Compagnie de Saint-Gobain S.A. (EPA:SGO)

Earnings Call: Q4 2012

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Feb 21, 2013

Good morning to everybody. I'm going to, together with Laurent Guillot, be commenting on the figures for 2012 and the prospects. Let me point out some of the highlights of the year 2012, and as usual, Laurent Guillot will be giving you more details on these facts and figures. Then I'll be talking about the strategy and the prospects for 2013. You learned the key figures through our press statement. The sales stands at EUR 43.198 billion, up 2.6%. The operating income EUR 2.88 billion, which is down 16.3%. Recurring net income is EUR 1.126 billion, down 35%. The net income stands at EUR 766 million, down 40%. The free cash flow, EUR 895 million, down 36%. If we include the WCR variations, then we have an increase on that of 73% standing at just over EUR 1.4 billion, and net debt now stands at EUR 8.4 billion and it's up 4.9%. These results are down in terms of operating income and net income. These were obtained in a very difficult economic context for the group. The figures really worsened after the springtime, and this was really across the board for all the activities and in Flat Glass as a whole. If we look at Western Europe, after springtime in May things became difficult, particularly in the automotive industry, but also on the industrial markets and the construction business, whether we're talking about new builds and renovation, all the market indicators progressively turned to red. Things slowed down across Europe with a few ups and downs across that market, and as I said, conditions were very tough in Flat Glass. In North America, we maintained a good level of activity on the industrial markets with a gradual upturn, which should continue this year in residential construction, particularly in new builds, but renovation was good as well. Finally, we've seen that in the high growth countries, activities are leveling off with Latin America gradually recovering, particularly in the industrial activities. Things have been difficult in Brazil, particularly in H1. On our markets, so we've had particular difficulties in Asia and Eastern Europe, except for Russia. This is true particularly for the Flat Glass sector of activity, but also for the public markets in China, and this impacted our pipes market. Just a few words about the Flat Glass. Back in July, the first half of the year had been difficult. Flat Glass slowed down in trading for the building industry, plus the automotive industry as well. This covers Western Europe and Asia and the emerging countries. The solar business had developed, as you will remember, quite significantly, but the markets really collapsed here in Europe in the course of 2012. Things have been extremely difficult there given the activities from Chinese producers. All this affected the construction business, and we've had, as I said, problems in the automotive market as well. Linked to this, linked to a falloff in demand, we've also seen a fall in the float glass prices, which has gone hand in hand with an increase in September and October. There was an increase in the price, but this did not offset in any way the hikes in energy costs and the rises in raw materials, which hit us particularly in the first half of the year. We had a significant deterioration in the Flat Glass results in H1. In H2, given the significant action plans that we rolled out, we managed to stabilize these results, but nevertheless, we were not able to improve the situation. Overall, this has had a significant negative impact on the group's 2012 results. Across the board, Flat Glass particularly, but across the board generally, given the reduction in activity now, things have not been this easy to do, but we have managed to increase our sales prices with an increase up 1.7% over the year, therefore, and up 2% excluding Flat Glass. This has enabled us to reduce overall the impact of the rise in raw material and energy costs. I was talking about July. We said that we had a significant cost savings program. The impact of this was forecast for EUR 500 million over the year. In fact, we've managed to hit the figure of EUR 520 million compared with the 2011 cost base. This translated into the accounts by an increase in the restructuring costs, and Laurent will come back over this later on. 2012 nevertheless has managed to pursue its strategic goals, and we've continued to focus on our strict financial discipline, which we've imposed upon ourselves. In terms of CapEx and acquisitions, we've really focused on high growth countries, first of all. Countries which have not really grown that much in 2012, but good prospects for the future. Also, we've concentrated on energy efficiency and the energy markets, and we've decided to consolidate our strengths in the Building Distribution. All of these different activities represented two thirds of the group's total investments in 2012. We've also moved into a new chapter of our activities in terms of refocusing on habitat. We've got very good financial conditions for this. With the future disposal of Verallia in North America at a price of $1.7 billion. We've also focused particularly, as we do regularly anyhow, and you'll see the figures over the past 10 years, which are very impressive. But we've significantly improved our cash generation figures, our operating WCR. We're ahead of our targets for the group, and at the end of the year, we're at an all-time low, which means that we've been able to create a lot of cash. These are the outstanding figures and facts for the year, and I'll hand over to Laurent now, who will be talking about the figures in detail. Good morning to you. As usual, we'll start with the sales figure. So a 2.6% growth. This is made up of 1.8% of Forex impact, linked particularly to 2012. In 2012, we're seeing the appreciation of the American dollar. Some positive effects are coming from the pound and the Scandinavian countries, and the negative effects of which weighed on Forex with Brazilian currency. Perimeter up at 2.7%. Two thirds of this comes from acquisitions of Brossette and Build Center. We've also made a few more minor acquisitions in Construction Products in the emerging countries and acquisition of Solar Gard in the high-performance sector. Growth on a like-for-like basis is minus 2.9%. Prices up 1.7%. Overall for the group, it's a 1.7%, not really sufficient to offset the impact of the rise in raw materials and energy costs, particularly in the glass sector, where we need sand, for example. The major impact, of course, was in Flat Glass. Excluding that, we offset overall the rise in energy prices. Volume changes minus just over 3%, concentrated mainly in Europe, but we will talk about that a little later on. If we look now on what is happening quarter by quarter, there is a settling of prices, 2.4% and now +1%. Here we have a slow increase of the impact of raw materials and energy, which emerged across the year as a whole. If we look at volumes. Now, you remember that we commented for Q3 the negative impact of the number of days, with particularly negative impact of our activities in High-Performance Materials. In Q4, we have a certain degree of recovery, minus 3.1% in volume. Nevertheless, this is a better figure than the over minus 5% that we had previously. So a relative improvement across all geographical zones, but particularly in the U.S. and the emerging countries. If we look at the operating income, EUR 2.88, down 16% compared with last year. If you look at the figures at the end of June, a minus 9% compared with H1. This reduction is really due to the Flat Glass. All this covers Europe plus the emerging countries. If we look at the margin, 6.7%, with a reduction coming mainly from activities excluding Building Distribution. If you include this, then the figure stands at 4%. If I look at the non-operating items now. There is an increase in the non-operating costs, of which comes solely from the increase in restructuring costs, which we have worked on specifically in 2012, focusing particularly on Europe. The other operating expenses, minus EUR 390 million. This relates to EUR 60 million of positive income from disposals of land, for example, but also the positive impact on our accounts of 50% of the holding that we had in Eurofloat in France. The other element which weighs on these figures is depreciation of assets, EUR 436 million. Here, EUR 310 million relating to depreciation of assets in the solar activity, particularly Avancis, but other Flat Glass activities included here and other High-Performance Materials, including silicon. We had already put large percentages into this account at the end of June, and this covered very largely Spain with a goodwill impairment. This also covers the plasterboards and insulation. Of course, a very difficult context in this zone. So EUR 1.9 billion as a total figure for 2012 for non-operating items, down 25%. If we look at outstanding legal claims, asbestos, particularly in the U.S., the situation is stable. The number of new claims is stable. This year, 4,000. The number of claims which have been settled up over last year, 9,000. So if you look at the number of outstanding claims, it is still going down 43,000 standing at the end of 2012. If we look at payment volumes, this is down slightly compared with the last year as well. We are talking principally about the cut-off period at the end of last year, payments, which are linked to 2012, which were not requested, which are carried over to the first half of this year. So normal fluctuations here as we have had in the past. We are going to pursue our policy of provisioning for this. EUR 90 million provisioned for this at the end of 2012. In terms of net financial expense and income tax, you can see the average cost of gross debt, which is down very slightly, 4.7% compared with 4.8% last year. This trend, given the reduction in bond rates, should continue slightly this year. The financial expenses are up because of an increase in net debt standing at EUR 400 million, but also because we have had an increase in gross debt, and we have had quite a few bond issues this year. The financial expenses, which are non-cash elements which are linked to retirement pensions, are up slightly for 2012. This is not a major impact. For 2013, however, we will be applying the new accounting IAS 19 rules, and this will have a significant impact because we will have to increase our financial expenses, non-cash expenses of roughly EUR 150 million, and this will translate into roughly EUR 100 million in total at the end of the day. Tax is down given the reduction in our results, but the tax rate is up. It is going from 29% to 34%, and this increase is linked to three key factors. The first one is the bigger share of our results are coming from the U.S. as part of our overall results. Here, the tax rate is 39%. We have also had an increase in tax rates in France with, of course, a significant impact due to this. This year, greater aggression and competitivity from the tax authorities, which meant we have had to settle certain claims. If we look at the recurring net income. Net income, negative impacts here. We have had a significant increase, of course, as I said, due to our restructuring costs. You can see recurring net income down 35%, net income down 40%. Given the fact that our number of shares is stable, we have a recurring EPS at EUR 2.14. This is down 35%. Given our industrial investments, the CapEx at the end of last year, we fixed investment targets which stood at EUR 2 billion for the whole year. The programs which we rolled out, particularly in the emerging countries with major investments there, led us to roll out these impacts over the course of the year. Basically, the investment levels are down 21% in H2 compared with H2 of the previous year. At the same time, while we have been cutting back on our CapEx, nevertheless, we have continued to prioritize the investment in the emerging countries because these represent 41% of our total investments compared with an average in 2004, 2009, which stood on average at 30%. So you can see that we have a more important effort, a bigger