Earnings Call: Q4 2016

Feb 24, 2017

Okay. Good morning, everybody, and welcome to our 2016 results presentation. As usual, I will give you a brief summary, then Guillaume will present the results in more detail, and I will come back for the outlook. In a nutshell, the main figures are of Saint-Gobain in 2016. 2016 has been a very good year for us, with sales up 2.6% like-for-like, 1.3% negative in real terms, mostly because of exchange rates. Our operating income like-for-like was +10.8% for the full year, 6.9% in actual terms. So, a good growth of operating income with good leverage and operating margin up 50 basis points to 7.2%. The recurring net income was up 20% at EUR 1.4 billion, and the EPS a little bit higher given our purchase of shares. Free cash flow up 29%, which is a very good performance. CapEx has been stable and an increase of our net self-financing. The net debt increased, mostly due to additional input into our U.S. pension funds. These good sets of results have been realized in an environment which has improved progressively and when we have had a good organic growth dynamic in Western Europe. As I said at the beginning of 2016, sales stabilized in France, led by new build, but with a renovation market, which was still hesitant, slightly improving at the end of the year. We had a good growth, very solid growth, I would say, in most countries outside France in Europe, including the U.K., where the fourth quarter was, in fact, in terms of growth, our best quarter. North America, we had a good momentum in our main construction markets. We were helped in the U.S. by favorable weather, which helped our roofing sales during the year. But the industrial markets have been mixed. Globally, I would say they have been slightly down. We have had a robust growth in emerging countries, which has been increasing over the year despite the difficult macroeconomic conditions in Brazil. This is a tribute to all the investments we have made in a lot of countries in the last few years. So 2.6% like-for-like growth driven by volume. The prices were stable, but given the fact that we were at -0.6% for the first half, it means that the second half has been positive, and the last quarter, the exit rate is better at 0.8%, which will be very important for this year. Good volume growth, negative currency impact of 2.9%, and still a negative perimeter impact. We are still linked mostly to the sales of businesses in distribution in 2015. So operating income up 10.8% like-for-like. We have achieved our program, in fact, a little more. We had in terms of cost savings, around 250. We did EUR 270 million. Free cash flow and recurring net income are up. The net income is slightly up, but you remember that 2015, there were mostly the capital gain from the sale of Verallia. We have continued our policy of small and medium-sized acquisition with an increased number of acquisition. Overall, 30 acquisition during the year for EUR 362 million over the full year. These are the main figures about our results, a good set of results, and I would let now the floor to Guillaume to give you more details. Good morning. Starting with sales. Sales grew organically by 2.6% on the year, which is also the fourth quarter figure. You can see here the price effect, which is at zero, which contrasts with the first half, where pricing contribution to growth was a negative. Volume is at 2.6%, with a lower contribution in the second half of 1.7 compared to 3.5 in the first half. However, remember that the working days effect was a positive, approximately 1% in H1 and approximately 1% negative in H2. The underlying volume increase is roughly the same when restated from this effect. Next year, the days effect will be slightly different with a very favorable Q1, close to +3%, an unfavorable Q2 of approximately -3%, and overall, a zero minus H1. Exchange rate impact for 2016 was a negative -2.9%, with a slowdown of this negative effect, however, over the last three quarters. With a Q4 at -2%. Over the full year, the most negative impact comes from the British pound and the South American currencies, despite a rebound of the Brazilian real, which turned positive in the second part of the year. Perimeter is a negative 1%, driven mostly by the divestitures in Building Distribution that we completed at the end of 2015 and the beginning of 2016. We also made acquisitions during the year. But the most important ones are in the second part of the year, and they didn't have meaningful enough effect over the full year to offset the effect of divestitures. If you look at the series of price and volumes over the last few years, as I alluded to previously, we are now back in positive pricing territory in the last two quarters, after two quarters of deflation in H1, which were quite exceptional when you look at the long-term pricing performance of Saint-Gobain. In the fourth quarter, this pricing recovery trend is visible everywhere, even though France and the U.S., in absolute, remains slightly negative. Overall, this positive pricing situation is a more favorable environment for us and one we are more familiar with from a fixed cost absorption perspective. However, obviously, this reversal of trend is also true on the cost side, in particular on the cost of raw materials and energy. Coming to profitability. Our profitability increased this year to 7.2%, our best performance in five years and an increase of 50 basis points over last year. This increase comes from all sectors, with Construction Products jumping by 80 points, Innovative Materials progressing by 70 points, and Building Distribution by 20 points, despite the deflation headwinds. On the second half, this evolution is the same, +50 basis points, coming here again from all sectors. On a like-for-like basis, we grew the operating profit by 10.8% with a healthy two digits improvement in the second half. This is at the top of our guidance for operating profit evolution that we gave at the beginning of the year. Going down the P&L, non-operating costs are decreasing by EUR 32 million. This is a logical trend as we need a little bit less restructuring in a period of positive volumes in all sectors and all areas. Other operating expenses are also substantially lower than last year, with EUR 190 million of asset write-downs, mainly in Interior Solutions and in