Saint Gobain Or Regulatory News (COD)

Operating performance

2015 sales came in at €39,623 million, up 3.3% on a reported basis driven by the positive 3.0% currency impact, and up 0.4% like-for-like. Optimization of the Group's portfolio in terms of acquisitions and disposals led to a negative 0.1% Group structure impact after reclassification of the Packaging business.

Volumes failed to recover during the year (up 0.1%), due chiefly to the sharp decline in France which continued over the second half. Amid falling raw material and energy costs, prices were stable in the fourth quarter but edged up 0.3% over the year as a whole.

Over the full year, the Group was buoyed by good growth from Flat Glass and upbeat momentum in Interior Solutions. Ceramic proppants in the oil and gas industry continued to weigh on High-Performance Materials. Exterior Solutions retreated due to a sharp contraction in Pipe in the second half and Building Distribution was down slightly over the full year but improved in the fourth quarter.

The Group's operating margin came in at 6.7% (6.6% in 2014) and at 6.9% for the six months to December 31, 2015. Operating income climbed 2.2% on a like-for-like basis, partly helped by favorable weather conditions in Europe towards the end of the year.

In 2015 the Group met its capital expenditure target of €1.35 billion and cost savings target of €360 million compared to 2014. Industrial optimization efforts rolled out over the past few years have notably enabled Flat Glass to continue delivering a strong rally in its performance. The Group also exceeded its operating working capital requirement target, with a reduction of two days' sales (one day based on constant exchange rates) to 26 days, a record low for the Group and a reflection of its ongoing efforts to maintain cash discipline.

In line with the goal of optimizing its business portfolio, a number of businesses were divested, primarily in Building Distribution, representing around €700 million in full-year sales.

The disposal of Verallia in October was carried out on very favorable financial terms and marks a decisive step in the Group's strategic refocus.

The Group also continued to pursue its acquisition strategy with the aim of growing the share of industrial assets in the US and emerging countries, investing in new technological niches, and strengthening Building Distribution in its key regions. These acquisitions represent around €300 million in full-year sales.

Performance of Group Business Sectors

Innovative Materials sales climbed 2.2% like-for-like over the year as a whole and 1.7% in the second half. The operating margin for the Business Sector widened to 10.5% from 9.4% (10.7% in the second half), driven by the rally in Flat Glass and a resilient performance from HPM.

· Like-for-like, Flat Glass sales advanced 5.1% over the year and 4.4% in the second half. In Western Europe, construction markets remained fragile with both prices and volumes beginning to recover towards the end of the year, while the automotive Flat Glass business recorded strong gains and outpaced already good market growth. Healthy trading was confirmed in Asia and emerging countries with the exception of Brazil, hit by a slowdown in automotive and, at the end of the year, in the construction market.

Additional volumes linked to improved operating leverage over the past few years helped fuel strong gains in the operating margin, up from 5.9% to 7.9%, and to 8.5% in second-half 2015.

· High-Performance Materials (HPM) sales slipped 1.0% on a like-for-like basis, with the full-year performance affected by the decline in ceramic proppants. The other HPM businesses continued to deliver organic growth.

Despite the downturn in volumes, the operating margin for the year held firm, at 13.4%.

Construction Products (CP) reported 0.5% organic growth, but slipped 0.1% in the second half due chiefly to the downturn in Pipe, which reduced the Business Sector's operating margin for the year from 9.0% to 8.5%.

· Interior Solutions posted 1.9% organic growth for the year (1.8% in the second half). The downturn in volumes and prices on the French market put the brakes on growth in Western Europe, although this impact eased in the fourth quarter. Trading in North America was dented by a slight dip in prices in the second half and by the decline in the Canadian market. Asia and emerging countries continued to deliver growth.

The operating margin came in at 8.9% versus 8.8% in 2014.

· Exterior Solutions retreated 1.0% like-for-like, with the 2.0% decline in the second half due solely to Pipe. This business was affected by the economic situation in Brazil, a weak infrastructure market in Western Europe and China, and fewer contracts in the Middle East owing to the decline in the oil industry. Exterior Products in the US reported good volume gains buoyed by the strong second-half performance, although prices remained down. Mortars continued to be affected by the economic climate in Western Europe, although the business saw an improvement in the three months to December 31. Mortars delivered further good organic growth in Asia and emerging countries, despite its exposure to the Brazilian market.

The operating margin fell to 8.0% from 9.1% in 2014, as the rally in Exterior Products in the second half failed to offset the decline in Pipe.

Building Distribution sales slipped 0.6% (down 0.1% over the second half) in a construction market that declined sharply in France but showed the first signs of stabilizing towards the end of the year. After disappointing first-half trading, Germany returned to growth in the six months to December 31. The UK saw small gains in the year, with less traction in the second half. Led by Sweden and Norway, Scandinavia confirmed its robust momentum over the full year, as did Spain and the Netherlands. Brazil delivered good growth as a whole, despite the more pronounced economic slowdown in the fourth quarter. Trading in Switzerland was hit by the impact of an exchange rate boosting imports.

