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Our Annual Report is publishedin German and is also available
in English.

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Seite 1

Annual Report 2004

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Contents
Forbo Annual Report 2004
4 Forbo
5 Key Figures
6 To our Shareholders
11 Forbo Group:

Foundation Laid for New Growth
21 Flooring:

Focus on Optimization Processes
25 Adhesives:

Focus on Growth
29 Belting:

Focus on Turnaround
33 Group Structure
36 Corporate Governance
54 The Forbo Share

Forbo Group Financial Report
59 Financial Review and Analysis
63 Consolidated Income Statement
64 Consolidated Balance Sheet
65 Consolidated Cash Flow Statement
66 Consolidated Statement of Changes in Shareholders’ Equity
67 Accounting Policies
73 Notes to the Consolidated Financial Statements
92 Group Companies
96 Report of the Group Auditors

Financial Statements of Forbo Holding AG
100 Income Statement
101 Balance Sheet
102 Notes to the Financial Statements
105 Proposal for Appropriation of Available Earnings
106 Report of the Statutory Auditors

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Forbo is a leading producer of floor coverings, adhesives and beltings. The company employs some 5,500 people and has an international network of 30 production companies and 46 sales organizations in 31 countries. Forbo’s Head Office
is in Eglisau/Zurich.
In the flooring business, the focus is on environmentally friendly linoleum, highquality vinyl, and parquet. The excellent technical properties and the attractive
design make Forbo floorings the first choice for applications in public buildings,
in the contract business and in the residential market. Forbo is the world leader
with linoleum having a market share of more than 60 percent.
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, 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 are used indiverse industries, e. g. conveyor and processing belts for the food industry, treadmill belts for fitness applications, and conveyor belts in logistics operations.

4 Forbo Annual Report 2004

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Seite 5

1)

2004

2003

2004

2003

Forbo GroupNet sales

m CHF

m CHF

1,622.3

1,598.9m EUR 2)m EUR 2)

1,050.7

1,051.2

Change on previous year (%)

+1.5

+4.4

Flooring

737.6

744.5

477.7

479.3

Adhesives

577.7

557.4

374.2

376.7

Belting

307.0

297.0

198.8

195.2

143.1

156.7

92.7

103.0

EBITDA before special charges

As % of net sales
EBITDAEBIT before special charges

8.8

9.8

126.2

156.7

81.7

103.0

36.2

39.7

55.9

60.4

Change on previous year (%)

–7.5

–31.7

As % of operating assets (ROA)

4.9

4.7

EBIT

–44.5

60.4

–28.8

39.7

Special charges–161.9––104.9–Consolidated loss/profit–157.416.1–101.9

10.6

54.8

46.2

35.5

30.4

1,516.6

1,563.8

982.3

1,028.1

Shareholders’ equity

578.6

572.5

374.7

376.4

Equity ratio (%)

38.2

36.6

131.0

379.3

84.8

249.4

22.6

66.3

Capital investments
Total assets

Net debt
As % of shareholders’ equity (gearing)NumberNumber

5,540

5,585

m CHF

m CHF

m EUR 2)m EUR 2)

43.1

88.5

27.9

58.2

652.9

464.8

422.9

305.6

CHF

CHF

Loss/earnings per share–106.5612.28–69.02

8.07

Shareholders’ equity per share

Employees (as of December 31)

Free cash flow
(before cash distribution, acquisitions
and divestments)
Stock market capitalization (as of December 31)

EUR 2)EUR 2)Per share data
219.67435.37142.27286.24

Cash distribution per share

0 3)

8.00

0 3)

5.26

Payout ratio (%)

0

65.1

1)

Explanation in the Financial Report
CHF values translated at the annual average rate of CHF 1.544/1 EUR (2004)
and 1.521/1 EUR (2003)
3)
Proposal of the Board of Directors to the General Shareholders’ Meeting
2)

Results by business after restatement due to new classification in 2004 ofsales of adhesives products realized by the flooring business and changed
allocation keys for corporate and consolidation

Forbo Annual Report 2004

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To our Shareholders
Dear Ladies and Gentlemen
Clear strategies .
for the .
three businesses .

2004 was a challenging business year for Forbo. The Board of Directors’ decision
to grow the three businesses under the Forbo umbrella was most significant
for the Group. Earlier we had studied the possible further development of thecapital-intensive flooring business under a partnership. We reached the conclusion, however, that continuing the flooring business may also be attractive provided its financing is ensured. The Board of Directors has defined the strategic
priorities of the three businesses in view of their market positions and the prevailing trading conditions. The flooring business must reduce capacities andround off the product portfolio in a market suffering from overcapacities. The
adhesives business is operating in a growth market, focusing on higher-margin
segments and selective acquisitions. In the belting business, Forbo is concluding
the turnaround phase in a consolidated market with the intention of growing
organically in the first place.
Profit-enhancing steps initiatedReduction of .
over-capacities, .
expansion of .
higher-margin .
products .

Within this framework, each business has defined clearly outlined action plans.
First measures were implemented in 2004 already. In the flooring business,overcapacities are being reduced and the administration and sales organizations
are being streamlined to enhance the profitability. Adhesives are focusing on
attractive core segments such as the automotive industry by establishing new sites
and sales organizations in growth markets. The belting business is accelerating
its expansion in Asia and Eastern Europe in order to reach higher margins withpremium products.
Successful capital increase

Net proceeds .
of some .
CHF 187 million .

6 Forbo Annual Report 2004

The Board of Directors proposed a capital increase to the shareholders aimed
at implementing the strategies of the three businesses and the restructuring
measures. It was approved by an extraordinary general meeting of shareholders
in Zurich on December 2, 2004, and concluded successfully before the end of
the year. The transaction brought Forbo net proceeds of some CHF 187 million.
The capital increase was realized through the issue of 1356 576 new registeredshares. The shareholders were offered one new registered share at the price of
CHF 150 per share for each registered share in their possession. Trading of the
new shares started on December 15, 2004. All the new shares carry the same rights
as the old ones. This capital increase will create the preconditions Forbo needs
for implementing the restructuring measures and improving the profitability of
its operating businesses.

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Organic growth restored
Downward trend .
stopped .

In a difficult market environment, Forbo increased sales by 1.5 % to CHF 1622.3
million, or 2.3 % in local currencies in the period under review, meaning thatorganic growth was again achieved for the first time since several years. The negative effect of the weak US currency on sales was offset by the strong Euro.
Whereas flooring sales stayed just below the previous year’s level, adhesives andbelting recorded clear growth with plus in sales of 3.6 % and 3.4 %, respectively. The operating earnings before special charges were somewhat lower thanin the previous year. The operating profit before special charges of CHF 100.4
million amounted to CHF 55.9 million (previous year: CHF 60.4 million), and after
special charges to CHF – 44.5 million. Including further special charges, theGroup recorded a considerable loss of CHF 157.4 million in 2004.
Takeover offer

Purchase offer .
from .
CVC Capital Partners .

In November 2004, CVC Capital Partners expressed their interest in purchasing– under the proviso of a due diligence assessment – the Forbo shares at a priceof CHF 330 per share based on the number of shares prior to the capital increase.
When CVC had increased the price to CHF 350 –370 per share, the Board of Directors admitted CVC – and subsequently further parties interested in a takeover– to the due diligence. On March 8, 2005 AFB Investment, a company 100%controlled by CVC Capital Partners, submitted a public purchase offer for all theoutstanding shares at a price of CHF 260 per share based on shares outstanding after the capital increase.
In January, 2005 Michael Pieper informed the company that, together with theFranke-Gruppe, he held 20.1% of the Forbo shares. Besides, Rudolf Maag andTweedy, Browne Global Value Fund were in possession of 8.1% and 8.8 % respectively of the Forbo shares on March 4, 2005.

Forbo Annual Report 2004

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Seite 8Resolutions adopted by the extraordinary General Assembly
Abolition .
of the restriction .
on voting rights .

The extraordinary General Assembly convened by the Board of Directors for
March 24, 2005 adopted the following resolutions:
1. The change of Article 27 of the articles of association proposed by Tweedy,
Browne Global Value Fund was approved. The change means that in case of a public purchase offer the price must at least correspond with the current shareprice and must, at the same time, not be lower than the highest price that the bidder paid for the company’s shares during the past 12 months.
2. The change of the restriction of voting rights proposed by Michael Pieper
was approved by nearly 100 percent of the shares represented. Thus the shareholders will now be entitled to vote on an equal basis with their capital interestsin the company.
3. The additional members of the Board of Directors proposed by Michael
Pieper, i. e. Dr. Peter Altorfer, Dr. Albert Gnägi, Hans-Beat Gürtler, Dr. Rudolf
Huber, and Michael Pieper were elected with a clear majority.
Dividend proposal to the General Assembly

No dividend .

Thedividend policy of the Forbo Group is linked to the development of net profits. In view of the Group loss, the Board of Directors will propose to theAnnual General Assembly on April 29, 2005 not to distribute a dividend for thebusiness year 2004.
Changes in the Board of Directors

Retirements .
from the .
Board of Directors .

Dr. Willy Kissling, who had taken over the chair of the Board of Directors afterKarl Janjöri’s resignation at the beginning of 2004, has declared his resignation from office as per the 2005 orderly General Assembly irrespective of theresolutions adopted by the extraordinary General Assembly. Michael Pieper
decided at the beginning of December 2004 to retire from his mandate with immediate effect. At the extraordinary General Assembly on March 24, 2005
Dr. Anton Bucher and Dr. Paul Tanos, members of the Board of Directors, declared their resignation from the Board of Directors effective April 6, 2005
(end of the offer period). Drs. Pieter Deiters and Prof. Dr. iur. Rolf Watter will
also resign at the orderly General Assembly on April 29, 2005.
Immediately after the elections to the Board of Directors at the occasion of theextraordinary General Assembly on March 24, 2005, the new Board of Directors
met and elected Dr. Albert Gnägi its Chairman and Michael Pieper its ViceChairman.
This E. Schneider who had taken over the position of CEO from Werner Kummerin spring 2004 and assumed this function until February 22, 2005, resumed
his function as CEO and Delegate of the Board of Directors with immediate effect.

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Seite 9Cautiously optimistic outlook on 2005

A demanding business year 2005 is in store for the Group’s three businesses.
All in all we are expecting a slight sales growth and improvement of operating
results. The stepwise improvement of profitability continues to have highest
priority. Measures to this end have been initiated; important restructuring plans
are about to be implemented. However, profits will be influenced by special
effects also in the current year; part of the restructuring costs announced in latefall 2004 will be charged to the business year 2005.
ThanksWe thank our employees for their commitment in a difficult business year. They
have made an essential contribution to restoring Forbo’s organic growth.
We would like to extend our thanks to our shareholders and our customers fortheir support and loyalty.
Eglisau, March 29, 2005

Dr. Albert Gnägi
Chairman of the Board of Directors

This E. Schneider
Delegate of the Board of Directors and CEO

Forbo Annual Report 2004

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Forbo Group:
Foundation Laid for New Growth
Forbo’s three operating businesses recorded decent results in the past
year. Group sales rose by 1.5 % to CHF 1,622.3 million. The increase in local
currencies was 2.3 %. The operating profit after depreciation and amortization (EBIT) and before special charges was CHF 55.9 million or 7.5 % below
the previous year’s level of CHF 60.4 million. Gains with the sale of highermargin products in the adhesives and belting businesses were partly reduced by higher raw material prices and subdued demand in the flooringbusiness. The Group loss of CHF 157.4 million includes special charges of
CHF 161.9 million. They notably relate to restructuring costs and impairments in the belting and flooring business where production capacities andproduct portfolios are being adjusted. The free cashflow was CHF 43.1
million, 51.3 % less than in the previous year as a result of higher investments and lower cash inflow from operating activities.

Independent .
operating .
businesses .

Strategic and f inancial issues were particularly significant in the business year
2004. Following thorough analyses, The Board of Directors and the Executive
Board concluded that the Group’s three businesses – Flooring, Adhesives, andBelting – should be managed as independent and focused operating businesses
under the umbrella of a strategy and finance holding. A decisive factor was theperception that the flooring business could be restructured by the Group’s own
efforts under the proviso of a capital increase. In addition, the new funds willallow growth of the adhesives business in higher-value market segments andthe fast conclusion of the turnaround in the belting business. At the same time,
the proceeds from the capital increase, which was successfully concluded in
December 2004, reduced net debts and essentially increased the Group’s financial
flexibility.

Profitability .
and growth .

The Board of Directors and the Executive Board re-defined the strategies for thethree businesses along the principles of «profitability and growth». The operative businesses have initiated the corresponding steps. They shall become fully
effective as from 2007 and double the return on assets employed (ROA).

Forbo Annual Report 2004

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Overview of the Group’s sales development: strong adhesives business
Flooring with .
mixed results .

The flooring business reached sales of CHF 737.6 million in 2004, a slight decreaseof 0.9 % in comparison with the previous year. In local currency terms thedecrease was 1.5 %. Strong growth of linoleum sales in North America was offset
by declining sales in Western Europe. Vinyl raised sales in the contract businessbut suffered from declining sales in the residential market in Western Europe. The
operating profit (before special charges) amounted to CHF 42.4 million, 10.7%
lower than in the previous year.

Adhesives boosted .
by Swift .

The results of the adhesives business were pleasing: Here, Forbo achieved sales of
CHF 577.7 million, plus 3.6 %. Growth in local currencies was 5.7 %. The business benefited from the consistent focus on strategic customer segments and theintegration of US adhesives producer Swift concluded in the previous year.
The operating profit rose (before special charges) by 55.1% to CHF 34.9 million.

Turnaround .
in the .
belting business .

In the period under review, the belting business was able to clearly raise sales to
CHF 307.0 million, plus 3.4 %. In local currencies, growth was 5.3 %. All themain sales regions contributed to this positive trend. Negative effects on sales
and margins came from the weak US currency. Nevertheless, the operating
profit (before special charges) rose from CHF – 4.2 million in the previous year
to CHF 2.4 million.

Sales by Businesses
m CHF
Change on previous year*
2004 effective %currency adj. %Flooring
Adhesives
Belting
Total

*

737.6
577.7
307.0
1,622.3

–0.9
3.6
3.4
1.5

–1.5
5.7
5.3
2.3

%

45.5
35.6
18.9
100.0

Based on new classification of adhesives products sales
realized by the flooring business.

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Sales by regions: positive in the USA
Europe .
below expectations .

Sales in North America showed a generally positive trend in all the three businesses. In Europe, however, sales of the flooring business were particularly
affected by the reluctant public investment activity and the difficult situation of
the building industry. Growth stimuli for adhesives and belting came from the
Asian markets.

Sales by geographic areas%

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

23.9
13.1
12.5
11.1
9.1
8.8
8.0
5.9
4.5
3.1

Change on previous year
effective % currency adj. %

2.7
–0.5
0.0
7.4
6.6
–2.0
1.5
2.4
–13.4
5.6

10.4
–1.9
–1.5
5.8
5.2
–3.1
1.4
–1.0
–14.2
5.6

m CHF
2004

388.8
212.8
202.4
180.4
147.3
143.5
128.5
95.4
72.6
50.6
0

50

100

150

200

250

300

350

400

Result suffering from extraordinary influences
High .
special charges .

The focus on higher-margin product segments intensified in the second halfyear resulted in a slightly higher gross profit margin for the total year in spite ofrising raw material prices. Clearly higher operating expenditure including restructuring charges of CHF 16.9 million resulted in an operating result before depreciation and amortization (EBITDA) of CHF 126.2 million (previous year:
CHF 156.7 million). The restructuring moves announced for the flooring andbelting businesses resulted in an impairment on tangible assets of CHF 81.5
million charged to the operating result (EBIT). EBIT of CHF – 44.5 million was
CHF 104.9 million lower than in the previous year. Further factors for the decline were higher goodwill amortization of CHF +3.1 million and negative currency effects. On the operational level, the adhesives business with CHF 34.9
million made a clearly better contribution to the Group’s operating profit compared with the previous year. The operating result of the belting businessamounted to CHF 2.4 million. It had a positive influence on the Group resultcompared with the previous year while the flooring business at CHF 42.4 million had a negative one.

EBIT (before special charges)

by Businesses
Flooring
Adhesives
Belting
Headquarters/consolidation

m CHF
2004

Change2003/2004 %ROA*
2004 %

42.4
34.9
2.4
–23.8

–10.7
55.1
n/a
n/a

9.4
8.3
1.0
n/a
–50

*

–25

0

25

50

75

100

Return on Assets (EBIT in % of operating assets)
Restated due to new classification in 2004 of sales ofadhesives products realized by the flooring businessand changed allocation keys in 2004 for corporate andconsolidation

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As a result of lower operative assets, the return on operating assets employed(ROA, before special charges) increased from 4.7 % in the previous year to 4.9 %.
The return on sales was 3.4 % compared with 3.8 % in the previous year. This
key figure decreased to 2.7 % in the second half-year as a result of higher operating expenses in connection with various projects and slightly lower sales (firsthalf-year: 4.1%).
Higher financial .
expenses .
and tax charge .

14 Forbo Annual Report 2004

The Group loss of CHF 157.4 million (previous year: profit of CHF 16.1 million)
mirrors the restructuring expenses and special charges of CHF 161.9 million
in total, with the three businesses accounting for CHF 95.6 million (before tax).
This means that higher financial expenses and tax charges also contributed
to the Group loss. The net financial expenses rose from CHF 28.6 million in theprevious year to CHF 68.1 million, especially as a result of value adjustmentson divested securities (CHF 12.0 million) and on the capital participations of andloans to an associate company (CHF 22.5 million). The tax charge of CHF 44.8
million (plus CHF 29.1 million) is partly due to the unfavourable regional earnings mix and in particular to value adjustments on deferred tax assets.

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Free cash flow .
CHF 43.1 Mio .

The free cash flow in the period under review was CHF 43.1 million (previous
year: CHF 88.5 million). The decrease by CHF 45.4 million is the result of a lower
cash inflow from operating activities (minus CHF 28.6 million) and higher investments in long-term assets, after asset disposals, net (plus CHF 16.8 million).

