Ladies and gentlemen, welcome to the Saint Gobain Conference Call. I now hand over to Pierre Andre Du cholanda, Chairman and CEO. Sir, please go ahead.
Thank you and good evening. Good evening, everybody. I hope that you have all received our press release and that you have been able to go through the highlights of our first quarter sales. Let me first sum up in a few words our performance. The, 1st quarter performance is distorted by tough weather conditions.
Negative working days and a very negative currency effect. Nevertheless, we continue to move forward in demonstrating our ability to increase prices in an environment of continued raw material and energy cost inflation. Regarding the macroeconomic situation, we see, encouraging underlying trends in most of our regions. And I will now hand over to Guillaume who will give you additional information, including by business sector and geographic areas.
Thank you, Pierre Andre, and good evening to everyone. So as you said, I would give a little bit more details about ourselves for the first quarter. So sales rose 1.6% on a like for like basis over the first quarter. The reported was, however, impacted by a significantly negative exchange rate impact of minus 4.7% which was partly offset by a positive 1.3 percent structure effects. And I'll take a moment to give you a few details on those 2 effects.
The structure impact increased from the 0.9 percent we saw last year, reflecting the acquisitions made in Asian emerging market, like Kimco in Kuwait to Melro in Brazil and MegaFlex in Argentina in new niche technologies and services such as tech bond in adhesives, Maris in construction chemicals and Scott frame in prefab elements and 3rd category in the reinforcement of our strong including companies like Glava, Biolink, Pearson, and bolt on acquisitions in building distribution. By activity, the impact of those acquisitions was most pronounced in interior solutions with the integration of Glava in insulation in Norway and Kimco in Kuwait in particular. The currency impact was significantly negative at minus 4.7 for the quarter. This was principally driven by the U. S.
Dollar having weakened substantially since the first quarter last year against euro. As well also as declines in numerous Asian and emerging market currencies, like the Brazilian real Argentinian peso Indian rupee, Chinese yuan, Turkish lira, and Mexican peso to name just a few. We were also impacted by negative currency moves in Europe nordic currencies still some effects from the British pound and the Swiss francs. Basically, in summary, euro is appreciating against almost every currencies. For this first quarter, the currency impact was materially negative in all sectors, but especially exterior solutions and HPM both at around minus 9%.
Going forward, it's hard to say, obviously, what the impact might be for the rest of the year as we don't forecast future evolution of currencies. But if everything was to stay frozen at today's rates, very theoretical, we would see a substantial negative effect in 2018 less than what we are seeing year to date because the comparison basis will become easier as the year progresses But in the order of magnitude of what we had seen in the fourth quarter of 2017, if you remember, which is around 3%. In terms of the impact on operating profit, given the geographic mix, we expect an even bigger impact. Coming back to the most important part, the like for like growth. So first quarter sales were impact as Pierre mentioned, by a material working day effect of around minus 2% on the sales of Saint Gobain.
This should be the quarter with the most significant working days impact in the year because Q2 should see a positive impact of around 1% and H2 a slightly positive impact. Beyond working days, our first quarter sales figures are also distorted by a significant weather in especially in Europe, where we saw particularly bad winter weather. A cold wave hit most of Europe in late February early March, bringing snow ice and freezing temperatures to Northern Europe and as far south as the Mediterranean and the same scenario happened again in both mid late March. Importantly, for our businesses, the conditions delayed construction products the projects and affected deliveries as cities were brought to a standstill and numerous roads closed across Europe. The negative effect of these 2 impacts, working days and weather weighed on headlight volumes which came in at negative 0.5%.
You know that the working days and weather are part of our business, especially in winter for the weather conditions, and those are factors that we don't master. But fortunately, they are temporary by nature and don't say anything about the underlying quality of the business. Even though it is very difficult to clean our figures from weather and days effect, the information from various sources we can gather leaves us confident that the supportive momentum that we talked about in February remains intact. We achieved pricing at the group level of +2 0.1 percent in Q1, and we did this against a tougher comparison basis as price in Q1 2017 was plus 1.6% versus plus 0.8% in the previous quarter of Q4 20 seen. So we were pleased to see our focus on pricing payoff given the continued inflationary backdrop in terms of raw materials and energy.
