Hello and good morning, everyone. I hope you are doing well and staying safe also with COVID. It is my pleasure today to present together with Sreedhar, our Group CFO, our H1 results for 2021. There are 3 strong positive takeaways from our results. First, we have delivered an all time high record on all financial indicators.
And we have largely overcome the 2020 COVID crisis. 2nd, we have revised up the guidance for the full year, again as a record operating profit for the full year 2021. And 3rd, Saint Gobain's ambition is clear become a worldwide leader on light and sustainable construction. Our agenda for today, I will cover the main highlights of the first half results. Then Sreedhar will drive us through all the financial indicators in details and I will come back on the strategy, some highlights on the strategy and the outlook for the second half of twenty twenty one and the full year.
Now on the results. It is as simple as that. We have had an all time record on all our financial indicators. I will not compare anymore with H1 2020, but I will compare with H1 2019, a normal year, which makes again our record year, record first half even more impressive. I start with organic growth, 11.9% versus the first half of twenty nineteen, a strong performance of volumes, up 7.6%.
This is a combination of 2 things. 1st, strong structural underlying market trends and second, substantial market share gains in many geographies. Within organic growth, you can see that we have had also a solid pricing power. Thanks to our leadership position, our pricing power in many geographies and our teams have acted very fast, have been very agile to have several rounds of price increase during the first half. We have seen that the second quarter was even higher in terms of price increase versus the Q1 of 2021.
All these translated in a very substantial increase of operating profit, so good leverage on volumes, operating profit being up 53% in like for like to a new record of €2,376,000,000 for the first half. This translates also into a record operating profit margin at 10.7% for the group, which means I insist on that Best in class margins in our Manufacturing segments around 14% and in our Distribution segment around 6.7%. We have also a good jump in EBITDA record as well in absolute figures and a very impressive 60% jump on recurring net income for the first time above 1.5 €1,000,000,000 in a semester. And finally, a very good job done on cash with record free cash flow close to €2,500,000,000 in the first half. So as you can see, as I've said in the introduction, we have largely overcome the COVID crisis.
Behind those figures, this fantastic set of results, they are all the men and women of Saint Gobain. And I want to pay tribute to them because they have been extremely agile, extremely dedicated and I'm very grateful for all their talents, their commitment, their passion for the business, which has delivered again a fantastic set of results. We can also say that we have reached a successful conclusion on Transform and Grow. Remember the program we launched 2.5 years ago, we had 3 objectives: 1st on the organization 2nd on the portfolio and 3rd on the margin. Our organization is very agile on its feet.
We have seen that on pricing. We have seen that on supply chain to deal with all The challenges we have faced every single week during the first half to make sure we could deliver on our customers, make sure we could have the raw materials to continue manufacture all our products and service any job site around the world. So the organization is working and we have proven that again with the performance in the first half. 2nd, we have proactively enhanced our growth and profitability business profile with €5,300,000,000 of divestitures over the last 2.5 years, €1,500,000,000 of very attractive acquisitions. And I can tell you that the Continental Billing Products acquisition, which we closed in February 2020 is delivering a fantastic set of results.
We have seen that in close to or above 28% EBITDA margin in the first half. And all the signs that we have seen between the CRISO teams and the Sangamo teams in the last few weeks I've been also extremely positive. CRISO will be a very strong growth platform for us. On the margin side, With 10.4% over the last 12 months, we have largely exceeded the Transform and Grow objective of 100 basis point gain in 2021 versus the 7.7% we had in 2018. So all in all, we can now say that Saint Gobain is on a new trajectory as a leading player on light and sustainable construction delivering solutions of sustainability and performance for our customers.
I will of course together with all the team Come back to that in more details during our Capital Market Day on October 6, but this is what I wanted to say, very strong, very good first half, successful conclusion on Transform and Grow and a very clear ambition going forward. I now leave the floor to you Shladdar for all the financial metrics and the details.
Thank you, Benoit. Good morning, everyone. Let me give some more details about the results of H1 2020 1, starting with organic growth. We have seen a record organic growth in the first half, even in comparison to H1 twenty nineteen with 11.9% drop. We saw negative structure and exchange rate impacts.
The structure rate impact came from the continued optimization of our portfolio and acquisitions to enhance our growth and profitability profile. The exchange rate impact came from the depreciation of the U. S. Dollar, Brazilian real and other emerging market currencies. If you look at the sequential Organic growth, here you see, particularly when you compare with 2019, the last four quarters, you will see a sequential improvement in the organic growth quarter after quarter.
We saw a continuation of the very strong underlying trends driven by renovation in Europe, construction market in Americas and in Asia Pacific. The reasons for the acceleration in Q2 2021 are mostly the positive effects of working days, which had an impact of 3% on Q2 as well as the price increases. If you look at the pricing trends, we have accelerated quarter after quarter price increase against an increasingly inflationary backdrop. We now expect raw material and energy inflation of more than €1,000,000,000 for 2021, of which €400,000,000 was in H1 2021 and 600,000,000 to 700,000,000 in H2. All the business leaders have actually taken a proactive steps in Pushing the prices and hence we have achieved in Q2 price increase of 5.1% at the group level.
If you look at the price increase for the manufacturing businesses only, it was 4.3% in H1, of which 5.5% in Q2. For the year as a whole, we are confident to offset The inflation for the year, given that we are continually pushing the prices. Coming to the operating profit, as Benoit said, we have achieved a new record of operating income and margin, Beating our H2 record, this was driven mainly due to the very good leverage on volume, A strong positive price cost spread, additional savings of $100,000,000 on account of post COVID cost structure reduction measures, good progress on operational excellence savings and continued low SG and A costs, thanks to savings in discretionary costs and structural gains from Transform and Grow. Now let me take some time to explain about the last 12 month margin evolution versus 2018, which was our reference for the transformation program, which clearly demonstrates here you see that we have Significantly surpassed the Transform and Grow margin objective well in advance. The last 12 month average margin is 10.4%, which means 270 basis points improvement in the margin versus 2018.
180 basis points are structural, of which 2 thirds linked to transform and grow with the portfolio optimization and cost savings, thanks to the new customer oriented and leaner organization. The 1 third coming from structurally higher volumes in European Innovation Market, Americas and Asia Pacific Construction Markets. We can consider that the remaining 90 basis points is exceptional, coming from high price cost spread, discretionary cost savings and post COVID catch up effects in volumes. So if you take out this 90 basis points of exceptional contribution, the normalized margin is 9.5%. Given the fact that we have seen certain exceptional effects in H1 2021, we don't expect Any favorable seasonality impact in H2.
It is also important to remember that The craftsmen in Europe will be taking their normal vacation in summer and in the month of December unlike last year. Here you see that we have recorded an increase in business income of over 70% compared to H1 twenty nineteen. Even better than 45% increase in operating income, thanks to a significant reduction in non operating costs, which includes the provision of 2 recent class actions in the USA for PFOA. We have also achieved a new record EBITDA and EBITDA margin. If you look at the P and L lines below business income, you will find that net financial expenses was slightly lower compared to the last year and the average cost of borrowing remained flat.
Income tax was higher, it's mainly linked to a one time impact of €105,000,000 deferred tax on account of a tax increase in the UK from 19% to 25%. The group tax rate on recurring net income remains at around 25%. Recurring net income reached to again a new record of €1,500,000,000 Free cash flow, we have again record free cash flow of €2,500,000,000 and a conversion rate ratio of 84%. This was driven by record EBITDA, low non operating costs and very low CapEx and working capital. Please note that the CapEx was lower than planned in the first half due to the COVID situation and we expect to see a catch up effect in the second half and still reach R1.5 billion CapEx for the full year, which we guided at the beginning of the year.
As you are aware, the working capital was already low at the end of 2020 because of a very low inventory levels and extraordinary work done by the teams in reducing the overdue receivables and also revisiting all the payment terms of suppliers and customers. There has been a continuous focus on these topics. At the same time, there is also a realization that the current inventory level is too low to serve the customers in a right manner. So what it means is that we need to rebuild the inventory to a reasonable level in the second half. However, due to exceptionally high sales in the first half, We have not been able to rebuild the stock yet and this should happen in the second half.
Because of the working capital At the end of the year, we'll be clearly higher than what we saw at the last year in terms of number of days. Due to these reasons of CapEx catch up and the inventory build up, we expect the free cash flow conversion for the year to be lower than the exceptional level of H1, but certainly higher than 2019. Net DAP finally, you see that here we have a significant decrease in our net debt with a reduction of €2,200,000,000 compared to the end of last year June. This is mainly due to the record free cash flow generation. Overall, our balance sheet and credit metrics remains very strong.
Now let me get into the results by segment. Please note that my Comments will be with reference to the 2019 H1 as it is more pertinent to compare instead of H1
2020.
So starting with High Performance Solutions, We have Apri slightly versus 2019 with an overall improvement in Industrial Markets Apart from European Automotive Market, where we also did not we could not push the prices up. Mobility sales remained below 2019 levels despite good increase in sales in Americas and China. Due to the weaker European Automotive market, the mobility remained below 2019 level. The shortage of semiconductors and their impact on supply chain also impacted our sales in Q2. However, we continue to outperform the global automotive market, thanks to our increasing exposure to high value added solutions and electric vehicles.
