Good morning, ladies and gentlemen. I'd like to welcome you to the 2018 results for CRH. This morning. My name is Albert Manopold. I'm the chief executive of CRH.
I'm joined on stage by a number of my colleagues. On my far left, we have Sena Murphy, who is our finance director. Next, Essendon, we have Keith Haas. Keith is the president of our Billy Billing Pollock's business. Anilanda Veda is the president of our Europe Materials business, And beside me here, Randy Lake is a president of our Americas Materials business.
So the running order this morning is, of course, we're going to go through a brief presentation of the financial results we published this morning. Also want to go through some of the trends that were evident in our business as we went as we delivered those numbers for last year. 2018 is a very busy year for us actually. We have a lot of initiatives running through our business and we want to go through and discuss our progress on some of those And of course, at the end, as usual, we'll have some Q and A and give you some thoughts about how we feel about 2019. So just some of the key messages here before I passover to Senate, 2018 was a year of record profit delivery for CRH, profits of 3.4000000000 7 percent ahead of last year, 2017 and margins ahead as well.
Very glad to see a lot of strong cash generation out of that EBITDA very strong cash generation 70 percent of our EBITDA being turned into cash. Of course, a continued focus that you would expect on CRH on efficient capital management. We will discuss quite a bit about that during the course of this morning's presentation. And a good start to the profit improvement program that we announced at the end of May last year. So, Senan, maybe over to you to talk about some of the key financial numbers.
Thank you, Robert.
Our financial highlights on this slide speak for themselves. Today, we're reporting sales growth of 6% over last year. And we're also reporting EBITDA growth up 7% over the prior year. Now there are headline numbers, and if you look at organic growth or if you look at the like for like performance against those numbers, you can see that we've delivered an organic growth of 3% on the sales line. We've also delivered 3 percent organic growth on the EBITDA line.
And for us, we think there are good results especially when you consider the headwinds that we faced across our business over the last year. You'll all remember that we've had headwinds on the weather front. We've had weather disruption in many parts of our business, particularly during some of the busy seasons, and we've also dealt with a spike in input costs across many parts of our business over the last 12 months. We're also reporting earnings per share growth today, which is up to over a share. That's a very strong growth, And clearly, that reflects the underlying trading performance, but included in that number as well is the gain that we made on the sale of our Allied business, which was completed at the early part of 2018.
Now as the CFO, clearly, the number that's on this page that impresses me most, so the one I'm most pleased with, is our cash generation. The results in terms of our cash performance. 2,400,000,000 of cash, as Albert has mentioned in the introduction, generated from our operations. And what that 2,400,000,000 of cash has allowed us to do over the last year is reinvest in our business, but it's also allowed us actually buy back shares. We spent $800,000,000 last year in terms of buying back shares.
And I'm also pleased to say what it's also allowed us to do is to propose an increase in our dividends up 6% for 2018.
Thanks, Senan. So I looked at a very brief overview of the key messages and indeed the key financial numbers for 2018. I now want to turn to the trading operations and give you a sense of how those numbers were delivered. And firstly, I want to turn to the Americas and discuss exactly what was behind the delivery of those numbers. I'm going to ask my colleagues, Randy and Keith, to take us through their individual businesses at the moment, but But first, I want to go through some of the key market backdrops that were there and how we delivered against those numbers.
Now it will come as no surprise to you that there was significant weather disruption across all construction markets in North America last year, and we were impacted by that. However, despite that, we saw quite a favorable economic environment, good GDP growth, good economic activity and again, continued record job creation. Good momentum in our businesses, particularly in the second half and particularly in the last quarter of the year, was evident and that's continuing on to 2019. And I'm sure the guys will talk more about that. And despite the significant weather disruption and of course very significant headwinds on energy cost, I have to say we focus very much.
On a
like for like basis, we saw a slight turn backwards in margins, primarily in and around the well documented weather events, in and around Texas, the northeastern part of the United States and Eastern Canada, And certainly the input cost impact, in and around our asphalt business, bitumen, diesel, and natural gas But I would say overall, we're very happy with what's happening in regards to the states in particular and their involvement in the infrastructure space. Real active participation in taking ownership of their investments. When you underpin that with the federal program, we're seeing increased bidding activity across all of our markets. And with that increased activity, obviously, we're seeing an increase in our backlogs, but more importantly, margins are improving in those backlogs. It's been a busy year, certainly from an integration standpoint.
We'll talk a little bit about, Ashgrove in a few moments, but integrating Ashgrove along with Swami America full year happy with the progress there delivering on our expectations in and around profitability, the identification, and then the delivery of, of synergies. So off to a, a good start, good conclusion to 18, good momentum going into 'nineteen.
Keith? Thanks, Randy. For our Americas products division, it was another strong year like our Americas Materials division, as a reminder, our business is underpinned by residential and nonresidential construction in North America, United States and Canada. And as Albert alluded to, there were good market fundamentals there, probably mid single digit growth in both of those key markets. We were, however, impacted by the unfavorable weather that's been well documented We have a lot of business that we do in the first half of the year.
So this constrained our ability to demonstrate strong organic growth behind those market tailwinds. But I'm proud of our teams that really focused hard on our operations on commercial excellence on operating efficiencies and cost reductions. So With a 2% like for like growth in our sales for the year, we were able to demonstrate a 6% growth in our like for like profitability and good margin improvement, for the year. So overall, a very strong performance for America's products team. We did get off to a slow start due to the weather in the first half of the year, but we built momentum through the year.
We had an excellent 4th quarter and that gives us an optimistic outlook for 2019. Thanks, guys.
Good delivery across 2018 and hopefully we can see the same across 2019, good momentum coming into the year, certainly a good start to the year as well, thankfully. And I now want to turn to Europe and indeed Asia. And before I ask Annette to take us through the materials business and Keith actually is going to cover off the distribution and products business, Again, I just want to give you a backdrop to how the environment in which we traded in across Europe. And actually, it was quite pleasing to see the continued recovery in Europe unfold. And 2018, we saw that happening.
And across some of our very big markets, particularly in Francore, Eastern axis of Sierra, which is a very important to high growth. We saw good delivery as well. Really good to see, I think, cost headwinds that we saw in the businesses again, and again, a good start to the year Europe. Maybe it might take us through the materials business, then Keith will take us through parks and distribution. Absolutely.
Pleasure to do so, Albert. So a good growth in sales development in Europe as well. So we had a top line growth of 10% and also followed by a 9% increase in EBITDA. Very pleasing results. Like for like, we had also a good feedback out the, what we call the beast of the east last year, and so we had a slow start of the year.
But taking that into account, the cost inflation we had And the energy cost to inflation and the Brexit uncertainty, very pleased to have a 4% like for like growth. Similarly, good volumes development, especially in the east, Poland, Serbia, Hungary, very good growth over there. Also, beginning of the year, last year, we had a good start with pricing. It accelerated a little bit towards the end it is continuing in 2019. So all in all, Albert, very pleased with the results for 2018 and hopeful for 2019.
Did it go for you, Keith? Yeah. Thanks, Lana. Yeah.
Thanks, Lana. Yeah. Our trading performance in our BlackSide Division was very similar to, to honest performance in Europe Materials. We service, mostly Continental Europe, but about 15% of our businesses in, market outside of Europe, Australia and others. And it was a very good year for that.
On the continent, we saw good market for our Europe light side business was stable, which was probably a little bit better than expected given the uncertainty that's been spoken to about in the UK. So all our businesses within Europe light side were able to advance together, we were able to generate a 5% like for like improvement in our turnover, a 6% move forward in terms of profitability and 5% on a like for like basis in the division. Our margins were basically in line with prior year, and that I view is a very strong performance because the division faced a number of headwinds on the cost inflation, area, primarily in the, in the, the world of labor, lot of labor cost input inflation, as well as key raw materials like steel and aluminum. So overall, a very good year for Europe light side. Like our America's business, we we finished strong, and again, that points us toward further growth in 2019 in this division.
