Forbo Holding AG2003

Half-year report
Contents
1 Sales and profit development
2 Financial situation
4 Development by businesses andgeographical regions
5 Employees
5 Outlook

Growth through acquisitions

6 Financial calendar

Dear shareholders

The business development in the first six months mirrors a difficult economic environment.
Apart from the temporary insecurity created by the Iraq war and the infectious disease Sars inAsia, the business development suffered from the depressed consumers’ mood and the furtherdecline of capital goods investments. In addition, the Group had to cope with an unfavorable
currency development, notably of the US Dollar.
Sales of CHF 791.8 million were recorded in the first half-year, an increaseby 9.7 % or 15.2 % in local currencies over previous year. The sales growth isespecially the result of the Swift adhesives business acquired in April 2002.
In local currencies, also the Belting business increased sales compared withthe previous year, whereas the Flooring business recorded a slight decline.
Besides this, sales of some CHF 8 million for the half-year were missing due
to the divestment of the business with floor coverings for industrial applications (Repoxit AG) at the beginning of the year.
The operating profit before depreciation and amortization (EBITDA) of CHF 81.4 million isCHF 6.9 million lower than in the corresponding period of the previous year. Of the CHF
6.9 million, CHF 3.3 million alone are the result of currency translations. However, the Dollar
weakness also had a negative impact on the margin since the Forbo Group generates anessential sales portion in North America and Asia on the basis of exports from Euro countries.
The higher amortization of goodwill due to acquisitions, increased financial expenses, and ahigher tax rate resulted in a clear decrease of the consolidated profit to CHF 14.2 million (previous year: CHF 24.5 million).
Sales and profit development

With 9.7 % higher net sales of CHF 791.8 million, the operating result before depreciation andamortization (EBITDA) was CHF 81.4 million, or 10.3 % of sales. This means that the goals werenot reached, mainly as a result of external factors. The Adhesives business expanded its sales to36 % of total sales (previous year: 27 %). Flooring and Belting are now accounting for 46 % and18 %, respectively, of total sales. With a sales portion of 31 %, the non-European region has further gained in importance (previous year: 28 %). The gross profit margin declined from 34.3 % in
the previous year to 32.4 % as a result of the higher sales portion of Adhesives, but also due todepressed selling prices and higher material costs. In addition, the currency situation with exports
from the European region led to transaction-related margin losses.
The operating result after depreciation and amortization (EBIT) of CHF 34.8 million is CHF 9.6
million or 21.6 % below the previous year and thus below the original expectations. All threebusinesses contributed to this decline. Cost savings could only partly compensate for this negative
development.

1)1)
Summary of consolidated
income statementÜbersicht Erfolgsrechnung

1)First six months
2003
m CHF

2002
m CHF

Net sales

791.8

721.9

Cost of goods sold–535.3–474.3Gross profit

256.5

247.6

Operating expenses–221.7–203.2

Operating profit

34.8

44.4

Financial expenses, net–12.9–9.4Profit before taxes

21.9

35.0

Taxes

–7.7

–10.5

Consolidated profit

14.2

24.5

Earnings per share (basic)

10.91

18.76

Earnings per share (diluted)

10.79

18.62

The unaudited half-year report as per June 30, 2003, has been prepared in accordance with the accounting policies set
out in the 2002 Annual Report and International Accounting Standard 34 on Interim Financial Reporting.

The lower operating result and acquisition-related higher financial expenses lead to a consolidated profit before taxes of CHF 21.9 million (previous year: CHF 35.0 million). Following ahigher tax rate the resulting consolidated profit after taxes is CHF 14.2 million (previous year:CHF 24.5 million).
Financial situation

