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

Thank you. Good evening, everybody. I hope that you have received our press release and that you have been able to go through the highlights. Let me sum up our 9-month sales performance. The consolidated sales for the first 9 months were EUR 27.891 billion, including a negative group structure impact and currency impact. In fact, when you look at the like-for-like, we saw a significant improvement in Q3 with like-for-like sales up 3.2% after the minus 12.3% in H1, which helped to limit the 9-month decrease to 7.2% like-for-like. Both volume and prices improved in Q3, with volumes up 2.3% and prices up 0.9%, which is a significant improvement over the first half, especially in a continued deflationary cost environment. I now hand over to Sreedhar, who will give you additional information about our 9-month sales, including by segment.

Thank you, Pierre Andre, and good evening to everyone. Let me give you more details about our sales for Q3. As Pierre-André said, Q3 sales increased 3.2% like-for-like, returning to normal levels in most countries in the quarter. The currency impact was negative 3.7% for the quarter, mainly driven by the weaknesses of the Brazilian real, U.S. dollar, Norwegian krone and other emerging market currencies. The structural impact was negative 5.7% for the quarter. As a result of the divestments linked to Transform & Grow Initiative, and also includes the integration of acquisitions, in particular, Continental Building Products for -- from February 2020. Now coming back to the like-for-like growth, pricing strengthened to 0.9% in Q3, thanks to the recent price increases despite the continued deflationary environment for industrial businesses, we expect an ongoing positive price/cost spread for the rest of the year. Volumes increased 2.3% in Q3 as we recovered from the impacts of pandemic. I will now give you some more details by segment. High Performance Solutions, like-for-like sales recovered well in the third quarter from Q2, while still remaining negative at 4.6%. Mobility saw a moderate decline in Q3, rebounding sharply on Q2. Europe remains significantly down, but sales to China and North America rose sharply. We continue to outperform the market in mobility in Q3, with sales down 3.3% like-for-like. This is once again driven by our increasing exposure to high value-added products and especially electric vehicles gaining share. Industries saw a marked fall in sales in Q3, but nevertheless, a clear improvement from Q2. In the context of the coronavirus crisis, the slowdown in our customers' investment cycle is particularly impacting related activities, with a negative mix impact for the High Performance Solutions segment. Construction Industries held up well and Life Sciences continue to enjoy good growth. Turning now to the Northern Europe. Like-for-like sales were essentially flat over the quarter and virtually back to the normal for the region as a whole. Nordic countries were up slightly in Q3 as they were already at the end of June, driven by distribution which continued to increase its market share and was supported by a strong exposure to the renovation market, whereas the new construction was less dynamic. The U.K. improved with sales almost flat in Q3 after a very difficult Q2. We saw some catch-up effect with a good month of September, but also a good performance from distribution, which is up in Q3, where our adaptation measures are already bearing fruit. However, the situation remains fragile ahead of Brexit. Germany decreased slightly in Q3, still impacted by the spillover impact of the automotive market, but with the construction market back to 2019 levels. Now coming to the Southern Europe, like-for-like sales showed a clear upturn in Q3. France drove this positive momentum, thanks to the energy-efficient solutions, and our strong position in distribution, benefiting from a supportive renovation market on small and midsized jobs on top of a catch up effect. Regarding the Americas, sales grew double-digit in Q3, up 11.4% like-for-like. North America saw strong growth with like-for-like sales up 5.3% in Q3, driven by volumes in Exterior solutions and Gypsum. The pricing environment was better, and overall, prices were slightly up. The integration of Continental continues to go very well, and we are on track to reach over $15 million of synergy for 2020. Latin America grew strongly over Q3, up 25%, driven by both volumes and prices, a strong rebound from Q2 and also catch up effect. Brazil continued to benefit from sales synergies as part of our Transform & Growth Reorganization, which enabled it to once again grow faster than the underlying market. We see that across our construction solutions, whether it is on facades, combining gypsum and glass, on interior solutions with sealing and insulation or on other construction chemical applications, et cetera. Lastly, our Asia Pacific region saw like-for-like sales down 3.6% in Q3, but is seeing improvement month after month and returned to growth in September. The pricing situation remains competitive in the region. China continued to show growth, up double-digit in Q3, driven by Gypsum, which continued to take market share from other building solutions. India remained negative in Q3, but the situation is improving progressively month by month. In Southeast Asia, the China continues to be different from country to country. To sum up, Q3 has seen a strong recovery compared to Q2. Teams were well focused on a clear set of operational priorities, we continue to gain market share in a number of countries and market segments. We also have been able to increase prices. So overall, an excellent quarter. I will now hand over to Pierre-André for concluding remarks.

