Half Yearly Report

RNS Number : 4852U

Compagnie de Saint-Gobain

29 July 2015

 



Paris, July 29, 2015 First-half 2015 results Upswing in results Following the signature of the agreement with Apollo and in accordance with IFRS 5, the Packaging business (including Verallia North America) was reclassified within "Net income from discontinued operations" in the 2014 and 2015 income statement. ·      Organic growth at 0.5% (including a positive 0.5% price impact) ·      Strong 4.6% positive currency impact on sales and 0.3% negative Group structure impact ·      Operating income up 7.8% on a reported basis and up 1.2% like-for-like before the reclassification of Verallia ·      Net debt reduced by €0.5 billion compared to June 30, 2014 ·      Repurchase of around 4.6 million shares over the last 3 months (€m) H1 2014 H1 2015 Change (restated) Sales 18,946 19,860 +4.8% EBITDA 1,767 1,886 +6.7% Operating income 1,183 1,275 +7.8% Recurring1 net income 441 552 +25.2% Net income2 671 558 -16.8% Free cash flow3 647 728 +12.5% Pierre-André de Chalendar, Chairman and Chief Executive Officer of Saint-Gobain, commented: "After a first quarter marked by a tough basis for comparison, second-quarter sales returned to volume growth, driven by the rebound in North America on the back of an upturn in Roofing and by good momentum in Asia, emerging countries and Western Europe except France and Germany. First-half operating income and our outlook for the rest of the year confirm our objective of a further like-for-like improvement in operating income in 2015 along with continuing high levels of free cash flow." 1.  Recurring net income from continuing operations, excluding capital gains and losses on disposals, asset write-downs and material non-recurring provisions. 2.  Consolidated net income attributable to the Group. 3.  Free cash flow from continuing operations, excluding the tax impact of capital gains and losses on disposals, asset write-downs and material non-recurring provisions.

Operating performance

First-half sales were up 4.8% to €19,860 million, after reclassification of the Packaging business (including Verallia North America) within "Net income from discontinued operations" in the income statement.

After this restatement (IFRS 5), changes in Group structure had a negative 0.3% impact on sales. Exchange rates continued to have a strong positive impact (4.6%), chiefly driven by the US dollar and pound sterling.

On a like-for-like basis, sales edged up 0.5%. Volumes were stable over the first half and rose 1.5% in the second quarter alone. Amid low raw material cost inflation and energy cost deflation, prices continued to rise slightly, up 0.5% over the first half.

After a slight decline in the first quarter, the three months to June 30 saw growth in all regions except France and Germany. By business, the first half confirmed the upturn in Flat Glass and the expected contraction in Exterior Solutions, related mainly to price levels in the Roofing business.

The Group's operating income climbed 7.8% on a reported basis and remained stable like-for-like versus first-half 2014 due to the absence of volume growth. Before the reclassification of the Packaging business and on a like-for-like basis, operating income moved up 1.2%. The Group's operating margin widened 0.2 points year-on-year, to 6.4%.

Performance of Group Business Sectors

Innovative Materials like-for-like sales continued to improve, up 2.6% thanks to Flat Glass. The Business Sector's operating margin moved up to 10.2% versus 9.1% in first-half 2014.

·     The second quarter confirmed the upbeat trends seen early in the year in Flat Glass, which posted 5.6% organic growth over the six months to June 30. Automotive Flat Glass continued to report strong gains in all regions, excluding Brazil. Construction markets remained upbeat in Asia and emerging countries, but retreated in Western Europe where prices remained stable.

Rising volumes, together with the full impact of cost savings and an improved product mix, helped drive renewed growth in the operating margin at 7.4%.

·     High-Performance Materials (HPM) like-for-like sales slipped 0.8% over the first half, hit mainly by the downturn in ceramic proppants. Other HPM businesses continued to deliver organic growth.

Despite this decline in organic growth, the operating margin came in at 13.5% versus 13.3% in the same period one year earlier.

Construction Products (CP) like-for-like sales advanced 0.9% over the first half. The operating margin narrowed to 8.7% versus 9.0% in first-half 2014, affected by Exterior Solutions.

·     Interior Solutions posted 2.2% organic growth over the six-month period. In Western Europe, despite a slight improvement in volumes, trading continued to be affected by the market situation in France and Germany, coupled with a slight downward pressure on prices. The US, Asia and emerging countries continued to grow.

The operating margin moved up to 9.0% versus 8.5% in first-half 2014.

