CRH PLC

NYSE:CRH

Earnings Call Transcript 2019-Q4

[Senan Murphy, Group Finance, Director]

Good morning, ladies and gentlemen. You're all very welcome to the 2019 Results Presentation for CRH, and that welcome includes all of you who are here in the room with us in London this morning, and also those of you who are joining us on the webcast today.

My name is Senan Murphy, I'm the Finance Director for the Group. And I'm joined here on stage this morning by our three Division Presidents: Randy Lake, Americas Materials; Onne van der Weijde, Europe Materials; Keith Haas, Building Products. We're also joined by David Dillon, President, Strategy and Development for the Group.

As you can see, Albert Manifold, our Chief Executive is not here on stage this morning. Albert had planned to be here as usual, but he had an orthopedic procedure earlier in the week. And as you would expect his doctors have advised him not to fly this week. Albert will be listening in this morning and we'll all see him back in the office next week.

I'd like to just turn to the agenda. In terms of the agenda set out for today what we'd like to do is spend the next 35 to 40 minutes sharing with you a brief presentation of our results announcement this morning. We'd like to cover the trading performance we've had over the last 12 months. We'd also like to share with you some key trends from our core markets.

In addition, we'd like to share with you some of the early indications we have in terms of our expectations for the year ahead. We want to spend a little bit of time updating you on some of the strategic initiatives that we've got going on across the Group. And as well, we want to spend a bit of time talking to you about the -- our sustainability ambitions and the -- how we can continue to further improve our sustainability credentials going forward and the role we can play in reducing the impact of construction on our environment. At the end of the presentation, there will be time for questions. Taking all of that into account it should take about an hour to run the entire presentation.

Moving on to slide 2, and the key highlights from our announcement this morning. 2019 has been another year of strong financial delivery across CRH. Our reported earnings our EBITDA of €4.2 billion, that's a 25% increase over last year, or 7% ahead on a like-for-like basis. We've also had very strong cash performance. Our cash conversion of earnings is over 80%. That strong cash conversion in addition to the proceeds that we have generated from our divestment activity has further strengthened our balance sheet. And we end the year with a very strong balance sheet.

Also, included in our performance is that continued focus on business improvement. It's now well-embedded practice across the Group, and we are focused on making our businesses better year-on-year driving incremental improvements. That's best articulated through our margin performance in the last year.

Our EBITDA margin is 230 basis points ahead of last year or on a like-for-like basis we're up 50 basis points in terms of progress. We've also increased the cash that we return to shareholders during 2019. Our ongoing share buyback program has delivered €800 million back to shareholders.

We've obviously launched the next tranche of that and we're well underway early in 2020, but we're also pleased to announce this morning that we're increasing our full year dividend by 15%. That's a significant step-up from prior years and that significant step-up in the level of dividend is a reflection of the underlying sustainable strength of our profit and cash generation going forward. Active portfolio management is also a key part of our value creation.

2019 has been a very busy year for us. We've generated over €2 billion of proceeds from our divestment activity, including the disposal of our Europe Distribution business and we reinvested over €700 million of that back into small and medium-sized bolt-on deals. That would be value-accretive for us into the future.

We also completed the disposal of our joint venture in India in December and that's a further reflection of our continued strategy to focus and simplify and narrow our focus going forward. You'll also see this morning that we have announced new targets in terms of our carbon emission reductions out to 2030, the most demanding targets in the sector. And those targets are based on the progress we've made to-date, but also our ambition to continue to drive improvements across the sustainability agenda for our business, but also for the environment that we all live in.

Finally, what you see announced this morning is that, we are changing our reporting currency to U.S. dollars effective January of this year, and we'll talk about that later on.

Moving on to slide 3 and looking at the key financial highlights in our announcement this morning. 2019 is a good year of delivery and that's reflected in our financials. Sales, earnings, margin all well ahead of last year, driven by strong organic growth, good contribution from acquisitions, accounting changes and also some currency tailwinds. When you look at it on a like-for-like basis, you can see that our sales and our EBITDA are 3% and 7% ahead respectively, and our margin is 50 basis points ahead on a like-for-like basis. That margin improvement is a good indication of the progress we're making on our performance improvement journey across the business. That performance improvement journey is also reflected in the strong like-for-like growth in our earnings per share up 25% over last year.

Now for me as the Finance Director, the number on this slide that I am most proud of is cash generation. I know you've heard that from me before. But in 2019, we generated over €3.5 billion of cash from our operations across the globe, and that reflects over 80% of our earnings being converted into cash. And that really strong cash performance has further strengthened our balance sheet and that stronger balance sheet gives us options as we go forward in terms of further value creation for our shareholders.

At this point, I'd like to turn into our divisional trading performance, and we'll start with Americas Materials. So I'm going to ask Randy to update you on the backdrop and the market backdrop, but also how his business has performed against that backdrop.

[Randy Lake, President, Americas Materials]

Thanks Senan. Turning to slide 5. We continue to experience real favorable economic conditions in 2019. In the United States, we saw 2% growth in GDP. Their labor markets continue to be strong with the addition of over two million jobs in 2019.

I think what the encouraging thing is those macroeconomic trends really that momentum we're seeing make its way into construction activity where we have seen good underlying demand in all the markets that we serve.

Turning to Canada. You would be familiar with our business there primarily in the eastern part of Canada in Ontario and Quebec. I'd say those markets resemble very much like our Northeastern U.S. markets, characterized by good underlying demand and a nice pipeline of infrastructure projects.

I think it's important to remember that 50% of the materials business in North America is exposed to the infrastructure segment and that segment has been growing significantly year-over-year. In fact in 2019, we saw a good step-up in highway and street spend in the United States, and if you look at those dollars spent about 12% ahead of 2017 levels.

Now that kind of underlying investment really couldn't take place without the engagements of states who've really taken ownership of their infrastructure spend. And again in 2019, we saw 46 states passed some state and/or local legislation to improve their underlying infrastructure.

And when you look at that work combined to what's happened over the last two to five years, we're really beginning to see that transpire in terms of increased contract data and awards. So it gives you a little bit of visibility as we go into 2020.

Turning to our trading performance on slide 6. I'd have to say I'm really proud of the team in 2019. We saw a 4% like-for-like increase in sales driven by good underlying demand, but really strong pricing discipline. We saw improvements in our aggregate ready mixed and cement volumes year-over-year. Our asphalt volumes were broadly flat, primarily due to the extensive flooding that took place in the central part of the United States during the first half of the year.

