Saint-Gobain: first half profits down, fall in 2003 profits expected

French glass to building materials conglomerate Saint-Gobain posted a 5.6% fall in profit for the first semester on 24 July 2003, hit by the rise of the euro against the dollar and higher raw material…

French glass to building materials conglomerate Saint-Gobain posted a 5.6% fall in profit for the first semester on 24 July 2003, hit by the rise of the euro against the dollar and higher raw material costs, and forecast a fall in 2003 profit. The company also confirmed it was negotiating the sale of its Terreal roof tile arm to U.S. private equity firm Carlyle. The chief financial officer indicated that if the U.S. asbestos compensation bill is passed the dollar provison for asbestos liability would be hundreds of millions rather than billions. Saint-Gobain said it made EUR 470 million (USD 538.8 million) in net profit for the half-year to the end of June 2003, down from EUR 498 million for the same period 2002. Operating profit fell 8.1% to EUR 1.187 billion from EUR 1.29 billion, while sales fell 4.6% to EUR 14.65 billion. As with French rival Lafarge, which reported a 12% decline in half-year sales, a weaker dollar was to blame for Saint-Gobain“s activities during the period. As expected, Saint-Gobain also took a charge of EUR 50 million, and the same as that of 2002, against legal action in the United States against cancer-linked asbestos claims. The uncertain economic outlook is also adversely affecting construction-related firms and those that depend on cyclical variations in spending and investment. The rise of the euro against the dollar meant that 2003 net and operating profit were likely to come down from 2002, the company said. At constant exchange rates, Saint-Gobain aimed for a slight rise in operating profit. Analysts expected Saint-Gobain to earn EUR 471 million and make operating profit of EUR 1.192 billion on sales of EUR 14.838 billion. “The economic situation in 2003 is more difficult than initially expected at the beginning of the year with a strong appreciation of the euro against other currencies,” Chairman and CEO Jean-Louis Beffa said before assembled members of the press. He said while new U.S. construction activities should remain solid, he expected no recovery in industrial investments. In Europe, he said new construction business remained stable compared with that of 2002 with modest growth in renovations, although difficulties remained in Germany. Saint-Gobain also said its Certain Teed unit in the United States was the object of 48,000 new asbestos-linked claims during the first half of 2003. Just over half of these were from the state of Mississippi and were filed before a new law favoring defendants came into force on 1 January 2003. Saint-Gobain CFO Philippe Crouzet told reporters the company was reasonably optimistic a U.S. asbestos compensation bill would be passed. As for the Terreal deal, Crouzet said it might be completed in October 2003 but declined to name a price for the unit which makes annual sales of EUR 320 million. Saint-Gobain has risen sharply in recent months, outperforming the pan-European construction sector by 9% since the start of 2003 on hopes of the passage into law of a U.S. bill to create a trust to fund asbestos liability claims and take asbestos lawsuits out of the court system.