Forbo Annual Report 2007
flooring systems.

bonding systems.

movement systems.

flooring.bonding.movement.

Financial calendar
Ordinary General Meeting:

Our Annual Report is publishedin German language and in
an English language translation.

April 25, 2008

Letter to shareholders:August 19, 2008

Media release on the results in the first half of 2008:

August 19, 2008

Annual Report 2007

Contents

Forbo Annual Report 2007
4

Portrait

5

Financial Overview Group6

To our Shareholders

8

Forbo Group:
Significant Margin Improvements in all Divisions

14

Flooring Systems:
Rewards for our consistent Strategy

20

Bonding Systems:
Focus on Efficiency and Margin Management

26

Movement Systems:
Sustained Success as Strategy is implemented

32Group Structure

33

Executive Board

37

Corporate Governance

56

The Forbo Share
Forbo Group Financial Report

60

Consolidated Income Statement

61

Consolidated Balance Sheet

62

Consolidated Cash Flow Statement

63

Consolidated Statement of
Recognized Income and Expenses

64

Group Accounting Policies

75

Notes

105

Group Companies

109

Report of the Group Auditors

110

Consolidated Income Statements 2003 – 2007

111

Consolidated Balance Sheets 2003 – 2007
Financial Statements of Forbo Holding Ltd

113

Income Statement

114

Balance Sheet

115

Notes to the Financial Statements

120

Proposal for Appropriation of Available Earnings

121

Report of the Statutory Auditors

2Highlights

Over the two billion
net sales markWell above EBIT
margin target
Best result in
Forbo’s history

3

Signiﬁcant increasein cash payout
to shareholders
Low net debt
10 percent of own
shares held

4
Portrait

Forbo is a leading producer of flooring systems, adhesives andchemical bonds, as well as power transmission and conveyor belt
solutions. The company employs about 6,000 people and has
an international network of 31 production companies with distribution, and 42 sales organizations in a total of 34 countries.
Forbo is headquartered in Baar in the canton of Zug, Switzerland.

In the 2007 business year, Forbo
successfully implemented its brandstrategy aimed at creating a masterbrand and is now present on themarket as one Group with three corecompetencies.

Forbo Flooring Systems
Flooring Systems provides a broad product range of environmentally friendly linoleum,high-quality vinyl floor coverings, as well as needlefelt and parquetry. Thanks to their
excellent attributes and attractive designs, these floorings are invariably the first choicefor public buildings, hospitals, schools, commercial offices and for applications in theresidential market. With a market share of well 65 percent, Forbo is the world leader inlinoleum.
Forbo Bonding Systems
Bonding Systems is among the world’s leading suppliers of industrial adhesives. Its highperformance products ensure stable and durable bonding and are suitable for a wide
range of materials in key markets such as paper processing, the shoe and textile industries,
automotive interior trims, furniture, product assembly as well as laminates. Bonding
Systems also provides ready-made adhesives for laying flooring and tiles as well as welding
rods and leveling compounds for the construction industry. The third business area issynthetic polymers which is specializing in emulsion polymers to customers for various
markets such as the adhesives, paint, coating and construction industries.
Forbo Movement Systems
Movement Systems is a global industry leader providing top-quality power transmission
belts, conveyor and processing belts as well as plastic modular, timing and flat belts
made of synthetic materials. These products are known under the brand name Siegling.
They are used in a wide range of applications in industry, trade and the service sectors,
e.g. as conveyor and processing belts in the food industry, as treadmill belts in fitness
studios or as flat belts in mail distribution centers.

Mo
vem

ent

Sys
tem

Flooring Systems

Net sales by division
Change on previous year
CHF m

s

Bon
e
yst
gS
ms
Corporate Functions
Flooring Systems

steSy

currency
adjusted %%Flooring Systems

864.4

8.8

5.5

43.1

Bonding Systems

763.7

4.5

3.4

38.1

Total

375.9

6.1

5.6

18.8

2,004.0

6.6

4.7

100.0

Change2006/2007 %%Employees by division
Numberms

Bont

effective %Movement Systems

din

nd
ing

M

e
em
ov

2007

2007

ste
Sy
ms

Flooring Systems

2,457

5.4

40.7

Bonding Systems

1,540

1.9

25.5

Movement Systems

2,002

3.9

33.1

Corporate Functions

41

0.0

0.7

6,040

4.1

100.0

Total

5
Financial Overview Group

2007

2006

2007

2006

Income statement

CHF m

CHF m

EUR m2)

EUR m2)

Net sales

2,004.0

1,879.5

1,218.2

1,194.1

Flooring Systems

864.4

794.2

525.2

504.6

Bonding Systems

763.7

731.1

464.3

464.5

Movement Systems

375.9

354.2

228.5

225.0

EBITDA

221.9

182.3

134.9

115.8

EBIT

162.4

109.6

98.7

69.6

Group profit

110.7

61.2

67.3

38.9

Balance sheet

CHF m

CHF m

EUR m2)

EUR m2)

Total assets

1 405.2

1 498.6

854.2

952.1

Operating assets

1 201.6

1 181.9

730.5

750.9

Shareholders’ equity

713.1

638.6

433.5

405.7

Net debt

41.6

43.3

25.3

27.5

Cash ﬂow statement

CHF m

CHF m

EUR m2)

EUR m2)

Cash flow from operating activities

165.3

157.3

100.5

99.9

Cash flow from investing activities

76.6

67.0

46.6

42.6

Free cash flow

88.7

90.3

53.9

57.4

Key ﬁgures

%

%

11.1

9.7

ROS (EBITDA / net sales)
ROA (EBIT / operating assets)

13.5

9.3

Equity ratio (shareholders’ equity / total assets)

50.7

42.6

Gearing (net debt / shareholders’ equity)

5.8

6.8

NumberNumber

Employees (as of December 31)

6,040

5,800

Details per share

CHF

CHF

EUR2)

EUR2)

Earnings (undiluted)

43.64

23.60

26.50

15.00

Equity

281.1

246.3

170.9

156.5

Par value reduction

10.0

1)

6.0

6.1

1)

3.8

Stock market capitalization (as of December 31)

CHF m

CHF m

EUR m2)

EUR m2)

1,717.0

1,252.5

1,043.8795.7

1) Proposal of the Board of Directors to the Ordinary General Meeting.
2) EUR values translated at the annual average rate of CHF 1.645 / 1 EUR (2007) and CHF 1.574 / 1 EUR (2006).

6
To our Shareholders

Dear Ladies and Gentlemen,
The reorientation of all three divisions initiated three years ago
and the systematic implementation of the strategy had their full
impact in the year under review. Profitable growth was driven
by close cooperation with our customers, high-quality products
and customer-focused services. Net sales broke through thetwo billion mark. Thanks to clear and rapidly implemented measures
to increase productivity in all divisions, Forbo was able to offset
the strong rise in raw material and energy prices to a large extent.
In the year under review, we benefited both from the investments
made in recent years to build up key growth markets and from thefavorable general economic growth, which has underpinned ourefforts to strengthen the Group.

Net sales increases in all three divisions
Profitable, organic growth predominates
In the past year, the Group again focused on enhancing profitable activities. Net sales
increased by 6.6 % from CHF 1,879.5 million to CHF 2,004.0 million. 4.7 % of this increase wasbased on organic growth and 1.9 % came out of currency exchanges. All three divisions
contributed to this positive result.
Signiﬁcant margin improvements in all activities
Margin target clearly exceeded
All three divisions reported significantly higher margins owing to profitable, organic growth
and the continuous focus on high-margin products, combined with effective measures toincrease productivity.
Forbo considerably beat the EBIT margin target of 6 % to 7 % for 2007 – announced backin 2004 – with a margin of 8.1 % in 2007 (previous year: 5.8 %). Operating profit before
depreciations and amortizations (EBITDA) increased by 21.7 % to CHF 221.9 million versus theprevious year. Operating profit (EBIT ) rose by 48.2 % to CHF 162.4 million.
The best result ever achieved by Forbo
Record net income
Net income increased significantly compared with the previous year from CHF 61.2 million
to CHF 110.7 million by 80.9 %. It was thus well ahead of the previous net income recordof CHF 90.7 million set in 2000, and represents the best year ever in the company’s history.
Forbo holds close to 10 percent of own shares
Significant holding of treasury shares
Also in the year under review, Forbo used a substantial part of its liquidity to acquire own
shares for possible acquisitions or stock option plans. By year-end, Forbo held 9.6 % of
the company’s shares. Valued at year-end 2007, the shares represented a value of about
CHF 182 million.
Despite these share purchases, the Group’s net debt is only just CHF 41.6 million.

7

Proposals to the Ordinary General Meeting
Substantial increase in distribution
The Group’s dividend policy is geared to the profit development of the Group. Given theincrease in operating profit, the Board of Directors proposes to the Ordinary General Meetingthat the cash distribution be increased from CHF 6 to CHF 10 per share. This distribution is
to take place in the form of a reduction in par value.
Share buyback program of up to 10 percent planned
The Board of Directors intends to buy back up to 10 % of the company’s own shares in thenext two to three years in order to reduce share capital, thus enabling it to return to shareholders capital not needed for operations.
Given the low level of net debt, the repurchase of almost 10 percent of the Group’s own
shares to date and a cash flow that is expected to remain strong, a share buyback programon this scale would not restrict options for external growth. The Board of Directors
reserves the right, however, to interrupt or discontinue the share buyback program should
the cash be needed to finance further external growth. However, acquisitions will only
be made if they generate added value for the shareholders.
OutlookFurther improvement of earnings expected
The past year was the best in Forbo’s history, even though in the second half we wereconfronted by difficult market conditions in North America.
We assume that the general economic situation will weaken in 2008.
Nevertheless, we are guardedly optimistic since we are well placed, with our new products
and services plus further efficiency gains, to more than offset the negative impacts.
For the 2008 business year, therefore, we expect a further increase in net sales and anotherover-proportional rise in profits.
Thank you
Our thanks for your commitment and trust
The commitment shown at all levels in the past year was great. We therefore wish to express
our gratitude and appreciation especially to all our employees for their unceasing dedication and their exemplary achievements.
We thank all our partners for the close working relationship and their trust in Forbo. In
particular we would like to express our gratitude to our shareholders and our loyal customers.

Baar, March 2008

Dr. Albert Gnägi
Chairman of the Board

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

8Forbo Group: signiﬁcant margin improvements
in all divisions

The systematic implementation of the defined strategies in all
three divisions resulted in another successful year in 2007. Consolidated net sales rose by 6.6 % to CHF 2,004.0 million. In local
currencies, the increase was 4.7 %. This growth was supported byfactors such as high-quality products and customer-oriented
services as well as by investments aimed at building up key growthmarkets and the generally firm economic environment in Europe
and Asia. Raw material and energy prices rose again strongly inthe year under review; there were partially also some raw material bottlenecks on the procurement market that impacted on someareas. Efficient margin management along with measures toincrease in productivity offset the higher prices to a large extent.

The reorientation of all three divisions
launched three years ago and thesustained implementation of thesemeasures and objectives haveshown that Forbo is continuously on
the road to success. The financial
statements for the year reflect thispleasing performance.

Good growth in all threedivisions
Nevertheless, net income increased signiﬁcantly versus the previous The Flooring Systems division grew
year, up from CHF 61.2 million to CHF 110.7 million. This resulted in
net sales by CHF 70.2 million to CHF
864.4 million, representing an increase
the best result ever achieved in the Forbo history.
of 8.8 %. A generally good investment
climate in the public sector, along with
Return on assets (ROA) rose from 9.3 % the previous year to 13.5 %.
a robust economic environment in a
number of core markets and increased activities by the sales organizations lent support tothis growth. The commercial segment in particular posted substantial growth of both
linoleum products and vinyl floor coverings. Southern Europe and North America contributed to this positive trend with double-digit growth rates.
In the Bonding Systems division, the markets in Europe and Asia were the main growth
drivers on the back of a robust economy and a targeted focus on strategic segments.
Although clear signs of a downturn were seen as of the second half year in North America
and as of the fourth quarter in Europe, net sales were up by CHF 32.6 million to CHF 763.7
million, representing an increase of 4.5 %. Industrial adhesives, the business activity
with the highest sales, performed well in Western and Eastern Europe, supported in particular by increasing net sales in the strategic automotive, packaging and assembly
segments. The two other business activities, adhesives and cement-based products forthe construction industry and synthetic polymers, also continued to expand in theircore markets Europe, respectively North America.
The Movement Systems division increased net sales by CHF 21.7 million to CHF 375.9 million,
representing a gain of 6.1 %. All regions contributed to this positive growth. The robust
health of the OEM plant engineering market contributed again to positive growth particularly
in Europe. The chosen focus on expansion in emerging markets generated stimuli in
China, South Asia, South America and Eastern Europe especially. Towards the end of the year
under review, the North American market showed signs of slowing down. New products
developed for key segments such as paper processing, industrial production, as well as raw
materials and food processing should impact positively on future growth.

9Net sales by geographic areas
Change on previous year%

effective %+ 1.1currency
adjusted %

CHF m

+ 4.9

508.1

50

100 150 200 250 300 350 400 450 500 550

2007

North, Central and South America

25.4

Benelux

11.8

+ 8.4

+ 3.7

237.4

France11.6+ 16.1+ 11.0233.1

Germany

11.4

+ 6.2

+ 1.8

228.8

Asia / Australia / Africa

9.5

+ 2.0

+ 0.6

187.9

Southern Europe

8.8+ 11.3

+ 7.1

177.1

Scandinavia

8.5

+ 7.0

+ 2.4

170.8

Eastern Europe

5.5+ 20.9+ 15.3110.6

Great Britain / Ireland

5.1

+ 4.3

+ 0.1

102.2

Switzerland

2.4

– 2.1

– 2.5

48.0

Another substantial improvement in proﬁt margins
Clear and efficient implemented measures to increase productivity in all three divisions
enabled Forbo to offset most of the strong rise in prices for raw materials and energy andsignificantly improved profit margins in the Forbo Group. For the Group as a whole,operating profit before depreciations and amortizations (EBITDA) came to CHF 221.9 million(previous year: CHF 182.3 million). Operating profit (EBIT ) rose to CHF 162.4 million, whichmarked a large increase compared to the previous year (CHF 109.6 million). The EBIT margin
thus rose from 5.8 % to 8.1 %. This was well ahead of the interim goal set three years ago
of a 6 % to 7 % margin which had been set for 2007.
The Flooring Systems division lifted its operating profit before depreciations and amortizations (EBITDA) to CHF 122.0 million, up 26.8 % compared to the previous year ( CHF 96.2
million). A number of factors had a positive influence on earnings: a stronger identification
as a systems provider in all core markets, in particular as a result of product range extensions in the commercial segment, significant expansion of the sales organizations in Eastern
Europe, and ongoing improvement of processes in logistics, inventory management anddistribution.
In the Bonding Systems division, difficult market conditions in North America plus strong
increases in raw material prices offset otherwise positive profit margins in the second
half of the year. Operating profit before depreciations and amortizations ( EBITDA) rose to
CHF 69.4 million, up 11.0 % compared to the previous year (CHF 62.5 million). The division
was able to improve earnings despite the difficult conditions thanks to greater efforts in thearea of key account management, improvement of price management, the implementationof lean manufacturing and the streamlining of production sites.

10

The Movement Systems division increased its operating profit before depreciations andamortizations (EBITDA) to CHF 41.8 million, up 25.9 % compared to the previous year
(CHF 33.2 million). Efficiency gains in production and manufacturing, and the systematic
implementation of the corporate strategy aimed at higher-margin applications compensated for the negative exchange rate effects in the dollar region.
The return on assets (ROA) rose significantly from 9.3 % in 2006 to 13.5 %, mainly due to thestrong increase in operating profit to CHF 162.4 million compared to CHF 109.6 million theprevious year.

EBIT by divisions
CHF m

Change2007 2006/2007 %Flooring Systems

94.9+ 46.9Bonding Systems

53.7+ 19.6

Movement Systems

28.0+ 113.7

Headquarters / Consolidation– 14.2

n/a

– 25

0 25

50

75

100

Net financial costs were reduced from CHF 13.4 million to CHF 7.6 million. This positive effectof the decrease of net financial costs was mainly due to the repayment of the CHF 150
million bond on June 8, 2006, the repayment of the USD 103 million US private placementon November 21, 2007, and positive interest effects arising from the derivatives structure.
Due to higher average interest rates in some markets and a higher average investment basecompared with the previous year have led to higher interest earnings.

Free cash flow 2007
CHF m

Cash flow from operating activities

1)

0 25

50

75

100

125

150

175

200

165

Cash flow from investing activities– 77

Free cash flow

881) Cash flow from operating activities includes a cash outflow of CHF 36.0 million arising from currency swaps which fell due in connection
with the repayment of the first portion of the US private placement. The correspondent offsetting position is contained in 'cash flow frominvesting activities.'

Free cash flow 2006
CHF m

Cash flow from operating activities

157

Cash flow from investing activities– 67

Free cash flow

90

0 25

50

75

100

125

150

175

200

11

Balance sheet: sound basis for further growth
Total assets as per December 31, 2007 amounted to CHF 1,405.2 million. The reduction
in total assets of CHF 93.4 million compared to the previous year is due mainly to therepayment of the US private placement of USD 103 million on November 21, 2007 and to
the purchase of the company’s own shares.
Net debt at year-end was virtually unchanged at CHF 41.6 million (2006: CHF 43.3 million).
This positive effect of the higher net income on net debt was offset by the Group’s purchaseof its own shares. Equity increased by CHF 74.5 million to CHF 713.1 million, which brought
the equity ratio up to 50.7 % (previous year: 42.6 %).
The gearing (net financial liabilities / equity) at the end of December 2007 stood at 5.8 %(2006: 6.8 %).
Further investments to sustainably improve margins
The Forbo Group invested CHF 60.3 million in fixed assets in 2007 (2006: CHF 64.2 million).
The funds were used primarily to finance projects designed to expand production capacity,
to improve efficiency, and to develop new markets. Investments at Movement Systems,
including intangible assets, amounting to CHF 13.5 million, were just fractionally higher
than the previous year (2006: CHF 12.7 million). Investments at Bonding Systems in 2007
amounted to CHF 21.2 million, compared with an exceptionally high CHF 31.0 million theyear before when the division expanded production capacity and built a factory in Russia.
At Flooring Systems, capital spending of CHF 25.6 million in 2007 was well above theprior-year level (2006: CHF 17.6 million). The investments were made primarily to streamline
production and increase efficiency at the division’s large plants.

Capital investments 2003 – 2007
Flooring
Systems
CHF m

Bonding
Systems
CHF m

Movement
Systems
CHF m

Corporate

Total

CHF m

CHF m

2007

26

21

14

1

62

2006

18

31

13

3

65

2005

15

19

14

1

49

2004

27

10

14

4

55

2003

25

10

10

1

46

0 10

20

30

40

50

60

70

12

Headcount development
At the end of the year, Forbo employed 6,040 people, overall 240 employees more than in
the previous year.

Employees by geographic areas%

Change2006/2007 %2007

Benelux

18.7

– 2.5

1,129

North, Central and South America

15.8

– 0.8

954

Germany

13.4

+ 1.8

809

Asia / Australia / Africa

12.8+ 15.6776

France

9.7

+ 4.0

584

Scandinavia

7.7

+ 1.5

468

Eastern Europe

6.3+ 59.2

378

Great Britain / Ireland

5.9

– 0.1

354

Southern Europe

5.5

+ 4.8

331

Switzerland

4.3

– 9.5

257

200

400

600

800

1000

1200

13
Flooring.Bonding.Movement.

As one of the global leaders in f looring,bonding and movement systems, Forbo
is a vital part of the interface with daily
life. Forbo’s business is about connecting materials, perfecting surfaces andtransporting goods: the materials fromwhich everyday objects are made, thesurfaces on which people move, and theequipment that moves goods to where
they are needed. We do that by interconnecting with people all over the world
every day:Every step you take …
At home, at work or on the move:
Forbo ﬂoors are essential to theway people experience quality of life.
Every bond we make …
Bonding materials are most successfulwhen they create inseparable
connections and remain invisible.
Every move you make …
Forbo’s systems make production lines ﬂow,
sort the mail and move people and goodsof every kind.

14
Forbo Flooring Systems:
rewards for our consistent strategy‘Our business partners expect a high level of support and professionalism from Forbo, and the excellent service provided byour employees further strengthened our market position in 2007.
In driving forward growth in all areas, they were guided by aclear market and product strategy. The positive results and developments this consistent strategy has generated confirms ourentire business approach and we will continue building on thisin 2008.’

The Flooring Systems division generated net sales of CHF 864.4 million
in 2007, representing an increase of
8.8 % versus the previous year. The
increase amounted to 5.5 % in local
currencies. The division thus accounted
for 43 % of Group net sales (previous year: 42 %). The com mercial
market segment reported substantial growth worldwide for both
linoleum products and vinyl floor coverings, especially in North
America and in the southern part of Europe. Profitability in theresidential market segment also improved following measures tostreamline production and to roll out new products. Operating
profit (EBIT ) came to CHF 94.9 million, representing a good increaseof CHF 30.3 million or 46.9 % compared to the previous year.

Tom Kaiser
Executive Vice President
Flooring Systems

Market situation: increasing demand for Forbo products in all regions
The demand for Flooring Systems products was generally robust amid positive market
conditions. In the division’s core business – floor coverings for the commercial market
segment – net sales were up in all markets, particularly in Southern Europe and North America, where growth rates were in the double-digit range. The generally positive investment
climate in the public sector, especially in health care and education, two segments of great
importance to Forbo, supported this positive trend in several core markets.
Measures and investments: focus on streamlining production and distribution
A significant portion of capital expenditure in the 2007 business year was devoted tomeasures to increase efficiency at existing production sites. In addition, the division
invested in a production facility in Russia in order to supply this important market withlocally produced floorings. The sales organizations, especially in Germany, North
America and Eastern Europe, were expanded with the aim to provide even better support
for target markets in the commercial segment.
Flooring Systems expanded its service by launching a powerful e-commerce solution thatenables business partners to exchange relevant information and to order goods aroundthe clock. Our ambition of offering excellent service requires an efficient sales information
system in the commercial market segment. The division is currently working on a largescale sales information system project that will be rolled out internationally in 2008.
Products: rising demand for ecologically-friendly ﬂooring products
The numerous launched new products in the previous year met customer needs and drove
sales. These include the easy-to-lay 'linoleum click' products for the residential market
segment and the design tiles for outfitting retail outlets.

15

Rising demand for ecologically-friendly floor coverings made from renewable resources
enabled Flooring Systems to consolidate its market leadership in linoleum. The exceptional
natural properties of linoleum make it an eminently suitable product capable of satisfying
customers’ wishes for ecologically-friendly and economically floor coverings.
'Creating better environments' is therefore more than only a catch phrase at Forbo.
Business trend linoleum: persistently strong demand
The linoleum product group again grew by about 7 % to CHF 398 million, thus contributing
46 % to total sales. North America and Eastern Europe reported above-average increases.
The 'marmoleum click' linoleum products, designed for the residential market segment,
generated double-digit growth rates.
Business trend vinyls: positive development in the commercial market segment
The vinyl flooring product group generated sales of CHF 345 million; contributing 40 % tototal sales. The trend in the commercial market segment – up by 11 % – was also developing
positively. The growth was supported by the design tile range, which underscores Flooring
Systems’ strength as a systems provider. The 4 % decline in the residential market segmentin the wake of country-specific range adjustments in the product range was in line withexpectations. Sales in accessories increased by 4 %.
Outlook: excellent services for our market partners
In 2008, a number of projects at Flooring Systems will again focus on expanding the division’s
product offering and on broadening the services it provides. One such focal point will be
devoted to the development of employees in sales by an increased promotion of distribution support systems and by offering training programs.
Assuming the success of these measures as a systems provider in the commercial segment,
Forbo is confident that Flooring Systems will perform well again in 2008.

flooring systems.