Now looking at our distribution division, it was a little bit more challenge environment, as you could see, by the numbers on the screen. I would point out that while we're reporting a significant decline in profitability and in profit margin, That's really due to one off items, including the divestment of our Benelux based DIY business, which was done in July of 2018. Taking that out of the equation and you look on a like for like trends, we have good momentum in some of our key markets in Europe and the Netherlands and in Germany. Some challenges in some of the other markets, including Switzerland, where, you know, we faced sort of a number of challenges, especially in Switzerland for the last several years, but we started getting that turned around in the second half of the year and saw improving trends in our results coming out of Switzerland in the back half of the year. So overall, on a like for like basis, broadly in line in terms of profits and in terms of margins for the year in 2018.
As you know, we announced but mid year last year, a strategic review of our Europe distribution operations. We're well advanced in that. It's it's it's gone well. It's very detailed and thorough review of our business. We've made a lot of progress so far.
We're not quite concluded, but we're looking at all options in terms of value creation for our shareholders for this division.
Thanks, Keith. And lastly, to our Asian division, our smallest division, it actually represents about 1% of EBITDA And during 2018, we saw the market recover there in the Philippines, in particular, which is what we're talking about here, recover quite well on the back of good strong residential, non res and infrastructure growth, and we saw in our business volumes and prices moving ahead. Unfortunately, we were also hit with the same challenges and with regard to cost increases that we saw in Europe and the Americas. And we just failed to be able to pass back on enough of those cost increases to our customers to recover the profitability and we significantly reduced the profitability and very disappointing performance with regard to the EBITDA delivery. And of course, margin got compressed as well.
Now we worked hard during the course of 2018 on our businesses. We've taken a lot of costs out. We're doing a very ambitious program to swap our production from offshore production to onshore production as an industry, we're working with the government and have been successful in getting the government to support onshore production of cement and clinker. And we saw the impact of that towards the tail end of last year with an improving situation, and we're confident that 2018 represents the trough in our EBITDA performance in the Philippines and we expect a recovery during the course of 2019. So that's just a quick summary of the overall trading performance, a good performance across the businesses in general, but of course, let's see how the trading performance moves into financial performance sent in, it might ask you to take us through a few slides to explain that, please.
Yes, what I'd like to do for the next few slides is really just consolidate or pull together the divisional trading updates that you heard from each of my colleagues here and paint for you the group picture, starting with obviously our EBITDA performance and you look back terms of how we've done over the last 12 months. As Albert said in the introduction, record profits this year, just shy of $3,400,000,000 EBITDA delivered. And that's a 7% growth over prior year. Now there's a lot of moving parts in that 7% growth pluses and minuses throughout the year. And what I'd like to do is maybe pick out just a few of the highlights that stand out over the year.
Clearly, I'm going to start with organic growth And if you look at our organic performance across our Americas and our European businesses, in total, that added up to 3%. In euros terms, that's about 100,000,000 of organic growth year on year. The other big standout positive year on year is the contribution from acquisitions. This year, we now have a full year earnings from Swani, the acquisition we did in Florida. We have a full year earnings from, fells, the German acquisition or the European acquisition we did last year.
We also have a half year contribution from Ash Grove, which closed in June of 2018. And then we have 45 bolt on deals that we added throughout 2018, of which there's a partial year contribution in there. So you can see a big contribution on the acquisition front. Not everything is positive. So when you look at our record profits, obviously, you need to take into account some of the headwinds we faced.
And currency translation is one of those. You can see 100,000,000 of headwinds on the currency translation side that we absorbed in arriving at that 3,400,000,000. Moving on to our cash performance over the last year. As the CFO in the business, obviously, you'd expect me to think about this as the most important metric or certainly the one that I spend a lot of time looking at look at our cash, our cash performance on a daily basis around the group. But this is not just a financial measure.
All of our operating companies care about cash. Everybody focuses on it we are obviously reward people based on our cash performance. So when you look at our cash performance of 1,000,000,000 generated over the last year, one of the standout things is the conversion conversion from earnings of 3.4 into cash of 2.4. That's north to 70% So it's another year of very high conversion from earnings into cash. And again, there's a lot of drivers behind that, but if you that stand out really are that we start really in a position where we've got strong quality of earnings.
There's a lot of focus around the group on managing our working capital. So clearly, that's an area that helps us in terms of delivering that cash performance. Also, we have a healthy balance sheet. And with that, healthy balance sheet means that we have normal debt levels, We have a very strong investment grade credit rating, which then all means that we're able to control our interest costs, and that leads to the type of cash generation you see on this page. I mentioned healthy balance sheet, so let's talk about our debt performance over the last 12 months.
If you look back on this slide, you see from left to right, the movement in debt during 2018. We started out the year at 5,800,000,000 a debt. That was 1.8x net debt EBITDA. As I mentioned, we had a very busy year on the development front, and also on the acquisition front. And you can see that we have 1,000,000,000 of cash outflow net between acquisitions and divestments over the year.
But what stands out and what's most important on this slide is that strong cash generation that we talked about $2,400,000,000 of cash What that has allowed us to do is reinvest in our business, but has also allowed us to give back $1,300,000,000 of cash to our shareholders in the form of dividends and in the form of buybacks. And with all those moving pieces, we still ended the year at just under 7,000,000,000 of debt and just under 2.1x net debt EBITDA. And that level of debt for us is something that we think about as a comfort level within CRH.
Thanks, Senator. Look, I think when you see that performance being translated into that type of financial performance, despite the progressive change you see in CRH But despite the dynamic changes you see around us, there's one constant about CRH, that commitment to strong, strict financial discipline that runs through our balance sheet and our cash generation it's never changing and really important to our investment story and really important to us as a business. 2018 is interesting to look at. It is a record year of profitability, but it is only a snapshot in time. It doesn't tell you anything about the story of CRH in terms of where we're coming from and where we're going to.
I'd like to do over the next few slides is to explain to you exactly where our plans are as we step and push on with the next phase of growth for CRH. But to do that, I've got to go back to the past just to set the scene. This slide here looks at our performance over the last 5 years. And you can see a very significant change in pace and delivery within the business, increased revenues, profitability, improved margins, improved cash and improved returns. Now, of course, the markets recovered during that period of time, but the markets didn't recover to that pace.
We repositioned, we redeveloped, we reorientated, and we have improved our business during the course of the last 5 years. And of course, for us, the key thing we focus on is returns and cash in series, the true measure of any investment, and you can see over that 5 year period, we've actually doubled our cash generation and we've improved our overall returns by 370 basis points. And the importance of this tide is not to say our Palace in the back and the job well done. That's yesterday's news. It's to illustrate you the momentum that is there within our business.
And that momentum carries us forward the work we're doing and the work we're going to do as we push on to the next phase of growth. Interesting to look inside that to see exactly where that was delivered. Look at the organic growth within our business, and this is against the backdrop of a fairly anemic flat Europe over the last 5 years. Of course, there was some recovery in the U S, but look at a 3% solid CAGR, economic, top line growth. And happily turning that with 25 percent leverage into an EBITDA CAGR over the last 5 years of almost 10%, a really strong performance in our core heritage businesses.
Of course, we've been very active on the acquisition front, good or inorganic growth. We acquired businesses that last year contributed almost $1,500,000,000 of EBITDA. About 50% of that came in Europe, about 50% of that came in the U. S. That balance is important to us.
Put interestingly, of course, you can see the EBITDA margin accretive to the overall group margin and part of the overall improvement story within CRH. Sanna, you might take us through some of the financial impacts over the last 5 years and how we've dealt with them.
