Compagnie Generale de Saint-Gobain SA expects that 2010 will be better than 2009 because it will benefit from its ongoing cost reduction drive and stimulus packages, as long as a drop in sales volumes…
Compagnie Generale de Saint-Gobain SA expects that 2010 will be better than 2009 because it will benefit from its ongoing cost reduction drive and stimulus packages, as long as a drop in sales volumes does not continue, according to chief executive Pierre-Andre de Chalendar. At an economics conference in Aix-en-Provence, Chalendar warned that the outlook is still difficult to forecast, although he sees “some positive signs, mainly psychological” such as improving consumer confidence and business sentiment. Saint-Gobain“s sales volumes decreased 17.2% in the first quarter of 2009 compared to the same period of 2008. The Organization for Economic Cooperation and Development said the last week of June 2009 that downturn in the OECD region – which includes the world“s leading trading nations – had now reached a bottom and there will be a modest rebound next year. Insee, the French institute of statistics, recently forecast a gradual improvement in business investment trends in the second half of 2009 as inventory drawdowns are coming to an end. Chalendar“s remarks were a little more optimistic than those he made during the company“s annual meeting at the beginning of June, when he said he had not seen positive signs in April and May and he expected ongoing weakness in Saint-Gobain“s markets. The “impact (from stimulus packages) will be visible in China as soon as the second half of 2009, then in the US starting from end of 2009 or at the beginning of 2010, and then in Europe during the course of 2010,” Chalendar said. Saint-Gobain expects some emerging markets to be the first to recover from the economic downturn, in particular Brazil and Asia. European recovery will be behind that of other worldwide regions, but Chalendar thinks Saint-Gobain will strongly benefit from its positioning in businesses aimed at improving the environment, with environment-friendly and energy efficient construction materials and building techniques. “For the sectors I“m interested in, we will have a significant positive impact in European countries next year from stimulus plans,” he said, adding that the full effect of Saint-Gobain“s cost saving plans will also filter through in 2010, while its hedging strategy will help protect it from rising commodity prices for future months. Chalendar increased the company“s cost savings target for 2009 from EUR 600 million to EUR 700 million, in response to the worsening trading environment. “We“re ahead of schedule on the cost saving plan,” he said, but would not say if Saint-Gobain would consider stepping up savings further than EUR 700 million. “I said (we“d do) at least EUR 700 million.” “What is important for me nowadays is the spread between prices and costs,” Chalendar said. “The increase in oil prices won“t have an impact on us before at least six months.” He said that the company is prepared to further adjust capacity to protect margins but warned that it is becoming increasingly difficult to raise prices due to weak demand. “Saint-Gobain always favours prices over volumes, which means we adjust our capacities if necessary,” he said. On reporting its first quarter revenue figures at the end of April, the company surprised investors with news of price increases. Chalendar said that Saint-Gobain would not be making any acquisitions in 2009. “This wouldn“t be consistent with our current strategic focus on cost savings and optimized cash generation,” he said. “In addition, I don“t want to make any acquisitions until we“ve sold the packaging business.” Saint-Gobain has been discussing a sale of its packaging division for at least two years, but the transaction has been halted because of worsening market conditions. The division has, however, acted as a buffer on the group“s earnings since it was the only one to report a small increase in sales in the first quarter of 2009. “There is no urgency for Saint-Gobain to sell the packaging business, which is one of our best performing divisions and for which we wouldn“t get the price we want because of the financial crisis,” Chalendar said, adding that even small asset sales are difficult right now. Chalendar said that Saint-Gobain has no refinancing need until 2011, and that the company“s balance sheet was strong enough to face the downturn after its successful EUR 1.5 billion capital increase. “Due to the change in the financial environment, the amount of debt companies take on compared to their equity will have to be lower in the future,” Chalendar said.