Press information

PILKINGTON plc INTERIM RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2004

Key Features:

• Robust performance, despite cost pressures and strong pound.
• Profit on ordinary activities before taxation, amortisation of goodwill and exceptional items £87 million (2003 £84 million) *.
• Earnings per share before exceptional items and amortisation of goodwill increased from 4.1 pence to 4.3 pence (basic earnings per share increased from 3.1 pence to 4.0 pence).
• Interim dividend maintained at 1.75 pence per share.
• Strong free cash flow up nine per cent at £97 million (2003 £89 million).
• Borrowings reduced to £621 million (2003 £775 million).
• Markets challenging, though demand outlook becoming somewhat more positive.

Chairman, Sir Nigel Rudd, commented:

"The Group's results in the first six months of the year confirm the expectations set out in our previous statements, with robust profits achieved, despite rising costs and the impact of the strong pound. Indeed headline profit at constant exchange rates was up 14 per cent. Continued strong cash generation has enabled the Group to reduce borrowings by £154 million (or 20 per cent) in the last twelve months. Conditions in most of our markets remain challenging, although the demand outlook is becoming somewhat more positive."

* Profit on ordinary activities before taxation £82 million (2003 £71 million)

GROUP RESULTS FOR THE HALF YEAR TO 30 SEPTEMBER 2004 Statement by the Chairman, Sir Nigel Rudd

As indicated at the time of the Pilkington Annual General Meeting in July, conditions in most markets remain challenging, although the outlook in general is becoming more positive.

Overall, results for the first half year are in line with expectations, with robust profits achieved despite rising costs and a strong pound. Profit before amortisation of goodwill, exceptional items and taxation was £87 million in the half year, up 14 per cent at constant exchange rates.

Pilkington continues to deliver on its strategic priority of cash generation, with free cash flow of £97 million in the first half. Group debt of £621 million has been reduced by 20 per cent since September 2003.

Results

Turnover in the first half year including joint ventures and associates was £1.3 billion, one per cent up on the first half of last year, when exchange rate movements are taken into account. Operating profits for Group businesses of £94 million represent a decline of £4 million over the first half of last year, although using constant exchange rates profits would have increased by £3 million. Operating profits of joint ventures and associates increased by £3 million to £19 million (an increase of £6 million at constant exchange rates), principally as a result of improved results from Cebrace, the Brazilian joint venture.

Exceptional Items

Exceptional items in the first half year amounted to a net charge of £1 million, arising from the closure of the Building Products decorated glass operations in Australia and some Building Products processing and merchanting operations in Austria. These losses were largely offset by the profit on disposal of a small joint venture business, SDC Technologies Inc., in the USA.

Earnings and Dividend

Earnings per share before exceptional items and amortisation of goodwill increased from 4.1 pence to 4.3 pence, while basic earnings per share increased from 3.1 pence to 4.0 pence. The interim dividend has been maintained at 1.75 pence per share, to be paid on 17 December 2004 to shareholders on the register at 3 December 2004.

Accounting Policies

The Group has adopted UITF 38 "Accounting for ESOP trusts" and UITF 17(Revised) "Employee Share Schemes". As a result the Group has reclassified the company's own shares (previously carried as an investment asset in the balance sheet) as a deduction from shareholders' funds. This has resulted in restatements of the accounts for both the half year to 30 September 2003 and the year to 31 March 2004, as set out in note 13 to the financial statements.

International Financial Reporting Standards

Pilkington is well advanced with its preparations for the introduction of International Financial Reporting Standards (IFRS) and will set out, early in 2005, details of the policies to be adopted and changes to the restated opening IFRS balance sheet at 1 April 2004. At the same time the Group will identify the key IFRS changes to the half year results to 30 September 2004.

Cash Flow and Borrowings

Free cash flow of £97 million was £8 million better than the record level achieved in the first half of last year, demonstrating that Pilkington is continuing to deliver on the cash generation part of its strategy. As a result Group debt has fallen by £43 million in the first half year and by £154 million in the last 12 months.

