CRH plc

Good morning, Edwin. Albert Manifold here, CLH Group Chief Executive. And you're all very welcome to our conference call and webcast presentation, which accompanies the release of our 2020 interim results this morning. Joining me on this call is Sena Murphy, our Group Finance Director, Randy Lake, President of American Materials, and Keith Haas, President of Bidding Products. Also on the call this morning is Frank Heisterkamp, Director of Capital Markets and ESG, and Tom Holmes, Head of Investor Relations. Before we take you through a brief presentation on the results we've published this morning, I would like to take this opportunity to recognise the extraordinary dedication and resilience of our people across the group in light of the challenges presented by the COVID-19 pandemic. The last six months have been very difficult and an unprecedented time as we've all had to adapt to this global health emergency. As always, the health and safety of our employees, contractors and customers is paramount at CRH. and every effort has been made to ensure we continue to provide a safe working environment for them to carry out their activities. Now, over the next 30 minutes or so, Sen and I will take you through a brief presentation on the results we have published this morning, highlighting the key drivers of our trading performance for the first six months, as well as providing you with our expectations for the remainder of the year. As always, we will take any questions you may have, and all told, we shall be done in about an hour or so. So, at the outset on slide two, let me take you through some of the key highlights of our first half performance. The impact of COVID-19 restrictions varied significantly across our markets during the first half of the year. In Western Europe, our operations were heavily impacted by nationwide shutdowns across a number of key markets, while construction demand in Eastern Europe and North America remained more resilient. Against the backdrop of these varying restrictions, we reacted swiftly and comprehensively protect our business, particularly during the second quarter, and overall I'm pleased to report a robust first-half performance for CRH. EBITDA of $1.6 billion, 2% ahead of last year, and 70 basis points of underlying margin improvement all delivered against the 3% decline in sales. As ever, cash generation remains a key focus across our businesses. During the first six months of the year, we generated $1 billion of operating cash flow, a record performance, which further underpins our strong balance sheet and liquidity position. And Sally will take you through more of that in detail later on. All of this supports continued dividend delivery to our shareholders, a track record that now spans 50 years. In light of the group's resilient first half performance, and despite all the uncertainties that persist across our markets, I'm pleased to report that that we are declaring an interim dividend of 22 cents per share in line with last year and reflecting the financial strength of the group and also reflecting what you've come to expect from CLH over many years, continued delivery in an ever-changing and uncertain world. Now, before I take you through our divisional trading performance, I'd like to give you a brief overview of how our individual markets evolved during the first half of the year. Slide four sets out our quarterly sales trends so far this year. After a positive start with the first quarter sales, like-for-like sales, 3% ahead, we experienced unprecedented level of business disruption in quarter two, as COVID-19 restrictions were implemented across many of our key markets. As a result, second quarter like-for-like sales declined by 8%. But the chart of our monthly like-for-like sales performance on the right-hand side tells the story of the first half in more detail. Here you can clearly see the scale of the declines we experienced, particularly in April, as government restrictions significantly impacts our operations. However, it's encouraging to see some improving trends towards the end of the second quarter as these restrictions were eased, with like-to-like sales in June 3% ahead of the prior year. The impact of the pandemic was far from uniform across our businesses, not only by geography, but also in terms of the timing and scale of the impacts across our sector and end-use markets. Turning to slide five, here you can see some examples of the varying impact that pandemic restrictions had across our core markets during the first half of the year. Our operations in Western Europe, and the UK in particular, were significantly impacted by nationwide shutdowns during the second quarter, resulting in unprecedented declines for our businesses. In the United States, while construction was deemed essential in most markets, restrictions on certain types of activities resulted in lower levels of non-residential demand. Putting all this together, as you can see here on the slide, the adverse impact of the restrictions in these markets were offset by more encouraging trends in less effective markets. Generally speaking, US infrastructure works continued, and in some cases, we even saw state DOTs taking advantage of lower traffic volumes to accelerate projects. US residential repair, maintenance, and improvement activity experienced significant growth in demand, as shelter-in-place orders were implemented across most states, and people were confined to their homes. And, in the absence of nationwide restrictions on construction activity in Central and Eastern Europe, our businesses there held it quite well. So, here you can really see the benefits of our balanced and vertically integrated portfolio coming through on a regional, sectoral, and end-use basis, helping us to weather the volatility across our markets and mitigate the financial impact of this unprecedented situation. Moving to slide six, and the impact of restrictions varied significantly across our markets, there was no one-size-fits-all approach. Each of our businesses faced a unique set of challenges at different times, and this required a very specific case-by-case response. Our agile business model enabled us to react decisively to the rapidly changing environment, making decisions at the local level to take immediate and comprehensive steps to flex our cost base and preserve our cash. But it wasn't all about cutting back. In some of our less impacted markets, we actually accelerated investment to increase