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

Good morning. It is my pleasure today to present our first half 2026 results together with Maud Thuaudet, Group CFO. Once again, we delivered a very strong performance in the first half. To show our Lead and Grow plan in action, as always, I start with a few examples of Saint-Gobain solutions being used around the world in iconic, residential or nonresidential buildings such as this Brazilian medical center. Also this airport in Singapore, where we leveraged our waterproofing solutions to enter early in the specification stage in the project and subsequently specified 12 other Saint-Gobain solutions, both in the building and on the runway. So lead and go in action very actively across the board. Now moving to our financials. We have delivered strong operational execution in H1 2026. Organic sales growth up 0.7%, strong EBITDA margin at 15.4%, robust EUR 1.7 billion recurring net income and also strong free cash flow with a 65% conversion ratio on EBITDA. In the first half of 2026, we have also delivered successfully on our key Lead and Grow strategic priorities. On outperformance. First, all regions have been growing strongly in the second quarter and have accelerated the rollout of their solutions in nonresidential and infrastructure markets. Altogether, the group has delivered plus 3.5% organic growth in the second quarter. Second priority, we continue to invest in high-growth markets, our Construction Chemicals solutions have strongly outperformed. It's a strategic priority as well, strongly outperformed with 8.5% organic sales growth in the second quarter and 13 out of our 14 new lines and plants have been opened in H1 in North America, in Asia and emerging markets. So a very decisive and clear capital allocation on growth markets. And finally, as you have seen, we have moved decisively on M&A with acquisitions and divestments being signed or closed in the first half with around EUR 3 billion of sales rotated since the beginning of the year. That is already 1/3 of our sales rotation target of more than 20% by 2030. So altogether, I'm very pleased with both the strong operational and the strong strategic execution of the group in the first half of 2026, which bodes well for the rest of the year and for all our Lead & Grow plan for the next 5 years. I now leave the floor to Maud, who will take us through our financial metrics.