Which is being confirmed as we see important inflation for anything related to the oil price, like asphalt natural gas and transportation, as well as metals. So in terms of the price cut spread, we are in good shape, but we'll continue to push as there is still work we need to do given the inflationary backdrop. For example, We have announced additional price increase in roofing in the U. S. For May, and we'll probably push for another one in the summer at least.
I will now comment on each sector, starting with innovative materials, which was up 3.7% organically in Q3 1. Flat glass grew 0.9% in the quarter, like for like, with pricing up 1.3% driven as expected in Europe by transformed glass with a smaller increase in float glass prices. Market conditions continue to show good trends both in construction and on automotive. This was partly masked by the negative working days impact and the tough weather condition across Europe. Asia and emerging countries progressed once again in the construction sector, including in Brazil.
However, during the quarter, we faced certain industrial issues, both in fruit glass plants and in automotive. We had to accelerate our anticipated float repair schedule in Europe due to heavy use in automotive. We stepped up our industrial investments and innovation due to market demand. These two subjects, which have been caused in fact by our fast growth pace over the last several years, are impacting us temporarily but are in the process of being resolved. High Performance Materials grew once again strongly with volumes up 7.5%.
We continue to benefit from strong industrial markets in North America and in emerging countries, in the U. S, both our ceramics and abrasives activities enjoy good volumes in the business environment, which remains very positive. In emerging markets, double digit growth in geographies as diverse as China, India or South America. Turning now to Construction Products, which saw organic sales up 3.2% for Q1 with pricing up 3% and volume up 0.2% hit by the negative working day impact and the weather conditions. In interior solutions, we saw organic growth of plus 4.6% for Q1, driven by Asia And Emerging Countries.
Western Europe was impacted by the tough weather conditions, but underlying trends were good except in the UK. North America posted growth once again led by pricing we recent with recent price increases and volumes, broadly stable. Overall, the business continued to show a good pricing trend at plus 3.7%, continuing the good dynamic from Q4. Exterior Solutions posted organic growth of 1.6% in the quarter, exterior products grew slightly against a tough comparison basis. As you remember, that Q1 last year was boosted by distributors stockpiling, Pricing was slightly up, but we continue to push as I detailed earlier.
In pipe, pricing increased, but volumes remain difficult despite some signs of an improving export market. Mortars grew slightly and was impacted significantly as you would expect by the tough winter in Europe given the exterior nature of the business. In Asia and emerging countries, Mortars continued to perform well overall. Overall, exterior solutions, surprising, up 2.2%. Lastly, building distribution decreased 0.7% like for like, hit by the negative working day impact on significant impact from the weather conditions in Europe, harsh weather hit all of our main countries, which had the effect of pushing back the usual seasonal boost as construction projects were delayed.
Underlying trading in France continued to recover with good momentum in new builds and progress in renovation. The Nordics continued to see good underlying trends despite being impacted by the calendar and weather impacts. In the UK, however, volumes continued to decline partly offset by a strong pricing effect. Germany was particularly hit by the tough weather in March resulting in a more marks decrease in sales. And lastly, trading remained weak in Brazil.
Overall, for the sector, pricing was up 2.3% in the quarter. So finally, let me give you some comments on organic growth by geographic area. France, as I said, when I was about distribution continued to improve despite the working days impact and the tough weather conditions. Underlying sales were driven by dynamic new build activity and by progress in renovation. Organic growth was 1.3% for the quarter.
Other Western Europe contracted 1.1% also being impacted by the negative working day impact and the particularly tough winter weather in Germany in the Nordics and in the UK. Snow and freezing conditions both delayed construction products and impacted also deliveries. Nevertheless, underlying trends remained good in our main countries, the exception being the UK, which saw volume decrease partly offset by a strong price effect. North America posted like for like growth of 4.6 percent for the quarter. This growth was led by continued good momentum in the markets.
