From its origins in a 17th century royal order that granted a monopoly to produce mirror glass, Saint-Gobain survives as a pillar of France’s industrial heritage.
Today, the building materials supplier has factories round the world and annual turnover of €40bn. Just don’t mention the C-word.
“Saint-Gobain is not a conglomerate. That’s a mistake I have read several times in the FT,” thundered chief executive Pierre-André de Chalendar in an interview.
If the conglomerate label touches a nerve, it is probably because the 355-year-old group is trying to shake off its reputation as unwieldy, bureaucratic and underperforming — traits often associated with a corporate model of owning diverse businesses under one roof that is fast falling out of fashion.
One year into a turnround, Mr de Chalendar stressed his reforms were paying off. He has flogged off chunks of the group and re-emphasised organic growth as he has overhauled the company’s structure.
“The way I feel after one year about the potential impact of this reorganisation — it’s beyond what I had in mind,” he told the Financial Times. “The only element which is a bit behind is the share price . . . it will take time.”
But he cannot afford to take his foot off the accelerator. Any hint of a slowdown in the pace of change could leave Saint-Gobain exposed to activist investors, who have shown little mercy to other big names of industry that have failed to grasp the nettle.
Lumbering titans, such as America’s General Electric and Thyssenkrupp of Germany, are resorting to break-ups after shareholders grew tired with the poor results of their sprawling empires.
As a manufacturer of everything from pipes, mortar, ceramics and insulation, to bicycle bearings and seals for spacecraft, which also runs distribution networks, it is easy to see why Saint-Gobain is sometimes put in the conglomerate bucket.
“We have done a little more than what people thought we would be doing,” said Mr de Chalendar, who was promoted to chief executive almost a decade ago. “Our former organisation was organised by product line worldwide.”
Now its construction materials units are run by country and region, he said, getting closer to customers and giving managers on the ground greater autonomy.
However, the $1.4bn purchase of a US-based plasterboard producer in November showed Saint-Gobain still has an appetite for spending on deals.
Even though the transaction was widely regarded as making sense by increasing its market share, it was reminiscent of the group’s old acquisitive ways, most notably its failed takeover bid of the Swiss chemicals group Sika in 2018.
For investors, proof of progress will come in a higher share price. Despite gaining 28 per cent in 2019, it lagged behind many similar stocks, and has traded at a discount to peers such as CRH, HeidelbergCement or LafargeHolcim on a valuation multiple of forward earnings, according to data from S&P Capital IQ.
Even if the market is not yet fully convinced, Mr de Chalendar can point to early improvements.
The group achieved a goal to dispose of businesses with more than a combined €3bn in revenue last year and is ahead of schedule to achieve €250m in cost savings by 2021.
Both elements are critical for Saint-Gobain’s aim to boost its operating profit margin by 100 basis points. In addition, it clocked up organic revenue growth of 3.4 per cent in the first nine months of 2019.
Despite its ecological impact as a polluter, the company is also casting itself as a participant in the “green transition” with products that reduce energy consumption.
At its Isover plant in Chemillé-en-Anjou, in western France, a new €35m production line features an electric furnace fed with 40 per cent recycled glass.
The molten material is cooled and spun in a centrifuge, reappearing like snowflakes that are tightly packaged into the final product: blowing glass wool for insulating loft cavities.
To Mr de Chalendar, there is logic in keeping together a wide array of such construction materials, because they are often sold to the same customers. Products for other industries offer overlaps in areas such as manufacturing or R&D.
“Why are we in automotive? Because the automotive glass is produced in the same plants as where we produce architectural glass,” he said.
For now, some analysts are reserving judgment. Sven Edelfelt, an analyst at Oddo BHF, said the company was “doing what they should have done a long time ago”.
“Are they delivering? It’s a bit early to say. It’s going in the right direction, but it’s only the beginning,” he said.
But for others, the shake-up does not go far enough. They call for more radical action, arguing that Saint-Gobain’s shares are valued at less than the sum of its parts.
“With bigger disposals, Saint-Gobain could get back on the road to growth and generate value for shareholders, but they aren’t doing so,” said Felix Brunotte of Alphavalue, suggesting that the company should consider a sale of its distribution businesses, which includes trucks, warehouses and barges.
“If an activist arrived it would be good for the company,” added Mr Brunotte. “There needs to be a management change . . . an external vision, a new chief executive from the outside.”
