Saint Gobain Or Regulatory News (COD)

RNS Number : 7177H

Compagnie de Saint-Gobain

25 February 2010

 

 

 

February 25, 2010

 

 

 

	2009 ACTION PLAN: AHEAD OF TARGETS
	> Sales prices: +0.8% over the year.   > Cost savings over the year: €1,100m.   > Second-half operating income and recurring net income well above the first half: respectively, +38% and +94%.   > Free cash flow¹ for the year above €1bn (€1,019m), and reduction of €1.4bn in working capital requirements (WCR).   > Sharp reduction in capex: -€900m and tight rein on acquisitions, down to €204m.   > Balance sheet strengthened: €3.1bn of net debt paid down; gearing ratio cut to 53% of equity.
	2009 DIVIDEND UNCHANGED AT €1 PER SHARE
	2010 TARGET: STRONG GROWTH IN OPERATING INCOME (AT CONSTANT EXCHANGE RATES²)
		2009 KEY FIGURES (€m)	FY 2009	H1 2009	H2 2009	Change H2/H1
		Net sales	37,786 (-13.7%)	18,715	19,071	+1.9%
		Operating income	2,216 (-39.3%)	930	1,286	+38%
		Recurring net income³	617 (-67.8%)	210	407	+94%
		1. Excluding the tax effect of capital gains and losses on disposals, exceptional asset write-downs and material non-recurring provisions. 2. Exchange rates for 2009. 3. Excluding capital gains and losses on disposals, asset write-downs and material non-recurring provisions.

Operating performance

 

Against the backdrop of an unprecedented economic and financial crisis affecting virtually all sectors and countries across the globe, trading for the Group was sluggish throughout 2009 in most of its businesses and geographic areas.However, there was a relative improvement over the second half of the year compared with the first half, in terms of both like-for-like growth and profitability. Gains in profitability were chiefly attributable to the cost cutting program implemented. The Group therefore considers that business bottomed out overall in 2009. Nevertheless, the global economic climate remained very challenging in the second half of the year. Only Asian and Latin American countries saw a significant pick-up in trading between the first and second half of the year (around 20%), and have now put the crisis behind them. While trading in both Western and Eastern Europe along with North America seems to have stabilized overall at a low level (particularly in Construction), certain industries such as the automotive sector saw an improvement in the second half of the year. Household consumption, in turn, remained relatively less affected by the downturn in the economic climate in 2009.

 

The Group as a whole reported a 13.2% decline in like-for-like sales for 2009 (-15.5% in the first half and -10.8% in the second). This decline is due to a sharp 14.0% fall in sales volumes over the year (-17.2% in the first half and -10.6% in the second). Sales prices, in contrast, held firm over the year in all business sectors except Flat Glass, allowing the Group to benefit from a positive spread between prices and the cost of raw materials and energy. However, prices slipped 0.2% in the second half of the year after a rise of 1.7% in the six months to June 30, due mainly to a strong performance in the comparative period. The cost savings realized by the Group drove a significant rise in its operating margin in the second half of the year, up to 6.7% versus 5.0% in the first half.

 

1°) Performance of Group business sectors

 

All of the Group's business sectors with the exception of Packaging were hit by a sharp decline in sales volumes and profitability over the year, although there was a relative improvement in the second half compared with the six months to June 30.

 

After being the hardest hit by the economic crisis in the first half of 2009, Innovative Materials staged the strongest recovery in the second half of the year, in terms of both sales and profitability, lifting the sector's operating margin from 2.7% in the first half to 6.7% in the following six months.

 

·; Flat Glass posted a strong like-for-like advance in sales in the second half of the year compared with the six months to June 30, powered by a sharp upturn in sales volumes in Asia and Latin America, and in Automotive Flat Glass across the globe, as well as a steep rise in the price of commodity products (float glass) in Europe during the second half of the year. Buoyed by the impact of the cost cutting program launched in 2009 and by the fall in the cost of raw materials and energy, the operating margin for the second half jumped to 6.0% of sales, versus 0.6% of sales in the first half of 2009.

 

·; High-Performance Materials (HPM) also saw like-for-like trading rally between the first and second six months of the year. This reflects the upturn in Asian and Latin American economies, and more generally, the recovery of some HPM markets linked to industrial output. HPM reported a significant improvement in its operating margin over the second half of the year, up to 7.8% versus 5.5% in the first half, boosted by the cost savings achieved and upbeat sales prices amid falling raw materials and energy costs.

