Ladies and gentlemen, welcome to the CRH November 2019 trading update call. For the duration of the call, you will be on listen only. However, you may submit your questions at the end of the call by pressing star one on your telephone keypad. I will now hand you over to your host, Albert Manifold.
Good morning, everyone. Albert Manifold, CRH Group Chief Executive here, and you're all very welcome to our conference call and webcast presentation to accompany the release of our trading update this morning. I'm joined on the call by Group Finance Director, Senan Murphy; David Dillon, President of Global Strategy and Business Development; Paul Minchin, Executive Vice President; and our Head of Investor Relations, Frank Heuschkel. Over the next 15 minutes or so, Senan and I will take you through some of the main points of this morning's announcement, outlining the key drivers of our trading performance for the first nine months of the year, as well as providing you with an indication of our expectations for the year as a whole. Afterwards, we'll be available to take any questions you may have. All told, we should be done in about 40 to 45 minutes. Looking at slide one.
First, I'd like to take a moment to mention a few of the key highlights from this morning's statement. From a trading perspective, I'm pleased to report a good performance in the first nine months of the year. Our sales and EBITDA increased by 9% and 27% respectively, compared to the same period in 2018. On a like-for-like basis, our sales were 4% ahead, while EBITDA increased by 7%, reflecting improved momentum and good margin expansion in the third quarter compared to first half trends. As we look ahead to the remainder of the year, underlying construction demand across our core markets of Europe and North America remains positive.
Based on the current momentum that we see in our business, and following the completion of the divestment of our Europe Distribution business at the end of October, we expect full-year EBITDA to be in excess of EUR 4.15 billion, well ahead of 2018 and reflecting another year of progress for CRH. As you know, the disciplined management of our capital to maximize value for our shareholders is a key focus in CRH, and 2019 has been no different in that regard. Our active approach to portfolio management has generated over EUR 2 billion proceeds from divestments year to date. This includes EUR 1.6 billion divestment of our Europe Distribution business, an exit multiple of over 10 times EBITDA.
In addition, we have spent approximately EUR 700 million on 44 small and medium-sized bolt-on transactions, and those are completed at an average multiple of eight times EBITDA before any savings or synergies we will generate as we integrate these businesses into our portfolio. Finally, our ongoing share buyback program has returned EUR 750 million cash to our shareholders in the year to date, with up to EUR 900 million expected for the year as a whole. Turning to slide two, before I take you through our traditional trading performance, I'd like to set out our thoughts on the overall market backdrop and trading environment across our major markets over the course of the year so far. In the United States, we continue to experience good momentum in underlying construction activity, particularly in the infrastructure market. Highway and street construction spending is well ahead of prior year.
Our latest contract awards data points to a continuation of this positive trend across our footprint. In the residential markets, despite a slower start to the year due to affordability and industry supply side constraints, demand improved in the third quarter, and we've seen good growth across our more residentially focused businesses. On the non-residential side, good growth in the office and transportation sectors continues to be supported by a generally favorable economic backdrop. In Europe, Western European construction markets are performing well, while Eastern Europe continues to benefit from higher levels of growth, particularly in new build construction activity. In the United Kingdom, ongoing political and Brexit-related uncertainty continues to impact construction demands. The pricing environment in both Europe and North America remains favorable, and we continue to focus on good commercial management to fully recover cost increases and drive margin expansion across our businesses. Excuse me.
Turning to slide three, first the performance of our Americas Materials division for the first nine months of the year. Volumes recovered well in the third quarter, following some significant weather disruption across parts of our business during the second quarter of the year. Pricing environments also remains favorable with good delivery across all product categories. For the division as a whole, our nine-month like-for-like sales and EBITDA were 4% and 9% ahead, respectively, reflecting a significant improvement compared to the first half trends and good operating leverage as we continue to focus on performance improvement, commercial discipline, and cost reduction initiatives across our business. I'm also pleased to report that the integration of Ash Grove into our existing portfolio is progressing well, with synergies tracking ahead of our original expectations.
Over half of our materials business is exposed to infrastructure, and here we continue to see a positive funding environment underpinned by federal and state governments. FAST Act funding remains in place with state-level increases coming in from gas taxes, infrastructure bonds, and various other funding mechanisms. For example, earlier this month, voters approved over 250 state and local transportation ballot initiatives, raising approximately $10 billion of additional funding to maintain and improve U.S. transportation networks in the years ahead. Turning to the performance of our Europe Materials business on slide four. Overall, we experienced a continuation of first half trends, with like-for-like sales and EBITDA 6% and 2% ahead respectively for the first nine months of the year. Our main markets in Western and Eastern Europe continued to perform well, with cement volumes well ahead of the prior year period in countries such as Ireland, France, Poland, and Romania.
