Good evening, everybody. I hope that you have received our press release and that you have been able to go through the highlights of our third quarter sales. Let me first sum up in a few words our performance. The consolidated sales for the first nine months were EUR 32.471 billion, up 4.3%, including a positive group structure impact of +0.2% and a positive currency impact of +0.7%. Organic growth for the first nine months was +3.4%, with volumes up 1.4% and pricing up +2% in a less inflationary environment for raw material and energy costs. As we said at the end of July, the macroeconomic backdrop is becoming less supportive overall. However, given our market positioning and the benefits coming from our transformation program, from what I see today, I'm confident we will deliver on our targets.
I now hand over to Sreedhar, who will give you additional information, including by segment.
Thank you, Pierre-André, and good evening to everyone. Let me give you more details about our sales for the first nine months. As Pierre-André said, sales rose 3.4% on a like-for-like basis over the first nine months, and were up 3.1% in the third quarter. The reported figures included positive exchange rate and structure effects. The currency impact was plus 0.7% for the first nine months and plus 1% in the third quarter, mainly driven by a positive effect of the US dollar despite weakness in Nordic currencies. The structure impact added 0.2% to overall growth for the first nine months. Please remember, in the fourth quarter, we will be deconsolidating distribution in Germany, Optimera in Denmark, and KparK in France. In terms of working days, we saw a positive impact of around 1.5% in Q3.
In Q4, the working day impact will be slightly negative at the group level, but with significant differences between the segments, including a more negative effect for the European regions at around minus 1%. Coming back to the most important part, the like-for-like growth. Sales were up 3.4% over the first nine months and up 3.1% over the third quarter. We achieved a price effect of plus 2% over the nine months and plus 1.4% in Q3, against a higher comparison basis last year and in a less inflationary environment for raw materials and energy cost. Remember, we reduced our forecast for the full year of the inflation from less than EUR 600 million to EUR 450 million. Between EUR 450 million and EUR 500 million at the end of July, with the expectation that H2 will see less inflation.
Q3 is confirming this trend, and it might even be slightly below this range. The most important thing is to watch the spread and to at least compensate the increasing input cost with pricing, which was the case over the first nine months. Despite the context of less supportive markets overall, volumes were up 1.4% over the nine months and up 1.7% for the third quarter, with a positive working day impact of around 1.5%. I will now comment on each segment, starting with High Performance Solutions, which showed organic growth of 0.9% over the nine months and 0.8% in Q3. For the first nine months, volumes decreased 1% in hesitant industrial markets, and we saw a positive price effect of 1.9%. Mobility sales showed slight growth helped by an easier comparison basis in Q3 last year, but its automotive markets remains difficult.
As you know, our differentiation strategy towards high value-added products and solutions continues to bear fruit, particularly in electric cars. Activities serving industry saw sales decrease slightly for Q3 in a more uncertain environment in most regions. Activities serving the construction industry continued their growth in both American and European markets, benefiting from market share gains, good trends in external thermal insulation systems, and recent acquisitions. Lastly, Life Sciences continued their strong growth dynamic. Turning now to Northern Europe, which posted like-for-like growth of 3% over the nine months and 1.9% in Q3. For the nine months, pricing was up by 1.8% and volume was up by 1.2%. Despite the downward trend in the U.K., distribution showed positive sales growth overall for the region. The Northern European industrial businesses also progressed with good trends in plasterboard in particular, while construction glass stabilized.
Sales trends in the Nordic countries continued their growth, benefiting from their exposure to the renovation market, in particular in distribution, albeit at a lower rate than in the first half. Sales decreased in the U.K. in a difficult economic environment, especially in the distribution in Q3. Germany saw some growth despite a slowdown in volumes in the third quarter. Eastern Europe continued to progress. Southern Europe, Middle East and Africa saw a like-for-like sales growth 4.2% over the nine months and 3.7% in Q3. Pricing was up by 1.9% and volumes up by 2.3% with a supportive working day effect. Distribution continued to drive this growth while the industrial business also progressed, in particular in plasterboard, insulation, and mortars, as well as the construction glass, but in a more measured way. Pipe continued its successful efforts to improve competitivity, but with softness in export markets.
