Key Features:

• Good results, despite challenging markets and higher energy costs
• Increased revenue and operating profits from both core businesses – Building Products and Automotive
• Profit before taxation up 22 per cent at £99 million (2004 £81 million)
• Basic earnings per share increased 29 per cent from 4.1 pence to 5.3 pence
• Interim dividend increased to 1.8 pence per share (2004 1.75 pence)
• Continued strong free cash flow at £69 million (2004 £94 million)
• Net debt reduced again to £685 million (2004 £775 million)

Chairman, Sir Nigel Rudd, commented:

“The Group’s results in the first six months of the year are in line with our previous indications, with Group profit before taxation up 22 per cent, despite challenging market conditions and increases in energy costs. Our continued drive for manufacturing efficiencies and cost reductions, together with our emphasis on generating cash from our businesses, combined to produce another improved performance. The Group is well positioned to move forward with its transition to the third phase of its strategy over the course of this financial year, and has already begun to target investments into profitable growth opportunities.”

Market conditions remain challenging and energy costs have risen worldwide. Despite this, Pilkington can report a good set of results, with increases in revenue and operating profits across both Building Products and Automotive Products.

Operating profit from the Group’s continuing operations increased by 26 per cent from £102 million to £129 million in the half-year to 30 September 2005. Profit before taxation increased to £99 million in the half-year, up 22 per cent on the same period last year. Pilkington continues to focus on cash generation and the achievement of strong free cash flow of £69 million in the half-year has enabled the Group to reduce net debt by 12 per cent since September 2004.

Adoption of International Financial Reporting Standards (IFRS)

Pilkington, along with all EU listed companies, is now required to produce its results under IFRS. Earlier this year, Pilkington published IFRS information relating to its consolidated balance sheet at 1 April 2004, its half-year results to 30 September 2004 and the full year results to 31 March 2005. Details of these results, together with reconciliations between previously published UK GAAP reported results and those reported under IFRS, are available on the Pilkington website www.pilkington.com.

All references in this statement and in the attached financial statements reflect results prepared on the basis of IFRS.

Results

Revenue in the first half was £1.3 billion, 9 per cent up on the first half of last year. Operating profit from the Group’s continuing operations was £129 million, an increase of 26 per cent on the £102 million achieved in the first half of last year.

Finance expenses, net of finance income, were broadly in line with last year and reflect higher interest rates applied to a reduced level of borrowings, together with the inclusion of a finance cost charge in respect of retirement benefit obligations and fair value adjustments on financial derivative assets and liabilities, introduced under IFRS.

The tax charge in the income statement of £24 million (2004 £22 million) reflects a tax rate of 24 per cent (2004 – 27 per cent) on the Group’s reported profit before taxation of £99 million (2004 £81 million). This rate appears lower than under UK GAAP and arises partly from the changed disclosure of the tax applicable to joint ventures and associates, which is now charged before striking the Group’s profit before tax.

Earnings and dividend

The profit attributable to equity shareholders has increased 31 per cent from £52 million in 2004 to £68 million in this half-year. Basic earnings per share have increased by 29 per cent from 4.1 pence per share in 2004 to 5.3 pence per share in the half-year to 30 September 2005.

The interim dividend has been increased to 1.8 pence per share from 1.75 pence per share consistent with our progressive dividend policy introduced at the preliminary results in May 2005. The dividend will be paid on 16 December 2005 to shareholders on the register on 2 December 2005.

Cash flow and borrowings

Free cash flow (defined as cash flow before expenditure on acquisitions, net of divestments and the disposal of property, plant and equipment and investments) amounted to £69 million (2004 £94 million). This reflects Pilkington’s continuing emphasis on generating cash from its businesses. As a result, the Group’s net debt has fallen by £90 million in the last 12 months.

Building Products

Although competition remains intense in most major Building Products markets, revenues nevertheless improved by 1 per cent on the same period last year, rising to £616 million. The drive for improved efficiencies further lifted profits for the Building Products business to £69 million, an increase year-on-year of 10 per cent.

