Good evening. This is the conference operator. Welcome, and thank you for joining the 2023 first quarter sales conference call of Saint-Gobain. As a reminder, all participants are on listen-only mode. After the presentation, there will be an opportunity to ask questions by pressing star and 1. At this time, I would like to turn the conference over to Mr. Benoît Bazin, CEO of Saint-Gobain. Please go ahead, sir.
Thank you. Good evening, everybody. I hope that you have received our press release and that you have already been able to go through the highlights. Together with Sreedhar, our CFO, we will discuss our Q1 sales and take your questions. We achieved solid growth despite a difficult environment, with like-for-like sales up +4.7%. It is important to note that we had growth in all our segments. We saw a marked decline in new construction and a good resilience in renovation. Overall, we outperformed once again thanks to our strong strategic positioning at the heart of today's energy and decarbonization challenges, and also thanks to our powerful local organization by country. We continue also to benefit from the optimization of our portfolio, which has reinforced our overall business profile on strong profitable growth. Remember that we have rotated one-third of our sales since 2018.
We have also deeply rebalanced the geographic exposure of the group, and we are strongly positioned on the structurally supportive renovation market. Our local organization by country allows us to be close to our customers, which is more important than ever to make the difference during more difficult times. Our local teams are fully empowered to take proactively the right decisions on the ground. They are clear priority. They are totally incentivized on them. This means that as we have already proven in the last few years, we are proactive, and we act quickly in adapting to the local environment with the necessary commercial or industrial measures, be it optimization on price or on cost.
This may be to respond to market needs with new innovation, offering also new services and added value to our customers, or helping our customers manage the continued inflationary environment with guaranteed pricing so that they can quote confidentially and confidently for new products. It may be also to deprioritize the plant, add or take away a shift and labor. Whatever we need to do, it is this local organization, this strong drive and focus on results, and above all, this new culture country by country that allows us to act quickly and decidedly.
This is what has allowed us to demonstrate Saint-Gobain resilience in a difficult environment and what will allow us to continue to deliver a strong operational performance and an attractive operating margin despite the more difficult markets. I now hand over after this introduction to Sreedhar, who will give you additional information about our first quarter sales.
Thank you, Benoît. Good evening, everybody. Let me give you more details about our Q1 sales. We achieved solid like-for-like sales growth in Q1, up 4.7%. The currency and the structural impacts were both slightly negative. Pricing was up 10.2%, mainly due to the rollover impact from last year's price increases and some additional price increases passed locally at the start of the year. We continue to demonstrate our ability to manage proactively inflation in raw materials and energy and deliver a positive spread even in the first quarter. We now expect raw materials and energy inflation of around EUR 800 million in 2033. Given the strong focus on price-cost spread by each and every country CEO, we remain confident in our ability to continue to more than offset this inflation in raw materials and energy for 2023.
Our embarked price effect should offset the expected inflation and prevent margin dilution from inflation. As we expected and mentioned to you in February, we saw a moderate slowdown in markets with volumes down 5.5% in Q1. We have a contrasting situation between the marked decline in the new construction and the good overall resilience of renovation market. I will now give you some details by segment. In Europe, we have a contrasted situation between Northern and Southern Europe. This is mainly due to the higher exposure to the new construction in Northern Europe. In addition, the inflation and interest rate hikes are also relatively higher than Southern Europe. In Northern Europe, we saw slight sales growth driven by prices in the context of a sharp decrease in the new construction, while renovation was more resilient.
Nordic countries showed a slight increase in sales on a high comparison basis despite a declining new construction market. Thanks to our presence across the full value chain and continued market share gains. The U.K. saw growth in facade and interior solutions on an easier comparison basis, even though structurally it remains difficult. Germany saw weak growth with the economic hit from the energy shock, higher inflation, and a rapid increase in interest rates impacting the new construction market. Eastern Europe resisted quite well and fell only slightly from its record levels in Q1 2022, with the high interest rates impacting construction markets. As expected, Southern Europe performed better than in particular to its large exposure to renovation markets. The region's sale grew 8% organically in Q1, with renovation demonstrating good resilience while new construction slowed.
France continued to benefit from its strong exposure to the renovation market, which remains at a good level. Thanks to the various stimulus packages, for example, MaPrimeRénov', minimum energy efficiency schemes, et cetera, and a healthy order books. New construction declined. Our positioning on the full construction value chain and our energy-efficient solutions are enabling us to clearly outperform the market. We are leveraging our comprehensive range of solutions, and we are also accelerating the rollout of our new low carbon offer. Spain and Italy were driven by a good momentum in the renovation market. The Middle East and Africa showed significant growth. In Turkey, we are very happy that we have been able to join forces with Dalsan to create a leader in plaster and plasterboard support with a broadened offer of light and sustainable solutions.
Turning now to the Americas, where sales stabilized at a good level in the context of a downward turn and new construction market. North America held up well, driven by its complete light construction offering for interior solutions despite the weak new construction market. Regarding exterior solutions, we continue to gain share in siding thanks to our Kaycan acquisition. As a follow-up of Q4 2022, roofing continued to be hit by destocking from distributors during Q1, but it's picking up in April and should also benefit from the rebuilding after the recent storms. The integrations of Kaycan and GCP's waterproofing business continue to go well, with many commercial development opportunities. Latin America continued to see a difficult macroeconomic environment in Brazil, where high interest rates are weighing on the construction market.
