Lafarge : Interim Report at June 30, 2008

Regulatory News: Lafarge (Paris:LG) 1. Consolidated key figures In order to reflect its divestment effective in February 2007, the Roofing division is presented in 2007 as discontinued operations in the Group’s financial statements. In compliance with IFRSs, the contribution of the Roofing Division to the Group’s consolidated statement of income and statement of cash flows is presented on specific lines. Pursuant to the disposal, the 35% investment in the new Roofing activity is accounted for as an associate in the Group’s financial statements since February 2007. Hereinafter, and in our other shareholder and investor communications, "current operating income” refers to the subtotal "operating income before capital gains, impairment, restructuring and other” on the face of the Group’s consolidated statement of income. This measure excludes from our operating results those elements that are by nature unpredictable in their amount and/or in their frequency, such as capital gains, asset impairments and restructuring costs. While these amounts have been incurred in recent years and may recur in the future, historical amounts may not be indicative of the nature or amount of these charges, if any, in future periods. The Group believes that the subtotal "current operating income” is useful to users of the Group’s financial statements as it provides them with a measure of our operating results which excludes these elements, enhancing the predictive value of our financial statements and provides information regarding the results of the Group’s ongoing trading activities that allows investors to better identify trends in the Group’s financial performance. In addition, "current operating income” is a major component of the Group’s key profitability measure, return on capital employed (which is calculated by dividing the sum of "operating income before capital gains, impairment, restructuring and other”, after tax, and income from associates by the averaged capital employed). This measure is used by the Group internally to: a) manage and assess the results of its operations and those of its business segments, b) make decisions with respect to investments and allocation of resources, and c) assess the performance of management personnel. However, because this measure has limitations as outlined below, the Group limits the use of this measure to these purposes. The Group’s subtotal within operating income may not be comparable to similarly titled measures used by other entities. Further, this measure should not be considered as an alternative for operating income as the effects of capital gains, impairment, restructuring and other amounts excluded from this measure do ultimately affect our operating results and cash flows. Accordingly, the Group also presents "operating income” within the consolidated statement of income which encompasses all amounts which affect the Group’s operating results and cash flows. Following the Orascom acquisition in the first quarter 2008, the Group adjusted the presentation of its geographical information for all periods presented: Western Europe, North America, Central and Eastern Europe, Latin America and Asia remain unchanged from previous presentations. The former Mediterranean Basin is transformed into a "Middle East” region after the reclassification of Algeria and Morocco to the new "Africa” which replaces the former Sub-Saharan Africa. The countries of the ex-Orascom operations will be classified as follows: Egypt, Iraq, UAE and Turkey in the Middle East Algeria and Nigeria in Africa North Korea and Pakistan in Asia Spain in Western Europe Sales   6 months   % Variance     2nd quarter   % Variance (million euros) 2008   2007 2008   2007   By geographic area of destination               Western Europe 3,207 3,181 1 % 1,701 1,673 2 % North America 1,764 2,068 -15 % 1,109 1,297 -14 % Middle East 630 256 nm (1) 361 145 nm (1) Central and Eastern Europe 853 643 33 % 535 400 34 % Latin America 483 424 14 % 250 218 15 % Africa 1,164 938 24 % 613 489 25 %   Asia 968 875 11 % 500 468 7 %   By business line             Cement 5,334 4,568 17 % 2,960 2,561 16 % Aggregates & Concrete 2,930 2,997 -2 % 1,698 1,721 -1 % Gypsum 788 814 -3 % 396 405 -2 %   Other 17 6 -   15 3 -   TOTAL 9,069 8,385 8 % 5,069 4,690 8 % (1) Not meaningful Current operating income 6 months   % Variance   2nd quarter   % Variance (million euros) 2008   2007 2008   2007   By geographic area of destination               Western Europe 522   523   -   314   343   -8 % North America 85   179   -53 % 166   241   -31 % Middle East 194   66   194 % 116   43   170 % Central and Eastern Europe 297   202   47 % 222   164   35 % Latin America 98   77   27 % 48   40   20 % Africa 287   210   37 % 160   120   33 %   Asia 128   103   24 % 73   64   14 %   By business line             Cement 1,380   1,070   29 % 911   772   18 % Aggregates & Concrete 237   244   -3 % 211   226   -7 % Gypsum 31   82   -62 % 11   36   -69 %   Other (37 ) (36 ) -   (34 ) (19 ) -   TOTAL 1,611   1,360   18 % 1,099   1,015   8 % Other key figures 6 months   % Variance   2nd quarter   % Variance (million euros, except per share data) 2008   2007 2008   2007   Net income – Group share 911 934 nm 761 572 nm   Excluding one-off items (1) 773 673 + 15 % 623 572 + 9 % Earnings per share (in euros) 4.75 5.38 nm 3.96 3.31 nm   Excluding one-off items (1) 4.03 3.88 + 4 % 3.24 3.30 - 2 % Free Cash Flow (2) 129 76 + 70 % 307 263 + 17 % Net Debt 17,323 9,445 + 83 % (1) Excluding net capital gains on sale of Turkish assets and Roofing in 2007, of Egypt-Titan JV in Q2 2008, and legal provision adjustment for the 2002 Gypsum case. (2) Defined as the net operating cash generated by continuing operations less sustaining capital expenditures 2. Review of operations and financial results All data regarding sales, sales volumes and current operating income include the proportional contributions of our proportionately consolidated subsidiaries. Group highlights for the first six months of 2008 Strong contribution from emerging markets, with current operating income up 53% in the first half and 44% in the second quarter (+63% and +54% respectively, at constant exchange rate). Emerging markets accounted for 67% of earnings in our Cement business in the first half, 62% in the second quarter. Continuing resilience of our operations in developed markets thanks to cost-cutting, strong pricing, improvements in industrial performance and the benefits of our innovation strategy. Growth in current operating income affected by significant currency effect. At constant exchange rate, current operating income increased by 24% in the first half and 14% in the second quarter. Solid pricing in a context of higher input costs. Strong increase in operating margin – up 160 basis points in the first half to 17.8% – despite significant increase in energy and transport costs, underscoring the benefits of our cost reduction program. Benefits of the Orascom acquisition, finalized at the end of January, which contributed to earnings growth. The integration process was completed at the end of June. Continuation of our program to build new cement production capacity to meet strong demand for construction and infrastructure in emerging markets. 15 MT of new cement capacity to start in 2008. With the L&T acquisition, announced on May 14, Lafarge will be the leader in concrete in India. As part of its divestment program, Lafarge announced on May 6 the disposal of its 50% stake in the Lafarge Titan joint venture in Egypt. Overview of operations: sales and current operating income Consolidated sales and current operating income In the first half of 2008, consolidated sales increased by 8.2% over 2007 to 9,069 million euros. Sales benefited from solid growth in emerging markets and positive pricing trends that more than offset the decrease in volumes observed in some developed markets, notably in the United States, Spain and the United Kingdom. This led to solid organic growth in both the first and second quarter (5.2% in the first quarter, 6.8% in the second quarter). The consolidation as of the end of January of the acquired Orascom operations, mostly in cement, positively contributed to the growth in sales (net impact of changes in the scope of consolidation of 8.2%). Currency impacts were strongly unfavorable, reducing sales by 6.1% in the first half (-4.9% in the first quarter and -7.1% in the second quarter), mainly reflecting the depreciation of the US dollar, the British pound and the South African rand against the euro. In the same period, the current operating income increased by 18.5% benefiting from solid growth in emerging markets, favorable supply-demand balance for our main products, strict cost control in a context of high inflation, and the impact of the consolidation of Orascom operations. At constant scope and exchange rates, half year current operating income increased 8.0% with emerging markets growth more than offsetting decline in Gypsum results and lower volumes in North America. North America was more impacted in the second quarter due to the seasonality between quarters. With the exception of North America, all regions in the Cement division delivered a solid improvement in current operating income. The Aggregates and Concrete current operating income moved slightly lower due to the soft markets in the United States, Spain and United Kingdom being offset by strict cost control and improved pricing. Gypsum current operating income was penalized by the unfavorable environment in the United States. Sales and Current operating income by segment Individual segment sales information is discussed below before elimination of interdivisional sales. Cement 6 months   2nd quarter (million euros) 2008   2007   % Var.   % Variation atconstant scope and exchange rates 2008   2007   % Var.   % Var.atconstant scopeand ex-change rates Sales before elimination of inter-divisional sales 5,730 4,974 + 15.2 % + 9.7 % 3,176 2,779 + 14.3 % + 10.3 % Current operating income 1,380 1,070 + 29.0 % + 14.2 % 911 772 + 18.0 % + 7.0 % The cement division achieved a solid improvement in current operating income, benefiting from the sustained growth in emerging markets, favourable supply-demand balance overall and cost reduction efforts in a context of high inflation. The consolidation of the Orascom cement operations since end of January further enhanced the performance of the division. WESTERN EUROPE Sales:   EUR 1,484 million at end of June 2008 (EUR 1,518 million in 2007) EUR 802 million in the second quarter of 2008 (EUR 808 million in 2007)     Current operating income: EUR 383 million at end of June 2008 (EUR 365 million in 2007) EUR 251 million in the second quarter of 2008 (EUR 244 million in 2007) At constant scope and exchange rates, domestic sales improved slightly (0.4% in the first half of the year, 1.4% in the second quarter) while current operating income was up 6.4% in the first half compared to 2007 (up 7.5% in the second quarter). Solid market in France, combined with strict cost control across the countries, reduced import costs, and price increases in a context of inflationary pressures, notably in energy, contributed to this improvement. These factors more than compensated for volume softness in Spain, led by a downturn in the housing market, in Greece, slowing after the record levels of past years, and in the United Kingdom, affected by a soft residential sector. NORTH AMERICA Sales:   EUR 698 million at end of June 2008 (EUR 839 million in 2007) EUR 432 million in the second quarter of 2008 (EUR 523 million in 2007) Current operating income:   EUR 74 million at end of June 2008 (EUR 127 million in 2007) EUR 91 million in the second quarter of 2008 (EUR 146 million in 2007) At constant scope and exchange rates, domestic sales and current operating income decreased respectively by 7.3% and 38.4% (respectively by 7.1% and 32.0% in the second quarter). In the United States, the softness of the residential market drove a 12.7% decline in shipments, while in Canada, sales volumes were up 1.9%. Cost reduction actions and prices remaining firm in the United States and increasing in Canada partially mitigated the combined impact of rising costs, notably energy costs, and significantly reduced volumes. The weaker US Dollar had a negative impact of 87 million euros on sales and 8 million euros on current operating income for the first half. EMERGING MARKETS Sales:   EUR 3,548 million at end of June 2008 (EUR 2,617 million in 2007) EUR 1,942 million in the second quarter of 2008 (EUR 1,448 million in 2007) Current operating income:   EUR 923 million at end of June 2008 (EUR 578 million in 2007) EUR 569 million in the second quarter of 2008 (EUR 382 million in 2007) Sales of our operations in emerging markets grew by 35.6% (by 34.1% in the second quarter), benefiting from strong organic growth in most of our markets that experienced sustained demand in a favorable supply-demand environment and from the impact of the Orascom Cement acquisition. In all these regions, sales experienced double-digit growth rates at constant scope and exchange rates. Current operating income in these markets went up 59.7% to 923 million euros (up 49.0% in the second quarter), reflecting the good performance of all our regions, notably Central and Eastern Europe, Latin America and Asia and the impact of the consolidation of the Orascom Cement operations. For these regions, at constant scope and exchange rates, sales and current operating income increased strongly by respectively 21.0% and 31.0% (respectively by 22.2% and 21.5% in the second quarter). In the Middle East, our domestic sales at constant scope and exchange rates grew substantially (up 17.2% for the first six months of the year and up 17.8% in the second quarter), benefiting mainly from pricing gains in Jordan. Price increases were implemented in a context of a strong rise in energy costs, notably in Jordan leading to a stable current operating income from our legacy operations compared to last year. The acquisition of Orascom Cement had a strong positive impact on the results. Construction demand and pricing showed continued strength in key markets, notably in Egypt. In Iraq, market dynamics remain very positive although the on-going development of the distribution network limited the benefit of the new plant production in the first half. In Egypt, we finalized on May 6 the disposal of our ownership interest in the joint venture we previously managed with Titan. The results of the region consequently include only four months of results for this joint venture. Sustained market trends in Central and Eastern Europe led to a further improvement in sales and current operating income. At constant scope and exchange rates, domestic sales grew by 35.1% (35.2% in the second quarter) and current operating income was up 51.1% (up 36.9% in the second quarter). Strong demand from all construction sectors combined with pricing gains, notably in Russia, and excellent operational performance drove these strong results. In the second quarter, some volumes were temporarily reduced in Poland as certain infrastructures projects were postponed due to administrative reasons. In Latin America, domestic sales grew by 20.2% at constant scope and exchange rates (22.1% in the second quarter). Driven by good market trends, our volumes and prices grew in most countries. At constant scope and exchange rates, the current operating income for the region increased 44.0% (36.4% in the second quarter), mainly driven by a price recovery in Brazil, due to strong market growth. In Africa, sales grew strongly, driven by both the impact of the Orascom Cement acquisition, and good market trends in most countries (domestic sales grew 13.2% at constant scope and exchange rates in the first six months of the year and in the second quarter). Solid market demand and good pricing trends in a context of tight supply-demand balance helped to improve results, despite the significant increase in energy costs in most countries and short-term strikes in Algeria. At constant scope and exchange rates, the current operating income grew 12.6% (4.2% in the second quarter). Morocco was the main contributor to this improvement, benefiting from positive market conditions, strong industrial performance and efficient control over costs. The Kenya market was hampered in January and February by the post-election situation but since then has recovered, allowing for improved results in the second quarter. At constant scope and exchange rates, in Asia, domestic sales and current operating income were up strongly (14.0% and 37.0% respectively in the first half of the year; up 13.9% and 32.9% in the second quarter). In China, the exceptionally harsh weather in the first quarter and the impact of the Sichuan earthquake in the second quarter temporarily affected our volumes. Nevertheless, despite this volume trend and rising energy costs, positive pricing trends and closure of wet process lines contributed to solid increase in earnings. In South Korea, some pricing gains and cost control mitigated the rising costs and volumes softness in the second quarter, allowing for some improvement in the results. India, benefiting from good market trends, good plant performance and tight cost control, also contributed significantly to the higher results of the region. In Malaysia, in a context of high inflation on costs, the government lifted the price control effective June 5 2008, allowing some pricing gains in June that mitigated the impact of rising energy costs. Volumes in this country grew solidly, led by the commencement of certain projects under the 9th Malaysian Plan. Aggregates & Concrete   6 months 2nd quarter (million euros) 2008   2007   % Var.   % Var.atconstantscopeandexchangerates 2008   2007   % Var.   % Var. atconstantscopeandexchange rates Sales before elimination of inter-divisional sales 2,933 3,002 - 2.3 % + 0.4 % 1,699 1,724 - 1.5 % + 1.1 % Current operating income 237 244 - 2.9 % - 0.7 % 211 226 - 6.6 % - 3.9 % AGGREGATES AND OTHER RELATED PRODUCTS Sales:   EUR 1,389 million at end of June 2008 (EUR 1,462 million in 2007) EUR 853 million in the second quarter of 2008 (EUR 900 million in 2007) Current operating income:   EUR 115 million at end of June 2008 (EUR 124 million in 2007) EUR 132 million in the second quarter of 2008 (EUR 142 million in 2007) Solid pricing trends combined with strict cost control largely mitigated the impact of the decline in volumes, primarily caused by the slowdown in the United States, Spain and the United Kingdom, rising energy and transport costs and unfavorable exchange rates. In Western Europe, good pricing trends and strict cost control offset most of the impact of market softness in Spain and in the United Kingdom and strong rise in energy and transport cost. In North America, strict cost control and improved prices partly compensated the volume decline resulting from soft markets in the United States and from the poor weather conditions in the first half of the year, especially in Canada. Elsewhere in the world, results were up, driven by improved pricing and cost containment, with particularly good volumes in Romania and Brazil. CONCRETE AND OTHER RELATED PRODUCTS Sales:   EUR 1,760 million at end of June 2008 (EUR 1,768 million in 2007) EUR 964 million in the second quarter of 2008 (EUR 953 million in 2007) Current operating income:   EUR 122 million at end of June 2008 (EUR 120 million in 2007) EUR 79 million in the second quarter of 2008 (EUR 84 million in 2007) Solid pricing, increased share of value-added products and strict cost control helped offset volume declines mainly in the United States, Spain and the United Kingdom and unfavorable impact of exchange rates. In Western Europe, strong cost control and price improvement mostly offset the volume impact of a softer demand in