2007 annual report - document de référence

ANNUAL REPORT

Document de Référence

2007

02 GROUP PROFILE

07 1. SELECTED FINANCIAL DATA

11 2. RISK FACTORS

15 3. INFORMATION ON LAFARGE

37 4. OPERATING AND FINANCIALREVIEW AND PROSPECTS

79 5. DIRECTORS, SENIORMANAGEMENT ANDEMPLOYEES

105 6. MAJOR SHAREHOLDERS

109 7. THE LISTING

113 8. ADDITIONAL INFORMATION

121 9. CONTROLS AND PROCEDURES

127 10. AUDITING MATTERS

131 CERTIFICATION

F-1 FINANCIAL STATEMENTS

232 AMF CROSS-REFERENCE TABLE

This Annual Report has been filed in the French language

with the Autorité des marchés financiers on March 28, 2008

in accordance with article 212-13 of its General Regulations.

POURING EXTENSIA®,an innovating concrete which enables the construction of surface areas of up to 400 m² without joints, instead of 25 m² with conventional concrete, Lafarge Research Center.

2007 | ANNUAL REPORT – DOCUMENT DE RÉFÉRENCE | LAFARGE | PAGE 1

n this Annual Report, the following terms have the meanings indicated below:

“GROUP” or “LAFARGE” : Lafarge S.A. and its consolidated subsidiaries.

“COMPANY” or “LAFARGE S.A.”: our parent company Lafarge S.A., a société anonyme organized

under French law.

“DIVISION”: one of our three divisions: Cement, Aggregates & Concrete, and Gypsum. Each

Division, as well as our “Other activities” and our holdings, constitutes a business segment

for the purpose of reporting our results of operations.

“BUSINESS UNIT”: a management organization for one of our three Divisions in one

geographic area, generally one country.

“CONTINUING OPERATIONS”: the three Divisions: Cement, Aggregates & Concrete, and

Gypsum, as well as “Other activities” and holdings.

“DISCONTINUED OPERATIONS”: the Roofing Division, which we sold on February 28, 2007.

“ORASCOM CEMENT”: the cement activities of Orascom Construction Industries S.A.E held

by its subsidiary Orascom Building Materials Holding S.A.E. The latter was renamed Lafarge

Building Materials Holding Egypt on January 24, 2008.

“EMERGING MARKETS” or “GROWING MARKETS”: all countries outside Western Europe and

North America, except Japan, Australia and New Zealand.

“EXCELLENCE 2008”: detailed strategic plan of the Group presented on February 23, 2006.

Notably, this plan includes a cost reduction program.

“ERP”: Enterprise Resource Planning.

Due to rounding of amounts and percentages for presentation in this Annual Report, the

addition of data in text or charts may not total. Indeed totals include decimals.

i

Annual ReportDocument de Référence

2007

| LAFARGE | ANNUAL REPORT – DOCUMENT DE RÉFÉRENCE | 2007

ith earnings per share up 41%, in 2007, Lafarge demonstrated its ability to accelerate. The

Excellence 2008 objectives for growth in earnings per share and return on capital employed

were exceeded in 2007, a year early. The cost reduction program continues to generate

substantial savings in 2008. The target will be exceeded and should reach 400 million euros

by the end of 2008, instead of 340 million euros.

These results demonstrate the evolutive strength of Lafarge. Thanks to this position, the

Group is able to attract the growth of the emerging markets which have huge needs of

construction. Therefore, Lafarge is led to develop its innovating potential.

In 2007, 46% of the Group’s operating income came from emerging markets. The acqui-

sition of Orascom Cement, the cement activities of the Orascom group, in January 2008,

has reinforced our presence in the Middle East and the Mediterranean Basin as well as

our leadership in emerging markets. In the Concrete Division, market penetration of value

added products has increased, and their sales now contribute to more than 20% of ready-

mix volumes.

Lafarge has developed for many years, pursuing a sustainable development strategy that

combines industrial know-how with performance, value creation, respect for employees

and local cultures, environmental protection and the conservation of natural resources

and energy.

Lafarge is the only company in the construction materials sector to be listed in the 2008

‘100 Global Most Sustainable Corporations in the World’.

To make advances in building materials, Lafarge places the customer at the heart of its

concerns. It offers the construction industry and the general public innovative solutions

bringing greater safety, comfort and quality to their everyday surroundings.

Key Figures at December 31, 2007

SALES in million euros

17,614NUMBER OF PLANTS

1,972

w

LafargeWorld leader in building materials, Lafarge has top-ranking

positions in each of its businesses: world leader in Cement and Aggregates, and number 3 worldwide in Concrete and Gypsum. After the acquisition of Orascom Cement, completed on January 23, 2008, the Group has approximately 90,000 employees in 76 countries.

GROUP PROFILE



2007 17,614

2006 16,909

2005 14,490

OPERATING INCOME BEFORE CAPITAL GAINS, IMPAIRMENT, RESTRUCTURING AND OTHER (1) in million euros

2007 3,242

2006 2,772

2005 2,246

RETURN ON CAPITAL EMPLOYED (2) in %

2007 11.0

2006 9.4

2005 8.5

GROUP NET DEBT (3) in million euros

2007 8,685

2006 9,845

2005 7,221

NET INCOME GROUP SHARE in million euros

2007 1,909

2006 1,372

2005 1,096

BASIC EARNINGS PER SHARE in euros

2007 11.05

2006 7.86

2005 6.39

DIVIDEND PER SHARE in euros

2007 4.00 (4)

2006 3.00

2005 2.55

The selected financial information is derived from our consolidated financial statements for the year ended December 31, 2007. 2005 published figures have been adjusted as mentioned in Note 3 (b) of the consolidated financial statements following the divestment of the Roofing Division decided in 2006 and realized in 2007.(1) Current operating income – See section 4.1 (Overview – Definition).(2) Total Group including discontinued operations – See Section 4.1 (Overview – Reconciliation of our non-GAAP financial measures) for more information on return on capital employed after tax.(3) See Section 4.1 (Overview – Reconciliation of our non-GAAP financial measures) for more information on Group net debt.(4) Proposed dividend to be decided at the General Meeting of shareholders on May 7, 2008.

Up 39% in 2007

compared to 2006.

Strong

improvement.

Strong improvement in

operating margin up sharply

to 18.4% in 2007 from 15.5%

in 2005.

Sustained organic

growth, driven by strong

dynamism of emerging

markets.

During the last two years,

earnings per share have

increased by 32%

a year on average.

Dividend per share

up 33% in 2007.

Disposals of non-core

businesses amounted to 2,492

million euros in 2007.


GROUP’S SALES BY DIVISION GROUP’S SALES BY GEOGRAPHIC AREA OF DESTINATION

Lafarge worldwide

Key figures by Division and by geographic area at December 31, 2007

* Formerly Mediterranean Basin.

This map includes the acquisition of Orascom Cement.

(Employee, site and country information is posted on the basis of 100%, excluding companies held in equity at December 31, 2007, without Orascom Cement consolidated starting January 23, 2008).

%Cement 53.7

Aggregates & Concrete 37.4

Gypsum 8.8

100.0

Other 0.1

%Western Europe 35.7

North America 27.1

Mediterranean Basin

& Middle East * 4.2

Central & Eastern Europe 8.3

Latin America 5.0

Sub-Saharan Africa 9.7

Asia 10.0

100.0


Lines of aggregates,

ready-mix and precast

concrete products,

asphalt and paving for

engineering structures,

roads and buildings.

Lines of cement,

hydraulic binders and

lime for construction,

renovation and public

works.

Plasterboard systems

and gypsum-based

interior solutions for

new construction and

renovation.

GROUP’S EMPLOYEES BY DIVISION GROUP’S EMPLOYEES BY GEOGRAPHIC AREA OF DESTINATION



1,732

NUMBER OF EMPLOYEES

24,167PRESENT IN

29 countries



77

NUMBER OF EMPLOYEES

8,073PRESENT IN

28 countries



163

NUMBER OF EMPLOYEES

45,481PRESENT IN

46 countries

Aggregates & Concrete World co-leader & No.3 worldwide

Gypsum No.3 worldwide

Cement World co-leader

%Cement 58.5

Aggregates & Concrete 31.1

Gypsum 10.4

100.0


North America 19.8

Mediterranean Basin

& Middle East 5.0


Latin America 6.2


Asia 25.3

100.0

1

2

3

4

5

6

7

8

9

10

F

1 Selected Financial Data

CONSTRUCTION SITEof the Chilanga cement plant, Zambia: working on a duct at the pre-heater tower.


SELECTED FINANCIAL DATA1In accordance with European Regulation

no. 1606/2002 issued on July 19, 2002,

we have prepared our consol idated

financial statements for the year ended

December 31, 2007, in accordance with the

International Financial Reporting Standards

(“IFRS”) endorsed by the European Union

as of December 31, 2007.

The first table below sets forth selected

conso l ida ted f inanc ia l da ta under

I FRS a t and f o r t he yea r s ended

December 31, 2007, 2006 and 2005.

The selected financial information is

derived from our consolidated financial

statements, which have been audited by

Deloitte & Associés and Ernst & Young Audit

for the years ended December 31, 2007

and 2006 and by Deloitte & Associés

and Thierry Karcher for the year ended

December 31 , 2005 . The aud i t ed

consolidated fi nancial statements at and for

the years ended December 31, 2007, 2006

and 2005 appear at the end of this report.

KEY FIGURES OF THE GROUP

(million euros, unless otherwise indicated) 2007 2006 2005*

STATEMENTS OF INCOME

Revenue 17,614 16,909 14,490

Operating income before capital gains, impairment, restructuring and other 3,242 2,772 2,246

Operating income 3,289 2,678 2,181

Net income from continuing operations 2,038 1,593 1,327

Net income/(loss) from discontinued operations 118 (4) 97

Net income 2,156 1,589 1,424

Of which:

Group share 1,909 1,372 1,096

Minority interests 247 217 328

Basic earnings per share (euros) 11.05 7.86 6.39

Diluted earnings per share (euros) 10.91 7.75 6.34

Basic earnings per share from continuing operations (euros) 10.37 7.88 5.82

Diluted earnings per share from continuing operations (euros) 10.24 7.77 5.79

Basic average number of shares outstanding (thousands) 172,718 174,543 171,491

* 2005 published fi gures have been adjusted as mentioned in Note 3 (b) of the consolidated fi nancial statements following the divestment of the Roofi ng Division decided in 2006

and realized in 2007.

1

2

3

4

5

6

7

8

9

10

F 2007 | ANNUAL REPORT – DOCUMENT DE RÉFÉRENCE | LAFARGE | PAGE 9

SELECTED FINANCIAL DATA

(million euros) 2007 2006* 2005*

BALANCE SHEETS

ASSETS

Non current assets 21,490 20,474 20,543

Current assets 6,818 9,367 7,352

Of which assets held for sale - 2,733 -

TOTAL ASSETS 28,308 29,841 27,895

LIABILITIES

Shareholders’ equity – parent company 10,998 10,314 9,651

Minority interests 1,079 1,380 2,533

Non current liabilities 10,720 11,962 9,852

Current liabilities 5,511 6,185 5,859

Of which liabilities associated with assets held for sale - 842 -

TOTAL EQUITY AND LIABILITIES 28,308 29,841 27,895

* Figures have been adjusted after the application by the Group of the amendment of IAS 19 – Employee Benefi ts, allowing the recognition through equity of the actuarial gains

and losses under defi ned-benefi t pension plans (see Note 2).

(million euros) 2007 2006 2005*

STATEMENTS OF CASH FLOWS

Net cash provided by operating activities 2,676 2,566 1,886

Net cash/(used in) investing activities (703) (4,847) (1,684)

Net cash provided by/(used in) fi nancing activities (1,664) 1,896 (185)

Increase/(decrease) in cash and cash equivalents 309 (385) 17

Of which net cash generated by discontinued operations:

Net operating cash generated by discontinued operations (26) 184 135

Net cash provided by/(used in) investing activities from discontinued operations (15) (198) (131)

Net cash provided by/(used in) fi nancing activities from discontinued operations 41 15 (33)



(million euros, except number of shares and per share data) 2007 2006 2005

DIVIDENDS

Total dividend paid 784* 521 447

Basic dividend per share 4.00* 3.00 2.55

Loyalty dividend per share** 4.40* 3.30 2.80

* Proposed dividend.

** See Section 8.2 (Articles of Association (Statuts) – Rights, preferences and restrictions attached to shares) for an explanation of our “Loyalty dividend”.


SELECTED FINANCIAL DATA1

1

2

3

4

5

6

7

8

9

10

F

2 Risk factors

EMPLOYEESat the Saraburi gypsum plant, Thailand.

2.1 RISKS INHERENT TO GROWING MARKETS 12

2.2 ENERGY AND FUEL COSTS 12

2.3 INDUSTRIAL AND ENVIRONMENTAL RISKS 12

2.4 RISKS INHERENT TO OUR FINANCIAL ORGANIZATION 12

2.5 RISKS INHERENT TO SOME OF OUR EQUITY INVESTMENTS 13

2.6 AVAILABILITY OF RAW MATERIALS 13

2.7 PENSION PLANS 13

2.8 MARKET RISKS 13

2.9 INSURANCE 13

2.10 LITIGATION 13


RISK FACTORS22.1 Risks inherent to growing markets

2.1 Risks inherent to growing markets

In 2007, we derived approximately 37%

of our revenues from emerging markets,

which we define as countries outside

Western Europe and North America other

than Japan, Australia and New Zealand.

Our growth strategy focuses signifi cantly on

opportunities in emerging markets and we

expect that an increasing portion of our total

revenues and results will continue to come

from such markets. Following the acquisition

of Orascom Cement approximately 65%

of our consolidated revenues should be

derived from these markets as of 2010. Our

increased presence in emerging markets

exposes us to risks such as volatility in gross

domestic products, signifi cant and unstable

currency fl uctuations, political, fi nancial and

social uncertainty and unrest, high rates of

inflation, the possible implementation of

exchange controls, less certainty regarding

legal rights and enforcement mechanisms

and potential nationalization or expropriation

of private assets, any of which could damage

or disrupt our operations in a given market.

Our operations being spread over a great

number of these markets, we are able to

minimize risks as none of these countries

individualy account for more than 6% of the

Group’s current operating income before

amortization and depreciation.

2.2 Energy and fuel costs

Our operations consume signifi cant amounts

of energy and fuel, the cost of which in many

parts of the world has increased continuously

in recent years.

We protect ourselves to some extent

against rising energy and fuel costs through

long-term supply contracts and forward

energy agreements, and by equipping many

of our plants to switch between several fuel

sources, including alternative fuels such as

used oil, recycled tires and other recycled

materials or industrial by-products. Despite

these measures, energy and fuel costs have

significantly affected, and may continue

to affect, our results of operations and

profi tability.

See Sections 2.8 (Market risks) and 3.3 (Business description).

2.3 Industrial and environmental risks

Our operations are regulated extensively by

national and local governments, particularly

in the areas of land use and protection of

the environment.

Overall the risk that our industrial operations

could constitute an environmental hazard

as a result of accidental events is remote.

While we are not currently aware of any

environmental liabilities or of any non-

compliance with environmental regulations

that we expect will have a material adverse

effect on our fi nancial condition or results of

operations, environmental matters cannot be

predicted with certainty and there can be no

absolute assurance that the amounts we have

budgeted and reserved will be sufficient.

See Section 3.5 (Environment) for more

information on the impact of environ-

mental matters on our operations, our

environmental policy and our different

environmental initiatives.

2.4 Risks inherent to our fi nancial organization

We are a holding company with no signifi -

cant assets other than direct and indirect

interests in the many subsidiaries through

which we conduct operations. A number

of our subsidiaries are located in countries

that may impose regulations restricting the

payment of dividends outside of the country

through exchange control regulations. To our

knowledge, aside from North Korea there are

currently no countries in which we operate

that restrict payment of dividends.

Furthermore, the continued transfer to us

of dividends and other income from our

subsidiaries may be limited by various

credit or other contractual arrangements

and/or tax constraints, which could make

such payments difficult or costly. We do

not believe that any of these covenants or

restrictions will have a material impact on

our ability to meet our fi nancial obligations.

However, this could change in the future.

1

2

3

4

5

6

7

8

9

10


2.10 Litigation

RISK FACTORS

2.5 Risks inherent to some of our equity investments

We do not have a controling interest in some

of the businesses in which we have invested

and may make future investments in which

we will not have a controling interest. Some

key matters, such as the approval of business

plans and the timing and amount of cash

distributions, may require the consent of

our partners or may be approved without our

consent. These and other limitations arising

from our investments in companies we do

not control may prevent us from achieving

our objectives for these investments.

2.6 Availability of raw materials

We generally maintain our own reserves of

limestone, gypsum, aggregates and other

materials that we use to manufacture our

products. Increasingly, however, we obtain

certain raw materials from third parties who

produce such materials as by-products

of industrial processes, such as synthetic

gypsum, slag and fl y ash. While we try to

secure our needed supply of such materials

through long-term renewable contracts, we

do not have short-term contracts in certain

countries. Should our existing suppliers

cease operations or reduce or eliminate

production of these by-products, our costs

to procure these materials may increase

signifi cantly or we may be obliged to procure

alternatives to replace these materials.

2.7 Pension plans

We have obligations under our defined

benefi t pension plans, located mainly in the

United Kingdom and North America. Future

adverse changes in the fi nancial markets, or

decreases in interest rates, could result in

potential signifi cant increases in our pension

expenses and funding requirements. In

addition, we may need to fund our pension

obligations, which could have a signifi cant

adverse effect on our fi nancial condition.

See Section 4.1 (Overview – Critical Accounting Policies) and Note 23 to our consolidated financial statements for more information on pension plans.

2.8 Market risks

See Sections 4.4 (Liquidity and capital resources) and 4.5 (Market risks) for more information on our exposure to foreign exchange risk, interest risk and other market risks.

2.9 Insurance

See Section 3.6 (Insurance) for more information on our Group policy in terms of insurance and risk coverage.

2.10 Litigation

See Note 29 to our consolidated financial statements for more information on the different Group entities involved in litigation.


RISK FACTORS2

1

2

3

4

5

6

7

8

9

10

F

TESTING PRODUCTS AT LCR,Lafarge’s Research center, in Isle d’Abeau, France, the world’s largest building materials research facility.

General presentation 16Our strategy 16

3.1 HISTORY AND DEVELOPMENT OF THE GROUP 17

3.2 INVESTMENTS 18Signifi cant recent acquisitions 18Signifi cant recent divestitures 18Capital expenditures in 2007 19Capital expenditures in progress or planned for 2008 19

3.3 BUSINESS DESCRIPTION 19Overview 19Cement 20Aggregates & Concrete 26Gypsum 30

3.4 ORGANIZATIONAL STRUCTURE 32Lafarge S.A.’s relationship with its subsidiaries 32Group relationship with minority shareholders of its subsidiaries 32

3.5 ENVIRONMENT 33

3.6 INSURANCE 34Property damage and business interruption insurance 34Liability insurance 34Insurance captives 34

3.7 INTELLECTUAL PROPERTY 35

3 Information on Lafarge


INFORMATION ON LAFARGE3General presentation

Lafarge S.A. is a limited liability company

incorporated in France and governed by

French law (société anonyme). We produce

and sell building materials – cement,

aggregates, concrete, gypsum wallboard,

and related products – worldwide, primarily

under the “Lafarge” trading name. Based

on sales, we are the world leader in building

materials. Our products are used to build

and renovate residential, commercial and

public works projects right around the

world. Based on both internal and external

research, we believe that Lafarge is the joint

world leader in the cement and aggregates

markets, the third largest concrete producer

worldwide and the third largest gypsum

wallboard manufacturer worldwide.

Our reporting currency is the euro (€).

In the fiscal year 2007, we generated

17.6 billion euros in sales and we posted

current operating income (as defined in

Section 4.1 (Overview – Definition)) of

3.2 billion euros and net income, Group

share of 1.9 billion euros. At year-end

2007, our assets totaled 28.3 billion euros.

At year-end 2007, we employed approxi-

mately 78,000 people in the 72 countries in

which we operate. Following the acquisition

of Orascom Cement on January 23, 2008,

our number of employees was increased to

approximately 90,000 in 76 countries. Our

shares have been traded on the Paris Stock

Exchange since 1923. They are a component

of the French CAC 40 market index (and have

been since its inception) and are included in

the SBF 250 index. In September 2007,

we voluntarily delisted our shares from

the New York Stock Exchange but have

maintained our American Depositary

Receipts (“ADRs”) program, our ADRs now

being traded on the Over-the-Counter market

(“level one” program). Each ADR represents

one-quarter of one share. Our market capital-

ization totaled 18.7 billion euros at the close

of the market on March 25, 2008 including

0.6 billion euros attributable to our treasury

shares.

Our strategy

Our strategy aims to make us the leader in

building materials.

We have two strategic priorities: cement,

notably in fast-growing markets, and innova-

tion especially in concrete.

The strong growth in world demand

for cement is arising primarily from the

emerging markets, which now account

for 45% of Group earnings (52% for the

cement division). With our program to boost

production capacity launched in 2006

and the acquisition of Orascom Cement in

January 2008, we are very well positioned

to benefi t from this growth. Over 90% of our

plans to build new production capacity are

located in the emerging markets. We are

particularly determined to accelerate our

development in China, where we intend to

double our production capacity to 50 million

tonnes by 2012.

EVOLUTION OF THE CEMENT WORLD MARKET

1,140 1,200 1,250 1,300 1,350 1,420 1,470 1,495 1,570 1,620 1,7001,800

1,9002,100

2,300

2,5502,740

2,9003,100

3,230

4,700

Tonnes

5% / year

0

1,000

2,000

3,000

4,000

5,000

2025

(For

ecas

t)

2010

(For

ecas

t)

2009

(For

ecas

t)

2008

(For

ecas

t)

2007

(Esti

mate)

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

Sources: Cembureau, Lafarge estimates, JP Morgan.

Innovation is also a top priority. In 2007,

we launched Chronolia® and Extensia®, two

new concrete products that complement

our Agilia® line, in France and the UK. In

2008, we will launch these products in

more countries. By 2012, high value-added

products should account for 35% of our

concrete production in volume.

Growth and innovation must benefit not

only the Group but also our clients: we build

ultra-modern production facilities near their

markets and offer innovative products that

provide them greater satisfaction.

To take full advantage of our potential,

Lafarge refocused on core business in 2007

by selling off the Roofing Division at the

beginning of the year.

We also have three operating priorities.

The fi rst is the safety of the women and men

that work within our Group day after day,

whether payroll employees or sub-contrac-

tors, whether on our sites or on the road.

1

2

3

4

5

6

7

8

9

10


3.1 History and development of the Group

INFORMATION ON LAFARGE

3.1 History and development of the Group

Lafarge S.A. was incorporated in 1884

under the name “J. et A. Pavin de Lafarge”.

Our corporate life is due to expire on

December 31, 2066 and may be extended

pursuant to our by-laws. Our registered

office is located at 61, rue des Belles

Feuilles, 75116 Paris, France, and our

telephone number is + 33 1 44 34 11 11.

We are registered under the number

“542 105 572 RCS Paris” with the registrar

of the Paris Commercial Court (Tribunal de

commerce de Paris).

We began operations around 1833 when

Auguste Pavin de Lafarge set up a lime

operation in France. Through numerous

acquisitions of lime and cement companies

throughout France, we became France’s

largest cement producer by the late 1930s.

We fi rst expanded internationally in 1864

when we supplied lime for construction of

the Suez Canal. Our international expansion

continued in the early twentieth century

when we set up operations in North Africa

and the United Kingdom and later when

we began doing business in Brazil and

Canada. Through our 1981 acquisition of

General Portland Inc., we became one of

the largest cement manufacturers in North

America. We conduct these operations

p r inc ipa l l y th rough La fa rge Nor th

America Inc., now our wholly owned

subsidiary following our acquisition on

May 16, 2006 of the interests previously

held by minority shareholders. We further

expanded internationally through our

purchase of Blue Circle Industries plc

(“Blue Circle”) in 2001 and further acquisi-

tions, principally around the Mediterranean

Basin, in Eastern Europe and in Asia. The

acquisition of Orascom Building Materials

Holding S.A.E, the cement branch of the

Orascom group, in January 2008 has

reinforced our presence in the Middle East

and the Mediterranean Basin as well as our

leadership in emerging markets. We are

the joint leader in the worldwide cement

industry, with production facilities in 51

countries (including Orascom Cement).

We have also broadened our other long-

standing product lines of aggregates,

concrete and plasterboard. Our aggregates

and concrete business, now operating

in 29 countries, made a significant leap

in 1997 with our acquisition of Redland plc,

one of the principal manufacturers of

aggregates and concrete worldwide at

the time, and to a lesser extent through

our acquisition of Blue Circle in 2001.

We first entered the market for gypsum

products in 1931, with the production of

powdered plaster. Since then, we have

become the world’s third largest wallboard

producer, offering a full range of gypsum-

based building solutions with operations

in 28 countries. In February 2007, we

sold our Roofing Division, which came

on board through our 1997 acquisi-

tion of Redland plc. We retained a 35%

minor i ty interest in the new ent i ty.

We have an organizational structure

predicated on our three Divisions, with

decentralized local operations and strong

corporate expert departments, which are

involved in strategic decisions. The Group

is underpinned by an ambition and culture

shared by all our employees, and which are

translated by our Principles of Action.

1833

February2007

Beginningof operations in France

1931Lafarge enters in gypsum

1981Acquisition of General Portland, making Lafarge one of the largest cement manufacturers in North America

1997Acquisition of Redland plc, one of the principal manufacturers of aggregates and concrete worldwide

Sale of our Roofi ng Divisionto PAI Partners

1864Lafarge delivers 110,000 tonnes of lime for the construction of the Suez Canal

1956Lafarge builds its 1st cement plant in Richmond, Canada

1994Lafarge enters the Chinese market through the creation of a joint venture in cement

2001Acquisitionof Blue Circle Industries plc

2006Lafarge owns 100% of Lafarge North America Inc.

January2008Acquisitionof Orascom Cement

KEY DATES IN LAFARGE’S HISTORY

In 2007, we managed to reduce by half the

number of workplace accidents with leave,

demonstrating our commitment to producing

results in this area.

Our second operating priority is to cut costs.

This objective is refl ected in our 2007 results

and in the improvement in our operating

margin. We are also striving to optimise

our organisational effi ciency by simplifying

and streamlining to improve our ability to

anticipate and to work effectively.

Third, we have high ambitions in terms

of sustainable development. All of our

industrial sites must align themselves with

the Lafarge standard, a unique programme

based on three themes: to fight against

climate change by maintaining our target

of reducing greenhouse gas emissions by

20% worldwide between 1990 and 2010;

to set up a biodiversity plan for all our

quarries with the potential to preserve rare

species of fauna and fl ora; and to ensure

the best environment for the safety of our

employees, while helping improve the health

of the neighbouring communities in which

we operate, all around the globe.

Our strategy provides our Group with every

chance possible to be recognised as the

best creator of value by our shareholders,

the best supplier of products and services

by our clients, the best employer by our

employees and the best partner for the

communities in which we operate.


INFORMATION ON LAFARGE3 3.2 Investments

Signifi cant recent

acquisitions

Lafarge North America Inc. In 2006, we

acquired the interest in Lafarge North

America Inc. previously held by minority

shareholders through a public tender offer

launched on February 21, 2006. Lafarge

North America Inc is now a wholly-owned

subsidiary. This transaction was worth a total

of 2.8 billion euros net and was financed

by debt.

Heracles. On April 19, 2007, we increased

our stake in the Greek company Heracles

by 26% through the acquis i t ion o f

approximately 18.5 million shares from

Nat ional Bank of Greece for a total

consideration of 321.6 million euros, repre-

senting a price of 17.40 euros per share.

We have continued to acquire Heracles

shares during the course of 2007 for a

total cumulative amount of 417 million

euros bringing our equity interest to

86.73% at December 31, 2007. Heracles

is Greece’s largest cement manufacturer

and also has aggregates and concrete

operations.

In addition, over the past three years, we

have acquired several small-to-medium

sized businesses. These acquisitions had

an overall positive effect on our revenues

of 190 million euros for 2007 compared

to 2006 and 282 million euros for 2006

compared to 2005.

In addition, after December 31, 2007,

we completed the following acquisition:

Orascom Cement. On January 23, 2008,

we acquired 100% of Orascom Building

Materials Holding Company S.A.E (“Orascom

Cement”) , the ho ld ing company of

t he cemen t ac t i v i t i e s o f O rascom

Construction Industries S.A.E (“OCI”), for a

price of 8.8 billion euros in cash on signing

and the assumption of 1.4 billion euros of

net debt at December 31, 2007. The share

purchase agreement includes a share price

adjustment mechanism linked to the level

of actual net financial debt assumed, on

the basis of the consolidated accounts of

the new group as of December 31, 2007.

This acquisition was financed through

6.0 billion euros of debt and the issuance

of 22.5 million new Lafarge shares at

a subscription price of 125 euros per

share, which represents a 17% premium

compared to the weighted average Lafarge

share price over the month preceding the

announcement of the acquisition and a

14% premium compared to the weighted

average Lafarge share price over the last

three months preceding the announcement.

The new shares were issued as a result of

a 2.8 billion euros share capital increase

reserved for the major founding share-

holders of OCI. This share capital increase,

which was approved by our shareholders’

meeting held on January 18, 2008, was

completed on March 27, 2008 and gives

the major founding shareholders of OCI an

approximate 11.4% stake in Lafarge S.A.

This transaction gives us a unique presence

in the Middle East and the Mediterranean

Basin, a region where Orascom Cement is

the leading cement manufacturer, and is

an opportunity to accelerate our growth

strategy in cement in emerging markets.

The cooperation agreement entered into with

OCI will ensure both groups will continue to

benefi t from mutual synergies in connec-

tion with the construction and expansion

of new and existing cement plants in the

region. Our long term partnership with the

major founding shareholders of OCI will

also be reinforced by their participation in

the capital of Lafarge through a 10-year

shareholders agreement, and the scheduled

appointment of two representatives to

our Board of Directors. Our shareholders’

meeting held on January 18, 2008 approved

the appointment of Nassef Sawiris to the

Board of Directors and the appointment of

a second representative will be proposed at

our General Meeting in May 2008.

Orascom Cement is the cement leader in the

key markets of Egypt, Algeria, United Arab

Emirates and Iraq and has strategic posi-

tions in other emerging markets in the region

such as Saudi Arabia, Syria and Turkey. At

the end of 2007, Orascom Cement operated

11 new or recent cement plants in eight

countries, with a production capacity of

31 million tonnes.

Following this acquisition, we executed on

February 8, 2008, an agreement to purchase

the 50% stake not held by Orascom

Cement in Grupo GLA in Spain. Grupo GLA

is comprised of aggregates quarries, two

clinker grinding plants, cement terminals

situated along the Spanish coast and over

50 concrete plants. Lafarge, which already

has Cement, Aggregates and Concrete busi-

nesses in Spain grouped together within its

subsidiary Lafarge Cementos, is thus consoli-

dating its position in this country, particularly

in Aggregates, where it is acquiring a leading

market position in the Madrid region.

See Sections 8.1 (Share capital) and 8.3 (Material contracts) as well as Note 3 (a) to our consolidated fi nancial statements for more information on this transaction.

Signifi cant recent

divestitures

Materis. In April 2006, we sold our 7.27%

stake in Materis Holding Luxembourg S.A.

for net proceeds of 44 million euros. We no

longer have any equity interest in Materis

Holding Luxembourg S.A. or in any entity of

the Materis group at large.

Turkey. On February 27, 2007, we sold our

50% interest in the Turkish company Yibitas

Lafarge Orta Anadolu Cimento to Cimentos

de Portugal (Cimpor) for 266 million euros.

Roofing. On February 28, 2007, we sold

our Roofi ng business to an investment fund

managed by PAI Partners for 1.9 billion

euros in cash plus the assumption by the

purchaser of 481 million euros of net debt

and pension liabilities at December 31, 2006.

We have also invested 217 million euros

alongside the fund managed by PAI Partners

in the new entity housing the Roofing

business, while retaining a 35% stake in the

operations sold.

See Note 3 (b) to our consolidated fi nan-cial statements for more information.

In total, divestitures during the three years

ended December 31, 2007 reduced our

revenues from continuing operations by

104 mill ion euros in 2007 compared

to 2006, and by 84 million euros for 2006

compared to 2005.

3.2 Investments

1

2

3

4

5

6

7

8

9

10


3.3 Business description


Capital expenditures

in progress or planned

for 2008

Capital expenditures for 2008 for each of our

three Divisions including Orascom Cement

units, are expected to be approximately:

2,000 million euros for Cement;

800 million euros for

Aggregates & Concrete; and,

200 million euros for Gypsum.

These amounts, which are geographically

spread across our business units, comprise

sustaining and internal development

expenditures.

See Section 3.3 (Business description) for more information on internal develop-ment expenditures.

3.3 Business description

Overview

The 2007 contribution to our consolidated sales from continuing operations by Division (after elimination of inter-Division sales) and by

geographic area (by destination) is as follows compared to 2006 and 2005:

SALES BY DIVISION

2007 2006 2005

(million euros) (%) (million euros) (%) (million euros) (%)

Cement 9,456 53.7 8,847 52.3 7,624 52.6

Aggregates & Concrete 6,586 37.4 6,439 38.1 5,382 37.1

Gypsum 1,556 8.8 1,610 9.5 1,462 10.1

Other 16 0.1 13 0.1 22 0.2

TOTAL 17,614 100.0 16,909 100.0 14,490 100.0


in 2007

The following table presents our capital

expenditures for each of the three years

ended December 31, 2007, 2006 and 2005.

Sustaining expenditures serve to maintain

or replace equipment, while internal

development expenditures are intended to

enhance productivity, increase capacity or to

construct new lines of production. External

development expenditures comprise the

acquisition of industrial assets and equity

interests in companies.

SUSTAINING AND INTERNAL

DEVELOPMENT EXPENDITURES

EXTERNAL DEVELOPMENT

EXPENDITURES

(million euros) 2007 2006 2005 2007 2006 2005

Western Europe 568 470 370 973 76 146

North America 409 522 419 181 3,055 148

Mediterranean Basin & Middle East* 123 72 70 0 2 4

Central & Eastern Europe 257 98 61 18 52 14

Latin America 117 75 101 0 47 3

Sub-Saharan Africa 215 147 76 8 10 16

Asia 278 143 107 23 45 180

TOTAL 1,967 1,527 1,204 1,203 3,287 511

* Previously named Mediterranean Basin.

See Section 4.4 (Liquidity and capital resources – Net cash used in investing activities) for more information on 2007 capital expenditures.


INFORMATION ON LAFARGE3 3.3 Business description

SALES BY GEOGRAPHIC AREA

2007 2006 2005

(million euros) (%) (million euros) (%) (million euros) (%)

Western Europe 6,285 35.7 5,953 35.2 5,222 36.0

North America 4,780 27.1 5,116 30.2 4,380 30.2

Mediterranean Basin & Middle East 733 4.2 807 4.8 655 4.5

Central & Eastern Europe 1,467 8.3 1,014 6.0 752 5.2

Latin America 876 5.0 796 4.7 687 4.7

Sub-Saharan Africa 1,705 9.7 1,622 9.6 1,381 9.6

Asia 1,768 10.0 1,601 9.5 1,413 9.8

TOTAL 17,614 100.0 16,909 100.0 14,490 100.0

The following schedule presents, for each of the three Divisions, the contribution made to consolidated sales and current operating income

for the year ended December 31, 2007:

Contribution to consolidated sales Contribution to current operating income*

Cement 53.7 76.5

Aggregates & Concrete 37.4 22.2

Gypsum 8.8 3.6

Other 0.1 (2.3)

TOTAL 100.0 100.0

* As defi ned in Section 4.1 (Overview – Defi nition).

In the following discussion, sales fi gures are

presented “by destination” market. They

include all the amounts both produced and

sold in the market, as well as any amounts

imported into the market by our operations,

and exclude any exports to other markets.

They are presented before elimination of

inter-Division sales and calculated following

applicable consolidation rules.

Data regarding the number of sites and

production capacity include 100% of the

number of sites and production capacity of

all our subsidiaries, whether fully or propor-

tionately consolidated.

The percentage of sales for each region is

computed in relation to the total sales of

the relevant Division, before elimination of

inter-Division sales.

Cement

Cement is a fi ne powder that is the principal

strength-giving and property-controling

component of concrete. I t is a high

quality, cost-effective building material

that is a key component of construction

projects throughout the world, including

in the 46 countries in which our Cement

Division has production facilities in 2007

(51 countries including Orascom Cement).

Based on both internal and external

research, we believe that we are the world’s

joint-leading producer of cement taking

into account sales, production capacity,

geographical positions, technological devel-

opment and quality of service. At the end of

2007, our consolidated businesses operated

124 cement, 32 clinker grinding and 7 slag

grinding plants, with an annual controled

cement production capacity of 178 million

tonnes (total capacity of entities controled by

Lafarge). Consolidated sales for fi scal year

2007 reached approximately 136 million

tonnes.

Products

We produce and sell an extensive range

of cements and hydraulic binders for the

construction industry, including basic

portland and masonry cements and a variety

of other blended and specialty cements and

binders. We offer our customers a broad

line, which varies somewhat by market.

Our cement products (all of which are

referred to as “cement” in this report)

include specialty cements suitable for use

in a variety of environmental conditions

(e.g. exposure to seawater, sulfates and

other natural conditions hostile to concrete)

and specific applications (e.g. white

cement, oil-well cements, blended silica

fume, blended fl y-ash, blended pozzolana,

blended slag cements and road surfacing

hydraulic binders), natural lime hydraulic

binders, masonry cements and ground blast

furnace slag.

We design our cements to meet the

varying needs of our customers, including

high performance applications for which

enhanced durability and strength are

required. We also offer our customers a

number of extra services such as technical

support in connection with the use of our

cements, ordering and logistical assistance

to facilitate timely delivery to the customers,

plus documentation, demonstrations and

training relating to the characteristics and

appropriate use of our cements.

1

2

3

4

5

6

7

8

9

10



3.3 Business description – Cement

Production and facilities information

COMPOSITION AND PRODUCTION

OF CEMENT

Cement is made by crushing and grinding

calcium carbonate (limestone), silica (sand),

alumina and iron ore in appropriate propor-

tions and heating the resulting mixture in a

kiln to approximately 1,500°C. In the more

modern “dry process” used by around 80%

of our plants, the ore mixture enters the

kiln dry as opposed to the older process in

which it is mixed with water. Each process

produces “clinker”, which is then finely

ground with gypsum to make cement

powder. A breakdown of the production cost

of cement is: energy 31%, raw materials and

consumables 28%, production, labor and

maintenance costs 30% and depreciation

11%.

PRODUCTION COSTS 2007

%

Energy 31

Production, labor and maintenance costs 30

RMC&O 28

Depreciation 11

TOTAL 100

Raw materials for making cement (calcium

carbonate, silica, alumina, and iron ore)

are usually present in limestone, chalk,

marl, shale and clay and are available in

most countries. Cement plants are normally

built close to large deposits of these raw

materials. For most of our cement plants,

we obtain these materials from nearby land

that we either own or over which we hold

long-term quarrying rights. We believe the

quantity of proven and permitted reserves

at our cement plants is adequate to operate

the plants at their current levels for their

planned service life.

Where technically available and economi-

cally viable, we may substitute ground blast

furnace slag, pozzolan or fl y ash for certain

raw materials when making cement, or mix

slag, pozzolan or fl y ash with cement at the

end of the process. Ground blast furnace

slag is a by-product of steel manufacturing

and fly ash is a product of burning coal

in electric utility plants. Whether and how

they are used depends on the physical

and chemical characteristics of the slag

or ash and the physical and chemical

properties required of the cement being

produced. These materials help lower our

capital costs per tonne of cement produced.

Their use is environmentally friendly since

it increases cement supplies by recycling

post-industrial material that otherwise would

be used as landfi ll. The ratio of slag, fl y ash

and pozzolan we used in 2007 to produce

cement to total cement produced increased

to 16.5% (15.0% in both 2006 and 2005).

Use of these materials is part of our long-

term development strategy.

SOURCING AND USE

OF FUEL OPTIMIZATION

Fuel is the primary expense of our produc-

tion costs (31% of total). Wherever possible,

we use advanced plant designs (such as

preheaters to heat raw materials prior to

entering the kiln) and less costly fuel waste

materials (e.g. tires, used oils) to limit the

use of more expensive fossil fuels. In 2007,

fuel waste materials accounted for close to

11% of our worldwide cement manufac-

turing fuel consumption, with almost two

thirds of our cement plants using some form

of fuel waste materials. The availability of fuel

waste materials varies widely from region to

region, and in particular between developed

countries (where it is more plentiful) and

emerging markets (where it is less plentiful).

In addition, many of our plants can switch

between several fuels with minimum disrup-

tion to production, allowing us to enjoy the

benefi t of lower cost fuels.

MANUFACTURING EXPERTISE

We have developed significant cement

manufacturing expertise through our experi-

ence operating numerous cement production

facilities worldwide for over 150 years. This

expertise is formalized and passed on via our

6 technical centers which employ more than

600 engineers and technicians worldwide.

We strive to share our collective knowledge

throughout the Group to improve our asset

utilization, lower our production costs and

increase the performance of our products.

Through this culture of knowledge sharing,

we also seek to spread best production

practices and employ benchmarking tools

worldwide to drive superior performance and

continuous operating improvements.

Customers

In each of the major geographic regions in

which we operate, we sell cement to several

thousand customers, primarily concrete

producers, pre-cast concrete product manu-

facturers, contractors, builders and masons,

as well as building materials wholesalers.

Our cement is used in three major segments

of the construction industry:

civil engineering projects;

residential and commercial

construction; and

renovation

and is used in a wide range of projects, such

as offi ces, schools, hospitals, homes, dams,

highways, tunnels, plants and airports.

Cement performance characteristics and

the service requirements of our customers

vary widely depending on the projects, in

which our cement is used, as well as their

experience and expertise. We strive to meet

our customers’ diverse requirements and

to deliver distinctive and targeted solutions

enabling them to create more value in their

businesses.

Our customers generally purchase cement

from us through current orders in quantities

sufficient to meet their requirements for

building works or renovation. Contracts

are also s igned with certain buyers

(i.e. producers of pre-fabricated concrete

products or wholesalers) to supply the

required volume of cement over a long

period of time of a year or more.


INFORMATION ON LAFARGE3 3.3 Business description – Cement

Markets

CEMENT INDUSTRY

Historically, the cement industry has been

globally fragmented, with most markets

served by local producers. Beginning in

Europe in the 1970s, the United States in

the 1980s, and later continuing through Asia

(outside China), the cement industry expe-

rienced signifi cant worldwide consolidation.

Today, there are a handful of multinational

cement companies, including Lafarge

and our major worldwide competitors,

i.e. Holcim (Switzerland), Cemex (Mexico),

HeidelbergCement (Germany), Italcementi

(Italy), Taiheiyo (Japan), Buzzi (Italy) and

Votorantim (Brazil). These companies

compete against local producers in various

markets around the world. New entrants to

the industry face a significant “barrier to

entry” in the form of high initial capital costs,

since cement production is capital intensive.

To construct a new dry process cement line

producing 1 million tonnes annually costs

between 50 million euros and 160 million

euros depending on the country in which

it is located.

The cement industry is highly competitive

in our major markets. Some countries or

regions are more exposed during certain

periods than others due to factors such as

the level of demand, access to the market or

reserves of raw materials.

CEMENT MARKETS

The emerging markets (notably China,

India, Central & Eastern Europe and Brazil)

represent 70% of the worldwide market, the

others 30% being principally North America

and Western Europe. We conduct substantial

operations in each of these markets, along

with other multinational cement companies

and local cement producers.

A country’s cement demand generally

tracks growth in per capita income, which

generally correlates with the country’s

industrialization. As growing countries

become industrialized, cement consump-

tion tends to grow rapidly with increased

expenditures on public works and housing.

Because of the growth potential they harbor,

Lafarge has invested (and will continue

to consider investment opportunities) in

these markets, where we sold 5.4 billion

euros of cement during 2007 compared

to 4.8 billion euros in 2006 and 4.0 billion

euros in 2005. These sales accounted for

respectively 52%, 50% and 48% of our

total cement sales for each such year.

We completed in January 2008 the acquisi-

tion of Orascom Cement, the Mediterranean

Basin and Middle East leading cement

manufacturer. With a capacity of 35 million

tonnes in 2008 and 45 million tonnes

in 2010, this acquisition is a decisive oppor-

tunity to accelerate our strategy of profi table

growth in these markets. This operation

was approved by our shareholders during

the extraordinary general meeting held on

January 18, 2008.

ZimbabweZambia

Vietnam

Venezuela

US

Ukraine

UK

Uganda

Turkey

Thailand

Syria

Sri Lanka

Spain

South Korea

South Africa

Slovenia

Slovakia

Singapore

Serbia

Saudi Arabia

Russia

Romania

Portugal

Poland

PakistanNigeria

Netherlands

Morocco

Moldova

Mexico

Malaysia

Kenya

Jordan

Japan

Italy

IndonesiaIndia

Greece

Germany

France

Egypt

Ecuador

Croatia

Colombia

China

ChileCanada

Cameroon

C Republic

Brazil

BeninBangladesh

Austria

Australia

Argentina

Algeria

Consumption per capita (kg)

GDP per capita ($)

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,0000

200

400

600

800

1,000

1,200

1,400

CEMENT CONSUMPTION PER CAPITA IN 2007

Source: Lafarge estimates.

1

2

3

4

5

6

7

8

9

10




In the following section, indicated production capacities are reported on the basis of 100% of operating plants controled by Lafarge in the

country indicated. However, sales are reported on a Group contribution basis.

Our approximate market share has been calculated based on information and estimates contained in the Construction & Building Materials

Sector report published by JP Morgan in February 2008 (the “JP Morgan Report”).

Most of Western European cement markets

have reached maturity. The region as

a whole consumed close to 223 million

tonnes of cement in 2007, based on

the JP Morgan Report. We sold 34.3 million

tonnes of cement in Western Europe

in 2007, 33.8 million tonnes in 2006 and

31.9 million tonnes in 2005.

LOCATION OF CEMENT PLANTS

AND OF CEMENT MARKETS

Cement is a product which is costly to

transport over land. Consequently, the

radius within which a typical cement plant

is competitive extends for no more than

300 kilometers for the most common types

of cement. However, cement can be shipped

economically by sea and inland waterway

over great distances, signifi cantly extending

the competitive radius of cement plants with

access to waterborne shipping lanes. Thus,

the location of a cement plant and the cost

to transport the cement it produces through

its distribution terminals signifi cantly affect

the plant’s competitiveness and the prices it

may charge and fi nally on its profi tability.

CEMENT QUALITY AND SERVICES

The reliability of the producer’s deliveries,

the quality of its cement and its support

service also impact a cement producer’s

competitiveness. Thus, we strive to ensure

consistent cement quality over t ime,

to maintain a high degree and quality of

support services, and to offer special

purpose cements as a means to differentiate

ourselves from our competitors.

BREAKDOWN BY GEOGRAPHIC MARKET

We produce and sell cement in the regions

and countries listed in the tables below.

The following presentation shows each

region’s percentage contribution to our 2007

cement sales in euros, as well as the

number of plants we operate, our cement

production capacity and our approximate

market share (measured by sales volumes)

in each country as of or for the year ended

December 31, 2007.

SALES BY DESTINATION 2007

%

Western Europe 30

North America 18

Mediterranean Basin 6

Central and Eastern Europe 11

Latin America 6

Sub-Saharan Africa 14

Asia 15

TOTAL 100

WESTERN EUROPE (30% OF THE DIVISION’S 2007 SALES)

Number of

Cement production capacity Approximate market shareCountries Cement plants Grinding plants

(million tonnes) (%)

France 10 2 9.3 36

United Kingdom 7 - 7.5 41

Greece 3 - 9.8 53

Spain 3 1 5.2 10

Germany 3 - 3.4 10

Austria 2 - 1.9 28

Italy 2 - 1.2 2



CENTRAL & EASTERN EUROPE (11% OF THE DIVISION’S 2007 SALES)

Number of



Poland 2 - 4.4 20

Romania 2 1 4.5 32

Moldavia 1 - 1.4 54

Russia 2 - 4.1 7

Ukraine 1 - 1.3 9

Serbia 1 - 2.0 45

Slovenia 1 - 0.6 38

Czech Republic 1 - 1.2 9

We believe that entry into the European

Union of a number of countries in this

region will positively influence their long-

term growth prospects. The region as

a whole consumed close to 121 million

tonnes of cement in 2007, based on

the JP Morgan Report. We sold 15.5 million

tonnes of cement in Central and Eastern

Europe in 2007, 13.3 million tonnes in 2006

and 11.2 million tonnes in 2005.

MEDITERRANEAN BASIN & MIDDLE EAST (6% OF THE DIVISION’S 2007 SALES)

Number of



Jordan 2 - 4.8 90

Morocco 3 1 5.7 41

Turkey 1 1 1.7 4

Egypt* 2 - 3.2 8

* Excluding Orascom Cement.

NORTH AMERICA (18% OF THE DIVISION’S 2007 SALES)

Number of



United States 12 1 15.8 13

Canada 7 0 7.0 33

North America is also a mature cement

market. Sales are seasonal in Canada

and much of the East Coast and Mid

West, as temperatures in the winter fall

below minimum setting temperatures for

concrete. The region as a whole consumed

close to 125 million tonnes of cement

in 2007, based on the JP Morgan Report.

We sold 19.3 million tonnes of cement

in North America in 2007, 20.7 million

tonnes in 2006 and 21.2 million tonnes

in 2005. Approximately 13% of our cement

sales in North America were made to our

Aggregates & Concrete Division.

1

2

3

4

5

6

7

8

9

10




LATIN AMERICA (6% OF THE DIVISION’S 2007 SALES)

Number of



Brazil 6 1 5.0 6

Chile 1 - 1.6 34

Venezuela 2 - 1.6 23

Ecuador 1 - 0.7 20

Honduras 1 1 1.2 55

Mexico 2 - 0.7 0.4

French West Indies/Guyana - 3 1.0 100

We believe that the emerging markets in

this region have high growth potential in the

medium to long term as they industrialize

and urbanize. Many Mediterranean Basin

cement markets have only recently opened

up to competition after years of state owner-

ship. The region as a whole consumed close

to 205 million tonnes of cement in 2007,

based on the JP Morgan Report. We

sold 10.4 million tonnes of cement in the

Mediterranean Basin in 2007, 12.0 million

tonnes in 2006 and 10.5 million tonnes

in 2005.

In Turkey, we have sold in 2007 our interest

in Yibitas Lafarge Orta Anadolu Cimento

(YLOAC), in which we held a 50% share, to

Cimpor. We remain in Turkey with a presence

mainly in the Marmara region, composed of

a cement plant and a grinding station.

In January 2008, we announced the

acquisit ion of Orascom Cement, the

Mediterranean Basin and Middle East

leading cement manufacturer. In these

regions, Orascom Cement is number one on

the markets of Egypt, Algeria, United Arab

Emirates and Iraq, and possesses strategic

positions on the markets of Saudi Arabia,

Syria and Turkey.

The region as a whole consumed 127 million

tonnes of cement in 2007, based on the

JP Morgan Report. We sold 8.5 million

tonnes of cement in Latin America in 2007,

7.6 million tonnes in 2006 and 6.9 million

tonnes in 2005.

SUB-SAHARAN AFRICA (14% OF THE DIVISION’S 2007 SALES)

Number of



South Africa 1 1 2.7 20

Zambia 2 - 0.7 91

Malawi - 1 0.2 75

Tanzania 1 - 0.3 38

Kenya 1 1 2.0 60

Uganda 1 - 0.3 56

Nigeria 3 - 3.0 30

Cameroon 1 1 1.1 95

Benin 1 - 0.7 34

Sub-Saharan Africa as a whole consumed

50 million tonnes of cement in 2007, based

on the JP Morgan Report and our internal

research. We sold 16.6 million tonnes of

cement in the countries where we were

present in 2007, 13.3 million tonnes in 2006

and 12.8 million tonnes in 2005.

In addition, we hold a 76.4% interest

in Circle Cement in Zimbabwe, which

operates one plant wi th a capaci ty

of 400,000 tonnes.



ASIA (15% OF THE DIVISION’S 2007 SALES)

Number of



China 18 10 23.4 1.3

South Korea 1 2 9.6 10

India 2 1 5.5 3

Malaysia 3 1 12.0 43

Philippines 6 1 6.5 32

Indonesia 1 - 0.0 * 3

Vietnam - 1 0.5 1

Bangladesh 1 - 1.6 -**

* Our Banda Aceh plant in Indonesia was severely damaged during the 2004 tsunami and is under reconstruction.

** Activity restarted in 2007.

We believe that the long-term growth

prospects for Asia are very favorable. The

region as a whole consumed close to

1,800 million tonnes of cement in 2007,

based on the JP Morgan Report. We sold

34.8 million tonnes of cement in the region

in 2007, 31.1 million tonnes in 2006 and

28.7 million tonnes in 2005. A subsidiary

that we hold through a 50/50 joint venture

with Cementos Molins built a 1.6 million

tonne plant in northeastern Bangladesh in

October 2006. Our cement grinding plant in

Vietnam started operations in 2006.

In Japan, we hold a 39% indirect interest in

Lafarge Aso Cement (accounted for by the

equity method and therefore not included

in the table above), which operates two

plants with a combined capacity of 3 million

tonnes.

The acquisition of Orascom Cement completed

in January 2008 will bring to the Group

operations in North Korea and Pakistan.

In China, a market estimated at almost

1,300 million tonnes, we signed in 2006

a joint venture with the Hong Kong based

company Shui On. This joint venture is today

the leader in the markets of the Southwest

regions in China (Sichuan, Chongqinq,

Guizhou and Yunnan), and also operates

in Beijing.

Furthermore, the signing of a strategic

cooperation agreement with the government

of Yunnan region has been announced

in November 2007. This agreement concerns

the construction by Lafarge Shui On of new

cement capacities worth at least 10 million

tonnes in this region before 2010.

See Section 8.3 (Material contracts) for more information on this cooperation agreement.

CEMENT TRADING ACTIVITIES

We also manage worldwide cement trading

activities, which enable us to meet demand

fluctuations in certain countries, without

building overcapacity facilities. We conduct

these activities primarily through our subsid-

iaries Cementia Trading and Marine Cement.

During 2007, Cementia Trading purchased

and sold approximately 10.2 million tonnes

of cement and clinker. Marine Cement

acts mainly as an importer and distributor

of cement in Reunion, the Seychelles and

the Red Sea countries. Marine Cement sold

approximately 3.1 million tonnes of cement

in 2007, which it purchased from our own

subsidiaries as well as third parties.

Aggregates & Concrete

Aggregates and concrete are key compo-

nents of construction projects. Based

on both internal and external research,

we believe that Lafarge is the joint world

leader in aggregates market and the third

largest producer of concrete in the world.

At December 31, 2007, we had production

facilities in 29 countries. In the year ended

December 31, 2007, our consolidated

businesses operated 588 aggregates quar-

ries, which sold approximately 259 million

tonnes of aggregates, and 1,144 concrete

p l an t s , wh ich so ld approx ima te l y

42 million m3 of concrete. We also produce

asphalt and pre-cast concrete products

and provide road contracting and surfacing

services in several markets.

We are vertically integrated to varying

degrees with our Cement Division which

supplies substantial volumes of cement to

our concrete operations in several markets.

Also within our Aggregates & Concrete

Division, our aggregates operations supply

a substantial volume of aggregates required

for our concrete, asphalt and paving

operations.

1

2

3

4

5

6

7

8

9

10



3.3 Business description – Aggregates & Concrete

Products

AGGREGATES

Aggregates are used as raw materials

for concrete, masonry, asphalt and other

industrial processes, and as base materials

for roads, landfills and buildings. The

primary aggregates we produce and sell are

hard rock (usually limestone and granite),

but we also produce natural sand and gravel.

Additionally, depending on the market,

we process and sell recycled asphalt and

concrete. Aggregates differ in their physical

and chemical properties, granularity and

hardness. Local geology determines the type

of aggregates available in a given market,

and not all types of aggregates are available

in every market. Through our Research &

Development we have greatly increased our

understanding of the impact that the various

properties of aggregates have in their fi nal

applications. Consequently, we have been

able to refi ne our product offerings and step

up innovation in our downstream aggregates

and concrete products.

CONCRETE

Concrete is a blend of aggregates, cement,

admixtures and water that hardens to form

the world’s most used building material. We

produce and sell a wide range of concrete

and masonry mixes to meet our customer’s

diverse needs. Tensile strength, resistance

to pressure, durability, set times, ease of

placing, aesthetics, workability under various

weather and construction conditions are but

a few of the major characteristics that our

customers consider when buying concrete.

From the very basic to the cutting edge, we

offer a broad range of concrete mixes.

Through our internal Research center

(“LCR”, Lafarge Research Center), we have

introduced new products such as: Agilia®,

which offers superior coverage and filling

abilities and self-leveling capability, with

enhanced durability and appearance. In

addition, we recently introduced decorative

concretes in some markets through our

Artevia Color™ series. Demand for new

products and for a broader range of

products is accelerating due to sustainability

init iat ives and new customer needs.

In 2006, we launched two new products,

Chronolia® and Extensia®, addressing two

very different needs of our customers.

We be l ieve our s t rong Research &

Development program gives us a distinct

advantage over our competitors.

ASPHALT AND PAVING

In North America and the United Kingdom,

we produce and sell asphalt for road

surfacing and paving. Asphalt consists of

90-95% dried aggregates mixed with 5-10%

heated liquid bitumen, a by-product of

oil refining that acts as a binder. In these

markets, we also provide road contracting

and surfacing services.


AGGREGATES

The most frequent aggregates production

process involves primarily blasting hard

rock from quarries and then crushing and

screening it to various sizes to meet our

customer’s needs. Aggregates production

also involves the extraction of sand and

gravel from both land and marine locations,

which generally requires less crushing but

still requires screening to different sizes. The

production of aggregates entails intensive

use of heavy equipment and involves regular

use of loaders, haul trucks, crushers and

other heavy equipment at our quarries. After

mineral extraction we restore our sites so

that they may be used for other purposes:

agricultural, commercial or natural.

In a world of growing environmental

pressures, where it is increasingly diffi cult to

obtain extraction permits, and where mineral

resources are becoming scarcer, mineral

reserve management is a key to success in

the aggregate business. Consequently, we

emphasize mineral and land management

in our business.

Across our existing markets, we regularly

search for new material reserves to replace

depleting deposits well in advance of their

exhaustion and we work to obtain necessary

government permits allowing the extraction

of our raw materials. At December 31, 2007,

we estimate that we had approximately

40 years of permitted reserves. We control

signifi cant additional aggregates deposits,

for which we have either not yet received or

requested extraction permits.

CONCRETE

Concre te i s p roduced by b lend ing

aggregates, cement, chemical admixtures

and water at concrete production plants and

placing the resulting mixture in concrete

trucks where it is mixed further and

delivered to our customers. We obtain most

of our concrete raw materials (e.g. cement

and aggregates) from our other Divisions.

Concrete is produced at plants consisting

of raw material storage facilities and equip-

ment for combining raw materials in desired

ratios and placing the mixture into concrete

trucks. Concrete plants can be either fi xed

permanent sites or portable facilities, which

may be located at our customers’ construc-

tion sites.

Many concrete mixtures are designed

t o a c h i e v e v a r i o u s p e r f o r m a n c e

characteristics desired by our customers.

Cement and aggregate chemistries may be

varied, chemical admixtures may be added

(such as retarding or accelerating agents)

and other cementitious materials (such

as fly ash or slag) may be substituted for

portions of cement to adjust the concrete

performance characteristics desired by

the customer. Consequently, significant

technical expertise and quality control are

required to address the many construction

issues our customers face, such as concrete

setting time, pumpability, placeability,

weather conditions, shrinkage and structural

strength. Through our extensive Research

& Development activities, we focus on

supplying concrete that meets these various

needs of our customers.

Because of concrete’s limited setting time,

delivery logistics are key to ensure the

cost efficient and timely delivery of our

concrete.

Raw material prices account for approxi-

mately 70% of the cost to supply concrete

and may vary considerably across the many

markets in which we operate. Given the

signifi cantly high percentage of raw mate-

rials costs, we strive to adjust concrete mix

designs to optimize our raw material usage.

Delivery represents the next largest cost

component, accounting for approximately

20% of the costs to supply concrete.


INFORMATION ON LAFARGE3 3.3 Business description – Aggregates & Concrete

PRE-CAST CONCRETE PIPES,

WALL PANELS AND OTHER

PRE-CAST PRODUCTS

These products are manufactured by

pouring the proper type of concrete into

molds and compacting the concrete through

pressure or vibration or a combination of the

two. These products are normally produced

and sold in standard sizes, which may vary

from market to market.

ASPHALT AND PAVING

As described above, asphalt is produced by

blending aggregates with liquid bitumen at

asphalt production plants. We obtain much

of the aggregates needed to produce asphalt

from internal sources and purchase the

bitumen from third party suppliers. Bitumen

is a by-product of petroleum refi ning, the

price of which is tied to oil prices. Asphalt

is produced at low capital- intensive

plants consisting of raw material storage

facilities and equipment for combining raw

materials in the proper proportions at a high

temperature. Our asphalt plants range in

output from 5,000 to 500,000 tonnes per

year and are located in North America and

the United Kingdom. In conjunction with

our asphalt production, we also provide road

contracting and surfacing services in these

regions, where we frequently have leading

positions based on sales.

Customers

We sell our aggregates, concrete and asphalt

primarily in local markets to thousands of

unaffi liated customers throughout the world.

Concrete and asphalt cannot be transported

over long distances of more than approxi-

mately one hour. The markets for these

products are therefore locally based. Even

though loyalty to the brand plays a vital part

in the sale of these products, local customers

tend to buy from producers based on their

location, quality of the product, reliability

of service and price. However, demand for

concrete and asphalt is primarily dependent

on local market conditions that can fl uctuate

signifi cantly from one market to the other.

The high cost of transporting aggregates

over land also explains why the markets are

mostly local. Where our quarries have access

to shipping lanes or railroads, we may ship

aggregates over signifi cant distances.

We sell aggregates primarily to concrete

producers, manufacturers of pre-cast

concrete products, asphalt producers,

road contractors, masons and construction

companies of all sizes. In some markets, we

sell aggregates for use in various industrial

processes, such as steel manufacturing.

We sell concrete primarily to construction

and road contractors ranging from major

international construction companies to

small residential builders and farmers. We

sell asphalt primarily to road contractors

for driveways and parking lots, as well as

directly to state and local authorities.

Our customers generally purchase aggre-

gates, concrete and asphalt in quantities

suffi cient to meet their immediate require-

ments, often through competitive bidding

processes. Occasionally, we enter into agree-

ments to supply aggregates to certain plants,

which produce concrete, asphalt or pre-cast

concrete products. These contracts tend to

be renegotiated annually. Backlog orders for

our aggregates, concrete and asphalt are

normally not signifi cant.

Markets

DESCRIPTION OF MARKETS

AND OF OUR POSITION

IN THESE MARKETS

Most local aggregates, concrete and asphalt

markets are highly fragmented and are

served by any number of multinational,

regional and local producers.

Globally, the aggregates industry is in the

early stages of consolidation primarily in

developed markets. We face competition in

our local markets from independent opera-

tors, regional producers (such as Vulcan

Materials and Martin Marietta Materials in

the United States) and international players

(Cemex, Holcim, HeidelbergCement and

CRH).

Barriers for new entrants in the aggregates

industry are high as environmental and plan-

ning laws in many countries restrict new

quarry development. In addition, excluding

the cost of land and mineral rights, the plant

and equipment costs for a new quarry range

from around 2 to 4 million euros for a small

quarry to over 45 million euros for a very

large quarry.

We believe we have a strong competitive

position in aggregates through our strong

reserve positions in key markets. Our

worldwide experience allows us to develop,

employ and ref ine business models

through which we share and implement

best practices relating to strategy, sales

and marketing, manufacturing and land

management. In addition, we have a strong

understanding of the needs of most of our

aggregates customers since we are vertically

integrated in their predominant lines of

business. Finally, we believe that we have

a reputation for responsible environmental

stewardship and land restoration, which

assists us in obtaining new permits more

easily and encourages landowners to deal

with us as the operator of choice.

Consolidation in the global concrete industry

is less pronounced than in aggregates

and we face competition from numerous

independent opera to rs th roughout

our markets. We also compete with

multinational groups such as Cemex,

CRH, HeidelbergCement, Holcim and

Italcementi.

An essential element of our business

is differentiation. We have developed

substantial technical expertise relating to

concrete. Consequently, we can provide

signifi cant technical support and services

to our customers to differentiate us from

competitors. Furthermore, as a consequence

of this technical expertise, we recently

developed several new products, such as

Agilia®, Chronolia® and Extensia®. Again, our

worldwide experience permits us to further

differentiate ourselves based on product

quality and capability.

To improve our competitive position in local

concrete markets, we locate our plants

to optimize our delivery flexibility and

production capacity. We evaluate each local

market periodically and may realign our

plant positioning to maximize profitability

when market demand declines or capacity

rises too high. Recently, we increased our

use of mobile plants in a number of markets

to increase our fl exibility in realigning plants

in response to market changes and to meet

customers’ needs.

Like concrete, asphalt must be delivered

quickly after it is produced. Thus, the

competitive radius of an asphalt plant is

limited and asphalt markets tend to be

1

2

3

4

5

6

7

8

9

10



3.3 Business description – Aggregates & Concrete

very local. Generally speaking, asphalt is

sold directly by the asphalt producer to

the customer, with only very limited use of

intermediate distributors or agents since

prompt and reliable delivery in insulated

vehicles is essential.

LOCATION OF OUR MARKETS

The majority of our aggregates, concrete and

asphalt operations are located in Western

Europe and North America.

Generally, we restrict our aggregates and

concrete operations to markets where the

nature and enforcement of applicable

regulations provide a level playing fi eld. We

usually avoid countries where small local

operators are not obliged to follow appropriate

environmental and labor standards, since

they either do not exist locally or are not

enforced. Consequently, we are selective in

choosing the emerging markets in which we

wish to conduct our aggregates and concrete

operations, selecting only those where the

appropriate standards are in place.

BREAKDOWN BY GEOGRAPHIC MARKET

We produce and sell aggregates and

concrete in those regions and countries

of the world listed in the table below.

The table shows the number of sites we

operated at December 31, 2007 and the

volume of aggregates and concrete our

consolidated operations sold in 2007.

Volumes sold take into account 100% of

volumes from fully consolidated subsidiaries

and the consolidation percentage for

proportionately consolidated subsidiaries.

NUMBER OF INDUSTRIAL SITES VOLUMES SOLD

Region/country Aggregates Concrete Aggregates Concrete

(million tonnes) (million m3)

WESTERN EUROPE

France 131 269 53.1 8.9

United Kingdom 61 125 19.5 2.7

Spain 9 89 8.6 4.6

Portugal 4 30 2.5 1.4

Greece 7 25 3.0 1.5

Other 4 29 0.9 0.8

NORTH AMERICA

Canada 214 141 64.2 5.2

United States 87 156 74.9 5.7

CENTRAL EUROPE

Poland 15 13 7.8 0.6

Ukraine 2 - 3.1 -

Romania 14 12 3.6 0.6

OTHER

South Africa 23 64 7.5 2.4

Brazil 3 43 2.1 0.8

Chile 4 47 3.6 2.5

Malaysia 3 41 2.7 2.4

Turkey 3 12 1.5 1.2

Other 4 48 0.6 0.9

TOTAL 588 1,144 259.2 42.2

In 2007, our asphalt operations produced and sold a total of 9.6 million tonnes in the United States, Canada and the United Kingdom.


INFORMATION ON LAFARGE3 3.3 Business description – Gypsum

Gypsum

Gypsum wa l lboard (a l so known as

“plasterboard”) and other gypsum-based

products (e.g. plaster, plaster blocks, joint

compounds and related products such

as metal studs and accessories) are used

primarily to offer gypsum-based building

solutions for constructing, finishing or

decorating interior walls and ceilings in

residential, commercial and institutional

construction projects throughout the world,

as well as for sound and thermal insulating

partitions. Other gypsum-based products

include industrial plaster (used for special

applications such as moldings or sculptures)

and self-leveling fl oor-screeds.

We believe that we are the third largest

manufacturer o f gypsum wal lboard

worldwide. At the end of 2007, we had

production facil it ies in 28 countries.

Our consolidated businesses operated

39 wallboard plants (with an annual

production capacity of approximately

1,180 million m2) and 32 other plants which

produced primarily plaster, plaster blocks or

joint compounds as well as three wallboard

paper plants.

Products

WALLBOARD

Our principal gypsum product is wallboard.

We produce wallboard in a number of

standard lengths, widths and thicknesses and

with a variety of characteristics depending

on the intended use of the board. We offer a

full line of wallboard and fi nishing products:

“standard” wallboard; wallboard designed

for various decorative treatments; and

wallboard for use in a variety of applications

– e.g. sound and thermal insulating

partitions, high humidity, fire retardant,

water-resistant, sag-resistant and high traffi c

areas.

We regularly seek to expand and improve the

range of our wallboard products. Our recently

introduced SYNIA™ wallboard, a new genera-

tion wallboard with all four edges tapered,

is designed to help installers achieve top

quality fi nishes in many applications. It has

been launched in four countries to date and

has met spectacular success with installers,

posting sales of over 7 million m2.

OTHER PRODUCTS

We also produce gypsum plaster, plaster

blocks, joint compounds, metal studs, anhy-

drite binders for self-leveling fl oor screeds

and industrial plasters, which are intended

for the construction and decorating indus-

tries. Sales of such products accounted for

approximately 35% of our Gypsum Division

sales in 2007.


Gypsum wallboard exploits the crystal-

line structure of gypsum (calcium sulfate

dihydrate – a naturally occurring mineral

common in sedimentary environments),

within which water molecules are physi-

cally locked. Wallboard is made by grinding

and heating gypsum to release the trapped

water molecules, mixing the residue with

water to form a slurry, extruding the slurry

between two continuous sheets of paper,

and then drying and cutting the resulting

board into proper sizes. When drying, the

slurry rehydrates into gypsum crystals,

which interlock with each other and “grow”

into the liner paper, giving the board its

strength. We use both naturally occurring

gypsum and synthetic gypsum to produce

wallboard. Synthetic gypsum is produced

as a by-product of certain chemical manu-

facturing and electrical power production

operations. At the end of 2007, our consoli-

dated businesses operated 22 gypsum

quarries worldwide, including 16 in Europe.

Some of our plants have entered into long-

term supply contract, with third parties to

supply natural gypsum. Generally, we obtain

synthetic gypsum under long-term contracts,

most of which contain one or more options

to renew. Occasionally, depending on our

supply needs and local market conditions,

we enter into contracts for shorter periods.

We believe our current supply of gypsum,

both natural and synthetic, is adequate for

present and foreseeable operating levels.

Paper and gypsum account for approxi-

mately 25% and 13%, respectively, of our

wallboard production costs. We produce

about half of our wallboard paper at our

own mills in France and Sweden, and at one

mill in the United States operated through a

joint venture. The major raw material for our

paper is recycled paper fi ber.

Customers

We sell our gypsum wallboard products

mostly to general building materials distribu-

tors, wallboard specialty dealers, lumber

yards in the United States, decorating

companies in growing markets and do-it-

yourself home centers. In some markets,

specifi ers (such as architects) may infl uence

which products are to be used to construct

specifi c projects. Our marketing efforts are

focused not only on actual purchasers, but

also on those who may indirectly determine

which materials are used.

Markets

DESCRIPTION OF MARKETS

AND OF OUR POSITION

IN THESE MARKETS

Seven producers hold approximately 81% of

today’s worldwide wallboard market. These

companies are Georgia Pacific, Knauf,

Lafarge, National Gypsum, Saint-Gobain,

U.S. Gypsum and Yoshino. These compa-

nies operate gypsum wallboard plants and

usually own the gypsum reserves they use

to produce their wallboard.

The gypsum wallboard industry is highly

competitive. Because wallboard is expensive

to transport and does not travel well in large

quantities, producers compete on a regional

basis, primarily based on price, product

range, product quality, and customer

service. Our largest competitors in Western

Europe are Saint-Gobain and Knauf, and in

the United States they are U.S. Gypsum,

National Gypsum and Saint-Gobain.

The sector is highly competitive in Europe

and North America with product ion

concentrated among several national and

international players.

1

2

3

4

5

6

7

8

9

10



3.3 Business description – Gypsum

BREAKDOWN BY GEOGRAPHIC

MARKET

The following presentation shows the

percentage contribution made by each of

these regions to our 2007 Gypsum Division

sales in euros.