The strong financial discipline has been a hallmark of CRH over the last number of decades. And I think if you look back here specifically over the last 10 years and look at our net debt to EBITDA ratio, It comes out at two times. And despite the acquisitions that Albert talked about on the last slide, over the last 5 years, we've still maintained a very healthy balance sheet. You can see in 2015, we actually stretched our balance sheet to be able to afford the acquisition of the La Farage Wholesome Assets and also to be able to afford the acquisition of CR Lawrence. And the important thing is that within 12 months, we had paid our debt down to normal levels again.
So we're back at normalized levels. So when you look at that metric, I think what's important is, going forward, that strong financial discipline is something that still remains here in CRH today and it's something that we're wedded to going forward. If you look at our cash generation, look back over the last 5 years on cash, generated over 10,000,000,000 of cash. Again, that's on approximately 2,000,000,000 a year or just over 2,000,000,000 a year in terms of the average cash generated over that period. What that past performance does for us is it gives us confidence about the cash targets that we've set for ourselves as you look out over the next 3 years.
But also, what's really important about that cash performance is that it gives us optionality going forward. It gives us optionality in terms of how we create and maximize value shareholders. Be that in the form of acquisitions or investing in our business or be that in terms of returning cash to shareholders.
Thanks, Shannon. So we've set the scene record profits in 2018, good delivery across the last 5 years, and good momentum coming into the business. And the question now for us and for you, our shareholders is, how are we going to use that momentum going forward to build further value as we push up the next phase of growth. So against that backdrop, I just want to set out for you what we consider to be some of our key strategic priorities or objectives and how we think about the business They haven't changed in the last 5 years and they underpin how we think about the next few years. 1st and foremost, portfolio management.
You have seen us actively manage our capital base during the course of the last 5 years and that of course is going to continue. Very important as we reposition the business towards higher growth areas. You've seen our own erring relentless focus on the efficient allocation of capital, either internally and last year, externally, for the value creation for our shareholders, but at the bedrock of it all, the simple principle that we have had in CRH for decades we build better businesses. The most sustainable competitive advantage in any business is continuous business improvement. Because every year you move the goalposts, you get better, and everybody is chasing you.
And that is embedded deeply within Syringe and is what will lead to structurally high returns, margins and cash for us in CRH in the years ahead. So how will we be doing against these particular objectives over the last number of years? While the portfolio is probably known to most of you, of course, some of the areas may be not immediately obvious, we have shrunk down from 7 divisions of 2012, 2013, down to the 5, 3 quarter business now at this stage. We have gone narrower and deeper and look at some of the numbers there. One third of all the businesses we owned in 2013 have been disposed of.
Over half the profitability of last year, in record year, we delivered businesses we acquired in the last 5 years. And our program continues on and continues on. That efficient use of our capital base, allocating, reallocating is very important as we drive value in our business going forward. The allocation of capital, both within our portfolio and without. We have dispersed $3,000,000,000 of our shareholders' cash back to them over the last 5 years.
That's what companies should do. We generate a enormous amount of cash on an annual basis, and we want to give it back to shareholders and at a share price growth profitable growth or cash disbursements back to them, and we've been committed to doing that for the last number of years. And finally, this commitment to continuous business improvement You can see the improvements we have in the business for the last 5 years. The market didn't deliver that. We delivered that within our businesses.
And of course, we've now, last year announced a further program for profit improvement. And turning to we announced a 300 target to increase our margins by 300 basis points going forward. Now we didn't just stream this up. This is well thought out and it has been enabled by the portfolio review in the reshaping of our businesses back into certain Q3 core markets where we have a unique core competency in those 3 divisions. And those 3 divisions just don't stand alone.
They are businesses that drive value for our shareholders by the way they interact with each other, the way they supply product to each other, the way they provide best practice and knowledge sharing across the businesses, the way they service the market and the way they innovate to develop future opportunities together. And even within the divisions themselves, that relentless pursuit we have to vertical integration, the key differentiating factor for CRH is how Vertu integrated our business are more so than any other business in the building materials space. We drive value up and down the chain and grab value and profits all the way we all the way through the churn as we do that. And actually, that's what the magic dust of CRH is all about. It's not about the people on this stage today because we change every few years.
It's the business model that Serich has that consistently delivers industry leading returns and cash generation year after year. And the answer is in the business model that we have. So we have a clear model in place, but we also have a clear plan to improve upon that model. And we announced that last year. And we're looking at this at this morning, 3 of the key people who are responsible for delivering that plan with their teams.
So I'm going to ask Randy first, then Anna and Keith to take us through the areas that they've got primary responsibility for. So, Randy, first, you're leading the charge on procurement. Maybe you want to just take us through your thoughts your plans in that area? Yeah.
I'd say we're, we're well pleased with the progress, so far in 2018 leading into 2019 in and around the concept of global procurement. We really view that as a key strategic lever to delivering and helping to deliver on the 300 basis point improvement And the reason we believe that is actually because we've experienced it so far, even in work that's been done through 2018. So we know when we manage our spend and coordinate that spend centrally we deliver.
Yes. Similar to you, Randy, I see a lot of opportunities in process improvement by leverage our group expertise. A good example for me is logistics. Up until recently, we were very locally managed every group company was doing it on the zone. We have now a much more concentrated approach and coordinated approach and we're using and sharing best practices.
So good opportunities there to reduce our cost and optimize our service delivery. But also in energy and energy conversation, saving of energy, reducing energy costs and usage, We've invested more in 2018 in AFR platforms. We've increased our capability to use AFRs and We're targeting another 1,000,000 in savings in 2019 alone. But also more classic, we optimizing our footprint. We closed 1 of our smaller production facilities in Poland, and we're concentrating at the more efficient facilities.
And by doing so, we improve our competitive position over to
you, Keith. Thanks. Thanks, Anna. Along with the procurement and process savings that, Randy and Anna outlined, which really cut across all our businesses, structural cost improvements are going to play a big role in our profit improvement program moving forward. And these structural cost savings were really enabled and driven by the fact of what Albert talked about going from 7 divisions a number of years ago now to 3 divisions, which are larger, more integrated platforms of scale.
And this simpler organization, format is allowing us to really reorganize our management structures streamline our supporting functions from the operating company level all the way up to the center and consolidate our regional network of offices that supported a more regionally operated business. And as we look through that, we have identified up to 1,000,000 of structural cost savings out of the organization, Implementation of those plans began last year and so far we're progressing well.
Thanks, Keith. Look, you've seen exactly the plans that have kicked off, the scope progress works being taken. One thing I want to say, is that about 70% of the initiatives that we're taking to deliver those 300 basis points are internal to us. They are within our control that we have the chance and the power and the opportunity to deliver. That's really comforting for us as we go forward.
Just one last area we want to cover is who are we now as a company in terms of positioning in the markets that we're in because the CRH of 2019 is a very different CRH to the CRH of 2015 or indeed 2013. As Keith has said, we've been reorganized from 7 divisions back now to 3 divisions, focused on an area of core competency, much more focused and now with profit improvement, both in focus in areas such as increased efficiency, increased productivity and increased effectiveness in how we service our customers and our markets in which we do the 4 of what we do. So it's all a worthwhile as you have our colleagues here to take us through the individual businesses and how they are thinking about the position of the businesses and the markets that they're in how they think about their opportunities going forward. So first, Ryan, I'm going to turn to you, run our largest business in America's materials and just take us through your thoughts in terms of next few years for Materials business?
Yes. You certainly would be well familiar with Americas Materials. We are the number one building materials business in North America. A very large footprint across 44 States and 8 Canadian provinces. And I think really highlighted by the investment in long term reserves in those key markets.
I think over the years, we've done a good job at not only driving regional balance, but I think more importantly, balance in terms of end use exposure. And, the map on the right hand side kind of talks or tries to explain a little bit of that. If you look in the northeastern part of the, the US, It's our largest and most profitable market across all of AMET, really characterized by, densely populated areas a large infrastructure system, harsh winters, drives a large amount of repair and maintenance activity. And so for our business there, instant delivery of returns and cash. As you move down into what I call the Smile States and up to the Pacific Northwest, places like Florida and Texas, Seattle, or excuse me, Washington and Oregon.