Thank you, Benoit. Good morning, everyone. I'd like to give you the details of our financial performance for the first half 2025 -- '26. And I will start with the top line, where we achieved sales growth of 0.7% like-for-like in H1. This was driven by a robust Q2, up 3.5% like-for-like, with growth in all our regions. We saw strong growth in Asia Pacific, up 7% like-for-like, a return to growth in Europe, up 4% and positive like-for-like growth in the Americas. Prices were up 0.8% in H1, stable in Q1 and up 1.6% in Q2. Thanks to the price increases and the transportation surcharges that we passed as the cost environment turned inflationary. This reflects, again, the value added of our solutions and the disciplined execution of our teams. As you know, the situation in the Middle East is volatile and changing day by day, we continue to expect mid-single-digit inflation on our EUR 12 billion raw material, transportation and energy bill, but this is a moving target for 2026. Overall, we remain confident to deliver a slight positive price cost spread for the full year. On energy specifically, I would highlight that our energy bill is below 4% of group sales, has gas have electricity, and we are well hedged for the year and beyond. And for this year at 75% plus in 2026. The exchange rate impact was minus 1.3% in H1, including around minus 6% in North America and Asia it turned slightly positive in Q2. For the structure impact, it was minus 0.5% in the first half, reflecting our active management of the group's profile. We have announced or closed divestments and acquisition close to EUR 3 billion year-to-date with an accretive impact on the margins of 40 to 50 basis points on a full year basis. We are again strengthening the profile of the group, allocating capital to our investment priorities. Regarding EBITDA and margins, we delivered strong operational execution with an EBITDA margin of 15.4%. And is benefited from the return to growth in Q2. Foreign exchange still had a negative impact in H1 as the regions most impacted by the depreciation versus the euro, were North America and Asia and have higher margins than the group's average. Hence, there was a dilutive effect. Depreciation increased by 3% in H1 with the recent opening of new lines and plants. Now if I move to EPS, nonoperating costs was similar in H1 2025 and we continue to expect a bit below EUR 250 million average per year. The capital gain and losses line is particularly low this half but should improve once we close the dial divestment. Net financial expense was slightly down with the decrease in gross debt, the tax rate on our recurring net income was 25%. And lastly, EPS decreased 2.6% in local currencies. Let's look at cash now. We generated free cash flows of EUR 2.1 billion in H1 with a cash conversion ratio of 65% on EBITDA and 125% on recurring net income. Operating working capital was stable at 24 days sales and June 2026, a very good level. At a similar level to last year, and we expect it to remain around EUR 2 billion for the full year. We maintained a strong financial discipline and a strong balance sheet, the net debt ratio is 1.6x. We once again made disciplined capital allocation decisions. Towards value creation for shareholders with EUR 1.4 billion return to shareholders in H1, including EUR 292 million of share buyback year-to-date, reflecting our opportunistic approach to our share buyback program and around 90% of our growth CapEx and investment in M&A were deployed in high-growth markets. Return on capital employed over the first half reached 13.5% in local currencies, impacted in actual terms by the foreign exchange. Now let's look at the results by region, starting with Europe. Looking at Europe overall, we saw a return to growth in H1 with sales up 1.7% like-for-like. This was driven by Q2 with like-for-like growth of 4.1%, the strongest growth in the region since 2022. In terms of local dynamics, First, starting with Northern Europe, we delivered 3.7% organic growth in Q2, driven by all countries with the exception of the U.K., which faced a softer market. Elsewhere, Nordic countries grew also benefiting from the mix improvement with high value-added solutions, Germany returned to growth, supported by good trends in insulation and light construction and Northern Europe continued to outperform with double-digit growth in Poland and in the Czech Republic, including an additional 1 percentage point achieved thanks to cross-selling by the teams. Now turning to Southern Europe, Middle East and Africa, which delivered 4.5% organic growth in Q2 driven by new construction, industrial solutions and market outperformance. We continue to outperform in France, thanks to our large offer in terms of solutions and services. Spain and Italy grew with continued market share gains in Interior Solutions and construction markets. The Middle East achieved double-digit growth in Q2 with a strong performance from Turkey and all the tribute going to our exceptional teams in the region. In terms of margins, Europe were flat over the half. And the start of the year was affected by unfavorable weather conditions, but by return -- balanced by return to growth in Q2 and good pricing and cost management. Moving to the Americas. North America saw 1.2% organic growth in Q2, a strong improvement compared to Q1 with the normalization of weather condition. Despite new construction remaining down, volumes were driven by roofing, plasterboard, siding and construction chemicals, where we continued to outperform strongly with double-digit growth. Prices increased slightly year-on-year in Q2, and sequentially, the price increases led to more substantial improvement. Latin America decreased 1.3% like-for-like over H1 on a high comparison basis. The region saw slight volume growth but prices below last year, given lower raw material and energy prices in H1. Prices were up in May and June, however, as the environment turned inflationary. If I look now in Brazil, new construction market is soft, but we continued to gain market share in light construction and construction chemicals. Mexico and Central America continued to benefit from the double-digit growth of CEMEX. Overall, the Americas region delivered an EBITDA margin of 19.5% and stable versus H2 2025 as we expected. Turning lastly to Asia Pacific, which grew 8.4% and in local currencies and 7% like-for-like in H1 with growth in all our major countries as well as in Industrial Solutions. India once again delivered double-digit growth, volume growth and further market share gains, thanks to our complete innovative and sustainable offer. We participated to a number of infrastructure and nonresidential projects, thanks to a particularly well-fitted construction chemicals offer from Fosroc. Southeast Asia continued to show dynamic growth with double-digit growth in Vietnam, in Indonesia and the Philippines. Australia saw growth accelerate in Q2 in an improving new construction market. We are benefiting there from our specification model. Last, in China, once again, we outperformed continuing our growth seen in since H2 2025. The EBITDA margin for the region reached a record of 18.5%, supported by volume growth and good price and cost management. So to sum up, we delivered robust Q2 growth with positive like-for-like in all our regions Operational performance was strong with good price realization. Our priorities from here are clear outperformance margin, cash and disciplined capital allocation. We are fully committed to deliver value creation for our shareholders. Now Benoit, I turn it to you for the strategy.