proppants. This translates into an operational result in sharp positive evolution at +78.1%, leading to a business income of EUR 2.3 billion. On the asbestos side, the number of new claims stayed constant in 2016. Payments were higher than in 2015, which we had already flagged as an unusual low year due to an important backlog of claims settled but not paid at the end of 2015, so no surprise here. We also had a statistically heavy year in terms of large ticket claims. Overall, the situation is stable, and we kept the accrual to the provision constant at $100 million or EUR 90 million. Financial charges are also decreasing by 14% at EUR 541 million thanks to a reduction of the gross debt amount, as well as a reduction of the average cost of gross debt. Here, we were able, on this line, to save EUR 88 million. Taxes were also quite favorable, with the rate down by 2 points. The total amount of taxes, however, is increasing in line with the positive evolution of the taxable result. in the end, the 10.8% evolution like-for-like of the operating profit translates into 20% recurring net result improvement and an even slightly higher figure for earnings per share, thanks to the reduction in number of outstanding shares. This is what this slide underlines with the highest net result figure in 8 years and the highest recurring net result figure in 5 years. Remember on top of that last year's net income included close to EUR 800 million of capital gain linked to the Verallia divestiture, which are not here in 2016. As a result of the good performance on all P&L lines, operating cash flow generation is increasing by 13% to EUR 2.6 billion and free cash flow by 29% to EUR 1,258 million. CapEx is almost stable at EUR 1,370 million. More than 50% of those CapEx expenses are outside Western Europe, and close to 40% are in Asia and emerging countries. Working capital requirement. With 28 days of operational working capital requirement, we confirm our ability to stay consistently at what we consider a very low level of less than 30 days. In evolution, however, we increased in 2016 by 1.7 days over the last year, due in particular to a good activity in the month of December, which is not a bad problem to have. 2016 was an active year on the acquisition side, with EUR 362 million spent in small and mid-size acquisitions. In fact, we completed more than 30 acquisitions, fully in line with the strategy we announced in 2013. We invested in niche technologies and new services. For example, we bought a tapes company in Italy, which complements our successful performance plastics portfolio. In Flat Glass, we continue to invest downstream with a windshield replacement network in France, an interesting asset-light and services-oriented business. In Insulation, other example, we continue to diversify our materials portfolio with the Isonat acquisition in wood fiber-based insulation. Second category, we made several acquisitions in new growth regions, be it in Southeast Asia in mortars, Latin America in ceramics and mortars, or Africa in gypsum. Third bucket, we seized all opportunities to reinforce our leadership positions, for example, in Building Distribution, especially in the Nordic countries or in the Flat Glass downstream business, where we invested in a very competitive European production base. We already commented the Sika situation in October. Nothing has changed since October. We stand behind the Burkard family and are confident that SWH's rights will be ultimately restored. We are patient and are more than ever persuaded that this transaction is strategically attractive for Saint-Gobain as well as for Sika. Finally, in line with our long-term goals, we reduced the number of outstanding shares by 5 million to 553 million shares by dedicating EUR 418 million to share buybacks. As a result of all that I said before, our asset profitability ratios are also improving, with ROI now at 18.7% and return on capital employed at 10.1%, another half point progression after 2015. In terms of net debt, after three years of decrease, our net debt increased in 2016 by EUR 0.8 billion. This is due to dividend, share buybacks, and acquisitions slightly exceeding free cash flow generation. There is also one specific effect, which is worth mentioning. In September, we transferred $640 million to our U.S. pension funds. This will allow us to avoid paying additional regulatory contributions next year. This is a very sound cash investment. From a P&L perspective, this will also reduce by approximately $20 million our calculated financial charges in 2017. Shareholders' equity is slightly decreasing with a negative conversion effect as well as negative pension funds deficit valuation evolution due to the lowering of the interest rates. Overall, we remain in a very solid balance sheet situation with a net debt on EBITDA ratio of only 1.4 and a rating situation we are comfortable with. Going now to the details by business and by regions. Starting with Innovative Materials. Innovative Materials had a strong year driven by Flat Glass, 4.5% growth overall to be compared to last year's 2.2%. A margin up by 70 basis points after 110 improvement last year. An operating profit now north of EUR 1.1 billion. EUR 573 million of CapEx, half of it dedicated to growth. For example, we started the building of a new glass plant in India, where we enjoy a strong position. We also continue to invest in other emerging countries. In High Performance Materials, the CapEx are more granular in nature, but I will mention our investment to sustain the fast growth of our plastics business in the U.S. or our capacity expansion to produce technical glass fabrics for various construction-related applications in Czech Republic. In Flat Glass, which is the first part of Innovative Materials, Glass had another very successful year with good momentum in all businesses throughout the year. In Asia and emerging countries, we benefited from our strong market positions and enjoyed healthy volumes in all areas with no sign of weakening, the exception being Brazil. In Europe, we showed strong pricing ability, first upstream and then downstream in the second part of the year. The level of activity of our automotive-related business stabilized at a good level. This led to another improvement in profitability in H2, the seventh consecutive improvement