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

Good morning. It is my pleasure today to present our first half 2023, together with Sreedhar, our Group CFO, who will give you all our financial metrics and performance. The key point, of course, is that we continue to deliver consistently very strong performance, record results in the first half of 2023 and 2023 will be again a year of double-digit margin for Saint-Gobain, the third consecutive year. Let me first share with you some of the highlights of the year before we go into the financial details with Sreedhar. I will start with a few illustration examples of how our solutions are delivered are used in the field country by country. One example in Bucharest, Romania of housing and office complex where 10 different Saint-Gobain solutions, both interior, exterior, solar control glass have been implemented partition walls, acoustic ceilings. Second example, the United Arab Emirates Pavilion that recently won the Saint-Gobain International Gypsum trophy. It does include 19 Saint-Gobain solutions, notably our glass mat reinforced plasterboard, but also acoustic solutions and insulation. Here, you have an example close to Paris, close to us, with Nexity. Nexity is a partner, and [ they chose ] 10 of our best solutions to deeply renovate what used to be the regional council headquarters. This project does use our new ORAE glass, which is, as you know, the lowest carbon footprint glass on the market and also our Placo Infini 13, our plasterboard that we launched a few months ago, which is made of more than 50% recycled material. And I finish with India, here, our teams have leveraged the full range of solutions of Saint-Gobain for the Indian Parliament. So a very iconic realization, of course, windows, facades, partitions, fire resistant glass, ceilings, et cetera, our solutions are everywhere in this building. Our financials now in the first half, once again, we have delivered new record results. On a like-for-like basis, our sales are up 1.6% compared to the first half of last year at EUR 25 billion. We delivered record operating margin of 11.3% despite more difficult underlying markets and our operating income is up 2.1%, at constant exchange rate to reach EUR 2.8 billion. Another record also on the recurring net income just above EUR 1.8 billion. And our cash jumped nicely by 30% compared to the first half of last year to reach EUR 2.2 billion. So a great set of financial results with new records. But we also continue to work on our extra financial performance. And we also just in the first half, we delivered on our sustainability roadmap with many examples, but I picked 2 of them; 2 world firsts that we achieved during the first half. In Norway, we have now started the zero carbon production of our plant in Fredrikstad, zero carbon production Scope 1 and 2, and we are the only manufacturer in the world to offer this. In March, we also carried out the world's first pilot production of flat glass with more than 30% of hydrogen. This would allow us to reduce direct CO2 emissions by up to 70%. So in a nutshell, our Grow & Impact strategy has proven to be very effective once again during this first half. We continue to roll out our offering with comprehensive solutions. You just saw a minute ago, some pictures of what it means in the field and how it allows our countries and our countries used to outperform our markets. Second, we continue to lead on sustainability, not only on the reduction of our manufacturing emissions but also now with our low carbon offer for our customers. Our local organization, which has delivered very well over the last years has proven once again how we can be proactive with the right action plans altogether. And we continue to actively strengthen our growth and profitability profile with no less than EUR 3.3 billion of sales rotated just during the first half of 2023. So I'm very confident that our strategy will continue to drive consistent and strong success for Saint-Gobain going forward. And I now turn to Sreedhar, who will give you all the metrics and details on our financials. Sreedhar, the floor is yours.

