CRH - Q1 2022 TU
April 19, 2022
Transcript
Operator (participant)
Ladies and gentlemen, welcome to the CRH plc April Trading Update conference call. For the duration of the call, you will be on listen only. However, you may submit your question at any point during the call. Press star one to queue for a question after the presentation. The next voice you will hear will be Albert Manifold.
Albert Manifold (CEO)
Hello, everyone. Albert Manifold here, CRH Chief Executive. You're all very welcome to our conference call which accompanies the release of our trading update earlier today. Joining me on the call is Jim Mintern, our Group Finance Director, Randy Lake, our Chief Operating Officer, and Tom Holmes, Head of Investor Relations. Now, following some short opening remarks, we'll be available to take any questions you may have on our announcement. All told, we aim to finish off in about 30 minutes or so. Before I take you through the key points of our announcement, I'd like to remind you that we'll be holding an investor update tomorrow, Thursday, 21st of April. It will be a virtual event broadcast live via webcast at 2 P.M. London time, 9 A.M. Eastern Time, and the registration details are available on our website.
As I said before, there'll be no big reveal, but it'll be an opportunity for Jim, Randy, and I to take some time outside of results to update you on a number of important items which are core to our strategy going forward. We provide you with an update on portfolio strategy, our portfolio priority plan capital allocation going forward, our approach to sustainability, and a more detailed discussion about the benefits of our integrated solutions strategy. Overall, I expect it'll last about 90 minutes or so. Turning now to today's announcement, this provides details of our trading performance for the first three months of 2022, an update on our recent capital allocation activity, and an indication of our expectations for the first six months of the year. Beginning with the first quarter trading performance.
Overall, it's been a good start to the year for CRH, with sales, EBITDA, and margin ahead of the prior year. Group sales for the first quarter were 15% ahead, a reflection of the continued benefits of our integrated solution strategy with underlying demand across our core markets and disciplined commercial management. Let me briefly take you through the first quarter trading trends for each of our businesses. Starting with the Americas Materials division, where first quarter sales were 13% ahead of the prior year. Good commercial management across all business lines more than offset the impact of some cold and wet weather conditions which impacted activity levels in parts of the Northeast, Great Lakes, and western regions of the United States and Canada.
For the division as a whole, activity levels in our asphalt and construction services businesses were well ahead of the prior year, while cement volumes were in line. First quarter aggregates and ready-mix concrete volumes were behind the same period in 2021 due to the impacts on adverse weather conditions. Of course, it's worth noting that our Americas Materials business is particularly seasonal, and the first quarter only typically accounts for about 10%-20% of our annual volumes. With continued focus on strong commercial management, we made good progress on pricing across all products, with high single-digit increases in aggregates and asphalt and double-digit increases in cement and ready-mix concrete. Turning to Europe Materials, first quarter sales were 11% ahead of prior year, reflecting strong demand and milder weather across most of our key markets.
In the United Kingdom and Ireland, our sales were well ahead of the prior year, reflecting good underlying construction demand in those markets and the benefits of the significant steps we've taken in recent years to reshape and reposition our U.K. business. In Eastern Europe, the demand environment was robust, with strong volume growth, particularly in Poland and Romania. Our business in Ukraine had a strong start to the year, but as a result of the ongoing conflict, we have suspended all operations. Of course, it goes without saying that our thoughts and prayers are with the people of Ukraine at this very difficult time, and we are continuously making every effort to try to support our employees and their families where we can. In Western Europe, sales were also ahead of prior year with improved activity levels in countries including France, Belgium, Germany, and Switzerland.
In the Philippines, sales were behind prior year as lower activity levels due to the upcoming presidential election were only offset partially by price improvements. With regard to pricing for the division as a whole, we continued to deliver further improvements during the period, with strong progress on recently announced price increases across all products and markets. Finally, for our Building Products business, our first quarter sales were 22% ahead of 2021, reflecting continued delivery on our integrated solutions strategy, strong residential demand, particularly in North America, and continued recovery in non-residential activity. Sales in our Architectural Products business were ahead in North America and Europe, reflecting continued strong demand for outdoor living solutions and good commercial management in the early months of the season.
