Chryso S.A.S. (SGO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Saint-Gobain conference call. I now hand over to Pierre-Andre de Chalendar, Chairman and CEO; Benoit Bazin, COO; and Mr. Sreedhar, CFO. Gentlemen, please go ahead.

Good evening, everybody. I'm very pleased to announce the strategic acquisition of CHRYSO. This is perfectly in line with Saint-Gobain's strategy to strengthen our position in providing sustainable solutions in the construction market. It comes at a time where decarbonation of construction is accelerating. As you know, Saint-Gobain has been looking for opportunities to strengthen our position in construction chemicals, to enlarge our offer and reinforce our existing position. This acquisition comes 18 months after our very successful Continental Building Products acquisition, which has been, as you know, timely done and very well integrated. I'm going to let Benoit Bazin, who has been leading this acquisition very effectively, explain to you the details of the transaction. Benoit will be, of course, in charge of the integration going forward.

Thank you, Pierre-Andre. Good evening, everyone. As Pierre-Andre said, it's a major opportunity for Saint-Gobain to reinforce our leadership in construction chemicals and create a growth platform of more than EUR 3 billion in sales. I'm on the Slide 2 that you have, I think, in front of you. So create a growth platform of more than EUR 3 billion in sales in construction chemicals. As you know, construction chemicals is a market on which we are already a leader with strong positions in 66 countries and brands such as Weber, Maris Polymers or TekBond. We provide solutions that are fully aligned with our 2 growth drivers, sustainability and performance. CHRYSO is positioned on an innovation-driven growth platform in construction chemicals, where we already have the presence in Middle East and Brazil. CHRYSO provides comprehensive additive solutions for sustainable construction, thanks to its vertical integration of polymer know-how and customer intimacy with high value-added services. It is an outstanding company, which has demonstrated its ability to grow profitably under the leadership of Thierry Bernard, the CEO of CHRYSO, someone I know personally and will join Saint-Gobain along with his team. It is a great pleasure to welcome CHRYSO's experienced and highly competent team to Saint-Gobain. The acquisition process has confirmed that the combination of CHRYSO with Saint-Gobain will boost our leadership, not only in the additive segment, but in construction chemicals overall. This is also the right timing at the beginning of a strong construction cycle, while we are seeing an acceleration of both decarbonation and also the penetration of ready mix in emerging markets. So I'm highly confident about the strategic value for CHRYSO, for Saint-Gobain and for our shareholders. I move now to Slide #3. Construction chemicals market is a EUR 60 billion market. In this market, the combination of CHRYSO and Saint-Gobain existing business leads to more than EUR 3 billion unique growth platform in all segments of the market, with leading brands and positions and a worldwide footprint of more than 200 plants in 66 countries. While Saint-Gobain brings its geographical footprint, its existing customer base, it's innovation capabilities and its ability to scale up, CHRYSO provides advanced chemistry expertise, vertical integration of polymer know-how, customer intimacy and market access that can be leveraged beyond additives. On Slide #4, you can see that CHRYSO is a growth machine. Additive delivers sustainability and performance to the product to which they're added. They're added to a range of formulations, concrete cement, gypsum, mortars. While, overall, representing less than 3% of the end product, additives make all the difference because they bring a large range of critical characteristics, workability, durability, sustainability, early and final strength, aesthetics, et cetera, et cetera. If I look at the mature markets, the decarbonation trajectories imply that low-carbon concrete will grow and represent up to 90%, 9-0, of the volumes by 2030. Additives will be the key ingredient for adoption and implementation of those low-carbon products. They enable the development of formulations that [ reduce ] the quantity of cement and water consumption or that enables solutions to deal with versatility of raw materials, such as demolition waste and recycled aggregates. For instance, some major contractors have pledged to move to 90% low carbon by 2030. This does require up to 3 to 5x more additives than today. On the other hand, in emerging markets, ready-mix penetration will also strongly drive demand for additives. Ready-mix concrete requires additives so that concrete can be delivered directly to job sites for productivity and performance. Emerging countries are on the curve of transitioning for more than 80% of cement sold in bulk to more than 70% ready-mix concrete in mature countries. This shift creates significant market growth for the additives, both in terms of penetration and product sophistication. All in all, those solid trends will drive the additives market, which is expected to grow by 6% to 7% on a compounded annual basis over the 2021 to 2025 period. I move on Slide #5. On this very attractive market, CHRYSO is a well-recognized leader with sales around EUR 400 million in the last 12 months of 2021 and last 12 months EBITDA of EUR 85 million. CHRYSO has demonstrated outstanding and consistent profitable growth over the last 20 years, with 7.8% compounded annual growth rate, of which 5% to 6% organic. It is present in 20 countries, with a balanced footprint of 55% in mature markets and 45% in emerging economies. The additive market is essentially a market where local leadership positions combined with world-class innovation and supply chain make the difference. CHRYSO model is, therefore, extremely powerful. The company's strategy over the past years has been to develop worldwide competitive advantage while growing and entertaining leadership positions in key geographies, #1 in France, #1 in South Africa, #1 in Turkey, with 2 scale effect advantages, #4 in the U.S. with a very targeted regional growth strategy that has proven extremely efficient in terms of both market penetration and profitability. I move now to Slide #6. What makes CHRYSO special and what are the competitive advantages of CHRYSO. There are 4. First, CHRYSO secures cost innovation and technological advantage, thanks to its unique proprietary internal polymerization capability with 4 centers: France, India, Turkey and South Africa. That being combined with a network of 31 local mixing plants. So this strong initial infrastructure is low capital-intensive and the polymerization centers of CHRYSO are located at regional level, associated with a strong focus on quality and logistics, which enable the company to benefit from an optimized sourcing strategy and customer service. Second, CHRYSO has also a very strong differentiation on customer centricity and service offering and their ability to build a long-term partnership with their customers and to codevelop a lot of products with them. Dense and expert local relays in an empowered organization enable to push efforts and tailor products to local needs. 31 local formulation centers create the perfect dosage based on local input materials, weather conditions, technical specifications for each particular application. Dosing equipment located in customer premises optimized and digitalized supply chain ensure best service to the end customers with impressive customer appraisals. Third, relying on those unique assets, CHRYSO achieved dynamic organic growth by targeting selected channels and client types in key geographies such as U.S.A., India, Italy. As a result, for instance, in the U.S., CHRYSO has expanded organically with a 17% annual growth rate between 2017 and 2020. The focus is based on margin equity growth through a very structured process. And finally, CHRYSO also created a value through strategic, profitable bolt-on acquisitions well performed over the last 20 years overall, 20 over the last 20 years. So once within Saint-Gobain, the leadership of CHRYSO management team, who has been responsible for the success of CHRYSO, will pursue and accelerate on those levels. They are fully aligned with Saint-Gobain's DNA and the deep foundations led by our transformation plan, Transform & Grow, local empowerment, customer proximity, ownership and accountability, alignment of teams and business objectives, while leveraging worldwide scale and expertise. I move now to Slide #7. CHRYSO's value proposition is also fully aligned with our 2 growth drivers: sustainability on one side and performance. If you take sustainability, the major move towards low-carbon concrete in the next decade, CHRYSO is best positioned. It is an innovation leader with 35% of new products to sales, recognized R&D teams, 3% annual R&D spend. Complemented with Saint-Gobain innovation capabilities will support the acceleration path towards [ neutral ] low-carbon concrete, where the stake is to decarbonize which represents 4% of the total world CO2 emissions. CHRYSO has a strong portfolio of sustainable additive solution that will be key to reduction of concrete CO2 footprint and also address the aggregate shortage when you need aggregates for concrete as well as enable the development of the circular economy where you can deal with demolition waste and versatility of materials. As a very recent example, CHRYSO has launched EnviroMix. EnviroMix range of products fully dedicated to enable substitution of clinker in low-carbon concrete. On the performance side, additives provide cost effectiveness, speed and productivity gains to the products they are added to. They deliver the performance that is needed to follow the pace of urbanization and infrastructure needs. CHRYSO's Cemfloor products perfectly complements Weber flooring solutions, enabling savings on cost per square meter while providing ease and speed of deployment for residential and commercial products. So a lot of productivity gains, a lot of examples that can be very material for the customers. I now let Sreedhar give you details on the synergies and also details on the transaction.

