Interim / Quarterly Report • Jul 27, 2017
Interim / Quarterly Report
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Including :
Compagnie de Saint-Gobain
Consolidated financial accounts as at June 30, 2017
| Key figures | ||||
|---|---|---|---|---|
| (€m) | H1 2016 H1 2017 |
Change | Change like-for-like |
|
| Sales | 19,549 | 20,409 | +4.4% | +3.5% |
| EBITDA | 1,957 | 2,071 | +5.8% | |
| Operating income | 1,368 | 1,465 | +7.1% | +6.6% |
| Recurring net income1 | 624 | 751 | +20.4% | |
| Free cash flow2 | 823 | 983 | +19.4% |
1. Recurring net income excluding capital gains and losses on disposals, asset write-downs and material non-recurring provisions.
2. Free cash flow excluding the tax impact of gains and losses on disposals, asset write-downs and material non-recurring provisions, and less capital expenditure.
First-half reported sales increased 4.4% year-on-year to €20,409 million, including a positive 0.1% currency impact resulting mainly from the depreciation of the euro against the Brazilian real and US dollar, offset by the fall in pound sterling. The positive 0.8% Group structure impact essentially reflects the consolidation of acquisitions made in Asia and emerging countries (Emix, Solcrom, Tumelero), in new niche technologies and services (H-Old, Isonat, France Pare-Brise), and to further strengthen our positions in Building Distribution (particularly in Nordic countries).
On a like-for-like basis, sales increased 3.5%, driven both by prices (up 1.8%), which continued to rise in a more inflationary cost environment, and by volumes (up 1.7%). Volumes increased across all Business Sectors and regions, with a slightly negative calendar impact over the first half (around +3% in Q1 and around -3.5% in Q2).
The Group's operating income climbed 7.1% on a reported basis and 6.6% like-for-like, while its operating margin1 widened to 7.2% versus 7.0% in first-half 2016.
On June 27, 2017, Saint-Gobain experienced an important cyber-attack, which led to information system downtime and supply chain disruptions. IT systems were quickly restored and all of our operations had returned to normal by July 10. All efforts were made to ensure the continuity of our business and in particular to keep any impact on our customers to a minimum. The cyber-attack is not expected to have any impact on commercial relations going forward.
The cyber-attack is estimated to have had a negative impact of €220 million on first-half sales and of €65 million on first-half operating income. Over the full year, the negative impact is estimated at less than €250 million on sales and €80 million on operating income, with July including additional losses in some businesses in the first few days of the month, a claw-back of June sales, and costs associated with re-starting operations. Overall, just over half the impact of the cyber-attack concerned Building Distribution, while the rest concerned the Group's industrial businesses, particularly Construction Products. From a geographical perspective, Western European countries were the hardest hit, especially Nordic countries, Germany and France.
Innovative Materials sales increased 4.1% like-for-like, driven by Flat Glass. There was another significant improvement in the Business Sector's operating margin, up to 12.3% from 11.2% in first-half 2016.
1. Operating margin = Operating income expressed as a percentage of sales.
Construction Products (CP) sales were up 3.7% like-for-like over the first half. The operating margin for the Business Sector was 9.3% compared to 9.4% in the same period of 2016, affected by the cyber-attack and by a timelag between pricing and cost increases.
Building Distribution like-for-like sales rose 3.2%. Trading in France continued to recover, spurred by brisk momentum in new-builds and with positive pricing. Nordic countries were particularly hard hit by the cyber-attack, although Norway and Sweden still delivered good gains. Germany, which was also hard hit, contracted slightly, while France was affected albeit to a lesser extent. The UK continued to enjoy a steady pace of growth, driven by prices. Spain and the Netherlands posted further strong growth, while a tough macroeconomic environment continued to affect Brazil. The operating margin was 2.7%, compared to 2.8% in first-half 2016, squeezed by supply chain disruptions resulting from the cyber-attack.
The Group reported organic growth and a slight improvement in margins in all of its regions over the first half, with the calendar impact slightly negative during the period (around +3% in Q1 and around -3.5% in Q2).
The unaudited interim consolidated financial statements for first-half 2017 were subject to a limited review by the statutory auditors and were approved and adopted by the Board of Directors on July 27, 2017.
| H1 2016 | H1 2017 | % change |
|
|---|---|---|---|
| €m | (A) | (B) | (B)/(A) |
| Sales and ancillary revenue | 19,549 | 20,409 | 4.4% |
| Operating income | 1,368 | 1,465 | 7.1% |
| Operating depreciation and amortization | 589 | 606 | 2.9% |
| EBITDA (operating income + operating depr./amort.) | 1,957 | 2,071 | 5.8% |
| Non-operating costs | (180) | (166) | -7.8% |
| Capital gains and losses on disposals, asset write-downs, corporate acquisition fees and earn-out payments |
(32) | 7 | -121.9% |
| Business income | 1,156 | 1,306 | 13.0% |
| Net financial expense | (287) | (231) | -19.5% |
| Income tax | (261) | (297) | 13.8% |
| Share in net income (loss) of associates | 2 | (1) | n.s. |
| Net income before minority interests | 610 | 777 | 27.4% |
| Minority interests | 14 | 23 | 64.3% |
| Net attributable income | 596 | 754 | 26.5% |
| Earnings per share2 (in €) |
1.08 | 1.36 | 25.9% |
| Recurring net income1 | 624 | 751 | 20.4% |
| Recurring1 earnings per share2 (in €) |
1.13 | 1.35 | 19.5% |
| Cash flow from operations3 | 1,260 | 1,407 | 11.7% |
| Cash flow from operations (excluding capital gains tax)4 |
1,251 | 1,410 | 12.7% |
| Capital expenditure5 | 428 | 427 | -0.2% |
| Free cash flow6 | 823 | 983 | 19.4% |
| Investments in securities | 68 | 136 | 100.0% |
| Net debt | 6,624 | 6,816 | 2.9% |
Recurring net income: net attributable income excluding capital gains and losses on disposals, asset write-downs and material non-recurring provisions.
Calculated based on the number of shares outstanding at June 30 (554,424,460 shares in 2017, versus 552,574,120 shares in 2016).
Cash flow from operations = operating cash flow excluding material non-recurring provisions. 4. Cash flow from operations excluding capital gains tax = (3) less the tax impact of capital gains and losses, asset write-downs and material non-recurring provisions.
Capital expenditure: investments in property, plant and equipment.
Free cash flow = (4) less capital expenditure.
Consolidated sales advanced 3.5% like-for-like, led both by prices (up 1.8%) in a more inflationary cost environment, and by volumes (up 1.7%). On a reported basis, sales were up 4.4%, with a positive 0.1% currency impact resulting mainly from the depreciation of the euro against the Brazilian real and US dollar, offset by the fall in pound sterling. The positive 0.8% Group structure impact essentially reflects the consolidation of acquisitions made in Asia and emerging countries (Emix, Solcrom, Tumelero), in new niche technologies and services (H-Old, Isonat, France Pare-Brise), and to further strengthen our positions in Building Distribution (particularly in Nordic countries).
Operating income increased 7.1% based on reported figures and 6.6% like-for-like. The operating margin widened to 7.2% of sales from 7.0% of sales in first-half 2016.
EBITDA (operating income plus operating depreciation and amortization) climbed 5.8% to €2,071 million, while the EBITDA margin moved up to 10.1% of sales from 10.0% of sales in the same period in 2016.
Non-operating costs totaled €166 million, with a fall in restructuring costs compared to first-half 2016. The €45 million accrual to the provision for asbestos-related litigation involving CertainTeed in the US remained unchanged from the last few half-year periods.
The net balance of capital gains and losses on disposals, asset write-downs and corporate acquisition fees represented income of €7 million versus an expense of €32 million in first-half 2016. Business income therefore rose 13.0% to €1,306 million.
Net financial expense improved significantly, down 19.5% to €231 million from €287 million in first-half 2016, mainly reflecting the decrease in the cost of gross debt, which stood at 2.7% at end-June 2017 versus 3.9% at June 30, 2016.
The income tax rate on recurring net income was 27% compared to 30% in the prior-year period, due in particular to a continued favorable geographical mix effect.
Income tax totaled €297 million (€261 million in first-half 2016).
Recurring net income (excluding capital gains and losses on disposals, asset write-downs and material non-recurring provisions) jumped 20.4% to €751 million.
Net attributable income surged 26.5% to €754 million.
Capital expenditure was stable at €427 million, representing 2.1% of sales compared to 2.2% of sales in first-half 2016.
Cash flow from operations was up 11.7% to €1,407 million; before the tax impact of capital gains and losses on disposals, asset write-downs and material non-recurring provisions, cash flow from operations advanced 12.7% to €1,410 million, and free cash flow increased 19.4% to €983 million (4.8% of sales versus 4.2% of sales in first-half 2016).
The difference between EBITDA and capital expenditure improved, up 7.5% to €1,644 million (€1,529 million in first-half 2016), representing 8.1% of sales (7.8% in first-half 2016).
Operating working capital requirements (operating WCR) settled at €4,333 million (€4,244 million at June 30, 2016), stable at 39 days of sales.
Investments in securities doubled, at €136 million (€68 million in first-half 2016) and correspond to targeted acquisitions made to develop innovative niches and consolidate strong positions. They include Biolink in Germany (Innovative Materials), SimTek Fence in the US (Construction Products) and Tumelero in Brazil (Building Distribution).
Net debt was up slightly at €6.8 billion from €6.6 billion at June 30, 2017, with €174 million in share buybacks over the period. Net debt represents 36% of consolidated equity, stable versus end-June 2016. The net debt to EBITDA ratio over the last 12-month rolling period was also stable at 1.7 at June 30, 2017.
The main risks and uncertainties that the Group could face in the second semester of 2017 are those described in Section 1 "Risk Factors" of Chapter 7 of the 2016 registration document of March 15, 2017, filed with the French financial markets authority (Autorité des Marchés Financiers) under number D.17-0171 (the "2016 Registration Document"). There has not been any significant change in these risk factors in the first-half of 2017.
Changes related to ongoing litigations in the first semester of 2017 are presented in note 6.2 to the consolidated financial statements as at June 30, 2017.
Related parties mainly relate to equity consolidated companies, proportionately consolidated companies and certain subsidiaries of the Wendel group. In accordance with the Group policy, the transactions with these related-party entities are carried out at normal market conditions on an arm's length basis.
On June 2, 2017, Saint-Gobain bought back 1 million of its own shares (c.0.2% of its share capital at the transaction date) at a price of 50 million euros as part of an accelerated bookbuilding process completed by Wendel. This buyback was made at the placement price as part of the existing share buyback program authorized by Saint-Gobain's shareholders at the AGM of June 2, 2016. All shares so repurchased will be cancelled.
