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Edited Transcript of SGO.PA earnings conference call or presentation 26-Jul-19 6:30am GMT

Half Year 2019 Compagnie de Saint Gobain SA Earnings Call

Courbevoie Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Compagnie de Saint Gobain SA earnings conference call or presentation Friday, July 26, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Benoit Bazin

Compagnie de Saint-Gobain S.A. - COO

* N. Sreedhar

Compagnie de Saint-Gobain S.A. - CFO

* Pierre-André de Chalendar

Compagnie de Saint-Gobain S.A. - Chairman & CEO

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Conference Call Participants

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* Arnaud Lehmann

BofA Merrill Lynch, Research Division - Head of the European Construction & Building Materials and Director

* Eric A. Lemarié

Bryan Garnier & Co Ltd, Research Division - Research Analyst

* Josep Pujal

Kepler Cheuvreux, Research Division - Head of Building Materials & Construction Sector

* Laurent Runacher

Exane Asset Management SAS - Portfolio Manager

* Manish Beria

Societe Generale Cross Asset Research - Equity Analyst

* Nabil Ahmed

Barclays Bank PLC, Research Division - Head of European Construction, Building Materials and Infrastructure Equity Research

* Sven Edelfelt

ODDO BHF Corporate & Markets, Research Division - Research Analyst

* William Jones

Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research

* Yves Brian Felix Bromehead

Exane BNP Paribas, Research Division - Analyst of Building Materials

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Presentation

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [1]

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So good morning, everybody. I'm very happy to present to you, together with Benoit and Sreedhar, our first half results. So I will make the introduction and the highlights. Sreedhar will go a little more into the details on the numbers. Benoit will update you on where we are on our Transform & Grow program, and I will come back for the wrap-up and the outlook.

So first of all, I want to say that there are, and you will see that in the presentation, a number of changes in this presentation. It's the first time that we report the numbers with our new organization. And Sreedhar will go that.

All our numbers are including the impact of IFRS 16, and we have changed our numbers in 2018 and '19, so everything is after IFRS. And third, you will see that our new CFO, listening to some input from you, has changed a few definitions. So there are a few definitions that we are using, and he will comment on them, which have changed from what we were doing before, based on your input.

So the first half has been good for Saint-Gobain, and I'm very pleased with our results. With a good sales growth, you see sales at EUR 21.7 billion, up 4.3% and 3.5% from a like-for-like perspective. Supported by good trends in the first half, our operating income is up 8.2% at EUR 1,638 million, which is giving an 8.3% increase like-for-like. And it's important to notice that our operating margin is up 30 basis point from 7.3% to 7.6%.

The recurring net income is up 16.7%, given good performance and better operating income items at EUR 944 million, and the earnings per share are going up more because we have continued our program of buying back shares. So we've bought back 6 million shares that we canceled, so there is an additional impact there. The EBITDA, which is a new definition, and I will let Sreedhar go into it, is up 8.4% at EUR 2.4 billion and the debt, which is also including the changes with IFRS 16 is at 12.16 -- sorry, EUR 12.6 billion, and the ratio is 2.6x, which is -- put us comfortably where we want to be in terms of a rating.

The main highlights of this first half. First, a good organic growth at 3.5% with good pricing at 2.3%. Sreedhar will come back on that. This is driven by all geographies. And I would say that globally-supportive market plus, clearly, in a number of areas, some of our performance of Saint-Gobain in the first half. A good impact of these sales on our bottom line and the operating profit, so 8.3% like-for-like. We have benefited from our change in the organization. As you remember, we had also last year a few operational issues, which were impacting our results in the first half, so we have also a more, I would say, normal industrial performance, and a gain of 30 basis points, which I think is -- bodes well for the future.

I am very pleased with the first results of our Transform & Grow program, the organization has been in place 1st of January, and we are ahead of our targets on most items. Benoit will explain that in more details. We have a few already, which was very early in some countries, we have already an impact on additional growth because of the synergies of the new organization. We are ahead in terms of the targets, in terms of saving, so which allows us to increase the impact on the first year of this plan, from EUR 50 million to -- more than EUR 50 million to more than EUR 80 million. And in terms of portfolio, we are going to be above the EUR 3 billion sales by the end of 2019. In terms of divestment, we have already signed for EUR 2.8 billion -- more than EUR 2.8 billion of sales, and we have a number of projects under way.

Free cash flow, and this is again a new definition that we are using now, that I think is more aligned with the way you look at it, is at 40% versus the first half of 2018. And the net income, as I said, is up significantly. So a very good set of results, which shows in value that Saint-Gobain is, in terms of -- is overperforming at the moment on reasonably good markets, better than probably some people who are thinking at the beginning of the year, in line globally with what I had in mind in February. But I would say that good overall market and a good start of our transformation plan.

So now I leave Sreedhar go into more details in these results.

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [2]

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Thank you, Pierre-André. Good morning to all of you. As Pierre-André said, we have made quite a number of changes in this presentation. And not just the format but also some of the indicators, and it's based on the input you all gave us during the last 6 months. The purpose of making these changes is not just to align the reporting in line with the way we run the business and the organization, but also to make sure that we help you to understand our results better.

So let me get into the details, starting with sales. Sales increased by 3.5% on a like-for-like basis over the first half and 4.3% on a reported basis, with the positive impact from the exchange coming primarily from the U.S. dollar in the whole sales. The impact of acquisitions is slightly more than various divestments that we did in the transformation program. Even though we made fewer acquisitions during the first half, we will continue to evaluate various options of acquisitions in a disciplined manner. If you look at the quarterly trend of price and volume, you would clearly notice here that we have remained focused on price, in spite of -- given the fact that there was a lower trend in the inflation. And clearly, it has helped us to offset the inflation, not only offset the inflation, but also have the price, the spread between the price and the inflation positive. And this is very important for us to make sure that we continue to remain focused because we saw inflation in the first half, even though it was relatively lower than the last year, and we expect a few more raw material trends to be lower in the second half. Overall for the year, at this point of time, our best estimate of the input cost inflation would be in the range of EUR 450 million to EUR 500 million as compared to around EUR 600 million in 2018.

We are expecting some downward trend in some material costs, including gas, even though the benefit of lower gas price will not be significant in the second half, due to our hedging policy. We just have to keep in mind that we benefited from this hedging policy last year in 2018. As expected, the volumes were lower in Q2 due to the lower number of working days and a comparison-basis impact. But overall, the volumes were positive at 1.2% over the first half. The negative working day impact in the second quarter was around minus 1%. And if you see the number of days' impact in the second half, we expect to see positive working days' impact of plus 1.5% in Q3 and slightly negative in Q4.

If you look at operating income, you will see a very good like-for-like improvement, with a 30 basis point improvement in the margin. Clearly, because of positive price/cost spread, positive impact of EUR 35 million of Transform & Grow, Pierre-André said that we are ahead of our program in the execution, and we continue to work on our excellence program, which has given us EUR 155 million cost savings in the first half. And we also had a better industrial performance as compared to the last year. If you see the business income, it's up by 7.5%. Nonoperating costs reduced from EUR 233 million to EUR 168 million, if we exclude the positive one-off impact of EUR 180 million related to Sika, which we accounted last year in the first half. And the nonoperating costs this year includes EUR 51 million related to the transformation program in the first half and EUR 45 million accrual for the provisions of asbestos-related litigation.

Net gains and the losses on the disposals you have here is mainly linked to the divestments programs which we executed during the first half in the T&G program. Here you will also notice that we are changing the definition of EBITDA, which Pierre-André mentioned. I think one of the most important change we are making, again based on your feedback, is we are not including the nonoperating cost in the EBITDA calculation. So the whole purpose is to equate this EBITDA to more resonate with the cash.