semester. Overall, for the year, we grew the operating profit in Flat Glass by 19%, with a volume improvement of a little bit less than 3%, which also demonstrates the good leverage that we have in this business. High Performance Materials also had a good year, with an operating margin staying at a high level and even progressing slightly this year and in H2. HPM posted a 2.2% internal growth figure, and this despite the slight step backwards that our industrial markets took in the U.S. in H2. This is due to the fact that on the other side, we were able to achieve good growth in Asia and emerging countries, which shows the evolution over the years of this business, which is now quite more balanced from a geographical exposure perspective. We had growth in our plastics, abrasives, and textile solutions businesses this year, while our ceramics business stabilized with a slightly less favorable mix effect in H2. Switching to the Construction Products sector now. Here, we managed to post the highest operating profit figure in the last nine years, despite the adverse effect of pipes. Internal growth was a positive 1.4%, driven by 2.3% of volume effect. Price was negative overall, but turned positive in the last quarter. We invested EUR 515 million in total, 4.3% of sales. Here, I will mention in particular, a new gypsum plant in India to further the impressive growth track we have had there, a board plant in Vietnam, where we enjoy also very successful market positions, and the end of the building of our roofing plant in the U.S. in Missouri, which was completed just in time to benefit from the Q2 storms. In terms of details by activity, Interior Solutions. Within Construction Products, Interior Solutions had a very solid year, with volumes growth of 4%. In Western Europe, volumes were positive everywhere, including in France, but price was a slight negative over the full year, stable in H2. In North America, we had a very dynamic H1. Our H2 was less booming, but still growing. Here again, prices were under pressure in 2016. On the back, however, of low energy and raw materials costs, which benefited our P&L. Finally, in Asia and emerging countries, we have had good growth despite Brazil being a negative, with a strong contribution of volumes in Asia. Here, we clearly benefited from our ambitious expansion policy in previous years across various areas throughout the world. Exterior Solutions is the only activity of Saint-Gobain showing negative growth in 2016, which is entirely due to pipes, which had a challenging year in a business environment which remains difficult. We had negative growth in pipe in the second half, although less than in H1, thanks to a more favorable comparison basis. We took strong restructuring actions in all areas, but we remain at a low point of the cycle. By contrast, Exterior Products had a great year, with a two-digit volumes growth driven by a good underlying market in the U.S., but more importantly, by a strong contribution of storms in H1 in roofing. Finally, mortars grew this year, driven by Asia and emerging countries, despite the important position of mortars in Brazil. Price in Exterior Solutions was negative for the year, but almost stable in the second half. Last sector, Building Distribution, which represents close to half of our turnover, but one-quarter of our assets. In this business, we saw a slight recovery in France driven by new construction, but renovation didn't start its recovery yet, probably by lack of a high enough confidence level in the market, especially for contractors. France stayed in negative pricing territory for the full year, but this trend reduced in Q4. The U.K., which had been a strong question mark in the middle of the year, finally showed good growth all along the year, but future visibility remains lower than in other European countries. Even though we have relatively limited exposure to London and to the non-residential, which is probably the most uncertain segments of the business. In the Nordics, we delivered very good growth, thanks to a very solid positioning of the Saint-Gobain distribution brands. Germany grew as well in H1 and in H2, although the comparison basis was a little bit more difficult in H2. When it comes to margin, Building Distribution went from 3.2% last year to 3.4% this year. Here, we benefited from volume growth, but we also suffered from the adverse effect of deflation on a high fixed cost business. In terms of CapEx, we invested EUR 245 million during the year and focused our efforts on logistics and back-office efficiency. We also did a lot in digital, for example, with the launch of an intermediation business in France, called Homly You. By regions now, France was stable for the year, as we had predicted entering the year. As you remember, we are impacted here in France by the strong headwinds in pipes, France being our main manufacturing base. Without pipes, France would have grown by more than 1% this year. In the other Western European countries, we had a very solid year, even if the second half figures are slightly lower than the first half figures in many countries due to the lower number of working days. As I mentioned, we are very happy with our Scandinavian performance. The U.K. had slightly higher internal growth in the second half with the reversal of the price effect. Southern Europe was solid and would have been even better without the pipes effect here again. Asia and emerging countries are confirming their good momentum with 6.1% internal growth accelerating during the year, with strong volumes all across Asia and particularly in India. In Latin America, Brazil stayed in negative territory all along the year, with volumes becoming less negative, however. Despite that, the region posted a strong organic growth figure, which is due to the dynamism of other countries and the mechanically decreasing weight of Brazil. Finally, North America, +2% this year after a -2% last year, helped a little bit by roofing in H1 and a healthy underlying construction and renovation market. As I mentioned earlier, the industrial market remains a mixed bag for us, especially in H2, with some sectors quite positive, especially when we get closer to the high-tech businesses, and some sectors are more challenging, starting with oil and gas, which remained weak for us. This slide is a