Building Products Europe, representing around two-thirds of total Building Products sales, has seen signs of recovery in some continental markets, but overall market conditions remain difficult. Prices of standard float continue to fall across the region and the UK market in particular is currently experiencing low demand and high levels of competition.

Despite this, operating efficiencies and an overhaul of the management and administrative structure helped to increase profits in the region. Last year's restructuring improved the overall European result, helped by continuing strong sales of Pilkington Pyrostop™ Fire Protection glass. The European energy surcharge continues to mitigate the impact of rising energy costs.

Building Products North America, representing 13 per cent of total Building Products sales, is concentrated on the commercial construction market, which remains depressed. Although improvement is still expected in the medium term, recovery is unlikely in the current financial year.

In South America, the Group’s Building Products business continues to perform well, with demand for float glass continuing to grow strongly in Argentina, Brazil and Chile. Although there has been some slowdown in the residential construction sector in Australia, the economy generally remains strong, and the business has turned in another good performance.

Automotive Products

Pilkington Automotive Original Equipment (OE) volumes were robust, due in part to several successful launches of vehicles in which Pilkington products are fitted. The North American Automotive Glass Replacement (AGR) market has stabilised and AGR sales in Europe have improved. As a result, Pilkington Automotive sales increased 15 per cent to £630 million and operating profits of £61 million were £13 million or 27% up on the first half of last year.

More than 55 per cent of Pilkington Automotive’s sales are in Europe. The market for light vehicles has been flat, but once again, due to success with the introduction of new models, the Group’s sales volumes continue to grow. The European AGR market has been stable. Sustained emphasis on efficiency improvements and cost reductions has helped counter continuing price pressure and rising energy-related costs. As a result, profits in Automotive Europe exceeded the same period last year by 40 per cent.

Over 30 per cent of Pilkington’s Automotive business is in North America, where light vehicle build is expected to be around 1 per cent up on last year. The Group’s sales to OE manufacturers are higher than last year. In AGR North America, the acquisition of the Autostock Distribution branches has started to flow through into increased sales. North America continues to experience significant price pressure and higher energy costs, but the benefits of increased volumes, operational efficiency improvements and cost reductions resulted in profits 20 per cent above those of the first half of last year.

In South America, light vehicle demand has risen 10 per cent. Strong sales volumes and ongoing manufacturing efficiencies have helped increase operating profits over the same period last year. Results from operations in Australasia have also improved, partly as a result of stronger market volumes, though overall profits were affected by the costs of restructuring the business to face increased import competition. In China, the market continues to expand rapidly and increased emphasis is being placed on developing the cost and operational efficiency of our profitable businesses there.

Joint ventures and associates

Under IFRS the results from joint ventures and associates are disclosed differently from those previously shown under UK GAAP. Pilkington now reports its share of the post-tax profits of joint ventures and associates as a one line item, prior to disclosing the Group’s profit before tax. Overall, the share of profits after tax from joint ventures and associates has declined from £11 million in the half-year to September 2004 to £2 million in the half-year to September 2005.

Trading difficulties in Mexico have led to deterioration in Pilkington’s share of the result from Vitro Plan SA de CV and subsidiaries (VVP). Additionally, as expected, start-up costs have been incurred at the Group’s new Russian joint venture float line with Emerging Markets Partnerships, which is due to be commissioned shortly.

The Group’s other principal joint ventures, Cebrace in Brazil and Pilkington Glass France, continue to trade at similar levels to last year.

Energy Costs

The primary energy source for the Group's float plants is gas, and occasionally oil. In addition, electricity accounts for approximately 35 per cent of Group energy costs. Direct energy costs represent approximately 10 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 2000 Pilkington introduced a surcharge on glass delivered to Building Products' customers there. A similar energy surcharge on deliveries of glass to Building Products' customers in Europe was introduced in November 2004, and these measures have helped to offset the impact of increased energy costs during the period.