U.K., however, remains challenging, impacted by the ongoing political uncertainty in that particular market. On pricing, well, we continue to make good progress with a strong focus on commercial and additional supporting costs across our businesses. Overall, cement pricing was 6% ahead for the first nine months of the year, a continuation of the first half trends with increases in all our markets. Next, turning to Building Products on slide five, which also experienced a continuation of the positive momentum we saw in the first half of the year. Nine-month like-for-like sales and EBITDA were 3% and 7% ahead respectively, benefiting from a solid demand backdrop in both Europe and North America, as well as good pricing development across all our markets. This translates into continued margin expansion, reflecting strong cost control and performance improvement initiatives across the business.
Our reported margin improvement has also been supported with significant investment portfolio activity in the year to date, resulting in a narrower, deeper, and more focused group going forward. Moving to outlook on slide six and our full-year EBITDA expectations. In Americas Materials, we've delivered a positive performance during the first nine months of the year. Broadly speaking, we expect to see a similar pace of like-for-like EBITDA growth for the full year. In Europe Materials and indeed in Building Products, we also expect a continuation of the nine-month trends, with full-year like-for-like EBITDA expected to be 2% and 7% ahead, respectively. For the group as a whole, following the completion of our Europe Distribution divestment in October, we expect full-year EBITDA to be in excess of EUR 4.15 billion, representing another good year of progress for CRH.
Now, at this point, I'd like to hand you to Senan to take you through our year-end balance sheet expectations.
Thanks, Albert. Good morning, everyone. On slide seven, you can see the key components underpinning our expectations for our year-end net debt position. I'm pleased to say that as a result of our continuing focus on strong financial discipline, we expect to deliver on the guidance we set out earlier in the year, ending 2019 with a very healthy balance sheet position. Let me take you through briefly some of the key building blocks on this chart. At the end of 2018, we had a net debt position of just under EUR 7 billion and a net debt to EBITDA of less than 2.1 times. In the year to date, we have generated over EUR 2 billion of proceeds from divestments, and we have reinvested close to EUR 700 million of this into 44 value-accretive bolt-on acquisitions across the group, resulting in net proceeds of EUR 1.4 billion.
As you can see on the slide, these net proceeds have provided the vast majority of the funding for a EUR 1.5 billion cash return to shareholders through both dividends and share buybacks. We also expect 2019 to be another year of strong cash generation for the group, resulting in a significant reduction in our year-end net debt position before the impact of the group's transition to IFRS 16 is taken into account. Including this transition impact, we expect our reported net debt position to finish 2019 at close to EUR 7 billion or well below two times net debt to EBITDA.
Thanks, Senan. Excuse me. Thanks, Senan. A good example there of the financial discipline of the group and a reflection of the balance sheet strength and cash generating capability of the group, arguably the highest of 2019 in many respects. Before I turn to Q&A on slide eight, I'd like to leave you with a few key takeaways from this morning's presentation. We've spoken about our financial performance in the year to date and how, based on the current momentum in our businesses, we expect full-year EBITDA to be in excess of EUR 4.15 billion. Our margin and profit improvement program is also progressing well and very much in line with expectations. We are seeing the early benefits of the program coming through in the second half of this year, and we expect further progress in that regard as we look ahead to 2020.
In the area of capital allocation, we remain absolutely focused on the efficient management of our capital to deliver improving return to cash conversion for our shareholders. We continue to refine and reshape our businesses through active portfolio management, generating over EUR 2 billion of divestment proceeds and close to EUR 700 million on bolt-on acquisitions in the year to date. Our ongoing share buyback program has returned EUR 750 million cash to shareholders in the year to date, with up to EUR 900 million expected for the year as a whole. Although it's still too early to say with any great certainty, as we look ahead into 2020, we expect the positive underlying momentum in our businesses to continue, and we look forward to another year of progress for CRH. That concludes the presentation part of this morning's call, and we're now happy to take your questions.
May I ask you please to state your name and the institution that you represent when posing your questions? Now I'll hand you back to the operator to coordinate the Q&A session of our call.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad, and you will be advised when to ask your question. Our first question comes in from the line of Robert Gardiner calling from Davy. Please go ahead.
