Earnings Call: Q4 2014

Feb 26, 2015

Good morning, everybody, and welcome to this conference on our results 2014. As usual, we'll start with some of the highlights of the year. Laurent will take you into our details of our results 2014. I'll come back then on strategy and outlook for the year. The main figures for 2014 are as follows. The revenues, EUR 41 billion, down 1.7% on the actual basis and up 2.2% on a comparable basis. Our operating income, EUR 2.8 billion, plus 1.6% and plus 7% in terms of comparable data. In line, in the middle of the brackets I gave you. Our recurring net income, EUR 1.1 billion. Our net result, plus 60% at EUR 953 million. Again, free cash flow above EUR 1 billion and a reduction of our debt by around EUR 300 million to EUR 7.2 billion. These figures have been achieved in a very contrasted environment with, in Europe, growth driven by the U.K. and to a lesser extent by the Nordic countries. A much more uncertain situation in Germany, where after a very good first half, we had a decline in the second half. Maybe both are related. And still difficult situation in France. In North America, we had a good dynamic in terms of the construction market, with one exception, which unfortunately is a significant one for us, which is the roofing market has suffered in 2014. We have in the U.S. a very good improvement on all our industrial markets, which are important, especially for our high-performance materials businesses. In Asia and emerging countries, we have overall a good behavior of most countries with a slowdown in Brazil in the second half and to a certain extent, even though they remain positive in some Eastern European countries, a little bit probably the same movement that we have had in Germany because of a very strong first half. In this framework, all our sectors have had positive internal growth in 2014, driven both by an increase in volumes of 1.1% and an increase in pricing 1.1%. That pricing achievement has been achieved in a much less inflationary environment. We have achieved our objective of further cost reduction of around EUR 450 million in 2014 on the 2013 basis. We have increased our CapEx but on maintain a level a bit below what I said at the beginning of the year, around EUR 1.4 billion, and a significant increase in our net result, despite some depreciation of assets. And we have a further decrease of net debt. In terms of strategy, 2014 has been an important year with an acceleration of the implementation of our strategy as was explained at the end of 2013. First, we concluded the sale of Verallia North America in April 2014 with a good capital gain. And we have put in motion the project to dispose of the rest of Verallia, and we have signed a contract to acquire a controlling stake in Sika. Those are the main elements, highlights for 2014, and now I give the floor to Laurent. Good morning. More details concerning our results 2014. First, as always, the turnover, down from EUR 41.8 billion to EUR 41.1 billion in 2014, mainly due to exchange rate and perimeter impact. As you can see, -1.5% in exchange rates entirely in the first half of the year. The second half was positive in exchange rate, 0.3% in the second half, 0.8% in the fourth quarter. If the exchange rates stay at the level where they are today, it is clearly very positive for 2015. We estimate that it is around a 4% contribution at our turnover for the first half of 2015. The perimeter, -2.4%, it is mainly due to the disposal of Verallia North America in the second quarter. We will continue to have this negative perimeter effect in Q1 2015. Otherwise, we have made some small other disposals that have not been compensated by acquisitions and small acquisitions in HPM, but also in Building Distribution in the Nordics. On a like-for-like basis, the growth is at +2.2% in 2014, 1.1% in volume, mainly in H1, and 1.1% in prices with a good performance throughout the year in prices. You will see that in the next slide. As you can see, after first quarter last year, that was very good, boosted by weather. You should expect a first quarter in 2015 that is impacted by this very strong comparison basis. After this first quarter, we had a second quarter at +0.5%, which was more or less a constant number of days, in line with Q3 and Q4 2013. There was a negative impact of number of days, representing approximately 1%. We were basically in line. In the continuity of the end of the improvement of the macroeconomic situation of the end of 2013. Clearly, the second half of 2014, from that point of view, was more disappointing with a negative growth in volume of 0.7%, especially with a decline of our sales and our volume in France and in Germany in the construction sector. In prices, as you can see, after a disappointing Q3, Q4 was better with 1.3%. We had clearly in Q3 a more difficult comparison basis in some of our business and especially fiberglass. Q4 benefited from better prices in the U.S., especially in Construction Products except the roofing business and in HPM, despite additional pressure that we have experienced in France in particular, but in all our businesses in the construction European, continental Europe. Overall, if you look at the prices for some years now, we have continued to have a good performance in prices, +1.1% in 2014 in a deflationary environment in the second half especially. If you look at our operating income, the evolution in the first half and second half is explained by this slowdown in volume in H2. You remember that H1 2014 was strongly above H1 2013 with a +15% growth on a like-for-like basis, only with 1.5% volume. We had a slightly negative volume in H2 compared to H2 last year. Despite that, if we exclude Verallia North America and at constant exchange rate, H2 2014 is above H2 2013, which shows the impact of our cost cutting and the benefit of our cost cutting to our operating profit. Our margin in 2014 compared to 2013 is up from 6.6% to 6.8% overall, so 22 basis points improvement in 2014 compared to 2013. As Pierre-André said, on a like-for-like basis without Verallia North America, we are in line with the guidance with a +7% increase of the operating profit compared to last year. Excluding Building Distribution, we have an improvement of 38 basis points this year all over the year with an improvement both in H1 and in H2. In Building Distribution, we have an improvement of 11 basis points, but clearly a more difficult situation in H2 due to the challenging environment we have in France and in Germany in the second part of the year. So an increase of our operating profit despite disposal of Verallia North America. We have, as you can see on non-operating items, we have non-operating cost at EUR 190 million compared to minus EUR 490 million last year. The same amount than last year concerning the provision for asbestos litigations and other expenses at EUR 100 million, which are composed by EUR 230 million of reduction of the accrual due to the reduction of the EU fine. The other elements, mainly restructuring, are at minus EUR 330 million. So clear reduction compared to last year. Clearly during the second half, we started to reduce more significantly our restructuring charges that would continue to be lower next year. Other operating expenses EUR 398 million with EUR 408 million capital gains on disposals. This is mainly the capital gain on Verallia North America for EUR 375 million that we had in the first half. EUR 802 million of asset write-downs, EUR 350 million in H2, partly due to some restructuring and, I would say, fixed asset write-downs that we have to do each time when we do restructuring. But also this second half, significant asset write-downs linked to the write-off of the goodwill and brand of Lapeyre for EUR 235 million. If we take all that into account, as you can see, a business income that is strongly improving +17% compared to last year at EUR 2.2 billion. Concerning the usual point concerning asbestos in the U.S., very stable compared to