Earnings Call Transcript - CRH Q4 2021

Albert Manifold, CEO

Good morning, everyone. Welcome to our 2021 Results Presentation for CRH. I am Albert Manifold, the Chief Executive, and I will be joined shortly by our CFO, Jim Mintern, as we review the highlights of our 2021 results. Before we begin, I want to acknowledge the nearly 80,000 individuals who worked for CRH throughout 2021. Despite the ongoing challenges posed by COVID-19, you adapted and contributed to a successful year. Thank you for your remarkable efforts. As we look forward, we hope to be closing the chapter on the difficulties brought on by the pandemic, but recognize that new uncertainties have arisen. Our management team, many of whom have been with the company for 20 years, has successfully navigated previous challenges, and we are confident in our ability to guide CRH through any future difficulties. During this presentation, I will reference slides available on our website for those following online. We have a packed agenda today, starting with key figures from 2021 and trends impacting our business moving forward. We will discuss our strategic positioning and how the evolving construction landscape, along with our solutions model, has influenced our direction. We will also share our expectations for 2022 and how the year has begun. There will be a question and answer session at the end, conducted virtually with assistance from Jim and Tom Holmes, our Head of Investor Relations. Now, looking at slide 2, I want to highlight 2021 as another strong year of growth for CRH with impressive numbers. The key takeaways for me were the improvement in our margins and our cash generation. We converted 80 cents of every dollar of EBITDA into cash, which we invested wisely, allocating around $2 billion towards growth through M&A and expansionary capital expenditures while returning approximately $1.8 billion to our shareholders. We ended the year with one of the strongest balance sheets in our history, reaffirming our commitment to profitability and disciplined balance sheet management. This morning, we announced a proposed dividend of $0.121, reflecting a 5% increase from last year. Earlier this week, we also disclosed the divestment of our Oldcastle BuildingEnvelope division for $3.8 billion, which Jim will elaborate on later. Regarding key financial highlights, we achieved a sales increase of 12% and a profit increase of 16%. It is gratifying to report that all key metrics, including sales, profits, margins, returns, and cash, moved in the right direction last year. Notably, our margins improved despite facing significant cost challenges, which sets us apart from competitors who struggled in this area. This strength is due to our solutions model, which has positioned us as a price maker rather than a price taker. Turning to our largest market, North America, which accounts for about 70% of our group EBITDA, we have strategically expanded into the South and West following population trends and economic growth. The Northeast, where we offer substantial infrastructure services, continues to generate stable cash flow. Our longstanding partnerships with state agencies have led to ongoing multi-year projects, providing a solid foundation for our business. The U.S. construction market is robust, driven by strong population and economic growth alongside significant federal investment, particularly highlighted by the Infrastructure and Investment Bill that promises $1.2 trillion in spending over the coming years. Our Americas Materials business saw revenue and EBITDA growth in 2021, with volumes increasing across all products despite challenges related to energy costs. Our margin improvements reflect our unique business model focused on comprehensive road system solutions rather than mere product sales. Moving to our Building Products division, which consists of our APG, Infrastructure Products, and OBE businesses, I am pleased to report continued strong performance across these areas, with a record-breaking year for APG. Infrastructure Products also benefitted from growing demand for utility transportation solutions. In Europe, we maintain our position as the largest building materials company, particularly in high-growth Central and Eastern European markets. Resilient repair and maintenance sectors have performed well in key countries like France, Germany, the UK, and Ireland, aided by EU stimulus packages driving residential construction. Before discussing European trading performance, I must address our operations in Ukraine, where we employ over 800 people. We are providing support and assistance to our employees and their families during these difficult times, with efforts to facilitate their safe movement to surrounding countries. Regarding our Europe Materials division, I'm pleased to report that both sales and EBITDA surpassed 2020 levels and exceeded pre-COVID figures from 2019. This achievement, particularly in light of ongoing cost challenges, demonstrates our effective cost management and the success of our solutions strategy, enhanced by significant infrastructure investments across various markets. Now, I will hand it over to Jim for a more detailed review of our financial performance in 2021.

