Compagnie de Saint Gobain SA
PAR:SGO
Compagnie de Saint Gobain SA
PAR:SGO
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Earnings Call Transcript
Other Earnings Calls
Good evening, everybody. I hope that you have had the time to receive and look at our press release and to go through the highlights. Let me sum up our first quarter sales performance.So our consolidated sales for the first quarter were EUR 10.379 billion, which means that we had a record organic growth in the quarter, with like-for-like sales up 14.3% compared to Q1 2020. As we started to see the first impact of the coronavirus pandemic, especially in the second half of March 2020, it is also worth looking at the growth compared to Q1 2019, and we report a very strong growth on this basis, with like-for-like sales up 9%. These figures demonstrate how our comprehensive solutions for sustainability and performance allowed us to capitalize on the good dynamics seen in our markets, especially renovation in Europe and construction in the Americas and in Asia Pacific. I now hand over to Sreedhar, who will give you additional information about this first quarter sales, including by segment.
Thank you, Pierre-Andre, and good evening to everyone. Let me give you more details about our Q1 sales. As Pierre-Andre said, we have had a very good start to the year with a record like-for-like. Q1 sales increased 14.3% versus Q1 2020 and 9% versus Q1 '19. The currency impact was negative 3.8% for the quarter, mainly driven by the weakness of the U.S. dollar, the Brazilian real, and other emerging market currencies compared to the euro. We saw a small positive structural impact, reflecting mainly the integration of Continental Building Products from February 2020. Now coming back to the like-for-like growth. Pricing accelerated to 2.6% positive in Q1, and we continue to increase prices in Q2 in the more inflationary cost environment becoming -- we started seeing. Given the recent surge in all raw materials and energy costs, we now expect EUR 600 million to EUR 700 million of inflation for the full year with more impact in H2. Given the good start to the year, we are confident we will be able to compensate the inflation for the year. We saw strong volume growth, up 11.7% versus Q1 2020 and up 5.8% versus Q1 '19, continuing on from the good trends we saw in Q4. I will now give you some more details by segment. High Performance Solutions saw continued sequential improvement, with like-for-like sales up 11.8% versus Q1 '20 and 2.7% versus Q1 '19. Mobility grew double-digit against the weak comparison basis of Q1 2020 and was only slightly below the Q1 2019, pulled down by Europe alone, while the sales to the Chinese and American markets grew strongly. Compared to the pre-COVID base of Q1 '19, we continue to outperform strongly in our markets, thanks to our exposure to electric vehicles and our high value-added products and services. Industry also saw double-digit growth versus Q1 2020 and grew slightly versus Q1 2019. Consumable goods related activities were boosted by DIY markets, whereas the improvement in industrial markets was more muted. In terms of activities related to our customers' investment cycles, things are improving sequentially but are still down versus Q1 2019. The Construction Industry and Life Sciences businesses continue to enjoy good growth. Turning now to Northern Europe, where sales growth was driven by renovation. Like-for-like sales were up around 5%, both versus Q1 2020 and Q1 2019, as the region was only slightly impacted by the pandemic at the start of 2020. Volumes were boosted by some prebuy in March ahead of announced price increases. In Nordic countries, distribution saw particularly good momentum, thanks to the success of our omni-channel digital strategy, allowing us to make the most of a supportive renovation market. In Germany, we acquired Brüggemann, which offers innovative modular timber construction solutions, boosting the group's growth in light and sustainable construction. In the U.K., we saw strong growth versus Q1 2020 and stable sales versus Q1 2019, with slight growth in distribution. Now coming to Southern Europe, we saw a strong sales momentum in renovation. Like-for-like sales were up nearly 20% versus Q1 2020 and nearly 10% versus Q1 2019. Volumes were boosted by some prebuy sales in March, ahead of announced price increases and benefited from more household spendings towards innovation. France drove this growth with sales up double-digit versus Q1 2019. In a strong renovation market, helped by stimulus measures, we benefited from our energy-efficient solutions, both manufactured and sold through our distribution and digital solutions. Elsewhere, Italy benefited from support from energy-efficient renovation via tax credits. In the Netherlands, we started benefiting from the recent acquisition of Strikolith in the fast-growing exterior insulation system market.Now regarding the Americas, we saw significant sales growth on supportive markets, with like-for-like sales up over 20%, both versus Q1 2020 and Q1 2019. This region also saw volumes boosted by some prebuy ahead of announced price increases. North America saw strong like-for-like sales, up nearly 20% versus Q1 2019, with growth driven by particularly strong demand and an acceleration in prices. Being able to offer the group's full range of solutions for customers through our local organization is clearly paying off and accelerating the growth in sales. All main businesses saw significant growth, including interior solutions, which continues to benefit from the very successful integration of Continental Building Products. Latin America saw like-for-like sales up over 30% compared to both comparison periods. This growth was thanks to both volumes and prices, which kept pace with inflation and despite the more challenging health context in Brazil, in particular, at the end of the period. Thanks to the local organization and an approach in which the group's full range of solutions can be offered to customers, the region continues to see sales synergies and market share gains. Lastly, our Asia Pacific region saw a return to strong sales growth with like-for-like up over 30% versus Q1 2020 and 15% versus Q1 2019. China doubled its sales compared to Q1 2020 and showed strong growth versus Q1 2019, thanks to good underlying market and market share gains. India showed double-digit growth versus the pre-COVID 2019 level despite the health situation getting worse at the end of Q1. Southeast Asia continued to be mixed, but Vietnam saw more market share gains. So to sum up, a very good start to the year, strong volumes as our new customer and solution-driven organization enabled us to gain share in a number of countries and markets. Good pricing momentum, given the increasing inflation, so I would say, overall, an excellent quarter.I will now hand over to Pierre-Andre for concluding remarks.
