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Announcement:

Moody's changes outlook on Saint-Gobain's Baa2 rating to stable from positive

22 May 2012

Frankfurt am Main, May 22, 2012 -- Moody's Investors Service has today changed to stable from positive the outlook on the Baa2 issuer rating of Compagnie de Saint-Gobain SA ('Saint-Gobain'). All ratings of Saint-Gobain and of its finance subsidiary Saint-Gobain Nederland B.V. remain unchanged.

RATINGS RATIONALE

"The change in outlook to stable was prompted by our expectation that Saint-Gobain's leverage metrics will not improve in 2012 and 2013 to levels that are commensurate with a higher rating," said Stanislas Duquesnoy, Moody's lead analyst for Saint-Gobain. While Moody's believes that the group should be able to improve its operating cash flow generation (before working capital) during the course of 2012, the rating agency notes that this will be offset by ongoing growth investments leading to higher net indebtedness. In addition, the rating is negatively weighed down by a potentially large cash outflow due to a cartel fine for its European flat glass operations of around EUR1 billion, including accrued interests as well as legal and guarantee costs. Saint-Gobain has appealed this fine, but the case has not been heard yet.

In addition, Saint-Gobain's year-end 2011 metrics (RCF/Net debt of 19.5% and Debt/EBITDA of 3.5x) are below what Moody's would require for a Baa1 rating, i.e. RCF/net debt in the low to mid-20s and Debt/EBITDA sustainably below 3.0x. The deterioration in metrics during 2011 was mainly driven by Saint-Gobain's increased investment activity (both organic and external) and higher dividend payout and/or share buybacks after three years of financial restraint during the 2009 financial crisis in order to protect the group's capital structure. Moody's notes that the group's operating cash flow generation (before working capital) has been very resilient in 2011 against an inflationary environment, thus proving Saint-Gobain's earnings resilience and pricing power. Sales volumes of the group's industrial activities have started leveling off in H2 2011 against high comparatives and more challenging market conditions. Moody's expects trading conditions for the group's industrial activities to remain challenging in 2012.

Moreover, Saint-Gobain has postponed the sale of a minority stake in Verallia, its packaging operation, through an initial public offering due to market conditions. Moody's does not anticipate a sale of this stake in the short term due to prevailing equity capital markets conditions. Once the IPO occurs, the proceeds from the sale will most likely be reinvested in the group's franchise and should support the group's strategy to expand its footprint in emerging markets and energy efficiency, as well as to reinforce its existing businesses, through small to mid size bolt on acquisitions. Subject to a reinvestment of the proceeds in the existing business, Moody's would consider the sale to be neutral from the outset given the moderately weaker business profile post-disposal (Verallia has demonstrated strong resilience throughout the downturn, generating high returns on capital employed and posting a high cash flow conversion rate) and the reinvestment of the proceeds into activities with higher growth profiles, but with more cyclical characteristics.

The Baa2 rating continues to reflect the group's strong competitive position, supported by its scale, leading market positions in various regions and the diversity of its product range. This allows for economies of scale and mitigates the group's vulnerability to a protracted downturn in its construction products and distribution business.

However, the rating remains constrained by the cyclical nature of Saint-Gobain's core industries, the prospects for a slower recovery in its late-cycle construction-related activities and the move to a more shareholder-friendly financial policy with increased dividend payouts and a stronger focus on internal and external growth. The group's operating performance remains vulnerable to rising energy and raw materials costs. Further improvements in profitability may be limited if the group, contrary to previous years' achievements, is not able to offset these with price adjustments or additional cost reductions.

The liquidity position of Saint-Gobain is good. The group reported EUR2,949 million of cash and marketable securities on balance sheet at 31 December 2011 and EUR4 billion availability under its revolving credit facilities (EUR1 billion maturing in June 2013 and EUR3 billion maturing in December 2015). Alongside the group's resilient operating cash flow generation before working capital, this should be sufficient to cover the cash needs of the group over the next 12 months, which mainly consists of working capital requirements, working cash requirements (estimated at 3% of revenues), dividends payments, non-discretionary capital expenditure and approximately EUR2.4 billion of short-term debt maturities. In addition, Saint-Gobain has a well spread maturity profile and has maintained good access to the debt capital markets even at times of elevated market volatility.

WHAT COULD MOVE THE RATING UP/DOWN

Given the change in the rating outlook from positive to stable, Moody's says that an upgrade to Baa1 over the next 12-18 months is unlikely. Over a longer-term horizon, a rating upgrade to Baa1 would require that Saint-Gobain demonstrates its ability to improve its leverage (measured as Debt/EBITDA consistently below 3.0) and its cash flow coverage (measured as RCF/net debt in the low-to-mid twenties).

The rating could be downgraded (i) if operating cash flow were to fall significantly below Moody's expectations, i.e., sustainably and materially below 20% on a retained cash flow/net debt level; and/or (ii) if Saint-Gobain were to undertake other major debt-financed acquisitions, which would lead to continuously higher leverage.

The principal methodology used in rating Compagnie de Saint-Gobain SA was the "Global Building Materials Industry Methodology", published in July 2009.

Headquartered in Paris, France, Compagnie de Saint-Gobain is a diversified global building materials company with operations in more than 60 countries. The group operates four business segments: Building Distribution (44% of 2011 revenues), Construction Products (25%), Innovative Materials (Flat Glass, High Performance) (22%) and Packaging (9%). In 2011, Saint-Gobain reported consolidated sales of EUR42.1 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

Stanislas Duquesnoy
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Matthias Hellstern
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes outlook on Saint-Gobain's Baa2 rating to stable from positive
No Related Data.
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