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

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

Thank you. Good evening, everybody. I hope that you have received our press release and that you have already been able to go through the highlights. So together with Sreedhar, we will discuss our Q3 sales and take your questions. We have achieved strong growth in Q3 with sales up nearly 20%. Organic growth was dynamic, up 13.4% in the quarter. All our 5 segments have once again achieved double-digit like-for-like growth in the quarter. This strong performance reflects the Group's strong strategic positioning as the worldwide leader in light and sustainable construction, a strong governance country by country to offer unique innovative solutions and a commitment to strong execution from our teams on clear operational priorities. Right now, each one of our country CEOs is steering action plans in order to continue to outperform whatever the market environment they face. These sales numbers are driven especially by our North America, Asia-Pacific, and High Performance Solutions segments. Renovation in Europe remains resilient, whilst we have started to see a slowdown in new construction in the region as expected when we last spoke to you in July. We have continued to demonstrate our ability to manage energy and raw material inflation well, leveraging our pricing power and also the added value of our solutions in order to achieve sequential price increase given the energy volatility we have seen in Europe. We are, of course, conscious of the impact of inflation for our stakeholders, and we have proactively put in place measures to support our customers wherever possible, including helping them understand pricing movements, giving them as much visibility as possible and ensuring also the necessary inventory for a very good level of service and supply. As planned also, we closed the acquisition of GCP at the end of September. The new organization has already been put in place. Thierry Bernard, the former Chryso CEO, has been appointed CEO of Construction Chemicals within High Performance Solutions. She is leading the responsibility of integration, which we have been preparing for since the beginning of the year, and it is off to a very good start. So we are confirming our guidance for 2022, and we are very confident that we will deliver a new record year in operating income with a double-digit margin. Our medium and long-term drivers are strong with a clear need for light and sustainable construction as the world strives towards its net-zero carbon goals. There has never been such a perfect alignment between climate change and energy savings, the need to protect household purchasing power for energy savings, and of course, energy security in each country. So making energy efficient for innovation, all the more [ urgent ]. We are rolling out successfully our growth and impact strategic plan, and I'm very confident that our organization will continue to demonstrate once again its ability to overcome tough challenges, whether supply chain, high inflation or geopolitical crisis, and we'll continue to outperform even in the face of more challenging conditions in some of our markets as we have done in recent years. I now hand over to Sreedhar, who will give you additional information about our third quarter sales.

