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Annual Report2005 On Form 20-F Lafarge Annual Report On Form 20-F 2005 PRESENTATION OF INFORMATION “Growing markets”: all countries outside Western Europe and North America, except Japan, Australia and In this Annual Report, the following terms have the mea- New Zealand. nings indicated below: “Group” or “Lafarge”: Lafarge S.A. and its consolidated “Euro” or “€”: the currency of the European Union subsidiaries. member states participating in the European Monetary Union. “Company” or “Lafarge S.A.”: our parent company Lafarge S.A., a société anonyme organized under French “U.S. dollars” or “$”: the currency of the United States, 20unless otherwise indicated. law. “Division”: one of our four Divisions: Cement, Aggregates “IFRS”: International Financial Reporting Standards & Concrete, Roofing and Gypsum. Each Division, as well “Tonne”: 1,000 kilograms, or 2,204 pounds, or 1,102 as our “Other activities”, constitutes a business segment short tons. for purposes of reporting our results of operations. Due to rounding of amounts and percentages for presen- “Business Unit”: a management organization for one tation in this annual report, some data may not total. of our four Divisions in one geographic area, generally one country. We publish our consolidated financial statements in euro. Solely for the convenience of the reader, this annual “ERP”: enterprise resource planning. report contains translations into U.S. dollars of certain “France”: the Republic of France. amounts in euros at the December 30, 2005 Noon Buying Rate of 1 euro = $1.1842. “E.U.”: the European Union. “United States”, the “U.S.” or the “U.S.A.”: the United States of America. Mère-Enfant hospital in Nantes, France, made with high performance self placing concrete Agilia®, created by Rémi Butler, architect. Photo credits: Claude Cieutat, Images et Concepts/Laurence Prat 1 SELECTED FINANCIAL DATA PAGE 2 2 RISK FACTORS PAGE 8 3 INFORMATION ON LAFARGE PAGE 16 4 OPerating and financial reVieW and ProsPects PAGE 42 5 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES PAGE 76 6 MAJOR SHAREHOLDERS PAGE 100 7 THE LISTING PAGE 102 8 OTHER INFORMATION PAGE 108 9 CONTROLS AND PROCEDURES PAGE 122 10 AUDITING MATTERS PAGE 128 EXHIBITS PAGE 132 SIGNATURE PAGE 133 CONSOLIDATED FINANCIAL STATEMENTS PAGE 134 CROSS-REFERENCE TO FORM 20-F ITEMS - CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements regarding prices and demand for our products, our financial results, our plans for investments, divestitures and geographic expansion, expected cost increases, including with respect 005to energy, and other matters. When used in this report, the words “aim(s)”, “expect(s)”, “intend(s)”, “will”, “may”, “believe(s)”, “anticipate(s)”, “seek(s)” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Specifically, statements herein regarding the future, including our strategy, plans, product and process developments, facility expansion and improvements, synergies, acquisitions, our ability to manage rising energy costs, partnerships and general business prospects are subject to uncertainty arising from numerous factors outside our control, including market conditions, raw material prices, currency fluctuations, customer demand, the actions of competitors and regulators, technological developments and other factors, as more fully set forth in Chapter 2 (Risk factors). Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report. We do not undertake, except as required by law, to update any forward-looking statements set forth in this annual report to reflect new information or subsequent events or circumstances. This document, together with the exhibits refered to herein, has been filed with the United States Securities and Exchange Commission on March 24, 2006 as our Annual Report on Form 20-F for the year ended December 31, 2005. Selected Financial1 Data P A G E 2 | LAFARGE A NNU A L REP O R T on F O R M 2 0 - F 2 0 0 5 SELECTED FINANCIAL DATA 1 You should read the following selected consolidated Impacts of the transition on the balance sheet at January 1, financial data together with Chapter 4 (Operating and 2004, the profit and loss for the year ended December 31, Financial Review and Prospects) and our consolidated 2004 and the balance sheet at December 31, 2004 are financial statements. presented and commented upon in Note 39 to our consolidated financial statements. In accordance with European Regulation no. 1606/2002 issued July 19, 2002, we have prepared our consolidated The first table below sets forth selected consolidated financial