CRH plc (CRH) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the CRH Trading update call. [Operator Instructions] The next voice you'll here will be Albert Manifold.

Good morning, everyone. Albert Manifold, CRH Group Chief Executive; and you're all very welcome to our conference call and webcast presentation, which accompanies the release of our trading update this morning. Joining me on the call is Jim Mintern, our Group Finance Director; Frank Heisterkamp, Director of Capital Markets and ESG; and Tom Holmes, Head of Investor Relations. At the outset, I would like to take this opportunity to recognize the ongoing commitment and resilience of our people across the group, as we navigate the challenges and uncertainties presented by the COVID-19 pandemic. As always, the health and safety of our employees, contractors and customers remains paramount and is a core focus for us every day. Over the next 20 minutes-or-so, Jim and I will take you through some of the main points of this morning's announcement, highlight some key drivers of our trading performance for the first 9 months of the year as well as providing you with an indication of our expectations for the year as a whole. First, on Slide 1, I'd like to take a moment to mention a few of the key highlights from this morning's statement. With regard to our trading performance, I'm pleased to report that the good underlying momentum in the first half has continued into the third quarter. And for the first 9 months of the year, our business has delivered further improvement in sales, profit and margin. Total group sales of $22.8 billion were 11% ahead, reflecting the positive underlying demand environment both North America and Europe during the first 9 months. This translates into EBITDA of $3.9 billion, 15% ahead and a further 50 basis points of margin improvement, a good performance in the context of an inflationary input cost environment and some significant weather disruption in certain key markets during the third quarter of the year. Turning to Slide 2. And in addition to good underlying demand across core markets, our 9-month performance reflects the benefit of our strategic reshaping and repositioning of our business in recent years, becoming a fully integrated provider of materials, products and services, value-added building solutions that enable us to better serve the changing needs of our customers and society. We will also continue to focus on the efficient and disciplined allocation of our capital to maximize value for our shareholders. And in this regard, I'm pleased to see the pace of our acquisition activity increasing, as visibility improves across our markets. In the year-to-date, we've spent approximately $1.4 billion on 17 bolt-on acquisitions, representing an average multiple of 7x EBITDA, further strengthening our integrated solutions model, and I will expand on that a little later on. In addition to investing in our business for growth and value creation, the strength of our balance sheet and our cash generation also enables us to increase cash returns to shareholders. Our ongoing share buyback program has returned close to $800 million in the year-to-date. And the completion of the current tranche of our program will take us to a total of $900 million for the full year. Turning to Slide 3. And before I take you through the divisional trading performances, I'll briefly highlight our thoughts on the market backdrop and trading environment across our major markets over the course of the year so far. In North America and Europe, construction demand remains robust despite an inflationary input cost environment in the areas of energy, raw material, labor and logistics. There is broad-based support for increased infrastructure investment across our markets, and we are pleased to see that in the United States, Congress has passed the $1.2 trillion infrastructure investment. This includes $350 billion dedicated to Federal Highway funding alone, representing an approximately 50% increase compared to existing funding levels and underpinning demand in the years ahead. As the largest building materials business in North America, we are very well-positioned to benefit from this significant increase in infrastructural investments, not just in roads, but also in various water, power and technology infrastructure. U.S. residential construction activity remains robust, particularly in the senior family segment, supported by low mortgage rates, low inventory levels and ongoing migration trends. RMI activity also remains positive as people continue to invest in their homes and outdoor living areas. And in nonresidential, one of the sectors most impacted by the pandemic, there some early signs of recovery, and we're encouraged by the improving trends in leading indicators such as the ABIs, which has now been a positive for 9 consecutive months. Turning to our divisional performances at first, to the Americas Materials on Slide 4. Our business delivered like-for-like sales and EBITDA growth of 3% and 5%, respectively, during the first 9 months of the year, a good performance despite some very challenging weather conditions, which impacted our operations in the north of the United States during the third quarter of the year. However, the underlying demand environment remains positive. And as we look ahead to the remainder of the year, it's encouraging to see that translating into good momentum in our backlogs. Disciplined commercial management across our businesses continues to until positive pricing across all products. And despite some inflationary cost pressures, I am pleased to see further improvement in our margins. So overall, another good performance for Americas Materials benefiting from our increased exposure to higher growth markets in the South and West of the United States over the last number of years and our integrated model really coming through and delivering for our business. Next to the performance of our Europe Materials business on Slide 5, which continued to recover in the third quarter of the year with further improvement in sales, profit and margin. Construction demand in our Eastern European markets remains robust with our businesses in Poland, Romania and Serbia continuing to perform well. In the United Kingdom, an improving trading environment combined with strong cost control and delivering a significant recovery in profitability. I'm also pleased to see good pricing momentum continuing in Europe, with improvements across all our major markets. And against an inflationary input cost environment, strong commercial discipline across our businesses has enabled us to deliver further improvement in our margin. Overall, our 9-month like-for-like sales and EBITDA were up 13% and 28%, respectively, well ahead of the prior year period, which, of course, was heavily impacted by the pandemic restrictions in a number of our Western European markets. But they are also well ahead compared to the first 9 months of 2019, a much more normalized trading part, demonstrating the strong recovery and good delivery of our Europe Materials business. Turning to Slide 6 and Building Products, which delivered a solid third quarter performance despite a challenging prior year comparative. Our Architectural Products business with its complementary range of concrete hardscapes and outdoor living solutions continues to be supported by robust residential repair and maintenance demand. Our Infrastructure Products business also continues to perform well with sales and EBITDA ahead of prior year. This business continues to benefit from the increasing demand for value-added products and solutions for critical utility infrastructure in both North America and Europe, particularly in the area of water management, energy and technology. Our building envelopes business primarily stores to U.S. nonresidential construction has delivered a resilient performance with sales and EBITDA ahead of the prior year period. Overall, 9-month like-for-like sales were 6% ahead, while EBITDA increased by 9%, reflecting further margin expansion, supported by our continued focus on cost control and pricing discipline. On Slide 7, I'd like to take a moment to update you on our recent acquisition activity. Since our last update in August, we've spent a further $500 million on 6 acquisitions. The largest of these was National Pipe and Plastics, a leading water and energy infrastructure solutions business in the Eastern region of the United States. This business has significant overlap with our existing infrastructure products business. In fact, our solar systems are often installed alongside National's products on the same projects. Combining these businesses will further strengthen our capability to provide integrated value-added solutions to our customers, particularly in the area of water management and energy infrastructure. We also acquired Pebble Tech, a leading provider of outdoor leading solutions in the United States, representing a strategic entry into the adjacent outdoor living category, complementing our existing suite of products and solutions in our Architectural Products business. Overall, we have invested approximately $1.4 billion from 17 acquisitions in the year-to-date. The average multiple on these deals was 7x EBITDA, and that's before any synergies or savings we will achieve through the integration of these businesses into our existing portfolio. The vast majority of these acquisitions reflect the ongoing development of our integrated solutions model, and we will continue to build on this going forward. There are opportunities out there. We have a very healthy pipeline, but you can rest assured we will never lose our disciplined and value-focused mindset. At this point, I'll hand you over to Jim to take you through our cash performance and year-end balance sheet expectations.

