Compagnie de Saint-Gobain S.A. (EPA:SGO)
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Oct 16, 2026, 5:39 PM CET
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Earnings Call: Q4 2010
Feb 25, 2011
On the usual basis, I'm going to go over the highlights for 2010. Laurent Guillot will go into a little more detail about our results for 2010. I will come back to speak to you and sum up our strategy as we laid it out for those of you who were here with us on the 15th of November. We'll look at the outlook and objectives for 2011. For 2010, you've seen the key figures in our press release. Our net sales have gone up by 6.2% at EUR 40 billion. Operating income has gone up by 41%. Our recurring net income has more than doubled at EUR 1.335 billion.
Our net income has also increased considerably because, of course, we started from a low point in 2009. Our free cash flow, which has gone beyond EUR 1.5 billion, we are at EUR 1.537 billion, +51%. Lastly, our net debt has decreased by 16% and stands now at EUR 7.1 billion. These very good results, because I consider that they are indeed very good, and I am extremely proud of the very hard work that was done by Saint-Gobain's teams this year. We have achieved these results in an overall economy, in a world economy that is still convalescent. The main market of Saint-Gobain, that is construction, was not very buoyant in 2010. We've had very strong growth in Asia and Latin America, in all our markets there.
We've also ensured that the markets linked to production and industrial investment will continue to grow in 2011 and have grown in 2010 in North America. But in North America, we also had a continuing weakness in construction with a sort of false start in the first quarter, which came down to a dip in the third quarter, and a very limp market in North America. In Europe now, of course, a recovery of our industrial markets there again, and a very, very progressive, gradual improvement in construction over the year with very strong contrasts from one country to another because some big countries, for example, the U.K. and Scandinavian countries and Germany, started moving upwards. France stopped slowing down in the second quarter. But many countries were still on a downward turn in 2010.
This is certainly going to be one of the important elements for 2011, we still have a very strong volatility in the costs of our inputs. In this context, we have actually exceeded all our objectives for operating income for which we had said that we would grow strongly. Of course, that didn't really mean much, but I did give you a little more detail in July when I told you that in the second half of the year, we believed that our results would be higher than those for the first half, and it was actually up by 16% compared to the first half. We've had a very good second half with good momentum for the group. Free cash flow.
Free cash flow, I gave an objective about EUR 1 billion a year ago, and it is actually at over EUR 1.5 billion in spite of an increase in our industrial investments that was quite significant in the second half. We have ensured that our financial structure is robust and solid because our net debt, the gearing ratio, has once again been driven down this year and today stands at 39%. All the targets that we had fixed for ourselves were exceeded. This, given the context, which was quite mediocre, was really thanks to the very hard work put in by Saint-Gobain's team and thanks to our action plans, which in 2010 were once again very close to what we had achieved in 2009, especially with a very strong priority given in all of our business lines to our sales prices.
As we had done in 2009, we were able, even with strong downturns in volume, to ensure that our sales prices stayed up. We were able to increase our sales prices in 2010. In fact, in H2, it was 1.4% as compared to 0.8% throughout the whole year. I think this is really a very important point, and this is something that is going to continue to help us in 2011. In keeping with the program that I had indicated to you, we continued to reduce our costs, and that means that over the whole year 2010, we have been able to drive down our cost by EUR 600 million. 2.1 billion in figures to the end of 2010 for three years. This, of course, means that our cost base is much healthier today.
The third point of our action plan, of course, meant keeping a very sharp eye on our working capital requirements. Although I had not given a specific objective for this, I did tell you that we would find it difficult to keep the beautiful performance that we had chalked up in 2009. In fact, we were able to stabilize this. I consider that that was a good performance because it was obtained in a more difficult context, especially given the unfavorable impact of the LME law in France, which increases our working capital requirements, of course, in a significant manner. It stabilized at 31 days worth of sales.
As I said, in July, we were able also to have a higher rate of growth-related investment, especially in emerging countries, on solar power and on energy efficiency, with an increase of 16% of our CapEx over the whole year, focused, as Laurent will tell you in more detail, in the second half. We continued to make efforts in terms of research and development. In our meeting on the 15th of November, we gave you a lot of detail about what we are doing in terms of research and development, and I am expecting this to translate into some really good new products for the next few years, which will help for our growth.
Now, these are the main highlights for 2010, and as I told you earlier, this was a year that has meant a lot of satisfaction for us because we have been able to really achieve the targets we had fixed for ourselves, and that has ended in very good conditions. Laurent is going to go into a little more detail about the figures. Hello. I'm going to start with the group's results. As you can see, the variation in our net sales, it's gone over EUR 40 billion with an exchange rate, of course, that is very favorable for us, +3.9%, EUR 1,500 million. Given the depreciation of the euro compared to the dollar and the reais, especially in the second half, and the currency of Scandinavian countries. Now, this is a scope effect that is quite small, EUR 500 million with a few acquisitions that we carried out.
Well, that was in 2009 and also in 2010. On a like-for-like basis, you can see +1.9% and +0.8% in terms of price and +1.1% in volume. In price terms, you may remember that we were up by 0.1% in the first half of the year, and I'll come back to this wonderful achievement over the next slide. In this slide you can see that it's a rather busy one, but it's the blue part that represents sales prices. As you can see, we started at the beginning of the year where we had fallen back, -0.7%, and we finished the year at 1.4% over the whole year with a very good performance over the second half in terms of sales prices.
In terms of volume, as you can see, there are variations from quarter to quarter, especially because the second quarter had an extra day and the third quarter suffered because of the American sales of inventory. You can see that we have a continuous progress in volumes over the whole year. What we need to look at, of course, is the growth in the fourth quarter, which is up 3.3% with a very solid 2.1% in terms of volume, in spite of the impact of the rather negative weather conditions in Europe and in France over the fourth quarter. Another thing that I wanted to point out is the base that we are taking off from today. After 2 years, that's 2008, 2009, and part of 2010.
As you can see, in terms of volume, we are still -9.4% in the fourth quarter compared to the fourth quarter of 2008. As you can see, although we are growing again, compared to 2008, we are still at a low level in terms of volume because we are down by 9.4%. This, of course, is a useful figure because it helps you to interpret the way the operating income has changed. If you look at the H2 2008 compared to H2 2010, we've gone above that in terms of mass, whereas in terms of volumes, we are down by about 10%. The whole of the improvement between 2008 and 2010, the second quarters of each year, comes from the efforts that we have made to improve our cost base and to drive down costs.
Now, if you look at our figures compared to last year, you can see that we are up 1.4% in terms of margin for the whole of the group. If we look at this in terms of outside of distribution, outside of Building Distribution, we are 1 point above last year. In terms of volume, we are up by 8%. In terms of volume, if you compare to 2008, we've almost come back to the same level of profitability in percentage of sales as compared to 2008. Whereas in terms of volume, we are still down by 11%. All of this improvement that you can see is really linked to the improvement of our sales prices and to the reduction of our costs.
Now, if we look at non-operating items between our operating income and our business income, you can see that we have been able to drive down our non-operating costs. They have gone from EUR 435 million to EUR 242 million. I'll come back to that over the next slide. Other items, we were able to have EUR 1.2 billion for business income. We've been able to do this in the United States and a few other activities. Now, results for other items, we have +87. This is because of Advanced Ceramics that we disposed of and that we closed before the end of December. Now, asset write-downs, we have, of course, minus EUR 232 million. This is depreciation. For most of it is linked to the restructuring that we carried out over the whole year.
That's the impairment of our tangible assets in plants and depreciation of goodwill on our Building Distribution activities in the Netherlands and in the United States, because, given that the context will remain difficult in these two countries, we restructured a lot in these two countries over 2010. As you can see, business income has more than doubled compared to last year, and it goes up to EUR 2.5 billion. Now if I take a look at our outstanding claims. For CertainTeed in the United States, you can see that the new claims are quite stable and settled claims have gone up in 2010 compared to 2009. Outstanding claims, of course, we were able to settle, sorry, 13,000 claims this year. Outstanding claims have therefore been driven down to 56,000 claims at the end of 2010.
Payments have increased, as I told you, at $103 million compared to $77 million in 2009. That is because of the changes in payment that I've been telling you about since 2009 and also a few cases that were bigger, that we have a larger number of bigger claims this year. Therefore, we have adjusted our provisions to EUR 97 million for 2010 compared to EUR 75 million in 2009, and that brings the total coverage to $501 million at the end of 2010. Now, our net financial expense and income tax, you can see this again, has improved. Our net financial expense was lower this year because of the reduction of our debt, but also because of the cost of our gross debt, which has gone from 5.2% to 4.8%.