 

Trading in the Construction Products (CP) Business Sector stabilized over the second half of 2009 compared with the first half, both for the sector as a whole and for each of its businesses. The restructuring measures carried out and a positive price impact in Exterior Solutions throughout the year pushed the sector's operating margin up to 9.5% in 2009 from 8.9%, with the increase gathering pace in the second half of the year (9.9% versus 9.1% in the six months to June 30).

 

·; Owing to a more favorable basis for comparison (particularly in the UK and US), the like-for-like decline in Interior Solutions sales was smaller in the second half of 2009 compared to the first (down 14.8% versus 19.5%). The operating margin crept up slightly in the second half, to 6.9% compared with 6.7% for the previous six months, as the cost savings achieved were partly offset by the erosion in sales prices in the six months to December 31, 2009.

 

·; Exterior Solutions also saw a relative improvement in sales volumes in the second half of the year compared to the first six months, chiefly in North America, Asia and emerging countries. Over the year as a whole and in the six months to December 31, the sector's profitability also continued to benefit from a favorable price effect (despite a much higher basis for comparison in the second half of the year compared with the first six months) and from the positive impact of the restructuring measures carried out. Consequently, its operating margin rose significantly over the year, up to 11.8% versus 8.1%, with the increase picking up pace in the second half (12.5% versus 11.2% in the six months to June 30).

 

Building Distribution also saw a slight improvement in trading in the second half of the year compared with the first, with sales declining only 9.9% after 14.5% in the first half. While the UK and Spain remained the hardest hit by the economic crisis, their performance now benefits from a weaker comparative period (second-half 2008). Germany and Scandinavia continued to hold up well in the second half of the year. Most other European countries and the United States reported a slight slowdown in the pace of decline compared with the first half. Upbeat sales margins and especially the restructuring measures carried out helped drive a significant improvement in the sector's operating margin, up to 3.4% in the second half of the year from 1.4% in the first half.

 

Packaging continued to turn in a solid performance despite the crisis, with sales and operating income for the year virtually unchanged from 2008. However, its like-for-like trading slipped 3.8%, as the positive momentum in sales prices failed to fully offset the decline in sales volumes in Europe. The operating margin for the sector improved slightly on 2008, up to 12.7% compared with 12.5% previously.

 

2°) Analysis by geographic area

 

All of the geographic areas where the Group operates were affected by the economic crisis throughout 2009. However, there was a relative improvement in the second half of the year compared with the first half, fueled mainly by the recovery of certain industrial markets. The pace of the decline in like-for-like sales slowed and operating margins improved significantly. After a sharp upturn in activity between the first and second six months of the year, Latin America and Asia in particular have now put the crisis behind them, with fourth-quarter trading for these regions on a par with their performance in the three months to December 31, 2008.

 

- In France, trading remained sluggish in the second half of the year, dampened by lackluster activity in construction and industrial markets. However, the operating margin for the region improved, up to 5.6% in the second half of 2009 from 5.4% in the six months to June 30.

 

- Other Western European countries benefited from a noticeable uptrend in the second half of the year, with negative organic growth coming in at 11.4% versus negative growth of 19.5% in the six months to June 30. This was due chiefly to second-half trading advances across Germany (particularly in industry) and Scandinavia compared with the first half, as well as a more favorable basis for comparison in the UK and Spain. Combined with the impact in the second half of the year of cost savings achieved since the onset of the crisis, this performance sparked asignificant improvement in the region's operating margin, up to 5.6% of sales compared with 3.2% in the first half.

 

- North Americawas affected by the continuing decline in construction coupled with the collapse in industrial markets over the first half of the year. Like-for-like sales retreated 14.5% over the year. The decline was smaller in the second half due to a slowdown in the decrease in volumes. Over the year as a whole, the operating margin rose sharply to 8.9% from 5.1% in 2008, on the back of the restructuring measures carried out and robust sales prices, with the increase gathering pace in the second half of the year (8.9% versus 8.8% in the first half).

 

- Emerging countries and Asia bounced back strongly between the first and second six months of the year, with sales rebounding 12.9% after trading picked up in Latin American and Asian economies - where like-for-like growth between the two periods came in at 18.7%. Eastern European countries are recovering more slowly, and trading remains very slack. The decline in sales for the region slowed markedly in the second half compared with the first (down 9.3% versus 13.5%), while the operating margin almost doubled to 8.5%, from 4.5% in the six months to June 30, 2009.