effort on the growth zones for the company. If we look at the operating WCR, Pierre-André talked about that. A significant reduction in this, which is at an all-time low. Standing at 29 days sales. Just to put this in context, over the past 10 years, going from 59 days to 29 days, this is a significant saving for the group of just over EUR 3 billion. So you can see this is a major effort, EUR 3.5 billion. In fact, a major effort in terms of cash, EUR 350 million a year, which we've been able to generate thanks to improvements on WCR. If I look at last year, I stood here last year and said that we were satisfied with some of the inventory and stock effects, which had improved, and we said at the time that we were implementing adjustment plans in order to reduce our stocks. Now, inventories are down by roughly 2 days, which demonstrates that we've been extremely disciplined in stock management. The other improvement to point out comes from a reduction in customer accounts. There we've made significant improvements too. If we look at cash flow generation, you'll see. If you take the average over the past 5 years, we'll see that cash generation, over the cycle, we've been very healthy on this, and this has improved by roughly EUR 1.5 billion. If we look over the year, CapEx acquisitions stands at a total of EUR 354 million. This is significantly down, half compared with the preceding year. Acquisitions have been highly selective and targeted, working on the strategic thrust of the group with acquisitions which have brought in a lot of value very quickly. If I look at all the industrial acquisitions and the investments we've made, as I said, we've worked very largely on the high growth countries, EUR 760 million investment there, mainly in terms of industrial investment. EUR 200 million on the energy efficiency and energy markets, with particularly the follow-up to the acquisition of SAGE. This work is in electrochromic glass in the U.S. And we've also taken a share in Celotex in the U.K. and acquired a stake in Isoroc in Russia and then Brossette in France, as I've talked about, and we've moved into bolt-on acquisitions in Scandinavia. This is in the Building Distribution sector, and the total in terms of acquisitions there is EUR 440 million. If we look at return on investment and return on capital, then we've had a reduction there, of course, with return on investment standing at 16.7% and the ROCE stands at 9.4%. If we look now at net debt and our shareholders' equity situation here, the debt is up slightly. It's gone from EUR 8.1 billion to EUR 8.5 billion at the end of this year. We've got here the contribution from our cash flow, EUR 1.4 billion. We've got a major contribution, exceptional contribution to the pension fund, which stands at EUR 0.6 million, and we've had an impact of just under EUR 400 million of dividends and share buybacks as well. Equity, shareholder equity down very slightly, and this is almost solely due to the impact of pensions. Net debt over equity, 47% compared with 44% last year, and given the reduction in EBITDA, the net debt over EBITDA ratio stands at 1.92. On the right-hand side, you've got the impact of the disposal of Verallia as if it were occurring on the 1st of January 2013. This is just to demonstrate the impact on our ratios. Of course, the impact will be bigger on net debt over equity, 500 positive impact on the equity given the extra money that we brought in from the disposal on that asset. The balance sheet for the group does remain very healthy, and this has been clearly strengthened by the disposal of Verallia. Let's go back in detail now to each of the individual business sectors. Firstly, I wanted to show you this set of pie charts. It's a slightly different vision of our group, not just in terms of the revenues as we usually do, but in terms of our industrial assets. This is in fact the vision we should use to read our operating income in the long term, given the profitability we hope to derive from our capital expenditure. Here you see the breakdown there from the business sectors. As it pans out. It is even more interesting to take the same vision, but from a geographical standpoint. Let's look at the sales then. The drop in sales of 1.9% on a like-for-like basis. This comes mainly from the drop of -6.6% in Flat Glass, for example, with the price drop -0.2% and drop in volumes too. The High-Performance Materials, -1.7%. Construction Products, -1.3%, broken down into an increase in Interior Solutions, driven by the emerging countries and the U.S., but also given the growth differential in Europe because of energy efficiency business lines. You have Exterior Solutions going down by 3.7%. The second half was penalized by the trend on the pipes market and also the difficult comparison with the U.S. given the 2011 storms, of course, that led to good trading that year. Building Distribution down by 2%. Growth in the year in the Nordic countries and in Germany, and good resilience in our business lines in France. Packaging, +3.5%, mainly driven by prices. Now, let's go on to Innovative Materials next. You can see Flat Glass here, -6.6%. This is fairly similar between the first half and the second half. As you see, no major change to flag up here, with prices that remain negative, -0.2% for the whole year. If you compare it with inflation, which ran at a fairly high level, inflation of all of the glass-making raw materials was quite high. So the growth margin from this part of the business obviously dipped quite a lot. The volumes suffered in Europe in particular, but also, this is a specific feature in our business. We suffered here in the emerging countries too, because the volumes were -2% for Flat Glass in those emerging countries. In terms of Asia and the emerging countries in general, representing 45% of our total revenues in this group, the fourth quarter was much better, however, because we went up in Q4 in the emerging countries in Flat Glass by 3.5% in terms of volume and in terms of price. High-Performance Materials, these are minus figures you see, -4.9% in the second half in particular. That's the fourth quarter that went down, and we're back in line with the full year, just down by 1.8%, in fact. Much better than Q3, mind you. There were some one-shot factors that came into play there. That drop for the year, for the whole year, stems mainly from the ceramics business lines. Overall, the drop is fairly limited, but in terms of margin, the business mix effect is negative because ceramics contribute to the results of the group in a very substantial way. If you look then at the whole year, if that drop was limited to 1.7%, it is also because the exposure of this business in the U.S. and the emerging countries is very high, and the exposure in Europe is limited to just 25%. The operating income in Flat Glass, steady around 2%, down a lot compared to last year because of the drop in. The gap between the price and the cost actually was much smaller. Obviously we made a lesser profit. On High-Performance Materials, you see in the second half what happened. That is mainly to be explained by the business mix effect of our business lines and the drop of trading in the ceramics business. EBITDA minus CapEx in 2012, EUR 530 million of a differential between them, as you see here. The CapEx was still quite substantial, especially in the first half in Flat Glass, with the end of our projects in the emerging countries, in Brazil, in India, Colombia, but also in Sekurit, in China that is, and in Mexico. On High-Performance Materials, we had capital expenditure in the U.S. in particular, and also in the emerging world. Construction Products next. You see there is growth in Interior Solutions. Growth that is higher in the second half than the first half, especially connected with the progression of our trading in the U.S. and also in the emerging countries. Q4 came out at +3.6% for Interior Solutions growth in terms of price and volume, and especially connected with the betterment of the situation in gypsum, in particular in the U.S. Exterior Solutions -3.7% with the second half at -6.3%. You will recall that in 2011, in Exterior Solutions products in the U.S., the situation was conducive for us because, of course, of the storm at the beginning of 2011. The comparison basis was not an easy one to work to. That accounts for the drop in revenues there for the second half of the year. It is because of the comparison base, essentially. However, there is a negative contribution for the piping business. The revenue figure in the emerging countries and industrial mortars driven by the emerging countries, doing fairly well, as you can see. When it comes to profitability, the operating income in Interior Solutions comes out on average at more or less the same level as the previous year. In the second half, we were penalized by the negative trend in the cost-price differential, again connected with the increase in our raw materials costs, and in the second half, also connected with the large reduction in our inventories. Exterior Solutions, you see a drop in profitability, which is a continuum. The performance in piping was difficult to achieve, and also the comparison base effect that we saw last year for Exterior Solutions as a sediment on the U.S. The EBITDA of the sector, EUR 1.481 billion. Quite resilient compared with the previous year. It was EUR 1.59 billion. We made a lot of CapEx in Interior Solutions, in particular with the gypsum plant in the U.S., and we completed also a gypsum plant in Russia and in China. On Exterior Solutions, we had some projects worth mentioning in mortars in Indonesia, Brazil, Russia, mainly focused therefore on the emerging countries. Building Distribution next. You see the trend in revenues over the year, down 2%, especially -3.2% in the second half, penalized by a slowdown in our trading in Sweden, and towards the very end of the year, in Germany also, compared with the first half. That is because of the weather conditions in December. For the whole of the year, we were quite resilient. In France, we were slightly negative. The Nordic countries, and Germany, in the positive. The U.K. remains difficult, however, and Italy and Spain are small in our portfolio now. They represent less than 3% of our total sales revenues. They are between -15% and -20%. Growth in the U.S. and Latin America to be reported. There is a bigger drop in the second half, as you see reflected in our operating income, because the margin in the sector was 4% for the whole of the year, for the full year. 4% in the second half, and the gross margin remained stable throughout the year compared to the previous year. If we take the whole year, the drop in volume, standing at -3.7%, was offset by the cost-cutting measures taken. The EBITDA, EUR 1 billion and 35 million. That is quite a lot down compared to the previous year. Well, it is down a bit, but not hugely, rather. Sorry, the interpreter corrects. You see there is a slight difference, but not huge. It is fairly steady. The increase in revenues and packaging, +3.5% for the whole year, sped up in the second half, +3.9% for H2. In the 3.9%, the main contribution is from price, +3.1%, but the price of 3.1% is not sufficient to offset the raw materials and energy price hikes. In the glass-making industry, of course, the cost of commodities and energy went up substantially. The volumes came out at 0.4% for the whole year, and mainly fueled by South America and Brazil. If you look at Europe, clearly France was very resilient and put in a robust performance for all of 2012. What was more difficult in Europe was the southern part of Europe with the drop in consumption in Spain and in Portugal. In terms of our operating income, the differential between the price and the increase in cost I mentioned earlier, and the more difficult situation in Spain and Italy that traditionally were good contributors to our group's results, all of that brought the margin down a bit, slightly. You can see the figure of EUR 207 million to be compared pretty favorably with the figures we had in the previous year or years. Cash generation in the group, in packagings, it has always been good. EUR 375 million, as