Operating margin increased by 14.7% to €301 million in 2007, and represented 10.5% of revenue, versus 9.9% in 2006. The consolidation of Mirro WearEver over the full year reduced operating margin by €7 million, compared with €6 million over 4.5 months in 2006. 2007 was a year of reorganization and improvement for Mirro WearEver with, in particular, the shutdown of production at the Nuevo Laredo plant in Mexico and the transfer of sourcing either to Panex in Brazil or to outside suppliers. At a time of tight markets, these changes seriously disrupted the company’s business, causing the under-performance for the year.

Excluding changes in the scope of consolidation, consolidated operating margin rose by 17.4% to €308 million for the year, representing 10.7% of revenue. The increase may be analysed as follows:

Major leverage from organic growth, with higher unit sales adding €27 million and an improved price mix €77 million.
A further increase in purchasing costs, to €26 million from €20 million in 2006, as higher raw material prices again sharply impacted our purchases of metals (aluminium, nickel and copper) and sourced products. The cost would have been higher, however, had it not been for hedging, the development of alternative solutions and the systematic use of competitive tenders.
An increase in expenses, to €47 million from €20 million in 2006, reflecting (i) the stepped up research and development commitment (€40.4 million, versus €35.8 million in 2006); (ii) higher selling, marketing and advertising expenditure (respectively €148.6 million, €111.1 million and €113.4 million), with a sharp focus on year-end campaigns to support and secure business growth; and (iii) higher after-sales service costs related to quality issues with certain products sold in 2005 and 2006.
A €15 million positive currency effect, almost entirely due to the dollar’s weakness against the euro. Most of our purchases are made in dollars or in a dollar zone, so the fall in the US currency is beneficial for the Group. Note that the currency effect was a negative €2 million in 2006.

Operating profit stood at €237.3 million, compared with €153 million in 2006. The 55.2% increase was attributable both to the improvement in operating margin and to the steep fall in net other expense to €30.4 million from €83.6 million in 2006. The 2006 expense, which weighed significantly on results for the year, stemmed from the closure of three plants and capacity reductions at another as part of the reorganisation of French manufacturing operations. The €30.4 million in net other expense in 2007 comprised (i) €19 million in restructuring costs related to the completion of the 2006 reorganization plan in France and a small number of other rationalization programs in Mexico, Brazil, Belgium and other countries; (ii) around €5 million in asset impairment charges, primarily on the Mirro, WearEver and Airbake brands, which have been hurt by a slower than expected relaunch; and (iii) various other non-material expenses, together representing €6 million. At the same time, discretionary and non-discretionary profit-sharing rose to €33.3 million, primarily as a result of the good performance reported in the French market.

Finance costs and other financial income and expense, net rose to €34.8 million from €30.4 million the year before, reflecting an increase in financing for the SUPOR acquisition in China, following successive payments made to the vendors during the year. Borrowing costs improved somewhat, however, to 5.90% from 6.08%, due to a slight easing of interest rates on dollar-denominated debt, which represents two-thirds of the Group’s indebtedness.

Profit attributable to equity holders of the parent ended the year up 64.2% to €142.8 million, led by the improvement in operating margin and operating profit. Share of profit of associates came to €1.2 million, corresponding to the 30% stake in SUPOR in the last four months of the year, while income tax expense amounted to €60.8 million, representing an effective rate of 30%. This was slightly higher than the 2006 rate of 28.1%, which was favourably affected by the recognition of deferred tax assets on tax loss carryforwards following the Arno and Panex merger in Brazil.