France had a good quarter, driven by a supportive renovation market where distribution continued its growth, as it did insulation, which once again showed double-digit growth driven by strong demand in energy-efficient renovation. The other southern European countries continued to grow, particularly in Spain. However, sales in Middle East and Africa once again declined, especially in Turkey. Distribution across both European regions progressed 4.0% like-for-like, including a price impact of plus 1.5%. Americas progressed 3.8% on a like-for-like basis over the nine months and 6.1% in the third quarter. For the nine-month period, we saw a price effect of plus 3.5% with volumes up by 0.03%. North America picked up in Q3 on an easier comparison basis for volumes, but much more difficult in price. Exterior Products showed strong growth driven by volumes, with pricing coming off slightly on a higher comparison basis.
Insulation achieved good pricing while gypsum pricing remained under pressure but with slightly better volumes. Latin America, after a good first half, slowed significantly in Q3 with a weak growth and a macroeconomic environment is becoming more uncertain. Asia Pacific delivered 5.8% growth over the nine months and 4.7% in Q3. Over the nine months, volume progressed 6% while pricing was down by 0.02%. Growth was driven by plasterboard and mortars, while glass fell back in Q3 due to lower factory utilization with the decrease in automotive market. India showed good growth trends, in particular in plasterboard, which continued to show double-digit growth, and also in glass to a lesser extent. China benefited from the startup of the new plaster factory during the first half and strong growth in mortars.
Southeast Asia continued to face a very competitive environment in terms of sales price, but volumes picked up and showed a good dynamic in Q3. Now to conclude, overall, the macroeconomic growth is becoming less supportive. However, we remain focused on our operational priorities in terms of cash allocation, pricing versus inflation, and the Transform & Grow related execution. I will now hand over to Pierre-André for concluding remarks.
I'd like to make a few comments about our strategic priorities and the outlook for the rest of the year. We have continued our transformation of the group within our new organization with the divestment signed or closed now representing over EUR 3.1 billion in sales. We achieved our target of divestment, representing more than EUR 3 billion of sales ahead of schedule. As we said before, this is not the end of our divestment program. For the divestment announced so far, the full year impact on margin is over 40 basis points. As announced in July, we now expect to achieve the additional cost savings as a result of our program Transform & Grow more quickly than initially expected with more than EUR 80 million expected for 2019.
We confirm our action priorities for the year as a whole in terms of our focus on high levels of free cash flow generation pricing, our CapEx program, our commitment to R&D investment, and our cost savings program of EUR 300 million per year, which is in addition to the structural cost savings coming from Transform & Grow. The group expects the following trends for the fourth quarter. For High Performance Solutions in hesitant industrial markets, the automotive sector is expected to remain difficult in Europe and China, but against an easier comparison basis. Northern Europe, we should see less favorable trends overall with a particularly difficult environment in the U.K., and remember, we will have the deconsolidation of the distribution business in Germany in Q4.
For Southern Europe, Middle East, and Africa, we expect overall growth for the region with a lower contribution from new construction in France, but a solid renovation market, especially in France. For the Americas, we expect stabilization in North America and a more uncertain environment in Latin America. Asia Pacific, further growth. To conclude, as you will have seen in the press release, we are confirming our objectives for the full year 2019, and we expect for the second half of 2019, a like-for-like increase in our operating income compared to the second half of 2018. Sreedhar and I are now happy to answer any questions you may have.
Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. We have the first question, comes from Elodie Rall from JPMorgan. Madame, please go ahead.
Hi. Good evening. Thanks for taking my question. I have three, if I may. First of all, on price, because so pricing is less strong than in H1 as anticipated, given energy cost inflation is also lower. Can you give us an idea of your expectation for the spread between price and cost in H2 versus what you have delivered in H1? You're going to be higher or lower? Second, question on HPS margin. You had guided at H1 that margin for H2 should be similar to H1 level. Is that still the case, given that you have quoted a more difficult automotive market and more hesitant industrial markets? Lastly, could we have an idea of where you think you're going to end up in net debt at the end of the year?
Guidance on CapEx hasn't changed, you've bought back some shares, I think around EUR 300 million in Q3. Given the divestment, do you have an idea where you end up in net debt? Thank you so much.
I take all the three questions. It is true that the price overall for the nine months is 2%, and in the Q3 it was 1.4%. This is something, if you clearly remember, that we revised the guidance in the first half, which we had said initially that it would be less than EUR 600 million, was brought down to between EUR 450 million-EUR 500 million. This was with the expectation that the inflation will be lower in the second half. This assumption is clearly confirmed in the Q3. I think the most important thing what I said is that we continue to focus on the spread between the price and the inflation.