Use of funds .

The cash flow from operating activities of the businesses and the cash inflow
from the capital increase of some CHF 187 million (net) are used for restructuring measures especially in the flooring business, and for selective acquisitionsin the adhesives business.

Free cash flow 2004
m CHF

Cash flow from operating activities
Cash flow used for investments in long-term assets/disposal, net
Free cash flow 1)

94
–51
43
0

25

50

75

100

125

150

175

200

75

100

125

150

175

200

Free cash flow 2003
m CHF

Cash flow from operating activities
Cash flow used for investments in long-term assets/disposal, net
Free cash flow 1)

123
–34
89
0

1)

Before cash distribution, purchaseand sale of activities

16 Forbo Annual Report 2004

25

50

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Balance sheet: reduction of net debt thanks to capital increase
Better gearing .
resulting from .
capital increase .

Through the successful capital increase worth around CHF 187 million (net), net
debt and the debt-to-equity ratio were markedly reduced. At the same time
this transaction enhanced the Group’s financial flexibility. Besides, the special
charges could easily be absorbed in the equity capital. The net debt at year-end
is CHF 131.0 million (previous year: CHF 379.3 million). The financial derivatives
acquired in connection with long-term financing were CHF 83.7 million negative at the end of the year under review (previous year: CHF 59.5 million).
Investments in growthUpgrading and .
expansion of sites .

The Forbo Group invested CHF 55 million in 2004. The funds were mainly used
for the upgrading and expansion of production and fabrication sites, notably
in Pirmasens (Germany) and Eugene, Oregon (USA) in the adhesives business, andin Bratislava (Slovakia) in the belting business. In the flooring business, investments were made notably for optimizing the production plants in Scotland,
France, and the Netherlands. Furthermore, Forbo invested in the continued
standardized networking of the IT structure with SAP/R3 software.

Capital investments 2000–2004

2004
2003
2002
2001
2000

Flooring

Adhesives

Belting

m CHF

m CHF

m CHF

28
26
23
46
37

12
10
11
9
7

15
10
11
10
16

Total

Divested
activities
m CHF

m CHF

1
8

55
46
45
66
68
0

10

20

30

40

50

60

70

80

90

Flooring
Adhesives
Belting
Divested activities

Forbo Annual Report 2004

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A specific strategy was developed for each business:
Flooring strategy: optimization processes
Reducing .
capacities in the .
vinyl segment .

In a market characterized by overcapacities, the flooring business intends toquickly reduce capacities in the vinyl segment and to streamline production,
sales, and administration. The already strong position in the contract market –it accounts for some 60 % of total flooring sales – shall be strengthened further. Above all, the potential as the world market leader with linoleum is to befurther exploited. This includes the further expansion of market shares inNorth America and the integration of other contract vinyl floorings in the product portfolio. In addition, new markets shall be developed especially in Asia
and Russia.
Adhesives strategy: focus on higher-margin segments

Penetration .
Adhesives are a growth market. Forbo wants to grow its adhesives businessof niche markets, .
through the customized development of new applications, the penetration of
selective acquisitions .

attractive niche markets, and selective acquisitions. New markets shall be
opened up with the expansion of business in Eastern Europe and a stronger position in Asia. The focus on strategic segments continues to be in the foreground.
Belting strategy: concluding the turnaround

Organic growth .

In the consolidated belting market, it is Forbo’s goal to exhaust potentials forhigher-value and higher-margin products, to further cut costs and, in doing so,
consolidate the turnaround. The belting business seeks to grow organicallyand to strengthen its market position in core segments such as food processing,conveyor systems, printing and paper. New service centers for fabrication
shall bring the business closer to its customers. In addition, new markets shallbe developed in Eastern Europe and South-East Asia.

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Seite 20

Number of employees: slightly lower
5,540 employees .
worldwide .

As per December 31, 2004, the Forbo Group employed 5,540 people. This is adecrease by 45 employees compared with December 31, 2003. While the numberof employees was lower in Western Europe, the group recorded an increaseof employees in the growth areas of North America and the Asia/Pacific region.

Employees by Businesses
2004

Flooring
Adhesives
Belting
Headquarters
Total

2.468
1.291
1.742
39
5.540

Change2003/2004 %%–3.5 44.6
0.2 23.3
2.5 31.4–4.9
0.7–0.8 100.0

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

Change2003/2004 %

2004

21.6
16.0
14.3
10.0
8.5
8.4
7.9
6.0
5.8
1.5

–3.6
3.7
–1.5
–2.8
–3.1
–11.6
9.8
–1.5
–4.8
200.0

1,199
892
790
555
469
466
437
331
320
81
0

20 Forbo Annual Report 2004

200

400

600

800

1 000

1 200

1 400

1 600

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Flooring

2004: Pleasing sales of linoleum in the USA The vinyl and linoleum floor coverings ofand of vinyl in the contract market.
Forbo meet highest functional and aesthetic requirements. Renowned designers
and architects worldwide specify Forbofloorings for the design of attractive roomsin the contract and residential business.

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Flooring: Focus on Optimization Processes
In the business year 2004, the flooring business recorded sales of CHF 737.6
million. This is a slight decrease of 0.9 % compared with the previous
year, or 1.5 % in local currencies. The share in Group sales was 45 % (previous year: 47 %). Linoleum benefited from strong growth in North America
which, however, could not offset declining sales in Western Europe. Vinyl recorded encouraging sales growth in the higher-margin contract business.
As opposed, the residential market suffered from decreasing sales in some
European countries. The operating profit (before special charges) was
CHF 42.4 million, 10.7 % below the previous year’s result.
Market situation: dynamic development in America and Eastern Europe
Reluctant investment .
activity and .
overcapacities .

The flooring market was essentially characterized by subdued public spending
policy and overcapacities. This was coupled with continued consolidation among
primarily regional suppliers. Forbo is represented worldwide with its products –especially the American market for linoleum is showing dynamic growth. The key
markets in Western Europe were stagnating or declining. Due to strong brandloyalty – it is mainly based on a high degree of product innovation and a comprehensive service offer – the local price level could be maintained in most sales
regions.

World .
market leader .
with linoleum .

Forbo is world market leader with linoleum, having a share of more than 60 %.
With vinyl Forbo is among the leading suppliers worldwide. The brands of theflooring business, such as Marmoleum®, Novilon® and Novilux®, have a strong
international presence.

Sales by product groups
m CHF
Change on previous year*
2004 effective %currency adj. %Linoleum
Vinyl
Other
Total

*

353.2
306.7
77.7
737.6

–2.3
–0.6
4.5
–0.9

–2.1
–1.9
3.7
–1.5

%

47.9
41.6
10.5
100.0

Based on new classification of adhesives products sales
realized by the flooring business.

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Measures and investments: strategy review
Measures .
on all levels .

Numerous .
innovations with .
Marmoleum® .

The results of the strategy review triggered the launch of numerous projects. They
are currently in the implementation phase and are aimed, among others, atthe adjustment of production capacities, the optimum alignment of production,and the standardization and simplification of essential core processes, e. g. in
the fields of innovation and sales control. Corresponding training programs forthe employees accompany these initiatives.
Products: new collections prepared for linoleum and vinyl
In the year under review, new collections were developed for both linoleum andvinyl. Their market launch is scheduled as from the beginning of 2005. The
Marmoleum® ‘global2’ collection, which is available worldwide, includes ‘Topshield’, a unique, two-layer surface protection that guarantees the color effectover the entire product life. The improved protection against dirt and wear simplifies the product’s care significantly and leads to a reduction of maintenancecosts. The Marmoleum® ‘colorful grey’ collection has already been launched andproves to be a favourite among architects. It was designed in cooperation with
the Dutch artist Peter Struycken. Also the innovative collection Marmoleum® click
for the residential market is developing positively. Its sales doubled in the period under review. The handy elements are connected with a click system without additional fixtures which simplifies floor laying essentially.

New Novilon® .
and Novilux® .
collections .

In the vinyl segment, most of the products for the residential market, and notably the Novilon® and Novilux® collections, were revised in 2004 and prepared
for the market launch in 2005. Also new is ‘Sarlon tech’, offering outstanding
acoustic and sound absorption qualities.

ColoRex® also .
for loose laying .

The ColoRex® flooring is now also available for loose laying. Combined with its
excellent technical properties, such as electrostatic discharge, ColoRex® features
another competitive advantage that opens up a larger field of application for the
product.

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ADEX Platinum .

Award and Natura .
Plus environment
certificate .

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In spring 2004, the Forbo collection ‘Eternal Form & Wood’ received the ADEX
Platinum Award (Award for Design Excellence) in the category of resilient
floorings from the renowned American Design Journal, proving the high design
claim of Forbo products. Besides, Forbo was awarded the Natura Plus environment certificate in 2004 as the first supplier of resilient flooring coverings;
Natura Plus replaces the TÜV test certificate used so far.
Linoleum business development: good in North America

Reluctant investment .
activity in Europe .

Sales of the linoleum product group reached CHF 353.2 million compared with
CHF 361.6 million in the previous year, a 2.3 % decrease. The share in total
sales of the flooring business was 47.9 %. Strong growth of 14.1% (in local currency) in North America was not able to compensate for declining sales in key
Western European markets. In the Benelux countries and in Scandinavia, sales
continued to suffer from subdued public spending and overcapacities in thearea of office buildings.
Vinyl business development: positive contract market

Weaker .
residential market .

Sales of the vinyl product group decreased slightly to CHF 306.7 million from
CHF 308.5 million in the previous year, a decline of 0.6 %. The share in total
flooring sales reached 41.6 %. Whereas the market showed a positive development, the products for the residential market suffered a setback mainly inWestern Europe.
In addition, strongly rising raw material prices eroded profits in the second halfyear, mainly caused by the mineral oil price hike. Steps were initiated immediately to at least partly offset the higher costs through additional efficiency gains.
Outlook: development of new markets

Expanding .
the product portfolio .
and presence .

In the contract business, it is Forbo’s intention to expand the product portfolio.
The company wants to use its leading position with linoleum to strengthen
the presence of the entire product range in key markets and to gain additional
market shares. As a supplier of integrated solutions, Forbo recognizes additional potential in the area of institutional and public buildings. Geographicallyspeaking, Forbo is seeking new growth especially in China and Russia. Forbo
will selectively complement its vinyl flooring range and reduce the manufacturing costs.

Raising .
profitability .

The strategy defined in 2004 creates the preconditions for enhancing the profitability of the flooring business in the years to come. The steps that have been
initiated on all levels of the business make Forbo confident that the strong position in the marketplace can be maintained in 2005.

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Adhesives

2004: Focus on strategic customer
segments showed first positive results.

Advanced adhesives from Forbo ensurestable and permanent bonding of a broad
range of materials. Main sales outlets
are the building industry, the automotive
industry (interior trim), paper andpackaging, tobacco industry, wood processing, textile lamination and theshoe industry.

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Adhesives: Focus on Growth
In 2004, the adhesives business increased sales by 3.6 % to CHF 577.7 million compared with the previous year. This result corresponds with 5.7 %growth in local currencies. The share in Group sales reached 36 % (previous
year: 35 %). First positive results came from the consistent alignment tostrategic customer segments initiated in 2004 and their committed support
by global teams. In addition, the business benefited from the successful
conclusion of the integration of the American adhesives producer Swift. The
operating profit (before special charges) rose by 55,1% to CHF 34.9 million. This was the result of the stronger position of industrial adhesives in
the USA and in key European markets, and the double-digit volume increase of semi-finished products (synthetic polymers) in the USA.
Market situation: dynamic growth
Positive .
development .
of demand .

The global adhesives market started to move again in 2004 following a difficultyear 2003. The market has largely stabilized in Europe. North America andAsia recorded a positive market development based on the favorable state of theoverall economy. On the demand side there was a clear trend to higher value
adhesives. Attractive market opportunities mainly exist for specialized mediumsize suppliers with a global presence and local representation – especiallywhen they have a wide spectrum of experience in various fields of application.

Higher .
raw material .
prices .

Higher energy costs and supply bottlenecks resulted in massive price increases ofvarious mineral oil derivatives and intermediary products as from the third
quarter. With certain product groups, the higher costs could partly be passed on
to the customers.

Strong market .
fragmentation .

In a strongly fragmented market – with thousands of suppliers – Forbo is worldwide among the top ten producers with a strong position in the USA and inEurope. The leading brands of the business are Swift®, Eurocol®, Helmitin®, andThermonex®.
Measures and investments: focussing and internationalization

Attractive markets .

In 2004 the adhesives business sharpened its focus on strategic market segments.
They include the automotive industry (notably lamination adhesives for interior trims), paper and packaging, the tobacco industry, wood processing, textile lamination, and the shoe industry. Most of these segments are high-growthmarkets with attractive margins. Global teams have been established to support
these customers.

Strong demand .
for Thermonex® .
adhesives .

Furthermore, investments were made in proven production and application
technologies and new plants. In Germany, for example, Forbo has commissioned a new plant for the production of special polyurethane dispersions tocover the global automotive industry’s demand for Thermonex® adhesives.
The environmentally acceptable and low-pollution Thermonex® adhesives are
the ideal solution for permanently bonding of high-quality materials suchas wood, leather and metals. They are used especially for the interior trimmings
of car doors.

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Stronger position .
in the USA .

The new plant in Eugene, Oregon, strengthens the market position of the adhesives business in the West of the USA. It allows faster and more cost-efficient
supply of existing and new customers thanks to better production capacities
and local sales organizations. Besides, a strategic alliance was formed with the
US producer Industrial Adhesives Inc. It entitles Forbo to the exclusive worldwide sale of ‘Packtape®’ products. The reinforcing belts impregnated with hotmelt adhesives are mainly used in the cardboard industry. First tests have beenconcluded successfully in the USA with various producers. Forbo has an option
to completely take over Industrial Adhesives Inc.

Platform .
in South America .

In South America, Forbo entered into a license agreement with Brazilian adhesives manufacturer Artecola. The agreement creates a platform for Forbo products in South America and ensures additional income from technology transfer.
Products: supplier of the Olympic Games in Athens

Shift to .
higher value .
products .

In the year under review, Forbo focused its research, development and sales efforts
increasingly on higher value products with premium margins. The innovative
products and application technologies meet highest requirements: For instance,
Forbo delivered several tons of adhesives before the 2004 Olympic Summer
Games in Athens for the installation of artificial turf in hockey stadiums and otheroutdoor sport grounds. There is fast-growing demand for artificial turf worldwide – especially in countries where the maintenance of natural lawn is costly.
Furthermore, the environmentally friendly Thermonex® adhesives continued
their triumphant advance in interior trim applications for medium-range andluxury class vehicles, such as in Daimler Chrysler’s new SLK series.

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Business development: strong US business
Market shares .
gained with .
industrial adhesives .

Industrial adhesives, the strongest product group in terms of sales, achieved acurrency-adjusted growth of 4.5 %. Forbo raised the market share both in strategic segments – such as paper and packaging, the automotive industry, textile
lamination, wood processing, and shoes – and in key geographic sales regions.

Gains also with .
building adhesives .

Construction and related activities recorded pleasing growth notably in France,
Spain, Germany, and with exports to Eastern Europe. In contrast, sales in the
Benelux countries were stagnating on a high level on the grounds of the weakbuilding industry. An improvement in the short term is not in sight for thesemarkets.
Very positive were sales of the synthetic polymers product group. In the USA, theyrose by a double-digit percentage in local currency. The VAE copolymers distributed under the product name of Elvace® are mainly used in the adhesives,
building, textile, and paint industries.

Rising sales .
in the USA .

Related to the total business, Forbo made 59 % of its sales in Europe, 38 % inNorth America, and 3 % in Asia. The share in North America continued to risecompared with other markets as a result of the positive development of industrial adhesives and copolymers. Besides, there were synergies from the concluded
integration of Swift, for instance from the use of existing distribution channels
for complementary products. Additional savings resulted from the coordinationof raw material purchasing as well as research and development.
Outlook: continued growth

Positive .
market development .
expected .

For 2005, Forbo is expecting the positive market development to continue – especially in North America and in Asia. The demand from the European car
industry is likely to improve. These are indicators of a market stabilization andnew growth. The business is seeking additional growth with the further useof the potential resulting from the Swift acquisition, continued focusing on strategic segments, and targeted acquisitions in attractive niche markets. The priority is on strengthening the market position in China with industrial adhesives.
Besides, the development of high-quality products is being intensified to continuously improve their margins.

High .
raw material prices .
to persist .

Regarding the operating result, the intact market growth and a well-positioned
product range continue to be faced with high raw material prices. They can only
partly be passed on to the customers.

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Seite 29

Belting

2004: Clearly higher sales – all the key
sales areas contributed to the growth.

Forbo produces and distributes strong
drive belts as well as conveyor and processing belts under the Siegling brand. They
are used worldwide for applications on thehighest technical level, especially in thefields of logistics, food processing, and fitness.

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Belting: Focus on Turnaround
Sales of the belting business improved to CHF 307.0 million in the business year 2004, plus 3.4 % on the previous year. Growth was 5.3 % in local
currencies. The share in Group sales reached 19 % (previous year: 18 %).
Sales in all the key regions contributed to the growth. The positive development was additionally supported by the worldwide expansion of fabrication capacities and distribution structures. The weak US Dollar had a negative effect on sales and margins, but the operating profit (before special
charges) rose from CHF –4.2 million in the previous year to CHF 2.4 million.
Market situation: positive trend
Rising demand .

In 2004 the belting market staged a recovery in several segments. Among others,various airport reconstruction and expansion projects stimulated the market
growth after some years of reluctant investment. Besides, new safety and hygiene
regulations made increasingly higher requirements on the belts – for instancewith luggage transport and food production, meaning that there will be growing
demand for belting in the coming years. Forbo wants to participate in thatgrowth. Furthermore, the customers are increasingly shifting their activities from
Western Europe to Eastern Europe and Asia so that Forbo sees the biggest
growth potential in those areas.