reminder of where we are in terms of profit sources. We are generating more than 50% of our profit outside of Western Europe and one-third in emerging countries. Even though France is one quarter of our sales and our assets, it is still underweight in our profit due to the late construction cycle, which has just started its progressive recovery. In terms of profit, operating income by region, you see what I was saying even more clearly on this graph, on which I would like to make four remarks on profitability. First of all, France is stable over the year at 2.9% profitability despite pipes, with a clear improvement of margin in H2. Western Europe, growing in profitability thanks to volume. North America, also progressing with an exceptional H1 helped by storms. Asia and emerging countries, developing its steady march forward, both in profitability and in mass profit. In 2016, this is our most profitable region. EBITDA and CapEx. EBITDA finished the year at the EUR 4 billion mark, with EUR 1.4 billion coming from Other Western Europe, EUR 1.3 billion coming from Asia and Emerging Countries, EUR 0.7 billion from North America, and EUR 0.6 billion from France. Our CapEx were directed 53% outside of Western Europe, with a strong emphasis on our development in Asia and emerging countries. When you look at the CapEx as a percentage of sales, much higher here than the group average. I will now give the floor back to Pierre-André for the outlook. Thank you, Guillaume. I will start with dividend. I remind you that our long-term guidelines are for a payout ratio of 35%-40% of our recurring net income. This year, given the strong increase in our recurring net income, our board is proposing to the general shareholders meeting to increase slightly the dividend to EUR 1.26, which will represent a payout ratio of 50% of our recurring net income and a dividend yield of 2.85%. I remind that this dividend will be paid in cash. In terms of the outlook and first, the economic climate, we are forecasting a gradual improvement in France, driven by a good growth in new build and despite a still uncertain renovation market, even though we start to see some early sign that this could improve. Further growth in other Western European countries, despite less visibility, as Guillaume already mentioned, in the U.K., but good growth overall in all our other countries. In construction markets in North America, we see continued good growth. As you have seen, the industrial markets have been negative for us at the end of 2016. They are still uncertain, but there could be an improvement progressively. An ongoing good organic growth level in all Asian and emerging countries. There are differences from one to the next, but overall, we expect very solid growth there. What does that mean for our businesses? First, Innovative Materials, we expect further growth and an improved profitability, once again, in Flat Glass. We should enjoy continued good margins for High Performance Materials. In Construction Products, we will have better volumes and further cost saving, which should more than offset the exceptional weather impacts of roofing in 2016. We cannot predict the weather, but we have to have in mind that it was a significant impact in 2016. Building Distribution should benefit from what I said, from a better volume growth in Western Europe. As you know, distribution, if pricing overall gets better, distribution benefits clearly from a bit more price inflation. In terms of our priorities, our number one priority, I repeat myself, but the environment changed, and this year it is a very important topic. We are seeing a change in our raw material and energy situation, which went down significantly in 2016. This trend is reversing, and we need to have an upturn in price. You have seen the fourth quarter, this bodes well for 2016, but it is clearly a strong priority to change from a deflationary environment to some price increase for all our businesses. We are continuing the plan that we laid out last year, which was a three-year plan on cost savings. We have delivered a little more than expected in 2016. This year, the objective is EUR 270 million calculated on the 2016 cost base. We will increase our CapEx program to around EUR 1.6 billion, driven by continued growth CapEx in emerging countries. Guillaume mentioned some areas where we have good growth, and we have a number of new plants openings forecasted. Also by a significant increase in our productivity modernization CapEx in our developed countries. Clearly, we can benefit from a new era in terms of manufacturing, what the Germans call Industry 4.0. We have a number of programs in all our businesses, and we are going to accelerate our digital transformation. This will also be the case in our distribution businesses with logistics and IT investment. We continue to increase, progressively, our commitment and our spend in R&D to support our differentiation high-value-added strategy, and we will continue on high free cash flow generation. In terms of operating income, which is our main objective in term of guidance, we expect a further like-for-like increase in operating income in 2017. I will not develop the strategy because we have in mind, with Guillaume and my colleagues, to hold an Investor Day to discuss our strategy on May 17 of this year. That is all for this presentation. Now I am with Guillaume, at your disposal for your questions. We will start from a question from the room, then we will go to the phone. Yes. to internet. Right. Okay. Yes, Mr. Pujal. Josep Pujal from Kepler Cheuvreux. Good morning. I had two questions, please. Could you give us some details or your, I would say, range about the price evolution? We have seen the trend is improving. Can you put a number on the price effect that you could see here? Or at least to guide us on the price cost gap? My second question is about the acquisitions. Could you help us to understand what the 2016 acquisitions should bring to the sales and EBIT of 2017, please? Guillaume, On the pricing effect, you saw the positive pricing figures of Q4 with +0.8%. On the last year, 2016, we had a price to cost of raw materials and energy gap. We had a price overall at 0%, and our bill of raw materials and energy, the price effect was a benefit of approximately EUR 260 million overall. Now, as we said during