·     Exterior Solutions slipped 0.4% despite a 5.7% rally in the second quarter, due mainly to the Roofing business, where volumes rose sharply after a very weak start to the year. Prices for this business were down significantly on the same year-ago period, despite stabilizing quarter-on-quarter. Pipe continued to be buoyed by export contracts, but was affected by anemic demand in infrastructure markets in Western Europe and Brazil. Mortars enjoyed good organic growth in Asia and emerging countries, although growth continued to be hindered by Western Europe.

The operating margin fell to 8.3% from 9.5% in first-half 2014, due chiefly to prices for Exterior Products in the US: Roofing benefited from falling asphalt prices, mainly in the second quarter.

Building Distribution like-for-like sales stabilized in the second quarter, up 0.1%, limiting the decline over the six-month period to 1.1%. France was once again impacted by the sharp contraction in new-builds and by a renovation market yet to show signs of improvement. Germany declined over the first half, although the pace of decline slowed in the second quarter. In contrast, the UK reported further organic growth and a particularly upbeat trend emerged in the Nordic countries, the Netherlands, Southern Europe and Brazil. Overall, despite the downturn in France and Germany which together account for around half of the Business Sector's sales, the operating margin proved resilient, at 2.6% versus 2.9% in first-half 2014, thanks to the advances reported in all other regions.

Analysis by region

       The Group's organic growth and margins advanced, lifted by Asia and emerging countries, and by countries in the "Other Western Europe" region.

·    France was hit once again by the decline in the construction market in the second quarter, reporting negative organic growth of 3.3% for the three months to June 30 and of 4.2% over the first half. The operating margin narrowed as a result, at 2.6%.

·    Other Western European countries, up 2.4% over the quarter, confirmed their organic growth, which came in at 1.7% for the first half. This performance reflects good market conditions in the UK and Scandinavia and an upturn in Southern European countries. Germany, which was still slightly down in the second quarter, retreated 3.7% on the back of sluggish renovation activity. The operating margin for the region improved, at 5.4% versus 4.7% in first-half 2014.

·    North America posted 4.9% like-for-like sales growth in the second quarter, powered by the catch-up in Roofing volumes and to a lesser extent by Interior Solutions. Over the six-month period, the region posted negative organic growth of 2.2%, chiefly impacted by subdued Roofing prices and a slower pace of growth in industrial markets. The operating margin was therefore down, at 9.5% compared to 10.9% in first-half 2014.

·    Asia and emerging countries continued to deliver good organic growth, which came in at 4.8% for the first six months of the year. Latin America advanced 8.2%, with Brazil proving resilient in a tough macroeconomic environment. Eastern Europe was up 4.3%, buoyed by brisk trading in the Czech Republic, while Asia advanced 0.8%, lifted by India.

The operating margin rose to 10.0% of sales, compared to 8.8% one year earlier.

Verallia

Packaging (Verallia) sales moved up 2.1% at constant exchange rates excluding Verallia North America. Organic growth over the first half was driven by small volume gains in Europe and by rising prices in Latin America in an inflationary environment.

The operating margin came in at 9.7%.

Analysis of the consolidated financial statements for first-half 2015

The unaudited interim consolidated financial statements were subject to a limited review by the statutory auditors. They were approved and adopted by the Board of Directors on July 29, 2015.

Following the signature of the agreement with Apollo on June 6, 2015 (involving a firm and binding offer from Apollo regarding the Packaging business and exclusive talks with Apollo) and in accordance with IFRS 5, the Packaging business (including Verallia North America) is shown within "Net income from discontinued operations" in the income statement for 2014 and 2015.  

