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

Good evening. This is the conference operator. Welcome, and thank you for joining the 2023 First Quarter Sales Conference Call of Saint-Gobain. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Benoit Bazin, CEO of Saint-Gobain. Please go ahead, sir.

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 together with Sreedhar, our CFO, we will discuss our Q1 sales and take your questions. We achieved solid growth despite a difficult environment with like-for-like sales up plus 4.7%. And it is important to note that we have growth in all our segments. We saw a marked decline in new construction and a good resilience in renovation. Overall, we outperformed once again, thanks to our strong strategic positioning at the heart of today's energy and decarbonization challenges and also thanks to our powerful local organization by country. We continue also to benefit from the optimization of our portfolio, which has reinforced our overall business profile and strong profitable growth. Remember that we have rotated 1/3 of our sales since 2018. We have also deeply rebalanced the geographic exposure of the group and we are strongly positioned on the structural and supportive renovation market. Our local organization by country allows us to be close to our customers which is more important than ever to make the difference during more difficult times. Our local teams are fully empowered to take proactively the right decisions on the ground. They are clear priorities. They are totally incentivized on them. This means that as we have already proven in the last few years, we are proactive and we act quickly in adapting to the local environment with the necessary commercial or industrial measures, be it optimization on price or on cost. This may be to respond to market needs with new innovation, offering also new services and added value to our customers or helping our customers manage the continued inflationary environment with guaranteed prices so that they can both confidentially and confidently [indiscernible] products. It may be also to debottleneck the plant, add or take away their shift and labor. Whatever we need to do, it is this local organization with stronger drive and focus on reasons. And above all these new structures country by country that allows us to act quickly and decisively. This is what has allowed us to demonstrate Saint-Gobain resilience in a difficult environment. And what will allow us to continue to deliver a strong operational performance and an attractive operating margin despite the more difficult markets. I now hand over after this introduction to Sreedhar, who will give you additional information about our first quarter sales.

Thank you, Benoit, and good evening, everybody. Let me give you more details about our Q1 sales. We achieved solid like-for-like sales growth in Q1, up 4.7%. The currency and the structural impacts were both slightly negative. Pricing was up 10.2%, mainly due to the rollover impact from last year's price increases and some additional price increases passed locally at the start of the year. We continue to demonstrate our ability to manage proactively inflation in raw materials and energy and deliver a positive spread even in the first quarter. We now expect raw materials and energy inflation of around EUR 800 million in 2023. Given the strong focus on price-cost spread by each and every country CEO, we remain confident in our ability to continue to more than offset this inflation in raw materials and energy for 2023. Our [ involved ] price effect should offset the expected inflation and prevent margin dilution from inflation. As we expected and mentioned to you in February, we saw a moderate slowdown in markets with volumes down 5.5% in Q1. We have a contrasting situation between the marked decline in the new construction and the good overall resilience of renovation market. I will now give you some details by segment. In Europe, we have a contrasted situation between Northern and Southern Europe. This is mainly due to the higher exposure to the new construction in Northern Europe. In addition, the inflation and interest rate hikes are also relatively higher than Southern Europe. In Northern Europe, we saw slight sales growth driven by prices in the context of a sharp decrease in the new construction, while renovation was more resilient. Nordic countries showed a slight increase in sales on a high comparison basis despite declining new construction market. Thanks to our presence across the full value chain and continued market share gains. The U.K. saw growth in façade and Interior Solutions on an easier comparison basis even though structurally, it remains difficult. Germany saw weak growth with the economic hit from the energy shock, higher inflation and a rapid increase in interest rates impacting the new construction market. Eastern Europe resisted quite well and fell only slightly from its record levels in Q1 2022, with high interest rates impacting construction markets. As expected, Southern Europe performed better than in particular to its large exposure to renovation markets. The region's sales grew 8% organically in Q1, with renovation demonstrating good resilience while new construction slowed. France continued to benefit from its strong exposure to the renovation market, which remains at a good level. Thanks to the various stimulus packages, for example, MaPrimeRenov, minimum energy efficiency schemes, et cetera, and a healthy order book. New construction declined. Our positioning on the full construction value chain and our energy-efficient solutions are enabling us to clearly outperform the market. We are leveraging our comprehensive range of solutions, and we are also accelerating the rollout of our new low carbon offer. Spain and Italy were driven by a good momentum in the renovation market. The Middle East and Africa showed significant growth. In Turkey, we are very happy that we have been able to join forces with Dalsan to create a leader in plaster and plasterboard with a broadened offer of light and sustainable solutions. Turning now to the Americas, where sales stabilized at a good level in the context of a downward turn and new construction market. North America held up well, driven by its complete light construction offering for Interior Solutions despite the weak new construction market. Regarding Exterior Solutions, we continue to gain share in Siding, thanks to our Kaycan acquisition. As a follow-up of Q4 2022, roofing continued to be hit by destocking from distributors during Q1. But it's picking up in April and should also benefit from the rebuilding after the recent storms. The integrations of Kaycan and GCP's waterproofing business continued to go well. With many commercial development opportunities. Latin America continued to see a difficult macroeconomic environment in Brazil, where high interest rates are weighing on the construction market. Elsewhere in the region saw better trends, and we finalized our acquisition of Termica San Luis, a leading insulation player in Argentina. Our Asia-Pacific region saw solid sales growth on a high comparison basis. India performed well, thanks to market share gains. We acquired U.P. Twiga the leader in glass wool insulation in India, widening our offerings to customers. China was able to show moderate growth despite pandemic impacts at the start of the quarter and Southeast Asia remained at a good level. High Performance Solutions saw organic sales up 9% in Q1, driven by strong innovation, the recovery of automotive in Europe and pricing. Our businesses serving global construction customers had a 50% boost with the integration of GCP. Good trends continue for Chryso driven by the strong innovation and the need to decarbonize the construction sector. Chryso is taking advantage of the group's global presence to accelerate its growth. With recent acquisitions in Brazil and Egypt in concrete [ additions ]. And the new construction chemicals organization is in place since end of last year, integrating GCP. Mobility saw 20% organic growth, driven by the progressive catch-up of prices. Our continued outperformance of the market, thanks to our strong technological edge in electric vehicles and the rebound in automotive market, particularly in Europe. We continue to see good sales growth in the Americas and Asia. Businesses serving industry progressed driven by pricing and demand for decarbonization innovation. To sum up, we continue to grow and outperform in a difficult underlying market. We continue to deliver on a positive price/cost spread. Our continued focus on cash culture has been reflected in our recent credit rating upgrade. Once again, this is under the recognition of the successful transformation of the group since the last 4 years. We will continue to proactively do everything under our control in order to deliver strong performance on margins and cash. I will now hand over to Benoit for concluding remarks.