This is something we did manage to pass on the inflation in the first 9 months, and we would remain focused on ensuring that the inflation is passed on even in the Q4. The second question is on HPS margin. You're right. HPS, High Performance Solutions, the automotive market remains difficult even though we have a lower comparison basis. Industrial markets, specifically which are linked to the automotive market, are also having a negative impact. However, High Performance Solutions continues to remain focused on value-added products and specifically on automotive market segments. You see that we continue to outperform the market. If you look at the Q3, the market was down by -3.5%, and we had a positive 2%. The Life Sciences and construction industry continues to do well.
In this given situation, we are confident at this point of time that we should be able to do better than what we did in second half of 2018 margin. Third question. Debt is something which we don't give the guidance. It's true that you're right when you said that we have said that the CapEx will remain at a similar level of what we had in 2018. There is a lot of focus on cash. We are working on it.
The debt level will depend on what we do on acquisitions and divestments. Divestments, certainly, we have made good progress. You have seen that we should get the money for German distribution divestments. If everything goes well in terms of the calendar we have defined, at the end of the year, we should also probably be receiving the money from Korea. This should help us. I won't say beyond this as far as the debt is concerned.
Thank you. Just to come back on the HPS margin comments. I had understood that at H1 we're guiding for H2 to be in line with H1 margin at 13%. I think now you just said you want to be above 12.4% from H2 last year. Is that correct?
Around that level in between the two, I would say.
Okay. All right. Thanks very much.
Not far from 13.
Thank you.
The next question comes from Jean-Christophe Lefèvre-Moulenq from Crédit Mutuel. Sir, please go ahead.
Yes. Good evening. Actually, I have two questions, if you don't mind. First one is my traditional question. Could we have the order of magnitude of the 4 mm price for flat glass? I saw in the German diaries that it was slightly eroding, and we have also a very slight increase for the processed glass. Can you elaborate on that? Secondly, could we have the split for the third quarter between volume and price in Asia and in the Americas? Many thanks.
Yeah. Okay. I know, Jean-Christophe, you will ask this question. Honestly, I keep telling you, we don't look at these numbers on a day-to-day basis, but I still make sure that I have this number answer for your question, only for you. The 4 mm price is at this point of time EUR 3.3.
Okay.
You are right that the basic glass prices are under pressure. At the same time, for us, Saint-Gobain, since we are into high value-added products, we are holding the prices, holding well the prices as of now. For Q3, for us in Europe, the pricing was zero plus, slightly positive, and worldwide it was slightly negative. That's on glass pricing.
On Asia? Yeah.
On Asia, the Q3 volume and price is volume was 6.4%, and the price was -1.7%.
America, yes.
Yeah. In Americas, the volume was +6.2%, and the price was -0.1%.
Just to follow up, does the process glass industry, which is very independent, continue to accept the price hikes initiated by the flat glass industry?
At the moment, there is not a lot of price hikes. The prices, as Sreedhar said, are more stabilized. You just have to keep in mind that the glass industry, the pressure, if at all, it's coming from the glass industry, especially automotive demand, which is slowing down. You know that the automotive market is going through a difficult time for the last few quarters. That impact is there. Otherwise, as of now, we managed to hold the price.
Excellent. Many things for this clear answer.
Next question comes from Arnaud Lehmann from Banque Degroof. Sir, please go ahead.
Thank you. Good evening, gentlemen. I have three questions, if I may. Firstly, coming back on your share buybacks. Actually, I think you've slowed down the pace of share buybacks in the third quarter. I think you've done about two million share buybacks in Q3 compared to 6.5 in H1, if I'm not wrong. Was there any reason for a slowdown? Are you just being opportunistic? Do you have a share count target for the year-end? That's my first question. My second question is on your CapEx. I understand you confirmed the CapEx guidance for 2019, but we know it included some extra CapEx for the digitalization of the distribution business. Does that imply that we can hope for some decline in CapEx spending into 2020? That's my second question. Lastly, we've seen quite a few chemical companies getting involved in these PFOA liabilities in the U.S.
