REG - Compagnie St-Gobain - Half-year Report
26/07/2024 07:00
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RNS Number : 9242X Compagnie de Saint-Gobain 25 July 2024
The worldwide leader
in light & sustainable construction
FIRST-HALF 2024 RESULTS
New record operating margin
Significant milestones in strategic repositioning
· Record operating margin of 11.7%
· Sequential improvement in volumes
· Positive price-cost spread with prices stable sequentially
· Three strategic acquisitions focused on profitable growth: CSR,
Bailey and FOSROC, together adding around €2bn to full-year sales and around
€450m in EBITDA (including €100m of synergies in year 3)
· More than 2/3 of the Group's pro forma operating income is now
generated in high-growth geographies: North America, Asia and emerging
countries
· Strong free cash flow generation of €2.5bn, with a cash conversion
ratio of 75%
· Double-digit operating margin expected for H2 and full-year 2024, for
the fourth consecutive year
Benoit Bazin, Chairman and Chief Executive Officer, commented:
"Our first-half results once again demonstrate the success of Saint-Gobain's
new profile, reflecting the Group's ability to adapt to different
macroeconomic environments and to continue to outperform. The roll-out of our
comprehensive range of sustainable and innovative solutions and the resulting
enhancement in our mix, together with our decentralized organization by
country with accountability on commercial performance and on proactive cost
management, have enabled us to deliver a new record operating margin and
strong free cash flow generation. I am very grateful for our teams' dedication
and their contribution to the Group's consistent improvement in its
performance.
Since the start of the year, Saint-Gobain has accelerated efforts to reinforce
its profitable growth profile with three landmark acquisitions in light and
sustainable construction: CSR in Australia, Bailey in Canada and FOSROC in
construction chemicals, mainly in India and the Middle East. Pro forma for
these changes in structure, more than two-thirds of Group operating income is
now generated in North America, Asia and emerging countries, areas that enjoy
strong structural growth and where Saint-Gobain is achieving an excellent
performance.
New construction markets remain difficult in Europe but are nearing a low
point and we expect trading to continue to improve in the second half. I am
confident that 2024 will be another successful year for Saint-Gobain, with a
double-digit operating margin in the second half and over the full year, for
the fourth consecutive year."
Successful strategic execution: a new profitable growth profile
The Group continues to outperform its markets thanks to the pertinence of its
strategic positioning at the heart of energy and decarbonization challenges,
and the strength of its local organization by country, offering comprehensive
solutions to its customers.
· Almost 40% of Group sales rotated since 2018, with €9.4 billion in
sales divested (EBITDA margin less than 5%) and €6.5 billion in sales
acquired (EBITDA margin of around 20%);
· Acceleration in the Group's repositioning towards North America, Asia
and emerging countries, which accounted for 67% of the Group's operating
income in the first half (pro forma for recent changes in Group structure):
35% in North America, 32% in Asia and emerging countries, and 33% in Western
Europe;
· Further strengthening of the Group's presence in construction
chemicals, with €6.2 billion in annual sales (pro forma). The acquisition
of FOSROC (closing expected in first-half 2025) will reinforce Saint-Gobain's
presence in high-growth emerging markets, particularly India and the Middle
East, and will perfectly complement the market positions of Weber, Chryso and
GCP;
· A comprehensive range of sustainable, differentiated and innovative
solutions - leveraging integrated systems and an industry-leading low-carbon
offer - broadening the range of options offered to each customer and
reinforcing the Group's mix as well as its capacity to capture a bigger part
of the value chain. Saint-Gobain has the broadest range of low-carbon
solutions in the world, particularly in terms of plasterboard (Klima), glass
(ORAÉ(®)), glass wool (LANAÉ(®)), additives and admixtures (Chryso
EnviroMix(®));
· A local organization, with 90% of CEOs native to their country,
resulting in close proximity to customers, good pricing power, strong
adaptability, efficiency gains and accountability for local teams;
· Strong operating margin growth in recent years, reaching a new
record-high in first-half 2024 despite a difficult macroeconomic environment.
Group operating performance
Like-for-like sales were down 4.9% versus first-half 2023 (an improvement of
around two percentage points in the second quarter with a decline of 3.9%,
after a decline of 5.8% in the first quarter), affected by the downturn in new
construction in Europe but supported by growth in the Americas and in
Asia-Pacific.