I'd like to make a few comments about the outlook and our priorities for the rest of the year. We are confirming our outlook for full year 2021. In a macroeconomic and health environment, which remains affected by uncertainties, the dynamic in our main markets proved a bit at the start of 2021, especially renovation in Europe as well as construction in the Americas and in Asia Pacific.We have clear priorities as we set out in February. Third, the improvement in the group's profitable growth profile through the continuation of our portfolio optimization, outperformance of the market, thanks to our range of integrated solutions for customers, our strategy of differentiation and innovation, and our ESG achievements including carbon neutrality by 2050. Secondly, a significant increase in the operating margin compared to the 2018 margin of 7.7% and ongoing strong discipline in terms of free cash flow generation, driven by constant focus the price cost spread, post-COVID cost reduction of EUR 150 million in 2021, maintaining the structural drivers for improvement in operating working capital, focused CapEx of around EUR 1.5 billion and a continued reduction in nonoperating costs.To conclude, as you will have seen in the press release, for 2021, the group is targeting a significant like-for-like increase in operating income with an improvement of more than 100 basis points in the operating margin compared to the 7.7% margin in 2018, assuming, of course, that volumes remain to their 2018 levels. This will confirm the success of our Transform & Growth plan. Sreedhar and I are now happy to answer any questions you may have.
[Operator Instructions] We have a first question from Yves Bromehead from Exane BNP Paribas.
I'll have 2, if I can. The first one is on your outlook. You haven't changed your margin guidance at this point, and I appreciate Q1 is a small quarter. But as we sit here with volumes being so far ahead of 2019 levels, especially in higher-margin divisions and with the price cost spreads still being quite positive, it sort of begs the question as to, is there any reason ex COVID-19 uncertainties why you wouldn't be able to get towards the margins that you have achieved in H2 2020? That's my first question. My second one is on the portfolio rotation. We recently saw the announcement of one of your peers in the U.K. merchants launching a review of its portfolio. Based on the data that we have, I think your U.K. distribution business is still under some pressure. So I was wondering what is your strategy here? And if you could help us understand if you are below or at or above breaking even in the U.K. distribution segment? That would be very helpful.
So concerning your first question, I can tell you, we are very confident to meet our guidance. As you remember, we have had a target for 2 years of -- in our plan to reach 8.7% by 2021, which was 100 basis points above the level we had in 2018. For a long period of time, many of you didn't put a lot of attention to that. I reminded in October that it was still our target. So that's why we thought at the beginning of this year, it was important to remind that. That being said, if you look carefully at the guidance, the guidance says more than 100 basis points above 7.7%. So that means that more than 8.7%. So you -- this guidance is -- I don't see why I need to change that. It's -- but you can consider that as a floor. And if you ask me whether I am comfortable about the fact that we are going to have a significant increase in our operating income, I can very happily confirm that. Second question on U.K. distribution. First, we are quite pleased with the evolution of the business in the U.K. which in fact, performed better than what we thought in June last year. The second half was better purely, although the environment remained fragile. And we have seen in the first quarter, a very good dynamic in our performance in U.K. distribution, with like-for-like sales. In fact, if you compare with 2019, we said we are slightly positive. But having in mind that we have reduced our number of outlets, by around 10%, in fact, we have a very significant like-for-like increase if I use the definition that some other companies are using. So we are quite pleased with our performance in the U.K. That being said, there are some parts, and I repeat what I said a few months ago, we have analyzed and reviewed strategically our business in Distribution in the U.K., and we have concluded that there are some brands that we may diverse when the market condition is appropriate. So this review has been done. We are in no rush. The situation is improving. And we will act when we think it's the best time for the company.