The cost of net debt has increased slightly because we have taken out a little more cash over the whole year. But the cost of gross debt has been driven down. Other financial expenses, especially those that do not represent cash flow, have increased slightly. That is pensions and the renegotiation of our credit lines. Now for income tax, we have come back to 29%, as you can see. I told you that that was our target. That is the average figure around which we will vary over the whole year. That is 29%, and that includes the new tax for the contribution on added value for companies, that is a CVAE, and that replaces the taxe professionnelle that was based on operating income in the past. Now, the recurring net income. As you can see, that has increased considerably, plus 16%.
Net income has been increased by more than five times, which has gone up to EUR 1.1 billion. And we have a net recurring EPS is up by 109%, so it is up to EUR 2.51. As Pierre-André told you, we really increased our investments in the second half of the year. They went up by 39% compared to H2 of 2009. And over the whole year, EUR 1.450 billion and a growth of EUR 200 million compared to last year. 80% of the growth CapEx was, of course, made in Asia and emerging countries, focused on energy efficiency and solar power. And of the EUR 200 million that it went up by compared to last year, EUR 120 million was spent in emerging countries and EUR 40 million in solar energy. So that is EUR 160 million out of EUR 200 million that has been made in solar energy and in emerging countries.
Now, cash flow and industrial investment. As you can see, it has gone up to almost EUR 3 billion, which gives us a cash flow of EUR 137 million. We had fixed a target of EUR 1 billion, and then it went up to EUR 1.4 billion in the middle of the year, and you can see that the actual figure was even better. And in terms of volumes as well as percentage, it is the best performance of the group over the last five years.
Just nearly.
Next we've got EBITDA and CapEx. You see here we stand at 8% of revenues on the slide. This is quite a substantial amount compared with our track record.
We engaged in some portfolio disposals, too. As you see here, at the end of December, we finalized the disposal of our Advanced Ceramics. The selling price, $245 million, even though the scope had been pruned down slightly compared with the initial scope. The price remained the same nonetheless for that disposal. We made a small acquisition too, a bolt-on acquisition in the U.S. in textile solutions. The production was transferred to Mexico, and we made some acquisitions mainly in solar power, energy efficiency, and in Asia and the emerging countries. There are two to be added onto the list you had in the first half. SAGE, producing electrochromic glass in the U.S., and KBS in mortars in Switzerland. The total investments for the year, financial ones, EUR 129 million, and three quarters in the second half.
As we heard earlier, our working capital requirement performance is good. Stable at 31 days at the end of 2010, same level as 2009, which had shown spectacular improvement compared with 2008, and that performance was put in spite of the impact of this new act we've had in France, the LME Act, regarding terms and conditions of payment. In spite of the revenue change at the end of the year, more than 3% growth in the last quarter, and also in spite of the negative impact of Forex, with respect to our average revenue figure. In spite of all that, therefore, we think we've put in quite a good performance. Also, the average working capital requirement performance is quite good.
We did good cash management, and the revenue figure went up, but nonetheless, we've managed to improve our performance in terms of our inventory control and our accounts receivable as well as our payables. The working capital requirement you see has an impact on the return on investment, and you see that in this chart. Return on investment going up by almost five points, going from 13.5% to 18.4%. The return on capital employed going from 7.6% up to 10.3% in 2010. On the balance sheet, the shareholders' equity goes up by EUR 2 billion. EUR 1.1 billion because of the net income, EUR 0.9 million because of the Forex fluctuations. Everything else cancels itself out because there was the rights issue, you had the dividend payout, and all that offsets itself. The debt, we're deleveraging the whole time.
The net debt to equity ratio is 39% at the end of 2010. As you see here, divided by 2, halved compared with the end of 2008. The net debt over EBITDA ratio reaches a level of 1.5 at the end of 2010. A very sound balance sheet, a healthy balance sheet, one of the healthiest in this field of industry, we think. If we look at the business sectors in detail. You have here the internal growth, organic growth in the group. If you take the whole of the year, 2010, clearly, we are driven here by the Innovative Materials sector, plus at 12.3%. The other business sectors are on par with that, or slightly below last year's level. What is interesting is you look at the fourth quarter, Q4, which shows a lot of momentum. Within 2010, it is interesting to see what happened.
Innovative Materials stand at 9% in Q4. That is down on the whole year performance, but the comparative basis becomes more difficult then. That is quite a good trend, a positive trend in sales in Innovative Materials. What about Construction Products? Plus 3.7%. You see the increase with Interior Solutions. That went up nicely, came into the positive. Exterior Solutions, plus 6% with more ups and downs, I would say. It had been subjected to the effects of stock release in the U.S. in Q3, and it did some catching up in Q4. In Building Distribution, in spite of the adverse weather conditions in the fourth quarter in Europe, we are positive, plus 0.6%. Packaging, plus 1.3%. That shows an increase because of price increases at the end of the year in particular. There is momentum built up there. That is positive.
Internal growth of 3.3% in the last part of the year. Innovative Materials growth for the whole year, that is very strong. 12.3% for the full year. This is driven by the industrial markets and the emerging countries the whole time. Flat Glass, plus 8.4%. The momentum is driven here again by the emerging countries, and to a lesser extent than in the past, by the automotive sector. But also driven still by the automotive sector to some extent. Also driven by the specialized glass products, which unlike the basic form of glass, went up by about 4 or 5 percentage points in Europe. Looking at prices now. 2010, slight upswing in prices, plus 1% in the second half.
If we talk about the 4-millimeter float glass, then we were at EUR 3.10, same level as last year in the fourth quarter, which had seen a slight upswing in the last quarter of 2009 in terms of price. Now, at the beginning of the year in February, we stand at EUR 3.4. Euro, that is. Per square meter. Good prospects there for improvement. High-Performance Materials, then good progression of our revenues, +16.8%, driven by industrial consumption, but also with industrial CapEx that has got off the ground again, anticipated by itself. The prices are going up too, plus 1% in price terms in the second half. The impact of the great improvement in volumes and the strong cost-cutting measures that we have kept on board can be felt in our operating income.
Here, we see the operating income for the whole year, 11% of revenues, and the second half, 15.1% for High-Performance Materials and 9% in Flat Glass. That is quite a lot of progression compared with the previous year. What about the EBITDA? Well, that is going up to EUR 1.5 billion as opposed to EUR 843 million last year. We picked up CapEx in the second half in particular, especially for Flat Glass. You see quite a lot of CapEx, 7.9% of revenues there, and that is mainly focused on emerging countries. We started off in Egypt in the first half. That was the main focus of CapEx, but also Brazil and India. We were active in those countries, too, in terms of CapEx. We are starting to engage in projects in solar power, too, with the second plant in Germany, with the objective being to productionize at the end of 2012.
On High-Performance Materials, we have a gamut of smaller projects going on there in emerging countries, too. But the differential between the EBITDA and the CapEx, that is EUR 944 million, as you see here on the chart. What about Construction Products next? As you see, the sales volume remains steady in 2010. There again, there is momentum within 2010. That is worth noting, because if you look at Interior Solutions, it was -3.6 in the first half, and it went into the positive in the second half. The fourth quarter is at +1.6%. So it is a gradual process, slow but sure, taking place, and we are recovering slowly but surely. Not as quickly as in Innovative Materials, but recovering gradually nonetheless for Interior Solutions.
That is, for Exterior Solutions, it is more ups and downs, especially in the U.S., because of the stock release phenomenon that I mentioned earlier in the third quarter in the U.S. But the fourth quarter is positive, as you see. So, for all of these business lines, prices progressed too in the second half in Interior and Exterior Solutions. So the impact on the operating income, you see there is a modest increase, but nonetheless an increase compared with the previous year. 515 compared to 511 last year in million euros. There is a further improvement in Interior Solutions that is mainly connected with cost-cutting measures because the variation revenues were 0.1%. If we compare the half years in 2009 and 2010, that is because of cost-cutting measures therefore.
However, in Exterior Solutions, you see there is a slight pinching, so to speak, of the margin due to the stock release phenomenon, the volumes of inventory releases in the sales inventories therefore in the U.S., and especially due to price hikes for raw materials, for commodities, and energy to do with Exterior Solutions. That is pipework and Exterior Solutions that have seen raw material prices going up. So EBITDA and CapEx. You see the CapEx is under control, 3.8% of the revenues in 2010. Some big projects like the Titan project, as we call it, in China, in pipework, and very good EBITDA generation. 1,162 million, as you see here, which is better than the previous year. Building Distribution, drop of 1.5% for the full year. That can be accounted for in just the first half. The second half shows growth, +1% as you see here.