The construction market continued to trend well with an increase in pricing led by interior solutions. And lastly, Asia and emerging countries continued their growth with robust growth of 6.8% like for like, This growth was driven by all regions, including an improvement in Brazil overall, but with contrasting trends between the businesses in this country. And I will now hand over to Pierre Andre for concluding remarks.
Thank you, Guillaume. I'd like to finish this introduction by making a few comments about our priorities and the outlook for the rest of the year. We continue to focus on the strategic objectives that I announced in February. So focus on sales prices amid continued inflationary pressure. Our cost savings program set to deliver EUR 300,000,000 of additional savings this year.
Our CapEx program focusing on growth outside of Western Europe and on productivity and digital transformation. Our commitment to R And D and our focus on strong free cash flow generation. We have continued to push forward with our acquisition, completing 9 since the start of the year for our total spend of around 1,000,000, including Kimco in the insulation market in Kuwait, the Australian Building distribution in Norway and I've gone to strengthen our portfolio in high performance materials for the aerospace and industrial markets. The group confirms its outlook for the full year 2018 with further growth in France led by the new build market and by progress in renovation. Progression in other Western European countries despite continued uncertainty in the UK, growth in North America in both construction and, market and industry and good momentum in Asia and emerging countries.
To conclude, as you may have seen in the press release and in line with our objective as announced is February, The group is targeting a further like for like increase in operating income in 2018. So give me an eye. We are now happy to answer any questions you may have.
Thank you very The first question comes from Yves Brumhad from Exane. Please go ahead, sir.
Good afternoon. Thank you for taking my questions. My first one will be on whether or not you could maybe give us some light as to whether or not you could benefit from a positive mix effect given that we're selling quite a solid momentum in HPM and the interior solutions. Versus the decline in volumes in the building distribution side of the business? Then my second question is, Given what you are seeing in terms of input cost inflation, do you still expect variable cost inflation to be below 500,000,000 for full year 2018?
Thank you very much.
As you know, we are just talking about sales the first quarter, but clearly the in the first quarter, the HPM sales are very good. And we are expecting they have higher margin. And in distribution, we have low sales and lower margin. So the answer to your question on the first quarter is obvious. Nevertheless, it is also very clear that the weather impact was much stronger in distribution and there is nearly no impact of the weather in our high performance materials.
So the the sales of the building distribution, like in the exterior products and to some extent in Flat Glass are distorted by this weather impact.
On inflation of raw materials and energy, I think first of all, to answer directly your question, we are still expecting to be in the range that I gave at results between $300,000,000 $500,000,000. Maybe towards the top end of this range at this stage, But, what we are seeing is inflation in a few selected categories, like for example, anything related to the oil price, like, asphalt, like, also the cost of transportation, like, like, a few raw materials, and anything related to metals. So overall, we have an inflation. We are confirming that it's going to be an inflation year, we are confirming the range we announced. And as you saw in our results, the good news is that on a comparison basis, which in terms of pricing is becoming more difficult compared to last year, we were able to deliver a strong quarter in terms of pricing with 2.1% at the group level and 3% at the construction product sector level, which is quite important.
And which bodes well for the next quarter. So I think we are optimistic about the price cost stretch for this year.
Thank you. And if I could just add one more question. I think a lot of your U. S. Competitors have published results recently in the plasterboard and the roofing and seen quite some margin pressure in those two businesses.
Do you expect that the price increase that you mentioned, for example, in roofing in May could help you to offset all the cost in session? Or you still expect margin to be under some pressure in these divisions in the U. S?
Let me be clear. Products is a good picture in terms of pricing, but I mentioned that there are areas where we still need to push pricing and and the one I'm thinking about is gaining roofing on which we have price increase. We are pushing we have led a price increase at the end of last year. We are pushing a second price increase and we will continue to push for price appreciation. Now what is going to be the result at the end of the year?
I don't know, but given the track record that we have had in those materials, I think we are, we are really in an environment which conducive to price increases. You are mentioning interior solutions in the U. S. We are quite successful in pushing price increases in interior solutions in the U. S.
We have already been. Yeah. The situation here is very different. So that would be my answer.
