HIGHLIGHTS		Half-year to	Half-year to	Year to
		30.9.02	30.9.01	31.3.02
Turnover	£m	953.3	830.7	1,661.8
Operating cash flow	£m	146.1	119.4	264.4
Underlying operating profit(a)	£m	110.0	84.4	180.0
Underlying profit before tax (b)	£m	95.6	71.8	153.0
Reported profit before tax	£m	1.2	69.1	146.3
Underlying earnings per share(b)	p	13.1	9.4	21.0
Dividends per share	p	4.65	4.5	13.0

(a) before goodwill amortisation and exceptional items (including BPB plc's £88.8 million European Commission fine) (b) as in (a) but also before BPB's £1.3 million share of associate's EC fine

• Turnover up 15%, due to US wallboard acquisition and continued volume growth in Europe
  
• Plasterboard and plaster volumes up 26% and 5% respectively, like-for-like sales increasing 5% and 3%
  
• Underlying profit before tax up 33% to £95.6 million, driven by higher US selling prices and further efficiencies in North America
  
• Underlying operating profit increased £25.6 million to £110.0 million, despite restructuring charges up £5.1 million at £12.1 million, as North America achieved a turnaround from a £16.7 million loss to an £11.9 million profit. Group return on sales up from 10.2% to 11.5%
  
• European underlying operating profit of £94.3 million (£96.6 million) after £14.0 million increase in input costs
  
• Worldwide cost savings from on-going businesses equivalent to more than 1.5% of group turnover, with $50 million of North American annualised savings in place ahead of schedule
  
• Underlying earnings per share up 39%, including the benefit from a lower tax charge
  
• Stronger cash generation, with operating cash flow up £26.7 million to £146.1 million
  
• BPB will appeal against the wholly inappropriate and disproportionately high European Commission fine of €138.6 million (£88.8 million) for alleged breaches of competition law between 1992 and 1998
  
• Interim dividend up 3.3% to 4.65p per share

Richard Cousins, BPB chief executive, said:

"BPB continues to build a sound business base for future growth, delivering substantially better underlying earnings in the first half by significantly improving the scale, profitability and cash generation of North American operations, further reducing the group’s cost base, and strengthening the core European businesses."

BPB’S FIRST HALF PROGRESS

The group’s underlying pre-tax profit of £95.6 million was 33% up on the corresponding period as the North American business moved from loss into profit, as a result of higher US selling prices on continuing good demand, further operating cost efficiencies and five months trading from the newly acquired James Hardie wallboard business. This was BPB’s third successive half-year of underlying profit growth, continuing the group’s recovery trend first reported last November.

In last year’s annual report management identified several key business priorities for the immediate future, progress on which has included:

• Integration of the US wallboard acquisition (which is now well underway), efficiency improvements in North American operations, and closure of the US paper mill at Quincy.
  
• Further restructuring in Germany in response to a worsening trading situation.
  
• Overall cost savings from BPB’s on-going businesses equivalent to more than 1.5% of group sales, with $50 million of North American annualised cost savings in place by the period end – six months ahead of the original March 2003 target.
  
• Stronger first half cash generation resulting in operating cash flow up £26.7 million to £146.1 million.

BPB recently announced the successful conclusion of negotiations to acquire control of Gyproc Benelux NV, subject to regulatory approvals, which will secure leadership of the Belgian and Dutch markets for plasterboard and plasters. Comprising a net cash consideration of €30.5 million (£19.1 million) and approximately €25 million (£15.5 million) of debt, the acquisition is expected to be completed by next Spring and be earnings enhancing in 2003/04.

GROUP FIRST HALF RESULTS

Group sales were up by 15% to £953.3 million, with the James Hardie acquisition contributing two-thirds of the increase. The balance came largely from further volume growth in Europe and acquired specialist distribution businesses in Spain. Like-for-like group plasterboard and plaster volumes grew 5% and 3% respectively, with overall volumes up 26% and 5%.

Underlying operating profit increased £25.6 million to £110.0 million as North America achieved a profit of £11.9 million against a corresponding loss of £16.7 million. Although European profit of £94.3 million was marginally down on last year (£96.6 million) this was after booking an additional £3.0 million charge for UK pensions, and German restructuring costing £2.0 million. Groupwide restructuring and redundancy charges taken against operating profit were £12.1 million (£7.0 million). Group return on sales improved from 10.2% to 11.5%.

Underlying earnings per share rose 39% to 13.1p, reflecting the first half growth in profit and a fall in the effective tax rate to 32% from an abnormally high 39% in the corresponding period (caused by unrelieved US losses). Reported pre-tax profit of £1.2 million (£69.1 million) was after charging the EC fine of £88.8 million and the group’s £1.3 million share of the Gyproc Benelux EC fine, goodwill amortisation of £7.6 million (£4.9 million), and a net exceptional gain of £3.3 million (£2.2 million) which mainly related to UK property disposals.

Following the James Hardie acquisition, net debt increased to £561.7 million (£496.0 million). However the group interest charge of £14.7 million was only £0.3 million higher due to lower interest rates, with interest cover strengthening to 7.5 times earnings (5.9 times). The post-tax return on BPB’s average capital invested increased by 1.8 percentage points on the corresponding period to 8.8%.

The interim dividend will increase by 3.3% (2.3%) to provide a payment of 4.65p per share for the six months ended 30 September 2002.

REGIONAL TRADING PERFORMANCES

Europe

Volume growth in the western and southern regions continued to offset difficult trading conditions in other markets and, together with further overall cost savings, underpinned a solid European performance.