GYPSUM DIVISION SALES

BY GEOGRAPHIC AREA

%

Western Europe 55.9

North America 15.6

Other regions 28.5

TOTAL 100.0

WESTERN EUROPE

(56% OF THE DIVISION’S 2007 SALES)

Western Europe is the second largest

worldwide regional wallboard market. The

technical performance of products and

systems plays a critical role in this market.

The region as a whole consumed close to

1.6 billion m2 of wallboard in 2006, based

on our estimates. We sold 289 million m2

of wallboard in Western Europe in 2007,

283 million m2 in 2006 and 273 million m2

in 2005.

In 2007, we started operating a new wall-

board plant in the United Kingdom, with an

annual capacity of 25 million m2. In Spain,

we have a minority interest in a wallboard

plant and three plaster plants.

NORTH AMERICA


North America is the largest worldwide

regional wallboard market. The region as a

whole consumed close to 3.7 billion m2 of

wallboard in 2006, based on our estimates.

We sold 191 million m2 of wallboard in North

America in 2007, 214 million m2 in 2006

and 213 million m2 in 2005.

In 2006, we upgraded and doubled the

capacity of our Buchanan, New York, wall-

board plant to 60 million m2. In 2007, we

expanded the capacity of our wallboard plant

in Silver Grove, Kentucky to 150 million m2.

In July 2007 we closed our wallboard plant

in Cornerbrook, Canada.

OTHER MARKETS


We also conduct wallboard and related

operations in other markets. In Poland,

in 2006 we purchased a formulated products

business with a capacity of 50,000 tonnes.

In Romania, in order to support the market

expansion, during 2007 Lafarge tripled its

plant’s production capacity. In Ukraine,

a plant with plasterboard capacity of

15 million m2, extendable to 30 million m2

was completed at the end of 2007.

In Turkey, we operate a wallboard plant

and a construction plaster plant near

Ankara through a joint venture with Dalsan

Insaat. Together, we have started to build a

new wallboard plant in Istanbul, which is

expected to be completed in early 2008,

and in 2006 we completed an investment

that doubled plaster production capacity

in Ankara.

In South Africa, in addition to its existing

manufacturing line for gypsum compo-

nents, Lafarge completed the construction

of a plasterboard plant with a capacity of

15 million m2 in mid 2007.

In Algeria, Lafarge built a plaster plant with

a capacity of 150,000 tonnes in 2007. In

Saudi Arabia, Lafarge signed a joint venture

agreement in 2005 with local players to

build a new plaster plant with a capacity of

150,000 tonnes that became operational

in 2007. In Morocco, we operate a plaster

plant with a capacity of 140,000 tonnes.

In Australia, we operate two wallboard plants.

In 2007, we built a plaster compound plant

in Altona on the site of the existing wallboard

plant.

In Latin America, through companies

we control jointly with the Etex group, we

operate one wallboard plant in each of

Argentina, Brazil and Chile and a plaster

plant in each of Brazil and Chile. In 2007,

we began the construction of a wallboard

plant with a capacity of 15 million m2 with

a joint venture partner in Colombia.

In Mexico, Lafarge operates through a

joint venture with a majority partner, the

Comex group. The joint venture built a new

wallboard plant that began operations in

January 2007.

In Asia, we conduct gypsum wallboard

and related operations through a 50/50

joint venture with Boral Limited, which we

manage jointly. The joint venture operates

three wallboard plants in South Korea, three

in China, one in Malaysia, three in Thailand

and two wallboard plants in Indonesia. It also

has several plaster and metal stud plants in

these countries. The joint venture is building

a new wallboard plant in Central West China,

which should increase its annual capacity in

China to more than 50 million m2 annually.

In 2007 the capacity of the joint venture’s

Dangjin plant in South Korea was doubled to

75 million m2. In mid-2006, the joint venture

completed the construction of a plaster-

board plant in the Ho Chi Minh City area of

Vietnam. This plant is the fi rst plasterboard

plant to be built and operated in Vietnam.

The joint venture is building a wallboard

plant in Rajasthan, India, which is expected

to be completed in early 2008.

Our wallboard and related products sales in

emerging markets totaled 390 million euros

and 336 million euros during 2007 and

2006, respectively. These sales accounted for

24.7% and 20.5% of our total wallboard and

related product sales for each respective year.


INFORMATION ON LAFARGE3 3.4 Organizational structure

3.4 Organizational structure

See Note 35 to our consolidated fi nancial statements for more information on our principal subsidiaries, including their full legal name and country of incorporation.

Lafarge S.A. is a holding company.

We conduct our operations through approxi-

mately more than 800 direct and indirect

majority owned subsidiaries and around

500 companies in which we have a minority

shareholding. We have a large number of

operating companies because we conduct

operations through several Divisions, our

businesses are local in nature, and we have

facilities in 76 countries.

Lafarge S.A.’s relationship

with its subsidiaries

Lafarge S.A.’s relationship with its subsidi-

aries includes a fi nancial component and an

assistance component.

The financial component covers the

fi nancing by Lafarge S.A. of most subsidi-

aries’ operations and the pooling of cash

generated by subsidiaries where possible and

the transfer of dividends from subsidiaries.

At December 31, 2007, Lafarge S.A. held

approximately 79% of the Group’s debt

excluding put options on shares of subsidi-

aries. Lafarge S.A. has access to short-term

and long-term fi nancial markets and large

banking networks and provides fi nancing to

its subsidiaries through inter-company loans.

To fund such loans, we draw primarily on

our Euro Medium Term Note program for

medium to long-term fi nancing and related

Commercial Paper program for short-term

fi nancing.

This general financing rule nevertheless

has some exceptions. If we cannot obtain

financing through these programs in a

subsidiary’s local currency, we secure local

funding to ensure the subsidiary’s operations

are fi nanced in the relevant local currency.

Also, certain of our consolidated subsidi-

aries, which have minority shareholders,

can access the fi nancial markets on their

own, and, thus, obtain and carry their own

fi nancing.

For those subsidiaries for which it is possible

(most subsidiaries located in the euro zone,

Poland, Romania, Switzerland and the United

Kingdom), Lafarge S.A. uses a cash pooling

program, through which cash generated

by such subsidiaries is consolidated and

managed by Lafarge S.A. in connection

with the financing of the subsidiaries’

operations.

The assistance component relates to the

supply by Lafarge S.A. of administrative and

technical support to the subsidiaries of the

Group. Lafarge S.A. also grants rights to use

its brands, patents and industrial know-how

to its various subsidiaries. The Research &

Development activities are managed by the

Lafarge Research Center located in Lyon,

France. In the Cement Division, technical

support services are provided by our various

regional Technical Centers located in Lyon,

Vienna, Montreal, Rio de Janeiro, Beijing

and Kuala Lumpur.

Subsidiaries are charged for these various

services and licenses under franchise,

support or brand licensing contracts.

Group relationship

with minority shareholders

of its subsidiaries

In addition to our listed subsidiaries that

have a broad base of minority shareholders,

certain other controled subsidiaries may have

industrial or fi nancial partners, government

entities, prior employees or prior owners

as minority shareholders. In some cases,

such minority shareholders are required by

local laws or regulations (e.g. in the case of

a partial privatization). In other instances,

we have partnered with them to share our

business risk. We often have entered into

shareholder agreements with such minority

shareholders, which agreements contain

board membership or other similar provi-

sions, shareholders’ information rights and

control provisions. Approximately 16% of

our consolidated revenues and 19% of our

current operating income (as defined in

Section 4.1 (Overview – Defi nition)) are

derived from subsidiaries that are subject

to such agreements. We have not recently

experienced any difficulties in managing

these subsidiaries vis-à-vis our partners,

which could present a risk to our fi nancial

structure.

Certain of these shareholder agreements

contain exit provisions for our minority share-

holders that can be exercised at any time, at

certain fixed times or in specific circum-

stances, such as a continuing disagreement

between Lafarge S.A. and the shareholder or

a change in control of the relevant subsidiary

or Lafarge S.A. In particular, our shareholder

agreements relating to our cement opera-

tions in Morocco and Egypt, as well as the

shareholder agreement concluded with our

joint venture partner Boral, contain provi-

sions that enable our partners to buy back

our shareholding in these businesses in the

event of a change in control of Lafarge S.A.

See Note 25 (f) to our consolidated fi nan-cial statements for more information on put options on shares of subsidiaries.

1

2

3

4

5

6

7

8

9

10


3.5 Environment


3.5 Environment

Our operations involve the use, release,

discharge, disposal, and clean up of

substances regulated under regional,

national and local environmental laws and

regulations. Extraction of minerals entails

compliance with laws and regulations

governing land use and the rehabilitation

of quarries at the end of their life. Such

laws and regulations impose increasingly

s t r ingent env i ronmenta l pro tect ion

standards for industrial operations such as

ours and expose us to an increased risk of

substantial costs and liabilities arising from

environmental matters.

We encourage our worldwide operations

not only to respect local environmental

laws, but also to meet internal standards.

We encourage our subsidiaries to be

proactive regarding environmental matters

and to cooperate with regulatory authorities

to evaluate the costs and benefits of

proposed regulations. We maintain a Group-

wide environmental program designed to

monitor environmental matters and maintain

compliance with applicable laws, regulations

and standards.

In recent years, Lafarge has participated in

a number of environmental initiatives. Since

2000, we are cooperating with the WWF

in a voluntary environmental conservation

partnership, and we have been a founding

member of its Conservation Partner program.

This partnership was renewed in 2005.

Under the renewed agreement, we continue

to work on climate change within the frame-

work of our voluntary commitment to reduce

our worldwide CO2 emissions by 20% per

tonne of cement produced worldwide over

the 1990-2010 period. As of end of 2007,

we have reduced our CO2 emissions per

tonne of cement by 16%.

CO2 EMISSIONS PER TONNE OF CEMENT in kg

2007 645

2006 658

2005 669

1990 767

reduction in % (base 1990)

-16%

-14.12%

-12.8%

Our teams are also working on biodiver-

sity issues, persistent pollutants and the

development of sustainable construction

ini t iat ives. WBCSD (World Business

Council for Sustainable Development)

initiative called “Energy Efficiency in

Buildings” jointly chaired by Lafarge and

United Technologies, aims at promoting

the regulatory, fi nancial, technological and

behavioral aspects for implementing

residential and industrial constructions with

zero net energy consumption.

We are currently involved in the remediation

of certain contaminated properties (at most

of which contamination occurred before we

acquired the properties). Based on current

information, we do not believe such activities

will have a material adverse effect on our

fi nancial condition or results of operations.

In 2003, the European Union adopted a

Directive implementing the Kyoto Protocol on

climate change. This Directive established

a CO2 emissions trading scheme in the

European Union. Within the industrial sectors

subject to the scheme, each industrial

facility is allocated a certain amount of

CO2 allowances. Industrial operators, who

keep their CO2 emissions below the level of

allowances they were granted, can sell their

excess allowances to operators who have

emitted more CO2 than initially allocated

to their facilities. Another provision allows

European Union companies to use credits

arising from investments in emission

reduction projects in growing countries to

comply with their obligations in the European

Union.

The European Emission Trading Scheme

(“EU ETS”) Directive came into force on

January 1, 2005, and each Member State

issued a National Allocation Plan (“NAP”)

defi ning the amount of allowances allocated

to each industrial facility. These NAPs were

then approved by the European Commission.

In 2007, the NAPs for the second period

(2008-2012) underwent fi nal preparatory

work in each country, with negotiations being

held between national governments and the

European authorities. The majority of the

results and decisions have been published

end of 2007.

The emissions trading Directive and its

provisions apply to all our cement plants in

the European Union and, to a lesser extent,

to our gypsum operations. We operate

cement plants in 11 of the 27 European

Union Member States. Allowances that were

allocated to these facilities represent some

25 million tonnes of CO2 per year over the

2005-2007 period (revised to 27 million

tonnes when Romania joined the EU ETS

in 2007). At the end of 2007, we had a small

surplus of allowances (approximately 6% of

the total quotas received), which we sold on

the market since it was not allowed to carry

forward in 2008. Based on our production

forecasts, the NAP quotas that we receive

for the second period (2008-2012) should

cover our needs on a consolidated basis,

i.e. after balancing between our countries

with a defi cit and countries with an excess

of CO2 allowances.

Beg inn ing o f 2008 , the European

Commission published a proposal for

revising the Directive on the framework for

CO2 allowances for the period 2013-2020.

This proposal provides namely that industrial

facilities will need to progressively buy their

CO2 allowances (instead of receiving them

for free under the current framework).

This proposal will be discussed in 2008 by

the European Commission, the European

Council of Heads of State and Government

and the European Parliament. We are

carefully monitoring the outcome of this

proposal and its potential impacts on

the European Cement industry.


INFORMATION ON LAFARGE3 3.6 Insurance

In 2007, our capital expenditures and

remediation expenses for environmental

matters were not material to our fi nancial

condition, results of operations or liquidity;

nor were environmental liabilities recorded

at December 31, 2007. However, our

expenditures on environmental issues have

generally increased over time and are likely to

increase further in the future. Because of the

complexity of environmental laws, differing

environmental requirements throughout

the world, and uncertainties surrounding

environmental compliance, technology and

related matters, we cannot predict whether

capital expenditures and remediation

expenses for future environmental matters

will materially affect our fi nancial position,

results of operations or liquidity.

3.6 Insurance

The Group’s general insurance policy is

based on the following key principles:

implement prevention and protection

actions in order to mitigate applicable

risks;

retain exposure to frequency risks

through self-retention, including captive

schemes;

transfer only severity risks, above the

self-retention, to the insurance and

reinsurance markets. A special attention

is given to the fi nancial strength of market

participants;

cover under Group-wide insurance poli-

cies, subsidiaries in which the Group

owns a majority shareholding, subject to

local regulatory constraints and specifi c

geographical exclusions.

Property damage

and business interruption

insurance

This insurance program covers property

losses following fire, explosion, natural

events, machinery breakdown, etc. and

related business interruption if any. This

program is providing worldwide coverage

including North America. Assets are insured

at their actual cash value. Total insured

values amount to 21.5 billion euros. Potential

loss scenarios for the largest sites are

evaluated with specialized engineers from

an external consulting fi rm. Based on these

studies, the highest “Maximum Foreseeable

Loss” would stand at 172 million euros, an

amount for which Lafarge is covered.

The “Property Damage and Business

Interruption” Group program carries a

policy limit of 200 million euros per claim.

Sub-limits usually set by insurance compa-

nies may also applied.

The number and the spread of the plants all

over the world tend to mitigate the risk of a

high business interruption exposure.

Lastly, the loss control program continued as

in the previous years. Qualifi ed loss preven-

tion engineers from an external consulting

fi rm carried out a total of 71 site inspections

during 2007. The major sites are ranked and

benchmarked internally. Key recommenda-

tions, in order to improve the property risks,

are made, prioritized, and progressively

implemented on the sites.

Liability insurance

Public liability, product liability, directors

and officers’ liability, Charterer’s Liability

and environmental impairment policies are

the main Liability-type policies within the

Group. They cover amounts commensu-

rate with the nature of Lafarge business

activities, the concerned countries, the loss

experience and the available capacity of

the insurance and reinsurance markets.

Within the global public and product liability

program, Lafarge North America Inc. has its

own stand-alone primary casualty insurance

program designed to address the specifi c

liability risks in North America.

Insurance captives

The Group has one insurance and two rein-

surance captives located in Europe in order

to manage the frequency risk of the Group’s

subsidiaries. The level of risk retained by

these captives stands at a maximum of

two million euros per casualty claim and

fi ve million euros per property damage and

cargo claim.

In North America, the Group operates two

insurance captives which cover workers

compensation, auto liability and general

liability coverage. The maximum risk retained

by these captives ranges from two million to

fi ve million dollars per claim, depending on

the type of coverage.

The total cost of the Group’s insurance

programs, including the risks self-insured via

the captives, amounted to 2.05 per thousand

of the revenues of the insured perimeter

in 2007.

1

2

3

4

5

6

7

8

9

10


3.7 Intellectual property


3.7 Intellectual property

Lafarge has a substantial portfolio of intel-

lectual property rights including patents,

trademarks, domain names and registered

designs, which are used as a strategic tool

in the protection of its business activities.

Lafarge aims to enhance the value of this

intellectual property by coordinating, central-

izing and establishing our title through

patents, trademarks, copyright and other

relevant laws and conventions and by using

legal and regulatory recourse in the event of

infringement of the rights by a third party.

The Group Intellectual Property department

is in charge of protecting the Group Trade

Name and implementing the necessary legal

recourse against third party unauthorized

use of the Lafarge name. Action against

illegal use of the Lafarge name in China

has continued during 2007 with success

in several civil litigations against the local

counterfeiters. The new signature “Bringing

Materials to Life” has been protected as

a trademark in more than 100 countries,

during 2007, thereby providing strong legal

protection and recognition for the Lafarge

identity. Trademark protection has been

sought and obtained for new products

brands, particularly in the aggregates

and concrete businesses, in line with

product launch, for example Extensia® and

Chronolia® concrete products.

The use of, and access to, Lafarge’s

intellectual property rights are governed by

the terms of industrial franchise agreements.

The industrial franchise agreements provide

a series of licenses to our subsidiaries,

permitting the use of intangible assets

developed by the Group (such as know-how,

trademark, trade name, patents and

best practices). Agreements continue to

be implemented, where appropriate, for

existing and new business units and for

joint ventures.

The Lafarge patent portfolio continues to

grow considerably, with a further increase in

the submission of patent applications arising

notably from the Lafarge Research Center;

thereby refl ecting Lafarge’s commitment to

innovation; in particular, the patent portfolio

relating to the cement, aggregates and

concrete businesses has grown steadily in

the last three years (see fi gure below).

TOTAL NUMBER OF PATENTS

2007 580

2006 464

2005 394


INFORMATION ON LAFARGE3

1

2

3

4

5

6

7

8

9

10

F

4 Operating and Financial Review and Prospects

POURING EXTENSIA®,an innovative concrete which enables the construction of surface areas of up to 400 m² without joints, instead of 25 m² with conventional concrete, Lafarge Research Center.

4.1 OVERVIEW 38Summary of our results for 2007 38Recent events 38Seasonality 38Critical accounting policies 38Effects on our reported results of changes in the scope of our operations and currency fl uctuations 39Defi nition 40Reconciliation of our non-GAAP fi nancial measures 40

4.2 RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2007 AND 2006 43Consolidated sales and current operating income 43Sales and current operating income by Division 46Cement 46Aggregates & Concrete 50Gypsum 54Other (including holdings) 55Operating income and net income 55

4.3 RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2006 AND 2005 57Consolidated sales and current operating income 57Sales and Current Operating Income by Division 59Cement 59Aggregates & Concrete 64Gypsum 66Other (including holdings) 68Operating income and net income 68

4.4 LIQUIDITY AND CAPITAL RESOURCES 70Net cash provided by operating activities 70Net cash (used in) investing activities 70Net Cash provided (used in) fi nancing activities 71Level of debt and fi nancial ratios at December 31, 2007 72Cash surpluses 73Effect of currency fl uctuations on our results and balance sheet 73

4.5 MARKET RISKS 74Foreign currency risk 74Interest rate risk 74Commodity risk 75Interest rate sensitivity 75Exchange rate sensitivity 76Commodity price sensitivity 77Counterparty risk for fi nancial operations 77Liquidity risk 77

4.6 RESEARCH & DEVELOPMENT 77

4.7 TREND INFORMATION 78


OPERATING AND FINANCIAL REVIEW AND PROSPECTS44.1 Overview

4.1 Overview

Summary of our results

for 2007

Our full-year 2007 results were very strong.

An unfavorable currency effect, due mainly

to the depreciation of the U.S. and Canadian

dollars against the euro, and the economic

slowdown in the United States limited

revenue growth to 4%, but current operating

income continued to grow at a very robust

17%. The operating margin increased

200bp to 18% and the return on capital

employed after tax rose to 160bp to 11%.

Our Excellence 2008 program combined with

numerous efforts to streamline operations in

recent years is clearly paying off.

Positions acquired in fast-growing markets

have largely contributed to the improvement

in annual earnings. In the Cement Division,

the emerging markets accounted for 53% of

Group sales and current operating income

in 2007, with remarkably strong earnings

growth in Central Europe and Asia.

Our expertise in aggregates and concrete

also fostered very strong growth in current

operating income, which rose nearly 28% in

this division despite the decline in volumes

in the United States.

Lastly, the Gypsum Division was hard hit by

the decline in the U.S. housing market, but

nonetheless managed to generate return on

capital employed after tax slightly over 7%,

thanks to rigorous cost management and

shrewd strategic decisions.

Very strong growth in operating income and

signifi cant capital gains on the disposal of

our operations in Central Anatolia, Turkey

and our Roofi ng Division drove Earning Per

Share growth to a record high of 41%.

In 2007, we continued to focus on organic

development with the launch of several

large-scale projects in the Cement Division

in central Europe, China, Morocco and the

United States, and in the Gypsum Division

in France and China. In 2007, we also

pursued efforts to improve workplace safety.

We are proud to announce that one year

ahead of schedule we have already met our

target of reducing by half the number of

workplace accidents resulting in absence

from work. We are convinced now more

than ever that safety is an excellent indicator

of performance. Nonetheless, we consider

we still have room to progress before

catching up with the world’s best in terms

of safety.

At December 31 2007, our balance sheet

was very solid, with net gearing of 72%,

down from 84% at December 31 2006.

At 32%, the rat io of cash f low from

operations to net debt has also improved

signifi cantly.

In conclusion, our 2007 results demonstrate

the solidity of our business model and

strategic positions, and enable us to

look to the future with confidence. The

Orascom Cement acquisition will boost

our growth potential (see the following

section – Recent Events). We believe we

have what it takes to become the sector’s

best in terms of costs, earning per share,

return on capital employed and cash fl ow

generation.

Recent events

On January 23, 2008 we acquired Orascom

Cement for 8.8 billion euros in cash and

the assumption of 1.4 billion euros of net

debt at December 31, 2007. The share

purchase agreement includes a share price

adjustment mechanism linked to the level

of actual net financial debt assumed, on

the basis of the consolidated accounts of

the new group as of December 31, 2007.

This acquisition was financed through

6.0 billion euros of debt and the issuance

of 22.5 million new Lafarge shares at a

subscription price of 125 euros per share.

The credit facility of 7.2 billion euros that

was put in place for this acquisition was

drawn for a total amount of 6,668 million

euros at January 22, 2008, covering both

the debt portion of the purchase price and

the partial refi nancing of existing debt.

As this acquisition took place after the close

of the 2007 fiscal year, it has not been

accounted for in our consolidated fi nancial

statements at December 31, 2007 except for

certain acquisition costs, the impact of which

on our consolidated financial statements

being not material.

See Sections 3.2 (Investments), 8.3 (Material contracts) and Note 3 (a) to our consolidated financial statements for more information on this transaction.

Seasonality

Demand for our cement and aggregates

& concrete products is seasonal and tends to

be lower in the winter months in temperate

countries and in the rainy season in tropical

countries. We usually experience a reduction

in sales on a consolidated basis in the fi rst

quarter during the winter season in our

principal markets in Western Europe and

North America, and an increase in sales in

the second and third quarters, refl ecting the

summer construction season.

Critical accounting policies

See Note 2 to our consolidated fi nancial statements for more information on the signifi cant accounting policies we apply under IFRS.

Impairment of goodwill

In accordance with IAS 36 – Impairment

of Assets, the net book value of goodwill

is tested for impairment at least annually,

during the second half of the year, to

consider factors that may have affected the

value and recoverability of assets.

For the purposes of the test, the Group’s net

assets are allocated to Cash Generating Units

(“CGUs”). CGUs generally represent one of

our three Divisions in a particular country.

A CGU is the smallest identifi able group of

assets generating cash infl ows independently

and represents the level used by the Group

to organize and present its activities and

results in its internal reporting.

In our goodwill impairment test, we use

a combination of a market approach (fair

value less costs to sell) and an income

approach (value in use). In the market

approach, we compare the carrying value of

our CGUs with multiples of their operating

income before capital gains, impairment,

restructuring, other and before amortization

and depreciation. For CGUs presenting an

impairment risk according to the market

approach, we then use the value in use

1

2

3

4

5

6

7

8

9

10


4.1 Overview

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

approach. In the value in use approach,

we estimate the discounted value of

the sum of the expected future cash fl ows

over 10-year periods. If the carrying value

of the CGU exceeds the higher of the fair

value less costs to sell or the value in use of

the related assets and liabilities, we record

an impairment of goodwill ( in “other

operating expenses”).

Evaluations for impairment are signifi cantly

impacted by estimates of future prices

fo r our p roduc ts , the evo lu t i on o f

expenses, economic trends in the local

and international construction sector,

expectations of long-term development of

emerging markets and other factors. The

results of these evaluations also depend

on the discount rates and perpetual growth

rates used. We have defi ned country specifi c

discount rates for each of our CGUs based

on their weighted-average cost of capital.

In some cases, we may involve a third party

valuation as part of our goodwill impairment

test.

See Note 9 to our consolidated fi nancial statements for more information on goodwill.

Pension plans and other postretirement benefi ts

Accounting rules for pension plans and

other postretirement benefits require us

to make certain assumptions that have

a signifi cant impact on the expenses and

liabilities that we record for pension plans,

end of service indemnities, and other post

employment benefi ts.

The main defined benefit pension plans

and other postretirement benefi ts provided

to employees for continuing operations

by the Group are in the United Kingdom

and North America (the United States

of America and Canada). The related

pro jected benef i t ob l iga t ions as o f

December 31, 2007 represent 62% and

26%, respectively, of the Group’s total

obligations in respect of pension plans,

end of service indemnities and other post

employment benefi ts.

See Note 23 to our consolidated fi nancial statements for more information on the primary assumptions made to account for pension plans, end of service indemnities and other post employment benefi ts.

Our pension and other postretirement

benefit obligations are impacted by the

2007 discount rates, which refl ect the rate

of long-term high-grade corporate bonds.

The impact of decreasing the discount rate

assumption by one percentage point at

December 31, 2007 for the valuation of

the most signifi cant benefi t plans located

in the United Kingdom and North America

would have been to increase the total benefi t

obligation by approximately 670 million

euros. In 2007, the Group has adopted the

amendment of IAS 19 which consists in the

recognition of actuarial gains and losses

through equity (Statement of Recognized

Income and Expense).

Environmental costs

Costs incurred that result in future economic

benefits, such as extending useful lives,

increasing capacity or safety, and those

costs incurred to mitigate or prevent

future environmental contamination are

capitalized. When we determine that it is

probable that a liability for environmental

costs exists and that its resolution will result

in an outfl ow of resources, an estimate of

the future remediation cost is recorded as

a provision without contingent insurance

recoveries being offset (only virtually certain

insurance recoveries are recorded as an

asset in the balance sheet). When we do

not have a reliable reversal time schedule or

when the effect of the passage of time is not

signifi cant, the provision is calculated based

on undiscounted cash fl ows.

Environmental costs, which are not included

above, are expensed as incurred.

See Note 24 to our consolidated fi nancial statements.

Site restoration

When we are legally, contractually or

constructively required to restore a quarry

site, we accrue the estimated costs of

site restoration and amortize them under

cost of sales on a unit of production basis

over the operating life of the quarry. The

estimated future costs for known restoration

requirements are determined on a site by

site basis and are calculated based on the

present value of estimated future costs.


Income taxes

In accordance with IAS 12 – Income Taxes,

deferred income taxes are accounted for

by applying the balance-sheet liability

method to temporary differences between

the tax basis of assets and liabilities and

their carrying amounts in the balance sheet

(including tax losses available for carry

forward). Deferred taxes are measured by

applying currently enacted or substantially

enacted tax laws. Deferred tax assets are

recognized and their recoverability is then

assessed. If it is unlikely that a deferred

tax asset will be recovered in future years,

we record a valuation allowance to reduce

the deferred tax asset to the amount that is

likely to be recovered.

We offset deferred tax assets and liabilities in

the balance sheet if the entity has a legally

enforceable right to offset current tax assets

against current tax liabilities and the deferred

tax assets and deferred tax liabilities relate

to income taxes levied by the same taxing

authority.

We compute our income tax obligations in

accordance with the prevailing tax legislation

in the countries where the income is earned.


Effects on our reported

results of changes in

the scope of our operations

and currency fl uctuations

Changes in the scope of our operations,

such as acquisitions and divestitures,

together with changes in how we account

for our business units, such as a change

from proportionate to global consolidation,

may increase or decrease our consolidated

sales and operating income before capital

gains, impairment, restructuring and other

in comparison to a prior year and thus

make it diffi cult to discern the evolution of

the underlying performance of our operations.

Changes in the scope of our operations

In order to provide a meaningful analysis

between any two years (referred to below as

the “current” year and the “prior” year), sales

and operating income before capital gains,

impairment, restructuring and other are


OPERATING AND FINANCIAL REVIEW AND PROSPECTS4 4.1 Overview

adjusted in order to compare the two years

at a constant scope of consolidation. With

respect to businesses entering the scope

of consolidation at any time during the

two years under comparison, current year

sales and operating income before capital


are adjusted in order to take into account

the contribution of these businesses during

the current year only for a period of time

identical to the period of their consolidation

in the prior year. With respect to businesses

leaving the scope of consolidation at any

time during the two years under comparison,

prior year sales and operating income before

capital gains, impairment, restructuring

and other are adjusted in order to take into

account the contribution of these businesses

during the prior year only for a period of time

identical to the period of their consolidation

in the current year.

Currency fl uctuations

Similarly, as a global business operating in

numerous currencies, changes in exchange

rates against our reporting currency, the

euro, may result in an increase or a decrease

in the sales and operating income before

capital gains, impairment, restructuring and

other reported in euros, which are not linked

to the evolution of underlying performance.

Except as otherwise noted, we calculate

the impact of currency variances as the

difference between the prior year’s fi gures

as published (adjusted if necessary for the

effects of businesses leaving the scope of

consolidation) and the result of converting

the prior year’s fi gures (adjusted if necessary

for the effects of businesses leaving the

scope of consolidation) using the current

year’s exchange rates.

Defi nition

The Group has included the “Operating

income before capital gains, impairment,

restructuring and other” subtotal (which we

commonly refer to as “current operating

income” in our other shareholder and

investor communicat ions; “current

operating income” hereinafter) on the

face of consolidated statement of income.

This measure excludes the i tems of

our operating results 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 “Operating income before capital

gains, impairment, restructuring and other”

subtotal is useful to users of the Group’s

financial statements, as it provides them

with a measure of our operating results

which excludes these items, enhancing the

predictive value of our fi nancial 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 fi nancial performance.

In addition, operating income before capital


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

average of 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 the

limitations outlined below, the Group restricts

the use of this measure to these purposes.

The Group’s subtotal shown under operating

income may not be comparable to similarly

titled measures used by other entities.

Furthermore, 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 fl ows.

Accordingly, the Group also presents

“operating income” on the consolidated

statement of income, which encompasses all

the amounts affecting the Group’s operating

results and cash fl ows.

Reconciliation of our non-

GAAP fi nancial measures

Net debt and cash fl ow from operations

To assess the Group’s fi nancial strength, we

use various indicators, in particular the net

debt-to-equity ratio and the cash fl ow from

operations to net debt ratio. We believe that

these ratios are useful to investors as they

provide a view of the Group level of debt as

compared to its total equity and its cash fl ow

from operations.

See Section 4.4 (Liquidity and capital resources – Level of debt and fi nancial ratios at December 31, 2007) for the value of these ratios in 2007, 2006 and 2005.

1

2

3

4

5

6

7

8

9

10


4.1 Overview


(million euros) 2007 2006 2005

Long-term debt 8,347 9,421 6,928

Short-term debt and current portion of long-term debt 1,762 1,664 2,077

Derivative instruments, liabilities – non-current 26 20 10

Derivative instruments, liabilities – current 36 25 88

Cash and cash equivalents (1,429) (1,155) (1,735)

Derivative instruments, assets – non-current (5) (70) (49)

Derivative instruments, assets – current (52) (60) (98)

NET DEBT 8,685 9,845 7,221

We calculate the net debt-to-equity ratio

by dividing the amount of our net debt, as

computed above, by our total equity as set

out in our consolidated balance sheet.

We calculate the cash flow from opera-

tions to net debt ratio by dividing our cash

flow from operations by our net debt as

computed above. Cash flow from operations

(after interests and income tax paid) is the

net cash provided by operating activities

from continuing operations, before changes

in operating working capital items, excluding

financial expenses and income taxes, as

follows:

(million euros) 2007 2006 2005*

Net operating cash generated by continuing operations 2,702 2,382 1,751

Changes in operating working capital items, excluding fi nancial expenses and income taxes 79 257 334

CASH FLOW FROM CONTINUING OPERATIONS 2,781 2,639 2,085



Free cash fl ow

The free cash flow is defined as the net

operating cash generated by continuing

operations less sustaining capital expen-

ditures.

Return on capital employed after tax

One of the key profi tability measures used

by our Group and Division management

for each Division is the “return on capital

employed after tax”. This non-GAAP

measure is calculated by dividing the sum

of “current operating income after tax” and

“income from associates” by the average of

“capital employed” at the end of the current

and prior year.

See Note 4 to our consolidated fi nancial statements for more information on current operating income, the share of “income from associates” and “capital employed by Division”.

In 2007, return on capital employed after

tax is determined using the 2007 effective

consolidated tax rate at 26.2%. In 2006

and 2005, return on capital employed

after tax is determined using a notional tax

rate at 28.6%.

As shown in the table below, our net debt is

defi ned as the sum of our long-term debt,

short-term debt and current portion of long-

term debt, derivative instruments liabilities

– non-current and derivative instruments

liabilities – current less our cash and cash

equivalents, derivative instruments assets –

non-current and derivative instruments

assets-current.


OPERATING AND FINANCIAL REVIEW AND PROSPECTS4 4.1 Overview

For 2007, 2006 and 2005, return on capital employed after tax for each Division and the Group was calculated as follows:

2007

Currentoperating

incomeCurrent operating income after tax

Income from associates

Currentoperating

income after tax with income

from associates

Capitalemployed at

December 31, 2007

Capitalemployed at

December 31, 2006

Average capital

employed

Returnon capital employedafter tax

(%)

(million euros) (A) (B) = (A)x(1-26.2%) (C) (D) = (B)+(C) (E) (F) (G) = ((E)+(F))/2 (H) = (D)/(G)

Cement 2,481 1,831 13 1,844 15,399 15,182 15,291 12.1

Aggregates & Concrete 721 532 14 546 4,798 4,585 4,692 11.7

Gypsum 116 86 19 105 1,482 1,433 1,457 7.1

Other (76) (56) (46) (102) 403 163 283 N/A

TOTAL FOR CONTINUING

OPERATIONS 3,242 2,393 0 2,393 22,082 21,363 21,723 11.0

2006

Currentoperating


Incomefrom

associates

Currentoperating


from associates

Capitalemployed at

December 31, 2006

Capitalemployed at

December 31, 2005

Average capital

employed

Returnon capital employed

after tax (%)


Cement 2,103 1,501 3 1,504 15,182 13,982 14,582 10.3


Gypsum 198 141 16 157 1,433 1,267 1,350 11.7

Other (93) (66) - (66) 163 290 226 N/A


OPERATIONS 2,772 1,979 30 2,009 21,363 19,471 20,416 9.8

TOTAL INCLUDING

DISCONTINUED

OPERATIONS 2,916 2,082 34 2,116 23,611 21,652 22,632 9.4

1

2

3

4

5

6

7

8

9

10


4.2 Results of operations for the fiscal years ended December 31, 2007 and 2006


2005

Currentoperating


Income from associates

Currentoperating


from associates

Capitalemployed at

December 31, 2005

Capitalemployed at

December 31, 2004

Average capital

employed

Returnon capital employedafter tax

(%)


Cement 1,770 1,264 8 1,272 13,982 12,167 13,075 9.7


Gypsum 151 108 15 123 1,267 1,147 1,207 10.2

Other (73) (52) - (52) 290 139 215 N/A


OPERATIONS 2,246 1,604 31 1,635 19,471 16,790 18,131 9.0

TOTAL INCLUDING

DISCONTINUED

OPERATIONS 2,357 1,683 38 1,721 21,652 18,908 20,280 8.5

4.2 Results of operations for the fi scal years ended

December 31, 2007 and 2006

All data presented in the discussions below

and elsewhere in Chapter 4 regarding sales,

current operating income and sales volumes,

include the proportional contributions of our

proportionately consolidated subsidiaries.

Consolidated sales and

current operating income

Sales

Consolidated sales increased by 4.2% to

17,614 million euros from 16,909 million

euros in 2006. Sustained organic growth

benefi tted from favourable balance between

offer and demand in our main activities and

from the Group’s presence in emerging

markets. At constant scope of consolidation

and exchange rates, sales rose by 7.3% for

the full year.

Currency fl uctuations had a negative impact

of 550 million euros (or -3.5%), mainly

refl ecting the depreciation against the euro

of the US and Canadian dollars and the

South-African rand. Changes in the scope

of consolidation had a net positive impact of

67 million euros or 0.4%, resulting from the

positive contribution from the Yunnan and

Shuangma Cement operations in China and

Aggregates businesses in the United States

and in Poland, partially offset by the impact

of the disposal of our Turkish joint venture in

Central Anatolia (which operated in cement,

aggregates & concrete).


OPERATING AND FINANCIAL REVIEW AND PROSPECTS4 4.2 Results of operations for the fiscal years ended December 31, 2007 and 2006

Contribution to our sales by Division (before elimination of inter-Division sales) for the years ended December 31, 2007 and 2006, and the

related percentage changes between the two periods were as follows:

SALES

2007 VARIATION 2007/2006 2006

(million euros) (%) (million euros)

Cement 10,280 6.6 9,641

Aggregates & Concrete 6,597 2.3 6,449

Gypsum 1,581 (3.1) 1,632

Other 16 14.3 14

Elimination of inter-Division sales (860) 4.0 (827)

TOTAL 17,614 4.2 16,909

Contribution to our consolidated sales by Division (after elimination of inter-Division sales) for the years ended December 31, 2006 and

2005, and the related percentage changes between the two periods were as follows:

SALES

2007 VARIATION 2007/2006 2006

(million euros) (%) (%) (million euros) (%)

Cement 9,456 53.7 6.9 8,847 52.3

Aggregates & Concrete 6,586 37.4 2.3 6,439 38.1

Gypsum 1,556 8.8 (3.4) 1,610 9.5

Other 16 0.1 - 13 0.1

TOTAL 17,614 100.0 4.2 16,909 100.0

At constant scope and exchange rates, the changes in sales by Division between the years ended December 31, 2007 and 2006

were as follows:

2007 2006 VARIATION 2007/2006

Actual

Scope

effect of

acqui sitions

On a

comparable

basis Actual

Scope

effect of

disposals

At constant

scope

Currency

fl uctuation

effects

On a

comparable

basis

% gross

change

actual

% change

at constant

scope and

exchange

rates

(million euros) (A) (B) (C) = (A)-(B) (D) (E) (F) = (D)+(E) (G) (H) = (F)+(G) (I) = (A-D)/(D) (J) = (C-H)/(H)

Cement 10,280 123 10,157 9,641 (74) 9,567 (321) 9,246 6.6 9.9

Aggregates & Concrete 6,597 72 6,525 6,449 (48) 6,401 (209) 6,192 2.3 5.4

Gypsum 1,581 - 1,581 1,632 - 1,632 (41) 1,591 (3.1) (0.7)

Other 16 - 16 14 - 14 - 14 14.3 31.1

Elimination of inter-Division

sales (860) (12) (848) (827) 6 (821) 21 (800) 4.0 N/A

TOTAL 17,614 183 17,431 16,909 (116) 16,793 (550) 16,243 4.2 7.3

1

2

3

4

5

6

7

8

9

10




Current operating income

Current Operating Income grew, by 17.0%,

to 3,242 million euros from 2,772 million

euros in 2006. While currency fl uctuations

had a negative effect (88 million euros)

reflecting mainly the depreciation of

the U.S. and Canadian dollars and the

South-African rand, changes in the scope

of consolidation had a minimal impact.

At constant scope and exchange rates,

current operating income increased 21.3%.

Cement and Aggregates & Concrete showed

strong growth in results, refl ecting sustained

market conditions notably in emerging

markets, a favorable worldwide balance

between offer and demand for our products

and increasingly visible cost cutting. Our

Gypsum Division suffered from the severe

slowdown in the U.S. housing market which

more than offset strong improvement in

results of other countries.

As a percentage of sales, current operating

income represented 18.4% in 2007,

compared to 16.4% in 2006, a substantial

improvement of 200 basis points.

Group return on capital employed after

tax (using the effective tax rate in 2007)

increased to 11.0% in 2007 from 9.4%

in 2006 (as published), exceeding in 2007

the target set by Group for 2008. It benefi ted

from the solid performance of our operations

and was achieved despite the increase in

average capital employed resulting from the

full year impact of the acquisition of Lafarge

North America Inc. minority interests in May

2006.

See Section 4.1 (Overview – Reconciliation of our non-GAAP fi nancial measures) for more information on capital employed after tax.

Contribution to our current operating income by Division for the years ended December 31, 2007 and 2006, and the related percentage

changes between the periods were as follows:

CURRENT OPERATING INCOME

2007 VARIATION 2007/2006 2006


Cement 2,481 76.5 18.0 2,103 75.9

Aggregates & Concrete 721 22.2 27.8 564 20.3

Gypsum 116 3.6 (41.4) 198 7.1

Other (76) (2.3) - (93) (3.3)

TOTAL 3,242 100.0 17.0 2,772 100.0

At constant scope and exchange rates, the changes in consolidated current operating income by Division between the years ended

December 31, 2007 and 2006 were as follows:

2007 2006 VARIATION 2007/2006

Actual

Scope

effect of

acqui sitions

On a

comparable

basis Actual

Scope

effect of

disposals

At constant

scope

Currency

fl uctuation

effects

On a

comparable

basis

% gross

change

actual

% change

at constant

scope and

exchange

rates

(million euros) (A) (B) (C) = (A)-(B) (D) (E) (F) = (D)+(E) (G) (H) = (F)+(G) (I) = (A-D)/(D) (J) = (C-H)/(H)

Cement 2,481 - 2,481 2,103 (16) 2,087 (58) 2,029 18.0 22.3

Aggregates & Concrete 721 11 710 564 (4) 560 (22) 538 27.8 31.9

Gypsum 116 - 116 198 - 198 (9) 189 (41.4) (38.7)

Other (76) - (76) (93) - (93) 1 (92) 18.3 17.4

TOTAL 3,242 11 3,231 2,772 (20) 2,752 (88) 2,664 17.0 21.3



Sales and current operating

income by Division

Method of presentation

SALES BEFORE ELIMINATION

OF INTER-DIVISION SALES

Figures for individual Divisions are stated

below prior to elimination of inter-Division

sales. For sales by each Division after

elimination of inter-Division sales, see the

table under “Consolidated Sales and Current

Operating Income” above.

GEOGRAPHIC MARKET INFORMATION:

BY ORIGIN OF SALE “DOMESTIC”

AND BY DESTINATION

Unless stated otherwise, we analyze our

sales for each region or country by origin

of sale.

“Domestic sales” and “domestic volumes”

concern only sales and volumes both

originating and completed within the relevant

geographic market, and thus exclude export

sales and volumes. When not described

as “domestic”, this information includes

domestic sales or volumes plus exports to

other geographic markets. Unless stated

otherwise, all “domestic” information is

provided at constant scope and exchange

rates.

Certain volume information is also presented

“by destination market”. Such information

represents domestic volumes for the relevant

market plus imports into this market.

Cement

SALES AND CURRENT OPERATING INCOME

2007 2006

VARIATION

2007/2006

VARIATION

AT CONSTANT SCOPE

AND EXCHANGE RATES

(million euros) (million euros) (%) (%)

SALES 10,280 9,641 6.6 9.9

CURRENT OPERATING INCOME 2,481 2,103 18.0 22.3

Sales of the Cement Division increased

by 6.6% to 10,280 million euros, from

9,641 million euros in 2006. Currency fl uc-

tuations had a negative impact of 321 million

euros (or -3.7%) on sales. Changes in the

scope of consolidation had a net positive

impact of 49 million euros, or 0.4%, resulting

primarily from the acquisition in China

of operations in Yunnan in August 2006

and in Sichuan (Shuangma) in July 2007

partly offset by the impact of the sale of our

operations in Central Anatolia (Turkey).


our sales grew by 9.9% (14.3% in the fi rst

quarter 2007, 8.5% in the second quarter

2007, 8.0% in the third quarter 2007 and

9.5% in the fourth quarter 2007).

This strong sales growth was driven by

sustained growth in emerging markets

combined with solid pricing gains overall.

Volumes sold reached 136.4 million tonnes

compared to 131.8 million tonnes in 2006.

Sales

Contribution to our sales by geographic origin of sale for the years ended December 31, 2007 and 2006, and the related percentage change

between the two periods were as follows:

SALES

2007 VARIATION 2007/2006 2006


Western Europe 2,987 29.1 5.8 2,823 29.3

North America 1,835 17.9 (7.2) 1,977 20.5

Mediterranean Basin & Middle East 600 5.8 (5.7) 636 6.6

Central & Eastern Europe 1,137 11.0 46.1 778 8.0

Latin America 680 6.6 10.4 616 6.4

Sub-Saharan Africa 1,599 15.6 5.4 1,517 15.7

Asia 1,442 14.0 11.4 1,294 13.5

SUB-TOTAL BEFORE ELIMINATION

OF INTER-DIVISION SALES 10,280 100.0 6.6 9,641 100.0

1

2

3

4

5

6

7

8

9

10




Current operating income grew by 18.0%

to 2,481 million euros in 2007, compared

to 2,103 million euros in 2006. Currency

fl uctuations had a negative impact of 3.4%

or 58 million euros. Net changes in the

scope of consolidation had a net negative

impact of 16 million euros, mainly refl ecting

the impact of the disposal of our operations

in Central Anatolia (Turkey).


current operating income rose strongly, by

22.3%. As a percentage of the Division’s

sales, current operating income represented

24.1% in 2007, strongly improving from

21.8% in 2006. Strong volumes growth in

emerging markets and pricing gains overall

more than offsetting rising costs and the

results from the implementation of our

cost cutting action plans drove this strong

improvement in current operating income.

Return on capital employed after tax was

strongly up in 2007 at 12.1% compared to

10.3% in 2006.


Western Europe

SALES

I n Wes t e rn Eu rope , s a l e s t o t a l ed

2,987 million euros, an increase of 5.8%

compared to 2006.

Domestic sales, at constant scope and

exchange rates, increased by 5.9%. Volumes

sold in Western Europe by destination, at

34.3 million tonnes, were up 1.5% compared

with 2006. Domestic volumes, at constant

scope, were almost stable compared to

2006.

In France, domestic sales were up by

6.2% in a high level market with improved

prices in a context of rising costs.

In the United Kingdom, domestic sales

grew by 12.8%, benefiting from good

growth in construction, primarily driven

by public buildings, combined with price

improvement in a high energy costs

environment.

In Spain, despite the market slowdown

(from last years’ record levels), domestic

sales increased 1.5% compared to

2006 with pricing improvement being

achieved.

In Germany, domestic sales were up

6.5% as a result of steady recovery in

prices which more than offset softness

in volumes.

In Greece, after record activity in 2006

boosted by an increased taxation on

housing effective on January 1, 2007,

the market progressively came back to

previous levels, showing a 5.5% decrease

in volumes. Domestic sales growth of

1.3% was driven by solid pricing gains.


Current operating income in Western

Europe increased by 12.6% to 787 million

euros compared to 699 million euros

in 2006. Foreign exchange fl uctuations and

consolidation scope variation had a limited

impact.


2007 current operating income increased

by 12.6%.

In France, the strong construction market

led to robust growth in current operating

income despite our need to purchase

cement to meet demand in a sold out

market and higher energy expenses.

In Spain, current operating income

improved as increased prices combined

with reduction in imports of clinker more

than offset adverse volumes impact.

In the United Kingdom, additional

purchase of clinker to compensate

production shortfalls and strong rise in

energy costs offset solid gains in volumes

and prices.


Contribution to our current operating income by region for the years ended December 31, 2007 and 2006, and the related percentage

change between the periods were as follows:


2007 VARIATION 2007/2006 2006


Western Europe 787 31.7 12.6 699 33.2

North America 386 15.6 5.5 366 17.4

Mediterranean Basin & Middle East 200 8.1 (7.4) 216 10.3

Central & Eastern Europe 468 18.9 82.8 256 12.2

Latin America 135 5.4 4.7 129 6.1

Sub-Saharan Africa 309 12.4 1.3 305 14.5

Asia 196 7.9 48.5 132 6.3

TOTAL 2,481 100.0 18.0 2,103 100.0



In Germany, steady improvement in prices

and tight cost control allowed for a strong

improvement in current operating income

compared to 2006.

In Greece, cost containment combined

with solid pricing trends compensated for

the shortfall in volumes when compared

to record 2006 levels.

North America

SALES

Sales decreased by 7.2% to 1,835 million

euros compared to 1,977 million euros

in 2006, mostly due to the impact of the

depreciation of the U.S. and Canadian

dollars against the euro.


exchange rates, were almost stable,

decreasing by only 0.2%. Volumes sold

by our operations in North America, at

19.3 million tonnes, decreased by 5.3%.

With respect to geographic mix, decline

in volumes across the U.S. (declining by

8.2%) was mitigated by growth in volumes in

Canada (up 4.4%), with strength in both East

and West Canada. Pricing remained fi rm,

improving over last year levels, benefi ting

from price increases during the fi rst quarter

in almost all markets.


Current operating income in North America

grew by 5.5% to 386 million euros compared

to 366 million euros in 2006, despite

negative impact of currency fl uctuations of

22 million euros (or -6.7%).

At constant exchange rates, current

operating income for the year grew by

12.2%, refl ecting favorable pricing trends,

drastic reduction in imports and tight cost

management.

Emerging markets

SALES

In emerging markets, our sales increased

by 12.7% to 5,458 million euros, compared

to 4,841 million euros in 2006. Emerging

markets accounted for 53.1% of the

Division’s sales in 2007, compared to 50.2%

in 2006. Overall, emerging market sales

increased by 16.3% at constant scope and

exchange rates. Volumes sold in emerging

markets by destination, at 82.8 million

tonnes for 2007, grew by 7.1%.

At constant scope, yearly domestic volumes

in emerging markets increased by 6.3%.

In the Mediterranean Basin & Middle East

region, our sales decreased in 2007 by 5.7%

to 600 million euros, refl ecting the impact of

the disposal of our operations in Central

Anatolia (Turkey).


domestic sales increased by 10.4%. Volumes

sold in the Mediterranean Basin & Middle

East by destination at 10.4 million tonnes,

decreased by 13.3%. Domestic volumes, at

constant scope, grew by 4.2%.

In Egypt, pricing gains in a context of

constant increase in gas and other energy

costs mainly drove the 10.3% growth in

domestic sales. In a booming market,

our operations were hampered in the fi rst

half-year by capacity limitations and a long

shutdown to upgrade the kiln one at our

Beni Suef plant. After a successful start

up of this kiln, we were able to capture

market growth in the second half of the

year and particularly in the fourth quarter

where our volumes increased by 23.0%.

In Jordan and Turkey, sales grew from

price increases in the context of energy

price surge, volumes being stable over

2006 levels.

In Morocco, strong domestic market and

full contribution of our new line at our

Bouskoura plant drove robust volumes

growth, which, combined with price

improvement, led to domestic sales

increase of 18.6%.

Our sales in Central and Eastern Europe

rose by an impressive 46.1% in 2007 to

1,137 million euros.


domestic sales increased by 44.6%.

Volumes sold in Central and Eastern

Europe by destination grew by 16.5%, at

15.5 million tonnes. Domestic volumes, at

constant scope, grew by 18.0%, benefi tting

from highly dynamic markets combined

with favourable weather conditions in the

fi rst quarter.

In Romania and Poland, strong domestic

sales were driven by volumes in booming

residential and infrastructure sectors.

In Russia, strong domestic sales growth

was fueled by a positive price trend,

combined with strong demand, notably

in the last quarter where our volumes

increased by 33.3%.

In Serbia, solid domestic volumes and

price growth resulted in strong domestic

sales improvement.

In Latin America, our sales were up in 2007

by 10.4% to 680 million euros.

At constant scope and exchange rates, full

year domestic sales increased by 14.5%.

Volumes sold in Latin America by destination

grew by 11.8%, at 8.5 million tonnes.

Domestic volumes, at constant scope,

increased 7.4%.

In Brazil, domestic sales rose 24.7%,

benefitting from sustained domestic

demand that drove some pricing gains

in the second half-year, from the very low

2006 levels. Our operations also benefi tted

from a favorable product mix.

1

2

3

4

5

6

7

8

9

10




In a buoyant Venezuelan domestic

market, our volumes growth was however

limited by production issues, especially

in the fourth quarter. Thanks to an active

management of product mix, domestic

sales grew by 17.0%.

In Chile, domestic sales increased by

6.3%, refl ecting strong market growth.

Honduras, Ecuador and Mexico recorded

strong increase in sales.

In the Sub-Saharan Africa region, our

sales grew by 5.4% to 1,599 million euros

in 2007.



sold by destination in the Sub-Saharan Africa

region grew by 2.3%, at 13.6 million tonnes.

Domestic volumes, at constant scope, were

stable over last year levels, various capacity

constraints having limited our ability to

capture market growth.

In Nigeria, pricing gains did not offset

a shortfall in volumes due to energy

disruption at our plants and floods in

the second half-year. Domestic sales

contracted by 2.2% compared to 2006.

In South Africa, solid pricing drove

domestic sales up 14.5%. Our volumes

were limited by a sold-out situation

combined with various plant incidents

throughout the year. Domestic volumes

were down 3.0% despite strong market

growth.

In Kenya, with strong market conditions

favored by active residential and non

residential sectors, domestic sales

increased by 39.5%.

In Cameroon, domestic sales were up

8.0% in a strong growing market envi-

ronment.

In South East Africa, which covers

Zambia, Malawi and Tanzania, domestic

sales grew solidly, driven by strong pricing

conditions overall.

In Asia, our operations recorded a sales

growth of 11.4% to 1,442 million euros

in 2007. The net positive scope effect,

mainly resulting from the acquisition by our

Chinese joint venture of additional operations

in Yunnan and in Sichuan, amounted to

51 million euros.


domestic sales were up 10.3% compared

with 2006. Volumes sold in Asia by

destination grew by 11.9%, at 34.8 million

tonnes. Domestic volumes, at constant

scope, grew 5.4%.

In Malaysia, domestic sales increased by

9.9%, mainly driven by the impact of price

increase following the upward adjustment

of ceiling prices by the government in

late 2006.

In the Philippines, domestic sales were

up 11.9% as a result of solid market

growth, despite an unusually wet month

in December.

In South Korea, domestic sales declined

by 4.6%, impacted by a still difficult

market situation and the impact of a

typhoon in the third quarter.

In India, in markets well oriented but

where we faced capacity limits, improved

pricing mostly drove the domestic sales

growth of 15.9%.

In Indonesia, our volumes were up 9.9%

in an active market, although limited by

decreasing volumes in the fourth quarter

as the product availability from Malaysia

was hampered by higher domestic

demand in the second half of the year.

Both higher volumes and improved pricing

led to domestic sales increase of 17.8%.

In China, domestic sales grew by 17.4%,

benefi ting from strong market demand and

from overall price improvement despite

contrasted trends between provinces.


Current operating income in emerging

markets rose by 26.0% in 2007 to

1 ,308 m i l l i on eu ros compa red t o

1,038 million euros in 2006, representing

52.7% of the Cement Division’s current

operating income, compared to 49.4%

in 2006. Currency fluctuations had a

negative impact of 36 million euros on

current operating income. Changes in the

scope of consolidation had a negative impact

of 16 million euros, mainly reflecting the

impact of the disposal of our operations in

Central Anatolia (Turkey), as new operations

in China showed modest profi tability, being

in their fi rst year of integration.

Current operating income at constant scope

and exchange rates grew by 32.7%.

In the Mediterranean Basin & Middle East,

current operating income in 2007 decreased

by 7.4% to 200 million euros compared to

216 million euros in 2006, reflecting the

impact of the disposal of our operations in

Central Anatolia, Turkey.


current operating income grew by 6.8%

compared to 2006.

In Egypt, price improvement offset the

sharp rise in energy costs, notably in gas

prices. Current operating income was

almost stable over last year, but showing

strong growth in the last quarter after the

successful start up of the upgraded kiln.

In Jordan and Turkey, price increases

hardly offset surge in energy costs, eroding

our margins in these countries. Current

operating income was almost stable in

Turkey and slightly down in Jordan.

In Morocco, sustained domestic demand

in all market segments and full year

contribution of our new production line in

Bouskoura started in May 2006, mostly

drove the strong appreciation in current

operating income.



In Central and Eastern Europe, current

operating income increased by an excellent

82.8% to 468 million euros compared to

256 million euros in 2006.


and exchange rates improved by 78.0%

with all countries in the region contributing.

Strong dynamism of markets across the

region, amplifi ed in the fi rst quarter by mild

weather conditions, combined with excellent

performance of highly utilized capacities to

lead this growth.

In Romania, current operating income

increased significantly as a result of

favorable market conditions.

In Poland, strong market conditions

and successful implementation of a

branding strategy combined with strict

cost management which led to the sharp

increase in current operating income.

In Russia, price improvements and high

market demand, particularly in the last

quarter, translated into a strong increase

in current operating income.

In Serbia, increased sales and strict cost

control delivered better current operating

income.

In Latin America, current operating income

was up 4.7% to 135 million euros from

129 million euros in 2006, exchange rate

variations signifi cantly affecting 2007 when

comparing to 2006.


current operat ing income increased

13.9%.

In Brazil, the increased demand allowed

the beginning of a price recovery during

the second half of the year. Combined with

volumes gains and strict cost control, this

led to our current operating income for

the year improving, being at a breakeven

point for the year as compared to a loss

in 2006. Current operating income was

slightly positive in the fourth quarter.

In Venezuela, despite strong domestic

demand, production issues l imited

volumes growth and triggered cost over-

runs. Our current operating income was

down year over year.

In Chile , while volumes followed a

rather strong market, stability in prices

combined with strong rise in costs,

notably power costs, resulted in reduced

current operating income and operating

margins.

Ecuador, Honduras and Mexico, enjoying

good market conditions, improved their

current operating income compared to

2006.

In Sub-Saharan Africa, current operating

income increased by 1.3% to 309 million

euros in 2007. Currency variations affected

current operating income by 22 million

euros.



with the majority of this growth coming from

Kenya and South Africa.

In Nigeria, despite solid market growth,

our results were hampered by energy

disruptions at our plants that triggered

import costs to compensate shortfall in

production, fl oods in Ewekoro plant in the

third quarter, and strong rise in energy

costs.

In South Africa, despite limited volumes

due to capacity constraints, pricing gains

and insurance proceeds in relation to last

year kiln fi re more than offset additional

clinker purchases in the fi rst six months of

the year. Current operating income grew

appreciably year on year.

In Kenya, despite a kiln fi re in the fourth

quarter, volume and price increase led

to strong growth in current operating

income.

In Cameroon, strong volumes growth was

only partly fueled by increased production

thanks to optimized cement to clinker

ratio. Increased import costs and late

price increase led to decreasing current

operating income.

In South East Africa, current operating

income increased, reflecting pricing

gains.

In Asia, current operating income increased

strongly by 48.5% to 196 million euros

in 2007.


current operating income increased by

49.1%.

In Malaysia, the impact of the upward

adjustment of ceiling prices by the

government led to improved current

operating income, despite an almost

stable market.

In the Philippines , strong market

conditions combined with strict cost

control drove the improvement in current

operating income.

In India, current operating income

recorded a significant increase thanks

to price improvement and tight cost

control.

In China, the current operating income of

our joint venture was favorably impacted

by strong market and higher prices despite

contrasted trends across the regions.

Market conditions in South Korea

remained difficult, and despite strong

cost control, current operating income

decreased refl ecting lower prices and the

impact of a one-off site restoration provi-

sion in order to comply with environmental

requirements.

In Indonesia, increase in prices in a high

demand environment mainly contributed

to a modestly increasing current operating

income.

1

2

3

4

5

6

7

8

9

10






2007 2006

VARIATION

2007/2006

VARIATION

AT CONSTANT SCOPE

AND EXCHANGE RATES


SALES 6,597 6,449 2.3 5.4

CURRENT OPERATING INCOME 721 564 27.8 31.9

Sales

Contribution to our sales by activity and geographic origin for the years ended December 31, 2007 and 2006, and the related percentage

change between the two periods were as follows:

SALES

2007 VARIATION 2007/2006 2006


AGGREGATES & RELATED PRODUCTS 3,431 2.6 3,344

Of which pure aggregates:

Western Europe 1,093 43.2 3.3 1,058 43.3

North America 1,125 44.5 (0.8) 1,134 46.4

Emerging markets 310 12.3 23.0 252 10.3

TOTAL PURE AGGREGATES 2,528 100.0 3.4 2,444 100.0

READY MIX CONCRETE & CONCRETE PRODUCTS 3,646 2.6 3,555

Of which ready-mix:

Western Europe 1,648 47.7 6.9 1,542 45.7

North America 1,078 31.2 (5.9) 1,145 33.9

Emerging markets 727 21.1 6.0 686 20.4

TOTAL READY MIX CONCRETE 3,453 100.0 2.4 3,373 100.0

Eliminations of intra Aggregates

& Concrete sales (480) (450)

TOTAL AGGREGATES & CONCRETE BEFORE

ELIMINATION OF INTER-DIVISION SALES 6,597 2.3 6,449




Contribution to our current operating income by activity and by region for the years ended December 31, 2007 and 2006, and the related

percentage change between the periods were as follows:


2007 VARIATION 2007/2006 2006


Aggregates & related products 445 61.7 24.3 358 63.5

Ready-mix concrete & concrete products 276 38.3 34.0 206 36.5

TOTAL BY ACTIVITY 721 100.0 27.8 564 100.0

Western Europe 274 38.0 20.7 227 40.2

North America 314 43.6 28.2 245 43.5

Other regions 133 18.4 44.6 92 16.3

TOTAL BY REGION 721 100.0 27.8 564 100.0

C u r r e n t o p e r a t i n g i n c o m e o f t h e

Aggregates & Concrete Division increased

27.8% to 721 million euros in 2007 from

564 million euros in 2006. Changes in scope

had a net positive impact of 7 million euros

(1.2%), arising mainly from aggregates

acquisitions in Central Europe and North

America partly offset by the impact of the

disposal of our assets in Central Anatolia

(Turkey). Currency fluctuations had a

21 million euros negative impact (-5.1%),

refl ecting mainly the depreciation of the U.S.

and Canadian dollar against the euro.


current operating income grew by a strong


sales, current operating income improved

to 10.9% in 2007, compared to 8.7%

in 2006.

Current operating income for aggre-

gates & related products grew 24.3% to

445 million euros in 2007 from 358 million

euros in 2006. This improvement was driven

primarily by strong price increases combined

with good cost control. Current operating

income for ready-mix concrete and concrete

products grew 34.0% to 276 million euros

in 2007, from 206 million euros in 2006. The

ready-mix & concrete business benefited

from pricing gains in most markets and

strict cost management. Continued growth

of our value added products also contributed

positively.

Return on capital employed after tax rose

strongly to 11.7% from 9.7% in 2006.


Sales of the Aggregates & Concrete Division

increased by 2.3% to 6,597 million euros

in 2007 from 6,449 million euros in 2006.

Currency fl uctuations had a negative impact

of 209 million euros (-3.5%).

For the full year, scope changes had a

positive impact on sales of 24 million euros

(or 0.4%), reflecting the acquisition of

aggregates operations in the United States

and in Poland, partially offset by the impact

of the disposal of our Turkish joint venture.

At constant scope and exchange rates, sales

grew by 5.4% year on year (7.8% in the fi rst

quarter 2007, 3.2% in the second quarter

2007, 8.1% in the third quarter 2007 and

2.5% in the fourth quarter 2007). Growth

was principally driven by strong pricing gains

in all product lines and in all regions.

Sales of pure aggregates increased by 3.4%


fl uctuations had a negative impact on sales

of 76 million euros (-3.3%), while scope

changes had a net positive impact of

54 million euros (2.2%). At constant scope

and exchange rates, sales grew by 4.5%.

Aggregates sales volumes in 2007 decreased

by 1.0% to 259.2 million tonnes. At constant

scope, sales volumes decreased by 3.9%.

Sales of ready-mix concrete increased

by 2.4% to 3,453 million euros in 2007.

Currency fl uctuations and scope changes

had a net negative impact of 3.3% and

0.8% respectively. At constant scope and

exchange rates, sales grew by 6.5%. Sales

volumes of ready-mix concrete decreased

2.8% to 42.2 mi l l ion cubic meters.

At constant scope, sales volumes decreased

by 1.1%.

1

2

3

4

5

6

7

8

9

10




Western Europe

SALES

Pure aggregates sales in Western Europe

grew 3.3% to 1,093 million euros in 2007,

resulting from solid pricing in a context of

slightly decreasing volumes. At constant

scope and exchange rates, sales grew

3.9%.

Asphalt and paving sales volume declined

in line with general market conditions in the

United Kingdom. In the asphalt business,

strong pricing gains in a context of high raw

materials and energy costs, led to improved

sales.

Ready-mix concrete sales grew 6.9% to

1,648 million euros in 2007, reflecting

improved pricing in all main markets coupled

with favorable product mix and increasing

volumes overall. At constant scope and

exchange rates, sales grew 7.6%.



Europe grew by 20.7% to 274 million euros

in 2007.

At constant scope and exchange rates, the


was driven by sustained activity in France

combined with good pricing and strong cost

control throughout all of Western Europe.

In addition, the ready-mix concrete activity

benefi ted from sales of innovative and value

added products. Asphalt activity showed

some improvement, driven by improved

pricing and strict cost containment while the

paving activity was stable over 2006.

North America

SALES

In North America, pure aggregates sales

decreased 0.8% to 1,125 million euros

in 2007, negatively impacted by the

depreciation of the U.S. and Canadian

dollar against the euro. At constant scope

and exchange rates, pure aggregates sales

grew by 1.5%, driven by successful price

increases across all markets that more

than offset the impact of global volumes

slowdown. Volumes in 2007 decreased

by 7.2% at constant scope, due to poor

weather at the very beginning and end of the

year and a weakening residential market in

the US, partly offset by dynamic markets in

West Canada.

Asphalt and paving sales delivered solid

growth with very strong price increases and

growth in volumes in West Canada offsetting

volume softness in other regions.

Ready-mix concrete sales decreased by

5.9% to 1,078 million euros in 2007, also

strongly affected by negative exchange

rates variation. At constant scope and

exchange rates, sales were stable over last

year, reflecting strong pricing that offset

declining volumes. Volumes were down

10.8%, due primarily to declining demand

from the residential sector, amplifi ed by less

favourable weather compared to 2006.


In North America, current operating income

grew 28.2% to 314 million euros in 2007.

Currency variation had a negative impact of

16 million euros and scope had a net positive

impact of 8 million euros. At constant scope

and exchange rates, current operating

income growth was driven by strong pricing

overall, good market conditions in West

Canada and good cost control across all

regions and product lines.

Emerging markets

SALES

In emerging markets, pure aggregates and

ready-mix concrete sales increased by

23.0% and 6.0% respectively. We recorded

strong growth in pure aggregates sales

in Poland, Ukraine and South Africa. We

also benefited from excellent ready-mix

concrete activity levels in most emerging

markets, notably in Romania, South Africa

and Chile.


Current operating income strongly improved

44.6%, reaching 133 million euros in 2007

compared to 92 million euros in 2006. South

Africa and Poland were primary contributors

with volume growth, strong pricing and

signifi cant productivity improvements.



Sales

Contribution to our sales by origin for the years ended December 31, 2007 and 2006 and the related percentage change between the two

periods were as follows:

SALES

2007 VARIATION 2007/2006 2006


Western Europe 904 57.2 2.5 859 52.6

North America 247 15.6 (38.3) 400 24.5

Other regions 430 27.2 15.3 373 22.9

TOTAL BEFORE ELIMINATION

OF INTER-DIVISION SALES 1,581 100.0 (3.1) 1,632 100.0


were almost stable (decreasing by 0.7%),

the impact of the slowdown of the residen-

tial market in the United States offsetting

improved sales in the other regions. On a

quarterly basis, they increased by 4.6% in

the fi rst quarter 2007 compared to the fi rst

quarter 2006, and then decreased by 0.3%

in the second quarter, by 2.9% in the third

quarter and by 4.5% in the fourth quarter.

Sales volumes of wallboard grew by 1.4%

in 2007 to 715 million square meters (1.5%

at constant scope).


Contribution to our current operating income by region, for the years ended December 31, 2007 and 2006, and the related percentage

change between the periods were as follows:


2007 VARIATION 2007/2006 2006


Western Europe 97 83.6 19.8 81 40.9

North America (19) (16.4) - 88 44.4

Other regions 38 32.8 31.0 29 14.7

TOTAL 116 100.0 (41.4) 198 100.0

Current operating income decreased

by 41.4% to 116 million in 2007 from

198 million in 2006. Currency fl uctuations

negatively affected the current operating

income by 8 million euros.


current operating income decreased by

38.7%. This decrease refl ects the decline

in volumes and prices resulting from the

slowdown in the residential market in the

United States. Contribution from other

regions improved strongly. As a percentage

of the Division’s sales, current operating

income decreased to 7.3% in 2007, from

12.1% in 2006.

Return on capital employed after tax

decreased to 7.1% from 11.7%.


Gypsum


2007 2006

VARIATION

2007/2006

VARIATION AT

CONSTANT SCOPE

AND EXCHANGE RATES


SALES 1,581 1,632 (3.1) (0.7)

CURRENT OPERATING INCOME 116 198 (41.4) (38.7)

1

2

3

4

5

6

7

8

9

10




Western Europe

SALES

In Western Europe, sales grew by 5.2%

to 904 million euros in 2007 up from

859 million euros in 2006, driven by

increased volumes in most countries.


In Western Europe, current operating income

improved by 19.8% to 97 million euros from

81 million euros in 2006 thanks to higher

volumes and prices in buoyant markets.

North America

SALES

In North America, sales in 2007 decreased

by 38.3% from 400 million euros in 2006

to 247 million euros due to the slowdown in

the residential sector which led to declining

volumes and prices.



decreased by 107 million euros, switching

from a profi t of 88 million euros in 2006 to a

loss of 19 million euros in 2007. The impact

of lower volumes and prices was partly offset

by strict cost management, including the

closure of the Cornerbrook plant in Canada.

The current operating income includes, as

in the past and for all countries, Lafarge

corporate cost allocation.

Other regions

SALES

In other regions, our sales rose overall

by 15.3% to 430 million euros in 2007 from

373 million euros in 2006. Strong markets

in Poland, Turkey and Asia fueled this

improvement.


In other regions, current operating income

improved strongly at 38 million euros

in 2007, from 29 million euros in 2006,

mainly driven by strong earnings in Poland,

Turkey and Asia.

Other (including holdings)

Sales

Sales of our other operations increased

to 16 million euros in 2007 compared to


Current operating income (loss)

Current operating loss of our other operations,

which includes central unallocated costs,

reached 76 million euros in 2007 compared

to a loss of 93 million euros in 2006, mostly

resulting from lower pension provision.

Operating income and net income

The table below shows our operating income and net income for the years ended December 31, 2007 and 2006:

2007 VARIATION 2007/2006 2006


CURRENT OPERATING INCOME 3,242 17.0 2,772

Gains on disposals, net 196 - 28

Other operating income (expenses) (149) (22.1) (122)

OPERATING INCOME 3,289 22.8 2,678

Finance (costs) income (526) (8.5) (485)

Of which:

Finance costs (652) (12.0) (582)

Finance income 126 29.9 97

Income from associates - - 30

INCOME BEFORE INCOME TAX 2,763 24.3 2,223

Income tax (725) (15.1) (630)

Net income of continuing operations 2,038 27.9 1,593

Net income of discontinued operations 118 - (4)

NET INCOME 2,156 35.7 1,589

Of which:

Group share 1,909 39.1 1,372

Minority interests 247 13.8 217



Gains on disposals, net, represented a net

gain of 196 million euros in 2007, compared

to 28 million euros in 2006. In 2007, the

net gain mainly resulted from the sale of our

activities in Central Anatolia (Turkey).

Other operating expenses, amounted to

149 million euros in 2007, compared to

122 million euros in 2006. In 2007, other

expenses included a 27 million euros loss in

our insurance captives related to an unusual

high loss rate in our operations in the year

and 81 million euros of restructuring costs

mainly incurred when implementing the

Excellence 2008 cost reduction action plans.

It also included a receivable of 45 million

euros insurance reimbursement related to

the 2004 tsunami in Indonesia and various

provisions for litigations.

Operating income increased by 22.8% to

3,289 million euros, from 2,678 million

euros in 2006.