Thank you, Benoit. Good morning, everyone. Let me give you some more details about our first half 2023 results. Starting with sales growth. We saw an organic growth of 1.6% in the first half despite a very difficult environment. Pricing was up 7.9%, mainly due to the rollover impact from the last year's price increase with also some additional price increases and certain adjustments done locally in the first half. Our local organization continued to demonstrate its ability to manage proactively the inflation in raw materials and energy in each country by -- and by product line. We now expect raw materials and energy inflation of around EUR 600 million in 2023, almost all in the first half. Given the strong focus on price cost spread by each and every country CEO, we remain confident to once again deliver a price cost spread positive in 2023. And this is something which we did consistently for the last few years. As we expected, we saw a moderate slowdown in markets with volumes down 6.3% in H1. We have a contrasting situation between the market decline in the new construction and the overall good resilience in renovation. In addition, we had a negative working day impact in Q2 of around minus 2%. The foreign exchange impact became more negative in Q2, and we expect it to be something more in the second half when you compare with the spot plate of exchange now, it would be something like minus 4.5% for the second half. When you look at the operating profit, we have achieved again a record operating income and the margin despite the lower volumes that I just explained. The operating income has grown very strongly since 2018, with an average growth of 13% per year if we compare all the first half. And it is, once again, a double-digit margin for the third consecutive year, and we have gained 30 basis point improvement in first half as compared to last year first half. This demonstrates the resilience of the transform Saint-Gobain with a much better business profile and a decentralized and empowered country organization, which allows us to adjust and quickly adapt to the different end market situations country by country. We are managing our pricing and adapting our cost where we need to, at the same time, we are also investing for growth where we see opportunities. This is what has allowed us to deliver consistently for the last 5 years. Now let us look at the other lines of the P&L before -- below the operating income. We achieved another new record of EBITDA in the first half with also a record margin of 15% in the first half. The capital gains and losses line is mainly linked to the divestments of U.K. distribution with the currency conversion effect over the years. The asset write-downs and other lines is mainly linked to the impact of purchase price allocation for recent acquisitions like Continental Building Products, Chryso, Kaycan and GCP. Recurring net income reached a new record level of EUR 1.8 billion and recurring earnings per share is up 1.7%, benefiting from the share buyback program with EUR 160 million already bought back in the first half. We continue to buy shares, and we will deliver at least our 400 million buybacks for 2023, what we committed. If you look at the cash flow, we have achieved a free cash flow of EUR 2.2 billion. Free cash flow generation is now structurally higher because of the strong cash culture that we have implemented throughout the organization and also due to our strong business profile. The total CapEx of EUR 616 billion, up 4%, with growth CapEx increasing faster at 14%. This is consistent with what we outlined in the Capital Market Day that is to optimize the maintenance CapEx and reallocate this CapEx fund to move into the growth CapEx, which are in identified markets. So this should clearly lead to around EUR 2 billion of CapEx for the financial year of 2023. The strong free cash flow generation has enabled us to maintain a strong balance sheet, while at the same time, investing for the growth and also delivering attractive shareholder returns with return on capital employed, sustaining a level above 15%. The net debt-to-EBITDA ratio remained flat at 1.2x at the end of June. Now let us look at results by reporting segment. Overall, in Europe, we continue to see resilient renovation market despite the slowdown in new construction. And Northern Europe, as you know, is much more exposed to the new construction suffered more than the Southern Europe, and we see that after several quarters of slowdown, Q2 actually saw the same volume drop in -- as compared to Q1 at constant working days. Nordic countries resisted, thanks to our presence across the full value chain despite tough new construction markets, especially in Sweden. The U.K. was supported by market share gain in facade and Interior Solutions. The German and Eastern European markets suffered the most from high inflation and interest rate increases, which hit the new construction market. The region achieved a record operating margin of 8.6%, benefiting from the optimization of portfolio and also excellent pricing management as well as a proactive cost initiative. In the Southern Europe, our comprehensive solutions helped us to once again outperform. The region marked -- the renovation market continued to be more resilient thanks to the stricter regulations and subsidies whereas the new construction slowed. In France, we continue to benefit from our unique presence across the value chain and an undisputed leadership position in energy-efficient renovation with an ongoing increase of public support towards residential and nonresidential sectors. This is an excellent news for energy-efficient renovation in the country. Our position as the reference on the renovation value chain has allowed us to strengthen our market position in a very consistent manner. In Spain, our solutions for light and sustainable constructions are doing well in a generally dynamic construction market, while in Italy, the renovation market remains supported by stimulus measures which have been extended at a more sustainable level. We achieved a good operating margin of 8.6% in the region. In the Americas, growth was supported by the rebound in North America in Q2. This helped us to achieve a new record of operating margin in the region with a margin of 17.8%. In North America, the sales of our complete solutions for light and sustained construction and our strong renovation presence drove growth. The new construction market has stabilized over the last 6 months with positive signs at the end of H1. We passed a price increase in May in roofing and have announced another price increase in August. We continue to gain share in siding markets thanks to all the cross-selling initiatives implemented on Exterior Solutions over the last years. And similarly, we are doing a very good progression seen in gypsum market across the North American market. Canada, which is an important country for us now that you see that we have been making a lot of acquisitions. And we clearly see a double-digit growth in H1 coming from prices and as well as volumes. Latin America suffered from the macroeconomic environment still being difficult in Brazil where situations should finally improve by end of 2023. Mexico, however, benefited from a good integration of impact in construction chemicals with commercial synergies accelerating, and we also plan to build the new [indiscernible] plant on the impact site. Other countries in the region continue to be supported by sales price and enhanced positive mix, our targeted acquisitions such as Stone Wool in Argentina to enhance the range of solutions that we offer country by country in the region. In the Asia Pacific region, we saw good sales dynamic and achieved a strong operating margin of 12.5%. India performed well on a high comparison basis, thanks to the market share gains and an innovative offer. It was also driven by our targeted investments for growth with the successful integration of our acquisitions of Rockwool India Private Limited and U.P. Twiga, completing the whole installation offer and the country and the new capacities in glass, in particular, that we added recently. We are the pioneer in the green buildings in India, with our solutions widely used in the country, and I'm personally excited to tell you that we have launched even in a country like India, the first low-carbon glass for the market which is actually 40% less CO2 emission. China delivered a good growth in Q2 and after the start of the year being impacted by the reopening post-COVID. We opened a new plant in plasters and plasterboard to respond to the strong demand for the light construction materials to replace the traditional construction methods. Southeast Asia benefited from the diversification of our life solutions offering and continue to reinforce its position with the recent acquisition of Best Crete and [indiscernible]. Vietnam has improved its dynamic in Q2, and we also continue to gain share. Now let us look at our global markets, customer market that we saw a good sales growth, benefiting from innovation, the recovery in European automotive and prices are also holding up well. The margin was slightly below in H1 as compared to last year, that is 12.3%, given the price mix impact of mobility, but showed a significant sequential margin improvement as compared to H2 of last year. Our Construction Industry business showed strong growth, mainly linked to the integration of GCP. Chryso and GCP continued to show a good sales trend driven by innovative solutions to decarbonize the construction industry. Chryso is benefiting from Saint-Gobain's strong presence in industry and clearly, we see that in the emerging market, we are able to make acquisitions like Matchem in Brazil, and also we are able to quickly expand our CapEx and the new plant in many countries, particularly we saw India was done in a very short period of time. Our mobility sales grew 20% like-for-like, supported by a progressive catch up in sales price and recovery of European automotive as well as continued the good trends in Americas and Asia. We continue to outperform the automotive market, thanks to our strong presence in electric vehicle. Industrial markets were driven by pricing and our high-end market material and technologies to help our customers decarbonate with the industrial market mix. So to conclude, we have, as Benoit said, once again delivered record results and continued to outperform despite the more challenging underlying markets and particularly with the negative volumes. We are going to, as we said, deliver, again, a double-digit margin in 2023, which means that we are talking about a consistent performance for the third consecutive year which -- with a double-digit margin. I am very confident with the fact that we have an empowered and decentralized organization, where every country CEO is focused on customer looking at different solutions that we can offer. The differences we can bring in this market constantly, proactively adapting the cost structure focusing on margin, there is absolutely no reason why Saint-Gobain will not consistently deliver a good performance even in the future in the years to come. I'll now pass on the floor to Benoit. Thank you.