Thank you, Sreedhar. So I'd like to make a few comments about the priorities for the rest of the year and the outlook. So the priorities are very clear. Number one, firstly and foremost, clearly, health and safety. It is our top priority in this very challenging health environment. Second, we are announcing the group's profitable and sustainable growth profile, driven by the continuation of portfolio optimization as part of Transform & Grow according to market condition, I mean, divestments and acquisitions. By our strategy of differentiation and innovation with enhanced data, digital and customer productivity as well as new services to adapt our solutions to the needs of the post coronavirus world. And by comprehensive portfolio of green solution produced or distributed by Saint-Gobain. Third priority, we continue to implement operational measures to optimize earnings and the operating margin. We unlock sales synergies make possible under the new Transform & Grow organization. We continue to optimize the price/cost spread with very good results at the moment. We reduce our costs, thanks to additional post-COVID measures, which would generate EUR 200 million in full year savings by 2021, including EUR 50 million in the second half 2020. This program was announced in July and is progressing well. The cost savings program as part of Transform & Grow, generating EUR 130 million additional cost savings in 2020, including EUR 50 million in the second half, which will enable us to meet our EUR 250 million target 1 year earlier than planned. And we continue our operational excellence program aimed at offsetting wage inflation and other fixed costs. Fourth priority, increasing free cash flow generation by reducing CapEx by more than EUR 500 million in 2020 versus 2019. And continuing to optimize the working capital requirement, and we have good results in terms of cash flow generation. Lastly, we will maintain a strong balance sheet. Thanks to the portfolio rotation and the cost saving program as part of Transform & Grow, the structural improvement of more than 100 basis points in the group's operating margin compared to 2018 should materialize in 2021, assuming of course, volumes similar to the one of 2018. In terms of shareholder returns, you will remember that in July, we brought forward our target of a reduction in the number of shares outstanding to 530 million to the end of the year. This means a reduction of 12 million shares in the second half of the year, of which we have already completed 9 million shares. In the fourth quarter of 2020, amid the lack of visibility as to impact -- to the impact of the COVID pandemic, Saint-Gobain should benefit from ongoing favorable trends on most of its markets, particularly renovation, which accounts for around half of the group sales and is a market on which the group is strategically very well positioned. The catch-up effect reported in certain countries in Q3 should diminish, and we remain cautious as to the outlook of the U.K. ahead of Brexit and for industrial markets, which are expected to remain down on 2019. In terms of profitability, the price increases implemented in the summer should result in an ongoing positive price-cost spread and the adaptation measures taken in the automotive segment in Europe and in the U.K. are progressing well. To conclude, as you will have seen in the press release, based on our results and sales growth in the third quarter, we now expect a like-for-like increase in operating income for the second half of 2020 compared to the second half of 2019, excluding, of course, a major new impact from the recent deterioration in the health situation. The group's extensive exposure to renovation market means, we are ideally placed to benefit from stimulus at the European or national level, which are focused on the energy transition and which are going to support Saint-Gobain's structural growth. Saint-Gobain's medium and long-term outlook are robust, thanks to our successful strategic and organizational choices, sustainability, thanks to our solution to protect our planet, while offering comfort and well-being and enhanced customer performance. I repeat what I said in July, as the growth profile of Saint-Gobain, post-COVID will be higher than the growth profile of Saint-Gobain pre-COVID. And our strategy is perfectly in tune with the group new purpose that we have just revealed, making the world a better home. Sreedhar and I are now happy to answer any questions you may have.

[Operator Instructions] The first question comes from Yves Bromehead from Exane BNP Paribas.

I'll have 3. My first one is on your comments related to Q4. First of all, should we assume that you are implying further like-for-like growth on a year-on-year perspective? And just as a follow-up to that, how should we assess the impact of lockdown measures announced in Germany and France yesterday? My second question is on 2021 margins. It might be a bit too early, but I think you alluded to it in the press release, and you suggested that you would be able to reach 2018 levels plus 100 bps, but assuming you don't get back to the 2018 volume levels, given the cost savings related to COVID-19 and the Transform & Grow program, and the positive price cut spread, would you feel comfortable that you could actually still achieve this level of margin even if volumes stay below 2018? And last but not least, on the U.S., leading indicators for new housing markets and price increase announcements are exceptionally strong. Can you comment on your inventory and supply conditions? And if we should really believe that the price that have been announced will stick in the market?

