CRH PLC

NYSE:CRH

Earnings Call Transcript 2020-Q4

[Albert Manifold, Chief Executive Officer]

Good morning. My name is Albert Manifold. I am the Chief Executive Officer of CRH. I am talking to you this morning from our office here in Atlanta. And I am joined here this morning by two of my U.S. colleagues, Randy Lake on my right, who is the Head of our Americas Materials Business; and also Keith Haas, who Heads up our Global Building Products Business. We are also joined today by our colleagues in Dublin. Senan Murphy, our CFO joins us there; and he too is joined by Frank Heisterkamp, who’s Director of Capital Markets and ESG; and also Tom Holmes who is Head of Investor Relations.

And we are going to take you through our results this morning that we published earlier on. But before I do so, I just want to say a short few words to my colleagues in CRH, the almost 100,000 people that worked through the course of last year, a very challenging and difficult year for us personally and professionally and to thank you all most sincerely for the hard work and dedication and indeed sacrifices you made to help deliver for us which were record results.

Of course, we are not through the pandemic yet. We hopefully will see the relief come to us during the course of this year as a science comes to help us. However, all I can ask is that all of us respect the protocols, try and to stay safe, and look after each other until this situation unwinds as best it can.

So over the next 40 minutes or so, we are going to go through a presentation, which takes you through the background to the performance of our business in 2020. How we have delivered those numbers? What was behind us and indeed setting out for you some sense of what 2021 looks like even though it is very early on in the year?

We would also like to take a little bit of time to explain to some of the changes that have been happening in our business over the last 10 years. And see how that has changed the face of CRH and also sets us up for the next stage of growth in our company.

As usual at the end we will have questions and answers a little bit different to before, because we are not in a live room anymore and the current climate of course everything is remote, but we will talk about that later on.

So, first and foremost, if I can go on to the first slide and just to set out as I said here, some of the key messages that we are talking with regard to CRH on slide two. A very challenging year for us across CRH. What we have seen is a slowdown in our businesses, not necessarily because of a slowdown in volumes, but what’s actually happened is we have seen that significant restrictions in our life and in our business and our ability to get to work principally in Western Europe.

Of course, the world lockdowns for several weeks and indeed a couple of months in some of our main markets. We also saw it in Central and Eastern Europe as well. Although, not as much, but it was quite resilient. And here in North America, particularly in the United States, where construction was deemed to be a necessary activity. It’s still slowdown activity levels and it meant that our topline revenues were back by about 2%, but only 2%.

But of course we worked within our businesses this year to try and deliver the best results we possibly could. And in 2020, I am happy to report yet again it was another year of advancements both in profits, margins and cash, where all three were ahead again against a backdrop of a declining topline, which was a really strong and robust performance.

Of course higher profitability for us converts into higher cash and that strong cash is utilized and you can see it in the strength of our balance sheet. Our balance sheet now is at the strongest that’s ever been.

Net debt to EBITDA it’s at 1.3 times and that sets us up very well particularly so when measured up against the significant pipeline of opportunities we see going out ahead of us in the years ahead. But we will talk more about that in the presentation.

Also that cash being put to good use for our shareholders, returning cash to our shareholders. We have announced this morning an increase in our full year dividend to $0.115, a 25% increase in dividend, recognizing not only the strength of our cash flow last year, but also ultimately a test into the confidence we feel about the repeatability of the performance in the years ahead and the strength of how we feel our cash in a business and the cash generation of our business will support all aspects of our cash allocation as we go forward and we will talk about that during the course of the presentation.

Also we have announced a continuation of our buyback program, a recommence I should say, where we are announcing our ambition to spend up to about $300 million buying back our stock between now and the end of June.

All of the performance this year has been a result of the hard work during 2020. But of course, we have been working for a number of years in the reshaping and repositioning of our businesses. That also has helped deliver and we are going to talk about that.

We have also been working on the continuous business improvement within our business. That has been a huge part of how we deliver within our businesses and nudging on margins and performance on a year-to-year basis.

But also there’s been some crucial changes in terms of the position of our businesses. We used to just produce base materials. We have now evolved our business over the last decade to be one that focuses very much on integrated building solutions providing better options and solutions for our customers and I want to expand upon that at the back end of the presentation.

So for the moment I am going to pass you back to the Senan in Dublin. He is going to take you through some of the key highlights of our financial performance in 2020. Senan?

[Senan Murphy, Chief Financial Officer]

Thanks, Albert. So I am turning now to slide three, and as you can see, set out on this slide we have set our financial highlights from the results announcement this morning. I guess in summary for me it’s been a very robust performance against what has been a very challenging trading environment over the last 12 months.

You can see that we are reporting a sales number of $27.6 billion, which is a decline of 2% over last year and that really reflects the negative impact that COVID has had on activity levels in many of our markets but particularly during the second quarter.

Despite that decline in topline, we are reporting record profits today, $4.6 billion of EBITA, which is a 5% increase over what was already a very strong performance in 2019. That earning performance really is a testament to the real focus and quick attention to preserving our profits over the course of the last 12 months.

That strong profit performance shows up as well in our margin, another year of margin improvement, 120 basis points of organic growth in our margins over the last 12 months. That’s strong profit performance also helps us to significantly increase our earnings per share. We have been almost 20% increase on a pre-impairment basis over last year.

I am pleased to say that we have had another very strong year of cash generation, $3.9 billion of cash from our operations all across the group and again we will talk about that in more detail later. That strong cash generation has further strengthen our underpins the capability within our balance sheet. We have now got a year-end position where the net-debt-to-EBITDA ratio is at 1.3 times. That leverage level is the lowest that we have seen certainly within the last decade across the organization and it gives us capacity to be able to create more value as we go forward.

At this point, I’d like to hand back over to Randy who is going to share with you a backdrop on the North American markets, maybe he also update you on the trading performance in our Materials business in North America. Keith will pick up and update you on the trading performance in our Building Products business and Albert will then update on Europe.

[Randy Lake, Head, Americas Materials business]

Thanks, Senan. If you turn to slide five. I guess, if I had to use one word to describe construction demand in 2020, I’d say resilient. Construction activity in the northeastern and northwestern portion of the United States, along with Canada were the regions that were primarily impacted by the pandemic restrictions that were put in place, particularly in the first half of the year. Our businesses in the Central, Western and Southern part of the United States were far less affected.

As you know about 50% of our Materials business is exposed to infrastructure and we are pleased with the momentum we continue to see there. Although, activity levels were slightly below 2019 that funding is underpinned by a strong bipartisan support at the federal, state and local level.

Moving to residential construction, newbuild construction was robust in the U.S. Demand for new housing is really at multiyear high, supported by low interest rates, low inventory levels and a continuation of the migration pattern we have seen to the western and southern portions of the U.S.

Remodeling activity was strong as well as we saw households and individuals redirect discretionary income to the improvement of their homes, and more importantly, for us improvement and building out outdoor living spaces.

And really not a surprise to anybody that the non-res market was the particular market that was most heavily impacted. Lower levels of activity in the retail, office and hospitality space were partially offset by good demand in warehouse, data centers, health and communications. And despite that lower level of activity and I would call it really a benign input cost environment we saw a good commercial discipline across all of our markets and product lines.

