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

Good morning, everybody. I'm very happy to welcome you in our new auditorium, which is, I think it is the first time we are using it. And I hope -- it can accommodate more people than are present today, but with the progressive improvement of the situation, I hope it will be the case in the future. So we are going to present with Benoit Bazin, our COO; and N. Sreedhar, our CFO, the results for the first half of 2020 and the outlook. I will give you a few highlights, then Benoit will explain to you how we have managed through this crisis. Sreedhar will give more details on the results, and I will come back on the outlook. So you have seen in our press release our main -- the main figures for the first half. So our sales are down 18.1% in actual terms and 12.3% on a like-for-like basis at EUR 17.8 billion. The operating income is halved, minus 49.2% on a like-for-like basis with a 290 basis point base in our operating margin. The EBITDA is decreasing less, 32%, with a 2-point decrease. The recurring net income is positive at EUR 272 million, but down 71%. And a very strong improvement in net debt, which is reduced by EUR 3 billion compared to June last year at EUR 9.8 billion. So the main highlights of the first half, of course, Saint-Gobain has been hit by the pandemic with sales down 12.3% like-for-like. The important thing, though, is the dynamics within the first half and after a low point in end of March and April, and we recovered with a very strong recovery. And June, in fact, is higher than last year, both in sales and in operating profit. Benoit will tell you what have been our priorities in terms of the management of the crisis. I just want to stress one point. I think that our new organization has helped a lot. Being local when you have to manage certain crisis was really very appropriate and it delivered very strong agility. You will see that on the way we reacted on cost, on cash. So I think a good management of the crisis. Overall, our cost savings in the first half amount to nearly EUR 400 million with the different components that Benoit and Sreedhar will explain. Very strong point of this first half is a very significant increase in the cash, which was one of our main focus, through both good management in terms of CapEx and working capital. And I would say, on all elements of cash with a strong conversion rate. We also had a very good link with that, a very good decrease in our debt through the -- which was helped also through M&A. We disposed of the Sika shares. But at the same time, we bought Continental. So the net debt reduced by EUR 3 billion. And I remind that the cash gain of EUR 1.5 billion on the investment in Sika, a significant part has not been -- this gain has not been through the P&L but directly into equity. So now I give the floor to Benoit, who will tell you how we navigated this crisis.

