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Forbo Annual Report

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Forbo Annual Report

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Forbo International SA
Lindenstrasse 8
CH-6341 Baar
Telephone +41 58 787 25 25
Fax +41 58 787 20 25
E-Mail info@forbo.com
www.forbo.com

Forbo Annual Report

Forbo Holding AG
CH-8193 Eglisau Zurich
Telephone +41 58 787 25 25
Fax +41 58 787 20 25
E-Mail info@forbo.com
www.forbo.com

The Forbo Way to Win

Forbo is on the way
back to success.
The Board of Directors, the Executive Board andour members of staff are consistently implementing our strategy to continue the development of all three businesses flooring, adhesives and belting under a single umbrella.
A prerequisite for long-term success is adaptation
to markets that are constantly changing. The
consequence is that new products and services
must constantly be developed, and processes
have to be optimized. This is the only way to deal
with the challenge of change and to stay aheadof competitors. In order to make rapid progresson the route to a successful future, it is decisive that all the members of staff work with an
identical understanding of what needs to bedone and share the same values.

The illustrations in this Annual Report show how
Forbo makes use of the self-initiative andexpertise of its employees in order to develop
innovative products. Versatile and easy-careflooring, high quality adhesives for textile lamination and high-performance belting for thetransportation of baggage at the most modernof airports are just three selected examples
which show how Forbo implements its guiding
principles in its everyday work and therefore contributes to the success of its customers.

March 2006

Typesetting, Litho and Printing:
Neidhart +Schön AG, Zurich

Photos:Markus Senn, Biel,münchner bilderdienst

Concept and Design:
Gottschalk+Ash Int’l

Editing:
The Investor Relations Firm AG, Zurich

Publisher:
Forbo Holding AG, Eglisau

Our Annual Reportis published in German andin an English translation.

Imprint

In 2005, Forbo intensively reviewed the values
to which it felt committed. At a management
meeting, approximately sixty managers set theinitial foundations for guidelines which determine the collaboration between themselves andthe co-operation with customers and clientsin the future. By mid-2006, all the employees ofForbo will have been included into this process.

Annual Report 2005

– Strategy of the three businesses confirmed– Sales increased in all the businesses– Restructuring measures successfully implemented
according to plan
– New and innovative products developed– Foundation created for sustainable improvementof profitability

Contents
Forbo Annual Report 2005
4 Forbo
5 Financial Overview Group
6 To our Shareholders
10 Innovative Products

Flooring
Adhesives
Belting
16 Forbo Group:
Restructuring Measures Beginning to Bring Results
22 Flooring:
Results on a Positive Trend
25 Adhesives:
Double-digit Growth in the USA
28 Belting:
Improvement of Efficiency in Production
31 Group Structure
34 Corporate Governance
52 The Forbo Share
Forbo Group Financial Report
57 Consolidated Income Statement
58 Consolidated Balance Sheet
59 Consolidated Cash Flow Statement
60 Consolidated Statement of Recognized Income and Expenses
61 Accounting Policies
68 Notes to the Consolidated Financial Statements
90 Group Companies
94 Report of the Group Auditors

Financial Statements of Forbo Holding AG
98 Income Statement
99 Balance Sheet
100 Notes to the Financial Statements of Forbo Holding AG
103 Proposal for Appropriation of Available Earnings
104 Report of the Statutory Auditors

Forbo is a leading producer of floor coverings, adhesives, and beltings. The company employs some 5,500 people and has an international network of 31 production companies and 46 sales organizations in a total of 32 countries. Forbo’s
Head Office is in Baar near Zug.
In the flooring business, the focus is on environmentally friendly linoleum, highquality vinyls, and parquet. The excellent technical properties and the attractive
design make Forbo flooring coverings the first choice for applications in publicbuildings, in the commercial business and in the residential market. Forbo is
the world leader with linoleum having a market share of more than 60%.
The adhesives business is worldwide among the top ten suppliers. Forbo’s highperformance products ensure the stable and durable bonding of a wide rangeof materials in essential market segments such as paper processing and packaging, shoe and textile manufacture, the production of car interior trims, furniture, and building applications.
The belting business has a leading position worldwide. Under the ‘Siegling’
brand, Forbo offers high-grade drive, conveyor and processing belts. They areused in diverse industries, e.g. conveyor and processing belts for the foodindustry, treadmill belts for fitness applications, and conveyor belts in logistics
operations.

Net sales by Businesses
m CHF
Change on previous year*
2005 effective %currency adj. %Flooring
Adhesives
Belting
Total

747.0
628.5
326.5
1,702.0

1.3
8.8
6.4
4.9

%

1.0
43.9
8.1
36.9
5.9
19.2
4.4 100.0

Employees by Businesses
2005

Flooring
Adhesives
Belting
Headquarters
Total

2,319
1,319
1,861
39
5,538

Change2004/2005 %%–6.1 41.9
2.2 23.8
6.8 33.6
0.0
0.7
0.0 100.0

4 Forbo Annual Report 2005

Financial Overview Group
2005

2004

2005

2004

m CHF

m CHF

m EUR 2)m EUR 2)

Net sales

1,702.0

1,622.3

1,097.4

1,050.7

Flooring

747.0

737.6

481.6

477.7

Adhesives

628.5

577.7

405.2

374.2

Belting

326.5

307.0

210.5

198.8

EBITDA before special charges

135.1

143.1

87.1

92.7

EBITDA

109.3

126.2

70.5

81.7

EBIT before special charges and impairment

64.7

55.9

41.7

36.2

Income statement

EBIT

23.9

–44.5

15.4

–28.8

Special charges and impairment–40.8–161.9–26.3–104.9Net loss for the year

–16.5

–157.4–10.6–101.9Total assets

1,591.0

1,516.6

1,025.8

982.3

Operating assets

1,156.1

1,144.1

745.4

741.0

Shareholders’ equity

558.1

543.7

359.8

352.1

Net debt

109.3

131.0

70.5

84.8

Cash flow from operating activities

134.9

117.8

87.0

76.3

Capital investments

49.3

54.8

31.8

35.5

Free cash flow (before securities)

88.5

66.8

57.1

43.3

%

%

7.9

8.8

Balance sheet

Cash flow statement

Key figures
ROS, gross (EBITDA before special charges/

net sales)
ROA (EBIT before special charges/

operating assets)

5.6

4.9

Equity ratio (shareholders’ equity/total assets)

35.1

35.8

Gearing (Net debt/shareholders’ equity)

19.6

24.1

NumberNumber

Employees (as of December 31)

5,538

5,540

CHF

CHF

Loss

–6.26

–106.56–4.04–69.02Equity211.81206.42136.62133.690 1)

0EUR 2)EUR 2)

Details per share

Cash distribution

Stock market capitalization (as of December 31)
1)

2)

m CHF

m CHF

750.9

652.9

Proposal of the Board of Directors to the General Shareholders’ Meeting
CHF values translated at the annual average rate of
CHF 1.551/1 EUR (2005) and 1.544/1 EUR (2004)
Changes of the accounting principles (IFRS) mainly havean impact on Goodwill amortization and the reporting ofpension liabilities within equity.

Forbo Annual Report 2005

5

m EUR 2)484.1

m EUR 2)422.9

To our Shareholders

Dear Ladies and Gentlemen
Concentration on .
operational duties .

After a challenging start to the 2005 financial year due to operational difficulties
and the continuing auction process, the situation improved in the second halfof the year. In the spring, following the failed takeover attempt by CVC CapitalPartners, important decisions were made and measures implemented at boththe strategic and the operational levels. On the one hand, the Board of Directors
and Executive Board confirmed the existing strategy of further developing thethree businesses (flooring, adhesives and belting) under the Forbo umbrella. On
the other hand, the restructuring projects and measures to increase profitability
which had been introduced in autumn 2004 and then had to be postponed because of the auction process were immediately taken up again.
In the past few months, Forbo has adapted its production capacities to thechanged demand and reduced its overcapacities. The product portfolio has beenrevised and significantly rationalized. At the same time, Forbo has optimized
the administration and the marketing and sales organizations and adapted themto the new needs. All three businesses developed new, innovative products
and introduced them successfully to the market. Market shares were gained particularly in the USA with a new collection of flooring products.
Significant increase in sales in the second half of the year

Strong growth .
in the USA and Asia .

Following a decline in sales in the first quarter of 2005, they grew more strongly
than expected in the second half of the year. Primarily the robust development of the economy in the USA and the dynamism of growth in the Asian markets generated the pleasing growth in sales. The intensified presence in key markets proved to be very successful; new, innovative products provided additional
support to the positive development. Sales in 2005 rose by CHF 79.7 million
to CHF 1,702.0 million. This equates to an increase of 4.9 %, or 4.4 % in local
currency.
Profit in line with expectations

Improvement in profit .
despite higher .
raw material prices .

After a first half-year that was weaker in comparison with the first half of2004, the ordinary profit in the second half was considerably better despite raw
material prices that had risen significantly. The main reasons were the successful implementation of the restructuring projects and the measures to increase
revenues. The operating result before depreciation and amortization (EBITDA)and prior to special charges declined from CHF 143.1 million to CHF 135.1 million.
Included in this result are non-recurrent costs of CHF 7.1 million for theauction process.

6 Forbo Annual Report 2005

The overall result was affected not only by the one-time costs for the auction process but also by special charges for restructuring amounting to CHF 40.8 million. In comparison with the previous year, a significant improvement is nevertheless visible: The loss including special charges could be significantly reduced
and amounted to only CHF 16.5 million.
Restructuring concluded
Plan and costs .
complied with .

After sliding into the loss zone, Forbo announced in 2004 comprehensive restructuring measures in order to improve the profitability of the organization. The
restructuring measures and the programs to increase profitability were implemented in accordance with plan and the anticipated exceptional costs were
not exceeded. At the same time, the existing management was strengthened sothat the challenges of the future can be successfully mastered. Today, we havethe foundations for healthy, profitable growth.
Dividend recommendation to the Annual General Meeting

Waiver of dividend .

The dividend policy of the Forbo Group is orientated to the development of net
profit. Despite the improved income position, Forbo again recorded in 2005
a consolidated loss – albeit significantly reduced – of CHF 16.5 million. The Boardof Directors therefore recommends to the Annual General Meeting of April 28,
2006 that no dividend be distributed for the 2005 financial year.
Changes in the Board of Directors

Comprehensive .
renewal .

In spring 2005, following the unsuccessful takeover bid from CVC CapitalPartners, the Board of Directors, with the exception of This E. Schneider, announced that it would step down as at the Annual General Meeting in 2005.
Those members were Dr. Willy Kissling (previously the Chairman), Dr. Anton
H. Bucher, Drs. Pieter P. A. I. Deiters, Dr. Paul Tanos and Prof. Dr. Rolf Watter.
The new members of the Board, elected at the extraordinary General Meeting ofMarch 24, 2005 are Dr. Peter Altorfer, Dr. Albert Gnägi, Hans-Beat Gürtler,
Dr. Rudolf Huber and Michael Pieper. The Board elected Dr. Albert Gnägi as its
Chairman, Michael Pieper as its Vice-Chairman and confirmed This E.
Schneider as its Delegate. Hans-Beat Gürtler has announced that he will step
down from the Board of Directors of Forbo Holding AG as at the next Annual General Meeting. The Board thanks him for his valuable support in lastyear’s successful turnaround.
Move of domicile to Baar

Move of Forbo .
International S.A. .

On November 14, 2005 the staff of Forbo International S. A. – about 30 people intotal – moved to their new workplaces in Baar (ZG). It will be proposed to theAnnual General Meeting of April 28, 2006 that the domicile of Forbo Holding
AG is also moved to Baar.

Forbo Annual Report 2005

7

Outlook: confirmation of the turnaround
Return to .
the profit zone .

The corporate culture at Forbo has suffered in recent years from the rapid succession of changing strategy decisions, the slide into the loss zone and thestruggle for control of the organization. Although a great deal of progress has
been achieved on all levels in the last two years, there are still several challenges
to be confronted.
In autumn 2005, Management drafted a mission statement for the organizationand defined the core values which should serve in the future as a guideline
for the decisions and actions of all members of staff. It is the responsibility ofForbo’s management to live these values and to underlay the words with acts
so that the new spirit becomes quickly noticeable at all levels of the Group.
In 2006, the turnaround achieved in the reporting year should be confirmed.
Management expects an increase in profitability for all three business units.
Thanks

We express our thanks to all our members of staff for their great commitment, especially during the eventful and draining days and months that were experienced last year. The positive result of that difficult time is the knowledge that
Forbo is capable of outstanding performance. A team that is strengthened bythis knowledge and the experience that came with it will find it easier to reachthe high targets and overcome the challenges of the future.
We also thank our shareholders and customers for their trust, loyalty and support in a turbulent phase of Forbo’s history.
Eglisau, March 15, 2006

Dr. Albert Gnägi
Chairman of the Board

This E. Schneider
Delegate of the Board and CEO

8 Forbo Annual Report 2005

Forbo Annual Report 2005

9

Jointly striving for
The determination to proceed on the road to success and to support othersin doing so requires the courage to be satisfied with nothing but the bestsolution. Being open for new ideas at any time is the starting point for a highdegree of innovative power. The alertness and creative potential of eachone are requested to recognize the needs of the customers and to bring themextra value.

The versatility of Marmoleum is nearly unlimited. The functional andeasy-to-care floor covering made of natural and renewable resources is used worldwide in hospitals, schools, and many private and public buildings. Marmoleum is particularly suitable for rooms thatdemand a high level of hygiene and dust-free surfaces. It inhibits the
propagation of methicillin-resistant staphylococcus aureus (MRSA)
and other bacteria thanks to its smooth surface and the oxidizing effect of the lineseed oil. Especially in public buildings, such as in
the Johanniter hospital in Geesthacht (Germany), Marmoleum makes
a decisive contribution to a friendly and clean room atmosphere.

success

Made from natural raw materials, Marmoleum with the new surface finish
Topshield is a suitable covering for all
floors that require an easy-to-care andhygienic surface. The picture shows theentrance area of the Wajiro hospitalin Fukuoka City (Japan).

Marmoleum is the perfect choice also
for striking designs – here in the formof a wall cladding of a special kind in
the new Hotel Q in Berlin. At theContract World 2005 fair, the project
was awarded the first prize in the
category of floor coverings as an integral design element.

Excellence throughTop performance and unrestricted experience in nature make ever higher requirements on clothing and equipment. They must be functional, comfortable,
and safe. Forbo is at the forefront of adhesives development for the manufacture of sports and leisure wear, ensuring its functionality over the entire
useful life.

Functional textiles are made of layers with most different properties.
Wovens, knitwear, non-wovens and foams are used for lamination,e. g. composite manufacture, depending on the requirements made on
the end product. The different clothing layers are dot-laminatedensuring the breathing properties and the moisture transfer of the
textiles.
A further Forbo speciality is textile coating with Lyons Coat™. The
coating makes rucksacks and travelling-bags impermeable to water
and wind.

courage anddetermination

New techniques allow the productionof lighter and more comfortable
sports shoes that are wheatherproof
and stable all the same. Today theshoes are usually produced and bonded mechanically, with up to ninedifferent adhesives being used asa function of the material mix.

The protective clothing of fire brigades and other emergency services
must meet highest requirements. For
instance, the laminate bonding
must permanently survive extreme
temperatures.

Recognize what mattInternational networking and the worldwide exchange of goods continue togrow dramatically. Advanced and efficient logistic systems are required to support this growth. They are made available by equipment manufacturers (OEMs)and suppliers who believe in this trend and who use every possibility for transporting industrial goods, parcels and pieces of baggage to their destinations – faster and more reliably.

The call for higher mobility also demands faster handling of a large
number of baggage items by ever more efficient and sophisticated conveying and sorting systems. Safety, efficiency, and reliability are thespecial assets of Transilon baggage conveyor belts made by Siegling.
With these properties, Transilon is the preferred choice for theconstruction and extension of international airports and many otherlogistics centers.

ers

One of the biggest buildings is being
created in London today: the new
Terminal 5 (T5) at Heathrow Airport
to be opened in March 2008. The terminal is designed for some 30 million
passengers per year. Siegling has beenasked to supply the belting for the baggage conveyors. The order is handled
jointly by the Siegling subsidiaries in
the Netherlands, Germany, and GreatBritain.

Siegling has a product range on offerthat meets the customers’ needs forever higher efficiency and reliability –from check-in through to aircraftloading.

Forbo Group: Restructuring Measures
Beginning to Bring Results
In 2005, the measures to reduce costs and improve profitability were implemented successfully and according to plan. Group sales rose – particularly thanks to a significant improvement in the second half of the year –by 4.9 % to CHF 1702.0 million. The increase in local currencies was
4.4 %. The operating profit after depreciation and amortization (EBIT) andbefore special charges improved by 15.7% to CHF 64.7 million (previous
year: CHF 55.9 million). A pleasing enlivenment of the markets in the USA
and the Asia/Pacific region was partly counteracted by sharply rising
raw material prices, especially in the case of adhesives. The consolidated
Group result of CHF –16.5 million includes special charges of CHF 40.8
million which were significantly lower than in the previous year. In addition, there were non-recurring costs of CHF 7.1 million for the auction
process which ran over a number of months. The free cash flow amounted
to CHF 88.5 million, 32.5 % more than in the previous year due to fewer
investments and a clearly higher cash flow from operating activities.

After termination of the unsuccessful takeover bid in the spring of 2005, the restructuring projects and measures that had been introduced in the autumn of2004 were taken up again and implemented very intensively. Initial positive effects are reflected in these annual financial statements.
Strong growth in the second half of the year
Higher sales in all .
three businesses .

After several years of declining sales in the flooring business, 2005 brought a return to growing turnover. Sales of linoleum developed very positively, particularly in the USA. The vinyl segment enjoyed an upswing in the commercial business although lower sales had to be recorded in the residential business in a few
Western European markets. In the adhesives business, contributions to a positive
course of business were made by industrial adhesives, particularly for the
automobile and textile industries, as well as building adhesives and synthetic
polymers. The increase in sales is partly due to higher sales prices as a consequence of higher raw material costs. The belting business benefited from higher
investment activity in the logistics industry and a strong demand for runningbelts used in fitness equipment. The strong growth in the USA and Asia compensated for the hesitant development in Western Europe. Particularly Germany
suffered under the continuation of sluggish investment activity by publicauthorities.

Net sales by geographic areas%

North, Central and South America
Germany
Benelux
FranceSouthern Europe
Scandinavia
Asia/Australia/Africa
Great Britain/Ireland
Eastern Europe
Switzerland

26.1
12.0
12.0
11.0
8.7
8.5
8.2
5.7
4.8
3.0

Change on previous year
effective % currency adj. %

14.3
–4.3
0.4
4.0
0.1
1.3
8.9
1.0
13.1
2.2

13.2
–4.7
0.0
3.6
–0.3
2.0
8.3
1.4
12.2
2.0

m CHF
2005

444.5
203.6
203.3
187.6
147.4
145.4
140.0
96.4
82.1
51.7
0

50

100

150

16 Forbo Annual Report 2005

200

250

300

350

400

450

Ordinary result considerably better in the second half
Slight decline of .
gross profit margin .

Despite sharply higher raw material prices, the various measures introduced to
improve efficiency and profitability led to only a slight decline of the gross profit margin. At the same time, the special charges were considerably lower than in
the previous year. The overall result was an operating result before depreciation and amortization (EBITDA, before special charges) of CHF 135.1 million (previous year: CHF 143.1 million). Included are non-recurring costs of CHF 7.1
million for the auction process. The ongoing restructuring measures led, as already mentioned, to further special charges of CHF 40.8 million (previous year:
CHF 161.9 million). The operating profit (EBIT, after special charges) at
CHF 23.9 million was well above the previous year’s result of CHF – 44.5 million. Of this, CHF 9,5 million are attributable to goodwill amortization asplanned which is no longer permissible under the regulations of IFRS.
Due to strong growth in the second half of the year, the flooring business – forthe first time in several years – was able to record an increase in sales on anannual basis of 1.3 % to CHF 747.0 million. The operating result before depreciation and amortization (EBITDA, before special charges) increased by 9.1% incomparison with the previous year to CHF 86.2 million. The prime contributor
to this result was the successful implementation of restructuring projects andmeasures to enhance profitability.
The adhesives business was able to increase sales by 8.8 % to CHF 628.5 million,
partly due to higher volumes and sales prices. However, the sharply increased
cost of raw materials, particularly in the second half of the year, as well as costs
for market development in Russia and China led to a decline in the operating
result before depreciation and amortization (EBITDA, before special charges) of
21.6 % to CHF 46.4 million.
A gradual enlivening of the market led in the belting business to sales which were
6.4 % higher at CHF 326.5 million. The higher raw material prices and market
development costs led to a decline of the operating result before depreciation andamortization (EBITDA, before special charges) by 19.2% to CHF 16.8 million.
The return on operating assets (ROA, before special charges) increased from 4.9%
in the previous year to 5.6% in 2005. The return on sales before special charges
amounted to 3.8 % compared with 3.4 % in the previous year.

