CRH Regulatory News (CRH)

2017 Interim Results

This document contains inside information

Key Points

· H1 in line with April guidance

· Continued profit growth and margins ahead

· Significant M&A activity; allocating and reallocating capital at attractive multiples

· Interim dividend increased to 19.2c per share

Trading Highlights

· Sales of €13.0 billion, 2% ahead of 2016

· Like-for-like sales1 ahead 1%; +3% in Europe, +1% in the Americas and down 8% in Asia

· EBITDA of €1.175 billion, 5% ahead of 2016

· Like-for-like EBITDA ahead 2%; +2% in Europe, +6% in the Americas and down 39% in Asia

· EBITDA margin 9.0% (H1 2016: 8.8%)

· EPS of 43.5c per share, 29% ahead of 2016

Albert Manifold, Chief Executive, said today:

"We have had a satisfactory start to 2017 with stabilising trends in key European markets and EBITDA growth in the Americas. The acquisition and divestment activity announced by the Group today, demonstrates our ongoing strategic focus on allocating and reallocating capital at attractive multiples, while our significant Balance Sheet capacity ensures we are well positioned for further growth. I am pleased to report, in line with our progressive dividend policy, that the Board has decided to increase the interim dividend by 2.1% to 19.2c per share. For the second half of the year, despite currency headwinds and continuing challenging conditions in the Philippines, we expect a continuation of the first half momentum experienced in Europe and EBITDA growth in the Americas, which will result in another year of progress for the Group."

Announced Thursday, 24 August 2017

1 See pages 32 to 34 for glossary of alternative performance measures used throughout this interim report.

2017 Interim Results

Overview

The first half of 2017 saw stabilising trends in certain European markets and satisfactory growth in the Americas which more than offset reduced activity in Asia due to a challenging market environment in the Philippines. Sales of €13.0 billion for the period were 2% ahead of the same period last year and were 1% ahead on a like-for-like basis. In Europe, like-for-like sales growth of 3% reflected continued recovery in some key markets. In the Americas, like-for-like sales were 1% ahead of the first six months of 2016 despite less favourable weather conditions and very challenging prior year comparatives. Like-for-like sales in Asia were 8% below the first half of 2016.

Overall EBITDA was 5% ahead of the first half of 2016. On a like-for-like basis, first half EBITDA for the Group was 2% ahead, with Europe up 2% supported by modest price recovery and volume improvements in a number of major markets, while like-for-like EBITDA in the Americas was 6% ahead reflecting price improvements and strong cost control. Like-for-like EBITDA in Asia was 39% below the first half of 2016 on the back of a very competitive trading environment. With a continued focus on performance in all our businesses, margin improved to 9.0% (H1 2016: 8.8%).

Depreciation and amortisation charges of €528 million were broadly in line with last year (H1 2016: €532 million), which, together with the 5% increase in EBITDA, resulted in a 10% increase in first half operating profit to €647 million (H1 2016: €588 million).

Divestments and asset disposals during the period generated total profit on disposals of €45 million (H1 2016: €20 million) as the ongoing recycling of capital continues to be embedded in the business.

The Group's €14 million share of profits from equity accounted entities was ahead of the first half of 2016 (H1 2016: €5m) reflecting improved results in our associate investment in China.

Net finance costs for the period were below the first six months of 2016 at €189 million (H1 2016: €206 million), as the cost of €19 million for the early redemption of a portion of the US$ bonds maturing in 2018 was more than offset by lower costs of reduced debt.

First half profit before tax was €517 million, compared with a profit of €407 million in H1 2016. The interim tax charge, which represents an effective tax rate of 28% of profit before tax has been estimated, as in prior years, based on current expectations of the full year tax charge. Earnings per share for the period amounted to 43.5c (H1 2016: 33.8c).

Note 2 on page 19 analyses the key components of the first half 2017 performance.

Dividend

The Board has decided to increase the interim dividend to 19.2c per share, an increase of 2.1% compared with last year's level of 18.8c per share. It is proposed to pay the interim dividend on 3 November 2017 to shareholders registered at the close of business on 8 September 2017. A scrip dividend alternative will be offered to shareholders.

