Saint-Gobain: Estimated 2003 Results

Group sales dipped 2.3% in 2003 on an actual structure basis and 3.7% based on a comparable structure.At constant exchange rates (1), sales were up 4.1% on an actual structure basis, and 2.5% based on a comparable structure. Currency effects had a 6.1 point negative impact on sales for the year, particularly due to the significant depreciation of the US dollar, pound sterling and Brazilian real against the euro (down 16%, 9% and 20% respectively). Sales volumes climbed 1.7%, spurred by a recovery in the second half of the year. At the same time, prices increased by 0.8%. France accounted for 32.2% of total sales, with other European countries contributing 42.0%, North America 18.6% and other countries 7.2%.

Operating income contracted 5.4%. At constant exchange rates however, it rose 1.0% on an actual structure basis and 0.1% based on a comparable structure. Operating margin was 8.3% compared with 8.5% in 2002. This change was essentially due to a significant increase in the cost of energy and certain raw materials such as natural gas, asphalt, iron and resins, at the start of 2003, particularly in the United States. However, operating margins did pick up in the second half of the year.

These cost increases also largely explain the contraction in profitability in North America and most European countries, except for France and the United Kingdom. Profitability remained high though in emerging countries.

Dividends received from non-consolidated companies fell significantly to EUR 12 million in 2003, compared with EUR 22 million a year earlier, reflecting the absence of a 2002 dividend on Vivendi Universal shares.

Net interest and other financial charges decreased 9.3% to EUR 457 million from EUR 504 million in 2002, thanks to the reduction in the Group's net debt and the favorable impact of converting interest on dollar-denominated debt into euros.

Non-operating costs edged up to EUR 275 million, from EUR 252 million in 2002. This slight increase was due to new restructuring programs implemented to boost competitiveness at certain of the Group's manufacturing businesses. As in 2002, the 2003 figure includes a EUR 100 million charge for the cost of asbestos-related claims filed against CertainTeed.

Profit on sales of non-current assets totaled EUR 86 million in 2003. Capital gains made during the year - including on the sales of Terreal and 7 million Vivendi Universal shares - were partly offset by losses on other asset sales and by asset write-downs.

Goodwill amortization amounted to EUR 154 million in 2003, compared with EUR 169 million a year earlier. This decline resulted from the currency impact on converting into euros goodwill amortization for the Group's US subsidiaries.

Minority interests decreased from EUR 34 million in 2002 to EUR 26 million in 2003. This slight reduction stemmed from the unfavorable currency effect on minority interests in the Brazilian subsidiaries.

Consolidated net income is estimated at EUR 1,039 million for 2003, virtually on a par with 2002. Based on the 347,824,967 shares outstanding at December 31, 2003, earnings per share (EPS) came to EUR 2.99, a 2.0% ontraction from EUR 3.05 in 2002. Based on the number of shares excluding treasury stock (336,185,581 at December 31, 2003 compared with 335,850,864 at December 31, 2002) earnings per share amounted to EUR 3.09, on a par with the 2002 figure of EUR 3.10.

The issue of 6,814,287 new shares in 2003 required for attribution under the Group Savings Plan and further to the exercise of 314,880 stock options, were offset by the buyback during the year of an almost equivalent number of shares on the market. At December 31, 2003 treasury stock therefore represented 11,639,386 shares, compared with 159,816 shares at December 31, 2002. At its meeting of January 29, 2004, the Board of Directors cancelled 6,799,832 treasury shares, thus reducing the Group's capital stock to 341,025,135 shares at that date, practically unchanged from the 341,010,680 shares outstanding at December 31, 2002.

Excluding profit on sales of non-current assets estimated net income came to EUR 1,020 million, 2.9% lower than in 2002. This reduction reflects the negative impact of currency effects - including the fall in the US dollar, Brazilian real and pound sterling - which hit the Group's main income statement captions. On a constant exchange rate basis, net income excluding profit on sales of non-current assets would have been slightly higher than in 2002.

Based on the 347,824,967 shares outstanding at December 31, 2003, earnings per share excluding capital gains dipped 4.9% to EUR 2.93 compared with the 2002 figure of EUR 3.08. Based on the number of shares excluding treasury stock (336,185,581 at December 31, 2003 compared with 335,850,864 at December 31, 2002) earnings per share excluding capital gains amounted to EUR 3.03, a 3.2% decrease from the 2002 figure of EUR 3.13.