the past 4,000 new claims, 6,500 claims that were settled, 3,500 in active dockets so that the total number of outstanding claim is going down to 37,000. We had slightly lower payment in 2014, mainly due to some lagging payments at the end of 2014. That will be done in the first quarter of 2015, so much more a question of timing. We continue to have an accrual to the provision of EUR 90 million. Concerning the financial expenses, as you can see, a strong reduction, a minus 12% of net financial expenses. This is mainly due to the reduction of the gross debt, a slight reduction of even if the net debt is not decreasing, the gross debt is clearly decreasing, and this has a strong impact on our net financial expenses, and a slight reduction of the average cost of the debt. Income tax is growing mainly due to the fact that our profit before tax is growing. We have a slight increase of our tax rate, much more due to accounting subject with the reduction of the income tax in Spain. We have to recognize accruals for the deferred tax that we have in the impact of this tax reduction on the accrual for deferred tax in Spain. Nothing cash, but an impact on our P&L. As a consequence, our recurring net income, as I said, +60%, +65% at constant exchange rate at EUR 953 million. After, I would say, a small year in CapEx in 2013. As announced at the beginning of the year, we have increased our level of CapEx. You remember that we were guiding to a level of EUR 1.5 billion that we decided to reduce in the middle of the year due to the macroeconomic situation. So we had total expenditures of EUR 1.4 billion with priority always focused on outside Western Europe. Concerning our cash flow from operation, you see a slight reduction of the operating cash flow, which is entirely due to the change of perimeter and to the exit of Verallia North America, that has approximately an impact on our operating cash flow of EUR 90 million in reduction, in 2014 compared to 2013. So at constant perimeter, we would have had an improvement of operating cash flow. We have a higher level of CapEx, so the free cash flow is going down but continue to be at a very good level above EUR 1 billion. We continue to have a tight control and achieve a great performance on operating working capital requirement. As you can see, 30 days at the end of 2014, in line with our long-term plan, 30 days compared to 29 days and 29 days the last 2 years. In fact, it is mainly due to the evolution of the exchange rate. At constant exchange rate, we continue to be at 29 days in 2014. So we continue to have a great performance on operating working capital. As a consequence of the improvement of the margin in OP in 2014, but also a consequence of our good control on the capital employed on CapEx and on working capital requirement, we continue to have an improvement in ROI and return on capital employed. So 17.2% of ROI in 2014 and 9.6% of return capital employed in 2014. Our equity is going up by EUR 0.5 billion. It is a consequence of three different factors. A negative impact of the pension debt increase due to the decrease of the interest rate of this impact after tax is representing EUR 0.5 billion negative on our shareholders' equity. We have a positive impact on the opposite of the currency translation adjustment, 0.5 also, and we have a positive impact of 0.5 due to the difference between our net result and the cash part of our dividend. So overall, our shareholders' equity is at EUR 18.4 billion at the end of 2014. Our net debt continue to decrease. So we continue to strengthen our balance sheet, EUR 7.2 billion, so that the net debt on equity ratio is going down to 39% and the net debt on EBITDA ratio is going down to 1.7%. So we continue to have a strong balance sheet and continue to act very firmly to strengthen this balance sheet. Some details, sector by sector. So 2.2% for the trend overall for the group in sales. As you can see, for 2014, we have positive numbers and positive evolution in all sectors, with Innovative Materials being the fastest-growing sector, with 3.9% and with a good dynamic both in Flat Glass and in HPM all over the year. Construction Products plus 2.9%. We have overall, if we look at the yearly results, a good year despite clearly a slowdown in H2 in Construction Products in Europe, especially in France and in Germany, and clearly despite a price pressure in roofing. You can see only plus 1% growth over the full year in Exterior Solutions. Building Distribution clearly suffered the most in 2014 of the situation of the construction market in Europe due to its exposure, plus 0.8%. Verallia packaging division plus 1.6%, mainly driven by prices in Latin America. Volumes stayed flat in 2014. As always, it is important due to the different asset rotation of our businesses to look at the breakdown of the group by industrial assets rather than by sales. As you can see, we have Innovative Materials representing 34.5% or more than one-third of our industrial assets, 35% for Construction Products, 22% for distribution, and 8.5% for the packaging. After the disposal of Verallia, clearly, we should have two very similar sectors with 37%-38% in Innovative Materials and Construction Products and 25% for Building Distribution. This is a way that is more efficient to look at the group in term of dynamic of the operating profit. So a little bit more detail by sector. As you can see, quite a dynamic evolution in Innovative Materials. Plus 3.9% overall in 2014, plus 4.2% in H2, driven by the additional growth we had in HPM. Flat Glass plus 3.4%, driven by emerging countries that represent today almost 50% of the sales. We had almost no growth in Europe, both in construction, but also in automotive. We had 8% growth in emerging countries with a good evolution in India, in Mexico, in China and Korea. Clearly, a more difficult Brazil in 2014. HPM plus 4.5% in 2014, an accelerating growth in the second half of the year with a good dynamic in all our businesses of HPM, driven by the growth we have in the U.S., where U.S. is representing 43% of our sales and in emerging markets, which is representing one-third of our sales. In emerging markets except Brazil, where clearly it was a little bit more difficult. Concerning the operating profit, you see a continuous improvement of the operating profit with a progressive recovery of the Flat Glass business with a 6.3% margins in H2 2014 after 4% last year, with a very low improvement in term of volume, very small improvement in term of prices. This improvement is mainly due to the impact of the mix, which is very positive in 2014. More value-added products, but also due to the significant restructuring that has been done in the past years and still that had been done at the beginning of the year. In HPM, you see a further improvement of our profitability, 13.4% after 12.6% last year, mainly due to a good evolution of the volumes. All business units have a profitability which is above the profitability of last year at constant exchange rate. Very strong cash flow generation with an EBITDA minus CapEx at EUR 884 million in 2014, compared to EUR 717 million last year. As you can see on this slide, an evolution of our Construction Products that has been clearly very different between H1 and H2. H1 was very strong, boosted by Q1 and the weather conditions. H2 at +0.4%, slower than H1 definitely, due to the reduction of the prices in the roofing business in the U.S., but also due to the slowdown of the macroeconomic situation in continental Europe, France and Germany. In Interior Solutions, continue to have significant growth, 2.3% in the second half. Clearly, we benefited a lot from the growth in the first half. We have prices that continue to be up 1.4%, clearly with more pressure on prices in Europe. We continue to have good price evolution in the U.S. and in emerging countries. We continue to enjoy good growth in the U.S., even if we are not at double-digit volume as in the past, and in emerging