In our Infrastructure Products business, sales were ahead as a result of higher activity levels, particularly in the communications, water, energy, and transportation sectors, on pricing and a strong performance from National Pipe & Plastics, our recently acquired water and energy infrastructure solutions business. Returning to our Building Envelope business, our sales were also ahead, benefiting from continued recovery in non-residential construction activity and good commercial discipline. For the group as a whole, it's been a good start to the year, with first quarter sales 15% ahead of prior year and continued improvements in both EBITDA and margin. Now, before I comment on our expectations for the first half of the year, let me touch briefly on a few other items from today's announcement. In the U.S. space, we've completed 11 bolt-on acquisitions for a total consideration of approximately $600 million.
The largest of which was building materials in our Infrastructure Products business and our pipe and precast solutions offering in the Texas market. We also bought Calstone in our Architectural Products business, a leading provider of outdoor living solutions in California. We have a strong and active pipeline of opportunities, and the strength of our balance sheet combined with our continued focus on financial discipline will enable us to capitalize on these opportunities to create further value for our shareholders. In February, we announced the divestment of our Building Envelope business for an enterprise value of $3.6 billion, representing an attractive multiple of 10.5x EBITDA. We expect that transaction to close in the second quarter of the year.
In the light of our strong financial position and commitment to returning cash to shareholders, our ongoing share buyback program is now running at an annualization of approximately $1.2 billion. The current control program is well underway and will be completed before the end of June. Turning now to outlook. Following a good start to the year, assuming normal seasonal weather patterns and absent any major dislocations in the macroeconomic environment, we expect first half sales, EBITDA and margin to be ahead of the same period in 2021. Demand pick-up in North America remains positive and when combined with commercial management and the continued execution of our integrated solution strategy, our Americas Materials and Building Products businesses should continue to perform well.
Understanding the challenges of significant energy cost volatility and the ongoing conflict in Ukraine, we expect like-for-like EBITDA in our Europe Materials business to be ahead of the prior year period. It's very difficult to be more specific at this stage of the year when most of our reporting period is still ahead of us, but we will of course update you on our expectations as the year unfolds. As ever, we are relentlessly focused on shareholder value creation and believe that our integrated solutions strategy, together with our strong balance sheet, leaves us well positioned to come forward. With that, I will now hand you over to Q&A. May I ask you please to state your name and the institution that you represent when posing your questions.
In consideration of others on the line and to make the best use of the time we have available, could I please ask you to limit your questions to one each where possible? I'll now hand you over to the moderator to coordinate the Q&A session of our call.
Operator (participant)
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Gregor Kuglitsch from UBS. Please ask your question.
Gregor Kuglitsch (Executive Director and Equity Analyst)
Hi, good afternoon. Thank you for taking my question. Maybe I'll be a bit naughty and ask it two parts. If you could just perhaps give us an update where your energy cost and sort of general cost position is. Obviously, you're guiding for margin expansion, I guess in percentage terms in the first half. Can you just maybe give us sort of your best view of how the spread between price and cost is evolving across the various geographies? Thank you.
Jim Mintern (Group Finance Director)
Hi, Gregor. Jim here. I'll take this one. Maybe in terms of energy, typically you're aware our energy cost range is between 9%-11% of our total sales. In the first quarter of this year, we're within that range. You know, about half of our energy cost is in bitumen, typically in the mid- to high-40%. As you know, we very carefully manage that input cost, and through our winter fuel program, and through the price escalation clauses that are in place in most of the states that we operate. There's a very strong commercial management across our businesses for many years now, and they've been practicing dynamic pricing in place, which recovers the cost inflation.
As you said, quarter one margins are ahead, and we also expect margins to be ahead for the first half of the year also.