And now turning to slide six to talk a little bit about America’s Materials performance, really happy with and proud of the work the team did in 2020. Our production volumes in aggregate asphalt and readymixed concrete were below 2019 levels, primarily due to the restrictions I talked about on slide five.

But our cement volumes remained intact and strong, roughly in line with 2019 levels, really driven by an exceptional demand environment out west offset a bit by lower levels of activity in Canada. And again despite those lower levels of activities, our teams did a tremendous job in around commercial discipline and that translated into margin improvement in each of the lines of business across our platform.

But for me when I look at 2020 and stand back what really to me highlights the great performance has been the resilience of our business model and our operational agility. The ability for us to leverage our scale and our vertically integrated business model to adapt to the volatile demand levels that we saw on a micro market basis and then to be able to flex our cost base accordingly, that’s really what delivered the results you see today, a 10% improvement in underlying EBITDA versus 2019 levels and a strong margin improvement of 260 basis points.

Now certainly part of that margin improvement was a result of lower energy environment. But really the majority of those gains just came from better execution from our teams in the markets that we serve.

And with that, I will turn the presentation over to Keith and take you through Building Products.

[Keith Haas, Head, Global Building Products business]

Thanks, Randy. And looking now at slide seven, it sets out the performance of Building Products last year 2020. It was certainly a difficult and challenging year for us. We do business in 15 different countries around the world and that’s kind of 15 different ways to handle the crisis.

But against that backdrop our teams delivered continued progress in our business by having a long term focus on continuous business improvement, as well as developing integrated products and solutions for our customers. We were able to grow our sales, grow our profits and improve our margins last year despite all the challenges.

I mean when you look inside our portfolio businesses there were ups and downs. Our building Envelope business, which is primarily North America and Europe, and primarily focused on non-residential, had its challenges and activity levels did decline in that business last year. We had good cost controls to preserve our profitability though.

In our Infrastructure Products business we saw stable demand and against that stable backdrop we were able to continue to grow our profits and our margins in North America and indeed in Europe.

And the biggest business in our division is Architectural Products and they had a record performance in 2020. That’s because of the focus that they have on residential markets and especially RMI within residential. And starting around the beginning of Q2 we saw a significant increase in demand for residential RMI products, especially outdoor living products which are the core of what we do in our Architectural Products business and that carried on through the year.

So against that positive demand backdrop and our focus on operating efficiency and serving our customers with passion, we are able to deliver record sales, record profits and record margins in that business last year.

But it’s not just about last year. There’s been a significant amount of change and transformation improvement in Building Products over the last number of years. We have got a simpler more focused portfolio of businesses. We have demonstrated consistent growth and consistent improvement in our margins and our returns. And we are now at 25% of Group EBITDA. It’s a very strong foundation from which CRH can build for in the future. Albert, over to you.

[Albert Manifold, Chief Executive Officer]

And thanks guys. Look, really strong performance by both our businesses in North America, really great delivery which underpinned the delivery for CRH in 2020. If I can move on to the next slide just to give you a sense of the backdrop that we saw in our European markets.

Europe was much more impacted by the pandemic than it was here in the United States, particularly Western Europe and in our big markets of Ireland, U.K. and France very significant closures and restrictions on activity levels for several months in some cases. And in fact it was well into the second half of the year, excuse me, before we saw activity levels are coming back to where this should be.

And Central and Eastern Europe was a little bit more resilient. It was back upon normalized levels, but at least it was a little bit more resilient. I mean really good delivery in our markets there.

Of course we saw in the second half of the year which we will talk about later on, we saw a rebound and that was what brought the strength particularly in Europe in the second half of the year was the fact there was so much catch up work from the first half of the year and delighted to see again for the third year in a row strong price increase in coming through our major businesses in Europe.

I’d like to specifically turn to Europe Materials now and look at the performance of that division on the next slide. Again, a very solid performance in what was an extremely challenging environment. I mean almost two or three cycles in one year trying to manage different businesses in different ways was very challenging. But I have to say, we did a good job and it was delighted to see in that very busy second half of the year both profits and margins were ahead in the second half of the year across Europe.

As I said, the third consecutive year of price increases, particularly coming through our big cement businesses. We had a very strong performance in Poland and Romania on the basis of that. And I think really what we are seeing there is prices getting back to where they should be.

Prices in Europe dislocated from the rest of the world sometime around 2010, 2012 and the global financial crisis and significant investments have been made by all the major cement producers across Europe and we will continue to be made in a changing regulatory environment and these investments need to be paid back and therefore we need to get proper pricing or more normalized pricing and I think we will continue that on in the years ahead.

Very happy to see although it doesn’t show in the face of the profit and loss account you are looking at there, the progress and work we have done on the margin. Although, we took a step back a margin in Europe this year, really it was as a result of the pandemic.

And in fact, the worst part of our business in terms of the pandemic closures was the United Kingdom, but we are pretty much close to five months to six months. And if I’d taken out the U.K. out of the numbers that you can see our margin would have progressed by about 100 basis points, which attest to the resilience of our business across Europe.

Look, that’s a very brief overview of our business and it kind of brings you to a conclusion with regard to what was behind the trading numbers that were actually there. I think you know a really good robust performance in a very, very challenging environment something we have never seen before and a testament to the strength not only of the business model that we have, but the years of work that we have done to get us to this particular place and we have a lot more work to do.

So what I’d like now to do is to hand back the Senan in Dublin who will take you through the financial performance that was delivered by those operations. Senan?

[Senan Murphy, Chief Financial Officer]

So turning now to slide 11, you can see here the components of our profit performance over the last 12 months. The highlight on this slide for me really is the $230 million of organic growth, a 5% increase on last year in terms of our performance there. And that’s a tremendous performance across all of our businesses particularly when you take into account the fact that our topline has actually reduced by over $500 million in the same period.

I think that’s strong organic growth is a testament to the commitment of our people, it’s also obviously as a result of the strength and the resilience of our business model and it also reflects the ongoing relentless focus on continuous business improvement across all of our operations around the Group.

We can see here that the contribution from acquisitions net of divestments over the last 12 months is an incremental $32 million of profit. By CRH standards we have had a very quiet year on the acquisition front. We made a conscious decision during the course of the year to step back on M&A activity given the lack of clarity in many of our markets.

Currency translation is a small tailwind this year. Our decision to change our reporting currency earlier in the year has had a positive result in reducing the volatility and the variation associations with translating our performance into profits.

We have had one-off costs during the year associated with COVID, mostly related to restructuring activities that were required in some of our markets as a result of the impact of the pandemic on our business.

If you turn now to slide 12, what you can see here is further detail around our strong cash performance over the last year. $3.9 billion of cash generated across all of our operations or said another way, 85% of our EBITDA converted into cash. That is the third year in a row where we have actually had above 80% conversion of EBITDA into cash.

The highlight for me over the last 12 months on our cash performance is actually working capital. We have managed to generate another $200 million of positive cash out of our working capital base and that again is a testament to the real focus that all of our operations have had around continuing to again improve the performance around working capital looking after our receivables, payables, inventory levels and managing a day-to-day, week-to-week, month-to-month throughout the year.

Now what that strong cash generation does obviously is it further bolsters or strengthens or underpins our balance sheet as we look forward and it gives us options in terms of how we can create value for shareholders going forward.