Finance

Net debt of €6.4 billion at 30 June 2017 was €0.7 billion lower than the figure reported at 30 June 2016 reflecting the strong focus on cash and debt management. A first half cash outflow of €0.05 billion from operations reflects the normal seasonal pattern of the Group's trading working capital and as in prior years we expect a strong operating cash inflow in the second half of 2017.

In May 2017, the Group successfully issued a total of US$1 billion dollar bonds comprised of a US$0.6 billion 10-year bond at a coupon rate of 3.4% and a US$0.4 billion 30-year bond at a coupon rate of 4.4%. Concurrently, an any-and-all tender offer was made for the US$0.65 billion bonds due in 2018, with the final result being that US$0.36 billion of the total was redeemed early, which gave rise to the one-off charge of €19 million referred to above, but will result in overall interest savings for the Group in 2017 and 2018. Net debt at 30 June 2017 included €320 million issued under the US commercial paper program launched in 2016, and in July 2017 the Group established a €1.5 billion euro commercial paper programme. These programmes add to the funding sources available to the Group and are used to fund working capital and short-term liquidity needs.

Capital Efficiency

During the first half of 2017, the Group spent a total of €632 million (including deferred and contingent consideration in respect of prior year acquisitions) on 13 acquisition/investment transactions. On the divestment front, the Group realised business and asset disposal proceeds of €145 million. In addition the Group announced in March that it had reached agreement to divest one cement plant and one grinding station in Germany for an enterprise value of €349 million. The transaction remains subject to approval by the German Competition Authority (Bundeskartellamt) and is expected to complete later this year.

H1 2017 Acquisitions and investments

In the Americas, €619 million was spent on 11 transactions. Our Materials Division completed eight bolt-on acquisitions, including one of the largest privately held aggregates producers in the United States (US), Mulzer Crushed Stone, Inc., which operates six quarries, five sand and gravel operations, 14 aggregates yards, four readymixed concrete plants and three asphalt plants, serving the Ohio and Kanawha river valleys. Seven further bolt-on acquisitions in the US and Canada were completed by the Materials Division adding a further c.292 million tonnes of permitted reserves. The Products Division acquired a vertically integrated manufacturer of composite decking, railing and related building products. The Precast and BuildingEnvelope® divisions also completed one small bolt-on acquisition and one investment, respectively, in the first half of 2017.

In Europe, our Heavyside business in the United Kingdom (UK) acquired a highway maintenance, civil engineering and surfacing contractor operating in London along with a small investment in a readymixed concrete operation in Spain for a total spend of €13 million.

H1 2017 Divestments and disposals

Business divestments during the first half of the year, all in Europe, generated net proceeds of €72 million. The remaining clay products businesses in Europe (Belgium, Germany, Netherlands and Poland) were divested and our Heavyside Division also sold its non-core civil prefabricated concrete businesses in the Benelux along with five other small divestments in France, Germany, Hungary, Poland and Switzerland. In addition to these business divestments, the Group realised proceeds of €73 million from the disposal of surplus property, plant and equipment.

Post 30 June 2017 the Group reached agreement on two further transactions; the divestment of our Distribution business in the Americas, and the acquisition of Fels, a leading lime and aggregates business in Germany. Both transactions are subject to regulatory approval. Further details are provided in a separate Development Update also released today.

Outlook

In Europe we expect the momentum experienced in H1 to continue and second half EBITDA to be ahead of 2016. In the Americas, we anticipate the solid fundamentals to be maintained, with both residential and non-residential activity improving; for US infrastructure, while we expect that the funding stability provided by the FAST Act will lead to a positive trend in volumes for H2, higher input costs are also anticipated. Overall, we expect EBITDA in the Americas to be ahead. In Asia, our expectation is that challenging market conditions in the Philippines will continue in the second half and EBITDA will decline further. Against this backdrop and despite currency headwinds, we continue to expect another year of progress for the Group.

Europe Heavyside

First half trading benefited from stabilising trends across some of our major European markets. Market recovery was evident in Ireland, France, Finland and Poland, partly offset by more challenging conditions in Switzerland. Our business in the UK remains stable and had a solid first half performance. Organic sales and operating profit were ahead of 2016 reflecting improvements in overall volumes and prices and also the benefits of performance improvement initiatives.