you see here. Now, geography by geography. You see this is the same kind of presentation I made earlier from a different perspective, by revenue and by industrial assets. It is just to show you the share of Asia and the emerging world in our industrial asset base. They will continue to grow. They now represent 33% of our industrial assets, and they have now passed out the other Western European countries you see in the green here. If you take a different perspective, which is Innovative Materials and Construction Products, which have been developing in Asia and the emerging world quite a lot in the last few years. Emerging countries, 43% in this business line. It went beyond the European share, so it's passed out Europe, Western Europe. Innovative products and Construction Products represent that figure now. So it's growing in the emerging world, 43%. Internally, let's take the internal perspective. Here you see organic growth then by geographical area. Group wide down 1.9%, but in France we were fairly robust. We showed quite a lot of resilience. It would have been better if we took account of the fact that in France we include our piping businesses for export markets. That is exports towards the Mid East, for example, which given the Arab Spring events, those export streams went down to an all-time low. So all told, the performance put in here by France was quite decent. The trend in other Western European countries, minus 4.3%, affected in particular by the Southern European countries and 3% of our total revenues, as I said. When I quote that figure, I just like to point out that the bulk of our business in that part of Europe is in Packaging. A drop of minus 4% in the U.K. In Germany, we were handicapped by our Flat Glass business volume. Asia and the emerging countries were rather stable, minus 0.1%. Growth in Latin America, especially driven by Mexico and Argentina. Brazil, in 2012, it was a bit more difficult, and now they seem to be picking up in the start of 2013. Asia, you'll see dropping by 6%, connected with the difficulty in our Flat Glass and piping businesses in China, Southeast Asia. Those countries grew quite a lot over the period, as you can see in Eastern Europe, minus 0.4%. North America, plus 2.3%. The comparison basis effects that we had in the previous year, in 2011, I mentioned that earlier. The Exterior Solutions in the U.S., of course, had a big comparison base in the previous period. So obviously that's what penalizes here. EBITDA for geographical areas in France and the European countries going down, especially because of our Flat Glass and piping businesses. Asia and the emerging world for Flat Glass, in particular in Latin America and China, Korea, and growth in our profitability in North America. In spite of the comparison base for the Exterior Solutions in the U.S., given the improvement of our profitability, we made a mark here with High-Performance Materials and with our Interior Solutions business. The EBITDA and CapEx by geographical area. We've got that next. This is a different way of looking at what I showed you a short while ago regarding the highly selective nature of our CapEx, the priority we grant to high growth areas. You see here Europe and France, where we're investing less than 2.5% of our total revenues, and that reflects just a bit more than our maintenance CapEx really. However, the priority is granted to investments in North America, but especially the emerging markets. EUR 724 million for the whole year, 41% of our total investment spent in CapEx. Just to give you a few examples on the U.S. and the emerging world. You see in Flat Glass, new Eurofloat lines in Brazil, India and Colombia. Plasterboard in China and Russia. Mortars in Brazil. I mentioned the mortar plants in Brazil earlier, but that was done elsewhere as well. We have plasterboard facilities in China and so on and so forth. In the U.S., two sophisticated state-of-the-art new plants were set up. Roxboro Plasterboard and then asphalt roofing shingles in a plant in the Midwest in the U.S. We're bolstering the group's strategic positions as you see them in these markets and these business lines in Asia and the emerging world, but also when the time is right, in the United States. Let me just focus on the strategy now. The Saint-Gobain strategy, which is really fully part of the vision which we've been developing over the past few years, saying that Saint-Gobain is to be the number one reference in sustainable habitat. We have to face up to the challenges of our time, managing growth in these emerging countries, having to contend with development of energy, for example, and preserving the environment. The medium term vision which we have is a very buoyant, profitable one and more than ever, Saint-Gobain is sticking to its strategy. Let me outline four or the four points which are at the heart of the implementation of our strategy. First of all, with the disposal of Verallia in the U.S., we're refocusing on habitat. Secondly, we are constantly adapting to the economic context, bearing in mind that we must impose a financial rigor, discipline, wanting to improve our profitability. Finally, I'd like to come back to the two driving forces for economic growth of the group. That is to say our position on high added value markets in habitat and working particularly on high added value Products are part of our DNA. Then we want to develop our position in the emerging countries. This is over and above the ups and downs of the difficult economic context and the problems that we've had on some of our markets in 2012, but which I believe, nevertheless, will not continue for that long and we'll be able to overcome them. If we talk, first of all, about the refocusing on habitat with the disposal of Verallia in North America. This is something that we launched over a month ago. This is a very good financial operation for us with a multiple which is significantly above what we've had in recent transactions, and even above the top figures which we imagined or had calculated when we launched this operation, the IPO, two years ago. The capital gain was significant, standing around EUR 500 million after tax. It was a very good financial operation because we did this very well, just at the right moment with Verallia bringing in all-time high results in the U.S. This is an activity which has suffered for many years, and we really turned it around very successfully over many years. I think the timing of the operation was excellent. This is an operation which has a real industrial sense to it, which meant that we got a very good price, and we managed to, as I said, bring in a very good result. This operation was fully in line with our strategy. We are very clear about our strategy. We have demonstrated that we do all this, or we carry this operation out in very good conditions. You can see that, as I said, we did this just at the right time. We are refocusing on habitat, which means that we have been able to strengthen the group's balance sheet because this has translated overall into a reduction in net debt of EUR 1 billion. I think that this operation too has allowed us to preserve over and above the geographical region of the U.S. You know that the U.S. was a market where we had the weakest positions. Nevertheless, Verallia has remained a global entity, leader on the market, bringing in high levels of cash. We are sticking to our schedule, to our targets. We will execute the whole operation when the right time comes. I am not in any terrible rush to do this given the financial conditions which are ahead of us for 2013. Second strategic thrust I want to talk about is constantly adapting to the economic climate. Given that climate, we have to adapt very swiftly and very strongly to ups and downs on our markets while maintaining strict financial discipline. We have done all this, of course, over the past years. If you look over the past 20 years, what we have done, we have always been capable of pushing our prices up when there has been falloffs in volume, with the exception of 2009, 2012 for Flat Glass as well. Overall, I have to say we have always given priority to, and will continue to do this, to pushing up our sales prices. We will too be continuing to focus very heavily on cost savings. Here, we will be stepping up once again the cost savings plan, which I outlined to you back in June. All these decisions which we take, whether we are talking about industrial investments or the disposals of which we are carrying out, whether we are talking about restructuring plans as well. Here we have very strict criteria, as I said, and all these acquisitions as well. Capital allocation decisions, these are longstanding decisions, well thought out, and as I said, we do this in very strict financial conditions. Very strict financial discipline, which we impose on ourselves. We are also stepping up the cost savings programs. I have just said that. The programs of which we launched last May, I talked about this in July. The aim here is for a full year for 2013 on the basis of the 2011 cost base is to make a saving of EUR 512 million in 2012 over 2011. We hit the figure of EUR 520 million. Therefore, this program has been speeded up and developed, expanded even further given the continued reduction in volume. Over the total of the 2 years, the figure will come to EUR 1.1 billion savings in costs. The figure for 2013 is going to be standing at EUR 580 million target in cost savings. A few points about how this program is applied. It covers all our activities, all our sectors, focusing particularly on Innovative Materials and on the Flat Glass Construction Products, therefore, a considerable focus on the piping activities. It also concerns distribution. There, given the falloff in volumes, we've had to adapt to the market there. Then Packaging too, which covers particularly southern European countries. If I look at this plan in terms of types of costs, we have continued to make savings on overheads. An extra step in this plan after having pooled departments and activities. We've got an extra source of savings, which is the support activities, IT, HR, and finance. We'll be continuing to work on purchases, the cost of buying equipment, energy, raw materials, and we've identified the new sources of savings by pooling the purchases, which up until now had been decentralized with further continuing of our sourcing policies in the lowest cost countries. We're developing this program, and we're extending it and amplifying it. We're also making significant operating cost savings, working on the WCM. Given the fact that as part of the activity reduction plans, we have to tailor our reduction plans to the prospects of recovery in different countries. Therefore, these structural reduction plans are bigger in certain countries, Spain, for example, than in others where we may feel or we identify a momentary dip, but prospects of a speedy recovery. Let me come back to what I was saying just now on Flat Glass. We have stopped a certain number of activities, quite significantly, representing 20% of float lines both in Europe and outside Europe. These stoppages started to be translated into a price increase in the autumn. Given the seasonal variations that we have on this market, we're looking forward to prices. Given the fact that we're moving into better weather, we hope that prices will be moving into an upward trend on these markets. As for Sekurit, this is for the automotive market. They cut back on production capacity in Europe. In China and Mexico, we have had a significant improvement in demand there, but we've had to adjust mainly to downturns on the market in Europe. We've also activities upstream of the automotive market. We had to close a certain number of sites there, and we're constantly adapting to the ever-changing situation. Given the collapse of prices on the solar activities, we've had a considerable increase in production capacity on the market both in China and the fact that the Chinese players have accepted significant levels or colossal levels of cash losses, and therefore the solar business has very depressed prices. Our targets are not going to be met on that for the moment. What