Ladies and gentlemen, welcome to the Saint-Gobain conference call. I now hand over to Pierre-André de Chalendar, Chairman and CEO. Sir, please go ahead.
Thank you, 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 first quarter performance is distorted by tough weather conditions, negative working days, and a very negative currency effect. Nevertheless, we continue to move forward and succeeded 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. I will now hand over to Guillaume, who will give you additional information, including by business sector and geographic areas.
Thank you, Pierre-André, good evening to everyone. As you said, I will give a little bit more details about our sales for the first quarter. Sales rose 1.6% on a like-for-like basis over the first quarter. The reported figure was, however, impacted by a significantly negative exchange rate impact of -4.7%, which was partly offset by a positive 1.3% structural effect. I'll take a moment to give you a few details on those two effects. The structural impact increased from the 0.9% we saw last year, reflecting the acquisitions made in Asia and emerging markets like Kimmco in Kuwait, Tumelero in Brazil, and Megaflex in Argentina. In new niche technologies and services such as Tekbond in adhesives, Maris in construction chemicals, and Scotframe in prefab elements.
Third category, in the reinforcement of our strong positions, including companies like Glava, Byggelink, Kirson, 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 Kimmco in Kuwait, in particular. The currency impact was significantly negative at -4.7% for the quarter. This was principally driven by the US dollar having weakened substantially since the first quarter last year against the 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 effect from the British pound and the Swiss franc. Basically, in summary, the euro is appreciating against almost every currency.
For this first quarter, the currency impact was materially negative in all sectors, but especially Exterior Solutions and HPM, both at around -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. 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 here to date, because the comparison basis will become easier as the year progresses. 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.
First quarter sales were impacted, as Pierre-André mentioned, by a material working day effect of around -2% on the sales of Saint-Gobain. This should be the quarter with the most significant working day 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 impact, especially in Europe, where we saw particularly bad winter weather. A cold wave hit most of Europe in late February and early March, bringing snow, ice, and freezing temperatures to Northern Europe and as far south as the Mediterranean. The same scenario happened again in both mid and late March. Importantly for our businesses, the conditions delayed construction projects and affected deliveries as cities were brought to a standstill and numerous roads closed across Europe.
The negative effect of these two impacts, working days and weather, weighed on headline volumes, which came in at -0.5%. You know that 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. 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 +2.1% in Q1, and we did this against a tougher comparison basis as price in Q1 2017 was +1.6% versus +0.8% in the previous quarter of Q4 2016.
We were pleased to see our focus on pricing pay off 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. In terms of the price-cost 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 Q1.
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 day 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 float 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 a 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 +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 U.K. North America posted growth once again, led by pricing, with recent price increases and volumes broadly stable.
Overall, the business continued to show a good pricing trend at +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 distributor stockpiling. Pricing was slightly up, but we continue to push, as I detailed earlier. In pipe, pricing increased, but volumes remained 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. Building Distribution decreased 0.7% like-for-like, hit by the negative working day impact and a 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 U.K., 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 marked decrease in sales. Trading remained weak in Brazil. Overall for the sector, pricing was up 2.3% in the quarter. Let me give you some comments on organic growth by geographic area. France, as I said when I was talking 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 U.K. 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 U.K., which saw volume decrease, partly offset by a strong price effect. North America posted like-for-like growth of 4.6% for the quarter. This growth was led by continued good momentum in the industrial markets. The construction markets continued to trend well, with an increase in pricing led by Interior Solutions. 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. I will now hand over to Pierre-André 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 objective that I announced in February. Focus on sales prices amid continued inflationary pressure. Our cost savings program set to deliver EUR 300 million 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&D and our focus on strong free cash flow generation. We have continued to push forward with our acquisition, completing nine since the start of the year, for a total spend of around EUR 300 million, including Kimmco in the insulation market in Kuwait, Per Strand in Building Distribution in Norway, and Icon 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 U.K. Growth in North America in both construction and market and industry, and good momentum in Asia and emerging countries. To conclude, as you will have seen in the press release and in line with our objective as announced in February, the group is targeting a further like-for-like increase in operating income in 2018. Guillaume and I, we are now happy to answer any questions you may have.