EBIT (before special charges and impairment)

by Businesses
Flooring
Adhesives
Belting
Headquarters/consolidation

m CHF
2005

Change2004/2005 %2005 %

50.1
31.4
0.6
–17.4

18.2
–10.0
–75.0
n/a

11.8
7.0
0.2
n/a

ROA*

–50
*

–25

Return on Assets (EBIT, before
special charges and impairment
in % of operating assets)

Forbo Annual Report 2005

17

0

25

50

75

100

Lower net financing .
expenser and tax
charges .

Included in the Group loss of CHF 16.5 million (previous year: a loss of CHF 157.4
million) are restructuring expenses of CHF 40.8 million (previous year:
CHF 161.9 million) and non-recurring costs of CHF 7.1 million for the auction
process. Before special charges and tax effects a net income of the Group of
CHF 16.1 million would have resulted. The net financing expenses developed
positively. They fell by CHF 26.8 million to CHF 18.8 million due to higher
interest income and the value adjustments for securities which were taken into
the figures of the previous year. The tax charges were reduced too, from
CHF 44.8 million in the previous year to CHF 21.6 million.

Increase in .
free cash flow .

The free cash flow in the reporting period amounted to CHF 88.5 million (previous year: CHF 66.8 million). The increase of CHF 21.7 million arose on the
one hand from an increase of CHF 17.1 million in cash inflow from operating activities and on the other hand from a decrease of CHF 4.6 million in investing
activities.

Free cash flow 2005
m CHF

Cash flow from operating activities
Cash flow from investing activitites
Free cash flow

135
–46
89
0

25

50

75

100

125

150

175

200

75

100

125

150

175

200

Free cash flow 2004
m CHF

Cash flow from operating activities
Cash flow from investing activities (before securities)
Free cash flow 1)

118
–51
67
0

1)

25

50

Before cash distribution, purchase and saleof activities

Balance sheet – financial basis for further growth
Further reduction .
of net debt .

The balance sheet total increased by CHF 74.4 million to CHF 1,591.0 million incomparison with the 2004 year-end.
The reason is mainly in a higher level of cash and cash equivalents (CHF +57.8
million) and higher trade receivables (CHF +30,9 million) due to increased sales
in November and December. At the same time, fixed assets were reduced by
CHF 21.1 million in comparison with the previous year. The bond of CHF 150.0
million which falls due on June 8, 2006 was restated from a long-term toa short-term financial liability. The financial derivatives acquired in connection with long-term financing in US Dollars recorded a negative value of
CHF 52.5 million (previous year: CHF 83.7 million) as at 31.12.2005. Net debt
at the end of the year was CHF 109.3 million (previous year CHF 131.0 million).
This represents a reduction of CHF 21.7 million, even though the higher translation rate for the US Dollar had the effect of a significant increase of the debt
expressed in Swiss Francs. For the first time, actuarial losses in the pension fundliabilities were recorded in the balance sheet. This led to a reduction in equityof CHF 25.6 million to CHF 558.1 million at the end of the year. The equity ratioat the end of the reporting year therefore amounted to 35.1% (previous year:
35.8%).

18 Forbo Annual Report 2005

Investments in long-term margin improvement
Product improve- .
ments, enhance- .
ment .of efficiency, .
development of .
new markets .

In 2005, the Forbo Group invested CHF 49 million (previous year: around
CHF 55 million). The investments were aimed primarily at projects with regard
to product improvement, enhancement of efficiency and development of newmarkets.The investments in the adhesives business, which were significantly above
those of the previous year, are primarily attributable to expansion of the facilities for higher quality products and include the equipment bought as well as
acquisitions. The relatively high investments in the belting business were slightly
lower than those of the previous year, whilst those of the flooring business fell
considerably by CHF 12 million to CHF 16 million due to the high investmentsthat had been made in earlier years.

Capital investments 2001 – 2005

2005
2004
2003
2002
2001

Flooring
m CHF

Adhesivesm CHF

Belting
m CHF

16
28
26
23
46

19
12
10
11
9

14
15
10
11
10

Total

Divested
activities
m CHF

m CHF

1

49
55
46
45
66
0

10

Flooring
Adhesives
Belting
Divested activities

Forbo Annual Report 2005

19

20

30

40

50

60

70

Strengthening of Group management
Jörg Riboni .
new CFO .

As at October 1, 2005, Matthias P. Huenerwadel took over management of thebelting business from Dr. Jan Lipton who left the company. Gerold A. Zenger,a member of Executive Board, has been responsible for the Corporate Services
since January 1, 2006 and has also been appointed as the Deputy CEO. His previous function as CFO has been taken over by Jörg Riboni as at the beginningof 2006. In the expanded Executive Board, Urs Christen, who was previously the
Corporate Treasurer, has taken over responsibility for Strategic Planning andProjects as of January 1, 2006. In addition, Karin Marti will take over responsibility as the Head of Human Resources and Communication as of May 1, 2006.
Headcount at the same level of the previous year

New jobs .
in the USA .
and Asia .

The Forbo Group was employing 5,538 people at the end of the year. That is merely two people fewer than in the previous year. As in 2004, the reduction of jobs
continued in Western Europe due to the economic downturn, but it was compensated by a strong increase in North America, Eastern Europe and the Asia/
Pacific region.

Employees by geographic areas
Benelux
North, Central and South America
Germany
FranceScandinavia
Asia/Australia/Africa
Great Britain/IrelandSouthern Europe
Switzerland
Eastern Europe%

Change2004/2005 %

2005

20.5
17.3
14.7
10.1
8.2
8.1
7.1
5.8
5.4
2.8

–5.3
7.6
2.9
0.9
–3.6
3.0
–15.2
–3.6
–7.2
92.6

1,136
960
813
560
452
450
395
319
297
156
0

200

400

20 Forbo Annual Report 2005

600

800

1 000

1 200

Forbo Annual Report 200521

Flooring: Results on a Positive Trend‘The Forbo employees world-wide are delighted with the enthusiasm that our customers have shown for numerous new
products launched in 2005. This spurs us on to expand thespecific segments with persistence and focus. The careful inclusion of customer wishes when we develop new products
enables us to achieve competitive advantages. Innovations
such as the Topshield surface protection for Marmoleum are
the proof.’
Tom Kaiser, Executive Vice President Flooring

In 2005, the flooring business was again able to record an increase in sales
for the first time in several years. Sales reached CHF 747.0 million, an increase of 1.3 % compared to the previous year. The increase in local currencies amounted to 1.0 %. The share of overall Group sales was 44 % (previous year: 45 %). Sales of linoleum were particularly pleasing in North
America and Eastern Europe. Whilst the business with vinyl floor coverings for the commercial business continued to grow on the whole, the residential business in Western Europe recorded a decline in turnover. The
operating profit (EBIT, before special charges) was CHF 50.1 million, an increase of CHF 7.7 million or 18.2 % in comparison with the previous year.
Market circumstances: dynamism in the core markets
Cost savings .

The market circumstances were largely characterized by sharp increases in raw
material and energy prices. The additional costs were able to be compensated bymeans of savings and selective increases of sales prices. A positive effect in thesecond half of the year was the dynamism that began to show itself in most of
the core markets. On the other hand, the development in Germany and Holland was disappointing.
Measures and investments: process optimization

Foundations for .
further growth .

The consistent implementation of the strategy took place in various partial projects with three points of focus: optimization of the core processes, developmentof new market strategies and cost savings through the use of synergy potential.
The measures undertaken will increase our competitiveness in forthcoming years
and create the foundations for further growth. The flooring business begana successful offensive with its products. In total, about 70 % of the collections
were replaced or updated. At the same time, the range of products was rationalized which, among other things, led to the closure of the cushion vinyl production in Kirkcaldy (Scotland) at the end of 2005. This meant that overcapacities could be reduced and the factory in Coevorden (Holland) was able to makebetter use of its production capacity. Moreover, the processes at the Dutch
factories were optimized. In Scandinavia, the sales organization was restructured.
A comprehensive program of investments in production technology led to significant improvements in the manufacturing process.

22 Forbo Annual Report 2005

Products: offensive for linoleum and vinyl flooring
Easier care .

In the linoleum segment, Forbo Flooring introduced a comprehensive, worldwide
campaign for its collection ‘Marmoleum global 2’. With Topshield, it offersa unique, dual-layer protection of the surface which simplifies care of the flooring
and therefore leads to a reduction in maintenance costs. The innovative floor
covering is particularly suitable for floors which have to comply with high standards of hygiene.

More functionality .
and better design .

In the vinyl segment, Forbo expanded the Sarlon Traffic, Step and ColoRex®
product ranges at the end of the year. In order to satisfy all the wishes of endusers, the new Step collection offers various levels of slip-resistance and varying,
attractive designs in color-tones which are tastefully attuned to each other. The
new, homogeneous ColoRex® Concept tile can be used everywhere, for example
in schools, offices or retail shops. It offers a broad variety with 4 color-palettes
and 29 colors in total. Another success at the end of 2005 was the completionof development of the new products Design, Traffic, Natura and Compacta within the Novilux® line. They are aimed for use in the residential business andfor specific areas of building properties and reflect state-of-the-art furnishingand fitting trends. All the new vinyl flooring products combine a noble lookwith durability. The initial reactions from the market have been extremely positive. In January 2006, the luxury vinyl tile collection Allura was launched
as another innovation for business premises that require a highly representative
look, but also for shop construction and restaurants.
Progress of business – linoleum: growth on a broad basis

Significant .
increase in sales .

The linoleum product group recorded sales that increased by 3.2 % to CHF 364.4
million, representing 48.8 % of overall sales in the flooring business. Particularly pleasing was the development in North America as well as in Eastern Europe
with an increase of 10 %. Growth was also recorded in most of the European
core markets.
Progress of business – vinyl: a pleasing commercial market

Rationalization .
of product scope .

Sales of the vinyl flooring product group declined slightly to CHF 304.5 million(previous year: CHF 306.7 million). This equates to a decline of 0.7%. The shareof sales for the overall flooring business reached 40.8 %. The construction market reflected gratifying development, particularly in the French, Scandinavian
and Eastern European markets, in which there was growth that was well above
the average. In the residential business, Forbo accepted a fall in sales due torationalizing the product scope.

Forbo Annual Report 200523

Outlook: expansion of market position
Targeted .
investments .

The flooring business will concentrate even more strongly on the commercial
market in the future, whilst supplementing the product portfolio with all-inclusive solutions and expanding its geographic presence. In the linoleum sector,
Forbo is currently expanding its world-wide leadership with targeted investments
in marketing and sales activities in Eastern Europe, Asia and the USA. For 2006
too, the flooring business is optimistic that the positive development willcontinue.

24 Forbo Annual Report 2005

Adhesives: Double-digit Growthin the USA‘In the USA, together with Industrial Adhesives Inc. we developed reinforcing tapes impregnated with adhesive for the
production of cardboard packaging – another example of how
Forbo Adhesives provides innovative solutions in order toenter new market segments with attractive margins.’

Michel Riva, Executive Vice President Adhesives
The adhesives business increased its sales in 2005 by 8.8 % to CHF 628.5
million or 8.1% in local currencies. The share of Group sales therefore
reached 37% (previous year: 36 %). Whilst the European market only began to develop positively in the second half of the year, sales in the USA
and exports to Asia experienced generally impressive growth. The sharply
increased raw material prices in 2005 and the costs of entry into new markets and product development had a negative effect on the operating profit( EBIT, before special charges) which declined by 10.0 % to CHF 31.4 million.
Market circumstances: sharply increased raw material prices
Dynamism .
in North America .
and Asia .

In the field of adhesives, the markets in North America and Asia were particularly dynamic compared with the general market development elsewhere in theworld. The market in North America benefited in 2005 from positive economic circumstances while Asia recorded an additional upswing due to the moveof numerous manufacturing operations into the region. Market opportunities arise in selected segments with adhesives that require specific know-how for
their production and offer the customer new, comprehensive processing
solutions.

Pressure on margins .

The sharply higher prices of raw materials had a major effect on the adhesives
business. After having risen in the first half of the year at a double-digit level, theprices rose significantly once again after the Katrina and Rita hurricanes, particularly in North America. The additional costs could only be passed on to alimited extent and intensified the pressure on margins.
Measures and investments: preparation for new growthCentral processing .
of strategic .
segments .

The focus on strategic market segments which was introduced in the previous
year has proven itself. The segments of paper and packaging, woodworking/furniture, textile lining and the automobile industry are served consistently with
global teams. The field of adhesives for the construction industry similarly has
its own central departments for marketing, as well as research and development,in Europe. In Eugene, on the west coast of America (Oregon), Forbo inaugurated its operations in the new factory for water-based adhesives.

Forbo Annual Report 2005

25

Strengthening .
of geographic .
presence .

With the acquisition of the US -American Industrial Adhesives Inc., Forbo continued to develop its position in the packaging sector. In addition, the businessdeveloped its own sales organization in Turkey. It enables the targeted processing of strategic market segments and therefore participation in the economic
boom of that region.

Capacity .
expansions for all .
product groups .

Further growth projects should show their effects in 2006. For the industrial adhesives, the focus continues to be on Asia. At the beginning of 2006, the market position in China was decisively strengthened with the acquisition of Victa
Technologies Ltd. For building adhesives, the marketing efforts are focusedon selected countries in Europe, and particularly in Russia. The construction ofa new factory is planned there. At the same time, Forbo Adhesives is investingin additional capacities for synthetic polymers in the USA. In Seneca, south ofChicago, a third reactor will be built in 2006 for approximately CHF 20 million.
Products: added value for customers as a prime target

Solutions for many .
kinds of bonding .

Forbo offers its customers a broad spectrum of adhesive categories based on various kinds of polymer. In the reporting period, particularly the range of adhesives based on Polyurethane (PU) was significantly expanded, either in the formof dispersions, hot-melt adhesives or the one- and two-component reactive
adhesives. With its own possibilities for synthesis in the field of polyurethanebinders, Forbo can react quickly and effectively to customer requirements.
The PU adhesives which can be produced from a broad range of raw materials
are universally usable and are easy to process as well as being environmentally friendly. They therefore comply with the maximum demands made of today’s adhesive systems. Whilst PU dispersions such as Thermonex® are used
for the interior trimmings of motor vehicles or the lamination of furniture fronts,
the reactive hot-melts are gaining importance in, among other things, theproduction of sandwich elements for doors or caravan walls. In contrast, the PU
reactive adhesives are used primarily in the textile and packaging industries.

Innovative carriers .

Together with Industrial Adhesives Inc., Forbo developed, in addition to the existing applications for Packstrings® and Packtapes® in the woodworking andpackaging industries, special reinforcing tapes for corrugated packing and folding carton industries. They enable the integration of comfortable carriers or
reinforce ment at the sides at low cost. This opens for Forbo a further, attractive market segment in the packaging industry with the potential of global
marketing.
Course of business: strong demand in the automotive andconstruction industries

All product groups .
significantly above .
the previous year .

The strongest product group in terms of sales – industrial adhesives – generated
sales growth of 9.6 %. The segments of the automotive, textile, paper and paper processing industries recorded the highest growth. The good progress of business was further supported by building adhesives and the product group ofsynthetic polymers.

USA ahead of .

The strongest growth in sales (15.2 %) was in USA, attributable primarily to theoverproportional increase in sales of synthetic polymers. Related to the businessas a whole, Forbo achieved 56 % of its sales in Europe, 41% in North America
and 3 % in Asia.

Europe and Asia .

26 Forbo Annual Report 2005

Outlook: entry into new markets
Focus on Russia .
and China .

The adhesives business wants to make better global use of the potential of locally
successful products. In 2006, the priorities are entry into the markets in Russia
and integration of the Chinese adhesives company Victa Technologies Ltd. The
manufacturer of hot-melt adhesives and water-based adhesive materials, acquired at the beginning of January 2006, will enable a targeted service and supply
in accordance with the specific needs of customers in the Chinese region.

Targeted expansion .
of range of products .

On the strategic level, 2006 will bring an acceleration of organic growth and expansion of the existing range of products by means of acquisitions. At the forefront are companies with complementary product ranges and manufacturinglocations in regions that are enjoying strong growth. With additional projects
for enhancement of efficiency and targeted price increases, the adhesives business aims to improve its overall profitability.

Forbo Annual Report 200527

Belting: Improvement of Efficiency
in Production‘Sales in the USA were a bright spot in 2005. The operational
structure of the business is good. In future, we want togrow more quickly with clear focal points in product lines
and market segments.’

Matthias P. Huenerwadel, Executive Vice President Belting
The belting business increased its sales in 2005 by 6.4 % to CHF 326.5
million. Growth in local currencies reached 5.9 %. The share of Group sales
amounted to 19 %, as in the previous year. Contributions to growth weremade by sales in all the regions, but particularly in the USA. The rising raw
material prices applied pressure on the margins but were able to be partly
compensated by means a continual move to the use of alternative materials
and increasing efficiency in production. The operating profit (EBIT, before special charges) at CHF 0.6 million was lower than that of the previous
year (CHF 2.4 million) due primarily to higher market entry costs andcosts for raw material.

Market circumstances: a clear enlivenment of projects in thelogistics industry
Growing business .
with end-users .
and OEMs .

The business activity in industrial projects has experienced a revival. This trend
was a global phenomenon in 2005, except in a few individual countries.
Companies in the logistics industry were among the leaders in renewing theirinfrastructure and investing in new equipment. The Forbo belting businessbenefited not only in terms of direct sales to end-users but also with the OEM
business, particularly in Europe. The general pressure on prices continued in
2005. It will increase in the future, particularly for applications which do not require specific know-how for the production and assembly of belts. There are
numerous challenges at the moment in the Asian markets. In this region, Forbo
has further potential, e. g. in the strengthening of its distribution network.
Measures and investments: development of the distribution network

Production .
facilities of high .
technical quality .

In 2005, the belting business again increased its operating efficiency in the production and assembly centers. Competitive advantages are still being provided by production facilities with high technical quality. They enable the generation of further benefits for customers and the more efficient production ofbelts.

28 Forbo Annual Report 2005

New sales centers .
in Romania .
and Moscow .

Entry into the Eastern European markets and the development of an assembly
centre in Slovakia were pushed forward as planned in 2005. At the new location
in Slovakia, the training program is currently running at full power. Full operational performance should be achieved by the end of 2006. In addition, Forbo
opened new sales centers in Romania and Moscow as supplements to the existing team in St. Petersburg. With the acquisition of Caron Vector, a former distribution partner domiciled in Belgium, Forbo has further strengthened its
presence in Belgium and Luxembourg.
Products: a boom for tread mills

Fitness rooms as .
an obligatory fitting .

There were no signs of tiring in the American fitness boom in 2005. On thecontrary, fitness machinery, particularly running bands, were selling better thanever before. This development is generated primarily by the hotel business, inwhich fitness rooms have become an obligatory part of the fittings. In addition,
running bands are increasingly being used for targeted stamina training as
a supplement to and balance for outdoor activities. Forbo has now become oneof the leading providers of bands for running machines and has benefited significantly from these favorable market circumstances.

Development of .
conveyor facilities .

Forbo was also able to benefit from the increasing tendency of logistical companies to invest. They are searching for solutions to the increasingly strong demands for high-performance transport equipment. One example is at the airport in Seoul where the annual number of passengers, currently 30 million,
is expected to rise to 44 million by 2008. Forbo is one of the beneficiaries of thisgrowth at the international hub and will be delivering sixty kilometers of transport belting for the project by the end of 2008.
Progress of business: further potential in Asia

Exemplary .
US sales team .