Floors create spaces and determine the use they are put to, theirambience and comfort. The more
specialized the use, the higher thedemands placed on the propertiesof the ﬂooring. The appropriate
ﬂooring transforms abstract pro fes sional space into a personalized‘living’ room. This is the art ofarchitecture and interior design,
an art in which the use of theright materials is essential. Forbo
therefore works very closely
together with professionals inthese areas.
In developing product collections,
the Forbo designers draw theirinspiration from nature, art andthe latest design trends andco operate with well-known artists
and architects. The broad diversity of these designs, which range
from warm and exotic to cool andsophisticated, with colors stretching from natural wood to glittering
metal, add an individual touch tothe space.
Flawless and versatile f loorings
ensure a high level of functionality in innumerable areas, while
minimizing maintenance andmaximizing longevity. In order tobe able to sustainably guarantee
this high standard over time,
Forbo combines its long-standing
production know-how with lifecycle analyses as well as new andinnovative trends and materials
that are matched to the needs ofa varied clientele. The environment plays an ever more importantrole in these considerations. Linoleum is a pure natural productthat is manufactured from linseedoil, resin, wood f lour, jute andecological pigments.
With seven production facilities
and sales organizations in about
20 countries around the globe,
Forbo Flooring Systems is always
close to its customers and provides
expert advice on the spot.

flooring systems.

flooring systems.

flooring systems.

flooring systems.

flooring systems.

flooring systems.

flooring systems.

20
Forbo Bonding Systems:
focus on efﬁciency and margin management‘The 2007 business year was marked by mixed trends in our global
markets. Sales in Europe were strong thanks to a robust economy
and our continued focus on strategic segments. In the important
North American market, though, economic conditions deteriorated
substantially in the second half of the year, and we concentrated
there on improving efficiency and managing our margins. Targeting large accounts in the European automotive sector paid offvery positively.’

The Bonding Systems division
increased net sales in 2007 by 4.5 % toCHF 763.7 million, equivalent to anincrease of 3.4 % in local currencies.
Bonding Systems thus accounted
for 38 % of Group net sales (previous
year: 39 %). This growth was driven mainly by the general economic
upswing in Europe and the good situation prevailing in Asia. North
America failed to live up to expectations, especially in the second
half of the year. Despite rising raw material prices, Bonding Systems
increased operating profit (EBIT ) by 19.6 % to CHF 53.7 million.

Michel Riva
Executive Vice President
Bonding Systems

Market situation: positive development in Europe
In the Bonding Systems division, the markets in Europe and Asia performed especiallywell, even though the European market tended to weaken in the fourth quarter. In North
America, a noticeable fall in demand was felt in the second half of the year. This affectedin particular construction-related industrial segments, durable goods such as doors andfurniture, and the automotive industry, including motor homes.
In the second half, raw material prices increased strongly again owing to the high priceof oil and capacity bottlenecks of certain products, a situation that demanded even more
intensive margin management. Hardest hit by this trend were the well-selling productgroups dispersions and thermoplastic hotmelts.
Measures and investments:
new production facilities in Russia, China and North America
New production facilities were opened in Russia and China with the aim to participate in theeconomic upswing and strong growth in these countries. A new plant for construction
chemicals was opened at Stary Oskol, about 550 km south of Moscow, while in Shanghai a
new factory for industrial adhesives was opened. The third reactor for synthetic polymers,south of Chicago, was brought on stream in early 2007.
The projects initiated in 2006 to streamline processes, structures, production sites andcosts were systematically implemented in the year under review. Lean manufacturing wasintroduced at all major production facilities, with the result that production costs werelower than the previous year despite the rise in volumes. Due to these measures the division
was able to partially offset price rises for raw materials.
Products: focus on higher-margin and ecologically-friendly products
In the 2007 business year, Bonding Systems focused on marketing higher-margin andecologically-friendly products in the key technologies. One of the focal points was thermoplastic hotmelt products based on metalocene catalysts. The products in this range areused in packaging, textile laminates and wood industries. Unlike traditional products, thesehotmelts offer better fertility and stability properties, giving better results with a lower
quantity of adhesives.

21

In the most important growth technology, the PUR adhesive systems, low-monomer andisocynate-free adhesives were launched. These low-emission adhesives mark a significant
improvement for the employees who are in direct contact with the adhesives during
production or its processing.
Business trend: above-average growth in Europe and success in strategic
customer segments
In the industrial adhesives segment, sales were developing well especially in Western andEastern Europe. They were driven mainly by the strategic segments automotive, packaging
and assembly. In North America, though, sales declined in the second half of the year in
the automotive / motor home and assembly segments, while packaging and the graphic
industry showed a positive trend.
In Asia, the focal point in 2007 was the integration of Victa, acquired in 2006, and theconstruction of a new facility in Shanghai. Due to the robust market in China, it is planned
to build up a new factory, which should be ready to start production by the end of 2008or early 2009, to replace the Guangzhou plant.
Adhesives and cement-based products for the construction industry continued to develop
pleasantly thanks to the firm economic trend in Europe. The division gained market share invarious countries, and it maintained its strong market position in the Benelux countries.
Sales growth of synthetic polymers increased again in the year under review, driven bystate subsidies for 'synthetic fuels', though the state subsidy program of the goverment was
discontinued at the end of 2007.
The division passed on part of the strong rises in raw material costs for industrial andconstruction adhesives to customers, while the remainder was offset through additional
efficiency measures. The strong increase in prices for ethylene and vinyl acetate eroded
margins in the synthetic polymers business, and it was not possible to offset this erosionin full.
Outlook: focused activities in North America and exploitation of the new capacity
In the 2008 business year, Bonding Systems will concentrate mainly on implementing themeasures to enhance efficiency and increase market penetration as a response to the weak
demand in North America. Because of the termination of the subsidies for the synthetic
fuel activities, Bonding Systems in North America assumes that sales will remain stagnant
or even slightly decline.
Markets in Europe and Asia are expected to be moderately positive. Additional growth
can be expected from the newly created capacity in Russia and China.

bonding systems.

Adhesives are around for as longas man has been making things.
Nowadays, complex adhesives havedeveloped into sophisticatedsystems which are an unseen
presence in every aspect of daily
life. They provide stability andcomfort to sports shoes; they areused in the manufacture of highquality sporting goods such as
footballs and tennis rackets; they
impart stability to furniture andwater-tightness to textiles; theyjoin pages together to make a book;they ensure reliable and durable
bonds for wooden elements inbridges and prefabricated houses;
they bond tiles to the wall; they
fix f looring; they join diverse
materials in vehicle interiors; they
ensure odor-free packaging;and they help the packaging remain
stable. Synthetic polymer emulsions are raw materials that are
worked up into products in theadhesives, coating, construction,
carpet, and textile industries.
Adhesives are indispensable inalmost any object made by man.
Forbo is a long-standing business
partner of many manufacturers
with whom it works together toimprove the quality of existingproducts and develop new ones.
The worldwide success in theadhesives industry is based on thetechnological sophistication of
the processes and products andthe longevity of the bonding
systems. Dynamic and global
industries rely on a partner withinternational reach and yearsof know-how, a partner that understands customers’ needs andworks with them to develop new
approaches and solutions. The
wide range of applications is theresult of intensive research anddevelopment and of the technology
leadership this has resulted in.
With about 20 production facilities
and sales organizations worldwide,
Forbo Bonding Systems is always
close to its customers and can givethem expert advice on the spot.

bonding systems.

bonding systems.

bonding systems.

bonding systems.

bonding systems.

bonding systems.

bonding systems.

26
Forbo Movement Systems
sustained success as strategy is implemented‘Our 2007 business year was characterized by sustained and broadbased growth, which was above-average especially in the strategic segments. This was supported by the generally firm economic
situation in the main markets and reinforced by targeted investments in sales organizations in growth markets and by new productdevelopments. We continued to implement the strategy and wecompleted the organizational adjustments. This again resulted instrongly improved profitability. We now have a solid foundation
for a sustainable growth.’

The Movement Systems division
increased net sales in the year underreview by 6.1 % to CHF 375.9 million,
equivalent to an increase of 5.6 % in
local currencies. As in the previous
year, the division accounted for 19 % ofGroup net sales. All regions contributed to this growth. Investmentin process optimization and in new technologies led to efficiency
gains that were reflected in higher profits, even though the US
dollar was weaker and raw material prices significantly higher.
Operating profit (EBIT ) amounted to CHF 28.0 million, which wasmore than doubled compared to the prior-year figure of CHF 13.1
million.

Matthias P. Huenerwadel
Executive Vice President
Movement Systems

Market situation: focus on expansion in emerging markets
The robust health of the OEM plant engineering market contributed again to positive growthparticularly in Europe. The decision to focus on expansion in emerging markets generated
growth stimuli in China, South Asia, South America and Eastern Europe especially. Towards
the end of the year under review, growth began to slow down in North America. However,this was offset by major projects such as the expansion of the UPS distribution hub – at the
moment the largest project of Movement Systems – in Louisville, Kentucky.
This positive trend was driven by two main factors: organic growth, resulting from the
expansion of the existing organization; and a stronger market presence in selected markets,
which resulted from selective acquisitions in Denmark, Italy and the Czech Republic.
Measures and investments: a global oriented company
In the year under review, Movement Systems completed its strategic reorganization as a
global company. A number of activities in the area of employee and management development were planned and implemented. Global coordination was achieved for the functions
marketing, sales to key accounts and supply chain. This was supported by the worldwide
rollout of the ERM software SAP, which is now at an advanced stage. Visually, Movement
Systems adapted its identity to the consistent master brand of the Forbo Group.
Research and development was intensified, leading to shorter product launch times and tonumerous solutions tailored to customer needs. Generally speaking, substantial improvements in the efficiency of the value chain were a crucial factor. The efficiency gains resulted
from the streamlining of processes, investment in new technologies and the greater use of
location advantages of the various production and assembly plants.

27

Products: new product line for logistics and active contribution to sustainability
Once again in the year under review, new product developments were launched for key
segments such as paper processing, industrial manufacturing, processing of raw materials
and the food industry. A new product line was developed for the logistics customer
segment that uses significantly less energy than previously. A patent application was submitted for this innovative technology, and the trademark has been protected. Soon
after these new products were launched, two important customers took advantage of theopportunity and completely reoutfitted their existing equipment. This technology,
which offers substantial savings in energy, is an active contribution to sustainability, also
leading to big cost savings for the customer.
Business trend: stable foundation for healthy future development
In 2007, Movement Systems generated broad-based and good growth. This expansion was
driven by a generally firm economic environment in the main markets and positive
volume effects along with targeted investments in sales organizations in growth markets
and new product developments. The systematic and planned implementation of
the defined strategy resulted in another strong increase in profitability, even though thedivision had to cope with a steep drop in the value of the US dollar and a significant
increase in raw material prices, only part of which could be passed on to customers. On thewhole, the division now has a solid foundation for long-term and sustainable growth.
Outlook: expansion of sales activities and targeted developments for
new applications
The focus in 2008 will be on expanding sales activities in markets that are still underrepresented. At the same time, the products and services are to be rounded off to ensure
optimum coverage for selected core segments. The launch of innovative products
and applications tailored to specific customer needs is expected to drive growth. Earlier
investments will increasingly have a positive impact on the division’s profitability.
Despite conditions that are likely to be more difficult in the main markets, Movement
Systems expects positive growth.

movement systems.

Global markets today require
maximum mobility and ﬂexibility
in all areas of business – fromproduct innovation to quality
management right up to customer
service. Forbo is not always
visible in this process, but it ispresent almost everywhere,
making sure that things movebetter and more smoothly indaily life.
High-quality conveyor and processing belts in the food industry
ensure that fresh produce isprocessed efficiently and underhygienic conditions. Treadmill
belts in fitness centers keep
sports enthusiasts on the move.
Conveyor belts and f lat belts
are key components in paper
manufacturing and processing
machines. They are crucial
for printing daily newspapers,
magazines and journals. Conveyor belts provide smoothbaggage handling at airports andan efﬁcient ﬂow in the distribution of letters and packages inlogistics centers with state-ofthe-art equipment. Forbo’s timing
belts are widely used as a component in modern drive and handlingtechnology and are synonymouswith cost-effectiveness, precisionand reliability.
As markets become more global,
industry needs innovative concepts
for production, material ﬂows
and logistics, in which conveyor,processing and ﬂ at belts often
play a crucial role. Leading industrial companies throughout theworld therefore rely on the knowhow of Forbo Movement Systems
as a professional partner indeveloping sector-speciﬁc, forward-looking solutions for drives,transport and manufacturing.
Many of the world’s most important industrial, commercial andservice companies use Forbo
products with great success; they
beneﬁt from the close-meshedinternational service and distribution network comprisingmore than 300 service stations
globally.

movement systems.

movement systems.

movement systems.

movement systems.

movement systems.

movement systems.

movement systems.

32Group StructureThis E. Schneider
Delegate of the Board of Directors and CEOTom

MichelMatthias P.

Jörg

DanielKaiserRiva

Huenerwadel

RiboniKeist

Flooring Systems

Bonding Systems

Movement Systems

Corporate FinanceCorporate Center

Regional Sales

North America

North and South

Controlling

Mergers & Acquisitions

America

Treasury

Human Resources

Tax

Pensions

IT

Switzerland

Pensions

Communications

international

Legal Services

Investor Relations

Internal Audit

and Marketing
Supply Chain

Europe 1

EuropeManagement
Services

Europe 2

Asia | Pacific

Building
and Constructions

Asia | Pacific33
Executive BoardTom

MichelMatthias P.

This E.

Jörg

DanielKaiserRiva

Huenerwadel

Schneider

RiboniKeist

Flooring Systems

Bonding Systems

Movement Systems Delegate of the

Corporate FinanceCorporate Center

Board of Directors
and CEO
and CEO

34
Executive Board

This E. Schneider
Delegate of the Board of Directors and CEO
This E. Schneider, born 1952, is a Swiss citizen. He studied economics at theUni versity of St. Gallen (lic. oec. HSG) and at the Graduate School of Business,
Stanford University, California, USA . After various management functions in
Europe and the USA , he joined the Executive Board of Schmidt-Agency, where he
was responsible for strategic planning, operations and logistics from 1984 to
1990. From 1991 to 1993 he was President and CEO of the company SAFAA , Paris.
In 1994, he became a member of the Executive Board of Valora, with responsibility for the canteen and catering division. From 1997 to 2002, he was President
and Vice President of the Board of Directors of Selecta Group. This E. Schneider
has been President and CEO of the Forbo Group since March 2004. In addition, he
is a member of the Board of Directors of Galenica SA , Minibar AG and Selecta AG .

Tom Kaiser
Executive Vice President Flooring Systems
Tom Kaiser, born 1956, is a German citizen. He completed his commercial apprenticeship in wholesale and export sales at Stahlwerke Süwestfalen in 1978. In
1992, he completed the International Executive Program INSEAD, Fontainebleau.
From 1979 to 1988 he worked for Krupp Handel GmbH in North and SouthAmerica as well as in other locations. From 1988 to 1998 he held various management positions with Vaillant GmbH. In 1998, he joined the Wolf Group as
Managing Director. In March 2004, Tom Kaiser was appointed Executive Vice
President Flooring Systems and member of the Executive Board of Forbo.

Michel Riva
Executive Vice President Bonding Systems
Michel Riva, born 1964, is a Swiss citizen. He studied economics at the Universityof Applied Sciences Basel and the IMD in Lausanne, where he completed his MBA .
From 1989 to 1994 he held various positions in finance at Hoffmann-La Roche.
Subsequently, he headed Strapex Corporation, Charlotte, NC , USA . From 1998 to2004, he held various Managing Director positions for the chemical company
DuPont, latterly as Business Director Europe, Middle East and Africa for the DuPont
Powder Coatings business unit. In October 2004, Michel Riva was appointed
Executive Vice President Bonding Systems and member of the Executive Boardof Forbo.

35

Matthias P. Huenerwadel
Executive Vice President Movement Systems
Matthias P. Huenerwadel, born 1968, is a Swiss citizen. He studied engineering
at the Federal Institute of Technology, specializing in manufacturing technologies
and technology management. He began his professional career as assistant to
the Executive Board of Franke Holding AG . In 1997, he moved to the USA , where
he was responsible for logistics, information technology and customer service
with Federal Home Products, Ruston, LA . From 1999, he held various managerial
positions for Franke Foodservice Systems and managed its European operations
from 2002 to 2005. Matthias P. Huenerwadel assumed management of theMovement Systems Business in October 2005 and is a member of the Executive
Board of Forbo.

Jörg Riboni
Chief Financial Officer, Executive Vice President
Jörg Riboni, born 1957, is a Swiss citizen. He studied economics at the Universityof St. Gallen (lic. oec. HSG) and is a Swiss certified public accountant. After various
positions in the auditing and consultancy sector, Jörg Riboni joined the Cosa
Liebermann Group where he was Head of Controlling and Finances for the European Division. In 1995, he was appointed Chief Financial Officer of Jelmoli AG ,which was sold at the end of 1996. From 1997 to December 2005, he was Chief
Financial Officer of Sarna Kunststoff Holding AG in Sarnen. In January 2006,
Jörg Riboni joined the Forbo Group. He is a member of the Executive Board andChief Financial Officer.

Daniel Keist
Head Corporate Center, Executive Vice President
Daniel Keist, born 1957, is a Swiss citizen. He studied economics at the Universityof St. Gallen (lic. oec. HSG) and joined UBS in Zurich in 1984, where he wasManaging Director and Co-Head of the Corporate Finance Equity Advisory unit.
From 1998 to 2001 he was a member of the Executive Board and CFO of theSelecta Group. He was then a partner at Ernst & Young Corporate Finance in
Zurich until 2003, where he was responsible for various M&A , restructuring
and financing transactions. Until the summer of 2007, he was a member of the
Executive Board of SWX Swiss Exchange and headed the Admissions division.
Daniel Keist joined Forbo in August 2007 as Head Corporate Center and is amember of the Executive Board.

Division: Flooring Systems, France
Name: Youssef Serhane
Operational Area: Quality Control

37
Corporate GovernanceAt Forbo, the concept of corporate governance encompasses
the entire set of principles and rules on organization, conduct andtransparency designed to protect shareholder interests. Forbo’s
aim is to strike a careful balance between management and control. The central rules are contained in the Articles of Association,
the Organizational Regulations and the regulations of the committees of the Board of Directors. The following information is set
out in line with the Directive on Information relating to Corporate
Governance (Directive on Corporate Governance, DCG) and therelevant publications of SWX Swiss Exchange.
Group structure and shareholders
Group structure
Forbo Holding Ltd, domiciled at Lindenstrasse 8, 6340 Baar, is a limited company under Swisslaw. The holding company holds all companies, directly or indirectly, that belong to the
Forbo Group. The operational structure of the Group is shown in the organizational charton page 32. The scope of consolidation of Forbo Holding Ltd does not include any listedcompanies. The unlisted companies within the scope of consolidation of Forbo Holding Ltd
are listed under 'Group companies' starting on page 105 of this report. The companies’ nameand domicile, share capital and percentage of participation along with information relating
to the allocation of the Group companies to the Group’s divisions can also be found in thislist.
Significant shareholders
As of December 31, 2007, 1,948 shareholders were listed in the share register of Forbo
Holding Ltd, 647 (25 %) fewer than the previous year.
Disclosure of significant shareholders and significant groups of shareholders and their
participations is effected in accordance with the disclosures made according to Article 20 of
the Federal Stock Exchange and Securities Trading Act (SESTA) and the provisions of theOrdinance of the Federal Banking Commission on stock exchanges and securities trading(FBC Ordinance). According to reports received by Forbo Holding Ltd, in 2007 the following
significant shareholders or shareholder groups have exceeded or fallen below the thresholds
set out in Art. 20 SESTA and the FBC Ordinance:
Focus Capital Investors, LLC , New York, reported on January 19, 2007 that it had exceeded the
5 % threshold. Goldman Sachs Group, Inc., New York, as the beneficiary, and Goldman Sachs
International, Goldman Sachs Asset Management International, London, and Goldman Sachs
Asset Management, Wilmington, as indirect purchasers, reported on November 7, 2007 thatthey had exceeded the 5 % threshold. The corporate group Deutsche Bank AG and DWS
Investment GmbH, Frankfurt am Main, reported on October 10, 2007 that they had exceeded
the 5 % threshold. On November 30, 2007 they announced a change in the composition of
the shareholders’ group, as a result of which Deutsche Bank Securities Inc. New York, is now
also a beneficiary. The group holds its stake directly and indirectly through Deutsche Bank AG ,Frankfurt am Main, Taunus Corporation, Wilmington, and DB U.S . Financial Markets Holding
Corporation, likewise in Wilmington. On December 7, 2007, following the amendment of the
FBC Ordinance, this group announced that it held 7.599 % of the registered shares and had
granted (written) 85,428,000 convertible and purchase rights for 409,140 registered shares,
corresponding to 15.08 % of the total voting rights. On December 20, 2007, the Group
reported that, since December 12, 2007, it consisted only of Deutsche Bank AG , Frankfurt,
Theodor-Heuss-Allee 70, 60486 Frankfurt am Main, and Deutsche Bank Securities Inc.,
60 Wall Street, New York, NY 10005-2858, and directly and indirectly held 199,973 registeredshares, corresponding to voting rights of 7.37 % of the total. In addition, the group has
granted (written) 87,730,000 convertible and purchase rights for 420,249 registered sharesof Forbo Holding Ltd, corresponding to voting rights of 15.489 % of the total.

38

For further information on significant shareholders or shareholder groups, we refer thereader to page 117 (duty of disclosure pursuant to Article 663c, Swiss Code of Obligations).
Cross-shareholdings
Forbo Holding Ltd has not entered any cross-shareholdings with mutual capital shareholdings or voting rights.
Capital structure
Share capital
As of December 31, 2007, Forbo Holding Ltd had a fully paid up share capital of
CHF 37,984,128, which was divided into 2,713,152 listed registered shares, each with apar value of CHF 14.
– 59.11 % were registered in the name of 1,868 shareholders with voting rights– 26.62 % were shares of banks and the SIS (SegaInterSettle AG) pending registrationof transfer– 14.27 % were registered in the share register without voting rights
The shares of Forbo Holding Ltd (security number 000354151/ ISIN CH 0003541510) are listedon SWX Swiss Exchange. No different categories of shares exist; each share entitles theshareholder to one vote. Further information on the Forbo share can be found on pages 56
and 57. Further information on the rights of participation associated with the shares canbe found on page 51.
Conditional and authorized capital
Pursuant to §6 of the Articles of Association, Forbo Holding Ltd has a maximum conditional
capital of CHF 2,330,300, corresponding to 166,450 registered shares to be paid up in fullwith a par value of CHF 14 each. The respective capital increase takes place in accordancewith the Articles of Association through the exercise of option and convertible rights
which are granted in connection with bonds issued by the company or one of its subsidiaries or through the exercise of option rights which are granted to the shareholders. Except
for shareholder options, the subscription right of the shareholders is excluded. Holdersof option or convertible rights are entitled to subscribe to new shares. The registration of
the new shares is subject to the general restriction set out in §4 of the Articles of Association, which stipulates that shareholders are entered in the share register with voting rights
only if they declare expressly that they have acquired the shares in their own name andfor their own account.
There is no authorized capital.
Changes in capital
The Ordinary General Meeting of Forbo Holding Ltd on April 27, 2007 decided, based on
the audit report of a specially qualified auditor, to reduce the ordinary share capital of
the company by CHF 16,278,912 from CHF 54,263,040 to CHF 37,984,128 by reducing the parvalue of the shares from CHF 20 to CHF 14 each. It was further decided to pay out thedifference of CHF 6 per share to the shareholders and to amend the Articles of Associationaccordingly.
The share capital of Forbo Holding Ltd did not change either in 2006 or in 2005.