 

2009 consolidated financial statements

 

The Group's 2009 consolidated financial statements, and the financial statements of the Group's parent company, Compagnie de Saint-Gobain, were approved and adopted by Saint-Gobain's Board of Directors at its meeting of February 25, 2010. Key consolidated data are summarized below:

 

 

	2008	2009	% change
	€ millions	€ millions
Sales and ancillary revenue	43,800	37,786	-13.7%
Operating income	3,649	2,216	-39.3%
Operating depreciation and amortization	1,511	1,514	+0.2%
EBITDA (op. inc.+ operating depreciation and amortization)	5,160	3,730	-27.7%
Non-operating costs	(710)¹	(596)	-16.1%
Capital gains and losses on disposals and exceptional asset write-downs	(127)	(380)	+199.2%
Dividends received	3	0	n.m.
Business income	2,814	1,240	-55.9%
Net financial expense	(750)	(805)	+7.3%
Income tax	(638)	(196)	-69.3%
Share in net income of associates	11	2	n.m.
Income before minority interests	1,437	241	-83.2%
Minority interests	(59)	(39)	-33.9%
Recurring net income2	1,914	617	-67.8%
Recurring2 earnings per share3 (in €)	5.00	1.20	-76.0%
Net income	1,378	202	-85.3%
Earnings per share3 (in €)	3.60	0.39	-89.2%
Cash flow from operations4	3,524	2,303	-34.6%
Cash flow from operations excluding capital gains tax5	3,487	2,268	-35.0%
Capital expenditure	2,149	1,249	-41.9%
Free cash flow (excluding capital gains tax)5	1,338	1,019	-23.8%
Investments in securities	2,358	204	-91.3%
Net debt	11,679	8,554	-26.8%

 

1 Including the €400 million provision for Flat Glass fines.

 

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

 

3 Calculated based on the number of shares outstanding at December 31 (512,931,016 shares in 2009 versus 382,571,985 in 2008). Based on the weighted average number of shares outstanding (473,244,410 shares in 2009 versus 374,998,085 in 2008), recurring earnings per share comes out at €1.30 (versus €5.10 in 2008), and earnings per share comes out at €0.43 (versus €3.67 in 2008).

 

4 Excluding material non-recurring provisions.

 

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

 

 

 

Sales declined 13.7%. The positive 0.9% impact of changes in the scope of consolidation was offset by a negative 1.4% currency impact, reflecting a decline in the pound sterling and Brazilian real against the euro. Like-for-like (comparable Group structure and exchange rates), consolidated sales fell 13.2%: sales volumes retreated 14.0%, while prices remained upbeat, gaining 0.8%.

 

Operating income shed 39.3%. The Group's operating margin came in at 5.9% of sales (8.4% excluding Building Distribution), versus 8.3% (11.0% excluding Building Distribution) in 2008.

In line with the target set by the Group, second-half operating income outperformed operating income for the six months to June 30, 2009, up by 38% to €1,286 million from €930 million. This essentially reflects the impact of cost savings achieved by the Group.

As a result, the second-half operating margin was up significantly on the margin for the first six months of 2009 (6.7% versus 5.0%), but remained slightly down on the margin for second-half 2008 (6.7% versus 7.6%).

EBITDA (operating income + operating depreciation and amortization) fell 27.7%. The consolidated EBITDA margin came in at 9.9% of sales (14.1% excluding Building Distribution), compared with 11.9% of sales (15.8% excluding Building Distribution) in 2008. The consolidated EBITDA margin in the second half of 2009 was close to its level of second-half 2008 (10.7% versus 11.0%), thanks to the cost cutting program.

 

Non-operating costs came in at €596 million (€310 million in 2008, excluding €400 million in provisions for Flat Glass fines). The rise in non-operating costs reflects the acceleration in restructuring measures and other adjustments made in response to the crisis, which represented costs of €435 million in 2009 versus €190 million in 2008. Accruals to the provision set aside for asbestos-related litigation involving CertainTeed in the United States totaled €75 million in 2009, as in 2008.

 

The net balance of capital gains and losses on disposals and exceptional asset write-downs was a negative €380 million, including €348 million in exceptional asset write-downs. This amount includes €215 million for the write-down of a portion of the goodwill relating to the Gypsum business in the United States. The balance primarily reflects write-downs of assets linked to restructuring measures and site closures initiated during the period.

 

Business income tumbled 55.9% after taking into account the items mentioned above (non-operating costs, capital gains/losses on disposals and exceptional asset write-downs).

 

Net financial expense edged up to €805 million from €750 million in 2008, mainly reflecting the rise in the interest cost of pensions (up €105 million on 2008), while net borrowing costs were down 12%. The average cost of net debt came out at 5.5%, on a par with 2008.

