BUILDING VALUE ANNUAL REPORT 2000 - Investis …files.investis.com/bpb/ar_2000/downloads/BPB_1_21.pdfWHOM THE GROUP’S SUBSTANTIAL JUMP IN 1999/00 RESULTS WOULD NOT HAVE BEEN POSSIBLE

BPB annual report 2000

ANNUAL REPORT 2000BUILDING VALUE

BUILDING VALUEFINALLY, I WISH TO ECHO THECHAIRMAN’S RECOGNITIONOF THE ACHIEVEMENTS OFALL BPB’S PEOPLE, WITHOUTWHOM THE GROUP’SSUBSTANTIAL JUMP IN1999/00 RESULTS WOULD NOT HAVE BEEN POSSIBLE.Richard CousinsChief Executive1 June 2000

BPB plc, Park House, 15 Bath Road, Slough SL1 3UFTelephone +44 (0) 1753 898800Fax +44 (0) 1753 898888www.bpb.com

WE AIM TO BE THE WORLD’S PREFERRED CHOICE FORFAST-TRACK LIGHTWEIGHT BUILDING SYSTEMS, MEETINGTHE VALUE EXPECTATIONS OF OUR SHAREHOLDERS,CUSTOMERS AND EMPLOYEES THROUGH:

GROWTH OF OUR LEADING EUROPEAN BUILDINGMATERIALS BUSINESS

INVESTMENT IN ESTABLISHED AND EMERGINGPLASTERBOARD MARKETS WORLDWIDE

ENLARGING OUR BUSINESS BASE WITH COMPLEMENTARYPRODUCTS WHICH SHARE SIMILAR ROUTES TO MARKET

Contents1 Financial highlights2 Routes to market4 Chairman’s statement6 Chief executive’s review8 Operating review

16 Finance director’s review20 Directors22 Directors’ report26 Remuneration committee’s report31 Responsibilities of the directors31 Auditors’ report32 Group profit and loss account32 Group statement of total recognised

gains and losses33 Balance sheets34 Group cash flow statement35 Notes to the financial statements44 Five year financial summary46 Principal operating companies47 Shareholder information48 Subject index

BUILDING VALUE

On the front coverThai Gypsum exports throughout south east Asia andthe Pacific Rim. The contribution of BPB’s localshipping team, which includes Dumri Maichum,procurement co-ordinator (left), Manit Khansong,personnel officer (middle), and Terry Davies,technical manager (right), is key to supportingtrading relationships with overseas distributors.

Designed and produced by Addison. Printed in England by Perivan Colour Print.This document is printed on material manufactured from elemental chlorine-free pulp.

3 BPB annual report 2000

Plasterboard sales volumes worldwide, on alike-for-like basis, grew 10%; up 19% includingthe acquired Scandinavian and Asian businesses.Plaster volumes grew nearly 8%

Turnover grew 8.5% to £1.43 billion, up 13% inlocal currencies

Operating profit advanced 32.5% to £230.4 mil-lion, with the group sales margin rising almost 3percentage points to 16.1%

Building materials turnover and operating prof-it rose by 11% and 28% to £1.32 billion and£210 million respectively, and Paperboard salesmargin doubled to almost 11%

Underlying pre-tax profit advanced 23% to£224.1 million and underlying earnings per sharerose 32% to 31.5p

Reported profit before tax was 39% higher at£225.6 million (1999 £162.3 million after a netexceptional charge of £19.9 million)

Cash generation from operations continuedto grow rapidly, with EBITDA increasing 28%to £313.5 million and EBITDA margin rising3.4 percentage points to 22%

A final dividend of 8.25p per share, generatingan 8.2% increase in the full year dividend to12.5p, 2.5 times covered by underlying earnings

FINANCIAL HIGHLIGHTS

Year to 31 March 2000 1999 % INCREASETurnover £m 1,426.8 1,315.3 8.5Operating profit £m 230.4 173.9 32.5Profit before tax and exceptional items £m 224.1 182.2 23.0Earnings before interest, tax,depreciation and amortisation £m 313.5 244.9 28.0Earnings per share before exceptional items p 31.5 23.9 31.8Dividends per share p 12.5 11.55 8.2

Return on salesOperating profit

96 97 98 99 00

159.4 166.0 163.6 173.9

230.4

Operating profit £ million and return on sales %

11.2 12.0 12.6 13.2

16.1

Earnings per share penceProfit before tax £m

96 97 98 99 00

159.8174.8 173.1 182.2

224.1

Underlying results before exceptional items

20.5 22.6 22.3 23.9

31.5TURNOVER UP 8.5%OPERATING PROFIT UP 32%UNDERLYING PBT UP 23%REPORTED PBT UP 39%EBITDA UP 28%UNDERLYING EPS UP 32%FULL YEAR DIVIDEND UP 8.2%

DELIVERING COST-EFFECTIVEHIGH QUALITY BUILDINGSOLUTIONS, AND SUSTAININGOR CREATING NATIONALBRAND LEADERSHIP POSI-TIONS, IS UNDERPINNEDTHROUGH EFFECTIVE UTILISA-TION OF LOCAL ROUTES TOMARKET


ROUTES TO MARKET

Our building materials businesses are focused oninternal linings, service growing markets in over 50 countries and operate from a low-cost manufac-turing platform, with annual plasterboard sales nowexceeding 650 million square metres.

Sector leadership of the European, Canadian andSouth African markets, together with strong posi-tions in South America and Asia, reflect our com-mitment to strengthening BPB’s worldwide

sales presence in growth markets for plasterboardsystems and related building materials.

Regional management teams pursue operatingstrategies tailored to their own market environment,aiming to meet customers’ needs for a superiorcombination of products and service.

National sales and marketing strategies recognisethe different needs of the various customers in our

routes to market, and encompass both the physicalmovement of product to customers and the promo-tion of BPB internal lining systems to trade and DIYapplicators, specifiers and other opinion formers.

SPECIFIERSWorking alongside architects and specifiers, ouroperating teams promote and develop BPB productswhich satisfy building technology needs for comfortand safety, offering an extensive range of internallining solutions for:

space divisionthermal insulationacoustic absorptionfire and humidity resistanceutilities and circuitry distributionstructural integritydesign aesthetics.

Innovative internal lining solutions

Well located, low cost manufacturing plants

Partnership-style initiatives with customers

Curved-wall partition systems

Acoustic internal wall linings

E-COMMERCEWe recognise the ability of the internet to significantlyenhance the service levels we offer our customers, and we are actively developing applications to reducetransaction costs and enhance information flows.

Our participation in Mercadium, an industry-spon-sored on-line building materials market, gives usexposure to the rapidly developing business of build-ing materials trading on the internet.


MERCHANTSomprehensive national third party distribution net-

works provide the primary route to market. Our localperations provide partnership-style support to theupply chain, delivering industry-leading productsnd technical services which enable merchants toptimise stock levels and profitability with an

mproved marketing mix.

ONTRACTORServicing the diversified building needs of the resi-ential, commercial, industrial and renovation mar-ets, we are committed to offering a cost-effectiveroduct mix of innovative building olutions for walls, partitions, floors and ceilings

which meet demanding performance criteria.

APPLICATORSWe believe the success of any building system isdetermined by the way it performs on-site, bothduring and after construction. Accordingly, ournational businesses provide full training and techni-cal support to contractors and applicators, demon-strating the reliability and ease of use of BPB inter-nal lining systems and ensuring optimum installationefficiencies. Demand from the DIY sector for a com-bination of technical performance and creativedesign continues to grow and is met by an increas-ingly wide range of products for specific applica-tions. International trophies are awarded bi-annuallyby BPB for the most outstanding use of plaster-based products and the project demonstrating themost effective application of plasterboard solutions.