Albert Manifold (CEO)
I suppose I should say, Gregor as well, and given what Jim has just said there, I mean, let's not forget, you know, the business for a number of years now has been beyond just, you know, selling base materials. It's much more an integration of base materials with value-added products and the service to go with it. So it's an end-to-end solution, and, you know, that now makes up 55% of our total sales. Last year was a very difficult year for costs across our industry. Yet, you know, we were ahead in all of our divisions in terms of margin, and again, ahead of our peers.
It really is testing once again with the margin performance in this current year. We've moved past being a price taker and again, just contemplating the price maker in the marketplace, that really is where we're at. You know, the energy costs are there, they're headwinds, but you can just see exactly how we managed them last year and continue to manage them into the current year.
Gregor Kuglitsch (Executive Director and Equity Analyst)
Thank you.
Jim Mintern (Group Finance Director)
Just in terms of on the margin, yeah, in Q1 our sales, EBITDA and margin was ahead, and also the reported margin for the first half year. We expect sales, EBITDA and margin to be ahead as well for the first half.
Gregor Kuglitsch (Executive Director and Equity Analyst)
Thank you.
Operator (participant)
Thank you. Your next question comes from the line of Ross Harvey from Davy. Please ask your question.
Ross Harvey (Senior Equity Research Analyst)
Here, on that front, I'm just wondering, can you give us some color on what you're seeing in the pipeline? Thanks.
Albert Manifold (CEO)
I think I just got the end of the question in terms of M&A and what we're seeing in the pipeline. Is that correct, Ross?
Ross Harvey (Senior Equity Research Analyst)
Yeah, that's correct, Albert. Sorry, yeah.
Albert Manifold (CEO)
Yeah. Great. Thank you, Jeff. Thank you. Good morning or good afternoon to you. Look, the pipeline is quite strong, and we've had a good start to the year and good sense of momentum carried on from last year. First quarter, we executed across 11 deals, mainly in the U.S. here at just over $600 million on an A. I suppose the two big standouts of that were we saw a nice business, an add-on to our APG business in Northern California, Calstone, which is mainly a hardscaping and a masonry business. The other big deal we did was, we bought an add-on to our IPG business, our infrastructure products business in really sort of in concrete pipe and in Texas, and again, a nice deal add-on there.
I have to say that there's a lot of opportunities out there, and I'm pleased to see again that the $600 million we spent this year at an average was seven times EBITDA, and that's before we start getting into the business and improving them and delivering synergy as well. Good pipeline ahead of us. As always, you know we're very careful, very selective. I've just been in this job with plenty of money, but easy to spend money. It's hard to live with the idea, and we've been very careful how we do so. Look forward to this year. We'll build upon this after a good start.
Ross Harvey (Senior Equity Research Analyst)
Thanks for that.
Operator (participant)
Thank you. Your next question comes from the line of David O'Brien from Goodbody. Please ask your question.
David O'Brien (Head of Equity Research)
Matthew, guys, thanks for taking my question. Back in March, I guess you gave us some color on the order book, and with that in mind you said you were looking forward to a year of progress. I just wonder how has the order book evolved, and as such, you know, how's your confidence on a year of progress evolved as well?
Albert Manifold (CEO)
Hi, David. Good morning to you. Yeah, no, it's only seven weeks ago since we talked to you. Actually tell you what's happened to the order book since then, it's kind of backed up a bit because we've had some pretty poor weather in the U.S. here, particularly across the Great Lakes and out west, which meant that we haven't been able to execute on the orders. So it's backed up a bit. So it's healthier and continues on adding to it and we back it a bit. So we should have a good quarter two and good momentum in the business. Yeah, but, Jim's here with us this morning by Randy. Maybe Randy give you a sense in terms of what the orders are. Also kind of what tenders are. That's what very
the dynamic there with regard to tenders and pricing or leads that are coming into us.