Jim Mintern, CFO

Thanks, Albert. Good morning everybody. I'm delighted to be here this morning presenting my first set of results as CFO. On slide 11, what we have here is an overview of our cash flow and our net debt position at the end of 2021. I think this slide is a really good example of how our relentless focus on cash generation and our disciplined capital allocation has ensured a strong balance sheet at the end of December 2021. Moving from the left, we exited 2020 with a net debt of $5.9 billion. The cash inflow for 2021 was $4.2 billion. We converted 80% of our EBITDA into cash and we reinvested in the growth of our business. We also returned cash to our shareholders. We completed M&A activity with 20 bolt-on acquisitions and a net cash outflow of $1.2 billion; that figure is net of divestment proceeds. We spent $1.6 billion on capital expenditure. And we returned $1.8 billion to you our shareholders and I'm going to go into a bit more detail on each of those in a moment. That all resulted in a net debt position at the end of December 2021 of $6.3 billion or 1.2 times net debt-to-EBITDA. That's one of the strongest balances sheets we've had in the history of CRH and gives us optionality for further value creation for shareholders into the future. I'd now like to talk about some of our acquisition activity in 2021. We completed 20 bolt-on acquisitions for a consideration of $1.5 billion. That represented an EBITDA entry-level pre-synergies of seven times, which really highlights our focus on maintaining our strong financial discipline, which of course has been a real hallmark of CRH for many years. Looking into a bit more detail on those acquisitions, the vast majority of the acquisitions were in high-growth markets in the South, in the West, in the Mountain West states of the United States. And they were in areas where we built out our integrated solutions strategy, adding complementary products and services, leveraging and building out filling in around our existing materials and products businesses in these same regions. Previously, we used to sell products but today, we are providing end-to-end value-added solutions to our customers. We're solving the problems they're faced every day. We used to sell rocks; today we are selling road solutions to our customers. We have lots of opportunities in 2021 for M&A activity. We have a strong pipeline as we enter into 2022. And I mentioned that we had significant financial capacity coming out of 2021. However, as CFO, I can tell you that whatever opportunities come our way, we will remain disciplined and never lose our focus on shareholder value. Albert mentioned earlier that on Monday earlier this week, we announced the disposal of our Building Envelope business for an enterprise value of $3.8 billion. That represented a very attractive exit multiple of 10.5 times 2021 EBITDA and we expect that deal to close in the first half of 2022. The reason behind the divestment decision followed a comprehensive review of that business. As you're well aware, we have been active managers of our portfolio. We divest, we've reinvested, and we continuously recycle the capital. And in fact, since 2014, we have divested $12 billion of our businesses at an exit multiple of 11 times, and we've reinvested $18 billion at an entry level of eight times multiple. As a result, today we now have a narrower, simpler, more focused, and more connected business, which is a higher-quality asset base, generating higher growth, higher margins, better cash, and crucially higher returns. I mentioned earlier about our strong balance sheet at the end of December 2021; we exited at 1.2 times net debt-to-EBITDA. And of course, that gives us optionality for further future value creation. When I look at it this optionality falls into a number of categories. Firstly, in terms of acquisitions, we continue to focus on the high-growth markets. We continue to look for opportunities to build out our integrated solutions businesses, which are connected into our existing material and products businesses in those same areas. We have a good pipeline of activity but of course, we're going to maintain our discipline when we consider every possible option. Looking on to capital expenditure, and particularly around expansionary CapEx. We spent $1.6 billion of CapEx in 2021. In 2020, with the pandemic, we had considerable uncertainty across a lot of our markets and we curtailed our capital expenditure activity. As we exited 2020, visibility improved in our business, and we were able to step up our level of capital expenditure to the $1.6 billion spend in 2021. A lot of that spend happened in those same growth states. So Florida, Texas, into Arizona, out into California and as well in that solution space. And I was delighted to be able to support those projects because some of those projects are some of the lowest risk and high-returning projects we have within CRH. So I was delighted, as I said, to be able to see that tick up in CapEx in 2021 up to $1.6 billion. Also further optionality about returning cash to our shareholders. Albert mentioned earlier, we've proposed a 5% increase in dividend. That represents 38 years of a progressive dividend policy in CRH. We're in the current tranche of the share buyback of $300 million, which we'll finish no later than the 30th of March. And at the end of December 2021, we had returned over $3 billion or almost 10% of our share capital to our shareholders. All of these acquisitions, the capital expenditure, the return of cash to our shareholders are crucially supported and underpinned by our structurally better business that we have today, which is delivering higher growth, higher margins, and higher returns. I'll now hand back to Albert. Thank you.