Thank you, Benoit. Let's look at now Slide #8, which gives a lot of details on synergies. In total, you notice here that we have identified and built in the business plan EUR 50 million of synergies by year 5. Out of that, EUR 15 million synergies are related to the cost and EUR 35 million synergies are linked to growth. When you look at the cost synergies of EUR 15 million, which will be delivered within 3 years' time, they consist of savings on joint raw material purchases, vertical integration of CHRYSO products in Saint-Gobain and administrative cost savings. And a growth synergy of EUR 35 million based on a focused expansion plan in identified key geographies, a detail of which I'll give in the next slide. So all these synergies have been identified in consultation with the CHRYSO management to ensure that the execution is completely flawless. Let's go to Slide #9. Here are the details of the growth synergies. They are focused on 3 areas, each representing roughly 1/3 of the total EUR 35 million savings. Acceleration of CHRYSO in its priorities countries like U.S., India, South Africa and Middle East, where Saint-Gobain's strong presence in terms of brand image local capabilities, talent pool and industrial footprint can support CHRYSO to grow faster. The second category is development of CHRYSO solutions in some selected geographies like LatAm and Southeast Asia, where the additive market is growing faster and it's quite sizable, where Saint-Gobain's construction chemicals business is also very strong with the local, industrial and market presence can help CHRYSO to grow. Lastly, acceleration of Saint-Gobain and CHRYSO combined growth in construction chemicals through cross-selling and co-development of construction system solutions in high value-added markets within Europe, where our current construction chemical business is very strong, be it in waterproofing or concrete repass. Having exchanged in detail with the CHRYSO team, we are confident that we will deliver additional growth synergies with further geographical market expansions or bolt-on acquisitions which will be boosted by the combination of Saint-Gobain's and CHRYSO's respective pipelines. We are, therefore, very enthusiastic on the growth prospects that this acquisition provides to Saint-Gobain in the field of construction chemicals. With all the details work done with the management, we are confident of delivering a minimum of EUR 50 million synergies in the next 5 years with a clear potential to deliver much more. Let's look at Slide #10. Here are the overviews of the transaction details. We have entered into an agreement with Siemens, the international private equity firm, to acquire CHRYSO based on an enterprise value of EUR 1,020 million. This enterprise value represents a multiple of 12x CHRYSO's last 12 months EBITDA of EUR 85 million and a multiple of 7.6x post run rate synergies of EUR 50 million in year 5. Saint-Gobain will fully finance this acquisition using the proceeds from divestments made by the group in the last 2.5 years. We are confident that we will create value in the year 3, even if we take only cost synergies of EUR 15 million into account. So earnings per share will be accretive for year 1. Post acquisitions, Saint-Gobain pro forma net debt to EBITDA will be around 1.3x before IFRS impact, in comparison to the end of 2020, which was 1.1. We expect to close this transaction during the second half, and CHRYSO will be integrated within Saint-Gobain's High Performance Solutions segment. We are impressed with CHRYSO's profitable growth track record over the past years, and we are eagerly looking forward to welcoming Thierry Bernard and his team. We are confident that together we will build a new chapter of CHRYSO's profitable growth story and create value for our shareholders. Now I pass on to Pierre-Andre to conclude.