Following completion of this transaction, Wendel retains a stake of approximately 2.5% of Compagnie de Saint-Gobain's share capital and 4.5% of its voting rights.
There has not been any other significant change in these related-party transactions during the first semester of 2017.
Cyber-attack of June 27, 2017
Like several other companies, Saint-Gobain experienced an important cyber-attack on June 27, 2017. No personal data was disclosed to any third party. Throughout the event, all efforts were made to ensure Saint-Gobain's business continuity and in particular to keep any impact on the Group's customers to a minimum. To date, the Group's businesses operate normally.
Saint-Gobain continued during the first half of 2017 its proposed acquisition of the control over Sika, described in Section 1.2 of Chapter 3 of the 2016 Registration Document, with a decision of the Zug Supreme Court on appeal expected by the end of the year.
Pursuant to the agreement between Saint-Gobain and the Burkard family relating to the sale of the shares of Schenker-Winkler Holding (SWH), which holds the majority of Sika's voting rights, Saint-Gobain exercised on April 6, 2017, its option to extend the validity of the agreement until December 31, 2017. Saint-Gobain will then have the right to extend the agreement up until December 31, 2018.
The Group continued to pursue its strategic priorities during the first half, in line with its strategy confirmed at the investor day on May 17, 2017:
After a first half in line with expectations, the economic environment should remain supportive for the Group in the second half of 2017:
The Group maintains its action priorities for the year as a whole:
All indicators contained in this press release (not defined in the footnotes) are explained in the notes to the financial statements in the interim financial report, available by clicking here: https://www.saint-gobain.com/en/finance/regulated-information/half-yearly-financialreport
The glossary below shows the note of the interim financial statements in which you can find an explanation of each indicator.
| Glossary: | |
|---|---|
| Cash flow from operations | Note 3 |
| Net debt | Note 7 |
| EBITDA | Note 3 |
| Non-operating costs | Note 3 |
| Operating income | Note 3 |
| Net financial expense | Note 7 |
| Recurring net income | Note 3 |
| Business income | Note 3 |
This press release contains forward-looking statements with respect to Saint-Gobain's financial condition, results, business, strategy, plans and outlook. Forward-looking statements are generally identified by the use of the words "expect", "anticipate", "believe", "intend", "estimate", "plan" and similar expressions. Although Saint-Gobain believes that the expectations reflected in such forwardlooking statements are based on reasonable assumptions as at the time of publishing this document, investors are cautioned that these statements are not guarantees of its future performance. Actual results may differ materially from the forward-looking statements as a result of a number of known and unknown risks, uncertainties and other factors, many of which are difficult to predict and are generally beyond the control of Saint-Gobain, including but not limited to the risks described in Saint-Gobain's registration document available on its website (www.saint-gobain.com). Accordingly, readers of this document are cautioned against relying on these forward-looking statements. These forward-looking statements are made as of the date of this document. Saint-Gobain disclaims any intention or obligation to complete, update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
This press release does not constitute any offer to purchase or exchange, nor any solicitation of an offer to sell or exchange securities of Saint-Gobain.
For any further information, please visit www.saint-gobain.com
7
CONSOLIDATION REPORTING GROUP DEPARTMENT
| 2017 HALF-YEAR CONDENSED CONSOLIDATED ACCOUNTS3 | |
|---|---|
| CONSOLIDATED BALANCE SHEET3 | |
| CONSOLIDATED INCOME STATEMENT 4 |
|
| CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE5 | |
| CONSOLIDATED STATEMENT OF CASH FLOWS 6 |
|
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 7 |
|
| NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS8 | |
| NOTE 1 – ACCOUNTING PRINCIPLES 8 |
|
| 1.1. Standards applied 8 |
|
| 1.2. Estimates and assumptions 8 |
|
| NOTE 2 – SCOPE OF CONSOLIDATION 9 |
|
| 2.1. Accounting principles related to consolidation 9 |
|
| 2.2. Changes in Group structure9 |
|
| 2.3. Changes in the number of consolidated companies9 |
|
| 2.4. Off-balance sheet commitments related to companies within the scope of |
|
| consolidation9 | |
| NOTE 3 – INFORMATION CONCERNING THE GROUP'S OPERATING ACTIVITIES 10 |
|
| 3.1. Income statement items10 |
|
| 3.2. Segment information 11 |
|
| 3.3. Information by geographic area 13 |
|
| 3.4. Performance Indicators13 |
|
| 3.5. Working capital15 |
|
| 3.6 Off-balance sheet commitments related to operating activities16 |
|
| NOTE 4 – PERSONNEL EXPENSES AND EMPLOYEE BENEFIT OBLIGATIONS 17 |
|
| 4.1. Provisions for pensions and other employee benefits 17 |
|
| 4.2. Share-based payments18 |
|
| NOTE 5 – PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS 20 |
|
| 5.1. Goodwill20 |
|
| 5.2. Other intangible assets20 |
|
| 5.3. Property, plant and equipment20 |
|
| 5.4. Finance leases and operating leases21 |
|
| 5.5 Impairment review21 |
|
| NOTE 6 – OTHER CURRENT AND NON-CURRENT LIABILITIES AND PROVISIONS, CONTINGENT |
|
| LIABILITIES AND LITIGATION22 | |
| 6.1. Provisions for other liabilities22 |
|
| 6.2. Contingent liabilities and litigation 22 |
|
| NOTE 7 – FINANCING AND FINANCIAL INSTRUMENTS26 |
|
| 7.1. Net financial expense 26 |
|
| 7.2. Net debt26 |
|
| 7.3. Financial Instruments29 |
|
| 7.4. Financial assets and liabilities30 |
|
| NOTE 8 – SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE31 |
|
| 8.1. Equity31 |
|
| 8.2. Earnings per share31 |
|
| NOTE 9 – INCOME TAX32 |
| 9.1. | Income tax32 | |
|---|---|---|
| 9.2. | Deferred tax32 | |
| NOTE 10 – | SUBSEQUENT EVENTS32 |
| (in € million) | Notes June 30, 2017 Dec. 31, 2016 | ||
|---|---|---|---|
| ASSETS | |||
| Goodwill | (5) | 10,439 | 10,669 |
| Other intangible assets | (5) | 2,626 | 2,662 |
| Property, plant and equipment | (5) | 11,310 | 11,654 |
| Investments in equity-accounted companies | 375 | 376 | |
| Deferred tax assets | (9) | 1,073 | 1,188 |
| Other non-current assets | 744 | 710 | |
| Non-current assets | 26,567 | 27,259 | |
| Inventories | (3) | 6,188 | 5,875 |
| Trade accounts receivable | (3) | 5,822 | 4,935 |
| Current tax receivable | 238 | 445 | |
| Other receivables | (3) | 1,584 | 1,515 |
| Cash and cash equivalents | (7) | 2,835 | 3,738 |
| Current assets | 16,667 | 16,508 | |
| Total assets | 43,234 | 43,767 | |
| EQUITY AND LIABILITIES | |||
| Capital stock | (8) | 2,239 | 2,221 |
| Additional paid-in capital and legal reserve | 6,240 | 6,090 | |
| Retained earnings and consolidated net income | 11,417 | 11,077 | |
| Cumulative translation adjustments | (1,334) | (742) | |
| Fair value reserves | 152 | 191 | |
| Treasury stock | (8) | (250) | (72) |
| Shareholders' equity | 18,464 | 18,765 | |
| Minority interests | 360 | 375 | |
| Total equity | 18,824 | 19,140 | |
| Long-term debt | (7) | 8,376 | 6,959 |
| Provisions for pensions and other employee benefits | (4) | 3,255 | 3,615 |
| Deferred tax liabilities | (9) | 376 | 363 |
| Other non-current liabilities and provisions | (6) | 1,157 | 1,242 |
| Non-current liabilities | 13,164 | 12,179 | |
| Current portion of long-term debt | (7) | 386 | 1,835 |
| Current portion of other liabilities and provisions | (6) | 419 | 436 |
| Trade accounts payable | (3) | 5,819 | 5,805 |
| Current tax liabilities | 202 | 148 | |
| Other payables | (3) | 3,531 | 3,636 |
| Short-term debt and bank overdrafts | (7) | 889 | 588 |
| Current liabilities | 11,246 | 12,448 | |
| Total equity and liabilities | 43,234 | 43,767 |
| (in € million) | Notes | First-half 2017 |
First-half 2016 |
|---|---|---|---|
| Net sales | (3) | 20,409 | 19,549 |
| Cost of sales | (3) | (15,123) | (14,498) |
| General expenses including research | (3) | (3,839) | (3,697) |
| Share in net income of core business equity-accounted companies | 18 | 14 | |
| Operating income | 1,465 | 1,368 | |
| Other business income | (3) | 32 | 15 |
| Other business expense | (3) | (191) | (227) |
| Business income | 1,306 | 1,156 | |
| Borrowing costs, gross | (154) | (197) | |
| Income from cash and cash equivalents | 11 | 10 | |
| Borrowing costs, net | (143) | (187) | |
| Other financial income and expense | (88) | (100) | |
| Net financial expense | (7) | (231) | (287) |
| Share in net income of non-core business equity-accounted companies | (1) | 2 | |
| Income taxes | (9) | (297) | (261) |
| Net income | 777 | 610 | |
| Group share of net income | 754 | 596 | |
| Minority interests | 23 | 14 |
| Earnings per share (in €) | Notes | First-half 2017 |
First-half 2016 |
|---|---|---|---|
| Weighted average number of shares in issue | 553,852,126 | 556,459,337 | |
| Earnings per share, Group share | (8) | 1.36 | 1.07 |
| Weighted average number of shares assuming full dilution | 556,969,463 | 558,802,960 | |
| Diluted earnings per share, Group share | (8) | 1.35 | 1.07 |
| (in € million) | First-half 2017 |
First-half 2016 |
|---|---|---|
| Net income | 777 | 610 |
| Items that may be subsequently reclassified to profit or loss | ||
| Translation adjustments | (613) | (377) |
| Changes in fair value | (39) | (34) |
| Tax on items that may be subsequently reclassified to profit or loss | 15 | 12 |
| Items that will not be reclassified to profit or loss | ||
| Changes in actuarial gains and losses | 326 | (277) |
| Tax on items that will not be reclassified to profit or loss | (92) | 140 |
| Income and expense recognized directly in equity | (403) | (536) |
| Total recognized income and expense for the period | 374 | 74 |
| Group share | 372 | 52 |
| Minority interests | 2 | 22 |
| (in € million) | Notes | First-half 2017 |
First-half 2016 |
|---|---|---|---|
| Group share of net income | 754 | 596 | |
| Minority interests in net income | (a) | 23 | 14 |
| Share in net income of equity-accounted companies, net of dividends received | (3) | (8) | |
| Depreciation, amortization and impairment of assets | (3) | 639 | 608 |
| Gains and losses on disposals of assets | (3) | (7) | 9 |
| Unrealized gains and losses arising from changes in fair value and share-based payments | (3) | 3 | 34 |
| Changes in inventory | (3) | (437) | (300) |
| Changes in trade accounts receivable and payable, and other accounts receivable and payable | (3) | (937) | (1,081) |
| Changes in tax receivable and payable | (9) | 255 | 55 |
| Changes in deferred taxes and provisions for other liabilities and charges | (4)(6)(9) | 56 | (29) |
| Net cash from (used in) operating activities | 346 | (102) | |
| Acquisitions of property, plant and equipment [H1 2017: (427) , H1 2016: (428)] and intangible assets | (5) | (479) | (480) |
| Increase (decrease) in amounts due to suppliers of fixed assets | (3) | (149) | (111) |
| Acquisitions of shares in consolidated companies [H1 2017: (52) , H1 2016: (56)], net of cash acquired | (39) | (53) | |
| Acquisitions of other investments | (84) | (12) | |
| Increase in investment-related liabilities | (6) | (38) | 2 |
| Decrease in investment-related liabilities | (6) | 4 | (2) |
| Investments Disposals of property, plant and equipment and intangible assets |
(5) | (785) 60 |
(656) 31 |
| Disposals of shares in consolidated companies, net of cash divested | 28 | 44 | |
| Disposals of other investments | 0 | 1 | |
| Divestments | 8 8 |
7 6 |
|
| Increase in loans, deposits and short-term loans | (89) | (72) | |
| Decrease in loans, deposits and short-term loans | 38 | 36 | |
| Change in loans, deposits and short-term loans | (51) | (36) | |
| Net cash from (used in) investment and divestment activities | (748) | (616) | |
| Issues of capital stock | (a) | 168 | 137 |
| (Increase) decrease in treasury stock | (a) | (178) | (416) |
| Dividends paid | (a) | (694) | (681) |
| Transactions with shareholders of parent company | (704) | (960) | |
| Dividends paid to minority shareholders of consolidated companies and (Increase) decrease in dividends payable | (22) | (27) | |
| Transactions with minority interests | (22) | (27) | |
| Increase (decrease) in bank overdrafts and other short-term debt | 283 | 76 | |
| Increase in long-term debt | (b) | 1,560 | 81 |
| Decrease in long-term debt | (b) | (1,578) | (915) |
| Changes in gross debt | 265 | (758) | |
| Net cash from (used in) financing activities | (461) | (1,745) | |
| Increase (decrease) in cash and cash equivalents | (863) | (2,463) | |
| Net effect of exchange rate changes on cash and cash equivalents | (37) | (17) | |
| Net effect from changes in fair value on cash and cash equivalents | (3) | 0 | |
| Cash and cash equivalents at beginning of period | 3,738 | 5,380 | |
| Cash and cash equivalents at end of period | 2,835 | 2,900 |
(a) Please refer to the consolidated statement of changes in equity.