Albert Manifold, CEO

Thanks, Jim. Jim discusses a fundamentally improved business, a concept we've embraced at CRH for several years. What does a structurally better business mean, and how do we validate that assertion? Let's examine some key metrics. The first metric I'd like to address is our EBITDA growth, comparing it against our peers. Our global peers include the major cement companies, while our U.S. competitors consist of two significant firms, which you can easily identify. The analysis covers our EBITDA growth from 2018 to 2021. This time frame was not chosen randomly; it demonstrates that CRH has outperformed others in our industry. Growth can be achieved in various ways, but efficiency in operations is crucial. Now, let's evaluate our margins. The next slide illustrates our margin expansion during the same period. Our global peers show commendable performance, nearly 3% ahead, while our U.S. peers are somewhat flat. However, CRH boasts an impressive 500 basis points lead. By investing in our business model and working diligently, we've significantly enhanced our efficiency and margin performance. What’s the end result? Let’s move to the following metric—operating cash. Ultimately, cash is king, and once again, CRH comes out on top. While both our global and U.S. peers show strong performance, CRH leads yet again. No matter the metric or timeframe, CRH consistently outperforms, delivering exceptional value to our shareholders. While reaching the top is one challenge, maintaining that position is another. CRH is committed to not remaining static; we aim to widen the gap between ourselves and our competitors. CRH has transformed over the last decade, reshaping our business model and structure. We have divested 50% of our holdings from a decade ago, focusing on our two primary markets: North America and Europe, with a concentrated effort on Central and Eastern Europe due to its higher growth potential. We have balanced our business between the robust cash flows of Western Europe and the Northeast U.S., alongside the high-growth sectors in Eastern Europe and the South and West U.S. Our business has become more focused and specialized, moving away from being a mere supplier of basic commodities to becoming closer to our end customers and addressing their needs more effectively. This shift has allowed us to enhance our offerings, sometimes broaden our product range, and collaborate with customers to adapt our materials to their specific requirements. Let me highlight two of our major businesses. Our Americas Materials segment, which began 15 years ago by simply selling rock, evolved to asphalt, and now includes road construction. Customers told us to handle additional aspects of road construction, which we embraced. Similarly, our APG business, once focused solely on gray pavers, expanded into various colors, shapes, and residential market offerings in collaboration with major retailers like Lowe’s and Home Depot. The essence of our strategy is moving from merely providing basic materials to delivering integrated solutions that meet our customers' challenges. Our focus is on resolving end customer issues, which we call Integrated Solutions. This segment currently accounts for about 65% of our sales, benefiting our customers, CRH, and our shareholders. Our customer interactions reveal they’re facing increased regulations and sustainability pressures and are seeking innovative solutions to enhance construction efficiency while managing costs during a tightening labor market. CRH stands as the leading building materials business in North America and Europe, two of the most regulated markets globally. Our broad understanding of diverse materials, end users, and geographic challenges positions us to create solutions for our customers. By leveraging this insight, we intend to collaborate closely with our clients to design materials that uphold sustainability goals without compromising the environment. Our major markets are characterized by solid population and economic growth, with a strong emphasis on resilience. Meeting these standards will drive increased demand for companies that innovate and adapt. We view this as sustainable growth, a driving force behind our recent success. This focus allows us to weather cyclical downturns better. The solutions strategy is intricate, requiring specialized management skills across our value chain. CRH has proven its capability in this area, and we expect that expanding our solutions offering will lead to higher sales growth, profitability, and cash flow. I would also like to address sustainability, a cornerstone of our integrated solutions strategy. Our commitment to decarbonization remains paramount. Last year, we advanced our reductions targets towards 2025. Today, we announce our goal of reducing total CO2 emissions by 25% by 2030, translating to a commitment to cut emissions from 46 million tons in 2020 to 35 million tons by 2030. Detailed plans will be shared during our Investor Day in April, where we'll discuss progress and strategy. Sustainability encompasses more than just decarbonization; circularity is key as well. CRH has been a pioneer in circularity and is now the largest recycler in the U.S. Meanwhile, a quarter of the roads we build utilize recycled materials. Our decade-long journey has reinforced our role in conserving resources while expanding our valuable reserves. We've invested over $1 billion in innovation, much of which has enhanced sustainability within our solutions strategy. Going forward, we've established a $250 million venture fund aimed at commercializing promising projects that advance our sustainability efforts. To summarize our sustainability commitment: we strive to produce materials sustainably, innovate products that empower our customers toward sustainable construction, and focus on creating solutions that enhance sustainable living. We'll provide more insights on this at our Investor Day in April, aiming for a constructive dialogue with our shareholders outside the demanding reporting periods. We aim to elaborate on our integrated solutions strategy, ensuring sustainability occupies a central role in our vision. We will also outline how we plan to evolve our portfolio for the upcoming decade and ensure capital allocation maximizes shareholder value. I look forward to our Investor Day, which will be a live webcast featuring myself, Jim, and Randy Lake, our COO. Scheduled for 9:00 a.m. East Coast time / 2:00 p.m. GMT, the session will last about an hour, including a Q&A segment. Thank you, and I look forward to our discussion. In terms of our outlook for 2022, we have started strongly with healthy order books and positive business momentum. While challenges remain, including costs and uncertainty in Central and Eastern Europe, we will focus on manageable factors such as costs and cash management. We will provide further updates in April. Now, I would like to transition to the Q&A session. Tom will join me to answer your questions over the next 25 to 30 minutes. Tom?