countries. Clearly, slower in France and in Germany. But we have better trends in Europe, in the U.K., in Spain, and in the Nordics. Exterior Solutions. Clearly, the roofing business in the U.S. showed a negative trend in prices and is weighting a lot in this -1.6% evolution of H2. On the opposite, we had a very good year in pipe and in mortars. Pipe recovering, but with good contracts to the exports and good evolution of our Brazilian market. Mortars, which is almost 45% in emerging market, driven by this emerging market. We enjoyed a good evolution and a good growth. Concerning operating profit, you see a very different evolution in the two parts of Construction Products, with almost a stable situation at the Construction Products level. Interior Solutions is up compared to last year from 8.9% to 9.1% due to the volume, despite the pressure we have in prices. On the opposite, we have a slight decrease in Exterior Solutions. This is mainly due to the decrease of our profitability of our roofing business. As I said, on the opposite, on mortar and on pipe, we had a significant improvement and a better dynamic. We continue to enjoy a strong cash flow generation, but this year we had clearly higher capital expenditures with some projects that we developed in emerging countries, like in gypsum, in Indonesia, Brazil, but also in the U.S. with the building of a new roofing plant and the reopening of a plant in ceiling. We invested a little bit more. That was what driving the negativity, the EBITDA minus CapEx in the Construction Products. Building Distribution, as I said previously, suffered a little bit more, much more from the situation of the construction sector in Europe, with some very positive trend in the U.K. and in the Nordics, where we enjoyed during the full year, very good growth and almost 5% growth in Nordics and more than 7% growth in the U.K. On the opposite, France and Germany were disappointing, especially in the second half, where we had between -6% and -7% decline of our sales in both countries. This evolution in France and in Germany, that was drove the evolution of the operating income in the second half of the year. Continued to have a good margin at 4.2%, but clearly, slightly below last year. This reduction of the volume was partly compensated by a continuous cost reduction, but not enough to compensate totally the impact of the volumes. If you look at the EBITDA and the CapEx, clearly compared to last year, we had spent much more money in capital expenditures, especially in IT and in logistic, in line with what we have said in the Investor Day to continue our efforts on these two fronts to have a modernization of our networks in Building Distribution. Packaging, you see the evolution of the internal growth in Packaging, +1.6% over the year, +1.7% in the first half, +1.6% in the second half. Clearly, over the full year, volumes are stable. Prices are up 1.6%, driven mainly by the growth of prices in Latin America. Concerning the volumes, we had positive volumes in Europe, driven by the southern part of Europe, by Spain. On the opposite, clearly, the year was a little bit more difficult in Latin America, especially because of some negative impact of our furnace repairs. Concerning the operating profit in Europe and Latin America, so excluding Verallia North America, you see EUR 128 million in the second half of 2014. As we have said it in the past, it is clearly a recovery from the exceptionally low level of H1 that showed the exceptional negative impacts with technical problems and adjustment stock that we made in the first half. So we recovered. It is the start of recovery that we continue to materialize in 2015. If we take the numbers at a constant exchange rate and constant perimeter, in fact, H2 2014 is above the level of H2 2013, so a good performance and a good start in 2015 for the packaging business. Despite the impact of this disappointing H1, we continue to have a stronger cash flow generation with EUR 229 million EBITDA minus CapEx in 2014. Now I switch to the evolution of our numbers by geographic areas. As you can see, France is the only geographic area that has posted negative numbers, -1.3% in 2014, and clearly with a slower environment, a more difficult environment in H2, showing -3.5% decline of our sales in H2, especially in our construction sector, despite a good evolution of our pipe business in France. Other Western Europe, +2.6%, stable in H2 with, as you can see, Germany being negative over the full year, -0.3%, after a very good first half, so the second half was at -5%. But in other regions, Scandinavia, U.K., and finally Portugal and Spain. Portugal, we now enjoy a good growth. Good growth in Scandinavia, +3.7%, in the U.K., +8%, and in Spain, +4% from a low base. Asia and emerging markets, 7.7%, clearly showing also a slowdown in the second half compared to the first half of the year, especially and particular in Eastern Europe. That was very dynamic in the first part of the year. But we continue to have good growth in all countries in Latin America, except in Brazil. Brazil was clearly a little bit more difficult in 2014. Asia continued to enjoy a good growth of 6.3%. North America, 2.8% growth with a better H2 than H1's 3.7%, benefited from the good dynamic of our industrial markets, but also from Interior Solutions in the U.S., despite the evolution of the roofing business. As for the breakdown by sector, it is more meaningful to look at the breakdown of the group by industrial assets, by geographic area. As you can see, the biggest region today in Saint-Gobain is already Asia and emerging markets, with one-third of the group being in this region. If we take out Verallia North America from 5% in emerging market and approximately 50% in Europe. Operating income by geographic area. France, despite a difficult environment, has operating profit, which is slightly going down but almost stable, 5.3% of sales to EUR 193 million in the second half. We show an evolution of the volumes in Germany, but we enjoyed a good recovery in the U.K., and we benefited from a significant cost reduction we've made, especially in the flat glass business in the recent past. North America, as you can see, strongly impacted by the disposal of Verallia North America, but even without this perimeter impact, we clearly have a negative evolution due to the evolution of the prices in the roofing business. Despite a good performance of all the businesses, HPM and Interior Solutions businesses in the U.S. continue to be improving significantly. In Asia and emerging markets, as you can see, we are back to double-digit profitability in H2, more in line with our experience and our past results in emerging markets, and we have continued improvement in the last years. To finish with the EBITDA and CapEx by geographic area, as always, we continue to have a strong cash generation in all the regions in Saint-Gobain, and we continue to spend more capital expenditures in North America and Asia and emerging countries. We take these two regions together, it's more than 5% compared to around 2.5% for Europe, with very good growth project in the U.S. and in emerging markets. In Sekurit, in a lot of emerging market, Poland, China, Mexico. In Flat Glass, with the start of Bhiwadi plant in India, Kota in Korea. In HPM with plant in ceramic in Perundurai in India and in gypsum, as I already said, in Brazil and Indonesia and in mortars in Brazil and Turkey, among others. I give the floor to Pierre-André for the strategy. In terms of our strategy, we are continuing to implement what was explained at the end of 2013 with the main axis to strengthen the group profile and to increase focus on differentiation. I'd like to show you some metrics that I have spelled out for 2018 and where we are on these fronts. First axis, to strengthen the group profile, to raise the potential for organic growth, with the idea of a greater exposure of our industrial businesses to fast-growing regions. The metrics we set in 2013 