Thank you, Sreedhar. Now let me give you an update on our strategy. This new set of record results proves how our Grow & Impact strategy is delivering consistently strong performance. As the worldwide leader in light and sustainable construction, Saint-Gobain is stronger and more resilient than ever. Why is that? First, because we have positioned the group on high-growth markets. And second, because we have developed all the levers to outperform. Let me illustrate those 2 points. First, on our markets. They are driven by strong megatrends, climate change and the need to decarbonize construction, necessity to preserve natural resources in the circular economy and of course, rapid [ decarbonization ] in emerging markets. These 3 fundamental challenges call for a sustained growth on our 3 key markets, renovation, notably linked to energy efficiency, like construction and decarbonization of our initial customers. I start with renovation, our largest market. We have there a strong leadership in this market in Europe, and this is why we are making the most of the increasing regulatory momentum. Energy efficiency renovation is growing faster than general renovation estimated 4x faster in France, for instance. Why? Because it's the crossroads of the energy crisis, the climate crisis and social issues around housing. A few examples on the residential market to start with. In France, owners of [ dwellings ] with the lowest energy efficiency class, cannot trend their property anymore. And the rule is going to be further tightened. So you can estimate by -- in the next 5 years, roughly 17% of the current housing might have to be renovated in order to be rented. Also in France, the government just recently announced that they will double the subsidy MaPrimeRenov between 2021 and 2024 at EUR 4 billion. In the U.K. also, there is a minimum energy efficiency requirement for rental of private properties. This type of renovation tends to require smaller investment than new build and that are mainly financed by personal savings. We can estimate that by roughly 70% of renovation being financed by personal savings and therefore, less sensitive to the evolution of the interest rates. This momentum on renovation does exist also on nonresidential. Legislation at the European level does require by 2030, that around 1/4, 25% of public buildings should be renovated. In France, we didn't talk a lot about it in the last year, but it does exist. There is a decree that does require all large commercial buildings to get their energy consumption by 40% before 2030. In the Netherlands, all offices have to reach also a minimum C energy class from 2023. So all these regulations imply massive works of renovation to come. And this is why the renovation market is demonstrating some strong resilience. It makes a bit more than 60% of our sales in Europe. Our second market is light construction. It has many benefits compared to traditional construction. And this is why it's growing, depending on the countries, on average, 3 to 5 points higher than traditional construction around the world. In parallel to that, there is a structural need for increased new build in all regions. Everywhere countries are facing severe housing shortages. There is a shortage of close to 4 million houses in the U.S., and this is also why we see the bumping of housing starts, like we have seen strongly in May, an estimated [ 20 million ] in India, but also in many European countries. In the U.S., as I said, new build market is showing signs of stabilization with already key indicators starting to improve. Saint-Gobain is present in 75 countries, Western Europe, New Residential represents only 12% of our total sales, while we have also 10% in the growing markets of North America and Asia emerging markets for new residential construction. You know that each geography has a different cycle, which does smooth the group overall exposure to local temporary slowdowns because again, the shortage is there and is growing when there is a drop of new construction. And finally, on our global markets, the need for decarbonization is a strong driver for all our 3 segments. In construction, low carbon cement and concrete are growing rapidly with an expected 11% growth rate in the years to come. This is very supportive to our innovation for Chryso and GCP, our new admitters, which are a must-have component for this low carbon cement and concrete. On mobility, electrical vehicles are expected to grow roughly 33% annually between now and 2025, the demand particular performance for auto glazing in terms of shape, in terms of weight, in terms of solar control so that you can save on the air conditioning and save on the autonomy of the battery and for our [ security ] business. We are experts in this field in terms of cutting technologies on glass, and we have built a leading position in supplying the electrical vehicle around the world. And finally, decarbonization of industry. We have 75% of the world's biggest companies that have set net zero commitment for their industrial products or processes, they need specialty materials such as high-performance ceramics, which help customers to have less carbon in their industrial processes or products. So you see, all in all, our market fundamentals are robust, and our position is very strong on these megatrends. With our strategic plan Grow & Impact, we have also developed all the levers to continue to outperform on those strong markets. First, we are continuously optimizing our profile for more growth and profitability. This has been true over the last 4 years, during which we have rotated of [ ultimately 1/3 ] of ourselves, both through value-accretive acquisitions and divestments of the underperforming assets. We continue to be very active with EUR 2 billion sales acquired over the last 12 months and EUR 3.4 billion of sales divested. We are building a worldwide leadership position in Construction Chemicals. Chryso again has continued to show strong growth and best-in-class profitability during this first half by leveraging the Saint-Gobain worldwide footprint, Chryso has been able to expand in different