Compagnie de Saint-Gobain S.A. (SGO) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to this presentation on our 2019 results. So we'll -- I will go quickly through the highlights, then Sreedhar will go into more detail in our results. Benoit and I will update you on the strategy, and I'll finish up with the outlook for 2020. So 2019 has been a very good year for Saint-Gobain, with, you see the main figures, sales up 1.9% to EUR 42.6 billion, up like-for-like 2.4%. Our operating income is up 5.7% on actual terms and 4.7% on a like-for-like basis with an increase of the operating margin of 30 basis points to 8%. Our recurring net income is up 10% at EUR 1.915 billion, and the EPS is up a little more because we have reduced the -- to 11%, we have reduced the number of share outstanding. The EBITDA with the new definition that Sreedhar explained to you in July is up 4.8% at EUR 4.870 billion. And the debt is down. This is the debt post IFRS, which is down EUR 700 million to EUR 10.5 billion, which gives a good ratio. So if we put these numbers into perspective, we have had regular growth in the last few years. You see that in the last 5 years, our margin has significantly increased, and it will continue with our Transform & Grow program, where we have had a first good step this year. On average, the operating income has grown 6.5%, and the recurring net income has grown 13.2%. The level achieved in 2019 is, in fact, if I exclude the peak of 2007, is the highest -- the second then, with 2007, second highest in our history. The recurring EPS has grown 14% in -- on average in the last 5 years. So a good year of progress. So main highlight in terms of the organic growth, this has been achieved through, I would say, in a market with -- which was a bit more difficult than the 1 of the last 2 years with, I would say, especially a difficult market in our industrial activities and the performance in that framework of our High Performance Solutions division is really very good, very strong resilience and much better results than what I have seen around us. Price is up 1.8%, and volumes, 0.6%. Sreedhar will come back into that. As I said, a good increase in the operating margin, which is in line with our Transform & Grow initiatives, where I would say we are in these initiatives, we are globally ahead of target. We are very happy with where the new organization has functioned. And Benoit will give you more details. Our cost savings plan was EUR 250 million for -- until 2021. We have revised first the objective for the first year for EUR 50 million initially to EUR 80 million in the summer. In fact, we landed EUR 120 million in cost savings in this program, which will allow us to focus now more on growth. In the second part of the Transform & Grow initiative -- was linked with the acceleration of the portfolio rotation. And we have divested EUR 3.3 billion of sales, more than the objective I had set in, which was EUR 3 billion, on good conditions. And we have made 18 small acquisitions for EUR 260 million. And I'm very happy that the Continental product, building products acquisition in the U.S., we have been able to close much earlier than what we anticipated. So in February 2020, which will be a good addition in 2020. A very strong point of 2019, the free cash flow is up 50%, with a very strong cash flow conversion, up sharply at 44% versus 31% in 2018. And I would say, we have acted on all elements to increase this free cash flow, which we are going to continue to work on. And as I said, a good increase in the recurring net income, 10% up versus 2018. So a good year, and Sreedhar will take you more into details.