Good morning, gentlemen. Two questions from me, please. You talked in the U.S. about the positive backdrop on the infrastructure side. I guess we've all seen the contract awards data. I'm just wondering if you could give us a sense of how you see that market in 2020 based on your backlog and what you can see in the year ahead. Second, again, debt coming down rapidly, so it probably leaves you with a good platform in 2020 in terms of capital allocation. I'm just wondering if you could give us, again, a sense of how you think about the spread of CapEx acquisitions further buybacks in 2020 as net debt reduces. Thank you.
Good morning, Bob. I have two questions there. I'll just deal with both of them. I wanted to comment both on capital allocation and indeed just give a sense of the U.S. in terms of how we see the market going forward. With regard to capital allocation, if you look at what we've done this year, we've allocated our capital based on the opportunities we've seen in front of us. We've done quite a significant amount of CapEx, that's M&A. We have dividends going on, of course, we have our ongoing share buyback program. I would expect us to continue on more of the same. The only thing that will possibly change that will be the opportunities that we see in front of us. Will further value creation change that dynamic?
For instance, if we see more acquisitions that we feel that we should be doing or indeed less acquisitions we should be doing. Broadly speaking, looking at where we are at the moment, I think that's the philosophy we have. With regards to the share buyback program and maybe talking about buyback program going forward into 2020, maybe, Senan, you might just comment in terms of what we're seeing in the U.S. with 2020 as well.
In terms of the debt position, just to pull that one out, the guidance we give to the end of the year is to be close to $7 billion in terms of net debt. If you look at that net debt compared to the $4.1 billion of EBITDA that we're guiding, obviously that leaves us well below 2x. I think the main takeaway is that gives us optionality as we go into 2020, and I think optionality to allocate that capital the way Albert has just discussed there. I think specifically around the U.S., Bob, in terms of your question around infrastructure there's a couple of features to bear in mind. The first thing is if you look at the fact that the highway funding is underpinned at both a federal level through the FAST Act, also in terms of state-by-state initiatives.
Just to recall that, FAST Act is in place up until the end of 2020. There's a 2% trigger in that. In addition, there's allocations from the general funds. In the year just gone, there was additional allocations to the FAST Act spend. As you go into next year, obviously that continues to be the case in terms of having a funding commitment there at the federal level. Also at a state level, I think Albert mentioned this in the slides there, 270 additional initiatives, ballot initiatives and paths, which raise another EUR 10 billion of funding at a state level. That's on top of the EUR 7.5 billion of additional revenues that the states have committed to during 2019 as well.
Again, specifically, I think if you think to our business in terms of looking at backlogs, we look at our own backlogs in terms of what we're seeing on the ground as we look ahead over the next 12 months. I'd say positive momentum. Backlogs are good, healthy position. Our backlogs are ahead of where they were last year. What's particularly pleasing within those backlogs is that the margin element of those backlogs are ahead of last year.
Okay. That's very clear. Thank you.
Thank you.
Next question comes in from the line of Gregor Kuglitsch calling from UBS. Please go ahead.
Hi. Good morning. Thanks for the presentation. A few questions. Firstly, could you give us sort of an early look on what you're thinking about in terms of pricing for next year, perhaps both in Europe and the U.S.? I guess it's the kind of time of the year we start sending out letters, particularly on cement, but perhaps also on some of the downstream products. Secondly, if you care to elaborate a bit on the margins, I think this year you'll have a reasonably meaningful path despite the U.K. headwind that I think has been well flagged. How do you see that trajectory of margin improvement into 2020, please? Thank you.
Okay, Gregor, good morning there. Three questions, pricing in Europe and the U.S., then just in terms of margin step-up as you go forward here. Maybe why don't I just talk about pricing generally. I'll talk specifically about U.S., David, the third about Europe. I'll ask him to talk to you about pricing in Europe maybe Senan, you mention then with regard to margins at the end. I think the backdrop we have seen over the last couple of years is very significant cost increases in our businesses. Whilst across the United States, in most of our products, we have had good success in getting price increases through to offset some of those cost increases, there's still work to be done.
I would expect going into next year with regards to North America, both the United States and Canada, that we will see a continuation of the pricing environments necessary to recover the cost headwinds that we have suffered this year. We’ve had good delivery this year, and I would expect to see it coming through in the United States next year with regard to that. With regard to Europe, David, you might talk?