That's driven by the Nordic countries and the U.K., posting growth of more than 5% in the second half. Germany, +3%. France has remained slightly in the negative, but that's particularly because of the adverse weather conditions at the end of the year. An improvement, therefore, in our four main markets compared with the first half, and relative improvements in Southern Europe. Nonetheless, they remain negative for the moment. The figures remain negative there, but the negative figures are starting to climb up towards zero. Gradual improvement in distribution in the revenue figures in the main markets for the whole of the year. Regarding the margins, improvement in margins, 4.2% of the revenues in the second half of 2010. If we start off with the commercial margins, the sales margins, they held their own throughout 2010 with a new improvement in the Nordic countries.
Slight increase in France and steady in the U.K. and Germany, with a bit more pressure in those countries at the very end of the year. Client insolvency, that got a bit better, going from 0.6% to 0.5%. Before the recession, it was at 0.4%. Client solvency was kept under control during these recession times. The total margin didn't undergo many changes, so the profitability improvements can be accounted for by cost-cutting measures mainly. Mainly cost-cutting measures. The EBITDA and the CapEx you see here, then 1.1% and you see the EBITDA and CapEx as they break down then for 2010 in Building Distribution as such. What about Packaging? Packaging for the full year, there's a slight increase in the revenue figure, 0.2%, with a slight reduction in the first half, but it got better as the year went on because in Q4 it was 1.3%.
1.3%, that's 1.2% for price reasons and the rest volume. Price-wise and volume-wise, we came into the positive there in the third quarter. The operating income, stable, steady performance, EUR 207 million this year compared to EUR 204 million last year. But nonetheless, a slight dip in the margin, 11.5%, with increases in price that were late in the year, 1.2% in the third and fourth quarters. And that wasn't sufficient in the latter half of the year to offset the upswing in energy costs and the drop in volumes that we witnessed in Europe in Packaging. EBITDA continues to go up because it's 300 and no. Minus, sorry. Speak of corrections, EBITDA and CapEx you see here, the difference between the two going to EUR 408 million in 2010. That's the EBITDA minus the CapEx.
Country by country then, if you look at the group's growth country by country, we're driven by Innovative Materials and geographically, of course, we're driven by Asia and emerging markets. Business sector-wise, Innovative Materials, and geographically, Asia and emerging countries. You see the breakdown here in the pie chart. North America availed of the contribution of Innovative Materials here, of course, and High-Performance Materials and Asia and the emerging countries as well. You see how it breaks down. What's interesting in the Asia and emerging countries part here is that even though comparison is difficult in the latter part of the year, in Latin America, for example, the performance is quite positive. But Eastern Europe became slightly positive too, and that's worth noting.
Now, if we look at figures just for the fourth quarter, in particular, France is stable in the fourth quarter in spite of the weight of Building Distribution, therefore the weight of the impact of the adverse weather conditions in France, and particularly in the fourth quarter. Western Europe came slightly into the positive, +2.4%. That is good growth driven by Germany and the Nordic countries the whole time there. Still, and to a lesser extent, the U.K. North America, by the way, 5.2%, quite online, but that is driven by the Innovative Materials again and Asia and the emerging countries. Asia, Latin America in line with the annual growth figures, and Eastern Europe, +10% for the fourth quarter. That is quite a good feat of catching up, I would say.
In terms of our operating income, you see here all the countries are getting better in the second half compared to the second half of the previous year. France and the other Western European countries, moderate growth in revenues overall, but getting better in terms of operating income, mainly because of cost-cutting measures. We should note in passing too, by the way, that just for your own forecast, we are getting back to the historical seasonality we had in the past between the first half and the second half of the year. The seasonal factor is kicking in here in other Western European countries once again. More income in the second half than the first half. It is improved, and there is a seasonal effect as well. North America profitability in the second half is progressing compared with the previous year. It is down compared with the first half of 2010.
There is the stock release phenomenon, of course, in the third quarter, and the raw materials and asphalt costs that have gone up that weighed a little bit on the profitability of our U.S. businesses or North American businesses more generally. Asia and the emerging countries, quite a nice piece of progression here in terms of volumes, and the cost base remains under control. Especially, we have returned to profitability in our businesses in Eastern Europe in particular. The EBITDA minus the CapEx by geographical area. Firstly, I will give you some comments on the CapEx. The CapEx remain really well under control in the mature countries. In November last, we told you that our CapEx in mature countries, excluding solar power, would not exceed 3.5% in 2010, and it will be about 2.6% of revenues. The CapEx, you see where it has gone up.
Well, it is Asia and the emerging countries, plus EUR 120 million, and a little bit in solar, plus EUR 40 million. That is the detailed results per business sector and geographical area for 2010.
Okay, I'll say a few words on strategy, because after all, we had spent a lot of time on that in November. The vision that is the framework for our strategy is that we want to ensure that Saint-Gobain should become the best-known reference in terms of sustainable housing. We want to bring innovative solutions to the critical challenges of today, and I think that what happened in the beginning of 2011 shows very clearly that these concerns that Saint-Gobain has are very important. The problem of access to energy, to raw materials, the problem of environment, and of growth in emerging countries. The three main strategic priorities that we have are, first of all, we need to complete the group's refocusing on the housing market, and of course, based on Asia and the emerging countries.
The first point we had made in October, which was that we were preparing to be ready, if market conditions permit, to target a minority part of our activity to be listed. That would be Verallia, and let me tell you that we have completed this, and we will be ready from the second quarter of 2011 onwards. We wanted to also bolster the group's position in high value-added habitat solutions or housing solutions. I gave an indicator that I will mention very quickly here. The first one was to increase the part of our new products. From that point of view, the fact that we have maintained and we have continued to increase gradually what we invest in R&D, of course, means that we will be able to bring our new products onto the market, and we have pushed that up to 25% for 2015.
That's quite ambitious. The high energy or energy efficiency and energy environment, that will be up by 38%. If I explain what I said in the month of November, we hope to do this by including all the parts of the group that have growth that is higher than the growth in their market because they bring in new solutions. We want to ensure that those high value-added solutions will be pushed up to 60% by 2015 as compared to 51% in 2010. What is happening on all these subjects? Today, I'd like to talk about the regulations concerning new builds. This is, of course, an important part of our activity, but that's not all of it. We're going to talk about the new build markets for France and Europe. I used base 100 for 2008 in an arbitrary manner.
But when we look at the improvement in energy efficiency in new buildings that have been brought about by regulations, as you can see, between 2008 and 2013, if I look at the four big countries in Europe, U.K., France, Germany, and the Netherlands, this reduction is extremely high of about 50%. It will continue because a certain number of countries. We do know what's going to happen to this regulation in the medium term, and we know that it's going to continue because in 2020 for France, we will be building new buildings that are positive energies with the BEPOS standard. I'd like to go into a little bit of detail. For France, first of all, because it's one of the biggest markets as a group and also because it's really becoming significant. The aim is to reduce 50% of energy consumption and more in new buildings.
This is very important because, of course, insulation becomes very important. I will give you two examples. Sales of glass wool. You know that in France, the market is at about -2% to -3%. If I look at the sales of Isover by Saint-Gobain, which is glass wool in 2010, in terms of square meters, it has gone up by 2%, and in terms of tons, it has gone up by 8%-9%. Because we have, of course, ensured that our products are thicker and more dense because of the new regulations. This is going to continue in this direction. For flat glass as well, +7%. Whereas actually the flat glass sales in France was quite flat for residential buildings. Now, another very important point concerning regulations of the RT 2012 thermal regulation in France.
For the more specific provisions that have been adopted recently, it has been set down clearly that for all buildings that have a minimum of glass surface, that has to represent one-sixth of the living surface. Because in well-insulated buildings, the best way to improve energy efficiency is to let sunlight in. Now, of course, for that flat glass plays a large role. What does this mean for us? For new buildings, the average rate of glazed surface is to date 13% compared to total surface. If I look at 6%, that is one-sixth. Sorry, that is 17%. That means 30% of flat glass sales more. So the environment rules, first of all, they are beginning to be applied.
As I showed you in the earlier slide, this is going to carry on, and between 2013 and 2020, this is going to go up considerably, and that is why we are investing in these products. The third important axis for our strategy is, of course, to ensure that we can increase our sales in emerging countries with a profitable growth by diversifying our risks because Saint-Gobain is quite well spread out in all emerging countries between Latin America and Asia and East European countries, as well as more recent development in Africa and the Middle East. If I look at the whole group, we have really increased these two or three points considerably this year. We saw 19%, and we hope to push that up to 26% by 2015.