Group prices were down 1.0% over first-half 2024 (stable sequentially between
the first and second quarters), with a positive price-cost spread thanks to
robust pricing discipline and the reduction in certain raw material and energy
costs.
Volumes were down 3.9% over the period, representing a sequential improvement
on fourth-quarter 2023 (down 4.5%). This reflects a contrasting situation,
with a marked decline in new construction in Europe but good resilience
overall in renovation. In each local market, the Group has taken the proactive
commercial and industrial measures necessary to maintain its strong operating
performance.
On a reported basis, sales were down 6.0% to €23.5 billion, with a negative
currency impact of 0.3%. The negative Group structure impact of 0.8% resulted
from the optimization of the Group's profile, thanks to both disposals -
mainly in distribution (UK), glass processing activities, foam insulation (UK)
and railing and decking (US) - and acquisitions, mainly in construction
chemicals (Izomaks, Adfil, Menkol Industries, Drymix, Technical Finishes, IDP
Chemicals), in North America (Building Products of Canada, Bailey in Canada,
ICC in the US) and in Asia-Pacific (U.P.Twiga in India, Hume in Malaysia). The
integration of recent acquisitions is progressing well; synergy plans have
been confirmed and are being executed successfully.
Operating income was €2,751 million, near to its record-high, once again
demonstrating the resilience of the Group's results in a difficult
environment. The Group's operating margin improved again, reaching a new
record-high of 11.7% in first-half 2024 versus 11.3% in first-half 2023,
thanks to advances in the Americas and Asia-Pacific, and with stability in
Europe and in High Performance Solutions.
Segment performance (like-for-like sales)
Europe, Middle East & Africa: sequential improvement in volumes, close to
a low point; operating margin stable at a record level
Sales in Europe were down 7.9% over the first half, with a negative volume
effect of 5.9%, representing a clear improvement in volumes between the first
quarter (down 8.2%) and the second (down 3.7%), beyond the technical impact of
working day effects. New construction remained strongly down while renovation
(around 60% of sales) proved more resilient. The operating margin maintained
its record level at 8.7%, thanks to an optimized business profile and very
well-managed costs and industrial efficiency.
- Northern Europe was down 7.1% over the first half, with a clear sequential
improvement in the second quarter, down 3.2% (after a decline of 11.0% in the
first quarter), with most countries at or near a low point. Nordic countries
and Germany were affected by the slowdown in new construction, while
renovation proved more resilient. Our activities in the UK troughed,
benefiting from a good commercial dynamic thanks to the Group's comprehensive
range of solutions and systems with quantified benefits. In Eastern Europe,
volume growth accelerated for the third consecutive quarter. A power purchase
agreement was signed in Romania which will enable the Group to cover its
entire electricity requirements in the country from 2026.
- Southern Europe, Middle East & Africa contracted 8.6% over the first
half, seeing a slight sequential improvement in the second quarter with a
decline of 7.1% (following a 10.1% decline in the first quarter), as new
construction remained significantly down in France. Saint-Gobain nevertheless
continued to outperform its market thanks to its strong exposure to renovation
and its comprehensive range of solutions. In the context of French regulations
which require large non-residential buildings to reduce their energy
consumption by 40% by 2030,
Saint-Gobain Solutions France is currently proposing complete energy
renovation projects, enabling reductions of more than 50% in energy
consumption, thanks to high performance façade systems (EnveoVent(s)) and
glazing offering high levels of solar control (COOL-LITE(®)) in particular.
Spain and Italy reported good growth, supported by growing renovation markets.
Middle East and African countries delivered strong growth, led by the Middle
East thanks to the success of recent investments.
Americas: sales growth in North America and record operating margin
The Region delivered 1.2% organic growth over first-half 2024, driven by the
outperformance in North America and despite the downturn in Latin America.
Operating income hit a new record-high over the period, along with the
operating margin which reached 19.0% (versus 17.8% in first-half 2023),
supported by rigorous pricing and cost management, and volume growth in North
America.
- North America was up by 4.1% over the first half thanks to both prices and
volumes, driven by a dynamic renovation market and with new construction
having stabilized at a good level. The Group saw further market share gains
thanks to its comprehensive, differentiated range of interior and exterior
light construction solutions. Despite the expected high comparison basis in
roofing in the second quarter, the roofing business reported robust growth in
the first half overall. The recent integrations of Kaycan, Building Products
of Canada and Bailey are helping to drive this strong sales momentum.
