ANNUAL REPORT
Belting

Adhesives

Vinyl

Linoleum

2001

Our Annual Report comprises two parts, the generalreport and the financial report. It is published inGerman and is also available in English.

Contents

2
3
4
8
15
18
21
31
32
34
36
39
40

Forbo
Key Figures
To our Shareholders
Forbo Group: Economic Slow-Down Claims Tribute
Floorings: Strong Market Position Strengthens BusinessIndustry Specialties Gain in Importance
The World of Forbo
Executive Board
Human Resources
The Forbo Share
Corporate GovernanceCorporate Bodies
Forbo’s Global PresenceForboForbo is a producer of floor coverings and industry specialties. The Group
employs some 5,200 people worldwide and has an international network of
22 production companies in 12 countries and 58 marketing organizations in
26 countries. Forbo’s Head Office is located in Eglisau/Zurich (Switzerland).
Forbo develops, produces and markets floor coverings mainly in the formof linoleum and vinyl whilst its industry specialties include adhesives andsynthetic drive and conveyor belts.
Forbo has an attractive product portfolio and well-established brand names.
Globally, the Group has a leading position in Belting and notably is the world
leader in Linoleum with a world market share of 60 %. The Adhesives Business has strong positions in selected European growth market segments to be
expanded on the global scale as well.
Forbo’s strategy is focused on the Group’s core businesses, i.e. products andmarkets with growth perspectives and high profitability. In the four Strategic
Business Units Linoleum, Vinyl, Adhesives and Belting, the Group concentrates on promising core products aimed at the sustainable enhancement of
the company value through organic growth, targeted acquisitions, and consistent market orientation.

2 Forbo Annual Report 2001

Key Figures

1)

2001

2000

2001

2000

Forbo Group
Mio CHF

Mio CHF

Mio EUR 2)

1,485.1

1,776.8

982.2

1,138.8

Divested activities

130.8

359.3

86.5

230.3

Flooring

787.4

828.0

520.8

530.7

Industry Specialties

566.9

589.5

374.9

377.8

Continued operations

895.7

908.5

118.7

150.3

58.8

83.7

Net sales

1,354.3

1,417.5

Change on previous year (%)

–4.5

+5.1

Operating profit before depreciation

179.4

234.5

As % of net sales

12.1

13.2

Operating profit

88.9

130.6

Mio EUR 2)

Divested activities

3.2

4.0

2.1

2.6

Continued operations

85.7

126.6

56.7

81.1

Change on previous year (%)

–32.3

+6.7
34.3

58.1

As % of operating assets (ROA)

7.9

11.3

Consolidated profit

51.8

90.7

Change on previous year (%)

–42.9

+5.3

As % of average shareholders’ equity

7.1

11.3

Capital investments

66.4

68.3

43.9

43.8

1,331.6

1,526.6

880.7

978.4

652.2

813.9

431.3

521.6

155.6

100.4

Total assets
Shareholders’ equity
Equity ratio (%)

49.0

53.3

Net debt

235.2

156.7

As % of shareholders’ equity (gearing)

36.1

19.3

NumberNumber

Employees (31.12.)

5,145

5,832

Employees of divested activities–

547

Employees of acquired activities

84

–

m CHF

m CHF

m EUR 2)m EUR 2)

Free cash flow (before dividends)

73.7

89.3

48.7

57.2

Economic Value Added (EVA®)3)

–2.1

20.8

–1.4

13.3

Stock market capitalization (at 31. 12.)659.0

1,068.0

435.8

684.5

CHF

CHF

EUR 2)EUR 2)Per share data
Earnings per share

37.84 4)

61.98

25.03

39.72

Shareholders’ equity

499.78556.24330.54356.50

Dividend per share

22.00 5)

22.00

14.55

14.10

Payout ratio (%)

58.1

35.5

1)

For explanatory notes, see Financial Report2)
CHF values translated at year-average rate of CHF 1.5120/1 EUR (2001) and 1.5603/1 EUR (2000)
3)
Registered trademark of Stern, Stewart & Co.
4)
Based on average shares outstanding, based on year-end position CHF 39.69
5)
Proposal of the Board of Directors

3 Forbo Annual Report 2001

To our Shareholders
Dear Ladies and Gentlemen
Sharper Focus

In the business year 2001, Forbo continued its restructuring process to become
a focused, market-oriented company. In view of the weak economic situation worldwide, this is more important than ever: Only convincing products
and satisfied customers can be the basis of a business activity aimed at
profitable growth. As of October 1, 2001, the Carpet Business was taken overby its own management and continues to trade as an independent unit.
Forbo still holds a share of 25 % in this enterprise. This concludes the planned
concentration on four strategic core businesses: Linoleum and Vinyl(Flooring) on the one hand, Adhesives and Belting (Industry Specialties) on
the other hand. Each business has an attractive cash flow, is profitableand pursues a value-oriented strategy.
Satisfactory sales, lower profit

Respectable
return on sales

Sales of continued businesses reached CHF 1,354 million (previous year:
CHF 1,418 million) in spite of a difficult situation. Compared with the previous year, this corresponds with a decline by 0.5 % in local currencies or
4.5 % in Swiss Francs. In consequence of a so far unparalleled accumulationof negative influences, the operating profit and the consolidated profit decreased significantly more than sales. The operating profit of CHF 89 million
decreased by 32 %. The operating profit of CHF 52 million is still considerable, but yet remains far below the result reached in the peak year 2000. The
return on sales was at 3.5 %.
Acquisitions strengthen the Adhesives Business

Leadership in
the shoe adhesives
market

The intention to grow the core business through acquisitions, among others,materialized with three acquisitions in 2001: With the acquisition of Spanish
adhesives manufacturer Carzuh, S.L., Forbo succeeded in realizing a strategically important geographic expansion. This acquisition opens up the markets
of Spain and Portugal to Forbo. Spain represents some 10 % of the European
adhesives market and has a substantial growth potential. Today, Forbo hasa leading position in the shoe adhesives market following the takeover of thecorresponding activities from Salamander Industrie-Produkte GmbH and Sika
Tivoli GmbH in Germany, with a cumulated sales volume of CHF 6 million.
A further transaction was made in early 2002 with the purchase of SABA Klebstoff- und Abdichtungssysteme GmbH (Germany), a leading producer ofadhesives for car interior trims.

Expanding theBusiness
with Adhesives

In the year under review, negotiations were conducted on the purchase of
the adhesives activities of US-based Reichhold Inc., integrated under thename of Swift. The planned transaction includes all Swift adhesives activities
in Europe, USA, Canada and Latin America, representing an annual sales
volume of currently about CHF 400 million, CHF 240 million of which alone
in North America. With the conclusion of negotiations planned for spring
2002, Forbo as a European producer will become a global player in the Adhesives Business as well. As a result, the focus in the Forbo portfolio will shift
to Industry Specialties, and Adhesives will become the strategic core businesswith highest sales.