was to get to 66% of our industrial assets outside of Western Europe by 2018. We have moved two points this year from 58% to 60%. In line with that, another metric was to reduce the capital intensity of Saint-Gobain, especially in developed countries, with a specific focus on flat glass. Here also, we have made progress towards our objective. The first metrics, which is for the overall industrial assets, we have reduced from 32% to 31%, in line with our 28 objective for 2018. In terms of flat glass, we have reduced six points in the last two years, and we are also along the way. We are continuing also to do small, very targeted, and selective acquisitions, which are mostly in technological industrial niches and fast-growing countries, as well as some bolt-on in the areas where we are very strong in Building Distribution. Second axis was to increase the group focus on differentiation. Here, we have continued to spend a significant amount of money on R&D, and we will continue to do that and to focus on co-development opportunities. We follow two metrics that I explained again in 2013. The first one is the overall differentiation ratio, which has increased one point in 2014, and we are going in the direction to get to 53% by 2018. The second ratio, which is a metric that we have used for already a significant number of years, which is the new solution ratio. Here, we have set a few years ago a goal to be at 25% by 2015. We are there one year ahead. We have set up an objective by 2018 to go to 30%. I must say that we are progressing, but on these two ratios, the objective for 2018 are quite challenging. We have also invested as a part of the transformation of our distribution activities to take into account the new digital world. We have invested heavily in logistics and information systems. In terms of the strategy, we are accelerating, in fact, what was stated at the end of 2013, and this is now the two announcements that we made in December of 2014 with the plans to acquire this controlling stake in Sika and to sell Verallia. Those two operations will provide significant benefits. In terms of the Sika acquisition, it will increase the organic growth of Saint-Gobain by 0.6%-0.7% each year. It is going to provide additional potential for targeted selective organic growth. Sika will bring a very strong brand associated with a culture of innovation, and this deal will create value as from 2019. Those two transactions combined will increase the growth in emerging countries and also in the U.S., will contribute to a significant reduction of the capital intensity of the group, and will also help our differentiation ratio with the very strong Sika value-added product part of their business in habitat and industrial markets. This acquisition of a controlling stake in Sika is a deal with very strong long-term industrial logic, which will offer benefits from both groups. Bringing R&D together, like was studied in 2010, will allow increased innovations through joint developments. There are many fields where we think this will be very promising, especially between our HPM division and a lot of competence that Sika has in polymers. In terms of marketing, it will allow better access to markets through complementary sales channels. Sika, for instance, has a stronger presence in the specifier and infrastructure project markets, while our Construction Products business is stronger in renovation and distribution. In terms of sales, there is a very good geographical fit, especially in emerging countries, where Sika is more developed, has a very strong presence in Asia and North America, and where there is more developed in some European countries and Latin America. In terms of assets, we will be able to pull some industrial assets in certain fast-growing markets. Like we have done in many other cases, we will have significant savings due to scale in purchasing. These are the synergies that were spelled out in December, and they will be based on outlines contract, and we will monitor and report that very regularly, benefiting the shareholders of both groups. You see that a significant part of these savings are coming from additional sales and CapEx, sorry, purchasing synergies. This deal is also a good deal for all stakeholders of Sika because Saint-Gobain and Sika share values which have withstand the test of time. As you know, we are celebrating this year our 350 years of anniversary. It's a very strong legacy. Sika is also an old company with 100 years of existence. Both group have a long-standing presence in Switzerland. Saint-Gobain has been present in Switzerland for 80 years. Both company are focused on innovation. They have a long history of commitment to employees and community engagement with a decentralized organization. Saint-Gobain is a global company that embrace diversity, including on its board. Consequently, we hope that those members of Sika's management team who currently oppose the transaction will rethink their position and the radical step they have taken, which are detrimental to the group's 17,000 employees. I wish to reassure Sika's employees that their jobs are safe because it is a growing story. There will be no layoff due to restructuring associated with this transaction, especially in Switzerland, where there have been some emotions about that and clearly which are not justified. In fact, that's the reason why the Burkard family has chosen Saint-Gobain, and this deal is a friendly transaction. The founders of Sika are willing to find a good successor, and they consider that Saint-Gobain, being a solid, reliable strategic partner, share the same values, and we compete very rarely directly. In addition to that, as was very well spelled out by Mr. Burkard, the legal situation of the company was very well known by the market as it is clearly spelled out very clearly in the bylaws of the company and as it has been very quickly reminded by some prominent press analysts. That's why I consider that also the measures that have been taken by those members of Sika's board of director who oppose the transaction, that they go against normal market principle. Amidst all the media uproar following the announcement of the transactions, analyst opinions about the no reaction by the market went unneeded. In fact, the steps that have been taken by part of Sika's management have led to a climate of uncertainty, which has been detrimental to certain Sika shareholders who sold their shares, while enabling other investors to capitalize on share price volatility. As of today, this correction has been mostly corrected when you look at the evolution of the compared performance before the transaction and as of today. In fact, those shareholders who have bought the shares after the turmoil, believing in the industrial project of Saint-Gobain, are progressively and will be rewarded. As was also very clearly said by the Burkard family, in a listed company, certain members of management and of the board cannot decide when and to whom shareholders can sell their shares and interpret the company's bylaw differently depending on events or on the identity of the owners of one of its shareholder with the aim of stripping that shareholders of its right. That is why I consider that the family will be able very quickly to make his rights being upheld. That is why also Saint-Gobain's commitment is irrevocable, and this transaction, in my view, as it is from the family, is in the long-term interest of both companies. Now, I would like to give you a few elements about our outlook for this year. In terms of economic climate, there will be a gradual recovery in Western Europe, which will be nevertheless hampered by the fact that the construction markets are going to stay depressed in France for at least a significant part of this year. We expect a continued good momentum in North America and in Asia and emerging countries, and we expect also the household consumption to hold firm. What does it mean for Saint-Gobain businesses? For