Tom Holmes, Head of Investor Relations

Good morning, everyone. Thank you, Albert. As mentioned, this morning’s Q&A session will be moderated. I will be addressing the questions that have come in over the past hour to Albert and Jim on stage. Please keep submitting your questions through the Webcast portal, and we will try to cover as many as possible. There is a lot of overlap in the questions, so many of them should be addressed during our discussion today. If there are any remaining questions at the end of the session, the IR team and I will be glad to follow up directly throughout the day. To start us off, I have two questions from Robert Gardiner with Davy. The first is about quantifying the impact of rising energy costs in 2021 and your expectations for 2022. The second question is regarding the strategic rationale behind the divestment of your Building Envelope business and its implications for your integrated solution strategy moving forward.

Albert Manifold, CEO

And maybe I'll take both Tom. Well maybe I'll pass the impact of energy on 2021 to Jim later on. First of all, good morning, Bob, I hope you're well. Let me deal with the disposal of Oldcastle BuildingEnvelope first and then come back to our energy issue. Look BuildingEnvelope has been part of CRH for about 30 years. It's a very fine business. We built that business up by acquisition and by geographic expansion primarily within the United States. But we have become a very, very big player in a small space. We began – we owned that space. And in CRH, as you know, of course we're very focused on operational performance. But actually, we created about two-thirds of our value for our shareholders through the acquisition process directly or indirectly. And that business was – we had a – we bought a very big business in 2015 C.R. Laurence and that was the last big business we bought in that space. Because actually we're running out of optionality to buy businesses. And if we have no M&A opportunities, we actually tie one hand behind our back. Secondly, that was a business that was focused on the glazing market. Our customer was the glazer. There were no other products we could sell to them. I've already talked this morning how our focus is on customers. We could do no more for them. We could sell more but then we were just an organic growth play and CRH doesn't really have too much interest in just being an organic growth play. And the last reason was that it didn't really integrate with our core competencies in and around a strong heavy complex infrastructure public or private or indeed residential as well. It was a non-residential business. And when we looked at the opportunities to be able to deploy that capital elsewhere in what we're a business that did sit within our core competence. That did offer us acquisition opportunities. It was actually a decision where we said let's go and test the values and see if we could crystallize the value we have now to deploy that capital elsewhere. And that was the rationale just sensible portfolio management. With regard to energy costs you've asked me about what we see about energy dynamics in 2022. I don't know. All I can tell you is that we manage the really brutal energy cost increases during 2021 quite well. Our margin went ahead so we did manage it well. And all I can tell you is we keep an eye on the process very carefully. We've seen energy costs up 35% since the start of the year. But remember we have natural hedges in place. We buy forward. We have our bitumen winter fill program. And we watch very carefully our use of fuels and we have a constant switch away from fossil fuels as well. So we're confident that we can manage them as best we can. Let's see how the year evolves and I'll probably talk to you about more knowledge and understanding when we talk in August of this year. With regard to energy costs in 2021, Jim?