Industry grew slightly versus 2019. Surface finishing solutions were boosted by DIY markets, whereas the activities related to our customers' investment cycles are improving sequentially even though they are still below 2019 level. The Construction Industry and Life Sciences business continued to enjoy the double digit growth versus 2019. The overall operating margin continued to improve sequentially at 13.5%. In Northern Europe, the sales growth was driven by a good dynamic in renovation markets in all countries.
Nordic countries continue to deliver good growth, particularly thanks to the success of digital strategy in a supportive renovation market. Germany benefited from dynamic construction market, especially in light construction and construction chemicals applications. The UK saw an acceleration in growth from Q1 to show double digit growth in Q2. This was driven by distribution, which benefited from the optimization of the network and the market share gain. The region recorded an operating margin of 7.9% in the first half, up significantly compared to 6% in H1 twenty nineteen.
In Southern Europe, we saw strong sales growth with the help of the comprehensive solutions, which enabled us to clearly outperform the dynamic renovation markets. France grew strongly, thanks to the solid renovation market with our energy efficiency solutions Sold to a large scale through an unrivaled distribution network and digital intermediation platform. The success of the stimulus package, Ma'am, Prane, Branev, added to the positive dynamic. The customer centric approach of our teams enabled us to serve the market very effectively and gain market shares. Italy Also benefited from government initiatives to support the efficient renovation via tax credits.
Spain grew strongly in the construction chemicals and light construction markets. In Netherlands, we benefited from the recent acquisition in the fast growing External Insulation Systems market, Africa and Middle East countries made progress, particularly Turkey and Egypt. We achieved a record operating margin in the region at 9.1%, thanks to the good growth in renovation, Excellent leverage and excellent operational performance from our teams, particularly the productivity improvement was quite impressive. The positive impacts of the group profile optimization and structural cost reductions. Americas, we continue to see a very strong underlying construction market, Enabling us to deliver organic growth of 25% versus 2019, with pricing up double digit in a clearly more inflationary context.
In North America, Growth was driven by particularly strong demand in the single family house and we saw the benefits of our comprehensive solution offer with the new organization structure. Our very agile local organization enabled us to deal with the supply chain challenges, which was very particular in the U. S. We also continued to see a good growth in our sales to the light construction market. Thanks to again successful integration of Continental, as Benoit said, it's a big success.
Latin America continued to see strong growth in volumes in all businesses despite a challenging health situation in Brazil, Thanks to again our local organization and offering to all full range of solutions to customers, The region continues to strengthen its market position. We achieved a record operating margin in the Americas region at 17%. This was mainly due to the strong leverage on volumes, on the pricing increase and the price cost spread was also very positive. Asia Pacific, we saw a strong sales driven by China and despite a challenging health situation in India. In China, the growth accelerated in Q2, Thanks to a good underlying market and share gains in the interior solution and construction chemicals where we are investing for quite some time.
In India, after a double digit growth in the Q1, Q2 was impacted by difficult health situation. Southeast Asia performance was quite mixed with the continued market share gains in Vietnam and the deteriorating health situation in many of the countries in Southeast Asia. The region achieved an operating margin of 11.2%, well ahead of 9.5% seen in H1 twenty nineteen, again due to strong volume leverage impact and structural cost reduction. Let me first let me summarize. You have seen us We have achieved new record results in all the performance indicators with a significant improvement in the structural margin.
Thanks to the market share gains, comprehensive solutions which we offer to the light and sustainable construction markets, Excellent focus on cost and price, deploying more resources in profitably growing markets, Real focus on cash, focus on discipline, on capital allocation. All in all, also thanks to the underlying market, which is quite strong. So with all the progress that we have made in the last two and a half years, and I'm sure You all would be convinced that Sangaba has radically changed and we have the team which is highly motivated to deliver Consistent results in the years to come. And I remain very, very confident about it. So I pass on the Floor to Benoit to explain the strategy and give you the outlook for the second half.
Thank you, Sreedhar. So now let me share with you some highlights of our strategy. First, our core markets are seeing growth acceleration supported by strong structural fundamentals. This is first renovation in Europe pushed even more with the Green Deal environment and the need across all Europe to accelerate on energy renovation. If you think of the fit for 55 of the EU that means minus 55 percent of greenhouse gas emission between 2010 and 2,030.
This is a big acceleration on energy efficiency renovation. 2nd, new build in the U. S. We are embarked in a good positive cycle On single family home in the U. S, which remains very high, there are also additional measures such as the first time homebuyer tax credit which will further support the dynamics.
And third, of course, the megatrend of strong class of urbanization in the emerging markets. On those three markets, we have leveraged our leadership positions, again, as the unique player to deliver our large and wide solutions for sustainability and performance impact. We have made all the analysis in details and we'll come back to that during the Capital Market Day that 70% of our solutions are sustainable and they provide good solid contribution for better planet and also better health and well-being of the people. Those tailwinds in our underlying market trends, they have been leveraged also by best in class execution. Again, agility in our organization in order to make a difference versus our competitors.
We have seen that on the price cost management during all the semester. We have seen that on the supply chain optimization with very quick local decisions. We have seen that also on the continued delivery on savings in part only for the COVID impacted businesses, €150,000,000 of savings over the last 12 months. I'm happy to say also that in the context of very tight demand, customer satisfaction has remained on top of our priority. If I take our large distribution business in France, they even improved their Net Promoter Score, the customer satisfaction index by 3 points at an all time record at 50.
All the plants and all our distribution businesses have delivered double digit productivity gains versus some years ago. And we have been able also to open 13 new plants in the last 12 months including 10 in our light construction businesses whether it's in Asia, Latin America, Middle East or Africa. We have also during this busy period continued to prepare our future growth, shaping first a better business, which remains central to our objectives for Saint Gobain with acquisitions such as Crizo, such as Panu France and the wood market in France, which is growing very fast, reinforcing our growth platforms for again strong positions on sustainability and performance for our customers. In parallel, we have successfully completed a large number of significant divestitures like Lapeyre, which has been done on June 1st, Our Pipe China business which we closed on the 28th July, 3 days ago. Our Dutch distribution business which we closed today actually and also some glass transformation businesses in Germany or some non strategic low performance specialist distribution network in the U.
K. And in Spain. We have also made steps forward on innovative solutions. I would like to highlight one, which is symbolic what we call our Weberco Flex Echo. Sales have grown by close to 30% over the 2 years compared to H1 2019.
It is a patented best seller, the only cement tree more dark solution with 50% less CO2 as a content and also improved comfort for the use of the Craftman. Same on digital, where with our omni channel strategy, we have continued to make good progress. We are the largest just on the widest marketplace for professional craftsmen in France. And in the Nordics, our DAHL network has jumped 4 points in terms of e commerce now above 30%. At the same time, where do we stand on Our ESG roadmap and you know that for us ESG is not something on the side.
ESG is the core of our positioning. It's the core of our strategy towards sustainability, towards carbon neutrality for our Construction and Industrial customers. So we have achieved important results also in our ESG roadmap in the last 6 months with initiatives across a wide spectrum of the group. And I want to illustrate just a few of them. All employees are engaged.
We launched in Northern Europe at the beginning of the year and we are rolling it out across all the group an internal carbon fund. And just in 6 months we had 1,000 initiatives from employees We are very engaged to make a difference on sustainability. We are also pushing ESG Innovation. Troi and Pay in France Had a roadshow over 250 outlets to show all the BioSource materials we have in our catalog. It's 1500 products training the customers on the Saint Gobain offer towards bio sourced products.
We are also extremely proud to have launched the first net zero carbon platform of plant in Norway and many other steps that you can read on the slide. ESG is very important to us because if I step back Saint Gobain is at the heart of the global challenges of the world. This is our purpose, making the world a better home. And when I look at the top three global challenges in our business universe, this is first carbon neutrality. We have More than 70% of the world GDP committed to carbon neutrality by 2,050.
It's even higher if I take China by 2,060. That's more than 120 countries. None of them is going to get there if the buildings are not carbon neutral. 2nd, Resource scarcity, we have to be very vigilant on savings on natural resources. And third, of course, fast urbanization in emerging markets.
Saint Gobain has solutions and answers to all those 3 big challenges. First, if I take CO2 emissions, our solutions provide answers to the needs of reducing the CO2 emissions. We are the one stop shop of energy efficient renovation in Europe. It's true in France. It's also in Germany, if I take that example of 2 d off-site solution that reduces CO2 emissions by 50% on this kind of building.
So all in all, renovation accounts for roughly 50% of our sales towards renovation with a big play behind it on energy efficiency. In terms of resource efficiency, light construction is a critical answer. Among all the benefits of light construction, it does reduce the need of resources, substituting heavy construction materials with lighter and faster solutions easy to recycle on the materials. This is why we are pushing a lot light construction across the group and around the world. And 3rd, In emerging markets, the big topic is speed of construction, speed of urbanization, which is a key challenge.