Lightweight decorative ceiling systemsast-cost supply chain management

DIY thermal insulation systems

t-track structural lining systems

Lining systems for interior refurbishments

Quick-response call centres

MUCH HAS BEEN ACHIEVEDTHIS YEAR, ESPECIALLY INTERMS OF BUILDING OURGROWTH PLATFORM FORTHE FUTURE. LIKEWISE THEOPERATIONAL EFFICIENCYAND BENCHMARKINGPROGRAMMES ARE NOWWELL ESTABLISHED, HAVEDELIVERED TANGIBLE RESULTSFOR THE YEAR AND PROMISEMORE FOR THE FUTURE.


Dear fellow shareholderIn the first year of the new millennium it is pleasingto report that your company earned record profits.That it did so was largely due to selling moreproducts at better margins and being more efficient.It is most appropriate, therefore, to begin this year’sstatement with a tribute on your behalf to all ouremployees for their considerable achievement insecuring this substantial uplift in performance.

Results for the yearThe company enjoyed a year of good marketdemand for its products in most regions with anoutstandingly good year in North America. On costreduction our targets for the year were exceededand, despite the emergence of areas of strong costinflation during the second half, underlying pre-taxprofit rose by 23% to a record £224.1 million.Underlying earnings per share, enhanced by thebuy-back programme, rose a very creditable 32%to 31.5p.

Reported pre-tax profit increased by £63.3million to £225.6 million, a 39% improvement onthe prior year, which was affected by a netexceptional charge of almost £20 million.

Business developmentMuch has been achieved this year, especially interms of building our growth platform for thefuture. The regional re-organisation has beddeddown well, including the integration of BPB Gyproc,although much still remains to be done.

Likewise the operational efficiency andbenchmarking programmes are now wellestablished, have delivered tangible results for theyear and promise more for the future. Thecompany’s new plasterboard plants in Poland andthe Czech Republic are performing well and ouracquisition of 70.75% of Thai Gypsum Products,the first business to successfully complete Thailand’s

CHAIRMAN’S STATEMENT

0096

11.4 12.2

11.3

15.4

97 98 99

Return on shareholders’ funds annualised %

10.8

£70 million on this programme, the effect of whichon a full year basis will increase earnings per shareby an estimated 3%. In the last two years thecompany has returned almost £170 million toshareholders and bondholders via buy-backs andrepurchases. We shall seek a renewal of a sharebuy-back authority at the forthcoming AGM, butat present have no firm plans to utilise it.

Leadership1999/00 has been a very active and positive periodof change at the top of your company. The processbegan with David Leonard’s appointment as chiefexecutive on 1 February 1999 to run the group untila younger long-term successor could be found. Asthe results in this annual report show, better thanany words, David and his team have delivered anexcellent performance and considerablystrengthened the platform to take the businessforward. Despite his short tenure as chief executivedue to his impending retirement, David gave anunstinting commitment to the business, anapproach which has characterised his decade ofservice at BPB. We are all immensely grateful to himand look forward to his contribution on the Boardas a non-executive colleague.

Our new chief executive, Richard Cousins, tookup his position on 1 April and he has been joinedon the Board from 3 May by Jean-Pierre Clavel, Mark Higson and Paul Withers as executivedirectors. Their biographies are shown on pages 20and 21 and their respective roles are covered in thechief executive’s review. Our executive team isyoung, energetic but also experienced, and I lookforward very much to working with all of them.The team is focused on growth, cost reduction andpeople development, which are the foundationsfrom which we seek to deliver shareholder value.

Mike Dowdall has reached the age of 70 andwill not be seeking re-election at the AGM. Mike

new financial reconstruction process, hasestablished us in a substantial way in thestrategically important south east Asia region.

Since the year end we have also extended ourEuropean product offering with the acquisition of aGerman-based manufacturer of expandedpolystyrene insulation products, which builds onour existing leadership position in France.

Potentially the most significant development isthe agreement we have reached today to secureone of our key strategic objectives in gaining adirect stake in the US internal linings market, thelargest in the world. This is being achieved throughthe acquisition for US$345 million of the wallboardand ceiling tile businesses of Celotex Corporation.When added to the existing sales of our Canadiansubsidiary, this will make us the fourth largestwallboard producer in North America with an 8 to9% share of the market, and give us 10% inceiling tiles.

Shareholder valueLast year was another year in which we made goodprogress in our drive to deliver improvedshareholder value.

Dealing first with the dividend. Given the strongfinancial performance, the Board recommends afinal dividend of 8.25p per share making a totaldividend for the year of 12.5p, an increase on theprevious year of just over 8%.

Secondly, action was taken to further strengthenthe company’s balance sheet by issuing a �400million 10 year bond at a competitive interest rate.The long term nature of this bond, and the group’scontinuing strong free cash flow, provide muchincreased financial flexibility as we pursueacquisitions in furtherance of our growth aims.

Our strong cash flow also enabled us to takeadvantage of the authority you granted to buy backshares and during the year we spent nearly


has served as a non-executive director since 1991and made a valuable contribution to the company’sbusiness. Both his counsel and his companionshipwill be much missed.

I am delighted to have this opportunity ofwelcoming to your Board Lady Balfour of Burleighas a non-executive director. Her brief biography onpage 20 understates considerably her abilities andachievements, and we very much look forward toher contribution to the Board’s deliberations.

FutureYour company is an international business and ispositioned to become still more so; in that contextpredicting future economic trends and their impacton our growing and diverse spread of markets ismore difficult.

For our major markets, this year we judge thatour core European businesses will continue tostrengthen but at a more modest pace and thatNorth America will, as previously predicted, slowdown. The trend of cost inflation on energy andraw materials is of greater concern than twelvemonths ago but our philosophy of permanentcost reduction will deliver further efficiencies.We therefore expect the current year to be one ofprogress, boosted by our recent acquisitions, but thestrength of sterling against the euro, if maintained,will adversely affect the final outcome.

Allan Gormly1 June 2000

Going forwardBefore reporting on the 32% growth in earnings led by David Leonard in his year as chief executive, I wish to review the group’s application of its keystrengths and strategies, which are already settingthe pace of business development in the currentyear.

BPB’s vision has grown to be the world’spreferred choice for fast-track lightweight buildingsystems, encompassing plasterboard products andother internal lining materials which utilise similarroutes to market.

In pursuing this vision, management’s strategicobjectives are to operate safe and efficientbusinesses delivering market-leading products andservices. High levels of customer satisfactiontogether with continuing organic growth andcarefully selected acquisitions will enable us togenerate improving returns to shareholders.

Operational strategies for achieving theseobjectives are now focused on three main tasks:

creating higher levels of sales through growth andproduct innovation

Seeking out and responding to acquisitionopportunities in geographic markets where BPB isunder-represented – such as last year’s investment inThai Gypsum Products and today’s agreement toacquire part of Celotex Corporation in the US – andin other building material markets – such as theacquisition of Heidelberger Dammsysteme’sexpanded polystyrene business in mainland Europe– which strengthen BPB’s existing national andregional market offerings.

Continuing the development of plasterboard asa global growth product and building leadershippositions in key geographic markets, recognisingthat the drivers of volume growth vary worldwidewith the different stages of evolution of individualmarkets.