Finance costs, comprised of financial

expenses on net debt and other financial

income and expenses, increased by 8.5%

to 526 million euros from 485 million euros

in 2006. Financial expenses on net debt

decreased by 3.6% to 503 million euros

from 522 million euros in 2006. Additional

interest expense, related to the Lafarge

North America Inc. minority interests buy

out in May 2006 and the share buy back

program were more than offset especially

by the positive impact of the disposal of our

Roofi ng Division. The average interest rate

on our debt was 5.8% in 2007, as compared

to 5.5% in 2006. Other financial income

and expenses amounted to a net expense

in 2007 of 23 million euros compared to a

net gain of 37 million euros in 2006. This

change is mainly explained by the 44 million

euros capital gain on the sale of our residual

interest in Materis recorded in 2006.

Income from associates decreased

30 mil l ion euros between 2007 and

2006. This reduction reflects a negative

contribution of the new Roofing entity,

generated in the fourth quarter, driven by

one-off expenses totaling 28 million euros.

It was partially offset by improved results

in 2007 in our associates in Cement,

Aggregates & Concrete and Gypsum.

Income tax increased to 725 million euros

in 2007 from 630 million euros in 2006.

However, the effective tax rate for 2007

decreased signifi cantly to 26.2% compared

to 28.3% in 2006, refl ecting the impact of

the specifi c taxation of the gain on the sale

of our Turkish assets, which was limited to

9 million euros, and the positive effect of tax

optimizations.

Net income of discontinued operations

resulted in a gain of 118 million euros

compared to a loss of 4 million euros

in 2006. In compliance with IFRS guidance,

the Roofi ng Division, following its divestment

on February 28, 2007, is presented in the

Group’s profit and loss statement until

this date as discontinued operations. Our

Roofing operations posted a net profit of

9 million euros from January 1 to February

28, 2007. The disposal of our Roofing

operations generated a net adjusted gain of

109 million euros.

Net income Group Share increased by

39.1% to 1,909 million euros in 2007 from

1,372 million euros in 2006, reflecting

improved operat ional per formance,

significant gains on disposals and tax

optimization.

Excluding net capital gains on the sale of

our Roofi ng Division and our operations in

Central Anatolia, Net income Group share

increased strongly, by 21%, refl ecting mostly

the strong appreciation of our operating

profi ts.

Minority interests increased by 13.8% to

247 million euros, from 217 million euros

in 2006. This change is explained by

the acquisition of the minority interests of

Lafarge North America Inc. in May 2006,

the purchase of minority stakes of our Greek

operations in 2007 and improved results

mainly in Romania, Malaysia, Russia, Serbia

and Greece.

Basic earnings per share increased 40.6%

for 2007 to 11.05 euros, compared to 7.86

euros in 2006. The basic average number

of outstanding shares, excluding treasury

shares, during the year was 172.7 million

(171.9 million shares at December 31,

2007) , compared to 174.5 mi l l i on

in 2006 (175.3 million at December 31,

2006). Between December 31, 2006 and

December 31, 2007 the decrease in number

of shares mainly resulted from our share

buy back program, which was completed

on September 14, 2007. From March to

mid September, 4.4 million shares have

been purchased for a total consideration of

500 million euros.

1

2

3

4

5

6

7

8

9

10




4.3 Results of operations for the fi scal years ended


All data presented in the discussions below

and elsewhere in this Chapter 4 regarding

sales, current operating income and sales

volumes, include the proportional contribu-

tions of our proportionately consolidated

subsidiaries.

Consolidated sales and

current operating income

Sales

Consolidated sales increased by 16.7% to

16,909 million euros from 14,490 million

euros in 2005. Organic growth, benefi ting

from the Group’s solid positions, was

the main driver of this improvement.

At constant scope of consolidation and

exchange rates, sales rose by 13.9% for the

full year, enjoying overall favorable market

conditions and active price management

to cover sharp increases in costs in most of

our markets.

Currency fl uctuations had a positive impact

of 123 million euros or 1.0%, reflecting

mainly the strong appreciation against

the euro of the Canadian dollar, the South

Korean won and the Brazilian real, partly

offset by the weakness of the South-African

rand and the U.S. dollar. Changes in the


impact of 285 million euros or 1.8%,

largely due to acquisitions of aggregates

and concrete operations in Central Europe

and North America, to the acquisition of

joint venture interests in Western Europe

and to the formation of the cement joint

venture with Shui On in China, including the

acquisition by the joint venture of operations

in Yunnan, in 2006.

Contributions to our sales by Division (before

elimination of inter-Division sales) for the

years ended December 31, 2006 and 2005,

and the related percentage changes between

the two periods were as follows:

SALES

2006 VARIATION 2006/2005 2005


Cement 9,641 16.0 8,314

Aggregates & Concrete 6,449 19.6 5,392

Gypsum 1,632 10.3 1,479

Other 14 (44.0) 25

Elimination of inter-Division sales (827) 14.9 (720)

TOTAL 16,909 16.7 14,490

Contributions to our consolidated sales by Division (after elimination of inter-Division sales) for the years ended December 31, 2006 and

2005, and the related percentage changes between the two periods were as follows:

SALES

2006 VARIATION 2006/2005 2005


Cement 8,847 52.3 16.0 7,624 52.6

Aggregates & Concrete 6,439 38.1 19.6 5,382 37.1

Gypsum 1,610 9.5 10.1 1,462 10.1

Other 13 0.1 (40.9) 22 0.2

TOTAL 16,909 100.0 16.7 14,490 100.0



At constant scope and exchange rates, the changes in sales by Division between the years ended December 31, 2006 and 2005 were

as follows:

2006 2005 % VARIATION

Actual

Scope

effect of

acqui-

sitions

On a

comparable

basis Actual

Scope

effect of

disposals

At constant

scope

Currency

fl uctuation

effects

On a

comparable

basis

% gross

change

actual

% change at

constant scope

and exchange

rates

(million euros) (A) (B) (C) = (A)-(B) (D) (E) (F) = (D)+(E) (G) (H) = (F)+(G) (I) = (A-D)/D) (J) = (C-H)/(H)

Cement 9,641 142 9,499 8,314 (43) 8,271 64 8,335 16.0 13.9

Aggregates & Concrete 6,449 336 6,113 5,392 (108) 5,284 67 5,351 19.6 14.2

Gypsum 1,632 1 1,631 1,479 (19) 1,460 2 1,462 10.3 11.5

Other 14 - 14 25 (7) 18 - 18 (44,0) (22,2)

Elimination of

inter-Division sales (827) (36) (791) (720) 19 (701) (10) (711) N/A N/A

TOTAL 16,909 443 16,466 14,490 (158) 14,332 123 14,455 16.7 13.9


Current operating income grew by 23.4% to

2,772 million euros from 2,246 million euros

in 2005. Currency fl uctuations and changes

in the scope of consolidation had both

a marginal impact. At constant scope and

exchange rates, current operating income

increased 23.1%. All Divisions benefited

from solid growth. As a percentage of sales,

current operating income represented 16.4%

in 2006, compared to 15.5% in 2005.

Group return on capital employed after tax

for continuing operations increased to 9.8%

in 2006 from 9.0% in 2005, benefi ting from

solid performance in our operations and

despite the increase in capital employed

resulting mainly from the acquisition

of Lafarge North America Inc. minority

interests in May 2006.


Group return on capital employed after

tax including discontinued operations also

increased to 9.4% in 2006 from 8.5%

in 2005.

Contributions to our current operating income by Division for the years ended December 31, 2006 and 2005, and the related percentage



2006 VARIATION 2006/2005 2005


Cement 2,103 75.9 18.8 1,770 78.9

Aggregates & Concrete 564 20.3 41.7 398 17.7

Gypsum 198 7.1 31.1 151 6.7

Other (93) (3.3) - (73) (3.3)

TOTAL 2,772 100.0 23.4 2,246 100.0

1

2

3

4

5

6

7

8

9

10




At constant scope and exchange rates, the changes in consolidated current operating income by Division between the years ended

December 31, 2006 and 2005 were as follows:

2006 2005 % VARIATION

Actual

Scope

effect of

acqui-

sitions

On a

comparable

basis Actual

Scope

effect of

disposals

At constant

scope

Currency

fl uctuation

effects

On a

comparable

basis

% gross

change

actual

% change at

constant scope

and exchange

rates

(million euros) (A) (B) (C) = (A)-(B) (D) (E) (F) = (D)+(E) (G) (H) = (F)+(G) (I) = A-D)/D) (J) = (C-H)/(H)

Cement 2,103 (5) 2,108 1,770 (9) 1,761 15 1,776 18.8 18.7

Aggregates & Concrete 564 20 544 398 (7) 391 (1) 390 41.7 39.6

Gypsum 198 - 198 151 (3) 148 - 148 31.1 33.7

Other (93) (2) (91) (73) - (73) - (73) - -

TOTAL 2,772 13 2,759 2,246 (19) 2,227 14 2,241 23.4 23.1

Sales and Current Operating

Income by Division

Methodology of presentation

SALES BEFORE ELIMINATION

OF INTER-DIVISION SALES

Individual Division information is discussed

below without elimination of inter-Division

sales. For sales by each Division after

elimination of inter-Divisional sales, see the

table under “Consolidated Sales and Current

Operating Income” above.

GEOGRAPHIC MARKET INFORMATION:

BY ORIGIN OF SALE, “DOMESTIC”

AND BY DESTINATION

Unless otherwise indicated, we analyze our

sales for each region or country by origin

of sale.

“Domestic sales” and “domestic volumes”

concern only sales and volumes both

originating and made within the relevant

geographic market, and thus exclude export

sales and volumes. When not described

as “domestic”, such information includes

domestic sales or volumes plus exports to

other geographic markets. Unless otherwise

indicated, all “domestic” information is

provided on the basis of constant scope

and exchange rates.

Certain volume information is also presented

“by market of destination”. Such information

represents domestic volumes for the relevant

market plus imports into this market.

Cement


2006 2005

VARIATION

2006/2005

VARIATION

AT CONSTANT SCOPE

AND EXCHANGE RATES


SALES 9,641 8,314 16.0 13.9

CURRENT OPERATING INCOME 2,103 1,770 18.8 18.7



Sales

Contributions to our sales by geographic origin of sale for the years ended December 31, 2006 and 2005, and the related percentage

changes between the two periods were as follows:

SALES

2006 VARIATION 2006/2005 2005


Western Europe 2,823 29.3 11.5 2,532 30.5

North America 1,977 20.5 12.6 1,756 21.1

Mediterranean Basin 636 6.6 19.1 534 6.4


Latin America 616 6.4 15.3 534 6.4

Sub-Saharan Africa 1,517 15.7 18.4 1,281 15.4

Asia 1,294 13.5 18.4 1,093 13.2

SUB-TOTAL BEFORE ELIMINATION


Sales of the Cement Division increased

by 16.0% to 9,641 million euros, from

8,314 million euros in 2005. Currency

fl uctuations had a 64 million euro or 0.9%

positive impact on sales. Changes in the


impact of 99 million euros, or 1.2%, resulting

primarily from the formation of the Lafarge

Shui On joint venture in China, including

its acquisition of operations in Yunnan in

August 2006.

At constant scope and exchange rates, our

sales grew by 13.9% (19.7% in the first

quarter 2006 compared to the fi rst quarter

2005, 13.2% in the second quarter 2006,

12.3% in the third quarter 2006 and 12.2%

in the fourth quarter 2006). This strong sales

growth was driven by good market condi-

tions in most of our markets. Volumes sold

reached 131.8 million tonnes compared to

123.2 million tonnes in 2005.


Contributions to our current operating income by region for the years ended December 31, 2006 and 2005, and the related percentage



2006 VARIATION 2006/2005 2005


Western Europe 699 33.2 12.2 623 35.2

North America 366 17.4 14.0 321 18.2

Mediterranean Basin 216 10.3 8.5 199 11.2


Latin America 129 6.1 2.4 126 7.1

Sub-Saharan Africa 305 14.5 20.1 254 14.4

Asia 132 6.3 94.1 68 3.8

TOTAL 2,103 100.0 18.8 1,770 100.0

1

2

3

4

5

6

7

8

9

10




Current operating income grew by 18.8%

to 2,103 million euros in 2006, compared


fl uctuations had a positive impact of 1% or

15 million euros. Net changes in the scope

of consolidation had a net negative impact

of 14 million euros, primarily arising from

the formation of the Lafarge Shui On joint

venture in China.


current operating income rose by 18.7%.

As a percentage of the Division’s sales,

current operating income represented 21.8%


Current operating income improved both

from volume growth and price increases

in most of our markets, in a context of rising

energy, transportation and raw material

costs and of additional cement and clinker

purchases.

Return on capital employed after tax was

up in 2006 at 10.3% compared to 9.7%

in 2005.


Western Europe

SALES

I n Wes t e rn Eu rope , s a l e s t o t a l ed

2,823 million euros, an increase of 11.5%

compared to 2005.


exchange rates, increased by 11.6%.

Volumes sold in Western Europe by

destination, at 33.8 million tonnes, were

up 6% compared with 2005. Domestic

volumes, at constant scope, increased by

5.5% compared to 2005:

in France, domestic sales were up by

10.6% as a result of volume growth in

a strong building sector throughout the

year;

in the United Kingdom, domestic sales

grew by 8.6% driven by prices with

slightly enhanced volumes stemming from

modest market growth;

Spain continued to record favorable

trends in construction spending. Domestic

sales growth at 12.3% benefi ted mainly

from increased prices;

in Germany, domestic sales were up

12.8% as a result of a steady recovery in

prices supported by higher volumes;

in Greece, domestic sales growth of

18.7% was driven by strong market

conditions, in terms of both volumes and

prices. The market in Greece was boosted

in 2006 by a dynamic residential sector

in anticipation of increased taxation.



Europe increased by 12.2% to 699 million

euros compared to 623 million euros

in 2005. Foreign exchange fl uctuations and

consolidation scope variation had a limited

impact.


2006 current operating income increased

by 11.9%:

in France, the strong construction market

led to robust growth in current operating

income, despite our need to purchase

cement to meet demand in a sold out

market and with pricing conditions

offsetting higher energy expenses;

in Spain, current operating income

improved mainly as the result of increased

prices, the favorable effect of volume

increase being mitigated by additional

clinker purchases to meet demand;

in the United Kingdom, current operating

income increased s igni f icant ly as

the result of growth in volumes and

successful price increases that offset

sharp energy cost increases;

in Germany, a combination of stronger

volumes and steady improvement

in prices increased current operating

income slightly compared to last year;

in Greece, excellent domestic market

trends led to a strong increase in

current operating income, in spite of an

environment of increasing costs.

North America

SALES

Sales increased s t rongly by 12.6%

to 1,977 mil l ion euros compared to

1,756 million euros in 2005, with robust

price increases more than offsetting the

impact of decreased residential activity

in most U.S. markets.


exchange rates, increased by 11.7%.

While volumes sold in North America

by destination, at 20.7 million tonnes,

decreased by 2.4%, domestic volumes,

at constant scope, were slightly down

0.7% compared to 2005. With respect

to geographic mix, trends varied across the

regions, with sustained demand displayed

in the West and Southeast while demand

was soft in the Northeast and Lakes regions.

Pricing remained fi rm, well above last year

levels, benefiting from price increases

in all markets during the fi rst quarter and

in selected markets in the third quarter.


Current operating income in North America

grew by 14.0% to 366 mil l ion euros

compared to 321 million euros in 2005.

Currency fl uctuations had a positive impact

of 8 million euros.

At constant exchange rates, current

operating income grew by 11.1%, refl ecting

favorable pricing trends. This significant

increase in current operating income

was achieved in spite of cost pressure, in

particular purchases costs of cement and

logistics costs which were however limited

by an optimized repositioning of product

across regions.

Growing markets

SALES

In growing markets, our sales increased

by 20.2% to 4,841 million euros, compared

to 4,026 million euros in 2005. Growing

markets accounted for 50.2% of the

Division’s sales in 2006, compared to 48.4%

in 2005. Overall, growing market sales

increased by 16.8% at constant scope and

exchange rates. Volumes sold in growing

markets by destination, at 77.3 million

tonnes for 2006, grew by 10.3%.

At constant scope, yearly domestic volumes

in growing markets increased by 8.2%,

refl ecting strong domestic market growth in

all regions, but to a lesser extent in Asia.

In the Mediterranean Basin, our sales

increased in 2006 by 19.1% to 636 million

euros.





Volumes sold in the Mediterranean Basin

by destination at 12.0 million tonnes, grew

by 14.3%. Domestic volumes, at constant

scope, grew by 9.9%:

in Turkey and Egypt, we achieved signi-

ficant domestic volume growth in very

active construction sectors. In addition,

good pricing trends led to very solid

domestic sales growth. In Egypt, the

government announcement to control

market prices had only a moderate impact

on our operations during the year;

in Jordan, sales grew signifi cantly from

price increases in the context of succes-

sive energy price increases, even though

volumes dropped during the second half

of the year compared to 2005;

in Morocco, strong domestic sales growth

was driven by robust volumes.

Our sales in Central and Eastern Europe

rose by 33.2% in 2006 to 778 million

euros.



Volumes sold in Central and Eastern Europe

by destination, at 13.3 million tonnes, grew


scope, grew by 17.5%:

in Romania and Poland, strong domestic

sales were driven mainly by volumes in

favorable residential and infrastructure

sectors;

in Russia, strong domestic sales growth

was fueled by a positive price trend;

in Serbia, high domestic volumes and

price growth resulted in solid domestic

sales improvement.

In Latin America, our sales were up in 2006

by 15.3% to 616 million euros.

A t c ons t an t s cope and e xchange

rates, domest ic sa les increased by

11.3%. Volumes sold in Latin America

by destination, at 7.6 million tonnes, grew


scope, increased 12.5%:

in Brazil, domestic sales were down by

10.3%, suffering from a 17.7% decline

in prices due to fi erce competition. Prices

stabilized at their end of 2005 levels, thus

being stable in the fourth quarter year

on year;

in Venezuela, cement demand was

strongly boosted by high levels of

construction sector activity. In such envi-

ronment, domestic sales grew by 39.8%;

in Chile , domestic sales increased

modestly by 1.3% in a rather difficult

competitive environment;

Honduras and Ecuador recorded strong

increases in sales.

In the Sub-Saharan Africa region, our

sales grew by 18.4% to 1,517 million euros

in 2006.



sold by destination in the Sub-Saharan

Africa region, at 13.3 million tonnes, grew


scope, increased 8.0%:

in Nigeria , pricing condit ions and

domestic volume increase led to a 34.5%

increase in domestic sales which were

sustained by solid plant performance;

in South Africa, domestic volumes

increased by 0.8% due to logistics and

production constraints following a kiln fi re

early this year;

in Kenya, with strong market conditions

favored by active residential and non resi-

dential sectors, domestic sales increased

by 18.0%;

in Cameroon, domestic sales grew by

9.4% in a strongly growing market envi-

ronment;

in South East Africa, which covers

Zambia, Malawi, and Tanzania, domestic

sales grew solidly with strong volume and

pricing conditions in Malawi and Tanzania,

while Zambia sales suffered from a less

favorable environment.

In Asia, our operations recorded sales growth

of 18.4% to 1,294 million euros in 2006.

The net positive scope effect resulting from

our Shui On joint venture and the acquisition

by the joint venture of the Yunnan operations

amounted to 56 million euros.


domestic sales were up 7.9% compared with

2005. Volumes sold in Asia by destination, at

31.1 million tonnes, grew by 8.4%. Domestic

volumes, at constant scope, grew 2.3%:

in Malaysia domestic sales increased by

8.6%, driven by strong price recovery.

However, domestic volumes dropped

slightly as benefits from the Malaysia

Government 9th plan have yet to be felt

in the market;

in the Philippines, domestic sales were

up 4.6% as a result of price increases,

while volumes were slightly down in a

relatively weak market which has yet to

benefit from announced infrastructure

spending;

in South Korea, domestic sales declined

by 3.1% despite better volumes, as

prices remain down in a still difficult

market. Government initiatives in 2005,

to dampen property price inflation, led

to tough competition between domestic

producers and importers;

in India, markets were well oriented and

prices improved, leading to domestic sales

growth of 21.7%;

in Indonesia, our volumes were up in an

active market. Both higher volumes and

improved pricing led to a domestic sales

increase of 26.2%;

in China, domestic sales grew by 27.3%,

benefi ting from strong market demand and

from our additional production capacity in

the Chongqing and Dujiangyan area.


Current operating income in growing markets

rose by 25.7% in 2006 to 1,038 million euros

compared to 826 million euros in 2005,

representing 49.4% of the Cement Division’s

current operating income, compared to

46.7% in 2005. Currency fl uctuations had a

positive impact on current operating income

of 7 million euros. Changes in the scope

of consolidation had a negative impact

of 12 million euros arising primarily from

the formation of the Lafarge Shui On joint

venture in China.


and exchange rates grew by 26%.

1

2

3

4

5

6

7

8

9

10




In the Mediterranean Basin, current

operating income in 2006 increased by

8.5% to 216 million euros compared to



and exchange rates grew by 10.1%:

growth was particularly strong in Turkey

and Egypt, with well oriented markets

offering good pricing conditions that offset

a sharp rise in energy costs;

in Jordan, current operating income

was fl at for the year despite selling price

increases, as fuel prices surged and

cement and clinker were purchased

to meet increasing demand in the first

half year;

in Morocco, current operating income

benefited from increased volumes and

from the start up of a new production line

in Bouskoura in May 2006.

In Central and Eastern Europe, current

operating income increased by 43.0%

to 256 million euros compared to 179 million

euros in 2005.


and exchange rates improved by 38.9%

with most countries in the region showing

improved results:

in Romania, current operating income

increased significantly as a result of

favorable market conditions in both

domestic and export markets;

in Poland, volume growth was the main

driver of the increase in current operating

income;

in Russia, price improvements translated

into a strong increase in current operating

income;

in Serbia, increased sales delivered better

current operating income.

In Latin America, current operating income

was up 2.4% to 129 million euros from



current operating income increased 1.1%:

in Brazil, lower average prices in 2006

combined with a sharp rise in energy

costs led to a signifi cant deterioration in

current operating income year on year. In

the fourth quarter, this deterioration was

minimal, as prices stabilized at their end

of 2005 level;

Venezuela and Honduras recorded solid

growth primarily from better volumes in

Venezuela, and better volumes and prices

in Honduras;

in Chile and Ecuador, current operating

income also improved compared to

2005.

In Sub-Saharan Africa, current operating

income increased by 20.1% to 305 million

euros in 2006.



with the majority of this growth coming from

Nigeria and to a lesser extent from Kenya:

in Nigeria favorable pricing and volumes,

as well as improved plant performance

generated significant operating income

growth;

in South Africa , increased clinker

purchases in the fi rst six months of the

year, following a kiln fi re at our Lichtenburg

plant, resulted in only modest growth in

current operating income;

in Kenya, current operating income rose

sharply from both increased volumes and

prices;

in Uganda and in Cameroon, higher

cement and clinker import costs led to

a decrease in current operating income,

while in Zambia, current operating income

suffered from lower volumes.

In Asia, current operating income increased

by 94.1% to 132 million euros in 2006.



110.4% with a large contribution from

Malaysia and signifi cant progress in a few

other countries:

in Malaysia, strong price recovery led to

improved current operating income;

in the Philippines, the increase in prices

was the main driver of the improvement in

current operating income;

in India, current operating income was

also favorably affected by improved

pricing;

in China, the current operating income of

our Shui On joint venture was favorably

affected by new production lines in the

Lafarge legacy plants in the Chongqing

and Dujiangyan areas. Progress has also

been achieved in the plants formerly

owned by Shui On;

Market conditions in South Korea

remained difficult, with 2006 current

operating income being slightly down;

i n I ndone s i a , de sp i t e a s t r ong

improvement in domestic sales, current

operat ing income decreased from

2005, which benefited from business

interruption insurance proceeds following

the December 2004 tsunami.





2006 2005

VARIATION

2006/2005

VARIATION

AT CONSTANT SCOPE

AND EXCHANGE RATES


SALES 6,449 5,392 19.6 14.2

CURRENT OPERATING INCOME 564 398 41.7 39

Sales

Contributions to our sales by activity and by geographic origin of sale for the years ended December 31, 2006 and 2005, and the related

percentage changes between the two periods were as follows:

SALES

2006 VARIATION 2006/2005 2005


AGGREGATES & RELATED PRODUCTS 3,344 18.1 2,831

Of which pure Aggregates:

Western Europe 1,058 43.3 12.9 937 45.6

North America 1,134 46.4 20.5 941 45.8

Other regions 252 10.3 43.2 176 8.6

TOTAL PURE AGGREGATES 2,444 100.0 19.0 2,054 100.0

READY MIX CONCRETE & CONCRETE PRODUCTS 3,555 21.2 2,932

Of which Ready-mix Concrete:

Western Europe 1,542 45.7 25.7 1,227 44.2

North America 1,145 33.9 18.3 968 34.8

Other regions 686 20.4 17.5 584 21.0

TOTAL READY MIX CONCRETE 3,373 100.0 21.4 2,779 100.0

Eliminations of intra

Aggregates & Concrete sales (450) (371)

TOTAL AGGREGATES & CONCRETE BEFORE

ELIMINATION OF INTER-DIVISION SALES 6,449 19.6 5,392

Sales of the Aggregates & Concrete Division increased by 19.6% to 6,449 million euros in 2006 from 5,392 million euros in 2005. Currency

fl uctuations had a positive impact of 1.5% and amounted to 67 million euros.

1

2

3

4

5

6

7

8

9

10




Scope changes accounted for an increase

in sales of 228 million euros, or 3.9%,

mainly from the impact of acquisitions in

Central Europe and North America and

the acquisition of joint venture interests in

Western Europe. At constant scope and

exchange rates, sales grew by 14.2% year

on year (23.5% in the first quarter 2006

compared to the fi rst quarter 2005, 13.1%

in the second quarter 2006, 12.5% in the

third quarter 2006 and 11.5% in the fourth

quarter 2006). Growth was driven principally

by strong pricing gains in all product lines

while volume trends were also positive

across a number markets, particularly in

Western and Central Europe. Investments

in growing markets also contributed to year

on year sales improvement.

Sales of pure aggregates increased by

19.0% to 2,444 million euros in 2006.


had a net positive impact of 1.2% and


exchange rates, sales grew by 12.4%.

Aggregates sales volumes in 2006 rose by

9.2% to 261.9 million tonnes. At constant

scope, sales volumes increased by 2.9%.

Sales of ready-mix concrete increased



had a net positive impact of 0.9% and


exchange rates, sales grew by 16.4%. Sales

volumes of ready-mix concrete rose 11.3%

to 43.4 million m3. At constant scope, sales

volumes increased by 7.3%.


Contributions to our current operating income by activity and by region for the years ended December 31, 2006 and 2005, and the related

percentage changes between the periods were as follows:


2006 VARIATION 2006/2005 2005


Aggregates 358 63.5 31.6 272 68.3

Concrete 206 36.5 63.5 126 31.7

TOTAL BY ACTIVITY 564 100.0 41.7 398 100.0

Western Europe 227 40.2 26.8 179 45.0

North America 245 43.5 51.2 162 40.7

Other regions 92 16.3 61.4 57 14.3

TOTAL BY REGION 564 100.0 41.7 398 100.0

Current operating income of the Aggregates

& Concrete Division increased 41.7% to

564 million euros in 2006 from 398 million

euros in 2005. Changes in scope had a net

positive impact of 13 million euros or 2.3%,

arising mainly from aggregate acquisitions

in Central Europe and North America and

acquisition of joint venture interests in

Western Europe. Currency fl uctuations had

a negligible impact.


current operating income grew by 39.6%. As

a percentage of the Division’s sales, current

operating income strongly improved to 8.7%


Current operating income for aggregates

& re la ted products grew 31.6% to

358 million euros in 2006, from 272 million

euros in 2005. This improvement was

driven primarily by strong price increases

combined with good cost control. In addition,

current operating income benefited from

increased volumes in several localized

markets. Current operating income for

ready-mix concrete and concrete products

grew 63.5% to 206 million euros in 2006,

up from 126 million euros in 2005. The

ready-mix and concrete business benefi ted

in most markets from favorable volume

conditions and strong improvement in prices

combined with good cost control. In addition,

further growth of our value added products

contributed as well.

Return on capital employed after tax rose

strongly to 9.7% from 8.1% in 2005.


Western Europe

SALES

Pure aggregates sales in Western Europe

grew by 12.9% to 1,058 million euros

in 2006, resulting from solid pricing and

robust volume trends. At constant scope and

exchange rates, sales grew 9.2%.

Asphalt and paving sales volume declined

in line with general market conditions in the

United Kingdom.

Ready-mix concrete sales grew 25.7% to

1,542 million euros in 2006, refl ecting strong

volumes and improved pricing in all main

markets coupled with favorable product mix.

At constant scope and exchange rates sales

grew 14.7%.





Europe grew by 26.8% to 227 million euros

in 2006.

At constant scope and exchange rates, the


was driven by strong activity in France

combined with good pricing and strong cost

control throughout all of Western Europe.

In addition, the ready-mix concrete activity

benefited from sales of innovative and

value added products. Asphalt and paving

activities recorded less favorable evolution

with some volume decline.

North America

SALES

In North America, pure aggregates sales rose


At constant scope and exchange rates, pure

aggregates sales growth reached 12.6%,

driven by successful price increases across

all markets. Volumes in 2006 were flat

compared to the prior year with contrasting

trends by region: strong market demand in

West Canada and Southeast U.S. pushed

volumes up, but was offset by decreased

residential markets in other regions.

Ready-mix concrete sales increased by

18.3% to 1,145 million euros in 2006.


sales increased 14.3%, refl ecting solid price

increases to offset cost infl ation. Volumes

improved slightly by 0.8%, with contrasting

trends by region and some slowing of

residential markets later in the year.

Asphalt and paving sales delivered solid

growth with very strong price increases to

offset signifi cant raw material and energy

costs.



grew by 51.2% to 245 million euros in 2006,

including a net positive impact of 7 million

euros from recent acquisitions. At constant

scope and exchange rates, current operating

income growth was driven by strong pricing,

combined with good cost control.

Elsewhere in the world

SALES

In the rest of the world, pure aggregates

and ready-mix concrete sales increased by

43.2% and 17.5% respectively. We recorded

strong growth in pure aggregates sales in

Poland, Romania, Ukraine and South Africa.

We also benefi ted from excellent ready-mix

concrete activity levels in most emerging

markets.


Current operating income experienced

another year of strong growth elsewhere in

the world, reaching 92 million euros in 2006

compared to 57 million euros in 2005.

We are starting to reap the benefi ts of recent

investments in several relatively high growth

markets, most notably Poland, Romania

and South Africa. All of these markets have

shown excellent improvement in current

operating income, through high volume

growth combined with strong pricing and

signifi cant productivity improvements.

Gypsum


2006 2005

VARIATION

2006/2005

VARIATION

AT CONSTANT SCOPE

AND EXCHANGE RATES


SALES 1,632 1,479 10.3 11.5

CURRENT OPERATING INCOME 198 151 31.1 33.7

1

2

3

4

5

6

7

8

9

10




Sales

Contributions to our sales by origin for the years ended December 31, 2006 and 2005 and the related percentage changes between

the two periods were as follows:

SALES

2006 VARIATION 2006/2005 2005


Western Europe 859 52.6 8.3 793 53.6

North America 400 24.5 20.8 331 22.4

Other regions 373 22.9 5.0 355 24.0

TOTAL BEFORE ELIMINATION


Sales of the Gypsum Division increased by


1,479 million euros in 2005. Changes in

the scope of consolidation had a negative

impact of 1.4% and currency fl uctuations

increased sales by 0.2%.


increased by 11.5% (15.3% in the first

quarter 2006 compared to the fi rst quarter

2005, 12.7% in the second quarter 2006,

10.6% in the third quarter 2006 and 8.1%

in the fourth quarter 2006).

The increase in sales was largely driven

by favorable pricing conditions in North

America until the end of July and a good

market environment in Western Europe.

Sales volumes of wallboard grew by 1.6%

in 2006 to 705 million m2. At constant

scope, volume growth was 2.5%.


Contributions to our current operating income by region, for the years ended December 31, 2006 and 2005, and the related percentage



2006 VARIATION 2006/2005 2005


Western Europe 81 40.9 5.2 77 51.0

North America 88 44.4 95.6 45 29.8

Other regions 29 14.7 - 29 19.2

TOTAL 198 100.0 31.1 151 100.0

Current operating income grew by 31.1% to

198 million in 2006 compared to 151 million

in 2005. Currency fluctuations had no

impact on the Division.




sales, current operating income increased to

12.1% in 2006 compared to 10.2% in 2005.

This record performance is primarily due to

price increases in North America, but also

due to strong volumes and prices in Western

Europe.

Return on capital employed after tax grew to

11.7% from 10.2%.


Western Europe

SALES

In Western Europe, sales grew by 8.3%

to 859 million euros in 2006 up from

793 million euros in 2005. Sales were up

overall, driven by increased volumes in

all countries. In the United Kingdom and

Ireland, demand remained solid. In France,

volumes refl ected a favorable environment.

In Germany, volumes and prices increased

from the low level experienced in the second

half of 2005.


In Western Europe, current operating income

improved by 5.2% to 81 million euros from

77 million euros in 2005. This increase was

largely driven by the United Kingdom, which

recorded strong growth. In France, current

operating income was stable despite higher

volumes, as the increase in selling prices

did not fully offset a sharp rise in input

costs. Current operating income was down

in Germany but showed a good recovery in

the second half of 2006.



North America

SALES

In North America, sales in 2006 grew by

20.8% to 400 million euros from 331 million

euros in 2005. Favorable market conditions

were seen in North America until the end

of July, with higher prices and good volume

growth. Since then, demand has softened in

the United States and prices and volumes

declined.



improved by 95.6% to 88 million euros

in 2006 from 45 million euros in 2005.

Higher selling prices drove the increase in

current operating income.

Other regions

SALES

In other regions, our sales rose overall by

5.1% to 373 million euros in 2006 from

355 million euros in 2005. Good levels

of activity were recorded in Turkey, Latin

America and South Africa. Sales in Asia

increased, despite competitive market

conditions, primarily as a result of higher

volumes in China and South Korea. Australia

continued to face a diffi cult market, although

conditions have stabilized. Poland suffered

from weaker market conditions in the fi rst

half of 2006, but recovered strongly in the

second half of the year.


In other regions, current operating income

was flat at 29 million euros in 2006, as

a result of competitive pressure and higher

input costs.

Other (including holdings)

Sales

Sales of our other operations fell to 14 million

euros in 2006 compared to 25 million euros

in 2005.

Current operating income (loss)

Current operat ing loss of our other

operat ions, which inc ludes centra l

unallocated costs, reached 93 million euros

in 2006 compared to a loss of 73 million

euros in 2005. This loss mainly refl ects the

results of our reinsurance captives, which

were penalized by a relatively high loss rate

in our cement plants, resulting from a fi re

in our Lichtenburg plant in South Africa, a

gas explosion in our Korkino plant in Russia,

and a landslip at our quarry in Serbia.

Operating income and net income

The table below shows the change in our operating income and net income for the years ended December 31, 2006 and 2005:

2006 VARIATION 2006/2005 2005*


CURRENT OPERATING INCOME 2,772 23.4 2,246

Gains on disposals, net 28 (30.0) 40

Other operating income (expenses) (122) (16.2) (105)

OPERATING INCOME 2,678 22.8 2,181

Finance (costs) income (485) (16.9) (415)

Income from associates 30 (3.2) 31

INCOME BEFORE INCOME TAX 2,223 23.7 1,797

Income tax (630) (34.0) (470)

Net Income of continuing operations 1,593 20.0 1,327

Net Income of discontinued operations (4) - 97

NET INCOME 1,589 11.6 1,424

Out of which

Group share 1,372 25.2 1,096

Minority interests 217 (33.8) 328

* Figures have been adjusted as mentioned in Note 3 (b) following the contemplated divestment of the Roofi ng Division and are therefore not comparable with those presented

in the 2005 Annual Report.

1

2

3

4

5

6

7

8

9

10




Gains on disposals, net, represented a net

gain of 28 million euros in 2006, compared

to 40 million euros in 2005. In 2006, the net

gain resulted mainly from capital gains in our

United Kingdom properties operations.

Other operating expenses, amounted

to 122 million euros in 2006, compared

to 105 million euros in 2005. In 2006,

other expenses included essential ly

99 million euros of restructuring costs.

In the context of our “Excellence 2008”

strategic plan, we recorded significant

restructuring provisions.

See Note 6 to our consolidated fi nancial statements for more information on other operating expenses.

Operating income increased by 22.8% to

2,678 million euros, from 2,181 million

euros in 2005.

Finance costs increased by 16.9% to

485 million euros from 415 million euros

in 2005. Finance costs are comprised of

financial expenses on net debt and other

fi nancial income and expenses. Financial

expenses on net debt increased by 28.6%

to 522 million euros from 406 million euros

in 2005 (433 million euros including the

impact of OCEANE’s equity component

amortization for 27 million euros), mainly

as a result of the interest expense on

the acquisition debt for our buy-out of

the Lafarge North America Inc. minority

interests. The average interest rate on our

debt was 5.5% in 2006, as compared to

5.4% in 2005. Other fi nancial income and

expenses amounted to a net gain in 2006

of 37 million euros compared to a net gain

of 18 million euros in 2005. This change is

mainly explained by the positive effect of the

capital gain on the sale of residual interest

in Materis.

Income from associates of 30 million euros

in 2006 remained almost stable year on

year.

Income tax increased to 630 million euros

in 2006 from 470 million euros in 2005. The

effective tax rate of continuing operations for

2006 increased slightly to 28.3% compared

to 26.2% in 2005. In 2005, our income

tax benefi ted from favorable non recurring

effects. In 2006, in light of the contemplated

disposal of the Roofing division and the

subsequent termination of tax integrations

combining the cement and roofi ng activities,

a new tax efficient restructuring was

implemented in Germany and had a positive

effect of almost 2% on the effective tax rate

of continuing activities.

Net income of discontinued operations

resulted in a loss of 4 mil l ion euros

compared to a gain of 97 million euros

in 2005. Sales of the Roofing Division

amounted to 1,624 million euros in 2006

compared to 1,514 million euros in 2005.

Current operating income rose sharply

from 98 million euros to 131 million euros

benefi ting from cost savings and from overall

positive market trends in Western Europe.

Tax of discontinued operations increased

in 2006 by 129 million euros to 83 million

euros largely because of the write off,

in 2006, of a deferred tax asset recorded

in 2005 related to the tax integration of the

cement and roofi ng activities. This deferred

tax asset was written off in 2006 in light of

the divestment of the Roofi ng Division and

the subsequent termination of the above

mentioned integration.

Net income Group Share increased by


1,096 million euros in 2005. Net income

Group Share represented 8.1% of sales


Minority interests decreased by 33.8% to

217 million euros from 328 million euros

in 2005. Minority interests were reduced

by 177 million euros as a result of our

acquisition of the minority interests of

Lafarge North America Inc. They increased

103 million euros due to better net results

in Nigeria, Malaysia, Romania and North

America. They decreased by 37 million

euros as the consequence of the decrease

of net result in Greece due to one-off items,

positive last year and negative this year.

Basic earnings per share increased

23.0% for 2006 at 7.86 euros, compared

to 6 .39 euros in 2005. The bas ic

average number of outstanding shares,

excluding treasury shares, during the

year was 174.5 million (175.3 million

s h a r e s a t D e c e m b e r 3 1 , 2 0 0 6 ) ,

compared to 171.5 mi l l ion in 2005

(174.2 million at December 31, 2005).

Be tween December 31 , 2005 and

December 31, 2006, the increase in the

basic average number of shares arose

from our employee stock option plan.

Diluted earnings per share were up 22.2%

to 7.75 euros, compared to 6.34 euros

in 2005.


OPERATING AND FINANCIAL REVIEW AND PROSPECTS4 4.4 Liquidity and capital resources

4.4 Liquidity and capital resources

In the following discussion in this Section 4.4 (Liquidity and capital resources) and in the next Section 4.5 (Market risks), debt fi gures are presented excluding put options on shares of subsi-diaries.

During the three-year period ended

December 31, 2007, our main sources of

liquidity were:

cash provided by operating activities;

cash provided by the divestment of non-

strategic assets;

cash provided by the issuance of debt and

of our share capital.

These funds were mainly used to fi nance

a significant investment program (capital

expenditures and acquisitions).

COMPONENTS OF CASH FLOW


CASH FLOW FROM CONTINUING OPERATIONS 2,781 2,639 2,085

Changes in operating working capital items excluding fi nancial expenses and income taxes (79) (257) (334)

NET OPERATING CASH GENERATED BY CONTINUING OPERATIONS 2,702 2,382 1,751

Net operating cash generated (used) by discontinued operations (26) 184 135

NET CASH PROVIDED BY OPERATING ACTIVITIES 2,676 2,566 1,886

Net cash provided by (used in) investing activities from continuing operations (688) (4,649) (1,553)

Net cash provided by (used in) investing activities from discontinued operations (15) (198) (131)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (703) (4,847) (1,684)

Net cash provided by/(used in) fi nancing activities from continuing operations (1,705) 1,881 (152)

Net cash provided by/(used in) fi nancing activities from discontinued operations 41 15 (33)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,664) 1,896 (185)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 309 (385) 17

Based on our current fi nancial projections,

we believe that we have suffi cient resources

for our ongoing operations in both the short

term and long term.

Net cash provided

by operating activities

Net cash provided by operating activities

increased by 110 mi l l i on euros to

2,676 million euros from 2,566 million euros

in 2006.

Net operating cash generated by continuing

operations at 2,702 million euros increased

by 320 million euros.

Cash f low f rom operat ions grew by

142 mi l l ion euros to 2,781 mi l l ion

euros. The growth, driven by strongly

improved operating results after tax

was partly offset by around 250 million

euros exceptional contributions either to

our UK pension funds or in relation to

the funding of a pension plan in France.

Active management of our operating working

capital requirements contained the increase

to only 79 million euros. Expressed in days

of sales (count back method), the ratio of

operating working capital requirement as of

December 31, 2007 improved to 58 days

from 60 days at December 31, 2006. This

reflects our focus and efforts on working

capital reduction throughout the Group.

Net operating cash used by discontinued

operations at 26 million euros decreased

by 210 million euros, as the Roofi ng opera-

tions only contributed for two months of the

Group’s cash fl ows in 2007.

See Section 4.1 (Overview – Reconciliation of our non-GAAP fi nancial measures) for more information on cash flow from operations.

Net cash (used in)

investing activities

Net cash used in investing activit ies

amounted to 703 million euros, compared

to 4,847 million euros in 2006.

For continuing operations, net cash used in

investing activities amounted to 688 million

euros compared to 4,649 million euros in

2006.

Sustaining capital expenditures totaled

976 million euros in 2007, almost stable

when compared to 978 million euros in

2006. Capital expenditures for new capacity

amounted to 991 million euros compared

to 549 million euros in 2006, refl ecting the

acceleration of our internal development

program mainly in cement and in gypsum.

These expenditures include in particular

major cement projects such as the recons-

1

2

3

4

5

6

7

8

9

10




truction of our Aceh plant in Indonesia

(36 million euros), the extension of our

capacities in Eastern India (52 million euros),

China (65 million euros), Zambia (43 million

euros), the United States (38 million euros),

South Africa (34 million euros), Morocco

(28 million euros), Ecuador (43 million

euros), Chile (18 million euros), Egypt

(18 million euros) and Poland (12 million

euros) plus three main gypsum projects,

the capacity expansion at Silver Grove in the

United States (34 million euros) and the new

plants in the United Kingdom (42 million

euros) and in Ukraine (26 million euros).

Also included are various other debottle-

necking investments in cement of about

150 million euros, in particular in Western

Europe and Africa, and the construction of

a new terminal in New York.

External development totaled 1,203 million

euros, of which the most signifi cant were:

the acquisition of minority stakes of

Heracles in Greece (417 million euros);

the investment in the new Roofi ng entity

(217 million euros);

the acquisition of an additional 4.6% stake

in Cimpor (219 million euros) between

June and August.

Disposals of 2,492 million euros were

made up mainly of the sale of our Roofi ng

Division to PAI partners (2.1 billion euros

received on February 28) and of our

participation in Ybitas Lafarge, operating in

cement, aggregates and concrete in Turkey,

to Cimpor (250 million euros received

on February 27).

For discontinued operations, net cash

used in investing activities decreased

to 15 million euros compared to 198 million

euros in 2006, as only two months of activity

(effective sale of the Roofi ng Division end of

February) were included in 2007.

Net Cash provided (used in)

fi nancing activities

In general, we meet our long-term fi nancing

needs through bond issues and the use

of long-term instruments, such as our

Euro Medium-Term Notes program and

bank loans. We currently have a Euro

Medium-Term Notes (EMTN) program, with a

maximum available amount of 7,000 million

euros and approximately 4,162 million euros

outstanding at December 31, 2007.

We issued the following long and medium-

term debt securities in 2007, 2006 and

2005:

Under the EMTN program

on July 6, 2007, 500 million euros in

private placements bearing a floating

interest rate (Euribor 3 months +0.120%)

with a 3-year maturity;

on June 26, 2007, 500 million euros

in bonds bearing a fi xed interest rate of

5.375% with a maturity of 10 years;

on December 7 and 15, 2006, respectively

150 million euros and 140 million euros

in private placements bearing a fl oating

interest rate (Euribor 3 months +0.175%)

with a 3-year maturity;

on November 23, 2005, 500 million euros


4.25% with a maturity of 10 years and

4 months;

on March 23, 2005, 500 million euros


4.75% with a 15-year maturity;

Outside the EMTN program

we entered into a 7.2 bill ion euros

acquisition credit facility with Calyon,

BNP-Paribas and Morgan Stanley on

December 9, 2007 for the acquisition of

Orascom Cement shares as well as the

refi nancing of a portion of its debt. This

credit facility consists of several tranches,

maturing in 1 year for 1.8 billion euros,

2 years for 2.3 billion euros and 5 years for

3.1 billion euros. At December 31, 2007,

no amount was drawn under this facility;

to fi nance our cash tender offer for the

remaining minority stake in Lafarge North

America Inc., we entered into a $2.8 billion

acquisition credit facility with BNP-Paribas

and JP Morgan on February 5, 2006.

This credit facility was later syndicated with

17 banks. Drawdowns on this facility, star-

ting on May 15, 2006, were used to fi nance

this acquisition. On July 18, 2006, we

refinanced $2 billion of drawdowns

outstanding on the U.S. bond market

by issuing 3 tranches: a 5-year tranche

for $600 million, a 10-year $800 million

tranche and a 30-year tranche that raised

$600 million. The net proceeds of this

bond issue were used on July 24, 2006 to

reduce the commitments under this credit

facility from $2.8 billion to $819 million.

This facility, which was repaid in full

dur ing January 2007, expired on

February 5, 2007.

Main debt repayments in 2007 were:

on July 26, 2007, a bond total ing

588 mil l ion euros was reimbursed

at maturity;

on April 4, 2007, a bond totaling 86 million

euros was reimbursed at maturity.

Short-term needs are mainly met through

the issuance of domestic commercial paper

as well as the use of credit lines.

We currently have a euro-denominated

commercial paper program, with a maximum

available amount of 3,000 million euros.

At December 31, 2007, 1,193 million euros

of commercial paper was outstanding under

this program.

We also maintain committed credit lines

with various banks (mainly at parent

company level) to ensure the availability

o f funding on an as-needed bas is .

At December 31, 2007, these committed

credit lines amounted to 3,074 million euros

(compared to approximately 3,718 million

euros a t December 31 , 2006 and

3,740 million euros at December 31, 2005).

Of this amount, 3,069 million euros were

available at December 31, 2007 (compared

to approximately 3,547 mill ion euros

at December 31, 2006 and 3,467 million

euros at December 31, 2005). The average

maturity of these credit facilities was

approximately 3.5 years at the end of

2007 versus 3.8 years at the end of 2006

(excluding the credit facility set up for

the acquisition of the minority stake in

Lafarge North America Inc.) and 4.1 years

at the end of 2005.

In December 2007, the Group set up a credit

facility of 7.2 billion euros for the acquisition

of Orascom Cement. The average maturity

of this facility amounted to 3.0 years at

December 31, 2007.


OPERATING AND FINANCIAL REVIEW AND PROSPECTS4 4.4 Liquidity and capital resources

We have also increased our net equity

(common stock and additional paid-in

capital) over the last three years by

427 million euros, through the issuance of

6,674,902 shares as a result of:

the exercise by shareholders of their

option to receive their dividends in shares

rather than in cash in 2005 (an option

canceled as from 2006);

the 2005 employees stock purchase

plan; and

the exercise of options granted to

employees.

Because we use external sources to

fi nance a signifi cant portion of our capital

requirements, our access to global sources

of financing is important. The cost and

availability of unsecured financings are

generally dependent on our short-term and

long-term credit ratings. Factors that are

signifi cant in the determination of our credit

ratings or that otherwise could affect our

ability to raise short-term and long-term

financing include: our level and volatility

of earnings, our relative positions in the

markets in which we operate, our global and

product diversifi cation, our risk management

policies and our financial ratios such as

net debt to total equity and cash fl ow from

operations to net debt. We expect credit

rating agencies will focus, in particular, on

our ability to generate suffi cient operating

cash flows to cover the repayment of our

debt. Deterioration in any of the previously

mentioned factors or a combination of

these factors may lead rating agencies

to downgrade our credit ratings, thereby

increasing our cost of obtaining unsecured

fi nancing. Conversely, an improvement of

these factors may lead rating agencies to

upgrade our credit ratings.

As of the date of fi ling of this Report, the credit ratings for our short and long-term debt were as follows:

Short-term Long-term

Standard & Poor’s A-2 BBB (stable)

Moody’s NR Baa2 (negative)

Level of debt and

fi nancial ratios at

December 31, 2007

See Note 25 to our consolidated fi nancial statements for more information on debt.

Group funding policies

Our Executive Committee establishes our

overall funding policies. The intent of these

policies is to ensure our ability to meet

our obligations by maintaining a strong

financial structure. This policy takes into

consideration our expectations concerning

the required level of leverage, coverage

ratios, the average maturity of debt, interest

rate exposure and the level of credit facilities.

These targets are monitored on a regular

basis. As a result of this policy, a signifi cant

portion of our debt has a long-term maturity.

We constantly maintain a signif icant

amount of unused medium- and long-term

committed credit lines.

We are subject to limited foreign exchange

risks as a result of our subsidiaries’

transactions in currencies other than their

operating currencies. Our general policy

is for subsidiaries to borrow and invest

excess cash in the same currency as their

functional currency. However, we encourage

the investment of excess cash balances in

U.S. dollars or euros in emerging markets.

Typically, a portion of our subsidiaries’ debt

funding is borrowed at the parent company

level in foreign currencies, or in euros and

then converted into foreign currencies

through currency swaps.

Total debt

At December 31, 2007, our total debt

amounted to 9,639 million euros (compared

to 10,768 mill ion euros in 2006 and

8,742 million euros in 2005). At the end of

2007, we reclassifi ed 1,193 million euros of

short-term debt (2,354 million euros at the

end of 2006 and 1,040 million euros at the

end of 2005) as long-term debt on the basis

of our ability to refi nance this obligation using

the available funding provided by medium-

and long-term committed credit lines.

Long-term debt totaled 8,025 million

euros compared with 9,215 million euros

at year-end 2006 and 6,856 million euros

at year-end 2005. Approximately 54% of

the 2007 long-term debt is due to mature

after 2012. Long-term debt mainly comprises

fixed-rate debt (after taking into account

interest rate swaps). Most of this debt is

denominated in euros, U.S. dollars and

British pounds.

At December 31, 2007, our short-term debt

(including the current portion of long-term

debt) amounted to 1,614 million euros.

We are subject to fl uctuations in our short-

term debt due to a slowdown in building

activity during the winter season in our

principal markets in Western Europe and

North America, while working capital

requirements tend to increase during the

fi rst half of the year.

At December 31, 2007, the average

spot interest rate on our total debt after

swaps was 5.8%, compared to 5.8%

and 5.5% at December 31, 2006 and

December 31, 2005. The average yearly

interest rate on debt after swaps in 2007 was

5.8% (compared to 5.5% in 2006).

Our cash and cash equivalents amounted to

1,429 million euros at year-end, with close to

half this amount denominated in euros and

U.S. dollars and the remainder in a large

number of other currencies.

See Section 4.5 (Market risks) and the Notes 25 and 26 to our consolidated f i n a n c i a l s ta te m e n t s fo r m o re information on our debt and fi nancial instruments.

1

2

3

4

5

6

7

8

9

10




Net debt and net debt ratios

Our net debt, which includes put options

on shares of subsidiaries and derivative

instruments, totaled 8,685 million euros

at December 31, 2007 (compared to

9,845 million euros at December 31,

2006 and 7 ,221 m i l l i on eu ros a t

December 31, 2005).

Our net-debt-to-equity ratio stood at 72%

at December 31, 2007 (compared to

84% at December 31, 2006 and 59% at

December 31, 2005).

Our cash fl ow from operations to net debt

ratio was 32% at December 31, 2007

(compared to 27% at December 31, 2006

and 29% at December 31, 2005).

See Section 4.1 (Overview – Reconciliation of our non-GAAP fi nancial measures) for more information on these ratios.

Loan agreements

Some of our loan agreements contain

restrictions on the ability of subsidiaries to

transfer funds to the parent company in

certain specific situations. The nature of

these restrictions can be either regulatory,

when the transfers of funds are subject to

approval of local authorities, or contractual,

when the loan agreements include restrictive

provisions such as negative covenants on

the payment of dividends. However, we do

not believe that any of these covenants or

restrictions, limited to few loans, will have

any material impact on our ability to meet

our obligations.

See Section 2.4 (Risks inherent to our fi nancial organization).

At December 31, 2007, certain of our

subsidiaries had financing contracts with

provisions requiring on-going compliance

with fi nancial covenants. These subsidiaries

are located in Bangladesh, Chile, Ecuador,

India, Indonesia, Philippines, South Africa,

Ukraine, United Kingdom and Vietnam.

The debt associated with such covenants

represented approximately 4% of the Group’s

total debt. Given the dispersion of these

contracts among various subsidiaries and

the quality of the Group’s liquidity protec-

tion through its access to committed credit

facilities, we believe that such covenants will

not have a material impact on the Group’s

fi nancial situation.

See Note 25 (e) to our consolidated fi nancial statements.

Cash surpluses

In order to ensure that cash surpluses

are used efficiently we have adopted, in

a number of cases, cash pooling structures

on a country-by-country basis. With

the introduction of the euro, we have

established a centralized cash management

process for most of the euro-zone countries

and we also have extended the centralization

of cash management to signifi cant European

non-euro countries (such as Poland,

Romania, Switzerland and the United

Kingdom). Local cash pools have also been

set up in other parts of the Group.

Due to legal or regulatory constraints or

national regulations, we do not operate a

full worldwide centralized cash management

program. However, the policies set by

senior management tend to maximize

cash recycling within the Group. When

cash cannot be recycled internally, cash

surpluses are to be invested in liquid

short-term instruments, with at least half

of any cash surplus being invested in

instruments with a maturity of less than

three months.

Effect of currency

fl uctuations on our results

and balance sheet

The assets, liabilities, income and expenses

of our operating entities are denominated

in various currencies. Our consolidated

fi nancial statements are presented in euros.

Consequently, assets, liabilities, income

and expenses denominated in currencies

other than the euro must be translated into

euros at the applicable exchange rate to

be included in our consolidated financial

statements.

If the euro increases in value against

a currency, the value in euros of assets,

liabilities, income and expenses originally

recorded in the other currency will decrease.

Conversely, if the euro decreases in value

against a currency, the value in euros of

assets, liabilities, income and expenses

originally recorded in that other currency

will increase. Thus, increases and decreases

in the value of the euro can have an impact

on the value in euros of our non-euro assets,

liabilities, income and expenses, even if the

value of these items has not changed in their

original currency.

In 2007, we earned approximately 72% of

our revenues in currencies other than the

euro, with approximately 29% denominated

in U.S. dollars or Canadian dollars.

Approximately 19% of our net income,

Group share was contributed by subsidia-

ries preparing their financial statements

in U.S. dollars or Canadian dollars. As a

result, a 10% change in the U.S. dollar/

euro exchange rate and in the Canadian

dollar/euro exchange rate would have an

impact on our net income, Group share of

approximately 37 million euros, all other

things being equal.

In addition, at the end of 2007, approxima-

tely 77% of our capital employed was located

outside the member states of the European

Monetary Union, with approximately 30%

denominated in U.S. dollars or Canadian

dollars.


OPERATING AND FINANCIAL REVIEW AND PROSPECTS4 4.5 Market risks

4.5 Market risks

We are exposed to foreign currency risk

and interest rate risk. We are also exposed

to other market risk exposures generated

by our equity investments, commodity

price changes, in particular on energy

commodities, and to counterparty and

liquidity risks.

We have def ined str ict pol ic ies and

procedures to measure, manage and monitor

our market risk exposures. Our policies do

not permit any speculative market position.

We have instituted management rules

based on the segregation of operations,

fi nancial and administrative control and risk

measurement. We have also instituted an

integrated system for all operations managed

at corporate level that permits real-time

monitoring of hedging strategies.

Our policy is to use derivative instruments

to hedge our exposure to exchange rate and

interest rate risks. We also use derivative

instruments from time to time to manage our

exposure to commodity risks. With the prior

authorization of our senior management, we

have occasionally entered into agreements

to limit our or another party’s exposure to

equity risk.

We use financial instruments only to

hedge existing or anticipated fi nancial and

commercial exposures. We undertake this

hedging in the over-the-counter market

with a limited number of highly rated

counterparties. Our positions in derivative

fi nancial instruments are monitored using

various techniques, including the fair value

approach.

In order to reduce our exposure to the risks

of currency and interest rate fl uctuations,

we manage our exposure both on a central

basis through our treasury department and

in conjunction with some of our subsidiaries.

We use various standard derivative fi nancial

instruments, such as forward exchange

contracts, interest rate and currency swaps

and forward rate agreements to hedge

currency and interest rate fl uctuations on

assets, liabilities and future commitments,

in accordance with guidelines established

by our senior management.

We are subject to commodity risk with

respect to price changes principally in the

energy and sea freight markets. From time to

time, we use derivative fi nancial instruments

to manage our exposure to these commodity

risks.

We are also subject to equity risk through our

minority holdings in certain public compa-

nies. We occasionally enter into transactions

with respect to our equity investments with

fi nancial institutions. We account for such

instruments by taking the fair value at period

end in accordance with applicable valuation

rules. In addition, in regard to certain joint

ventures and other acquisitions, we have

entered into shareholders agreements,

which have written call and put options with

respect to our and our partners’ interests.

See Note 25 (f) to our consolidated f i n a n c i a l s ta te m e n t s fo r m o re information on our exposure to these options.

Foreign currency risk

Translation risk

See Se c t i on 4 .4 ( L i qu id i t y and capital resources – Effect of currency fl uctuations on our results and balance sheet).

Transaction risk

We are subject to foreign exchange risk as a

result of our subsidiaries’ purchase and sale

transactions in currencies other than their

operating currencies.

With regard to transactional foreign currency

exposures, our policy is to hedge all material

foreign currency exposures through deriva-

tive instruments at the latest when a fi rm

commitment is entered into or known. These

derivative instruments are generally limited

to forward contracts and standard foreign

currency options, with terms of generally less

than one year. From time to time, we also

hedge future cash fl ows in foreign currencies

when such fl ows are highly probable. We do

not enter into foreign currency exchange

contracts other than for hedging purposes.

Each subsidiary is responsible for managing

the foreign exchange positions arising as

a result of commercial and financial

transactions performed in currencies other

than its domestic currency. Exposures are

centralized and hedged with corporate

treasury department using foreign currency

derivative instruments when local regulations

permit. Otherwise, our exposures are

hedged with banks. The corporate treasury

department returns its position in the market,

and attempts to reduce our overall exposure

by netting purchases and sales in each

currency on a global basis when feasible.

As far as fi nancing is concerned, our general

policy is for subsidiaries to borrow and invest

excess cash in the same currency as their

functional currency, except for subsidiaries

operating in growing markets, where

cash surpluses are invested, whenever it

is possible, in U.S. dollars or in euros. A

significant portion of our financing is in

U.S. dollars and British pounds, refl ecting

our signifi cant operations in these countries.

Part of this debt was initially raised in euros

at parent company level then converted

into foreign currencies through currency

swaps. At December 31, 2007, before these

currency swaps, 19% of our total debt was

denominated in U.S. dollars and 13% in

British pounds. After taking into account

the swaps, our U.S. dollar denominated

debt amounted to 37% of our total debt,

while our British pound denominated debt

represented 11%.

See Notes 25 and 26 to our consolidated fi nancial statements for more information on debt and fi nancial instruments.

Interest rate risk

We are exposed to interest rate risk through

our debt and cash. Our interest rate

exposure can be sub-divided into the

following risks:

price risk for fixed-rate financial assets

and liabilities.

By contracting a fixed-rate liability, for

example, we are exposed to an opportu-

nity cost in the event of a fall in interest

rates. Changes in interest rates impact

the market value of fi xed-rate assets and

liabilities, leaving the associated fi nancial

income or expense unchanged;

1

2

3

4

5

6

7

8

9

10


4.5 Market risks


cash fl ow risk for fl oating-rate assets and

liabilities.

Changes in interest rates have little impact

on the market value of fl oating-rate assets

and liabilities, but directly infl uence the

future income or expense flows of the

Company.

In accordance with the general policy

established by our senior management we

seek to manage these two types of risks,

including the use of interest rate swaps and

forward rate agreements. Our corporate

treasury department manages our fi nancing

and hedges interest rate risk exposure in

accordance with rules defi ned by our senior

management in order to keep a balance

between fi xed rate and fl oating rate exposure.

Before taking into account the interest rate

swaps, at December 31, 2007, 64% of our

total debt was fi xed-rate. After taking into

account these swaps, the portion of fi xed-

rate debt amounted to 55%.

See Notes 25 and 26 to our consoli-dated financial statements for more information on our debt and finan-cial instruments.

Commodity risk

We are subject to commodity risk with

respect to price changes mainly in the elec-

tricity, natural gas, petcoke, coal, fuel, diesel,

and sea freight markets. We attempt to limit

our exposure to changes in commodity

prices by entering into long-term contracts

and increasing our use of alternative fuels.

From time to time, and if the market exists,

we hedge our material commodity exposures

through derivative instruments at the latest

when a fi rm commitment is entered into or

known or when future cash fl ows are highly

probable. These derivative instruments are

generally limited to swaps and options, with

ad hoc terms.

We do not enter into commodities contracts

other than for hedging purposes.

See Note 26 (e) to our consolidated financial statements for more infor-mation on financial instruments and commodity risk.

Interest rate sensitivity

The table below provides information about

our interest rate derivative instruments and

debt obligations that are sensitive to changes

in interest rates.

For debt obligations, the table presents

principal cash fl ows by expected maturity

dates and related weighted average interest

rates before swaps.

For interest rate derivative instruments, the

table presents notional amounts by contrac-

tual maturity dates and related weighted

average interest rates. Notional amounts are

used to calculate the contractual payments

to be exchanged under the contract.

Weighted average fl oating rates are based

on effective rates at year-end.

MATURITIES OF NOTIONAL CONTRACT VALUES AT DECEMBER 31, 2007

(million euros)

Average

rate (%) 2008 2009 2010 2011 2012 > 5 years Total Fair value

DEBT

Long-term debt* 5.7 1,131 419 1,034 506 1,761 4,305 9,156 9,007

Fixed-rate portion 5.9 679 60 300 431 517 4,207 6,194 6,055

Floating-rate portion 5.1 452 359 734 75 1,244 98 2,962 2,952

Short-term bank borrowings 5.4 483 - - - - - 483 483

INTEREST RATE DERIVATIVES

Pay Fixed

Euro 6.5 70 - - - - - 70 -

Other currencies 7.9 - 7 5 13 21 58 104 (15)

Pay Floating

Euro 4.4 - - - - - 600 600 (9)

Other currencies 6.5 - - 273 - - 136 409 1

Other interest rate derivatives

Euro - - - - - - - - -

Other currencies 7.0 34 17 - - - - 51 1

* Including the current portion of long-term debt.


OPERATING AND FINANCIAL REVIEW AND PROSPECTS4 4.5 Market risks

MATURITIES OF NOTIONAL CONTRACT VALUES AT DECEMBER 31, 2007

(million euros) 2008 2009 2010 2011 2012 > 5 years Total Fair value

DEBT IN FOREIGN CURRENCIES

U.S. dollar 190 34 17 424 13 1,158 1,836 1,854

British pound 17 8 281 8 485 481 1,280 1,297

Other currencies 556 77 73 61 56 77 900 894

TOTAL 763 119 371 493 554 1,716 4,016 4,045

FOREIGN EXCHANGE DERIVATIVES

FORWARD CONTRACT PURCHASES AND CURRENCY SWAPS

U.S. dollar 293 - - - - - 293 (9)

British pound 428 - - - - - 428 (8)

Other currencies 240 10 - - - - 250 (8)

TOTAL 961 10 - - - - 971 (25)

FORWARD CONTRACT SALES AND CURRENCY SWAPS

U.S. dollar 1,991 - - - - - 1,991 24

British pound 293 - - - - - 293 6

Other currencies 289 - - - - - 289 3

TOTAL 2,573 - - - - - 2,573 33

Based on outstanding hedging instruments

as at December 31, 2007, a +/-100 basis

points change in yield curves would have an

estimated maximum impact of respectively

+/-4 million euros on equity in respect of

interest rate derivative instruments desig-

nated as hedging instruments in cash fl ow

hedge relationship. The profi t and loss impact

related to interest rate derivative instruments

designated as hedging instruments in fair

value hedge relationship is netted off by the

revaluation of the underlying debt. Besides,

the impact in profit and loss of the same

yield curves variation on interest rate deriva-

tive instruments not designated as hedges

for accounting purposes is not material.

A 1% change in short-term interest rates

calculated on the net fl oating rate indebted-

ness, and taking into account derivative

instruments, would have a maximum impact

on the pre-tax consolidated income of

+/-29 million euros.

Exchange rate sensitivity

The table below provides information about

our debt and foreign exchange derivative

fi nancial instruments that are sensitive to

exchange rates. For debt obligations, the

table presents principal cash fl ows in foreign

currencies by expected maturity dates.

For foreign exchange forward agreements,

the table presents the notional amounts by

contractual maturity dates. These notional

amounts are generally used to calculate

the contractual payments to be exchanged

under the contract.


as at December 31, 2007, a +/-5% change

in the foreign exchange rates would have an

estimated maximum impact of respectively

+/-2 million euros on equity in respect of

foreign exchange derivative instruments

designated as hedging instruments in cash

fl ow hedge relationship. The net impact in

profi t and loss of the same exchange rate

variation on the Group’s foreign exchange

derivative instruments is not material.

1

2

3

4

5

6

7

8

9

10


4.6 Research & Development


Assumptions related to the sensitivity schedules above

DEBT

The fair values of long-term debt were

determined by estimating future cash fl ows

on a borrowing-by-borrowing basis, and

discounting these future cash fl ows using

an interest rate that takes into consideration

the Company’s incremental borrowing rate

at year-end for similar types of debt arrange-

ments. Market price is used to determine the

fair value of publicly traded instruments.

FINANCIAL INSTRUMENTS

The fair values of foreign currency and

interest rate derivative instruments have

been calculated using market prices that the

Company would pay or receive to settle the

related agreements.

Commodity price sensitivity


as at December 31, 2007, a +/-20%

change in the main commodity indexes on

which Lafarge is hedged, i.e. natural gas

(NYMEX) and heating oil (NYMEX) would

have an estimated maximum impact of

respectively +/-17 million euros on equity in

respect of commodity derivative instruments

designated as hedging instruments in cash

flow hedge relationship. The net impact

in profit and loss of the same commodity

indexes variation on the Group’s commodity

derivative instruments is not material.

Counterparty risk for

fi nancial operations

We are exposed to credit risk in the event

of a counterparty’s default. We attempt to

limit our exposure to counterparty risk by

rigorously selecting the counterparties with

which we trade, by regularly monitoring the

ratings assigned by credit rating agencies

and by taking into account the nature and

maturity of our exposed transactions.

We establish counterparty limits that are

regularly reviewed. We believe we have

no material concentration of risk with any

counterparty. We do not anticipate any third

party default that might have a signifi cant

impact on our fi nancial condition and results

of operations.

Liquidity risk

The Group implemented policies to limit its

exposure to liquidity risk. As a consequence

of this policy, a significant portion of our

debt has a long-term maturity. The Group

also maintains committed credit lines with

various banks which are primarily used as

a back-up for the debt maturing within one

year as well as for the short-term fi nancings

of the Group and which contribute to the

Group’s liquidity.

See Section 4.4 (Liquidity and Capital Resources) and Note 28 to our conso-lidated financial statements for more information on liquidity risks.

4.6 Research & Development

The three main objectives for the Group’s

R&D, and implemented by the LCR, are

research for new products offering added-

value solutions to our customers, develo-

pment of our ranges of products to better

incorporate current sustainable construction

concerns and a continuously sustained effort

to reduce CO2 emissions.

In 2007, research studies for the Divisions

followed the axes described below:

Cement

Continuation of programs aiming at

differentiating our products on target

customer segments (prefabrication).

Exploration of solutions to reduce CO2

emissions (notably using substitution

mater ia ls and contro l ing strength

acquisition kinetics).

Cont inuous dep loyment in Nor th

America of developed mix design tools

regularly enrich our more fundamental

knowledge.


Aggregates: research studies and

transfers for aggregate optimization in

quarries (crushing and treatment) were

successfully pursued.

Concrete: acceleration of the marketing

phase dur ing 2007 fo r p roducts

directly resulting from recent research

(large jointless slabs, rapid concretes,

self-leveling concretes, architectonic

concretes, etc.).

The new projects launched in 2006

(products and systems of future low-energy

bui ldings including one project in

partnership with Bouygues Construction,

controled cracking concrete) seems

promising. A real knowledge transfer

“strike force” was created comprising

engineers and technicians devoted to

deploying this new range of products in

our international business units.

2007 was also the year of construction

and commissioning of a new Technological

Building on the Isle-d’Abeau site. Equiped

with a very precise experimental batching

plant it will be the home of many quasi-

industrial scale trials.


OPERATING AND FINANCIAL REVIEW AND PROSPECTS4 4.7 Trend information

4.7 Trend information

The fundamentals of our sector remain

sound, and Lafarge is well armed to make

the difference in 2008. There are still

considerable construction needs in emerging

markets. We anticipate further growth in

world demand in spite of weak demand in

the United States and the slowdown in Spain.

We foresee another year of growth in our

Aggregates & Concrete Business, with

a strong increase in emerging markets in

particular.

We anticipate further increases in energy

and transportation costs.

The cost reduction program will continue

to generate substantial savings in 2008.

The target will be exceeded and should

reach 400 million euros by the end of

2008, instead of 340 million euros initially

targeted.

We expect another increase in our earnings

in 2008.

Lafarge set new targets for 2010, which are

earnings per share of more than 15 euros,

return on capital employed after tax of more

than 12% and free cash fl ow of more than

3.5 billion euros.

See Section 4.1 (Overview – Reconciliation of our non-GAAP fi nancial measures) for more information on free cash fl ow.

Gypsum

Mechanical performances, acoustic

performances and resistance to humidity

are the privileged fi elds of research.

The development of new jo int ing

compounds has been pursued.

Research on gypsum product ion

processes (a new p i lo t k i ln) has

highlighted important comprehension

keys to reduce the environmental impact

of gypsum board production lines.

Enforcement of the “unavoidable” Quality

and Safety policies has been rewarded by

reaching the “1,000 days without accident”

milestone at LCR.

Final ly, 2007 has resulted in broad

progression of our international scientifi c

network, thanks notably to the impact of the

Lafarge teaching Chair at the French École

Polytechnique, as well as to the contract

and thesis agreement signed in China in

partnership with the most important research

center on construction materials (CBMA in

Beijing).

1

2

3

4

5

6

7

8

9

10

F

5 Directors, senior managementand employees

EMPLOYEEat the construction site of the Chilanga Cement plant, Zambia.

5.1 BOARD OF DIRECTORS 80Information on Directors 80Independent Directors 83Director’s charter 83

5.2 EXECUTIVE OFFICERS 85

5.3 COMPENSATION 87Compensation paid to Directors 87Compensation paid to the Chairman, the Chief Executive Offi cer and the Chief Operating Offi cer 88Total compensation paid to the Chairman and Executive Offi cers in 2007 89Severance arrangements for the Chairman and Chief Executive Offi cer and the Chief Operating Offi cer 89Pensions and other retirement benefi ts 89

5.4 BOARD AND COMMITTEES RULES AND PRACTICES 90Duties and responsibilities of the Board Committees 90Board and Committees practices 92Self-assessment by the Board and Committees 94Role and duties of the Vice-Chairman of the Board 94Powers of the Chairman and Chief Executive Offi cer 94Code of Ethics 95

5.5 MANAGEMENT SHARE OWNERSHIP AND OPTIONS 95Chairman, Chief Executive Offi cer and Chief Operating Offi cer stock options 95Directors and Executive Offi cers’ share ownership 96Transactions in Lafarge shares by Directors and Executive Offi cers 97

5.6 EMPLOYEES 98

5.7 EMPLOYEE SHARE OWNERSHIP 99Employee share offerings 99Stock options and bonus shares plans 99Stock options outstanding in 2007 100Bonus shares outstanding in 2007 103


DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES55.1 Board of Directors

5.1 Board of Directors

At present, the Board of Directors consists

of eighteen members with different and

complementary profi les and experiences.