Now, if I look at all of the industrial units, that is Innovative Materials and Construction Products, it is even clearer because the objective is to go from 31% this year, which has already meant a big increase, but we want to push that up to 39% for 2015. Now, if I look at our growth potential with our strategy in developed countries as well as in emerging countries, I had indicated in the month of November that our objectives for organic growth over the next five years would be 6%. I confirm that for the group on an average, which will come about 10% from emerging countries and 5% from developed countries. That will, of course, mean that our CapEx will increase. Although we hope to not go beyond 5% of sales, but 65% of our investment in growth from 2011 to 2015 will be made in emerging countries.
That is already the case in the second half of 2010, and 80% for solar energy and emerging countries. I had already told you what our strategy would be in terms of targeted acquisitions. Priorities are emerging countries, then high value-added products and solutions in mature markets. We are going to continue to look at opportunities for consolidation in the countries in which we have a strong presence, so in Building Distribution and Construction Products. This should mean 3%-4% per annum over the next five years on an average in terms of external sales growth. Targets through to 2015: EUR 55 billion in worth of sales, EUR 5.5 billion operating income, that is 10% of sales. Recurring net income, EUR 3 billion. ROI, return on investment, 25%. That's ambitious, too. Return on capital employed, 14%-15%.
All of this will be done while at the same time maintaining a very robust financial structure. We are online to reach our targets for 2015. To look a little closer today, what are our prospects and outlook for 2011? As far as the context is concerned, I expect that that will be better for the markets of the group in 2011 than it was in 2010. To begin with, ongoing vigorous growth in Asia and in emerging countries, especially whereas growth has been very slow in Eastern Europe in 2010. We hope that that recovery will pick up pace in all of Eastern Europe, especially in Poland, because that is the country where we have the strongest presence. Then with industry that we believe in North America will continue to be buoyant and weakness in construction.
Of course, as you know, a burnt child dreads the fire. This year, we have not seen any improvement actually in construction, so we are going to be very cautious. In Western Europe, we believe that there will still be a good level of activity in industry and in construction. We hope for overall improvement that will continue in new builds as well as in renovation. But there again, it's likely to be quite patchy. What is important is that the countries in which we have the strongest presence will do better than those countries where we are not so present. In terms of our sales, of course, that is good. I expect progressive growth in France. We've already seen a very good dynamic movement in Germany and in the U.K. That should continue.
In Scandinavian countries, which were quite dynamic in 2010, Sweden and Finland, we hope that that will continue. In fact, there is no reason to believe that it should not. As Laurent-Pierre said, we have had quite a negative impact of weather conditions for the first quarter of 2010 and in the month of December 2010. On the other hand, I can tell you that we've had a positive effect in the month of January. February is not over yet, but it should be more or less the same. We believe that in terms of the climate, since it's slightly better, we believe that the first two months of this year will help us to recover a little bit from the bad impact that we had in December last year. We hope that the upward trend will continue. What does this mean for the group?
It means that we will continue to have very good momentum in all regions in Innovative Materials, with further improvement in our margins, we believe. For Construction Products now, very strong growth in Asia and in emerging countries. That is, of course, linked also to the investments that we've made there. Continuing steady improvement in the mature markets. We believe that in the field of Exterior Solutions, as Laurent told you, we believe that we will have a significant impact of higher costs in terms of raw material and energy. Building Distribution, that should be able to improve its results considerably. Which was, sorry, able to improve in 2010 should continue to take advantage of growing volumes in Western and Eastern Europe, and therefore, we hope to have further growth in margins. Packaging. Verallia should continue to be profitable and work well.
For all of the group's business sectors, we believe that performance will continue to improve. Now if I look at the group as a whole, this means, of course, that we will have an upswing in our sales volumes, and this should become faster. As I told you, we were able to consolidate the upward trend in our sales prices in spite of the fact that, of course, that has to be done given that we know that raw materials and energy, the prices will increase in 2011, probably more so than in 2010. Therefore, we will have to push our prices up even more in 2011 than we did in 2010 if we want to offset the increase in the prices of our inputs.
So far, we've managed to do it, and all of this should continue to help the group to have a healthier situation as we did last year. Especially because we believe that volumes will be better in 2011 than in 2010 because, as you saw, the second half of 2010, the figures in terms of volumes were still down by 9% compared to the second half of 2008. Now, what are our priorities with this new growth dynamic? We will continue to have a strict financial discipline, and for all the businesses of the group, Saint-Gobain will continue to use its leadership position and will continue to focus on sales prices. We will be extremely careful to not let our costs get out of hand. We are going to exercise strict discipline in terms of cash management.
You've seen the translation into figures of the fact that we have continued to be very careful in 2010. We will continue our very dynamic investment policy as we have done in the recent past. We will continue to invest industrially. It will be about EUR 500 million more than last year. We'll continue also to invest in research and development. Now, if I were to sum up all of this in terms of objectives, the objectives that we fixed for ourselves for 2011, I would say that we will have organic growth, that it will be robust. We'll have double-digit growth in our operating income.
We will have a free cash flow that we believe should go up to at least EUR 1.3 billion, but which takes into consideration a EUR 500 million rise in CapEx in 2011 compared to 2010 because the budget is more or less EUR 2 billion for industrial investment for 2011. As I said, we will continue to ensure that our financial structure remains robust. Let me add that the board will propose to the annual general meeting that we should increase the earnings per share compared to 2009. We will bring that up to EUR 1.15 per share. This is very much in line with the policy that I laid out for you in the month of November in terms of dividends. First of all, we hope to have a gradual stabilization of the number of shares.
We will propose this year that the dividend should be paid out only in cash. Secondly, we also hope that we will come back progressively to the historic rate of the dividend that was paid out at about 35%-40%. This EUR 1.15 represents about 30%. This means that this should certainly encourage our investors to be confident that our results are going to continue to improve in 2011. That's a yield of 3% compared to the price on the 31st of December 2010. I would conclude by saying that I believe that the group in 2010 has certainly proved very clearly that it was capable of adapting very well to a crisis situation. It's very solid.
It has a very solid financial structure, and we will be able to take full advantage of a return to growth because of our strategy, which makes it possible for us to grow both in mature countries as well as in emerging countries. From that point of view, the increase in energy prices, which of course is unavoidable in the medium term, has been taken into consideration and the strategy of the group is appropriate given the rise in the price of energy and raw materials, given our position in emerging countries. We also have a much leaner cost base as of now, and we hope that will make it possible for us to have a significant operating leverage.
Although that will, of course, be tempered by the rise in raw material and energy costs, we hope that we will be able to continue to pursue our development policy and capitalize on growth opportunities by increasing our acquisitions. This brings me to the end of our presentation for the results for 2010 and our outlook for 2011. We will be happy to take your questions, but we also have people who are listening to us on teleconference and on the internet. We'll first take questions from the room, then we'll take telephone questions, and then we'll take questions from the internet.
Good morning. I've got 3 questions, if you don't mind. First one has to do specifically with something we didn't talk about so much during this meeting, is textile solutions. What about that business segment? Have the results improved in 2010 in engineering solutions or textile solutions?
Sorry, excuse me. Textile, I meant, so to speak. Sorry. No, it was a slip of the tongue, says the gentleman who asked the question. I did mean textile, and I did say technical. So Textile Solutions. Construction Products and Interior Solutions contribution of EUR 380 million, as was mentioned. That's very much below the highest point you reached. Do you think you'll improve it in 2011? Do you think you're going to up your prices for glass wool or for plasterboard in Europe or elsewhere? What about Building Distribution? It's 4.2%. That's the margin in the second half. Do you think it'll stay with us right throughout 2011, that margin rate? Thank you. Well, to answer the first question, Textile Solutions.
Textile Solutions, that is the part of the reinforcement segment that we kept on board because it had to do with housing, and secondly, because it had a major downstream component to do with converting and processing. It's more processing. It's not so heavy duty as a pure glass fiber business segment. So it has lots of ramifications, you see, with other business lines in the group. It's a very good fit. We turned it around pretty well in 2010. The performance improved quite substantially, even though the markets are the building construction markets, especially in the U.S. and Europe. Nonetheless, we improved the performance in that part of the business because there was a lot of restructuring done in that part of our business in the last 2 or 3 years.
Now we have a sound cost base that we think is particularly promising as a springboard going forward because our plants are mainly located in the Czech Republic and in Mexico. So Europe is supplied basically out of the Czech Republic and the United States supplied out of Mexico. So our cost base is very lean, and we made a small bolt-on acquisition too, that Laurent Guillot mentioned a while ago. In the middle of the year, a U.S. company, where we're transferring the production to Mexico, precisely. A big transfer. I went to see it in November. That should give us a second piece of improvement on the horizon 2011 to further improve the performance in that business segment. Now, on Interior Solutions.