Thank you, Pierre-Andre, and good morning, everyone. So let me give you some more details on the results with the sales bridge. The sales has increased by 1.9% as reported and by 2.4% like-for-like. The like-for-like growth was driven by pricing and overall less supportive market environment. We saw a positive exchange rate impact mainly coming from the appreciations of U.S. dollar against euro. The structural impact was negative due to the divestments we have made as a part of the Transform & Grow with a bigger negative impact in the fourth quarter as we deconsolidated a number of businesses during this period. So here, we can see the quarterly trend of our organic growth, the split between the volume and price. The pricing effect has moderated in the recent quarters, for instance, in Glass, with automotive demand going down, and more importantly, in the context of a lower inflation environment. Quarterly volumes were volatile due to the working days impact. And if we look at fourth quarter compared to the third quarter, the drop is largely due to the negative working day swing in Europe. If you look at the operating profit, always compared with organic sales, our organic sales growth was 2.4%, which is translating into the increase in operating income of 4.7%. And we are able to achieve 30 basis point improvement in our operating margin at 8% for the year. The growth in operating profit was driven by our volume growth, a slight positive cost spread and, more importantly, the acceleration and cost saving to this Transform & Growth initiative. We have achieved strong results from this initiative with EUR 120 million positive impact on operating profit in 2019 from the cost savings driven by new organization, which is well ahead of our plans. The inflation of input cost was slightly less than EUR 450 million. And in 2020, we expect it to be less in -- less than 2019. In addition, our divestment results in a positive impact in the operating margin of 15 basis points for 2019 with the full year impact for these divestments, which we did till now, will have completed the 40 basis point target, which we set for all the divestments, which we were supposed to do under this Transform & Growth initiative. So if you look at the business income, clearly increased and held by nonoperating costs despite the EUR 130 million cost related to Transform & Grow. Asset write-downs are largely linked to divestments that we did during the year. And in addition, we have depreciated assets of proppants to address the book value at the end of the year as we are well engaged in a process to exit the proppants business in North America. EBITDA progressed 4.8%. I recall that this is as per the new definition introduced in the first half, wherein we take into account the nonoperating costs so that EBITDA equates more closely to cash. So if you look at the net tracking income, you have the net financial expenses, which is excluding Sika, was stable compared to last year. And the average cost of borrowing comes down from 2.3% to 1.8%. Regarding income tax, the tax rate on recurring net income rose slightly to 25%. The recurring net income rose 10%, and earnings per share has gone up by 11% in this year as we continue to do our share buyback program. So this is the cash flow. And as Pierre-Andre said, this is a -- it's an important part of our results. And you see that there is a sharp increase of 50% in the cash flow. And this bridge is what I presented to you all in -- last year in July after the first half results. And this, again, this definition is based on the feedback I received from most of you. So during the year, we created a lot of focus on cash with a lot of communication within the organization to sensitize ever further the importance of cash. I'm pleased to report this increase of 50% in our free cash flow, and we also saw an improved conversion -- cash conversion rate at 44% as against 31% in 2018. And this is driven by various improvements, notably a reduction in nonoperating costs and working capital. We saw an improvement of 2 days of sales in operating working capital. In terms of CapEx, I said last time that we would not increase further the CapEx. Overall, in fact, in 2019, the CapEx we are 2% below than 2018 level. Within this, we spent EUR 536 million on growth CapEx, which is discretionary. And including especially like the investments we did in Life Sciences, Construction Industries, energy efficiency solutions in like insulation in France, facade solutions in Glass in Mexico and India. And we will continue to focus on this important metric even in 2020. And we said in our priorities that we will further increase the free cash flow in 2020. And we target to reduce at least by EUR 200 million the CapEx by optimizing further the maintenance CapEx and allocating CapEx with more strict criteria in growing in profitable businesses now that we have passed our recent peak. So here, we are showing the ROC and ROI, both before IFRS and after IFRS 16, as this is an area where this accounting treatment changes the number quite a bit and makes the comparison much more difficult. So if you look at the numbers, both definitions, clearly, it shows a good improvement in 2019. In fact, in the last 5 years, we have made consistent progress in these indicators. Finally, turning to the net debt and the shareholders' equity, where, again, we are showing both before and after IFRS 16 for a better comparison. Net debt increased EUR 700 million and ever more -- sorry, sorry. I mean the increasing mode of cash flow. So the net debt decreased by EUR 700 million and even more before IFRS 16 at EUR 840 million. During the year, we generated free cash flow of EUR 1.9 billion and received just before $1 billion in divestment proceeds. We invested around EUR 300 million on acquisitions just over EUR 500 million on growth CapEx, paid just over EUR 800 million in dividends and share buyback. Overall, our