Promoting the continuing penetration ofplasterboard systems and gypsum plasters againstother traditional building materials and methods ofinternal lining construction.

Developing innovations in systems selling andcustomer services, expanding the product rangewith complementary products such as fireprotection and other special purpose boards, ceilingtiles, insulation materials and flooring systems.

Exploring the potential of the internet. In theUK, BPB has recently joined with other leadingcompanies to launch Mercadium, a web-basedmarket place for building materials open to allindustry participants.


securing ongoing manufacturing and tradingefficiencies, engendering a group-wide philosophyof permanent cost reduction

1999/00 saw the achievement of substantial costreductions, equivalent to more than 2% of groupturnover. Significant contributors to this achievementwere the successful establishment of the group’sregional service centres and the initial results of thegroup-wide manufacturing productivity improvementprogramme. In addition our businesses benefitedfrom the efficiencies arising from the re-organisationof BPB’s paperboard operations and its focus onbeing the world’s leading manufacturer of low-costhigh-quality plasterboard liner.

While last year’s rate of reduction wasexceptionally strong, we intend to drive forwardwith further cost savings and greater operationalefficiencies, maximising utilisation of our asset base.

encouraging the fullest possible development andindividual contributions of all our people, within anincreasingly complex and international group

BPB’s people believe in working safely to delivertotal product quality and superior customer service.Operating managements are resourced and requiredto ensure the continued achievement of these goalsand to lead their teams through the tensionsnecessarily surrounding local, regional and globalissues affecting our growing international group.

We are increasing our efforts to retain, recruit,train and develop our people and to supportsuccession planning activities to ensure that BPBincreases its pool of talented and experiencedmanagers to take the group forward.

In order to align management resources withthese strategies, the following promotions within thesenior management team were made last month:

Paul Withers (43) was appointed to the newlycreated role of business development directorwith specific responsibility for identifyingacquisitions, overseeing their integration withinthe group’s regional structure and providingglobal business co-ordination in emergingproduct sectors. He is also responsible forBPB’s Asian businesses and the group’se-commerce developments.Mark Higson (44) has also joined the Board asoperations director with a remit to drive forwardthe group’s operating efficiencies and reinforceBPB’s embedded philosophies of safe operationand cost reduction. He continues as regionaldirector for Northern Europe and BPB Formula,our industrial plasters division.Jean-Pierre Clavel (52), regional director forSouthern Europe, is the third new executive

CHIEF EXECUTIVE’S REVIEW

+38

+13

Underlying volume

Selling price

Sterling translation

Cost efficiency

-31 Inflation, redundancy anddepreciation

-6

+32

Operating profit movements 99/00 compared to prior year – £ million

+11Acquisitions

Europe Rest of World Group

Acquisitions

Organic growth

11

10 11 10

3

9

Plasterboard volume growth % increase on previous year

MANAGEMENT’S STRATEGICOBJECTIVES ARE TO OPERATESAFE AND EFFICIENTBUSINESSES DELIVERINGMARKET-LEADING PRODUCTSAND SERVICES. HIGH LEVELSOF CUSTOMER SATISFACTIONTOGETHER WITH CONTINUINGORGANIC GROWTH ANDCAREFULLY SELECTEDACQUISITIONS WILL ENABLEUS TO GENERATE IMPROVINGRETURNS TO SHAREHOLDERS.

director. He continues to be responsible for thegroup’s largest single trading region (includingFrance, Spain and Italy) and brings a wealth ofinternational business experience to the Board.John Colley (46), previously finance director ofboth British Gypsum and BPB Paperboard, isnow regional director for Western Europeresponsible for the group’s building materialsactivities in the UK and Ireland, and is nowa member of BPB’s executive committee.

Group trading resultsBPB’s 23% advance in underlying pre-tax profit to£224.1 million was driven by:

Good volume growth of plasterboard andbuilding plaster products across almost all keyEuropean markets.

Improved overall selling prices of plasterboardproducts, on average rising 4%.

Delivery of cost reductions in excess of thoseplanned, providing savings equivalent to more than2% of group turnover.

Exceptionally strong North American demandalbeit, as anticipated, with second half volumesbelow the first half record levels.

Group turnover of £1.43 billion increased by8.5% as plasterboard sales volumes, excluding theeffect of acquisitions in Scandinavia and Asia,advanced by more than 10%, rising by almost 19%after including acquired companies. European salesof building plasters grew nearly 8%, with a verystrong performance in the Iberian market.

Selling price increases were implemented in mostmarkets resulting in overall group prices for buildingproducts rising almost 1%, with average groupplasterboard prices approximately 4% ahead of theprevious year, benefiting from higher NorthAmerican prices and overall stability in Europe.

Operating profit advanced by nearly one-third to£230.4 million and group sales margin improved byalmost 3 percentage points to 16.1%. Organicvolume growth contributed £38 million of theoperating profit gain, while selling prices generated£13 million of the improvement. Efficiency savingsrealised in the year amounted to some £32 millionand more than offset input inflation and highercharges for depreciation and redundancies.

Free cash flow for the year rose from just over£20 million to around £110 million before and£90 million after items of a one-off nature.

Movements on the translation of overseasresults, particularly from the euro zone, depressedturnover and profits by around £54 million and £6 million respectively, with most of the impactfalling in the second half, which saw an 8%appreciation of sterling against the euro.


Business development and expansionSignificant developments in BPB’s internationalbuilding materials businesses during the past 15months have included:

The successful commissioning of a total of nearly100 million square metres of new annualplasterboard capacity, 40 million in the CzechRepublic and the Polish plasterboard markets,12 million at our new Brazilian plasterboard plant,5 million at our second plant in India, 20 million inChina, and 18 million via a major capacity up-gradeat our existing French plant at Chambery.

Integration of the acquired Scandinavian companiesinto a cohesive regional plasterboard business.

The commitment to build a combined 25 millionsquare metre per annum plasterboard and 250,000tonne per annum plaster plant at Termoli, east ofRome, to serve the fast growing domestic marketand supply expanding Mediterranean exportmarkets.

The acquisition of Heidelberger Dammsysteme,one of Europe’s largest manufacturers of expandedpolystyrene insulation products, with eight plantsserving leading positions in the German, Czech andAustrian markets, extending the group’s productrange and building upon BPB’s leadership position inexpanded polystyrene insulation materials in France.

The acquisition of 70.75% of Thai GypsumProducts, one of the leading plasterboardmanufacturers in south east Asia and which controlsa significant proportion of the region’s limited andstrategically important high-quality gypsum reserves.

The further development of our paperboardoperations as an integrated activity, primarilyfocused on the manufacture of plasterboard linerfor group and third party customers.

The agreement reached today to secure ourentry into the American internal linings marketthrough the acquisition of the wallboard and ceilingtiles businesses of Celotex Corporation, which,when added to Westroc’s existing wallboard sales,will give BPB an 8 to 9% share of the 3 billion squaremetres of annual sales in North America, whichitself represents more than 50% of world demand.

Finally, I wish to echo the chairman’s recognitionof the achievements of all BPB’s people, withoutwhom the group’s substantial jump in 1999/00results would not have been possible. Theirsignificant contributions to performance and tomeeting BPB’s future aspirations are revealed morefully in the regional and country operating reviewsset out in the following pages.