Thanks, Albert, and good morning, everyone. On Slide 8, you can see the key components underpinning our expectations for our year-end net debt position. And I am pleased to say that we expect to end the year with a very healthy balance sheet as a result of our continued focus on financial discipline and strong cash generation. Let me briefly take you through some of the key components working from left to right on the slide. We ended 2020 with a net debt position of $5.9 billion and net debt to EBITDA of 1.3x. We expect 2021 to represent another year of strong cash generation and cash conversion for the group. This has enabled us to continue to invest in our business for further growth, while increasing cash returns to our shareholders through dividends and share buybacks. In the year-to-date, we have spent approximately $1.4 billion in acquisitions, which net of proceeds from divestments, results in an overall net cash outflow of approximately $1.1 billion. We also expect to invest a total of $1.4 billion on capital expenditure in 2021 to support further growth in our existing businesses. In addition, we expect to return approximately $1.8 billion to our shareholders through dividends and share buybacks. Our ongoing share buyback program is on track to return $900 million for the full year. The current tranche of our program is well underway and will be completed no later than the 23rd of December. Taking all of this into account and assuming no further material development activity for the remainder of 2021, we expect to finish the year with a net debt of approximately $6.1 billion or 1.2x net debt-to-EBITDA, providing us with significant optionality for further value creation going forward.