The strong sales in the USA made a particularly important contribution to theincrease of 6.4 % in turnover. The growth was helped along by the good economic circumstances and the exemplary orientation of the US sales team to market needs. Further impulses for growth came mostly from individual large projects in Europe and Asia. The markets in Asia developed positively but remained
below expectations in terms of income.

Forbo Annual Report 2005

29

Outlook: setting of focal points
Evaluation of supple- .
mentary distribution .
channels .

The task in the belting business at the moment is to strengthen management andidentify potential for further growth. For this purpose, points of focus will bedefined in marketing within individual segments and product groups and supplementary distribution channels will be evaluated. In addition, research anddevelopment, production technologies and marketing activities around the globe
will be more strongly coordinated. The belting business expects an increase insales and results for 2006.

30 Forbo Annual Report 2005

Group StructureThis E. Schneider
Delegate of the Board and CEO

Tom Kaiser
Flooring

Michel Riva
Adhesives

Matthias P. Huenerwadel
Belting

Jörg Riboni
Corporate Finance

Gerold A. Zenger
Corporate Services

Regional Sales
and Marketing

North America

North and South America

Controlling

Internal Audit

Treasury

Legal Services

IT

Pensions

Supply Chain Management

Services

Northern Europe

Western Europe

EuropeAsia/PacificCentral Europe

Southern Europe

Asia/Pacific

Building and Construction

Forbo Annual Report 2005

31

Tax

Projects

Investor Relations

Corporate Governance32 Forbo Annual Report 2005
CFO

Jörg Riboni
Executive Vice President,

Matthias P. Huenerwadel
Executive Vice President
Belting

Gerold A. Zenger
Deputy CEO,
Head Corporate Services

This E. Schneider
President and CEO

Michel Riva
Executive Vice President
Adhesives

Tom Kaiser
Executive Vice President
Flooring

President .
and CEO .

This E. Schneider, Swiss
Born in 1952, studied economics at St. Gallen University and Graduate School of Business, Stanford University, California, USA. After various management functions in Europe and the USA, he
was a member of the Executive Board of Schmidt-Agence (kiosk business of S. Schmidheiny) from1984 to 1990, with responsibility for strategic planning, operations and logistics. From 1991 to
1993 he was Chairman and CEO of the publicly listed company SAFAA, Paris. In 1994, he becamea member of the Executive Board of Valora with responsibility for the canteen and catering division. From 1997 to 2002 he was President and Vice Chairman of the Board of Directors of the Selecta Group. Since March 2004, This E. Schneider has been Delegate of the Board of Directors
and CEO of the Forbo Group. In addition, This E. Schneider is a member of the Board of Directors of
Galenica SA and Minibar AG.

Deputy CEO, .
Head .
Corporate Services .

Gerold A. Zenger, Swiss

Executive .
Vice President, .
CFO .

Jörg Riboni, Swiss

Executive .
Vice President .
Flooring .

Executive .
Vice President .
Belting .

Executive .
Vice President .
Adhesives .

Born in 1945, he worked from 1968 to 1970 with Crown Life Insurance in Toronto, Canada, in
the Group Accounting Services. From 1970 to 1973, he studied at the Advanced School of Economics and Business Administration in Zurich and worked part-time with Swiss Aluminium Ltd. invarious functions. From the end of 1973, he was responsible for Group reporting and consolidation.
In October 1976, Gerold A. Zenger joined Forbo as an Assistant Corporate Controller, and heassumed responsibility for the corporate treasury in 1979. From 1987 to December 2005 he was theGroup’s Chief Financial Officer and has become a member of the Executive Board in 1998. Since
January 2006 he has been Deputy of the CEO and is responsible for Corporate Services of the Group.

Born in 1957, studied economics at St. Gallen University and is a Swiss certified public accountant. After various positions in the auditing and consultancy sector, Jörg Riboni joined the Cosa
Liebermann Group in 1991 where he worked with the European Division as Head of Controllingand Finances. In 1995 he was appointed Chief Financial Officer of Jelmoli AG which was sold at theend of 1996. From 1997 to December 2005 he was Chief Financial Officer of Sarna Kunststoff
Holding AG in Sarnen. At the beginning of 2006, Jörg Riboni joined the Forbo Group. He is a member of the Executive Board and Chief Financial Officer.

Tom Kaiser, German
Born in 1956, completed his apprenticeship in 1978 as Gross- und Handelskaufmann at Stahlwerke Südwestfalen. In 1992, he attended the International Executive Programme INSEAD, Fontainebleau. From 1979 to 1988, he worked for Krupp Handel, among other areas in North and SouthAmerica. From 1988 to 1998, he held various management positions with Vaillant GmbH. In 1998,
he joined the Wolf Group as Managing Director. In March 2004, Tom Kaiser was appointed Executive Vice President Flooring and member of the Executive Board.

Matthias P. Huenerwadel, Swiss
Born in 1968, studied engineering at Federal School of Technology (ETHZ), Zurich, spezializing on
manufacturing technologies and technology management. He started his professional career as assistant of the Executive Board of Franke Holding AG. In 1997 he moved to the USA where he was
responsible for logistics, information technology and customer service with Federal Home Products,
Ruston. From 1999 he held various managerial positions for Franke Foodservice Systems, and hemanaged its European activities over the last three years. Matthias P. Huenerwadel took over the responsibility for the Belting Business effective October 1, 2005, and he is a member of the Executive Board.

Michel Riva, Swiss
Born in 1964, studied economics at a HWV/FH and then completed his MBA at the IMD in Lausanne.
From 1989 to 1994 he held various positions at Hoffmann-La Roche. Subsequently, he led theStrapex Corporation, Charlotte, USA. He worked with the chemical group DuPont from 1998 to 2004.
In his latest assignment he was Business Director Europe, Middle East and Africa and was responsible for the DuPont Powder Coatings business. In October 2004, Michel Riva was appointed Executive Vice President Adhesives and member of the Executive Board.

Forbo Annual Report 200533

Corporate GovernanceAt Forbo, the concept of corporate governance encompasses the entire
set of principles and rules designed to protect shareholder interests withregard to organization, conduct and transparency. Forbo’s aim is to
strike a good balance between management and control. The central rules
are contained in the Articles of Association, the Organizational Regulations, and in the Charters of the Committees of the Board of Directors. The
following information is set out in line with the Directive on Information
relating to Corporate Governance (‘DCG’) drawn up by the SWX Swiss Exchange and, where applicable, the Swiss Code of Best Practice.
Based on DCG, reference is made in the following text to information in the Annual Report in order to avoid repetition. In cases where no information has
been provided, it can be assumed that the corresponding sections of DCG are notapplicable or immaterial in Forbo’s case.
Group structure and shareholders
Group structure .

An organizational chart depicting the operational Group structure is given on
page 31 of this Annual Report. The scope of consolidation of Forbo Holding AG
with registered office in Eglisau (securities No. 000354151/ISIN CH0003541510)
does not include any listed companies. The relevant details relating to the companies that belong to the scope of consolidation of Forbo Holding AG are given on pages 90 to 93 of the Financial Report in the list entitled ‘Group Companies’. Information relating to the allocation of the Group companies to theirrespective businesses is also included in this list.

Significant .
shareholders .

As of the end of December 2005, 2,679 shareholders were listed in the share register of Forbo Holding AG, 389 or 12.7 % less than in the previous year.

34 Forbo Annual Report 2005

Forbo Annual Report 200535

According to the publications in the Swiss Official Gazette of Commerce in thereporting year, the following major shareholders or groups of shareholders
have exceeded or fallen below the thresholds as per Art. 20 Stock Exchange Act.
The shareholders’ group of Michael Pieper, Hergiswil, Franke Holding AG,
Aarburg and Artemis Beteiligungen I AG, Hergiswil announced on January 28,
2005 that it had crossed the threshold of 20 %. Rudolf Maag, Binningen, announced on March 8, 2005 that the threshold of 5 % had been exceeded. The Capital Group Inc., Los Angeles and Brandes Investment Partners LLC, San Diego,
announced on March 17, 2005 and January 17, 2005 respectively that they had
fallen below the threshold of 5%.
According to an earlier publication dated December 24, 2004, Tweedy Browne
Company LLC, New York, fell below the threshold of 10 % at that time.
The status on December 31, 2005 is shown on page 102 of this Annual Report.
Cross-shareholdings .

Forbo Holding AG has not entered any cross-shareholdings with capital shareholdings or voting rights on both sides.
Capital structure

Capital, authorized .
and conditional .
capital .

As of December 31, 2005, the ordinary capital was CHF 54,263,040, and the conditional capital CHF 3,329,000 maximum. There is no authorized capital.
Further information is contained on page 101 of the present Annual Report andin the following table.

Changes in capital, .
2003 to 2005 .

The following table shows the changes in capital over the last three years:
Year 1)

Share capital

Shares(units)Nominal value

Conditional capital

CHF

CHF

CHF

2003

37,984,128

1,356,576

28

4,660,600 170,976,142 78,075,456

3)

2004

27,131,520

1,356,576

20

3,329,000

–

–

4)

2004

54,263,040

2,713,152

20

3,329,000 337,033,544

557,9805)

2005

54,263,040

2,713,152

20

3,329,000 337,253,218

7,263,983

6)

1)

Changes in capital 2002: see Annual Report 2004
As per December 31 of the corresponding year
Capital reduction as a result of the nominal value reduction according to
the resolution passed by the Annual General Meeting on April 29, 2003
4) Capital reduction as a result of the nominal value reduction according to
the resolution passed by the Annual General Meeting on April 27, 2004
5) Capital increase according to the resolution passed by the Extraordinary
General Meeting on December 2, 2004
6) No change in capital 2005
2)
3)

36 Forbo Annual Report 2005

Reserves 2)
CHF

Available Earnings 2)
CHF

Shares .

The share capital of Forbo Holding AG is CHF 54,263,040, divided into
2,713,152 registered shares with a nominal value of CHF 20 each. Further details
are given in the Notes to the Financial Statements on page 101 of the present
Annual Report. Each share entitles its holder to one vote. The economic and participatory rights of those shareholders entered in the share register as having
voting rights are stipulated by law and in the Articles of Association. The participation rights encompass the right to attend the General Meeting and the rightto table motions and to vote. Further information on the participation rights ofshareholders can be found on page 46.

Limitations on trans- .
ferability and .
nominee registrations .

With regard to relations with the company, only the party entered in the shareregister shall be recognized as the holder of registered shares or usufructuary. The
entry of shares with voting rights shall always require the consent of the Boardof Directors. Such consent may only be withheld in case the acquirer of the shares
does not expressly declare at the company’s request that the shares arebeingbought and shall be held in his own name and for his own interests. The party
acquiring registered shares shall submit a written application for approval of
the share transfer and shall declare that he acquired and shall hold the shares forhis own account.
The registered shares of Forbo Holding AG are not evidenced by certificate. However, a shareholder may request that a one-way certificate be printed andmade available free of charge. Registered shares that are not evidenced by certificates, including the rights associated with such shares, may only be transferred by means of assignment. The company must be duly notified of any suchassignment for the process to be valid. If registered shares not evidenced bycertificate are held by a bank on the shareholder’s behalf, such shares may only
be transferred with the involvement of the bank. Resolutions on the amendment or deletion of the clause on the entry of registered shares shall requirea majority of two-thirds of the votes represented at the General Meeting andthe absolute majority of the par value of shares represented.

Convertible bonds .
and warrants/options .

There are no outstanding convertible bonds. Information on the option programs available to the Board of Directors and the Executive Board is containedon page 45 of the Annual Report.

Forbo Annual Report 2005

37

Board of Directors
Members of the .
Board of Directors .

The key date for the following information is December 31, 2005. An overview ofthe members who retired from the Board of Directors during the business year
under review as well as of the new and additional members elected to the Board
is provided on pages 40 and 41 of the Annual Report 2004.
Except for This E. Schneider, Delegate of the Board of Directors and CEO, noneof the members of the Board of Directors listed below has or had any operational management tasks for Forbo Holding AG or its consolidated companies.
Except for This E. Schneider, none of the members was part of the Executive
Board of Forbo Holding AG or its consolidated companies in the three businessyears preceding the period under review. There are no essential business relationships between the members of the Board of Directors and Forbo Holding
AG or its consolidated companies.

Dr. Albert Gnägi, .
Chairman .

Albert Gnägi, Swiss, was born in 1944. He graduated in jurisprudence (Dr. iur.)
after studies at Zurich University and in Rome. He practices law in Zurich,specializing in commercial law, company law and inheritance law. From the IPO in
1997 till the takeover by the British Compass Group in 2001, he was Chairmanof the Board of Directors of the Selecta Group. From 1982 to 1997 he was a member and Chairman of the Board of Directors of Immuno International AG,
a manufacturer of biological pharmaceuticals that was listed at the Zurich Stock
Exchange in 1989. Since 1980 Albert Gnägi has been a member of the Boardof Trustees of the Sanitas hospital in Kilchberg near Zurich and its president since
2002. He holds additional board memberships in other companies and foundations. Since March 2005 he has been acting as Chairman of the Board of Directors of Forbo Holding AG.

Michael Pieper, .
Vice Chairman .

Michael Pieper, Swiss, was born in 1946. Michael Pieper studied economics at
St. Gallen University. He has been with Franke Group since 1988 and its owner
and CEO since 1989. He is a member of the Board of Directors of Hero AG,
advalTech Holding AG and of the Supervisory Board of ThyssenKrupp Stainless AG (Germany). His first election as a member of the Board of Directors ofForbo Holding AG took place in the year 2000.

This E. Schneider, .
Delegate und CEO .

For the curriculum vitae of This E. Schneider, see page 33.

38 Forbo Annual Report 2005

Dr. Peter Altorfer .

Peter Altorfer, Swiss, was born in 1953. He studied at Zurich University andgraduated in law (Dr. iur.). He attended the PED at the IMD, Lausanne. He is
a partner of the law firm Wenger & Vieli in Zurich and concentrates on bankand company law. Peter Altorfer is a member of the Board of Directors of various companies, for example Huber+ Suhner AG, Herisau, agta record ag, Fehraltorf, and Abegg Holding AG, Zurich, and of several private and foreign banks
in Switzerland. He has been a member of the Board of Directors of Forbo
Holding AG since March 2005.

Hans-Beat Gürtler .

Hans-Beat Gürtler, Swiss, was born in 1946. Following his commercial education
he worked with Ciba Geigy and Novartis in various executive roles in Switzerland and abroad. From 1990 to 2002 he was CEO of the Novartis Animal Health
Division. Since autumn 2002 Hans-Beat Gürtler has been a partner of private
equity company Varuma AG. Hans-Beat Gürtler is also a member and Chairmanof the Board of Directors of various start-up companies. He has announced
that he will step down from the Board of Directors of Forbo Holding AG as at thenext Annual General Meeting.

Dr. Rudolf Huber .

Rudolf Huber, Swiss, was born in 1955. He studied and graduated at Zurich University (Dr. oec. publ.). From 1987 to 1992 he led the Finance and Information
Technology departments of Bucher Guyer AG and the Finance Group Staff of Bucher Holding AG. In 1992 he joined the Geberit Group where he was a memberof the Executive Board and CFO until 2004. Today, he runs his own company. Rudolf Huber has been a member of the Board of Directors of Swiss Prime Site AG
since 2002 as well as of Kardex AG since May 2005. He was elected as member ofthe Board of Directors of Forbo Holding AG in March 2005. He will be recommended to the General Meeting of Georg Fischer AG on March 22, 2006 for election as a new member of the Board of Directors.

Cross-involvement .

There is no cross-involvement between the Board of Directors ofForbo Holding AG and any other listed company.

Elections and .
terms of office .

The individual members are elected by the General Meeting for four years and may
be reelected several times. This E. Schneider’s mandate will end in 2008; themandates of the other members of the Board of Directors will expire in 2009. Information in this regard is provided on page 40 of this Annual Report. In accordance with the Organizational Regulations of Forbo Holding AG, members who
have reached the age of 70 resign from the Board of Directors at the General
Meeting of the following year. The average age of the incumbent members of
the Board is around 56. With regard to the composition of the Board of Directors, value is attached to the election of independent individuals with international experience in industrial companies as well as in the financial and consultancy sectors.

Forbo Annual Report 2005

39

AFC

HRC

Elected until

Member since

Board of Directors of Forbo Holding AG
as of December 31, 2005

2005 2009

M

C

2000 2009–

M

2004 2008––2005 2009

M–

2005 2009–

M

2005 2009C–

Chairman
Dr. Albert Gnägi
Non executive member
Vice Chairman
Michael Pieper
Non executive member
Members
This E. Schneider
Delegate of the Board of Directors and executive member
Hans-Beat Gürtler
Non executive member
Dr. Peter Altorfer
Non executive member
Dr. Rudolf Huber
Non executive member
Secretary General to the Board of Directors
Nicole Häfeli
Non member
AFC : Audit and Finance Committee
HRC : Committee for Human Resources and Remuneration
C : Chair
M : Member

Internal organi- .
zational structure .

The allocation of tasks within the Board of Directors and the composition of thetwo Board committees are listed above.
The Board of Directors is the company’s supreme managerial body. The Chairman of the Board of Directors convenes its meetings in accordance with theOrganizational Regulations as business dictates, but at least four times per year.
Meetings are convened with notification of the agenda at least five working
days in advance or with shorter notice being given in urgent cases.
The Chairman and the CEO may invite executive employees to meetings of theBoard of Directors. Regular use is made of this option. The Board of Directors is informed in each meeting by the CEO or other members of the Executive
Board about current business and important business events.

40 Forbo Annual Report 2005

Two committees composed of members of the Board of Directors deal with welldefined subject areas of overriding importance. These committees consistingof three Board members advise the Board of Directors and draw up proposals.
The members of these standing committees are elected by the Board of Directors on a yearly basis and can be dismissed at any time.
Audit and Finance .
Committee .

The Audit and Finance Committee (AFC) advises the Board of Directors in termsof financial reporting, the accounting standards and systems used, and significant financial decisions. The AFC also stipulates the tasks of the internal auditing function and the selection and proposal of the audit mandates to the General Meeting. The CEO and CFO are regularly requested to attend meetings inan advisory capacity, whilst the involvement of representatives of internal auditing or external auditors may also be requested by special invitation. The AFC
convenes as often as business requires but at least two times per year.

Committee for .
Human Resources .
and Remuneration .

The Committee for Human Resources and Remuneration (HRC) advises theBoard of Directors in relation to its human resources responsibilities for the Group,
notably as far as the Board itself and the senior executives are concerned. The
HRC prepares human resources policy proposals to the attention of the Board of
Directors with regard to the Board of Directors’ and the CEO’s employment
and judges and approves the CEO’s proposals regarding the Executive Boards employment. It prepares recommendations for the Board of Directors in relation
to the remuneration of the Board of Directors, the Chairman, the Committee
members and the CEO.

Definition of areas .
of responsibility .

The Board of Directors is the supreme managerial body within the Forbo Group.
It is responsible for the ultimate management of the company and exercises
the supervision over and control of the management and is responsible for the
corporate strategy. The Board of Directors issues guidelines for the business
policy and is regularly briefed on the current state of business.
The Board of Directors has fully delegated operational management of the company to the CEO in the absence of any provisions to the contrary set out in therelevant statutory regulations, Articles of Association, or Organizational Regulations. The Chairman of the Board of Directors is the CEO’s direct superior
and he is in regular contact with him.
The Executive Board is comprised of the CEO, the Head of Corporate Services,
the Chief Financial Officer (CFO) and the Heads of the three businesses. It is
responsible for the long-term successful and market-focused management of theGroup and shares the responsibility for the protection of the Group’s interestsand overall financial success. The members of the Executive Board support the
CEO in his managerial functions and are his direct reports.
The Executive Board meets as often as necessary, normally once a month.

Forbo Annual Report 2005

41

Information and .
control instruments .

In addition to the external auditors, internal auditing is available to support theBoard of Directors and the Executive Board in the implementation of their supervisory duties. The internal auditing is independent, autonomous and reports
directly to the AFC. In the context of internal audits the subsidiaries are audited
periodically. The audit is tailor-made in line with the size and risk potential of
a company. Basically the internal audit includes the examination of essential
business processes, management reporting, and IT security. Besides, it covers theidentification of possible efficiency improvements, compliance with internal
guidelines, and it covers the review of the risk management procedures adopted
by the subsidiary companies.
The risks identified during these audits are minimized or eliminated, as necessary, and continuously monitored through the action plans initiated by thecompany management.
Executive Board

Members of the .
Executive Board, .
activities and .
vested interests .