Thank you very much. Ladies and gentlemen, if you wish to ask a question by phone, please press 01 on your telephone keypad. The first question comes from Yves Bramhat 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 in the Interior Solutions versus the decline in volumes in the Building Distribution side of the business. 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 EUR 500 million for full year 2018? Thank you very much.
Well, as you know, we are just talking about sales the first quarter, but clearly in the first quarter, the HPM sales are very good and they have higher margin, and in Building Distribution, we have low sales and low margin. 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 Building Distribution, and there is nearly no impact of the weather in our High Performance Materials. The sales of the Building Distribution, like in 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 the results, between EUR 300 million and EUR 500 million. Maybe towards the top end of this range at this stage. 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 raw materials and anything related to metals. Overall, we are confirming that it's going to be an inflation year. We are confirming the range we announced.
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 Products sector level, which is quite important.
Which bodes well for the next quarter. I think we are optimistic about the price-cost spread for this year.
Thank you. 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 we've 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 inflation? Or you still expect margin to be under some pressure in these divisions in the U.S.?
Let me be clear. The overall picture for Construction Products is a good picture in terms of pricing. I mentioned that there are areas where we still need to push pricing. The one I'm thinking about is clearly roofing, on which we have price increase. We have led the 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. Given the track record that we have had in other materials, I think we are really in an environment which is conducive to price increases. You were 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.
Yeah. The situation here is very different.
That would be my answer.
All right. Thank you very much.
Okay.
Thank you very much. The next question comes from Josep Pujal from Kepler Cheuvreux. Please go ahead, sir.
Yes. Good morning. Two from 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. Is it leading you to change your, I would say, strategy about the mothballed plans? Do you forecast to reopen some plans in Europe this year? If yes, which kind of capacity or which kind of figures could you share with us? My second one is on this disconnection that we can see in volumes in Q1 between Building Distribution, they are down -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.
On Flat Glass, no. We don't have in mind to add additional float glass in Europe, there is no change in our strategy. We have to anticipate some repairs because we have been using our float glass a lot in the last few years, and there has been wear, which happens. We have, in fact, less capacities than expected at this time, which is weighing on our sales in Flat Glass, in the construction area, in Europe at the moment. That's an explanation of the fact that the sales are lower in Flat Glass than we expected them to be. 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. We need to have more shipments of glass from one country to the other. This is temporary, this has affected our performance in the first quarter.
Josep, you were mentioning Building 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 have slightly more impact in Building Distribution than in other businesses. Frankly, the main effect is the fact that Building Distribution is exactly on the geographies which were the most impacted by the weather effect.
Yeah.
The biggest countries in Building Distribution are France, Scandinavia, Germany, and the U.K. Those four areas are exactly where the winter conditions were the most difficult. You know that in Building Distribution, you have 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. It was the case in many cities in those countries. I would say that the underlying trends remain similar to what we had disclosed in Q1. What you're seeing here is the effect of working days 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. In Distribution also, the mix, everything which is linked with outside work is more affected than inside work. Some products which are inside have also been affected, and we see that also in our Interior Solutions sales in Europe are affected. When the weather is really very bad and you cannot access the working site, that it has an impact on all the activity.
Thank you.
Thank you very much. The next question comes from Olivier Moullin from CM-CIC Market Solutions . The floor is yours, sir.
Hello?
Hello.
Can you hear? Yes. Good evening. Bonsoir. Just two question from me. First one, can your disruption in the glass for automotive industry affect your margin? That's the first question. The second issue, could you repeat the price effect in the Building Distribution and in the glass division? Many thanks.
The second part, Jean-Christophe, was what?
Yes. It is.
Try to back on
to repeat the price effect in first, this Building Distribution, and secondly, in the glass division.
2.3 on Distribution and 1.3 in Flat Glass. Many thanks, Pierre. Bye.
He's doing the CFO job. On the automotive glass industrial issues, yes, we expect them to have a slight impact on sales growth as well as on margin development. Hopefully, we can catch up, but we expect them to have a slight impact. It's too early to give any guidance on margin sector by sector. 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 Materials sector.