4 Forbo Annual Report 2001

Successful share buy-backAlmost all options
were exercised

Forbo repurchased 156,974 units of its own shares in the context of the sharebuy-back program approved of at the occasion of the last Annual General
Meeting of Shareholders. The transaction was carried out in two tranches,
starting in May 2001 with the issue of tradable put-options. The average priceof an option linked to one share was approximately CHF 20. This program
was most successful: 98.9 % of all options were exercised, corresponding with
103,374 shares or CHF 109 million. In a second step, another 53,600 sharesworth CHF 38 million were purchased through a second trading line at the
SWX Swiss Exchange. The repurchase of additional shares was stopped when
there were signs of a possible, substantial acquisition in September 2001. Outof the originally planned amount of up to CHF 200 million for the sharebuy-back program, shares worth CHF 147 million were repurchased. All in all,
10.4 % of the share capital were bought back. The shares will be eliminated.
Earnings per share

Earnings per
share increase
through sharebuy-back program

Related to the number of shares at the end of the year, the 2001 Forboearnings per share (EPS) was CHF 40 compared with CHF 62 in the previous year. The share buy-back program resulted in an earnings per
share increase, meaning that the decrease of the earnings per share of 36 %is less pronounced than the decrease of the absolute profit.
Good liquidity allows unchanged dividendHigh operating
cash flow

Despite a 23.5 % decline, the operating cash flow (EBITDA) is still on
an attractive level of CHF 179.4 million or 12.1 % of sales. Effective working
capital management and cautious investment policy again resulted in ahigh level of free cash flow. This amount – before dividend, and not taking
into account acquisitions and divestments – reached CHF 74 million compared with CHF 89 million in the previous year.

Net debt developed
as planned

Net debt on the key date of December 31, 2001 was CHF 235 million,
meaning that it increased by only CHF 78 million in spite of the share buyback program of CHF 147 million. The divestment of the Carpet Business and the acquisitions made during the year resulted in CHF 41 million net
to the reduction of debt. Thus, the balance sheet is as solid as before. The
equity ratio is at the high level of 49 % (previous year: 53 %), even after theshare buy-back. Thanks to this high equity capitalization, the purchase of
the Swift adhesives activities can be entirely financed with borrowed capital,
which still leaves the balance sheet with an equity ratio of about 40 %.

Continuity of
dividend

In view of the profitable business activity and notably the good liquidity,
the Board of Directors proposes to the Annual General Meeting of Shareholders for the distribution of an unchanged dividend of CHF 22 per registeredshare. The unchanged dividend will also reflect the positive view of the futurebusiness trend. As a result of the share buy-back program, the amount tobe distributed will decrease to CHF 29 million after CHF 32 million in theprevious year.

5 Forbo Annual Report 2001

Personnel changes
Board of Directors

The terms of office of Dr. Anton Bucher, Peter van Duursen, Dr. Gerd
Hofmeister, Karl Janjöri and Dr. Willy Kissling – Members of the Board of
Directors – will expire by the 2002 Annual General Meeting of Shareholders. Mr. van Duursen will retire from the Board of Directors for reasonsof age. We thank him for his active and most valuable contribution since
1994. The other gentlemen may be re-elected. Drs. Pieter P. A. I. Deiters, lic. oec.
HSG, will be proposed for election as a new member to the Board of
Directors. Mr. Deiters is a Dutch citizen and resident of Switzerland. He isa member of the Board of Directors and consultant to industrial enterprises and international institutions, such as the European Bank for Development and Reconstruction.

Executive Board

Last year, the Executive Board was rejuvenated. As planned, Richard S.
Pemberton, previously responsible for the linoleum activities in Great Britain,
was appointed head of the Vinyl Business effective May 1, 2001. His
predecessor, Drs. Antonie J. Pluijmert, saw his well-earned retirement. As
of June 1, Dr. Paul J. Hälg, former CEO of Gurit-Essex AG, took over
the responsibility for the Adhesives Business from Werner von Kuensberg,
who will serve the company on different projects until reaching retirement age at the beginning of 2003. With their competence and commitment,
Mr. Pluijmert and Mr. von Kuensberg have made an essential contribution to Forbo’s development for many years, for which we owe themour sincerest thanks.

6 Forbo Annual Report 2001

Outlook
Long-term objectives are being
maintained

As a manufacturer of floor coverings and industry specialties, Forbo is
operating in a short-term-oriented business. As a result, Forbo would directly
benefit from a reversal of the current recession. The cost-cutting measurestaken would quickly lead to a more than proportional profit recovery. Basically, we are therefore going to adhere to our long-term objectives, althoughslightly reduced for the year 2004. The operating profit before depreciation
and amortization in percent of net sales (EBITDA on Net Sales), presently
is 12 % (compared with 14 % in the previous year), the objective being 15 % by
2004. The operating profit (before amortization on goodwill) as a percentage
of operating assets (EBITA on Operating Assets), currently is 8 % (previous
year: 11 %), the objective being 13 % until 2004. Sales are expected toclearly exceed the CHF 2,000 million threshold by 2004. The planned acquisition of Swift represents a significant step towards this objective.

ThanksIn the name of the Board of Directors and the Executive Board, we would
like to thank you, our shareholders, for your trust in and your loyalty to ourcompany. We would also like to thank our loyal customers.
In the past year, many difficulties had to be mastered, and being successful
was harder than ever. This is the reason why we would like to extend our very
special thanks to all our employees for their extraordinary commitment.

Karl Janjöri,
Chairman of theBoard of Directors

Werner Kummer,
Chief Executive Officer
and Chairman of
the Executive Board

7 Forbo Annual Report 2001

Forbo Group:
Economic Slow-Down Claims Tribute
The year 2001 was overshadowed by numerous tragic and dramatic events. Years of global economic boom were followed by aclear recession in important markets as of the second quarter.
This was not without consequences for Forbo as well. Nevertheless, sales of the continued activities reached CHF 1,354 million(previous year: CHF 1,418 million). Compared with the previous
year, this is a decrease by 0.5 % in local currencies, or by 4.5 % in
Swiss Francs. Business activity slowed down especially from thethird quarter and stagnated in the fourth quarter 3.2 % below
last year’s level (in local currencies). The operating profit decreased by 32 % to CHF 89 million, consolidated profit reached
CHF 52 million. This means that, despite an accumulation ofnegative influences, we recorded a respectable return on salesof 3.5 % after 5.1 % in the peak year 2000.
An overview of business development
Flooring was
declining due
to currency
movements

The Linoleum Business recorded a sales growth of 1.8 % in local currencies.
Resulting from currency movements however, there was a slight decrease by 2.7 % to CHF 400 million (previous year: CHF 411 million). Except
for Germany and Austria, the sales trend was upwards in all markets,
notably in the USA. In Western Europe, Vinyl suffered from weak demand
for foam-coated products in the lower price segment. This could only
partly be compensated by good sales growth in Eastern Europe, so that sales
in local currencies decreased by 3.1 %. Here, too, currency movements
had a negative effect, and on a Swiss Franc basis, sales declined by 6.6 % to
CHF 324 million (compared with CHF 346 million in 2000).

Dynamic development of Adhesives

There was brisk demand for Adhesives growing 9.2 % in local currencies and
6.0 % in acquisition-adjusted terms. Sales also rose by 6.3 % expressed in
Swiss Francs to CHF 219 million (after CHF 206 million in the previous year).
Both wall/floor adhesives and adhesives for industrial applications contributed to this development. This is a particular achievement in view of the difficult conditions prevailing in the adhesives market. It demonstrates the
success that is possible with a clear focus on individual market segments andthe use of market and cost synergies – the objective of our acquisition
efforts, among others.

8 Forbo Annual Report 2001

Belting suffers froma lack of demand

The Belting Business suffered a decline by 5.3 % in local currencies, reflecting
the overall weak demand for capital goods. On a Swiss Franc basis, sales
dropped by 9.3 % to CHF 348 million (2000: CHF 383 million). The replacement business provided some positive stimuli, though.
Net salesby divisionm CHF
Change on previous year
2001 effective %currency adj. %FlooringIndustry Specialties
Total
Divested activities*

*

787.4
566.9
1,354.3
130.8

–4.9
–3.8
–4.5
–

%

–0.6
58.1
–0.3
41.9
–0.5 100.0–

Net sales 2001 January–September

Geographic distribution
Decline of sales in
the USA and in Asia

Expressed in local currencies, Switzerland, France, Southern Europe andespecially Eastern Europe could record a sales plus. Sales were declining particularly in the United Kingdom, USA, and Asia, mainly due to the development of business in Belting.