The names of the members of the Executive Board, alongside their nationalities,functions, qualifications, and professional backgrounds, as well as their activities and interests are listed on page 33 of this Annual Report.

Management .
agreements .

Forbo Holding AG has not entered into any management contracts with third
parties.

42 Forbo Annual Report 2005

Forbo Annual Report 2005

43

Compensations, shareholdings and loans
Content and method .
of determining .
the compensations .
and the shareholding .
programs .

The compensation of the Board of Directors is defined by the HRC and submitted
to the Board of Directors for approval.
The compensation and shareholding programs applicable to the Executive Board
are stipulated by the HRC at the last meeting before the end of the year for the
next year. When the annual accounts are produced in March, performance is reviewed in light of the stipulated target agreements and in consideration of theprevailing market conditions, and a decision is made on bonus payments and theissuance of options.
The members of the Board of Directors receive a fixed remuneration on the basisof a graduated scale applicable to the Chairman and the members. 40% of thisconsideration is paid to the members in the form of Forbo shares. These shares
are subject to a block period of three years. The average share price during ten
share trading days after the distribution of the dividend, or nominal value repayment, is used as the basis of calculation for shares. The average share price during ten trading days is used as the basis of calculation starting June 1 of the business year, in case no dividend should be distributed.
The remuneration paid to the Executive Board consists of a fixed base salary
and a performance-related component, determined in each case at the end of thefinancial year. As part of a stock option plan, the Board of Directors issued tomembers of the Executive Board options of Forbo Holding AG for the first timein 2000. The basis of calculation was the theoretical market value on the issue
date in each case, subject to a maximum of 10 % of the total remuneration
payable.

Compensation .
for current members .

The total compensation to all non executive members of the Board of Directors
within the Forbo Group in 2005 was CHF 618,740, CHF 370,322 of which tothe members who retired before or during the General Meeting 2005. The Delegate of the Board of Directors, who is at the same time chairing the Executive Board and who came into office in the course of March 2004, received a total compensation of CHF 1,446,803 in the period under review. This amountincludes all the remunerations, i. e. base salary, bonus, contributions to pension
funds in excess of obligatory levels and payments in kind. In addition, asa member of the Executive Board he received a total of 2100 options in accordance with the option plan, page 45.
The compensation to six Executive Board members in 2005 amounted to
CHF 4,823,274, with one member retiring in the period under review.

This amount includes base salary, bonus and payments in kind, and theDelegate’s remuneration.
Payments due to termination of employment arrangements amount to
CHF 1,673,750.

44 Forbo Annual Report 2005

Compensation for .
former members .
of governing bodies .

During the period under review, a former member of the Executive Board who
had retired in August 2003 received a sum of CHF 452,000 for consultancy services.

Share allotment .
in the period .
under review .

590 shares were allotted to the members of the Board of Directors in the period
under review as a component of their remuneration. No shares were allocatedto parties (natural persons or legal entities) with close links to the Board of Directors/Executive Board.

Share ownership .

The total number of shares held by the non executive members of the Boardof Directors as of December 31, 2005 was 772,172. The Executive Board held in
total 10,373 shares on the key-date. These figures include any shares heldby natural persons and legal entities with close links to the Board of Directors/
Executive Board.

Options .

As of December 31, 2005 the Board of Directors and Executive Board held thefollowing options:Year allotted

NumberTerm

Frozen until

Subscription

Exercise price
CHF

Board of Directors
2001

235 08. 05. 2001– 07. 05. 2006

07. 05. 2004

1:2

442

2002

356 07. 05. 2002– 07. 05. 2007

06. 05. 2005

1:2

330

2001

1,085 08. 05. 2001– 07. 05. 2006

07. 05. 2004

1:2

442

2002

1,260

07. 05. 2002– 07. 05. 2007

06. 05. 2005

1:2

330

2003

1,700 31. 07. 2003– 30. 07. 2008

30. 07. 2006

1:2

251

2004

3,600 01. 08. 2004– 31. 07. 2009

31. 07. 2007

1:2

212

2005

5,250 15. 06. 2005– 14. 06. 2010

14. 06. 2008

1:1

235

Executive Board

Additional fees .
and remunerations .

All transactions with companies and persons having close links to the ForboGroup are based on customary agreements at market conditions.
In the period under review, a total of CHF 447,135 was paid for consultancy services to lawyers Bär & Karrer in Zurich. Prof. Dr. Rolf Watter, who retired
from the Board of Directors in the business year under review, has been a partner of that lawyers’ office for several years.
For supplies from business relationships which were obtained from Franke Groupin the period under review Forbo paid a total of CHF 328,926. Michael Pieper,
Vice-Chairman of the Board of Directors, is the owner and CEO of FrankeGroup.
Furthermore, CHF 31,694 in total were paid to lawyers Wenger & Vieli in Zurich for consultancy services. Dr. Peter Altorfer, a member of the Board of Directors, has been a partner of that lawyers’ office for several years.

Forbo Annual Report 200545

Loans granted .
to governing bodies .

As of December 31, 2005, Forbo Holding AG had not awarded any securities,
loans, credits, or advances to any members of the Board of Directors or Executive Board, or to any persons with close links to these members.

Highest total .
compensation .

The Delegate of the Board of Directors, who is at the same time chairing the Executive Board and who came into office in the course of March 2004, received
a total compensation of CHF 1,446,803 in the period under review. This amountincludes all the remunerations, i. e. base salary, bonus, contributions to pension funds in excess of obligatory levels, and payments in kind. In addition, asa member of the Executive Board he received a total of 2,100 options in accordance with the option plan, see page 45.
Shareholders’ rights of participation

Voting right .
restriction and .
representation .

Entry of shares with voting rights in the share register requires in any case theBoard of Directors’ consent. Such consent may be withheld if the acquiring
party of the shares in question fails to expressly declare that he shall acquire andhold the shares on his own behalf and for his own interests. Resolutions on theamendment or deletion of the clause on the entry of registered shares requirea majority of two-thirds of the votes represented at the General Meeting, inaddition to an absolute majority of the par value of shares represented.
Deviating from Article 689, Paragraph 2 Swiss Code of Obligations, shareholders
who are unable to attend the General Meeting in person may be represented
by a member of a corporate body of the company, an independent proxy or another shareholder who is entered in the share register.

Statutory quorums .

In accordance with the Articles of Association, resolutions on the amendment andcancellation of provisions regarding the conversion of registered shares into
bearer shares, the entry of registered shares, the representation of shares at theGeneral Meeting, and the dissolution of the company, or a merger require theapproval of two thirds of the votes represented at the General Meeting and theabsolute majority of the par value of shares represented.

46 Forbo Annual Report 2005

Convocation of .
the General Meeting ..

The General Meeting is convened in accordance with the statutory provisions.

Agenda .

General Meetings are convened at least 20 days prior to the meeting date. The
agenda, as well as any motions tabled by the Board of Directors and any shareholder motions, are announced together with the invitation to attend the meeting. Deviating from Article 699 Paragraph 3 Swiss Code of Obligations, shareholders representing shares in the nominal value of CHF 400,000 can demand,in writing and within a period of time published by the company, that relevant issues be put on the agenda.

Registration in .
the share register .

In accordance with Section 4 of the Articles of Association, the share register entries as at the 20 th day prior to the General Meeting apply with regard to determining the participation and representation rights of shareholders at General
Meetings. In order to accommodate (new) shareholders and to enable them toattend the General Meeting, Forbo Holding AG deviates from this provision inpractice if entries are made where possible up to approximately seven days
prior to the meeting date.
Changes of control and defense measures

Duty to make an offer .

The Articles of Association of Forbo Holding AG contain neither an opting-up
clause (clause according to which the 33 1⁄3 % threshold stipulated in Article 32,
Paragraph 1 of Stock Exchange Act is raised) nor an opting-out clause (clauseaccording to which an acquiring party is released from a purchase offer). However, the Articles of Association modify the determination of the minimum
price stipulated in Article 32 Paragraph 4 of Stock Exchange Act in that, in caseof a compulsory offer, the offer price must at least correspond with theshare price and must not be lower than the highest price which the bidder
paid in the last twelve months for shares of the company.

Clauses on changes .
of control .

Two members of the Executive Board are entitled to claim a severance payment
in the event that certain conditions arise due to a change in the controllingshareholder. This involves payment of a settlement corresponding with an annual
salary at most.
Auditors

Duration of .
the mandate and .
term of office .
of the head auditor .

PricewaterhouseCoopers have been the Forbo Group’s auditors since 1987. The
predecessor company of PricewaterhouseCoopers had been Forbo’s auditorssince 1928. The current head auditor, Stefan Räbsamen, has been in office since
2002. The auditors are appointed each year by the General Meeting.

Auditing fees .

The auditing fees levied by the Group auditor for the audit of the consolidated financial statements, including the statutory audit of the individual financial statements of the Holding and consolidated subsidiaries, amounted to
CHF 1.9 million in the period under review.

Forbo Annual Report 2005

47

Additional fees .

Total additional consultancy fees (e. g. costs incurred for tax and legal advice,consultancy costs in connection with acquisitions, mergers and divestments), as
invoiced by the audit company, amount to CHF 1.1 million for 2005.

Supervisory and .
control instruments .
pertaining .
to the audit .

The Audit and Finance Committee (AFC ) of Forbo Holding AG is responsible forsupervising and monitoring the work of the external auditors. Ultimate responsibility lies, however, with the Group’s Board of Directors. At the AFC’s invitation, representatives of the external auditors attend AFC meetings in an advisory capacity. For the purposes of assessing the external audit, the Chairmanof the Board of Directors holds discussions on a yearly basis with the head auditor, dealing with critical aspects of the auditing activity.

Internal auditing .

Ernst & Young AG, Basle, has been responsible for internal auditing since 2002.
The remit of the internal auditors includes, among other tasks, verifying thatinternal guidelines and requirements have been implemented and monitoring theefficiency of internal processes. Furthermore, checks are carried out to assess
whether appropriate control systems are in place from a financial and operational perspective. In 2005, five internal audits took place, which covered every
business unit at least once. Various aspects of a Group function were also examined for their application in the business units.

48 Forbo Annual Report 2005

Information policy
Transparency .
for investors .

Forbo aims to provide comprehensive, objective, and timely information on
business developments and commercially relevant events. To this end, it publishes annual and half-year reports, summary reports for shareholders andregular media releases. This target-group oriented information is also madeavailable to interested parties via E-Mail. Both the Chairman of the Board of
Directors and the CEO can be contacted directly for further information.

Direct communi- .
cation with different .
target groups .

All up-to-date information is available on the Forbo website at www.forbo.com.
Most information is also available to order in hard copy. This ensures thatshareholders, the media, and financial analysts can access required information
as and when necessary.
In addition, Forbo is involved in several activities designed to foster directcommunication with different target groups. The primary measure as far as
shareholders are concerned is the General Meeting, whilst conferences andnews releases are used to brief the media and the financial analysts.
To view the financial calendar with key dates, and for further information on
the Forbo share, see also page 54 of this Annual Report.
Publications may be ordered via e-mail, fax or phone:
E-mail: info @ forbo.com
Phone: + 41 58 787 25 25
Fax: + 41 58 787 20 25
The contact address for Investor Relations is:
Forbo International SA
Jörg Riboni, CFO
Lindenstrasse 8
Postfach 1041
CH-6341 Baar
Phone: +41 58 787 25 25
Relocation of the registered office

On the occasion of the Annual General Meeting on April 28, 2006 the Board of
Directors shall propose the shareholders to relocate the registered office ofForbo Holding AG to Baar, Canton Zug.

Forbo Annual Report 2005

49

Risk Management
Important control .
and working tool .

The continuous and systematic evaluation of current and future risks always includes the identification and exploitation of chances. Risk management is seen
by Forbo as a control and working tool for safeguarding the tangible and intangible assets of the Group, among others.
Forbo has a riskadequate insurance coverage in line with industry practice, especially against operational risks such as property damage, business interruptions, and product liability. The specific risks in terms of property damage, business interruptions and liability are studied in the context of periodic riskengineering reports by external subject matter experts. In addition, production
companies are visited on a regular basis, and comprehensive questionnaires
are completed with the local management. Action plans are developed and implemented based on the risks identified. Forbo has been preparing such riskengineering reports since 1990. As far as business risks are concerned, Forbo deals
with both strategic risks as well as with market and financial risks. As to market risks, interest and currency risks are monitored and controlled centrally (seepages 85 and 86 in this report). The liquidity and financing of subsidiaries arealso controlled centrally. In order to avoid losses through debtor failures, credit
insurance policies are taken out in specific cases, notably for business activities
in difficult markets.

50 Forbo Annual Report 2005

Forbo Annual Report 2005

51

The Forbo Share

Upswing in the .
second half-year .

At the start of November 2004, the private equity house CVC Capital Partners
for the first time expressed an interest in a takeover of Forbo. After completion of
the due diligence procedure in March 2005, CVC submitted a public offer of
CHF 260 per share to the Forbo shareholders. On April 6, 2005, CVC withdrew
their bid as only 16 % of the shares had been offered.
At the occasion of the publication of the sales figures for the first quarter2005 at the end of April, Forbo pointed out that the takeover attempt would havea negative impact on the operative result in the business year 2005. In August
2005 with the publication of the half-year results, Forbo reported that the restructuring measures were again making progress as planned and that the sales
goals could be reached in spite of adverse impacts during the first quarter. With
the publication of the figures for the third quarter in October, Forbo announced a slight sales growth over the corresponding period of the previous year thanks
to the generally positive economic development.

Share price .
development reflects .
business trend .

In the first half-year 2005, the share price moved in a narrow range between
CHF 240 and CHF 252. By mid-year it was about 3 % below the 2004 year-end
price. In the second half of 2005 the price moved between CHF 260 and
CHF 285. At the end of the year it was about 19 % higher than mid-year. Related

to the entire year, the price of the Forbo share rose by roughly 15 %.
Compared with Forbo share’s historical low of CHF 155 immediately before
the first announcement of CVC’s takeover interest at the end of 2004, the price of
CHF 285 at year-end 2005 corresponds to a growth of approximately 84 % or
CHF 343 million. Compared with CVC’s public offer, the shareholders benefited
from a higher valuation of the Forbo share of about 10 %, or a value growthof some CHF 68 million in absolute figures.

The Forbo Share in comparison to the SPI
CHF

SPI

600

5,500

550

5,250

500

5,000

450

4,750

400

4,500

350

4,250

300

4,000

250

3,750

200

3,500

150

3,250

100

3,000
31.12.2000

31.12.2001

31.12.2002

31.12.2003

SPI, adjusted

Forbo registered share

52 Forbo Annual Report 2005

31.12.2004

31.12.2005

2005

2004

2003

2002

2001

Share capital
NumberNumberNumberNumberNumber2,713,152

2,713,152

1,356,576

1,356,576

1,513,550

2,634,849

2,633,897

1,314,986

1,305,207

1,305,052

–

–

–

–

156,974

Other own shares

56,884

57,836

20,171

25,48911,390Reserve shares (without dividend right)

21,41921,41921,41925,88040,134

CHF

CHF

CHF

CHF

CHF

Issued registered shares1)
Thereof:
Shares outstanding
Shares from buy-back program 2001

Nominal capital
54,263,040 54,263,040 37,984,128 67,828,800 75,677,500

Total
Thereof:52,696,980 52,677,940 36,819,608 65,260,350 65,252,600

Shares outstanding

–

–

–

–

7,848,700

1,137,680

1,156,720

564,7881,274,450

569,500

428,380

428,380599,732

1,294,000

2,006,700

Shares from buy-back program 2001
Other own shares
Reserve shares (without dividend right)

Data per share
CHF

CHF

CHF

CHF

CHF

Shareholders’ equity Group 2)

212

206

435

453

500

Consolidated loss/profit 3)

–17

–107

12

33

38

0

8

22

0 4)

Gross dividend and cash distribution, respectively
Gross dividend return (in %)

5)

22
5)

5.3

High

0.0

0.0

2.4

Low

0.0

0.0

1.8 5)

3.8 5)

2.6

0

0

65

67

58

Payout ratio 6) (in %)6.3

Stock market statistics
Share prices 7)

Market capitalization (m) 8)

CHF

CHF

CHF

CHF

CHF

High

285

301

326

437

626

Low

233

155

250

261

311

Year-end

285

248

264

307

377

High

751

794

575

764

1,228

Low

614

408

441

457

544

Year-end

751

653

465

538

659

1)

Nominal value per share 2004 –2005: CHF 20, 2003: CHF 28, 2001–2002: CHF 50
Adjustment from 2004 according to IAS 19 for actuarial losses
See also the Financial Report, Notes to the Consolidated Financial Statements,
page 72, ‘Earnings per share’
4)
Proposal of the Board of Directors to the Shareholders’ General Meeting5)
Calculated on the basis of a cash distribution by reducing the nominal value
6)
Gross cash distribution as a percentage of Group profit
7)
Adjusted by the capital increase in 2004
8)
Based on shares outstanding
2)
3)

Forbo Annual Report 2005

53

Financial calendar .

Annual General Meeting:Letter to shareholders:Media release on the results of the first half-year 2006:

54 Forbo Annual Report 2005

April 28, 2006
August 22, 2006
August 22, 2006

Forbo Group
Financial ReportConsolidated Income Statement
2005

Net sales

Notes

m CHF

m CHF

1/2

1,702.0

1,622.3–1,151.8–1,092.5

Cost of goods sold
Gross profit
3

Development costs

2004

550.2

529.8

–32.4

–32.1

–286.9–285.1

Administrative costs

4–143.5–143.6

Other operating expenses

5

–63.5

–113.5

23.9

–44.5

7

9.5

4.2

Financial expenses

8

–28.3

–49.8

Share of results of associated companies

12

0.0

–22.5

5.1

–112.6

23

–21.6

–44.8

–16.5

–157.42005

2004

Marketing and distribution costs

Operating profit/loss
Financial income

Profit/loss before taxes
Income taxes
Net loss for the year

Loss per share (basic/diluted)

Forbo Financial Report 2005

57

Notes

CHF

CHF

9

–6.26

–106.56

Consolidated Balance Sheet
31.12.2005

31.12.2004

Assets
Notes

Non-current assets

m CHF

m CHF

597.3

612.2

Tangible assets

10

422.4

443.5

Intangible assets

11

144.6

143.0

Deferred taxes

23

28.1

23.5

Investments in associates and other long-term assets

12

Current assets

2.2

2.2

993.7

904.4

Inventories

13

257.0

255.2

Trade receivables

14

273.8

242.9

22.8

28.7

Other receivables
Prepaid expenses and deferred charges

35.5

30.8

Cash and cash equivalents

404.6

346.8

1,591.0

1,516.6

31.12.2005

31.12.2004

Notes

m CHF

m CHF

Shareholders’ equity

26

558.1

543.7

Share capital

15

54.3

54.3

Treasury shares

15

–1.6

–1.6

Total assets

Shareholders’ equity and liabilities

Reserves and retained earnings 1)

505.4

491.0

Non-current liabilities

512.9

604.7

Long-term financial debt

16

358.4

459.7

Employee benefit obligations 1)

17

101.1

112.1

Non-current provisions

18

40.7

26.9

Deferred taxes

23

Current liabilities

1)

12.7

6.0

520.0

368.2

Trade payables

19

131.8

108.8

Current provisions and accrued expenses

20

189.0

200.3

Short-term financial debt

21

155.5

18.1

Current tax liabilities

10.6

6.1

Other current liabilities

33.1

34.9

Total liabilities

1,032.9

972.9

Total shareholders’ equity and liabilities

1,591.0

1,516.6

Adjustment from 2004 according to IAS 19
for actuarial losses

58 Forbo Financial Report 2005

Consolidated Cash Flow Statement
2005

2004

Cash flow from operating activities
m CHF

m CHF

Net loss for the year

–16.5

–157.4

Depreciation and impairment of tangible assets

78.5

154.8

Amortization and impairment of intangible assets

6.9

15.9

Share of results of associated companies

0.0

22.5

Net financial expenses

18.8

45.6

Tax expense

21.6

44.8

Taxes paid

–18.9

–15.9

Share-based payments

0.6

0.0

Increase (+)/decrease (–) in provisions and employee benefit obligations

13.7

–2.5

Increase (+)/decrease (–) in current liabilities (excl. short-term debt)

30.9

14.6

Increase (–)/decrease (+) in current assets 1)

–0.7

–4.6

Total cash flow from operating activities

134.9

117.8

2005

2004

m CHF

m CHF

Cash flow from investing activities
Acquisitions

–8.8

0.0

Purchases of non-current assets

–43.6

–54.8

6.0

3.8

–46.4

–51.0

0.0

18.7

Proceeds from sale of non-current assets
Total cash flow from investing activities (before securities)
Proceeds from sale of marketable securities
Dividends received 2)
Total cash flow from investing activities

0.0

0.3

–46.4

–32.0

2005

2004

Cash flow from financing activities
m CHF

m CHF

0.0

–65.9

Increase (+)/decrease (–) in short-term financial debt

–13.2

5.2

Interest paid 2)

Repayment of long-term financial debt

–27.7

–27.9

Interest received 2)

4.5

3.9

Change in treasury shares

0.0

0.7

Cash distribution to shareholders

0.0

–10.5

Capital increase

0.0

186.7

–36.4

92.2

2005

2004

m CHF

m CHF

Increase in cash and cash equivalents

52.1

178.0

Translation differences

5.7

–1.0

Total cash flow from financing activities

Change in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

346.8

169.8

Cash and cash equivalents at the end of the year 3)

404.6

346.8

1)

Excluding cash and marketable securities
Interest paid and interest received were reallocatedfrom cash flow from operating activities to cash flowfrom financing activities, dividends received
were reallocated to cash flow from investing activities.
3)
A considerable part of the cash position isinvested in the money market.
2)

Forbo Financial Report 2005

59

Consolidated Statementof Recognized Income and Expenses
2005

Notes

Net loss for the year

2004

m CHF

m CHF

–16.5

–157.4

Fair value adjustments of financial instruments

26

–3.1

6.5

Actuarial profits (losses) from defined benefit plans, net

17

10.8

–8.4

22.3

–18.4

13.5

–177.7

Translation differences
Total income and expenses recognizedin shareholders’ equity

Consolidated statement of changes in shareholders’equity, see note 26
on page 87.

