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Saint-Gobain: 2013 Results; Sharp upswing in operating income in the second half

February 20, 2014



ENP Newswire - 20 February 2014

Release date- 19022014 - Saint-Gobain: 2013 Results; Sharp upswing in operating income in the second half.

PARIS:

Highlights

Organic growth at -0.3% but +2.6% in H2

Strong negative currency impact of 2.7% on sales and 3.8% on operating income

Sharp 9.9% year-on-year upswing in operating income in H2 2013

Steep increase in free cash flow[2]over the year: up 40.8% to EUR1,157 million

Stronger balance sheet: net debt down almost EUR1 billion

2013 dividend: stable at EUR1.24, 50% payable in cash, and 50% in cash or in shares at shareholders' discretion

PARIS, February 19, 2014 /PRNewswire/ --

Organic growth at -0.3% but +2.6% in H2

Strong negative currency impact of 2.7% on sales and 3.8% on operating income

Sharp 9.9% year-on-year upswing in operating income in H2 2013

Steep increase in free cash flow[2]over the year: up 40.8% to EUR1,157 million

Stronger balance sheet: net debt down almost EUR1 billion

2013 dividend: stable at EUR1.24, 50% payable in cash, and 50% in cash or in shares at shareholders' discretion

(EURm) 2012* 2013 Change* Change* (2012 constant exchange rates)

Sales 43,198 42,025 -2.7% 0.0%

EBITDA 4,413 4,189 -5.1% -1.7%

Operating income 2,863 2,764 -3.5% +0.4%

Recurring[1] 1,053 1,027 -2.5% +2.4% net income Net income 693 595 -14.1% -6.9%

Free cash flow[2] 822 1,157 +40.8% +45.3%



Pierre-Andre de Chalendar, Chairman and Chief Executive Officer of Saint-Gobain, said:

'2013 confirmed our expectations of a recovery in operating income in the second half, powered by the upturn in certain Western European countries, particularly the UK and Germany, along with a brighter picture in Asia and emerging countries. Amid signs of an improvement in the macroeconomic climate, we continued to cut costs while successfully maintaining our price-focused policy.

'In 2014, trends for our different markets should improve even though the climate is likely to remain uncertain, and we expect a clear like-for-like improvement in operating income.'

Figures restated to reflect the impacts of the amended IAS 19.

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

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

Operating performance

After a tough first half penalized by fewer working days and poor weather conditions, the Group reported organic growth of 2.6% for the six months to December 31, 2013, with volumes up 1.5% and prices gaining 1.1%, as third-quarter trends continued in the last three months of the year.

Sales stabilized over the year as a whole, down 0.3% on a like-for-like basis with a solid 1.0% increase in sales prices despite a less inflationary environment. On a reported basis, sales retreated 2.7% due to the negative 2.7% currency impact. Changes in Group structure had a slightly positive 0.3% impact.

All of the Group's Business Sectors and Divisions reported an improvement in second-half trading, driven by more upbeat trends in their Western European markets (0.9% organic growth), as well as in Asia and emerging countries (10.4% organic growth). The upturn in North America was held in check by the decline in businesses linked to capital spending and by volatility in Exterior Products.

Despite the decline in sales, the Group's operating margin in 2013 held firm at 6.6% and rose to 7.1% in the second half.

The Group's focus on its action plan priorities continues to pay off:

an increase in sales prices in line with objectives;

additional cost savings of EUR600 million in 2013 compared to 2012, particularly in Flat Glass, which saw its margin improve to 4.0% versus 2.0% in second-half 2012;

a EUR400 million reduction in capex thanks to optimized timing of expenditures and to unit cost savings, while maintaining a strong focus on growth capex outside Western Europe;

a selective acquisitions and divestments policy;

a stronger balance sheet, with net debt down almost EUR1 billion thanks to an ongoing tight rein on cash.

Performance of Group Business Sectors

Innovative Materials sales were down just 0.7% in the year on a like-for-like basis, thanks to 1.5% growth in the second half. The operating margin was 7.3%, and came in at 7.8% in the second half compared to 6.9% in second-half 2012 and 6.7% in first-half 2013, spurred by upbeat trends in Flat Glass.

Like-for-like, Flat Glass sales moved up 0.8%, jumping 2.8% in the second half. In the six months to December 31, construction markets remained fragile in Western Europe (with prices for commodity products - float glass - stabilizing), but proved bullish in Asia and emerging countries. Automotive glass sales confirmed a double-digit rise over the year in Asia and emerging countries and stabilized over the second half in Western Europe.

Buoyed by increased cost cutting efforts, the operating margin reached 2.8% of sales in 2013, coming in at 4.0% in the second half and 1.5% in the first.

High-Performance Materials (HPM) like-for-like sales retreated 2.6%, hit by the downturn in businesses linked to capital spending (Ceramics). The other HPM businesses (Abrasives, Plastics, Textile Solutions) delivered organic growth on the back of a trading upswing in the second half and a good performance in Asia and emerging countries.

The operating margin came out at a solid 12.7% despite a sharp drop in Ceramics, thanks to stability or to improvements in other HPM businesses. Compared to the two previous six-month periods, the operating margin stabilized.

Like-for-like sales for the Construction Products (CP) Sector climbed 1.9%, rallying 5.6% in the second half. The operating margin widened to 8.7% from 8.3% in 2012.

Interior Solutions delivered 3.4% organic growth. The US saw volumes accelerate in the second half and maintained a significant price increase. Growth in Asia and emerging countries remained brisk over the year as a whole, while Western Europe was almost flat after a very tough start to the year.

The operating margin stabilized at 8.1%, coming in at 8.6% for the second half, up sharply on the two previous six-month periods (7.6% in first-half 2013 and 7.9% in second-half 2012).