we see for the Avancis future plants in Germany, we believe that they have considerable prospects for the future, but for the moment, we're not developing this activity at the moment. We're really reducing solar business activity overall. We've frozen all new investments. This is for 2013. There'll be far fewer new investments for 2013. We'll be continuing to invest in what we started in 2012. There's a new float line starting up in Colombia very soon. We believe that Colombia is a buoyant company. We have worked too, specifically on cutbacks on inventory and worked also on the operating WCRs. By cutting back on inventory, we'll be able to push prices up. We've talked about Flat Glass, but we have other activities, as you well know, and we're focusing particularly on the Southern European countries. In Spain, in the construction of business activities are not going to be recovering in the short term to what they were in the past, not for a while at any rate. We've had to close down 19 Building Distribution outlets. This was in Spain. In other European countries for 2012, we've had headcount adjustments, reorganization, and so on. For Asian emerging countries, restructuring of capacity adjustments and so on, staff reductions, as you can see from the slide. Let's go on to the growth drivers. The first one, very clearly, is the group's position on the high added value solutions for the habitat market. The group is lucky enough to be well-positioned on solutions which are growing faster than the underlying markets. In the developed countries and of course, in the emerging countries, these underlying markets are developing fast, but our activities are developing even faster. Having said this, over the medium term, of course, the construction market, the underlying market is currently, given its overall medium-term trend, is in a dip, as you can see from the right-hand graph. But over the medium term, we are looking forward to strong growth. Our markets in this sector and our position as the Saint-Gobain group is drawn by the energy efficiency market, where there's rapid expansion both in developed and emerging countries, and energy prices will be developing, going up. In Europe, there are purchasing sustainable policies for procurement policies in the public and private sectors. We believe overall that the habitat market is the one which is going to be developing strongly in the medium term, both in the emerging countries and the developed countries. Can I illustrate the effectiveness of our policy on the French market, which is currently boosted by the implementation on the 1st of January of the new thermal energy policies. You've got three columns for 2000 and 2012. You've got the Isover underlying market. This is one of our estimations. This is a market which is slightly above the construction market. In terms of insulation, generally, things are going well. The green column is an indicator for thermal renovation. Then you've got the Isover sales. Basically, you can see the impact of the 2012 thermal regulations which are coming in. Quite a significant impact there. You can see that even for 2012, in a construction market, which was relatively flat for Isover, and the construction market was negative, nevertheless, we're continuing to develop a pace. If we look at the group's position on high added-value markets, we've got quite a few advantages which set us apart from a lot of competitors. We've got a high level of technological content, and one of our major forces is our R&D. We have great products, great solutions. We have a great combination of these two, I would say, relatively unique on the market. We also have great associated services and availability of product. Then we've got great visibility on our brand names. Thanks to all this, I think that we can ensure that our offer stands out from those of our competitors. Look at R&D. We're making considerable efforts there. We want to push up the proportion of new product. You can see this indicator, which we've been showing you for less than 5 years now. You can see that the figures were coming to new products representing close to a quarter of the total group sales. We've launched a new generation of unleaded mirrors in order to better preserve the environment with excellent optical qualities. We've also got windscreens which heat up in winter and better manage the sun rays in the summer. On the left-hand side, you've got high-quality triple glass glazing developing strongly in Germany. You've also got the new paints and textiles, which have environmentally friendly qualities. We've got sheet plasterboard with high acoustic qualities, an example of synergies in R&D. We've launched this on the new hospital build market, and we're now working on buildings for public authorities, collective buildings, as it were, and schools. We're strengthening glass fiber markets with new products coming out there offering better fire resistance and damp resistance as well. These are just a few examples of the kind of products which we've launched, and this is one of the key things which we do in the group. So great technical content, but across-the-board offering as well. This is one of the key characteristics of Saint-Gobain. As I said, R&D is very much pushed by what's happening locally. We're working for these local markets with greater communication between the central R&D departments and the more local-based markets. All of this bearing in mind the organization which we've set up. It's a very lightweight organization. It's not an extra layer of administration. All this is set up existing in 23 countries overall. We have a new program called Multi Comfort. We're talking about thermal and acoustic and air quality comfort, visual comfort as well. With scalable comfort, bringing together a whole series of offers from different activities, and this is one of the key things we're working on for the future. Second major growth driver, which is specific to a certain number of countries, is speeding up development in Asia and the emerging countries. If we look at sales and the industrial assets, you can see already there's a big gap between the two, which demonstrates that sales progressively are more and more in line with the assets. Sales in the emerging countries, in particular, for Innovative Materials and Building Materials, which are really the main part of what we do in developing countries, 34% of sales. This is up on the previous year, even though last year we didn't go up as much as we wanted because of ahead Forex impact. 43% of industrial assets, and you can see the changes between 2010 and 2012. As Laurent said, the emerging countries are high-growth countries, and they represent, for the Innovative Materials, a bigger percentage than Western Europe. The priorities for this development, you can see that despite the major focus we're making on the new markets and emerging countries, of course, priorities are slightly different depending on the different activities. Flat Glass. You know that the emerging countries have higher added value products. So we are increasingly moving to the upper end of the market products. This is for Flat Glass. High-Performance Materials. We're working Asia, China, India, and we're working to partner better with our industrial customers. Sekurit, for example. For Construction Products, the priorities are specific to Russia, Southeast Asia, and the Middle East. There we have worked very hard on acquisitions and investments last year. Of course, we're consolidating our leadership in Brazil and in Central America. Just a few points about the implementation of our strategy with a strategic direction and policy which we are sticking to. Let me come to the final point, which is the outlook for 2013. So in terms of the business cycle, we're not expecting the economic climate to become very conducive in Western Europe for the moment. We think the slowdown will continue, especially in the automotive sector. There is great uncertainty still hanging over the construction markets, with great disparities from one country to another. But as I've shown with the example of France, we think we'll have the support of thermal renovation programs in quite a lot of countries. In North America, we have seen taking off after several years at, more or less, all-time low for residential housing starts. But it got off the ground again in 2012, and we hope this will continue in 2013. It should pick up pace and industrial output should remain at a good level, driven by CapEx running at a high level in the U.S. in the last 18 months. Asia and the emerging countries. Brazil and China were very disappointing among our markets in 2012. I think that in China, as there's a new political authority now, there are new politicians in charge of the country, economically should pick up for us in 2013 in China, too. Brazil should also pick up a bit in the coming year, we think. India, they're slowed down and will probably still be slowed down, at least in the first half of this year. Eastern Europe is fairly marked by what's happening in Western Europe, apart from the positive momentum we see in Russia. So by and large, we can say that in terms of the business volume, the second half should be better than the first half of this year of 2013 in North America and in the emerging countries. So what does this boil down to for our group's business lines? It means that Flat Glass should gradually see its business volume and profitability improving. Not in the start of the year, but probably sometime in the course of the year. High-Performance Materials. The trading and operating margin should remain fairly upbeat. But given the momentum we have in the different sectors, the mix won't be very favorable in 2013 as it was in 2012, and it should be reflected in a slight dip in the operating margin compared to 2012. Construction Products. Good momentum in both Americas, that is North and South America. Lack of visibility, however, in both Western and Eastern Europe, even though regulations should help us to shore up the energy efficiency market. The situation should remain challenging in Asia, particularly for pipes. Even though it should pick up slowly but surely. The price-cost spread should improve compared with 2012, we think, in the Construction Products market. Building Distribution. The trading levels should stabilize overall, but there would be great disparities, we think, from one country to another. The operating margin, as you saw in the second half, it's usually better than in the first half. But the operating margin should hold up well. Packaging, Verallia. Well, we should see a continuation of moderate organic growth and healthy profitability there. Priorities for 2013. In line with our priorities strategically, too, in the medium term. Priority focus on sales prices, as I said, with the aim of passing on the raw material price hikes and the energy cost increases. New cost-cutting measures. Cumulative cost savings, as you see, that we hope to achieve. We'll be keeping a close watch on our cash management and our financial strength, of course. Pursuing targeted development of our key growth drivers. That's energy efficiency, Asia and the emerging countries, and consolidation in Construction Products and the Building Distribution sector. When you combine those three thrusts, you should achieve a good performance by selective development of those growth drivers that is. So sustained R&D efforts as two. The whole lot falling down to hopefully the operating income recovering in the second half after bottoming out between mid-2012 and mid-2013. High level of free cash flow, thanks to an additional reduction in our capital expenditure to the tune of EUR 200 million. A robust balance sheet strengthened by the disposal of Verallia North America when that's completed. That's what we anticipate for 2013. It'll be a difficult year ahead of us. The dividend payout, while the board decided yesterday to propose to the AGM on the 6th of June this year, that the dividend payout should remain the same. It's a sign of confidence in the company. If you look at the payout ratio compared with the net recurring income, it's a payout ratio of 