balance sheet and the ratings remain very strong. So this is our new organization. I'm going to give you more details based on the new reporting segment, which is quite aligned to our new organization, which is by country and market. So we'll start with High Performance Solutions. You see here the like-for-like sales in High Performance Solutions grew by 0.4%, driven by pricing with volumes slightly down, impacted by a slowdown in industrial markets. Mobility business significantly outperformed the market with the sales up slightly compared to an automotive market, where the global sales were decreased by 6% over the year. The environment remained difficult in Europe and China, and our outperformance was driven by the differentiation strategy focusing on higher added-value products, which continue to pay off, particularly in electrical costs. Our businesses serving industrial markets were also down, impacted by a slowdown in industrial markets in the second half. However, our businesses serving the construction markets continue to grow, driven by gains in market share, good trends in external thermal insulation systems and the recent acquisitions which we made are performing very well. Our Life Sciences business continued to enjoy good growth in pharmaceutical and medical sector. The operating margin was 12.7% compared to 13.4% in 2018, impacted by a slower industrial market for the second half. We are pleased to have been able to achieve an operating margin at 12.5% against 12.4% achieved in H2 2018 despite the tougher industrial market situation. This is particularly a strong performance in a very difficult market context wherein we have been able to outperform many of our peers. Northern Europe, you see here like-for-like growth of 1.7% over the year and was stable in the second half with a particularly negative calendar impact in the fourth quarter. The Nordic countries saw like-for-like growth led by distribution. The renovation market remains solid, but the new construction was softer. The U.K. West was down, particularly in the distribution in the second half, driven by a continued difficult market situation. Germany progressed despite lower volumes in the second half with a less favorable situation in nonresidential, for example. Last, Eastern Europe saw organic growth. The operating margin for the region showed a sharp rise of 70 business points to 6.3%, driven by the positive spread between the price and the cost, the impact of acceleration of Transform & Grow-related cost savings and the divestments of low-performing businesses. Southern Europe, Middle East and Africa saw a region -- a 3.3% like-for-like growth for the year and 2.3% in the second half despite a particularly negative calendar effect in the fourth quarter. France had a great year supported by renovation despite a slowdown in new construction in the second half. Distribution continued to grow, and insulation saw double-digit growth, driven by the strong demand in energy efficiency-linked renovation. Amongst other European countries, Spain showed particularly a very good crop. However, the Middle East and Africa were down, especially Turkey was quite tough. Overall, pipe business is now profitable, continued its successful efforts to improve the competitiveness in a difficult export market. As in Northern Europe, the operating margin for this segment increased significantly by 80 basis points to 5.4% operating margin. This is clearly thanks to the improvements in France and also the acceleration of cost savings from our Transform & Grow program in particular. So overall, we had a good performance, progression in sales, strong margin in this region. The Americas region grew 2.9% like-for-like over the year. North America grew 2.1% over the year and clear acceleration at 4.7% in the second half with a better volume in exterior solutions in gypsum, specialty ceilings, while insulation performed well. Overall, in terms of pricing, after a good start of the year, prices were slightly down in the second half due to tougher comparison basis. Canada was down for the year, hit by a decline in the construction market. In Latin America, it was much a year of 2 halves with the 4.6% like-for-like growth for the year, but a slowdown to 0.5% in the second half, especially in Building Glass in Brazil in a more uncertain macro environment. The operating margin for the region was 10.1% compared to 11.2% in 2018 with a more difficult environment, as I said, in Latin America. And clearly, 2018 have been aided by a very second -- very high second half. Asia Pacific region grew 4.1% on a like-for-like basis, driven mainly by volume. This is clearly led by our solutions to improve the productivity, for example, Glasses business and the Mortar business. Building Glass declined in the second half due to the lower utilization rates as slowdown in automotive industry put pressure on prices. India showed strong growth with double-digit growth, particularly in gypsum. Saint-Gobain in India, developing an integrated solutions for home and hospitality market as we look to target new growth niche markets. China had a good year and benefited from the start-up of new plaster plant in the first half as well as a good growth in Mortars business. Southeast Asia saw good growth by volume, but continue to have a very competitive pricing environment, which impacted the overall price realization in this region. The operating margin for the region progressed from 10.4% to 10.6%, driven mainly by the volume growth and a little bit of Transform & Grow savings. In a nutshell, very good results with a strong focus on cash generation and an improvement in operating margin in a more difficult external market environment. Execution of our transformation program to create more value for our investors in the medium and the long-term is on costs. Now I hand over the floor to Benoit, who will give you an update on our strategy and transformation.