So I take the first questions, the first two questions, and Sreedhar will take the third one. On Q4, no, we are not -- the visibility is still low today. So we have a good trend, and I can tell you that the trends in October are good. They are similar, I would say, to the trends we have seen in September. But the visibility is low. And there is some element of catch-up that we have seen that is fading progressively, and we are returning to normal, but you have seen, for example, that in France, for the third quarter, we were at 9% -- 8.7% growth. I don't assume that this is going to continue, so we will have some of these effects, which are fading. So I cannot, at this stage, give you guidance on the volumes on Q4. It's still too early. Now the effect of the lockdown, which has been announced in France and Germany, it's a little bit early to assess what it is going to be. But from our understanding, in both countries, construction-related activities and industrial-related -- industrial activities are not concerned by the lockdown. In France, the French President yesterday said clearly that construction activity should continue, which means that the bulk of Saint-Gobain activities are open and are going to stay open. And so it is very different from what we had at the beginning of the lockdown in France in April. In Germany, there is no also measures, which are hampering our activities, both industrial and in construction. That being said, there may be from the macroeconomic impact, there may be an impact of this lockdown. Even though as we have seen also in the third quarter, I believe that confinement, as a lockdown, have resulted in allocation of spending by the household, which have been generally beneficial to renovation. So -- and I think this is a trend that we have started to see, and it -- and I think it may continue and yet deemphasize. So no major impact, so -- and a different situation from the one we had at the beginning of the lockdown in France. Well, if you remember, there was a lot of confusion, and we went down to a level of 50% of sales. I don't expect anything like that at the moment. We may have some impact. It's too early to quantify. But it's not going to be major. So when I say in the guidance that the -- we -- there was a sentence where we say that it's how -- yes, excluding a major new impact from the recent deterioration in the health situation, what has been announced in France and in Germany yesterday is not part of that. But situation is changing, there may be anywhere in the planet. There may be very significant decision happening, which we have no idea today. That's why I think it's important to stay cautious. Second question, on the 2021 margins, there are some costs that -- actions that we have taken, which are not going to increase the margins significantly. When you say the cost savings linked with COVID are going to reverse. I don't think we will travel as much we are traveling before, but we will travel more than what we have been traveling in the last 6 months, for sure. I have not taken a plane since March. So this is going to change. So there are some costs, are going to come back. The second category of costs which are not going to increase the margins, are the costs which are linked to activities, which are going to stay difficult for some period, the goal with this cost action is to mitigate the impact of a difficult situation. That being said, I think that the 100 basis points that clearly, if you look at the situation in the first half of 2020, when we have a volume drop, our margin is dropping. Saint-Gobain is not immune. So assuming we are out of this situation for the full year 2021, I think it is very realistic to expect this increase in the margin that we are reiterating today. Third question, Sreedhar?

Yes. So yes, the indicators are quite positive. When you look at the residential market in the U.S., it's quite very well oriented. The permits are up by 8%. The housing starts are up by 11%. And it is -- the market situation is very good, and we see that in our numbers, our volumes. And that's why we have been able to also push the price. I think the team has done an excellent job of remaining focused on price. You see that the Gypsum prices has stabilized in Q3, the Exterior Products prices have gone up. So we have in a very deflationary environment. And so we are -- we continue to remain confident, the pricing dynamics in the U.S. and at this point of time, I think the team is very, very focused on price, and it's very good news for us. And it helps us to improve or complete the spread. Spread, price cost price spread, it's an extremely important impact we see in our numbers.

The next question comes from Jean-Christophe Lefevre-Moulenq.

I have 2 questions. First, for a question in America. We have the best price hike in Saint-Gobain portfolio. Is that early due to Exterior Solutions? Or do we have a catch-up effect in Insulation? First question. Secondly, you are showing optimism after this good 3 quarter performance. Is that due to an exception, let's say, surprising good results in September? I think that June and July were very good in term of results at Saint-Gobain level. Did we have also this good surprise in terms of reasons for Saint-Gobain? And last question, regarding the distribution sector in France, we could have some asset for sales, as we have, for example, for [indiscernible], as HIG is in a difficult situation. Could you consider the sub acquisition in the French distribution?

So Sreedhar, you answer the first question? And I take the second one? On America?

Yes. I -- it is true Americas exceptionally good, and it is both in North America and Latin America. Latin America, you also know that there is exchange impact. So there is also some amount of justification to push the price. I think the team has done an excellent job of pushing the price, notably in the glass business in Latin America and also in the construction products. So it's a combination of both the regions, which has helped us to deliver a very good price. And again, once again, I say this has also helped us to improve the spread between the price and the cost in the region.

So the second question, you sound me optimistic, I would say, I'm cautiously optimistic. I have a realistic -- it's a realistic optimism, given what I see in the business at the moment. So we have seen a continuation as I said, positive news during the quarter, with some element of catch-up. And in France, it is clear that we were up 9%. Distribution during the third quarter is up 10%. One of the reasons, and I think I said that in July, I say we will have a very good summer because we were told that at the end of July, that the number of our customers will take 1 week or even less, to catch-up from the lockdown. And that's what they did. So we had an exceptional August from that standpoint. But the trend in September is good. And as I said, the trend in October stays good. That being said, the situation may evolve at any time. So that's why I am, based on where we have been so far, I am optimistic, but I remain cautious. Now in terms of the acquisitions, yes, we are looking at all opportunities, and we have looked at a number of situations in France. But that being said, we are extremely cautious. And so far, we have not find a situation, which were appealing to us. And I must say so that the one you mentioned is not an option for antitrust reasons. That being said, when I talk about acquisitions, our priority is on small acquisition at the moment. Our #1 priority for this year has been, is to continue to strengthen our balance sheet.

Okay. Pierre-Andre, follow-up question, [indiscernible] is apparently for sales.

That, I didn't know. Thank you for the information.

So you are not considering this acquisition, apparently?

Yes. I cannot answer because I have -- but I will investigate.

Okay.