(b) Including bond premiums, prepaid interest and issue costs.
Income tax paid amounted to €26 million in first-half 2017, (€256 million in first-half 2016) and interest paid net of interest received amounted to €171 million in first-half 2017, (€162 million in first-half 2016).
| Number of shares | (in € million) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Issued | Oustanding | Capital stock Additional paid | Retained | Cumulative | Fair value | Treasury stock Shareholders' | Minority | Total Equity | ||
| in capital and | earnings and | translation | reserves | equity Group | interests | |||||
| legal reserve | consolidated | adjustments | share | |||||||
| net income | ||||||||||
| 560,943,439 558,607,521 At January 1, 2016 | 2,244 | 6,341 | 10,805 | (528) | 181 | (87) | 18,956 | 364 | 19,320 | |
| Income and expenses recognized directly in equity | 0 | 0 | (125) | (385) | (34) | 0 | (544) | 8 | (536) | |
| Net income for the period | 596 | 596 | 14 | 610 | ||||||
| Total income and expense for the period | 0 | 0 | 471 | (385) | (34) | 0 | 52 | 22 | 74 | |
| Issues of capital stock | ||||||||||
| 4,653,810 | 4,653,810 Group Savings Plan | 18 | 118 | 136 | 136 | |||||
| 233,819 | 233,819 Stock option plans | 1 | 1 | 1 | ||||||
| Dividends paid (€1.24 per share) | (681) | (681) | (29) | (710) | ||||||
| (11,658,122) Shares purchased | (444) | (444) | (444) | |||||||
| 737,092 Shares sold | (3) | 31 | 28 | 28 | ||||||
| (10,984,088) | Shares cancelled | (44) | (378) | 422 | 0 | 0 | ||||
| Share-based payments | 5 | 5 | 5 | |||||||
| Changes in Group structure | (6) | (6) | 3 | (3) | ||||||
| 554,846,980 552,574,120 At June 30, 2016 | 2,219 | 6,081 | 10,591 | (913) | 147 | (78) | 18,047 | 360 | 18,407 | |
| Income and expenses recognized directly in equity | 0 | 0 | (216) | 171 | 44 | 0 | (1) | (12) | (13) | |
| Net income for the period | 715 | 715 | 27 | 742 | ||||||
| Total income and expense for the period | 0 | 0 | 499 | 171 | 44 | 0 | 714 | 15 | 729 | |
| Issues of capital stock | ||||||||||
| Group Savings Plan | 0 | 0 | ||||||||
| 433,378 | 433,378 Stock option plans | 2 | 10 | 12 | 12 | |||||
| Other | 0 | 2 | 2 | |||||||
| Dividends paid (€1.24 per share) | 1 | 1 | (2) | (1) | ||||||
| (588,034) Shares purchased | (24) | (24) | (24) | |||||||
| 968,939 Shares sold | (7) | 29 | 22 | 22 | ||||||
| Shares cancelled | (1) | 1 | 0 | 0 | ||||||
| Share-based payments | 6 | 6 | 6 | |||||||
| Changes in Group structure | (13) | (13) | (13) | |||||||
| 555,280,358 553,388,403 At December 31, 2016 | 2,221 | 6,090 | 11,077 | (742) | 191 | (72) | 18,765 | 375 | 19,140 | |
| Income and expenses recognized directly in equity | 0 | 0 | 249 | (592) | (39) | 0 | (382) | (21) | (403) | |
| Net income for the period | 754 | 754 | 23 | 777 | ||||||
| Total income and expense for the period | 0 | 0 | 1,003 | (592) | (39) | 0 | 372 | 2 | 374 | |
| Issues of capital stock | ||||||||||
| 4,593,807 | 4,593,807 Group Savings Plan | 18 | 150 | 168 | 168 | |||||
| Dividends paid (€1.26 per share) | (694) | (694) | (21) | (715) | ||||||
| (4,157,048) Shares purchased | (202) | (202) | (202) | |||||||
| 599,298 Shares sold | 24 | 24 | 24 | |||||||
| Share-based payments | 8 | 8 | 8 | |||||||
| Changes in Group structure | 23 | 23 | 4 | 27 | ||||||
| 559,874,165 554,424,460 At June 30, 2017 | 2,239 | 6,240 | 11,417 | (1,334) | 152 | (250) | 18,464 | 360 | 18,824 |
The consolidated financial statements reflect the accounting position of Compagnie de Saint-Gobain and its subsidiaries ("The Group"), as well as the Group's interests in associate companies and joint ventures. They are expressed in euros rounded to the nearest million.
These consolidated financial statements were adopted by the Board of Directors on July 27, 2017.
The interim condensed consolidated financial statements of Saint-Gobain Group have been prepared in accordance with IAS 34 « Interim Financial Reporting». These condensed financial statements do not include all the information required for the annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended December 31, 2016. The consolidated financial statements have been prepared using the historical cost convention, except for certain assets and liabilities that have been measured using the fair value model as explained in these notes.
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) and interpretations adopted for use in the European Union at June 30, 2017. These financial statements have also been prepared in accordance with the IFRS issued by the International Accounting Standards Board (IASB) except for the amendment to IAS 12 standard « Recognition of deferred tax assets related to unrealized tax losses ». Standards adopted by the European Union may be consulted on the European Commission website, at http://ec.europa.eu/finance/accounting/ias/index_en.htm.
At 30th June, 2017, there are no standards, interpretations and amendments applicable to consolidated financial statements voted by the European Union for reporting periods beginning on or after January 1st, 2017.
The standards, interpretations and amendments to published standards applicable for the first time for reporting periods beginning on or after January 1, 2018 were not early-adopted by the Group in 2017.
The preparation of consolidated financial statements in compliance with IFRS requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported in the balance sheet and the disclosure of contingent assets and liabilities in the notes to the financial statements, as well as the reported amounts of income and expenses during the period. These estimates and assumptions are based on past experience and on various other factors seen in the prevailing economic and financial environment, which makes it difficult to predict future business performance. Actual amounts may differ from those obtained through the use of these estimates and assumptions.
The main estimates and assumptions described in these notes concern the measurement of employee benefit obligations and share-based payments (Note 4 "Personnel expenses and employee benefit obligations"), asset impairment tests (Note 5 "Property, plant and equipment and intangible assets"), provisions for other liabilities and charges (Note 6 "Other current and non-current liabilities and provisions, contingent liabilities and litigation"), the measurement of financial instruments (Note 7 "Financing and financial instruments") and taxes (Note 9 "Taxes").
The accounting valuation methods applied by the Group in the interim condensed consolidated financial statements are similar to those used to prepare the financial statements for the year ended December 31, 2016. The specific accounting valuation methods applied relate to income tax and employee benefits.
As described in the half-year report, The Group was hit by a cyber-attack on June 27th, 2017. Consequently, some items of financial statements have been estimated, based on actual data available until June 26th, 2017. These estimates relate on entities with a low contribution to consolidated financial statements.
The Group's consolidated financial statements include the accounts of Compagnie de Saint-Gobain and of all companies controlled by the Group, as well as those of jointly controlled companies and companies over which the Group exercises significant influence.
Significant changes in the Group's structure during half-year 2017 and annual 2016 are presented below.
Over the first-half 2017, the Group did not realize significant takeover, disposal or divestiture.
In 2016, Saint-Gobain pursued active management of the scope of its business activities, adhering closely to the Group's strategy. Various transactions were carried out with a view to strengthening the Group's profile in high value-added businesses and promising markets.
Furthermore, Saint-Gobain pursued its plan to acquire a controlling interest in Sika during the first-half 2017, as outlined in section 1.2 of chapter 3 of the 2016 Registration Document.
As of December 31, 2016, there were 839 companies included 95 equity-accounted companies and joint arrangements. On June 30, 2017, there was no significant variance in the number of consolidated companies.
As of June 30, 2017, commitments for irrevocable purchases included the commitment on the equity interests of the Sika Group for the amount of €2,421 million.