Thank you, Maud. Let me now give you an update on our strategy. We are the only provider of comprehensive solutions, delivering both performance and sustainability across all construction markets. And this is a crucial competitive advantage and our solutions through a push and pull dynamic, deliver value for Saint-Gobain with cross-selling upselling and specified sales that increase our share of wallet, our mix and our margin. We have also broadened our addressable markets to target EUR 500 billion across residential, nonresidential and infrastructure markets. And as you know, we systematically roll out our solutions across all our geographies. So let's start with a look at Europe first. New build is improving, driven by better affordability since 2023. We see today strong improvements in housing starts across multiple countries. We also continue to see policies that are supportive for energy-efficient renovation. And importantly, this is what you have at the bottom of the slide, green value continues to increase, up 8 points on average reflected in real estate overall prices. We are well positioned with our unique one-stop shop offer. We are the partner of choice for more than 400,000 craftmen in France with, for example, a unique customer journey dedicated to energy efficiency performance upgrades. We track our solutions on added-value products, 47% of sales in Germany on specified sales, 37% in Czech Republic, staying in Eastern Europe, you have seen that it's a very strong dynamic as we speak for us. So in Eastern Europe, cross-selling gains generated approximately 1% of additional growth in the first half. In Europe, we also leverage our full range offer to expand in nonresidential and infrastructure markets. Tech schools, for instance. We know it was a very acute topic in the last weeks in France, but across Europe. They have been severely disrupted by the successive headways in the recent weeks. We can decrease indoor temperatures by at least 10 degrees during the heat wave, thanks to our full range building develop offer for summer comfort, including solar control glass, Cool Roof Waterproofing, attics and faced insulation, distribution digital services and so on. Once again, climate adaptation is an urgent need. The cost of inaction starts to escalate rapidly. So climate adaptation is growing in Europe and around the world, Saint-Gobain is there to deliver the best comprehensive offer. I now turn to North America, where we are the preferred partner for our customers in residential. Our strong leadership allows us to further roll out cross-selling actions. And I can tell you that having invested more than $8 billion in the last years makes us extremely credible in the eyes of this win-win partnership with the large distributors. With our full exterior solutions, we are the best player to address the increasingly extreme weather conditions in North America. We have, for instance, a differentiated offer, including our certain integrity roof system that exceeds the fortified standards and can reduce insurance premium by at least 22%. So a very meaningful economic impact. As a result, we have a 7% increase in our contractor engagement program and strong brand loyalty across our multiple products. In North America, we are also expanding in nonresidential and infrastructure markets. We are well positioned to serve fast-growing segments such as hospitals, data centers and airports. We have established strong dedicated offers, and we differentiate with highly innovative solutions, not only on building materials, but for instance, like our chip level liquid looking liquid cooling tubes for data centers, very, very close to the processing units. As announced this week, we have also signed a framework agreement with Microsoft to help them accelerate the build-out of their data center footprint using the full set of group integrated solutions. On infrastructure, we will soon further enrich further our offer with the recently announced Xypex acquisition in crystalline waterproofing. Let's now turn to India, Southeast Asia, where we outperformed with our solutions -- we have delivered double-digit sales growth in local currencies in the first half in those geographies. In India, first, where we have the undisputed #1 position on buildings that has been the case for several years already. We are expanding fast on infrastructure with ourselves being multiplied by 4x last year, thanks to our leadership in construction chemicals that we have acquired with Forsec doing extremely well altogether in India. In Southeast Asia, we have also delivered strong sales growth in H1, leveraging dedicated specification teams and catalogs on our priority and markets. look at Australia, where we have a #1 position in Interior and Exterior Solutions with extremely strong and iconic brands and also a very strong key account management approach across architects, builders, contractors, and we leverage all this towards the full Saint-Gobain offer