HIGHLIGHTS				Half-year to		Half-year to		Year to
				30.9.00		30.9.99		31.3.00
Turnover		£m		773.3		715.4		1,426.8
EBITDA		£m		160.4		157.0		313.5
Operating profit		£m		117.3		116.4		230.4
Profit before tax and exceptional items		£m		109.0		114.1		244.1
Earnings per share before exceptional items		p		15.8		16.0		31.5
Dividends per share		p		4.40		4.25		12.5

• Turnover grew 8% to £773.3 million (12% at constant exchange rates) driven by acquisitions and further strong European demand, with group plasterboard sales volumes up 7%
  
• Operating profit up £0.9 million to £117.3 million but group sales margin 1.1% lower at 15.2%, reflecting the halving of North American margin to 12.2% and a European margin up from 14.7% to 15.3%
  
• European operating profit up 7%, with plasterboard and building plaster sales volumes up 7% and 4% respectively
  
• North American profits declined, mainly due to the non-repetition of opportunistic exports to the US as selling prices fell much faster than industry expectations
  
• Group-wide cost savings of £15 million and selling price rises offset commodity cost inflation, which more than doubled to over £30 million
  
• Underlying profit before tax £5.1 million lower at £109.0 million, reflecting increased interest costs arising from acquisitions and share buy-backs; underlying earnings per share marginally lower at 15.8p
  
• Reported profit before tax £15.2 million lower at £99.2 million after a net exceptional charge of £9.8 million relating to non-core business disposals and closure costs
  
• Cash generation from operations remained strong with EBITDA of £160.4 million, equivalent to 20.7% of group turnover
  
• Interim dividend up 3.5% to 4.4p per share

Although the first half results for this year are below last year’s record level, they are the second strongest in the group’s history. This robust performance, particularly in BPB’s core European markets, was achieved in the face of substantial commodity cost inflation and a marked turnaround from last year’s exceptionally buoyant level of trading in North America which had boosted results.

The group’s European business continued to strengthen its underlying operating performance, generating over 85% of BPB’s earnings, with significant cost pressures more than offset by further good volume growth, better selling prices and the delivery of additional operating efficiencies.

Group-wide cost savings of £15 million and selling price rises offset energy and raw material cost inflation which emerged strongly in last year’s second half but more than doubled to over £30 million in the six months under review.

Sales volumes and profitability in North America were significantly lower due to the loss of opportunistic exports to the US as selling prices fell much faster than industry expectations. Despite these current difficulties, management began the process of generating strong synergy benefits and consolidating BPB’s new number four position in the world’s largest market for internal linings.

FINANCIAL PERFORMANCE OVERVIEW

The 8% increase in group turnover to £773.3 million was driven by acquisitions in core and complementary products and further strong European building materials demand.

Operating profit marginally increased to £117.3 million, held back by the non-repetition of last year’s abnormal North American trading profits and by another adverse exchange rate effect, this year amounting to £3.9 million primarily from the translation of euro-zone earnings.

Group return on sales was just over one percentage point lower at 15.2%, but European margin advanced from 14.7% to 15.3% on regional operating profits up 7%.

Underlying pre-tax profit was £5.1 million lower at £109.0 million, reflecting increased interest costs arising from the debt-financing of acquisitions and the buy-back of shares. Reported pre-tax profit of £99.2 million was down £15.2 million on the corresponding period’s headline £114.4 million, after net exceptional charges of £9.8 million mainly relating to the sale and termination of non-core paperboard operations.

Underlying earnings per share fell marginally to 15.8p, with the effect of the 4.5% reduction in first half underlying profit before tax mitigated by the year-on-year benefit from the share buy-back programme of last year. Reported earnings per share fell 13.1% to 13.9p.

Cash generation remains a key financial strength of the group’s business, with first half EBITDA up by £3.4 million at £160.4 million, or 20.7% of group turnover. Free cash flow was £48.8 million, with first half capital expenditure at £41.6 million broadly equal to depreciation of £40.9 million.

