Interim Results and Dividend for the Half Year to 30 September 2004

HIGHLIGHTS		Half-year to 30.9.04	Half-year to 30.9.03	Half-year increase
Turnover	£m	1,151.1	1,089.2	5.7%
Underlying profit before tax *	£m	145.2	107.8	34.7%
Reported profit before tax	£m	150.3	95.0	58.2%
Underlying earnings per share *	p	19.6	14.6	34.2%
Reported earnings per share	p	19.5	12.3	58.5%
Dividends per share	p	5.25	4.80	9.4%

* before goodwill amortisation and exceptional items

• Sustained positive trends in sales volumes and pricing levels, with group turnover up 10% in local currency. Global plasterboard and plaster volumes both up 7%
• Underlying operating profit up 28% to £156.0 million, driven by sales and profit growth in Europe, North America and Rest of the World
  
• Underlying profit before tax of £145.2 million and underlying earnings per share of 19.6p both up more than 34%, reflecting the strong first-half trading performance
  
• Operating cash flow up 20% to £211.4 million, facilitating increased capital expenditure of £64.7 million and the £35.7 million purchase of minority shareholdings in Asia
  
• First-half return on average capital invested improved to 12.9% (2003 9.4%)
  
• Interim dividend up 9.4% to 5.25p per share
  

Richard Cousins, BPB chief executive, said:

“BPB has reported record first-half results, with the group on track to deliver real progress. Global plasterboard and plaster volumes have grown substantially over the past five years and, with capacity utilisation levels high, we see widespread opportunities for investing in our core businesses to support growth in demand over the medium term.”

GROUP PERFORMANCE OVERVIEW

BPB delivered an excellent first-half performance, as management continued to focus on growing the group profitably through the development of its global leadership in plasterboard and building plasters. Underlying pre-tax profit (before goodwill and exceptional items) advanced 35% to £145.2 million on group turnover up 6% (10% in local currency) to £1.15 billion, driven by sustained positive trends in sales volumes and pricing levels in key markets.


Key achievements in the first half, in line with the group’s strategic focus on core businesses, were:

• delivery of sales and profit growth in all three of BPB’s major regions of Europe, North America and Rest of the World
  
• growth in worldwide plasterboard sales to over 600 million square metres - up 7% on the corresponding period due principally to further growth in the British Isles, Spain, Eastern Europe, South Africa and Asia, and continuing strong levels of housing and renovation activity in the US and Canadian markets
  
• growth in overall building plaster sales to almost 2.5 million tonnes - up 7% on the corresponding period resulting from increased demand in Spain, the British Isles, Italy, Egypt and Turkey
  
• acquisition of most of BPB’s minority interests in its Thai and Indian businesses and the disposal of the group’s UK paper recycling business
  
• expansion of the group’s programme of capital investment in the growth of global plasterboard demand and the development of building plaster markets - in particular committing to two new plasterboard plants in the UK and Spain
  

OPERATING AND FINANCIAL PERFORMANCE

Underlying operating profit rose 28% to £156.0 million, with significantly improved results in Europe, North America and Rest of the World reflecting continuing good growth in global plasterboard demand, increased overall sales of building plasters, and improved selling prices. The adverse currency translation impact of around £5 million was largely offset by lower restructuring and redundancy costs of £6.4 million (2003 £9.9 million). Group return on sales increased from 11.2% to 13.6%, after circa £25 million of variable cost inflation mainly arising from increases in prices of oil, gas, freight and steel and rising costs for US paperboard liner.


Cash generated from operations rose 20% to £211.4 million, facilitating increased capital expenditure of £64.7 million (up almost two-thirds on the corresponding period) and the £35.7 million purchase of minority shareholdings in Asia. Net debt reduced to £471.5 million (31 March 2004 £495.0 million). First-half return on average capital invested improved from 9.4% to 12.9%, substantially above the group’s weighted average cost of capital. A reduced net interest charge of £14.6 million (2003 £16.5 million), despite increasing global interest rates, was due to lower levels of average net debt compared to the corresponding period. Interest cover improved from 7.7 to 11.1 times.

Underlying earnings per share rose by 34% to 19.6p, driven by the strong first-half trading performance. Reported pre-tax profit of £150.3 million (2003 £95.0 million) benefited from a pre-tax gain of £14.6 million arising from the company’s share of BPB Canada’s pension fund surplus distribution. This gain more than offset goodwill amortisation and losses on asset disposals, resulting in reported profit higher than underlying pre-tax profit. The group’s underlying effective tax rate was 31.9% (2003 32.0%).

In recognition of these positive results the interim dividend will increase by 9.4% to 5.25p per share.


REGIONAL RESULTS AND BUSINESS DEVELOPMENTS

EUROPE

BPB’s European region generated 70% of the group’s first-half profit, achieving an increase of 12% in underlying operating profit to £108.9 million from further growth in plasterboard and building plaster volumes (up 7% and 5% respectively) and better selling prices. Results were after charging £3.0 million of additional UK pension costs and a lower restructuring cost of £5.8 million (2003 £9.1 million), the latter largely offsetting the adverse translation impact of stronger sterling. Regional return on sales improved from 11.8% to 12.9%.