Thank you, Sreedhar. So to sum up, this acquisition of a great company is very much aligned with our vision to be the leader in sustainable construction. The addition of CHRYSO will further strengthen Saint-Gobain's growth platform in Construction Chemicals as CHRYSO is a leading player with a strong track record of profitable innovative growth. So we are very confident that this acquisition will create value for our shareholders. And now we are at your disposal for any questions you may have.

[Operator Instructions] We have the first question from Sven Edelfelt from ODDO BHF.

Yes. Two questions for me. First one, can you comment on the polymer patent? Is it synthetic or natural polymer? How does this compare to slag or [indiscernible] clay ? And to what extent the polymer can replace the clinker content in cement? Is it 5% or 50% of the overall replacement? That's the first question. On the second one, looking at the revenue per plant, it seems a plant generate about EUR 12 million of revenues. And looking at your synergies, it's EUR 35 million of synergies. So do you need to add some CapEx to get there? And can you maybe comment as well if the plant are limited in terms of capacity utilization? Is it a metric to look at?

Benoit?

Yes. So I take the first question. Today, it's mostly synthetic polymer, but they have their own technology and patents. They have more than 300 patents on their chemistry. So it's a very well-defined innovation process. Second, the -- they don't replace slag or clinker, they are used to reduce the ratio of clinker in the overall concrete. And by doing that, and you can, as you know, replace totally clinker with a slag. When you do that, when you either lower the clinker content or you substitute with other materials, whether it's slag or something else, then you increase a lot the volume of additives by 3 to 5x. So this is not a replacement of clinker, per se, but it allows to decarbonate the concrete by lowering what is the CO2 content of the concrete. And by doing so, you have to put much more additives. And this is the growth of CHRYSO. The second question is, yes, the mixing plants are very small units of a few hundred square meters. And the reason why we are very confident about the growth plan is that, if I take just Southeast Asia and Latin America, we have 50 plants. We are going to free up some space within those plants, and the CapEx for mixing is a few hundred thousand euros.

Yes, it's EUR 1 million maximum. And if you really want to do polymerization, we are talking of EUR 3 million to EUR 5 million.

It's low CapEx.

Very low capital-intensive.

In terms of growth and will open up the local infrastructure of our construction chemical plants around the world to accelerate the growth of CHRYSO.

Next question from Jean-Christophe Lefèvre-Moulenq from CIC.

Can you hear me?

Yes.

I have 2 questions. First, to continue with the question of Sven, so the formulation of CHRYSO chemistry is directly mixed -- to ready-mix concrete, not to cement. Is that clear?

You have the 2 applications [indiscernible] within cement, but the bulk of the market is directly with concrete. So it's 80% concrete, 10% to 15% cement. And interestingly enough, we have a 5% to 6% in gypsum. So that's also interesting because we put additives in gypsum on the [ story ] for gypsum plasterboard.

Okay. It's very clear. Very clear. Second issue, could we have north lever on the market channels? What is the share of distribution? And what is the share of direct sales to works.

Yes, good question. It's 95% direct. So it's a B2B business, 95% direct with large contractors or large ready-mix players. And this is why we put it in the high-performance solutions with global innovation, global scale, global customers and 95% direct sales based on co-development, innovation, very similar to what we have the business of [indiscernible] Within construction industry. It's a vertical of high-performance solutions. So this is exactly the same characteristic for CHRYSO.

Okay. And a follow-up question also, the existing business of Saint-Gobain [indiscernible] could we have some metrics in terms of sales and EBITDA margin? If we look at the CHRYSO EBITDA margin, it's close to 21%, very high. Is that the same metric for [indiscernible].

As Benoit already said, we have -- we are talking of a presence of more than EUR 3 billion. If you take CHRYSO out, we're talking about EUR 2.6 billion, EUR 2.7 billion. And we are talking of a profitability of -- if you just take what we saw in the last 12 months, we are talking about something like 16% EBITDA.

How much you say?

16%.

16%? For existing business of Saint-Gobain?

Yes.

Okay. Very clear.

Next question from Elodie Rall from JPMorgan.

Congrats for -- congratulations for this announcement. A great acquisition, it looks. A couple of questions. First of all, could you give us a little bit of color about the competitive landscape in the bidding process into this acquisition? When did you start looking at it? How competitive was it? So that would be helpful. That's my first question. Second, could you give us a bit of history in terms of the EBITDA margin profile of this acquisition? I think you gave us the history on sales. And lastly, just -- I need to ask that one, but not sure how much you'll answer, but did you consider [ a way to ] buying your own shares at 7x rather than doing the acquisition at 12x?

Well, on the first question, it's a very good question. We had a one-to-one discussion with Steven on this asset. So there was no competition option. Maybe Steven had in mind to launch such a bidding process in the coming weeks. And we have been fast and we agreed both with the management, who was extremely eager to join Saint-Gobain and to accelerate the growth strategy of CHRYSO within Saint-Gobain, which is a key element for CHRYSO and Saint-Gobain in the decision-making process, of course, a key element for us. And of course, the price was a good price for both, both Saint-Gobain to create value and both to Steven. So we have been [indiscernible] in this transaction.

