The operations of the Insulation Division include glass wool (TEL process), rock wool, soundproof and specialty ceilings, and insulation foams, developed in partnership with major chemi- cal companies.
The division’s corporate mission is to deliver effective and environmentally sound insulation solutions combining both comfort and safety under the worldwide Isover brand.
Insulation products are sold as rolls, panels, loose-wool and in shell formats. They are mainly designed for the new construc- tion and renovation markets, for fitting on roofs and walls and under flooring, to reduce heating costs or noise with a view to providing maximum comfort. Thermal insulation and soundproofing standards in the construction industry have been introduced in a large number of countries, providing a solid basis for developing this kind of application.
In addition to these uses in the construction industry, a por- tion of sales derives from technical insulation for some of the most complex industrial facilities, or niche markets such as soil-less (hydroponic) cultivation.
The soundproof ceilings and metal frames niche market is also proving a strong avenue for development, in which the technical expertise of the Insulation Division through banners such as Ecophon, Eurocoustic, API, Gabelex and Plafometal, is strongly appreciated by professional customers.
One in three houses in Europe and one in five houses in the US are insulated with the division’s products.The division ranks number
Contribution to the Group
2005 2004 2004 2003
(In %) (IFRS)
% of net sales 19% 18% 18% 20%
% of operating income 21% 20% 19% 24% % of cash flow from operations 20% 20% 21% 21%
Key consolidated data
2005* 2004 2004 2003
(In € millions) (IFRS)
Net sales 6,694 6,019 6,004 6,233 Operating income 614 542 507 584 Cash flow from operations 559 540 538 526 Capital expenditure 358** 295 294 257
* BPB was fully consolidated from December 1, 2005. ** Including capital leases.
Internal sales are deducted from sales data by sector and by division.
The Integra Vario system’s weather-responsive membrane optimizes thermal insulation.
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one in mineral-fiber insulation products*, and has operations across the globe, either as a direct producer or via its licensees. The division’s structure based on the world’s major regions is aimed at fostering manufacturing and marketing synergies between countries and enabling it to respond promptly to market needs. The goal is to maintain a steady growth rate across all markets.
In industrialized countries where it enjoys long-standing leadership, the division is developing new high added-value systems. Isover has gained a strong foothold in emerging economies for all applications, successfully tapping the growth opportunities generated by the growing demand for comfort, despite tough climatic conditions. The extension to the Yegorievsk facility in Russia as well as the new industrial facility in Ploiesti, Romania, are examples of this. The overall strategy adopted by the division hinges around its global brand, Isover, and is underpinned by the following goals:
●bolstering its leadership in mineral-fiber insulation products through technological innovation and the development of cutting-edge products;
●stepping up development in emerging countries, with special emphasis on Central Europe, Russia and Asia;
●consolidating its European leadership* in the new ceilings business, by leveraging product synergies (glass-wool and
rock-wool soft ceilings, metal ceilings, profiles), and expanding geographic reach;
●making an active contribution to the Group’s sustainable development efforts, by improving the environmental perform- ance of its plants and products, and by promoting the environ- mental benefits of mineral-fiber insulation products.
Operations in 2005
Insulation Division results for 2005 were on a par with the excellent figures achieved in 2004, with very high growth in net sales (up by 10.5% on an actual Group structure basis and by 7.1% based on constant structure and exchange rates) and in operating income (up by 13.6% on an actual Group structure basis).
Barring Germany, where the building industry remained slug- gish, growth in most European insulation markets held firm in 2005. Thanks to the startup of the second glass-wool production line at the Yegorievsk plant in the Moscow region, the Insulation Division felt the full benefits of strong growth in Eastern European markets (Russia, Poland, Ukraine). In the US, demand remained high, allowing the division to raise sales prices. The significant improvement in operating income can be cred- ited to the combined effect of higher sales prices and volumes in Europe and the US, which offset the hike in the price of raw materials, energy and transport.
Capital expenditure remained stable in comparison with 2004, and was mainly directed at:
●the construction of the second glass-wool production line at the Yegorievsk plant (Russia);
●a major furnace reconstruction program;
●modifications to installations designed to enhance produc- tivity;
●the improvement of environmental performance.