The consolidated balance sheet total as per June 30, 2003 rose compared with the end of theprevious year by CHF 47.8 million for seasonal and currency reasons, but it decreased byCHF 44.5 million compared with the end of June 2002. Long-term assets have decreased as aresult of depreciations that are clearly higher than the capital expenditures of CHF 16.6 million. Operating current assets (inventories and trade receivables) are about on the same levelas at the end of June 2002. The increase of the operating current assets compared to yearend 2002 mainly results from seasonally higher trade receivables and increased sales in June.
Net debt is CHF 488.1 million. The company’s liquidity (cash and marketable securities) has
improved by CHF 13.2 million compared with the end of June 2002 and is now with CHF 146.8
million somewhat below the year-end value.
The increase in shareholders’ equity compared with the end of 2002 is mainly due to the halfyear result and currency translations. The gearing (net debt/equity) at the end of June 2003 is at
78.5 %, 3.7 percentage points lower than at the end of the previous year.

Summary of consolidatedbalance sheet
Bilanzübersicht

930.5

875.1

574.9

586.9

628.4

Intangible assets

175.1

178.6

181.6

Investments in associates, deferred taxes and other long-term assets

109.7

109.6

120.5

Current assets

788.7

725.5

762.4

Inventories

278.1

255.9

265.9

Accounts receivable, prepaid expenses and deferred charges

363.8

317.2

362.9

146.8

152.4

133.6

1 648.4

1 600.6

1 692.9

Shareholders’ equity

621.5

590.6

605.0

Long-term liabilities

718.8

638.6

285.6

Long-term financial debt

618.5

539.3

170.7

Employee benefit obligations, provisions and deferred taxes

100.3

99.3

114.9

Current liabilities

308.1

371.4

802.3

Trade payables

117.9

107.3

121.9

Short-term financial debt

16.4

98.5

520.7

Other current liabilities and accrued expenses

173.8

165.6

159.7

Total shareholders’ equity and liabilities

1 648.4

1 600.6

1 692.9

unauditedFirst six months
2003
m CHF

First six months
2002
m CHF

Cash flow from operating activities

19.3

52.1

Cash flow from investing activities–16.6–344.3

Cash flow from financing activities

–10.9

302.6

Decrease (–)/increase (+) in cash and cash equivalents

–8.2

10.4

Translation differences

1.9

–1.1

Cash and cash equivalents at January 1

128.5

92.7

Cash and cash equivalents at June 30

122.2

102.0

First six months
2003
m CHF

First six months
2002
m CHF

Shareholders’ equity at January 1

590.6

652.2

Consolidated profit

14.2

24.5

unaudited1)
Summary of consolidated
statement of changes
in shareholders’ equity 1)Übersicht Erfolgsrechnung

2)

30.6.2002
m CHF

859.71)
1)
Summary of consolidated
cash flow statementÜbersicht Erfolgsrechnung

1)

31.12.2002
m CHF

Tangible assets

Total assets

1)1)Long-term assets

Marketable securities, cash and cash equivalents

1)

30.6.2003
m CHF

Changes in treasury shares

0.9

0.8

Fair value adjustments financial instruments

0.1

–1.8

Translation differences

15.7

–41.7

Cash distribution to shareholders

0.0 2)–29.0

Shareholders’ equity at June 30621.5605.0

unaudited
Cash distribution of CHF 22.– per share by reducing the nominal value in July 20031)

Net sales by BusinessesÜbersicht Erfolgsrechnung 1)

Flooring

First six months% change to 2002

2003
m CHF

2002
m CHF

actualcurrency
adjusted

360.7

371.3

–2.9

–1.2
54.3

Adhesives

285.1

197.8

44.1

Belting

146.0

152.8

–4.4

4.3

Total net sales

791.8

721.9

9.7

15.2

Operating profitby BusinessesÜbersichtErfolgsrechnung 1)