Okay. Many thanks.
Thank you very much. The next question comes from Robert Gardiner from Davy. Please go ahead, sir.
Good evening, gentlemen. Thanks for taking my question. 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? Just secondly then, just to follow up on the U.K., it seems to me that the U.K. was badly impacted by weather, but the commentary in itself is that little bit more negative there anyway. Just any additional comments you can give us on the U.K., and just one follow-up again, just on the price by division, would you mind just repeating HPM pricing? Thank you.
Yes. I will.
Maybe HPM pricing.
What I will do is I will give you by division, because I think I was cut during my presentation. I will re-give you the price effect by division. For Innovative Materials as a whole, the price effect is 0.6%. For Flat Glass, 1.3%. For HPM, -0.2%. For Construction Products, overall, it was 3%, with Interior Solutions 3.7% and Exterior Solutions 2.2%. For Building Distribution, it was 2.3%.
As far as April is concerned, I don't have the total sales for April, but globally, I would say that we are back to the trend we had last year in the second half in most countries. Clearly, there was a significant weather impact in Q1 and the underlying trends are confirmed. I must just say that the first two weeks of April, the weather was still very harsh in the Nordics, but it has improved during the month of April. When we are out of this weather issue, we are back to the underlying trend. That's the comment I would make globally. In the U.K., clearly, the last quarter was already seeing a trend where our volume were already a bit negative, compensated by good pricing. We see that continuing.
It is clear that the weather was really particularly bad for a few weeks in the U.K. 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. 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.
Great. Thank you very much.
Thank you very much. The next question comes from Nidaa Zuber from JPMorgan. Please go ahead, sir.
Yes. Hi, good afternoon, gentlemen. Just two questions for me. The first one is, you mentioned improving prices and pickup in exports for the pipes business. Does that mean profitability in that business as you see that troughing and should start improving this year? The second one is on 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.
We don't comment on margins in the first quarter in pipe, I have nothing to change from what we said in February, when we said that we expect an improvement in pipe this year. There is no change there. In terms of the Nordics effect, yes, on the sales in the Nordics, I believe what we said also in February has not changed. The underlying trend are still good. As you know, there is some slowdown in new construction in the large cities in Sweden and Norway. Renovation, which was to some extent constrained by the fact that the labor markets are tight and everybody was very busy on new construction.
Renovation has been improving, there is also a significant work going on in those countries on infrastructure, even though I would say infrastructure is probably the business which is the most penalized when the weather is bad. That was not good, I think the underlying trend in Nordics are good.
Thank you.
Thank you very much. The next question comes from Will Jones from Redburn. Please go ahead, sir.
Thank you. I think I've got three, if I could, please. The first, just coming back to Flat Glass, obviously you're talking there about slight increases in the float price. Can I 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 float glass pricing. Second one, just around U.S. roofing. I think back in February, you were more optimistic than your major U.S. 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? 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. Thanks.
Yeah. On U.S. roofing, the start of the year in terms of volumes was good, I don't think that we are changing much 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. Roofing busy season is later in the year. It's an Exterior Product, like many other Exterior Products. You know also that a wild card is a storm's effect, which can impact from time to time the roofing activity. I think it's way too early to change anything to what we have said about expectations for the year. In terms of new plants, the vast majority of our new plants in Construction Products are in emerging countries with a significant expansion in India, where we'll also both Flat Glass, automotive glass, and plaster board.
Significant program in India. We have also expansions in Mexico. We have expansion in Vietnam, in Southeast Asia, in China, in gypsum. We follow our markets a big part of the CapEx growth are in emerging countries. We have also just announced that it's not a new plan, we will double the size of insulation line in France, where the market for insulation is extremely active following all the government plans on energy efficiency. We have some increase there. The majority is more on emerging countries, both in Asia and Latin America. What was the question?
Float Glass price, is it a deliberate strategy?
We are not the only one. It would be very nice if we could decide whatever price we want to have. We are still pushing whenever we can to get a bit higher prices. On the other hand, we think that we are at prices now where we don't expect very significant increase, as we said in this year, compared to what we have had two years ago in Flat Glass. On the other hand, if the energy price continue to go up, we'll probably have more price increase in Flat Glass.