Shift in weightingof salesWith the concentration on the core businesses, the sales break-down by geographical areas has also changed. The relative importance of the Benelux
countries, Germany, and Switzerland has declined in terms of sales, whereas
France, Southern and Eastern Europe and the USA have become moresignificant. The sales portion of the Americas is slightly below 15 % (compared with 13.6 % in the previous year), and this figure is bound to riseessentially in the wake of acquisitions.
Net sales by geographic area
(excluding divested activities)%

Germany
Benelux
Americas
Scandinavia
FranceAsia/Africa
Southern Europe
United Kingdom
Switzerland
Eastern Europe

16.7
15.4
14.8
11.3
10.2
9.3
6.6
5.9
5.4
4.4

Change on previous year
effective % currency adj. %

–4.0
–4.4
–7.3
–12.4
1.5
–11.9
5.2
–13.9
4.1
30.2

–1.0
–1.5
–6.7
–1.9
4.6
–4.0
7.2
–10.1
4.1
37.0

m CHF
2001

225.9
209.0
200.4
153.4
137.8
125.5
89.2
80.2
73.8
59.1
0

50

100

150

9 Forbo Annual Report 2001

200

250

300

350

400

Capital investments
Investments lower
than depreciations
and amortizations

Following massive investments in the previous years, the investment volume
could be kept nearly constant at CHF 66 million after CHF 68 million in
2000. As a result, investments are CHF 24 million below depreciations andamortizations. Essential projects in Flooring were the global introductionof SAP software, the expansion of the production plant for sound-absorbing
Vinyl in Reims (France), and a new oxidation plant for the production oflinoleum in Krommenie (The Netherlands). The Adhesives Business invested
in the capacity expansion for the production of hot-melt adhesives in
Pirmasens (Germany). For the current year, a similar investment volume
is being planned, focusing on the introduction of SAP software in theentire Group.
Investments 1997– 2001
Flooring

2001
2000
1999
1998
1997

Total

m CHF

Industry
Specialties
m CHF

m CHF

47
42
76
78
74

19
26
49
81
80

66
68
125
159
154
0

20

40

60

80

100

120

140

160

Employees
Job reduction asa result of businessdevelopment

At the end of 2001, Forbo had 5,145 employees, 687 less than in the previous
year. 463 of these result from changes in the scope of consolidation (divestment Carpet Business –547, acquisition Carzuh +84). The termination of 224
jobs was unavoidable for reasons of capacity adjustment and structuralchanges. The reduction was most pronounced in the Belting Business in theUSA, but also in Asia and Europe. At the same time, the middle management level was considerably strengthened to better satisfy the higher requirements of the company. This is also a measure for creating a platform
which will allow senior managers to be increasingly recruited from within
the company.
Employees by division
2001

FlooringIndustry Specialties
Group HQ
Total
Divested Activities
*

2,723
2,377
45
5,145
547*

Change2000/2001 %%–1.9 52.9–3.8 46.2
15.4
0.9–2.6 100.0–

At date of divestment

10 Forbo Annual Report 2001

180

Employees by geographic areas(without divested activities)%

Change2000/2001 %

2001

25.8
Benelux
16.7
Germany
10.4
Scandinavia
9.5
America
8.9
Switzerland
8.8
FranceUnited Kingdom 7.8
6.7
Asia/Africa
Southern Europe 4.7
0.7
Eastern Europe

–0.6
–9.2
–1.3
–8.9
5.8
2.0
–5.7
–18.9
28.9
385.7

1,325
861
536
490
457
454
400
347
241
34
0

200

400

600

800

1 000

1 200

1 400

1 600

Specific provisions
Specific provisions
completely used up

Of the specific provisions of CHF 70 million (after tax) made at the end of
1999 for implementing the new strategy, CHF 18 million were available
at the beginning of the reporting year. This amount was completely used up
in the business year 2001. Group wide, secondary sites, partly with theirown small production and warehousing, were closed or moved. CHF 1 million
was used for restructuring Belting activities in Asia, and CHF 2 million
for adjustments in the European Adhesives Business. The restructuring of
the Vinyl Business absorbed CHF 9 million, the major part of which
was used for valuation adjustments of production facilities that were utilized at low capacity. The divestment of the Carpet Business absorbed
CHF 6 million. As a result, the essential objectives of the Group’s strategic
renewal have been reached with the focus on its four core businesses.
Profit development

Lower profits after
peak year 2000

The business year 2001 finishes with essentially lower profits than therecord year 2000, and is thus below the original expectations. This is the consequence of an accumulation of negative influences. Therefore, the year
2001 must be considered an exceptional year. The total operating profit is
CHF 89 million. Compared with the CHF 131 million of the previous
year, this is a decrease by 32 %. Continued activities alone reached an operating profit of CHF 86 million or also 32 % below the previous year’slevel on a comparable basis. In the first half of 2001, the decrease comparedwith the previous year was still at 11.4 %, but in the second half-year,
profits dropped 51.2 % below the previous year’s level due to the extremely
difficult economic situation and contrary to expectations. The operating
profit as a percentage of operating assets (EBITA on Operating Assets), adjusted for divestments, is 8 %, compared to 11 % in the previous year.

11 Forbo Annual Report 2001

Accumulation ofnegative impacts

The main reasons for the profit decrease are as follows:– The devaluation of the Euro against the Swiss Franc by more than 3 %in the course of the year accounted for CHF 3 million.
– There was intensive price pressure in all businesses which could only
partly be offset by higher productivity.
– Measures taken in response to the weaker business trend and lower capacity
utilization caused costs of some CHF 3 million.
– In the Linoleum Business, higher costs of raw materials, energy, laborand marketing could only partly be offset through increases in productivity.
– Vinyl for industrial uses recorded strong sales losses for applicationsin the electronics industry.
– Belting suffered from a sales decline as a result of the downturn ofthe business cycle, which could not be fully compensated by lower costs.
– Three essential acquisition projects, ready to be concluded, failed intheir final phase and incurred costs of some CHF 3 million.
EBIT by division(m CHF)

FlooringIndustry Specialties
Divested activities
Group HQ/Consolidation

m CHF
2001

Change2000/2001 %ROA*
2001 %

78.6
31.0
3.2
–23.9

–20.6
–35.1
n/a
n/a

13.8
6.6
n/a
n/a
–50

*

–25

0

25

50

75

100

125

150

Return on Assets (EBIT in % of operating assets)

Financial result
weaker

Net financial expenses of CHF 16 million had a stronger negative impact
on consolidated profit than in the year 2000 (CHF 5 million). In theprevious year, capital gains of CHF 9 million were realized with securities,
whilst the year under review saw valuation losses of CHF 1 million. The
resulting consolidated profit is CHF 52 million – 43 % below the previous
year – due to a clearly lower operating profit, higher financial expenses, andweaker exchange rates.

Economic Value
Added weaker

Forbo’s strategy is aimed at enhancing the company’s value. This will materialize only when the return on assets employed is above the weighted average
cost of capital (WACC). Due to the decline of the net operating profit aftertaxes (NOPAT) and increased cost of shareholder’s equity as a result of a morevolatile share price, this objective could not be met in the year under review.
While in 2000, the Economic Value Added (EVA®) was CHF 21 million, the
EVA® achieved in the year under review was minus CHF 2 million. Details of
this calculation can be found in the Financial Report on page 7.