So let's look at between the business income and the recurring net income. Regarding the financial results of 2018, we need to keep in mind that we had EUR 601 million out of EUR 781 million benefit from Sika transaction, and it was treated as a pure financial gain in the last year first half results. And in 2019, it includes the dividend we received from Sika, EUR 28 million, during the first half. Otherwise, the rest of the financial costs are in line with last year. And the average cost of borrowing is coming down. The reduction in overall net income in 2019 is, again, due to the exceptional one-off from the Sika transaction recorded in first half. However, the recurring net income, which is our real operational performance, increased by 16.7%, and similarly, the earning per share also went up even more.

The overall operating working capital increased slightly but remained stable at comparable exchange rate. And now this is on operating working capital. It does not include the other working capital you will see in the cash flow statement. And this is how we have been presenting throughout in the last few years. And this shows clearly that we have demonstrated the discipline in managing the operating working capital, and that's something which we'll maintain that even in the second half.

Coming to the cash flow. Based on your feedback, again, we have added this graph, showing you all the details from EBITDA to free cash flow. As you can see from the graph, we have not taken the impact of depreciation of the right-of-use because it's a pure accounting treatment, it's a noncash item, and it's coming out of this IFRS system change. And the financing costs, we have excluded Sika benefit, that is EUR 28 million, which we see it as a dividend because we believe it's not an operational -- it's not the cash coming from operation. And the CapEx does not include the investment on the additional capacity as such, because these investments are made based on our discretion for the future growth.

So you see the free cash flow is up by 40% and 30% conversion rate. And this is again a new one which we have added, because this is how you all talk about every time we look at the conversion rate, and this is 33% -- is what is for the first half. And I hope this bridge helps you to bring more clarity on the cash generation of Saint-Gobain.

Finally, let us look at the debt equity ratio. You see the debt, including -- this debt includes the IFRS 16 benefit impact of IFRS 16. And this is -- if you see the ratio is slightly better than the last year first half, but absolute debt has slightly gone up, it's mainly on account of the higher acquisitions we did in the second half of last year. Again, I would like to remind you that the debt equity ratio, the way we have calculated here is by applying the new definition of EBITDA, which I explained to you earlier. Otherwise, our balance sheet remains strong, and our credit rating remains stable and is actually in the upper range of the rating.

Now let us look at into details by segment. Before presenting the results by the new reporting unit, let me explain it. We have now new 5 reporting units, which are completely aligned to the new organization. As you are aware, the purpose of creating this new organization is to make our organization more customer-centric, lean and agile. This 5 reporting units are: high performance solutions addressing the global industrial customers; and we have 4 regions, addressing the construction markets.

Within High Performance Solutions, we are organized by market segments. Mobility, which is the largest segment, providing solutions to auto, aerospace and other transportation markets. And then you have the other industrial markets like Life Sciences, construction industry, and general industry.

In Life Science, we are providing solutions primarily to the health sector, whereas construction industry is providing the textile and the reinforcement solutions to the large industrial customers in the construction market. And general industry is basically providing various high performance solutions to industrial markets. And then our 4 regions are organized by country. Through this country organization, we provide comprehensive solutions to the construction market, adapted to the local needs of the customers. And it includes Building Glass, Interior and Exterior Solutions and Distribution.

I will now comment on results of each of our 5 new reporting segments. Starting with High Performance Solutions. We saw for like-for-like growth of 1% in H1 2019. The volume is slightly negative, mainly due to the sharp decline in automotive markets in China and Europe. And then we have a lower volume in ceramics. And we had an exceptional -- where we had an exceptional orders during the last year first half. Mobility market stabilized over the first half in a difficult automotive market. Our differentiation strategy of moving towards high value-added automotive glass solutions continues to pay off.

Despite the ongoing contraction in Europe and China, our like-for-like sales in automotive glass remains slightly positive, as we continue to gain market share in electrical cars market, specifically in Americas. And our business in aerospace market is making a very good progress. Industrial markets remained stable against a difficult comparison basis in Ceramics in H1 2018. Activities serving the construction industry showed a strong growth, notably benefiting from the good trends in external thermal insulation solutions.

And finally, the Life Sciences continued to show an excellent growth dynamic in the pharmaceutical and medical industries using plastic, single-use components. As expected, the first half operating margin is lower than last year, due to the very high level of ceramics sales with a positive mix and also partly due to slowdown in automotive market. However, if you look at this margin sequentially, there is an improvement of 60 basis points as compared to the second half of 2018. So overall, High Performance Solutions has delivered solid results.

Now let us look at Northern Europe. Northern Europe grew by 3.6% like-for-like in the first half. Distribution business in this region had a great first half, and our Industrial businesses in the construction market also progressed very well, in particular, Gypsum and Insulation. Nordic countries started the year off with a very good sales trend in all main businesses, in particular the distribution business, which benefited from the good dynamic in the renovation market.

U.K. remains slightly positive in the first half, but actually declined in the second quarter due to the uncertain economic environment. Sales in Germany progressed. And lastly, Eastern Europe continued to show good growth, helped by easy comparison basis with 2 float repairs last year in Poland and Romania, which had impacted our results of 2018 first half. So operating income grew significantly, driven by good volume growth, a positive spread on raw materials and energy costs, and with a good industrial performance. So once again, overall Northern Europe region delivered strong results, with a good improvement in the operating margin.

Now Southern Europe region, which posted an organic growth of 4.3%. Even the growth was here, led by distribution business and also the Industrial businesses, specifically plasterboard, insulation and mortars improved significantly in the first half. The pipe sales increased slightly, along with our efforts to improve its competitiveness, which we have been working for the last 2 years. France recorded a strong first half, driven by the construction market, favorable in renovation.

Distribution reported a very good growth and insulation activities posted a double-digit growth, benefiting from, again, strong demand in energy efficiency-related renovation work. Amongst all of the countries in this region, Spain posted very strong growth, Benelux and Italy progress; Middle East and Africa were down in the first half; particularly in Turkey, it was quite difficult. Overall, the Southern region also delivered a very good result.

Now let's look at the Americas. Americas region grew by 2.6% on a like-for-like basis. North America continued to benefit from a good pricing amid inflation of certain raw materials at the customer -- expense of volumes, and again, high comparison basis in the second quarter of last year. Exterior products stabilized on a like-for-like basis despite strong pricing effect. Insulation business is doing well. Prices are challenged in Gypsum, where we still have difficulty to pass on the inflation and the volumes also remained broadly hesitant.

Latin America enjoyed a continued growth momentum. In particular, in Building Glass and Mortars businesses. Brazil recorded a good growth over the first half, benefiting from the new organization of its sales team, organized by channel. So operating profit overall remains stable. The Asia Pacific region increased by 6% organically, supported in particular by Building Glass and plasterboard. India benefited from additional sales from its new floor, which is a fifth float line, and the plasterboard continued its strong growth trajectory. Amongst our other countries in the region, China recorded a good first half, marked by the launch of the new plaster plant in China. Southeast Asia is facing a competitive environment, again weighing on our sales price. The overall operating margin increased from 9.3% to 9.5%.

Before I conclude, let me summarize the key points of our first half results. Overall, a very good first half results. A good increase in margin, particularly in Europe, with relatively a good industrial performance and good pricing level, not only offsetting the inflation, but giving us the positive spread, and a very positive impact of the results of transformation program, which Benoit will update you. I give the floor to Benoit now.

Thank you.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [3]

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Thank you, Sreedhar. Good morning, everyone. So I give you an update on our Transform & Grow progress. My main message is clear. We are moving fast and we are ahead of our initial plan, so we are very confident about the benefits that Transform & Grow bring to Saint-Gobain. I remind you that there are 2 pillars of Transform & Grow, a new organization, agile, aligned to our customers; and second, an active and value-creating portfolio management.

First, our organization brings already significant growth synergies. I give you a few examples, but there are many more, organized by our CEOs, by countries, by markets, who have a direct and simple line of command on all the product lines within the perimeter that they manage. A few examples, reorganizing our sales force, multi-brand sales force by channel in Brazil.

