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Good morning, everybody, and welcome to our 2018 results presentation. I'm going to do that with an announcement we made in November about our organization, with Benoit Bazin and Sreedhar. Most of you know Benoit, who was our CFO in 2005, 2009, and then he was Head of Distribution and then in Construction Products.
Many of you don't know Sreedhar. Sreedhar has been in the group for also around 20 years with a career both in finance and in general management in India and in France. He has been recently - he was in - he was CFO for the HPM Division. So I'm very happy to present the results and strategy together with Benoit, who has been as a Chief Operating Officer. He's partly in charge of the implementation of our Transform & Grow program. So we'll talk about this later.
So, I will present very quickly the highlights. Sreedhar will go into more detail in the results and then together with Benoit, we'll present some elements on strategy and I will finish with the outlook. So, you have seen the main figures of 2018. Sales are up 2.4% at €41.8 billion, on a like-for-like basis are up 4.4%.
The operating income at €3.122 billion is up 3.1% on an actual basis and 4.5% on a like-for-like basis with an increase, a small increase in our operating margin from 27.5%. The recurring net income is up 6% and the recurring EPS is up 7.4% given the reduction of the number of shares. The cash flow from operation is up 1.6% at €2.9 billion. And our net debt is at €8.2 billion.
The main highlights of this year, I think we posted very solid organic growth at 4.4% with fourth quarter, which trended very well at 4.8%, so above the average and very good contribution of prices. We'll come back to that but that's so boding well for the beginning of 2019.
The operating income increase in the second half 7.2%, so in line with what I told you in July, clearly above the level achieved in H1. And I think that was very important and is very important. We have been able to achieve that, which means an increase of 4.5% over the full year results. Basically, it means that a number of issues, which were affected first half are behind us.
27 acquisition of around a little less than €800 million. And as our objective at the beginning of the year, we have increased our CapEx mostly with additional growth project in emerging countries, so CapEx are up 8.3%.
In November, that was an important milestone, we have launched this Transform & Grow program with two components and will come back to that on asset rotation and on very significant change in the organization. So in terms of our divestment program where we said we would divest €3 billion by the end of 2019, we are well underway above €2.4 billion of sales already announced or completed.
The new organizational structure will generate €250 million cost savings. And Benoit will explain that it's well in line. So we'll deliver more than €50 million already in 2019. Our net income is increasing at 6% as I said. The net income is down at €420 million after number of asset impairment for €2 billion linked with our transformation program. And the net income, recurring net income is clearly the results of our operating performance. And the Board is proposing to the shareholders to increase the dividend to €1.33 per share to be paid entirely in cash.
So, now Sreedhar will go into more detail about our results.
So, thank you, Pierre-André, for your kind introduction. Good morning to all of you. It's indeed a privilege for me to be the first non-French CFO of this incredible group with a history of 350 years. And I'm really committed to contribute my best to the success of this group. And I'm equally looking forward to interact with all of you.
So let me get into the details of results. So I'll start by explaining the sales analysis. Like-for-like growth for the year is 4.4%, whereas the actual evolution is at 2.4%. The main difference is coming from the exchange rate. However, this trend is improving as the impact of currency in the last quarter is less than minus 1% as compared to minus 2.9% for the year, especially with the dollar appreciating in particular.
Coming to the structure effect, we have the positive impact of 0.9% on account of our small and mid-size successful acquisitions. It also includes certain divestments made during the year as part of our transformation program. We have also excluded Argentina from the like-for-like comparisons for the second half due to the hyperinflationary situation.
And if we look at the details of like-for-like growth, we have 3% on account of price and 1.4% on account of volume. And then, we have also very good price increase in most of our businesses and regions, demonstrating our ability to pass on the inflation that we saw during the year. The volume increase of 1.4% for the year is driven by all regions.
If you look at quarterly trend of organic growth, we see an acceleration in pricing over the course of the year, with an overall increase of 3.5% in the second half and 2.5%, which was a comparison for the first half. This strong pricing in H2 means we are better placed to start the year 2019.
The strong focus on price helped us to achieve a positive spread for the year even though we made some short term trade-offs in volumes. Volumes were also volatile quarter to quarter, during the year, due to the number of working days and comparison basis impact. However, the overall volumes for the year were positive.
Looking to 2019, we expect to see a negative impact from working days in the first two quarters around minus 0.5% in Q1, around minus 1% in Q2. Q3 should be positive with around 1.5% and Q4 slightly negative.
Coming to operating income, you see it increases by 4.5% on a like-for-like basis and the actual increase is 3.1%. The overall margin is at 7.5%, a 10 basis point improvement compared to last year. As expected, the operating income has significantly improved in second half. On a like-for-like basis, sales went up by 4% and the operating income went up by 7.2% with a good margin improvement.
The cost inflation for the year from the raw materials and energy was around €600 million, with most of the inflation seen in Construction Products but also in HPM and Glass. The inflation in energy and transportation was quite significant.
Looking forward to 2019, we still not had the full visibility at the beginning of the year on raw materials and energy inflation, but it is likely to stay at a high level, even though probably a bit lower than 2018.
Business income, you see here the non-operating cost decreases from €337 million to €284 million, mainly due to the positive impact of Sika transaction. As we reported in the first-half results, this includes €180 million gain resulting from the control premium paid by Sika. In addition, we have accounted for around €60 million restructuring cost related to our Transform & Grow program. And we also have cost related to accelerated restructuring of a Pipe business in Europe and in China.
The gains on disposal includes the positive impact from the sale of pipe site in China, but also the negative impact on accounting of reconsolidation of Venezuela due to the deterioration of the economic and political situation.
Let me take a moment to explain in detail the non-cash exceptional impairment of this year. So following the creation of the new organization in the context of the transformation program, the strategic review of our portfolio is underway by country and market. As a result of this, we have reviewed the situation, the business plan of certain businesses for the annual impairment test, taking into account the current situation and the outlook resulting in the impairment of certain assets.
The major ones are €750 million in distribution UK, in view of the uncertain situation due to the Brexit and increased tough competitive landscape in the UK distribution market, the probability of many players is under pressure - the profitability of many players is under pressure, and our distribution results in UK are also impacted. Given this situation, we had to review the assumptions for the impairment test of our book value leading to the depreciation of a large part of the goodwill.
In addition to this, we are in the process of reviewing the strategic positions of our channels, branch in UK distribution business. We are also analyzing the strengths and the weaknesses of each distribution channel and the synergies with other businesses within UK and the European distribution business.
The second impairment was done in Pipe business for €511 million. As you are aware, this business is in difficulty for quite some time due to the very low volumes as compared to past cycles. Since 2017, we have accelerated the restructuring of the Pipe business in Europe, and we are also in the process of reducing the footprint. For example, we have announced the closure of German plant. And this is in addition to the closure of one out of the two plants in China.
We have also taken some more major steps to reduce cost in France, and we continue to look for further best options and evolutions for this business. Here I would also like to mention that we have successfully sold the land and building of this closed plant in China. And this operation was pretty complex, and I would say it will was very well executed.
The third impairment was done in Lapeyre for €372 million and sales are improving for the second consecutive year, but in terms of profitability, we still have a long way to go. Here, also we are looking for best options and evolutions for this business.
And then, finally, we have adjusted the book value of our German distribution business by €212 million in the context of our announcement to sell this business.
Regarding asbestos-related litigation in the U.S., for the second consecutive year, we have a reduction in the new claims and the overall outstanding claims have also come down. We have accrued €90 million during the year to cover the litigation against this topic.
Once again, as I explained in the first half, €601 million out of the total €781 million gained for Sika transaction is treated as pure financial gains. The rest of the financial costs are down by 8% and the average cost of borrowing comes down materially from 2.8% to 2.3% compared to last year as we continue to optimize our borrowing cost.