Thank you, Benoit, and good evening, everybody. Let me give you more details about our Q3 sales. We achieved strong organic growth in Q3, up 13.4%. The currency impact was positive at 5.4% linked to the U.S. dollar and the Brazilian real in particular. The structure impact turned positive in Q3 to plus 0.8% with the consolidation of Kaycan from August and continued impact from the acquisition of Chryso. We also have the impact of divestments in distribution in the Netherlands, specialist distributions in the U.K., Glassolutions in various European countries and pipe in China. This demonstrates how the rotation of portfolio has become a management team. Please note, Turkey is now treated in our accounts as a hyperinflationary country and excluded from the like-for-like comparison. This will be included in the structural impacts going forward. Now coming back to the like-for-like growth, we continue to achieve sequential price increases, important against the inflationary backdrop. And given the energy volatility in Europe, in particular, this allowed us to achieve a positive spread for both the 9-month period and also the Q3 alone. We expect raw materials and energy inflations of slightly more than EUR 3 billion in 2022. As a reminder, our energy cost is hedged at around 80% for 2022 and at around 60% for 2023. We are very confident in our ability to continue to offset the inflation in raw materials and energy expected for 2022 and generate a positive price/cost spread. In the current volatile energy environment price environment, we remain focused on the spread in order to make sure we start 2023 in a good position. Volumes decreased slightly in Q3 to minus 1.6% with a negative working day effect of around 0.50% or 0.5%, but most significant in Southern Europe. I will now give some more details by segment. In Northern Europe, we saw 12% organic growth in Q3 with sequential price increases on a higher comparison basis and with volumes impacted by the slowdown in new construction. The renovation markets remain at a good level. Nordic countries outperform, with the renovation market continuing to be supported by energy-efficient renovation projects. And despite the slowdown in new construction projects, the U.K. performed satisfactorily in a weaker market. Germany benefited from our strong positioning in energy-efficient renovation solutions, and we are making quick progress in building the flexibility in all our plans for alternate energy sources to gas. Eastern Europe continues to see a very good momentum, and we have gained market share in our main countries. Now coming to Southern Europe, organic sales grew nearly 11% in Q3. We achieved sequential price increases on a higher comparison basis. Volumes were lower in Q3 with a negative working day effect of around 2%, and with the slowdown of new construction in the region, renovation remained more resilient. France maintained a good dynamic supported by the structurally more resilient renovation market. With the stimulus package and the stricter regulations continue to be effective, the order backlogs for the craftsman continue to be full, and our complete offering of sustainable and innovative solution is allowing us to make the most of this. Spain and Italy continue to outperform. Benelux benefited from its complete innovation solutions for specific markets like schools, hospitals or the renovation of the multi-family housing. The Middle East and Africa continue to show significant growth, benefiting from the opening of the new factory to make the most of the dynamic underlying markets, especially in Egypt. Turning now to the Americas, which saw organic growth up 14% in Q3, driven by prices and despite the start of a slowdown in new construction due to a sharp rise in interest rates. North America continued to show strong organic growth of 17% in Q3, driven by our complete offering of solutions and good trends in light construction. The new construction market slowed but remained at a good level. Q3 saw Kaycan joined the region with good results. We have had a good start to the integration process of Kaycan. As a reminder, the local North American waterproofing business of GCP is included in the region due to the strong synergies with CertainTeed’s roofing and siding activities. Latin America saw organic growth of 8% in Q3 with an uncertain environment in Brazil elsewhere in the region. Dynamic growth was supported by pricing, new plant opening and targeted acquisitions. Our Asia-Pacific region saw strong sales growth with like-for-like up 27% in Q3, with growth driven by India and Southeast Asia. India achieved another quarter of excellent performance with market share gains across all product lines and an integrated and innovative offers being rolled out to the new customers. Southeast Asia outperformed especially in Vietnam and Malaysia, supported by the diversification of our offerings in construction chemicals in particular. China saw moderate growth driven by pricing despite the pandemic restrictions and slowdown of the general construction market. Now coming to High Performance Solutions, we saw organic growth up 19% in Q3, driven by an acceleration in pricing and volumes, thanks to the resilient market that recovery of the automatic in Europe. Our businesses serving global construction customers achieved record sales in Q3, up 25%. Chryso continues to outperform its markets. Integration and synergies are progressing well. Mobility saw a very strong organic growth in supported by a strong price renegotiations and a rebound in volumes from a very low base in Europe. We continue to see good sales growth in the Americas, India and China. Overall, our Mobility business continued to outperform the automotive market, thanks to our strong positioning in electric vehicles. Businesses serving Industry progressed supported by activities related to our customers' investment cycles like ceramics, which benefit from our innovative technologies to help our customers decarbonize their processes. To sum up, we continue to deliver a good sales growth and sequential price increase with a very strong focus on price cost trend. And in the coming quarters, we will remain focused on margin and cash. Now, I hand over back to Benoit for concluding remarks.

Thank you, Sreedhar. Now, I would like to make a few comments about the outlook and our strategic priorities. We expect the following trends within our different segments in Q4 2022. Resilience in renovation in Europe while new construction markets are slowing down. The Americas should hold firm, solid growth in Asia-Pacific and a good momentum in High Performance Solutions supported by innovation. So Saint-Gobain confirms that it is targeting a further increase in operating income in 2022 compared to 2021 at constant exchange rates. Like you, we have no crystal ball, but we have done -- what we have done is to make sure that we have the best possible organization in place to be able to face whatever market environment we may see. Our local management is close to their customers, hands-on on a daily basis. They have clear priorities and they are incentivized on them, meaning that there is real ownership and accountability. Our conformed organization puts us in the best position to deal with any new challenges and continue, of course, to outperform the market. We are also helped by our optimized business profile with around EUR 10 billion of sales, either acquired or divested since the transformation began, meaning that we have now a better and more resilient business profile. This constant reinforcement of the group through acquisitions and divestments has become part of management footing. Most importantly of all, we are focused on controlling what we can control, adapting fast to changing conditions on the ground, proactively managing our price cost spread, integrating our recent acquisitions quickly, continuing to innovate and roll out new solutions to meet our customers' needs, entering also the flexibility of our production with less or alternative energy, continued manufacturing excellence, et cetera. We, of course, do not control everything, but there is plenty that is under our control, and we'll keep focusing our efforts on these in order to outperform our markets, deleverage our structural margin improvements and generate cash. But on the strategic side, we are well positioned on the resilient market of energy efficiency renovation. Light construction is growing fast, and sustainability needs call for accelerated innovation across our global markets. All the while, we are playing a key role in building a carbon-neutral economy, thanks to our positive impact solutions. Just this quarter, our French teams launched low-carbon glass offer, which will be supported by our new initiative to recycle used glass in a closed loop. We have also recently signed energy supply agreements in North America and in Poland to increase the proportion of renewable electricity we use. And at the beginning of August, we successfully announced our first sustainability-linked bond. So our strategic positioning to respond to the energy and to the decarbonization challenges has never been more relevant, and we are focused on consolidating our strong operating performance and on adapting to the specific market trends in each of our countries in order to continue to outperform. Thank you for your attention, and Sreedhar and myself, we are now happy to take and answer any of your questions.