capacity and support growth in our businesses. On slide seven, you can see some examples of the measures we have taken in these areas. In the markets most impacted by restrictions, we took decisive action to flex our cost base to affect lower levels of activity. We reduced our fixed costs by approximately $200 million, lowering our labor costs through salary reductions across all levels of the organization and further arrangements in our most affected markets. We also carefully managed our repair and maintenance expenditure and restructured our operating footprint to adapt to lower levels of production. Another of our key priorities during this time was the protection of our cash. We reduced our capital expenditure by $200 million and implemented strict measures to manage our working capital across all our businesses, which delivered $800 million improvements compared to prior year. But we must also continue to support the growth of our business. And on the right-hand side, you can see some of the actions that we've taken in this regard. In the United States, we accelerated investments in our architectural products business as it experienced record levels of demand. This allowed us to increase capacity and maintain service levels to customers, which played a crucial role in delivering a very strong performance for that business in the first half. In our American materials business, with a number of key markets, including Florida and New Jersey, taking the opportunity to accelerate infrastructure projects, we were able to quickly reorganize and adapt our operational capabilities to service those increased levels of demand. We also saw growth in Eastern Europe. And here too, we invested in operational improvements in our plans to support demand in markets such as Poland and Romania. So as you can see, different approaches for different markets at different times, all executed swiftly across the group. In summary, and as outlined on slide eight, a robust first half performance. with EBITDA, margin, and operating cash ahead of prior year, despite lower sales and unprecedented level of volatility across our markets. All of this is as a result of the extraordinary effort of our teams on the ground across the group, the decisive actions we took to respond to a rapidly changing environment, and the strength and resilience of our business and management teams. I'll take you now through the trading performance of each of our businesses during the first six months of the year and first to our American Materials Division on slide 9. In North America, the regional impact of the pandemic restrictions varied significantly, with the US Northeast, Northwest, and parts of Canada being most impacted, while the Central, Southern, and Western regions of the United States were less affected. After a strong start to the year, good volume growth in our Western markets during the second quarter was offset by pandemic restrictions in the North and some weather disruption in the South. So, for the first half of the whole, our aggregates and cement volumes were broadly stable, while volumes of asphalt and radimix were behind the prior year. Despite a challenging and uncertain trading environment, disciplined commercial management across our businesses supported progress on pricing in aggregates, cement and radimix during the first half of the year. And while asphalt pricing was in line with prior year, we delivered good margin expansion in that business. But what really comes through in our first half performance is our operational agility. leveraging our scale and vertically integrated business model to manage our cost base and structure our operations, enabling us to adapt to volatile demand patterns across our markets. As a result, against a slight decline in like-for-like sales, our business delivered a strong first-class performance with EBITDA 20% ahead and underlying margin improvement of 260 basis points as well. Turning to the performance of our Europe materials business on slide 10, a very different picture where we faced a challenging environment in the first half with contrasting regional trends impacting our performance. In the United Kingdom, we experienced unprecedented disruption across operations from a nationwide shutdown, resulting in significant declines in all product areas. In Western Europe, the impact on construction activity was more mixed and varied, with government restrictions impacting on our volumes in France and Ireland, while our operations in Germany and Switzerland were less affected. In Eastern Europe, in the absence of nationwide restrictions on construction, we delivered a good first half performance, with our businesses in Poland, Romania and Ukraine performing particularly well. Notwithstanding the volatile trading environment, it was encouraging to see good pricing discipline continuing during the first half, building on the progress we have made in recent years. Our overall cement pricing was 3% ahead in Europe, with improvements in all major markets. Here in Europe, we all took swift action on our cost base to protect our businesses from the worst effects of the crisis. The nature of our response varied from country to country and depending on the pace of recovery within each of our markets. These actions helped to mitigate some of the financial impact in the first half of the year and will continue to benefit our business going forward. So overall, a very challenging trading environment in Europe in the first half, with our performance particularly impacted by the significant declines we experienced in the United Kingdom. For example, excluding the UK performance, the 28% decline in like-to-like EBITDA would have been reduced to minus 9%, whereas the 220 basis point decline margin would have been a minus 30 basis points. This just highlights the significant impact that the UK had on our otherwise relatively resilient performance by our European businesses. Turning to building products on slide 11. And here is another example of varying demand levels across our various sectors and end-use exposures. Our architectural products business, with its significant exposure to residential RMI, delivers strong first-time performance across our businesses in both North America and Europe, benefiting from increased demand in the outdoor living segment as many people were confined to their homes due to the pandemic. Our infrastructure products business, primarily serving new-build construction in North America and