Can you just specify if, in the U.K., now you're at breakeven or not?
No, no. We are clearly positive in the U.K.
In the U.K. distribution, yes?
Yes, clearly. We have been in the second half of 2020.
Next question from Jean-Christophe Lefèvre-Moulenq from CIC.
I have 2 questions, if I may. First one, could we have maybe more flavor on the month of March? Can you confirm that we had an acceleration of the underlying growth, excluding this repetitive issues of COVID, first? And secondly, we have an excellent price effect in the Americas. Can we have more flavor? Is that due to a particular business or to a particular country?
I will start and maybe Sreedhar will complete, especially on pricing. The month of March has been a good -- very good month. But nevertheless, I think you have to be -- we don't -- we compare with 2019 because in the second half of months -- the second part of the months of March in a number of countries, especially Southern Europe, U.K., India was under complete lockdown. And you remember, we had -- the 5% drop we had in like-for-like sales in the first quarter was entirely due to the second half of the month of March. So the comparison with March 2020 is not relevant. Internally, with Benoit, we compare everything with 2019 when we look at the business. So compared to 2019, the month of March was better than January and February. I would say, for 2 main reasons even though January and February are good, but there are 2 main reasons. First, the January and February in 2021, in some exterior activities, we had an impact of the weather, which we recovered in March where we had the good weather in March. And the second point that you can read in our press release and I will let Sreedhar complete is that we -- and that's a big difference with the years before, especially in Europe but also in the U.S., is that, this year, we are able to have price increase regularly, and we had at the beginning of the year. And we are having -- and we think that in some countries, we have had a little more volume in March than we would have normally expected because of price announcements for the months to come, which also is good news because it means that people -- the price increases are going to stick. So I think that the month of March, to answer your question, was very good. But I can confirm that the month of April is not very different from the month of March. So we are going for a very good April. Maybe Sreedhar, you want to add something on pricing?
Yes. I mean, I will give a little more color because I think the pricing has been one of the most important priority. You have seen this is something that all the regions on the businesses have taken a proactive step, last year itself, with the whole pricing initiative started from third quarter onwards. And you -- actually, we have achieved sequential price improvements in all the 4 regions for the second consecutive quarters. So that's a very good focus. Particularly on Americas, it was much more frequent price increase. I think they made the best use of the market dynamics, which was quite favorable. And I saw also a lot of focus on the pricing, doing a lot of detailed work, trying to optimize, and we see good results. I think there is a lot of good work has been done. And then we are not, as Pierre-Andre said, the price increase, we have also announced for the second quarter, there are plenty of pricing initiatives in the second quarter. Particularly in Americas, if you take exterior solutions, we made the price increase in April. And there is another price increase we have announced for June for gypsum and insulation, interior solutions. We had a price increase in Jan. We have another price increase in April. So as Pierre-Andre said, there are frequent price increase, and it is something which is required in a current context. I think the team has been extremely dynamic and proactive.
Just a follow-up question regarding the price hikes in Americas. Do we have better dynamic in Latin America or in North America? That was also my question.
You have seen that overall price increase in Americas is 7% and both North America and Latin America have done a good job.
Next question is from Elodie Rall from JPMorgan.
Sorry. I was on mute. Sorry. Yes, can you hear me?
Yes.
Yes, sorry. I'll go first, I'm sorry. So if I can continue on the topic of the pricing, can you put that into context with regard to the cost inflation side. So very strong price performance, more to come. Does that mean that we can expect price cost to be broadly positive actually for 2021? Is that now the base case? That's my first question. So really putting that in context of cost inflation? And second, could you give us some progress on your divestments that are ongoing? I'm thinking Lapeyre, [Foreign Language] the Netherlands distribution?
Sreedhar will answer the first question, and I'll take the second one?
Yes. So Elodie price cost spread, we started a good year. I mean, we started the year in a positive note. The first quarter has been good. But you've seen the inflation has gone up, particularly in the last 2 months. Most of the raw materials have gone up. So in this context, I would, at this point of time, I would say that we are very confident to compensate the inflation for the whole year.
So concerning the divestments which are happening, Lapeyre, we are in the final stage. We have finished the period of consultation with the union, and we have still a few administrative formalities. So we should be -- this should be done by the summer. Netherlands is pursuing. We have also administrative antitrust procedures which are going on, but it's proceeding. Concerning Pipe, you have seen that we have divested our business in China. We were forced to close, and we sold the building and land in very, very good conditions 3 years ago of our main plant, but we had another one. And strategically, it was not very viable in the long term. We have been able to sell it in good conditions to management buyout. So that is signed and should be closed in the next few months. On the other hand, we don't have at the moment short-term projects concerning the rest of our Pipe division. Our assessment on Pipe is that it's a good -- it's -- the market going forward will -- of the water will be a good market. But as I said several times, the synergies with Saint-Gobain which existed don't exist anymore. So I think it's a good assumption that at some point, we will find a way for Pipe to have its own life, but I don't think this is going to happen soon. Short term, our priority is to work on the improvement of the profitability of the Pipe business, which is a business where the demand is coming back where we have cost inflation, which is quite high and we are making also progress on productivity. So that's what I would say about the Pipe. And I think those were the 3 topics. I can add that we are constantly continuing to monitor our portfolio, and there may be more acquisitions and more divestments in the next few months.