Jim Mintern, CFO

Sure. Good morning, Bob, as you know typically our energy build tends to be in a range of kind of 9% to 11% of our revenue. In 2021, it was just a little under 10%. As Albert said, about half our energy bill tends to be in the liquid asphalt on the bitumen side and we've always managed that business from a margin perspective. The other half tends to be doing electricity, diesel, gas, et cetera. And typically heading into any year, we'd have about 60% cover in place and that's no not any different heading into 2022. So when you look at that range of kind of 9% to 11%, I expect it to pick up towards the higher end of that range in 2022. As Albert said in 2021 crucially despite the very significant inflation kind of leveraging on our solutions business we were able to push on margins across all three divisions.

Tom Holmes, Head of Investor Relations

Thanks, Jim. So Jim just a quick one. I see here the post-tax proceeds for the BuildingEnvelope divestment. Any thoughts on that?

Jim Mintern, CFO

Yes. We announced Monday. The total enterprise value of $3.8 billion for the divestment of Building Envelope. That included some assumed leases of about 350. So the net cash is about $3.45 billion net of tax a shade under $3 billion.

Tom Holmes, Head of Investor Relations

Next question here is from Gregor Kuglitsch in UBS. Two questions here. First one, given the strength of the existing balance sheet and expected proceeds from Building Envelope, what are your intentions for redeploying this capital? And the second is, can you detail how you aim to achieve the 25% reduction in carbon emissions by 2030? Can you elaborate on the additional costs or CapEx to achieve this?

Albert Manifold, CEO

I'll start with the CO2 reduction question. We're planning to go into detail about this in April, focusing on three or four key areas. First, we are working on decarbonizing our processes across all our factories, including cement, aggregate, concrete, and concrete product facilities. This will involve innovating new materials and collaborating with our customers to develop less carbon-intensive options. There will be capital expenditure involved in this effort. Additionally, we are focusing on the types of fuels we use—shifting towards biomass and green fuels, as well as the energy we purchase. These are our main focus areas, and we'll provide more details in April. Regarding the deployment of our capital, you can trust CRH and our approach. Over the last decade, we have sold $12 billion in businesses while acquiring $18 billion worth. The businesses we've sold had an average value of 11 times EBITDA, while our acquisitions averaged 8 times EBITDA before synergies. We have clearly defined targets, but we don’t plan on major deals. Instead, we’ll continue to acquire smaller, fragmented businesses, which provide us with opportunities to create value. This process will take time, but we will reinvest that capital to benefit our shareholders, and we'll keep an eye on progress throughout this year and next. Now, Jim, regarding the CapEx cost.

Jim Mintern, CFO

Good morning, Gregor. This is our fourth target for carbon reduction. We have a clear, location-by-location process in place across the group to reach this goal. In 2021, we spent $1.6 billion on capital expenditures, and we forecast a slight increase to $1.7 billion in 2022. The CapEx needed to achieve this target won't significantly exceed these amounts. I can assure you that all projects required to meet this target will be evaluated using the same criteria applied to all capital projects, ensuring they generate returns on those investments.

Tom Holmes, Head of Investor Relations

Jim, there's a follow-up here on CapEx. CapEx for 2021 coming in higher than expected. Any thoughts on that?

Jim Mintern, CFO

CapEx was $1.6 billion. We managed to advance some of that expansionary CapEx in growth markets and our solutions businesses. In regions like Florida, Texas, and Arizona, we see opportunities in fast-growing markets and are working on increasing our capacity to meet demand. I'm pleased we can support those projects, as they are among our lowest risk and highest returning initiatives, which explains the slight increase from our ability to pull it forward.

Tom Holmes, Head of Investor Relations

Great. Next question here is from David O'Brien in Goodbody. The reshaping of the business in the last eight years has been very significant. Are you satisfied with your current portfolio or should we expect further evolution from here?