In the table above, the sales and profit impact of divestments primarily relate to the Group's remaining clay businesses in Europe and civil prefabricated concrete business in the Benelux, which were sold in early 2017.

UK

Volumes of aggregates, readymixed concrete and asphalt in the UK grew in the early months of 2017; while price increases were achieved, we experienced higher input costs, particularly in the asphalt division. Cement volumes were 4% below 2016; however excluding the impact of acquisition related commercial arrangements which benefited 2016, volumes were in line. Cement price increases along with an improved production performance contributed positively to overall results. Overall organic operating profit was slightly ahead of 2016 before the costs of restructuring initiatives.

Ireland and Spain

In Ireland, construction activity continues to grow in both residential and non-residential sectors with strong volume increases in cement, readymixed concrete and aggregates. Operating profit was well ahead despite price pressure in a competitive environment. In Spain, some improvements in the macroeconomic environment resulted in increased cement and readymixed concrete volumes and performance improved on the first half of 2016.

France, Benelux and Denmark

Our French cement operations delivered growth in volumes, primarily driven by increased demand in the residential sector. Operating profit and margins were ahead of 2016 notwithstanding continued price pressure. Operating profit also improved in our precast business in France due to increased activity in civil networks and railway products. In the Netherlands, the continued improvement in the residential market resulted in our structural and concrete products businesses performing well; overall operating profit was behind the first half of 2016 primarily due to a one-off cost in the structural business. The materials business in Belgium was ahead of 2016 as lower cement volumes were offset by progress on pricing and overall operating profit was ahead of 2016. In Denmark, with the benefit of growth in new residential construction and some large non-residential projects, both volumes and prices in our structural business improved; sales and operating profit were ahead of 2016.

Switzerland and Germany

Extremely cold winter conditions at the beginning of the year and a competitive market environment resulted in lower cement and readymixed concrete volumes in Switzerland; pricing pressure remained and as a result sales and operating profit were below 2016. Despite modest growth in German construction output, driven by new build multi-family housing, cement volumes in our German operations were behind the first half of 2016 due to weather impacted comparatives. Pricing remained in line with 2016.

Poland, Finland and Ukraine

In Poland, cement volume growth benefited from positive economic developments and with flat year-on-year cement pricing, both sales and operating profit were ahead of prior year. Cement volumes in Finland grew on the back of strong demand but prices declined due to increased competition from importers; non-cement volumes were behind 2016 due to a number of large projects in the comparative period. With the benefit of higher cement volumes and continued cost and efficiency initiatives, overall operating profit in Finland was ahead of 2016. Cement volumes were behind 2016 in Ukraine but with price increases achieved, operating profit was ahead of 2016.

Romania, Hungary, Slovakia and Serbia

In Romania, after a slow start due to poor weather in the first quarter, our cement volumes improved and were slightly ahead of 2016. Infrastructure growth was lower than expected while residential demand has been solid. Cement prices improved modestly on 2016 but due to the timing of major overhaul costs, operating profit was behind 2016. In Hungary and Slovakia, cement and readymixed concrete volumes improved compared to the first half of 2016. Our cement operations in Serbia delivered cement volume growth as a result of some infrastructure projects, and prices remained stable.

Europe Lightside

Europe Lightside reported an increase of 3% in organic sales for the first half of 2017 driven by modest improvements across most platforms. However, EBITDA was in line with 2016 as restructuring costs and a less favourable product mix in certain platforms offset the increase in sales.

Construction Accessories

Our Construction Accessories businesses supply a broad range of connecting, fixing and anchoring systems to the construction industry. Like-for-like sales in the platform grew by 5% due to strong activity in the UK, German and Australian businesses. Operating profit was slightly behind 2016 due to restructuring charges as the business implemented projects to optimise its production footprint in Europe.

Shutters & Awnings

These businesses serve the attractive RMI and late-cycle residential markets, supplying sun protection, energy-saving and outdoor living products. Sales and operating profit were in line with 2016 as strong sales in the Netherlands were largely offset by lower sales in the German business which experienced labour shortages impacting productivity and capacity.