the presentation, we are entering a different environment where we are seeing inflation of raw materials and energy. At this stage, our calculation is that this price of raw materials and energy effect is probably going to be north of EUR 100 million for next year. Now, in the past, Saint-Gobain has proven its ability to increase price, as you have seen in the track record we have shown over the last few years. It's clearly the number one priority short term for our teams, and we have already announced a substantial price increase in several of our businesses by regions. It's a little bit too early to give you the result of that. But clearly, our objective is to at least pass through the cost of raw materials and energy in the price of our products, clearly. In terms of acquisitions, the impact depends on the sales of this year, depends on the timing of this acquisition, because they have not been all at the same time during the year. I would say, globally, that the annualized sales impact is a little less than the amount we paid, and the margin is above the average margin of Saint-Gobain. Yes. I have two questions. First, regarding the two difficult businesses, the pipes division and secondly, Lapeyre. Can we assume an improvement in 2017 first? Secondly, getting more flavor on the Building Distribution. There is a big ongoing transformation in logistic, in inventories management, and also in distribution platforms and also digitalization. Could we have more flavor on this transformation, please? Concerning our pipes business, the situation remains difficult. I think we should expect an improvement in the second half. The end of the year was not as good as we thought, mostly because export contracts have been delayed, and I think the first part of the year will not be very good. On the other hand, the domestics market are stabilizing, and the Brazilian activity is clearly good. So we don't expect a significant improvement short term in pipes. Lapeyre is on a good path at the moment. Concerning more globally the distribution transformation, clearly we have started quite some time ago, so it's not new. I think in a number of countries, we are ahead of the game, where we have made investments in logistics, which clearly we are well advanced, well in Nordics and in France. We are seeing some significant market share gains, and this is starting to happen in France also, especially in our sanitary plumbing and heating business, where we are going to enjoy very good growth. In terms of digital transformation, the big ticket in term of action is around logistics and IT capabilities, and that's the big enabler. I think we are well ahead on these topics, and we are going to see a good growth driven by that. Did you set up central platforms as your competitors did? Well, I have not seen central platform from competition except in the U.K. Yes. But in the U.K., we have a little bit of different strategy, but we have moved in that direction in sanitary plumbing and heating. We are not convinced on the larger. I think logistic platform, in terms of heavy side, we are not completely convinced. We are setting up a platform in Germany, and I think we will be the first one. In France, we are clearly ahead of competition on that, and Nordics also. But our logistics platform are mostly on sanitary plumbing and heating and some special, the light side part of our building materials area, mostly. Yes. Good morning. Yassine Touahri from Exane BNP Paribas. A couple of questions. Firstly, you are increasing your CapEx target, and you have increased a little bit as well the pace of acquisition. What kind of return should we expect on this additional CapEx and this acquisition? Could you tell us a little bit more how you are thinking about the thresholds or multiples, when you are investing in new projects and when you are buying businesses? Then a second question on capital allocation. I understand that you hope that the right of the Burkard family will be restored, but I guess you cannot completely exclude a scenario in which the Swiss justice does not rule in favor of the family. If the Sika deal cannot go ahead, what would be your priority in terms of capital allocation? So the questions are very different. In terms of acquisition, our threshold, in a way, we compare the acquisition with buying back our shares. That is the first thing that I always do. Our criteria have not changed. Our goal is to create value in year 2 or in year 3. So to be above our WACC in year 2 and year 3, which is generally for the very small one, it is the case in year 2. For the a bit bigger one, generally, it is in year 3. That is the goal. For CapEx, it is the same pipes of metrics. Our productivity CapEx, I would say the payback actually rather quick. So gross CapEx have a longer payback when we set up new plants in emerging countries. But the returns overall are better than what we have as the main ongoing business. Concerning Sika, I do not contemplate this scenario. Thank you. Yes. Hello, Eric Lemarié, Bryan Garnier. Just two questions from my side. Regarding Flat Glass margin, the improvement is very impressive in the last two years. Do you think that with more downstream, with further price increase, you can exceed 10% of EBIT margin in the Flat Glass business in the next couple of years? I have got a second question on pipes. You have mentioned some delay regarding the export contracts, but do you expect new additional contracts to the Middle East, thanks to the oil price increase of last year? Are you optimistic regarding that? Thank you. Concerning Flat Glass, I have had this question for three years now, and we are getting very close to 10%, and I think we will get even closer in 2017. Concerning pipes, maybe, Benoit, you want to give more color? There is no significant big contract in the order book today, and it takes time. It is not before early 2018 or late 2017 that we will see significant improvement. Nothing major in the short term. Maybe we move to the phone audience. [Foreign language]? [Foreign language]. We will take the first question on the phone. Question is coming from Mr. Will Jones, Redburn. Sir, please go ahead. Thanks. I've got three, I think, divisional questions, if I could, please. The first one is around U.S. roofing. I appreciate you don't give profitability by segment, but