All right. Thank you very much.
Okay.
Thank you very much. The next question comes from Joseph Boucher from Kepler Cheuvreux. Please go ahead, sir.
Yes, good morning. 2 for me, please. The first one is on Flat Glass. You mentioned some repairs or extra repairs or I don't know if you said technical problems or I translated that into my language. But is it leading you to change your say strategy about the mothball plans, do you forecast to reopen some plans in Europe this year.
And if yes, which kind of capacity or which kind of figures could you share with us? And my second one is on, this, disconnection that we can see in volumes, in Q1 between distribution, they are down minus 3%. It's much more than the rest of the group. Is it because it's a much more impacted division by the working days? Or is there something else?
Thank you.
I on Flat Glass, no, we have no we don't have in mind to add a floor glass additional progress in Europe. So there is no change in a strategy. We have to anticipate, some repairs because we had some technical, you know, we have been using our front glass a lot in the last few years, and there has been where, which happens. So we have we have in fact, have less capacities unexpected at this time, which is weighing on our sales, in, side glass in the construction area in Europe at the moment. That's an explanation of the the fact that the sales are lower in Flat glass than we expected them to be and you see a difference with the last quarters.
This is also having, of course, when you have floats which are not producing, this is having an impact because we continue to have the fixed cost and we need to to add more, shipments of glass from one country to the other. This is temporary. But this has affected our performance in the first quarter.
And Joseph, you were mentioning a billing distribution. I think the answer is very clear. It's not so much about working days. It's true that in Europe, maybe working days are slightly more impact in building distribution than in other businesses. But frankly, the main effect is the fact that business building distribution is exactly on the geographies, which was most impacted by the weather effect.
You know, the biggest countries in building distribution are, France, Scandinavia, Germany and the UK. And those for areas are exactly where the winter conditions, where the most difficult. And you know that in building distribution, you have, I mean, several effects combining the fact that it's more difficult in winter to apply some products. The fact also that it's more difficult to transport the products And the fact that some job sites are completely stopping because of unavailability of workforce. I mean, it was the case in many cities, in those countries.
So I would say that the underlying trends remain similar to what we had disclosed at in Q1. But that what you're seeing here is the effect of working debt and mostly the effect concentrated of weather conditions.
Okay. Thank you.
I would add that normally it's more the exterior products, which are more affected by the weather. In distribution, we sell both products which go outside and inside. So in distribution also the mix everything which is linked with outside work is more affected than inside work, but some products which are inside have also been affected and which is at also in our entire solution sales in Europe. Affected. When the weather is really very bad, I cannot access the working side that it has an impact on all all the activity.
Thank
you very much. The next question comes from Liffer Muling from CMCIC Market Solutions. The floor is yours, sir.
Hello? Hello? Just two questions for me. First one, can your description in the glass for Automotive Industry affect your margin. That's the first And so second issue, could you repeat the price effect in the building distribution and in the glass distribution in the glass division many tanks.
[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] The second part, Jean Christophe, was what?
Yes, it is to repeat the price effect in first, this building distribution. And secondly, in the glass
2.3 on distribution and 1.3 in Flat Glass.
Many thanks, Pierre and
is doing the CFO job. On the Automotive Glass industrial choose, yes, we expect them to have a slight impact on sales growth as well as on the margin development. Hopefully, we can catch up, but we expect that to have a slight impact. It's too early to give any guidance on margin sector by sector. But what I will say is as we told you at the beginning of the year, we have in mind to keep a good margin level at the level of the innovative sector.
The next question comes from Gardener from Davy. Please go ahead, sir.
Good evening, gentlemen. Thanks for taking my question. So just one You mentioned a lot about underlying trends, better in between the weather. I'm wondering, would you comment at all around April? Have you seen any kind of a significant bounce back And just secondly then, just to follow-up on the UK, so it seems to me that, the UK was badly impacted by weather, but the commentary in itself is that a little bit more negative there anyway.
So just any additional comments you can give us on the UK. And just one follow-up again, just on the price by division, would you mind just repeating, P. M. Pricing? Thank you.