Statement re possible offer for the Company

A separate announcement has been made contemporaneously with this statement.

Outlook

Pilkington continues to follow a clear three-stage “Cash for Growth” strategy. Over the course of this financial year our priorities are to maintain momentum on the cost reduction programme, started in Stage 1, to complete the rebuilding of our financial strength, begun in Stage 2, and to begin the transition into Stage 3, with targeted, disciplined investments into profitable growth opportunities.

The Pilkington-constructed fourth float line in Brazil for our South American joint venture is now in full production, following an excellent start-up. A sound base has been established in China as a platform for future growth, with the three Automotive plants now fully integrated into the global Pilkington Automotive business. The commissioning of the joint venture float line in Russia is due to be completed soon.

Although conditions in most of our markets remain challenging, Pilkington is sustaining its internal programmes to maintain the Group’s competitiveness and we have continued confidence for the full financial year.

Ends

Consolidated income statement

1. Basis of preperation and principal accounting policies

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The next annual financial statements of the Group will be prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). Accordingly, the interim financial report has been prepared using accounting policies consistent with IFRS.

IFRS is subject to amendment and interpretation by the International Accounting Standards Board (IASB) and there is an on-going process of review and endorsement by the EU. The financial information contained in these interim accounts has been prepared on the basis of IFRS that the directors expect to be applicable as at 31st March 2006. In particular the directors have assumed that the EU will endorse the amendment to IAS 19 ‘Employee Benefits – Actuarial Gains and Losses, Group Plans and Disclosures’ issued by the IASB in December 2004.

Pilkington has complied with IFRS 1 ‘First Time Adoption of IFRS’. The following optional exemptions from full retrospective application of IFRS accounting policies have been adopted:

• Business combinations – the provisioxns of IFRS 3 ‘Business Combinations’ will be applied prospectively from 1st April 2004. No adjustments have been made to acquisitions made prior to the date of IFRS transition.
• Cumulative translation differences relating to net investments in overseas subsidiaries, joint ventures and associates that arose prior to 1st April 2004 have been set to zero and will not be included in any subsequent calculation of profit or loss on disposal.
• All actuarial gains and losses in respect of defined benefit pension and post retirement schemes have been recognised in full in the reserves at 1st April 2004.
• The adjustment arising in respect of share based payments under IFRS 2 ‘Share Based Payments’ have been applied to share options granted after 7th November 2002.
• Financial instruments – IAS 32 ‘Financial Instruments: Disclosure and Presentation’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’, as issued by the IASB and amended by the EU, have been adopted early, such that the balance sheet at 1st April 2004 reflects the requirements set out in these standards.

Principal accounting policies

The following is an abridged summary of the Group’s full IFRS accounting policies. The full IFRS accounting policies are published in the Interim Report for the half year to 30th September 2005, which will be sent to shareholders in mid November 2005.

Basis of accounting

These financial statements have been prepared under the historical cost and fair value conventions, as detailed in the policies disclosed below.

Research and development

Research expenditure continues to be charged in the income statement as it is incurred

Development costs are charged in the income statement in the year unless such costs meet the recognition criteria of IAS 38 ‘Intangible Assets’. Where such criteria are met either in respect of new products or in respect of improved processes, the resulting intangible assets are capitalised and amortised over their useful economic lives, over periods not exceeding five years (products) and 20 years (processes).

Goodwill

Under IFRS, goodwill arising on acquisitions is capitalised and subject to annual impairment review. Under UK GAAP goodwill was amortised over its estimated useful life.

At both 1st April and 31st March 2005, the Group undertook impairment reviews of the goodwill asset carried in the balance sheet. No impairment was deemed necessary at either date.

On adoption of IFRS, negative goodwill carried in the UK GAAP balance sheet has been credited to reserves.