geographies such as Brazil, India, Egypt recently either with bolt-on acquisitions or new production lines. And of course, building on Chryso and its very experienced management team, we are integrating GCP according to plan with many synergies already delivering results, notably on SG&A savings, purchasing and supply chain optimization. Everywhere, we have launched the backward integration of polymerization for GCP countries being delivered by Chryso and this will be fully effective in the second half. If I take just North America, were there 2 weeks ago, I can tell you that the combined forces of Chryso and GCP have also allowed us to have major commercial wins on [indiscernible] in the Americas. Another strong and dynamic example, of course, is Canada, where we have expanded with a complete offer of light and sustainable construction. With Kaycan on siding, we have acquired a leading position. The integration is on track with synergies being realized step by step. The last key product category that was missing for comprehensive interior but also exterior products was roofing for us in Canada and Building Products of Canada is the absolute perfect match. We expect to close this acquisition before the end of the year. I was there also 2 weeks ago, and I can tell you the teams are very eager to join the forces of Saint-Gobain in Canada and the forces of Saint-Gobain in roofing altogether in North America. So Canada is a very good example of how very good growth and very logical growth strategy has been implemented in the last 2 years where we doubled ourselves to reach roughly CAD 1.8 billion and being now the #1 building materials manufacturer in Canada. So all in all, we have deeply rebalanced our geographic footprint to support higher profitable growth and more resilience. Today, over 60% of our group income comes from the higher growth markets of North America, Asia and emerging markets. We continue to invest in those regions, 2/3 of our growth CapEx over the last 12 months and 20 lines of 23 were made there in North America, Asia and emerging markets. So not only on acquisition, but also capital allocation on CapEx. Our second lever to outperform is our powerful country organization with full ownership and accountability of our country CEOs on their P&L. Our local teams are empowered to make the right decisions. You know 90% of them are native from their country. They have a deep understanding of their local markets, the customers, the growing channels and they continue to outperform country by country. It has proven to be very efficient to deal with the changing market conditions, of course, in the last years, but also this year, priority was given, first, to pricing management, also commercial efficiency to push the value-added solutions and the different systems and outperform the market and also, when needed, proactive cost adjustments. Our countries use they have fundamentally the goal to increase what we call the share of wallet, their share of wallet with customers with cross-selling. A few examples there in Poland, we created one Saint-Gobain Solutions team to target complex projects, complex buildings and leverage our full offering. We target notably, for instance, the certified green buildings where, of course, the acoustic, the thermal, the visual, the air quality performance and solutions of Saint-Gobain are the best fit. Another example is what we have done over the last years in the U.S. on big box retail to leverage the full 5 product lines of Saint-Gobain and also on key account management with a large professional [indiscernible] merchant, distributors in the U.S. If I take just siding in the wake of exterior products offer, we gained 4 points of siding in the overall U.S. market in the last 4 years. And in France, we have also joined prescription teams, a few examples which are interesting in Paris. We signed an agreement with the City of Paris to take back all the plasterboard and glass when they renovate buildings and recycle that. It's part of our circular economy commitment. Of course, it saves on the cost of materials, and it provides a very good service on -- for the City of Paris. And another example, I mentioned it with Le Carré des Invalides in my first picture with Nexity for low-carbon affordable housing. Our [ share ] allows us to outperform the market also not only to cross-selling, but high value-added systems combining several products. This is illustrated on this chart. We leverage our innovation. So we move from basic fab glass towards sustainable solutions like ORAE, the lowest carbon glass in the market with all the published new environmental product declaration. We then combine this low carbon glass for instance, with solar control with high-performance coatings and energy efficiency. And it moves up in terms of all added value. Same story on plasterboard. From the standard board that sells around EUR 2 per square meter, depending in the country to moisture, fire-resistant robust plasterboard and then we combine it with other products of Saint-Gobain to make a system. It could be with a force fiber glass mat. It could be with glass wool. It could be with all kinds of products, including the GCP membrane and then you move up to a system. You can see on this chart, and of course, it's a very generic, it varies by system. It varies by country, but you can move from a few euros per square meter to 20x, 50x more when you reach finally the full solutions, set of solutions of Saint-Gobain, for instance, for global renovation, where we can save 80% of the energy for an existing single-family house in France or elsewhere. So that's a good example of not only the cross-selling, but how we develop more and more systems combining the products and moving up in terms of added value. And therefore, of course, the pricing power when we sell a full set of systems is much higher. So this is the power of our country-based organization in a nutshell, but I suggest we listen to 2 of our country CEOs in India and in Mexico. Let's take a few minutes to listen from them on their journey in their country. Let's launch the video, please. [Presentation]