High raw material .
prices .

The margins suffered especially in the second half-year under generally highraw material prices. Following strong pressure on prices in past years, there havebeen signs of a certain stabilization in the period under review.

Among the leading .
suppliers worldwide .

The main sales regions for beltings are Europe, North America, and Asia. Three
suppliers dominate the market, having a market share of approximately 70%.
With a share of some 20 %, Forbo is among the three leading suppliers worldwide.
Transilon® and Extremultus® under the Siegling brand are the prominent products of this business.

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Measures and investments: increasing the operational efficiency
Strengthening .
of core segments .

Following the declining trend in recent years, sales and profits of the belting
business could be stabilized in 2004. Especially the efforts on the product side,in the segment of high quality drive and process belts – notably with Extremultus® – are showing first signs of success. Besides, different projects were advanced with the goal of strengthening the market position in core segments
and getting closer to customers through the establishment of new service centers.

Expansion .
of structures in .
Eastern Europe .
and China .

In Slovakia, an efficient fabrication center is being established which will be
opened in April 2005. It allows satisfying the strongly growing demand in that
region. New markets have been developed in Eastern Europe and South-East
Asia with the expansion of the sales and service structures. In China, belt fabrication gained essentially in importance along roll production. It is being
used increasingly to supply high-quality, cost-effective products to international
markets.
Products: dynamic sales development thanks to Extremultus®

Increasing .
quality requirements .

With Extremultus® and the high-grade Transilon® belts, Forbo disposes of a highquality product range with specific properties that are ideally suited to increasing customer demands. Especially Extremultus® showed a positive development in the year under review – although on a lower sales level than Transilon®.
In the coming years, the Extremultus® drive belts are expected to make a considerable contribution to total sales in selected market segments. The new Extremultus® product line, which was developed specifically for the needs of thepaper and printing industries, recorded more than proportional growth. About
twenty grades with different properties cover the entire requirements of theseindustries. Only the application of the adequate belt ensures smooth, efficientpaper transport and thus the optimum use of existing printing equipment.

First supplier .
of ATEX-certified .
belts .

2004 also saw the successful market launch of ATEX-certified belts. ATEX stands
for ‘ATmosphère EXplosibles’ and applies to transport and drive belting in conveyor systems that may present a risk of ignition as a result of electrical charge
or friction heat. As the first supplier of ATEX-certified transport and process
belts, Siegling obtained a decisive competitive edge with the launch of theseproducts.

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Business development: back to the growth path
Positive .
development .
in all markets .

In the year under review it was possible to stop the sales decline of previous
years. All the markets recorded a positive development, with particularly strong
growth stimuli in the USA, Canada, Italy, Germany, China, and New Zealand.
Sales growth in local currencies rose 5.3 % over the previous year. The Transilon®
and Extremultus® product lines together accounted for about 90 % of the belting business’s sales. Sales in Europe contributed 46 %, in North America 32 %,and in Asia 22 % to total sales.
Outlook: higher profitability

Expansion .
of higher value .
segments .

32 Forbo Annual Report 2004

For 2005, the primary goal of the business is to further improve earnings and toconclude the turnaround fast and successfully. The expansion of sales and service structures shall be accelerated especially in Eastern Europe and in Asia, andthe product range shall be tailored to high-quality segments. The business isseeking to strengthen its position as an expert for premium products and complex applications. A particular focus is on selected market segments with demanding technology. For 2005, Forbo is expecting continued sales and earnings
growth.

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Group StructureThis E. Schneider
Delegate of the Board and CEO

Tom Kaiser
Flooring

Michel Riva
Adhesives

Dr. Jan Lipton
Belting

North andSouth America

Gerold A. Zenger
CFO

Marketing and Sales
Global

Production
Netherlands

Sales
International

North America

Production
Great Britain

Sales
North America

Northern Europe

Financial Holdings
Corporate Controlling
Corporate Treasury

EuropeCorporate Taxation
Corporate Legal

Production
SwedenSales
Great Britain,
Ireland, Australia

Western Europe

Production
FranceSales
Northern Europe

Central Europe

Production
Switzerland

Sales
BeneluxSouthern Europe

Sales
FranceAsia/Pacific

Sales
Germany

Building andConstruction

Asia/PacificCorporate IT

SalesSouthern Europe,
South America

Forbo Annual Report 200433

Tom Kaiser
Executive Vice President
Flooring

16:08 UhrDr. Jan Lipton
Executive Vice President
Belting

4.4.2005

This E. Schneider
President and CEO

Gerold A. Zenger
Executive Vice President
and CFO

Michel Riva
Executive Vice President
Adhesives

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President and CEO .

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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 wasa member of the Executive Board of Schmidt-Agence (kiosk business of S. Schmidheiny) from 1984
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 became a memberof the Executive Board of Valora with responsibility for the canteen and catering division. From1997 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.

Executive .
Vice President .
and CFO .

Gerold A. Zenger, Swiss

Executive .
Vice President .
Flooring .

Tom Kaiser, German

Executive .
Vice President .
Belting .

Executive .
Vice President .
Adhesives .

Born in 1945, worked from 1968 to 1970 with Crown Life Insurance in Toronto, Canada, in theGroup Accounting Services area. 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 treasury area in 1979. He has been CFO since 1987, and he became
an Executive Board member in 1998.

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 South America.
From 1988 to 1998, he held various management positions with Vaillant GmbH. In 1998, he joined
the Wolf Group as a Managing Director. In March 2004, Tom Kaiser was appointed Executive Vice
President Flooring and member of the Executive Board.

Dr. Jan Lipton, Swiss
Born in 1952, studied Engineering at ETH Zurich, and he took his doctor’s degree at ETH Lausanne in
1983. Initially, he worked in research and development followed by management positions indifferent Swiss companies. From 1992 to 1997, he worked with Schindler AG, where he was a member of the Executive Board. Then he joined the Group Executive Board of Keramik Holding AG
Laufen. In April 2000, Jan Lipton was appointed Executive Vice President Belting and 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, Mr. Riva was appointed Executive Vice President Adhesives and member of the Executive Board.

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Corporate GovernanceAt Forbo, the concept of corporate governance encompasses the entire setof principles and rules designed to protect shareholder interests withregard to organization, conduct, and transparency. Forbo’s aim is to strikea good balance between management and control. The central rules arecontained in the Articles of Association, the Organizational Regulations,and in the Charters of the Board of Directors. The following informationis set out in line with the Corporate Governance Directive drawn up by the
SWX Swiss Exchange and, where applicable, the Swiss Code of Best Practice. Based on the Corporate Governance Directive, reference is made in thefollowing text to information in the Annual Report or Forbo Website inorder to avoid repetition. In cases where no information has been provided,
it can be assumed that the corresponding sections of the Corporate Governance Directive are not applicable or immaterial in Forbo’s case.

Group structure and shareholders
Group structure .

An organizational chart depicting the operational Group structure is given on
page 33 of this Annual Report. The scope of consolidation of Forbo Holding AG
with registered office in Eglisau (Valor No. 000354151/ISIN CH0003541510) does
not include any listed companies. The relevant details relating to the companies
that belong to the group of consolidated companies of Forbo Holding AG aregiven on pages 92 to 95 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 2004, 3,068 shareholders were listed in the share register of Forbo Holding AG, 600 or 16.4 % less than in the previous year.
The following table shows the significant shareholders as of December 31, 2004.
The table also includes any notifications made to the company by the copy date.

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Principal Shareholders
Name

Number

Percentage 1)

Notification date of 2)

The Capital Group Companies Inc.
333 South Hope Street
Los Angeles, CA 90071

–

–

3)

March 17, 2005

UBS Fund Management(Switzerland) AG

–

–

3)

February 4, 2004

69,823

5.15

141,140

10.4

December 20, 2004
December 24, 2004

Postfach, 4002 Basel
Tweedy, Browne Company LLC
New York (USA)350 Park Avenue
New York, NY 10022

April 2, 2004 4)

239,160

8.81

Brandes Investment Partners LLC
11099 El Camino Real, Suite 500
P.O. Box 919048
San Diego, CA 92191-9048

68,601

5.05––

Michael Pieper
Seestrasse 80, 6052 Hergiswil

68,126

5.02

December 15, 2004

271,771

10.01

December 23, 2004

544,571

20.07

January 28, 2005

220,000

8.1

March 8, 2005

Franke Holding AG
Dorfbachstrasse 2, 4663 Aarburg
Michael Pieper
Seestrasse 80, 6052 Hergiswil

November 2, 2004 4)
3)

January 17, 2005

Franke Holding AG
Dorfbachstrasse 2, 4663 Aarburg
Franke Beteiligungen I
Seestrasse 80, 6052 Hergiswil
Rudolf Maag
Neuhofweg 114102 Binningen
1)
2)

Percentage as at the date of publication in the Swiss commercial gazette (SHAB)
Date of publication in the Swiss commercial gazette (SHAB)

3) Below 5% threshold4) Before capital increase

Cross-shareholdings .

Forbo Holding AG is not involved in any capital or vote-based cross-shareholdings.
Capital structure

Authorized .
and conditional .
capital .

As of December 31, 2004, the orderly share capital was CHF 54,263,040, and theconditional capital CHF 3,329,000 maximum. There is no authorized capital.
Further information is contained on page 103 of the present Annual Report andin the following table on page 39.
The Annual General Meeting of Forbo Holding AG decided on April 27, 2004, toreduce the share capital to CHF 27,131,520, based on the Audit Report of an
authorized auditor, by reducing the nominal value of each registered share from
CHF 28 to CHF 20. The corresponding change to the Articles of Association
was also approved by the Annual General Meeting.
During an extraordinary general meeting it was decided on December 2, 2004, toincrease the orderly share capital by CHF 27,131,520 by the issue of 1,356,576
registered shares to be fully paid, at a nominal value of CHF 20 each. The Boardof Directors fixed the purchase price at CHF 150 per share, with one existing
share entitling its holder to one new share.

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Changes in capital, .
2002 to 2004 .

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

Share capital
CHF

Shares(units)Nominal value

Conditional capital

CHF

CHF

Reserves 1)

8,322,500 169,538,463 62,687,804

2)

CHF

Available earnings 1)
CHF

2002

67 828,800

1,356,576

50

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)1)

As per December 31 of the corresponding year
Capital reduction as a result oft he share buy-back program according
to the resolution passed by the Annual General Meeting on April 23, 2002
3)
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 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 Dezember 2, 20042)

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 103 of the Financial 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 participatory rights encompass the right to attend the Annual General Meeting and theright to table motions and to vote. Shareholders who cannot attend the Annual General Meeting in person may be represented at the meeting. They may
appoint as their representative an official of the company, an independent representative, or another shareholder who is entered in the share register.

Limitations .
on transferability .
and nominee .
registrations .

With regard to relations with the company, only the party entered in the share register shall be recognized as the holder of registered shares or beneficiary. The
entry of shares with voting rights shall always require the consent of the Boardof Directors, which may only be withheld in special cases. The consent of
the Board of Directors to the entry of the voting right may be withheld in case ashareholder were to acquire or hold more than 8%* of the total number of registered shares entered in the commercial register or if the acquirer of the shares
does not expressly declare at the company’s request that the shares are beingbought 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 is acquiring and shall hold the sharesfor his own account. The registered shares of Forbo Holding AG are not evidenced by certificate. However, a shareholder may request that a certificate be
printed and made available free of charge.
*This restriction of voting rights was abolished by the extraordinary General
Meeting on March 24, 2005.

Non-certificated shares, including the rights associated with such shares, may
only be transferred by means of assignment. The company must be duly notified
of any such assignment for the process to be valid. If non-certificated sharesare held by a bank on the shareholder’s behalf, such shares may only be trans-

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Seite 40ferred with the involvement of the bank. Resolutions on the amendment ordeletion of the clause on the entry of registered shares shall require a majority of
two-thirds of the votes represented at the Annual General Meeting in addition
to an absolute majority of the represented share nominal values.
Convertible bonds .
and 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 48 of the Annual Report.
Board of Directors

Members of .
the Board .
of Directors .

Except for This E. Schneider, Delegate of the Board of Directors and CEO,none of the members of the Board of Directors 2004 has or had any operational
management tasks for Forbo Holding AG or its consolidated companies. Neither was any member part of the Executive Board of Forbo Holding AG or its consolidated companies in the three business years preceding the year under review. There are no essential business relationships between the members of theBoard of Directors and Forbo Holding AG or its consolidated companies.

Dr. Willy Kissling .

Dr. Willy Kissling was born in 1944 and is Swiss. He studied at the Universityof Berne (Dr. rer. pol.) and at Harvard Business School (PMD). He has held various management positions since 1970. From 1987 to 1996, he was CEO anddelegate of the Board of Directors of Landis & Gyr AG. From 1998 to 2002, he was
CEO of Unaxis Holding AG. Since 1994, Willy Kissling has been a member ofthe Board of Directors of Forbo Holding AG, its Vice Chairman since 1998, and
its Chairman since the beginning of 2004. Besides, he is the Chairman of theBoard of Unaxis Holding AG, Vice Chairman of Holcim Ltd. and a member of theBoard of Directors of Schneider Electric S. A. (France) and Kühne & Nagel
International AG.
Dr. Willy Kissling will retire as Chairman and member of the Board of Directors
at the ordinary 2005 Annual General Meeting.

Dr. Anton H. Bucher .

Dr. Anton H. Bucher was born in 1942 and is Swiss. He studied at the University of Zurich (Dr. oec. publ.). From 1976 to 1994, Anton H. Bucher worked with
Zellweger Uster AG, from 1981 to 1986 as the Deputy Director General and Vice
Chairman, from 1986 to 1994 Chairman of the Board of Directors. From 1987 to
1995, he was a member of the Board of Directors of Schweizerischer Bankverein,
and from 1987 to 1998 a member of the Board of Directors of Ascom Holding AG.
Anton H. Bucher has been a member of the Board of Directors of Forbo Holding
AG since 1986. He is the owner of a real estate company in the USA.

Drs. Pieter P. A. I. .
Deiters .

Drs. Pieter P. A. I. Deiters was born in 1943 and is Dutch. He studied at the University of St. Gallen. From 1967 to 1993, he worked with Berghaus International
Fashion Group (Netherlands), from 1972 as its Chairman. From 1993 to 1998,
he was a member of the Board of Directors of Coats Vyella PCL, Clothing Division, England. Since 2002, Pieter P. A. I. Deiters has been a member of the Boardof Directors of Forbo Holding AG. He is a member of the Board of Directors ofvarious Dutch groups such as Koninklijke Ten Cate B. V., Berghaus B. V., Steps
International B. V., Teidem B. V. and Tootal B. V., and of G-III Apparel Group Ltd in
New York, USA. Additonally, he is a Consultant of the EBRD European Bank for
Reconstruction and Development (Great Britain).

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Michael Pieper .

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Seite 41

Michael Pieper was born in 1946 and is Swiss.He studied economics at St.Gallen
University. He has been with Franke Group since 1988 and its owner and CEO
since 1989. Since 2000, he has been a member of the Board of Directors ofForbo Holding AG. Michael Pieper is a member of the Board of Directors of Hero,and SWISS International Air Lines Ltd. Besides, he is a member of the Supervisory Board of Thyssen Krupp Steel AG (Germany).
On December 6, 2004 Michael Pieper retired from the Board of Directors withimmediate effect.

This E. Schneider .

For the curriculum vitae of This E. Schneider, see page 35.

Dr. Paul Tanos .

Dr. Paul Tanos was born in 1944 and is Austrian. Paul Tanos studied at the Universities of Vienna and Klagenfurt and earned doctorates in social science andeconomics. From 1986 to 2001 he was a member of the Management Boardof Wienerberger Baustoffindustrie AG in Vienna. Since 1999, he has been a memberof the Board of Directors of Forbo Holding AG. In addition, Paul Tanos is amember of the Supervisory Board of Zürich Versicherung Österreich, and of Vitalis GmbH (both Austria).

Prof. Dr. iur. .
Rolf Watter .

Prof. Dr. iur. Rolf Watter was born in 1958 and is Swiss national. He graduatedfrom the University of Zurich with a doctorate in law and holds a master of laws
degree from Georgetown University in the US. He is admitted to the bar of the
Canton of Zurich. Since 1994 he has been a partner in the law firm Bär & Karrer
in Zurich and is a member of its executive board. He also teaches as a parttime professor at the University of Zurich’s Law School. Since 1999, he has beena member of the Board of Directors of Forbo Holding AG. He is non-executive
chairman of the parent company of the Cablecom Group (and its operating entity
Cablecom GmbH) and a member of the boards of directors of Zurich Financial
Services (and one of its subsidiaries), Syngenta AG, UBS Alternative Portfolio AG
and A. W. Faber-Castell (Holding) AG. In addition, he serves on the board of
the Swiss Lawyers Association and is a member of the SWX Admission Board andof the Disclosure Commission of Experts of the SWX Swiss Exchange.

Elections to the .
Board of Directors .

The following members were newly elected to the Board of Directors with clear
majorities during the extraordinary General Assembly upon Michael Pieper’s motion: Dr. Peter Altorfer, Dr. Albert Gnägi, Hans-Beat Gürtler, Dr. Rudolf Huber,and Michael Pieper. At the extraordinary General Assembly on March 24, 2005
Dr. Anton Bucher and Dr. Paul Tanos, members of the Board of Directors, declared their resignation from the Board of Directors effective April 6, 2005 (endof the offer period). Drs. Pieter Deiters and Prof. Dr. iur. Rolf Watter will also
resign at the orderly General Assembly on April 29, 2005.
Immediately after the extraordinary General Assembly held on March 24,
2005, the new Board of Directors met and elected Dr. Albert Gnägi its Chairman,
Michael Pieper its Vice-Chairman, and This E. Schneider its CEO and Delegatewith immediate effect.

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Seite 42

Dr. Peter Altorfer .