Richard Cousins1 June 2000

Operating profit advanced 32% to £230.4 millionon turnover up 8.5%, with sales margin risingalmost 3 percentage points to 16.1%. Thissubstantial improvement was reflected across allbusiness areas and was due to strong volumegrowth, higher selling prices and further operatingefficiencies which offset higher depreciation andsecond-half cost inflation; profit per employee rosefrom £17,000 to £22,000. But for the furtherstrengthening of sterling, operating profit wouldhave increased by 36% on turnover growthof 13%.

Internal liningsPlasterboard systems’ turnover, including sales ofmetal components and jointing materials used indry lining construction, increased by 16% overall,with growth in group plasterboard volumesmatched by sales of related products. Plasterboardproduction costs reduced, benefiting from ourgroup-wide benchmarking programme, improvedlogistics from new capacity in developing markets,and our drive to manufacture more product withfewer people and lower overheads.

Turnover of ceiling tiles and decorative products,including cornice and mouldings, increased by over10%. Our ceiling tile business now includesGyptone and an expanding range of Casoprano tileswhich are sold throughout Europe, with particularlystrong demand in eastern Europe. Celotex’s rangeof US products will provide additional opportunitiesfor further developments. We have also increasedour presence in flooring products via the Rigidurbrand and continue to develop our range ofgypsum blocks, which represent an importantstructural interior solution for markets in southernand central Europe.

As a traditional method of interior finish, wetlining with plaster remains an important contributor


OPERATING REVIEW PROVIDING PARTNERSHIP-STYLESUPPORT TO LOCAL SUPPLYCHAINS IS KEY TO BPB’SDEVELOPMENT OF SUCCESSFULRELATIONSHIPS WITHMERCHANTS AND DISTRIBUTORS.BPB’S ACQUISITION OFHEIDELBERGER DAMMSYSTEMEBROADENS RIGIPS’ OFFERING OFINTERNAL BUILDING SOLUTIONSTO CUSTOMERS IN GERMANY.

BPB group 2000 1999 % increase

Turnover (£m) 1,426.8 1,315.3 8Operating profit (£m) 230.4 173.9 32Margin (%) 16.1 13.2

Building materials 2000 1999 % increase

Turnover (£m) 1,318.4 1,187.1 11Operating profit (£m) 210.1 163.8 28Margin (%) 15.9 13.8

Paperboard 2000 1999 % increase

Turnover (£m) 191.0 191.9 –Operating profit (£m) 20.3 10.1 101Margin (%) 10.6 5.3

Plasterboard +18%Specialist board +19%Board accessories +10%Building plasters +3%Complementary products +1%Paperboard sales (external) -15%

35%

14%

18%

8%

Turnover by product segment %99/00 changes compared to prior year

12% 13%

it impossible for the business to remain viable.A suitable buyer was not found and, shortly afterthe year end, the closure of the UK business wasannounced.

The majority of our paperboard operations userecycled waste paper as their basic raw material.Prices are governed by world supply and demandissues, and after a period of relative stabilityincreased in the second half, with further increasessince the year end.

FormulaFormula, our industrial plasters business, sellsworldwide from three principal European sites.Profits increased by more than one-third despite adecline in the traditional UK ceramics market, withincreased sales demand in central Europe and Asia,and Formula’s promotion of new high valueproducts for niche markets. Further efficiencyimprovements and overhead reductions contributedto better margins.

The acquisition of Thai Gypsum Products in theyear has created opportunities to provide a fullproduct range to the Asian market. In addition, theacquisition of Gypsum Turda in Romania provides acompetitive source of plasters for eastern Europe.

Internal linings – regional trading performancesNorth & Western Europe


Turnover (£m) 398.8 327.4 22Operating profit (£m) 80.8 64.1 26Margin (%) 20.3 19.6

The region benefited from the full year effect of ourScandinavian acquisition, buoyant market conditionsin the UK and Ireland, and the delivery of costefficiencies throughout the operations. In addition,manufacturing sites in the UK and Finland benefited

of group profit and cash flow. Building plasterturnover increased by 8% at constant exchangerates, mirroring the growth in tonnage which wasprimarily driven by strong demand in the Iberianmarket. Selected investments in growing marketscontinued to be attractive, with a decision toincrease plaster capacity in Italy and withexpenditure on additional capacity at Puchberg inAustria which, after commissioning later this year,will supply plasters into eastern Europe.

PaperboardOperating profit doubled to £20.3 million with salesmargin accelerating from 5.3% to 10.6%, thetransformation, despite flat turnover, resulting fromsignificant growth in group plasterboard linervolumes coupled with the achievement of loweroperating costs. Third party UK sales fell by 15%due to business disposals and the stronger poundwhich attracted imports from mainland Europewhere significant over-capacity remains. However,repositioning of the paperboard business continues,with the focus on meeting group requirements forhigh specification liner at the lowest possible cost.The reduction in third party sales was offset by a30% increase in liner sales, which now representmore than 70% of total mill output.

Cost reduction continued, with some £10 millionof improvements gained across the business frommanufacturing process efficiencies, improvedlogistics and lower overheads, the latter continuingto benefit from the transfer of administrativefunctions to our UK service centre.

Profits of our paper sack business increased byalmost a quarter due to improved operatingefficiencies and lower input costs which offsetselling price pressures.

However, our solid case operations had anotherdifficult year, with the strength of sterling making


BPB’s day-to-day supply to German merchants ofRigips plasterboard, Heidelberger Styroporexpanded polystyrene, and other lining materials isco-ordinated by a sales and marketing team

including Josef Graute, Rigips business developmentmanager (far left), Manuela Beckers, telesalesadministrator, and Dominik Bues, Heidelberger salesmanager for Styropor (right).

from exports to the oversold North Americanplasterboard market, principally in the first half.

UK construction activity was modest but stronggrowth for group products was achieved in thecommercial and renovation sectors and our positionwas improved in the residential sector, resulting insignificant improvements in both turnover andoperating profit. Plasterboard volumes increased byover 10% but higher value, higher specification fireprotection and sound insulation products advancedat twice this rate.

The customer base for our productsconcentrated further during the year, and priceimprovements were tempered by the commerciallymore vigorous trading environment. This year sawthe commissioning of a Casoprano ceiling tile line atour East Leake factory and the launch of theproduct range in the UK after its successfulintroduction in mainland Europe.

1998/99 had seen some disruption of UKdesulphogypsum supply which had to be replacedby more expensive imports from Spain. Continuityof supply was resumed during the year under reviewand this, together with high activity levels and furtherefficiency improvements from our benchmarkingand cost reduction programmes, boosted operatingsales margins. The strong volume performancecontinues and prospects are encouraging.

In Ireland housing starts were up 10% and theremarkable growth story continued, with gypsumproduct volumes at record levels. Following unionacceptance of the Labour Courts’ recommendationslast year on the company’s development plan, afundamental restructuring has been undertaken toensure our business is able to service the local marketgrowth, which appears set to continue despite fearsof higher interest rates and labour shortages.

The first full year of our Scandinavian operationsaw plasterboard volumes increase by almost 8%with construction growth driven by new housingdemand, particularly in Sweden which had been flatfor some time. Some recovery of demand wasexperienced in the Baltics and the St Petersburg


OPERATING REVIEW

North & Western Europe +13%Southern Europe +2%Central & Eastern Europe +1%Rest of the World +27%

33%

34%

16%

17%

Geographic analysis of turnover %99/00 changes compared to prior year

region in Russia. A major restructuring of thebusiness was undertaken during the year, includingthe closure of the former head office. Plantoperating performances have been quickly broughtinto line with BPB standards, and sales margins(before redundancy and goodwill amortisation)were well ahead of the previous year. The Nordiceconomic outlook is generally positive. We expectcompetition to remain strong but intend to maintainleadership through BPB Gyproc’s expanding productoffering.