Randy Lake (COO)
Yeah. I guess we look at it or I look at it a couple different ways. One is just the overall activity in terms of quantum that we're getting that continues to be ahead, relatively significantly, even without the Infrastructure Act, primarily, because of the work that had been done previously by individual states. Even into 2022, there's been over 80 actual individual funding mechanisms approved by voters in the states that we operate. That's just continued to add to the robustness of the bidding environment. Let's say from our standpoint, where we operate, we would win kind of our typical percentage, so the backlogs continue to remain strong.
Ross Harvey (Senior Equity Research Analyst)
I think what's encouraging as well for us is just to look at kind of the margins in those backlogs as they continue to improve and our ability to execute continues to ramp up. We have clear line of sight currently through the first half of the year and a positive momentum going into the second half as well.
Albert Manifold (CEO)
One of the interesting, David, that's actually striking with this. It's been evolving really for the last two years and they're coming more and more, and I don't want to steal any thunder about tomorrow. You'll hear more about it tomorrow. Of course, you know, we operate in public contracts and of course, public contracts want to get value for money, so cost is hugely important. But more and more circularity and recycling of materials, particularly public contracts, is coming into being a specified part of what we do and that plays to our strength. You'll hear more about it tomorrow. I'm just kind of teeing it up for tomorrow to take note of it. It's becoming an important, much more important issue than it has been here before.
David O'Brien (Head of Equity Research)
That's great. Cheers. Thanks a lot.
Albert Manifold (CEO)
Thank you.
Operator (participant)
Thank you. Your next question comes from the line of Paul Roger from BNP Paribas Exane. Please ask your question.
Paul Roger (Managing Director and Head of Building Materials Research)
Yeah. Good afternoon, everyone, and congratulations on the strong start. So maybe my question will focus on Europe. I wonder if it's possible to quantify the price increases you've seen in the different markets, and also comment on whether you're planning further hikes later in the year. If I could just tag on a second, are you confident that you can keep pushing price in Europe without destroying demand?
Albert Manifold (CEO)
Paul, you know, three questions and very important questions.
Paul Roger (Managing Director and Head of Building Materials Research)
Oh, well.
Albert Manifold (CEO)
Yeah, no problem. No problem at all. With regards to pricing, Look, I go back to last year. I think during the course of last year, I felt that we got behind the cost curve in Europe. We caught up at the end of the year and we tended to start at the end of the year with good momentum. That's meant that we've gone and started the season in Europe, you know, with the required and necessary price increases, catching up a bit on last year and also the necessary price increases for this year. I would say probably across Europe, high single digits will be the norm across Europe. Very significant price increases to offset the cost increases. There are some markets where we are seeing sort of low double-digit price increases, and they're looking very strong.
Of course, since we started those price increases, which really those discussions would have taken place in the early part of this year, we've had obviously a big surge in energy costs again. Of course, that has meant that, you know, again, I think we're firstly speaking in Europe, I think we're slightly behind the cost curve in Europe. It is interesting that even if we're behind the cost curve, Solutions business continues to deliver margin improvement in our business. It just goes to show you there's a bit of dislocation between cost and prices, which is why we keep saying we're more a price maker than a price taker.
I'll answer your question. With regard to pricing in the second half of the year, I think the industry as a whole will need to catch back up and get ahead of price increases again. I do think there will be further price increases in later this year. I suspect it will be more quarter three than quarter two, because these current price increases are only being established and put into the market as we speak. I suspect it will be the back end of the summer. The momentum is good in the industry. The momentum is good in the market. As you say, look, there's price increases and cost increases that are not going to go away. That's where I sense it, where I sense it will be.
With regard to in terms of our, you know, our business and margin improvement with regard to that in Europe, again, there is a bit of a differentiation, Paul, between cost and pricing in CRH because we don't just. We're not like all the other guys. We don't just sell stuff by the ton. Like, we turn our basic materials into products, and in turning them into products, we're doing so in a fairly carefully designed, specified way, working with our customers to solve their complex problems. We get paid for that, those design, engineering, architectural skills that we have within our business. That's where the margin increases come in across both our business, both in North America and in Europe. It's not just really about costs in CRH anymore. It's about the additional value that we bring to solve our customers' problems.