 

Recurring net income (excluding capital gains and losses, exceptional asset write-downs and material non-recurring provisions) shed 67.8% year-on-year to €617 million. Based on the number of shares outstanding at December 31, 2009 (512,931,016 shares versus 382,571,985 shares at December 31, 2008), recurring earnings per share came out at €1.20, down 76.0% on 2008 (€5.00). Recurring net income almost doubled in the second half of the year compared with the first, up 94% to €407 million from €210 million, comfortably meeting the target set by the Group (second-half recurring net income to outperform recurring net income for the first half).

 

Net income came in at €202 million, down 85.3% year-on-year. Based on the number of shares outstanding at December 31, 2009 (512,931,016 shares versus 382,571,985 shares at December 31, 2008), earnings per share came out at €0.39, down 89.2% on 2008 (€3.60).

 

Capital expenditure was scaled back 41.9% to €1,249 million (versus €2,149 million in 2008), and represented 3.3% of sales (4.9% in 2008). The bulk of these investments (55%) focused on markets linked to energy efficiency (Flat Glass - including Solar Power - and Construction Products), and on selective growth projects in emerging countries (e.g., new float-line in Egypt and plasterboard plant in Abu Dhabi).

 

Cash flow from operations totaled €2,303 million, down 35% on 2008. Before the tax impact of capital gains and losses on disposals and asset write-downs, cash flow from operations was €2,268 million versus €3,487 million in 2008, also down 35%.

 

Free cash flow (cash flow from operations less capital expenditure) fell 23.3% and 23.8% before the tax impact of capital gains and losses on disposals and asset write-downs, but in both cases was ahead of the Group's €1 billion target, at €1,054 million and €1,019 million, respectively, or 2.8% and 2.7% of sales. In second-half 2009 alone, free cash flow came out at €469 million (before the tax impact of capital gains and losses on disposals and asset write-downs), up 45% on second-half 2008. This represents the Group's highest second-half free cash flow in the last five years, and reflects the critical importance of cash flow management to the Group.

 

The difference between EBITDA and capital expenditure fell 18% over the year, to €2,481 million compared with €3,011 million in 2008, representing 6.6% of sales (6.9% in 2008). However, this indicator improved significantly in the second half, compared to both the first half of the year (up 12%), and especially the second half of 2008 (up 15%).

 

After six years of continuous improvements, operating working capital requirements (WCR) were slashed once again, down to 31 days' sales at December 31, 2009 from 38 days' sales at end-2008, representing a cash gain of €1.4 billion over the year.

 

Investments in securities totaled €204 million (down 91.3% on 2008), and chiefly resulted from acquisitions carried out in 2008 but only completed in 2009. Of this amount, €86 million concerned energy efficiency (solar power and thermal insulation), and €70 million related to Asia and emerging countries.

 

Net debt came in at €8.6 billion at December 31, 2009, down €3.1 billion, or 26.8%, on December 31, 2008 (€11.7 billion). This reflects improvements in operating working capital requirements and a steep reduction in capital expenditure, as well as the rights issue carried out at the beginning of the year. Net debt represents 53% of shareholders' equity, compared with 80% at December 31, 2008. The net debt to EBITDA ratio came out at 2.3X, stable compared with end-December 2008.

 

 

Update on asbestos claims in the US

 

Some 4,000 claims were filed against CertainTeed in 2009, compared with 5,000 in 2008. Over the year, 8,000 claims were settled (as in 2008), bringing the total number of outstanding claims to 64,000 at December 31, 2009, versus 68,000 at December 31, 2008.

A total of USD 77 million in indemnity payments were made over the 12 months to December 31, 2009, versus USD 71 million in the year to December 31, 2008.

 

In light of these trends, an additional provision of €75 million was recorded in 2009 (the same euro amount as in 2008), bringing the coverage for CertainTeed's asbestos-related claims to around USD 500 million at December 31, 2009 versus USD 502 million at December 31, 2008.

 

 

Crisis action plan:all goals of the action plan unveiled at the beginning of the year and stepped up in July accomplished

 

Against the backdrop of an unprecedented economic crisis, the Group resolutely implemented its action plan, which was stepped up in the second half of the year.

 

In 2009, Saint-Gobain:

 

·; continued to give clear operating priority to sales prices, which inched up 0.8% over the year despite the downward trend in inflation. The spread between sales prices and raw materials and energy costs therefore had a very positive impact throughout the year, due mainly to the rise in sales prices in the first half and to the fall in raw materials and energy costs in the six months to December 31.