Elsewhere in the region saw better trends. We finalized our acquisition of Térmicas San Luis, a leading insulation player in Argentina. Our Asia Pacific region saw solid sales growth on a high comparison basis. India performed well thanks to market share gains. We acquired UP Twiga, the leader in glass wool insulation in India, widening our offerings to customers. China was able to show moderate growth despite pandemic impacts at the start of the quarter, and Southeast Asia remained at a good level. High-performance solutions saw organic sales up 9% in Q1, driven by strong innovation, the recovery of automotive in Europe, and pricing. Our businesses serving global construction customers had a 50% boost with the integration of GCP. Good trends continued for Chryso, driven by their strong innovation and the need to decarbonize the construction sector.
Chryso is taking advantage of the group's global presence to accelerate its growth with recent acquisitions in Brazil and Egypt in concrete admixtures. The new construction chemicals organization is in place since end of last year integrating GCP. Mobility saw 20% organic growth driven by the progressive catch-up of prices. Our continued outperformance of the market thanks to our strong technological edge in electric vehicles and the rebound in automotive market, particularly in Europe. We continue to see good sales growth in the Americas and Asia. Businesses serving industry progressed, driven by pricing and demand for decarbonization innovation. To sum up, we continue to grow and outperform in a difficult underlying market. We continue to deliver on a positive price cost spread. Our continued focus on cash culture has been reflected in our recent credit rating upgrade.
Once again, this is another recognition of the successful transformation of the group since the last four years. We will continue to proactively do everything under our control in order to deliver strong performance on margins and cash. I will now hand over to Benoît for concluding remarks.
Thank you, Sreedhar. Let me make a few comments about the outlook. In a difficult macroeconomic environment, our priority is to continue to demonstrate our resilience, as we have done over the last two years, dealing with different kinds of challenges and delivering very well. We are able to achieve this thanks to our strategic positioning, which has never been more relevant on energy efficiency, renovation, light construction, and all the commercial and initial initiatives which enable us to adapt proactively to the specific market trends in each country. For Saint-Gobain, I've been very happy about this first quarter, and I would like to thank all the teams, and I'm confident that 2023 will mark another successful year with the implementation of our Grow & Impact strategic priority.
We confirm the outlook for our markets in 2023, as we presented to you at the end of February, with contrasting trends, the marked decline in new construction on one hand, but good resilience overall in renovation. Amid a moderate market slowdown, Saint-Gobain confirms that it is targeting an operating margin of between 9% and 11% in 2023, in line with the Grow & Impact strategic plan targets. Thank you for your attention. Now Sreedhar and myself, we are happy to answer any question you may have.
Thank you. This is the conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone with a question may press star and one at this time. The first question is from Jean-Christophe Lefèvre-Moulenq of CM-CIC. Please go ahead.
Good evening, everybody. I have two questions regarding the pricing. First general question, against the background of the decline of some cost factors, mainly electricity and gas, are you able, in the coming months, to implement additional price hike? Firstly. Secondly, looking at Q4 2022 and Q1 2023, you keep quite a good momentum in Northern and mainly Southern Europe in the price hikes, but we have a slowdown in Americas and Asia. Can you give us more color on this? Maybe a follow-up question on flat glass. Maybe if we look at German data, there is a decline since December. Will you implement an additional price hike or not? Thank you.
Thank you, Jean-Christophe. I will take question number one, and Sreedhar will take number two and number three. You know, we are managing the price cost spread. This is the number one priority for every single country and within each country, all the different product lines. Yes, we are able to push some additional hikes. If I take one example, for instance, in roofing in the US, we have announced a price increase for mid-May of this year, but then I could go on country by country. It's based on the market environment. It's based also, of course, on the cost of factor. It's based on all the added value coming from our solution and what we bring in terms of benefits to our customers.
The overall answer is yes, our teams proactively on a case-by-case basis, first, have been able to push some additional pricing in the first quarter versus end of 2022, and second, we have other measures planned in Q2 in various geographies or product lines.
Yeah. Jean-Christophe, if you just make a, you know, sequentially, if you look at the numbers, it's not that easy to compare because from quarter on quarter, you do have certain impact of mix and, you know, particularly when you refer to Americas, clearly we did have certain Q4, certain impact of retrospective price increase, and we had a similar situation in high performance solutions, particularly in mobility. So you know, if you have to look at overall when I compare all the price on all the segments, either we maintain the price or, you know, opportunistically, we try to get an incremental price increase.
As far as the price levels are concerned, it is still in a good situation, and we have been monitoring it very closely to make sure that we don't miss on any opportunities wherever we can. I know particularly for example, we are also thinking of, again, we have made an announcement of price increase in roofing.
Yes.
You already said that. Okay. There are many such opportunities. Now, coming to your specific question on your 4MM thing is, the current price level is at EUR 5.6, Jean-Christophe.
Okay. Okay. Follow-up question, EUR 5.6 including the energy surcharge?
No, we never had.
We never had that, and it's something that 18 months ago, almost two years ago, we decided strategically to push and manage our pricing based again on the added value, good service, and proactive solution that we bring to our customers and not make it a mathematical correlation with any index.
Okay.
-our pricing based on the strategic market environment situation. Yes, there are a lot of actions in a lot of countries. I could name many other action beside the U.S. example we gave.
It's regarding the plasterboard price, I heard that you announced a price hike in Germany. Is this price hike sticking?
Yes, no, we could take another half an hour to go, like, line by line, country by country. Yes, there are many examples where we continue to push up. We announced for certain customers some price hikes in gypsum U.S. as well. There are many examples where, again, we managed it very well because in some geographies, even in Europe, if I take France in the first quarter, we were very busy with plasterboard. I think we gained share, and we had to supply plasterboard in France coming from Benelux and Spain.
Some of those situations, we try to first deliver a very good service to our customers, which, as you know, was the number one criteria in the last two years. Second, optimize the overall market share balance for Saint-Gobain. Yes, it's one example that you mentioned, which is, which is ongoing and confident that it will, continue to make good progress.
Many thanks.