Thank you, Sreedhar. So let me make a few comments about the outlook. In a difficult macroeconomic environment, our priority is to continue to demonstrate our resilience. As we have done over the last few years, dealing with different kinds of challenges and delivering very well. We are able to achieve this, thanks to our strategic positioning, which has never been more relevant in efficiency, renovation, light construction and all the commercial and industrial initiatives, which enable us to adapt proactively to the specific market trends in each country. For Saint-Gobain, I've been very happy about this first quarter, and I would like to thank all the teams, and I'm confident that 2023 will mark another successful year with the implementation of our Grow & Impact strategic priorities. We confirm the outlook for our markets in 2023 as we presented to you at the end of February with contrasting trends, the marked decline in new construction on one hand, but good resilience overall in renovation. And so amid a moderate market slowdown, Saint-Gobain confidence that it is targeting an operating margin of between 9% and 11% in 2023 in line with the Grow & Impact strategic plan targets. So thank you for your attention. And now Sreedhar and myself, we are happy to answer any questions you may have.

[Operator Instructions] The first question is from Jean-Christophe Lefevre of CIC Please go ahead.

[Foreign Language] Good evening, everybody. I have 2 questions regarding the pricing. First, a general question against the background of the decline of some cost of factors, mainly electricity and gas. Are you able in the coming months to implement additional price hike, firstly. Secondly, looking at fourth quarter 2022 and first quarter 2023, you keep quite good momentum in Northern and mainly Southern Europe in the price hikes. But we have a slowdown in Americas and Asia. Can you give us more color on this and maybe follow-up question on flat glass? Maybe if we look at German data, there is decline since December. Will you implement an additional price hike or not?

Thank you. So I will take question number one, and Sreedhar will take number two and number three. So we are managing the price-cost spread. This is the #1 priority for every single country. And within each country all the different product lines. So yes, we are able to push some additional hikes. I think one example, concerning roofing in the U.S., we have announced a price increase for mid-May of this year. But then I could go on a country by country. So it's based on the market environment. It's based also, of course, on the cost of factor. It's based on all the added value coming from our solutions and what we bring in terms of benefits to our customers. But the overall answer is, yes, our teams proactively on a case-by-case basis, first, have been able to push some additional prices in the first quarter versus end of '22. And second, we will have other measures planned in Q2 in various geographies or product lines.

Yes. If you just make sequentially, if you look at the numbers, it's not that easy to compare because from quarter-on-quarter, you do have certain impact of mix and put clearly when you refer to Americas, clearly, we did have certain Q4 -- certain impact of retrospective price increase and we had a similar situation in high-performance solutions, particularly in Mobility. So if you had to look at overall when I compare all the price in all the segments, either we maintain the price or opportunistically, we try to get an incremental price increase. So as far as the price levels are concerned, it is still in a good situation, and we have been monitoring it very closely to make sure that we don't miss on any opportunities wherever we can. And particularly, for example, we are also thinking of -- again, we have made an announcement of price increase in roofing.

I already said that.

there are many such opportunities. Now coming to your specific question on your 44 mm thing is the current price level is at EUR 5.6.

Okay. Follow-up question, EUR 5.6, including the energy surcharge?

No. We never had a...

We never have that, and it's something that 18 months ago, almost 2 years ago, we decided strategically to push and manage our pricing based, again, on the added value, good service and proactive solutions that we bring to our customers and not make it a mathematical correlation with any index. So we manage our prices based on the strategic market environment situation. And there are a lot of actions in other countries, I could name many other actions besides the U.S. example we gave.

Regarding the plasterboard price, I heard that you announced a price hike in Germany. Is this price hike sticking?

Yes, no, we could take another half an hour to go line by line , country by country but there are many examples where we continue to push up. We announced for certain customers, some price hikes in Gypsum U.S. as well. So there are many examples where, again, we manage it very well because in some geographies, even in Europe, if I take France, in the first quarter, we were very busy with plasterboard. I think we gained share and we have to supply plasterboard in France coming from Benelux and Spain. So some of those situations, we try to further deliver a very good service to our customers, which, as you know, we were the #1 [indiscernible] in the last 2 years; and second, optimize the overall market share balance for Saint-Gobain. So yes, it's one example that you mentioned, which is -- which is ongoing and confident that it will continue to make good progress.

The next question is from Paul Roger of BNP Paribas Exane.