In terms of EBITDA, we said it is around 20%. And that's what we are looking at in the business plan, what we have put is in the range of 20%, to just be prudent at this point of time. But I think it has -- you have seen that this is a growing business. I mean if you take the last 20 years, it has grown close to 8%, which is a substantial growth. And so we believe that it is -- it always has some upside in this. Right now, we have taken around 20%.

And on the last question, we consider that in order to create value for our shareholders, buying such a growth platform with a fantastic track record at 7.5x post synergies will create more value than the straight share buyback as we speak.

Next question from Arnaud Lehmann from Bank of America.

The first question is trying to understand this acquisition in the context of your strategy. We knew you were interested in the space when you were trying to acquire Sika. So I guess it's a logical move. But do you see this acquisition as the beginning of a new platform for your future development in construction chemicals? So should we expect more acquisition in this space in the future? That's my first question. And secondly, on the synergies, the EUR 50 million, but I guess more on the EUR 15 million on the cost side, I mean, CHRYSO has been through ownership from Cinven, and I believe before that LBO France so private equity, which typically are quite active with cost cutting. So what makes you confident that there is more cost synergies to extract? And lastly, if you could just give us an indication of the yearly CapEx spending and the operating margin of the business.

Yes, Arnaud, I'll take the first question, and Benoit will follow on the rest. As you know, we -- I have been for quite some time interested in construction chemicals. We have a very sizable business with Weber. And we have been growing in the last year by small adjacencies and complements. CHRYSO has 2 characteristics. It's also an adjacency in that space. It's a leading player in some countries. So it's -- from that standpoint, it's bigger. But I would say it's the other characteristic of CHRYSO, it's a little bit a jewel in that industry so I guess profitable company I know in this sector with very, very solid growth and probably the most innovative. So I think we'll integrate and that will be the job for the next 1 year to integrate that company. And then we will see from there, Benoit will evaluate whether we need to -- but we -- I think it's already -- there is going to be a lot of growth from this acquisition. So one thing at a time.

And you have on Slide 3, the different areas where we are active on construction chemicals. So it's a wide space. What is interesting is that, on all the small bolt-on acquisitions, sometimes they were half additives, half other construction chemicals. CHRYSO didn't want to buy them. Within Saint-Gobain, of course, they will buy them. And sometimes, we didn't want to buy something which was half additives and the other half closer to our existing construction chemicals. So the mix for those bolt-on acquisitions going forward will be perfect to have both CHRYSO and Weber together. On the synergies, Arnaud, we don't expect any cost savings on SG&A because, as you said, this company is extremely well managed. And no, when we mean cost synergy, it's on the raw materials. We have EUR 2.7 billion of construction chemicals plus the EUR 400 million of CHRYSO. There are a number of raw materials that we buy, which are the same. So we expect some purchasing gains. There are some very slight savings on costs like IT licenses, the size of Saint-Gobain, will provide some savings on that. But the bulk is some raw materials purchases. And second, we have, as you know, some concrete ready-mix products within France in our builders' merchant business, close to EUR 350 million of business. Within that, we buy some additives, and we make sure that we have the integration, the vertical integration of CHRYSO products into those activities that we have in-house. So that will be raw materials and kind of vertical integration, rather than cost savings because CHRYSO is already extremely streamlined and well managed, as you said. Sreedhar?

Yes. So regarding your question on CapEx, it's been in the range of EUR 15 million to EUR 16 million CapEx. And yes, so that's -- I think that was the question, right? So there's the CapEx.

Yes, just on the operating margin.

Operating margin chalking up around 16%. There are more than 16%, actually. It's between 16% and 16.5%.

The next question from Cedar Ekblom from Morgan Stanley.

I've got a couple of questions. The first one, just back to your margin comments. I know that you're not giving much detail on the margins pre the last 12 months. But if we benchmark CHRYSO, again, some of the listed construction chemical peers out there, its margin is significantly higher than all the listed companies that we cover. So I'm just wondering if you can give us a little bit more detail on trying to understand where that margin gap comes from. Is that a regional thing? Is that down to sales channels? That would be really helpful. And maybe put that 20% in the context of the average over the last 5 years, if you could. Then the second question is on return accretion. So we've discussed the earnings accretion. But I wonder if you could talk about when you think this business will be neutral from a returns basis. Is that when all the synergies have been fully realized? And then the last question is just on that revenue synergy number. Can you talk to us a little bit about how you see -- how you expect to build this business into your group? My understanding is that you don't have that much of a presence in concrete admixtures at the moment. You obviously do have interest in mortars. So I'd just like to understand where you see the opportunity and also maybe the challenges as it relates to realizing that revenue synergy.

So yes, if you have to -- why I think in the first place is they are extremely efficient. They are successful. They have -- that's why their margins are better than the others. And this is coming mainly because I think that the business model, the way they have developed, I think they are focused on the local leadership. They are not trying to spread their moves everywhere in the world. I think they have been extremely focused on these countries where they believe that they could get the returns. And the other thing is the way they have the supply chain, the way they have organized, including the polymerization, which is one of the important aspect and the attraction in this target was it's done in only 4 plants globally. So this also brings more efficiency. I think they have really managed very well in the last few years. And that's why this margin is clearly best in class. It's very steady.

The second question was on the return of capital employed in year 3?

Yes. So I said that we will create the value in year 3. And that's something which we are very confident. And we said that it will be coming with only cost synergy of EUR 15 million. We are not even factoring the revenue synergies. Revenue synergy will be an upside, which we have factored of EUR 35 million in the year -- by year 5.