Our commercial teams continue to be hard at work. We delivered a 5% improvement in pricing in both our aggregate and asphalt line of business and the cement platform delivered a 4% pricing improvement year-over-year.

And just speaking of cement, the Ash Grove business continues to perform very, very well. It's been fully integrated into our existing network, still benefits from a lot of the global activities that we have taking place across the group, our global procurement strategy and around category management and really the sharing of best practices from our European colleagues really boots on the ground from Onne and his team have really allowed us to deliver ahead of expectations in regards to our synergies in 2019 puts us on a really nice path for 2020.

And certainly unlike with all CRH companies, the real intense focus on performance improvement, driving operational efficiencies strong discipline in regards to cost management and despite some headwinds in 2019 in some areas of input costs, the teams delivered a 10% improvement in underlying EBITDA. And I think as impressively or more impressively are really an expansion of our margins on a like-for-like basis of 100 basis points.

And so as we look to 2020 as you would be familiar with we have a rather large contracting business in North America. One of the tenets or the features of that business is our backlogs gives us a little bit of view of the next six to 12 months of activity in regards to construction. And good to see that those levels of backlog is very similar to what we were experiencing at the beginning of 2019. So it gives us a lot of confidence as we go into 2020 in terms of underlying demand as well as some of our commercial opportunities.

So with that, I'll turn the presentation over to Onne to take you through European Materials.

[Onne van der Weijde, President, Europe Materials]

Thank you Randy. And similar to you in the U.S., in Europe we saw a positive construction demand along all our key markets with one exception and that was the U.K. The political uncertainties in the U.K. for the last couple of years actually led to a decline in the infrastructure market and that is more than 50% of our market segment, so with the exception of that good construction demand in Europe in 2019.

The good news is that the new government in the U.K. has a strong commitment to infrastructure. We have a new budget upcoming, but there's already a commitment to High Speed 2. And Tarmac our U.K. subsidiary is actually ideally situated to service that demand, because we have about 20 production site be it Corey’s [ph], be it ready mixed plants, be it precast plants, all along the track. And as a matter of fact, we have been awarded preferred provider status for the ready mixed. So good results there. So I hope to see better progress there. And I expect that the U.K. market will stabilize in 2020 and starts to grow from thereon.

Also progress in Western Europe, again in this time in infrastructure both France and Ireland did well for example. And we had good growth in Eastern Europe. So all the way from Poland to Romania, we saw very good demand in our Eastern markets and I expect that to continue in 2020. And the early signs are that if I look at the first month and a few weeks continued good demand in our markets.

Turning to trading performance. Good performance in 2019. As you can see on the slide, we had a 5% like-for-like sales top line growth; 2% EBITDA growth. And if you look at the margin there's actually two stories in that, because mainland Europe actually achieved a 50% basis points improvement and it is due to the challenging conditions in the U.K. that actually did make a swing from plus 50 to the 30 you see here on the page. So that's an 80 basis point swing, but it is actually a tale of two stories in Europe.

Pricing was ahead in all our markets. On our cement categories, we achieved a 5% increase. And I remember the question last year, how many of the markets can you achieve price increases? Well, our long-term goal is to get to 15 markets out of 15 and we achieved that in 2019. And all indications are good that we will continue that trend in 2020 as well.

And with that I would like to hand over to you Keith.

[Keith Haas, President, Building Products]

Thank you, Onne. If you look at our Building Products business in CRH, we're really geared and driven by the residential and non-residential construction markets, primarily in North America and in Europe, but we have a small and growing position in Australia as well.

And if we look at the market backdrop similar to what you've heard already. In Europe, our major markets or the countries that drive most of our demand are Germany, the Netherlands, Poland and the United Kingdom. And you take them together along with the other markets we compete in in Europe; there was a positive backdrop that continued to support the performance and the growth of our businesses in Europe.

And when we look at North America, our biggest single market is the United States and we're there. We're about evenly spread between residential and non-residential construction. Looking at residential construction in the United States in 2019, it got off to a bit of a slow start.

But as the year went on and the economy remains strong and mortgage rates actually declined during the year in 2019, we saw a pickup in growth and activity in residential in the U.S., strongest in the south and the west, but broadly speaking strong overall and that's supported the growth of our business. So, overall, 2019 was a year of growth for res in the U.S. and looks like another year of growth in 2020.

The non-residential segment, which is broad, has many different verticals in it and they kind of tend to move at different pace at different times. And we saw that again in 2019. There's been a high level of activity in non-res over the last number of years.

In the prior year, we saw some segments had slight declines, which were a little bit of headwinds on some of our businesses. But more importantly, parts of the non-res segment continued to grow, which were tailwinds for parts of our business as well.

Taken together, overall, the positives outweighed the challenges in non-res and it was another year of growth in non-res, which benefited our businesses. And as we look forward to 2020 in non-res the forward indicators have turned positive in the last number of months.

So, like, for the last five months, they've been in positive territory, which gives us confidence that that segment of our business will remain positive as we look forward. So, kind of, in totality we have a large geographic spread. And taken all together, it was a positive environment for our businesses in 2019 and we have momentum that we look forward to continuing in 2020.

So as you take that backdrop and look at our trading performance, it was another year of strong delivery for Building Products in 2019. We had modest top line growth of 2%, which was generally in line with – across the different markets in which we compete.

But our continued focus on operational efficiency in strong commercial management and cost control across the division, we were able to take that 2% growth and turn it into 8% like-for-like growth in our EBITDA. And that strong operating leverage again translated into about 70 basis points of operating margin improvement for the division last year, which continues a trend we've been on for the last several years.

But in addition to performance, this was the first year of our global Building Products division. It was quite busy in terms of portfolio. Senan already mentioned the disposal of our European Distribution operations, which was a very sizable change for us in the portfolio of our businesses. But also around mid-year, we announced the disposal of our Shutters & Awnings platform, which was European-based. And then in September, the disposal of our fencing business, again, another European-based products platform for us.

But just as importantly as divestments, we continue to invest in our core businesses and Building Products. We did 16 bolt-on acquisitions, spending about €450 million, again, strengthening our core businesses. And these acquisitions have already integrated well, are delivering synergies and will help fuel the growth of this division as we move forward.