Next question from Sven Edelfelt from ODDO BHF.
So 2, if I may. The first one, I think you are merging some of your Distribution outlet. I'm thinking about Décocéram [Foreign Language]. Is it business as usual? Or is it part of another move to reduce cost on top of what has already been done with Transform & Grow? That's the first question. And then a second question on pricing. The pricing on the industrial part is only 0.4%. Just wondering why is it a bit light? Is it a matter of mix, mobility versus industry? One of the other might be a bit light, I would say. Or is it the spread that is good enough for you? And also, on this topic, you mentioned some restocking effect just before the price increase. Can you perhaps quantify this impact on the Q1 sales?
Okay. I will take the first one, and Sreedhar will take the second one. No, on Décocéram, that's a very small question. So at your level, you can consider its business as usual. In fact, Décocéram, for those who are interested, it's a specialist business in tiles. And we have a lot of showroom also on tiles in Pompe. So we are going to merge this showroom, having in mind that Pompe is in tiles is probably 8x bigger than Décocéram. So we -- so it's -- you can consider it's business as usual. The second question, which is, what you call industrial, in fact you mean the High Performance Solution division, Sreedhar?
Yes. So in High Performance Solutions, you just have to keep in mind there is a comparison base effect of last year. Q1 2020 was up by 1.5%. There is a price increase initiative in all the industrial markets. Clearly, Construction Industry, Life Sciences, the prices are going up. Mobility is certainly much more challenging. However, I would say that the margins are improving due to the mix. We have a positive mix and all the cost reduction initiatives we took. Overall for the High Performance Solutions, the price/cost spread is neutral for the first quarter.
Okay. And when you say Mobility is challenging, does that mean it's negative, actually?
The mobility, you don't change -- you don't increase the price month-after-month because this was -- it's a long-term contract. What -- at this point of time, many times in Mobility, the mix which makes a big difference. So we have -- you know that we are into more and more high value-added products and in electrical vehicles. That helps us to compensate this and have a good situation in the margin.
Yes, price is not really meaningful as such. It's a mix for automotive.
Next question from Eric Lemarié from Bryan Garnier.
I got 3, if I may. The first one, you mentioned in your press release the impact of the allocation of household savings towards renovation spending. Do you see a risk of a slowdown in renovation once the crisis will be behind us? Maybe you know restaurants open again and the savings of also maybe spend elsewhere? That's my first question. Second question regarding the Grenfell Tower improving. Is it going in the right direction for you? Do you have any fresh positive news?
Hello? He disappeared. You have another question?
No. Mr. Eric Lemarié, you are connected.
It was cut off. Well, anyway, then I will start to answer the first question. About renovation, it is true that at the moment people have savings and they have less opportunity to spend. So clearly, home is an area where they can spend money, their money. So that's a factor, which is a positive. I believe that this trend will continue because we are -- with this new life, people are with homeworking, which is not going to stop. There are many projects which are going to continue. That's the first reason.The second reason is that when you look at the order backlog of our customers, it's growing very, very strongly, which means that if you want to do renovation work at the moment in many countries, you are not going to do it for quite some time because the craftsman are all busy. So I think there is always a pent-up demand, which is going to drive us for quite a while. And the third comment is that the green deal, energy efficiency packages for the -- is really just starting. The only country where we have seen something in 2020 was Italy. In France, it started in end of February, beginning of March. It's starting now in a few other countries in Europe. And I think that we are just at the beginning of this, and I think this is going to be to drive us for quite a few years. So the renovation trend, I think, is going to be good for quite a while. So second question on Grenfell. Sreedhar, you could comment, but basically, there is no news to report.
Correct. There's no news to report.
Nothing to say compared to where were 2 months ago.
Exactly, we continue to cooperate.
I don't know whether Mr. Eric Lemarié is back.
Yes. He is always connected?
He had a third question, I don't know. We move to the next one and maybe...
No problem. So the next question is from Robert Gardiner from Davy.