We have got choices in terms of how we spend this cash, whether we spend that cash on the healthy pipeline of deals that we have in our business today, whether we continue to invest in organic growth in our business or actually if we increase the cash that we return to our shareholders or we can do all of the above.

And it’s in that context that we are increasing our dividends this year to 25% when you look at our full year number and it’s also behind our thought process around recommencing our buyback program with the next phase of that being up to $300 million return between now and the end of June.

If you move on now to slide number 13 looking at our net debt movement over the course of 2020. Again, the highlight here is the strong cash generation from our operations. And as I said, what that has done, it has significantly strengthened our balance sheet through the course of 2020. But we have also invested $400 million in 17 value accretive of bolt-on deals that will add profits and returns and cash into our businesses going forward.

Despite the fact that we scaled back on our CapEx activity in the first half of the year given the uncertainties and some of the disruptions in our businesses, we still spent or invested a $1 billion in organic growth over the last year. Some of that in maintaining our businesses, but also some of that in expanding capacity for parts of our business where we actually had record demands.

We returned $900 million of cash to our shareholders, mostly in dividends, but also some buybacks in the first quarter of 2020. What all of that does then is it means that we have ended the year with a net debt position at $5.9 billion and a net debt to EBITDA at just below 1.3 times.

And as I said this is a balance sheet now that looks as strong as we have ever had in the past and with that financial strength and with that balance sheet strength we have got the firepower to be able to continue to think about further growth opportunities in our business going forward.

If you turn out to slide 14 and we will talk about our performance through the cycle. So as you know I am retiring this year, so these are the last set of financial results that I am going to present for CRH. And I thought it would be useful or maybe you would humor me to allow you to talk to listen to the fact that we have not just what we have done in the last 12 months but also what we have done through the current cycle.

So if you look at our performance since 2013, what you can see here is good growth in our topline, very strong growth and our profitability. But the standout metrics on this slide for me are our cash, our margins and our returns.

We have more than doubled the cash from our operations over this period. We have increased our margins by over 800 basis points and we have increased our returns by over 400 basis points. And yes, we have had some macro tailwinds to help us along the way, both our North American and European businesses have shown market growth and improvement over the last -- over that period.

But our performance has been well above what the market entitles us to do and that’s really down to the careful repositioning and restructuring of our business and it’s also down to the relentless focus on the need to continue to improve our performance across all of our businesses. So what this slide really demonstrates for me is that CRH has the ability to be able to deliver superior performance through the cycle.

If we move now to slide 15 and we talk about 2020’s performance against that backdrop and it’s an opportunity to talk about the performance within the cycle, as well as the performance through the cycle.

As Albert mentioned earlier, 2020 has been a year where we have actually had in effect three cycles. We had a very strong performance and strong start to the year in the first quarter, we had significant disruption to many parts of our business during the second quarter and then in the second half of the year we saw a gradual recovery in activity levels across most of our markets.

So 2020 has been a particularly difficult year and despite that we have had another really strong performance. And I think when you want to understand and get behind that performance. I mean, part of it absolutely is about the proactive and decisive actions that we have taken during 2020 to protect our profits.

But a lot of it has to do with the hard work and effort that’s been put in in previous years to make our business more resilient, to make it more agile, to make it more adaptable, to allow it to be better able to cope with the type of stresses that we have seen over the last 12 months, on both sides of the Atlantic, both North America and in Europe.

So, for me, the takeaway on this slide is that CRH has got the ability to not just deliver superior performance through the cycle, but also to be able to deliver superior performance within the cycle.

At this point, I’d like to hand back to Albert to update you on our group strategy.

[Albert Manifold, Chief Executive Officer]

Thank you, Senan. Look, significant progress there over the last number of years and it is significant progress in 2020, a most unusual. We have revenues come back by over $500 million and yet EBITDA increasing by over $230 million. That doesn’t normally happen.

So what I’d like to spend a moment doing on the next slide is explaining what we actually did in 2020 and explain how that has leading to some changes in our business that we have seen develop over the last number of years come to fruition during 2020 and also set us up for the strategic evolution of our business to avail of the future opportunities in the course of the next growth cycle.

So what actually happened in 2020 that we are able to deliver, a $230 million EBITDA increase against a fall in topline of over $500 million? Well, first of all, actually if we had managed our business in a different way actually I think the topline could have fallen by more.

But over the last decade or so, we have made a conscious decision to move our business more and more towards the publicly funded construction area, and we have done so because it’s more resilient in the down cycle, and it’s largely infrastructure.

Governments tend to fund construction and infrastructure through the cycle and within cycles. They support the economy and our movements to that over the last 10 years where it’s a much higher percentage of our business now definitely helped us last year.

In addition to that, particularly in our Products business but also in our Materials business we have a shift more towards repair and maintenance. And repair and maintenance, you don’t have a choice. You must repair broken things. You must repair broken roofs. You must repair broken walls and broken roads. They have to be attended to. You can defer new construction, but RMI is more resilient particularly again on the downside. And those two items were very significant contributors to protecting our revenues.

But crucially, over the last number of years we have moved away from being solely a supplier and producer of base materials. More and more we are taking those base materials and converting them into value-added products and supplying services with those products to provide integrated building solutions with our customers.

We are more and more becoming an important and integral part of how they do business and that embeds us with our customers and again increases the resilience we have within our customers. I am going to talk more about that in a moment. So that protected the topline.

Of course within our profit and loss account what would you expect from CRH. Practically every one of the senior team that were here last year were around during the last global financial crisis. Gray hair and the wrinkles count for something it’s called experience and we knew what to do when January and February started to unwind and we got to work pretty quickly.

We had been working over the last number of years to create a much more flexible cost base. So we were able to get on that cost base very quickly and we flex that cost base to the changing volume activities.

Also, of course, we have got a very significant network of production of around the world and we were able to move production to optimize the network to the lowest per unit costs when compared with logistics. So we kept the market supplied, but at the lowest possible cost.

We had a very strong focus on commercial management and margin focused commercial management. I am not talking about price. I am talking with selectively looking at the mix of our products and choosing how to serve our markets and where to serve our markets and when to serve the markets. That was a big part of what we did.

And of course, lastly the single most important thing we do in CRH that focus, that rigor what we got the continuous business improvement across our businesses, the relentless focus across thousands of initiatives that we have across all of our businesses to eke out and make our business better every single day. There’s no silver bullet in any of that stuff. It’s all inch-by-inch, yard-by-yard, but all of them contributed by the hard work of all of our colleagues to the performance we saw in 2020.

If I can move to the next slide, Senan referred to our performance through the cycle. Now that relentless focus on continuous business improvement, which is an embedded part of what we do now actually has continued again to drive profitability and margins and cash and returns and along may continue.

As you well know, we have been reshaping our portfolio of the last number of years. We have become a much leaner more focused business that has allowed us focus on improving our business the quality, profitability and the cash. And we had been moving our business to better markets where there’s higher growth levels and better fundamentals for our businesses going forward. I will talk about that in a moment.

And as I said to you that ability to move our business to more cyclically resilient businesses, the public infrastructure markets, the public construction markets and the repair, maintenance and approved market which now represents 50% of our sales protected our topline and that significant shift again to integrated building solutions that we will talk about in a moment.