Paul Roger (Managing Director and Head of Building Materials Research)
Right. Thank you.
Albert Manifold (CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Naveen Sherwal from Enfield Investment. Please ask your question.
Naveen Sherwal (Analyst)
Yes, good afternoon. Just one question from me. Have you seen any construction work cancellations or postponements since the war in Ukraine, either because of shortages or because of the higher consumption costs?
Albert Manifold (CEO)
Hi. Yes, good afternoon to you. In fact, no, we have not. As Nick mentioned, of course, within Ukraine we have. Yeah, that's only a small part of our business and effectively everything is on hold until that matter is resolved. Let's hope it's the violence stops today very soon. Broadly speaking, across Europe there has been no slowdown or no impact. In fact, we've had good, robust demand across all of Central and Eastern Europe and all the bordering countries that we have with Ukraine in terms of Poland, Slovakia, Romania, Hungary, all quite strong activity levels at start of the year and have continued on with this. In fact, it probably increased through the course of the year.
There's good momentum across Central and Eastern Europe, and that's not gonna stop any time soon.
Naveen Sherwal (Analyst)
Thank you very much.
Albert Manifold (CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Nabil Ahmed from Barclays. Please ask your question.
Nabil Ahmed (Director and Head of European Construction)
Yeah. Good, good afternoon. My question was on the U.S. gas tax holiday that we saw in a number of states, and I think some others are thinking about it. Do you expect any impact at all on your business going forward?
Albert Manifold (CEO)
Hi. Hi, Nabil. Yes, there's been a lot of speculation in the press about, you know, potential states looking for gas tax holidays. We haven't seen any impact. Granted, you're living there day to day, so.
Randy Lake (COO)
I mean, as you said, there's been discussion in and around that. We've seen very few actions to support those claims. A couple states have moved on a temporary hold, but actually what they're doing is they're taking a lot of the COVID relief money and backfilling any shortage or kind of gap from the gas tax. Those are temporary measures, so it hasn't impacted the pricing environment. It certainly hasn't impacted underlying funding.
Albert Manifold (CEO)
Yeah, that's a good point, Nabil. State budgets are really in fairly robust shape and that's why we feel again, I don't think that there'll be any issue with regard to any gas tax holidays. They're not really there. If they do come, they'd be eaten up by the budgets that are there. Also in terms of support by the state for the federal budget increases coming through. The Infrastructure Investment Act of the past in the whole of last year, again, we think that will come through quite strongly as well. We think it's in good shape.
Naveen Sherwal (Analyst)
Okay, thanks.
Operator (participant)
Your next question comes from the line of Glynis Johnson from Jefferies. Please ask your question.
Glynis Johnson (Equity Analyst)
Hello. Yes. It's a question on U.S. infrastructure bill. I'm just, you know, you talked about U.S. being robust in backlogs without that U.S. infrastructure bill as yet having effect. Is there any clarity you've got as to how we might expect that to benefit CRH as we go to maybe latter part of this year but into next year?
Albert Manifold (CEO)
Hi, Glynis. Yes. No, you're absolutely right in your timing. I mean, this year is all the money that was committed last year and execution of projects that have already been started. Most of the bigger projects that will benefit from the increased federal spending will actually hit maybe the very end of this year and probably next year before we start to see it coming through. In fact, in most of the benefit, we assume that the spend sort of within 2023, 2024, we'll get the lion's share of the work that's coming through. We're not seeing anything yet.
I suspect, though, what's happening is you're seeing maybe a clearing out of quote, unquote, old projects where people really are just finishing up the jobs that they had allocated funding for, knowing that there's, you know, very significant increase in federal funding coming forward, that they can start more longer term projects, sort of three to five year projects. That's the one thing that people sometimes overlook with regard to the funding coming forward. It's not just a substantial increase in funding that's coming forward, it's the longevity, the five years that they're rolling out. It allows people to plan in the longer term for bigger projects, which really will sustain momentum for a longer period of time.