Spain and in the United Kingdom. In North America, improved prices and tight cost management more than offset the effect of the market slowdown in the United States and of poor weather in the first half of the year, especially in Canada. Elsewhere in the world, we enjoyed substantial growth in Central and Eastern Europe and in Latin America. Strong pricing and cost control overall led to improved results. Gypsum 6 months   2nd quarter (million euros) 2008 2007 % Var. % Var. atconstant scope and exchange rates 2008 2007 % Var. % Var. atconstant scope and exchange rates Sales before elimination of interdivisional sales 801 826 - 3.0% + 2.2% 403 411 - 1.9% + 3.8% Current operating income 31 82 - 62.2% - 59.6% 11 36 - 69.4% - 66.4% Gypsum’s results were affected by the downturn in the United States where volumes and prices continued to decrease compared to last year. Elsewhere, price increases partly mitigated the sharp rise in energy and transport costs. WESTERN EUROPE Sales:   EUR 477 million at end of June 2008 (EUR 473 million in 2007) EUR 237 million in the second quarter of 2008 (EUR 235 million in 2007) Current operating income:   EUR 44 million at end of June 2008 (EUR 54 million in 2007) EUR 17 million in the second quarter of 2008 (EUR 26 million in 2007) The current operating income was adversely affected by one-off start up costs of our new plant in the United Kingdom and higher energy and transport costs. NORTH AMERICA Sales:   EUR 93 million at end of June 2008 (EUR 146 million in 2007) EUR 45 million in the second quarter of 2008 (EUR 67 million in 2007) Current operating income:   EUR -32 million at end of June 2008 (EUR 7 million in 2007) EUR -17 million in the second quarter of 2008 (EUR -2 million in 2007) Despite our improved cost position, the current operating income was severely impacted by the unfavorable market conditions that led to lower prices compared to the first half of last year. Please note that, as for all countries, the current operating income includes Lafarge corporate cost allocation. OTHER COUNTRIES Sales:   EUR 231 million at end of June 2008 (EUR 207 million in 2007) EUR 121 million in the second quarter of 2008 (EUR 109 million in 2007) Current operating income:   EUR 19 million at end of June 2008 (EUR 21 million in 2007) EUR 11 million in the second quarter of 2008 (EUR 12 million in 2007) In other countries, results remained stable partly thanks to our new capacities in Romania and Ukraine and despite the sharp increase in energy costs. Other income statement items Other elements of the operating income   EUR 136 million at end of June 2008 (EUR 82 million in 2007) EUR 161 million in the second quarter of 2008 (EUR -26 million in 2007) Gains on disposals, net, amounted to 191 million euros in the first half of 2008 as compared to a gain of 164 million euros last year. In 2008, this is primarily the gain on the sale of our ownership interest in the joint venture we previously managed with Titan in Egypt, effective on May 6 (184 million euros). In 2007, it included mainly the gain realized on the sale of our participation interest in a joint venture operating in Turkey in February 2007. Other operating expenses amounted to 55 million euros, compared to 82 million euros in 2007, mainly related to casualty losses and the adjustment of 36 million euros of the provision relating to a fine imposed on European gypsum activities in 2002, following a decision of the European Court of First Instance on July 8 this year. Finance costs   EUR 390 million at end of June 2008 ( EUR 244 million in 2007) EUR 200 million in the second quarter of 2008 ( EUR 96 million in 2007) Financial expenses on net indebtedness increased by 52%, from 257 million euros in 2007 to 390 million euros in 2008. This increase is mainly due to the acquisition of Orascom on January 23, 2008. The debt part for this acquisition was financed through a credit facility underwritten by three banks prior to the acquisition. The syndication of this credit facility was completed in February 2008. The average interest rate on our gross debt was 5.3% during the first half of 2008 as compared to 5.8% in the first half of 2007, favourably impacted by the weight of the short-term floating rate drawings under the Orascom acquisition facility. This acquisition debt, which has an average maturity of 3 years, is planned to be progressively refinanced by medium and long term debt issuances. 1.5 billion euros was refinanced on May 28 through the issuance of two bonds of 750 million euros each, bearing an average interest rate of 6% with maturities of 3 and 7 years. Foreign exchange resulted in a gain of 38 million euros (1 million euros in 2007) reflecting in particular gains on cash positions held in euros in foreign subsidiaries. Other finance costs increased to 38 million euros, compared to gains of 12 million euros in the first half of 2007. This increase mainly relates to financing costs of the Orascom acquisition and additional interest on the legal provision adjustment for the 2002 gypsum case mentioned above. Income from associates   EUR 1 million at end of June 2008 ( EUR 27 million in 2007) EUR 17 million in the second quarter of 2008 ( EUR 15 million in 2007) Our 35% stake in the new Roofing affiliate negatively contributed 21 million euros, compared to a positive 2 million euros in the first half of 2007 (the disposal of our majority stake was effective only as of the end of February 2007). The contribution of the roofing entity is affected by soft markets in the United States and in Germany and by high financing costs. Income tax   EUR 275 million at end of June 2008 ( EUR 307 million in 2007) EUR 213 million in the second quarter of 2008 ( EUR 256 million in 2007) The effective tax rate is 20% vs. 25% in 2007. In 2007 the low taxation of the gain on the sale of our Turkish assets favorably impacted the tax rate. In 2008, our effective tax rate is favorably impacted by the acquisition of Orascom operations, which benefit from tax exemptions in several countries (-4% impact on the Group’s effective tax rate). The low taxation of the gain on the sale of our participation in the joint venture we previously managed with Titan in Egypt (3 million euros) also contributed positively. Income from discontinued operations   EUR 0 million at end of June 2008 ( EUR 131 million in 2007) EUR 0 million in the second quarter of 2008 ( EUR 0 million in 2007) In compliance with IFRSs guidance, the Roofing division, following its divestment on February 28, 2007, was presented in the 2007 Group’s profit and loss statement until this date as discontinued operations. The gain on the disposal, net of tax, realized in 2007 was also included in this line. In 2008, no asset is classified as discontinued operations. Minority interests   EUR 172 million at end of June 2008 ( EUR 115 million in 2007) EUR 103 million in the second quarter of 2008 ( EUR 80 million in 2007) The increase in minority interests is mainly due to a scope effect attributable to the Egyptian and Iraqi operations of Orascom. The impact of improved results in Morocco, Romania, Russia and Serbia were offset by our purchase of some minority interests’ stake in Heracles Cement. Net income, Group share   EUR 911 million at end of June 2008 ( EUR 934 million in 2007) EUR 761 million in the second quarter of 2008 ( EUR 572 million in 2007) Adjusted for the net gains realized on the disposals of Turkish assets and Roofing division in the first quarter of 2007, for the net gain on the disposal of our participation interest in the joint-venture with Titan in Egypt in the second quarter of 2008, and for the legal provision adjustment for the 2002 Gypsum case, net income for the first half of the year increased by 14.9% (or 100 million euros), reflecting improved operational performance partly offset by the additional finance costs incurred on the acquisition debt of Orascom Cement. The Orascom acquisition, including the after tax cost of its financing, had a positive impact on net profit. Earnings per share   EUR4.75 at end of June 2008 ( EUR5.38 in 2007) EUR3.96 in the second quarter of 2008 ( EUR3.31 in 2007) Adjusted for the net gains realized on the disposals of Turkish assets and Roofing division in 2007, of our participation in the joint-venture with Titan in Egypt in the second quarter of 2008 and for the legal provision adjustment for the 2002 Gypsum case, our earnings per share increased by 4% in the first half, compared to last year, slightly decreasing, by 2%, in the second quarter. The improved operating performance and the positive impact on net results of the Orascom acquisition offset the effect of the increased number of shares. The average number of shares outstanding during the first half of 2008 was 191.8 million compared to 173.7 million in the same period of 2007. This increase reflects the impact from January 23 of the reserved capital increase as part of the acquisition of Orascom operations. Cash flow statement Net cash provided by operating activities in the first half, increased by €43 million to €482 million (€439 million at the end of June 2007). This increase reflects improved operating results partly offset by increased payments for financial expenses, mainly related to the acquisition debt for Orascom cement. Net cash used in investing activities amounted to €6,656 million (vs. net cash provided by investing activities of €765 million in the first half of 2007). External development reflects mainly the acquisition of Orascom Cement on January 23. The total acquisition price of 8.3 billion euros (before deducting the acquired cash and including the acquisition of the remaining 50% stake in Grupo GLA from the former partner of Orascom) was financed through the issuance of 22.5 million shares for 2.5 billion euros and of a syndicated credit facility. For accounting purposes, the share issuance is considered as a non-cash transaction and therefore not reflected in the