Thanks, Jim. I'll go to summary there of our financial discipline over the course of 2021 and the strong cash-generating capability of the group. Moving now to outlook on Slide 9 and our full year EBITDA expectations. In Americas Materials and Building Products, we have delivered a good performance during the first 9 months of the year, with like-for-like EBITDA 5% and 9% ahead, respectively. Broadly speaking, we would expect these businesses to deliver a similar pace of like-for-like EBITDA growth for the full year. In Europe Materials, we're continuing to experience a strong recovery in profitability and expect full year EBITDA to be well ahead of the prior year. Taking all this into account, for the group as a whole, we expect to deliver another record performance in 2021, with full year EBITDA in excess of $5.25 billion and further margin expansion, representing another year of progress for CRH. On Slide 10, while it is too early to give specific guidance for 2022, we're encouraged by the positive underlying demand backdrop and the strength of our business going forward. Through the active management of our portfolio in recent years, we've become a simpler and more focused business. We will continue to reshape and refine our business to deliver superior growth, returns and cash generation for our shareholders. At CRH, we place sustainability at the core of our strategy. And through our unique offering of value-added products and solutions for our customers, we are continuing to adapt our business to address the future needs of construction. We are committed to reducing the impact of construction on our environment, and we're taking full responsibility as the leader in our industry to help deliver a more resilient and sustainable built environment for everyone, providing significant societal value in the process. We have also the benefit of high-quality assets in attractive growth markets, including the South and West of the United States and Central and Eastern Europe, markets with strong fundamentals, growing populations and significant construction needs. All of this is underpinned by our relentless focus on financial discipline. We have a strong effectible balance sheet, providing us with significant optionality for future value creation, whether that's through investments for growth or cash returns to shareholders. Before I hand over to Q&A, let me take a brief moment to share our planned investor communications for the first half of 2022. Along with our customary results announcements in AGM, we would like to set aside some time away from results to have a more engaged conversation with our shareholders, an open forum to discuss a number of important items that are at the core of our strategy going forward. There's no big reveal. It's just a conversation. What we want to provide you with an update on our portfolio strategy, our thoughts and priorities around capital allocation, our sustainability and carbon strategy and a more detailed discussion around the benefits of our integrated solutions model. To that end, we are planning to hold a virtual investor update on Thursday, the 21st of April. A more detailed agenda will follow in due course, but for now, please hold that date in your diaries, and we look forward to updating you all again in the new year. So that concludes our presentation this morning, and we're now happy to take your questions. May I ask you please state your name and the institution that you represent before posing your questions. [Operator Instructions] I will now hand you back to moderator to coordinate the Q&A session of our call.

[Operator Instructions] Your first question comes from the line of Robert Gardiner from Davy.

I'll stick to the one. So it's been a pretty weak quarter across the sector. And generally, margins have been firmly in reverse in both Europe and North America with obviously, a lot of cost inflation cited for that. So maybe you might help us understand how you've managed to grow or expand your margins in that environment? Like what are the key differences here in terms of how CRH is executing versus a lot of the sector peers?

Thanks, Bob. Yes, you're right. It's been a tough quarter, quarter 3 and indeed expanded to quarter 4 across the sector, and most of our peers if not all of our peers reporting margin declines. We don't. And there's a very simple reason for that is that the business we have is very different to the commoditized type business that most of our peers have. I mean CRH has moved along away from being a price taker commodity type business. Our business now is so much more than just a business that just buys and sells materials and manufacturers, aggregates and cement. And we talk so much about the solutions business that we have. I mean, effectively, what we do is so much more of our business now is how we take the materials, the base materials that we have, and we convert them into products, but we do so using our technical expertise, our design knowledge and kind of to create innovative, bespoke product solutions working in conjunction with engineers and planners and architects to innovate and plan and manufacture and put in place, in very many cases, the products we actually manufacture. So there's so much more value in the solutions model than just the materials we work with because each individual project is unique. That's the thing about construction. You very rarely get standardized manufacturing of materials. Each road is different, so each supply system is setting each power and technology and closure is different. And they have to be designed in such a way, and we use our experience and our knowledge. So we're able to get -- to provide value, solve problems for our customers and they pay us for that. So we're no longer a price taker. We're kind of a price maker in the market, and that allows us to dislocate the relations between what we charge our customers for the solutions we solve and what we pay to manufacture our products, and that really fundamental was at the core of our margin improvement for the last number of years, and it will continue in the years ahead. And we do so in a way which is at the core of what we do is sustainability and circularity, which is tapping into really decide, thanks to the time to where people want to build, they weren't if tomorrow.

Your next question comes from the line of Gregor Kuglitsch from UBS.

Gregor Kuglitsch from UBS. So a couple of questions, if that's all right? The first one is just looking at your slide on cash and debt. So I seem to remember, you're talking about sort of 2x leverage through cycle you obviously far below that, you're throwing off $4 billion-ish of cash. So could you just maybe lay out for us kind of how you intend to allocate that in the future? I mean, obviously, this year, you've done sort of a combo of M&A and shareholder returns, but I'd be interested to see sort of how you see that going forward? And if there's perhaps an appetite to increase the leverage a little bit from the very low levels that they're at right now? And then the second question is, obviously, you've given sort of an early sneak preview, if you want, for next year. Just want to get a sense what kind of gives you the confidence for further progress. I mean, I'm guessing you're seeing trends into October, November being pretty good, cost inflation. There's obviously various components. But just give us a little bit of a sense what gives you the confidence to say that you can make progress?

Thanks, Gregor. Just 2 questions there. I'll let Jim deal with the question, first of all, with regards to cash, and then I'll come back at the end of that talk to you about 2022 and our thoughts on that.