 

·; implemented and extended the cost cutting program across all of its businesses:

 

- €1.1 billion in additional cost savings were unlocked over the year compared with 2008 (versus an initial goal of €600 million, raised to €700 million in April and €1.1 billion in July). This brings total cost savings realized in 2008 and 2009 to €1.5 billion.

 

·; continued to optimize free cash flow generation, by:

 

- generating €1 billion in free cash flow despite the spike in restructuring costs, thus meeting the objective set at the beginning of 2009;

- maintaining a tight rein on working capital requirements (WCR), which fell by €1.4 billion (a reduction of 7 days' sales) in 2009;

- slashing capital expenditure, which dropped €900 million over the year compared with an initial target reduction of €500 million, increased to €700 million in July).

 

·; significantly curbed acquisitions: financial investments in 2009 (€204 million) were down 91% on the same year-ago period and are mainly related to the completion of acquisitions undertaken in 2008 in the energy efficiency segment (solar power and thermal insulation) as well as in Asia and emerging countries.

 

 

·; Thanks to these measures, coupled with a successful €1.5 billion rights issue and payment of 65% of the 2008 dividend in stock, the Group has paid down €3.1 billion in net debt and strengthened its balance sheet: the gearing ratio has been cut to 53% of equity versus 80% at end-December 2008, while the net debt to EBITDA ratio stabilized at 2.3X.

 

 

Outlook and objectives for 2010

 

After a particularly tough year in 2009, the Group expects the economic environment to prove somewhat better overall in 2010, but with contrasting trends across each region.

 

In Western Europe and North America, the economic mood appears fragile, and trends are expected to vary widely from one country to the next (improvement in Anglo-Saxon countries, further declines in Southern Europe). Trading conditions should remain challenging in construction markets. In contrast, the upturn in industrial markets observed in the second half of 2009 should continue, thanks to rebuilding of inventory levels. Lastly, household consumption markets should hold firm.

 

The recovery in Asia and emerging countries should gather pace in 2010, spurred by vigorous growth in Latin America and Asia, and particularly Brazil, China and India. The upswing in Eastern European countries appears slower and more subdued.

 

Against this backdrop, the Group will continue to react and adapt to developments in its markets in 2010, and will pursue its 2009 action plan priorities with a highly selective approach. Accordingly, Saint-Gobain will:

 

- continue to give priority to sales prices.

 

- continue to implement cost cutting measures, targeting an additional €200 million in cost savings, focused on countries and/or businesses with limited short-term recovery prospects as well as businesses reliant on capital expenditure.

This will come on top of the full benefits of the 2009 cost cutting measures set to boost 2010 operating income, with €400 million in cost savings in second-half 2009 carried over to first-half 2010. Therefore, total cost savings in 2010 are expected to exceed 2009 cost savings by €600 million, prompting to an upswing in earnings and operating margins. All in all, the Group's cost base will have been slashed by €2.1 billion in 2010 compared to 2007.

 

- continue to maintain strict financial discipline.

 

- finally, thanks to its robust financial structure, Saint-Gobain will be ideally placed to leverage any growth opportunities in its markets, buoyed by a highly selective and tempered investment policy (capex and investments in securities). This policy will be anchored around emerging countries, energy efficiency and solar power, which should represent more than 80% of capacity investments by the Group's industrial businesses in 2010.

 

 

 

 

In terms of dividend policy, at its meeting of February 25, Compagnie de Saint-Gobain's Board of Directors decided to recommend to the June 3, 2010 Shareholders' Meeting the same dividend amount as in 2009, i.e. €1 per share, payable in cash or in shares*, at shareholders' discretion. The dividend represents 83% of recurring EPS and 256% of EPS, and a net dividend yield of 2.6% based on the closing share price at December 31, 2009. The record date set for June 8 will be followed by a take-up period of 15 days between June 9 and June 23. The dividends will therefore be paid in cash or in shares on July 2, 2010.

 

 

*regarding stock dividends, Compagnie de Saint-Gobain's Board of Directors will recommend that the Shareholders' Meeting set the issue price for any new shares by applying a 10% discount to the average opening share price over the 20 trading days preceding the Shareholders' Meeting of June 3, 2010, less the amount of the dividend.

 

 

Forthcoming results announcement

 

- Sales for the first quarter of 2010: April 22, 2010, after close of trading on the Paris Bourse.

 

 

 

 

 

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