60 Forbo Financial Report 2005

Accounting Policies
Basis of preparation

The consolidated financial statements and the information provided in thenotes to the financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS) and in compliance with Swisslaw. These financial statements were approved and released for publication by
the Board of Directors on March 15, 2006.
Changes of accounting policies in 2005

Effective January 1, 2005, the International Accounting Standard Board (IASB)
implemented various new standards or revised existing International Accounting Standards (IAS) (IASB Improvements Project). Reference to such changes ismade in the following explanations provided they have an essential influence on
the consolidated statements.
Since January 1, 2005, share-based payments have been included in the income
statement in accordance with IFRS 2. This change was not material for the previous year, meaning that the previous year’s figures were not restated.
Planned amortization of goodwill is no longer admissible pursuant to IFRS 3.
Instead, all goodwill items are by means of an impairment test assessed annually
beginning January 1, 2005 on the level of cash-generating unit and adjusted to
the recoverable amount, if necessary. This also applies to intangible assets withan indefinite useful life time pursuant to IAS 38.
For pension liabilities, IAS 19 has been offering an alternative since January 1,
2005 for booking of actuarial gains and losses. With this early adoption, all actuarial gains and losses are now stated as pension liabilities in the balance sheetwith a corresponding movement in the statement of recognized income and expense. The previous year’s figures were restated in the shareholders’ equity
and in the pension liabilities. The effect on the previous year’s income statement
is immaterial.
Changes of accounting policies from 2006

New standards, amendments and interpretations to existing standards have been
published that are mandatory for the Group’s accounting periods beginningon or after 1 January 2006 or later periods which Forbo has not early adopted asthey are not regarded as relevant for the Group’s operations– IAS 39 (Amendment), ‘The Fair Value Option’– IAS 39 and IFRS 4 (Amendment), ‘Financial Guarantee Contracts’– IFRS 6 (Amendment), ‘Exploration for and Evaluation of Mineral Recources’– IFRIC 6, ‘Liabilities arising from Participating in a Specific Market –Waste Electric and Electronic Equipment’Management is currently assessing the relevance of following amendments
to existing standards to the financial results– IAS 39 (Amendment), ‘Cash flow hedge Accounting of Forecast Intragroup
Transactions’– IFRIC 4, ‘Determining whether an Arrangement contains a Lease’– IFRS 7, ‘Financial Instruments: Disclosures’
Above mentioned amendments were not applied to the financial statements 2005.
The future application will first and foremost require additional disclosures.

Forbo Financial Report 2005

61

Judgements and estimates

The preparation of the consolidated financial statements requires management
to make judgements and estimates to the extend that actual outcomes and results may differ from these assumptions and estimates. This applies to the reported assets, liabilities, disclosure of contingent assets and receivables at the dateof the financial statements and the reported amounts of revenues and expenses
during the reporting period.
For assessing the fair value of tangible and intangible assets, including goodwill,
estimates are used for impairment tests. The estimates relate to future cash
flows from the use of assets to determine the enterprise value and their possible
sale. The management’s planning documentation is the basis of such calculations.
The Group has made various provisions for environmental remediation projects
or legal proceedings, for instance. The expected costs and the probability ofoccurrence of such possible cash outflows are estimated by experts. The management considers the existing provisions adequate, but it can not exclude any
effects on the operational results because of the uncertainty of the point of timeand amount of such payments.
Scope of consolidation

The consolidated financial statements include Forbo Holding AG and all subsidiaries over which the Group has a controlling influence. A controlling influence
normally exists when the Group owns more than 50 % of the voting rights in
a company. Intra-group transactions, balances and unrealized profits on transactions between Group companies are eliminated.
Companies acquired during the reporting year are included in the consolidated
financial statements as of their acquisition date, and all companies disposedof are eliminated from the accounts as of the date the Group ceases to have control. The companies included in the consolidated financial statements are listed under ‘Group companies’. Joint ventures in which the Group has a direct orindirect participation of 50 %, and where Forbo exercises joint control, are included in the consolidated financial statements using the proportionate consolidation method. Companies over which the Group has a significant influence
but not control (normally between 20 % and 50 % of the voting rights) are included in the consolidated financial statements using the equity method of accounting and are presented as investments in associates. Investments below
20 % are valued at their fair value.
Capital consolidation

The purchase method is used, whereby goodwill is capitalized and was amortizedover its estimated useful life, but over a period not exceeding twenty years
until December 31, 2004. Under IFRS 3 (applicable to Forbo as from January 1,2005) goodwill is considered to have an indefinite life and is not amortized,
but is subject to annual impairment testing.

62 Forbo Financial Report 2005

Foreign currency translation

The consolidated financial statements are presented in Swiss Francs (presentation currency). Items included in the financial statements of each Group company are measured using the currency of the primary economic environment inwhich that company operates (the functional currency). The assets and liabilities of Group companies which do not report in Swiss Francs as their functional
currency are translated at year-end exchange rates and their income statements
are translated at weighted average exchange rates for the year. Currency translation differences arising from changes in exchange rates between the beginningof the year and the end of the year and the difference in net income translated atweighted average and year-end exchange rates are taken directly to shareholders’ equity. Exchange gains and losses arising from long-term intra-group financings with equity character denominated in foreign currencies are likewisetaken to shareholders’ equity. On the disposal of a company, the cumulative
amount of these exchange differences is recognized in the income statement
together with the disposal gain or loss.
Exchange gains and losses arising in Group companies from transactions inforeign currencies are taken to the income statement.
Tangible assets

Tangible assets are stated at their acquisition or production cost less depreciation
over their estimated useful lives. Depreciation is charged on a straight-line basis over thirty years for buildings and over a period of three to ten years for machinery, equipment and other tangible assets. The same depreciation rules
apply for leased assets where the Group companies assume all the risks and rewards of ownership (financial leasing). These assets are capitalized at the present value of the underlying lease payments. The corresponding payment obligations, excluding the associated financing costs, are shown in the balance
sheet as short- and long-term loans, depending on their due date. The interest
element of the financing is charged to the income statement over the lease
period. Investment objects are stated at their acquisition cost less depreciationand impairment.
Expenditures for maintenance and repairs are charged directly to the income
statement, whereas expenditures which enhance the value of assets, are capitalized.
Intangible assets

Intangible assets, other than goodwill, comprise mainly patents, licenses andtrademarks acquired from third parties. The amortization of intangible assets withindefinite lifetime has no longer been admissible since January 1, 2005. By
analogy to goodwill treatment, such intangible assets are subject to an annual
impairment test. Intangible assets having an indefinite useful lifetime areamortized on a straight-line basis over their estimated useful life (but overa period not exceeding twenty years).

Forbo Financial Report 2005

63

Impairment of tangible and intangible assets

When there is evidence that an asset may be impaired, the recoverable amountof the asset is calculated and an impairment assessment is carried out. When therecoverable amount of an asset, being the higher of its net selling price and its
value in use, is less than its carrying amount, then the carrying amount is reduced to its recoverable value. Value in use is calculated using estimated cashflows, generally over a period of five to ten years, with extrapolating projections
for subsequent years. These are discounted using an appropriate long-term
pretax interest rate.
Inventories

Inventories of raw materials, work in progress and finished goods are valued
at the lower of their average acquisition cost or, where applicable, group production cost and their market (net realizable) value. The valuation of work inprogress and finished goods includes related production overheads. Appropriate
allowance is made for excess and obsolete inventories and reductions in sales
prices. Unrealized profits on inventories resulting from intra-group transactions
have been eliminated in the income statement and balance sheet.
Trade receivables

Trade receivables are stated at their nominal value less necessary allowance for
doubtful receivables. The allowance for doubtful receivables is established based
upon the difference between the receivable value and the estimated net collectible amount.
Marketable securities

The Group classifies its marketable securities as available-for-sale. Available-forsale marketable securities are initially recorded at cost and subsequently carriedat fair value, with all changes in fair value recorded in equity. When availablefor-sale marketable securities are sold, the cumulative gains and losses previously recognized in equity are included in financial income or expense for thecurrent period. Unrealized losses are included in financial expense, already before the marketable securities are sold, when there is objective evidence that they
are permanently impaired.
Except for treasury shares, the Group has not held any securities since January 1,
2005.
Cash and cash equivalents

Cash and cash equivalents include highly liquid investments with original maturities of three months or less. This position is readily convertible to known
amounts of cash.
Income taxes

Income taxes include all taxes based upon the taxable profits of the Group, including withholding taxes payable on the distribution of retained earnings
within the Group. Other taxes not based on income, such as capital taxes, are included within other operating expenses.

64 Forbo Financial Report 2005

Deferred income taxes are accounted for using the ‘balance sheet liability’ method.
Provisions for deferred taxes are established in respect of all temporary differences between the tax values of assets and liabilities and their values in the consolidated financial statements. Deferred taxes are calculated on the basis ofstandard local tax rates, with immediate adjustment for any changes in the relevant tax law. Deferred tax assets arising from a reduction of future tax liability
due to the carry forward of allowable losses and valuation differences are shownas assets only if levels of forecast profits make it likely that such tax assets will
be realized.
Financial debt

Financial debt instruments are initially reported at cost, which is the proceeds received, net of transaction costs. Subsequently they are reported at amortizedcost using the effective interest method.
Borrowing costs are recognized in the income statement as incurred.
Pension plans

For defined contribution plans, the expenses charged to the income statement
corresponds with the contributions made by the Group companies.
For defined benefit plans, the pension obligations are assessed on an annual basis
by independent actuaries according to the ‘Projected Unit Credit Method’.
They correspond with the present value of the excpected future cash out flows. In
the income statement, the pension costs less employee contributions incurredin the relevant period are stated as personnel expenses. The pension plan assets
are stated at fair value. Additional expenses for service costs resulting fromchanges in pension plans are distributed on a straight-line basis over the remaining average period until an active employee has a vested pension right, or they
are immediately charged to the income statement in case the employee has already retired. Profits resulting from pension plan reductions or compensations are immediately taken to the income statement.
Since January 1, 2005, with retrospective application all unrecognized actuarial
profit and losses resulting from changes in actuarial assumptions and experience adjustments used for valuing the assets and liabilities of defined benefit plansat fair value at the balance sheet date are immediately recognized in the balance
sheet with the corresponding movement in the statement of recognized income
and expenses.
Provisions

Provisions are recognized when the Group has a legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.
Warranties

On the basis of past experience, provision is made for warranty costs at the time
the sales revenue is recognized.

Forbo Financial Report 2005

65

Treasury shares

The Group’s holding in its own equity instruments are recorded as a deduction
from equity. The original cost of acquisition, consideration received for subsequent resale of these instruments and other movements are reported as changes
in equity.
Share-based payments

Until December 31, 2004 the allocation of share options to employees did not result in an expense in the income statement. Since January 1, 2005 share-based
payments have been stated in the income statement at their fair market value.
As part of a Stock Opion Plan, options are granted to members of the Executive
Board. Until 2004, the members of the Board of Directors also had an Option
Plan. The options have a term of five years and are blocked for three years. The
value of the options corresponds with the market value on the day they are
granted and is determined according to the ‘Black-Scholes’ method on the basisof the share price at the time of issue. The corresponding pro rata expense isstated under personnel expenses during the blocking period. Shares allocated to
the Board of Directors are stated at market value and charged to personnel
expenses during the corresponding period.
Revenue recognition

Revenues from the sale of goods are recognized at the time of transfer of the risks
and rewards of ownership to the buyer. All costs incurred in connection withsales are appropriately accrued.
Research and development

All research costs are charged directly to the income statement. Development costs
are recognized only when the recognition criteria of IAS 38 are met.
Derivative financial instruments

Derivative financial instruments held to hedge the Group’s exposure to financial
risks are initially recognized at cost and subsequently remeasured at their fairvalue. The method of recognizing the resulting gain or loss is dependent on thenature of the item being hedged. On the date a derivative contract is enteredinto, the Group defines certain derivatives as either a hedge of the fair value ofa recognized asset or liability or a firm commitment (fair value hedge) ora hedge of a highly probable forecast transaction (cash flow hedge). Changes in
the fair value of derivatives that are designated and qualify as fair value hedges
and that are highly effective, are recorded in the income statement, along withany changes in the fair value of the hedged asset or liability that is attributable
to the hedged risk. Changes in the fair value of derivatives that are designated andqualify as cash flow hedges and that are highly effective, are recognized inequity. Where the forecasted transaction or firm commitment results in the recognition of an asset or of a liability, the gains and losses previously deferredin equity are transferred from equity and included in the initial measurement

66 Forbo Financial Report 2005

of the cost of the asset or liability. Otherwise, amounts deferred in equity aretransferred to the income statement and classified as revenue or expense in thesame periods during which the hedged firm commitment or forecasted transaction affects the income statement.
The Group hedges certain net investments in foreign entities with foreign currency borrowings. All foreign exchange gains or losses arising on translationof these borrowings are recognized in equity and included in cumulative translation differences.
Fair value

Fair value is the amount for which a financial asset, liability or instrument could
be exchanged between knowledgeable and willing parties in an arm’s lengthtransaction. It is determined by reference to quoted market prices or by the useof established estimation techniques as for example estimated discounted
values of cash flows.
Changes in the scope of consolidation

In the period under review, the scope of consolidation was expanded through theestablishment of new subsidiaries in Turkey (Forbo Adhesives Ticaret Limited
Şirketi) and in Russia (Forbo Stroitech OOO). Furthermore, the assets of Industrial Adhesives Inc. were acquired in the USA.

Forbo Financial Report 2005

67

Notes to the Consolidated Financial Statements
1

Segment information
By business segments 2005
Net sales to third parties
Inter-segment sales
Total net sales

Flooring
m CHF

Adhesivesm CHF

Beltings
m CHF

Corporate andconsolidation
m CHF

Total
m CHF

747.0

628.5

326.5

0.0

1,702.0

0.1

21.4

0.0

–21.5

0.0

747.1

649.9

326.5

–21.5

1,702.0

EBITDA before special charges

86.2

46.4

16.8

–14.3

135.1

Special charges

–17.5

–4.4

–3.9

0.0

–25.8

EBITDA

68.7

42.0

12.9

–14.3

109.3

Depreciation and amortization

–36.1

–15.0

–16.2

–3.1

–70.4

Impairment of tangible and intangible assets

–4.6

–10.4

0.0

0.0

–15.0

EBIT before special charges and impairment

50.1

31.4

0.6

–17.4

64.7

Operating profit (EBIT )

28.0

16.6

–3.3

–17.4

23.9

Operating assets

425.2

447.6

261.2

22.1

1,156.1

Operating liabilities

153.8

121.9

63.4

156.2

495.3

ROS, gross (EBITDA before special charges/net sales)

11.5 %

7.1 %

5.1 %

7.9 %

ROS, net (EBITA before special charges/net sales)

6.7 %

4.8 %

0.2 %

3.8 %

ROA (EBIT before special charges/operating assets)

11.8 %

7.0 %

0.2 %

5.6 %

14.9

19.1

13.7

1.6

49,3

Capital investments

0.0

118.1

2.7

0.0

120,8

2,319

1,319

1,861

39

5,538

Flooring
m CHF

Adhesivesm CHF

Beltings
m CHF

737.6

577.7

0.1

18.1

Total net sales

737.7

EBITDA before special charges

79.0

Special charges
EBITDA

Goodwill
Number of employees (at 31. 12.)

By business segments 2004

Corporate andconsolidation
m CHF

Total
m CHF

307.0

0.0

1,622.3

0.0

–18.2

0.0

595.8

307.0

–18.2

1,622.3

59.2

20.8

–15.9

143.1

–16.3

0.0

–0.6

0.0

–16.9

62.7

59.2

20.2

–15.9

126.2

Depreciation and amortization

–36.6

–24.3

–18.4

–7.9

–87.2

Impairment of tangible and intangible assets

–37.1

–6.7

–34.9

–4.8

–83.5

EBIT before special charges and impairment

42.4

34.9

2.4

–23.8

55.9

Operating profit (EBIT )

–11.0

28.2

–33.1

–28.6

–44.5

Operating assets

449.8

419.5

241.3

33.5

1,144.1

Operating liabilities

162.0

98.1

51.8

136.2

448.1

ROS, gross (EBITDA before special charges/net sales)

10.7 %

9.9 %

6.8 %

8.8 %

ROS, net (EBIT before special charges/net sales)

5.7 %

5.9 %

0.8 %

3.4 %

ROA (EBIT before special charges/operating assets)

9.4 %

8.3 %

1.0 %

4.9 %

Net sales to third parties
Inter-segment sales

Capital investments

26.3

10.3

14.3

3.9

54.8

Goodwill

0.0

115.5

2.7

0.0

118.2

2,468

1,291

1,742

39

5,540

Number of employees (at 31.12.)

68 Forbo Financial Report 2005

Forbo is a global producer of floor coverings, adhesives and belts for conveying
and power transmission. In the flooring business, Forbo develops, produces
and sells linoleum, vinyl and other floor coverings as well as the various accessory products required for laying, processing, cleaning, and care. The adhesives
business develops, manufactures and sells adhesives for industrial applications aswell as floor and wall adhesives. The belting business develops, produces andsells high quality belts of modern synthetics for use in power transmission or as
conveyor and process belts. ‘Corporate’ includes the costs of the Group headquarter and certain items of income and expenses which are not directly attributable to a specific business.

Europe(Eurozone)
m CHF

Switzerland
m CHF

Rest ofEuropem CHF

America
m CHF

Asia/
Africa
m CHF

Total
m CHF

Net sales

741.9

51.7

323.9

444.5

140.0

1,702.0

Operating assets

554.9

102.5

170.0

252.8

75.9

1,156.1

Capital investments

18.2

4.5

10.4

14.9

1.3

49.3

Number of employees (at 31.12.)

2,828

297

1,003

960

450

5,538

By geographical segments 2004

Europe(Eurozone)
m CHF

Switzerland
m CHF

Rest ofEuropem CHF

America
m CHF

Asia/
Africa
m CHF

Total
m CHF

By geographical segments 2005

Net sales

742.9

50.6

311.5

388.8

128.5

1,622.3

Operating assets

587.0

119.8

160.9

200.5

75.9

1,144.1

Capital investments

25.0

7.4

13.5

5.0

3.9

54.8

Number of employees (at 31.12.)

2,875

320

1,016

892

437

5,540

Net sales are based on the country in which the customer is located.

