Press information

PILKINGTON INTERIM RESULTS
FOR THE SIX MONTHS TO 30 SEPTEMBER 2003

Pilkington plc today announces interim results for the six months to 30 September 2003.

Key Features:

· Robust results despite tough trading conditions

· Operating profit including joint ventures and associates £114 million – up 4 per cent on the first half of last year

· Profit before goodwill amortisation, exceptional items and taxation £84 million – up 11 per cent

· Earnings per share excluding exceptional items up from 2.7 pence to 3.8 pence, basic earnings per share up from 2.8 pence to 3.1 pence

· Interim dividend maintained at 1.75 pence per share

· Free cash flow, before the benefit of disposals improved from £47 million to £89 million

· Borrowings reduced by 10 per cent in six months to £775 million

Chairman, Sir Nigel Rudd, commented:

“The Group’s results in the first six months of the year confirm the expectations we set out in our previous statements, reflecting continued difficult trading conditions in most of our markets. Despite the market background and a reduction in operating profits of our joint ventures and associates, Group profit before amortisation of goodwill, exceptional items and taxation was up 11 per cent on the first half of 2002, underpinned by the efficiency improvements resulting from the extensive restructuring of recent years. In addition, our recent emphasis on free cash flow generation has enabled management to deliver a strong cash performance, enabling Pilkington to pay down debt by 10 per cent, in line with our stated objective of strengthening the financial position of the Group.”

GROUP RESULTS FOR THE HALF YEAR TO 30 SEPTEMBER 2003

Statement by the Chairman, Sir Nigel Rudd

As was indicated at the time of the Annual General Meeting, conditions in most of Pilkington’s major markets remain difficult. Despite this, the Group continues to make good progress with further improvements in our manufacturing performance and cost reduction. Overall, these results are in line with expectations, with profit before the amortisation of goodwill, exceptional items and taxation ahead by 11 per cent on the first half of 2002, when results were depressed by the effects of routine but essential engineering work. Continued emphasis on free cash flow generation enables Pilkington to report another strong cash performance.

Results

Turnover in the first half year including joint ventures and associates was £1.4 billion, the same as the first half of last year. Operating profits of Group businesses of £98 million represented an increase of £11 million over the first half of last year, when results were affected by a series of plant closures for routine repairs. Operating profits of joint ventures and associates fell £7 million to £16 million. This was mainly due to reduced profits at Vitro Plan SA de CV (VVP) in Mexico, and the temporary halt to production during the first half year at the Group’s joint venture float plant in France.

Exceptional Items

Exceptional items in the half year amounted to £9 million and arose from the termination of the Automotive Glass Replacement operations in New Zealand and the Building Products toughening and laminating operations in Brazil.

Regulatory approvals for the sale of the Pilkington Aerospace business to GKN have been obtained and the disposal was completed at the end of September 2003. The disposal generated net proceeds of £42 million; after the write off of £4 million of goodwill, previously written off directly to reserves in past years, there was no impact to the profit and loss account.

Earnings and Dividends

Earnings per share before exceptional items increased from 2.7 pence to 3.8 pence, and basic earnings per share increased from 2.8 pence to 3.1 pence. The interim dividend has been maintained at 1.75 pence per share, and will be paid on 19 December 2003 to shareholders on the register at 5 December 2003.

Cash Flow and Borrowings

Free cash flow (net cash inflow before dividends, before acquisition/disposal proceeds) of £89 million was £42 million better than the first half of last year, which represents a formidable achievement in tough worldwide market conditions, and demonstrates the vigour with which Pilkington is targeting the generation of cash as part of its strategy. Together with the £40 million of cash received in respect of the Pilkington Aerospace disposal, this enabled net debt to be reduced by 10 per cent in the first half year to £775 million.

Building Products

With the exception of the UK and Australia, Building Products markets have continued to be weak and Building Products sales, excluding joint ventures and associates, of £628 million, were just ahead of the first half of last year. Efficiency improvements and cost savings resulted in operating profit before amortisation of goodwill being maintained at £67 million.

