Paris, France - Saint-Gobain announced their second quarter and half-year sales for 2013.
Pierre-André de Chalendar, Chairman and Chief Executive Officer of Saint-Gobain, commented: "The continued upturn in US construction markets and a return to growth for our businesses in emerging countries failed to offset the general slowdown in the European economic environment, exacerbated by a negative calendar impact and very poor weather. In this tough market climate, we pressed ahead with our cost cutting efforts while successfully pursuing our price-focused policy. As announced previously, we expect trading to gradually improve in the second half, based on the trends already observed in the three months to June 30, and can therefore confirm our target of a recovery in operating income in the second half.”
Operating performance
Overall, after a particularly tough first quarter hit by both fewer working days than in the year-earlier period and by very poor weather, the second quarter saw underlying trends stabilize on the Group’s main markets in Western Europe and market conditions continue to rally in other regions. However, like-for-like, the second quarter was down a slight 1.2% on the same period in 2012, with volumes off 2.2% and prices up 1.0%. With the exception of Flat Glass – buoyed by a pick-up in growth in Asia and emerging countries – and Interior Solutions – lifted by the gradual improvement in the US construction market – all of the Group’s Business Sectors and Divisions continued to suffer from sluggish European economies, albeit far less than in the first quarter.
In this persistently tough economic climate and despite the smaller rise in raw material and energy costs, sales prices remained a key priority for the Group throughout the first half, and gained 1.0%.
Overall, due to the ground lost in the first quarter, like-for-like consolidated sales were down 3.2% in the first six months of the year, with volumes losing 4.2% and prices gaining 1.0%.
Despite profitability gains in North America and in Asia and emerging countries, the Group’s operating margin narrowed, to 6.1% in first-half 2013 compared to 7.0% for the same period in 2012 and 6.3% for second-half 2012.
The deteriorating economic environment in Western Europe led to negative organic growth for all of the Group’s Business Sectors in the six months to June 30, 2013.
Along the lines of the first quarter, Innovative Materials sales fell 2.9% on a like-for-like basis in the first half, hurt by a downturn in sales volumes, especially in Western Europe. The operating margin for the Business Sector narrowed, to 6.7% from 8.4% in first-half 2012 and 6.9% in second-half 2012.
Like-for-like, Flat Glass sales lost 1.3% over the first half, but were up 2.4% in the second quarter. In the three months to June 30, the quicker pace of recovery in Asia and emerging countries (double-digit growth) more than offset the downturn in volumes and sales prices on Western European construction markets. Automotive Flat Glass sales stabilized over the second quarter in Western Europe, after a very tough first three months. Over the first half as a whole, the price of commodity products (float glass) in Europe remained lower on average than in first-half 2012, despite the price increases implemented in the second quarter. As a result, and despite the large-scale restructuring measures rolled out, the operating margin for the Division slipped further, down to 1.5% of sales versus 2.1% of sales in first-half 2012.
High-Performance Materials (HPM) sales shed 5.1% on a like-for-like basis, reflecting the decline in businesses related to capital spending (Ceramics). HPM’s other businesses (Abrasives, Plastics, Textile Solutions) proved resilient, especially in the US and in Asia and emerging countries. The operating margin, up against a very tough basis for comparison (15.6% in first-half 2012) came in at 13.0%, an improvement on the six months to December 31, 2012 (12.7%).
Construction Products (CP) sales retreated 1.7% on a like-for-like basis, hit by the slowdown in sales in Western Europe, not wholly offset by growth in Asia and emerging countries. The operating margin narrowed slightly, to 8.5% from 8.8% in first-half 2012.
Interior Solutions reported timid 1.0% organic growth over the first half on the back of continued strong momentum in its second-quarter sales in the US. After a very difficult start to the year, the business in Western Europe leveled off at the end of the first half, while trading in Asia and emerging countries remained upbeat. Although sales prices moved up across the Division, the operating margin dropped to 7.6% from 8.7% in first-half 2012 and 7.9% in second-half 2012, squeezed by the volume downturn in Western Europe.
Exterior Solutions sales contracted 4.1% on a like-for-like basis, hit by the fall in Exterior Products sales in the US. Unlike the bullish first quarter, the three months to June 30, 2013 took an exceptional hit resulting from the large-scale destocking by our distributors. This destocking in no way reflects the underlying momentum of the US market. Pipe continued to feel the pinch of austerity measures in Europe, which the fledgling recovery in export sales has not yet been able to fully offset (the first deliveries under the USD 200 million contract with Kuwait began at the very end of the second quarter). Industrial Mortars enjoyed further vigorous growth in Asia and emerging countries, but were hit in Western Europe by the impact of the economic slowdown and poor weather conditions early in the year.
Sales prices for the Division as a whole remained upbeat over the first half. As a result, the operating margin widened, to 9.3% of sales from 8.9% of sales in first-half 2012 and 7.7% of sales in the six months to December 31, 2012.
Building Distribution sales dropped 4.6% on a like-for-like basis over the first half, hard hit by fewer working days than in the year-earlier period (1.8 days less, representing a negative impact of 1.4% on Business Sector volumes) and by very harsh weather early in the year. However, the Sector’s performance improved sharply in the second quarter, driven chiefly by a strong rebound in the UK, accelerated growth in Brazil, and stabilizing sales in Scandinavia. In France, trading continued to prove fairly resilient in a tough economic environment, with further gains in market share. Overall, sales prices remained upbeat across the Business Sector. The operating margin came out at 2.4% versus 3.9% in first-half 2012, owing chiefly to the sharp downturn in volumes in the first quarter.