- Latin America contracted 7.6% over the first half as markets remained
down, but began to stabilize in the second quarter with volumes almost flat.
In Brazil, some macroeconomic indicators continued to improve. The Group's
operations in the country are benefiting from a new plasterboard line opened
near São Paulo, capturing market share from more traditional products with a
comprehensive range of light construction solutions. The other countries in
the Region benefited from the enhanced offering and mix, especially Mexico.
Asia-Pacific: sales growth and record operating margin
The Region delivered 1.2% organic growth in first-half 2024, driven by strong
momentum in India in particular. The operating margin hit a record-high in the
period, at 13.0% (versus 12.5% in first-half 2023), supported by volumes and
well-managed pricing.
India continued to outperform, delivering volume growth once again driven by
its comprehensive and innovative range of solutions. The Group is seeing the
benefits of its numerous recent sustainability-driven initiatives in the
country, including the production of low-carbon glass (ORAÉ(®), reducing
CO(2) emissions by 42%) and very low-carbon plaster. In a difficult new
construction market in China, the Group continued to capture market share
against a high comparison basis in the second quarter, extending its footprint
towards inner China thanks to the success of its highly digitalized sales
model. South-East Asia remained at a good level, led by Malaysia, Indonesia
and Singapore, owing mainly to the enhancement of its offering and a strong
innovation drive.
High Performance Solutions (HPS): sequential improvement in organic growth and
stable operating margin
HPS reported like-for-like sales down 3.5% over the first half, with a
sequential improvement in the second quarter, down 1.6%. The operating margin
remained stable at 12.3%, as well-managed costs and prices offset the downturn
in volumes.
- Businesses serving global construction customers reported a 2.7% decrease
in sales over the first half due to the sharp decline in Adfors reinforcement
solutions, but a progression in the second quarter (up 1.2%) against an easier
comparison basis (Adfors) and driven by the Construction Chemicals business
unit (sales up 3.1%). The upbeat trends in Chryso and GCP sales continued,
driven by infrastructure projects and the innovation drive for decarbonization
in the construction sector. The signature of a definitive agreement to acquire
FOSROC in June marks an acceleration in the Group's construction chemicals
presence in countries with strong structural growth (India, Middle East and
Asia-Pacific).
- Mobility sales stabilized (down 1.0%) against a high comparison basis
following the rebound in sales in 2023, with further investments for
innovation and the continued optimization of its industrial facilities with
the closure of the Avilès plant in Spain in June 2024.
- Businesses serving Industry contracted 5.9%, affected by a decline in
industrial markets, especially those linked to investment cycles.
Analysis of the consolidated financial statements for first-half 2024
The unaudited interim consolidated financial statements for first-half 2024
were subject to a limited review by the statutory auditors and adopted by the
Board of Directors on July 25, 2024.
in € million H1 H1 % change
2023
2024
Sales 24,954 23,464 -6.0%
Operating income 2,813 2,751 -2.2%
Operating margin 11.3% 11.7%
Operating depreciation and amortization 980 1,026 4.7%
Non-operating costs -55 -125 -127.3%
EBITDA 3,738 3,652 -2.3%
Capital gains and losses on disposals, asset write-downs and impact of changes -464 -164 64.7%
in Group structure
Business income 2,294 2,462 7.3%
Net financial expense -196 -215 -9.7%
Dividends received from investments 1 1 n.s
Income tax -607 -546 10.0%
Share in net income of associates 3 2 n.s
Net income before non-controlling interests 1,495 1,704 14.0%
Non-controlling interests 45 44 -2.2%
Net attributable income 1,450 1,660 14.5%
Earnings per share(2) (in €) 2.84 3.31 16.5%
Recurring net income(1) 1,821 1,706 -6.3%
Recurring(1) earnings per share(2) (in €) 3.57 3.40 -4.8%
EBITDA 3,738 3,652 -2.3%
Depreciation of right-of-use assets -340 -351 -3.2%
Net financial expense -196 -215 -9.7%
Income tax -607 -546 10.0%
Capital expenditure(3) -616 -583 -5.4%
o/w additional capacity investments 274 255 -6.9%
Changes in working capital requirement(4) -61 248 n.s
Free cash flow(5) 2,192 2,460 12.2%
Free cash flow conversion(6) 65% 75%
ROCE 15.7% 14.4%
Lease investments 442 425 -3.8%
Investments in securities net of debt acquired(7) 228 847 n.s
Divestments 857 60 n.s
Consolidated net debt 8,922 9,443 5.8%
1. Recurring net income = net attributable income excluding capital
gains and losses on disposals, asset write-downs and material non-recurring
provisions.