2

Changes in net sales by businesses
2005

2004

Net sales to third parties
Total change

Of which due toexchange rate changes
m CHF%

Due to volume
and price changes
m CHF
%

m CHF

m CHF

m CHF

%

Flooring

747.0

737.6

9.4

1.3

2.2

0.3

7.2

1.0

Adhesives

628.5

577.7

50.8

8.8

4.2

0.7

46.6

8.1

Belting

326.5

307.0

19.5

6.4

1.3

0.5

18.2

5.9

Total

1,702.0

1,622.3

79.7

4.9

7.7

0.5

72.0

4.4

Forbo Financial Report 2005

69

3

Development and production overhead costs

Development costs, which include product development as well as sampling
activities, amounted to CHF 32.4 million (2004: CHF 32.1 million).
Production overhead costs totaled CHF 150.3 million (2004: CHF 152.7 million)
and are included in ‘Cost of goods sold’.

4

Administrative costs

This item consists of the usual expenses related to administrative activities.
The Group has no significant costs for license fees or royalties.

5

Other operating expenses

2005

2004

m CHF

m CHF

Impairment

15.0

83.5

Restructuring

25.8

16.9

Other expenses

33.5

26.2

Other income

–10.8

–13.1

Total other operating expenses

63.5

113.5

Impairment relates to tangible assets (CHF 9.0 million) and goodwill(CHF 6.0 million); see the explanations in notes 10 and 11.
The restructuring expenses incurred during the period under review reflect thecost associated with the implementation of the strategy agreed in the previous
year. The expenses include all the costs of running restructuring projects (mainly
production optimization and segment concentration) in all the three businesses.
Major projects include the process optimization in the Dutch flooring factories
concluded in 2005, and the relocation of adhesives production from Switzerland
to an existing plant in France.
Other expenses (such as extraordinary maintenance costs, warranty costs, consultancy and auditing costs and insurance costs) and other income (such as
license fees) include costs and income that can not clearly be attributed to theother categories.

6

Personnel expenses

2005

Salaries and wages

2004

m CHF

m CHF

355.8

346.0

Employer’s social security contributions

98.0

95.3

Total personnel expenses

453.8

441.3

70 Forbo Financial Report 2005

The Group’s headcount at December 31, 2005 was 5,538 (2004: 5,540). The average headcount over the year was 5,536 (2004: 5,582). Salaries and wages include share-based payments worth CHF 0.6 million. About 120 managers participate in a bonus plan, which is linked to the achievement of financial targets
by the Group as well as individually determined objectives. Up to 30 % of thebonus payment consists of shares of Forbo Holding AG. The participants candispose of these shares after a period of at least three years.
As part of a Stock Opion Plan, options are granted to members of the Executive
Board. Until 2004, the members of the Board of Directors also had an Option
Plan. By December 31, 2005 the following options have been allotted (including
retired members of the Board of Directors and the Executive Board):Year
allotted

Number
31. 12. 2005

Frozenuntil

Subscription
ratio

Exercise price

Term

2001

2,962

08.05.01–07.05.06

07.05.04

1:2

442

2002

4,012

07.05.02–07.05.07

06.05.05

1:2

330

2003

3,856

31.07.03–30.07.08

30.07.06

1:2

251

2004

3,600

01.08.04–31.07.09

31.07.07

1:2

212

2005

5,250

15.06.05–14.06.10

14.06.08

1:1

235

CHF

Associated with call options, CHF 491,172 were for the first time stated as personal expenses in the year 2005. Personnel expenses of the previous year
amounted to CHF 229,384 and were not restated.
The cost of the options was calculated in accordance with the ‘Black-Scholes’
model, with the share price being calculated at the time of issue and assuming
a volatility of approx. 30 %.
See also note 27 ‘Related party transactions’ on page 88.

Forbo Financial Report 2005

71

7

8

Financial income

2005

2004

m CHF

m CHF

Interest income

6.8

3.9

Dividend income

0.0

0.3

Foreign exchange gains, net

2.7

0.0

Total financial income

9.5

4.2

Financial expenses

2005

2004

m CHF

m CHF

Interest expense

27.2

27.5

Amortization of issuance costs of bonds and private placements

0.9

0.9

Amortization of costs syndicated bank facility

0.2

0.2

Realized losses on available-for-sale securities

0.0

12.0

Impairment of other financial assets

0.0

5.6

Foreign exchange losses, net

0.0

3.6

Total financial expenses

28.3

49.8

The average interest rate on interest-bearing debt (bonds, private placements,
long- and short-term bank loans) in 2005 was 5.1% (2004: 4.5 %).

9Earnings per share

Basic earnings per share is calculated by dividing net loss/profit for the year by
the weighted average number of shares outstanding.

Net loss for the year (m CHF )Weighted average number of shares outstanding

2005

2004

–16.5

–157.4

2,634,049 1,476,890–6.26

Loss per share (basic) (CHF )–106.56

Diluted earnings per share in addition take into account the potential dilution
effects which would result if all share options were exercised. Based on the negative result, the dilution effect would not lead to a reduction of earnings per
share so that diluted earnings were not stated.
The Board of Directors proposes to the General Shareholder’s Meeting no cash
distribution in 2006.

10

Tangible assets

The tangible assets also include leased assets with a net book value of
CHF 1.7 million (2004: CHF 2.2 million) as well as investment property witha net book value of CHF 3.4 million (2004: CHF 0.0 million). The net bookvalue of the investment property represents the market value.

72 Forbo Financial Report 2005

1)

Cost

Land andbuildings
m CHF

Machinery andEquipment
m CHF

Other tangible
assetsm CHF

Assets underconstruction
m CHF

Total
tangible assets
m CHF

At 31.12.2003, gross

486.1

858.3

162.0

25.6

1,532.0

Additions

5.7

10.6

10.3

28.1

54.7

Disposals

–14.0

–18.8

–8.6

–0.3

–41.7

Transfers

1.0

19.1

10.8

–30.9

0.0

Translation differences

–10.3

–16.3

–2.8

–1.1

–30.5

At 31.12.2004, gross

468.5

852.9

171.7

21.4

1,514.5

Additions 1)

6.4

24.5

5.8

12.6

49.3

Disposals

–10.2

–7.1

–8.3

–0.4

–26.0

Transfers

3.9

18.4

–1.3

–21.0

0.0

Translation differences

13.3

23.7

4.0

–0.7

40.3

At 31.12.2005, gross

481.9

912.4

171.9

11.9

1,578.1

Accumulated depreciation

Land andbuildings
m CHF

Machinery andEquipment
m CHF

Other tangible
assetsm CHF

Assets underconstruction
m CHF

Total
tangible assets
m CHF

At 31.12.2003, gross

196.8

653.4

122.4

0.6

973.2

Depreciation

15.2

44.7

13.4

0.0

73.3

Impairment

38.1

38.7

4.7

0.0

81.5

Disposals

–12.2

–17.9

–8.0

0.0

–38.1

Translation differences

–4.3

–12.4

–2.1

–0.1

–18.9

At 31.12.2004, gross

233.6

706.5

130.4

0.5

1,071.0

Depreciation

13.1

39.0

17.4

0.0

69.5

Impairment

4.4

4.6

0.0

0.0

9.0

Disposals

–5.2

–7.2

–7.6

0.0

–20.0

Translation differences

5.7

17.4

3.1

0.0

26.2

At 31.12.2005, gross

251.6

760.3

143.3

0.5

1,155.7

Total tangible assets at 31.12.2004, net

234.9

146.4

41.3

20.9

443.5

Total tangible assest at 31.12.2005, net

230.3

152.1

28.6

11.4

422.4

Additions to tangible assets include CHF 5.7 million
from acquisitions.

The fire insurance value of buildings, machinery and factory equipment of
CHF 2,109 million (2004: CHF 2,062 million) covers the replacement cost.The
business interruption risk arising from fire and the production and product liability risks are covered by a group-wide policy.
Maintenance and repair costs amounted to CHF 31.8 million (2004: CHF 31.6
million). The depreciation expense is included in ‘Cost of goods sold’, ‘Development costs’, ‘Marketing and distribution costs’ and ‘Administrative costs’.
The impairment charge is included in ‘Other operating expenses’. In connection
with the relocation of adhesives production from Switzerland to France, an
impairment charge had to be recognized at the Swiss production site Forbo-CTU.
Furthermore, an impairment charge had to be taken in the flooring businessas a result of impairment tests. The calculated value in use or sale of production
sites was below their carrying amount.

Forbo Financial Report 2005

73

11

Intangible assets
Cost

Goodwillm CHF

Trademarks/ Other intangible
assetspatents
m CHF
m CHF

160.8

54.2

Additions

0.0

0.0

0.1

0.1

Disposals

–0.1

0.0

–1.1

–1.2

Translation differences

–5.8

0.0

0.0

–5.8

At 31.12.2004, gross

154.9

54.2

6.1

215.2

At 31.12.2003, gross

7.1

Total
m CHF

222.1

Elimination of accumulated amortization
Goodwill–36.7

At 1.1.2005, gross

118.2

54.2

6.1

178.5

0.0

0.0

–0.2

–0.2

Disposals–36.7

Translation differences

8.6

0.4

–0.2

8.8

At 31.12.2005, gross

126.8

54.6

5.7

187.1

Trademarks/ Other intangible
assetspatents
m CHF
m CHF

Total
m CHF

Accumulated amortization

Goodwillm CHF

At 31.12.2003, gross

26.0

29.9

2.3

58.2

Amortization

9.5

2.1

2.3

13.9

Impairment

2.0

0.0

0.0

2.0

Disposals

0.0

0.0

–1.1

–1.1

Translation differences

–0.8

0.0

0.0

–0.8

At 31.12.2004, gross

36.7

32.0

3.5

72.2

Elimination of accumulated amortization–36.7

Goodwill–36.7

At 1.1.2005, gross

0.0

32.0

3.5

35.5

Amortization

0.0

0.0

0.9

0.9

Impairment

6.0

0.0

0.0

6.0

Disposals

0.0

0.0

–0.2

–0.2

Translation differences

0.0

0.3

0.0

0.3

At 31.12.2005, gross

6.0

32.3

4.2

42.5

Total intangible assets at 31.12.2004, net

118.2

22.2

2.6

143.0

Total intangible assets at 31.12.2005, net

120.8

22.3

1.5

144.6

The intangible assets with an indefinite useful life are subject to an impairment
test every year on the basis of the cash-generating unit. The test is carried out
in line with a standardized method with discounted cash flow for calculating thevalue in use. The sales figures are estimated by management for the first five
years; sales growth for the remaining useful life is between 0 % and 2 %. The discounting rate corresponds with the weighted average costs of capital before
taxes plus an extra risk charge; it is in the range of 7.7 % and 8.2 %.
The impairments of CHF 6.0 million in the period under review relate to the adhesives business. In this particular case, the value of minor goodwill items was
adjusted to the calculated value in use.
With 95 %, the acquisition of Swift in 2002 is the main goodwill item; it was classified as recoverable.

74 Forbo Financial Report 2005

12

13

14

Investments in associates and other long-term assets

2005

2004

m CHF

m CHF

Other investments

1.6

1.6

Other long-term receivables

0.6

0.6

Total investments in associates and other long-term assets

2.2

2.2

Inventories

2005

2004

m CHF

m CHF

Raw materials and supplies

65.4

62.2

Work in progress

80.5

70.9

Finished goods

137.3

141.7

Allowance for product risks

–26.2

–19.6

Total inventories

257.0

255.2

2005

2004

m CHF

m CHF

Accounts receivable

263.7

233.4

Notes receivable

28.2

26.6

Allowance for doubtful receivables

–18.1

–17.1

Total trade receivables

273.8

242.9

Trade receivables

The increase in trade receivables from the previous year to the period under review is due to higher sales towards the end of 2005 compared with 2004.

Forbo Financial Report 2005

75

15

Share capital

The share capital of Forbo Holding AG was unchanged at December 31, 2005,
amounting to CHF 54,263,040. It is divided into 2,713,152 registered shares witha nominal value of CHF 20 each. Of these, 21,419 registered shares without voting and dividend rights are at the disposition of the Board of Directors. Consequently, 2,691,733 registered shares carried dividend rights for the 2005 financial year. Changes in shares outstanding were as follows:
1.1.2005

Change31.12.2005

NumberNumberNumberChanges in shares outstanding
2,713,152

Total shares

0 2,713,152

Treasury shares
57,836

Shares with dividend right

56,884

Shares without dividend right

21,419021,419Total treasury shares

79,255–952

78,303

2,633,897

Total shares outstanding

16

–952

Long-term financial debt

952 2,634,849

2005

2004

m CHF

m CHF

Outstanding bonds

150.0

150.0

Outstanding private placements

360.3

312.1

Unamortized issuance cost

–2.3

–2.9

Total outstanding bonds and private placements

508.0

459.2

Unsecured bank loans

0.0

0.0

Unamortized cost syndicated bank facility

–0.3

–0.5

Lease obligations

1.3

1.7

–150.6

–0.7

358.4

459.7

2005

2004

m CHF

m CHF

After 1 year

135.3

150.5

After 2 years

0.3

117.2

After 3 years

159.8

0.1

After 4 years

0.1

138.5

After 5 and more years

65.5

56.8

Less current portion
Total long-term financial debt

Maturities of long-term financial debt

Unamortized cost

–2.6

–3.4

Total

358.4

459.7

The costs of bonds, private placements and the syndicated bank facility areamortized over the respective terms. As in previous years, derivatives establishedin connection with long-term financing are included in accrued expenses.

76 Forbo Financial Report 2005

Outstanding bonds and private placements at 31.12.2005
Currencym

Term

Interest Rate

Forbo Holding AG

CHF

150.0

2001–2006

4.125 %

Forbo NL Holding B.V. (guaranteed by Forbo Holding AG)

USD

103.0

2002–2007

5.120 %

Forbo NL Holding B.V. (guaranteed by Forbo Holding AG)

USD

122.0

2002–2009

5.790 %

Forbo NL Holding B.V. (guaranteed by Forbo Holding AG)

USD

50.0

2002–2012

6.290 %

Company

The bond and the private placements have no early redemption clause.

Outstanding syndicated bank facilities at 31.12.2005
Company

Forbo Holding AG

Currency

Utilizedm

Term

Available
m

CHF

0.0

2003–2007

150.0

The syndicated bank facility has the character of a club deal facility whereby
eight international banks have granted credit accommodation allowing Forbo
Holding AG to draw funds in various currencies. The facility was undrawn asof 31.12. 2005, thereby causing commitment fee costs only.
Covenants related to long-term financial debt

The private placements (CHF 275.0 million) and the syndicated bank facility(CHF 150.0 million) contain general covenants customary for such type of facilities and further contain financial covenants, i. e. a debt coverage test (not allowing the ratio of consolidated total net borrowings to consolidated EBITDA, as
defined, to be greater than 3 to 1), an interest cover test (not allowing the ratioof consolidated EBITDA to consolidated net interest payable to be less than 4 to 1)
and a consolidated net worth test (not allowing the shareholders’ equity ofForbo as it would be reflected on a consolidated balance sheet to fall below
CHF 535.5 million).
The bond (CHF 150.0 million) does not include any financial covenants but includes general covenants customary for such type of facility.
Each of the three aforementioned financing arrangements (the private placements, the syndicated bank facility and the bond) includes events of default customary for such type of arrangements. Each of said financing arrangements is
unsecured (save for guarantees provided by Forbo Holding AG for obligations ofsubsidiaries).

Forbo Financial Report 2005

77

17

Employee benefit obligations

The Group has established several pension plans on the basis of the specificrequirements of the countries in which the Group operates. The Group has bothdefined contribution and defined benefit plans. The obligations and assets under all the essential defined benefit plans are assessed annually by independentactuaries according to the ‘Projected Unit Credit Method’.
Details of the pension expense related to the major defined benefit plans are as
follows:
2005

2004

m CHF

m CHF

Current service cost (net)

16.5

14.0

Interest cost on obligation

34.4

34.1

Expected return on plan assets

–33.6

–33.6

Curtailment loss

–0.6

–0.1

Net periodic pension cost

16.7

14.4

The actual return on plan assets was CHF 88.8 million (2004: CHF 43.3 million).
Current service cost include special termination benefits of CHF 2.2 million.
Movements in liabilities under defined benefit pension plans are as follows:
2005

2004

m CHF

m CHF

Beginning of the year

706.0

660.5

Total pension cost (gross)

21.2

18.8

Interest cost on obligation

34.4

34.1

Benefits paid

–29.6

–26.0

Actuarial losses

44.5

26.7

Translation differences

13.1

–8.1

End of the year

789.6

706.0

The actuarial loss in 2005 includes a gain of CHF 26.2 million resulting from theexperience adjustments and a loss of CHF 70.7 million due to change in assumptions.
Movements of planned assets at fair market value are as follows:
2005

2004

m CHF

m CHF

Beginning of the year

593.9

543.8

Expected return on plan assets

33.6

33.6

Employer contributions

18.5

25.8

Employee contributions

4.8

4.8

Actuarial profits

55.3

18.4

Benefits paid

–29.6

–26.0

Translation differences

12.0

–6.5

End of the year

688.5

593.9

78 Forbo Financial Report 2005

The movement of gross values of pension obligations and plan assets was as follows at the end of the year:
2005

2004

m CHF

m CHF

Present value of defined benefit obligation

789.6

706.0

Fair value of plan assets–688.5–593.9Net liabilities recognized in the balance sheet

101.1

112.1

For the first time in 2005, actuarial gains and losses in actuarial assumptions aswell as experience adjustments used for valuing the assets and liabilities arerecognized in the balance sheet under pension obligations and directly charged
to shareholders’ equity. As of January 1, 2004, the resulting adjustment of
CHF 28 million led to an increase in pension liability and a corresponding reduction of shareholders’ equity. There is no adjustment to the net periodic pension
costs in the 2004 income statement since the related pension cost effect is considered as immaterial.
Most of the pension plans are financed wholly or partly via a fund. Pension obligations worth CHF 25.9 million (of a total of CHF 789.6 million) are not financed
by a fund.
Movements in the net liability recognized in the balance sheet are as follows:
2005

2004

m CHF

m CHF

Net liability at the beginning of the year

112.1

116.7

Total pension expenses included in personnel expenses

16.7

14.4

Employer contributions

–18.5

–25.8

Actuarial (profits)/losses

–10.8

8.4

Translation differences
Net liability at the end of the year

1.6

–1.6

101.1

112.1

Profits and losses charged to shareholders’ equity are as follows (booked in 2005
for the first time):
2005

2004

m CHF

m CHF

Actuarial loss on January 1

–36.4

–28.0

Actuarial profits (losses) in the current period

10.8

–8.4

Total actuarial loss on December 31

–25.6

–36.4

Accumulated returns and expenses recognized

Forbo Financial Report 2005

79

The principal actuarial assumptions used for accounting purposes were
(expressed as weighted averages):
2005

2004

%

%

Discount rate

4.3

4.8

Expected return on plan assets

5.7

6.1

Future salary increases

2.8

2.9

The expected return on plan assets is derived from long-term government loans
in the respective currency zones.
The weighted average distribution of the plan assets as of December 31, 2005 and2004 is shown below by investment categories:
2005

2004

%

%

Shares47

43

Fixed-interest bonds

44

44

Real estate22

Cash and other investments

7

11

100

100

Total

The pension plans do not hold any Forbo shares.
Future contributions to defined pension benefit plans are estimated in the consecutive year on the level of the period under review.
The expense for contributions to defined contribution plans, which is includedin personnel expenses, amounted to CHF 5.2 million (2004: CHF 5.2 million).

18

Non-current provisions
Warranty Environmental
provisions
provisions
m CHF
m CHF

Provisions
legal cases
m CHF

Personnel
provisions
m CHF

Other
provisions
m CHF

Total
provisions
m CHF

6.4

26.9

7.9

5.0

3.3

4.3

Charges to the income statement

0.3

3.9

7.7

–0.2

5.2

16.9

Utilized during the year

–0.5

0.0

0.0

0.0

–0.1

–0.6

Transfers to short-term provisions

–1.7

0.0

0.0

0.0

–0.3

–2.0

Translation differences

–0.1

0.2

–0.6

–0.1

0.1

–0.5

At 31.12.2005

5.9

9.1

10.4

4.0

11.3

40.7

At 31.12.2004

80 Forbo Financial Report 2005

Warranty provisions are made in connection with the sale of products and are
based on past experience. As experience shows, the respective cash flows will
occur evenly over the warranty period of five to ten years. The environmental
provisions cover the expected remediation costs related to operations of previous years. The provisions for legal cases relate to product liability cases in which
the Group is involved in the course of its normal conduct of business. The
personnel provisions reflect long-term obligations to employees. The environmental provisions, as well as the provisions for legal cases, personnel and theother provisions, are expected to result in a cash outflow in the medium term.

