Press information

PILKINGTON plc TRADING STATEMENT

In accordance with its established policy, Pilkington today issued the following trading up-date ahead of its interim results announcement for the period to 30 September 2003, which will be made on Wednesday, 5 November 2003.

Summary

Stuart Chambers, Group Chief Executive commented:

"As we indicated at the time of the Annual General Meeting, conditions in most of our major markets remain tough. Despite this, Pilkington continues to make good progress with cost reduction and further improvement in our manufacturing performance. Overall, trading is in line with our expectations and in the first half year pre tax profits will be ahead by approximately 10 per cent, partly because results in the first half of last year were adversely affected by extended cold repairs in our float operations. Continued emphasis on free cash flow generation will enable us to report another strong cash performance, in line with our overall objectives."

Building Products

Building Products markets have continued to be weak, with the exceptions of the UK and Australia. Efficiency improvements and cost savings have continued and the operating profit for Building Products in total is running at approximately the same level as last year's first half.

In Europe, our Building Products business, representing two thirds of total Building Products sales, continues to be adversely affected by the economic situation on the continent, particularly in Germany. By contrast, trading performance in the UK has held up well, supported by good sales of Pilkington 'K glass'. Float prices across Europe are now slightly down on average since the beginning of the financial year.

Building Products North America, representing 15 per cent of Building Products sales, has been adversely affected by the weakness in commercial construction, where Pilkington is the leading North American glass supplier. Office vacancy rates are still high, making near-term market improvement unlikely. However operational improvements continue to come through from the North American 'Step Change' programme, lifting operating profits.

Sales of our 35 per cent associate, Vitro Plan SA de CV (VVP), declined by approximately 10 per cent due to competitive pressure in the domestic market. Export sales, on the other hand, benefited from the weaker peso. Operating profits were impacted by the one off closure costs of a patterned glass line, and in total are down by around one third on last year.

In South America our Building Products businesses continue to perform well. Market conditions in Brazil are difficult, but we are benefiting from the improved economic environment in Argentina. Overall operating profits from South America are ahead of the first half of last year.

The Australian business continues to perform well and profits will be at a similar level to this time last year.

In China, the Group's main investment, SYP, has seen both sales and profit increase over the comparable period, growth coming from improved sales of processed architectural glass products, as China experiences increased demand for more high performance glass products in construction projects.

Earlier this month we announced the formation, with Emerging Markets Partnership (EMP), of a 50:50 joint venture to construct and operate a float glass plant in the Moscow region of Russia. The investment will be financed by £21 million of equity each from Pilkington and EMP, and from project loans. Pilkington's equity investment will be made over the next two years. The plant, to be built and operated by Pilkington, will have a sales capacity of approximately 240,000 tonnes per annum and is planned to come on stream in 2005. The plant represents a first step in establishing a growth opportunity for Pilkington in Russia, an important expanding market for glass.

Automotive

Despite sluggish automotive markets, a combination of good progress on new models featuring Pilkington glass and continued success in cost reduction and manufacturing improvement has improved operating profits by around 20 per cent at the half year stage.

Just over half of our Automotive sales take place in Europe. Light vehicle production in the western European market has slowed, though demand for Pilkington OE products has increased, with good gains on new model introductions and higher shipments of specialised OE applications (bus, coach and truck). The European Automotive Glass Replacement (AGR) business has held up well. In total for Europe profits have improved, due to sustained improvement in manufacturing efficiencies and a relentless focus on cost reduction.

Just under 40 per cent of our Automotive business is in North America, where overall light vehicle build is running around 5 per cent lower than last year. However our OE business continues to benefit from operational improvements. Sales from our North American AGR business have reduced, due to a 5 per cent fall in the overall market and to competitive pressures. Overall profits in North America are at similar levels to last year.

In South America, representing approximately 6 per cent of total Automotive sales, vehicle production was slightly ahead of last year, as were Pilkington sales. The combination of higher sales, increased productivity and improved plant efficiencies have resulted in an increase in our operating profits in the region.

Results in Australia show improvement over last year, reflecting efficiency improvements and a more favourable trading environment.

The automotive glass joint ventures in China all continued to experience strong sales and profit growth. The Chinese vehicle market is growing rapidly, and it is expected that two million passenger cars will be built in China in 2003, double the level of 2002.

Exceptional items

Exceptional items in the period will consist of the cost of exiting the Automotive Glass Replacement business in New Zealand, which is anticipated to be in the region of £7 million.

In July we announced that we had entered into an agreement to sell our Aerospace business to GKN for £42 million, payable in cash, contingent upon obtaining the necessary regulatory approvals. It is anticipated that final approval will be obtained in the next few weeks. After accounting for purchased goodwill the transaction is expected to generate neither significant profit nor loss.

Finance

We remain committed to the generation of free cash flow through tight control of working capital and capital expenditures, together with a continued drive to reduce costs in all areas of the business. Free cash flow will exceed the level of the first half of last year, leading to a further reduction in borrowings.

In the first half of last year the interest charge was negatively impacted by our share of exchange losses incurred by our associate, VVP, on their US dollar denominated loans. This has not recurred this year. Interest costs in total, which have further benefited from the impact of good cash flow and lower interest rates, will therefore be down on the first half of last year.

Ends