Network Access Products & Perimeter Protection

Network Access Products, with operations in the UK, Ireland and Australia recorded a strong increase in both organic sales and operating profit. The business benefited from higher volumes, tight cost control and a favourable product mix. Sales in the Perimeter Protection business were in line with the first half of 2016 with volume reductions in some permanent fencing markets offset by a healthy performance in the early-cycle mobile perimeter protection business.

Architectural Products

The newly formed Architectural Products platform comprises exterior paving businesses in Germany, the Netherlands, Poland, Belgium, France and Slovakia. Sales for the first half of the year were broadly in line with 2016 with good volume trends, although margins were impacted by a less favourable product mix.

Europe Distribution

Europe Distribution, experienced improving demand in some key markets which offset the impact of continuing challenges in Switzerland, resulting in an overall 1% increase in sales. EBITDA and margin were ahead of 2016 reflecting the benefits of our continued focus on commercial excellence, cost control and performance improvement initiatives.

General Builders Merchants

Like-for-like sales for our General Builders Merchants business increased in the first half of 2017. Operating profit and margin were also ahead notwithstanding lower sales and profits in the Swiss business due to continuing challenging market conditions from the slow-down in the residential sector. Trading in the Netherlands continues to benefit from the growth in the new residential sector and performance improvement measures and as a result sales and operating profit advanced on 2016. Sales and operating profit at our German business were ahead of 2016 in a stable market environment. In France and Austria sales levels were marginally ahead of 2016.

DIY (Do-It-Yourself)

Our DIY business operates in the Netherlands, Germany and Belgium. Overall sales were in line with 2016 with sales slightly behind in Belgium due to competitive market circumstances. Operating profit in the Netherlands increased due to the impact of a range of performance improvement measures.

Sanitary, Heating and Plumbing (SHAP)

Sales for our SHAP business, which operates in three countries, were ahead of 2016, with good sales growth in Belgium and Germany partly offset by the challenging market environment in Switzerland. While overall operating profit was at a similar level to 2016, operating profit in the German and Belgian businesses improved, benefiting from higher sales levels in addition to operational improvements and cost saving initiatives.

Americas Materials

Americas Materials had a good first half, despite wet weather conditions in certain key markets compared to very favourable weather in the first half of 2016, with organic sales 1% ahead of 2016 and organic EBITDA 3% ahead. Solid fundamentals in the US economy continue with residential and non-residential demand increasing and publicly funded infrastructure activity remaining stable.

The Materials Division completed eight bolt-on acquisitions in the period at a total cost of €514 million. The principal acquisition was of Mulzer Crushed Stone, Inc., a leading aggregates company with more than 1.6 billion tonnes of reserves expanding our presence in aggregates in our South division and providing additional aggregates sources for existing downstream operations.

United States

Total aggregates volumes including acquisitions and divestments were 2% ahead of 2016 and average prices increased by 5%; like-for-like volumes declined 3% against strong comparatives and poor weather conditions. Asphalt volumes increased 1% on a like-for-like basis and total volumes were 3% ahead of 2016 while prices increased by 1% against a backdrop of higher input costs. US readymixed concrete volumes, on a like-for-like basis, were in line with 2016 and average prices increased 4%, while total volumes including acquisitions and divestments declined by 2%. Total sales in our paving and construction services business increased 4% and margin expansion was aided by good cost control. Energy costs were higher in the first half of the year compared to 2016 with increases in bitumen, diesel and gasoline costs.

Materials operations in the US are organised into four divisions; North, South, Central and West. The North division comprises operations in 13 states, the most significant of which are Ohio, New York, Michigan and New Jersey. Sales were 4% behind 2016 primarily due to unfavourable weather conditions during the first half of the year. Volume decreases were experienced in all products and despite some price increases, operating profit and margin were also behind. The South division comprises operations in 11 states, with key operations in Florida, North Carolina and West Virginia. Heritage sales in the South were 12% ahead as unseasonably warm weather allowed construction work to continue during the typically slower winter months. Volume and price increases contributed to strong margin improvement and operating profit was also well ahead. The Central division has operations in nine states, with the key states being Texas, Arkansas and Kansas. The performance of Central was mixed with heritage sales down 2%, as unfavourable weather conditions in certain regions and the absence of particular large projects which ended in 2016, offset the solid performance of Texas. Operating profit was ahead despite lower volumes as strong cost management as well as some price improvements led to margin expansion. The West division has operations in ten states, the most significant of which are Utah, Idaho, Colorado and Washington. Improving weather in the second quarter of the year positively impacted our West division, which delivered a heritage sales increase of 6%. Prudent cost management as well as volume improvements in all products led to operating profit and margin increases.