On one side, targeting distribution; second, all the technical experts targeting prescription customers; and third, digital and marketplace. It did bring roughly 1.5% of additional growth in the first half. Second example, leverage one very strong product line to pull and accelerate the commercial development of another product line. We are strong, for instance, in glass in India, and that did accelerate the development of our Gypsum lines.

Third example, to boost innovation. When we gather all our teams, for instance on the aerospace market, within an integrated teams, we gain customer intimacy and we are able to better codevelop innovation with our customers. On top of those growth synergies, Transform & Grow is also a cultural change in terms of agility on decisions and also in terms of lean internal processes. We have reengineered and simplified a lot in order to free up time for our teams to spend more time with our customers on added value.

We have also selected the best managers in the new organization, 80% of them being native in the country in the perimeter that they manage. They are empowered, on all their business lines, with a very strong sense of ownership and also straightforward incentives. To be a bit more precise on that, 100% of their incentives are now on the perimeter that they directly manage. [When you choose] to be roughly half in the former organization, the rest was linked to more solidarity items into the broader organization that we're part of. So all our teams are on board. We have made a survey end of March, 76% of them are convinced by the benefits of Transform & Grow in terms of growth, additional growth and profit for Saint-Gobain.

So in terms of rollout, as I said, we have acted fast. All our teams have acted fast. Every country or market is contributing. We moved from roughly 700 operational levers end of February, when I presented that to you, to more than 1,000 by April, and we have been in the execution mode since then. So in terms of savings, we are ahead of our initial target, instead of more than EUR 50 million in the P&L of '19, we have revised that up to deliver more than EUR 80 million in the full year of '18 (sic) ['19]. We have already EUR 35 million of that in our first half P&L.

For 2020, we have also revised up our target from EUR 120 million to more than EUR 150 million, and we'll deliver the full EUR 250 million in the full year of 2021. So frankly, I don't see a risk of execution, I see much more benefits than we initially anticipated. We have the right dynamic and the right execution levers everywhere.

Now a few words on our digital transformation, which is a big and powerful opportunity for Saint-Gobain, and we have made very significant progress. A few examples. Our distribution business, for instance, is the largest user internally of our group data scientist. We have 80% of our French distribution customers using our digital tools. If I take Solar Plus, which is our job quotation service for small customers, it's more than 100,000 [use] per year.

We have also digitalized more than 80% of our building products information worldwide, which does reinforce our digital presence across all the construction value chain. Our e-commerce distribution sales in France and the Nordics are up a strong double digit in the first half, for instance. And also on the manufacturing side, Industry 4.0 we keep increasing the number of robots in our plants, and we use digital to enhance further our operational excellence. Our new organization helps to further accelerate on this digital transformation by combining on one side a dedicated central team of experts of IT platforms, gathering and sharing and leveraging all the best competencies, and on the other side, on the ground, a clear empowerment of our local CEOs, country or markets, to roll out fast their digital roadmap.

If you also saw on operational excellence, which, as you know, has been at the core of our daily focus on the ground for years, we have developed over the years group excellence programs, whether on supply chain, marketing, manufacturing. But I would say that over the years, sometimes they became a bit heavy, and sometimes not so well adapted to all the different local business situations that we have. So within our new organization and our central teams of experts on marketing or manufacturing, we have reshuffled those group excellence programs to make them agile and to make them well adapted to each local needs.

For instance, differentiating between the small plants, the midsize or large plants on world class manufacturing. So the principle is to service and to help the success of our operations on the ground rather than the former top-down approach. And this new bottom-up approach makes the buying and the local ownership on execution much stronger. As Sreedhar mentioned, we have already started to see some of those benefits in the first half results, with good operational excellence savings.

Switching to capital allocation and the execution of our CapEx plan. We concentrate our CapEx on growth, it was 42% in the first half of '19, into promising technologies and into fast-growing countries. We have highlighted on this slide a few examples, numerous projects everywhere that we have been active on in the first half of '19, whether in emerging markets, in fast growing areas, like life science or also blown-in insulation in France.

In the first half, 55% of our total CapEx have been spent outside of Western Europe. And now the second very important pillar of Transform & Grow, our active portfolio management. We are delivering fast on divestiture. Divestitures representing over EUR 2.8 billion in sales have been closed or signed year-to-date. In H1 of 2019, disposal of Silicon Carbide, glass processing businesses in Sweden and Norway; signature of agreements to sell our distribution business in Germany; our Generalist distribution business Optimera in Denmark; and our specialized civil engineering distribution business in France.

This comes on top of what had been done end of 2018, with the disposal of our Pipe plant in Xuzhou in China, the EPS insulation foam business in Germany and also the glazing installation business units in the U.K. On the acquisition side, we made 10 acquisitions for EUR 145 million, along the selective criteria that you know well. Technology, like American Seals, Pritex, or also Norton Ceilings for specialty ceilings in North America; emerging markets, like Gypsum in Mexico or Argentina; and also [4] small acquisitions to strengthen our local leadership in distribution, Europe.

So all in all, I'm very confident that the depth of our transformation, organization and savings on one side, portfolio management on the other side, and what it will bring to our growth and profit profile. We have the right things to succeed and to execute well. I now hand over to Pierre-André.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [4]

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Thank you, Benoit. Before I go to the outlook, let me say, wrap up again, that I'm very pleased with what has been done. I think the team of Saint-Gobain has reacted extremely well to this program, and I want to congratulate all of them. We are on track to deliver a significant transformation in Saint-Gobain.

What is very good for me is that the growth, which is the most important element of this plan, is already happening, where we thought initially that we would have to wait a little more. And we were at the beginning more focused only on the realignment and the cost. So we are already seeing some benefits in term of growth. Benoit gave you some examples. We are ahead in terms of our savings, and the reorganization is bearing fruit very quickly. So we expect from that a 60 basis point improvement in the operating margin, when we have the full benefit of the plan. And we are ahead of the -- as Benoit showed you on the target, we will deliver more than this EUR 3 billion sales by the end of 2015 (sic) [2019]. And we have already, if not in the P&L of 2019, but given what has been signed, we know that there will be the 40 already from what we have done, the 40 basis point improvement in the margin of Saint-Gobain when -- on a full year basis, when taking into account the timing of the closings. So we are very confident on this program, both on terms of improving the growth profile of Saint-Gobain and improving the operating margin by 100 basis points by 2021.

When I look at the portfolio evolution, I want also to stress when I say that we will do that more than this EUR 3 billion for 2019. We have done EUR 2.8 billion but we have a number of projects which are ongoing, and we continue, as I told you in February, this review of our portfolio in the framework of the new organization, which is giving a new angle to our businesses. It's when we talk about the local businesses, it is within the countries that we appreciate our footprint, and we can see what are the pluses and minuses and the evolution. Same thing for the markets within High Performance Solution.

I expect from this review further acquisitions and further disposals, so we have a number of projects in the way. We are also studying for some of our businesses, like in pipe as you know, partnerships to strengthen the position that we have. By the way, we have had a very good improvement, as Benoit said in our pipe business. So this plan is an ongoing plan. I don't intend to give an additional target in terms of sale. We first will complete that, but I want to tell you that we are continuing on this path, both in acquisition and in divestment.

Now if I come to the outlook, I think I am confident about the outlook for 2019. In High Performance Solution, we should have a satisfactory industrial market, we see some slowdown here and there. But globally, we have also some very good markets. So globally satisfactory. In particular, in the U.S., we have had and that's -- I think that in automotive, the drop of the automotive market has been higher than what people expected, and that's what I expected for the first half, 7%. But you have seen that in this environment, our sales in the automotive market have been slightly positive, even in volumes, slightly positive. So I think that we overperform clearly.