Cash flow from operations came in at EUR 2,471 million, down 7.6% on the prior-year figure. Excluding the EUR 69 million in tax on profit on sales of non-current assets, cash flow from operations contracted 5.5% to EUR 2,540 million from EUR 2,688 million in 2002. On a constant exchange rate basis, cash flow from operations (excluding tax on capital gains) would have been slightly up on 2002. Capital expenditure on plant and equipment stood at EUR 1,351 million, compared with EUR 1,431 million in 2002, and represented 4.6% of sales, versus 4.7% the previous year.

Free cash flow (cash flow minus capital expenditure on plant and equipment) totaled EUR 1,189 million excluding capital gains tax, compared with EUR 1,257 million in 2002.

Investments in securities amounted to EUR 783 million, including EUR 436 million for bolt-on acquisitions in the Building Materials Division, and EUR 229 million for share buybacks. Net indebtedness was EUR 5.7 billion at December 31, 2003 after payment of the 2002 dividend, down EUR 1.3 billion on the prior-year figure. The gearing ratio - based on consolidated shareholders' equity plus non-voting participating securities - was 49.3%.

- Performance of Group sectors and divisions

Although changes in exchange rates negatively impacted all Group divisions (see appendix), all three sectors reported increased like-for-like sales (based on a comparable Group structure and at constant exchange rates).

The Glass Sector achieved a 1.5% increase in like-for-like sales but operating margin dipped slightly, to 10.5% from 11.2%. This was due to lower margins across the board for the sector, with Containers and Insulation hit by soaring energy costs in the United States and renewed pricing pressure for Reinforcements. The Flat Glass Division reported sustained sales in emerging markets as well as in the European automobile market but the picture was more mixed in the European construction market. However, the strong price increases seen in South America and Asia since the beginning of the year slowed down towards the end of 2003.

The High Performance Materials Sector posted a 0.5% increase in like-for-like sales and a solid improvement in operating margin, to 8.4% from 6.7% in 2002. This was achieved primarily thanks to the cost cutting measures implemented since 2001. Both manufacturing and capital expenditure began to recover towards the end of the year, particularly in the United States.

The Housing Products Sector was the star performer in terms of organic growth. The 3.9% rise in like-for-like sales was fueled by the 14.2% surge in Pipe sales, spurred by major distant export contracts. However, the sector's operating margin dipped slightly, to 6.4% from 6.6%, due to sharply higher raw materials costs for the Pipe division (iron) and particularly the Building Materials division (asphalt and resins). Improvements in Building Materials operating margin were achieved though, as the year went on, thanks to measures implemented to reshape the division's manufacturing and sales operations. The Building Materials Distribution division continued to gain ground, through a combination of organic and external growth and also posted a further improvement in profitability with operating margin coming in at 5.0%, despite the persistently dismal conditions in Germany and the Netherlands. On a constant exchange rate basis, operating income for the division was up 8.5% on the 2002 figure.

Asbestos claims against CertainTeed in the United States:

During 2003, around 62,000 new asbestos claims were filed against CertainTeed, including 29,000 in the state of Mississippi. The number of new claims filed in the second half of the year was significantly lower than the first half, representing a 71% decrease from 48,000 to 14,000. Excluding claims filed in Mississippi, the period-on-period reduction was 35%, with 20,000 claims in the first half and 13,000 in the second. These figures indicate that the exceptional surge in new claims observed in Mississippi since Autumn 2002 appears to have come to an end. They also confirm the downward trend in new claims observed in the rest of the United States since June 2003, particularly as there have been no significant surges in new claims in Texas, Ohio or Michigan, where the introduction of tort reform measures may make those states less plaintiff-friendly venues. Average monthly new claims totaled some 2,300 during the second half of 2003, less than half as many as in 2002 and in the first six months of the year 2003.

54,000 claims were resolved during the year, including 29,000 in the second half, representing over double the number of new claims filed in the second half. 7,000 claims were also placed on the inactive docket. At December 31, 2003 some 108,000 claims were outstanding, virtually unchanged from the December 31, 2002 figure of 107,000 and down on the 123,000 claims in progress at June 30, 2003.