, 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 twelve months.

This decision reflects the strength of our balance sheet, our significant cash generation capabilities, and the confidence we have in the output 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 tranche to be completed before the end of September. I'm also pleased to report that we are declaring 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 solution strategy in the areas of road infrastructure, critical utility 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 for 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 one 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 three and our financial highlights for the first six 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 differentiated 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 strong contribution from prior year acquisitions. Despite contending with 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 to 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 six months of the year, we generated $1 billion of operating cash flow, a performance that underpins the strength of our balance sheet and provides significant opportunities to create further value for 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.

Randy Lake (COO)

Thanks, Albert, and hello, everyone. Turning to slide five and beginning with 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 contending with some challenging weather conditions, which impacted our operations in the western and southern regions of the United States. Against an inflationary input cost environment, I'm pleased to see good commercial discipline from our teams on the ground, securing double-digit price increases across all product lines during the first half of the year. Together with strong cost control, this 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 base 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, with demand underpinned by increasing levels of investment at the federal and state level. As we look ahead for the remainder of the year, there's good momentum in our backlogs. Next to Americas Building Solutions on slide six, which has also delivered strong profit growth and further margin expansion in the first six 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 a significant exposure to residential RMI activity, our Outdoor 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 25% increase in EBITDA, and a further 80 basis points of margin improvement.

Moving across to Europe on slide seven, 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 eight. 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 non-residential and infrastructure, however, remain resilient, supported by good levels of government and E.U. funding. 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.

Jim Mintern (CFO)

Thanks, Randy, and hello, everyone. As you heard from Albert earlier, we've had a strong first half, and this is reflected in our financial performances 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 to EBITDA in the first six months of the year, reflecting good contributions from prior year acquisitions, particularly Barrette Outdoor Living, North America's leading provider of fencing and railing systems for the outdoor living space, which we acquired in the second half of last year. Finally, to currency translation, where 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 six 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 in the circular water economy and complementing our building and infrastructure solution 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.

Taking all of this into account results in a net debt position of $6.9 billion at the end of the first half, representing a net debt to EBITDA of approximately 1.2x on a trailing twelve-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 CRH 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 five 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 to 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 form of 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, our disciplined M&A, CapEx investments, and increasing cash returns, demonstrates our efficient and disciplined approach to capital allocation to maximize value for our shareholders.

Albert Manifold (CEO)

Thanks, Jim. A good update there, really highlighting the financial strength and discipline of the group. Of course, what underpins all of this is our strong track record of financial delivery.

As you can see on slide 14, on any key metric, we have delivered consistent, profitable growth over the last decade. We've 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. 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 improvement. We're a growing business, but 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 five years, we've delivered an over 60% increase in profitability, 550 basis points of margin expansion, and almost 80% improvement in cash generation, and 260 basis points of improvement in returns. We could look at many other metrics or time periods, but the message is clear: 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 ourselves from the rest of the industry, transitioning away from being a sole supplier of base materials to a provider of integrated 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 acquisition. Opportunities to expand and enhance our offering to customers, thereby opening up new markets or avenues of growth that wouldn't otherwise be available to us. We've delivered nine consecutive years of margin improvement, supported by our focus on continuous business improvement year after year, and the strategic reshaping and repositioning of our businesses through active portfolio management.

Our business has generated $20 billion of cash over the last five years, representing approximately 80% conversion of EBITDA and providing significant optionality, future growth, and value creation. We have a proven track record of value-accretive M&A, supported by our disciplined and value-focused approach, as well as our ability and agility to allocate capital for both short-term performance and long-term value. In fact, since 2014, we have divested $12 billion of businesses at an average multiple of 11x EBITDA, and we have acquired $22 billion of businesses at an average multiple of 8x EBITDA. Overall, we have built a structurally better business, a simpler, leaner, and more focused business that is less cyclical and less capital intensive, 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 our largest exposure in the region. Here we have the $1.2 trillion Infrastructure Investment and Jobs Act, or IIJA, which is the most transformative public investment program since the 1930s, underpinning U.S. infrastructure demand for the next five years and beyond. This provides approximately a 50% increase in road and highway funding, as well as over $200 billion for water, power, and technology infrastructure. CRH is uniquely positioned through our full-service offering for road and critical utility infrastructure, and we will be the biggest beneficiary of this unprecedented investment in future growth. Next to non-residential 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 billion have already been announced by some of the world's major corporations, focused on bringing critical manufacturing back to the United States. The value of these projects alone represents over 2.5x the historical 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 investment in clean energy, critical utilities, and high-tech manufacturing, following the passing of the Inflation Reduction Act and CHIPS and Science Act. Through our integrated solution strategy, we are uniquely positioned to benefit from these trends.