So I guess my first one would be a follow-up in a way from Jean-Christophe's question. It's really focused on the price-cost spread. I mean clearly, you've got strong pricing in Q1, you just talked about some new measures in Q2 as well. And all of this is coming on the back of big reversals in some energy declines. I'm thinking particularly natural gas going down. And I guess my overall question is really, is there a possibility that the group's price-cost spread could actually surprise positively and in a way, be quite significantly positive in 2023. And then my second question, I think, Sreedhar, you mentioned that U.S. roofing was getting better in April. Could you just confirm that in your view, destocking is coming to an end? And maybe also comment about the outlook for the different U.S. construction product businesses generally this year?

Thank you, Paul. So on the price-cost, again, it is our #1 priority to manage a positive spread. So whenever we have opportunities to push up prices, we do it. Sometimes, we have to adjust and we do it. That doesn't mean the price-cost spread does reduce, but prices could come down. The point is to manage the inertia between some deflation on energy and raw materials and inertia on our pricing actions. So we manage that again very carefully, and I can tell you all our countries used are hands-on [indiscernible] to do that and with a very practiced fast, agile and power type of mindset and culture. So we are managing up and down based on the pricing, the cost and any opportunity we may have. Then your second question, yes, destocking is over in the U.S. on roofing. There has been -- it's not so easy to read the last 2 quarters in roofing in the U.S. Because some distributors, we are missing some products from some suppliers. Others were a bit overstocked. So Q4, Q1 is a bit difficult to read. But I can tell you, yes, the destocking is over. And you may have seen that we had quite a lot of storms across the countries. So it's not just one big one in Texas, but it's across the country from Minnesota to the Southeast. And actually, the good distributors are restocking and pushing up the orders strongly. So I think we'll have very good second quarter overall in roofing, and we have been happy even though our sales in Q1 have been down in roofing. We have used this opportunity to replenish our inventory of finished goods because we were clearly low. And we have used additional time of manufacturing for replenishing what we deliver now and we started to deliver in the last few weeks to our [indiscernible] . On U.S. construction overall, it's interesting I think we are not far from a plateau at the bottom. So I'm quite confident that, first the underlying demand is still very strong in terms of 3.5 million, 4 million of units that are needed for the population. Second, when you read the statistics, single family have been slightly up sequentially month-to-month in terms of housing starts and permits in March versus February. Multifamily is still slightly down, but I think we are not far from a plateau in terms of the statistics in the U.S. Also, the mortgage rates have started to stabilize. And now the end consumers in the U.S. are going to reset their [ expectations ] in terms of mortgage. So I think in the U.S. we may have maybe 1, 2 quarters, which are still up and down, but we are not far from, I think, the bottom. And again, it's a good bottom because we have 1.3 million, 1.4 million housing starts. We know the average [ meeting ] for the country is 1.5 annual. And last point I would comment is that the IRA. Of course, it's not directly related to construction that IRA is a very good stimulus package for the U.S. for the middle class in the U.S. for manufacturing jobs in the U.S. So I think it's going to boost the whole U.S. economy. So I'm confident. You didn't ask about Canada, so [ I will jump ] on Canada. As you know, we are big in Canada. We are happy about the Kaycan integration and what it brings to our overall presence in Canada. And Canada is doing well. And Canada should continue to deliver well in '23.

That's great. So can I just have one quick follow-up. I mean you talked about the demand environment. I think one question people sometimes have is about the sustainability of margins in U.S. construction products and they include the -- they look quite high relative to the group and to history. Do you have any view there about where they might evolve to this year?

First, no, it's a new [indiscernible]. So it's a new [indiscernible] around the world, and it's a new [indiscernible] in the U.S. And yes, we have tripled with 2 U.S. takeovers with Kaycan with a lot of good innovation and good offer to our customers. We have tripled the mass of operating profit in the last 4, 5 years in North America. And I'm confident that we are with a very strong powerful organization, gaining share. If I were to look at just taking siding versus 4 years ago, we gained, I think, in volume close to 30-plus percent volumes in [indiscernible] . And if I take 2022 versus 2019 in 5 in the U.S. and it is due to our solution selling across exterior products in North America. When I see what we deliver now in Interior Solutions, it's also quite strong. So no, I'm confident we'll stay in strong double digits in North America. Again, it's a new company. that's on Saint-Gobain. And second, don't forget that the market versus 10, 15 years ago are much more consolidated. We participated to drive the consolidation of plasterboard in the U.S. we did it also in Canada. Roofing is a consolidated market. So I think it's also quite consolidated and good customers on the downstream side with B2B. So I think the whole picture of the North American market has changed, and we are happy to lead as the #1 being [indiscernible] supplier in North America.

The next question is from Elodie Rall of JPMorgan.

So my first question is on volumes. First of all, if you could confirm the mid-single-digit decline that you had mentioned at Full Year Results and whether Q1 should be the trough in terms of volumes reported given the easier comparison days going forward? And my second question is on guidance. So you're looking for a market decline in new construction but good resilience in overall in renovation. So I've noticed a change there versus your previous guidance at full year on the new construction. So change in wording. You talked about a decline in new construction in certain region. So does that mean like the new construction has deteriorated further since full year results? And a sub-question to that. On the resilience on the renovation sector, how do you explain that? Is it your performance in particular because of your one shot approach generally? And if you could give us some color on the breakdown the performance in Southern Europe, France at 7%, I think, like for like Spain and Italy at 15%.