The group net interest charge was significantly higher, up by £4.4 million to £11.2 million, reflecting a more than doubling of net debt to £466 million since BPB’s last interim report with just over £300 million invested in acquisitions and £50 million in share buy-backs in the intervening period. The interest charge was covered over 10 times by underlying profit before interest.

Changes have been made in the presentation of segmental information, with the separate disclosure of results for North America, the inclusion of paperboard results within North & Western Europe and the disclosure of turnover by origin rather than by destination.

ACQUISITIONS

Acquisition activity was led by the group’s entry into the US internal linings market, achieved in late July with the acquisition of Celotex, the only independent and asbestos-free plasterboard manufacturer in the key eastern market. Some 20% of BPB’s capital base (including the group’s market-leading Canadian operations) is now invested in North America, a regional market representing over 50% of global demand and characterised by long-term growth averaging between 3 and 5% per annum.

In April BPB acquired the expanded polystyrene insulation business of Heidelberger Dammsysteme, strengthening the group’s European complementary product offering. Integration of the re-branded Rigips Dammsysteme is progressing well, with synergistic benefits in sales, distribution, purchasing and administration exceeding our initial expectations.

Other acquisitions included the ceiling tiles business of Celotex, BPB’s joint venturer’s share in India’s small but fast growing plasterboard company, and a controlling interest in a Swiss blocks and ceiling tiles business.

TRADING PERFORMANCE OVERVIEW

Worldwide plasterboard volumes were up 7%, with substantially lower like-for-like North American volumes but a 7% increase in Europe driven by good demand in Western and Southern Europe. Building plaster volumes were up 3% overall, with better performances in Western Europe and Iberia.

Average group selling prices for plasterboard were slightly higher, with modest increases in most key European markets. Westroc’s prices for domestic Canadian sales were relatively stable in the first half although they are now beginning to ease. Westroc’s prices for US exports were down over 13% compared with the corresponding period and Celotex’s selling prices fell by over 15% between acquisition in late July and the end of September.

After a benign environment in the first six months last year, cost inflation escalated to reduce first half profit by more than £30 million, with many key input costs affected, including energy, recycled paper, steel accessories and insulation materials. These additional costs were only partially recovered through price increases with the balance absorbed by efficiency improvements of £15 million from across the group’s businesses (equal to almost 2% of group turnover).

Paperboard operations delivered another improved performance following further restructuring and cost savings, with better operating profit on slightly lower sales after the disposal of UK and Dutch solid case businesses, the closure of Fiberite Packaging in the UK and the sale of the Dutch recycling operations.

Second half management actions remain focused on achieving profitable organic and acquired sales growth, but with a strong emphasis on three areas affecting BPB’s profitability:

• supporting the group’s sales margin in the face of continuing commodity cost inflation,
  
• addressing the lower profitability in the Central & Eastern European region, which is being diluted by the worsening trading environment in the German construction market, and
  
• generating integration synergies in North America to counter the effect of a much faster than expected decline in US selling prices and position the business for profitable growth.

North & Western Europe
Turnover £274.5 million (up 1%); operating profit £55.0 million (up 19%)

Regional plasterboard volumes were up almost 10%, with building plaster volumes up over 5%. The impact of cost inflation was largely recovered through efficiency savings.

Continued strong demand for building materials in the UK, further record volumes in Ireland and average selling prices similar to last year combined to deliver a good turnover and profit performance in Western Europe. Northern Europe’s performance was weakened by the lack of export volumes to the USA this year and pressure on selling prices in the Nordic markets.

Sales of paperboard products decreased partly as a result of recent disposals, but also from a reduction in plasterboard liner volumes reflecting lower North American board sales. However, operating profits improved following the disposal of loss making businesses, the successful recovery of higher recycled fibre costs through higher sales prices, and further cost savings. The profitability of paperboard operations has more than doubled over the last two years as they have been re-positioned to focus on meeting group requirements for high specification liner at the lowest possible cost.

