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5. Compagnie de Saint Gobain S.A. Business Report FY ended Dec. 2016

Compagnie de Saint Gobain S.A. Business Report FY ended Dec. 2016

Recent Years

Factors

1) Net Sales
-In the fiscal year ended December 31, 2016, the Company’s net sales decreased by 1.3% over the previous year to EUR 39,093 million. Excluding negative currency effects of 2.9%. The negative 1.0% Group structure impact reflects the time-lag between the impact of disposals made to optimize the Building Distribution portfolio in late 2015/early 2016 and the acquisitions carried out mostly at the end of the period. Organic growth of 2.6% led by volumes.

2) Flat Glass sales
-Sales in the Company’s Flat Glass business for the fiscal year ended December 31, 2016 increased by 3.0% over the previous year to EUR 5,338 million. In line with the first half, led by both construction and automotive in Asia and emerging countries. In Western Europe, construction volumes and prices both improved, benefiting from higher float prices and, as from the second half, from a rise in the price of downstream glass; automotive glass stabilized at a good level.

3) High-Performance Materials sales
-Sales for the Company’s High-Performance Materials business decreased by 0.1% in the fiscal year ended December 31, 2016 to EUR 4,385 million. Despite the decline in industrial markets in the US, all HPM businesses advanced in the second half, led by Asia and emerging countries. Plastics also benefited from robust momentum in Europe.

Acquisitions

-The Company announced that it has acquired 100% of the share capital of the Italian company h-old from private equity fund Arcadia Small Cap. Founded in 1982, h-old designs, manufactures and distributes – mostly in Europe – specialty adhesive tapes for various high-performance applications for industrial and automotive markets. (From a press release on November 2, 2016)

Joint Ventures

-The Company and Corning Incorporated, a U.S.-based glass and ceramics manufacturer, announced that they have signed an agreement to establish an exclusive joint venture, equally owned by Saint-Gobain and Corning, to develop, manufacture and sell lightweight automotive glazing solutions. The venture is expected to build manufacturing facilities to meet worldwide automotive market demand. Laminated windows made with ultra-thin Corning Gorilla Glass for Automotive and Sekurit’s automotive glass and window technologies offer a significantly improved combination of lightness, toughness and optical quality over traditional solutions. (From a press release on January 19, 2016)

*Due to the sale of the Company’s Packaging business, the Company’s results for 2014 and 2013 have been restated.

-In the fiscal year ended December 31, 2016, approximately two-thirds of the Company’s research and development expenditure went towards its Innovative Materials sector.

R&D Structure

-The Company has 3,700 employees in research and development. In its Innovative Materials sector, the Company has 2,100 employees dedicated to research and development working on more than 600 research projects. Projects in the sector include new processes for thin coatings, more effective double and triple glazings, and plastic films for vehicles.

R&D Facilities

-The Group has eight primary research centers.

• Cavaillon, France: Centre de Recherche et d’Études Européen (CREE)
• Thourotte, France: Centre de Recherche et de Développement de Chantereine (CRDC)
• Herzogenrath, Germany: Herzogenrath Research & Development Centre (HRDC)
• Northboro, MA, U.S.: Northboro Research & Development Center (NRDC)
• Aubervilliers, France: Saint-Gobain Recherche (SGR)
• Shanghai, China: Saint-Gobain Research Shanghai (SGRS)
• Chennai, India: Saint-Gobain Research India (SGRI)
• Capivari, Brazil: Saint-Gobain Research Brazil

-In early 2016, the Company opened a new research center in Capivari, Brazil. The 3,000-square-foot building will work in cooperation with the local scientific community and various South American innovation agencies to develop products specifically for the region.

Patents

-In the fiscal year ended December 31, 2016, Innovative Materials sector filed approximately 300 patents.

Product Development

-In the automotive market, the Group continuously innovates to develop new products such as lighter glass, more effective door seals, and better passenger compartment insulation. These products help to address the current challenges faced by major automotive companies such as reducing fuel consumption and promoting occupant safety and comfort.

Extremely thin laminated glass windshield
-In 2014, through a co-development with Renault, Saint-Gobain Sekurit perfected an extremely thin laminated glass windshield that is 3 mm thick, versus 4.5 mm normally. Despite its thickness, the new windshield preserves the mechanical and acoustic qualities of the glass. The new product which will also be used for side windows and rear-view mirrors, thereby reducing CO2 emissions.

*Due to the sale of the Company’s Packaging business, the Company’s results for 2014 have been restated.

Investments Outside France

-The Company is to invest around EUR 135 million over the next two years to develop production capacity at its glass facility near Chennai, India. A third flat glass production facility (the Group’s fifth float in India) and a second coater for the construction market will be built on this site. (From a press release on January 13, 2016)

Outlook

-In 2017, the Company will continue its disciplined approach towards cash management and financial strength.
Its cost savings program, with the aim of unlocking additional savings of around EUR 270 million (calculated on the 2016 cost base);
Its capital expenditure program (around EUR 1,600 million in 2017), with a focus on growth capex outside Western Europe and also on productivity and digital transformation;
Its commitment to invest in R&D to support its differentiated, high value-added strategy;
Its focus on high levels of free cash flow generation.