consolidated statement of cash flows. Sustaining capital expenditures decreased slightly, to 353 million euros (389 million euros in the first half of 2007). Capital expenditures for new capacity increased by 97%, to 663 million euros (336 million euros in the first half of 2007), reflecting mainly the acceleration of our internal development program in cement. These expenditures include major cement projects such as the extension of our capacities in China (42 million euros), the United States (34 million euros), Eastern India (31 million euros), South Africa (28 million euros), Poland (25 million euros), Ecuador (19 million euros), Morocco (19 million euros), Russia (11 million euros), Zambia (11 million euros), Chile (3 million euros), the reconstruction of our Aceh plant in Indonesia (25 million euros) and investments in the new capacities of Orascom Cement (134 million euros). Disposals of 321 million euros (2,387 million euros in the first half of 2007, primarily related to the sale of our Roofing Division to PAI Partners for 2.1 billion euros) mainly reflected the sale of our ownership interest in the joint venture we previously managed with Titan in Egypt, effective on May 6 (309 million euros before deducting the cash position of the company disposed of). Balance sheet statement At June 30, 2008 total equity stood at €13,902 million (€12,077 million at the end of December 2007) and net debt at €17,323 million (€8,685 million at the end of December 2007). The increase in equity reflects in particular the impact of the reserved share issuance related to the Orascom operations acquisition (2.5 billion euros), lowered by the non cash impact of translating our foreign subsidiaries assets into euros (negative impact of 1.0 billion euros in our equity), and dividend payments (0.9 billion euros). The increase of 8.6 billion euros of the net consolidated debt mainly results from the debt financed portion of the Orascom acquisition, the 1.8 billion euros of net debt assumed, funding for the dividend payment and the usual seasonality effect on our working capital requirement. Outlook for 2008 We maintain our positive market outlook for the full year, with continued growth in emerging markets and a stronger than expected volume slowdown in some developed markets (United States, Spain, UK). The fundamentals of our sector remain sound. There are considerable construction and infrastructure needs in emerging markets. We anticipate further growth in the world demand for cement. Lafarge is well armed to make the difference in 2008. We foresee another year of growth in our Aggregates & Concrete business. In light of further inflation in energy and transport, we continue to take all necessary steps to preserve our margins. Additionally, the cost reduction program will continue to generate substantial savings in 2008. The initial target of €340 million will be exceeded to reach more than €400 million by the end of 2008. We expect another increase in our earnings in 2008. We confirm our 2010 targets of earnings per share of more than €15, ROCE after tax of more than 12% and free cash flow of more than €3.5 billion. This report may contain forward-looking statements. Such forward-looking statements do not constitute forecasts regarding the Company’s results or any other performance indicator, but rather trends or targets, as the case may be. These statements are by their nature subject to risks and uncertainties as described in the Company’s annual report available on its Internet website (www.lafarge.com). These statements do not reflect future performance of the Company, which may materially differ. The Company does not undertake to provide updates of these statements. More comprehensive information about Lafarge may be obtained on its Internet website (www.lafarge.com), under Regulated Information. 3. Consolidated financial statements Consolidated statements of income   6 months       2nd quarter       December 31, (million euros, except per share data) 2008 2007 2008 2007 2007   Revenue 9,069 8,385 5,069 4,690 17,614 Cost of sales (6,609) (6,182) (3,523) (3,254) (12,700) Selling and administrative expenses (849) (843) (447) (421) (1,672) Operating income before capital gains, impairment, restructuring and other 1,611 1,360 1,099 1,015 3,242 Gains on disposals, net 191 164 189 16 196 Other operating income (expenses) (55) (82) (28) (42) (149) Operating income 1,747 1,442 1,260 989 3,289 Finance costs (504) (327) (268) (137) (652) Finance income 114 83 68 41 126 Income from associates 1 27 17 15 - Income from continuing operations before income tax 1,358 1,225 1,077 908 2,763 Income tax (275) (307) (213) (256) (725) Net income from continuing operations 1,083 918 864 652 2,038 Net income / (loss) from discontinued operations - 131 - - 118 Net income 1,083 1,049 864 652 2,156   Out of which : Group share 911 934 761 572 1,909 Minority interests 172 115 103 80 247             Earnings per share Net income - Group share Basic earnings per share 4.75 5.38 3.96 3.31 11.05 Diluted earnings per share 4.71 5.30 3.92 3.26 10.91   From continuing operations Basic earnings per share 4.75 4.62 3.96 3.31 10.37 Diluted earnings per share 4.71 4.55 3.92 3.26 10.24   From discontinued operations Basic earnings per share - 0.76 - - 0.68 Diluted earnings per share - 0.75 - - 0.67             Basic average number of shares outstanding (in thousands) 191,833 173,670 - - 172,718 The accompanying notes are an integral part of these consolidated financial statements. Consolidated balance sheets (million euros)   June 30,     At December 31, 2008 2007 2007 ASSETS         NON CURRENT ASSETS 31,191 21,135 21,490 Goodwill 14,101 7,604 7,471 Intangible assets 480 408 472 Property, plant and equipment 14,863 11,499 11,904 Investments in associates 328 361 331 Other financial assets 1,196 1,023 1,096 Derivative instruments - assets 44 36 5 Deferred income tax assets 179 204 211 CURRENT ASSETS 8,069 7,703 6,818 Inventories 2,100 1,709 1,761 Trade receivables 3,109 3,322 2,515 Other receivables 1,356 1,188 1,061 Derivative instruments - assets 110 59 52 Cash and cash equivalents 1,394 1,425 1,429 TOTAL ASSETS 39,260 28,838 28,308   EQUITY & LIABILITIES   Common stock 782 709 691 Additional paid-in capital 8,446 6,477 6,019 Treasury shares (58) (410) (55) Retained earnings 4,538 3,436 4,411 Other reserves (218) 129 36 Foreign currency translation (1,034) 244 (104) Shareholders’ equity - parent company 12,456 10,585 10,998 Minority interests 1,446 1,147 1,079 EQUITY 13,902 11,732 12,077 NON CURRENT LIABILITIES 18,895 11,699 10,720 Deferred income tax liability 850 661 695 Pension & other employee benefits liabilities 713 851 724 Provisions 958 1,042 928 Long-term debt 16,346 9,107 8,347 Derivative instruments - liabilities 28 38 26 CURRENT LIABILITIES 6,463 5,407 5,511 Pension & other employee benefits liabilities 60 87 79 Provisions 164 83 201 Trade payables 1,760 1,649 1,732 Other payables 1,761 1,587 1,553 Income tax payable 221 181 148 Short term debt and current portion of long-term debt 2,431 1,795 1,762 Derivative instruments - liabilities 66 25 36 TOTAL EQUITY AND LIABILITIES 39,260 28,838 28,308 The accompanying notes are an integral part of these consolidated financial statements. Consolidated statements of cash flows   6 months   2nd quarter   December 31, (million euros) 2008   2007 2008   2007 2007 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES           Net income 1,083 1,049 864 652 2,156 Net income / (loss) from discontinued operations - 131 - - 118 Net income from continuing operations 1,083 918 864 652 2,038 Adjustments for income and expenses which are non cash or not related to operating activities, financial expenses or income taxes: Depreciation and amortization of assets 505 468 252 238 941 Impairment losses 30 6 29 3 13 Income from associates (1) (27) (17) (15) - (Gains) on disposals, net (191) (164) (189) (16) (196) Finance costs (income) 390 244 200 96 526 Income taxes 275 307 213 256 725 Others, net 43 (71) 37 25 (238) Change in operating working capital items, excluding financial expenses and income taxes (see analysis below) (980) (845) (576) (616) (79) Net operating cash generated by continuing operations before impacts of financial expenses and income taxes 1,154 836 813 623 3,730 Cash payments for financial expenses (398) (178) (200) (13) (478) Cash payments for income taxes (274) (193) (118) (124) (550) Net operating cash generated by continuing operations 482 465 495 486 2,702 Net operating cash generated by discontinued operations - (26) - - (26) Net cash provided by operating activities 482 439 495 486 2,676   NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES Capital expenditures (1,051) (796) (617) (439) (2,113) Investment in subsidiaries and joint ventures (1) / (3) (5,891) (432) (209) (341) (604) Investment in associates (8) (221) (8) - (225) Investment in available for sale investments (3) (153) (3) (150) (228) Disposals (2) 321 2,387 300 42 2,492 Net decrease in long-term receivables (24) (5) (10) (11) (10) Net cash provided by (used in) investing activities from continuing operations (6,656) 780 (547) (899) (688) Net cash provided by (used in) investing activities from discontinued operations - (15) - - (15) Net cash provided by (used in) investing activities (6,656) 765 (547) (899) (703)   NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES Proceeds from issuance of common stock (3) 12 44 7 27 76 Minority interests' share in capital increase/(decrease) of subsidiaries 11 23 11 19 (23) (Increase)/decrease in treasury shares (3) (338) (10) (8) (505) Dividends paid (784) (521) (784) (521) (521) Dividends paid by subsidiaries to minority interests (73) (100) (59) (95) (131) Proceeds from issuance of long-term debt 8,115 882 2,633 812 1,279 Repayment of long-term debt (357) (1,165) (73) - (2,239) Increase (decrease) in short-term debt (691) 193 (1,582) 148 359 Net cash provided by (used in) financing activities from continuing operations 6,230 (982) 143 382 (1,705) Net cash provided by (used in) financing activities from discontinued operations - 41 - - 41 Net cash provided by (used in) financing activities 6,230 (941) 143 382 (1,664) The accompanying notes are an integral part of these consolidated financial statements.   