The next question is from Paul Roger of Exane BNP Paribas.
Yeah, good evening, Benoît and Sreedhar. Hope you're well.
Yeah. Good evening, Paul.
Thank you for taking my question and congrats. Evening. I guess my first one would be a follow-up in a way from Jean-Christophe's question. It's really focused on the price cost spread. I mean, clearly you've got strong pricing in Q1. You've just talked about some new measures in Q2 as well. All of this is coming on the back of big reversals in some energy declines. I'm thinking particularly natural gas going down. I guess my overall question is really is there a possibility the group's price cost spread could actually surprise positively, and in a way be quite significantly positive in 2023? Then my second question, I think, Sreedhar, you mentioned that US roofing was getting better in April.
Could you just confirm that in your view, destocking is coming to an end? Maybe also comment about the outlook for the different U.S. construction product businesses generally this year. Thank you.
Thank you. Thank you, Paul. You know, on the price cost, again, it is our number one priority to manage a positive spread. Whenever we have opportunity to push up prices, we do it. Sometimes we have to adjust, and we do it. That doesn't mean the price cost spread does reduce, but prices could come down. The point is to manage the inertia between some deflation on energy and raw materials and the inertia on our pricing action. We manage that, again, very carefully, and I can tell you all our country CEOs are hands-on, all hands on deck, to do that and, with a very proactive, fast, agile, and empowered type of mindset and culture.
We are managing up and down based on the pricing, the cost, and any opportunity we may have. Your second question, yes, destocking is over in the U.S. on roofing. It's not so easy to read the last two quarters in roofing in the U.S. because some distributors were missing some products from some suppliers. Others were a bit overstocked. Q4, Q1 is a bit difficult to read. I can tell you, yes, the destocking is over, and you may have seen that we had quite a lot of storms across the country, so it's not just one big one in Texas, but it's across the country from Minnesota to the Southeast.
Actually the good distributors are restocking and pushing up the orders strongly. I think we'll have a very good second quarter overall in roofing. We have been happy, even though our sales in Q1 have been down in roofing, we have used this opportunity to replenish our inventory of finished goods. Because we were clearly low, and we have used additional time of manufacturing for replenishing what we deliver now and started to deliver in the last few weeks to our distributors. On US construction overall, you know, it's interesting because I think we are not far from the plateau at the bottom. I'm quite confident that, first, the underlying demand is still very strong in terms of, you know, 3.5, four million units that are needed for the population.
Second, when you read the statistics, you know, single family have been slightly up, sequentially month-to-month in terms of housing starts and permits in March versus February. Multifamily is still slightly down, but I think we are not far from a plateau in terms of the statistics in the U.S. Also, the mortgage rates have started to stabilize. Now the, I would say, the end consumers in the U.S. are going to reset their expectations in terms of mortgage. I think in the U.S. we may have maybe one, two quarters which are still up and down, but we are not far from, I think, the bottom. Again, it's a good bottom because we are at 1.3, 1.4 million housing stocks.
We needed for the country is 1.5 and above. The IRA, of course, is not directly related to construction, but IRA is a very good stimulus package for the economy in the U.S., for the middle class in the U.S., for manufacturing jobs in the U.S. I think it's going to boost the whole U.S. economy, so I'm confident. You didn't ask about Canada, so I will jump on Canada. As you know, we are big in Canada. We are happy about the Kaycan integration and what it brings to our overall presence in Canada. Canada is doing well. Canada should continue to deliver well in 2023
That's great. Can I just have one quick follow-up? I mean, you talk about the demand environment. I think one question people sometimes have is about the sustainability of margins in US construction products. I mean, clearly they look quite high relative to the group and to history. Do you have any view there about where they might evolve to this year?
First, no, it's a new Saint-Gobain, Paul. It's a new Saint-Gobain around the world, and it's a new Saint-Gobain in the U.S. Yes, we have tripled with two U.S. takeovers, with Kaycan, with a lot of good innovation and good offer to our customers. We have tripled the math of operating profit in the last four, five years in North America. I'm confident that we are, with a very strong, powerful organization, gaining share. You know, if I were to look at just taking siding versus four years ago, we gained, I think, in volume, close to 30+% volumes in four years. If I take 2022 versus 2019 in siding in U.S., it is due to our solution selling across exterior products in North America.
When I see what we deliver now in interior solutions, it's also quite strong. No, I'm confident we'll stay in strong double digits in North America. Again, it's a new company. That's on Saint-Gobain. Second, don't forget that the market versus 10, 15 years ago are much more consolidated. We participated to drive the consolidation of plasterboard in the U.S. We did it also in Canada. Roofing is a consolidated market. I think it's also quite consolidated and good customers on the downstream side with the distributors. I think the whole picture of the North American market has changed, and we are happy to lead as the number one building materials supplier in North America.
That's great. Thank you very much. Have a good evening.
Thank you, Paul.
The next question is from Elodie Rall of JP Morgan. Please go ahead.
Hi. Good evening, Benoît and Sreedhar. My first question is on volume. First of all, if you could confirm the mid-single digit decline that you had mentioned at full year results, and whether Q1 should be the trough in term of volumes, deported, given the easier comparison base going forward. My second question is on guidance. You're looking for a marked decline in new construction, but good resilience in overall in renovation. I've noticed a change there versus your previous guidance at full year on the new construction, so change in wording. You talked about a decline in new construction in certain regions. Does that mean that new construction has deteriorated further since full year results?
Third question to that, on the resilience on the renovation sector, how do you explain that? Is it your performance in particular because of your one-stop shop approach generally? If you could give us some color, on the breakdown of the performance in Southern Europe with France, at 7%, I think, right, for like Spain and Italy at 15%. Thank you.