In fact, we are already a partner of choice on 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 interest rates and affordability constraints. However, the long-term fundamentals of this market remain very attractive, supported by a significant level of underbuild over the last decade, which has resulted in a net deficit of around 5 million homes today.

A shortage of available homes on the market and aging housing stock in need of repair, as well as favorable demographics and migration trends. What we are experiencing at 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. There are significant benefits to operating in such an environment.

Our experience and capabilities in the use of recycled materials, alternative fuels, the development of low carbon cements, and high-performance concrete, as well as smart roads 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 us at the forefront of our industry. 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 E.U.-led funding for critical infrastructure. Pulling all of that together on slide 22. In summary, we are uniquely positioned for future growth in our industry. Our differentiated strategy, transforming essential materials into innovative, value-added solutions, is delivering for our customers and improving the way we build our world.

Looking ahead, and notwithstanding the current softness 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 non-residential construction. As Jim outlined earlier, we have a robust balance sheet, and we have a strong active pipeline of acquisition opportunities, but we'll never lose our discipline. As ever, we remain relentlessly focused 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, the level of cash we're generating, and the strength of our balance sheet, and believe—we believe we will generate financial capacity in the order of $35 billion over the next five 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 between 1.1x-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 had come to the conclusion it is in the best interest of our business and our shareholders to pursue a U.S. primary listing, together with U.S. equity index inclusion as soon as possible. Through the active reshaping and repositioning of our businesses over the last decade, our exposure to North America has steadily increased from 50% of EBITDA ten years ago to 75% today. The U.S. is expected to be a key driver of future growth for CRH, and our exposure to this market is likely to increase further, driven by substantial increases in infrastructure funding, a renewed drive for the onshoring of manufacturing activity, and significant levels of underbuild in the residential construction markets.

We believe a U.S. primary 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 with returns and cash for our shareholders. Following a period of extensive shareholder engagement and an extraordinary general meeting held in June, we obtained over 95% approval from our shareholders to transition to a U.S. primary listing.

As part of the transition, our ADR 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 will step down to a standard listing, and we will delist from Euronext Dublin. These changes are expected to take effect on Monday, the 20th 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've only just scratched 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 CRH senior executive team, and there'll be an opportunity to participate via webcast for anyone who cannot attend on the day.

There'll also be plenty of time for interaction and Q&A, and overall, I expect it will last for approximately two hours or so. Registration details will be made available on the website, but for now, please hold the date in your diaries, and we look forward to updating you in due course. So that concludes our presentation this morning, and we're now happy to take your questions. May I ask you please to state your name and institution that you represent before posing your questions? In consideration of others on the line and to make the best use of time we have available, could I ask you to please limit your questions to one each where possible, and I'll hand you back to the moderator to coordinate the Q&A session of our call.

Operator (participant)

Thank you. If you have a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, simply press star one again. One moment for your first question. Your first question comes from the line of Ross Harvey of Davy. Your line is open.

Ross Harvey (Senior Equity Research Analyst)

Thank you. Hi, Albert, Jim, Randy. 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?

Albert Manifold (CEO)

Hi, Ross, good afternoon to you. 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've had to really push pricing along this year. Last year, we saw, you know, very significant price increases across all our major areas, input costs, particularly on the energy side, logistics and labor as well. In fact, we probably had, you know, four to five years of cost increases coming through in 9-10 months. I mean, some of our energy costs were almost 40%-50%. Now, we don't live in a world where we can recover that back in one year. In fact, it's going to take us several years to recover that back. So we had shown good progress last year, so 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 if I just, I'll talk about Europe in a moment, but Randy, Randy, you might just talk about what's happening here in the U.S. the first half, and in particular, what's coming in the second half of the year with regard to price increases.

