Press information

PILKINGTON GROUP RESULTS YEAR TO 31 MARCH 2004

Pilkington plc today announces its results for the year to 31 March 2004.

Highlights:

· Operating profit from Group businesses up to £179 million from £175 million

· Profit before goodwill amortisation, exceptional items and taxation on a like-for-like basis up to £151 million from £145 million*

· Earnings per share before amortisation of goodwill and exceptional items up to
7.4 pence from 6.5 pence (plus 14 per cent); basic earnings per share up to 6.2 pence from 5.4 pence

· Free cash flow (before dividends, acquisitions and disposals) up to £207 million from £135 million; a record cash performance

· Net debt reduced by nearly one quarter in the year, from £861 million to £664 million

· Final dividend 3.25 pence, maintaining 5.0 pence in total for the full year

Chairman, Sir Nigel Rudd, commented:

“This is a strong set of results that shows Pilkington achieving management’s objectives. Our focus on keeping down costs has enabled Pilkington to report substantially maintained profits despite challenging conditions in some of our biggest markets. Operational and manufacturing efficiency improvements achieved over the past few years have resulted in a record cash performance – our prime objective for this stage of our strategy. Group borrowings were reduced by 23 per cent over the year. Pilkington remains on track with its strategy and is delivering on its promises.”

GROUP RESULTS FOR THE YEAR TO 31 MARCH 2004

Statement by the Chairman, Sir Nigel Rudd

I am pleased to be able to report another set of strong results from Pilkington. As anticipated, challenging conditions continue to prevail in most of the markets in which the Group operates. Despite this, Group sales held up well and the Group’s operating profit excluding joint ventures and associates rose from £175 million to £179 million, with the strong profit performance in Automotive offsetting the reduction in Building Products. Our share of profits in joint ventures and associates, affected by currency weakness in Mexico, fell from £42 million to £33 million.

Continuing focus on cash generation enabled Pilkington to generate its highest ever cash inflow before dividends, management of liquid resources and financing of £240 million, and to reduce Group borrowings by 23 per cent over the year, to £664 million. Taking into account the preference shares redeemed last year, this is the lowest level of Group borrowings recorded since 1997.

These results again featured a strong performance in our Automotive business, where organisational and operational performance improvements have helped offset price pressures. Building Products’ results in Europe were affected by generalised price weakness, though outside Europe Building Products’ results continued to improve. Results were further underpinned by the transformation in manufacturing and operational efficiency achieved over recent years in both businesses.

The sale of Pilkington Aerospace has concentrated management’s focus further on the core Building Products and Automotive businesses. A unified Building Products Europe business, encompassing both “upstream” and “downstream” operations, has been established. The reorganisation of the Automotive business has been completed with the creation of a single global organisation serving both the Original Equipment (OE) and Automotive Glass Replacement (AGR) sectors.

The “Step Change” programme in North America, launched three years ago to bring our businesses there up to the levels of the rest of the Group, has now been completed, with the predicted annual benefits achieved. Nevertheless Pilkington is determined to maintain its competitive edge and programmes have been launched over the past year to ensure that the Group stays ahead through further reductions in overhead costs and improved efficiency.

Financial Results

Turnover from continuing operations, including joint ventures and associates, was unchanged at £2.8 billion. Operating profit from Group businesses was £4 million ahead of last year at £179 million, though profits from joint ventures and associates declined, mainly in Brazil and Mexico, from £42 million to £33 million. As a result, overall operating profit at £212 million was down two per cent on the £217 million in 2003. Profit before goodwill amortisation, exceptional items and taxation of £151 million was impacted by the borrowing costs assumed following the decision to refinance the outstanding preference shares in March 2003, but on a like-for-like basis rose by four per cent over the £145 million in 2003. After deducting goodwill amortisation of £8 million (2003 £9 million) and exceptional losses arising from the sale and termination of operations of £7 million (2003 £4 million), profit before tax was £136 million (2003 £140 million).

Earnings and dividends

Earnings per share before exceptional items and amortisation of goodwill increased from 6.5 pence to 7.4 pence, up 14 per cent. Basic earnings per share increased from 5.4 pence to 6.2 pence, up 15 per cent. Compared to 2003, attributable earnings rose due to lower net interest costs, tax charges and minority interests, despite the reduced profit contribution from joint ventures and associates. The Board is recommending a final dividend of 3.25 pence per share, bringing the total for the year to 5.0 pence per share, the same as last year. The dividend is covered nearly three times by free cash flow. Subject to the approval of shareholders at the Annual General Meeting, the final dividend will be paid on 30 July 2004 to shareholders on the register at 11 June 2004.