I believe you booked something like EUR 25 million or EUR 30 million provisions at the end of 2018. For that, you have two or three sites that have been mentioned regularly in the press as well. Would you expect more provisions for 2019? Is it an issue that is getting worse for you or so far it's under control? Thank you very much.
Okay. I think all these questions for me. Coming to share buyback, Arnaud, you are right. We have always been opportunistic, taking steps opportunistically, and that's what we'll continue to do. We have done the buyback of 8.5 million shares till now. You just have to keep in mind, last year was exceptionally high of close to 13 million shares. We will remain opportunistically. We will take steps. That's one. Second is on CapEx. It's true that digital investments should come down little, step by step. In 2020, you should see that impact slightly lower than what we saw in 2019. That's the third question. The third question on PFOA. You're right, we had made the provision of PFOA in 2018 of EUR 30 million. In S1, we made a provision of EUR 18 million.
For us, there is nothing which is a new alert. Things are going the way it is. We are cooperating with all the agencies. We have been and we'll continue to operate in compliance to make sure that we stick to all the regulations. We are cooperating with all the stakeholders to make sure that all the necessary actions are taken. There is no red flag at this point of time.
Okay. Thank you very much.
The next question comes from Rémi Lamarti from ODDO BHF . Sir, please go ahead.
Yes. Hello. It's Sven Rudolf from ODDO. Two question from me. Can we have an update on Pont-à-Mousson on Lapeyre, if any? The second one is maybe a bit more tricky. I would like to come back on Sika. Since the lockup period ends next year, and since you are cleaning your portfolio, can we imagine Saint-Gobain distributing the Sika share to its shareholder as a special dividend? I know it's a bit early, but is it out of question or you have no taboo? Is it something that you might consider?
I'll start with the second question on Sika. As I've already said, I am not going to say anything on Sika for the-- Now it is six more months. For the first two years, I said I would not say anything on what we would do after this lockup period, and I stick to that. Concerning the pipe business, as you are aware, first of all, this business is recovering, and that's the good news. The plan that we had launched two years ago is progressing well, the situation is improving. Second, we are looking for various options and partnership, and this process is ongoing. Compared to what I said in July, I have nothing more to report. Concerning Lapeyre, where we have also a difficult situation, where our priority is also to improve the situation.
We are also in the process of exploring various options concerning this business but I have nothing more to say at this time.
Thank you very much, Pierre-André.
The next question comes from Yves Romet from Exane BNP Paribas. Sir, please go ahead.
Good evening, gentlemen. Actually, it's Yves Romet from Exane BNP Paribas. I'll have three questions, if I may. The first one, I wanted to know if we could come back to the comment you made on the HPS margin. Could you maybe give us more color on what is driving a more positive view on margins, given your tone on underlying trends is more cautious for Q4? Is there any mix effect that we should be aware of? Secondly, some of your peers have been highlighting softer trends in overall European insulation markets. Is that something that you are seeing? Then as a follow-up to that, we are also aware of some material stone wool capacity addition, which is in the process, and next year, and do you expect prices of insulation to start declining in Europe? Thank you.
Yves, on High Performance Solutions, the situation today is, you have seen that the last few quarters, the automotive market it's down, and it remains down, and we have no clear visibility of how things are evolving. When you have, specifically in Europe and China, the capacity is clearly underutilized, so it has an impact on the profitability. Even though from a market share point of view, we are doing a very good job of outperforming the market by gaining our market share in electrical car segment. This electrical car segment, it's a future for us, and we are continuing to invest on this market. This is something which is, we are dealing with some of the demanding customers, and they are clearly. We have a leading position in this market, and that is something which is quite progressing in a good direction.
The other thing is, the activities which are serving the industrial markets are certainly linked to the automotive segment in many places. Also some of the general industries have indirect links. All this have an impact with a certain lag impact, and you see that pressure coming on, and that's what you see when we look at our competition. We believe that we are still doing a better job than the competition, even in a given difficult situation. The other two segments are doing very well. Life Sciences, it's actually growing very well. I would say double-digit growth, and we have a construction industry which is also growing very well. It's a mixed situation. Again, what is important is the team is taking necessary steps. They are continually focused on gaining share, value-added products. I think the business model, we are investing on the right things.
I remain confident on High Performance Solutions.
Well.