Firstly, on the leverage side, yes, we're forecasting for the end of December to have a net debt-to-EBITDA of 1.2x. That's the level I'm comfortable with. We still have a complex online of COVID situation right now. In terms of cash generation, we're forecasting to be, again, a cost conversion in excess of 80% for this year. That represents about $2 billion in terms of returns to our shareholders with a combination of dividends and share buybacks. We're also going to invest approximately $2 billion between our M&A activity and also our expansionary CapEx. So that's in total about $4 billion are indeed, if you look at it, it's 75% in every dollar of EBITDA, where either returning to our shareholders are, in fact, reinvesting in their business for the future growth of the business. In terms of the leverage at 1.2x, as I said, I'm comfortable with it. What it does is that it gives me optionality and capability for undertaking value-accretive transactions, whether that's expansionary CapEx, whether that's M&A, whether that's dividends or indeed the share buyback program. And in the current year, as you know, we've stepped up the M&A to $1.4 billion year-to-date. We could have undertaken significantly more in terms of M&A transactions in the current year. But as ever, all capital allocation decisions are looked through the lens of shareholder value accretion and you can rest assured that we remain disciplined and control and allocate the capital into the future.

Thanks, Jim. And Gregor, looking into my crystal ball, which I don't have, with regard to 2022, all I can do is tell you what I see in front of me in terms of the fact that we have. Look, our order books are good. Our backlogs are good at this moment in time as we look into 2022, both in Europe and in the United States. And we have got additional support of the new infrastructure bill in North America in the United States. Of course, that really won't kick until the back end of next year at the earliest, but it's supported because it gives people a sort of a longer time frame. There are of course cost headwinds, they're not going to go away, they're going to be continue on into next year, and that place challenges for all businesses, ourselves included. And there's no question about that the way the end of COVID has been pushed out as really had -- I think it's taken the wind out of the sales with a number of people in it may impact the -- my sense, it may impact some of the confidence for people to invest because of the uncertainty involved in that. But look, we've been through 2021, where we've had almost unprecedented cost increases and CRH has managed to deliver in that period. We've grown our sales, our profits and our margins. We've lived through 2020, where we had unprecedented disruption in our major markets with regard to COVID stoppages and CRH delivered increased sales, increased profit, increased margin for the business. And I think the challenges may remain, but we're CRH and we're different. We have a different model. We deliver, we're disciplined, and our solutions model continues to deliver, and we think we'll continue to deliver into 2022 and advance next year ahead. But that's all I can tell you. That's all I can see in front of me at the moment.

Your next question is from the line of David O'Brien from Goodbody.

Firstly, in the context of a strong pipeline of acquisitions, I wonder if you could give us some color on what your priorities there, where you see potential gaps in the portfolio? And also, on Slide 10, you make the comment, look, you're placing sustainable construction at the core of your strategy. Just wondering how that's influencing kind of day-to-day or strategic decisions and therefore, the future direction of the company over a longer time horizon?

Two questions there, somewhat linked really in a way to some extent. But look, we're happy to say that this year, we have upped the pace on acquisitions. It's a deliberate upping up the pace as the future sort of greater clarity and sort of the uncertainty lessened with regard to where the world is going in a post-COVID world. And up from last year, we kept down to about $0.5 billion up to about $1.4 billion, it be north of $1.4 billion by the end of the year. It could have been a multiple of that. But as Jim talked earlier on, we keep our discipline, we keep our focus, and we're slowly building back what we do, what we see that the pace of acquisitions would be, and we've got the capacity to do so. Where that focus will be? Well, it will be in 2 main areas. If you look at the deals we have done this year, about 75% to 80% of those deals are focused very much in solutions, and solutions is very much at the end of the value chain, whereby the materials that we are converting are converted to something -- materials we're manufacturing the cement and aggregates are being converted into some of the product value. And that's where a lot of our focus is and what our focus has been. And we highlighted a couple of deals there this morning, which kind of set that out for you how the that National Pipe business effectively providing an additional add-on to our infrastructure business in North America and the Pebble Tech business has build out of the product range we have in our APG business. So really, it's an expansion of ourselves, our products to provide a better range of options for our customers, listening to what they want and how we can solve their problems. But also, I wouldn't figure out how important it is to keep buying platforms to build the range out from. So I think it's geographically and product-wise, continue, but all the way following down that solutions approach there. And with regards to the comment with regard to sustainability is very much at the core of what we do. I mean, it is absolutely -- I mean we almost look at it in 3 different ways as we go forward. We look at it under sort of the whole area of clients and how we, as a company, are responsible citizens and our attitude and how we think about our CO2 footprint. And sometimes it frustrates me when I hear companies not just in our sector, but other sectors could the big play fast and lose some of the numbers, and they kind of categorize and talk about KGs, but clinker and this, that and the other. I think corporates have responsibility to come out and give a clear absolute transparent emissions targets. When we come out and we talk, we produce 46 million tonnes of CO2 every year. Full stop. I'm not interested in how many KGs per tonne of clinker. I'm interested in how we're going to reduce that 46 million tonnes. And as our stakeholders, they should know from us exactly how we're going to reduce that, the time frame which we're going to reduce that, the cost of which we're going to reduce that. And every year, they should say where are you on track of your plan to reduce that? And when we come back in the new year, we fully intend to be very clear and explicit. Here is what we produce, here is what we emit, here is what we're going to reduce it to, here's how we're going to do it and here's what it's going to cost. So I think climates have the core of what you just said, the carbon part of the ESG. With regard to the ESG, I think that's down to -- from my opinion, it's not a circular in terms of how we use the scarce resources we have in our products. And our plan is from our point of view, it's about the aggregates we use and it's about recycling and circularity. We've said it before and we say it again. At the core of our strategy is we embrace circularity. We are the largest recycler and product in North America. We recycle more products than anybody else. So what do we recycle? Well, look, we're the largest role builder in the world. In the United States, we pave the world 5 times. We go around the globe 5 times every year, and half of that is actually digging up old road. So we repair road. What do we do with that material. Most people actually dump that material in the landfill. For the last 25 years, we've been working on technologies and investing millions of dollars in getting that material and reprocessing that material back into our road. So now we reprocess 100% of all our waste asphalts that we dig up. So the largest road user -- manufacturer in the whole world, reprocesses always road waste. And 25% of all the roads we built are built with recycled material. And we want to increase that every year, and we have plans to do that, but it gives us a unique advantage because, again, it's a lower cost for us. It actually provides lower cost roads for our customers, it actually improves our margins, and it does so in a much more sustainable way. So that is how we embrace that. And of course, we're working on recycled company as well, taking the technology we have in Europe over to the United States and a very significant part of some of the deals that we did, particularly Angel Brothers deals down in Texas. That was a big part of recycled and in particular, recycled concrete. And that good is the role that we play, and we feel this very seriously, the contribution to society that we seek to bring as we innovate new sustainable solutions to build the world of tomorrow. And very simply, we're talking to that materials, but we uniquely, we convert basic commodity materials, cement and aggregates into products that are largely designed for bespoke building solutions. Each road, each water system, each carved technology structure has to be specifically designed, and we provide technical services, design services to supply these solutions, and they -- we do so in a sustainable way, and it contributes to a much more circular, sustainable world as we build the environmental world for tomorrow. So that is how we embrace the core of our strategy. That's what the solution business is.