Cash flow and borrowings

Operating cash flow amounted to £377 million (2003 £367 million). Cash flow before dividends, management of liquid resources and financing increased from £138 million to £240 million, up 74 per cent. After payment of £54 million for dividends, net cash flow before financing more than doubled from £80 million to £186 million. This clearly demonstrates Pilkington’s continuing achievements against a key strategic objective, enabling the Group to make further significant reductions in its borrowings.

Net borrowings at 31 March 2004 were £664 million, down by £197 million from £861 million at 31 March 2003. The reduction in borrowings over the last two years was £256 million, down 28 per cent, taking into account the Pilkington Channel Islands Limited’s preference shares redeemed in 2003.

Strategy

Pilkington is implementing a clear three-stage strategy, “Cash for Growth”, the stages of which are:

· First - improve the operational fitness of the businesses
· Second - produce net free cash from operations, initially to reduce debt, and
· Third - invest surplus cash in future profitable growth.

Over the past six years, radical improvements have been made in manufacturing performance, with significant reductions in overheads across the business. Management attention remains focused on achieving further internal economies and on the generation of net free cash. Planning is already well advanced on the third stage of the strategy – investment in the growth of the business. Such investment will be in existing operations as well as in new markets and Pilkington has already established a presence in both Russia and China, investing so as to limit risk and minimise early cash expenditure.

Review of Operations

Building Products

Building Products’ sales, including joint ventures and associates, were £1448 million, similar to the previous year. Operating profits fell by 13 per cent to £142 million. This was predominantly due to continued downward pressures on selling prices in Europe, coupled with weak demand on the Continent. Profits improved in North America, despite slow growth in commercial construction.

The Group’s Building Products business remains a market leader. Internally, a global initiative is focusing on cost reduction throughout the business line, with new programmes being launched to reduce overheads further and improve production efficiency. The effect of such programmes is already apparent in the North American business, with last year’s restructuring now paying dividends and a significant reduction in overheads showing through in the 2004 results.

Although capacity utilisation remains low in Europe, the absence of new float builds planned in the next two years should see the gradual restoration of an appropriate balance of demand and supply, particularly if there is an acceleration in growth rates. In North America office vacancy rates have begun to decline, raising speculation that commercial building rates will pick up next year. Meanwhile our plans for efficiency improvement continue to position our Building Products business well for any upturn in demand.

Europe

During the year, the European Primary Products and Processing and Merchanting businesses were combined to form Building Products Europe, Pilkington’s largest single business. The new business unit represents 59 per cent of Pilkington’s Building Products sales, including joint ventures and associates, and with an integrated strategy and management will provide further opportunities for improving cash management and for reductions in the cost base.

Despite continuing challenging market conditions in Continental Europe, sales volumes were marginally up on last year. In a strongly competitive environment, price declines which began back in 2001 have continued, with average float prices falling by around 14 per cent in the last financial year. In response significant improvements in manufacturing performance were made during the year, further reducing costs, while a restructuring of the Group’s coating operations in Germany and Sweden is underway.

One of the two float glass lines at Gladbeck was repaired and upgraded during the final quarter of the year. A cold repair was also carried out on the profiled glass furnace in Schmelz, Germany.

Production of the Group’s high value-added clear fire protection range, the market-leading Pilkington Pyrostop™, was again increased in Germany during the year to meet continuing strong growth in demand for this product.

UK sales of low-emissivity Pilkington K Glass™ were once again strong, although the rapid growth following the upgrade in UK building regulations is now levelling off. Outside the UK, the general competition and resulting price pressure on semi-finished glass products, such as off-line coated glasses and insulating glass units, has continued.

Pilkington Activ™, our innovative self-cleaning glass, registered steady growth across Europe following on from its launch in 2002. The Pilkington Activ™ product range has been further developed in tandem with high performance solar control coatings. These dual-coated products strengthen the Group’s competitive position in the commercial building markets.

An announcement was made in September 2003 of the Group’s intention to build and operate its first float glass plant in Russia, in a joint venture with Emerging Markets Partnership. Scheduled to come on stream in 2005, the plant will be situated in the Ramenskoye district of the Moscow Oblast and will have a capacity of around 240,000 tonnes of glass per year. Civil engineering work on the project is already well underway.

North America

In the North American Building Products business (which, including joint ventures and associates, accounts for about 22 per cent of Building Products global turnover), sales volumes decreased but profitability went up, due to improved manufacturing performance, better sales mix and savings realised through cost reduction initiatives. The residential sector in North America is still strong though the commercial sector showed little sign of improvement. The Building Products business in North America is now better positioned to take advantage of an upturn in the US economy, particularly in the commercial sector.

In Mexico, Vitro Plan SA de CV (VVP), in which Pilkington has a 35 per cent interest, reported lower sales, despite recovery of the Mexican market and ongoing growth in Iberia.

South America

South American Building Products, including the Cebrace joint venture, with operations in Brazil, Argentina and Chile, accounts for approximately eight per cent of total sales for the Building Products business.