[Operator Instructions] The first question comes from Jean-Christophe Lefevre from CIC Market Solutions.

Jean-Christophe Lefevre-Moulenq. [Foreign Language], I have 3 questions, if I might. First, flat glass, the traditional question. Can we have more flavor on the most recent level of pricing? If we look at the German index, it's up by 65% September '22 versus September '21, so it's an excellent performance. Do we have further price announcement on this product? Second issue, plasterboard. If we compare the American and German index, they are very divergent. Just below 10% in Germany, but is very high, more or less 25% in Northern America. How do you explain this difference? Can we rely on further hikes in plasterboard in Europe? Last question, integration of Chryso. If we look at the [ polymer ] pricing, it's up by more than 20%. Are you able to increase the margin despite this very strong hike in [ factory workers ]?

Thank you, Jean-Christophe. So Sreedhar will take the first, and I will follow up.

Yes. So Jean-Christophe, the glass prices are improving sequentially. The last quarter, average price was EUR 6.17 for the 4 MM thing. Again, this is something that I give you, but this is not something which is relevant from a Saint-Gobain's perspective. But overall, the glass prices are -- sequentially, the prices are improving quarter after quarter. So this is something which we are making sure because there is also a good supply chain situation in the market and there is a clear opportunity for us, and we are able to benefit from this current situation.

So I take maybe the question on plasterboard. And across all the different countries and product lines within the country, we always make sure also, as I said, that we give visibility to our customers in terms of price increase so that they can adapt themselves. I think it's a way to be close to our customers, and our local organization is extremely powerful for that, and it's also a good way to outperform. So yes, in plasterboard, the dynamic is strong in the U.S. We have been running full capacity in the third quarter. I think we are performing very well. As you know, we leverage full speed the very successful integration of Continental and CertainTeed. The market is strong. I'm quite intrigued to see that, yes, there is a bit of softness on new housing starts for single-family, but multi-family are strong in the U.S., and in terms of mix for plasterboard, it's quite interesting. So there is a good environment and a good demand. So plasterboard both in volumes and prices are strong in the U.S. Now if you go in other countries, you, I think, picked Germany. We are not the number 1 in Germany. But for me, what is more relevant is that our German CEO delivers the margin for the country that we're asking to deliver. So if you can deliver more on installation, which he is doing because we are leading the charge on installation in Germany, and this explains also -- you may have seen the nice strong growth sequentially in Germany from the first half to the third quarter, a good acceleration on energy savings, insulation, notably in Germany, is delivering on the German margin. So sometimes, yes, we have a situation where plasterboard in Germany margin or the price dynamic is a bit more tricky. Actually, we are still pushing up prices on plasterboard in Germany. But overall, we do more and better in other product lines and ultimately, our German CEO is accountable to see margin for all the country, and that's what he's delivering. So this is the way I look at it, and we are continuing to push prices across the board in Germany. Your third question, I don't comment specifically on the margin for Chryso in the third quarter. I think we told you in the first half, which was a very strong performance, the margin of Chryso was flat, still a 20% plus EBITDA margin in the first half, which was a superb performance. And we are still running above 20% like-for-like close to 25% like-for-like for Chryso with a strong pricing dynamic. So this is the strength, the value add of innovation from Chryso, and of course, something that Thierry Bernard is implementing in terms of synergies with GCP. So we are confident about a very strong year of Chryso. Well aligned, if not above, with the first year of the business plan we had at the time of the acquisition.

The next question comes from Paul Roger from BNP Paribas Exane.

Congratulations on the results. So I'll keep it to 2. Firstly, can you tell us what proportion of the price increases you've seen this year, take the form of energy or maybe other surcharges that could clearly reverse if costs do decline in 2023? And then secondly, just a general question. To what extent do you think renovation is relatively immune to a macro downturn? And also, maybe if you could split your renovation exposure between energy efficiency and more discretionary projects, please?