Randy Lake (COO)

Yeah. Thanks, Albert. Ross, I mean, as you, as you've seen, you know, we made good progress in the first half of the year. As, and as Albert said, those input costs take a period of time for us to recover. You know, 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. Some regions, 4%-5%, all the way up to low double digits in other parts of the country. And, and then I think important as it relates to that, is that the nature of the projects that we have are multi-year, and so that has, allowed us to continue to move pricing forward.

I think that momentum will continue into 2024, specifically because of the type of projects that we're undertaking.

Albert Manifold (CEO)

Yeah, and I think across Europe, it's been a very similar. We've had good pricing across the first half of the year, and we expect to see further continued pricing progress in the second half of the year. Again, Ross, I just want to go back and say, like, some of the cost inputs we had last year, you know, were very, very significant. Energy was up 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 to do that. We've still managed to deliver higher margins across our business, and that really attests to the strength of the reshaping, the repositioning of our business and indeed, how solutions are delivering for us across the area.

So happy with the performance, but I think continued progress required for remainder of this year and indeed 2024 and probably 2025 as well.

Ross Harvey (Senior Equity Research Analyst)

Yeah. Much appreciated. Thanks, both.

Operator (participant)

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

Gregor Kuglitsch (Executive Director and Head of European Building and Construction Equity Research)

Hi, good afternoon, or good morning if you're in the U.S. A couple of questions, or maybe one question, sort of on free cash flow generation and, and the debt guidance, and maybe tying into that, sort of the outlook for M&A. I think you're guiding to 1.1x-1.3x net debt to EBITDA. Can you just tell us what's baked into that number? Obviously, you've given us free cash of $5 billion, but any other components, 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? Thank you.

Albert Manifold (CEO)

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

Jim Mintern (CFO)

Sure. Absolutely. Good afternoon, Gregor. Yeah, we've guided to year-end net debt to EBITDA of about 1.1x-1.3x. As you know, it's difficult to predict exactly the timing on M&A opportunities. However, as Albert said, we've made good progress in the first year-to-date position in terms of CapEx. Our M&A spend year to date is $600 billion on 12 bolt-on acquisitions. We've really been continuing to build out our integrated solution 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 a leading provider of water management solutions, and it's an excellent fit with our existing U.S. stormwater solutions business and a very good entry point into the European market.

Also, we did a very nice deal with UBAB up in Sweden. This is a leading provider of highly engineered, specified, modular, off-site precast concrete systems. Both of these acquisitions are bringing significant knowledge and expertise into the CRH group. As I said, Gregor, we've 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.

Albert Manifold (CEO)

I think, Gregor, just to add to that, I think the deals that Jim mentioned, I mean, of course, we always want to grow profitability. That's the, that's what we're here for, to, 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're seeing there. And that manifests itself by the continued increase in cash generation and the continued increase in the returns. Just look at the returns we've generated in CRH. I mean, it's industry beating. There's nobody else in our industry comes anywhere near that, and that attests to the disciplined, careful, thoughtful, strategic build-out of our portfolio of businesses.

It bodes well for the future because good quality businesses deliver in good times and bad times, and that's what you see in CRH. Remember last year, CRH showed continued progress when everyone else took a step backwards, and again, we show industry-leading progress again this year. But that's down to the quality of business we continue to build out, not just the way we run the businesses.

Gregor Kuglitsch (Executive Director and Head of European Building and Construction Equity Research)

Thank you.

Operator (participant)

Your next question comes from the line of Anthony Pettinari of Citi. Your line is open.

Anthony Pettinari (Managing Director and Senior Equity Analyst)

Good morning. In Americas Materials, I was wondering if it's possible to say how much weather may have impacted volumes in the first half, you know, either for aggregates or and/or cement. Looking at your outlook for the full year, you know, 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 of 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.