Yeah, in Europe, Gregor, you saw in our statement that the European pricing was up around 6% for the nine months year to date. I think we're seeing that momentum continue into the end of this year. I think as Albert outlined, I think we've seen a lot building over the last few years to try and build that momentum into the next few years. We see the momentum continuing. There's good solid demand backdrop in excluding the U.K., Western Europe, but also particularly in Eastern Europe. We see the momentum there for price increases and to continue to make progress in 2020.
Just in terms of margins then, Gregor, I think you saw the half year, what we talked about in our margin performance, not just the absolute margin improvements, but also the like-for-like improvement. At the half year, we were 10 basis points ahead. You can see based upon our third quarter numbers there that we're obviously further ahead. As you look to the end of the year, this year, I would anticipate that our margins on a like-for-like basis will be 40 to 50 basis points ahead of where they were last year. That gives us good momentum going into next year. When we talk about the components that drive that margin, obviously, there's a number of items that are there in terms of cost improvements in our business, production efficiencies, obviously price mix, on pricing, mix, et cetera, in terms of how we drive forward.
If you look ahead to next year, I think we'd expect to see that all the items that we're driving forward will all come through. Remember, we talked about the fact that a lot of the initiatives we were driving would have further delivery in 2021. You're seeing the start of it coming through in 2019.
Excellent. Thank you very much.
The next question comes in from the line of Paul Roger calling from Exane BNP Paribas. Please go ahead.
Yeah. Good morning, everyone. Congratulations on the results. I just have two questions if I may. The first one is just a follow-up on capital allocation. We understand there's quite a strong pipeline for deals, particularly in the U.S. Obviously, you're not going to comment on specific targets, but maybe if you could just talk a bit about your general view on big M&A at the moment, and whether you would consider a large transaction in the next 12 months. The second one is just on the U.K. We heard from Breedon, what was it, a few days ago, that the market is showing signs of stabilizing into 2020. I'd also your view.
Hi, Paul. Good morning. Two questions there. One on the U.K., which Jim has spent a fair bit of time over there with the M&A, the market in the U.K. and how we're seeing it. With regard to the pipeline for deals, specifically in North America, the industry over there is still very fragmented. We see a lot of deals coming through across our table on a monthly basis, some of them quite significant. I think the key characteristic of CRH over the years is the discipline we've shown to ensure that any deals that we do fit with our businesses, and we believe we can create value when we buy those deals. I think that's still the case. There's still a lot of opportunities out there, and I think that our footprint allows us to see probably as much of it, more than anybody else.
With regard to your specific question on big deals, the focus very much we have on our business at this moment in time is we've done a lot of acquisitions over the last number of years. They are in the process of being bedded down. We are looking to continue to deliver the value creation through those acquisitions and the integration of those deals. Secondly, we have a very significant program running within our business of internal profit improvements, which is getting the most, squeezing the lemon as much as we can to get as much juice out of it. It still has a ways to go. I don't really want the distraction of taking on too many big deals out there.
CRH has had a deliberate strategy of keeping optionality and keeping capacity to do deals in the balance sheet, and that has been a hugely successful strategy for us over decades. I never want to say never because you just don't know what's around the corner. If a deal of compelling value presents itself to us and we felt it was the right thing to do for shareholders and we have the capacity and capability to do that deal, we should do that deal.
I have to say, our focus is very much on continuing to integrate the big deals that we have done to continue to deliver the value we have and improve the margins through that, to continue to focus internally on improving our business through the profit improvement program that we have in place, and to continue the improvement of the cash generation, the improvement of returns, improvement of margins. That's our key focus within our business. We keep our eyes open and we remain opportunistic, but that's probably where our focus is at this moment in time, Paul.
Sorry, Albert, can I just have a quick follow-up on that? How important is your own multiple when you come to looking at deals? In other words, you're trading at what, about 8 times EBITDA? Is that something you have in mind when you look at these transactions? Is there a sort of cap with the type of multiple you're prepared to pay?
Honestly, Paul, I can't speak about our multiple or our share price. What I can do is, I think we can help as a team drive the profitability of our business. Through credibility, dependability, transparency, communication, and clear strategy, the multiple will sort itself out. That's all we can do. I can't influence market factors. When we look at a business, we look at the business and our ability to buy that business and create value beyond the profitability that it currently generates, either through market opportunities or integrating with our existing business. That's where our focus is more than anything else. That it's focusing on the profitable generation. By doing so on a consistent basis and above what others do it in our industry, we hope then that all the factors contribute to overall value creation for our shareholders.