Regarding income tax, the rate of income tax has come down from 25% in 2017 to 24% in 2018, mainly due to the decrease in the U.S. tax rate. Recurring net income, which is also the real operational performance of the group, has increased by 6% in 2018 and the earning per share goes up more by - due to the accelerated share buyback program.
The non-cash impact on account of the exceptional impairment is reflected in the net results, which is at €420 million for the year.
This graph shows that the level of cash flow generation from operations remain robust. While free cash flow is slightly lower than last year due to increased CapEx investment for the future growth, focused on growing markets, example, in the emerging countries and in promising niche markets, you see there is a small reduction in the free cash flow.
The overall operating working capital remains at a good level that is below 30 days, that's our target. This is a slight increase this year and partly due to - this is partly due to the exchange rate and higher inflation impact in our stocks. However, we will continue to have strong focus and remain disciplined in this topic like we have demonstrated in the last 10 years.
The ROI and ROCE remains virtually stable at the robust levels. The impact of the improvement in the operating income is not reflected in ROI due to our decision to increase the CapEx to drive the future growth.
Finally, let's look at the debt and the equity evolutions. The debt is higher by €2.2 billion as compared to the last year. It's mainly due to €1.7 billion investment in acquisitions, which includes Sika, close to €1 billion and the acceleration of the share buyback program with an investment of close to around €530 million. And our balance sheet remains very strong and the leverage is at a reasonable level, and our rating also remains solid.
Now, let's get into some details by business. For Innovative Materials, it was an overall a good year with a solid organic growth and particularly a good price realization. While all regions have contributed to the organic growth, the growth was led by Asia, emerging countries and North America.
As you know, this sector's presence in these regions is quite significant. The margin level remains at a very good level for the second consecutive year and it is in line with the target that we set in 2017 Investors Day. In line with our strategy, there is an increase in CapEx by €55 million as we continue to invest in growing markets, in particular in emerging countries.
Flat Glass, you see Flat Glass' organic growths are up by 2.8% and the price increase is 3.7% for the year. While the volume was lower in the second half, the price increase impacted accelerated sharply. The H2 price increase was 5.2% as compared to 2.2% in H1.
Automotive Glass grew in line with the overall Glass business for the full year in 2018. However, as already explained at the end of October, we saw a weakening of the business environment in the second half with a sharp volume decrease in Europe and China.
The other emerging countries like Latin America maintained a strong level of growth. Industrial and Innovation-related investments continue to contribute to grow our share of high value added solutions. Construction market sales in Europe, Asia and emerging countries are progressing and are driven by good pricing.
After resuming the production in three float plants that were repaired during 2018, we started successfully the new fifth float line in India. We also started an automotive glass plant in Mexico. The operating margin bounced back in the second half to close to 10%, driven by improved industrial performance and higher prices in the second half.
So High-Performance Materials had an excellent year, driven by all the businesses and regions with a strong growth, particularly in Asia and emerging markets. Overall, organic growth is at 7.2% with a strong volume growth of 5.2% for the year. While there was exceptionally strong contribution from Ceramics in H1, we are also reaping benefits from the strategy of allocating more and more resources to growing niche markets.
The operating margin further progressed to 16.3% during this year. We continue to invest in growing businesses like life sciences in the U.S., China and India as well as textile solutions in Czech Republic.
Construction Products, if you see, you have clearly an organic growth at 5.6% of which 4.2% is price and the operating margin is also up to 9.3%. We invested in CapEx of €621 million during the year and the large part of the growth investment was focused in emerging countries.
Interior Solutions achieved an organic growth of 5.5%, of which 4.7% is in price. In line with our priority, this was driven by all regions with a clear acceleration of sales price in second half, particularly in North America. The operating margin increased to 10.5% with the positive spread between price and inflation, benefiting from accelerating of price increase in the second half.
We invested in our gypsum business in Vietnam and Egypt. And also we invested in promising markets like blowing wool manufacturing capacities in Europe.
Exterior Solutions achieved an organic growth of 5.7% of which 3.6% is in price. Our Exterior Products business in the U.S. against a backdrop of high inflation in its raw materials and transport cost, pricing lagged inflation in the first-half. But we were able to achieve significant price increase in the second-half.
Unlike last year, the roofing business also did not benefit much this year from the storm related sales upside. Pipe continues to restructure to reduce the overall cost. And the mortars business progressed particularly in Asia and in emerging countries with a recovery in Brazil.
Due to the lag between price and inflation in the first-half, the Exterior Solutions overall margin is only at 7.5%. The situation improved in the second-half, enabling us to achieve significant improvement in the second-half margin.
Moving to Building Distribution, the organic growth of the Building Distribution division is 3.6% with the second semester at 4%. France had a good year despite some disturbances due to Yellow Vest that weighed slightly on the Lapeyre business at the end of the year.
The Nordic countries showed a sustained growth throughout the year, while Germany progressed slightly. However, the UK Distribution business experienced a decline in volumes and the competitive pressure on margins increased. Brazil remains hesitant over the year, but stabilized in the second-half.
Despite an increase in operating margin in France and the Nordic countries, the distribution sector margin is at 3.3% as compared to 3.4% in 2017, and mainly due to this UK situation I explained. We continue to invest in IT, digital tools and logistics weighing on the margin by 20 basis points between 2018 and 2017.
Let's look at the sales trend by region. France continued to show positive growth dynamics with 3% increase in like-for-like sales for the year and 2.5% in the second half, benefiting from a solid construction market but it remains constrained by a shortage of skilled laborers.
The other countries in Western Europe grew by 3.5% on a like-for-like basis with the second half at 3.3%. The Nordic countries continued to show good momentum. Germany grew except the car market, which fell sharply in the second half of the year. The UK continued to show organic growth but driven only by pricing. The environment remains uncertain with the declining volume trend.
However, Southern Europe once again in this year delivered a very good growth of 7.2%. North America progressed by 6.2% organic growth with the second semester at 2.6% due to the high comparison basis in Exterior Solutions and in HPM especially in Ceramics.
Otherwise, the market remains very well oriented both in Construction and in Industry. Asia and emerging countries continued to develop with sustained organic growth of 7.4% and 6.7% in the second half, driven by all geographical areas and benefiting from an improvement in Brazil.
Now let us look at the operating income by region. The operating margin of France increases from 3.1% in 2017 to 3.6% in 2018 driven by continued organic growth in all businesses. Whereas the other Western Europe margin contracted from 5.9% in 2017 to 5.5% in 2018 and mainly due to the decrease in volumes in UK and the German auto market.
The North America margin continues to improve from 11.3% in 2017 to 11.9% in 2018, mainly on account of pricing and positive mix in HPM. The Asia and emerging countries operating margin is up from 11.5% in 2017 to 11.7% in 2018 driven by good organic growth. However - yes, so I'll end. So now I hand over - otherwise I'll keep continuing. I hand over the floor to Pierre-André to share with you the strategy and the outlook of the Group. Thank you.
Thank you very much, Sreedhar. So now we would like to update you on our Transform & Grow program announced in November last year and as you remember, there are two pillars, which should give us 100 basis points increase operating profit by the end of 2020. Benoit is going to update you on the organizational component, and I will update you on our portfolio management. So Benoit?
Thank you, Pierre-André. Good morning, everyone. So let's go together through our new organization and what are our Transform & Grow operational priorities, what it means in terms of growth and competitiveness benefits and second, where do we stand in terms of good execution.
There are two main benefits in our transformation. First, we gained a lot of agility by having one single line of management and one simple decision-making process for our countries use, for the local businesses and second, in the regions and second for markets used within High Performance Solutions. That's the first benefit.
Second, we gain proximity to our customers, our local COs have full authority across all the product lines, and they are able to anticipate on the market trends. They are able to take fast decisions on customers, whether it's pricing, logistics and they are also able to allocate their resources on the growing segments and market in their countries.