The operating margin was affected by slack volumes in France, coming in at 3.2% for the full year (3.8% in the second half), versus 3.5% in 2014.

Analysis by region

Over the year as a whole, the Group's organic growth and profitability gains were dented mainly by France.

· Construction volumes in France remained sharply down throughout the year, although there were signs that activity was stabilizing towards the end of the year. The second half was affected by the downturn in Pipe. With negative 4.1% organic growth for the year (negative 3.9% organic growth in the second half), the operating margin narrowed sharply to 2.9% from 4.3% one year earlier.

· Other Western European countries saw 2.1% like-for-like sales growth, led by a stronger second half at 2.4%. Nordic countries and to a lesser extent the UK continued to advance in the year. After posting a 1.3% decline for the full year, Germany returned to growth in the second half. Trading in Southern Europe and Benelux countries rebounded, particularly in Spain and the Netherlands. The operating margin saw strong gains, coming in at 5.7% in 2015 compared to 4.9% in 2014.

· North America retreated 2.0%, hit mainly by the contraction in proppants and also by sluggish industrial markets. Organic growth in construction was dampened by Roofing prices and by the downturn in the Canadian market. The operating margin was 9.1% versus 10.1% in 2014.

· Asia and emerging countries delivered solid 4.1% organic growth over the year and 3.1% in the second half, with declines in Brazil and China and advances in all other regions. The operating margin continued to strengthen, up to 10.3% in 2015 versus 9.4% in the year-earlier period.

Analysis of the 2015 consolidated financial statements

The 2015 consolidated financial statements were approved and adopted by Saint-Gobain's Board of Directors at its meeting of February 25, 2016. The consolidated financial statements were audited and certified by the statutory auditors.

Following the sale of the Packaging business and in accordance with IFRS 5, Verallia (including Verallia North America) is shown within "Net income from discontinued operations" in the 2014 and 2015 income statement, including capital gains on the sale of Verallia North America in 2014 and on Verallia in 2015.

Key consolidated data are shown below:

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 at December 31 (558,607,521 shares in 2015 versus 560,385,966 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.

Consolidated sales advanced 3.3%. Exchange rates had a positive 3.0% impact on sales, mainly due to gains in the US dollar and pound sterling against the euro. The positive currency impact was less in the second half (+1.4%), in particular as Latin American currencies weakened sharply against the euro. After reclassification of the Packaging business, divestments (mainly in Building Distribution) and bolt-on acquisitions (particularly in the US and in emerging markets) had an offsetting impact, resulting in a negative Group structure impact of 0.1%. Like-for-like (comparable Group structure and exchange rates), sales inched up 0.4% with slack volumes.

Despite the lack of volume growth, operating income was up 4.5%, or 2.2% like-for-like, representing 6.7% of sales versus 6.6% of sales in 2014.

EBITDA (operating income plus operating depreciation and amortization) advanced 3.6% to €3,844 million, or 9.7% of sales.

Despite lower restructuring charges, non-operating costs increased to €344 million from €183 million in 2014, owing to the write-back of the provision linked to the reduction in the automotive Flat Glass fine in 2014. Non-operating costs also include a €90 million accrual to the provision for asbestos-related litigation involving CertainTeed in the US, unchanged from 2014.

The net balance of capital gains and losses on disposals, asset write-downs and corporate acquisition fees was a negative €998 million, versus a negative €759 million in 2014. In accordance with IFRS 5, these figures do not include capital gains on the disposal of Verallia North America in 2014 (€375 million) and Verallia in 2015 (€811 million). In 2015, this caption includes €65 million in losses on asset disposals, chiefly in Building Distribution, along with €933 million in asset write-downs before the tax reversal, or €712 million net of tax: namely €300 million net of tax booked against Lapeyre (Building Distribution) in France and write-downs in Flat Glass, Pipe and proppants. Business income was therefore 18.1% down on the previous year.

Net financial expense improved, at €629 million versus €663 million in 2014, reflecting the fall in the cost of gross debt to 3.9% at December 31, 2015 from 4.2% at end-2014, and lower gross debt over the last two months.

The tax rate on recurring net income was 29% compared to 32% in 2014, in line with the decrease in the tax rate in certain countries and a positive geographical mix. Income tax expense fell from €398 million to €248 million, reduced by reversals of deferred tax liabilities linked to intangible asset write-downs.

Recurring net income (excluding capital gains and losses, asset write-downs and material non-recurring provisions) jumped 19.7% to €1,165 million.

Net income from discontinued operations totaled €929 million in 2015 including the capital gain on the sale of Verallia, compared to €481 million in 2014 which also included the reclassified capital gain on the Verallia North America sale.

Net attributable income including net income from discontinued operations surged 35.9% at €1,295 million.

Capital expenditure amounted to €1,346 million, in line with forecasts, and represented 3.4% of sales (3.2% of sales in 2014).