12 Forbo Annual Report 2001

The free cash flow (before dividends) was CHF 74 million in the year underreview. This does not include the effects of the divestment of the Carpet Business and the acquisitions with a net cash inflow of CHF 41 million. Lower
capital investments and the reduced need for net current assets had a positive
impact on the free cash flow. Based on the continued businesses, net current assets were 28.5 % of sales (after 32.0 % in the previous year) – a considerable achievement in view of the overall economic climate.

High free cash flow

Free cash flow 2001
m CHF

136
Cash flow from operating activities
Cash flow used for investments in long-term assets, net –62
74
Free cash flow 1)
0

25

50

75

100

125

150

175

200

75

100

125

150

175

200

Free cash flow 2000
m CHF

146
Cash flow from operating activities
Cash flow used for investments in long-term assets, net –57
89
Free cash flow 1)
0
1)

25

50

Before dividend, acquisitions and divestments

Cost-cutting measures
Structuraladjustments

In response to signs of declining profits in the second quarter, a cost-cutting
campaign was launched. This manifested itself in the number of employeesthat decreased by more than 220 on a comparable basis. All the four core businesses adjusted their structures to the new demand situation and screened
them in view of their optimization potential. As a result, several sales offices
were integrated, and the number of warehouses was reduced. Now, Forbo
can start the year 2002 with lower fixed costs.

Numerous projects
were continued

In the course of the strategy implementation, numerous projects for enhanced
market coverage, product innovation, and higher efficiency were continued
as planned in spite of high cost pressure, since in the long run, these projects
will yield a sustainable potential for profit increase and cost reduction. Special efforts were made with the introduction of standardized SAP software in
Flooring. Now, this software will also be implemented in the other Business
Units.

13 Forbo Annual Report 2001

Outlook
Full attention to theintegration of SwiftWith the successful restructuring of our company and the focus on the four
core businesses of Linoleum, Vinyl, Adhesives, and Belting, we have created thepreconditions necessary for ensuring a favorable sales and profit development even under difficult trading conditions. We will particularly benefit fromour by now established strategic renewal as soon as global markets arestarting to recover again. Sales growth and consequently more than proportional profit improvements resulting from our cost-cutting campaign
will then be possible. With the acquisition of the Swift adhesives activities
from US-based Reichhold Inc., we shall substantially strengthen our
positions in Europe, Canada, and notably in the USA: Swift represents anannual sales volume of currently some CHF 400 million, CHF 240 million of which in North America. With this acquisition, Forbo is turning froma European producer to a global player in the field of adhesives as well.

Structurally in goodshape

It remains difficult to make a prognosis for the current year. In terms ofcompany structure, Forbo is in good shape to reach its objectives should theworld economy recover, i.e. the sustainable enhancement of the company’svalue by way of a higher operating profit, better use of resources, and finallya higher earnings per share.

14 Forbo Annual Report 2001

Flooring: Strong Market
Position Strengthens Business
The market situation, which has been difficult for years with intensive competition, overcapacities, and price pressure, wasfurther aggravated in 2001 by the downward trend of the economic development. As a result, we too suffered losses in sales andrevenues. However, our favorable market position helped us tokeep the decrease – starting from a high level – within moderate
limits. Based on the continued activities, 2001 sales in local
currency decreased by 0.6 %. On a Swiss Franc basis, the decline
was 4.9 % to CHF 787 million (previous year: CHF 828 million).
The operating profit adjusted by divestments, i.e. the actuallycomparable figure, was CHF 79 million or 20.6 % below the previous year. Sales of divested activities amounted to CHF 131 million, operating profits were CHF 3 million.
Linoleum
Growth in local
currencies

Also in 2001, Linoleum recorded an – albeit – small sales and volume growthof 1.8 % in local currencies. In Swiss Francs, the result was a slight decreaseby 2.7 % to CHF 400 million (compared with CHF 411 million in the previousyear). The development of business was upwards, except for Germany andAustria. The impact of currency movements can best be demonstrated by the
results for Scandinavia: Effectively expressed in Swiss Francs, sales declined,
but in currency-adjusted terms, we recorded a plus and were able to win additional market shares. In the USA, business expansion could be continued,
but at a somewhat slower pace. In Switzerland we also recorded growth, whilebusiness suffered an essential setback in Austria and Germany. Intensifiedcompetition, especially as a result of weak demand, put further pressure on theprices. As a result, the margins deteriorated in the course of the year. We
took measures to reduce costs in response to this trend.

Successful market
strategy ofsegmentation

In terms of market strategy, we concentrated on the proven segmentation
approach, with two key segments. The traditional core segment with applications in education and health, offices and public buildings was intensified
as our basic business. The Marmoleum Global 1 collection was very well received by the market and had a strong coverage in the press. The collection
received various awards, the latest one being the Platinum Award for Design
Excellence in the USA. In the second core segment, the design- and trendoriented residential area, we again made good progress with the introductionof special collections. Thus we could essentially improve the image of
Marmoleum in the residential market, supported by the launch of the innovative collection Tweeds & Crocodiles. Based on these key segments, we are
opening up additional sales potential through the development of new applications for linoleum outside the floor covering area. Furniture Linoleum
and Bulletin Board, for example, saw their successful launch with new collections. With these products, e.g. for the furniture industry or kitchen fittings,
we intend to reduce our tendentious dependence on the economic cycle of theconstruction industry and to put the use of linoleum on a broader basis.

15 Forbo Annual Report 2001

VinylDemand for highquality products

Worldwide over-capacities caused a significant price drop in vinyl. Salesin local currencies went down by 3.1%, although volume losses were restricted
to only approximately 2 %. Currency movements had a negative effecthere, too: In Swiss Franc terms, sales dropped by 6.6 % to CHF 324 million(after CHF 346 million in the previous year). The persistently difficult
market conditions led to an unsatisfactory result development in the mass
business, and notably in the lower price segment with vinyl productsin Western Europe. In the higher price segment, sales and profits improved,
though. In important sub-areas, profits and volumes were improved
through the adequate and well-timed optimization of the product range.

Growth market
Eastern Europe

The branded product range Novilon/Novilux raised sales by nearly one
third in Eastern Europe. The products for the residential area continue to show
sustainably attractive margins in this region. But difficult conditions wereencountered in the United Kingdom and in the Benelux countries. We havetaken steps to adapt the capacities to the market development in order tolower costs.

Volume increase incontract market

Sales of floor coverings for the contract market (commercial buildings, publicbuildings, large projects) were declining in Western Europe. This was morethan compensated, however, through growth in Eastern Europe and China. All
in all, a volume growth of about 9 % was recorded in this segment. Sales offloor coverings with sound-absorbing properties produced in France continued to show a very positive trend both at home and abroad.

Decline in products
for the electronics
industry

Sales of Colorex, a pressed tiled floor covering for the electronics industry
and related branches, suffered from the worldwide decline of semi-conductor
production and the lack of capital investment in new industrial plants.

Competitive advantages throughmodern technology

With our new production plant in Coevorden (The Netherlands), we areapplying advanced production technology. The plant allows the productionof synthetic flooring materials up to four meters wide. This gives us acompetitive edge in the contract business. For technological reasons, thesefloor coverings exhibit a higher resistance and better quality than conventional vinyl floor coverings, resulting in excellent usage properties anda longer service life. We are using these benefits purposefully in ourmarketing campaign.

16 Forbo Annual Report 2001

Parquet Flooring and Carpets

With sales of CHF 37 million (previous year: CHF 39 million), our parquet
production plant in Sweden made only a small contribution to theGroup’s results. In local currency, sales increased by 5.6 %. Parquet is a product supporting our other activities so that we can offer the full rangeof floor coverings in Scandinavia with our leading market position there. The
carpet activities that remained with Forbo following the divestmentof this business recorded sales of CHF 27 million on a year-to-year basis.