And in terms of volume, we remain very confident of this guidance, what we gave the mid-single-digit down. So when you look at -- you're right, the comparison basis at least for the second half should be easier. The first half would certainly be tougher. So Q2 will also be tougher than -- tougher like what you had in Q1. But yes, H2 should be an easier comparison basis. Overall, we remain very confident to -- confident on the guidance what we gave on volumes.

And for the full year, in terms of new versus generation, of course, you have got some downs country by country. But overall, we are in the ballpark of what we had in mind 3 months ago. So no specific change. Again, it varies country by country, but I would not take any conclusion out of that now, but resilience of renovation. First, keep in mind that in South Europe, we have more than 70% of our sales towards renovation. And in Northern Europe, it's more in the 55% plus. So it's quite [ different ]. I would add to that, that our renovation it's not do-it-yourself, our renovation is driven -- is B2B, we sell to [indiscernible] they have in France a fuller [ book ]. And keep in mind that we are talking about energy efficiency, heavy stuff not do-it-yourself, or I think some of our, for instance, our colleagues in which ourself and the Nordics published some difficult figures a few days ago. We are not in that situation, not at all. We are driven by energy efficiency, air quality, deep renovation. If I take the Nordics. After that, in some countries, I would take France, I would take South Europe, I explain Italy, we clearly outperformed the market. In France, we are being referenced of the market in terms of energy efficiency in terms of all the solutions we can bring to [ department ], training, credit, et cetera. So yes, there are countries where we are performing stronger than others. I do not say that in Germany, for instance. I would say that in the country, if I take a country like Norway, we are clearly doing well. But -- so you have those differences by country. After that, maybe 1 or 2 points on valuation. You may have seen that the parliament in Europe passed mid-March the very important setup, which is asking every country to translate into national law, the minimum energy efficiency performance. This is what we have in France with a trigger that started last September with an additional trigger this year. On the ability to rent, the ability to increase the rent, the ability to sell, if you don't have the right diagnosis on energy performance in terms of [ inland grade ], for instance, on [ wafers ], in France by law. You cannot sell even without delivering this diagnosis of energy performance. So this EU parliament is going to take a while to be translated in all the countries. But again, it's a very strong support for energy efficiency and some countries are already anticipating a bit of that. So I think you have to keep that in mind. And the last point I would mention on renovation is 70%, 75% of the time driven by personal savings. So it doesn't correlate to the highs of interest rates like we see the impact for construction markets and credit financing and construction markets, so personal savings. You do it. And sometimes actually, when the market for new construction are tough, we prefer to renovate your home then jump to something else. So this is also a super factor.

Great. And if I can just [indiscernible] a last one on pricing, just to come back to the previous questions. You had mentioned that you pushed some more price increases during the quarter selectively. And at full year results, you talked about a 3% pricing carryover, I think. So does that mean we'll be above 2% now?

Yes, it's slightly above. We just -- we have to -- it's a fact that we continue to remain very pragmatic and dynamic in the marketplace is done at a country CEO level. it should be slightly better than 3% for sure.

The next question is from Yves Bromehead at of Societe Generale.

Maybe just coming back on the last question and linking that to the margin guidance of 9% to 11%. I think, Benoit, you've often -- and Sreedhar, you've often said that you wanted to achieve double digits. I mean given what you're saying on the input cost side, which is now EUR 800 million and the pricing being above 3. Is it fair to assume that you're more confident today to be a double-digit margin in 2023? I could push you on that? That's my first question. And my second question is -- sorry, jumping on another subject, but one on Grenfell. I think we've seen some news recently with the U.K. housing Secretary. I guess I'm just trying to get the perception and your views in terms of the enforceability to pursue legal and commercial actions against Saint-Gobain. Are you worried? Should we be worried about any sort of repercussion this could have on your U.K. Building Products business?

Thank you. So as we said, it's the first time in '23, that Saint-Gobain guides on the margin. Our guidance, of course, is a full year guidance, and we are not going to micromanage the margin month-by-month or quarter-by-quarter. But keep in mind that usually, we don't give a margin guidance, which we did for this specific year. Depending also that we gave you this 9%, 11% margin range at the Capital Markets Day a bit more than 2 years ago. And good news, we are confident that we will remain within this 9% 11% range for 2023, which, again, the kind of the Capital Market Day was average for 5 years. We guided for specifically this year after the last 2 years of double-digit margins. So specifically for this year being in the range, of course. And this, despite underlying difficult markets. So we gave you, I think, Sreedhar and myself some color about the start of the year, and I told you that I was happy about how the teams have reacted and proactively super well on pricing cost to figure out. So we chose our resilience on the top line. We are not going to keep changing the target every month or every quarter. I can tell you that we are driven with a strong operational performance on Saint-Gobain. All the teams country by country, and this is the culture of Saint-Gobain are aligned in terms of incentives. It's a big cultural chain in terms of being totally aligned and driven by your P&L. The push added some value solutions which helps also on the pricing power. We don't fight SKU by SKU. So all this is good. And we wanted also with this margin to show you that even in difficult times, you are the investors are protected on the downside. So the new Saint-Gobain and we are here to deliver and will continue to deliver well. So to your second question. Well, first, you may have seen some of you then I said that we published a statement on the Celotex website because we participated. I think we told you that several times that we participated in order to help bring some relief to the family that suffer from this strategy. We participated in an alternative dispute resolution that we call ADR for civil claims, even though, again, it's not admission of liability, but we participated. That has been Board conclusion, and we agreed, Celotex agreed to make the financial contribution, which we booked end of 2022. So I cannot give the number, but it's not -- it's a small number, and it's very limited. But again, I think that was a good page turn for the family of this tragedy that there could be some financial compensation, which again is not any admission of liability because I read again that Celotex products have not proven to be wrong. Then, yes, [ Mr. Michael Go ] like you did last year, continue to write to some different stakeholders within the construction space. But we remind you and him that our products have proven to be safe. But second, we have a very limited exposure to the high-rise building even from 11 to 18 meters we participate in any consecutive initiatives to design and construct safe and safer billings in the U.K. But we are willing to engage with the government to help with new standards, with new regulations because I think the U.K. government did realize and [indiscernible] the flow in their building turnouts and regulations from the past. So we answer to Mr. [ Go ] that, yes, we welcome an engagement to help in the standout, but there is nothing else to say, and we'll continue to act with good products like we did with the Celotex products and act as a good, responsible corporate citizen. So I don't anticipate at all any legal ground for any financial impact on Saint-Gobain. But if we can continue to participate to better building regulations like we do it around the world, we'll be happy to do so. And this is what our U.K.'s [indiscernible] answer to Mr. [ Go's ] recent correspondence a few weeks ago. So no impact for Saint-Gobain going forward. And again, ADR has been put in the books of 2022. So I think the financial exposure of Saint-Gobain is now most over [indiscernible] .