6 months   2nd quarter   December 31, (million euros) 2008   2007 2008   2007 2007 Increase / (decrease) in cash and cash equivalents from continuing operations 56 263 91 (31) 309 Net effect of foreign currency translation on cash and cash equivalents (91) 7 (9) 12 (35) Cash and cash equivalents at beginning of year 1,429 1,155 1,312 1,444 1,155 Cash and cash equivalents at end of the year 1,394 1,425 1,394 1,425 1,429 (1) Net of cash and cash equivalents of companies acquired 283 8 47 4 10 (2) Net of cash and cash equivalents of companies disposed of 28 16 28 - 16   (3) The provisional Orascom Cement purchase price of 8,338 million euros is shown net of the capital increase subscribed by the major shareholders of OCI in relation with this acquisition (2,492 million euros) on the line "investment in subsidiaries and joint ventures". The share issuance is considered as a non-cash transaction and therefore not reflected on the line "Proceeds from issuance of common stock". Please refer to Note 3.   SUPPLEMENTAL DISCLOSURES Analysis of changes in operating working capital items (Increase) in inventories (239) (81) (110) (35) (201) (Increase) in trade receivables (577) (626) (469) (595) 126 (Increase) / decrease in other receivables – excluding financial and income taxes receivables (69) (9) (59) 15 5 Increase / (decrease) in trade payables (66) 14 10 99 131 Increase / (decrease) in other payables – excluding financial and income taxes payables (29) (143) 52 (100) (140) The accompanying notes are an integral part of these consolidated financial statements. Consolidated statements of changes in equity   Outstanding shares   of which: Treasury shares   Common stock Additional paid-in capital   Treasury shares   Retained earnings   Other reserves   Foreign currency translation   Share-holders’ equity – Parent company   Minority interests   Equity     (number of shares) (million euros) Balance at January 1, 2007 176,625,142 1,372,260   707 6,420 (72) 3,023 31 205 10,314 1,380 11,694 Income and expenses recognized directly in equity - - - - - 98 39 137 2 139 Net income 934 934 115 1,049 Total recognized income and expense for the period - -   - - - 934 98 39 1,071 117 1,188 Dividends (521) (521) (123) (644) Issuance of common stock (exercise of stock options) 527,254 2 42 44 44 Share based payments 15 15 15 Treasury shares 2,955,814 (338) (338) (338) Other movements – minority interests                   - (227) (227) Balance at June 30, 2007 177,152,396 4,328,074   709 6,477 (410) 3,436 129 244 10,585 1,147 11,732                             Balance at January 1, 2008 172,564,575 657,233   691 6,019 (55) 4,411 36 (104) 10,998 1,079 12,077 Income and expenses recognized directly in equity - - - - - - (254) (930) (1,184) (85) (1,269) Net income 911 911 172 1,083 Total recognized income and expense for the period - -   - - - 911 (254) (930) (273) 87 (186) Dividends (784) (784) (97) (881) Issuance of common stock (exercise of stock options) 162,493 1 11 12 12 Issuance of common stock 22,500,000 90 2,402 2,492 2,492 Share based payments 14 14 14 Treasury shares 42,872 (3) (3) (3) Other movements – minority interests                   - 377 377 Balance at June 30, 2008 195,227,068 700,105   782 8,446 (58) 4,538 (218) (1,034) 12,456 1,446 13,902 The accompanying notes are an integral part of these consolidated financial statements. Consolidated statement of income and expenses   June 30, 2008   June 30, 2007   December 31, 2007             (million euros) Group share Minority interests Total Group share Minority interests Total Group share Minority interests Total Net income 911 172 1,083 934 115 1,049 1,909 247 2,156   Available for sale investments (217) - (217) 59 - 59 (29) - (29) Cash-flow hedge instruments 54 - 54 21 - 21 12 - 12 Actuarial gains / (losses) (88) - (88) 45 (1) 44 34 (1) 33 Deferred taxes and others (3) - (3) (27) - (27) (12) - (12) Change in translation adjustments (930) (85) (1,015) 39 3 42 (309) (45) (354) Income and expenses recognized directly in equity (1,184) (85) (1,269) 137 2 139 (304) (46) (350)                     Total recognized income and expense for the period (273) 87 (186) 1,071 117 1,188 1,605 201 1,806 The accompanying notes are an integral part of these consolidated financial statements. The available for sale investments variation mainly relates to the change in the fair value of the shares of Cimentos de Portugal (CIMPOR), based on the market value as of June 30, 2008. The difference with the historical cost, considered by the Group as temporary, is -111 million euros. Notes to the consolidated financial statements Note 1. Business description Lafarge S.A. is a French limited liability company (société anonyme) governed by French law. Our commercial name is "Lafarge”. The company was incorporated in 1884 under the name "J et A Pavin de Lafarge”. Currently, our by-laws state that the duration of our company is until December 31, 2066, and may be amended to extend our corporate life. Our registered office is located at 61 rue des Belles Feuilles, 75116 Paris, France. The company is registered under the number "542105572 RCS Paris” with the registrar of the Paris Commercial Court (Tribunal de Commerce de Paris). The Group organizes its operations into three divisions: Cement, Aggregates & Concrete and Gypsum. The Group’s shares have been traded on the Paris stock exchange since 1923 and have been a component of the French CAC-40 market index since its creation, and also included in the SBF 250 index. As used herein, the terms "Lafarge S.A.” or the "parent company” refer to Lafarge "a société anonyme” organized under French law, without its consolidated subsidiaries. The terms the "Group” or "Lafarge” refer to Lafarge S.A. together with its consolidated companies. The Board of Directors examined these interim financial statements on July 31, 2008. Note 2. Summary of significant accounting policies The half year Group consolidated financial statements at June 30, 2008 have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. They do not include all the IFRS required information and should therefore be read in connection with the 2007 annual report. The accounting policies retained for the preparation of the half year consolidated financial statements are compliant with the International Financial Reporting Standards ("IFRS”) as endorsed by the European Union as at June 30, 2008 and available on http://ec.europa.eu/internal_market/accounting/ias_fr.htm# adopted-commission. (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.) These accounting policies are consistent with the ones applied by the Group at December 31, 2007 and described in the Note 2 of the 2007 annual report, with the exception of IFRIC 11 IFRS 2 - Group and treasury shares transactions. This interpretation has no impact on the Group consolidated financial statements. These accounting policies do not differ from the IFRS published by the IASB as the interpretations of existing standards, presented hereafter, with an effective application as at January 1, 2008 and once approved by the European Union, will not have any impact on the Group consolidated financial statements: IFRIC 12, Service Concession Arrangements IFRIC 14 IAS 19, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Standards, amendments and Interpretations to existing standards that are not yet effective have not been early adopted by the Group. The measurement procedures used for the interim condensed consolidated financial statements are the followings: Interim period income tax expense results from the estimated annual Group effective income tax rate applied to the pre-tax result of the interim period excluding unusual material items. This estimated annual tax rate takes into consideration, in particular, the expected impact of tax planning operations. The income tax charge related to any unusual item of the period is accrued using its specific applicable taxation (i.e. specific taxation for gains on disposals). Compensation costs recorded for stock options, employee benefits are included on a prorate basis of the estimated costs for the year. Note 3. Significant operations 3.1 – Acquisition of Orascom Cement On January 23, 2008, the Group acquired 100% of the share capital and voting rights of the Orascom Building Materials Holding S.A.E ("Orascom Cement”). Orascom Cement is a leading cement manufacturer in the emerging markets (Egypt, Algeria, the United Arab Emirates and Iraq), and has strategic positions in other fast-growing markets in the region: Saudi Arabia, Syria and Turkey. Details of provisional net assets acquired and goodwill are as follows: (Million euros)   Provisional purchase price consideration 8,338 Provisional fair value of net assets acquired 1,122 Provisional goodwill at June 30, 2008 7,216 The purchase price is provisional and could still be adjusted to take into account the terms of the acquisition contract signed between Lafarge and Orascom Cement shareholders. It has increased during the second quarter further to the acquisition of Grupo GLA. The provisional purchase price consideration as per June 30, 2008, is determined as follows: Price paid in cash to Orascom Cement shareholders: 5,790 million euros at end of June 2008 including the provisional effect of contractual price adjustments and the price paid related to Grupo GLA (50% paid to Orascom Cement shareholders and 50% paid to the former partner of Orascom Cement) (effective date of acquisition: April 1st, 2008); Fair value of 22,500,000 new shares issued for the major shareholders of OCI, calculated on the basis of Lafarge’s share price at the acquisition date (market