19

20

Trade payables

2005

m CHF

m CHF

Accounts payable

121.3

101.3

2004

Notes payable

10.5

7.5

Total trade payables

131.8

108.8

Current provisions and accrued expenses

2005

2004

m CHF

m CHF

Provisions for restructuring projects

15.9

13.7

Accrued expenses for compensation and benefits to employees

59.9

51.9

Fair market value of financial derivatives

52.5

83.7

Other accrued expenses

60.7

51.0

Total current provisions and accrued expenses

189.0

200.3

The use of provisions for restructuring projects in the period under review was
primarily associated with the closure of the production site for cushion vinyls
in Scotland. Additional provisions for personnel costs were made in the period
under review in relation to further restructuring projects.
Other accrued expenses include accrued volume rebates, commissions, premiums,
interest and accrued warranty cost and similar items.
Accrued expenses for compensation and benefits to employees mainly include
holidays and overtime accruals as well as bonus provisions.
Provisions for restructuring projects changed as follows:m CHF

At 31.12.2004

13.7

Charged to the income statement

18.3

Utilized during the year

–16.1

At 31.12.2005

15.9

Forbo Financial Report 2005

81

21

Short-term financial debt

2005

Short-term bank loans and overdrafts

22

2004

m CHF

m CHF

4.9

17.4

Plus current portion of long-term debt

150.6

0.7

Total short-term debt

155.5

18.1

2005

2004

m CHF

m CHF

0.8

1.1

Commitments and contingent liabilities

Commitments and contingent liabilities

Contingent liabilities relate to sureties and guarantees in favor of third parties.
The effects on the Group’s earnings of changes in legal, fiscal and political conditions are not predictable and therefore not quantifiable. There are no significant lawsuits pending.
23

Income taxes

2005

2004

m CHF

m CHF

Current taxes

19.5

7.5

Deferred taxes

2.1

37.3

Total income taxes

21.6

44.8

Analysis of tax expense

The following main elements explain the difference between the expected andthe actual tax expense.
2005

2004

m CHF

m CHF

Profit/(loss) before taxes

5.1–112.6

Tax expense/(income) at the expected tax rate:

–1.3

–20.0

Non tax-deductible expenses and tax-exempt income

14.6

2.1

Non tax-deductible goodwill amortization

0.0

2.4

deferred tax assets have been recognized

11.5

29.2

Write-off of deferred tax assets

2.0

34.9

Recognition/utilization of tax losses not capitalized in prior years

–6.8

–4.2

Changes of applicable deferred tax rates

–0.1

–0.3

Prior year adjustments

1.0

0.3

Other items

0.7

0.4

Total income taxes

21.6

44.8

Tax effects of:

Tax losses and temporary differences for which no

82 Forbo Financial Report 2005

Since the Group operates across the world, it is subject to income taxes in manydifferent tax jurisdictions. Consequently, the expected and the actual tax expense will vary from year to year according to the origin of earnings or losses bycountry. The expected tax income/tax expense is the sum of the expected,
individual tax incomes/tax expenses of all subsidiaries abroad. The expected,
individual tax income/tax expense in a single country results from the multiplication of the individual profit/loss with the tax rate applicable in the country
concerned. Since in the business year 2005 losses accrued in countries that tend
to have higher tax rates, and profits in countries that tend to have lower tax
rates, the resulting sum is an expected tax income. In the period under review,
this led to an expected negative tax rate (2005: –26 %, 2004: 18 %, 2003: 35 %).
The gross value of unused tax loss carry forwards which have, or have not, been
capitalized as deferred tax assets, with their expiry dated is as follows:

2005

Not capitalizedm CHF

Capitalized
m CHF

Total
m CHF

4.0

0.0

4.0

Two years

3.2

0.0

3.2

Three years

14.1

0.0

14.1

Four years

27.2

0.0

27.2

Five years

29.2

0.0

29.2

More than five years

410.1

19.6

429.7

Total

487.8

19.6

507.4

Not capitalizedm CHF

Capitalized
m CHF

Total
m CHF

One year

3.6

1.1

4.7

Two years

4.2

0.5

4.7

Three years

10.3

0.1

10.4

Four years

14.5

0.0

14.5

Five years

24.8

1.6

26.4

Expiry after:
One year

2004
Expiry after:

More than five years

448.9

37.2

486.1

Total

506.3

40.5

546.8

CHF 3.4 million of unused operating tax loss carry forwards expired during
2005 (2004: CHF 1.9 million).

Deferred income tax assets and liabilities are offset when they relate to the same
fiscal authority. The following amounts are shown in the balance sheet:

2005

2004

m CHF

m CHF

Deferred tax assets

28.1

23.5

Deferred tax liabilities

–12.7

–6.0

Deferred tax assets, net

15.4

17.5

Forbo Financial Report 2005

83

Deferred tax assets and liabilities and deferred tax charges and credits are attributable to the following items:
Inventories
m CHF

Tangible
assetsm CHF

Provisions
m CHF

Tax loss carryforwards
m CHF

Other
m CHF

Total
m CHF

8.6

5.7

13.1

12.4

7.9

47.7

income statement

4.3

2.6

3.6

–5.1

13.0

18.4

At 31.12.2005

12.9

8.3

16.7

7.3

20.9

66.1

Inventories
m CHF

Tangible
assetsm CHF

Provisions
m CHF

Tax loss carryforwards
m CHF

Other
m CHF

Total
m CHF

–5.4

–14.2

–2.6

0.0

–8.0

–30.2

Deferred tax assets
At 31.12.2004
Credited (+), charged (–) to theDeferred tax liabilities
At 31.12.2004
Credited (+), charged (–) to the24

income statement

–2.2

0.7

1.2

0.0

–20.2

–20.5

At 31.12.2005

–7.6

–13.5

–1.4

0.0

–28.2

–50.7

Deferred tax assets at 31.12.2004, net

3.2

–8.5

10.5

12.4

–0.1

17.5

Deferred tax assets at 31.12.2005, net

5.3

–5.2

15.3

7.3

–7.3

15.4

2005

2004

2005

2004

Translation of foreign currencies

Currency
CHF

Income statement(average rates for the year)
Change%CHF

CHF

Balance sheet(year-end-rates)
Change%CHF

Euro countries

EUR 1

1.55

1.54

1

1.56

1.55

1

Sweden

SEK 100

16.66

16.91

–1

16.53

17.17

–4

United Kingdom GBP 1

2.27

2.28

–

2.27

2.18

4

USA

USD 1

1.25

1.24

1

1.31

1.14

15

Canada

CAD 1

1.03

0.96

7

1.13

0.94

20

Japan

JPY

1.13

1.15

–2

1.12

1.09

3

100

84 Forbo Financial Report 2005

25

Financial risk management

In its international operations and financial activities the Forbo Group is exposed
to various types of financial risks. In order to steer potential risks and benefits
arising from fluctuations in both exchange rates of foreign currencies and interest rates the Group selectively uses derivative instruments. The various risks
involved in existing assets and liabilities, planned transactions and expected transactions are monitored and managed centrally – taking into account the consolidated risk exposure of the Group. In adherence to the Group’s financial risk
management policy (established through the issuance of written guidelines
and policies), Corporate Treasury continuously monitors both the risk exposureand the effectiveness of the applied hedging instruments. Also, Corporate Treasury advises the Finance Managers of the Group companies on the managementof identified risks and recommends both the extent of a potential hedge transaction and the appropriate type of financial instrument. The Group’s financial
risk management policy does not allow the use of derivate instruments neither
for the purpose of trading nor for the purpose of speculation. The counterparties of derivate transactions are cautiously selected and thus hedging transactions are concluded with strong financial institutions only (based on the assessments of the leading rating agencies).
At Forbo, ‘derivative instruments’ are related to either management of currency
risks or management of interest rate risks (or a combination of both).
Management of currency risks

Risks arising from short-term currency exposures created by purchases and salesof goods and services (transaction risks) are identified and selective hedging
strategies are implemented in the light of an ongoing assessment of exchange rate
movements. As a rule, the Group uses forward and option contracts with maturities of up to twelve months only.
Number ofcontracts

Gross value
hedgedm CHF

Forward contracts 31.12.2004

5

2.1

–0.1

Forward contracts 31.12.2005

12

9.8

–0.2

Financial derivatives

Unrealized
gain/loss
m CHF

In accordance with IAS 39 the above instruments are recognized in the balance
sheet at fair value. The accumulated fair value (total of all negative and positivemarket values) at December 31, 2005 amounts to CHF – 0.2 million (CHF – 0.1
million at December 31, 2004).
Furthermore, risks associated with the conversion of assets and liabilities denominated in foreign currencies (translation risks) are taken into account by establishing an appropriate financing structure.

Forbo Financial Report 2005

85

Management of interest rate risks

The market values of interest-bearing assets and liabilities are subject to fluctuations of interest rates. The Group makes use of financial derivatives in orderto steer potential risks and benefits arising from interest rate movements and inorder to manage the duration of the interest rate fixings. As a rule, the Group
uses the interest rate swaps and cross-currency interest rate swaps shown below
with maturities of up to seven years only.

Financial derivatives

Number ofcontracts

Gross value
hedgedm CHF

Unrealized
gain/loss
m CHF

6

222.5

–83.7

6

256.8

–52.2

Interest rate swaps and cross-currencyinterest rate swaps 31. 12. 2004
Interest rate swaps and cross-currencyinterest rate swaps 31. 12. 2005

In accordance with ISA 39 the above instruments are recognized in the balance
sheet at fair value. The accumulated fair value (total of all negative and positivemarket values) at December 31, 2005 amounts to CHF – 52.5 million (CHF – 83.7
million at December 31, 2004).
Management of liquidity risksGroup companies need a sufficient availability of cash to meet their obligations.
Individual companies are responsible for the management of their own cash
surpluses and the raising of funds to cover liquidity needs, subject to guidanceby the Group and in certain cases, for approval by Corporate Treasury. The
Group maintains sufficient reserves of cash and unused credit lines to meet its
liquidity requirements at all times.
Management of credit loss risks

Credit risks arise from the possibility that customers may not be able to settle
their obligations as agreed. To manage this risk the financial reliability of customers is continuously assessed. The credit risk is limited due to wide diversification among various business segments and geographical regions. Counterparties to financial instruments consist of a respective number of major financial institutions. The Group does not expect any counterparties to fail to meettheir obligations, given their high credit ratings.

86 Forbo Financial Report 2005

Consolidated Statement of Changes in Shareholders’ Equity

26

2005

At 1.1.2005

Sharecapitalm CHF

Treasuryshares
m CHF

54.3

–1.6

Net loss for the year

Actuarial
Reserves profits/(losses)
m CHF
m CHF

Translationdifferences
m CHF

692.1

–164.7

–36.4

–16.5

Actuarial profits/(losses)

543.7
–16.5
10.8

10.8

Share-based payments

Total
m CHF

0.6

0.6

Fair value adjustments:
Cash flow hedges

–3.1

–3.1

Translation differences

22.3

Others

0.3

At 31.12.2005

673.4

22.3
0.3

–25.6

–142.4558.1

Actuarial
Reserves profits/(losses)
m CHF
m CHF

Translationdifferences
m CHF

Total
m CHF

688.5

–146.3

572.5

54.3

–1.6

Share
capitalm CHF

Treasuryshares
m CHF

38.0

–7.7

6.5

–6.5

–28.0

38.0

–1.2

682.0

–28.0

2004

At 1.1.2004 before adjustments
Recognition of actuarial losses
according to IAS 19; Change‘Treasury shares’ to nominal value
At 1.1.2004 after adjustments–28.0–146.3–157.4

Net loss for the year

–8.4

Actuarial profits/(losses)
0.1

Share-based payments

544.5–157.4
–8.4

0.6

0.7

Fair value adjustments:
Marketable securities

12.3

12.3

Cash flow hedges

–5.8

–5.8
–18.4

Translation differences
–10.8

0.3

Capital increase 1)

27.1

–0.8

160.4

At 31.12.2004

54.3

–1.6

692.1

Nominal value reduction

1)

The expenses incurred in connection with thecapital increase were debited directly to equity.

Forbo Financial Report 2005

87

–18.4
–10.5
186.7

–36.4

–164.7543.7

27

Related party transactions
Executive Board
2004
2005

Payments due in the long term

CHF

Total
2005

Total
2004

CHF

CHF

CHF

CHF

4,823,274 4,450,567

618,740

222,564001,673,750

840,000

0409,278

169,371

220,323

210,105

7,128,866 5,459,938

839,063

983,819 7,967,929 6,443,757

CHF

Payments due in the short term

Non-executive membersof the Board of Directors
2005
2004

773,714 5,442,014 5,224,281
0

222,5640

0 1,673,750

840,000

Payments upon terminationof employment
Share-based compensations
Total

The compensations paid to the Executive Board, as shown above, relate to six
members including the Delegate of the Board of Directors. One member of the
Executive Board retired in the course of the period under review.
Payments to all non-executive members of the Board of Directors within
Forbo Holding AG amounted to CHF 618,740 in 2005; they include payments of
CHF 370,322 to members who retired in the period under review.
Share-based compensations were stated for the first time on the basis of the rulesof IFRS 2 (Share-based payments). They include Forbo shares at a fair market
value of CHF 138,429 (CHF 150,092 in 2004) allotted to the Board of Directors
in 2005, and the fair market value of the share options issued during the last
three years (see Note 6). In the income statement, an amount of CHF 491,172 wasrecognized for option programs relating to the members of the Board of Directors and the Executive Board who were in office during the year under review(CHF 229,384 in 2004). These amounts correspond with the value distributed
over the blocking period of all current options, and they originate from the programs 2003 to 2005.
In the period under review, CHF 447,135 were paid in total to lawyers Bär & Karrer
in Zurich for consultancy services. Prof. Dr. Rolf Watter has been a partner ofthis law office for several years. He has been a member of the Board of Directors
until April 29, 2005.

88 Forbo Financial Report 2005

629,601

379,476

For supplies from business relationships which were obtained from FrankeGroup in the period under review Forbo paid a total of CHF 328,926. Michael
Pieper, Vice-Chairman of the Board of Directors, is the owner and CEO ofFranke Group.
The Group has a 33.33 % interest in Enia Carpet Group. In 2005, the Forbo Groupbought products from Enia Carpet Group worth CHF 4.7 million (2004:
CHF 5.7 million), whilst the latter bought products from the Forbo Group worth
CHF 3.8 million(2004: CHF 4.5 million).

28

Events after balance sheet date

On January 8, 2006 the Chinese adhesives company Victa Technology
Holdings Limited was acquired at 100 %. The company founded in 1996 hadsales of some CHF 17 million in the year 2004.

Forbo Financial Report 2005

89

AUD

1,400,000

100 %

S

Wetherill Park, NSW

AUD

3,000,000

100 %Forbo-Contel Handelsgesellschaft m.b.H.

ViennaEUR

73,000100 %Forbo Industrieprodukte Ges.m.b.H.

ViennaEUR

72,700100 %Siegling-Austria Ges.m.b.H.

ViennaEUR

330,000

100 %Forbo-Balco BVBA

DendermondeEUR

61,000100 %N.V. Forbo Linoleum S.A.

Dilbeek

EUR

250,000

100 %S

Forbo Linoleum LTDA.

Itapevi (São Paulo)

BRL

10,000100 %S

Siegling Brasil LTDA.

Itapevi (São Paulo)

BRL

7,168,000

50 %Currency

Share capital

Holding/Services

Wetherill Park, NSW

Siegling Australia PTY. Ltd.

Registered office

Belting

Flooring

Forbo Floorcoverings PTY. Ltd.

Company

Adhesives

Equity interest

Group Companies(December 31, 2005)
Australia
D

S

AustriaS
S
S

BelgiumS

BrazilN

MS

CanadaForbo Adhesives (Canada) Ltd.

St. John

CAD

3,500,157

100 %Forbo Linoleum Inc.

TorontoCAD

500,000

100 %Siegling Canada Ltd.

TorontoCAD

501,000

100 %Prague

CZK

500,000

100 %S

Forbo Flooring A/S

Glostrup

DKK

500,000

100 %S

Siegling Danmark A/S

Brøndby

DKK

1,000,000

100 %

Esbo

EUR

25,253

100 %

MS

EUR

3,050,000

100 %

MS

EUR

11,524,800

100 %

MS
S
S

Czech Republic
Forbo s.r.o.

DenmarkMS

FinlandOy Forbo Swift Ab

FranceForbo Helmitin SAS

Surbourg

Forbo Participations SAS

Surbourg

Forbo Sarlino SAS

Reims

EUR

6,400,000

100 %Forbo Swift Adhesives SAS

Blois

EUR

800,000

100 %Siegling France SAS

Lomme

EUR

819,000

100 %Sté. de Production de Sols Textiles-P.S.T.

Reims

EUR

3,092,000

100 % M S

Sté. de Production de Sols Vinyls-P.S.V.

Reims

EUR

3,447,000

100 % M S

D

90 Forbo Financial Report 2005

H
S
MS
S

Registered office

Currency

Holding/Services

Belting

Adhesives

Flooring

Equity interest

Company

Share capital

Germany
Forbo Adhesives Automotive GmbH

Mannheim

Forbo Beteiligungen GmbH

Waldshut-Tiengen

EUR

30,000100 %EUR15,400,000

100 %Forbo Erfurt GmbH
Forbo Flooring GmbH

ErfurtEUR

2,050,000

100 %Paderborn

EUR

500,000

100 %Forbo-Helmitin GmbH

Pirmasens

EUR

5,193,000

100 %Forbo-Novilon GmbH

Waldshut-Tiengen

EUR

1,030,000

100 %Paul Heinicke GmbH & Co KG

Pirmasens

EUR

1,023,000

100 %Realbelt GmbH

Velen

EUR

100,000

100 %S

Siegling GmbH

Hanover

EUR

10,230,000

100 %

MS

Kallithea (Athens)

EUR

895,000

100 %MS

Forbo Swift Adhesives Hungary Kft.

Budapest

HUF

3,000,000

100 %

S

Siegling Hungária Kft.

Budapest

HUF

30,000,000

100 %Forbo Ireland Ltd.

DublinEUR125,000

100 %Siegling Ireland Ltd.

DublinEUR25,400100 %Waller & Wickham Ltd.

Dublin

EUR

2,540

100 %

Forbo Adhesives Italia SPA

Pianezze (Vicenza)

EUR

416,000

100 %Forbo Resilienti SRL

Segrate (Milan)

EUR

60,000100 %Siegling Italia SPA

Paderno Dugnano (Milan)

EUR

104,000

100 %

S

Tokyo

JPY

330,000,000

100 %

MS

GBP

25,000100 %Johor Bahru

MYR

2,500,000

100 %Tlalnepantla

MXP

19,335,000

100 %

S

Eurocol B.V.

ZaanstadEUR454,000

100 %MS

Forbo Linoleum B.V.

Krommenie

EUR

11,350,000

100 % M S

Forbo NL Holding B.V.

Krommenie

EUR

13,500,000

100 %Forbo-Novilon B.V.

Coevorden

EUR

3,630,000

100 % M S

Forbo Swift Adhesives Nederland B.V.

Genderen

EUR

27,000100 %Siegling Nederland B.V.

Driebergen

EUR

113,000

100 %

D

D

S
H
MS
S
MS
S
H

GreeceForbo Swift Adhesives Greece S.A.I.C.

HungaryS

Ireland
S
S
S

Italy
MS
S

Japan
Siegling (Japan) Ltd.

Jersey, C.I.
Forbo Invest Ltd.

St. Helier

D

H

Malaysia
Siegling Malaysia SDN. BHD.

S

MexicoSiegling Mexico S.A. de C.V.

MS

Netherlands

Forbo Financial Report 2005

91

H

MS
S

Registered office

Currency

Auckland

NZD

650,000

100 %

NOK

1,000,000

100 %Shenyang

CNY146,391,000

100 %Forbo Swift Adhesives Poland Sp. z o.o.