58%. That's a yield of 3.8%. So that'll be proposed in the form of stock or in cash at the shareholder's discretion. You've got the timetable of upcoming events. In a difficult business climate, we think that the group has proven its ability to react, to be responsive, to anticipate as far as we can. We're a sound group with a well-balanced business portfolio and a good geographical mix. We've got top-ranking positions in all of our business lines. Also, as I intimated, we will remain at all times attentive to the trend in our costs with a program. This will be my priority this year. The implementation of this program, I've announced it, but we have to then, of course, make sure it pans out and filters down so we will have a stronger balance sheet and maintain strict financial discipline. That concludes what we had to say. We will now field questions if you like. Perhaps we'll take questions from the room first, then we'll take people on the internet. Firstly, people in the room with the question. You'll be given a microphone. Yeah. Good morning. It's Paul Roger from Exane BNP. Just a few questions. Firstly, what are the key drivers you're expecting to result in better profitability and profit growth in the second half of 2013? To what extent will that depend on cost-cutting and a further increase in Flat Glass pricing? That's the first one. Secondly, can you provide visibility on the phasing of the EUR 580 million of cost-cutting in 2013, and also the costs associated with that in terms of exceptionals? Then thirdly, on working capital. Looking on slide 19. Previously, when you've done a good job of cutting working capital, it's been followed by a bit of a reversal the following year. I suppose my question is to what extent the reduction in working capital is structural, or should we expect a bit of an outflow again in 2013? Thank you. The interpreter apologizes. We don't have the microphone for Mr. de Chalendar. His microphone isn't switched on. We can't hear his answer. The interpreter apologize. We can't translate the answer because we haven't got sound input to translate Mr. de Chalendar. We apologize, we can't hear him. Ah, thank you. No, the microphone wasn't on. Could somebody tell Mr. de Chalendar his microphone wasn't on, please? Thank you. We can't hear him in the booth. Perhaps you can hear him, but we haven't got the sound input here in the booth. His microphone just has been switched off for some reason. Sorry about that. Ah, now it's on. Thank you. We have him now. Yes, thank you. It's come back on. Sorry, there was a technical hitch. I was going to answer your first question first, then your third question, and Laurent will answer your second one. Regarding question number 3. You referred to the slide we showed on page 19, indeed. I don't read it the same way as you do. The working capital requirement for the last 10 years has been going down constantly. There was just a year when it went up by 3 days. It wasn't as if it's up and down the whole time, no. I think our efforts are really structural here. We're running at a level that's structurally low. I think our aim is to remain close to that level, because we've gone beyond what we'd intimated previously for 2015. Regarding the turnaround of the group's results in the second half of this year, 2013. Let's be clear about that. This turnaround will take place in respect of the second half of 2012 and the first half of 2013. I mean, compared to those. In other words, the two reasons you mentioned are important reasons. I think we're running at an all-time low in terms of the price of Flat Glass. Look at the investments that you place in capacity building. We're expecting an upswing for Flat Glass prices. We're not happy with our results in Flat Glass, but that's meager consolation. If we look at the competition, our results are nonetheless better than the competition, and it means basically that they're losing more money than we are really. The Flat Glass prices are not at a level that's here to stay, no. Secondly, what you mentioned as being self-help, the cost-cutting measures that are being ramped up. They will have a gradually further reaching impact as the year goes on. In certain countries, as I said, Asia and the emerging countries in general and North America, the business cycle will, in our opinion, be gradually more conducive as the year wears on. In Europe, however, we have less visibility at this point. On the second question, however, I'll hand over to Laurent. I'd just like to add, says Laurent, some points to build on what Pierre-André said. As we said, there was an improvement on the receivables side and on the inventory side, structurally speaking. The efforts we put in are exceptional efforts. In terms of the duration, but the bulk of the drop was structural. To answer your first question, just to build on what Pierre-André said, our activities, our business in the emerging countries suffered a little bit in 2012. A lot, says Mr. de Chalendar. Yes. They suffered. Our businesses suffered in those areas. If you look at Flat Glass as it trended in Q3 and Q4, there was an improvement, a substantial improvement in those countries in the second half, in other words. Also, our business volume improved in the U.S. That gives us hope for the coming year. However, regarding the cost-cutting measures, you asked about that. To tell you a bit about the phasing of the cost-cutting program for the coming year. If I compare half year with half year, we have cost-cutting measures that would go up in the first half of this year compared with the second half of last year, to the tune of EUR 120 million. EUR 160 million will be the increase in the second half of 2013 compared to the first half of 2013. I hope that gives you an answer to your question on that. Thank you. I'm from Kepler. I have three questions, please. The first question has to do with cost cutting to the tune of EUR 1.1 billion in the coming 2 years. Could you tell us what would be proactive or permanent and what would be connected with volume drops? Will I ask my second question straight away? My second question concerns solar panels. You're depreciating EUR 310 million worth of assets. I was just wondering, this impairment of assets, what's the capital employed reflected there? From now on, what will be Saint-Gobain strategy on solar panels? Has it changed, or perhaps it hasn't changed? My third question has to do with restructuring costs for 2012. So as to institute these cost savings, to achieve these cost savings, could you give us a total? I think there are different lines of the P&L, and then there are one-shot items. There are different lines that might cover this. In the press release, it wasn't totally clear to me. What number should we add up, in other words? Could you tell us the total cost of the restructuring measures, of the cost-cutting measures? Thank you. I'll take your first question on the EUR 1.1 billion figure over 2 years. What's proactive? Everything is proactive. It's all proactive. Just to answer that. What's permanent and what's linked to volumes, then? A bit less than one half. It's difficult to spell it out, but a bit less than half would be permanent, and a bit more than one half would be connected with volumes. If the volumes pick up, of course, that would change. However, if we make the distinction volume or not volume, if you look at Spain, as we think that the drop in the volume is sustainable, it's permanent. That would be permanent there, even though it's linked to the volumes, if you follow me. The distinction isn't an easy one to make, but that would be a guesstimate. Half and half, roughly. A bit less than a half and a bit more than a half, let's say. Then on solar panels, impairment of EUR 310 million. Yes. We still have EUR 100 million worth or so of assets valued. When I say assets, they're assets that have been used for solar panels, but they could be used for something else. That's why we didn't impair that. It might be Eurofloat lines that we dedicated to solar panels at one point, but that we could use for something else, for Interior Solutions in the future, for example. We could reuse those assets to produce something else. Pierre-André. We impaired, by the way, all of the plant and equipment concerning Avancis. For the panel production, there was a big downturn, of course, in the sales conditions, the trading conditions for those panels. So we can't achieve profitability of our past investments like that. Our strategy is not to develop in solar panels, but regarding Avancis, we think we've got a technology that's really worthwhile that compares very favorably with the main technology. So we're going to continue leveraging what we have, what we started off in Germany. We didn't start up the Korean plant so as to be capable, when the time comes, of utilizing, tapping into this potential, this technology we have. But for the moment, we're not making additional CapEx in that area. We're keeping what we have, but we impaired those assets. Now, regarding our solar panel, solar glass activities, we stopped production China last May. Regarding Europe, we have a big drop. We intend to redeploy and are starting to redeploy those means of production towards other types of output. So overall, you can say it's overcapacity, but we hope to reuse, in part anyway, such capacity someday for solar glass panels. But we've seen a halving between 2012 and 2013. No, sorry, 2011. I said 2012. 2011, 2012, of course, of the solar panel production. Also, there was a big drop in the more specialized dedicated ceramics businesses in silicon carbide with the impairments we did in our Norwegian plant and in our Chinese plant. So, regarding the projects we contemplated in solar panels some years ago, we have tightened the reins quite a lot. We've curbed our plans. The restructuring costs, by the way, says Ms. Sugio, are all in the non-operating expenses. They're in there. They're part of that. The non-operating expenses. You've got the provisions for asbestos-related claims, for example. However, what you have in the other operating charges, expenses, it's all the impairments of assets, which sometimes are taking place just when we're doing restructuring, but they're non-cash items in the P&L because they're impairments for things to do with the past, really. When we close down a plant, you've got the cost for restructuring, and then you've got the fact that those assets are written down to zero, you see. Arnaud Palliez, Raymond James. Yes. I have three questions, if you don't mind. The first question has to do with the current trend in costs. I wanted to know what's the current status. Energy costs, soda costs. What are your projections for the full year of 2013 on that? My second question has to do with things that might get worse. You mentioned the areas where you expect improvement in the coming year. Conversely, we've seen for several months a dis-improvement in the construction sector indicators in Europe. Could that lead for you to bad news in 2013 for the group, do you think? The last point has to do with your selling prices. I have the impression that in Q4, the upswing in selling prices, their contribution to the revenues was fairly moderate, just about 1%, if my calculations are right. Is this the comparison basis effect, or what? I'd like to understand why it's that figure only, whereas it's a group priority. Laurent, would you like to answer? I'll answer the first and the last, says Laurent. On energy and raw materials for all of 2012, you've seen that we saw an increase in our energy and raw materials. Those around EUR 400 million. That figure we can confirm. For 2013, we think at the moment that the increase would be between EUR 300 million and EUR 350 million. A little bit less, therefore, but it's not a big turnaround because we're going to continue having cost price hikes for asphalt, also for gypsum and paper, and for glassmaking materials in general. Even though for energy, it'll be a lesser increase than in previous years. Also, you saw, as I intimated, I talked about the breakdown of industrial assets and our revenues in the industrial business lines that are moving more and more towards the emerging