Other business income and expense can be analyzed as follows:
| (in € million) | First-half 2017 |
First-half 2016 |
|---|---|---|
| Restructuring costs (a) | (57) | (86) |
| Provisions and expenses relating to claims and litigation (b) | (44) | (56) |
| Other (c) | (65) | (38) |
| Non-operating income and expense | (166) | (180) |
| Impairment of assets and others (d) | 0 | (23) |
| Other business expense (e) | (25) | (24) |
| Impairment of assets and other business expense | (25) | (47) |
| Gains on disposals of property, plant and equipment and intangible assets | 32 | 15 |
| Gains and losses on disposals, impairment of assets business income and expense and acquisition costs for companies and price adjustments |
7 | (32) |
| Other business income and expense | (159) | (212) |
(a) For first-half 2017, restructuring costs mainly consist of retirement benefits totaling €29 million (€46 million in firsthalf 2016);
(e) Other business expense in both 2017 and 2016 relates primarily to capital losses on assets divested or scrapped.
Business income is detailed by type below:
| (in € million) | First-half 2017 |
First-half 2016 |
|---|---|---|
| Net sales | 20,409 | 19,549 |
| Personnel expenses: | ||
| Salaries and payroll taxes | (4,153) | (3,980) |
| Share-based payments (a) | (20) | (15) |
| Pensions and employee benefit obligations (a) | (106) | (106) |
| Depreciation and amortization | (606) | (589) |
| Share in net income of core business equity-accounted companies | 18 | 14 |
| Other (b) | (14,077) | (13,505) |
| Operating income | 1,465 | 1,368 |
| Other business income | 32 | 15 |
| Other business expense | (191) | (227) |
| Other business income and expense | (159) | (212) |
| Business Income | 1,306 | 1,156 |
(a) Share-based payments (IFRS 2 expense) and details of changes in pension are detailed in Note 4 "Personnel expenses and benefit obligations";
(b) This item corresponds to Building Distribution Sector cost of sales, supplier discounts and selling expenses and to transport costs, raw materials costs, and other production costs in the other sectors. It also includes research and development costs recognized in operating expenses, amounting to €234 million in first-half 2017 (€218 million in first-half 2016);
Segment information is presented by sector and by business as follows:
Management uses several different internal indicators to measure operational performance and to make resource allocation decisions. These indicators are based on the data used to prepare the consolidated financial statements and meet financial reporting requirements. Intragroup ("internal") sales are generally carried out on the same terms as sales to external customers and are eliminated in consolidation. The "Other" column includes holding companies and certain corporate support functions (tax, cash management, purchasing, etc.).
Segment information by sector and by business for first-half 2017 and 2016 is as follows:
| (in € million) | INNOVATIVE MATERIALS | CONSTRUCTION PRODUCTS | BUILDING DISTRIBUTION |
Other* | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Flat Glass | High Performance Materials |
Intra segment Eliminations |
Total | Interior Solutions |
Exterior Solutions |
Intra segment Eliminations |
Total | ||||
| External sales | 2,843 | 2,314 | 5,157 | 3,096 | 2,804 | 5,900 | 9,342 | 10 | 20,409 | ||
| Internal sales | 22 | 73 | (10) | 85 | 321 | 154 | (46) | 429 | 2 | (516) | 0 |
| Net sales | 2,865 | 2,387 | (10) | 5,242 | 3,417 | 2,958 | (46) | 6,329 | 9,344 | (506) | 20,409 |
| Operating income /(loss) | 284 | 359 | 643 | 337 | 249 | 586 | 248 | (12) | 1,465 | ||
| Business income/(loss) | 272 | 308 | 580 | 321 | 236 | 557 | 236 | (67) | 1,306 | ||
| Share in net income/(loss) of equity accounted companies |
14 | 1 | 15 | 2 | 1 | 3 | 0 | (1) | 17 | ||
| Depreciation and amortization | 142 | 84 | 226 | 151 | 81 | 232 | 130 | 18 | 606 | ||
| Impairment of assets | 33 | 0 | 33 | 0 | 0 | 0 | 0 | 0 | 33 | ||
| EBITDA | 426 | 443 | 869 | 488 | 330 | 818 | 378 | 6 | 2,071 | ||
| Capital expenditure | 102 | 59 | 161 | 99 | 58 | 157 | 92 | 17 | 427 | ||
| Cash flow from operations * |
592 | 506 | 243 | 66 | 1,407 |
"Other" corresponds to the elimination of intragroup transactions for internal sales, and holding company transactions for the other captions.
| (in € million) | INNOVATIVE MATERIALS | CONSTRUCTION PRODUCTS | BUILDING DISTRIBUTION |
Other* | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Flat Glass | High Performance Materials |
Intra segment Eliminations |
Total | Interior Solutions |
Exterior Solutions |
Intra segment Eliminations |
Total | ||||
| External sales | 2,642 | 2,203 | 4,845 | 2,987 | 2,605 | 5,592 | 9,102 | 10 | 19,549 | ||
| Internal sales | 14 | 61 | (8) | 67 | 310 | 148 | (42) | 416 | 2 | (485) | 0 |
| Net sales | 2,656 | 2,264 | (8) | 4,912 | 3,297 | 2,753 | (42) | 6,008 | 9,104 | (475) | 19,549 |
| Operating income /(loss) | 234 | 318 | 552 | 335 | 229 | 564 | 253 | (1) | 1,368 | ||
| Business income/(loss) | 177 | 285 | 462 | 319 | 209 | 528 | 219 | (53) | 1,156 | ||
| Share in net income/(loss) of equity accounted companies |
8 | 1 | 9 | 4 | 2 | 6 | 0 | 1 | 16 | ||
| Depreciation and amortization | 135 | 81 | 216 | 156 | 75 | 231 | 127 | 15 | 589 | ||
| Impairment of assets | 16 | 0 | 16 | 0 | 2 | 2 | 1 | 0 | 19 | ||
| EBITDA | 369 | 399 | 768 | 491 | 304 | 795 | 380 | 14 | 1,957 | ||
| Capital expenditure | 102 | 74 | 176 | 111 | 53 | 164 | 69 | 19 | 428 | ||
| Cash flow from operations * |
502 | 420 | 191 | 147 | 1,260 |
"Other" corresponds to the elimination of intragroup transactions for internal sales, and holding company transactions for the other captions.
Segment information for first-half 2017 and 2016 by geographic area are as follows:
| (in € million) | France | Other Western European Countries |
North America |
Emerging countries and Asia |
Internal Sales | TOTAL |
|---|---|---|---|---|---|---|
| Net sales | 5,398 | 8,736 | 2,824 | 4,457 | (1,006) | 20,409 |
| Operating income /(loss) | 133 | 521 | 334 | 477 | 1,465 | |
| Business income/(loss) | 118 | 471 | 242 | 475 | 1,306 | |
| EBITDA | 279 | 704 | 420 | 668 | 2,071 | |
| Capital expenditure | 90 | 118 | 65 | 154 | 427 | |
| Cash flow from operations | 111 | 545 | 253 | 498 | 1,407 |
| (in € million) | France | Other Western European Countries |
North America |
Emerging countries and Asia |
Internal Sales | TOTAL |
|---|---|---|---|---|---|---|
| Net sales | 5,270 | 8,660 | 2,674 | 3,956 | (1,011) | 19,549 |
| Operating income /(loss) | 124 | 513 | 310 | 421 | 1,368 | |
| Business income/(loss) | 90 | 465 | 226 | 375 | 1,156 | |
| EBITDA | 265 | 697 | 399 | 596 | 1,957 | |
| Capital expenditure | 81 | 108 | 81 | 158 | 428 | |
| Cash flow from operations | 89 | 505 | 211 | 455 | 1,260 |
EBITDA amounted to €2,071 million in first-half 2017 (€1,957 million in first-half 2016). It is calculated as follows:
| (in € million) | First-half | First-half |
|---|---|---|
| 2017 | 2016 | |
| Operating income | 1,465 | 1,368 |
| Depreciation/amortization of property, plant and equipment and | 606 | 589 |
| intangible assets | ||
| EBITDA | 2,071 | 1,957 |
Recurring net income from continuing operations totaled €751 million in first-half 2017 (€624 million in first-half 2016). Based on the weighted average number of shares outstanding at June 30 (553,852,126 shares in 2017, 556,459,337 shares in 2016), recurring earnings per share amounted to €1.36 in first-half 2017 and €1.12 in first-half 2016.
The difference between net income and recurring net income corresponds to the following items:
| (in € million) | First-half 2017 |
First-half 2016 |
|---|---|---|
| Group share of net income | 754 | 596 |
| Less: | ||
| Gains and losses on disposals of assets | 7 | (9) |
| Impairment of assets and others | (1) | (23) |
| Changes in provision for anti-trust litigation and other non-recurring provisions |
2 | (7) |
| Impact of minority interests | (2) | 2 |
| Tax on disposal gains and losses, asset impairment and non-recurring charges to provisions |
(3) | 9 |
| Group share of recurring net income | 751 | 624 |
Cash flow from operations totaled €1,407 million in first-half 2017 (€1,260 million in first-half 2016) and cash flow from operations excluding income tax on disposal gains and losses and non-recurring provisions amounted to €1,410 million in firsthalf 2017 (€1,251 million in first-half 2016). These amounts are calculated as follows:
| (in € million) | First-half 2017 |
First-half 2016 |
|---|---|---|
| Group share of net income | 754 | 596 |
| Minority interests in net income | 23 | 14 |
| Share in net income of equity-accounted companies, net of dividends received |
(3) | (8) |
| Amortization and impairment of assets | 639 | 608 |
| Gains and losses on disposals of assets | (7) | 9 |
| Changes in provision for anti-trust litigation and other non-recurring provisions |
(2) | 7 |
| Unrealized gains and losses arising from changes in fair value and share-based payments |
3 | 34 |
| Cash flow from operations | 1,407 | 1,260 |
| Tax on disposal gains and losses, asset impairment and non-recurring charges to provisions |
3 | (9) |
| Cash flow from operations before tax on disposal gains and losses and non-recurring provisions |
1,410 | 1,251 |
At June 30, 2017 and December 31, 2016, inventories were as follows:
| (in € million) | June 30, 2017 Dec. 31, 2016 | |
|---|---|---|
| Gross value | ||
| Raw materials | 1,386 | 1,327 |
| Work in progress | 350 | 318 |
| Finished goods | 4,894 | 4,678 |
| Gross inventories | 6,630 | 6,323 |
| Provision for impairment | ||
| Raw materials | (142) | (143) |
| Work in progress | (11) | (11) |
| Finished goods | (289) | (294) |
| Total provision for impairment | (442) | (448) |
| Net | 6,188 | 5,875 |
The net value of inventories was €6,188 million at June 30, 2017 compared with €5,875 million at December 31, 2016. The increase of inventories for the first half 2017 mainly reflects seasonal fluctuations in businesses. As a reminder, the net value of inventories was €5,964 million at June 30, 2016.