Parquet and needle
felt as supporting
products

Net sales byproduct group
m CHF
2001

Linoleum
Cushion Vinyls
Carpets
Parquet Flooring
Total
Divested Activities*
*

399.7
323.5
27.4
36.8
787.4
130.8

Change on previous year
effective %currency adj. %

–2.7
–6.6
–13.8
–5.9
–4.9
–

1.8
–3.1
–12.3
5.6
–0.6
–

%

50.8
41.1
3.4
4.7
100.0

Net sales 2001 January–September

Divestments
Focus on core
activities

Effective October 1, 2001, we sold the Carpet Business to its management,
except for the needle-felt production. The former brand names and especiallythe name Forbo Carpet will continue to be used by the now independent
entity. Forbo still holds an interest of 25 % in the company, which it will supply with needlefelt products. Vice-versa, Forbo will continue to distributecarpets in some countries and buy them preferably from Forbo Carpet. On
this new basis, close business relationships will also be maintained in the
future.
Outlook

Higher-value products and opportunities in thecontract market

From today’s point of view, it is unlikely that the economic situation will
essentially improve in the course of 2002. We are expecting a stable market forlinoleum, but with higher price pressure. This trend is to be counteredwith cost-saving measures and higher productivity on the one hand, and by
the design-oriented positioning of premium products on the other hand.
For Vinyl, we expect a continued shift in the product mix to higher-value products in Western Europe, and continued growth in Eastern Europe. There
are good chances especially in the contract market, where the French market
is likely to continue its successful development. In addition, there is considerable potential for innovative products with technological benefits, which
are produced in our new plant in Coevorden (The Netherlands) and which
will continously be developed and marketed accordingly.

17 Forbo Annual Report 2001

Industry Specialties
Gain in Importance
Whereas Adhesives made essential progress in spite of generally
restrained trading conditions, the Belting Business suffered fromvery weak demand since the fourth quarter 2001, especially as
regards airport equipment and logistics applications. For the
strategic realignment of the Adhesives Business, three smaller
but highly relevant acquisitions were made. In total, Industry
Specialties recorded sales of CHF 567 million (after CHF 590 million in the previous year). The change was –0.3 % in local currencies. In acquisition-adjusted terms, sales of CHF 561 million were
1.3 % below the previous year’s level. The operating profit was
effectively CHF 31 million compared with CHF 48 million in 2000.
Adhesives
Growth in linewith strategy

With three acquisitions, a business expansion was realized during 2001 in linewith the company’s strategy. Including the purchased activities, sales could
be increased by 9.2 % in local currencies. On a Swiss Franc basis, sales rose by
6.3 % to CHF 219 million (after CHF 206 million in the previous year). The
acquisition-adjusted growth was still at 6.0 %, although the momentum weakened somewhat in the final quarter of the year. With our strong brands andpositions in the field of wall/floor adhesives, as well as with our high level ofdiversification and our prominent technological position with industrial
adhesives, we could successfully master the challenges of generally restrained
markets. We won considerable market shares especially in Germany. We
made good progress with reactive hot-melt adhesives, where we will invest
in capacity expansion. The margins remained under pressure because
raw material prices did not improve as early as expected. Operating profit decreased from CHF 20 million to CHF 17 million, and thus clearly did notmatch the sales development.

Growth segments inadhesives market

The adhesives market with a worldwide volume of CHF 42 billion, CHF 14 billion of which in Europe, is heavily fragmented with clearly definedsegments. Some of them are presently in a phase of consolidation, while others
are experiencing more than proportional growth rates. Forbo is focused on
wall/flooring, automotive, shoes, and packaging, partly as the market leader. In
Forbo Flooring, there are excellent synergies – here we are suppliers ofcomplete system packages. The wall/flooring product range covers all fields ofapplication, thus allowing sales synergies. Strong local positions in Europe,
especially in Germany, France and Switzerland, as well as market leadership in
the Benelux countries are a good starting position for establishing new markets. This positioning will allow us to systematically contribute to the increaseof Forbo’s enterprise value.

18 Forbo Annual Report 2001

Acquisitions in Adhesives
Strategically important geographic
expansion

With the acquisition of the Spanish company Carzuh, S. L., now named
Forbo Carzuh, S. L., we achieved a strategically significant geographical expansion. While the activities of the Business Unit Adhesives have so far been
concentrated on Germany, this acquisition will now open up the markets of
Spain and Portugal. Spain represents some 10 % of the European adhesives market and has a substantial growth potential. Today, Carzuh has anannual sales volume of approximately CHF 25 million, mainly with products such as hot-melt adhesives as well as water- and solvent-based adhesives.
The main outlets are suppliers of the automotive industry, apart from thewood and furniture industries. The take-over of the shoe adhesives activities
from Salamander Industrie-Produkte GmbH and Sika Tivoli GmbH inGermany with cumulated sales of CHF 6 million resulted in Forbo’s market
leadership in this segment.
Belting

Weak demand forcapital investments

The business with Belting suffered a decrease by 5.3 % and 9.3 % in
local currencies and Swiss Franc, respectively, to CHF 348 million (previous
year: CHF 383 million). Sales in the first four months still followed theprevious year’s positive trend. However, business started to slow down as ofApril and May, and the volumes declined significantly on all continents.
This reflects the weak demand for investment goods, especially in the USA.
Order volumes for larger projects stayed clearly below the previous year’slevel. Positive impulses came from the business with replacement belts, whichis increasingly being combined with the offer of additional services. The
operating result decreased by 49 % at CHF 14 million (after CHF 28 million in
the previous year). This development was mainly due to machinery costs,
combined with quality costs in the first half, apart from the underlying sales
development.

Market segments
logistics andairports very weak

In the fourth quarter of 2001, business in the segments logistics and airports
came to a nearly complete standstill as a consequence of the terrorist attacks
in the USA on September 11, 2001. New projects are rarely commissioned
because the operators of the facilities consider existing capacities sufficient oreven prefer to close them down. This market situation further aggravatedthe pressure on margins that had already been noticeable before.

Market positionin America further
expanded

Our market position on the American continent is excellent, meaning that
we could win additional market shares in spite of the unfavorable trading
conditions. In Europe, the quality and cost measures initiated in the previous
year started to show positive effects especially in the second half-year. In
Asia, one of our key markets, a radical reorganization was implemented undera new management aimed at improving productivity and cutting costs.

New products
ensure growth

Research and development initiatives continue to have high priority.
Among the achievements of 2001 are conveyor belts for use in the food industry that are based on the so-called HACCP concept (Hazard Analysis andCritical Control Point). HACCP is an internationally recognized food-specificsystem for quality assurance and prevention of health risks.

19 Forbo Annual Report 2001

Outlook
Strategic focus on
global positioning

The Adhesives Business will have its strategic focus on the further
expansion of activities aimed at global positioning. In order to reach thisobjective, we will concentrate on clearly defined and attractive market
segments. We are expecting continued internal growth at attractive levels for
Forbo Adhesives, mainly thanks to the clearly delimited fields ofapplication and our corresponding marketing activities. In these efforts, weare using synergies already existing between the companies and markets.
Decreasing raw material prices are being expected which will help to face pricepressure. The integration of the Swift adhesive activities will be aparticular task in this context. The acquisition means the transformationfrom a European producer to a global player, and it will bring us newopportunities especially on the US market, from which our European activities
will also benefit.