There's a little different dynamic there. It's high population growth. Florida is growing at three times the rate of the national average. More folks moving into those particular areas. So the market is more descriptive of residential and non res construction.
We have good positions in those particular markets to be able to build upon and take advantage, but it's a great complement to what's happening in the northeast. And then in the central part of the United States, I would call that stable. We have had long term positions there. We have an opportunity to build on those positions through the Ash Grove acquisition, but those markets kind of consistently deliver year in and year out as well, but a different dynamic, than the other parts of the US. And I think as they work together, As it does economies all over the world, the state's economies are slightly different.
And I think it's important in regards to the ability for us to deliver consistent returns and cash. Certainly, the vertical integration model is important. We have done this for years in term of, in terms of building our position around aggregate. In the last 18 months, significant investments, allowing us to do that in the cement, business as well. And really, I think that positioned us in some of those high growth markets to take advantage of, of the dynamics that are happening, again, in the south and up into the Pacific Northwest.
When you look forward, especially, in, in, in just the nature of our business and the aggregate business, in particular, 70% of the aggregate reserves and production are still in the hands of private entities. Most of those are integrated. They're integrated into ready mix businesses or asphalt business. They look much like ourselves. It gives us a unique perspective.
I think a competitive advantage as we look to continue to, to, consolidate markets within the U. S. And I think fundamentally, if you, if you believe in the U. S. Construction fundamentals and, you'd look at our, our portfolio of businesses there, and really believe from a long term, cash and returns standpoint, we're well positioned.
A little bit about the nature of vertical integration, and we tried to depict this on the left hand side. We really have a unique integrated approach compared to our most natural peers who are primarily in the aggregate space. If you look at the chart there, 15% of our revenues are derived from the sale of aggregate versus 60% to 75% on our peer group. That, that integrated model, we believe, gives us a competitive advantage and insights into the market. I'd say 3 things in particular.
1, commercial insights. So we understand what the customer wants and expects We understand the levers that are required in individual markets to drive performance. From an operational standpoint, the idea of base loading a more heavily capitalized business such as cement or aggregates important to have that debt drives efficiency and improvement in your plan and consistency in those plants And from a customer standpoint, we, we understand the products and services that our customers need, but I think more importantly, we provide an integrated solution specifically in and around the infrastructure space that, that no one else can deliver on. And I think, you know, from that standpoint, it's, it's unique, but moving to the right hand side, it doesn't matter or, and oftentimes, I'd say people look at the, the margins our business, say, well, they're slightly lower than your direct peers. Well, our focus is on cash and returns.
And we think the vertical integration model is the best way to deliver on that. It doesn't mean we don't manage our business by line of business. So on the right hand side, we show a comparison for gross margin in regards to our aggregate business. And you can see 28% gross margin. I would call that best in class when compared to the 2 largest peers of ours in that space.
But at the end of the day, the model is, in our model, is about driving shareholder value in and around returns and cash. The vertical integration drives superior performance there. I think part of that is certainly the internal focus that Albert talks about continuous improvement. The other way for us to drive value is the creation of platforms. And over the last 18 months, we've been fortunate enough to acquire, the Ash Grove business, a full year of Swannie America.
You combine that with the Canadian Cement business. We have a leadership position now in North America. It's given us exposure to those faster growing markets in Florida and Texas, Utah and up in the Pacific Northwest But I think really important, we'll talk about this a little bit is the overlap and the ability for us to self supply. Again, hallmarks of that vertical integration model. We are the largest consumer and purchaser of cement in North America.
So we have significant opportunity there to benefit from this platform but also to fill in the gaps in that central part of the United States where it's a tremendous overlap with Ashgrove in our existing footprint. And then and we talk about Ash Grove, and I mentioned earlier, we're on track delivering, as expected, from a profitability standpoint, we announced at the end of last year, a $100,000,000 of synergies, happy to to, to say this morning, we identified another 10,000,000 primarily in and around the commercial procurement and G And A, space with maybe an unequal weighting on the operational side. And just a, a thanks to Ana and his team, when we began to integrate this business, just the technical expertise that we have around Europe and Asian honesty, not only helping us, to evaluate the deal, but then to begin to execute, it's really boots on the ground. So we have people embedded in our business from Ani's team. So I want to thank you and your team for for the help and letting us accelerate performance there.
All
right. Pleasure to do so, Randy. And, may maybe that's much easier for me to do because, in a way, your business is so similar to ours actually. Like you, we have a very much an integrated business model, and we are number 1 in a lot of positions we are in the Northern Europe, as we're competing and achieving and targeting return on assets and generating cash.
And moving from our materials businesses to our building products businesses, it's an exciting development that we have now a unified a single building products division within CRH. And I just want to take a few moments, maybe give a snapshot of what that division looks like and a bit of the road ahead for it. So It's a big group. We're about 1,000,000,000 in sales broken into 4 major product platforms as you see on the graphic there. About 80% of our EBITDA and profits is derived from the 3 sort of legacy building products platforms that we had doing very similar things in Europe and in North America.
Our first would be our infrastructure products platform where we engineer and manufacture both enclosures and structures primarily for the protection and the delivery of critical utilities like water, electric and telecoms, but also structures for transportation infrastructure. Our Architectural Products business designs and manufactures innovative products that are really geared toward the improvement of the exterior built environment with one of our biggest markets being the outdoor living space. And finally, our building envelope group, which again designs engineers and manufacturers high performance and customized enclosures that close the building envelope close out the structure of a building, primarily for non residential markets, but also a growing residential business. And sort of taken together again, it's 1,000,000,000 in revenue, very good market positions, in many parts of the world, very strong performance over the last 5 years. But kind of why are we putting this together as one division?
And I think it's really about repositioning CRH for the changing needs of the construction world. There are lots of trends that are happening around us that are requiring us to adapt and evolve. Some of those would be The fact we have labor shortages, you know, in, in our markets and primarily in our customers. So we have to adapt to bring products to market that ease and speed up the pace of construction on job sites. Within that, there is a demand from our customers and from owners in general for more integrated products and solutions and logistics from major suppliers like CRH.
And as you'd well know, there's more demanding environmental and regulatory factors than feature into our products, which actually increases the performance of buildings, and that's pushed back on to companies like us to come up in design and bring to market those types of solutions. And we've had lots of very good businesses, pockets of excellence around the world, but we've approached the the addressing of these needs and and the evolution of our business and a bit of fragmented in regional manner, and the trends that we are seeing are really global. They are running at different pace in different parts of the world, but they are happening everywhere. And so For us to take full advantage of it and and generate the highest cash and returns we can for CRH, we view that to bring this into a unified more singular approach in terms of strategy and execution to address these needs through our building products division is the best route forward for us. And so what are some of the features of this division, as we get started?
It's effective January 1st. And what we will be looking for is kind of full leverage of our scale, you know, which allows us a broad reach, but also procurement advantages, process advantages like we talked about before and our capabilities, our talents within our organizations, our product development and branding and operational capabilities. Increased integration of our businesses, Albert spoke about and that's integration within the Building Products division, but businesses that make that up in terms of how they bring solutions to customers together, but also tighter integration and better integration with our materials businesses, both in the Americas and in Europe, where we can capitalize and take advantage not only of the great market positions that our, businesses have in Randy and Anna's world, but also that pull through demand, you know, that from upstream in their businesses downstream, through the businesses in my division to increase overall volumes and returns for CRH. And you think about what role does building products play for CRH? And I think it's quite important that we're aligned to attractive markets.