In addition, our new organization leverages the group scale in four domains, which are innovation and R&D, marketing, industry performance and also distribution performance. This is where we have grouped together some central experts in order on those four domains to support the success of our businesses on the ground.
Now timing of execution. We are on track, and we are moving fast. So all the teams and all the appointments have been made, all the teams are operational on the ground everywhere since January 1 of 2019.
I continue that our teams are very enthusiastic. They have embraced the dynamic and the new mindset of the Transform & Grow program very positively with a lot of speed and energy.
So we are all fully on board on that since January 1. Why the teams are so positive you would say and what does it mean for them? Well, first, the new organization give them a clear empowerment and clear ownership on the perimeter that they manage. Their incentives are fully aligned also to their results and the perimeter that they manage.
Second, local means local. So we have more than 80% of our country COs within the different regions and countries who are natives from those countries, and if I take High Performance Solutions, we have more than 60% of our top managers who are non-French.
We have also promoted the best talents, and we have a very good mix of Saint-Gobain experience, long-time managers within Saint-Gobain and some newer managers that either we have recently integrated from well-integrated acquisitions or manager that we have hired from outside, and they bring a lot of their experience also from outside. So we have a good mix of experience from within Saint-Gobain and also diversity and new ideas.
Now let's turn to growth, and I would like to give you a few examples so that you have a good feel of what's going on, in the ground in our Transform & Grow program. I start with commercial efficiency. In the U.S. for instance, we have grouped together our roofing and siding sales organization to increase our territory coverage for all customers.
In Brazil, we are currently reorganizing 300 salespeople across channels, and we organize them by channel, either direct project with our technical experts or retail channel. In France, we take benefits of our very dense distribution network to train thousands of small customers every year.
Tightening the relationship between our distribution and our manufacturing brands will help them gain a better penetration on small customers for the renovation market. If I take Italy as another example, we make ourselves easier to do business with for our customers. Thanks to a combined customer service, combined logistics so one single point of contact for our customers across the different product lines.
By country also in our local businesses, we will accelerate our growth by leveraging the strong leadership position in product line, that could be flat glass for instance in Romania and accelerate using the strong base, accelerate the development of other product lines. So now one single country CO drives the offer of a complete solutions and the development of the different product lines to the best local opportunities.
Within High-Performance Solutions we have organized our teams by market. By doing so for instance on aerospace, grouping our glass and composites offer on aerospace, we built more customer intimacy. We share technical expertise, and we better co-develop solutions as it is the same customers buying the various products we produce for the aerospace industry.
We will continue, of course, to concentrate our CapEx for growth into promising technologies and also into fast-growing markets. We locate our resources where we have strong competitive positions, robust synergies and also of course, solid growth potential. We have been very active in 2018 with more than 17 new plants, whether it's in Mexico, in India, like Sreedhar mentioned, Vietnam, Indonesia, China, Romania, Poland or Czech Republic.
For our manufacturing businesses, we dedicated last year 65% of our CapEx outside of Western Europe.
Now the world of construction is changing and becoming more and more data-driven. In fact, in France, our businesses embrace a very large part of the value chain from upstream, beam objects that we deliver to the architects to downstream with websites talking to the end-users, and we are well placed in all those digital touch points along the value chain.
As you know, we have invested a lot in our IT and digital capabilities, particularly in distribution in France, in the Nordics and that's why we gain market share, and we continue to improve our margins and businesses in those two very strong countries. And our omni-channel presence is growing accordingly in France and in the Nordics, for instance.
It gives us synergies between our manufacturing brands, our distribution businesses and attractive opportunities to push more of our solutions to do more cross-selling to increase the added value product that we sell and capture more of this changing value chain, thanks to the digital environment. Innovation is also a strong pillar for growth. We are pleased to be, for the 8th consecutive year, within the top 100 most innovative companies globally. We keep pushing our group synergies on transversal R&D with our 8 cross-businesses R&D centers.
We leverage the critical mass of our spend, €450 million last year and will continue to do that in 2019. We shared joint labs, could be our thermal or acoustic labs that are spread in our major regions.
We leverage also common technologies, the coating or polymer extrusion for instance across all kinds of product lines and markets. We leverage material platforms, such as ceramic, plaster, plastic or glass, whether it's glass for glass insulation or automotive or building glass, and we'll continue to invest in innovation.
We will also extend our multi-solutions offer. We have grouped together our central marketing experts into one team. We'll develop more of the Saint-Gobain solutions. They will work - our marketing experts with R&D to target system applications such as façade, if I take façade for instance. We have 4, 5 product lines of Saint-Gobain targeting this application so we can work with R&D, marketing to develop more for Saint-Gobain system and Saint-Gobain Solution on façade.
And also country by country it will allow us to focus more easily on growing segments, such as off-site manufacturing in the UK, we have just reorganized into one business unit, now that we have one country CO for the UK. We used to have some benefits and some initiatives in distribution. In manufacturing, we have grouped all of them into one off-site manufacturing business unit so that we group our strengths across design, fabrication, and of course, logistics.
We continue to roll out our industrial excellence programs that have delivered another €300 million savings last year. Here also we brought together under one central team our technology and insured experts by product line. They provide the best industrial standard equipment to the countries, benchmarks and also support to help our plants improve further. This gives confidence that we'll continue to deliver roughly €300 million of savings per year in 2019 and 2020.
Now on our additional - on top of that €250 million savings coming specifically from Transform & Grow. I told you that teams acted fast. We have identified very quickly more than 700 bottom-up action plans and it works.
In recent past, we have the proof, thanks to some pilots done in some countries. I've highlighted just a few example up there that we can both reduce SG&A and grow the top line. There are three main categories of savings, 50% of organizations streamlining, whether it's SG&A or back office reduction, less management layers, simplification and focus on core functions, 35% of pure structural changes, no more sectors, no more activities, no more delegations and downsizing a bit of shared service centers and 15% of deeper reorganization. It could be merging some commercial sales force. I illustrated a few examples or logistic. It could be also combining management positions.
Since we acted very fast over the last two months, we are confident that we'll deliver more than €50 million into 2019 P&L, more than €120 million by 2020 and the full €250 million savings by 2021.
So I'm very confident about the depth of our transformation program, our Transform & Grow, both what it will bring in terms of step change in our growth profile and competitiveness. We have the right teams to succeed and execute well on our plan.
I now hand over to Pierre-André for the portfolio pillar of our plan.
Thank you, Benoit. So I will now talk about the second part of this plan, which is an active and value creating portfolio management. And one thing which is Benoit has alluded to that on some example, which he gave on our local businesses, this new organization will entail a very different way we are going to look at our businesses from a strategic end point, I mean, the local businesses has less change from our high-performance solution.
So this market reorganization will also trigger a change in the way we look at our businesses. What I mean by that is that our - the strengths, the weaknesses and then also the need for acquisition and divestments in a given country will be looked at given the strengths and the weaknesses of our portfolio in that country and the links between our businesses and one we can create and this will be a very important component.
And it will be less, that means, what does that mean? It means that for instance, we may very well make more acquisition in a given country of businesses where we are not necessarily present there because it adds in this particular market something, which can create additional strength for us.
It means on the other way is that for our businesses where we are generally in a very strong leadership position worldwide, there may be some countries where we have difficult situation and where the length of what it can add to the portfolio is less relevant.
So instead of having a worldwide view of this business and to say, we have to be, and we want to be everywhere, we will look at it a different way. So it's a very new way to look at our portfolio that we are starting in Saint-Gobain. We have launched a review of all of our countries since this announcement and this will be going to be very important going forward.
Now if I take up the acquisition side, we have been quite active this year with 27 acquisitions, a little less than €800 million, very good small acquisitions, which are contributing already this year to the P&L and they will contribute more next year.
We are very strict in our financial criteria. We create value very quickly, and I would say that the acquisition we have done in the last three years are really very good from that standpoint. As you see on this slide, we have been, this year, above the goal was to be above €500 million on average. We have been clearly above for 2019. We will see depending on the opportunity, but we are going to be very strict because in some areas, prices are high at the moment, and I would say in the last few months, we have had plenty of opportunities, but we have said no more often than yes.
