Debt crisis punishes European industrials
Michelin was a rare bright spot as its first-half net income jumped 37 per cent
Renault, Saint-Gobain and Lafarge all reported big falls in net income for the first six months of the year, offering stark evidence of the damage being inflicted on Europe’s leading manufacturers by the continent’s sovereign debt crisis.
The gloomy industrial snapshot, offset partially by a better performance in emerging markets and the US, followed downbeat economic assessments this week from Siemens
, Europe’s biggest engineering group, and BASF, the world’s largest chemicals group by sales.
Shares in Saint-Gobain, a French industrial bellwether that makes specialist glass and materials, fell 12 per cent after first-half net income dropped 34 per cent to €506m and it warned of lower operating profit.
Renault, the carmaker, said net income in the first half fell from €1.25bn last year to €786m because of plunging demand for vehicles in Europe.
Net profit at France’s Lafarge, the world’s second-biggest cement group by revenue, fell 72 per cent to €100m after it took a writedown on Greek assets and charges related to cost-cutting.
Europe’s manufacturers are suffering as customers cut capital spending, which means they in turn are having to slash costs.
Pierre-André de Chalendar, Saint-Gobain’s chief executive, said he was looking for €750m of yearly savings by “stepping up our cost-cutting programme and scaling back our capital spending . . . while maintaining a tight rein on operating working capital”.
Bruno Lafont, his Lafarge counterpart, is also cutting costs. He said the group would stick to yearly growth targets, “with emerging economies as the principal motor”, but warned western Europe’s building materials market would decline more than 10 per cent this year.
Renault expects more than half its sales will be outside Europe for the first time next year as it reduces its reliance on its struggling home market, Carlos Tavares, its chief operating officer said.
Renault is 15 per cent owned by the French state but has coped better than PSA Peugeot Citroën
, its ailing domestic rival, after pushing into emerging markets such as Russia and Brazil and teaming up with Nissan of Japan, which contributed €564m of its first-half profit.
Michelin, the tyremaker, provided one bright spot on Friday by reporting a 37 per cent rise in first-half net income. The company expects the volume of tyres sold to fall 3-5 per cent this year, but this is being offset by increasing prices and more favourable raw material costs.
The falling euro is also benefiting Michelin, because many of its costs are in Europe but it has strong sales in the US and China.
Jean-Dominique Sénard, Michelin’s new chief executive, said he believed confidence in Europe’s economy would “rebound rapidly” if its political leaders took decisive action on resolving the debt crisis.
Beyond Europe, there were mixed views about slowing Chinese growth and the nascent recovery in the US. Lafarge and Saint-Gobain both said the US construction sector was continuing to improve, but Mr de Chalendar said China and emerging markets would benefit only from “timid growth” for the rest of the year.