Energy on, in terms of volume, we remain very confident of this guidance what we gave the mid-single digit down. You know, when you look at your right, the comparison basis, at least for the second half should be easier. The first half would certainly be tougher. Q2 will also be tougher than like what you had in Q1. Yes, H2 should be easier comparison basis. Overall, we remain very confident to confident on the guidance what we gave on volumes.
For the full year, you know, in terms of new versus renovation, no, of course, we have some ups and downs country by country, but overall we are in the ballpark of what we had in mind three months ago, so no specific change. Again, it varies country by country, but I would not take any conclusion out of that. Now about resilience of renovation. First, keep in mind that in South Europe, we are more than 70% of our sales towards renovation. Northern Europe, it's more in the 55% plus, so it's quite different. I would add to that our renovation, it's not do it yourself. You know, our renovation is driven B2B, we sell to craftsmen. They have in France a full in the hook.
Keep in mind that, you know, we are talking about energy efficiency, heavy stuff, not do it yourself. I think some of our, for instance, colleagues in do it yourself in the Nordics published, you know, some difficult figures a few days ago. We are not in that situation, not at all. We are driven by, you know, energy efficiency, air quality, deep renovation, if I take the Nordics. After that, in some countries, I would take France, I would take South Europe, like Spain, Italy, we clearly outperform the market. In France, we are the reference of the market in terms of energy efficiency, in terms of all the solutions we can bring to the craftsmen, training, credit, et cetera. Yes, there are countries where we outperform stronger than others.
I would not say that in Germany, for instance. I would say that in the country, if I take a country like Norway, we are clearly doing well. So you have those differences by country. After that, maybe one or two last points on renovation. You may have seen that the parliament in Europe passed mid-March a very important setup, which is asking every country to translate into national law the minimum energy efficiency performance. This is what we had in France with a trigger that started last September, with an additional trigger this year on if, you know, the ability to rent, the ability to increase the rent, the ability to sell if you don't have the right diagnosis on energy performance in terms of minimum grade.
For instance, on May 1st in France by law, you cannot sell a rent without delivering this diagnosis of energy performance. This EU Parliament is going to take a while to be translated in all the countries, but again, it's a very strong support for energy efficiency and some countries are already anticipating a bit of that. I think you have to keep that in mind. The last point I would mention on renovation, it's 70%-75% of the time driven by personal savings. It doesn't correlate to the heights of interest rates like we see the impact for construction markets and credit financing on construction markets. Personal savings, you do it. Sometimes actually when the markets and new construction are tough, you prefer to renovate your home than jump to something else. This is also a super factor.
Great. Thank you. If I can just throw in a last one on pricing, just to come back to the previous questions. You had mentioned that you pushed more, you pushed on more price increases during the quarter selectively. At full year results, you talked about a 3% pricing carryover, I think. Does that mean we're a bit above 3% now?
Yeah. You know, it's slightly above. We have to, it's a fact that we continue to remain very pragmatic and dynamic in the marketplace. It's done at a country CEO level. It should be slightly better than 3% for sure.
Great. Thank you.
The next question is from Yves Bromehead of Societe Generale. Please go ahead.
Good evening, Benoît and Sreedhar. Thank you for taking my question. Maybe just coming back on the last question and linking that to the margin guidance of 9%-11%. I think, Benoît, you've often and Sreedhar, you've often said that you wanted to achieve double digits. I mean, given what you're saying on the input cost side, which is now EUR 800 million, and the pricing being above 3%, it's fair to assume that you're more confident today to be at double-digit margin in 2023, if I could push you on that.
That's my first question. My second question is, sorry, jumping on another subject, one on Grenfell. I think we've seen some news recently with the UK Housing Secretary. I guess I'm just trying to get the perception, and your views in terms of the enforceability to pursue legal and commercial actions against Saint-Gobain. Are you worried? Should we be worried about any sort of repercussion this could have on your UK building products business? Thank you very much.
Thank you. As we said, you know, it's the first time in 23 that Saint-Gobain guides on the margin. Our guidance, of course, is a full-year guidance, and we are not going to micromanage the margin month by month or quarter by quarter. Keep in mind that usually we don't give a margin guidance, which we did for this specific year. Keeping in also that we gave you this 9%-11% margin range at the capital market day a bit more than two years ago.
We knew we are confident that we will remain within this 9%-11% range for 2023, which again, the time of the capital market day was average for five years. We guided for specifically this year after the last two years of double-digit margin, so specifically for this year being in the range of course, and this despite underlying difficult markets. So we gave you, I think Sreedhar and myself, some color about the start of the year, and I told you that I was happy that how the teams have reacted and proactively super well on pricing calls, et cetera. This shows our resilience on the top line. We are not going to keep changing the target every month or every quarter. I can tell you that we are driven with a strong operational performance on Saint-Gobain.
All the teams country by country, this is the culture of Saint-Gobain, are aligned in terms of incentive. It's a big cultural change in terms of being totally aligned and driven by your P&L. They push added value solutions, which helps also on the pricing power. We don't fight SKU by SKU, all this is good. We wanted also with this margin to show you that even in difficult times, you are, the investors are protected on the downside. We, the new Saint-Gobain, we are here to deliver, and we'll continue to deliver well. To your second question, well first, you may have seen some of you, or then I think that we published a statement on the Celotex website, because we participated.
I think we told you that several times, that we participated in order to help bring some relief to the families that suffer from this tragedy, sorry. We participated in alternative dispute resolution, what in England you call ADR, for civil claims. Even though, again, it's not admission of liability, but we participated. That has been brought to conclusion, and we agreed, Celotex agreed to make a financial contribution which we booked end of 2022. I cannot give the number, but it's not, it's a small number and it's very limited. Again, I think that was a good page turn for the families of this tragedy, that there could be some financial compensation which again is not any admission of liability because I repeat again that the Celotex products are not proven to be wrong.