39

Participation certificates and 'Genussscheine' (profit sharing certificates)
Forbo Holding Ltd has neither issued participation certificates nor non-voting equity securities.
Limitations on transferability and nominee registrations
Forbo Holding Ltd does not have any percentage limitations on voting rights. The Board of
Directors may only refuse registrations in the share register if the acquirer of the stock
does not expressly declare at the company’s request that he has acquired the shares in his
own name and for his own account.
Pursuant to §4 of the Articles of Association as amended on April 27, 2007, nominees may beentered in the share register with voting rights for up to a maximum of 0.3 % of the registered share capital entered in the commercial register. Beyond this limit, nominees are only
entered provided the name, address and shareholding of these persons are disclosed forwhose account the nominee holds a total of 0.3 % or more of the registered share capitalentered in the commercial register. A nominee agreement was reached with nominees
on the basis of actual practice prior to the amendment of §4 of the Articles of Association
and, since then, on the basis of the amended §4 in which the registration ruling has been
set down in writing.
Resolutions on the amendment or abrogation of the clause on the registration of registeredshares requires a majority of two thirds of the votes represented at the General Meetingand the absolute majority of the par value of the shares represented.
No statutory privileges exist, and, with the exception of the above-mentioned requirementof making the beneficiary known, there is no restriction on the transferability of the sharesof Forbo Holding Ltd.
Convertible bonds and warrants / options
Forbo Holding Ltd has no outstanding convertible bonds nor has it issued any tradeable
warrants / options. Information on the option program available to the Executive Board canbe found on page 49 of this Annual Report.

40

Board of Directors
Members of the Board of Directors
The cutoff date for the following information is December 31, 2007.
With the exception of This E. Schneider, Delegate of the Board of Directors and CEO, noneof the members of the Board of Directors listed below has or has had any operational
man agement tasks for Forbo Holding Ltd or its Group companies. With the exception ofThis E. Schneider, none of the members of the Board of Directors sat on the Executive
Board of Forbo Holding Ltd or the management of its Group companies in the threebusiness years preceding the period under review. There are no essential business relationships between the members of the Board of Directors and Forbo Holding Ltd or its
Group companies.
Dr. Albert Gnägi, Chairman
Albert Gnägi, born 1944, is a Swiss citizen. He studied law at the University of Zurich and inRome and holds a doctorate in law (Dr. iur.). He practices law in Zurich, specializing incommercial, company and inheritance law. He was Chairman of the Board of Selecta Group
from the IPO in 1997 until the takeover by the British company Compass Group in early 2001.
From 1982 to 1997, he was a member and Chairman of the Board of Directors of Immuno
International AG , a manufacturer of biological pharmaceuticals, which went public in Zurich
in 1989. Since 1980, Albert Gnägi has been a member of the Board of Trustees of the Sanitas
Hospital in Kilchberg, and its president since 2002. He holds additional Board memberships
in other companies and foundations. He has been Chairman of the Board of Directors ofForbo Holding Ltd since March 2005.
Michael Pieper, Vice Chairman
Michael Pieper, born 1946, is a Swiss citizen. Michael Pieper took a degree in economics(lic. oec. HSG) at the University of St. Gallen. He has been with the Franke Group since 1988
and its owner and CEO since 1989. He is a member of the Board of Directors of Hero AG ,advalTech Holding AG , Feintool International Holding AG and of the Supervisory Board ofThyssenKrupp Stainless AG (Germany). He was first elected to the Board of Directors ofForbo Holding Ltd in 2000.
This E. Schneider, Delegate and CEO
For the curriculum vitae of This E. Schneider, please see page 34 of this report.
Dr. Peter AltorferPeter Altorfer, born 1953, is a Swiss citizen. He studied law at the University of Zurich andholds a doctorate in law (Dr. iur.). He attended the PED at the IMD in Lausanne. Until 1988, heworked at Bank Leu AG . He subsequently joined the law firm Wenger & Vieli in Zurich,where he is now a partner, specializing in bank and company law. Peter Altorfer is a memberof the Board of Directors of various companies, including Huber+Suhner AG , Herisau,
agta record ag, Fehraltorf, and Abegg Holding AG , Zurich, and of several private and foreignbanks in Switzerland. He has been a member of the Board of Directors of Forbo Holding Ltd
since March 2005.
Dr. Rudolf Huber
Rudolf Huber, born 1955, is a Swiss citizen. He studied at the University of Zurich where
he took his doctorate (Dr. oec. publ.). From 1987 to 1992 he led the Finance and Information
Technology departments of Bucher Guyer AG and was head of Corporate Finance at
Bucher Holding AG . In 1992, he moved to the Geberit Group, where he was a member of the
Executive Board and CFO until 2004. He currently works as an independent consultant.
Rudolf Huber is a member of the Board of Directors of several companies, including Georg
Fischer AG , Swiss Prime Site AG and Kardex AG . He is a part-time lecturer at the Lucerne
University of Applied Sciences and lecturer at the University of St. Gallen. Since 2006 he has
also been President of the recently founded CFO forum Schweiz- CFOs. He has been a memberof the Board of Directors of Forbo Holding Ltd since March 2005.

41

Elected until

AFC

HRC

Board of Directors Forbo Holding Ltd
As per December 31, 2007

First electedElections and terms of office
The members are elected by the Ordinary General Meeting for a term of three years. A year
is defined as the period between two Ordinary General Meetings. The first term of office
after the first election of a member of the Board of Directors is designed so that every year
about one third of all members have to be elected or re-elected. They may be re-elected
several times. At the Ordinary General Meeting of April 27, 2007, Dr. Albert Gnägi andMichael Pieper were re-elected in an anticipated re-election for a term of three years inaccordance with §15, para. 2 of the Articles of Association. Further details on the termsof office of the other members of the Board of Directors are contained in the following table.
In accordance with the Organizational Regulations of Forbo Holding Ltd, members who
have reached the age of 70 resign from the Board of Directors at the Ordinary General
Meeting of the following year. The average age of the incumbent members of the Board isaround 57. In determining the composition of the Board of Directors, importance is
attached to the election of independent individuals with international experience inindustrial companies as well as in the financial and consultancy sectors.

2005

2010

M

C

2000

2010

–

M

2004

2008

–

–

2005

2009

M

M

2005

2009

C

–

Chairman
Dr. Albert Gnägi
Non-executive member

Vice Chairman
Michael Pieper
Non-executive member

Members
This E. Schneider
Delegate and executive member
Dr. Peter Altorfer
Non-executive member
Dr. Rudolf Huber
Non-executive member

Secretary of the Board of Directors
Nicole Häfeli
Non-member

AFC: Audit and Finance Committee
HRC: Committee for Human Resources and Remuneration
C: Chair
M: Member

Division: Flooring Systems, Netherlands
Name: Frank RoomOperational Area: Drying Rooms Linoleum43Internal organizational structure
The allocation of tasks within the Board of Directors and the composition of the Board
committees are shown above.
Decisions are as a general rule taken by the full Board of Directors. The Board constitutes
two standing committees from its own ranks – the Audit and Finance Committee ( AFC) andthe Committee for Human Resources and Remuneration ( HRC) – to deal with clearly defined
subject areas of overriding importance. These two committees have mainly advisory andcontrol functions. In addition, the HRC is empowered to determine the compensation paid
to members of the Executive Board. The remuneration of the Delegate of the Board of
Directors and CEO is determined by the full Board of Directors. The members of these twocommittees are elected by the Board of Directors on an annual basis and can be dismissed
at any time.
As a rule, the Chairman of the Board of the Directors chairs the meetings of the Board andthe General Meeting. He plans and conducts the meetings of the Board and the Ordinary
General Meeting. The meetings of the Board and the relevant items on the agenda are
prepared by the Chairman in consultation with the CEO. The Chairman monitors the execution of the measures adopted by the Board and is in regular contact with the CEO for thispurpose. He is the direct superior of the CEO. In addition, the Chairman, in consultation with
the CEO, represents the Board vis-à-vis the public, the authorities and the shareholders.
The Vice Chairman is tasked with deputizing for the Chairman should the latter be prevented
for any reason whatever. In accordance with the Organizational Regulations and actual
practice, the Vice Chairman has no further duties. The Delegate of the Board of Directors is
also CEO and as such is responsible for the operational management of the Group and forthe tasks delegated to him by the Board of Directors. The members of the Executive Board
report to him for the exercise of this function.
The Chairman, Vice Chairman and Delegate (CEO) are elected by the Board of Directors.
The Board of Directors meets on being convened by the Chairman, as often as business
requires but at least four times a year. When the Board is convened, the items on the agenda
must be notified at least five working days before the day of the meeting. This notification
period may be shortened in urgent cases. In 2007, the Board of Directors met eight times,
the meetings usually lasting a whole day.
After mutual consultation, the Chairman and the CEO may invite members of the Executive
Board or other senior employees to attend Board meetings for individual items. Regularuse is made of this option. External consultants participate in the meetings of the Board of
Directors, the AFC or the HRC only in exceptional circumstances for particular items. As arule, however, the meetings are held without external consultants.
Audit and Finance Committee
The Audit and Finance Committee ( AFC ) advises the Board of Directors in respect of its
duties on behalf of the Group in the areas of financial reporting, the applied accounting
standards and systems used, and significant financial decisions. The AFC establishes
the audit program of the Internal Audits and selects the external auditors for the attention of
the General Meeting respectively proposes the external auditors to the General Meeting.
The CEO and CFO are regularly requested to attend meetings in an advisory capacity, while
the representatives of the Internal Audit and external auditors may attend on special
invitation.
The AFC convenes as often as business requires, but at least twice a year. In the 2007
business year, two meetings were held, each lasting about half a day.

44

Committee for Human Resources and Remuneration
The Committee for Human Resources and Remuneration ( HRC) advises the Board of Directors in respect of its human resources duties for the Group, in particular as regards theBoard itself and senior management personnel. The HRC prepares human resources policy
proposals for the attention of the Board of Directors regarding the selection of the members of the Board and of the CEO, and it assesses and approves the proposals of the CEO
regarding the employment of the Executive Board members. It prepares recommendations
for the Board of Directors regarding the remuneration of the Board, the Chairman, theCommittee members and the CEO. The CEO is regularly involved in an advisory capacity.
Agenda items and matters affecting the function or the person of the CEO are deliberated
in his absence.
The HRC convenes as often as business requires. In 2007, two meetings were convened
lasting between two and four hours.
Areas of responsibility
The Board of Directors bears ultimate responsibility for the management of Forbo Holding Ltd.
The main duties of the Board are the following non-transferable and indefeasible tasks
pursuant to the Swiss Code of Obligations and the Articles of Association:– Ultimate management of the company and the issuance of directives– Stipulation of the organization– Organization of financial controlling, auditing and financial planning– Appointment and dismissal of persons entrusted with management of the company– Preparation of the Annual Report and of the General Meeting and implementationof its resolutions– Notification of the court in the event of overindebtedness
The Board of Directors bears ultimate responsibility for supervising and monitoring
management of the company and is responsible for the corporate strategy. It issues guidelines for business policy and is regularly briefed on the current state of business.
Business to be dealt with by the Board of Directors is regularly submitted in advance to the
AFC , HRC , ad hoc committees or individual members, depending on the subject, for review

or an opinion. With the exception of its non-transferable and indefeasible tasks, the Boardof Directors may transfer tasks and responsibilities in full or in part to individual membersof the Board or to third parties.
The Board of Directors is empowered to take decisions on all matters which are not reservedor transferred to the General Meeting or another body of Forbo by law, the Articles of
Association or regulations.
Management of the Group has been delegated entirely to the CEO. Accordingly, the CEO is
responsible for the operational management of the Group.

45

In carrying out his tasks, the CEO is supported by the members of the Executive Board,
who report to him directly. The Executive Board comprises the CEO, CFO, Head Corporate
Center and the Executive Vice Presidents of the three divisions. It is responsible forthe long-term success and market-driven management of the Forbo Group. This involves
preparing the bases for decision-making for the Board of Directors regarding:– Corporate strategy, corporate targets, business policy, medium-term plans and budgets– Corporate organization– Organization of financial controlling, financial planning and auditing– Financing and treasury principles– Human resources and compensation policy
The members of the Executive Board are responsible for their particular area of activity
and also bear responsibility for safeguarding the interests of the Group and achieving thefinancial result.
Information and control instruments vis-à-vis management
The Executive Board meets as often as business requires, normally once a month. In the2007 business year 2007, twelve meetings were held, each lasting from half a day to a full day.
At the meetings of the Board of Directors, any member may request information about all
matters concerning the Forbo Group. Outside the meetings, such requests for information
are to be addressed to the Chairman. The CEO and the other members of the Executive
Board inform the Board of Directors at each regular meeting about the current state ofbusiness, important business events and significant deviations from the budget.
The Chairmen of the AFC and HRC report at the Board meetings on the activities of theircommittees and express their opinions and recommendations on the business items on
which decisions are to be taken. Each member of the Board of Directors has the right toinspect the minutes of the AFC and HRC meetings. The Executive Board reports to the AFC
through the CFO in consultation with the CEO ; it reports to the HRC through the CEO.
The Board is also regularly briefed outside meetings about events and challenges facing
the Group and the general performance of the businesses. In addition, the Chairman, Vice
Chairman and CEO are in continuous contact when essential policy issues are involved.
For important, particularly urgent events, the CEO informs the Chairman and the othermembers of the Board immediately.
The Delegate of the Board, who is at the same time CEO, conducts the meetings of the
Executive Board. For details concerning the participation of members of the Executive Board
in meetings of the Board of Directors and its committees, see the sections on internalorganization, the AFC and the HRC on page 43.
The Board of Directors furthermore fulfils supervisory and controlling obligations as
regards financial reporting and its role in the planning cycle. The internal and external
auditors also assist the Board in this task.
As part of financial reporting, the Board of Directors is informed as a rule once a monthin writing about the company’s current business performance and earnings situation bymeans of annotated income statements, key ratios and deviation analyses.

Division: Bonding Systems, China
Name: Chunquiao Zhao
Operational Area: Packaging of adhesives

47

The Board of Directors is, moreover, closely involved in the company’s planning cycle. The
existing strategy is subjected to a thorough review by the Board every first semester.
The revised strategy is quantified in the three-year medium-term plan, which is approved at
mid-year by the Board. Based on the medium-term plan, the Board of Directors sets thebudget objectives for the coming business year. These budget objectives are the basis forthe detailed budget, which is approved and adopted by the Board of Directors in the
fourth quarter.
The current business year is assessed in an initial appraisal at the end of April and in asecond appraisal at the end of September. On completion of the business year, the extent towhich the budget has been reached is checked and deviations are analyzed. This analysis
is used to derive appropriate measures, which are then implemented in the next planning
cycle.
Internal auditing is administratively subordinate to the Head Corporate Center and isfunctionally independent. It acts autonomously and reports to the AFC .
The audits are conducted in accordance with an annual plan approved by the AFC . The
following types of audit are distinguished: full scope audits, limited reviews, follow-up
reviews, post acquisition audits, compliance audits und special engagements.
The risks and weaknesses identified in these audits are, where necessary, minimized oreliminated by measures adopted by management and are constantly monitored.
The internal auditing department consists of two auditors who are basically responsible for
conducting the internal audits. In 2007, a total of nine full scope audits, one project audit
and two limited reviews were carried out. They were limited to individual business processes
and were linked with compliance audits focused on these processes. Each division was
audited at least once in the course of a full scope audit.
In view of Article 728a Swiss Code of Obligations, which came into force on January 1, 2008,
the internal audit department has provided local management of various group companies
with support in introducing a uniform internal control system (ICS). As part of the introductionof the ICS , the key control mechanisms in various business processes were documented,
and inadequate or missing control mechanisms were identified. Local management has
been tasked with drawing up an action plan designed to eliminate any control shortcomings identified.
Risk management
The ongoing and systematic evaluation of current and future risks invariably involves identifying and capitalizing on opportunities. Forbo regards risk management as a managerial
and working tool designed to safeguard the tangible and intangible assets of the company.

48

Forbo has a risk-based insurance coverage in line with industry practice and has insured
in particular operational risks such as property damage, business interruption, and productliability. The risks specifically in the areas of property damage, business interruption andliability are examined in the context of periodic risk engineering reports by external experts.
For this purpose, production companies are visited at regular intervals, and comprehensive
surveys are worked through with local management. Action plans are drawn up and implemented based on the risks identified. Such risk engineering reports have been establishedsince 1990.
As regards business risks, Forbo addresses both strategic risks and market and financial
risks. In the area of market risks, interest and currency risks are monitored centrally andhedged in certain cases (see pages 101 and 102 in this report). The liquidity and financing
of subsidiaries are also monitored centrally. In order to avoid losses on receivables, credit
insurance policies were taken out in isolated instances.
Executive Board
Members of the Executive Board, activities and vested interests
The members of the Executive Board, their nationality, function, training and professional
career as well as other activities and vested interests are set out on pages 34 and 35 of thisAnnual Report.
Management contracts
Forbo Holding Ltd has concluded no management contracts with third parties.
Compensations, shareholdings and loans
Content and method of determining the compensation and the shareholding programs
Board of Directors
The amount of compensation paid to the Board of Directors is worked out by the HRC inthe spring for the current year and submitted to the full Board of Directors at its April
meeting for approval. In order to determine the remuneration, the compensation paid to
Board members of Forbo Holding Ltd is compared with that paid to Board members ofcomparable industrial companies based on information that is available from publicly
accessible sources or is known to Board members from their experience of office in similar
companies. No external consultants are co-opted for determining the remuneration.
The members of the Board of Directors receive a fixed remuneration, the amount of whichis gradated according to whether the member is Chairman or a simple member of the Board
and whether he is a member of the AFC or HRC . 40 % of the consideration is distributed to
the Board of Directors as Forbo stock. These shares have a vesting period of three years. The
shares are valued by taking the average price in the ten trading days after distribution of adividend or repayment of par value. If no dividend is distributed, the average price during
the first ten trading days in June of the relevant business year applies. Payment or distribution of the shares takes place in December.
The amount of the remuneration for each Board member in the year under review, alongwith the details of the valuation of the shares, can be found on page 118 of the financial
report.

49

Executive Board
The amount of the fixed remuneration and the target bonus for the Executive Board is set
by the HRC in the fall for the following year; members of the Executive Board are excluded
from the deliberations. In order to determine the remuneration, the compensation paid to
Forbo Executive Board members is compared with that paid to Executive Board members
in comparable industrial companies based on information that is available from publicly
accessible sources or is known to the members from their experience of office in similar
companies. No external consultants are co-opted for determining the remuneration.
The compensation of the members of the Executive Board consists of a fixed base salaryplus a performance-dependent bonus, which is determined in March, on completion of thebusiness year, on the basis of individual and company target achievement.
The variable (performance-related) component is tied to financial (quantitative) and qualitative targets which are defined in accordance with the operational responsibility of the
Executive Board member in question. The qualitative targets are geared to the company’s
long-term sustainable development and may account for between 15 % and 40 % of thetotal variable component; the remaining portion of the variable component depends on
the achievement of the financial (quantitative) targets. Depending on the function of the
Executive Board member in question, these may be Group or divisions objectives and referin particular to net sales, EBITDA , EBIT, current assets and net income. The variable component may be as much as 120 % of the fixed remuneration, depending on the individual’s
target achievement.
Payment of a bonus is linked with the Management Investment Plan (MIP) launched in 2006.
According to this plan, at least 50 % of the annual bonus of Executive Board members ischanneled into the MIP. 25 % of these sums in the MIP are invested in options and 75 % inshares. Shares and options are subject to a three-year vesting period; the options havean exercise period of five years.
As of December 31, 2007 the Board of Directors and the Executive Board held the following
options:Year
allocation

Board of Directors

Executive Board

NumberTerm

Vested until

Ratio

Strike pricein CHF

0

2005

4,200

15.06.2005 – 14.06.2010

14.06.2008

1:1

235.00

2006

6,294

19.04.2006 – 19.04.2011

20.04.2009

1:1

370.00

2007

5,250

15.03.2007 – 15.03.2012

15.03.2010

1:1

564.69Of special note with regard to the MIP is the treatment of options in the event of terminationof the employment contract, invalidity or retirement. If notice is given terminating theemployment contract during the vesting period, the options are repurchased; the repurchaseprice corresponds to 100 % of the theoretical average value of the option on the basis of
the share value during the last 14 trading days for the share before the employment contract
was terminated. In the event of invalidity or retirement (including early retirement), theoptions – regardless of whether or not they are still subject to a vesting period – may besold during the entire remaining exercise period from the moment the invalidity or
retirement begins.

Division: Movement Systems, North America
Name: Gary Grams
Operational Area: Department Manager Treadmills

51

The amount of the remuneration for the Executive Board in the year under review, alongwith the details of the valuation and distribution of the shares, can be found on pages 87
and 118 of this report. This remuneration consists of the base salary, a performancerelated bonus, the private use of the company car, employer contributions to the pension
funds, AHV / ALV (old-age and unemployment insurance) as well as accident and company
sick payment insurance.
With the exception of the severance payment for the Delegate of the Board of Directors
and CEO mentioned below, no severance payments have been agreed with Executive Board
members.
Delegate of the Board of Directors and CEO
The Delegate of the Board of Directors and CEO has a separate remuneration model which is
independent of that of the Board of Directors and Executive Board; he is also not a participant
in the Management Investment Plan (MIP).
In fall 2005, it was agreed with the Delegate of the Board of Directors and CEO that part ofhis compensation for 2005 and the compensation for the following five years (from 2006
up to and including 2010) would be paid largely in stock. In lieu of salary payments for thecontractual period of employment until December 31, 2010, he was allocated a numberof shares for the entire five-year term of the agreement (i.e. 2006 – 2010). These shares aretime-vested until December 31, 2010 and freely available only as of January 1, 2011. Should
he leave the company before this date, the shares must be returned on a pro rata basis.
Under the terms of this model, the Delegate of the Board of Directors and CEO is entitledto a severance payment amounting to a maximum of 18 monthly salaries in the event of
notice being given for which he was not at fault. This right lapses without compensation
on expiry of the vesting period on December 31, 2010.
In addition to the share package, the Delegate of the Board of Directors and CEO draws anannual cash compensation, which is used for settlement of employee contributions to thepension fund and for social insurance payments. With the share package and the cash remuneration, all compensations such as bonuses, inflation, adjustments, options, etc. aresettled. The corresponding personnel expenditure is charged to the income statement
over the entire contractual period on a pro rata basis.
The relevant figures for this compensation model are found on page 118 of this report.
Shareholder’s participation
Voting right restriction and representation
The registration of shares with voting rights in the share register requires the consent of
the Board of Directors. Such consent may be withheld if the purchaser does not expressly
declare that he has acquired and is holding the shares in his own name and for his own
account. Pursuant to §4 of the Articles of Association as amended on April 27, 2007, nominees may be entered in the share register with voting rights for up to a maximum of 0.3 %of the registered share capital entered in the Commercial Register. The restriction also
applies to shares that are subscribed or acquired through exercise of a subscription, option
or convertible right. Resolutions on the amendment or abrogation of the clause on theregistration of registered shares requires a majority of two thirds of the votes represented
at the General Meeting and the absolute majority of the par value of the shares represented.