If I can go to the next slide, just to explain to the shift that’s taken place in our geography particularly in North America and also in terms of end use. North America, United States is the -- they are the largest construction markets in terms of profitability in the world and we are the number one player in these markets.

Historically we have had a very good position in the Northeast, the mid-Atlantic and indeed the Midwest. The highest density of population in this part of the world and the highest density of roads in the world and what that allows us to of course is there’s not maybe not so much new construction here, although some new construction, primarily it’s a repair and maintenance market, and we have a very strong market position here, a really strong business that continues to deliver there for us.

However, with migration and immigration into the United States there’s a significant shift in the demographics and the population here over the last 20 years and that is going to continue and that shift is down south and out west. And what we have been doing over the last decade is positioning our business to avail of those opportunities.

So now we find ourselves with a greater and greater emphasis on the higher growth new construction markets down south and out west, I mean, that will continue on for decades. Of course not only does it build new construction -- bring new construction with it, of course in time it will build infrastructure and of course the maintenance that goes with that which is the bread and butter of our business.

So not only have we got a focus in terms of improving the geography, the balance we have now within our business in terms of infrastructure, residential and non-residential is very strong and actually positions CRH for superior growth in North America for the years ahead.

If I can go on to the next slide and talk about Europe, again here we are the largest building matures player in all of Europe. And again a very good mix of what we have in Western Europe, which are established markets or principally the markets there are strong newbuild markets particularly in residential as we all know there has been an unbuild in residential across the developed world for many years and the demand will continue on and we are well-positioned in those markets to enjoy that. But particularly also in the area of retrofit and refurbishment of some of the major urban areas, which will continue to drive demand in our business going forward.

Of course, crucially important, our businesses in Central and Eastern Europe from the Baltics all the way down to the Black Sea. We have got really strong positions. We are the number one in Central and Eastern Europe and here you will see growth across infrastructure, which of course, will be funded by the EU, and of course, new residential and nonresidential as the economies build back. And as we have seen in both parts of the world both in North America and in Europe we should be a beneficiary of significant government stimulus packages in a post-COVID world.

If I can move on to the next slide. So they have been a big part of what we have done, the geographic repositioning of our businesses. We all want to fish where the fish are. You have seen the reshaping of our business making to a leaner more focused business, which allows us improve the profitability and the performance of our business.

The movement of our business more towards publicly funded infrastructure. The movement towards more repair and maintenance, which is now 40% of our total sales, and of course, that exposure to what is the longer term growth of new residential building in the two major developed economic blocks we spoke about, and of course, that relentless focus on continuous business improvement.

All of that has been fundamental in delivering the results that we delivered last year. But much more has changed in CRH during the course of the last cycle and I just like to take a moment to explain what that is what those changes have been and why we have made those changes.

Move to next slide please. Well, we are changing because our world is changing and we talk about it within construction. But by the way the world is changing for the automobile industry. It is changing for the aviation industry. It’s changing for those who produce food. It is changing how we produce energy, because in all of parts of our life we have to reduce the impact of all of these industries, all of the way we live our lives on the world we live in and the same goes with construction. We must reduce the impact of construction on our world.

At the turn of the last century 2.8 billion people lived in urban environments in our world. Today 5.8 billion people live in urban environments. In 30 years’ time it will be over 8 billion people. We cannot continue to build our world of tomorrow the way we are building it today. It’s just not sustainable. We are going to have to reduce the impact of construction on our world.

Now, a lot of people talk about this within the narrow focus of reducing harmful emissions, reducing CO2 emissions and we absolutely support that and we have programs in place to do that. I want to live in a lower carbon world. I have got kids too. I want to live in a zero carbon world.

But we must broaden the argument out beyond just a narrow focus of carbon. It’s too much broader ambition and that ambition has to be to look at the resilience of the buildings that we build to increase the life cycle of those buildings, to ensure that we construct in a cleaner way that’s less intrusive on the communities and localities where we are building.

We must do so in a way that we speed up, we quicken the construction process rather than taking our parts of our cities, our urban environments for two months or three months as we do major intersections or major buildings we have to be quicker at doing that.

We also have to do it safer, not just in terms of the construction process, but the buildings that we build must last longer and must be safer. And we must do it better, we have to improve the efficiency of the buildings we are building from a thermal efficiency, from a sound point of view or indeed from light, in every way possible we must be less intrusive on our world on how we construct and it can be done.

In construction we use scarce natural resources. They are limits and they are finite and we must be much more thoughtful about how we use those. We forgot to use less waste and how we do things. We must as a company. We must as an industry contribute more and more to the circular economy. Looking at how we do that and construction itself has to be a great contributor to the circular economy.

And then go to the next slide please. If you look at the urban trends that are happening here it’s not just about the build environment and the numbers -- the staggering numbers of population growth we are going to be faced with.

The cities that we currently have, we are going to have to improve them as living spaces so that we can live within them. We could have to improve the air quality, have more green spaces, deal with the fact that we have to move people around those cities in a safe and sustainable way. Crucially we are going to have to move people, goods, services and bike utilities, scarce resources, such as water, the whole issue of water management, sewage has to be dealt with not only within those urban environments but between those urban environments and all of those has to be done against the existential challenge of climate change.

Next slide please. Well, CRH has been changing and we will continue to change. How well we will be doing this. But first of all let me just say there, CRH is the largest recycler in North America. We are not the largest recycler of building materials in North America. We are the largest recycler in North America.

The products that we produce cement, aggregates, asphalt and concrete, which make up 70% of our revenues are all 100% recyclable. They don’t only have one life. They have many lives. And this is not future thinking a pie in the sky. Today we are the largest road builder in North America, 25% of every mile of road we built uses recycled materials. We are already a significant contributor to the circular economy and that is going to continue to grow in the years ahead.

If I move on to the next slide please. But it’s not just CRH are changing, of course we see it in the world we live in. But we interact with our customers every single day and our customers are changing too.

They talk to us and tell us what their needs are. They want a simple supply chain. They want improved reliability and quality and security of supply. But crucially they want collaborative partnerships with the suppliers of the materials, so they can create the materials necessary to build the world of tomorrow, innovative solutions, value-add solutions, that combine more and more not only the product, but develop the product and the services to help them deal with the challenges that they are faced with, end-to-end solutions.

Now if we don’t do this, if corporates don’t do this. Who is going to do this? We are sitting here right in the middle of this industry. We manufacture the base materials and we deal with the end customer.

If not us, who? We can’t leave it to governments or regulators, because we are the ones who have the experience. We have the entrepreneurial spirit within our businesses. We had the imagination. We have the knowledge. We had the experience. We have the creativity. We have the connections both to the back end of the business and the customers and we are the ones who can capitalize on the opportunities in a climate focused environment that we live in today. Quite simply, it is not enough any longer of any company to dig materials out of the ground and sell it by the ton. We must do more, our customers demand more and our markets demand more.

Next slide please. So we have been going to work for the last decade and we have been developing a range of value added integrated solutions that build quicker and that build cleaner and that build better and more reliably, and we are reducing construction times and we are reducing the impact of construction on our overall environment. In fact, last year, 65% of the revenues we generated last year came through integrated building solutions and value-added products.