Our business, as I spoke about before, is driven by the nonresidential and residential above ground construction markets, primarily. And that provides good balance and good growth prospects through the cycle and, you know, as it counterbalances, the more infrastructure, focused businesses in Rande and Anani's world. And our businesses, one feature then would be kind of a lower level of capital intensity, kind of like the downstream products you spoke about on it, where we have the ability once we have established positions to generate very attractive returns And so as we look forward in terms of value creation for building products, what we'll see is, again, as I spoke, an increased integration of all of our businesses. And through this, we'll be providing that bundling of logistics services and a wide range of products that quite frankly our customers are demanding and our customers are increasingly global and that therefore it's raising the bar of execution for us. And we see within the division, significant value opportunities over the long term.
You know, we have great businesses, but they still have room to run to achieve their full potential in existing geographies. And also, as the needs of our customers and the circumstances and the world change, we will grow into new geographies and new adjacent products spaces that continues the evolution of our businesses to create continuous value and create more cash and profitability for the company moving forward. And everything we're doing in building products is completely aligned with CRH's core capability around buying good businesses building them into strong integrated platforms and driving continuous business performance through them over time.
Keith, it's good to hear an uptake from you on our new Building Products division and especially to hear about the value creation opportunities you see ahead. So I'd like to just use the last few slides here to look forward now. And this slide specifically here, I'd like use this to talk about our capital allocation thoughts as we look forward. It's important to say upfront that any of our capital allocation thoughts or conversations are all really motivated around creating value for shareholders or maximizing value for shareholders. So it's important to say upfront We have a healthy balance sheet today.
We intend to keep it that way going forward. That's a priority for us. So maintaining the health of the balance sheet, maintaining our investment grade rating is important to us. Now we are throwing off a lot of cash, and that's a fantastic opportunity for us. That gives us optionality as we look forward.
On the one hand, we can use some or all of that cash to reinvest in our business or to acquire capital, you know, our returns accretive businesses going forward. On the other hand, we can think about giving some or all of that cash back to shareholders in the form of dividends or in the form of buybacks. Specifically on dividends, what we're happy to reiterate is our progressive approach towards dividends. So as we grow our earnings, as we look out over the coming years, we intend to keep growing our dividends. We keep on building back our cover.
Our cover today is at 2.5 times. And as you look out over the coming years, we intend to keep building that cover so that we can continue to be able to maintain or increase dividends into the future just like we did over the last 4 years. On buybacks, over the last year, we did a 800,000,000 of buybacks. We announced another 200,000,000 before Christmas, We have 100 done, as Albert said, as of today. The remainder of that will be completed by the end of March.
Buybacks now are an ongoing part of the way we think about capital allocation going forward. So it's there for us to think about it. And when this phase of the program is over, we'll be back to you to update you in terms of further phases. Obviously will go through approvals at our AGM in terms of getting approval from our shareholders to be able to issue and buy back more shares, but that should be something that you think about from us going where we will constantly update
you in terms of how we're doing. Thanks, Anna. So just to conclude, you've seen move to Q and A. If I'm gonna ask you in the room, please just to give your name and the name of your institution when you ask a question because there are people watching down the line I'm also conscious of the fact that more and more people are dialing into this. I want to give sufficient time at the end of the presentation for that as well.
So if
we just move to the first question here, please.
Yeah. It's coming.
Hi, thanks, and good morning. Elity Hall from JP Morgan. Thanks for taking my questions. So my first question would be on Savyon Capital since the a stake in your capital earlier this year. Can you comment if you had any discussion with them?
I mean, I would appreciate any comments that you'd have on that? And my second question is on your U. S. Outlook. You're talking about trends to stay to, to our volumes to grow at similar pace as last year.
But last year, you had some weather impact. So Could you quantify that weather impact and how that comes into play, in your guidance for 2019?
Okay. So two questions there. One was about commenting about any comments with regard to Seveen Capital's investment in Zurich and any discussions we may have had with them. And also about the outlook for the U. S.
Performance this year in terms of versus last year and also about the weather outlook weather impact on last year. I think that was the question. So ask Senan maybe at the end to come back and talk about that. And then before that, I'll ask Randy to comment on the outlook for volumes and prices, and I'll deal with the question with regard to Sevia. We have many investors in our business, and we speak to all investors.
I have absolutely no intention of discussing the discussions I have of individual there's nobody would want that. Nobody down the line would want me discussing with anybody else what we talk to them about individually. We are an independent business focused on delivering value through the creation of, better cash flow and higher returns for all our shareholders. That remains a simple focus. Nothing changes before or after any investor comes or goes because we have a clear plan in place to deliver that.
The numbers last year are a record performance for CRH. We produced industry leading returns, industry leading cash, and we have a plan to improve upon that, and that's where our focus is going to be on our business going forward. And we openly engage with all shareholders with a view towards doing that, and we intend to continue to do that. Maybe my turn to you Roni in terms of volumes and, and prices for this year expectations?
Yeah. Hopefully, we tried to describe a little bit, with the mat that I walked through. Obviously, there's differences in terms of the rate of growth based upon kind of makeup of those markets. And so I would say, you know, on average, it's going to be low single digit and on the aggregate side as well as on the pricing side. But as you can assume, though, that rate of growth will be higher in the Smile States and out in the Pacific Northwest, We tend to spend a lot of time with our customer base, obviously a big part of our customer base or the DOTs.
So we have clarity in regards to what projects are coming up, and that's transparent, on a state by state basis, but interaction with our customers across the entire platform of the business, we'd be comfortable with, with, you know, stating that the low single digit growth of pricing, and volumes. You'd certainly would see different words from folks that we would, compete within, in, within the U. S. But, but I think our information from from our customer base really gives us clarity about what will happen in the 'nineteen.
And just on weather at your address that, probably the easiest way to think about weather is it had an impact across obviously many parts of our business over the last year. And the way I probably articulated best is operating leverage. Our operating leverage for the group in 2018 was 11%. If I take Asia out of that, it was 14% for the Americas and Europe. And we would have expected that to be north of 20% in a normal environment.
So really what weather is showing you is the impact in terms of the operating leverage across the business in terms of performance. And I'd say obviously operating leverage is something you should look at over multiple years than any 1 year, but that probably gives you an indication of what impact the weather had for us this year.
Hey, morning, everyone. So it's Paul Roger from Exane BNP. A couple of questions. First, Albert, maybe to push you a bit more on being a bit specific on the guidance. And I think you've historically said, you know, this is a business that typically does sort of 5% like for like EBITDA.
You did 3% last year. I'm sorry. I don't know if that's generous or not, but, sir, my question basically is you've got the easy base, as, Eldis said, you've got less cost inflation You've got the type of operating leverage that sentence talking about. I guess the overall question is, is there any reason why you can't do sort of high single digits or quite a lot better than historically? Then the second question is maybe for Arne.
It's on a heavy side price in Europe. I think you mentioned there was an acceleration out of 2019. I wonder if you can be a bit more specific in terms of the magnitude, and if there's any reason, really, why Europe overall can't ultimately get that sort of 30% operating leverage that we've seen in the last 5 years in the U. S? Thanks,
Paul. So two questions there. One in relation to guidance this year, and then about to unable pricing, I'll just give some thoughts on that myself before I pass it to Anna. Look, we're sitting here at the end of February. The year, it has to run out ahead of us, and let's see what it brings.
And what we can say, you're absolutely right. The momentum is good within our businesses. And we have a number of factors that our tailwinds within our business this year that were headwinds last year. Energy probably should be a tailwind for our business this year. It was a very significant headwind last year.
We have the full year contribution of Ashgrove coming in. It was only 6 months last year. We have initiatives running through our business to improve our businesses. So we're we're very set ourselves very ambitious targets, but what that is going to be and what that's going to deliver Let's see how the year rolls out. And we're we're quite good as we get towards the end of the year.