Yes. I
will maybe H. P.
M. Pricing. What I will do is I will give you by division because I think I was cuts during my presentation. So I will re give you the price effect by division. So for innovative material as a whole, the price effect is 0.6% for Flatlass 1.3 HPM-0.2.
For construction products, overall, it was 3% with interior solutions 3.7% and Exterious Solutions 2.2% and for Building Distribution, it was 2.3%.
As far as April is concerned, I don't have the total sales for April, but, but globally, I would say that we are back to the trend, we add, in this, in, last year in the second half. In most countries. So clearly, there was a significant weather impact in Q1 and the underlying trends are confirmed. I must just say that the first 2 weeks of April, the weather was still very harsh in the Nordics, but, it have improved during the month of April. So when we are out of this weather issue, we are back to the underlying trend.
That's the comments, I would, I would make globally. In the in the UK, clearly, you know, in the UK, the the last quarter was already seeing a trend where our volume were already a bit negative compensated by a good pricing. We see that continuing it is clear that the weather was really particularly bad for a few weeks in the UK. I'm not completely able to quantify at this stage whether outside of the weather, the trend was worse. I think it's not completely obvious for me.
But clearly, we have had already a trend with negative volumes at the end of 2017, and this is continuing, which is a very different trend. In the other countries.
Thank you very much. The next question comes from Wider Schpottky from JPMorgan. Please go ahead.
Gentlemen, just two questions for me. The first one is, you mentioned improving prices and pickup in exports for the pipes business. Does mean profitability in that business has a you see that troughing and should start improving this year. And the second one is in the Nordic markets. You see good trends there despite the weather impact and calendar effect.
Can you comment a bit on individual markets there if there are any diverging trends? Thank you.
Well, we don't comment on margins in the first quarter in price, but so I have nothing to to change from what we said in February, when we said that we expect an improvement in, in 5 this year, So there is no, no, no, no change there. In terms of the Nordics effect, yes, on the on the sales in, in the Nordics, I, I, I believe what we said also in, in, February, has not changed. So the underlying trend are are still, good. As you know, there is some slowdown in new construction in the large cities in Sweden and Norway, but renovation, which is was to some extent constrained by the very the fact that the labor markets are tight and everybody was very busy on a new construction renovation has been improving and there is also a significant work going on in those countries on on infrastructure, even though I would say infrastructure is probably the business, which is the most penalized when the weather is bad. So That was not good, but I think the underlying trend, in the Nordics are are, are good.
Thank you
very much. The next question comes from Will Jones from Redburn. Please go ahead, sir.
Thank you. I think I've got 3, if I could, please. The first is just coming back to Flat Glass and obviously you're talking there about slight increases in the float price. Is that understand, is that a deliberate strategy now given where margins are in that division that you're not trying to push price too aggressively? For, fear of bringing in competition, just the strategy, I suppose, around floatgrass pricing.
Second one, just around U. S. Roofing, think back in February, you were more optimistic than your major US peer around volumes this year. I think they're still talking about a mid single digit decline. I guess what's your latest view on that?
And then the last one is just if you could remind us where in the world you've got new plants opening up this year that are benefiting volumes?
Yes, on U. S. Roofing, I don't think that, I mean, the start of the year in terms of in terms of volumes was good. And I don't think that we are changing much to our, to what we said in February. You know that like in all construction products, winter is not the best time to draw conclusions about the full year.
The roofing, the roofing busy season season is later in the year. It's an exterior products, like many other exterior products. And you know also that the wildcard is a storms effect, which can impact from time to time the roofing activity. So I don't I think it's way too early to change anything to what we have said about expectations for the year.
So in terms of new plants, the vast majority of our new plants in construction products, in emerging countries with a significant expansion in, India, but we'll also waste both glass a flat glass, automotive glass and a plasterboard. So significant program in India. We have also expansions in a make SICO. We have expansion in, in Vietnam, in Southeast Asia, in China, in, in, gypsum. So we, we follow our market and a big part of the CapEx growth are in emerging countries, but we have also just announce that it's not a new plan, but we will double the size of our insulation line in France.