So a lot of talk there. Let me translate some of this into reality. If I go on to next slide I will take you through some specific examples of businesses that we currently have on what they do. Our single largest business in CRH is our Americas Materials business. It produces more than half our profitability actually. A decade or so ago, this was a business that made big rocks into small rocks. We just broke rock largely speaking.

But talking to our customers over the last number of years, we could see they were having problems. What they did with those stones and that rock. They turned into asphalt with all the suppliers and there was problems, the quality of problems of delivery. Then they contractors the contractors they had problems laying the asphalt and then their problem maintainers they were dealing with five or six individual people, and almost collecting the adults.

So slowly but surely we started to work with our customers and we then started manufacturing the asphalt ourselves, and in fact, today we are the largest manufacturer of asphalt in North America. In fact 60% of all the asphalt in North America we laid the road to self.

So we didn’t just manufacture the asphalt, we actually lay and manufacture the road itself. And then having laid the road itself, our customer said, well, we need piping for the water systems for sewage. Can you supply that? Yes, we can. We need the culverts for -- and the water drainage service. Can you supply that? Yes, we can. So we turn our aggregates and cement into value-added concrete products.

So we don’t just supply the base materials. We supply the full road from the rock all the way to the finished road. And then we maintain that road for five years or seven years. And in maintaining that road we know we have a high probability of getting the contract to relay that load, because with the freestyle winds we have here in North America our road probably needs to be laid about every seven years or eight years. And that whole integrated solution has driven for CRH an extra $1 billion of EBITDA per annum over a pure play business.

And that’s just not big. It’s better, because we are doing that at record margins. Last year was the highest ever margin we enjoyed in our Americas Materials business. And by the way it was highest ever margin, because the previous year was the highest ever margin. So it just keeps getting better and better and it’s not just about selling more stone it’s about the total integrative solution.

Let me go on to another business we have. Keith talked about our Architectural Products business on the next slide. And this was again a business which we conceived maybe 20 years ago probably sold basic commodity grade pavers usually for commercial or some basic residential applications but fairly innocuous and not very exciting.

And all of a sudden, we started developing a relationship with our customers. The two big retail outlets here in the United States, Home Depot and Lowe’s, and they came to us and said look we think together we can collaborate to develop an innovative range of different types of pavers, different colors, different sizes, different patterns, different finishes and slowly but surely with them we developed a range of products, a branded products, value-added products that effectively contributed to only the whole outdoor space, the whole backyard.

So it’s not just paving now, it’s hardscapes, it’s masonry, it’s decking, it’s lawn and garden. We provide the whole solution under a brand that we own and control, and we are the major supplier to those two major outlets and many other professional distributors across the retail space here in North America.

Again, a range of integrated products providing solutions for our customers were actually the key issue is actually developing new products for them every year, which we do in collaboration and it’s really the software of this business not the hardware, that’s the key to our success. And that story has driven the profitability of this division by over 400% over the last decade again at record margins.

If I can go on to the next business, our Building Envelope business. Our Building Envelope business a decade or so ago provided tempered glass. We took glass, we cut it, shaped it, edged it, bent it and delivered it to our customers.

But again, listen to our customers was what we do every day of our lives. They told us, well, we have got to go to this glazing specialist to get the glazing systems, we have to go to this person to get the correct wall, here to get the hardware and slowly but surely we have started under our own brands to pull together a one-stop-shop solution for the glazing customer and now we have a fully integrated service we provide where we provide every single product for the laser.

In fact, if the laser origin its product today everything will be on a pallet in his construction site tomorrow morning already, so he just needs to do one thing we do it all for him and mostly it’s all done online. Again, providing integrated solutions for our customers and that has driven a 12-fold increase in profitability over the last decade, again at record margins.

If I can go to the next slide. So the performance that Senan showed earlier on over the last seven years or eight years it absolutely has been driven by a geographic repositioning of our business to more attractive growth markets.

It’s absolutely been helped by a refocus and repositioning of the portfolio and long may it continue that continuous allocation and reallocation of capital back within our portfolio to maximize value for our shareholders.

The continuous business improvement that is within our business and is embedded in our DNA will continue on driving our margins and driving our profitability. But make no mistake about it. The integrated building solutions, the value-added products focus on a more sustainable construction had been a key part in delivering to increase margins, to increase returns and to increase cash that has delivered 2020 for CRH.

So, how does that set us up for the outlook and the next few years ahead? If I could just go onto the next slide please. Well, if we look at the next growth cycle, I think, we are well-positioned. We think there will be bounce back growth, and of course, as everybody knows, governments both in the United States and in Canada and indeed in Europe are setting up to have significant stimulus packages to rebuild economies in a post-COVID world and it will be necessary. We believe our businesses, we are very well-placed to enjoy the benefit of those stimulus growth.

We have a stronger reposition business. We are now focused in the areas where we see the growth is going to be both by geography, by sector and by end use. And the range of products that produces 65% to 70% of our revenues now, it compasses a range of integrated building solutions focused on sustainability and sustainable construction.

We are more focused on our customers than we have ever been before creating with them value-added solutions for the changing needs of construction that they have to deal with. And we do so with the strongest balance sheet we have ever had in our history. Make no doubt about discipline will be maintained, but our appetite is strong for M&A and our pipeline is good.

So if I can go on to the last slide to talk specifically about 2021, look with regard to COVID, we are not out of the woods yet. The health crisis has to be resolved before we see a normalization of markets and there are near-term uncertainties. But the long-term demand fundamentals are very good. We do expect in time to see significant government support and indeed private support going forward for construction.

Of course, we have no doubt about it. We are focused on the continued execution of our strategy and what we did it last year, continuing to focus on delivering higher margins, higher returns and higher cash.

So that ends the formal part of the presentation today and a little bit different because of the technology involved, the fact that some of us are at different locations, the Q&A part of the session is going to be moderated by my colleague, Frank Heisterkamp and Tom Holmes back in Dublin, and they have been receiving your questions during the course of the morning. And I will pass you back to them now who will take the next part of the presentation.

[Frank Heisterkamp, Director, Capital Markets and ESG]

Thank you, Albert. Moving to the Q&A part of our presentation today and as you will have heard from the webcast moderator, because we are in two locations on two different continents, we can’t take your questions over the phone today. Instead, we would ask you to please submit them by e-mail over the web link facility that we have provided. Don’t forget to mention your name and the institution that you represent. And Tom and I will gather your questions here and present them to management. Experience says that they usually more questions than our time schedule will allow us to deal with here live. So please be assured, should any of your questions not be addressed today directly, the IR team will follow-up with you individual afterwards.

So with that, maybe Tom as we have already received some early questions this morning maybe you can start the first question for the team.

[Tom Holmes, Head, Investor Relations]

Thank you, Frank. Albert, the first two questions come from Robert Gardiner in Davy. The first question is can you please provide an update on your Americas Materials backlog and outlook? And are you seeing any infrastructure project delays or cancellations? The second question is how should we think about the split of capital allocation between the shareholder returns and acquisitions? Can we assume the buyback will continue beyond the initial tranche or is it dependent on acquisition opportunities that come your way?

[Albert Manifold, Chief Executive Officer]

Thanks, Tom. Two specific questions there. I will go lastly to Randy to ask him about his views on terms of the materials market here with regard to backlog. Look it’s very early in the season yet. So let’s not just to call out again. But Randy will take it through his views on that.