Albert Manifold, CEO

I just said CRH is never static. We're always moving, not because we want to move because we must move. Our markets are constantly changing. Your markets are too. And we are anticipating those changes and guiding our business where those markets are going to. So yes, I do anticipate to continue to work on our portfolio. It should be. But the reason for that is that we want to develop a better business, a more profitable business and more cash-generative business, a business with higher growth. We see the way our world is going. Our world cannot continue to build the way it's been built today, two billion people will arrive on this planet over the next 30 years. Where are they going to go? We just cannot afford to construct the world that will accommodate two billion people the way we're currently building today. We're going to destroy the planet. So sustainable construction has to be the way forward. Companies like CRH are right in the center of developing sustainable construction products and materials. And that's why we'll continue to evolve our portfolio. And that's why we'll continue to evolve that portfolio in the developed world because that's where the change will start. So yes, the portfolio work will continue, but you would expect it to do so.

Tom Holmes, Head of Investor Relations

Thanks, Albert. Another question here from Arnaud Lehmann in Bank of America. What is the outlook for pricing in 2022 in Europe and the US? And do you expect to be able to cover cost inflation?

Albert Manifold, CEO

Okay. I'll take that one again. Pricing, Arnaud, look at the very top of the question. I'm sure that question has been asked to every one of my CEOs of all the peer companies out there and you've heard the responses, and so have I. In response to the very significant cost increases, there's a strong need to get good pricing in the marketplace. And I endorse that comment I think there is too as well. We have been subject to some very challenging cost inputs in 2021. But our business is not just about pricing on and you can see that. Most of the businesses who are talking about pricing have taken a step back with regard to their margin. CRH didn't. And you have to ask the question why is that? We're not smarter than anybody else. There's no special colleges for pricing that we went to that no one else went to. It's our business model. It's different. We're becoming because of the solutions because we add value to the materials of place we sell and make our customers' lives easier. We get paid more for that. So pricing and a continuation of the solution strategy is how we insulate ourselves against cost headwinds and develop our business going forward. How that's going to play out in 2022, I don't have a crystal ball. All I can tell you is if you judge us on our track record for last year where energy prices went up by 65%, we had margin improvement. Again, as I said earlier to Bob I'll tell you with knowledge when we stand in front of you here at the half year.

Tom Holmes, Head of Investor Relations

Great. Thanks. A lot coming through actually on US highway funding and infrastructure generally around the theme of when do you think it will translate into higher activity levels. That's been the main one. Any thoughts on that Albert?

Albert Manifold, CEO

Again maybe I'll take that. Look there has been a very supportive environment for federal funding and state funding for the last couple of years on the back of quite good economic performance in the United States. Of course, you're referring to I think to the November statement that the bill signed on the Infrastructure and Investment Bill for a further $1.2 trillion investment in infrastructure. And there's no doubt that will supercharge investment for the next five years. I should mention of that $1.2 trillion, CRH will be a significant beneficiary. Our top 10 states account for over 30% of all of the dollars being spent. $350 billion will be spent on roads. However, another $200 billion will be spent on infrastructure for water, telecommunications and IT again which plays right into our Infrastructure Products business as well. So really almost about $550 billion of that $1.2 trillion will go to the areas that we're focused on. So that should see strong growth. In fact, we anticipate the spend in the next five years as I said earlier being up about 50% over the last five years. So significant growth going forward with regard to that. With regard to the timing of when it comes through look, we are working now our backlogs related to projects that were awarded and planned last year. So if you have a large infrastructure project you've got to get permission, you've got to design it you got to plant it you got to tender it. All of that takes time. There's probably somewhere between a 9 and 18 month lead time on those projects. So we don't anticipate any of the funding for the $1.2 trillion that you may be talking about hitting our business until the earliest the very end of this year probably start to come through in '23 and '24 will be the big years that benefit from it but not really that. This year is already set based on last year's funding.

Tom Holmes, Head of Investor Relations

Another two questions here from Paul Roger in Exane. The first is on the outlook for US asphalt margins in the context of higher oil prices and could there be a lag between higher bitumen costs and the mitigating price rises as a result. And the second one around the likelihood of large acquisitions in 2022.