52

Contrary to Article 689, para. 2, Swiss Code of Obligations, shareholders who are unable toattend the General Meeting in person may not be represented by any third party of theirchoosing. They may only be represented by a member of a corporate body of the company,
the independent proxy or another shareholder who is registered in the share register.
Statutory quorums
Pursuant to §13 of the Articles of Association, resolutions on the amendment or abrogationof the provisions regarding the moving of the company’s domicile, conversion of registeredshares into bearer shares, registration of registered shares, representation of shares at theGeneral Meeting, the dissolution or merger of the company, and amendment of §13 para. 4of the Articles of Association require the approval of two thirds of the votes represented at
the General Meeting and the absolute majority of the par value of the shares represented.
Convening of the General Meeting
The General Meeting is convened in accordance with the statutory provisions.
AgendaShareholders who represent shares with a par value of at least CHF 1,000,000 or 1 % of theshare capital may request that an item be placed on the agenda. This request must be
communicated to the Board of Directors in writing, indicating the proposals, at least 45 days
before the date of the General Meeting.
Entry in the share register
Pursuant to the Articles of Association, shareholders’ rights of participation and representation at the General Meeting are determined by the status of the share register on the fourth
day before the General Meeting.
Changes of control and defense measures
Duty to make an offer
The Articles of Association of Forbo Holding Ltd do not contain an opting-up clause or an
opting-out clause pursuant to Article 22 SESTA . However, as regards the determinationof the minimum price, the Articles of Association were modified in Article 32, para. 4 SESTA
in that, in the event of a compulsory offer, the offer price must at least correspond to theshare price and may not be lower than the highest price which the bidder paid in the lasttwelve months for shares of the company.
Clause in changes of control
As of December 31, 2007, one member of the Executive Board is entitled to claim a severance pay-ment in the event that certain conditions arise due to a change in the controllingshareholder. This severance payment corresponds to one annual salary at most.

53

Auditors
Duration of the mandate and term of office of the head auditor
PricewaterhouseCoopers have been the Forbo Group’s (group) auditors since 1987. The
predecessor company of PricewaterhouseCoopers had been Forbo’s auditors since 1928.
The current head auditor, Stefan Räbsamen, took over this function in 2002. The auditors
are elected every year by the General Meeting.
Auditing fees
The auditing fees levied by the Group’s auditors for auditing the consolidated financial
statements, including the statutory audit of the individual financial statements of theholding company and the consolidated subsidiaries, amounted to CHF 1.6 million in theyear under review.
Additional fees
Total additional consultancy fees (e.g. for tax and legal advice, advice in connection withacquisitions, mergers and divestments), as invoiced by the auditing company, amount to
CHF 0.7 million for 2007.
Information instruments of the external auditors
The Audit and Finance Committee ( AFC) of Forbo Holding Ltd assesses and evaluates the
proposals and statements of the Internal Audit and the external auditors. The AFC also
obtains additional remarks in the form of Management Letters from the Internal Audit andthe external auditors and assesses the measures taken by management. At the AFC ’s
invitation, representatives of the external auditors attend the AFC meetings in an advisory
capacity. The Chairman of the AFC reports on the AFC ’s activities at the meetings of theBoard of Directors and states the opinion of the AFC on business items of decisive importance. On request, each member of the Board of Directors may inspect the minutes of
the AFC meetings. The external auditors were not invited to any meetings of the Board of
Directors in 2007 as there were no special incidents or discoveries. However, both theHead Internal Audit and the external auditors were present at the meeting of the AFC on
the annual financial statements.

Division: Bonding Systems, North America
Name: Gary Battistelli
Operational Area: Process Operator

55

Information policy
Investors must be able to gain a clear idea of the company
Forbo provides a periodical and comprehensive communication with its shareholders, thecapital market, the media and the public by reporting in timely fashion on business trends
and activities relevant for the company. Both the Chairman of the Board of Directors andthe CEO can be contacted directly for such information.
Shareholders receive summary reports on the business year as well as half-year reports. The
Annual Report, like all other published documents, is available in printed form as well as on
the Internet at www.forbo.com. The General Meeting is an additional source of information.
Periodical publication of media releases and the annual media and analysts’ conference arefurther information instruments for the capital market and the media.
Ad hoc communication
The push and pull links for the dissemination of ad hoc releases in accordance with the
Directive on ad hoc publicity of the SWX Swiss exchange are available at the following
addresses:
www.forbo.com / Default.aspx?menuId=165
www.forbo.com / Default.aspx?menuId=248
Communications to registered shareholders are sent by ordinary mail to the addresses
stated in the share register. The company’s official publication is the Swiss Commercial
Gazette.
A financial calendar with the key dates can be found on the inside of the cover and further
information on the share can be found on pages 56 and 57 of this Annual Report.
Publications may be ordered by e-mail, fax or telephone.
E-mail: communications@forbo.com
Phone: +41 58 787 25 25
Fax: +41 58 787 20 25
The contact address for Investor Relations is:
Forbo International SA
Jörg Riboni, CFO
Lindenstrasse 8
Postfach 1041
CH -6341 Baar
Phone: +41 58 787 25 25
The contact address for press information is:
Forbo International SA
Karin Marti, Head Corporate Communications
Lindenstrasse 8
Postfach 1041
CH -6341 Baar
Phone: +41 58 787 25 25

56
The Forbo Share

Nervous markets
For investors, 2007 was a mixed year. The markets advanced early in the year, but concerns
surfaced about the imminent mortgages-subprime crisis and the deepening weaknessof the American economy. This bad news, coupled with the loss of confidence by investors,
impacted mainly on financial industry stocks, which suffered significant losses during thecourse of the year.
Companies that continued to enjoy investor confidence were less hard hit by these developments on the stock markets. One such company on the Swiss equity market was the ForboGroup. Following the presentation of the annual results for 2006 at the end of March 2007,
the price of the Forbo share rose by 37 % in the first half of the year. This compares with anincrease of about 9 % for the broad market (SPI).
Conﬁdence in the company
Uncertainty worsened in the second half of 2007. In the second half of the year, the markets
became increasingly nervous. This was reflected in the growing volatility of the capital andmoney markets in the face of the deepening subprime mortgage crisis. This fueled investors’
worries that the financial market crisis might spill over into the real economy. As a result,by the end of the year many industrial stocks in the industrialized countries had lost all the
price gains they had achieved in the first half year. This is also reflected in the trend of
the SPI , which finished the year just barely in negative territory. Forbo, however, managed
to live up to investors’ expectations with the half-year report for 2007. The share posted
further gains in the second half of the year, too.
By the end of 2007, the Forbo share closed at CHF 700, about 44 % above the year-end
price for 2006. By contrast, the SPI was unchanged for this period. By year-end, the market
capitalization of Forbo stood at CHF 1.717 billion.

The Forbo share in comparison to the SPI

CHF

750
200%

700
650

150%

600
550
500

100%

450
400
50%

350
300
250

0%

200
150
–50%
Dec. 31, 2003

Dec. 31, 2004

Forbo share
SPI

Dec. 31, 2005

Dec. 31, 2006

Dec. 31, 2007

57

Share capital

Issued registered shares1)

2007
Number

2006
Number

2005
Number

2004
Number

2003
Number2,713,152

2,713,152

2,713,152

2,713,152

1,356,576

Thereof:
Shares outstanding

2,453,379

2,577,198

2,634,849

2,633,897

1,314,986

Treasury shares

238,354

114,535

56,884

57,836

20,171

Reserve shares (without dividend rights)

21,41921,41921,41921,41921,419

CHF

CHF

CHF

CHF

CHF

37,984,128

54,263,040

54,263,040

54,263,040

37,984,128

Shares outstanding

34,347,306

51,543,960

52,696,980

52,677,940

36,819,608

Treasury shares

3,336,956

2,290,700

1,137,680

1,156,720

564,788299,866

428,380

428,380

428,380599,732

Data per share

CHF

CHF

CHF

CHF

CHF

Shareholders’ equity Group2)

281

246

212

206

435

Earnings3)

44

24

– 17

– 107

12

Issued nominal capital

Total
Thereof:

Reserve shares (without dividend rights)

4)

6

0

0

8

High

1.45)

1.25)

0.0

0.0

1.85)

Low

2.25)

2.15)

0.0

0.0

2.45)

Payout ratio6) (in %)

23.0

25.0

0.0

0.0

65.0

Stock market statistics

CHF

CHF

CHF

CHF

CHF

High

721.5

490

285

301

326

Low

447

291

233

155

250

Year-end

700

486

285

248

264

High

1,770

1,263

751

794

575

Low

1,097

750

614

408

441

Year-end

1,717

1,253

751

653

465

Gross dividend and cash distribution
Gross dividend yield (in %)Share prices7)

Market capitalization (CHF m)

8)101) Nominal value per share 2007: CHF 14; 2004 – 2006: CHF 20; 2003: CHF 28.
2) Adjustment from 2004 as per IAS 19 for actuarial profits / losses.
3) See the Financial Report on page 81, 'earnings per share' (CHF).
4) Proposal of the Board of Directors to the Annual General Meeting.
5) Calculated on the basis of a cash distribution in the form of a reduction in nominal value.
6) Gross cash distribution as a percentage of Group profit.
7) Adjusted for the capital increase in 2004.
8) Based on shares outstanding.

59
Financial Report

Contents

Forbo Group Financial Report
60

Consolidated Income Statement

61

Consolidated Balance Sheet

62

Consolidated Cash Flow Statement

63

Consolidated Statement of
Recognized Income and Expenses

64

Group Accounting Policies

75

Notes

105

Group Companies

109

Report of the Group Auditors

110

Consolidated Income Statements 2003 – 2007

111

Consolidated Balance Sheets 2003 – 2007
Financial Statements of Forbo Holding Ltd

113

Income Statement

114

Balance Sheet

115

Notes to the Financial Statements

120

Proposal for Appropriation of Available Earnings

121

Report of the Statutory Auditors

60
Consolidated Income Statement

2007

CHF m

Net sales

Notes

1

Cost of goods sold
Gross proﬁt
Development costs

2006

2

Marketing and distribution costs
Administrative costs

3

Other operating expenses

4

Operating proﬁt

2,004.0

1,879.5– 1,331.9– 1,273.4

672.1

606.1

– 31.6– 31.3– 325.9– 300.6– 137.7– 131.9– 14.5– 32.7

162.4

109.6

Financial income

6

11.7

7.6

Financial expenses

7– 19.3– 21.0Group proﬁt before taxes
Income taxes

8

Group proﬁt for the year

154.8

96.2

– 44.1– 35.0

110.7

61.2

CHF

Earnings per share (basic)

9

43.64

23.60

Earnings per share (diluted)

9

43.45

23.57

The accompanying notes are an integral part of these consolidated financial statements.

61
Consolidated Balance Sheet

31.12.2007

31.12.2006

Assets
CHF m

Notes

Non-current assets

601.7

593.4

Tangible assets

10

423.7

421.5

Intangible assets

11

151.9

149.2

Deferred taxes

8

20.7

20.5

Employee benefit assets

21

3.1

-

Investments in associates and other long-term assets

12

2.3

2.2

Current assets

803.5

905.2

Inventories

13

286.3

266.7

Trade receivables

14

287.7

293.7

29.5

25.1

Other receivables
Prepaid expenses and deferred charges
Cash and cash equivalents

22.5

25.6

177.5

294.1

1,405.2

1,498.6

19

713.1

638.6

17, 19

38.0

54.3

15

Total assets

Shareholders’ equity and liabilities

Shareholders’ equity
Share capital
Treasury shares

19

– 4.0

– 3.5

Reserves and retained earnings

19

679.1

587.8

254.7

304.4

194.9

209.1

Non-current liabilities
Non-current financial debt

20

Employee benefit obligations

21

-

45.8

Non-current provisions

22

42.3

41.7

Deferred taxes

8

Current liabilities

17.5

7.8

437.4

555.6

Trade payables

23

138.1

131.5

Current provisions and accrued expenses

24

167.6

169.3

Current financial debt

25

24.2

128.3

29.8

21.8

Current tax liabilities
Other current liabilities
Total liabilities
Total shareholders’ equity and liabilities

77.7

104.7

692.1

860.0

1,405.2

1,498.6

The accompanying notes are an integral part of these consolidated financial statements.

62
Consolidated Cash Flow Statement

2007

2006

Group profit for the year

110.7

61.2

Depreciation and impairment of tangible assets

58.2

65.7

Amortization and impairment of intangible assets

1.3

7.0

Net financial expenses

7.6

13.4

Cash ﬂow from operating activities
CHF m

Tax expense

44.1

34.7

Taxes paid

– 34.6– 21.5

Share-based payments

5.2

4.1

Increase / (decrease) in provisions and employee benefit obligations

1.2– 15.5

Increase / (decrease) in current liabilities (excl. short-term debt)– 25.6

22.8

Increase in current assets1)– 2.8– 14.6

Total cash ﬂow from operating activities

165.3

157.3

Cash ﬂow from investing activities

Acquisitions– 21.9– 3.6

Purchases of non-current assets– 61.5– 64.6

Proceeds from sale of non-current assets

6.8

1.2

– 76.6– 67.0Decrease in current financial debt

– 98.5– 154.2

Interest paid

– 22.5– 25.59.9

7.5

Change in treasury shares– 80.1– 32.6

Reduction of par value– 16.3-– 207.5– 204.8– 118.8– 114.5

2.2

4.0

Total cash ﬂow from investing activities

Cash ﬂow from ﬁnancing activities

Interest received

Total cash ﬂow from ﬁnancing activities

Change in cash and cash equivalents

Decrease in cash and cash equivalents
Translation differences
Cash and cash equivalents at beginning of year

294.1

404.6

Cash and cash equivalents at year end2)

177.5

294.1

1) Excluding cash and marketable securities.
2) A large portion of the cash position is invested in the money market.

The accompanying notes are an integral part of these consolidated financial statements.

63
Consolidated Statement of
Recognized Income and Expenses

2007

2006

Fair value adjustments of cash flow hedges

2.4

1.8

Fair value adjustments of net investment hedges

1.5

2.5

49.6

42.4

1.5

0.6

CHF m

Actuarial profits from defined benefit plans, net
Translation differences

Notes

21

Net income recognized directly in equity (net)

55.0

47.3

Group profit for the year

110.7

61.2

Total recognized income for the year

165.7

108.5

Consolidated statement of changes in equity, see note 19 on page 89.

The accompanying notes are an integral part of these consolidated financial statements.

64
Accounting Policies

Methods Underlying Accounting Policies
General information
The consolidated financial statements of Forbo Holding Ltd were prepared in accordancewith the International Financial Reporting Standards ( IFRS) and in compliance with Swisslaw. They were drawn up on the basis of the audited financial statements of the subsidiaries
prepared according to uniform corporate accounting policies. The balance sheet date forall subsidiaries is December 31. These financial statements were approved and released for
publication by the Board of Directors on March 12, 2008.
The consolidated statements have been prepared in accordance with the principle ofhistorical purchase and manufacturing costs with the exception of securities, non-consolidated investments in associates and derivative financial instruments, which are valued
at fair value. The preparation of the consolidated financial statements requires management
to make estimates and assumptions that can affect reported revenues, expenses, assets,
liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. If the estimates and assumptions made by management at
the date of the consolidated financial statements to the best of their knowledge differ fromthe actual circumstances, the original estimates and assumptions will be adjusted in thereporting year in which the circumstances have changed. Changes in the presentation ofcomparable data from the consolidated financial statements of the previous year were,
where necessary, restated and supplemented.
Scope and principles of consolidation
The scope of consolidation includes Forbo Holding Ltd and all domestic and foreign companies in which the parent company holds, directly or indirectly, more than 50 percent ofvoting rights or in which it bears managerial responsibility for their operations and financial
policies. These companies are fully consolidated. Assets and liabilities as well as revenues
and expenses are fully consolidated, while intra-group balances (receivables and payables,
revenues and expenses) are eliminated upon consolidation. Minority interests in theequity and in net income of consolidated companies are reported separately but as part ofGroup equity capital and profit / loss. Inter-company profits on intra-group transactions
and balances are eliminated in full. Capital consolidation is based on the purchase method.
The purchase cost of an acquired company is offset against the fair value of the net assets
acquired, assessed at the time of acquisition on the basis of uniform Group principles.
Companies acquired are consolidated from the date on which control is obtained, while
companies disposed of in the course of the year are excluded from the scope of consolidation as from the date on which control is relinquished. The subsidiaries included in thescope of consolidation are listed under 'Group Companies'.
Joint ventures in which Forbo Holding Ltd holds, directly or indirectly, a 50 percent interest
or in which the Forbo Group exercises joint control are included in the consolidated
financial statements using the proportionate consolidation method.
Companies in which the Forbo Group has at least 20 percent of the voting rights but lessthan a 50 percent interest or in which it exercises a significant influence in some otherway are treated according to the equity method. Interests of less than 20 percent are stated
at fair value and are carried on the balance sheet under 'Other investments'. Unrealized
profits and losses are included and reported in 'Reserves and retained earnings'. In the eventof divestment or impairment, the related accumulated profit or loss is transferred to theincome statement.

65

In the year under review, the scope of consolidation was expanded by the acquisition of
OOO 'Linoleum', Russia, and Forbo Siegling Ceska republika s.r.o, Czech Republic.
Foreign currency translation
The individual companies generally prepare their financial statements in the local currency.
The local currency (functional currency) as a rule corresponds to the currency of the primaryeconomic environment in which the company operates. Transactions in foreign currencies
are translated at the current rate at the time of the transaction. Exchange gains and losses
from transactions in foreign currencies and from adjustment of foreign currency balanceson the balance sheet date are taken to the income statement.
The consolidated financial statements are prepared and presented in Swiss francs. The
annual statements of foreign Group companies stated in foreign currencies are translated
into Swiss francs as follows: balance sheet at year-end exchange rates, income statement
and cash flow statement at average exchange rates for the year under review. Currencytrans lation differences arising from the different translation of balance sheets and income
statements and from equity capital transactions are offset against consolidated shareholders’ equity and taken to the income statement in the event the company is divested.
Foreign exchange gains on certain equity-like loans, which form part of net investment
in a company, are likewise taken to shareholders’ equity provided no repayment of theseloans is planned or intended in the foreseeable future.
The following exchange rates have been applied for the most important currencies
concerned:
Income statement(Average exchange rates)

2007

2006

Balance sheet(Year-end exchange rates)

2007

2006

Currency
CHF

Euro countries

EUR

1

1.65

1.57

1.66

1.61

Sweden

SEK

100

17.76

17.00

17.57

17.77

United Kingdom

GBP

1

2.40

2.31

2.27

2.39

USA

USD

1

1.20

1.25

1.14

1.22

Canada

CAD

1

1.12

1.10

1.16

1.05

Japan

JPY

100

1.02

1.08

1.01

1.03

Maturities
Assets are designated current assets if they are realized or consumed in the Group’s
ordinary business cycle within one year or are held for trading purposes. All other assets
are assigned to non-current assets.

66

All obligations which the Group intends to settle within the ordinary business cycle using
operating cash flows or which are due within one year of the balance sheet date areassigned to current liabilities. All other obligations are assigned to non-current liabilities.
Net sales and revenue recognition
Invoices for goods and services are booked as net sales when the service is provided orwhen the essential risks and benefits incidental to ownership are transferred. Net sales arereported without any sales or valued-added tax and after deduction of any credits anddiscounts. Appropriate provisions are made for expected warranty claims.
Research and development
All research costs are charged directly to the income statement in the period in which they
are incurred. Development costs have to be capitalized if all the recognition criteria havebeen met, the research phase can be clearly distinguished from the development phase andcosts can be clearly allocated to individual project phases without any overlap. Given the
numerous interdependencies within development projects and in view of the uncertainty
as to which products will ultimately reach the market, all development expenditures are
currently charged to the income statement.
Income taxes
Income taxes constitute the total of current and deferred income taxes.
Current income taxes are determined on the basis of profits on which taxes are to be paid
and the applicable tax laws of the individual countries. They are carried as an expense in theaccounting period in which the profits are made. The profit on which taxes are to be paid
differs from the profit or loss for the year in the income statement since it excludes expenses
and revenues which in subsequent years are never taxable or deductible from taxes. The
Group’s liability for current income taxes is calculated on the basis of applicable tax rates or
those which are likely to be applicable as seen from the balance sheet date.
Deferred tax liabilities are recognized for temporary differences between assets andliabilities in the balance sheet and the amounts as measured for tax purposes if they resultin taxable income in future. Deferred tax assets are reported for temporary differencesthat will result in deductible amounts in future periods and for tax effects from fiscallyoffsettable losses but only insofar as it is likely that sufficient taxable profits will beavailable against which these differences can be offset. Deferred taxes are not reported
if the temporary differences arise from the recognition of goodwill or arise from theinitial recognition of other assets or liabilities which relate to events not affecting taxable
income or the profit for the year.
Deferred tax liabilities and tax claims are measured at the tax rates that are expected toapply in the period in which the asset will be realized or the liability will be settled based onenacted rates. Current and deferred tax assets and liabilities are offset when they arise
from the same tax reporting group, relate to the same tax authority, the legal right to offset
exists and they are intended to be settled net or realized simultaneously.

67

The book value of the deferred tax asset is checked each year on the balance sheet dateand reduced if it is no longer likely that sufficient taxable profits are available to realize theasset either wholly or in part.
Current and deferred income taxes are recognized as an income tax benefit or expense in
the income statement, except for net gains or losses directly recognized in equity, in whichcase, the tax is also recognized directly in equity.
Tangible assets
Property is stated at cost, the other tangible assets at cost less accumulated depreciationand impairment. Borrowing costs are not capitalized. Tangible assets acquired underfinancial lease contracts are carried on the balance sheet at the lower of the present valueof the minimum lease payments and the fair value. Tangible assets are depreciated on astraight-line basis over the shorter of their estimated useful life or the lease term. The
estimated useful life is usually 33 years for buildings used in operations and five to ten years
for plant and equipment. Other operational assets are depreciated over three to ten years.
Where components of larger systems have different useful lives, they are depreciated as
separate items. Useful lives and residual values are reviewed annually at the balance sheet
date, and any adjustments are brought to the income statement. Any gains and losses
from the disposal of plant, property and equipment are included in the income statement.
Properties that are mainly rented out and are kept for the purpose of obtaining rents
and / or an increase in value are carried on the balance sheet as investment property at costless accumulated depreciation and impairment. The market value is reported separately.
Maintenance costs are capitalized if this prolongs the useful life or increases production
capacity. Maintenance and repair costs that do not increase value are charged directly tothe income statement.
Intangible assets and goodwill
The goodwill generated on the acquisition of a subsidiary, associate or a jointly managed
company represents the excess of the cost of an acquisition over the fair value of the Group’s
share of net identifiable assets, debts and contingent debts of the subsidiary, associate or
jointly managed company at the date acquisition. Goodwill and other intangible assets suchas acquired trademarks and similar rights are initially carried in the balance sheet at thedate of acquisition at cost. Goodwill and intangible assets with an indefinite useful life are
not subject to amortization but are tested for impairment at least annually. An impairment
loss is immediately recognized as expense in the income statement, and goodwill is notrecovered in subsequent periods. Intangible assets having a definite useful life are amortizedon a straight-line basis. The following useful lives are used: 20 years for trademark rights
and three years for software.
Gains or losses on the disposal of a subsidiary, associate or jointly managed company
include the carrying amount of goodwill relating to the entity sold.