And again light construction is an answer for faster sustainable construction from the beginning. We benefit a lot from that in our big countries in emerging markets whether it's China, Vietnam, Indonesia or of course India. We have allocated actually a lot of our CapEx towards those growing emerging markets. Also in big urban cities, big cities in emerging markets, of course, greener mobility is critical. It is an important challenge to tackle.
And within our mobility market, we are pleased to see that by the end of the year we will have reached roughly 20% of our sales towards electrical vehicle, a much higher market share than the average of the automotive market. So a big step forward also on greener mobility within our Mobility segment. Last challenge also, if I go a bit broader than just the construction market, decarbonize the industrial processes. And here our specialty materials for bioprocessing solutions, for instance, they replace Heavy CO2 steel containers in the biopharma with single use plastic
and they
are very efficient in terms of water usage, in terms of chemical usage in operations. If I take our ceramic specialty refractories, they reduced by 25% the CO2 emissions of a furnace that manufactured glass which will make a lower content of CO2 glass for the buildings at the end of the day. So in a nutshell, a clear and robust strategic vision delivering sustainability and performance solutions for our customers. This is our way forward. I turn now to the outlook for the second half and the full year.
We should continue to benefit from strong momentum in the main markets and strong momentum which are going to continue in the coming years. It's not going to stop by at the end of the year especially in renovation in Europe, new construction in the Americas and in Asia Pacific and overall a solid operating performance for the Group. Providing that there is no major impact from the pandemic, the coronavirus pandemic, we expect the following trends by segment. In High Performance Solutions, the continued sequential improvement in our industrial markets with the exception of automotive in Europe where we are more Cautious, all the businesses also related to investment are going to improve gradually, although they are expected to remain a bit below the good level that we recorded in 2018. In Europe, we have continued outperformance in Construction, thanks to our Big solutions towards renovation, also the support from the stimulus program that we are seeing now on the ground.
Keeping in mind as Sreedhar said that we have a high comparison basis last year particularly during the summer all the customers all the craftsmen in France for instance but not only worked almost all the months of August and also in December. So that's a bit of the technical effect in terms of base versus last year. But overall, energy efficient renovation solutions should continue to boost the momentum in France. New construction markets also are picking up compared to 2 years ago. We have seen that even in the French statistics yesterday evening on new construction.
Nordic countries and Germany should also benefit from good momentum in renovation and the U. K. Will continue to bounce back in terms of environment. In the Americas, solid market growth particularly for residential construction whether it's in North America or In Latin America, you have seen the fantastic performance we have had in the first half gaining a lot of market share in this region. And in Asia Pacific, Good market growth with good momentum in China.
Some uncertainty for sure in India and on the health related disruptions we have seen recently in Southeast Asia. So in this context, what are our priorities? First, continue to accelerate on growth. We are extremely well positioned as leader in light and sustainable construction and we want to continue to accelerate on growth with our different businesses and solutions. So our ambition is to outperform the market.
Thanks to the organization and all the teams who are in place and extremely agile and committed. We'll also continue to make further progress on ESG during the year and continue to optimize as we have done The group profile we think will integrate CRISIL either in October or early in November, but we are making very good progress in that aspect. 2nd set of priorities beside growth continue of course to maintain a lot of initiatives and strong focus on profitability and performance, maintain robust margins and also strong free cash flow generation. We'll do that with An ongoing constant focus on the price cost spread with a good pricing discipline and we have several rounds of price increase already planned in July, August, October across the world in many business lines to offset the strong inflation in raw materials and energy cost. Deliver the additional €15,000,000 cost savings as part of the post coronavirus adaptation measures for the businesses, which have been severely impacted by that.
Ongoing operational excellence program which have proven to be extremely good and very solid contribution in the last 12 months offsetting the inflation including raw materials and energy which we cover by price. Maintain improvement in our working capital requirements. CapEx you have heard, Sreedhar, even though we are a bit behind The plan end of June we intend to catch up and come back with roughly €1,500,000,000 of CapEx for the full year with a very good focus on our growth CapEx and ongoing our digital transformation. We'll continue to pay high attention and reduce the non operating cost. So all in all, our guidance is for full year 2021, the group is now targeting, so revising up our guidance, a very strong increase in operating income to a new all time high record with like for like operating income in the second half close to the previous record of the second half of twenty twenty.
I finish my presentation with this slide. This is the new executive team I've put in place since July 1st And this is the best possible team for Saint Gobain, a high level of experience, diversity with 38% women, half international members. It is a very strong set of leaders acting together as a team, pragmatic and fast on execution, performance driven and all aligned on our strategy. I feel extremely confident on the ability of our team to succeed and we are all committed I can tell you to write a new successful chapter for Saint Gobain. You will have the opportunity to interact either physically or digitally with all the team members during our Capital Market Day on October 6.
Thank you. And we now turn to your questions for Sreedhar and myself. Take the question in the room first and then we'll go on the call and third on the Internet. So I think Jean Christophe maybe first you will have to Keep the health constraints. I'm not sure we hear you on the Internet, just to make sure it's
Good morning. Couple of questions, if you don't mind. First one, We have a very strong improvement of EBIT margin in Americas. Do we have specific factors Apart from the strong improvement of the contribution of Continental. Secondly, Could we have more flavor on the flat glass business and mainly the order Of magnitude of the 4 millimeter price, including the energy surcharge?
And third, more generally In your pricing policy, do you implement energy surcharge as we have in the Industry, energy and CO2 surcharge. And last question, can we have more flavor in the price hikes in plasterboard and insulation. Many thanks.
Thank you. So we'll share the questions with Freda. I take the ones in North America. So we have a very strong performance across the board, different product lines. So it's not only because of Continental, even though Gypsum is doing very well, But it's true for roofing, it's true for Siding.
So it's a combination of strong volumes. The underlying volumes are extremely strong and our plants run 20 fourseven with all capacity running, good and solid actions on price. So we have clearly strong positive price cost spread in North America. So it's a combination of a very lean organization, a lot of synergies of what we have implemented in the last two and a half years and good momentum across the board on volumes and pricing. So it's I would say a branch LEM in North America doing extremely well.
I will answer on the energy surcharge and then you take the slide deck for instance. No, we don't implement specifically energy surcharge Business by business, it's an overall price increase. What has changed structurally and what we have done in the last 6 months is that in many geographies where The price increase was once a year. We have had in France, in Europe, multiple rounds of price increase. So the dynamic on pricing, it was clearly the case in the U.
S. For years years. If I take quoting, we had the price increase in February, in April. We have another one in August. So it's every 2nd month or so.
In Europe because of the raw materials and energy inflation, we have had multiple price increase, but no specific on the energy surcharge.
So coming to your question on 4 millimeters glass, In Europe, it is consistently improving. Sequentially, it's improving. We had 7% price increase Q2 versus Q1, 5% increase again Q2 Q1 versus last year Q4. So clearly, quarter after quarter, there is a good progression in price. And we continue to push the prices up even now while I speak to you.
So the price at this point of time is €3.4 Coming to the plasterboard Prices, I mean, in general, there is a very strong focus you have seen across. We have been successful in pushing the prices up. I mean, the Q2 prices This is a clear example. It is accelerating. We are consistently making the price increase at a frequent interval.
I think this is one clear good thing which has happened is that all the business leaders have taken proactive steps In pushing the prices even before the inflation started hitting our P and L. So in Americas, I mean, if you take the example, We increased the plasterboard prices last year in August and then again it was increased at the end of the year. Again in February, again we are talking about in June we made an announcement of a price increase. So price increase is a Topmost priority, I think Benoit and I each time whenever we meet any business leaders on any business review discussion, There is a detailed discussion on spread between price and cost inflation. So I remain very confident To compensate the inflation for the full year, even though the inflation is going up, as I mentioned, mainly because of the focus and the push we are giving on price.
I know in most of our businesses, we are running on full capacity. So it's true in Glass in Europe, it's true in North America. So all the businesses are running on full capacity right now. Another question?
Yes. Good morning. Yassine Touarey from On Field Investment Research. So we have two questions. First, a question on capital allocation.
When we look at the past 20 years, the return on acquisition Has been relatively underwhelming compared to peers. And also the number of shares has increased by nearly 60%. If we look at the next decade in this Fit for 55 environment, What process have you put in place to make sure that you don't overpay for acquisition? And If acquisition are too expensive, could you consider share buyback? That's my first question.
And then my second question would be more short term. When we look at your guidance for H2, It suggests a sequential decline in EBIT versus H1. Do you see any sign of this happening in July? You're talking about most of your plants running at full capacity. Is it still the case in July?
So I take the first question even though it's a mid term, long term question. So we'll address it during the Capital Market Day for sure, the capital allocation and also the question of buyback and number of shares. What I can tell you and I think we have proven that, the Continental Building Products acquisition is a fantastic one. You see the impact we have and we'll provide all the details to you in the Capital Market Day. We are going to create value in year 2.
So that's a very significant step change in terms of acquisition and discipline, in terms of quality of integration. We have kept all management team of Continental and they run the overall gypsum business of Saint Gobain in North America. That's a sign that we have changed being able to keep a former manager in the U. S. Listed company.