And before I close, I just want to highlight a few key features of our Building Products division, kind of, how it fits within the strategy of CRH and how it's positioned for growth going forward. And first, I'd just like to reiterate the performance of the division. So if you look over the last five years, as we've worked to really do, what we have talked a lot about in CRH, which is about getting more focused and getting simpler in our portfolio.

We've been able to drive significant profit improvement in the business. So if you look, our EBITDA is up 13% on average over the last five years and our margin is up about 400 basis points in that time. So the division is contributing significantly to the growth and performance of CRH.

And second, its close relationship to our Materials businesses. About two-thirds of what we do are concrete products, engineered concrete products or products that are related to concrete construction. And as you know, concrete is made with cement and made with aggregates, products that are produced by Randy and nu Onne.

And what we do is we take those basic raw materials and we translate them into value-added engineered solutions for our customers. But what really excites me is the fact that we are the number one concrete products producer in the developed markets of North America and Europe, again adding value to what we do upstream.

And if you think about how materials and products work together in CRH, to help us adapt to the changing nature of construction. It's true, we make materials and we make products, but our customers want solutions. Our customers want solutions that help them in their procurement process, help them execute their projects and help them mitigate risk.

And at CRH, we have the ability, the unique ability to combine materials and products and value-added services into a single offer, a single solution for our customers and that adds value to their business. And when we add value to their business, it adds value to our shareholders.

So, in summary, when I look to the future of Building Products, I see a business with a strong foundation, strong core businesses in good markets, an excellent track record of performance for the group and tremendous opportunities for continued growth, whether that's reinvestment in our business for organic growth, or indeed further bolt-on acquisitions that will fuel growth going forward like we did in 2019. Senan?

[Senan Murphy, Group Finance, Director]

Thank you, Keith. So what I'd like to do now is, give you a little bit more color on our financial performance during 2019. Starting with earnings, moving to slide 13. We reported €4.2 billion of earnings this year, €4.2 billion of EBITDA. That's a 25% increase over last year. The margins are up as well as we talked about earlier on and that's a reflection of very strong operating leverage across our group.

As you can see, there's a number of items behind that growth. But the one that stands out most is the organic growth on that slide, 7% like-for-like improvement year-over-year. That's nearly €240 million of incremental EBITDA over last year, over 2018. And that again is taken against the backdrop of what Onne talked about in the U.K. being a difficult market and some of the input cost headwinds that Randy mentions across some parts of our business over the last year.

Acquisitions have contributed another €170 million of EBITDA to us in 2019 and that mostly reflects the acquisition of Ash Grove, which closed in June of 2018. Divestments are an impact on our performance over the year and that reflects the sale of Europe Distribution, which happened in October and also some of the smaller product deals that Keith mentioned that were disposed of during 2019.

We've had the benefit of currency translation, which reflects the strength of U.S. dollar when you compare it to our reporting currency and there's also some accounting impacts, which obviously get us to our reported EBITDA number.

Moving on to our net debt position and performance slide 14. We started the year with €7 billion of net debt. That was 2.1 times net debt-to-EBITDA. During the year, there's been a number of items that have helped us reduce that debt position. We've had strong inflow from our development activity. We talked about over €2 billion of EBITDA from divestments. We reinvested over €700 million of that into value-accretive deals still had a net inflow of €1.4 billion.

We talked about the strong cash generation even taking that cash, cash generation. And investing well in CapEx in our existing business, we ended up still with €1.9 billion of net cash inflow from our operations. That strong cash flow then has allowed us to return €1.4 billion of cash to our shareholders in the form of buybacks and dividends. And when you add all of that together, you see a sizable reduction in our net debt position down to €5.1 billion by the end of 2019 before the impact of the accounting changes.

And when you take IFRS 16 transition into account, we finished the year at €6.7 billion of net debt. And when you look at that net debt and compare it to our earnings from the continued operations we have going forward you see that our net debt-to-EBITDA on a continuing basis is down below 1.7 times. That balance sheet strength then gives us options, significant options in terms of how we can deploy that capital to create further value for our shareholders going forward.

We have a lot of options, we can invest in acquisitions, we can work on our portfolio management, we can invest in CapEx or we can return some of that cash back to shareholders. And as we look at our capital deployment, our focus is on value creation for our shareholders. So every single capital deployment decision we make is all about creating value for our shareholders. And it's against that backdrop that we've increased the cash that we've returned to our shareholders in the last year.

The ongoing share buyback program as I mentioned has delivered €800 million back to shareholders during 2019. The next tranche would be another €200 million completed by the end of March. On the dividend front, a 15% increase in our full year dividends when you compare that to previous years. That is a significant step-up in the level of dividends. And as I said earlier, that is based on the confidence that we have that the sustainability of our profits and our cash generation going forward will serve us well.

Also in terms of dividends when we look forward I would continue to guide for progressive dividends. So as our earnings per share grows, our dividend per share will follow. And at the same time, we'll keep an eye on cover and make sure that we build back towards a three dividend cover.

And moving to slide 16, and talking about our announcement this morning to change our reporting currency to U.S. dollar effective January this year. The rationale behind this when you look at our business over the last decade, we've been actively managing our portfolio. And as a result, as we see the mix change in our business, you can look at it today and see the euro-denominated earnings represent 10% of our portfolio today compared to 25%, where it was in the past.

It no longer makes sense for us to translate 90% of our earnings back into euro. So as we move to U.S. dollar we see a few benefits. First of all, it creates a closer alignment between our reporting currency and the majority currency that we make our earnings in. Second of all, it reduces the volatility in our reported earnings and then it also allows us to have much closer alignment between our reported performance and the underlying performance across our group. We'll publish updated financials within U.S. dollars. Looking back over the last three years, we'll make that available to you before the April trading update and then our IR team will be available to help you through the transition to answer any questions you may have.

At this point, I'd like David to take you through some of the strategic updates that we talked about earlier and give you an update on that going forward.

[David Dillon]

Thanks, Senan. Yeah, I'd like to cover a number of key strategic topics at CRH portfolio management, capital allocation, our continuous business improvement and also sustainability. And that we at CRH are positioned for further value creation going forward.

Active portfolio management is a core focus at CRH. It's the continuous process of reshaping our business, constantly refining our portfolio. And it's not new. This is a strong mostly that we've built up over the last five years, where we've divested 40% of our asset base, which generates superior margins returns and cash.