A number of Board members have held

positions within the Group or have had

professional dealings with the Group and

therefore know our activities well. Others

are not as close to our business and bring

other experience, a global understanding

of business matters and the ability to

benchmark its activities against practices

and standards in other industries.

In accordance with the Directors’ internal

charter, each Board member must carry out

his duties with full independence of mind.

Proposals for the election of new Directors

when their nomination is on the agenda are

made by the Nominations Committee.

Information on Directors

Bruno Lafont: Chairman of the Board of

Directors and Chief Executive Offi cer, 61, rue

des Belles Feuilles, 75116 Paris, France.

Bruno Lafont was appointed as Chairman

of the Board of Directors in May 2007.

He has been a Director since May 2005

and Chief Executive Offi cer since January 1,

2006. He is a graduate of the Hautes

Études Commerciales business school

(HEC 1977, Paris) and the École Nationale

d’Administrat ion (ENA 1982, Paris).

He started his career at Lafarge in 1983 as an

internal auditor in the Finance Department.

In 1984, he joined the Sanitaryware Division

(no longer part of the Group) as Chief

Financial Offi cer in Germany. He then led

the Division’s Finance Department (1986-

1988) and the International Development

Department based in Germany (1988-1989).

In 1990, he was appointed Vice-President

for Lafarge Cement and Aggregates &

Concrete operations in Turkey and the

Eastern Mediterranean region. In 1995,

Mr Lafont was appointed Group Executive

Vice-President, Finance, then Executive

Vice-President of the Gypsum Division in

1998. Mr Lafont joined the Group’s General

Management as Chief Operating Officer

between May 2003 and December 2005.

His term of office expires at the General

Meeting called to approve the financial

statements for the fi nancial year ended 2008.

Mr Lafont holds 16,422 Lafarge shares.

He is 51 years old.

Oscar Fanjul: Vice-Chairman of the Board

and Director, Paseo de la Castellana, 28-5,

ES-28046 Madrid, Spain.

Oscar Fanjul was appointed to Lafarge’s

Board o f D i rectors in 2005 and is

V ice-Cha i rman o f the Board s ince

August 1, 2007. He began his career in

1972 working for industrial holding I.N.I.

(Spain), was then President and Founder

of Repsol YPF (Spain) until 1996. He is

Vice-Chairman of Omega Capital, S.L.

(Spain). Mr Fanjul is a Director of Marsh

& McLennan Companies (United States), the

London Stock Exchange (United Kingdom),

Acerinox (Spain) and Areva. He is also an

international adviser to Goldman Sachs. His

term of offi ce expires at the General Meeting

called to approve the financial statements

for the fi nancial year ended 2008. Mr Fanjul

holds 4,237 Lafarge shares. He is 58 years old.

M i c h a e l B l a k e n h a m : D i r e c t o r ,

1 St. Leonard’s Studios, Smith Street,

London SW3 4EN, United Kingdom.

Michael Blakenham was appointed to

Lafarge’s Board of Directors in 1997. He is

a trustee of The Blakenham Trust (UK) and

a Director of Sotheby’s Inc. (U.S.). He was

previously a partner of Lazard Partners from

1984 to 1997, Chairman of Pearson plc.

(UK) from 1983 to 1997, Chairman of the

Financial Times (UK) from 1984 to 1993

and Chairman of the Royal Botanic Gardens,

Kew from 1997 to 2003, as well as a member

of the Committees of the House of Lords on

Sustainable Development and Science and

Technology. He was also President of the

British Trust for Ornithology from 2001 to

2005 and in 2003 he chaired a review on

the governance of the National Trust (UK).

Considering the rules in our by-laws on age

limits applicable to Directors, his term of

office will expire at the General Meeting

called to approve the fi nancial statements

for the financial year ended 2007. Lord

Blakenham holds 1,806 Lafarge shares.

He is 70 years old.

Jean-Pierre Boisivon: Director, 29, rue de

Lisbonne, 75008 Paris, France.

Jean-Pierre Boisivon was appointed to

Lafarge’s Board of Directors in 2005. He

held responsibilities both in education and

in businesses. He was a university professor

from 1980 to 2000, at the University of

Paris-II Panthéon-Assas, then headed the

Department of evaluation and trends of the

French Ministry of Education from 1987 to

1990, as well as the Essec group from 1990

to 1997. He also served as Deputy Chief

Operating Offi cer of the Caisse d’Épargne

de Paris from 1978 to 1985 and General

Secretary of the Union des Banques à Paris

from 1985 to 1987. He is Deputy General

Manager of the Institut de l’Entreprise and

Chairman of the organizing committee of

the “Un des meilleurs ouvriers de France”

labor exhibition. His term of offi ce expires

at the General Meeting called to approve

the financial statements for the financial

year ended 2008. Mr Boisivon holds 1,150

Lafarge shares. He is 67 years old.

Michel Bon: Director, 86 rue Anatole-France,

92300 Levallois-Perret, France.

Michel Bon was appointed to Lafarge’s

Board of Directors in 1993. He is Chairman

of the Supervisory Board of Devoteam and

Éditions du Cerf. He is a Director of Sonepar

and Provimi and senior adviser to Close

Brothers and Permira. He previously served

as Chairman and Chief Executive Offi cer of

France Telecom from 1995 to 2002, and

Chief Executive Offi cer, then Chairman of

Carrefour from 1985 to 1992. His term of

offi ce expires at the General Meeting called

to approve the fi nancial statements for the

fi nancial year ended 2008. Mr Bon holds

3,716 Lafarge shares. He is 64 years old.

Philippe Charrier: Director, 59, boulevard

Exelmans, 75016 Paris, France.

Philippe Charrier was appointed to Lafarge’s

Board of Directors in 2005. He is Vice-

President, Chief Executive Offi cer and Director

of Œnobiol, Chairman of the Supervisory

Board of Spotless group, Chairman of

the Board of Directors of Alphident and

Dental Emco SA. He is a Director of the

1

2

3

4

5

6

7

8

9

10



DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Fondation HEC. He is also Chairman of

Entreprise et Progrès. He was Chairman

and Chief Executive Officer of Procter

& Gamble France from 1999 to 2006. He

joined Procter & Gamble in 1978 and held

various financial positions before serving

as Chief Financial Officer from 1988

to 1994, Marketing Director in France

from 1994 to 1996 and Chief Operating

Offi cer of Procter & Gamble Morocco from

1996 to 1998. His term of office expires



year ended 2008. Mr Charrier holds


Bertrand Collomb: Director and Honorary

Chairman, 61, rue des Belles Feuilles,

75116 Paris, France.

Mr Collomb was appointed to the Board of

Directors in 1987 and served as Chairman

and Chief Executive Officer from 1989 to

2003 and Chairman of the Board of Directors

from 2003 to 2007. He previously held

various executive positions with the Group,

namely in North America, from 1975 to 1989

and in the French Ministry of Industry and

government cabinets from 1966 to 1975.

He is a Director of Total, Atco Ltd (Canada)

and DuPont (U.S.). He is also a trustee of

the International Accounting Standards

Foundation (IASF), Chairman of the French

Institute of International Relations and

Chairman of the Institut des Hautes Études

for Science and Technology. He is a member

of the Institut de France (Académie des

sciences morales et politiques). His term of

offi ce expires at the General Meeting called

to approve the fi nancial statements for the

fi nancial year ended 2008. Mr Collomb holds


Philippe Dauman: Director, 1515 Broadway,

New York, NY 10036, USA.

Philippe Dauman was appointed to Lafarge’s

Board of Directors in May 2007. He is

Chairman and Chief Executive Officer of

Viacom Inc. (U.S.) since September 2006.

He was previously Co-Chairman of the Board

and Managing Director of DND Capital

Partners L.L.C (U.S.) since May 2000.

Before forming DND Partners, Mr Dauman

was Vice-Chairman of the Board of Viacom

from 1996 to May 2000, Executive Vice-

President from 1995 to May 2000 and

Chief Counsel and Secretary of the Board

from 1993 to 1998. Prior to that, he was a

partner in the New York law fi rm Shearman

& Sterling. He served as Director of Lafarge

North America from 1997 to 2006. He is

currently a Director of National Amusements

Inc. (U.S.) and a member of the Dean’s

Council for the University of Columbia

Law School. His term of office expires at

the General Meeting called to approve the

fi nancial statements for the fi nancial year

ended 2010. Philippe Dauman holds 1,143


Paul Desmarais, Jr.: Director, 751, Square

Victoria, Montreal, Quebec H2Y 2J3,

Canada.

Paul Desmarais, Jr. was appointed to

Lafarge’s Board of Directors in January 2008.

He is Chairman and Co-Chief Executive

Officer of Power Corporation of Canada

(PCC) since 1996 and Chairman of the

Executive Committee of Power Financial

Corporation (PFC). Prior to joining PCC

in 1981, he was with S.G. Warburg &

Co in London and with Standard Brands

Incorporated in New York. He was President

and Chief Operating Officer of PFC from

1986 to 1989, and was Chairman from 1990

to 2005. He is a Director and member of

the Executive Committee of many Power

group companies in North America. He is

also Executive Director and Vice-Chairman

of the Board of Pargesa Holding S.A.

(Switzerland), Vice-Chairman of the Board

of Imerys and a Director of Groupe Bruxelles

Lambert (Belgium), Total S.A. and Suez

(France). Mr Desmarais is Chairman of

the Board of Governors of the International

Economic Forum of the Americas, Founder

and Chairman of the International Advisory

Committee of l’École des Hautes Études

Commerciales (HEC) in Montreal and

Founder and member of the International

Advisory Board of the McGill University

Faculty of Management. He is a member of

the International Council and a Director of

the INSEAD and Global Advisor for Merrill

Lynch (New York, U.S.). He is also a member

of the North American Competitiveness

Council (Canada). Mr Desmarais studied

at McGill University where he obtained

a Bachelor of Commerce degree. He

then graduated f rom the European

Inst i tute of Business Administrat ion

(INSEAD) in Fontainebleau, France with

an MBA. His term of office expires at

the General Meeting called to approve


year ended 2011. Mr Desmarais holds


Juan Gallardo: Director, Monte Caucaso

915 – 4 piso, Col. Lomas de Chapultepec

C.P., MX 11000 Mexico.

Juan Gallardo was appointed to Lafarge’s

Board of Directors in 2003. He is Chairman

of Grupo Embotelladoras Unidas SA de C.V.

(Mexico) since 1985. He is a Director of

Grupo Azucarero Mexico S.A., Mexicana de

Aviacion, IDEA S.A, Nacional de Drogas S.A

de C.V, Grupo Mexico S.A de C.V (Mexico)

and Caterpillar Inc. (U.S.). He is a member

of the Advisory Council of Textron Inc and

of the Mexican Business Roundtable. He

was previously member of the International

Advisory Council of Lafarge, President of the

Fondo Mexico and Vice-President of Home

Mart Mexico. His term of office expires



year ended 2008. Mr Gallardo holds 1,500


Alain Joly: Director, 199 avenue Victor-Hugo,


Alain Joly was appointed to Lafarge’s Board

of Directors in 1993. He is a Director of

BNP-Paribas and Air Liquide. Graduated

from the École Polytechnique, he joined

the Air Liquid group in 1962 where he held

several positions before serving as Chief

Operating Officer from 1985 to 1995,

Chairman and Chief Executive Officer

from 1995 to 2001 and Chairman of the

Supervisory Board from 2001 to 2006.

Considering the rules in our by-laws on

age limits applicable to directors, his term

of offi ce will expire at the General Meeting

called to approve the fi nancial statements for

the fi nancial year ended 2007. Mr Joly holds



DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES5 5.1 Board of Directors

Bernard Kasriel: Director, 61, rue des Belles

Feuilles, 75116 Paris, France.

Mr Kasriel was appointed to the Board of

Directors in 1989. He was Vice-Chairman of

the Board from 1995 until 2005 and Chief

Executive Offi cer of Lafarge from 2003 to

2005. He was previously Vice-Chairman

and Chief Operating Offi cer from 1995 to

2003 and Chief Operating Offi cer between

1989 and 1994. He served as Senior

Executive Vice-President from 1982 to 1989,

President and Chief Operating Officer of

National Gypsum (U.S.) from 1987 to 1989

and held various executive positions with

the Group since he joined Lafarge in 1977.

From 1975 to 1977, he served as Senior

Executive Vice-President of the Société

Phocéenne de Métallurgie, and from 1972

to 1974 as Chief Executive Offi cer of Braud.

Mr Kasriel began his career in 1970 at

the Institut du Développement Industriel.

Mr Kasriel is a Director of L’Oréal, Arkema

SA and Neucor (U.S.). He is a partner

and member of the board of LBO France

since September 2006. His term of offi ce

expires at the General Meeting called to

approve the financial statements for the

fi nancial year ended 2009. Mr Kasriel holds


Pierre de Lafarge: Director, 8, rue des

Graviers, 92521 Neuilly-sur-Seine Cedex,

France.

Pierre de Lafarge was appointed to Lafarge’s

Board of Directors in 2007. He graduated

from l’École des Mines de Nancy (France).

Pierre de Lafarge is Director of International

Development for Kerneos, a subsidiary

of the Materis group. He worked in the

Group from 1972 to 2001 where he held

various positions. From 1992 to 1995, he

was Vice-Chief Executive Offi cer of Lafarge

Réfractaire then Director of Development

in Eastern Europe for Lafarge Mortier from

1996 to 2000, Director of Strategy and

International Development for Lafarge

Mortier from 2000 to 2001 and of the mortar

activities of Materis from 2001 to 2003. His

term of offi ce expires at the General Meeting

called to approve the fi nancial statements for

fi scal year 2011. Mr de Lafarge holds 20,754


Jacques Lefèvre: Director, 61, rue des Belles


Jacques Lefèvre was appointed to Lafarge’s

Board of Directors in 1989 and was Vice-

Chairman from 1995 until 2005. He served

as Vice-President and Chief Operating

Officer from 1995 to 2000. Prior to this

position, he served as Chief Operating Offi cer

from 1989 to 1994, Group Chief Operating

Offi cer from 1987 to 1989, Executive Vice-

President, Finance from 1980 to 1987 as

well as various management positions in

the Group since 1974. He is a Director of

Lafarge Maroc, a 50% Group subsidiary and

Chairman of the Supervisory Board of the

Compagnie de Fives Lille, Director of Société

Nationale d’Investissement (Morocco) and

Cimentos de Portugal. Considering the

rules in our by-laws on age limits applicable

to directors, his term of office will expire



year ended 2007. Mr Lefèvre holds 32,862


Michel Pébereau: Director, 3, rue d’Antin,


Michel Pébereau was appointed to Lafarge’s

Board of Directors in 1991. Michel Pébereau

is Chairman of BNP-Paribas and holds

various executive positions in the subsidiaries

of this company. He was previously

Chairman and Chief Executive Officer of

BNP then BNP-Paribas from 1993 to 2003,

Chief Operating Offi cer and subsequently

Chairman and Chief Executive of Crédit

Commercial de France from 1982 to 1993.

He is a Director of Total, Saint-Gobain and

EADS, member of the Supervisory Board of

Axa, President of the Institut de l’Entreprise

and non-voting Director of Galeries Lafayette.

His term of office expires at the General

Meeting called to approve the financial

statements for the financial year ended

2010. Mr Pébereau holds 2,108 Lafarge

shares. He is 66 years old.

Hélène Ploix: Director, 162, rue du

Faubourg-Saint-Honoré, 75008 Paris,

France.

Hélène Ploix was appointed to Lafarge’s

Board of Directors in 1999. Mrs Ploix is

Chairman of Pechel Industries SAS and

Pechel Industries Partenaires SAS. She was

previously Deputy Chief Executive Officer

of Caisse des Dépôts et Consignations

(France) and Chairman and Chief Executive

Offi cer of CDC Participations from 1989 to

1995, Chairman of the Caisse Autonome

de Refinancement and Chairman of the

Supervisory Board of CDC Gestion. She

previously served as Special Counsel for the

single currency at KPMG Peat Marwick from

1995 to 1996 and as Director of Alliance

Boots plc (UK) from 2000 to July 2007. She

is a member of the Supervisory Board of

Publicis Groupe, a non-executive Director

of BNP Paribas, Ferring SA (Switzerland)

and Completel NV (Nederlands). At Pechel

Industries Partenaires, she is also a Director

of non-listed companies. Her term of offi ce

expires at the General Meeting called to

approve the financial statements for the

fi nancial year ended 2008. Mrs Ploix holds

1,971 Lafarge shares. She is 63 years old.

Thierry de Rudder: Director, avenue Marnix

24, 1000 Bruxelles, Belgique.

Thierry de Rudder was appointed to Lafarge’s

Board of Directors in January 2008. He

is a graduate in mathematics from the

University of Geneva and the Université

Libre de Bruxelles and has an MBA from

the Wharton School in Philadelphia. He

is Executive Director of Groupe Bruxelles

Lambert which he joined in 1986. He

previously held var ious posi t ions in

New York and in Europe with Citibank

which he joined in 1975. In the last five

years, he served as a Director of SI Finance,

PetroFina and Société Générale de Belgique.

He is currently a Director of Compagnie

Nationale à Portefeuille and Suez-Tractebel

in Belgium and of Imerys, Suez and Total

in France. His term of office expires at

the General Meeting called to approve


year ended 2011. Mr De Rudder holds


Nassef Sawiris: Director, Nile City South

Tower, 2005 A Corniche El Nil, Cairo 11221,

Egypt.

Nassef Sawiris was appointed to Lafarge’s

Board of Directors in January 2008. He

is Chief Executive Officer of Orascom

Construction Industries SAE (OCI) in Egypt

1

2

3

4

5

6

7

8

9

10




since 1998, having joined the Orascom

group in 1992. A graduate in economics

from the University of Chicago, Mr Sawiris is

also a member of the Business Secretariat

of the National Democratic Party, the

American Chamber of Commerce, the

German-Arab Chamber of Industry &

Commerce and the Young’s President

Club. His term of office expires at the

General Meeting approving fi nancial state-

ments for the financial year ended 2011.

Nassef Sawiris holds 1,143 Lafarge shares.

He is 46 years old.

There are no conflicts of interest of the

Directors between any duties owed to us

and their private interests.

To our knowledge, no Director was during

the previous f ive years convicted of

fraudulent offenses, associated with

a bankruptcy, receivership or liquidation,

subject to official public incrimination

and/or sanctions, or disqualified by a

court from acting as a Director or in the

management or conduct of the affairs of

any issuer.

See Section 5.5 (Management share ownership and options) for more information on options granted to our Directors.

Independent Directors

The Board of Directors, after an individual

assessment of each Director in light of the

independence criteria applicable to the

Company, considers that it comprises eleven

independent Directors, namely Mrs Hélène

Ploix and Messrs Michael Blakenham,

Jean-Pierre Boisivon, Michel Bon, Philippe

Charrier, Philippe Dauman, Oscar Fanjul,

Juan Gallardo, Alain Joly, Pierre de Lafarge

and Michel Pébereau.

The Board of Directors has followed the

recommendations of the AFEP-MEDEF report

in its assessment of independent Directors,

without applying the recommended 12-year

limitation on length of service as a Director.

The Board considers that in a long-term

business such as ours, where management

is stable, serving as Director for a long

period of time can bring more experience

and authority and can increase Directors’

independence. Messrs Michel Bon and

Alain Joly have been serving as Directors of

Lafarge for over 12 years.

Furthermore, the Board reviewed the rela-

tionship between the Lafarge Group and

BNP-Paribas, one of the Group’s corporate

and investment banks, of which Michel

Pébereau is Chairman. The fact that Lafarge

can rely on a pool of banks competing with

each other prevents the possibility of a

relationship of dependence on BNP-Paribas.

Likewise, the fees that BNP-Paribas receives

from the Group account for an infi nitesimal

percentage of the bank’s revenues and do

not create a relationship of dependence on

Lafarge. In light of these factors and having

witnessed the independent thinking that

Michel Pébereau has shown in his capacity

as Director, the Board has decided to

consider him as an independent director.

The Board’s internal regulations provide that

a majority of the members of the Board, the

Corporate Governance and Nominations

Commit tee and the Remunerat ions

Committee must qualify as “independent”.

To take into account the changes in our

share capital, with the presence of two

important shareholders, the delisting from

the NYSE and the deregistration from the

U.S. Securities & Exchange Commission,

the Board’s internal regulations have been

amended in January 2008 to provide that at

least two thirds of the members of our Audit

Committee must qualify as “independent”,

in accordance with the recommendations of

the AFEP-MEDEF report.

The Board of Directors considers that the

composition of the Board and its Committees

is compliant with its internal regulations.

See Section 5.4 (Board and Committees rules and practices – Board and Committees practices) for the list of Committees members.

Director’s charter

The full text of the Lafarge Director’s Charter

is set out below:

Preamble

In accordance with the principles of corpo-

rate governance, a Director carries out his

duties in good faith, in such a manner as,

in his opinion, best advances the interests

of the Company and applying the care and

attention expected of a normally careful

person in the exercise of such offi ce.

1. Competence

Before accepting office, a Director must

satisfy himself that he is acquainted with the

general and specifi c obligations applying to

him. He must, in particular, acquaint himself

with the legal and statutory requirements,

the Company by-laws (statuts), the current

internal rules and any supplementary infor-

mation that may be provided to him by the

Board.

2. Defending the corporate interest

A Director must be an individual share-

holder and hold such number of shares

of the Company required by the articles

of association (statuts), i.e., a number

as representing in total a nominal value

of at least 4,572 euros which amounts to

1,143 shares, recorded in the share register

in nominal form; where he does not hold

any shares at the time of taking offi ce, he

must take steps to acquire them within three

months.

Every Director represents the body of share-

holders and must in all circumstances act in

their interest and in that of the Company.

3. Confl icts of interest

A Director is under the obligation to inform

the Board of any situation involving a confl ict

of interests, even one of a potential nature,

and must refrain from taking part in any vote

on any resolution of the Board where he

fi nds himself in any such confl ict of interest

situation.

4. Diligence

A Director must dedicate the necessary time

and attention to his offi ce, while respecting

the legal requirements governing the

accumulation of several company office

appointments. He must be diligent and take

part, unless impeded from doing so for any

serious reason, in all meetings of the Board

and, where necessary, of any Committee (as

defi ned under article 2 above) to which he

may belong.


DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES5 5.1 Board of Directors

5. Information – Confi dentiality

A Director is bound by the obligation to keep

himself informed for the purposes of being

able to contribute in a useful manner on

the matters for discussion on the Board

agenda.

With regard to information not within the

public domain and which he has acquired

while in office, a Director must consider

himself bound by a duty of professional

secrecy, which goes beyond the simple

obligation to maintain discretion as provided

for by law.

6. Training

Every Director may, in particular at the time

of his election to the Board and where he

deems it necessary so to do, take advantage

of training on the specific features of the

Company and the Group, its business

activities, sector of activity, organization and

particular fi nancial circumstances.

7. Loyalty

A Director is bound by an obligation of loyalty.

He must not, under any circumstances, do

anything liable to damage the interests of

the Company or those of any of the other

companies in the Group. He may not

personally take on any responsibilities, within

any undertakings or businesses having any

activity competing with those of Lafarge

without fi rst notifying the Board of Directors

thereof.

8. Privileged information – transactions on shares

A Director must not carry out any transactions

involving Company shares except within

the framework of the rules determined by

the Company. He must make a statement

to Lafarge concerning any transactions

involving Lafarge shares carried out by him

within fi ve days of any such transaction.

9. Independence

A Director undertakes in all circumstances

to maintain his independence of thought,

judgment, decision and action and will resist

all pressure, of whatsoever kind or from

whatsoever origin.

A Director undertakes to refrain from seeking

or accepting from the Company, or any

other company linked to it, either directly

or indirectly, any personal benefi ts likely to

be deemed to be of such a nature as might

compromise his freedom of judgment.

10. Agreements in which Directors have an interest

The Directors are obliged to inform the

Chairman promptly of any relations that

may exit between the companies in which

they have a direct interest and the Company.

The Directors must also, in particular,

notify the Chairman of any agreement

covered by article L. 225-38 et seq. of the

French Commercial Code that either they

themselves, or any company of which they

are Directors or in which they either directly

or indirectly hold a significant number of

shares, have entered into with the Company

or any of its subsidiaries. These provisions

do not apply to agreements made in the

ordinary course of business.

11. Information on Directors

The Chairman ensures that the Directors

receive in suffi cient time, the information

and documents needed to perform the full

extent of their duties. Similarly, the Chairman

of each of the said Committees ensures that

every member of his Committee has the

information needed to perform his duties.

Prior to every meeting of the Board (or of

every Committee), the Directors must thus

receive in suffi cient time a fi le setting out

all the items on the agenda. Any Director

who was unable to vote because not fully

apprised of the matter is has to inform the

Board and to insist on receiving the critical

information. Generally, every Director

receives all the information necessary to

perform his duties and may arrange to have

all the relevant documents delivered to him

by the Chairman. Similarly, the Committee

Chairmen must supply the members of the

Board, in suffi cient time, with the reports

they have prepared within the scope of their

duties.

The Chairman ensures that members of

the Board are apprised of all the principal

relevant items of information, including

any criticism, concerning the Company, in

particular, any press articles or financial

research reports.

Meetings, during which any Director may

make presentations and discuss with the

Directors in his sector of activity, are held on

a regular basis by the Chairman during or

outside Board meetings.

Every Director is entitled to request from the

Chairman the possibility of having a special

meeting with the Group management in

the fields that interest them, without his

presence.

1

2

3

4

5

6

7

8

9

10


5.2 Executive officers


5.2 Executive offi cers

The Executive Offi cers include our Chairman

and Chief Executive Officer, our Chief

Operating Offi cer and the members of our

Executive Committee.

Michel Rose: Chief Operating Offi cer, 61, rue


Michel Rose (born in 1943) is an engineering

graduate of the École des Mines de Nancy

(1965) and holds an MBA from the IMI in

Geneva (1977). He joined the Group as a

plant engineer in 1970 and subsequently

became a department manager in the

Group’s Research center in 1975, and then

Director of Internal Communications for the

Group in 1978. After heading up Group

activities in Brazil from 1980 to 1983, he

was appointed Executive Vice-President

of Human Resources and Corporate

Communications in 1984 and then CEO of

the Biotechnology Unit in 1986. In 1989,

he was appointed Senior Executive Vice-

President. Michel Rose was Chairman and

Chief Executive Officer of Lafarge North

America Inc. from 1992 to 1996. On his

return, he oversaw Lafarge’s operations in

emerging markets through until 2000. He

has chaired the Executive Committee of

the Cement Division from September 2000

to September 2007. He is a Director of

Essilor International and Neopost. He is

also Chairman of the École des Mines de

Nancy Fundation.

Since January 1, 2008, the Executive

Committee has the following members:

Jean-Carlos Angulo: Executive Vice-

President Cement, 61, rue des Belles


Jean-Carlos Angulo (born in 1949) is a

graduate of l’École des Mines de Nancy

(France) and of the European Business

Institute and part of the Group since 1975.

From 1971 to 1974, he was a project

engineer in the aeronautics industry with

the Société Européenne de Propulsion in

Bordeaux. He joined Lafarge in 1975 as

Project Manager then Project Director of

the Group’s subsidiaries specialized in

engineering and later as Director of Lafarge

Consulteria e Estudos in Brazil. In 1984,

he joined Lafarge Aluminates as Director

of Development. From 1990 to 1996, he

served as Chief Executive Offi cer of Lafarge

in Brazil and as President for the South

and Latin America region. In 1996, he

was appointed as Chief Executive Officer

of Lafarge Ciments France. From 2000

to 2007, he was President of the Cement

Division’s operations in Western Europe and

Morocco. He is Executive Vice-President

Cement and a member of the Executive

Committee since September 1, 2007. He

is a Director of Cimentos de Portugal SGPS,

S.A. (Cimpor).

Isidoro Miranda: Executive Vice-President

Cement, 61, rue des Belles Feuilles, 75116

Paris, France.

With a doctorate (PhD) in engineering from

Navarre University (Spain), Senior Visiting

Scholar at Stanford (USA) and an MBA from

INSEAD, Isidoro Miranda (born in 1959)

began his career with a strategic consulting

firm in London and Paris. He joined the

Group in 1995 as the Director of Group

Strategic Studies, before being appointed

Chief Executive Offi cer of Lafarge Asland,

our Cement subsidiary in Spain. In 2001,

he was appointed Executive Vice-President

of the Cement Division and a member of

the Executive Committee. From May 2003

to August 2007, he was Executive Vice-

President Gypsum. He is Executive Vice-

President Cement since September 1, 2007.

Guillaume Roux: Executive Vice-President

Cement, 61, rue des Belles Feuilles, 75116

Paris, France.

A graduate of the Institut d’Études Politiques

in Paris, Guillaume Roux (born in 1959)

joined the Group in 1980 as an internal

auditor with Lafarge Ciments, France.

He was Chief Financial Officer of the

Biochemicals Unit in the United States from

1989 to 1992, before returning to Lafarge

headquarters as a project manager for the

Finance Department. In 1996, he went back

to the United States as Vice-President of

Marketing for Lafarge North America Inc.

In 1999, he was appointed Chief Executive

Officer of Lafarge’s operations in Turkey

and then in 2001, Executive Vice-President

of the Cement Division’s operations in

Southeast Asia. Guillaume Roux has been

Executive Vice-President Cement and a

member of the Executive Committee since

January 1, 2006.

Thomas Farrell: Executive Vice-President

Aggregates & Concrete, 61, rue des Belles


A graduate of Brown University and a doctor

in law (PhD) from Georgetown University,

Thomas Farrell (born in 1956) began his

career as a lawyer with Shearman & Sterling.

He joined Lafarge in 1990 as Director of

Strategic Studies for the Group. From 1993

to 1995, he managed an operating unit of

Lafarge Aggregates & Concrete in France.

In 1996, he became Chief Executive Offi cer

of Aggregates, Concrete & Asphalt Division’s

operations in South Alberta (Canada). In

1998, he was appointed Chief Executive

Officer of Lafarge in India. From 2002 to

2006, he was Executive Vice-President of

Lafarge North America Inc. and President

of the Aggregates, Concrete & Asphalt

Division’s operations in the Western North

American region. From 2006 to August 2007

he was President of the Aggregates, Concrete

& Asphalt Division in North America.

Thomas Farrell was appointed Executive

Vice-President Aggregates & Concrete

and became a member of the Executive

Committee on September 1, 2007. He is a

Director of National Stone Sand and Gravel

Association and of American Road and

Transportation Builders Association, U.S.

industry associations.

Gérard Kuperfarb: Executive Vice-President

Aggregates & Concrete, 61 rue des Belles


Gérard Kuperfarb (born in 1961) is a

graduate of École des Mines de Nancy

(France). He also holds a Master in

Materials Science from École des Mines de

Paris and an MBA from École des Hautes

Études Commerciales (HEC). He has been

with the Group since 1992. He began

his career in 1983 as an engineer at the


DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES5 5.2 Executive officers

Centre de mise en forme des matériaux

of École des Mines de Paris before joining

the Composite materials division at Ciba

group in 1986, where he held sales and

marketing functions. In 1989, he joined

a strategy consulting firm in Brussels

and Paris. He joined Lafarge in 1992 as

Marketing Director for the Refractories

business then became Vice-President

strategy with Lafarge Specialty Materials. In

1996 he became Vice-President Readymix

Concrete strategy in Paris. In 1998,

he was appointed Vice-President/General

Manager for the Aggregates & Concrete

business in South West Ontario (Canada)

before heading the Performance group at

Lafarge Construction Materials in North

America in 2001. He joined the Aggregates

& Concrete Division in Paris as Senior Vice

President Performance in 2002. In 2005 he

was appointed President of the Aggregates

& Concrete business for Eastern Canada.

Gérard Kuperfarb was appointed Executive

Vice-President Aggregates & Concrete

and became a member of the Executive

Committee on September 1, 2007.

Christian Herrault: Executive Vice-President

Gypsum, 61, rue des Belles Feuilles, 75116

Paris, France.

A graduate of the École Polytechnique (1972)

and the École Nationale Supérieure des

Mines de Paris, Christian Herrault (born in

1951) joined the Group in 1985, taking over

responsibility for strategy and development

at the Bioactivities Unit. Between 1987 and

1992, he was Chief Operating Offi cer for the

Seeds Unit, fi rst in the United States, then

in France, and managed the Glutamates

business from 1992 to 1994. In 1995, he

was appointed Chief Executive Offi cer of the

Aluminates & Admixtures Unit (no longer part

of the Group). In 1998, he was appointed

Executive Vice-President Organization and

Human Resources and joined the Executive

Committee. He is Executive Vice-President

Gypsum since September 1, 2007, and is

still a member of the Executive Committee.

He is the Chairman of the Board of Directors

of the École des Mines de Nantes.

Jean-Jacques Gauthier: Chief Financial

Offi cer, 61, rue des Belles Feuilles, 75116

Paris, France.

Jean-Jacques Gauthier (born in 1959) joined

the Group in February 2001. After graduating

in law and economics, he began his career

with Arthur Young. Between 1986 and 2001,

he held several positions at the Matra group

in France and the United States. In 1996,

he was named Chief Financial Offi cer of the

Franco-British venture Matra Marconi Space

and between 2000 and 2001 he served

as CFO of Astrium. After joining Lafarge

in 2001, Jean-Jacques Gauthier became

Chief Financial Officer and a member of

the Executive Committee.

Eric Olsen: Executive Vice President

Organisation and Human Resources, 61 rue


Eric Olsen (born in 1964) is a graduate in

finance and accounting of the Colorado

University and has a Master from l’École des

Hautes Études Commerciales (HEC). He has

been with the Group since 1999. He began

his career as a senior auditor with Deloitte &

Touche in New York. From 1992 to 1993, he

worked as senior associate at Paribas bank

in Paris and a partner at the consulting fi rm

Trinity Associates in Greenwich, Connecticut

from 1993 to 1999. He joined Lafarge

North America Inc. in 1999 as Senior Vice-

President Strategy and Development. In

2001, he was appointed President of the

Cement Division for North East America and

Senior Vice-President Purchasing for Lafarge

North America Inc. He was appointed Chief

Finance Offi cer of Lafarge North America

Inc. in 2004. He was appointed Executive

Vice-President Organisation and Human

Resources and became a member of the

Executive Committee on September 1, 2007.

He is a Director of CEF Industries (USA).

Jean Desazars de Montgailhard: Executive

Vice-President Strategy, Development &

Public Affairs, 61 rue des Belles Feuilles,


Jean Desazars de Montgailhard (born in

1952) is a graduate of l’Institut d’Études

Politiques de Paris and of l’École Nationale

d’Administration (ENA) and has a Master in

economics. He joined the Group in 1989.

He began his career at the French Ministry

of Foreign Affairs in Madrid, Stockholm,

Washington DC and Paris, before joining

Lafarge Ciments as Strategy Director in

Paris and then Lafarge Asland in Spain.

From 1996 to 1999, he became Regional

President for Asia based in Singapore,

then in Paris until 2006. He was appointed

as Executive Vice-President Strategy and

Development for the Group in 2006.

He has been Executive Vice-President

Strategy, Development & Public Affairs and

a member of the Executive Committee since

January 1, 2008. He is a Director of CEO

Rexecode (France).

There are no confl icts of interest affecting

members of the Executive Committee

between any duties owed to us and their

private interests.

To our knowledge, during the previous

five years, no member of the Executive

Committee was convicted for fraudulent

offences, associated with a bankruptcy,

receivership or liquidation, subject to offi cial

public incrimination and/or sanctions or

disqualified by a court from acting as a

Director or from acting in the management

or conduct of the affairs of any issuer.

1

2

3

4

5

6

7

8

9

10


5.3 Compensation


Directors Directors’ fees for 2007 paid in 2008 (euros)

Bruno Lafont 28,056

Oscar Fanjul 35,711

Michaël Blakenham 30,618

Jean-Pierre Boisivon 33,180

Michel Bon 34,461

Philippe Charrier 30,618

Bertrand Collomb 28,056

Philippe Dauman** 17,871

Guilherme Frering* 12,747

Juan Gallardo 53,677

Alain Joly 38,273

Bernard Kasriel 28,056

Pierre de Lafarge** 15,309

Raphaël de Lafarge* 14,028

Jacques Lefèvre 30,618

Michel Pébereau 36,992

Hélène Ploix 34,430

TOTAL 502,701

* Directors whose offi ce ended on May 3, 2007.

** Directors appointed on May 3, 2007.

5.3 Compensation

Compensation paid

to Directors

The General Meeting of May 28, 2001

set the maximum aggregate amount of

Directors’ fees to be paid in 2001 and in

each subsequent year at 609,796 euros.

Each Director is currently entitled to receive a

fi xed fee of 15,245 euros per year (increased

by 25% for the Chairmen of our Committees

and our Vice-Chairman). A Director who is

appointed or whose offi ce ends during the

course of the year is entitled to 50% of the

fixed fee. An additional fee is payable to

each Director for each meeting of our Board

of Directors or of one of its Committees

attended.

The total amount of Directors’ fees paid in

2008 (with respect to the 2007 fi scal year)

was 502,701 euros, which corresponds to

a 10% increase compared to the fees paid

in the last three preceding fi scal years. The

total amount of Directors’ fees had not been

adjusted since 2002.

Mr Bertrand Collomb received, for the year

2007 and in addition to the amounts set

out in the following chart (see next page),

an amount of 604,810 euros upon his

retirement on June 1, 2007. This amount

includes the retirement indemnity of

537,502 euros provided for by the applicable

collective bargaining agreement.

In addition, Messrs Bertrand Collomb,

Bernard Kasriel and Jacques Lefèvre

received a global amount of 1.5 million euros

during fi scal year 2007 in their capacity as

former senior managers, corresponding to

supplemental retirement benefi ts from the

Group pension plan.


DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES5 5.3 Compensation

Compensation paid to

the Chairman, the Chief

Executive Offi cer and the

Chief Operating Offi cer

Our Remunerations Committee is responsible

for recommending to our Board of Directors

a remuneration policy for our Chairman,

Chief Executive Offi cer and Chief Operating

Officers (our “senior management”). The

Remunerations Committee, in establishing

the remuneration policy, seeks guidance

from outside consultants on the market

practices of comparable companies.

In 2007, our senior management was

composed of Bertrand Collomb (Chairman

until May 3, 2007), Bruno Lafont (Chief

Executive Offi cer then Chairman and Chief

Executive Officer from May 3, 2007) and

Michel Rose (Chief Operating Offi cer). Their

remuneration comprised a fi xed portion and

a performance-related portion which may

be up to 80% of the fixed remuneration

of Bertrand Collomb, 160% of the fixed

remuneration of Bruno Lafont and 120%

of the fi xed remuneration of Michel Rose.

All remunerations received by members

of senior management with respect to the

various offi ces they hold within the Group’s

consolidated subsidiaries are deducted from

the fi xed portion.

Approx imate ly three- four ths o f the

performance-related pay is based on the

fi nancial results of the Group in comparison

to the objectives set at the beginning of the

year, and approximately one fourth of their

performance-related pay is based on their

individual performance over the course of

the year. The Board of Directors may, at

its discretion, increase the performance

related pay up to 20% if the targets are

exceeded by 50% to acknowledge signifi cant

achievements that were not initially set as

targets at the beginning of the year.

For 2007, the financial criteria used to

determine performance-related pay were

the increase in economic value added,

which ref lects the return on capital

employed, the increase in net income per

share, the costs saving program called

Excellence 2008 and the relative return

on investment of Lafarge as compared

to its competitors. The portion based on

individual performance is determined in

part by reference to the personal targets set

at the beginning of the year with respect to

the major tasks to be undertaken.

Performance in 2007 was excellent on all

criteria and, even exceeded by far all the

objectives that were set at the beginning of

the year. In light of this situation, the Board

of Directors, with Bruno Lafont not attending

this discussion, has exceptionally decided

to increase the maximum percentage of

preformance-related pay of our Chairman

and Chief Executive Offi cer and of our Chief

Operating Offi cer. The Board has therefore

decided to grant a performance-related

pay of 1,940,000 euros to Bruno Lafont

and of 762,000 euros to Michel Rose. The

performance-related pay of Bertrand Collomb

has been defi ned at 275,260 euros, 5/12 of

his variable remuneration paid in 2007.

The compensation we paid to our Chairman, Chief Executive Officer and Chief Operating Officer for 2007, 2006 and 2005 was

as follows:

(thousand euros) B. Lafont(2) M. Rose B. Collomb(3)

Fixed remuneration paid in 2007(1) 869 510 387

Benefi ts in kind 5 5 2

2007 Variable remuneration (paid in 2008) 1,940 762 275

2007 Lafarge S.A. Directors’ fees (paid in 2008) 28 N/A 28

TOTAL FOR 2007 2,842 1,277 692



2006 Variable remuneration (paid in 2007) 1,194 671 661


TOTAL FOR 2006 2,026 1,186 1,568



2005 Variable remuneration (paid in 2006) 327 340 433


TOTAL FOR 2005 835 855 1,338

(1) Including Directors’ fees for directorships in our subsidiaries.

(2) Mr Lafont became director and senior manager on May 25, 2005, then Group Chief Executive Offi cer since January 1, 2006 and Chairman and Chief Executive Offi cer since

May 3, 2007. His fi xed remuneration is 900,000 euros since May 3, 2007.

(3) Pro rated amounts for 2007 as Mr Collomb is no longer Chairman since May 3, 2007.

1

2

3

4

5

6

7

8

9

10


5.3 Compensation


Total compensation paid to

the Chairman and Executive

Offi cers in 2007

The aggregate gross amount of compen-

sation paid to Mr Collomb as Chairman

until May 3, 2007, to Mr Lafont as our

Chairman and Chief Executive Offi cer since

May 3, 2007 and other Executive Offi cers

in 2007, including variable remuneration

was 9.8 million euros. This aggregate

amount was 8.4 million euros in 2006 and

10.0 million euros in 2005.

This amount:

includes the fixed portion of Executive

Offi cers’ salaries in 2007 as well as the

bonuses paid in 2007 in respect of 2006;

includes an individual performance

component, a financial performance

component and a collective performance

component as the variable remuneration;

concerns all those who were Executive

Officers in 2007, for the time during

that year dur ing which they were

Executive Offi cers;

includes the Directors’ fees paid by

Lafarge S.A. to Messrs Bertrand Collomb

and Bruno Lafont.

The changes in the aggregate amount of

compensation paid to the Chairman and

the Executive Officers over the last three

fi nancial years result from the combination of

the offi ces of Chairman and Chief Executive

Offi cer in May 2007 as well as changes in

the number of Executive Offi cers. In 2007,

we had an average of 10 Executive Offi cers

due to the appointment of 4 new individuals

and 3 departing (versus 9 individuals in

2006 and 12 individuals in 2005).

Severance arrangements

for the Chairman and

Chief Executive Offi cer and

the Chief Operating Offi cer

The employment contract of Mr Bruno Lafont

was suspended effective January 1, 2006,

the date upon which he became Chief

Executive Offi cer, in accordance with French

law. To the extent his employment contract

is reinstated following the termination of

his appointment as Chairman and Chief

Executive Officer, he would receive the

benefit of severance pay in the event of

termination of his employment other than

for gross negligence or wilful misconduct.

The cancellation of his current position

or a reduction in his level of responsibility

would amount to termination under these

provisions. The amount of this severance pay

would be equal to (i) his statutory severance

entitlement plus the equivalent of 6 months

pay (based on his most recent fixed and

variable remuneration) or (ii) his statutory

severance entitlement plus the equivalent

of 18 months pay (based on his most recent

fixed and variable remuneration) should

his employment contract be terminated

within 24 months of a change of control of

Lafarge. The employment contract defi nes

a change of control as the acquisition of

a significant portion of the share capital

of Lafarge followed by the replacement of

more than half the members of the Board

of Directors or by the appointment of a new

Chief Executive Offi cer or a new Chairman.

The employment contract of Mr Michel Rose

contains the same terms.

The Board of Directors decided on March 26,

2008 to introduce a performance condition

linked to this severance pay to ensure

Mr Bruno Lafont’s employment contract

complies with the new requirements of the

French Commercial Code relating to severance

arrangements of senior management following

the law of August 21, 2007. This condition

will only apply to the severance to be paid,

if any, on top of any mandatory severance

(“indemnités conventionnelles”) provided by

applicable collective bargaining agreements

under his employment contract. The condition

will be met and the severance will be paid in

full if two of the three criteria are at or above

the target level. If only one of the three criteria

is above the target level, the condition will be

partially met and only half of the severance will

be paid. Should none of the conditions be at

or above target, the condition will not be met

and no severance will be paid.

The three criteria are as follows:

on average for the last three years: the

return on capital employed after tax is

greater than the weighted average cost

of capital (defi ned as the sum of “cost of

debt” multiplied by “total debt” divided

by “total capital” and “cost of equity”

multiplied by “equity” divided by “total

capital”);

on average for the last three years:

EBITDA / Sales > 18%;

on average for the last three years: the

average percentage bonus realisation

approved by the Board of Directors is

greater than 60% of a maximum (160%

of fi xed salary).

Pensions and

other retirement benefi ts

Each member of senior management is a

beneficiary of a supplemental retirement

plan applicable to the Group’s French

senior officers, the terms of which vary

depending on his position and age as at

December 10, 2003, which is the date on

which the Board of Directors set the terms

of the current plan.

Members of senior management over

55 years of age at December 10, 2003,

who have the benefi t of the supplemental

collective retirement plan that still applies to

managers of the French cement activity with

a certain seniority (Messrs Bertrand Collomb

and Michel Rose) benefi t from a guaranteed

retirement pension amount equal to 60% of

their total remuneration (fi xed and variable,

with a variable remuneration capped at

100% of the fixed remuneration) with an

overall fl oor and cap set respectively at 1 and

1.2 times their average fi xed remunerations

in 2001, 2002 and 2003.

Members of senior management below

55 years of age at December 10, 2003

(currently Mr Bruno Lafont) are eligible for

a supplementary plan with defi ned benefi ts

set up for our Executive Offi cers. This plan

provides for a pension amount equal to 1.3%

of their reference salary (last fi xed remunera-

tion plus the average variable remuneration

over the last 3 years) in excess of 16 times

the annual French social security cap,

multiplied by the number of years of offi ce,

limited to 10 years.

The aggregate amount set aside or accrued

to provide pension, retirement or similar

benefi ts for Executive Offi cers (10 persons

in average) was 23.9 million euros at

December 31, 2007.


DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES5 5.4 Board and Committees rules and practices

The Board of Directors determines the

Strategic Direction of the Company’s business

activities and ensures its implementation,

subject to the powers expressly granted by

law to shareholders’ meetings and within the

scope of the Company’s corporate purpose.

The Board’s internal regulations defi ne the

respective roles and duties of the Chairman

and Chief Executive Officer and of the

Vice-Chairman of the Board of Directors, the

restrictions on the powers of the Chairman

and Chief Executive Offi cer, the composition

of the Board of Directors and its Committees,

the evaluation of senior management and of

the Board, as well as the responsibilities

of the various Board Committees. These

internal regulations were amended in

May 2007 to reflect the unification of the

offices of Chairman and Chief Executive

Officer and the creation of the office

of Vice-Chairman.

Duties and responsibilities

of the Board Committees

The Board of Directors has defined in

its internal regulations the duties and

responsibilities of its various Standing

Committees, which are:

the Audit Committee;

t h e C o r p o r a t e G o v e r n a n c e a n d

Nominations Committee;

the Remunerations Committee; and

the Strategy and Investment Committee.

The Committees are convened by their

Chairmen or at the request of the Chairman

and Chief Executive Offi cer by any means

possible, including orally. The Committees

may meet anywhere and using whatever

means, including by videoconference

or teleconference. A quorum consists of

one-half at least of their members present.

At least two meetings per year are held.

The agenda for Committee meetings is drawn

up by its Chairman. Minutes of the Committee

meetings are drafted after each meeting.

For the purposes of carrying out their work,

the Committees may interview members

of Group management or any other Group

management member. The Committees may

also engage any expert and interview him

about his report.

The Committees report on their work to the

next meeting of the Board, by way of verbal

statement, opinion, proposals, recommenda-

tions or written reports.

The Committees may not handle on their

own initiative any question exceeding their

terms of reference as defi ned below. They

have no decision-making powers, merely

the power to make recommendations to the

Board of Directors.

Duties of the audit Committee

The Audit Committee has the following

duties:

FINANCIAL STATEMENTS

to ensure that the statutory auditors

assess the relevance and consistency

of the accounting methods adopted for

the preparation of the consolidated or

statutory financial statements, as well

as appropriate treatment of the major

transactions at Group level;

when the f inancial statements are

prepared, to carry out a preliminary review

and give an opinion on the draft statutory

and consolidated financial statements,

including quarterly, semi-annual and

annual statements prepared by the

management, prior to their presentation

to the Board; for those purposes, the draft

accounts and all other useful documents

and information must be provided to

the Audit Committee at least three

days before the review of the financial

statements by the Board. In addition, the

review of the fi nancial statements by the

Audit Committee must be accompanied

by (i) a memorandum from the statutory

auditors highlighting the essential points

of the results and the accounting options

adopted; and (ii) a memorandum from

the Finance Director describing the

Company’s risk exposure and the major

off-balance sheet commitments. The Audit

Committee interviews the statutory audi-

tors, the Chairman and Chief Executive

Officer and the financial management,

in particular concerning depreciation,

reserves, the treatment of goodwill and

consolidation principles;

to review the draft interim fi nancial state-

ments, the draft half-year report and the

draft report on results of operations prior to

publication, together with all the accounts

prepared for specifi c transactions (asset

purchases, mergers, market operations,

prepayments of dividends, etc.);

to review, where necessary, the reasons

g iven by the Chairman and Chief

Executive Officer for not consolidating

certain companies;

to review the risks and the major off-

balance sheet commitments.

INTERNAL CONTROL

AND INTERNAL AUDIT

to be informed by the Chairman and

Chief Executive Offi cer of the defi nition

of internal procedures for the collection

and monitoring of fi nancial information,

ensu r i ng t he r e l i ab i l i t y o f such

information;

to be informed of procedures and action

plans in place in terms of internal control

over fi nancial reporting, to interview the

persons in charge of internal control on

the assessment of internal control over

fi nancial reporting carried out every half-

year and at the end of each fi nancial year

and to examine the terms of engagement

of the statutory auditors;

to examine the Group’s internal audit plan

and interview the persons in charge of

internal audit for the purposes of taking

note of their programs of work and to

receive the internal audit reports of the

Company and the Group or an outline of

those reports, and upon a prior request

to the Chairman and Chief Executive

Offi cer, these hearings can take place, if

necessary, without the Chairman and Chief

Executive Offi cer being in attendance.

STATUTORY AUDITORS

to listen regularly to the statutory auditors’

reports on the methods they used to carry

out their work;

to propose to the Board, where necessary,

a decision on the points of disagreement

between the statutory auditors and the

Chairman and Chief Executive Officer,

likely to arise when the work in question

is performed, or from its contents;

to assist the Board in ensuring that the

rules, principles and recommendations

5.4 Board and Committees rules and practices

1

2

3

4

5

6

7

8

9

10




safeguarding the independence of the

statutory auditors are followed, and for

such purposes, the members of the

Committee have, by way of delegation by

the Board of Directors, the task of:

supervising the procedure for the –

selection or renewal (by invitation

to tender) of the statutory auditors,

while taking care to select the “best

bidder” as opposed to the “lowest

bidder”, formulating an opinion on the

amount of the fees sought for carrying

out the statutory audit assignments,

formulating an opinion stating the

reasons for the selection of the statutory

auditors and notifying the Board of

its recommendation in this respect,

supervising the questions concerning –

the independence of the statutory

auditors in line with the methods and

in conformity with the procedures

described in Section 10.2 (Auditors’

fees and services).

FINANCIAL POLICY

to be informed by the Chairman and Chief

Executive Offi cer of the fi nancial standing

of the Group, the methods and techniques

used to lay down financial policy, and

to be regularly informed of the Group’s

fi nancial strategy guidelines in particular

with regard to debt and the hedging of

currency risks;

to be informed of the contents of the

offi cial fi nancial statements prior to their

release;

to be informed in advance of the

conditions of the financial transactions

performed by the Group; if a meeting of

the Committee cannot be held owing to

an emergency, the Audit Committee is

informed of such reasons;

to review any financial or accountancy

issue of any kind submitted to it by the

Chairman, the Board, the Chairman and

Chief Executive Officer or the statutory

auditors; and

to be informed by the Chairman and

Chief Executive Offi cer of all third party

complaints and of any internal information

criticizing accounting documents or the

Company’s internal control procedures,

as well as of procedures put in place for

this purpose, and of the remedies for such

complaints and criticism.

FRAUD

to ensure that procedures are put in place

for the receipt, retention and treatment

of accounting and financial related

complaints; and

to be informed of possible cases of fraud

involving management or employees who

have a signifi cant role in internal controls

concerning fi nancial reporting.

To enable the Audit Committee to carry

out the full extent of its duties, the Board’s

internal rules state that all pertinent

documents and information must be

provided to it by the Chairman and Chief

Executive Offi cer on a timely basis.

Duties of the Corporate Governance and nominations Committee

The Corporate Governance and nominations

Committee are responsible, in cooperation

with the Chairman and Chief Executive

Officer, for ensuring compliance with the

Company’s corporate governance rules.

In particular, it is responsible for:

monitoring governance practices in

the market, proposing to the Board the

corporate governance rules applicable

by the Company and ensuring that the

Company’s governance rules remain

among the best in the market;

reviewing proposals to amend the internal

regulations or the Directors’ Charter to be

made to the Board;

proposing to the Board the criteria to be

applied to assess the independence of its

Directors;

proposing to the Board, every year before

publication of the Annual Report, a list

of the Directors who can be qualifi ed as

independent;

preparing the assessment of the work of

the Board provided for by the Board’s

Internal Regulations;

preparing changes in the composition of

the Company’s management bodies.

The Committee has special responsibility for

examining the succession plans for senior

management members and the selection of

the new Directors. It also makes recommen-

dations to the Board for the appointment of

the Vice-Chairman and the Chairmen of the

other Standing Committees.

The choices made by the Corporate

Governance and Nominations Committee

on the appointments of the candidates to the

offi ce of Director are guided by the interests

of Company and of all its shareholders. They

take into account the balance of the Board’s

composition, in accordance with the relevant

rules laid down in its internal regulations.

They ensure that each Director possesses

the necessary qualities and availability

and that the Directors represent a range

of experience and competence, thereby

permitting the Board to perform its duties

effectively, while maintaining the requisite

objectivity and independence with regard to

senior management and any shareholder or

any particular group of shareholders.

Duties of the remunerations Committee

The Remunerations Committee is respon-

sible for examining the compensation and

benefi ts paid to Directors and members of

senior management and providing the Board

with elements of comparison and bench-

marking with market practices, in particular:

to review and make proposals in relation to

the remuneration of senior management

members, both with regard to the fi xed

portion and the variable portion of said

remuneration, and all benefits in kind,

stock subscription and purchase options

granted by any Group company, provisions

relating to their retirements, and all other

benefi ts of whatever kind;

to defi ne and implement the rules for the

determination of the variable portion of

their remuneration, while taking care to

ensure these rules are compatible with the

annual evaluation of the Company offi cers’

performances and with the medium-term

strategy of the Company and the Group;

to deliver to the Board an opinion on

the general allocation policy for stock

subscription and/or purchase options and

on the stock options plans set up by the

Chairman and Chief Executive Offi cer and

to propose allocations of stock subscrip-

tion or purchase options to the Board;

to be informed of the remuneration policy

concerning the principal management

personnel (aside from senior manage-

ment) of the Company and other Group

companies and to examine the coherence

of this policy;



to make proposals to the Board on the

total amount of Directors’ fees for proposal

to the Company’s shareholders’ meeting;

to make proposals to the Board on the

allocation rules for Directors’ fees and

the individual payments to be made to

the Directors, taking into account the

attendance rate of the Directors at Board

and Committee meetings;

to examine every matter submitted to it by

the Chairman and Chief Executive Offi cer,

relating to the above questions, as well

as plans for increases in the number of

shares outstanding owing to the imple-

mentation of employee stock ownership;

to approve the information disclosed to

shareholders in the Annual Report on

the remuneration of senior management

members and the principles and methods

determining the remuneration of said

persons, as well as on the allocation and

exercise of stock subscription or purchase

options by senior management.

Duties of the strategy and investment Committee

The Strategy and Investment Committee is

responsible for advising the Board on the

main strategic priorities of the Company

and the Group and on the investment policy

and any other important strategic issue put

before the Board.

It also has the role of reviewing in detail

and formulating its opinion to the Board on

the issues submitted to it relating to major

investments, the creation and upgrading of

equipment, external growth, or divestments

and asset or share sales.

Board and Committees

practices

The following table shows the number of

Board and Committee meetings during fi scal

2007, as well as Directors’ membership and

attendance at these various meetings. Three

out of the ten Board meetings held in 2007

were convened in addition to the meetings

originally scheduled, in particular as a result

of a request by some of our shareholders to

add a resolution to the agenda of the General

Meeting called on May 3, 2007 and the

acquisition of Orascom Cement. In 2007, the

average attendance rate at meetings of the

Board was 91% and the average attendance

rate at Committee meetings stood at over

96% (these fi gures take into consideration

changes in the composition of the Board and

of the Committees throughout the year).

Board of Directors Audit Committee

Corporate

governance and

Nominations

Committee

Remunerations

Committee

Strategy and

Investment

Committee

NUMBER OF MEETINGS IN 2007 10 4 4 4 3

Bruno Lafont 10 - - - -

Oscar Fanjul 10 2 1 1 -

Michaël Blakenham 8 - 4 4 -

Jean-Pierre Boisivon 10 4 - - -

Michel Bon 9 4 - - 3

Philippe Charrier 10 - - - 3

Bertrand Collomb 9 - - - -

Philippe Dauman** 4 - - - 1

Guillerme Frering* 3 - - - 1

Juan Gallardo 9 4 2 2 -

Alain Joly 9 - 4 4 3

Bernard Kasriel 9 - - - -

Pierre de Lafarge** 5 - - - 2

Raphaël de Lafarge* 4 - - - 1

Jacques Lefèvre 10 - - - 3

Michel Pébereau 8 - 4 4 3

Hélène Ploix 8 4 - - -

* Directors whose term of offi ce ended on May 3, 2007.

** Directors appointed on May 3, 2007.

1

2

3

4

5

6

7

8

9

10




In 2007 the Audit Committee was chaired by

Mrs Hélène Ploix, the Corporate Governance

and Nominations Committee by Mr Alain Joly,

the Remunerations Committee by Mr Alain

Joly and our Strategy and Investment

Committee by Mr Michel Pébereau. Since

January 18, 2008 the Corporate Governance

and Nominations Committee and the

Remunerations Committee are chaired by

Mr Oscar Fanjul.

Board of Directors

Approximately one week prior to each

Board meeting, Directors each receive a

fi le containing the agenda for the meeting,

the minutes of the previous meeting and

documentation relating to each topic on the

agenda.

In accordance with the Board’s internal

regulations, certain topics are fi rst discussed

within the relevant Committees, depending

on their nature, before being submitted

to the Board for approval. These topics

notably concern the review of the fi nancial

statements, internal control procedures,

auditors’ assignments and fi nancial transac-

tions as regards the Audit Committee, the

election of new Directors and appointment

of senior managers as regards the Corporate

Governance and Nominations Committee,

the compensation of Directors and senior

managers as regards the Remunerations

Committee and general strategic priorities

of the Company and the Group as regards

the Strategy and Investment Committee.

The Committees carry out their assignments

under the responsibility of the Board of

Directors.

In 2007, in addition to the approval of the

quarterly, interim and annual financial

statements, the preparation of the General

Meeting, determination of the compensa-

tion of senior managers and other decisions

in the ordinary course of business, the

Board worked primarily on: the unifica-

tion of the offices of Chairman and Chief

Executive Offi cer and creation of an offi ce

of Vice-Chairman; the voluntary delisting

of the Company from NYSE and the dereg-

istering from the Securities & Exchange

Commission; the acquisition of Orascom

Cement (including its financing and the

calling of an extraordinary shareholders

meeting to authorize a reserved share capital

increase).

In addition, the Board concluded the

discussions on its practices which had

begun in 2006, as described more fully

under “Evaluation of the Board and its

Committees” below.

In carrying out its work, the Board was

supported by the work of its various

Committees, in particular the Remunerations

Committee as regards Directors’ fees, the

compensation of senior managers and

the allotment of stock options and bonus

shares, the Corporate Governance and

Nominations Committee on how executive

management should be exercised and the

Audit Committee prior to approval of the

fi nancial statements.

Audit Committee

In 2007, the Audit Committee conducted a

preliminary review of the statutory and consoli-

dated 2006 annual fi nancial statements, our

statutory half-year fi nancial statements and

quarterly fi nancial consolidated statements for

the fi rst three quarters, as well as the internal

control procedures and our policy on fraud

in financial reporting and internal control.

The Audit Committee also proposed to the

Board the terms of engagement of auditors

and their budget for 2007, in accordance with

U.S. regulations, initiated a process for the

mapping of risks inherent to the Group, made

recommendations on the voluntary delisting of

the Company from NYSE and the deregistering

from the Securities & Exchange Commission

and conducted a self evaluation as further

described in the paragraph “Evaluation of the

Board and its Committees” below.

As part of its preliminary review of the statutory

and consolidated 2007 fi nancial statements in

February 2008, the Audit Committee reviewed

the principal items, with a special focus on

other operating income and expense, fi nance

costs, tax and goodwill impairment tests. It also

reviewed management’s assessment of internal

control over fi nancial reporting for 2007, as

more fully described in Management’s Report

on internal control over financial reporting

(see Chapter 9 (Controls and procedures)),

as well as auditors’ assessment of the fairness

of our fi nancial statements and on our internal

control over financial reporting. Finally, the

Audit Committee reviewed the draft dividend

distribution plan for 2007 and issued recom-

mendations to the Board.

Corporate Governance and nominations Committee

During 2007, the Corporate Governance and

nominations Committee made recommenda-

tions on the appointment of three Directors

at the General Meeting held on January 18,

2008 (Messrs Desmarais, de Rudder and

Sawiris), the renewal and appointment of

several Directors to be proposed at the

May 3, 2007 General Meeting, the composi-

tion of the different Committees and took

the lead on the Board’s self assessment

described in the “Board and Committees

self-assessment” section below.

The Corporate Governance and Nominations

Committee lead the discussions on how

executive management should be exercised,

with the unifi cation of the offi ces of Chairman

and Chief Executive Offi cer and the creation

of the offi ce of Vice-Chairman, and made

recommendations on resulting amendments

to the Board’s internal regulations.

On February 13 and on March 26, 2008,

the Corporate Governance and Nominations

Committee made proposals to the Board

concerning the appointment and renewal of

Directors, which if proposed by the Board,

are to be submitted at the next shareholders’

meeting. The Committee also discussed

the criteria to be applied to assess the

independence of its Directors and proposed

to the Board a list of Directors who can be

qualifi ed as independent.

Remunerations Committee

D u r i n g t h e c o u r s e o f 2 0 0 7 , t h e

Remunerations Committee made proposals

to the Board of Directors concerning

determination of senior management’s

remuneration, Mr Bertrand Collomb’s

retirement conditions, the allotment of

stock options and bonus shares to selected

employees and members of the manage-

ment, including senior managers, and the

approval of a new stock options plan and

of a bonus share plan. The Committee

also made recommendations regarding the

increase of Directors’ fees within the limits

set by the General Meeting of May 28, 2001

(i.e.: a maximum of 609,796 euros) and

the allotment of Directors’ fees for 2007.

See Section 5.5 (Management share ownership and options).



On February 13, 2008, the Remunerations

Committee made proposals to the Board

of Directors for the determination of senior

management’s performance-based remu-

neration for 2007 and their fi xed remunera-

tion for 2008. These items are described in

Section 5.3 (Compensation).

On March 26, 2008 the Remunerations

Committee made proposals regarding

the allotment of stock options and bonus

shares to selected Group employees

and members of the management. The

Remunerations Committee also discussed

the performance criteria applicable

to the severance arrangements of our


proposed those criteria to the Board of

Directors on the same date for approval.

See Section 5.3 (Compensation – Severance arrangements for the Chairman and Chief Executive Offi cer and the Chief Operating Offi cer).

Strategy and investment Committee

Since 2004, the Strategy and Investment

Committee has been open to all Directors

wishing to attend its meetings. In 2007,

the Strategy and Investment Committee

discussed the Group’s strategic vision for

the medium term and related objectives, as

well as certain specifi c issues concerning

the Group’s development by activity and by

region. In particular, the Committee discussed

the strategic perspectives in North America

for Cement and the different challenges

facing the Group, whether in relation to the

competition compliance program, sustain-

able development or brand positioning.

Self-assessment by the

Board and Committees


the Board is to hold a discussion at least

once a year about its practices with a view

to assessing and improving their effi ciency. A

formal assessment of the way it operates and

the effective participation of each Director

is to take place every two years using a

questionnaire approved by the Board.

At the end of 2006 and the beginning of

2007, the Board initiated a formal assess-

ment of its organization and practices

in accordance its internal regulations.

Improvements in the Board’s organiza-

tion and in the quality of its debates were

observed, and members of the Board

expressed satisfaction with the Board’s

greater involvement in the Group’s strategy.

Following this evaluation, certain measures

were taken by the Board to improve its

supervision of the Group’s major policies.

The Audit Committee also conducted a

self-assessment during 2007. The results

showed that the different information

processes in place to enable the Committee

to carry out its missions, in particular as

regards fraud and internal control, were

adequate. Following this assessment

the Audit Committee decided to arrange a

specifi c training for the Board of Directors

on changes to the accounting rules and

practices and their potential impact for the

Group.

Role and duties

of the Vice-Chairman

of the Board

The Vice-Chairman of the Board is elected

from among Directors classified as inde-

pendent for a renewable term of office of

one year on a recommendation from the

Corporate Governance and Nominations

Committee.

He is a member of the Corporate Governance

and Nominations Committee and of the

Remunerations Committee.

He chairs meetings of the Board in the

absence of the Chairman and Chief Executive

Offi cer, and in particular, chairs the discus-

sions of the Board of Directors organized

at least once a year in order to assess the

performance and set the remuneration of the

Chairman and Chief Executive Offi cer, such

discussions taking place in the absence of

the latter.

Powers of the Chairman

and Chief Executive Offi cer

The Chairman and Chief Executive Offi cer

represents the Company in its relations with

third parties. He has broad powers to act on

behalf of our Company in all circumstances.

In addition, as Chairman of the Board,

the Chairman and Chief Executive Offi cer

represents the Board of Directors. He organ-

izes and directs the works of the Board in

accordance with the provisions of its internal

regulations.

The Company’s strategic priorities are

proposed by the Chairman and Chief

Executive Offi cer and are discussed annually

by the Board of Directors. Specifi c strategic

presentations may be submitted to the Board

of Directors as often as necessary. The

Company’s strategic priorities are approved

by the Board of Directors.

Limitations of the Chairman and Chief

Executive Offi cer’s powers are contained in

the Board’s internal regulations and concern

investment and divestment decisions, as

well as certain fi nancial transactions.

Investments and divestments

The Board’s internal regulations provide

that investment and divestment decisions

must be submitted to the Board of Directors

as follows:

as regards transactions in line with our

strategies as previously approved by the

Board:

submission for information purposes –

following the closing of the tran-

sact ion: for t ransact ions be low

200 million euros,

submission for approval of the principle –

of the transaction, either during a Board

meeting or through a written communi-

cation enabling Directors to comment

on the proposed transaction or ask

for a Board decision: for transactions

between 200 and 600 million euros,

submission for prior approval of the –

transaction and its terms: for transac-

tions in excess of 600 million euros;

as regards transactions that do not fall

within the scope of the Company’s stra-

tegy as previously defi ned by the Board:

submission for prior approval of transac-

tions exceeding 100 million euros.

The above amounts refer to the Company’s

total commitment including assumed debt

and deferred commitments.

1

2

3

4

5

6

7

8

9

10


5.5 Management share ownership and options


Financial transactions


transactions relating to the arrangement of

debt and fi nancing that can be decided by

chief executive offi cers by law or pursuant

to a delegation by the Board of Directors

and the General Meeting are subject to the

following rules:

fi nancing transactions carried out through

bilateral or syndicated credit facilities

for an amount below 2 billion euros are

submitted to the Board of Directors by the

Chairman and Chief Executive Offi cer for

information purposes when the transac-

tion closes. Those transactions exceeding

2 billion euros are submitted to the Board

for prior approval;

bond issues, which may be decided by

the Chairman and Chief Executive Offi cer

pursuant to a Board delegation, must be

submitted to the Board as follows:

for information purposes following the –

closing of the issue: for bond issues

below 300 million euros,

for information purposes prior to the –

launch of the issue: for bond issues

between 300 million and 1 billion euros,

the Chief Executive Offi cer is in charge

of defi ning the terms and conditions of

the issue,

for prior approval of the issue and its –

terms: for bond issues in excess of

1 billion euros,

for prior approval of the issue and its –

terms for bond issues convertible or

exchangeable into shares.

Code of Ethics

At the beginning of 2004, we adopted a

Code of business conduct that applies to

all of our offi cers and employees. This code

promotes:

compliance with applicable laws and

regulations;

the prevention of confl icts of interests;

due attention for people and the

environment;

the protection of the Group’s assets;

fairness in fi nancial reporting; and

internal controls.

Training sessions are organized in rela-

tion to the principles set out in the code

throughout the Group. The full text of

the code is available on the website at

www.lafarge.com.

Amendments to, or waivers from one or more

provisions of, the code will be disclosed on

our website.


Chairman, Chief Executive

Offi cer and Chief Operating

Offi cer stock options

The tables below set forth the following

information related to the senior management

(Messrs Lafont and Rose during 2007, and

Mr Collomb as Chairman until May 3, 2007):

options granted by Lafarge and Group

subsidiaries to the relevant members of

senior management above;

options exercised by senior management

in 2007;

total number of options outstanding with

respect to the relevant members of senior

management at December 31, 2007.

OPTIONS GRANTED IN 2007

Total number of options* Exercise price (euros) Option period lapses Plan No.

B. LAFONT

Lafarge 30,000 128.15 06/15/2017 1402167

30,000** 128.15 06/15/2017 1402167

M. ROSE

Lafarge 15,000 128.15 06/15/2017 1402167

15,000** 128.15 06/15/2017 1402167

* One option entitles the holder to acquire one share.

** Exercise of these options is contingent upon the performance of our share price. See the sub-section below entitled “Directors and Executive offi cers’ share ownership”.


DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES5 5.5 Management share ownership and options

OPTIONS EXERCISED IN 2007

Total number

of shares exercised

Weighted average

exercise price (euros) Option period lapses Plan No.

B. LAFONT

Lafarge 7,805 50.19 12/17/2007 1401501

B. COLLOMB*

Lafarge 25,615 50.19 12/17/2007 1401501

M. ROSE

Lafarge 97,812** 78.01 - 1401504 – 1401505

1401507 – 1401509

1401510 – 1401530

* Mr Collomb no longer is a senior manager since May 3, 2007.

** Some of the stock options granted to Mr Rose have become exercisable due to his coming retirement in 2008.

OPTIONS GRANTED BY US AND OUR CONSOLIDATED SUBSIDIARIES OUTSTANDING AS OF DECEMBER 31, 2007

Options exercisable as

of December 31, 2007

Options not

exercisable as of

December 31, 2007 Total

B. LAFONT

Lafarge 60,824* 210,000* 270,824

M. ROSE

Lafarge 87,107** 30,000* 117,107

* Including those options, exercisability of which is contingent upon performance conditions.

** Some of the stock options granted to Mr Rose have become exercisable due to his coming retirement in 2008.

On March 26, 2008, the Board of Directors

allotted 120,000 stock options to the

Chairman and Chief Executive Offi cer, half

of which being subject to achievement of the

Excellence 2008 cost reduction targets.

Directors and Executive

Offi cers’ share ownership

At December 31, 2007, the Directors and

Executive Offi cers (listed in Section 5.2) held

19.77% of unexercised options.