Albert Manifold (CEO)

Hi, Anthony. Good morning to you. A number of questions there with regard to, I guess, the fundamental volume outlook for our U.S. business. Randy may comment on it. But just to specifically answer with regard to the first half of the year, look, you know, the weather was quite slow, quite challenging, I should say, in the first half, first quarter of this year, and that impacted on our volumes up really to April or so. And then, of course, you saw some, we had very warm weather down in the South and Southwestern, very wet weather up here during a crucially important month of June, and yet we still showed, you know, really good delivery across our businesses. Volumes are back a bit, but they're back because of residential, not because of infrastructure or indeed industrial, non-res.

It's the residential in the U.S. that's quite subdued, and that's why the volumes are back, but only back by a couple of percent, and I think that trend is gonna continue for the remainder of the year with regard to the volumes. But strong pricing coming through, and really, U.S. business here is only firing on two of the three cylinders, with infrastructure and non-res, which are both well ahead. It's non-res that's holding the overall volumes back, but you know, happy with the position, and I think it's. I think what was the trends we're seeing year to date will continue. With regard to the IIJA, Randy, maybe in terms of what you're seeing in the marketplace, the tenders that are coming through, where are we? What are we seeing, actually hitting the ground?

Randy Lake (COO)

Yeah. 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 and bidding activity, and we have. I think you look at the context of that legislation, it was over a five-year period of time, a substantial increase, almost a 50% increase in underlying funding. I think that's gonna probably extend out over seven years. It's not necessarily just gonna be contained in a five-year period of time. But our greatest window into that is really our backlogs, and that gives us kind of a six to nine-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 has probably given a 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 2023, it'll be positive.

Momentum will continue in the second half, and then even into 2024, both from a bidding work secured, and pricing perspective.

Albert Manifold (CEO)

I think one other thing, Anthony, that's important to note is that IIJA has been well flagged. I mean, that's a very welcome sugar rush for the industry, and it, it's absolutely necessary really to really backfill the lack of infrastructure spending over, you know, many, many years here in the United States, and it's able to 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 it in our presentation here, is really the changing dynamics in the heavy industrial and non-residential.

The changing geopolitics in our world has meant that the large economic blocks of the world, mainly the United States and mainly Europe, are offering significant subsidies. You see it here through the CHIPS and Science Act, indeed through the Inflation Reduction Act here in the United States, to reattract back and reshore and onshore critical supply chain manufacturing, and we're seeing this in Europe as well.

I mean, the amount of funding that's going to the road program through the IIJA is $350 billion, which is a 50% increase in the previous five years. But the numbers on the slide there we showed earlier on, in the United States alone, there are currently $200 billion of privately funded investments in heavy industrial non-res construction happening at this time in the United States, and that's gonna continue on to 2030. And by the way, it's a $200 billion number also in Europe, and that really actually is a much more sustained drive for the U.S. economy and indeed the European economy.

Because you're actually starting to build out critical manufacturing base across the United States, and that really is gonna deliver more, in a more sustained way for companies like ourselves involved in construction. You're seeing multiple structural growth drivers working in our favor across our two major markets, both in terms of infrastructure expenditure and indeed, heavy industrial non-residential, which plays right into our sweet spot. I mean, CRH makes its most money, its best business, in heavy, bespoke, complex technical construction, and that's infrastructure and heavy industrial non-res, which makes up here in the U.S., 70%, 75% of total construction. And that allows us to deliver the record performance we're talking about today, even when non-res is sitting on its ass. So just imagine when that gets going in interest normals, what the level of potential for our business is.

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.

Anthony Pettinari (Managing Director and Senior Equity Analyst)

Okay, that's very helpful. I'll turn it over.

Albert Manifold (CEO)

Have a good day.

Operator (participant)

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

Elodie Rall (Managing Director and Head of European Building Materials, Construction, and Infrastructure Research)

Hi, thanks for taking my question. So 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 dividend. So any consideration on potential increase there?

Jim Mintern (CFO)

Hi, Elodie. Jim here. Good afternoon. Yeah, our current tranche of the buyback will finish at no later than the 22nd of September, and we'll 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, Elodie, the buyback is just one part of our capital allocation suite. I explained earlier about the good M&A activity in the first half of this year, spending $600 million on 12 platforms, a good outlook in terms of pipeline. We spent $800 million CapEx in the first half of the year, and, you know, good organic expansion CapEx, too, and the more of those projects we can secure, the better.