world. In those countries, inflation in raw materials costs and especially energy prices is running a bit higher than elsewhere. So gradually, as the emphasis shifts, so to speak, as we move towards those countries, I mean geographically, the energy and raw materials price hikes will become more substantial. So EUR 300 million to EUR 350 million we think for the year. That's our guesstimate. The other point you made regarding prices then. Well, quite clearly, prices went up less in the latter half of the year than the first half of the year. But that was also to do with the momentum we had in raw materials and energy. The upswing was higher in the first half than the second half. We managed to pass on the price hikes in the first half of the year, too. We don't know what will happen yet in 2013. Currently, we're implementing price hikes in our different business lines. We're raising our price. It's early days yet to know exactly where we're headed for the full year in 2013. But clearly the objective that's our group priority is to pass on the energy and commodity price hikes to our selling prices. It's a big priority for the group, as Pierre-André said earlier. Traditionally, you have more price hikes in the early part of the year than the rest of the year. But in 2011, we continued with the context of energy and raw materials price hikes that continued to increase as the year went on. 2012 in lots of our business lines, we didn't have those new price hikes. But there are lots of areas of business that will have price hikes in the last few weeks, and it will continue to happen in the coming few weeks. We cannot consider that the fourth quarter figure is really an indicator of what will happen this year. Now, I have not got the impression that I painted a rosy picture of the future, just to answer your question of what might disimprove. We are expecting progress in the U.S., so that is a fact. Asia and the emerging countries, as we said, it was relatively negative in our business lines, and that is all. But that is not something that holds true for all businesses in those countries. So in a way, there was like an air bubble or something for a while. In Europe, you know what the construction business is like in Europe. I am not particularly optimistic myself regarding this year in that part of the world. The housing starts in countries like France, for example, for several months have been running at a low ebb, so that is necessarily going to have an impact. Of course, it will have an impact on our business, even though we trade more in renovation than in housing starts. Also we are focused. Our business does better than the underlying market usually, but I am not expecting very pleasant surprises in certain European countries. That I must say. However, there are countries that have kept a good buoyancy, good momentum. In the U.K., for example, things were not going very well, but there seems to be natural optimism in the country that does not always reflect in sales, get translated into sales, but I continue hearing people being optimistic. So we are not expecting miracles, however, in the U.K. In Germany, things should do not too badly, we think. So it is true that for the construction markets as a whole, France in new housing starts, new builds, for example, in general, housing and other buildings, it should not be very good in 2030. Mike. Yes, Muriel Fellous, Société Générale. Four questions, please. First question on Interior Solutions. While your sales figure there has held up pretty well for the whole of 2012, if you look at the margin, that does not translate this relatively decent performance. Can you explain, therefore, the difference that you have in activity levels from one geographical zone to the other? Second question concerns the integration of the Wolseley activities assets. What about synergies? How are you doing on that? Third question concerns prices and could you give, for 2013, indications of the sectors where you think prices will be going up? Fourth question, I would like to know if one consider that the margin High-Performance Materials in H2 2012 is any indication of future trends for 2013. All right. Interior Solutions, you will answer on that? Yes. I beg your pardon, says the speaker. All right. Interior Solutions. We don't give the breakdown of the contribution of the operating income per geographical zone. To explain the trends in results from one year to another, quite clearly, there are two factors which have had a negative impact and other two with a positive impact. Volumes have improved. But as I also said, the cost of raw materials and energy in this activity are very largely linked to the fact that we're talking about glass, and therefore there are major costs which have not been passed on, in terms of the prices, particularly in Europe. Then in H2, we have cut back on stocks, which of course weighs on absorbing the fixed costs of the activity. Concerning integration in distribution, this is a new sector and Benoit will answer this. Yes, we're in line with the forecast. Things moved very quickly in the U.K. up until September. But we're keeping the Brossette name. There were several chapters in terms of synergy. First of all, in terms of purchasing, and most of this was done in 2012, but there'll be an impact for the whole of 2013. We've worked extensively on logistics in France, so this is underway. It'll take a little longer to the end of 2014. Thirdly, there's also work on the margin to be done because this activity for the U.K. and France had lower margins and profitability was roughly at zero. So we've got to improve profitability. This will take a little longer. In terms of figures, we're roughly halfway through the affair for 2012. There'll be extra calculated for 2013. On price increases, our intention, of course, is to introduce price increases across the board in all our sectors of activity. It's a little too early to say what actually will be done where. For the moment, things are going relatively well, more or less everywhere, apart from the first two months in Flat Glass because as you know, there the prices after the price increase, which we— I'm talking about Europe here. Between September and November, there the price increases were annulled between December and January, which are weaker months and it's more difficult to pass on price increases. In fact, prices went down slightly. We progressively want to introduce more price increases from March onwards. It's a little difficult to say if things will go well or not, but capacities have been reduced. Inventory in Saint-Gobain are at low levels. I'm not sure that inventory levels went down as quickly as our competitors thought. But since they announced and they actually implemented a whole series of capacity reduction measures, well, I think overall things will improve. For the moment, definitive timelines have not been set on these points. After that, the High-Performance Materials, HPM, we don't give any specific indications on this for 2013, but I can give you examples of roughly where we're going. As Pierre-André said very clearly, the ceramics activity, which does contribute quite a lot, ceramics should be having a more difficult year in 2013. However, this is an activity which is very exposed in emerging countries and the U.S. 35% in emerging countries, 40% in the U.S.A., and the non-ceramic part of these activities should profit from a better situation overall. Last year, Q3 was very negative, particularly in terms of total volumes. But we think that Q3 for this year should be relatively favorable. I know I haven't answered your question fully, but at least you've got some indications of overall trends and what will be happening on the market in terms of HPM with the overall, I would say, underlying favorable elements kicking in. A few questions as well. Firstly, could you indicate actually, particularly in your opinion, HPM, how much capacity you've actually closed, how much you've taken out, or give us some indication just as a steer. Secondly, the outlook for Pipe, I thought last time you spoke, appeared to be getting a bit better, but seems to have deteriorated again. Maybe I misunderstood that, but could you just give us a bit more detail on what's happened there? And just two quick financial questions. For Verallia, I thought you were getting EUR 1.275 billion for, and you're using a pro forma debt adjustment of EUR 1 billion. Am I wrong there or is that tax, or are the bankers charging a lot? No. And then just on pensions, it was somewhat confusing on the translation, the finance cost implication. Sure. There was a number of 100, a number of 150. Okay. Could you explain again what they are? Thanks. Laurent, On the last two questions, the difference between the reduction debt and the price we received. The deficit, which we pass on to the seller, which, of course, is an important part of the price. It's not cash, but it gives us, at the end of the day, a reduction. That's a difference that you have in the difference in the figures which you identified. On the question of the new accounting standards and accounting for the activities, we've got a translation of EUR 100 million of reduction in our net income. On High-Performance Materials, we haven't cut back on capacity significantly, apart from a few specific activities in solar and everything linked to ceramics. As for the rest, as I said, it was really depending on the economic situation. There's not any major significant reduction in capacity, practically none in plastics or abrasives, apart from activities being shifted from one country to another. This is not a significant element in the High-Performance Materials. As for the situation in piping, perhaps Claude could talk about that. If we look back on 2012, the outstanding points were the reduction in the levels of demand on the national markets, budgetary restrictions. 2013, nothing to look forward to, really. We have cut back on production levels. We cut back on manpower as well. Pierre-André talked about China. 2012 was characterized by a significant reduction in financing from local authorities, governmental authorities, who were waiting for the introduction of the new government. So after the festivities of the Chinese New Year, we think things will become clearer at any rate. The third very important point, for Pipes, for Europe, and for China. On major export markets, particularly for the Middle East, there are a lot of orders which we are involved in. The shockwave of the Arab Spring has really upset the decision-making processes at governmental level. We haven't lost any business, and we certainly hope that a certain number of contracts will be signed in 2013. These are things which, when we get the irrevocable letter of credit and so on. It all takes a certain amount of time. All right. Thank you. We're done, because 50 then is a pre-tax number, is it? Yeah. Okay. Then the final follow-up question, you put that nice chart showing GDP, Saint-Gobain markets. It's a lot of years on there. What do you reckon is the normal lag on average between GDP improving and Saint-Gobain's businesses improving? Are we talking three, six, or 12 months? This graph was not for Saint-Gobain. We're talking about the whole of the construction market there. I think you're talking about the graph on. Which page was it? Can you just tell us, please? Page 51? Are you talking about page 51? Yeah. What I wanted to show on that page was you've got the construction market over time, and they can be de-correlated from the general economic situation over a certain period of time. They may be going upwards or downwards. There may be an artificial bump or whatever. At the moment, we're in the opposite situation. This can take a certain amount of time, and it's difficult to forecast. In the U.S., for example, we had four years, four years, of when the new projects were at a level of a third of what they had been over the previous years. That was a very, very long and strong dip. If you take the long-term prospects of the construction market, it is rather more dynamic than the general economic activity as a whole over the long term. The underlying market of Saint-Gobain, we're