Your next question comes from the line of Paul Roger from BNP Paribas.

Congratulations on the results. So I'll stick to one then. And I'll focus on U.S. infrastructure. I mean, obviously, we've now got more details of the plan. I think on the last call, you said it was too early to do any scenario analysis. I wonder if you've actually done that now and looked at what the impact this could have in the out years? And also maybe just as a follow-up, there's a lot of money going into highways, which obviously helps. But to what extent could be the money for things like green infrastructure on wind farms and things like that also benefit CRH?

Yes. Thanks, Paul. Look, you're right that before last time we spoke in the summer time, we didn't have any real detail. Now we have a lot more. Just to put some numbers that matter with regards to our industry, there's obviously a $1.2 trillion headline number with regard to stimulus packages going forward for the next number of years. How that breaks down towards. Let me just give you some of how it breaks down to sort of road building in the United States and other areas that you referred to in terms of investing in power, et cetera. Over the last 5 years, there has been -- the federal government have invested about $240 billion in highway funding across the United States. That highway -- with the new infrastructure bill coming forward and indeed the being rolled into that as well, that will increase to $350 billion. So it's an increase of about $110 billion, about a 50% increase. That works out and it kicks in probably in our views, you might just start to get some work at the tail end of 2022 because even though the federal money has been allocated now the states have to decide exactly how much they're going to match. Historically speaking, it's been 50-50. Recently speaking, the states have been more supportive. It's been 60-40. But on the assumption that we remain at 50-50, we would assume that, that would start to come in, they will start to bid and plan work longer-term work and you will see that probably kicking in with an increased funding of about 8% CAGR for the next 5 or 6 years. That's probably what it feeds into our industry. And of course, as the largest building materials business in the United States, it feeds directly into our business. Some of that will be taken up by price increases, but a lot of it will be on volume. And of course, again, the states also have their own road to play. So that's how it translates specifically on highways. The other part of your question relates to some of the lower value contribution that's going to be made for infrastructure spending going forward. And that -- if we look down through the list of support they're going to get specifically for CRH is on power, which you touch -- you touched on power, but broadly speaking power, broadband technology and also in water and sewage. And they are parts of our business, which are materials business, but particularly our infrastructure products business in the United States is specifically focused on. And just to say, you would know that I think that a large part of what we do in our infrastructure business is focused very much on the provision of water and sewage systems. So large-scale engineered systems that provides solutions moving the water from the reservoirs all the way to the home. I refer to the National Pipe business I bought this year. We could take us to the community system up to that moment in time. Now with National Pipe, we can take it all the way to the domestic planning itself. And power and electricity, again, vital utilities that are being moved on the ground, whether it's wildfires out west, floating in the east or indeed in Europe again. A lot of the power systems Europe and the United Sates are being rebuilt underground. And again, there's federal support for that, and again, our products business provides the structures and the support systems for that. And finally, technology, it the whole idea of broadband telecommunications, you're putting machinery that cost millions of dollars underground and it has to be protected in utility-type structures that protect us and again, significant spend and support for that. So again, we would expect to see a strong push, both through our materials business, but in particular, in our products business, in the coming years. Paul, I would say the strong agent of growth in our Building Products business in the last 3 or 4 years has been our APG business, which has doubled in the last 3 or 4 years. In my opinion, this next 3 or 4 years are going to be the time for the infrastructure products business. That's the one that's really going to on the back of the softer as well. So it sets us up well for the next few years for sure in the United States.