In terms of -- Paul, in terms of surcharge, we don't use it at all. There are very, very few, very rare examples in general because it has a lot of complexities, and we are not [ opted ] for this. There are very, very few examples within the organization where we have tried to use this. So by and large, this price increase is something which we have defended based on the total inflation that we have seen in the businesses, again, based on the market situation and the competitive scenario in the given market.

And on your question related to renovation, no, we are not going to fool ourselves and to say renovation is totally immune. But one very important point because sometimes, some external viewers look at do-it-yourself. We are not in do-it-yourself. We are not -- like, I buy painting to do some work in the bedroom of my child. We are that durable renovation, so this is not a discretionary spend like taking a painting for the weekend or for Labor Day, whatever activity. We are investing on durable goods. When you think of Europe, it's the largest factor of our presence in Europe, it's about 60% related to renovation. It's hard to totally isolate, Paul, the part of energy efficiency. What I can tell you is that within the total portfolio of Saint-Gobain, as you know, we have 72% of our total sales, which are related to sustainability. That's one important indicator to keep in mind. The second, I would say, is that recently, for instance, there was a survey in France asking B2C customers, end users, homeowners, about their intention, the intent to renovate on energy efficiency. And it has doubled versus a year ago for a quite obvious reason, because they see that energy price is coming up even though governments across Europe are trying to cap the energy bill, but they all know that it's not going to be there forever. Even in France, it will be up 15%; in the U.K., it's extremely high already. So the intention dedicates even more of renovation towards energy efficiency in, for instance, in France, 2 times higher than it used to be a year ago. And the last point I would like to make also is that when you look into -- and we have a good grip on that, for instance, through our distribution business in France but not only in the Nordics as well. A lot of this renovation job, more than 50% is done based on personal savings. It's not based on financing, therefore, it's not correlated to higher interest rates. It's done for more than 50% of the time with personal savings. Adding to that, after that, some subsidies and tax incentives that you have here and there in Italy with their [ carbon ], et cetera, et cetera. So a large portion is actually, I think, immune and will be -- will get prioritized in the coming years. It's part of the long-term trend. We know that we have to more than double the renovation rate of buildings across Europe. In the next 30 years, there will be bumps down the road country by country. As we speak, we see the U.K. market being the weakest for us across Europe, but we see a strong resilience in France, in the Nordic, in Germany, even an increase sequentially quarter-to-quarter, and also accelerating support from building standards, diagnosis of energy performance in France in order to rent or to sell your real estate. So all those measures are going to come up and continue to be a good support, plus keep in mind also what has to be done and started to be done on public buildings.

Some of these new regulations are clearly seeing the positive impact. And if you look at the survey results, what Benoit mentioned in France, today, you cannot increase your rent if your performance of your building is not G or F, so this is clearly a compelling reason for any houseowner to go and do the renovation fast.

That's real interesting. Maybe I could just have one quick follow-up. I mean, it's obviously from your initial remarks that you're communicating a lot with customers, giving them visibility about upcoming price increases. But clearly, the sort of backdrop in terms of new construction demand is getting weaker. So I'm just curious, how are the customers actually reacting to your recent communications and attempt to push pricing further? Are you getting any pushback?

Well, it's always something that has to be done on the ground, and this is the power -- the superpower of our local organization because [indiscernible] our managers. First, 90% of the time, they are native from their country. They are not changed, it's Polish in Poland. [indiscernible], we covered Germany already, or [indiscernible] in the U.K., they are British and German. So they know their ecosystem and they relate very well to this ecosystem of local customers. So we have emphasized a lot and have done [ personally ] asking all our country CEOs for the last 12 to 18 months to be proactive in terms of local communication to their customers. [indiscernible] in France, we have taken the lead on that in early March of this year, talking myself and the French CEO to the Head of the Federation of [ craftsman ], the Federation of Home Builders and to define a framework, and we have been the leader for that and how to anticipate 2 months ahead the price increases, how to define fixed code within our digital outlets for 1 month. So that if I got a job at your place, Paul, and I come back to place the other as a craftsman within [indiscernible], I don't have a surprise. So 1 month of fixed code. And also putting forward the credit. We are, as you know, offering credit to the craftsmen we have in France, in the Nordics, in many places when interest rates from banks and financing is higher. This is a very good way to know our customers, know their upcoming job sites and have the loyalty with them. So it's all a matter of communication. I'm not saying there is no pushback, because it's difficult for everyone. We have done a lot of education to them to help them also not giving fixed costs to their end customers so that they are not screened. And even to the point where, for instance, in Germany, even though it's been a bit hard at the beginning of the year, we have been signed by some customers saying I should have listened to you early in the year because now, I know how to behave and how to anticipate because we all know that inflation is not going to disappear. So there is a learning curve in the overall chain in Europe, and we are participating to that. So that's for renovation across hundreds of thousands of small customers. On new build, what we are seeing is that for the prime home -- the prime barrier, it's a bit more difficult because the down payment is a bit more high and the interest rates then have a negative impact. So it's more for this kind of population that either you squeeze and you downsize the project of new build or there is a bit of slowdown in volumes.