accelerating in Australia and New Zealand. In Mexico, we are also accelerating on cross-selling and specification with CEMEX leading the way and continuing with a double-digit sales growth now for 18 months since the acquisition in early 2025. So I've gone through the first 2 pillars of Lead & Grow, which are the rollout of our solutions, both across geographies and also end markets. Now the third pillar of our strategic plan is to continue to optimize with determination, the profitable growth profile of the group, which has created over the last years, a lot of value for our shareholders and will continue. We continue to actively steer our portfolio optimization. We have rotated around EUR 3 billion of sales since the beginning of the year, of which EUR 2.8 billion with divestments and a bit more than EUR 200 million in acquisitions. We continue to build and work on a healthy pipeline of value-creative acquisitions. And we are always very disciplined on capital allocation with the same clear priorities day in day out. We invest on the higher growth regions in North America, Asia, emerging countries with 90%, EUR 9 of our acquisitions and growth CapEx being invested in those regions in the first half and we invest on construction chemicals. This is our journey towards EUR 9 billion of sales by 2030. So it's both a very strong performance on organic growth, plus acquisitions with very attractive ones in the first half, such as Xypex in North America that I already mentioned. AGC waterproofing in Japan that we have announced at the beginning of this week, and also Morteros de Europa in Dominican Republic. You know that at the core of our value creation model, we have our country platforms with experienced and empowered country COs compounding profitable growth. Take, for example, North America, where our teams have increased our sales by 60% since 2019. Mexico, Eastern Europe, India, Southeast Asia, where we have multiplied our turnover by 1.5% to more than 2x over the same period. All our countries, I can tell you, are committed to creating value and outperforming our markets by rolling out operational excellence and the full offer, the full solutions offer towards all their end markets. In order to do that, or country CEOs, they are helped by multiple group expertise platforms. One of them is on AI. We leverage on artificial intelligence, the group scale expertise, master data. We have been a very large organization. We have a lot of data. This is extremely important to train the LLM, and we are rapidly rolling out our advanced purpose built AI solutions that create a significant competitive advantage for the group. In distribution, we are multiplying our sales opportunities with very fast automated quotes. It's a big job within the sales outlet on your codes for the craftsmen and the faster you answer the higher the chance for the craftsmen to win the ultimate job. This is what we call internally our the Lead & Grow solution, enhancing customer experience and sales people productivity for at the end, a larger average basket saving time. So they have time to work on something else and follow up with customers, so increasing customer intimacy and also better mix in terms of sales. We also rely on in-house AI tools to increase the conversion rate of our specification cells. On R&D, another example, we leverage AI to substantially increase material discovery and time to market up to 40%. And in our plans on manufacturing, we roll out tailor-made AI tools to increase efficiency, for instance, when you have a changeover from product A to product in manufacturing, you can use AI quite a lot. And of course, we are generalizing the use of AI tools across all support functions to boost the group efficiency. Let's now turn to our outlook for the rest of the year. You can see our expectations for each geography with overall like-for-like sales growth in the second half. Europe growth with contrasted trends by country Americas growth in an uncertain environment and Asia Pacific growth led notably by India and Southeast Asia. We expect an EBITDA margin of more than 15% in 2026. To conclude, we are well on track to succeed in our Lead & Grow strategy, leveraging on our 2026 momentum. Lead & Grow gives us a very powerful road map for the next 4.5 years. First, depending and enriching our value enhancing solutions and expanding them across nonresidential and infrastructure markets where we have a lot of market share still to gain. We have seen the momentum in the first half already. And second, sharpening constantly the group's business profile through active and value creative portfolio rotation. All this with ongoing excellence in execution supported by our proven operating model by country. So I'm very confident that all this will continue to deliver strong value creation for all Saint-Gobain stakeholders and that 2026 will be a good year for Saint-Gobain. Thank you very much. And we now turn to your questions for both Maud and myself.