And your next question comes from Elodie Rall from JPMorgan.

Just first a follow-up on the previous theme on infra in the U.S. So it's looking really good for the next few years starting at the end of next year. But can you just give us your views on the backdrop for 2022 actually on the infra front? Could we see some disappointment at first before seeing bill kicking in? And my second question is on cost inflation and your views on the inflationary environment and if that has changed your hedging strategy given the magnitude of the cost increase that we're seeing? And what kind of price increases you need to push through into next year in your view in the different businesses?

Thanks, Elodie. Three questions there. First of all, with regards to the infrastructure, the impact of what we see 2022 with regard to infrastructure spend next year, I think we very much see it as a continuation at current levels. And there may be some positive surprises towards the back end of the year as the infrastructure work coming through as a result of the stimulus package starts to kick in. I think it will be supportive of pricing as well because people know that there's good volume environment coming in place. And I think it will be very important to ensure that you're putting in place the capacity in the right places and the right products to be ready for that. So for instance, like whilst we didn't know the size and scale of the infrastructure structure bill, it was a probability of something that was going to come through. And we've been putting in place in, I mean, 3 of our big states Texas, Florida and New Jersey. That gets more than 20% of the federal money along those 3 states. And we've been really doubling down and building our capacity in anticipation for that now. And it gives us -- companies like ourselves, it gives us a great position to be in when we go to the authorities and say, "Look, we're bidding for work not only we're bidding on price. We're bidding our cost, I talked about circularity, we're building on security of supply." So it puts us in a good position for a that. But for 2022, I think it's pretty much more of the same pace of advance we saw in 2021. And with regard to the inflation environment we're in, I think it's going to continue on as is. It's going to be difficult, and it's going to be challenging. But for us, actually, believe it or not, as I said, we're more of a price maker than a price taker these days. We get so much more value for supplying those engineering, planning and skills, the technical expertise and the design knowledge. We're very much working in our customers' offices these days, helping solve their solutions with the products we manufacture. So as I said, with so much more value in the solutions model and the materials we work with, it's more the software than the hardware that drives the value for us. So I'm not as concerned about costs as maybe some of our other more commoditized people in the industry might be as such. So I think we'll deal with that. And with regard to our hedging strategy, we don't try and beat the market. The only area where we probably have a natural advantage is in bitumen in North America, where our winter fill program will be by 40% of our through the winter season where it has been for the last 27 years at lower price during the winter season than the summer season. But why wouldn't it be? The refineries are maxed out. They need to empty their tanks. And we're there with our tanks, and we just buy from that low prices. So that's probably the only hedging strategy that where we beat the market. The rest of it is we just try to beat the market, and we've got very professional procurement professionals across all of our businesses working it up and so does everybody else. But again, our business is not really -- we're not really pricing up on cost anymore. We're kind of -- we're a price maker as we build out the solutions model.

And your next question comes from the line of Arnaud Lehmann from Bank of America.

Arnaud Lehmann from Bank of America. Firstly, just a follow-up on your U.S. asphalt business. We saw some of your peers on some sort of pressure including on the margin side from cost inflation, they mentioned some supply chain issues. You seem to be faring a lot better. So could you maybe give us a bit of color on this as a follow-up to your last comment? And secondly, sorry, just on CO2 or lower CO2 products, we've seen some of your peers in the building materials world coming up with lower CO2 products and solutions, 30% to 100% less CO2, either in cement or in concrete solutions. Do you have the equivalent that you can -- that you are planning on rolling out in Europe or North America?