68

Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and afinancial liability of another entity. In the Forbo Group financial assets include, in particular,
the categories cash and cash equivalents, trade receivables and non-derivative financial
assets held for trading. Financial liabilities generally substantiate claims for repayment incash or another financial asset. In particular, this includes the US private placement, trade
payables, liabilities to banks, finance lease payables and derivative financial liabilities. Financial instruments are generally recognized as soon as Forbo becomes a party to the contractual regulations of the financial instrument. However, in the case of regular way purchase orsale (purchase or sale of a financial asset under a contract whose terms require deliveryof the asset within the timeframe established generally by regulation or convention in themarketplace concerned), the settlement date is relevant for the initial recognition andderecognition. This is the day on which the asset is delivered to or by Forbo. In general,
financial assets and financial liabilities are offset and the net amount presented in thebalance sheet when, and only when, the entity currently has a right to set off the recognizedamounts and intends to settle on a net basis.
Financial assets
Financial assets are measured at fair value on initial recognition. For all financial assets
not subsequently measured at fair value through profit or loss, the transaction costs directly
attributable to the acquisition are taken into account. The fair values recognized in thebalance sheet generally correspond to the acquisition value of the financial assets. If these
are not immediately available, they must be calculated using standard valuation models.
For this calculation, the cash flows already fixed or determined by way of forward rates using
the current yield curve are discounted at the measurement date using the discount factors
calculated from the yield curve applicable at the reporting date. Middle rates are used.
Cash and cash equivalents
Cash and cash equivalents are stated at nominal value. They include cash on hand, postal
and bank accounts and fixed-term deposits with an original maturity of up to 90 days.
Trade receivables
Current trade receivables are stated at amortized cost, which generally corresponds tonominal value. Allowances for doubtful risks are established based on the maturity structure
and identifiable solvency risks. In addition to individual allowances for specific identifiable
risks, allowances are also made on the basis of statistically determined credit risks.
Financial assets held for trading
Such financial assets are measured at fair value. These mainly include derivatives that are
not part of an effective hedging relationship as set out in IAS 39 and therefore have to beclassified as held for trading. Any gains or losses arising from subsequent measurement arerecognized in the income statement.

69

The Forbo Group does not hold any financial instruments of the categories 'held for
trading' or 'held-to-maturity' and has not made use of the option of designating financial
assets upon initial recognition as financial assets at fair value through profit or loss.
Financial liabilities
Financial liabilities are measured at fair value on initial recognition. For all financial liabilities
not subsequently measured at fair value through profit or loss, the transaction costs directly
attributable to the acquisition are also recognized.
Trade payables
Trade payables are non-interest-bearing short-term payables and are disclosed at nominal
value.
Financial debt
Non-current and current financial debt consist mainly of private placements, bonds, leasing
debt and bank loans. They are stated at amortized cost (less transaction costs). Borrowing
costs are recognized in the income statement, using the effective interest method.
Financial debt is classified as current liabilities, unless the Group has an unconditional rightto defer settlement of the liability for at least twelve months after the balance sheet date.
Derivative ﬁ nancial instruments and hedging transactions
Derivative financial instruments, which the Group uses solely to manage financial risks andnot for speculation, are recognized at their fair value the first time they are reported on
the balance sheet. The fair values are relevant for the subsequent valuation, too. The fairvalue of traded derivative financial instruments corresponds to the market value, which
may be positive or negative. If no market value can be determined, the fair value must be
calculated using recognized valuation models. In determining changes in fair values, it isdecisive to know whether the hedging relationship of the derivative financial instrument ishighly effective or not according to IAS 39. If the hedging relationship is not highly effective, hedge accounting in line with IAS 39 is not possible, and the fair values of the financial
instruments are immediately recognized in the income statement. However, if the hedging
relationship is highly effective, the hedging instrument is recognized as such.
Forbo employs the IAS 39 hedge accounting provisions especially in connection with thehedging of periodic interest payments and the repayment of the nominal amount of the
US private placement.
Part of the derivatives employed are recognized as cash flow hedges in order to hedge
the future cash flows from the US private placement against fluctuations. The effective
portion of the change in value of the hedging instrument is recognized in equity, with noeffect on the income statement, until the gain or loss on the hedged item is realized;
the ineffective portion of the change in value of the hedging instrument is recognized in
the income statement. The cumulative changes in market value are reported in theincome statement when future firm commitments are recognized in the income statement.

70

Furthermore, the Group hedges some net investments in foreign subsidiaries by taking
loans in foreign currencies. All gains and losses from the currency translation of these loans
are recognized in equity and reported in the cumulative translation differences. Only if
and when the subsidiary is divested are the cumulative valuation changes of the foreign
currency loans and the valuation change of the hedged item recognized in the income
statement.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost includes directmaterial and, if applicable, other direct costs and related production overheads to theextent that they are incurred in bringing the inventories to their present location andcondition. The cost of inventories is assigned for the most part by using an average
cost formula.
Net realizable value represents the estimated selling price for inventories less all estimatedcosts of completion and costs for marketing, sales and distribution. An allowance is madefor obsolete and slow-moving inventories.
Treasury shares
Treasury shares are deducted at their par value from share capital. The acquisition costs inexcess of par value arising on the acquisition of treasury shares are deducted from reserves.
Gains or losses from the sale of treasury shares are credited to or deducted from reserves.
Share-based payment
Equity-settled share-based payments to employees are valued at the fair value of theequity instrument at the grant date. The fair value of the share options is determined by theBlack-Scholes model. The anticipated maturity used in the model has been adjusted on
the basis of best estimates with regard to the effects of non-transferability, restrictions on
exercise and exercise behavior. Further information on determining the fair value of theshare options is provided in note 18. The fair value determined on granting equity-settled
share-based payments is charged over the vesting period to the income statement and isincluded in personnel expenditure.
Employee pension plans
Forbo maintains various pension plans designed as defined contribution and defined
benefit plans. These pension plans are established in accordance with the local conditions
in each country. The plans are funded either by contributions to legally autonomous
pension funds / insurance plans or by recognition of the pension plan liabilities in thefinancial statements of the respective companies.
For defined contribution plans, the costs incurred in the relevant period correspond to theagreed employer contributions.

71

For defined benefit plans, the pension liabilities are assessed annually by independentactuaries according to the projected unit credit method. They correspond to the cash
value of the expected future cash flows. The plan assets are stated at market value. Current
service costs incurred in the relevant period, less employee contributions, are stated as
personnel expenditure in the income statement. Past service costs resulting from changes
in pension plans are recognized in the income statement on a straight-line basis over theremaining average period until an active employee has a vested pension right, or they are
immediately charged to the income statement in case the employee has already retired.
Profits resulting from pension plan reductions or compensations are immediately taken to
the income statement.
Actuarial gains and losses are stated in equity with no effect on the income statement, butwith due regard to deferred taxes.
Provisions
Provisions are recognized when the Group has a legal or constructive obligation as a resultof past events, it is probable that an outflow of resources will be required to settle theobligation, and a reliable estimate of the amount can be made. No provisions are made for
future operating losses. The provision is the best estimate on the balance sheet daterequired to meet the current obligation, taking into account the risks and uncertainties
underlying the obligation.
A restructuring provision is recognized when the Group has developed a detailed formal
plan for the restructuring and has raised a valid expectation in those affected that it
will carry out the restructuring by starting to implement the plan or announcing its mainfeatures to those affected by it. The measurement of a restructuring includes only the
direct expenditures arising from the restructuring, which are those amounts that are bothnecessarily entailed by the restructuring and not associated with the ongoing activitiesof the entity. In the evaluation of a restructuring provision, only direct expenses for the
restructuring are considered. Only those expenses are included, therefore, that are causedby the restructuring and are not connected with the ongoing business activities of thecompany.

72

Changes in accounting principles
In the current year, the International Accounting Standards Board ( IASB) and International
Financial Reporting Interpretations Committee (IFRIC) published the following new andrevised standards and interpretations:
IFRS 7 Financial instruments: Disclosures and IAS 1 Presentation of financial statements

Additional information on the capital of the company.
IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyper-

inflationary Economies. IFRIC 7 indicates how a company has to restate its financial
statements in the first year in which it identifies the existence of hyperinflation in theeconomy of its functional currency.
IFRIC 8 Scope of IFRS 2 clarifies that IFRS share-based payment applies to arrangements
where an entity makes share-based payments for apparently nil or inadequate consideration.
IFRIC 9 Reassessment of Embedded Derivatives. According to IFRIC 9, an assessment whether
an embedded derivative is to be separated from the host contract and accounted for as
if it were a stand-alone derivative is to be made only when the company becomes party
to such a contract. Subsequent reassessment is prohibited unless there is a change inthe terms of the contract that significantly modifies the cash flows that would result fromthe original contract. In this case, reassessment is required. A first-time adopter must
make its assessment whether an embedded derivative is to be separated on the basis of
the conditions that existed when the entity first became a party to the contract unlessthere was a subsequent change in terms of the contract that significantly modified the
cash flows.
IFRIC 10 Interim Financial Reporting and Impairment demands that a company shall notreverse an impairment loss recognized in a previous interim period in respect of goodwill
or an investment in either an equity instrument or a financial asset carried at cost.
These standards and interpretations have been applied provided they are relevant for theGroup’s business activities. The most important effects are described below:
IFRS 7 – Financial instruments: The aim of the new disclosure provisions in IFRS 7 is to provide

information relevant for taking decisions on the amount, the timing and the probabilityof future cash flows that stem from financial instruments. The impact of this new standard is
to extend the financial instruments presented in these consolidated financial statements.
The other new and revised standards and interpretations have no significant impact onequity, profit / loss or cash flow.

73

Management assumptions and estimates
Critical accounting methods and assumptions
The application of the accounting principles requires that circumstances and estimates beassessed and assumptions be made with respect to the book values of assets and debts.
The estimates and the underlying assumptions are based on past experience and on factors
deemed to be relevant. The actual values may deviate from the estimates.
In the following, the main areas are indicated in which such a considerable risk may result
from the uncertainty of estimates that a significant restatement of the reported assets anddebts becomes necessary within the next business year.
Impairment of non-ﬁ nancial assets
Along with the regular periodic review of goodwill, the carrying amounts of fixed andintangible assets are also always reviewed if these amounts can no longer be realized due
to changed circumstances or events. If such a situation occurs, the recoverable amountis determined based on expected future revenues. This corresponds to either the expecteddiscounted future free cash flow or expected net sales price. If these values are lessthan the current carrying amount, the value is impaired to the newly calculated figure. This
impairment is recognized in expenses in the income statement. If the asset itself does
not generate any independent cash flow, the impairment test for a cash-generating unit is
to be performed. As a rule, the Group defines the cash-generating units on the basis ofgeographically cohesive markets, i.e. generally speaking an individual country. Important
assumptions in these calculations include growth rates, margins, estimates of the future
development of net current assets and discount rates. The actual cash flows may deviatesignificantly from the discounted future values. Likewise, the useful lives may be shortened
or investment assets impaired in the event of a change in the use of buildings, machineryand facilities, change or abandonment of locations or lower than expected revenues overthe medium term. The carrying value of the respective tangible and intangible assets isshow in notes 10 and 11.
Employee pension plans
Various employee pension plans and schemes exist for employees at Forbo. In order tomeasure liabilities and costs, it is first of all necessary to determine whether a plan is adefined contribution or a defined benefit plan by applying the principle of substance overform. In the case of defined benefit plans, actuarial assumptions are made to estimate
future developments. These include assumptions and estimates relating to discount rate,
the expected return on plan assets in individual countries, and future wage trends. In
their actuarial calculations for determining employee benefit obligations, the actuaries
also use statistical information such as mortality tables and staff turnover rates. If theseparameters change owing to a change in the economic situation or market conditions, thesubsequent results may deviate considerably from the actuarial reports and calculations.
These deviations may have a significant medium-term effect on expenses and revenues fromthe employee pension schemes and on equity. The carrying amounts of the plan assets
and liabilities carried in the balance sheet are set out in note 21.
Provisions
In the conduct of ordinary business activities, a liability of uncertain timing and / or amount
may arise. Provisions are determined using available information based on reasonably
expected cash outflows. Depending on the outcome, claims against the Group may arisethat may not be covered, or covered only in part, by provisions or insurance benefits.
The carrying amounts of such provisions are shown in notes 22 and 24.

74

Income taxes
The measurement of current tax liabilities is subject to the interpretation of tax regulationsin the relevant countries. The adequateness of this interpretation is assessed by the tax
authorities in the course of the final assessment or tax audits. This may result in materialchanges to tax expense. Furthermore, in order to determine whether tax losses carriedforward can be capitalized requires a critical estimate of the probability that they can beoffset against future profits. This assessment depends on a variety of influencing factors
and developments. An analysis of the income taxes is set out in note 8.

Standards approved but not yet applied
The following new and revised standards and interpretations had been published, though
they had not yet become compulsory by the time the consolidated financial statements
were authorized by the Board of Directors:
IAS 23 (expanded) – Borrowing Costs (reporting periods beginning on or afterJanuary 1, 2009)
IAS 27 (revised) – Consolidated and Separate Financial Statements (reporting periods

beginning on or after July 1, 2009)IFRS 3 (revised) – Business Combinations (reporting periods beginning on or after

July 1, 2009)IFRS 8 – Operating Segments (reporting periods beginning on or after January 1, 2009)
IFRIC 11 – Group and Treasury Share Transactions under IFRS 2 (reporting periods beginningon or after March 1, 2007)
IFRIC 12 – Service Concession Arrangements (reporting periods beginning on or afterJanuar 1, 2008)
IFRIC 13 – Customer Loyalty Programmes (reporting periods beginning on or after
July 1, 2008)
IFRIC 14 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and theirInteraction (reporting periods beginning on or after January 1, 2008)
These do not take effect until later on and were not adopted early in preparing this setof consolidated financial statements. Their effect on the consolidated financial statements
has not yet been systematically analyzed.

75
Notes

1

Segment information
Forbo is a global producer of Flooring Systems, Bonding Systems and Movement Systems.
The divisions have their own management structure and are run separately because theproducts that they manufacture, distribute and sell differ in terms of production, distribution
and marketing. Flooring Systems develops, produces and sells linoleum, vinyl and otherfloor coverings as well as the various accessory products required for laying, processing,cleaning and care. Bonding Systems develops, manufactures and distributes adhesives
for industrial applications, the construction industry and synthetic polymers. Movement
Systems develops, produces and sells high quality belts made of synthetics for use inpower transmission or as conveyor and process belts. Corporate includes the costs of theGroup headquarters and certain items of income and expenses which are not directly
attributable to a specific business.
Sales between the divisions are effected at market prices. The divisions apply the sameaccounting principles as the Group.
The divisional results for the financial years 2007 and 2006 are as follows:
2007
CHF m

Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

Net sales to third parties

864.4

763.7

375.9

-

2,004.0

Inter-segment sales

0.3

24.4

0.1

– 24.8-

Total net sales

864.7

788.1

376.0

– 24.82,004.0

Operating proﬁt (EBIT)

94.9

53.7

28.0

– 14.2

162.4

Financial income

11.7

Financial expense– 19.3

Group proﬁt before taxes

154.8

Income taxes– 44.1

Group proﬁt for the year

110.7

2006
CHF m

Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

Net sales to third parties

794.2

731.1

354.2

-

1,879.5

Inter-segment sales

0.2

22.2

0.1

– 22.5-

Total net sales

794.4

753.3

354.3

– 22.5

1,879.5

Operating proﬁt (EBIT)

64.6

44.9

13.1

– 13.0

109.6

Financial income

7.6

Financial expense– 21.0Group proﬁt before taxes

96.2

Income taxes– 35.0Group proﬁt for the year

61.2

76

Additional segment information from the income statement and the balance sheet is
as follows:
Depreciation and impairment charges
2007
Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

Depreciation / amortization

26.7

15.7

13.8

2.9

59.1

Impairment

0.4

-

-

-

0.4

Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

Depreciation / amortization

27.4

13.5

15.0

3.4

59.3

Impairment

4.2

4.1

5.1

-

13.4

Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

Operating assets

440.2

468.5

265.6

27.3

1,201.6

Operating liabilities

193.6

118.8

65.0

78.2

455.6

Investments

25.6

21.2

13.5

1.2

61.5

Flooring
Systems

Bonding
Systems

Movement
Systems

Corporate

Total

Operating assets

400.8

494.2

254.8

32.1

1,181.9

Operating liabilities

161.0

138.2

64.4

151.2

514.8

Investments

17.6

31.0

12.7

3.3

64.6

CHF m

2006
CHF m

Assets / liabilities and investments
2007
CHF m

2006
CHF m

77

Geographic regions
2007
CHF m

Europe(euro zone) Switzerland

Rest ofEuropeAmerica

Asia /
AfricaTotal

Net sales

876.4

48.0

383.6

508.1

187.9

2,004.0

Operating assets

619.0

117.0

168.4

217.5

79.7

1,201.6

Investments

35.6

3.1

10.5

7.1

5.2

61.5

Number of employees (December 31)

2,853

257

1,200

955

775

6,040

Europe(euro zone) Switzerland

Rest ofEuropeAmerica

Asia /
Africa

Total

2006
CHF m

Net sales

794.5

49.0

349.2

502.5

184.3

1,879.5

Operating assets

558.7

105.9

212.1

230.7

74.5

1,181.9

Investments

22.5

5.3

12.8

21.7

2.3

64.6

Number of employees (December 31)

2,831

284

1,052

962

671

5,800

2

Development costs
Development costs, which include product development as well as sampling activities,
amounted to CHF 31.6 million (2006: CHF 31.3 million).

3

Administrative costs
This item consists of the usual expenses related to administrative activities.

4

Other operating expenses

2007

2006

0.4

13.4

CHF m

Impairment
Other expenses

33.5

37.3

Other revenue– 19.4– 18.0Total other operating expenses

14.5

32.7

Impairment of CHF 0.4 million relates to plant and machinery and is explained in note 10.
Other expenses (such as extraordinary maintenance costs, warranty costs, consultancy
and auditing costs, and insurance costs) and other income (such as license fees) include costs
and income that can not be attributed clearly to the other categories.

78

5

Personnel expenses

2007

2006

CHF m

Salaries and wages

387.1

366.8

Employer’s social security contributions

104.1

93.7

Total personnel expenses

491.2

460.5

The Group’s headcount at December 31, 2007 was 6,040 employees (2006: 5,800).
The average headcount over the year was 5,891 (2006: 5,839). Salaries and wages include
share-based payments worth CHF 5.2 million.
About 120 managers participate in a bonus plan, which is linked to the achievement offinancial targets by the Group, the divisions and individually determined objectives.

6

Financial income

2007

2006

Interest income1)

9.8

7.0

Gains on financial assets or liabilities at fair value through profit or loss

1.9

0.6

11.7

7.6

2007

2006

CHF m

Total ﬁnancial income

1) This consists of interest accruing from cash and cash equivalents.

7

Financial expenses
CHF mInterest expenditure from financial liabilities valued at amortized cost

21.8

23.3

Gains from derivative financial instruments used in hedging

– 4.0

– 4.0

Amortization of issuance costs for bonds and private placements

0.6

0.7

-

0.3

Amortization of costs of syndicated bank facility– 15.1– 18.6

Foreign exchange losses from derivative financial instruments
used in hedging

8.6

10.0

Losses on financial assets or liabilities at fair value through profit or loss

7.4

9.3

19.3

21.0

Foreign exchange losses, net

Total ﬁnancial expenses

The average interest rate on interest-bearing debt (bonds, private placements, long- andshort-term bank loans) in 2007 was 5.6 % (2006: 5.6 %).

79

8Income taxes

2007

2006

Current taxes

40.5

32.3

Deferred taxes

3.6

2.7

44.1

35.0

CHF m

Total income taxes

Analysis of tax expense
The following elements explain the difference between the expected and the actual
tax expense.
2007

2006

Group profit before taxes

154.8

96.2

Tax expense at the expected tax rate

– 45.2– 30.5CHF m

Tax effects of:
Non tax-deductible expenses and tax-exempt income

– 1.0

– 2.2

Tax losses and temporary differences for which no deferred
tax assets have been recognized

– 7.5

– 6.2

Write-off of deferred tax assets

– 0.6

– 0.1

Recognition / utilization of tax losses not capitalized in prior years

7.3

3.8

Changes of applicable deferred tax rates

– 0.5

0.1

Prior-year and other positions
Total income taxes

3.4

0.1

– 44.1– 35.0Since the Group operates around the world, it is subject to income taxes in many different
tax jurisdictions. Consequently, the expected and the actual tax expense will vary from year
to year according to the origin of earnings or losses by country. The expected tax income /tax expense is the sum of the expected, individual tax incomes / tax expenses of all foreignsubsidiaries. The expected, individual tax income / tax expense in a single country resultsfrom the multiplication of the individual profit / loss by the tax rate applicable in the country
concerned. The expected tax rate in the financial year 2007 amounted to around 29 %(2006: 32 %).
The item 'Prior-year and other positions' comprises mainly corrections of tax provisions for
taxed owed in previous years.

