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Regarding variable costs (energy, raw materials, freight, etc.), while some energy prices eased off toward the end of the year, other cost factors remained high after the historical peaks reached in mid-year. As a result, inflation in those factors for 2008 as a whole was unprecedented. Finally, the dollar rate against the euro was lower than in 2007, despite an increase at the end of the year.
In 2008, in this difficult economic context, the Group’s action plans were focused along the following lines: completing the extensive industrial performance improvement programs begun in 2007 in kaolins for paper and minerals for filtration; and integrating the companies acquired since 2007, which are in the rationalization process and enable Imerys to strengthen its positions in developing economies, particularly the Asia-Pacific region. Since the summer, priority has been given to free cash flow generation through strict management of capital expenditure and working capital requirements, and adjusting production assets to demand across all the Group’s activities.
The Group’s sales grew 1.4% in 2008 vs. 2007, benefiting from the consolidation of the acquisitions made since 2007. Current operating income, however, showed a 15.7% decrease, mainly reflecting the impact of the volume decreases recorded toward the end of the year in most markets. Net current income was also down 15.7%.
According to Gérard Buffière, chief executive officer, “2008 will go down as an extremely disruptive year: the first three quarters were marked by record inflation in external costs; then, from the end of October, a dramatic fall in sales volumes affected the great majority of industrial sectors worldwide; finally, exchange rates were extremely volatile in 2008. Despite that upheaval, Imerys proves that its business model is profitable, its activities generate cash flow and the Group is able to adapt swiftly to changing conditions.
“In that crisis context, our priorities are: generating free cash flow thanks to cutting working capital requirements and capital expenditures; and reducing our fixed costs and overheads base everywhere in order to adjust the Group’s structures to lower demand.”
Group sales totaled €3,449.2 million (about $4,437.1 million) in 2008, up 1.4% from 2007. For 2008, the increase in sales takes into account a €131.3 million (~ $168.9 million) net effect of changes in Group structure. A negative exchange rate impact, despite a firmer U.S. dollar against the euro toward the end of the period (€108.3 million, about $139.3 million), also affected results
At comparable Group structure and exchange rates, sales increased 0.7%. This trend reflects an improvement in the price/mix component for €151.4 million (~ $194.8 million), reflecting record inflation in variable costs across all business groups, as well as a sharp decrease in sales volumes of €127.2 million (~163.6 million), which occurred in full in the fourth quarter.
In terms of the geographic distribution of sales, Western Europe represents 53% of turnover (19% of that for France). North America accounts for 19%, while Japan and Australia are both 5%. Emerging countries now represent 23% of the Group’s sales, a 16% increase from 2007.
The business groups’ markets showed contrasting trends in 2008. The Minerals for Refractories, Fused Minerals (particularly refractories and abrasives) and Graphite (mobile energy) markets were all healthy in the first nine months, when they benefited from a dynamic global market for industrial equipment (particularly steel, aluminum and glass), before slowing down very sharply toward the end of the year. Ceramics markets remained affected throughout the year by the construction sector crisis in North America. In Europe, they went into a downturn at the end of the first quarter because of the slump in the new construction sector.
In Minerals for Refractories, to support demand growth on some markets that was particularly due to substitution to other minerals, a refractory clay calciner was built in the Andersonville, Ga., plant. In addition, the andalusite production capacity extension in Yilong (China) is in progress. Integration of the Ukrainian acquisition, Vatutinsky Kombinat Vognetryviv (Vatutinsky), resulted in major adjustments to production assets. Various optimization actions were taken to reduce costs in Minerals for Abrasives (Zschornewitz, Germany, and Domodossola, Italy); the optimization of Imerys Astron China’s industrial and commercial assets continues but is behind the initial schedule.
In Minerals for Ceramics, the consolidation of feldspar production units (one of which was acquired in 2007 in the U.S.) is well under way. Capital expenditure totaled €70.4 million (~ $90.6 million) compared with €78.7 million (~ $101.2 million) in 2007.
Additional details are available at www.imerys.com.