Compagnie de Saint Gobain : First-Half 2016 Results

Paris, July 28, 2016

First-half 2016 results

• Organic growth at 2.9% with a sharp 3.5% improvement in volumes buoyed partly by the positive impact of a greater number of working days

• Negative 0.6% price impact in a still deflationary environment in terms of prices and raw material and energy costs

• Negative 3.5% currency impact on sales and negative 1.0% Group structure impact

• Operating income up 7.3% on a reported basis and up 10.2% like-for-like

• Significant 13.0% rise in recurring net income and free cash flow

• Buyback and cancellation of around 11 million shares in the first half

• Recurring EPS1 up 16.5%

• Objectives for full-year 2016 confirmed; like-for-like improvement in operating income expected in the second half versus second-half 2015

  (€m)	H1 2015	H1 2016	Change	Change like-for-like
  Sales	19,860	19,549	-1.6%	+2.9%
  EBITDA	1,886	1,957	+3.8%
  Operating income	1,275	1,368	+7.3%	+10.2%
  Recurring net income2	552	624	+13.0%
  Free cash flow3	728	823	+13.0%

  Pierre-André de Chalendar, Chairman and Chief Executive Officer of Saint-Gobain, commented:

  "Saint-Gobain's sales for first-half 2016 confirm our February forecasts, with France stabilizing and all regions making a strong contribution to growth. Our strategy of investing in emerging markets provides us with a diversified platform for profitable growth. Our first-half results also benefited from efforts to optimize our operations, particularly in Western Europe, and from upbeat trading in the US. The results are in line with our objectives and we expect a like-for-like improvement in operating income for second-half 2016 versus second-half 2015. While the June 23 Brexit vote in the UK has created a climate of uncertainty, it does not affect our objectives."

• Recurring earnings per share from continuing operations.

• Recurring net income from continuing operations excluding capital gains and losses on disposals, asset write-downs and material non-recurring provisions.

• Cash flow from continuing operations excluding the tax impact of capital gains and losses on disposals, asset write-downs and material non-recurring provisions less capital expenditure

  Ope ra ting performa nc e

  First-half sales came in at €19,549 million, including a significant 3.5% negative currency impact resulting namely from the depreciation of Latin American currencies - and to a lesser extent the pound sterling - against the euro.

  The negative 1.0% Group structure impact is a result of the disposals carried out in 2015 aimed at optimizing the Building Distribution portfolio.

  On a like-for-like basis, sales were up 2.9% on the back of 3.5% volume growth driven partly by the positive impact of a greater number of working days in the second quarter (estimated impact of just over +1% in the first half). All Business Sectors and regions delivered volume growth. In a still deflationary environment in terms of raw material and energy costs, prices remained slightly down, losing 0.6% over the six months to June 30. The Group's operating income climbed 7.3% on a reported basis and 10.2% like-for-like. The Group's operating margin1 rallied to 7.0%, gaining 0.6 percentage points compared to first- half 2015. All Business Sectors reported margin growth, particularly in industry and to a lesser extent Building Distribution, which was hit by the deflationary environment.

  Perf ormance of G roup Busi ness Sect ors

  Innovative Materials like-for-like sales moved up 4.4%, powered by Flat Glass. There was a further significant improvement in the Business Sector's operating margin, which came in at 11.2% versus 10.2% one year earlier.

• The second quarter confirmed the upbeat trends seen early in the year in Flat Glass, which posted 6.5% organic growth over the first half. Automotive glass continued to enjoy good momentum in all regions except Brazil. Construction markets remained upbeat in Asia and emerging countries and benefited from the upturn in volumes in Western Europe and a rise in float glass prices. The operating margin continued to recover, at 8.8% versus 7.4% in first- half 2015, buoyed by additional volumes and improved operating leverage.