Peter Altorfer, Swiss, was born in 1953. He studied at Zurich University andgraduated in jurisprudence (Dr. iur.). He is a partner of lawyers office Wenger &Vieli in Zurich which concentrates on bank and company law, and he is a member of the International Bar Association and the lawyers’ associations of Switzerland, Zurich, and Zug. Peter Altorfer is a member of the Board of Directorsof various companies, for example Huber + Suhner AG, Herisau, Abegg & Co, andAbegg Holding AG, both based in Zurich, and of several private and foreignbanks in Switzerland. Since March 24, 2005 he has been a member of the Boardof Directors of Forbo Holding AG.

Dr. Albert Gnägi .

Albert Gnägi, Swiss, was born in 1944. He graduated in jurisprudence (Dr. iur.)
after studies at Zurich University and in Rome. He is a lawyer in Zurich, concentrating on commercial law, company law, and law of succession. From the stock
exchange listing in 1997 till the takeover by the British Compass Group at
the beginning of 2001, he was Chairman of the Board of Directors of the SelectaGroup. From 1982 to 1997 he was a member and president of the Board of
Directors of Immuno International AG that carried out an IPO in 1989. Since 1980
Albert Gnägi has been a member of the foundation council of the Sanitas hospital, and its President since 2002. He holds additional board of directors andfoundation council mandates. Since March 24, 2005 he has been a member
and Chairman of the Board of Directors of Forbo Holding AG.

Hans-Beat Gürtler

Hans-Beat Gürtler, Swiss, was born in 1946. Following his commercial apprenticeship he worked with Ciba Geigy and Novartis in various executive roles athome 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 holding company Varuma AG. Hans-Beat Gürtler is also a member and President of
the Board of Directors of various start-up companies. Since March 24, 2005
he has been a member of the Board of Directors of Forbo Holding AG.

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 wasa member of the Executive Board and CFO until 2004. Since 2002 he has beena member of the Board of Directors and the Audit Committee of real estate company Swiss Prime Site AG. Since March 24, 2005 he has been a member of theBoard of Directors of Forbo Holding AG.

Cross-involvement .

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

Elections and .
terms of office .

42 Forbo Annual Report 2004

The individual members are elected by the Annual General Meeting for four years
and may be re-elected several times. The mandates expire on a staggered basis. Information in this regard is provided on page 43 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 theAnnual General Meeting of the following year. The average age of the incumbent members of the Board is around 57. With regard to the composition of theBoard 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.

HRC

Board of Directors of Forbo Holding AG
Business year 2004

CDC

Seite 43

AFC

16:08 UhrElected until

4.4.2005

Member since30290_forbo_gb_04_ih_e_023.qxd

CM

Chairman
Dr. Willy Kissling (since the beginning of 2004)
Non executive member

1994 2006

Vice Chairman
Prof. Dr. Rolf Watter (since December 2004)
Non executive member

1999 2007

C

M

1986 2006

M

M

2002 2006

M

Members
Dr. Anton H. Bucher
Non executive member
Drs. Pieter P. A. I. Deiters
Non executive member
Michael Pieper (until December 2004)
Non executive member
This E. Schneider (since April 2004)
Delegate of the Board and executive member
Dr. Paul Tanos
Non executive member

2000

–

M

M

2004 2008
1999 2007

M

C

Secretary General of the Board of Directors
Dagmar T. Jenni, Attorney, LL. M, ARM
AFC : Audit and Finance Committee
CDC : Corporate Development Committee
HRC : Committee for Human Resources and Remuneration
C: Chairman
M: MemberInternal .
organizational .
structure .

The allocation of tasks within the Board of Directors and the composition of thethree Board committees are listed on page 43 of this Annual Report.
The Board of Directors is the company’s supreme executive body. The Chairman of the Board of Directors convenes its meetings in accordance with the Organizational Regulations as business dictates, but at least four times per year.
Meetings are convened with notification of the agenda at least five working daysin advance or with shorter notice being given in urgent cases.
The Executive Board and the Corporate Staff, as well as the managers of the subsidiaries, may be invited to meetings of the Board of Directors after priorarrangement with the Chairman. Regular use is made of this option with the Executive Board generally being invited to attend meetings in an advisory capacity. The Executive Board informs in each meeting about current business andimportant business events.
Three committees composed of members of the Board of Directors deal withwell-defined subject areas of overriding importance. These standing committees
consisting of three to four Board members, which are constituted on a yearlybasis, advise the Board of Directors and draw up proposals.

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Audit and Finance .
Committee .

The Audit and Finance Committee (AFC) is responsible for issues relating toGroup financing, verification of accounting principles and principles applied to
year-end accounts, discussion of audit results, monitoring of work of external
auditors, and their independence. The AFC also stipulates the tasks of the internal auditing. The CEO and CFO are regularly requested to attend meetings inan advisory capacity, whilst the involvement of representatives of the internal auditing or the external auditors may also be requested by special invitation.
The AFC convenes as often as business requires but at least two times per year.

Corporate .
Development .
Committee .

The Corporate Development Committee (CDC) deals with issues relating to thecorporate strategy. This includes, in particular, the realization of strategic alliances, acquisitions and mergers, as well as the divestment of company activities.
The CEO attends meetings of the CDC in an advisory capacity, as may othermembers of the Executive Board on special invitation. The CDC convenes as often
as business requires.

Committee .
for Human Resources .
and Remuneration .

The Committee for Human Resources and Remuneration (HRC) is responsiblefor issues relating to the remuneration of the Board of Directors, the Group’s
general human resources policy, particularly with regard to recruitment, periodic
evaluation, and performance-based remuneration of senior executives. Unless it is his own performance assessment and salary determination that is being
discussed, the CEO attends the HRC meetings in an advisory capacity. The HRC
meets as often as business dictates.
In the year under review the Board of Directors also created an ad-hoc extraordinary committee of three members dealing exclusively with parties having
expressed an interest in acquiring the Forbo Group. The CEO was invited to thecommittee meetings in an advisory function.

Definition .
of areas .
of responsibility .

44 Forbo Annual Report 2004

The Board of Directors is the supreme managerial and control body within the
Forbo Group. It comprises six members at the end of the year under review.
As the CEO, a member of the Board of Directors has at the same time an executive function. The Board of Directors has fully delegated operational management of the company to the CEO and the Executive Board in the absence of any
provisions to the contrary set out in the relevant statutory regulations, Articles of Association, or Organizational Regulations.

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The Board of Directors is the senior managerial body and responsible for supervising and monitoring the Executive Board. It also passes guidelines on thecompany policies and strategy. The Board is regularly briefed on the current stateof business. At Forbo, the Chairman of the Board of Directors is the CEO’s direct superior and he is in regular contact with him.
The Executive Board comprises the CEO, the CFO and the Heads of the threebusinesses. Presently, the Executive Board consists of five members. The Executive Board is responsible for the operational management of the Group andalso prepares proposals regarding corporate planning and strategy for the Boardof Directors. The Executive Board is responsible for the success of the Groupto the Board of Directors.
The Executive Board meets as often as necessary. During the meetings the businessdevelopment, important events, projects, budgeting, and strategic planningare discussed, and requests for approval are prepared for the Board of Directors.
Information and .
control instruments .

In addition to the external auditors, internal auditing is available to support theBoard of Directors and the Group Executive Board in the implementation of
their supervisory duties. The internal auditing is independent, autonomous andreports 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, itcovers the identification of possible efficiency improvements, compliance withinternal 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 and continuously monitored through the action plans initiated by the company management.
Group Executive Board

The Group .
Executive Board, .
activities and .
vested interests .

The names of the members of the Group Executive Board, alongside their nationalities, functions, qualifications, and professional backgrounds, as well as
their activities and interests are listed on page 35 of this Annual Report.
Forbo Holding AG has not entered into any management contracts with third
parties.
Compensations, shareholdings and loans

Management .
contracts .

The compensation of the Board of Directors is defined by the HRC and submitted to the Group Board of Directors for approval.

Content and .
method of .
determining .
the compensations .
and the .
share-ownership .
programs .

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. At the same time, the target agreements for the coming business year
are approved. When the annual accounts are produced in March, performanceis reviewed in light of the stipulated target agreements and in consideration of theprevailing market conditions, and a decision is made on bonus payments andthe issuance of options.

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Compensation for .
current members .

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The members of the Board of Directors are remunerated on the basis of a graduated remuneration scale applicable to the Chairman and the members. 50 %of this consideration is paid to the members in the form of Forbo shares. ₁ ⁄₆ of
the compensation of the Chairman of the Board of Directors is paid in shares.
These shares are subject to a block period of three years. An additional compensation is awarded to Committee members. Foreign members are entitled to
opt for either shares or cash payment. The market value on the issue date is usedas the basis of calculation for shares. The total compensation to all non-executive members of the Board of Directors within the Forbo Group in 2004 was
CHF 773,714 including compensations paid to six members of the Board of
Directors.The Delegate of the Board of Directors, who is at the same time chairing the Executive Board, received a total compensation of CHF 1,072,274
in the year under review. This amount includes all the remunerations, i. e. basesalary, bonus, fringe benefits like pension fund contributions, and payments
in kind.
The remuneration paid to the Executive Board consists of a fixed base salary anda performance-related component, determined in each case at the end of thefinancial year. Up to 30 % of the performance-related component may be paid in
the form of shares of Forbo Holding AG. These shares may not be sold for aperiod of three years. As part of a stock option plan, the Board of Directors issued to members of the Executive Board options of Forbo Holding AG for
the first time in 2000. The basis of calculation was the theoretical market valueon the issue date in each case, subject to a maximum of 10 % of the total remunerationpayable. The total compensations to eight Executive Board members
in 2004 amounted to CHF 4,450,567, with three members retiring in the periodunder review. This amount includes the total compensation, i. e. base salary,bonus and payments in kind, and the Delegate’s remuneration. To one member of the Executive Board who stepped down from his function in March of theyear under review a severance payment of CHF 840,000 was paid. In addition,
the amount of CHF 200,000 was paid to this member for consultancy services
rendered after his retirement until the end of 2004.

Compensation for .
former members .
of governing bodies .

During the year under review, a member of the Executive Board who had retiredin August 2003 received a sum of CHF 380,000 for consultancy services.

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Share allotment .
in the year .
under review .

559 shares were allotted to the members of the Board of Directors in the year under review as a component of their remuneration, and 421 shares were allocated to the members of the Executive Board as part of the performance-related
remuneration system. No shares were allocated to 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 Board of Directors as of December 31,
2004 was 55,017. The Executive Board (except CEO) held in total 1,638 shareson the key-date. These figures include any shares held by natural persons andlegal entities with close links to the Board of Directors/Executive Board.

Options .

As of December 31, 2004 the Board of Directors and Executive Board held thefollowing options:Year alloted

Numbers

Term

Frozen until

Subscription

Exercise price
CHF

Board of Directors
2001

682 08. 05. 2001– 07. 05. 2006

07. 05. 2004

1:2

442

2002

1,246

07. 05. 2002– 07. 05. 2007

06. 05. 2005

1:2

330

2003

2,156 31. 07. 2003– 30. 07. 2008

30. 07. 2006

1:2

251

2000

560 10. 04. 2001– 09. 05. 2005

09. 05. 2003

1:2

406

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

Executive Board

Additional fees .
and remunerations .

In the year under review, a total of CHF 1,075,313 were paid for consultancy
services to lawyers Bär & Karrer in Zurich. Prof. Dr. Rolf Watter, member of theBoard, has been a partner of that lawyers’ office for several years.

Loans granted .
to governing bodies .

As of December 31, 2004, 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 highest total compensation paid to a member of the Board of Directors in
the year under review amounted to CHF 1,072,274.

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Shareholders’ rights of participation
Voting right .
restriction and .
representation .

The Board of Directors could so far withhold its consent to the entry of thevoting right of a shareholder or group of associated shareholders in the event thatthe 8 % limit stipulated in Section 4 of the Articles of Association is exceededwith regard to the total number of registered shares entered in the commercial
register. This restriction of voting rights was abolished by the extraordinary
General Assembly held on March 24, 2005 with nearly 100 % of the shares represented. Thus the shareholders will in the future be entitled to vote on an equalbasis with their capital interests in the company. Consent may furthermore be
withheld if the acquiring party of the shares in question, despite being requested
to do so, fails to expressly declare that he is acquiring and will hold the shareson his own behalf and for his own interests. Resolutions on the amendment ordeletion of the clause on the entry of registered shares (Section 4 of the Articles of Association) require a majority of two-thirds of the votes represented at
the Annual General Meeting, in addition to an absolute majority of the represented share nominal values (Section 11 of the Articles of Association). Deviating from Article 689, Paragraph 2 Swiss Code of Obligations, shareholders
who are unable to attend the Annual General Meeting in person may be represented by an official of the company, an independent representative or anothershareholder who is entered in the share register (Section 9 of the Articles of
Association).

Statutory quorums .

In accordance with Section 11 of the Articles of Association, resolutions on theamendment and cancellation of provisions regarding the conversion of registered shares into bearer shares, the entry of registered shares, the representationof shares at the Annual General Meeting, and the dissolution of the company,
or a merger require the approval of two thirds of the votes represented at the Annual General Meeting, in addition to an absolute majority of the represented
nominal values.

Convocation .
of the Annual .
General Meeting .

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

Agenda .

Annual 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 themeeting. Deviating from Article 699 Paragraph 3 OR, shareholders representing shares in the nominal value of CHF 400,000 can demand, in writing and withina period of time published by the company, that relevant issues be put on theagenda (Section 8, Sub-section 3). The associated change of the Articles of Association was approved by the Annual General Meeting held on April 27, 2004.

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 Annual General Meeting apply with regard
to determining the participation and representation rights of shareholders at
Annual General Meetings. In order to accommodate (new) shareholders and toenable them to attend the Annual General Meeting, Forbo Holding AG deviates from this provision in practice if entries are made where possible up to approximately seven days prior to the meeting date.

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Changes of control and defense measures
Duty to make .
an offer .

The Articles of Association of Forbo Holding AG contain neither an optingup clause (clause according to which the 33 ⅓ % threshold stipulated in Article 32,
Paragraph 1 of BEHG is raised) nor an opting-out clause (clause according
to which an acquiring party is released from a purchase offer).

Clauses on changes .
of control .

Two members of the Executive Board reserve the right to terminate their contracts 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 AG 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 Annual 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 1,9million in the year under review.

Additional fees .

Total additional consultancy fees (e. g. costs incurred in the context of the capital increase and other consultancy services), as invoiced by the audit company,
amount to CHF 1,8 million for 2004.

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 Chairman of
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. Six companies were subjected to internal audits in 2004. In termsof sales, these account for some 26 % of total Group sales.

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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, and regular
media releases. This target group-oriented information is also made available
to interested parties via E-Mail. Both the Chairman of the Board of Directors andthe CEO can be contacted directly for further information.

Direct .
communication .
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 direct communication with different target groups. The primary measure as far as shareholders are concerned is the Annual General Meeting, whilst media conferences
and news releases are used to brief the media. Presentations as well as bothgroup and individual conferences on special topics are staged for the financial
community.
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
Telephone: +41 44 868 25 25
Telefax:+41 44 868 25 26
The contact address of Investor Relations is:
Forbo International SA
Gerold A. Zenger, CFO
Bauelenzelgstrasse 20
CH-8193 Eglisau
Telephone: +41 44 868 25 25

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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. In this sense risk management is considered a responsibility of both the Executive Board and the Board of Directors.
In recent years the Forbo Group has strengthened and optimized its instruments
for the integrated and systematic control of business and operational risks.
Forbo has a risk-adequate insurance coverage in line with industry practice, especially against operational risks such as disruption of operations, and risks
associated with fire and with product liability. The specific risks in terms of disruption of operations 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 89 and 90 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. Finally, the key strategic risks in the three businesses areevaluated periodically and analyzed for significance and probability on thebasis of so-called risk maps.

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The Forbo Share

Volatile .
share price .
2004 .

The price of the Forbo share, adjusted by the new shares resulting from the capital increase in December 2004, moved in a range of CHF 241 and CHF 301
during the first semester of 2004 and was about 8 % lower at mid-year than at
the end of 2003.
In August, Forbo informed its shareholders on the results of the corporate
strategy review and the operative procedures. At the end of October, Forbo announced plans for an equity capital increase to obtain the capital necessary
for the further development of its three core businesses under the umbrella ofForbo Holding. In November, Forbo notified the Group’s shareholders of
CVC Capital Partners’ interest in a potential take-over offer for the Forbo shares,
and subsequently of other parties’ interest. In December, Forbo implemented
the capital increase by some CHF 187 million net. The price of the Forbo share
was correspondingly volatile in the second semester of 2004, moving between
CHF 154 and CHF 252. It closed about 2.5 % above the mid-year price. Based on
the 2004 year end price of CHF 247.90 the resulting stock exchange capitalization is approximately CHF 673 million. The Swiss Performance Index (SPI) grewby some 7 % in 2004.

The Forbo Share in comparison to the SPI
CHF

SPI

650

5 750

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
31.12.1999

31.12.2000

31.12.2001

31.12.2002

31.12.2003

31.12.2004

SPI, adjusted

Forbo registered share

Financial calendar .