Innovative Materials, it means ongoing gradual profitability gains in flat glass, where we have had a good recovery, mainly driven by the evolution of our mix and our cost reduction. We will have also continuing good margin in High-Performance Materials. In Construction Products, we will continue to see good momentum in Interior Solutions, and we expect the situation in roofing to stabilize. Building Distribution, we will have a mix depending on the evolution of the different countries. But overall, the organic growth will be reduced by the downturn that is still going to be the case in France. Clearly, the first half comparison will not be easy with the first half of 2014, also because of some weather impact. In packaging, we expect a good level of operating income and clearly a continuous improvement. In this framework, what are my priorities for 2015? First, as always in the last five years, and this is going to stay a very strong priority of Saint-Gobain, to continue to put priority on price increase. This is more difficult because also we are in a very low inflationary environment, especially in Europe and in some countries it is even a deflationary environment. But we are going to continue to put emphasis on increasing sales price. We have increased a little bit our cost program, which was already significant that I announced last year, which we delivered on 2014. We have raised from EUR 350 million to EUR 400 million, the target for this year. We are continuing to grow our CapEx, especially in emerging countries. But we will maintain that under EUR 1.6 billion, and we continue to commit significant money to R&D to support our strategy of differentiated and high value-added solutions. The board, as of yesterday, decided to recommend to the shareholders meeting in June to maintain the dividend at EUR 1.24 per share. Stable, compared to 2014, which gives a good yield and is, in terms of the payout, higher than our medium-term objective. Clearly, with a 62% of the recurring net income, and as last year, the payment will be 50% in cash and 50% in cash or in shares at shareholders' discretion. In conclusion, I think that the Group has, in an environment which is gradually improving, despite, I would say, the situation in France, has proved once again its very strong solidity based on the complementarity of our three major sectors positioned on long-term, fast-growing habitat and industrial markets. For 2015, we expect further like-for-like improvements in our operating income, and we will continue to deliver a high level of free cash flow. And clearly also, 2015 will be a year of significant acceleration in the rollout of the Group strategy. Thank you. And now, together with Laurent, we are ready for your questions. [Foreign language] Hello? No. Josep Pujal from Kepler Cheuvreux. I had three questions, if I may. The first one is on the price cost gap. How did it went in 2014? Were you able to recover through price increases more than your cost inflation or not? How do you see 2015, given what is happening to energy costs? And also, how should we read what seems an acceleration of the prices in Q4? Is there a one-off there? I have two other questions. Do you want them now? Yes. My second question is on the volume trends. 2014 was polluted by weather conditions, very strong in H1, very favorable. But if you try to strip this, what can you say about the underlying trends? Do you see an improvement or a stabilization or still a deterioration? And particularly in your guidance, and if we focus on France, in your guidance, France remains a negative. Whereas we see some leading indicators, like building permits, which stop deteriorating in end of Q3 last year. Do you think that in the second part of the year, it will start to show in your figures? My last question is on Sika, about the precise object of the contract that you have with the Burkard family. What you are buying is 16% of the shares and 52% of the voting rights. You are buying both objects, both items? Or what you buy is 16% of shares, and you hope that they will bring to you 52% of voting rights? Okay. Laurent will answer the first question on price cost, and I will answer the other one on volume and Sika. Yes, concerning the price cost stream. Clearly, as I guided in July, we remain with approximately EUR 100 million headwinds in the cost of raw material and energy for the full year 2014. You've seen that over the full year, we've managed to get to 1.1% prices overall, including Building Distribution, which is a resale business, so you should count that a little bit differently. Yes, we were able to pass the cost of raw material and energy to the customers. But clearly, at the same time, this is not taking into account the inflation that we have on all other costs on raw material and energy. If you look at 2015, clearly, we have on the opposite, if we stay at the current prices of energy, we should have a tailwind coming from energy, which is also around EUR 100 million impact. On the opposite, in some raw material, we have increasing prices. For example, in soda ash. This represents probably to the, as of today, and if the price stays at the level they are today, approximately EUR 50 million headwind. The net of the two is, I would say, EUR 50 million tailwind, perhaps a little bit more if we continue to have a good evolution of, let's say, or stable evolution of energy prices. But that's the order of magnitude. In front of that, clearly, in continental Europe, we face much more difficulties to pass price increases. In some regions, especially like in France or in Germany, we even have some price reduction and price pressure to a level where we need to give some prices to the customer. So very difficult to say to you what will be the spread through the year. As Pierre-André said, our target will be to keep the prices up as much as possible and to benefit from this change of energy prices that is beneficial to us too in 2015. Concerning the volume trends, when you look at the slide that Laurent presented on page 10, you see clearly some very significant variation from one quarter to the next. We had a very strong first quarter last year, which was also following a very bad first quarter in 2013. I think that the overall volume evolution of Saint-Gobain is growing. There are three points which are making this comparison and understanding difficult. Roofing in the U.S. and construction activity in France and Germany. Roofing in the U.S., we have a clearly specific situation. Here, there is also a significant volatility from one quarter to the next. There has been a downward trend, which is partly price, partly volume, but also the volume was not good in the second half of last year. This, I think, will normalize. In terms of construction in France and in Germany, there has been a big difference between the first half and the second half. Laurent said in Germany, around +5, -5 in Germany, with the total year being at 0.3. Frankly, I was -0.3. Minus 0.3. Frankly, I was disappointed and a bit surprised by the second half in Germany. The explanation I have on Germany, and I am never comfortable with those explanations, but at this point, that's the one I have, is that clearly in Germany, there has been a lot of work being done in the first half that was not done in the second half. The trend has been flattish, which was also a bit disappointment. I expect a gradual improvement in Germany in construction this year, driven by the overall situation of the economy and good, reasonable growth in renovation. Renovation in Germany, the last two years have been clearly below the normal trends. In France, I think that the underlying trends are still negative on the other end. The fact that the negative trend of the second half was not completely linked to the fact that we had a good dynamic in the first half. I see, like you do, the statistics on the building permits. I expect a good 2016 in France, in fact. But I think there is always a time