2nd, if you think of Crizo, I think Crizo is a fantastic growth platform. Of course, we have not yet it in our books, but I am extremely confident that it's something which will be a fantastic acquisition for Cerro Bank going forward, the growth platform and will create good returns on those 2 large acquisitions. So we are very disciplined. I hear I am conscious of the comment from the past. Now I look at the future.
I don't look at 20 years ago. And clearly, we are very conscious about that and the impact on return on capital employed that we need to improve and you will see that we have made significant steps in 2021. Now on your short term question. We guide for close to. So there is uncertainty.
Uncertainty on the Health side. Close to means close to and you can interpret it in various ways. We are very confident about the underlying trend. There is, yes, a bit of uncertainty on the health side. There is a bit of uncertainty on how many days customers are going to take in terms of holidays in August or volatility of the weather in December.
So this is the reason why we are a bit cautious. Now in July, we don't see pattern change versus the momentum we have seen in the first half. So July is running well and that's a good sign. So that's what I can tell you. On the short term, our plants are running full speed.
We have made sure that we lower the usually you have big maintenance during the month of August. When it's not 3, 4 weeks, we make sure that it's 8 days or 10 days to make sure we can service our customers. And if I take again Just France, There is an all time high of order book from the customers. So the challenge number 1 for all the team today is make sure We service the customers, make sure we reduce the lead times, make sure we offset with rounds of prices the impact of raw materials, but we are running full speed and the of July is good, is very good. Another question in the room.
If not, then we'll switch to the conference call. So I take I guess there is a Intermediate person to take the question 1 by 1. So let's go ahead with the questions on the call.
Okay. Thank you. The first question by phone comes from Ivo Bromhead from Exane BNP Paribas. Sir, please go ahead.
Good morning, everyone. I had three questions. My first one is on your H2 'twenty one operating income outlook. Could you maybe help us to understand what are the assumptions that you've taken? I think you've just mentioned some of the assumptions on volumes.
But maybe on price cost, You're now running at mid single digit price increases and you've just mentioned further price hikes. So I'd like to understand how you view this in the context of your guidance for to €700,000,000 input cost inflation, given that, that would imply a further positive price cost spread in H2 'twenty one. So Any color on that would be appreciated. And then I'll follow-up with the other questions after.
Okay. So Sreedhar will take that one.
Okay. So as I Mentioned the total inflation at this point of time expecting is more than $1,000,000,000 If I have to give you more color, it's $400,000,000 is in the first half. That means I expect in the second half to be something like between $600,000,000 to $700,000,000 So this is something if you have to compensate the whole more than $1,000,000,000 or $1,100,000,000 If you have to compensate this, we need to have a price increase in the manufacturing businesses, which is 4.5%. In the first half, we have 4.3% and you have seen the 2nd quarter is 5.5%. Keeping in mind that there is a base effect of the second half and all the improvement Price increase push we are doing, we continue to do.
Again, I remain very confident that we will compensate the total inflation for the year.
Your second question, Yves?
Yes. Thank you, Sreedhar. So my second question would be on the underlying environment. Clearly, trends have accelerated even in Q2 versus Q1. Regardless of the holidays of the craftsmen, are there any drivers that you would expect to continue in H2 And after that, even in 2022 and here maybe related to the public renovation, I think last time you mentioned that this had not yet started and the Fit for 55 objective is now to reach the 3% of public building stock to be renovated.
So are you seeing anything here that would suggest There's an acceleration. And maybe my last question would be related to the fiscal stimulus programs. Given they're working really well across Europe, is there a risk that they've actually went ahead of the target for 2021 and therefore in 2022 there's a risk that the Incentives that are allocated could come down versus 2021 and have an impact on your volumes?
So I take the I will answer those 2. You have seen the volumes were pretty even when you Make the math of the number of working days between Q1 and Q2. And we expect those underlying trends to continue and they are good. So we expect those good drivers to continue. It's true I mentioned that.
For new construction in the U. S, You have seen the housing start. They continue and those cycles, they are multiple years in terms of cycles. Also the need for energy efficiency renovation in Europe is a decade if not more if I think of the carbon neutrality by 2,050. So the underlying trends are very solid and will continue.
We'll outline all that and what it means structurally for higher growth of Saint Gobain versus the growth we have had internal growth over the last 10 years. Those underlying trends continue in H2 and are good. For instance, the MAP PRIM Renov in France, We start to see the impact of that. It's now 300,000 dossiers, projects which have been financed, 400,000 which have been filed and registered and there is more to come. The French government has decided to double The subsidies towards that in 2021 and also in 2022, so I answer also to your second question, we start to see that clearly on the ground.
And the public buildings renovation, no, they have not yet started and we expect that by the end of the year or early next year. And All the additional stimulus programs, I think they are going to be there in the next 2 to 3 years. And after that, because it will take some time for the Fit for 55 to be put into actions country by country. So we don't expect that in terms of directives and laws country by country before 2023 or 2024. But in the meantime, we have the bridge on acceleration from the stimulus programs.
So we feel very confident about the underlying trends whether it's in Europe, whether it's in North America with the new construction cycles, of course, some large emerging markets for us. So I answered I think on your Question for the fiscal stimulus, we have seen doubling of that in 2021 and already it's not yet passed into the budget law in France because it will be done in the fall, but the French Ministry already said it will double in 2022 to continue the positive success we have seen on those kind of measures in France.
And particularly in the new construction, the impact on us we see a little later. There's always some time lag. So we should see that clear impact.
You have seen the move. Of course, I don't mention that again because it's quite obvious, but the move After COVID, towards single family homes, towards better comfort, towards renovation of your place, to have education of the kids, to have Work from home all that is good solid trend. The single family homes in France, which is a big market for us, is clearly accelerating. We have seen also the impact of course in the U. S.
And that's the reason why we run at full capacity 20 fourseven for our business lines.
Thank you very much.
Next question, I guess from
Your next Question comes from Arnaud Lehmann from Banco Familica. Sir, please go ahead.
Thank you very much. Good morning, gentlemen. Three questions on my side, please. Firstly, coming back on Slide 10, you mentioned a 9.5% normalized Operating margin, could you please elaborate for you, are you come up with this number, what is it conservative? Are you implying that Saint Gobain is never going to go below this margin anymore or what it would take to do better or to do worse?
Secondly, still on Slide 10, the 90 basis points exceptional margin From price cost and COVID saving, it is very helpful, but could you give us a bit of an impact by regions? Maybe if it's just qualitative, I mean, obviously, very impressive margin in H1 in Southern Europe and the Americas. If you could have an indication of where the 90 basis points has been more visible and sort of normalized margins you could expect by region? And lastly, if I may, on the CapEx outlook, Sreedhar now is focusing the group on free cash flow. So I'm sure he's very happy that the CapEx is kept at a low level.
On the other hand, I'm Sure that with a better growth outlook, plenty of engineers out there will be very keen to expand capacity and increase CapEx. So how do you manage this dilemma please and what is the mid term CapEx outlook? Thank you.
I'll take just a High level comment on your first question and then Sreedhar will give you all the details behind it. We'll guide you on our midterm ambition for the margin of the group during the Capital Market Day. So this is something important to us. We have made Very good progress over the last 2.5 years and we'll guide you on the 6th October for the midterm ambition on our margin for the group. But now on the last 12 months?
Yes. So Arnaud, the last 12 months, as you rightly said, it's we are comparing with 2018 Versus the last 12 months, the gap is you are talking about is 10.4 versus 7.7. So there are 3 elements to it. 1 is 60 basis I mean 120 basis is all transform and grow, you know that. It's a structural Change which we have done, one is the cost in terms of organization, making organization leaner, removing all the layers.
The second part is the portfolio rotation and also the acquisitions which we did. Continental is a good addition. The second element of that is the 60 basis point is to do with the structural volume growth. Here, the structural volume growth, if you look at the volume of the last 12 months, we're talking about 5.5% volume. So half of that is taken as structural volume and half of that is taken as catch up effect post COVID.
So which falls into your 90 basis point explanation. So this 60 basis point purely comes from the half of the volume growth, which we have seen in our businesses. And in the 90 basis points, there are Three elements, one is the price cost, which explains almost 50% of the 90 basis point explanation is coming from the price cost and the balance Half is coming from the volume catch up impact and also the discretionary cost. Second question is on CapEx. It's always an ongoing dilemma.
I mean, at the end of the day, I can only tell you that There is absolutely no compromise on any growth CapEx. Business leaders know that If there is a need to invest to ensure that we serve the market with a growing market, there is no limitation. It is true that the first half has been low and I don't think it was in line with what we expected. We had certain operational challenges because of the COVID, But I'm very confident that it will catch up. I think the plans are very clear.
We all have learned to make this intelligent trade off. Every time when we do a CapEx, we need to focus on growing markets, the businesses which has a good track record. The idea is to create value in every single investment we make.