Also, one part of Flat Glass where there is still potential to push.
Yes. Sorry, I followed that.
That is 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.
It's going in the right direction, and there is potential here. This is going to gather momentum when the season comes.
Thank you.
Thank you very much. The next question comes from Arnaud Lehmann from Bank of America. The floor is yours, sir.
Thank you very much. Good evening, gentlemen. I have three hopefully 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. Have you seen any change in trend in some regions, or is it just somewhat more challenging base 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 million cost inflation. You start 2018, in Q1, you have 2% price effect. You said you will have, let's say, the upper end of EUR 300 million-EUR 500 million. It looks like a broadly similar scenarios for 2018.
I understand you're maybe a little bit more optimistic than that. Can you please come back on this, please? My last question is regarding U.K. distribution. Do you see a benefit from the stronger sterling on your gross margin because your cost of import is declining?
I answer the third question. The improvement in the sterling is not huge, and we are seeing some strong pricing in the U.K. in distribution, which is not offsetting completely the volume impact. That's what. Generally in distribution, we increase prices according to the cost we get. On emerging markets, no, there is no change 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 has the same impact, sometimes even more. There is globally this working days impact. We had 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 underlying trends in emerging countries compared to what we have had last year.
Arnaud, on the cost to price spread. 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 habits 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. As I mentioned, we have follow-up price increases in some markets, which we will continue to push. The fact is that we get the feeling that the momentum is there. In terms of raw materials and energy, yes, we have inflation this year. At this stage, we still think that it's going to be slightly lower than last year.
All in all, it's a slightly more positive environment. More importantly maybe, the sector where we had the biggest issue last year because in terms of pricing, it's much slower to implement pricing was Construction Products. This was our main challenge during the year. 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 Gregor 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 am going to kind of push on Q2, because last year, you obviously had the cyber attack. I think at the time you said kind of 2% headwind. Obviously you've got some trading days coming back. Is it fair to assume, when you look at your own expectations, that in terms of headline organic growth, you kind of expect a pretty substantial acceleration, clearly against the 1.6% I think is obvious, but even beyond the run rate that you perhaps think is underlying. Could you comment a little bit more on the dynamics 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. It would still be interesting whether you think there is any acceleration in that particular end market. Thanks.
No, I would say in France there is no change from the overall trend of 2017. We had a particularly strong fourth quarter. I would say at the moment, in my view, the underlying trends are more aligned with what we have seen overall for the second half of 2017. That's what I expect. In terms of sales, it means around or a little more than 5%. That's the trend I see at the moment, and I've not seen a change in that trend in France. In overall, at the group level, I'm not going to give forecasts about what's going to happen in terms of top-line growth. I can give you a few elements, just remind you of a few elements. First of all, the working days, in Q2, there is a positive working days effect of 1%, and in the second half, it's slightly positive also.
The comparison basis, if you remember well, in Q2 and at the beginning of Q3, we had the cyberattack. The Q2 growth of Saint-Gobain last year was -0.1%. The comparison basis is clearly a little bit easier in Q2.
That means that we should be above the underlying trend in Q2.
Yeah. Normally, yes.
Okay. Thank you.
Thank you very much. The next question comes from Manish Parekh from SG. Please go ahead.
Hello. Yeah, good evening. I have three questions. The first one was in the Building Distribution. 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 structure there, to really make it more profitable? Also wanted to understand what is the long-term strategy for the Building Distribution, mainly in this digital age where there are a lot of e-commerce platform are coming. Can we imagine someday, Saint-Gobain might even think of hiving off or doing some portfolio restructuring of the Building Distribution business? This is my first question. The second one is on the M&A. You have done EUR 300 million of M&A.
Can you confirm, this will be financed by your organic free cash flow? In other words, do you think your net debt still coming down after doing this M&A? My third question is on the mixed impact from the Forex on the margin, because last quarter you said, Forex countries which are negatively impacted have a higher margin. Do you see some sort of mixed impact because you're seeing more than 4% Forex impact this quarter? These are my three questions. Thank you.