I was aware of the other situation you mentioned, but not this one.

The next question comes from Ben [indiscernible] from [indiscernible]

First question is on the dividend. Can we have an update on the dividend or maybe on the payout ratio? I thought this matter were to be reviewed by year-end. That's the first question. On the second one, when I'm looking at your distribution business, what percentage of revenue is linked to B2C on the -- which one is leaned to B2B to maybe better assets, what's the lockdown impact, especially in France could be?

In -- well, on the first question about the division, I said in July, by the end of the year. And I think if I remember correctly, I talked about November at that stage. So we will update you by the end of the year and our thinking for the 2020 dividend policy, which will be distributed June '21, once this has been reviewed by the Board. So you will still hear from us by the end of the year. On distribution sales, I would say, it's probably around 20% of our sales which are -- where we have, independent of customers which are not -- sometimes they are between professionals and private. I -- so that's -- I think it's around 20%. It depends a lot by region, but I think that's around what it is. I think we will continue --

20% of your distribution? Yes?

Yes. But we will keep those customers, I think, to a large extent. Hopefully.

The next question comes from Elodie Rall from JPMorgan.

So I have 3 questions, if I may. The first 1 on your guidance for H2 operating profit. So obviously, you listed that up. You sound a lot more optimistic. You're looking for an increase in like-for-like operating profit in H2. Can you give us a little bit of granularity on what you expect in terms of development per division? And second, if you could also give us a little bit of idea of the potential of the magnitude that you expected it, low single digit, mid-single digit, providing that the conditions do not deteriorate in November and December? So that's my first question. And actually, my second question, I got the 2 that I had in just 1 question. Can you update us on your views on the different renovation stimulus? So we have the French one that has already started. Are you seeing any impact there? And can you give us a bit of an idea of what you expect for Q4 and 2021 from that specific plan and going a little bit more back-end loaded, what you expect from the Green deal and the EC has released a paper 2 weeks ago with some amounts there. Like, what's your view on that? And [indiscernible] for Saint-Gobain?

So the first question, Sreedhar will give you some ideas ongoing here. But I want to stress that we are -- I'm not going to qualify this increase at this stage.

Yes. So that you just have to -- I don't think anybody can qualify in the given circumstances, the uncertainties will remain. I think you -- all our confidence comes from the fact that we see the spread between the price and the cost is in good shape. The measures on costs we have taken is moving in the right direction. What we said in end of July. And Q3 results have been -- sales and results are good. I mean, very good. And also the October month, the trend is good. So having all this helps us to remain confident with the caveat of this uncertainty. In the next 2 months, we'll have to see how things evolve. Now coming to the granularity, I mean, I'm not going to get into too many details, but we just -- I can say that if the sanitary issues does not have a negative impact on our business, we should see, in all the segments and margin improvements as compared to the last year's second half, except the High Performance Solutions. The High Performance Solutions, if you remember, the first half was 7.2%. And the second half of last year, it was 12.5%. Certainly, it will be significantly better than first half margin, it was 7.4%. But it will be below the last year's second half margin, so somewhere in the middle. So that's what I would say.

Concerning your second question on renovation. The first thing I would say about France is that at the moment, our customers have a very significant backlog. So that's -- and I am not yet able to say whether the backlog includes a significant part of my [indiscernible] which is the new -- I think it's too early to say whether it is linked with that. But the backlog is high. And I think it's going to progressively come into play. And it will mitigate the activity in new construction, residential, which could be more difficult next year. So I think we are going to see this balance, as we have already seen. When new -- which has not really started to come down, will come down. There will be more activity on renovation. And I think this energy renovation will clearly grow progressively when our customers have ability to -- well, they are. They have the -- yes, they are available. At the moment, they are quite busy and the activity is strong. So -- but it's -- it may have started, as you know, this new -- especially for the global renovation, the new scheme is available, you can quote on it starting first of October. So we are really at the beginning. I cannot give you a clear idea whether it will be a significant impact in Q4, but clearly, it will be a significant impact in 2021. Concerning the green deal, I think the impact will be a bit later, but you need to have in mind that a significant part of the Green Deal is, in fact, the funding of the national schemes, so the national scheme, if I take the example of France, is starting. And it's shows that France will be reimbursed, in other words, by the EU from what it has already started to -- if the plan is approved and on review, which I think will not be a problem. So I think that these plans are linked. But clearly, the effect of the Green Deal plan will be a bit later than some countries, which have started a bit earlier. And I think it will -- but it will last also for a few years. So I think it's going to be very significant, but we are just at the start-up. Last point that I forget to mention, which is, as you have seen in France, a very significant part of the new money is going to be to public buildings. And that's schools and hospitals. And we are -- as far as Saint-Gobain is concerned, we are actually well positioned, and we have created teams to address this situation with universities, with hospitals. And already this program is starting. The one, hospitals, I have not seen yet a lot of starts. But in universities, it's going to start. It will be -- there will be projects launched in -- very quickly. So the work will start, will be done in 2021. And this also could be significant. And it allows me to be relatively optimistic for what is called nonresidential, because for office building, we are clearly going to have a drop, but I think that the public buildings could mitigate the impact as far as the nonresidential, which is not a huge segment for Saint-Gobain, which is still a significant one, could be impacted. So that's what I would say. And this is going to kick in mostly next year.