Building Products

The strong pound pushed Building Products sales down slightly during the first six months of 2004. Excluding our share of joint ventures and associates, sales fell five per cent to £599 million. Despite lower sales, the ongoing focus on cost reductions and efficiency improvements produced operating profits before amortisation of goodwill of £65 million, not far short of the £67 million reported in 2003.

In Europe, our Building Products business, which represents around two thirds of Building Products in total, continues to be affected by the generally sluggish European economy, though there are signs that markets are beginning to recover. After a strong trading performance last year, competitive pressures have reduced profits in the UK market. Float prices across Europe appear to have stabilised.

Building Products North America, representing 13 per cent of total Building Products sales, is concentrated on commercial construction, where Pilkington is the leading North American glass supplier. Office vacancy rates have been high but are now falling and orders for glass have begun to pick up. Cost reductions have underpinned profits, which were ahead of last year in dollar terms.

In South America, our Building Products business continues to perform well. Demand for float glass continues to grow strongly in Argentina, Brazil and Chile. Overall, operating profits from South America were up on the first half of last year.

Operating profits in our Australian business are holding up well, though marginally down on the same period last year, with the first signs of an economic slowdown affecting the residential housing sector.

Automotive Products

Automotive Products sales, excluding associates and joint ventures, declined by 11 per cent to £544 million, largely as a result of foreign exchange movements. Nevertheless, ongoing progress in cost reduction and manufacturing improvements produced an operating profit before amortisation of goodwill of £46 million, up by £2 million on the first half of last year.

Approximately 60 per cent of Pilkington Automotive sales are in Europe. The Group's Original Equipment (OE) product sales in this region have grown faster than the market, with further new model introductions doing well and higher shipments of specialised transport applications. The European Automotive Glass Replacement (AGR) business has held up well. Overall, European Automotive profits rose by around 30 per cent, due to sustained improvement in manufacturing efficiencies, lower redundancy costs and relentless focus on cost reduction.

Approximately one third of the Group's Automotive business is in North America. Demand for Pilkington OE products was in line with the market, but sales were down on last year. In addition, price pressure in the aftermarket contributed to a fall in sales and profits in Automotive North America despite continuing efficiency improvements.

In South America, representing approximately five per cent of the Group's total Automotive glass sales, Pilkington sales were 11 per cent ahead of last year. A combination of higher sales, increased productivity and improved plant efficiencies resulted in operating profits moving ahead in the region.

Results in Australia show a decline on last year, reflecting local price pressures more than offsetting cost reductions and the closure of the New Zealand AGR business.

In China, where Pilkington is the leading foreign supplier of automotive glass, the vehicle market continued its rapid growth, with light vehicle production up by a further 25 per cent. Our Chinese automotive subsidiaries have continued to perform well, making ongoing improvements in all areas.

Associates and Joint Ventures

Profits in our Brazilian joint venture, Cebrace, improved by more than 25 per cent. The fourth float line at Barra Velha in Brazil, operated by Cebrace, is now fully operational.

The Group's associated manufacturing company in China, Shanghai Yaohua Pilkington Glass Co. Ltd. (SYP), in which Pilkington has a 19 per cent share, increased both sales and profits over the comparable period, as China experiences increased demand for more high performance glass in construction projects.

In Russia, work to complete the joint venture float plant in the Moscow region, built and operated by Pilkington, is well advanced, with the line expected to start up in mid 2005.

Sales in our 35 per cent Mexican associate Vitro Plan SA de CV (VVP) were up four per cent in US dollars on the first half of last year, though profits were affected by higher energy and freight costs.

Finance and Taxation

Interest costs at £30 million were £4 million less than in the first six months of last year, reflecting lower borrowings. Following the announcement of the results for the year ended 31 March 2004, Standard and Poors and Moodys confirmed their ratings of Pilkington bonds as BBB/BAA2, both having now moved from "negative" to "stable" outlook.

