Saint-Gobain group expects to benefit from a more favourable climate over the coming six months to December.
“After a first quarter marked by a tough basis for comparison, second-quarter sales returned to volume growth, driven by the rebound in North America on the back of an upturn in Roofing and by good momentum in Asia, emerging countries and Western Europe except France and Germany. First-half operating income and our outlook for the rest of the year confirm our objective of a further like-for-like improvement in operating income in 2015 along with continuing high levels of free cash flow,” said Pierre-André de Chalendar, Chairman and Chief Executive Officer of Saint-Gobain.
First-half sales were up 4.8% to €19,860 million, after reclassification of the Packaging business (including Verallia North America) within “Net income from discontinued operations” in the income statement. After this restatement (IFRS 5), changes in Group structure had a negative 0.3% impact on sales. Exchange rates continued to have a strong positive impact (4.6%), chiefly driven by the US dollar and pound sterling.
On a like-for-like basis, sales edged up 0.5%. Volumes were stable over the first half and rose 1.5% in the second quarter alone. Amid low raw material cost inflation and energy cost deflation, prices continued to rise slightly, up 0.5% over the first half.
After a slight decline in the first quarter, the three months to June 30 saw growth in all regions except France and Germany. By business, the first half confirmed the upturn in Flat Glass and the expected contraction in Exterior Solutions, related mainly to price levels in the Roofing business.
The Group’s operating income climbed 7.8% on a reported basis and remained stable like-for-like versus first-half 2014 due to the absence of volume growth. Before the reclassification of the Packaging business and on a like-for-like basis, operating income moved up 1.2%. The Group’s operating margin widened 0.2 points year-on-year, to 6.4%.
Innovative Materials like-for-like sales continued to improve, up 2.6% thanks to Flat Glass. The Business Sector’s operating margin moved up to 10.2% versus 9.1% in first-half 2014. The second quarter confirmed the upbeat trends seen early in the year in Flat Glass, which posted 5.6% organic growth over the six months to June 30. Automotive Flat Glass continued to report strong gains in all regions, excluding Brazil. Construction markets remained upbeat in Asia and emerging countries, but retreated in Western Europe where prices remained stable.
Rising volumes, together with the full impact of cost savings and an improved product mix,
helped drive renewed growth in the operating margin at 7.4%.
High-Performance Materials (HPM) like-for-like sales slipped 0.8% over the first half, hit
mainly by the downturn in ceramic proppants. Other HPM businesses continued to deliver organic growth.
Despite this decline in organic growth, the operating margin came in at 13.5% versus 13.3% in the same period one year earlier.
The Group’s organic growth and margins advanced, lifted by Asia and emerging countries, and by countries in the “Other Western Europe” region.
France was hit once again by the decline in the construction market in the second quarter, reporting negative organic growth of 3.3% for the three months to June 30 and of 4.2% over the first half. The operating margin narrowed as a result, at 2.6%.
Other Western European countries, up 2.4% over the quarter, confirmed their organic
growth, which came in at 1.7% for the first half. This performance reflects good market conditions in the UK and Scandinavia and an upturn in Southern European countries. Germany, which was still slightly down in the second quarter, retreated 3.7% on the back of sluggish renovation activity. The operating margin for the region improved, at 5.4% versus 4.7% in first-half 2014.
North America posted 4.9% like-for-like sales growth in the second quarter, powered by the catch-up in Roofing volumes and to a lesser extent by Interior Solutions. Over the six-month period, the region posted negative organic growth of 2.2%, chiefly impacted by subdued Roofing prices and a slower pace of growth in industrial markets. The operating margin was therefore down, at 9.5% compared to 10.9% in first-half 2014.
Asia and emerging countries continued to deliver good organic growth, which came in at 4.8% for the first six months of the year. Latin America advanced 8.2%, with Brazil proving resilient in a tough macroeconomic environment. Eastern Europe was up 4.3%, buoyed by brisk trading in the Czech Republic, while Asia advanced 0.8%, lifted by India.
The operating margin rose to 10.0% of sales, compared to 8.8% one year earlier.
Verallia
Packaging (Verallia) sales moved up 2.1% at constant exchange rates excluding Verallia North America. Organic growth over the first half was driven by small volume gains in Europe and by rising prices in Latin America in an inflationary environment.
The operating margin came in at 9.7%.