If I could pass over to Jim with regard to just to give us maybe, I don't know about anybody else's comments, but our own comments, Jim, and how you're seeing the U.K. market in 2019 and 2020.
Morning, Paul. Yeah. Certainly, the political and Brexit-related uncertainty continues to negatively impact activity levels in the U.K. For us, the U.K. represents about 7% of our total group EBITDA. When you look at this business line in the U.K., certainly the infrastructure market remains weak. There is a very good pipeline of projects, as we know. However, they continue to get delayed and pushed out. The non-residential sector in the U.K., again, also remains weak, particularly in the southeast of the country, and residential a bit more resilient, particularly outside the greater London area. We continue to monitor the situation very closely and adjust our cost base accordingly. We would see maybe that the U.K. has bottomed out at this, as what are, say, very low activity levels. Looking forward, we're very well positioned to take advantage from when the market does recover, particularly on the infrastructure side.
We should get good cost leverage, and we're in a very good position actually to deliver on some of the large infrastructure projects going forward.
Great. Thank you very much.
The next question comes in from the line of Tobias Leymann calling from Morgan Stanley. Please go ahead.
Good morning, gentlemen. Thank you very much for taking my question. I have two, if I may. First, on the Ash Grove synergies , you mentioned in your presentation earlier that they are ahead of expectations. Just to follow up, is this only in terms of timing, or is this in terms of the total amount of facilities? Maybe you could quantify this for us. That's my first question. The second one, in terms of your strategy 2021, can you give us an update here where we stand in terms of the 300 basis points margin improvement target? Maybe you could give us also a couple of examples what's changed within the group over the year, also share your view how much of the 300 basis points we could see next year already. Thank you.
Tobias, good morning to you. two questions there. One on our profit improvement program, which David is going to take up, and second on Ash Grove synergies, which I'll ask Brendan to deal with. Again, just to tack on the point that Senan made earlier in the question, we said earlier this year that we felt that it would be the back end of this year, 2019, before we'd see any improvement coming through in terms of our profit improvement program. At the half year, we had shown 10 basis points of improvement.
We had seen at that time, when we spoke in August, that there were good progress being made on a lot of fronts that, as Senan has indicated, we were looking at probably getting to sort of 40 or 50 basis points improvement, which is ahead of where I thought, generally speaking, we would be at the end of this year. I didn't think we'd be anywhere near that. David, maybe you might just talk the next couple of years as a whole, therefore, to see if that's the areas where we're focusing on, and then maybe Senan can mention about the Ash Grove synergies, which are part of that whole program for us.
Yeah. Not to be too repetitive, but I think we've always said that we're building momentum as we go into this. A lot of this is about, first of all, realizing the benefits of our portfolio changes, which helps us to deliberately achieve the basis points. I think the real thing is where the areas are. It's 70% internally delivered and across a range of categories, structural process, procurement. If you pick out something like process, what is that? Things like operational excellence across a range of businesses. We have 3,000 locations where we're looking at best practices in one location, bringing them to the next. That builds over the first year, it builds into the second year and as we go forward. I would say very pleased overall with the momentum that's across all businesses within CRH.
I think we've really put our effort into this, and you can see it coming through in our first-year delivery with 40 to 50 basis points this year. I think we'll be looking into next year. We'll be looking at all of our commercial management as we get into the year in terms of pricing, and we'll look forward to further deliveries as we go into the next year as well.
Just in terms of synergies, you mentioned Ash Grove, but it's actually broader than Ash Grove. We can talk about Ash Grove now. Ash Grove is fully integrated into our North American cement platform. That includes the 20 assets we bought in Florida, including the assets we already owned there, plus the assets we own in Canada. When you look at it on a North American platform basis and the opportunity for synergies there, we identified synergies at the time of the acquisition. We more recently called that up. The amount we anticipate earning over the first three years of ownership is about $145 million, and that's well underway in terms of delivery. This year, the amount we'll deliver will be in excess of $50 million in calendar year.
That is effectively a range of delivery items from, as David talked about operational excellence, he talked about procurement, he talked about effectively our commercial discipline in terms of the way we operate. We're very pleased with the performance in that business, and you're seeing that coming through, and it makes a contribution to our basis points improvement in terms of the overall improvement plan.
Thank you very much.
The next question comes in from the line of Arnaud Lehmann, calling from Bank of America. Please go ahead.