Competition
publication of people working in the same environment, I am pretty happy about the performance of the team in terms of their sales performance at this stage. Concerning insulation in Europe, I think it's very important to have in mind that insulation is a very local business, situation vary country by country, and also that within insulation, you have different type of materials. As you know, Saint-Gobain is mostly involved with glass wool, and the glass wool market, which is linked more with residential market and new and renovation, doesn't have necessarily the same dynamics than what you can see with other markets, which are more linked with the non-residential, if you take some different products.
I think that the situation that the different players are experiencing in insulation varies from that, and also vary depending on the strength they have in the different countries. As you know, Saint-Gobain is quite important in France, which has a very strong dynamics linked with the incentives provided by the government. I would say that the way I see at the moment the trend in insulation for Saint-Gobain is quite supportive overall in Europe.
Thank you. If I can add just one more question. We've heard quite a lot of discussions on IMO 2020 and its potential positive impact on the U.S. asphalt roofing industry. Do you have a view already on this impact or not? Thank you.
Theoretically, IMO should have a positive impact in terms of it should have a downward pressure on the price. We just have to keep in mind that U.S. is not the biggest contributor. It could have a lesser impact in the U.S. market. Otherwise, it's always difficult to foresee what is going to happen. We did see the price of asphalt at the end of the third quarter dropping. We have to watch very closely.
We will focus on our spread-
Sure
as always.
Thank you so much.
The next question comes from Josep Pujal from Cheuvreux. Sir, please go ahead.
Yes, hello. Josep Pujal from Kepler Cheuvreux. Hi. Two questions for me. The first one is on the disposals. You've done the target, or even a little bit better, EUR 3 billion of sales. Is it over or is there more to come? If yes, what would be the philosophy, the same kind of business, underperforming business or something else? My second question is on glass. Europe, are you planning for 2020 more maintenance closures compared to this year? Should it be similar? How do you see this issue? Thank you.
Okay. On disposal, Josep, I always said that it's an ongoing issue. The program is not over. On the other hand, I also said that I'm not going to give a quantified objective anymore. The most important thing is that we are analyzing now, and I see that giving a different look at our businesses. We are analyzing our portfolio in the framework of the new organization. By country, for the regional businesses, and by market for our global businesses. This is giving us a very new perspective. As you know, a number of managers have been changed and are in place in their new perimeter as of now for the first eight months. We start to see a number of additional ideas on divestiture and also on acquisitions with a philosophy which could be a bit different from the one we have had.
We have a number of topics identified. There are a few in the pipeline, and we may have more even during this year. It's going to be an ongoing process. As I said, we have no taboo. We are trying, as I said to a former question also, to find the best solution going forward for our pipe business. Concerning glass, what I have in mind is that this year, most of our plants have been working most of the year. Next year, I think we have one plant which is due for repair in Europe. That could be adjusted. That given the length that we forecast, that's for the timing, that's the plan, to stop one line for repair during next year.
Okay, thank you. If you allow me a follow-up on the spread between price increases and cost increases. Could you specifically for Q3, tell us if the spread was also positive? You said that it was the case for the nine months, that the goal for the H2 is to be positive. For the Q3, did you observe a positive spread?
Yes, Josep. Q3, we had a positive spread. The inflation, as I said.
We have been able to compensate.
We have been able to compensate the first part of this. That's something which we have focused on.
Okay. Thank you.
The next question comes from Robert Garner from Bank of America. Please go ahead.
Good evening, gentlemen. Can I just, two from me, please. One, if you wouldn't mind us giving us the remainders of divisions in third quarter by price and volume. You gave us Asia and the Americas, just the split price volume there, please.
Yeah.
I want to just, about the pace of growth that you've seen in the third quarter. Obviously, the working days helping in terms of volume there. How should we think about how growth has trended through the quarter? Is it safe to assume that with the markets more challenging, that the pace of volume activity is weaker at the end of the quarter than the first? I'm just wondering if you can give us any sense of how the business has traded late in the quarter. Thank you.
Okay, let me just answer the first question. The price and volume breakup. For High Performance Solutions, the price was 2.1%, and the volume was minus 1.3%. Northern Europe, price was 1.8%, the volume was plus 0.1%. Southern Europe, the price was 1.5%, volume was plus 2.2%. Americas, we had price which is minus 0.1%, volume was plus 6.2%. Asia Pacific, we had price of minus 1.7%, volume plus 6.4%.