The next question is from Yassine Touahri of On Field Investment Research.

Yes, maybe a couple of questions. First on the pricing development. It look like you had most of the improvement in pricing at the beginning of the year versus last year was in Europe. Could you confirm that this is the case? And could you maybe give us a little bit more color on which product -- was it like insulation, gypsum, [indiscernible] ? It would be very interesting just like to understand a little bit like the dynamic there? And are you confident that you can keep those price increases? And are you seeing any competitor be a bit more aggressive on pricing in the past few weeks or months? But that would be my first question. I just like to understand the sustainability of the price increase you are pushing quite strong? And then second question, would be more on the volume development. We are seeing a lot of living [ encounter ] in France, in Nordic, Eastern Europe, deteriorating quite markedly. And also, we see for many in France, like the order book of some small builders is coming up a little bit. Are you expecting -- do you feel that we could [indiscernible] volume in the coming quarters? As effecting this deterioration in [indiscernible] ? Or do you feel it's too early to tell.

I will highlight some points and then Sreedhar will elaborate more about the sequential pricing in Europe. What we have been doing for the last 2 years because it's not new in the quarter is to be extremely close to our customers. Keep in mind that in some areas, in some material product lines, countries, availability and good service of those products was and is still #1 in terms of issue because of the supply chain, which is not totally solved everywhere. So we have been very close to our customers to help also accepting, anticipating the pricing actions to incentify -- push what we are doing in France. When we have 400,000 partner with Saint-Gobain count in France, we deliver credit to them. And it's a credit [indiscernible] interest rate. So in both times, it's a big benefit, a big service to them to help them. So that's something that you put also in front of some actual pricing actions, plus good service plus good training from all the new energy regulations. And we have asked all our teams country by country to be very, very close to the customers. So that helps in terms of passing [ agreement ]. But then we are also smart to adjust sometimes negatively to adjust down some of the pricing. But Sreedhar, you will give a bit more color, please, on that.

Yes. I mean, again, if you look at sequentially, as I said before, we have either maintained or improved prices in all the segments. So it is not that obvious when you look at from Q4 versus Q1, as I mentioned, but when we look at all the details, it is across the board, we managed to either maintain or push the prices incrementally. So for me, it's going in a good shape.

And on your second question, for the leading indicator. Some leading indicators was no surprise, as we said, it's within the framework that we outlined at the beginning of the year on new construction, they are coming down. But if you take renovation, which is much bigger for us. And it is resilient, and there are huge needs. I'll give you one example of one topic that we discussed at length, public buildings. We have been and I have been passively advocating a lot in France within media, within the government and regulators, [indiscernible] , about renovation of schools and public building. Finally, for some of you who follow a bit the French actions, the French President [indiscernible] prime minister, yesterday evening talked about a big program for school renovation on energy efficiency not for design [indiscernible] computers. No, it's on energy efficiency. So that during the heat wave we had last June and May, you don't have the kids out of the school or at home. So we are there in summer -- so this is ne additional point of action and development and growth that we will have, for instance, in France. So again, it's very but renovation is resilient. We are driving a lot of the actions and solutions toward that. And if I take the order book of the craftsman in France, they have stayed at a very high level. So it's -- they are busy.

And maybe the very last question. What could be the next leg of your portfolio transformation?

The next -- sorry?

The next step on the transformation.

The next leg or the next step.

We continue to optimize what we think is right in terms of profitable growth. Of course, all that has to be aligned with our strategy of worldwide leadership in light and sustainable construction. It has to be aligned in terms of financial indicators, value creation at least in year 3, if not earlier. So we have been very disciplined. And you may know that we backed on some larger deals that were announced recently because it was way too high. We also aligned very much on the cultural fit. So we will continue to optimize the portfolio a bit in and out. I would say we have done the bulk of what I wanted to do in terms of significant divestitures of businesses far away from the strategy and/or far away from the financial performance and expectations they should deliver, but we'll continue to optimize. Recently, we divested from gas solutions in Sweden. And so we have been active. We have now totally exited our distribution in the U.K., in Poland and the rest of the general distribution we had in Denmark. So we continue to optimize and they are ongoing projects we are working on, whether it's on acquisitions or value issue. So I'm extremely happy about the 11 acquisitions we have closed in the first quarter. We didn't put that in the press release, but it's 11 acquisitions. Some nice add-ons on construction chemicals in Brazil and in Egypt, a very good consolidation in Turkey. Sreedhar mentioned it. Unfortunately, but Turkey is very, very busy to rebuild the country. So we are in more [ towns ] [indiscernible] construction chemical with [Indiscernible], we are [indiscernible] . We are [indiscernible] in Turkey. Insulation in India, it has been a 10-year dream to buy this company. We acted decisively. So it's part of -- so it's progressively continue to work on this geographic rebalancing of the group, light and [indiscernible] construction everywhere and profitable growth with a good fit in terms of cultural integration. Longer term to say, we are busy, and we are happy that we knew we had a strong balance sheet but we are happy that Sreedhar pushed all of us so well on free cash flow, and we are now with a very solid [ vetting ]. That doesn't mean we feel a forced buyer. We are very disciplined on value creation. I don't feel forced to buy a business at any price. It has to make sense strategically and financially for Saint-Gobain, but we have a solid balance sheet to size opportunities in the next 12 to 18 months or 24 months.