Can you repeat the last one, Manish?
The Forex impact, because you have more than 4% Forex impact.
Yeah
this quarter. Will there be a mixed impact? Because the types of country that has the Forex impact are higher margin business. If you could confirm some number, like 10% Forex decline. What sort of margin impact is there in terms of basis points?
No, 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 more profitable than the rest of the group, and North America is one of the areas experiencing negative change effect, as well as Asia and emerging countries, which is exactly in the same situation. It's really too early to quantify. That's not what we do at this time of the year. Your second question, remind me, was about M&A and financing of M&A. That's a little bit the same answer. We are not going to give guidance on the cash generation at the full year level at this stage of the year. 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, which we are, in fact. There is no financing issues. In terms of your question, which was, if 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 tonight. The first question was about strategy of Building Distribution.
It's clear that we will always work on our cost structure. We expect productivity gain in distribution. We are going to continue to work on progressive productivity gain in distribution. There is no major restructuring to be had. There is a continuous work on our cost structure.
Are you still there? Do you think it's competitive enough, if you compare, benchmark it with your peers? Do you think the fixed cost structure is just there? It's competitive enough?
We have to do a detailed benchmark by country, and in fact, by region, which I do generally. In the most cases, we are in a good competitive situation. We are a little bit below our main competitor in the U.K. We have that for a long time. That remains. I would say in France, we are a bit better than our competitors. Also in the Nordics. I'm not looking at the cost comparing with the benchmark. The cost, when we see that there are opportunities, even when we are better, we continue to work on our cost.
Understood. Maybe I will add one more question. Your share price are down quite significantly now, like 10%, 15%. Do you contemplate doing more buybacks? Obviously the share price are down, so it 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 530 million shares as an objective to come back there. 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.
Thank you very much. The next question comes from Mehdi Boudokhane from Raymond James. Please go ahead.
Yes. Good evening, everyone. I have a couple of questions on my side. First one on Flat Glass, would you recover your capacity in the second quarter, or would you still be affected by some repairs? Second one, could we have an idea of your raw mats and energy cost inflation in the first quarter? Thirdly, on the weather impacts, could we have an idea of the negative impact linked to that in the first quarter? Do you expect to recover this in the second quarter of the year? Last one is on the pipe division. You mentioned better trends in export contracts. Can you give us more color on that? Thank you.
Okay. On Flat Glass, we will not recover completely in the second quarter, but we will recover in the middle of the year, the capacity that has been shut down at the moment. We'll start to recover, but yeah.
Yeah. Mm-hmm.
On raw materials and energy, if I understand well, your question was quarter by quarter. We tend to give figures on a full year basis and not on a quarterly basis. I will repeat what I've said, which is that we maintain our brackets between 300 and 500 on raw materials and energy. In terms of weather impact and can we recover? The weather impact, first of all, as we said, it's difficult to assess because there is no metric allowing you to restate from the weather impact. It's difficult on a full year basis. It's difficult on a quarter basis. I cannot give you an answer except to say that it was substantial during the first quarter. In terms of can we recover, Pierre, maybe do you want to-
Yes. 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 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, just in April or in May, and it may take part of the summer to recover. Globally, I think we should recover a significant part of what has been lost. The situation may vary a little bit by country.
On the pipes division, I don't know how to give you more color beyond what we have said. The pipes activity at the beginning of the year is slightly positive, is growing. We see an interesting recovery of volumes in the export contracts. 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. I don't know how to say much more than that at this stage. Yeah.
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. The next question comes from Olivier Moullin from CM-CIC Market Solutions. The floor is yours, sir.
Pierre-André and Guillaume, I have a follow-up question on the Flat 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, it's upstream.
Only upstream. Where do we have-
In Europe.
Okay. No further details.
No. At this stage, no.
Okay. Also, some flavor on pipes business line. Last year, this activity was still in losses. Do we have better prospects in 2018? 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. Okay, Pierre-André. Thanks.
Thank you.
There is no significant change in CapEx from what I said at the end of February.
Okay. Understood.
We are in line.