I know one thing also we have done with a lot of free go in the last two and a half years is to standardize the CapEx across the different business lines. Standardized the CapEx means you can control what is maintenance, what is regular CapEx and a very good decision on the growth CapEx. We have also divested businesses, which did require a bit of CapEx with no margin, no profit, no cash flow. So that also has a structural impact on the performance of our CapEx and we'll guide you also during the Capital Market Day of what we expect in terms of average CapEx as a percentage of sales going forward. We're still a good discipline, very good discipline on cash and free cash flow, but also good CapEx going forward to support the growth of the group.
We have seen 13 new plants, I told you, in the last 12 months. We have announced new plasterboard capacities in Spain, in Romania. We are opening up new frontline in India, new plants in Southeast Asia. So we are also pushing a lot of initiatives to prepare the growth of the future.
Thank you very much.
Another question.
The next question comes from Ben Edelfelt From ODDO BHF. Sir, please go ahead.
Yes. Good morning, gentlemen. So two questions for me. If I look at volume, they are broadly spread across all geographies.
Could you speak a bit louder, Jose, because we cannot hear you very well?
Yes. Of course. It better now? Yes.
Much better, yes.
Okay. So if I look at volume, they are broadly spread across all geographies. And if I turn to margin, there are substantial gains for all businesses except for HPS, which is lagging behind. So if I'm not mistaken, Benoit, you were in charge of geographies, While Laurent Guillot was in charge of HPS. So is there something that David Mollot, your new Head of HPS, can do To improve operating leverage, will it be cost cutting or disposal of underperforming businesses, if any?
But first, Sven, I was in charge of all the group. I was CEO of the group and I was in charge of all the group and Laurent Guillaud reported to me in that respect like all the other regions. And second, I'm extremely happy with the job that has been done by the High Performance Solutions teams. Those markets, as we said, are sometimes a bit more challenging. If I take mobility, the automotive market, We have gained market share in Mobility when we are down 3% worldwide on Mobility.
All the public release I have read On several OEM suppliers, so automotive in the last week are towards a minus 10%. So we have gained market share instance, in Mobility, we have made good strides on the electrical vehicle. That being said, again, the initial markets have been lagging a bit behind in terms of recovery because Some are also linked to the investment cycle and we know it takes a while to catch up on investment because it's a longer term decision, but we see that coming. So that's the second point I want to mention. And third, there are a lot of Structural cost savings measures that we have put in place in those businesses in the last 12 to 18 months which was part of some of the Non operating cost of last year, it's part of the €115,000,000 of savings we have delivered in the last 12 months.
And we see that in the margin. Early in the year, we didn't guide you for a margin of 13.5% for Hypervent Solutions in the first half. So I'm happy with the rebound of margin we have seen in High Performance Solutions and we'll continue to put our eggs within High Performance Solutions in the fast growing business and continue pushed the margin. But you can see that we are getting close to the level of 2018 which was 13.4%. So I'm happy about the second short improvement We have seen on the margin and I am extremely happy with David Molo and all the team what we see for the future of High Performance Solutions in terms of solutions for the construction solutions for the industry and impact on the gross margin and performance for the Group.
Next question. Can we have a Sorry? Speak louder because we cannot hear you. Can
we have sorry about that. Can we have an update on the asbestos litigation in the U. S? I know it's in Chapter 11, but can we have some flavor on the last development? How close are we to see a happy ending?
It's always long. It's always long with lawyers in the U. S, but Shailar maybe
Yes, I mean it's always long. You're right, Vinhwa. The process is under control. We are doing we are making progress As expected, it's a long drawn process and there is you need to present your case and it's I think it's going to take time and don't expect that it will happen in next 12 months' time and this is something which we knew. If you go back to all the precedents, Other examples, it took somewhere between 3 to 5 years.
So you have to have the patience. I think the good part is, As of now, all what we expected is what we are seeing in the process. So we remain very positive about Finding a good solution for this issue.
Next question please.
The next question comes from Matthias Schaezenberger from Deutsche Bank. Sir, please go ahead.
Thanks a lot. It's Pfeiffenberger. A couple of questions from my side. Thanks for taking them. It's clearly on the holiday Point you made on the craftsman, are you already seeing that?
Are there, let's say, regulatory Issues that would make the craftsmen go on holiday or is because I'm looking at this industry and all the projects get delayed and Especially on the residential side, people would be happy to get their projects moving and they are not moving and maybe in 3 months' time, we will talk about that and they have Also use the summer months to do some of the projects. And then related to that, do you already see any slowdown in the residential renovation momentum?
So I take your question now it's hard to predict how many days craftsmen are going to take. What is sure is that Last year they didn't take holidays until the middle of August. And second, they worked between Christmas and New Year which was quite unusual. If I take the Craftmans, it's a bit like the Saint Gobain team. They have worked extremely well and a lot over the last 15 months.
So at some point, I wish The craftsmen could take some holidays because it's important that we look at the long term. We don't see that happening and we are not micromanaging the planning of the holidays of our craftsmen. What is important to so it's hard to make a math and a detail and it varies a lot country by country. It's mostly in France I'm referring to. They are all extremely busy.
What is important for us and it's a big task and we are Also providing solution there is to train our craftsmen. We have trained in France 5,000 craftsmen this year And it's important to provide to them easy, fast solutions so that they can save time on their job site. I take You could say it's a bit of crazy example, but when there was a pure lockdown, there was no wasted time on traffic for the craftsmen. They were going directly to the job site without losing any time to the traffic jam. They could not go to restaurants.
They had to eat a sandwich so they could save Yes. Those technical aspects are real life on the ground. Now it's not going to make a big math and a big difference on the size of the group and there is no regulation whatsoever in terms of asking or forcing the craftsmen to take some holiday. They have the largest backlog ever of orders. If any of you have a Craftman keep it because you are not going to see another one before 6 or 9 months if you have any job site.
So it's good, it's positive, but There will be some technical effect we think in August. So I don't expect if I take France, if I take other countries a big like for like. We had a huge like for like growth in the month of August 2020 versus 2019. I expect the month of August to be probably a bit behind in some markets in 2021. So we don't see slowdown as we speak because the main challenge as I said is on our manufacturing side and in our distribution outlets to service the customers.
But we could see some impact in August, some impact in December. So no big deal, but It's a technical effect we should keep in mind like the small effect of minus I think it's minus 1% of the working days in the second half versus the second half of last year. So those technical effects, we have to keep that into consideration.
Okay. And then on the restocking point you made, is there a risk that you won't be able to restock because demand remains strong? And if you're able to restock significantly, is that a big point on the margin on operating leverage, it helps?
So we are pushing to restock. We have done a bit of that in our some in our distribution network in France recently, but still we have a lot of stock out. This is coming back to a normal level of stop to service our customers. We don't impact We don't expect big impacts on our overall margin. So no significant impact on the manufacturing side coming from that.
The main challenge behind coming back to a normal level to service the customers. I take one example for instance on Siding in the U. S. Usually in our catalog of products we have 60 colors to put siding on your facades dark blue, yellow whatever on your facade. Now we have been running with 6 colors in the last 5 to 6 months because there was a shortage of pigments from the chemical companies in the U.
S. So customers have been happy to deal with 6 colors. If we can come back with regular stock of 10, 15 or 60 colors will do that and it's a bit more stock and it makes sense for the customers. So I don't expect again a big impact on the margin for the manufacturing side. It's basically coming back to a regular level of stock for the customers.
Yes. Thank you.
And also reducing the lead time. Big topic has been reducing the lead time. I'm happy to say that we didn't shut down any job site of customers. But the lead time, if I some platform plants, it went from 1 or 2 days to 3 to 4 weeks and all the industry is like that. So We have to reduce the lead time and we are working a lot towards that whether it's in Europe or in the U.
S.
I think what is important, Benoit, is We are not the only one who is going through the situation.
So it's
an investment.
I think we have done well. Relatively, yes. In terms of service to customers.
Thank you.
The next question comes from Joseph Pujal from Kepler Cheuvreux. Sir, please go ahead.
Yes. Hello, gentlemen. Two questions on my side. The first one is about One comment that you made at the very beginning about the substantial market share gains that you were doing. Can you give a little bit more flavor on that?
What are the areas where you are making the most market share gains? And how do you suddenly achieve this compared to the past? Do you have 2 or 3 case studies to share with us? My second question is on the inventories. You say that they Start to be very tight.
Where are the areas where they are the lowest, please? And What does it mean in plain terms for future growth? Does it mean that it will be difficult in those areas to continue rising The volumes? Thank you. So
market share gain, first, for instance, we measure our market share gain in distribution every month and we have gained market share. We have gained market share because the teams have been on the ground extremely efficient. One case study, for instance, we have digital services to help our customers take Orders from our intermediary platform with B2C customers being serviced very fast. We have the new digital tools make sure we have good translation between the orders of the counter and the speed at which we load the trucks of customers. So we have reduced dramatically The service time to customers, it's a way to attract more customers.
If I take France in the last 2 years, we have gained 20,000 small customers. We have 400, more or less, 1,000 customers within the CAPEB. We have gained 20,000 new customers in France in the last 2 years. This is a significant market share in distribution in France. If I take North America and here I read Public metrics released last week by some big players when you grow 37% in Latin America.