Overall, clearly, the performance of the volumes are still below what we had before the recession hit, and especially it's clear that in spite of a good performance put in a difficult business cycle in Europe, the situation is much more difficult over in the U.S. overall. I mean, in general, in the main. Claude will perhaps give us further detail. Claude, my colleague, will just perhaps build on that answer or give the floor to Ben while he talk about the margins for 2011, so to speak. Okay. I think, obviously, wherever we're leaders, our prices go up. We'll continue in 2011 in all the markets where we are leaders to play our role as leader and bring those prices up. Now, the situation isn't the same everywhere.
There's the U.S. and there are other countries, but we haven't achieved the 600,000 in housing starts figure, whereas in the reference period, it was a bit more than 2 million. So there's quite a delta there, quite a differential. We're going to continue hiking our prices up, especially as the context within is one where the commodity prices are going up. So for two main reasons, we need to bring up the prices. On distribution, we're obviously going to increase the margins in 2011, because by 2015, we wanted to get back to the margins we had before the recession, or even before 2015, if possible, says Monsieur de Chalendar. So in the medium term, we've got to increase that. So the margin ratio for 2011
We can't give it to you here today, obviously, but that's the comment I was making to Guillaume a while ago. There's a seasonal factor that is coming back now between the first half of the year and the second half of the year, as we saw on the bar charts. Yes, Arnaud Palliez from Cheuvreux. I have a set of three questions, if you don't mind. The first one has to do with the energy material cost. A year ago, at the same time, you intimated that in 2010, the inflation would be EUR 200 million worth. Isn't that right? I think that's what you said at the time. In the end of the day, what was the increase for all of 2010, please?
Could you give us the same piece of information on a preliminary basis for 2011, what you think about the 2011 trend as you perceive it? Will I ask my next question? Okay. Second question has to do with the prices. There is a kind of a slowing down of the upswing in the last quarter to 1.6 in Q3 and 1.2 in Q4. So there's a deceleration of the upswing. Is that a seasonal factor, or are there other reasons for that? The last question has to do with the adverse weather conditions, the impact thereof. Have you quantified the number of percentage points in terms of growth that you lost because of the adverse weather conditions? Have you managed to put a number on that? Well, I don't know the oil price, where that's going to go, says the chairman.
I don't have a crystal ball on that. I'm sure it's going to go up and down. It's going to seesaw, the oil price, in 2011. I'll give the floor to Laurent Guillot to answer your questions. 2010, you mentioned the statement we made about EUR 200 million is the figure we quoted. Now it's EUR 200 million to EUR 250 million for the full year. More or less on track with what we mentioned last year. For 2011, as Pierre-André said, given the current energy prices we have could have a substantial impact, but the total impact would be between EUR 500 million and EUR 600 million worth. Quite a lot more than last year. However, conversely, if we translate that into prices, EUR 600 million, take the upper part of the bracket, is 1.5% prices, and we achieved 1.4% in the second half. So it's a bigger amount than last year.
At the same time, compared to the price of this year, especially in the second half, it's not totally out of the scope of what we can do, knowing that the priority, as was said perfectly well by Claude Imauven a while ago, the priority remains with getting our prices right now. On the slight setting price in the last part of the year, that's mainly due to the glass business in Europe, which if you look at the prices for the 4-millimeter float glass in Europe in the fourth quarter of 2009, the upswing, it went up compared to the basic glass. It went up compared to the baseline we took, rather. It went up at the very end of 2009, then went down again. In February, however, we stand at EUR 3.4 per square meter, and it was EUR 3.10 in the fourth quarter.
We dipped, says the Chairman, last year in the first quarter. So you talked about the adverse weather conditions. That was your next question. I spent several years myself in distribution trying to quantify that impact. I never managed to do it mathematically. I just can't do it. I can't crunch the numbers so as to come up with a proper result. What you lose when the weather is bad at the beginning of the year, do you get it back when the sun starts to shine? I don't know. If you look at the revenue figure in the first quarter of 2010, I don't think we've totally caught up with what we lost. Maybe a little bit, but not totally. I just can't put numbers on it. I'm sorry.
I think a lot of it was lost, and we managed to nibble back some of it, but
BNP. Three questions, if I may. Firstly, have you put through any price increases already this year in any of your business lines? Is it too early to say whether you've got visibility on whether they will stick or not? Secondly, on Packaging, you've talked before about potential private equity interest. Are any talks still ongoing or is the IPO route very much your best sort of guess about the way this will go? Thirdly, on guidance, you're probably not going to answer this, but obviously double-digit growth is quite a wide range. Are you able to say anything at all to be a bit more specific?
Well, double digits, of course. It starts at 10, and well, it goes onwards. On the I've forgotten your Oh, the question on the prices, sorry. Yes, indeed. The answer is that it varies a lot. It varies hugely depending on the business lines. You see, firstly, there are some business lines where you index more or less automatically. In contracts, that's done. There's an indexing clause in Packaging. There's a whole gamut of big key accounts that do that with a lead lag effect, but still it's done. In Flat Glass, there is the energy surcharge. On the 1st of February, that was done. It was increased, and that's sticking. Yes, it's still with us, and I'm quite confident that'll remain so. Otherwise, in the other business lines, prices are negotiated in different ways in the different business lines, depending on the point in time.
There is no record date, so to speak. There's no date for the year. There is a huge amount from one business segment to another. It can be different times in the year, but it's our number one priority all around, and I've no cause for undue concern at this point on that. On Packaging, well, I would just reiterate what I said already. We got tokens of interest at some points, and we got some interest, yes, manifested by some investment funds. In October, we intimated that the best solution we thought would seem to be an IPO that, in our mind, given the advice we got, would give us the best valuation, the best possible option for Saint-Gobain. Therefore, we're doing our level best to achieve such a project if the market conditions make it possible. We will be ready in the second quarter.
Yes, somebody raising their hand.
Bert at Jefferies. Can I come back first to this energy question, just the 600 that you just gave. Did that include raw materials as well as energy? Have you hedged any of the energy cost? Do you have any kind of cover there or are you at the vagaries of the market? Could you talk about that? And how much of the 600 is in the Exterior Solutions? That's my big first question. My second question, High-Performance Materials. I congratulate the management, great performance, but you're at very high margin now compared to history. Could you talk about the sustainability of that and why we might believe that's sustainable? And third and final question, just the one on leverage. You have, as you said, got the strongest balance sheet in the sector. You've got money hopefully coming in from Packaging.
I think on November you said you didn't need that much for acquisitions. Could you revisit that issue and talk about would you be prepared to return money to shareholders, I guess, is my key question. Thank you.
Well, Laurent will answer on the raw materials and the energy, and I'll answer on the other one. Okay, Laurent first. Laurent Guillot. First comment, Mac, is that I gave you a bracket between 500 and 600 million. So I see you kept the uppermost part of that in your mind. 500 to 600, that's energy and raw materials, both. Yes, the next one was your question on hedging. Oh, yes, of course, hedging. Now, there's a large portion of this increase that's also due to the electricity price hikes in one form or another. Not only the spot price for electricity, but also given the tax issues and electricity prices going up in emerging countries and in mature countries. And then on the more oil-related, oil and gas part of it. We're hedged according to our usual policy in Europe on gas and fuel oil.
That's relatively well hedged with respect to the start of the year, a little bit less so towards the end of the year. But on those matters, we have the energy surcharge and the cost pass-through contract, whereby if it's not totally hedged, we can pass on the energy price rise to our clients. However, we're not hedged too well on gas in the U.S., given the price trends recently and the situation in the U.S. regarding oil and gas. Now, the last question concerned the component regarding Exterior Solutions in this. Now, the energy share is fairly well distributed throughout the group, even though it's a bigger weight, I would say, in the Innovative Materials business lines.
For the raw materials, the impact is more substantial for Exterior Solutions, especially with the price increases for asphalt continuing and coke for pipework, pipes and ducts, and that is where we have the more massive impact. That represents about one half of the impact for raw materials only, raw materials purely going to Exterior Solutions. Then on your questions, as the Chairman, regarding leeway we might have and strong balance sheet and so on. Firstly, on the acquisitions. I had intimated last July that we were now capable of going for bolt-on acquisitions, making industrial acquisitions, tuck-in acquisitions, and we've upped our CapEx. As you've seen, we haven't yet substantially upped our acquisition rates, quite simply because acquisitions are a bit more difficult to plan for. They take more time, too.