To conclude, we have all the levers. We try to continue to outperform, a very agile and empowered local teams and country organization, cross-selling of innovative and high value-added full range of solutions and a value-accretive dynamic capital allocation and portfolio rotation. Now let me give you an outlook for the rest of the year. 2023 will mark another successful year for Saint-Gobain, and we'll continue to implement our Grow & Impact strategic priorities. We confirm our assumptions for our end markets in 2023 that we presented at the beginning of the year, at the end of February, i.e., contrasting trends between a marked decline in new construction in certain regions, but good resilience overall in renovation. And we are raising our operating margin guidance. Amid moderate market slowdown, Saint-Gobain is now targeting for full year 2023, a double-digit operating margin again, for the third consecutive year. For the second half of the group is targeting an operating margin of between 9% and 11%, in line with the Grow & Impact strategic plan targets. I now have time with Sreedhar to take all your questions. Thank you.

[Operator Instructions]

I suggest we start with the questions from the room, sorry, because we have the generosity of different research analysts coming to our headquarters in Paris. So I suggest to take the questions from the room. Yes, Arnaud.

Yes. Arnaud Lehmann, Field Research. 2 to 3 questions, please. The first one, can you update us on your guidance on the inflation -- the energy inflation incremental cost? I had in mind you were around EUR 800 million for the full year. So I suspect you could probably revise it down? Second question will be on the distribution margins. Could you just give us a little more flavor on the evolution of the margin in H1 in the distribution business versus the one in the manufacturing business for Southern Europe? And the third one is on the guidance for the second part of the year, 9% to 11%. So for the third consecutive year, you have provided a double-digit margin and regulation for that, by the way. You are still mentioning the 9% in your second semester guidance. What parameters of the equation could lead you to post only 9% in a context where normally, the energy costs will be further down in H2?

Thank you, Arnaud. So you take the first.

Yes. So on inflation at the beginning of the year, we actually indicated around EUR 1 billion. End of April, we said EUR 800 million and now we are saying EUR 600 million and almost all the inflation is in the first half, okay? So that's one message to retain. The second, on this inflation of EUR 600 million, around 10% of the inflation is coming from energy costs and within energy cost is primarily because of electricity. Otherwise, the inflation, what we are seeing now is all in minerals, notably gypsum, sand, soda ash, [indiscernible] have gone up because I think everybody is focusing on CO2 and sustainability. So these are the reasons why we still have some inflation. But overall, the trend is good. Again, the most important point to keep in mind is that we are very confident to deliver price cost spread positive, not only for the full year but also for the second half. I think that's the point which you need to retain.

On the second question, so we run our different business between 6% and 7% of operating margin. So we are there. And it's not only France, it's also in the Nordic countries. So we are there in the first half, benefiting from strong market share overall presence on the full value chain, not only distribution, but all the rest, including manufacturing and benefiting from the strong resilience of renovation. So not much movement on the -- on those margins, whether I take the Nordic countries or a bit down in Nordic countries because Sweden is affected, but very good resilience overall in France. And within the guideline we gave at 6% to 7% for distribution in Europe. On the guidance, keep in mind that first, this year was the first year ever we guided on the margin for the full year. So I know you appreciate that. And what matters is indeed the full year margin. We are not going to give you the quarterly margin that should be a bit of micro management. On the second half, what we want to say and to show is that you are protected on the downside. And second, to be consistent, Saint-Gobain doesn't want to give negative surprises. You are protected on the downside, and we are consistent with the guideline and the range we outlined at the time of the Capital Market Day in 2021. So this is the main message protected on the downside. We keep the guideline that we had at the time of the Capital Market Day, as Sreedhar said, the price cost spread will be positive in the second half. After that, we'll have ups and downs, notably on new build. I don't expect new build to improve in Europe. I expect, I said it new build stabilize, if not improve at some point in North America. So you have ups and downs by region. But overall, protected on the downside, confidence in the second half. Full year margin is the big picture. And as you know, we will continue to do our best for Saint-Gobain. So that's what I would say on the overall year margin, which is important to us and the second half. Next, Jean-Christophe.

