sain t-gobain annu al report 2008 annual report

Contribution to the Group 2008 2007 2006
% of net sales 27 26 26
% of operating income 29 32 37
% of cash flow from operations 25 28 31
Key figures
(in € millions) 2008 2007 2006
Net sales 12,035 11,112 10,876
Operating income 1,070 1,313 1,376
Cash flow from operations 885 1,060 1,048
Capital expenditure (1) 758 830 844
Interior Solutions
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. The lower sales combined with higher energy
and feedstock costs drove down operating margin
to 9.6% from 14.8% in 2007.
Gypsum
2008 business review
In 2008, the Gypsum Division experienced a significant
decline in sales and operating income, due mainly
to the worsening crisis in the North American homebuilding
market and a sharp slowdown in Europe starting
in the second quarter.
In North America, the homebuilding market continued
to narrow throughout the year, leading to a further erosion
of gypsum sales. However, after plummeting in 2007,
sales prices bottomed out in the first half and began
to recover slowly in the second.
In Europe, the fall-off in volumes accelerated during the year.
During the first half, sustained growth in Eastern Europe
and resilient demand in France, Benelux and Italy helped
to keep sales on a par with the same period of 2007, despite
the early signs of a slowdown in Spain, Ireland and
the United Kingdom. In the second half, however,
the slowdown gathered momentum and gradually spread
to all regions. In this difficult environment, the Gypsum
Division nevertheless managed to raise prices in most Western
European markets, offsetting the negative impact of higher
costs, particularly for energy.
Emerging markets other than Eastern Europe continued
to enjoy robust growth, led by Asia and South America,
although signs of a loss of momentum started to appear
in the fourth quarter.
The Gypsum Division responded swiftly to the broad-based
erosion of volumes by shutting down production lines
and reducing the number of shifts at many plants in North
America and Western Europe, in order to align capacity
with demand. These re-alignment measures took into
account production from the four new lines that came on
stream during the year in the United States, France, Hungary
and India. These lines’ lower unit costs and closer proximity
to our markets contributed to optimizing overall
production costs.
In 2008, we kept up our strategy to obtain secure gypsum
reserves, particularly in Algeria and Russia, in order
to lay the foundations for future growth in these regions.
Outlook for 2009
With the decrease in building and renovation activity
in the Gypsum Division’s main host markets set to continue
and the economic crisis spreading across the globe,
the Division is likely to see a further decline in sales in 2009.
In this environment, we will focus on achieving structural
cost reductions. At the same time, the innovation process
will be kept up and new products will be developed
in response to the emerging demands resulting from
new environmental and energy efficiency standards,
and to the growing needs in the renovation market.
Insulation
2008 business review
In 2008, the Insulation Division reported a significant drop
in sales and operating income, caused by the worsening
crisis in the US homebuilding market and a serious loss
of momentum in Europe in the second half, combined
with a hefty rise in factor costs.
In the United States, volumes continued to plunge
and although prices stopped trending downwards at the end
of the year, there were no opportunities to raise them.
In Western Europe, glass wool volumes narrowed slightly
but rock wool sales increased, thanks to resilient markets
in France and Germany which offset plummeting demand
in Spain and Scandinavia. Limited price rises helped to offset
higher factor costs (for energy, resin and coke).
In Eastern Europe, volumes fell more sharply and prices
(particularly for rock wool) came under severe competitive
pressure from Knauf, URSA and Rockwool.
Cost-cutting plans were implemented across the entire
Division, with the closure of a plant in Ireland, changes
in shift-working to scale back production output,
improvements in industrial and supply chain efficiency
and strict control of overheads. A new glass wool line came
on stream at Gliwice in Poland, manufacturing high
value-added products that will expand our offering
in the local market.
MANAGEMENT REPORT
29
(1)
Excluding finance leases.
Sales data by Sector include inter-sector sales.
Saint-Gobain - 2008 Annual Report