This trading performance update is published ahead of the preliminary announcement of the group’s results for the year to 31 March 2001, due on 31 May.

OVERVIEW

• After a robust first half performance trading conditions in the second half have proved to be more challenging than foreseen at the interim stage, particularly in North America. A prolonged wet winter across much of Europe and severe recession in the German construction market have also restricted demand growth, while higher gas prices internationally, but especially in North America and the UK, are reducing the benefit of improvements in group manufacturing costs.
  
• These difficult market conditions are expected to continue into the year ahead. However, BPB’s on-going cost savings programme continues and specific plans have been implemented to double to US$30 million the targeted cost savings in the US. In addition, in Germany plant closure and other restructuring initiatives will reduce the cost base by over £5 million pa.
  
• Underlying pre-tax profit will not be more than £160 million (last year £224 million), after redundancy costs estimated at £8 million and a higher net interest charge of some £26 million but before the German plant non-cash restructuring charge of £18 million. Goodwill amortisation is expected to be £7 million. In addition, as previously reported, an exceptional charge for the full year of £10 million will arise from the disposal of non-core paperboard businesses.

• Sales up 10% to over £1.55 billion, driven by acquisitions in core and complementary products and continued growth of BPB’s market-leading European business. Total plasterboard sales volume will be around 12% higher but down 3% on a like-for-like basis due mainly to lower US volumes.
  
• Operating profit will not be more than £180 million following last year’s record £230 million, which had benefited from an exceptionally buoyant US market.
  
• The underlying strength of BPB’s European operations will result in regional plasterboard volume growth of more than 2%, although EBIT will be around 6% lower as substantial cost inflation equal to 5% of turnover will not be fully offset in the year by further operating efficiencies and selling price increases.
  
• North American trading conditions are the predominant cause of the reduction in group operating profit, with the non-repetition of last year’s opportunistic sales to the US, dramatically lower selling prices and significantly higher energy costs, particularly in the second half.
  
• The group tax rate will be significantly higher due to unrelieved losses in Germany and the US and the effects of asset write-downs and business disposals.
  
• EBITDA is expected to be down 13% to around £270 million but cash generation from operations continues to be strong, with free cash flow of some £50 million.

Europe

• Full year regional EBIT (before German rationalisation costs) will be close to £180 million, 6% below last year’s very strong performance. Significant commodity cost inflation, weak volumes in Central Europe and the effects of poor weather conditions in the second half have continued to offset the benefits of volume growth elsewhere in the region, progressively better selling prices and further cost efficiencies.
  
• Plasterboard volumes up by over 2%, with continued growth in all key markets except Germany and Poland.
  
• Plaster volumes up almost 4%, with good growth in Spain and Ireland.
  
• Regional plasterboard prices are now an average 2% higher than the first half and 2% above the corresponding period last year. Across all products, prices were 2.5% higher.
  
• Cost savings are running at the rate of nearly 2% of sales, partially offsetting over £60 million of cost inflation.
  
• Germany is experiencing a severe slowdown in construction activity and reduction in volumes. Closure of the Gulstein plasterboard plant, asset write-down at Bodenwerder and other rationalisation measures will reduce BPB’s annualised cost base by at least £5 million and bring the numbers employed in Germany down by 15%.
  
• Rigips Dammsysteme and Rawlplug are being integrated according to plan, with the former matching its cost of capital in the first year after delivering post-acquisition synergies equal to 5% of turnover.

• An operating loss of around £5 million is expected for North America (prior year EBIT of £35 million), reflecting lower like-for-like sales volumes, sharply lower selling prices in the US and substantial cost inflation.
  
• Construction industry fundamentals remain relatively firm despite the growing concerns of a slowing economy.
  
• Canadian plasterboard volumes will fall by around 20% due to the end of opportunistic exports into the US and the Montreal plant strike, which has now been resolved. Celotex sales volumes are now running above last year’s level, having recovered US market share. In total, North American volumes will, after including eight months of Celotex trading, increase by over 20%, giving BPB an 8% regional share in the world’s largest market for internal linings.
  
• US half-inch wallboard selling prices have fallen to around $75 per thousand square feet, but the pace of decline has recently slowed as most manufacturers have attempted price increases to counter the effects of sharply escalating energy costs. US prices are now in the region of one-half the level obtained a year ago and Canadian prices have declined modestly.
  
• Cost inflation has been severe with second half gas prices peaking 250% above first half levels, costing the region an additional £5 million.
  
• The integration of the Celotex acquisition is running to plan, with the group having already achieved almost one-half of the doubled cost savings target of US$30 million pa.

• Good volume growth in the emerging markets of South America and Asia will contribute to EBIT (after the full year benefit of acquisitions) increasing by two-thirds to £6 million.
  
• Substantial cost reduction in South Africa and Thailand is offsetting inflationary pressures, while Brazil is benefiting from domestic production of plasterboard.
  
• A significant presence was recently acquired in the Egyptian building plasters market through a joint venture investment in the Egyptian Gypsum Company.

  
  

  - ENDS -

  Contacts:
  

  Peter Sydney-Smith, Finance Director (today 020 7251 3801: thereafter 01753 898822)
  James Murgatroyd/Faeth Finnemore, Finsbury Ltd (020 7251 3801)
  Available on BPB’s web site: www.bpb.com

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