Thank you, Pierre-André. Good morning, everyone. My main message for you to take away is that we have managed the crisis with a very clear set of priorities and towards 1 goal, which is to emerge stronger from the crisis. So 4 priorities: first, protect the health of all our employees; second, preserve our cash; third, act fast on our cost; and fourth, make sure that we position ourselves in a very good position to make the most of the recovery. I think we have executed very well on those 4 priorities, and our teams have demonstrated an exceptional mobilization and commitment. So I feel confident that, going forward, we are in good shape to capture, like we have seen in June, an improvement in sales and profit. Starting on health. From day 1, we have put health as the #1 priority, health and safety for our teams, but also our suppliers and customers coming to our facilities. We'll continue, of course, to do so and focus heavily on health because we know for sure that the COVID virus is still around us for some time. On health, like on many other topics, people, cash, customers, et cetera, our new organization that we have put in place in early 2019 has proven to be extremely solid, extremely reactive in order to overcome the COVID crisis. And to some extent, this COVID crisis was the acid test of the newborn organization. First, because on all local decisions, they were taken locally in real time by our country CEOs that are strongly empowered to take decisions, as you know, on all their relevant local topics. On top of that, of this local setup, we have also managed an excellent international worldwide coordination in order to share and anticipate the experience from 1 country to the other on all kinds of issues, sanitary measures, how we were shutting down, the reopening plans, distribution outlets, supply chain, service, cash, et cetera. So again, our teams have shown an exceptional commitment and solidarity. I don't mention the dozens of examples beyond business in the way we have produced in real-time face sheets, hand sanitizers, masks, also delivered materials and partitions for temporary hospitals and a lot of other very good examples. Second priority on cash, and here also, we have acted very fast on 2 fronts. First, we have launched with Sreedhar, mid-March, a daily cash monitoring by country on top of our ongoing actions to optimize working capital. This has delivered, as we have seen, a very strong and solid impact. We have also reduced our CapEx by 35% in the first half, optimizing maintenance CapEx while we have kept most of our planned growth CapEx, notably on construction industry, faster than productivity solutions in emerging markets, Mexico, India, China, and Life Sciences. By the end of 2020, we should have decreased overall CapEx by more than EUR 500 million versus 2019. All in all, we have delivered, as you have seen, a very strong free cash flow. Second area on cash, we have secured quickly during the crisis, additional financing, and we acted decisively to sell our Sika shares. So thanks to these essential actions on cash, we have strongly reinforced our balance sheet, which is appropriate considering the overall uncertainty that we have been facing since the outbreak of the COVID crisis, and Sreedhar will give you more flavor and figures around all these later on. Third priority on costs. We have been very active with clear-cut actions. And let me describe the 4 areas of actions. First, of course, we have continued our ongoing efforts on world-class manufacturing, where we had an impact of EUR 155 million in H1. As you know, this impact doesn't show up as a net savings in the P&L since they more or less offset salary and other fixed cost inflation. The second area, which you see on the left side of the slide, in order to mitigate the impact of the health crisis during the lockdown period, we have acted with temporary reduction, first, on discretionary expenses, travels, customer marketing events, bringing EUR 65 million of net savings in the first half. We have also used all local employment measures such as partial unemployment or furlough with EUR 95 million of savings in the first half net of the additional extra costs related to the pandemic. Based on the recovery in terms of business that we saw in June, we have exited partial unemployment at the end of the first half. So this EUR 160 million, EUR 65 million plus EUR 95 million of savings have been temporary in H1 during the active phase of the COVID crisis, and we don't expect to repeat them again in the second half. Third area of actions on cost. We have analyzed the businesses that are not going to bounce back soon up to a normal level. This is notably the case for some of our local businesses, such as distribution in the U.K., some of our initial markets within High Performance Solutions, also our Mobility market and its related manufacturing setup. There, we have launched additional measures, structural cost measures, and we'll continue to do so in the second half. These measures will reduce our cost by EUR 50 million in H2 2020, an additional EUR 150 million in 2021, so EUR 200 million in full year savings by 2021. This is not going to be a net profit gain since these businesses will continue to suffer from lower activity, but clearly, our actions will mitigate the profit deterioration of those businesses and lower the breakeven point of these businesses. And fourth area, finally, Transform & Grow savings. Our country and market CEOs took the opportunity to land all their local actions even faster and pushed deeper to overcome the COVID crisis. Therefore, we land EUR 130 million of net savings in 2020, EUR 80 million which has been done already in the first half and additional EUR 50 million in the second half. With that, we'll have delivered our EUR 250 million total Transform & Grow savings that we announced end of 2018 1 year earlier than anticipated. And now we have all our solid and lean organizations in place everywhere. Remember that the organization, the synergies were the first pillar of Transform & Grow. The second pillar is making sure that we optimize the group portfolio of Saint-Gobain. On divestitures, we are committed to continue beyond the EUR 3.3 billion of turnover divested in 2019. Because of the crisis, we have put, however, on hold some of the things we were doing at the beginning of the year. And depending on the evolution of the different markets, we'll progressively resume our actions and continue optimizing our portfolio when conditions permit. One word on the right side of the chart, on the integration of acquisitions, particularly the big one, Continental Building Products, I'm very happy to say that our U.S. teams have done a very good job, even during the crisis, to continue to push fast on integration despite, again, all the sensory situation. It's going very well on many fronts. Remember that I told you, end of February, that the teams were already in place. We have acted fast on SG&A with some restructuring, on purchasing savings also. All that is progressing very well. The brand transition is happening as we speak right now. IT integration is planned for the end of the year. So all this is progressing very well. And on top of that, we have, as we speak, very strong volumes right now. So we'll get at least EUR 15 million, 1-5, of synergies in 2020. We had roughly EUR 3 million in the first half, and additional EUR 12 million in the second half. Better than planned. We announced EUR 10 million -- more than EUR 10 million in February. We'll get EUR 15 million in 2020, and we are very confident that we'll create value by year 3 as planned. First priority, making sure that we make the most of the recovery. First, by accelerating on digital. If I take, for instance, our platform business, distribution business in France, we have a full omnichannel solution with, of course, online ordering for our customers, but also we have put in place very quickly SMS interaction with salespeople via Instaply, also online real-time payment with Patrick. And after a huge peak in April and May, almost 10x what we had before, digital sales in our French distribution business in June is 2x higher -- we can say that June is a normal month, it's 2x higher than what was the case in June 2019 as a percentage of sales. So I take another example in our Danish distribution business. We have very quickly put in place a self-scan application, allowing our customers to scan their products and leave the store without interaction with our staff. So digital clearly accelerating and helping us in our business. And second, making sure that we have preserved our skills, our people, and we have to make sure that we have also this local proximity with all our customers, delivering excellent customer service. One example on the chart, which shows the kind of consistent performance over the market that some of our distribution networks have delivered in France, gaining share month after month and gaining a lot of new customers. So as a conclusion on this part, how we manage the crisis. I can tell you that we have done in a very tight way with a small set of priorities the 4 I mentioned, being very agile, being very decisive, also to adapt ourselves to a very fast local, changing environment, sometimes by the day, by the hour or by the week. So thanks to all this, we have delivered sales and profit growth versus June '19 and June '20, and this bodes well for our short-term and midterm perspective that Pierre-André will present to you later on. Thank you. And I'm now leaving the floor to Sreedhar, who will drive you through all our results.