The next question comes from Arnaud Lehmann from Bank of America.

I have 3 questions, if I may. Firstly, I'd like to come back on your -- the comment around your 2021 margin improvement target. Firstly, why do you refer to 2018 volumes and not 2019, considering that I think last year, volumes were maybe slight above but not very different from 2018. And just to confirm, in terms of the M&A activity, including in this guidance, I assume it's excluding German distribution, including Continental, but you're not assuming any more these totals, maybe if we know some assets in distribution are potentially for sale. How would that -- are you including any incremental disposals in this guidance? And also, what will be your kind of price/cost dynamic scenario beyond the volume points? That's my first question. Secondly, on the U.K., quite a lot of macro headwinds at the moment and also Brexit around the corner. On Brexit, do you expect any disruption in your distribution business? Are you sourcing a lot of products from the EU? Is there a rate that's beyond the local macro, there are some logistics or sourcing disruption next year? And lastly, on the share buybacks, on your calculation of 12 million shares, I mean I guess that's accurate compared to like [indiscernible]. But typically, every year, you also issue shares for stock options or employees. How do you account for that in your calculation on share buybacks?

I'll start with the third one, which is very easy. We also purchased 6 million outside of this 12 million. We purchased 6 million shares in the first half, which were canceled and compensated employee share plan. Like every year, we have always compensated that for the last, I don't know, 6 or 7 years. And so the EUR 12 million is in addition to that. On U.K. First of all, we have the time to prepare. So I think that for us, I don't expect significant issues for our businesses. The impact is clearly more on the macro situation in the U.K. and I think we should not underestimate, especially if there is no deal, I think it's going to have a significant impact on the macro economy in the U.K., that's why we are very cautious at the moment. We have had, I would say, a good surprise on the Q3, which bounced back more than what we anticipated. But I think the situation in the U.K., as Sreedhar said, is still fragile. On 2021, why did we say 2018 because that was the basis when we announced the plan Transform & Grow. So I refer -- I'm just repeating what we said at that time. So there is nothing new, at that time. And including -- concerning the divestitures, I think we have done already what was scheduled. And if there are more acquisition or divestitures that could help, I think at this stage, I would not say whether it's in addition or included, we will see.

No, I mean, it all depends on volume, and it also depends on the mix of the volume because keep in mind that High Performance Solution is one of the most profitable segment, which is suffering. And we are not sure that it's going to come back to the same profitability level in 2021. So there are -- at this point of time, what is important is, if we get back to the volume of 2018, the minimum we have committed is 100 basis points. That's something we need to deliver, it may be more, it can -- I mean, we need to do -- maybe we have to do more divestment. We'll have to do to get this objective met.

The next question comes from Gregor Kuglitsch from UBS.

Can you hear me well?

Yes.

Excellent. I've got a few questions. So one is a little bit technical. So if you could just help us out for the second half, the anticipated foreign exchange and acquisition or disposal impact on operating income? Obviously, you're guiding for organic. So I'm trying to figure out the technical elements, if you want, for the second half, if that's possible at all? The second question is, are you able to quantify a little bit the run rate that you saw in September and October versus that quarterly run rate of 3.2%? Because obviously, there was some special effect in August with the canceled holiday in France. So if you could just give us a directional clear, whether that's maybe closer to the 2% level or whatever you can share, that would be helpful so we can get the underlying growth? And then coming back to the guidance or sort of target for next year, I understand it what you say, if you want an old -- it's old news in a way, but obviously, I think it's nevertheless significant that you're reiterating it today. So the question is a little bit, going back to the point you just made. I mean it looks like HPS, it could be worse and perhaps the other segments compensate. So are you basically saying you should need that, if every segment is kind of the same? Or do you think you're comfortable enough that you can kind of adjust for the mix, basically, if it's perhaps all in distribution, that's a lot higher and HPS is down a lot? Or I just want to understand that it's basically the same as you said before, so obviously, you will know that currently, the consensus figures are quite a bit lower than that 8.7%. And perhaps there's a good reason for it. So I want to understand kind of, I suppose, to what extent you would want to qualify it, if at all?

So on the second -- maybe you want to answer that one, the first question, Sreedhar?

Yes. So on the Forex, Q4 ForEx on sales could be more negative than Q3. If I take the current spot rate, it still remains volatile. Some of the currencies are moving, there are swings. So -- and the H2 ForEx on OP could be more negative than the impact on sales, given the recent trends of depreciating currencies in the regions, where the margins are above the group average, particularly the U.S. dollar, which is, in the last quarter, it depreciated. And then you have the emerging countries. Many of the currencies are depreciating. So I think there would be some amount of mix element in this.