The underlying rate of tax on pre-exceptional profits has been reduced by three per cent to 30 per cent. This arises from a higher proportion of profits being generated in areas where local tax rates are lower, together with the Group's refinancing and restructuring arrangements.

Energy Costs

Pilkington's primary energy source in the Group's float plants is gas, and occasionally oil; in addition electricity accounts for approximately 30 per cent of Group energy costs. Direct energy costs represent approximately seven per cent of Pilkington's total costs, though this varies between businesses. Following the sharp increase in the cost of gas in North America, in 2002 Pilkington introduced a surcharge on glass delivered to Building Products' customers in North America. The recent surge in energy costs in other territories has led to the introduction of a similar energy surcharge on deliveries of glass to Building Products' customers in Europe, beginning in November 2004.

Outlook

Pilkington is following a clear three stage strategy: to continue to improve operational performance; to generate cash, initially to strengthen the Group financially; and, in the third phase, to invest the surplus cash generated into profitable growth opportunities. Pilkington's extensive restructuring of recent years has led to significantly improved operational efficiency, as demonstrated by the improving trend of results. The Group is currently in stage two of its strategy, where it is demonstrating its capability to consistently generate cash and pay down debt. Conditions in most of our markets remain challenging, although the demand outlook is becoming somewhat more positive.

PILKINGTON plc: GROUP PROFIT AND LOSS ACCOUNT

	Note	Half year to 30th Sept 2004 £m		Half year to 30th Sept 2003 £m		Year to 31st March 2004 Restated £m
Turnover
Group’s continuing operations	1	1,173		1,243		2,440
Share of joint ventures’ and associates’ turnover	3	148		152		311
Turnover including joint ventures and associates		1,321		1,395		2,751
Operating profit
Group’s continuing operations	1	94		98		180
Share of joint ventures and associates	3	19		16		33
Operating profit including joint ventures and associates		113		114		213
Exceptional items	5	(1)		(9)		(7)
Profit before investment income and interest		112		105		206
Net interest payable and similar charges	6	(30)		(34)		(69)
Profit on ordinary activities before taxation		82		71		137
Taxation	7	(24)		(26)		(47)
Profit on ordinary activities after taxation		58		45		90
Minority interests (including non-equity)		(7)		(6)		(11)
Profit attributable to shareholders		51		39		79
Dividends	12	(22)		(22)		(63)
Retained profit of the Group		29		17		16
Earnings per share	8	4.0p		3.1p		6.3p
Fully diluted earnings per share	8	4.0p		3.1p		6.3p
Dividend per share	12	1.75p		1.75p		5.0p
Profit before amortisation of goodwill, exceptional items and taxation	4	87		84		152
Profit before exceptional items and taxation	4	83		80		144
Earnings per share (excluding goodwill amortisation and exceptional items)	4	4.3p		4.1p		7.5p
Earnings per share (excluding exceptional items)	4	4.0p		3.8p		6.8p

GROUP BALANCE SHEET

		30th Sept 2004 £m		30th Sept 2003 Restated £m		31st March 2004 Restated £m
ASSETS EMPLOYED
Fixed assets
Intangible fixed assets		137		152		139
Tangible fixed assets		1,370		1,439		1,380
Joint ventures, associates and trade investments		181		183		173
		1,688		1,774		1,692
Current assets
Stocks		362		373		354
Debtors		433		472		418
Investments – marketable		41		37		52
Cash at bank and in hand		74		86		40
		910		968		864
Creditors – amounts falling due within one year		(593)		(672)		(605)
Net current assets		317		296		259
Total assets less current liabilities		2,005		2,070		1,951
FINANCED BY
Creditors – amounts falling due after more than one year		665		739		662
Provisions for liabilities and charges		472		509		465
		1,137		1,248		1,127
Deferred income		54		20		56
		1,191		1,268		1,183
Capital and reserves
Called up share capital		643		636		637
Reserves		76		68		37
Total equity shareholders’ funds		719		704		674
Minority interests		95		98		94
		2,005		2,070		1,951