We have much more now on our radar screen right now in the pipeline, so to speak, or on the radar screen. So there will be a substantial increase in the number of acquisitions. Otherwise, I think in November, as I said this morning, too, I made statements on the fact that our intention is to stabilize the number of shares gradually. We contemplated in the past, as you know, given the fact that our balance sheet became healthier again faster than we thought, we wanted to make a payout of dividend in cash. So that for the group is a net cash outflow, of course, much more substantial than last year. That's the important thing to be borne in mind. Anything we want to do is go back to a cash dividend payout, and we wouldn't increase the number of shares on the market.
We might do some share buybacks, but that would mainly be connected with the implementation of the policy we have, that we've already expounded on. As I said before, in the past, share buybacks are a good benchmark, I think, when it comes to acquisitions you can make. So that's the way in which we look at acquisitions. But I think that the potential acquisitions that the group can make would create value for the company and its shareholders, and we're quite satisfied at the current level. With bolt-on acquisitions, we tend to make in this company. It's easier to talk about them, though, afterwards rather than beforehand. So that's the way acquisitions work. It takes two to tango, as they say. The dividends, as in Tokyo this year, it will be cash out EUR 600 million cash out. Compared to last year, it'll be in the first half.
Last year, it was in the second half, whereas last year it represented cash out to the tune of EUR 150 million or so. That's EUR 450 million additionally in 2011. So I'd like to focus as the Chairman on another part of our policy is that the balance sheet has got better, of course. It was a sounder balance sheet now, but we're in line with our objectives. But our room for maneuver isn't infinite either compared with our objectives regarding our rating. We want to retain our rating. Our objective is to have, to use a standard course term, BBB, triple B, and gradually go back to BBB+. So that's what we have our eyes on, too. We're getting back to more comfortable water, so to speak, faster than we thought. I'm sorry. I did forget.
Yes, of course, the question on the margins for the High-Performance Materials. The margins in that area, it's not necessarily a guide to go by. We've structurally improved a lot our strategic positioning in many of our High-Performance Materials business lines in these days. It's not the same as it was in those business lines 10 years ago. In the second half, it was 15% of operating income we achieved there, and I hope we will sustain that performance or even improve it. Structurally, we can improve it in two ways. As in Tokyo, we can reorganize the portfolio. We have substantial businesses we've disposed of, and also we can do restructuring in-depth, production-wise, as we have been optimizing in the recent past. Yes, there's a gentleman with a question. I'm from Kepler. I've got a couple of questions.
The first one has to do with CapEx, which will go up quite a lot in 2011, about EUR 500 million, you said. Are you doing some catching up here after two years, when you had to be very cautious and very careful because of the business cycle you were in, the context we were living in, or is that something that's here to stay? That the CapEx will go up over and above the increase in the revenues or your income level, or if I could put it another way. To achieve your 2015 objectives, what is your CapEx package going to be, roughly? A second question has to do with your solar power strategy. In that respect, what about the legislative changes that have taken place in France and Spain and others, too?
Would that prevail upon you to make changes to your strategy, to adjust your strategy, and if so, in what direction? Laurent will answer the first question, and the Chairman will answer the second one. Firstly, the CapEx increase, EUR 500 million is the figure we quoted. That CapEx increase, three-quarters are accounted for by the emerging countries in solar power and in solar power. It's not just catching up. These are new projects in high-growth countries and business lines that are growth business lines, too, like solar power, where we're making those investments so as to keep step with the demand there. The strategy in solar in Saint-Gobain is based on the fact that in the medium term, solar power will have to be profitable without subsidies. We do not intend in the medium term, and we will be profitable. That's what we're aiming at.
That's what we're shooting for. What's happening in some countries does not challenge the Saint-Gobain strategy. What does disturb me a bit is when you have countries that chop and change without forewarning people. They say it's here to stay, and then it changes. We need clarity. We need visibility. But the fact of, in the longer term, by the way, the German government strategy here is a good strategy, I think, because gradually they have indicated the pace as a function of the volumes at which they want to go forward so the legislation will get the industry off the ground, and then it's got to fly with its own wings, and the subsidies will be phased out. That's a good strategy. That's the way to go. Germany, I think, has a fine industry on solar power for that reason, too. That's the first point.
The second point, just to
To flesh out what I said, the sales of Saint-Gobain in solar power went up as planned, as forecast in 2010, by 50%. We went from EUR 200 million to EUR 300 million, or thereabouts. We forecast the same pace of increase in 2011. So the Saint-Gobain strategy in solar, compared to the year ago, not only is it not challenged, but it is in fact fast-tracked at this point. Because, this is an important point, too, we recorded technical progress. We saw technical progress in the modules in particular. In the solar farms, there are now possibilities that we had not got before, so we can fast-track development. This is investment at the end of 2010. In 2011, we hope to build a second plant there for in Germany, and a third plant in partnership with the Hyundai company in Korea. So we are quite confident.
Those two plants will give us cost for modules. For concentrated solar power, when they are built, that will be competitive without needing any subsidies. That is the objective. But we do believe a lot in our technology there, and we have made strides forward in terms of technology.
Marie Furu from Societe Generale. I have another question on CapEx, if you do not mind. I would like to know, please, regarding the EUR 2 billion or EUR 1.5 billion figure this year, what is the amount represented by maintenance exactly? Also could we have, please, second question, an idea, some general feeling regarding the beginning of this year, the weather impact on volumes. Would the upswings be similar to what we see in cement? It might be lesser, but I would like to have some kind of guesstimate from yourselves about the first portion of this year so far. Another question has to do with the commodity price hikes, the raw materials and energy prices. Roughly, if you could give us a total amount for 2010, raw materials and energy. Also some details, please, on the impact subsequent to the taxe professionnelle change in France.
May I give the impact of that on the EBIT in 2009 and the taxes in 2010?
Before Laurent answers your question, as far as CapEx is concerned, we are trying not to increase it. We were rather low over the last two years, but we've also saved. Let's say we've improved the way we manage our investments. So we will invest more, but not necessarily with more money in 2011. That's the general idea. Now, Laurent, as far as investment is concerned, we have about one big third of our investments that are for maintenance. Also in terms of investments, we also have productivity investments that are both for maintenance and productivity. That is what you would call maintenance, but also help us to improve our productivity, on which we therefore have some kind of payback. So there's a very fine line between maintenance and productivity investments.
We consider that we have about a big third for maintenance and a small third for productivity and maintenance, and the rest is, of course, for growth. So this is based on the figures for 2010. Now, as far as the impact of the weather is concerned, I think Pierre-André gave us quite a clear answer a little while ago. At least, it was a good try. Now, as far as expenses for raw materials and energy go, in 2010, we spent about EUR 1.8 billion for the whole of the group. Now, of course, as you know, there's also a big impact for exchange rate variations has a big impact on our energy prices because the increase in the price of a barrel of oil is not just the price itself, but also the exchange rate.
We also have an impact on corporate tax for the company, which is about EUR 50 million of increase for our taxes compared to last year. Whereas also, although, of course, this amount was given to us before our operating income was announced. "I have one last question, please," says the journalist. When you talk about margins for the Innovative Materials business line, you could think that it's going to be on Flat Glass rather than on High-Performance Materials, because for High-Performance Materials, the figure is pretty high already. With a price impact, which is obviously going to be much bigger at the beginning of the year. Well, the figure I gave you was not a ceiling. It was a potential as far as the margin rate is concerned. Of course, potentially that is higher for Flat Glass for 2011 than for HPM.
But that's not a ceiling. It was just an indicative figure. You must keep in mind that in High-Performance Materials, don't forget that we divested from a company. So when I look at the budget for the director of the business unit, he always tells me, "Don't forget that we've got rid of Advanced Ceramics." Yes, we have a question here. Yes, hello. Rafik Helade from Natixis. I have a strategic question for the U.S. I do understand that you have understood very clearly all your main strategic orientations, but there's one big problem, which is, of course, plasterboard in the U.S., from the point of view of long-term profit and the consolidation of the market, because there are a lot of players there. You're a worldwide leader, so I believe you have a role to play there.
Beyond the economic recovery, because of course there's a lot of potential on paper. Now that has to translate through into real figures. So we saw a 1.4 figure that we saw. Now, how about Saint-Gobain? How are you going to respond to this? Because the prices are volatile, market shares change a lot, and there are several players, and it's a very cyclical market. Mr. De Chalendar. Now, I don't know when I look at current profitability comparatively for all our Construction Products in the U.S. I don't know whether there is a link to be made between the number of players and profitability. I really reject the fact that there are too many players in plasterboard and that is why prices are low. I don't believe that is true today.