statements for the year ended December 31, financial data under IFRS at and for the years ended 2005, in accordance with the International Financial December 31, 2005 and 2004. The selected financial Reporting Standards (“IFRS”) endorsed by the European information is derived from our consolidated financial Union, which do not differ, for the Group, from IFRS statements, which have been audited by Deloitte & published by the International Accounting Standards Associés. The audited consolidated financial statements Board (“IASB”). at and for the years ended December 31, 2005 and 2004 appear at the end of this report. Until December 31, 2004, the Group’s consolidated financial statements were prepared in accordance with IFRS and French GAAP differ in some respects from the provisions of French accounting legislation and accounting principles generally accepted in the United standards (“French GAAP”). We have therefore restated States of America (“U.S. GAAP”). A description of the our consolidated financial information at and for the main differences between U.S. GAAP and IFRS is set year ended December 31, 2004, in accordance with forth in Notes 36 and 37 to our consolidated financial IFRS 1, on “First Time Adoption of IFRS”, and financial statements. information set forth in this Annual Report for the year The second table below sets forth selected financial ended December 31, 2004, may differ from information information under U.S. GAAP at and for the years ended previously published. December 31, 2005, 2004, 2003, 2002 and 2001. As a first-time adopter of IFRS at January 1, 2004, The third table below sets forth the dividend the Group has followed the specific prescriptions information. described in IFRS 1. The options selected for the purpose of the transition to IFRS are described in 1 the Notes to the consolidated financial statements. L A F A R G E A NNU A L REP O R T on F O R M 2 0 - F 2005 | PAGE 3 1 SELECTED FINANCIAL DATA PRIMARY IFRS ACCOUNTS AT OR FOR THE YEAR ENDED DECEMBER 31, 2005 2004 (MILLIONS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA) $ * € € STATEMENTS OF INCOME Revenue 18,910 15,969 14,436 Current operating income 2,791 2,357 2,201 Operating income 2,649 2,237 2,074 NET INCOME 1,686 1,424 1,334 Out of which: Group share 1,298 1,096 1,046 Minority interests 388 328 288 Basic earnings per share 7.57 6.39 6.26 Diluted earnings per share 7.51 6.34 6.13 BASIC AVERAGE NUMBER OF OUTSTANDING SHARES (IN THOUSANDS) 171,491 171,491 167,204 BALANCE SHEETS Non current assets 24,327 20,543 18,241 Current assets 8,706 7,352 6,259 TOTAL ASSETS 33,033 27,895 24,500 Shareholder’s equity - parent Company 11,555 9,758 7,782 Minority interests 3,045 2,571 2,119 Non current liabilities 11,410 9,635 9,774 Put options on shares of subsidiaries 311 263 299 Current liabilities 6,712 5,668 4,526 TOTAL EQUITY AND LIABILITIES 33,033 27,895 24,500 STATEMENTS OF CASH FLOWS Net cash provided by operating activities 2,233 1,886 1,877 Net cash (used in) investing activities (1,994) (1,684) (972) Net cash (used in) financing activities (219) (185) (854) Increase in cash and cash equivalents 20 17 51 * Amounts in U.S. dollars presented in the table have been translated solely for the convenience of the reader using the Noon Buying Rate on December 30, 2005 of €1 = $1.1842. P A G E 4 | LAFARGE A NNU A L REP O R T on F O R M 2 0 - F 2 0 0 5 SELECTED FINANCIAL DATA 1 U.S. GAAP AT OR FOR THE YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001 (MILLIONS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA) $* € € € € € STATEMENTS OF INCOME Revenue 17,886 15,104 13,371 12,468 13,406 12,434 Operating income 2,430 2,052 1,811 1,854 1,580 1,403 NET INCOME 1,299 1,097 987 831 436 702 Basic earnings per share 7.58 6.40 5.90 5.66 3.36 5.57 Diluted earnings per share 7.30 6.17 5.70 5.45 3.34 5.47 BASIC AVERAGE NUMBER OF OUTSTANDING SHARES (IN THOUSANDS) 171,491 171,491 167,204 146,891 129,629 125,974 BALANCE SHEETS Current assets 7,761 6,554 5,498 5,252 5,096 5,817 Non current assets 24,670 20,833 18,129 19,046 21,302 23,872 TOTAL ASSETS 32,431 27,387 23,627 24,298 26,398 29,689 Current liabilities 5,680 4,796 3,735 3,968 3,864 5,345 Non current liabilities 11,300 9,543 9,387 10,767 14,204 14,332 Minority interests 2,990 2,525 2,244 2,063 1,936 2,201 Shareholder’s equity 12,461 10,523 8,261 7,500 6,394 7,811 TOTAL EQUITY AND LIABILITIES 32,431 27,387 23,627 24,298 26,398 29,689 * Amounts in U.S dollars presented in the table have been translated solely for the convenience of the reader using the Noon Buying Rate on December 30, 2005 of €1 = $1.1842.