CRH plc

Good day. My name is Mon Deep, and I will be your conference operator today. At this time, I'd like to welcome everyone to the CRH Earnings Update Conference Call. All lines will be placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the star and the one on your telephone keypad. Thank you. I will now hand the call over to Albert Manifold, CRH Chief Executive, to begin the conference.

Hello, everyone. Albert Manifold here, CRH Group Chief Executive, and you're all very welcome to our conference call and webcast presentation, which accompanies the release of our earnings update earlier today. Joining me on the call is Jim Minton, our Group CFO, and Tom Holmes, Head of Investor Relations. Over the next 20 minutes or so, Jim and I will take you through some of the main points of this morning's announcement, highlighting the key drivers of our trading performance for the first nine months of the year, providing you with an update on recent portfolio activity, as well as an indication of our expectations for the year as a whole. Based on the visibility that we have at this moment in time, We also share our thoughts on some trends we're seeing across our market as we look ahead to 2024. Afterwards, we'll be available to take any questions that you may have, and all told, we should be done in 45 minutes or so. First, on slide one, I'd like to take a moment to mention a few of the key highlights from this morning's statement. Following overwhelming support from our shareholders earlier this year, we successfully completed the transition of our primary listing to the New York Stock Exchange in September. is an important milestone in our development and one that will enable Savage to fully participate in the significant growth opportunities that lie ahead. With regard to trading performance, I'm pleased to report that the positive momentum we experienced in the first half has continued into the third quarter. And for the first nine months of the year, our business has delivered further growth in sales, EBITDA, and margin. Total group sales of $26.3 billion were 8% ahead, reflecting good underlying demand and further commercial progress across our businesses. This translates into EBITDA of $4.8 billion, 14% ahead, and a further 100 basis points of margin improvement. A strong performance despite contending with some inflation and cost pressures. This morning, we've announced an agreement to acquire an attractive portfolio of cement and readiness concrete assets in Texas for $2.1 billion, a significant investment which will deliver further growth and value creation for our shareholders. I'll take you through that in further detail a little later in the presentation. We also continue to return significant amount of cash to our shareholders through dividends and share buybacks. Our ongoing share buyback program is on track to return approximately $3 billion in 2023, and the current transfer program will be completed before the end of the year. In advance of our intended transition to quarterly dividends in 2024, and consistent with our progressive dividend policy and strong financial position, This morning, we have announced an accelerated payment of our 2023 dividend, representing a 5% increase compared to the prior year. Looking ahead to the remainder of the year and based on current trading conditions and the momentum we see across our businesses, I'm pleased to report that we're raising our previous guidance and expect to deliver full-year group EBITDA of approximately $6.3 billion well ahead of the prior year and representing another record year for CRH. Turning to slide two, and before taking you through the trading performance for each of our businesses, I'll briefly outline our thoughts on the market backdrop and trading environment across our main markets of North America and Europe over the course of the year so far. Despite the impact of higher interest rate environments, we continue to experience positive underlying demand across our key end use markets. In infrastructure, our largest end market, representing approximately 40% of revenues, It continues to be underpinned by historic increases in US federal, state and EU funding programs. In non-residential, we continue to experience good demand in our key segments, particularly in new build manufacturing and industrial facilities. These are typically large complex projects which fit very well with our capability to deliver fully integrated bespoke solutions to our customers. As for residential, while the pace of new build construction in North America and Europe continues to be impacted by higher interest rates and affordability constraints, remodeling demand remains resilient, supported by high home equity values and an aging housing stock in growing need of repair, maintenance, and improvement. Turning now to the trading performance of each of our businesses, and first to the America's Materials Solutions on slide three, which delivered a strong performance during the first nine months of the year. Notwithstanding some challenging weather conditions, impacting our operations in certain regions of the United States. Total sales in either DAO were 7% and 11% ahead of the prior year respectively. And despite contending with some inflation and cost pressures, particularly in the areas of raw materials, labor and logistics, I'm pleased to report further improvement in our margin, 70 basis points ahead, reflecting good commercial management across all product lines and disciplined cost control. As we look ahead to the remainder of the year, I'm also encouraged by the positive momentum in our backlogs, which we're now seeing the benefits in the historic uplift in U.S. infrastructure spending I mentioned earlier. So, overall, another strong performance from America's material solutions, which continues to be underpinned by the benefits of our integrated strategy. Next to America's building solutions on slide four, which has also delivered strong profit goals and further margin expansion in the first nine months of the year. Our building and infrastructure solutions business continues to benefit from positive momentum in our key markets, underpinned by significant public investment in water, energy utility infrastructure, and increased levels of onshoring activity in the manufacturing sector. Our outdoor living solutions business also continues to grow well, supported by resilient residential automated demand from both retail and professional customers, good pricing momentum, and the contribution from Barrett Outdoor Living, which we acquired last year. So for America's billing solutions overall, total sales growth of 15% translates into a 23% increase in EBITDA, reflecting good operating leverage and a further 150 basis points of margin improvement. Moving across to Europe on slide five, and first to the performance of our Europe material solutions business. 9-1 sales were 6% ahead of the prior year period, with positive pricing momentum more than offsetting subdued residential demand. This translates into 20% EBITDA growth and a further 180 basis points of margin improvement, reflecting strong operational leverage and our continued focus on commercial discipline, operational excellence initiatives, and cost-saving actions to mitigate the impact of inflation. We're now in our sixth consecutive year of positive pricing momentum in Europe, with pricing ahead across all products during the first nine months of the year. Looking ahead to the remainder of 2023 and into next year, we're focused on maintaining strong commercial discipline to protect and improve our profitability. Next to the performance of Europe billing solutions on slide six. Overall, a more challenging trading environment impacted by subdued residential activity and compounded by extended winter weather conditions across our markets earlier in the year. However, activity levels in the non-residential and infrastructure segments remain resilient, supported by good levels of public funding. We continue to focus on good commercial management and cost savings actions to mitigate the impact of lower activity levels, and we expect trading trends to improve into 2024. At this point, I'm going to hand you over to Jim to take you through the year-end balance sheet expectations and our transition to quarterly dividends next year.