Thank you, Benoit. Good morning, everyone. Let me give you some more details about our results of H1 2020. So starting with the sales bridge, sales decreased 18.1% as reported and by 12.3% like-for-like. The like-for-like decline was driven by the weaker Q2 volumes as a result of coronavirus pandemic. We saw a negative exchange rate impact, coming mainly from the depreciation of Nordic krona, the Brazilian real and other emerging country-related currencies. The structure impact was negative due to the divestments we made as part of the Transform & Grow initiative in 2019, partly offset by the acquisition of Continental, which was integrated in February 2020. If you look at this breakup of volume and price. Here, we can see how, after a very good start to the year in January and February, Q2 volumes were hit as we saw the effects of the pandemic spread beyond China to the rest of the world from March with a very different trends by country and market. Like-for-like sales hit a low in April at around 60% level, but improved sharply in June, up 3.7%, also benefiting from 2 additional working days. For Q2 as a whole, there was no calendar effect. Prices held up, up 0.4% in H1 in a slightly deflationary environment. By and large, we were able to hold on to our price levels. Looking at operating income. There's a sharp decrease in volumes, as you know, in Q2. Usually, the most important quarter for the first half led to a like-for-like decrease of 49.2% in operating income. The operating margin has decreased by 2.9%. However, 3/4 of the group activity resisted well with a very limited impact on the margin decrease. The main drop came from the U.K., Mobility, certain industrial markets and float glass operations which serve the automotive market. Overall, we had a positive price/cost spread with around EUR 50 million net benefit. Now let me give you some more details about EUR 395 million savings in the first half, which Pierre-André and Benoit mentioned. So we have the onetime discretionary savings related to the pandemic of EUR 160 million. Then we have the additional savings of Transform & Grow, which is EUR 80 million in the first half, EUR 80 million in the first half, which will be a recurring net savings. And the savings of EUR 155 million from our usual operational excellence program that enabled us to offset the salary and fixed cost inflation. So here, you see business income and EBITDA. So we have recorded business loss of EUR 49 million, resulting from the lower operating income and also the asset write-downs. This asset write-down consisted mainly of EUR 581 million write-down of intangible assets in the U.K. distribution business. Due to the tougher environment post coronavirus and ahead of Brexit, we have launched several cost reduction initiatives, including shutting down the least profitable outlets. EBITDA decreased less than the operating income with stable depreciation and lower nonoperating costs. Remember, that we no longer have the EUR 45 million impact of U.S. as the source, which we had in June 2019 first half results. Coming to the recurring income. You see here the details. You have the net financial expense, excluding Sika dividend, was slightly lower compared to the last year, and the average cost of borrowing came down to 2% and the recurring net income was down by 71%. So now coming to the free cash flow generation. Free cash flow is up 143% in spite of the drop in EBITDA, and the conversion ratio is up to 129% from 33%, which we had last year in June. Cash has come -- become a clear priority for all the country CEOs. During the last 3 months, the daily cash in, cash out was reviewed, and we see its impact on the working capital management. This is where our effort on cash throughout the organization is really paying off. In addition to the good working capital management, please remember, there is also an impact from the lower activity level in the last quarter. It was also helped by lower maintenance CapEx. We had already planned to reduce the overall CapEx spend for 2020. And once the pandemic hit, we increased the reduction target to more than EUR 500 million for the year. So finally, turning to the net debt. We have seen a significant decrease in our net debt with a reduction of EUR 3 billion compared to the end of June last year. This is mainly due to the proceeds of divestments, net of acquisitions for around EUR 1.5 billion, along with the reduction in working capital requirements and capital expenditure. Overall, our balance sheet and credit metrics remain very strong. Now let me get into the details of results by reporting segment. Starting with High Performance Solutions, like-for-like sales in High Performance Solutions fell 18% over the first half, with a sharp reduction in April and May before a gradual improvement in June. Mobility was particularly hard hit, as you can see from the figures here, even though we continue to outperform our market. In Q2, Mobility sales were down nearly half, particularly in Europe, with only China seeing growth. However, things are improving, and June saw activity at around 85% as compared to last year's level. Industrial markets were hit by the