However, we have a market share in plasterboard in the U.S. that is certainly not anything like the position we have in Europe. So your question is actually a good one. And we are thinking about this. But I can't give you an answer because I don't know where we're going to go with this over the next five years. There are lots of options, and that decision will depend on the kind of opportunities that may crop up. So I don't have an answer to your question, but it was a very good strategic question. Okay, let's take questions over the phone now. How does that work?
Jan Osborne from ING. Sir, please go ahead.
Hi. Good morning, gentlemen. Thanks for switching to English. I just wanted to get a bit more color, if you could, on the U.S. housing market and what you see the prospects for next year. We've had some differing views from some of your competitors and some other building materials companies. Similarly in Eastern Europe as well, it seems as though the heavy side, the cement producers are having a very hard time there, but you seem to be having quite strong results. If you could just comment on the outlook, that would be great. I also have a second question on the Wendel stake. There's rumors that they're looking to sell down slightly. I wondered if management would mind if the largest shareholder, for you at the moment, sold down slightly in the near term.
Would management mind if they sold or exited, or how does management view the current shareholder structure? Thank you.
Sorry. Yes. Did you mention Wendel's stake? Well, they're the ones you'd have to ask about that in terms of our shareholder base. They said they were attached to the stake they hold in the long term, and that they would. But if you want more details, you'd have to ask Wendel about what they think about holding their stake in the company. The other question was on the outlook of the prospects for the market for housing. But I didn't get where you mentioned what part of the world you were talking about. Was it Eastern Europe? Was there another part of the world you mentioned? Anyway, Eastern Europe, it's a fairly contrasting situation, really. The outlook we have is more favorable for the northern portion of Eastern Europe than it would be in the southern portion of Eastern Europe. For Poland, for example, things are looking pretty good.
The Czech Republic is looking better than it was 6 months ago. Also Slovakia. However, when it comes to Romania, Bulgaria, well, they'll have difficult times till 2011. That'll continue for them. Now, if we add on Russia. The Russian market took off very strongly about 4 or 5 months ago, and I'm quite confident in terms of the Russian market now. I didn't really understand the beginning of your question, though. Was it on Europe in general, maybe?
U.S. housing.
U.S. housing.
Yes, you are quite right. In fact, we got our fingers burnt, and I was not the only one. Because a year ago, we thought that there would be a strong recovery in the second half of 2010. Today, I have learned my lesson. I am going to be a lot more cautious. I would say I do not know. I am not counting on any kind of recovery in 2011. Things will probably be a little rosier in the second half of 2011 than they are today. Well, of course, there is going to be a recovery at some point, but we do not anticipate a strong recovery of the market in 2011. We believe that things are going to get a little better, but the statistics we have for the United States show that there should be a slight recovery in the second half. I am going to be very circumspect about this.
I am not going to be enthusiastic. The figure was about 550 in 2010, and the estimates vary between 700, 650, 800. That is the range for this year. Those are the estimates, because the estimates that we were given in the past turned out to be rather untrustworthy. The next question, please.
We have a question from Mr. Mark Haith from Bank of America, Merrill Lynch. Sir, please go ahead.
Good morning, gentlemen. I have two questions, actually. Firstly, if you look at the recovery in income in France, clearly it's lagged the rest of Western Europe. I wonder if you could explain to us in a little more detail your confidence about why you think the pace of recovery in France will improve in 2011. Secondly, if you look at North America and the H2 EBIT, again, can you explain the reason for the drop between H1 and H2 EBIT in North America? I just want to get clear the mix of seasonality, energy costs, or demand weakness. What's driven that drop H1, H2 in North America last year? Thank you.
Recovering France.
As far as France is concerned, the recovery in France started a little later. Well, actually, it's only now beginning to recover. If I look at new builds, we have statistics in terms of building permits that have gone up slightly over the last two months. But the second indicator that we have is the beginning of the builds, and that is actually disconnected to a larger extent than normal compared to building permits. The second figure we have shows us, therefore, that the increases that we had in building licenses or permits that for the last three or four months has been higher, is now translating through into the actual start of the new builds. This is the information that we get from all the customers from POINT.P. So there again, that's for renovation, and there again, the figures seem to be looking up slightly.
I believe that there will be a progressive recovery in France in 2011. I am relatively confident of that because of the macroeconomic figures that we have, as well as figures coming up to us from the ground and the discussions that we hold with all the professionals who have quite full order books. I am quite confident of that. As far as the U.S. goes, Laurent will answer. As far as North America goes, there are two phenomena. First of all, Exterior Solutions, High-Performance Materials, as well as Packaging in the U.S. These are doing rather well.
Now, exterior products as well in the U.S. that are doing quite well, did very well in the first half of the year with the inventory that was based on the hopes of our customers because everybody hoped that there was going to be quite a strong recovery in the second half of 2010. So inventory has built up, and of course, that had to be adjusted in the third quarter. To give you an idea, as far as Exterior Solutions go in North America, we have a double-digit drop on our sales compared to the earlier year for the third quarter of 2010. So that is compared to Q3 2009. Sales dropped off. We hope that that is going to be temporary over the second half. And also we have had increases in the costs of raw materials and energy, of course.
You also need to keep in mind, says Mr. De Chalendar, that at the beginning of the year, contrary to what happened in Europe, in North America, of course, it is cold in North America in January and February, but the weather conditions were extremely difficult at the beginning of the year. So it was the opposite of Europe, actually. Do we have any other questions on the phone? Yes.
From Mr. Clyde Lewis from Citigroup. Sir, please go ahead.
Thank you very much. Yes, it's Clyde Lewis at Citigroup. I think I've got three questions for Laurent, and then one more general one on distribution. Just to maybe get a little bit more guidance about the tax rate in 2011. Is that likely to be around 29%? Secondly, can you give me some help in terms of how much you think you'll be spending on restructuring in 2011? The third one for Laurent, can you maybe explain the EUR 107 million of other non-operating costs that you haven't broken out that you incurred in 2010? The other question I had on distribution was on inflation. One of your bigger competitors in the U.K. has guided to price inflation across their product portfolio of about 3%. For 2011, is that a good guide for your wider European business for this year as well?
Yes, Laurent, you are the right person to answer the first three questions. For your first question, as far as our tax rate is concerned, well, from one year to the next, of course, your tax rate can go up or down. Very clearly, right now, given that our sales figures are better for the U.S. and for Brazil, where rates are high, 39% in the U.S. and 35% in Brazil. So of course, our taxes are going to go up. We are continuing to merge legal entities, and that will make it possible for us to get back tax cuts that we accumulated, especially during the period when our sales were not going so well. All of this means that in the medium term, our income tax rate should be around 29%.
This year was 29%, and at the end of 2011, we'll see what it's going to be like. We believe it's going to be more or less the same. As far as restructuring expenses go for 2011, very clearly, we will have a lower rate of expense in 2011. We are in an expansion period where we are spending money. We will continue in certain targeted countries to continue to restructure if the market is not up to our expectations. EUR 242 million of the restructuring expenses that we had this year will probably be used again, but we believe that EUR 200 million is more or less a reasonable figure. We may be able to drive those costs down lower than EUR 200 million, but it certainly won't be zero because we will continue to restructure in 2011.
The last point concerned the EUR 107 million worth of non-recurring costs and non-operating expenses. About half of that corresponds to a provisioning for interest rates for the fine of Europe. That will be put into that particular item. Benoît Bazin will answer the other question. As far as inflation in the U.K. goes, in 2011, as in 2010, it will probably be higher than double what we have elsewhere in Europe. The figure we had of 3% is apparently what we saw in 2010, and we believe that it's going to be the same thing in 2011. Of course, after that, we have to ensure that our margin is good. We will be very disciplined in terms of margin, and we will put through into our sales prices the increased cost that we have with our suppliers. Next question.
Is it still a phone question?
Question from Mr. Will Johns from RBS. Sir, you can go ahead.
Morning. Three questions, please, if I could. The first is on Building Distribution. Just coming back on the second half margin, the 80 bps improvement year-over-year. Obviously, that was achieved despite only a 1% like-for-like sales growth. Could you split out, if possible, how much of that 80 bps was due to cost-cutting? Or is there anything we should be aware of in terms of rebates, gross margin, tax effects? Just some clarity there, please. And whether you could comment as well on distribution, if you think you're taking market share in any of your geographies. Second question, please, just around debt costs for 2011. Should we expect any changes in terms of the gross or net debt costs, please? Then finally, just on the pension deficit.