But firstly what I might do as is our Senan to have his comments if I can just pass my own comment before a pass it through to Senan. I think you only need to look back at CRH over the last two years to three years to four years to see how we have allocated capital and how we have successfully allocated capital to drive the performance of our business and the returns and value for our shareholders. And that has been a mixture of strong mixture of M&A, careful buybacks within our businesses and also increasing dividends.

I think that’s what we are going to see and expect going forward particularly as we start to enter into growth cycle. But Senate I’d like to maybe that’s what we have done over the last three years, maybe your views in terms of how you see the next couple of years rolling out.

[Senan Murphy, Chief Financial Officer]

Sure. Yeah. So, Bob, how are you. You probably won’t be surprised with this answer because I know you have asked these questions before and maybe the good news is the answer isn’t changing. I think when we look at capital allocation and we think about our priorities, the first place we always start is really investing in the organic growth in our business, because that’s the one that gives us the highest returns and probably the lowest risk attached to us in terms of where we go.

So that’s clearly a part. As you know we spent $1 billion last year in terms of organic growth. That was about 75% depreciation. That’s lower than you would normally expect. And what I’d be guiding is that, as you look into 2021 and beyond that would be more in line with appreciation. So running at about 100% depreciation is what you should expect to see in terms of organic investment.

The second area clearly is dividend. We continue to have a progressive mindset to dividend. I mean we have got 37 years of either maintaining or progressing dividend. This year again is another year where we are showing progressive dividend coming through. We have a 20% growth in earnings per share and we have got a 25% increase in dividend. So that is an ongoing priority for us in terms of making sure we maintain that at healthy levels with healthy cover obviously.

The buyback program, it’s good to be re-launching that at this point in time. For me what that does is it shows discipline that when we have got excess cash that we are actually able to deploy that in a positive way and buyback share is an effectively use an efficient way of giving back money back to our shareholders.

And then clearly there is obviously capacity to be able to invest that into the acquisition pipeline be that bolt-on deals as we have done in the past and we will continue to do in the future and you have heard this morning a couple of mentions of the fact that that pipeline you know looks healthy going into ‘21, but also in terms of medium opportunities when they come along. And hopefully going forward maybe it’s a challenge that team is that we will continue to be really disciplined and diligent in terms of how we allocate capital just like we have done over the last decade.

[Albert Manifold, Chief Executive Officer]

Thanks very much Senan and what I can do is maybe pass over to Randy the second part or the other part of the question was about the backlog and activity levels in 2021 here in our Materials business. Randy?

[Randy Lake, Head, Americas Materials business]

Well, as you said, Albert, it’s early days. I guess I look at two things in particular kind of overall bid activity and then actually our backlog. So I’d say overall bid activity across North America is roughly at the same pace and same quantum that we saw around this time of the year and our backlogs we are getting our equivalent shares roughly in line with last year so pretty stable.

I think one of the things maybe a little bit of color on that is that we are seeing more multiyear projects as part of that backlog, which would give you a sense in terms of the confidence that states have in particular because the Fast Act has been extended to September and states, I think, as well as the federal government understand the underlying need for an improvement to -- improvement and expansion of infrastructure in general.

You would be well aware of what’s happened in the U.S. now in terms of some of the stimulus activities taking place and the Senate is actually debating that today, maybe a bit that falls out of that package for infrastructure.

But I think, more importantly, is that once that’s done all eyes and attention, because it is a bipartisan issue, will then shift to what would be the new version of the Fast Act. And so, I would expect progress to exist there. But as far as today Bob everything as that we see is roughly stable and flat to where we were last year.

[Albert Manifold, Chief Executive Officer]

Thanks very much, Randy. Thanks, Sam. And back to you and Dillon for the next question.

[Tom Holmes, Head, Investor Relations]

Albert, The next question comes from Gregor Kuglitsch in UBS. First question is, can you improve underlying margins in 2021 and what are your expectations for cost inflation and pricing in your main markets that underpin your outlook? And the second question is regarding M&A, what kind of transactions are in your M&A pipeline and is there more to be done on the divestment front for CRH?

[Albert Manifold, Chief Executive Officer]

Okay. Hi. Hi, Gregor. Three questions there. Maybe just first in myself on margins and I’d asked my by colleagues Randy and Keith in particular can talk about pricing here in North America. I talk about pricing within Europe and indeed I also come back and talk about M&A as well.

Look, of course, we can improve our margins. I have just talked about continuous business improvement that continues and that business improvement should translate some higher margins.

And I would never seek to cap the margins with the returns are cash as rich, why would we. We always have an ambition to grow. So the answer to that question is, yes, we should continue to grow as we see so much more to be done within our business and we will continue to work on that.

When it comes to the individual pricing, maybe I might turn to my two colleagues first. Maybe Keith you might just talk about pricing in terms of what happens or what you see happening here in North America in terms of residential and non-residential and Randy you might look at the infrastructure and I will take Europe at the end of that.

[Keith Haas, Head, Global Building Products business]

Yeah. Sure, Albert. Hi, Gregor. The pricing environment it was good in 2020 for sure. We saw pricing improvements across most if not all of our businesses. And I think they -- so those same factors are at play in the res and non-res markets here in North America. Demand remains strong in residential as Randy talked about earlier when he gave the overview.

And while we are seeing some challenges in the non-residential sector it’s still a good level of activity. And so when I look across our businesses and talk with our teams we are seeing good expectations for pricing and price recovery of any cost that we might incur as we go forward in 2021. Randy?

[Randy Lake, Head, Americas Materials business]

Yeah. In terms of pricing in the, call it, in the Materials space, I would expect kind of a continuation of what we saw last year really, I would say, strong discipline in all lines of business in all markets. I’d say there’s a general recognition in particular to aggregate pricing of the finite availability of those resources and the value then that’s a place for that and you can even look back to the financial crisis where we saw prices escalate in aggregates.

And so my expectation is that we would continue to see that as we progressed through this year, same for our cement business as well and part of that is you are going to see an improvement on underlying demand just because of the pandemic restrictions that won’t be in place as we get into 2021.

I think when it comes to other lines of business, I have said this before, kind of whether it’s in asphalt line of business or the readymixed line business line of business, it’s about margin management, it’s about managing those input costs and our teams have been very effective in executing our commercial strategy there and I would expect that to continue in 2021.

[Albert Manifold, Chief Executive Officer]

Thanks, guys. And with a new European perspective I spoke about pricing edge and the former part of the presentation, really what we are seeing is a continuation of the recovery, the necessary recovery in pricing that will continue on for a number of years. If in a year like 2020, we can’t keep pricing moving ahead. That will tell you how robust and how necessary pricing actually is.

And I think that will filter all the way down to the chain and in particular we know there’s going to be seamless growth across Europe and European Union as indicated a relief package of $750 million in terms of recovery that’s going to drift back into a real economy that kind of increased volume activity and the backdrop of pricing should continue to maintain support for pricing across Europe as we go forward. So I think a fairly robust and optimistic outlook for pricing both in the Americas and in Europe for the next few years ahead.

With regard to M&A, nothing radical from with regard to what CRH is doing, but progressive. And of course, look, the bolt-on deals that we do every day in CRH, we do that for reasons, because largely speaking 75% of our industry here in North America actually is not owned by the big majors, they are fragmented small mom and pop businesses. The sheer nature of our industry is that it’s a multiplicity of local businesses.