Albert Manifold, CEO

Okay. Not 15 questions today only 2. I'm sure the 13 are following tomorrow morning with your note. I'll pass the comment on margins to Jim now in a moment with regard to asphalt. Look the likelihood of big deals. The only likelihood that of those deals in CRH is value deals. Whether they're big or small it will all be about value. Because that's the history of CRH. We don't need to go out and do big blowout deals. If I look at our industry in North America about sort of 15% of the industry is across the top five players. 85% is fragmented and unconsolidated. If you look at the deals we did last year $100 million $200 million $300 million deals businesses that no one ever heard of before and there is a long list of deals ahead of that both in Europe and the US. So I don't really think there will be a big blowout deal by CRH not unless there's extraordinary value out there. Obviously, we keep our eyes open something could happen. But the likelihood is it will be a continuation of the strategy of CRH that you've seen over the last two to three decades. Margins?

Jim Mintern, CFO

Yes, good morning, Paul. Regarding asphalt margins, we consider the entire chain. As previously mentioned, we examine everything from aggregates to liquid asphalt, paving, and services. In 2021, we managed to reduce margins by 20 basis points overall, particularly due to lag in many states where our pricing is tied to the liquid asphalt price, which can sometimes experience delays. Nevertheless, we were still able to maintain margins across the value chain in 2021.

Tom Holmes, Head of Investor Relations

Great. Another question here from Elodie Rall in JPMorgan. How do you see US residential demand evolving in 2022, given likely rising interest rates? And do you see a meaningful recovery in non-residential demand which could offset this?

Albert Manifold, CEO

Hi, Elodie. Good morning. I hope you're doing well. Regarding US residential, it has been quite strong for about three or four years. There are a couple of reasons for this. We experienced around seven or eight years of significant underbuilding. I recall times when we had 450,000 to 500,000 new homes being built annually in North America, while the market actually needs about 1.5 million to 1.6 million new homes each year to meet demand, and this shortfall has not been addressed. If I speak with builders in the US, they indicate that inventory levels are at an all-time low. With the existing demand and low inventory levels, we see this reflected in pricing. Demand is expected to remain strong. The forecast for this year is 1.7 million new homes, and currently, our run rate is around 1.6 million homes, which seems quite solid. I understand your concern regarding interest rates, and we need to monitor them closely. However, Powell has been cautious about gradually adjusting interest rates, though I don't wish to engage in that debate. Demand looks good, and we are starting from historic lows with 30-year fixed rates just above 4%. They haven't increased significantly in recent times, and we anticipate this trend will remain strong this year. As for non-residential, we are starting to see a recovery. The ABI stats have been above 50 for several months. It's helpful to look at these figures regionally. However, within the sectors, there is some change; retail and hospitality are not advancing as they had, which is not surprising. The real growth is occurring in data centers, warehouses, and medical facilities. This aligns with our strengths, as data centers and warehouses are complex buildings requiring large spans, precast units, large footprints, and significant amounts of stone, all of which need highly efficient solutions in terms of regulation, air conditioning, and heating. This represents a strong growth area for us, particularly in the US, especially in the southern and western regions.

Tom Holmes, Head of Investor Relations

Thanks, Albert. A couple of overlapping ones here. Maybe just two briefly one on UK backdrop in the UK at the moment and also the Eastern Europe general exposure to the area and any concerns on activity levels going forward.