As Senan said, this year 2019 was a busy year for us. We generated over €2 billion of proceeds from divestments and we redeployed €700 million of that capital into value-accretive acquisitions. In December, we also completed the sale of our Indian cement joint venture for €300 million. And all of this was delivered with the same level of financial discipline you come to expect from CRH. The average exit multiple for our divestments was 11 times EBITDA and the average acquisition multiple was 8 times EBITDA. And that's before any synergies or improvements we deliver ourselves. And we will continue to take that disciplined approach to capital allocation at CRH.

Our focus is on developed markets with attractive long-term fundamentals. These are markets with growing populations good economic activity and significant construction needs. And we will also continue to focus on our core strengths and capabilities at CRH operating and integrating value-added businesses building better businesses. And the markets in which we operate are highly fragmented both materials and products allowing a significant opportunity to deliver further growth through acquisition and further value creation for the shareholder.

Turning to the whole area of continuous business improvement and this is a deeply embedded practice at CRH of making our businesses better through continuous improvement initiatives. We have detailed plans in place right across the business at all of our locations to continuously improve and deliver structurally higher margins returns and cash.

And in 2019 despite some headwinds in the UK and also some input cost pressures, we've delivered -- I think we delivered a good start to the program 50 basis points this year. We've also generated good cash. Senan said over 80% of our EBITDA got converted to cash. So very good progress there and a good start. And I'm confident that the initiatives we have in place across all of our businesses will continue to deliver in 2020, 2021 and indeed beyond.

Sustainability is a core part of our strategy at CRH and our business model. And I'm going to use this opportunity to update you on the areas we're focused on to achieve our objective of reducing the impact of construction and construction materials on our environment and other communities in which we operate.

At CRH we manufacture a wide range of building materials. These are the materials necessary to build our world. Without our products there are no homes to live in, no cities to work in and no roads to drive on. Simply put our materials are essential for modern life and modern living. But we also live in this world and we want to make it -- do everything on our part to make it a more sustainable place to live in. It's important to me, it's important to my children, it's important to you. Especially, it's important to all of us at CRH and we take it very seriously.

And sustainability has been deeply embedded within our business for many, many years where we've been collaborating, innovating and engaging with the industry to reduce the impact of construction and construction materials on our world. And it's about never standing still always evolving always improving part of our continuous improvement at CRH.

One example of this is on carbon and carbon emissions. And primarily here we're talking about cement and the CO2 that's generated as part of the production process. Here we're leading the industry. We're a founding member of the Global Cement & Concrete Association -- the GCCA, which is leading coordinated industry response to what is a global issue.

At CRH ourselves we've also made significant steps and significant improvements in our carbon emissions over the last 15 years. We set ambitious targets to 2020 and I'm pleased to say, we've delivered those one year early in 2019. And today we are setting our targets to 2030 the most demanding in the industry with a further reduction to 520 kgs of CO2 per tonne of cement produced.

And all this is about the improvement and reduction of impact of construction and construction materials on the environment. But it is only one aspect of our business. We manufacture a wide range of building materials in CRH. In fact cement only represents about 15% of our sales in CRH. But in sustainability it's a core of everything we do. It's fundamental to our business across all of our range of building materials.

We're constantly striving to improve the manufacturing process make it more efficient, more sustainable, reduce the impact on our environment and our natural resources. And we are recognized as an industry leader by the major rating agencies. We've also been focused on sustainable innovation across our businesses over many decades. And some examples of this in our cement business one-third of the fuels we use are now non-fossil fuels. That's a leader in the industry.

And we have built more roads than anyone else in the world. Randy will say that 100% of the asphalt mix is recyclable. And by volume 20% of our total asphalt is actually recycled material. And in fact, we are the largest recycler of building materials in all of North America.

Keith said something we're really unique and CRH are unique. We're the only business of scale that integrates. We integrate materials, products and services to provide solutions to our customers to address the changing needs of construction. CRH is a global leader in concrete, which is the world's most sustainable building material. It's got a 100-year life, it's strong and durable, it's 100% recyclable, and amazingly it reabsorbs and recarbonizes CO2 over the lifetime of the building.

But CRH is more. We don't just dig materials out of the ground and set up by the tonne. We convert those materials into value-added products and those value-added products form part of solutions for our customers to address the changing needs of construction of tomorrow. And those sustainable solutions use less resources, they improve safety they reduce the impact on the environment and overall part of our aim and objective to reduce the impact of construction and construction materials on our world.

[Senan Murphy, Group Finance, Director]

Thanks, David. Just before I turn to the outlook what I'd like to do maybe is give you a little bit of flavor of where we see CRH positioned in 2020 and beyond as we look out. So as we remember, we talked about a lot of change in the organization over the last decade. And what that change has done is it's changed the mix of our business. But as we look at how we are positioned going forward for future growth opportunities, we feel good and we feel confident about the position we're starting from.

We have got good quality assets in key geographies. We built leading positions across North America and Europe. Those markets have good fundamentals and have good growth prospects be as construction needs GDP growth population growth. In addition to that we've talked a lot this morning about continuous business improvement. It's a well-embedded practice across the group. We've made a lot of progress on it we continue to focus on it going forward and it is an area where we're focused on driving structurally higher margins returns and cash. We have a very healthy balance sheet and that gives us a lot of options.

At the same time, we have a healthy pipeline of acquisition opportunities, but we need to stay financially disciplined. And that has been a strong hallmark of CRH in the past. So when it comes to looking at allocating capital, we have options whether it's acquisitions, whether it's portfolio divestments, whether it's investing in our existing business or whether it's returning that cash back to our shareholders.

Moving ahead to talk about what we see and expect as we look into 2020. In Americas Materials, we've had a good 2019 good, strong, underlying fundamentals around infrastructure, residential, nonresidential. And at this stage, we would see that that positive demand would continue into 2020.

In Europe Materials, we've got good market positions. We stand to benefit from further construction growth across our key markets in Eastern Europe and Western Europe. U.K. has been challenging for us. But at this point as we look ahead in terms of the U.K., we see and expect some stabilization in that market as we look out to latter part of 2020 and beyond.

Building Products has been a year of good delivery. Some positive momentum built up over the last couple of years and we expect to see that positive momentum carry forward into 2020. So when you put all that back together, we expect that 2020 will be a further year of progress for us across CRH.