The next question is from Martin Flueckiger of Kepler.

Two questions, if I may. The first one is on GCP. As I recall it, GCP was having some difficulties in terms of underlying sales progression in Q4. Could you update us on the latest developments here at former GCP business? And what kind of synergies you've been able to capture from the integration, if any? I realize it's still very early days. If there hasn't been any so far, what you're targeting for 2023? That would be my first question. And the second question is on Sreedhar's comment really is a follow-up on his comments regarding the credit rating. I suppose you're referring to S&P, which was upgraded Saint-Gobain to BBB+. I realize you've got a free cash flow target out there in your strategy. But could you just talk us or update us a little bit on what your latest thoughts are with regards to your net debt situation? Where you would like to see net debt progressing over the next couple of years and what that would mean for the group's credit rating going forward?

I will take the first and Sreedhar will take the second. Yes, you are right to say that [ disappear ] and we knew that. [indiscernible] was more turnaround than [indiscernible] , which was and is still the best margin performance of this sector across the board. First, as we said in February, all the organization is in place, and it started a high level very fast in October, but done end of December. I think we will have -- and we start to have good news and good surprises but GCP in North America, in Latin America with Sreedhar in Brazil and Argentina was it 3 weeks ago. I can tell you, we have a super strong GCP manager in Latin America, extremely happy to be within [indiscernible] and a final good home in Latin America, not alone in Latin America, but with the full support and we know how big we are in Brazil already made some acquisitions. So we will have some positive surprises, let's take North America and Latin America as a example, [indiscernible] . I can give you the interaction on water proofing and ice and water shield, siding and roofing membrane in North America with siding and roofing is progressing very well. So on commercial development, an interaction with the teams and the cross-selling synergies. So on those fronts, it's doing well. We have all the synergies for '23 already identified and secured for EUR 25 million. We will update you in July on that, but I'm quite confident and optimistic, but it's too early to go into all those details. Everything has been done, of course, on the corporate side in terms of integration and also a very significant part of the program was related to purchasing and initial optimization. So it's ongoing. The purchasing synergies are more than confirmed in terms of actions and upstream integration with the polymer manufacturing of [ Caio ]. We have plans for additional developments. So yes, I'm happy with the development of GCP and the way Thierry Bernard, former CEO of [ Caio ] is handling all that with his team after one fantastic year of integration in '22 within Saint-Gobain. So it's progressing well. And we closed this deal in October last year. So I think it took us 9 to 10 months to close between enhancement and closure. So we have been now very active for more than 7, 8 months on progress with GCP.

So coming to the balance sheet, we gave 2 targets in the Capital Market Day. One is, for the first time, we talked about the cash conversion ratio is more than 50%, and that's something which we committed ourselves and we're consistently delivering on this. And the second point we said is to the balance sheet leverage. That's 1.5x to 2x of EBITDA. It's true that the last 2 years, we are at 1.2 level. And I'm happy to have a stronger balance sheet than what I committed because, as I said before, that having a stronger balance sheet is better, but I'm not going to come under any compulsion to use this money and any money will be spent is based on the value creation. I'm happy to stick to this commitment, which I gave. I think it's something which we have done, and you will see that the Saint-Gobain will remain disciplined. And this is S&P. If you look at it, Moody actually did upgrade us last year itself. S&P took actually their own sweet time. But I'm happy that finally, they also did it. So we have all the right indicators when you see all the ratios, in terms of debt and debt leverage. So I'm not going to change the new -- come up with a new target. So I just wanted to be clear on this, even though I'm better than what I said.

The next question is from Gregor Kuglitsch of UBS.

I want to come back, I want to just clarify a comment. I think in the introductory remarks, you sort of said your price-cost is positive, but not only that, you were also suggesting sort of to effectively over -- essentially keep the margin stable sort of on a volume constant basis. Is that what you were trying to say when you were commenting on the price-cost? Just to understand in terms of what you were trying to say there. And then maybe related to that, I think you've now taken your variable cost inflation guidance down by EUR 200 million, right? I think you were saying EUR 1 billion. Now it's EUR 800 million. You've confirmed, I think, in an earlier question that pricing will be up at least 3%. So is there -- is that basically the delta that compared to maybe 3 months ago, we should be adding? Or is there something else going on? I don't know on wages or below the line that we need to think about? That would be helpful if you could give me some clarity on that.