• High-Performance Materials (HPM) like-for-like sales rose 2.0% over the first six months of 2016. Plastics and Textile Solutions performed well; Abrasives delivered organic growth led by prices. Ceramics contracted in the three months to June 30 after a first quarter boosted by high levels in refractories. The operating margin widened to 14.0% from 13.5% in first- half 2015. Construction Products (CP) like-for-like sales advanced 1.6% over the first half lifted by Interior Solutions, which drove a significant improvement in the Business Sector's operating margin, up to 9.4% compared to 8.7% for the same period in 2015.
• Interior Solutions posted 5.2% organic growth in the first half on the back of strong market positions, which allowed it to benefit from good trading in all regions. In a still deflationary environment, volumes proved upbeat in Western Europe (partly helped by the positive impact of a greater number of working days) and in North America. Asia and emerging countries confirmed their good performance as well as the merits of the growth operations carried out in this region over the past few years. The operating margin climbed to 10.2% from 9.0% in first-half 2015.

  1. Operating margin = operating income expressed as a percentage of sales.

• Exterior Solutions like-for-like sales retreated 2.0% over the first half, due solely to the expected decline in Pipe, which was hit by contracting markets in its main regions. However, Exterior Solutions stabilized in the second quarter, helped by an acceleration in volumes for Roofing in the US. Mortars reported organic growth led by Asia and emerging countries and by the improvement in Western Europe, which offset tougher conditions in Brazil. Overall, the operating margin steadied at 8.3%. Building Distribution like-for-like sales rose 3.1%, with the second-quarter performance buoyed by the positive impact of a greater number of working days. Trading in France benefited from the first signs of an upturn in new-builds, while the renovation market remains sluggish. Germany, the UK and especially Nordic countries continued to report good volume trends. Amid a fall in the cost of goods sold in Europe, prices were down - particularly in France and the UK. The sharp economic slowdown in Brazil continued to take its toll on trading.

  The operating margin came in at 2.8% versus 2.6% in first-half 2015, benefiting from an upturn in volumes in Europe but affected by a deflationary environment.

  An al ysis b y region

  The Group delivered organic growth in all of its regions in the first half, as trends observed earlier in the first quarter continued in the three months to June 30.

• France saw confirmation of stabilizing business over the first half, posting organic growth of 0.6% buoyed by the positive impact of a greater number of working days in the second quarter. New-build activity showed the first signs of improvement, while the renovation market remains sluggish for the time being. The decline in Pipe weighed on first-half results. The operating margin narrowed slightly to 2.4%, hit by the deterioration in Pipe.
• Other Western European countries advanced 4.3% over the six months to June 30, with organic growth picking up pace in the second quarter. Besides the positive impact of a greater number of working days, this advance reflects good market conditions in all of the Group's main countries. The region's operating margin continued to rally, at 5.9% versus 5.4% in first-half 2015.
• North America reported a 3.6% rise in like-for-like sales in the first half, in line with the three months to March 31. Activity in the construction market again proved upbeat, while industrial markets remained uncertain. The operating margin rallied sharply, up to 11.6% versus 9.5% in first-half 2015, powered by the strong advance in Roofing.
• Asia and emerging countries reported further good organic growth, at 4.9% for the first half, led by Eastern Europe and Latin America, despite the slowdown in Brazil. Asia was up, with trading bullish in India, despite a downturn in China. The operating margin continued to improve, at 10.6% of sales versus 10.0% one year earlier.

The unaudited interim consolidated financial statements for first-half 2016 were subject to a limited review by the statutory auditors and were approved and adopted by the Board of Directors on July 28, 2016.

1. Excluding capital gains and losses on disposals, asset write-downs and material non-recurring provisions.

2. Calculated based on the number of shares outstanding at June 30 (552,574,120 in 2016, versus 569,364,905 in 2015).

3. Cash flow from operations = operating cash flow from continuing operations excluding material non-recurring provisions.

4. Cash flow from operations excluding capital gains tax = (3) - tax impact of capital gains and losses on disposals, asset write- downs and material non-recurring provisions.

5. Free cash flow = (4) - capital expenditure of continuing operations.