Now concerning the run rate, the different numbers of days, each -- compared to last year in each month. But I would say, basically, the month of September was more or less the same level as the quarter, in terms of like-for-like growth. So there are some countries, we had a catch-up in July and August and some countries which are better in September. So for instance, I would say that India, for instance, is growing -- is still negative for the quarter, but it's improving month after month and continuing to improve. The same for Latin America. On the other hand, the special effect of France was in August, and we have more to a normalized good growth in September. What -- October, the months, there are still 2 days to go. But I will say the trend so far is not very different from September, in October. Now concerning margin, you would allow me not to be more precise at this stage. I think there may be a melting pot and cooking to get there, and we reserve the ability to use some ingredients. There has been so much volatility in the last 2 years, so I think that we don't want to be too, more precise.

We just have to keep the big picture. The big picture is we committed 100 basis points with certain base. The fact that we have made very good progress on Transform & Grow related objectives, whatever we set for ourselves. If we get back to the sales volume, that's something we need to deliver. So I think we just have to keep this big picture, I think that will be important.

The next question comes from Nabil Ahmed from Barclays.

I had 3, actually. First 1 about the pricing improvements in the quarter and what you seem to suggest in Q4? I think you mentioned U.S. Roofing and Gypsum. You mentioned LATAM, also driven by the ForEx as well. I was wondering if you could comment about the pricing environment you're seeing in Europe, across your major businesses, so Flat Glass, Insulation, et cetera. My second question was on what you mentioned in the press release, which I think is very interesting, the fact that you reduced the syndicated credit facility. Meaning that you seem more confident about cash flows and liquidity. Should we assume [indiscernible] perhaps be progressively returning to a more aggressive acquisition strategy, I mean, beyond a few bolt-on deals that have been announced lately? And maybe as well considering share buyback beyond the 530 million shares target? And lastly, there's been a few comments in the press lately in France about one of your distribution brand that is for sale and interest from various party. I'm not expecting you to comment on specific deals. But could you comment more broadly on the disposal pipeline? I mean, I understand it is probably a more difficult environment to achieve disposals, given it's probably more difficult to agree on the business plans. How would you describe your disposal pipeline? And should we expect potential deals to materialize over the coming months? Or is that completely unrealistic given the [indiscernible] and sanitary situation?

Sreedhar, will you take the first question?

Yes, sure. So on price, Nabil, is the focus everywhere. It's not just in Americas. The price focus is also in Europe. One of the businesses where there is a lot of push on prices, the glass because glass had to drop, and that's how the business works. When the energy prices come down, there is a pressure to bring down the price. So now that there is some stabilization on the price, on energy price after the summer. So we started pushing the prices up. So if you take Q3 versus Q2 sequentially, we have improved 4% price in glass. So that's something which we will remain focused. And opportunistically, we look at our other businesses, too. Again, it has to be driven by country. Because the competitive situation is quite different in each country, and we have to -- our objective is to also make sure that we don't miss out on the market position and the share which we have in a given country.

On the second question, the general idea is that we want to keep a strong balance sheet. That's a priority for the time being. So the level of buybacks and the small -- the acquisition is more driven to small one for the moment. We want to keep it strong but -- we were able to -- this credit line at a cost after September. And after we have made this big cash again with the Sika stake, that's why when we took that credit line, we didn't have that, so that's probably the -- actually that was the reason why we [indiscernible]

Yes, we are comfortable because of that, for sure.

On, generally on disposals, you want to?

Yes. I mean, the strategy on disposal has not changed. We will continue to focus on looking for opportunities to divest. It certainly, the COVID has slowed down the whole process, just for the practical reasons. So we will -- as you said, we have opportunities. We have done this exercise by country, looking at the portfolio by country, on the profitability of each of the small businesses within the country. So we believe, we have opportunity to do, and we will continue to explore that. Now there are some few big ticket things. You know that -- I mean, you alluded to that, one of the B2C business in France, and that's something which, again, we are making progress. Again, it is -- it's a difficult business. And while we have done a lot of work, good work in terms of strengthening the business situation in terms of logistics, IT and rationalization of costs and all that. So at this point of time, the project, the idea is to constantly look for a credible solution partner, which remains a top priority for us because we are working on it.

But in terms of the pipeline, I would say the -- in the last year, given what Sreedhar said, we have identified a number of opportunities. So the pipeline of ideas is strong, we have more, as you alluded to, the feasibility is not there, always. And during the last 6 months, we have made some -- we have put some projects on hold. Some we are restarting, but the timing, we cannot be very precise at this stage, but there is a good pipeline.

Yes. And no, COVID has not helped us in that.

Would you say interest has maybe picked up compared to 3 months ago? I mean, did you see more price by, I don't know, private equity or industrial players now compared to, I don't know, early in the summer.

I don't know whether what is happening in the last few days is going to change it again. The -- I think each situation is different. So we are looking at case by case.

The next question comes from Tobias Woerner from MainFirst.