The next question comes from Elodie Rall from JPMorgan.

Congrats. So my first question is on the price cost. I think you've said that you're running positive in Q3. I think you mentioned you were at above EUR 250 million at each one, so can you quantify what level you're running at currently year-to-date? That's my first question. My second question is on hedging. So you said you're hedged 60% for the next year, but we've seen energy costs coming down quite a bit recently. So could you tell us if you're hedged or if your hedging level for next year is higher than current prices? And my third question is on '23 outlook. I know you won't comment specifically, but I was wondering what your thoughts are about consensus expectations at the moment. Notably I think consensus is looking for operating margin at 9.2%. So I was wondering how you feel about that?

Yes. So LNG price cost spread, you are right. We are positive in Q3. I'm not going to quantify it for the simple reason because it does not make any sense in a given volatile environment. But what I can tell you is we are very confident that we will have the price cost spread positive for the second half. So what matters here is, again, the focus you are seeing. The country by country, Benoit mentioned about it, everybody is looking at the cost -- price/cost spread in the business. And that's what is making a huge difference because when you have business managers who are empowered, they are able to take decisions on where to push prices and where not to push prices, and making them accountable for overall price cost spread in a given country. It's really delivering the results, and you have seen the progress we are making on this front. So at this point of time, I would say that this is something which is managed well and we will continue to remain focused on it because for us, it is also very important that we need to start 2023 in a good note. So it is actually very important to anticipate this. Coming to the next question on hedging. It is true that it is coming down, but again, it's all relative. We were in August at EUR 340 million, EUR 350 million. When you talk of hedging today for 2023, it is still hovering around EUR 150 million, so it is still significantly higher. The fact that we have built flexibility in our plans, I think we will take a call at appropriate time. We will remain very vigilant and opportunistic. At the end of the day, we need to see that how we can optimize the cost as we go forward. At this point of time, we remain at 60%, but we will keep a watch on it.

And I will take the third point. And to elaborate also, Elodie, on what you asked. I think we have -- and this is where I'm very confident and very proud of, that all the teams of Saint-Gobain delivered that on the price cost spread, on anything related to their action plans on the ground with customers, [ our ] countries fueled extremely [ handsome ]. And they are fast, they have a real accountability, and that makes a big difference. So we are also on top, as you know, on hedging day by day. And if there are some opportunities, and I think we have managed extremely well over the last 2 years. There are some opportunities we'll capture that. But at this stage, we feel good with what we have going forward, and we feel good also on how we have prepared 2023 by the pricing dynamic of the current quarter and the last few months. Of course, we don't comment it will be in 2023, so that's not -- what I want to say again, is that Saint-Gobain has changed, Saint-Gobain changed. We have a transformed organization, empowered local teams, a real cultural shift. The culture of outperformance is there, and for me, this is the point. We have improved our margin in the first half. I think in the overall building material space, it was quite a performance to improve in the first half. This is the culture of Saint-Gobain in terms of outperformance, in terms of focus on execution. You have seen also how we manage the price cost spread, so the margin focus and the cash focus is super high within Saint-Gobain. And clearly, this is the priority -- the 2 priorities that are given to the teams over the last month. We have also -- all the benefits of the portfolio changes we have done, and whether on divestitures also the integration of strong acquisitions. I'm extremely happy with the start of Kaycan. As Kaycan finalized the year was July to July, they finalized even higher than what we thought at the time of the acquisition. So -- and the first 2 months, August and September, have been very good. So portfolio changes will help us going forward. We have a strong balance sheet also, even after GCP and Kaycan. And coming back to the long-term trends of Saint-Gobain, we talk about European renovation and energy efficiency, the need for that and the priority for governments, for household owners has never been that high. So I'm confident about the [indiscernible] for Saint-Gobain. I know and we all know and we face it that there will be bumps, but as I said in my introduction, we will continue to do our absolute best on what we can control and will continue to deliver excellent results for Saint-Gobain.