We get very specific and narrow towards our guidance because it really takes us to get past the interims at the end of August. Into that August, September, October period before we actually get real visibility as to what the year is going to be. And we try to be precise about that. Other than up to that point in time, it's just conjecture, actually. Just before I pass to Onio, specifically on the pricing, just a comment I've made before on pricing in Europe, and I've made it for several years, and it's true.
If one goes back to the late 1990s, I mean, it'd be early 2000s. There used to be parity between U. S. Dollar pricing of cement and, and, and euro pricing of, of up cement as well. And then, of course, what happened to this dislocation during the global financial crisis and indeed after the global financial crisis as the U.
S. Recovery quickly the EOS is sped on to head now where U. S. Cement is trading at $110, $115 a tonne, and Europe generally is, is wallowing somewhere between $65.45 to 65. So my own contention would be that given the level of investment in cement business, because as I my colleagues have mentioned, one of the reasons why the cement businesses need very high margins because they're so capital intense, and they eat cash.
Cement businesses eat cash. One of the reasons why we produce so much cash is actually because we don't have a big preponderance of cement business. That's how we can generate the cash that's there. What you need to have higher pricing in Europe to pay for the investments that are in the ground And I do believe the market owes us over time, €30 to €40 are trying to bring us back to what would be the priority we had, existed for 30 or 40 years. Regard to the specific markets, I don't expect you to go to 15 markets on it, but just directionally how you feel the pricing will go in 2019?
Well, I would like to talk about 15. No. 9 out of 15, we had a price increase in 2017. We increased that to 12 countries out of 15 in 2018. And so clearly, the target is to get to 15 out of 15 countries price increase.
And not only that we want to cover the 100 percent, but also, as you were saying, to increase the quantum of the price increase. And I see good opportunities to do that actually. We were a little bit helped by the good fourth quarter and the relatively good weather. So that helped with the price discussion, which you usually have end of the year, beginning of the year. So, we have made good progress in the discussions.
And the only thing that is holding back maybe the 15th country is that in all the countries, we have long term contracts. And in the case in this specific case Switzerland, We have longer term contracts, which is more difficult to increase prices, but on the free volume, we see very reasonable price increases.
Okay. Paul, so I'll just get the microphone here.
Good morning. Robert Carter from Davy. So two for me. So One maybe just to go back on price cost particularly in the United States and the energy benefits that you might see there, especially in your asphalt business with lower bitumen, lower natural gas prices. Just wondering Randy is, is, you know, in terms of how that's gone with winter fill, how your projects look with the DOT, what's the, is there any big potential benefit coming there.
And 2, I just want to go back on vertical integration, especially in the context of the slides we showed your your aggs and your spend margin relative to peers. And I'm just wondering, again, if you give us some practical kind of color on the benefits have been vertically integrated relative to those peers and what how they accrue to CRH. Thank you.
Two questions there. One about the energy benefits. It's impossible to give a sense of what the energy benefits are going to be this year because the market is yet to play out, but specifically with regard to winter fill and how the winter fill program is going ask Randy to update on that, and then I'll come back at the end. Your question was about integration and, and margins with the integrated businesses, I think so. And just in terms of how winter fill is going and just how it's being on so far?
Yes. I think a couple of points out there to clarify. Certainly, crude has come down. I think crude in the last quarter and the early part of this year came down roughly 30 percent, but the rack pricing for bitumen only moved 4% down. So the, what people were actually buying on bitumen for does not is not directly linked with the price of crude.
So, I would say a couple of different things in and around that. 1, you know our business well. Certainly, a third of what we do is, is, we kind of avert risk because of the winter storage that we have, a third of that is, derisked because of the state indexes, and then a third of our, asphalt is kinda to play for in the market in re in reference to the, to, winter fill, I would say it's broadly similar to what it was last year because you have to remember, some of the the challenges that we had in regards to just selling and laying asphalt meant that we were carrying a little bit more inventory going into latter half of the year. And so from a total cost basis, it's roughly flat with, with last year. But we'll see our contracts, you know, the contracts that we're bidding now would be reflective of the current market price of bitumen.
And I would expect there to be advancements, you know, as we go into, into the season in 2019.
Thanks, Randy. And specifically with regards to the question on margins, I think margins are very interesting, and provided you're comparing similar businesses, provided you're comparing apples with apples, And the CRH business model, as most people, you know, it's a very different model to anybody else. We choose not to have a monolithic, heavily capital intensive cement or aggregate business, because we run those businesses and it is extremely hard to produce returns and cash in those businesses. As I said, your heavily high capital intensive business eat and consume cash, choose to have an integrated model, which is a very different model, a more balanced model that delivers all through the Lambda delivers sustainably higher returns and cash as our colleagues have shown to, And year after year, Sirius does that. You you saw 4 competitors there.
I'm not gonna name them publicly and say is that, but you can work out who they are. They're 4 of the biggest companies in the world. And yet for year after year, we produce higher returns and higher cash than they do. But why is that? It's the business model, the that the lower capital intensity downstream gives you a a proportionally higher margin and gives you higher returns and higher cash.
And until our shareholders tell us something else, we are going to focus on returns and cash. And that business model is what underpins CRH going forward. Yes, margins are important. But we compare our business on a line for line basis, as my colleagues said, on a margin, but as an overall business, the judge of ourselves, or any investment It returns on cash, and that's how Sierra to wind hands down year after year.
Thank you. It's John Fraser Andrews, HSBC. Two questions for me, please. The first one in American Materials. You mentioned earlier that the margins in the backlogs are higher.
And Randy, you just said that, sir, you've got a a small tailwind from the bitumen costs. Can you elaborate on other costs so diesel soared last year? How what this impact is cost inputs and to what extent it's pricing as well? And then the second question is for, Salin, in the cash generation the, the, the sort of key inputs of, at what's draining the EBITDA, are there any, advances you see in working capital interest expenses or sort of further getting the tax rate down, which are going to help that cash conversion. Thank you.
I really love you, Randy. Another question for American Materials. Before I pass it to you, Sandy, you might just have a comment on that.
I'll start off with, the second question there, John, In terms of working capital, I think we've made a lot of progress over the last 3 or 4 years in terms of our working capital in terms of bringing that down as a percentage of sales. And you've seen over the last year, while there was an outflow in the full year, that outflow was really driven mostly by the growth in sales. So we continue to be very focused on that. I wouldn't be expecting or anticipating that you'll see a further reduction in working capital as a percentage of sales going forward. So what we have we hold and obviously stay focused on that I think in terms of interest costs, our interest costs next year are expected to go up by about 10% to 15%.
Main reason, have a little bit more debt on the balance sheet now. We would have issued $1,500,000,000 of long term money during 2018. At a rate between 3.5% 4%. So that comes into the equation. We also had a lot of cash on the balance sheet, as you recall, in the 1st 6 months of 2018, because We had the proceeds from Allied, and we didn't close out on Ash Grove until half year.
Tax, the effective tax rate this year is 23%. That's great progress. Where it was 2 years ago, which was we were up in the 20 sevens, 20 eights. I'd hold it at 23% going forward. That's now reflective of Obviously, the reform of U.
S. Tax coming through and the footprint of businesses we have today.
Randy, do you have a diesel cost and in terms of, again, the utilization going forward?
Yeah. I guess, a couple of different pieces there. 1, as you would as we've seen, we track this certainly on a weekly, daily, if not weekly basis in terms of overall bidding activity. So overall, bidding activity has improved, which in turn has allowed us to grow our backlogs, but more importantly, to be targeted in terms of what type of jobs we will execute on. We have more flexibility there.
So certainly the margins are are improving in the backlog. That work typically is 6 to 9 months out. We'll get some advantage of that in 2019. I think it bodes a little better 2020, though, as well. When I talk about energy input costs, certainly bitumen is a big part of that diesel as well.
We would say that's going to be broadly flat as we go into, 2019, and our our pricing in and around aggregate in particular, which uses a good bit of off road diesel. We should see progress there. So I'd say all in all, still a lot to play for John, but I would anticipate benefits in the latter half of the year going even going into 2020.