In Europe, our Building Products business, which represents around two thirds of Building Products in total, 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 energy-saving Pilkington K Glass™. On average float prices across Europe are slightly down since the beginning of the financial year.

Building Products North America, representing 14 per cent of total Building Products sales, continues to be affected by the weakness in commercial construction, where Pilkington is the leading North American glass supplier. Office vacancy rates are high, making near-term market improvement unlikely. However, operational improvements continue to come through from the North American “Step Change” programme, lifting operating profits over last year, despite the difficult commercial construction market.

Building Products sales of our 35 per cent Mexican associate, Vitro Plan SA de CV (VVP) were £76 million, a reduction of approximately 12 per cent, due to competitive pressure in the domestic market. Export sales, on the other hand, benefited from the weaker peso. The one-off closure costs of a patterned glass line also impacted operating profits.

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. Our Australasian business, with 11 per cent of Building Products sales, continues to perform well with profits at a similar level to this time last year.

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

In September 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 Products

Despite subdued automotive markets, successes with new models featuring Pilkington glass resulted in Automotive Products sales, excluding associates and joint ventures, rising 3 per cent to £614 million. Continued good progress in cost reduction and manufacturing improvements lifted operating profit before amortisation of goodwill to £44 million, 19 per cent up on the first half of last year.

Just over half of the Group’s Automotive glass sales take place in Europe. Whilst light vehicle production in the Western European market slowed in the first half year, sales of Pilkington Original Equipment (OE) products 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 European Automotive profits are up, due to sustained improvement in manufacturing efficiencies and a relentless focus on cost reduction.

Approximately 40 per cent of the Group’s Automotive business is in North America. Despite regional light vehicle build running around 5 per cent down on last year, demand for Pilkington OE products held up well. The North American aftermarket was also down, which together with competitive pressures resulted in lower Pilkington AGR sales. Nevertheless the business continues to benefit from operational improvements, and overall profits in Automotive North America are at similar levels to last year.

In South America, representing approximately 5 per cent of the Group’s total Automotive glass sales, Pilkington sales were ahead of last year despite lower light vehicle production. The combination of higher sales, increased productivity and improved plant efficiencies has 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.

VVP automotive glass sales were £36 million, down 19 per cent. In China, the vehicle market continued its rapid growth with light vehicle production up 18 per cent. Sales of our Chinese automotive subsidiaries increased by over 20 per cent.

Finance and Taxation

In the first half of last year the Group’s interest charge included £6 million of non-cash exchange losses relating to the US dollar denominated loans of our associate, VVP. This has not recurred this year. Interest costs in total, which have benefited from refinancing borrowings at lower cost and from lower interest rates generally, are down on the first half of last year.

The underlying rate of tax on pre-exceptional profits has been reduced by 2 per cent to 33 per cent. This arises from a higher proportion of profits being generated in areas where the local tax rates are lower than the Group’s effective rate, and as a result of the Group’s refinancing and restructuring arrangements.

Outlook

Pilkington’s strategy has three clear stages: to continue to improve operational performance; to generate cash to strengthen the Group financially; and to generate cash to invest in growth. The benefits of Pilkington’s extensive restructuring of the last six years are evident in our improved operational efficiency and robustness. With Pilkington currently in the second stage of its strategy, and demonstrating our capability to generate cash, we are in a good position to withstand the testing trading conditions which we expect to continue over the rest of the financial year.

NOTES ON GROUP RESULTS

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  Exceptional items

The exceptional items in the half year to 30^th 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.

The tax rate on pre-exceptional profits is 33 per cent in the half year to 30^th September 2003 (30^th September 2002 – 35 per cent, 31^st March 2003 – 35 per cent).

8  Earnings per share

9  Exchange rates

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

11  Net debt

12  Dividend

13  Accounting policies and basis of preparation

14  Unaudited half year results

Independent Review Report to Pilkington plc

Introduction

Directors’ responsibilities

The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors.  The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom.  A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed.  A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions.  It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit.  Accordingly we do not express an audit opinion on the financial information.  This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose.  We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We have not performed any review procedures in relation to comparative figures included in the financial information.

Review conclusion

(b)  Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

ENDS