Thank you, Sreedhar, and good morning, everyone. So I will now turn to our strategy, and I will cover the first part to tell you where we are on our progress with Transform & Grow 1 year after the launch. Transform & Grow is a true radical transformation in Saint-Gobain in terms of organization, for sure, in terms of mindset also and in terms of portfolio evolution of our businesses. It's going very well. And I would say, our teams have embraced it and have been able to execute it extremely well and fast and faster, I would say, than anticipated. So we are well ahead in our plan, and I'm very confident that it will continue to bring strong benefits for Saint-Gobain going forward. Why did we embark our teams so deeply and so well on Transform & Grow? To some extent, it's because the goal is simple. It's to make Saint-Gobain much stronger to deliver strong, profitable growth to our shareholders based on 2 pillars, the new organization and a stronger portfolio of business with higher growth and profit. I will come in a minute to the changes of the organization, but besides the changes of reporting lines or] [parameters, ] we have been working a lot on our culture to focus it more and more on accountability and ownership. And this is at the center of our transformation. How do we do that? First, with one single line of command, one topic, one owner. Second, with new incentives for all our CEOs, by market, by countries, 100% aligned to the [ parameter ] that they manage, which is a change versus the past. It's roughly twice more versus what we had in the past, where they had the kind of solidarity bonus on a larger [parameter ] where they had little influence, they are now 100% on the [ parameter ] and P&L that they manage. With our fast decisions, thanks to a lot of simplified processes that we have reengineered over the last 12 months and our teams have the authority to allocate their resources exactly, which are under their management on the [parameter ] that they manage with one goal, optimize their P&L. Also, it is important that we have increased the ownership of our teams. I'll give the example here of a worldwide survey that we did last fall. Remember that we had a small one in March early on in the product. We did a worldwide survey last fall with all our people. 74% of our teams participated in it, and they showed -- it's an external survey made by Ipsos. They showed 80% engagement towards our goals and towards Saint-Gobain, which is 4 points above the external benchmark that was delivered by Ipsos. So a lot of accountability and a lot of ownership from all our teams on Transform & Grow. Our new organization brings together in one team the businesses that serve the same customers. So for local construction markets, we leveraged by country, comprehensive solutions across all our assets, product lines and systems, sales expertise, brands, logistics, et cetera. We have given you numerous examples over the last 12 months. I'll give a few there that brought growth above the market in 2019, solutions for off-site manufacturing in the U.K. in Benelux, in Nordics, which are growing fast; the dedicated facade offer across several product lines in Brazil, overall in Brazil our gypsum grew double digit in a tough market last year. Home and hospitality sales organization in India, combining our #1 position in Glass and our #1 position in gypsum to target new growth markets. In all countries, these reorganizations, which took place in early 2019 with a design adapted to each country and market specificities, have brought significant productivity gains as well. And we see clearly these gains reflected in our 2019 performance that Sreedhar just presented. For our global businesses, our organization by market brings an enhanced focus on our customers, on innovation also and boost our ability to leverage global scaling. For instance, in Mobility, with a global customer approach around the world, our footprint -- worldwide footprint has allowed us to capture quickly a double digit growth in electrical vehicles and also to leverage our global customer relationship to extend our product range. If I take Life Science, we followed very fast our U.S. customers in their development, whether it's in Europe, in India, in Korea or in China. For construction industry, we are leveraging transversal R&D across all the group. For instance, our textile solutions business has developed new glass mat products for new applications of glass wool for external insulation in Switzerland, replacing older materials. So under a more challenging market conditions in 2019, we have clearly outperformed our peers in most of our global market segments with a strong ownership and accountability of our markets' use. Now on the -- on savings. We have delivered faster on our savings, EUR 120 million for the full year of 2019 versus EUR 80 million expected when we last met in July. All actions identified by the teams at the beginning of the year, 1,000 action plans are being executed with rigor step-by-step and cascaded down. Let me take, for instance, Germany as one example. We acted fast early in the year to cut x delegation costs and redundancies in the first half. Then second step, we started to optimize back-office to low cost in HR, finance, purchasing. And third step, we decided to merge completely the management of ISOVER and Rigips. By operating them together, we have another round of synergies in marketing, sales, customer service, or supply chain. And we triggered also growth synergies to push joint prescription, key account management or new offer. With no surprise, a bit more than 60% of our savings have been delivered in Europe with a significant gain in margin that you can see already in 2019. Overall, we have 1 year -- around 1-year payback on all these actions. So we'll deliver another EUR 80 million in 2020, and we are well on track for the full EUR 250 million by 2021. Second pillar of our Transform & Grow program, our active and value-creating portfolio management, making here also Saint-Gobain much stronger. On divestments, we have acted fast and decisively. We divested businesses representing EUR 3.3 billion of sales, ahead of our target of EUR 3 billion. We have done this at quite attractive multiples, around 10x EBITDA, for a total amount from divestments a bit more than EUR 1 billion. And all that will add more than 40 basis points to our operating margin. We'll continue this optimization to make Saint-Gobain stronger using the same clear criteria of this year: one, the financial performance in terms of cash returns of profitability; second, the contribution of those businesses to Saint-Gobain in terms of value creation and synergies; and third, of course, make sure that we find the right timing and the right market conditions. So there are several ongoing dedicated reviews and actions on other projects, and we are acting decisively on all these with no taboo, and we have further opportunities for divestments that are currently at various stages of progress. Switching on acquisition. We have done 18 selective acquisitions last year within a clear and disciplined capital allocation along 3 criteria: first, new geographies with 4 acquisitions, mostly in Latin America. Adding plasterboard, selling businesses, buying also the leader in technical sealing in Peru; second, technological niches to extend our product trend, for instance, for acoustic solutions in Mobility and also for high-end technical seats in aerospace; and third, 10 small operations to reinforce local leadership, whether it's in our Nordic distribution network on specialty ceilings in the U.S. All these small midsized moves build up progressively a strong Saint-Gobain set of businesses, and they are well within our strict criteria of value creation in year 3. Of course, a significant one is Continental Building Products with a strong strategic rationale, strengthen our leadership position in the U.S. construction market. The closing went well and fast on February 3, roughly 2.5 months after the announcement, which is very good for our teams and also for our customers. The timing is good also, as you have seen in terms of U.S. housing starts, which have been moving up month after month of the last 4 to 5 months. The full leadership team is already in place and has been in place since day 1 with a good combination of the best talents coming from Saint-Gobain and coming from Continental Building Products. And we're there again 2 weeks ago, and I can tell you that all action plans are already in place and being executed. One example, for instance, already as of end of last week, all the sales territories have been reassigned for either a former Saint-Gobain salesperson or a former Continental Building Product salesperson. So we have taken the best of the 2 teams, and we are well ahead in our integration plan that will deliver more than EUR 10 million of cost synergies in 2020 and more than EUR 15 million in 2022. So I'm very confident that this move will create value. Here, we can summarize high level the benefits of our active portfolio management as a result of the moves that we have executed in 2019. You can see that we have been selling at 10x multiple EUR 3.3 billion of sales of difficult businesses operating at 3% EBITDA margin. We have been buying at 8x multiple after synergies roughly EUR 700 million of sales in very good businesses, making above 20% EBITDA margin. And we'll continue to create value, thanks to our active portfolio management with ongoing selective acquisitions and targeted divestitures. So overall, a busy year of transformation, well executed in terms of culture, in terms of organization, in terms of portfolio, with a lot of achievements. I'm very confident that we are on the right track moving ahead with a strong positive dynamic. And I now turn to Pierre-Andre.