Three questions, if I may, gentlemen. Number one, you mentioned HPS earlier in terms of margins. I'd just like to get a little bit more sense of which part of HPS is pulling the margins down as we speak. And then in terms of the recovery, we can't [indiscernible] . Number two, can you give us an indication where the profitability of Lapeyre at this point in time, if only to say, it's negative, neutral or positive, or maybe very negative or neutral or very positive, to get a sense there. And then just lastly, your volume assumption to get back to 2018, when you do the math very quickly, and we might have done it wrong, it seems to indicate that you need to rebound at least 5.5 plus percent volume percentage points on a like-for-like basis in 2021. Is that not quite a challenging number, unless I got it wrong?

So on the third one, you know you can do the math. I leave you, do your math. I think we are in a very volatile world. We grew 2% compared to last year in the third quarter and the first half was very negative. So I think we are in a volatile environment, and that's also why we are putting this wording that it's linked with the volume of 2018. Sreedhar, you want to answer 2 other questions?

Yes. So on your question specific to High Performance Solutions, you know that the Mobility is one of the business, which is very much impacted because of -- primarily of automotive sector. Europe remains difficult, whereas the China and North America is growing for us, and we are also growing our share because of the electrical car. But otherwise, Europe still remains a challenge for us. So that's one area, which is bringing down the profitability of the high-performance solution. The second one is, we have certain industrial businesses, which basically link to the investment cycles of our customers, which has hit their investments. For example, the ceramic products, typically, if the furnace is built, you need to -- our customers ask for the ceramic products. And when they postpone their CapEx projects, there is an impact with a time lag, and then you see that happening in this business in the second half, which is a profitable business, and it will also have a mix impact within High Performance Solutions. Otherwise, the other construction industry is resisting very well. It's a business where we continue to gain market share, particularly in external thermal installation, which is a market which we are very strong, and we are growing. And the Life Sciences is growing. It's, again, a profitable business, which is continuously growing, and that's where we have invested in the last few years. And all this investment is helping us to strengthen our position in that particular segment. So this is mainly because of mobility and industry.

Profitability of Lapeyre?

So it is negative. I mean, that's what I would say, I won't qualify beyond that.

But it's improving this year. [indiscernible]

Yes. So -- but it still remains negative.

The next question comes from Yassine Touahri from On Field Investment Research.

Just couple of questions. The European Union issued last month, this renovation wave program, where they want to double the energy renovation rate by 2026, 2019. With monetary minimum energy performance standards for existing buildings. Have you tried to assess what does it mean for the growth and the structural growth of your business in terms of volumes? And if really this materialize, how can you capture this growth? Do you want to capture it through CapEx, through merger and acquisition? And the last question which is related to that, if you go for CapEx or for opposition, do you have specific criteria in terms of return on investment?

Okay. So the EU renovation wave is, in my view, extremely powerful in the future. In addition to the fund because there is money, it is a part, a significant part of the Green Deal, which is going to go on this renovation wave. You rightly pointed out a very important point, and I am fully very aware we have worked a lot in the last years with the, with the various governments and with Brussels technically to help them or give us our opinion on how to devise such scheme. I would address -- take an analogy, which was -- which -- what has happened for new buildings, there has been strong growth, especially in our insulation business, in the last 7 or 8 years based on regulation. And the one I have especially in mind is in France -- was called [indiscernible] 2012, which was an application of the EU Directive on the minimum performance for new building. So the fact that now the EU is addressing the renovation market and to progressively because it's much more difficult, progressively have a minimum performance requirement is, in my view, extremely powerful. It's going to take time. You may be aware that in France, there is a similar ideas. I don't know whether they are going to be implemented soon by the commercial [indiscernible] product [indiscernible] was pushing forward this minimum obligation, which is already in the French law by -- in 2028. And they are trying to get that to 2024. All that goes in the same direction. I think it's too early to assess exactly what's going to happen, but it's very positive. And structurally, it can be very, very significant, but it will extend over a number of years. So I cannot give you a precise timing, but I -- for me, it's a major move. This is the directive, which the EU, the commission said, they want to approve in 2021. It's not yet approved. It's a project, but I think it's going to be a significant milestone. It will take years. But I think for the next 10 years, this is a source of growth for Saint-Gobain. How are going to address that? Mostly with our existing business. We have made significant, for instance, CapEx in the last 10 years in France. In Insulation, based on this regulation for new buildings and also the new -- the incentives for -- which have been put in place, also for renovation. So we will address that through mostly through CapEx in our various businesses because when you are using insulations, most of the time, you have plasterboard with it. So -- and more and more, we are providing solutions and systems. And we may complement that by other niche products, which go with it, our other materials, for instance, we have made also an acquisition 3, 4 years ago in France, with wood fiber, which is growing, and we just announced that we are going to double the line. Now our criteria for CapEx or acquisitions, are very strict. And we want to really create value very quickly. So we have very strong metrics. On that, maybe Sreedhar, you want to comment on the metrics?