It looks like the pension deficit fell from about EUR 3.6 billion to EUR 2.9 billion from the half year to the full year. Perhaps you could just flesh out that movement in a bit more detail, please. Thanks.
Benoît Bazin will answer the first question, and Laurent the next one.
Yes, as far as the margin for our operating income goes, of course, we are looking at our commercial margin on our sales prices. We've increased that. The second question is costs. Of course, as Laurent told you, a large part of our business income increase in 2010 really has come through our increase in sales prices and reduction costs. But we are working on both of them. Yes, as far as the cost of our net debt is concerned, as I indicated earlier, the cost of our gross debt has been reduced from 5.2% to 4.8%. This means that this will have a positive impact throughout the year 2011, and that will be reinforced by the fact that we will be reorganizing our debt in 2011.
I think as far as the other financial expenses are concerned, not interest payments, but other financial expenses, we will be benefiting from the fact that we have exceptional costs this year that is linked to the renegotiating of our debt. So these two elements should, we believe, have a positive impact. On the other hand, we will still have a gap between the cost of our gross debt and the cost of our net debt, which is linked to the fact that the remuneration of our cash flow today is rather low. Although that will probably tend to improve. As far as pensions go, as you noted, over the whole year, if I compare the end of 2009 to the end of 2010, we are more or less at the same net level for the pension deficit.
However, something happened at the end of 2010 compared to the first half of the year, which is an improvement of about EUR 600 million for this net deficit, which is linked to two facts. First of all, we had a slight improvement effect of our pension deficit liability, which represents about EUR 200 million, and that is linked to the very beginning of the increase in interest rates. Of course, that was very low right now because we saw very little of it at the end of 2010, but it'll probably have a higher impact in 2011. The second impact, which is about EUR 400 million worth, is an improvement of the value of our fund, which has appreciated over the end of last year. Okay. Next question.
I have a question from Mr. Ankur Agarwal from Nomura. Please go ahead.
Good morning, gentlemen. I've got two questions, if I may. The first one is on the likely impact on Saint-Gobain from the tariff that E.U. has imposed on Chinese construction material, especially open mesh fabrics of glass fiber. The second question is if you can elaborate on the performance and outlook for the U.S. plasterboard business. Also, where does this business figure in terms of your investment priorities in the context of your balance sheet strength? Thank you.
Well, actually, the anti-dumping laws, that's good news because our operations in the Czech Republic will no longer have to suffer from this competition based on dumping that they have had to suffer over the last few years. This is actually good news for us. What was the next question? It was the outlook on U.S. plasterboard. Well, that, Mr. Dashanda, that is really linked to how a macroeconomy changes in terms of building in the United States. I answered that question because I told you about new builds in the United States several times this morning. But renovation will be doing better, and the non-residential sector is not going to be doing well. There's not going to be a significant improvement on plasterboard before the new build in the residential sector takes off again in the United States.
The last question was on the priority in investment. I think I did answer that question in my presentation, didn't I?
U.S. plasterboard, where does it figure in terms of your investment priorities in the context of your balance sheet strength?
Investment in plasterboard in the United States. Well, right now, we're not going to be putting any industrial investments in right now there because of the situation of the market. As far as any We are building a plant there, but it won't be open before next year because it's going to be modernized. So it's not really a question of investing in huge capacity. As far as any acquisitions are concerned, well, I answered that question earlier because Mr. Erhard asked me the same question, and I answered it.
Thank you.
I think that we should start taking questions on the Internet. I think you have a sheet of paper there on which we have the questions. Well, I have a question from Mr. Sorin concerning the performance of insulation materials in 2010 and the outlook for 2011. Laurent Guillot did give you the figures for Interior Solutions. There's not a huge difference between plasterboard and insulation materials. As you know, they are managed by the same business unit. So the growth was negative by 3.6% in the first half and positive by 0.1% in the second half of 2010. Outlook for 2011 now. As far as insulation is concerned, we will have a stronger buoyancy, a more positive market, we believe, for insulation materials in Europe in 2011. Independently of the market, actually, because of what I said on regulations.
Flat glass for building and insulation are the two. Well, of course, this is going to pull the other materials up as well. But clearly, it is because of regulations that we will be selling more. We have a dynamic that is even more positive, we believe. Mr. Gardiner asks us, what are the final markets that have had the best recovery in Eastern Europe? I told you, Poland very clearly, and that's a good thing because that is where we have the strongest presence. Russia as well, that recovered as well, but a little later after Poland and Czech Republic. I'm talking about building, of course, because the Czech Republic has very good dynamics in terms of industrial businesses. But for building, we believe that that's going to start up again this year.
I would be a little more cautious concerning Hungary, and certainly, I would not be positive yet concerning Romania. I have a second question on that, which was: Which are the main raw materials and energy costs? For energy, as I said earlier, EUR 1.8 billion for our energy bill. That is constant over time, 45% electricity, 40% gas, and 15%, a little more maybe, for fuel oil. Raw materials, we have no raw material that represents more than 10% of our whole raw materials portfolio. That means that we have a diversified portfolio. The first one, the most important one, is soda ash. Then we have cement, we have paper, we have asphalt, and we have iron ore. Mr. Marco asks us, what will make it possible for us to make the offset between buying up our own shares, dividends, paying dividends, and divestment?
I would say that our leading priority is to maintain our financial situation in as healthy a position as possible. The rating of our agencies is something that is very good, and that's why we have, over the last 2 years, continued to pay back our debts. That is our main priority. After that, as far as dividends or buying up actions of shares is concerned, I've already given you my answer. Please refer to my earlier answer concerning the stabilization of the number of shares and the dividend that is going up in line with our sales. We will come back little by little to the practice of paying 40% to 45%. 35% to 40%, sorry. Mr. E. Donahue asks us, why are you so confident about the U.K. in 2011?
We are quite confident for the situation of the United Kingdom for the first half of 2011, especially because of the thermal regulations and the renovation market that's doing quite well. We do have a few questions. They're not really concerns, but we wonder about a few points for the second half. For example, the implementation by the government of the plan concerning balancing public accounts. Is that going to have a strong negative impact on the economic context in the United Kingdom or not? We don't know. But for the first half, for H1, certainly we believe that activity levels should be quite satisfactory in the U.K. Second question from the same gentleman. What sort of cost reductions are you going to carry out? I haven't talked about an extra program. That doesn't mean, of course, we're not going to do cost reductions.
Let's say we've left behind the crisis that we were going through, but we will continue to increase our productivity gains as we always have done regularly in the past with certain programs. The World-Class Manufacturing program, for example, that's going to continue to increase as I talked about in November. I don't have figures on that, but we have a series of programs that are ongoing that are no longer linked to the crisis. On the other hand, says Laurent Guillot, in certain activities where startup is very quick and where we have very high growth rates in emerging countries, we are adding on costs in order to get further sales figures and more profitability. Mr. Decharnon, but as I said earlier, we decided that we would keep a large part of the cost savings that we had carried out during that time.
Insulation and capacity in Europe, does this make you run risks for your margins? Well, it's true that there's been additional capacity built in Europe, especially in Germany. But as I said also, the insulation market is very buoyant given the new regulations. It's a question of getting the balance right. Insulation products don't travel very far either. We've got to bear that in mind. What happens in Poland doesn't necessarily have an impact on what's happening in Spain or even in France. That's the way it works in insulation. The next question is the estimated impact in respect of the adverse weather conditions in Q3 and Q4 of 2010. I'm sorry, but I already mentioned that. Very hard to produce numbers on that. My answer has to be the same here again. Some questions from Mark Stoke from UBS.
The breakdown per sector of the EUR 600 million savings between 2009 and 2010. You have in the appendix to the little document you were given, and it's on the internet, the breakdown in terms of the cost savings, the EUR 2.1 billion sector by sector. It's about one third in Innovative Materials, a little less than a third in Construction Products, and about EUR 450 million for Building Distribution, and then a set of EUR 350 million for all the different businesses of the group, cross-cutting company-wide programs. What's the upswing of energy and raw materials price in 2010? We mentioned that. What about the hikes to be expected in 2011? We mentioned that, too. Restructuring charges and taxes for Packaging volume in Building Distribution in the fourth quarter per country for the major countries.
Well, clearly, we're going to remain on the same trend with a slight improvement compared with all of the half year. I've given you the details of the figures, with December being a bad month and a more substantial impact in France than in other areas. Thank you, says Mr. Decharnon. Thank you for attending. I'd just like to recall that our publication of the revenue figure for the first quarter will be made on April 20th next, after the stock market closes. Thank you.