Thank you, Benoit. So you see our initiatives on Transform & Grow are bearing fruit. And I think it reinforces the unique positioning of Saint-Gobain, and that will allow it to capture profitable growth. When I look at what's going on in the world, there are a number of megatrends rising and there are 3 which are particularly important for Saint-Gobain. First, the organization that we see all over the world. Second, climate change, which for many is a big challenge. For Saint-Gobain, it's a huge opportunity, and we are seizing it. And third, digital, which allows us to really bring more value to our customers. In this framework, we are focusing on 3 drivers in terms of growth, one which is sustainability, as I just said, where Saint-Gobain has a lot to offer; the second, which is adding, and we have done that for a number of years, but there are still plenty of opportunities increased by digital to help our customers with their productivity; and third, well-being, which very often goes together with sustainability. So let me start with sustainability. As I said, it's a huge opportunity for Saint-Gobain. We have -- we estimate that around 60% of our portfolio contributes directly or indirectly to reduction of CO2 emission with around 40% of our manufactured sales and around 80% of our distribution business, which is more and more focused on renovation -- energy renovation. In this slide, you see a few examples which are of the leading sustainable solution that we provide in our different markets and which are helping to deliver CO2 reduction to our customers. This is -- and we are increasing, of course, our positioning on these markets. Sreedhar mentioned the very strong increase in insulation in France, which is driven by the energy renovation, which led us to invest significantly. You see a few other examples in buildings and also in Mobility of the -- where we have a growing part of our offer, which is linked also to the need to improve this in cars. The importance of this subject is -- can be summarized in one figure, which is the fact that around 35% of the CO2 emission in the world are related to building and then about 75% of that is linked with the way building operates. So the heating, the cooling of the buildings. So that's where we provide solution. 25% is linked with the way the buildings are made, the carbon footprint of the building. And from that standpoint, Saint-Gobain has 2 roles. The first one is that more we are using our solution versus traditional solution, which emit much more CO2, is good. So more Saint-Gobain solution in the buildings, the better it is; and second, we can also, and that's what we are doing, improve our CO2 footprint -- our own CO2 footprint. As you know, I've made, for Saint-Gobain, a commitment in 2015 during COP 21 to decrease our CO2 -- own CO2 emission by 20% in -- by 2025. We are well on track. And in fact, we are accelerating our results in that framework. We are at 14.5% in 2019 with a 2.8% reduction only last year. So we are well on track. And as you know, I have made a bolder, I would say, commitment for Saint-Gobain at the UN last year on 2050. And this year, we are going to work on a precise road map to get there. 2050 is not that far when you are in industrial activities. And we are working hard in that direction, and I think that we are going to find solutions. We will not do that alone, but we can do -- we'll need a change in the energy mix from government. But in that framework, which is the European framework, I think we can deliver that road map. Second area, which is, as I said, productivity and innovation, and this is really changed significantly with digitalization. Whether it is on personalized production, whether it is on usage of data, whether it is on new business models, all that is providing additional growth. You see here a few examples with a very significant, also internal change, within Saint-Gobain. I think in those areas, also globally, we outperformed our markets. To finish up. I will show you in these areas a number of innovation. As you know, I am particularly proud of the fact that Saint-Gobain in the last 9 years has been ranked as one of the 100 most innovative companies in the world. It's across sectors ranking. And here, we'll -- I'm sorry not to be able to welcome you today in our new tower. Just -- we are just a few days short. But next time, it will be there, and you will be able to see that there are 82 solutions from Saint-Gobain, which are at work in this new tower, which is, I would say, a large showroom of our know-how. You see on the right, a few examples of solutions that we have launched, innovation we have launched in 2019 on these 3 areas: sustainability, productivity and well-being. And as I said, sustainability and well-being goes very often together. So if you look at the new generation of our electrochromic glass, Harmony, it is both bringing energy efficiency and much more comfort in a building. And you see that. You see a few other examples in this chart in -- again, in Mobility and in facades, whether it is with our new gypsum activity, with the productivity on our new partitioning system that we launched recently and some others. So a very strong flow of innovation linked with these 3 growth drivers. Now I come to the outlook. And first on our shareholder return policy, the Board yesterday has recommended to the shareholder, which will meet on June 4, 2020, an increase of the dividend to EUR 1.38 per share, which is in line with our policy. And we are, I would say, this year, back in our targeted range between 35% and 40% of the recurring net income at 39%. This dividend will be paid in cash. In terms of number of shares, we have reduced the number of shares last year, and it's down to EUR 542 million, and we will continue to act in that direction in 2020. Now in terms of the outlook, the outlook for 2020 will -- is marked by a number of macroeconomic uncertainties, but we will continue to benefit from this attractive positioning that I mentioned and good trends, especially in renovation and in a number of our high-valued solution markets in -- within the industrial market. Now a few words about the coronavirus, which is -- everybody -- which is an important impact. I must stress that for Saint-Gobain, China is -- sometimes has been criticized for not being enough in China. And you know why, in some of our basic business, we consider that China is not, for us, an attractive market. The fact is that Saint-Gobain's sales in China is only 2% -- around 2% of Saint-Gobain. So from that standpoint, we have had in the last weeks, and it is recovering fast at the moment, but we have had an impact, and there will be an impact in Saint-Gobain in China. But the impact on overall Saint-Gobain of what we have seen so far is not material. The -- on the other hand, the spread is -- it's really confirmed of this virus makes the situation more -- globally, more difficult to evaluate. Our -- if I take that out, I would say that our -- we expect for our various markets a continued slowdown in some of our industrial markets with, on the other hand, an easier comparison, I would say, in the automotive sector. And Northern Europe will -- it is the trends are mixed with a slight growth expected in the Nordic, but a more uncertain situation in the U.K., which, when I say uncertain, it could be better, that it's not -- that the Brexit situation is making at the moment a bit more uncertain. Southern Europe, we expect good overall growth, driven by renovation, especially in France, while the new construction should see a moderate slowdown, probably more moderate than what was anticipated 1 or 2 years ago. In the Americas, we should have a good market growth. Benoit mentioned what's going on in the U.S. I think this is going to bear fruit. And we expect a better situation also in Latin America. Asia Pacific, I would say, outside of the issue of the coronavirus impact, we should have had growth. There will be an impact from the coronavirus, especially in the first quarter. Now our priorities, I would say 2 sets of priorities for us this year: one, around the evolution of our strategy; and second, in terms of cash flow and margins. In terms of strategy, we will continue our portfolio optimization, the integration of Continental and further the divestment acquisition, as Benoit has expressed. And we will continue our strategy of differentiation and innovation and to improve customers' productivity to develop sustainable solutions and contribute to the well-being overall. I think they are 3 very strong drivers for Saint-Gobain for the years ahead. Second set of priority, which will allow us, as Sreedhar already said, to increase -- again, after a very good year, to increase our cash flow -- free cash flow for 2020. And we will increase also aligned with our Transform & Grow program the operating margin through a constant focus on price/cost spread, thanks to -- and that's a constant of Saint-Gobain, a strong pricing discipline. The continuation of our cost savings program in the context of Transform & Grow, which will, as Benoit said, bring EUR 80 million more in 2020 with the -- which means, overall, EUR 200 million from -- between 2019 and 2020. We will reduce our CapEx this year after -- by around EUR 200 million after a peak of 2 or 3 years in CapEx, as I have said. We are going to be very strict on maintenance CapEx like Sreedhar said. And we will have -- we'll continue to have good growth CapEx. But we have had, I would say, in a few years where, because of distribution modernization in IT and logistics and some needs in our fast-growing areas in HPS, we have had an investment peak in the last 2, 3 years. So we'll have a decrease. And we are going to be very strict on maintenance CapEx. We will continue our operational excellence, which should -- that we anticipate bring another EUR 300 million of additional cost savings, which is very well needed because of inflation, which is still there, even though in terms of raw material and energy costs, we -- which is covered by price, we should expect less inflation than last year. So in terms of operating profit, we expect in this context a further increase in our operating profit like-for-like because there is an impact of the divestment and there is acquisition. But our guidance is on a like-for-like increase. Like the last few years, we expect an increase in operating income. I have added an uncertainty about the impact of coronavirus. As I told you, as of today, what's going on in China, there is no material impact, but I cannot exclude that there is a much wider impact. We don't know yet. That's what I have added, this uncertainty. But again, Saint-Gobain is globally little affected by this situation as of today. That's the outlook for Saint-Gobain. And now I am with Benoit and Sreedhar at your disposal for any questions you may have.

