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5. Compagnie de Saint Gobain S.A. Business Report FY ended Dec. 2017

Compagnie de Saint Gobain S.A. Business Report FY ended Dec. 2017

Recent Years

Factors

1) Net Sales
-In the fiscal year ended December 31, 2017, the Company’s net sales totaled EUR 40,810 million, up 4.4% from the previous year. The growth was driven both by higher volumes (up 2.7%) and higher prices (up 2.0%) in all Business Sectors and all regions,despite the adverse impact of the June2017 cyber-attack. The price effect continued to grow (up 2.3% in the second half), against a back drop of rising raw material and energy costs over the course of the year.

(2) Flat Glass sales
-Sales in the Company’s Flat Glass business for the fiscal year ended December 31, 2017 increased by 5.5% over the previous year to EUR 5,633 million. Sales linked to the construction market in Western Europe improved, with float glass price trends stabilizing and higher prices for transformed glass in the second half; Asia and emerging countries continued to grow.

3) High-Performance Materials sales
-Sales for the Company’s High-Performance Materials business increased by 4.6% in the fiscal year ended December 31, 2017 to EUR 4,588 million. It was lifted by all regions and especially Asia and emerging countries. All HPM businesses reported growth over the year, particularly Ceramics on the back of strong sales in the second half. The operating margin continued to improve, up to 15.1% from 13.7% in 2016 driven by volumes, amid limited increases in raw material and energy costs.

Acquisitions

-Saint-Gobain announces that it has taken a 50% stake in a flat glass production line of the Chinese group JJG, located in Zibo in the Shandong province, North-East China, with a total annual capacity of 160,000 tonnes. This JV will allow the company to almost double its production of basic glass in China, reinforcing the reliability of the flat glass supply for its Sekurit automotive glass factories. Saint-Gobain has been present in glass in China since 1994. It already manages one flat glass production unit of 100,000 tonnes per year in Qingdao in the Shandong province, and three production units for automotive glass. This investment is in line with the Group's strategy of expanding its presence in emerging countries, reinforcing Saint-Gobain’s position in automotive glass in China. (From a press release on April 10, 2018)

-In the fiscal year ended December 31, 2017, 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 over 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.

Investments Outside France

-Saint-Gobain Sekurit announced that it broke ground to build its second automotive glass plant in Mexico in the south-eastern region of Coahuila. A first phase, with an investment of USD 50 million, will start operations by the third quarter of 2018, manufacturing 1 million pieces of automotive glass per year. Once fully established, the company will invest an additional USD 60 million there to add production of floated, tempered and laminated glass. (From a Mexico-Now article on May 14, 2017)

-The company has announced it is building a new flat glass (float) production line in Saltillo in Mexico. This plant, scheduled to come on stream at the beginning of 2020, will manufacture glass for the automotive and construction sectors. It will meet the growing domestic demand and supply Central America, the Caribbean and North America. This new float line project in Mexico marks a new step in the Group’s expansion strategy into high-growth countries. (From a press release on June 26, 2017)

-The company broke ground for its second glass plant in Saltillo, Mexico, with a USD 135 million investment. The new production facility will have flexibility to supply both the automotive and construction industries, manufacturing sheets ranging from small sizes to over 6 meters long. Expected to be operational by the end of 2019, the new facility is located near an automotive glass plant that the company began construction on in May. Both projects combined represent an investment of USD 250 million.(From a Mexico-Now article on December 6, 2017)

-The company announced that, with a USD 135 million investment, the company laid the first stone to its second plant in the south eastern Coahuila region, Glass Saltillo, to produce glass panes up to six meters long for the construction industry. It joins the construction of the Sekurit plant in Ramos Arizpe which specializes in manufacturing automotive glass, begun in May 2017. (From a Mexico-Now article on January 2, 2018)

-In 2018, The company expects to
continue growth and a good margin level in Innovative Materials;
be better volumes and prices, focus on the price-cost spread in Construction Products
Building Distribution should benefit from volume growth in Western Europe

• Its focus on sales prices amid continued inflationary pressure on costs;
• Its cost saving program, with the aim of unlocking additional savings of around EUR 300 million (calculated on the 2017 cost base)
• Its capital expenditure program of around EUR 1.7billion (representing around 4% of sales, in line with our objectives), with a focus on growth
• capex outside Western Europe and also on productivity and digital transformation, particularly in Building Distribution;
• 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.