We have the market is for installation is extremely active following all the government plans on energy efficiency. So we have we have some increase there, but the majority is more on emerging countries. In, in both in Asia and Latin America. In
was the question? Truth less price, is it a deliberate strategy?
You know, we are not the only one to it would be very nice if we could decide what other price we want to have. We can we are still we are still pushing whenever we can to get a bit higher prices But on the other hand, we think that we are at prices now that are where we don't we don't expect very significant increase as we said in this year compared to what we have had 2 years ago. In Flat Glass. If on the other hand, if the energy price continue to to go up will probably have more price increase in, in, in Flat Glass. And also, one part of Flat Glass where there is still potential push.
Yes, sorry. I followed that. The downstream part of our activity, where we were a little bit late, passing through the price increases of upstream. So there is still potential. And we have seen in this first quarter some appreciation there.
Yes. So it's going in the right direction and there is potential here.
This is going to gather momentum when the season
Thank you very much. The next question comes from Arnaud Lehman from Bank of America. The floor is yours, sir.
Thank you very much. Good evening gentlemen. I have 3, a pretty short question, if I may. Firstly, a general question about emerging markets. You still have solid growth there in Q1, 6.8% I think However, we've almost got used for you to deliver double digit organic growth in emerging markets.
So have you seen any change in trends in some region or is it just somewhat more challenging based effect? That's my first question. My second question is, if I could come back to your price cost dynamics. If we look at 2017 overall, you had 2% price effect, about EUR 500,000,000 cost inflation. Now you start 2018 in Q1.
You have 2% price effect. And you said you will have, let's say, the upper end of SEK 300,000,000 to SEK 500,000,000. So it looks like a broadly similar scenarios 2018. But then I understand you're maybe a little bit more optimistic than that. So can you please come back on this, please?
And my last question is regarding UK distribution. Do you see a benefit from the stronger sterling on your gross margin because your cost of import is declining?
I answered the 3rd question the improvement in the selling is not huge and we are seeing some strong pricing in the UK. In distribution, which is not offsetting completely the volume impact. So that's what's but generally in distribution, we increase prices according to the cost we get. On emerging markets, no, there is no change in in trend globally. I think the working days effect is not exactly the same in all countries, but there are a number of countries, especially in Latin America.
Where it is it has the same impact, sometimes even more. So there is globally this working days impact We had some, some also in the Czech Republic and some countries in Eastern Europe. We had some weather impact, I would say that globally, we don't see a change in the earning trends in the emerging countries compared to what we have had last year.
Yes, and I know yes, on the cost to price spreads. Yes, the reason why maybe we sound a little bit more optimistic is first of all, because, I think there is momentum in terms of pricing. We are pushing price increases in all categories and it's now very clear that those price increases are installed in the habit of the markets. Which was not the case last year and which led us in Q3 to have difficulties to react to the acceleration of inflation during the year. So, as I mentioned, we have a follow-up price increases in some markets, which we will continue to push.
And the fact is that we get the feeling that the momentum, the momentum is there. In terms of, in terms of raw materials and energy, yes, we are we have inflation this year. At this stage, we still we still think that it's going to be slightly lower than last year. So all in all, it's a slightly more positive environment. And more importantly, maybe the sector where we had the biggest issue last year because it's a in terms of pricing, it's a very it's much slower to implement pricing.
What construction product And so this was our main challenge entering the year and in construction products. As you saw, we have delivered strong pricing and we feel confident.
Thank you very much.
Thank you very much. The next question comes from Gregory Kuglitsch from UBS. The floor is yours, sir.
Hi there. Maybe a quick question just sort of thinking about I know this is a call on Q1, but I'm gonna kind of push from Q2 because last year, you obviously had the cyber, the cyber attack. I think it's a time kind of 2% headwind, and then obviously you've got some trading days coming back. So, is it fair to assume, when you look at your own expectations that in terms of headline organic growth, do you kind of expect a pretty substantial acceleration, clearly against the 6, I think, is obvious, even beyond the run rate that you perhaps think is underlying. And then could you comment a little bit more on the dynamic in France.