Okay, on the second question, it's generally difficult to comment on a month and especially during the summer because you have a different trend in the summer with vacations, which are not always exactly as the same. They are not in the same countries at the same time. You have one thing is that we had an additional day in September. As you know, one day is generally rather mathematical when we talk about distribution. It's not the case when we talk about our industrial businesses. It's not completely easy to read. I would say, globally, I would say that I have not seen a significant change in the trend from July to September. We are seeing a softening in some markets. On the other hand, you have seen that the U.S. was quite strong.
I would say that there is no significant change in the trend, there is a general softening of the industrial markets that we have seen, I would say, in HPS already in the first half. I would say that if I have to give some color on two countries, I would say that France is doing quite well. You remember that I was probably earlier in the year more optimistic than many on France. I've just saw this afternoon some statistics from the industry association which are revising up their forecast for France. They are more aligned now with my view than they were before. I think I was right, and France is holding pretty well at the moment. The U.K. has been a little more difficult in the last two, three months.
I would say the trend in September was not good in the U.K. If I have to add a little bit, another thing on other regions, I would say Asia is holding well and Southeast Asia is a little bit stronger. At the moment, I have the feeling Latin America has been soft lately. It varies by geography. I would say that no real change in trend in the last two weeks is your question.
Okay. That's great. Yeah. Thanks very much.
The next question comes from Nabil Ahmed from Barclays. Sir, please go ahead.
Yeah, good evening. Thanks for taking my questions. I actually had two. The first one on the divestment, the EUR 3.1 billion of sales that have been disposed. Could you confirm whether these businesses were free cash flow negative? If you could help us to understand roughly how much, that would be fantastic. The second question, I'd like to come back on the French performance in the quarter. I was wondering if you could quantify how France has performed on the like for like in the sub-quarter, and how does it compare with H1. We also saw a very strong residential transaction market. We saw a significant spike in mortgage application in France. Are you seeing an acceleration in the renovation market in parallel, or do you think that's something that is more likely to happen next year? Thank you.
On the second question on the French market, there are clearly some downward trends that should have happened or should happen when you look at the statistics of the new construction market. We are seeing that more slowly than what was expected, and I am not sure we are going to see the full impact of that. The second point is that at the moment, I still see the French market driven by the ability of our customers, the small craftsmen, to provide labor. That's why I said the trend is pretty stable, and when there is a little less new, there is a little more renovation. If you have looked at the detail and the statistic, you would have seen that the order book is growing at the moment, which is also a good sign.
I would say that I don't expect the trend to go up, but I am not as worried as many people were at the beginning of the year. For the divestment, we have never given I don't think they are not free cash flow negative.
I mean, the German distribution business.
They were low margin.
Low margin, but it's still a profitable business.
Yeah.
Post CapEx, if you look at free cash flow, it was presumably not generating any free cash flow or even slightly negative. Is it fair to assume that?
No. CapEx were generally in line with depreciation.
German business.
Yeah. What you see on the low margin, it was not consuming cash.
Okay. Then maybe just let me rephrase my first question. What I was referring to was not new housing starts and permits. I was referring to the residential transaction.
Yes.
Secondary transaction, which had accelerated a lot during the summer.
Yes. This is positive for renovation, normally.
I guess my question was, have you seen an acceleration in the renovation market in parallel already in Q3, or that's a backlog that created for next year, you think?
No. No, we have not seen it. I would say that we have not seen it. As I said, we have seen that the order backlog is growing, and I said as the new construction is still slightly positive at the moment, I would say in terms of activity, I think that the craftsmen are delaying the work on renovation. That's my assumption. That's what I hear on the ground. On the other hand, the fact that there are more transactions, generally, is a positive for renovation. I have seen that everywhere.
Can I ask just a quick follow-up on France? In the loi de finances, are you seeing anything, any measures that could potentially impact negatively your businesses in France?
I am not very happy about what has been decided on the crédit d'impôt transition énergétique, CITE. I think it's good that it has been moved to a subsidy instead of being a tax credit. That's positive because people will get the money before, but the total amount which is going to be available has been reduced. I think it's not positive. I don't know whether it's a big negative. No, it was not very positive, that element.
You have a number of other things which can turn positive, especially, and for us, it's more important, the energy certificates are the main driver of our growth in insulation, for instance, and I think that is continuing, and I think that the government is extending progressively, but this is not in the finance law, but is extending the parameter of this energy certificate, which are not subsidies from the government. I think they prefer to act this way. All in all, I don't see a big change from what's going on.