Southern Europe
Turnover £250.4 million (down 4%); operating profit £38.7 million (down 5%)

The reduction in reported turnover and operating profit for Southern Europe arose solely as a consequence of the translation of results into sterling. Underlying local currency turnover and operating profit were up 4% and 2% respectively, with plasterboard volume growth of over 5% in France and Italy, and substantial growth in Spain. Average plasterboard prices were stable across the region compared with the corresponding period last year, but price increases in all major markets were implemented during the autumn. Plaster volumes grew by over 4% in the important Iberian markets, but were down by a similar amount in France and Italy.

The region’s profitability was affected by severe cost inflation although, by the end of the period, this was mostly recovered through cost savings and selling price increases for complementary products. Higher input prices, particularly for fuel, steel and polystyrene beads, cost the region £17 million more than the corresponding period last year.

Central & Eastern Europe
Turnover £146.0 million (up 22%); operating profit £9.1 million (up 5%)

At constant exchange rates regional turnover grew by 29%, including the benefit of the Rigips Dammsysteme acquisition. Like-for-like underlying turnover growth was 3%, with strong plasterboard volume growth in Eastern Europe offset by difficult trading conditions in Germany. Building activity in Eastern Germany was particularly weak, resulting in German plasterboard and plaster volumes down on last year. Regional plasterboard prices were flat overall, reflecting competitive pressure.

Excluding the contribution from RDS, regional profitability at constant exchange rates was only slightly lower despite the difficult trading conditions in Central European markets which were exacerbated by cost inflation and the absence of any exports to the USA this year.

North America
Turnover £93.4 million (up 19%); operating profit £11.4 million (down 40%)

Regional turnover growth was primarily attributable to the two-month post acquisition contribution from BPB Celotex.

As expected, trading conditions in North America were much more difficult as new installed capacity in the US outstripped demand. Sales in, and exports from, Canada were lower primarily due to Westroc’s inability to repeat sales to merchants for onward shipment to the US and, to a lesser extent, as a result of lower production due to a strike at the Montreal plant. Canadian selling prices remained firm but are now under pressure. Notwithstanding these circumstances, Westroc posted its second best ever interim profit.

The rapid decline in US selling prices, particularly since the summer, restricted BPB Celotex to a modest profit contribution in the two-month period since acquisition. However, BPB control of the business has been welcomed by customers, and market share lost during the change of ownership has now been recovered.

Rest of the World
Turnover £42.8 million (up 65%); operating profit £3.1 million (up 94%)

Plasterboard volumes grew by almost 10% on a like-for-like basis, and more than doubled after including last year’s acquisition of Thai Gypsum Products.

South American plasterboard volumes grew by 40%. Brazilian performance improved but regional financial progress is being held back by economic weakness in Argentina.

In Southern Africa, market conditions remained tough overall but profits moved ahead as interest rate reductions helped the residential market and significant cost efficiencies more than offset inflationary pressure.

In Asia, Thai Gypsum made an encouraging profit contribution, despite the loss of export volumes to the USA, with domestic volumes up more than 10% on last year’s pre-acquisition levels and the cost reduction programme progressing ahead of schedule. Sales volumes in China were good, but prices remain under severe pressure and losses continue, despite improvements in manufacturing and cost performance. Development of the Indian plasterboard market was promising, with strong volume growth and the successful introduction of new capacity at Chennai.

OUTLOOK AND DIVIDEND

BPB is now a truly international business, firmly anchored in its European leadership position, with strong representations in other growth markets spanning the Americas, South Africa and Asia. Plasterboard sales continue to grow well, while prospects for further group-wide development of complementary products are encouraging.

For the remainder of the current year BPB’s performance will continue to be adversely affected by cost inflation, further selling price erosion in the US and the strength of sterling against the euro, although some mitigation is expected from acquisition synergies and the strength of the underlying operating performance of the group’s European business.

Despite the uncertainties surrounding trading prospects for the second half, the Board is confident of achieving further progress in strengthening BPB’s business platform for future growth. Accordingly, the Board has concluded that the interim dividend should be increased by 3.5% to 4.4p per share.

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