lag, which is significant between permits and starts and then actual works. So I don't think that the dynamic that we are starting to see in the last few months in permits will translate into actual work for us until sometime in the second half of this year. Concerning renovation, I'm also very optimistic medium-term of France. I consider that the law which is being passed on the energy transition in France will be very positive for us. But this law is not been yet voted. It takes quite some time, and I don't expect that it will have a positive impact for Saint-Gobain before the second half of this year. That's why I think that if I take what I said on Germany, France, and roofing, and then the overall trend, I think that to summarize, I think that the overall trend for volume, underlying trend, is a slight improvement in volumes, which may gather space progressively, but in our numbers, there will be a difficult first half, because of the very strong growth, especially in the first quarter, of the last year's first quarter. Concerning Sika, it's very clear. We are not buying Sika shares. We have made a deal with the five heirs of the founders of Sika to buy their shares in their family holding company called SWH. And this company owns 52% of the shares, in fact. They are shares that are not the same, but they are 52% of the shares and 50% of the voting rights. This 52% gives, in economic terms, 16% of the capital, but these are 52% of the shares and 52% of the voting rights that they have had for years and years. And I don't see any logic for that to be changed. So that's what we are buying. Yes. Yes. Good morning. Yassine Touahri from Exane BNP Paribas. So three questions. First, on roofing in the U.S., could you give us a bit more color about the outlook? And to what extent could you keep the decline in cost that is likely to happen because of the recent collapse of oil prices? Is there a scenario in which margin could expand as much as in 2009? Then I've got a second question on the price and volume. You used to give us a price and volume breakdown by division. Is it something that you could give us? Then my last question is on Sika. Could you give us a little bit more color on the timetable of the acquisition in view of the recent legal developments? Then second point on Sika, have you assessed how to mitigate the impact of a potential departure of management on Sika results and on your ability to deliver synergies? Okay. Maybe on roofing to give you more color, I'm going to ask John Crowe, who is heading our U.S. businesses, to tell you what's going on in the roofing business in the U.S. Sure. So over the second half of the year, we really did start to see a stabilization of the roofing business in North America, both in terms of volume and pricing. Probably of note is we've traditionally moved into the new year with a strong winter buying program, where there was a big spike in demand with additional price discounts provided at that time. It's been a practice that hasn't been overly appealing to manufacturers, and I think we're finally being able to move away from that. So it's giving us more stability in demand, more stability in pricing. The supply chain isn't quite as full as it's been in the past in Q1 of each year. As we come into the spring season where demand starts to expand, there are better prospects now for us to begin to get some price increases again versus what we have been able to do in the past. It is a much more stable situation with some optimism that things should begin to improve as we go forward in 2015. From an energy standpoint, obviously, asphalt is our largest raw material. With the drop in oil prices, we are seeing a pretty significant reduction of asphalt prices. We would expect that to be a favorable raw material cost input for the year versus what we have seen in the past year. Thank you, John. On the second question, I give the floor to Laurent, but I think it would be going too many details. Your question is specific to one sector or general? No, on your five division. You gave us a like for like growth. It will be very helpful if you can have the breakdown between price and volume. Okay. I commented already in some cases, but basically, we have 2% price increases in flat glass, a little bit less in the second half than the first half. We have 1.3 price increase in HPM constant through the year. In Construction Products, we have 1% price increase. The growth in distribution and in packaging is only due to prices. Thank you. On Sika, the timetable has not changed. As I said in December, it's a done deal. Now we are waiting for the approvals of the antitrust authorities, and we expect to get that during the second half of 2015. Concerning legal battles, they don't involve Saint-Gobain. They are between the family and some independent directors of Sika, and I expect that to be solved very quickly. Concerning management, I think it's too early to know what's going to happen from that standpoint. I'm still very hopeful that a significant part of Sika managers will be happy to work with Saint-Gobain. Yeah. Monsieur Lefebvre Mouline. Monsieur, I have two questions, if I might. First, the distribution division, and secondly, the flat glass. In the flat glass, could we have more flavor in term of upstream and downstream? The flat glass, but also the transformation. Does the downstream apply the price hikes made by the flat glass? Important question. Also, your competitor, Pilkington, mentioned some difficulties in Eastern Europe. Could we have more flavor on this? Regarding Building Distribution, we had a strong decline in profit. Is that only due to Lapeyre, or do we have also some difficulties with Point.P profitability? Thank you. Concerning your question on flat glass, clearly, we have a reasonably good trend in Sekurit. Your question, I guess, in terms of prices concerned the Glassolutions part of our business, which are evolving at the moment in line with what we are seeing in our upstream business. It's very important to understand that more and more, for us, this issue of price is not major. It's a mix evolution that is making our profit improvement, and this will be more and more the case. Concerning the comments of Pilkington, I don't know what's going on with Pilkington in details. I just want to remind you, when they speak about Eastern Europe, I think they have a significant presence in Russia, and we are not in Russia except through a small participation in a joint venture with. We don't see at all the same thing in Eastern Europe. Concerning distribution? Yeah. Concerning Building Distribution, if you look at year-on-year, the profitability is up 3.5% compared to. So profit is up 3.5%, so we cannot say it is a strong decline. It is a positive evolution in 2014 compared to 2013. If you look at the second half, clearly, the volumes in the second half in France, and it is all over France, it is not only Lapeyre, is negative, and clearly, in absolute terms, is waiting on the operating profit. We have a good resistance of our distribution business in France, where I think we are clearly. It is not great in absolute, but we are clearly over-performing our competitors in terms of sales evolution, and our margin are standing firm. Yes? Yeah. Oui. Bonjour. Pascale Maillard, Crédit Agricole. Sorry, in English. Could you give us some information related to the Verallia disposal? Do you have a timetable right now? What do you target? Yes, I- -for 2015? Thank you. We have done some work since December and waited also to have the 2014 results. We are going to give information to interested parties very soon, and we expect to sign an agreement, depending on the offers we get, but I am quite optimistic in the next few months and to have an agreement signed probably in the third quarter. That's the kind of framework I have in mind. Maybe we take a question from the phone. We have a question from Arnaud Lehmann, Merrill Lynch. Sir, you have the floor. Thank you very