The next question comes from Matthias Pfeifenberger from Deutsche Bank.

I'll do a bit more digging of the -- Elodie's approach, if I may. In terms of crisis resilience, looked at on '08, '09, volumes down 14%, actually pricing up and then margins down to 5.9%. Can you maybe give some color, I guess? Is it fair to assume, depending on the depth of the recession, it's going to be less than minus 14% on the volumes? You traded 25% of your portfolio, and you just mentioned very strong acquisitions, especially also in chemicals. And then on the margin, I guess we talked about 200 bps of structure margin improvements. You also said the 9% to 11% corridor is without a financial crisis, so would 8% be a good level? Maybe some color? And then secondly, on volumes. Quite resilient, especially in Europe. What do you see in the fourth quarter or in the orders in terms of new build residential? Is that -- do you expect an overall further deceleration of the volume momentum in the fourth quarter?

Well, no, I would say, it's nice to try [indiscernible] and I appreciate the exercise. And of course, we talk about that a lot. And as I said, the priorities are extremely clear within the teams of Saint-Gobain in terms of margin performance and cash. Please, please, Saint-Gobain has changed. So I will not compare first because what we have in front of us has nothing to do with what we experienced in '08 and '09 in terms of scenario. And second, Saint-Gobain has dramatically changed in many aspects. So please don't look again at the real window, I don't know how you call that, you go backward. I look forward and I take the -- we all take the group forward, not backward. So we cannot compare with the situation that we faced with the financial crisis 13 years ago. See, we have an energy crisis, so energy renovation is somethings that's on top of the priority of everyone, so that's very important to keep that in mind. We said that we have -- through the portfolio and the transformation, we have gained 200 basis points. We have also delivered 370 basis points in the first half of 2022 versus the first half of 2018 prior to the transformation, so that give you some data points in terms of margin improvement, structural and what we have delivered, also with the addition of all the benefits culturally, management-wise in terms of the new organization and how close we are to our customers. Now on your last question, we expect for the group, the Q4 volumes to be same order of magnitude versus what we experienced in Q3, so that's what I would say. And I could add because you always ask, so -- you have not asked, but I will tell you, in October, from what we hear, is holding quite well. So that's no difference in October, and this is what I see on the market everywhere, and our teams are busy.

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

Yes, maybe another question on the price versus cost. So energy prices have come down substantially in Europe in the past few weeks. Could this sequential decline support your ability to generate another positive price/cost spread in the second half of 2022? And then another question is, could we see a margin stability or expansion in the second half? Or is it too challenging given the [ double decline ]? And then my last question is about the scope effect. So you're going to consolidate GCP. Do you have an order of magnitude of what's going to be the approximate scope effect in the fourth quarter of 2022?

So Sreedhar will take the third and the first. We don't comment -- this is a sales call, so we don't comment on the margin. I told you that we are very confident on the guidance, and we will deliver a double-digit margin for this year. So this is what I want to repeat again. Sreedhar, you take the first one?

Yes. So on the scope, we would certainly be a bit more positive in Q4. As you rightly said, given that we have GCP and also a part of the impact of Kaycan because Kaycan was integrated in first of September, so you will have some extra scope impact in the last quarter.

The impact of lower energy price, is it something that will be -- that you will benefit from in the fourth quarter? Or is it too early?

Keep in mind that as Sreedhar said, we have 80% plus, which is hedged. And yes, when there is punctually on a day-to-day basis, lower cost of gas. Of course, for the non-hedge part, we benefit from it, but it's very minimal because a large portion has been hedged. And as you have seen, some of our volumes have been a bit down in the third quarter. So the remaining piece is very small. And if you look at all this, if you were willing to hedge in November and December, yes, the gas price was [ 25 ] 2 days ago. But if you want to hedge November and December, it's still [ 120 ], so our hedging impact is much lower than that. And all in all, we are confident about this price cost spread, and Sreedhar has been very detailed on that. So you cannot take it day by day. Yes, it's so volatile. And of course, day by day, we benefit from it, but it's minimal in the big scope and we cannot bank on that. It's, I would say, in that regard, the year is done on energy.

The next question comes from Sven Edelfelt from ODDO BHF.

First question, can you explain which businesses are slowing down in the U.S. and are dragging your volume down? Second question, Benoit, you said your business is more resilient because of the disposal. Can you give us an order of magnitude of the trough operating profit of your EUR 6.4 billion revenue disposal? I mean, was it negative EUR 100 million, negative EUR 200 million? That would be much appreciated. And then a very quick one, very quick third one. Have you experienced any destocking effect in distribution?