Since 2003, a portion of the stock options

granted to the Chairman and Executive

Offi cers is subject to a performance condi-

tion. This portion of options amounted to

30% of the total granted in 2003 and 2004

and 50% of the total grant since 2005.

A portion of the options granted to the

Chairman and members of the Executive

Committee between 2003 and 2006 were

subject to the performance of the share

price. These options could be exercised only

if the share price averaged for a continuous

period of 60 trading sessions during the fi rst

four years after the date of grant, an amount

equal to the issue price plus 20% or, failing

that, during the subsequent two years an

amount equal to the issue price plus 30%.

This performance condition was satisfied

on August 3, 2007 for all options granted

between 2003 and 2006 subject to this

condition.

In 2006 certain members of our Executive

Committee were exceptionally awarded

options that may only be exercised if the

Group achieves its cost reduction targets

announced for the period running from

January 1, 2006 to December 31, 2008 as

part of the Excellence 2008 program.

The performance condition which applies

to stock options granted in 2007 and

2008 also corresponds to achievement

of the Excellence 2008 cost reduction

targets. In addition to this performance

condition, the stock options granted to the


our Chief Operating Offi cer are also subject

to holding conditions. The Chairman and

Chief Executive Officer has to hold, until

termination of his office, Lafarge shares

resulting from the exercise of his stock

options corresponding to the equivalent

in value of three times his fixed annual

remuneration. Half of this objective must be

achieved within two years of the grant and

the whole objective within fi ve years. 5,000

of the stock options awarded to the Chief

Operating Offi cer must be held throughout

his term of offi ce and for a further period of

three years upon termination of offi ce.

The Directors and Executive Officers held

together 0.13% of our share capital and

0.17% of voting rights at December 31, 2007.

In order to align the interests of the members

of our Executive Committee more closely

with those of our shareholders, the Board of

Directors decided on December 10, 2003,

upon the proposal of the Nominations and

Remunerations Committee, to require all

members of the Executive Committee to hold

the equivalent of their fixed annual remu-

neration for value in Lafarge shares. To achieve

that objective, each member of the Executive

Committee must invest one third of the net

theoretical after tax gain realized upon the

exercise of his stock purchase or subscription

options in Lafarge shares each year until he

reaches that objective.

1

2

3

4

5

6

7

8

9

10




Transactions in Lafarge shares by Directors and Executive Offi cers

The following transactions in Lafarge shares were carried out by our Directors and Executive Offi cers in 2007:

Date of transaction

Name of Director or

Executive Offi cer

Nature of

transactionUnit price

(euros)

Total amount of

transaction (euros)

Type of fi nancial

instrument

Place of

transaction

January 2, 2007 Isidoro Miranda,

Executive Vice-

President, Gypsum

Sale 114.80 619,920.00 Lafarge shares Euronext

Paris

March 21, 2007 Bernard Kasriel,

Director

Exercise

Exercise

50.19

82.70

245,529.48

165,400.00

Options to purchase shares

Options to subscribe for shares

Euronext

Paris

March 22, 2007 Michel Rose,


Exercise

Exercise

Exercise

79.74

74.48

82.70

862,069.14

1,583,146.88

950,140.30




Euronext

Paris

May 30, 2007 Ulrich Glaunach,

Executive Vice-

President, Cement

Exercise

Exercise

Sale

Sale

82.70

79.74

126.93

126.91

332,619.40

517,273.00

334,620.93

517,972.00



Lafarge shares

Lafarge shares

Euronext

Paris

June 15, 2007 Bernard Kasriel,

Director


Paris

June 18, 2007 Bernard Kasriel,

Director


Paris

July 3, 2007 Guillaume Roux,

Executive Vice-

President, Cement

Exercise

Exercise

Exercise

Sale

74.48

82.70

79.74

136.22

395,786.00

285,066.00

258,676.00

1,499,100.00




Lafarge shares

Euronext

Paris

September 24, 2007 Michel Rose,


Exercise 70.79 212,370.00 Options to subscribe for shares Euronext

Paris

September 25, 2007 Michel Rose,



Paris

November 8, 2007 Bertrand Collomb,

Director

Exercise 50.19 1,285,616.85 Options to purchase shares Euronext

Paris

December 6, 2007 Bruno Lafont,

Chairman and Chief

Executive Offi cer

Exercise 50.19 391,733.00 Options to purchase shares Euronext

Paris

December 13, 2007 Jean-Carlos Angulo,

Executive Vice-

President, Cement

Exercise

Sale

50.19

122.63

25,095.00

61,315.00


Lafarge shares

Euronext

Paris

December 13, 2007 Bernard Kasriel,

Director


Paris

December 14, 2007 Bernard Kasriel,

Director


Paris

December 17, 2007 Bertrand Collomb,

Director


Paris

December 18, 2007 Christian Herrault,

Executive Vice-

President, Gypsum


Paris

December 18, 2007 Isidoro Miranda,

Executive Vice-

President, Cement

Exercise

Exercise

74.48

65.95

791,424.48

989,250.00



Euronext

Paris

December 20, 2007 Michel Rose,


Exercise

Sale

96.16

120.20

2,043,976.96

2,554,971.20


Lafarge shares

Euronext

Paris

December 27, 2007 Christian Herrault,

Executive Vice-

President, Gypsum


Paris

December 27, 2007 Michel Rose,


Exercise 65.95 1,978,500.00 Options to subscribe for shares Euronext

Paris


DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES5 5.6 Employees

5.6 Employees

The Group employed 77,721 individuals

at December 31, 2007, representing

a decrease from December 31, 2006 of

14,745 employees, or 15.9%. This decrease

is mainly attributable to the sale of our

Roofi ng division (13,251 employees) as well

as to various restructurings, in particular in

North America. It has been compensated in

part by the growth of our operations in China

through our joint venture with Shuangma

(1 ,405 employees) and increas ing

operations in growing countries.

On January 23, 2008, fol lowing the

acquisition of Orascom Cement, the Group’s

consolidated number of employees increased

by around 10,000 individuals.

The fo l l ow ing tab les se t f o r th our

number o f emp loyees by D i v i s i on

a n d b y g e o g r a p h i c r e g i o n a t

December 31, 2007, 2006 and 2005.

Both tables account for 100% of the employees of our fully consolidated and proportionately consolidated subsidiaries.

EMPLOYEES BY DIVISION

2007

2007/2006

CHANGE 2006

2006/2005

CHANGE 2005

Number % % Number % % Number %

Cement 45,481 58.5 (1.8) 46,313 50.1 5.5 43,881 49.6

Aggregates & Concrete 24,167 31.1 (3.2) 24,969 27.0 3.1 24,226 27.4

Gypsum 8,073 10.4 1.8 7,933 8.6 5.8 7,501 8.5

Other Activities* - - - 13,251 14.3 3.7 12,781 14.5

TOTAL 77,721 100.0 (15.9) 92,466 100.0 4.6 88,389 100.0

* Includes employees of our former Roofi ng Division for 2006 and 2005.

EMPLOYEES BY GEOGRAPHICAL AREA*

2007

2007/2006

CHANGE 2006

2006/2005

CHANGE 2005

Number % % Number % % Number %

Western Europe 18,124 23.3 (27.6) 25,042 27.1 0.4 24,936 28.2

North America 15,417 19.8 (13.1) 17,731 19.2 (0.1) 17,754 20.1

Mediterranean Basin & Middle East 3,889 5.0 (21.3) 4,940 5.3 1.2 4,880 5.5

Central & Eastern Europe 8,569 11.0 (20.9) 10,832 11.7 6.0 10,215 11.6

Latin America 4,847 6.2 (8.7) 5,307 5.7 5.0 5,056 5.7

Sub-Saharan Africa 7,196 9.3 (3.5) 7,460 8.1 (2.8) 7,675 8.7

Asia 19,679 25.3 (7.0) 21,154 22.9 18.4 17,873 20.2

TOTAL 77,721 100.0 (15.9) 92,466 100.0 4.6 88,389 100.0

* Including i) employees at our head offi ce and at our Research & Development department and ii) employees of our former Roofi ng Division for 2006 and 2005.

GROUP’S EMPLOYEES BY DIVISION

Cement


Gypsum

%58.5

31.1

10.4

TOTAL 100.0

GROUP’S EMPLOYEES BY GEOGRAPHIC AREA OF DESTINATION


North America 19.8

Mediterranean Basin

& Middle East 5.0


Latin America 6.2


Asia 25.3

TOTAL 100.0

1

2

3

4

5

6

7

8

9

10


5.7 Employee share ownership



In 2007, 67% of Group employees were

represented by elected representatives or

unions. In general, relationships with unions

and works councils are both local (site, plant,

country) and global (European works council).

The labor dialogue initiated several years

ago with international trade union federa-

tions are continuing, in accordance with

the international agreement signed by the

Group in September 2005 with wood and

construction federations (FITBB, ICEM and

FMCB). Meetings are organized twice a year

to monitor implementation of the agreement

and see how it may be improved.

Employee share offerings

Lafarge has developed and maintained an

active employee share ownership program

for a number of years. Since 1961, the

date of the fi rst share offering reserved for

employees, employee offerings have all had

common features:

they are directed at all employees to the

full extent permitted by local laws;

the employee’s contribution is supple-

mented by an employer contribution;

and

savings in the plans cannot be sold or

disposed of for a minimum period of

five years, except in case of an early

release event, subject to local require-

ments.

Lafarge launched in 1995, 1999, 2002 and

2005 employee stock ownership programs

called “Lafarge en action” (LEA), enabling

employees participating in these plans

to subscribe for 1 to 110 shares, with an

employer contribution applying to the fi rst

10 shares depending on the gross domestic

product of the relevant country. The plans

launched in 1995 and 2002 also gave

employees the right to receive one option

for every share purchased beginning with

the eleventh share.

The table below summarizes the main terms of each of these plans:

LEA 2005(1) LEA 2002(1) LEA 1999(2) LEA 1995(2)

Number of countries covered 46(3) 47 33 21

Number of eligible employees 51,150 53,818 40,570 20,113

Subscription rate 48.8% 53.3% 51.6% 74.6%

Total number of shares subscribed 576,125 708,718 493,954 482,582

Maximum number of shares offered to each employee 110 110 110 110

Subscription price (euros) 57.31 81.84 73.17 39.94

Associated stock option grant No Yes No Yes

Total number of stock options granted N/A 437,373 N/A 331,060

Stock option exercise price (euros) N/A 101.79(4) N/A 43.09(4)

(1) Plans not offered in the United States or Canada.

(2) Plan not offered in Canada.

(3) Countries covered were those in which Lafarge employed over 100 employees at December 31, 2004, subject to local requirements.

(4) After readjustments following subsequent rights issues.

Lafarge also implemented an employee

savings fund in 1990 for i ts French

employees called Lafarge 2000 under which

participating employees can contribute to a

savings plan linked to the value of the Lafarge

shares and benefi t from an employer contri-

bution. There are also specific employee

share purchase plans, which have been

implemented by some of our subsidiaries,

including Lafarge North America Inc.

At December 31, 2007, Group employees

held 1.60% of our share capital and

2.83% of our voting rights. 0.39% of these

shares were held through the Lafarge 2000

employee fund and the remainder by Group

employees directly.

Stock options and bonus

shares plans

The Board of Directors redefi ned the Group’s

global remuneration policy in June 2007,

upon proposal by the Remunerations

Committee. The policy’s objective is

to reward and retain key talents while

providing managers and employees with

an opportunity to share in the success of

the Group’s business. This has resulted in

the replacement in part of the stock options

grant policy by a bonus shares grant policy

reserved for middle management, expatriates

and other employees as recognit ion

by the Group of their commitment and

achievements . Senior management

and top managers share in the Group’s

success solely through our stock options

grant policy.

Stock options and bonus shares are granted

by the Board of Directors upon proposal

by the Remunerations Committee at times


DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES5 5.7 Employee share ownership

set by the Board of Directors. Both stock

purchase and subscription options can be

granted. Stock option grants up to June 2007

generally took place once a year to a number

of benefi ciaries that varied from one year to

another (usually involving broader coverage

every two years). The fi rst grant of bonus

shares was made on June 15, 2007.

Around 30% of the stock options granted

on June 15, 2007 to each beneficiary

were subject to a performance condition,

linked to achievement of the Group’s cost

reduction targets as set out in the Excellence

2008 program. In addition, two thirds of

the beneficiaries of bonus shares had

15% of their grant subject to the same

performance condition. For further details

on the performance conditions applicable

to previous stock options grants to senior

management and Executive Officers,

see Section 5.5 (Management share ownership and options).

Total stock options outstanding at the

end of December 2007 was 6,811,409,

representing approximately 3.95% of our

outstanding shares at December 31, 2007

and the total number of outstanding bonus

shares was 141,815, representing approxi-

mately 0.08% of our outstanding shares at

December 31, 2007.

The following table shows the total of the ten largest option grants made to the Group‘s employees other than senior management, and

the total of the ten largest option exercises.

Total number of options granted/

shares subscribed or purchased

Weighted

average price Plan No.

OPTIONS GRANTED, DURING THE FINANCIAL YEAR, BY THE ISSUER AND ITS CONSOLIDATED SUBSIDIARIES FOR STOCK OPTIONS GRANTS PURPOSES

TO THE TEN EMPLOYEES OF THE ISSUER AND ITS SUBSIDIARIES HAVING RECEIVED THE LARGEST GRANTS (GLOBAL INFORMATION)

Lafarge 109,000 €128.15 1402167

SHARES* SUBSCRIBED OR PURCHASED, DURING THE FINANCIAL YEAR, AS A RESULT OF THE EXERCISE OF STOCK OPTIONS OF THE ISSUER AND ITS

CONSOLIDATED SUBSIDIARIES FOR STOCK OPTIONS GRANTS PURPOSES, BY THE TEN EMPLOYEES OF THE ISSUER AND ITS SUBSIDIARIES HAVING

SUBSCRIBED OR PURCHASED THE LARGEST NUMBER OF SHARES (GLOBAL INFORMATION)

Lafarge 152,812 €77.01

1401501 - 1401502 - 1401503

1401504 - 1401505 - 1401507

1401508 - 1401509 - 1401510

* One share per option.

In addition, 2,370 bonus shares were initially granted to the fi rst ten employees of the Company, excluding senior management, who received

the largest grant during the fi nancial year 2007.

Stock options

outstanding in 2007

Stock option terms

All stock options lapse 10 years after their grant.

The exercise price of options is set as the

average of the share price during the twenty

trading days preceding the date of grant

by the Board of Directors. No discount is

applied to the exercise price.

Options can be exercised in whole or in part.

Terms of exercise

S t o c k o p t i o n s g r a n t e d b e t w e e n

December 1997 and May 2001 were

subject to a five-year vesting period.

Since December 2001, the vesting period

was reduced to 4 years.

This vesting period also applied to the stock

options granted by the Board as part of the

LEA 2002 plan (share offering reserved

for employees that enabled employees to

subscribe between 1 and 110 shares, with

the right to receive one option for every

share purchased beginning with the eleventh

share).

The Board of Directors also determined

that options would vest immediately in the

event of termination of employment due

to retirement, a tender offer launched on

Lafarge or a merger or demerger of Lafarge

in all stock options plan rules and would

also vest immediately upon termination of

employment without misconduct for stock

options granted between 2001 and 2006.

Cancellation of options

Stock options not exercised within 10 years

of their date of grant are canceled. Stock

options are also canceled in specifi c circum-

stances, such as resignation or termination

of employment.

Stock options are not canceled, however, if

the benefi ciary is transferred to a company

outside of the Group, with the approval of his

or her employer, for stock options granted

between 2001 and 2006 and may not be

canceled by the Board if the benefi ciary’s

employer company is sold outside the Group

for stock options granted in 2007.

1

2

3

4

5

6

7

8

9

10




Stock options outstanding in 2007

The number of stock options set forth in the following tables has been readjusted since the date of grant to refl ect transactions that have

affected option value, such as certain increases in the share capital or the issue of bonus shares, to maintain a constant total option value

for each benefi ciary.

STOCK OPTIONS GRANTED FROM DECEMBER 17, 1997 TO DECEMBER 15, 1999:

Plan

No. 1401500

Plan

No. 1401501

Plan

No. 1401502

Plan

No. 1401503

Plan

No. 1401505

Allotment authorized by the shareholders’ meeting of 05/21/1997 05/21/1997 05/21/1997 05/21/1997 05/27/1999

Date of allotment by the Board of Directors 12/17/1997 12/17/1997 05/26/1998 12/10/1998 12/15/1999

Type of options subscription purchase subscription purchase subscription

Stock options initially granted (total) 346,650 402,550 122,775 98,450 918,200

Of which to Executive Offi cers (1) 10,000 144,500 0 9,000 146,000

Initial benefi ciaries (total) 999 127 108 150 1,552

Of which Executive Offi cers(1) 1 9 0 4 11

Available for exercise from 12/17/2002 12/17/2002 05/26/2003 12/10/2003 12/15/2004

Option exercise period lapses 12/17/2007 12/17/2007 05/26/2008 12/10/2008 12/15/2009

OPTIONS OUTSTANDING AT DECEMBER 31, 2006(2) 149,233 108,883 40,806 69,472 794,064

OPTIONS PURCHASED OR SUBSCRIBED

BETWEEN JANUARY 1, 2007 AND DECEMBER 31, 2007 122,855 106,188 16,791 26,823 202,928

OPTIONS CANCELED(3) 26,378 2,695 - - -

OPTIONS OUTSTANDING AT DECEMBER 31, 2007 0 0 24,015 42,649 591,136

Exercise price (euros) 50.19 50.19 74.72 74.18 82.70

(1) Including senior management. The number of Executive Offi cers has changed over the last ten years. See Section 5.2 (Executive Offi cers) for a description of Executive Offi cers

as from January 1, 2006. See also Section 5.5 for stock option grants to members of senior management.

(2) After readjustments due to fi nancial transactions affecting option value.

(3) In accordance with the terms of the plan.


DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES5 5.7 Employee share ownership

STOCK OPTIONS GRANTED FROM DECEMBER 13, 2000 TO DECEMBER 10, 2003:

Plan

No. 1401504

Plan

No. 1401506

Plan

No. 1401507

Plan

No. 1401508 (4)

Plan

No. 1401509

Plan

No. 1401510

Allotment authorized

by the shareholders’ meeting of 05/27/1999 05/27/1999 05/28/2001 05/28/2001 05/28/2001 05/20/2003

Date of allotment by the Board of Directors 12/13/2000 05/28/2001 12/13/2001 05/28/2002 12/11/2002 12/10/2003

Type of options purchase purchase subscription subscription subscription subscription

Stock options initially granted (total) 461,900 12,000 1,188,825 437,373 472,390 1,273,925

of which to Executive Offi cers (2) 93,000 12,000 277,000 1,100 98,000 350,000

Initial benefi ciaries (total) 438 1 1,703 14,364 421 1,732

of which Executive Offi cers (1) 11 1 13 11 11 13

Available for exercise from 12/13/2005 05/28/2006 12/13/2005 05/28/2006 12/11/2006 12/10/2007

Option exercise period lapses 12/13/2010 05/28/2011 12/13/2011 05/28/2012 12/11/2012 12/10/2013

OPTIONS OUTSTANDING AT

DECEMBER 31, 2006(2) 352,599 12,754 1,107,919 443,879 436,870 1,231,405


BETWEEN JANUARY 1, 2007

AND DECEMBER 31, 2007 102,691 - 210,015 77,584 146,676 176,314

OPTIONS CANCELED(3) (3,678)(5) - - - - -

OPTIONS OUTSTANDING

AT DECEMBER 31, 2007 253,586 12,754 897,904 366,295 290,194 1,055,091

Exercise price (euros) 79.74 102.12 96.16 101.79 74.48 65.95





(4) Lafarge en action 2002 employee stock purchase plan.

(5) The right to stock options of some employees had been canceled by mistake in 2006 and was reinstated in 2007.

1

2

3

4

5

6

7

8

9

10




Bonus shares

outstanding in 2007

Bonus shares characteristics

Bonus shares are definitively allotted to

beneficiaries upon expiry of a two year

vesting period for French tax residents or

upon expiry of a four year vesting period

for non-French tax residents. In addition,

French tax residents must also hold the

bonus shares for a further period of two

years following defi nitive allotment.

Loss of rights to the bonus shares

Under certain circumstances, such as

resignation or termination of employment,

the right to bonus shares will be lost during

the vesting period. The right to bonus

shares may be maintained by the Board if

the benefi ciary’s employer company is sold

outside the Group.

STOCK OPTIONS GRANTED FROM DECEMBER 14, 2004 TO JUNE 15, 2007:

Plan

No. 1401530

Plan

No. 1401813

Plan

No. 1401913

Plan

No. 1402034

Plan

No. 1402167

Allotment authorized by the shareholders’ meeting of 05/20/2003 05/25/2005 05/25/2005 05/25/2005 05/03/2007

Date of allotment by the Board of Directors 12/14/2004 12/16/2005 05/24/2006 05/24/2006 06/15/2007

Type of options subscription subscription subscription subscription subscription

Stock options initially granted (total) 687,550 1,278,155 667,075 150,000 540,050

of which to Executive Offi cers (1) 261,500 235,000 195,000 35,000 165,000

Initial benefi ciaries (total) 479 1,916 536 33 169

of which Executive Offi cers (1) 12 10 9 7 7

Available for exercise from 12/14/2008 12/16/2009 05/24/2010 24/05/2010 06/15/2011

Option exercise period lapses 12/14/2014 12/16/2015 05/24/2016 24/05/2016 06/15/2017

OPTIONS OUTSTANDING AT DECEMBER 31, 2006(2) 674,900 1,264,885 663,625 150,000 -


BETWEEN JANUARY 1, 2007 AND DECEMBER 31, 2007 3,900 11,375 400 - -

OPTIONS CANCELED(3) - - - - -

OPTIONS OUTSTANDING AT DECEMBER 31, 2007 671,000 1,253,510 663,225 150,000 540,050

Exercise price (euros) 70.79 72.63 97.67 97.67 128,15





On March 26, 2008, the Board of Directors allotted 708,700 stock options to selected Group employees and members of the management,

corresponding to 184 benefi ciaries in total.


DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES5BONUS SHARES GRANTED ON JUNE 15, 2007

Plan No. 243019 – 243020 – 243024 – 243025

Allotment authorized by the shareholders’ meeting of 05/03/2007

Date of allotment by the Board of Directors 06/15/2007

Bonus shares initially granted (total) 143,090

Initial benefi ciaries (total) 2,040

French tax residents 741

Non-French tax residents 1,299

Date of defi nitive allotment

French tax residents 06/15/2009

Non-French tax residents 06/15/2011

Date bonus shares can transfered (all benefi ciaries included) 06/15/2011

BONUS SHARES CANCELED* 1,205

BONUS SHARES DEFINITIVELY ALLOTTED AT DECEMBER 31, 2007* 70

BONUS SHARES OUTSTANDING AT DECEMBER 31, 2007 141,815

* According to the plan rules.

On March 26, 2008, the Board of Directors allotted 52,250 bonus shares to 628 Group employees. These bonus shares are subject to a

two year vesting period followed by a two year holding period for approximately one third of the benefi ciaries, and to a four year vesting

period without any further holding period for the remaining two thirds of the benefi ciaries.

1

2

3

4

5

6

7

8

9

10

F

6 Major shareholders

TEAM MEETINGat the Pasir Gudang cement plant, Malaysia.


MAJOR SHAREHOLDERS6GROUP OF SHAREHOLDERS

AT DECEMBER 31, 2007 2006 2005

Number of

shares held

Number of

votes held

% of

total

issued

shares

% of

total

voting

rights

Number of

shares held

% of

total

issued

shares

% of

total

voting

rights

Number

of shares

held

% of

total

issued

shares

% of

total

voting

rights

Groupe Bruxelles

Lambert 30,968,898 30,968,898 17.9 16.4 28,101,890 15.9 14.8 5,449,180 3.1 2.9

Other institutional

shareholders* 120,740,592 131,547,737 70.0 69.8 127,668,828 72.3 71.7 142,767,999 81.1 80.7

Individual shareholders 20,197,852 25,266,928 11.7 13.4 19,482,164 11.0 12.8 25,983,050 14.8 15.5

Treasury shares 657,233 657,233** 0.4 0.4 1,372,260 0.8 0.7 1,785,074 1.0 0.9

TOTAL 172,564,575 188,440,796 100.0 100.0 176,625,142 100.0 100.0 175,985,303 100.0 100.0

* Including 51,581 Lafarge S.A. shares currently held by Cementia Holding AG for the benefi t of shareholders who have not yet requested the delivery of their Lafarge S.A. shares

following the squeeze-out procedure carried out by Lafarge S.A. in 2002 with respect to the Cementia Holding AG shares.

** Theoretical voting rights; at a General Meeting these shares bear no voting right.

DISTRIBUTION BY TYPE OF SHAREHOLDER

%

Individual shareholders 11.7

Treasury shares 0.4

French institutions 22.5

Non-French institutions 65.4

TOTAL 100.0

The following tables set out, to the best of our knowledge, the principal holders of Lafarge’s share capital at December 31, 2007, their

percentage ownership over the past three years and geographic distribution:

1

2

3

4

5

6

7

8

9

10


MAJOR SHAREHOLDERS

GEOGRAPHICAL DISTRIBUTION

AT DECEMBER 31, 2007 2006 2005

Number of

shares held

% of total

issued shares

Number of

shares held

% of total

issued shares

Number of

shares held

% of total

issued shares

France 60,985,185 35.3 74,412,363 42.1 89,374,877 50.8

United States of America 35,497,376 20.6 29,843,930 16.9 25,092,666 14.3

Belgium 35,976,260 20.9 29,517,372 16.7 7,548,519 4.3

United Kingdom 17,329,794 10.0 18,877,413 10.7 18,343,424 10.4

Rest of the World 22,775,960 13.2 23,974,064 13.6 35,625,817 20.2

TOTAL 172,564,575 100.0 176,625,142 100.0 175,985,303 100.0

Group Bruxelles Lambert provided noti-

fication that it held 34,599,255 shares

and voting rights in Lafarge S.A., as of

February 29, 2008, representing 20.04%

of our share capital and 18.38% of our

voting rights.

At March 17, 2008, no shareholder other

than Groupe Bruxelles Lambert, had notifi ed

us that it holds 5% or more of our voting

rights, either alone or in concert with other

persons.

On January 18, 2008, the General Meeting

approved a capital increase of 22,500,000

shares reserved to NNS Holding Sarl, the

Sawiris family holding in the context of the

Orascom Cement acquisition.

See Section 3.2 (Investments) for more information on the above transaction.

A 10-year shareholder agreement has

been signed with certain members of the

Sawiris family and NNS Holding Sarl. This

agreement contains certain commitments

regarding the shares issued to their benefi t

through the reserved share capital increase.

These consist of (i) a lock-up commitment

of four years followed by a three-year

period for phased disposals; (ii) a stand-still

commitment not more than 8.5% of the

share capital above their current holding for

a four-year period, in any case not to exceed

a total shareholding of 20% of the share

capital or any other higher level that would

come to be held by another shareholder;

(iii) a commitment not to act in concert with

a third party for a 10-year period and (iv) a

commitment by the Company to propose

the appointment of two representatives from

the Sawiris family at the Lafarge Board of

Directors.

Furthermore, based on our knowledge,

14 institutional shareholders held between

1% and 4% of our outstanding shares at

December 31, 2007. Of these institutional

shareholders, 11 held between 1% and 2%

of our shares, two held between 2% and 3%

of our shares and one held between 3% and

4% of our shares.

All of our shares are subject to the same

voting right conditions, except for our

treasury shares, which at General Meetings

bear no voting rights, and our shares held

in registered form for over two years, which

carry double voting rights.

See Section 8.2 (Articles of association (statuts)).

GEOGRAPHICAL DISTRIBUTION

%

France 35.3

United States of America 20.6

United Kingdom 10.0

Belgium 20.9

Rest of the World 13.2

TOTAL 100.0


MAJOR SHAREHOLDERS6

1

2

3

4

5

6

7

8

9

10

F

7 The listing

INSPECTINGthe Selpono gravel pit, Poland.


THE LISTING7

FIVE MOST RECENT FINANCIAL YEARS

0

150

300

450

600

750

900

1050

1200

1350

1500

20072006200520042003

0

20

40

60

80

100

120

140

160

180

200

Average daily volume

(thousands of shares)

Trading price

(euros)

High

Low

0


1,235,0761,175,809

924,038

1,000,583

1,163,456

76.25

43.26

74.50

62.30

81.40

65.75

115.00

73.55

137.20

99.51

1,500

1,350

1,200

1,050

900

Source: Euronext Paris.

Company’s shares are listed on Euronext Paris, under the code ISINFR0000120537, symbol “LG”.

Our shares have been included in the French CAC 40 index since its creation on December 31, 1987, in the SBF 250 index since its

creation in December 1990. The following tables show the volume and high and low closing price of our shares of common stock, as

reported on Euronext Paris SA.

1

2

3

4

5

6

7

8

9

10


THE LISTING

MOST RECENT 6 MONTHS

0

200

400

600

800

1200

1400

1600

1800

2000

Feb-08Jan-08Dec-07Nov-07Oct-07Sept-07

0

30

60

90

120

150

180

210

240

270

300


(thousands of shares)

Trading price

(euros)1,981,471 1,190,191

1,802,136

1,082,1371,156,840

1,638,099

2,000

1,800

1,600

1,400

1,200

1,000

High

Low


115.54

103.66

120.00

106.68

112.80

99.51

127.40

103.41

125.45

102.65

118.30

103.66

Source: Euronext Paris.

Lafarge has vo luntar i ly de l is ted i ts

American Depository Receipts (“ADRs”)

from the New York Stock Exchange on

September 13, 2007. The delisting became

effective at September 24, 2007. The main

reasons for this delisting is the very low level

of Lafarge’s ADR trading volume for the last

fi ve years and the fact that a separate listing

on the New York Stock Exchange was no

longer justifi ed in light of the merge of the

New York Stock Exchange with Euronext,

on which close to 99% of the trading in

Lafarge securities takes place. Since its

delisting on October 8, 2007, the Lafarge

ADR program was maintained and the ADRs

continue to be traded over the counter

(“level one” program). Lafarge was one of

the very fi rst groups to be compliant with

the provisions of the Sarbanes-Oxley Act

regarding internal controls and although

Lafarge is no longer subject to Securities

& Exchange Commission regulations, the

Group committed to maintain high standards

of internal controls and fi nancial information.


THE LISTING7

1

2

3

4

5

6

7

8

9

10

F

8 Additional information

CONSTRUCTION SITEof the Chilanga cement plant, Zambia.

8.1 SHARE CAPITAL 114Changes in the share capital during the fi nancial year ended December 31, 2007 114Potential share capital at December 31, 2007 114Changes in our share capital in the last three fi nancial years 115

8.2 ARTICLES OF ASSOCIATION (STATUTS) 115Corporate purpose (article 2 of our statuts) 115Directors (article 14 of our statuts) 115Rights, preferences and restrictions attached to shares 116

8.3 MATERIAL CONTRACTS 118

8.4 DOCUMENTS ON DISPLAY 119


ADDITIONAL INFORMATION88.1 Share capital

8.1 Share capital

On December 31, 2007, the Company’s share

capital amounted to 690,258,300 euros

divided into 172,564,575 fully paid-up

shares, each with a nominal value of

four euros.

Considering that double voting rights accrue

to shares held in registered form for at least

two years, the total number of voting rights

attached to the shares for the purpose of

computing notifi cation thresholds amounted

to 188,440,796 at December 31, 2007.

Changes in the share capital

during the fi nancial year

ended December 31, 2007

The Company’s share capital at December 31,

2006 amounted to 706,500,568 euros

divided into 176,625,142 shares, each with

a nominal value of four euros.

Since December 31, 2006, the Company’s share capital has been increased by 968,838 shares in total and reduced by 5,029,405 shares

as a result of the following:

Numberof shares issued

Subscription amount (euros)

Capital Share premium Total

Exercise of stock subscription options

during the period from January 1, 2007

to December 31, 2007 968,838 3,875,352.00 72,113,479.36 75,988,831.36

Reduction in share capital (5,029,405) (20,117,620.00) (502,307,072.13) (522,424,692.13)

TOTAL AT DECEMBER 31, 2007 (4,060,567) (16,242,268.00) (430,193,592.77) (446,435,860.77)

Potential share capital

at December 31, 2007

The Company’s share capi ta l as at

December 31, 2007 could be increased

by issuance of a maximum of 6,502,420

new shares as a result of the exercise

of stock options granted to employees. Of

this amount, 3,224,635 can be exercised

at the date of publication of this document.

The remaining 3,277,785 stock options can

be exercised only upon expiry of a period

of four years after their grant.

At December 31, 2007, the Company

had not issued any other type of security

giving any right, directly or indirectly, to the

Company’s share capital.

Our Board of Directors has received from

our General Meeting held on May 3, 2007,

the right to carry out increases in the share

capital through the issue of shares or other

equity securities with or without preemptive

subscription rights for shareholders, through

the capitalization of reserves, through the

issue of employee stock subscription options

or bonus shares and through the issue of

shares reserved for our employees.

As at December 31, 2007, our Board of Directors may carry out the following increases in the share capital pursuant to the delegations

granted to it by our General Meeting held on May 3, 2007:

TYPE OF INCREASE IN THE SHARE CAPITAL

Maximum nominal

amount authorized

Expiration date of

delegations

Maximum nominal

amount left at

December 31, 2007

(euros) (euros)

Issue of shares or other equity securities

with preemptive subscription rights for shareholders 200,000,000* July 3, 2009 200,000,000*

Issue of shares or other equity securities

without preemptive subscription rights for shareholders 135,000,000* July 3, 2009 135,000,000*

Issue of shares or other equity securities in return for contributions in kind 68,000,000* July 3, 2009 68,000,000*

Capitalization of reserves 100,000,000 July 3, 2009 100,000,000

Issue of employee stock subscription options and bonus shares

3% of the share

capital on the date

of grant July 3, 2009 17,979,809**

Issue of shares reserved for our employees 14,000,000 July 3, 2009 14,000,000

* The cap of 200,000,000 euros is a global cap for these three delegations.

** Based on the share capital as of December 31, 2007.

1

2

3

4

5

6

7

8

9

10


ADDITIONAL INFORMATION

As part of the Orascom Cement acquisi-

t ion , our Genera l Meet ing he ld on

January 18, 2008 authorized a share capital

increase of a maximum nominal amount of

90,000,000 euros representing a maximum

of 22,500,000 new shares with a nominal

value of four euros each, with the suppres-

sion of preferential subscription rights of

shareholders in favor of the founding

shareholders of Orascom Construction

Industries S.A.E. This amount is to be

imputed to the 200,000,000 euros global

cap authorized by the General Meeting

held on May 3, 2007, leaving a residual

global cap of 110,000,000 euros as from

January 18, 2008.

See Section 3.2 (Investments) for more information on the Orascom Cement acquisition.

Changes in our share capital in the last three fi nancial years

2007 2006 2005

SHARE CAPITAL AT THE BEGINNING OF THE FINANCIAL YEAR (number of shares) 176,625,142 175,985,303 170,919,078

NUMBER OF SHARES ISSUED DURING THE PERIOD JANUARY 1 TO DECEMBER 31 AS A RESULT OF 968,838 652,047 5,066,225

payment of the dividend in shares - - 3,995,201

exercise of stock subscription options 968,838 652,047 494,899

exercise of stock subscription warrants - - -

increase in share capital reserved for employees - - 576,125

issue of new shares - - -

NUMBER OF SHARES CANCELED DURING THE PERIOD JANUARY 1 TO DECEMBER 31 (5,029,405) (12,208) -

MAXIMUM NUMBER OF SHARES TO BE ISSUED IN THE FUTURE AS A RESULT OF 6,502,420 6,957,586 6,938,951

exercise of stock subscription options 6,502,420 6,957,586 6,938,951

exercise of stock subscription warrants - - -

conversion of bonds - - -

SHARE CAPITAL AT THE END OF THE FINANCIAL YEAR

a- euros 690,258,300 706,500,568 703,941,212

b- number of shares 172,564,575 176,625,142 175,985,303

Corporate purpose

(article 2 of our statuts)

The Company’s purpose as set out in

article 2 of our statuts is:

1. The acquisition and management of all

industrial and fi nancial holdings, inclu-

ding, without limitation:

industries relating to cement and other

hydraulic binders, construction materials

and products or equipment used in

homes;

refractory product industries;

indus t r ia l p lan t eng ineer ing and

construction;

bioindustries and agri-business.

2. Research and provision of services in any

of the above-mentioned fi elds and in any

other fi eld where the skills of the Company

and its subsidiaries may be relevant.

3. All associations or undertakings, all

acquisitions of securities, and all industrial,

commercial, fi nancial, agricultural, real

and movable property transactions

relating directly or indirectly to any of

the above-mentioned purposes or such

as ensure the development of Company

assets.

Directors (article 14

of our statuts)

The Board o f D i rec tors must have

a min imum of three members and

a maximum of 18 members. The Directors

are appointed by shareholders at a General

Meeting, and their term of office is for

4 years. Directors must not be over 70 years

of age and must each hold at least 1,143 of

the Company’s shares. Each Director’s term

of offi ce expires at the end of the ordinary

shareholders’ meeting called to approve the

previous year’s accounts held in the year

during which the Director’s term of offi ce

normally expires or during which the Director

reaches the age limit of 70 years.

8.2 Articles of association (statuts)



ADDITIONAL INFORMATION8The Board of Directors elects a Chairman

from among its members. The Chairman

of the Board must not be over 65 years of

age. The Chairman automatically ceases

to perform his duties on December 31 of

the year in which he reaches the age of 65

unless the Board of Directors decides to

extend the term of offi ce of the Chairman

beyond the above-mentioned age limit for

successive one-year periods provided that

his term of office as Director continues

for such periods. In this case, the term of

offi ce of the Chairman of the Board expires

defi nitively on December 31 of the year in

which he reaches the age of 67.

See Chapter 5 (Directors, Senior Management and Employees) for more information on our Board of Directors.

Transactions between the Company and Directors

Agreements between the Company and

any member of the Board of Directors are

subject to prior approval of the Board unless

these agreements are entered into at arms’

length in the ordinary course of business.

The Director who has an interest in the

agreement to be approved by the Board

cannot take part in the vote of the Board of

Directors. The same applies to agreements

to be entered into between the Company and

the Chief Executive Offi cer, a Chief Operating

Officer, a shareholder holding more than

10% of the voting rights in the Company

or, if such shareholder is a legal entity,

a company controling that shareholder.

Directors’ remuneration

The shareholders can award a fi xed annual

amount as compensation for the members

of the Board of Directors. The Board can

then distribute such amount between

its members as it sees fi ts.

See Section 5.3 (Compensation) for more information on the amount of compen-sation awarded to the Directors by the shareholders.

The Board of Directors can authorize the

reimbursement of traveling expenses and

expenses incurred by Directors in the inter-

ests of Lafarge. The Board may also award

exceptional remuneration to Directors who

are members of Committees formed from

among its members or who are entrusted

with specifi c tasks or duties.

Rights, preferences

and restrictions attached

to shares

Allocation and appropriation of earnings (article 34 of our statuts)

The net results of each fi nancial year after

deduction of overhead and other Company

expenses, including any depreciation and

provisions, constitute the Company’s profi t

or loss for that fi nancial year.

The Company contributes 5% of this profi t,

as reduced by any loss carried forward

from previous years, to a legal reserve

fund; this contribution is no longer required

if the legal reserve fund equals to 10% of

the Company’s issued share capital and

becomes compulsory again if the legal

reserve fund falls below this percentage of

the share capital.

A contribution is also made to other reserve

funds in accordance with French law.

The profits remaining after these contri-

butions constitute the profi ts available for

distribution, as increased by any profit

carried forward from the previous years, out

of which an initial dividend equal to 5% of

the nominal value of shares fully paid-up and

not redeemed is paid to the shareholders.

Such dividends cannot be carried forward

from one year to another.

The profits avai lable for distr ibution

remaining after payment of the initial

dividend can be allocated to optional

reserve funds or carried forward. Any profi ts

remaining are distributed to shareholders as

a super dividend.

The General Meeting of shareholders

may also decide to distribute part of the

Company’s distributable reserves. In such

cases, the decision of the shareholders must

specify expressly from which reserves the

distribution is to be made. In any event, divi-

dends are to be paid fi rst from the fi nancial

year’s distributable profi ts.

If the Company has incurred losses, such

losses are booked, after approval of the

accounts by the shareholders, in a special

balance sheet account and can be carried

forward against profi ts in subsequent years

until extinguished.

Payment of dividends (article 35 of our statuts)

Our statuts provide that the General Meeting

may offer shareholders a choice, with

respect to all or part of any dividend to be

distributed, between payment in cash and

payment in new Company shares pursuant

to applicable law. Shareholders may be

offered the same choice with regard to the

payment of interim dividends.

Unclaimed dividends within fi ve years from

the date of payment are forfeited and must

be paid to the French State, in accordance

with French law.

Loyalty dividend

Any shareholder who, at the end of the

fi nancial year, has held registered shares for

at least two years and still holds them at the

date of payment of the dividend in respect

of that year, is entitled to receive in respect

of such shares a bonus equal to 10% of the

dividend (initial and loyalty dividend) paid to

other shareholders, including any dividend

which is paid in shares. Where applicable,

the increased dividend is rounded down

to the nearest cent. Entitlement to the

increased dividend is lost upon conversion

of the registered shares into bearer form or

upon transfer of the registered shares (this

does not apply to transfers resulting from

inheritance or gifts).

Similarly, any shareholder who, at the end

of the fi scal year, has held registered shares

for at least two years and still holds them

at the date of an issue by way of capitaliza-

tion of reserves, retained earnings or issue

premiums of bonus shares, is entitled to

receive additional shares equal to 10% of

the number distributed, rounded down to

the nearest whole number.

The number of shares giving entitlement to

such increases held by any one shareholder

cannot exceed 0.5% of the total share capital

at the relevant fi scal year-end.


1

2

3

4

5

6

7

8

9

10



In the event of a share dividend or bonus

issue, any additional share ranks pari passu

with the shares previously held by a share-

holder for the purpose of determining any

increased dividend or distribution of bonus

shares. However, in the event of fractions:

where a shareholder opts for payment

of dividends in shares, he can pay

a balancing amount in cash to receive an

additional share provided he meets the

applicable legal requirements;

in the event of a bonus issue, the rights

to any fractions of a share arising from

the increase are not negotiable, but the

corresponding shares can be sold and

the proceeds will be distributed to the

holder of such rights no later than thirty

days after the registration in the share

account of the whole number of shares

allocated to him.

Voting rights (article 30 of our statuts)

Each holder of shares is entitled to one vote

per share at any General Meeting of share-

holders. Voting rights attached to shares can

be exercised by the holder of the usufruct

except where the holder of the usufruct and

the beneficial owner agree otherwise and

jointly notify the Company at least fi ve days

before the date of the meeting (or within any

other time limit as the Board of Directors

sees fi t).

DOUBLE VOTING RIGHTS

Double voting rights are attached to

fully paid-up shares registered for at

least two years in the name of the same

shareholder. In accordance with French

law, entitlement to double voting rights

is lost upon conversion of the registered

shares in bearer form or upon transfer of

the registered shares (this does not apply to

transfers resulting from inheritance or gifts).

Double voting rights were introduced in our

statuts over 60 years ago and are exercis-

able within the limitations set out below.

ADJUSTMENT OF VOTING RIGHTS

There are no restrictions on the number of

voting rights held by each of our shareholders

if those rights do not exceed 5% of the

rights attached to all the shares comprising

the Company’s share capital. Above this

threshold, the number of voting rights is

adjusted on the basis of the percentage

of the capital represented at the General

Meeting rounded off to the next whole

unit. This prevents over representation of a

shareholder when participation at a General

Meeting is low, while ensuring that each of

our shareholders obtains a percentage of

voting rights at least equal to his stake in the

Company’s share capital.

Where applicable, the voting rights held

directly or indirectly by a shareholder are

added to the voting rights belonging to any

third party, with whom such shareholder is

acting in concert, as defi ned by law.

This adjustment mechanism does not apply

when the quorum at the General Meeting is

greater than two-thirds of the total number

of voting rights.

Changes to shareholders’ rights

Shareholders’ rights can only be modifi ed if

a resolution to amend our statuts is passed

at a shareholders’ Extraordinary General

Meeting by a two-thirds majority. Unanimity

is, however, required to increase share-

holders’ obligations. In addition to a vote

at the shareholders’ Extraordinary General

Meeting, elimination of double voting rights

requires ratifi cation by a two-thirds majority

at a special meeting of the shareholders

benefi ting from such rights.

Convocation of and admission to shareholders’ general meetings

CONVOCATION OF GENERAL MEETINGS

(ARTICLES 27 AND 28 OF OUR STATUTS)

General Meetings of shareholders can be

called by the Board of Directors or, failing

which, by the auditors and any other person

legally authorized for such purpose.

The form of notice calling such meeting,

which can be transmitted electronically and

the time limits for sending out this notice are

regulated by law. The notice must specify

the place of the meeting, which can be held

at the registered offi ce or any other place,

and the agenda of the meeting.

ATTENDANCE AND VOTING

AT MEETINGS (ARTICLES 29 AND 30

OF OUR STATUTS)

General Meetings of shareholders may be

attended by all shareholders regardless of

the number of shares they hold, provided

that all calls of capital contributions due or

past due with respect to such shares have

been paid in full.

Access to the meeting is open to such

shareholders, as well as to their proxies and

registered intermediaries who have provided

evidence of their entitlement to attend no

later than midnight (Paris time) three busi-

ness days before the date of the meeting,

including an attestation that their shares

are registered in an account. The blocking

of shares is not necessary to attend General

Meetings. The Board of Directors may, where

appropriate, present shareholders with

personal admission cards bearing the name

of the shareholder and require production of

such cards. However, the Board of Directors

may shorten or eliminate this time limit.

In all General Meetings shareholders are

deemed present for quorum and majority

purposes if participating in the meeting

by videoconference or by a method of

telecommunication that permits them to be

identifi ed. The Board of Directors organizes,

in accordance with applicable laws and

regulations, the participation and voting by

such shareholders at the meeting by creating

a site dedicated exclusively to such purpose,

and verifi es the effi ciency of the methods

adopted to permit shareholder identifi cation

and to guarantee their effective participation

in the meeting.

Shareholders not domiciled in French territory

may be represented by an intermediary

registered in accordance with applicable laws.

Any shareholder may be represented by

proxy (provided that the proxy holder is

himself a shareholder or a spouse, even if

the latter is not a shareholder). Shareholders

may also vote by mail in accordance with the

conditions set out by law.

Shareholders may, pursuant to applicable

law and regulations, submit their proxy or

mail voting forms in respect of any General

Meeting, either in paper form or by a

method of telecommunications, provided

that such method is approved by the Board

of Directors and published in the notices of



ADDITIONAL INFORMATION8 8.3 Material contracts

meeting, no later than 3:00 p.m. (Paris time)

the day before the date of the meeting. The

Board of Directors is authorized to reduce

the time limit for the receipt of such forms.

Any shareholder fulfi ling the required condi-

tions set out above can attend the General

Meeting and take part in the vote, and any

previously submitted correspondence vote or

previously granted proxy is deemed invalid.

QUORUM

In Ordinary and Extraordinary General

Meetings of shareholders, the calculation of

the quorum is based on the total number of

shares with voting rights.

Ordinary General Meetings: the quorum for

Ordinary General Meetings called pursuant

to the fi rst notice of the meeting is only met

if the shareholders present, deemed present

or represented hold 20% of the shares with

voting rights. No quorum is required for

a meeting called pursuant to a second

notice.

Extraordinary Meetings: a quorum for

Extraordinary Meetings is met only if the

shareholders present, deemed present or

represented at a meeting called pursuant

to the fi rst notice hold 25% of the shares

with voting rights, or hold 20% of the shares

with voting rights at a meeting called on

second notice. If the quorum is not met

pursuant to the second notice, the meeting

is to be postponed to a date no later than

two months after the date for which it had

been called.

MAJORITY REQUIRED

Resolutions at an Ordinary General Meeting

of shareholders are passed by a simple

majority of the votes cast by the shareholders

present, deemed present or represented.

Resolutions at an Extraordinary General

Meeting of shareholders are passed by a

two thirds majority of the votes cast by the

shareholders present, deemed present or

represented.

In the event of a capital increase by capitali-

zation of reserves, profi ts or issue premiums,

resolutions are passed in accordance with

the voting requirements for Ordinary General

Meetings of shareholders.

Disclosure of holdings exceeding certain thresholds (article 8 of our statuts)

In addition to the legal requirement to

disclose holdings exceeding certain thresh-

olds, our statuts provide that any person

acting alone or in concert who becomes,

directly or indirectly, the owner of 2% or

more of our share capital must notify the

Company. This notifi cation requirement is

governed by the same provisions that apply

to the legal requirement. The Company must

be notifi ed within the time limits provided

by law by registered mail with return receipt

requested or by fax or telex, of the number

of shares held, indicating whether these are

held directly or indirectly and whether the

shareholder is acting alone or in concert.

The same notifi cation requirement applies

to each subsequent increase or decrease

in ownership of 1% or whole multiples of

1%. The notifi cation must also specify the

date on which the threshold was crossed

(which corresponds to the date on which

the transaction resulting in the crossing of

the threshold took place) and the number of

shares held giving access to share capital.

If a person does not comply with this

notifi cation requirement, the provisions of

the law providing for loss of voting rights

apply. If such sanction is not applied auto-

matically, one or more shareholders holding

1% or more of our share capital or voting

rights may require a shareholders’ General

Meeting to deprive the shares in excess of

the relevant threshold of voting rights for all

General Meetings for two years following the

date on which the owner complies with the

notifi cation requirements. Such sanction is

independent of any legal sanction which may

be issued by a court upon the request of the

Chairman, a shareholder or the Autorité des

marchés fi nanciers (AMF).

The Company may any time request, under

the terms and conditions set forth by appli-

cable law, the entity in charge of settlement

of securities transactions to identify the

holders of securities conferring immediate or

future entitlement to voting rights at General

Meetings and to state the number of securi-

ties held by each holder and any restrictions

on such securities.

8.3 Material contracts

We are a party to a 1,850,000,000 euros

credit facility dated October 29, 2004 and

amended on July 28, 2005 arranged by

the Royal Bank of Scotland plc, Société

Générale, HSBC, Citibank International

plc, London branch and Calyon. This

facility provides a revolving credit line

in the amount of 1,850,000,000 euros,

which may be disbursed in euros or any

other eligible currency. This facility has

an initial maturity of five years from the

date of the amendment and includes two

one-year extension options on the fi rst and

second anniversary date of July 28, 2005,

subject to the banks’ approval. We exercised

the first option to extend the facility by

one year on May 5, 2006, and the second

option on May 14, 2007, which extends the

current term of the facility to July 28, 2012,

for an amount of 1,825,000,000 euros,

25,000,000 euros remaining due on July 28,

2010.

A s a p a r t o f t h e a c q u i s i t i o n o f

Orascom Cement, we are party to a

7,200,000,000 euros credi t fac i l i ty

dated December 9, 2007 arranged by

BNP-Paribas, Calyon and Morgan Stanley

Bank International Ltd. This facility is

structured in several tranches of different

amounts and with maturity dates between

one to five years (1,800,000,000 euros

maturing in one year, 2,300,000,000 euros

in two years and 3,100,000,000 euros in

fi ve years, with one-year extension options

for each of the tranches maturing in one

and two years).

1

2

3

4

5

6

7

8

9

10


8.4 Documents on display


See Section 4.4 (Liquidity and Capital Resources – Net Cash used in Financing Activities) and Note 25 – Debt to our consolidated financial statements for further information.

On November 28, 2007 we entered into a

cooperation agreement with the People’s

government of Yunnan province in China

relating to the further modernization and

restructuring of the building materials

industry in the province. The agreement

focuses on cement, ready-mix concrete,

aggregates and plasterboard. It will involve

the construction of at least an additional

10 million tonnes of new cement capacity by

2010 by our joint venture Lafarge Shui On,

as well as new plants in plasterboard and

ready-mix concrete and aggregates quarries.

Lafarge will assist the Yunnan Government

in accelerating the modernization of the

cement industry, promoting energy-saving

policies, developing the use of waste

as alternative fuel and developing new

quality products in all the product lines

covered by the agreement. This agreement

represents a total investment of approxi-

mately $600 million.

We entered into an agreement for the

construction of six cement plants before

the end of 2010 with the Chinese equiment

supplier CBMI Co., Ltd. (part of Sinoma

Group) on March 5, 2008. This agreement

represents a total investment of over 600

million euros. The plants covered by this

agreement are part of the Group’s program

to build 45 million tonnes of new cement

capacity between 2006 and 2010 in order

to meet growing construction needs in

emerging markets.

8.4 Documents on display

The Statuts of the Company, minutes of

General Meetings as well as reports from the

Board of Directors to the General Meeting,

auditors reports, fi nancial statements of the

Company for the last three fi scal years and

any other document sent to or available for

our shareholders in accordance with the

law, are available for consultation during

the validity period of this report at our

registered offi ce, 61, rue des Belles Feuilles,

75116 Paris.

In addition, historical fi nancial information

and regu la ted in format ion re la t ing

to the Group are ava i lab le on- l ine

at www.lafarge.com.


ADDITIONAL INFORMATION8 8.2 Articles of association (statuts)

1

2

3

4

5

6

7

8

9

10

F

9 Controls and Procedures

CONTROLING INSIDE THE KILNat the Westbury Works cement plant, UK.

9.1 REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS

ON INTERNAL CONTROL PROCEDURES 1221. General organization of internal control 1222. Procedures related to “internal control over fi nancial reporting” 124

9.2 STATUTORY AUDITORS’ REPORT ON THE REPORT OF THE CHAIRMAN

OF THE BOARD OF DIRECTORS ON INTERNAL CONTROL PROCEDURES 126


CONTROLS AND PROCEDURES99.1 Report of the Chairman of the Board of Directors on internal control procedures

9.1 Report of the Chairman of the Board

of Directors on internal control procedures

This report on internal control procedures implemented by the Company was established under the responsibility of the Chairman of the

Board pursuant to the article L. 225-37 of the French Commercial Code.

This report was prepared with support of the Group internal control department and Group audit department.

This report was examined by the Audit Committee in its meeting of February 12, 2008 and approved by the Board of Directors in its meeting

of February 13, 2008.

Given the fact that the activities of the Company are made through subsidiaries, this report covers controled companies included in the

Group consolidation scope.

The information of this report is organized as follows:

general organization of internal control;

internal control procedures related to the preparation of accounting and fi nancial information.

Sections 5.3 (Remuneration and other benefi ts) and 5.4 (Organization of the activities of the Board and Committees) of the Annual Report

are part of this report.

Internal control related to the preparation and treatment of fi nancial and accounting information is denominated bellow “internal control

over fi nancial reporting”.

1. General organization of internal control

Internal control framework chosen by the Group

In conformity with the defi nition of the COSO Report(1), which is the framework chosen by the Group, the internal control process consists

in implementing and permanently adapting appropriate management systems, aiming at giving the administrators and management a

reasonable insurance on the reliability of fi nancial information, on the compliance with laws and internal regulations and the effectiveness

and effi ciency of major Company processes. One of the objectives of internal control is to prevent and monitor risks of errors and frauds.

As all systems of control, because of its inherent limitation, the internal control process cannot guaranty that all risks of errors or frauds are

fully eliminated or controled.

Group internal control environment

The Group internal control environment is based on Group key documents such as Group Principles of Action, principles of organization

and code of business conduct, which have to be strictly applied by Group employees:

The Group Principles of Actions present Group commitments towards customers, employees, shareholders and other Group stakeholders

and defi ne what the “Lafarge Way” is, being management philosophy;

The principles of organization defi ne responsibilities at all levels within the organization (business units, Divisions and Group), the various

components of management cycle as well as the key principles driving performance improvement;

The Code of business conduct defi nes rules applicable in the following areas: compliance with law and regulations, prevention of confl icts

of interest, respect of people and environment, safeguarding of Group assets, fi nancial transparency, importance of internal control,

implementation of behavioral rules and of applicable sanctions.

Those documents are completed by rules and policies established by the Group defi ning orientations for each main Group functions. Such

rules state among other things that implementing a robust internal control process is one of the major responsibilities of the Executive

Committee of each legal or operational entity.

Risk analysis implemented by the Group

The internal control process is based on various risk analysis approaches:

a Group risk mapping implemented in 2007 and presented to the Audit Committee and with major identifi ed risks duly followed up;

strategic reviews performed regularly by the executive committees of operational units, of divisions and of the Group;

(1) COSO : Committee of Sponsoring Organizations of the Treadway Commission.

1

2

3

4

5

6

7

8

9

10


9.1 Report of the Chairman of the Board of Directors on internal control procedures

CONTROLS AND PROCEDURES

a formalized analysis of risks related to fi nancial reporting, safeguard of assets and detection and prevention of frauds, which conducted

to the defi nition of key controls covering such risks. Those key controls compose the Group “Internal Control Standards”;

the annual audit plan prepared by Group internal audit and approved by the Audit Committee, which is based on various approach

aiming at analyzing risks.

Control activities

Control activities are implemented at every level in the Group, in conformity with rules and policies described above. Internal control

activities over major processes impacting the reliability of Group fi nancial information, are documented and tested as described in section 2

below.

Information and communication

The major key documents of the Group are available on Group intranet. Function leaders are responsible for diffusing rules, policies and

procedures applicable Group-wide.

Controls and procedures over key processes impacting Group fi nancial reporting are subject to formal documentation and test procedures

described in section 2 below.

Monitoring of internal control in the Group

Monitoring of internal control is taking place at all levels of the Group. The roles of major stakeholders are described below.

BOARD OF DIRECTORS AND SPECIAL COMMITTEES

The Board of Directors and its special committees, and in particular, the Audit Committee monitor the implementation of Group internal

control policy.

See Sections 5.1 (Board of Directors), 5.3 (Remuneration and other benefi ts) and 5.4 (Organization of the activities of the Board and Committees).

GROUP EXECUTIVE COMMITTEE

The Executive Committee ensures that the internal control policy of the Group is effectively implemented, through:

the monitoring and follow-up of internal control procedures performed throughout the Group, and in particular the follow-up of identifi ed

action plans;

the review of annual synthesis of Group internal audit reports.

GROUP FUNCTIONS AND DIVISIONS

As regards processes impacting the preparation of fi nancial reporting, Group functions managers, with in particular managers of the Group

Finance function, have been designated at Division and Group level, in order to:

document their processes at division and Group level and verify that “Internal Control Standards” over such processes are effectively

implemented;

defi ne and update the standards of internal control applicable to business units.

BUSINESS UNITS

In application of Group internal control policy, internal control is under the direct responsibility of the Executive Committee of business

units.

In each of the major business units of the Group, “Internal Control Coordinators” are in charge of the animation of internal control. Their

role is to continuously improve internal control and consists mainly in supporting the implementation of “Internal Control Standards” of

the Group and to coordinate procedures related to “internal control over fi nancial reporting” in their unit. Their action is coordinated by

the Group inside control department presented below.


CONTROLS AND PROCEDURES9 9.1 Report of the Chairman of the Board of Directors on internal control procedures

GROUP INTERNAL AUDIT

The Group internal audit department (38 auditors) is responsible of performing an independent assessment of the quality of internal control

at all levels in the organization, following the annual audit plan approved by Group Chief Executive Offi cer and Audit Committee.

Reports are issued to business units and to their hierarchy at completion of fi eldwork. An annual synthesis of such reports is presented to

Group CEO and to the Audit Committee, which obtain from Group external auditors their comments on internal control if any.

Furthermore, follow-up missions are organized in order to verify that internal audit recommendations have been put in place.

GROUP INTERNAL CONTROL DEPARTMENT

A Group internal control department (10 persons) was created as part of the Group Finance function in order to sustain all the work

performed in the framework of Sarbanes-Oxley project. This department is in charge of animating internal control and of monitoring all

procedures related to “internal control over fi nancial reporting”.

This department leads the defi nition of “Internal Control Standards” mentioned above. It supports business units and the heads of Group

functions in the implementation of such standards and in the documentation and tests of controls over fi nancial reporting presented in

section 2 below. More generally, its action aims at continuous improvement of processes.

An operational committee gathering the key fi nance managers at Group level, Group audit director and headed by the Group Chief Finance

Offi cer, following the work performed on “internal control over fi nancial reporting”.

2. Procedures related to “internal control over fi nancial reporting”

Key processes with an impact on the reliability of Group fi nancial information

Processes having a direct impact on the production of fi nancial information, for which key controls were defi ned as part of the analysis

presented above, relate to the following areas: fi nance (consolidation process, legal and tax management…), purchases (from bidding

process to recording and payment of invoices), sales (from orders receipt to revenue recognition and collection), IT (security management,

among others), payroll and management of various employee benefi ts, management of tangible and intangible assets, management of

inventories (physical count, valuation…) and treasury and fi nancing activities.

Documentation and tests of “controls over fi nancial reporting”

In 2005 and 2006, in-depth procedures were performed under provision of section 404 of the Sarbanes-Oxley Act to complete an

assessment of “internal control over fi nancial reporting”. Based on these assessments, management reported that internal control over

fi nancial reporting was effective as of December 31, 2005 and as of December 31, 2006.

In 2007, in the context of the voluntary delisting from the NYSE, it was decided to maintain in depth procedures, in order to maintain high

standards of internal control in the Group.

Those procedures are implemented by business units, divisions and at Group level, on key controls contributing to the reliability of fi nancial

information and encompass:

a description of key processes impacting the reliability of Group fi nancial information as presented above;

a detailed description of key controls defi ned in the “Internal Control Standards” presented above;

tests of controls aiming at checking the operational effectiveness of such controls; the scope of such tests being defi ned based on the

materiality and risk level of each entity.

an internal certifi cation process aiming at confi rming management responsibility at business units, Divisions and Group level on the

quality of both internal control and fi nancial information.

Those procedures are part of the process of continuous improvement of internal control and include the preparation of specifi c action

plans, identifi ed through the activities described above, as well as through internal and external audits. The implementation of action plans

is followed up by relevant upper management. The outcomes of such procedures have been presented to the Audit Committee.

1

2

3

4

5

6

7

8

9

10


9.1 Report of the Chairman of the Board of Directors on internal control procedures

CONTROLS AND PROCEDURES

Preparation of published fi nancial information

Specifi c procedures are put in place in order to ensure the reliability of published fi nancial information, as follows:

a consolidation and fi nancial reporting system is used to prepare Group fi nancial reporting;

a formal process of reporting and analysis of other published information included in the Annual Report of the Group (Document de

Référence) is implemented.

This process is monitored by the Disclosure Committee, composed of the main heads of Group functions, which verify the content of the

fi nancial disclosures and reports, before they are submitted to the Audit Committee and to the Board of Directors.

Paris, March 28, 2008

French original signed by

Bruno Lafont

Chairman of the Board of Directors


CONTROLS AND PROCEDURES9 9.2 Statutory auditors’ report on the report of the Chairman of the Board of Directors on internal control procedures

9.2 Statutory auditors’ report on the report of the Chairman

of the Board of Directors on internal control procedures

STATUTORY AUDITORS’ REPORT, PREPARED IN ACCORDANCE WITH ARTICLE L. 225-235 OF FRENCH COMMERCIAL CODE

(CODE DE COMMERCE), ON THE REPORT PREPARED BY THE CHAIRMAN OF THE BOARD OF DIRECTORS OF LAFARGE, S.A.

ON THE INTERNAL CONTROL PROCEDURES RELATING TO THE PREPARATION AND PROCESSING OF FINANCIAL AND

ACCOUNTING INFORMATION

Year ended December 31, 2007

This is a free translation into English of a report issued in French language and is provided solely for the convenience of English-speaking

readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing

standards applicable in France.

To the Shareholders,

In our capacity as Statutory Auditors of Lafarge S.A. (“the Company”), and in accordance with article L. 225-235 of French Commercial Code

(Code de commerce), we report to you on the report prepared by the Chairman of the Board of Directors of your Company in accordance

with article L. 225-37 of French Commercial Code (Code de commerce) for the year ended December 31, 2007.

It is for the Chairman to give an account, in his report, notably of the conditions in which the duties of the Board of Directors’ work are

prepared and organized and of the internal control procedures in place within the Company.

It is our responsibility to report our observations on the information set out in the Chairman’s report on the internal control procedures

relating to the preparation and processing of fi nancial and accounting information.

We performed our procedures in accordance with the relevant professional standard applicable in France. This standard requires us to

perform procedures to assess the fairness of the information set out in the Chairman’s report on the internal control procedures relating to

the preparation and processing of fi nancial and accounting information. These procedures notably consisted in:

obtaining an understanding of the internal control procedures relating to the preparation and processing of fi nancial and accounting

information, on which the information presented in the Chairman’s report is based, as well as reviewing supporting documentation;

obtaining an understanding of the work performed to prepare this information, as well as reviewing supporting documentation;

ensuring that material weaknesses in internal control procedures relating to the preparation and processing of fi nancial and accounting

information detected in the course of our engagement have been properly disclosed in the Chairman’s report.

On the basis of these procedures, we have no matters to report in connection with the information given on the internal control procedures

relating to the preparation and processing of fi nancial and accounting information, contained in the Chairman’s report, prepared in

accordance with article L. 225-37 of French Commercial Code (Code de commerce).

Neuilly-sur-Seine and Paris – La Défense, March 28, 2008

The Statutory Auditors

DELOITTE & ASSOCIÉS


ERNST & YOUNG Audit


Arnaud de Planta Jean-Paul Picard Christian Mouillon Alain Perroux

1

2

3

4

5

6

7

8

9

10

F

10 Auditing Matters

TK PARK LIBRARY,a SYNIA™ and Pregybel realization, Bangkok, Thailand.

10.1 AUDITORS 128Statutory auditors 128Deputy auditors 128

10.2 AUDITORS’ FEES AND SERVICES 129

AUDITING MATTERS10 10.1 Auditors

10.1 Auditors

Statutory auditors

Deputy auditors

PAGE 128 | LAFARGE | ANNUAL REPORT – DOCUMENT DE RÉFÉRENCE | 2007

Deloitte & Associés

185, avenue Charles-de-Gaulle, F 92200 Neuilly-sur-Seine, represented

by Messrs Jean-Paul Picard and Arnaud de Planta.

Date of the fi rst appointment: 1994.

Current appointment expires at the end of the shareholders’ meeting

called to approve the fi nancial statements for fi scal year 2011.

Ernst & Young audit

11, allée de l’Arche, F 92400 Courbevoie, represented by

Messrs Christian Mouillon and Alain Perroux.




BEAS

7-9, villa Houssay, 92200 Neuilly-sur-Seine.




Mr Stéphane Marie

3-5, rue Scheffer, 75016 Paris.




1

2

3

4

5

6

7

8

9

10


10.2 Auditors’ fees and services

AUDITING MATTERS

10.2 Auditors’ fees and services

This table sets out the amount of fees billed for each of the last two fi scal years by each of our auditors, Deloitte & Associés and Ernst &

Young Audit, in relation to audit services, audit-related services, tax and other services provided to us.

DELOITTE & ASSOCIÉS ERNST & YOUNG AUDIT

Amount(Tax exclusive) %

Amount(Tax exclusive) %

(million euros) 2007 2006 2007 2006 2007 2006 2007 2006

AUDIT FEES

Audit, review of fi nancial statements 8.1 11.4 93% 80% 5.7 7.3 80% 96%

Lafarge S.A. 2.2 2.6 25% 18% 1.6 1.7 22% 22%

Subsidiaries 5.9 8.8 68% 62% 4.1 5.6 58% 74%

Audit-related Fees(1) 0.4 2.1 5% 14% 1.2 0.1 17% 1%

Lafarge S.A. 0.1 0.6 1% 4% 0.7 - 10% -

Subsidiaries 0.3 1.5 4% 10% 0.5 0.1 7% 1%

SUB-TOTAL 8.5 13.5 98% 94% 6.9 7.4 97% 97%

OTHER FEES

Tax Fees(2) 0.2 0.8 2% 6% 0.2 0.2 3% 3%

Legal and Employment Fees(3) - - - - - - - -

Information Technology(3) - - - - - - - -

Others - - - - - - - -

SUB-TOTAL OTHER FEES 0.2 0.8 2% 6% 0.2 0.2 3% 3%

TOTAL FEES 8.7 14.3 100% 100% 7.1 7.6 100% 100%

(1) Audit-related fees are generally fees billed for services that are closely related to the performance of the audit or review of fi nancial statements. These include due diligence

services related to acquisitions, consultations concerning fi nancial accounting and reporting standards, attestation services not required by statute or regulation, information

system reviews.

(2) Tax fees are fees for services related to international and domestic tax compliance, including the review of tax returns and tax services regarding statutory, regulatory or

administrative developments and expatriate tax assistance and compliance.

(3) Services prohibited by the U.S regulation.


AUDITING MATTERS10

1

2

3

4

5

6

7

8

9

10

F

Certifi cation

TESTING PRODUCTS AT LCR, Lafarge’s Research center.


CERTIFICATION

We hereby certify that, having taken all reasonable care to ensure that this is the case, the information set out in this Document de

Référence is, to the best of our knowledge, true and accurate and that no information has been omitted that would be likely to impair the

meaning thereof.

We certify that, to the best of our knowledge, the fi nancial statements have been prepared in accordance with applicable accounting

standards and give a true and fair view of the assets and liabilities, and of the fi nancial position and results of the Company and of its

consolidated subsidiaries, and that the management report of the annual fi nancial report defi ned on page 233 provides a true and fair view

of the evolution of the business, results and fi nancial condition of the Company and of its consolidated subsidiaries, and a description of

the main risks and uncertainties the Company and its consolidated subsidiaries are subject to.

We have obtained from our statutory auditors, Deloitte & Associés and Ernst & Young Audit, a letter asserting that they have reviewed

the information regarding the fi nancial condition and the fi nancial statements included in this Document de Référence and that they have

read the whole Document de Référence.

Paris, March 28, 2008


Jean-Jacques Gauthier


Bruno Lafont

Chief Financial Offi cer Chairman and Chief Executive Offi cer

1

2

3

4

5

6

7

8

9

10

11

F

F Financial Statements

CONSTRUCTION OF A GRINDING STATION,Puerto Mortt, Chile.

Consolidated statements 3

STATUTORY AUDITORS’ REPORT 3

CONSOLIDATED STATEMENTS OF INCOME 4

CONSOLIDATED BALANCE SHEETS 5

CONSOLIDATED STATEMENTS OF CASH FLOWS 6

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 8

CONSOLIDATED STATEMENT OF RECOGNIZED INCOME

AND EXPENSE 9

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10

Note 1 - Business description 10

Note 2 - Summary of significant accounting policies 10

Note 3 - Significant events 21

Note 4 - Business Segment and Geographic Area Information 23

Note 5 - Gains on Disposals, net 27

Note 6 - Other operating income (expenses) 28

Note 7 - Finance (costs) income 29

Note 8 - Earnings per share 30

Note 9 - Goodwill 31

Note 10 - Intangible assets 35

Note 11 - Property, plant and equipment 36

Note 12 - Investments in associates 38

Note 13 - Joint ventures 39

Note 14 - Other financial assets 40

Note 15 - Inventories 41

Note 16 - Trade receivables 41

Note 17 - Other receivables 42

Note 18 - Cash and cash equivalents 42

Note 19 - Shareholders’ equity – parent company 43

Note 20 - Share based payments 45

Note 21 - Minority interests 49

Note 22 - Income taxes 50

Note 23 - Pension plans, end of service benefits and other post retirement benefits 54

Note 24 - Provisions 59

Note 25 - Debt 62

Note 26 - Financial instruments 65

F - 2 | LAFARGE | ANNUAL REPORT – DOCUMENT DE RÉFÉRENCE | 2007

FFINANCIAL STATEMENTS

Note 27 - Other payables 72

Note 28 - Commitments and contingencies 73

Note 29 - Legal and arbitration proceedings 75

Note 30 - Related parties 76

Note 31 - Employees costs and Directors’ andExecutive Officers’ compensation for services 76

Note 32 - Emission rights 77

Note 33 - Supplemental cash flow disclosures 78

Note 34 - Subsequent events 78

Note 35 - List of significant subsidiaries at December 31, 2007 79

Lafarge S.A. statutory accounts 82

STATUTORY AUDITORS’ REPORT 82

STATEMENTS OF INCOME 83

BALANCE SHEETS 84

STATEMENTS OF CASH FLOWS 86

NOTES TO THE STATUTORY ACCOUNTS 87

1

2

3

4

5

6

7

8

9

10

11

F 2007 | ANNUAL REPORT – DOCUMENT DE RÉFÉRENCE | LAFARGE | F - 3

CONSOLIDATED STATEMENTS

Statutory auditors’ report

Consolidated statements


Consolidated financial statements - Year ended December 31, 2007

This is a free translation into English of the Statutory Auditors’ report issued in French and is provided solely for the convenience of

English-speaking readers. The Statutory Auditors’ report includes information specifically required by French law in such reports,

whether qualified or not. This information is presented below the opinion on the consolidated financial statements and includes an

explanatory paragraph discussing the Auditors’ assessments of certain significant accounting and auditing matters. These assessments

were made for the purpose of issuing an audit opinion on the consolidated financial statements taken as a whole and not to provide

separate assurance on individual account captions or on information taken outside of the consolidated financial statements. The report

also includes information relating to the specific verification of information in the Group management report.