Yet, Mr. Michael Gove, like he did last year, continued to write to some different stakeholders within the construction space. We remind you and him that our products are proven to be safe. Second, we had a very limited exposure to the high-rise building, even from 11 to 18 meters. We participate in any constructive initiatives to design and construct safe and safer buildings in the UK. You know, we are willing to engage with the Government to help with new standards, with new regulations, because I think the UK Government did realize and acknowledge the flaw in their building standards and regulations from the past.
We answer to Mr. Gove that, yes, we welcome any engagement to help in the standard, but there is nothing else to say, and we'll continue to act with good products like we did with the Celotex products and act as a good responsible corporate citizen. I don't anticipate at all any legal ground for any financial impact on Saint-Gobain. If we can continue to participate to better building regulations like we do it around the world, we'll be happy, we'll be happy to do so. This is what our UK CEO answered to Mr. Gove with some correspondence a few weeks ago.
Thank you very much for that .
No impact for Saint-Gobain going forward. Again, ADR has been put in the books of 2022. I think the financial exposure of Saint-Gobain is now almost over, I would say.
Very clear. Thank you very much .
Thank you.
The next question is from Yassine Touahori of On Field Investment Research. Please go ahead.
Yes, maybe a couple of questions first on the pricing development. It looks like you had most of the improvement in pricing at the beginning of the year versus last year was in Europe. Could you confirm that this is the case? Could you maybe give us a little bit more color on which product? Was it like insulation, gypsum, mortar or flat glass would be very useful just like to understand a little bit like the dynamic there. Are you confident that you can keep those price increases? Are you seeing any competitor being a bit more aggressive on pricing in the past few weeks or months?
That would be my first question, just like to understand the sustainability of the price increase in Europe, which is quite strong. Second question would be more on the volume development. We have seen a lot of leading indicator in France, in Nordic, in Benelux, deteriorating quite markedly. Also we see, for example, in France, like the order book of some small builders is coming up a little bit. Do you feel that we could in volume in the coming quarters as reflecting this deterioration in leading indicator, or you feel it's too early to say?
I will highlight some points, and then Sreedhar will elaborate more about the second quarter pricing in Europe. You know, what we have been doing for the last two years, because it's not new in the quarter, is to be extremely close to our customers. Keep in mind that in some areas, in some materials, product lines, countries, the availability and good service of those products was, and still number one in terms of issue because of the supply chain, which is not totally solved everywhere. We have been very close to our customers to help also accepting, anticipating the pricing actions. You know, for instance, if I push what we are doing in France, when we have 400,000 craftsmen with Saint-Gobain account in France, we deliver credit to them. It's a credit at zero interest rate.
In those times, it's a big benefit, a big service to them to help them. That's something that you put also in front of some additional pricing actions, plus good service, plus good training on all the new energy regulations. We have asked all our teams country by country to be very, very close to the customers. That helps in terms of pricing development. We are also smart to adjust, sometimes negatively, to adjust down some of the pricing. Sreedhar will give a bit more color to you on that.
Yeah. I mean, again, if you look at sequentially, as I said before, we have either maintained or improved prices in all the segments. It is not that obvious when you look at from Q4 versus Q1, as I mentioned. When you look at all the details, it is across the board, we managed to either maintain or push the prices incrementally. So for me it's going in a good shape.
On your second question for the leading indicator, yes, some leading indicators with no surprise. As we say, you know, it's within the framework that we outlined at the beginning of the year. On new construction, they are coming down. If you take renovation, which is, you know, much bigger for us, and it is resilient, and there are huge needs. I give you one example of one topic that we discussed at length, public buildings. We have been, and I've been personally advocating a lot in France within media, within the government and regulators, et cetera, about renovation of schools and public buildings.
Finally, for some of you who follow a bit the, you know, the French actions, the French president last Sunday, the prime minister yesterday evening talked about a big program for school renovation on energy efficiency, not for design, aesthetic or computers. No, it's on energy efficiency so that during the heatwave we had last June and May, you don't have the kids out of the school or at home. We are there in some... This is one additional point of action and development and growth that we will have for instance in France. Again, it varies, but renovation is resilient. We are driving a lot of the actions and solutions toward that. If I take the order book of the craftsmen in France, they have stayed at a very high level. They are busy.
maybe the very last question. What could be the next leg of your portfolio transformation?
The next, sorry?
Next step on the portfolio.
Next leg or the next step?
Oh, sorry.
you know, we continue to optimize what we think is right in terms of profitable growth. Of course, all that has to be aligned with our strategy of worldwide leadership in light and sustainable construction. It has to be aligned in terms of financial indicators, value creation, at least in year three, if not earlier. We have been very disciplined, and you may know that we backed on some larger deals that were announced recently because it was way too high. We also align very much on the cultural fit. We will continue to optimize the portfolio a bit in and out.
I would say we have done the bulk of what I wanted to do in terms of significant value detractors or businesses far away from the strategy and/or far away from the financial performance and expectation they should deliver. We'll continue to optimize. Recently, we divested from Glassolutions in Sweden. We have been active. We have now totally exited our distribution in the UK, in Poland and the rest of the generally distribution we had in Denmark. We continue to optimize, and there are ongoing projects we are working on, whether it's on acquisitions or value detractors. I'm extremely happy that 11 acquisitions we have closed in the first quarter. We didn't put that in the press release, but it's 11 acquisitions. Some nice add-ons on construction chemicals in Brazil and in Egypt.