Europe, delivered a resilient first-half performance despite pandemic restrictions impacting activity levels in some of its markets. And finally, our building envelope business, which is primarily exposed to U.S. non-residential construction and was therefore more heavily impacted by the restrictions, experienced lower levels of demand during the first half of the year. But the real standout for me on this side is that against a 2% improvement in like-for-like sales, we were able to deliver an 11% increase in like-for-like EBITDA, and 130 basis point improvement in margins. A very strong performance reflecting a good cost discipline and positive pricing momentum right across the businesses. So, a very varied trading environment across the group, but good delivery from all of our teams in the first half of the year. At this point, I'll hand you over to Sen to take you through our financial performance in further detail. Thank you, Albert. Good morning, everyone. So, turning to slide 13, So Albert has given you a good overview of the trading trends across our markets during the course of the year, as well as an outline of some of the actions taken to protect our profitability and preserve our cash during a very difficult time. But let me now take a moment to guide you through some of the key drivers of that profit and cash performance. So you've heard us talk about the benefits of our financial strength and flexibility many times before, and this year is no different. We came into 2020 with a very healthy balance sheet and the net debt to EBITDA ratio of 1.7 times. As the global health crisis unfolded and with the financial markets in turmoil, we took steps to bolster our liquidity position and further underpin our investment grade rating. We took the precautionary decision to draw down on our 3.5 billion euro revolving credit facility and we successfully issued 2 billion euros of bonds at very attractive rates and duration. We also delivered a very strong cash performance. And despite all the challenges we faced during the first half, we generated $1 billion of operating cash inflow. That's a record first half performance for the group. And it further underpins our financial strength. The end of the first half of the year with available cash balances of just over $10 billion, which is sufficient to cover all our maturing debt obligations over the next five years. This also provides us with significant optionality for future value creation, whether that's through capital investments, whether that's through value accretive acquisitions, or cash returns to our shareholders. Turning now to slide 14, and here we've set out the key components of our financial performance for the first six months of the year. So working from left to right on this slide, and starting with our organic performance, 2% ahead of the prior year. That's a good result in the context of the unprecedented disruption we experienced across parks for business. Of course, this performance was delivered against the 3% decline in like-for-like sales, and that overall reflects a 70 basis points improvement in our underlying margin. So as you can see on this slide, acquisition netted investments contributed $18 million of EBITDA in the first six months of the year. comprises obviously a small number of full-time acquisitions, as well as the impact of some investments which were completed in the second half of 2019. With regards to currency translation, this year it's a small headwind of $11 million, reflecting significant reduced volatility in our earnings, following the group's change in reporting currency from euros into US dollars, which is effective from the 1st of January of this year. And finally, as you can see, In our accounts this morning, the group recognized $65 million of one-off restructuring charges. They are as a result of mitigating actions taken in response to the impact of the COVID-19 pandemic on our business in the first half of the year. Turning to slide 15, and here you can see the strong cash performance I mentioned earlier. $1 billion of operating cash inflow in the first half. representing an improvement of over $700 million compared to the prior year. And given the season and nature of our business, we would typically expect an operating cash outflow in the first half, which really just goes to highlight the strength of this performance. This was primarily driven by an $800 million reduction in our working capital investment as we implemented strict measures and tight controls around inventory, receivables and payables. We also took significant steps to curtail our capital expenditure. That resulted in a reduction of $200 million compared to the prior year, while we continued to support growth in our business. In addition, we continued to deliver further cash returns to our shareholders. We returned approximately $800 million through dividends and buybacks during the first six months of the year. As Albert mentioned earlier, the board has decided to declare an interim dividend of 22 cents per share, reflecting the resilience of our first half performance and our financial position. And in light of the recent market volatility and as announced earlier this year, we decided to pause our share buyback program until further notice. So overall, a strong cash performance, strong cash operating cash inflow during the first six months of the year, partly reflecting an element of timing, but nonetheless a good performance in a challenging environment. Our relentless focus on cash generation and the financial discipline underpins our strong balance sheet position. And on slide 16, you can see how this was delivered. And you can see how we delivered an almost $4 billion reduction in our net debt position over the last 12 months. We ended the first half of 2019 with net debt of $11.6 billion. And over the last year, our business generated a total of $4.6 billion of operating cash. That includes the $1 billion in the first half of 2020. We also generated significant proceeds in divestments, close to $2 billion, which primarily reflects the sale of our European distribution business, which completed in October of last year. And notwithstanding the containment of our capital expenditure in the first half of this year, we've invested a total of $1.2 billion to support growth in our business over the last 12 months. In addition, we've also returned $1.4 billion to shareholders in the form of dividends and share buybacks. So taking all of this into