So the first question, Sreedhar commenting on the price-cost spread being positive in the first quarter. And that it should help us maintain the margin. But of course, you have the volume impact. So again, I'm not going to go more into the details of the margin guidance. I think I've been explicit that it's a full year guidance on the margin and that we will continue to have a strong operational performance for the group, the comment that Sreedhar made was everything being equal. And of course, you have a lot of moving pieces in the overall P&L of Saint-Gobain including on the margin. But we are confident with a good start. We are confident on the guidance of the year. And I think we'll give you some colors and reassure them that we are -- all our countries [indiscernible] and willing to do their absolute best on what they can control. Pricing, cost, all this is under our control. Cash as well. And I can tell you, we are all doing 100% of what we can control well. Sreedhar I think the second question was more on the spread between the guidance of EUR 2 billion and EUR 800 million now.

Yes. So basically, the reduction is you're seeing that is primarily all the petrochemical kind of things and energy is certainly lower than what we had expected. Whereas, all the minerals like gypsum, soda ash or sand, this kind of stuff is still going up. So that's why we are guiding lower than what we said before, but it is still an interesting environment, and we just have to remain vigilant to make sure that we don't miss out on anything.

The next question is from John Fraser-Andrews of HSBC.

Three for me, please. So just a quick follow-up on the last answer. Is the hedging now -- does that lock in the EUR 800 million increase? Or is there scope if there's further falls in energy for -- or rises for that to change? That's question one. Question two is on the comment in the statement about renovation being resilient overall, that implies that there may be 1 or 2 countries where it's not resilient, perhaps Germany, but on the same page. Can you say whether there's any of your main regions -- have they had -- were any of them actually flat in renovation or positive would be helpful? And then the final question is on the industrial and commercial actions to offset the lower volumes. If you could provide a bit more color on those and -- and if there is any quantum of cost savings that you've got in mind on those.

On the hedging, we said it in the end of February that it is very sensitive, and we are not going to comment much on it. Anything what we said before. In the level of hedging, which has not changed. We are not really in a volatile environment, we are not hedging. And we have to keep in mind that hedging is not used as a speculative tool for us. It is used more to mitigate the risk related to volatility. So I'm not going to say much about it. But again, when you talk about EUR 800 million, the energy-linked energy or energy related is you're talking about it just 25% is the total inflation. So that -- I think that should be helpful to have a little more color on the energy we look at cost in case.

And John, on your second question, you are right that renovation is resilient overall. There are some countries, not only Germany, if I take the U.K., [indiscernible] is down. So it's another country where renovation does suffer. Now there are some countries, if I take Spain, if I take Italy, it's positive at least we see that well in our figures. I would say France is a good level. After that, we would need to enter into the different product lines. But overall, France in regulation is holding well. So it's a good level, again, without mentioning what could come in terms of public building renovation going forward. Now on your question related to actions. I mentioned commercial and industrial action because commercial means very good savings, different credit for particular craftsman being easy to do business with, with pricing actions innovation. So a lot of tools that our country CEOs are using. And same on the price. If they think that volumes are coming down, they don't wait 1 quarter, they are proactive and it could be just not replacing natural turnover that you have, for instance, in some of the distribution assets we have in Sweden or in France. It's an easy way to reduce headcount. Of course, all of them have by nature and by design a very tight control on SG&A. Always, when you are early in the year, you make sure that you are safe on the discretionary expenses and discretionary costs. So this is something that we have shared, and it's not new on January this year, keeping in mind that our volumes were slightly down in the second half of last year. So I remember talking to our teams about that in June last year that, hey, you are in charge, you're empowered. So let's be vigilant and let's be proactive not reactive. So of course, after that, we have all the world-class manufacturing savings, the productivity savings in our plants. So it's a lot of different measures. I don't expect any significant change in terms of restructuring charges or things that because it's a lot of miscellaneous actions, but being done proactively country by country, whether it's headcount shift not replacing turnover and other variable costs and actions without mentioning the purchasing actions. Purchasing, we are tough on our purchasing teams, we are tough with our suppliers to make sure we optimize and we don't wait for next year to benefit from savings and purchasing. So it's a lot of different measures. But it's part of the, I would say, of the routine of our managers, and they have their P&L in their face every single month. So they are proactive on all pricing cost actions, cash as well as [indiscernible] .

Perhaps one follow-up. So then on renovation, is it fair to say overall that in the regions it is flat or even slightly positive?

Overall, for Europe, no, I would not say that. And trust me, we cannot micromanage exactly what is renovation, what is new builds, but overall, it might be balanced a bit of pluses and minuses, it would flattish. Whether it's plus 1, minus 1, I don't know, but it's a real [indiscernible] I would say.

The next question is from Tobias Woerner of Stifel.

Wage inflation. At the full year results, you said it was about 4% last year, and it would be a little bit more this year. Can you give us an update on that, where you stand with that? What you think that how it could develop this year? And that's number one. Maybe you want to answer that question first, and I'll continue.

I think we'll be around 1% of those last year. So that's what we expect for '23. And I don't expect that to come back. So we will not have the second round during the year. Last year was a bit of dynamic. This year, I don't expect to come back to this type of discussions during the year. So that should be around 1% more than the 4% of last year.

Okay. So in line with what you indicated at the full year, really?

Yes.

Okay. And then secondly, Sreedhar mentioned earlier that you still got ongoing inflation and most of our analysts would be aware that cement, for example, on the mineral side today. Sreedhar mentioned on the cement side, you got in some countries, additional price increases to the tune of 20% to 25%, 30% some cases since the end of last year. You have more businesses which buy in and rolls now with construction chemicals, you've already had previously other brands, which bought in cement. How do you find your pricing discussions on the other end, i.e., on your end when you have to absorb these price increases?