A very good consolidation in Turkey, Sreedhar mentioned it. Unfortunately, but Turkey is very, very busy to rebuild the country. We are in Mortars, we are in Construction Chemical with Chryso, we are in Placo Board, we are in Insulation in Turkey. Insulation in India, it has been a 10-year dream to buy this company. We acted decisively, it's part of. It's progressively, you know, continue to work on this geographic rebalancing of the group, light and sustainable construction everywhere, and profitable growth with a good fit in terms of cultural integration. Long answer to say we are busy and, you know, we are happy that we knew we had a strong balance sheet, but we are happy that Sreedhar pushed all of us so well on free cash flow, and we are now with a very solid rating.
That doesn't mean we feel a fourth buyer. We are very disciplined on value creation. I don't feel forced to buy a business at any price. It has to make sense strategically and financially for Saint-Gobain. We have a solid balance sheet to size opportunities in the next 12-18 months or 24 months.
The next question is from Martin Flueckiger of Kepler. Please go ahead.
Yeah. Good evening, gentlemen. Thanks for taking my question. Martin Flueckiger from Kepler Cheuvreux. Two questions if I may. The first one is on GCP. As I recall it, GCP was having some difficulties in terms of underlying sales progression in Q4. Could you update us on the latest developments here at the former GCP business and what kind of synergies you've been able to capture from the integration, if any? I realize it's still very early days, but, you know, if there hasn't been any so far, what you're targeting for 2023. That would be my first question. The second question is on Sreedhar's comment, really as a follow-up on his comment regarding the credit rating.
I suppose you're referring to S&P, which has upgraded Saint-Gobain to BBB+. You know, I realize you've got a free cash flow target out there in your strategy, but could you just talk us or update us a little bit on what your latest thoughts are with regards to your net debt situation, where you would like to see net debt progressing over the next couple of years, and what that would mean for the group's credit rating going forward? Thank you very much.
I'll take the first and Sreedhar will take the second. Yes, you are right to say that GCP, and we knew that, is and was more turnaround than Chryso, which was and is still the best, you know, margin performance of this sector across across the board. First, as we said in February, all the organization is in place and it started high level very fast in October, but done end of December. I think we will have, and we start to have good news and good surprises by GCP in North America and Latin America. I was with Sreedhar in Brazil and Argentina maybe three weeks ago.
I can tell you, we have a super strong GCP manager in Latin America, extremely happy to be within Saint-Gobain and final good home in Latin America, not alone in Latin America, but with the full support. You know how big we are in Brazil, already made some acquisition. We will have some positive surprises. Let's take North America and Latin America as example, Organic Shingles. I can tell you the interaction on waterproofing and Ice & Water Shield, siding and roofing membrane in North America with siding and roofing is progressing very well, so on commercial development, on interaction with the teams and the cross-selling synergy. On, on those fronts, it's doing well. We have all the synergies for 2023 already identified and secured for EUR 25 million.
We will update you in July on that, but I'm quite confident and optimistic that it's too early to go into all the details. Everything has been done, of course, on the corporate side in terms of integration, and also a very significant part of the program was related to purchasing and initial optimization. It's ongoing. The purchasing synergies are more than confirmed in terms of actions and upstream integration with the polymer manufacturing of Chryso. We have plans for additional development. Yes, I'm happy with the development of GCP and the way Thierry Benoît, the former CEO of Chryso, is handling all that with his team after one fantastic year of integration in 2022 within Saint-Gobain. It's progressing well.
you know, we closed this deal in October last year, so I think it took us 9 to 10 months to close between announcement and closure. we have been now very active for more than seven, eight months on the corporate with GCP.
Coming to the balance sheet, you know, we gave two targets in the capital market day. One is for the first time we talked about the cash conversion ratio as more than 50%, and that's something which we committed ourselves, and we're consistently delivering on this. The second point we said is to the balance sheet leverage, that's 1.5 times to two times of EBITDA. It's true that the last two years we are at 1.2 level, and I'm happy to have a stronger balance sheet than what I committed because as I said before, that having a stronger balance sheet is better, but I'm not going to come under any compulsion to use this money, and any money will be spent is based on the value creation.
I'm happy to stick to this commitment which I gave. I think it's something which we have done, and you will see that the Saint-Gobain will remain disciplined. This is S&P, if you look at it, Moody's actually did us upgraded last year itself. S&P took actually their own sweet time. I'm happy that finally they also did it. You know, we have all the right indicators, when you see all the ratios, in terms of debt and debt leverage. I'm not going to come up with a new target, so I just wanted to be clear on this, even though I'm better than what I said.
Thanks.
The next question is from Gregor Kuglitsch of UBS. Please go ahead.
Hi. Thank you for taking my questions. I want to come back, I want to just clarify a comment, I think, in the introductory remarks, you sort of said your price cost is positive, but not only that, you were also suggesting sort of to effectively essentially keep the margin stable sort of on a volume constant basis. Is that what you were trying to say when you were commenting on the price cost? Just to understand in terms of what you were trying to say there. Then maybe related to that, I think you've now taken your variable cost inflation guidance down by EUR 200 million, right? I think you were saying EUR 1 billion, now it's EUR 800 million. You've confirmed, I think in an earlier question, that pricing will be up at least 3%. Is there...
Is that basically the delta that, you know, compared to maybe three months ago, we should be adding, or is there something else going on, I don't know, on wages or below the line that we need to think about? That would be helpful if you could give me some clarity on that. Thank you.
The first question, you know, Sreedhar commenting on the price cost spread being positive in the first quarter, and that it should help us maintain the margin. Of course, you have the volume impact. Again, I'm not going to go more into the details of the margin guidance. I think I've been explicit that it's a full year guidance on the margin, and that we will continue to have a strong operational performance for the group. The comment that Sreedhar made was everything being equal. Of course, you have a lot of moving pieces in the overall P&L of Saint-Gobain, including on the margin. We are confident with a good start.