And to your question on the growth synergies, well, first, we are already in 2 [indiscernible]. We have a bit more than EUR 50 million, 5-0, both in the Middle East and Brazil. So this is a segment that we know well because we use additives, as I said, in our own concrete ready-mix business in France and in additives of gypsum. So we know this segment. Now going forward on the growth synergies, how we are going to do that? As Sreedhar mentioned, first, its acceleration on the countries of priority for CHRYSO, namely, U.S.A., where they have tripled their sales in the last 10 years. In the U.S.A., CHRYSO alone is in itself quite small actor. We have more than $5 billion of building materials for the name, the presence of Saint-Gobain, the network, the salespeople that we can divert and to put into [indiscernible] sales and cover the geography will be extremely useful. Second, in India, just staying on the priority countries for CHRYSO. CHRYSO is a bit below EUR 30 million, 3-0, in India. You know that we have a EUR 1 billion business, highly successful in India, growing almost 20% over the last 20 years. So clearly connecting CHRYSO with the brand of Saint-Gobain in India with the talent that we have with all the [indiscernible] setup with the R&D that we have in India will be one way. Second pocket of growth is open to CHRYSO, big markets, namely, Latin America and Southeast Asia, where they are not present. And they are not present because they were too small to have the reins and the strength to launch strategy on those markets. If you take just Latin America and Southeast Asia, we have close to EUR 600 million of construction chemical. What are we going to do there? I said we have 50 plants in those countries. We have 20 plants in Brazil alone. We'll select the right logistic place for CHRYSO to install in a few hundred square meters their local mixing plants and units, take some of the salespeople, and we have many talents ready to go, and launch their strategy on those new geographies. And third, cross-selling in mature countries where we have a very, very large presence. It's close to the EUR 2 billion of sales that we have, namely in Europe. And here, we have several applications on flooring. For instance, CHRYSO has recently launched something which is, over the last 3 years, growing double digit for floor, for self-leveling floor, and we'll use those technologies, our network within Weber to accelerate the growth in the Nordic countries, in Germany, in Czech Republic, in Switzerland, where they are very small today because they don't have the size and order -- so the opportunities are big. If you ask about the challenges for me, the only one is make sure we have the talents and the teams ready to tackle all those challenges and all those opportunities for growth. So it's not the lack of idea, not the lack of existing business country by country, not the lack of R&D and innovation efforts when we connect the team together. It's having the right people in place. And what is very nice about that is we feel very comfortable about the culture, about the teams within CHRYSO and Saint-Gobain.

Yes. So as you said, again, I want to insist on this, that these -- all these ideas has been built with the management team of CHRYSO. I think that is the most important point because there is a bind, they believe in this, and that's what is making us really feeling that we are going to be very fast in getting it done.

That we have spent the last few weeks talking a lot in depth on R&D, on geographic development with Thierry Bernard and his team, and we share the same business plan going forward that has been discussed in depth.

Next question from Gregor Kuglitsch from UBS.

So the first is just maybe on that point on how it's managed. I see on your final slide it's going to be part of the HPS side for the segment. And I believe Weber is kind of split around the different regional segments. So I guess the question is, from a practical perspective, who's kind of in charge? Are you going to kind of run them separately and they sort of get some space you indicated in the individual plants to sort of allow them to expand? Or I guess, how will you sort of do the organizational setup, maybe it changes over time? So that's the first question. The second question is going back to Slide 3. Can you give us an idea -- I appreciate where CHRYSO sits. But your business in those sort of 6 buckets that you've outlined, how you define where -- how does it split up? So where is Saint-Gobain kind of the strongest in that -- in those 6 categories? And to what extent is there an overlap with CHRYSO? Or is it fully complementary? And then the final third question, just maybe just technically, if you can just give us your WACC threshold that you use for the value creation comment by year 3, please?

So to your first question, as I said, the characteristic in terms of global innovation, global customers, 95% direct sales is very similar to what we have within high-performance solutions and our construction industry vertical segment. Now -- so the CEO of CHRYSO will report to the CEO of High Performance Solutions on day 1 at the time of the integration. We'll keep the full autonomy of CHRYSO as a vertical market, as a business unit within division, within High Performance Solutions. How it's going to work? And the cost synergies, of course, will change on raw materials purchase because we have central purchasing with Weber, same on the purchasing of additives within our builders' merchant business for their ready-mix business which will be very easy and done very quickly. The growth side will open up the infrastructure of Weber, which is indeed in the different countries will open up this infrastructure to free up some space in order to put dedicated mixing units of CHRYSO country by country in the right order of priority for CHRYSO. So that's the support of the Saint-Gobain infrastructure, whether it's in the U.S., in India, whether it's in Latin America and in Southeast Asia, that will provide the growth of CHRYSO in those countries going forward. On the third bucket of growth synergies that I mentioned, the technology, for instance, for self-leveling floor that CHRYSO is rolling out in France today with the [indiscernible]. This is the brand name that they use. We have a lot of flooring applications ourselves. So we'll use the 2 channels, continue with the CHRYSO channel under [indiscernible] and through this technology under Weber for their flooring applications, whether it's in Germany, whether it's in the Nordic countries, to accelerate the rollout of this technology within our flooring applications of Weber. But again, CHRYSO will be managed as a division of High Performance Solutions with the full autonomy to continue the innovation going forward and the growth.

The other question you had is WACC. It's 6.85% is for the average, on an average. So that's what we are looking at.

Okay. Sorry, on the second question. There was a question on the 6 segments, sorry. So we are very strong on building finishing, on resins and coatings on weatherproofing. And we are present on the 3 other segments, Concrete Specialties, Additives and -- but to a much lower extent.

Smaller.

Okay. So you will not transfer anything of the existing business into CHRYSO? There's no reason to do that? I mean I appreciate Weber is a bit different, but some of the other bids may be small, maybe it's better -- or are you sort of have other plans.