better positioned on that. It grows a little better than the overall economic context, but there can be a de-correlation for a certain number of years. I can't tell you how long this will last. That's quite understandable. It's quite understandable this can last a certain number of years because decisions are taken which completely change the situation. The time for the decision to kick in, for the consequences to be felt, and so on. It's very difficult to calculate how long these dips and de-correlations will last. Hello. Caroline from the Crédit Agricole. Got a question on the fine imposed by the European Commission on your Flat Glass activity back in 2008. Do you have any indication of a reduction of the amount of that fine? Can you give us any indications, information about that? Then if you had to pay part of this fine, what measures will you take in order to offset the negative impacts of this fine on your debt levels? I didn't quite understand the second part of your question, says the speaker. However, the first question concerns what's new on the fine front. The court has allowed us to plead our case. The case has been presented before the court. What period of time we're talking about, I don't know. Probably less than a year, but a judgment or ruling will be given probably in the course of the next 12 months. We're not contesting the facts, but we believe that the decision of the Commission is a disproportionate and exaggerated one. I have no indication of whether our arguments will be heard or whether they'll fall on deaf ears. If I've understood the second part of your question properly, there's the fact that the Commission might admit they've made a miscalculation, but this has nothing in common with what we're contesting with the court. Two different things there. I think we're really talking about a minor miscalculation on the part of the Commission, which has nothing to do with the case in hand. I don't quite understand really what you're driving at in the second part of your question. I don't know the amount of the fine we'll have to pay. I don't know if it'll be significantly lesser than the ruling of the Commission. But if we've got to pay the fine, then we will. And of course, this will increase our debt levels of when we have to pay up. But this is part and parcel of managing our finances. Yes, another question from the back. Yes. Could I ask two questions, please? The first one is I'd like to come back for a second on the solar glass. If I've understood you properly, you have said that investment in this sector was roughly EUR 400 million, and that you will be impairing EUR 300 million, and there would be roughly EUR 100 million left on your balance sheet. No, that's not right. Yes, it is. Let me just correct you on one point. The EUR 100 million of investment which is not impaired is investment which has not been made significant, particularly in the solar sector. Okay. So you have impaired, in fact, mainly all of your solar activities. Yes, basically is the answer. If we look back in time over the past three or four years, for those of us who have kept track of this sector, we've seen a whole wave of producers emerging, particularly in China, Germany, U.S.A. At the same time, however, remuneration or payment or return on investment, put it that way, was uncertain because it depended very largely on decisions by governments. Did Saint-Gobain consider that there was a real future to this solar activity? You have cut back on your solar activities. We know that there were mistakes made in appreciating the potential of the European market, particularly compared with other countries. Saint-Gobain has always had very close relations with Germany, could perhaps have shared in Germany's vision of things, and perhaps reacted a little more quickly to what was happening on the solar market and perhaps developed more outside of Europe. Second question is a more positive one related to the situation in the United States. What was the real impact of what you call the residential automotive crisis, which lasted for five or six years and was very deep-reaching crisis, hitting capital goods and so on. How has this weighed on your results in the U.S. compared with other markets? You don't just sell on the residential market. Another interesting question to ask here is the fact that after this very negative phase, which lasted five to six years, specialists think that we could be moving into, or we could move into a very positive phase for the next few years, which would mean that your earnings in the U.S. over the next three, four years could go up very sharply. How do you see, or do you share in that view? First of all, I don't share in your opinion on the automotive market. I think that Saint-Gobain, over the past 15 years, has not carried out any investment in capacity in the automotive sector in Western Europe. All the expansion we've had has been in emerging countries, which represent now 40%-45% of our overall capacity. I don't actually share in what you said. If we cut back on capacity, then we have to do this in line with what the car makers are doing. We're there to serve them. So we reduce capacity after they reduce capacity. I don't share in your feelings on this. We can anticipate what's going to happen, but so long as car makers are making cars, then we have to provide our services. Let me just say that we are heavily involved with car making in Germany. We, traditionally speaking, are better positioned on the higher end of the range products. I don't really share in your analysis of the car market and the automotive one. On the solar panels, why did we get involved in solar panels to start with? Well, this was because solar panels need to be protected by a layer of glass which lets through the sun's rays so that the sensor can capture the rays, and it's a question of effective protection. So we were asked to produce this kind of glass, and we changed, therefore, a certain number of production lines because of this. This was the attractive point to start with. I don't think that we made any strategic mistake in answering this or meeting this demand. What's going to happen now? Well, demand for these panels is no longer positioned in Europe. In fact, they're no longer made in Europe at all. They're made somewhere else. The glass has to be made where the solar panels are made. So we are changing our production lines, modifying them to produce something else. We simply follow trends. After that, you can say to yourself, with the events of technology, why did we get involved with that initially? Well, it was Shell that got involved in this proven technology. It's not a silicon layer, which I suppose, but it's thin layers which are posed on the glass. This is how it works. So Shell got in touch with us and wanted us to bring our expertise to Avancis, and the first pilot factory which we opened up brought in good results. So we launched the construction of two other plants at a time when there were major subsidies coming from governments in many European countries, and where, too, the price of the solar panels was very attractive. We anticipated there would be a reduction in the number of panels, but we didn't think that the price would fall by threefold. Now, it's not that demand has fallen off. Demand has kept buoyant. The Chinese industrial policy, which is largely subsidized by the Chinese government, has meant that there has been really an explosion in the traditional technologies which are based in China. All of this was after. Something I had not anticipated, but I wasn't the only one not to anticipate it, and it was only afterwards that our plants were launched and started up. I think that in any case, the solar market will continue to develop well. The reduction in the price of the panels, I don't know if this is a permanent phenomenon or not. Everybody's losing a lot of money, including the Chinese. The reduction in prices has meant that trying to make solar panels which are profitable is very difficult. There are some. Where are they profitable? Well, it's places where alternative energy sources are expensive and with a lot of sun. So we're not talking about Germany or France. I'm not saying that there will be niche markets in these countries, but one can imagine that in countries such as India, where electricity from traditional sources is very expensive, but there's a lot of sunshine. South of Italy as well. So you can see there's a real paradigm shift here in the field of the solar market, and we did not imagine that the prices would go down that much. If we had the prices today that we had thought, at the level we thought they would be, that is to say, the prices we thought we'd be having two years ago, then we'd be doing pretty well. Yes, it's true, we did not anticipate there would be such a falloff. The impairment of your assets, is that definitive? Given what we know today, I think the impairment of these assets is fully justified, and this is why we have done it. As you know, depreciation of intangible assets cannot be reversed. Tangible ones can. Things may change. We'll see. Yes, you did ask a third question, sorry, concerning the U.S. The construction business in the U.S. represents a percentage of our group's business, which is Well, I was happy it wasn't too high a couple of years ago. Now, when I look at the coming two years, we find that percentage a bit too low. Anyway, that's the way it is. It's about 6% or so, isn't it? 5%-6%, Laurent? With last year's figures, it might go up a bit more, but these are businesses where we have profit levels that varied a lot. They're business areas. Look at gypsum, for example, plasterboard in the U.S. That's a business line where we had a good level of profitability in 2006. We lost money during the recession, and it should bounce back in terms of profitability. It's a part of our revenues in Saint-Gobain that's not considerable. We'll see an improvement, and I did indicate we'll see an improvement this year, but it's on a par. It's big for that business, but it's on a par with the relative weight of those businesses in our group's total revenues. I'll move on perhaps at this point, as Mr. de Chalendar to the telephone questions. There are people on the telephone line with questions. Are there people on the telephone line with questions? Yes, we've got a question from Mr. Rafael Dad from Natixis. Thank you. Good morning. I've got a couple of questions. First one has to do with strategy. I regularly ask you this question now that the construction market for residential housing starts up in the U.S. is getting off the ground again. You mentioned 1.4, 1.5 million housing starts. What's your strategy in plaster then, in gypsum? I know you're small compared with the total market size. Is that position going to increase? You were giving thought to increasing it at one point or perhaps exiting. Now, what's your current strategy on that in the U.S., especially as there's a player up for sale. Second question then has to do with the 2013 earnings. If we say we're bottoming out right now, should we look at the second half operating income as being a working basis going forward, given that your cost-cutting measures will be incremental, EUR 400 million were mentioned for that? Is that a good rationale or am I wrong? Well, I think I'll answer the first question. My CFO will answer your second question. On plasterboard in the United States, I'd just like to say that what we did at one point when it wasn't easy, was build a new plant, and we did it last year. A fine plant in the United States with a cost price which is really worthwhile, which happened at the right time, really. So the timing was really right for our organic growth, and that's what we're fostering a lot at the moment, as you know. So regarding our market share and the fact that there may be players up for sale or have been up for sale. Investment decisions, CapEx decisions, acquisition decisions. It takes two to tango, as they say. You've got to have a meeting of the minds in terms of the price point to be agreed on. So those entities must meet up, and conditions aren't always conducive for that to happen, but we'll have to