We are confident on the guidance of the year, and I think we give you some colors and reassuring that we have all our country CEOs and them to do their absolute best on what they can control. You know, pricing, cost, all this is under our control, cash as well. I can tell you, we are all doing 100% of what we can control well. Sreedhar, I think the second question was more on the spread between the guidance at EUR 1 billion-
Yeah.
at the beginning of the year and EUR 800 now.
Yeah. Basically the reduction is you're seeing that it's primarily all the petrochemical kind of things and energy is certainly lower than what we had expected. Whereas all the minerals, like gypsum, soda ash, sand, this kind of stuff is still going up. That's why we are guiding lower than what we said before. It is still an inflationary environment, and we just have to remain vigilant to make sure that we don't miss out on anything.
Okay. Thank you.
The next question is from John Fraser-Andrews of HSBC. Please go ahead.
Thank you, and good evening, gents. Three for me, please. Just a quick follow-up on the last answer. Sreedhar, is the hedging now, does that lock in the EUR 800 million increase, or is there scope if there's further falls in energy, for or even rises, for that to change? That's question one. Question two is on the comment in the statement about renovation being resilient overall. That implies that there may be one or two countries where it's not resilient, perhaps Germany, but on the same page, can you say whether any of your main regions were actually flat in renovation or positive? Would be helpful.
The final question is on the industrial and commercial actions to offset the lower volumes. If you could provide a bit more color on those, and if there is any quantum of cost saving that you've got in mind on those. Thank you.
On the hedging, you know, we said it in the end of February that it is very sensitive, and we are not going to comment much on it. Anything what we said before, the level of hedging, which has not changed. We are not really in a volatile environment. We are not hedging. We have to keep in mind that, you know, hedging is not used as a speculative tool for us. It is used more to mitigate the risk related to volatility. I'm not going to say much about it. You know, again, when you talk about EUR 800 million, the energy linked, energy or energy related is you're talking about is just 25%, is the total inflation. That, I think that should be helpful to have a little more color on the energy related cost increase.
John, on your second question, you are right that renovation is resilient overall. There are some country, not only Germany, if I take the U.K., RMI is down. It's another country where renovation does suffer. There are some country, if I take Spain, if I take Italy, yeah, it's positive. At least we see that, well in our figures, I would say France is a good level. After that, we would need to enter into the different product lines. Overall, France in renovation is holding well. It's a good level, again, without mentioning what could come in terms of public building renovation going forward.
Now, on your question related to actions, you know, I mentioned commercial and individual action because commercial means very good savings, different credit for particular craftsmen, being easy to do business with, the pricing actions, innovation. A lot of tools that our country CEOs are using. Same on the cost side, you know, if they think that volumes are coming down, they don't wait 1 quarter, they are proactive, and it could be just not replacing natural turnover that you have, for instance, in some of the distribution assets we have in Sweden or in France, it's an easy way to reduce headcount. Of course, all of them have, by nature and by design, a very tight control on AGME.
Always when you are early in the year, you make sure that you are safe on the discretionary expenses and discretionary costs. This is something that we have shared, and it's not new on January this year. You know, keep in mind that our volumes were slightly down in the second half of last year. I remember talking to our teams about that in June last year, that, "Hey, you are in charge, you are empowered, so let's be vigilant and let's be proactive, not reactive." Of course, after that, you have all the world-class manufacturing savings, the productivity savings in our plan. It's a lot of different measures.
I don't expect any significant change in terms of restructuring charges or things like that because it's a lot of miscellaneous actions, but being done proactively country by country, whether it's headcount shifts, not replacing turnover and other variable costs and actions, without mentioning the purchasing actions. Purchasing, we are tough. Sreedhar, heading purchasing teams, we are tough with our suppliers to make sure we optimize and we don't wait for next year to benefit from savings on purchasing. It's a lot of different measures. It's part of the, I would say, of the, of the routine of our managers, and they have their P&L in their face every single month, so they are proactive on all pricing cost actions, cash as well, if you know.
Thank you, Benoît. Perhaps, one follow-up. On renovation, is it fair to say overall, that in the regions it was flat or even slightly positive?
Overall for Europe, no, I would not say that. Plus, you know, we cannot micromanage exactly what is renovation, what is new build. You know, overall, it might be a balance with a bit of pluses and minus. It looks flattish, so whether it's, you know, +1, -1, I don't know, but it's overall flattish I would say.
Thank you.
The next question is from Tobias Woerner of Stifel. Please go ahead.
Yes, good afternoon. Thanks for taking my questions.
Good afternoon.
Yes, good afternoon. Thanks. wage inflation at the full year results, you said it was about 4% last year, and it'll be a little bit more this year. Can you give us an update on that, where you stand with that? What do you think that could, how it could develop this year? That's number one. Maybe you wanna answer that question first, and I'll continue.
Yeah. I think we'll be around 1% above last year. That's what we expect for 2023. I don't expect that to come back, so we will not have a second round during the year. Last year was a bit more dynamic. This year I don't expect to come back to this type of discussions during the year, so that should be around 1% more than the 4% of last year.
Okay. In line with what you indicated at the full year, really.
Yes.
Okay. Secondly, Sreedhar mentioned earlier that you still got ongoing inflation, and most of our, as analysts would be aware that cement, for example, on the mineral side, Sreedhar mentioned. On the cement side, you got in some countries additional price increases, to the tune of 20%-25%, 30%, some cases since the end of last year. You have more businesses which buy in minerals now with construction chemicals. You've already had previously, other brands which bought in cement. How do you find your pricing discussions on the other end, i.e. on your end, when you have to absorb these price increases?