In Northern Europe, we should have further progress after a very good first half. We see good trends. I remind you that in the Nordics, we have had very good sales -- were like last year, and in contradiction with what some macro analysts are saying, and I think we are going to continue to perform. We say that the rate of growth of this year will be a bit lower than last year. We still have good growth in the Nordics, so innovation market is picking up strength.

The only country where we have more uncertain, and I flagged the uncertainty, but what's happening in the U.K., from a political standpoint, is adding an impact clearly. And I think the environment is clearly uncertain. We had probably a little bit better first quarter than expected and a little less good second quarter, which was due to some stocking impact before the 31st of March.

But we have -- so we have the rest of Northern Europe is [good]. Southern Europe, clearly, that's -- my outlook for the year is better than what I said at the beginning of the year, and I was probably already more optimistic than most. We are seeing, and this is very good news of this first half, is the French market and the French market for 2 reasons. First, we don't see yet a drop in new construction. We know that the statistics are not good, but I think maybe the activity is going to go less down than the statistic we have seen, and it's taking more time. And at the same time, we are seeing a pickup in renovation, quarter-to-quarter. And in fact, you should deduct the number of days.

The second quarter of renovation was good. And this is driven by energy renovation, and that makes me optimistic because I think there is a lot coming on. For instance, our sales in the first half in France, we are up double digit in insulation. And we think that given -- I don't need to stress the climate yesterday in France. I think the emphasis of most governments on these topics is going to grow, which makes me strategically, not only for the second half of this year, optimistic that we are going to have a good outcome. So France is better than what I thought, which was better than what people thought at the beginning of the year, and I am still quite confident on France.

Americas, we have seen -- we expect a kind of stabilization. We have good pricing but the volumes have been a bit more difficult in the first half, partly because we have privileged volume -- price to volume. And we have some uncertainties in Latin America, even though that's where we have seen the first benefits in terms of additional growth from our Transform & Grow program. And Asia, we should see further growth. So globally, I would say markets which are globally a little less supportive but for Saint-Gobain, given also the importance of France, I would say that my outlook is very -- is positive for the second half.

In this framework, our priorities is still to grow our sales price. As you know, it has been a strong priority for Saint-Gobain. We continue to be focused on that. We are going to continue the implementation, and Benoit shows our confidence that we will deliver more than what we had in mind for this year in terms of the T&G savings, in addition to our industrial manufacturing improvements and the impact of digital transformation, which is very positive. For instance in France, we have also, in distribution, we have -- we are still seeing an increase in the cost of digitalization, but we have had more -- a bit more quickly than what we thought. Also, we have had a productivity gain impact, which is clearly healthy.

On R&D, we will continue to invest. This is key for us in the future to increase the part of the differentiated products of Saint-Gobain, and we are focusing on the high level of free cash flow with this. And I think that Sreedhar is on top of that, as he illustrated in his presentation. So globally, I confirm the full year objective of Saint-Gobain in terms of operating income, but I would say after 8% for the first half, this doesn't sound extremely challenging.

So I am also able to tell you that we are targeting an increase of the operating income in the second half, where it's clear that you remember that last year, our performance in the first half was hampered by some operational difficulties, the comparison basis of the second half is a little bit higher but we are confident we will continue to progress. So I'm very confident. I am pleased with the results achieved as a team. And I think we are going to continue to overperform our markets like we have done in HPS, in a number of areas. It's clear that we are overperforming our markets at the moment. And I think that the new dynamics of Saint-Gobain is going to continue to help us to overperform in global markets, which are, I would say globally, a little bit slowing but not especially for Saint-Gobain. Thank you.

And I think now we are -- Benoit, Sreedhar and I, we are at your disposal to answer any questions you may have.

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Questions and Answers

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [1]

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Thank you. So we'll start from question from the room and then the internet and then the -- no, then the phone, and then internet. So the room. Yes?

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Josep Pujal, Kepler Cheuvreux, Research Division - Head of Building Materials & Construction Sector [2]

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Josep Pujal from Kepler Cheuvreux. I have 3 questions. The first one on these difficulties that impacted you last year in H1. Could you be a little bit more specific about how much did they help you in this H1, this year as a comparison. The second question is on the pricing in Southeast Asia. You have said that it was a little bit weak, some cases of a tough competitive environment. Could you be a little bit more specific, which products, which countries? And my third question is more a curiosity but you have gone from 700 levers identified in February to 1,000 now, and the target remains EUR 250 million. So could you explain a little bit.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [3]

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So I'll take the second question, in Southeast Asia, and we have had in some businesses some competitive tensions. In plasterboard in the first half it was, I would say, Thailand was probably and Indonesia were a bit difficult. I think that it is improving at the moment. So I am confident we are going to do a bit better. On the comparison with last year, maybe Sreedhar and Benoit will talk about this question.

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [4]

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Yes. So in comparison with last year, as we said in the past that it's not that straightforward to calculate exactly the precise numbers. If you know that last year, we had various reasons for which the results got impacted. One was because of the weather conditions, which was certainly harsh winter impacted our sales. And that's something which is very difficult to quantify, because you know that in many of the countries we do have this shortage of labor, especially in the developed countries. You don't know how much we recover in the Q2, so that's one element, which is still not easy to quantify.

But otherwise, in terms of industrial performance, I think the best way to look at it is to compare the performance we had in -- with glass in the second half of the last year. I think that difference should help you to understand the impact of the industrial performance. The only thing we want to confirm is that the industrial performance is certainly better, better than what we had last year. We are making progress. And last year was certainly an exceptionally, exceptionally difficult year for us in terms of industrial performance.

Benoit?

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [5]

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And on your question regarding the levers. So first, it's not proportional in terms of savings. And second, we had a lot of cost savings initially. So most of the short-term actions were on cost, and after that we have developed more growth actions. Very different from large country like France, we have launched a new organization in France in end of May, early June, which is more driven by growth. The cost actions, we have taken initially at the beginning of the year. So we moved from mostly cost actions at the beginning to much more growth levers into the full year. And after that, we don't intend to go to 1,000 or 500 or 2,000. We have a lot of actions. They are good. And as I said, we have entered since the beginning of the year into the execution, making sure that we deliver the full potential of all those actions.

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Laurent Runacher, Exane Asset Management SAS - Portfolio Manager [6]

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Laurent Runacher, Exane Asset Management. I'd like to understand -- and I welcome your increased target in terms of savings. But I'd like to understand what is your ambition in terms of what is the retained operating profit you will get from these additional savings.

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [7]

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Yes, I hope this is -- this question comes because we have an operational savings, which we run the operational excellence program. And we have always said in the past that this operational excellence program helps us to offset the other cost increases we have. So coming to the T&G savings, we said that it will straightaway, it should reflect in the operating profit because what we are trying to do in the T&G program is trying to adjust our structure. So I don't expect this T&G savings to get anywhere disappeared. So it should be there in the P&L operating profit.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [8]

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That's why we said we have in mind to increase our margin at the end. And we're starting to see that...

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [9]

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And we had EUR 35 million in the first half in the P&L, directly in the P&L, net.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [10]

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Yes?

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Sven Edelfelt, ODDO BHF Corporate & Markets, Research Division - Research Analyst [11]

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Sven Edelfelt, ODDO. Three very quick one, hopefully. First one, there has been a meeting yesterday at Bercy with a Pont-à-Mousson union. I just would like to know whether you had an insight on this one before the press take care of it.

Second one on [loemellan]. They have recently launched an offer for [Kitchen]. So do you believe this is a game changer for Lapeyre? On the -- could it mean that you will be selling Lapeyre to loemellan ?

And the last one is on the Point. P infrastructure. I just would like to know whether the transaction include the 2 million cubic meter of ready-mix concrete you have, and if not, does that mean is this activity, is ready-mix concrete is a core business for you?