Now examples of what we have done this year and how it's going to evolve in the next few years. So there are three categories, technologies and that is going to be no change on that. We have had some very nice additional technologies, which are fueling our overall portfolio of technologies and then fundings innovations to come back on what Benoit said on innovation.
Second, we want to enter new countries and that we can do it either with greenfield or through acquisition. And third about the local leadership and that's where we will have, what I said in terms of country analysis, we will take more of that into account. So that means that in some countries we will grow certain businesses, which are linked with the portfolio, for instance, one of our most important acquisition in 2018 was in distribution in Norway where we are building a very strong position with very good synergies.
Second part, which is divestment program. I announced in July, and we confirmed that in November that we are accelerating our divestment program and the goal is to, by the end of 2019, to have divested more than €3 billion of businesses in terms of sales for €100 billion and this will have an impact on our operating margin between 2018 and 2020 of 40 basis points on our impact.
So on this program, we are well underway. We have completed around or signed around more than €500 million in sales. We have, you see the list on this slide, and we are well underway on this significant divestiture of our building distribution in Germany, which is coming from this new approach in terms of looking at a country.
As I said, we have launched this strategic review of our portfolio country-by-country in the context of the new organization and this will lead, as I said, for the acquisition, this will lead to additional divestments.
So to summarize this Transform & Grow program, which is well underway, will lead to an increase in operating margin by 100 basis points by - at the end of 2020. So in a full year basis in 2021. So this is for the strategy, I concentrated on the strategy on this Transform & Grow, which is a framework, on which we are going to move Saint-Gobain forward and this is main task of Benoit in the years to come.
Now a few words about the outlook. So first about the dividend, we already - Sreedhar mentioned already the share buybacks, which where we have been quite active in 2018 in line with our group objectives. So we have bought 12.8 million of shares, so significantly more than in 2017, which is leading to a reduction in the number of share outstanding.
In terms of the dividends, so the board has recommended in its meeting yesterday to the general shareholders meeting in June to increase the dividend to €1.33 per share, which - and this is a payout ratio of 42%, in line with our strategy. Our strategy is to be in the range between 35% and 40%, and we are gradually going into that range, reducing a little bit the payout. We're still above the payout but on the other hand given the increase in the recurring net income, we're increasing also the dividend so it's consistent with also what we did last year and it's a sign of confidence in our future. So the payment will be in cash, and you have the details on how it will be the timing on the slide.
Now on the outlook, first of all, and it's no surprise to me given the good exit rate, we are starting - the year is starting well, although we are not very advanced in the year, but it's already good to take, and I would say that we continue to see globally good trends for Saint-Gobain in 2019.
If I take and you will see now that I am using our new reporting segmentation that we will use going forward. In terms of High-Performance Solutions, we should have a solid industrial markets, which will remain supportive, particularly in the U.S. On the other hand, as you well know, there are some uncertainties on the automotive market in Europe and in China, but our exposure to automotive is also very strong in other parts of the world, where it's going well like in South and Central America.
In terms of the Northern Europe region, we should see progress, of course there are uncertainties in the UK with increased risk of a no-deal Brexit, but Nordics should continue to enjoy good growth in 2019. Southern Europe, Middle East and Africa, which encompasses France, we should have a growth in the region with I assume in France, which is the biggest country in that new region. In France, the construction market should be supported by renovation, which is steadily improving, while the new construction market could be down in the second half, following what has declined in permits and housing starts of last year.
Americas we should have good growth, both in North America and in Latin America and further growth in Asia. So in terms of our action plans for 2019 in addition to the Transform & Grow program, which Benoit said will deliver more than €50 million in 2019, we are going to continue our cost program and to deliver also €300 million, that is the objective for 2019, under 2019 cost base. And we are going to continue to focus on price, which has delivered very good results in 2018 and from that standpoint also the year is starting pretty well.
Our CapEx program after the increase of 2018 will stay close to what we have done in 2018, with, again, focus on growth CapEx outside of Western Europe, and also on productivity. And as you have seen, we continue to invest in the digital transformation with specific emphasis on our Distribution businesses, where it is having an impact, a short-term impact on the margin, which we'll continue to have to a lesser extent in 2019. And that's where we will reach a peak and then it will progressively decrease.
We will continue to invest in R&D. This is strong to support our differentiated high value-added solution, and we will focus on free high - to get a high free cash flow generation. In terms of profitability, given this market outlook specifically for Saint-Gobain, we are targeting further like-for-like increase in our operating income in 2019.
So, this is the end of this presentation. And now, with Benoit and Sreedhar, I am at your disposal for your questions.
So we will start by question from the room, and then we will take the Internet - no, the call question then serve the Internet. So first in the room, yes.
Bon jour, I have two questions. First simple question in traditional, regarding the order of magnitude of the price of 4-millimeter in Flat Glass; and secondly, a strategic one. You implemented more than €2 billion impairments, value correction, of which targeting first Lapeyre, secondly, the Building Distribution in UK and also the Pipes. Does it mean that you could consider a disposal or is it too early to raise this subject? Many thanks.
Let me take the first question on the price of 4-millimeter. It has gone up by around 2%, and it is €3.45. But again, I want to tell you that this is more and more irrelevant, because you know our strategy is to work more on high value-added products. But this is something, which you just have to keep in mind.
No, but [Christopher said, always that] [ph] question, will give the answer. And when you look at the price evolution, you will see less and less correlation with 4-millimeter price in Germany, which is your reference. But, no, we see good at the moment in the last two, three months. Generally, in the winter there is a tendency to see a drop in pricing. And we are stable at the moment, which is I would say in Europe a good sign.
Now, in terms of your question on the strategy and the impairments we have done. I think that Sreedhar has already given you the answer. But I will confirm, as you understand there are four different situations. So the situation in Germany, where clearly the adjustment of the value is in line with our - is linked with our - the process that we have launched to divest this business.
Concerning Lapeyre and Pipe, these businesses have been in a difficult situation, even though Lapeyre had good - in the last two years had a good growth in terms of sales. But the profitability is still not there. And it's a business, which is difficult.
Pipe business, we are also under a significant restructuring program, which is progressing well. We have revised our perspective for this business, given the current situation. And we are focused on these two businesses. We are focused on the improvement and our restructuring programs. And we are, of course, studying all the options for these businesses. But the main focus is to improve the situation for these businesses.
In terms of the UK, the UK we are not in the same situation. We have a much more positive situation in terms of profitability, but we have had - as Sreedhar said, we have had a decline in profitability in 2018, which is the reason for the small drop in profitability, overall, of our distribution business, despite an improvement in France and in the Nordics, and despite also, as I said of this significant additional cost on acceleration of our digitalization.
And in the UK, given the uncertainties, and I would say the - when I say uncertainties, they are heavy uncertainties about what's going to happen with Brexit and the competitive situation in the UK, which - and the profitability in the industry. We have also revised our perspective and at the same time, as I alluded in terms of the country analysis and repeating what Sreedhar said, we are analyzing the strengths of our various businesses, like we do in the other countries within distribution, the channels and brands, to see how they fit having medium term perspective within each other, with the rest of our businesses and in the UK, and within our European setup.
So those are the three different situations. But Germany is for sale, the three other businesses are not for sale, if I summarize what I said.
Next question? Yes, the one was with mike. Everybody will be able to ask his question, I hope.
Yes, good morning. Yassine Touahri from On Field Investment Research. A couple of questions. First, maybe one on your reorganization. How do you reconcile two very different approach within the group activities, where you could have conflict of interest between your manufacturing divisions? When we look at your manufacturing division, there probably is an incentive to - in a new digital world, to create new routes to market, and to potentially bypass distribution.