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

		Half year to 30th Sept 2004  £m		Half year to 30th Sept 2003  £m		Year to 31st March 2004 Restated £m
Profit attributable to shareholders		51		39		79
Other recognised gains/(losses):
Exchange rate movements on foreign currency net investments arising in the period		5		(6)		(36)
Total recognised gains		56		33		43

RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS

		Half year to 30th Sept 2004  £m		Half year to 30th Sept 2004  £m		Year to 31st March 2004 Restated £m
Profit attributable to shareholders		51		39		79
Consideration paid for purchase of shares held by ESOP trust for the Deferred Bonus Plan and the Leadership Equity Award Plan		(2)		-		(2)
Credit in relation to long-term incentive awards		2		2		3
Dividends		(22)		(22)		(63)
Exchange rate movements on foreign currency net investments		5		(6)		(36)
Goodwill written back		-		4		4
Shares issued		6		6		7
Premium on shares issued		5		2		3
Net increase/(decrease) in shareholders’ funds		45		25		(5)
Shareholders’ funds at beginning of the period (as restated)		674		679		679
Shareholders’ funds at end of the period		719		704		674

Shareholders' funds at 31st March 2003 were originally reported at £684 miilion before deducting a prior year restatement of £5 million, as detailed in note 13.

GROUP CASH FLOW STATEMENT

		Half year to 30th Sept 2004  £m		Half year to 30th Sept 2004  £m		Year to 31st March 2004 Restated £m
Net cash inflow from operating activities (note 10)		186		176		377
Dividends received from joint ventures and associates		2		1		8
Net cash outflow from returns on investments and servicing of finance		(32)		(28)		(26)
Taxation paid		(16)		(16)		(48)
Net cash outflow from capital expenditure		(43)		(44)		(104)
		97****		89*		207*
Net cash inflow from acquisitions and disposals		1		39		35
Net cash inflow before dividends, management of liquid resources and financing		98		128		242
Equity dividends paid by parent company		(31)		(33)		(54)
Net cash inflow before use of liquid resources and financing		67		95		188
Management of liquid resources		11		(4)		(23)
Net cash outflow from financing		(22)		(89)		(163)
Increase in cash		56		2		2

* Free cash flow

RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

		Half year to 30th Sept 2004 £m		Half year to 30th Sept 2004 £m		Year to 31st March 2004 £m
Net debt at start of the period		(664)		(861)		(861)
Increase in cash in the period		56		2		2
Cash (inflow)/outflow from management of liquid resources		(11)		4		23
Net decrease in loans		18		77		151
Net decrease/(increase) in obligations under finance leases		-		2		(19)
Change in composition of the Group		-		-		1
Exchange rate adjustments		(20)		1		39
Net debt at end of the period		(621)		(775)		(664)

NOTES ON GROUP RESULTS

1 Segmental analysis of turnover and operating profit

			Half year to 30th Sept 2004				Half year to 30th Sept 2003				Year to 31st Mar 2004
	Turnover     £m		Operating profit/(loss)   £m		Turnover     £m		Operating profit/(loss)   £m		Turnover     £m		Operating profit/(loss) Restated £m
Building products	599		65		628		67		1,221		120
Automotive products	544		46		614		44		1,166		86
Group operations and technology management	30		(13)		1		(9)		53		(18)
Goodwill amortisation	-		(4)		-		(4)		-		(8)
	1,173		94		1,243		98		2,440		180
Segmental analysis with goodwill amortisation analysed to business lines:
Building products	599		63		628		64		1,221		116
Automotive products	544		44		614		43		1,166		82
Group operations and technology management	30		(13)		1		(9)		53		(18)
	1,173		94		1,243		98		2,440		180
Europe	726		62		765		60		1,503		115
North America	259		16		317		22		565		34
Rest of the world	158		29		160		25		319		49
Group operations and technology management	30		(13)		1		(9)		53		(18)
	1,173		94		1,243		98		2,440		180

