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Against the backdrop of an unprecedented economic and financial crisis affecting virtually all sectors and countries across the globe, trading for Saint-Gobain was sluggish throughout 2009 in most of its businesses and geographic areas. Net sales for 2009 decreased by 13.7% to €37.8 billion (approximately $51.2 billion). 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 Group’s cost-cutting program.
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% vs. 5.0% in the first half.
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 vs. 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% vs. 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, along with 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% vs. 9.1% in the six months to June 30).
Owing to a more favorable basis for comparison (particularly in the UK and U.S.), the like-for-like decline in Interior Solutions sales was smaller in the second half of 2009 compared to the first (down 14.8% vs. 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% vs. 8.1%, with the increase picking up pace in the second half (12.5% vs. 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 U.S. 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.
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% vs. 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 a significant improvement in the region’s operating margin, up to 5.6% of sales compared with 3.2% in the first half.
North America was 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% vs. 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% vs. 13.5%), while the operating margin almost doubled to 8.5%, from 4.5% in the six months to June 30, 2009.
All goals of the Group’s crisis action plan were accomplished 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.
The Group implemented and extended the cost-cutting program across all of its businesses. Additional cost savings of €1.1 billion (~ $1.5 billion) were unlocked over the year compared with 2008. This brings total cost savings realized in 2008 and 2009 to €1.5 billion (~ $2.0 billion).
Acquisitions were also significantly curbed. At €204 million (~ $276 million), financial investments in 2009 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.
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. 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 the 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 it will pursue its 2009 action plan priorities with a highly selective approach.
Accordingly, Saint-Gobain will continue to give priority to sales prices and implement cost-cutting measures, targeting an additional €200 million (~ $272.5 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 (~ $541.9 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 (~ $812.8 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 (~ $2.8 billion) in 2010 compared to 2007.
The Group’s targets for 2010 therefore include strong growth in operating income at constant exchange rates (2009 exchange rates); free cash flow of above €1 billion (~ $1.4 billion); and a persistently robust financial structure. Additional details are available at www.saint-gobain.com.