And in your Distribution division, you could have to reinvent your business model to avoid being bypassed by manufacturers. So how do motivate managers in both categories to –how do you avoid conflict of interest? And what is the risk of internal cannibalization of businesses?
And then the second question, which is a bit more on accounting. When we look at your results, you're mentioning in your financial report that there is the settlement of one-off disputes in favor of the Group for around €70 million in 2018 in your operating income. Is there a €70 million one-off?
So, Benoit, the first one and...
I take the first question. The easy answer, which is the right one, is that they talk to each other. The manufacturing and the distribution businesses, they used to be in different sectors, so a bit in the silo approach. Now, we look at that country by country.
I give you a few examples, for instance, I think we are in France well advanced in terms of what we call the PIM, Product Information Management. It started with Distribution because that's the way you describe your products on the web. And we have more than 80% of our total turnover within Distribution in France covered by the PIM, so good digital information. And then, it did accelerate thanks to this internal discussion.
And, yes, you need product information on digital, our manufacturing brands to digitalize their information. So, the fact that we have these different digital touch-points help us to accelerate our digital presence and omni-channel approach. So I don't see a risk of cannibalization, because actually they work together to improve the overall Saint-Gobain share.
When you look at some configurators of products for instance, manufacturing can help our distribution arm to settle the exact same product definition for renovations more customers. Distribution can, on the reverse, give some market data and big data analysis to our manufacturing brands on how to get a better perception on the web.
So the best solution in that case is to clearly tackle all the value chain, start very upstream with beam objects and downstream with end users' website within Distribution. And then, talk to each other, so that we promote our solutions, we promote our products. So there's no conflict in that regard.
And we have invested a lot on digital. If I take just a platform, our brand in front, we have more than one-third of our craftsmen, which are using an omni-channel approach, some click and collect in the store, some web applications, some app type of usage. So they are very much advanced in terms of digitalization, which also is a good learning process for our manufacturing brands.
If you look at some brands in France, whether it's Placo, whether it's Isover, we are very well advanced with beam objects, with interaction, with distribution.
If I may add one thing, Digital was one of the three reasons why we made the change in the organization and it's just the opposite. It's because I think we see more opportunities than we have changed the organization. So we can work better and more, and take advantage of our global footprint country by country.
And, of course, as we said in the end of November, in terms commercial relationship on the ground, we keep a good dependence in terms of what are the different channels we sell to, what are the different brands and suppliers we buy from digital. So we have on one side this commercially independence, which is for the success of both businesses. But on digital, since it's a bit blurred along the value chain, we change a lot of data and information.
Second question, which is for Sreedhar.
So, coming to the €70 million exceptions, a group like us, a large group, we do have such one-offs. It could be positive sometimes, it could be negative sometimes. And we had a number of settlements of such litigations during the year in different businesses. And let me also tell you that we also had the operational costs linked to some of these litigations, which impacted us, the P&L in a negative way.
Examples you can take, IP disputes, you can have issues with suppliers, customer issues. And this is something which is an ongoing issue. We face in the business, sometimes we win, sometimes we don't win. And another example I would quote is take the second-half, we had this - it's a pure accounting impact. We decided or we had to identify Argentina as a hyperinflation country and impacted our results negatively. So all in all, these positives are to compensate all the negatives we'll get into the - we have it in our business.
Okay, next question, yes.
Good morning. Nabil Ahmed from Barclays. I've got three questions, actually, one on the reorganization, one on your cost inflation guidance, and one on the guidance surely. So on the organization, are you able to quantify what could be the cost, the restructuring cost or the cost that is attached to the reorganization?
And more broadly, given the ongoing restructuring you're doing at Lapeyre, Pipe and several businesses, what would be the restructuring cost we should expect for 2019?
The second question is on the cost inflation. I mean, you seem to be guiding on similar energy and raw materials cost inflation in 2019 than in 2018. I mean, we saw some deflation in energy prices here and there. So I was wondering why you're seeing that. Is that related to the comparison base of H1 2018 while you're still seeing a lot of inflation? Is that related to your hedging strategy? Is that related to raw materials inventories, which means that we are not going to see a lot of deflation into your numbers in 2019?
And finally, on your outlook, you seem pretty confident. One of your competitors in the U.S., Owens Corning is looking at declines in similar businesses than what you are in 2019. And I don't see a lot of mention. You seem to be very confident in the U.S. And in Europe as well, apart from uncertainties you're mentioning about the UK and the French housing market, what about the Nordics and Germany? Some of the construction companies have cut guidance there as well. So I was wondering if you can update on that as well. Thank you.
Okay, so, Benoit, you want to start with [indiscernible] Transform & Grow and then maybe…
Okay, Transform - yeah, on Transform & Grow, so we had €65 million exceptional restructuring cost in 2018. We should have a bit less than - around €100 million by 2019 in terms of additional restructuring cost to deliver on our savings. And maybe, Sreedhar, you want to add on the overall restructuring cost for 2019?
The overall - you just have to keep in mind that in 2018, we have positive impact of Sika, which is €180 million - so just, yeah, €180 million, just have to keep that in mind. So we expect that taking into account that we have this Transform & Grow program going on, which will have a cost in 2019 around €100-million-plus. So you should expect maybe slightly lower than what we had in 2018 after taking into account the positive of Sika.
On the raw materials, raw materials and energy, yes, we could have a bit of positive surprise in 2019 versus what we had in terms of inflation in 2018. We still have a big inflation in 2019, but it might be slightly better than 2018. It's bit too early to say, because you have seen the volatility of some of the oil price.
And second, bear in mind also that we have a lot of electricity and natural gas in our energy bill. So it's not only oil or totally directly oil related. So, yes, we could have a bit better or a bit less inflation, but still a significant inflation in 2019. So far, we started the year with a good price momentum and good price cost spread. Let's see how the year develops. But, yes, it might be slightly easier than what we faced in 2018.
Yeah. I'll just add. If you look at, and you all keep track of the trend of price, the oil price, 2017, the average was $52 and it went up to $72. And then, in October, it went up to $86, and then, it came back $50 in December. It's really, really volatile. And now, it's hovering around $65 per barrel.
And to your third question, maybe I will comment on the U.S. We had a very strong second half in our interior finishing business, partly in the U.S. Just to give you the order of magnitude, we were in the 10% type of price increase in Q4 versus Q4 of last year. So we are also with pretty good volumes. So after that, when you look at some peers, there are always some easier geographic or customer mix, which could impact.
So we are confident about the start of the year, in terms of pricing and volume dynamic for our interior finishing business. A bit more insulation than in gypsum on the volume side, but we finished the year very strongly, both from an operational standpoint in our plants compared to the second half of 2017, which was more difficult and also in terms of pricing dynamics. So we are fine there.
That's why we see a good outlook in the U.S. in construction. In Europe, I start with the Nordics where we had exactly the same question last year. And many people were negative of the Nordics in 2018, where we have had a very strong growth. And I think we will continue to enjoy good growth in 2019. There are a number of reasons for that.
There are some new construction markets, especially in Sweden, which are fragile and at a very high level. But on the other end of renovation has been low, and given the lack of labor and the demand in renovation, renovation will grow in 2019. So we expect overall good growth from the 2. Norway is also going well.
So we have some infrastructure markets and urbanization, which is continuing. So we are positive for 2019 in the Nordics. And that, I would say, our competitors are also quite optimistic, contrary to what some other people or maybe from a macro-standpoint you can hear.
In Germany, in construction, we had a pickup in the second half of 2019, which globally, when we look at Germany, you didn't see because we had also a drop in our automotive glass market linked with the situation of the auto and some of our HPM business given the situation well-known in the automotive industry in Germany in the second half. But construction has been better and the trend for 2019 are positive, I would say both from a price standpoint and a volume standpoint.