much. Good morning, gentlemen. I have three questions, if I may. Firstly, sorry to come back on the Sika situation. The board of Sika decided to limit the voting rights of the family to 5%. Is that a decision that is currently enforced? Are the voting rights effectively limited to 5% and then it will depend to a judge, or do you believe currently the stake they still entitled to more than 50% of the voting rights? That's my first question. My second question, Mr. de Chalendar, you already gave a bit of an outlook in terms of the volume trends for 2015, highlighting the challenging base effect in the first half. Do you believe that through the year, you will be able to deliver positive volume growth if you look at 2015 as a whole? That was my second question. Lastly, regarding the pricing outlook for building products, one of your competitor in insulation was referring to, let's say, some limited downside risk to prices. Obviously, in the context of limited or some deflation in energy costs, do you believe you will be able to increase prices in European building products? Thank you. Concerning, as I said, we are not involved in this concerning Sika. We are not involved in the discussions between the Burkard family and the board. In fact, I don't know whether this limitation has been set by the board. If it were the case, it's completely legal, and I don't expect that to be enforced anyway. Concerning the outlook for volume, the overall volume trend for 2015, I think I already answered that question asked by Mr. Pujal. I think that I expect a small increase in volume during 2015, with clearly a difference between the first half and the second half. Concerning the price situation in Construction Products in Europe, first, the situation differs by country, and the situation differs by activity. There are some countries and some businesses where it's difficult at the moment to have a price increase, but we are going to try. Next question on the phone, Mr. Andrews, I think. Yes, we have a new question from John Fraser-Andrews from HSBC. Sir, you have the floor. Thank you. My question is regarding France and, particularly France, where you've, in the second half, reported a volume fall of 6%-7%, I think you said. Could you differentiate between energy-efficient products and non-energy-efficient, and perhaps you could use Isover as an example, and give the volume in that, please? The minus 6%-7% is not France as a whole. It's Building Distribution. If you take France as a whole, it's minus 3.5%, and clearly, we have a better dynamic in industrial markets, in the pipe division. In insulation. In insulation. The difference is the same order of magnitude, so it's a few percentage between what we do in energy-efficient products and the markets. Now, I have some internet questions. I should read the questions. Sure. From Paul Roger from Exane. Can you quantify the size of your export sales in business like pipe, and what impact a weaker euro may have for demand for your exports? Well, in fact, it is mostly our pipe business, which is concerned by this subject. As I said regularly, for Saint-Gobain, currency variation are having a translation impact on our accounts, but they are very limited difference impact in our businesses directly. There will be, I think, especially for our industrial businesses, there will be a positive impact of the euro depreciation, but I would say it is a second-term impact. I think it is going to be very beneficial for many sectors who are exporting and which are our customers, our customer's customers. But this is, I would say, it is not an immediate impact. It is going to improve the European economy. There is one sector which for me, it is obvious that it is going to have a very positive impact progressively. It is our Verallia packaging business. As you know, we sell a lot of our products to wine and spirit manufacturers, and clearly, wine exports and spirit exports from Europe are going to be boosted by what is going on in the exchange rate. So that is, but it is the second time effect. In construction, the impact will be much more diffused and long-term. I think that the economy of Europe is going to progressively impact, but it will take more time in construction. For pipe, it is clearly good news. Second question from Paul Roger. Is our commitment to returning to 510 million shares still valid, and how should we expect the share count to change this year? Yes, it is a commitment which is valid. As you know, last year, we have both started to buy back some shares. We will do that opportunistically, depending on the circumstances. What is a realistic incremental margin for the group as volume recovers? Well, as you know, we have a significant leverage impact of volumes. At the moment, the volume are not increasing significantly, but when it happens, and I am, as you understood, I am quite optimistic for 2016. At this stage, it is probably a bit a long shot, but given what I said on construction permits, I think then there will be a good incremental margin- Yeah, and the contribution is very different from one business to another. Between Building Distribution, where you are, depending on the countries, between 20% and 30%, and industrial businesses, where, depending on the business, once again, in the country, you are between, let us say 35% and 55% additional contribution margin per EUR made in sales. Please, can you give some more color on the Sorry, it's a question from Mr. Lamine from Citi. Can you give some more color on the outlook for your Eastern European markets, particularly Poland? I think that in Poland, we are going to have a good construction market this year based on the statistics of the last year. We are going to have a good year. We have also a lot of sales from Poland to Germany and on industrial businesses it's part of our whole network. This will also be good. Globally, I am optimistic on Poland, especially on the construction. That's where it's more precise for me than what I said. There has been a reduction of the growth in the second half because of the weather on the first. I think that this is going to be good. Russia, which is very small for Saint-Gobain, but much smaller than Poland. So far so good. I don't expect a great year, but so far so good. We have had a very good 2014. There will be a translation from RUB to EUR, but the dynamic for construction is not bad. I finish with Mr. Lamine. What are your expectation for sales growth in France in 2015? Are you seeing any signs of stabilization? Can you continue to take market share in France? The third question, I think I already answered at length. I don't expect growth in France in 2015, especially in the first half. Can you continue to take market share in France? The answer is clearly yes. The situation of some of our competitors is helping from that standpoint. What is your guidance and expectation for operating margin in distribution in 2015? Well, I think they are going to increase in some countries. They will be under pressure in others, but overall, I expect a small improvement in our margin in distribution. I take now back to the phone, Mr. Jones from Redburn. Yes, we have a question from Will Jones, Redburn. Sir, you have the floor. Thank you. I think I've got four if I could, please. The first was just on acquisition spend back at the Investor Day in 2013. I think you talked about a range of EUR 3.5 billion to EUR 5.5 billion of spend through to 2018 from memory. Clearly, it looks like Sika will absorb the best part of half of that. Is that range still valid, and can you confirm you wouldn't go beyond the upper end? The second around Verallia, when you sold Verallia North America, you made a big point about the fact that it had hit record profits and it was a great time to sell it. How happy are you with where you think the operating performance of the remainder of that business will be when you look to sell it this year? Will it be as optimal as it could be? The third, please, was around