Yes. So on Capex, generally, it is IRR of 20%, is something which we strictly apply. And again, we look at more and more the businesses where the growing businesses, which has got a historical track record of generating cash, is also one of the criteria to allocate CapEx. And in terms of acquisition, anyway, we have talked in the past, it's more creating the value within 3 years of time.

I just stress that in the last few years, in Europe, we have made -- I am talking about insulation in France, glass wood and wood fibre. We have not made huge growth CapEx in Europe because a number of countries have had a big drop after the 2008, 2009, and we didn't need capacity until recently. So there may be more, if there is growth in the next few years. But it's more, it's more for the future than it has been.

And maybe a follow-up question, just on the IIR of 20%, is it after tax? How to calculate that? And the second 1 is, if you look at your Saint-Gobain as a group, how much of your business is directly exposed to energy renovation?

Is it before tax?

[Foreign Language] Yes. So it's -- no, 20% is before tax.

20% before tax. Okay.

I would say that directly or indirectly, around 60% of what we do is having an impact. It's driven by that energy efficiency renovation.

And have you tried to separate what is direct and indirect? Or is it -- or it's too complicated and [indiscernible]?

We are still working on that, and we will answer more precisely on this question in the next few months.

The next question comes from Mike Betts from Data Based Analysis.

I had 2 questions, if I could, please. The first one was on the volume growth in Americas, plus 8.3% of Q3, and the question is, how dependent or how much of that was roofing because I was with [indiscernible] yesterday, they said they thought the market was up 25% in Q3. And the second part of that question is the sustainability of growth in that business, in Q4. And then finally, I know it's a sales call, but you've talked about it, so hopefully you'll permit me this question. Normally, you give us an estimate for raw material costs and energy for the year. And I'm just wondering what your latest estimate is for 2020?

So all these questions are for Sreedhar, Mike.

Yes. So Mike, we have -- in terms of the roofing business, I won't be very precise, but I think we have done well. We have done very well as compared to the other competitors in the market, and roofing has certainly, has been the biggest contributor in the -- a big contributor in the third quarter numbers. And Gypsum volume was also very good for us. And then the second question was, what is the total billing of energy? The energy billing was 1 point -- we expect it to be around $1.1 billion for the year. And within that, you have close to 50% is electricity, which remains almost stable. And then 45% is gas and the 5% is fuel.

How did that compare, Sreedhar, with last year? What is the 1.1% compared with?

I didn't understand the question.

How much of decline in energy bills in 2019 or 2020?

Yes. So it was something like EUR 1.2 to EUR 2.8 billion. So it's -- it has an impact of deflation, plus the volume reduction.

And just coming back to roofing, Sreedhar. Outlook for Q4, do you expect a slowdown in roofing in the U.S.?

At this point of time, the -- if there is no -- again, the caveat is, if there is no impact of coronavirus, the confinement related restrictions, I think it -- we still -- we are very confident of continuing the trend, what we have seen in Q3. So at this point of time, the team is quite optimistic. It depends on how the sanitary situation will be in the country.

Mike, I'm not sure you -- when you talked about the sales of Americas in the third quarter, you don't want to -- you meant you want to make the distinction between America and Latin America, North America?

He was more focused on roofing, so I...

Yes, but the number he gave was not for -- the 8% was not for North America it was for the total.

It's the total Americas, for sure. I mean, Latin America was also very good. I mean.

Because the sales growth in Latin America was 25% for the quarter.

Yes. Yes.

In which countries was particularly strong in Latin America?

Brazil.

Brazil, but a little bit everywhere, but Brazil overall.

Brazil was clearly very good.

And Brazil was/is our biggest country.

Biggest country In LATAM.

[Operator Instructions] We have a new question from Tobias Woerner.

So just 1 more follow-up question. Natural gas price, when I look at energy costs, across the piece at the moment, it seems that natural gas prices seem to be picking up in the U.S. over and above what the case was last year? Just remind me, did you say 45% of your energy bill is cash, is that right?

Yes.

Yes, and how much, are you seeing a similar price development on the rest of your markets in natural gas?

At this point of time, I expect it to continue to remain low. Again, we'll have to see how things evolve. I mean, the first half, we talked about something like $50 million, the savings, the deflation impact, and it should be definitely more for the whole year.

Okay. And you said the 2019 -- billion or EUR 1.5 billion -- sorry.

EUR 1.25 billion. 2-5.

We have a new question from Eric Lemarie from Bryan Garnier.

Just 1 single question on my side. You mentioned in your action, in purity of action, number 2 growth, and in particular, on the back of innovation, and you mentioned digital. My question is the following one: Would you be interested to make the acquisition of a software company, especially in the beam field?

We have done some small acquisitions of start-ups in that area for our distribution business. But there -- I don't know whether you -- that's what you have in mind, but we have done very small acquisitions. I would -- no, I would not contemplate something really big. I would not do the move that Schneider Electric has done, for instance. I think it's a bit too far from our DNA.

We have no more questions.

Well, thank you, then. If they -- I thank you for participating in this conference call. And I wish you a good evening. I remind you that we -- our 2020 results will be published on the 25th of February next year. Good evening to everybody.