So I think on Europe, overall, I can repeat what I said on France, but I give my view on France already during my presentation. We are reasonably positive on the construction markets in 2019, given our specific market and given, overall, as a fact that new construction in Saint-Gobain, which is always with ups and downs, is much less important than the renovation market where we see reasonable and growing trends in most of our countries. [Multiple Speakers]
Sven Edelfelt, ODDO. Two questions for me. Can we have an idea of the typology of the €250 million savings as well as split per division would be useful? And after the write-off, the €2 billion write-off, what is the value left in the balance sheet for the different businesses that has been mentioned, if not 0?
Benoit, on the first question?
To show you that we have truly transformed the group, I don't know the answer by division, but I know it by region. So we should get roughly 60% to 65% of the savings in both Europe and I would say maybe a bit more in Northern Europe, but also good portion in South Europe. We should get roughly 20% in the Americas and a bit more in North America than South. Roughly 5% in Asia, because, again, in Asia our main priority is clearly for continued growth and 10% in the High-Performance Solutions business. So that's the split by region that we track and follow. All the targets have been given to the different managers by country mid-December. So we are well on track with what has been identified.
And we don't communicate on the second question. Josep?
Yes, hello. Hello. Josep Pujal from Kepler Cheuvreux. I have two questions, please. The first question is to double check the price cost gap in 2018. When I do a rough calculation, it's slightly positive gap, €30 million. Do you confirm that figure? What is your figure, please?
And also to look at that dynamically, you started last year being rather cautious about that and would you say that your view about this gap has been improving over time? And what is your view today?
And my second point is on - my second question is on guidance. You are guiding more or less the same way than last year, so growth in the like-for-like EBIT, but what is different for you compared to last year? What are the pluses and the minuses? Is there a sort of comfort given by the base effect problems, the technical problems that you have had last year? Is there some things that worry you more in terms of the outlook for volumes or the growth in your end markets? Could you elaborate a little bit on that, please? Thank you.
Okay, so on the price inflation spread. As I said in my presentation, we have close to €600 million inflation in this year. If you take the price increase - the inflation, it's mainly and large part of the inflation is in the construction sector. And then we also have it in glass and HPM. So if you take the first half or the - I mean, take the industrial price increase, it's close to 3.5%. So I would say that in the first half, we did have - we did compensate the inflation, so it was more or less neutral.
Whereas second half, clearly, we have a positive spread because, as I said, we accelerated our price increase and you'll see that impact in most of our businesses. Second half is quite - the impact of this is reflected in the profitability of the - many of our businesses. So price has been our priority for the year. And again, as I said, we are going to be, in terms of inflation, as I said, we will be, again, closer to what we had this year or maybe slightly lower because it's pretty volatile and it would be very difficult to put a precise number. We don't - it's still premature. And I would just say that price increase would remain a top priority for us.
On the guidance, good try. I will not give you more precise guidance, but I can give you some - compared to last year, some positives and negatives and you mentioned some of them. So clearly, if you look at the global macroeconomic indicator for growth in 2019, they are a little bit less favorable - that's outside of Saint-Gobain, they're a little less favorable than they were last year.
If we look more at Saint-Gobain, I would say that there are some - the pricing situation starts and the price versus cost starts significantly better than where we were last year. You mentioned some difficulties in Saint-Gobain in the operational issues, especially flat glass in the first half. I don't forecast that, but some of these events, on the other hand, were outside of our control in - if I take for instance what happened in Egypt or in Brazil. But I would say that - and there are some businesses where you have an easier comparison basis and there are some businesses where we have a more difficult comparison basis. But I would say that on price, we are quite confident and you have to be careful on the macroeconomic indicator. I said not to overemphasize the new construction elements in some countries.
So that's why I am confident to have an increase in our operating profit like-for-like. And then we should have, in addition to that, contribution from the acquisitions. And as far as today, but that's - I've been very cautious about the exchange rate impact, which is not the guidance. But if you take the total operating profit, it sounds also in better shape than last year.
And what I say about guidance, we have been used to give our guidance on a like-for-like, but this discounting is a good impact that I think we are going to have going forward from the acquisitions. Next question. So if there is no more question in the room, then we go to the telephone. So the question on the phone?
Yes, we have some questions. First question is from Elodie Rall from J.P. Morgan.
Yes.
Everyone, thanks for taking my questions. I have two, if I may. So the first one would be a general question on net debt and your preliminary view this year. So where would you like, ideally, net debt to end up at the end of 2019, given your guidance of flat CapEx and your acquisition and divestment strategy? And then the second question is just technical, again, to come back on the €70 million accounting impact that was raised earlier in the discussion. And just to understand, in 2019, what would be the comparison base that you will use to calculate the like-for-like growth? Will you use the €3,122 million reported operating profit or will you exclude the €70 million impact? Thank you very much.
You're going to answer Sreedhar, on the debt?
Yes. So on the debt, as you saw that we had increase of debt of €1.2 billion in this year and it's primarily on account of the investment we did on acquisitions, €1.7 billion, which include Sika acquisition which is close to €1 billion. And if you see the normal, small and midsize acquisitions what we did, it's 20% more than what we did last year. And also this year, we increased our share buyback. We bought close to 13 million shares in this year as against the 8 million shares last year. So it's another investment we did of €530 plus. So this is one - these are the main reasons for increase in the debt.
Now coming to your guidance, normally, we don't give guidance because there are so many factors involved in this because the CapEx is another thing which we did. Again, it was a conscious decision we took this year that we invested more CapEx. It was 8% CapEx increase, again, on a growing market.
And I must tell you also that there are many interesting projects for the future profitable growth. So we would continue to invest wherever it makes sense. And coming to the rating, it's still very solid and there's no - I would say the leverage is at a reasonable level.
And coming to your other second question, maybe Pierre-André will add. I will only say that - as I said that you have this one-off benefit, but I also said there are costs. So this is something which is, overall, positives have compensated the additional operating cost we had during the year. So I don't know how we will have it...
No. But it's not right for, it's not a topic. And of course, the basis comparison for 2019 is the operating profit that we reported €3.122 billion. Next question?
Question comes from Arnaud Lehmann from Bank of America.
Thank you. Good morning. I have three pretty brief questions, if I may. Firstly, just could you remind us your overall exposure to the automotive sector in total in terms of sales? And if you could give a little bit - remind us of the exposure to Europe, I guess, Asia and Latin America?
Secondly, on the dividend, I think, the board decided to increase the dividend by 2%. Your recurring net income is increasing by 6%. So I'm just trying to understand why there is a gap between the two? Why you didn't increase the dividend by, let's say, 5% or 6% in line with the recurring net income? Is there any message behind this decision? And lastly, could you be interested in the acquisition of BASF Construction Chemicals?
Auto exposure. So I will take your first two and maybe you, Benoit. So on the automotive - automotive is around 8% of our sales with - now it's under a new segment of High-Performance Solutions where we have put together Sika with the Automotive Glass business and the various components that we add in high-performance materials is around 8%. I would say that with an exposure, which is around a third, I would say Europe, a little more than a third, because HPM is significantly less than Flat Glass. Flat Glass, it was - it is less than 50% and HPM is clearly less than that.
So I would say a third in Europe, a third probably or 20% in the U.S. and the rest is in between Asia and Latin America across the board. So I would say a broad exposure. This means that given the trends in automotive market, we are in a globally better place in what we see. That's why we're - especially from what's going in Mexico and in India where we have opened new plants. So we have been suffering in the fourth quarter. There are uncertainties in the beginning of the year, it's not very easy, but the automotive market is globally predicted, I would say as flat for the year at the moment.
And when I look at our geographic exposure, we are a bit better than that. So that's for Automotive. For the dividend, I don't think - I think I answered the question already. Our policy is to have a dividend payout and we stated that regularly between 35% and 40% of the recurring net income. We have been - but our policy has been also, over the last eight years, not to decrease the dividend, and to increase the dividend in line with the increase of the recurring net income when we are in this range. That's the policy that we have stated.
