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Sain-Gobain: Main Impacts of the Switch to IFRS on the Group's 2004 Financial Statements:.

Article Excerpt
* Impacts on the 2004 statement of income:



- Operating income up by EUR111 million (+4.2%) > Increase in operating margin from 8.2% to 8.5% - Net income up by EUR156 million (+14.4%) - Net income excluding capital gains and losses up by EUR167 million (+14.9%) * Impacts on the balance sheet at December 31, 2004: - Shareholders' equity down 7.6% to EUR10,910 million from EUR11,806 million, - Net debt up 11.7% to EUR6,218 million from EUR5,566 million. >Gearing ratio: 57.0% compared with 46.5%* under French GAAP * Minimal impact on cash flows from operations: up by EUR27 million (+1.0%) to EUR2,639 million versus EUR2,612 million under French GAAP. TARGET FOR 2005 UNCHANGED: the target set by the Group in January, of 6% growth in operating income** at constant exchange rates (based on average 2004 exchange rates) remains valid under IFRS

* calculated on the basis of equity including non-voting participating securities. ** based on 2004 operating income restated in accordance with IFRS.

At its meeting of Thursday March 24, 2005, the Board of Directors of Saint-Gobain reviewed the impact of the switch to IFRS on the Group's opening balance sheet and financial statements for 2004. The impact of IFRS is described in note 35 to the consolidated financial statements, as audited by the Group's Statutory Auditors, and may be consulted on the Group's website (http://www.saint-gobain.com/).

> Accounting principles and options adopted by the Group:

The accounting principles adopted by the Saint-Gobain Group for the switch to International Financial Reporting Standards (IFRS) and those used to prepare its 2004 consolidated financial statements under IFRS are in compliance with all standards published by the International Accounting Standards Board (IASB) at December 31, 2004. Pursuant to European Regulation EC 1606/2002 of July 19, 2002, these standards are applicable as from January 1, 2005 within the European Union.

The International Financial Reporting Standards have been applied with retroactive effect in the opening balance sheet at the date of transition to IFRS (January 1, 2004). However, IFRS 1 provides for a series of first-time application options allowing entities to limit the scope of the restatements required under IFRS. Saint-Gobain has chosen to adopt several such options (see below).

Any publication in 2005 of new or revised standards, European regulations or official interpretations carrying retrospective application requirements may lead to changes in the financial information presented below.

> The main options adopted by the Group are as follows: 1) At January 1 (options available under IFRS 1)

- Full recognition of unamortized actuarial gains and losses at January 1, 2004. All actuarial gains and losses have been recognized in pensions and other post-retirement benefits, with a corresponding reduction in shareholders' equity. Consequently, all pension obligations are now accrued for in the balance sheet.

- Reclassification of cumulative translation differences at January 1, 2004 in consolidated retained earnings. This has no impact on total reserves and consolidated shareholders' equity.

- No retrospective adjustment of goodwill arising on business combinations that occurred prior to January 1, 2004.

- No remeasurement of property, plant and equipment at fair value. However, the Group has retrospectively applied at January 1, 2004 the depreciated cost model set out in IAS 16. This leads to longer average useful lives for items of property, plant and equipment and an increase in the net carrying amount of property, plant and equipment at January 1, 2004, reflecting the write-back of a portion of past depreciation charges.

2) Other options

- In accordance with IAS 19, the Group has decided to include the interest cost relating to pensions and the estimated return on plan assets within net financial income/(loss). This item was previously recorded under operating items.

- Retail brands (IAS 38) are accounted for as indefinite-lived intangible assets due to their public renown. They are not amortized but are tested annually for impairment.

- Lastly, in order to enhance comparability with future periods, the Group has opted for early application (at January 1, 2004) of IAS 32 and IAS 39 on financial instruments, and IFRS 2 relating to share-based payments.

> Main standards resulting in a material...