Warsaw

PLZ

50,000100 %S

Forbo Techniki Budowlane Polska Sp. z o.o.

Warsaw

PLZ

2,100,000

100 %

S

Forbo-Revestimentos, S.A.

Leça da Palmeira (Porto)

EUR

75,000100 %Siegling (Portugal) Lda.

Gemunde (Porto)

EUR

500,000

100 %Forbo Helmitin Romania S.R.L.

OradeaROL

70,770,000

100 %Siegling Romania S.R.L.

Bucharest

ROL

380,000,000

100 %Siegling (ZAO)

St. Petersburg

RUB

411,000

100 %Forbo Stroitech (OOO)

Stary Oskol

RUB

181,000

100 %Malacky

SKK

200,000

100 %Forbo Adhesives Spain S.L.

Mos (Pontevedra)

EUR

15,006100 %Forbo Pavimentos S.A.

Barcelona

EUR

60,000100 %Siegling Iberica S.A.

Montcada i Reixac (Barcelona)EUR

1,533,000

100 %

SEK

8,000,000

100 %

SEK

20,000,000

100 % M S

SEK50,000,000

100 % M S

Holding/Services

Belting

Adhesives

Flooring

Equity interest

Company

Share capital

New ZealandSiegling Stedar Belting Ltd.

S

NorwayForbo Flooring A/S

Asker

D

S

People’s Republic of China
Forbo Siegling (Shenyang) Belting Co. Ltd.

MS

PolandPortugal
S
S

RomaniaS
S

RussiaSMS

Slovakia
Siegling, s.r.o.

S

Spain
MS
S
S

SwedenForbo Flooring AB

Gothenburg

Forbo Parquet AB

Tibro

Forbo Project Vinyl AB

Gothenburg

Forbo Swift Sweden AB

Gothenburg

SEK

100,000

100 %Siegling Svenska AB

MölndalSEK

1,000,000

100 %

3,000,000

33 %

D

D

S

S
S

Switzerland
Enia Carpet Group AG

EnnendaNCHFFJK Carpet D GmbH

EnnendaN

CHF

20,00025 %H

Forbo Finanz AG

Baar

D

CHF

10,000,000

100 %

H

Forbo-Giubiasco SA

Giubiasco

D

Forbo Immob AG

BaarForbo International SA

Baar

D

CHF

10,000,000

100 % M S

CHF

1,700,000

100 %

CHF

100,000

100 %92 Forbo Financial Report 2005

H

H
MS MS

H

Registered office

Currency

Istanbul

YTL

725,000

London

GBP

8,000,000

Holding/Services

Belting

Adhesives

Flooring

Equity interest

Company

Share capital

TurkeyForbo Adhesives Ticaret Limited Şirketi

100 %

S

United Kingdom
Forbo Nairn Ltd.
Forbo Swift Adhesives Ltd.

Chatteris

Forbo UK Ltd.

LondonSiegling (UK) Ltd.

LondonD

100 % M S

GBP

100

100 %

GBP

49,500,000

100 %

GBP

126,000

100 %

USD

100

100 %

USD

19,957,258

100 %

H
H

MS
H
S

USA
Forbo Adhesives LLC

Durham, NC

Forbo America Inc.

Wilmington, DE

Forbo America Services Inc.

Wilmington, DE

USD

50,000100 %Forbo Finance Inc.

Wilmington, DE

USD

100,000

100 %Forbo Linoleum Inc.

Hazleton, PA

USD

3,517,000

100 %Siegling America LLC

Huntersville, NC

USD

15,455,100

100 %

D

S Sales
MS Manufacturing and Sales
H Holding/Services
N Not included in the consolidation
D Direct participation of Forbo Holding AG

Forbo Financial Report 2005

93

MS

H
S
MS

Report of the Group Auditors

Report of the group auditors
to the general meetingof Forbo Holding AG, Eglisau

As auditors of the group, we have audited the consolidated financial statements(consolidated income statement, consolidated balance sheet, consolidated
cash flow statement, consolidated statement of recognised income and expenseand notes to the consolidated financial statements – pages 57 to 93) of
Forbo Holding AG for the year ended December 31, 2005.
These consolidated financial statements are the responsibility of the board of
directors. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We confirm that we meet the legal
requirements concerning professional qualification and independence.
Our audit was conducted in accordance with Swiss Auditing Standards andwith the International Standards on Auditing, which require that an audit beplanned and performed to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement. We haveexamined on a test basis evidence supporting the amounts and disclosures in
the consolidated financial statements. We have also assessed the accounting principles used, significant estimates made and the overall consolidated financial
statement presentation. We believe that our audit provides a reasonable basis forour opinion.
In our opinion, the consolidated financial statements give a true and fair view ofthe financial position, the results of operations and the cash flows in accordance with the International Financial Reporting Standards (IFRS) and comply
with Swiss law.
We recommend that the consolidated financial statements submitted to you be
approved.
PricewaterhouseCoopers AG

Stefan Räbsamen

Gerhard Siegrist

Zurich, March 15, 2006

94 Forbo Financial Report 2005

Consolidated Income Statements
2001–2005
2005

2004

2003

2002

2001

m CHF

m CHF

m CHF

m CHF

m CHF

Net sales

1,702.0

1,622.3

1,598.9

1,531.1

1,485.1

Cost of goods sold–962.7–1,151.8–1,092.5–1,091.3–1,017.4

Gross profit

550.2

529.8

507.6

513.7

522.4

Development costs

–32.4

–32.1

–28.9

–24.2

–22.0

Marketing and distribution costs–286.9–285.1–287.5–277.2–288.6

Administrative costs–143.5–143.6–122.2–119.6–116.6

Other operating expenses–63.5–113.5

–8.6

–4.3

–6.3

Operating profit/loss

23.9

–44.5

60.4

88.4

88.9

Financial income

9.5

4.2

7.9

5.0

3.4

Financial expenses

–28.3

–49.8

–37.3

–29.2

–19.4

0.0

–22.5

0.8

–0.7

0.0

Share of result of associated companies

5.1–112.6

31.8

63.5

72.9

Income taxes

–21.6

–44.8

–15.7

–20.9

–21.1

Net loss/profit for the year

–16.5

–157.4

16.1

42.6

51.8

Profit/loss before taxes

Forbo Financial Report 2005

95

Consolidated Balance Sheets 2001–2005
2005

2004

2003

2002

2001

Assets
m CHF

m CHF

m CHF

m CHF

m CHF

Non-current assets

597.3

612.2

812.9

875.1

716.4

Tangible assets

422.4

443.5

558.8

586.9

576.1

Intangible assets

144.6

143.0

163.9

178.6

23.2

Deferred taxes

28.1

23.5

61.5

65.6

72.7

2.2

2.2

28.7

44.0

44.4

Current assets

993.7

904.4

750.9

725.5

615.2

Inventories

257.0

255.2

247.9

255.9

227.0

Trade receivables

273.8

242.9

251.6

254.8

202.6

Other receivables

22.8

28.7

34.9

27.0

30.1

Prepaid expenses and deferred charges

35.5

30.8

27.8

35.4

29.0

Marketable securities

0.0

0.0

18.9

23.9

33.8

Investments in associates and other long-term assets

404.6

346.8

169.8

128.5

92.7

1,591.0

1,516.6

1,563.8

1,600.6

1,331.6

2005

2004

2003

2002

2001

m CHF

m CHF

m CHF

m CHF

m CHF

Shareholders’equity

558.1

543.7

572.5

590.6

652.2

Share capital

54.3

54.3

38.0

67.8

75.7

Treasury shares

–1.6

–1.6

–7.7

–11.7

–155.2

Cash and cash equivalents
Total assets

Shareholders’ equity and liabilities

1)

Reserves and retained earnings

505.4

491.0

542.2

534.5

731.7

Non-current liabilities

512.9

604.7

670.7

638.6

252.8

Long-term financial debt

358.4

459.7

554.2

539.3

164.5

Employee benefit obligations

101.1

112.1

88.7

68.9

69.8

Non-current provisions

40.7

26.9

21.3

22.6

16.4

Deferred taxes

12.7

6.0

6.5

7.8

2.1

Current liabilities

520.0

368.2

320.6

371.4

426.6

Trade payables

131.8

108.8

114.9

107.3

79.4

Current provisions and accrued expenses

189.0

200.3

140.8

102.7

80.9

Short-term financial debt

155.5

18.1

13.8

98.5

197.2

Current tax liabilities

10.6

6.1

7.9

14.0

14.1

Other current liabilities

33.1

34.9

43.2

48.9

55.0

Total liabilities

1,032.9

972.9

991.3

1,010.0

679.4

Total shareholders’ equity and liabilities

1,591.0

1,516.6

1,563.8

1,600.6

1,331.6

Adjustments were made to shareholders’ equity andemployee benefit obligations for the year 2004
in accordance with the changes in the accounting
principles 2005. No adjustment was made forthe years 2001–2003.

96 Forbo Financial Report 2005

Financial Statements of Forbo Holding AG

Income Statement of Forbo Holding AG
2005

2004

Notes

CHF

CHF

from investments in and advances to Group companies

1

27,103,747

23,842,964

from securities and short-term investments

2

1,138,783

649,349

6,931

197,022

28,249,461

24,689,335

2005

2004

IncomeIncomeIncome from services and other sources
Total income

Expenses
Notes

CHF

CHF

Administrative expenses

3

12,614,177

4,799,275

Financial expenses

48,746,281

10,308,878

Taxes
Valuation adjustments

183,000

276,810086,821,848

Total expenses

21,543,458

102,206,811

Net profit/loss for the year

6,706,003–77,517,476

98 Forbo Financial Report 2005

Balance Sheet of Forbo Holding AG(before appropriation of available earnings)
31.12.2005

31.12.2004

Assets
Notes

Long-term assets

CHF

CHF

502,915,191

408,174,057
255,015,375

Investments in Group companies

5309,013,375

Advances to Group companies

6

193,901,816

153,158,682

155,154,543

203,065,647

6,022,903

1,917,592

77,966

26,358Current assets
Other receivables from Group companies
Other receivables from third parties
Prepaid expenses and deferred charges

7513,420

1,175,058

Cash8

148,540,254

199,946,639

658,069,734

611,239,704

31.12.2005

31.12.2004

Total assets

Shareholders’ equity and liabilities
Notes

Shareholders’ equity
Share capital

9/10

CHF

CHF

398,780,241

391,854,564

54,263,040

54,263,040

15,600,000

15,600,000

Statutory reserves:
General reserves
Reserve for own shares

11

14,245,526

14,543,317

Other reserves

12

307,407,692

306,890,227

Available earnings:
Profit carried forward
Net profit/loss for the year

557,980

78,075,456

6,706,003–77,517,476

259,289,493

219,385,140

Long-term provisions

13

28,000,000

28,000,000

Bond issues

14

Liabilities

150,000,000

150,000,000

Advances from Group companies

32,697,000

32,466,000

Other liabilities to Group companies

38,546,970

726,148

25,97832,536

Accrued expenses

10,019,545

8,160,456

Total shareholders’ equity and liabilities

658,069,734

611,239,704

Current liabilities to third parties

Forbo Financial Report 200599

Notes to the Financial Statementsof Forbo Holding AG
1

Income from investments in and advances to Group companies

Income from investments in and advances to Group companies amounts to
CHF 27.1 million (previous year: CHF 23.8 million) and consists of interest, dividend income, and exchange rate gains with foreign currency loans.
2

Income from securities and short-term investments

In the year under review, this item includes income from short-term investments of CHF 1.1 million (previous year: CHF 0.6 million) exclusively.
3

Administrative expenses

Administrative expenses amount to CHF 12.6 million, including costs of
CHF 7.1 million in connection with the public purchase offer for all the sharesof Forbo Holding AG from CVC Capital Partners.
4

Financial expenses

Financial expenses of CHF 8.7 million relate to the 4 1⁄ 8 % bond issue 2001–2006
of CHF 150.0 million and the amortization of capitalized issuance costs. Furthermore, interest expenses arose from loans drawn in the context of a syndicatedbank facility and from a loan from a Group company.
5

Investments in Group companies

As of December 31, 2005 Forbo Holding AG held the following direct investments:

Company
Share capitalin 1,000

Equityinterest

AUD

1,400

100 %

EUR

11,525100 %Holding/Services

EUR

15,400100 %Services

EUR

1,023

72 %

Activity

Currency

Forbo Floorcoverings PTY. Ltd. AU-Wetherill Park, NSW

Sales

Forbo Participations SAS

FR-Surbourg

Holding/Services

Forbo Beteiligungen GmbH

DE-Waldshut-Tiengen

Paul Heinicke GmbH & Co KG

DE-Pirmasens

Forbo Invest Ltd.

CI -St. Helier

Services

GBP

25

50 %

Forbo Flooring A/SNO-Asker

Sales

NOK

1,000

100 %

Forbo Flooring AB

SE-Gothenburg

Sales

SEK

8,000

100 %

Forbo Project Vinyl AB

SE-Gothenburg

Manufacturing and Sales

SEK

50,000100 %Forbo Finanz AG

CH-BaarHolding/Services

CHF

10,000100 %Forbo-Giubiasco SA

CH-Giubiasco

Manufacturing and Sales

CHF

10,000100 %Forbo International SA

CH-BaarServices, Manufacturing

CHF

100

100 %

and Sales

Forbo UK Ltd.

GB-London

Holding/Services

GBP

49,500100 %Forbo America Inc.

US-Wilmington, DE

Holding/Services

USD

19,957100 %The increase in investments in Group companies compared to the previous
year amounts to CHF 54.0 million and is attributable to a capital investment in
Forbo Beteiligungen GmbH and a capital increase of Forbo UK Ltd.
6

Advances to Group companies

Advances to Group companies are denominated in Swiss Francs and foreign currencies. There was a CHF 40.7 million net increase over the previous year’s
figure.

100 Forbo Financial Report 2005

7

Prepaid expenses and deferred charges

Prepaid expenses and deferred charges mainly include capitalized cost of
CHF 0.4 million (previous year: CHF 1.0 million) incurred in connection withthe 4 1⁄8 % bond issue 2001–2006 and the syndicated bank facility. These costs
are amortized over the respective terms.
8

CashThis item consists of cash and cash equivalents with original maturities of threemonths or less.
9

Share capitalAt the end of 2005 the Company’s share capital is unchanged at CHF 54,263,040
and is divided into 2,713,152 registered shares with a nominal value of CHF 20
each. 21,419 shares without voting and dividend rights are at the disposition of
the Board of Directors. Accordingly, 2,691,733 registered shares carry dividend
rights for the 2005 financial year. The shares are listed on the SWX Swiss Exchangewith security number 354 151.
10

Conditional capital increase
CHF 8,500,000 of conditional capital reserved for the exercise of shareholder op-

tions and warrants in connection with an option bond issue was created byresolution of the Annual General Meeting of Shareholders held on April 27, 1994.
Following the exercise of options and warrants in 1994, 1995 and 1997 andreductions of the nominal value of CHF 22 per share in 2003 and CHF 8 per sharein 2004 the conditional capital at December 31, 2005 is unchanged at
CHF 3,329,000.
11

Reserve for own shares

The CHF 14,245,526 included at year end under ‘Reserve for own shares’ referto own shares held by Forbo Holding AG and its subsidiaries valued at cost.
Details of own shares are as follows:

Own shares

CHF

No. of registeredshares nominal
CHF 2014,543,317

79,255

Cost

Total at 1.1.2005
Disposals
Total at 31.12.2005–297,791–952

14,245,526

78,303*
12

Other reserves

Other reserves rose by CHF 0.5 million, which is mainly attributable to a transfer
to ‘Reserve for own shares’.
13

Long-term provisions

The CHF 28.0 million stated under this heading serve as a precautionary provision against general risks.

Forbo Financial Report 2005

101

14

Bond issues

The 4 1⁄ 8 % bond issue 2001–2006 of CHF 150.0 million is due for redemption on
June 8, 2006.
15

Long-term bank debt

The mid-term syndicated bank facility of totally CHF 150.0 million was undrawn
as of December 31, 2005.
16

Contingent liabilities

Guarantees and letters of support issued to third parties in favor of Group companies amount to CHF 531.0 million at year end, of which CHF 412.9 million(previous year: CHF 395.8 million) are utilized. Most of this relates to guarantees
to investors in connection with funds raised by a Group company in the formof a US private placement (CHF 360.3 million) and guarantees in connection withutilized swap facilities.
17

Significant shareholders

From information made available to the Board of Directors, the following shareholders or groups of shareholders with restricted voting rights were major investors in the company in the sense of Art. 663c Swiss Code of Obligations as at
the balance sheet date: Michael Pieper, Hergiswil, Franke Holding AG, Aarburg
and Artemis Beteiligungen I AG, Hergiswil with a total of 27.73 % or 752,472
shares, Rudolf Maag, Binningen, with 8.1 % or 220,000 shares and Tweedy
Browne Company LLC, New York, with more than 5 %.

102 Forbo Financial Report 2005

Proposal for Appropriation of Available Earnings
Forbo Holding AG
The Board of Directors proposes to the Annual General Meeting of Shareholders
that the available earnings, consisting of:

Net profit/loss for the year
Profit carried forward from the previous year
Total available earnings

2005

2004

CHF

CHF

6,706,003–77,517,476

557,980

78,075,456

7,263,983

557,980

2005

2004

CHF

CHF

be appropriated as follows:

To be carried forward to the following year

7,263,983

557,980

Total available earnings

7,263,983

557,980

Forbo Financial Report 2005

103

Report of the Statutory Auditors

Report of the statutory auditors
to the general meeting of
Forbo Holding AG, Eglisau

As statutory auditors, we have audited the accounting records and the financial
statements (income statement, balance sheet and notes – pages 98 to 103) of
Forbo Holding AG for the year ended December 31, 2005.
These financial statements are the responsibility of the board of directors. Our
responsibility is to express an opinion on these financial statements based on
our audit. We confirm that we meet the legal requirements concerning professional qualification and independence.
Our audit was conducted in accordance with Swiss Auditing Standards, which
require that an audit be planned and performed to obtain reasonable assurance
about whether the financial statements are free from material misstatement.
We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accounting records and financial statements and the proposed
appropriation of available earnings comply with Swiss law and the company’s
articles of incorporation.
We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers AG

Stefan Räbsamen

Reto Tognina

Zurich, March 15, 2006

104 Forbo Financial Report 2005

The Forbo Way to Win

Forbo is on the way
back to success.
The Board of Directors, the Executive Board andour members of staff are consistently implementing our strategy to continue the development of all three businesses flooring, adhesives and belting under a single umbrella.
A prerequisite for long-term success is adaptation
to markets that are constantly changing. The
consequence is that new products and services
must constantly be developed, and processes
have to be optimized. This is the only way to deal
with the challenge of change and to stay aheadof competitors. In order to make rapid progresson the route to a successful future, it is decisive that all the members of staff work with an
identical understanding of what needs to bedone and share the same values.

The illustrations in this Annual Report show how
Forbo makes use of the self-initiative andexpertise of its employees in order to develop
innovative products. Versatile and easy-careflooring, high quality adhesives for textile lamination and high-performance belting for thetransportation of baggage at the most modernof airports are just three selected examples
which show how Forbo implements its guiding
principles in its everyday work and therefore contributes to the success of its customers.

March 2006

Typesetting, Litho and Printing:
Neidhart +Schön AG, Zurich

Photos:Markus Senn, Biel,münchner bilderdienst

Concept and Design:
Gottschalk+Ash Int’l

Editing:
The Investor Relations Firm AG, Zurich

Publisher:
Forbo Holding AG, Eglisau

Our Annual Reportis published in German andin an English translation.

Imprint

In 2005, Forbo intensively reviewed the values
to which it felt committed. At a management
meeting, approximately sixty managers set theinitial foundations for guidelines which determine the collaboration between themselves andthe co-operation with customers and clientsin the future. By mid-2006, all the employees ofForbo will have been included into this process.

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Forbo International SA
Lindenstrasse 8
CH-6341 Baar
Telephone +41 58 787 25 25
Fax +41 58 787 20 25
E-Mail info@forbo.com
www.forbo.com

Forbo Annual Report

Forbo Holding AG
CH-8193 Eglisau Zurich
Telephone +41 58 787 25 25
Fax +41 58 787 20 25
E-Mail info@forbo.com
www.forbo.com