closing price: 110.76 euros per share): 2,492.1 million euros; Provisional costs directly related to the acquisition: 56 million euros. The consolidated statement of cash flows only reflects the part of the price paid in cash and the acquisition-related costs on the line "investment in subsidiaries and joint ventures”. The share issuance is considered as a non-cash transaction and therefore not reflected in the consolidated statement of cash flows. The goodwill is mainly attributable to the high profitability of the acquired business, market shares and to the expected synergies in terms of industrial performance and logistics network which are not separately recognized. The Orascom Cement businesses contributed revenues of 639 million euros and net income (Group share) of 154 million euros to the Group for the period from January 23, 2008 to June 30, 2008. The table below presents Group’s revenues, net income and main financial indicators if the acquisition had occurred on January 1st, 2008 (the amounts have been determined assuming the fair value adjustments as at January 23, 2008 would have been the same as at January 1, 2008): (millions euros)   6 months period from January 1st 2008 to 30 June 2008   Revenue 9,120   Operating income before capital gains, impairment, restructuring and other 1,637   Operating income 1,773   Finance income / (loss) net (411)     Net income - Group share 910     Basic earnings per share (Group share) 4,68 The provisional fair value of assets and liabilities arising from the acquisition are as foolows: (millions euros)   Fair value   Carrying value prior to acquisition (1)   Intangible assets 33 71 Property, plant and equipment 3,323 2,425 Inventories 216 212 Trade receivables 90 91 Other assets 266 260 Cash and cash equivalents 259 259   Provisions (37) (9) Debt (2,035) (2,035) Trade payables (158) (158) Other liabilities (426) (258) Minority interests (409) (225)     Total net assets acquired 1,122 633   Purchase consideration settled in cash 5,790 Purchase consideration settled in shares 2,492 Acquisition costs 56 Provisional purchase price 8,338   Cash and cash equivalents acquired (259) Purchase consideration settled in shares (2,492)   Cash outflow on acquisition 5,587 (1) corresponds to the carrying amounts of the assets and liabilities as of January 22, 2008 of the subsidiaries of Orascom Cement consolidated as of June 30, 2008. The figures have been converted to € using the closing rates at January 22, 2008 3.2 – Divestment of our stake in Lafarge Titan Egypt Investments Limited On May 6, 2008, the Group sold its 50% stake in Lafarge Titan Egypt Investments Limited, the holding company for our former joint venture with Titan in Egypt for a net amount of 309 million euros, before deduction of the cash disposed of, disclosed on the line « Disposals » in the statement of cash flows. The taxation of the related gain on sale was limited to 3 million euros, which impacts positively the effective tax rate of the period. Note 4. Business segment and geographic area information Operating segments are defined as components of an enterprise that are engaged in providing products or services and that are subject to risks and returns that are different from those of other business segments. The Group operates in the following three business segments - Cement, Aggregates & Concrete and Gypsum - each of which represents separately managed strategic business segments that have different capital requirements and marketing strategies. Each business segment develops, manufactures and sells distinct products. The Cement segment produces and sells a wide range of cement and hydraulic binders adapted to the needs of the construction industry. The Aggregates & Concrete segment produces and sells aggregates, ready mix concrete, other concrete products and other products and services related to paving activities. The Gypsum segment mainly produces and sells drywall for the commercial and residential construction sectors. Group management internally evaluates its performance based upon operating income before capital gains, impairment, restructuring and other, share in net income of associates and capital employed (defined as the total of goodwill, intangible and tangible assets, investments in associates and working capital) as disclosed in its business segment and geographic area information. Other and holding activities, not allocated to our core business segments, are summarized in the "other” segment. Starting 2007, this segment also includes the income from associates related to our share in Monier (Roofing activity). The accounting policies applied to segment earnings comply with those described in Note 2 to the Consolidated Financial Statements of the 2007 annual report. The Group accounts for intersegment sales and transfers at market prices. As the Group’s primary segment reporting is business segment as described above, the secondary information is reported geographically with revenue presented by region or country of destination of the revenue. Following the Orascom Cement acquisition in the first quarter 2008, the Group adjusted the presentation of its geographical information for all periods presented: Western Europe, North America, Central and Eastern Europe, Latin America and Asia remain unchanged. The former Mediterranean Basin is transformed into a "Middle East” region after the reclassification of Algeria and Morocco to the new "Africa” which replaces the former Sub-Saharan Africa. The countries of the ex-Orascom operations will be classified as follows: Egypt, Iraq, UAE and Turkey in the Middle East Algeria and Nigeria in Africa North Korea and Pakistan in Asia Spain in Western Europe (a) Business segment information June 30, 2008 (million euros)   Cement   Aggregates & Concrete   Gypsum   Other   Total   Statement of income Gross revenue 5,730 2,933 801 18 9,482 Less: intersegment (396) (3) (13) (1) (413) Revenue 5,334 2,930 788 17 9,069   Operating income before capital gains, impairment, restructuring and other 1,380 237 31 (37) 1,611 Gains on disposals, net 186 1 - 4 191 Other operating income (expenses) (25) 10 (4) (36) (55) Including impairment on assets and goodwill (29) (1) - - (30) Operating income 1,541 248 27 (69) 1,747 Finance costs (504) Finance income 114 Income from associates 7 7 8 (21) 1 Income taxes         (275) Net income from continuing operations           1,083 Net income from discontinued operations - - - - - Net income         1,083   Other information Depreciation and amortization (327) (121) (39) (18) (505) Other segment non cash income (expenses) of operating income (10) 3 (4) (12) (23) Capital expenditures 740 224 59 28 1,051 Capital employed 24,471 5,297 1,539 1,288 32,595   Balance Sheet Segment assets 28,023 6,748 1,902 1,907 38,580 Of which investments in associates 124 61 114 29 328 Unallocated assets (a)         680 Total Assets         39,260   Segment liabilities 2,632 1,208 375 1,422 5,637 Unallocated liabilities and equity (b)         33,623 Total Equity and Liabilities         39,260 (a) Deferred tax assets, derivative instruments and provisional goodwill non yet allocated (b) Deferred tax liability, financial debt, derivatives instruments and equity June 30, 2007 (million euros)   Cement   Aggregates & Concrete   Gypsum   Other   Total   Statement of income Gross revenue 4,974 3,002 826 6 8,808 Less: intersegment (406) (5) (12) - (423) Revenue 4,568 2,997 814 6 8,385   Operating income before capital gains, impairment, restructuring and other 1,070 244 82 (36) 1,360 Gains on disposals, net 148 2 - 14 164 Other operating income (expenses) (51) (22) (2) (7) (82) Including impairment on assets and goodwill (4) - - (2) (6) Operating income 1,167 224 80 (29) 1,442 Finance costs (327) Finance income 83 Income from associates 5 7 13 2 27 Income taxes         (307) Net income from continuing operations           918 Net income from discontinued operations - - - 131 131 Net income         1,049   Other information Depreciation and amortization (289) (128) (35) (16) (468) Other segment non cash income (expenses) of operating income (46) (13) (2) 31 (30) Capital expenditures 457 208 111 20 796 Capital employed 15,703 5,021 1,588 362 22,674   Balance Sheet Segment assets 18,418 6,008 1,965 2,148 28,539 Of which investments in associates 106 59 105 91 361 Unallocated assets (a)         299 Total Assets         28,838   Segment liabilities 2,291 1,290 363 1,536 5,480 Unallocated liabilities and equity (b)           23,358 Total Equity and Liabilities         28,838 (a) Deferred tax assets and derivative instruments (b) Deferred tax liability, financial debt, derivatives instruments and equity December 31, 2007 (million euros)   Cement   Aggregates & Concrete   Gypsum   Other   Total   Statement of income Gross revenue 10,280 6,597 1,581 16 18,474 Less: intersegment (824) (11) (25) - (860) Revenue 9,456 6,586 1,556 16 17,614   Operating income before capital gains, impairment, restructuring and other 2,481 721 116 (76) 3,242 Gains on disposals, net 156 10 - 30 196 Other operating income (expenses) (128) (38) (32) 49 (149) Including impairment on assets and goodwill (9) (1) (1) (2) (13) Operating income 2,509 693 84 3 3,289 Finance costs (652) Finance income 126 Income from associates 13 14 19 (46) - Income taxes         (725) Net income from continuing operations         2,038 Net income from discontinued operations - - - 118 118 Net income         2,156   Other information Depreciation and amortization (578) (258) (73) (32) (941) Other segment non cash income (expenses) of operating income (22) (9) (15) 56 10 Capital expenditures 1,312 541 201 59 2,113 Capital employed 15,399 4,798 1,482 403 22,082   Balance Sheet Segment assets 18,094 6,065 1,854 2,027 28,040 Of which investments in associates 115 57 103 56 331 Unallocated assets (a)         268 Total Assets         28,308   Segment liabilities 2,334 1,205 368 1,458 5,365 Unallocated liabilities and equity (b)         