Albert Manifold, CEO

Okay. Well, maybe I'll talk about the UK and maybe Jim you might give some dimension on our exposure to Eastern Europe. Maybe just give us an oversight and overview in terms of how we think about Eastern Europe at the moment, given what's going on there. First of all, in the UK, I mean, since the Brexit vote in 2016, we saw really a reluctance and a pullback on the Exchequer to fund some of the well-touted infrastructure projects that they had planned. And happily, we're starting to see in 2021, at last, some of those projects, specifically High-Speed Two coming to the fore that's feeding the industry and benefits our business. And also happily, the councils and the boroughs within the United Kingdom are getting a good level of funding from the UK Exchequer, and again, that's helping small-scale infrastructure. That has really combined with a strong residential market, by the way, has really driven the performance of our business in the UK. I should say, we significantly reshaped and repositioned our business post-Brexit, because we could see there was a different demand environment evolving in front of us, even before COVID than we had thought before that. And that lower cost base that tighter business in around specific areas has benefited our bottom line performance. And maybe before I ask Jim to talk about the dimensions of what we have in Central and Eastern Europe and indeed Ukraine. I just want to talk about our own view in terms of what's happening in Central and Eastern Europe and how it affects our ability to think about that part of the world. Our own sense, well, first of all, I think we're all horrified about what's going on there. But our own sense is that this is almost like an event, it's a catalyst that is going to pull Europe together culturally, socially and economically. Therefore, we will see a continuation of the rebalancing of wealth through Europe, which is happening through the stimulus packages that are going to Central and Eastern Europe. So, it will accelerate the development within Central and Eastern Europe, obviously, Poland, Romania, Hungary, Czech Republic, Slovakia, and indeed down into the Balkans, should be significant beneficiaries of that as well. So we think it will redouble our efforts as Europeans to become more unified in the challenges we're faced with. With regard to our exposure there, Jim?

Jim Mintern, CFO

Sure. In Eastern Europe, and taken all the way from Finland down to our business in Romania, we generate about $600 million of EBITDA across that Eastern Europe flank of the business. Very strong growth in 2021, building on strong growth in previous years really underpinned by strong infrastructure in that area and also good res demand also coming through. Maybe specifically on Ukraine, just in terms of scale, but we're in about Ukraine about 25 years in total and it's about approximately 1% of our business in total.

Tom Holmes, Head of Investor Relations

Thanks Jim. One here from Cedar Ekblom in Morgan Stanley. To consider accelerating your share buyback program after the recent pullback in your price, maybe Jim one for you.

Jim Mintern, CFO

The current phase of our share buyback program amounts to $300 million and is expected to conclude by the end of March. We're currently on an annualized run rate of $1.2 billion for the share buyback initiative. When evaluating share buybacks, I consider it a capital allocation decision alongside other options such as mergers and acquisitions, capital expenditures, and dividends. We finished the year with a strong balance sheet. Given the current geopolitical uncertainties, inflation, and interest rates, I feel secure about our balance sheet. However, any capital allocation decisions we make will prioritize enhancing shareholder value.

Tom Holmes, Head of Investor Relations

Great. Great. Thanks Jim. Just conscious of time for everybody watching on the line, we are up against it here a little bit with a busy schedule this morning. I might just squeeze two more in if we can. And as I say, if there's any outstanding questions over the course of the day, the team and I will follow up with you directly. Two others here have come up quite a bit actually this morning around pro forma net debt levels, now comfortably below one time following the Building Envelope divestment. What do we see as normalized levels? And then maybe just a brief comment on early trading and backlogs so far this year.

Jim Mintern, CFO

Yes. In terms of pro forma net debt levels, we're quite comfortable with a net debt-to-EBITDA ratio of two over a normal cycle. At the end of December, it was 1.2 times. As I mentioned earlier, we are quite comfortable at that level, which provides us with flexibility for future decisions regarding shareholder value.

Albert Manifold, CEO

I'll provide an update on the early trading. Currently, we have good visibility through the end of the first quarter. We're off to a solid start, despite a messy winter in North America. However, this doesn't significantly impact January. The construction season is quite slow, particularly in the southern and western regions, but winter conditions in America tend to halt construction until late March. The key indicators are in our backlogs; we are ahead of last year in three main areas: quantum, margins, and volumes, which gives us confidence. Early signs, especially in our APG business, are promising, so we feel optimistic about the U.S. for the first half of the year. Europe presents a different scenario; we've experienced good weather in the first quarter, and the business momentum is continuing from last year, making for a strong start. Backlogs in both regions are favorable; we’re doing well in Europe and adequately in the U.S. Overall, we believe we will perform well in the first half of the year and will provide further updates later. Look, Tom has just said to you that we've come to the end of our time this morning. I know it's a busy day for everybody. A lot of people at results today. We're going to update you with a trading statement in April and we've also got an investor update on the 21st of April. I look forward to talking to you then. And until then, I wish you the best and stay safe. Thank you.