What we do is, of course, our network buys those businesses and pulls them in and gets the advantage of scale through procurement and process and network advantages and that’s how we create value and long may it continue.

In addition to that, of course we will continue to step out into platforms. Look at the Ash Grove deal with did two and a half years to three years ago at this stage. $3.5 deal a -- a massive $3.5 billion deal, a massive deal that stepped up our cement footprint here in North America and we will be get additional add-on acquisitions for the next decade, same as C.R. Lawrence in our Products business, same with Lafarge and Holcim transaction. So I would expect to see platform deals as well.

But also I would expect to see within our Products space what we are seeing we spoke about the idea of taking our base materials and the companies that turn those base materials into value-added products that provide solutions for our customers, providing services with them that’s where I expect to see a big push in our businesses as we adapt to the changing needs of the marketplace.

So more of the same but continue to evolve around the more solutions type approach as we integrate with our existing businesses, which have provided for us so well in 2020. Hope that answer your question, Gregor. Back to you in Dublin, Frank.

[Frank Heisterkamp, Director, Capital Markets and ESG]

Thank you, Albert. The next two questions come from Arnaud Lehmann from Bank of America. First question is what does the exposure of your Building Products division to the U.S. residential market and could it support strong top line growth again this year? Second question is what were the key drivers of the performance of your Americas Materials division in the second half of 2020 and how sustainable is that in 2021 in the context of inflationary cost pressures?

[Albert Manifold, Chief Executive Officer]

Okay. Well, I am the right man in the right place sandwiched by the two oracles of knowledge on these two topics. So first of all, with the guard to your comment and Building Products in the residential market, Keith obviously over to you?

[Keith Haas, Head, Global Building Products business]

Yeah. Thanks Arnaud for the question. Look, U.S. residential for our Building Products division, our residential in total is about 45% of our demand and the U.S. is obviously our biggest market. So it’s a significant component of what we do in Building Products is driven by the residential markets here in the U.S.

And as noted earlier, they are robust. I think, there’s about a 1.3 million starts last year and I know I think we would see kind of stable demand for that going forward and that will support our business. Anything around new residential is good for our business.

But what I think it’s important for CRH is, new residential I kind of think about is like the icing on the cake, because for every new home that’s built in the U.S., there’s 100 homes that are already here and our business is really driven by the maintenance and improvement of the existing housing stock as incomes go up, as neighbors -- neighborhoods develop, as communities develop and they want nicer homes to live in that feeds the demand in our business.

So a strong residential market could lead for growth for us in 2021. But I think the important thing is the strong foundation that we have within the residential space and that constant year-over-year maintenance and improvement of the housing stock with the big partners that Albert talked about in the retail space and then in the professional space.

[Albert Manifold, Chief Executive Officer]

Thanks, Keith. Very clear and again very significant as Keith as the 100 homes currently on the ground here as for every new home that builds. And they need to be maintained and money needs to be spent on them, not only the houses but in the backyards and all of that. And again the increasing focus we have all in mind is paying dividends for us here in business.

Randy, we had a strong second half performance in our Materials business in North America and in particular quarter four, maybe it might just interpret what that means for us in terms of rolling forward as well.

[Randy Lake, Head, Americas Materials business]

Yeah. And I’d say on top of the residential comment maybe those 100 homes need a new asphalt driveway as well. But to your point, we did have a successful Q4. I really call out two things there.

One, I have been doing this for a long time and difference between a really good year and a great year can be the weather impact in the fourth quarter. And this year in particular was very mild conditions and so we were able to execute all the way up to the holidays, which was terrific.

But I think going back to my comments earlier in regards to the pandemic restrictions that were in place particularly in the Northeast now but we have talked about the significant platform that we have in the Northeast and the Northwestern part of the United States, as well as Canada. That -- a lot of that work had been restricted in to the middle part of the second quarter. So there’s a bit of a pent-up demand that occurred and we were able to actually get to that work and carry that work through the balance of 2020.

As we look into this year, I would say, momentum continues much along the reasons I mentioned around infrastructure in particular kind of that the broad bipartisan support fed, state, local, we are seeing legislative officials engage and really lay out plans to continue that momentum, as well as the other portions of the economy that that seem to be moving long as res and even the remodeling aspect of res. So while the momentum may not be kind of peaky that we saw in Q4, we will continue to see momentum though in terms of underlying demand.

[Albert Manifold, Chief Executive Officer]

Thanks Randy. And in fact, maybe Arnaud, I can add a further point from a European perspective. I mean with the strong second half in Europe. But again remember the significant restrictions we had in the first half of the year, meant as Randy indicated, there was catch up demand within that.

So you need to interpret what the second half there really happened. Of course, the momentum is good, but it was particularly strong because people couldn’t get to work in the first half of the year particularly in some of the most restrictive markets. Back to you in Dublin, Frank.

[Frank Heisterkamp, Director, Capital Markets and ESG]

Thank you, Albert. Next question comes from Paul Roger from Exane. And what will the cost headwind be this year if energy prices stay where they are and will pricing be sufficient in the business to offset these pressures?

[Albert Manifold, Chief Executive Officer]

Okay. Well, thank you, Paul. Two questions there. Obviously, related to margin and a continuation of margin. Senan, I might turn to you in terms of your own interpretation of how we would think about cost headwinds, of course, our business is this year. And then come back here and again we will talk about pricing ambitions for this current year again.

[Senan Murphy, Chief Financial Officer]

Sure. Yeah. Paul, I mean, when you look at our cost headwinds. I think a lot of them you know well in terms of our labor costs, our materials costs, et cetera. I think we usually end up having this conversation about energy costs.

We have obviously had a good year in terms of energy costs as Randy mentioned earlier on particularly in America’s Materials business where we saw a decline in our average energy costs through the course of 2020 and that obviously has helped us.

I think as we look into 2021. I think the main thing I would call out when I think about energy costs or headwinds in that space, is the conversation we had earlier about margin and our focus on margin.

And our ability and our desire to be able to make sure that any inflation that we are looking at in terms of input costs that we are looking to recover that to our price and still be able to make positive momentum on margin.

So that’s the way I think we talk about that’s certainly the way we think about it. And I think as we look ahead to 2021, I think we are thinking about the margin we can do they were as opposed to any one line item of cost.

[Albert Manifold, Chief Executive Officer]

Yeah. Thanks Senan. Maybe if I can just paraphrase what my colleagues have been saying this morning with regard to pricing here in North America and I can talk about Europe. I mean pricing went ahead in our two major markets last year in what was a very challenged year and the momentum continues to be good.

Our ambitions are strong and we would anticipate a broadly speaking a positive year for pricing. It’s early stages, yes. Things can go wrong but broadly speaking we would anticipate a good pricing environment both in Europe and indeed North America for 2021. Back to you, Frank.

[Frank Heisterkamp, Director, Capital Markets and ESG]

Thank you, Albert. The next question comes from Elodie Rall in JPMorgan. Question is can you please update us on the progress against your margin improvement plan. How much of this has been delivered to date and are you confident of further delivery in 2021?