22,943 Total Equity and Liabilities         28,308 '(a) Deferred tax assets and derivative instruments '(b) Deferred tax liability, financial debt, derivatives instruments and equity (b) Geographic area information   June 30, 2008       June 30, 2007       December 31, 2007 Revenue   Capital expenditure Segment assets Revenue   Capital expenditure Segment assets Revenue   Capital expenditure   Segment assets (million euros)                   Western Europe 3,207 228 11,979 3,181 216 10,974 6,285 606 10,872 Of which: France 1,445 102 4,161 1,375 98 3,509 2,676 264 3,628 United Kingdom 653 63 2,574 734 67 2,776 1,487 196 2,707 Spain 383 23 1,803 368 20 1,002 703 47 994 North America 1,764 215 6,978 2,068 241 7,797 4,780 485 7,177 Of which: United States 991 121 5,107 1,309 177 6,381 2,709 336 5,324 Canada 773 94 1,871 759 64 1,416 2,071 149 1,853 Middle East 630 118 5,454 256 25 961 527 78 878 Central and Eastern Europe 853 118 2,350 643 101 1,739 1,467 290 1,992 Latin America 483 49 1,719 424 24 1,465 876 114 1,502 Africa 1,164 185 6,303 938 91 1,917 1,911 261 1,904 Asia 968 138 3,797 875 98 3,686 1,768 279 3,715 Total 9,069 1,051 38,580 8,385 796 28,539 17,614 2,113 28,040 Note 5. Earnings per share The computation and reconciliation of basic and diluted earnings per share from continuing operations for the periods ended June 30, 2008, June 30, 2007 and December 31, 2007 are as follows:   6 months   December 31,         2008 2007 2007 Numerator (in million euros) Net income from continuing operations - Group share 911 803 1,791   Denominator (in thousands of shares) Weighted average number of shares outstanding 191,833 173,670 172,718 Effect of dilutive securities — stock options 1,497 2,687 2,256 Total potential dilutive shares 1,497 2,687 2,256 Weighted average number of shares outstanding — fully diluted 193,330 176,357 174,974   Basic earnings per share from continuing operations (euros) 4.75 4.62 10.37 Diluted earnings per share from continuing operations (euros) 4.71 4.55 10.24 Note 6. Debt The debt split is as follows:   June, 30   December 31,         (million euros) 2008 2007 2007 Long-term debt excluding put options on shares of subsidiaries 16,195 8,901 8,025 Put options on shares of subsidiaries, long-term 151 206 322 Long-term debt 16,346 9,107 8,347 Short-term debt and current portion of long-term debt excluding put options on shares of subsidiaries 2,068 1,684 1,614 Put options on shares of subsidiaries, short-term 363 111 148 Short-term debt and current portion of long-term debt 2,431 1,795 1,762 Total debt excluding put options on shares of subsidiaries 18,263 10,585 9,639 Total put options on shares of subsidiaries 514 317 470 Total debt 18,777 10,902 10,109 Analysis of debt excluding Put options on shares of subsidiaries by maturity:   June 30,   December 31,         (million euros) 2008 2007 2007 Repayable in more than five years 5,241 6,700 4,305 Repayable between one and five years 10,954 2,201 3,720 Long-term debt 16,195 8,901 8,025 Short-term debt and current portion of long-term debt 2,068 1,684 1,614 Total debt 18,263 10,585 9,639 At June 30, 2008, 2,073 million euros of short-term debt (mainly commercial paper and other short-term borrowings) have been classified as long-term based upon the Group’s ability to refinance these obligations on a medium and long-term basis using its committed credit facilities. This short-term debt that the Group can refinance on a medium and long-term basis through its committed credit facilities is classified in the balance sheet under the section « Long-term debt ». The net variation of this short-term debt is shown in the cash flow statement in « proceeds from issuance of long-term debt » when it is positive, and in « repayment of long-term debt » when it is negative. At June 30, 2008, the net variation of this debt amounted to an increase of 880 million euros (compared to a decrease of 586 million euros at June 30, 2007 and 1,161 million euros at December 31, 2007). Financing of Orascom Cement acquisition The Group entered into a 7.2 billion euros acquisition credit facility with Calyon, BNP Paribas and Morgan Stanley on December 9, 2007 for the financing of the cash portion of the acquisition of Orascom Cement, and the refinancing of part of its existing indebtedness. This credit facility, which was syndicated in February 2008 with 30 banks participating to the syndicate, consists in several tranches, maturing in one year for 1.8 billion euros (reduced to 300 millions euros), two years for 2.3 billion euros and 5 years for 3.1 billion euros. Following the purchase of Orascom Cement shares in January 2008 and the May 2008 partial refinancing, the amount drawn under the acquisition credit facility stood at 5,668 million euros as at June 30, 2008. On May 28, 2008, an amount of 1.5 billion euros on tranche A1 (one-year maturity) of the acquisition credit facility was refinanced by a bond issue split into 2 tranches of 750 million euros each, the first one maturing in May 2011 and the second one maturing in May 2015. The net proceeds of this bond issue were applied to reduce the bank commitments on tranche A1 of the acquisition credit facility from 1.8 billion euros down to 300 million euros. Average spot interest rate The average spot interest rate of the debt after swaps, as at June 30, 2008, is 5.4% (5.8% as of June 30, 2007 and 5.8% as of December 31, 2007). Securitization programs In January 2000, the Group entered into a multi-year securitization agreement in France with respect to trade receivables. This program was renewed in 2005 for a 5-year period. Under the program, the subsidiaries agree to sell on a revolving basis, some of their accounts receivables. Under the terms of the arrangement, the subsidiaries involved in these programs do not maintain control over the assets sold and there is neither entitlement nor obligation to repurchase the sold receivables. In these agreements, the purchaser of the receivables, in order to secure his risk, only finance a part of the acquired receivables as it is usually the case for similar commercial transactions. As risks and benefits cannot be considered as being all transferred, these programs do not qualify for derecognition of receivables, and are therefore accounted for as secured financing. Trade receivables therefore include sold receivables totaling 265 million euros as of June 30, 2008 (265 million euros as of June 30, 2007 and 265 million euros as of December 31, 2007). The current portion of debt includes 230 million euros as of June 30, 2008, related to these programs (230 million euros as of June 30, 2007 and 230 million euros as of December 31, 2007). The agreements are guaranteed by subordinated deposits totaling 35 million euros as of June 30, 2008 (35 million euros as of June 30, 2007 and 35 million euros as of December 31, 2007). The Group owns no equity share in the special purpose entities. Put options on shares of subsidiaries As part of the acquisition process of certain entities, the Group has granted third party shareholders the option to require the Group to purchase their shares at predetermined conditions. These shareholders are either international institutions, such as the European Bank for Reconstruction and Development, or private investors, which are essentially financial or industrial investors or former shareholders of the acquiring entities. Assuming that all of these options were exercised, the purchase price to be paid by the Group, including debt and cash acquired, would amount to 556 million euros at June 30, 2008 (506 million euros at December 31, 2007). Out of the outstanding debt at June 30, 2008, 391 million euros and 61 million euros can be exercised in 2008 and 2009, respectively. The remaining 104 million euros can be exercised starting 2010. Put options granted to minority interests of subsidiaries are classified as debt. Out of the total options granted by the Group, the options granted to minority interests amounted to 514 million euros at June 30, 2008 (470 million euros at December 31, 2007), the remaining options were granted on shares of associates or joint ventures. This specific debt is recorded by reclassifying the underlying minority interests and recording goodwill in an amount equal to the difference between the carrying value of minority interests and the value of the debt (respectively 323 million euros at June 30, 2008 and 306 million euros at December 31, 2007). Note 7. Dividends distributed The following table indicates the dividend amount per share the Group distributed for the year 2007 in 2008 and the dividend amount per share distributed for the year 2006 in 2007. (euros, except total dividend distribution)   2007 approved in 2008   2006 approved in 2007 Total dividend distribution (million euros) 784 521 Base dividend per share 4.00 3.00 Increased dividend per share 4.40 3.30 Note 8. Legal and arbitration proceedings On July 8, 2008, the Court of First Instance in Luxembourg confirmed the decision of the European Commission imposing a fine on Lafarge in the amount of 249,6 million euros for having colluded on market shares and prices with competitors between 1992 and 1998 for wallboard, essentially in the United Kingdom and Germany. Lafarge is evaluating the actions to be taken following this decision. Following investigations on the German cement market, the German competition authority, the Bundeskartellamt, announced on April 14, 2003, that it was imposing fines on German cement companies, including one in the amount of 86 million euros on Lafarge Zement, our German cement subsidiary for its alleged anti-competitive practices in Germany. Lafarge Zement believes that the amount of the fine is disproportionate in light of the actual facts and has brought the case before the Higher Regional Court, the Oberlandesgericht, in Düsseldorf. On August 15, 2007, Lafarge Zement partially withdrew its appeal and paid an amount of 16 million euros on November 