[Operator Instructions] There are no questions in the room. I see a lot of Saint-Gobain phases. So we will take questions from Saint-Gobain bit later on. So let's start maybe Jean-Costeau, one question from the room.

I have a single question on the Construction Chemicals. Recently, there was an agreement from work agreement between Chryso, Bouygues, Point.P regarding Ecocem regarding to provide better solutions for really be concrete. Can we have more flavor on this? And does it mean that step-by-step value, the value will be transferred from cement to readymix concrete?

Well, thank you, maybe not everyone is familiar with your topic. Indeed, we have a participation, which is very interesting in Ecocem, which is a very low carbon cement out of slag. And with the addition of Chryso, of course, you need special emitters for that. So it's the journey of Saint-Gobain to deliver sustainability and performance across the value chain of construction. We all know the big, big topic is to decarbonize both concrete and cement. So Ecocem with the innovation of Chryso is important. Of course, Point.P is also part of the equation and using that. So it's our journey towards decarbonization, sustainability performance. So each time you do that, there is more value indeed on the special emitters or the special additives. So it's good. And it's very important now that we have the full presence across the value chain. So it has been almost a 20% partnership with Ecocem, but the addition of Chryso in the last 4, 5 years. Of course, it has been extremely important to align all the dots on this journey. Ecocem is growing fast indeed because we need to move towards more low-carbon cement. So there are multiple investment from Ecocem going forward, but I think some of them are confidential. So -- but yes, it's a growing journey and very important for Santa for Chryso, both on growth and innovation.

This beside agreement, or ABCD is not only for readymix also for cement or the solutions will be priority dedicated to concrete to really this concrete.

No, no, Ecocem is active on cement. So it's also valid for low-carbon cement absolutely. Thank you. Any other questions from the room? I don't see. So let's turn to the call. I think it's a question from Elodie if you can clear through the screen on Saint-Gobain screen.

Can you hear me?

Yes.

I'll start with price cost spread. So you've reiterated that you expect positive price cost for the year. But I was wondering if you can give us some color on H1 price cost. I imagine it was a bit difficult with the U.S. And second, staying on the U.S., if you can give us some color on margins for H2. You kindly gave us some guidance into H1 at around the same level of H2 '25. So now that we're normalizing weather, should we expect H2 margins to be above H1 and then lastly, I don't want to take much time, but if you can give us some color on the pricing already secured for Q3 and how it compares to the 1.9% impact in Q2 and out of that 1.9%, how much of the price increase was due to fuel surcharges that could potentially be given back if this decrease.

Thank you, Elodie. So I suggest Maud you take #1 and #3, and I will answer number 2.

Sure. So regarding price gas prices, indeed, we said we confirmed we would deliver a slight positive price cost spread for the full year. If I look at how we have delivered in H1, again, I mentioned that we have seen pricing realizing through Q2 to indeed overall reached 1.8%. We are slightly negative as we speak, in terms of price cost spread, and we'll continue to work towards this slightly positive price/cost for the full year. It's been a very hard work from the team, obviously, to deliver country by country and quite happy with how we have taken measures from day one, from the beginning of the conflict and ramped up on the price realization, and it's going as planned as far as price cost spread is concerned.

Question number two. So your question on margins in the second half. Margins in the second half should not be very different from last year, probably a bit below. We have new construction, which remains weak versus some of the past last year. We have the assumption also of continued inflation, which is still going on in North America. And of course, we are working on it on the pricing side to catch up and continue to catch up in terms of pricing. Also keeping in mind the strong timing of price increase that we had last year. We have a good momentum very good momentum on nonresidential infrastructure and particularly construction chemicals, which would continue. The weather impact has been normalized. So any weather impact could be an upside, of course, in roofing going forward. Now there are still a bit of volatility in the U.S. in the second half. So this is the picture, all in all, in North America. It's still early in the second half, but I can tell you that the teams are very dedicated on the ground, and we have been happy about the performance and the delivery in the second half, both in terms of volumes and also pricing improving strongly in the second quarter.

Yes. And the third question regarding particular surcharges. So we passed transportation surcharges in some geographies, transportation being quite volatile with the fluctuation of the oil price. Just to remind you that transportation costs are about EUR 2 billion out of our EUR 12 billion total raw material, energy and transportation costs. So that gives you an order of magnitude. And obviously, in terms of where we are in pricing. Again, we've seen good momentum and good mobilization from the team as soon as the conflict started. So again, I'm looking at with quite a lot of confidence on with this, of course, being opportunistic on the surcharge and being very watchful of all the situation in terms of inflation, where as I said, the situation is quite evolving day by day.

Thank you. Now we have questions from CIC, I see. Please go ahead. If not from CIC with second on the list, we'll go to Arnaud from Bank of America. .

Hello.