So yes, the question, Benoit, is whether there are some small parts that we have already there that will be transferred to CHRYSO. Yes, we are studying that, but it will be maybe some small specialist companies, but this is not going to be a significant material.

Yes, we have a small admixture business already in Brazil. Of course, on the one, it will be put under the management of CHRYSO. And it will be used as a bridgehead to expand in Brazil. So there will be some fine-tuning.

Next question from Tobias Woerner from Stifel.

Yes. Gentlemen, congratulations to this acquisition. A number of questions from my side, if I may. First one, quick to answer. CHRYSO is out of the old materials. Is that right? The old Lafarge materials?

Yes, yes, yes.

Yes. Okay. Great. Secondly, the tax rate within CHRYSO, where does that stand?

Sreedhar?

Yes. The CHRYSO average tax rate is around 22%.

22%. And its cost of debt, does it have any debt? Or...

They have debt, but it is not relevant for us because we'll be reimbursing everything. And we have a lot of cash, and we will invest...

But what is your cost of debt at the moment, if I may?

For Saint-Gobain? No. I mean -- if you, yes, I mean if you just take debt, okay, what is an average cost of our debt, what we have is around 2%, yes.

That's fine. I just want to be sure.

Just keep that in mind that we have EUR 8.4 billion cash end of last year.

Okay. And then thirdly, if you could, could you decompose the historical growth, the 7.8%, how that's put together other than the 6% to 7% coming from mixtures organic growth...

Yes, it was between 5% and 6% organic growth and 2% of bolt-on M&A acquisitions.

And -- I'm sorry.

No, if your question is if you're talking of 5% to 6% -- 6% to 7% what we have taken for the future?

Yes.

Yes. So we expect this market to grow at that rate. The one point, which Benoit said quite often during this call is the whole decarbonization, is something which is going to accelerate, and this is going to be a big upside for the CHRYSO business model.

Yes. I had that we have not built in our business plan any bolt-on. And as Benoit said previously, there could be because there are a number of very small companies that are different of this construction chemical businesses, as Benoit mentioned. So we -- there will be an opportunity for a lot of small bolt-ons, but we have not factored that in the business plan at this stage.

Yes. It is stand-alone at this point of time.

Okay. Two more questions, if I may. Such an interesting acquisition. So out of the 5% to 6% organic growth, what's sort of the pricing we should assume there historically?

Historically, it has been something like around 2%, 2% on an average. It depends on year-to-year. And I think they have been quite successful. They have been quite successful in passing on -- quite successful in passing on the inflation is also through adding a lot of new products. I mean, because you'd have seen in the presentation we talked about 35% of the sales comes from the products which didn't exist 5 years back. So that's also another way they keep introducing the positive mix effect. Otherwise, pure price, I would say, between 1% to 2%.

Okay. Great. And the last question is a more general one. You talk about the theme of decarbonization. Are you inclined to also enter into other products, which would take away market share from the existing clinker-driven cement world?

No, I was going to say we have made acquisition in wood, whether it is fiber wood a few years ago and from and we are expanding the capacity of the acquisition we just announced in to increase our merchanting wood activities in France, where we see a strong growth. So that's also a way to increase our exposure to a very sustainable and growing businesses, which are part of the decarbonation answer to the construction industry.

And you know what is interesting, it's not only the lower CO2 of concrete or cement. It's also the fact that you can use -- if you use more additives, you can use different kinds of sand and aggregates. And we know that going forward there is scarcity of those raw materials. There is more and more pressure on where you can have a quarry, et cetera. And the fact that with more additives you open up the versatility of the aggregate, the sand that you can use for concrete, the demolition waste, it does open up a wide spectrum of chemistry, innovative cost for solutions in construction, and it's way beyond the pure cement.

Okay. My very last question -- apologies for so many questions. But Gregor made a great point in terms of how this business is going to be managed. I mean you're going to have a great business, EUR 3 billion of turnover and more growing going forward, and will be sitting within several different divisions. It'd be great for us to actually be able to track it as a unit and see how you manage this going forward? Any thoughts on that?

We don't intend to change the structure and the reporting of the company, financial communication that Pierre-Andre should have put in place for the last years. But we will report to you the progress and the value creation, of course, on this acquisition like we have done on Continental over the last years, like we have done all the time within Saint-Gobain.

And like we will do in Continental at the end of the first half.

And I will come back to you at the Capital Market Day also on what we have done with Continental over the last 18 months.

I just think it's not as viable and [indiscernible] it's also the Gypsum division and business, which have a real nice fit with one another, and it'd be great to see that.

What is important at the end of the day is to continue to improve strongly the margin of the group. So you should see that going forward.

But when you talk about gypsum, it's a raw material for gypsum to some extent, which is a very -- for plasterboard, which is a very good one. And as Benoit said, it is the same philosophies as the one we have for what we call construction industry today, which is mostly products made out of fiberglass and which are ingredients of a lot of solutions that are in our regional markets, but they are sold to large customers, that's a specificity of CHRYSO.

No. I see. I mean there's a lot of things coming together there now.

Exactly. Exactly. You got it.

Next question from [indiscernible] from [ Imperial ] Investment Research.

So I would have 2 questions. So first, how will CHRYSO's management interact with Saint-Gobain [indiscernible] the different set of countries and Weber manager to allocate capital, whether on CapEx, on a bolt-on acquisition? How the decision is going to be made? And my second question is what is the outlook for the 2021 sales and margin for CHRYSO [indiscernible] where demand is quite good but where chemical cost inflation has never been so high? You see some potential margin pressure? What have been the latest trends? That would be very useful if you can give us a bit of color on that.