can you give us any kind of just color around the kind of scale of the profit lift last year, just to understand what happened there in pipes and mortars? I know one of your major U.S. peers put out an 80% increase in profits last year in U.S. roofing, but clearly, they are bigger in Texas. But just any color on last year would be great. The second, just expanding the previous question around Flat Glass margins. I think in the past you've talked about 10%, but kind of said under the current structure, it will be difficult to get through 10% in the medium term, if that's still the case. Then just lastly, in distribution, could you update us on the competitive environment in the, I guess, four major regions you've got in distribution, please, in terms of gross margins? Thanks. Tu réponds sur le roofing? Yeah, in terms of roofing, we do not give divisional details. As I mentioned, we had a great year in terms of growth in Exterior Products in the U.S., including roofing and siding, a 2-digits growth. In terms of profitability, what we usually say is that we are in the same order of magnitude as our competitors in terms of profitability. I will not say much more. We benefited in the second quarter, like the old market, of the effect of storms. What I have to say is that, on top of that, the underlying market in terms of new construction and renovation in the U.S. was also quite good and steady over the full year. On Flat Glass, I think I have already answered. Medium-term, if we can be higher, we will be higher, but I do not have a clear target, and it is too early for me to say. On distribution, in terms of the competitive environment, I would say we have had, globally, a good year in 2016. We have had a very good year in Nordics, I would say. Overall, with very significant growth and globally healthy competition, but the price issues have been more in France and U.K., especially in U.K. in the first half, the second half was better. I think overall, we have had a good growth in the U.K. Compared to competition, I think we have done a little bit better in the U.K. in 2016. In France, we have also done, I would say, better than the market. The competitive environment is quite tough, and we have had issues to raise prices during 2016. Overall, we have not been able in France. It is getting better at the end of the year, but the margin has not been very easy. So there is a strong competitive environment in which we are holding, I would say, better than the average. Next question. The next question is from Robert Gardner, Daiwa. Please go ahead, sir. Good morning, Robert Gardner at Daiwa here. Two for me as well, please. I was wondering, could you give us your price by division for Q4? You typically give us those kind of numbers. Also, if you could give us some more detail around the cost inflation piece, so around raw materials, energy, what's moving most quickly against you. Finally, just sorry, one last one, if you don't mind. Just again, back on distribution in the U.K. I was wondering, could you give us any indication of how January, February has looked so far in what is probably a very difficult market? Thank you. Okay. I'll answer first on distribution in the U.K. We have had a good start of the year. So January was good and February seems to be good. I have Corey Bollo in front of me who says yes, February will be good. Concerning the first two questions, maybe Yes, I will answer on the price effect. I don't know if you want it on the Q4, the divisional information. On the overall, at the group level, we're at +0.8% in terms of pricing. I can give you by large sector, Innovative Materials is +1.9% in terms of pricing in the fourth quarter. Construction Products is +0.8%, and Building Distribution is +0.2%. Your second question was about cost inflation, and I think I said a little bit when I was answering the first question. Over last year, we benefited from EUR 260 million of price reduction of our raw materials and energy. Approximately, you find half of that in the cost savings program because we consider that those are savings on top of the market price evolution, and half of this would be deflation, market deflation. For next year, as I said, things are turning fast with a lot of raw materials and energy prices going the other direction. At this stage, our best estimate is that we are going to see an opposite effect of more than EUR 100 million. Okay, next question. The next question is coming from Elodie Rall, J.P. Morgan. Please go ahead, madam. Well, hi, good morning. I have three questions, please. The first one would be, I know we talked a lot about U.S. roofing, but would you mind quantifying the exceptional impact that you've occurred in 2016 from the storm? The second question is on fixed cost inflation. I know we've talked a lot about raw materials and energy prices, but what kind of fixed cost inflations are you seeing in your businesses? What was it in 2016, and should we expect a similar increase in 2017? And finally, at spot rate today, what would be the impact from FX on 2017 operating profit, if you can give us an estimation? On what? Can you repeat the third part of your question, please? The last part is on FX. Forex. The impact on operating profit. FX. Thanks. Okay. The first one about roofing. Roofing, it is very difficult to quantify the effect of storms on roofing. But clearly, we benefited from a higher than average storm season in 2016. What we say is that a very large year, I mean between a very low year and a very large year, you can have up to one month of effect in terms of volume. Obviously, we do not know what 2017 is going to be like in terms of roofing. I can just say that we have a good start of the year also in roofing in the U.S. in January and February. Absolutely. Your second question was about- Fixed cost inflation about fixed cost inflation. It depends very much on the country, obviously. Because on the salary, we have a fixed cost inflation, which is extremely different between developed country and emerging countries, as well as in terms of rents in Building Distribution, for example. It is broadly in line with the average country inflation that we would see on the average of Saint-Gobain. The last part is the FX exchange. It is much less than last year. on operating profit. It is clearly going to be much less than last