80

The gross value of unused tax loss carry forwards which have, or have not, been capitalized
as deferred tax assets, with their maturities, is as follows:
2007
Not
capitalized

Capitalized

Total

1 year

2.8

-

2.8

2 years

3.1

-

3.1

3 years

3.8

-

3.8

4 years

119.5

-

119.5

5 years

3.6

-

3.6

CHF m

Expiry after:

More than 5 years

205.7

21.0

226.7

Total

338.5

21.0

359.5

Not
capitalized

Capitalized

Total

1 year

0.8

-

0.8

2 years

3.6

-

3.6

3 years

4.6

-

4.6

4 years

4.1

-

4.1

2006
CHF m

Expiry after:

5 years

160.5

-

160.5

More than 5 years

211.7

25.4

237.1

Total

385.3

25.4

410.7

In 2007, no tax loss carry forwards expired (2006: CHF 1.0 million).
Deferred income tax assets and liabilities are offset when they relate to the same fiscal
authority, the legal right to offset exists, and they are intended to be settled net or realized
simultaneously. The following amounts are shown in the balance sheet:
31.12.2007

31.12.2006

Deferred tax assets

20.7

20.5

Deferred tax liabilities– 17.5

– 7.8

3.2

12.7

CHF m

Deferred tax assets, net

81Deferred tax assets and liabilities and deferred tax charges and credits are attributed to
the following items:
Deferred tax assets
CHF m

At December 31, 2006
Increase / (decrease) deferred tax assets
At December 31, 2007

Inventories

Property,plant andequipment

Provisions

Loss carryforwards

Other

Total

13.2

7.7

24.0

9.0

5.7

59.6

1.2

– 0.5

– 3.1

– 2.8

1.8

– 3.4

14.4

7.2

20.9

6.2

7.5

56.2

Inventories

Property,plant andequipment

Provisions

Loss carryforwards

Other

Total

– 2.7

– 14.1– 11.2-– 18.9– 46.9Deferred tax liabilities
CHF m

At December 31, 2006
Increase / (decrease) deferred
tax liabilities

9

-

0.2

– 0.6

-

– 5.7

– 6.1

At December 31, 2007

– 2.7

– 13.9– 11.8-– 24.6– 53.0

Deferred tax assets / (liabilities),
net at December 31, 2006

10.5

– 6.4

12.8

9.0

– 13.2

12.7

Deferred tax assets / (liabilities),
net at December 31, 2007

11.7

– 6.7

9.1

6.2

– 17.1

3.2

Change in deferred tax
assets / liabilities, net– 9.5

Of which addition to scopeof consolidation

0.3

Of which recognised in equity– 6.2

Of which recognisedin the income statement– 3.6

Earnings per share
Undiluted earnings per share is calculated by dividing the net profit or loss for the year
attributable to registered shareholders by the weighted average number of registeredshares issued during the year or outstanding, less the average number of treasury shares
held.
Diluted earnings per share in addition takes into account the potential dilution effects
which would result if all share options were exercised.
2007

Group profit for the year (CHF m)

2006

110.7

61.2

2,536,699

2,592,336

Undiluted earnings per share (CHF)

43.64

23.60

Adjustment for stock option plans

10,7734,221

2,547,472

2,596,557

43.45

23.57

Weighted average number of outstanding shares

Weighted average number of outstanding shares used
to calculate the diluted profit
Diluted earnings per share (CHF )

82

10

Property, plant and equipment
Cost
CHF m

At December 31, 2005

Machinery
andLand andbuildings equipment

Other
Assetstangibleunderassets construcion

Total
tangible
assets

481.9

912.4

171.9

11.9

1,578.1

Additions

0.1

15.6

6.0

42.5

64.2

Disposals– 0.7– 16.1

– 7.6

– 0.7

– 25.1

Change in scope of consolidation

1.1

1.3

0.3

-

2.7

Transfers

0.6

11.2

– 5.2

– 13.8– 7.2

Translation differences

5.0

19.6

3.0

– 1.2

26.4

At December 31, 2006

488.0

944.0

168.4

38.7

1,639.1

Additions

9.6

12.1

4.0

34.6

60.3

Disposals– 3.0– 16.3– 9.4-– 28.7

Change in scope of consolidation

2.8

0.1

0.1

-

3.0

Transfers

7.8

37.0

2.2

– 47.3– 0.3

Translation differences

2.6

4.8

3.0

– 0.2

10.2

507.8

981.7

168.3

25.8

1,683.6

Other
Assetstangibleunderassets construcion

Total
tangible
assetsAt December 31, 2007

Accumulated depreciation
CHF m

At December 31, 2005
Depreciation

Machinery
andLand andbuildings equipment

251.6

760.3

143.3

0.5

1,155.7

12.2

35.5

9.5

-

57.2

Impairment

4.3

2.1

2.1

-

8.5

Disposals– 0.2– 13.8– 7.2-– 21.2

Change in scope of consolidation

-

-

-

-

-

Transfers

-

-

– 5.1

-

– 5.1

Translation differences

3.5

16.3

2.7

-

22.5

271.4

800.4

145.3

0.5

1,217.6

Depreciation

12.7

34.5

10.6

-

57.8

Impairment

-

0.4

-

-

0.4

– 1.8

– 13.9– 8.7-– 24.4

-

-

-

-

-

At December 31, 2006

Disposals
Change in scope of consolidation
Transfers

-

-

0.4

– 0.5

– 0.1

2.0

3.8

2.8

-

8.6

284.3

825.2

150.4

-

1,259.9

At December 31, 2006

216.6

143.6

23.1

38.2

421.5

At December 31, 2007

223.5

156.5

17.9

25.8

423.7

Translation differences
At December 31, 2007

Net book value

The additions at cost include property, plant and equipment of CHF 0.4 million acquired inconnection with the asset deals disclosed in footnote 29. Property, plant and equipment
also include leased assets with a net book value of CHF 1.1 million (2006: CHF 1.3 million) as
well as non-operating investment property with a net book value of CHF 2.3 million (2006:
CHF 2.6 million). The carrying amount of the non-operating investment property represents
approximately the current market value.
The fire insurance value of buildings, machinery and factory equipment of CHF 2,197 million(2006: CHF 2,194 million) covers the replacement cost. The business interruption risk arisingfrom fire and the production and product liability risks are covered by a Group-wide policy.

83

Maintenance and repair costs amounted to CHF 31.6 million (2006: CHF 29.6 million).
The depreciation expense is included in the items 'Cost of goods sold', 'Development costs','Marketing and distribution costs', and 'Administrative costs'.
Impairment tests have resulted in impairments on equipment and other assets. The impairment charge of CHF 0.4 million is included in 'Other operating expenses'.

11

Intangible assets
Cost
Goodwill

Trademarks /patents

Other
intangible
assets

Total

126.8

54.6

5.7

187.1

Additions

0.2

-

0.2

0.4

Disposals

– 0.5

-

– 0.5

– 1.0

Change in scope of consolidation

9.8

-

1.5

11.3

CHF m

At December 31, 2005

Transfers

-

-

7.2

7.2

Translation differences

– 2.2

-

0.4

– 1.8

At December 31, 2006

134.1

54.6

14.5

203.2

Additions

0.6

-

0.7

1.3

Disposals

– 1.6

-

– 0.4

– 2.0

Change in scope of consolidation

7.1

-

-

7.1

Transfers

-

-

0.3

0.3

Translation differences

– 2.6

0.1

0.3

– 2.2

At December 31, 2007

137.6

54.7

15.4

207.7

Goodwill

Trademarks /patents

Other
intangible
assets

Total

6.0

32.3

4.2

42.5

Amortization

-

0.7

1.4

2.1

Impairment

4.9

-

-

4.9

Disposals

– 0.5

-

– 0.4

– 0.9

-

-

-

-

0.1

-

5.0

5.1

-

-

0.3

0.3

Accumulated amortizationand impairment
CHF m

At December 31, 2005

Change in scope of consolidation
Transfers
Translation differences
At December 31, 2006

10.5

33.0

10.5

54.0

Amortization

-

-

1.3

1.3

Impairment

-

-

-

-

Disposals

-

-

– 0.4

– 0.4

Change in scope of consolidation

-

-

-

-

Transfers

-

-

0.1

0.1

Translation differences

0.4

-

0.4

0.8

10.9

33.0

11.9

55.8

At December 31, 2006

123.6

21.6

4.0

149.2

At December 31, 2007

126.7

21.7

3.5

151.9

At December 31, 2007

Net book value

84

The additions at cost include intangible assets of CHF 0.5 million acquired in connection
with the asset deals disclosed in footnote 29.
The intangible assets with an indefinite useful life are subject to an impairment test every
year on the basis of the cash-generating unit. The test is carried out using a standardized
method with discounted cash flow for calculating the value in use. The sales figures for the
first five years are estimated by management; sales growth for the remaining useful life
is assumed to be between 0 % and 3 %. The discounting rate is between 8 % and 15 % andcorresponds to the weighted cost of capital before taxes plus an extra risk charge estimatedby management.
The acquisition of Swift in 2002 is the main goodwill item; it is classified as recoverable.

12

Investments in associates
and other non-current assets

31.12.2007

31.12.2006

1.9

1.8

CHF m

Other investments

13

Other non-current assets

0.4

0.4

Total investments in associates and other non-current assets

2.3

2.2

31.12.2007

31.12.2006

74.0

71.6

Inventories
CHF m

Raw materials and supplies
Work in progress

97.5

85.3

Finished goods

144.8

138.4

Allowance for product risks– 30.0– 28.6

Total inventories

286.3

266.7

The inventory allowance amounts to CHF 30.0 million (2006: CHF 28.6 million). Write-downs
totaling CHF 1.4 million (2006: CHF 2.4 million) are recognized in 'Cost of goods sold' in theincome statement.

85

14

Trade receivables

31.12.2007

31.12.2006

Accounts receivable

276.6

278.2

Notes receivable

29.6

28.7

CHF m

Allowance for doubtful trade receivables– 18.5– 13.2

Total trade receivables

287.7

293.7

Trade receivables after deduction of the allowance for doubtful receivables amounting to
CHF 18.5 million (2006: CHF 13.2 million) came to CHF 287.7 million (2006: CHF 293.7 million).
As a rule, no default interest is charged for receivables past due. As regards the tradereceivables for which no allowance has been made or which are past due, there is no indication, as of the reporting date, to suggest that the debtors will not meet their payment
obligations. Provisions are set up in the form of a specific allowance. The need for a specificallowance arises in the event the debtor is unable to pay, the debt is more than 90 days
old or the debtor has made it known that it is encountering payment difficulties. Allowancestake sufficient account of default risks. In addition to the specific allowance, a portfolio
allowance may be made. Trade receivables for which an additional allowance may potentially be necessary are grouped together on the basis of similar risk characteristics andreviewed to determine an allowance. Where appropriate, such an allowance is made. The
decision whether to make a portfolio allowance in addition to a specific allowance
depends on whether past loss experience supports a potential valuation allowance.
The table below shows trade receivables on the reporting date:
31.12.2007

31.12.2006

Trade receivables (gross)

306.2

306.9

Of which not overdue

244.0

245.2

Less than 30 days

36.9

36.4

Between 31 and 90 days

14.0

13.9

Between 91 and 180 days

5.3

4.3

Between 181 and 360 days

4.0

4.3

Over 1 year

2.0

2.8

CHF m

Of which past due in the following times frames:

Allowance for doubtful trade receivables– 18.5– 13.2

Trade receivables

287.7

293.7

86

The trade receivables at gross value are in the following currencies:
31.12.2007

31.12.2006

CHF m
CHF

3.2

2.8

EUR

183.6

179.6

GBP

11.7

15.2

JPY

16.0

16.3

SEK

13.1

11.7

USD

43.8

51.8

Other

34.8

29.5

306.2

306.9

Trade receivables (gross)

The following table shows the movements of allowances on trade receivables during
the financial year:
2007

2006

– 13.2– 16.6

CHF m

At January 1
Additions

– 8.7

– 2.4

Release

1.3

2.0

Use

2.2

3.8

-

0.1

Change in scope of consolidation
Translation differences
At December 31

– 0.1

– 0.1

– 18.5– 13.2The set up and release of allowances on trade receivables are contained in the item
'Marketing and distribution costs' in the income statement.
15

Cash and cash equivalents

31.12.2007

31.12.2006

CHF m

Cash
Bank accounts
Short-term deposits with credit institutions
Total cash and cash equivalents

0.2

0.1

142.0

260.5

35.3

33.5

177.5

294.1

The movement of cash and cash equivalents can be found in the consolidated cash flow
statement.

87

16

Pledged or assigned assets
There are no pledged or assigned assets.

17

Share capital
After the reduction in par value of CHF 6 from CHF 20 to CHF 14, the share capital of Forbo
Holding Ltd stood at CHF 37,984,128 on December 31, 2007 (2006: CHF 54,263,040) andis divided into 2,713,152 registered shares with a par value of CHF 14 each. Of these, 21,419
registered shares without voting or dividend rights are at the disposal of the Board of
Directors. Consequently, 2,691,733 registered shares were eligible for dividends in thefinancial year 2007. The changes in outstanding shares were as follows:
31.12.2006

Change31.12.2007

Changes in outstanding shares

Total number of shares

NumberNumberNumber2,713,152-

2,713,152

114,535

123,819238,354

Treasury shares
Shares with dividend rights
Shares with no dividend rights
Total number of treasury shares

Total number of outstanding shares

18

21,419-21,419135,954

123,819259,773

2,577,198

123,819

2,453,379

Stock Option Plan
Members of the Board of Directors (until 2004) and of management were granted options
as part of the Group’s Stock Option Plan. The stock options are in recognition of past performance and are intended as a stimulus for future performance. The grant or strike pricerelevant for the allocation of the stock options is determined by the closing price on thefifth trading day after payment of the dividend. The options issued usually have a termof five years and a vesting period of three years.
With effect from March 15, 2006, the Board of Directors approved the introduction of theManagement Investment Plan (MIP). The SOP was canceled on the introduction of the MIP.
Within the framework of the MIP, participants receive at least 50 % of the variable component of their compensation in the form of shares and options. All shares are issued at the
average market price of the first 14 trading days in January of the current year. The options
are issued on the basis of a valuation prepared by an independent bank. The valuation isbased on the average market price of the shares in the first 14 trading days in January of thecurrent year. Equities and options are subject to a three-year vesting period. The term of
the options is five years. The shares and options issued within the framework of the MIP areequity-settled.

88

Options
The changes in the number of outstanding equity-settled options and their weighted
average strike price are as follows:
2007

2006
Numberof options

Weighted
averagestrike price

Numberof options

295

15,804263

13,486

565

5,768

370

7,194

Forfeited

-

-

264

– 3,200

Exercised233– 2,360

331

– 356

Expired--442– 1,320383

19,212295

15,804Weighted
averagestrike price

Options outstanding on January 1
GrantedOptions outstanding on December 31

Of the 19,212 options outstanding (2006: 15,804) 1,000 were exercisable as per December 31,
2007 (2006: 960). The exercise of 2,360 options (2006: 356) resulted in the issue of 4,720
Forbo Holding shares (2006: 712) at a weighted average issue price of CHF 233 (2006: CHF 331).
The weighted average share price on the exercise days was CHF 655 (2006: CHF 377).
The expense for equity-settled options charged to the income statement in applicationof IFRS 2 amounted to CHF 0.7 million (2006: CHF 0.6 million).
The following table summarizes information about the options outstanding at
December 31, 2007:
Averageremainingterm (years)

Number of
exercisable
options

Series(CHF)

Number ofoutstanding
options

2004

212

1,000

1.6

1,000

2005

235

5,250

2.5

-

2006

370

7,194

3.3

-

2007

565

5,768

4.3

-

19,2123.3

1,000

Strike priceTotal

In the year under review, a total of 5,768 equity-settled options (2006: 7,194) were granted aspart of the MIP. The fair value of these options amounted to CHF 75.60 (2006: CHF 45.80). The
options were valued in accordance with the Black-Scholes model using the following input
factors: share price at issue date CHF 475 (2006: CHF 320), strike price CHF 565 (2006: CHF 370),
volatility 27.4 % (2006: 24.3 %), expected life of the financial instrument 4.1 years (2006:
4.0 years), dividend yield 1.5 % (2006: 1.5 %) and risk-free interest rate 2.6 % (2006: 2.5 %).
The expected volatility is based on adjusted historical market data over a period comparable to the expected life of the options. The expected useful life applied in the calculation
model has been adapted, using the best possible estimate, to the limitation of exercise
rights and to assessment of possible exercise behavior.

89

SharesThe number of shares of Forbo Holding Ltd issued as part of the MIP in the year under review
was 1,455 (2006: 1,870). The share price at measurement date was CHF 475 (2006: CHF 320).
The Delegate of the Board of Directors and CEO is remunerated primarily with shares. Basedon an employment contract signed in 2005, 47,395 shares were issued in 2006 at a market
value of CHF 270 each for the entire five-year contract term (2006 – 2010). These shares areblocked until December 31, 2010. The corresponding personnel expenditure is charged tothe income statement over the entire contractual period on a pro rata basis.
In the year under review, the amount charged to the income statement in application of
IFRS 2 for shares issued amounted to CHF 4.5 million (2006: CHF 3.1 million).

19

Consolidated statement of changes in equity
2007

Net
Cash flow investment
hedge Translation
hedge
reserve differences
reserve

CHF m

Share
capitalTreasurysharesReserves

At December 31, 2006

54.3

– 3.5

735.4

– 8.3

– 9.2

– 130.1

638.6

Total income and expenses
recognized in equity

-

-

160.3

2.4

1.5

1.5

165.7

Share-based compensation

-

0.2

5.0

-

-

-

5.2

Treasury shares

-

– 1.7

– 79.4---– 81.1

Total

Reduction in par value– 16.3

1.0

-

-

-

-

– 15.3

At December 31, 2007

38.0

– 4.0

821.3

– 5.9

– 7.7

– 128.6

713.1

2006
CHF m

Share
capitalTreasurysharesReserves

At December 31, 2005

54.3

– 1.6

647.8

Reclassification

Net
Cash flow investment
hedge Translation
hedge
reserve differences
reserve--– 142.4

Total

558.1

-

-

10.1

– 10.1– 11.7

11.7-

At December 31, 2005

54.3

– 1.6

657.9

– 10.1– 11.7– 130.7

558.1

Total income and expenses
recognized in equity

-

-

103.6

1.8

2.5

0.6

108.5

Share-based compensation

-

0.2

3.9

-

-

-

4.1

Treasury shares

-

– 2.1

– 30.5---– 32.6Other
At December 31, 2006

-

-

0.5

-

-

-

0.5

54.3

– 3.5

735.4

– 8.3

– 9.2

– 130.1

638.6

90

20

Non-current ﬁnancial debt

31.12.2007

31.12.2006

CHF m

Outstanding private placements

195.2

335.7

Unamortized issuance cost

– 0.8

– 1.4

Total outstanding bonds and private placements

194.4

334.3

0.9

1.1

Less current portion– 0.4– 126.3

Total non-current ﬁnancial debt

194.9

209.1

31.12.2007

31.12.2006

After 1 year

138.7

0.3

Lease obligations

Maturities of non-current ﬁnancial debt
CHF m

After 2 years

0.2

149.2

After 3 years--

After 4 years

56.8

-

-

61.0

After 5 and more years
Unamortized cost

– 0.8

– 1.4

Total

194.9

209.1

The following derivatives were used in connection with hedging the private placement:
Financial derivatives

Gross value
hedgedUnrealized
gain / loss

Numberof contracts

CHF m

CHF m

Interest rate swaps and cross-currencyinterest rate swaps at December 31, 2006

6

239.3

– 68.9Interest rate swaps and cross-currencyinterest rate swaps at December 31, 2007

3

120.3

– 45.5

Valued at fair value in accordance with IAS 39. The net fair value (total of all positive andnegative fair values) at December 31, 2007 was CHF 45.5 million (2006: CHF 68.9 million).
It is contained in the item 'Other current liabilities'.
The cost of private placements is amortized over the respective terms.

91

Total outstanding bonds and private placements at 31.12.2007

Term

Interest
rate

USD

122.0 2002 – 20095.79 %

USD

50.0 2002 – 20126.29 %

Company
Forbo NL Holding B.V. (guaranteed by Forbo Holding Ltd)

Currency

Forbo NL Holding B.V. (guaranteed by Forbo Holding Ltd)m

Covenants related to non-current financial debt
The private placements (USD 172.0 million) contain general covenants customary for such
facilities. The private placements also contain financial covenants, i.e. defined maximum debt
coverage (the ratio of consolidated net debt to consolidated EBITDA may not be greaterthan 3 to 1), a defined maximum interest coverage (the ratio of consolidated EBITDA to consolidated net interest payable may not be less than 4 to 1) and a consolidated net worth test
(shareholders’ equity on the consolidated balance sheet may not fall below CHF 535.5 million).
The private placements include events of default customary for such facilities. All threefacilities are unsecured (with the exception of guarantees provided by Forbo Holding Ltd forobligations of its subsidiaries).

21

Employee benefit obligations
The Group has established several pension plans on the basis of the specific requirementsof the countries in which it operates. It has both defined contribution and defined benefit
plans. The obligations and assets under all the essential defined benefit plans are assessedannually by independent actuaries in accordance with the 'projected unit credit method'.
Details of the pension costs related to the major defined benefit plans are as follows:
2007

2006

Current service cost, net

14.4

16.8

Interest costs on employment benefit obligations

37.3

34.1

Expected return on plan assets– 38.3– 38.9Curtailment loss

– 1.2

-

Net periodic pension cost

12.2

12.0

CHF m

The actual return on plan assets came to CHF 11.7 million (2006: CHF 45.5 million).

92

The movements in liabilities under the defined benefit plans are as follows:
2007

2006

807.2

789.6

Total pension costs, gross

19.9

22.1

Interest costs on employment benefit obligations

37.3

34.1

Benefits paid

– 34.4– 36.7

Actuarial gains– 91.6– 35.8

Inclusion of new pension plans

6.3

4.1

Plan curtailments and compensations

– 5.1

-

CHF m

At January 1

Translation differences

– 4.7

29.8

At December 31

734.9

807.2

2007

2006

The movements of plan assets at fair value are as follows:

CHF m

At January 1

761.4

688.5

Expected return on plan assets

38.3

38.9

Employer contributions

14.0

26.5

Employee contributions

5.5

5.3

Actuarial gains / (losses)– 26.6

6.6

Benefits paid

– 34.4– 36.7

Inclusion of new pension plans

3.4

3.8

Plan curtailments and compensations

– 4.0

-

Translation differences

– 7.1

28.5

At December 31

750.5

761.4

The present value of pension liabilities and fair value of plan assets at year-end was asfollows:
31.12.2007

31.12.2006 31.12.2005

CHF m

Present value of defined benefit obligation

734.9

807.2

789.6

Fair value of plan assets– 750.5– 761.4– 688.5(Net assets) / liabilities– 15.6

45.8

101.1

Net assets not recognized in the balance sheet

12.5

-

-

(Net assets) / liabilities recognizedin the balance sheet

– 3.1

45.8

101.1

93

2007

2006

2005

CHF m

Experience adjustment arisingon the plan obligation
Actuarial gains

0.3

15.5

26.2

Percentage of plan obligation

0%

2.0 %

3.7 %

Actuarial gains / (losses)– 26.66.6

55.3

Percentage of plan assets– 3.5 %

1.0 %

9.3 %

Experience adjustment arisingon the plan assets

In 2005, actuarial gains and losses and adjustments in light of past experience, which areused for valuing assets and liabilities, were recognized in the balance sheet for the first time
under pension liabilities and charged directly to equity.
Most of the pension plans are financed in whole or in part via a fund. Pension obligations
amounting to CHF 35.8 million (2006: CHF 32.3 million) of a total of CHF 734.9 million(2006: CHF 807.2 million) are not financed via a fund.
The movements in the net liabilities recognized in the balance sheet are as follows:
2007

2006

45.8

101.1

CHF m

Net liabilities at January 1
Total pension expenses include in personnel expenses

12.2

12.0

Employer contributions– 14.0– 26.5

Actuarial gains– 52.5– 42.42.9

0.3

Inclusion of new pension plans
Translation differences(Net assets) / liabilities at December 31

2.5

1.3

– 3.1

45.8

2007

2006

15.6

– 25.6

The gains and losses charged to shareholders’ equity are as follows:

CHF mAccumulated gains and losses recognized
Actuarial gains / (losses) at January 1
Actuarial gains in the current period

52.5

42.4

Translation differences

– 0.7

– 1.2

Total actuarial gains at December 31

67.4

15.6

The actuarial gain in 2007 includes losses of CHF 26.3 million (2006: gain of CHF 22.1 million)
due to experience adjustments and a gain of CHF 91.3 million (2006: CHF 20.3 million) due tochanges in assumptions.

94

The principal actuarial assumptions used for accounting purposes were as follows(expressed as weighted averages):
2007

2006

%
Discount rate

5.3

4.6

Expected return on plan assets

5.0

5.6

Future salary increases

2.8

3.2

The expected return on plan assets is derived from long-term government bonds in therespective currency zones.
The weighted average distribution of the plan assets at December 31, 2007 and 2006 isshown below by investment category:
2007

2006

%
Shares28

46

Fixed-interest bonds

68

48

Real estate11Cash and other investments
Total

3

5

100

100

The pension plans do not hold any Forbo shares.
Future contributions to defined benefit plans are estimated in the following year on thebasis of the period under review.
The expense for the contributions to defined contribution plans, which is included inpersonnel expenses, amounted to CHF 5.4 million in 2006 (2006: CHF 6.5 million).