They're some of the lowest risk, highest returning projects that we actually get in CRH. You know, the runway on those projects is very attractive out into the future as well from that perspective. We announced this morning a 4% step-up on our dividend. That's, you know, our 40th consecutive year of steadier increasing dividends in CRH, and a record we're very proud of. So the buyback is just one element of that capital allocation suite. So I'll reach you again, you know, in around the end of September for the quantum of the next tranche.

Elodie Rall (Managing Director and Head of European Building Materials, Construction, and Infrastructure Research)

Okay, thanks.

Operator (participant)

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

Kathryn Thompson (Partner and CEO)

Hi, thank you for taking my question today. Focusing more on mega projects, both on the public side and on the private side, and understanding that design-build, while 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 from states as a way to address increased project demand, rising costs, and labor shortages? And along with that, how much, you know, with, you talked about IIJA, but the Inflation Reduction Act and the CHIPS Act also helped to fuel mega projects on the private side, and to what extent can you leverage your expertise in design-build on the private side for these mega projects? Thank you.

Albert Manifold (CEO)

Good morning, Kathryn. Two questions, two very important questions there. Maybe I might talk about the mega projects both in Europe and the United States. I might ask you to talk specifically about the public infrastructure angle of that in terms of the United States here. The answer to that question is, look, our customer base, the people who are actually helping construct these mega projects, are both the same customers, both in Europe and the United States. Very often what you do is we said in our script there, we are the partner of choice, and we are that partner of choice. We get invited in to those projects by the 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 in the, up the Midwest, which we just helped complete over a big three-year project. And they're starting to build a whole, a brand-new project down in the Carolinas. We don't really have any business down there, but we do now because guess what? They want us to do it, and they don't want anybody else to do it. So we'll build facilities in and around that for the next three or four years for them to provide materials for that. Some of the major technology firms, the pharmaceutical and bioscience that we do business with in Europe, are also identical to what they're doing in Europe, in the United States.

Some of them do it with regards to they focus on building it regionally. Some of them do it on a global basis. But our ability to understand what their needs are and to come back and work with the contractors to help them design the modular, fabricated construction units that are required, which in building 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 products, life science, bioscience. All of these are very carefully 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 delivering now at the moment, and will continue to deliver in the years ahead. With regard to, today that, that the public infrastructure programs here in the United States, Randy?

Randy Lake (COO)

Yeah, 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. You know, 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, you know, from a design standpoint, design-build. So over that 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-ramps, off-ramps, 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, we'll recycle 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 five years, and just the nature of some of the projects that are underway, multi-year projects, gives us the opportunity to leverage all those strengths and the capabilities we've built over the last 10 years.

Albert Manifold (CEO)

In fact, Kathryn, for anybody listening on the call as well, we did an investor presentation earlier this year, and in fact, there were two very important mega projects. One was how we built out helped build out LAX, and that really helped in terms of how we designed the water management system for that new runway system out there. And then also in Michigan, we did that new project, I-69, working with the DOT there, and they talk about how we helped conceive and design the solution to what was a very complex problem for them as well. And of course, in Europe, we had a very difficult, complex construction project in the.

Right in the center of a major city, Warsaw, and the contractor there talked about how we helped them from the very start, conceive the idea, how they would deal with the problems, and we supplied the materials, but also not just the materials, but also advise on how they did this. And that really addresses those topics that you're raising across those three case studies. You'll read through them in five minutes, but they're quite interesting, and it's actually our customers explaining exactly how important our design, expertise, knowledge, and engineering skills were in helping to conceive the ideas and solutions to things that, and to solve those problems. It's all on our website.

Kathryn Thompson (Partner and CEO)

Right. Thank you very much.

Operator (participant)

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

David O'Brien (Head of Industrials Equity Research)

Good morning, guys. Thanks for taking my question. 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, in U.S. new res, and, you know, 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, you know, how is the Barrette business plugging into the CRH model? You know, we were talking about revenue synergies. How has that whole process gone for you?

Albert Manifold (CEO)

Okay. Good afternoon, David. Maybe I might ask Randy, you might comment on the U.S., and actually, I'll come back and talk about Europe as well, just in terms of more non-residential.