I think you're seeing a clearing out of a little bit of shorter run projects and then people will start to look at the longer term projects, which should start to kick in very earliest back end of this year. It's more 2023, 2024, 2025 issues than a 2022.
Glynis Johnson (Equity Analyst)
The backlog you're seeing doesn't have any of that in it yet?
Albert Manifold (CEO)
No, no. No, no, no. Too early yet.
Glynis Johnson (Equity Analyst)
Thank you.
Operator (participant)
Your next question comes from the line of Elodie Rall from J.P. Morgan. Please ask your question.
Elodie Rall (Managing Director)
Hi. Thanks for taking my question. My question would be about the use of proceeds from the $3.6 billion that you will get from the disposal of the building Envelope. Thanks.
Albert Manifold (CEO)
Hi, Elodie. Look, obviously the deal has yet to close and our view is it will close probably in the course of the next few weeks in quarter two of this year. Look, it leaves us with a very strong balance sheet, and we have options to allocate that capital and create value for our shareholders. I'll ask Jim to comment on that as well. Maybe if I just focus on the M&A side of it. Look, as I said earlier on when I was talking to David, I've gotten the questions. Our pipeline is quite strong. We can be quite selective. You know, we're probably at a run rate on both our M&A and so on is probably running at the rate of somewhere between $1.2 billion-$2 billion a year.
Elodie, that they're kind of deals that just come in the door. Of course, we could shut things down if, you know, if the world went, you know, completely the wrong way, but we don't think it will. On top of that, there's platform deals to be done, and we're constantly looking and in constant conversations with peers for, you know, many years to see how we can execute those deals. I'm confident over the next sort of one to two years, we will, you know, significantly use the funds that we have to reallocate back into our business and growth investments, not only with regards to CapEx, but also with regards to, you know, sequencing M&A. Again, always with a strong focus on the financial discipline we have within our business.
Of course, we have within our cash flow share as well. Maybe, Jim, you wanna just chat about our philosophy and strategy on that.
Jim Mintern (Group Finance Director)
Sure. Hi, Elodie. Yeah, in terms of the use of the proceeds, Albert touched that, if you recall that last year step up in our development CapEx, and that's in the, you know, some of those higher growth markets and some of the solutions space as well, and that's continuing into 2022 as well. Also announced the increased dividend. As you're aware, the final dividend of 2021 was up over 5%. Our share buyback program is running at an annualized rate now of about $1.2 billion. The current tranche will finish before the end of June. That's a $300 million tranche, and that will finish by the end of June. We have capacity, we have optionality, but understand, as Albert said, the pipeline is good in terms of M&A.
as ever, all the investment decisions will be looked through that lens of ensuring, you know, we're driving shareholder value accretion. Good capacity, good options, but always maintaining that rigor and discipline.
Elodie Rall (Managing Director)
Thanks very much.
Operator (participant)
Your next question comes from the line of Cedar Ekblom from Morgan Stanley. Please ask your question.
Cedar Ekblom (Equity Research Analyst)
Thanks very much. On energy costs, you'll be benefiting at the moment relative to spot due to some of your forward buying contracts that you have in place. Can you remind us when you would probably need to be reentering the market to reestablish your energy purchases going forward? A little bit of color on how that position sits in Europe versus the U.S. Do you have longer lead times in Europe or is it about the same? Appreciate your further. Thank you.
Albert Manifold (CEO)
Cedar, hi. I'm not too sure we are benefiting from energy costs in the current environment despite whatever forward projects we have because the forward projects we might have in place. Of course, energy costs increased significantly in the course of last year. Of course, we don't carry forward like for 12 months. We're carrying forward for one-three months. Most of our hedges, if you would call them that, tend to be within the business contracts that we have with our customers. Our customers are very well educated on energy prices would be.