Two questions at this stage. First, follow-up question with Arnaud regarding distribution. Distribution, this is a key crossing point in the Saint-Gobain value chain. If we look at France, notably POINT.P subsidiaries, the margin is close to 9%, 10% it means that Nordic distribution is much below? Second issue, the Saint-Gobain solution project in Poland also in France, is that direct sales to contractors? Or does the distribution network play a role?

I don't know, Jean-Christophe.

It seems to be more important.

Your French margin because I don't look at the figure the same way. And what is important to us is that both country because I look at that, as you know, by country. So it's not only 1 Point.P versus Placo in France or Isover in Sweden. We look at the full country margin. First, that's the very important point. There is not any more one business versus the other. I look at the performance, when we deliver Nexity, it's delivered by the French performance, not only one business of glass or plasterboard or distribution. And second, the 2 businesses of Nordics and France are in this range of 6% to 7%. If you think some are higher, fine, but it's very important for us that every single asset, whether it's manufacturing, whether it's distribution, is within the guideline that we outlined. U.K. distribution obviously was not there, and this is why we divested in February. Second, on the Saint-Gobain Solutions. In the particular case of Poland, it was, yes, delivered directly. But at the end of the day, what matters is the prescription because sometimes you can -- in a large country, like the U.S., what matters is the prescription of our sales teams, and then the logistics can be done by distribution. And it's also a very interesting and important dynamic that when you have strong technical teams, you prescribe and then you give business to your distribution partner so that they're happy that this business that can provide to them, thanks to your power of prescription. And it might allow them to give you a bit more of the stock items of the traditional stocked items. So it's not only a good dynamic on the prescription of direct sales, but also it has some ripple effect positive on the richness of what you -- what they carry in their inventory. Another question in the room before we turn to -- we can always come back. I'm sure Arnaud will follow up with some questions at some point. So maybe let's take some of the questions. I see Elodie Rall first in line. So let's turn to the question from Elodie.

The first question is from Elodie Rall of JPMorgan.

Can I just ask about the outlook of volumes from here? I mean I know you said you don't expect [ new peers ] to stabilize in Europe. You see some better trends in North America. You talked a bit about renovation. What -- would you say that we've seen the worst in terms of volumes and that from here, we should see at least an improvement in the rate of decline? And would you say that in '24, we could see a stabilization or recovery in volumes? And then I have a third question on volumes actually, specifically on France and on renovation. You said energy efficiency renovation is growing 4x faster than the normal renovation, I think, and that stimulus is increasing further for 2024 in this sector. So would you expect positive renovation volumes in '24 as a result? And then lastly, on free cash flow, you've had very strong performance. Free cash flow conversion was exceptionally strong at 65%. Do you think that you can continue at this level in H2 and maintain performance at this level for the full year?

Thank you. Sreedhar, you start with cash.

Okay. So cash, Elodi, I'm happy that we are consistently, again, delivering the good free cash flow, free cash flow conversion. I'm not going to guide you only for second half. We have said 50% is our objective, and you've seen consistently, we have surpassed this objective. I remain very confident of delivering a good free cash flow, and this is something which is now across throughout the organization, everybody is focused on cash.

And on the question, your question on volumes. So overall, we are in line and we expect to be in line with our full year guidance on volumes, i.e., mid-single-digit down. As you know, the comp will be a bit easier in the second half in terms of comparison. So that gives you the flavor of, yes, indeed, the rate of decline slowing down a bit. I'm not going to comment on 2024, except to say that in 2024, also the comp will be easier. And on top of that, we gained market share in a lot of countries, I think Sreedhar mentioned some of them, including in Europe, be it in the U.K., be it in France, and we'll continue to push our added value solutions and our particular focus on energy efficiency. Specifically on the French market, the statistics that I mentioned is coming from the [indiscernible], which is the Federation of [ Craftsman ] in France. So it's not the statistic from Saint-Gobain. And regarding France in 2024, again, for me, the good news, among others, is that we have an increased support 2x more than 2021 on the subsidy, MaPrimeRenov. Keep in mind also that on schools, on public buildings, there have been announcements, EUR 2 billion in the next 4, 5 years on support and renovation of public schools in France. So there are also some positive like that. And my last comment on the '24, in France, that we'll have the Olympics. Saint-Gobain is a proud supporter of the Olympics, and I will not comment more about the volumes in 2024 because we'll do that in February next year. But we are confident about all the trends of Saint-Gobain going forward, whether it's renovation and particularly energy efficiency, whether it's our ability, I mentioned it to outperform with a lot of levers, whether it's also the fact that in some countries, then I take the new build had on some countries, again, we have stabilized I think versus the markets or some investors in our road shows over the last 6 months, we have been a bit more optimistic on the U.S. market, and we have proven to be right. The view of housing starts in the U.S., it has stabilized. May was actually the highest jump month-to-month since 1990 in the start, and you still have this shortage of housing. Canada was up double digits, both between volumes and price. So you have also some new build that at some point will bounce back. So all in all, I'm confident about the trends of Saint-Gobain going forward, whether it's internal performance and delivering exceptionally well on what we can control. The job of all of us is to make sure that we maximize the positive of what we can control, plus some good support on renovation or new build in some geographies.