Yes. Thanks, Arnaud. Two Questions there. I'll deal with the second question first with lower CO2 products. Look, I also when -- yes, is the answer to your question, do we have equivalent products? Because nobody has a unique capability or technology here that anybody else doesn't have. There's no proprietary technology that everyone knows what it is. But when you don't have any have to talk about all you do is talk about lower CO2. We talk about the fact that we're trying to build out more sustainable solutions. We're also more honest when we talk about here's what our ambitions must be. And if you're going to try to sequester CO2 or you're going to try and inject CO2 and some of the products you make, that only is a small part. The key game is in CO2 and reducing your carbon footprint would be how we look at the fuels we use in cement kilns and how we deal with some of the concept of carbon capture and that would happen over time. So it's not going to be solved in 3 months, 6 months or 9 months. I understand people have got to have a sell their story. But the reality of life is just to think of the big picture. Small CO2 injections into materials or lower CO2 cements, they don't exist yet. They will exist because people like us serious people who spend time, effort and money trying to innovate or find the solutions to these problems. And we find it together as an industry, not as individuals. Coming back to the issue question you asked about the margin with regard to asphalts, I mean you may as well ask me about the price of coal in our cement businesses or the price of electricity in our power -- in powering our generations that power [indiscernible] businesses. That's only a small part of what we do. We don't sell rock anymore. We sell roads. We sell the whole solution. We take the rock; we turn it into asphalt; our contractors, they layer; and then we maintain it. So no one ever asked me, but what's the margin in your road contracting business. So as we look at that, of course, there are pressures across the business with regard to costs. But we have significant recycling. We're the largest road builder in the United States. We've got significant scale. And we've invested for years in making that a very integrated system. And in doing that, you've seen this year, our Americas Materials business, which is primarily focused on building roads, the margin has increased this year because we plan across the whole of that business. It's an integrated solution where we provide the whole road to everybody. So picking up one piece on looking at asphalt bitumen or the cost of electricity for your crushing plants or the cost of margin you make on contracting that's only part of the strategy. We got to look at the whole integrated way we do so. So we win contracts because we bid for the whole road. We win contract because they've got to increase recycling and circularity. We win contracts because we've got to increase sustainability. And we do so because we're experienced in doing so, we've got good reputations and all of that is turning into higher margins year-on-year, better returns and better cash.

And your next question comes from the line of Cedar Ekblom from Morgan Stanley.

I've got a question on your transition to the solution provider approach. What percentage of your sales today would you say are still in the more commoditized space? And then are there parts of your portfolio upstream, which don't necessarily fit within the group going forward? In other words, as you move more to a solution provider approach, do you actually need to own all the upstream assets? Or is the value really in the conversion solution approach, et cetera? And would it make more sense to divest some of those upstream assets and focus rather on that conversion solution opportunity?

Two questions there. In relation to your first question, I would say that we're probably down to about 30% of our products are basically the commoditized type products now. But 65%, 70% of solutions-type products. And that's going to keep on growing because that's a part of the business we now know is a much more sustainable model. I mean I've been working here for 25 years, and I remember the business that I joined was very much kind of a sort of a cyclical play where you try to manage our costs. And over the last 25 years, CRH just changed very much. We're not, as I say, almost 70% of our business is in solutions-type business where we're selling so much more value other than the kind of commodity products itself and that will continue to grow so. And I think your second -- the second question relates to the platforms we have and do we need to own all the upstream businesses? Well, to answer that question, I suppose the fact that we're continually working on our portfolio. And one of the reasons we look at our portfolio is exactly the reason that you highlight. We sell very good businesses sometimes just because they just don't fit our model going forward, and we recycle that capital into business that do fit our model going forward. And our model going forward is very much one of integrated value add all the way down to the chain, providing that extra business. And if you look at our business this year, what we've done this year is a very good example of -- to illustrate what I said to you, we had a good business in Brazil actually. It was a fine business, but it was kind of a commodity cement business. We sold that business this year, and it's a good business. We could have kept us but we sold and we recycle that capital back into primarily solutions business, almost 75%, 80% of the solution of the business we bought this year have been solutions focused businesses. So what we're doing is where we find "stranded assets or where we find assets that don't integrate, we do exactly as you suggest. We sell them, but we recycle back into solutions business because that's where the value, the cash, the margins and returns are going to be. So we're living the story and it's going to carry on.

And your next question comes from the line of Nabil Ahmed from Barclays.

Sorry, I will come back on the U.S. infra spending. There's been a lot of focus for good reason on investment and Jobs Act approved by the Congress. But could you talk about the other side of the funding equation from local and state budget, please? What do you see in your key states? And also maybe I think you alluded to it in an answer to an earlier question, but given the inflationary pressure and that the DOT are on a fixed budget, how do you see the risk that incremental funding will essentially cover inflation and that may be volume could disappoint over time?