Yes, we'll start with the room and then we'll go to the Internet and the phone. So in the room, yes? Please, introduce yourself.

Yes. I have 2 questions. One difficult and the best for the end. So, difficult question. If we look at China, it's not only a question of sales, it is maybe also a question of supply chain. Could we have some flavor on supply chain and mainly in the High-Performance Materials? It is relevant. And secondly, looking at the Slides 20 and 17, in terms of pricing, we have a good price increase over the year in America and higher than the other divisions, where comes this difference?

Yes. On the values, I see -- I can describe the situation with, I would say, 3 circles. So first circle is what's going on in China. And as I said, it's a significant drop in the first quarter in sales in China. Our plants have restarted. We have 41 plants in China. There are 38 which are operating. They are not all operating at 100% because, for instance, the construction sites have not started again. So the demand is low, but we have that sometimes when there is a very tough winter, I would say. And I think the situation is improving at the moment in China. So this first part is not, I would say -- the one I described is not -- the impact is not material for Saint-Gobain. It's going to be material when we report the Asia Pacific part, but it will not be material for Saint-Gobain. The second circle, I would say, is the one related to your question, and on -- which is on the supply chain. I remind you that 90% of the products that Saint-Gobain manufacture are sold where they are manufactured. So we are very little involved in those large supply chains. In our industrial markets our customers are sometimes involved in a worldwide supply chain. I must say that, at this point, we have not seen an impact. There may be some, but, frankly, I am not extremely concerned about that. And I must add that, for our local businesses, which are in Europe, we rely very little on goods coming from China. So I would say that the logistics and the supply chain issue for Saint-Gobain, I don't see that as -- there are some uncertainties, but I don't see that as the issue. And then there is a third circle, I would say, is if there is a spread which we are starting to see, but I cannot quantify that, of the -- I would say, the epidemic outside of China. Today, there is things going on in Korea. We have reduced significantly our presence in Korea, so I don't think it's going to be important. But if it becomes something very global, then I cannot quantify and I cannot answer on that question. I think those are the 3 ways. Yes, Benoit, do you want to add something?