Great. And if I can throw last bonus question maybe on construction chemicals. Could you give us some indication on where margins are at the moment on that division? That would be helpful.

Margins are moving nicely in the right direction. And I cannot be as positive as I can on the quality of the teams and the integration that has been done between Chryso and GCP. So margins are moving nicely in the right direction, not only because of the savings on purchasing, on supply chain, on SG&A, but also because of the very good price cost management and pricing by product by customer that has been implemented very quickly across different geographies of Chryso and GCP. So I'm extremely happy. We'll update you in early '24 about the full year of this great business, but I'm extremely happy with the move faster than what I thought, frankly speaking, on the evolution of not only the margin, but also the top line momentum. I highlighted some of the examples in the U.S. for construction chemicals. And we are perceived also -- it's interesting to see that a lot of people are joining us. I think we are perceived as a good dynamic, winning team on construction chemicals.

The next question is from Yves Bromehead of Societe Generale.

I just wanted to circle back maybe to the volumes in the HPS division. In H1, your like-for-like is down approximately 1% on the nonmobility side of the business. I just wanted to know if you could maybe comment on what was the driver behind that given that there would be some pricing in here? And also on the margin performance, 12.3% in H1 is up sequentially, but down year-on-year. How should we think about the margin as we go into the second half of the year for that division? My second question is on pricing. You've commented on the roofing price increases in May, the one that you've announced for summer. Actually, could you maybe give us more transparency in terms of, are there any products for which you are still increasing prices sequentially in H2 and inversely, are there any ones where you're starting to see a downward evolution of prices? Last but not least, my last question is on the cost side. You've mentioned that you've proactively taken measures at the country level. Can you actually quantify the cost optimization and the savings that you've done in H1? And what would be your estimate for the full year?

So I will take the third and the second, and then we'll move back to the first with Sreedhar. Third question, quantifies improvement in the margin, it's as simple as that we move from 11% to 11.3%. It's a commission of cost action, pricing, commercial wins. And I think that's the best answer we can provide to you and an easy one. On the pricing, if I move back, yes, roofing is one. I'm very happy about overall the price cost management everywhere. Then you have to go country by country. So yes, there are some areas where we sequentially continue to move on the prices. If I take -- Sreedhar will answer about HPS, but mobility, we continue to push up, and there will be some in the second half of pricing actions. It's true on the different construction products in the different areas of the world. It has been very sustained at a high level in North America, for instance. We had pricing up in Canada. I mentioned it. So it varies country by country, product line by product line. What is important is to understand, I think, we highlighted it several times over the last year, that a country's CEO is incentivized on the margin. So their job is to make sure that they deliver good margin, an improved margin year-on-year, and sometimes it's increasing the pricing on one product line. Sometimes it's dropping a bit the price we have adjusted, for instance, some of our pricing in glass in Europe, but not elsewhere in the world to make sure that we continue to have the right balance between market share, price cost and overall P&L margin. So this is what our country CEOs are doing. And the beauty about Saint-Gobain and the new organization is that you can play with a lot of product lines. Now if you just -- in stone wool, you have to sell stone wool and you have to deal with your prices of stone wool. We sell stone wool, glass wool. We sell plasterboard. We sell glass, we sell plaster, we sell ceilings, and in countries you can play with all those product lines. And this is why we have the ability on top of what we are doing on cross-selling and added value systems, we have the ability to not only protect or gain market share, but also improve our margin. So the recipe then is the fitness and the intimacy of our country CEOs, country by country, with our channels and customers, and they do, I would say, a splendid job. And the result, as I said, is in the margin. You take the...

Yes. So coming to High Performance Solutions, if you recall, last year in the second half, we did mention that mobility market, particularly the OEMs, it was a tough market to get the price increases. And this is, again, a great example to demonstrate the change in the culture, change in the focus of the result orientation throughout the organization that where Saint-Gobain did take a tough posture where we actually push the prices up. So we saw the impact, which was coming later on. So there was an impact in the second half, which was dropped and then first half is improving. That's why it's important to look at the sequential progress that we are making in High Performance Solution. So we are in the right direction, and this margin of 12.3% is a very good margin, and this is something which we are very confident to hold on in 2023. Now coming to your industry, why we see a negative. I think there's one element we need to keep in mind that we have a business within the High Performance Solution is construction industry, which is a part, not the construction chemical, but there's another thing called ADFORS, which is basically the fabrics we make, which is much more exposed to the new construction market. So we see that market is getting impacted. So that's clearly one reason why we see some downward trend there. But otherwise, globally, the other industrial markets are moving in the right direction.

The next question is from Roger Paul (sic) Paul Roger of BNP Paribas.

I have 2 questions, please. Firstly, on the energy efficiency regulation. Obviously, you've spoken a lot about this. But I'm just wondering how set in stone those initiatives actually are? And whether they're already sort of legislated for? And I guess I'm asking that because we saw last year with what happened with the coal fire power stations that sometimes the green agenda can collide with political reality and often the latter wins. And then secondly, can you remind us, Sreedhar, how hedged you are for natural gas in the second half, please?