2, 2007. The Court’s decision related to the remaining part of the appeal is not expected before 2009. No further payment nor any guarantee is required to be made or given prior to the court’s decision. A provision of 300 million euros was recorded in 2002 in connection with these litigations. Following the payment of 16 million euros by Lafarge Zement on November 2, 2007, the existing provision has been decreased by this amount, as at December 31, 2007. The provision was increased by 36 million euros as of June 30, 2008 following the decision of the Court of First Instance in Luxembourg on July 8, 2008. Additional provisions were recorded in each of our annual financial statements since 2003 in relation to the interest on part of these amounts for a total amount of 65 million euros at June 30, 2008. On December 5, 2007 the Bundeskartellamt notified Lafarge Dachsystem of its intention to fine the main companies in the roofing business for the infringement of the German competition rules. This decision follows the investigations that were carried out by the Bundeskartellamt in the premises of such companies in November 2006. Since then Lafarge Dachsystem has been sold to PAI and Partners and Lafarge granted a guarantee covering the fines, which Lafarge Dachsystem could be exposed to in the context of these proceedings, to the extent that the alleged practices took place before the date of the sale. The decision of the Bundeskartellamt is expected during the course of September 2008. A provision of 20 million euros was recorded in our financial statements for the year ended December 31, 2007. It has been adjusted to 17,2 million euros to take into account certain developments. In late 2005, several class action lawsuits were filed in the United States District Court for the Eastern District of Louisiana. In their complaints, plaintiffs allege that our subsidiary, Lafarge North America Inc., and several other defendants are liable for death, bodily and personal injury and property and environmental damage to people and property in and around New Orleans, Louisiana, which they claim resulted from a barge that allegedly breached the Industrial Canal levee in New Orleans during or after Hurricane Katrina. Additionally, one of Lafarge North America Inc.’s insurers, the American Steamship Owners Mutual P&I Association, has filed a suit against it in the United States District Court for the Southern District of New York seeking a declaratory judgment to the effect that these claims are not covered under its insurance policy. Lafarge North America Inc. intends to vigorously defend itself in these actions. Lafarge North America Inc. believes that the claims against it are without merit and that these matters will not have a materially adverse effect on its results of operations, cash flows and financial position. Finally, certain of our subsidiaries have litigation and claims pending in the normal course of business. Management is of the opinion that these matters will be resolved without any significant effect on the Company’s and/or the Group's financial position, results of operations and cash flows. To the Company's knowledge, there are no other governmental, legal or arbitration proceedings which may have or have had in the recent past significant effects on the Company and/or the Group's financial position or profitability. Note 9 Commitments and Contingencies The procedures implemented by the Group allow all the major commitments to be collated and prevent any significant omissions. a) Collateral guarantees and other guarantees The following details collateral guarantees and other guarantees provided by the Group: (million euros)   June 30, 2008   December 31, 2007 Securities and assets pledged 239 43 Property collateralizing debt 395 288 Guarantees given 256 215 Total 890 546 The Group has granted indemnification commitments in relation to disposals of assets. Its exposure under these commitments is considered remote. The total amount of capped indemnification commitments still in force at June 30, 2008 is 617 million euros (319 million euros at end of December 2007). Further to the Orascom Cement acquisition, the Group has received indemnification commitments of 2 240 million euros. b) Contractual obligations The following details the Group’s significant contractual obligations. Payments due per period (million euros) Less than 1 year 1 to 5 years   More than 5 years June 30, 2008   December 31, 2007 Debt (1) 2,068 10,954   5,241 18,263   9,639 of which finance lease obligations 13 36 13 62 46 Scheduled interest payments (2) 862 2,330 1,492 4,684 3,355 Net scheduled obligation on interest rate swaps (3) 6 15 (9) 12 43 Operating leases 199 510 345 1,054 942 Capital expenditures and other purchase obligations 1,211 1,146 311 2,668 2,283 Other commitments 397   35   37   469   166 Total 4,743   14,990   7,417   27,150   16,428   (1) Debt excluding put options on shares of subsidiaries (see Note 7) (2) Scheduled interest payments associated with variable rate are computed on the basis of the rates in effect at June 30. Scheduled interest payments include interest payments on foreign exchange derivative instruments, but do not include interests on commercial papers which are paid in advance. (3) Scheduled interest payments of the variable leg of the swaps are computed based on the rates in effect at June 30 The Group leases certain land, quarries, building and equipment. Total rental expense under operating leases was 116 million euros and 186 million euros for the periods ended June 30, 2008 and December 31, 2007, respectively. Future expected funding requirements or benefit payments related to our pension and postretirement benefit plans are not included in the above table, because future long-term cash flows in this area are uncertain. Refer to the amount reported under the "current portion” of pension and other employee benefits liabilities in the balance sheet or in note 23 to the Consolidated Financial Statements of the 2007 annual report for further information on these items. c) Other commitments The following details the other commitments of the Group. (million euros)   June 30, 2008   December 31, 2007       Unused confirmed credit lines and acquisition lines (1) 2,648 10,269 Put option to purchase shares in associates or joint ventures 42 36 Total 2,690 10,305 (1) including on December 31, 2007 the acquisition facility of 7,2 billion euros set up for the acquisition of Orascom Cement and not yet drawn at that date Note 10. Transactions with related parties Further to the acquisition of Orascom Cement, a cooperation agreement between Lafarge S.A. and OCI will ensure both Groups to benefit from mutual synergies in connection with the construction of new cement plants and the expansion of existing cement plants. The long-term partnership of Lafarge with the major founding shareholders of OCI is also reinforced by their participation in the capital of Lafarge through a ten-year shareholders agreement and the appointment of two representatives to the Board of Lafarge. Note 11. Subsequent events On July 8, 2008, the Court of First Instance in Luxembourg confirmed the decision of the European Commission imposing a fine on Lafarge in the amount of 249,6 million euros for having colluded on market shares and prices with competitors between 1992 and 1998 for wallboard, essentially in the United Kingdom and Germany (cf note 8). Certification We certify that, to our knowledge, the financial statements for the half year have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets and liabilities, and of the financial position and results of Lafarge and its consolidated subsidiaries, and that the half year management report attached provides a true and fair chart of significant events that occurred during the first six months of the year, their effect on the financial statements, the significant transactions with related parties and a description of the main risks and uncertainties for the next six months. Paris, July 31, 2008 French original signed by   French original signed by Jean-Jacques Gauthier Bruno Lafont Chief Financial Officer Chairman and Chief Executive Officer ** STATUTORY AUDITORS REVIEW REPORT ON FIRST-HALF YEAR FINANCIAL INFORMATION FOR 2008 Statutory auditors’ review report on first-half year financial information for 2008 (Free translation of a French language original) To the Shareholders, In compliance with the assignment entrusted to us by your Annual General Meeting and in accordance with the requirements of articles L. 232-7 of French Commercial Law ("Code de commerce”) and L. 451-1-2 III of the Monetary and Financial Code ("Code monétaire et financier”), we hereby report to you on: the review of the accompanying condensed half-year consolidated financial statements of Lafarge, for the period from January 1 to June 30, 2008, the verification of the information contained in the interim management report. These condensed half-year consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review. 1. Conclusion on the financial statements We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently can only provide moderate assurance that the financial statements, taken as a whole, do not contain any material misstatements. This level of assurance is less than that obtained from an audit. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-year consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information. 2. Specific verification We have also verified the information provided in the interim management report commenting the half-year financial statements that we reviewed. We have no matters to report as to its fair presentation and consistency with the condensed half-year financial statements. Neuilly-sur-Seine and Paris-La Défense, July 31, 2008 The Statutory Auditors French original signed by DELOITTE & ASSOCIES   ERNST & YOUNG Audit Arnaud de Planta   Jean-Paul Picard Christian Mouillon   Alain Perroux