Canada

Our Canadian business operates across eight provinces and five US states. Our cement volumes decreased by 1% reflecting declines in Ontario and Quebec due to poor weather and were only partly offset by increases in the US market. Average cement prices increased despite some pricing pressure in the Canadian regions. Overall sales were behind 2016, primarily due to a slow start to the construction season which was also impacted by poor weather and the completion of some major projects in 2016, mainly in the Quebec region. Operating profit on an organic basis was also behind with mixed results across product lines; performance in cement declined due mainly to higher maintenance costs, while improvements in the aggregates business were offset by lower margins from the readymixed concrete operations.

Brazil

Weak market conditions continued in the first half of 2017 as a result of a deteriorating macroeconomic situation and an unstable political environment. Overall cement consumption was down 7% in the Southeast region compared with the first half of 2016 and selling prices decreased due to very competitive market conditions.

Americas Products

Market conditions were generally favourable in the first half of 2017 in each major end-use segment (both new construction and RMI) for our Products business. However, with less favourable weather conditions than those experienced in 2016 in Canada and the Eastern and Northern US, as well as significant rainfall in the West and East, overall like-for-like volumes were slightly behind. Like-for-like sales in the first half were broadly in line with 2016. Overall EBITDA and margins increased with improved pricing and product mix at BuildingEnvelope®, better execution of construction projects at Precast and continued focus on commercial and operational initiatives.

Architectural Products (APG)

APG is the leading supplier of concrete masonry and hardscape products and has strong national positions in dry mixes and packaged lawn and garden products. In addition to contractor-based new construction, the DIY and professional RMI segments are significant end-users. Like-for-like sales declined 1% compared with first half 2016 reflecting the less favourable weather patterns partly offset by continued strong underlying demand from residential and commercial construction. Overall, APG recorded a slight reduction in organic operating profit, in line with the reduced volumes.

BuildingEnvelope® (OBE)

The BuildingEnvelope® group (which includes the CRL business acquired in 2015) is North America's largest supplier of architectural glass, aluminium glazing systems and custom hardware products to the glass and glazing industry. Revenue growth was driven by increased sales of architectural hardware, shower hardware and storefront accessories which was partly offset by reduced architectural glass volumes as the business focused on higher margin products. The business experienced a positive price environment which together with the favourable product mix resulted in overall operating profit and margin for BuildingEnvelope® being ahead of 2016.

Precast

Our Precast business supplies a broad range of value-added concrete and related utility products and accessories with the electrical, telecommunications, water and transportation sectors being major end-markets. Good underlying demand together with the benefit of a strong projects backlog entering the year more than offset the impact of less favourable weather and resulted in like-for-like sales increasing 1% compared with the first half of 2016. Modest price improvement and good cost control positively impacted margin and overall operating profit was ahead of last year.

Americas Distribution

Against the backdrop of continued improvement in construction activity, Americas Distribution, trading as Allied Building Products ("Allied"), reported a 1% increase in like-for-like sales in the first half of 2017 with improvements in the Exterior Products segment more than offsetting slightly reduced activity in the Interior Products segment, which was affected by unfavourable weather in some key markets.

Exterior Products

Exterior Products supplies commercial and residential roofing, siding and related products, the demand for which is greatly influenced by residential and commercial replacement activity (75% of sales volume is RMI-related). Allied continues to maintain its position as one of the top four roofing and siding distributors in the US.

In the first six months of 2017, solid demand was experienced in major markets with the most significant growth coming from the growing Florida market, as well as hail-affected markets in Colorado, Maryland and Virginia which were partly offset by reduced shipments in California due to unfavourable weather. With continued focus on growing the residential roofing product mix and on the internal cost base as well as improved procurement opportunities, operating profit and margins improved.

Interior Products

This business specialises in the distribution of wallboard, steel studs and acoustical ceiling systems to specialised contractors and demand is driven primarily by new commercial construction activity, although the business also supplies the multi-family home building sector. Allied is the fourth largest Interior Products distributor in the US.