Thank you very much, and good morning, gentlemen. Two questions on my side. Firstly, you gave a relatively positive message regarding the 2020 pricing outlook for both Europe and the U.S. Could you also comment on the cost side? We've seen, I guess, international coal prices staying at relatively low levels. Do you get any tailwinds on the energy side, but at the same time, are you also facing a meaningful wage inflation? What's your 2020 cost outlook at this stage? That's my first question. My second question is related to CO2. We've seen some of your cement competitors make announcements in terms of extra CapEx for reducing emissions in Europe or projects in Canada, which I guess are the focus of new regulation at the moment. Have you committed to incremental CapEx or operating spending on your plants in Europe and Canada to improve your CO2 performance?
Thank you.
Good morning, Arnaud, thank you for those two questions. On CO2, ask Jim, who's usually involved in that, to do that, I deal with the issue on costs and our expectations for 2020. Broadly speaking, energy costs across CRH generally would be at around the 9% of revenues currently for the budget this year. We broadly see energy being flat to slightly declining next year. Other than that, we don't see any huge change out there. With IMO 2020, which we're going to have to digest, I think that fully also, we have various strategies committed in that, I think it's an opportunity for us going forward for the time frame. Specifically, you mentioned wage inflation. We do see the possibility of wage inflation rising in the U.S. next year. I think it could be in the region of two to 3%.
We've factored that into our cost structures going forward, and it'll be factored into our pricing mechanisms as we go through the year. Again, that's something that we deal with. It has been there for the last couple of years, surprisingly, but I think it's coming there now. I think a number of people are seeing that. With regard to CO2, Jim, in terms of what we're doing in terms to reduce that and the plans in place.
Yeah. Personally, maybe CO2 for us is a relatively small cost item compared to some of our peers and the material effect it represents. A little bit less than maybe 1.5% of our total energy bill in 2019. We, CRH, have a proven track record over many years of setting targets and delivering on targets in terms of emission reduction. The current target we have out there is for 2020, is a 25% reduction in terms of CO2 emissions per ton of cementitious product. We are going to achieve that target for 2020, and we're currently finalizing the target out to 2030 in terms of our emission reductions. That target will be a best in industry standard in terms of what's out there in terms of cementitious emissions per kilogram of cementitious product.
That target is going to be achieved through a combination of process improvement, that's raw material additives, alternative fuels, and clinker substitution, reduction in the clinker ratio. A number of process changes, which is going to help us deliver a best-in-class standard out to 2030. There's no major significant CapEx that you coming forward as a result to drive down those reductions either? No. Okay.
Thank you very much.
Thank you.
The next question comes in from the line of Elodie Rall calling from J.P. Morgan. Please go ahead.
Hi, good morning. Two questions. First, if I may follow up on the question on the 300 basis points target. You gave us your progress so far, could you help us recalculate, if I may ask, the basis, the start point basically of this guidance, given the many changes that the group went through structurally and given the IFRS changes? That's my first question. Second, maybe a follow-up as well on capital allocation, more precisely on disposals. Would you actually consider further disposals at this stage? There were press articles talking about potential disposal of the Philippines. I don't know if you could comment on that. Thank you.
Thank you, Elodie, and good morning to you. Two questions there. One, a follow-up on the cost improvement program, which I will ask Senan to take us through there. The second question on capital allocation is specifically on further disposals. I think this is our sixth year now of continued portfolio refinement and disposals. I think you can accept now that this is an embedded part of how we do business in CRH. We are looking to refine and reposition our business based on the opportunities that we see in front of us. Which are focused on, number one, great growth opportunities in better markets. Number two, our ability to perhaps sell businesses and buy businesses that more closely align and fit with our strategy of the business that we have.
As we become a more deeply and more focused business, we find that allows us the ability to drive margins and cash and returns, and that is what underpins our delivery, again, in these results we talked about this morning. It's that focus and that strategy. Of course, we will continue to do that. With regard to the specific asset you mentioned, there isn't a week goes by when our name is not linked with something under a disposal or an acquisition elsewhere. We're not going to comment on anything right or wrong or interesting. There's a lot of speculation. Pick one item, you've got a pick four in the last month where we're supposed to be buying or selling. We're not going to comment on any individual entity.
Okay.
With regard to just in terms of the term basis points in terms of your start point, Elodie. Start point is changing all the time. What we have done and what we've decided to do in the interest of transparency is actually look at the like-for-like performance each year, so year-on-year. That's the conversation we had earlier on, which is if you look at our performance this year relative to last year on a like-for-like basis, you have basically all the noise, whether it's your accounting changes or acquisitions, divestments are taken into account when you look at that. I don't think at this point it makes sense to, we continue to restate the start point every six or 12 months as activity levels change in the business.