Very often we have automatic adjustments and accelerators as we do have here in the United States, where I am at the moment, with regard to a lot of our crushers, whereby it's a direct pass-through to them, the benefit or the cost or the disadvantage of that as the case may be. We're not really benefiting from any hedges with regards to hedges that went back for years and years when oil was $10 a barrel. Those days are long in the rear view mirror. It's not a question of any big unwind. It's just a question of carefully managing our cost base. Of course, I go back to the issue that we're not a business that just is a cost margin business anymore. It's the idea.
As I said, we sell much more than just base materials, and really that allows us to push the margin ahead in our business. There's no big unwinds in regard to hedges. We do tend to cover forward as best we can, but tend to rolling three-six months, quite frankly. We probably cover somewhere between a third and half our business at any one time. Our natural hedge is within our businesses because we're bidding on projects and work which are quite short term in nature some of the time. You're looking at sort of four-six weeks. Already, unless there's a massive dislocation on prices over the next four-six weeks, we're then bidding on a work over the course of the next month at the current price of energy.
We are really covered in that area. If we were a big cement player, I fully expect and understand whereby you'd be buying massive amounts of coal or petcoke from either India or Australia or the Far East, and you're buying, you know, sort of 60,000-80,000 tons at a time. That might be an issue for us. We're not really a big cement producer. We're much more of an intermediate player, of course, because we're more of a big aggregates producer in the cement business, and therefore our power tends to be more electricity and diesel, which is more bought off the spot on forward contracts.
Cedar Ekblom (Equity Research Analyst)
That's helpful. Thank you.
Albert Manifold (CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Will Jones from Redburn. Please ask your question.
Will Jones (Partner and Equity Analyst)
Thank you. Just wondering if you could give us a little bit more color around the U.S. asphalt business and thinking the fuel process, which presumably has come to a close now, whether you think bitumen is likely to follow the spot oil price that we can all see on the screens to its usual relationship. I guess, you know, in some way you think those selling prices kind of need to be give or take as well compared to the 8% or so that you're currently seeing. Thanks.
Albert Manifold (CEO)
Hi, Will, and good afternoon to you. Look, I mean, oil, bitumen is not perfectly correlated to oil. It does go up, of course, and it has gone up. We're some way through our winter fuel program. It carries on. It doesn't just kind of carry on to the end of April, actually, quite frankly, all the way through. In reality, you know, what we're doing now as we go to the market, right, people are bidding jobs at spot prices for bitumen. They're well bid into the market as it is as such.
The only difficulty we will ever have or anybody, heck, in us or whatever have, is if you're bidding the wrong work and there's a significant price dislocation from the day that you bid to the day you actually have to go and buy the bitumen. The reason why it's such an advantage for us is because we have the advantage of knowing that we have got 800,000 tons+ in our tanks. So if there is a significant disadvantage, it's almost like a strategic reserve that you can pull down from to protect ourselves against a big dislocation. But we don't tend to get massive movements over short periods. It can happen from time to time, but it doesn't tend to be the norm. It tends to be a much more of a smooth cycle so we can watch it.
We do have to manage it. The Winter Fuel Program is very successful and has been very successful for us historically. It gives us that strategic advantage that we kind of have a strategic reserve at a known price that we can draw down from if we do come into difficulties with regard to short-term spot prices and we find ourselves on the wrong side of a particular call, which isn't very helpful. That tends to be very much the exception rather than the norm. What bitumen prices are today will find themselves into asphalt contracts for everybody in the U.S. market over the course of the next sort of three to six weeks when people are bidding on work.
Will Jones (Partner and Equity Analyst)
Thank you.
Albert Manifold (CEO)
Thank you. Okay, listen. Well, look, I think that's all we have time for this morning. I want to thank you all for your attention. As always, if you have any follow-up questions, please feel free to get in touch with our investor relations team. We'll look forward to speaking to you again, during our investor update tomorrow. Thank you, and goodbye.
Operator (participant)
That's all for our conference for today. Thank you, Patrick, Peter. You may now disconnect.