account, our net debt position at the half-year stage is $7.8 billion, representing a net debt to EBITDA ratio of 1.7 times on a trailing 12-month basis. And that's in nine of what we reported at the end of 2019 and reflecting the strong financial position of the group. Thanks, Shannon. Another great cash performance there and a real reflection of the financial strength and discipline of the group. Now, before I turn to Outlook, I'd like to take a moment to reflect on the strength of our business and how it has enabled us to deliver, even in difficult times, something that was clearly demonstrated by our first half performance. As you can see in slide 18, We have a wealth of experience across our group. Our management teams have been through periods of uncertainty and business disruption many times before, and we have proven track record performance and delivery through the cycle. We have a clear strategy, with a robust and resilient business model, benefiting from a balanced portfolio of businesses across geographies, sectors, and end-use markets. Through the active management of our portfolio in recent years, we've become a simpler and more focused business, and we will continue to refine and reshape our business to deliver superior growth, returns, and cash generation for our shareholders. We are relentlessly focused on continuous business improvement, a deeply embedded practice of making our businesses better through incremental improvement initiatives to structurally improve our margins, cash, and returns year after year. Another core focus for us is the area of sustainability, which is deeply rooted in all aspects of our strategy, We're committed to reducing the impact of construction and construction materials on our environment, and we are proud to be recognized as an industry leader by the major ESG rating agencies. We are also a highly cash-generous business, and our strong and flexible balance sheet provides significant optionality for further value creation, whether that's through capex, investments, acquisitions, or cash returns to shareholders. Turning to slide 19 and our expectations for the remainder of the year. Given the uncertain economic backdrop, we have significantly less visibility than we've normally had at this point of the season. As a result, we're not in a position to provide full year guidance at this time. However, based on trading trends during July and August to date, I give you an indication of our expectations for each of our businesses for the third quarter. In America's materials, with regional variances across our markets, and despite positive pricing momentum in our businesses, we expect third quarter like-for-like sales to be stacking down against strong prior year comparatives. In Europe materials, we're seeing improving trends in our Western European markets in quarter three. While there are also some signs of improvement in the UK, we expect the recovery in that market to continue at a slower pace. Our Eastern European businesses continue to hold up well, and there's good pricing discipline across all our markets. Overall, we expect third quarter sales for our Europe materials businesses to be behind prior year. In outbidding products businesses, we expect continued strong residential automatic demand to be offset by ongoing weaknesses in certain non-residential segments. As a result, and notwithstanding an element of pull forward of demand into the first half of the year, we expect third quarter life-to-life sales to be broadly in line with 2019. Taking all of this into account for the group as a whole, we expect third quarter like-for-like sales to be slightly down on prior year. However, through strong cost actions, we will continue to adapt our businesses to evolving demand, and as a result, we expect third quarter like-for-like group EBITDA to be in line with the prior year. Turning to slide 20, and as we look further ahead to the fourth quarter of the year, and indeed into 2021, visibility is extremely limited. The outlook for our markets is ultimately dependent on an improving health situation, and the reality is that society's success in reducing the spread and transmission rate of the virus will be more stimulating for the global economy than any fiscal or monetary policy could ever be. We expect this high level of uncertainty to continue for some time across our markets, and as we saw during the first half of the year, we expect the pace and shape of the recovery to vary significantly across our geographic and end-use markets. Never before have we had such limited visibility looking forward, and it has to be said that as we sit here today, most of the risks are on the downside. There are concerns about the pace at which new projects are coming on stream, and although our current pipeline of work remains reasonably healthy, we are cautious regarding the pace at which these projects are being replaced as current ones finish out. But regardless, and as you saw in the first half of the year, however the market evolves, we will take all necessary steps to protect our people, our profitability, our margins, and our cash. We are well-positioned to meet the challenges and the opportunities that lie ahead. And looking beyond this global health crisis, we believe the long-term fundamentals of our business remain positive. Our financial strength and resilience combined with our balanced portfolio of high-quality assets in attractive markets leaves us well-positioned for future recovery. 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 the institution that you represent before posing your questions. In consideration of all those online and to meet the best use of the time we have available, could I ask you to please limit your questions to a maximum of two if possible? And I'm now going to hand you back to the moderator to coordinate the Q&A session of our call.

Thank you very much, sir. Ladies and gentlemen, as a reminder, it's star one for questions. Our first is from Robert Gardner from Davie. Please go ahead.

Morning all. I hope everyone's keeping well. Well done on the numbers. I'll keep it to two and keep it brief. So one, I was wondering if you'd give us a little bit more colour on the performance of the American Materials and Building Products businesses, which appear to have a very strong half despite everything you had to face. And second then, I was wondering could you give us some indication of exit sales rates across the business, specifically in July? Thank you.