I've not seen that in public release from peers. We grew 25% in Americas overall. I've seen 10%, 12% growth in Americas, not 25%. So this is clearly one area where we have outperformed the market. One reason for that, I mentioned that already in some of the synergies we have put in place, if I take the U.
S, CertainTeed used to run the business by silos, silos of roofing, siding, ceilings, gypsum, etcetera. Now we run all exterior products together with the same guy on the ground covering both exterior products of roofing and siding, visiting the customers twice as much as in the past and providing a larger offer to the customers. This is the way to gain market share when you have such a large offer. We are the largest building materials provider in the U. S.
And when you act together as a team, which has been the case, you have such a big jump on sales, market share and the impact also on the margin. Brazil, I think I highlighted also that. We have solutions where we have facet solutions with for products of Sangamo together, faster installation time, reducing the CO2 impact and prescription from the Sangamo teams to help the customers. So we have multiple examples. We'll have more of that during the Capital Market Day to highlight those solutions, but clearly some significant market share.
If I take India, we have outperformed the market for many years and we continue in India.
I would also add, obvious example is the mobility. I mean, Benoit, the market is down by minus 13% and we are down by minus 3%. It's a very, very obvious case and this is mainly because we are growing faster in electrical car. Our market share has gone up Significantly and share of the total mobility sales is close to 20% in this year. That's what we are expecting.
So there are many such stocks of story, Benoit.
And if I take your question on inventory, what is important on inventory is to rebuild inventory to assure the right customer service. So I don't anticipate that to hammer or to cap the growth. If I take the U. S, again we are on allocation of products with long lead times. So if we can breathe a bit more and we are like the rest of the industry if we can breathe a bit more, reduce the lead time, expand the color range I mentioned for Siding that will be additional service for the customers.
So, if we had more capacity, we'll see more growth, but all competitors, all manufacturers are like that And we are going to add capacity as we speak. If I take Europe, we told you that we expanded in plasterboard both in Spain and in Romania. We added shifts. If I take our plant in Belgium for instance, beginning of the year it was running 3 shifts. It's now running 5 shifts.
So all those actions have been put in place on the ground to accelerate on our capacity towards the customer. So we are pushing for that.
On the ground, when you see the supply chain, it's we're happy that we are knows we don't see any negative impact on the business, but it's a day to day Challenge, I think the teams are really doing exceptionally good job of managing, making sure that the customers get what they need, but I don't think you can run the business like this For long, running after each and every micro details on a day to day basis. I think it's important to build some reasonable level.
The key point which we have done successfully in the first half is to anticipate on raw materials, anticipate on staffing, Anticipate on transportation, some truck drivers have been lacking in the U. S. Recently or in the U. K. We try to anticipate as much as we can in order to do better than competitors and serve our customers.
So overall you can see there is a good underlying trend, good momentum and we expect that to continue not only in the second half but also into the years to come.
Very interesting. Thank you very much.
Thank you. Next question?
The next question comes from Nabil Ahmed from Barclays. Sir, please go ahead.
Yes. Good morning, everyone. I have three questions. First one, thank you for highlighting the 90 bps Temporary margin improvement that's really useful in terms of mid term forecast. But just to be clear, when do you expect that to fully unwind?
Is that 20 bps fully included in your H2 'twenty one operating income guidance or this could be spread into next year as well? I have a second question about HPS margin outlook. Correct me if I'm wrong, but I suspect it's a division which benefited less From positive price cost and therefore probably more from structural improvements through the restructuring. So what's the outlook for the division in H2 and beyond? It's 13.5% in the floor with some upside if the auto market recovers.
And lastly, I think you started to allude But can you talk a bit more specifically about spare capacity you currently have in Europe and in the U. S. In your various business? And at what point [SPEAKER JEAN FRANCOIS VAN BOXMEER:] Do you need to invest in capacity and maybe spend more in CapEx than the €1,500,000,000?
I will take the 2nd and third and Chardan you will come back to the first. So yes you are right that HPS benefited mostly from all the structural actions that being put in place on several businesses. So a good evolution on the margin. That should continue to have a positive impact. So The outlook for the margin for HPS is close to 2018 as a full year, which was around 13.4%.
So that's the kind of margin we should expect for the full year of HPS, which is a good performance. The slight caveat, we mentioned it, is how fast and how far the automotive market is going to recover in Europe. So we are going to benefit from structural improvement In many businesses, the businesses related to investment cycle are going to continue to improve. The only area which is more challenging and we continue to take actions is towards Automotive Europe. But that's the kind of margin around the 2018 margin, 2019 margin that we should continue to see going forward for the second half of this year.
Now in terms of capacity constraints, the first action which we have done is again to make sure that we run 7 days, 5 shifts, 20 fourseven. And we have most of our plans now running like that making sure also we optimize, we reduce the downtime for maintenance in some parts of the year, making sure we have the full shift also on the logistics side, etcetera. The second action is to work on debottlenecking. And in many lines before you add significant CapEx, we need some in some areas and I've highlighted that, you need to de bottleneck. And we have a lot of detailed actions with our central programs on Work Life Manufacturing to de bottleneck the plant, run 5% faster on the line speed and that makes a big difference in terms of capacity at the end of the day sometimes also simplify the product SKUs that you manufacture so that you have less changeover.
So there are a lot of detailed tricks, I would say, which could have a significant impact on the capacity before we go towards more capacity. On the capacity side, we are adding Again capacity in plasterboard, we are adding capacity in flat glass in Mexico, in flat glass In India, in the platform board in India, we are adding 6 platform board plants. We have added 10 construction chemical plants around the world in the last 12 months. So we are very active on Construction and Chemical and we'll plan for more going forward in several geographies. So we look at that with a lot of positive trend underlying.
But before you add big CapEx and we don't intend to go beyond the 1.5 we guided for in this year and in that kind of trend going forward. You have a lot of detailed actions which make a huge impact on productivity and capacity for the teams on the ground. You take the first one, Jean? Yes.
I think I presume the first one you are referring to the impact of scope in the second half?
Sorry, Sreedhar, I was referring to the 90 bps temporary Margin improvement, you highlighted the structural improvement in margin in the 90 bps. So it's not related to correct. The question was, when do you give back price cost? When do you see your discretionary spending going back to a more normalized level? And when do you expect this volume catch up, you are referring post COVID to the 50% to fully unwind.
Whether that is included in your H2 2021 guidance or your system residual impact in 2022 and therefore it's going to be more spread than that?
Yes. So the discretionary cost will certainly be the savings whatever we did, it's certainly going to be much lower in the second half. I mean, We are going to start visiting the customers. We are going to have the market day. So I think the travel is going to start.
I think the biggest Element of the discretionary cost is all about travel. I don't expect it to come back to the normal level in the 2nd half because I think it will happen in a gradual phase. Maybe there will be some small element which would be there. When we guide, we don't get into those kind of a micro level details. It's a guidance based on what we see a broad trend and that's why we guide on like for like basis.
So to answer your question, discretionary costs will be lower. I mean the savings will be lower, but it will catch up as we progress.
And keep in mind also that we'll see in the second half of this year the impact of some of the divestitures We have announced recently and that we have not yet seen in the first half. So it's going to trigger some additional structural gains on the margin in the second half. Keep that in mind because the Grand divestiture, Lapeyre we had just 1 month in June. Dutch distribution was still in our books until end of June. Those impacts are going structurally to be there in the second half and going forward.
And related to price cost, so the gains accumulated since H220, which I think are 130 something like that. Do you expect that to fully unwind in the second half?
I would not be so precise about the second half what will be the exact situation, but I can only tell you that everything what we're doing, I'm Very confident that we will compensate the total yearly inflation which we have seen. I mean, I guided 1,100,000,000 I gave you the details of what was there in the first half is $400,000,000 second half I'm expecting it will be something like $600,000,000 to $700,000,000 There is a good focus on price. That gives me confidence that we should be able to compensate. I mean, Mathematically, you should see even you should be even be willing to have a negative impact, the spread in the second half. But again, it's too premature to talk about very precisely.
That's why I want to guide you for the full year impact, which will remain positive. We will compensate the inflation for the year. Okay.
That's clear. Thanks a lot.
The next question comes from Gregor Cubic from UBS. Sir, please go ahead.
Hi, thank you for taking my question. Sorry, I'm going to ask another one on margins. So Agreed. You were helpful in giving the sort of underlying run rate. You're saying 9.5%.
Would that be in the right ballpark if I said The portfolio changes that have occurred sort of Postat, Lapeyre, Trisso, Dutch distribution and there's a few other ones, Graeme, that they add something like 40 to 50 basis points just to the mix Before we consider anything else, is that about right?
30% to 40%.
And then sort of maybe kind of circling back to your Broader outlook. 30 to yes, okay, you say 30 to 40. Yes?
Coming back to your question. Yes. Yes. Go ahead please.
Yes, Gregor. I answered quickly without allowing you to complete the second question.
Go ahead to your question, yeah.