On purchasing and the last 2 to 3 years, we learned the lesson that is very important to have 2, 3, 4 sources. So we do that strategically more than 4, 5 years ago, Sreedhar mentioned soda ash. Yes, you have some European soda ash suppliers. You have some Turkish, you have some Chinese and it's up to us to balance and leverage this situation. So that's one. And it's true also for some of the materials you mentioned. It's true also that we have worked hard both for the cost standpoint reason and security of supply to reformulation of material. So we don't put cement in [indiscernible] we sell adhesives to cement. So on that, this is the beauty of [indiscernible] that we buy monomer, which is a commodity on the market, they manufacture their own polymer. And then they put these polymers into [indiscernible] , which was not the case of GCP. GCP, they were buying polymer directly from the BASFs of the world. So when you take a specific polymer, it's up 25%. You have no other choice, but buy it [indiscernible]. When you are upstream in [ Modernaire ], [ Modernaire ] it's a commodity market, and you could buy from Korea, from Turkey, from Germany, whatever it takes. And on this product reformulation, we are also very active. If I take [indiscernible] , if I take [ type 16 ] vendors, you have cement, but we have been working to [indiscernible] from a cost standpoint and also from a CO2 standpoint. So you may remember that 2 years ago, I think we highlighted the fact that we were the first worldwide to have the patented solution that was 0 cement mortar. So substitution of cement with clay with flag ash with what we call [ red tails ]. For instance, we take glass [ collects ]. We bring it back to [ car glass ] after that to glass [ wool ] insulation in [indiscernible] and also to [indiscernible] . We are also working everywhere to substitute raw materials, and it could be sand. It could be many. So yes, there are materials were there are inflation and you name some. But there are also a lot of R&D, innovation and strategic actions to lower the CO2 content and substitutes. So in terms of -- if you allow me 1 minute on CO2. In flat glass, we have been working hard in the last 3 years to substitute calcium carbonate. By definition calcium carbonate has a lot of CO2. We are working on roll-out tonight. I let you check what it's like tonight, but it's a surface of calcium with, of course, no carbonate. And the last one we have for certain color in glass in India was 90% [indiscernible] . So it's one example where we are not stopped with your calcium carbonate for post or CO2 reason. Use substitute. And we are up now. We started less than 5% 2 months ago. We have 90% for the latest trend in [indiscernible] in India . So those are the kind of measures that we continue to push. And then, of course, we leverage. We are a large cement buyer, I can tell you, both from a distribution standpoint and value to the product line. So we leverage our size and the partnership also we built with the cement players bit on the customer side on our 5 bits on the additive side as a supplier to them. So it's -- it's an overall value chain type of partnership that we push with them.

But in terms of your negotiations with your customers when you get these price increases, do you sense there is a bigger push back? Or it is what it is and it needs increasing?

You mean the customers of, let's say, [ term inflation glass or... ]

Yes, not on construction chemical side or the [indiscernible] ...

It varies to that if you bring a specific value proposition and it could be very good teams, very good service, innovation. You have a discussion, which is, as always, on price, not a mild one, but a good discussion. And I know Thierry Bernard personally went to the U.S. with some large and give customers and had a good discussion because they are happy to have a strong alternative with good innovation and support. So those discussions, if I take [ armatures ] went well on packing. Now if you take [indiscernible] the brand you mentioned, if you are on basic mortar, it's tough because you don't bring a specific value proposition. If you have, let's say, a very good service on thinking in terms of turnaround in less than 24 hours with a machine close to the job site because we have this ability to do that if I take France. Then yes, you can value the pricing because you bring the color match on the range of the festive, that the local craftsman would expect. So it's all about the value proposition and leveraging also the whole package of [ Sangoma ] as a complete solution. We have a very good example of that. We benefited from [indiscernible] products in the U.S. to have the full scope of our building materials at [indiscernible] , the largest -- one of the largest [indiscernible] in the U.S. And we do that across different countries. We look at all the points of sales, how many product lines of Saint-Gobain they buy, how many they could buy. What does it take in terms of service, training and logistics, customer support, to [ began ]. But yes, there is [indiscernible] , which is normal, like we put back on suppliers that inflation. But if you have a good service, if you are there and you have the credibility of the brand, the people, you managed to have the price increase that we have delivered in the first quarter...

Just taking a lot of time. So one very quick last question. Christophe always asks this 4 million enterprise question, and he's right, it's come off. But with auto demand recovering, are you starting to see that decline falling as we speak? Or is it still stabilizing as we speak? Or is it still under pressure?

It is -- we are adjusting in a very cautious manner depending on the cost reduction, what we see in our way. And we have to also keep in mind that the automotive market is going up, so that also helps to keep up the volume. So it's country by country, you need to take those calls and make a -- take a pragmatic view. I think, again, the pricing is all about keeping a track on price cost spread. I think that's very, very important to keep in mind. And the dynamics are very different in a country like India, Brazil, Mexico, than what you have it in Europe. So I think we just have to be vigilant, be close to the customer market and take -- make a decision. At the end of the day, what matters to me is the price-cost prep, and that's an absolutely clear expectation from all the businesses.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

So I would like to thank all of you for your time and your questions as you have understood we are happy with a solid start of the year and all teams being aligned with what we want to deliver in 2023, which will be another good year, a very good year for Saint-Gobain, the resilience of Saint-Gobain despite a difficult environment is there. We are happy to outperform the market. So I would just flag that our first half 2023 will be published on a Wednesday on the 26th of July, not a Thursday. Don't read anything behind that. There is no -- it was just a question of agenda. So Wednesday, the 26th of July. Thank you again for participating in this call, and have a very good evening to all of you.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.