sain t-gobain annu al report 2008 annual report

In 2008, the Sector’s operating income rose 10.2% on a reported
basis and 19.8% like-for-like.
Effective management of working capital and higher cash flow
from operations enabled the Sector to finance an ambitious
capital-spending program based on world-class technologies
and generate positive free cash flow.
Outlook for 2009
In a challenging economic environment and despite
uncertainty concerning the level of consumer spending,
sales should remain at a satisfactory level in 2009.
The experience gained during 2008 in meeting volatile
and complex demand led to advances in production scheduling
and management, as well as in manufacturing flexibility,
that will drive further improvements in service quality this year.
The Sector expects to see a further rise in factor costs in 2009,
particularly feedstock prices. Production output will be aligned
with market demand, which should continue to grow
in Eastern Europe and Latin America.
As a result, the Sector should deliver another satisfactory
financial performance in 2009.
Efforts to reduce working capital will be kept up, while capital
expenditure will remain on a par with 2008. The Sector
will continue to invest in emerging markets and will pursue
the major program to rebuild furnaces in Europe
and the United States and enhance their environmental
performance.
2009 outlook
and action plans
The Group delivered a resilient sales and earnings performance
in 2008, led by a priority focus in all our operations to raising
prices, which gained an average 3.4% over the year and 3.8%
in the second half. Looking ahead to 2009, visibility is still
limited on energy and feedstock costs, exchange rates
and the credit market. It is reasonable to expect a broad-based
decline in our main markets, particularly in Europe, especially
considering the high basis of comparison in the first half,
and it is still not clear when and to what extent the various
recovery plans will start to have an effect.
We nevertheless have a certain number of important
strengths that will help us overcome these challenges.
First, governments around the world are giving priority
to supporting the construction industry, particularly through
the introduction of stricter renovation and energy efficiency
standards. This process is underway in all of the geographies
where Saint-Gobain has a strong presence. In France,
for example, considerable short-term support will be offered
for both newbuild and renovation projects in the residential
and non-residential segments, as part of a long-term
government strategy built around the Grenelle Environmental
Summit Act, stepped-up public spending and a focus
on building insulation solutions. Our portfolio of businesses
and solutions positions us at the focal point of plans
to kick-start the homebuilding and renovation markets,
with around 30% of our sales and some 40% of operating
income derived from energy-saving markets and applications.
In addition, while the newbuild market accounts for 34%
of revenues, the considerably less cyclical renovation market
accounts for 36%, representing an ideal profile for confronting
the current crisis.
To reap the benefits of this strategic positioning in a
challenging environment, we will step up the initiatives
launched in 2008 and focus on preparing the future.
On the operations side, the current cost management
programs will be expanded, with a sustained commitment
to price integrity and the roll-out of new cost-cutting
measures, targeting cumulative savings of €1 billion
over the period 2008-2009 from both business-specific
and cross-functional programs. Continued disciplined cash
flow management should ensure that free cash flow from
operations remains high, helped by a roughly €500 million
reduction in capital expenditure compared with 2008,
a temporary freeze on acquisitions and continued
implementation of small or medium-sized divestment
projects. Further efforts will also be made to contain
and reduce working capital to below 40 days.
To preserve cash, our dividend policy will be aligned with
the circumstances. We have already responded pro-actively
to the crisis and increased our financial flexibility by launching
a €1.5 billion rights issue in February 2009. The proceeds are
being used to support the operational measures taken to arm
the Group to ride out the crisis. In particular, we will continue
to invest in Research and Development in the strategic energy
efficiency and environmental sectors, as well as in the most
promising strategic projects. We will follow a selective growth
strategy in emerging markets, which we hope will account
for around one-third of net sales by 2010, and will hold firm
to our ambitious plans in the solar energy solutions market,
in order to leverage our exceptional strengths in this area.
MANAGEMENT REPORT
33
Saint-Gobain - 2008 Annual Report