Sales performance in the first half was mixed with declines in weather-affected Hawaii, Maryland, Florida and Texas only partly offset by increased shipments in California. With lower shipments operating profit slightly reduced.

Asia

The table above includes the results from the Philippines together with CRH Asia's divisional costs.

In addition to our subsidiary businesses in the Philippines, the Group also has a share of profit after tax from our stakes in Yatai Building Materials in China and My Home Industries Limited (MHIL) in India which is reported within the Group's equity accounted investments as part of profit before tax.

Philippines

Despite strong market fundamentals with residential growth through urbanisation projects, stable flow of remittances from overseas workers and a high government infrastructure budget, major infrastructure projects did not progress as quickly as expected in the first half of 2017.

Volumes were 2% behind 2016 and operating profit and margin were also behind, due to lower selling prices in a very competitive market and also higher fuel and power costs.

China and India - Equity Accounted Investments

Yatai Building Materials benefited from both higher volumes and prices compared to 2016 which was only partly offset by higher fuel costs and operating profit was ahead of 2016.

Cement volumes and prices in MHIL were ahead of the first half of 2016. However, the benefits of the higher volumes and prices were more than offset by higher energy costs and as a result operating profit was lower than the first half of 2016.

Condensed Interim Financial Statements

And Summarised Notes

Six months ended 30 June 2017Condensed Consolidated Income Statement

Condensed Consolidated Balance Sheet

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Statement of Changes in Equity - continued

Condensed Consolidated Statement of Cash Flows

Supplementary Information

Selected Explanatory Notes to the Condensed Consolidated Interim Financial Statements

1. Basis of Preparation and Accounting Policies

Basis of Preparation

The financial information presented in this report has been prepared in accordance with the Group's accounting policies under International Financial Reporting Standards (IFRS) as approved by the European Union and as issued by the International Accounting Standards Board (IASB) and in accordance with IAS 34 Interim Financial Reporting.

These Condensed Consolidated Interim Financial Statements do not include all the information and disclosures required in the Annual Consolidated Financial Statements and should be read in conjunction with the Group's 2016 Annual Report and Form 20-F.

The accounting policies and methods of computation employed in the preparation of the Condensed Consolidated Interim Financial Statements are the same as those employed in the preparation of the most recent Annual Consolidated Financial Statements in respect of the year ended 31 December 2016, except for the adoption of standard amendments effective as of 1 January 2017.

Adoption of IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations

The following standard amendments became effective for the Group as of 1 January 2017:

· Amendments to IAS 7 - Disclosure Initiative

· Amendments to IAS 12 - Recognition of Deferred Tax Assets for Unrealised Losses

· Annual Improvements to IFRSs: 2014 - 2016 Cycle - IFRS 12 Amendments

The application of these amendments did not result in material changes to the Group's Condensed Consolidated Financial Statements.

IFRS and IFRIC interpretations being adopted in subsequent years

As outlined in the Group's 2016 Annual Report and Form 20-F there are a number of new standards effective for the Group in future years. A number of project teams have been formed to evaluate and implement those standards and an update on those projects has been provided below. This update should be read in conjunction with the disclosure in the accounting policies section of the 2016 Annual Report and Form 20-F.

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. IFRS 9 is effective from 1 January 2018. The Group will adopt IFRS 9 in accordance with the transition provisions set out in the standard. The Group is currently assessing the effects of applying IFRS 9, and although our assessment is ongoing we do not expect a material impact on the Financial Statements.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 Revenue from Contracts with Customers will replace IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The new standard is applicable from 1 January 2018. IFRS 15 introduces a number of new concepts and requirements and also provides guidance and clarification on existing practice. CRH will adopt IFRS 15 by applying the modified retrospective approach.

Our initial assessment of IFRS 15 identified the following areas of focus:

· Variable consideration

· Warranty obligations

· Bundling and unbundling of contracts to determine performance obligations

· Loss-making contracts

· Disclosure requirements

A detailed assessment is continuing in 2017 but no new areas of focus have been identified. While our assessment of the effects of applying the new standard is ongoing we do not expect a material impact on the Financial Statements however it will result in increased disclosures.