I'll go to the side of the room, and please bear your mind there, David.
And, David, I'm from Goodbody. Firstly, on M And A, if I could, please, a step up in the, the level of bolt on activity, into the mid-40s particularly on American Materials, we're now about half of that. Are we already seeing the benefits of the enlarged platform you've created in North America? Like are we already seeing some bolt ons into Ash Grove? And can you discuss experiences in value creation or the differences between smaller deals and the larger ones you've done?
Maybe the pipeline there. And switching on to America's products, very impressive, I think, operating leverage This is how sustainable is that? And when we're looking into context, the larger group, how can we get the group level up to similar types of rates?
Okay. So it meant two and a half questions. So I guess, David, the first question on M and A and bolt ons and last year is where the pace of that I'll deal with that. Second question was on the delivery last year. America's products, Katie might deal with that.
And in terms of the leverage of America's products and the ongoing an impact on the group, you might just deal with that and then leverage going forward, Simon, if you don't mind. So just with regard to the M and A, bolt on deals last year, just to be clear, it's in the announcement. We did 45 deals, 46 deals last year. We do a deal about every 10 days, 9 days in CRH, and actually, we don't beg any fuss about it. They just come in through the door.
Actually, last year was a year when I was trying to pull it back a bit. Actually, we had some big deals to integrate. So that was a year when we had foot on the brake. And we spent about 650,000,000 of those deals. As Randy said, in our biggest market, 70% of the market is only consolidated.
It's fragmented. We have a long, long list of deals to look at. And the only thing to decide whether we buy them or not is the pace of which we were to buy them and the value we buy them at. Incidentally, the multiple in those deals last year was six times EBITDA before synergies. That's where the real value creation in CRHS.
If we directly point out about the platforms, the key about CRHS when we buy the platforms, that begets another 10 or 20 years of add on deals for value creation because it's the add on at six times and how we consolidate those business and pull those smaller business in getting the benefit of professional procurement, proper processes, more service to the market, more ability to service our the market. That is, for the last 50 years, what has been behind the delivery of the profit improvement for CRH. So there's no slowdown in the deals. The deals are there. They're focused.
It's just a question of what we want to do. And our focus is very much on bedding down the platforms of business that we acquired last year. With regard to the American division, which was a good performance fashion and good performance leverage wise. Keith, do you mind just have a comment on that?
Yeah. Just, I think, what you saw in 2018 is a continuation of a long term trend within our products business in Americas of margin improvement. And as, obviously, as the, margin increases that's going to flow through as positive operating leverage, you know, or impressive operating leverage. I it's really kind of down to a few things really, a long term continuous focus on being a more efficient operator, looking at not so much our portfolio of businesses, but looking at our portfolio of products, you know, and aligning our products to higher margin opportunities in the marketplace and focusing there, as changes in the market evolve. And when you look at, could we do it going forward certainly, we've been really focused on it for the last number of years.
I think we have 5 or 6 years of improving margins in America's products. And as part of our overall plan for another 300 basis points for CRH. We're putting in a whole new, set of plans in terms of cost productivity, efficiency, commercial excellence, to continue the drive of further margin improvement in the division. So, yeah, I would expect I don't know if the level of operating leverage would be the same going forward, but certainly we have plans in place to continue to improve the margin profile of the business.
And I might just add, maybe the operating leverage that, Keith achieved over the last 12 months in his division is equally achievable in both Randy and Anna's business going forward. I mean, my guidance overall when you look at the group is that you'd expect 2019 to be back at north of 20% operating leverage again. And we've talked about specifically the reasons why we didn't achieve that in 2018 based on weather and based on input costs are particularly the spike in input costs, but I think in a more normal environment, you'd expect to see us to go back to what you've seen from us over the previous 5 years.
I'll take one more question from the room. It's quite
a number of questions. Just come
in down the wires there. So, Arnold, please.
Yes. Carlos Netel from, on Field Research. I have two questions, if I may. The first one is on, the year 2019 and the outlook just to understand a little bit better the top line because you see a continuous momentum of Q4, what you see in the Q4 of 2018, you start to do So, yeah, with similar trends, but is it not just reflecting the leading indicators we had until the third quarter of 2018? When we look at leading indicators in the last quarter of 2018, we see, in a lot of markets, residential and nonresidential trends plateauing or trending down.
So do you expect 2019 to be a year where H1 is in term of top line better than H2, or is it not the right way to look at it? And my second question is on, just to an update on the Europe and distribution. We see, different players trying to sell their distribution assets at the moment. You are one of them. We see interest from, apparently, from some private equity, equity fields that are looking at this type of asset.
It looks like to obtain a fair multiple if you wanted to sell this asset will be probably a little bit challenging in this context. So if you don't get the multiple you want, What could be your other options for the distribution? Thank you.
Okay. So two questions there. One with regard to run rate exiting last year, does this indicate something that you're going to get up to a particularly strong start in half 1 versus half 2 to get the actual reads through the full year The second question was really just an update on where we are on the process of the strategic review of European distribution. On the first question, What we're indicating with regards to the run rate at the start of this year and the tail end of last year is, we're, of course, backing out all the factors that impact upon how it's can be skewed in one way or the other. Remember, we had a a a very significant weather disruption, particularly in North America, at our busiest period in August September, that meant that a lot of that work moved into the start of quarter 4.
But of course, we're smart enough to know our business very well and talk to our clients so we can back that out together clear run rate of what the level of activity across our markets actually is. And that's what that informs our comments that the pace of growth during the course of last year, we'll continue into this year. And it started out that particularly because, of course, we're reporting results now for 2018, and we can see how February is finished ahead of us but we have order books, as Randy says, they go out 6 9 months. So we already have work planned for April, May, June, July that gives an indication provided we have no major weather dislocation again. Both in our European and the U.
S. Business where the run rate for our business is actually coming out. And that's what informs us in terms of the run rate, broadly speaking, of continuing on the trend we saw in a normalized half to not weather impact for skewed. And with regard to European distribution and the challenges we're faced with the views, you say with getting a multiple on that or not, Our only concern is, is how we decide to allocate this capital. We have an amount of money allocators into European distribution at this moment in time.
This is a good business. It makes good profits. It generates good cash and generates good returns. And for any financial manager, any manager of capital, you've got to look and see, well, What can we do to improve that business? What will it generate in terms of returns and cash?
And then dispatch that they compare that against What? I can crystallize the value of that business for now and then allocate that elsewhere to create higher returns of cash for our shareholders, and that is exactly the process we're going through. And when we finish that process, and it's not going to take another 6 months, but it's not going to be taken it won't be done in 6 weeks either. We will then be able to evaluate those 2 options and then make the best decision for our shareholders And when we get there, I promise you, we'll explain why we've done that, and what we're going to do very clearly to our shareholders at the appropriate time. Okay.
I'll take one more question, Will. Sorry, I'm just trying to conclude that our time here as well. Sorry, Will.
Will Jones from Redburn, 3 hopefully quite quick ones if I could, please. The first, just picking up on the cement business and your various geographies that were a few areas of, I guess, price spats last year, a couple of regions in the U. S. Switzerland obviously has been a few back and forth over the last couple of years. Do you think those areas attention have kind of played out now?
And are there any new areas that might be more competitive, I guess, in your business in 2019? Second, just specifically around the UK, I think the text refers to profits having fallen in the UK last year. No surprises there, but I guess if we were to assume no big disruption from Brexit over the next month or 2. Do you think you can stabilize the profitability in the UK in 2019 or maybe even improve it? Then the last one was just picking you up on procurement.
I think in November, you talked about half of what you intend to do haven't been identified. The 100,000,000 plus talked about today, what percentage is that of the total, I guess, is that number?