Okay. I take it that there are two questions there. Well, you're right to focus on highlights on the state part of the equation because it was just being announced at the federal part. And as I said earlier on, that has -- if I go back over 10 years, it tended to be 50% of the total via and the other 50% came from states, that went to 60-40 in recent years as the state's needs increased. But it also went to 60-40 because the state's finance is permitted and allowed. And I think the robust state -- the robust condition of the state's finances probably answers the question that you asked is, are -- have the states got the capacity and the capability and indeed do want to invest in infrastructure under the individual states? I think the answer to that question over the last number of years has been, yes. My own sense is the states have been watching what's been going on and watching it for the last 6 or 9 months. They knew there was some significant type of funding package coming through. And I'm not saying there was an air pocket, but I suspect it held their hand back on committing to long-term projects because if there was federal government money coming, that was going to pay for some of their local expenditure. And remember, the federal monies are spent on large federal projects and particularly with roads, that means big large interstates. Of course, the state money is spent on small roads that feed into those. So they're really the large federal money actually begets further state funding because you can't just build a freeway. You've got to build the on-ramps, the off-ramps, the bridges all that stuff that the state money goes to. So given the robust state of most condition of most of the state financing, particularly the big states for us, which are in pretty good condition, we would expect it to come through and support the federal monies that are actually there. With regard to your second comment with regard to inflationary pressures easing up as sort of additional funding coming through, there are inflation pressures out there, and they will eat up some of that funding. But when we talked about the increase in spending over the next 5 years, it is almost a 50% increase in funding in the next 5 years over the last 5 years. So despite no matter how bad the inflation is going to be, it's not going to be 50% up. I couldn't guess what inflation is going to be for the next number of years, but clearly, the Fed will move in, if it gets out of control. But the significant headroom there for volume despite even if it was very strong inflationary cost pressures. There's still a lot of headroom there for strong volume increases.

And our last question for today comes from the line of Tobias Woerner from Stifel.

Can you hear me?

Yes.

Yes. Just very quickly, one question with a sub question maybe. When you look around your CRH world by country and product, where do you feel you have high capacity utilization and you need to do something to capture the volumes? And where do you feel you have significantly -- or significant overcapacity? And how do you deal with that there?

Well, I think you asked me where we've tightened capacity and what is our capacity headroom, is that the question was?

That's correct. Yes. Just how you deal with those? And just to give us a sense, what percentage of your world is at high capacity utilization and which is at a low capacity utilization?

Probably the only part of our work will be tighten capacity, now with the cement side in the U.K. where we're a significant important and we have ways of dealing it with the U.K. imports a lot of cement, and we import a lot of cement into the U.K. for our operations. So we're tight in Cement in the U.K., but we can solve that by imports significantly from our industry, by the way. And the rest of the business, I mean, gosh, we haven't been sitting on our hands for the last 5 years. I mean the world is pretty much new particularly since the new administration has been elected into the United States. There was going to be some sort of package coming through to support the government. And we have been working really on the ground with states and indeed, with Washington to understand exactly what the extent of that might be and where the money might be. So we have plenty of capacity all across our U.S. businesses for the next 5 to 10 years. There's no problem whatsoever, and we can flex that capacity very quickly either through process or indeed small incremental CapEx. And also, again, the other big driver of growth for CRH in the next 5 years will be Central and Eastern Europe. I mean our positions that we have from the Baltic states, all up from the Baltic -- from Finland all the way down to the Baltic states, all the way down to the Black Sea. I mean it's preeminent by a country mile, we're the biggest d we're the most profitable and I think as I look at what's there and the growth that's coming in the next 5 years on the back of significant EU funds being committed there for infrastructure, strong economic growth, both in the big countries. There are Poland, Hungary, Slovakia, Romania, where we're sort of #1, #2 players and our capacity there to supply those markets for both residential and nonresidential demand, again, is very strong. So I don't have any real concerns with regard to capacity. So our big growth markets where we really drive the growth of CRH going forward. for the next decade, which will be the United States and Central and Eastern Europe were fine.

And if I may follow up just quickly, when you look at your Building Products division, how do you receive your pricing power within that division in the context of inflation being interested in APG business?

The answer is in the margins of that business over the last 5 years, Tobias, you should pull that look across your desk there because if we continually improve margins there, we've had significant cost pressures, I can assure you in that business. but our pricing power there is the fact, as I said to you, we're not a price taker. We're a price maker. The range of products that we supply into our main markets across United States and increasingly across Europe as well, which are really strong and attractive part is going part of the business. It's very what people pay us for the range and quality of our products, not -- so we don't price them costly. We have invested significantly over the last 20 years in building out a full nationwide manufacturing footprint across North America. We supply just in time for both the professional channel and for Lowe's and Home Depot, where they got basically 24 hours service. And again, across the full range of products. So even if somebody else came up with a with an identical product, our ability to service our customers because, again, we sit down and work with them, whereby what do you want? Well, like a hand in log, we fit into their supply system. We need them and they need us, and we're very happy to provide that service, and we get paid for that, and they make money out of us as well. And that's happening across Europe now as well. So that's what's been driving the APG business. You can see it in the margin I think you'll go forward again. As I said here, or more price maker than price taker in that kind of business. Okay. Ladies and gentlemen, I look to thank you for your time this morning. That's all we have time for, and thank you for your attention. I hope we've managed to answer all of your questions. But as always, if you have any follow-up questions, please feel free to get in touch with our Investor Relations team, and we look forward to talking to you again on the 3rd of March next year when we report our full year results for 2021. Thanks for your attention today. Stay safe, and have a good day.

That does conclude our conference for today. Thank you for participating. You may all disconnect.