Give some -- just to give some numbers of that. If I take all the raw materials that we buy around the world, we have around 1% of raw materials coming from China, and they are not sole source. So that gives you the impact on the fact that our local manufacturing around the world is not going to be impacted if there is a shipment blocked in a port in China. So that's to put some figures on what Pierre-Andre just said.

On pricing, Benoit, you want to...

I can, certainly. Within Americas, you have also Latin America, where there is always higher inflation. So -- but it's true that, in North America, we know that prices move up usually in a wider spectrum than in Europe. And on top of that, you have Latin America where, because of inflation, we have to push prices much higher than in Europe.

Yes. Next question?

Yes. Arnaud Pinatel from On Field Investment Research. Just to understand a little bit better on your guidance on 2020. In H1 2019, if I'm right, your operating profit like-for-like was up 8.3%. For the full year, it's up 4.7%. So it looks like H2 like-for-like operating profit was probably just slightly positive. We have seen an erosion in pricing at the end of the year, as you mentioned. We see your guidance -- or your outlook for the top line being less supportive in 2020. So you are confident to, if I put the coronavirus on the side, you're confident that you can improve on a like-for-like basis your operating profit for 2020? Could you explain to us what is, if I can say, the 1, 2, 3 key drivers behind this confidence for 2020?

Well, first of all, on the second half of 2019, we have had operating profit like-for-like growth. It's slightly less than 2%, and we have had a 30 point -- 30 basis points of increase in margin. So I think we are -- the first element of our confidence for 2020 is the fact that our Transform & Grow initiatives, as Benoit explained, are bearing fruit, and they are going to continue to bear fruit. That's the first point. The second -- so it's cost -- the cost element is quite important. The second element is that you mentioned a decrease in the pricing in the second half versus the first half, but we have also a decrease in the inflation of raw material and energy. And from that standpoint, Sreedhar told you that 2020 we have relatively good news. The last point, if you focus on the fourth quarter, where we had a slowdown in sales, it was very driven by number of days. And the maths are not completely simple on that. We had an extra day in November -- sorry, less days in November. We had an ex -- we had a better December, but in fact, it didn't bring -- in December, the number of days doesn't count the same way. I can tell you that the trends in the -- in our construction markets in the beginning of the year are good. It's still difficult market in industrial activities, but it's good. And I don't see, in terms of sales, the trend that you have from Q3 to Q4 being representative of what's going on. So that's the second element of your question here. Benoit, you want to add?

No. And some markets, like France, like the U.S., which are doing well. So we...

It's very clear. Just on the energy, could you help us to quantify it for 2020?

Yes. So 2020, we expect the gas cost to be lower than 2019. But you just have to keep in mind that electricity is close to 50% of our energy bill, which still we have inflation. So net-net, you should have some inflation, but certainly lower than what we had in 2019.

[indiscernible]

No. The overall energy bill we have is close to 1 point -- around EUR 1.5 billion.

So what do you expect for the decline for 2020? Only EUR 1.5 billion?

So that's what I said. So I...

Sorry.

Okay, I will let...

[indiscernible]

We are not going to give you a precise guide.

I wish. I wish. I wish.

Can you tell me what is the price of the barrel in 6 months?

Based on the spot price.

I can only tell -- there is no point in speculating based on spot price because spot price has no meaning. You know that it's so volatile. I can only tell you that...

Yes, that's right. So you [indiscernible].

Sure. That's why I'm saying, based on what I see, the trend, I'm telling you that the gas price should be lower based on what I see the trend now, okay? But don't forget that the electricity is going to go up. Electricity is going across. And for me, there -- energy bills, 50% of that is electricity.

It will be lower than last year significantly. I am not going to give you a figure at this stage.

Next question. Yes.

Sven Edelfelt, ODDO BHF. Two questions for me. You mentioned last year some positive effect from Transform & Grow on revenue. I'm talking about, probably, market share gain here you are not able to quantify. Are you today able to put a figure on that? That's my first question. The second one is one of my favorites. Pont-à-Mousson, can we have an update on that, please?

No. On revenues, we don't give target because it's difficult to say what is the comparison. What is the basis? The competitors in the market? We -- I gave some examples and we can go into numerous examples where we have high single-digit growth above the market. So if I take in terms of Brazil, overall, we have calculated quite precisely. It's 1.5% above the market. So it's progressively accelerating in many countries, the more synergies besides cost on revenues that we have, putting our businesses together, but it's [ roughly to do ] that kind of range, 1% to 1.5%, when we have all the organization in place and working together. On pipe, as Sreedhar mentioned, we have made good progress in our profitability improvement last year. So we are well on track with the plans that we have outlined and executed over the last 2.5, 3 years. We continue to have discussions on partnership. And at this stage, it's too early to tell you exactly where we stand, but we continue to have those discussions. We should have a better year again in 2020 versus 2019, so we are executing on that, and we continue our discussions on potential partnerships. Next question. So if there are no questions in the room, we go to the telephone first. So we go on the phone.