I think it's yes, go ahead, one-off you.

It's Arnaud from Bank of America. I will go ahead. A couple of questions. Firstly, on volumes, decent performance in both Europe and Americas in the second quarter. Do you think there was any element of prebuying that supported Q2 volumes that could maybe a little bit of a payback effect in the third quarter as the price increases have not been implemented. But on the other hand, you've upgraded the qualitative comments in the guide to growth for all 3 regions. So I guess the question is, do you think the volume momentum can be maintained in the second half or Q2 was supported by pre-buying effects? . And my second question is on AI. You mentioned a lot of initiatives, have you put a number on the potential savings or productivity gains that AI could generate for Saint-Gobain?

You take the first one, Maud.

Yes, sure. So in terms of prebuying, as we said also at the end of Q1, it's quite limited as distributors have limited ability to stock on our -- in the supply chains. So we would not anticipate a very significant pre-buy impact and that was -- yes, that was it.

And I can tell you that in July, we see a continuation of Q2 good momentum. So obviously, we clearly expect like-for-like growth in H2 for the group.

With, of course, depending on the duration of the conflict, you might have a bit more of pricing versus volume. So that will evolve as the situation evolves because, again, it's fluctuating.

And on AI, Arnaud, this is, of course, a moving topic, but I can tell you that all the group is strongly mobilized, and I highlighted just a few examples. Fundamentally, we go after growth, of course, there will be efficiency gains. But fundamentally, it's a fantastic tool for us to outperform the market. I shared the example of this unique, the Lead & Grow tool for our distributor business in France, but I can tell you on the cross-selling, all the opportunities on specified sales, we have designed, for instance, multiple suite of initiatives for sales, for salespeople on how to get trained on all the offer of Saint-Gobain, how to look at quote, how to go after specification, how to cross-sell. So it's more a growth agenda than a pure cost savings. Of course, we will gain efficiency and have some resources that we will redirect elsewhere you can improve so much the customer service. That means you have more time to pick up the phone and call an additional customers. So it's more this sales growth momentum that we are looking at, the time to market on R&D if you are faster to launch new products, it's more growth rather than cutting 10%, 20% or 30% of the R&D capabilities of Saint-Gobain, which are unit. So it's a growth momentum .

And it's already delivering some outperformance. If you think of the example of Brazil, where we have a dedicated AI tool to train the sales forces, that's already part of the explanation of the outperformance that we see in that country.

So I guess we lost the question from CIC, which disappears from the screen, so maybe we will have answered that already. And we go to UBS Julian Radlinger, please.

I think Elodie wanted to follow up on just for clarification before I ask my 2 other questions, which is what you just said about margins being down. Can you repeat that? I just wanted to make sure I got it correctly. Did you say group margins in the second half of the year down versus the second half of last year.

This is not what I said Elodie specifically about margins in North America. And I said that margins in North America should not be very different from last year. If I take the group margin, you have the target for the year, above 15% EBITDA. As you know, we are always very ambitious on the margin. I think there was a nice bit the margin in the first half. Remember that we delivered semester-by-semester on the margin. So we stay very ambitious for the margin at the group level in North America. We said that it will be more or less -- in the Americas, it will be more or less the same than last year, if anything, slightly below. Again, it's early in the semester, and there is a bit of volatility or unknown midterm election in November, et cetera, et cetera, in the U.S. and any weather impact, which we have not factored, could be an addition and an upside also in North America.

Okay. Super. Second half of the year, you're referring -- you're not saying full year similar to full year last year, second half just similar to that...

I think I've been clear on the second half. I committed answering the question of Elodie, which was specifically on second half Americas margin.

Okay. Okay. Perfect. I apologize. Okay. So my two other questions are: number one, it looks like return on capital employed went down in the half year and dip below the 13% floor, which is the guidance for the strategic period right now. Is there anything specific that's driving that that you want to call out? And when might that turn around? .

Yes, I can answer that. And I think I partly answered in my speech, which is basically at constant foreign exchange rate. We reached 13.5%. So you have a strong dilutive effect from the FX at this stage, but we definitely plan to be within our guidance of above 13% for the full year.