22

Non-current provisions

CHF m

Warranty
provisions

Environ- Provisionsformentalprovisions legal claims

Personnel
provisions

Other
provisions

Total
provisions

At December 31, 2006

6.2

6.0

13.4

4.8

11.3

41.7

Additions

0.5

0.3

7.7

0.6

-

9.1

Disbursements / release

– 0.1

– 0.2

– 2.3

– 4.3

– 2.0

– 8.9

Translation differences

0.2

0.1

– 0.1

0.1

0.1

0.4

At December 31, 2007

6.8

6.2

18.7

1.2

9.4

42.3

95

Warranty provisions are made in connection with the sale of products and are based on pastexperience. Experience shows that cash outflows are spread evenly over the warranty
period of five to ten years. The environmental provisions cover the anticipated remediation
costs related to operations in previous years. The provisions for legal claims relate essentially to product liability claims in which the Group is involved in the course of its normal
conduct of business and to trademark litigation. The personnel provisions reflect longterm obligations to employees. The environmental, legal, personnel and other provisions
are expected to result in a cash outflow in the medium term.

23

Trade payables

31.12.2007

31.12.2006

132.2

126.1

CHF m

Accounts payable
Notes payable

5.9

5.4

138.1

131.5

31.12.2007

31.12.2006

Provisions for restructuring

7.4

8.6

Accrued expenses for compensation and benefits to employees

64.9

63.2

Other accrued expenses

95.3

97.5

167.6

169.3

Total trade payables

24

Current provisions and accrued expenses
CHF m

Total current provisions and accrued expenses

Of the provisions for restructuring, CHF 1.2 million was used for the specific purpose in theyear under review. Accrued expenses for compensation and benefits to employees mainly
include holidays and overtime accruals as well as bonus provisions. Other accrued expenses
include accrued volume rebates, commissions, premiums, interest and accrued warranty
costs, and similar items.

96

25

Current ﬁnancial debt

31.12.2007

31.12.2006

CHF m

26

Current bank loans and overdrafts

23.8

2.0

Current portion of non-current debt

0.4

126.3

Total current ﬁnancial debt

24.2

128.3

31.12.2007

31.12.2006

0.9

0.7

Commitments and contingent liabilities
CHF mCommitments and contingent liabilities

Contingent liabilities relate to sureties and guarantees in favor of third parties.

27

Leasing
Operational leasing

CHF m

Leasing obligation up to 1 year

2007
10.4

2006
9.3

Leasing obligation 2 – 5 years

16.1

18.1

Leasing obligations of more than 5 years

0.6

0.9

27.1

28.3

Total

The expense for operational leasing charged to the income statement came to
CHF 25.5 million in 2007 (2006: CHF 23.3 million). The Group has no significant operational
leasing contracts. The liability from financial leasing stood at CHF 0.9 million at year-end(2006: CHF 1.1 million) and is included in 'Current financial debt'.

97

28

Additional information on financial instruments
The financial instruments held on the balance sheet date can be allocated to the following
categories as per IAS 39:
31.12.2007
Cash and cash
equivalents

Loans andreceivables

Financial assets atfair value throughprofit or loss

-

317.2

-

177.5

-

-

-

-

-

Total

177.5

317.2

-

CHF m

Liabilities at fairvalue throughprofit and loss

Derivatives used
for hedging

Financial
instruments held
for trading

219.1

-

-

CHF m

AktivaTrade receivables and other receivables
Cash and cash equivalents
Financial derivatives

Passiva
Interest-yielding debt

-

34.1

11.7

Trade payables and other payables1)

Financial derivatives

170.3

-

-

Total

389.4

34.1

11.7

Cash and cash
equivalents

Loans andreceivables

Financial assets atfair value throughprofit or loss

-

318.8

-

294.1

-

-

31.12.2006
CHF m

AktivaTrade receivables and other receivables
Cash and cash equivalents
Financial derivatives

-

-

1.1

Total

294.1

318.8

1.1

CHF m

Liabilities at fairvalue throughprofit and loss

Derivatives used
for hedging

Financial
instruments held
for trading

Passiva
Interest-yielding debt

377.4

-

-

Financial derivatives

-

29.7

39.2

Trade payables and other payables1)

167.2

-

-

Total

544.6

29.7

39.2

1) Excl. sales tax.

98

29

Acquisition of subsidiaries
With effect on December 5, 2007, the Forbo Group acquired 100 % of the issued capital of
OOO 'Linoleum'. OOO 'Linoleum' is a flooring manufacturer domiciled in Moscow, Russia, andspecializes in the production and marketing of vinyl flooring. OOO 'Linoleum' is reported
as part of the Flooring Systems division. The cost of the acquisition was CHF 10.6 million andconsists of liquid funds amounting to CHF 10.1 million and directly attributable transaction
costs of CHF 0.5 million.
With effect on November 21, 2007, the Group acquired the assets of Specialpipe s.r.l.
domiciled in Erban, Italy. The acquired assets of Specialpipe s.r.l. were integrated in Forbo
Siegling Italia S.p.A and are reported as part of the Movement Systems division. The
cost of the acquisition was CHF 0.6 million and consists of liquid funds amounting to
CHF 0.55 million and directly attributable transaction costs of CHF 0.05 million.
With effect on October 24, 2007, the Group acquired the assets of Rasmussen & Möller
domiciled in Fredrikssund, Denmark. Rasmussen & Möller markets conveyor and flat belts forthe local market. The acquired assets of Rasmussen & Möller were integrated in Forbo
Siegling Danmark A / S and are reported as part of the Movement Systems division. The costof the acquisition was CHF 2.2 million and consists of liquid funds amounting to CHF 2.0
million and directly attributable transaction costs of CHF 0.2 million.
With effect on May 31, 2007 the Group acquired 100 % of the issued capital of Forbo
Siegling Ceska republika s.r.o (formerly Jaros Service s.r.o.). This company is a distributor
which sells conveyor and flat belts in the Czech market. Forbo Siegling Ceska republika
s.r.o is reported as part of the Movement Systems division. The cost of the acquisition was
CHF 0.9 million and consists of liquid funds.
2007

2006

13.5

3.6

CHF m

Portion of purchase price paid in cash
Earn-out component

-

9.3

0.8

-

Total purchase price

14.3

12.9

Fair value of the acquired net assets

– 6.7

– 3.1

Goodwill

7.6

9.8

Directly allocable acquisition costs

99

The acquired net assets break down as follows:
31.12.2007

31.12.2006

Adjustments to the
CHF m

Property, plant andequipment
Intangible assets

Adjustments to theBook value

Fair value

Fair value

Book value

Fair value

Fair value

2,5

0,9

3,4

2,5

–

2,5

-

0,5

0,5

–

1,5

1,5

Inventories

2,4

– 0,2

2,2

2,2

–

2,2

Receivables

0,6

-

0,6

0,3

–

0,3

Cash

0,2

-

0,2

-

–

-

Other assets

0,4

-

0,4

Short-term provisions andaccrued expenses

– 0,7

0,1

– 0,6

– 3,4

–

– 3,4

Fair value ofthe net assets

5,4

1,3

6,7

1,6

1,5

3,1

Purchase price paid in cash
Cash acquired
Net cash outﬂow
for payment– 14,3

– 3,6

0,2

-

– 14,1– 3,6

The initial accounting for the business combinations was performed on a provisional basis.
The net cash outflow from company acquisitions in 2007 is CHF 23.3 million. In addition to
the net cash outflow for acquisitions effected in the year under review amounting to
CHF 14.1 million, it comprised the actual earn-out component of CHF 9.2 million in 2007
in connection with the acquisition of Victa Technology Holdings Limited, Hong Kong,
effected in the 2006 business year.
The acquired goodwill consists of assets that cannot be individually identified and reliably
identified, and of the synergies which can be achieved in connection with the existing
Flooring Systems and Movement Systems divisions.
The net profit of the acquired companies since the time of acquisition is reported in the
consolidated annual statements and amounts to CHF 0.1 million. On the assumption that allcompany acquisitions were completed with the 2007 business year as per January 1, 2007
the net sales for the reporting period would have been CHF 9.5 million higher and net profit
as well as equity would have remained unchanged.

100

30

Related party transactions
Executive
Board

CHF m

Membersof the Board of Directors

Total

Total

2007

2006

2007

2006

2007

2006

Payments duein the short term

2.0

3.2

0.7

0.5

2.7

3.7

Contribution to pension funds

0.3

0.3

0.2

0.2

0.5

0.5

Share-based compensations

2.0

1.3

2.8

2.8

4.8

4.1

Total

4.3

4.8

3.7

3.5

8.0

8.3

In order to ensure comparability with the information provided in connection with theintroduction of the transparency law (see Note 17 'Disclosure of compensation to the Boardof Directors and Executive Board as per Article 663b bis and Article 663c Swiss Code ofObligations' on page 118 of the financial Report of Forbo Holding Ltd), compensation to
the Delegate of the Board of Directors and CEO of CHF 3.1 million is reported in thecompensation to the Board of Directors for the first time. This figure has been restatedaccordingly.
The short-term compensation to the Executive Board in the 2007 business year consists
mainly of the gross base salary, private use of the company car and social insurance
payments made by the company. Employer contributions to pension funds are disclosed
separately. Share-based compensation to the Executive Board comprises mainly theestimated result-driven variable component as part of the MIP (see Note 18 'Stock option
plans') for the 2007 business year (payable in 2008).
The short-term compensation to the Board of Directors amounted to CHF 0.5 million(2006: CHF 0.4 million) for the Delegate of the Board of Directors and CEO. This comprises
annual amounts of CHF 0.15 million for payment of employee contributions to thepension fund and social insurances and of CHF 0.35 million for private use of the company
car and – a new element – employer contributions to AHV / ALV (old-age and unemployment insurance) plus accident and daily benefits insurance. Employer contributions topension funds are disclosed separately. The short-term compensation for non-executive
Board members of Forbo Holding Ltd amounts to CHF 0.4 million (2006: CHF 0.2 million).
The share-based compensation to the Board of Directors includes the annual portion of the
Forbo shares allocated to the Delegate of the Board of Directors and CEO amounting
to CHF 2.6 million (2006: CHF 2.6 million) and the 349 Forbo shares allocated to the nonexecutive Board members in 2007 at a market value of CHF 0.2 million (2006: CHF 0.2 million).
The Group has a 331∕3 % interest in Enia Carpet Group. In 2007, the Forbo Group bought
products from Enia Carpet Group worth CHF 3.7 million (2006: CHF 4.8 million),while Enia Carpet Group bought products from the Forbo Group worth CHF 0.1 million(2006: CHF 2.5 million).
31

Financial risk management
In its financial operations, the Forbo Group uses derivative and non-derivative financial
instruments in order to control the risks and opportunities arising from fluctuations in
exchange rates and interest rates. The various risks involved in existing assets and liabilities
as well as planned and anticipated transactions are assessed and monitored centrally –with due regard to the Group’s consolidated risk exposure. In adherence to the Group’s
financial risk management policy (established on the basis of written guidelines andpolicies), Corporate Treasury continuously monitors both the risk exposure and the effectiveness of the hedging instruments and issues recommendations with regard to partial
or complete hedging of existing risks.

101

The Group’s financial risk management policy does not permit the use of derivative financial
instruments for speculation. Derivative financial transactions are concluded only with firstclass banking institutions in order to manage the counterparty risk. The creditworthiness ofthese institutions is assessed on the basis of evaluations by leading rating agencies.
At Forbo, 'derivative instruments' are related to management either of currency risks or ofinterest rate risks (or a combination of both).
Management of currency risks
Risks arising from short-term currency exposure created by purchases and sales of goods
and services (transaction risks) are identified, and selective hedging strategies are implemented in line with an ongoing assessment of exchange rate movements. The Group onlyuses foreign exchange forward and option contracts with maturities of up to twelve
months.
Furthermore, risks associated with the translation of assets and liabilities denominated inforeign currencies (translation risks) are managed by establishing an appropriate financing
policy, including net investment hedges.
The following table shows the sensitivity of profit before tax and of equity to changes inthe exchange rate of the US dollar and euro against the Swiss franc.
2007
CHF m
EUR / CHF

USD / CHF

EUR / USD

Change inexchange rate

Impact on profit
before tax

Impacton equity

5%

– 1.0

– 5.7

–5%

1.0

5.7

5%

0.1

7.8

–5%

– 0.1

– 7.8

5%

0.5

-

–5%

– 0.5

-

Change inexchange rate

Impact on profit
before tax

Impacton equity

5%

– 4.4

– 6.7

–5%

4.4

6.7

2006
CHF m
EUR / CHF

USD / CHF

EUR / USD

5%

0.5

8.2

–5%

– 0.5

– 8.2

5%

0.5

-

–5%

– 0.5

-

102

Management of interest rate risks
Interest rate risks arise from the fact that the market value of interest-bearing assets andliabilities is subject to fluctuations in interest rates. Since these risks may have a negative
effect on net financial profit and equity, the Group uses derivative financial instruments tomanage them. The following table shows the sensitivity of profit before tax and of equity
to changes in interest rates. The effects on cash, interest bearing liabilities and derivative
financial instruments are shown separately.
As the closing balances of cash and cash equivalents do not provide meaningful information about the interest rate sensitivities the arithmetic average of opening and closingbalances was calculated.
2007
CHF m
EUR

USD

Change ininterest rate

Impact on profit
before tax

50bp

0.7

0.3

– 50bp

– 0.7

– 0.3

50bp

– 0.1

– 0.9

– 50bp0.1

0.9

Change ininterest rate

Impact on profit
before tax

Impact on equity

50bp

0.9

0.9

– 50bp

– 0.9

– 0.9

50bp

– 1.0

– 1.6

– 50bp1.0

1.6

Impact on equity

2006
CHF m
EUR

USD

Management of liquidity risksGroup companies need sufficient cash in order to meet their obligations. Subject to theguidelines issued by the Group, the individual companies are responsible for the management of their own cash surpluses and the raising of funds to cover their liquidity needs.
In certain cases, approval must be obtained from Corporate Treasury. The Group maintains
sufficient cash reserves to meet its liquidity requirements at all times. At present, theGroup regards a liquidity stock of CHF 80.0 million as sufficient to meet its payment obligations at all times.

103

The maturity structure of the existing financial liabilities can be seen in the following table.
They correspond to contractually agreed maturities and represent nominal payment
outflows. Since IFRS 7 demands the presentation of cash outflows, potential cash inflows,for instance from derivative financial instruments, are not shown.
31.12.2007

Remainingterm
to maturity
over 5 years

Remainingterm tomaturity
up to1 year

Remainingterm
to maturity
1 – 2 years

Remainingterm
to maturity
2 – 5 years

Liabilities to credit institutions

23.9

-

-

-

Interest-free liabilities

170.2

-

-

0.1

CHF m

Liabilities from leasing contracts

0.4

0.3

0.2

-

Liability from private placement

11.6

149.1

67.1

-

Derivative financial liabilities

31.6

173.9

-

-

Remainingterm tomaturity
up to1 year

Remainingterm
to maturity
1 – 2 years

Remainingterm
to maturity
2 – 5 years

Remainingterm
to maturity
over 5 years

2.0

-

-

-

165.8

-

-

0.1

31.12.2006
CHF m

Liabilities to credit institutions
Interest-free liabilities
Liabilities from leasing contracts

0.5

0.3

0.3

-

Liability from private placement

138.3

12.5

168.2

64.4

Derivative financial liabilities

154.2

8.3

170.9

-

Management of credit risks
Credit risks arise from the possibility that customers may not be able to meet their agreed
obligations. To manage this risk, the financial creditworthiness of various customers isconstantly assessed. Credit risks are diversified by the company’s widespread customer basein various business segments and geographic regions. With regard to counterparty risk
exposure to financial institutions, Group-wide directives stipulate that financial investments
and other financial transactions are to be made only with first-class banks. The Groupconsiders a bank first-class if it has a credit rating of at least single A. Given the excellent
credit ratings of the Group’s counterparties, the Group does not expect any of them tofail to meet their obligations.
Capital management
The Group understands capital management as the management of the consolidated
equity position. This includes the paid-in share capital, the retained earnings and thetreasury shares position. The purpose of capital management is to ensure the going concernof the Group, to ensure financial flexibility for investments and to attain a risk-adjusted
return for the investor.
Changing economic conditions can influence the capital management and lead tomodifications of the equity structure of the Group. Such modifications can take place inform of dividend distributions, capital repayments and capital increases.
A covenant exists in connection with the US private placement defining the minimum
requirement for the consolidated equity as CHF 535.5 million.

104

32

Events after balance sheet date
Focus Capital Investors, Inc., New York, announced on January 17, 2008 that as of January 11,
2008 its interest in Forbo Holding Ltd had risen above the 10 % threshold due to theacquisition of registered shares and the new proportion of voting rights would correspondto 10,71 %. The same company announced on February 25, 2008 that due to the sale ofregistered shares on January 19, 2008 their interest had fallen below the threshold of 5 %and the new proportion of voting rights would correspond to 3.51 %. Eventually, on
February 27, 2008 the same company announced that their interest had fallen below the
3 % threshold to 0 % (see note 'Significant shareholders' in the financial statementsof Forbo Holding Ltd on page 117).

105

1,400,000

100 %

S

Holding /Services

AUD

Movement
Systems

Currency Share capital

Bonding
Systems

Registeredofﬁce

Flooring
Systems

Company

Equityinterest

Group Companies(December 31, 2007)

Australia
Forbo Floorcoverings Pty. Ltd.

Wetherill Park, NSW

Forbo Siegling Pty. Ltd.

Wetherill Park, NSW

AUD

3,000,000

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

ViennaEUR

73,000100 %Forbo Siegling Austria Ges.m.b.H.

ViennaEUR

330,000

100 %Forbo Adhesives België BVBA

DendermondeEUR

61,000100 %Forbo Flooring N.V.

Dilbeek

EUR

250,000

100 %S

Forbo Pisos Ltda.

São Paulo

BRL

10,000100 %S

Forbo Siegling Brasil Ltda.

São Paulo

BRL

7,008,746

50 %

100 %

D

S

Austria
S
S

BelgiumS

BrazilN

MS

CanadaForbo Adhesives (Canada), Ltd.

St. John

CAD

3,500,157

Forbo Flooring, Inc.

TorontoCAD

500,000

100 %Forbo Siegling, Ltd.

TorontoCAD

501,000

100 %

S

CLP

335,631,092

50 %

MS

MS
S

Chile
Forbo Siegling Chile S.A.

SantiagoN

Czech Republic
Forbo s.r.o.

Prague

CZK

500,000

100 %Forbo Siegling Ceska republika s.r.o.

Liberec

CZK

100,000

100 %Forbo Flooring A / S

Glostrup

DKK

500,000

100 %Forbo Siegling Danmark A / S

Brøndby

DKK

1 000,000

100 %

Esbo

EUR

25,280

100 %

S

S
S

DenmarkS
MS

FinlandOy Forbo Adhesives Finland AbMSFranceForbo Participations S.A.S.

Surbourg

EUR

11,524,800

100 %Forbo Sarlino S.A.S.

Reims

EUR

6,400,000

100 %Forbo Adhesives France S.A.S.

Surbourg

EUR

1,440,000

100 %Forbo Siegling France S.A.S.

Lomme

EUR

819,000

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

Reims

EUR

1,834,290

100 %

MS

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

Reims

EUR

3,447,000

100 %

MS

D

H
S
MS
S

15,400,000

100 %Holding /Services

EUR

Movement
Systems

Currency Share capital

Bonding
Systems

Registeredofﬁce

Flooring
Systems

Company

Equityinterest

106

Germany
Forbo Beteiligungen GmbH

LörrachForbo Erfurt GmbH

ErfurtEUR

2,050,000

100 %Forbo Flooring GmbH

Paderborn

EUR

500,000

100 %Forbo Adhesives Deutschland GmbH

Pirmasens

EUR

5,120,000

100 %Forbo-Novilon GmbH

LörrachEUR

1,030,000

100 %Paul Heinicke GmbH & Co KG

Pirmasens

EUR

1,023,000

100 %Realbelt GmbH

Velen

EUR

100,000

100 %Forbo Siegling GmbH

Hanover

EUR

10,230,000

100 %Forbo Uli-Chemie GmbH

LörrachEUR

110,000

100 %S

Kallithea (Athens)

EUR

928,000

100 %MSHong Kong

HKD

1,000,000

100 %Forbo Adhesives Hungary Kft.

Budapest

HUF

3,000,000

100 %Forbo Siegling Hungária Kft.

Budapest

HUF

30,000,000

100 %Forbo Ireland Ltd.

DublinEUR127,000

100 %Forbo-Siegling (Ireland) Ltd.

DublinEUR25,400100 %Forbo Adhesives Ireland Ltd.

Dublin

EUR

2,540

100 %

S

Pianezze (Vicenza)

EUR

416,000

100 %MS

Segrate (Milan)

EUR

60,000100 %(Milan)EUR104,000

100 %

S

Tokyo

JPY

330,000,000

100 %

MS

GBP

25,000100 %Johor Bahru

MYR

2,500,000

100 %Tlalnepantla

MXP

2,815,000

100 %

D

D

H
MS
S
MS
S
H
S
MS

GreeceForbo Adhesives Greece S.A.I.C

Hong Kong
Victa Technology Holdings (Hong Kong) Ltd.

H

Hungary
V
V

IrelandS
S

Italy
Forbo Adhesives Italia S.p.A.
Forbo Resilienti S.r.l.

S

Paderno Dugnano
Forbo Siegling Italia S.p.A.

Japan
Forbo Siegling Japan Ltd.

Jersey, C.I.
Forbo Invest Ltd.

St. Helier

D

H

Malaysia
Forbo Siegling SDN. BHD.

S

MexicoForbo Siegling, S.A. de C.V.

S

MS

100 %

Holding /Services

454,000

Movement
Systems

Currency Share capital

Bonding
Systems

Registeredofﬁce

Flooring
Systems

Company

Equityinterest

107

Netherlands
Forbo Eurocol B.V.

Zaanstad

EUR

Forbo Flooring B.V.

Krommenie

EUR

11,350,000

100 %Forbo NL Holding B.V.

Krommenie

EUR

13,500,000

100 %Forbo-Novilon B.V.

Coevorden

EUR

3,630,000

100 %Forbo Adhesives Nederland B.V.

Genderen

EUR

27,000100 %Forbo Siegling Nederland B.V.

Driebergen

EUR

113,000

100 %Forbo Stamoid B.V.

Krommenie

EUR

227,000

100 %Auckland

NZD

650,000

100 %

NOK

1,000,000

100 %

MS
MS
H
MS
MS
S

S

New Zealand
Forbo Siegling Ltd.

S

NorwayForbo Flooring AS

Asker

D

S

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

Shenyang

CNY146,391,000

100 %Forbo Adhesives (Guangzhou) Co., Ltd.

Guangzhou

CNY32,261,000

100 %

PV

Forbo Adhesives (Shanghai) Co., Ltd.

Shanghai

CNY7,630,000

100 %

V

Warsaw

PLZ

50,000

100 %

S

PV

PolandForbo Adhesives Poland Sp. z o.o.

Portugal
Leça da Palmeira
Forbo-Revestimentos, S.A.

(Porto)EUR

75,000100 %Siegling (Portugal) Lda.

Gemunde (Porto)

EUR

500,000

100 %Forbo Helmitin Romania S.R.L.

Oradea

RON

7,077

100 %

Forbo Siegling Romania S.R.L.

Bukarest

RON

38,000100 %S

St. Petersburg

RUB

400,000

100 %S

OOO 'Forbo Stroitech'

Stary Oskol

RUB

70,181,000

100 %OOO ' Linoleum'

Moscow

RUB

75,263,000

100 %Malacky

SKK

200,000

100 %Forbo Adhesives Spain, S.L.

Mos (Pontevedra)

EUR

15,006100 %Forbo Pavimentos, S.A.

Barcelona

EUR

60,000100 %EUR

1,533,000

100 %

S
S

Romania
S

RussiaZAO 'Forbo Siegling'MS
MS

Slovakia
Forbo Siegling, s.r.o.