I think you talk about progress in repair and maintenance markets. Can you maybe elaborate a little bit whether anything has really changed? Maybe the situation is a little bit difficult to read with the weather but it would still be interesting whether you think there's any acceleration in that particular end market? Thanks.
No, I would say in front there is no chance the overall trend of 2000 and 17. We had a particularly strong 4th quarter I would say at the moment, in my view, the narrowing trends are more aligned with what we have seen overall for the second half of twenty 17. That's what I expect. So in terms of sales, it means it means around or a little more than 5%. But the trend I see at the moment, and I have no see, I've not seen a change in that trend, in France,
or, you know, overall, at the group level, I'm not going to give forecast about what to happen in terms of top line growth, but I can give you a few elements, just remind you of a few elements. First of all, the working days in Q2, there was a positive working days effect of 1%. And in the second half, it's slightly positive also. And also, the comparison basis, if you remember well, in Q2 and at the beginning of Q3, we had the cyber attack. The Q2 growth of Saint Gobain last year was minus 0.1 So the comparison basis is clearly a little bit easier in Q2.
So that means that we should be above the underlying trend? Normally, yes,
Okay. Thank you.
Thank you very much. The next question comes from Manish Perra from SG. Please go ahead.
Hello. Yeah. Good evening. So I have three questions. The first was first one was in the building distribution.
So just wanted to understand, do you think that you have a very competitive cost structure there? And it's just the volume that you have to get back, to get to a very good margin there, or do you think you have to also work on the cost sure there, to really make it more profitable. And also wanted to understand what is the strategy, long term strategy for the building distribution, mainly in this digit age where there are a lot of e commerce platform are coming. So do you do you can we imagine some day? I mean, Saint Gobain might even think of, hiving off or doing some portfolio restructuring of the building distribution business.
So this is my first question. The second one is on the M and A. So you have done $300,000,000 of M and A. So can you confirm? I mean, this will be financed by your organic free cash flow In other words, I mean, do you think your net debt coming still coming down after doing this M and A?
My third question is on the is on the mix impact from the ForEx on the margin because last quarter you said, I mean, ForEx generally, the ForEx countries which are negatively impacted as a higher margin. So do you see some sort of mix impact, sir, because you're seeing more than 4% for a impact before So these are my three questions. Thank you.
Can you can you repeat the last one, Manish?
The ForEx impact because you have more than 4% of 4x impact this quarter. So will there be a mix impact? Because I mean, the types of country that has the ForEx impact, our higher margin business. So so if you could confirm some number like a 10% a decline. So what sort of margin impact is there in terms of basis points?
No, I mean, I can confirm qualitatively that, yes, it's going to have a bigger impact on operating profit because it's clear that, for example, North America, as you know, is profitable than the rest of the group. And North America is one of the areas experiencing, experiencing negative change effect as well as Asia and emerging countries, which is exactly in same situation. It's really too early to quantify that's not what we do at this time, at this time of the year, Your second question, remind me, was about M and A and financing of M and A. Yes, you know, if I were, I mean, I'm not giving that's a little bit the same, the same answer. We are not going to give guidance on the cash generation and the full year level at this stage of the year.
But what I can tell you is that in terms of financing, our financing policy remains the same. We want to be comfortably in our rating ranges where we we are, in fact. So there is no financing issues. But in terms of your question, which was, can you forecast if I I summarize do you forecast the net debt at the end of the year to be up or down compared to this year, I think this is a guidance that we usually don't give and that I won't give to make. First question was about strategy
of billing issues. No, but it's key that, you know, we will always work on our cost structure. We expect productivity again in distribution. So we are going to continue to work on progressive productivity again in distribution. So there is no major restructuring to be had.
There is a continuous work on our cost structure.
Okay. But are you still there? I mean, do you think it's a competitive enough? Like, if you compare benchmark it with your peers, do you think the fixed cost structure is just there? Is it competitive enough?