You know, on purchasing and the last two, three years, we learned the lesson that it's very important to have two, three, four sources. We do that strategically more than four, five years ago. Sreedhar mentioned soda ash. Yes, we have some European soda ash suppliers. We have some Turkish, we have some Chinese, and it's up to us to balance and leverage this situation. That's one, and it's true also for some of the materials you mentioned. It's true also that we have worked hard both for the cost standpoint reason and security of supply to reformulation of material. We don't put cement in admixtures. The opposite, we sell additives to cement. On that, and this is the beauty of Chryso, is that they buy monomer, which is a commodity on the market.
They manufacture their own polymer, then they put these polymers into admixtures, which was not the case of GCP. GCP, they were buying polymer directly from the BASF of the world. When you take a specific polymer, it's at 25%, you have no real choice but buy it at close to 25%. When you are upstream in monomer, it's a community market, you could buy from Korea, from Turkey, from Germany, whatever it takes. On this product reformulation, we are also very active. If I take Mortars, if I take dry fixing renders, you have cement. We have been working to substitute cement from a cost standpoint and also from a CO2 standpoint.
You may remember that two years ago, I think we highlighted the fact that we were the first worldwide to have the patented solution that is zero cement mortar. Substitution of cement with clay, with fly ash, with what we call waste glass. For instance, we take glass collect, we bring it back to flat glass. After that to glass wool insulation, input of raw materials and also to mortar. We are also working everywhere to substitute raw materials. It could be sand, it could be many. Yes, there are materials who are very impatient, and you name some, but there are also a lot of R&D innovation and strategic actions to lower the CO2 content and substitute. For instance, if you allow me one minute on CO2.
In flat glass, we have been working hard in the last three years to substitute calcium carbonate. By definition, calcium carbonate has a lot of CO2. We are working on Wollastonite. I'll let you check what is wollastonite, but it's a sulfate of calcium with, of course, no carbonate. The last one we have for certain color and glass in India was 90% Wollastonite. It's one example where you are not stuck with your calcium carbonate for cost or CO2 reason. You substitute, and we are up now. We started at less than 5%, 12 months ago. We are at 90% for the latest trend in one flow plan in India. Those are the kind of measure that we continue to push. Of course, we leverage.
We are a large cement buyer, I can tell you, both from a distribution standpoint and a various other product lines. We leverage our size and the partnership also we built with the cement players, be it on the customer side, on our five bit, on the additive side as a supplier to them. It's on a whole value chain type of partnership that we push with them.
In terms of your negotiations with your customers, when you get these price increases, do you sense there is a bigger pushback or it is what it is and it needs increasing?
You mean the customers of, let's say, gypsum, insulation, glass, or think that up or?
yes, on the construction chemical side or Weber, Parex or.
It varies, it varies. That if you bring a specific value proposition, and it could be very good teams, very good service, innovation, you have a discussion, which is as always on price, not an easy one, but a good discussion. I know that Thierry Benoît personally, you know, went to the US with a large, you know, ideal customers and had a good discussion because they're happy to have a strong alternative with good innovation and support. Those discussions, if I take Admixtures, went well on pricing. If you take Weber, the brand you mentioned, if you are on basic mortar, it's tough because you don't bring a specific value proposition.
If you have, let's say, a very good service on tinting, you know, in terms of turnaround in less than 24 hours with a tinting machine close to the job site, because we have this ability to do that, if I take France, yes, you can value the pricing because you bring the color match on the render of the facade that the local craftsman would expect. It's all about the value proposition and leveraging also, you know, the whole package of Saint-Gobain as a complete solution. We have very good example of that. We benefited from Continental Building Products in the U.S. to have the full scope of our building materials at Lowe's, the largest, one of the largest do-it-yourself in the U.S. We do that across different countries.
We look at all the points of sales, how many product lines of Saint-Gobain they buy, how many they could buy, what does it take in terms of service, training, logistics, customer support, etc. Yes, there is a pushback, which is normal, like we push back on our suppliers about inflation. If you have a good service, if you are there and you have the credibility of the brand, the people, you manage to have the price increase that we have delivered in the first quarter.
Mm.
It's not a work in the dark.
Yeah. Okay. No, I'm conscious of taking a lot of time. One very quick last question. Christophe always asks this four million enterprise question, and he's right. It's come off. With auto demand recovering, are you starting to see that decline falling as we speak? Or is it still stabilizing as we speak? Or is it still under pressure?
You know, it is we are adjusting in a very cautious manner, depending on the cost reduction, what we see in our ring. We have to also keep in mind that automotive market is going up, so that also helps to keep up the volume. So it's, you know, country by country, you need to take those calls and take a pragmatic view. I think again, you know, the price, pricing is all about keeping a track on price-cost spread. I think that's very, very important to keep in mind. The dynamics are very different in a country like India, Brazil, Mexico, than what you have it in Europe.
I think we just have to be vigilant, be close to the customer market and make a decision. At the end of the day, what matters to me is the price-cost spread, and that's a absolutely clear expectation from all the business heads.
Okay, I appreciate your answers. Thank you very much.
Thank you, Pablo.
As a reminder, if you wish to register for a question, please press star on one on your telephone. Gentlemen, there are no more questions registered at this time.
I would like to thank all of you for your time and your questions. As you have understood, we are happy with a solid start of the year and all teams being aligned with what we want to deliver in 2023, which will be another good year, very good year for Saint-Gobain. The resilience of Saint-Gobain, despite difficult environment, is there. We are happy to outperform the market. I would just flag that first half 2023 will be published on Wednesday, on the 26th of July, not the Thursday. Don't read anything behind that. There is no. It was just a question of agenda. Wednesday, the 26th of July. Thank you again for participating in this call and have a very good evening to all of you. Thank you.
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