Southern Europe



The region experienced strong volume growthacross all key markets, resulting in turnover andoperating profit, before the effect of sterlingtranslation, up 9% and 16% respectively.

In France the upturn in construction activity wasled by new housing demand, with plasterboardvolumes growing around 10%. Prices forplasterboard, after weakening in the middle of theyear, increased at the end of the period andrevenues were maintained by greater sales of highervalue products and systems. Sales of Casopranoceiling tiles continued to grow and tighterenvironmental regulations had a positive impact ondemand for expanded polystyrene products. Amajor up-grade of the plasterboard plant atChambery resulted in a near doubling of capacity.This, and significant cost reductions, contributed tothe improved results in France.

The Iberian market enjoyed a year of strongconstruction growth leading to plaster sales volumesincreasing by over 12%. Further progress wasachieved in the migration from traditional lowvalue plasters to higher value modern products.While this quiet revolution progressed, plasterboardcontinued to gain acceptance as the technical

In a standard-setting example of the UK constructionindustry’s focus on improved building methodologies,Andy Hyde, British Gypsum’s northern specificationmanager (far right) led a team including IngridHaraldsson, systems manager at BPB’s Building TestCentre, and Shane Torrens, British Gypsum’s projectsupport manager. Working with contractors, the teamdeveloped lightweight internal lining solutions for anew hospital in Calderdale, West Yorkshire.


BPB IS ONE OF THE FIRSTBUILDING SYSTEMMANUFACTURERS TO WORKIN PARTNERSHIP WITHCUSTOMERS AND LEADINGCONTRACTORS IN THE UKTO DEVELOP NEW ANDMORE EFFICIENT BUILDINGMETHODOLOGIES, WITH ANEMPHASIS ON QUALITY,SUSTAINABILITY AND WASTEREDUCTION.

solution for commercial interior linings, with volumesincreasing by over 30%. Selling price improvementswere made for most products and this, togetherwith the high activity levels and manufacturingefficiencies, resulted in a 25% increase in profitability.

Our Italian business also experienced a year ofstrong growth with profits almost doubling.Construction activity was buoyant, led by strongrenovation demand and some upturn in commercialactivity. While plaster volumes ran just ahead ofoverall construction growth, plasterboard andceiling tile volumes advanced by almost 15%,demonstrating the growth characteristic of theproduct in markets where per capita consumptionstill has considerable headroom for development.The north west was supplied from new capacityavailable at Chambery but future growth in Italy willbe met from a new plant to be built at Termoli tothe east of Rome.

Growth in renovation demand was responsiblefor increased plasterboard sales in Holland andBelgium, where prices are now increasing.

Central & Eastern Europe



The region saw a significant improvement in results,with profits (before restructuring costs) doublingfrom last year’s low. However, trading conditionswere challenging in this complex regionencompassing the Balkans, former Soviet states and now Turkey.

In Germany construction activity remained weakwith competition fierce. Plasterboard volumes wereflat although year-on-year average selling prices forplasterboard did recover by 6% after a 12% fall lastyear, and were 13% higher in March 2000 thantwelve months earlier; profits were also helped bythe manufacture of 10 million square metres of


plasterboard for export to North America. Thegypsum fibreboard plant at Bodenwerder completedcommissioning early in the year, bringing anextended range of locally produced buildingsolutions to the market. New high specificationplasterboards and joint fillers have been added tothe Rigips range and further cost initiatives helpeddouble the German profit. The outlook remainschallenging with little improvement in the overallmarket, which continues to be held back by activityweakness in the east. The acquisition of theHeidelberger Dammsysteme expanded polystyrenebusiness will further extend our product offeringand deliver cost and sales synergies.

Poland is now our second most importantmarket in the region, experiencing double-digitconstruction growth, and plasterboard per capitaconsumption exceeding those of several EUcountries. The market place remains highlycompetitive and prices fell by more than 10% to thelowest levels in Europe. However, the successfulcommissioning of the Stawiany plant in the springof 1999 has given us a highly efficient productionplatform and moved the business into profit. Duringthe year further progress was made in promotingplasterboard accessories, building plasters andceiling tiles and, despite the selling price weakness,total turnover increased by a third.

In the Czech Republic the economy showedsigns of recovery, with plasterboard sales more than10% above last year but prices down by 7%. Ournew Melnik plasterboard plant, situated just northof Prague and using co-located power stationdesulphogypsum, has secured a low-cost base tosupply future growth both locally and toneighbouring Slovakia and Romania. As in Poland,the new plant was commissioned swiftly and movedthe business into profit.

By contrast, in Austria we experienced a flatconstruction market and transferred easternEuropean sales to our local plants. However,profitability was maintained on stable prices, modest

OPERATING REVIEW

Operating profitTurnover

Europe Rest of World Total

11

2829

8

20

89

BPB building materials growth in turnover and operating profit % increase on previous year

Key members of the Westroc team responsible forthe design, specification and delivery of flexiblegypsum board installed as curved ceilings in the AirCanada Centre, a multi-purpose sports and officecomplex in Toronto: Ron Walker, product manager(seated), Glenn Liscumb, sales representative, andBarry Blue, shipping representative (far right).


WORKING WITH SPECIFIERSAND DESIGNERS TO CREATEINNOVATIVE INTERIOR LININGSIS A KEY ELEMENT IN BPB’SPRODUCT OFFERING. IN NORTHAMERICA, WESTROC’S NEWFLEXIBLE GYPSUM WALLBOARDPROVIDES AN ATTRACTIVESOLUTION FOR SHAPEDAPPLICATIONS TRADITIONALLYMET BY OTHER BUILDINGMATERIALS.

winter seasonal downturn in demand led to acessation of our supplies from Europe. The lastquarter of the financial year saw North America againself-sufficient with a return to more normal tradingconditions in which prices have started to ease. Theoutlook is for continued strong demand forplasterboard in North America but the introduction offurther new capacity in the summer of 2000 willprevent a repeat of the abnormally buoyantconditions of 1999.

In South Africa plasterboard volumes were hitby high interest rates in the first half but recoveredto finish marginally down as rates fell in the secondhalf year and construction activity recovered. Accessfloor panels made by Donn Products are exportedworldwide, and a number of high profile Europeancontracts were completed in the year. A strong cost performance underpinned a 30% regionalprofit improvement.

The developing Brazilian plasterboard market isstarting to exhibit strong growth characteristicsand, despite economic recession at the beginningof the year, group volumes almost doubled. Thecompletion of the São Paulo plasterboard plantsubstantially reduced our local operating cost base,with the result that our operation is now movinginto profit. The use of plasterboard technology isbeing expanded beyond São Paulo and Rio de Janeiroand product is also being exported to Uruguay andParaguay. The product range is being progressivelyexpanded, with narrower width board and Gyprextiles gaining acceptance in the ceilings market.

domestic plasterboard volume growth, exports toNorth America, and manufacturing efficiencies.

After almost a decade of building recession, themarket in Switzerland has begun to stabilise, withthe Rigips name gaining further acceptance in themarket place. Profits advanced by over 50% due tocost reductions, range improvements andintegration in the region.

Elsewhere, strong growth was achieved inHungary and also in the smaller markets of Greeceand Romania which are serviced in part from localmanufacturing plants.