2. Calculated based on the weighted average number of shares
outstanding (501,808,814 shares in H1 2024, versus 510,080,726 shares in H1
2023).
3. Capital expenditure = investments in tangible and intangible
assets.
4. Change in working capital requirement over a rolling 12-month
period (see Appendix 4, bottom of "Consolidated cash flow statement").
5. Free cash flow = EBITDA less depreciation of right-of-use assets,
plus net financial expense, plus income tax, less capital expenditure
excluding additional capacity investments, plus change in working capital
requirements over a rolling 12-month period.
6. Free cash flow conversion ratio = free cash flow divided by EBITDA,
less depreciation of right-of-use assets.
7. Investments in securities net of debt acquired: €847 million in
H1 2024, of which €784 million in controlled companies.
EBITDA came in at €3,652 million, close to its all-time high. EBITDA
includes non-operating costs of €125 million.
The net balance of capital gains and losses on disposals, asset write-downs
and the impact of changes in Group structure represented an expense of €164
million (versus an expense of €464 million in first-half 2023). It reflects
€35 million in asset write-downs essentially relating to site closures and
disposals (€65 million in first-half 2023), €103 million in Purchase Price
Allocation (PPA) intangible amortization (€85 million in first-half 2023),
and €26 million in disposal losses and other net business expense (€314
million in first-half 2023 including translation adjustments on the UK
distribution assets sold).
Recurring net income was close to its record-high, at €1,706 million.
The tax rate on recurring net income was 24%.
Capital expenditure represented €583 million (€616 million in first-half
2023). 72% of growth capex was invested in North America, Asia and emerging
countries. The Group opened 11 new plants and production lines in first-half
2024, focused on the fast-growing construction chemicals and light
construction markets.
Free cash flow came in at €2,460 million - a 12% increase on first-half 2023
- with a free cash flow conversion ratio of 75% (65% in first-half 2023). This
was attributable to a good level of EBITDA and to very good management of
operating working capital requirement (WCR), which represented 23 days' sales
at end-June 2024 versus 25 days' sales at end-June 2023.
Investments in securities net of debt acquired totaled €847 million (€228
million in first-half 2023), primarily reflecting the acquisitions of Bailey
in Canada, Glass Service (digital solutions to accelerate the decarbonization
of glass furnaces), ICC in technical insulation in the US, and acquisitions in
construction chemicals (Izomaks in Saudi Arabia, IMPTEK in Ecuador, Technical
Finishes in South Africa and R.SOL in France).
In line with the aim of completing the €2 billion share buyback program in
2024 - one year earlier than expected - the Group allocated around €200
million to share buybacks in first-half 2024 (net of offsetting employee share
creation). This reduced the number of shares outstanding to around 499.5
million at end-June 2024 from 502 million at end-December 2023.
Net debt was €9.4 billion at June 30, 2024 and amounts to 39% of
consolidated equity (versus 38% at June 30, 2023). The net debt to EBITDA
ratio on a rolling 12-month basis was 1.4 at end-June 2024.
2024 outlook and strategic priorities
In a geopolitical and macroeconomic environment that remains challenging,
Saint-Gobain will once again demonstrate its resilience and its excellent
operating performance in 2024, thanks to its focused strategy and its
proactive commercial and industrial initiatives allowing it to outperform its
markets.
Saint-Gobain expects some of its markets to remain difficult over 2024
overall, but in the second half should benefit from an easier comparison basis
and a sequential improvement in certain countries:
· Europe: resilience in renovation; new construction remaining
difficult before gradually reaching a low point country by country;
· Americas: construction to hold firm in North America (new build and
renovation); recovery expected in Latin America;
· Asia-Pacific: good growth led mainly by India and the integration of
CSR;
· High Performance Solutions: Construction Chemicals to see dynamic
growth; Mobility to hold firm and a contrasting situation on industrial
markets in terms of demand.
Against this backdrop, in 2024 the Group will continue to implement the
strategic priorities set out in its "Grow & Impact" plan for 2021-2025:
1) Continue our initiatives focused on profitability and free cash flow
generation
· Constant focus on the price-cost spread;
· Productivity initiatives and swift adjustments from country to
country where necessary;
· Capital expenditure slightly above 4% of sales, with strict
allocation to high-growth markets.