On the results. I'll ask 2 quick ones myself. So one on the -- just to go back on the cost inflation, I think you mentioned EUR 600 million to EUR 700 million, and it was previously EUR 300 million to EUR 400 million. Is it more raw materials versus energy? Can you give a flavor of what's in there? Is it more, I don't know, steel, cement versus energy costs, give me a sense of that?And then likewise, I see in different parts of the statement, you talk about supply chain disruption in, I think, HPS around mobility and in North America as well. I'm just wondering what you're seeing there, and how impactful that is?
Sreedhar?
Yes. Yes. So the recent -- the surge in the inflation is actually in many raw material costs. It is not just energy. So if we have to make it simpler, I would say, 1/3 of this inflation is coming from all chemicals, like resins, binders, additives, or metals, steel profiles. The second 1/3, I would say, is all oil related, basically asphalt, energy cost and then the transportation cost is going up. And the other 1/3, I would say, is -- there are raw materials, like paper, gypsum, cement and sand. So actually, you will see across -- it is not just in 1 or 2 items. Coming to your second question, challenges on supply chain, yes, you are right. There are supply challenges related to supply chain for many reasons. As you rightly said, it's winter storm in Texas has disrupted the chemical supply in the U.S. The electronics chips' shortage in the automotive sector, so far, for us, it has -- we had a little impact, very little impact because of, again, the mix, the product mix we have more into value-added and electrical car. Many of the OEMs privilege the high value-added car manufacturing. Of course, there is certain uncertainty on this area. We need to remain vigilant as we progress. There were also challenges related to logistics. And then -- and also, we have to keep in mind that the inventory level was also low, in general. All of us, we had a low inventory. And when the demand is strong, you also have the challenge. But at the end of the day, I would say, even though we have these challenges on a day-to-day basis, in the last 2, 3 months, I would say the teams have done an excellent job in making a very close monitoring, finding alternate solutions to manage the current situation very well. And I would again insist here that the new organization, which is local organization, is, in a way, again, visible, the effectiveness of that where you see that the country's CEO is hands on working with the supply chain team to make sure that the business is not suffering in this country. So there is a bigger focus, bigger ownership. So far, so good. We have to remain vigilant.
A lot more work, but no impact.
As of now.
I think the next one is Nabil Ahmed.
Next question from Nabil Ahmed from Barclays.
Can you hear me?
Yes.
Right. And congratulations for the very strong start to the year. I had 2 actually. First one about India. Could you please update on the situation in the country and how potentially your activities are affected? I mean, if you take the last few weeks, really, an update on the situation would be useful. The second question was more the potential constraints on the gross potential. At what point do you feel you're going to start to see labor shortages? I mean, you alluded to supply constraint, which I think is more a temporary factor. But at what point you're going to start to see craftsman being fully saturated? If you take the example of France, for instance, I think it was the case in the past that craftsmen were reluctant to hire, and we saw renovation market probably not fully unleashing its potential. You're already on a strong growth trend compared to 2019 in France. MaPrimeRénov have not really started to generate some business potentially. And [indiscernible] benefits from the green deal. So where is the point at which you think you're going to start to see some saturation on the supply side?
On India, I think it's better that Sreedhar has some inside information more than anyone else. He will -- I'll let him answer.
Yes. So Nabil, you're -- it's certainly a challenging situation. Even though, as of now, it had a very limited impact on the business and this is typical Indian mentality where you keep going on the business as usual, even though there are a lot of challenges ahead of us. It is very tough. Last few weeks has been extremely difficult. The -- we are very, very much monitoring very closely. Again, the top priority for us is the safety of our employees. And we are taking all the necessary precautions and measures and making sure...
We vaccinate our people.
And you know that in India, the vaccination is going in a very, very fast pace. 1st of May, everyone, more than 18 years old, can go and get vaccinated without giving any explanation. So that's the kind of mobilization is happening in the country. We just have to -- I personally feel that they will bounce back very strongly. This is, again, my emotion says that the country will come back.
But so far in terms of business, we have had no impact.
You have seen on our numbers on Asia. The biggest contributor to that is China and India and Vietnam. I would say these are the 3 big contributors.
So far, it's going very well. On your question on labor shortages, I would say, to some extent, we already have it, but we have it with a very, very strong growth. And if you look at our -- if I take just France, which is one example, we have seen the addition a 25,000 job more in our customer base in the last few weeks.So I think that this saturation is going to stay. That's why the order backlog is very big. But at the same time, we are growing our sales. So it's -- and I think it's exactly the same situation in the U.S. So I think progressively, this -- the workforce in our supply -- in our customer base is going to grow. And we are, at the same time, saturated, which, by the way, is not bad in terms of pricing for everybody.So I think -- but we -- you may have seen also that we have debottlenecking. We have launched a few new plants. So we'll be able to accommodate a strong demand in innovation for the next few years.