cost savings, the EUR 400 million. Perhaps you give us a bit more detail on the split by division or the split by type. Just any more flavor there. It's obviously a big component of the moving parts in 2015. Then I'll try on the last one, but it may be a bit cheeky. The like-for-like EBIT growth. Clearly, you're guiding to progress for the full year. Do you think that there is a possibility of progress in the first half, or do you think it's more a second half only? Thank you. I take the first questions. No, I have not changed the range. As I said in December, I think that this Sika deal is an acceleration in terms of the timing, but it's part of this program. Given the nature of Sika, it's like a lot of acquisition in a lot of small niche that we do at once. So no, I've not changed my range, and I think we are fully in line with our strategy from that standpoint. Concerning Verallia, I let Laurent answer. Yeah. Concerning Verallia, clearly, the situation for the full year 2014 is quite different than the situation in Verallia North America. The first half results have been disappointing. But clearly, there is a clear improvement in the second half, and we will be able to show another improvement at the beginning of 2015, which creates a good dynamic for a disposal. At the same time, the financial market from the financing point of view have never been so buoyant. So I think, yes, it's a very good condition to make the disposal of the remaining part of Verallia. Concerning the split of the savings by division. For 2014, you have in the presentation in the annex, page 56, you have the split for 2015 division by division. It's a good proxy of what could happen also in 2015. Maybe slightly different, perhaps a little bit less here and more there, and especially perhaps a little bit less in Innovative Materials as we've made significant restructuring over the last years. But that will not be materially different. Okay. Before I take another question, I just want to make a small correction to Paul Roger. Sorry, I didn't pay attention. He mentioned a number of share of 510, and my commitment was 530, not 510. I take the question from Gregor Kuglitsch from UBS, through the internet. There are three questions. What makes you confident you can close the Sika transaction in H2 2015? Well, what makes me confident is first, we have signed the deal, and we just are waiting for the antitrust approval, where we just have a lot of paperwork to do. But I don't expect complications, and that we expect to get those approval in the second half. Will you need to pay capital gains on the sale of Verallia? If so, how much? Tax on capital gains, I suppose. Yeah, I suppose. Tax on capital gains. Yeah. Well, it depends on the price we get. Exactly. Depending on the price we get, it would be. Depending on the price, it will be around EUR 200 million. Perhaps a little bit less, perhaps a little bit more. What kind of raw material deflation in euro do you expect in 2015? Do you think cost price spread will be positive? That is for you. I think I answered this question already. Yes. In terms of energy, we expect a deflation of around EUR 100 million. In terms of raw material, on the opposite, we expect inflation of around EUR 50 million. I have a question from Mike Betts from Jefferies. Could you provide more detail on why prices increased by 1.3% in Q4? Which businesses were particularly strong and why? Laurent? We had clearly a higher comparison basis in Q3 in flat glass. This comparison basis was easier in the fourth quarter. Sequentially, it does not mean significant price changes, on the opposite. But clearly, in comparison with last year, flat glass prices were clearly better in Q4 in Q4. We had also an improvement in high-performance material, and especially in the U.S. Otherwise, there is no huge change on prices overall. A little bit price improvement in Q4 in Verallia also. I have another question on the impact of the evolution of oil price on our projects for HPM, particularly, and for the energy transition on buildings. First of all, I think that the evolution of oil prices is globally, in terms of our initial impact, good news for our P&L. I believe this fall is not going to last. I don't know when, but I don't think it's going to last very long, whether it's one year or two years. I am very impressed by the speed at which the oil production in the U.S. is falling. The adjustments are absolutely massive at the moment. We have a small business of proppants where we also have reacted very quickly. We have already reduced our capacity by half last month, and we can reopen if it's provided. Adjustments are very. So exploration in the U.S. at the moment is extremely low. Production is falling. This, at some point, will have an impact on the overall worldwide oil prices. I do not think it changes the prospects for renovation, especially, which is a question for our energy savings program in buildings, which are going, especially in Europe, to remain for many years, in most countries, a strong priority. I think it is a more short-term subject. Concerning the businesses we have in HPM, this business of ceramic proppants is going to be affected. It is not a huge business for Saint-Gobain. It is going to be affected short term, but we have seen this business being, in the past, also quite cyclical, and I believe that oil exploration will come back. For the rest of HPM, this issue of oil prices is not a major driver of our projects. If there are no more further question, I think we have finished with the internet and with the phone. Yes, there is a question over there. Yes. Good morning. Caroline Project, Crédit Agricole, Credit Research. First of all, you guided last year for clear improvement in operating income like for like, saying it should be a 5%-10% increase. This year, you are guiding for further improvement on this. Should we understand that it will be below 5%? My second question is on the hybrid bond. You mentioned last December that you could issue a hybrid bond if market conditions are attractive, if I remember correctly. Is it still up to date or have you changed your mind in the meantime? Thank you. First of all, you need to remember that last year when I give a number, it was not at the beginning of the year. I expect to be able to precise that during the year, but at this moment it is too early to comment one way or another. We expect further improvement. We will try to get more precise later in the year, like I did last year. Concerning the hybrid, we could, but clearly it will depend on a lot of factors, market conditions obviously, but not only if we have the need. As you know, a hybrid is quite a costly tool or costly way of financing a company, and it will be dependent on the overall of our financial situation and how the situation is evolving on the other metrics of the financial situation through the year. Okay. Well, if there are no further question, I thank you very much for. Sorry. Quango Nguyen, Crédit Agricole. Just a little question on the U.S. You mentioned that building materials had a good dynamic in the North America except for roofing. So what happened for roofing in volumes and prices? Well, I think, Jean, we already answered the question. You want to repeat? But I think you already answered that question two or three times, but Yeah, no. Clearly, we had weak price evolution during the summer this year, and that had a consequence on our profitability, especially in the second half. There is another point that, yeah, we may not have mentioned this year, but this business in roofing has one particular dynamic, which we don't have in our other businesses, which is that a significant activity exists or doesn't exist depending on the level of storm activity, which has been very low in the last two, three years, and which last year also had a negative impact. You need to know that roofing is mostly renovation and the storm pattern is important. Other questions? Well, thank you very much.