This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards

applicable in France.


In compliance with the assignment entrusted to us by your Annual General Meeting, we have audited the accompanying consolidated

financial statements of Lafarge for the year ended December 31, 2007.

These consolidated financial statements have been approved by the Board of Directors. Our role is to express an opinion on these financial

statements based on our audit.

I. Opinion on the consolidated financial statements

We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit

includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial

statements presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the assets, liabilities and of the financial position of the Group

as at December 31, 2007 and of the results of its operations for the year then ended in accordance with IFRS as adopted by the EU.

Without qualifying the opinion expressed above, we draw your attention to Note 2 “Summary of significant accounting policies” of the notes

to the consolidated financial statements which sets out changes in accounting method introduced as of January 1, 2007 related to the

adoption of the option offered by the amendment to IAS 19, Employee Benefits, to recognize through equity all actuarial gains and losses

under defined-benefit pension plans.

II. Justification of our assessments

In accordance with the requirements of Article L. 823-9 of the French Commercial Code (Code de commerce) relating to the justification

of our assessments, we bring to your attention the following matter:

Goodwill and intangible assets have been valued in accordance with the Group accounting policies described in Note 2 (l) of the consolidated

financial statements.

Our procedures consisted in reviewing available documents and assessing the reasonableness of retained valuations.

These assessments were made in the context of our audit of the consolidated financial statements taken as a whole, and therefore

contributed to the formation of our audit opinion expressed in the first part of this report.

III. Specific verification

In accordance with professional standards applicable in France, we have also verified the information given in the Group’s management

report. We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements.

Neuilly-sur-Seine and Paris-La Défense, March 28, 2008




ERNST & YOUNG Audit




F Consolidated statements of income


Consolidated statements of income

YEARS ENDED DECEMBER 31,

(million euros, except per share data) Notes 2007 2006 2005*

REVENUE 17,614 16,909 14,490

Cost of sales (12,700) (12,385) (10,585)

Selling and administrative expenses (1,672) (1,752) (1,659)

OPERATING INCOME BEFORE CAPITAL GAINS,

IMPAIRMENT, RESTRUCTURING AND OTHER 3,242 2,772 2,246

Gains on disposals, net (5) 196 28 40

Other operating income (expenses) (6) (149) (122) (105)

OPERATING INCOME 3,289 2,678 2,181

Finance costs (7) (652) (582) (498)

Finance income (7) 126 97 83

Income from associates (12) - 30 31

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX 2,763 2,223 1,797

Income tax (22) (725) (630) (470)

Net income from continuing operations 2,038 1,593 1,327

Net income/(loss) from discontinued operations (3) 118 (4) 97

NET INCOME 2,156 1,589 1,424

Out of which:

Group share 1,909 1,372 1,096

Minority interests 247 217 328

EARNINGS PER SHARE (euros)

NET INCOME – GROUP SHARE

Basic earnings per share 11.05 7.86 6.39

Diluted earnings per share 10.91 7.75 6.34

FROM CONTINUING OPERATIONS

Basic earnings per share (8) 10.37 7.88 5.82

Diluted earnings per share (8) 10.24 7.77 5.79

FROM DISCONTINUED OPERATIONS

Basic earnings per share (3) 0.68 (0.02) 0.57

Diluted earnings per share (3) 0.67 (0.02) 0.55

BASIC AVERAGE NUMBER OF SHARES OUTSTANDING (thousands) (8) 172,718 174,543 171,491

* Figures have been adjusted as mentioned in Note 3(b) following the divestment of the Roofing Division decided in 2006 and finalized in 2007 and are therefore not comparable

with those presented in the 2005 Annual Report.

The accompanying notes are an integral part of these consolidated financial statements.

1

2

3

4

5

6

7

8

9

10

11


Consolidated balance sheets


Consolidated balance sheets

AT DECEMBER 31,

(million euros) Notes 2007 2006* 2005*

ASSETS

NON CURRENT ASSETS 21,490 20,474 20,543

Goodwill (9) 7,471 7,511 6,646

Intangible assets (10) 472 426 355

Property, plant and equipment (11) 11,904 11,183 12,171

Investments in associates (12) 331 253 376

Other financial assets (14) 1,096 830 626

Derivative instruments – assets (26) 5 70 49

Deferred income tax assets (22) 211 201 320

CURRENT ASSETS 6,818 9,367 7,352

Inventories (15) 1,761 1,619 1,857

Trade receivables (16) 2,515 2,674 2,737

Other receivables (17) 1,061 1,126 925

Derivative instruments – assets (26) 52 60 98

Cash and cash equivalents (18) 1,429 1,155 1,735

Assets held for sale (3) - 2,733 -

TOTAL ASSETS (4) 28,308 29,841 27,895

EQUITY & LIABILITIES

Common stock (19) 691 707 704

Additional paid-in capital (19-20) 6,019 6,420 6,316

Treasury shares (55) (72) (98)

Retained earnings 4,411 3,023 2,025

Other reserves (19) 36 31 (37)

Foreign currency translation (104) 205 741

SHAREHOLDERS’ EQUITY – PARENT COMPANY 10,998 10,314 9,651

Minority interests (21) 1,079 1,380 2,533

EQUITY 12,077 11,694 12,184

NON CURRENT LIABILITIES 10,720 11,962 9,852

Deferred income tax liability (22) 695 529 515

Pension & other employee benefits liabilities (23) 724 1,057 1,415

Provisions (24) 928 935 984

Long-term debt (25) 8,347 9,421 6,928

Derivative instruments – liabilities (26) 26 20 10

CURRENT LIABILITIES 5,511 6,185 5,859

Pension & other employee benefits liabilities (23) 79 120 156

Provisions (24) 201 132 123

Trade payables 1,732 1,598 1,675

Other payables (27) 1,553 1,668 1,575

Income tax payable 148 136 165

Short-term debt and current portion of long-term debt (25) 1,762 1,664 2,077

Derivative instruments – liabilities (26) 36 25 88

Liabilities associated with assets held for sale (3) - 842 -

TOTAL EQUITY AND LIABILITIES (4) 28,308 29,841 27,895

* Figures have been adjusted after the application by the Group of the amendment of IAS 19 – Employee Benefits, allowing the recognition through equity of the actuarial gains

and losses under defined-benefit pension plans (see Note 2).



F Consolidated statements of cash flows


Consolidated statements of cash flows


(million euros) Notes 2007 2006 2005*

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

NET INCOME 2,156 1,589 1,424

NET INCOME/(LOSS) FROM DISCONTINUED OPERATIONS 118 (4) 97

NET INCOME FROM CONTINUING OPERATIONS 2,038 1,593 1,327

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 (4) 941 932 849

Impairment losses (6) 13 23 65

Income from associates (12) - (30) (31)

(Gains) on disposals, net (5) (196) (28) (40)

Finance costs (income) (7) 526 485 415

Income taxes (22) 725 630 470

Others, net (238) 90 (50)

Change in operating working capital items, excluding financial expenses

and income taxes (see analysis below) (79) (257) (334)

NET OPERATING CASH GENERATED BY CONTINUING OPERATIONS BEFORE IMPACTS

OF FINANCIAL EXPENSES AND INCOME TAXES 3,730 3,438 2,671

Cash payments for financial expenses (478) (513) (429)

Cash payments for income taxes (550) (543) (491)

NET OPERATING CASH GENERATED BY CONTINUING OPERATIONS 2,702 2,382 1,751

NET OPERATING CASH GENERATED BY (USED IN) DISCONTINUED OPERATIONS (26) 184 135

NET CASH PROVIDED BY OPERATING ACTIVITIES 2,676 2,566 1,886

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

Capital expenditures (4) (2,113) (1,639) (1,313)

Investment in subsidiaries and joint ventures (1) (604) (3,151) (383)

Investment in associates (12) (225) (10) (10)

Investment in available for sale investments (228) (14) (9)

Disposals (2) 2,492 180 143

Net decrease in long-term receivables (10) (15) 19

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES FROM CONTINUING OPERATIONS (688) (4,649) (1,553)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES FROM DISCONTINUED OPERATIONS (15) (198) (131)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (703) (4,847) (1,684)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Proceeds from issuance of common stock 76 48 301

Minority interests' share in capital increase/(decrease) of subsidiaries (23) 148 86

(Increase) decrease in treasury shares (505) 26 4

Dividends paid (19) (521) (447) (408)

Dividends paid by subsidiaries to minority interests (131) (170) (137)

Proceeds from issuance of long-term debt 1,279 3,341 2,100

Repayment of long-term debt (2,239) (2,213) (2,017)

Increase (decrease) in short-term debt 359 1,148 (81)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES FROM CONTINUING OPERATIONS (1,705) 1,881 (152)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES FROM DISCONTINUED OPERATIONS 41 15 (33)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,664) 1,896 (185)

1

2

3

4

5

6

7

8

9

10

11


Consolidated statements of cash flows



(million euros) Notes 2007 2006 2005*

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS 309 (386) 17

Increase in cash and cash equivalents from discontinued operations - 1 -

Net effect of foreign currency translation on cash and cash equivalents (35) (97) 168

Cash and cash equivalents at beginning of year 1,155 1,735 1,550

Reclassification of cash and cash equivalents from discontinued operations - (98) -

CASH AND CASH EQUIVALENTS AT END OF THE YEAR (18) 1,429 1,155 1,735

(1) Net of cash and cash equivalents of companies acquired 10 5 27

(2) Net of cash and cash equivalents of companies disposed of supplemental disclosures 16 4 1

ANALYSIS OF CHANGES IN OPERATING WORKING CAPITAL ITEMS

(Increase)/decrease in inventories (201) (146) (164)

(Increase)/decrease in trade receivables 126 (238) (183)

(Increase)/decrease in other receivables – excluding financial

and income taxes receivables 5 (167) (76)

Increase/(decrease) in trade payables 131 122 82

Increase/(decrease) in other payables – excluding financial

and income taxes payables (140) 172 7

* Figures have been adjusted as mentioned in Note 3 (b) following the divestment of the Roofing Division decided in 2006 and finalized in 2007 and are therefore not comparable

with those presented in the 2005 Annual Report.



F Consolidated statements of changes in equity


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

transla-

tion*

Share-

holders’

equity

– Parent

company

Minority

interests Equity

(number of shares) (million euros)

BALANCE AT JANUARY 1, 2005** 170,919,078 1,834,396 684 6,013 (102) 1,337 (10) (182) 7,740 2,112 9,852

Available for sale investments 42 42 42

Cash flow hedge instruments 16 16 16

Actuarial gains and losses (65) (65) (31) (96)

Deferred taxes and others (20) (20) (20)

Change in translation adjustments 923 923 278 1,201

INCOME AND EXPENSES RECOGNIZED

DIRECTLY IN EQUITY (27) 923 896 247 1,143

Net income 1,096 1,096 328 1,424

TOTAL RECOGNIZED INCOME

AND EXPENSE FOR THE PERIOD 1,096 (27) 923 1,992 575 2,567

Dividends paid (408) (408) (137) (545)

Issuance of common stock

(dividend reinvestment plan) 3,995,201 16 232 248 248


(exercise of stock options) 494,899 2 20 22 22

Employee stock purchase plan 576,125 2 31 33 33

Share based payments 20 20 20

Treasury shares (49,322) 4 4 4

Other movements –

minority interests (17) (17)

BALANCE AT DECEMBER 31, 2005** 175,985,303 1,785,074 704 6,316 (98) 2,025 (37) 741 9,651 2,533 12,184


Cash flow hedge instruments (38) (38) (38)

Actuarial gains and losses 18 18 27 45

Deferred taxes and others 73 (57) 16 16

Change in translation adjustments (536) (536) (146) (682)

INCOME AND EXPENSES RECOGNIZED

DIRECTLY IN EQUITY 73 68 (536) (395) (119) (514)

Net income 1,372 1,372 217 1,589

TOTAL RECOGNIZED INCOME

AND EXPENSE FOR THE PERIOD 1,445 68 (536) 977 98 1,075

Dividends paid (447) (447) (170) (617)




Treasury shares (412,814) 26 26 26

Other movements –

minority interests (see Note 21) (1,081) (1,081)

BALANCE AT DECEMBER 31, 2006** 176,625,142 1,372,260 707 6,420 (72) 3,023 31 205 10,314 1,380 11,694

1

2

3

4

5

6

7

8

9

10

11


Consolidated statement of recognized income and expense


Outstanding

shares

Of which

Treasury

shares

Common

stock

Ad-

ditional

paid-in

capital

Treasury

shares

Retained

earnings

Other

reserves

Foreign

currency

transla-

tion*

Share-

holders’

equity

– Parent

company

Minority

interests Equity

(number of shares) (million euros)

BALANCE AT DECEMBER 31, 2006** 176,625,142 1,372,260 707 6,420 (72) 3,023 31 205 10,314 1,380 11,694

Available for sale investments (29) (29) (29)

Cash flow hedge instruments 12 12 12

Actuarial gains and losses 19 19 (1) 18

Deferred taxes and others 3 3 3

Change in translation adjustments (309) (309) (45) (354)

INCOME AND EXPENSES

RECOGNIZED DIRECTLY IN EQUITY 5 (309) (304) (46) (350)

Net income 1,909 1,909 247 2,156

TOTAL RECOGNIZED INCOME AND

EXPENSE FOR THE PERIOD 1,909 5 (309) 1,605 201 1,806

Dividends paid (521) (521) (159) (680)




Cancellation of shares (5,029,405) (5,029,405) (20) (502) 522

Treasury shares 4,314,378 (505) (505) (505)

Other movements – minority

interests (see Note 21) (343) (343)

BALANCE AT DECEMBER 31, 2007 172,564,575 657,233 691 6,019 (55) 4,411 36 (104) 10,998 1,079 12,077

* Of which 23 million euro as of December 31, 2006 from discontinued operations.

** Figures have been adjusted after the application by the Group of the amendment of IAS 19 – Employee Benefits, allowing the recognition through equity of the actuarial

gains and losses under defined-benefit pension plans (see Note 2).


Consolidated statement of recognized income and expense

DECEMBER 31,


NET INCOME 2,156 1,589 1,424

Available for sale investments (29) 145 42

Cash flow hedge instruments 12 (38) 16

Actuarial gains/(losses) 18 45* (96)*

Deferred taxes and others 3 16 (20)

Change in translation adjustments (354) (682) 1,201

INCOME AND EXPENSE RECOGNIZED DIRECTLY IN EQUITY (350) (514) 1,143

TOTAL RECOGNIZED INCOME AND EXPENSE FOR THE PERIOD 1,806 1,075 2,567

Of which Group share 1,605 977 1,992

Of which Minority interests 201 98 575

* Figures have been adjusted after the application by the Group of the amendment of IAS 19 – Employee Benefits, allowing the recognition through equity of the actuarial gains

and losses under defined-benefit pension plans (see Note 2).



F Note 1 - Business description


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, BP 40, 75782 Paris, France. The Company is

registered under the number “542 105 572 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 Roofing Division was sold

on February 28, 2007. The Group retains a 35% ownership interest

in the new entity (see Note 3 (b)).

The Group’s shares have been traded on the Paris Stock Exchange

since 1923 and are a component of the French CAC-40 market index

(since its creation) and of the SBF 250 index. In September 2007 we

delisted our shares from the New York Stock Exchange in the form

of American Depositary Shares (“ADS”).

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 compa-

nies. The consolidated financial statements are presented in euros

rounded to the nearest million.

These financial statements were authorized for issue by the Board

of Directors on February 13, 2008.

Note 2 - Summary of significant accounting policies

(a) Basis of preparation

In accordance with the European Regulation No. 1606/2002 issued

July 19, 2002, the consolidated financial statements of the Group

for the period presented are prepared in accordance with the

International Financial Reporting Standards (“IFRS”) as endorsed by

the European Union as of December 31, 2007, which do not differ

for the Group with IFRS as published by International Accounting

Standards Board at this date.

The consolidated financial statements have been prepared under

the historical cost convention, except for the following:

derivative financial instruments measured at fair value;

financial instruments at fair value through profit or loss measured

at fair value;

available-for-sale financial assets measured at fair value.

As a first time adopter of IFRS at January 1, 2004, the Group has

followed the specific prescriptions of IFRS 1 which govern the first-

time adoption. The options selected for the purpose of the transition

to IFRS are described in the following notes to the consolidated


The fol lowing IFRS International Accounting Standards

(“IAS”), amendments and International Financial Reporting

Interpretation Committee (“IFRIC”) interpretations have been

adopted by the Group for the period beginning January 1, 2007:

IFRS 7 – Financial Instruments: Disclosures;

Amendments to IAS 1 – Presentation of Financial Statements;

IFRIC 7 – Applying the Restatement Approach under IAS 29

Financial Reporting in Hyperinflationary Economies;

IFRIC 8 – Scope of IFRS 2;

IFRIC 9 – Reassessment of Embedded Derivatives;

IFRIC 10 – Interim Financial Reporting and Impairment;

These new standards issued by IASB effective as of January 1,

2007, have not significantly impacted the Group’s consolidated


On January 1, 2007, the Group adopted the option offered by

the amendment to IAS 19, Employee Benefits, to recognize

through equity all actuarial gains and losses under defined-

benefit pension plans. Previously, the Group applied the corridor

method, under which actuarial gains or losses amounting to

more than 10% of the greater of the future obligation and the

fair value of plan assets were recognized in the income state-

ment over the expected remaining working lives of the employees.

1

2

3

4

5

6

7

8

9

10

11




The table below summarizes the impact on the balance sheet:

DECEMBER 31, 2006 DECEMBER 31, 2005

(million euros)

Published

Balance

sheet

IAS 19

application

impact

Adjusted

Balance

sheet

Published

Balance

sheet

IAS 19

application

impact

Adjusted

Balance

sheet

ASSETS

NON CURRENT ASSETS 20,447 27 20,474 20,543 - 20,543

Of which Goodwill 7,484 27 7,511 6,646 - 6,646

CURRENT ASSETS 9,367 - 9,367 7,352 - 7,352

TOTAL ASSETS 29,814 27 29,841 27,895 - 27,895


Other reserves 120 (89) 31 70 (107) (37)

SHAREHOLDERS’ EQUITY – PARENT COMPANY 10,403 (89) 10,314 9,758 (107) 9,651

Minority interests 1,391 (11) 1,380 2,571 (38) 2,533

EQUITY 11,794 (100) 11,694 12,329 (145) 12,184

NON CURRENT LIABILITIES 11,859 103 11,962 9,707 145 9,852

Of which Deferred income tax liability 577 (48) 529 567 (52) 515

Of which Pension & other employee

benefits liabilities 906 151 1,057 1,218 197 1,415

CURRENT LIABILITIES 6,161 24 6,185 5,859 - 5,859

Of which Liabilities associated with assets held

for sale 818 24 842 - - -

TOTAL EQUITY AND LIABILITIES 29,814 27 29,841 27,895 - 27,895

Under the previous method, amortization of actuarial gains and losses would have been 12 million euros before tax and 8 million euros

after tax at December 31, 2007.

(b) Principles of consolidation

Investments over which the Group exercises control, are fully

consolidated. Control exists when the Group has the power directly

or indirectly, to govern the financial and operating policies of an

enterprise so as to obtain benefits from its activities.

Investments in companies in which the Group and third party

investors have agreed to exercise joint control are consolidated by

the proportionate consolidation method with the Group’s share of the

joint ventures’ results of operations, assets and liabilities recorded in

the consolidated financial statements.

Investments over which the Group exercises significant influence,

but not control, are accounted for under the equity method. Such

investees are referred to as “associates” throughout these consoli-

dated financial statements.

Significant influence is presumed to exist when the Group holds at

least 20% of the voting power of associates. Associates are initially

recognized at cost. The consolidated financial statements include

the Group’s share of the income and expenses after adjustments to

align the accounting policies with those of the Group, from the date

of significant influence commences until the date that significant

influence ceases. When the Group’s share of losses exceeds its

interest in an equity accounted invester, the carrying amount of that

interest (including any long-term investments) is reduced to nil and

the recognition of further losses is discontinued except to the extent

that the Group has an obligation or has made payments on behalf

of the invester.

All intercompany balances and transactions have been eliminated

in consolidation. With respect to proportionately consolidated

companies, intercompany transactions are eliminated on the basis

of the Group’s interest in the entity involved.

Transactions with minority interests follow the same accounting

policies as those with external parties.


F Note 2 - Summary of significant accounting policies


(c) Use of estimates and judgments

The preparation of financial statements in conformity with IFRS

recognition and measurement principles requires the use of estimates

and assumptions that affect the reported amounts of assets and

liabilities and of revenues and expenses. Management reviews its

estimates on an ongoing basis using currently available information.

Changes in facts and circumstances may result in revised estimates,

and actual results could differ from the estimates.

Significant estimates made by management in the preparation

of these financial statements include assumptions used for

depreciation, pension liabilities, deferred taxes, valuation estimates

for long-lived assets and other investments.

The accounting for certain provisions, certain financial instruments

and the disclosure of contingent assets and liabilities at the date

of the consolidated financial statements is judgmental. The factors

subject to judgment are detailed in the corresponding disclosures.

(d) Translation of financial statements

denominated in foreign currencies

1) Foreign currency transactions

Transactions in foreign currencies are initially recorded in the

functional currency by applying the exchange rate between the

functional currency and the foreign currency at the date of the

transaction. At each balance sheet date, monetary assets and

liabilities denominated in foreign currencies recorded at historical

cost are retranslated at the functional currency closing rate whereas

monetary assets and liabilities measured at fair value are translated

using the exchange rates at the dates when the fair value was

determined. Non monetary that are measured in terms of historical

cost in a foreign currency are translated using the exchange rates at

the dates of the initial transactions. Non monetary items measured

at fair value in a foreign currency are translated using the exchange

rates at the date when the fair value was determined. All differences

are taken to profit and loss with the exception of differences on

foreign currency borrowings that provide a hedge against a net

investment in a foreign entity. These are taken directly to equity, until

the disposal of the net investment.

2) Foreign operation

As at reporting date, the assets and liabilities including goodwill and

any fair value adjustments arising on the acquisition of a foreign

operation whose functional currency is not euro are translated by

using the closing rate.

Income and expenses of a foreign entity whose functional currency

is not the currency of a hyperinflationary economy is translated by

using the average currency rate for the period except if exchange

rates fluctuate significantly.

The exchange differences arising on the translation are taken directly

to a separate component of equity. On the disposal of a foreign entity,

the deferred cumulative amount recognized in equity relating to that

particular foreign operation is recognized in the income statement.

The Group, as permitted by IFRS 1, elected to “reset to zero”

previous cumulative translation differences arising from the transla-

tion into euros of foreign subsidiaries’ financial statements denomi-

nated in foreign currencies. Translation adjustments which predate

the transition to IFRS will therefore not be included when calculating

gains or losses arising from the future disposal of consolidated

subsidiaries, joint ventures or associates.

For companies that operate in countries which have been designated

as hyperinflationary, balance sheet amounts not already expressed

in terms of the measuring unit current at the balance sheet date are

restated by applying a general price index. Revenues and expenses

in local currency are also restated on a monthly basis. Differences

between original values and reassessed values are included in

income.

In defining hyperinflation, the Group employs criteria which

include characteristics of the economic environment, such as

inflation and foreign currency exchange rate fluctuations.

1

2

3

4

5

6

7

8

9

10

11




The schedule below presents foreign exchange rates for the main currencies used within the Group:

RATES

2007 2006 2005

(euro) Average rate Year-end rate Average rate Year-end rate Average rate Year-end rate

Brazilian real (BRL) 0.3750 0.3817 0.3659 0.3551 0.3288 0.3621

Canadian dollar (CAD) 0.6808 0.6921 0.7021 0.6544 0.6624 0.7286

Chilean peso (CLP) 0.0014 0.0014 0.0015 0.0014 0.0014 0.0016

Chinese yuan (CNY) 0.0960 0.0930 0.0999 0.0973 0.0980 0.1050

Egyptian pound (EGP) 0.1293 0.1232 0.1388 0.1330 0.1388 0.1477

British pound (GBP) 1.4608 1.3636 1.4667 1.4892 1.4622 1.4592

Moroccan dirham (MAD) 0.0889 0.0878 0.0903 0.0895 0.0905 0.0914

Malaysian ringgit (MYR) 0.2124 0.2054 0.2172 0.2151 0.2121 0.2243

Nigerian naira (NGN) 0.0059 0.0058 0.0063 0.0060 0.0060 0.0065

Philippine peso (PHP) 0.0159 0.0165 0.0155 0.0155 0.0146 0.0159

Polish zloty (PLN) 0.2643 0.2783 0.2567 0.2610 0.2486 0.2591

U.S. dollar (USD) 0.7296 0.6793 0.7964 0.7593 0.8034 0.8477

Venezuelan bolivar (VEB) 0.0003 0.0003 0.0004 0.0004 0.0004 0.0004

South African rand (ZAR) 0.1035 0.0997 0.1173 0.1085 0.1263 0.1340

(e) Business combinations, related goodwill

and intangible assets

1) Business combinations

BUSINESS COMBINATIONS AFTER JANUARY 1, 2004

Business combinations entered into after January 1, 2004 are

accounted for in accordance with the purchase method. Once control

is obtained over a company, its assets and liabilities and contingent

liabilities are recognized in accordance with the rules set forth in

IFRS 3. The cost of acquisition is measured as the aggregate of:

the fair values, at the date of exchange, of assets given, liabilities

incurred or assumed, and equity instruments issued by the Group in

exchange for control of the acquiree, any costs directly attributable

to the business combination. The acquiree’s identifiable assets,

liabilities and contingent liabilities that meet the conditions for

recognition under IFRS 3 are recognized at their fair values at the

acquisition date, except for non-current assets (or disposal groups)

that are classified as held for sale in accordance with IFRS 5.

Non-current assets held for sale are recognized and measured at fair

value less costs to sell. Any excess of the cost of acquisition over the

Group’s share in the fair value of all identified assets and liabilities

is recognized as goodwill.

If the acquirer’s interest in the net fair value of the acquiree is an

excess, a gain is recognized immediately.

When the Group initially acquires a controling interest in a business,

any portion of the assets and liabilities retained by minority

shareholders is also recorded at its fair value.

STEP UP ACQUISITIONS

For the time being, in the absence of specific rules, the Group has

elected to adopt the following accounting treatment:

if the Group subsequently acquires an interest in the assets and

liabilities from minority shareholders, no additional fair value

adjustment is recorded at that time;

the difference between the purchase price and the carrying

value of proportional interest in assets and liabilities acquired is

recorded as goodwill.

When goodwill is determined provisionally by the end of the period

in which the combination is effected, the Group recognizes any

adjustments to those provisional values within twelve months of the

acquisition date. Comparative information presented for the periods

before the initial accounting of fair values is complete is presented

as if the initial accounting had been completed from the acquisition

date, if the adjustments to provisional values would have materially

affected the presentation of the consolidated financial statements.

SPECIFIC TREATMENT RELATED TO FIRST-TIME

ADOPTION OF IFRS

As permitted by IFRS 1, the Group has not restated the busi-

ness combinations, which predate the transition date (January 1,

2004).

Prior to the transition date, the Group has applied the purchase

method according to French GAAP to all of its business combinations

since January 1, 1989. The principal difference relate to acquired

goodwill, which was amortized over the expected period of benefit,

not to exceed 40 years; goodwill is not amortized under IFRS.




2) Goodwill

As required by IFRS 3, “Business Combinations”, and IAS 36,

“Impairment of Assets”, subsequent to January 1, 2004, goodwill

is no longer amortized but is tested for impairment at least annually

(refer to Note 2 (l) 1) Impairment of long-lived assets – goodwill).

3) Indefinite life intangible assets recorded during a business combination

Under French GAAP, before January 1, 2004, non-amortizable

intangible assets acquired in a business combination, such as

market share, have been recognized through the purchase price

allocation. These assets are not considered as a separately identifi-

able intangible asset under IAS 38, “Intangible Assets” (such as

market share), but as a component of goodwill. They have been

reclassified to goodwill at their carrying value as at January 1, 2004.

(f) Revenue recognition

Consolidated revenues represent the value, before sales tax, of

goods, products and services sold by consolidated enterprises as

part of their ordinary activities, after elimination of intra-Group sales.

Revenues from the sale of goods and products are recorded when

the Group has transferred the significant risks and rewards of

ownership of the goods to the buyer (generally at the date ownership

is transferred).

Revenue is measured at the fair value of the consideration received

or receivable, taking into account the amount of any trade discounts

and volume rebates allowed by the entity.

Amounts billed to a customer in a sales transaction related to ship-

ping and handling are included in “Revenue”, and costs incurred for

shipping and handling are classified as “Cost of sales”.

(g) Operating income before capital gains,

impairment, restructuring and other

The Group has included the subtotal “Operating income before

capital gains, impairment, restructuring and other” on the face

of the consolidated statement of income. This measure excludes

those elements of our operating results 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 “Operating income before capital

gains, impairment, restructuring and other” 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, operating income before capital gains, impairment,

restructuring and other 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 average of 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 compa-

rable 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.

(h) Finance costs and income

Finance costs and income include:

interest charges and income relating to debenture loans the

liability component of compound instruments, other borrowings

including lease-financing liabilities, and cash and cash equivalents;

other expenses paid to financial institutions for financing operations;

dividends received from non-consolidated investments;

impact of discounting provisions (except employee benefits);

financial exchange gains and losses;

gains and losses associated with certain derivative

instruments; and

change in value of trading investments.

(i) Earnings per share

Basic earnings per share are computed by dividing income available

to shareholders of the parent company by the weighted average

number of common shares outstanding during the year.

Diluted earnings per share is computed by dividing adjusted net

income available to shareholders of the parent company by the

weighted average number of common shares outstanding during

the year adjusted to include any dilutive potential common shares.

Potential dilutive common shares result from stock options and

convertible bonds issued by the Group on its own common shares.

1

2

3

4

5

6

7

8

9

10

11




(j) Intangible assets

In accordance with criteria set in IAS 38, “Intangible Assets”,

intangible assets are recognized only if:

identifiable;

controled by the entity;

it is probable that the expected future economic benefits that are

attributable to the asset will flow to the Group and the cost of the

asset can be measured reliably.

Intangible assets primarily include depreciable items such as

software, mineral rights, and real estate development rights.

Intangible assets are amortized using the straight-line method over

their useful lives ranging from three to five years, except for mineral

rights, which are amortized based upon tonnes extracted, and real

estate development rights, which are amortized over the estimated

life of the development program.

Depreciated expense is recorded in “Cost of sale” and “Setting and

administrative expenses”, based on the function of the underlying

assets.

Research & Development costs

According to IAS 38, “Intangible assets”, development expenditure

is capitalized only if the entity can demonstrate:

the technical feasability of completing the intangible asset so that

it will be available for use or sale;

its intention to complete the intangible asset and use or sell it;

its ability to use or sell the intangible asset;

how the intangible asset will generate probable future economic

benefits;

the availability of adequate technical, financial and other resources

to complete the development;

its capacity to measure reliably the expenditure attributable to the

intangible assets during its development.

The Group is committed to improving its manufacturing process,

maintaining product quality and meeting existing and future

customer needs. These objectives are pursued through various

programs. In our businesses, expenses incurred are considered as

research costs to the extent that the above mentioned criteria are

not met.

Intangible assets considered to have finite useful life are carried

at their costs less accumulated amortization and accumulated

impairment losses.

(k) Property, plant and equipment

Property, plant and equipment are measured at cost less accumu-

lated depreciation and accumulated impairment losses.

In accordance with IFRIC 4, “Determining whether an arrangement

contains a lease”, the arrangements with transactions that convey a

right to use the asset or fulfillment of the arrangement is dependent

on the use of a specific asset are analyzed in order to assess whether

such arrangements contain a lease and whether the prescriptions of

IAS 17 have to be applied.

In accordance with IAS 17, “Lease Contracts”, the Group capitalizes

assets financed through capital leases where the lease arrangement

transfers to the Group substantially all of the benefits and risks of

ownership. Lease arrangements are evaluated based upon the

following criteria:

the lease term in relation to the assets’ useful lives;

the total future payments in relation to the fair value of the

financed assets;

existence of transfer of ownership;

existence of a favorable purchase option; and

specificity of the leased asset.

Upon initial recognition the leased asset is measured at an amount

equal to the lower of its fair value and the present value of the

minimum lease payments. Subsequent to initial recognition, the

asset is accounted for in accordance with the accounting policy

applicable to that asset.

Other leases are operating leases and they are not recognized on

the Group’s balance sheet.

Interest on borrowings related to the financing of significant construc-

tion projects which is incurred during development activities is

capitalized in project costs.

Investment subsidies are deducted from the cost of the property,

plant and equipment.

Depreciation on property, plant and equipment is calculated as

follows:

land is not depreciated;

mineral reserves consisting of proven and probable reserves are

depleted using the units-of-production method;

buildings are depreciated using the straight-line method over

estimated useful lives varying from 20 years to 50 years for office

properties;

plant, machinery, equipment and installation costs are depreciated

using the straight-line method over their estimated useful lives,

ranging from 8 to 30 years.

The residual values are reviewed, and adjusted if appropriate, at

each balance sheet date.




The historical cost of assets is classified into specific cost catego-

ries based upon their distinct characteristics. Each cost category

represents a component with a specific useful live. Useful lives

are reviewed on a regular basis and changes in estimates, when

relevant, are accounted for on a prospective basis.

The cost of replacing part of an item of property, plant and equip-

ment is recognized in the carrying amount of the item if it is probable

that the future economic benefits embodied within the part will flow

to the Group and its cost can be measured reliably. The costs of the

day-to-day servicing of property, plant and equipment are recognized

in profit or loss as incurred.

Depreciation expense is recorded in “Cost of sales” and “Selling and

administrative expenses”, based on the function of the underlying

assets.

(l) Impairment of long-lived assets

1) Goodwill

In accordance with IAS 36, “Impairment of Assets”, the net book

value of goodwill is tested for impairment at least annually. This

test, whose purpose is to take into consideration events or changes

that could have affected the recoverable amount of these assets,

is performed, during the second half of the year. The recoverable

amount is defined as the higher of the fair value less costs to sell

and the value in use.

Our three Divisions are considered to be our three reporting/

operating segments, each comprised of multiple CGU’s. For

the purposes of the goodwill impairment test, the Group’s net

assets are allocated to Cash Generating Units (“CGUs”). CGUs

generally represent one of our three Divisions in a particular country.

A CGU is the smallest identifiable group of assets generating cash

inflows independently and represents the level used by the Group to

organize and present its activities and results in its internal reporting.

In its goodwill impairment test, the Group uses a combination of

a market approach (fair value less costs to sell) and an income

approach (value in use). In the market approach, we compare the

carrying value of our CGUs with multiples of their operating income

before capital gains, impairment, restructuring, other and before

amortization and depreciation. For CGUs presenting an impairment

risk according to the market approach, we then use the value in use

approach. In the value in use approach, we estimate the discounted

value of the sum of the expected future cash flows over a 10-year

period. This period reflects the characteristics of our activities where

operating assets have a long lifespan and where products evolve

slowly. If the carrying value of the CGU exceeds the higher of the

fair value (less costs to sell) or the value in use of the related assets

and liabilities, the Group records an impairment of goodwill (in “other

operating expenses”).

Evaluations for impairment are significantly impacted by estimates of

future prices for our products, the evolution of expenses, economic

trends in the local and international construction sector, expectations

of long-term development of growing markets and other factors. The

results of these evaluations are also impacted the discount rates and

perpetual growth rates used. The Group has defined country specific

discount rates for each of its CGUs based on their weighted-average

cost of capital.

According to IAS 36, impairment charges recognized for goodwill

are never reversed.

2) Property, plant & equipment and depreciable intangible assets

Whenever events or changes in circumstances indicate that the

carrying amount of tangible and intangible assets may not be

recoverable, an impairment test is performed. The purpose of this

test is to compare the carrying value of the asset with its recoverable

value. Recoverable amount is determined for an individual asset,

unless the asset does not generate cash inflows that are largely

independent of those from other assets or groups of assets. In that

case, recoverable amount is determined for the cash-generating unit

to which the asset belongs.

An asset’s recoverable amount is the higher of an asset’s fair value

less costs to sell and its value in use which is the present value of the

future cash flows expected to be derived from the use of the asset

or its disposal. Where the carrying amount of an asset exceeds its

recoverable amount, an impairment loss is recognized in the caption

“Other operating income and expenses”.

When an impairment loss is recognized for a cash-generating

unit, the loss is allocated first to reduce the carrying amount of the

goodwill to the cash-generating unit; and, then, to the other assets

of the unit pro rata on the basis of the carrying amount of each asset

in the unit.

After the impairment loss, the newly assessed asset is depreciated

over the remaining life of the asset.

Non-financial assets other than goodwill that suffered impairment

are reviewed for possible reversal of the impairment at each year-end

closing. The increase of the carrying value of the assets, revised due

to the increase of the recoverable value, cannot exceed the carrying

amount that would have been determined had no impairment loss

been recognized for the asset in prior periods. Such reversal is

recognized in the income statement.

(m) Other financial assets

Other financial assets consist of shares held in equity securities,

shares in listed companies treated as long-term equity investments,

long-term receivables or deposits and cash balances that are

restricted from use.

The Group classifies financial assets in four categories: trading

(assets that are bought and held principally for the purpose of

selling them in the near term), held-to-maturity (assets with fixed

or determinable payments and fixed maturity that the Group has a

positive intent and ability to hold to maturity), loans and receivables

(assets with fixed or determinable payments that are not quoted

in an active market) and available-for-sale (all other assets). The

1

2

3

4

5

6

7

8

9

10

11




classification depends on the purpose for which the financial

assets were acquired. The classification is determined at initial

recognition.

Most marketable debt and equity securities held by the Group

are classified as available for sale. They are reported at their fair

value (quoted price when available). If the market for a financial

asset is not active, the Group establishes fair value by using

valuation techniques. These include the use of recent arm’s length

transactions, reference to other instruments that are substantially the

same, discounted cash flow analysis. Gains and losses arising from

changes in their fair value are recognized directly in equity, until the

security is disposed of or is determined to be impaired, at which time

the cumulative gain or loss previously recognized in equity (“Others

Reserves”) is included in the profit or loss for the period (Finance

income/costs). Objective evidence that an available for sale financial

asset is impaired includes, among other things, a decrease in the

estimated future cash flows arising from these assets, as a result

of significant financial difficulty of the issuer, a material decrease

in expected future profitability or a prolonged decrease in the fair

value of the security.

An impairment loss is recognized if an asset is impaired.

Impairment losses recognized in profit or loss for equity instruments

classified as available for sale are never reversed through profit or loss.

Available for sale financial assets are included in non-current asset

unless management intends to dispose the investment within

12 months of the balance sheet date.

Loans and receivables accounted for at amortized cost are measured

in accordance with the effective interest rate method. They are

reviewed for impairment on an individual basis if there is any

indication they may be impaired.

Financial assets that are designated as held-to-maturity are

measured at amortized cost, in accordance with the effective

interest rate method.

Trading investments are measured at fair value with gains and losses

recorded as financial profits or expenses. Assets in this category are

classified as current assets.

All financial assets are reviewed for impairment on an annual basis

to assess if there is any indication that the asset may be impaired.

Purchases and sales of all financial assets are accounted for at

trade date.

(n) Derecognition of financial assets

Under IAS 39, “Financial Instruments: Recognition and Measurement”,

financial assets can only be derecognized when no further cash flow

is expected to flow to the Group from the asset and if substantially all

risks and rewards attached to the assets have been transferred.

For trade receivables, programs for selling receivables with recourse

against the seller in case of recovery failure (either in the form of a

subordinated retained interest or a direct recourse) do not qualify

for derecognition.

(o) Inventories

Inventories are stated at the lower of cost and net realizable

value. Cost is determined using the weighted-average method

and includes expenditure incurred in acquiring the inventories,

production or conversion costs. In the case of manufactured

inventories and work in progress, cost includes an appropriate share

of production overheads based on normal operating capacity.

Net realizable value is the estimated selling price in the ordinary

course of business, less the estimated costs of completion and

selling expenses.

(p) Trade receivables

Trade receivables are initially measured at fair value, and subse-

quently carried at amortized cost using the effective interest method

less provision for impairment.

A provision for trade receivables and others is established when

there is objective evidence that the Group will not be able to collect

all amounts due according to the original terms of the receivables.

The amount of the provision is the difference between the asset’s

carrying amount and the present value of estimated future cash flow,

discounted at the original effective interest rate. Impairment loss is

recognized in the income statement.

(q) Cash and cash equivalents

Cash and cash equivalents consist of cash, highly liquid investments

and cash equivalents which are not subject to significant changes in

value and with an original maturity date of generally less than three

months from the time of purchase.

Cash balances that are restricted from use (restrictions other than

those linked to exchange controls or other legal restrictions in force

in some countries) by the Group are excluded from cash and cash

equivalents presented in the balance-sheet and in the Cash flow

statement and are classified in non-current assets on the line “Other

financial assets” in the consolidated balance sheets.

(r) Equity

1) Ordinary shares

Incremental costs directly attributable to the issue of ordinary shares

and share options are recognized as a deduction from equity, net

of any tax effects.

2) Treasury shares

Treasury shares (own equity instruments held by Lafarge S.A. or

subsidiaries) are accounted for as a reduction of shareholders’

equity at acquisition cost and no further recognition is made for

changes in fair value. When treasury shares are resold, any differ-

ence between the cost and fair value is recognized directly in

shareholders’ equity.




(s) Financial liabilities and derivative

instruments

1) Recognition and measurement of financial liabilities

Financial liabilities and long-term loans are measured at amortized

cost calculated based on the effective interest rate method.

Accrued interests on loans are presented within “Other payables”

in the balance sheet.

Financial liabilities hedged by an interest rate swap that qualifies for

fair value hedge accounting are measured in the balance sheet at

fair value for the part attributable to the hedged risk (risk related to

changes in interest rates). The changes in fair value are recognized

in earnings for the period of change and are offset by the portion of

the loss or gain recognized on the hedging item that relates to the

effective portion.

2) Compound instruments

Under IAS 32, “Financial Instruments: Presentation”, if a financial

instrument contains components with characteristics of both liability

and equity items, we classify the component parts separately

according to the definitions of the various items. This includes

financial instruments that create a debt and grant an option to

the holder to convert the debt into equity instruments (e.g. bonds

convertible into common shares).

The component classified as a financial liability is valued at issuance

at the present value (taking into account the credit risk at issuance

date) of the future cash flows (including interest and repayment

of the nominal value) of a bond with the same characteristics

(maturity, cash flows) but without any shareholders’ equity derivative

component as defined in IAS 32.

The equity component is assigned the residual carrying amount after

deducting from the instrument as a whole the amount separately

determined for the liability component.

3) Derivative instruments and hedge relationships

The Group enters into financial derivative contracts only in order to

reduce its exposure to changes in interest rates, foreign currency

exchange rates and commodities prices on firm or highly probable

commitments.

Forward exchange contracts and foreign currency swaps are used

to hedge foreign currency exchange rate exposures.

The Group enters into various interest rate swaps and options

to manage its interest rate exposure.

The Group uses derivatives such as swaps and options in order to

manage its exposure to commodity risks.

Pursuant to the guidance in IAS 39 and IAS 32, the Group records in

its financial statements financial instruments which meet the criteria

for recognition as derivatives. Derivative instruments are marked to

market and recorded on the balance sheet at their fair value. The

accounting for changes in fair value of a derivative depends on the

intended use of the derivative and the resulting designation. The

Group designates its derivatives based on the criteria established

by IAS 39.

In case of a fair value hedge relationship, changes in fair value

on the hedging item are recognized in earnings of the period of

change. The part corresponding to the efficient portion of the

hedge is offset by the loss or gain recognized on the hedged item.

In case of a cash flow hedge relationship, changes in fair value

on the hedging item that is determined to be an effective hedge

are initially recognized directly in equity. The ineffective portion of

the gain or loss is recognized in earnings immediately under the

captions finance income. The gain or loss recognized in equity

is subsequently reclassified to profit and loss when the hedged

exposure affects earnings.

Embedded derivatives not closely related to host contracts are

recorded at fair value in the balance sheet. For embedded deriva-

tives, the gain or loss is recognized in earnings in the period of the

change in fair value.

4) Put options on shares of subsidiaries

Pursuant to IAS 27 and IAS 32, put options granted to minority

interests of consolidated subsidiaries are considered financial debt.

The Group records the put options granted to minority interests

as a financial debt at its fair value and as a reduction in minority

interests in equity. When the fair value of the put options exceeds

the carrying amount of the minority interest, the Group records this

difference as goodwill.

The value of the debt is estimated using the contract formulas or

prices. When utilizing formulas based upon multiples of earnings

minus debt, we use the actual earnings of the period and the debt

of the subsidiary at the closing date of the estimation. The change in

the value of the instrument is recorded against the goodwill initially

recorded on these instruments.

There is no impact on the consolidated statements of income.

(t) Pensions, end of service benefits

and other post-retirement benefits

1) Defined contribution plans

The Group accounts for pension costs related to defined contribution

pension plans as they are incurred (in “cost of sales” or “selling and

administrative expenses” based on the beneficiaries of the plan).

2) Defined benefit plans

Estimates of the Group’s pension and end of service benefit

obligations are calculated annually, in accordance with the provisions

of IAS 19, “Employee Benefits”, with the assistance of independent

actuaries, using the projected unit credit method. This method

1

2

3

4

5

6

7

8

9

10

11




considers best estimate actuarial assumptions including, the

probable future length of the employees’ service, the employees’

final pay, the expected average life span and probable turn-over of

beneficiaries.

The Group’s obligations are discounted by country based upon

discount rates appropriate in the circumstances. The obligations

are recognized based upon the proportion of benefits earned by

employees as services are rendered.

Assets held by external entities to fund future benefit payments are

valued at fair value at closing date.

For most defined benefit plans, changes in actuarial assumptions

which affect the value of the obligations and the differences between

expected and actual long-term return on plan assets are accounted

for as actuarial gains and losses.

The current period pension expense is comprised of the increase

in the obligation, which results from the additional benefits earned

by employees in the period, and the interest expense, which results

from the outstanding pension obligation. The amounts described

above are reduced by the expected return on plan assets.

The current period pension expense are recorded in “cost of sales”

or “selling and administrative expenses” based on the beneficiaries

of the plan.

Actuarial gains and losses arising from experience adjustments and

changes in actuarial assumptions are charged or credited to equity

in the SORIE in the period in which they arise, the Group applying

the option offered by the amendment to IAS19.

Pension plans amendments are, in general, recognized in profit

and loss:

in the year of the amendment for the part related to vested

benefits;

over the remaining service life of related employees for the portion

related to non-vested benefits.

In the event of overfunding of a plan’s liabilities by its dedicated

assets, the Group applies the limitations applicable under IAS 19

(asset ceiling) to the prepaid pension cost amount to be recognized

on the employer’s balance sheet.

3) Other post-retirement benefits

Certain of the Group’s subsidiaries grant their employees and

dependants post-retirement medical coverage or other types of

post-employment benefits. These costs are calculated based upon

actuarial determinations and are recorded through profit and loss

over the expected average remaining service lives of the employees

(in “cost of sales” or “selling and administrative expenses” based

on the beneficiaries of the plan).

SPECIFIC TREATMENT RELATED TO FIRST-TIME

ADOPTION OF IFRS

The Group has elected to use the option available in IFRS 1 under

which any difference existing at January 1, 2004 between defined

benefit plan liabilities and the fair value of dedicated assets, not

recognized in an entity’s balance sheet date at that date, can be

recognized through an adjustment to equity, except the non-vested

portion of unrecognized prior service costs. As a consequence,

actuarial gains or losses relating to pensions obligations were

recognized as of January 1st, 2004.

(u) Provisions

The Group recognizes provisions when it has a legal or constructive

obligation resulting from past events, the resolution of which would

result in an outflow of resources.

1) Restructuring

Reserves for restructuring costs are provided when the restructuring

plans have been finalized and approved by the Group’s management,

and when its main features have been announced to those affected

by it before the balance sheet date. These reserves only include

direct expenditures arising from the restructuring, notably severance

payments, early retirement costs, costs for notice periods not worked

and other costs directly linked with the closure of the facilities.

2) Site restoration

When the Group is legally, contractually or constructively required

to restore a quarry site, the estimated costs of site restoration are

accrued and amortized to cost of sales, on a units-of-production

basis over the operating life of the quarry. The estimated future costs

for known restoration requirements are determined on a site by site

basis and are calculated based on the present value of estimated

future costs.

3) Environmental costs

Costs incurred that result in future economic benefits, such as

extending useful lives, increased capacity or safety, and those costs

incurred to mitigate or prevent future environmental contamination

are capitalized. When the Group determines that it is probable that a

liability for environmental costs exists and that its resolution will result

in an outflow of resources, an estimate of the future remediation is

recorded as a provision without the offset of contingent insurance

recoveries (only virtually certain insurance recoveries are recorded

as an asset in the balance sheet). When the Group does not have

a reliable reversal time schedule or when the effect of the passage

of time is not significant, the provision is calculated based on

undiscounted cash flows.

Environmental costs, which are not included above, are expensed

as incurred.

(v) Trade payables

Trade payables are recognized initially at fair value and subsequently

measured at amortized cost using the effective interest method.




(w) Income taxes

Current tax is the expected tax payable on the taxable income for

the year, using tax rates enacted or substantively enacted at the

reporting date, and any adjustment to tax payable in respect of

previous years.

Deferred tax is recognized using the balance sheet method, providing

for temporary differences between the carrying amounts of assets

and liabilities for financial reporting purposes and the amounts used

for taxation purposes.

Deferred tax is not recognized for the following temporary differences:

the initial recognition of assets or liabilities in a transaction that is

not a business combination and that affects neither accounting nor

taxable profit, and differences relating to investments in subsidiaries

and jointly controled entities to the extent that it is probable that they

will not reverse in the foreseeable future. In addition, deferred tax is

not recognized for taxable temporary differences arising on the initial

recognition of goodwill. Deferred tax is measured at the tax rates that

are expected to be applied to the temporary differences when they

reverse, based on the laws that have been enacted or substantively

enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally

enforceable right to offset current tax liabilities and assets, and they

relate to income taxes levied by the same tax authority on the same

taxable entity, or on different tax entities, but they intend to settle

current tax liabilities and assets on a net basis or their tax assets and

liabilities will be realized simultaneously.

A deferred tax asset is recognized to the extent that it is probable that

future taxable profits will be available against which the temporary

difference can be utilized. Deferred tax assets are reviewed at each

reporting date and are reduced to the extent that it is no longer

probable that the related tax benefit will be realized.

Additional income taxes that arise from the distribution of dividends

are recognized at the same time as the liability to pay the related

dividend is recognized.

(x) Share based payments

On a regular basis, the Group grants purchase or subscription share

options to employees and offers employee share purchase plans.

In accordance with the prescriptions of IFRS 2, “Share Based

Payments”, the Group records compensation expense for all share-

based compensation granted to its employees. The Group has

granted a restricted stock plan for the first time in 2007.

1) Share options granted to employees, restricted stock plan and SAR (“Stock Appreciation Rights”)

Share options and restricted stock fair value are calculated at grant

date using the Black & Scholes model. However, depending on

whether the equity instruments granted are equity-settled through

the issuance of Group shares or cash settled, the accounting

treatment differs:

If the equity instrument is settled through the issuance of

Group shares, the fair value of the equity instruments granted

is estimated and fixed at the grant date and recorded over the

vesting period based on the characteristics of the equity instru-

ments. In addition, the expense is recorded against equity.

If the equity instrument is settled in cash (applicable for SAR),

the fair value of the equity instruments granted is estimated as

of the grant date and is reestimated at each reporting date and

the expense is adjusted pro rata taking into account the vested

rights at the relevant reporting date. The expense is amortized

over the vesting period based on the characteristics of the equity

instruments. The expense is recorded as a non-current provision.

In accordance with IFRS 1 and IFRS 2, only options granted after

November 7, 2002 and not fully vested at January 1, 2004 are

measured and accounted for as employee costs.

2) Employee share purchase plans

When the Group performs capital increases reserved for employees

and when the conditions offered are significantly different from

market conditions, the Group records a compensation cost.

This cost is measured at the grant date, defined as the date at which

the Group and employees share a common understanding of the

characteristics of the offer.

The measurement of the cost takes into account the bonuses paid

under the plan, the potential discount granted on the share price

and the effect of post-vesting transfer restrictions (deducted from

the discount granted).

The compensation cost calculated is expensed in the period of

the operation (considered as compensation for past-services) if no

vesting condition is attached to the shares.

(y) Emission rights

Where the Group is involved in a cap and trade scheme, and until

the IASB issues a position on the appropriate accounting treatment,

the Group will account for the effects of such scheme as follows:

emission rights granted by governments are not recorded in the

balance sheet, as they have a cost equal to zero;

proceeds from the sale of granted emission rights are recorded as

a reduction to cost of sales;

purchases of emission rights on the market are recorded in cost

of sales when they cover actual emissions of the period. They are

recorded as intangible assets if they cover actual emissions to be

made in future periods or if the Group intends to sell them;

provisions are recorded (in cost of sales) when estimated yearly

actual emissions exceed the number of emission rights granted

for the period or purchased to cover actual emissions.

No other impact is recorded in the statement of income or in the

balance sheet.

1

2

3

4

5

6

7

8

9

10

11


Note 3 - Significant events


(z) Non-current assets held for sale and

discontinued activities

A fixed asset or a grouping of assets and liabilities is classified as

held for sale when its carrying amount will be recovered principally

through a sale transaction rather than through continuing use. For

this to be the case the asset (or groupings of assets and liabilities)

must be available for immediate sale in its present condition subject

only to terms that are usual and customary for sales of such assets

(or groupings of assets and liabilities) and its sale must be highly

probable. Such assets or groupings of assets and liabilities are

presented separately in the balance sheet, in the line “Assets held

for sale” when they are material. These assets or grouping of assets

and liabilities are measured at the lower of their carrying value and

fair value less costs to sell. The liabilities directly linked to assets or

grouping of assets held for sale are presented in the line “Liabilities

directly associated with assets held for sale” on the face of the

balance sheet.

A discontinued operation is a component of an entity that either has

been disposed of, or is classified as held for sale, and:

represents a separate major line of business or geographical area

of operations;

is part of a single coordinated plan to dispose of a separate major

line of business or geographical area of operations; or

is a significant subsidiary acquired exclusively with a view to

resale.

Amounts included in the statements of income and the statements

of cash flow related to these discontinued operations are presented

separately for the current period and all prior periods presented in

the financial statements if they are material. Assets and liabilities

related to discontinued operations are shown on separate lines for

the last period presented with no restatement for prior years.

(aa) Accounting pronouncements

not yet effective

Standards with earlier application permitted:

The Group has not early adopted the following standards, issued by

IASB and endorsed by European Union, and with an effective date

after January 1, 2007:

IFRS 8, Operating Segments (effective date for annual period

beginning on or after January 1, 2009);

IFRIC 11 IFRS 2 – Group and Treasury Share Transaction (effective

date for annual period beginning on or after March 1, 2007).

Standards not yet effective, with a potential impact on the

presentation of the consolidated financial statements:

IAS 1 revised, Presentation of Financial Statements (effective

date for annual period beginning on or after January 1, 2009).

IFRS 3 revised, Business Combinations (effective date for annual

period beginning on or after July 1, 2009).

IAS 27 revised, Consolidated and Separate Financial Statements

(effective date for annual period beginning on or after July 1,

2009).

Amendments to IFRS 2 Share based Payment Vesting Conditions

and Cancellations (effective date for annual period beginning on

or after January 1, 2009).

Amendments and Interpretations with limited impact on the

consolidated financial statements:

Amendment to IAS 23, Borrowing Costs (effective date for annual

period beginning on or after January 1, 2009);

IFRIC 12, Service Concession Arrangements (effective date for

annual period beginning on or after January 1, 2008);

IFRIC 13, Customer Loyalty Program (effective date for annual

period beginning on or after July 1, 2008);

IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum

Funding Requirements and their Interaction (effective date for

annual period beginning on or after January 1, 2008).

Note 3 - Significant events

(a) Acquisition of Orascom Cement

(January 2008)

Description of the operation

The Lafarge Board of Directors met on December 9, 2007 and

approved the acquisition of 100% of the capital and voting rights

of the Orascom Building Materials Holding S.A.E (“Orascom

Cement”).

At the Group’s Combined Shareholders Meeting held on January 18,

2008, Lafarge shareholders approved all of the resolutions put before

them. The object of these resolutions was to grant the Board of

Directors the delegation of authority to conduct one or more capital

increases with the suppression of preferential subscription rights of

shareholders in favour of certain designated beneficiaries.

The terms of the acquisition of Orascom Cement, which took effect

on January 23, 2008 after Lafarge shareholders approved the

reserved new share issue, do not have impact on the consolidated

financial statements for the period ended December 31, 2007.

The control is effective on January 23, 2008 (acquisition date).

The initial accounting will be recognized from that date.

The acquisition is financed in debt and via a reserved new share

issue for the major founding shareholders of OCI.


F Note 3 - Significant events


UNAUDITED AT DECEMBER 31, 2007

(million egyptian pounds)

ASSETS

NON CURRENT ASSETS 19,352

Of which:

Property, plant and equipment 10,804

Assets under construction 6,503

CURRENT ASSETS 4,348

TOTAL ASSETS 23,700


Common stock 128

Legal reserve 6

Retained earnings 4,454

Foreign currency translation 149

SHAREHOLDERS’ EQUITY - PARENT COMPANY 4,736

Minority interests 1,758

EQUITY 6,494

NON CURRENT LIABILITIES 2,648

Of which:

Long-term loans 2,237

CURRENT LIABILITIES 14,558

Of which:

Trade payables 10,558

Short term debt and current portion of long-term debt 3,906

TOTAL EQUITY AND LIABILITIES 23,700

The identification and evaluation of purchased assets, liabilities and contingent liabilities, as defined by the standard IFRS 3 “Business

Combinations”, require experts’ appraisals (internal and external), which are currently in progress at the present date. As a result, the

purchase price allocation exercise and the recognition of the related goodwill will be finalized at the latest within the 12 months of the

acquisition.

Description of Orascom Cement’s business

Orascom Cement is a leading cement manufacturer in the emerging

markets, where it ranks number one in the markets of 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.

Orascom Cement is also located in several high-potential markets in

Africa and Asia: South Africa, Nigeria, Pakistan and North Korea.

At the end of 2007, Orascom Cement owns 11 new or recent cement

plants which will have a total production capacity of 31 million

tonnes.

Cost of the acquisition

The provisional cost of the acquisition of Orascom Cement shares

is 8,474.8 million euros, which is broken down as follows:

price paid to Orascom Cement shareholders: 5,933.7 million

euros (of which 3,487.5 million euros and 3,633.1 million USD);

fair value of 22,500,000 new shares issued for the major share-

holders of OCI, calculated on the basis of Lafarge’s share price

at the acquisition date (trading price at the closing of the market:

110.76 euros per share): 2,492.1 million euros;

direct provisional acquisition-related costs: 49 million euros.

The cost of the acquisition is only provisional and could be adjusted

to take into account the terms of the acquisition contract signed

between Lafarge and Orascom Cement shareholders.

Book value of acquired assets and liabilities

Orascom Cement did not establish consolidated financial statements

at the acquisition date. Consequently, in the light of the transaction

calendar, the provisional book value of acquired assets and liabilities

is based on Orascom Cement’s consolidated financial statements

at December 31, 2007. Given the short lapse of time between

the annual closing date and the acquisition date, the difference in

the book value of acquired assets and liabilities between the two

dates is considered insignificant.

The consolidated financial statements of the new group OCI as

of December 31, 2007 were approved by OCI’s management

and are presented using generally accepted accounting principles

in Egypt.

The book value of assets and liabilities transferred at the acquisition

date is presented below as presented to us by OCI’s management.

Given the acquisition calendar and the publication date of the

financial statements of the OCI Group, Orascom Cement’s parent

company, the Group has not, at this stage, made a detailed review

of Orascom Cement’s consolidated accounts, which would serve

as the basis for determining the fair value of assets, liabilities and

contingent liabilities attributable to the Orascom Cement group.

1

2

3

4

5

6

7

8

9

10

11


Note 4 - Business Segment and Geographic Area Information


(b) Roofing activities divestment

(February 2007)

On February 28, 2007, we finalized the sale of our Roofing Division

to an investment fund managed by PAI Partners for 1.9 billion euros

in cash and the assumption by the purchaser of 481 million euros of

financial debt and pension liabilities as at December 31, 2006.

This Division was presented as discontinued operations in our

consolidated balance sheet as of December 31, 2006 and in our

consolidated statements of income and cash flows for the years

ended December 31, 2005 and 2006.

For the year ended December 31, 2007, the gain on the disposal of

this activity as well as the net result until the sale date are presented

on the line “net income/(loss) from discontinued operations” in the

consolidated statement of income.

In turn, we invested 217 million euros alongside the fund managed

by PAI Partners in the new entity holding the Roofing Division,

whereby we retained a 35% stake in this entity, which is accounted

for as an investment in associates.

As of December 31, 2007, components of net income/(loss) from

discontinued operations are as follows: net result from the Roofing

Division from January 1 to February 28, 2007 for 9 million euros and

65% of the gain on disposal, net of tax and costs directly attributable

to the sale for 109 million euros.

As of December 31, 2007, the value of the 35% ownership interest

in the new entity accounted for as an investment in associates

(presented on the line “investments in associates”) amounts to

41 million euros. This corresponds to the price paid (217 million

euros) less 35% of the gain on disposal canceled for the retained

stake and our share in the net result of the entity from March till

December 2007 (loss of 46 million euros including in particular

one–off expenses).

The net cash attributable to the Roofing Division until the disposal

date are shown on separate lines of the statements of cash flows:

“Net operating cash generated by discontinued operations”, “Net

cash provided by (used in) investing activities from discontinued

operations” and “Net cash provided by (used in) financing activities

from discontinued operations”.

The following table provides the net cash flows directly attributable to the Roofing Division:



Net cash provided by (used in) operating activities (26) 184 135

Net cash used in investing activities (15) (198) (131)

Net cash provided by (used in) financing activities 41 15 (33)

TOTAL CASH FLOWS - 1 (29)


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 aggre-

gates, 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 Roofing activities.

The accounting policies applied to segment earnings comply with

those described in Note 2.

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 geographi-

cally with revenue presented by region or country of destination of

the revenue.


F Note 4 - Business Segment and Geographic Area Information


(a) Business segment information

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* 268

TOTAL ASSETS 28,308

Segment liabilities 2,334 1,205 368 1,458 5,365

Unallocated liabilities and equity** 22,943


* Deferred tax assets and derivative instruments.

** Deferred tax liability, financial debt, derivative instruments and equity.

1

2

3

4

5

6

7

8

9

10

11





Aggregates

& Concrete Roofing (1) Gypsum Other Total

STATEMENT OF INCOME

Gross revenue 9,641 6,449 1,632 14 17,736

Less: intersegment (794) (10) (22) (1) (827)

REVENUE 8,847 6,439 1,610 13 16,909

Operating income before capital gains,

impairment, restructuring and other 2,103 564 198 (93) 2,772

Gains on disposals, net 7 3 (8) 26 28

Other operating income (expenses) (114) (12) (21) 25 (122)

Including impairment on assets and goodwill (3) (1) (19) - (23)

OPERATING INCOME 1,996 555 169 (42) 2,678

Finance costs (582)

Finance income 97

Income from associates 3 11 16 - 30

Income taxes (630)


NET INCOME FROM DISCONTINUED OPERATIONS - - (4) - - (4)

NET INCOME 1,589

OTHER INFORMATION



of operating income (157) (35) (24) 142 (74)

Capital expenditures 931 436 222 50 1,639

Capital employed 15,209 4,585 - 1,433 163 21,390

BALANCE SHEET

Segment assets 17,661 5,295 - 1,695 2,126 26,777

Of which investments in associates 113 41 92 7 253

Assets held for sale 2,733 2,733


TOTAL ASSETS 29,841

Segment liabilities 2,316 1,174 - 365 1,791 5,646

Liabilities associated with assets held for sale 842 842





(1) Discontinued operations (see Note 3 (b)).


F Note 4 - Business Segment and Geographic Area Information



Aggregates

& Concrete Roofing (1) Gypsum Other Total

STATEMENT OF INCOME

Gross revenue 8,314 5,392 1,479 25 15,210

Less: intersegment (690) (10) (17) (3) (720)

REVENUE 7,624 5,382 1,462 22 14,490

Operating income before capital gains,

impairment, restructuring and other 1,770 398 151 (73) 2,246

Gains on disposals, net 10 14 3 13 40

Other operating income (expenses) (76) (6) (8) (15) (105)

Including impairment on assets and goodwill (53) (4) (7) (1) (65)

OPERATING INCOME 1,704 406 146 (75) 2,181

Finance costs (498)

Finance income 83

Income from associates 8 8 15 - 31

Income taxes (470)


NET INCOME FROM DISCONTINUED OPERATIONS - - 97 - - 97

NET INCOME 1,424

OTHER INFORMATION



of operating income (88) (11) 4 175 80

Capital expenditures 822 358 101 32 1,313

Capital employed 13,982 3,932 2,181 1,267 290 21,652

BALANCE SHEET

Segment assets 16,158 5,353 2,432 1,595 1,890 27,428

Of which investments in associates 115 40 143 71 7 376


TOTAL ASSETS 27,895

Segment liabilities 2,091 1,143 670 329 1,860 6,093





(1) Discontinued operations (see Note 3 (b)).

1

2

3

4

5

6

7

8

9

10

11


Note 5 - Gains on Disposals, net


(b) Geographic area information

2007 2006 2005

Revenue

Capital

expenditure

Segment

assets Revenue

Capital

expenditure

Segment

assets Revenue

Capital

expenditure

Segment

assets

(million euros) (a) (a) (a) (a)

WESTERN EUROPE 6,285 606 10,872 5,953 501 10,266 5,222 419 11,904

Of which:

France 2,676 264 3,628 2,524 255 3,047 2,224 185 3,065

Germany 230 19 374 224 14 272 207 13 723

Spain 703 47 994 672 33 1,000 513 36 1,069

United Kingdom 1,487 196 2,707 1,387 127 3,100 1,293 129 3,334

NORTH AMERICA 4,780 485 7,177 5,116 562 7,296 4,380 431 6,335

Of which:

United States 2,709 336 5,324 3,216 430 6,192 2,773 319 5,285

Canada 2,071 149 1,853 1,900 132 1,104 1,607 112 1,050

MEDITERRANEAN BASIN 733 122 1,265 807 74 1,240 655 70 1,324

CENTRAL & EASTERN EUROPE 1,467 290 1,992 1,014 112 1,552 752 69 1,370

LATIN AMERICA 876 114 1,502 796 74 1,446 687 100 1,463

SUB-SAHARAN AFRICA 1,705 217 1,517 1,622 148 1,416 1,381 72 1,372

ASIA 1,768 279 3,715 1,601 168 3,561 1,413 152 3,660

TOTAL 17,614 2,113 28,040 16,909 1,639 26,777 14,490 1,313 27,428

(a) Only from continuing operations.

Note 5 - Gains on Disposals, net

Components of gains on disposals, net are as follows:



Gain on disposals of consolidated subsidiaries,

joint ventures and associates, net 169 (5) 25

Gain on sale of other long-term assets, net 27 33 15

GAINS ON DISPOSALS, NET 196 28 40

“Gain on disposals of consolidated subsidiaries, joint ventures and

associates” amounts to 169 million euros, related mainly to the disposal

of our participation in cement, aggregates and concrete activities in

Central Anatolia (Turkey) sold to Cimentos de Portugal (Cimpor)

on February 27, 2007.

“Gain on sale of other long-term assets” amounts to 27 million euros,

related mainly to sale of lands.

The tax effect on capital gains and losses is mentioned in the

reconciliation of effective tax rate (Note 22 (a)).


F Note 6 - Other operating income (expenses)


Note 6 - Other operating income (expenses)

Components of other operating income (expenses) are as follows:



Impairment losses on goodwill* - (15) (58)

Impairment losses on property, plant and equipment (13) (8) (7)

IMPAIRMENT LOSSES (13) (23) (65)

Restructuring costs** (81) (99) (26)

Litigations (58) (27) (21)

Other income 71 73 52

Other expenses (68) (46) (45)

OTHER OPERATING INCOME (EXPENSES) (149) (122) (105)

* Impairment losses on goodwill are detailed in Note 9 (c).

** Restructuring costs are detailed in Note 24 (b).

2007

“Other income” includes mainly insurance proceeds to be received

for 45 million euros related to the Tsunami damages that occurred

on December 26, 2004.

“Other expenses” include mainly a 27 million euros loss in our insur-

ance captives related to an unusual high loss rate in our operations

in the year.

2006

“Other income” includes a 17 million euros refund to Lafarge North

America Inc following the distribution to the U.S. and Mexican

cement industries of unliquidated historical duties over U.S. imports

of Mexican cement. The Mexican and U.S. governments came to an

agreement on this subject in early 2006. In addition, an indemnity

amounting to 43 million euros was received in France following a

court decision in our favor.

“Other expenses” include a 29 million euros stock option expense

following the buy-out of the minority interest of Lafarge North

America Inc (see Note 20).

2005

“Other income” includes a 42 million euro gain as the result of the

partial refund of a fine paid in 1999 to the Greek State by Heracles,

under a European Union judgment related to state aid received in

the mid 1980’s.

The related tax effect is mentioned in the reconciliation of effective

tax rate (Note 22 (a)).

1

2

3

4

5

6

7

8

9

10

11


Note 7 - Finance (costs) income


Note 7 - Finance (costs) income

Components of finance (costs) income are as follows:



Interest expense(1) (603) (591) (486)

Net loss on interest rate derivative instruments designated

as cash flow hedges transferred from equity(2) (2) (9) (12)

Exchange gains (losses), net (7) (14) (5)

Other financial expenses, net (40) 32 5

FINANCE COSTS (652) (582) (498)

Interest income(3) 102 78 65

Dividends received from investments 24 19 18

FINANCE INCOME 126 97 83

NET FINANCE (COSTS) INCOME* (526) (485) (415)

Of which net interest income (expense) (1)+(2)+(3) (503) (522) (433)

* Including net (costs) income arising on foreign exchange, interest rate and commodity

derivatives. 6 (2) -

Interest expense is reported net of capitalized interest costs for

construction projects of 18 million euros, 13 million euros and

10 million euros for the years ended December 31, 2007, 2006 and

2005, respectively. The interest rate used to determine the amount

of capitalized interest costs is the actual interest rate when there is

a specific borrowing or the Group’s debt interest rate.

“Other financial expenses, net” include in 2006 a capital gain of

44 million euros on the sale of the residual interest in Materis.

The net (costs) income arising on derivative instruments include

gain and losses on the ineffective portion of derivatives designated

as hedging instruments in cash flow hedge and fair value hedge

relationships. Such impacts are not material for disclosed periods.


F Note 8 - Earnings per share


Note 8 - Earnings per share

The computation and reconciliation of basic and diluted earnings per share for the years ended December 31, 2007, 2006 and 2005 are

as follows:


2007 2006 2005

NUMERATOR (million euros)

NET INCOME FROM CONTINUING OPERATIONS – GROUP SHARE 1,791 1,375 998

Interest expense on convertible debt (“OCEANE”) - - 46

ADJUSTED NET INCOME FROM CONTINUING OPERATIONS – GROUP SHARE 1,791 1,375 1,044

DENOMINATOR (thousands of shares)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 172,718 174,543 171,491

Effect of dilutive securities – stock options 2,256 2,308 590

Effect of dilutive securities – convertible debt (“OCEANE”) - - 8,135

TOTAL POTENTIAL DILUTIVE SHARES 2,256 2,308 8,725

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING – FULLY DILUTED 174,974 176,851 180,216

BASIC EARNINGS PER SHARE FROM CONTINUING OPERATIONS (euros) 10.37 7.88 5.82

DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS (euros) 10.24 7.77 5.79

For purposes of computing diluted earnings per share 3,267 thousand stock options were excluded from the calculation for 2005

as the effect of including such options would have been anti-dilutive. In 2006 and 2007 no stock options were excluded from the calculation.

1

2

3

4

5

6

7

8

9

10

11


Note 9 - Goodwill


Note 9 - Goodwill

(a) Changes in goodwill

The following table displays the changes in the carrying amount of goodwill by business segment.