Trade and other accounts receivable can be analyzed as follows:
| (in € million) | June 30, 2017 Dec. 31, 2016 | ||
|---|---|---|---|
| Gross value | 6,234 | 5,361 | |
| Provision for impairment | (412) | (426) | |
| Trade accounts receivable | 5,822 | 4,935 | |
| Discounts and advances to suppliers | 614 | 567 | |
| Prepaid payroll taxes | 37 | 24 | |
| Other prepaid and recoverable taxes (other than income tax) | 357 | 348 | |
| Miscellanous operating receivables | 338 | 248 | |
| Other non-operating receivables and provisions | 243 | 339 | |
| Provision for impairment of other operating receivables | (5) | (11) | |
| Other receivables | 1,584 | 1,515 |
The increase in net value of trade accounts receivable during the first-half 2017 is primarily attributable to seasonal fluctuations in businesses. As a reminder, the net value of trade accounts receivable was €5,906 million at June 30, 2016.
Trade and other accounts payable can be analyzed as follows:
| (in € million) | June 30, 2017 Dec. 31, 2016 | |
|---|---|---|
| Trade accounts payable | 5,819 | 5,805 |
| Customer deposits | 938 | 1,056 |
| Payables to suppliers of non-current assets | 129 | 277 |
| Grants received | 84 | 88 |
| Accrued personnel expenses | 1,112 | 1,178 |
| Accrued taxes (other than income tax) | 591 | 416 |
| Other operating payables | 558 | 521 |
| Other non-operating payables | 119 | 100 |
| Other payables | 3,531 | 3,636 |
Changes in working capital requirement can be analyzed as follows:
| (in € million) | June 30, 2017 Dec. 31, 2016 | ||
|---|---|---|---|
| Inventories, net | 6,188 | 5,875 | |
| Trade accounts receivable, net | 5,822 | 4,935 | |
| Other operating receivables | 1,341 | 1,176 | |
| Other non-operating receivables | 243 | 339 | |
| Other receivables | 1,584 | 1,515 | |
| Current tax receivables | 238 | 445 | |
| Trade accounts payable | 5,819 | 5,805 | |
| Other operating payables | 3,199 | 3,171 | |
| Other non-operating payables | 332 | 465 | |
| Other payables | 3,531 | 3,636 | |
| Current tax liabilities | 202 | 148 | |
| Operating working capital requirements | 4,333 | 3,010 | |
| Non-operating working capital requirements (including current tax receivables and liabilities) |
(53) | 171 | |
| Working capital requirements | 4,280 | 3,181 |
Changes in payments due under non-cancelable operating leases in first-half 2017 were not significant. At June 30, 2017, they amounted to €3,094 million. Non-cancelable purchase commitments increased by €277 million, including commitments on energy. At June 30, 2017, pledged assets amounted to €269 million (€343 million at December 31, 2016) and this item mainly concerned pledges of fixed assets in the United Kingdom.
The Group's main defined benefit plans are identical to those mentioned in the consolidated financial statements of December 31, 2016.
Assumptions related to mortality, employee turnover and future salary increases take into account the economic conditions specific to each country or Group company.
The rate assumptions used in the first-half 2017 for the Group's main plans are as follows:
| First-half 2017 (in %) |
France | Eurozone | United | Kingdom United States |
|---|---|---|---|---|
| Discount rate | 2.10% | 2.10% | 2.60% | 3.90% |
| Inflation rate | 1.50% 1.40% to 1.55% | 2.30% | 2.50% |
The rate assumptions used in 2016 for the Group's main plans were as follows:
| 2016 (in %) |
France | Eurozone | United | Kingdom United States |
|---|---|---|---|---|
| Discount rate | 1.80% | 1.80% | 2.60% | 4.10% |
| Salary increases | 2.50% 1.40% to 2.40% | 2.00%* | 3.00% | |
| Inflation rate | 1.50% 1.40% to 1.55% | 2.35% | 2.50% |
*A cap applies to the reference salaries used to calculate benefit entitlements.
As these three regions account for almost all of the pension obligations, the discount and inflation rates adjustments led to a decrease of €81 million in obligations and related provisions.
Sensitivity calculations were not updated at June 30, 2017; if they had been, the results would not have been materially different to the analyses presented in the 2016 consolidated financial statements (in note 4 "Employees, personnel expenses and benefit obligations").
The actual return on plan assets for almost all plans amounted to €364 million. It was €245 million more than the expected return, leading to a decrease in the provision of the same amount.
Provisions for pension and other employee benefit obligations consist of the following:
| (in € million) | June 30, Dec. 31, 2016 |
|||
|---|---|---|---|---|
| 2017 | ||||
| Pension commitments | 2,345 | 2,673 | ||
| Length-of-service awards | 348 | 355 | ||
| Post-employment healthcare benefits | 414 | 435 | ||
| Total provisions for pensions and other post-employment | ||||
| benefit obligations | 3,107 | 3,463 | ||
| Healthcare benefits | 26 | 27 | ||
| Long-term disability benefits | 19 | 20 | ||
| Other long-term benefits | 103 | 105 | ||
| Provisions for pensions and other employee benefits | 3,255 | 3,615 |
Provisions for all other long-term benefits totaled €148 million at June 30, 2017 (€152 million at December 31, 2016).
The following table shows obligations under pension and other post-employment benefit plans and the related plan assets:
| (in € million) | June 30, 2017 |
Dec. 31, 2016 |
|---|---|---|
| Provisions for pensions and other post-employment benefit obligations - liabilities |
3,107 | 3,463 |
| Pension plan surpluses - assets | (54) | (41) |
| Net pension and other post-employment benefit obligations | 3,053 | 3,422 |
Changes in pension and other post-employment benefit obligations excluding other employee benefits are as follows:
| (in € million) | Net pension and other post employment benefit obligations |
|---|---|
| At January 1, 2017 | 3,422 |
| Movements during the period | |
| Service cost | 94 |
| Interest cost | 39 |
| Actuarial gains and losses recognized during the period* | (326) |
| Pension contributions and benefit payments | (99) |
| Currency translation adjustments | (77) |
| Total movements | (369) |
| At June 30, 2017 | 3,053 |
* The total impact on equity is an increase of €326 million before tax ( €234 million after tax).
During the first-half 2017, Saint-Gobain Group implemented a new PEG. The terms of the 2017 PEG are identical to the 2016 PEG and are described in note 4 "Employees, personnel expenses and benefit obligations" of the 2016 consolidated financial statements.
For the first-half 2017, 4,593,807 new shares with a par value of €4 were issued to employees under the PEG at an average subscription price of €36.72 (in first-half 2016: 4,653,810 shares at an average price of €29.42), representing a share capital increase of a global net amount of €168 million (€136 million in first-half 2016).
The total amount booked as an expense for-both-first-half 2017 and 2016, is nil, taking into account non-transferability costs.
The following table shows the main features of the standard plans, the amounts invested in the plans and the valuation assumptions applied in 2017 and 2016:
| 2017 | 2016 | |
|---|---|---|
| Plan characteristics | ||
| Date of Shareholders' Meeting | June 4, 2015 (17th resolution) | June 4, 2015 (17t h resolution) |
| Date of the Chief Executive Officer's decision fixing the subscription price | March 20 | March 21 |
| Plan duration (in years) | 5 or 10 | 5 or 10 |
| Reference price (in €) | 45.89 | 36.77 |
| Subscription price (in €) | 36.72 | 29.42 |
| Discount (in %) | 20.00% | 20.00% |
| Total discount on the date of the Chief Executive Officer's decision (in %) (a) | 21.25% | 21.94% |
| Employee investments (in € million) | 168.7 | 136.9 |
| Total number of shares subscribed | 4,593,807 | 4,653,810 |
| Valuation assumptions (5 years maturies) | ||
| Interest rate applicable to employees* | 4.80% | 5.00% |
| Risk-free interest rate | 0.19% | -0.15% |
| Repo rate | 0.47% | 0.50% |
| Lock-up discount (in %) (b) | 21.17% | 22.92% |
| Total cost to the Group (in %) (a-b) | 0.08% | -0.98% |
*A 0.5-point decline in borrowing costs for the employee would have no significant impact on the 2017 share-based payment expense as calculated in accordance with IFRS2.
Compagnie de Saint-Gobain has stock option plans available to certain employees. No stock options were granted in the firsthalf of 2017. Under IFRS 2, the expense attributable to the amortization of stock options granted under previous plans totaled €1 million in first-half 2017 and 2016.
Various performance share plans have been set up by Saint-Gobain since 2009. No new plan was set up in first-half 2017.
The expense recorded in the income statement in first-half 2017 in respect of these plans amounted to €7 million (€4 million in first-half 2016).
Performance unit plans subject to service and performance conditions were set up every year between 2012 and 2015 for certain management-grade employees and senior managers of the Group in France. These plans do not give rise to the delivery of shares but entitle grantees to receive cash compensation deferred over the long term (exercise period between four and ten years after the grant date), the amount of which will be determined by reference to the Company's share price. No new Performance unit plan was set up in first-half 2017.
The expense recorded in the income statement in respect of these plans in first-half 2017 amounted to €12 million (€10 million in first-half 2016).
Changes in goodwill, intangible assets and property, plant and equipment in first-half 2017 were as follows:
| (in € million) | Goodwill Other intangible | assets | Property, plant and equipment |
Total |
|---|---|---|---|---|
| At January 1, 2017 | ||||
| Gross value | 12,160 | 4,560 | 31,928 | 48,648 |
| Accumulated amortization and impairment | (1,491) | (1,898) | (20,274) | (23,663) |
| Net value | 10,669 | 2,662 | 11,654 | 24,985 |
| Movements during the period | ||||
| Acquisitions | 0 | 52 | 427 | 479 |
| Disposals | 0 | 0 | (22) | (22) |
| Translation adjustments | (304) | (45) | (298) | (647) |
| Amortization and impairment | (33) | (49) | (557) | (639) |
| Changes in Group structure and other | 107 | 6 | 106 | 219 |
| Total movements | (230) | (36) | (344) | (610) |
| At June 30, 2017 | ||||
| Gross value | 11,868 | 4,477 | 31,582 | 47,927 |
| Accumulated amortization and impairment | (1,429) | (1,851) | (20,272) | (23,552) |
| Net | 10,439 | 2,626 | 11,310 | 24,375 |
In the first-half 2017, changes in Group structure related to newly consolidated companies for €107 million. Moreover, impairments on goodwill have been carried out, mainly on Flat Glass Activity in United States. Currency translation differences arising in first-half 2017 primarily reflect the impact of fluctuations in US dollar and pound sterling.