54 Forbo Annual Report 2004

Annual General Meeting:Letter to shareholders:Media release on the half-year results 2005:
Media release on the results of the first three quarters 2005:

April 29, 2005
August 23, 2005
August 23, 2005
October 25, 2005

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2004

2003

2002

2001

2000

Share capital
Issued registered shares1)

NumberNumberNumberNumberNumber2,713,152

1,356,576

1,356,576

1,513,550

1,513,550

2,633,897

1,314,986

1,305,207

1,305,052

1,463,010

Thereof:
Shares outstanding
Shares from buy-back program 2001

–

–

–

156,974–

Other own shares

57,836

20,171

25,48911,39010,406

Reserve shares (without dividend right)

21,41921,41925,88040,134

40,134

CHF

CHF

CHF

CHF

CHF

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

Total
Thereof:52,677,940 36,819,608 65,260,350 65,252,600 73,150,500

Shares outstanding

–

–

–

Other own shares

1,156,720

564,7881,274,450

569,500

520,300

Reserve shares

428,380599,732

1,294,000

2,006,700

2,006,700

Shares from buy-back program 2001

7,848,700–

Data per share
CHF

CHF

CHF

CHF

CHF

Shareholders’ equity Group

220

435

453

500

556

Consolidated loss/profit2)

–107

12

33

38

62

8

22

22

22

High

0.0

2.4 4)

6.3 4)

5.3

3.5

Low

0.0

1.8 4)

3.8 4)

2.6

2.7

0

65

67

58

36

0

Gross dividend and cash distribution, respectively
Gross dividend return (in %)3)

5)

Payout ratio (in %)Stock market statistics
Share prices6)

Stock market capitalization (m)7)

CHF

CHF

CHF

CHF

CHF

High

301

326

437

626

618

Low

155

250

261

311

462

Year-end

248

264

307

377

545

High

794

575

764

1 228

1 220

Low

408

441

457

544

914

Year-end

653

465

538

659

1 068

1)

Nominal value per share 2004: CHF 20 (2003: CHF 28, 2000–2002: CHF 50)
See also the Financial Report, Notes to the Consolidated Financial Statements,
page 77, ‘Earnings per share’
3)
Proposal of the Board of Directors to the General Shareholders’ Meeting4)
Calculated on the basis of cash distribution by reducing the nominal value
5)
Gross cash distribution as a percentage of the Group profit
6)
Adjusted by the capital increase in 2004
7)
Based on shares outstanding
2)

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Forbo Group
Financial Report

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Financial Review and Analysis
Summary of financial results

2004

2003

m CHF

m CHF

% changeon previous
year

1,622.3

1,598.9+1.5

before special charges

143.1

156.7

–8.7

after special charges

126.2

156.7

before special charges

55.9

60.4

after special charges

–44.5

60.4

Group net sales
Operating profit before depreciation and amortization (EBITDA)

Operating profit (EBIT)

Net loss/profit Group–157.416.1

Loss/earnings per share – basic (CHF)–106.56

12.28

Loss/earnings per share – diluted (CHF)–106.56

12.12

–7.5

Comment on the financial result development*Group sales rose by 1.5 % to CHF 1,622.3 million, or by 2.3 % in local currencies.
Sales of the flooring business were CHF 737.6 million, a slight decrease of 0.9 %in Swiss Francs or 1.5 % in local currencies. This compares with a sales growthin the adhesives business of 3.6 % in Swiss Francs, or 5.7 % in local currencies. The
belting business achieved a sales plus of 5.3 % in local currencies. Both floorings
and adhesives recorded slightly lower sales in the second half-year 2004 comparedwith the first half, in terms of local currencies. In contrast, the belting businessincreased sales in local currencies in the second half of 2004 compared with thefirst six months.
Although a slightly higher gross profit margin was achieved for the full year, theoperating result before depreciation and amortization (EBITDA, before special
charges) declined by 8.7 % to CHF 143.1 million due to higher operating expenses.
The operating profit (EBIT, before special charges) after total depreciation andamortization of CHF 87.2 million amounts to CHF 55.9 million (previous year:
CHF 60.4 million). The return on sales was 3.4% compared to 3.8 % in the previous year. The decrease of the earning power is due to the lower return on flooring sales and higher costs of ‘corporate’ offset by higher returns on adhesives
and belting sales.
The operating profit (EBIT, before special charges) of the flooring business is
CHF 42.4 million, 10.7 % below the previous year’s level. Persistently difficult
trading conditions with strong price pressure were met with a sharper focus
on the contract business. The return on sales based on the operating profit before
depreciation (EBITDA, before special charges) is 10.7 %, still below the previous year’s level of 11.9 %. The operating profit (EBIT, before special charges)
in relation to net sales is 5.7 % (previous year: 6.4 %), resulting in a returnon reduced operating assets of 9.4 % (previous year: 9.1%).
*Results by business after restatement due to new classification of sales of adhesive products realized by theflooring business in 2004 and changed allocation keys
in 2004 for corporate and consolidation

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The adhesives business increased the operating profit (EBIT, before special
charges) by CHF 12.4 million to CHF 34.9 million in the year under review, plus
55.1 % on the previous year. The focus on higher-margin product segments was
obviously effective although the weak US Dollar had a negative impact on bothsales and profits. The earning power in relation to sales (EBITDA, before special
charges/net sales) of 9.9 % is higher than the 8.0 % of the previous year. With 5.9 %return on sales (EBIT, before special charges/net sales), the return on operating assets employed was 8.3 % (previous year: 5.1%).
The belting business improved the operating profit by CHF 6.6 million to CHF
2.4 million thanks to higher sales and, inter alia, a shift to higher-margin products.
Hence, the negative impact on sales and profit resulting from the weak US currency could be more than compensated.
The changes of corporate strategy announced earlier resulted in special charges
which had a negative effect on the operating profit of CHF 100.4 million, of which
CHF 53.4 million and CHF 35.5 million are accounted for by the flooring business and the belting business, respectively. The operating profit (EBIT) after special
charges is therefore CHF –44.5 million.
Net finance expenses rose by CHF 39.5 million to CHF 68.1 million. The increaseis essentially due to value adjustments in relation to divested securities (CHF 12.0
million) and the value adjustments on the capital investment in and loans
to an associate company (CHF 22.5 million). Combined with the negative operating profit after special charges of CHF –44.5 million, the resulting loss for theyear under review is CHF 112.6 million before taxes.
Tax charges of CHF 44.8 million (plus CHF 29.1 million compared with the previous year) are the result of a regionally unfavorable result mix and value adjustments on deferred taxes. The resulting after tax loss for the year is CHF 157.4
million (previous year: profit of CHF 16.1 million).

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Balance sheet summary

31.12.2004

31.12.2003

change

m CHF

m CHF

m CHF

Non-current assets

612.2

812.9

–200.7

Current assets (excluding cash and marketable securities)

557.6

562.2

–4.6

346.8

188.7

158.1

1,516.6

1,563.8–47.2

Shareholders’ equity

578.6

572.5

6.1

Financial debt

477.8

568.0

–90.2

Other liabilities and provisions

460.2

423.3

36.9

1,516.6

1,563.8–47.2

Cash and marketable securities
Total assets

Total shareholders’ equity and liabilities

Balance sheet development

The balance sheet total decreased by CHF 47.2 million to CHF 1,516.6 million
compared with the previous year. Operating assets decreased by CHF 140.8 million,
CHF 83.5 million of which as a result of impairments. The net decrease ofoperating assets due to currency translations is CHF 31.6 million. This compareswith an increase in cash and securities by CHF 158.1 million. Investments in
fixed assets of CHF 54.8 million are clearly lower than the respective depreciationof CHF 73.3 million. Of the investments, CHF 26.3 million are accounted forby the flooring business, CHF 10.3 million by the adhesives business, and CHF 14.3
million by the belting business.
Financial situation

Net financial debt decreased by CHF 248.3 million compared with year-end
2003. This is mainly due to the cash inflow from the capital increase in 2004 of
CHF 186.7 million (net), free cash flow of CHF 43.1 million, and the currencyreleated decrease of the US Private Placement by CHF 31.1 million. This contrasts
with an increase resulting from the cash distribution through the nominal
value reduction of the Forbo share by a total of CHF 10.5 million. Financial debts
of CHF 477.8 million relate to a US Private Placement of CHF 312.1 million,
with maturities between five and ten years, a Swiss Franc bond of CHF 150.0 million (due in 2006), and bank debt of CHF 15.7 million. The financial derivatives
acquired in connection with long-term financing showed a total negative value of
CHF 83.7 million at the end of the year under review. As at the end of the previous year, they are shown under other liabilities.
Shareholders’ equity increased by CHF 6.1 million to CHF 578.6 million at
the end of the year under review, representing 38.2 % of the balance sheet total.
Total special charges after taxes of CHF 161.9 million and the nominal value
reduction by CHF 10.5 million could be offset by the capital increase in 2004. With
this equity position and a gearing (net debt as a percentage of equity capital)
reduced from 66.3 % to 22.6 %, combined with a very good liquidity, the Group is
on a solid financial basis.

Forbo Financial Report 2004

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Free cash flow

The free cash flow of CHF 43.1 million is the result of the cash flow generated
by operating activities reduced by investments in long-term assets (net). Thus,
the free cash flow is essentially the result of the cash inflow from operating
activities (CHF 94.1 million) and the cash inflow from asset disposals (CHF 3.8
million). This compares with a cash outflow from investments of CHF 54.8
million.

62 Forbo Financial Report 2004

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Consolidated Income Statement
2004

Net sales

Notes

m CHF

m CHF

1/2

1,622.3

1,598.9–1,092.5–1,091.3

Cost of goods sold
Gross profit
Development costs

2003

3

Marketing and distribution costs

529.8

507.6

–32.1

–28.9

–285.1–287.5Administrative costs

4–143.6–122.2Other operating expenses, net

5–113.5

–8.6

–44.5

60.4

Operating loss/profit
Financial income

7

4.2

7.9

Financial expenses

8

–49.8

–37.3

Share of results of associated companies

12

Loss/profit before taxes
Taxes

24

Net loss/profit for the year

–22.5

0.8

–112.6

31.8

–44.8

–15.7

–157.4

16.1

2004

2003

Notes

CHF

CHF

Loss/earnings per share (basic)

9–106.56

12.28

Loss/earnings per share (diluted)

9–106.56

12.12

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Consolidated Balance Sheet
31.12.2004

31.12.2003

Assets
Notes

Non-current assets

m CHF

m CHF

612.2

812.9

Tangible assets

10

443.5

558.8

Intangible assets

11

143.0

163.9

Deferred taxes

24

23.5

61.5

Investments in associates and other long-term assets

12

2.2

28.7

904.4

750.9

Inventories

13

255.2

247.9

Trade receivables

14

Current assets

242.9

251.6

Other receivables

28.7

34.9

Prepaid expenses and deferred charges

30.8

27.8

Marketable securities

15

Cash and cash equivalents
Total assets

0.0

18.9

346.8

169.8

1,516.6

1,563.8

31.12.2004

31.12.2003

Shareholders’ equity and liabilities
Notes

Shareholders’ equity

m CHF

572.5

Share capital

16

54.3

38.0

Treasury shares

16

–12.6

–7.7

Reserves and retained earnings

536.9

542.2

Non-current liabilities

569.8

670.7

Long-term financial debt

17

459.7

554.2

Employee benefit obligations

18

77.2

88.7

Provisions

19

26.9

21.3

Deferred taxes

24

Current liabilities

6.0

6.5

368.2

320.6

Trade payables

20

108.8

114.9

Accrued expenses

21

200.3

140.8

Short-term financial debt

22

18.1

13.8

Current tax liabilities

6.1

7.9

Other current liabilities

34.9

43.2

Total liabilities

938.0

991.3

1,516.6

1,563.8

Total shareholders’ equity and liabilities

64 Forbo Financial Report 2004

m CHF

578.6

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Consolidated Cash Flow Statement
2004

2003

Cash flow from operating activities
m CHF

m CHF

Net loss/profit for the year

–157.4

16.1

Depreciation and impairment of tangible assets

154.8

82.9

Amortization and impairment of intangible assets

15.9

13.4

Share of results of associated companies

22.5

–0.8

Adjustment for net financial expenses

45.6

28.6

Interest paid

–27.9

–36.1

3.9

6.8

Interest received
Dividends received

0.3

0.5

Adjustment for tax expense

44.8

15.7

Taxes paid

–15.9

–15.4

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

–2.5

–3.4

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

14.6

–6.7

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

–4.6

21.1

Total cash flow from operating activities

94.1

122.7

2004

2003

Cash flow from investing activities
m CHF

m CHF

–54.8

–46.2

3.8

12.0

Total cash flow from investing activities (before securities)

–51.0

–34.2

Proceeds from sale of marketable securities

18.7

9.8

Total cash flow from investing activities

–32.3

–24.4

2004

2003

m CHF

m CHF

Purchases of non-current assets
Proceeds from sale of non-current assets

Cash flow from financing activities
Repayment of long-term financial debt

–65.9

0.0

Increase in long-term financial debt

0.0

51.3

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

5.2

–84.7

Change in treasury shares
Cash distribution to shareholders

0.7

3.3

–10.5

–28.7

Proceeds from capital increase

186.7

0.0

Total cash flow from financing activities

116.2

–58.8

2004

2003

Change in cash and cash equivalents

1)

m CHF

m CHF

Increase in cash and cash equivalents

178.0

39.5

Translation differences

–1.0

1.8

Cash and cash equivalents at the beginning of the year

169.8

128.5

Cash and cash equivalents at the end of the year

346.8

169.8

excluding cash and marketable securities

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Consolidated Statement of Changes
in Shareholders’ Equity
2003

Share
capitalm CHF

Treasurysharesm CHF

Reservesm CHF

Translationdifferences
m CH

Total
m CHF

At 1.1.2003

67.8

–11.7

687.1

–152.6590.6

Net profit for the year
4.0

Changes in treasury shares

16.1

16.1

0.4

4.4

5.2

5.2

Fair value adjustments:
Marketable securities
Cash flow hedges

–3.8

–3.8

Change in accounting policies*

–16.5

–16.5

Translation differences

6.3

6.3
–29.8

Nominal value reduction–29.8

At 31.12.2003

38.0

–7.7

688.5

–146.3

572.5

2004

Share
capitalm CHF

Treasurysharesm CHF

Reservesm CHF

Translationdifferences
m CH

Total
m CHF

At 1.1.2004

38.0

–7.7

688.5

–146.3*First time interpretation of Swiss pension plans
as defined benefit plans as per IAS 19–157.4

Net loss for the year
0.7

Changes in treasury shares

572.5–157.4
0.7

Fair value adjustments:
Marketable securities

12.3

12.3

Cash flow hedges

–5.8

–5.8

Translation differences

–19.9
–10.5

Nominal value reduction

–10.8

0.3

Capital increase*

27.1

–5.9

165.5

At 31.12.2004

54.3

–12.6

703.1

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

66 Forbo Financial Report 2004

–19.9

186.7
–166.2578.6

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Accounting Policies
Basis of preparation

The Group’s consolidated financial statements are prepared in accordance withthe historical cost convention except for the revaluation to market value of certain
financial assets and liabilities and comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board(IASB) and Swiss law.
Effective January 1, 2003 the Group has included the Swiss pension plans in thecalculation of defined benefit obligations as per IAS 19. The liability resulting fromthe first time interpretation of the Swiss pension plans as defined benefit plans
has been accounted for by adjusting retained earnings at January 1, 2003 (see page70, pension plans).
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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 acompany. Intra-group transactions, balances and unrealized gains 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 disposed of areeliminated from the accounts as of the date the Group ceases to have control.
The companies included in the consolidated financial statements are listed underGroup companies (pages 92–95). Joint ventures in which the Group has a direct
or indirect 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.

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Capital consolidation

The purchase method is used, whereby goodwill is capitalized and amortizedover its estimated useful life, but over a period not exceeding twenty years (policy
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.
Foreign currency translation

The consolidated financial statements are presented in Swiss Francs, which is
Forbo-Group’s functional currency and presentation currency. Items includedin the financial statements of each Group company are measured using thecurrency of the primary economic environment in which 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 yearend exchange rates and their income statements are translated at weighted
average exchange rates for the year. Currency translation differences arising fromchanges in exchange rates between the beginning of the year and the end of
the year and the difference in net income translated at weighted average and yearend 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 likewise taken 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 gainor 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 formachinery, 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 elementof the financing is charged to the income statement over the lease period.
Expenditures for maintenance and repairs are charged directly to the income statement, whereas expenditures which enhance the value of assets, arecapitalized.

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Intangible assets

Intangible assets, other than goodwill, comprise mainly patents, licenses andtrademarks acquired from third parties. These assets are capitalized and amortizedon a straight-line basis over their estimated useful life (but over a period notexceeding twenty years).
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 andits 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 cash
flows, 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 allowancefor doubtful receivables. The allowance for doubtful receivables is establishedbased 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. Availablefor-sale marketable securities are initially recorded at cost and subsequently carried at fair value, with all changes in fair value recorded in equity. Whenavailable-for-sale marketable securities are sold, the cumulative gains and losses
previously recognized in equity are included in financial income or expense
for the current period. Unrealized losses are included in financial expense, already before the marketable securities are sold, when there is objective evidence that they are impaired.

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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.
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 of standard 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 tothe carry forward of allowable losses and valuation differences are shown as 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 cost are recognized in the income statement as incurred.
Pension plans

For defined contribution plans, the expense charged to the income statement
corresponds with the contributions made by the Group companies.
For defined benefit plans, the pension costs are assessed using the projected
unit credit method. Under this method, the cost of providing pensions is charged
to the income statement so as to spread the regular cost over the service livesof employees in accordance with the advice of qualified actuaries. Actuarial gains
and losses exceeding 10 % of the greater of the employee benefit obligationand the plan assets are amortized over the average remaining service lives of employees. As a rule full actuarial valuations are carried out every three years andupdated during the intervening period. The pension obligation is measured as
the present value of the estimated future cash outflows using interest rates
of long-term high quality corporate bonds. The capitalization of surpluses offunded plans is limited to the net total of any unrecognized losses and past
service cost, and the present value of any economic benefits available in the formof refunds from the plans or reductions in future contributions to the plan.