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [12]

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I will answer the third and the second one, and Benoit will answer on PaM. No, so the concrete -- on concrete, in fact, there is -- we have had this question, asking ourselves this question for a long time. I think that what we do is really things which are linked with our merchanting activity. So for small type of job, it's not at all the infrastructure type of [peak] concrete, but it's clearly very useful to be able to offer that to our customers. So this is not part of the sales. And this is -- when it is very linked with a diffuse market, I think it's like a number of the competitors of Point. P have the same strategy. I think for the diffuse market, we are keeping an activity there. In fact, we have been depending on the region and so on the way craftsmen work in different regions. We are more present in the Western part of France than in other parts of France. So it's really linked with the actual demand from our customers of Point. P. It's not an activity in itself. It's at the service of the rest of Point. P.

Concerning Kitchen. No [loevellan] has done kitchens for a long time. And so it's -- the game is not changing. I think it's part of the competition. And I don't see any change for Lapeyre, where we are focusing on our -- on the improvement of our performance, and we are -- we expect to see an improvement in the second half. On Bercy, Benoit, you want to...

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [13]

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And the new rollout of the new kitchen offer of Lapeyre, which is very good, so I invite you to go and see our new offers of kitchen.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [14]

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Yes, we have also a new range.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [15]

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Which is very nice.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [16]

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Just launched.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [17]

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On the Pipe situation. As you know, we informed the unions mid-February about the fact that we were thinking about partnerships for Pipe to strengthen commercially, industrially our Pipe division long term. It became public so we had, of course, some discussions with local politicians, national politicians, Bercy got involved because it was quite reasonable to have also a third-party administration view on that. So we had a good discussion with all relevant stakeholders. And recently, some of the local politicians wanted to have an update before the summer, which they had yesterday. So I can see that you read L'Est Républicain. It's not yet in the national press. It was a regular update on what's going on in terms of various discussions on those partnerships and different options, so nothing new.

And on our side, locally or in Paris, we have also regular discussions with all stakeholders to make sure that everyone is in the loop so that everyone can support the partnership. We did exactly the same when we launched the project Avenir, so the restructuring plan of Pont-à-Mousson, a bit more than 2 years ago, which is doing very well, ahead of plan. So profitability of Pont-à-Mousson and Pipe division has improved a lot over the last years.

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Unidentified Analyst, [18]

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[Serceul Micaut] Monsieur, I have 2 questions.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [19]

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Yes.

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Unidentified Analyst, [20]

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First one regarding the difficult subject of Pont-à-Mousson and also Lapeyre. Pont-à-Mousson, you mentioned an improvement in results. Do you mean that you are now in positive numbers versus of minus EUR 40 million last year? Lapeyre, are we now in positive numbers? And a question regarding the situation in the Exterior Products in U.S. and Insulation and plasterboard in Europe and in U.S., where do we stand with price and volume?

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [21]

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So I'll take the question, the first one, and Benoit, you answer the second one. No, so you have seen a very significant improvement of the profitability of Southern Europe in the first half. And clearly, France is around 75% of Southern Europe. So we have a very significant improvement of profitability in France from most of our businesses. So yes, Pont-à-Mousson is in the black.

And in terms of Lapeyre. Lapeyre, we are still a negative profit, a negative -- I mean a loss, negative results in Lapeyre. But clearly, as Benoit said, in Pipe, we are seeing a significant improvement of the projects that were launched 2 years ago. And it's a little -- we are a little bit ahead of schedule on that one.

On the second question, Benoit.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [22]

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So it's Insulation and Gypsum. But a bit over the world. It was...

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Unidentified Analyst, [23]

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[But it was U.S. and] Europe.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [24]

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No, but I -- yes, it's different in Europe and in U.S.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [25]

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Yes. So on -- in the U.S., we had a good first half in Insulation partly on the pricing side. Volumes were a bit softer but a good evolution on the results, so a significant improve over the last 2 years. Gypsum been a bit tougher on volumes and pricing, which is different from the exterior products. Roofing has been a bit more significant in volumes over the recent weeks and so the price increase that we have put out should stick. So roofing and siding have been more positive, partly on pricing and a bit of fragmented storm activities in the recent weeks, which help roofing.

Gypsum has been a bit more difficult in the U.S. on pricing recently. And don't forget that in North America, we are quite significant in Canada for Gypsum. And Canada, as you may know, but the construction markets in Canada in big cities is quite down this year so we are a bit more impacted by Canada than the U.S. situation. In Europe overall it's a good momentum on Insulation and Gypsum, in most countries, both on volume and price.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [26]

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I mentioned specifically Insulation. I think that Insulation is going to -- we have seen very good growth in France. And I am -- I think that the forecast for us for this business in the various countries in Europe is very positive. Yes?

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Unidentified Analyst, [27]

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Yes, [Albert Pinatel] from [Antrique Research]. I would have 3 questions, if I may. The first one is about your Transform & Grow program. Just wanted to understand what the 24% of your managers who are not convinced by the program are flagging. And what are you going to do with them because I suspect that you want to have 100% [addition] to be successful?

Second one would be on the development, you said you have no tables in terms of disposals. You have no tables in terms of disposals, could you consider in the coming years to exit fully distribution? And regarding acquisitions, we can see that you have spent a lot on bolt-ons on the HPS. Will you continue to have what I will call a niche market approach on the HPS side? Or do you need more critical size over time in this division?

My last question, sorry, is on price and cut spread in H2. You mentioned that because of your hedging, you will not fully capture the benefit of the decline of the gas price. We can see on the pricing side that the base of comparison are a little bit more challenging in H2. So can we expect a new round of price increase in the second half? Or do you see the spread variating in H2?

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [28]

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Benoit, the first one. I'll take the second one.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [29]

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On the first one. Well, first, we are transparent with you. So -- and second, you take the glass 1/4 empty. I take it 3/4 full. And third, it's a survey that we did end of March amongst 3,000 managers because we wanted to have the baseline just 3 months into the program, and I consider that has a very good positive feedback, that 76%. Even though not 3,000 managers have seen all the details and all the communication and all the action plans for the coming 2 years on Transform & Grow, after only 3 months they were convinced and embarked on the power of Transform & Grow. So I'm extremely happy with the 76%. And of course, the goal is to embark 98% or 100% of them.

But in those large, deep control changes, we have to embark a lot. And so it's not a dictatorship. It's trust, empowerment. And we cascade, we communicate a lot internally on all this because what gets shared gets done. So it's more bottom-up approach then top down, let's do this, then do that. And frankly, 76% is, I think, a huge -- a good starting point. And of course, we'll continue to revisit that going for one. But I consider it as very good.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [30]

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And at the end of day, I prefer managers who are [a bit sad] people but deliver, than managers who are very, saying oh, it's great, it's great, and don't deliver.

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Unidentified Analyst, [31]

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I'm sure you will redo a survey, and we will see the 100%.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [32]

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Yes.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [33]

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That's the goal.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [34]

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On strategy, I think I already answered this question. So I'm going to continue to give you the answer. No, I don't -- we don't have in mind to sell our Distribution business as a whole. We have -- we're looking at it in the framework of our new organization. And as I said, the -- given the strengths we have in the different countries. And so there are some countries where we have increased our presence in Distribution recently, last year in Norway. And I -- if we have opportunities to increase our presence in France to do further consolidation, we will do that. So it's really a country-by-country approach given the footprint we have in these countries.

And what it gives to our program. As I told you already, I think that there is -- with the digital revolution in our sector, the cars are moving. And when you are -- when you are very strong in Distribution, it's a big plus in the future in my view for the overall footprint in -- when we are in that situation in Saint-Gobain. So I think it's a country approach.

In HPS, we have always been having niches. We have always had a rule which is, in all these niches it was -- 15 years ago we called it gold, silver, bronze or out, which means that we want to be one of the main leaders in each niche. And that exactly what we need to appreciate. So we have been exiting some businesses. We have been adding some more because the markets are changing, and we are going to continue to do that. We don't have an issue of critical mass, but there are some adjacencies, some which are small, some which could be bigger, that we may consider in the future in that business, where clearly, in terms of innovation, R&D capabilities, that there is a critical mass impact. But I think this is very important for the rest of the group, this critical mass of R&D. I think we have it. We could expand. But I don't think we are subcritical today in HPS.