Rest of the World



Regional turnover increased by 29% and profitsalmost doubled largely as a result of exceptionaltrading conditions in North America. Underlyingeconomic fundamentals were strong in both the USAand Canada, as demand for plasterboard outstrippedlocal capacity in the USA and product was sourcedfrom overseas. Against this background our plants inCanada worked at full capacity and were supportedby European exports to deliver an 11% volumeincrease on what was a strong performance in theprevious year. The oversold position resulted in a 20%increase in selling prices. Towards the end of the 1999calendar year, new US capacity came on-stream and a


Argentina felt the backlash of Brazil’s currencydevaluation, followed by a period of austerityimposed by the incoming government whichresulted in a 4% drop in construction activity.However, strong product promotion helpedplasterboard volumes to increase by over 10%.

After a disappointing first half, profits improvedfor our Chilean associate as a result of increaseddomestic volumes and exports of plasterboardto the USA.

China has a plasterboard market estimated atalmost 100 million square metres per annum and,with double-digit growth, affords considerable long term potential. Our factory in Shanghai wascommissioned towards the end of 1999 and tradinghas now commenced, with the BPB brand launchedand routes to market being developed. Pricing inthis market is, however, extremely competitive.

Following the acquisition of majority control ofThai Gypsum Products last December, good progressis being made in Thailand with both marketing andproduction benefiting from BPB knowledge transfer.Early trading indications are encouraging.

Sales volume growth in India accelerated in thesecond half, as business confidence improvedfollowing the change in government, but full yearprofitability was lower as a result of marketdevelopment costs and the commissioning of thenew plasterboard plant at Chennai.

OPERATING REVIEW

Iberyeso’s annual sales of projection plasters havegrown to around 500,000 tonnes, with penetrationagainst traditional plasters supported by thetraining of large numbers of applicators. Iberyeso’steam of regional advisers includes: Justo GarciaSànchez, silo technician (left), Angèlica Gonzalo,quality controller (middle) and Enrique Sànchez-Vizcaino, technical salesman.

9996 97 98 00

15

Profit per employee re-stated at 95/96average exchange rates

Profit per employee as reported

1516

17

15

2220

18

26

Operating profit per employee £000s

TRAINING AND TECHNICALSUPPORT FOR CONTRACTORSAND APPLICATORS IS CENTRALTO BPB’S MARKETING OPERATIONSWORLDWIDE. IN SPAIN, SUCHSERVICES FACILITATE THEHIGH-QUALITY APPLICATION OFBPB PRODUCTS, STRENGTHENBRAND PREFERENCE AND PROVIDEAN IMPORTANT ROUTE FORPRODUCT DEVELOPMENT.


This was a year of strong financial performance forBPB, with:

Underlying profit before tax up 23% to£224.1 million.

Reported pre-tax profit 39% ahead at £225.6 million in the absence of any exceptionalcharges this year.

Underlying earnings per share better by 31.8%at 31.5p.

Free cash flow almost five times higher at£111.5 million before, and almost four times higherat £88.1 million after, excluding cash flows of aone-off nature this year.

Post-tax return on average capital invested up1.9 percentage points to 12.1%, comfortably aheadof our weighted average cost of capital, which isestimated to have been in the range 8.5% to 9.5%during the year.

Since 1995/96, compound annual earnings pershare growth has been 11%. When adjusted toexclude the negative impact of the translation ofoverseas earnings into sterling, compound annualearnings per share growth over the same periodwas 16%. This compares favourably with many of our UK and European peer group in theconstruction & building materials sector.

The strength of sterling referred to above hasbeen a significant feature of the last few years.Some 50% of group turnover and operating profitis generated in the euro zone. The fall in the Frenchfranc/sterling exchange rate is representative of thecontinuing decline in value of key Europeancurrencies against sterling in the period since1995/96. Had exchange rates remained at 1995/96average levels, our turnover this year would havebeen almost £282 million (20%) higher, and ouroperating profit £43 million (19%) higher.


In 1999/00 exchange losses on the translation of overseas profits cost us £6.4 million, of which £5.8 million was in the second half.

Drivers of shareholder valueThe growth in our earnings per share is explained byprogress we have made against each of the driversof shareholder value set out in my report last year.These drivers reflect the attention managementgives to:

Improved and sustainable operating margins.Return on investment at above the weighted

average cost of capital.An efficient capital structure.

profitable growth, both in existing businesses andthrough acquisitionsTurnover increased by 8.5% to almost £1.43 billion.Excluding the impact of foreign exchange,underlying turnover growth was 13% withbuilding materials up 16%.

Operating margin improved by 2.9 percentagepoints to 16.1% and EBITDA margin (earningsbefore interest, tax, depreciation less deferredcredits, and amortisation as a percentage of groupsales) was up by 3.4 percentage points to 22.0%.EBITDA is a simple measure of cash flow that isused extensively in business valuation models.Operating profit increased by 32.5% to£230.4 million net of redundancy costs of£8.8 million (1999 £6.8 million) associated withcost saving initiatives.

The performance of our major acquisition lastyear, BPB Gyproc in Scandinavia, was earningsenhancing. It generated operating profit of £14.3 million, prior to charging redundancy costs of £3.5 million and amortisation of goodwill of £3.2 million.

FINANCE DIRECTOR’S REVIEW

UNDERLYING EARNINGS PERSHARE ROSE BY 31.8% TO31.5p. SINCE 1995/96,COMPOUND ANNUAL EPSGROWTH HAS BEEN 11%, OR 16% WHEN ADJUSTEDTO EXCLUDE THE NEGATIVEIMPACT OF THE TRANSLATIONOF OVERSEAS EARNINGSINTO STERLING.

0096

118

108 109116

118126

110

150

183

154

139

100

130

97 98 99

Earnings per share before exceptional items, and worldwide plasterboard volume growth indexed

EPS re-stated at 95/96 averageexchange ratesEPS as reportedBPB plasterboard volumes

0096

93.0

80.2

78.9

75.2

100

97 98 99

French franc v sterling exchange rate indexed

The group spent in total £52.4 million onacquisitions during the year, including:

£23.8 million for a 70.75% share in ThaiGypsum Products (‘TGP’). Early trading indicationsare encouraging in the three months sinceacquisition. TGP’s turnover in the year prior toacquisition was £25 million.

£14.6 million in purchasing TGP’s 23% minorityshareholding in Gypco Shanghai and makingpayments we had already committed under thesubscription agreement entered into last year. By 31 March 2000, we had invested a totalof £20.7 million to acquire an 83.1% equity interestin Gypco, with a remaining commitment to invest£2.3 million. Gypco’s 20 million square metrecapacity plasterboard plant was successfullycommissioned in December.

£14.0 million on other acquisitions, includingGypsum Turda in Romania and the purchase ofminority interests in group companies in Spain andFrance.

Our investments in South America, Asia and theemerging central European markets totalapproximately £120 million or 9% of total capitalinvested. These new ventures, which include ourChilean associate, made a combined operating lossof £2 million during the year.

In April, we completed the purchase ofHeidelberger Dammsysteme, one of the largestEuropean manufacturers of expanded polystyreneinsulation products, for £22 million on a debt freebasis. The company’s pro forma 1999 turnover andoperating profit was £47 million and £2 millionrespectively .