Packaging (Verallia) sales slipped 2.9% on a like-for-like basis over the six months to June 30, despite a 2.1% rise in sales prices. Volumes retreated in the US and in Western Europe, and remained stable in Russia and Latin America. Operating income increased by €36 million, or 17.4%, as a result of applying IFRS 5 (assets and liabilities held for sale) to Verallia North America (VNA) as of January 1, 2013, according to which depreciation of VNA’s fixed assets (€36 million in the first half) is no longer charged to operating income. Excluding this one-off item, Verallia’s operating income would be stable, at €207 million, and its operating margin – buoyed by a positive price/cost spread – would be 11.4%, versus 10.8% in first-half 2012. Regarding the planned divestment of VNA, Ardagh and Saint-Gobain are disappointed by the complaint filed by the FTC (Federal Trade Commission) on July 2, 2013, and intend to vigorously defend the transaction in litigation, whilst at the same time working with the FTC to seek to resolve its concerns.
Analysis by geographic area
In line with the economic scenario presented by the Group in February and consistent with the first quarter’s underlying trends, trading by geographic area in the first six months of 2013 reveals a sharp contrast between Western Europe – which slowed despite some improvement towards the end of the period – and Asia and emerging countries which, on the whole, returned to growth. North America continued to enjoy strong trading momentum, fueled by the upturn in the construction market, although Exterior Products suffered the fall-out in the second quarter of its very strong start to the year.
Consequently, profitability improved in Asia and emerging countries and in North America, but declined in both France and in other Western European countries.
- France and other Western European countries saw like-for-like sales decline 6.3% and 4.8%, respectively. This downtrend reflects the very tough market conditions in the first quarter and, to a lesser extent, the general slowdown in European economies over the six months to June 30, 2013. These factors impacted all of the Group’s Business Sectors and Divisions (particularly Innovative Materials), which all reported volume declines over the period. In contrast, sales prices held up well. In the second quarter, while Southern Europe, Benelux and to a lesser extent France continued to slow (albeit far less than in the first quarter), trading stabilized in Germany and Scandinavia and picked up in the UK, spurred by the rebound in the construction market at the end of the period. The operating margin narrowed, both in France and in other Western European countries, to 4.9% and 3.1%, respectively (5.7% and 6.0%, respectively, in first-half 2012).
- North America posted a 2.0% drop in like-for-like sales, with trading down 6.6% in the second quarter after growing 3.1% in the first. The reversal in the trend is wholly due to Exterior Products which, after a very strong start to the year, suffered in the second quarter from exceptionally high destocking by building materials distributors. This destocking in no way reflects the underlying momentum of the US market. Sales prices were up sharply over the first half, buoyed by further rises implemented since the beginning of the year in Construction Products. The operating margin continued to recover, up to 13.2% from 11.6% in first-half 2012.
- After a fledgling recovery in the first quarter (up 1.5%), Asia and emerging countries saw trading pick up pace in the three months to June 30 (up 6.1%), and reported 3.9% like-for-like sales growth over the first half. This increase, which outpaced growth in the Group’s underlying markets in the region, chiefly reflects the investments made in these countries over the past few years and continues to be led primarily by Latin America, with steep gains in Flat Glass and Interior Solutions. In contrast, Asia continued to decrease in the six-month period, despite advancing 2.7% in the second quarter, while Eastern Europe stabilized as vigorous momentum in Russia and the Baltics offset difficulties in Poland and the Czech Republic. The operating margin recovered, up to 7.1% of sales versus 6.1% of sales one year earlier.
Outlook and objectives for full-year 2013
The first six months of 2013 remained tough, hit by a significantly negative calendar impact and by very poor weather early in the year, particularly in Europe. In the next few quarters, the Group expects trading to gradually improve, especially in North America and in Asia and emerging countries (regions which together represented 44% of consolidated operating income and 46% of the Group’s fixed assets in 2012):
- in North America, the residential new-build and renovation markets should continue on a steady upward trend, while industrial output should remain at a good level;
- in Asia and emerging countries, trading should continue to improve, but stark contrasts will persist from one country to the next, with robust growth in Latin America, moderate growth in India and China, and stability in Eastern Europe;
- in Western Europe, industrial markets (particularly automotive) should stabilize, while construction market trends should remain challenging on the whole, albeit with sharply contrasting patterns from one country to the next. Regulatory measures promoting energy efficiency in new and existing homes should shore up demand, however, and allow the Group to outperform its underlying markets;
- lastly, household consumption markets should remain upbeat overall.
Against this backdrop, over the next few quarters the Group will press ahead with its action plan, focusing particularly on:
- increasing its sales prices, in a context of a slower rise in raw material and energy costs;
- pursuing its cost cutting program, in order to achieve additional cost savings of €160 million in the second half compared to the first six months of 2013 (or €280 million compared to second-half 2012).
This will represent €580 million in cost savings in 2013 as a whole and €1,100 million in cumulative cost savings calculated on the 2011 cost base;
- keeping a close watch on cash management and financial strength.
Saint-Gobain will also continue to pursue its strategic goals (development in Asia and emerging countries, energy efficiency and energy markets, and consolidation in Building Distribution and Construction Products). Profitability will remain a constant focus, underpinned by strict financial discipline.
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