In Brazil inflation fell and the exchange rate stabilised, but low growth rates and a fall in construction activity led to a dip in the demand for float glass. Export sales, however, greatly improved, compensating partly for the weak domestic market. The start-up of the fourth float line in Brazil, to be operated by Cebrace, the joint venture between Pilkington and Saint-Gobain, is scheduled for July 2004.

In Argentina the economy grew strongly after two years of crisis, with the construction industry leading the economic resurgence. Consequently, demand for float glass rose sharply, with Pilkington maintaining its market share. In Chile, the construction sector experienced another quiet year.

Asia Pacific

In Australia and New Zealand, which represents nine per cent of the Group’s Building Products sales, continuing strength in residential housing markets has sustained glass demand. Pilkington’s value-added products have fared well, primarily due to the robust home improvement and refurbishment sector. The combination of high demand coupled with ongoing manufacturing efficiency improvements ensured that Building Products Australasia again produced good profits and cash results.

The re-focused Building Products New Zealand business attained record profits in an economy which grew by over three per cent. Growth was on the back of strong household spending and an increase in the construction of new dwellings, driven by high net immigration. Commercial construction activity was also high.

Economic growth in Asia remained strong. China once again led the way, with another year of growth in GDP above eight per cent. Domestic demand for both float glass and processed architectural products remains strong, and the market grew by more than ten per cent. Pilkington’s high performance architectural float glass products continue to sell well in the region. Prices improved towards the end of the year, and the Group’s associated manufacturing company in China, Shanghai Yaohua Pilkington Glass Co. Ltd. (SYP), in which Pilkington holds a 19 per cent share, reported a 30 per cent improvement in profits. SYP acquired its fourth float glass line in January 2004, in Tianjin, and a new US$35 million architectural glass factory in Shanghai has started production.

Automotive Products

Automotive Products’ sales were £1250 million, down three per cent from the previous year. Operating profit, however, improved by 20 per cent to £89 million. During the year, the business line launched a further business improvement initiative, designed to ensure that Pilkington is able to improve competitiveness in order to win new contracts profitably against tough competition from established and emerging markets. This will continue to stimulate the on-going drive for improved operating efficiencies, reduced costs and higher profitability.

Pilkington Automotive operates as a single global organisation serving the Original Equipment (OE) and Automotive Glass Replacement (AGR) markets. All operations have now been combined into an integrated worldwide business unit, across all regions and distribution channels. The effects of these organisational changes, coupled with restructuring activities in North America, and relentless focus on reducing costs and improving quality, are already apparent.

The past year has seen the highest concentration ever of new model introduction activity in the Automotive OE business. Pilkington Automotive has been involved in more than 50 new product launches, from the luxury Maserati Quattroporte and the high-volume Astra in Europe, to the new Ford Barra in Australia and the General Motors Chevrolet Malibu and Toyota Solara in North America. Vehicle manufacturers are increasingly introducing niche models using the same platform. In addition, lead times for vehicles are being cut by as much as half, to eighteen months or even less, compared with a traditional development period of around three years.

Industry expectations are for a modest increase in production of light vehicles in North America this year, and for steady demand in Europe. Pilkington continues to expect to grow faster than the market in Europe, through success with new models and specialist applications. In addition our plans for further improvement in efficiency, quality and customer service should again show through in the results for the current period.

Europe

Overall light vehicle production in Europe was essentially unchanged from the previous year. However, sales by our European Automotive business, accounting for 53 per cent of the Group’s Automotive sales, increased by six per cent. This was due to gains on new model introductions and increased demand for specialised applications in the bus, coach and truck markets.

Increased product complexity is an important factor in the OE market, leading to growing sales of solar reflective windshield glass, intruder-resistant side glazing and heated wired products. This trend will continue as vehicle manufacturers emphasise the advantages of increased security and noise reduction. Designs for future vehicles show increases in glass content through panoramic windshields and all-glass sunroofs.

Total value of the aftermarket continues to grow in line with increases in the adoption of high value-added windscreens, such as infrared reflective and wire-heated, together with those containing extra components such as rain sensors and extruded profiles. As a major OE supplier with access to all these technologies, Pilkington is able to offer a wide and attractive product range to its customers. Demand dipped in the second half of the year, though operations in Germany and France are benefiting from the reconfiguration of warehouse and logistic operations, improved service levels and extended range availability.

North America

OE light vehicle production in North America declined from the previous year by four per cent, as North American vehicle manufacturers continued to reduce dealer inventory levels.

However our North American Automotive business (which, including associates, accounts for 39 per cent of the Group’s Automotive sales), showed significant operational improvement again this year, after completing the restructuring programme. Sharing best practice across all businesses continues to strengthen the infrastructure in North America, as evidenced by growing business won with Toyota, Nissan and Honda and new business secured with DaimlerChrysler. However, due to the more competitive pricing in the AGR market, total operating profits in North American Automotive fell by five per cent.