Okay. That's very helpful. Thank you.
The next question comes from Tobias Wehmann from Morgan Stanley. Sir, please go ahead.
Hello, gentlemen. Thanks for taking my questions. I have three, if I may, and maybe we can go through them one by one. The first one should be a very quick one. I'm just trying to understand your new guidance in HPS. Clearly, previously, you talked about satisfactory markets, and now you're saying on one hand, less favorable, but then again, you highlight the easier comparison base. Can we read this as a downgrade? Have markets become worse than what you were expecting, or how can we understand the new guidance?
Honestly, there is not a big change. I said we should be in the around. We have had big swings last year. We were at much higher level. We had come down in the second half of last year. We bounced up a little bit in the first half of this year. What I'm saying now is that, I thought we should be in the range. We should be a bit above where we were last year. It's not a very significant change.
Okay. Fair enough. Another follow-up on the organic growth for H2. I know that came up before, but clearly you have the cost-saving target more than EUR 45 million, which isn't already gives you about 3% organic EBIT growth. On top of that, you talked about a marginal improvement. You're also talking about higher volume and pricing is still positive, even if though it may be a little bit lower than in the first half of the year. Putting all this together, it seems to me it should not be unlikely. We obviously have positive working day as well. Putting all this together, we could have more than 5% organic growth. Consensus seems to be somewhere around 1%. I wonder if I missed something here or is there anything that could deteriorate significantly from here?
My guidance is to have a like-for-like growth in operating income in H2 versus H2. I am not commenting beyond that.
Okay. Fair enough.
On the other hand, it is clear that the comparison basis of H1 2018 and the comparison basis of H2 2018 is quite different.
Yes, correct. You still guided for a year-on-year increase in margins in H2, and you also guide for positive volumes and positive pricing and positive working day effect and EUR 45 million cost savings.
I've not given any guidance on the price and volume.
Okay.
I don't want to comment. I don't want to comment. You make your own assumptions on that. I don't say it's going to be positive or negative, but I have not given any guidance on that.
Yeah. Okay. Fair enough.
I'm just confirming what I said in July, that within the framework of an overall guidance for the year, which is an increase in operating profit like for like for 2019.
Okay.
I also added something because given the performance of the first half of 2019, you could have derived, if I have just kept the same guidance, to read my guidance, that could have been significantly negative in the second half. I added that we will have also an increase in the second half, but I didn't quantify that.
Okay. That's fair enough. Just final one on the cash conversion. Clearly, we have seen quite a strong uplift in the first half of the year. I was hoping maybe you could give us a little bit more insight on what to expect in H2, but also beyond 2019, because I know you have a very high internal focus on improving the cash conversion now. I wonder if you could give us a little bit insight on the specific things you're working on and if you're planning to increase your cash conversion, maybe going into 2020 and also beyond.
Yeah. When we met last time, I said that we are focused on cash clearly. We recognized that last year that was not a good situation, so there is a lot of focus on it. One of the simplest change which we have brought in is in all the business reviews, the management team meeting, the first thing we discuss is now to just look at the cash situation. There is a focus. We are working on it. There is a lot of debate on the growth CapEx. I think there's a lot of interaction happening in all the business reviews, and I'm confident that we should make progress in this area.
Okay. Thank you very much.
Next question comes from Yassine Touahri from On Field Investment Research. Sir, please go ahead.
Yes. Good evening, gentlemen. A couple of question. First question on your capital allocation strategy. Over the past 12 months, we've seen that most of the divestments or a lot of the divestments that you've done were in distribution, and a lot of the acquisitions and CapEx were in innovative products and solution. Is it a trend that we could see continuing in the next few years, where we could see more divestments in distribution and more investments in innovative products? A second question on your transformation program. It's been nearly one year now. Could you give us a bit of an update of what have been the key challenges, and what are the key successes? Where it's been better than expected and where it's been worse?
On the first question, if you take out building distribution in Germany, which is a big part of our divestment, for the rest, no. The answer is no. The next biggest one is in flat glass in Korea. Then we have had a number of small divestitures in distribution, in HPS, in silicon carbide, and in Glassolutions. No, this is not Once again, which I said when I announced this strategy and this organization, that we are analyzing our portfolio in the framework of the new organization. That means that you can have, for a different business worldwide, a different recommendation concerning different countries.