(million euros) Cement

Aggregates

& Concrete Roofing* Gypsum Other Total

CARRYING AMOUNT AT JANUARY 1, 2005 4,346 735 682 199 36 5,998

Additions 115 34 1 2 - 152

Disposals - (3) - (3) - (6)

Purchase accounting adjustments** (2) (2) 12 - - 8

Impairment losses (51) - (7) (7) - (65)

Change in goodwill related to put options on shares of subsidiaries - - - - 90 90

Translation adjustments 370 69 17 14 (1) 469

CARRYING AMOUNT AT DECEMBER 31, 2005 4,778 833 705 205 125 6,646

Cost at January 1, 2006 4,837 833 723 212 125 6,730

Accumulated impairment (59) - (18) (7) - (84)

CARRYING AMOUNT AT JANUARY 1, 2006 4,778 833 705 205 125 6,646

Additions 1,106 640 - 85 (2) 1,829

Disposals - - - (3) - (3)

Purchase accounting adjustments** 8 4 - - - 12

Impairment losses - - - (15) - (15)

Change in goodwill related to put options on shares of subsidiaries 176 - - - (123) 53

Translation adjustments (220) (76) - (10) - (306)

Reclassification as assets held for sale - - (705) - - (705)

CARRYING AMOUNT AT DECEMBER 31, 2006 5,848 1,401 - 262 - 7,511

Cost at January 1, 2007 5,906 1,401 - 284 - 7,591

Accumulated impairment (58) - - (22) - (80)

CARRYING AMOUNT AT JANUARY 1, 2007 5,848 1,401 - 262 - 7,511

Additions 198 75 - - 273

Disposals (58) (9) - - (67)

Purchase accounting adjustments** (44) 54 - - 10

Change in goodwill related to put options on shares of subsidiaries 129 - - - 129

Translation adjustments (275) (99) (11) - (385)

CARRYING AMOUNT AT DECEMBER 31, 2007 5,798 1,422 251 - 7,471

Cost at December 31, 2007 5,858 1,422 274 - 7,554

Accumulated impairment (60) - (23) - (83)

CARRYING AMOUNT AT DECEMBER 31, 2007 5,798 1,422 251 - 7,471

* Discontinued operations (see Note 3 (b)).

** Goodwill is recorded as of the date of acquisition based upon a preliminary purchase price allocation. The Group typically makes adjustments to the preliminary purchase

price allocation during the allocation period (not exceeding one year) as the Group finalizes the fair value of certain assets and liabilities such as property, plant and equipment,

intangible assets, pension and other post-retirement benefit obligations, contingent liabilities, and deferred and current tax balances.


F Note 9 - Goodwill


Impairment losses on goodwill from continuing operations are as follows:



Impairment losses - 15 58

(b) Acquisitions

Acquisition of Cement Operationsin Sichuan Province (China)

In 2007, Lafarge (through Lafarge Shui On Cement) further

developed its cement operations in China by acquiring 100% of

the shares of Shuangma Investment Company who in turn owns

56.81% of Shenzhen-listed Sichuan Shuangma Cement Company

(Shuangma Cement).

Shuangma Cement owns and operates cement plants and other

related production facilities in Mianyang and Yibin districts of

Sichuan Province.

The price paid by Lafarge (through Lafarge Shui On Cement) for the

shares of Shuangma Investment Company and its subsidiaries is

18 million euros. This investment generated the consolidation of a

complementary gross debt of 28 million euros.

The preliminary goodwill arising from the transaction was 1 million

euros.

Acquisition of Feltes Sand & Gravel and Mellot in North America

In March 2007, Lafarge North America Inc. acquired Feltes Sand

& Gravel Company, located in Chicago, Illinois for a total amount of

66 million euros. Lafarge purchased 100% of the assets in Feltes

Mineral Properties LLC, Feltes Mineral Properties II LLC and Feltes

Development Properties LLC, which included one sand and gravel

operation and 20.4 million tonnes of proven reserves. The prelimi-

nary goodwill arising from the transaction was 30 million euros.

In October 2007, Lafarge North America Inc. acquired H.B. Mellot

Inc.’s Heritage Division, located in Hagerstown, Maryland for a total

amount of 38 million euros. Lafarge purchased 100% of the assets,

which included four active quarry operations, one inactive quarry

operation, 36 million tonnes of probable reserves, and three ready

mix operations. The preliminary goodwill arising from the transaction

was 21 million euros.

Acquisition of minority interests of Heracles General Cement Company

In April 2007, Lafarge Cementos acquired a bloc of approximately

18.5 million shares in Heracles General Cement Company from the

National Bank of Greece, increasing Lafarge’s ownership in this

subsidiary from 53.17% to 79.17%. The transaction was carried out

at a price of 17.40 euros per share representing a total consideration

of 321.9 million euros.

We have continued to acquire Herades shares during the course

of 2007 for a total cumulative amount of 417 million euros

bringing Lafarge’s ownership in this subsidiary to 86.73% as of

December 31, 2007.

The goodwill arising from these operations amounts to 171 million

euros.

Acquisition of Cement Operationsin Yunnan (China)

In 2006, Lafarge (through Lafarge Shui On Cement) further devel-

oped its cement operations in China by acquiring 80% of the shares

of Yunnan Shui On Construction Materials Investment Holdings

Ltd. (“Yunnan JV”). Yunnan JV is the owner of five subsidiaries

specialized in Cement operations: Yunnan State Property Cement

Honghe Co., Ltd., Yunnan State Property Cement Dongjun Co., Ltd.,

Yunnan Kaixin Building Materials Industries Co. Ltd., Yunnan State

Property Cement Chuxiong Co., Ltd. and Yunnan State Property

Cement Kunming Co. Ltd. The price paid by Lafarge (through

Lafarge Shui On Cement) for the Yunnan JV and its subsidiaries is

17 million euros. This investment generated the consolidation of a

complementary gross debt of 76 million euros.

The resulting goodwill arising from the transaction was 12 million

euros.

Acquisition of Aggregate activities in Poland

In May and June 2006, Lafarge Poland acquired a 100% interest

in the shares of three companies shares specialized in quarry site

operations, for a total amount of 30 million euros.


euros.

Acquisition of Aggregate activities in North America

In October 2006, Lafarge North America Inc. acquired Western

Sand & Gravel Inc., located in Chicago, for a total amount of

53 million euros. The resulting goodwill arising from the transaction

was 22 million euros.

In September 2006, Lafarge North America Inc. acquired Sun State

Rock & Materials Corporation Inc., located in Arizona for a total

amount of 26 million euros. The resulting goodwill arising from the

transaction was 2 million euros.

In January 2006, Lafarge North America Inc. acquired the Aggregate

activities of Rein Schultz & Dahl of Illinois Inc., located in Chicago,

for a total amount of 58 million euros. The resulting goodwill arising

from the transaction was 39 million euros.

1

2

3

4

5

6

7

8

9

10

11


Note 9 - Goodwill


Buy-out of minority interests of Lafarge North America Inc.

On February 6, 2006, the Group announced its intention to launch a

cash tender offer for the outstanding 46.8% minority stake in Lafarge

North America Inc. The offer was concluded on May 16, 2006. As

a consequence of this transaction, the Group owns 100% of the

common shares of Lafarge North America Inc.

The additional costs directly attributable to the buy-out of the

minority stake in Lafarge North America Inc. have been aggregated

in the acquisition cost. These costs mainly relate to fees paid for

legal, accounting, and banking engagements. The total net acquisi-

tion cost amounted to 2.8 billion euros.

The resulting goodwill arising from the transaction was 1.6 billion

euros.

Prior to this transaction, Lafarge North America Inc. was fully

consolidated; the method of consolidation remains unchanged.

Acquisition of Betecna

In December 2005, Lafarge Asland acquired an additional 50%

interest in Betecna, a Portuguese aggregates and concrete producer

for a total amount of 41 million euros (before net cash acquired of

9 million euros). Betecna was accounted for using the proportionate

method in 2004 and is fully consolidated at year-end 2005. This

change in consolidation method has no material impact on the

consolidated financial statements.


euros.

Acquisition of Ritchie Corporation

In November 2005, Lafarge North America Inc. completed the

acquisition of the Aggregate & Concrete assets of Ritchie Corporation

in Wichita, Kansas, for a total amount of 43 million euros.


euros.

Acquisition of the Shui On Cement operations (“Shui On”)

On August 11, 2005, the Group and Shui On Construction And

Materials Limited (“SOCAM”) entered into a contribution agreement

and announced a joint venture partnership to merge their Cement

Operations in China. SOCAM is the leading cement producer in

South West China. On November 9, 2005 the merger was effected

and a joint venture, named Lafarge Shui On Cement, was established

owned 55% by the Group. According to the joint venture agreement,

the control over Lafarge Shui On Cement is shared between the

Group and SOCAM and strategic financial and operating decisions

relating to the activity requires the consent of both parties. As a

consequence, the joint venture is, in accordance with Group policy

detailed in Note 2 (b) consolidated by the proportionate method

based on the Group’s interest in the company (55%).

The Shui On agreed equity value incorporated in the joint venture

Lafarge Shui On Cement amounts to 137 million euros, i.e. 75 million

euros at Group level. The acquisition was recorded under the

purchase method of accounting and, therefore, the purchase price

has been allocated to assets acquired and liabilities based on fair

values. The fair value of assets acquired and liabilities relating to the

Shui On operations is summarized below:

(million euros)

PURCHASE PRICE 75

Fair value of net asset acquired (72)

GOODWILL 3

Acquisition of Cementos Esfera

In June 2005, Lafarge Asland completed the acquisition of a 75%

interest in the shares of Cementos Esfera, a grinding station located

in Spain for a total amount of 32 million euros (before net cash

acquired of 2 million euros).

The result ing goodwil l arising from the transaction was

24 million euros.

Acquisition of minorities in Asian companies

In January 2005, Lafarge completed the buyout of minorities held

by the State of Wisconsin Investment Board (“SWIB”) in its cement

activities in South Korea, India and Japan and purchased:

an additional 20.3% equity interest in its South Korean subsidiary

Lafarge Halla Cement for 88 million euros;

an additional 23.6% equity interest in its Indian subsidiary Lafarge

Private India Ltd. for 14 million euros;

an additional 43% equity interest in Lafarge Japan Holdings,

which owns 39.4% of Lafarge Aso Cement for 5 million euros.

Other acquisitions

In addition to the acquisitions described separately in this note,

several other relatively minor acquisitions in all of the Group’s

segments were consummated in 2007, 2006 and 2005. The aggre-

gate cost of these acquisitions was 65 million euros, 93 million euros

and 183 million euros in 2007, 2006 and 2005, respectively.

(c) Impairment test for goodwill

The Group’s methodology to test its goodwill for impairment is

described in Note 2 (l).

Group Goodwill is allocated to multiple cash generating units (CGUs)

as defined in Note 2 (l) (generally corresponding to the activity of a

segment in a country).

The discount rates are post-tax discount rates that are applied to

post-tax cash flows. The use of these rates results in recoverable

values that are identical to the ones that would be obtained by

using pre-tax rates and pre-tax cash flows, as required by IAS 36 –

Impairment of assets.


F Note 9 - Goodwill


The discount rates and perpetual growth rates in hard currency used for the valuation of the main CGU is as follows:

AT DECEMBER 31, 2007 2006 2005

Cash Generating Units

Carrying

value of

goodwill(million

euros)

Discount

rate

Perpetual

growth rate

Carrying

value of

goodwill(million

euros)

Discount

rate

Perpetual

growth rate

Carrying

value of

goodwill(million

euros)

Discount

rate

Perpetual

growth rate

Cement United

Kingdom 961 7.7% 2.0% 1,055 7.8% 2.0% 1,032 6.8% 2.0%

Goodwill for Cement North America (1,446 million euros) and

Aggregates & Concrete North America (969 million euros) was

tested for impairment at the end of 2007 using the market approach.

The goodwill of other CGUs represents individually less than 10%

of total goodwill.

A summary of the range of main assumptions used for the valuation of CGUs are as follows:

AT DECEMBER 31,

2007 2006 2005

Multiples of operating income before capital gains, impairment,

restructuring and other, and before depreciation and amortization

(fair value approach) 8.0 - 11.3 7.8 - 9.4 6.2 - 7.9

Discount rate (value in use approach) 7.7% - 10.2% 7.4% - 9.5% 6.7% - 9.9%

Perpetual growth rate (value in use approach) 2.0% - 2.5% 2.0% 1.5% - 2.0%

As part of the annual impairment test, the discount rates and perpetual growth rates used for the variation of the main CGUs presenting

an impairment risk were as follows:

AT DECEMBER 31, 2007 2006 2005

Cash Generating Units

Discount

rate

Perpetual

growth rate

Discount

rate

Perpetual

growth rate

Discount

rate

Perpetual

growth rate

Cement United Kingdom 7.7% 2.0% 7.8% 2.0% 6.8% 2.0%

Cement Philippines 10.2% 2.0% 9.5% 2.0% 9.9% 2.0%

Cement Malaysia 9.2% 2.0% 8.5% 2.0% 7.8% 2.0%

At December 31, 2007, the sensitivity of the recoverable amounts to an independent change of one point in either the discount rate or

the perpetual growth rate was as follows:

Excess of estimated

recoverable amount

over carrying value

Impact of one point increase/decrease in the

Cash Generating Units Discount rate Perpetual growth rate

(million euros) +1 PT -1 PT +1 PT -1 PT

Cement United Kingdom 286 (269) 378 62 (47)

Cement Philippines 470 (124) 158 52 (42)

Cement Malaysia 112 (73) 95 24 (19)

The total of goodwill related to the above mentioned CGUs is

1,489 million euros.

The Group considered potential specific risks on activity and the

sensitivities disclosed above. On the basis of this analysis, the Group

did not record an impairment loss for the CGUs mentioned above.

In 2007, the Group did not record any impairment loss.

In 2006, the Group recorded an impairment loss on the Gypsum

Poland CGU (15 million euros). This impairment loss was determined

based on the value in use of this CGU.

In 2005, the Group recorded impairment losses on the Cement

Philippines (50 million euros) and the Gypsum Germany (7 million

euros) CGUs. These impairment losses were determined based on

the value in use of these CGUs.

1

2

3

4

5

6

7

8

9

10

11


Note 10 - Intangible assets


Note 10 - Intangible assets


CARRYING AMOUNT AT JANUARY 1, 426 355 308

Additions 143 97 81

Disposals (5) (4) (2)

Amortization (64) (66) (64)

Impairment losses (10) - -

Main acquisitions through business combinations 51 33 10

Other changes (40) 49 (10)

Translation adjustments (29) (25) 32

Reclassification as assets held for sale - (13) -

CARRYING AMOUNT AT DECEMBER 31, 472 426 355

Amortization and impairment losses on intangible assets are as follows:


(million euros) 2007 2006* 2005*

Amortization 64 66 53

Impairment losses 10 - -

TOTAL 74 66 53

* From continuing operations.

For the years presented, no reversal of impairment charges has been recorded.

The following table presents details of intangible assets that are subject to amortization:

AT DECEMBER 31, 2007 2006* 2005

(million euros) Cost

Accumulated

amortization

and impairment

Carrying

value Cost

Accumulated

amortization

and impairment

Carrying

value Cost

Accumulated

amortization

and impairment

Carrying

value

Software 384 226 158 376 201 175 356 204 152

Real estate development rights 99 61 38 109 64 45 107 60 47

Mineral rights 161 32 129 115 32 83 103 34 69

Other intangible assets 205 58 147 183 60 123 150 63 87

TOTAL INTANGIBLE ASSETS 849 377 472 783 357 426 716 361 355

* Only from continuing operations.

For the years presented, “Other intangible assets” include only assets with finite useful lives.

Research costs from continuing activities that are expensed as incurred were 44 million euros, 41 million euros and 36 million euros for

the years ended December 31, 2007, 2006 and 2005 respectively.


F Note 11 - Property, plant and equipment


Note 11 - Property, plant and equipment

(a) Changes in property, plant and equipment

(million euros)

Mineral

reserves

and land Buildings

Machinery,

equipment,

fixtures

and fittings

Construction

in progress

Total before

investment

subsidies

Investment

subsidies Total

Cost at January 1, 2005 1,970 3,025 13,877 644 19,516

Accumulated depreciation (326) (1,585) (6,892) (10) (8,813)

CARRYING AMOUNT AT JANUARY 1, 2005 1,644 1,440 6,985 634 10,703 (116) 10,587

Additions 72 36 384 881 1,373 - 1,373

Disposals (12) (9) (51) (3) (75) - (75)

Main acquisitions through business combinations 5 15 156 18 194 - 194

Other changes in scope 31 44 (89) 30 16 - 16

Depreciation (70) (140) (703) - (913) 4 (909)

Impairment losses (5) - (15) - (20) - (20)

Other changes 35 288 323 (661) (15) 2 (13)

Translation adjustments 142 125 687 70 1,024 (6) 1,018

CARRYING AMOUNT AT DECEMBER 31, 2005 1,842 1,799 7,677 969 12,287 (116) 12,171

Cost at January 1, 2006 2,258 3,494 15,419 976 22,147


CARRYING AMOUNT AT JANUARY 1, 2006 1,842 1,799 7,677 969 12,287 (116) 12,171

Additions 75 62 256 1,149 1,542 - 1,542

Disposals (28) (16) (37) (4) (85) - (85)

Main acquisitions through business combinations 26 11 53 73 163 - 163

Other changes in scope (5) (3) (8) (11) (27) - (27)

Depreciation (68) (118) (687) - (873) 7 (866)

Impairment losses (2) (1) (5) - (8) - (8)

Other changes 32 223 723 (993) (15) - (15)

Translation adjustments (82) (54) (374) (71) (581) (7) (588)

Reclassification as assets held for sale (153) (245) (640) (71) (1,109) 5 (1,104)

CARRYING AMOUNT AT DECEMBER 31, 2006 1,637 1,658 6,958 1,041 11,294 (111) 11,183

Cost at January 1, 2007 2,069 3,107 13,826 1,081 20,083


1

2

3

4

5

6

7

8

9

10

11


Note 11 - Property, plant and equipment


(million euros)

Mineral

reserves

and land Buildings

Machinery,

equipment,

fixtures

and fittings

Construction

in progress

Total before

investment

subsidies

Investment

subsidies Total

CARRYING AMOUNT AT JANUARY 1, 2007 1,637 1,658 6,958 1,041 11,294 (111) 11,183

Additions 45 53 360 1,512 1,970 - 1,970

Disposals (42) (6) (39) (14) (101) - (101)

Main acquisitions through business

combinations 35 17 41 13 106 - 106

Other changes in scope 38 (5) (20) (6) 7 - 7

Depreciation (53) (131) (700) - (884) 7 (877)

Impairment losses (1) (1) (1) - (3) - (3)

Other changes 74 152 794 (926) 94 - 94

Translation adjustments (65) (56) (292) (66) (479) 4 (475)

CARRYING AMOUNT AT DECEMBER 31, 2007 1,668 1,681 7,101 1,554 12,004 (100) 11,904

Cost at December 31, 2007 2,106 3,231 14,044 1,556 20,937


(b) Depreciation and impairment

Depreciation on property plant and equipment and impairment losses from continuing operations are as follows:


(million euros) 2007 2006* 2005*

Depreciation 877 866 796

Impairment losses 3 8 7

TOTAL 880 874 803


For the years presented, no reversal of impairment charges has been recorded.

(c) Finance leases

The cost of property, plant and equipment includes 89 million euros,

105 million euros and 67 million euros of assets under finance

leases at December 31, 2007, 2006 and 2005, respectively. The

remaining obligations on such assets amount to 46 million euros,

63 million euros and 35 million euros at December 31, 2007, 2006

and 2005, respectively.


F Note 12 - Investments in associates


Note 12 - Investments in associates

(a) Changes in investment in associates


AT JANUARY 1, 253 376 372

Income from associates - 30 38

Dividends received from associates (29) (20) (28)

New investments or share capital increases 133* 10 10

Disposals and reduction in ownership percentage - - (3)

Change of consolidation method (9) 11 (13)

Reclassification to assets held for sale - (143) -

Other changes (17) (11) -

AT DECEMBER 31, 331 253 376

* Mainly includes Roofing business accounted for as investment in associates since February 28, 2007 (see Note 3 (b)).

Information relating to the income statement

The following details the Group’s share of the operations of associates:


(million euros) 2007 2006* 2005*

Operating income before capital gains, impairment, restructuring and other 115 57 48

Gain on disposals, net - - 1

Other operating income (expenses), net (37) - -

Finance (costs) income (54) (7) (3)

Income tax (24) (20) (15)

INCOME FROM ASSOCIATES - 30 31


(b) Summarized combined balance sheet and income statement information of associates

Combined balance sheets information at 100%

AT DECEMBER 31,

(million euros) 2007 2006* 2005

Non-current assets 3,027 752 969

Current assets 1,449 503 642

TOTAL ASSETS 4,476 1,255 1,611

Total equity 1,129 537 772

Non-current liabilities 2,387 268 216

Current liabilities 960 450 623



1

2

3

4

5

6

7

8

9

10

11


Note 13 - Joint ventures


Combined income statements information at 100%


(million euros) 2007 2006* 2005*

Revenue 2,343 881 721


Operating income 215 175 121

Net income (16) 58 78


Note 13 - Joint ventures

The Group has several interests in joint ventures (see Note 35) that are consolidated using the proportionate method as described in

Note 2 (b).

The following amounts are included in the Group’s financial statements as a result of the proportionate consolidation of joint ventures:

IMPACT ON BALANCE SHEETS

AT DECEMBER 31,

(million euros) 2007 2006* 2005

Non-current assets 1,347 1,267 1,416

Current assets 506 523 516

Non-current liabilities 253 265 291

Current liabilities 533 414 368


IMPACT ON STATEMENTS OF INCOME


(million euros) 2007 2006* 2005*

Revenue 922 856 716


Operating income 168 166 142

Net income 132 121 124



F Note 14 - Other financial assets


Note 14 - Other financial assets

Components of other financial assets are as follows:

AT DECEMBER 31,

(million euros) 2007 2006* 2005

Loans and long-term receivables 194 154 153


Prepaid pension assets 104 31 15

Restricted cash 18 17 14

TOTAL 1,096 830 626


In April 2006, we sold our 7.27% stake in Materis Holding Luxembourg S.A. for net proceeds of 44 million euros. We no longer have any

equity interest in Materis Luxembourg S.A. or in any entity of the Materis group.

The following table provides the summary of information related to the main quoted Group’s available-for-sale security, the shares of

Cimentos de Portugal (Cimpor):

AT DECEMBER 31,


COST 611 392 392

Cumulative impairment losses (4) (4) (4)

Gross unrealized gains 90 146 7

Gross unrealized losses - - -

MARKET VALUE 697 534 395

The change in the net unrealized gains or losses on shares of

Cimentos de Portugal (CIMPOR) that have been included in other

reserves for 2007, 2006 and 2005 is a decrease of 56 million euros

(before taxes), an increase of 139 million euros and an increase of

42 million euros, respectively.

In 2000, the Group acquired 9.99% of the common shares of

the Portuguese cement producer Cimentos de Portugal (Cimpor)

for 319 million euros, which represented an average 4.75 euros

per share. The market value of the shares then declined and

was 214 million euros at December 31, 2002. In December 2003,

the Group purchased an additional 2.65% of the common shares

of Cimpor common stock at 4.06 euros per share increasing

its ownership position to 12.64% as of December 31, 2006. In

April and May 2007, the Group acquired an additional 4.64%

for 219 million euros, which represents an average of 6.99 euros

per share, increasing the Group ownership in Cimpor to 17.28%.

The market value of all shares at December 31, 2007 was

697 million euros, 86 million euros above the carrying value of the

investment of 611 million euros, as disclosed in the table above.

1

2

3

4

5

6

7

8

9

10

11


Note 15 - Inventories


Note 15 - Inventories

Components of inventories are as follows:

AT DECEMBER 31,

(million euros) 2007 2006* 2005

Raw materials 374 365 382

Work-in-progress 19 16 16

Finished and semi-finished goods 777 710 893

Maintenance and operating supplies 710 643 708

INVENTORIES CARRYING VALUE 1,880 1,734 1,999

Valuation allowance (119) (115) (142)

INVENTORIES 1,761 1,619 1,857


The valuation allowance primarily relates to maintenance and operating supplies for 92 million euros, 93 million euros and 88 million euros

at December 31, 2007, 2006 and 2005, respectively.

Note 16 - Trade receivables

Components of trade receivables are as follows:

AT DECEMBER 31,

(million euros) 2007 2006* 2005

Trade receivables, gross 2,706 2,868 2,940

Valuation allowance for doubtful receivables (191) (194) (203)

TRADE RECEIVABLES 2,515 2,674 2,737


The change in the valuation allowance for doubtful receivables is as follows:


AT JANUARY 1, (194) (203) (190)

Current year addition* (53) (51) (52)

Current year release 46 31 42

Cancellation* 8 7 16

Other changes - 1 (3)

Translation adjustments 2 8 (16)

Reclassification as assets held for sale - 13 -

AT DECEMBER 31, (191) (194) (203)

* Of which current year additions net of cancellations from continuing operations. - - 33


F Note 17 - Other receivables


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, 265 million euros and 265 million euros at December

31, 2007, 2006 and 2005, respectively.

The current portion of debt includes 230 million euros, 230 million

euros and 230 million euros at December 31, 2007, 2006 and 2005,

respectively, related to these programs.

The agreements are guaranteed by subordinated deposits totaling

35 million euros, 35 million euros and 35 million euros at December

31, 2007, 2006 and 2005, respectively.

The Group owns no equity share in the special purpose entities.

Note 17 - Other receivables

Components of other receivables are as follows:

AT DECEMBER 31,

(million euros) 2007 2006* 2005

Taxes 320 303 281

Prepaid expenses 194 126 120

Interest receivables 17 29 36

Other current receivables 530 668 488

OTHER RECEIVABLES 1,061 1,126 925


“Other current receivables” include litigation indemnities, insurance indemnities, advances to fixed assets suppliers, receivables on assets

sold and short term deposits.

Note 18 - Cash and cash equivalents

Cash and cash equivalents, amounting to 1,429 million euros, at December 31, 2007, include short-term investments of 119 million euros,

evaluated at their fair value.

1

2

3

4

5

6

7

8

9

10

11


Note 19 - Shareholders’ equity – parent company


(a) Common stock

At December 31, 2007, Lafarge common stock consisted of

172,564,575 shares with a nominal value of 4 euros per share.

At December 31, 2007, the total number of theoretical voting rights

attributable to the shares is 188,440,796, after inclusion of the

double voting rights attached to registered shares held for at least

two years in the name of the same shareholders.

(b) Capital decrease

Following the share buy back program of 500 million euros

completed on September 14, 2007, the Group processed two

capital reductions:

2,973,073 shares canceled on August 1, 2007;

2,056,332 shares canceled on December 17, 2007.

(c) Stock issue

On July 15, 2005, the Group issued 576,125 shares pursuant to its

employee stock purchase plan. Proceeds from the issuance totaled

approximately 31 million euros. The Group recorded in 2005 a

non cash compensation expense and a corresponding increase

in additional paid-in-capital of 2 million euros as a result of the

issuance.

(d) Dividends

The following table indicates the dividend amount per share the

Group paid for the years 2006 and 2005 as well as the dividend

amount per share for 2007 proposed by our Board of Directors for

approval at the Annual General Meeting of shareholders to be held

on May 7, 2008. Dividends on fully paid-up shares that have been

held by the same shareholders in registered form for at least two

years are increased by 10% over dividends paid on other shares.

The number of shares eligible for this increased dividend for a

shareholder is limited to 0.5% of all outstanding shares at the end

of the fiscal year for which dividend is paid.

(euros, except total dividend payment) 2007* 2006 2005

Total dividend payment (million) 784 521 447

Base dividend per share 4.00 3.00 2.55

Increased dividend per share 4.40 3.30 2.80

* Proposed dividend. As this dividend is subject to approval by shareholders at the Annual General Meeting, it has not been included as a liability in these financial statements.

The total amount of proposed dividend takes into account the new shares to be issued pursuant to the reserved share capital increase approved by the shareholders' general

meeting of January 18, 2008.

Note 19 - Shareholders’ equity – parent company


F Note 19 - Shareholders’ equity – parent company


(e) Other reserves

The detailed roll forward of other reserves is as follows:

(million euros)

Cash flow

hedge,

net of tax

Available for

sale securities,

net of tax

Equity component

of compound

instruments,

net of tax

Actuarial

gains

and losses Total

AT JANUARY 1, 2005 (17) (24) 73 (42) (10)

Transfer to profit and loss 12 - - - 12

Change in fair value taken to equity 4 42 - - 46

Income and expenses recognized directly in equity - - - (65) (65)

Net change in deferred tax (6) (14) - - (20)

AT DECEMBER 31, 2005 (7) 4 73 (107) (37)

Transfer to profit and loss 9 - - - 9

Change in fair value taken to equity (47) 145 (73)* - 25

Income and expenses recognized directly in equity - - - 18 18

Net change in deferred tax 14 2 - - 16

AT DECEMBER 31, 2006 (31) 151 - (89) 31

Transfer to profit and loss (1) - - - (1)

Change in fair value taken to equity 13 (29) - - (16)

Income and expenses recognized directly in equity - - - 19 19

Net change in deferred tax (6) 9 - - 3

AT DECEMBER 31, 2007 (25) 131 - (70) 36

* Reclassification of equity component of OCEANE to retained earnings.

(f) Capital risk management

The Group manages equity from a long-term perspective taking the

necessary precautions to ensure its sustainability, while maintaining

an optimum financial structure in terms of the cost of capital, the

Return On Equity for shareholders and security for all counterparties

with which it has ties.

Within this framework, the Group reserves the option, with the

approval of shareholders, to issue new shares or to reduce its capital.

The Group also has the power to adapt its dividend distribution

policy, although the Group has expressed its intention to raise the

dividend in keeping with its financial performances, notably with

respect to earnings per share.

In accordance with common market practices, in managing its

financial structure, the Group strives to maintain the cash flow from

operations to net debt ratio within a predefined range.

Based on the 2007 financial statements, the cash flow from

operations to net debt ratio was 32%, compared to 26.8% at

year-end 2006 and 28.9% at year-end 2005.

In section 4.1 “Overview” of the present Annual Report, the

sub-heading “Reconciliation of our non-GAAP financial measures”

presents the Group’s definition of the indicators net debt, equity and

cash flow from operations.

In section 4.4 “Liquidity and capital resources” of the present Annual

Report, the sub-heading “Net debt and net debt ratios” presents the

net-debt-to-equity ratio and the cash flow from operations to net debt

ratio for each of the periods presented.

1

2

3

4

5

6

7

8

9

10

11


Note 20 - Share based payments



(a) Compensation expense for share based payments

The Group recorded a compensation expense for share based payments that is analyzed as follows:



Employee stock options 26 59 23

Employee share purchase plans - - 14

Restricted stock plans 3 - -

Stock appreciation rights (SAR) plans 3 - -

COMPENSATION EXPENSE FOR SHARE BASED PAYMENTS 32 59 37

In 2005, compensation expense includes 25% of the fair value

of options granted in 2002, 2003 and 2004 (due to progressive

application of IFRS 2 as described in Note 2 (x)). The 2006

compensation expense reflects the fair value amortization for all

outstanding and non vested plans, for an amount of 30 million euros.

At the time of the buy-out of minority interests in Lafarge North

America Inc, the outstanding options on May 12, 2006 (vested and

not vested) have been bought for their intrinsic value (measured as

the difference between the exercise price and the offering price by

the Group). The remaining fair value not yet amortized, has been

recognized in the profit and loss for an amount of 29 million euros.

In 2007, the compensation cost recognized includes the fair value

amortization for all outstanding and non vested plans, for an amount

of 28 million euros. An additional expense of 4 million euros has

been recorded to reflect 65% (divestiture percentage) of the fair

value of options granted to Roofing employees.

The expense related to share based payments is included in the profit and loss as follows:



Cost of sales 8 7 7

Selling and administrative expenses 20 23 30

Other operating income and expense - 29 -

Net income (loss) from discontinued operations 4 - -

COMPENSATION EXPENSE FOR SHARE BASED PAYMENTS 32 59 37

Total compensation cost related to non vested and not yet recog-

nized stock options plans, restricted stock plans and SAR plans

is 66 million euros (including 7 million euros for SAR) which will

be recognized on a straight-line basis over the vesting period from

2008 to 2011.

(b) Equity settled instruments

Stock options plans

Lafarge S.A. grants stock option plans and employee stock purchase

plans. Stock option plans offer options to purchase or subscribe

shares of the Group’s common stock to executives, senior manage-

ment, and other employees who have contributed significantly to the

performance of the Group. The option exercise price approximates

market value on the grant date. The options are vested four years

and expire ten years from the grant date.

In addition, as already mentioned in (a), the stock-based

compensation plans of Lafarge North America Inc have been

bought after the buy-out of minority interests on May 12, 2006.


F Note 20 - Share based payments


Information relating to the Lafarge S.A. stock options granted is summarized as follows:

2007 2006 2005

Options

Weighted

average

exercise price Options

Weighted

average exercise

price Options

Weighted

average exercise

price

(euros) (euros) (euros)

OUTSTANDING AT JANUARY 1, 7,501,294 80.10 7,917,523 76.83 7,309,902 74.87

Options granted 540,050 128.15 817,075 97.67 1,278,155 72.63

Options exercised (1,204,540) 75.96 (1,076,977) 69.40 (543,602) 44.41

Options canceled and expired (25,395) 45.91 (156,327) 80.03 (126,932) 60.55

OUTSTANDING AT DECEMBER 31, 6,811,409 84.77 7,501,294 80.10 7,917,523 76.83

OPTIONS EXERCISABLE AT DECEMBER 31, 3,533,624 82.12 3,516,479 85.46 3,700,765 80.20

Weighted average share price

for options exercised during the year 120.83 101.69 73.51


at option grant date (for options

granted during the year) 131.02 92.80 75.60

Weighted average fair value of options

granted during the year 38.93 22.86 20.85

Information relating to the Lafarge S.A. Stock options outstanding at December 31, 2007 is summarized as follow:

Exercise price(euros)

Number of options

outstandingWeighted average remaining life

(months) Number of options exercisable

74.72 24,015 4 24,015

74.18 42,649 9 42,649

82.70 591,136 23 591,136

79.74 253,586 35 253,586

102.12 12,754 41 12,754

96.16 897,904 47 897,904

101.79 366,295 53 366,295

74.48 290,194 59 290,194

65.95 1,055,091 72 1,055,091

70.79 671,000 84 -

72.63 1,253,510 96 -

97.67 813,225 101 -

128.15 540,050 113 -

6,811,409 3,533,624

1

2

3

4

5

6

7

8

9

10

11




LAFARGE NORTH AMERICA INC. AND ITS SUBSIDIARIES STOCK OPTION PLANS

Lafarge North America Inc.’s stock option and employee stock option purchase plans (bought in 2006) are denominated in U.S. dollars.

2007 2006 2005

Options

Weighted

average


Weighted

average


Weighted

average

exercise price

(USD) (USD) (USD)

OUTSTANDING AT JANUARY 1, - - 4,102,732 41.26 4,881,266 35.23

Options granted - - 1,105,000 64.00 1,166,500 54.50

Options exercised - - (1,183,454) 37.32 (1,665,496) 33.66

Cash settlement - - (4,013,216) 48.67 - -

Options canceled - - (11,062) 41.73 (279,538) 36.68

OUTSTANDING AT DECEMBER 31, - - - - 4,102,732 41.26

OPTIONS EXERCISABLE AT DECEMBER 31, - - - - 1,291,796 34.07


for options exercised during the year - 61.80 60.03


at option grant date (for options

granted during the year) - 64.00 54.50

Weighted average fair value

of options granted during the year - 14.69 14.67

FAIR VALUE OF OPTIONS GRANTED

As described in Note 2 (x), share option fair value is calculated at the grant date using the Black & Scholes option-pricing model. Further

changes in the fair value of instruments granted are not considered.

The Group estimated the fair value of the options granted in 2007, 2006 and 2005 based on the following assumptions:

LAFARGE S.A. OPTIONS LAFARGE NORTH AMERICA INC. OPTIONS

Years ended December 31, 2007 2006 2005 2007 2006 2005

Expected dividend yield 2.3% 3.1% 2.7% - 1.5% 1.6%

Expected volatility of stock 25.2% 28.3% 28.6% - 24.4% 30.0%

Risk-free interest rate 4.7% 3.8% 3.3% - 4.4% 4.2%

Expected life of the options (years) 8.0 8.0 8.0 - 4.2 4.5

The expected dividend yield assumption is based on market

expectations.

The expected volatility assumption has been determined based on

the observation of historical volatility over periods corresponding

to the expected average maturity of the options granted, partially

smoothed to eliminate extreme deviations and better reflect

long-term trends.

The Group assumes that the equivalent risk-free interest rate is the

closing market rate, on the last trading day of the year, for treasury

bills with maturity similar to the expected life of the options.

The Lafarge S.A. stock incentive plan was introduced on November

29, 1989. The Group assumes the estimated life of the outstanding

option agreements based upon the number of options historically

exercised and canceled since the plan inception.

Restricted stock plans

For the first time in 2007, Lafarge set up a restricted stock plan.

The shares are granted to executives and other employees for their

contribution to the continuing success of the business. For French

resident employees, these shares will be issued following a two-year

vesting period after the grant date, but will remain unavailable for

an additional two-year period. For non-French resident employees,

the shares will be vested for four years.


F Note 20 - Share based payments


Information relating to the Lafarge S.A. restricted stock plan outstanding at December 31, 2007 is summarized as follows:


Outstanding at January 1, - - -

Shares granted 143,090 - -

Shares canceled 1,205 - -

Shares definitively alloted 70 - -

Outstanding at December 31, 141,815 - -

Weighted average share price at option grant date 131.02 - -

The Group estimated the fair value of the restricted stock plan granted in 2007 based on the following assumptions:


2007 2006 2005

Expected dividend yield 2.3% - -

Post vesting transfer restriction discount 4.0% - -

The expected dividend yield assumption is based on market expec-

tations.

A discount for post vesting transfer restriction has been applied

on shares granted to French resident employees for the two years

following the vesting date.

Information relating to the Lafarge North America Inc. Stock appreciation rights plan outstanding at December 31, 2007 is summarized

as follows:

2007 2006 2005

SAR

Weighted

average

exercise price SAR

Weighted

average

exercise price SAR

Weighted

average

exercise price

(euros) (euros) (euros)

OUTSTANDING AT JANUARY 1, - - - - - -

SAR granted 260,675 124.50 - - - -

SAR exercised - - - - - -

SAR canceled - - - - - -

OUTSTANDING AT DECEMBER 31, 260,675 124.50 - - - -

OPTIONS EXERCISABLE AT DECEMBER 31, - - - - - -


for SAR exercised during the year - - -


at SAR grant date 115.90 - -

Weighted average fair value

of SAR granted during the year 32.24 - -

As described in Note 2 (x), share option fair value is calculated at the grant date using the Black & Scholes option-pricing model. The fair

value of the plan is re-estimated at each reporting date and the expense adjusted pro rata to vested rights at the relevant reporting date.

(c) Cash-settled instruments

In 2007, Lafarge granted for certain U.S. employees equity instru-

ments settled in cash, called Stock Appreciation Rights plans (SAR).

SAR give the holder, for a period of 10 years after the grant date, a

right to receive a cash payment based on the increase in the value

of the Lafarge share from the time of the grant until the date of

exercise. The SAR strike price approximates market value on the

grant date. Right grants will vest at a rate of 25% each year starting

on the first anniversary of the grant.

1

2

3

4

5

6

7

8

9

10

11


Note 21 - Minority interests


The Group estimated the fair value of the Stock Appreciation Rights plan granted in 2007 based on the following assumptions:


2007 2006 2005

Expected dividend yield 2.3% - -

Expected volatility of stock 28.4% - -

Risk-free interest rate 4.4% - -

Expected life of the SAR (years) 7.5 - -

Note 21 - Minority interests

The expected dividend yield assumption is based on market

expectations.

The expected volatility assumption has been determined based on

the observation of historical volatility over periods corresponding

to the expected average maturity of the SAR granted, partially

smoothed to eliminate extreme deviations and better reflect

long-term trends.

The Group assumes that the equivalent risk-free interest rate is

the closing market rate, on the last trading day of the year, for

treasury bills with maturity similar to the expected life of the SAR.

At December 31, 2007, the Group’s significant minority interests

are Associated Pan Malaysia Cement Sdn Bhd, Lafarge Halla

Cement Corporation, West African Portland Cement Company plc,

Ashakacem plc, Jordan Cement Factories Company PSC and

Heracles General Cement Company S.A.

In 2007, the complementary acquisition of 33.56% minority interests

of Heracles General Cement Company S.A. and the capital decrease

of Associated Pan Malaysia Cement Sdn Bhd resulted in a reduction

of 246 million and of 45 million euros respectively in minority

interests in the balance sheet compared to 2006.

The buy-out of Lafarge North America Inc. remaining minority

interests in 2006 resulted in a reduction in minority interests in

the balance sheet of 1.1 billion euros compared to 2005.


F Note 22 - Income taxes


Note 22 - Income taxes

(a) Income Tax

The Group computes current and deferred tax as described in Note 2 (w).

The income tax expense from continuing operations for the year is detailed as follows:



CURRENT INCOME TAX 575 467 599

French companies 32 25 32

Foreign companies 543 442 567

DEFERRED INCOME TAX 150 163 (129)

French companies 98 104 (168)

Foreign companies 52 59 39

INCOME TAX 725 630 470

The components of the income tax expense are as follows:



CURRENT INCOME TAX 575 467 599

Corporate income tax for the period 546 485 547

Adjustment recognized in the period for current tax of prior periods 15 (33) 17

Withholding tax on dividends 15 17 25

Other (1) (2) 10

DEFERRED INCOME TAX 150 163 (129)

Deferred taxes on origination or reversal of temporary differences 196 220 (133)

Effect of changes in tax rates (17) (6) -

Prior period unrecognized assets used in the period - - (1)

Reassessment of deferred tax assets (26) (51) (4)

Other (3) - 9

INCOME TAX 725 630 470

In addition to the income tax expense charged to profit and loss:

a deferred tax expense of 10 mill ion euros (income of

18 million euros in 2006 and income of 16 million euros in

2005) has been recognized in equity during the period.

This expense relates to the deferred tax calculated on actu-

arial gain and losses recognized through equity (negative

for 14 million euros in 2007, negative for 4 million euros in 2006

and positive for 36 million euros in 2005), the change in fair value

of derivative instruments designated as hedging instruments

in a cash flow hedge relationship (negative for 5 million euros

in 2007, positive for 19 million euros in 2006 and negative for

6 million euros in 2005), and change in fair value of available

for sale securities (positive for 9 million euros in 2007, positive

for 3 million euros in 2006 and negative for 14 million euros in

2005);

in 2006, an income tax benefit realized from the exercice of

Lafarge North America Inc. stock options was credited to equity

for 38 million euros.

An analysis of the deferred tax expense in respect of each temporary

difference is presented in Note 22 (c).

1

2

3

4

5

6

7

8

9

10

11




Effective tax rate

For the years ended December 31, 2007, 2006 and 2005, the Group’s effective tax rate is reconciled to the statutory tax rate applicable

in France i.e. 34.43%, 34.43% and 34.93%, respectively, as follows:


(%) 2007 2006 2005

Statutory tax rate 34.4 34.4 34.9

Tax effect related to the repatriation by Lafarge North America

of a 1.1 billion U.S. dollars from Canada to the United States* - - 3.2

Reevaluations* - - (2.8)

Changes in enacted tax rates* (0.5) (0.3) (0.1)

Restructuring* - (1.7) (8.6)

Capital gains taxed at a reduced rate (*)(**) (1.5) - -

Effect of foreign tax rate differentials (5.9) (5.1) (5.4)

Changes in valuation allowance on deferred tax assets (1.0) 0.9 1.4

Non deductibility of the goodwill impairment loss - 0.1 1.1

Share of net income of associates presented net of tax - (0.4) (0.6)

Other 0.7 0.4 3.1

EFFECTIVE TAX RATE 26.2 28.3 26.2

* These items give rise to an effect of 2.1% on the effective tax rate in 2007 (2.0% on the effective tax rate in 2006 and 8.3% in 2005), and result in non-recurring tax savings

of 57 million euros (44 million euros in 2006 and 155 million euros in 2005). These tax savings arose from tax efficient restructurings, gains on disposals taxed at lower rates,

asset reevaluations allowed in several countries and from the enactment of lower tax rates. In 2005, these savings are partially offset by a charge arising from the repatriation

by Lafarge North America of 1.1 billion U.S. dollars from Canada to the United States. Excluding these non-recurring tax savings, the effective tax rate would have been 28.3%

in 2007, 30.3% in 2006 and 34.5% in 2005.

** Capital gain taxed at a lower rate corresponds to the 75% tax exemption on the gain on the sale of Ybitas, Turkey.

(b) Change in deferred tax assets and liabilities

Certain deferred tax assets and liabilities have been offset in accordance with the principles described in IAS 12. The movements in deferred

tax assets and liabilities for the reporting periods are as follows:


NET DEFERRED TAX LIABILITIES AT JANUARY 1, 328 195 336

(Credit) charge to equity (excluding Actuarial gains and losses) (4) (22) 20

Actuarial gains and losses 14 4 (36)

Expense (income) 150 163 (206)

Translation adjustments (35) (29) 33

Other changes 31 (4) 48

Reclassification as assets held for sale - 21 -

NET DEFERRED TAX LIABILITIES AT DECEMBER 31, 484 328 195

Out of which:

Deferred tax liabilities 695 529 515

Deferred tax assets (211) (201) (320)


F Note 22 - Income taxes


(c) Deferred tax assets and liabilities

Components of the deferred tax balance are as follows:


(million euros) 2007 2006* 2005

Pensions and other post-retirement benefits 191 359 380

Actuarial gains and losses 34 48 52

Property, plant and equipment 310 299 477

Provisions and other current liabilities 283 459 144

Restructuring provisions 16 14 6

Net operating loss and tax credit carry forwards 264 345 541

Net capital loss carry forwards 353 471 448

DEFERRED TAX ASSETS 1,451 1,995 2,048

Valuation allowance (388) (600) (554)

NET DEFERRED TAX ASSETS 1,063 1,395 1,494

Property, plant and equipment 1,371 1,490 1,664

Other, net 176 233 25

DEFERRED TAX LIABILITIES 1,547 1,723 1,689

NET DEFERRED TAX LIABILITIES 484 328 195


Components of the deferred tax expense/(product) are as follows:



Pensions and other post-retirement benefits 106 9 19

Property, plant and equipment (26) (12) (65)

Provisions and other current liabilities 4 (12) 21

Restructuring provisions 4 (9) 4

Net operating loss and tax credit and capital loss carry forwards 78 116 (9)

Other, net (16) 71 (99)

TOTAL 150 163 (129)

The Group is in a position to control the timing of the reversal of

the temporary differences arising from investments in subsidiaries,

branches, associates and interests in joint ventures, hence it is not

required to recognize a deferred tax liability in this report. In view of

the variety of ways in which these temporary differences may reverse

and the complexity of the tax laws it is not possible to accurately

compute the temporary differences arising from such investments.

The Group has not provided any deferred taxes on the undistributed

earnings of its subsidiaries based upon its determination that such

earnings will be indefinitely reinvested. The Group does not currently

intend to distribute such profits and therefore has not provided for

such liability.

1

2

3

4

5

6

7

8

9

10

11




(d) Valuation allowance on deferred tax assets

The change in the valuation allowance is as follows:


AT JANUARY 1, 600 554 523

Addition 19 82 30

Release (173) (43) (30)

Other changes (28) 18 (1)

Translation adjustments (30) 5 32

Reclassification as assets held for sale - (16) -

AT DECEMBER 31, 388 600 554

(e) Tax credit and capital loss carry forwards

At December 31, 2007, the Group has net operating losses (NOLs) and tax credit carry forwards and capital losses carry forwards of

approximately 979 million euros and 1,152 million euros, respectively, which will expire as follows:

(million euros)

NOLs and tax credits

carry forwards

Capital loss carry

forwards Total

2008 25 - 25

2009 98 - 98

2010 14 - 14

2011 9 - 9

2012 and thereafter 833 1,152 1,985

TOTAL 979 1,152 2,131

Deferred tax assets have been recognized on all tax losses and a valuation allowance has been recorded when it is not probable that the

deferred tax assets will be recoverable in the future.


F Note 23 - Pension plans, end of service benefits and other post retirement benefits


Note 23 - Pension plans, end of service benefits and other post

retirement benefits

The Group sponsors both defined benefit and defined contribution

plans, in accordance with local legal requirements and each specific

subsidiary benefit policies.

For defined contribution plans, the Group’s obligations are limited to

periodic payments to third party organizations, which are responsible

for the financial and administrative management of the funds. The

pension costs of these plans, corresponding to the contribution

paid, are charged in the income statement. The total contribution

paid in 2007 and 2006 (excluding mandatory social security plans

organized at state level) for continuing operations is 25 million euros

and 33 million euros respectively.

Only defined benefit plans create future obligations for the Group.

Defined benefit pension plans and end of service benefits constitute

95% of the Group’s post-retirement obligations. The remaining 5%

relates to other post-retirement benefits, mainly post-employment

medical plans. For these plans, the Group’s obligations are estimated

with the assistance of independent actuaries using assumptions,

which may vary over time. The obligations related to these plans

are often funded through Group and employee contributions

to third party legal entities, which investments are subject to

fluctuations in the financial markets. These entities are usually

administered by trustees representing both employees and employer.

Based on specific studies conducted by external experts, each

Board of Trustees determines an appropriate investment strategy,

typically designed to maximize asset and liability matching and limit

investment risk by an appropriate diversification. The implementation

of this investment strategy is conditioned by market opportunities

and is usually conducted by external asset managers selected by

trustees. Assets are mostly invested in listed instruments (shares,

bonds) with limited use of derivatives or alternative asset classes.

These entities do not hold any instrument issued by the Group.

The following table shows the asset allocation of the most significant funded plans of the Group located in the United Kingdom and

North America:

NORTH AMERICA UNITED KINGDOM

(%) 2007 2006 2007 2006

Shares 70 70 53 59

Bonds 30 30 41 34

Other - - 6 7

TOTAL 100 100 100 100

1

2

3

4

5

6

7

8

9

10

11


Note 23 - Pension plans, end of service benefits and other post retirement benefits


AT DECEMBER 31,

Pension benefits Other benefits Total

(million euros) 2007 2006 2005 2007 2006 2005 2007 2006 2005

COMPONENTS OF NET PERIODIC PENSION COST

Service cost 98 121 98 8 7 8 106 128 106

Interest cost 254 254 241 15 14 14 269 268 255

Expected return on plan assets (295) (276) (243) - - - (295) (276) (243)

Amortization of past service cost (1) 9 1 5 (1) (3) 4 8 (2)

Special termination benefits 25 8 4 - - - 25 8 4

Curtailment (gain) (38) (3) (3) 1 - - (37) (3) (3)

Settlement loss 4 1 1 - - - 4 1 1

NET PERIODIC PENSION COST 47 114 99 29 20 19 76 134 118

Of which net periodic pension cost for discontinued operations - 24 - - - - - 24 -

Of which net periodic pension cost for continuing operations - 94 - - 15 - - 109 -

CHANGE IN DEFINED BENEFIT OBLIGATION

DEFINED BENEFIT OBLIGATION AT JANUARY 1, 5,315 5,207 4,358 253 256 234 5,568 5,463 4,592

Foreign currency translations (308) (57) 240 (14) (27) 36 (322) (84) 276

Service cost 98 121 98 8 7 8 106 128 106

Interest cost 254 254 241 15 14 14 269 268 255

Employee contributions 8 9 8 2 - - 10 9 8

Plan amendments (2) 8 1 13 - (10) 11 8 (9)

Curtailments (26) (4) (2) 1 - - (25) (4) (2)

Settlements* (123) - - - - - (123) - -

Business combinations/Divestitures (308) 1 11 (2) - - (310) 1 11

Special termination benefits 25 8 4 - - - 25 8 4

Benefits paid (293) (279) (242) (16) (16) (15) (309) (295) (257)

Actuarial (gain) loss related to change in assumptions (240) 7 438 (2) 14 10 (242) 21 448

Actuarial (gain) loss related to experience effect 119 40 52 (7) 5 (21) 112 45 31

DEFINED BENEFIT OBLIGATION AT DECEMBER 31, 4,519 5,315 5,207 251 253 256 4,770 5,568 5,463

Of which defined benefit obligation at December 31

for discontinued operations - 308 - - 2 - - 310 -

Of which defined benefit obligation at December 31

for continuing operations - 5,007 - - 251 - - 5,258 -

* Partial settlement of certain retirees' obligations in France in 2007.

The following schedule shows the accounting treatment for defined

benefit pension plans and end of service benefits under the column

“pension benefits” and the accounting treatment for other post

retirement benefits under the column “other benefits”. 2005 and

2006 figures were restated to reflect the new policy for actuarial

gains and losses and asset ceiling adopted by the Group (recognition

through net equity).




AT DECEMBER 31,

Pension benefits Other benefits Total

(million euros) 2007 2006 2005 2007 2006 2005 2007 2006 2005

CHANGE IN PLAN ASSETS

FAIR VALUE OF PLAN ASSETS AT JANUARY 1, 4,201 3,954 3,204 - - - 4,201 3,954 3,204

Foreign currency translations (308) (36) 192 - - - (308) (36) 192

Expected return on plan assets 295 276 243 - - - 295 276 243

Actuarial gain/loss related to experience effet (26) 76 360 - - - (26) 76 360

Employer contributions* 374 139 128 - - - 374 139 128

Employee contributions 8 9 8 - - - 8 9 8

Benefits paid (224) (214) (197) - - - (224) (214) (197)

Settlements (126) (2) (2) - - - (126) (2) (2)

Business combinations/Divestitures (46) (1) 18 - - - (46) (1) 18

FAIR VALUE OF PLAN ASSETS AT DECEMBER 31, 4,148 4,201 3,954 - - - 4,148 4,201 3,954

Actual return on plan assets 269 352 603 - - - 269 352 603

Of which fair value of plan assets at December 31

of discontinued operations - 46 - - - - - 46 -

Of which fair value of plan assets at December 31

of continuing operations - 4,155 - - - - - 4,155 -

RECONCILIATION OF PREPAID (ACCRUED) BENEFIT COST

FUNDED STATUS OF THE PLAN (371) (1,114) (1,253) (251) (253) (256) (622) (1,367) (1,509)

Unrecognized actuarial past service cost 6 8 9 (7) (9) (10) (1) (1) (1)

Unrecognized asset due to asset ceiling limitations (76) (42) (46) - - - (76) (42) (46)

PREPAID (ACCRUED) PENSION COST AT DECEMBER 31, (441) (1,148) (1,290) (258) (262) (266) (699) (1,410) (1,556)

Of which prepaid pension cost at December 31

from discontinued operations - 1 - - - - - 1 -

Of which accrued pension cost at December 31

from discontinued operations - (263) - - (2) - - (265) -

NET AMOUNT RECOGNIZED AT END PERIOD

FROM DISCONTINUED OPERATIONS - (262) - - (2) - - (264) -

Of which prepaid pension cost at December 31

from continuing operations 104 31 15 - - - 104 31 15

Of which accrued pension cost at December 31

from continuing operations (545) (917) (1,305) (258) (260) (266) (803) (1,177) (1,571)

NET AMOUNT RECOGNIZED AT END PERIOD

FROM CONTINUING OPERATIONS (441) (886) (1,290) (258) (260) (266) (699) (1,146) (1,556)

* Including :

- exceptional contributions to North American pension funds for 22 million U.S. dollars, 29 million U.S. dollars and 45 million U.S. dollars in 2007, 2006 and 2005, respectively;

- an exceptional contribution to the UK pension plan of 96 million British pound in 2007 due to Roofing divestiture;

- exceptional contributions to the UK pension plan of 18 million British pound in 2007, 2006 and 2005;

- and a contribution of 126 millions Euros in 2007 for the partial settlement of certain retirees' obligations in France.

1

2

3

4

5

6

7

8

9

10

11


Note 23 - Pension plans, end of service benefits and other post retirement benefits


Amounts recognized through the Statement of Recognized Income and Expense are presented in the table below (before deduction of tax

and minority interest):

PENSION BENEFITS OTHER BENEFITS TOTAL

(million euros) 2007 2006 2005 2007 2006 2005 2007 2006 2005

STOCK OF ACTUARIAL GAINS/(LOSSES)

RECOGNIZED AT DECEMBER 31, (96) (178) (232) 16 8 34 (80) (170) (198)

AMOUNTS REGOGNIZED IN THE PERIOD 46 33 (142) 10 (19) 11 56 14 (131)

Of which Actuarial Gains/(Losses) 87 29 (130) 10 (19) 11 97 10 (119)

Of which Asset ceiling impact (41) 4 (12) - - - (41) 4 (12)

The Group did not recognize any reimbursement right as an asset for the years presented.

The defined benefit obligation for continuing activities disclosed in the table above arises from:

AT DECEMBER 31,


Plans wholly unfunded 630 665 908

Plans wholly or partially funded 4,140 4,593 4,555

TOTAL DEFINED BENEFIT OBLIGATION 4,770 5,258 5,463

The primary assumptions made to account for pensions and end of service benefits are as follows:

(%) United States Canada United Kingdom Euro zone

2007

Discount rate at December 31 6.20 5.20 5.80 4.75 to 5.25

Salary increase at December 31 4.00 4.50 4.90 2.50 to 4.00

Expected return rate on assets at January 1 8.00 8.00 6.90 4.50 to 5.00

2006

Discount rate at December 31 5.85 4.95 5.10 4.25 to 4.50



2005

Discount rate at December 31 5.70 5.25 4.70 4.20



The expected long-term rate of investment return on pension plan

assets is based on historical performance, current and long-term

outlook and the asset mix in the pension trust funds.

Discount rates reflect the rate of long-term high-grade corporate

bonds.

For the fiscal year 2008, the expected return rates on assets are

as follows:

United States 8.00

Canada 8.00

United Kingdom 6.90

Euro zone 4.25 to 4.75




The expected rates of investment return on pension assets and

the discount rates used to calculate the Group’s pension related

obligations are established in close consultation with independent

advisors.

(a) Pension Plans

The main defined benefit pension plans provided to employees

by the Group in the continuing activities are mainly in the United

Kingdom and North America (The United States of America and

Canada). The related pension obligations represent 62% and 26%,

respectively, of the Group’s total defined benefit plan obligations.

In the United Kingdom, pension related obligations are principally

administered through a unique pension fund, governed by an

independent board. Pension entitlements are calculated based on

final carried salaries and the number of service years accomplished

with the Group according to benefit formulas which are usually

linear. This pension fund receives employer and employee

contributions, based on rates determined every three years on

average by independent actuaries. Funding of the obligation is

based upon both local minimum funding requirements as well as

long term funding objectives to settle the future statutory pension

obligations. The revision of annual contribution needs performed in

2005 had required us to make additional contributions of 18 million

British pounds per year between 2005 and 2007. For the period

2008-2012, it has been decided that additional contributions of 10

million British pounds could be called based on the funding situation

of the plan at the end of June determined by the plan actuaries.

Required employer contributions in 2008 are expected to be 17

million British pounds. At the end of 2007, approximately 53% of

the pension fund assets are invested in equity instruments, which

is consistent with the long-term nature of the pension obligations,

approximately 41% are invested in bond portfolios and cash

instruments and 6% in real estate.

In the United States and Canada, defined pension benefits are

granted through various plans. Contributions are based upon

required amounts to fund the various plans as well as tax-deductible

minimum and maximum amounts. At the end of 2007, 70% of the

pension fund assets were invested in equity instruments and 30%

in bond portfolios. Required employer contributions in 2008 are

expected to be 41 million U.S. dollars. The Group chose for tax and

financial purposes to make a discretionary contribution of 22, 29 and

45 million U.S. dollars during 2007, 2006 and 2005, respectively, to

its North American pension funds.

In conformity with the Group’s accounting policies, (Note 2 (t)) the

difference between actual and expected returns on fund assets is

treated as actuarial gains and losses.

As described in Note 2 (t), the adoption of IFRS led to the immediate

recognition through equity of all accumulated unrecognized actuarial

losses as of January 1, 2004.

(b) End of service benefits

End of service benefits are generally lump sum payments based

upon an individual’s years of credited service and annual salary at

retirement or termination of employment. The primary obligations

for end of service benefits are in France, Greece, Korea and Chile.

(c) Other post-retirement benefits

In North America, and to a lesser extent in France and Jordan,

certain subsidiaries provide healthcare and insurance benefits

to retired employees. These obligations are unfunded, but the

federal subsidies expected in the coming years in the United States

(Medicare Act) have significantly reduced Group obligations.

In North America, the assumed health care cost trend rate used in

measuring the accumulated postretirement benefit obligation differs

between U.S. and Canadian plans. At the end of 2007, the rate used

was 9% in the U.S. plan, decreasing to 5% in 2011, and 8.4% in

the Canadian plan, decreasing to 4.7% in 2011.

At the end of 2006, the used rate was 9% in the U.S. plan,

decreasing to 5% in 2011, and 8.7% in the Canadian plan,

decreasing to 4.7% in 2014. At the end of 2005, the rate used was

10% in the U.S. plan, decreasing to 5% in 2011, and 8.4% in the

Canadian plan, decreasing to 4.7% in 2011.

The assumed rate for Medicare healthcare cost trends was the same

for U.S. and Canadian plans.

Assumed healthcare costs trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage-point

increase or decrease in assumed healthcare cost trend rates would have the following effects:

ONE-PERCENTAGE-POINT

(million euros) Increase Decrease

Increase (decrease) in defined benefit obligation at December 31, 2007 32 (27)

Increase (decrease) in the total of service and interest cost components for 2007 3 (3)

1

2

3

4

5

6

7

8

9

10

11


Note 24 - Provisions



(a) Changes in the balance of provisions

(million euros)

Restructuring

provisions

Site restoration

and

environmental

provisions

Other

provisions Total

AT JANUARY 1, 2005 48 231 759 1,038

Current year addition* 56 46 144 246

Current year release (63) (24) (60) (147)

Cancellation* (3) (18) (68) (89)

Other changes (1) 2 5 6

Translation adjustments 1 16 36 53

AT DECEMBER 31, 2005 38 253 816 1,107

Current portion 123

Non current portion 984

AT JANUARY 1, 2006 38 253 816 1,107

Current year addition 101 58 99 258


Cancellation (2) (18) (66) (86)

Other changes 6 4 58 68

Translation adjustments (1) (9) (17) (27)

Reclassification to held for sale (21) (7) (125) (153)

AT DECEMBER 31, 2006 86 240 741 1,067

Current portion 132


AT JANUARY 1, 2007 86 240 741 1,067

Current year addition 106 51 206 363


Cancellation (25) (9) (29) (63)

Other changes - 4 (69) (65)

Translation adjustments (5) (9) 60 46

AT DECEMBER 31, 2007 73 249 807 1,129

Current portion 201


* Of which current year additions net of cancellations from continuing operations. 117

Other provisions include:

a provision related to the risk arising from the “competition”

litigation risk of 335 million euros at December 31, 2007 (340

million euros at December 31, 2006 and 330 million euros at

December 31, 2005), including 51 million euros (40 million

euros at December 31, 2006 and 30 million euros at December

31, 2005) of late-payment interest. Also see Note 29 Legal and

arbitration proceedings;

re-insurance reserves for an amount of 124 million euros at

December 31, 2007 (101 million euros at December 31, 2006,

73 million euros at December 31, 2005).


F Note 24 - Provisions


(b) Changes in the balance of restructuring provisions

Restructuring costs from continuing operations are analyzed as follows:

(millions d’euros)

Employee

termination benefits

Contract

termination costs Other costs Total

AT JANUARY 1, 2005 26 3 19 48

Current year addition** 49 2 5 56*

Current year release (47) (2) (14) (63)*

Cancellation** (2) - (1) (3)

Other changes - - (1) (1)

Translation adjustments - - 1 1

AT DECEMBER 31, 2005 26 3 9 38

Current year addition 91 4 6 101*


Cancellation - - (2) (2)

Other changes 3 - 3 6

Translation adjustments (1) - - (1)

Reclassification to held for sale (21) - - (21)

AT DECEMBER 31, 2006 72 6 8 86

Current year addition 97 5 4 106*


Cancellation (24) (1) - (25)

Other changes (2) (1) 3 -

Translation adjustments (4) - (1) (5)

AT DECEMBER 31, 2007 64 3 6 73

* Including costs incurred and paid in the same period for 47 million euros in 2007 (23 million euros in 2006, 28 million euros in 2005).

** Of which current year additions net of cancellations from continuing operations. 26

Restructuring costs, which are included under Other Operating Income (Expenses) are mainly related to the implementation of the

Excellence 2008 cost reduction action plans and can be analyzed as follows:



Employee termination benefits 73 91 25

Contract termination costs 4 4 -

Other costs 4 4 1

RESTRUCTURING COSTS 81 99 26

1

2

3

4

5

6

7

8

9

10

11




The main restructuring plans relate to:



CEMENT

Jordan 21 16 -

United Kingdom 7 18 3

Greece 6 33 -

North America 3 4 2

France 3 - 1

South Africa 1 - -

Brazil 1 1 -

China 1 2 -

Korea 1 2 10

Malaysia 1 - -

Serbia 1 1 -

Turkey 1 - -

Nigeria - 4 -

Chile - 2 -

Mexico - 1 -

India - - 3

Morocco - - 2

AGGREGATES & CONCRETE

North America 9 3 -

France 7 3 -

United Kingdom 1 1 2

Singapore - - 1

GYPSUM

North America 9 - -

France 1 - -

Poland - 1 -

Germany - - 1

OTHER

North America 5 5 -

Other plans less than 1 million euros 2 2 1

RESTRUCTURING COSTS 81 99 26


F Note 25 - Debt


Cement Greece: in 2007 and 2006, restructuring costs mainly

include termination indemnities linked to the negotiated leave of

employees during the course of the reorganization of the entity. This

year’s charge includes new provisions for expected 2008 departures

netted by reversal of 2006 provisions that are not expected to be used.

Cement Jordan: in 2007 and 2006, restructuring costs mainly

include termination indemnities linked to the negotiated leave

of employees in the course of the reorganization of the entity.

This year’s charge includes new provisions for expected 2008

departures.

Cement United Kingdom: restructuring costs include termination

indemnities and relocation costs mainly linked to the head office

move.

Aggregates & Concrete North America: in 2007 restructuring

costs mainly include costs related to severance expenses, bonus

payout and other charges to be paid to employees primarily due to

the elimination of certain business support functions following the

merger of two operating units.

Gypsum North America: in 2007 restructuring costs mainly include

expenses related to the closure of the Cornerbrook plant, Canada,

and a reduction in operations at the Newark plant, United States.

Cement Korea: in 2005, restructuring costs mainly include termina-

tion indemnities linked to the departure of 233 employees following

the mothballing of the SINGI plant and the sub-contracting of the

quarry sites’ operation.

Note 25 - Debt

The debt split is as follows:

AT DECEMBER 31,


Long-term debt excluding put options on shares of subsidiaries 8,025 9,215 6,856

Put options on shares of subsidiaries, long-term 322 206 72

LONG-TERM DEBT 8,347 9,421 6,928

Short-term debt and current portion of long-term debt excluding

put options on shares of subsidiaries 1,614 1,553 1,886

Put options on shares of subsidiaries, short-term 148 111 191

SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT 1,762 1,664 2,077

Total debt excluding put options on shares of subsidiaries 9,639 10,768 8,742

Total put options on shares of subsidiaries 470 317 263

TOTAL DEBT 10,109 11,085 9,005

(a) Analysis of debt excluding put options on shares of subsidiaries by type of financing

AT DECEMBER 31,


Convertible bonds - - 482

Other debenture loans 5,652 6,138 5,050

Bank loans and credit lines 1,406 1,457 1,871

Commercial paper 1,193 2,188 524

Other notes 985 522 158

Other 403 463 657

TOTAL DEBT EXCLUDING PUT OPTIONS ON SHARES OF SUBSIDIARIES 9,639 10,768 8,742

1

2

3

4

5

6

7

8

9

10

11


Note 25 - Debt


Convertible bonds

On June 29, 2001 the Group issued 10,236,221 bonds convertible

into common shares (OCEANEs), for a total nominal amount of

1,300,000,067 euros, bearing interest at an annual rate of 1.5%.

The conversion option was granted until December 21, 2005,

and only 590 bonds have been converted into 619 shares. In

2005, the Group repurchased 6,772,429 bonds for a total nominal

amount of 860,098,483 euros. The convertible bonds matured

on January 1, 2006, and the 3,463,202 remaining OCEANEs

were repaid at their face value amounting to 440 million euros.

Other debenture loans

At December 31, 2007, debenture loans consist of bonds issued

mainly in euros, U.S. dollars and British pounds with a weighted

average interest rate of 6.2% (6.7% at December 31, 2006 and

6.3% at December 31, 2005). Their maturities range from 2008 to

2036, with an average maturity of 8 years and 3 months (i.e. being

2016). In June 2007, the Group issued a debenture loan of 500

million euros with a 5.375% coupon and a 10-year maturity.

The Group has a Euro Medium-Term Note (EMTN) program, which

allows for a maximum issuable amount of 7,000 million euros. At

December 31, 2007, 4,162 million euros had been issued under the

EMTN program, including 3,302 million euros of debenture loans

and 860 million euros of private placements included under “Other

notes”. The weighted average interest rate of EMTN issues is 5.4%

with maturities ranging from 2008 to 2020.

Bank loans

At December 31, 2007, bank loans total 1,401 million euros and

are primarily comprised of loans to Group subsidiaries in their local

currencies.

The weighted average interest rate on these bank loans is

approximately 6.4% at December 31, 2007 (6.1% at December 31,

2006 and 5.7% at December 31, 2005).

Committed long and medium-term credit lines

Drawdowns on long and medium-term committed credit lines

amount to 5 million euros out of a maximum amount available of

3,074 million euros equivalent at December 31, 2007. The average

interest rate of the amounts drawn mainly in Thai baht, Vietnamese

dong and Indonesian rupiah is approximately 8.4% at December

31, 2007 (5.7% at December 31, 2006 related to amounts drawn

mainly in U.S. dollars and 3.7% at December 31, 2005, resulting

from the amounts drawn in Canadian dollars).

The credit lines are used primarily as a back-up for the short-term

financings of the Group and contribute to the Group’s liquidity.

The average non-utilization fee of these credit lines stands at 8 basis

points at December 31, 2007 (8 basis points at December 31, 2006

and 10 basis points at December 31, 2005).

In December 2007, the Group set up an acquisition credit facility of

7.2 billion euros for the acquisition of Orascom Cement. The average

non-utilization fee of this credit facility stands at 19 basis points at

December 31, 2007.

Commercial paper

The Group’s euro denominated commercial paper program at

December 31, 2007 allows for a maximum issuable amount of

3,000 million euros. Commercial paper can be issued in euros,

U.S. dollars, Canadian dollars, Swiss francs or British pounds. At

December 31, 2007, commercial paper issued under this program

totaled 1,193 million euros. This commercial paper bears an

average interest rate close to the European inter-bank offer rate

(“Euribor”) for maturities generally ranging from 1 to 3 months. As of

December 31, 2007, the weighted average interest rate of the euro

denominated commercial paper is 4.7% (3.6% at December 31,

2006 and 2.4% at December 31, 2005).

Other notes

Other notes mainly consist of notes denominated in euros with a

weighted average interest rate of 5.1% at December 31, 2007 (4.6%

at December 31, 2006 and 6.2% at December 31, 2005).

(b) Analysis of debt excluding put options

on shares of subsidiaries by maturity

At December 31, 2007, 1,193 million euros of short-term debt

(exclusively commercial paper) have been classified as long-term

based upon the Group’s ability to refinance these obligations on a

medium and long-term basis through its committed credit facilities.

AT DECEMBER 31,

(million euros) 2007

2008 1,614

2009 419

2010 1,034

2011 506

2012 1,761

Beyond 5 years 4,305

TOTAL DEBT EXCLUDING PUT OPTIONS

ON SHARE OF SUBSIDIARIES 9,639


F Note 25 - Debt


(c) Analysis of debt excluding put options on shares of subsidiaries by currency

AT DECEMBER 31, 2007 2006 2005

(million euros) Before swaps After swaps Before swaps After swaps Before swaps After swaps

Euro (EUR) 5,623 4,010 6,457 3,969 5,420 3,769

U.S. dollar (USD) 1,836 3,542 2,226 3,912 885 2,167

British pound (GBP) 1,280 1,034 1,407 1,963 1,409 1,654

Malaysian ringgit (MYR) 131 131 83 83 127 127

Canadian dollar (CAD) 115 84 95 234 389 381

Other 654 838 500 607 512 644

TOTAL 9,639 9,639 10,768 10,768 8,742 8,742

(d) Analysis of debt excluding put options on shares of subsidiaries by type of interest rates

AT DECEMBER 31, 2007 2006 2005

(million euros) Before swaps After swaps Before swaps After swaps Before swaps After swaps

Floating rate 3,445 4,324 3,942 4,718 2,284 3,007

Fixed rate below 6% 3,454 2,581 3,107 2,213 4,274 3,499

Fixed rate between 6% and 10% 2,503 2,497 3,459 3,577 1,910 1,961

Fixed rate 10% and over 237 237 260 260 274 275

TOTAL 9,639 9,639 10,768 10,768 8,742 8,742

(e) Particular clauses

in financing contracts

Financial covenants

Loan contracts requiring compliance with certain financial covenants

are located in subsidiaries in the following countries: Bangladesh,

Chile, Ecuador, India, Indonesia, Philippines, South Africa, Ukraine,

United Kingdom and Vietnam. Debt with such financial covenants

represents approximately 4% of the total Group debt excluding put

options on shares of subsidiaries at December 31, 2007.