So just one point of clarification, which is very important. In the Americas, we have been flattish in North America. We have been down in Latin America because of Brazil. So when you look at the Americas, the negative, it all comes from Brazil. And of course, you all know the political situation in Brazil. We are very confident about Brazil going forward. It will bounce back. But as we flagged that we -- almost a year ago, Brazil has been slowing down, and the last quarter has not been very good. We were together with Sreedhar in Mexico two weeks ago, visiting our teams, our Mexican CEO. And the recent acquisition of Impac in construction chemical, and for instance, the north of Latin America is stronger. And in North America, we have flattish volumes. It's strong -- a bit stronger on interior finishing, a bit lighter, slightly better than the [indiscernible] market, if I take the roofing association, slightly better than that, but a bit lighter on exterior products. So that's for Americas. I think it's very important. And as I said a bit earlier, even though some housing starts are a bit down on single-family, multi-family starts are strong. You also have in the U.S. but the U.S. now lag between the start and completion, so that should keep the businesses busy in the first half of next year. You have a bit of impact. It's a bit too early to quantify it of the storm in the Southeast of the U.S. for roofing that will deliver also some orders for the first half of 2023. So again, that's a mixed picture in the overall Americas between North America and within Latin America, specifically Brazil. On your second question, what we can say, and it's a general comment is that first, businesses divested, they were almost at 0 EBITDA margin. So they were dilutive. And as we all know, from a management standpoint, anytime you have a crisis, I take it as an opportunity. And I can tell you now, all the teams of Saint-Gobain are super motivated today to take the challenges that we have faced over the last 2, 3 years of COVID, supply chain, inflation, et cetera, and the upcoming challenges as an opportunity to continue to make a difference, to continue to outperform. And there are many areas, if I take automotive, we have outperformed a big way. The automatic market, thanks to our electrical vehicle position in many countries of Europe, we have outperformed the renovation market and the underlying market. So we take any more challenging time as an opportunity to make a difference because we know that the strong businesses accelerate even further in more difficult times and they increase the gap. And the weaker businesses, they get even bigger, almost at a threefold. So yes, I know that all those businesses in '08 and '09 dropped within the group more than the strong businesses. I take another angle because I think it's important you all know that, but I want to restate that. In glass, '08 and '09, we entered the difficult times of the financial crisis with overcapacity as a market. We are with under capacity in glass today, and it will remain so for the next 2 years on our side within Saint-Gobain. We have 4 [ flat ] lines less than in '08 and '09. If I take another view, if I take plasterboard in the U.S., the market has been more consolidated. We did that. We participated with the continual acquisition. So all those data points, I think, are also important to keep in mind that we cannot compare apple with apple. And yes, you are right that the weaker businesses which we have also did drop even further during the last time. But overall, again, the big picture is Saint-Gobain has been transformed, and we have a much stronger resilience. And all the teams, again, are adapting themselves very fast, and the pricing power we have shown is a result of that. If I take just pricing as one example, but I could take supply chain. For instance, one of the benefits we will bring to GCP and we have brought actually to GCP even before the closure, we started to work on that in June and July, is availability of raw materials. They didn't have the scale of the supply chain of Saint-Gobain/Chryso to have all the polymers, so they were lacking sales because of lack of raw materials. So all these organizations that we have in place is extremely important, and then to solve and take whatever challenge we'll face.

The third question on this whether there was an effect of destocking, it was very a little bit.

Marginally a bit.

Marginally, yes.

In Europe, a bit of that. More in July than September, actually.

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

Three questions on my side, please. Firstly, have you said anything or are you interested in Sika/MBCC assets? I guess, I think you mentioned in the past that GCP that was less interesting for you, but could you confirm? Secondly, you mentioned the U.K. slowdown. Would you mind being a bit more specific, whether it's driven by distribution or manufacturing or both? And lastly, you provided a useful update on the energy situation in Europe and what you're doing with your own businesses. Would you mind commenting on the competitive environment for the energy intensive businesses, in particular, flat glass and fiber insulation? Have you seen any capacity closures by your last year?

Yes. So MBCC, the overall answer is no because from what I understand from the communication that we can have externally is that I think it will go with the overall -- but I may be wrong, but it will go with the overall admixtures of MBCC in one go. And therefore, because of antitrust, we could not beat the serious candidate and we don't want to waste the time of Sika and others on this transaction. So if there were some smaller BCs, we could definitely look at it. But I don't think from what I've understood, but I may be right -- I may be wrong, sorry, we cannot look at it as one single transaction, both in the U.S. and in Europe. So that's the high level.