Employee benefits

The Group accounts for defined benefit pension schemes, leaving indemnity arrangements, post-retirement healthcare and life insurance benefits, phased retirement arrangements (in Germany only) and long service benefits under IAS 19 ‘Employee Benefits’. Obligations are measured at discounted present value and plan assets (for funded schemes, principally in the USA and Australia) are recorded at fair value.

The operating and financing costs are recognised separately in the income statement; service costs are spread over the service lives of employees (in open schemes) and financing costs are recognised in periods as they arise. Actuarial gains and losses are recognised in the statement of recognised income and expense.

Joint ventures and associates

The Group’s share of the profit less losses of joint ventures and associates is included in the income statement on the equity accounting basis, presented as Pilkington’s share of post-tax profit/loss of joint ventures and associates accounted for using the equity method. The carrying value of joint ventures and associates in the Group balance sheet is calculated with reference to Pilkington’s equity in the net assets of such joint ventures and associates as shown in the most recent available accounts, adjusted where appropriate to align them with the Group’s policies.

Share based payments

The fair values of employee share options (under the Deferred Bonus Plan, the Leadership Equity Award Plan, the Senior Executive’s Share Option Schemes and the Savings Related Share Option Scheme) have been calculated using the Black-Scholes model as permitted under the rules set out in IFRS 2. The costs of the share options are charged to the income statement over the period in which the options vest, and are adjusted to reflect the actual and expected levels of vesting.

Under IFRS 2, the effective date for accounting for options commences on 7th November 2002 and Pilkington has applied an adjustment to the opening IFRS balance sheet at 1st April 2004 in respect of options granted and not fully vested at that date.

Deferred taxation

Deferred taxation is provided in full on the liability basis on temporary differences arising between the tax bases of assets and liabilities and their carrying amount in the consolidated balance sheet.

Deferred taxation is provided on temporary differences arising in investments in subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Derivative financial instruments and hedging

Derivatives are initially recognised at fair value on the date the derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged, and the effectiveness of the hedging arrangement.

The Group designates certain derivatives as hedges of the changes in the fair value of recognised assets or liabilities or a firm commitment (fair value hedges); hedges of exposure to variability in cash flows associated with an asset or liability or arising from highly probable forecast transactions (cash flow hedges) and hedges of net investments in foreign operations (net investment hedges).

The Group documents at the inception of a transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

1. Fair value hedge
   Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
2. Cash flow hedge
   

   The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.

   Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.

   When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

3. Net investment hedge
   

   Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in the translation reserve within equity, the gain or loss relating to the ineffective portion is recognised immediately in the income statement.

   Gains and losses accumulated in equity are included in the income statement when the foreign operation is sold.

4. Derivatives that do not qualify for hedge accounting
   

   Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.

Construction work-in-progress

Construction work-in-progress is represented by engineering construction contracts for the building, construction and delivery of float glass lines and glass processing plants for third party customers. Profits are recognised where revenue and contract costs can be reliably estimated and are based on the stage of completion of the contract. Where the outcome cannot be estimated reliably, revenue is only recognised to the extent that it is probable that the contract costs incurred will be recoverable. Where it is probable that the total contract costs will exceed the total contract revenue, the expected loss is recognised as an expense immediately in the income statement.

2. Segmental Information

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The Group is organised on a worldwide basis into the following principal business segments:

Building Products - manufacture and processing of float glass for the building products sector.

Automotive Products - manufacture and processing of original equipment (OE) automotive glass products for the world’s leading vehicle manufacturers and provision of automotive glass replacement (AGR) products to the wholesale aftermarket sector.

Other operations include:

• Group operations - head office and other central costs not allocated to the business segments referred to above.
• Engineering – building and supply of float glass lines and automotive glass processing facilities to Pilkington and other glass manufacturing and processing companies.
• Technology management – royalty income and technical fees received in respect of licensing Pilkington’s technological developments to other parties.
• Other sundry activities, including property rental and other non-core activities.

The segmental results for the half year to 30th September 2005 were as follows:-