I think when I I have, we have details of, we have to do a detailed benchmark by country and in fact, by regions, which I do generally, and, and in most cases, we are in our main competitor in the UK. So we have that for a long time. That remains, I would say in France, we are a bit better than our competitors. And in, also in, in the Nordics.
Mhmm.
But, you know, I'm not I'm not looking at my at the cost, comparing with the benchmark. We have the cost when we see that the opportunity even when we are better, we continue to work on our costs.
Understood. So so maybe I will add one more question. So, like, your share price are down quite significantly now, like, 10, 15%. So, so do you do contemplate doing more buybacks I mean, because, obviously, the pipelines are down. So it make might make more sense to do more buyback now.
On the share buybacks, you know, that we have a long term objective that is well known of 513,000,000 shares as an objective to come back there. So yes, we will do buyback this year, but as far as timing, let us be opportunistic about that. And you'll see it when it happens
Okay. Yeah. Thank you.
Question comes from Mehdi Boudicca from Raymond James. Please go ahead.
Questions on my side. So first one on Flat Glass, would you recover your capacity in the second quarter, or would you still be by some repairs. 2nd one, could we have an idea of your raw mats and energy cost inflation in the first quarter? Thirdly, on weather impacts, could we have an idea of the negative impact linked to that in the first quarter? And do you expect to recover this in the second quarter of the year?
And last one is on the 5 division. So you mentioned better trends in export contracts. So can you give us more color on that? Thank you. Okay.
On slide glass, we will not recover in the completely in the second quarter, we would recover in the middle of the year. The capacity has been shut down at the moment. We'll start to recover, but yes.
On raw materials and energy, if I understand well, you was quarter by quarter. You know, we tend to give, to give figures on a full year basis. And not on the quarterly, on a quarterly basis. And I will repeat what I've said, which is that we maintain our brackets between 3 500 on raw materials and energy. In terms of weather impact and can we recover The weather impacts, first of all, as we said, it's difficult to, it's difficult to assess because there is no metric allowing you to, to restate from, from the weather impact.
It's difficult on a full year basis. It's difficult on a quarter basis. So I cannot give you an answer, except to say that it was substantial during the first quarter. In terms of can we recover, Thomas, maybe do you want to?
I have I have been wondering about the questions for 20 years. So I am not sure I know the answer. I think that, we will, certainly recover part of it, whether we cover it all, or even more. I, I don't know. I think it depends on the country.
It depends on the labor situation in the various countries. Given the fact that in Germany or in the Nordics, for instance, the labor market is quite tight. I think, we are not going to recover it, for instance, in just in April or in May, and it may take it may take part of the summer to recover. But, globally, I think we should recover a significant part, of what has been lost. But the situation may vary a little bit by country.
And on the pie division, I don't
know how to give you more color beyond what we have said. The pipe's activity at the beginning of the year is slightly positive. It's growing. We see an interesting recovery of our volumes in the export contracts. On the other hand, the start of the year is a little bit difficult in emerging countries.
For example, in Brazil where because of the political uncertainty, the orders are temporarily a little bit lower than last year. So I don't know how to say much more than that at this stage.
What I would say is that the prospects of orders is higher, but, some of these orders are not yet confirmed.
Okay. Fair enough. Thank you.
Thank you very much. And the next question comes from Lafeira Muling from CMCIC Market Solutions.
Pierre Andre and Guillaume. I have a follow-up question on the Glass division. Could we get more flavor on the stoppage of capacities, is that in the upstream, so the flat glass or in the downstream,
No, no, it's upstream.
On your stream. And where do you get where, where do we
go? In Europe? Yeah.
Okay. No no further details.
Why is there no? At this stage, no?
Okay. Also, some flavor on the PACS business line, do you to you last year, this activity was still in the losses, will do we have a better prospect in 2018. So can we recover a positive profit or not?
I already answered that question in February and I don't think I have a different answer to give.
Okay.
Keep you all the way.
Thank you.
There is no significant change in pipe from what I said in the end of February. Okay, okay. A little bit. We are in line.
The conference call via speakers.
Thank you very much for participating in this conference call and we'll see you later.