	H1 2014 Restated*	H1 2015	% change		H1 2014 Published
€m	(A)	(B)	(B)/(A)
Sales and ancillary revenue	18,946	19,860	4.8%		20,446
Operating income	1,183	1,275	7.8%		1,330
Operating depreciation and amortization	584	611	4.6%		667
EBITDA (op.inc. + operating depr./amort.)	1,767	1,886	6.7%		1,997
Non-operating costs	(12)	(154)	n.s.		(16)
Capital gains and losses on disposals, asset write-downs, corporate acquisition fees and earn-out payments	(51)	(41)	-19.6%		(54)
Business income	1,120	1,080	-3.6%		1,260
Net financial expense	(336)	(328)	-2.4%		(354)
Income tax	(158)	(236)	49.4%		(212)
Share in net income (loss) of non-core business equity-accounted companies	(1)	0	n.s.		(1)
Net income from continuing operations	625	516	-17.4%		693
Net income from discontinued operations	68	69	1.5%		0
Net income before minority interests	693	585	-15.6%		693
Minority interests	22	27	22.7%		(22)
Net attributable income	671	558	-16.8%		671
Earnings per share2 (in €)	1.19	0.98	-17.6%		1.19
Recurring1 net income from continuing operations	441	552	25.2%		511
Recurring1 earnings per share2 from continuing operations (in €)	0.78	0.97	24.4%		0.91
Cash flow from continuing operations3	1,045	1,195	14.4%		1,198
Cash flow from continuing operations excl. cap. gains tax4	1,010	1,185	17.3%		1,162
Capital expenditure of continuing operations	363	457	25.9%		449
Free cash flow from continuing operations	647	728	12.5%		713
(excluding capital gains tax)4
Investments in securities of continuing operations	48	92	91.7%		48
Net debt	8,519	7,995	-6.2%		8,519

*       First-half 2014 figures have been restated to reflect the impacts of IFRS 5.

1      Excluding capital gains and losses on disposals, asset write-downs and material non-recurring provisions.

2      Calculated based on the number of shares outstanding (excluding treasury shares) at June 30 (569,364,905 shares in 2015, including the increase in capital following payment of the stock dividend on July 3, 2015, versus 564,079,733 shares in 2014).

3      Excluding material non-recurring provisions.

4      Excluding the tax impact of capital gains and losses on disposals, asset write-downs and material non-recurring provisions.

The comments below make reference to the restated financial statements for 2014, after reclassification of the Packaging business (including Verallia North America) within "Net income from discontinued operations" in the income statement.

Consolidated sales advanced 4.8% on a reported basis. Exchange rates had a positive 4.6% impact on sales, mainly due to gains in the US dollar and pound sterling against the euro. Changes in Group structure had a negative 0.3% impact, primarily reflecting sales of small, non-core businesses. Like-for-like (comparable structure and exchange rates), sales were up 0.5%, lifted by the price effect.

Operating income climbed 7.8% on a reported basis, driven chiefly by the currency effect. The operating margin improved to 6.4% of sales versus 6.2% in first-half 2014, buoyed by an improved margin in Innovative Materials.

EBITDA (operating income + operating depreciation and amortization) was up 6.7%. The Group's EBITDA margin came out at 9.5% of sales versus 9.3% of sales in first-half 2014.

Non-operating costs totaled €154 million, with a decrease in restructuring costs compared to the same period in 2014. The first-half 2014 basis for comparison (€12 million) included the €202 million write-back from the provision to reflect the reduction in the automotive Flat Glass fine. The €45 million accrual to the provision for asbestos-related litigation involving CertainTeed in the US is unchanged from the last few half-year periods.

The net balance of capital gains and losses on disposals, asset write-downs and corporate acquisition fees was a negative €41 million versus a negative €51 million in first-half 2014, which had benefited from the €375 million capital gain on the disposal of Verallia North America. Asset write-downs also represented €452 million in first-half 2014 compared to €24 million in the six months to June 30, 2015. Business income for the period fell to €1,080 million (down 3.6% on first-half 2014 which included the one-off €202 million provision write-back).

Net financial expense improved, down 2.4% to €328 million from €336 million one year earlier, reflecting the decrease in the cost of gross debt to 3.7% at June 30, 2015 (4.4% at June 30, 2014). The improvement came despite the increase in other financial expenses mainly due to the discounting of provisions with no cash impact.

The income tax rate on recurring net income remained stable at 30%. Income tax expense totaled €236 million, up from the exceptionally low €158 million in first-half 2014 resulting from asset write-downs in the period, capital gains on the disposal of Verallia North America and the write-back of the provision for the Flat Glass fine.

Recurring net income from continuing operations (excluding capital gains and losses on disposals, asset write-downs and material non-recurring provisions) jumped 25.2% to €552 million.

Net attributable income was down 16.8% to €558 million and includes net income relating to Verallia (attributable to the Group) for €65 million (€67 million in first-half 2014).

Capital expenditure totaled €457 million (€363 million in first-half 2014), representing 2.3% of sales compared to a particularly low 1.9% of sales in the same period one year earlier.

Cash flow from operations rose 14.4% to €1,195 million; before the tax impact of capital gains and losses on disposals, asset write-downs and material non-recurring provisions, cash flow from operations was up 17.3% to €1,185 million, while free cash flow (cash flow from operations less capital expenditure) advanced 12.5% to €728 million (3.7% of sales versus 3.4% of sales in first-half 2014).