wider slowdown. But Construction Industries held up better, and Life Sciences continue to see growth. The operating margin for the segment decreased to 7.4%, again, hit by the lower Q2 volumes, especially in the automotive market. Now Northern Europe. Like-for-like sales in Northern Europe fell 8% over the first half with a steep decline in the U.K. in Q2. However, June saw a clear improvement with the sales up 5% like-for-like for the region. The Nordics showed growth over the first half, especially in the distribution where we gained market share, thanks to our strong digital investments and logistics capabilities following the past investments we did. Sales were even up in Q2 and saw a strong June supported by a strong renovation market. Germany and Eastern Europe held up relatively well over the first half, despite a greater impact in volumes and prices, in Q2 in the floor glass plant, which were affected by the reduced capacity utilization linked to the low volumes in the automotive market. The U.K. saw, by far, the most significant impact, and its sales were nearly divided by 2 in Q2. All operations were at virtually standstill throughout April before restarting slowly in May and progressively improving in June. Despite a positive spread -- price/cost spread in the region, the operating margin decreased for the region only due to the U.K., otherwise, the margin would have, in fact, increased for the region. Coming to the Southern Europe, you have the like-for-like sales decreased 16% over the first half with a good start to the year but a steep decrease in Q2. However, June sales were up 7% like-for-like. The recovery was driven by France, which improved sharply towards the end of the period. After coming to a very low point at end of March, trading was 50% mid-April, more than 80% in May and virtually back to normal levels in June at the comparable number of working days. Distribution benefited from the past investments in digital and from the good momentum in the renovation market. And we see, clearly, energy efficiency solutions coming back to growth. Spain, Italy, the Middle East and Africa also improved in June after being hit harder than the average of the region earlier in Q2 by the strict lockdown measures. Showing how different things can be by country, first half tradings in Netherlands was relatively unaffected by coronavirus pandemic. The operating margin for the region decreased to 1.7%, and this was due to the volume decreases in most countries for several weeks in Q2, which usually the most important quarter for the first half profits, despite a positive cost/price spread. Now Americas. Despite a good start to the year, like-for-like sales in the Americas decreased 6.5% in June, with the region up 7.7% like-for-like. North America sales were pulled lower by volumes and lockdown measures in certain states in April, which impacted trading. However, the sales improved in June driven by exterior solutions and gypsums, which delivered double-digit growth volume, helped by the sustainable good successful integration of Continental. Latin America was hit by several disrupted construction markets in March and April, generally prevented the construction industry from operating. Sales hit a low of 40% mid-April, but rebounded strongly with growth in June. Brazil continued to outperform the market, thanks to the sales synergies linked to the new organization, which is by channel, particularly, gypsum, which actually reported a double-digit growth in first half. The Americas' operating margin decreased 7.1%, hit by the tough trading environment in Latin America. North America, in fact, reported an increase in its operating margin, again, like-for-like, driven by productivity improvements and a positive price/cost spread. So Asia Pacific sales fell 17.5% like-for-like in H1 and saw a progressive improvement in June with a double-digit growth in China. Stabilization in Southeast Asia and relatively a smaller decrease in India. China growth in Q2 was particular driven by gypsum with our new plaster plant opened last year now running at full capacity. After a good start to the year, India has been severely hit by strict lockdown measures, which continue to be present in many states. In June, trading was at around 70% of 2019 levels with a clear week-on-week improvements and market share gains. The situation in other Asian countries varies by country. Disruptions were very limited in Japan, but more importantly, in Thailand, for example. And then Vietnam reported above-market growth, thanks to the success of our local strategy. The operating margin for the region decreased 7%, affected by the sharp downward in India in Q2. And excluding India, the margin would have, in fact, increased significantly. So in a nutshell, even though the first half results were impacted by COVID, recent trends are encouraging. You saw Saint-Gobain taking decisive steps to adjust the cost structure wherever necessary. There is a strong focus on cash and also the commitment to keep the balance sheet strong. And we are clearly prepared to bounce back very strongly. Now I hand over the floor to Pierre-André, who will talk about the outlook.