Okay. And then the second question is Okay. Sorry. And the second question is regarding kind of the growth As we go from here, obviously, you're kind of flagging holidays and sort of tightness, etcetera, and the Paces of comparison, so it's obvious the rate of growth was slow. But I guess as a broader idea, do you think that the renovation market in general has In over indexing, so you kind of perhaps captured a lot of growth in a very short period of time and therefore we should be thinking about an unwind or sort of Perhaps no growth for a period of time?
Or do you think actually with the energy efficiency spending and All the stuff that's still coming, I guess, that you flagged early in your remarks means that we can continue to grow from the current level. I'm kind of thinking of I mean, I'm maybe being a bit cheeky. I'm trying to get you to give me a directional steer where you think the trend is into next year
The trend, Gregor, the trend is very, very positive. The trend has structurally changed versus The 1ish percent of organic growth we had in the past we have structurally changed. We'll highlight all that during the Capital Market Day. But structurally The trend has dramatically changed and we see that in our customer order books. It's just growing up.
That means the backlog of orders is growing on energy efficiency renovation. New built in the U. S. Is just moving up and there is a big lag on What is built, what is needed, there is a big need of new housing, renovated housing in the U. K, in Germany, in France, in the Nordics, in the U.
S. So Everywhere, I would say the pile is growing. So we are extremely confident about the secular trends behind that that are going to triple of course continue to triple in the second half but 2022, 2023, 2024. So this is a big change for Saint Laurent on all those renovation trend, new construction without even mentioning the emerging markets, but new construction cycle in the U. S.
Look at the big picture of What has been behind in terms of construction for the last 10 years in the big mature contract markets, we are behind the needs. So there will be a strong momentum in the years to come. Next question please.
Thank you. And
just to share
that, just speaking, you said 30 to 40 basis points, are talking of each other.
Yes. On the structural gain that we are going to see, not all of them in the second half, well, 2020 to 30. CRISPR will come maybe in October, November. So the positive impact of CRISPR, I don't think we'll see much of that in the second half. But the impact of the divestitures announced, yes, We'll see that clearly at least 20, 30 basis points in the second half of this year on top of the structural margin that we have highlighted with Friedan over the last 12 months.
And again, we'll guide you on the midterm ambition of the group in terms of margin at the Capital Market Day. Next question please.
The next question comes from Tobias Warner from Stifel. Sir, please go ahead.
Yes, thank you. Congrats on these starting results and thanks for taking the questions. Just with regard to your working capital, when I look at trade creditors, it's gone up quite significantly. You don't seem to pay Your suppliers on the one hand. On the other hand, do you feel you're given the supply shortages we're talking about, do You feel adequately stocked up and how much more should that be?
In a nutshell, The free cash flow generation in the second half, if this all normalizes, how do you see it? The second point or the second question is, And I look at 2,007 peak margins for Building Distribution, Stripart Le Pere, which made some money back then and also Building Distribution Germany, I get to roughly a margin of 6%. You're getting close to 7% as we speak. What do you think is your normalized margin in the Building Distribution side? And just lastly, probably one for Sreedhar, your H2 2020 EBIT was 20.28 or 2,000,000,000.28, can you just maybe give us a hand with what the structural The scope impacts which we should strip out?
Thanks.
Thank you. I answered a bit on the supply and basically we need to increased inventory by 4, 5 days in terms of finished goods, in terms of products to towards our customers. So that's the magnitude of what we need to do and you will answer on the creditors of Schrodt. But The beauty of At Sangamo is that those decisions are taken on the ground and they are with small numbers on the ground everywhere. We don't rely on a big pocket of raw material where there is a huge shortage.
We are not in this kind of semiconductor dilemma of the automotive markets. We are dealing with thousands of small raw materials here and here. So there is no significant impact to the scale of Saint Gobain. But that means a lot of agility on the ground on all details for our teams. But no worry, no big risk of any question on supply chain, Chinese supplier, whatever.
We don't source a lot of products. We don't have this huge overseas transport from China type of cost that other businesses could have. That's what I want to say in terms of derisking. We are very well positioned. On your margin for DigiPen, again, I look at Saint Gobain for the future.
I don't look at what we did 25 years ago or 10 years ago. Indeed, yes, a kind of 6 ish Distribution margin is a good margin. Yes, we have done some structural changes divesting some low performing businesses that's a significant impact. And second also improving structurally the very good businesses we have. All the Investments we have done on logistics, on digital that makes our businesses and strong businesses whether it's in the Nordics, whether it's In Switzerland, a bit in the UK, in France, much stronger businesses.
So we feel confident about the performance of our margin in distribution going forward in some of the magnitude that we spoke about. But clearly we are extremely happy with the 6.7% that we have performed in the first half and that's a new record and a new set of benchmark. Do you want to take that?
Yes. So on working capital, Tobias, we just recall what we reduced visavis last year is Last year, we had reduced 9 days, 9 days of working capital. This year, we have further reduced by 7 days. And that's why I said that one of the things we need really need to correct is the inventory level to serve the customer. So what it means is for the end of the year, what I said end of February that 9 days what we reduced last year, 50% of that is structural.
So we are very confident to preserve the structural reduction, which we will do in working capital. The balance, we should keep that flexibility because I think it's important that we serve the market. If we don't serve the market, then the trend which we have, the Fair gain trend is something which we want to continue. So from a guidance point of view, you can take into account that the working capital will certainly be in It will certainly be in number of days higher than what you saw last year 2020. Second thing is you have to keep in mind is CapEx, we talked about it.
There will be a catch up effect of CapEx. We are still guiding, sticking to this 1,500,000,000 We spent something like $400,000,000 in the first half. So the balance should come in the second half and it is important that we invest to continue to grow in the market. So for me, the cash flow, you need to see from a ratio, I mean, the conversion point of view. As I said, you should keep the 2019 as a good reference point, which is 44% and I'm sure we will be better than that in this year.
Coming to your other question on technical question, which is what would be the impact of ForEx and the scope. It should be a limited impact in the second half. I mean, I say with some caveat because the exchange can move from one end to the other end. As of now, what I see, the ForEx, the spot rate, particularly the dollar, it's Right now, it's 1.19, last year it was 1.18, so we are talking of a slight negative there. Otherwise, Nordic And U.
K. Pound is becoming positive. So as far as ForEx is concerned, I believe that it would be a neutral to slightly positive at this point of time. And then scope impact should be slightly negative. So all in all, I would say there should be a limited impact for the second half.
Thank you. Very helpful. And maybe one follow-up question or request For the Investor Day, are you going to show margin targets group as a whole or by division?
Then what does it all look? You will see, Tobias.
I would say, I'm too curious. Thank you.
Bye bye. Have a
good time.
We will be helpful to you, whatever best possible manner.
Thank you.
And it's always important to give you wish list to Schaeder and Vivien so that we answer your needs For the Capital Market Day, I had a meeting with all of you on the 1st July. So please fill the pipeline of questions or expectations.
The very first day of taking the job.
Next question please.
The next Question comes from Christian Cork from HSBC. Sir, please go ahead.
Thank you very much and good morning. I have three questions. Apologies for the first one, but I would like to go back to slide number 10. On your operating margin for the last 12 months, I was wondering why you classified the price cost spread as exceptional. I thought that it is a key objective To have a positive price cost spread.
And everything you said today sounds like you're not willing to give away any of the achieved Positive price cost spread. And while I know that the world is changing, I'm not sure why it is classified as an exceptional, Which means you expect it to manage at some time. So maybe you explain this you could please explain this to me Why the positive price cost effect should disappear? The second question is, if you could please remind me what your energy costs were in the first and the second half of 2020. And the third question is just on CRYSTO.
I wanted to ask what the status of the transaction currently is?
What is the
status of? It is in
line with your previous planning.
Could you repeat the third, what is the status of? CRISIL. Yes, CRISPR. But what is the status of what on CRISPR? I didn't get it, sorry.
Yes. What the status is on [SPEAKER JEAN FRANCOIS PRUNEAU:] PRUNEAU:] PRUNEAU:] PRUNEAU:] PRUNEAU:] PRUNEAU:] PRUNEAU:] PRUNEAU:]
Okay. Very good. Yes. So just before you give The price cost spread, this is our leadership positions on pricing power. So we are extremely happy about what we have delivered in the second half of last year, first half of this year and we are not going to stop there.
Don't take us wrong. If we can maximize the pricecost trying to leverage our pricing power, we'll continue to do so. What we are seeing is that it was quite exceptional versus the past in terms of magnitude. So this is only what we are seeing. The magnitude of the price cost was quite exceptional.
It was €235,000,000 if I take the last 12 months. This is, I would say, above normal. So we think it's going to normalize. But the incentives, the targets for all the teams to continue to push for that and capture the maximum of it and leverage the very big volumes and expectations from our customers on this aspect. So it's not going to disappear, but the magnitude is going to Maybe cool down a bit.
Freda, you want to be more precise than me.
No, I think you have added you have said everything what I wanted to say. It's good. Energy is last year, it was €1,100,000,000 and this year, we are expecting €1,300,000,000
And CRISO, we have had with all the legal constraints of course because we are filing the antitrust. We pay attention to what we can do, what we cannot do. But we have had Some interaction to introduce the teams to each other. I can tell you the chemistry without any joke, but the chemistry between our teams has been extremely positive in terms of ideas of business growth going forward in terms of preparing the integration around the world. I worked with the CRISIL team the next day and from there we have started to do it country by country.