year. Last year, we had a negative effect of FX and Perimeter. We are going to have a much less substantial effect this year. As of today, it will be very, very slightly positive. Yeah. Next question. The next question is coming from Sven Edelfelt, Deutsche. Please go ahead. Yes, good morning. Two questions for me. Could you maybe be a bit specific on your cash allocation policy in general? If I look at Sika, it seems it will be delayed. You have a very strong balance sheet. Shall we assume you will accelerate the cash return shareholder via buyback or spend more on acquisition this year? Any idea of the envelope would be helpful. Second, on France sector trend in general, I mean housing, number of transaction in renovation. This should translate into growth, but we still see limited on your number. You mentioned a little bit above 1% excluding pipes. I would like to understand the reason behind, is there a change in competitive behavior or anything that would explain the lag? Thanks. Okay. I take the question on France first. I think the new housing construction is quite good. Numbers of housing starts have been good. There have been delays, but now we see good growth in our activity in new housing. As I have said already a few months ago, I think that what is, at the moment, in my view, limiting the growth in renovation is the hesitance of our customers, the small SMEs and small craftsmen to hire in this environment. So in renovation, what we see is that the order book of our customers has grown very significantly in the last few months. It's quite healthy at the moment, and it should translate into more activity. But today, if you try to do renovation work in France, you are going to be given significant delays. So I think this is healthy that the pipeline is strong. It started to translate, and I have seen the last few weeks a little better activity in renovation. Progressively, it is translating, and that's why I am confident we will have a positive year in France altogether as progressively the confidence on the order book allows our customers to hire. I think this is the main factor. In terms of cash allocation, we will give more details in May. But what I can say that we have in mind, and I do not have a number in terms of amount for the acquisitions, but we have a pipeline of a small, medium-sized acquisition, which is quite healthy at the moment. We probably do more than last year. Concerning the buybacks, we have the same long-term policy, and we will continue our policy with being opportunistic in terms of timing. Next question. The next question is from Gregor Stucke, UBS. Yes. Go ahead, sir. Hi, good morning. I have got a few questions. Maybe can I just finish off on the M&A point to maybe if you can quantify, am I right in estimating sort of EUR 20 million-plus of incremental EBIT for the deals that were done last year when we think about 2017? Just to get that out of the way. The second question is, I think you are increasing your CapEx by a little bit over EUR 200 million. Can you give us, A, a sense of what is that extra spend on? Secondly, midterm, what kind of percentage of sales from CapEx is a reasonable guide? Finally, I am a little bit surprised you are not a bit more optimistic on the U.S. industrial market. I think you are still saying it is challenging. Maybe you can give us some color. I think we have seen better trends from some of your peers out there. That would be helpful as well. Thank you. Can you repeat the second part of your question on CapEx? The second part is, as a percentage of sales, what is the sustainable run rate? Sustainable run rate in terms of percentage of sales. Whichever way you like to quantify it. I think we'll be slightly above where we were in 2016, but we have been at 3.5% in the last two years, which was below our overall guidance. I don't expect that to be very significantly up, a little bit up, but not huge. I will not quantify. I already talked about the impact of these acquisition on the first question, and the last one was what? Was about your perspective on the U.S. industrial markets. What I have seen from industrial activity, is I have not seen as positive as what you are saying when I look in the markets where we are. I think it depends very much on the market. Automotive has been good. Aeronautics has been good. Health has been good. Everything which has been linked with oil and gas, and that has expanded to general industrial, has been clearly less good in the last few months. I would say that the trend of the last few weeks has been better, but I remain cautious. There is some uncertainties in the U.S. about the general environment, I would say. So it's becoming more positive, but in my view, it's still a little bit uncertain. Next question. The next question is coming from Manish Beria, Societe Generale. Please go ahead, sir. Yeah, good morning. I have three questions. The first one is, we have seen gross margin expanding in last few years in an environment of low energy and commodity prices. I just want to understand your pricing going forward. Will you look at getting some kind of pricing which will keep on enhancing your gross margin, or you will just aspire to maintain your gross margins? This is my first question. Second is, basically, if I look at your volumes, still down around 13% from the peak. As you recover your volumes, should we expect, I mean, the EUR 4 billion of fixed cost cutting that you have done over the years, some cost will come back, will have to be reinstated to your P&L. Third question is, I wanted to understand why do you keep so much of cash in your balance sheet? I think you keep something around EUR 4 billion to EUR 5 billion of cash. Is it an operational cash or is it free cash that you can pay back your debt or can use for M&A? Thank you very much. Yeah. Okay. Maybe I will start with the last one. You remember that we have a cash position, which is also linked to the fact that we are preparing the acquisition of Sika. Yes, we are looking from time to time at the possibility of repaying debt. But the balance of the operation when we look at it from a cash perspective and from an overall economic perspective, doesn't make sense. You saw that the financial charges this year went down by EUR 88 million. So we are looking at all opportunities to go in this direction. But