Regional underlying operating profit of £94.3 million (£96.6 million) was after a £14.0 million increase in input costs (mostly recycled paper, insurance and pensions) and £2.0 million of German restructuring charges which were largely offset by core product sales growth of 6% and some £8 million of further cost savings.

North & Western Europe

Plasterboard and building plaster sales grew by 7% and 3% respectively, driven by increased UK house building and strong renovation demand, and cost savings equal to nearly 1% of regional turnover were achieved. Additional plaster capacity was introduced in the UK to meet higher demand and results improved in Ireland despite slower growth.

However, overall underlying operating profit declined £3.9 million to £46.6 million due to a substantial increase in the cost of recycled waste paper and a further weakening in some Nordic markets. In addition, the triennial valuation of BPB’s principal UK pension scheme resulted in a lower actuarial surplus and the need to increase the group pension charge by some £6 million per annum on an on-going basis.

Southern Europe

The strong growth in plasterboard volumes experienced in the second half of last year continued into the current year, driving regional operating profit up by 14% to £41.5 million. Overall sales of plasterboard increased by 7%, with progress in Spain, Italy and the key French market benefiting from strong renovation demand. Plaster volumes in the important Iberian market grew by a robust 5%, helped by the commissioning of additional capacity following the recent capital investment programme in Spain.

In Italy additional capacity came on-stream from the new £40 million combined plasterboard and plaster plant at Termoli. This contributed to the efficiency of BPB’s European plasterboard supply chain and was in time to meet increasing Italian demand, mainly from a stronger renovation market. Sales of building plasters also grew well.

Central & Eastern Europe

Trading conditions in German building material markets continued to be difficult as construction activity worsened, and led to a lower regional operating profit of £6.2 million (£9.7 million). This result included the additional restructuring cost in Germany arising from an 18% reduction in the workforce.

Plasterboard sales volume in Germany was lower than the corresponding period, albeit the rate of contraction was less than the 10% annual decline experienced over the two previous fiscal years. By contrast, further strong profitable growth was achieved in the Czech Republic, Romania and Greece. Regional plaster sales grew over 20%, reflecting strong demand in eastern Europe and BPB’s acquisition in Turkey.

North America

Average realised wallboard selling prices in the US increased by 28% over the corresponding period, underpinning the £28.6 million turnaround in regional performance to record a profit of £11.9 million despite restructuring charges which exceeded the contribution from five months of post acquisition trading by James Hardie.

Volumes advanced 2% on a like-for-like basis and including acquired sales rose 67%, doubling BPB’s regional market share to around 16%. Before restructuring charges the enlarged North American wallboard business generated a return on sales of around 10%, with US selling prices sustained over the half-year at the level reached last March of about $90 per 1,000 square feet.

Restructuring charges were £8.6 million (£4.4 million) and mostly related to the closure of the Quincy paper mill following the negotiation of a new third-party supply contract for wallboard liner. BPB’s like-for-like US manning levels are now 40% below those of two years ago. Although the commercial market remained depressed, further operating efficiencies led to ceiling tile losses being substantially reduced. Integration of the Hardie business is progressing to plan, with delivery of at least $10 million of annualised cost savings expected by September 2003.

Rest of the World

BPB’s businesses in developing geographic markets continued to experience challenging trading conditions but, at constant exchange rates, overall profits were maintained. Reported operating profit was £3.8 million (£4.5 million) although the overall return on sales remained in excess of 8%. In South America, Brazilian volumes increased but the Argentinian market collapsed. Southern Africa’s profitability was affected by higher input costs. Plaster sales in Egypt remained buoyant and Asia achieved good results from volume growth.

OTHER ISSUES

The European Commission yesterday announced that it had decided to fine BPB €138.6 million (£88.8 million) out of a total European gypsum industry fine of €478.3 million (£306.6 million) for alleged breaches of competition law under Article 81 of the Treaty of Rome.

BPB has not participated in any cartel and intends to appeal against the level of its fine, which is wholly inappropriate and disproportionately high. None of the Commission’s findings relate to any of the group’s on-going activities or business practices, nor do the facts support any finding of BPB’s participation in any cartel in the past. In short, BPB believes that the Commission’s case lacks the evidence necessary to substantiate its claims.

The group has been actively co-operating with the Commission throughout its four-year investigation and is disappointed that it has rejected, without justification, much of what BPB has said to it. The Commission’s general allegation that BPB participated in a long-running cartel in the principal EU plasterboard markets is based upon supposition and contrived explanations unsupported by the facts. It has not taken into account the wealth of economic evidence of vigorous price competition for market share which is inconsistent with the Commission’s findings, nor the lack of any tangible effect of the supposed infringements on the markets concerned. Throughout the 1990’s European plasterboard prices to customers in fact fell substantially in real terms.

There has been much comment recently in the press and from some of BPB’s peer group with regard to US asbestos exposure. BPB, which acquired the Celotex and James Hardie Gypsum US wallboard businesses during the last two years, believes it has no potential liability in North America. It is not actively defending any asbestos claims in the US nor has it ever settled any claims there in the past. Outside of North America there have been a small number of individual claims settled (fewer than 10 in over 20 years) and these have all been dealt with by insurers for modest sums.

CURRENT YEAR OUTLOOK

BPB continues to build a sound business base for future growth, delivering substantially better underlying earnings in the first half by significantly improving the scale, profitability and cash generation of North American operations, further reducing the group’s cost base, and strengthening the core European businesses.

There is, however, on-going global uncertainty with growth forecasts in most major economies being steadily downgraded. An element of caution is therefore appropriate in assessing future prospects. Notwithstanding this, the group’s positive trading momentum has continued into the second half and performance has been in line with expectations. Accordingly, the Board remains confident that 2002/03 will be a year of progress for BPB.

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