On the U.K., the slowdown is across the board. It is to do with the whole political instability. The country is going through the turmoil, and it's clearly impacting the business. So it is not specific to any one business. So U.K. is suffering for the last couple of quarters, and we hope that with the political change, whatever is happening and things should bring some more -- bring more -- some more stability on the U.K. I mean -- it's like -- either -- first of all, we've not seen any big move from the competition. And if at all, if something happens, I can only tell you is that Saint-Gobain will benefit from it because Saint-Gobain has prepared flexibility across the float lines and the glass insulation. I mean, we have given you a lot of detailed color on what are the different steps that we have taken on the flat glass. I think we are making a very good progress. It gives us a good situation of dealing with this uncertainty. The fact that the plants are being tested and we see that it is something which is a credible solution we have had, so we remain very confident of dealing with this.

We have seen some weakness or some restructuring being done by some of our automotive glass competitors in Europe registering capacity in the last quarter, so that's one comment I would make. Some competitors have stopped float in Hungary, for instance. All in all, I think, as I said, the overall market will remain under capacity in the next 2 years, so that's what we could say. But I will not comment more into the details.

Your next question comes from Nabil Ahmed from Barclays.

I have 3, actually. First one, if I look at your European volumes in the third quarter, they seem to be below 2019, and that's the first time for a long while. And you are now talking of a resilient renovation market in Europe rather than a supportive market, which I think was your words in July. Is there anything [ inceptional ] in Q3 volume we should be aware of? Or are we starting to witness a downturn given the current macro? It would be useful if you could elaborate what has changed last quarter. The second question, you've been talking a lot about energy and raw materials, but could you update as well on labor costs? Are you starting to see some pressure here for next year? And how easy do you believe it is to pass on to customers compared to energy and raw materials that may be more visible? And the last question, I think at the Capital Markets Day, you communicated about a range of 9% to 11% operating margin. But I also believe it was excluding any severe recession. Now, we may be facing one, and as you were pointing out, the group has changed a lot. So could you help us understand what's the operating leverage of Saint-Gobain now?

Well, first, on the third one. As I said, we gave you a very clear position on our double-digit margin ambition for the year. We will comment about 2023 in February when we will release our 2022 figures. So I say again that our focus is on margin production, keeping all the structural gains we have delivered in the last few years and cash. So this is what I want to restate again on the margin and how we focus on the margin going forward. And the fact that this year will be a record year and another second year with double-digit margin for Saint-Gobain. On the second one related to labor costs, yes, of course, there is a bit more inflation overall on labor, it's around 4%, I would say, for the group. So it's 1.5 points higher than it used to be in a normal year. But here again, our local organization has helped us to be extremely proactive. For me, it's extremely important that all the Saint-Gobain employees are engaged, that they are all behind the purpose, the strategy of Saint-Gobain. So we have been agile on both questions of salary. If I take France, there was a round of pricing of salary increase in February, March for the low-income employees. We had another one, if I take distribution in July, and we distributed also some bonus in October for some parts of the population below a certain salary. So we are listening actively to our teams. It's extremely important to look at their motivation. One thing, which is maybe not in our financial figures, but you know that over the last 4 years, since the launch of the transformation, we have had every year in the fall, worldwide employee survey across 165,000 employees. We started with the NPS, so the net promoter score, the satisfaction measure of employees. We started with 22. We were 35 last year and the last survey, which we just about 2 weeks ago, is at 38. It's a big jump from 22 to 38 in the last 4 years, and the participation rate of our employees jumped also from 74% 4 years ago to 84% across 165,000 employees in the last 4 years. So I can tell you that we are close to that. For me, it's important to have a low turnover. And I think when we compare with other industries, other competitors within our industry, we have a lower turnover and therefore, higher loyalty, higher skills and a very engaged workforce for Saint-Gobain. So we are cautious about that. It's very important to have all the teams of Saint-Gobain engaged. And here again, like with our customers, it's a lot, a lot of local communication on the priorities. Not too many, but to make sure that they are on board, and they are well treated. Last point, because I don't want to be too long, they've got also a large and good variable pay based on the 2021 results. Some of the variable pay is paid also quarterly in 2022. So we had a good first half, and they see also the benefits and the alignment between their strong efforts and the variable pay that is delivered to them. So it's a lot of data points, but for me, it's a very important question. It's also -- the success of Saint-Gobain is done by the teams of [indiscernible].