Outlook for 2006
The outlook for the European insulation market in 2006 remains promising, although growth in residential housing starts in the US appears more uncertain. Overall, sales for the Insulation Division are set to continue on an upward trend, as new capacities come on stream in Russia and the US. The Insulation Division plans to continue its policy designed to offset the anticipated spike in energy and raw materials costs in 2006 through further improvements in industrial performance and by raising sales prices and volumes. The year will also witness the link-up between the Gypsum and Insulation divisions, the generation of cost synergies between the two divisions and their joint development of inte- rior building solutions.
* Source: Saint-Gobain. * Source: Saint-Gobain.
20,000 sq.m of Isover products were supplied for the construction of this 190m Swedish tower which turns 90 degrees top to bottom.
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PIPE
The Pipe Division has operated in the water-supply industry for over 150 years, providing comprehensive expert solutions that meet the most demanding requirements.
It focuses on designing and selling:
●complete systems of ductile cast-iron pipes for drinking water, irrigation, purification and rainwater drainage;
●pipe systems for industrial utility and process circuits;
●pipe systems for fire prevention;
●full ranges of valves, sprinklers and connectors for water and purification systems, drainage, fire prevention and irrigation devices;
●complete cast-iron pipe systems for the building industry (wastewater and rainwater drainage); and
●roadworks components made of ductile cast iron and steel for accessing pipe systems (water supply, wastewater drainage and telecommunications).
With a view to ensuring a local footprint, the Pipe Division is structured internationally into three business lines: Water and Purification, Roadworks and Utilities, and Construction. The Pipe Division is the world’s leading producer* and exporter of ductile cast-iron pipe systems. It also holds the top slot in Europe in supplies for roadworks and utilities and for cast-iron wastewater drainage systems.
markets. Its historic bases in France, Germany, Spain, the UK, Italy and Brazil, have recently been extended to include new capacities in China, South Africa and the Czech Republic.
Operations in 2005
Following the erosion in profit margins in 2004 under the impact of rising prices in metals and coke, the situation improved sharply in 2005 as the higher costs were passed on to sales prices. Sales prices implemented in Europe, Brazil and the Distant Export markets allowed the division to offset the impact of spiraling raw materials costs that it has suffered since end-2003. Along with the growth in volumes on the Distant Export markets, this fueled a 6.1% rise in net sales and a 29% surge in operating income in 2005, which came in at 7.3%. Portugal and Belgium were the main drivers of the division’s growth in Western Europe, while Germany, whose market remains mired in recession, suffered a further drop in sales. Both France and Spain succeeded in maintaining high per- formance levels, as they benefited from across-the-board efforts to expand the range with differentiated and better- tailored products. The Pipe Division also advanced rapidly in Eastern Europe, including Croatia, as well as in Poland and the Czech Republic where it has a strong local commercial profile. The division’s European network was extended in mid-2005 to Romania, with the creation of a downstream business in Bucharest.
In Brazil, the upturn in sales volumes recorded in the second half remained modest, while volumes in China experienced yet another major rise when increases in sales prices during the fourth quarter helped put profitability back onto an upward trend.
The decision to close down the Italian centrifuge unit at Cogoleto taken towards the end of 2004, was carried through as anticipated and the division’s commercial profile in Italy will now be reinforced by importing low-cost piping supplies.
Capital expenditure rose once again, notably with the devel- opment of sites in emerging countries (Brazil, China and the Czech Republic). In December 2005, the division acquired the entire capital of its Chinese partner in Xuzhou, adding an industrial coke and cast-iron production facility to its portfolio. This operation also involved buying back the minority inter- ests in SG Pipelines (Xuzhou) and acquiring a majority stake in a centrifuge unit also based in Xuzhou. This acquisition firms up the Pipe Division’s number-two position on the bullish
* Source: Saint-Gobain.
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Chinese market. It will also pave the way for a major improve- ment in the competitiveness of its pipe production facilities in China.
Outlook for 2006
The volume of orders taken for the Distant Export markets in recent months has raised hopes of improving on the levels of profitability achieved in 2005. Sales prices will, however, need to be increased again on all of these markets in order to offset the higher costs of gas, electricity, and especially iron ore. Innovation will once again be the key to capturing market share in Europe, and 2006 is set to see more launches of inno- vative products. In China, successfully controlling the supply of metal to Xuzhou and integrating the centrifuge unit acquired end-2005 into the division will improve the efficiency and profitability of the Chinese arm of the business.
Efforts to boost productivity will continue apace at all division plants, and the more recent industrial facilities will continue their ramp-up.
As capital expenditure requirements are set to remain high, the working capital requirements management program that began successfully in 2005 will be continued into 2006.