Thanks, Albert, and good morning, everyone. Turning now to slide seven, and here you can see the key components underpinning our expectations for our year-end net debt position. I'm pleased to report that we expect to end the year with one of the strongest balance sheets in our history, reflecting a relentless focus on disciplined capital allocation and continuous business improvement to deliver higher profits, margins, returns, and cash for our shareholders. Let me briefly take you through the key components working from left to right on the slide. We ended 2022 with a net debt position of $5.1 billion, representing a net debt to EBITDA of just under one times. We expect 2023 to be another year of strong cash generation for the group, enabling us to continue to invest for further growth while also returning significant amounts of cash to our shareholders through dividends and share buybacks. In the year to date, we've invested approximately $700 million on 16 strategic bolt-on acquisitions, further developing our solutions capabilities in road infrastructure, utility infrastructure, and outdoor living. We also expect to invest approximately $1.8 billion in capital expenditure in 2023 to support further growth in our existing businesses. In addition, we expect to return approximately $4 billion to our shareholders through dividends and share buybacks. Our ongoing share buyback program is expected to return approximately $3 billion for the year. The current tranche of our program will be completed no later than the 20th of December and we will update the market regarding our plans for further buybacks in due course. So taking all of this into account and assuming no further material development activity for the remainder of 2023, we expect to finish the year with net debt of approximately $7 billion, or approximately 1.1 times net debt to EBITDA based on our full year EBITDA guidance. Turning now to slide eight, and this morning we also announced that we intend to transition to quarterly dividends with more equally distributed payments commencing from the first quarter of 2024. This follows the successful change of our primary listing to the New York Stock Exchange in September and aligns with our transition to quarterly reporting on the U.S. GAAP next year. In advance of our transition to quarterly dividends, the Board has decided to accelerate the payment of the 2023 dividend by distributing a second interim dividend of $1.08 per ordinary share. The second interim dividend payment will be in lieu of a final dividend, resulting in a full year dividend per share of $1.33 for 2023, which represents a 5% increase compared to the prior year. We have a long and proud track record of progressive dividends, and the increase in our full year dividend that we are declaring today represents CRHS 40th consecutive year of dividend growth and stability.