The above financial covenants have not been triggered as of

December 31, 2007 and have a low probability of being triggered.

Given the split of these contracts on various subsidiaries and

the quality of the Group liquidity protection through its access

to committed credit lines, the existence of such clauses cannot

materially affect the Group’s financial situation.

Change of control clauses

Change of control clauses are included in the acquisition credit

facility dedicated to the acquisition of Orascom Cement and in

several of the Group’s committed credit facilities contracts, which

amount to 9,886 million euros, i.e. 97% of the total outstanding

credit facilities contracted at parent company level. As a

consequence, in the event of a change in control, these facilities

will be automatically canceled if undrawn or, if drawn upon, will

require immediate repayment. Change of control clauses are also

included in some debenture loans and private placements issued

under the EMTN program, which amount to 1,000 million euros.

In case of a change in control, the holders of these notes would

be entitled, under certain conditions, to request their repayment.

The average spot interest rate of the debt after swaps, as at

December 31, 2007, is 5.8% (5.8% as at December 31, 2006 and

5.5% at December 31, 2005). The average yearly interest rate of

debt after swaps in 2007 is 5.8% (5.5% in 2006).

1

2

3

4

5

6

7

8

9

10

11


Note 26 - Financial instruments


(f) 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 acquired 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 506 million euros, 354 million euros and 305 million euros

at December 31, 2007, 2006 and 2005, respectively.

Out of the outstanding put options at year-end 2007, 170 million euros

and 268 million euros can be exercised in 2008 and 2009 respectively.

The remaining 68 million euros can be exercised starting 2010.

As explained in Note 2 (s), 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 470 million euros, 317 million euros and 263 million euros

at December 31, 2007, 2006 and December 31, 2005, respectively,

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 (306 million euros, 177 million euros and 124 million euros at

December 31, 2007, 2006 and 2005 respectively).

Put options on shares of associates and joint ventures are presented

in Note 28 (c) as “Other commitments”.


(a) Designation of derivative instruments

for hedge accounting

The Group uses derivative financial instruments to manage market

risk exposures. Such instruments are entered into by the Group

solely to hedge such exposures on anticipated transactions or firm

commitments. The Group does not enter into derivative contracts

for speculative purposes.

Certain derivative instruments are designated as hedging

instruments in a cash flow or fair value hedge relationship in accord-

ance with IAS 39 criteria.

Other derivatives, for which documentation of the hedging

relationship as required by IAS 39 would show an unfavorable

cost-benefit ratio, are not designated as hedges for accounting

purposes. Changes in fair value are recorded directly in profit and

loss, as required by IAS 39.


F Note 26 - Financial instruments


(b) Fair values

The following details the cost and fair values of financial instruments:

BALANCE SHEET FINANCIAL INSTRUMENTS

AT DECEMBER 31, 2007 2006* 2005

(million euros) IAS 39 CATEGORY

Carrying

amount

Net Fair

value

Carrying

amount

Net Fair

value

Carrying

amount

Net Fair

value

ASSETS

Cash and cash equivalents Financial assets at fair value recognized in P&L 1,429 1,429 1,155 1,155 1,735 1,735

Trade receivables Loans and Receivables at amortized cost 2,515 2,515 2,674 2,674 2,737 2,737

Other receivables Loans and Receivables at amortized cost 1,061 1,061 1,126 1,126 925 925

Other financial assets 1,096 1,096 830 830 626 626

- Held-to-maturity investments Held-to-maturity investments at amortized cost 3 3 1 1 3 3

- Available for sale investments Available for sale investments at fair value

recognized in equity 780 780 628 628 444 444

- Financial assets held for trading Financial assets at fair value recognized in P&L - - - - - -

- Loans and long term receivables Loans and Receivables at amortized cost 191 191 153 153 150 150

- Prepaid pension assets - 104 104 31 31 15 15

- Restricted cash Financial assets at fair value recognized in P&L 18 18 17 17 14 14

Derivative instruments - assets Refer below 57 57 130 130 147 147

LIABILITIES

Short-term bank borrowings Financial liabilities at amortized cost 483 483 278 278 332 332

Trade payables Financial liabilities at amortized cost 1,732 1,732 1,598 1,598 1,675 1,675

Other payables Financial liabilities at amortized cost 1,553 1,553 1,668 1,668 1,575 1,575

Debenture loans Financial liabilities at amortized cost 5,652 5,520 6,138 6,303 5,532 5,787

Other long-term financial debt

(including current portion) Financial liabilities at amortized cost 3,504 3,487 4,352 4,339 2,878 2,886

Put options on shares of subsidiaries - 470 470 317 317 263 263

Derivative instruments - liabilities Refer below 62 62 45 45 98 98

DERIVATIVE INSTRUMENTS

Interest rate derivative instruments (22) (22) (1) (1) 26 26

- designated as hedging instruments in cash flow hedge relationship (15) (15) (2) (2) (10) (10)

- designated as hedging instruments in fair value hedge relationship (8) (8) 1 1 36 36

- not designated as hedges for accounting purposes 1 1 - - - -

Foreign exchange derivative instruments 8 8 35 35 (33) (33)

- designated as hedging instruments in cash flow hedge relationship (2) (2) (2) (2) - -

- designated as hedging instruments in fair value hedge relationship - - - - - -

- not designated as hedges for accounting purposes 10 10 37 37 (33) (33)

Commodities derivative instruments 9 9 (18) (18) 4 4

- designated as hedging instruments in cash flow hedge relationship 9 9 (18) (18) 4 4

- designated as hedging instruments in fair value hedge relationship - - - - - -

- not designated as hedges for accounting purposes - - - - - -

Other derivative instruments - - 69 69 52 52

- equity swaps not designated as hedges for accounting purposes - - 62 62 13 13

- embedded derivatives not designated as hedges for accounting purposes - - 7 7 39 39


1

2

3

4

5

6

7

8

9

10

11




The fair values of financial instruments have been estimated on the

basis of available market quotations or the use of various valuation

techniques, such as present value of future cash flows. However,

the methods and assumptions followed to disclose fair values are

inherently judgmental. Thus, estimated fair values do not necessarily

reflect amounts that would be received or paid in case of immediate

settlement of these instruments.

The use of different estimations, methodologies and assumptions

could have a material effect on the estimated fair value amounts.

The methodologies used are as follows:

cash and cash equivalents, trade receivables, trade payables,

short-term bank borrowings: due to the short-term nature of these

balances, the recorded amounts approximate fair value;

other financial assets: for marketable securities, quoted market

prices are used. Other investments, amounting to 37 million euros

at December 31, 2007, for which there is no quoted price, are

carried at cost because a reasonable estimate of fair value could

not be made without incurring excessive costs. The investment

in Cimentos de Portugal (Cimpor) is carried at market value with

unrealized gains and losses recorded in a separate component

of equity;

debenture loans: the fair values of the debenture loans were

estimated at the quoted value for borrowings listed on a sufficiently

liquid market;

other long-term financial debt: the fair values of long-term debt

were determined by estimating future cash flows on a borrowing-

by-borrowing basis, and discounting these future cash flows using

a rate which takes into account the Group’s spread for credit risk

at year-end for similar types of debt arrangements;

derivative instruments: the fair values of foreign exchange,

interest rate, commodities and equity derivatives were calculated

using market prices that the Group would pay or receive to settle

the related agreements.

(c) Foreign currency risk

In the course of its operations, the Group’s policy is to hedge all

material foreign currency exposures arising from its transactions

using derivative instruments as soon as a firm or highly probable

commitment is entered into or known. These derivative instruments

are limited to forward contracts, foreign currency swaps and options,

with a term generally less than one year.

This policy is implemented in all of the Group’s subsidiaries, which

are required to ensure its monitoring. When allowed by local

regulations and when necessary, Group subsidiaries have to hedge

their exposures with the corporate treasury department.

The Group’s operating policies tend to reduce potential foreign

currency exposures by requiring all liabilities and assets of controled

companies to be denominated in the same currency as the cash

flows generated from operating activities, the functional currency.

The Group may amend this general rule under special circumstances

in order to take into account specific economic conditions in a

specific country such as, inflation rates, interest rates, and currency

related issues such as convertibility and liquidity. When needed,

currency swaps are used to convert debts most often raised in euros,

into foreign currencies.

See Section 4.5 (Market risks) for more information on our exposure to foreign currency risk.

Foreign currency hedging activity

At December 31, 2007, most forward contracts have a maturity date of less than one year. The nominal amount of foreign currency hedging

instruments outstanding at year-end is as follows:

AT DECEMBER 31,


FORWARD CONTRACT PURCHASES AND CURRENCY SWAPS

U.S. dollar (USD) 293 298 460

British pound (GBP) 428 766 491

Other currencies 250 235 164

TOTAL 971 1,299 1,115

FORWARD CONTRACT SALES AND CURRENCY SWAPS

U.S. dollar (USD) 1,991 1,948 1,716

British pound (GBP) 293 1,061 729

Other currencies 289 417 288

TOTAL 2,573 3,426 2,733




Details of the balance sheet value of instruments hedging foreign currency risk

At December 31, 2007, 2006 and 2005, most of the Group’s foreign currency derivatives were not designated as hedges for accounting

purposes (See Note 26 (a) (Designation of derivative instruments for hedge accounting)). Changes in fair value were recorded directly

in profit and loss. The net impact recognized in financial expenses in 2007 is disclosed in Note 7.

AT DECEMBER 31, 2007 2006 2005

(million euros)

Derivatives’

fair value

Underlying

reevalua-

tion

Net

impact

Derivatives’

fair value

Underlying

reevalua-

tion

Net

impact

Derivatives’

fair value

Underlying

reevalua-

tion

Net

impact

ASSETS

Non-current derivative instruments - - - - - - - - -

Current derivatives instruments 43 - 43 49 - 49 47 - 47

Net reevaluation of financial loans

and borrowings denominated

in foreign currencies - - - - - - - 24 24

LIABILITIES

Non-current derivative instruments - - - - - - - - -

Current derivative instruments 35 - 35 14 - 14 80 - 80

Net reevaluation of financial loans

and borrowings denominated

in foreign currencies - 16 16 - 46 46 - - -

NET IMPACT ON EQUITY 8 (16) (8) 35 (46) (11) (33) 24 (9)

1

2

3

4

5

6

7

8

9

10

11




Interest rate hedging activity

AT DECEMBER 31, 2007 LESS THAN 1 YEAR 1 TO 5 YEARS MORE THAN 5 YEARS TOTAL

(million euros) Fixed rate Floating rate Fixed rate Floating rate Fixed rate Floating rate Fixed rate Floating rate

Debt* 679 935 1,308 2,412 4,207 98 6,194 3,445

Cash and cash equivalents - (1,429) - - - - - (1,429)

NET POSITION BEFORE HEDGING 679 (494) 1,308 2,412 4,207 98 6,194 2,016

Hedging instruments 70 (70) (243) 243 (706) 706 (879) 879

NET POSITION AFTER HEDGING 749 (564) 1,065 2,655 3,501 804 5,315 2,895

* Debt excluding put options on shares of subsidiaries.

The notional value of interest rate derivative instruments at year-end is as follows:

MATURITIES OF NOTIONAL CONTRACT VALUES AT DECEMBER 31, 2007*

(million euros) Average rate 2008 2009 2010 2011 2012 > 5 years Total

Pay fixed

(designated as cash flow hedge)

Euro 6.5% 70 - - - - - 70

Other currencies 7.9% - 7 5 13 21 58 104

Pay floating

(designated as fair value hedge)

Euro 4.4% - - - - - 600 600

Other currencies 6.5% - - 273 - - 136 409


Euro - - - - - - - -

Other currencies 7.0% 34 17 - - - - 51

TOTAL 104 24 278 13 21 794 1,234

(d) Interest rate risk

The Group is primarily exposed to fluctuations in interest rates based

upon the following:

price risk with respect to fixed-rate financial assets and liabilities.

Interest rate fluctuations impact the market value of fixed-rate

assets and liabilities;

cash flow risk for floating rate assets and liabilities. Interest

rate fluctuations have a direct effect on the financial income or

expense of the Group.

In accordance with established policies, the Group seeks to miti-

gate these risks using, to a certain extent, interest rate swaps and

options.

Interest rate risk derivatives held at December 31, 2007 were mainly

designated as hedging instruments in:

cash flow hedge relationship for derivatives used to hedge cash

flow risk;

fair value hedge relationship for derivatives used to hedge

price risk.






Pay fixed


Euro 6.3% 151 70 - - - - 221

Other currencies 5.1% 28 25 8 - - - 61

Pay floating


Euro 3.3% - - - - - 600 600

Other currencies 6.2% - - - 298 - 152 450


Euro - - - - - - - -

Other currencies 9.5% 21 7 - - - - 28

TOTAL 200 102 8 298 - 752 1,360



Pay fixed


Euro 6.1% 100 151 70 - - - 321

Other currencies 4.8% 5 4 - 9 - - 18

Pay floating


Euro 2.1% - - - - - 600 600

Other currencies 5.5% - - - - 292 170 462

TOTAL 105 155 70 9 292 770 1,401

* The notional amounts of derivatives represent the face value of financial instruments negotiated with counterparties. Notional amounts in foreign currency are expressed in

euros at the year-end exchange rate.

1

2

3

4

5

6

7

8

9

10

11




Details of the balance sheet value of instruments hedging interest rate risk

AT DECEMBER 31, 2007 2006 2005

(million euros)

Impact on

derivatives

Impact on

underlying Net impact

Impact on

derivatives

Impact on


Impact on

derivatives

Impact on


ASSETS

Non-current derivative instruments 2 - 2 7 - 7 36 - 36

Current derivative instruments - - - - - - - - -

LIABILITIES

Long-term debt - (8) (8) - 1 1 - 36 36

Non-current derivative instruments 24 - 24 7 - 7 10 - 10

Current derivative instruments - - - 1 - 1 - - -

NET IMPACT ON EQUITY (22) 8 (14) (1) (1) (2) 26 (36) (10)

Commodities hedging activity

The notional value of commodity derivative instruments at year-end is as follows:

MATURITIES OF NOTIONAL CONTRACT RESIDUAL VALUES AT DECEMBER 31, 2007*

(million euros) 2008 2009 2010 2011 2012 > 5 years Total

Natural Gas (NYMEX) 30 18 6 - - - 54

Heating Oil (NYMEX) 31 5 - - - - 36

Others 22 - - - - - 22

TOTAL 83 23 6 - - - 112

MATURITIES OF NOTIONAL CONTRACT RESIDUAL VALUES AT DECEMBER 31, 2006*

(million euros) 2007 2008 2009 2010 2011 > 5 years Total

Natural Gas (NYMEX) 44 23 8 - - - 75

Heating Oil (NYMEX) 34 4 - - - - 38

Others 72 12 - - - - 84

TOTAL 150 39 8 - - - 197

* The notional residual amounts of derivatives represent the residual value at December 31 of financial instrument negociated with counterparties. Notional amounts on foreign

currency are expressed in euros at the year-end exchange rate.

(e) Commodity risk

The Group is subject to commodity risk with respect to price changes

mainly in the electricity, natural gas, petcoke, coal, fuel, diesel and

sea freight markets.

The Group uses, from time to time, financial instruments to manage

its exposure to these risks. At December 31, 2007 and 2006, these

derivative instruments were mostly limited to swaps and options.

At December 31, 2005, such commitments were not significant.

See Section 4.5 (Market risks) for more information on our commodity risk hedging policy and procedure.


F Note 27 - Other payables


Details of the balance sheet value of instruments hedging commodities risk

Commodities derivative instruments held at December 31, 2007 and 2006 were all designated as hedging instruments in cash flow hedge

relationship.

Balance sheet values of commodity derivative instruments are as follows:

AT DECEMBER 31,

(million euros) 2007 2006

ASSETS

Non-current derivative instruments 3 1

Current derivative instruments 9 4

LIABILITIES

Non-current derivative instruments 2 13

Current derivative instruments 1 10

NET IMPACT ON EQUITY 9 (18)

(f) Counterparty risk for financial operations

The Group is exposed to credit risk in the event of counterparty’s

default. The Group implemented policies to limit its exposure to

counterparty risk by rigorously selecting the counterparties with

which it executes financial agreements. These policies take into

account several criteria (rating assigned by rating agencies, assets,

equity base) as well as transaction maturities.

The Group’s exposure to credit risk is limited and the Group believes

that there is no material concentration of risk with any single coun-

terparty. The Group does not anticipate any third party default that

might have a significant impact on the Group’s financial statements.

(g) Liquidity risk

The Group implemented policies to limit its exposure to liquidity risk.

As a consequence of this policy, a significant portion of our debt has

a long-term maturity. The Group also maintains committed credit

lines with various banks which are primarily used as a back-up

for the debt maturing within one year as well as for the short-

term financings of the Group and which contribute to the Group’s

liquidity.

See Section 4.4 (Liquidity and capital resources) and Note 28 for more information on our exposure to liquidity risk.

Note 27 - Other payables

Components of other payables are as follows:

AT DECEMBER 31,

(million euros) 2007 2006* 2005

Accrued payroll expenses 402 423 425

Accrued interest 152 178 163

Other taxes 165 181 192

Payables to suppliers of fixed assets 260 99 90

Other accrued liabilities 574 787 705

OTHER PAYABLES 1,553 1,668 1,575


“Other accrued liabilities” include payables to suppliers for non-operating services and goods, dividend payables, payables to associates

and payables linked to external developments.

1

2

3

4

5

6

7

8

9

10

11


Note 28 - Commitments and contingencies


Note 28 - 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:

AT DECEMBER 31,

(million euros) 2007 2006* 2005

Securities and assets pledged 43 6 5

Property collateralizing debt 288 354 475

Guarantees given 215 241 271

TOTAL 546 601 751


The principal collateral guarantees and other assets pledged by the Group at December 31, 2007 are as follows:

(million euros) Amount of assets pledged Total balance sheet % pledged

TANGIBLE ASSETS 288 11,904 2%

Less than one year 32

Between one and five years 187

More than 5 years 69

FINANCIAL ASSETS 43 1,427 3%

Less than one year 6

Between one and five years 2

More than 5 years 35

TOTAL 331 13,331 2%

Finally, the Group has granted indemnification commitments in rela-

tion to disposals of assets. Its exposure under these commitments

is considered remote. The total amount of capped indemnification

commitments still in force at December 31, 2007 is 319 million

euros.


F Note 28 - Commitments and contingencies


(b) Contractual obligations

The following details the Group’s significant contractual obligations:

PAYMENTS DUE PER PERIOD AT DECEMBER 31,

(million euros) Less than 1 year 1 to 5 years More than 5 years 2007 2006 (1) 2005

Debt (2) 1,614 3,720 4,305 9,639 10,768 8,742

Of which finance lease obligations 6 25 15 46 59 35

Scheduled interest payments (3) 468 1,380 1,507 3,355 3,638 2,260

Net scheduled obligation

on interest rate swaps (4) 13 27 3 43 (27) (92)

Operating leases 217 435 290 942 857 863


and other purchase obligations 1,227 664 392 2,283 1,948 1,902

Other commitments 91 36 39 166 167 177

TOTAL 3,630 6,262 6,536 16,428 17,351 13,852

(1) Only from continuing operations.

(2) Debt excluding put options on shares of subsidiaries (see Note 25).

(3) Scheduled interest payments associated with variable rate are computed on the basis of the rates in effect at December 31. Scheduled interest payments include interest

payments on foreign exchange derivative instruments, but do not include interests on commercial papers which are paid in advance.

(4) Scheduled interest payments of the variable leg of the swaps are computed based on the rates in effect at December 31.

The Group leases certain land, quarries, building and equipment.

Total rental expense under operating leases was 186 million euros,

187 million euros and 134 million euros for the years ended December

31, 2007, 2006 and 2005, respectively for continuing operations.

Future expected funding requirements or benefit payments related

to our pension and post retirement 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

sheets or in Note 23 for further information on these items.

(c) Other commitments

The following details the other commitments of the Group:

AT DECEMBER 31,

(million euros) 2007 2006* 2005

Unused confirmed credit lines and acquisition lines** 10,269 3,547 3,467

Put options to purchase shares in associates or joint ventures 36 37 42

TOTAL 10,305 3,584 3,509


** Including in 2007 the acquisition facility agreement of 7.2 billion euros set up for the acquisition of Orascom Cement.

1

2

3

4

5

6

7

8

9

10

11


Note 29 - Legal and arbitration proceedings


Note 29 - Legal and arbitration proceedings

On December 3, 2002, the European Commission imposed a fine

on us in the amount of 250 million euros on the grounds that some

of our subsidiaries had allegedly colluded on market shares and

prices with their competitors between 1992 and 1998 for wallboard,

essentially in the United Kingdom and Germany. We vigorously

challenge this decision and have brought the case before the Court of

First Instance (CFI) in Luxembourg, which has jurisdiction over such

matters, on February 14, 2003. The proceedings before the court

ended following the hearing that took place on January 25, 2007,

during which Lafarge and the European Commission presented

their respective arguments. The CFI’s decision is likely to be issued

in 2008. As a bank guarantee was given on our behalf, no payment

will have to be made before the decision of the court.

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 2008.

No further payment or any guarantee is required to be made

or given prior to the court’s decision.

A provision of 300 million euros was recorded in our financial

statements for the year ended December 31, 2002 in connection

with these litigations. We recorded additional provisions in each of

our annual financial statements since 2003 in relation to interest

on part of these amounts for a total amount of 51 million euros at

December 31, 2007. 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.

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

December 2006. Since then Lafarge Dachsystem has been sold to

PAI 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. A provision of 20 million euros was recorded in

our financial statements for the year ended December 31, 2007.

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. Lafarge North America Inc. intends to vigorously defend

itself in this action. 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, a certain number 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.


F Note 30 - Related parties


Note 30 - Related parties

Lafarge has not entered into any transactions with any related parties

as defined under paragraph 9 of IAS 24, except for information

described hereafter and in alinéa b) disclosed in Note 31.

Transactions with associates and with joint ventures that are not

eliminated for consolidation purposes were not material for the

years presented.

Transactions with other companies related to the Group are as follows:

Mr Pébereau is Director of Lafarge S.A. and Chairman of BNP

Paribas, and Mrs Ploix and Mr Joly are Directors of both Lafarge

S.A. and BNP Paribas. Lafarge S.A. has and will continue to have

an arms length business relationship with BNP Paribas, including

for the conclusion of mandates in the context of acquisitions and/

or divestments, financings, credit facilities and agreements relating

to securities offerings. These agreements were and will be, when

applicable, approved by the Board of Directors of Lafarge S.A. and

communicated to the auditors and shareholders in compliance with

French law on regulated transactions.

Lafarge S.A. has entered into a mutual cooperation agreement with

Cimentos de Portugal SGPS, S.A. (Cimpor), in which the Group holds

a 17.3% interest, in the field of industrial and technical performance,

use of alternative fuels, human resource management, training and

product development. The agreement was entered into on July

12, 2002 with an initial term expiring on March 31, 2005. It was

renewed for four years until March 31, 2009. Lafarge S.A. received

a total of approximately 1.2 million euros from Cimpor in 2007 under

this agreement versus 1.2 million euros in 2006 and 1.4 million

euros in 2005. Lafarge S.A. currently has one common Director with

Cimpor who is Mr Jacques Lefèvre. One of the Group’s Executive

Vice-Presidents, Mr Jean-Carlos Angulo, also serves on the Board

of Directors of Cimpor.

Note 31 - Employees costs and Directors’ and Executive

Officers’ compensation for services

(a) Employees and employee costs

AT DECEMBER 31,

2007 2006 2005

Management staff 12,122 12,731 12,217

Non-management staff 57,197 70,003 67,929

TOTAL NUMBER OF EMPLOYEES* 69,319 82,734 80,146

Of which:

discontinued operations - 12,058 11,512

companies accounted for using the proportionate method 9,397 10,662 8,909

* The headcounts at 100% of our fully consolidated and proportionnately consolidated subsidiaries amount to 77,721 as of December 31, 2007, 92,466 as of December 31, 2006

and 88,389 as of December 31, 2005.



TOTAL EMPLOYEES COSTS 2,388 3,203 2,833

Of which:

discontinued operations - 417 408

companies accounted for using the proportionate method 73 116 107

1

2

3

4

5

6

7

8

9

10

11


Note 32 - Emission rights


(b) Directors’ and executive officers’ compensation for services



Board of Directors (1) 0.5 0.5 0.5

Senior Executives 23.2 24.5 23.8

Short-term benefits 10.6 9.0 9.3

Post-employment benefits (2) 5.7 8.5 9.5

Other long-term benefits - - 0.6

Share-based payments (3) 6.9 7.0 4.4

TOTAL 23.7 25.0 24.3

(1) Directors’ fees.

(2) Change for the year in post-employment benefits obligation.

(3) Expense of the year estimated in accordance with principles described in Note 2 (x).

The Group accounts for trade and cap schemes as described in

Note 2 (y).

In 2003, the European Union adopted a Directive implementing

the Kyoto Protocol on climate change. This directive established a

CO2 emissions trading scheme in the European Union: within the

industrial sectors subject to the scheme, each industrial facility is

allocated a certain amount of CO2 allowances. Industrial operators

that keep their CO2 emissions below the level of allowances granted

to their plants can sell their excess allowances to other operators

that have emitted more CO2 than the allowances they were initially

granted. Another provision allows European Union companies to

use credits arising from investments in emission reduction projects

in developing countries to comply with their obligations in the

European Union.

The Emissions Trading Directive came into force on January 1, 2005,

and each Member State issued a National Allocation Plan (NAP)

defining the amount of allowances given to each industrial facility.

These NAPs were then approved by the European Commission.

The Emissions Trading Directive and its provisions apply to all our

cement plants in the EU and, to a lesser extent to our Gypsum

operations. We are operating cement plants in 11 out of the 27 EU

Member States. Allowances that were allocated to these facilities

represented some 25 million tonnes of CO2 per year over the

2005-2007 period. The Group policy is to monitor allowances on

a yearly basis. Actual emissions are followed and consolidated on

a monthly basis. Forecast of yearly position is updated regularly

during the year. Allowances would be purchased on the market in

case of actual emissions exceeding rights granted for the period

and, conversely, surplus would be sold on the market.

At the end of 2007, on a consolidated basis (after trading allowances

between our subsidiaries with a deficit and subsidiaries with an

excess of CO2 allowances), allowances granted for the year were

slightly in excess compared to the Group’s actual emissions for the

same period. This limited surplus was sold on the market since it

was not allowed to carry forward in 2008.

For the year 2008, based on our current production forecasts, which

may evolve in case of market trends different from those expected

as at today, the allowances granted by the NAP 2008-2012 should

cover our needs on a consolidated basis.

Note 32 - Emission rights


F Note 33 - Supplemental cash flow disclosures


Note 33 - Supplemental cash flow disclosures

The main transactions that did not impact the Group’s cash flow

statement are described below.

(a) Lafarge Shui On Cement joint venture

agreement in China (in 2005)

As described in Note 9 (b), on August 11, 2005, the Group and

Shui On Construction And Materials Limited (“SOCAM”) entered

into a contribution agreement and announced a joint venture

partnership to merge their cement operations in China. SOCAM is

the leading cement producer in South West China. On November

9, 2005 the merger was effected and a joint venture, named

Lafarge Shui On Cement, was established owned 55% by the Group.

According to the joint venture agreement, the control over Lafarge

Shui On Cement is shared between the Group and SOCAM and

strategic financial and operating decisions relating to the activity

require the consent of both parties.

The Shui On agreed equity value incorporated in the joint venture

Lafarge Shui On Cement amounts to 137 million euros, i.e.

75 million euros at Group level. The acquisition was recorded under

the purchase method of accounting and, therefore, the purchase

price has been allocated to assets acquired and liabilities assumed

based on estimated fair values.

Lafarge’s contribution to the joint venture has been estimated at 168

million euros. The retained share in assets contributed (55%) has

not been revaluated and is consequently kept at historical value in

the Group’s financial statements.

(b) Termination of the joint venture

Readymix Asland in Spain (in 2005)

On November 3, 2005, Lafarge and Cemex signed a Letter of Intent

to terminate their 50/50 joint venture in Readymix Asland S.A.

(RMA) in Spain. All conditions were filled at December 31, 2005.

With 122 concrete plants and 12 aggregates quarries, RMA was the

leader of the Spanish concrete market. According to the terms of the

agreement, Lafarge Asland obtains 100% of the shares of RMA and

Cemex retained 28 concrete plants, 6 aggregates quarries and has

received approximately 50 million euros, mostly paid in 2006. The

fair value of the assets exchanged in this operation approximated

150 million euros. This transaction, that was a distribution of assets

between a company and its shareholders, did not result in any

impact in the Statements of income or equity.

Note 34 - Subsequent events

There were no subsequent events requiring disclosure.

1

2

3

4

5

6

7

8

9

10

11


Note 35 - List of significant subsidiaries at December 31, 2007



Companies Countries Cement

Aggregates

& Concrete Gypsum Others

Ownership

%

Consolidation

method

Lafarge Plasterboard Pty Ltd. Australia 100.00 Full

Lafarge Perlmooser GmbH Austria 100.00 Full

Lafarge Surma Cement Limited Bangladesh 29.44 Proportionate

Central Béton Ltd. Brazil 94.71 Full

Lafarge Brazil S.A. Brazil 94.72 Full

Cimenteries du Cameroun Cameroon 54.73 Full

Lafarge Canada Inc. Canada 100.00 Full

Empresas Melon S.A. Chile Mortars 84.21 Full

Lafarge Hormigones Chile 84.21 Full

Lafarge Chongqing Cement Co. Ltd. China 38.82 Proportionate

Lafarge Dujiangyan Cement Company Limited China 41.25 Proportionate

Lafarge Shui On (Beijing)

Technical Services CO. Ltd. China 55.00 Proportionate

Sichan Shungma Co Limited China 31.25 Proportionate

Yunnan Shui On Building Materials Investment

CO. Ltd. (Yunnan Dongjun Cement) China 44.00 Proportionate

Lafarge Cement A.S. Czech Republic 97.12 Full

Lafarge Cementos Ecuador 98.57 Full

Alexandria Portland Cement Company SAE Egypt 49.30 Proportionate

Beni Suef Cement Company Egypt 49.95 Proportionate

Béton Chantier de Bretagne France 58.28 Full

Granulats Bourgogne Auvergne France 70.00 Full

Granulats du Midi France 100.00 Full

Lafarge Béton de l'Ouest France 100.00 Full

Lafarge Bétons Sud Est France 100.00 Full

Lafarge Bétons Sud Ouest France 100.00 Full

Lafarge Bétons Vallée de Seine France 100.00 Full

Lafarge Ciments France 100.00 Full

Lafarge CRIC France 82.92 Full

Lafarge Granulats Seine Nord France 100.00 Full

Lafarge Granulats Sud France 100.00 Full

Lafarge Plâtres France 99.97 Full

Lafarge SOBEX France 93.34 Full

Société des Ciments Antillais France 69.44 Full

Lafarge Gips GmbH Germany 100.00 Full

Lafarge Zement Karsdorf GmbH Germany 100.00 Full

Lafarge Zement Wössingen GmbH Germany 100.00 Full


F Note 35 - List of significant subsidiaries at December 31, 2007



Aggregates


Ownership

%

Consolidation

method

Heracles General Cement Company S.A. Greece 86.73 Full

Lafarge Beton Industrial Commercial S.A. Greece 86.73 Full

Lafarge Cementos de CV Honduras 53.00 Full

Lafarge India PVT Limited India 94.38 Full

P.T. Semen Andalas Indonesia Indonesia 100.00 Full

Lafarge Plasterboard (Ireland) Limited Ireland 100.00 Full

Lafarge Adriasebina S.R.L. Italy 100.00 Full

Lafarge Gessi S.P.A. Italy 100.00 Full

Jordan Cement Factories Company PSC Jordan 50.28 Full

Bamburi Cement Ltd. Kenya 58.64 Full

Lafarge Halla Cement Corporation Korea 71.47 Full

Lafarge Plasterboard System Co. Ltd. Korea 50.00 Proportionate

Financière Daunou 11

(mother company of Monier) Luxembourg Roofing 35.23 Equity (1)

Associated Pan Malaysia Cement Sdn Bhd Malaysia 62.20 Full

Kedah Cement Holdings Berhad Malaysia 62.20 Full

Lafarge Malayan Cement Berhad Malaysia 62.20 Full

Lafarge Cementos S.A. de C.V. Mexico 94.72 Full

Ciment Rezina Moldova Moldavia 93.44 Full

Lafarge Ciments Morocco 34.93 Proportionate

Lafarge Gips BV Netherlands 100.00 Full

Ashakacem PLC Nigeria 50.16 Full

Atlas Cement Company Ltd. Nigeria 100.00 Full

West African Portland Cement PLC Nigeria 60.00 Full

Lafarge Philippines Philippines 100.00 Full

Lafarge Cement S.A. Poland 100.00 Full

Lafarge Gips SP. Z O.O. Poland 100.00 Full

Lafarge Kruszywa SP. Z.O.O. Poland 100.00 Full

Betecna S.P.G.S. S.A. Portugal 100.00 Full

Lafarge Agregate Betoane Romania 65.86 Full

Lafarge Ciment (Romania) Romania 77.81 Full

OSC Lafarge Cement Russia 84.07 Full

Lafarge Beocinska Fabrika Cementa

Serbia-

Montenegro 42.02 Full (2)

LMCB Holding Pte Ltd. Singapore 62.20 Full

Lafarge Cement D.D. Slovenia 55.92 Full

1

2

3

4

5

6

7

8

9

10

11





Aggregates


Ownership

%

Consolidation

method

Lafarge Aggregates South Africa (Pty) Ltd. South Africa 100.00 Full

Lafarge Gypsum (Pty) Ltd. South Africa 100.00 Full

Lafarge Industries South Africa (Pty) Ltd. South Africa 100.00 Full

Lafarge South Africa (Pty) Ltd. South Africa 100.00 Full

Lafarge Aridos y Hormigones Spain 100.00 Full

Lafarge Cementos S.A. Spain 100.00 Full

Lafarge Mahawelli Cement (Private) Limited Sri Lanka 85.00 Full

Cementia Trading AG Switzerland 100.00 Full

Marine Cement AG/Ltd. Switzerland 100.00 Full

Mbeya Cement Company Limited Tanzania 62.76 Full

Lafarge Aslan Cimento A.S. Turkey 97.30 Full

Lafarge Béton Anonim Sirketi Turkey 100.00 Full

Hima Cement Ltd. Uganda 71.01 Full

OJSC Mykolaivcement Ukraine 99.26 Full

Blue Circle Ebbsfleet Limited United Kingdom

Real

estate 100.00 Full

Lafarge Aggregates Ltd. United Kingdom 100.00 Full

Lafarge Cement UK PLC United Kingdom 100.00 Full

Lafarge Plasterboard Ltd. United Kingdom 100.00 Full

Redland Readymix Holdings Limited United Kingdom 100.00 Full

Blue Circle North America Inc. USA 100.00 Full

Lafarge North America Inc. USA 100.00 Full

CA Fabrica Nacional de Cementos SACA Venezuela 62.21 Full

Lafarge Cement Zambia

(ex-Chilanga Cement Plc.) Zambia 84.00 Full

(1) Although the Group has sold the Roofing business as of February 28, 2007 to the investments fund managed by PAI Partners, a minority share of 35.23% in the Roofing

Holding was kept.

(2) Although the Group does not own more than half of the equity shares, Beocinska is a majority-owned subsidiary of Lafarge BFC Investment GmbH, which is in turn a majority-

owned subsidiary of the Group. As a result, Beocinska is included within the Group's scope of consolidation.


F STATUTORY ACCOUNTS

Lafarge S.A. statutory accounts


Annual financial statements - Year ended December 31, 2007

This is a free translation into English of the Statutory Auditors’ report issued in French language and is provided solely for the convenience of English-speaking

readers. This report includes information specifically required by French law in all audit reports, whether qualified or not, and this is presented below the opinion on

the financial statements. This information includes an explanatory paragraph discussing the auditors’ assessments of certain significant accounting matters. These

assessments were made for the purpose of issuing an opinion on the financial statements taken as a whole and not to provide separate assurance on individual

account captions or on information taken outside of the annual financial statements. The report also includes information relating to the specific verifications of

information in the management report.

This report together with the Statutory Auditors’ report addressing financial and accounting information in the Chairman’s report on internal control, should be read

in conjunction with, and is construed in accordance with French law and professional auditing standards applicable in France.


In compliance with the assignment entrusted to us by your Annual General Meeting, we hereby report to you, for the year ended December

31, 2007, on:

the audit of the accompanying annual financial statements of Lafarge;

the justification of our assessments;

the specific verifications and information required by law.

These annual financial statements have been approved by the Board of Directors. Our role is to express an opinion on these financial

statements based on our audit.

I. Opinion on the annual financial statements

We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether the annual financial statements are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing

the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements

presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the annual financial statements present fairly, in all material respects, the financial position of the Company at December 31,

2007 and the results of its operations for the year then ended, in accordance with the accounting rules and principles applicable in France.

II. Justification of our assessmentsIn accordance with the requirements of Article L. 823-9 of French Commercial Code (Code de commerce) relating to the justification of

our assessments, we bring to your attention the following matters:

The Note “Accounting Policies c) Financial Assets” of the notes to the financial statements details the accounting principles and methods

applied to investments.

As part of our assessments of accounting principles and methods applied by the company, we have reviewed the reasonable nature of the

above-mentioned accounting methods and information provided in the notes to financial statements.

The assessments were thus made in the context of the performance our audit of the annual financial statements taken as a whole and

therefore contributed to the formation of our audit opinion expressed in the first part of this report.

III. Specific verifications and informationWe have also performed the specific verifications required by law in accordance with professional standards applicable in France.

We have no matters to report regarding:

the fairness and consistency with the financial statements of the information given in the Board of Directors’ Report and in the documents

addressed to the shareholders with respect to the financial position and the financial statements;

the fairness of the information given in the Board of Directors’ Report in respect of fees, benefits and any other undertakings granted to

certain Directors in connection with their appointment, resignation of changes in current or future functions.

In accordance with French law, we have ensured that the required information concerning the names of the shareholders (and holders of

the voting rights) has been properly disclosed in the Board of Directors’ Report.

Neuilly-sur-Seine and Paris-La Défense, March 28, 2008




ERNST & YOUNG Audit



Statutory auditors’ report on the annual financial statements

1

2

3

4

5

6

7

8

9

10

11


STATUTORY ACCOUNTS

Statements of income


(million euros) Notes 2007 2006 2005

Operating revenue

Production sold (services) 309 280 238

Reversal of provisions 1 41 - -

Operating expenses

Other purchases and external expenses (451) (283) (240)

Employee expenses (129) (122) (107)

Duties and taxes (5) (6) (4)

Depreciation, amortization and allowance to provisions 1 (25) (31) (27)

OPERATING INCOME (260) (162) (140)

Financial income

Dividends 2 864 425 315

Other income from investments 3 461 502 368

Other financial income 4 47 31 36

Financial expenses

Other expenses on investments 3 (75) (77) (62)

Other financial expenses 4 (512) (479) (356)

NET FINANCIAL INCOME (COST) 785 402 301

CURRENT OPERATING INCOME BEFORE TAX 525 240 161

EXCEPTIONAL INCOME (LOSS) 5 (16) 1,737 406

INCOME TAX 6 160 153 141

NET INCOME 669 2,130 708

Statements of income



Balance sheets

AT DECEMBER 31, 2007 2006 2005

(million euros) Notes Gross amount

Amortization

and provisions Net amount Net amount Net amount

ASSETS

Intangible assets and Property, plant and

equipment 7 154 72 82 77 69

Financial assets* 8 17,315 6 17,309 13,405 11,572

Investments 14,340 1 14,339 9,348 7,407

Long-term receivables from

investments 2,946 3 2,943 4,012 4,123

Other financial assets 29 2 27 45 42

NON-CURRENT ASSETS 17,469 78 17,391 13,482 11,641

Trade receivables 2,685 - 2,685 6,567 3,923

Marketable securities 9 55 - 55 82 65

Cash 206 - 206 37 72

CURRENT ASSETS 2,946 - 2,946 6,686 4,060

Loan redemption premiums 10 66 - 66 73 76

Translation adjustments 10 203 - 203 206 105

TOTAL ASSETS 20,684 78 20,606 20,447 15,882

* Of which less than one year. 1,307 153 58

Balance sheets

1

2

3

4

5

6

7

8

9

10

11


STATUTORY ACCOUNTS

AT DECEMBER 31,

(million euros) Notes 2007 2006 2005

EQUITY AND LIABILITIES (BEFORE APPROPRIATION)

Common stock 690 707 704

Additional paid-in capital 5,962 6,392 6,347

Revaluation reserves 88 88 88

Legal reserve 71 70 68

Other reserves 649 649 649

Retained earnings 1,998 389 131

Net income for the year 669 2,130 708

Tax-driven provisions 2 2 2

NET EQUITY 12 10,129 10,427 8,697

PROVISIONS FOR LOSSES AND CONTINGENCIES 13 351 386 340

Convertible bonds - - 482

Other debentures loans 5,371 5,785 4,564

Bank borrowings* 289 480 519

Other loans and commercial papers 2,479 2,987 1,023

FINANCIAL DEBT 14 8,139 9,252 6,588

Tax and employee-related liabilities 53 48 34

Other liabilities 1,510 111 99

LIABILITIES** 9,702 9,411 6,721

Translation adjustments 10 424 223 124


* Of which current bank overdrafts. 138 9 13

** Of which less than one year. 2,429 979 1,075

Balance sheets



Statements of cash flows



CASH FLOW FROM OPERATIONS* 652 511 721

Change in working capital 5,487 (2,627) 420

NET CASH PROVIDED BY OPERATING ACTIVITIES (I) 6,139 (2,116) 1,141

Capital expenditure (25) (31) (13)

Investments (5,009) (252) (22)

Net decrease in loans and miscellaneous 1,048 108 (450)

Disposals of assets 31 7 20

NET CASH FROM INVESTING ACTIVITIES (II) (3,955) (168) (465)

Proceeds from issuance of commons stock 76 49 298

Repurchase of treasury shares for cancellation (484) - -

Dividends paid (521) (447) (408)

NET CASH FROM OPERATIONS ON CAPITAL (III) (929) (398) (110)

CHANGE IN NET DEBT (I+II+III) (1,255) 2,682 (566)

Net debt at year end 7,878 9,133 6,451

* Cash flow from operations mainly comprises net income (669 million euros) before depreciation, amortization (28 million euros) and provisions (-45 million euros).

Analysis of Net Debt at year end 7,878 9,133 6,451

Debt 8,139 9,252 6,588

Marketable securities (55) (82) (65)

Cash (206) (37) (72)

Statements of cash flows

1

2

3

4

5

6

7

8

9

10

11


STATUTORY ACCOUNTS

Notes to the statutory accounts

Accounting policies

The financial statements have been prepared in accordance with the

provisions set forth in the French General Chart of Accounts (“Plan

Comptable Général” – CRC regulation 99-03).

The accounting policies applied by the Company are described

below:

a) Intangible assets

Intangible assets are recorded at their acquisition cost and mainly

include software purchases and related development costs.

Intangible assets are amortized over a five-year period.

b) Property, plant and equipment

Property plant and equipment are recorded at historical cost, except

for those purchased before December 31, 1976 which are recorded

based on their revalued amounts (legal revaluation).

Depreciation is recorded using the straight-line method over the

estimated useful life of items of property, plant and equipment as

follows:

Buildings: 25 years;

Equipment: 3 to 10 years;

Vehicles: 4 years.

c) Financial assets

INVESTMENTS

The gross value of investments comprises the purchase price exclu-

ding acquisition expenses, after the 1976 revaluation adjustment for

investments purchased before this date.

When actual value is lower than gross value, a provision for impair-

ment is recognized for the difference. Actual value is determined

by taking into account the Company’s shareholding equity in the

investment, earnings outlook and quoted market price, if relevant.

When the Company’s share in the net equity of the investment is

negative, a provision for contingencies is recorded, if justified.

TREASURY SHARES

Lafarge S.A. treasury shares are classified as in the balance sheets

under the caption “Marketable securities” when they are intended

to cover purchase option plans and restricted stock plans, and as

“Other financial assets” in other cases.

Treasury shares are valued at the average share price for the

closing month of the year or at the guaranteed attribution price for

employees when the shares are explicitly allocated to this category.

d) Foreign currency – denominated transactions

Payables and receivables denominated in foreign currencies are

translated into euros using the period end closing exchange rate. The

resulting unrealized exchange gains or losses are recorded in the

“Translation adjustment” accounts in the balance sheets.

Unrealized exchange losses are accrued, except when offset by

unrealized foreign exchange gains on payables and receivables or on

off-balance sheet commitments expressed in the same currency and

with adequately near-term maturities.

e) Interest rate derivatives

Gains and losses on these contracts are calculated and recognized

on a symmetrical basis in line with the recognition of income and

expenses on the hedged debt.

f) Debt issuance premiums and redemption

Debenture loans that are to be redeemed with a premium are

recognized as liabilities on the balance sheet for their total amount,

including redemption premiums. An offsetting entry is then made

for redemption premiums which are recognized as assets and

systematically amortized in equal instalment over the term of the

debenture loan. Nonetheless, premiums attached to the portion

of debenture loans that have been repaid are not recorded on the

balance sheet.

g) Net equity

Expenses relating to capital increases are deducted from additional

paid-in capital.

h) Provisions for contingencies and losses

A provision is recognized when an obligation which is probable

or certain will result in an outflow of resources with no offsetting

entry.

Notes to the statutory accounts



Note 1 - Depreciation, amortization and release (allowance) to provisions

i) Income tax

The Company has elected to report income tax under the tax group

regime:

the profits and losses of all consolidated companies are taken into

account in the computation of Lafarge’s income tax owed to the

French Tax Administration;

tax savings resulting from the difference between the tax expense

of the tax group and the tax expense of consolidated companies

reporting a profit is recorded under income for the year.

j) Pension commitments

Provisions are recognized to cover end-of-service benefits and other

post-retirement benefits. These provisions are based on periodic

actuarial evaluations using the projected unit credit method.

This method takes into account seniority, life expectancy and

turnover rate of Company employees, as well as revaluation and

discounting assumptions.

Actuarial gains and losses resulting from a change in actuarial

assumptions or seniority are reported when they exceed a corridor

corresponding to 10% of the value of obligations. They are amortized

over the average expected remaining service lives of the plan’s

beneficiaries.

Actuarial gains and losses related to non active employees are

expensed.

Note 1 - Depreciation, amortization and release (allowance)

to provisions


Pensions obligations and termination benefits 41 - -

RELEASE OF OPERATING PROVISIONS 41 - -

Amortization expenses (18) (17) (16)

Intangible assets (14) (12) (11)

Property, plant & equipment (4) (5) (5)

Provision allowance (7) (14) (11)

Pensions obligations and termination benefits (4) (14) (11)

Other (3) - -

DEPRECIATION, AMORTIZATION AND ALLOWANCE TO PROVISIONS (25) (31) (27)

Note 2 - Dividends


France 801 404 249

Rest of the World 63 21 66

TOTAL 864 425 315

1

2

3

4

5

6

7

8

9

10

11


STATUTORY ACCOUNTS

Note 5 - Exceptional income (loss)

Note 3 - Other income from investments, net


Income on long-term receivables from Group companies 200 272 202

Income on advances and loans to Group companies 250 230 157

Release of provisions related to investments 11 - 9

TOTAL OTHER INCOME FROM INVESTMENTS 461 502 368

Expenses on long-term payables from Group companies (25) (35) (34)

Expenses on advances and loans from Group companies (50) (37) (28)

Provision allowance related to investments - (5) -

TOTAL OTHER EXPENSES ON INVESTMENTS (75) (77) (62)

Note 4 - Other financial income and expenses


Other interests and equivalents 8 20 13

Foreign exchange gain 24 11 5

Release of financial provisions 15 - 18

TOTAL OTHER FINANCIAL INCOME 47 31 36

Expenses relating to debenture loans (325) (296) (273)

Other interests expenses and equivalents (135) (151) (71)

Foreign exchange loss (40) (3) (2)

Allowance to financial provisions (12) (29) (10)

TOTAL OTHER FINANCIAL EXPENSES (512) (479) (356)

Note 5 - Exceptional income (loss)


Gain (loss) from the disposal of investments - 1,697* 2

Bonus on the buyout of EDI - - 408

Other net exceptional items (16) 40 (4)

TOTAL (16) 1,737 406

* The 1,697 million euros are comprised mainly of the capital gain on the transfer of Lafarge North America Inc. shares to Efalar Inc as part of the buyout of minority interests

launched on February 21, 2006.

In compliance with the Contribution Agreement of May 16, 2006, Lafarge S.A. transferred its Lafarge North America Inc. shares with a total book value of 425 million euros to

Efalar Inc. In exchange, Lafarge S.A. received Efalar shares for a total amount of 2,120 million euros. The value of the share exchange corresponds to the offer price of $85.5

per share. On October 16, 2006, the 1,695 million euros capital gain benefited from the favorable tax regime provided by article 210A of the French General Tax Code that

allows tax losses carry forward.



Note 6 - Income tax

Note 6 - Income tax


Income from consolidated tax group 170 163 153

Company income tax (10) (10) (12)

TOTAL 160 153 141

Tax loss carry forwards attributable to the Group amount to 132 million euros.

Note 7 - Intangible assets and property, plant & equipment

(million euros) December 31, 2006 Increase Decrease December 31, 2007

Intangible assets 91 21 17 95

Amortization (47) (14) (16) (45)

Property, plant & equipment 57 4 2 59

Depreciation (24) (4) (1) (27)

TOTAL 77 7 2 82

Note 8 - Financial assets


Investments* 9,348 5,020 29 14,339

Long-term receivables from investments 4,012 430 1,499 2,943

Other financial assets 45 22 40 27

TOTAL 13,405 5,472 1,568 17,309

* The breakdown is presented in Note 11 (Investments).

The increase in investments is mainly due to Sabelfi snc’s capital

increase for 5,003 million euros.

“Other financial assets” mainly comprise 203,000 treasury shares

with a net book value of 23 million euros, compared to 43 million

euros as of December 31, 2006.

1

2

3

4

5

6

7

8

9

10

11


STATUTORY ACCOUNTS

Note 10 - Loans redemption premiums and translation adjustments

Note 9 - Marketable securities


Lafarge S.A. treasury shares 36 16 15 37

SICAV 46 - 28 18

TOTAL 82 16 43 55

454,233 Lafarge S.A. treasury shares had a market value of 57 million euros as of December 31, 2007.

Note 10 - Loans redemption premiums

and translation adjustments


Loan redemption premiums* 66 73 76

Translation adjustments 203 206 105

ASSETS 269 279 181

Translation adjustments 424 223 124

LIABILITIES 424 223 124

* In 2007, a 3 million euros premium related to a new debenture loan and a 10 million euros amortization expense were recognized in this account.



Note 11 - Investments

Note 11 - Investments

This section includes all information concerning investments.

Subsidiaries and investments

(million euros)

Common

stock

Net

equity

Share of

capital

held in

%

Gross

book

value of

shares

held 2007

Net book

value of

shares

held 2007

Net book

value of

shares

held

2006

Loans and

advances

granted and

not repaid

Amount of

guarantees

& endors-

ements

given

by the

Company

Net

revenues

excluding

tax at

closing

Net

income

(profit or

loss) at

closing

Dividends

received

by the

Company

during the

year

A. DETAILED INFORMATION ON SUBSIDIARIES AND INVESTMENTS

1) FRENCH SUBSIDIARIES (OVER 50% OF CAPITAL HELD BY THE COMPANY)

Sofimo 5,769 6,384 99.99 5,812 5,812 5,812 665 - - 814 567

Lafarge Ciments* 134 364 99.99 207 207 207 23 - 985 237 192

Lafarge Gypsum

International* 523 565 99.99 594 594 594 269 - - 27 33

INTERNATIONAL SUBSIDIARIES

Sabelfi 5,075 5,099 99.99 5,082 5,082 67 - - - 75 47

Companhia

Nacional de

Cimento Portland 100 135 99.86 241 241 237 131 - - (2) -

Lafarge North

America Inc. 2,109 80.43 2,310 2,310 2,310 241 - 3,940 461 -

Lafarge Zement

gmbh 26 0 10.00 29 29 29 - - - 14 -

2) INTERNATIONAL INVESTMENTS (10% TO 50% OF CAPITAL HELD BY THE COMPANY)

Lafarge Maroc 73 152 41.20 27 27 56 - - - 76 11

Ciments du

Cameroun 9 32 43.65 15 15 15 - - 135 11 3

3) OTHER INVESTMENTS

Sté Nationale

d'Investissement 96 623 2.25 10 10 10 - - - 94 1

B. GENERAL INFORMATION CONCERNING OTHER SUBSIDIARIES AND INVESTMENTS

1) SUBSIDIARIES NOT INCLUDED UNDER A.1)

French (total) 9 9 9 - - - - 10

International (total) - - - - - - - -

2) INVESTMENTS NOT INCLUDED UNDER A.2) AND A.3)

French (total) - - - - - - - -

International (total) 4 3 2 - - - - -

TOTAL 14,340 14,339 9,348 1,329 - - - 864

* The value of these investments includes the 1976 revaluation of Lafarge Ciments for 85 million euros and of Lafarge Gypsum Int. for 2 million euros.

1

2

3

4

5

6

7

8

9

10

11


STATUTORY ACCOUNTS

Note 13 - Provisions for losses and contingencies

Note 12 - Net equity

(million euros)

Common

stock

Additional

paid-in capital

Other

reserves

Net

income Total

Net equity as of December 31, 2006 707 6,392 1,198 2,130 10,427

Appropriation of 2006 income - - 1,609 (2,130) (521)

Capital increase 4 72 - - 76

Capital decrease through share cancellation (20) (502) - - (522)

2007 Net income - - - 669 669

TOTAL 690 5,962 2,807 669 10,129

The Company's common stock comprises 172,564,575 shares with a par value of 4 euros as of December 31, 2007.

Note 13 - Provisions for losses and contingencies

Current year

(million euros) 2005 2006 Addition Release Cancellation 2007

Provision related to Competition litigation* 243 254 10 - - 264

Provisions for pension commitments 73 88 4 41 - 51

Other provisions 24 44 19 27 - 36

TOTAL 340 386 33 68 - 351

Out of which:

Operating 7 41 -

Financial 10 15 -

Exceptional 16 12 -

* On December 3, 2002, the European Commission imposed a fine on us in the amount of 250 million euros on the grounds that some of our subsidiaries had allegedly colluded

on market shares and prices with their competitors between 1992 and 1998 for wallboard, essentially in the United Kingdom and Germany. We vigorously challenge this

decision and have brought the case before the Court of First Instance (CFI) in Luxembourg, which has jurisdiction over such matters, on February 14, 2003. The proceedings

before the court ended following the hearing that took place on January 25, 2007, during which Lafarge and the European Commission presented their respective arguments.

The CFI’s decision is likely to be issued in 2008. As a bank guarantee was given on our behalf, no payment will have to be made before the decision of the court. A provision

in the amount of 214 million euros to cover this lawsuit was recorded in our financial statements for the year ended December 31, 2002. Additional provisions were recorded

each year since 2002 to cover interest, for a total of 50 million euros.



Note 14 - Maturities of debt

Note 14 - Maturities of debt

CurrencyInitial amount

(million euros) Rate Maturity

Amount outstanding

at December 31,

2007

Amount outstanding

at December 31,

2006

1997 bond Euro 152 6.000% 10 years 86

1998 bond Euro 152 5.400% 10 years 89 89

2000 bond Euro 700 6.375% 7 years 588

2001 bond British pound 538 6.875% 11 years 477 521

2002 bond British pound 307 6.625% 15 years 273 298

2003 bond Euro 500 5.448% 10 years 500 500

2001 bond Euro 1,000 5.875% 8 years 440 439

2004 bond Euro 612 5.000% 10 years 612 612

2005 bond Euro 500 4.250% 11 years 500 500

2005 bond Euro 500 4.750% 15 years 500 500

2006 bond U.S. dollar 444 6.150% 5 years 408 456



2007 bond Euro 500 5.375% 10 years 500 -

Accrued interests on debenture loans 121 133

SUB-TOTAL 5,371 5,785

Bank borrowings 289 480

Other loans and commercial papers 2,479 2,987

TOTAL 8,139 9,252

1

2

3

4

5

6

7

8

9

10

11


STATUTORY ACCOUNTS

Note 15 - Maturity of long-term receivables, receivables and liabilities at the balance sheets date

Note 15 - Maturity of long-term receivables, receivables

and liabilities at the balance sheets date

(million euros)

Net amount at

December 31, 2007

Less than

one year

Between

1 and 5 years Over 5 years

RECEIVABLE

Long-term receivables from investments 2,943 1,283 1,642 18

Other financial assets 27 24 2 1

SUB-TOTAL, LONG-TERM RECEIVABLES 2,970 1,307 1,644 19

Receivables 2,685 2,685

TOTAL 5,655 3,992 1,644 19

(million euros)

Amount at

December 31, 2007

Less than

one year

Between

1 and 5 years Over 5 years

LIABILITIES

Debenture loans 5,371 650 885 3,836

Bank borrowings 289 139 150 -

Other loans and commercial papers 2,061 77 1,984 -

Long-term payables from investments 418 - 418 -

SUB-TOTAL FINANCIAL DEBT 8,139 866 3,437 3,836

Tax and employee-related liabilities 53 53 - -

Other liabilities 1,510 1,510 - -

TOTAL 9,702 2,429 3,437 3,836





Total Out of which

(million euros) Related parties Other investments

FINANCIAL ASSETS

Investments 14,339 14,329 10

Long-term receivables from investments 2,943 2,943 -

FINANCIAL DEBT

Other loans and commercial papers 2,479 418 -

RECEIVABLES

Loans and shareholder advances 2,565 2,557 8

Other receivables 120 - -

OTHER FINANCIAL LIABILITIES

Borrowings and shareholder advances 1,363 1,361 2

Other financial liabilities 200 12 -

NET INCOME FROM INVESTMENTS 1,250 1,250 -

OTHER NET FINANCE INCOME (COSTS) (465) - -

Note 17 - Financial commitments

Commitments given for 889 million euros mainly include representations and warranties granted to third parties in connection with disposals

and financial guarantees given. At December 31, there are no securities or asset pledged.

1

2

3

4

5

6

7

8

9

10

11


STATUTORY ACCOUNTS

Note 18 - Derivatives

Note 18 - Derivatives

The nominal and fair values of derivatives at the balance sheet date were as follows:

(million euros) Notional

Fair

value*

FORWARD PURCHASES AND CURRENCY SWAPS

U.S. dollar (USD) 94 (2)

Pound sterling (GBP) 428 (8)

Other currencies 120 0

TOTAL 642 (10)

FORWARD SALES AND CURRENCY SWAPS

U.S. dollar (USD) 1,576 17

Pound sterling (GBP) 240 3

Other currencies 199 3

TOTAL 2,015 23

* The fair value of currency derivatives was calculated using market prices that Lafarge S.A. would pay or receive to unwind these positions.

Interest-rate risk

Lafarge S.A.’s exposure to interest rate fluctuations comprises

two types of risk:

a fair value risk arising from fixed-rate financial assets and

liabilities: interest rate fluctuations have an influence on their

market value;

a cash flow risk arising from floating-rate financial assets and

liabilities: fluctuations in interest rates have a direct impact on

the Company’s future earnings.

As part of its general policy, Lafarge S.A. manages these two risk

categories using interest rate swaps.

The notional and fair values of interest rate derivatives at the balance sheet date were as follows:

NOTIONAL VALUE OF DERIVATIVES BY EXPIRY DATE*

(million euros)

Average

interest rate 2008 2009 2010 2011 2012 > 5 years Total

Fair

value**

INTEREST RATE SWAPS

Fixed-rate payer 6.3% 70 7 - - - - 77 0

Fixed-rate receiver 4.4% - - - - - 600 600 (9)

Other interest rate

derivatives 7.2% - 18 - - - - 18 1

* The notional value of derivatives represents the nominal value of financial instruments traded with counterparties.

** The fair value of interest rate swaps was calculated using market prices that Lafarge S.A. would have to pay or receive to unwind the positions.

Currency risk

Lafarge S.A. uses forward purchases and sales of currencies and

currency swaps to:

refinance loans and borrowings granted to subsidiaries in a

currency other than the euro;

hedge the currency risk incurred by the Group’s subsidiaries

(firm commitments and highly probable transactions), bearing

in mind that contracts negotiated with subsidiaries are hedged

in exactly the same manner in the interbank market and do not

give rise to a currency position for Lafarge S.A.

At December 31, 2007, most forward exchange contracts have a

maturity date of less than one year.



Note 19 - Retirement benefit obligations

Note 19 - Retirement benefit obligations

Lafarge S.A.’s pension obligation comprises complementary pension regimes and end-of-service benefits. In 2007, the Company transfered

its obligations related to the supplementary defined benefit pension scheme toward actual retirees through an insurance contract with Cardif

Assurance Vie. The premium paid amounted to 99 million euros. According to French Regulation, the insurer guarantees pension indexation

in the limit of technical gains dedicated to the contract, potential residual cost for pension indexation remains to the Company.

Commitments for the complementary pension regime and end-of-service benefits were evaluated using the projected unit credit method.

The main assumptions used in these valuations are outlined below:

(million euros, unless otherwise indicated) 2007 2006 2005

Discount rate 4.75 - 5.25% 4.50% 4.20%

Wage increase 2 - 5.5% 2 - 3.5% 2 - 3.5%

Long-term return expected on pension fund assets - 4.20% 4.85%

Discounted value of the obligation 102 191 155

Fair value of pension fund assets - (11) (10)

Actuarial spread and impact of unexpected modifications to the plan (51) (92) (72)

PROVISION FOR PENSION FUND OBLIGATIONS 51 88 73

Note 20 - Compensation for the Board of Directors

and Executive Management


Board of directors 0.46 0.46 0.46

Executive management 9.91 7.68 6.93

Note 21 - Average number of employees during the year

2007 2006 2005

Management 306 334 370

Supervisors and technicians 114 121 135

Other employees 15 19 23

TOTAL EMPLOYEES 435 474 528

1

2

3

4

5

6

7

8

9

10

11


STATUTORY ACCOUNTS


Note 22 - Individual right to training

In compliance with recommendation 2004F issued by the Urgent Issues Task Force of the French National Accounting Council (CNC)

concerning the accounting of individual rights to training, Lafarge did not record any provisions for training rights in the financial statements

for the year ended December 31, 2007.

Rights acquired at year-end 2007 are estimated at 25,180 hours.

Note 23 - Tax position stated in tax base

HOLDING COMPANY ONLY


I. POTENTIAL TAX LIABILITIES

Tax-driven provisions 2 2 1

Capital gains carry forwards* 1,764 1,764 70

II. LATENT TAX CREDITS

Provision for pensions 51 88 74

Other provisions 12 10 -

Temporarily non-deductible expenses 62 17 -

III. TAX LOSSES CARRY FORWARD

Consolidated tax group deficit 132 186 458

No taxes on 1976 revaluation, revaluation account 88 88 88

* See Note 5.


Lafarge’s Board of directors met on December 9, 2007 and approved the acquisition of Orascom Building Materials Holding S.A.E.

(OBMH) for 8.8 billion euros. This acquisition is financed through a 2.8 billion euros new share issue reserved for OBMH shareholders,

approved by the Lafarge Extraordinary General Meeting of shareholders on January 18, 2008, and through 6 billion euros in debt.

The acquisition was effectively completed on January 23, 2008.

AMF CROSS-REFERENCE TABLE

PAGE 232 | LAFARGE | ANNUAL REPORT – DOCUMENT DE RÉFÉRENCE | 2007

AMF Cross-reference table

ITEMS OF ANNEX I TO THE EC REGULATION 809/2004 LOCATION IN THIS REPORT PAGE

1 PERSONS RESPONSIBLE Certification 131

2 STATUTORY AUDITORS

2.1 Name and addresses 10.1 Auditors 128

2.2 Resignation or removal of statutory auditors Not applicable -

3 SELECTED FINANCIAL INFORMATION

3.1 Selected historical financial information 1 Selected financial data 7

3.2 Selected financial information for interim periods Not applicable -

4 RISK FACTORS 2 Risk factors 11

5 INFORMATION ABOUT LAFARGE

5.1 History and development of the Group 3 Information on Lafarge 15

3.1 History and development of the Group 17

5.2 Investments 3.2 Investments 18

6 BUSINESS OVERVIEW

6.1 Principal activities 3.3 Business description 19

6.2 Principal markets 3.3 Business description 19

6.3 Exceptional factors 3.2 Investments 18

6.4 Dependency of the issuer Non applicable -

6.5 Competitive position 3.3 Business description 19

7 ORGANIZATIONAL STRUCTURE

7.1 Description of the Group 3.4 Organizational structure 32

7.2 List of the issuer’s significant subsidiaries Note 35: List of significant subsidiaries

at December 31, 2007

F-79

8 PROPERTY, PLANTS AND EQUIPMENT

8.1 Existing or planned material tangible fixed assets 3.2 Investments 18

3.3 Business description 19

8.2 Environment 3.5 Environment 33

9 OPERATING AND FINANCIAL REVIEW

9.1 Financial condition 4.1 Overview 38

9.2 Operating results 4.2 Results of operations for the fiscal years ended


43

4.3 Results of operations for the fiscal years ended


57

10 CAPITAL RESOURCES 4.4 Liquidity and capital resources 70

11 RESEARCH & DEVELOPMENT, PATENTS AND LICENCES 3.7 Intellectual property 35

4.6 Research & Development 77

12 TREND INFORMATION 4.7 Trend information 78

13 PROFIT FORECASTS OR ESTIMATES Not applicable -

14 ADMINISTRATIVE, MANAGEMENT, AND SUPERVISORY BODIES

AND SENIOR MANAGEMENT

5.1 Board of Directors 80

15 REMUNERATION AND BENEFITS 5.3 Compensation 87

16 BOARD PRACTICES 5.1 Board of Directors 80

5.4 Board and Committees rules and practices 90

17 EMPLOYEES

17.1 Number of employees 5.6 Employees 98

17.2 Shareholdings and stock options 5.5 Management share ownership and options 95

17.3 Employees share ownership in the issuer’s capital 5.7 Employee share ownership 99

AMF CROSS-REFERENCE TABLE


ITEMS OF ANNEX I TO THE EC REGULATION 809/2004 LOCATION IN THIS REPORT PAGE

18 MAJOR SHAREHOLDERS 6 Major shareholders 105

19 RELATED PARTY TRANSACTIONS Note 30: Related parties F-76

20 FINANCIAL INFORMATION CONCERNING THE ISSUER’S ASSETS

AND LIABILITIES, FINANCIAL POSITION AND PROFITS

AND LOSSES

20.1 Historical financial information Consolidated financial statements F-3

20.2 Pro forma financial information Not applicable -

20.3 Financial statements Consolidated financial statements F-3

20.4 Auditing of historical annual financial information Consolidated financial statements

Statutory Auditors’ report

F-3

20.5 Age of the latest financial information Consolidated financial statements F-3

20. 6 Interim and other financial information Not applicable -

20.7 Dividend policy Note 19: Shareholders’ equity – parent company F-43

20.8 Legal and arbitration proceedings Note 29: Legal and arbitration proceedings F-75

20.9 Significant change in the issuer’s financial

or trading position

Note 34: Subsequent events F-78

21 ADDITIONAL INFORMATION

21.1 Share capital 8.1 Share capital 114

21.2 Memorandum and articles of association 8.2 Articles of association (statuts) 115

22 MATERIAL CONTRACTS 8.3 Material contracts 118

23 THIRD PARTY INFORMATION, AND STATEMENT BY EXPERTS

AND DECLARATIONS OF ANY INTEREST

Not applicable -

24 DOCUMENTS ON DISPLAY 8.4 Documents on display 119

25 INFORMATION ON HOLDINGS 3.4 Organizational structure 32

Sections 5.3, 5.4 and 9.1 of this Annual

Report constitute the Chairman’s report

provided for by article L. 225-37 of the

Commercial Code regarding the terms of

preparation and organization of the Board of

Directors, the rules set for the remunerations

and benefits granted to senior management

and the internal control procedures imple-

mented by the Company.

The annual financial report is comprised of

(i) information presented in this Document

de Référence under Chapters 1 to 4 and 8,

(ii) the statutory and consolidated accounts

as well as the statutory auditors’ report on

these accounts presented in pages F-3 to

F-98 of this Document de Référence and

(iii) information on the Company’s share

buyback program as set out in the notice of

the General Meeting called on May 7, 2008.

The Group management report for the

purposes of the Commercial Code is

comprised of (i) the information presented

in this Document de Référence under

Chapters 1 to 6 and 8 to 9, (ii) the facts on

employees and the environment contains in

our Sustainable Development Report and

(iii) information on the Company’s share

buyback program as set out in the notice of

the General Meeting called on May 7, 2008.

The following information has been incor-

porated by reference in this Document de

Référence:

consolidated financial statements for

the financial year ending December 31,

2006, including the notes to the financial

statements and the reports of the statutory

auditors, set out on pages F-1 to F-89 of

the 2006 Document de Référence filed

with the Autorité des Marchés Financiers

on March 23, 2007 under number

D.07.0219;

consolidated financial statements for

the financial year ending December 31,

2005, including the notes to the finan-

cial statements and the reports of the

statutory auditors, set out on pages F-1

to F-81 and F-2 of the 2005 Document

de Référence filed with the Autorité des

Marchés Financiers on March 24, 2006

under number D.06-0164.

© 1986, WWF * World Wide Fund For Nature (formerly

World Wildlife Fund). ® WWF Registered Trademark Owner.

On the front cover: The nine Kliptown Freedom Towers,

at night, Johannesbourg, South Africa, five of which are

made of white aggregates mixed with black concrete

and the four others are of white concrete mixed

with black aggregates.

Photo credits: Courtesy of architect Patrick Rimoux (on

the front cover); Hamilton De Oliveira – Rea (inside cover

& chap. 4); Ignus Gerber (chap. 1); Cedric Arnold – Rea

(chap. 2); Laurence Prat (chap. 3 & 11);

Mediatheque Lafarge (chap. 5, 8 & F); Courtesy of Lafarge

Malayan Cement Communications Dept (chap. 6);

Mikolaj Katus (chap. 7); Samuel Ashfield (chap. 9);

Cedric Arnold – Rea / Architect: Archiplan Co., Ltd.

(chap. 10); Jacques Grison (second inside cover);

Eric Tourneret (on the back cover).

http://www.lafarge.com

This Annual Report is printed on a 100% certified PEFC

and FSC paper, acid-free, recyclable and biodegradable

and paper certified ISO 9001 and 14001.

The Imprim’vert label is awarded

for printers implementing industrial strategies

on environmental protection.

© Lafarge – March 2008

Production: Group Finance Department

Design: Group Communication Department – \TEXTUEL

Realisation: Franklin Partners

Printed by: Artecom.

LAFARGE BOARD OF DIRECTORSFrom left hand to right hand: Bertrand Collomb, Michael Blakenham, Bernard Kasriel, Bruno Lafont, Alain Joly, Helène Ploix, Nassef Sawiris, Juan Gallardo, Paul Desmarais, Jr., Thierry de Rudder, Jacques Lefèvre, Jean-Pierre Boisivon, Pierre de Lafarge, Michel Bon, Oscar Fanjul, Philippe Dauman, Philippe Charrier, Michel Pébereau.

GROUP EXECUTIVE COMITTEE From left hand to right hand: Juan-Carlos Angulo, Thomas Farrell, Isidoro Miranda, Eric Olsen, Bruno Lafont, Guillaume Roux, Jean-Jacques Gauthier, Gérard Kuperfarb, Christian Herrault, Jean Desazars de Montgailhard.

LAFARGE61, rue des Belles Feuilles

BP 40

75782 PARIS CEDEX 16

FRANCE

Phone: +33 1 44 34 11 11

Fax: +33 1 44 34 12 00

www.lafarge.com