The net values of goodwill by sector and by business at June 30, 2017 and at December 31, 2016 can be analyzed as follows:
| (in € million) | June 30, 2017 |
Dec. 31, 2016 | |
|---|---|---|---|
| Flat Glass | 206 | 240 | |
| High-Performance Materials | 1,575 | 1,679 | |
| Construction Products | 5,853 | 5,924 | |
| Building Distribution | 2,805 | 2,826 | |
| Total | 10,439 | 10,669 |
Goodwill is essentially allocated to the Construction Products Sector, and chiefly relates to Gypsum (€3,321 million at June 30, 2017) and Industrial Mortars (€2,033 million at June 30, 2017), and to the Building Distribution Sector, primarily in the United Kingdom, France and Scandinavia.
The breakdown of non-amortizable brands by sector is provided in the segment information tables in Note 3 "Information concerning the Group's operating activities" of the 2016 consolidated financial statements.
For the first-half 2017, changes in Group structure and other movements were not material.
In first-half 2017, other movements in property, plant and equipment included assets acquired under finance leases for an amount of €9 million (€10 million at June 30, 2016). These finance leases are not included in the cash flow statement, in accordance with IAS 7. At the end of the period, total property, plant and equipment acquired under finance leases amounted to €72 million (€71 million at December 31, 2016).
At June 30, 2017, CGUs were not subject to an impairment test as there was no indication of an impairment loss.
At December 31, 2016, a 0.5-point increase in the discount rate for all the CGUs would lead to approximately €121 million in additional intangible asset impairment, while the impact of a 0.5-point decrease in the average annual cash flow growth rate, projected to perpetuity across all the CGUs, would result in additional intangible asset impairment of around €83 million. The impact of a 1-point decrease in the operating income rate for all industrial CGUs would have generated additional intangible asset impairment of roughly €171 million, while a 0.5-point decrease in the rate for distribution activities would have generated additional impairment of €48 million.
| (in € million) | Impact of 0.5% increase in 0,5% decrease in 1-point decrease 0.5-point decrease |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| the discount rate | the growth rate | in the operating profit rate |
in the operating profit rate |
|||||||
| Flat Glass | (2) | 0 | (6) | |||||||
| High-Performance Materials | ||||||||||
| Construction Products | (85) | (56) | (165) | |||||||
| Building Distribution | (34) | (27) | (48) | |||||||
| Total | (121) | (83) | (171) | (48) |
The breakdown of asset impairment by sector for first-half 2017 and 2016 is provided in the segment information tables in note 3 "Information concerning the Group's operating activities".
The table below provides a breakdown by type along with details of changes in other provisions and current and noncurrent liabilities:
| (in € million) | Provisions for claims and litigation |
Provisions for environmental risks |
Provisions for restructuring costs |
Provisions for personnel expenses |
Provisions for customer warranties |
Provisions for other contingencies |
Total provisions for other liabilities |
Investment related liabilities |
Total |
|---|---|---|---|---|---|---|---|---|---|
| At January 1, 2017 | |||||||||
| Current portion | 125 | 36 | 52 | 29 | 122 | 60 | 424 | 12 | 436 |
| Non-current portion | 475 | 122 | 47 | 76 | 111 | 221 | 1,052 | 190 | 1,242 |
| Total provisions for other liabilities and investment-related liabilities |
600 | 158 | 99 | 105 | 233 | 281 | 1,476 | 202 | 1,678 |
| Movements during the period | |||||||||
| Additions | 82 | 5 | 24 | 26 | 26 | 33 | 196 | 196 | |
| Reversals | (2) | (1) | (5) | (3) | (10) | (9) | (30) | (30) | |
| Utilizations | (57) | (5) | (29) | (10) | (25) | (35) | (161) | (161) | |
| Changes in Group structure | 1 | 1 | 1 | ||||||
| Other (reclassifications and translation adjustments) | (44) | (2) | (4) | (19) | 2 | (67) | (41) | (108) | |
| Total movements during the period | (21) | (1) | (12) | 9 | (28) | (8) | (61) | (41) | (102) |
| At June 30, 2017 | |||||||||
| Current portion | 121 | 36 | 44 | 27 | 106 | 75 | 409 | 10 | 419 |
| Non-current portion | 458 | 121 | 43 | 87 | 99 | 198 | 1,006 | 151 | 1,157 |
| Total provisions for other liabilities and investment-related liabilities |
579 | 157 | 87 | 114 | 205 | 273 | 1,415 | 161 | 1,576 |
In France, four individual lawsuits were filed in first-half 2017 by former employees (or persons claiming through them) of Everite and Saint-Gobain PAM which in the past had carried out fiber-cement operations for asbestos-related occupational diseases they have or had. As at June 30, 2017, a total of 809 such lawsuits had been issued against the two companies since 1996 with the aim of obtaining supplementary compensation over and above the amounts paid by the French Social Security authorities in this respect.
As of June 30, 2017, 769 of these 809 lawsuits had been completed in terms of liability, quantum and liability for the payment of compensation. In all these cases, the employers were held liable on the grounds of "inexcusable fault".
Compensation paid by Everite and Saint-Gobain PAM in settlement of these lawsuits totaled approximately €2.0 million.
Concerning the 40 lawsuits outstanding against Everite and Saint-Gobain PAM at June 30, 2017, six have been completed in terms of both liability and quantum, but liability for the payment of compensation has not yet been assigned.
Out of the 34 remaining lawsuits, at June 30, 2017, the procedures relating to the merits of 31 cases were at different stages, with two in the process of being investigated by the French Social Security authorities and 29 pending before the Social Security courts or the Appeal Courts. The last three actions have been canceled but the plaintiffs may request their restoration at any time within a two-year period following their cancellation.
In addition, as of June 30, 2017, 227 similar suits had been filed since the outset of the litigation by current or former employees, or persons claiming through them, of 13 other French companies of the Group (excluding suits against companies that are no longer part of the Group), in particular by current or former employees who used equipment containing asbestos to protect themselves against heat from furnaces.
As of June 30, 2017, 185 lawsuits had been completed. In 107 of these cases, the employer was held liable for "inexcusable fault".
The compensation definitively paid by these companies totaled approximately €4.1 million.
With regard to the 42 suits outstanding at June 30, 2017, two cases were still at the investigation stage by the French Social Security authorities, 34 were being investigated – including 23 pending before the Social Security courts, 10 before the Appeal Courts and one before the Civil Supreme Court (Cour de Cassation). In addition, two suits had been completed in terms of liability but are still pending with regard to the quantum or liability for the payment of compensation, of which one was pending before the French Social Security court and one before the Civil Supreme Court. The four remaining suits have been canceled but the plaintiffs may request their restoration at any time within a two-year period following their cancellation.
Eight of the Group's French companies, including six that operate or have operated facilities classified as containing asbestos, are subject of damages claims that are different from those described above.
"Facilities classified as containing asbestos" are defined as industrials facilities, that have been closed or are still operating, which previously manufactured materials containing asbestos or used protection and insulation equipment containing asbestos and are included by ministerial decree on the official list of facilities whose current or former employees are entitled to the early-retirement benefits paid to asbestos workers (ACAATA).
At June 30, 2017, a total of 822 suits had been brought by current or former employees claiming compensation for prejudice of anxiety suffered as a result of their alleged exposure to asbestos. None of these plaintiffs were suffering from an asbestos-related disease and some of them were not receiving the ACAATA benefit. Of these 822 suits, 678 have been terminated. Three plaintiffs had their claims dismissed, while for the 675 others who were recognized as having been exposed to an asbestos risk, the total amount of compensation is €7.9 million at June 30, 2017. Of the remaining 144 suits, 17 are pending before the competent Appeal Courts, one before the competent labor tribunals (bureau de jugements des Conseils de prud'hommes) and 116 have been canceled but the plaintiffs may request their restoration at any time during a period of two years following their cancellation. Finally, six suits have been dismissed by the competent labor tribunals and four plaintiffs have withdrawn the action they initiated.
It should be clarified that the figures above do not take into account suits filed against companies that are no longer part of the Group.
In the United States, several companies that once manufactured products containing asbestos such as asbestos-cement pipes, roofing products, specialized insulation or gaskets, are facing legal action from persons other than their employees or former employees. These claims for compensatory – and in some cases punitive – damages are based on alleged exposure to the products, although in many instances the claimants cannot demonstrate any specific exposure to one or more products, or any specific illness or physical disability. The vast majority of these claims are made simultaneously against many other non-Group entities that have been manufacturers, distributors, installers or users of products containing asbestos.
The estimated number of new asbestos-related claims filed against CertainTeed in the United States in the first-half of 2017 came to approximately 1,600. On a rolling 12 month basis, new claims are slightly down at approximately 3,100 at end-June 2017 compared to 3,200 end-December 2016.
Some 2,300 claims were resolved in the first six months of 2017, bringing the total number of outstanding claims to approximately 34,400 at June 30, 2017, down from 35,100 at December 31, 2016 and 35,600 at December 31, 2015.
An additional estimated provision of USD 49 million was recorded in the consolidated financial statements for the first-half of 2017 in relation to CertainTeed's asbestos claims. As every year since 2002, a precise assessment of the provision required for the full year will be performed at the year-end.
Total compensation paid for claims against CertainTeed (including claims settled prior to June 30, 2016 but only paid during the past twelve-months and those fully resolved during the past twelve-months), as well as compensation paid during the twelve-month period ending June 30, 2016 by other U.S. Group businesses involved in asbestos litigation, amounted to about USD 71 million, versus USD 97 million in full year 2016.
In Brazil, former employees of Group companies suffering from asbestos-related occupational illness linked to asbestos are offered, depending on the case, solely financial compensation, or otherwise lifetime medical assistance combined with financial compensation; only a small number of former employee litigants or their legal successors were outstanding at June 30, 2017, and they do not present a material risk for the subsidiaries concerned.
In November 2011, the Swiss Antitrust Commission (Commission Suisse de la Concurrence) opened an investigation for anti-competitive practices in the sanitary products wholesale sector. In May 2014, the Commission Secretariat issued a notification of complaints against Sanitas Troesch and against other wholesalers in the sector alleging that Sanitas Troesch and some of its competitors had, among other things, agreed in 2005 and 2012 to lower gross prices.
The total fine decided against all the companies involved is CHF 80 million. For Sanitas Troesch, the fine is CHF 28.5 million. Sanitas Troesch appealed this decision on May 2, 2016. Sanitas Troesch continues to firmly refute the claims made; however a provision for litigation was recorded at December 31, 2015 for an amount equivalent to the fine (unchanged at June 30, 2017).
On August 6, 2014, Saint-Gobain Isover and Compagnie de Saint-Gobain (as the parent company of Saint-Gobain Group) received a notice of complaints from the French Competition Authority (Autorité de la Concurrence Française). The only complaint made was of having exchanged allegedly strategic and confidential information, between 2002 and 2007, relating to a certification request lodged by Actis before the Versailles Commercial Court for one of its products, and in relation to a dispute between Actis and the mineral wool manufacturers' association (FILMM), of which Saint-Gobain Isover is a member.