Capacity utilisation in most markets remained high, resulting in additional freight costs to overcome local plasterboard capacity constraints and satisfy market demand. Selling price increases made last Winter offset the impact of higher commodity cost inflation and, with the benefits arising from last year’s major restructuring in Germany and the strategic move to lower-cost external sourcing of continental plasterboard liner, contributed to the regional performance improvement.

North & Western Europe

Continuing demand from the housing and renovation sectors, further public sector investment, and the drive to sell more high-performance and thicker boards to meet more stringent building regulations resulted in further good volume growth for plasterboard and building plasters in the British Isles. Capacity utilisation in both the UK and Ireland remains high; further plasterboard and plaster capacity will be added at Kingscourt in Ireland over the New Year, and a new plasterboard line will be commissioned at Sherburn near Leeds in 2006/07.

Following last year’s closure of the Purfleet paperboard mill, there was insufficient demand to support the UK recovered paper operation and consequently the business was sold in August.

Improved results from BPB’s Nordic plasterboard business reflected better cost performance and greater overall volumes, with strong sales growth achieved in Finland, increased Swedish demand after several years of weak construction activity and a recovery in Norwegian sales; this also contributed to the 9% increase in underlying operating profit to £54.4 million for North & Western Europe.

Southern Europe

Better selling prices on increased overall volumes, with an improved performance from the French business, resulted in regional underlying operating profit increasing 7% to £41.4 million. Commodity cost inflation was significant, with the cost of expanded polystyrene beads for thermal laminates increasing substantially towards the period end. As planned following the integration of Gyproc Benelux, the Wijnegem plaster plant in Belgium will be closed early next year and production transferred to the Vaujours plant near Paris. The programme to upgrade and expand the Kallo plasterboard plant in Belgium is successfully underway and scheduled for completion next Spring.

Strong growth in plasterboard and building plaster volumes continued in Spain, with local management driving greater penetration of plasterboard usage and shipping product from plants in France and Italy to meet demand. Actions were taken to commence the construction of a new plasterboard plant near Madrid, to be commissioned in 2006 to support the upgraded plant at Quinto. The group also commenced the second phase of a substantial investment programme to upgrade the Spanish plaster business and expand capacity in lightweight plasters, a fast growing value-added segment.

Good residential demand in Italy but a weak commercial sector led to BPB generating modest growth in plasterboard volumes, while building plaster volumes grew strongly benefiting from recent investments.

Central & Eastern Europe

Regional underlying operating profit rose more than 55% to £13.1 million, as the restructured German business achieved a substantial improvement in profitability following the actions taken last year to strengthen BPB’s plasterboard market position and significantly reduce costs. Although construction activity in Germany remained weak, regional results also benefited from further substantial plasterboard demand and improved selling prices across most of Eastern Europe.

The construction of a new plasterboard plant alongside the group’s existing Romanian plaster plant is progressing to plan for commissioning in late 2005. Building plaster sales have also grown encouragingly in Eastern Europe, with strong demand in Turkey and good progress made in the developing markets of Hungary and Romania.

NORTH AMERICA

Housing and renovation activity remained buoyant across the Continent, driving 5% further growth in wallboard volumes and a significant improvement in US selling prices which substantially exceeded the impact of commodity cost inflation. North American underlying operating profit more than doubled to £37.7 million (2003 £17.3 million), raising regional return on sales from 7.0% to 14.1%.

Sustained by continuing strong demand and underpinned by higher industry plant utilisation levels, BPB’s average realised US wallboard prices increased to $114 per 1,000 square feet (some $25 up on the average for the corresponding period) and are now spotting around $121.

Construction activity in Canada remained strong, with increased wallboard volumes and selling prices offsetting cost inflation pressures, particularly energy, enabling the business to deliver a good first-half results improvement.

The US ceiling tiles business achieved an improvement in results, benefiting from better selling prices and cost savings arising from restructuring actions taken last year.

REST OF THE WORLD

Strong residential demand and better plasterboard selling prices significantly improved South African results, and Asian businesses generated further double-digit sales volume growth. Together, these areas achieved over three-quarters of regional underlying operating profit which, with improved performances from Brazil and Egypt, increased almost 30% to £9.4 million. Overall return on sales again improved, rising from 13.4% to 15.1%, on plasterboard volumes increased by 12%.

BPB invested £35.7 million in acquiring substantially all the minority interests in its fast-growing businesses in Thailand and India where the group has established strong market positions.

CURRENT YEAR OUTLOOK

BPB has reported record first-half results, with the group on track to deliver real progress. Global plasterboard and plaster volumes have grown substantially over the past five years and, with capacity utilisation levels high, there are widespread opportunities for investing in BPB’s core businesses to support growth in demand over the medium term.

Following the group’s strong performance in the second half of last year, and with the impact of the continuing rise in commodity costs worldwide, a less rapid rate of profit improvement is anticipated for the second half (compared to this year’s first-half underlying growth of 35%). However, with the continuation of positive trading trends in BPB’s key markets, the Board expects good progress for the year as a whole.

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