Okay. Can I squeeze just a last one, last question. I mean, just wanted to double check. Did you mention at some point that April was broadly in line with March in terms of gross potential. The reason I'm asking, of course, is to try to get a sense on -- because you've mentioned and you've been alluding a lot on advance purchases in anticipation of the price hike. From what you're saying, if there is no growth differential between March and April, it's not that much a factor. Is it?
Still one more day to go, but I think April is going to be very strong, yes, in most geographies and also in our global businesses. So not very different from the trend we have seen in March, yes.
Next question from Josep Pujal from Kepler Cheuvreux.
Yes. Two questions for me, please. The first one is on this comment that you have made for several geographies which is that in March, you had volumes boosted in advance of the price increases that you had announced for Q2. So I guess that I would say this is quite unusual comment from you. And I guess that this implies that the price increases announced are significant. Is this right reading that we have to do about that? And can you be a little bit more specific about the figures.Can we say that it could be double than the 2.6% that we are seeing so far? And my second question is on the new construction market. We see that renovation is going very strong -- is being very strong for the reasons you mentioned. But we see, in some countries, for instance, France, where the new construction -- the order books are down 25% something like that. Do you -- when do you think it will impact you? It's already in Q2? Or it's more in the second part of the year?
Sreedhar, you want to start?
So I think, Joseph, the fact that there is the push on the sales, it reflects the market dynamics and the seriousness with which the price announcement has been taken. So for me, it is a more positive news and not that because we are increasing a high price increase, and that is why there is a prebuy. So I don't make such calculation of doubling the price increase in the second quarter.
On your question on new construction, as you know, the situation is very different country by country. I guess your question is related to France. So in France, I would say that we have seen these numbers on [indiscernible] have been bad for now more than 2 years. And in fact, I would make some comments. First of all, if you look into details, there is a big difference between collective social housing and individual housing. And in fact, in individual housing, it's not going down anymore. And the statistics over the last 6 months are quite okay. And it happens at Saint-Gobain, especially in our distribution business, but I would say, overall, we are more present in -- much more present in individual housing. So that's why the sales in our distribution activities in France, in fact, are not suffering from this trend.So I don't think we are going to see significant impact because we -- the drop in activity in collective housing is already happening. And I remind you what I have told you several times during the last 18 months, which is that when there is a drop in new, it's compensated by renovation because generally, people have a tendency to, our customers, to prefer to work on new. So when there is a little less new, they reduce the backlog in renovation. The good news is that the backlog in renovation impact is still increasing. That's for France. In fact, we have also a little bit the same in the U.S. with [indiscernible], and that's also related to COVID, I would say. We have seen a big surge in the housing permits and starts in the U.S. with a single-family housing, which is also in terms of quantity of materials for us quite positive. But the trend in new anyway is good in the U.S., but it's even better in single family.
Understood.
Next question is from Arnaud Lehmann from Bank of America.
Just one question on my side. You confirm the CapEx spending for this year at EUR 1.5 billion, and I appreciate that. I mean, it went down relative to the last few years on the back of your focus on free cash flow generation, and that's very welcome.On the other hand, you are seeing very good momentum in demand, and you sound quite optimistic about the shares because of the medium-term growth outlook with your green deal and the renovation wave. Do you believe that the EUR 1.5 billion is enough in terms of capacity going forward? Or is there a potential for you to increase this CapEx to cover the demand?
I would say, Arnaud, the main priority of Benoit at the moment is to have people delivering on CapEx because with the COVID situation when we need -- when you start, for instance, a new plant, you need people to come from various countries. It's not that easy. So we are starting our plant, but we are trying to ramp up. So I would say that we -- in the second part of 2020, we spend less than expected, and I would say, a little bit less than what we wanted. So at the moment, we are not putting our feet on the brake, but I am comfortable that we will land close to this number.
Yes. In any case, I think we are not going to make compromise on the growth CapEx.
No, no, no, We are not going to be compromised. But the only issue is that some of this growth CapEx are sometimes a little bit late because of some subcontractors who are not working, are not able to be on the site. So we manage. But if anything, we are a little bit late compared to a little bit in advance at the moment. And we may -- in fact, that means that we may also have a little more CapEx on the second half and in the first half, I think. Sreedhar?
Yes.
Next question from Gregor Kuglitsch from UBS.
Can you hear me?
Yes.