Okay. So we have by phone a question from Yves Bromehead from Exane BNP Paribas.

Just a few on my side. My first question is on your comments, Benoit, regarding the merger inside of your firm between ISOVER and another subsidiary, I didn't catch the name, but in terms of marketing and management team. So I presume there's still a lot of silos in your product portfolio, which could benefit from merging with larger subsidiaries. So I guess my question is, given how fast you realized your savings in 2019, why haven't you increased your 2021 targets as well?

So the -- sorry, because I gave the brand name in Germany, which is Rigips. This is the brand name of our gypsum business. I should have said it's basically putting together insulation and gypsum, which we have done in many countries. So yes -- no, what we have done last year is to break those silos when it makes sense because it doesn't mean that we should have the same person, salesperson in the ground selling all kinds of products at Saint-Gobain, it would be a mistake. So we do that on a very careful way, more for technical prescription than the day-to-day life on the ground. But clearly, we are developing and pushing also joint offers in terms of marketing. It could be for wood construction. It could be for offsite manufacturing. All kinds of -- it could be also covering the DIY or the things mentioned with the key account management. So all those initiatives are indeed breaking silos on the back-office when we have joint customer service or joint logistics to make our business easier for our customers and also on the offer side on the group. We think what we have identified earlier in the program with 1,000 actions is what we can and we will deliver on the cost side. Again, besides the cost, the main benefit is to accelerate on growth. And clearly, when we are able on façades to put the offer of Saint-Gobain between glass, between gypsum, between insulation, it's a big benefit when you talk to architects and you can land a big façade offer on a complete integrated system. So on the cost side, we don't want -- and we will not do more than that because we think that's the right achievement we can deliver on the back-office synergies. After that, the main benefits of Transform & Grow, and it's accelerating in 2020, will be on growth, developing, cross-selling, upselling of products and joint systems.

And I guess, second question, if I may. I mean, on the deal with Sika that didn't go through up to the end, where do you stand in terms of your strategy with regards to Mortars? Do you still want to become bigger? Because, I guess, that's a big kind of beneficiary for facade systems and for insulation to reach the green deal targets by 2050, for example. So where do you stand on the strategy with Mortars, please?

Well, we have made a number of acquisitions and a number of smaller greenfields in a number of new countries in 2019. And we'll continue to grow this business, which is growing very nicely. But since we have...

But you don't -- you won't do large M&A in the space?

We have done some M&A over the years, small to midsize. We have done, for instance, Southeast Asia, several of them. We bought the leader in Peru, end of last year. We are looking at other projects. We have now 13 plants in Africa, if I'm correct. So we continue to develop the business on construction chemicals and mortar around the world. And as you rightly said, it goes very well with the other businesses of Saint-Gobain when you talk about external insulation and other good applications for CO2 reduction.

So we have another question by phone by Nabil Ahmed from Barclays.

I have 3, actually. The first one on U.S. roofing. Is it fair to assume that you didn't see that much yet into Q4 '19 the deflation in asphalt costs? And therefore, price/cost was probably less positive than it was same time last year and that's potentially something that could improve into the first part of 2020? The second question was on U.S. gypsum in the context of improving housing trends in the U.S. Are you starting to see an upturn in pricing in that market? So I would be interested if you could comment on that. And finally, I had a last question on asbestos. I was wondering if you could put a bit of context behind the actions you have taken and the settlements you have reached. Why now and what are the next steps? When do you expect that Chapter 11 voluntary petition to be final?

So I'll start with the U.S. roofing. Yes, we have seen a better cost position in the second half of last year and accelerating a bit in Q4. So we started to see that, and we don't anticipate anything negative in 2020. So the price/cost spread on roofing should continue to be good and to further improve. We have some ongoing discussions to raise prices also in the U.S. And overall, the dynamic on roofing on this price/cost spread is positive. We assume a reasonable storm year in terms of volumes, but overall, the picture for roofing looks good. On gypsum, the volumes are very strong now. And clearly, what we have seen from September, October, et cetera, on housing starts, we see that in our volumes, both for Saint-Gobain [ certainly ] and Continental right now. So this is a good dynamic in terms of volumes. And indeed, we are pushing prices to the market and I'm confident that those prices would stick.

Coming to asbestos. The context is this is something which is there in Saint-Gobain for last more than 15 years that we have been dealing with this issue. And in the recent past, you would have seen, on an average, we have an impact in our P&L, which is close to EUR 90 million. And this is a cash, which is growing, and this is something which is in U.S. many companies are suffering. And so we had this route of Chapter 11, and this is something which is -- we have seen many corporates taking steps in this direction. And this is something which is a long-drawn process, the whole idea is to be fair and deal with this issue in a fair manner to the people who are genuinely impacted in a more efficient way. So that's the objective of using -- taking this route of Chapter 11. And we'll have to go through this process of negotiating with the concerned agencies. And as and when we arrive at the conclusion, we'll have to create the trust. Now the good news in all this is that, one, is clearly that from 2020 onwards, we are not going to have any impact of asbestos in our P&L for -- specifically for North America. So that's the background to this whole thing.