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [35]

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Yes. So summing, to your question, whether we are going to have in the second half positive spread. As an organization, we are extremely focused on cost, price, and this is something which we have consistently done, leaving few -- very few exceptions. So in the first half, we did have a lot of inflation, quite a lot of inflation. But looking at what I see the trend, current trend, we hope that -- we are expecting that the inflation will be lower in the second half. In any case, we would remain focused on price. We'll make sure that our objective, at least, is to make sure that we pass on all the inflation.

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Unidentified Analyst, [36]

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And sorry, just to be -- to understand clearly, your price -- pricing effect was plus 2.5%, if I remember when in Q1, plus 2% in Q2. The base of comparison in H2 is more challenging so we should see a [facial] erosion, a sequential stability for H2? Or can you push prices in certain activity to get more benefit?

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [37]

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Yes. So we are pushing prices. It's not that we are going to stop pushing prices. I mean, clearly, roofing is one example. We want to go and push for price. Asphalt is something which went up, and there are a lot of signals that it may come down. I have -- we need to be cautious. So in all our businesses, we constantly look for opportunities to push prices. Sequentially, I expect based on what I see as of now, and it's always difficult to predict because it's a pretty volatile market, so sequentially, the inflation is coming down. We hope it will come down. And the spread is what is important for us, and we will remain focused on making sure that the spread is positive.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [38]

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Yes.

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Nabil Ahmed, Barclays Bank PLC, Research Division - Head of European Construction, Building Materials and Infrastructure Equity Research [39]

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Nabil Ahmed, Barclays. I've actually got 3 questions, if I may: one on the outlook, one on the margins and one on Transform & Grow. First of all, on outlook, you seem to be a bit more cautious on the Americas, and if I understand correctly, on both North and South America. Could you be a little bit more specific on what has deteriorated here in North America? Is it the comment you made on Gypsum, which is facing a more difficult environment for both volume and pricing? Or is there anything else changed on the way you see the outlook in Insulation and roofing? And on Lat Am, of which we're quite optimistic on Brazil, so has that changed? Or are there other specific countries where you see trends that are weakening?

My second question is on the margins. Do you see the HPS margins in H1, which were very strong, and so congratulations for that, sustainable into H2? Or are you still guiding towards something that will be closer to H2 2018 margins?

And lastly, on Transform & Grow. Sorry if I misunderstood, but I'm not completely clear why you are increasing your savings target for this year. Is it like the removal of the management layers, people are leaving earlier Saint-Gobain, and therefore, you got more savings in 2019? Or is it that you are moving faster with the shared services usage, and therefore getting more saving on that?

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [40]

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Benoit, the last one and maybe the U.S.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [41]

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Well, on the savings, it's mostly that we move faster. So when we initially put out the EUR 50 million target, it was end of November. Frankly, it was a bit more of a desktop analysis than the bottom-up analysis from all the operational levers. So we have firmed up that, and the teams have executed extremely fast. So it's acceleration of the actions rather than changing the full scope by 2021. So it's mostly a timing issue, and a lot of constructions done very early in the year.

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Nabil Ahmed, Barclays Bank PLC, Research Division - Head of European Construction, Building Materials and Infrastructure Equity Research [42]

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But in practical terms, that means headcounts decreasing earlier than expected?

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [43]

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Overall, all those actions. It's not only headcount but all those actions going faster than initially anticipated end of November, when we announced Transform & Grow end of November of 2018.

On the outlook in Americas, I think we answered already, which is, yes, a bit more challenging in Gypsum partly on pricing but a bit better in Exterior Products, partly roofing over the last weeks. And we are confident and very active on the pricing that we have set out for roofing. So it's pluses and minuses. Good of all in Insulation and ceilings, but so the pluses are more on the exterior products and a bit of the negative on pricing in Gypsum. But overall, a good stabilization of North America. And in Lat Am...

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [44]

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And Lat Am was -- when I say -- clearly, the macro environment in Lat Am is less good than it was -- we anticipated at the beginning of the year. Clearly, there are some forecast revision in Brazil. So we are optimistic to overperform the market, which we have seen in the first half. But clearly, the market in Brazil at the moment, it's a bit more difficult than what we anticipated at the beginning of the year. That being said, Brazil, we know that it changes very fast. So -- sorry?

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [45]

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And Mexico is a bit...

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [46]

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And Mexico is a little -- and so the economy in Mexico is a little bit less strong that we had anticipated for the domestic market. So that's why we are a bit more cautious on South America.

Concerning HPS, we flagged many times that the second quarter, especially sales and profit, and because of that, the first half profitability of 2018 was a very high level. We had some exceptional orders in Ceramics with a very good mix. So that we didn't have in the second half of 2018, we didn't have in the first half of '19. We don't expect to have that in the second half of '19. That being said, I think that the kind of level of margins we have in the first half looks to us sustainable.

Next.

So now if there is no more question, I go to the call. So I think it's Will Jones.

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Operator [47]

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(Operator Instructions) We have a first question from Will Jones from Redburn.

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William Jones, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [48]

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Three, if I could, please. The first was just around exploring the group's volume performance. If we look at the first half pre today's effect, I think it was around 2% growth. And it was about 0.5% positive in Q2. Just when we think about, like is the run rate that you would carry forward and think about for the second half, should we think about more of the H1 overall or more around the Q2 in terms of that difference for like-for-like volume growth going forward?

The second was just maybe in construction glass in Europe. Could you give us a bit of an industrial update on anything we need to be aware of at all around capacity or competitive behavior. Is anything changing on the supply side, I suppose, in glass?

And the last one was more of a technical one, but when we look at Americas and your new format, I think you did a 9% margin in the first half last year, a 13% margin in the second half. Is there any reason why that margin is so much higher in the second than the first under that new format? And I guess, do you think you can match the 13% again as we look to the second half of '19?

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [49]

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So I'll take the first 2, and Benoit, you take the third. So on volumes, globally, I think that the, for me, the run rate is more the average between Q1 and Q2. So it's the first half. Clearly, in Q2, we had, first, a negative impact of the working days. And we will have, on the other hand, a positive one in the Q3. We have had, as I said, in HPS a very difficult comparison basis. I remind you that last year, if I am correct, HPS was up 10% in the Q2, so that is the basis for the rest of the year is more the average of 2018. And in HPS, we had last year already a drop in some markets in the second half, so the comparison basis becomes clearly much easier. That's why, for instance, if we take -- if you say what the automotive makers are saying, they are, if I try to summarize what they say, they are all slightly negative to flat for the second half versus minus 7% in the first half, because also the comparison basis is better. So that's -- so HPS, I think we'll have an easier base than the Q2, clearly. We'll have also an easier base in the U.S. in -- versus Q2, where we had also last year a very strong increase. It's linked with the stocking/destocking our distributors in roofing.

So I think that -- and we had also in Q2, you would have noticed that the Northern Europe Q2 was better. No, sorry, it was less good than the European Q2 in Southern Europe. I say -- I think that it's always difficult to predict, and Benoit already talked about that. No, Sreedhar talked about that, that the weather impact we have clearly had last year, a very good second quarter, especially in May and June in some countries in Northern Europe, in particular the Nordics. So the comparison basis of Q2, we catch up -- we caught up last year a little bit of the bad weather of the first few months in May and June. In France, we didn't have this impact last year. I think we didn't caught up, so that's why we have a little better. So that means that the European basis is also a little bit -- was little more difficult in Q2 last year -- this year versus last year than Q1.

So if I summarize all that, it means that I think that there is no major real downtrend globally in the Q2 volume versus Q1 as a run rate. So that's more the -- that's what we are seeing some...

