sain t-gobain annu al report 2008 annual report

Interior Solutions sales declined 5.0% like-for-like over
the year and 9.9% in the fourth quarter, dragged down by
a further deterioration in the construction markets in North
America and Europe. Lower sales combined with higher energy
and feedstock costs drove down operating margin to 9.6%
from 14.8% in 2007.
The Exterior Solutions Division fared a lot better, with
like-for-like sales up 10.8% over the year and 6.4%
in the fourth quarter. Growth was led by a sharp 10.1% rise
in sales prices and sustained Pipe and Industrial Mortars
volumes throughout the year. In North America, Exterior
Solutions volumes contracted in the fourth quarter after
rebounding strongly in the second and third quarters, as a
result of a further decline in the US homebuilding market.
Operating margin increased to 8.1% from 7.4% in 2007.
The Building Distribution Sector bore the full brunt of the
narrowing European construction markets (particularly in the
United Kingdom and Spain), which led to a 1.9% like-for-like
decline in sales over the year and a 7.7% drop in the fourth
quarter alone. The Sector’s operating income totaled €894
million, representing 4.5% of net sales versus 5.7% in 2007.
The Packaging Sector continued to enjoy a strong growth
dynamic, with like-for-like sales up 7.4% over the year and 5.8%
in the fourth quarter. Excluding the divested flasks business
(Desjonquères), the Sector’s operating income was up 17.2%,
lifting operating margin to 12.5% from 11.1% in 2007.
Operating results by geographical segment
Group sales rose by a healthy 1.9% like-for-like in France,
despite a loss of momentum across most businesses
in the second quarter (with growth at just 0.9%)
and the fourth quarter (when sales were down 1.8%).
Operating margin softened to 8.1%.
Like-for-like sales in Other Western European countries
contracted 2.8% over the year, due to the sharp economic
downturns in the United Kingdom and Spain in the second
quarter, dragging down operating margin to 7.7% from 9.4%
in 2007.
In North America, sales for the year dipped 0.9%, as
the rebound observed in the third quarter gave way to a
new 6.2% fall in the fourth quarter. Although operating margin
declined compared with 2007, it recovered in the second half
thanks to a positive price effect of 10.6% compared with 1.5%
in the first half.
Sales in the emerging countries and Asia rose by a strong 8.5%
like-for-like over the year, but the growth rate slowed to just
0.6% in the fourth quarter due to the severe economic
downturn in Eastern Europe and softer economic growth
in certain Asian countries. Operating margin remained high
over the year, at 10.5%.
Consolidated results
Consolidated net sales rose 0.9% over the year to €43,800
million. Excluding the currency effect, the increase was 3.7%.
The 3.3% positive impact of changes in scope of consolidation
(divestment of Reinforcements & Composites, Flasks
and Lapeyre Industrial Joinery, acquisition of Maxit and other
businesses) was largely offset by the 2.7% negative currency
effect, reflecting further declines in the US dollar and British
pound against the euro, which trimmed €1.2 billion from sales.
Like-for-like sales grew by a slight 0.3%, with the negative
volume effect of 3.1% – mainly in the second half – offset by
the 3.4% positive price effect.
Consolidated operating income was down 11.2% on a reported
basis and 9.1% at constant exchange rates, with sharp contrasts
between the first and second halves. Operating margin came in at
8.3% (11% excluding the Building Distribution Sector), versus 9.5%
(12.1% excluding the Building Distribution Sector) in 2007 and 8.9%
(10.9% excluding the Building Distribution Sector) in 2006.
Non-operating income and expenses represented a net expense
of €710 million in 2008 versus €984 million the previous year.
The total included €190 million for the industrial restructuring
plans described earlier and €75 million in new provisions for
CertainTeed asbestos litigation in the United States, down from
€90 million in 2007. In addition, €400 million was added to the
provision set aside in 2007 for the €896 million fine imposed on
the Flat Glass Division by the European Commission on
November 12, 2008 in respect of its automobile glass pricing
practices. The Group has appealed the Commission’s decision
before the Luxembourg Court of First Instance. The appeal costs
are also covered by the provision.
Net disposal gains (€53 million) and exceptional asset
impairment charges (€180 million) represented a net expense
of €127 million. The overall effect of these items was a 10.8%
reduction in business income.
Net financial expense rose to €750 million from €701 million
in 2007, primarily due to the increase in average net debt over the
year. The average cost of net debt (of which 78% is fixed rate) edged
up to 5.5% in 2008 from 5.4% the previous year. The Group’s exit
from the worldwide consolidated taxation agreement in 2006 and
the various programs undertaken to streamline its organization
(mainly by merging legal entities) had a favorable impact on the
effective rate of tax on recurring income. Total income tax expense
for the year came to €638 million versus €926 million in 2007.
Excluding capital gains and losses, exceptional asset
impairment charges and material non-recurring provision
charges (including for fines in the Flat Glass Division), recurring
net income declined 9.5% to €1,914 million from €2,114 million
in 2007. Based on the number of shares outstanding at
December 31, 2008 recurring earnings per share was €5, down
11.5% from €5.65 in 2007. Net income attributable to equity
MANAGEMENT REPORT
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Saint-Gobain - 2008 Annual Report