Excellent. So the first one is just to come back on the price cost spread. So if you could just give us some help maybe on the new raw material guidance of, call it, EUR 650 million, I think, is a midpoint, would it be fair to say that you need 3%-ish price increase to cover that if I look at your industrial sales? So we can get a sense of what's the realistic price expectation for this year and taking into account the comment that you expect to be around neutral? That's the first question. Second question is, I think in one of your responses or remarks, you were suggesting perhaps there would be more acquisitions in the months ahead. Was that just a side comment? Or are you flagging that we should be thinking about perhaps something -- perhaps slightly bigger rather than just bolt-ons?And then the third question is just maybe on your guidance. So I appreciate your guidance is for flat volumes versus, I think, it's '18 being the baseline. I guess, that's now looking -- forgive me, but probably a little bit conservative. So I guess the question is -- and I don't expect you to guide me specifically to volumes. But if I tell you, I don't know, 1 percentage point of additional volume, what impact does that have on margin? I don't know if there's a rule of thumb, we can say, I don't know, for every point of additional revenues against the baseline, you think margins would be x higher because of operational leverage? I don't know if that's math that you could help us with.
Sreedhar, you want to start?
Yes. So on price, your number is correct, 3%-ish is something we should compensate the inflation on the industrial part. And remind you, we are already, in the first quarter, we have 3% price increase in industrial part of the businesses. Now what is important to keep in mind is, with all the announcements we are making in Q2, this price increase will help us to deal with the second half, which will have a base which will be a much tougher base because last year, if you remember, we had 1.4% price increase. So we just have to factor that. And that is why I remain confident that we should be able to compensate the inflation for the year.
Yes. We're on a very good touch as of now, and we have been cautious on that. We started -- I remember, in September last year. So we have been ahead, and we try to stay ahead because we see -- because of what Sreedhar is talking about on the cost. So far, so good. The fact that we may have higher volumes than in 2018, yes, we are -- if you look just on the first quarter, it's between 9% and 10% more volume than in 2018. I have not -- I have no idea whether we will continue at that level. But if you assume that, yes, we should have a better margin in 2021. That's the -- and on acquisition. I would say -- no, no, I just say that comment that we are constantly having small acquisition and small divestitures. I'm not flagging anything special if I have to -- we are constantly reviewing things. But as I said in February, we are careful at the moment. Prices are high. So we say no more often than we say yes, and I don't exclude anything, but I don't have anything specifically in mind at the moment.
Next question from Laurent Runacher from Exane AM.
Congratulation on your great results. I was also in the same direction of Gregor, because in the past, you used to say that your operational leverage when doing an additional 1% volume was in the range of 15% EBIT margin at the Distribution -- on the Distribution division and 30% for the Industrial divisions. Is it a good rule of thumb to use, given the fact that you've been in a quite positive environment, also implementing the right price increase to offset the raw mat increase?
Well, I think we have already talked a lot about that. I remind you, it's a sales call, so we'll talk about that when we publish our results in July.
But as a rule of thumb, the numbers...
I think I answered your question.
Next question from Eric Lemarié from Bryan Garnier.
Yes. Could you hear me properly this time because I think I was cut.
Yes.
Okay. So I will ask my question.
The third question that we didn't hear. I hope you heard the answer to your first 2 questions?
No, no, but I will have a look to the transcript then. No, sorry, I didn't hear you.
The second one was very quick. Grenfell, the answer is no news. And the first one, it was about the renovation that I think it was a long answer. You look at the transcript, but I gave a long answer on that one, yes. It's going to continue.
Okay. Good. So my last question, it's a very quick one, actually. In terms of acquisition of new niche technologies, you have acquired HTMS recently. You mentioned that recently. And I was wondering what type of new technologies you would be keen to add to your portfolio going forward? Is there any specific technologies currently that you could be interested?
Well, we are looking at adjacencies, things that are close to what we are doing. And I would -- if you want to have more detail, I think -- I guess it's probably going to be an important point that Benoit will cover in October.
Next question from Yassine Touahri from One Field Investment Research.
Yes, 3 quick questions for me first. Are you positively surprised by the strength in your demand in March and April and also by the pricing developments? And are you more optimistic than on the 25th of February? That will be my first question. Then my second question is that you are suggesting that the April demand is as good as in March. So does it mean that the prebuying activity in March did not translate into a slowdown in demand in April? And my third question is, how much of your 2021 gas bill is hedged. Are you expecting some gas inflation? Or are you fully hedged?
So I take the first one. I would say on -- yes, the month of March was stronger than what we had in mind when we had the the call on the results. So the month of March was very strong. We knew that the winter has been a little bit harsh in January and February. But I would say that -- and we had good weather in March. But I think globally, we were -- we had a very strong March. And it probably is as strong, I would say, in April. We may have slightly less volume, but we'll have a little more price, which is exactly to your answer. But I think that the demand is quite high in most of our markets, especially in the construction market. But also in a number of industrial markets, the demand is at the moment, quite high. I repeat what I said which is that the order backlog of our customers in many countries is growing and is high. So I think that the -- we are seeing a very, very good demand at the moment.
There are price increase happening even during the Q2.