Okay. Three
three questions, actually, just in the interest of time, I'm going to deal with the first two myself, which is the cement question, and the talking about how the UK performed 2018, 2019. I'll ask Randy at the end to come back and talk about the procurement in terms of the comments with regard to that. Look, the world is not perfect. There are spats in the U. S, even though the U.
S. Should be heading north in terms of volumes of prices, specifically referring to Texas, West Texas, and also you're pairing up to the Midwest. We don't really get hurt greatly in, in, up in the Midwest, and indeed in West Texas. My own sense is these things go on as people jostle against each other and compete they tend to be more of a temporary in nature. I don't think there's any long term sustainable issues there with regard to competition within the United States.
So I think it's broadly fine. With regard to Europe, actually, the Swiss issue was on, I said, it wasn't really a competition issue. It was the fact that we were locked into long term contracts that was more the issue with us that we couldn't push the price on when when the pricing moved on. Others, it's the timing of the long the unwinding of the long term contracts, and I would echo on his view that actually I think that actually the sustainability of at the same with delivery of price increases in Europe as building, actually, well, we've been saying this on this stage for 3 years now, but as we said, we called in 2016, further in 2017, I'm missing it again, 2018, and again, more in 2019. So I think that's just going to continue to push on it for me now.
It's not the question of how how often, how how how how how broad spread that price increase is going to be. It's how consistent we get that we're built back up those price because the ambition is there. And also, push by the higher energy costs, you need to get them, and you need to recover them back in the businesses. Randy, some procurement?
Yes, I would say we're early days there. Probably it's, the organization is in place really probably in total at the beginning of year, but those identified savings were those, categories in which we thought were easy enough for us to attack had global appeal we could deliver on. So I would expect as we go forward, we'll keep you informed in regards to how our progress is there, but it's really category by category. Over that $18,000,000,000 of spend, so more to come.
And I'm just gonna have to move to some of the questions we've got from the wires because actually we're out of time. I'm gonna gonna try and give it another 5 minutes if people are still watching, please stay with us. And first question, Randy, who just come in, what, you're you're talking the potential for a new U. S. High, we will not fast act.
So a new U. S. High, high we will, and the updates updates on any state funding initiatives that are currently in place at the moment.
Okay. I'll try to be brief. 2018 mentioned, we were pleased in 2018. You had another 19 states who put forward 27 separate initiatives that equated about $6,000,000,000 of additional infrastructure spend. Good progress there.
There were 570 some ballot initiatives, 470 passed. So roughly 80% that generated $37,000,000,000 of spend over the next decade. Some were heavily weighted towards Florida and Texas, but still good momentum there. There is a lot of talk and certainly with the change in regards to representation, the Democrats took, took the house and And so the committees, specifically the house transportation and infrastructure committee has changed its leadership. Peter DeFazio is from Oregon is now the chair He is going to bring forward a bill with his co chair, Sam, Sam Graves in May of this year, that will be pretty substantial in regards to additional funding.
It is the industry as a whole, not just our industry, the users, the America's Truck Association, UPS, FedEx, U. S. Chamber are all on board with a $0.20 to $0.25 increase in the user fee or the gas tax, federal gas tax. That will be part of the plan that would be brought forward. And I think critical is that the Trump administration is no longer, on hasn't said it publicly, but his staff no longer talking about a significant portion of the trillion and a half investment being private public partnerships.
It's kind of fixing the Highway Trust Fund. And the way you do that is through through the gas tanks.
Thank you. Just last question on the U. S. Run. Keith, excuse me, we'll just go to you.
Just a question on what's driving the fluctuations in the nonresidential market? And maybe I might just add the residential market, your thoughts on that going forward into 2019, just you see it trending? Sure,
Robert. I think if you think about the non res market, one thing to remember is it's not a holistic market. It's made up a lot of different subsegments office. Commercial, institutional, educational, all these different things. And I think what we're seeing now is in a in in a cycle that's now several years old, is some parts of those are maturing faster than others.
And so, like, in the private side of that recovered quicker, in the commercial arrangement, And now we're seeing kind of a come on in things that are backed by more public money like schools and and other sorts of public buildings. And so I think what you're seeing in the commercial markets in non res is continued growth, but different pace of growth for different subsegments. Within non residential, certainly our experience has been, that we came out of 2018 little bit of tailwind in that part of our business and prospects look good in that for 2019, just talking with general contractors and people who do a lot of that work they had very good years last year and very good backlogs coming into 2019. And in the res market, again, it's probably been, as a cycle slower than most people would have thought in terms of growth, but I think there's still growth in that cycle. The long term needs of housing in the United States and Canada are being underserved by the current pace of construction.
So we're well below any sort of, real estimate of long term averages. I think it's just about reinvigorating that industry, getting the right, lock formation and family formation to be able to pull through and and fully realize the potential of that. So again, we're not we're not expecting gangbuster growth in residential, but we would see sort of mid to low single digit growth in residential, both in terms of new construction and actually what's more important to our business in North America is, is the repair and improvement and maintenance of, of existing housing. So again, good growth, we're expecting going forward and, and probably, you know, long term good potential in that market.
Two, two very specific questions. I'll answer them and myself just as they were asked, how how a CRL forming, it's serial is performing very well ahead of plan, ahead of budgets, and actually giving very good returns. Very pleased with that, that acquisition. Very specific question. How is France performing well?
Very well, actually. Just three quick questions for you, Sanin, sorry. Impact of IFRS 16, which is an important impact about the numbers next year. Also in terms of FX outlook for 2019, your own faults in terms of what is a lot of headwinds this year and what the next year and contribution of bolt ons in 2018 outlook for 2019, you don't know 2019, but contribution bolt ons?
All right. Bolt ons take that backwards. Bolt ons last year, we talked about the 45, deals done about 1,000,000 spent on those deals. Multiples on them about seven times. Terms of where they come out.
So about $50,000,000 from bolt ons last year and probably another $40,000,000 to be added onto that as you go into, 2019. FX, 100,000,000 of currency headwinds last year. That really was mostly U. S. Dollar.
As you know, dollar moved from 113 average to 118 average spot price today at 114. So that would suggest that if it stays at 114 for the year, most of that 100 of headwinds becomes a tailwind for next year. First question, are you the IFRS 16? Okay. IFRS look, over the next couple of weeks, the IR team will be available to talk to you about that in more detail.
But basically in summary, what it means is We've got about $600,000,000 of operating lease charges through a deduction in arriving at EBITDA today, Under operating leases, a little bit less than 2 thirds of that now will be capitalized going forward. So that would boost our EBITDA by the tune of $350,000,000, $400,000,000 in 'nineteen, obviously, drive up the margins in a corresponding way. By the time you get to EPS, it has washed itself out because it comes back out in depreciation and higher interest cost. On the balance sheet, likewise, it's a net 0, but it will drive up our assets to the tune of $1,800,000,000, and likewise, it will drive up our lease liabilities by the same amount and drive up our net debt accordingly. So my simple calculation would be the just under 2.1 times net debt EBITDA on online on a new norm will become just under 2.4 times.
And again, the last thing I'd say on that is that it has more of an impact in terms of our distribution businesses than it does in our materials businesses. And that's really by virtue of the fact that that's where we have a lot of buildings and leasehold activity. So about half of the $2,000,000,000 or $1,800,000,000 I mentioned is probably going to be associated with your business, Keith, and the rest then is split fairly evenly between Randy and Omni.
Look, I want to thank you all for your attention this morning. As we've captured here a lot longer than we should have, just to say that hope you've got a clear understanding of what we're doing as a group. So we've been a really good for year 1st in 2018. We've got clear plans to improve our business going forward. For next year and in the years beyond.
The next chance we'll have it next time we'll have an opportunity to talk to you is that when we give our update trading statement on April 27th, which is a day in advance of our annual shareholders meeting on April 28th, and we look forward to doing so. Welcome then. Thank you for your attention, and have a good day. Thank you.