Well, I take the first question. We will, as I said, replace CHRYSO as an autonomous division of high-performance solutions. We have discussed and agreed on all that with the CEO of CHRYSO in order to continue to nurture and grow the autonomy and the growth and the success of CHRYSO. So in terms of decision, whether it's on CapEx, whether it's on the small bolt-ons, the CEO of CHRYSO will interact with the Head of High Performance Solutions and myself to make quick relevant decisions on the growth and whether it's CapEx, whether it's external growth for CHRYSO going forward. So there is no connection with Weber, which is done by country. It will be, again, a direct line between the CHRYSO CEO, High Performance Solutions CEO and myself. So quick -- and we have agreed on all that on chem sheet and everything. So it's all clear and ready to go.

Yes. Yes. So your question on -- yes, so our outlook for 2021. We have indicated to you the last 12 months figure. It's in the same line. I think the management is very confident to deliver what we have said last 12 months' figures.

And on the cost inflation and the price increase versus cost inflation. Can you give us a bit of color?

Yes. As of now, they are doing well. I mean the first quarter, they have managed well. So I think the...

Have [indiscernible] session?

Yes, they have been able to manage that. And this is something which we have been doing it consistently in the last few years. And again, I said I think they are very, very focused on local markets and trying to see that the margin is also improved through the mix, which they introduced to the new products.

And coming back to this question on the margin or the integration of CHRYSO. We share exactly the same culture and the same empowerment of local teams who have discussed that at length. So all the transformation of the group with Transform & Grow, I think, is fully aligned with the model of local empowerment, decentralization of CHRYSO. So we feel very confident that the integration will go very well.

And maybe last question. In terms of R&D, I understand that CHRYSO has definitely an edge versus other players in the cement industry. How can this edge be transferred to there?

We -- again, we are not talking about the same application. So we are not going to -- well, of course, when we have some knowledge to be transferred in terms of chemicals, in terms of composition, in terms of -- we will share, but we'll keep the central R&D of CHRYSO, which is in the south of Paris, will open to CHRYSO all the platforms, all the capabilities of the R&D centers of Saint-Gobain. When they go, for instance, I gave a good example. Brazil, we are small in [ admixtures ]. They are not in Brazil. We have an R&D center in Brazil. It makes full sense to add some admixtures capabilities in our R&D center in Brazil to support technically the growth of CHRYSO in Brazil. We have an R&D center in India. It makes full sense. They have a local R&D technical center in Mumbai. Our center is in Chennai. It makes sense to connect them. So we'll keep this dedicated R&D, which has been extremely successful, and then open up the platform of Saint-Gobain. And I'm sure we started to have those discussions. There will be a lot of ideas generated by just the exchange of -- between our different researchers.

And Benoit, you told me the R&D teams of -- and head of CHRYSO is extremely excited by these prospects that bodes well.

Next question from Yves Bromehead from Exane BNP Paribas.

I was trying to understand the cost synergies. You mentioned EUR 15 million as a sort of the run rate. But if we look at the cost of additives, I think this is about 5% of the weight content of mortars, but it's much higher in terms of the actual amounts in value. So I was trying to understand what are really the cost synergies here as you backward integrate into the additive manufacturing and whether there are significant opportunities for that to be increased by a multiplier effect. My second question is whether you are now fully focusing on becoming a construction chemical company and potentially looking at either further consolidating your new position in the additive admixture for example, in the U.S. but also in other chemical products like adhesives, resins, waterproofing and even mortars -- sorry, membranes? And lastly, on the sales synergies, could you maybe help us to understand how much of that is just cross-selling versus new market opportunities? And if you have already done your due diligence, what would be the size of the revenue potential if you had a strong position in Brazil and Southeast Asia, for example, for CHRYSO?

Sreedhar, you take the cost synergies.

Okay. I'll take the cost synergy, I mean, if we're talking of just EUR 15 million, Yves, so out of that EUR 15 million, we're saying largely it is coming from the raw material, which we buy for within the construction chemicals and additives business, which we have in Saint-Gobain. We're talking of, again, EUR 2.7 billion plus. So we have taken half of -- a large part of that. Half of that is coming from there. And the other part is coming from the distribution business, which buys the additives from outside. We are just talking of integrating that with CHRYSO. That's one. The second thing is gypsum business also buys additives from outside. We are talking of integrating them with CHRYSO. So this is -- to me, this is a low-hanging fruit, and this should be able -- we should be able to achieve very quickly.

And on the second question, yes, we are happy, and we'll continue to grow our construction chemical business, but there are many other opportunities within Saint-Gobain. You see what we have done in gypsum. Yes, at the beginning of this week, we announced a small acquisition in additives in Russia, construction chemicals in Romania. So there are some opportunities, but it's not the only growth driver of Saint-Gobain. On the growth synergies, the plan is, for instance, to take in Brazil over the next 5 years, 10% of market share in the additives market. You could say it's not extremely ambitious. Maybe we'll do better. That will be very nice. And in terms of total revenue, it's a bit north of EUR 100 million with a nice contribution margin, so between EUR 100 million and EUR 120 million additional sales over the next 5 years to get to this margin impact coming from growth synergies and reasonable market share gain, whether it's in Southeast Asia, whether it's in Brazil, in the single-digit type of market share, and it could be even more.

If I could just come back on the additive. I mean, if I do a simple math, I think you're probably buying around EUR 150 million to EUR 300 million of additives in your business just on the mortars. So EUR 15 million. I know you said low hanging fruits but...