Moving to Slide 29. And what I want to leave you with here before I turn to any questions-and-answers is the key takeaways from our results presentation here this morning. There was one thing we'd leave you with it's this slide.

2019 has been another strong year of financial delivery across the group €4.2 billion of EBITDA, €3.5 billion of cash a stronger balance sheet. And that strong balance sheet leaves us really well positioned as we look forward in terms of how we can create further value creation.

There's been a lot of continuous business improvement across the business. We talked about the well-exercised muscle now of being able to continuously improve our businesses. We've made good progress in 2019, 50 basis points of margin improvement.

And yes, as we look ahead, we see and we expect to make further progress in 2020 and beyond. Portfolio management is another part of our key value creation had a busy year in 2019. We remain absolutely focused on simplifying our business and looking for opportunities to redeploy capital if that's required.

And then moving on to how we deploy some of that capital, how we think about allocating capital. We've increased our cash returned to shareholders over the last year. Buyback program continues. We've had a 15% step-up in dividends, a onetime step-up in dividend reflecting the sustainably higher profit and cash generation capability of our business going forward.

At this point, I'd like to move on to questions. And I think let's follow the usual protocol here, which is we take questions in the room to start with. We'll move on to the web then at that point. If you could raise your hands, we'll get the microphones to you. And then identify yourself, name of institution and we'll take your questions. Thank you. Start here number one.

[Gregor Kuglitsch, UBS]

Gregor Kuglitsch from UBS. Obviously, if Albert is listening, I hope he recovers swiftly. Three questions if I may. So firstly on energy please. If you could just sort of summarize what happened last year and what you're seeing in the early parts of 2020. I think there's some rule changes on IMO that potentially have some impact on bitumen. So if you could just sort of give us a sense of what you're actually seeing on the ground that would be helpful.

The second question I guess is on U.S. infrastructure. So I think the FAST Act is expiring later this year. We've seen highway awards actually trend negative, if I'm not mistaken. So I want to understand your conviction around the infrastructure market holding up considering those two factors.

And then finally on sustainability and I appreciate the details you've given today. But if you could just give us a broader sense how much these could cost. And then I suppose, how do you kind of see a path towards a more material reduction? I think the reduction is like 9%. It's quite similar to what we've been hearing from others in the industry that have reported earlier this week. But what's the sort of next leg? How do you say get this down 50%, 60%, 70%? What's the kind of longer-term vision to really get – I think you talked about carbon neutrality by 2050 in the statement somewhere. If you could just give us a sense of what you can do to really make a step change, please. Thank you.

[Senan Murphy, Group Finance, Director]

All right, Gregor. Three questions there. I might just take them in the order that came. In terms of energy for 2019 and 2020 I'll take that. And Randy you might add on in terms of the IMO question just in the second part of that. U.S. infrastructure Randy and FAST Act you might update us on that. And then David maybe you might update us on sustainability and the questions that were raised there.

So just in terms of energy position across the group 2019 and outlook for 2020, I’d just to remind you energy bill across the group in 2019 runs at about 10.5% of our group sales and we have seen an increase. The modest increase in energy costs when you put it all together about 3% increase in energy costs during 2019.

As we look out to 2020, we're obviously predicting that we would have a flat to maybe slightly positive outlook on energy across the group. And I guess one thing I would say before I hand over to Randy to talk about IMO is the fact that, remember as a group we are really focused on expanding our margins. So when we're looking at our input costs, we're taking that into account when we're thinking about our pricing dynamics at the start of any year and how we can recover that and how we can continue to expand our margins. Randy on IMO?

[Randy Lake, President, Americas Materials]

Yes. Well I guess maybe just to back up a second in terms of our winter fill strategy. Primarily the reason we're in that aspect of the business is just to ensure supply because there's not enough supply in terms of liquid asphalt to meet the overall demand in the full year. So primarily it's focused to ensure we have that material.

I would say our – the way the winter fill looks at this point in time very similar to last year and really have seen no impact of IMO 2020. So in terms of kind of quantum and pricing very similar we – ebb and flow in terms of quantity in the tanks based upon our backlogs, what we see in terms of margin opportunity. And so it's hard to say that it'll be equal from year-over-year just based upon market dynamics. But in terms of IMO 2020, no impact at this point.

In regards to the FAST Act kind of underlying infrastructure spend I think as I indicated in some of the opening comments, we've been very fortunate to see the activity at the state level. Because if you go back in terms of the underlying funding mechanism for federal spend, it's the gas tax it's €0.184. It's been €0.184 to – since the early 1990s not indexed to inflation. The FAST Act as you say does run up in September of this year. Fortunately, it's – it always is a bipartisan issue. The President talks about, it the legislators talk about it. The key issue is how do you actually fund the program going forward. So I would say in kind of a worst-case scenario, there's a continuing resolution, which really doesn't disrupt kind of the current level of funding and were complemented by the activities that have been taken on by the states and the local municipalities.

[David Dillon]

Sustainability, I think the first thing is that our track record I think Gregor over the last 15 years, we had targets that were set to 2020. And we've delivered those one year early and we deliver what we said, we would do. We've got targets in 2030. I think those targets are founded in strong road maps across the business. Clinker factor increased to alternative fuels and we've proven our ability to deal with that. I think in terms of the CapEx that would go with that it's ongoing CapEx. We don't see a step-up in terms of cost to deliver those targets to 2030.

I think beyond then, we are leading the industry where – I mentioned the Global Cement & Concrete Association we're a founding member. And that association has lots of research, lots of innovation that's coming through that. There's an innovation network within that. So we're all working together as an industry to progress the issues over the longer term beyond 2030. But in 2030, we are very confident in our road map to deliver that.

[Senan Murphy, Group Finance, Director]

Mike come here next in terms of – number two.

[Robert Gardiner, Davy]

Robert Gardiner from Davy. So I'll ask two please. So one on capital allocation just in the context of the strong performance in terms of cash debt the dividend increase how we should think about the split between dividends buyback bolt-ons CapEx in 2020, how we should think about that? And then two, you talked a lot about product solutions the integration between Materials and Products. And I'm just wondering, if you could maybe elaborate give us some practical examples of how that's working between the Materials and the Products divisions and the opportunity that you see there going forward? Thanks.