Yeah.
If I refer more to distribution, more specifically, distribution, it is more and more clear for us that we have to be very strong locally. When we are strong locally, we will get even stronger. You may see acquisitions also in distribution, in the countries where we think we can really have a very powerful position, depending also on the mix of business we have in that country. Concerning Transform & Grow, I think that we are progressing quite well. We gave you a detailed update in July, and I think we'll give you another update in February. Compared to what we said in July, we are completely on track. The organization is well settled. We have identified a huge number of action plans, and we are, I would say, seeing more early than what we thought, some growth opportunities materializing.
I think that in Brazil, it has been clearly the case, and we are seeing more countries where we do that. In terms of the cost savings, we provided you with an update, in July. I think we are clearly on track to deliver our objective for 2021, but we are delivering them more quickly. We will give you an additional update when we publish our full year results.
Thank you very much.
The next question comes from Denis Rena from MainFirst. Please go ahead.
Yes, hello. It's Denis Rena here from MainFirst. Can you hear me?
Yes.
Three questions, if I may. Number one, just for the spreadsheets, building distribution Germany, you're going to deconsolidate in the fourth quarter. It's obviously, seasonal business has had a very small contribution in terms of operating income. Should we assume that the operating income in the fourth quarter would be possibly even negative, which we take out? That's the first question. The second question, just remind us very quickly in terms of the Q4 comparison trends and working day impacts, the key features, if possible, for us to think about. Just lastly, the energy costs coming down possibly below the EUR 450-EUR 500 Sreedhar mentioned. Is that a trend you're seeing continuing into next year?
I think the first one, what we said about distribution in Germany is that, the sales in 2019 was EUR 1.9 billion, the operating profit for the year is EUR 21 million. Yes, the first quarter and the last quarter are generally not the biggest one, the impact is not material.
Okay. Thank you.
There are other questions, Sreedhar?
Right.
I'm not sure I understood the second question.
The second question was on a working day.
I don't understand the second question.
Just in terms of the comparison effects we have to take.
Yeah
into account, or remember from last year in Q4 and the working days. Obviously, I don't want you to run through all of them, but the main ones which we should have in the back of our minds.
The working days, I'll talk about the first quarter. In this year, we had minus 0.05% impact overall. The second quarter, it was minus 1%. The third quarter, we had a positive impact of 1.5%. The last quarter will be slightly negative. Within the region segment, you will see an impact. For example, in Europe, it could be minus 1%.
I would add a caveat to what Sreedhar just said. This is a mathematical impact.
Sure.
It is a mathematical impact in distribution generally, but it's not necessarily a material impact in our industrial businesses.
In the industrial businesses, I agree.
The concept of daily sales, which is widely used in distribution, is not applicable to our manufacturing businesses.
The third question was on inflation. Inflation, as a topic, is so volatile. I won't like to start guessing what's going to be the inflation in the next year. I will certainly comment on this when we publish the annual results in the end of February.
Okay. As I am on the phone, I want one last question, if I may.
Yeah, please.
Yeah. The consensus was mentioned earlier, and I've double-checked on Bloomberg just now and also have another number in the back of my mind. Can you clarify what it is actually at the moment, both absolute and in like-for-like terms?
Absolute value is EUR 3.38 billion.
That's a figure I remember.
Mm-hmm. Okay. Thank you.
Next question comes from Eric Lemaire from Bryan Garnier. Sir, please go ahead.
Hi. Hello, good evening. Just one question from our side. Regarding the U.K., have you taken any specific measures to prepare Saint-Gobain in case of a Brexit, or do you consider yourselves Brexit ready? If it happens sometime.
Well, we had a lot of time to prepare. We were ready at the end of March. As you remember, we have seen some, because of that, a higher level of sales in the U.K. in the first quarter and a de-stocking impact to some extent in the second quarter in our customers. I would say that we are ready. As you know, the businesses of Saint-Gobain are extremely local. The vast majority of what we manufacture in the U.K. is sold in the U.K. The value chain, it's not a major impact. Yes, we are ready. I think that at this day, the hard Brexit on 31st of October is not very likely, even though this is changing day by day. As far as I'm able to follow what's going on in Westminster, I think that it is not very likely.
We are going to have most likely a more smooth transition.