[Albert Manifold, Chief Executive Officer]

Hi. Good day, Elodie. Well, as I said earlier on, actually, our -- why cap our ambition on margin. We will see where it goes. We continue to work and improve our business every day. Over the last three years we have made good progress on margin.

We are not in different of course to what happens in the external world as you would have seen it within Europe. But we have told everybody that you should anticipate CRH year-on-year should be producing improved profitability and improved margins and improved returns and improved cash.

At the extent of the progress we will make within that, of course, we will be dependent upon other factors. But it will continue to grow and we have made large strides towards the 300 basis points.

Let’s see how the year 2021 works out in terms of the macro environment, the cost environment. But I have to say, we have shown good progress this year. You have seen us across the major businesses and I would anticipate another year of progress on margin in 2021. Back to you, Frank.

[Frank Heisterkamp, Director, Capital Markets and ESG]

All right. The next question is from Will Jones in Redburn regarding the U.K. In the past you have given a sense of the U.K. performance versus the rest of Europe. Could you update us on this for 2020 please and how much of the U.K.’s lost ground you think could be recovered in 2021?

[Albert Manifold, Chief Executive Officer]

Well, the U.K. was in a very tough place during 2020, amid the horrific impact of the pandemic across the United Kingdom meant there were large scale shutdowns for several months actually. It was only in the back half of the year that we returned back to more normal levels of activity and it impacts upon everything all parts of our industry. So, it’s really not indicative to look at 2020 as any -- in terms of long-term trend.

If I look at the three component parts of our markets there, the residential, the non-residential and I will start with the infrastructure first, at last we are starting to see some of the major infrastructure works starting to happen. We are seeing high speed too particularly around the southeast starting to hit the ground and volumes are good there. Some of the other projects are slower to come through. They are coming through later and they are coming through at lesser levels. But at least some of them are starting to come through.

So, a different robustness coming through in the major infrastructure programs -- projects. And at residential had a tough year last year, you would have seen the house builders report, but you would have all seen the house builders talk about what their anticipation is for 2021 and we would see that ourselves.

There’s a lot of significant pent-up demand. There’s a lot of appetite out there and the government is very much to the fore, with helped by schemes and indeed reduce stamp duty et cetera, et cetera. And we think that residential will continue one with reasonable robustness at pre-pandemic levels at least in 2021 and indeed 2022.

Non-residential is the one probably gives us the greatest cause for concern and the uncertainty around that. And non-res, of course, it covers a wide range warehousing and digital and logistics stations. They are actually quite strong as we have moved to an online world for deliveries of products and services.

However, the space for retail and office space has been significantly impacted by COVID and indeed probably by Brexit. And we are seeing that specifically in our best market as had been before, which was the Southeast in around London, whereby new projects are very, very slow to start. There’s a lot of vacant space. Rents are falling and people are finishing out jobs. And that movement away from the high spec non-res work which is a very profitable work for us.

That’s being replaced by the infrastructure work in the Southeast, but that’s lower margin, lower value work for us. We are very happy to have the volumes, but the specifications for infrastructure are very different to a high quality and build environment within London. So that’s a shift that’s taking place. The volumes are being replaced but there are lower profitability and lower margin volumes.

But broadly speaking we would expect that the U.K. given the horrific impact of the pandemic in 2020, 2021 should be a year of improvement. But it will depend on the mix as we go through the year, and obviously, we will update you when we are talking to you as your evolves. Back to you, Frank.

[Frank Heisterkamp, Director, Capital Markets and ESG]

Thank you. The -- I am actually aware of the advance time of the session here today. Maybe Tom I can ask you to present the last two questions to the team and we can follow up with the IR team later on any other questions that have been send in on an individual basis. Please, Tom.

[Tom Holmes, Head, Investor Relations]

Yeah. A lot of questions here coming through. I think a lot of them have been have been addressed and covered already today. Maybe just two final ones, as Frank said, if we can squeeze them in one here. Could you please provide an update on the trends you are seeing in the U.S. nonresidential market and the outlook there for 2021? And another, could you please elaborate on the benefits of your integrated business model and have this strategy particularly within your Products business gives you an advantage in the area of sustainability?

[Albert Manifold, Chief Executive Officer]

Okay. Two questions there. Two good questions. Maybe Keith might ask you to talk about the non-residential market here in the U.S. trends and come back to me at the very end to talk about the benefits receiver of integrated building solutions in terms of sustainability.

[Keith Haas, Head, Global Building Products business]

Yeah. Certainly Albert. As we talked about earlier, the non-res market is the one that’s most challenged coming out of the COVID health crisis. And it’s understandable, right, offices, retail, things like that hospitality are kind of the crux of where the impacts of the virus are. So there are challenges and there will continue to be challenges in that space.

But I think as Albert alluded to earlier, even in respect to the U.K. non-residential isn’t just about those types of construction. It’s also around e-commerce, telecommunications, data centers, warehouses, logistics, which are thriving at the moment, as the economy changes construction has to change to where the world is going.

Look kind of in the short-term it, non-residential in the U.S., I think, 2021 will continue to be a challenging year. I think our view broadly is that it’s probably going to be the bottom of whatever down cycle this is in nonresidential and that from 2022 onward we will see growth.

But it has to be and it will be an important part of our business going forward. It’s driven, I think, as we talked about earlier by just basic fundamentals of business GDP growth, employment growth and the long-term looks very good for this and we will adapt and change as we need to and position our businesses to where that growth is.

[Albert Manifold, Chief Executive Officer]

Keith and specifically with regard to integrated building solutions, because actually integrated building solutions is all about sustainability. I said something earlier on the presentation which is really important. We cannot continue to construct in the future the way we are constructing today. It is just not sustainable. There’s going to be more people on the planet and we just cannot continue to do what we are doing. So we must change.

So who’s going to make that change? Well, CRH is the most diverse and broadest building materials company in the world, one of the biggest, if not the biggest building materials company in the world.

Who else if not us, it’s going to be in a position to look at the base materials we have and how we can adapt and change those base materials to create value out of product and have the connections to our customers and the regulators to interpret what they want the societal needs that they need to be -- we are the link in that particular chain between the manufacturers and the customers.

So as we build out those products, build out those services and build out those integrated solutions, that’s where sustainability comes to the fore. Because this is not just about creating financial value for a company, more and more we have to create societal value in everything that we do and that’s what’s driving this part of growth with integrated building solutions for CRH going forward and we are very confident about that and very excited about the opportunities. There is a climate focused environment will present for companies like CRH in the years ahead.

[Albert Manifold, Chief Executive Officer]

Look, I am very conscious. We have come to the end of our time. I am sorry we had such a short time with regards to the Q&A and it was a little bit different to other times, but that’s the world we live in. Every day is a little bit different.

And I want to thank you for your time this morning and I thank you for your attention and thank you for those who sent in questions. I hope you found it informative. And again, if there’s some questions that we didn’t get to, of course, our IR team or indeed ourselves we will be on the road talking to you face-to-face and happy to deal with those questions if and when we get the opportunity to do so.

We are next going to talk to you when we update the markets in April 28th with regard to our trading statement and we will update you in terms of performance of our business for the first quarter and indeed how we see the first half of the year evolving.

So for the moment, I want to thank you for your attention, and most of all, I want you all to stay safe, mind yourselves and we look forward to seeing you at the end of April. Thank you and have a good day.