Optimizationof sites
and warehouse

In the Belting Business, we will gear our production in China to the needs ofinternational markets and intensify the penetration of the local market.
A new remuneration system in our sales organization shall ensure that attractive customer segments will be handled with the appropriate priority. We
also intend to increasingly offer standard products that can be manufactured
cost-effectively. The introduction of SAP software will allow a fast response to individual customer needs at reduced transaction costs. A site andwarehouse optimization initiative, as well as a rationalization program
in logistics – without negative implications for delivery quality – shall further
contribute to cost savings. Therefore, we expect a moderate improvement ofbusiness results in a market that will remain difficult in volume terms.
Net sales byproduct group
m CHF
2001

219.4
347.5
566.9

Adhesives
Belting
Total

Change on previous year
effective %currency adj. %

6.3
–9.3
–3.8

9.2
–5.3
–0.3

%

38.7
61.3
100.0

EBIT by business units(m CHF)
Adhesives
Belting

m CHF
2001

Change2000/2001 %ROA*
2001 %

16,6
14,4

–15,3
–48,9

12,7
4,2
0

*

2,5

5

Return on Assets(EBIT in % of operating assets)

20 Forbo Annual Report 2001

7,5

10

12,5

15

17,5

20

g
n
i
t

s
e
v

n
i

i

l
y

m
u
e

l
e
B

s
e
h
d
A

V

l
o
n
i
L

The World of Forbo

When living rooms excel through breath-taking
designs, when high-tech sport shoes carry athletes
to new records, or when suitcases are safely conveyed on their way to dream-like holiday destinations – Forbo products are always involved.
As a manufacturer of flooring and industry specialties, Forbo is present in many spheres of every
day life, although not necessarily always discernible
at first sight. In fact, Forbo offers a fascinatingproduct variety for high-class applications. Thisis illustrated on the following pages with
examples from the four strategic core businesses,
i.e. Linoleum, Vinyl, Adhesives, Belting.

Linoleum

Attractive products
and appealing design
ensure our market
leadership with provenand yet innovative
floor covering linoleum.
Made from therenewable raw materials
jute, resin, limestone,wood flour, and linseedoil, linoleum meets all
requirements made on apollutant-free, comfortable product. We have theright product, be it fortraditional applications
such as in schools andhospitals, offices andpublic buildings, or in
the residential area, where
our design- and trendoriented collections
are increasingly being
used. Our productfunctions perfectly inboth fields: It is extremely
low-maintenance, longlasting, and robust. Withthe Tweeds & Crocodiles
collection, we want tofurther expand our strong
position in the residential
market – a sampleof the broad range ofpossible designs
and colors is shown here.

Vinyl

Extensive investments
have allowed us to
use state-of-the-art technology for the productionof vinyl floor
coverings. For example,
we are able to produce material which is up
to four meters wide. In
the contract business, thisclearly gives us a competitive edge over
the traditional two-meter
formats. Moreover,
the technology used in the
production process
results in other advantages. Our floor coverings have a higher
resistance to indentation
and better quality thanconventional vinyls, whichis reflected in excellent
properties and a longer
product life. The higherquality residential market,
as is the case withlinoleum, is becoming

more and more significant.
The Novilux Natura
flooring material shown
here has a natural,authentic wood image
and offers all thebenefits of vinyl floor
coverings: highcomfort underfoot, goodsound and heat insulation, water resistance andexceptional indentation
resistance, is easy
to maintain and very
durable.

Adhesives

A modern and dynamic
world with innovative
products and elegant
system solutions is notconceivable withoutadhesives. Adhesives are
gaining ground, especiallyin the field of industrial
applications The reasons
are many: highly efficient
processing, weightsavings, and technicalsolutions that would not
be feasible with classicaldesigns. The use ofinnovative adhesives has
made possible entirely
new variations in productand design, for instanceas regards shoes. Thus,a high-performancesports shoe may incorporate up to seven typesof adhesives. They all canbe purchased from Forbo,
the market leader in thesegment shoe adhesives.

Likewise, Forbo iscompetent and strong inother high-growth
segments, such as
adhesives for wall andflooring, applications oradhesives for cars andpackaging.

BeltingWithout transport andlogistics, goods could
not be made available
around the globe.
Synthetic drive belts andconveyor systems,
which we produce on ahigh technologicallevel, play a key role inthis context. But belts
are also used in production processes, e.g. in
the food industry. Here,extensive researchand development haveallowed us to use
new materials, which
ensure a high levelof hygiene without any
harmful substances.

But our belts do not only
move a wide variety
of products: Forbo isalso a leading, globallypresent manufacturer ofbelts for the leisureand wellness industry,e.g. in the form ofstrong running belts forfitness equipment.

Marien A. G. Weijenberg (right)
Executive Vice President
Linoleum

Gerold A. Zenger (front)
Executive Vice President and CFO

Jan E. Sångberg (rear)
Executive Vice President
Corporate Business Development

Werner Kummer (middle)
CEO and President

Dr. Paul J. Hälg (rear)
Executive Vice President
Adhesives

Dr. Jan Lipton (front)
Executive Vice President
Belting

Richard S. Pemberton (left)
Executive Vice President
VinylExecutive Board

ChairmanWerner Kummer

Chief Executive Officer (CEO)Members
Dr. Paul J.Hälg

SBU Adhesives

Dr. Jan Lipton

SBU Belting

Richard S. Pemberton

SBU Vinyl

Jan E. Sångberg

Corporate Business Development (CBD)Marien A. G. Weijenberg

SBU Linoleum

Gerold A. Zenger

Chief Financial Officer (CFO)

Chief Executive Officer

Chief Financial Officer

Corporate Business
Development

SBU Linoleum

SBU Adhesives

SBU Vinyl

SBU Belting

Division Flooring
Division Industry Specialties
SBU Strategic Business Unit

31 Forbo Annual Report 2001

Human Resources

Enhancing the technical qualification as well as the companyspecific identification and motivation of employees plays an essential part in the development of a company operating in global
markets. This is particularly true at times when extraordinary
efforts are necessary for reaching our strategic objectives. We
have consistently implemented the relevant programs and havetaken the necessary measures.
Value-Based Management Training
Training program
conveys integrated
value orientation

This training program adopted in 1999, organized for the first time in 2000
and concluded in 2001, was most valuable for all participants. Its main
objective was to further the understanding of the integrated value approachconcept and the associated financial key figures, such as return on invested
capital in comparison to the cost of capital as well as issues relating to investments and financing. The program with its modular structure included
basic and advanced courses and was attended by about 110 Forbo managers.
The participants of individual courses were purposefully selected fromdifferent Business Units and functions in order to leverage the expertise andexperience with different markets and countries. It is now up to theparticipants to implement the key messages of the training program in their
daily work and to share the essential contents with their employees.
New training concept

Methods foranalyzing and optimizing processes

Based on the successful concept of the Value Based Management Training,a follow-up program has been identified for 2002. It is called Business Process
Management Training and is to start in early summer. Its objective is toconvey in-depth knowledge on the methods for analyzing and optimizing
processes which are critical for the company’s success and implementing
them in day-to-day practice. In addition to theoretical knowledge training,
the courses will present case studies and deal with real processes encountered in Forbo Business Units. The target group has been enlarged to about
150 participants in order to obtain the desired multiplier effect.
Succession planning for managers

Promoting Forboemployees

Forbo attaches great significance to employee development and succession
planning on the management level. Following a company-wide survey,
steps are going to be initiated that will enlarge the group of Forbo employees
eligible as project leaders and for management positions. Forbo endeavors
to support the selective development of management skills among future
executives, notably team and leadership competences.