In the last two years, we had increased the dividend while we were still not in that range, but we are going down because we are at a much higher level. We were going down, reducing the payout, still around 40%. I think last year the recurring net income, if I'm correct, increased by 17% and we increased the dividend by 3%. So we had exactly the same issue, but we were at 43%. We continue in that direction.
So in fact, if we applied our policy, we should not increase the dividend. And as we did in the last two years, we are increasing the dividend to progressively go back to our range of 35% to 40%. We are at 42% with the proposal of the board yesterday. So this is a very clear policy. When we are in the range of 35% to 40%, then our policy would be to align the growth with the recurring net income. And then you want to answer or we will have…
Yes. On BASF, well, first we don't comment, obviously, on some specific situation. Now, that being said, you have seen that over the years, we have grown very nicely our Mortars business in several areas, whether it's tile fixing or some construction chemicals. In 2017, we bought a nice company, Maris, exporting around the world on some good construction chemical niches.
So we'll continue to do in principle those kind of midsized acquisitions. We are more in this mood than bigger topics, so more midsized acquisitions. A lot in emerging markets, which is our real focus. We did some also with Megaflex in 2017. And clearly, we are more in terms of big size on the divestiture side than big acquisitions and maybe to complement your answer on to value. We don't publish the book value first because it's discussed with auditor.
Second, that if I take digital in Germany, we would sell, so we don't want to say what is the book value and we will probably - we'll sell it to the higher price than the book value like we did, for instance, for our Pipe business in China with a nice capital gain. So you will have that picture later on.
Thank you.
Next question?
Next question comes from Glynis Johnson from Jefferies.
Good morning, it's Glynis Johnson from Jefferies here. Just one if I may and it's just in terms of cost inflation. I appreciate, you don't want to necessarily pin down raw material cost inflation, but can I just check that your general guidance for [indiscernible], does that include energy cost as well? And also can you give us a little bit in terms of wage inflation?
Yeah, so - yes, when I say €600 million for 2018, it does include the inflation of energy cost. And so coming to wage inflation, we had wage inflation in the range of 3% to 3.5% for the whole group. Again, it varies from region to region. So that's my - so but that's my...
And for 2019, wage inflation?
Wage inflation - it varies country by country, but there's nothing specific for 2019. We have Brazil accelerating again, so a bit more inflation in Brazil than some years ago. But overall, it's country specific, but we are in line with the market.
So globally, I would say, the trends in the last two years has been, given the labor markets in many countries, a little more inflation than what we had two, three years ago.
Thank you.
No? Next one?
Question comes from [Manish Walia from Brantes and Bears] [ph].
So I wanted to ask you one question like - if you look at the free cash flow generation that Saint-Gobain is doing in terms of free cash flow to equity, it's something like less than €1 billion. And you are already spending €700 million in dividends. So how are you going to finance your acquisition and buyback?
It seems to me like all these has to be financed with additional debt that you have done in 2018, so just if you can explain what's the policy there? Do you want to take more debt? Or do you want to have an improvement - usually, improvement in free cash flow generation in 2019 because your EBIT improving or CapEx coming down? So what is the strategy there? How do you finance your acquisition and buyback?
Yes, so let me take this question. So coming to the debt increases, I explained, it's mainly on the account of acquisitions. So you just have to keep in mind that from year-to-year, it varies because this year, consciously, we invested a lot. We invested in CapEx, more than 8% of the last year. And investment in acquisitions, which is more 20%, other than Sika, which is close to €1 billion. So we have - you just have to keep in mind that we are generating in the first place close to €3 billion cash flow, and this is something, which we believe will continue. And you will always have some impact or positive impact of the improvement in the results on this cash flow.
Okay, thank you.
Next question?
Next question comes from Will Jones from Redburn.
Thank you. I've got three, if I could, please. First, just really reflecting on 2018. When you look at all your various businesses in the different countries, are there any that you would to highlight to us as having outperformed or even underperformed the underlying kind of market picture? I guess, either positives or negatives.
The second is around just picking up on the Building Distribution margin, I think down about 20 basis points on second half. Do you have any target in mind for that business? I know it's new reporting lines, but we will still be able to see its profitability. Do you have in mind a number for 2019 in terms of whether maybe you can hold the margin there? Or is it realistically likely to slip a little further?
And then the last one was just when you think about your ongoing strategic review and when we think about the net of future acquisitions and future disposals above and beyond the disposals you've already talked about, how do you think - do you think that net number will be pretty neutral? Or could disposals be bigger than acquisitions? Just wondering if you would be willing to maybe quantify how those two might interplay against each other? Thanks.
Okay, so on the various countries, I would say that in 2019 - in 2018, they are - I think we have done better than the market in a number of countries. I think it is the case in France. I think it is also the case in the Nordics. And in the U.S., we had a very good run especially in the second half in the U.S. For Brazil and India, I would say, we always overperform. So that's probably the countries where we have done. Benoit, you want to add something?
No, that's fine. And maybe Germany was a bit of a pressure in some business lines, and maybe UK distribution was a bit lower, below some of our peers.
The second question was on the distribution margin. We gave some targets at the Investor Day in 2017, and those targets, in my view, have not changed. And so that's still what we have in mind. In 2019, I expect a slight increase, overall, in the margin, in distribution.
And we have gained quite nicely in France and in the Nordics on distribution, and we continue to improve. And 2019 will be even better.
But it's clear that when I give this range in 2017, I probably underestimated the impact on OpEx of the investments we are doing in digital and IT. And as I said a bit earlier, these ones are going to peak probably in 2019. They will start to decelerate probably not before 2021, as I would say.
So I think we have had, in the last two years, a significant increase in our OpEx, it is always - it's plus 20 basis points. This was already an increase last year, so this has - this is probably - but I think it's important that we do that. These investments will pay off, but one - at the time we do these investments, with the productivity, which is going to be the result of the investments is done a bit later than the increase.
So at the moment, we have, I would say, both the cost of the old and the cost of the new. So that's weighing on our margins and that's why I'm pretty pleased that we have - despite that, increase our margin in France and in the Nordics this year.
That I - I don't have a number in mind, but I think that the disposals are going to be more significant. And acquisitions, as I said, this year depends on the opportunities. But at the moment, we may - when I look at what we have in the pipeline and the prices, we may be lower than when we were in 2018. It's still early in the year, and I don't want to miss some small very good opportunities. But at the moment, I would say that the equilibrium between the two for 2019 may be more balanced.
Thank you.
So there is no more question on the phone. So then we have question on the Internet. Okay.
So questions from Paul Roger from Exane BNP Paribas. What impact could face for of the carbon emission trading scheme have on your manufacturing footprint in Europe?
Well, this is a very technical question, but as you know I am quite interested and committed in this question of climate change, and Saint-Gobain has taken some very strong commitment to reduce its environmental footprint. We are in line to do that in terms of CO2. So we have targets which are going to some extent, to reduce the importance of this topic and this is a goal. I would say that the new face of the European carbon emission, which means an update of the allocation rule will progressively link to a reduction of the allocations, but concerning a cost for Saint-Gobain for the next few years, we don't see an impact could buy to in - not before five, six years. And then we should have had a reduction of our CO2 emission.
Second question, are management incentives being aligned with the Transform & Grow initiatives? Maybe for Benoit?
Yes, I think I already mentioned in the presentation that, again, all - either the market COs of High-Performance Solutions or the country COs within the regions are totally aligned with the pay material that they manage, 70% on financial targets and 30% on qualitative target. Within that, a good portion is on Transform & Grow to deliver the additional savings and for some of them also to work on the divestitures in terms of portfolio management within their countries. So yes, it's fully aligned and it has been already been defined.
Then we have questions from Glynis Johnson from Jefferies. Can you tell us what raw material costs are actually increased by, in full year 2018 and guidance for full year 2019? What should we anticipate from other cost items aside wage inflation, energy cost inflation? I think that Sreedhar has already answered this question, in 2019 it was €600 million.