Thank you, Sreedhar. Talking about the outlook in such a volatile environment is not easy. I would distinguish 3 time horizons. The first one where we have some good visibility, I would say, is the third quarter, where I am -- I think we'll have a good third quarter. I can tell you that the trading in July is very good, is above the trend that we have seen in June. And we have good visibility for the months of August and relatively for the month of September. But the fourth quarter, we are still -- there are still uncertainties, both from sanitary standpoint and its impact on the -- or not impact on the economy. At the moment, I would say that when I look at what's going on in Brazil, where we had a very strong June, there is a disconnect between sanitary situation and economic situation. Is this going to continue through the summer? Today, we -- it's -- we don't know. So -- and also the impact of the macroeconomic situation globally on our sector. So if I combine those horizons, it means that for the second half, we anticipate a very significant improvement on the first half, but it's difficult to quantify the magnitude of this improvement. The third horizon, which is, I would say, the world -- when we get out of this crisis, the world post COVID, I think, is very favorable to Saint-Gobain. I think the Saint-Gobain growth profile post COVID will be better than the Saint-Gobain pre-COVID. If I look -- why? If I look at the trends that are going on and how I see the world after COVID, I would say, this world will be more local, more digital and more sustainable. And the strategy and the access of direction of Saint-Gobain that preexisted is going to be favored by those trends. So more local. More than 80% of our businesses is local, and we are extremely immune from sophisticated and fragile worldwide supply chains. So -- and our organization has reacted very well. So I think we are going to be in a world which will be more local. For Saint-Gobain, it is an environment in which we will feel very well. More digital, this trend existed before. But I think in the construction world, the trends of digital have been lower than in other worlds. They have accelerated. And we have, in the area of e-commerce, for instance, Benoit mentioned that. But it's interesting to see that they are accelerating, that they will not be only digital sales. I would like to come back to example that Benoit said. If you take the -- our platform sales, they are back to 10%, they were at 5%, and they went to 75% or 90%. So you can see both ways. First, we -- it's not going to be online. And I think that's very well fitted to our model where our customers want to have physical contacts in our stores. But on the other end, it will be omnichannel and the digital will play a role, and we have double. If I look at what's happening with our employees, I think -- and the relation with our customers in many fronts, whether it is training, whether -- many example, I think this crisis has made us, because we have the tools ready and we invested a lot in that before, making 3 months of progress we would have made in 3 years -- 2 or 3 years. So a big step because of digital. And this is -- we are well prepared and ahead of the game and that's in our sector. The third point, of course, is, I think, the post-COVID world will be more sustainable. During this crisis, public opinion and governments have made a strong link between health, well-being and protection of the planet. And I think this is going to stay. The recovery plan, which are launched, especially in Europe, but not only in Europe, I think, in the future, will be based on an acceleration on the energy transition. And providing sustainable solutions is at the core of the business model of Saint-Gobain as well as having sustainable operations. And this is encompassed in our CSR road map where you can see here that we monitor a number of KPIs in many direction, there are just a few here, which has allowed us to get a number of awards, and I think have a leadership position in the way the specialist agencies look at us. There is one, I will just mention one, but you see some of them on the right, which I am very proud that we are on the CDP A List. Just to mention a few items. Business ethics is, of course, at the -- and compliance, which is expected from our -- all our stakeholders is very, very strong in Saint-Gobain. Health and safety, where we have, in the last 10 years, we have reduced by a factor 3.5 our incident rate, and we have -- are achieving a good level in 2019, and we are still going to continue to improve. We have launched last September a program overall for Saint-Gobain employees, a care program, which provides a floor in terms of all benefits, climate change, of course, and circular economies, which are very much linked, where we are working out at the moment to establish a road map to the 2050 agenda to be net 0 carbon that we committed last fall. There is a huge enthusiasm within the Saint-Gobain employees on this agenda. And we don't start from scratch. You see that from -- if I take absolute reduction of emission, we have reduced 40% in the last 10 years, and 14%, if we look at the constant level of production. So we are on our way for 2025, but we will establish other objectives to put us in the good way to 2050. And also we have, in terms of inclusion and diversity, very strong programs that we continue to strengthen every year. Sustainability is also at the heart of the solution that we offer. Around 60% of the solutions that Saint-Gobain is putting on the market are contributing to CO2 emission. And our biggest market is renovation. And renovation, when it happens more and more, and I think it will be even more the case in the future, will have an improvement on the energy efficiency of the buildings. We -- our -- if I look, Mobility, our growth is fueled, and we outperformed the market, it grows on the fact that we are delivering solutions, which go with the electrical vehicle and -- where we play an important role. You see a few examples on this slide of some new launches that -- of products that have a clear impact when they are put in place by our customers. Now if I -- I want to drill down a little bit to what's going on presently, especially in Europe, the recovery plan, which are being designed are emphasizing very strongly in Europe what they call a green deal, but it will encompass renovation wave in September, where they will be given in many countries like France are -- they are developing programs based on a significant improvement on energy renovation. The money at stake is very significant. And the growth rate it will imply for Saint-Gobain is quite important. And it's an obvious topic in terms for governments. It's local job creation, and it's improvement on the energy -- the energy consumption of the country, and it helps the country to go in the direction of their objectives in terms of climate change. So a lot of money is going to help then, and I think it will foster very significant energy renovation. And Saint-Gobain is uniquely positioned to get the benefits from that. If I take just the European Union, we have EUR 10 billion of sales which are linked with this topic. And I give you -- I show you here an example of -- in France of a building. And you see that with our different brands and product solutions, we cover most of the items which are needed to have -- and solutions which are needed to have a renovation given very good performance from an energy standpoint. So I think -- and Saint-Gobain is unique from that standpoint. And I think we are going to demonstrate in the next few years our strength from that standpoint. So if I wrap up our priorities for the rest of the year. First, continue to ensure the health and safety of all in a health environment which remains uncertain. Second, based on what Benoit told you, we are going to continue to implement our adaptation measures and continue our focus on free cash flow, attention to price/cost spread in an environment which is, in terms of the cost, more favorable, acceleration of the cost savings and the realization of our objectives in terms of CapEx. The third priority is to have a very strong balance sheet. It has improved significantly. But based on the situation at the end of June and the outlook that we see, especially for the third quarter, we have -- the Board has decided that we anticipate our medium-term objective to get to 530 million shares, and we will do that by the end of this year. And fourth, as fourth opportunity, of course, to position ourselves in the best manner to take advantage of this recovery program that are going to be launched. And I think they are going to be significant. In France, it will be announced in September, but I have very good confidence, and I've been working on these topics, that we will have good measures being taken. And we are constantly looking at strengthening our portfolio of solutions, which help us to improve the energy consumption of building. So I think we have, coming out of this crisis, the prospects for Saint-Gobain in the medium term are in force, and we will improve our growth profile. That's the message of this first half results and outlook. And now with Benoit and Sreedhar, I'm at your disposal for any questions you may have. Thank you.