The planned Celotex Corporation acquisition forUS$345 million, referred to on pages 5 and 7, will befinanced using existing committed debt facilities.

the translation of profitable growth into cash flowthrough careful control of capital expenditure andworking capitalEBITDA was up 28% at £313.5 million this year, in line with the growth in operating results. Thisdemonstrates that our profits are high quality andare backed by strong cash generation.

Capital spend fell to £83.4 million (just overone times depreciation) from £124.5 million,following the commissioning of four major newplants at the beginning of the year. We expect tomaintain capital spend in the ratio of 1 to 1.25times annual depreciation, with over half devotedto growth and cost reduction projects and the


balance being available for essential replacement,health, safety and environmental schemes. At theyear end, the amount of investment authorised butnot spent was £86 million, including £36 million forthe new combined plasterboard and plaster plant atTermoli, Italy, announced in April.

Working capital increased by £23.0 million(1999 £0.3 million). Most of this is attributable tothe general increase in trading activity this year, andhigh plasterboard volumes just prior to the year end.The new plants commissioned during the year alsoadded to working capital requirements.

Free cash flow increased to £111.5 million(1999 £23.9 million) reflecting the combination ofimproved margins and lower capital expenditure.

2000 1999Group cash flow £m £m

EBITDA 313.5 244.9Net movement in working capital (23.0) (0.3)Capital expenditure (83.4) (124.5)Taxation (18.1) (66.4)Interest (11.0) (3.7)Dividends (76.1) (37.3)Other 9.6 11.2��

Free cash flow 111.5 23.9Acquisitions and disposals (53.8) (127.4)Share buy-backs (69.9) (84.4)Exceptional interest charge on convertible bond buy-back – (2.1)��

Net cash flow (12.2) (190.0)

an efficient capital structure that optimises ouroverall cost of capitalThe higher level of net debt reported last year hasbeen maintained with net debt at 31 March 2000of £253.6 million (1999 £270.6 million) and gearingof 33.4%. The total invested in the year inacquisitions, capital expenditure and buy-backs was£205.7 million (1999 £328.3 million). In the year webought back a further 21.6 million shares at a costof £69.9 million bringing to £154 million the totalreturned to shareholders through share buy-backsover the last two years. We estimate the 1999/00enhancement to earnings per share arising from thecumulative return of capital to be some 9%. The fullannual earnings enhancement gained from theshare buy-backs will be 10%.

Return on investment improved to 12.1% from10.2%, comfortably in excess of our estimated costof capital, reflecting the strong results and stablecapital invested of £1.3 billion.

Improved results and the further retirement ofequity boosted return on average shareholders’

EBITDA % of group turnoverEBITDA £m

0096 97 98 99

232.7 238.1 230.3 244.9

313.5

EBITDA (earnings before interest, tax, depreciation and amortisation) £ million

16.3 17.2 17.7 18.6

22.0

9996 97 98 00

107

Share buy-backsAcquisitionsCapital expenditure

2588

82

125108

83

84

119

25 52

70

Capital expenditure, acquisitions and share buy-backs £ million cash spend

Treasury and fundingThe group’s treasury function provides a centralisedservice to manage interest rate and foreign currencyexposures as well as funding and cash management.Group treasury is not a profit centre and onlyundertakes transactions to manage commercial risksand exposures. It acts within Board approvedpolicies, follows controlled reporting procedures andis the subject of routine internal control reviews.

During the year, the group obtained externaldebt ratings from both Moodys (A3) and Standard& Poors (BBB+). The decision to obtain debt ratingsrecognises that external measures of a group'screditworthiness are becoming increasinglyimportant in obtaining the lowest cost funding inmany debt markets. Following receipt of theseratings and an extensive series of presentations toinvestors in Europe, the group successfully accessedthe European debt capital markets for the first timewith the issue of a �400 million 10 year 6.5%bond in March 2000. This represents a new sourceof debt funding for BPB, allowing us to diversifyaway from sole reliance on bank facilities. It has alsoextended the maturity profile of our debt.

The group currently has access to around£765 million of committed debt facilities.Approximately £525 million of this comprises bankfacilities, £300 million maturing within one year and£225 million maturing in two to five years. Thebalance of £240 million comprises the sterlingequivalent of the euro bond debt and expires inapproximately ten years. The bank debt is subject tonormal financial covenants, but the bond debt hasno financial covenants attaching. The group expectsto be able to meet both its short and medium termfunding requirements from these debt facilities.

Net debt of £253.6 million at the year end(1999 £270.6 million) comprised gross debt of£321.3 million offset by cash and short termdeposits of £67.7 million. Interest cover was19 times profit before interest (1999 36 times), theyear-on-year reduction reflecting the full year impactof the increase in debt in the final quarter of1998/99.

At the year end 32% (1999 35%) of the group’soverseas capital invested excluding goodwill washedged, principally through foreign currencyborrowings, and 73% (1999 67%) of the group’score interest cost was fixed with an averagematurity of 5.4 years (1999 3.9 years).

More detailed information on the group’s treasurypolicies, together with further information on financial

funds to 15.4% (1999 12.2%). Shareholders’funds of £736.5 million remained relatively stablewith retained profit in the year of £91.7 millionbeing offset by adverse exchange movementsof £41.3 million on the translation of overseasnet assets and funds returned to shareholdersthrough share buy-backs of £69.9 million.

Total shareholder returnThe drivers of shareholder value described aboveresulted in underlying profit before tax increasing by23% to £224.1 million and underlying earnings pershare rising 31.8% to 31.5p. Subject to shareholderapproval of the recommended final dividend, theBoard is proposing an 8.2% increase in the dividendfor the year to 12.5p, covered 2.5 times byunderlying earnings. The compound growth in ourdividend since 1995/96 is 6.55% per annum.

The strong financial performance this year wasonly partially reflected by the 16% increase in ouryear end share price to 313p, restricting totalshareholder return in the year to 20.4%.

Associates and joint venturesThe decline in our share of operating profits fromassociates and joint ventures, from £13.0 million in1998/99 to £6.2 million in 1999/00, is attributableto the conversion of our minority shareholding inBPB Gyproc to full control and to a £2 millionwrite-off of our share in our joint ventureinvestment to manufacture high grade alphaplaster in North America.

TaxationThe group’s effective tax rate of 34.1% was similarto last year. The effect of reductions in tax rates inthe UK and France was offset by lower capitalexpenditure in our established businesses andunrelieved taxable losses in our emerging markets.

Tax paid in the year of £18.1 million was£48.3 million lower than last year, benefiting fromone-off receipts of some £40 million relating to therecovery of prior year payments in Germany andadvance corporation tax in the UK.

Following changes to the double tax relief rulesannounced in the UK Budget in March the group, incommon with many other UK-based multinationalcompanies, potentially faces an increased taxburden as a result of doing business overseas. Theimpact of this measure is being assessed in the lightof the government’s recent decision to deferimplementation of the changes until April 2001.


0096

10.410.1

12.1

10.210.0

97 98 99

Return on capital invested and weightedaverage cost of capital %

Return on capital invested Weighted average cost of capital(estimated range)

FINANCE DIRECTOR’S REVIEW


instruments and derivatives, is provided in note 22 tothe financial statements on pages 40 to 42.

Internal controlOur approach to internal control is increasinglybusiness risk driven. In accordance with objectivesagreed by the audit committee and/or Board, theinternal control manager leads risk profilingexercises with the active involvement of operationalmanagement. Having regard to the findings of thiswork, both internal and external resources are usedto carry out a wide-ranging assurance programme,with the results reported to the audit committeeand/or Board on a regular basis. In the past year thisprogramme has focused mainly on operations in ourkey emerging markets in eastern Europe, SouthAmerica and south east Asia, and on newbusinesses or those undergoing the greatestchange, such as the Scandinavian businessesacquired last year.