In Mexico, VVP’s turnover in its automotive operations declined by about 20 per cent, due to competitive pressures in the domestic market. Sales to the OE market were down year-on-year due to weak demand in both domestic and export markets. The current year decline in OE was compensated for by sales to the export AGR market, although pricing pressures in those markets continues.

South America

Pilkington’s South American Automotive business represents five per cent of the Group’s Automotive operations worldwide. South American vehicle production increased by three per cent as vehicle manufacturers built inventory for the expected increase in the economy, as well as for the export market.

Production and sales from Pilkington operations increased as they also serve as a manufacturing base for exports into the Group’s distribution networks in North America and Europe. This sales improvement, combined with continued improvements in production efficiency, resulted in significantly improved profitability, despite high inflation and difficulties in cost recovery.

Asia Pacific

Results in Australia showed an improvement over last year in a favourable trading environment as light vehicle production increased by eight per cent. Profits improved once more, reflecting higher sales and continued manufacturing improvements and efficiency gains in the plants.

The Chinese automotive market continues to grow rapidly with two million passenger cars built in China in calendar year 2003, double the level of 2002. Pilkington is the leading international automotive glass manufacturer in China, and is well positioned to service this growing market with our automotive glass subsidiaries and associates providing wide geographical coverage. Sales and profits increased over the previous year and the plants are benefiting from increased integration into the Group’s global Automotive organisation.

Prospects

We do not expect to see significant improvement in trading conditions in our major markets this year. However Pilkington is already well advanced with internal programmes designed to ensure that we stay ahead of the competition and build on the operational gains of the past six years. Our focus on cash generation will again be vigorously pursued this year, aimed at a further reduction in Group borrowings, as Pilkington prepares for future profitable growth.

PILKINGTON plc: GROUP PROFIT AND LOSS ACCOUNT

SUMMARY GROUP BALANCE SHEET

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS

GROUP CASH FLOW STATEMENT

RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

NOTES ON GROUP RESULTS

1 Accounting policies

These results have been prepared on the basis of the accounting policies, which have been consistently applied, as disclosed in the Directors’ Report and Accounts for the year ended 31st March 2004.

2 Profit and loss account and cash flow – reconciliation of statutory and non-
statutory adjusted disclosures

3 Group’s continuing operations before exceptional items

4 Net operating assets of the Group’s continuing operations

Net operating assets comprise intangible fixed assets, tangible fixed assets, stocks, debtors, creditors and provisions. Creditors exclude loans and overdrafts, taxation on profits, finance leases and dividends. Debtors exclude taxation and deferred taxation recoverable. Provisions exclude deferred taxation.

5 Segmental analysis of the Group’s share of joint ventures and associates

6 Exceptional items

These comprise losses on the sale and termination of operations of £7 million (2003 £2 million) primarily arising from the termination of the Automotive Glass Replacement business in New Zealand and losses on the disposal of fixed assets and investments of £nil (2003 £2 million).

7 Net interest payable and similar charges

8 Taxation

There is no tax charge or credit (2003 nil) attributable to the exceptional items.

9 Earnings per share

The average number of shares for the purpose of calculating earnings per share was 1,260 million (31st March 2003 – 1,248 million). The average number of shares for the purpose of calculating fully diluted earnings per share was 1,263 million (31st March 2003 – 1,250 million).

10 Exchange rates

The principal exchange rates used for the translation of foreign currencies were as follows:

11 Reconciliation of operating profit to net cash inflow from operating activities

12 Net debt

13 Dividend

The directors have recommended a final dividend of 3.25p per ordinary share (2003 – 3.25p) which, taken with the interim dividend of 1.75p per ordinary share makes a total dividend for the year of 5.0p per ordinary share (2003 – 5.0p). The dividend will be paid on 30th July 2004 to shareholders on the register at the close of business on 11th June 2004.

Shareholders with an existing scrip dividend mandate will automatically receive new shares in lieu of a cash dividend. Those shareholders who wish to cancel their instructions or those without an existing scrip dividend mandate who wish to participate in the scrip dividend scheme should contact the Company’s Registrars (Computershare Investor Services PLC, P O Box 82, The Pavilions, Bridgwater Road, Bristol, BS99 7NH; telephone 0870 702 0000). Completed mandate or cancellation instructions should be notified to the Registrars no later than 13th July 2004.

The offer of a scrip dividend alternative is subject to the terms of the Pilkington plc Scrip Dividend Scheme.

This statement was approved by the directors on 26th May 2004. A copy can be obtained by the public from Company Secretary, Pilkington plc, Prescot Road, St Helens, WA10 3TT.

ENDS