[Senan Murphy, Group Finance, Director]

Okay. Robert, thanks. Two questions there. First one on capital allocation, which I'll take and then the second one, which relates to your products and solutions conversation. Keith you might start, but actually Randy you will have some perspectives you can add as well if that would be good. Capital allocation just in terms of understanding the priorities we talked about when we look at our capital allocation. Strong balance sheet as we said which is a good problem to have. How do we allocate that capital? Well, and there's a number of factors and we talked about options a lot today and the significant options we have.

I think first place I'd start is looking at our dividend. We've had a progressive dividend policy now for many years and there's been no cut to dividend. We continue to push it ahead with a sizable onetime step-up in dividend this year. And as I said, I'd expect to see a continued progressive approach to dividend. We also have a healthy cover which gives us confidence we can sustain that into the future. I think in addition to that then we look at CapEx within our existing business.

And again, that's something that we've invested well in. We continue to improve our businesses and that's up there on the agenda which we will be continuing to do, and particularly some of the conversations that David touched on there in terms of driving forward on the sustainability agenda and making sure that we're investing enough in our business to be able to take advantage of that opportunity. We've continued to do buybacks, and I mean, they flow through you see them, we did 62 deals in the last 12 months €730 million €750 million of spend on that and that continues to be a feature of our business. And we see that that is value-creating because these smaller deals give us significant opportunity to be able to generate synergies and improve profitability.

Then it comes back to really some trade-offs between further acquisitions versus buybacks. The buyback program now is a well-established part of our DNA and we will continue to make choices in terms of how we allocate capital between buybacks and acquisitions depending on the opportunities that present themselves. It's good to have that option. And again, the main thing to bear in mind is that we will stay absolutely focused and diligent in our approach as David mentioned during the presentation there. In terms of products maybe Keith you might start off and then Randy you can add.

[Keith Haas, President, Building Products]

Yeah. Sure. It's a great question. Thanks for asking it. I think I'd look at it in two dimensions. I think the simplest is really just the vertical integration relationship between our divisions. As I said about two-thirds of what we do is either concrete products themselves or products that enable concrete construction. And we consume I think about close to 50% of the cement that we buy in Building Products is either supplied by Randy's group or by Onne's group. And as our footprint both in Materials and Products continue to expand that ratio will only go up and that drives value to the company. But if you think about it in terms of beyond just those supply benefits oftentimes our products come together in a project itself.

And I think a good example would be going back to the United States. But I think it's an issue all over the world is we talk a lot in terms of sustainability around the production of carbon and stuff, but there's all other factors in that. Like a big issue for us in the U.S. is water management because it can – it's kind of funny where you need it, it's not there. And then where you have too much of it, you got to figure out something to do with. And so as particularly stormwater is a big issue for us and something we've invested heavily in. And if you think about stormwater management, whether it's a municipality or a private owner, we kind of have a system that we can take to those that would say the pavement on top which has to have water permeate through it is manufactured in our Architectural Products division.

The aggregate that fills in that is made in our Materials division. The aggregate that's below that through, which some of the stormwater filters comes from Randy's group. And then the structures that are underneath that to collect that stormwater filter it and then ultimately return it to the aquifer are made in our Infrastructure Products business, which is part of Building Products.

And again it's almost all concrete or aggregates. There's cement that's going into the concrete and it's a solution that cuts across even divisions within my own group that have to work together to be able to provide it. But it's an entire sort of site solution package that uniquely, we can bring to people and specify the whole thing together. And we have a team that interfaces with a customer that cuts across these divisions so that the customer really has one single point of contact so they don't have to dial around to 10 or 12 different people.

And then our own internal resources figures how to coordinate the teams within our businesses to be able to deliver that on time at the right price and deliver again the value for them which we get to bring us value to us which we return to value as our shareholders.

[Randy Lake, President, Americas Materials]

Yeah. I guess, if you just build on that theme we're seeing certainly a changing of the dynamics in regards to infrastructure work in that we now are much more active in the design-build aspect, right? So it goes from an evolution of our product to asphalt which is maybe not as flashy as what Keith described, but the movement away from a prescriptive specification to a performance-based specification which then allows us to use more recycled material and we warranty that.

The only way you can warranty that is to have a connection with Keith's Group in terms of that underlying infrastructure that's part of a design-build project. So if you think about going to a state agency which is relatively risk-averse in offering something like that that's an overall solution. It gives us a competitive advantage that we wouldn't have otherwise if we had a connectivity with the products that Keith's teams offer.

[Senan Murphy, Group Finance, Director]

Next question. I might come back to this side of the room.

[Arnaud Lehmann, Bank of America]

Arnaud Lehmann from Bank of America, I would have three questions if I may. The first one is, could you provide us an update on your 300-basis point margin improvement target? I believe you said a few months ago, you could give us maybe a pass into 2020 and 2021. And please remind us how much of it you delivered in 2019 if the target is still relevant.

Secondly, in terms of your geographic developments, I mean your -- you've left India 100% now. It's clearly a focus on Europe and North America. Would Australia fit well in your organization, in the medium long-term, if you had opportunities there? I mean it's a fairly consolidated cement market strong vertical integration. Market is a bit depressed now. But in terms of structure could it be attractive to you?

And lastly maybe a technicality on the India JV disposal, what is the reason you sold it on the €300 million? Are there included in your €6.7 billion net debt at year-end? Thank you.

[Senan Murphy, Group Finance, Director]

Yes. Thanks Arnaud. Three questions there. I might just take them in reverse order in terms of the India disposal and the geographic development, I might start with. And then David you might pick up on the development side and also address the margin improvement program that we're driving.

Just in terms of taking India first, India closed at end of the year. So there's no cash shown in our 2019 performance. The €300 million of cash was -- would be -- some of it is already in the bank and the rest of it would be received under an installment vendor loan over the next two years.

In terms of that position, we're very pleased with the multiple that we received -- got for that price and it also gives us the option to take that capital and deploy it elsewhere.

And we've talked about that for a while in terms of looking across our portfolio and looking for opportunities where we feel that we can take capital and redeploy it elsewhere and get a better return. And that was simply the case there. So we make economic decisions not emotional decisions in terms of how we allocate capital.

I think in terms of again geographic developments I think we've talked about the fact that we are very focused on the markets that we're in the developed markets in North America, Europe.

We see significant opportunities for further acquisitions in those markets. You see bolt-ons coming through. This year it happened to be a high degree of bolt-ons in the products world. That can change from year-to-year and that will come down to what opportunities present themselves going forward.