Whilst our new approach to internal control isconsistent with the Turnbull guidance issued tolisted companies in September 1999, we have takenadvantage of the transitional approach fordisclosure as permitted by the Financial ServicesAuthority and only reported formally on internalfinancial controls in the corporate governance reporton page 24.

Introduction of the euroAs BPB has a significant presence in the euro zone,we are implementing the necessary changes tobusiness processes and positioning ourselves to takeadvantage of the opportunities provided by theintroduction of the single currency. In the shortterm, the group does not anticipate that the costsassociated with the introduction of the euro willbe material.

Year 2000 compliance The group experienced no significant computer issueswith the advent of the new millennium. In total wespent approximately £7 million over the last threeyears in ensuring that our systems were compliantand we now benefit from the many enhancementsto IT systems made during our preparations for theYear 2000.

Accounting developmentsBPB takes a prudent and commercial view indeveloping and applying its accounting policies,including keeping up to date with the work of the

0096

111

131

98

110

100

122

118

125 125

97 98 99

Total shareholder return indexed change in year end share price plus dividend – source Datastream

BPBConstruction & building materials sector

Accounting Standards Board and giving carefulconsideration to the early adoption of FinancialReporting Standards (FRS’s).

The only significant matter of note arising fromour adoption of the two new accounting standardsintroduced this year, FRS15 ‘Tangible Fixed Assets’and FRS16 ‘Current Taxation’, is the requirement todepreciate all mineral reserves. Previously wecharged no depreciation where mineral depositshad an estimated remaining life in excess of 20years. The financial impact has been to increase ourannual depreciation charge by almost £2 million.

Peter Sydney-Smith1 June 2000

Allan Gormly CBE (62)Chairman since 1997Appointed to the Board in 1995. Chairman ofBrixton Estate plc and a non-executive directorof Bank of Scotland. Formerly chairman ofRoyal Insurance Holdings plc, deputy chairman ofRoyal & Sun Alliance Insurance Group plc and jointdeputy chairman of Trafalgar House plc.

Richard Cousins (41)Group chief executive since 1 April 2000Joined the group‘s planning and businessdevelopment department in 1990, becoming groupfinancial controller in 1992 and managing directorof Abertay Paper Sacks in 1996. President and CEOof Westroc Inc from February 1998 to February2000. Appointed to the Board on 1 January 2000.

Peter Sydney-Smith (47)Finance director since 1992Joined the group in 1982. Finance director of BritishGypsum Ltd from 1989 to 1992. Appointed regionaldirector for Southern Africa and chairman of BPBGypsum (South Africa) in February 1999.

Board committeesExecutiveJ-P Clavel J G ColleyRegional director (Western Europe) R J Cousins†

J S GoodallR M HeardM V Higson G Rhys Williams Regional director (Central & Eastern Europe) P E Sydney-Smith P N Withers

AuditLady Balfour of BurleighM Clark†

A G GormlyF J Leibenfrost

Management remuneration and developmentM E Beckett†

A G GormlyF J LeibenfrostSir John Whitehead

NominationM E BeckettM ClarkA G GormlySir John Whitehead†

Health, safety and environmentM Clark†

A G GormlyD C Leonard

CharitiesA G GormlyC GriffithsHuman resources managerSir John Whitehead†

†Committee chairmanEach committee’s role is summarised on page 25

DIRECTORS

Michael Beckett (63)Non-executive director since 1992Chairman of Horace Clarkson PLC, Watts BlakeBearne & Co Ltd and Ashanti Goldfields CompanyLtd. Formerly chairman of Greycoat plc andmanaging director of Consolidated Gold Fields PLC.

Lady Balfour of Burleigh (54)Non-executive director since 3 May 2000Non-executive director of Cable and Wireless plc,Scottish American Investment Trust plc and theScottish Life Assurance Company. Formerly adirector of Midlands Electricity plc and WH Smith plc.

Mark Higson (44)Group operations director since 3 May 2000Joined the group in 1996 as director of operations,with additional responsibility for BPB Formula, thegroup’s industrial plasters division. Also appointedregional director for Northern Europe in February1999.

Allan Gormly

Richard Cousins

Peter Sydney-Smith

From left to rightMichael Beckett Lady Balfour of BurleighMark Higson

From left to rightJohn GoodallSir John Whitehead Michael Dowdall



From left to rightBob HeardMartin ClarkJean-Pierre Clavel

From left to rightPaul WithersFranz LeibenfrostDavid Leonard

John Goodall (55)Executive director since 1996Joined the group in 1973. Appointed chairman ofBPB Paperboard in 1996, with responsibility sinceFebruary 1999 for building materials operations inthe Americas. A director of the group’s UK pensiontrustee companies.

Sir John Whitehead GCMG, CVO (67)Non-executive director since 1995A non-executive director of Cadbury Schweppes plcand a senior advisor to Deutsche AssetManagement. Formerly British Ambassador to Tokyo(1986 to 1992) and a non-executive director ofSerco Group plc.

Michael Dowdall (70)Non-executive director since 1991Chairman of Dairy Crest Group plc and a non-executive director of Lever (France). Formerlychairman of Geest plc and a director of Unilever plcand Unilever NV. He intends to retire from the Boardat the conclusion of the annual general meeting.

Bob Heard (47)Executive director since 1995, and groupsecretaryJoined the group in 1974. Appointed groupsecretary in 1985. A director of the group’s UKpension trustee companies and a member ofthe ICSA’s company secretaries’ forum.

Martin Clark (55)Non-executive director since 1992Formerly finance director of Caradon plc, Northern Foods plc and Associated British Foods plc.

Jean-Pierre Clavel (52)Executive director since 3 May 2000Joined the group in 1990 as managing directorof the group’s plasterboard business in France.Appointed regional director for Southern Europe(BPB’s largest trading region) in February 1999.A former president of the council of Europeanproducers of materials for construction (CEPMC).

Paul Withers (43)Business development director since 3 May 2000Joined the group in 1985. Prior to his appointmentto the Board, he was managing director of BritishGypsum Ltd from November 1996, and regionaldirector for Western Europe and Asia from February1999. He remains responsible for Asia, and hasadditional responsibility for global business co-ordination in BPB’s emerging market sectors and fore-business developments.

Franz Leibenfrost (62)Non-executive director since January 1999Chairman of Solvay Österreich AG and EisenwerkSulzau Werfen AG. Non-executive director ofForeign & Colonial Small Companies plc and AtlasCopco Holding AG. Formerly chairman and chiefexecutive of Custodia Holding AG, Löwenbrau AG,Veitscher Magnesitwerke AG and Semperit AG.

David Leonard (61)Non-executive director since 1 April 2000Joined the group in 1990 as managing director ofBritish Gypsum Ltd. Appointed an executive directorin 1995, deputy chairman of BPB Gypsum divisionin 1996, chief operating officer in 1997 andgroup chief executive from1 February 1999 to31 March 2000.

Documents

BUILDING VALUE ANNUAL REPORT 2000 - Investis …files.investis.com/bpb/ar_2000/downloads/BPB_1_21.pdfWHOM THE GROUP’S SUBSTANTIAL JUMP IN 1999/00 RESULTS WOULD NOT HAVE BEEN POSSIBLE