In terms of construction glass, the situation we were, we are -- we didn't have enough capacity, and that was a conscious decision that I spoke about many times in the past -- in the last 2 years. So we were buying glass for our needs. The drop in the automotive market is having an impact so at the moment, we are, I would say, more balanced. And there are some capacities which are going to come onstream in the next 18 months, but there are also some repairs. So I think that the capacity balance at the moment is relatively on par at the moment. So -- but we don't expect -- but I said that already for 2, 3 years, we don't expect a significant increase in the price of flat glass. We are working on our mix, and we are continuing to improve our mix.

The third question, that's for Benoit.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [50]

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Well, H2 margin last year in North America was partly high thanks to a very strong pricing environment and a positive spread versus raw material synergies, so we expect that second half to be a bit challenging for this year. So we are not going to repeat the exact same level of margin even though we are very focused on price, as you have heard already, partly on roofing.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [51]

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And in Americas, there is also, during the second half is better...

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [52]

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Than the first half, yes.

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Operator [53]

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Next question comes from Arnaud Lehmann from Bank of America.

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Arnaud Lehmann, BofA Merrill Lynch, Research Division - Head of the European Construction & Building Materials and Director [54]

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I have 3 questions, if I may. Firstly, thank you to Sreedhar for Slide 12 on free cash flow. That is very helpful. You gave a bit of granularity on CapEx in particular. And I think in the first half, we had about 2/3 on maintenance and 1/3 on expansion. Can you confirm that this is the right level for the full year and going forward, about 2/3 maintenance, 1/3 expansion? And also, if I just look at the maintenance, that means around, if we analyze, about EUR 1 billion per annum, 75%, 80% of depreciation, is that the right order of magnitude? That's my first question.

My second question is on your -- on the share count. It's -- you're right. It's actually down compared to June last year, but it's a little bit up compared to December 2018. So would you expect your share count to actually decline on a year-on-year basis at the end of the year? Are you going to continue to do some share buybacks?

And lastly, could you give us an update on your CO2 position. We're getting close to the Phase 4 of the European Emission Trading Scheme. Do you have excess quotas from the previous phases? Do you see a risk of being short CO2 in the next 2 to 3 years?

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [55]

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Okay, Sreedhar on the first 2, and I will answer the third one.

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [56]

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Okay. So it's true that we have given the split, and this is something which we'll continue to give in the coming days. Now your question is, is this ratio is going to remain? It's very difficult to answer because it depends on the projects and the time of the execution of these projects. So I don't want to put a ratio to it. But I can only say that the overall CapEx, the investment which we said, both tangible and intangible at the plant in [Misterly] and the intangible assets, we will stick to what we will -- our target is to remain at the level of last year. So that's one thing.

Coming to your other question on depreciation. It's very difficult to calculate the depreciation. It doesn't -- it depends on the assets which we have -- which we are investing on, then the year of the acquisition is not the same, so it can vary. It can vary from asset to asset. So again, that's not a question which I will be able to answer you with a very precise number.

The other question on the share, number of shares. Actually, the number of shares has come down by 600,000 shares. Last year -- by end of last year, it was 544 million, and now, it's 543.4 million. So there is a small reduction.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [57]

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Maybe just to add on what Sreedhar said on CapEx, it was exactly 42% growth in the first half. And as Sreedhar said, it varies based on the timing of those products. So if we take the last 5 years, the 2/3, 60-40 that you mentioned is correct.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [58]

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On CO2, we don't have issues on CO2 in our businesses. We don't think that there will be an impact in the next -- before '27, '28, so we don't have issues with CO2. And I remind you that globally, Saint-Gobain is a very significant provider of solutions in terms of CO2. So we are reducing our own footprint. I gave a target to reduce by 25%, and we are on track. We are -- we publish that every year. We have had a significant improvement last year, so we are on track to reach this target. And the second point is that each time we emit 1 ton of CO2, our other products which when they are installed during their lifetime, they save around 90 tons of this CO2, so Saint-Gobain is a very significant part of the solution to the CO2 reduction in the planet. So I think on this front, not only I'm not worried about the cost impact, but I think that we are a very important green stock.

If I -- and I am very fully supporting the involvement of finance in this climate change program. I believe that the investment community is, together with the young generation, the 2 forces which are going to make it happen despite some governments. So clearly, I urge the finance community to be active in this climate change program, which we badly need for our future.

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Operator [59]

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The next question comes from Manish Beria from Societe Generale.

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Manish Beria, Societe Generale Cross Asset Research - Equity Analyst [60]

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So I have 2 questions. The first is on your net debt guidance for the year. I mean, so in the first half, obviously net debt, excluding the IFRS lease accounting, actually have increased because of huge working capital investment. But this is normal. I mean every year, you have this increase. But just trying to understand because we have done some divestment, maybe signed it but not got the money. So how much you expect from those divestment? And what should be the net debt at the end of the year with the working capital, because that will happen in the second half. So should we expect with this disposal and the working capital a reversal in the second half, the net debt to be lower than the last year, pre-IFRS? This is my first question.

And the second one is, basically there is a lot of moving parts, I mean, the base effect in the second half of the operating profit, and this cost spread -- price/cost spread and things like that. But just wanted to have a word like, okay, in terms of EBIT margins, I mean, do you expect in the second half to be, I mean, improving versus last year?

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [61]

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Okay. I know Manish has this difficult question, and I don't think any of us can make a guess out of it, how much would be the exact precise number of debt at the end of the year because it depends on various factors. How much acquisition we'll make. Acquisition, again, depends on how much we are able to make it happen because it depends on price, it depends on various criterias. Divestment, again, it has got -- we have -- clearly, we have worked on this. We have a lot of projects identified on divestment. Again, we don't know exactly what time we would make it happen so there are lots of ifs and buts in all this. So one thing I can say is that the debt is -- if you see the ratio as compared to the last year, there is a slight improvement. Again, we have -- there are a lot of awareness that the debt is something which we are, as an organization, we are looking at much more deeper, so I can only say that we are going to remain disciplined. We are going to work on it.

At the end of the day, the rating, what we have is quite solid. And we were earlier thinking that with the IFRS 16 is the rating would make a big difference. Actually, the agencies, they take into account their own estimate. And we now see with the real numbers, actually we are in the likely upper range of this rating. So we are quite well positioned as far as the rating is concerned.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [62]

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Concerning the EBIT margin, as I am not quantifying the increase in operating profit like-for-like for the second half, I'm not going to quantify the increase of margin. But we expect an additional increase in the margin versus the second half of 2018. Next question.

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Manish Beria, Societe Generale Cross Asset Research - Equity Analyst [63]

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So just -- maybe just a follow-up, I mean, on the net debt, I mean, so let's assume, I mean, you don't do any more divestment. I mean, but what you have signed, you get the money, and maybe you don't do any more acquisitions, so you have the scope impact. I mean, because if you assume these things, then what will happen to the net debt with how things are moving and how -- what you have seen in the first half?

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [64]

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We don't make those assumptions.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [65]

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Because we don't know.

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Operator [66]

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Next question comes from Yves Bromehead from Exane BNP Paribas.

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Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division - Analyst of Building Materials [67]

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I'll have 3, if I may. I appreciate that it's already been a long call. And the first one is on the consideration of the divestments. You mentioned that you've already achieved about EUR 2.8 billion signed or executed. Are you also running at around 90% of the EUR 1 billion target in terms of value consideration? And following up on this question, given that you are running ahead of expectations, how should we think about margin expansion versus your initial target of 40 bps impact from divestments and 60 bps from cost savings?

My second question is on capital allocation. Could you give us more transparency on how you will use the proceeds of these disposals? Could the group get below the 530 million medium-term share count objective? And what options do you have in terms of shareholder returns?

And thirdly, we have recently seen some of your U.S. competitors launching strategic reviews, including in the plasterboard industry. Given your flexible balance sheet, could you look at consolidating this industry and rationalizing capacity to increase prices and margins?