So at this point in time I think we're very comfortable with the footprint of businesses we have today. There's plenty of opportunities for us to continue to grow in those markets and we'll continue to do that. David you might pick up on performance improvement?

[David Dillon]

Yes. On the 300 basis points, but it's a continuous business -- it's actually about the year-on-year making businesses better which is a core part of CRH. We made a good start. I think what you're seeing first and foremost is the benefits of our portfolio realignment where we've become narrower and more focused. You see those benefits coming through.

What is very pleasing is all three divisions have made progress. And if you take out the U.K. actually tremendous progress has been made within EMat as well and the Europe Materials division. But what it is, is a year-on-year improvement process. I mean I'd like to be part of a company that has continuous improvement at its core because you will continue to improve. It doesn't stop at one year or the next it continues to improve.

And I think if we were sitting here at the middle of last year we were thinking okay what is the basis point improvement this year given we have thousands of locations to run this through? It's all incremental. We delivered very well is a good start. And I think what we're doing is continuing to improve. We don't stop yesterday or tomorrow we keep on going.

And I think we have detailed plans in place. We'll see how the year unfolds in terms of how that develops out. But I'm very confident that we're well on-track for what we're doing year-on-year over the next number of years.

[Senan Murphy, Group Finance, Director]

I might just come back to this side of the room again here. Do you want to -- yes. Great.

[Unidentified Analyst]

Good morning. E.S. Entuari from Enskilda Investment Research [ph]. Two questions. First, when we look at the construction of the three worldwide, we see more and more labor strategies. We see more and more tighter environmental regulations and a big impact of digitalization.

What solution can you develop and invest in to address those changes and those challenge? And when we look at your Building Products division where would you like the division to be in let's say five years from now? Would you consider adding new line of products? Would you consider developing what you have? What's the strategy there?

And then my second question is on IMO 2020. So I think you discussed about the short-term impact. Do you see a risk that long-term environmental regulation could limit the supply of liquid asphalt? And if this is a risk what strategy would you deploy to address this issue?

[Senan Murphy, Group Finance, Director]

You got two questions there. Products, Keith do you have a vision for products? And also maybe you might address the labor shortages and Randy obviously in IMO. I know you answered earlier, but you might just supplement the answer.

[Keith Haas, President, Building Products]

To make those first on -- yes. Just in terms of labor shortages I think it -- you are correct. I mean it continues to be an issue for the industry. And certainly in some ways it affects our business. You look at whether it's Europe or the United States they're tight labor markets. I think it affects our customers more than it affects us because we have ways to drive efficiencies in our own factories.

Every year we get productivity improvements therefore for a fixed amount of labor we can have higher output. I don't think the same is actually applying at the same rate in the customer base, so contracting and a lot of products that we do have to be manually installed. So the rate of productivity there growth is not -- doesn't appear to be as fast.

So there's -- it's kind of in a way there's probably a better demand environment than there is a supply environment in some ways. And that's kind of -- in some ways it's good because I believe it's lengthening the up cycle. But obviously we'd like the whole industry to operate more efficiently.

So kind of what are we doing about it? I think a couple of things. One is we do have a significant business in what we call Infrastructure Products or structural concrete which is factory-built building components. So, to ease construction. You could call it modular or prefab or whatever else. Our specialty is doing that in concrete and taking the kind of off-site construction and bringing it to the job site whether that's going underground the structure whether it's going above ground in the structure. So, that's one thing.

Two, you heard me referenced the idea that we make products that are related to concrete construction. So, what I mean by that is we have products that speed concrete construction in the field or make it easier to do and make it safer to do like in our Construction Accessories business and our Infrastructure Products business. So, the more that we can make it safer and easier to build whether that's prefab or actually on-site I think it helps our customers execute their projects faster.

So, we're investing in those businesses quite heavily and investing in ways to make the installation of our products easier. And digitalization you mentioned it has a role to play in that. And so each one of the businesses within my group has a digital strategy and it varies depending on the type of business.

So, in our heavy concrete construction parts of our business it's more about digital integration of the design process with the manufacturing process. So, you would have heard of BIM. So the product is designed electronically -- or building is designed electronically. That's broken down into the components of the building. And what we're working on is to be able to seamlessly connect that from designer into factory. There's a lot of steps in that to be able to do that but we are on that journey.

And then we have other businesses that are more consumer- or distributor-facing where it's about more kind of traditional electronic commerce of ordering from catalogs and being able to seamlessly interact with customers electronically. And what we're trying to do through that whole strategy is make it easy for them to do business with us and hard for them to do business with others differentially and relatively speaking.

So, those are our main strategies I think just in terms of long-term vision. And what we're concentrated on now is building out the core product platforms that we have and how they can grow and what adjacencies they can go into to more fully satisfy customers.

We talk about vertical integration, but we also talk about integration of our capabilities within segments of construction be that for distributors or for contractors and offering a more full-service solution. That's probably our main focus but we are thinking longer term about other segments of the industry that we should be in because the world is moving that way.

And we'll look at that over time think carefully about how new opportunities adapt to our core capabilities. And when those match up I think we'll make moves in that direction but the timing of that would be very uncertain. So, sorry long answer. I'll turn it over to you now Randy.

[Randy Lake, President, Americas Materials]

I just realized that I don't want to be answering after you. It's a lot more creative answers, a lot more interesting than mine. As I mentioned earlier, IMO 2020, we've seen no impact to date. Actually one of the underlying theses is would be that -- actually there will be a higher availability of liquid asphalt of bitumen at lower cost and so that would have some impact in the market. We're not seeing that take place.

How we prepare for that I think as you go back to our history 15 years ago we used 0% wrap in our mixes. Today, it's north of 20%. So, it's creating an environment we have less dependency upon liquid asphalt. So, that content gets reduced actually has a higher performance in terms of the product that we're importing to -- that we deliver. I think that's our - that's the way we view the world. We can't predict exactly what's going to happen. We'll react to those things as they happen in the market but what we can control is the product that we're making and ultimately less dependency on liquid asphalt.

[Senan Murphy, Group Finance, Director]

Just watching the time back here and I think in the interest of the fact that we have questions on the web I might move back here with one more question to this side and we view this as our last question from the floor. Number two?