Largest inflation, PPC - no, sorry. No, next question, what is the current asset base of UK distribution, so we can work out how much was written down as a percentage? And what was the reasoning for the write-down? Were there specific [ROC possibly] [ph] that were used to evaluate this case of write-down?
Well, as you know, our important test are done with our auditors comparing the future, as the IFRS rules, and comparing flow of future cash flow with the present value. So, that's what we use, so it's not - and then we compare the two, and to do that, we use, of course, [the wax] [ph], that's the way it was done.
As Sreedhar mentioned, what we have written down in the UK is a big part of the goodwill, which was mostly the goodwill of the - a very old goodwill from the acquisition of that business 18, 20 years ago. Next question is - [indiscernible] I have the question 12, but I move from 4 to 12, but...
[indiscernible] I'll take care from…
Oh, no, that's here. Okay. Question 5, HPM had a great 2018 with the benefit of Ceramic of using the margin. It's a lumpy business, no. So what can you tell us about Ceramics for 2019?
Ceramics is a great business. It's not a lumpy business. And that it's a business which has two components. There are some components which are linked in terms of markets with CapEx and some components which are linked with, I would say, more OpEx of our customers - consumables of our customers.
What I would say and, Laurent, you may add if - color, but I would say that the order book on the CapEx, which is the only indication, which is very strong and that's a business we have some visibility. The order book for Ceramics at the moment is quite solid. So on the - more the consumable part, it's linked with industrial activity. And I would say at the moment, we are seeing some good trends in the U.S. Laurent, you want to add something or...
Just one word, just one word. The order book today is quite good, indeed, as you said, Pierre. It is in line with the second-half, not as strong as the first-half last year. It's in line with the second-half, so we are on for another good year in Ceramics in 2019.
Next question from Richelieu, [Philip Qusar] [ph], Richelieu Finance. It is in French, but I will translate in English. Could you explain the consistency on an increase of €100 million of EBITDA with gains of €300 million in terms of cost reduction, price of 3% and volume of 1%? I think that the bridge, you already talked about it. But you can...
Yeah. So I think - I won't repeat what I said. Just the point we need to keep in mind that the €300 million saving is the saving coming from the operational excellence program, we call World Class Manufacturing. And also, there is a purchasing excellence program, and this is something which we - you have to keep in mind that this helps us to compensate all the inflation we have in manpower costs and other operating fixed costs.
Next question is, could you explain the movement in accruals from, say, 2017 and 2019, which means that the net self-financing is down, which is not true, the net self-financing is slightly up, when the result is improving? And can you give us a bridge on the - that the bridge you gave it already on the net debt, you gave the reasons.
And the - I would say, that there were a few more restructuring costs outside of Sika than the year before, which is the reason that the net self-financing is increasing a little less than the operating margin - the operating profit.
Now, eighth question, one-off gains in 2018 you had €70 million of settlement gains, also a number of things. In which division was this gain? And does your 2019 guidance assume similar one-offs? I'll repeat it. I think that there has been a misunderstanding on that, and I think that Sreedhar answered that question already.
How much cash is to be received in 2019 from the disposal sign agreed so far? That I don't know. So the one, so €500 million sold. You know that?
No. So I can just give you...
Sorry, I thought it was a total product.
If you just take the overall target we have given in 2017 Investors Day of €1 billion, out of that till now, if you take into account the silicon carbide which we have signed and yet to close, and also the money, part of the money we need to receive from the China transaction, which should happen very soon. So if you take all of this into account, we have close to 50% of our target is already done.
10, free cash flow reported and after CapEx was low at €0.6 billion. That's not the number I have. Do you expect an improvement in 2019, and if so, why?
So the free cash flow reported is €1.3 billion. And as Sreedhar said, there was increase in CapEx which is the main reason. And we don't give guidance on the free cash flow, but it's clearly was a like-for-like improvement in operating profit plus the - probably those exchange rate stay where it is, additional improvement on operating profit because of acquisitions, more than compensating in the disposal. We should have a good free cash flow in 2019.
11, can you please guide on 2019 restructuring cost and the 2019 tax rate on the restructuring cost? You have an answer on the…
Tax rates, yeah.
We have already answered it. So, 12, e-business which is mostly in distribution. Is it - I don't understand the question from [Stephan Repu] [ph]. The business which concerns mostly Distribution, is it in plan which take into account the composing? Maybe, Benoit, you know - if you understand the question. I'm not sure I understand.
Is the business part of your plan including logistics and digital marketing? I would say, yes, of course, we have a digital strategy for all our businesses and particularly for distribution, which is more omni-channel than pure e-commerce. And maybe I should complement the answer that I made early on. We don't see in our universe of construction pure players selling from the plant rolls of glass wool insulation to the end-user.
So that's not happening, so there is no big disruption of the traditional channels. What is important for us, both in manufacturing and in distribution, it's to digitalize what we have, so that our customers have all kind of touch-points. If they are on the job-site, they can order with their app. They can click and collect in the morning like 97% of our customers in platforms. So it's not the e-business per se as a pure player. It's digitalizing all the value chain whether you are on the web, on the store, visiting on the job site or with your app.
So, yes, e-business is part of that. We have France and the Nordics, roughly 20% to 25% of e-orders from our customers. Sometimes it's delivered on the job-site with our good logistics. So logistics is fully part of the plan. And we have invested a lot in logistics in France and in the Nordics. And sometimes the customers pick up in the store.
So it's fully part of our digital strategy, which has been very successful in - partly in France and in the Nordics. But we don't see a big cannibalization of - that you may have in some other categories of manufacturers selling directly to the end-user or pure player of distribution jumping over that [BS] [ph] has mentioned. So far, the physical assets that we have for the heavy building materials, or all those products, still exist and are very powerful.
Now, question - last question is from Tobias Woerner from MainFirst. Flat Glass prices have deflated by some 40%, 50% in the real term since the '80s, while value-added products don't necessarily show better trends when you look at official statistics. I know that glass is a historical founding member of the group. But in reality, their pricing power is one of the worst in your portfolio and in building material, generally.
Given this dampening impact on your pricing and hence, return for the group, would you consider applying the same value creating threshold to this business over time? I start by the end of the question. Of course, yes, and the return on capital employed of Flat Glass is significantly above the average of the group. And maybe this question is triggered by also the fact that the margin was down in the first half.
I told you in July that we will get back close to 10%. We are 9.8% in the second-half. So we are also back on track in Flat Glass. I would say on - to some extent, this is the nature of industry to have productivity and the part of this productivity is going back to customers over time, one point.
Second point, I disagree on the value-added products and industry. We're so constantly add value to our products. And I would say that the value of our added glass has not followed at all the same pattern than commodity glasses. So, I would say that, we are happy with our Flat Glass business. We have had both in automotive and building, overall good returns.
There are some years where it has been extremely good. There are some years where it is a bit lower. But I would say it is above the average of the group. And we, of course, apply the same criteria. Yeah, there is no taboo. I said in November, I use that sentence, when you look at the portfolio of business that I think Flat Glass is for Saint-Gobain a good business. So we...
Maybe one point to add, because we invest a lot on the foot lines in emerging market, with big success in Mexico, in India and in the rest of the world. When we go to what we call glass solutions, which is more the local businesses. They are, again, with the Transform & Grow program, we look at our positions and our strengths country by country. And that's why we divested part of our UK glass solution business and the Nordic glass solution distribution business. So we are pragmatic also.
And we are reviewing the various countries in the same view. So I think we are finished with the questions. Maybe to summarize, our main message is following the good operational performance of 2018, we are confident about the outlook in 2019. And the group is clearly accelerating its transformation as to this Transform & Grow program, which is well underway. And that Benoit and I, we are very confident we'll deliver the benefits that we have put in place. Thank you.