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [68]

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Okay. So coming on cash, you just have to keep in mind, this objective was set during the Investor's Day in 2017. So if you just take into account all the divestments we did from that point of view -- from that point, we are close to 60% of what we said if you -- end of June. And if you also take into account, which is not at close, the largest divestment which we are doing is the German business, Distribution business, and we also recently announced the divestment of DMTP. And this -- all this should help us to come closer to 90% of our target as of now.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [69]

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So I'll take the 3 others. On cash allocation, I think that the graph that Sreedhar gave on the cash we generate, then there is a second part, which is allocation, and I always answer the same way. There are 4 use of this cash, and I think that the new presentation helped to understand the way we do it. There is, first, gross CapEx. There is a dividend. And I think -- then there is acquisitions, minus divestments or divestment minus acquisition. But -- no, sorry, the divestment will come -- may come as cash. So anyway, acquisition. And the fourth one is a share buyback. And I am always looking at this with the first one and the second one being prioritized over the third one and the fourth one. And between -- so first, our gross CapEx and our dividend, following our guidelines. And then for the 2 others, depending on -- we are more opportunistic, and that's what we have been doing, and we'll continue to do that between share buybacks and M&A.

In terms of the margin increase because of -- linked with the Transform & Grow program, I think I answered during my presentation. We have, at the moment we are not changing our target of 100 basis points on the bottom line and be quite happy when we have delivered that. In terms of the consolidation opportunities, we are regularly looking at what's going on in all our markets.

We are, as I said, we have been focusing more on small and medium-sized acquisition, but we are also -- and we have the power in terms of balance sheet to do a bit bigger ones. We are looking at -- and there are a number of opportunities which have arisen. You mentioned this one. There have been others.

We are very disciplined on price. That means that there are some significant opportunities which we have declined and -- but we are studying in view of the synergies we can get, the price we can pay, whether it makes sense, being very strict on our capital discipline, as we have been there. So that's something we are -- it's part of the things we are looking at.

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Operator [70]

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Next question comes from Eric Lemarié from Bryan Garnier.

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Eric A. Lemarié, Bryan Garnier & Co Ltd, Research Division - Research Analyst [71]

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My question, it's regarding France. How do you explain you don't feel the slowdown in the new housing in France? Is it because you are more late cycle in your view? Or maybe there is some geographical issues? Or maybe you are now much more exposed to renovations than a few years ago? Or maybe statistic are not maybe representative of the real market trends? What's your point of view on that?

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [72]

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My point of view is the most important thing is that I've seen some statistics that are seeing in terms of professional association are not -- don't correspond to the reality. I think that when we have a growth of 4% in France and I see that the renovation market would be flat, it cannot be -- I know we are good. We are gaining market share. But most of the other merchants are also customers of our activities and our industrial activities are running, I talked about Insulation, even at higher space. So I think, globally, the construction market in France and I think our Distribution activity is a good proxy. We are doing well. I think we are overperforming, as I said, but I think the market is good in France also. And I think the statistics that you may look at don't represent what's going on. I think I've already said that in the past, and I continue to say that, and our figures show it.

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Eric A. Lemarié, Bryan Garnier & Co Ltd, Research Division - Research Analyst [73]

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But do you think it is right for the new housing as well?

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [74]

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I already answered that question yes. No, sorry, what I -- on new housing, it's a bit different. I don't -- what I said on new housing is that we -- there is -- there has been and we have seen in the past a delay between housing permits, housing starts and the activity. I don't say the statistics, which are official statistics on housing permits and housing starts, are wrong. That, I am not saying that. What I'm saying is that they don't translate into activity for the time being, and I think that -- so the delay is longer, and they may not completely transfer into activity. That's what I said. But no, the statistics on housing starts, I'm not saying they are wrong.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [75]

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And also, behind those statistics, we are overperforming the market...

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [76]

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Yes, that's what I said.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [77]

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We measure it. We gained 20,000 small customers in our Distribution business, which is over the market. So it's also our domestic market.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [78]

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[Even] better market is better than...

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Operator [79]

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We haven't any questions by phone.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [80]

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So we go to the internet. First question from Robert Gardiner. Maybe Sreedhar, you answer.

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [81]

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Yes, sure. The question is, "What is the price and volume effect for Q2 by division?"

So...

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [82]

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You gave it in your presentation.

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [83]

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Yes, sure, it's there, but I can repeat. It's for the Q2. It's specifically for Q2. So the HPS was 1.5%. The volume was minus 1.9%. Northern Europe was price, 1.5%. The volume was minus 1.4%. Southern Europe was 2.1%. Volume was 1.6%. Americas was 4.2%. Volume was minus 3.4%. Asia was minus 0.5%, volume 3.4 -- 3.9%.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [84]

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The next question [is on performance]. "Can you summarize the EBIT to be received of the 2.8 sales in EBIT impact?"

I think you already answered that question, no, on the proceeds?

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [85]

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Yes.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [86]

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"Is your comment on a more challenging H2" -- that's Gregor Kuglitsch from UBS -- "Is your comment on a more challenging H2 implying both slower organic sales and operating income growth versus H1 '19?"

I think I answered on organic sales growth. I don't -- to say that the running rate of the first half and not the second quarter doesn't seem a bad number. In terms of operating income growth versus H1, the margin, I think I answered also, will be slightly higher. In terms of the absolute number, yes, H2 is generally stronger than H1. And also, it will be the case this year. As in terms of number of days, it will be -- this will be -- they will have more days in the second half. On the other end and compared to last year, the second half of last year was much better than the first half of last year.

Question from Elodie Rall, JPMorgan. "You had a good performance on working capital. How do you see the evolution in the second half? Do you expect further improvement in H2?"

I think we're...

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [87]

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I'm happy that she's recognizing it, so good. We will continue to remain disciplined. We will remain disciplined. We will make sure that we keep this under control, and that's something which we have done it historically.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [88]

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Another question from Elodie Rall from -- "In the Americas, volume were down in H1, and your comments are more cautious than before. Can you provide more color? And do you see further [fall in] share on margin in H2, noting margin in H2 last year was 13.3% versus 9.0%?"

I think, Benoit, you already answered that question.

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Benoit Bazin, Compagnie de Saint-Gobain S.A. - COO [89]

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And it's purely the mix of a bit better in exterior, a bit more difficult in interior products.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [90]

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"Previous guidance for restructuring costs was EUR 100 million in 2019. Do you expect this to change given you are accelerating the savings plan?"

Sreedhar?

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [91]

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At this point of time, we want to keep that number as it is. We are not changing that number for 2019.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [92]

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"What was the contribution in ForEx in EBIT in H1? And can you clarify if your definition of like-for-like growth in H2 operating income includes or excludes this ForEx impact?"

No, in like-for-like, there is no ForEx impact. But there was -- I think you -- there was some impact last year which was not ForEx but which were on -- not completely perimeter, but include perimeter some Argentina and the consolidation of [extra layer]...

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [93]

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Yes, yes, yes.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [94]

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"Can we get price versus volume by division?"

I think you just answered that question.

"And while we know you have disposed of businesses, with sales above EUR 2.8 billion, what is your profit figure? And how should we think about it in term defining an impact and scope effects in Q3 and then into full year 2020?"

I answered in terms of 2020. In terms of Q3 and Q4, it depends on the timing of the closing of these deals. And sometimes, there are regulatory approval, and we don't control completely the exact...

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [95]

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Timetable.

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Pierre-André de Chalendar, Compagnie de Saint-Gobain S.A. - Chairman & CEO [96]

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Timing of -- in France and sometimes some social regulations. So that's a question we had.

And I think that, with that, that concludes our meeting. Thank you, and good holidays for those who are taking holidays in August.

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N. Sreedhar, Compagnie de Saint-Gobain S.A. - CFO [97]

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Thank you.