for the moment, we are comfortable with the situation we have. In terms of your second question, I think was about leverage and fixed cost when we recover. As you mentioned, it's true that we are still way below the volumes at the peak. So we have room to go in terms of recovery of volumes. Our margin on variable costs are depending on the business between 20% and 30% for Building Distribution, between 35% and 55% on industrial businesses. It is very clear that the few first percents of additional volume, we can usually, depending on the countries and depending on the business, seize without adding too much additional cost. For the rest, beyond that, it depends very much on the specific situation in each country. You saw this year the example of Flat Glass, where we had extremely good leverage with close to 20% increase in operating profit for a volume increase, which was a little bit less than 3%. So clearly, this is a priority for us to capture the full leverage as we go up the recovery curve. And the first one was about- Gross margin gross margin. If we can expand gross margin, we will. Obviously, our objective is to enhance gross margin. Yes to get more price than what we get from our suppliers. In the past, we've been successful in doing that, but it depends very much on the circumstances of a given year. Next question. The next question is coming from Arnaud Lehmann, Bank of America Merrill Lynch. Please go ahead, sir. Thank you. Good morning. Two questions from me, please. Firstly, just to follow up, Mr. de Chalendar, on your share buyback comments. I believe you have this objective of getting back to about 530 million shares by 2018. Is it an objective that you can confirm today? That's my first question. My second question is to try to understand a little bit better your pace of growth in Asia and emerging countries. It's quite healthy in 2016 at +6%, including high single digit for Latin America. I'm trying to understand within this +6%, what is driven by CapEx and new plants being launched, and what is driven maybe by just underlying trends in volumes and pricing? Because you're ramping up your CapEx a little bit for 2017, and I'd like to understand how that will translate into higher growth in emerging countries, let's say independently of underlying market trends in these emerging countries. Well, the second question, in fact, it doesn't exactly the way it work. We invest when we don't have more capacity, and when we have a new capacity for a number of years, we can grow without investing, because we don't fool a new capacity generally in one year in a given country. So in fact, I would say that the CapEx we are doing are allowing us to continue the growth that we see, which is not only linked with the underlying market, but which is also linked to our penetration of these markets. In a number of our businesses, we are seeing, and that's our strategy, we have an increased penetration of our solutions into these markets. So I think it's a combination of those, but you cannot associate the CapEx of one given year with the sales growth in those countries of one given year. It's a continuous flow. That's what I would say on the second question. On the first question, we have clearly said we intend to reduce medium-term the share count to 530 million, and I stick to this objective. I don't think there is more question. Are there other question in the room? Yeah. Sure. It doesn't work. Yes. Now it works. I would like to talk a little bit about France and taking maybe some long-term perspective. You make this year EUR 10 billion of turnover and EUR 300 million of profits. If I go, and sorry, my spreadsheet goes only 13 years back. If I go to 2003, it's the same amount of turnover, but you make EUR 900 million of operational profit. So what happened to France, and are you satisfied with the 3% margin? Is there an upside on France? Do you have some specific measures on this country? How do you tackle this situation? Thank you. Clearly, I think that is probably where there is the biggest upside in the next few years. It is in France. That's one of the countries in Europe now where we have had the biggest drop in volume in the last few years, and we have had no recovery. Very slight recovery in 2016. So difference with the other European countries, that we have started to recover, and we have seen a very good leverage in the other European countries in the last year for starting. I clearly expect that to happen in France. In France, our main issue in the last few years has been a very significant drop in terms of volume. I expect the leverage to be significant in France in the next few years. Okay. Any other question? You wanted to say something? No? Yes, if there are no other questions. No, I don't think there are other questions. This is not a question, but some comments to make a very warm thank you to Gaetano. Gaetano, [Foreign language]? I continue in French, but wanted absolutely to make congratulations to Gaetano. I would like to thank you on behalf of our whole financial community, and to say a very big thank you because you deserve this on behalf of the financial community. To speak to analysts and investors in this environment, which is difficult, when you arrived in 2013, was a real challenge. It was a bit like going into the lions' den with impertinent questions and often indiscreet questions with people that were impatient and thirsty for more information. Not just myself, I think especially in this environment for 2013, coming out of a difficult crisis, that of the sovereign debt, and which had impacted Saint-Gobain like all dominant companies in industrial and construction quotes. You worked with great talent, kindness, very proactive, extremely available, and you worked relentlessly morning, afternoon, and evening. You had the sacred fire, and you were always ready. Today, our itineraries will diverge. You are going back to Italy with a nice position, but we often think about you, and would like to thank you. Gaetano, well done, and we wish also good luck to Vivien and to his team that will now take on this flame. Well done, Gaetano. Well done. Okay, thanks, Gaetano. As you know, Gaetano had wanted to find an operational job in construction, so he is off to Italy, where he is going to be running our activities for Construction Products in Italy.