Jan 16 - Fitch Ratings says that Compagnie de Saint-Gobain's (Saint-Gobain;
'BBB+'/ Stable) recent announcement of advanced negotiations for the sale of Verallia North
America (VNA) part of its Verallia packaging division, is timely and could reduce its leverage
at a time of economic uncertainty in some of its major product markets.
The proposed offer of EUR1,275m for VNA (which represents around one-third of the Verallia
business by turnover and operating profit), at around 6.5x 2012 EBITDA multiple, is positive
from a financial perspective and could reduce Fitch estimated group leverage on a pro-forma
end-2013 basis to around 2.5x-2.6x from 2.6x-2.7x, in line with Fitch's guidance of 3.0x for a
'BBB+' Issuer Default Rating (IDR).
However, while the group's financial flexibility would be enhanced, the partial disposal of
part of one of the most stable divisions within the group could moderately increase
Saint-Gobain's business risk profile in 2013 and beyond. In this respect, if Saint-Gobain sells
off the remainder of the Verallia subsidiary, Fitch would expect the group to operate on a
tighter leverage profile of 2.5x to reflect the increased business risk profile.
Subdued economic conditions in western Europe have meant sales volumes in 2012 were poor,
only partially offset by an improved trend in the US. The volume decline accelerated during the
year (-1.5% in Q112, -4.2% in Q212 and -5.3% in Q312) and Fitch expects volumes to remain
sluggish in 2013. By contrast, pricing has been favourable at +1.9% yoy in 9M12. Overall, sales
were up 2.9% in 9M12 due to acquisitions and forex.
As operating margins in 2012 were squeezed due to weak volumes, Saint-Gobain has implemented
more restructuring measures, targeting EUR750m of savings by 2013. Nevertheless, Fitch projects
EBITDA margins to remain under pressure in both 2012 and 2013 and EBITDA in absolute terms to
remain below 2011 levels, notwithstanding moderate revenue growth.
Despite uncertain trading conditions, cash generation remains strong, mainly boosted by
tight control over working capital, and capex should be around EUR1.8bn in 2012 (EUR2.0bn in
2011). Fitch expects FCF to remain positive in 2012 and 2013.