And we are going to have an additional price increase in May and in June depending on the country and the business, yes. So yes, we have a very positive momentum at the moment.
On the gas hedging?
Yes. So third question is for Sreedhar. Sorry.
So on gas, if you just recall the overall energy bill we have is EUR 1.1 billion for 2020. Of course, this will be more in 2021 with the increase and the volume also going up. So -- and half of that is more than half is electricity, and the balance is what is between gas and the fuel. So the gas inflation, what we saw, end of February, if you look at the average of Jan and February, we had something like 75% as compared to last year. Last year, it was very, very low, if you recall. But now in April, it has gone up substantially. This is actually close to 170% as compared to just April month, just 1 month. So in terms of hedging, we have close to 50% on an average we have hedged in our energy.
Next question from Christian Korth from HSBC.
I have 2 questions, please. The first one is again on the prebuying effect you quoted several times in the press release and in this call. I just wanted to ask if you can give us an indication how we should think about the magnitude of this? And if you can quantify that in any kind? The second question is about the strong demand for renovation in Europe. I just wanted to ask if there are specific product groups that are in specifically high demand in the current environment. So are there specific parts of your renovation product portfolio that are in higher demand than others?
So on the second question, no, I think it's very broad. What I would say is that there are some areas in our distribution business, where we have, in fact, very, very big price increase that we are passing to the customers in terms of metal. And we have some shortages in some countries in Europe on wood products, but it's not a big part. But overall, the demand is strong across the board, both on our manufacturing businesses and our distribution business if I take the overall quarter and the month of April. Of course, there are some products where the impact of the weather is bigger. For instance, if you take exterior products, January and February was low and March was a pickup, but the quarter, it's a very broad increase across the board of our solutions. The first question, I forgot now.
It is prebuy magnitude.
Prebuy. I think I am not able to quantify that. But what I would say is that they are still prebuy in April, in fact, because as Sreedhar said, we are continuing to pass price increase regularly. So I am not able to quantify this impact. I -- what I -- our people are telling us, and -- I don't think they're able to quantify that. Yes, in the month of March, the sales were very high. And when pressed why, they think that some of their customers have ordered a little more. The sales in April are also very strong, and there is also this element. We think there is this element, but frankly, I'm not able to quantify. It's not major, I would say, compared to the 20% type increase we have. It's -- yes, I don't know, maybe it's a couple of percent. I am not able to quantify, frankly. And it's not the same in each country. So it's just -- we just wanted to mention that, just as an indication, that pricing is working and maybe because we were a bit surprised by the strength of the volume in March, but it's continuing.
Great. Thank you very much. And then maybe it's not pre buying, but regularly demand.
Thank you. There is no more question for the moment. [Operator Instructions] Next question from Harry Goad from Berenberg.
You've obviously talked a lot about the strength in demand from the renovation segment, and there's a pretty clear message on that. Can you talk a little bit more about demand and patterns you're seeing with [Technical Difficulty] construction economies?
I'm sorry, I didn't hear the second part. It was cut after you talked about renovation. You want to talk about what?
Can you hear me now?
Yes.
Yes. Okay. So what I was saying is, aside from the message you're giving on renovation, where there's a very clear message. Can you talk a little bit about the other parts like the broader construction [Technical Difficulty]? Any sort of patterns you're seeing there across Europe within that sort of the path of construction would be useful, please?
Well, I think I already commented on new construction saying that the difference between renovation and new construction is that renovation, it's a pattern across all the developed world, I would say. On new construction, there are patterns which are different. So you have obviously a different trend in Germany, which is very positive. In France, which is less good, but I commented that we are less affected for residential. U.K. is at a low point and it's going up. Scandinavia is high, but it's staying high. So I would say, there are different trends, but globally, they are okay. Now maybe your question is, yes, there is another segment we have not touched so far, which is the nonresidential, and there, what we see is okay. We thought that we would have something relatively low in offices and it's not extremely bullish, but it's not as negative as maybe we would have thought. And we think we are going to have something very positive in public building in renovation because of the green deal in Europe, and we may see the same thing in the U.S. But this frankly has not started and I would say, at best, it would be at the end of 2021. I think it will be -- the bulk of those good trends in nonresidential renovation will be in '22. So positive news, but not right now. I answered your question because I'm not sure I heard you all the time you were speaking.
You did answer the question.
Thank you. There is no more questions. [Operator Instructions] Gentlemen, we have no more questions. Back to you for the conclusion.
Okay. So if there are no further questions, I thank you for participating in this conference call. And I remind you that our first half results will be published on July 29 and will be presented by Benoit. So it was my last last call, I would say, it's -- if I am correct, I have done 56 quarterly calls. And I am very happy that Benoit will take over with you in July. So thank you for having been patient with me and back to Benoit in July. Thank you.