Cash flow from operations rose to €2,562 million (€2,225 million in 2014). Before the tax impact of capital gains and losses on disposals, asset write-downs and material non-recurring provisions, cash flow from operations advanced 8.5% to €2,321 million.

Despite the increase in capex, free cash flow (cash flow from operations less capital expenditure) was up 21.3% to €1,216 million. Before the tax impact of capital gains and losses on disposals, asset write-downs and material non-recurring provisions, free cash flow stood 6.4% higher year-on-year, at €975 million, or 2.5% of sales (2.4% of sales in 2014).

Operating working capital requirements (WCR) continued to improve in value terms (down €172 million to €2,835 million), representing a record low of 26 days' sales (27 days at constant exchange rates) and reflecting the Group's ongoing efforts to maintain strict cash discipline.

Investments in securities represented €227 million (€95 million in 2014) and correspond to small-scale acquisitions aligned with the Group's strategic focuses, chiefly within the Construction Products and High-Performance Materials businesses.

As a result of the Verallia sale and sound financial management, net debt fell to €4.8 billion from €7.2 billion at end-2014. Net debt represents 25% of consolidated equity, compared to 39% at December 31, 2014.

The net debt to EBITDA ratio came out at 1.2 versus 1.8 at end-2014.

Update on asbestos claims in the US

Some 3,200 claims were filed against CertainTeed in 2015, fewer than the 4,000 claims filed in 2014. At the same time, around 4,600 claims were settled (versus 6,500 in 2014), bringing the total number of outstanding claims to around 35,600 at December 31, 2015, a decrease of around 1,400 compared to end-2014.

A total of USD 65 million in indemnity payments were made in the 12 months to December 31, 2015, versus USD 68 million in 2014. In light of these trends and of the €90 million provision accrual in 2015, the total provision for CertainTeed's asbestos-related claims amounted to USD 581 million at December 31, 2015 compared to USD 571 million at December 31, 2014.

Share buyback and dividend

In line with its objectives, the Group bought back 13,863,858 shares for €545 million during the year. This exceeds the number of shares created in connection with the Group Savings Plan, stock option plans, bonus share plans and the stock dividend payment.

At today's meeting, Compagnie de Saint-Gobain's Board of Directors decided to recommend to the June 2, 2016 Shareholders' Meeting a return to a full cash dividend policy, with the dividend stable at €1.24 per share. This represents 59% of recurring net income, and a dividend yield of 3.1% based on the closing share price at December 31, 2015 (€39.85). The ex-date has been set at June 6 and the dividend will be paid on June 8, 2016.

2016 strategic priorities

The Group will pursue its internal optimization efforts and its acquisitions and divestments strategy. This will allow it to improve the Group's growth potential by focusing on high value-added and less capital-intensive businesses and on activities outside Western Europe.

Saint-Gobain is pursuing its plan to acquire a controlling interest in Sika. During 2015 it obtained the antitrust authorities' unconditional approval for the transaction and various legal decisions were handed down in favor of the deal's completion. The last obstacle remains the limitation of the voting rights of the SWH holding company, on which a decision in first instance is expected from the Zug court in summer 2016.

A new €800 million cost-cutting program for 2016-2018 will be launched as part of ongoing cost savings initiatives. This program will focus more extensively on operational excellence and purchasing, and will include new initiatives in terms of logistics optimization, sales excellence and the digital transformation of industrial plants.

The digital shift remains an important focus. Thanks to its presence at several levels of the value chain (production and distribution), Saint-Gobain is particularly well placed to leverage the opportunities resulting from the digital transformation of its markets.

Saint-Gobain has reaffirmed its commitment to fighting climate change by introducing an internal carbon price which will be factored into all assessments of future investments. Climate change represents both a major challenge for society and a growth opportunity for Saint-Gobain's products.

2016 outlook

In 2016 the Group should benefit from more vibrant trading in Western Europe, with France stabilizing. North America should continue to see slight growth on construction markets but is expected to face a more uncertain outlook in industry. Our operations in Asia and emerging countries should deliver satisfactory growth overall, albeit affected by the slowdown in Brazil.

Saint-Gobain will continue to keep a close watch on cash management and financial strength. In particular, it will:

- keep its priority focus on sales prices in a still deflationary environment;

- unlock additional savings of around €250 million (calculated on the 2015 cost base) thanks to its ongoing cost-cutting program;

- pursue a capital expenditure program (around €1,400 million) focused primarily on growth capex outside Western Europe;

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

- keep its priority focus on high free cash flow generation.

In line with its strategy, Saint-Gobain is confidently pursuing its plan to acquire a controlling interest in Sika.

In a still very volatile macroeconomic environment, we will continue to adapt in 2016 and are targeting a further like-for-like improvement in operating income.

Financial calendar

- Sales for the first quarter of 2016: April 27, 2016, after close of trading on the Paris Bourse.

- First-half 2016 results: July 28, 2016, after close of trading on the Paris Bourse.

An information meeting will be held at 8:30am (GMT+1) on February 26, 2016 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 any further information, please visit www.saint-gobain.com.

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