Randy Lake (COO)

Yeah, I think, I think, in the presentation, I worked on a couple 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 a 5 million residential unit gap, 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 gonna. It'll be a little subdued over the next 12-18 months. You mentioned RMI, and I think that's an area that has been, and you call 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 demands really stable in that area. And you think about the evolution of that business since the pandemic, which was a very high growth, a lot of intensity and kind of the building out your backyard, those levels of activity have remained very, very strong into this year as well. If 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, 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.

Albert Manifold (CEO)

And David, just talking about Europe, I mean, as Randy said, look, actually, you know, 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 issue, and it's down to interest rates, and as soon as that interest rate situation eases, we feel confident that we will see an increase in residency. It just can't continue 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 of the first half of the year and our outlook for the second half of the year, a record year for CRH, 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 two most profitable regions in the world for construction, Europe and the United States. We have focused on publicly funded infrastructure 'cause there's consistent funding for that going forward, absent economic cycles. And we have focused on complex, technically challenging industrial non-residential, which the largest corporations of the world, the ones who have the money and the need to do that.

Now, with the reshoring and onshoring, we're seeing a very significant increase in the demand there. And so really only with two of the three cylinders of CRH firing across both 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 cycle, not just with the cycle.

David O'Brien (Head of Industrials Equity Research)

Great. Thanks very much.

Albert Manifold (CEO)

Thanks, David.

Operator (participant)

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

Arnaud Lehmann (Managing Director and Equity Research Analyst)

Thank you very much. Just wanted to follow up on one of your previous comments talking about shortages. 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 five years that you mentioned in the slide, that's $7 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? Thank you.

Albert Manifold (CEO)

Arnaud, I'll deal with the second question first. And the $35 billion, really, and if you recall earlier this year in March, we mentioned a $30 billion figure. Well, you know, 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 and work the portfolio? Yes, we do. A significant improvement in CRH in the last decade has been the reshaping and repositioning of our business.

We don't have any really bad businesses left in CRH, but, but we're always looking for and constantly for, 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- do not want to be in the bottom 20% of performing businesses in CRH because we're constantly looking to reshape and reposition, not just for higher profits, but to address the, the, the needs of, of our, our society and the changing needs of construction. So I expect that to continue on.

I expect that the 60% of the $20 billion that we generated in the last five years, which went into M&A and CapEx, I expect that to inch up over the course of the next five years because I do think we're facing a five-year period of good, sustained growth going forward. And in growing markets, as I saw in CRH in 2013-2018, in growing markets, that's a time when you can acquire more business because it's not what you buy that's important, it's when you buy it as well. And buying into a growth market for CRH means that I think we'll focus maybe perhaps more on M&A and internal CapEx in particular, as we grow out our footprint into rising markets.

Specifically, to come back to your first question, in terms of labor shortages and how we think about and how it affects our business, it affects everybody. It's not just CRH. It's quite a problem for the industry, quite a problem for society. But there are challenges for that, but for us, there are opportunities. This is not a new problem. We were aware of this a decade ago. You could see the fact that the labor force was shrinking and the challenges that for construction were very significant. And really, contractors were coming to us with a problem, that they needed to find a way whereby they could build cheaper, quicker, faster, and with less labor.

And through that came the genesis of solutions whereby we took and started to manufacture components of construction off-site into modular, prefabricated units that allowed them build with less labor, and they built quicker and cleaner and smarter and more sustainably. So it's that addressing the future needs and the future imperatives out there offers the opportunity for us. Because, as I said to you, having the ability to do that is a huge difference to us and a differentiated strategy against everybody else in our industry. So they may act as a constraint and a break in the near term and the output, but from a CRH perspective, it's actually full 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.

Arnaud Lehmann (Managing Director and Equity Research Analyst)

That's very helpful. Thank you.

Albert Manifold (CEO)

Thanks, Arnaud. Well, look, we've come to the end of our time for the Q&A here. Just want to say that's all we have for the moment. I want to thank you for your attention. I hope we've managed to answer all of your questions, but as always, if you have any follow-up questions, please feel free to get in touch with our investor relations team, and we look forward to talking to you again at our investor presentation on the 25th of September. Thank you, and have a good day.

Operator (participant)

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