First six months% change to 2002

2003
m CHF

2002
m CHF

actualcurrency
adjusted

Flooring

26.5

29.8

–11.1–11.0

Adhesives

17.6

19.3

–8.8

0.5
–54.3

Belting

2.7

6.8

–60.3

Corporate and consolidation

–12.0

–11.5

–4.3

–5.1

Total operating profit

34.8

44.4

–21.6

–16.8

Development by businesses and geographical regions *The Flooring business reached sales of CHF 360.7 million in the period under review, 1.2 % lessthan in the previous year. Encouraging growth was recorded in the sales regions of Asia, USA,Eastern and Southern Europe as well as France. As opposed, sales dropped by partly more than
5 % in the traditional markets of Western Europe, especially in the Benelux countries and inGermany. While the parquet business reached double-digit growth thanks to its home market in
Sweden and strong export activity to Eastern Europe, trading conditions remained difficult for
both the linoleum and the vinyl segments. This development may be unsatisfactory but it is stillslightly better than the overall market. Various factors had a positive effect. The marketing
efforts with new linoleum and vinyl collections for the institutional market (commercial buildings, hospitals, schools and other public buildings) were well received. The launch of the innovative linoleum product Marmoleum® click has had a successful start in the residential market
segment. Linoleum is made from natural, renewable raw materials, and the product combines
in a unique way ecological living with attractive design and excellent properties. With CHF 26.5
million, the operating result was CHF 3.3 million below the previous year, resulting from currency effects and changes in the sales mix of countries and products.
The Adhesives business recorded a sales growth of 54.3 % to CHF 285.1 million mainly as a resultof acquisitions. Industrial adhesives account for more than 80 % of sales. Due to the economic situation, the markets are difficult at the moment, notably in Germany, Switzerland, Eastern
Europe and the USA – especially in the premium segment. Margin pressure was aggravatedby price increases for key raw materials in the first quarter. The price increases can hardly bepassed on to the customers given the current market situation. Since May 2003 there havebeen signs of a slight improvement of the situation. Trade with intermediary products showed
a positive trend. These sales have been rising steadily in the first half-year. The integration ofthe Swift adhesives business into the Forbo Group has been concluded successfully. Further organizational and structural adjustments are being carried out in Europe. With an operating resultof CHF 17.6 million, the earnings of the Adhesives business did not match the expectations especially because of the raw material costs and the weak US Dollar. The operating result wasreduced by some CHF 2 million due to the currency translation effect.

* All percentages in the text are currency-adjusted.The global Belting business which is heavily dependent on capital investments in general andspecifically on investments in the logistics infrastructure, continues to suffer from the unfavorable
general economic conditions. This trend has particularly hit the original equipment manufacturers (OEM) business, whereas the business with direct customers for belting replacement wassomewhat better. All in all the Belting business recorded sales of CHF 146.0 million. This is a 4.3 %increase, about half of it coming from the acquisition of Stephens Miraclo Extremultus Ltd. in
September 2002. Market development was far better in Asia and America than in WesternEurope. The operating result of CHF 2.7 million was unsatisfactory. Also in this business, thedecrease compared with the previous year is due to price pressure and currency influences,
especially the development of the US Dollar against the Euro.

Employees

As per June 30, 2003 Forbo employed 5,700 people. On a comparable basis this was a reduction
by 25 employees against the end of 2002. Whereas there was a decrease in Western Europe,
the number of employees increased in the growth markets of Asia, America, and Eastern Europe.
OutlookWith the continuation of a rigorous cost management, the further improvement of internal
structures and an efficient management of current assets, Forbo should be able to achieve better
results in the second half of the year even if the adverse conditions persist.

Yours sincerely,

Karl Janjöri
Chairman of the Board of Directors
Forbo Holding AG
Eglisau/Zurich, July 25, 2003

Werner Kummer
Chief Executive Officer

Stock Exchange Information

Issued and outstanding shares

30.6.2003

1 307 436

Market prices

Half-Year HighCHF 437.50

Half-Year Low

CHF 360.5030.6.2003

CHF 409.00

30.6.2003

m CHF 535

Stock market capitalization

Financial calendar

Media release on the first three quarters 2003: October 28, 2003
Annual results media conference: March 23, 2004
Presentation to financial analysts: March 23, 2004
Annual General Meeting of Shareholders: April 27, 2004

Interim report according to the Listing Rules