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Western European economies remained firmly in recession during the fourth quarter. Building Products (BP) markets continued to be weak, with low levels of construction activity and residential house purchases. Sales of new cars remained at historically low levels, although in some territories government initiatives to stimulate demand, such as scrappage schemes, generated a positive response from consumers. The European Automotive Glass Replacement (AGR) market held up well and continued to improve during the fourth quarter. Demand for glass cord remained at a low level, consistent with the depressed market for new vehicles.
Market conditions in Japan continued to be difficult. Building Products sales were impacted by low consumer confidence, with housing starts typically down by approximately 25% compared to the previous year. Vehicle production in Japan, which had earlier in the year held up better than in other developed economies, continued to decline in the fourth quarter. Exports suffered due to weak export markets and a strong yen. Demand for Specialty Glass products was generally weak.
The North American economy remained challenging, with the BP market continuing to suffer from low levels of commercial and residential construction. Property prices continued to fall, although the rate of decline decreased in many areas. Sales of new vehicles remained poor, with well-publicized financial consequences for the large domestic producers. The AGR market held up at levels close to the previous year.
In the rest of the world, the emerging markets in which the Group operates performed relatively well compared to more developed markets. Solar energy glass for the photovoltaic market continued to expand despite the global economic conditions, although the rate of expansion was lower than previously anticipated. Reductions in the availability of project financing contributed to slower growth, although funding is still available for suitable projects. The drive for renewable energy remains at the top of many governments’ agendas.
On December 9, 2008, Pilkington Group Limited (a wholly owned subsidiary) received formal notification of a decision by the European Commission to levy a fine of €370 million (~ $516 million) on Pilkington Group Limited and certain of its wholly owned subsidiaries following the conclusion of an investigation into alleged breaches of competition law by companies operating in the European car glass sector. Pilkington Group Limited does not agree with the decision and on February 18, 2009, submitted an appeal to the European Court of the First Instance. Notwithstanding such appeal, the fine was paid on March 6, 2009, as required by EU law.
The Group’s business lines cover three core product sectors; Building Products (BP), Automotive and Specialty Glass. BP, representing 48% of Group sales, includes the manufacture and sale of flat glass and various interior and exterior glazing products within the commercial and residential markets. It also includes glass for the growing solar energy sector.
The BP business achieved sales of 347,833 million yen (~ $3,653 million) and operating income of 10,622 million yen (~ $112 million). The profit performance for BP for the year was lower than the previous year, with the Group’s businesses experiencing higher input costs and increasingly challenging market conditions. In Europe, representing 51% of the Group’s BP sales, revenue was lower than last year as a consequence of reduced prices and volumes in difficult markets. Profit performance was also lower than last year in most markets, with results impacted by rising input costs as well as reduced volumes and prices.
Revenues in Japan, representing 31% of BP sales, increased due to the inclusion of certain subsidiary companies for a 15-month accounting period. Excluding the effect of this change, revenues decreased in difficult market conditions, with lower volumes more than offsetting higher prices. Profits were higher than last year, with higher selling prices, an improving product mix, and the benefits of the restructuring offsetting rising input costs.
In North America, representing 8% of BP sales, dollar revenues were flat, despite a declining domestic housing market, due to higher prices and improved mix. Profitability was lower than last year because of rising input costs and the cold repair of the Ottawa float line, which lasted for three months.
In the rest of the world, sales expressed in U.S. dollars were similar to last year. Profits declined as input costs increased. In South America, profits remain at satisfactory levels. Market conditions remained relatively robust for the first nine months of the year, but the fourth quarter saw a market decline. Profits in Southeast Asia declined. The contribution from solar energy glass for photovoltaics increased as worldwide markets continued to expand, albeit at a slightly slower rate than anticipated.
Automotive, with 42% of Group sales, supplies a wide range of automotive glazing for new vehicles and replacement markets. The Automotive business recorded sales of 299,096 million yen (~ $3,141 million) and operating income of 1,292 million yen (~ $14 million). In the European original equipment (OE) and AGR sectors, representing 51% of the Group’s Automotive sales, cumulative revenues were below last year due to significantly lower demand from OE customers during the third and fourth quarters. AGR demand was less severely impacted. Profits were also below the previous year, especially within OE during the third and fourth quarters when it was not possible to reduce capacity and costs quickly enough to match the lower sales.
In North America, representing 21% of the Group’s Automotive sales, AGR sales and profits were similar to last year. Sales in OE continue to be down on last year, driven by accelerated lower market demand in the third and fourth quarters. This, coupled with higher energy costs during the year and costs associated with a float re-build, significantly affected business performance.
Japan represents 16% of the Group’s Automotive sales. During the first three quarters of the year, improvements in manufacturing and operational performance led to increased profitability. Demand declined rapidly in the fourth quarter as vehicle manufacturers cut production to address reductions in sales into both domestic and export markets. Revenues and profit were severely impacted as a result.
In the rest of the world, revenues were relatively strong, as the markets proved more resistant to recession than the more developed markets. The rate of growth, however, slowed sharply during the third and fourth quarters. Profits fell as increasing input costs offset cost reduction improvements.
Specialty Glass, representing 10% of Group sales, comprises a number of discrete businesses, including the manufacture and sale of very thin glass for small displays, lenses and light guides for printers, as well as glass fiber products, such as air filters, battery separators and glass components for engine timing belts. The Specialty Glass business recorded overall sales of 75,397 million yen (~ $792 million) and an operating profit of 3,758 million yen (~ $39 million).
The Specialty Glass division started the year promisingly, but from the third quarter was increasingly affected by deteriorating market conditions. Some Specialty Glass markets show signs of recovery but are still at low levels. The recent weakening of the yen against the U.S. dollar slightly helped exports of components for printers and scanners from Japan.
Additional details are available at www.nsggroup.net.