sain t-gobain annu al report 2008 annual report

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2008 business review
2008 sales include only €111 million in sales by the
Reinforcements business which has been sold. The year-on-year
change in sales that was attributable to the discontinuation
of this business was a negative €630 million.
Underlying business growth remained strong until October,
driving a 1.9% like-for-like increase in sales over the year.
Textile Solutions and Abrasives experienced the lowest growth
rates in Western markets, due to conditions in the industrial
and building segments; however, Abrasives performed well
in emerging markets (India, China and Brazil).
The Performance Plastics business posted healthy growth
in medical and pharmaceuticals applications as well as
in textiles/films, apart from in industrial markets in the latter
part of the year. The integration of recent acquisitions
went smoothly, particularly UK-based Rencol, a manufacturer
of tolerance rings.
The Crystals business delivered an uneven performance,
with falling sales in some segments such as security
applications and generally higher sales in others such as energy,
aerospace and medical applications. 2008 sales by this business
do not include the quartz business in the United Kingdom,
which has been divested.
The Ceramics businesses were the star performers,
led by refractories for the glass industry (for container glassware,
flat glass for building applications and LCDs) as well as
refractories for the metalworking industry and silicon carbide
applications for solar energy solutions. Proppants sales
benefited from the buoyant conditions in the oil exploration
industry, but sales of products for the semi-conductor market
were flat in the fourth quarter.
High-Performance Materials’ operating margin rose slightly
in 2008, helped by relatively firm sales prices and tight control
of overheads and other costs.
Thanks to a disciplined approach to capital expenditure,
which nevertheless included strategic projects and selected
capacity extensions in emerging markets (ceramics capacity
at the Palakkad plant in India, silicon carbide capacity in Bhutan,
and performance plastics capacity in Mexico and China),
free cash flow from operations represented the equivalent
of 20% of assets.
Outlook for 2009
The slowdown experienced by most High-Performance
Materials businesses in the fourth quarter of last year
is expected to continue in 2009, with the energy-related
businesses (particularly solar energy solutions and proppants)
likely to fare better than most. Projected increases in certain
feedstock prices should be offset by higher sales prices.
The priority will be to contain costs by moving forward quickly
with World Class Manufacturing (WCM) programs, pooling
administrative structures in order to reduce overheads
and adjusting production capacity wherever necessary.
Routine capital expenditure will be particularly closely
scrutinized; however, new capacity is planned in growing market
segments in both developed and emerging countries.
Research and Development spend is expected to be on a
par with 2008 and will concern long, medium and short-term
programs to extend the business’s competitive advantage.
Saint-Gobain High-Performance Materials has a number of
core strengths that will help it to meet the challenges
of the global crisis:
• A presence in markets where sales prices tend to track costs.
• Strong competitive positions in the majority of its businesses,
backed by an excellent reputation for quality and service.
• Innovative products, such as films for photovoltaic cells,
Wiresaw and refractories for LCDs.
• An increasingly diversified cost base, strengthened by recent
investments in emerging economies.
• Over a third of net sales generated in the fastest growing
geographic markets.
The Construction Products Sector
Construction Products sales were up 1.4% like-for-like over
the year, but down 3.3% in the fourth quarter due to softer
interior fittings markets in both North America and Western
Europe. The Sector’s operating margin for the year came in
at 8.9% versus 11.8% in 2007.
Integration of newly-acquired Maxit unleashed numerous
growth synergies with the Exterior Solutions and Interior
Solutions (plaster, insulation) businesses, while initial targets
for cost synergies were revised upwards.
Underlying sales – excluding Maxit – were more or less
stable in Western Europe, despite the sharp slowdown in
construction markets in some countries. The North American
market continued to contract, but prices improved during
the year. In emerging markets, like-for-like sales were up
by nearly 12%.
The economic environment will remain unsettled in 2009,
and the Sector is likely to experience a fall-off in sales due
to narrowing construction markets. Priority will be given
to implementing structural cost reductions and new measures
will be added to the cost-cutting plan launched in 2008.
Despite the challenging environment, the Sector will pursue
its innovation drive and maintain research and development
spending at last year’s level.
Saint-Gobain - 2008 Annual Report