So the chemistry is very good. The trend on the business is good, actually above what we had in mind in terms of the last 12 months when we announced the acquisition. Again, the CRITO manager guides me for the second half close to, but I think it's delivering very well so far, slightly above what we had in mind on the last 12 months. And in terms of antitrust filing, think we have 13 filings, 3 or 4 of them are already done and we expect the rest to be done around end of September, early October. So CRISO, I would say, letters should be in our books on early November, if not slightly earlier.
So Everything is positive and green on CRISO. They are extremely eager to join Saint Gobain. We are extremely eager to welcome them. It's a fantastic team. They are all on board And I'm extremely positive about all the feedback also we heard from customers including the Chryso customers after the announcement of the acquisition.
So it's a fantastic growth for us going forward. So all positive on TRISO.
Thank you. I just didn't really understand your answer on energy costs. Could you please repeat that?
It's €1,100,000,000 last year and this year I expect it to be €1,300,000,000
Okay. That's for the full year, right?
Sorry? Full year.
Yes, it's full year, for sure.
Sorry, my question was this week for the first and the second half
of the year?
Yes, I mean, I think last year it was very unusual year and I don't have the figure on my mind. I mean, and it doesn't make sense to look at like that because last year, the second the first half was much lower because the production was limited.
And plus now we have some hedging. So we are already hedging 2022, if not 2023. So For us, the energy impact in the second half is already there and accounted in half years. Next question. [SPEAKER JOSE RAFAEL FERNANDEZ:]
Okay. Thank you, Helene. [SPEAKER JOSE
RAFAEL FERNANDEZ:] So I think we covered all the questions already on the call. And let's take now the questions. Is there any more questions, sorry? [SPEAKER JEAN FRANCOIS VAN
BOXMEER:] No, we have no more questions by phone.
Okay. So let's take the questions on the Internet. I will read them. So this is a question from Mike Betts. Given you are operating at full capacity, do you plan to significantly increase CapEx in 2022 or do you think Demand is currently above long term sustainable levels.
So thank you Mike for the question. We are going to increase a bit the CapEx next year slightly above probably the €1,500,000,000 level of this year, not significantly. And again, there are a lot of actions to make sure that everywhere, which was not the case even 12 or 18 months ago, we run at full shifts. We de bottlenecked our plant. We optimized.
We have done a lot of actions on 4.2 in manufacturing with our experts. We de bottlenecked the plant to gain capacity on the lines without significantly changing the CapEx. So no big change, but a bit more CapEx, yes, for 2022. Good CapEx on growth following the trend. And I don't think the current demand is overdone on the demand side.
Sorry, because the questions are moving. So if you so I take the next I'm not sure it's in the right there was another question I think from Mike Betts. I think it's this is it. There is a question from Joseph Pujal, Contesco. So when David Molloy did replace Laurent Dior?
Like the Executive Committee, I put in place this new executive team on July 1. It was announced on June 4. There was a press release on June the 6, if I'm correct. So you have read that. So the team was announced right after the AGM, which appointed me as Board Director for Saint Gobain.
So David has been within the group for 12 years in many successful positions and David took over like the rest of the team. There have been other changes within the team. I have highlighted all the team and please refer to the press release we had on June 6th. Everything is in place on July 1st. This is the time I took over as CEO of Saint Laurent.
Mortain without cement, another question from Josep. What do you put instead? We put other materials and I don't want to go into the specifics, but Other materials those formulations are patented and we have the patent the only one where we can take mortars without any Portland cement in our mortar with even better, less itchy, less dust for the Craftsman. So this is a patented solution. And even recently I checked because I was pretty sure you would add the question, but our teams prefer not to disclose.
But you can have a lot of things. You could have clay. You could have slag. You could have all kind of waste materials. But clearly, we are pushing A lot of ideas to put in our mortars and construction chemicals, also what we call waste aerials, so collection of waste from new demolition sites and this is a way to reduce the level of cement a big way in our formulations.
And Here again I think Crezo will give us also a lot of input on the chemistry and the modern chemistry you can put in many materials of Saint Gobain Corinform 1. Another question from Joseph. PFOA class actions, how much have you booked and how much was the demand of the other side? Well, we don't publish the other side.
It feels, I think. What was a necessary Yes, correct. What I can tell you is there are 2 class sections. New York is closed, signed public now and also the Vermon is another site which is in progress. So we have made the best estimate.
All the Expected on these two class sections, all the expected cost has been provisioned end of June. We have €78,000,000 in
the books [SPEAKER JEAN FRANCOIS PRUNEAU:] Being provided. Next question from Manish Beria from Swiss National. It seems that the relationship between growth and CapEx is likely to change for better. Do you foresee an increase in your payout ratio medium term? Or do you want to recycle the extra cash generation for M and A?
I think it's typically a question for the Capital Market Day. We are conscious, we are conscious, sorry, Sreedhar and myself about all the expectations, also all Sometimes the negative feedback that some investors had on Saint Gobain over the last 10 or 20 years. So we take that into account In terms of the right discipline on cash allocation, this was the first question earlier today. The right also discipline in terms of return to the investors whether it's in terms of share buyback or or dividend and we'll come back to you during the Capital Market Day with I think a very solid plan to create value for our shareholders mid- and long term as well as a very good discipline on acquisitions. I am very happy to say that what we have done in terms of divestitures in the last 2.5 years, it's more than 30 divestitures.
We have not been slow with no taboo on the divestitures and also very active on acquisitions. It's more than 40 acquisitions, good ones with very good returns. Some of you were a bit skeptical when we announced Continental in November of 2019. We knew the cycle was there. We knew the team would be a very strong fit within Saint Laurent.
So I think we have proven to deliver well on acquisitions in the last two and a half years and we'll continue to do so. This is the way of Saint Gobain for 1. Some sell side analysts do not think the same question from Patrick Millikan. Some sell side analysts do not think you will announce big changes in the targets and strategy in the Capital Market Day in October. What is your reply to this well I will think about that over the summer because I don't want to disappoint anyone.
What is clear is that we talk to all the stakeholders, not only the sell side but also the buy side and the investors. And we are on the growth strategy for Saint Gobain. Saint Gobain has changed. So we are not in the same picture Of Saint Gobain compared to 10 or 20 years ago Saint Gobain has changed. We are on a growth pattern.
We have delivered in terms of discipline on the cost In terms of margin, we have surprised you several times in terms of your expectations on the results. Cheddar, myself and all the executive The team is committed to deliver on our commitment and we'll highlight all this during the Capital Market Day. Have been part of the strategy of the group. I have been leading the Transform and Grow actions of the group whether it's portfolio organization or margin impact in the last two and a half years. So I'm very happy about the story and the drive we have right now.
So don't expect a U-turn on the strategy because we'll continue to accelerate on that strategy. It's clear leadership on light and sustainable construction and we have seen the impact it provides to Saint Gobain in terms of strategy and in terms of impact. Now whether I understand the value of Saint Gobain on the share price, no. And I'm ready to convince our shareholders, our buy side analysts that there is something to change on the valuation of Sangaba going forward. You mentioned that 70% another question from Patrick.
You mentioned that 70% of your solutions are sustainable. Does it mean that 30% of your products are not sustainable? And which activities are these then. This is a very detailed work that we have done over the last 6 months and we'll highlight that during the Capital Market Day to classify our portfolio on 2 axes to serve our strategy of light and sustainable worldwide leadership and construction. What we provide in terms of sustainability for the planet and for the people and what we provide in terms of performance for our customers.
So we'll highlight all that. And there is an overlap of what we do on performance for our customers and what we do on sustainability. But with that, we cover 100% of the group. So there are some accessories and things like that which do not fit in either of the 2 categories. But I feel very good about the portfolio of Saint Gobain delivering sustainability and performance for our customers going forward.
And all the team is going to highlight that by region, by segment and during the Capital Market Day. And those solutions, these are the reason why We delivered such a big impact on the margin. And I went I meant in my introduction that we deliver best in class margin. Tobias was kind enough to highlight the 6.7% margin on distribution. We have delivered 14% margin in our manufacturing businesses.
I think it's best in class, if not close to best in class of 1 of the best peers in the industry. And I think it's our job to convince all the investors, all the financial community that We are best in class in terms of running our margins and running the long term organic growth of the group going forward. I think we have covered all the questions, if I'm correct, on the Internet. So That being said, we are extremely happy, Sreedhar, myself and all the team about the results we have delivered in the first half, all time record of Saint Gobain. This is I think the 3rd positive surprise in the year.
We are committed to deliver. We are very confident about the second half. We have revised our guidance up for the full year and we are committed to deliver an exceptional year in 2021 as all time high record. More to come in the details and also to touch and feel the team during the Capital Market Day. I wish you a very good summer, a very safe summer and Happy to see you on the 6th October for all our strategy going forward.
Thank you very much.
Thank you.