Wait. I think you have to -- if you don't mind. The microphone is not going to you, you have to go to the mic.

I'm very happy to see you again. I have 2 questions mainly. First, a commercial question in your current organization. The construction products are in majority sold to the distribution in-house or to competitors through Saint-Gobain milling distribution. Do you try maybe to increase the share of the construction product directly sold to contractors maybe? First question. Secondly, if we look at the presentation, we have the collapse of the distribution margin over the first half. Is that due only to U.K.? Can we have more flavor to split maybe between France, U.K. and the Nordics? And maybe a follow-up question on distribution. Where do we stand with the logistic improvement in Norway, Nordics and also in France? Many thanks.

Benoit?

Yes, I can take those questions. No, we don't favor. As you know, we have arm's length relationship between our distribution network and our manufacturing of construction products. So we have a lot of big change in terms of market knowledge, in terms of marketing actions, et cetera, but we continue to be independent. And now depending on the situations on the job sites, you could have a bit more direct. You could have some movements in the routes to market, but there is no major move. And we don't -- we play with what the customers ask. So our distribution business has been extremely efficient during the lockdown. Our platform remained open all the time. So it's got a good way to market. When some of the big job sites were closed, the small craftsmen from the small job sites, they were buying in a platform which were delivered by our Construction Products business. So there is no big move in terms of route to market, and we continue to be arm's length. Second, on the distribution margin. The good news is that we have improved our margins in the Nordics throughout the first half. Our margins is up in France. When you exclude the month of mid-March to mid-April because when work shutdown, the margin cannot improve. But if you exclude the short-term impact, we improved our margin in France. So the main reason behind the negative impact of the margin is one, the short-term stop, I would say, in France, when you shut down for some days and you are just in 20%, 25% activity, you cannot improve the margin. And the U.K., because in the U.K., it's the more severe lockdown we have seen around the world where, not only there was a total lockdown, but you have to be on essential activity, even the craftsman, in order to work. The difference of France where all the job site, the small job site of renovation were open. In the U.K., if the small job sites were not related to essential activity for hospitals, for prisons, you could not work. So the impact in the U.K., as Sreedhar said, has been half of the sales altogether in Q2, which is 2x, 3x more than what we have seen in any country around the world. And therefore, the vast majority of the margin drop is clearly in the U.K. because in the Nordics, we are up. And in France, excluding the peak of the sanitary crisis, we are up again. And third, the question was on the pair that we saw? No, sorry.

On logistics.

On logistics, yes. Because logistics in the Nordics we continue to invest. And we have a very, very strong setup in the Nordics on logistics. Same in France. We have invested a lot over the years in France. We have a very good setup. In the Nordics, we are well placed with division centers in Norway, in Denmark, in Finland. We continue to expand that. We have best-in-class service, which allowed us, I think, to gain market share during the company. And on top of that, as I said, we have invested a lot in digital. We have some self-scan tool so that you don't have any physical interaction. It's helpful at the time of lockdown. So the Nordic distribution has a very good setup, both in terms of distribution center, digital, network of -- and we continue to make some small add-on acquisitions in distribution in the Nordics.

Over in Latvia?

Sorry. Latvia, there was a severe lockdown because it was B2C activities. So for 6 weeks, we decided to close the Latvia store. We have a huge ramp-up of Latvia orders in the last 8 weeks, well above last year. And we may actually be on par with last year, end of July. So catch up in June and July what we have lost for 8 weeks between mid-March and mid-May. So there is a very strong catch up, which means that people, they have been confined. They have even spent their money on restaurants, on concerts or travel. And they spent to renovate residential. They have worked on home office, maybe they have realized that their home office is not fantastic in terms of acoustic, in terms of place, and people are spending a lot on residential in the U.S. and in France. So Latvia is benefiting from that. And also we might, depending on the market conditions, continue to make progress on the strategic evolution of Latvia in the second half.

[indiscernible]

Interesting enough, it's too early to know. It's too early to know. But interesting enough, we might be on the profit side, end of July, on par with the end of July last year on Latvia. So offsetting the 8 weeks of lockdown. So the next question is from is Yves Bromehead on the phone.

Hopefully, you can hear me. I have a few questions. I'll take them one by one. My first question is on free cash flow. You published a EUR 1 billion increase with a significant reduction in working capital, which, given the seasonality of working cap, is quite extraordinary. So as you mentioned in your outlook, as trends are recovering, should we expect quite the opposite in H2 and maybe you're building some working capital needs, leading to a non-float in H2. So just some color on what to expect here would be really useful. And then I'll take my next question after that.

Sreedhar, do you want to answer that?