2 Segmental analysis of net operating assets

		30th Sept 2004 £m		30th Sept 2004 £m		31st March 2004 £m
Building products		746		799		750
Automotive products		565		578		534
Group operations and technology management		(21)		10		22
Goodwill		137		152		139
		1,427		1,539		1,445
Segmental analysis with goodwill analysed to business lines:
Building products		837		897		840
Automotive products		611		632		583
Group operations and technology management		(21)		10		22
		1,427		1,539		1,445
Europe		982		1,044		959
North America		237		238		230
Rest of the world		229		247		234
Group operations and technology management		(21)		10		22
		1,427		1,539		1,445

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.

3 Share joint ventures and associates

			Half Year to 30th Sept 2004				Half Year to 30th Sept 2003				Year  to 31st Mar 2004
	Turnover    £m		Operating profit   £m		Turnover      £m		Operating profit/ (loss) £m		Turnover     £m		Operating profit/ (loss) £m
Joint ventures
Building products	28		11		25		6		50		13
Automotive products	6		1		5		1		9		1
	34		12		30		7		59		14
Europe	8		-		4		(2)		10		(1)
North America	3		1		2		1		4		1
Rest of the world	23		11		24		8		45		14
	34		12		30		7		59		14
Associates
Building products	79		4		84		6		177		13
Automotive products	35		3		38		3		75		6
	114		7		122		9		252		19
North America	104		6		111		8		231		16
Rest of the world	10		1		11		1		21		3
	114		7		122		9		252		19
Total joint ventures and associates	148		19		152		16		311		33

4 Reconciliation to non-statutory disclosures

		Half year to 30th Sept 2004  £m		Half year to 30th Sept 2003  £m		Year to 31st March 2004 Restated £m
(a)  Profit before goodwill amortisation, exceptional items and taxation
Profit before taxation		82		71		137
Goodwill amortisation		4		4		8
Exceptional items		1		9		7
		87		84		152
(b)  Earnings per share excluding exceptional items
Profit for the period attributable to shareholders		51		39		79
Exceptional items after tax and minority interest		-		9		7
		51		48		86
(c)  Earnings per share excluding goodwill amortisation and exceptional items
Profit for the period attributable to shareholders		51		39		79
Goodwill amortisation		4		4		8
Exceptional items after tax and minority interest		-		9		7
		55		52		94
		millions		millions		millions
Average number of shares for basic earnings per share calculation		1,270		1,255		1,260
Average number of shares for fully diluted earnings per share calculation		1,274		1,263		1,263

		Half year to 30th Sept 2004  pence		Half year to 30th Sept 2003 pence		Year  to 31st March 2004 Restated pence
Adjusted earnings per share excluding exceptional items		4.0		3.8		6.8
Adjusted fully diluted earnings per share excluding exceptional items		4.0		3.8		6.8
Adjusted earnings per share excluding goodwill amortisation and exceptional items		4.3		4.1		7.5
Adjusted fully diluted earnings per share excluding goodwill amortisation and exceptional items		4.3		4.1		7.4

5 Exceptional items

The exceptional items in the half year to 30th September 2004 comprise the costs of closure of the Building Products decorated glass operations in Australia and some Building Products processing and merchanting operations in Austria. This is offset by a profit on the disposal of the joint venture, SDC Technologies Inc., in the USA. The exceptional items in the half year to 30th September 2003 relate to the termination of the Automotive Glass Replacement operations in New Zealand and the Building Products toughening and laminating operations in Brazil. Additionally, the Pilkington Aerospace businesses in the UK, USA, Brazil and Thailand were sold and, after the write-off of goodwill previously written off to reserves of £4 million, no profit or loss arose.

6 Net interest payable and similar charges

Half year to 30th Sept