32 Forbo Annual Report 2001

Forbo Trophy
Internal competition
motivates

The Forbo Trophy is awarded every year to a Group company which
has demonstrated an outstanding performance. The competition for the Forbo
Trophy shall bring about business excellence in the sense of a fair competition among equals. Extraordinary success with the expansion of the linoleum
business in the USA was decisive for winning the Forbo Trophy 2001. It
was awarded to the linoleum team of Forbo Linoleum Inc. in Hazleton (USA).
Inventive sales concepts, such as a market segment approach for the publicarea, a bonus program for customers or special training courses for floor installers proved to be effective. Combined with a program designed specifically for the residential market and the careful selection of competent sales
partners, the above-mentioned concepts brought about a double-digit
increase in 2000 sales. The resulting structure, with distribution partners who
are fully concentrated on linoleum and who operate their business witha high level of commitment and a new service understanding, is the basis forlong-term market success and strengthening of the favorable positioning.
Group Conference

Focus on strategic
key topics

The Group Conference is of particular significance for communications andcontacts within the Forbo Group. In 2001, it was held under the slogan‘product, innovation and markets’. It allowed more than 100 executives from
Europe, Asia and America to inform themselves during two days about
strategic key topics and issues, to discuss today’s business and market situation, and to exchange company-relevant information.
Employees by Business Unit
2001

SBU Linoleum
SBU Cushion Vinyls
SBU Adhesives
SBU Belting

Headquarter
Total

1,937
786
755
1,622
45
5,145

Change2000/2001 %%–3.1 37.6
1.2 15.3
9.3 14.7–8.8 31.5
15.4
0.9–2.6 100.0

33 Forbo Annual Report 2001

The Forbo Share

Share buy-back
led to higher shareprice

The development of the Forbo share price in the business year wascharacterized by strong fluctuations. The price soared partly above CHF 800,
especially in the first half-year and after the announcement and subsequent buy-back of about 10 % of the outstanding Forbo shares. In the third
quarter, after the announcement of the results for the first half-year,
there was a strong correction downwards with share prices around CHF 600
in August, and with short-term excursions down to CHF 420 as a resultof the stock market slump in September. In the last quarter, the share pricerecovered to reach CHF 505 at year-end. Over a period of three years,
the Forbo share developed more or less in line with the SPI, with stronger
price fluctuations than in the total index. The Forbo share is likely tohave a considerable price increase potential, assuming a recovery of the overall
economy and the successful implementation of numerous Group internalmeasures.
The Forbo Share in comparison to the SPI
CHF

SPI

850

5 750

800

5 500

750

5 250

700

5 000

650

4 750

600

4 500

550

4 250

500

4 000

450

3 750

400

3 500

350

3 250
30.12.1998

30.12.1999

29.12.2000

31.12. 2001

SPI adjusted

Forbo registered share

3,309 Shareholders
registered

At the end of December 2001, 3,309 shareholders were registered in the Forbo
Holding SA share register, 200 fewer than in the previous year. To theCompany’s best knowledge, no shareholder owns more than 5 % of the voting
rights. In accordance with the Articles of Association of Forbo Holding SA,
no single shareholder is allowed to execute more than 8 % of all voting rights.

Diary dates

Annual General Meeting of Shareholders:Letter to the Shareholders:Media release on half-year results:
Media release on the results of the first
three quarters 2002:

April 23, 2002
July 25, 2002
July 25, 2002 (after close of
the SWX Swiss Exchange)
October 28, 2002 (after close of
the SWX Swiss Exchange)

34 Forbo Annual Report 2001

2000

2001

1999

1998

1997

Share capital
Issued registered shares (of CHF 50)

NumberNumberNumberNumberNumber

1,513,550

1,513,550

1,513,550

1,513,550

1,513,550

Thereof:
Shares outstanding

1,305,052

1,463,010

1,463,522

1,454,824

1,464,169

Shares from buy-back program 2001

156,974

–

–

–

–

Other own shares

11,39010,406

9,894

18,592

9,247

Reserve shares (without voting and dividend rights)

40,134

40,134

40,134

40,134

40,134

CHF

CHF

CHF

CHF

CHF

Nominal capital
75,677,500 75,677,500 75,677,500 75,677,500 75,677,500

Total
Thereof:
Shares outstanding

65,252,600 73,150,500 73,176,100 72,741,200 73,208,450

Shares from buy-back program 2001

7,848,700

Other own shares
Reserve shares (without voting and dividend rights)

–

–

–

–

569,500

520,300

494,700

929,600

462,350

2,006,700

2,006,700

2,006,700

2,006,700

2,006,700

Data per share
CHF

CHF

CHF

CHF

CHF

Shareholders’ equity Group

500

556

539

542

517

Consolidated profit 1)

38

62

58

52

42

22

22

22

19

High

5.3

3.5

3.9

5.1

3.7

Low

2.6

2.7

2.9

2.4

2.9

58

36

38

42

45

22

Gross dividend
Gross dividend return (%)2)

3)

Payout ratio (%)

Stock market statistics
Share prices
Stock market capitalization4) (m)

CHF

CHF

CHF

CHF

CHF

High

839

828

764

900

654

Low

417

620

569

435

514

High

1,228

1,220

1,126

1,326

959

Low

544

914

838

641

753

Year-end

659

1,068

1,098

873

874

1)

See also Financial Report, ‘Notes to the Consolidated Financial Statements’, page 17,‘Earnings per share’, page 19
Proposal of the Board of Directors to the General Meeting of Shareholders
3)
Gross dividend as % of consolidated profit (1999 before specific provisions)4)
Based on shares outstanding (previous years adjusted)2)

35 Forbo Annual Report 2001

Corporate Governance‘Corporate Governance, that complex and now internationallyused concept, is not a term that can be narrowly defined or evenreduced to a specific formula. In fact, the concept of Corporate
Governance relates to the entire set of principles and rules designed to protect shareholders’ interests with regard to organization, conduct and transparency, the aim being to achieve a balance between management and control at the most senior levelof management whilst maintaining efficiency and the ability tomake decisions.’ This is the preamble to the Swiss Code of Best
Practice, a non-binding set of rules drawn up by a group of experts advising Swiss companies on issues of Corporate Governance. Corporate Governance at Forbo is also based on the OECD
Principles of Corporate Governance as well as on the respective
draft guidelines drawn up by the SWX Swiss Exchange.
The Board of Directors
Experience,
independence andinternationality are
required

The Board of Directors is the highest supervisory and management body of the
Forbo Group and is currently composed of eight members who do nothold any executive function within the company. Members are elected for aperiod of four years and can be re-elected several times. There is an age
limit of 70. The average age of the incumbent members of the Board is 59. In
terms of the composition of the Board of Directors, importance is placedon selecting independent personalities with business experience in industry as
well as in the fields of finance and consultancy. In addition, special importance is placed on the Board being composed of international members. At
Forbo, the function of Chairman of the Board of Directors is a separate
function to that of Chairman of the Executive Board. The Chairman of theBoard of Directors is appointed by the Board itself and is the directsuperior of the CEO. He is in close, regular contact with both the CEO andthe other members of the Executive Board.
The committees of the Board of Directors

Effectiveness ofBoard of Directors increased byCommittees

From its own members, the Board of Directors appoints three committees,
each dealing with clearly defined issues of higher importance to the company:– The ‘Audit and Finance Committee’, set up to deal with aspects of Groupfinancing, review of the accounting policies and the financial
statements as well as to deal with the discussion of the audit findings andthe supervision of the auditors’ activities and to assess their independence.
– The ‘Corporate Development Committee’, set up to deal with corporate
strategy and the related implementation of strategic alliances, acquisitions,and mergers, as well as divestments of company parts.
– The ‘Committee for Human Resources and Remuneration’, which deals withgeneral personnel issues affecting the Group. In particular, it is concerned with matters relating to the senior management level, its recruitment,
its periodic evaluation, and its performance-oriented remuneration.

