Saint Gobain: Letter to shareholders

Pierre-André de Chalendar, Chairman and Chief Executive Officer
“Saint-Gobain has delivered another significant improvement in its annual results, despite a less supportive market environment in the second half. Our strategic decisions are paying off, with the Group’s positioning in the buoyant markets of energy-efficient renovation and other high value-added segments, and the swift and rigorous execution of our transformation plan. We have exceeded our commitments in terms of disposals, with around 3.3 billion EUR in sales divested at the end of 2019 for over 1 billion EUR. We continue to optimize our portfolio, with both divestments and value-creating acquisitions in the context of the new organization. For 2020, in a more uncertain market environment, Saint-Gobain should continue to benefit from its attractive positioning and from the results of its “Transform & Grow” initiative, and is targeting a further like-for-like increase in operating income with an uncertainty about the impact of the coronavirus.”

Benoit Bazin, Chief Operating Officer
“Our teams worked hard to make the roll-out of the new organization a great success, providing us with added agility and growth, along with increased efficiency for our customers. Thanks to the accelerated implementation of our cost savings plan, we were able to unlock 120 million EUR in 2019 compared to over 80 million EUR as previously announced. The rotation in our portfolio helped enhance the Group’s growth and profitability profile, thanks both to the success of our divestment program and the completion of 18 selective acquisitions. The acquisition of Continental Building Products was finalized quickly on February 3, 2020 and the integration plan is already in place. It will strengthen our positioning on the dynamic North American construction market.”

The Group’s 2019 sales totalled 42,573 million EUR, up 1.9% on a reported basis and up 2.4% like-for-like, with prices up 1.8% in a less inflationary environment for raw material and energy costs. Volumes were up 0.6% in a less supportive market environment overall.

Changes in Group structure had a negative 1.2% impact on sales, and a particularly negative impact of 4.7% in the fourth quarter, reflecting the acceleration in the divestment program.
Sales growth benefited from a positive 0.7% currency effect, resulting mainly from the appreciation of the US dollar against the euro, despite the depreciation of Nordic krona and the Brazilian real.

Operating income rose once again in 2019, up 5.7% as reported and 4.7% like-for-like over the year, including a rise of 1.6% in the second half. The Group’s operating margin increased to 8.0% from 7.7% in 2018 (7.5% as reported prior to the IFRS 16 adjustment), with 8.4% in the second half (versus 8.1% in second-half 2018).

Acceleration in the Group’s transformation continues apace:

• Divestments completed to date for an amount of over 1 billion EUR represent sales of approximately 3.3 billion EUR, exceeding the initial target of more than 3 billion EUR by the end of 2019. The full-year operating margin impact is an improvement of more than 40 basis points, reaching the “Transform & Grow” target. In 2019 alone, the positive operating margin impact was 15 basis points.
• The program to unlock 250 million EUR in additional cost savings over the period 2019-2021 thanks to the new organization is producing results faster than initially expected, with an accelerated timetable: a 120 million EUR impact on operating income in 2019 (versus over 80 million EUR estimated at the end of July), and overall savings of 200 million EUR in 2020 and 250 million EUR in 2021.

2020 PRIORITIES

1) Improvement in the Group’s profitable growth profile, driven by:

• the continuation of its portfolio optimization (divestments and acquisitions); the integration of Continental Building Products;
• the strategy of differentiation and innovation, to improve our customers’ productivity, develop sustainable solutions and contribute to the wellbeing of all;

2) Increased free cash flow generation and further increase in operating margin, driven by:

• constant focus on the price-cost spread thanks to strong pricing discipline;
• the continuation of the cost savings program in the context of “Transform & Grow”, unlocking additional savings of 80 million EUR in 2020 (representing total savings of 200 million EUR over the 2019-2020 period);
• a decrease in property, plant and equipment and intangible assets investments (capital expenditure) to around 1.6 billion EUR after an investment peak and thanks to continued optimization of maintenance capital expenditure;
• the continuation of the operational excellence program, aimed at offsetting inflation (excluding raw material and energy costs): around 300 million EUR in additional cost savings in 2020 (calculated on the 2019 cost base); continued discipline on cost structure.

For 2020, the Group is targeting a further like-for-like increase in operating income with an uncertainty about the impact of the coronavirus.