The unaudited interim consolidated financial statements were subject to a limited review by the statutory auditors. They were approved and adopted by the Board of Directors on July 29, 2015. Following the signature of the agreement with Apollo on June 6, 2015 (involving a firm and binding offer from Apollo regarding the Packaging business and exclusive talks with Apollo) and in accordance with IFRS 5, the Packaging business (including Verallia North America) is shown within “Net income from discontinued operations” in the income statement for 2014 and 2015.
The following comments refer to the restated financial statements for 2014, after reclassification of the Packaging business (including Verallia North America) within “Net income from discontinued operations” in the income statement.
Consolidated sales advanced 4.8% on a reported basis. Exchange rates had a positive 4.6% impact on sales, mainly due to gains in the US dollar and pound sterling against the euro. Changes in Group structure had a negative 0.3% impact, primarily reflecting sales of small, non-core businesses. Like-for-like (comparable structure and exchange rates), sales were up 0.5%, lifted by the price effect.
Operating income climbed 7.8% on a reported basis, driven chiefly by the currency effect. The operating margin improved to 6.4% of sales versus 6.2% in first-half 2014, buoyed by an improved margin in Innovative Materials.
EBITDA (operating income + operating depreciation and amortization) was up 6.7%. The Group’s EBITDA margin came out at 9.5% of sales versus 9.3% of sales in first-half 2014.
Non-operating costs totaled €154 million, with a decrease in restructuring costs compared to the same period in 2014. The first-half 2014 basis for comparison (€12 million) included the €202 million write-back from the provision to reflect the reduction in the automotive Flat Glass fine. The €45 million accrual to the provision for asbestos-related litigation involving CertainTeed in the US is unchanged from the last few half-year periods.
The net balance of capital gains and losses on disposals, asset write-downs and corporate acquisition fees was a negative €41 million versus a negative €51 million in first-half 2014, which had benefited from the €375 million capital gain on the disposal of Verallia North America. Asset write-downs also represented €452 million in first-half 2014 compared to €24 million in the six months to June 30, 2015. Business income for the period fell to €1,080 million (down 3.6% on first-half 2014 which included the one-off €202 million provision write-back).
Net financial expense improved, down 2.4% to €328 million from €336 million one year earlier, reflecting the decrease in the cost of gross debt to 3.7% at June 30, 2015 (4.4% at June 30, 2014). The improvement came despite the increase in other financial expenses mainly due to the discounting of provisions with no cash impact.
The income tax rate on recurring net income remained stable at 30%. Income tax expense totaled €236 million, up from the exceptionally low €158 million in first-half 2014 resulting from asset write-downs in the period, capital gains on the disposal of Verallia North America and the write-back of the provision for the Flat Glass fine.
Recurring net income from continuing operations (excluding capital gains and losses on disposals, asset write-downs and material non-recurring provisions) jumped 25.2% to €552 million.
Net attributable income was down 16.8% to €558 million and includes net income relating to Verallia (attributable to the Group) for €65 million (€67 million in first-half 2014).
Capital expenditure totaled €457 million (€363 million in first-half 2014), representing 2.3% of sales compared to a particularly low 1.9% of sales in the same period one year earlier.
Cash flow from operations rose 14.4% to €1,195 million; before the tax impact of capital gains and losses on disposals, asset write-downs and material non-recurring provisions, cash flow from operations was up 17.3% to €1,185 million, while free cash flow (cash flow from operations less capital expenditure) advanced 12.5% to €728 million (3.7% of sales versus 3.4% of sales in first-half 2014).
The difference between EBITDA and capital expenditure improved, up 1.8% to €1,429 million (€1,404 million in the six months to June 30, 2014), representing 7.2% of sales (7.4% in first-half 2014).
Operating working capital requirements (WCR) totaled €4,448 million at June 30, 2015 (€4,888 million in the same year-ago period), representing 40.8 days’ sales, an improvement of 2.5 days year-on-year (an improvement of around 1 day excluding the impact of Verallia and exchange rates).
Investments in securities were limited, at €92 million (€48 million in first-half 2014) and correspond to small-scale acquisitions in the three business sectors.
Net debt continues to improve gradually, down 6.2% year-on-year to €8.0 billion. Net debt represents 40% of consolidated equity, compared to 46% at June 30, 2014.
The net debt to EBITDA ratio came in at 2.1 (1.9 before the reclassification of the Packaging business), compared to 2.0 at end-June 2014.
After a first half penalized by tough prior-year comparatives, the Group will benefit from a more favourable climate in the six months to December 31:
Saint-Gobain confirms its objectives and expects a further like-for-like improvement in operating income for 2015 and a continuing high level of free cash flow.