Okay. Understood.
Okay. Thank you, Elodie.
Thanks.
The next question comes in from the line of Tobias Wörner calling from MainFirst. Please go ahead.
Yes, good morning, gentlemen. Thanks. A few questions. Three, if I may. Number one, housing seems to be recovering or re-accelerating in the U.S. You have a reasonable exposure there through the Building Products division. Maybe you can give us some good color on how you expect it to impact your business and more importantly, the profitability and operating leverage going into next year. Secondly, EBITDA margin, when you look at the first nine months, and you adjust for the IFRS 16, seems to have moved up 70 basis points. You're also deconsolidating Europe Distribution, which should get rid of EUR 600 million on revenue line and EUR 40 million EBITDA line. A lower margin business. Your 40 to 50 basis points guidance, how do I have to see that in this context? Just lastly, probably one for Senan.
To gain from the Europe Distribution, maybe you can give us some guidance there. Thank you.
Thank you, Tobias, and good morning to you. I'll ask Senan to comment on the EBITDA margin and maybe results in terms of the CapEx gain in the Europe Distribution. Just specifically on the residential market in the U.S. In fact, maybe I might just comment a little bit on the overall residential market, the overall market in the U.S. in the context of that. I'll talk about where we see U.S. residential, because we have a lot of fingers across the market, which give us a pretty good read on where the market is in 2019 and where we think it's going in 2020. I think it's useful to share that with you. Look, I would generally have a positive outlook on the current U.S. cycle.
Clearly it's been more protracted than previous years, but that's hardly surprising given the depth of the recession we saw before that. There are three main separate component parts of U.S. construction that are driving growth, continued growth going forward. First of all, infrastructure, which we've talked about before, is more than half the total construction of the United States. That's underpinned with the FAST Act infrastructure funding. Over the next three years, so 2019, 2020, 2021, that is going to grow by about $14 billion, about 12% over the previous three years. That underpins half of the construction growth going forward. Even in the depth of the financial crisis that kept going. The funding was there. That gives us a relative sense of security with regard to half of the market growth coming through. The second and third areas are residential and non-residential growth.
What drives those things, there's solid underlying demand in both those markets. What drives that are the big numbers there. Population growth in the United States, the population grows by 30 million people every 10 years. There's net job creation in the United States, 2 million net new jobs every year being created in the United States. We see now rising wages and rising incomes. Wages will probably grow 2% to 3% next year. We see U.S. economic growth in the region of 2% plus. Low interest rates. With regard to your question on housing, we have almost record low inventory levels, and there's resilient demand out there. All of those factors coming together give us a sense that the U.S. construction market is pretty much solid for 2023 in terms of solid demand going forward, and I think beyond that into 2024.
For the margins and maybe your capital gain question, Tobias, in terms of the margins, I think one of the things that you referenced there was Europe Distribution. Europe Distribution was disposed on the 31st of October. That means we will have 10 months of sales and 10 months of earnings from it this year. The lost sales and lost earnings for the last two months of the year are about EUR 600 million in sales and about EUR 40 million of EBITDA. When we're looking at our guidance for the end of the year of 40-50 basis points of margin improvement, we're doing that on the basis of 10 months of ownership of Europe Distribution in both years.
If you look at it, 10 months last year, 10 months this year, and look at the portfolio that we own this year compared to last year, and as I said, take into account the accounting changes, take into account the acquisition divestment periods, and look at the performance year on year, that's why we're guiding at 40, 50 basis points of improvement there. The question about Europe Distribution in terms of capital gain, yes. You see, obviously, we will have proceeds north of EUR 1.6 billion that we have received from the closing of that deal at the end of October. We highlighted the financial statements, I think, in our guidance there that we anticipate that the gain, the accounting gain on sale will be about EUR 200 million this year, which obviously will enhance our earnings per share.
The tax position on that will be close to neutral in terms of we have a very effective tax structure in terms of the way it's operated. You should expect that the pre- and post-tax gain would be pretty similar.
That's great. Thank you very much.
The next question comes in from the line of Will Jones calling from Redburn. Please go ahead.