Yes. Yes. So the working capital, you're right that we have a seasonality impact. So we -- if you just take the numbers, we have EUR 1.1 billion improvement in working capital. And out of that, EUR 400 million is coming out of inventory management. And the rest is between the receivables and payables. So in theory, again, I'm saying in theory because it's not -- it's a very particular situation we are going through. In theory, normally, the receivables and payables are directly linked to the activity. And then you have working capital of -- anything to do with the inventory management is really the management's effort, management's focus. And I would consider that it is -- clearly, it's a discipline that should continue to be there. There is also one element, because the June was significantly a good month for us, so there will also be some impact of that in the inventory. But overall, in the free cash flow, I would again, insist that there is a strong focus. You have seen that consistently in the last 18 months, we have delivered consistent improvement. I don't see any reason why this focus will get diluted in the second half. So the focus will be there. The discipline will be there. As I mentioned, during the crisis, the country CEOs look at cash on a daily basis. So the cash review, cash focus has become part of the DNA on a day-to-day basis, day-to-day operation. So I remain confident in terms of focus on cash flow.

My second question is on pricing. In Q2 2020, if we look at the pricing in the High Performance Solutions division, it has deteriorated. Could you comment on what you're seeing here? And if you could split this between HPM and Auto glass, that would be really helpful.

All right. So yes, pricing has been certainly tough in automotive building mobility segment. Otherwise, industrial segments could hold on the prices. Life science continues to remain in good shape. So it's -- the impact is coming mainly from the mobility part of the High Performance Solutions.

Okay. And my last question is on the 530 million share count at the end of the year, which is about EUR 400 million of buyback at today's price. I just wanted to reflect on that. You mentioned before in Q1 that you would update the market on shareholder region policy. Is this one of them? Can there be more? Any color on that would be really appreciated.

What we -- the objective we have is for this year. So we said we would review our shareholder return policy in November. Given the situation on June, we have anticipated that.

So just so I understand correctly. This is the shareholder return update? Or can there be another one again in November on, for example, dividends?

In November, we will update on our dividend policy.

Next question from Sven Edelfelt from ODDO BHF.

I understood most of the craft men want to work in August. So given the good dynamic going into Q3, shouldn't we expect a double-digit growth in volume in construction activity for this quarter, for Q3? Is it, in your view, realistic? That's the first question. And the second one, can we have an update on the [indiscernible]? I believe you're going into a legal reorganization on a regional basis. Does that mean existing is no longer an option on your planning, a break up-sell?

So I will answer the first one. Yes, as you heard me, I think we are going to have a good third quarter, and I am not able to give you a precise figure yet for the month of August. I just want to say on your comment that August is usually a low month. So we expect to have a much better August than usual. But August -- well, in Southern Europe, in Northern Europe, the low months is June and July. And July, in northern Europe, has been quite good. So yes, we are going to have a good summer. And I would not -- I mean, I will not quantify more, but I think it's going to be a good summer. On the pipe activity, Benoit?

And August is a bit of a French story historically.

In Southern Europe.

In Southern Europe. We have reorganized our teams to make sure that we have teams ready to serve customers in August. On pipe, there's no reorganization we have done to have Asia, Latin America, Europe and also [indiscernible] businesses separate legally, it's something we wanted to do to have clarity on the profitability and the management entities of each of those different sections. So it's an internal reorganization of pipe. There is not much to read beyond that.

Next question from Robert Gardiner from Davy.

Just 2 for me. Just wondering, one, on your additional cost savings, the EUR 200 million. I'm just wondering what kind of longer-term assumptions you're making in both places like U.K. distribution? And if the measures you're taking in mobility and other industrial businesses, the capacity closures or what part is there? And you mentioned as well, a number of benefits you had in H1 from kind of temporary savings, government schemes. I'm just wondering, to what extent will you unwind in H2, including tax deferrals, for example?

Benoit?

No -- if I take for instance, the mobility market, you can read a lot of different assumptions, whether it's going to come back to 90%. It varies by geography. And clearly, we don't expect that to come back 200% in the next 12 to 18 months. What we are doing concerning this market is to accelerate our positioning on electrical vehicles, where we have a kind of double-digit, strong double-digit growth. But clearly, we don't expect to come back to 100% on mobility anytime soon. In the U.K., there is still this uncertainty on the Brexit. We think that some of the nonresidential investment in the U.K. could be delayed. So we don't take for granted that we are going to come back to 100%, but a bit below that, could be in the single-digit below that in the next 12 to 18 months. And then on the temporary savings, as I said, we exited the partial unemployment measures, exceptional measures that we have put in place end of June. So we don't expect to capture that going forward. Now on discretionary expenses, if I take just travel by [ division ], we are not going to travel extensively in the second half. So there might be a bit of that again in the second half. But so far, it's not the same magnitude of what we have seen, for sure, in the first half. And there is no tax deferral or things like that. We have paid all that on time, and we didn't capture those kind of additional extra benefits. So it was cost savings based on unemployment or internal expenses that we have delayed.

Next question from Josep Pujal from Kepler Cheuvreux.