Could you repeat...

Basically, the energy efficiency, Is it a serious affair because people need more to call...

So is energy efficiency a serious affair?. The answer is, yes. And I highlighted one mechanism, which I think is a good one and a very powerful one is raising the bar from minimum energy efficiency. So it's not something across the board in thousands of angles. It's basically raising the bar with minimum energy efficiency, be it on the residential or nonresidential in order for you to rent your house or sell it. I can go a bit deeper into that since May 1 in France of this year, each time you sell a house, you need, by law, to have a diagnosis of energy performance, plus the list of the work that is required, let's say, if you are F and you need to move to C. So if you are the buyer or the seller, you can easily understand the dynamic you are trying to sell your G or F type of [ dwelling ] because you don't want to renovate it or you cannot rent it anymore in 2 years or 3 years. And the buyer is seeing the list of all the works that comes at the discount in the value, that comes as an upside if you sell C or B or D class. So all this dynamic is now on the ground. It's not a theory, it's on the ground, by law, if I take France, if I take the minimum energy efficiency in the U.K. So it's a good thing, to raise the bar from the bottom for several reasons. First, because that's the easiest to renovate. When you move from F to C, we highlighted several times that an average energy efficiency, home renovation is roughly EUR 250 per square meter in France. It does improve your energy bill because you save 70% on the energy bill. It does improve your real estate value. So that's on the energy type of things. And second, on the climate, there has been a study from the scientific committee in France that all the F&G [ dwellings ], they make 70% of the CO2 emissions. So if you care more about the CO2 than the energy deal, you have also to deal with those [ dwellings ], raising the bar from the floor. So it's moving up nicely. I don't think energy will come back at a very cheap level everywhere because we will move towards more green electricity, green energy that does require a lot of investment because we are lacking overall green energy, so it will be more expensive. And we see that going forward. So energy efficiency is a sales matter because that's good for the energy bill and social issues, good for the climate and also good to save the energy and the green energy to put it in the areas where you need it. The good thing about housing that you can have a passive house with 0 energy, you cannot have electrical vehicle with 0 electricity, you cannot have an industry with 0 energy. So we need to preserve the green energy for transport and industry going forward.

Coming to your question on hedging, Paul, I'm not -- I'm sure you'll not be happy with me, but the fact is that we said end of February, this is a very market sensitive information, and it didn't help us. Last year, we gave a lot of information to all of you because it was a very peculiar situation. It was very volatile. In any case, nothing has changed from what the information we gave in the past. So that should give you some confidence. The second thing, I think, to help you more is that I said EUR600 million, only 10% of that is energy-linked inflation. And out of that, also, I said it's all coming from electricity. And electricity is less volatile, particularly when you see the factor of the CO2, the CO2 is going up, the carbon credit price is going up, and that gets reflected on electricity cost because everybody is asking for electricity to avoid gas, which is a direct impact on the CO2 emission. So honestly, hedging is not an issue, and we remain confident of delivering price cost spread positive in the second half to. And it's very well managed, very closely monitored.

The next question is from Cedar Ekblom from Morgan Stanley.

Just a question on cash flow and the balance sheet. At the end of the first half, your net debt was up year-on-year. And I think we can understand that linked to the cash outflows for acquisitions and also working capital outflow at least in the first half of this year. I just want to understand, as we look into the second half of the year, how powerful should the working capital inflow be in the second half? And is it reasonable to assume that your net debt should be lower in December of this year, even with the roughly EUR 1 billion outflow that will be coming linked to the Canadian Building Products business?

Sreedhar?

Yes. So Cedar, again, you're asking me a difficult question to give me a very precise number, what I'm going to end up with the debt at the end of the year. I think what is important to know is, again, there is a very good focus. You have seen, if you look at the last 12 months, the free cash flow has enabled Saint-Gobain to also not just take care of the CapEx, growth CapEx and the shareholder return, but also take care of large part of the M&A that we did. The GCP, Kaycan acquisition, the large part of it was paid through a strong free cash flow generation. So we remain very confident. I think the other way of looking at it, we gave a leverage ratio, 1.5x to 2x. I think we will remain at the low end of this ratio, what we will see at the end of the year.

I understand that. But sorry, just a follow-up. So I guess I get where you're coming from with the net debt-to-EBITDA ratio and you have had strong cash flow generation. But since the second half of 2020, we've now had a consistent increase in net debt in absolute terms. Sure, it's been at the same time as a strong increase in absolute EBITDA and cash flow generation. I understand that the two go together. But I think that the market is going to start focusing on when do we actually start to see the net debt in absolute terms move lower, right? And I'm not asking for a point estimate at the end of the year, but is it reasonable to assume that your net debt at the end of this year should be lower than the net debt at the end of '22 because you should have a working capital inflow, which I guess would be offset by the outflow linked to Canadian Building Products? I don't know if you would...