1. Basis of Preparation and Accounting Policies - continued 

IFRS 16 Leases

IFRS 16 Leases was issued in January 2016 and replaces IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 - Operating Leases - Incentives and SIC-27 - Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The new standard is mandatorily effective from 1 January 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for the majority of leases under a single on-balance sheet model, similar to the accounting for finance leases under IAS 17.

The adoption of the new standard will have a material impact on the Group's Consolidated Income Statement and Consolidated Balance Sheet, as follows:

Income Statement

Operating expenses and cost of sales will decrease, as the Group currently recognises operating lease expenses in either cost of sales, selling and distribution or administration expenses (depending on the nature of the lease). The Group's operating lease expense for the first half of 2017 was €320 million (H1 2016: €278 million) and is disclosed in note 11 to these Condensed Consolidated Interim Financial Statements.

Depreciation and finance costs as currently reported in the Group's Income Statement will increase, as under the new standard a right-of-use asset will be capitalised and depreciated over the term of the lease with an associated finance cost applied annually to the lease liability.

Balance Sheet

At transition date the Group will calculate the lease commitments outstanding at that date (along with payments for renewal options which are reasonably certain to be exercised) and apply the appropriate discount rate to calculate the present value of the lease commitment which will be recognised as a liability and a right-of-use asset on the Group's balance sheet. CRH will adopt the new standard by applying the modified retrospective approach.

The Group's commitment outstanding on all operating leases as at 30 June 2017 is €2,220 million (H1 2016: €2,070 million) (see note 12 to these Condensed Consolidated Interim Financial Statements). The Group's commitment as at 30 June 2017 provides an indication of the scale of leases held and how significant leases currently are to CRH's business. However, this amount should not be used as a proxy for the impact of IFRS 16 on the Consolidated Balance Sheet as it excludes renewal options that are reasonably certain of being exercised (and thus will impact the term of the lease) and it is not discounted.

The Group is continuing to assess the impact of the new standard. The Group is focused on calculating the appropriate discount rate to apply at transition and to evaluate which practical expedients will be availed of on transition.

Impairment

As at 30 June 2017, the Group performed a review of indicators of impairment relating to goodwill allocated to cash-generating units for which sensitivity analysis of the recoverable amounts was disclosed in the year-end 2016 Consolidated Financial Statements. The carrying values of items of property, plant and equipment were also reviewed for indicators of impairment. These reviews did not give rise to any impairment charges in the first half of 2017 (H1 2016: €nil). While we have not identified any impairments in our half-year review, we recognise that the economic environment in some of the Group's markets remains challenging. As part of our annual process we will be updating our impairment reviews prior to the finalisation of the full year Consolidated Financial Statements for 2017, and will assess the impact of the items noted above (and of our consequential management actions) to determine whether they have an impact on the long-term valuation of our cash-generating units.

Going Concern

The Group has considerable financial resources and a large number of customers and suppliers across different geographic areas and industries. In addition, the local nature of building materials means that the Group's products are not usually shipped cross-border.

Having assessed the relevant business risks, the Directors believe that the Group is well placed to manage these risks successfully and they have a reasonable expectation that CRH plc, and the Group as a whole, has adequate resources to continue in operational existence for the foreseeable future with no material uncertainties. For this reason, the Directors continue to adopt the going concern basis in preparing the Condensed Consolidated Interim Financial Statements.

1. Basis of Preparation and Accounting Policies - continued 

Translation of Foreign Currencies

The financial information is presented in euro. Results and cash flows of operations based in non-euro countries have been translated into euro at average exchange rates for the period, and the related balance sheets have been translated at the rates of exchange ruling at the balance sheet date. The principal rates used for translation of results, cash flows and balance sheets into euro were:

2. Key Components of Performance for the First Half of 2017

3. Seasonality

Activity in the construction industry is characterised by cyclicality and is dependent to a considerable extent on the seasonal impact of weather in the Group's operating locations, with activity in some markets reduced significantly in winter due to inclement weather. As shown in the tables on page 20, the Group's operations exhibit a high degree of seasonality and can be significantly impacted by the timing of acquisitions and divestments; for example first half EBITDA in the 2016 financial year accounted for 36% of the EBITDA reported for the full year 2016.

4. Segment Information