Morning, all. If I could as well, please. The first, just focusing in on Americas Materials and the detail, I guess, behind the 12% EBITDA growth like-for-like in Q3, was there any particular region and/or kind of material that contributed more or less to that, just in terms of understanding that divisional performance? The second one is just in Europe around pricing, but obviously focusing on the majority of your sales that are non-cement. Can you just comment perhaps on how pricing is fairing in those products as well, please? Just finally on the balance sheet and net debt to EBITDA, you talk pre-IFRS of somewhere in the order of 2x net debt to EBITDA. I think IFRS adds around 0.3 odds to the multiple.
Should we think about 2.3 on an equivalent basis going forward, or would you prefer to be more conservative and just still talk around the kind of sort of the two mark even with IFRS? Thanks.
Thank you, Will. Good morning. Three questions there. One on the balance sheet with regards to net debt to EBITDA. Maybe, Senan, take that one at the end. Second one is on non-cement pricing in Europe. I'll ask David just to comment on that. I'll just take the first question with regard to the U.S. Materials and the quarter 3 performance. Primarily, our quarter 3 performance was driven by our heritage businesses and really good strong delivery across our businesses in the north part of the country. The strong vertical integration business that we have there allowed us a very good pull through, allowed for very good balanced production in our quarries, which lowers our unit costs. I should say as well, that of course we have the contribution of Ash Grove coming in.
The ability to integrate Ash Grove not only at the cement businesses but as aggregate business with our existing footprint, it has been a very big help to performance of our business in quarter three. Really, I'd highlight those two areas, the north part of the region where we see the benefits of vertical integration with good volumes coming through into our asphalt businesses in particular, we were making very good profitability, very good returns, and the delivery of Ash Grove really contributing now to a much reshaped, a much-changed North American business in the material sector. With regard to pricing across Europe, David, on the non-cement areas.
Yeah, non-cement areas, I think overall, good progress. I think in aggregates across Europe, we're up around 4% year-to-date September. If you look at our ready-mix, also up around 3%, and asphalt up around 2%. Good progress across all products.
It's depending on which markets, but generally good progress this year. Generally speaking, of course, as an overall comment with regard to pricing, where you see good cement pricing, that should translate all the way down the chain to good pricing on all the products down the chain. That's normally what happens. With regard to balance sheet, Senan. Yeah, I think in terms of the balance sheet, just your commentary around IFRS, it does add about 30 basis points to the leverage metric that you mentioned there, absolutely. I still wouldn't change the range in terms of the kind of 1.8 to 2.2 times in terms of where we go. The other thing I'd highlight is we don't just look at that metric. As you well know, you look at the absolute amount of debt as well.
I think in terms of looking at the overall balance sheet position, you're correct in terms of IFRS does add some additional values to the balance sheet. I don't think it changes our view in terms of looking at the absolute quantity of debt or the range that we talk about. Thanks, Will. I think we have one more question, please.
The final question comes in from the line of David O'Byrne calling from Goodbody. Please go ahead.
Hey guys, just one from me. I guess, helpfully in the first half, you gave us some detail around the Europe Materials division. If we stripped out the U.K. performance, just to give us a sense of how continental Europe has performed. If you could give us some color on how profit performance has evolved from the first half into Q3, and maybe any individual markets that have shifted either positively or negatively from that category point of view.
Hey, good morning. Thank you for the question. Just on the overall market in terms of where they're going, I would say that the real strength of our business and the backbone of our business has been our central European areas, which have shown very good volume growth. On the back of that volume growth, good performance, good cost, and also in terms of good pricing. I think that will continue into next year. A little bit of weakness in Switzerland, but that's just, I think, a minor issue. France has remained fairly robust. Germany's been solid. Ireland has been good. Finland, okay. The U.K., as Jim has mentioned earlier on, we think it's kind of hit the floor now at this stage.
If one stripped the U.K. out of our European numbers, probably the best thing I can say, because we're very much focused on profitability in CRH, is the margin performance, which is negative 40 basis points, would actually be a positive plus 40 basis points. There's an 80 basis point swing caused by performance of the U.K. this year. That just shows you how tough it's there. I have to say, the overall trend in the market, no real major changes in trends in our European businesses in the quarter 3 and even quarter 4, actually.
Super. Thank you.
Okay. Look, we've come to the end of our call, and that's all we have time for. I'm afraid I want to thank you for your attention this morning. I hope we've managed to answer all of your questions. If we haven't, Frank Heuschkel and his team are available to answer any follow-up questions you may have throughout the day. We look forward to talking to you again on the 20th of February next year, when we report our preliminary results for 2019. Thank you and good morning.
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