S

Spain
MS
S

Montcada i Reixac
Forbo Siegling Iberica, S.A.

(Barcelona)S100 %S

Holding /Services

8,000,000

Movement
Systems

Currency Share capital

Bonding
Systems

Registeredofﬁce

Flooring
Systems

Company

Equityinterest

108

SwedenForbo Flooring AB

Göteborg

Forbo Parquet AB

Tibro

Forbo Project Vinyl AB

Göteborg

Forbo Adhesives Sweden AB

Göteborg

Forbo Siegling Svenska AB

Mölndal

D

SEK
SEK

20,000,000

100 %

MS

D

SEK

50,000,000

100 %

MS

SEK

100,000

100 %

SEK

1,000,000

100 %

S
S

Switzerland
Enia Carpet Group AG

EnnendaN

CHF

3,375,000

33 %H

FJK Carpet D GmbH

EnnendaN

CHF

20,00025 %H

Forbo Financial Services AG

Baar

CHF

100,000

100 %H

Forbo Finanz AG

Baar

D

CHF

10,000,000

100 %

H

Forbo-Giubiasco SA

Giubiasco

D

CHF

10,000,000

100 %Forbo International SA

Baar

D

CHF

100,000

100 %MS

Istanbul

TRY725,000

100 %V

London

GBP

8,000,000

100 %

MS
MS

H

TurkeyForbo Adhesives Ticaret Limited Sirketi

United Kingdom
Forbo-Nairn Ltd.
Forbo Adhesives UK Ltd.

Chatteris

Forbo UK Ltd.

LondonForbo Siegling (UK) Ltd.

MS

GBP

100

100 %

GBP

49,500,000

100 %LondonGBP

163,000

100 %Durham, NC

USD

5,000,100

100 %

USD

19,957,259

100 %

H

USD

50,000

100 %

H

D

MS
H
S

USA
Forbo Adhesives, LLC
Forbo America, Inc.

Wilmington, DE

Forbo America Services Inc.

Wilmington, DE

D

Forbo Flooring, Inc.

Hazleton, PA

USD

3,517,000

100 %Forbo Siegling, LLC

Huntersville, NC

USD

15,455,000

100 %S Sales
MS Manufacturing and Sales
H Holding / Services
N Not included in the consolidation
D Direct participation of Forbo Holding Ltd

PV

V
PV

109
Report of the Group Auditors

Report of the Group Auditors
to the Annual General Meetingof Forbo Holding Ltd, Baar

As auditors of the group, we have audited the consolidated financial statements(consolidated income statement, consolidated balance sheet, consolidated cash f low
statement, consolidated statement of recognized income and expense and notes
to the consolidated financial statements – pages 60 to 108) of Forbo Holding Ltd forthe year ended December 31, 2007.
These consolidated financial statements are the responsibility of the Board of
Directors. Our responsibility is to express an opinion on these consolidated financial
statements based on our audit. We confirm that we meet the legal requirements
concerning professional qualification and independence.
Our audit was conducted in accordance with Swiss Auditing Standards on Auditing
and international auditing standards, which require that an audit be planned andperformed 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 the accounting 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 of thefinancial position, the results of operations and the cash f lows in accordance with
the International Financial Reporting Standards (IFRS) and comply with Swiss law.
We recommend that the consolidated financial statements submitted to you be
approved.
PricewaterhouseCoopers AG

Stefan Räbsamen
Auditor in charge
Zurich, March 14, 2008

Gerhard Siegrist110
Consolidated Income Statements 2003 – 2007

2007

2006

2005

2004

2003

CHF m

Net sales

2,004.0

1,879.5

1,702.0

1,622.3

1,598.9

Cost of goods sold– 1,331.9– 1,273.4– 1,151.8– 1,092.5– 1,091.3

Gross proﬁt

672.1

606.1

550.2

529.8

507.6

Development costs– 31.6– 31.3– 32.4– 32.1– 28.9Marketing and distribution costs– 325.9– 300.6– 286.9– 285.1– 287.5

Administrative costs– 137.7– 131.9– 143.5– 143.6– 122.2

Other operating expenses– 14.5– 32.7– 63.5– 113.5– 8.6

Operating proﬁt / loss

162.4

109.6

23.9

– 44.5

60.4

Financial income

11.7

7.6

9.5

4.2

7.9

Financial expense– 19.3– 21.0– 28.3– 49.8– 37.3

Share of result of associated companies

-

-

-

– 22.5

0.8

154.8

96.2

5.1

– 112.6

31.8

Income taxes– 44.1– 35.0– 21.6– 44.8– 15.7

Group proﬁt / loss for the year

110.7

61.2

– 16.5– 157.4

16.1

Group proﬁt / loss before taxes

111
Consolidated Balance Sheets 2003 – 2007

31.12.2007

31.12.2006 31.12.2005 31.12.2004 31.12.2003

Assets
CHF m
Non-current assets

601.7

593.4

597.3

612.2

812.9

Tangible assets

423.7

421.5

422.4

443.5

558.8

Intangible assets

151.9

149.2

144.6

143.0

163.9

Deferred taxes

20.7

20.5

28.1

23.5

61.5

Employee benefit assets

3.1

-

-

-

-

Investments in associates andother long-term assets

2.3

2.2

2.2

2.2

28.7

Current assets

803.5

905.2

993.7

904.4

750.9

Inventories

286.3

266.7

257.0

255.2

247.9

Trade receivables

287.7

293.7

273.8

242.9

251.6

Other receivables

29.5

25.1

22.8

28.7

34.9

Prepaid expenses and deferred charges

22.5

25.6

35.5

30.8

27.8

Marketable securities
Cash and cash equivalents
Total assets

-

-

-

-

18.9

177.5

294.1

404.6

346.8

169.8

1,405.2

1,498.6

1,591.0

1,516.6

1,563.8

31.12.2007

31.12.2006 31.12.2005 31.12.2004 31.12.2003

Shareholders’ equity and liabilities
CHF m
Shareholders’ equity

Share capital

713.1

638.6

558.1

543.7

572.5

38.0

54.3

54.3

54.3

38.0

Treasury shares

– 4.0

– 3.5

– 1.6

– 1.6

– 7.7

Reserves and retained earnings

679.1

587.8

505.4

491.0

542.2

Non-current liabilities

254.7

304.4

512.9

604.7

670.7

Non-current financial debt

194.9

209.1

358.4

459.7

554.2

-

45.8

101.1

112.1

88.7

42.3

41.7

40.7

26.9

21.3

Employee benefit obligations
Non-current provisions
Deferred taxes

17.5

7.8

12.7

6.0

6.5

Current liabilities

437.4

555.6

520.0

368.2

320.6

Trade payables

138.1

131.5

131.8

108.8

114.9

Current provisions and accrued expenses

167.6

169.3

136.5

116.6

81.3

Current financial debt

24.2

128.3

155.5

18.1

13.8

Current tax liabilities

29.8

21.8

10.6

6.1

7.9

Other current liabilities
Total liabilities
Total shareholders’ equity and liabilities

77.7

104.7

85.6

118.6

102.7

692.1

860.0

1,032.9

972.9

991.3

1,405.2

1,498.6

1,591.0

1,516.6

1,563.8

112
Financial Statements of Forbo Holding Ltd

Contents

Financial Statements of Forbo Holding Ltd
113

Income Statement

114

Balance Sheet

115

Notes ot the Financial Statements

120

Proposal for Appropriation of Available Earnings

121

Report of the Statutory Auditors

113
Income Statement of Forbo Holding Ltd

2007

2006

IncomeCHF

Notes

Financial income
from investments in and advances to Group companies

1

38,789,562

21,255,988

from securities and short-term investments

2

15,162,264

578,165

1,633

125,236

Income from services and other sources
Total income

53,953,459 21,959,389

2007

2006

Expenses
CHF

Notes

Administrative expenses

3

4,609,165

4,786,688

Financial expense

411,734,535

8,835,866

18,00065,000

Taxes
Total expenses

16,361,700 13,687,554

Net proﬁt for the year

37,591,759

8,271,835

114
Balance Sheet of Forbo Holding Ltd(before appropriation of available earnings)

31.12.2007

31.12.2006

445,498,476

532,640,737

346,804,727

346,804,727

AssetsCHF

Notes

Long-term assets
Investments in Group companies

5

Advances to Group companies

6

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

7

Cash and cash equivalents

8

98,693,749

185,836,010

153,856,306

3,325,503

2,436,291

1,112,756

15,840120,924

15,196

26,509146,918,100-

4,470,879

2,065,314

599,354,782

535,966,240

31.12.2007

31.12.2006

428,364,923

407,052,075

9

37,984,128

54,263,040

15,600,000

15,600,000

11

112,251,537

31,904,493

12

209,401,681

289,748,724

Profit carried forward

15,535,818

7,263,983

Net profit / loss for the year

37,591,759

8,271,835

170,989,859

128,914,165

28,000,000

28,000,000

121,356,383

64,280,000

20,000,000-

Other liabilities to Group companies

974,879

36,157,500

Current liabilities to third parties

20,716

20,741

Total assets

Shareholders’ equity and liabilities
CHF

Notes

Shareholders’ equity
Share capital
Statutory reserves:
General reserves
Reserve for treasury shares
Other reserves
Available earnings:

Liabilities
Long-term provisions

13

Advances from Group companies
Short-term bank debt

Accrued expenses
Total shareholders’ equity and liabilities

14

637,881455,924599,354,782

535,966,240

115
Notes to the Financial Statements of Forbo Holding Ltd

1

Income from investments in and advances to Group companies
Income from investments in and advances to Group companies amounts to CHF 38.8 million(previous year CHF 21.3 million) and consists of interest and dividend income.

2

Income from securities and short-term investments
This item includes income from short-term investments of CHF 0.1 million (previous year:
CHF 0.6 million) and income on securities transactions of CHF 15.1 million.

3

Administrative expenses
Administrative expenses decreased from the previous year by CHF 0.2 million and amountto CHF 4.6 million.

4

Financial expenses
Financial expenses come to CHF 11.7 million. They relate mainly to interest expenses onloans of Group companies and exchange rate losses on advances in foreign currencies toGroup companies.

5

Investments in Group companies
As of December 31, 2007 Forbo Holding Ltd held the following direct investments:

Company
Currency

Share capitalin 1,000

Equityinterest

Forbo Floorcoverings Pty. Ltd.

AU-Wetherill Park, NSW

Activity
Sales

AUD

1,400

100 %

Forbo Participations S.A.S

FR-Surbourg

Holding / Services

EUR

11,525100 %Forbo Beteiligungen GmbH

DE-Lörrach

Holding / Services

EUR

15,400100 %Paul Heinicke GmbH & Co KG

DE-Pirmasens

Services

EUR

1,023

72 %

Forbo Invest Ltd.

CI-St. Helier

Services

GBP

25

50 %

Forbo Flooring AS

NO-Asker

Sales

NOK

1,000

100 %

Forbo Flooring AB

SE-Gothenburg

Sales

SEK

8,000

100 %

Forbo Project Vinyl AB

SE-Gothenburg

Manufacturing and Sales

SEK

50,000100 %Forbo Finanz AG

CH-BaarHolding / Services

CHF

10,000100 %Forbo-Giubiasco SA

CH-Giubiasco

Manufacturing and Sales

CHF

10,000100 %Forbo International SA

CH-BaarServices, Manufacturing and
Sales

CHF

100

100 %

Forbo UK Ltd.

GB-London

Holding / Services

GBP

49,500100 %Forbo America, Inc.

US-Wilmington, DE

Holding / Services

USD

19,957100 %6Advances to Group companies
Advances to Group companies are denominated in Swiss francs and foreign currencies.
The net increase compared to the previous year was CHF 87.1 million.

7

Marketable securities
The marketable securities relate to shares of Forbo Holding Ltd. They are valued atmarket value.

116

8

Cash
This item consists of cash and cash equivalents with original maturities of three months
or less.

9

Share capitalAt the end of 2007 the company’s share capital was CHF 37,984,128, divided into 2,713,152
registered shares with a par value of CHF 14 each. In the year under review, the parvalue was reduced by CHF 6 per share from CHF 20 to CHF 14 following a cash distribution.
21,419 registered shares without voting or dividend rights are at the disposal of theBoard of Directors. Consequently, 2,691,733 registered shares were eligible for dividends
in the financial year 2007. The shares are listed on SWX Swiss Exchange with the security
number 354 151.

10

Conditional capital increase
Conditional capital of CHF 8,500,000, reserved for the exercise of shareholder options andwarrants in connection with a bond issue, was created by a 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 and reductions in the par value of CHF 22 pershare in 2003, CHF 8 per share in 2004 and CHF 6 per share in 2007, the conditional capital
was CHF 2,330,300 on December 31, 2007 (previous year: CHF 3,329,000).

11

Reserve for treasury shares
The CHF 112,251,537 included at year-end under 'Reserve for treasury shares' relates totreasury stock held by Forbo Holding Ltd and its subsidiaries valued at cost. The treasury
shares developed as follows over the period under review:
Treasury shares
Cost

No. of registeredshares par value

CHF

CHF

31,904,493

135,954

Additions

83,093,759

130,343

Disposals– 1,787,309– 6,524

Total at January 1, 2007

Reduction of par value
Total at December 31, 2007

– 959,406-

112,251,537

259,773

12

Other reserves
Other reserves decreased by 80.3 million. This decrease is due to the transfer to the reserve
for treasury shares.

13

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

14

Short-term bank debt
This item includes a fixed advance of CHF 20.0 million. The interest rate is 3.07 %. It falls due
on January 23, 2008.

117

15

Commitments and contingent liabilities
Guarantees and letters of support to third parties in favor of Group companies amounted to
CHF 284.0 million at year-end, of which CHF 240.6 million (previous year: CHF 384.9 million)
is utilized. Most of this relates to guarantees to investors in connection with funds raised by
a Group company in the form of a US private placement (CHF 195.2 million) and guarantees
in connection with utilized swap facilities.

16

Significant shareholders
From information made available to the Board of Directors, the following shareholders orgroups of shareholders with restricted voting rights were major investors in the company
pursuant to Art. 663c Swiss Code of Obligations as at the balance sheet date:

Number of sharesas percentage

Michael Pieper, Hergiswil, and Artemis Beteiligungen AG, Hergiswil

814,894

30,035 %Forbo Holding Ltd, Baar, through its two subsidiaries
Forbo International SA, Baar and Forbo Finanz AG, Baar

259,773

9,575 %

Deutsche Bank AG, Frankfurt,
and Deutsche Bank Securities Inc., New York199,973

7,371 %

Focus Capital Investors, LLC, New York

150,7025,554 %

This E. Schneider, Wilen b. Wollerau

136,955

5,047 %

Goldman Sachs Group, Inc., New York including its subsidiaries Goldman
Sachs International, London and Goldman Sachs Asset Management
International, London, and Goldman Sachs Asset Management,
Wilmington
Tweedy, Browne Company LLC, New York136,715

5,039 %-

over 5 %118

17Disclosure of compensation to the Board of Directors and Executive
Board pursuant to Art. 633b bis and Art. 663c Swiss Code of Obligations
Compensation for 2007 1):

Name and function

Variablecompensation

Base compensation
Cash

Cash, Shares,
Options

Others

CHF

CHF

CHF

CHF

SharesCHF Number

Total

Dr. Albert Gnägi, President

176,853

172

118,147-

23,560318,560

Michael Pieper, Vice President

54,281

52

35,719-10,493

100,493

Dr. Peter Altorfer, member

60,16058

39,840-11,212111,212

Dr. Rudolf Huber, member

68,97867

46,022-

12,283

127,283

Non-executive Board of Directors2)

360,272

349

239,728-

57,548657,548

This E. Schneider,
Executive Board member and CEO3)4)

150,000

9,479 2,559,330-

380,938 3,090,268

Board of Directors

510,272 9,828 2,799,058-

438,486 3,747,816

This E. Schneider,
Executive Board member and CEO3)
Other Executive Board5)

1,774,733-- 1,876,750

510,772 4,162,255

Executive Board

1,774,733-- 1,876,750

510,772 4,162,255

1) The amounts stated in the table are, in principle, based on valuation models used and disclosed in the consolidated statements. For thevaluation of shares and options this means in particular that the grant date is authoritative. The compensation is booked to theappropriate period. The table therefore discloses all compensation that has been granted for the 2007 financial year, even if the date of
the payment of the definitive legal acquisition is after December 31, 2007.
2) The non-executive members of the Board of Directors receive a fixed remuneration, the amount of which is gradated according towhether the member is Chairman or a simple member of the Board and whether he is a member of the AFC or HRC. The cash compensation is shown as a gross amount before deduction of social insurance contributions. 40 % of the compensation is paid to the directors
in the form of shares of Forbo Holding Ltd. The shares are valued at fair value on the grant date. The total compensation to the nonexecutive members of the Board of Directors also includes a lump sum for expenses and employer contributions to AHV / ALV (old-age andunemployment funds) and child allowance. These are reported in the column 'Other compensation'.
3) The compensation to the Delegate of the Board of Directors and CEO is disclosed separately and subsumed under total compensation to
the Board of Directors. It is not possible to clearly allocate the total compensation to the two functions.
4) In fall 2005, it was agreed with the Delegate of the Board of Directors and CEO that part of his compensation for 2005 and the compensation for the following five years (2006 up to and including 2010) would be paid to a large extent in stock. In lieu of salary payments,
for the contractual period of employment until December 31, 2010, he was allocated 47,395 shares at the market value on conclusion of
the agreement, i.e. CHF 270 each, for the entire five-year term of the agreement (2006 – 2010). The shares are valued at fair value on the
grant date. These shares are time-vested until December 31, 2010 and freely available only as of January 1, 2011. Should he leave the company before this date, the shares must be returned to the company on a pro rata basis. In addition to the share package, the Delegate of
the Board of Directors and CEO draws an annual sum of CHF 150,000, which is used for settlement of employee contributions to thepension fund and for social insurance payments. With the share package and the cash remuneration, all compensations such as bonuses,
inflation, adjustments, options, etc. are settled. The corresponding personnel expenditure is charged to the income statement overthe entire contractual period on a pro rata basis (see note 18 'Stock Option Plans' on page 87 of the consolidated financial statements).
The Delegate of the Board of Directors and CEO does not participate in the Management Investment Plan (MIP) or the share-based
compensation program of the non-executive Board members. The entire compensation for the Delegate of the Board of Directors and
CEO for the financial year comes to CHF 3,090,268. This total includes private use of the company car, employer contributions to thepension fund and – a new element – employer contributions to the AHV / ALV (old-age and unemployment insurance), plus accident anddaily benefits insurance. These are show in the column 'Other compensation'.
5) The total compensation paid to the members of the Executive Board (excluding the Delegate of the Board of Directors and CEO) was
CHF 4,162,255 in the 2007 business year. It comprises a gross base salary and a performance-related bonus, which is set in March of theyear following the business year in question and is determined by the achievement of the individual and the Group targets. The
performance-related component is paid in accordance with the rules of the Management Investment Plan (MIP) (see note 18 'Stock
Option Plans' on page 87 of the consolidated financial statements). The total compensation paid to the members of the Executive Board
also includes private use of the company car and employer contributions to the pension fund as well as – a new element – employer
contributions to the AHV / ALV (old-age and unemployment insurance) plus accident and daily benefits insurance, which are shown
separately in the column 'Other compensation'.

119

Advances and loans
In the 2007 financial year, no advances or loans were made to individual members of
the Board of Directors, the Executive Board or related parties. As at December 31, 2007,
no such advances or loans were outstanding.
Investments in Group companies
As per December 31, 2007, the individual members of the Board of Directors and the
Executive Board (including related parties) held the following number of shares in
Forbo Holding Ltd:Name and function
Options1)5)

SharesSeries 2005 Series 2006 Series 2007

Tradable
options

1:22)

1:12)

1:12)

Dr. Albert Gnägi, President

12,741----

Michael Pieper, Vice President

814,894

-

-

-

-

264

-

-

-

-

Dr. Peter Altorfer, member
Dr. Rudolf Huber, member

2,345

-

-

-

-

Non-executive Board of Directors

830,244

-

-

-

-

This E. Schneider,
Executive Board member and CEO3)

136,955

2,100

Board of Directors

967,199

2,100

-

-

-

1,385

1,204

2,380

1,258

This E. Schneider,
Executive Board member and CEO4)
Matthias P. Huenerwadel, Executive VP Movement Systems
Tom Kaiser, Executive VP Flooring Systems

664
1,056

Daniel Keist, Head Corporate Center

170

Jörg Riboni, Chief Financial Officer

3,976

Michel Riva, Executive VP Bonding Systems
Executive Board

1,050

1,685

2,091

395

1,050

844

697

6,261

2,100

6,294

5,250

1) The details of the options are described in note 18 'Stock Option Plans' on page 87 of the consolidated financial statements.
2) Subscription ratio3) The number of shares reported include the vested 47,395 shares (see note 4) in the previous table.
4) The compensation to the Delegate of the Board of Directors and CEO is disclosed separately and shown in the line Board of
Directors.
5) Since participation in the MIP is not limited to members of the Executive Board, the number of outstanding options shown here
as per December 31, 2007 differs from note 18 'Stock Option Plans' on page 87.

-

120
Proposal for Appropriation of Available Earnings
Forbo Holding Ltd

The Board of Directors proposes to the Ordinary General Meeting that the available earnings,
consisting of:
2007

2006

Net profit for the year

37,591,759

8,271,835

Profit carried forward from the previous year

15,535,818

7,263,983

Total available earnings

53,127,577 15,535,818

CHF

be appropriated as follows:
2007

2006

CHF

Dividend payment
Proposal by the Board of Directors:

01)-

To be carried forward to the following year

53,127,577

15,535,818

Total available earnings

53,127,577 15,535,818

1) Instead of a dividend, the Board of Directors will propose to the Ordinary General Meeting, to be held on April 25, 2008,
a reduction in par value of CHF 10 to CHF 4 per registered share.

121
Report of the Statutory Auditors

Report of the Statutory Auditors
to the Annual General Meetingof Forbo Holding Ltd, Baar

As statutory auditors, we have audited the accounting records and the financial
statements (income statement, balance sheet and notes – pages 113 to 120) of Forbo
Holding Ltd for the year ended December 31, 2007.
These financial statements are the responsibility of the Board of Directors. Our
responsibility is to express an opinion on these consolidated financial statements
based on our audit. We confirm that we meet the legal requirements concerning
professional qualification and independence.
Our audit was conducted in accordance with Swiss Auditing Standards, which
require that an audit be planned and performed to obtain reasonable assurance
about whether the financial statements are free from material misstatement.
We have examined on a test basis evidence supporting the amounts and disclosuresin the financial statements. We have also assessed the accounting principles
used, significant estimates made and the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accounting records and financial statements and the proposed
appropriation of available earnings comply with Swiss law and the company’s
articles of association.

We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers AG

Stefan Räbsamen
Auditor in charge
Zurich, March 14, 2008

Reto TogninaImprint
Publisher:
Forbo Holding Ltd, Baar
Photos:Gottschalk + Ash Int’l, Zurich
Fotos:
Luxwerk, Zurich
Typesetting, Litho and Printing:
Neidhart + Schön AG, Zurichflooring systems.

bonding systems.

movement systems.

Forbo Holding Ltd
Lindenstrasse 8
CH-6340 Baar
Forbo International SA
Lindenstrasse 8
CH-6340 Baar
Phone +41 58 787 25 25
Fax +41 58 787 20 25
www.forbo.com

flooring.bonding.movement.