No, because we buy some raw materials together. But the additives that are used in concrete are different. The additives that are used in concrete, we buy them because we have a concrete business in France, which is in the EUR 350 million range. So there is quite a few additives in terms of millions of euros that Sreedhar mentioned that we are going to switch to CHRYSO. In terms of raw materials, there are some -- I don't know the English word, [indiscernible] and things like that, that we buy together between CHRYSO and Weber. So there will be a bit of raw materials gain. Maybe there will be more. But so far, this is what we have figured in our business plan on the [ strategic game ].

Next question from Eric Lemarié from Bryan Garnier.

Yes. Two actually. First one is, is there any specific risk that the deal will not be completed by H2 this year? And do you have any breakup fees there? And the second question, I was wondering, you already answered partly the question, but I was wondering what type of raw materials are purchased exactly by CHRYSO? I suspect it is chemical, but which one exactly above the one you just mentioned?

There are many, many raw materials. So we are not going to enter into those details, and I think none of us are experts in chemistry. So there are many raw materials. The beauty about CHRYSO, the difference of many others is that, as we said, they have a vertical integration, and they go very upstream, they buy monomer, and they have polymerization you need to make polymer. And it does provide 2 advantages: first, on the cost side because monomer, you can buy on the commodity market. For example they have a plant in Turkey, where they're buying monomer from Asia. And they sell those polymers when they have polymerized the monomers in Europe. So they buy [indiscernible] for -- coming from Asia, and they sell in Europe. But again, after that, there are some [indiscernible] that I don't want to put on the market. So they buy monomer, which are commodity driven, and they make their own polymer with all their patents. So -- and second, on your first question, no, there is no risk. And we expect there is no difficulties on the antitrust side. We need to have a bit of timing, but we are confident it will flow nicely on Phase 1 in the different countries where we have to do it. And so closing will be in the second half of this year.

[Operator Instructions] We have 1 more question from Michael Betts from Data Based Analysis.

My question is a big-picture one. I mean, as far as I'm aware, amongst the global cement companies, only CEMEX has its own construction chemicals company. But all of those companies are spending a fortune on R&D in additives and trying to lower decarbonization or self-leveling concrete, et cetera, et cetera. So my question is, does CHRYSO work with those big global cement companies? Or does it concentrate on working with the smaller independent ready-mix companies and contractors? And what risk is there, given the amount of spending that these big cement companies in conjunction with their partners are spending that some of the technology gets overtaken by new products? I mean how defendable is some of the -- is the CHRYSO technology, I guess, is my second part.

Well, thank you, Mike. No, the -- you are right, CEMEX is the only one with some additives business and know-how. CHRYSO works with all the top players in the cement industry, all the top players in the concrete as concrete customers and also the top contractors, they sell directly to the VINCIs of the world and those large contractors. So it's a true B2B at a very high level with all the big players. The beauty about the CHRYSO model is that some of those businesses, 20, 30 years ago, used to be like within [ Lafarge ] integrated within cement company. But you share, when you are an additive supplier, you share so much knowledge with the cement or the concrete player that, when you are a concrete customer of additives, when you are a cement customer of additives, you don't want your supplier of additive to be integrated in cement and to share your know-how all your co-development with other cement competitors. So this is the reason why, over the last decade, most of the adhesives went out of the big cement players. And this is going to stay the same going forward. On the second question, no, we don't foresee and discussing plans with the management of CHRYSO. They have been always at the forefront of new [indiscernible] of new patents, of new products. The product I mentioned, they just launched, I think it's last week for how to lower a big weather the [indiscernible] content of concrete. So they have been truly not only the most profitable company, but also the most innovative company of their sector, and we'll continue to provide the financial resources, R&D resources, that they continue on their successful path going forward.

So just as a follow-up, Benoit, and apologies if it's in the slides or on the press release. How much is CHRYSO spending on R&D a year?

So 3% on sales, 3% on sales. And they have a central R&D south of Paris, and they have 26 or 29, I forgot low -- 20 centers, sorry. 20 centers. Look, I think it's more than that...

24.

25, sorry. 26. 26 local development centers within their different geographies. So that's the combination of central innovation and local development centers.

Understood. That's great.

Thank you, ladies and gentlemen. We don't have any more questions for the moment. [Operator Instructions] We have one new question once again from Jean-Christophe Lefèvre-Moulenq from CIC.

An additional question regarding your channel mix and the client mix of Weber. Is that the same or...

No, it's very different. Weber is most -- a big part of Weber is for distribution. That's a big difference. That's why we have it in our original local organization by country.

Okay, okay. It's very clear.

But there are some -- there are also some direct customers in Weber but it's a much less -- much smaller. One thing which we have not factored that went, for instance, in some countries with the [ mixture ], self-leveling flooring -- I think you should -- you start the foundation of a building. Of course, you start very early in the building. And later on, we can leverage our local businesses, whether it's Weber, gypsum, insulation, [ core ] distribution to pick up additional business, but it's through different customer channels.

And that's the reason for putting it in HPS, Jean-Christophe. We sell directly to large customer with a very co-development model.

Thank you. We don't have any more questions. [Operator Instructions] It looks like we have no more questions. Back to you for the conclusion.

Well, I think, once again, I think it's a very good acquisition. We are quite excited as you understood and well prepared. And I think that the team of CHRYSO is fully on board, but I think that's something which is going to be very helpful and which will help Benoit to make -- to have a very quick integration of that company in Saint-Gobain. So they are very exciting prospects, and we are quite excited.

Thank you. And I hope to have, hopefully, then during the Capital Market Day on the 6th of October. So we'll make sure we work diligently to have closing, and we are eager to welcome them within Saint-Gobain and continue on this very fantastic growth platform.

Thank you.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.