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The pension plans of the Swiss subsidiaries qualify as defined contribution plans
under Swiss law and have joined a multi-employer foundation (‘Sammelstiftung’) of an insurance company. In connection with the transfer of this insurance
contract to the multi-employer foundation of another insurance company,
the Group has reassessed the treatment of the Swiss plans under IAS 19 and included them per January 1, 2003 for the first time in the IAS 19 calculation ofdefined benefit plans.
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.
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.
Revenue recognition

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

All research cost 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 designates certain derivatives as either a hedge of the fair value ofa recognized asset or liability or a firm commitment (fair value hedge) or ahedge of a highly probable forecast transaction (cash flow hedge). Changes in thefair value of derivatives that are designated and qualify as fair value hedges
and that are highly effective, are recorded in the income statement, along with any
changes in the fair value of the hedged asset or liability that is attributable tothe hedged risk. Changes in the fair value of derivatives that are designated andqualify as cash flow hedges and that are highly effective, are recognized in equity.
Where the forecasted transaction or firm commitment results in the recognitionof an asset or of a liability, the gains and losses previously deferred in equity
are transferred from equity and included in the initial measurement of the cost of

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the asset or liability. Otherwise, amounts deferred in equity are transferred to theincome statement and classified as revenue or expense in the same periods
during which the hedged firm commitment or forecasted transaction affects theincome statement.
The Group hedges certain net investments in foreign entities with foreign currency borrowings. All foreign exchange gains or losses arising on translation ofthese 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 length transaction. It is determined by reference to quoted market prices or by the use of
established estimation techniques as for example estimated discounted values ofcash flows.
Changes in the scope of consolidation

During the period under review there were no acquisitions or divestments.

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Notes to the Consolidated Financial
Statements
1

Segment Information
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

Flooring
m CHF

Adhesivesm CHF

Belting
m CHF

737.6

577.7

0.1

18.1

Total net sales

737.7

EBITDA before special charges

79.0

Special charges–16.3

EBITDA

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 %

Capital investments

26.3

10.3

14.3

3.9

54.8

Number of employees (at 31.12.)

2,468

1,291

1,742

39

5,540

Flooring
m CHF

Adhesivesm CHF

Belting
m CHF

Corporate andconsolidation
m CHF

Total
m CHF

744.5

557.4

297.0

0.0

1,598.9

0.1

16.8

0.0

–16.9

0.0

744.6

574.2

297.0

–16.9

1,598.9

Net sales to third parties
Inter-segment sales

By business segments 2003*
Net sales to third parties
Inter-segment sales
Total net sales

–0.6

–16.9

EBITDA

88.3

46.2

16.0

6.2

156.7

Depreciation and amortization

–40.8

–23.7

–20.2

–11.6

–96.3

Operating profit (EBIT)

47.5

22.5

–4.2

–5.4

60.4

Operating assets

521.1

442.5

295.2

26.1

1,284.9

Operating liabilities

171.8

94.0

53.5

89.6

408.9

ROS, gross (EBITDA/net sales)

11.9 %

8.0 %

5.4%

9.8 %

ROS, net (EBIT/net sales)

6.4 %

3.9 %

–1.4 %

3.8 %

ROA (EBIT/operating assets)

9.1 %

5.1 %

–1.4 %

4.7 %Capital investments

25.4

10.4

10.0

0.4

46.2

Number of employees (at 31.12.)

2,557

1,288

1,699

41

5,585

*Restated due to new classification in 2004 of sales ofadhesives realized by the flooring business and changed allocation
keys in 2004 for corporate and consolidation

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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
as well as floor and wall adhesives. The belting business develops, produces andsells high quality belts of modern synthetics for use in power transmission oras 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.

By geographical segments 2004

Europe(Eurozone)
m CHF

Switzerland
m CHF

Rest ofEuropem CHF

Americas
m CHF

Asia/
Africa
m CHF

Total
m CHF

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

By geographical segments 2003

Europe(Eurozone)
m CHF

Switzerland
m CHF

Rest ofEuropem CHF

Americas
m CHF

Asia/
Africa
m CHF

Total
m CHF

Net sales

722.3

47.9

323.4

378.7

126.6

1,598.9

Operating assets

681.4

126.3

217.4

193.2

66.6

1,284.9

Capital investments

24.8

3.5

7.6

6.5

3.8

46.2

Number of employees (at 31.12.)

2,953

336

1,038

860

398

5,585

Of which due
to exchange
rate changes
m CHF

Due tovolume andprice changes
m CHF

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

2

Changes in net sales by businesses
2004

2003 *Net sales to third parties
m CHF

m CHF

Total
changem CHF

Flooring

737.6

744.5

–6.9

4.1

–11.0

Adhesives

577.7

557.4

20.3

–11.4

31.7

Belting

307.0

297.0

10.0

–5.9

15.9

Total

1,622.3

1,598.9

23.4

–13.2

36.6

*Restated due to new classification in 2004 of sales of adhesives
realized by the flooring business

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Development and production overhead costs

Development costs, which include product development as well as design activities, amounted to CHF 32.1 million (2003: CHF 28.9 million). Production overhead costs totaled CHF 152.7 million (2003: CHF 162.1 million) and are includedin ‘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, net

2004

2003

m CHF

m CHF

Impairment

83.5

0.0

Restructuring

16.9

0.0

Other expenses

26.2

24.1

Other income

–13.1

–15.5

Total other operating expenses, net

113.5

8.6

The impairment charges relate to tangible assets (CHF 81.5 million) and intangible assets (CHF 2.0 million) and are detailed on pages 79 and 80. The restructuring charges primarily relate to the closure of the cushion vinyl plant in
Scotland and comprise the expected expenses for the social plan (CHF 8.0 million)
and allowances on the working capital (CHF 5.1 million). Furthermore, therestructuring charges include a provision made in respect of environmental remediation costs. Other operating expenses and income include all costs andincome which can not be clearly allocated to the other categories.

6

Personnel expenses

Salaries and wages

2004

2003

m CHF

m CHF

346.0

343.7

Employer’s social security contributions

95.3

91.3

Total personnel expenses

441.3

435.0

The Group’s headcount at December 31, 2004 was 5,540 (2003: 5,585). The average headcount over the year was 5,582 (2003: 5,689).
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 the bonus payment consists of shares of Forbo Holding AG.
The participants can dispose of these shares after a period of at least three years.

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Call options are issued to the Board of Directors and the Group Executive
Board within the framework of a stock option plan. Until December 31, 2004
the following options were granted:
Exercise
priceYear alloted

NumberTerm

Frozen until

Subscription
ratio

2000

1,120

10.04.01–09.05.05

09.05.03

1:2

406

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

CHF

No charge is made to personnel expenses in connection with share options.
See also note 27 ‘Related party transactions’ on page 91.

78

Financial income

2004

2003

m CHF

m CHF

Interest income

3.9

6.3

Dividend income

0.3

0.5

Foreign exchange gains, net

0.0

1.1

Total financial income

4.2

7.9

Financial expenses

2004

2003

m CHF

m CHF

Interest expense

27.5

35.7

Amortization of issuance costs of bonds and private placements

0.9

0.9

Amortization of costs syndicated bank facility

0.2

0.2

Impairment of available-for-sale securities

0.0

0.3

Realized losses on available-for-sale securities

12.0

0.2

Impairment of other financial assets

5.6

0.0

Foreign exchange losses, net

3.6

0.0

Total financial expenses

49.8

37.3

The average interest rate on interest-bearing debt (bonds, private placements,
long- and short-term bank loans) in 2004 was 4.5 % (2003: 5.2 %).

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Earnings 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/profit for the year (m CHF)
Weighted average number of shares outstanding
Basic loss/earnings per share (CHF)

2004

2003

–157.416.1

1,476,890 1,307,974–106.56

12.28

Diluted earnings per share in addition takes into account the potential dilution
effects which would result if all share options were exercised.

Net loss/profit for the year (m CHF)

2004

2003

–157.416.1

Weighted average number of shares outstanding
1,325,357

for diluted earnings per share
Diluted loss/earnings per share (CHF)–106.5612.12

Due to the net loss there was no dilution effect in 2004.

10

Tangible assets

The tangible assets also include leased assets with a net book value of CHF 2.2
million (2003: CHF 2.6 million) as well as non-operating property with a net bookvalue of CHF 5.0 million (2003: CHF 7.3 million). The net book value of the nonoperating property roughly equals its fair value.

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Cost

Land andMachinerybuildings and equipment
m CHF
m CHF

At 31.12.2002, gross

474.0

818.0

159.6

23.2

1,474.8

0.0

–0.8

–1.3

0.0

–2.1

Changes in scope of consolidation

Other tangible Assets underTotal
assets construction tangible assets
m CHF
m CHF
m CHF

Additions

2.8

10.5

9.7

22.9

45.9

Disposals

–7.0

–3.8

–14.3

–0.1

–25.2

Transfers

5.7

14.1

1.5

–21.3

0.0

Translation differences

10.6

20.3

6.8

0.9

38.6

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

Accumulated depreciation

Land andMachinerybuildings and equipment
m CHF
m CHF

At 31.12.2002, gross

178.5

Depreciation

19.7

Changes in scope of consolidation

0.0

Disposals

–5.9

–4.6

593.6

Other tangible Assets underTotal
assets construction tangible assets
m CHF
m CHF
m CHF

115.6

0.2

48.1

14.8

0.3

82.9

–0.8

–1.2

0.0

–2.0

–11.8

0.0

–22.3

Translation differences

4.5

17.1

5.0

0.1

26.7

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

Total tangible assets at 31.12.2003, net

289.3

204.9

39.6

25.0

558.8

Total tangible assets at 31.12.2004, net

234.9

146.4

41.3

20.9

443.5

The fire insurance value of buildings, machinery and factory equipment of CHF
2,062 million (2003: CHF 2,017 million) covers the replacement cost. The businessinterruption 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 31.6 million (2003: CHF 28.4
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, net’.

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Impairment charges flooring

In the context of the 2004 strategy review the decision was taken to close thecushion vinyl production plant in Scotland. Consequently, the carrying amountof the assets concerned was adjusted to the estimated net selling price. This
resulted in impairment charges of CHF 11.0 million in total. Of these, CHF 6.7
million relate to land and buildings, CHF 4.2 million to machinery and equipment and CHF 0.1 million to other tangible assets. After closure of the plant in
Scotland, there is only one plant left in the Forbo Group which produces cushion vinyl for the residential market. In view of the market environment, which ischaracterized by oversupply and increasing raw material prices in the second
half of 2004, the remaining cushion vinyl business was subject to an impairment
test. The assessment of the value was based on the value in use from future
free cash flows, which were discounted with 8 %, and resulted in a difference to thecarrying amount of CHF 20.1 million. Of these, CHF 16.6 million relate tomachinery and equipment and CHF 3.5 million to other tangible assets. Of theremaining impairment charges recognized in the flooring business, CHF 2.8
million relate to land and buildings, CHF 2.2 million to machinery and equipment
and CHF 1.0 million to other tangible assets. As such, total impairment charges
on tangible assets in the flooring business amount to CHF 37.1 million.
Impairment charges belting

In the context of the 2004 strategy review the competition in the industry was
subject to a general analysis. In particular, the fabrication business was subject
to an impairment test due to the increasing competition from suppliers in
low wage countries. The result was that, based on valuation reports and internal
estimates, the net selling price of the assets concerned is CHF 4.8 million
below the carrying amount. Of these, CHF 2.3 million relate to land and buildings, CHF 2.4 million to machinery and equipment and CHF 0.1 million toother tangible assets. Furthermore, it was concluded in the second half of 2004
that the technical and economic assumptions, under which an investment
was made in a production facility, have predominantly not materialized. Taking
into account this conclusion the value in use was recalculated. The value in
use, which was based on a discount rate of 8 %, is CHF 22.8 below the carrying
value. This impairment charge relates with CHF 9.5 million to land and buildings and with CHF 13.3 million to machinery and equipment. The remaining impairment charges recognized in the belting business of CHF 5.3 million relate to land and buildings. As such, total impairment charges on tangible assets
in the belting business amount to CHF 32.9 million.
Impairment charges adhesives

The impairment charges in the adhesives business amount to CHF 6.7 million
and relate to land and buildings, representing partly adjustments to the net selling
price of operating real estate which is not used anymore.
Other impairment charges

The other impairment charges of CHF 4.8 million relate predominantly toan adjustment to the net selling price of a non-operational building sold inJanuary 2005.

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Intangible assets
Cost

Goodwillm CHF

Trademarks/
patentsm CHF

Other intangible assets
m CHF

Total
m CHF

164.1

54.1

6.4

224.6

Changes in scope of consolidation

0.6

0.6

0.0

1.2

Additions

0.0

0.0

0.3

0.3

Disposals

0.0

–0.5

0.0

–0.5

Translation differences

–3.9

0.0

0.4

–3.5

At 31.12.2003, grossAt 31.12.2002, gross

160.8

54.2

7.1

222.1

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

Goodwillm CHF

Trademarks/
patentsm CHF

Other intangible assets
m CHF

Total
m CHF

At 31.12.2002, gross

18.3

26.3

1.4

46.0

Amortization

8.4

4.1

0.9

13.4

Transfers

0.0

–0.5

0.0

–0.5

Translation differences

–0.7

0.0

0.0

–0.7

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

Total intangible assets at 31.12.2003, net

134.8

24.3

4.8

163.9

Total intangible assets at 31.12.2004, net

118.2

22.2

2.6

143.0

Accumulated amortization

In connection with the strategy review 2004 and the impairment charges on
the tangible assets of the belting business, the goodwill resulting from the Siegling
acquisition with a remaining carrying amount of CHF 2.0 million has beenassessed as impaired and has been fully written down.

12

Investments in associates and other long-term assets
2004
m CHF

2003
m CHF

Investments in associated companies

0.0

5.1

Other investments

1.6

3.3

Loans to associated companies

0.0

19.0

Other long-term receivables

0.6

1.3

Total investments in associates and other long-term assets

2.2

28.7

As of October 1, 2001 the carpet business was sold to its management. Forbo
has granted a subordinated loan of CHF 19.0 million to the newly created groupand holds a 25 % investment in Enia Carpet Group AG, Ennenda/Switzerland,
the parent company of the group. In the second half of 2004 the Enia group wasincreasingly faced with financial difficulties. In the context of a restructuring

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Seite 81agreement Forbo waived loans and accounts receivable of CHF 17.4 million, andin turn, will hold eventually 33 1⁄ 3 % of the share capital of Enia Carpet Group AG.
In view of the significant general and economic risks involved the capital investment was written down by CHF 5.1 million.

13

14

15

Inventories

2004

m CHF

m CHF

Raw materials and supplies

62.2

60.9

Work in progress

70.9

68.7

2003

Finished goods

141.7

130.0

Allowance for product risks

–19.6

–11.7

Total inventories

255.2

247.9

Trade receivables

2004

2003

m CHF

m CHF

Accounts receivable

233.4

238.0

Notes receivable

26.6

31.9

Allowance for doubtful receivables

–17.1

–18.3

Total trade receivables

242.9

251.6

Marketable securities

All marketable securities were sold in 2004. As such, cumulative valuation losses
which were recognized in equity in previous years were included in the income
statement.

16

Share capital

The share capital of Forbo Holding AG amounts to CHF 54,263,040 at December
31, 2004 (2003: CHF 37,984,128), and is divided into 2,713,152 registeredshares with a nominal value of CHF 20 each (2003: 1,356,576 registered shares witha nominal value of CHF 28 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 2004
financial year. Changes in shares outstanding were as follows:
1.1.2004

Change31.12.2004

NumberNumberNumberChanges in shares outstanding
Total shares

1,356,576 1,356,576 2,713,152

Treasury shares
Shares with dividend right

20,171

Shares without dividend right

21,419Total treasury shares

41,590Total shares outstanding

37,66557,836

37,66579,255

21,4191,314,986 1,318,911 2,633,897

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Seite 82Long-term financial debt

2004

2003

m CHF

m CHF

Outstanding bonds

150.0

150.0

Outstanding private placements

312.1

343.2

Unamortized issuance cost

–2.9

–4.0

Total outstanding bonds and private placements

459.2

489.2

Unsecured bank loans

0.0

64.4

Unamortized cost syndicated bank facility

–0.5

–0.7

Lease obligations

1.7

2.1

Less current portion

–0.7

–0.8

Total long-term financial debt

459.7

554.2

2004

2003

m CHF

m CHF

Maturities of long-term financial debt
after 1 year

150.5

0.9

after 2 years

117.2

150.3

after 3 years

0.1

193.1

after 4 years

138.5

0.0

after 5 and more years

56.8

214.6

Unamortized cost

–3.4

–4.7

Total

459.7

554.2

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.

Outstanding bonds and private placements at 31.12.2004
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 31.12.2004
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 31.12.2004, thereby causing commitment fee costs only.

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Seite 83

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 obligationsof subsidiaries).

18

Employee benefit obligations

The Group has established several pension plans on the basis of the specificrequirements of the countries in which the Group has such plans. The Group has
both defined contribution and defined benefit plans.
The expense for contributions to defined contribution plans, which is includedin personnel expenses, amounted to CHF 5.2 million (2003: CHF 4.9 million). Details of the pension expense related to the major defined benefit plans are as
follows:
2004

Current service cost

2003

m CHF

m CHF

14.0

13.8

Interest on obligation

34.1

31.6

Expected return on plan assets

–33.6

–28.3

Recognized actuarial losses

–0.1

1.1

Net periodic pension cost

14.4

18.2

The actual return on plan assets was CHF 43.3 million(2003: CHF 64.3 million).
The amounts recognized in the balance sheet are as follows:
2004

2003

m CHF

m CHF

Present value of obligations

706.0

660.5

Fair value of plan assets–593.9–543.8Unrecognized actuarial losses

–34.9

–28.0

77.2

88.7

Unrecognized assets
Net liability in the balance sheet

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Seite 84

Movements in the net liability recognized in the balance sheet are as follows:
2004

Net liability at the beginning of the year

2003

m CHF

m CHF

88.7

68.9
16.5

First-time inclusion of Swiss pension plans as of 1.1.2003
Total pension expenses as included in personnel expenses

14.4

18.2

Employer contributions

–25.8

–18.7

Translation differences

–0.1

3.8

Net liability at the end of the year

77.2

88.7

2004

2003

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

19

%

%

Discount rate

4.8

5.0

Expected return on plan assets

6.1

6.0

Future salary increases

2.9

2.9

Provisions
Warranty Restructuringprovisions
provisions
m CHF
m CHF

At 31.12.2003

Environmental
provisions
m CHF

Provisions
legal cases
m CHF

Personnel
provisions
m CHF

Other
provisions
m CHF

Total
provisions
m CHF

8.6

21.3

7.4

0.4

0.0

0.9

4.0

Charges to the income statement

1.0

0.0

5.0

2.5

0.3

0.0

8.8

Utilized during the year

–0.3

0.0

0.0

0.0

0.0

–1.1

–1.4

Transfers

–0.1

–0.4

0.0

0.0

0.0

–1.0

–1.5

Translation differences

–0.1

0.0

0.0

–0.1

0.0

–0.1

–0.3

At 31.12.2004

7.9

0.0

5.0

3.3

4.3

6.4

26.9

Warranty provisions are made in connection with the sale of products andare based on past experience. As experience shows, the respective cash flows will
occur evenly over the warranty period of five to ten years. The restructuringprovisions relate to the acquisitions made in previous years and have been transferred to accrued expenses as the respective cash outflow is expected within
one year. The environmental provisions cover the expected remediation costs related to operations of previous years. The provisions for legal cases relate toproduct 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 the other provisions, are expected to result in a cash
outflow within the next five to ten years. The transfers reflect primarily reclassifications to accrued expenses.