2) Outperform our markets by strengthening our profitable growth profile
· Enrich our comprehensive range of integrated, differentiated and
innovative solutions offering sustainability and performance for our
customers;
· Continue our value-creating targeted acquisitions and divestments
dynamic, and benefit from the successful integration of recent acquisitions.
3) Continued focus on our ESG roadmap as leader in sustainable construction
· Promote our positive-impact and low-carbon solutions among our
customers;
· Extend the decarbonization of construction to the entire value chain,
playing our full role as leader in light and sustainable construction.
Despite a context which remains difficult in certain markets,
Saint-Gobain expects a double-digit operating margin
for second-half and full-year 2024, for the fourth consecutive year
Financial calendar
A meeting for analysts and investors will be held at 8:30am (GMT + 1) on July
26, 2024 and will be streamed live on Saint-Gobain's website:
www.saint-gobain.com (http://www.saint-gobain.com/)
· Sales for the third quarter of 2024: Tuesday October 29, 2024, after
close of trading on the Paris stock exchange.
Analyst/investor relations Press relations
Vivien Dardel: +33 1 88 54 29 77 Patricia Marie: +33 1 88 54 26 83
Floriana Michalowska: +33 1 88 54 19 09 Laure Bencheikh: +33 1 88 54 26 38
Alix Sicaud: +33 1 88 54 38 70 Yanice Biyogo: +33 1 88 54 27 96
James Weston: +33 1 88 54 01 24
Glossary:
- Indicators of organic growth and like-for-like changes in sales/operating
income reflect the Group's underlying performance excluding the impact of:
• changes in Group structure, by calculating indicators for the year
under review based on the scope of consolidation of the previous year (Group
structure impact);
• changes in foreign exchange rates, by calculating indicators for
the year under review and those for the previous year based on identical
foreign exchange rates for the previous year (currency impact);
• changes in applicable accounting policies.
- EBITDA = operating income plus operating depreciation and amortization, less
non-operating costs.
- Operating margin = operating income divided by sales.
- ROCE (Return on Capital Employed) = operating income for the period under
review adjusted for changes in Group structure, divided by segment assets and
liabilities at period-end.
- ESG = Environment, Social, Governance.
- Purchase Price Allocation (PPA) = the process of assigning a fair value to
all assets and liabilities acquired and of allocating the residual goodwill as
required by IFRS 3 (revised) and IAS 38 for business combinations. PPA
intangible amortization relates to amortization charged against brands,
customer lists, and intellectual property, and is recognized in "Other
business income and expenses".
- Pro forma = sales or operating income including the impact of changes in
Group structure (signed or closed) over the period.
All indicators contained in this press release (not defined above or in the
footnotes) are explained in the notes to the interim financial statements
available by clicking here:
https://www.saint-gobain.com/en/finance/regulated-information/half-yearly-financial-report
Net debt
Note 10
Non-operating costs Note 5
Operating income Note 5
Net financial expenses Note 10
Recurring net income Note 5
Business income Note 5
Working capital requirements Note 5
Important disclaimer - forward-looking statements:
This press release contains forward-looking statements with respect to
Saint-Gobain's financial condition, results, business, strategy, plans and
outlook. Forward-looking statements are generally identified by the use of the
words "expect", "anticipate", "believe", "intend", "estimate", "plan" and
similar expressions. Although Saint-Gobain believes that the expectations
reflected in such forward-looking statements are based on reasonable
assumptions as at the time of publishing this document, investors are
cautioned that these statements are not guarantees of its future performance.
Actual results may differ materially from the forward-looking statements as a
result of a number of known and unknown risks, uncertainties and other
factors, many of which are difficult to predict and are generally beyond
Saint-Gobain's control, including but not limited to the risks described in
the "Risk Factors" section of Saint-Gobain's Universal Registration Document
and the main risks and uncertainties presented in the half-year 2024 financial
report, both documents being available on Saint-Gobain's website
(www.saint-gobain.com). Accordingly, readers of this document are cautioned
against relying on these forward-looking statements. These forward-looking
statements are made as of the date of this document. Saint-Gobain disclaims
any intention or obligation to complete, update or revise these
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by applicable laws and regulations.
This press release does not constitute any offer to purchase or exchange, nor
any solicitation of an offer to sell or exchange securities of Saint-Gobain.
For further information, please visit www.saint-gobain.com
(http://www.saint-gobain.com)
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