Saint-Gobain Isover and Compagnie de Saint-Gobain are challenging this complaint. The hearing was held on May 11, 2016. The Competition Authority's final ruling was postponed to a date not yet known.
In the civil law area, in March 2013 Actis served a civil liability writ on Saint-Gobain Isover, the Centre Scientifique et Technique du Bâtiment, and the FILMM before the Paris Civil Court (Tribunal de Grande Instance) for the adverse consequences of facts forming the subject of the investigation by the Competition Authority. In an order dated December 16, 2014, the pre-trial judge declared a stay of proceedings while waiting for the decision from the Competition Authority.
In July 2015, the Anti-trust division of the United States Department of Justice opened a criminal investigation into potential anti-competitive practices, specifically a price agreement, in the United States drywall industry. This investigation followed complaints filed in late 2012 in the form of class actions in the civil courts against eight drywall manufacturers in the sector, including CertainTeed, by some of their customers.
On the basis of testimony and documents submitted in the civil proceedings, CertainTeed and its attorneys have not identified any element that might create liability for CertainTeed, and as a result filed a motion for summary judgment in May 2015 in order to end the civil proceedings. This application was accepted on February 18, 2016 by the competent court. An appeal against this decision is still possible.
Levels of PFOA (perfluorooctanoic acid) in excess of U.S. Environmental Protection Agency (EPA) or state health advisories have been found in municipal water systems and private wells near current Saint-Gobain Performance Plastics (SG PPL) facilities in Hoosick Falls (New York) and Merrimack (New Hampshire), and two former facilities in North Bennington (Vermont) in the United States. PFOA and PTFE (polytetrafluorethylene) have never been manufactured by these plants. SG PPL is a processor of PTFE which it purchases from third party suppliers and which in the past contained traces of PFOA.
SG PPL has voluntarily provided bottled water in all three communities, installed point-of-entry treatment systems to residents and businesses in the Hoosick Falls and North Bennington areas, and installed carbon filtration systems on the municipal water supply in Hoosick Falls. In addition, it has voluntarily committed to fund water line extensions in certain communities in the Merrimack and Bennington areas. The investigations are on-going and the scope of responsibility for SG PPL arising from environmental remediation and clean-up obligations at these sites has not yet been established. Responsibility, if any, is expected to be shared with other parties as regards in particular the Hoosick Falls' site.
PFOA-related lawsuits alleging both health-related and economic damages claims have been filed in civil courts in New York, New Hampshire and Vermont, some of which are in the form of proposed class actions. It is difficult to predict the timing or outcome of any such litigation, or whether any additional litigation will be brought against SG PPL.
On June 30, 2017, the provision recorded by the Company in respect of this matter amounts to €35 million.
At the time of the refurbishing of the Grenfell Tower in 2015, Celotex sold through distributors an insulation product for use as part of multicomponent ventilated rainscreen cladding system.
Following the Grenfell Tower fire on June 14, 2017, investigations are ongoing, and, in this context, Celotex as well as more than 60 other companies or organizations, is heard by the British authorities.
The main risks and uncertainties that the Group could face in the second semester of 2017 are those described in Section 1 "Risk factors" of Chapter 7 of the 2016 registration document of March 15, 2017, filed with the French financial markets authority (Autorité des Marchés Financiers) under number D.17-0171 (the "2016 Registration Document"). There has not been any significant change in these risk factors in the first-half of 2017.
Net financial expense for the first-half 2017 and 2016 includes:
| (in € million) | First-half 2017 |
First-half 2016 |
|---|---|---|
| Borrowing costs, gross | (154) | (197) |
| Income from cash and cash equivalents | 11 | 10 |
| Borrowing costs, net | (143) | (187) |
| Interest cost – pension and other post-employment benefit obligations | (168) | (196) |
| Return on plan assets | 127 | 142 |
| Interest cost – pension and other post-employment benefit obligations, net |
(41) | (54) |
| Other financial expense | (57) | (55) |
| Other financial income | 10 | 9 |
| Other financial income and expense | (47) | (46) |
| Net financial expense | (231) | (287) |
Long- and short-term debt consists of the following:
| (in € million) | June 30, | December |
|---|---|---|
| 2017 | 31, 2016 | |
| Bond issues | 7,487 | 6,089 |
| Perpetual bonds and participating securities | 203 | 203 |
| Long-term securitization | 350 | 350 |
| Other long-term financial liabilities | 336 | 317 |
| Long-term debt (excluding current portion) | 8,376 | 6,959 |
| Current portion of long-term debt | 386 | 1,835 |
| Short-term financing programs (NEU CP, US CP, Euro CP) | 200 | 0 |
| Short-term securitizations | 285 | 173 |
| Bank overdrafts and other short-term financial liabilities | 404 | 415 |
| Short-term debt and bank overdrafts | 889 | 588 |
| Total gross debt | 9,651 | 9,382 |
| Cash at banks | (1,372) | (1,529) |
| Mutual funds and other marketable securities | (1,463) | (2,209) |
| Cash and cash equivalents | (2,835) | (3,738) |
| Total net debt | 6,816 | 5,644 |
The fair value of gross long-term debt (including the current portion) managed by Compagnie de Saint-Gobain amounts to €8.5 billion as of June 30, 2017, for a carrying amount of €7.8 billion. The fair value of bonds corresponds to the market price on the last day of the semester. For other borrowings, fair value is considered as equal to the amount repayable.
Debt at June 30, 2017 can be analyzed by maturity as follows:
| (in € million) | Currency | Within 1 year | 1 to 5 years | Beyond 5 years |
Total |
|---|---|---|---|---|---|
| Bond issues | EUR | 0 | 4,316 | 2,550 | 6,866 |
| GBP | 0 | 0 | 621 | 621 | |
| NOK | 78 | 0 | 0 | 78 | |
| Perpetual bonds and participating securities | EUR | 0 | 0 | 203 | 203 |
| Long-term securitization | EUR | 150 | 350 | 0 | 500 |
| Other long-term financial liabilities | All currencies | 44 | 124 | 212 | 380 |
| Accrued interests on long-term debt | All currencies | 114 | 0 | 0 | 114 |
| Total long-term debt | 386 | 4,790 | 3,586 | 8,762 | |
| Total short-term debt | All currencies | 889 | 889 | ||
| Total gross debt | 1,275 | 4,790 | 3,586 | 9,651 |
Compagnie de Saint-Gobain issued:
These issuances, used to refinance existing Group debts, allowed Saint-Gobain to lower its average borrowing costs and extend its average debt maturity.
Compagnie de Saint-Gobain redeemed the following bonds at maturity:
In 1985, Compagnie de Saint-Gobain issued 25,000 perpetual bonds with a face value of ECU 5,000 (today €5,000).
Up to June 30, 2017, 18,496 perpetual bonds had been bought back and canceled, and 6,504 perpetual bonds were outstanding, representing a total face value of €33 million.
The bonds bear interest at a variable rate (average of interbank rates offered by the five reference banks for six-month euro deposits).
The bonds are not redeemable and interests on the bonds are classified as a component of finance costs.
In June 1983, Compagnie de Saint-Gobain issued 1,288,299 non-voting participating securities with a face value of FRF 1,000. Their face value is now €152.45, following their translation into euros in 1999.
A certain number of participating securities have been bought back over the years. At June 30, 2017, 606,883 securities were still outstanding with an aggregate face value of €92.5 million.
Interest on the securities ranges from 75% to 125% of the average corporate bond yield (TMO), based on the Group's consolidated income.
In April 1984, 194,633 non-voting participating securities were issued with a face value of ECU 1,000 (€1,000 today).
A certain number of securities have been bought back over the years. At June 30, 2017, 77,516 securities were still outstanding with an aggregate face value of €77.5 million.
Interest comprises (i) a fixed portion of 7.5% paid per year applicable to 60% of the nominal amount of the security, and (ii) a variable portion applicable to the remaining 40% of the nominal amount of the participating security, which is linked to consolidated net income of the previous year and to the reference six-month Libor EUR rate +7/8%.
These participating securities are not redeemable and the interest paid on them is reported under finance costs.
The Group has a number of medium- and long-term financing programs (Medium-Term Notes) and short-term financing programs (Commercial Paper).
Issuance under these programs was as follows:
| (in € million) | Authorized drawings |
Authorized limits at June 30, 2017 |
Balance outstanding at June 30, 2017 |
Balance outstanding at December 31, 2016 |
|---|---|---|---|---|
| Medium Term Notes | 15,000 | 7,776 | 7,777 | |
| NEU CP | up to 12 months | 3,000 | 200 | 0 |
| US Commercial Paper | up to 12 months | 876 * | 0 | 0 |
| Euro Commercial Paper | up to 12 months | 876 * | 0 | 0 |
*Equivalent of USD 1,000 million based on the exchange rate at June 30, 2017.
In accordance with market practices, Negotiable European Commercial Paper (NEU CP), US Commercial Paper and Euro Commercial Paper are generally issued with maturities of one to six months. They are treated as variable-rate debt since they are rolled over at frequent intervals.
Compagnie de Saint-Gobain has various syndicated lines of credit that are intended to provide a secure source of financing for the Group (including as additional backing for its NEU CP, US Commercial Paper and Euro Commercial Paper programs):
Based on the Group's current credit rating for long-term debt issues, the two facilities are not subject to any hard covenants.
Neither of these two lines of credit had been drawn down at June 30, 2017.
The Group has set up two receivables securitization programs, one through its French subsidiary GIE Point.P Finances, and the other through its US subsidiary, Saint-Gobain Receivables Corporation.
The French program was renewed on November 10, 2016 for a maximum amount of €500 million. At June 30, 2017, it amounted to €500 million (€500 million at December 31, 2016). Based on past seasonal fluctuations in receivables included in the program and on the contract's features, €350 million of this amount was classified as non-current and the balance as current.
The US program was renewed on October 21, 2015 for a maximum amount of USD 350 million. Its euro-equivalent value at June 30, 2017 was €285 million (€173 million at December 31, 2016).
At June 30, 2017, €24 million of Group debt was secured by various non-current assets (real estate and securities).