Exterior Solutions reported 0.5% organic growth, with trading down 4.1% in the first half but up 5.4% in the six months to December 31, fuelled by a rebound in all of its businesses. Exterior Products in the US stabilized in the second half, after having been hit in the first six months of the year by temporary destocking by distributors. As expected, Pipe reported double-digit organic growth in the second half, powered by the rally in the Export business. Industrial Mortars delivered further good growth in Asia and emerging countries and stabilized in Western Europe in the second half. Sales prices held firm for all Exterior Solutions businesses in 2013 in a context of decreasing raw material prices.

The operating margin rose to 9.1% of sales from 8.3% of sales in 2012, buoyed by a positive raw material and energy price-cost spread and by an upturn in Pipe volumes.

After particularly poor weather conditions took their toll on its first-half performance, Building Distribution was down 1.4% on a like-for-like basis, despite recovering 1.7% in the second half, reflecting improved trading in all regions.

The UK delivered solid growth over the year as a whole, following a sharp upturn as from April. Trading stabilized in Germany and Nordic countries as growth returned in the second half. In France, the business remained sluggish but continued to prove resilient thanks to market share gains. Southern Europe was still negative but stabilized in the second half. Shrinking markets continued to penalize the Netherlands and Eastern Europe, while outside Europe, Brazil reported further robust growth and the US improved slightly in the second half.

In line with expectations, the Business Sector's operating income improved, up to EUR423 million in second-half 2013 from EUR391 million in second-half 2012 and EUR215 million in the six months to June 30, 2013. This drove a rally in its operating margin, which widened to 4.4% in the second half from 4.0% in second-half 2012, and came out at 3.4% for 2013 as a whole.

The Business Sector continued to consolidate its leadership positions and remained focused on its selective divestments plan (Argentina, Belgium and Eastern Europe).

Packaging (Verallia) sales retreated 1.8% on a like-for-like basis, despite a 1.9% rise in sales prices. Strong momentum in Latin America failed to offset the slowdown in trading in other regions (mainly Southern Europe and to a lesser extent, the US).

Operating income includes EUR65 million as a result of applying IFRS 5 (assets and liabilities held for sale) to Verallia North America (VNA) as of January 1, 2013, since depreciation of VNA's fixed assets is no longer charged to operating income. Adjusted for this one-off item, the operating margin was in line with the previous year, at 11.0%, thereby confirming the resilience of this business.

Regarding the planned divestment of VNA, negotiations between Ardagh and the Federal Trade Commission (FTC) continue apace and the Group remains confident that the sale will be finalized before the new deadline, set at April 30, 2014.

Analysis by geographic area

Over the year as a whole and particularly in the second half, the Group's organic growth was powered by Asia and emerging countries. Profitability improved in this region, was up slightly in North America, but came under renewed pressure in Western Europe.

France posted negative 3.8% organic growth, although the pace of decline slowed in the second half to a negative 1.2%. Thanks to its exposure to renovation, the Group outperformed its markets in a challenging macroeconomic environment.

Despite a further drop in volumes, the operating margin proved resilient at 5.0%.

Other Western European countries reported a 1.2% fall in like-for-like sales for the year as a whole, but a rebound in the second half, with sales gaining 2.3%. This upturn reflects improved market conditions, especially in the UK, Germany, and to a lesser extent in Scandinavia. Trading in Southern Europe and Benelux improved, though continued to contract.

The operating margin narrowed to 4.2%, hit by a poor first-half performance at 3.1%. The operating margin rallied sharply in the second half, coming in at 5.3% compared to 4.6% in second-half 2012.

North America stabilized, posting negative organic growth of 0.3%. Despite double-digit growth in Interior Solutions fuelled by upbeat trends in construction markets and sales prices, the region was affected by a downturn in other businesses: Exterior Products declined due to lower weather-related demand and destocking, as did Ceramics, on the back of a slowdown in capital spending.

Excluding the positive one-off impact of VNA, the operating margin improved to 11.6% from 11.0% in 2012.

In Asia and emerging countries, organic growth accelerated in the second half, at 10.4%, and came in at 7.2% for the year as a whole. Latin America outperformed its underlying markets, up 12.0%. Eastern Europe and Asia reported a significant improvement in the second half, led by Poland, the Czech Republic, China and India, and posted 4.1% and 2.9% organic growth, respectively, for the year as a whole. Trading in Russia remained extremely bullish.

The operating margin jumped to 8.0% of sales versus 6.8% of sales one year earlier.

2013 consolidated financial statements

The Group's consolidated financial statements were approved and adopted by Saint-Gobain's Board of Directors at its meeting of February 19, 2014..

The comparative income statement for 2012 shown below has been restated to reflect the amendments to IAS 19 (Employee Benefits). Had the IAS 19 amendments been applied at January 1, 2012, the impacts on the financial statements for 2012 would have been the following:

an increase of EUR88 million in financial expenses (EUR62 million after tax), as a result of using a rate of return on plan assets equal to the discount rate used for employee benefit obligations (instead of the expected rate of return on plan assets);

an increase of EUR18 million in operating expenses (EUR11 million after tax), due to the impact of plan amendments;

a decrease of EUR14 million in equity at January 1, 2012 (EUR10 million after tax), following the immediate recognition of EUR8 million in past service costs.

The impact of all these adjustments would be a EUR32 million decrease in equity (EUR21 million after tax) at December 31, 2012, and EUR62 million in movements in actuarial gains and losses (income and expenses recognized directly in equity).

Key consolidated data : refer full press release at

http://www.saint-gobain.com/files/Resultats2013_VAt.pdf


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Source: ENP Newswire


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