The difference between EBITDA and capital expenditure improved, up 1.8% to €1,429 million (€1,404 million in the six months to June 30, 2014), representing 7.2% of sales (7.4% in first-half 2014).

Operating working capital requirements (WCR) totaled €4,448 million at June 30, 2015 (€4,888 million in the same year-ago period), representing 40.8 days' sales, an improvement of 2.5 days year-on-year (an improvement of around 1 day excluding the impact of Verallia and exchange rates).

Investments in securities were limited, at €92 million (€48 million in first-half 2014) and correspond to small-scale acquisitions in the three business sectors.

Net debt continues to improve gradually, down 6.2% year-on-year to €8.0 billion. Net debt represents 40% of consolidated equity, compared to 46% at June 30, 2014.

The net debt to EBITDA ratio came in at 2.1 (1.9 before the reclassification of the Packaging business), compared to 2.0 at end-June 2014.

Update on asbestos claims in the US                                                                         

Some 2,000 claims were filed against CertainTeed in the first half of 2015 (as in first-half 2014). At the same time, around 2,000 claims were settled (versus 3,000 in first-half 2014), bringing the total number of outstanding claims to around 37,000 at June 30, 2015, unchanged from December 31, 2014.

A total of USD 71 million in indemnity payments were made in the US in the 12 months to June 30, 2015, versus USD 68 million in the year to December 31, 2014.

2015 outlook and action plan priorities

After a first half penalized by tough prior-year comparatives, the Group will benefit from a more favorable climate in the six months to December 31:

-  France should gradually stabilize.

-  Regarding other Western European countries, the outlook in Germany remains uncertain; the UK and Nordic countries should continue to deliver good growth in the second half, and Spain should continue to improve significantly.

-  In North America, trading should improve in the second half.

-  In Asia and emerging countries, our businesses should continue to post good organic growth over the full year, despite the slowdown in Brazil.

The Group confirms its action plan priorities:

-  keep its priority focus on increasing sales prices amid low raw material cost inflation and energy cost deflation;

-  unlock additional cost savings of €360 million excluding Verallia (calculated on the 2014 cost base), of which €190 million in the first half;

-  pursue a capital expenditure program of around €1,500 million excluding Verallia;

-  renew its commitment to invest in R&D in order to support its differentiated, high value-added strategy;

-  finalize the divestment of Verallia, which should be effective before the end of the year;

-  pursue its plan to acquire a controlling interest in Sika.

In line with its long-term objectives, Saint-Gobain repurchased 4.6 million shares over the last three months. To date, this almost entirely offsets the 2015 dilution resulting from the Group Savings Plan and the exercise of stock options.

Lastly, Saint-Gobain confirms its objectives and expects a further like-for-like improvement in operating income for 2015 and a continuing high level of free cash flow.

Financial calendar

 - Sales for the first nine months of 2015: October 28, 2015, after close of trading on the Paris Bourse.

Analyst/Investor relations		Press relations
Gaetano Terrasini Vivien Dardel Marine Huet	[phone] [phone] [phone]	Sophie Chevallon Susanne Trabitzsch	[phone] [phone]

        Click on, or paste the following link into your web browser, to view the associated PDF document.

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An information meeting for analysts and investors will be held at 8:30am (GMT+1) on July 30, 2015 and will be broadcast live on www.saint-gobain.com.

Important disclaimer - forward-looking statements:

This press release contains forward-looking statements with respect to Saint-Gobain's financial condition, results, business, strategy, plans and outlook. Forward-looking statements are generally identified by the use of the words "expect", "anticipate", "believe", "intend", "estimate", "plan" and similar expressions. Although Saint-Gobain believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions as at the time of publishing this document, investors are cautioned that these statements are not guarantees of its future performance. Actual results may differ materially from the forward-looking statements as a result of a number of known and unknown risks, uncertainties and other factors, many of which are difficult to predict and are generally beyond the control of Saint-Gobain, including but not limited to the risks described in Saint-Gobain's registration document available on its website (www.saint-gobain.com). Accordingly, readers of this document are cautioned against relying on these forward-looking statements. These forward-looking statements are made as of the date of this document. Saint-Gobain disclaims any intention or obligation to complete, update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

This press release does not constitute any offer to purchase or exchange, nor any solicitation of an offer to sell or exchange securities of Saint-Gobain. 

For further information, please visit www.saint-gobain.com.

 

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