The following table presents a breakdown of the principal derivatives used by the Group:
| (in € million) | Fair value | Nominal amount by maturity at June 30, 2017 | ||||||
|---|---|---|---|---|---|---|---|---|
| Derivatives recorded in assets |
Derivatives recorded in liabilities |
June 30, 2017 |
Dec 31, 2016 | Within 1 year 1 to 5 years | Beyond 5 years |
Total | ||
| Fair value hedges | 0 | 0 | 0 | |||||
| Cash flow hedges | ||||||||
| Currency | 191 | (6) | 185 | 231 | 292 | 2,447 | 0 | 2,739 |
| Interest rate | 0 | (69) | (69) | (70) | 0 | 0 | 379 | 379 |
| Energy and commodities | 1 | 0 | 1 | 5 | 21 | 3 | 0 | 24 |
| Other risks * | 17 | 0 | 17 | 13 | 0 | 11 | 75 | 86 |
| Cash flow hedges - total | 209 | (75) | 134 | 179 | 313 | 2,461 | 454 | 3,228 |
| Derivatives not qualifying for hedge accounting mainly contracted by Compagnie de Saint Gobain |
||||||||
| Currency | 9 | (9) | 0 | (5) | 1,906 | 28 | 0 | 1,934 |
| Interest rate | 0 | 0 | 0 | |||||
| Energy and commodities | 0 | 0 | 0 | |||||
| Derivatives not qualifying for hedge accounting - total | 9 | (9) | 0 | (5) | 1,906 | 28 | 0 | 1,934 |
| Total | 218 | (84) | 134 | 174 | 2,219 | 2,489 | 454 | 5,162 |
* The "Other risks" are equity derivatives, used to hedge the risk of changes in the Saint-Gobain share price, in connection with the performance units long-term incentive plan.
Credit value adjustments to derivative instruments are calculated in accordance with IFRS 13 based on historical probabilities of default derived from calculations performed by a leading rating agency and on the estimated loss given default. At June 30, 2017, credit value adjustments were not material.
At June 30, 2017, the cash flow hedging reserve carried in equity in accordance with IFRS had a credit balance of €152 million, consisting mainly of:
The ineffective portion of cash flow hedging derivatives is not material.
At June 30, 2017, the cash flow hedge relating to the acquisition of a controlling interest in Sika was valued at €179 million based on a spot exchange rate of €1 for CHF 1.093.
The fair value of derivatives classified as financial assets and liabilities at fair value through profit or loss, is not material at June 30, 2017 (€5 million loss at December 31, 2016).
The weighted average interest rate on total gross debt under IFRS and after hedging (interest rate swaps, currency swaps and cross-currency swaps) was 2.7% at June 30, 2017, compared with 3.4% at December 31, 2016.
The table below presents the breakdown by interest rate (fixed or variable) of the Group's gross debt at June 30, 2017, taking into account interest rate, currency and cross-currency swaps.
| Gross debt after hedging | |||||||
|---|---|---|---|---|---|---|---|
| (in € million) | Variable rate | Fixed rate | Total | ||||
| EUR | 886 | 7,264 | 8,150 | ||||
| Other currencies | 862 | 444 | 1,306 | ||||
| Total | 1,748 | 7,708 | 9,456 | ||||
| (in %) | 18% | 82% | 100% | ||||
| Accrued interest and other financial liabilities | 195 | ||||||
| Total gross debt | 9,651 |
Financial assets and liabilities are classified as follows in accordance with IFRS 7:
| (in € million) | Financial instruments at fair value | Other financial instruments | Financial instruments at fair value according to the IFRS 7 hierarchy |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance sheet headings and classes of instrument |
Notes | Financial instruments through profit or loss |
Qualifying derivatives |
Assets and liabilities measured at fair value (fair value option) |
Total financial instruments measured at fair value |
Available-for sale financial assets |
Loans and receivables |
Liabilities at amortized cost |
Total financial instrument |
Level 1 inputs Level 2 inputs Level 3 inputs | Total financial instruments measured at fair value |
|||
| Trade and other accounts receivable Loans, deposits and surety Available-for-sale and other securities |
(3) | 0 0 0 |
122 | 7,195 568 |
7,195 568 122 |
0 0 0 |
||||||||
| Derivatives recorded in assets Cash and cash equivalents |
9 | 209 | 2,835 | 218 2,835 |
218 2,835 |
1,463 | 218 1,372 |
218 2,835 |
||||||
| Total Assets Trade and other accounts payable Long-and short-term debt Derivatives recorded in liabilities |
(3) | 9 (9) |
209 (75) |
2,835 | 3,053 0 0 (84) |
122 | 7,763 | 0 (9,343) (9,581) |
10,938 (9,343) (9,581) (84) |
1,463 | 1,590 (84) |
0 | 3,053 0 0 (84) |
|
| Total Liabilities Total |
(9) 0 |
(75) 134 |
0 2,835 |
(84) 2,969 |
0 122 |
0 7,763 |
(18,924) (18,924) |
(19,008) (8,070) |
0 1,463 |
(84) 1,506 |
0 0 |
(84) 2,969 |
| (in € million) | Financial instruments at fair value | Other financial instruments | Financial instruments at fair value according to the IFRS 7 hierarchy |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance sheet headings and classes of instrument |
Notes | Financial instruments through profit or loss |
Qualifying derivatives |
Assets and liabilities measured at fair value (fair value option) |
Total financial instruments measured at fair value |
Available-for sale financial assets |
Loans and receivables |
Liabilities at amortized cost |
Total financial instrument |
Level 1 inputs Level 2 inputs Level 3 inputs | Total financial instruments measured at fair value |
|||
| Trade and other accounts receivable Loans, deposits and surety Available-for-sale and other securities |
(3) | 0 0 0 |
148 | 6,193 521 |
6,193 521 148 |
0 0 0 |
||||||||
| Derivatives recorded in assets Cash and cash equivalents |
5 | 256 | 3,738 | 261 3,738 |
261 3,738 |
2,209 | 261 1,529 |
261 3,738 |
||||||
| Total Assets Trade and other accounts payable Long and short-term debt Derivatives recorded in liabilities |
(3) | 5 (10) |
256 (77) |
3,738 | 3,999 0 0 (87) |
148 | 6,714 | 0 (9,433) (9,307) |
10,861 (9,433) (9,307) (87) |
2,209 | 1,790 (87) |
0 | 3,999 0 0 (87) |
|
| Total Liabilities Total |
(10) (5) |
(77) 179 |
0 3,738 |
(87) 3,912 |
0 148 |
0 6,714 |
(18,740) (18,740) |
(18,827) (7,966) |
0 2,209 |
(87) 1,703 |
0 0 |
(87) 3,912 |
As of June 30, 2017, Compagnie de Saint-Gobain's capital stock comprised 559,874,165 shares of common stock with a par value of €4 each (555,280,358 shares at December 31, 2016).
The dividend of €1.26 per share proposed in respect of the 2016 financial year was approved at the General Meeting on June 8, 2017.
Basic and diluted earnings per share are as follows:
| First-half 2017 | First-half 2016 | |||
|---|---|---|---|---|
| Basic | Diluted | Basic | Diluted | |
| Income (in € million) | ||||
| Group share of net income | 754 | 754 | 596 | 596 |
| Number of shares | ||||
| Weighted average number of shares in issue | 553,852,126 | 556,459,337 | ||
| Weighted average number of shares assuming full dilution | 556,969,463 | 558,802,960 | ||
| Earnings per share (in €) | ||||
| Earnings per share, Group share | 1.36 | 1.35 | 1.07 | 1.07 |
The weighted average number of shares assuming full dilution is calculated based on the weighted average number of shares outstanding, assuming conversion of all dilutive instruments. The Group's dilutive instruments include stock options and performance share grants corresponding to a weighted average of 959,938 and 2,157,399 shares, respectively, at June 30, 2017.
The pre-tax income of companies can be analyzed as follows:
| (in € million) | First-half 2017 |
First-half 2016 |
|---|---|---|
| Net income | 777 | 610 |
| Less: | ||
| Share in net income of equity-accounted companies | 17 | 16 |
| Income taxes | (297) | (261) |
| Pre-tax income of consolidated companies | 1,057 | 855 |
In accordance with IAS 34, income tax is calculated by reference to the effective tax rate projected end of year excluding non-recurring items for the period.
Theoretical tax expense was reconciled with current tax expense using a tax rate of 34.43% in first-half of 2017 and 2016 and can be analyzed as follows:
| (in € million) | First-half 2017 |
First-half 2016 |
|---|---|---|
| Theoretical tax expense at French tax rate | (285) | (228) |
| Asset impairment, capital gains and losses and anti-trust provision | (2) | (2) |
| Deferred tax assets not recognized | (6) | (8) |
| Effect of changes in future tax rates | 0 | (1) |
| Research tax credit, tax credit for competitiveness and employment (CICE) and value-added contribution for businesses (CVAE) |
4 | 0 |
| Costs related to dividends | (21) | (21) |
| Other taxes and provision writebacks | 13 | (1) |
| Total income tax expense | (297) | (261) |
In the balance sheet, changes in the net deferred tax liability breakdown as follows:
| (in € million) | Net deferred tax asset/(liability) |
|---|---|
| At January 1, 2017 | 825 |
| Deferred tax (expense)/benefit | (16) |
| Changes in deferred taxes relating to actuarial gains and losses (IAS 19) | (92) |
| Translation adjustments | (33) |
| Impact of changes in scope of consolidation and other | 13 |
| At June 30, 2017 | 697 |
None.
Statutory auditors' review report on the half-year financial information
(Period from January 1, 2017 to June 30, 2017)
PricewaterhouseCoopers Audit Crystal Park 63, rue de Villiers 92208 Neuilly-sur-Seine Cedex
KPMG Audit Tour Eqho 2, avenue Gambetta CS 60055 92066 Paris La Défense
This is a free translation into English of the statutory auditors' review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and is construed in accordance with, French law and professional auditing standards applicable in France.
Les Miroirs 18, avenue d'Alsace 92400 La Défense Cedex
To the Shareholders,
In compliance with the assignment entrusted to us by your shareholders' meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code ("Code monétaire et financier"), we hereby report to you on:
These condensed half-year consolidated financial statements are the responsibility of the board of directors. Our role is to express a conclusion on these financial statements based on our review.
We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of the IFRS as adopted by the European Union applicable to interim financial information.
We have also verified the information given in the half-year management report on the condensed half-year consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements.
Neuilly-sur-Seine and Paris La Défense, July 27, 2017
PricewaterhouseCoopers Audit KPMG Audit
Division of KPMG S.A.
Edouard Sattler Cécile Saint-Martin Jean-Paul Thill Bertrand Pruvost
I hereby declare that, to the best of my knowledge, the condensed interim consolidated financial statements for the six-month period ended June 30, 2017 have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of Compagnie de Saint-Gobain and its consolidated subsidiaries, and that the interim management report gives a fair description of the material events that occurred in the first six months of the financial year, their impact on the financial statements and the main related-party transactions, and describes the main risks and uncertainties for the second half of 2017.
Courbevoie, July 27, 2017
Chief Executive Officer Chief Financial Officer Pierre-André de CHALENDAR Guillaume TEXIER
Compagnie de Saint-Gobain Compagnie de Saint-Gobain
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