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Seite 85

Trade payables

2004

m CHF

m CHF

Accounts payable

101.3

106.9

7.5

8.0

Total trade payables

108.8

114.9

Accrued expenses

2004

2003

m CHF

m CHF

Accrued personnel expenses

51.9

30.5

Fair value of financial derivatives

83.7

59.5

Other accruals

64.7

50.8

Total accrued expenses

200.3

140.8

Notes payable

21

2003

Other accruals comprise restructuring costs, accrued volume rebates, commissions, premiums, interest and accrued warranty cost and similar items. The increase of the accrued personnel expenses is primarly due to the closure of thecushion vinyl plant in Scotland.

22

23

Short-term financial debt

2004

m CHF

m CHF

Short-term bank loans and overdrafts

17.4

13.0

2003

plus current portion of long-term debt

0.7

0.8

Total short-term financial debt

18.1

13.8

Commitments and contingent liabilities

2004

2003

m CHF

m CHF

1.1

2.0

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.

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Seite 86

Income taxes

2004

2003

m CHF

m CHF

Current taxes

7.5

13.1

Deferred taxes

37.3

2.6

Total income taxes

44.8

15.7

Since the Group operates across the world, it is subject to income taxes inmany different tax jurisdictions. Consequently, the expected and the effective tax
expense will vary from year to year according to the source of earnings orlosses by country. As such the change of the expected tax rate (2004: 18 %, 2003:35 %) is primarily due to the change of the country specific composition of
the pretax results.
The main elements contributing to the difference between the Group’s overall
expected tax expense (calculated with the weighted average tax rate based on theincome before tax of each subsidiary) and the effective tax expense are:Analysis of tax expense

2004

2003

m CHF

m CHF

Loss/profit before taxes–112.6

31.8

Expected tax income/tax expense

–20.0

11.2

Non tax deductible expenses and tax exempt income

2.1

–1.3

Non tax deductible goodwill amortization

2.4

2.3

deferred tax assets have been recognized

29.2

8.1

Write-off of deferred tax assets

34.9

0.1

Recognition/utilization of tax losses which were not capitalized in prior years

–4.2

–2.9

Changes of deferred tax rates

–0.3

–1.0

Prior year adjustments

0.3

–4.0

Other items

0.4

3.2

Total income taxes

44.8

15.7

Tax effects of:

Tax losses and temporary differences for which no

Based on the strategy review during 2004 and the re-assessment of futuretaxable profits mainly in Germany and United Kingdom, respective write-offs ofdeferred tax assets were made.

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Seite 87

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:
2004

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:

More than five years

448.9

37.2

486.1

Total

506.3

40.5

546.8

Not capitalizedm CHF

Capitalized
m CHF

Total
m CHF

One year

2.0

1.2

3.2

Two years

2.2

1.4

3.6

Three years

3.9

0.2

4.1

Four years

8.5

5.3

13.8

Five years

17.2

9.1

26.3

More than five years

83.6

144.0

227.6

Total

117.4

161.2

278.6

2003
Expiry after:

CHF 1.9 million of unused operating tax loss carry forwards expired during
2004 (2003: CHF 0.2 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:
2004

2003

m CHF

m CHF

Deferred tax assets

23.5

61.5

Deferred tax liabilities

–6.0

–6.5

Deferred tax assets, net

17.5

55.0

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Seite 88

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

Deferred tax assets
At 31.12.2003

Inventories
m CHF

Tangible
assetsm CHF

Provisions
m CHF

Tax losscarry forwards
m CHF

Other
m CHF

Total
m CHF

8.4

4.0

8.3

52.0

2.5

75.2

0.2

1.7

4.8

–39.4

5.4

–27.3

Credited (+), charged (–)
to the income statement
Translation differences

0.0

0.0

0.0

–0.2

0.0

–0.2

At 31.12.2004

8.6

5.7

13.1

12.4

7.9

47.7

Inventories
m CHF

Tangible
assetsm CHF

Provisions
m CHF

Tax losscarry forwards
m CHF

Other
m CHF

Total
m CHF

–4.7

–12.7

–0.8

0.0

–2.0

–20.2

Deferred tax liabilities
At 31.12.2003
Credited (+), charged (–)

25

to the income statement

–0.7

–1.5

–1.8

0.0

–6.0

–10.0

Translation differences

0.0

0.0

0.0

0.0

0.0

0.0

At 31.12.2004

–5.4

–14.2

–2.6

0.0

–8.0

–30.2

Deferred tax assets at 31.12.2003, net

3.7

–8.7

7.5

52.0

0.5

55.0

Deferred tax assets at 31.12.2004, net

3.2

–8.5

10.5

12.4

–0.1

17.5

2004

2003

Translation of foreign currencies
2004

Currency

Income statement(average rates for the year)
CHF

CHF

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

CHF

Change%Euro countries

EUR 1

1.54

1.52

1

1.55

1.56

–1

Sweden

SEK 100

16.91

16.67

1

17.17

17.16

–

United Kingdom GBP 1

2.28

2.20

4

2.18

2.22

–2

USD 1

1.24

1.35

–8

1.14

1.25

–9

0.96

0.96

–

0.94

0.95

–1

1.15

1.16

–1

1.09

1.17

–7

USA

88 Forbo Financial Report 2004

2003

Canada

CAD 1

Japan

JPY

100

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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 accountthe 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 therisk exposure and the effectiveness of the applied hedging instruments. Also, Corporate Treasury advises the Finance Managers of the Group companies on
the management of 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).
All concluded 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 andsales of 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. These hedging transactions resulted in
the following open positions:
Number ofcontracts

Gross value
hedgedm CHF

Unrealized
gain/loss
m CHF

Forward contracts 31.12.2003

16

4,4

0,1

Forward contracts 31.12.2004

5

2,1

–0,1

Financial derivatives

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, 2004 amounts to CHF –0.1 million (CHF 0.1
million at December 31, 2003).
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.

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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 andin order to manage the duration of the interest rate fixings. As a rule, the Group
uses interest rate swaps and cross-currency interest rate swaps with maturities of up to seven years only. These hedging transactions resulted in the following
open positions:

Number ofcontracts

Gross value
hedgedm CHF

Unrealized
gain/loss
m CHF

Interest rate swaps and cross-currencyinterest rate swaps 31.12.2003

12

290.4

–59.5

Interest rate swaps and cross-currencyinterest rate swaps 31.12.2004

6

222,5

–83.7

Financial derivatives

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, 2004 amounts to CHF –83.7 million (CHF
–59.5 million at December 31, 2003).
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 ofcustomers 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.

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Related party transactions

The total compensation* to all non-executive members of the Board of Directors within the Forbo Group in 2004 was CHF 773,714 including compensations paid to six members of the Board of Directors. The Delegate of theBoard of Directors, who is at the same time chairing the Executive Board, received
a total compensation of CHF 1,072,274 in the year under review. This amountincludes all the remunerations; i.e. base salary, bonus, fringe benefits like pension
fund contributions, and payments in kind.
The total compensation* to eight Executive Board members in 2004 amounted
to CHF 4,450,567, with three members retiring in the period under review.
This amount includes the total compensation, i.e. base salary, bonus and payments
in kind, and the Delegate’s remuneration. To one member of the Executive
Board who stepped down from his function in March of the year under review
a severance payment of CHF 840,000 was paid. In addition, the amount of
CHF 200,000 was paid to this member for consultancy services rendered after
his retirement until the end of 2004.
In addition to the compensations mentioned above 559 Forbo shares with a market value of CHF 150,092 were allotted to the members of the Board of Directors, and 421 Forbo shares with a market value of CHF 165,874 were allottedto the members of the Executive Board in the year under review.
In the year under review, a total of CHF 1,075,313 was paid for consultancy
services to lawyers Bär & Karrer in Zurich. Prof. Dr. Rolf Watter, member of theBoard, has been a partner of that lawyers’ office for several years.
The Group owns 25 % of Enia Carpet Group and granted a loan of CHF 19.0
million. The interest rate is 4.5 % and interest income amounted to CHF 0.9
million (2003: CHF 0.9 million). In 2004 the Group purchased products for CHF
5.7 million (2003: CHF 5.9 million) from Enia Carpet Group, whereas Enia
Carpet Group purchased products for CHF 4.5 million (2003: CHF 2.7 million)
from Forbo Group. These sales were made at arms’ length. Please see also
page 80, note 12 ‘Investments in associates and other long-term assets’.
*In accordance with SWX corporate governance directive

28

Events after balance sheet date

On March 8, 2005 AFB Investment S.A. Luxembourg submitted a public purchase offer for all the outstanding shares of Forbo Holding AG. The offered priceamounts to CHF 260 net per share with a nominal value of CHF 20. The Boardof Directors has decided to recommend to the shareholders of Forbo to accept the
public purchase offer, provided no competing offer from another bidder witha higher offer price is being published.
The 2004 consolidated financial statements of the Forbo-Group were approvedby the Board of Directors of Forbo Holding AG on March 17, 2005. The consolidated financial statements are also subject to approval by the Annual General
Meeting of Shareholders.

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Flooring

AUD

1,400,000

100%

S

Peter Duncan

AUD

3,000,000

100%

ViennaFranz Kahr

EUR

73,000100%

Forbo Industrieprodukte Ges.m.b.H.

ViennaPeter Kraft

EUR

72,700100%

Siegling Austria Ges.m.b.H.

ViennaErich Knoll

EUR

330,000

100%

Forbo-Balco BV BA

DendermondeToon A.T. Burghouts

EUR

20,000100%

N.V. Forbo Linoleum S.A.

Groot-BijgaardenFrank van der Velde

EUR

250,000

100%

S

Forbo Linoleum Ltda.

Itapevi-SP

Walter Gianfaldoni

BRL

10,000100%

S

Siegling Brasil Ltda.

Itapevi-SP

Carlos Oslaj

BRL

7,168,000

50%

Forbo Adhesives (Canada) Ltd.

St. John

Jack L. Chambers

CAD

3,500,157

100%

Forbo Linoleum Inc.

TorontoDenis P. Darragh

CAD

500,000

100%

Siegling Canada Ltd.

TorontoRick Zingel

CAD

501,000

100%

PragueTomás Kudera

CZK

500,000

100%

S

Forbo Flooring A/S

Glostrup

Jens-Christian Holm Iversen

DKK

500,000

100%

S

Siegling Danmark A/S

Brøndby

Björn Gunnar Andersson

DKK

1,000,000

100%

Esbo

Jukka Koskinen

EUR

25,253

100%

MS

Forbo Helmitin SAS

Surbourg

José Castillo

EUR

3,050,000

100%

MS

Forbo Participations SAS

Surbourg

Christian Barreau

EUR

11,524,800

100%

Forbo Sarlino SAS

Reims

Alain Réquillart

EUR

6,400,000

100%

Forbo Swift Adhesives SAS

Blois

Christian Barreau

EUR

800,000

100%

Siegling France SAS

Lomme

Egbert J. van Heerikhuizen

EUR

819,000

100%

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

Reims

Alain Réquillart

EUR

3,092,000

100% M S

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

Reims

Alain Réquillart

EUR

3,447,000

100% M S

Company

Registered office

General management

Forbo Floorcoverings PTY. Ltd.

Wetherill Park, N.S.W.

Angus Fotheringhame

Siegling Australia PTY. Ltd.

Wetherill Park, N.S.W.

Forbo Contel Handelsges.m.b.H.

Adhesives

Equity interest

Group Companies(December 31, 2004)

Holding/Services

4.4.2005

Belting

30290_forbo_fb_04_ih_e_026.qxd

Share capital

Australia
D

S

AustriaS
S
S

BelgiumS

BrazilN

MS

CanadaMS
S
SCzech Republic
Forbo s.r.o.

DenmarkMS

FinlandOy Forbo Swift AB

France92 Forbo Financial Report 2004

D

H
S
MS
S

Company

Registered office

General management

Forbo Adhesives Automotive GmbH

Mannheim

Robert Tonolla

Forbo Beteiligungen GmbH

Waldshut-Tiengen

Gerold A. Zenger

Forbo Erfurt GmbH

ErfurtRüdiger Beez

Holding/Services

Belting

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4.4.2005

Equity interest

30290_forbo_fb_04_ih_e_026.qxd

Share capital

GermanyD

EUR

30,000100%

EUR15,400,000

100%

EUR

2,050,000

100%

Forbo Flooring GmbH

Paderborn

Elmar Schmidt

EUR

500,000

100%

Forbo Helmitin GmbH

Pirmasens

Robert TonollaPeter Kraft

EUR

5,120,000

100%

Forbo Novilon GmbH

Frankfurt am Main

Hans-Heinrich Kuhn

EUR

1,030,000

100%

Paul Heinicke GmbH & Co KG

Pirmasens

Peter Kraft

EUR

1,023,000

100%

D

S
H
MS
S
MS

S
H

Realbelt GmbH

Velen

Friedrich Konrad

EUR

100,000

100%

S

Siegling GmbH

HanoverDr. Neele Neelen

EUR

10,230,000

100%

MS

AthensPeter Garyfallou

EUR

895,000

100%

MS

S

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

Hungary
Forbo Swift Adhesives Hungary Kft.

Budapest

András Mádi

HUF

3,000,000

100%

Siegling Hungária Kft.

Budapest

Juraj Fogarassy

HUF

30,000,000

100%

Forbo Ireland Ltd.

DublinDerek F. Byrne

EUR

125,000

100%

Siegling Ireland Ltd.

DublinKevin John Richardson

EUR

25,400100%

Waller & Wickham Ltd.

DublinKevin Wickham

EUR

2,540

100%

S

Ireland
S
S
S

Italy
Forbo Adhesives Italia S.p.a.

Pianezza (Vicenza)

Eros Mori

EUR

416,000

100%

Forbo Resilienti S.r.l.

MilanoSergio de Conto

EUR

60,000100%

Siegling Italia S.p.a.

Paderno Dugnano

Dr. Marco Tommasi

EUR

104,000

100%

S

Tokyo

Marco A. Crivelli

JPY

330,000,000

100%

MS

St. Helier

Denise Turpin

GBP

25,000100%

Johor Bahru

Marco A. Crivelli

MYR

2,500,000

100%

Tlalnepantla

Ricardo Bolado

MXP

19,320,000

100%

S

ZaanstadJos H. den Ronden

EUR

454,000

100%

MS

Forbo Linoleum B.V.

KrommenieDrs. Pieter Hartog/Paul de Ruiter

EUR

11,345,000

100% M S

Forbo NL Holding B.V.

KrommenieDrs. Pieter Hartog

EUR

13,500,000

100%

Forbo Novilon B.V.

Coevorden

Drs. Pieter Hartog/Paul de Ruiter

EUR

3,630,000

100% M S

Forbo Swift Adhesives Nederland B.V.

GenderenToon A. T. Burghouts

EUR

27,000100%

Siegling Nederland B.V.

Driebergen

Egbert J. van Heerikhuizen

EUR

113,000

100%

MS
S

Japan
Siegling (Japan) Ltd.

Jersey, C. I.
Forbo Invest Ltd.

D

H

Malaysia
Siegling Malaysia SDN. BHD.

S

MexicoSiegling Mexico S.A. de C.V.

MS

Netherlands
Eurocol B.V.

H

MS
S

Forbo Financial Report 2004

93

Company

Registered office

General management

AucklandJohn Lumley

Asker

Morten Aarhus

Fargo Chemicals Marketing Ltd.

Hong Kong

Pierfranco Di Gioia/
Christian Barreau

Forbo Siegling (Shenyang)
Belting Co. Ltd.

Shenyang

Forbo Swift Adhesives Poland
Sp. z o.o.
Forbo Techniki Budowlane
Polska Sp. z o.o.

Holding/Services

Belting

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Equity interest

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Share capital

New ZealandSiegling Stedar Belting Ltd.

NZD

650,000

100%

D

NOK

1,000,000

100%

N

HKD

200,000

50%

Marco A. Crivelli

CNY146,391,000

100%

Warszawa

Andrzej Trojecki

PLZ

50,000100%

SWarszawa

Jos H. den Ronden

PLZ

2,100,000

100%

S

Forbo-Revestimentos S.A.

Porto

Henrique M. Santos Jr.

EUR

75,000100%

Siegling (Portugal) Lda.

Gemunde (Maia)

José A. Pereira de Azevedo

EUR

335,000

100%

OradeaPeter Kraft

ROL

70,770,000

100%

St. Petersburg

Alexander Petrakovski

RUB

411,000

100%

S

MalackyDr. Michael Bätz

SKK

200,000

100%

S

Forbo Adhesives Spain S.L.U.

Mos (Pontevedra)

José Castillo

EUR

15,006

100%

Forbo Pavimentos S.A.

Barcelona

Agustin Matamoros

EUR

60,000100%

Siegling Iberica S.A.