36 Forbo Annual Report 2001

These permanent committees of the Board of Directors are newly constituted
each year. The Board of Directors met for six ordinary meetings in 2001, andalso held a total of six committee meetings.
Remuneration of the Board of Directors and the Executive Board
Performanceoriented remuneration as motivation

The members of the Board of Directors receive a remuneration, with different
amounts for the Chairman, Vice-Chairman, and the ordinary members,
respectively. Members can choose to have the remuneration either paid in cash
or to receive up to 50 % of it in the form of Forbo Holding SA stock options
valued at the theoretical market price on the day of issue. In 2001, the total
remuneration paid to the Board of Directors amounted to CHF 869,000.
Total remuneration paid to the Executive Board comprises fixed base salaries
plus a performance-related component which is usually determined following the year-end closing. Of the latter, up to 30 % is paid in the form of Forbo
Holding SA shares, which may not be sold for a period of three years. In
addition, the Board of Directors issued to the members of the Executive Board
stock options of Forbo Holding SA under the Stock Option Plan for the last
two years, at the theoretical market price on the day of issue, for up to 10 % of
their total remuneration. The total remuneration paid to all members of the
Executive Board (including shares and options) was CHF 4.7 million in 2001.
As per the end of 2001, the Board of Directors and the Executive Board held
directly and indirectly 3.72 % of the share capital of Forbo Holding SA, by wayof freely available as well as blocked shares and options issued under the Stock
Option Plan. The company will play the role of a silent partner for the options
issued to the Board of Directors and the Executive Board, i.e. the necessary
shares are taken out of Forbo’s reserve shares pool or are purchased in themarket. To date, options that will expire in 2005 and 2006 have been issued
for a total of 7,312 registered shares.
Control systems

Internal audit
department as
independent body

In addition to the external audit office, an internal audit function supports theBoard of Directors and the Group’s Executive Board in the implementationof their supervisory duties. The internal audit function operates independently
and reports directly to the Chairman of the Board of Directors. The ForboGroup accounts have been drawn up in accordance with IAS (International
Accounting Standards) since 1992, and Forbo Holding SA operates in accordance with Swiss law and its Articles of Association.
Shareholders’ rights

Equal treatment ofshareholders

The economic and participatory rights of shareholders entered in the shareregister as having voting rights are stipulated by law and in the Articles of
Association. The participatory rights encompass the right to attend the Annual
General Meeting, including the right to propose motions and to vote. Any

37 Forbo Annual Report 2001

shareholders who are unable to attend the General Meeting in person
may have themselves represented by commissioning the company, an independent proxy or other shareholders entered in the share register. According
to the Articles of Association, the Board of Directors may refuse to approveof the registration of the voting right of a shareholder or a group of
associated shareholders if 8 % of the total number of shares registered in theCommercial Register are exceeded.
Dividend policy and management of shareholders’ equity
Striving for
attractive return

In setting its annual dividend, Forbo Holding SA bases its decision on Group
profits, the balance sheet situation and available liquidity. The aim
is to offer shareholders an appropriate return on their investment in Forboshares. The company also pursues a flexible approach towards its shareholders’ equity while maintaining appropriate financial freedom. Capital thatis not required is returned to the shareholders, as happened last year by
way of a share buy-back program involving tradable put options and by meansof a second trading line. The procurement of additional equity capital is
not being excluded should there be, for instance, attractive opportunities forlarger acquisitions. Over the last ten years, the average dividend yieldon the Forbo share has been 3,4 % based on the annual average price paid
for the share.
Communication

Full transparency
for investors

Forbo provides shareholders, investors, employees, customers, and thegeneral public with comprehensive, open and regular information,
thus guaranteeing equal treatment of shareholders and enabling the recipientsof information to make a realistic and up-to-date assessment of thecompany’s earnings potential. By institutionalizing and building up external
relations and by maintaining the trust of the financial community, themedia and the Group’s stakeholders, the aim is to guarantee equal treatment
and transparency. Information is provided in the form of the Annual
Report, Half-year Report, media conferences, financial analyst meetings andthe Annual General Meeting of Shareholders. Latest information on
key projects and initiatives is promptly made available via the Internet andthe media.

38 Forbo Annual Report 2001

Corporate Bodies
A

Board of Directors Forbo Holding SA
Term of office expires

ChairmanKarl Janjöri, Herrliberg, Switzerland CH-Herrliberg

2002

President of the Board of Directors, BDL Banco di Lugano
Other Board Memberships in listed companies: 1

Vice-Chairman
Dr. Willy R. Kissling, Hurden, Switzerland, CH-Hurden

2002

Lic. rer. pol./Dr. rer. pol. University of Berne. PMD Harvard Business School, USA
President of the Board of Directors and CEO, Unaxis Group
Other Board Memberships in listed companies: 4

Members
Dr. Anton H. Bucher, Kuesnacht, Switzerland, CH-Küsnacht

2002

Lic. oec. publ./Dr. oec. publ. University of Zurich
Owner of a Real Estate-Holding Company in the USA
Chairman of the Board of Directors, Bircher Holding AG

Peter van Duursen, Driebergen-Rijsenberg, The Netherlands

2002

Chemical Engineer
RetiredPreviously President, Shell Nederland

Dr. Gerd Hofmeister, Hanover, Germany, D-Hannover

2002

Dr. rer. pol. University of Graz, Austria
Master of Economics and Business Administration, University of Munich
Previously general partner of Ernst Siegling KG

Michael Pieper, Hergiswil, Switzerland, CH-Hergiswil

2004

Owner and CEO, Franke Holding AG
Other Board Memberships in listed companies: 2

Dkfm. Mag. Dr. Paul Tanos, Vienna, Austria, A-Wien

2003

Magister rer. soc. oec. and Dr. rer. soc. oec.
Former Member of the Executive Board, Wienerberger Baustoffindustrie AG

Prof. Dr. iur. Rolf Watter, Zurich, Switzerland CH-Zurich
Dr. iur. University Zurich, L. L. M. Georgetown University, USA
Partner of law firm Bär & Karrer, Zurich
Professor for commercial law, University of Zurich
Other Board Memberships in listed companies: 1

Secretary
Andreas P. Lerch, CH-Hüntwangen
A: Audit and Finance Committee
B: Corporate Development Committee
C: Committee for Human Resources and Remuneration

Group and Statutory Auditors

PricewaterhouseCoopers AG

Zurich39 Forbo Annual Report 2001

2003

B

C

Forbo’s Global PresenceGroup Headquarters
Forbo Holding SA
Production and Sales

FlooringIndustry Specialties
Sales

FlooringIndustry Specialties

40 Forbo Annual Report 2001

Imprint
Publisher: Forbo Holding SA, Eglisau/Zurich
Editing: Klartext_Medienbüro, Wuppertal (D)Conception and Design: Gottschalk + Ash Int’l, Zurich
Photos: Hotze Eisma, Amsterdam (photos on pages 22–29)
Bettina Schäfer, Zurich/Hamburg (photo on page 30)
Typesetting, Litho and Printing: Neidhart + Schön AG, Zurich
March 2002

Forbo Holding AG
CH-8193 Eglisau/Zurich
Telephone + 41 1 868 25 50
Fax + 41 1 868 25 51
Forbo International SA
CH-8193 Eglisau/Zurich
Telephone + 41 1 868 25 25
Fax + 41 1 868 25 26

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

E-MailCorporate Communications
Ursula Leonhard
ursula.leonhard@forbo.com

Forbo Holding AG
CH-8193 Eglisau/Zurich
Telephone + 41 1 868 25 50
Fax + 41 1 868 25 51
E-Mail info@forbo.com
www.forbo.com