[David O'Brien, Goodbody]

Thank you. David O'Brien from Goodbody. Just a couple for me please. Firstly, you talked about stability in the U.K. market. I'm just wondering what are the prospects for you progressing profitability in 2020 specifically in the U.K.

And secondly, the margin performance in the U.S. business was pretty stellar in 2019. What are your backlogs telling you about margin progression at this stage? And finally, going back to your pretty ambitious carbon targets. If you look at the two cement networks in Europe and the U.S., clearly carbon reduction has been a keener focus in Europe for some time now. How do the two networks compare in terms of clinker ratio alternative fuel usage et cetera?

[Senan Murphy, Group Finance, Director]

Thanks David. Three questions there. Onne and Randy I'm going to divide them up between you guys. So, in terms of the U.K. stability question Onne you might take that. In terms of the U.S. backlogs and margin performance, Randy you can incorporate that into your discussion.

And then I guess between the two of you both of you have cement businesses within your portfolio. You have obviously the newly acquired Ash Grove business and our Canadian business and what we acquired in Suwannee.

And then Onne, obviously, you've worked closely with Randy and the team in terms of -- and you have a view of Europe versus the U.S. So, maybe we'd start with the U.K. And then Randy you might take up backlogs and then come back and both of you cover the cement conversation both sides of the Atlantic.

[Onne van der Weijde, President, Europe Materials]

Yes. Very important for us is infrastructure development in the U.K. We saw three years of declining demand in that segment. And I think the first thing what the government has done is sending out a very positive signal. And I think that is the most important because the industry was a little bit where we're going. And while the government has now done with the commitment and also what is going to appear hopefully in the new budget is much more commitment to spend on infrastructure.

And that has changed the sentiment and that is very important for us to say what is going to happen because there's a long lead-time and it will take some time before the project starts.

So that's why, I'm -- I think the sentiment will help to stabilize in 2020. And if I look at the projects we have in the pipeline, I was just mentioning High Speed 2. We have about 20 locations along the corridor from London to Birmingham, and we had a preferred supplier. We have won two-thirds of all the ready-mixed contracts awarded in the major segments along the road. We have major aggregate supply contracts as a preferred. So, it doesn't lead to shipping out of the gate today, but I see good progress that that will start at the end of the year. So I'm positive that we will recover.

[Randy Lake, President, Americas Materials]

And just turning to kind of the -- kind of our margin sentiment what we see in the backlog. I guess we track certainly on a weekly basis kind of the quantum of work that we bid or win rate by market in kind of the underlying margins and we're seeing margin progression. So it’d just be indicative of the fact that there's a good environment in terms of infrastructure spend. So we feel confident kind of all through the chain of margin progression as we go into next year.

And I'll let Onne talk a little bit about the journey in regards to where Europe is in terms of cement production because we're relatively new. I would say one thing in particular within North America now we run the cement platform with one team. So we took the Ash Grove business, the Florida cement assets and the Canadian cement business one leadership team kind of one face to the market. I think what that allows us to do is really leverage a lot of the capabilities in a very quick fashion and the experiences from Onne and his team in and around operational improvements.

Ash Grove, in particular, was a very fine company. We have been a long-term customer, but we certainly found opportunities, whether that's in the use of alternative fuels that we would have learned directly from Onne and his team, the focus on clinker factors that would never have happened without kind of the extensive technical resources. So, I would say there's a ways to go in regards to improving the performance of our North America cement assets. And it's really on writing on the cocktails of the journey that really Onne and his team have been on but you can talk more about that right?

[Onne van der Weijde, President, Europe Materials]

Yeah. So just to start where you left Randy in terms of alternative fuels and clinker reduction and everything else. We have developed very detailed roadmaps and that is on a company-by-company basis, on a country-by-country basis. So, these 520 kilos per tonne on cement we have detailed them. We have planned them. It's part of our normal CapEx.

So, we are quite confident that the targets we have said that we can deliver that in the normal course. We're a little bit ahead in that advantage we can bring to the U.S. So we have an exchange and people on the ground in the U.S. also to continue the journey. We are much further and we are close to 50% replacement of fossil fuels in Europe, and we're going to try to do the same in the U.S.

In terms of growth, Western Europe is more stable. There is some growth, but it's not fantastic. But for us the growth region is Eastern Europe, all the way from Poland to Romania is a good market, and it continues to grow. So even today, we have a relatively -- well mild winter right now in the east and we see good volume growth in Eastern Europe.

[Senan Murphy, Group Finance, Director]

Just looking at the list of questions I have here from the webcast, and then ticking them off. I think most of them have actually been addressed in the questions that have come up and answers that have been responded here. I think there's only one that I just can notice here that hasn't I don't think have been addressed so far. David, just in terms of further disposals, and now that we're out of India that we have plans to exit all of emerging markets.

[David Dillon]

Active portfolio management is the new muscle. I think we've developed over the last five years here at CRH. So we're always looking at everything. I think parts of our business here we're always going to look at every year how we're delivering the right cash or delivering the right margin improvement, are we delivering growth the right returns.

And it's a constant churn, I would say, which is exactly what you want in a group like ours as well. This is what we're doing. So, I would say the answer is yes, we will have further investments. The question is how much they would be and over what time frame. But it's actually just part of our ongoing business now I would say, and embedding acquisitions in the right way as well.

In terms of emerging markets, it's quite small now within what we have. I think we've got a small position in China which is very, very small but also the Philippines. Philippines is actually a good business. It's improved quite a bit over the last 12 months. I think we were here 12 months ago sort of saying a challenging period.

We've really made good improvements in that business, and we saw a doubling of profits actually in that business over the last year, and continued progress in 2020. But overall our footprint, 95% of it is in the developed markets of Europe and North America. And again that's where our focus is and we see great opportunities there.

[Senan Murphy, Group Finance, Director]

I think in the interest of time, we'll close the session here this morning. Can I just thank you all for your time and attention, and taking time out of your busy schedule and coming to listen to our results presentation here this morning.

If you have any follow-up questions and anything that wasn't addressed this morning, our IR team are available and certainly willing to help in terms of answering any questions that you may have or any follow-ups that you may have from this morning's presentation.

And the next time we'll update you will be in April in advance of our AGM. So, we'll give our trading update in April. And at that point, we'll be able to give you a further update in terms of how 2020 is unfolding, and how it's progressing. So until that time, please keep well and stay safe. Thank you.