Montcada i Reixac

José Flor Garre

EUR

1,533,000

100%

Forbo Flooring AB

Gothenburg

Lars Ivar Norén

SEK8,000,000

100%

Forbo Parquet AB

Tibro

Christer Engelbrektsson

SEK

20,000,000

100% M S

Forbo Project Vinyl AB

Gothenburg

Christer Engelbrektsson

SEK

50,000,000

100% M S

Forbo Swift Sweden AB

Gothenburg

Mark McDonnell

SEK

100,000

100%

Siegling Svenska AB

MölndalBjörn Gunnar Andersson

SEK

1,000,000

100%

Enia Carpet Group AG

EnnendaDr. Benjamin J. Fuchs

N

CHF

3,000,00025%HFJK Carpet D GmbH

EnnendaDr. Benjamin J. Fuchs

N

CHF

20,00025%

H

Forbo Finanz AG

Eglisau

Gerold A. Zenger

D

CHF

10,000,000

100%

H

Forbo Giubiasco SA

Giubiasco

Dr. Stefan Krummenacher

D

Forbo Immob AG

Eglisau

Walter Ruf

Forbo International SA

Eglisau

This E. Schneider

S

NorwayForbo Flooring A/SSPeople’s Republic of China
S

MS

PolandPortugal
S
S

Romania
SC Forbo Helmitin Romania S.R.L.

S

RussiaSiegling (ZAO)

Slovakia
Siegling s.r.o.

Spain
MS
S
S

Sweden
D

D

S

S
S

Switzerland

94 Forbo Financial Report 2004

D

CHF

10,000,000

100% M S

CHF

1,700,000

100%

CHF

100,000

100%

H
MS MS

H

Company

Registered office

General management

LondonDerek F. Byrne

Holding/Services

Belting

Seite 95

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4.4.2005

Equity interest

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Share capital

United Kingdom
Forbo Nairn Ltd.
Forbo Swift Adhesives Ltd.

ChatterisMark McDonnell

Forbo UK Ltd.

LondonMargo Main

Siegling (UK) Ltd.

London

GBP

8,000,000

100% M S

GBP

100

100%

GBP

32,500,000

100%

Kevin Richardson

GBP

50,774100%

Durham, NC

Jack L. Chambers

USD

100

100%

Forbo America Inc.

Wilmington, DE

Eugene M. Chace

USD

19,957,258

100%

H

Forbo America Services Inc.

Wilmington, DE

Eugene M. Chace

USD

50,000100%

H

Forbo Finance Inc.

Wilmington, DE

Eugene M. Chace

USD

100,000

100%

H

Forbo Linoleum Inc.

Hazelton, PA

Denis P. Darragh

USD

3,517,000

100%

Siegling America LLC

Huntersville, NC

Wayne Hoffman

USD

15,455,100

100%

D

MS
H
S

USA
Forbo Adhesives LLC

S
MS
H
N
D

D

MS

S
MS

Sales
Manufacturing and Sales
Holding/Services
Not included in the
consolidation
Direct participationsof Forbo Holding AG

Forbo Financial Report 2004

95

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Seite 96

Report of the Group Auditors

Report of the Group Auditors
to the General Meeting of
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 changes in shareholders’equity
and notes to the consolidated financial statements) on pages 63 to 95 of Forbo
Holding AG for the year ended December 31, 2004.
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 auditing standards promulgatedby the Swiss profession and with the International Standards on Auditing, which
require that an audit be planned and performed to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts
and disclosures in the consolidated financial statements. We have also assessed theaccounting principles used, significant estimates made and the overall consolidated financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements give a true and fair view ofthe financial position, the results of operations and the cash flows in accordancewith 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

Zurich, March 17, 2005

96 Forbo Financial Report 2004

Thomas Lenz

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Seite 97

Consolidated Income Statements 2000–2004
2004

2003

2002

2001

2000

m CHF

m CHF

m CHF

m CHF

m CHF

Net sales

1,622.3

1,598.9

1,531.1

1,485.1

1,776.8

Cost of goods sold–1,092.5–1,091.3–1,017.4–962.7–1,143.2

Gross profit

529.8

507.6

513.7

522.4

633.6

Development costs

–32.1

–28.9

–24.2

–22.0

–29.8

Marketing and distribution costs–285.1–287.5–277.2–288.6–333.6

Administrative costs–143.6–122.2–119.6–116.6–129.8Other operating expenses–113.5

–8.6

–4.3

–6.3

–9.8

Operating loss/profit

130.6

–44.5

60.4

88.4

88.9

Financial income

4.2

7.9

5.0

3.4

16.8

Financial expenses

–49.8

–37.3

–29.2

–19.4

–21.3

22.5

0.8

–0.7

0.0

0.0

–112.6

31.8

63.5

72.9

126.1

Taxes

–44.8

–15.7

–20.9

–21.1

–35.4

Net loss/profit for the year

–157.4

16.1

42.6

51.8

90.7

Share of result of associated companies
Loss/profit before taxes

Forbo Financial Report 2004

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Seite 98

Consolidated Balance Sheets 2000–2004
2004

2003

2002

2001

2000

Assets
m CHF

m CHF

m CHF

m CHF

m CHF

Long-term assets

612.2

812.9

875.1

716.4

778.9

Tangible assets

443.5

558.8

586.9

576.1

675.0

Intangible assets

143.0

163.9

178.6

23.2

19.4

Deferred taxes

23.5

61.5

65.6

72.7

65.1

Investments in associates and other long-term assets

2.2

28.7

44.0

44.4

19.4

Current assets

904.4

750.9

725.5

615.2

747.7

Inventories

255.2

247.9

255.9

227.0

260.7

Trade receivables

242.9

251.6

254.8

202.6

243.4

Other receivables

28.7

34.9

27.0

30.1

41.3

Prepaid expenses and deferred charges

30.8

27.8

35.4

29.0

19.2

Marketable securities
Cash and cash equivalents
Total assets

0.0

18.9

23.9

33.8

45.5

346.8

169.8

128.5

92.7

137.6

1,516.6

1,563.8

1,600.6

1,331.6

1,526.6

2004

2003

2002

2001

2000

Shareholders’ equity and liabilities
Shareholders’ equity

m CHF

m CHF

m CHF

m CHF

572.5

590.6

652.2

813.9

Share capital

54.3

38.0

67.8

75.7

75.7

Treasury shares

–12.6

–7.7

–11.7

–155.2–8.2

Reserves and retained earnings

536.9

542.2

534.5

731.7

746.4

Long-term liabilities

569.8

670.7

638.6

252.8

275.2

Long-term financial debt

459.7

554.2

539.3

164.5

145.1

Employee benefit obligations

77.2

88.7

68.9

69.8

88.0

Provisions

26.9

21.3

22.6

16.4

39.2

Deferred taxes

6.0

6.5

7.8

2.1

2.9

Current liabilities

368.2

320.6

371.4

426.6

437.5

Trade payables

108.8

114.9

107.3

79.4

90.2

Accrued expenses

200.3

140.8

102.7

80.9

88.7

Short-term financial debt

18.1

13.8

98.5

197.2

194.7
16.0

Current tax liabilities

6.1

7.9

14.0

14.1

Other current liabilities

34.9

43.2

48.9

55.0

47.9

Total liabilities

938.0

991.3

1,010.0

679.4

712.7

1,516.6

1,563.8

1,600.6

1,331.6

1,526.6

Total shareholders’ equity and liabilities

98 Forbo Financial Report 2004

m CHF

578.6

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Financial Statements of Forbo Holding AG

Forbo Financial Report 2004

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Seite 100

Income Statement of Forbo Holding AG
2004

2003

Notes

CHF

CHF

from investments in and advances to Group companies

1

23,842,964

31,879,666

from securities and short-term investments

2

649,349

5,310,232

IncomeIncomeIncome from services and other sources
Total income

197,022

5,972

24,689,335

37,195,870

2004

2003

Expenses
Notes

CHF

CHF

Administrative expenses

3

4,799,275

2,259,474

Financial expenses

4

10,308,878

9,473,773

276,810

346,9285

86,821,848

9,728,043

Total expenses

102,206,811

21,808,218

Net loss/profit for the year

–77,517,476

15,387,652

Taxes
Valuation adjustments

100 Forbo Financial Report 2004

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Seite 101

Balance Sheet of Forbo Holding AG(before appropriation of available earnings)
31.12.2004

31.12.2003

Assets
Notes

Long-term assets
Investments in Group companies

6

Advances to Group companies

7

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

8

CHF

CHF

408,174,057

534,628,153

255,015,375

339,854,375

153,158,682

194,773,778

203,065,647

31,917,571

1,917,592

1,258,685

26,358404,201

1,175,058

1,645,883
18,555,069

Marketable securities

9

0

Cash

10

199,946,639

10,053,733

611,239,704

566,545,724

31.12.2004

31.12.2003

Total assets

Shareholders’ equity and liabilities
Notes

Shareholders’ equity
Share capital

11/12

CHF

CHF

391,854,564

287,035,726

54,263,040

37,984,128

Statutory reserves:
15,600,000

15,600,000

Reserve for own shares

13

14,543,317

9,103,691

Other reserves

14

306,890,227

146,272,451

Profit carried forward

78,075,456

62,687,804

Net loss/profit for the year

–77,517,476

15,387,652

Liabilities

219,385,140

279,509,998

General reserves

Available earnings:

Long-term provisions

15

28,000,000

28,000,000

Bond issues

16

150,000,000

150,000,000

Long-term bank debt

17

Advances from Group companies
Other liabilities to Group companies
Current liabilities to third parties
Accrued expenses
Total shareholders’ equity and liabilities

064,440,000

32,466,000

32,760,000

726,148

85,78332,536

46,983

8,160,456

4,177,232

611,239,704

566,545,724

Forbo Financial Report 2004

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Seite 102

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 23.8 million (previous year: CHF 31.9 million) and consists of interest anddividend income.
2

Income from securities and short-term investments

This item includes income from short-term investments of CHF 0.2 million(previous year: CHF 0.2 million), dividend income of CHF 0.3 million (previous
year: CHF 0.5 million) as well as valuation gains of CHF 0.1 million (previous
year: CHF 4.6 million).
3

Administrative expenses

Administrative expenses amount to CHF 4.8 million which is CHF 2.5 million
more than in the previous year mainly due to higher consulting and service cost.
4

Financial expenses

Financial expenses of CHF 10.3 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

Valuation adjustments

Valuation adjustments of CHF 86.8 million (previous year: CHF 9.7 million)
relate mainly to investments in and loans to Group companies in connection withrestructurings and value adjustments at Group companies.
6

Investments in Group companies

As of December 31, 2004 Forbo Holding AG held the following direct investments:

Company
Forbo Floorcoverings PTY. Ltd. AU-Wetherill Park, N.S.W.

Activity

Currency

Share capitalin 1,000

Equityinterest

Sales

AUD

1,400

100 %

Forbo Participations SAS

FR-Surbourg

Holding/Services

EUR

11,525100 %Forbo Beteiligungen GmbH

DE-Waldshut-Tiengen

Holding/Services

EUR

15,400100 %Paul Heinicke GmbH & Co KG

DE-Pirmasens

Services

EUR

1,023

72 %

Forbo Invest Ltd.

GB-St. Helier

Services

GBP

25

50 %

Forbo Flooring A/S

NO-Vettre

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-Eglisau

Holding/Services

CHF

10,000100 %Forbo Giubiasco SA

CH-Giubiasco

Manufacturing and Sales

CHF

10,000100 %Forbo International SA

CH-Eglisau

Services, Manufacturing

CHF

100

100 %

and Sales

Forbo UK Ltd.

GB-London

Holding/Services

GBP

32,500100 %Forbo America Inc.

US-Wilmington, DE

Holding/Services

USD

19,957100 %The decrease of investments in Group companies compared to the previous
year amounts to CHF 84.8 million and is mainly attributable to value adjustments
at Group companies.

102 Forbo Financial Report 2004

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Seite 103

Advances to Group companies

Advances to Group companies are denominated in Swiss Francs and foreign
currencies. There was a CHF 41.6 million decrease over the previous year’s figure.
8

Prepaid expenses and deferred charges

Prepaid expenses and deferred charges include, besides the usual items, capitalized
cost of CHF 1.0 million (previous year: CHF 1.6 million) incurred in connection with the 4 1⁄ 8 % bond issue 2001–2006 and the syndicated bank facility. These
costs are amortized over the respective terms.
9Marketable securities

All marketable securities were sold in 2004.
10

Cash

This item consists of cash and cash equivalents with original maturities of threemonths or less.
11

Share capitalAt the end of 2004 the Company’s share capital amounts to CHF 54,263,040(previous year: CHF 37,984,128) and is divided into 2,713,152 registered shareswith a nominal value of CHF 20 each (previous year: 1,356,576 registeredshares with a nominal value of CHF 28 each). In the context of a cash distribution
the nominal value per share of CHF 28 was reduced by CHF 8 during theyear. In addition, a share capital increase of 1,356,576 registered shares with a nominal value of CHF 20 each and an issuance price of CHF 150 was executed in
December 2004. 21,419 shares without voting and dividend rights are at the disposition of the Board of Directors. Accordingly, 2,691,733 registered sharescarry dividend rights for the 2004 financial year. The shares are listed on the SWX
Swiss Exchange with security number 354 151.
12

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

options and warrants in connection with a with-warrants bond issue was createdby resolution 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 pershare in 2004 the conditional capital at December 31, 2004 amounts to CHF 3,329,000(previous year: CHF 4,660,600).
13

Reserve for own shares

The CHF 14,543,317 included at year end under ‘Reserve for own shares’ referto own shares held by Forbo Holding AG and its subsidiaries valued at cost. Detailsof own shares are as follows:

CHF

No. of registeredshares nominal
CHF 28/20

Total at 1.1.2004

9,103,691

41,590Additions in connection with capital increase

5,974,350

39,829Own shares

Cost

Other additions

384,070

1,000

Disposals–747,306–3,164

Nominal value reduction
Total at 31.12.2004–171,488
14,543,317

79,255*

Forbo Financial Report 2004

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Other reserves

14

Other reserves showed a year-on-year net increase of CHF 160.6 million, which
is mainly attributable to the additional paid-in capital in connection with the capital increase (CHF 166.0 million) and a transfer to ‘Reserve for own shares’(CHF 5.4 million).
Long-term provisions

15

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

16

The 4 1⁄ 8 % bond issue 2001–2006 of CHF 150.0 million is due for redemption on
June 8, 2006.
Long-term bank debt

17

The mid-term syndicated bank facility of totally CHF 150.0 million was undrawn
as of December 31, 2004.
Contingent liabilities

18

Guarantees and letters of support issued to third parties in favor of Group
companies amount to CHF 462.9 million at year end, of which CHF 395.8 million(previous year: CHF 399.6 million) are utilized. Most of this relates to guarantees to investors in connection with funds raised by a Group company in theform of a US private placement (CHF 312.1 million) and guarantees in connection with utilized swap facilities.
Significant shareholders

19

Name

Number

Percentage 1)

Notification date of 2)

The Capital Group Companies Inc.
333 South Hope Street
Los Angeles, CA 90071

–

–

3)

March 17, 2005

UBS Fund Management(Switzerland) AG
Postfach, 4002 Basel

–

–

3)

February 4, 2004

69,823

5.15

141,140

10.4

December 20, 2004

239,160

8.81

December 24, 2004

Brandes Investment Partners LLC
11099 El Camino Real, Suite 500
P.O. Box 919048
San Diego, CA 92191-9048

68,601

5.05––

Michael Pieper
Seestrasse 80, 6052 Hergiswil

68,126

5.02

December 15, 2004

271,771

10.01

December 23, 2004

544,571

20.07

January 28, 2005

220,000

8.1

March 8, 2005

Tweedy, Browne Company LLC
New York (USA)350 Park Avenue
New York, NY 10022

Franke Holding AG
Dorfbachstrasse 2, 4663 Aarburg
Michael Pieper
Seestrasse 80, 6052 Hergiswil

April 2, 2004 4)

November 2, 2004 4)
3)

January 17, 2005

Franke Holding AG
Dorfbachstrasse 2, 4663 Aarburg
Franke Beteiligungen I
Seestrasse 80, 6052 Hergiswil
Rudolf Maag
Neuhofweg 114102 Binningen
1)

Percentage as at the date of publication in the Swisscommercial gazette (SHAB)
Date of publication in the Swiss commercial gazette(SHAB)
3) Below 5 % threshold4) Before capital increase2)

104 Forbo Financial Report 2004

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Proposal for Appropriationof Available Earnings Forbo Holding AG
The Board of Directors proposes to the Annual General Meeting of Shareholders
that the available earnings, consisting of:
2004

2003

CHF

CHF

Net loss/profit for the year

–77,517,476

15,387,652

Profit carried forward from the previous year

78,075,456

62,687,804

557,980

78,075,456

2004

2003

Total available earnings

be appropriated as follows:

CHF

CHF

To be carried forward to the following year

557,980

78,075,456

Total

557,980

78,075,456

Forbo Financial Report 2004

105

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Seite 106

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) on pages 100 to 104
of Forbo Holding AG for the year ended December 31, 2004.
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
qualifications and independence.
Our audit was conducted in accordance with auditing standards promulgatedby the Swiss profession, which require that an audit be planned and performed
to obtain reasonable assurance about whether the financial statements are freefrom 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, the 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

Zurich, March 17, 2005

106 Forbo Financial Report 2004

Thomas Lenz

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Photos: Markus Senn, Biel
Typesetting, Litho and Printing: Neidhart + Schön AG, ZurichConception and Design: Gottschalk + Ash Int’l

Imprint
Publisher: Forbo Holding AG, Eglisau Zurich
Editing: The Investor Relations Firm AG, Zurich

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March 2005

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Forbo Holding AG
CH-8193 Eglisau Zurich
Telephone +41 44 868 25 50
Fax +41 44 868 25 51
E-Mail info@forbo.com
www.forbo.com
Forbo International SA
CH-8193 Eglisau Zurich
Telephone +41 44 868 25 25
Fax +41 44 868 25 26

E-MailInvestor Relations
Gerold A. Zenger
gerold.zenger@forbo.com

E-MailCorporate Communications
Corina Atzlicorina.atzli@forbo.com