I have 2 questions, please. The first one is a follow-up for Sreedhar on the working capital, please. Are you suggesting that by the end of the year, given that inventory is something that you manage yourself, that it will be the working capital positive, a positive change? Also, if on that, you could give, please, the days of sales that the working capital or inventory, what you prefer, represented in at the end of H1 2020 compared to H1 2019. It's good for us to see these figures. And my second question is on this renovation in the stimulus packages, around energy efficiency and so on. Do you think that it's different this time, that it's more powerful than ever? Or it's something that has been quite regular in the past in a lot of countries? And if yes -- sorry, if yes, are you, I would say, happy with your portfolio? Or would you like to reinforce in some areas, or go to new areas, I don't know, you talk also about digital and that electrification will also be a trend, an important trend there.

So Sreedhar answers the first question, and I will answer the second.

Yes. Josep, the focus on working capital will remain. And again, I say that I'm very confident that the fact that the country CEOs are looking at it on a daily basis, there is a lot of focus, rigor, and it's happening at the grassroot level. It has -- it gives you a lot of confidence that the working capital is being managed. Now coming to your question on what is the number of days. If you just look at the end of June, it's not the right reference because we are talking of 9 days improvement, which just means no -- because you are talking at a different volume level and there is -- so I don't want to even claim that these 8 days is -- or 9 days of improvement is something which is going to sustain. That's why I said that you have to keep that in mind in your working capital, that the part of inventory, which is EUR 400 million improvement, and that's something we should see improvement, and not again, the EUR 400 million in the same sense because there is also some impact of the June sales, which was very good. So I expect inventory should be certainly better. I mean the least I would expect at the end of the year is the number of -- number of days, we should see at least in line with the last year and/or maybe better than that. I mean I don't see any reason why there should be any deterioration in working capital in number of days even at the end of the year.

Concerning the programs on renovation, I think that if you look at the programs that have existed in the past, there was, and successfully so, a lot of focus on new buildings. And I think in Europe, we have had, in the last 10 years, coming from Brussels and then implemented in the various countries, a big improvement which has on the way buildings, new buildings are done. In terms of renovation, we have had much less emphasis. So I think there is a very strong new focus, and it's different from what has happened. That's the first point. The second point is that -- and for Saint-Gobain, more than 50% of our -- I say, around 50% of our sales are in renovation. So it's a much bigger part. The second point is I think that the climate issue, which was not present the same way, I would say, 10 years ago. It was more reducing the energy spend, which is still a very important element. But I think contributing to the CO2 reduction is going to be seen by many consumers as something which are interested to do. When I look at the young generation, they are very interested in these topics, and they want to give a contribution. So I think that this -- if there are subsidies or help, the number of renovation which are going to be implemented will be more significant. The impact will be more significant compared to the amount of public money than it was before. The third point I want to make is that we are focusing a lot on Europe on that because that's where the announcements have been the most visible. But I would say that despite what's going on at the federal level in the U.S., the U.S. is -- there are a lot of local states, government cities which are implementing programs in that area. So I think this topic is going to be important also in the U.S. where we have, at the moment, a good dynamic. So I think it's really going to be a powerful engine of growth for Saint-Gobain in the next few years.

And -- sorry, and changing your portfolio, [indiscernible] benefit?

Sorry, you don't understand the last point. Yes, you have seen on the slide presented that in France. But in France, we have also a very strong distribution. We cover a lot of things, either through manufacturing and distribution, and our distribution activities is also a good way to see what are the areas where we could also be interested in terms of materials. So yes, we are looking -- we are constantly looking at optimizing our portfolio. I think one topic, as you know, we have an interest in construction chemicals. We have also been interested in -- I think there's a growing theme that we see is driving a big growth in our distribution in sanitary, planting and eating, is the air quality. And so -- and another trend which is growing is -- and it is driven by, also by the efficiency and the circular economy to be more efficient with the material is the offsite manufacturing, which is also helping to address one of the issues that we have had in our sector from our customer standpoint, which is the labor, which was not always available. I think with this crisis, it's going to be less of a problem. And I think it's important also, and governments are working on that to make this sector more attractive from a -- because there is a need too in that area. But I think also to address the shortfalls in skills and to be more efficient also in terms of resource, use of resources. Offsite manufacturing is growing, and we are -- it's different country by country, but we are also looking at it. All that is maybe a small move to complement our portfolio in that direction. We've done that in the U.K. 2 years ago, and we have other ideas in this direction.

Next question from Arnaud Lehmann from Bank of America.

I have 3 questions, if I may. Firstly, maybe for Pierre-André. What's your view of the outlook for housing and commercial industrial construction for Europe and the U.S.? I guess, in the medium term, there's a view that maybe housing is recovering nicely, but potentially nonresidential construction has downside risk into 2021. So what's your view of this? Secondly, maybe a word on Asia Pacific. I think you mentioned that it was still down in June, driven by India, I believe. Could you give us a bit of color on that? And when you would expect the Asia Pacific regions to be back to growth, if possible, maybe by the end of the year? And lastly, regarding your cash position, I think you have about EUR 7 billion of cash in the balance sheet at the end of June, which is obviously very comfortable. But it is now meaningfully higher than your kind of usual cash position of EUR 3 billion to EUR 5 billion. I guess, maybe some buybacks are possible this year. But what would you expect to do with the cash once the business conditions normalize?