just wait and see. How things move forward in the United States. But we have criteria for profitability that are fairly substantial, as you know. If you look at the valuation of the companies in that area in terms of profitability, the numbers are running fairly high. So we attach importance to organic growth more than anything else at the moment. Regarding the other question, perhaps Laurent could answer your other question. Well, there are a couple of points in the question you asked, Citizen Guyot. On the trend in the earnings for the coming year, well, all I can say is what Pierre-André already said. That is, we will have a turnaround of our operating income in the second half, after a low point that will have been achieved sometime between the middle of 2012 and the middle of 2013. On the cost-cutting measures, we mentioned the EUR 120 million worth of additional cost-cutting measures between the first half of this year. Sorry, the second half of last year, I correct myself, and the first half of this year, and EUR 160 million between the first half of this year and the second half of this year, 2013. That should improve our results. We've got to take account of the evolution in terms of volumes, prices, energy and commodity prices, and so on. That will feed into the overall earnings. We've got a question in English on the telephone, please. Oui. We have a first question from Luis Prieto from Deutsche Bank. Please, sir, go ahead. Good morning. Luis Prieto from Deutsche Bank. I have three questions. Regarding your outlook for 2013, I'm not asking you for the likelihood, but can we rule out that operating income goes up year on year 2013 versus 2012? Your guidance leaves the door open to a decline or an increase? The second one, could you give us an idea of the capacity utilization in Flat Glass at the moment after your capacity shutdowns? Finally, the third question is if you could give us an idea of the current dimension of the solar glass business in terms of sales. Thank you. Mr. de Chalendar. Well, the first question, I think we were sufficiently precise, as precise as we can be. You've asked your question a different way, but the answer is the same to the previous question, I'm afraid. On the second question regarding the Flat Glass capacity, Jean-Pierre Floris might give you an answer on that. Given the closure of capacities that we did and the reduction in output that we made in 2012, we've been using kilns for the construction sector at a reasonably good rate. As Mr. de Chalendar said, depending on the business cycle, we'll adjust accordingly. The utilization rate will be good, but the capacity can be brought down if the market requirements requires to do that. When it comes to capacity, it's go, no go. When it's up and running, it's working 100%. It's a Eurofloat line more or Eurofloat line less. You cannot just tone down your output a little bit by a certain percentage. Either it is up and running, and it is running full steam, or not. Otherwise, on solar panels, the amount of sales in solar panels divided by 2, it is about EUR 250 million in 2012, which is a half of what it was in 2011. The next question. The next question from JP Morgan. Please, sir, go ahead. Please, sir, go ahead. Mr. Egon from JP Morgan, please go ahead. JP Morgan has disappeared. We have a next question. Perhaps he's not there anymore. Go ahead. Hi. Three questions if I could, please. The first relates to Flat Glass. Just coming back on the last question, would you be willing to give a number as to where you think capacity utilization is in the industry in Europe after the closures of last year, please? The second, just around France, really. Perhaps we could get some more details on your latest thoughts on France. The like-for-like decline has been easing over the second half. Is that a pipe effect mainly, or are you doing less badly underlying in that market? Are you taking share in distribution, for example? There has been quite a bit of talk about potential stimulus for the housing market in France in the French press over recent weeks. Do you have any opinion on that, please? Then finally, just on group volumes for 2013 against 2012. Are you willing to offer any view as to where you think the group volume picture might be versus the -3.6% you saw last year, or is it too early? Thank you. Okay. I think we've already answered on the utilization of our production capacity. However, we brought down our production capacity by 20%. So if you look at the size of the assets we have, the utilization ratio of our capacity is about 75, which doesn't make sense because our plant slows down. So shut down, and it takes a while to start them up again, Mr. de Chalendar. So the utilization ratio runs at about 90, I suppose, as it usually is. On France, I gave you quite a bit of information about that, I think, already. But there are measures that are being taken or may be taken by the French government authorities to spur on renovation and energy efficiency in buildings. But all that's going in the right direction as far as we're concerned. As some of you may have understood, I militate in favor of an extension of two types of solutions. Firstly, two types of solutions that don't cost too much money to the public authorities, because at the moment, the public authorities have much money to live on in many countries. In the U.K., there have been interesting experiments done. I don't know if the whole deal will work out very well in the U.K., but the principle underlying it is interesting as solutions go. With perhaps simpler systems, it might be good to take a leaf out of that book. But in quite a lot of cases, we should push forward the regulations for new builds, but also for older buildings, for renovation. I try to militate in favor of that, and we might have positive measures enacted in that domain. But in any case, it would only support, shore up what's already been done. Yesterday, some things were announced by the minister in France in charge of the ecology, going in the right direction. The statistics on the new build market aren't good. Are not good. So the French market won't be easy. You mentioned market share gains in distribution. Clearly, we did make market share gains in 2012, and our objective is to continue along those lines in 2013 as well. Regarding the volume of business in 2013. Well, I gave some positive and negative pieces of information. It's up to you to do the mathematics, I suppose. It depends on your own feeling. I haven't got any summary number to give you for the coming year in that regard. Are there any more telephone questions, please? The first one is in energy efficient products. The Isover volumes was helpful. Could you add what the insulation volumes were in the rest of Europe, and also provide any details on any other energy efficient product volumes last year? That's the first question. The second is regarding your outlook, and particularly in pipe, in ceramics, and in also Flat Glass. Do you see in your current order books, can you share any percentage reductions that you see in those order books? Thank you. Laurent? First question relates to insulation products and energy efficiency products. The rest of Europe were slightly negative given the overall situation in Europe, excluding France. I'm not sure I understood the second question properly. On piping, I think Claude Imauven answered that on the order book for ceramics. It's variable from one product line to another. Could you just give some extra information on that, Jean-Pierre? It's very difficult to make any forecast on this. There's a recovery in some sectors of ceramics, and in others things are slowing down. We've taken adjustment measures for some sectors of the market. For propane, for example, we think things will be improving, propane market. Car glass, we think that we'll be continuing on the lines of what happened in 2012 with a slowdown, given this market in Europe. A recovery on the emerging market with good news for Latin America, contrary to what we saw in 2012. All right. We move on to the internet question. Mr. Hankit sent his first question. "Can you clarify the impact of the IAS 19 on your net income? EUR 150 million." Pierre from Morgan Stanley. "What is the amount of the energy bill? What's the share of gas in this? And how have you seen, or what impact have the recent gas increases had on your activity?" All right. EUR 2 billion is the total energy bill. This was for 2012. We had a fall-off in volumes consumed. Share of gas, just under 50%. We don't have any hedging. On gas future trends for Europe, we're trending downwards. I'm not quite sure I understand the question. The gas bill is really staying flat, and we'll hedge depending on the seasonal fluctuations of energy prices. In the U.S., prices slightly up, but the absolute value price is low, and the hedging level is so high compared with the actual gas prices. It's something we can take a fresh look at regularly, but for the moment we're not hedging. "Do you think any more European production capacity in Flat Glass should be closed?" At the moment, no, but we're very attentive to this, and we're not excluding making further adjustments in the next few months given, or if our expected scenarios do not work out. So we're keeping a close eye on the situation. Next question, what was the cash impact of the restructuring costs? Costs of restructuring are, sorry, appear in the line other expenses, operating expenses. It is true that we have an accounting expense here, given the discrepancy in time between the time we book off this item and we see it in cash terms. There can be changes from one year to another, but these amounts have not really changed. The cash expense is not very different from the amount we booked off this year on this line, other non-operating costs and expenses. Another question, what explains the impact of negative cash on variations in fluctuations of four deferred tax? This line is mainly impacted in variation terms because of our contribution to the cash with the draws. Sorry, the whole impact of pensions. What is your position on rating? Our financial situation is relatively healthy, and in any case, it is up to the rating agencies to make up their mind about us. Madam La from Citigroup, your comments on expected improvement on EBITDA per geographical zone. Can you talk about that? I have not talked about this per geographical zone, and I will not. Can you expect any improvement in gypsum in the Americas? Yes. How do you expect to, or do you expect to keep your gross margin up for 2013? Answer, we are relatively confident, but it is a constant battle. Mr. Rosenberger, your guidance involves a stable operating income, stable or slightly down for 2013. Well, we have answered that question already. Have you noticed any further reductions in capacity in Flat Glass? Well, yes, we have seen just about everybody cutting back on production capacity from major Japanese competitors. The American competitor, Guardian, for example, has said that they are stopping a line in Luxembourg. Is a slow recovery in 2013 pushed by Latin America? No, I said that North America should be helping us. Finally, Mr. Robert Donald. You have commented on the sequential improvement of Eurofloat glasses since September 2012. Or could you comment on this? What is the spot price of four millimeters at the moment? What is the average price for 2012? Sorry, I do not want to give any misleading information on that. Well, I actually cannot answer that question. As Pierre-André said, there has been an increase in prices. This was September, October, and then the prices fell off again. Given the expected volumes for the next few months with capacity going down. Well, we do not have a uniform price. It is different from one country to another. It changes on the quantities we deliver, on the quality. We have got different price indicators for Flat Glass, but we do not have one single one. All right. Thank you very much. I would like to thank you for that. Can I say we look forward to seeing you for the publication of our revenue figures for Q1 on the 25th of April. Thank you very much.

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