Following the statement made at the Group's interim results, on 28 October 1999, Pilkington today announces that it has completed its fundamental review of Pilkington Libbey-Owens-Ford, its principal US operating company, and is already well into the implementation phase of a step change programme expected to deliver cost reductions and efficiency improvements of £80 million per annum within the next three years. The cost of delivering this enhanced programme has been increased from the previously announced £48 million to £68 million, of which £41 million will be cash costs and £27 million asset write downs.

The step change programme has three major elements designed to bring Pilkington Libbey-Owens-Ford to levels of productivity and efficiency at the top of the industry:

• A quantum improvement in float glass plant efficiency and productivity;
• Rationalization and streamlining of the Automotive Glass OE and AGR manufacturing and distribution facilities;
• A major reduction in corporate and business overhead.

Paolo Scaroni commented, "When I was appointed Chief Executive of Pilkington in 1997, I promised to make Pilkington as competitive as the best of its competitors. This North American plan represents the final phase of our step change programme which has impacted every business in Pilkington and will transform the Group into the leading competitor in the world glass industry.

Based on our proven success in achieving a similar step change programme in Europe, I have every confidence we will deliver the benefits outlined in this announcement."

The Float Glass Plants

Yields and productivity of Pilkington's six North American float plants have lagged significantly behind best practice in Pilkington. The step change programme aims to deliver approximately £37 million in annual benefits. This programme involves the following main elements:

• A changed shift system, elimination of overtime, the introduction of flexible working practices and key improvements in skill levels as a result of new labour agreements reached last December with the Unions and the workforce. This element will account for close to £20 million of annual benefits
• The introduction of Group best operating practices already in use in Europe, leading to improvements in output, quality, utilisation and yield. This process will be underpinned by the imminent reconstruction of two large float lines within the next twelve months.
• A reduction in spending on energy, materials and maintenance, as a result of these actions and of Group purchasing initiatives.

The Automotive Glass Businesses

The plans for the automotive glass businesses are designed to deliver cost savings and profit improvements of the order of £18 million per annum.

Automotive Glass Original Equipment

Pilkington first announced the streamlining of its North American automotive OE operations in May 1999, with a follow-up in October. This programme, which followed from the closure of a plant in Lindsay, Ontario, at the end of 1998, includes the closure of two laminating and toughening plants - one at Sherman in Texas and one at Lathrop in California.

In addition, new investment is being made in Collingwood, Ontario, and Shelbyville, Indiana, to optimise capacity by upgrading equipment and lines. The transition is being managed to ensure customer deliveries are maintained and quality expectations are met. The planned process improvements will boost productivity in North America to world class levels already achieved by Pilkington plants elsewhere.

Automotive Glass Replacement

The plan includes provision for a major improvement in the AGR business at every level in the supply chain. Parts supply costs are being reduced by maximising the use of low cost production facilities. Distribution costs are being reduced by streamlining inventory flow, improving the movement of full load business and closing unprofitable wholesale centres. Selling efficiency is being transformed through the use of e-commerce.

Overheads

North American overhead costs exceed levels now reached in Europe by a considerable margin. The plan calls for a dramatic reduction within the three year period.

Both the float and automotive restructuring plans include a significant element of overhead reduction. In addition, there will be rationalisation of centralised corporate facilities and services and streamlining of engineering and R&D organisations, eliminating all duplication both within North America and the Pilkington Group. The corporate element of overhead costs will fall by some £25 million per annum.

• Six float glass lines: Rossford, Ohio (2); Laurinburg, North Carolina (2); Ottawa, Illinois (1); Lathrop, California (1)

2 Automotive glass original equipment operations

The OE automotive fabrication operations in North America consist of the following plants:

• Sherman, Texas, USA - production of laminated and toughened glass. Closure will result in the transfer of laminated glass to Collingwood and toughened glass to Shelbyville.
• Collingwood, Ontario, Canada - production of laminated glass. Following transfer of production from Sherman and investment to optimise capacity, productivity at Collingwood will be at similar levels to our plant at San Salvo, Italy.
• Shelbyville, Indiana, USA - production of toughened glass. As above, the restructuring programme will result in levels of production similar to those at San Salvo, Italy.
• United LN Glass Inc. (ULNG), Versailles, Kentucky, USA - 50:50 joint venture with Nippon Sheet Glass of Japan, producing both laminated and toughened glass. Serves primarily Japanese transplants.
• Lathrop, California, USA - production of primarily toughened glass but also laminated glass. The plant is to close and production will be transferred to other Pilkington North American locations.
• In addition, there are two modular facilities located in Michigan, at Clinton and Niles, which add value to fabricated parts.

3 Automotive glass replacement operations

• The AGR operations in North America produce laminated and toughened glass for the automotive glass replacement market. The ratio of laminated to toughened glass is approximately 3:1. The operation has one manufacturing facility, a joint venture with Nippon Sheet Glass based in Mexicali, Mexico. Products are transferred from this facility to a 400,000-sq. ft. distribution centre in Columbus, Ohio from where they are distributed to external retailers and wholesale customers. In addition, the business has some 90 company-owned wholesale service centres.