Forbo Holding AG2005

Half-year report
Contents

Sales maintained – Auctioning process
leaves traces – Group loss in line withexpectations

1 Development of sales and profits
2 Financial situation
2 Consolidated half-year financial

statements
5 Development by businesses
6 Employees, outlook
6 Stock exchange information,

calendarDear shareholders

The lengthy auctioning process that lasted from November 2004 until April 2005, as alreadyannounced, had a negative impact on the half-year figures. The high non-recurring costs of thisprocess also affected the Group results. The profit-enhancement measures planned in fall 2004,
which had been seriously delayed by the auctioning process, were resumed and intensified in thesecond quarter by the new Board of Directors and the Executive Board. The first positive effectsof these measures will manifest themselves in the second half-year at the earliest.
The sales decline in the first quarter could be largely offset by clearly higher
sales in the second quarter. In addition, the stronger US Dollar and stable
Euro resulted in a slight improvement of the currency situation. As far as costs
were concerned, soaring raw material prices impaired the result. Adhesives,in particular, had to cope with higher prices that could not be completely transferred to the products. Of the remaining special charges of some CHF 40
million announced last year, CHF 15.1 million was charged to the first halfyear result.
Development of sales and profits

In the first half-year 2005, Forbo achieved net sales of CHF 829.4 million, 0.3 % (1.8 % in localcurrency) higher than in the previous year. The flooring business recorded a decrease of 1.6 %(0.8 % in local currency) to CHF 370.8 million. By contrast, the adhesives business increased sales
by 2.1 % (4.0 % in local currency) to CHF 302.7 million. The belting business achieved a sales
plus of 1.5 % (3.7 % in local currency) to CHF 155.9 million.
The operating profit before depreciation and amortization (EBITDA) decreased to CHF 47.9 million (previous year: CHF 79.2 million). This was mainly the result of the direct costs of theauctioning process of CHF 5.9 million and restructuring charges of CHF 15.1 million. The operating profit after depreciation and amortization amounts to CHF 15.4 million, CHF 14.2 million
lower than in the corresponding period of the previous year. Before special charges, the operating
profit is CHF 30.5 million, CHF 3.7 million lower than in the previous year. The positive effects
due to goodwill amortization, which used to be reflected in the operating profit but is no longer
admissible according to IFRS, amount to CHF 4.9 million.
Net financial expenses decreased by CHF 19.0 million to CHF 13.1 million, notably as a result ofhigher interest income and last year’s valuation adjustment on securities of CHF 12.0 million. The
resulting Group profit before taxes is CHF 2.3 million (previous year: Group loss before taxes ofCHF 2.5 million). After tax expenses of CHF 8.4 million (CHF 5.3 million less than in the previousyear), the Group loss is CHF 6.1 million (previous year: Group loss of 16.2 million). The loss
includes special charges of CHF 15.1 million (previous year: CHF 20.0 million).

Consolidated half-year financial statements1)
Summary of consolidated
income statementÜbersicht ErfolgsrechnungFirst six months

First six months

2005
m CHF

2004
m CHF

Net sales

829.4

827.0

Cost of goods sold–552.7–567.5Gross profit

276.7

259.5

Operating expenses–261.3–229.9Operating profit (EBIT)

15.4

29.6

Financial expenses, net

–13.1

–32.1

Profit/loss before taxes

2.3

–2.5

Taxes

–8.4

–13.7

Group loss

–6.1

–16.2

Operating profit before depreciation and amortization (EBITDA)

47.9

79.2

CHF

CHF

Loss per share (basic)–2.33–12.34

Loss per share (diluted)–2.33–12.34

There was no dilution effect in 2005 as a result of the group loss.

Financial situation

The balance sheet total rose by CHF 68.3 million compared to the previous year-end. This ismainly due to a seasonal increase in the working capital (inventories and trade receivables) andthe stronger US Dollar. By contrast, cash and cash equivalents decreased by CHF 32.1 million
to CHF 314.7 million. The investments in fixed assets of CHF 19.3 million are below depreciationof CHF 32.1 million. Moreover, returns from the divestment of fixed assets amount to CHF 5.8 million. Net debt rose by CHF 60.9 million compared with the previous year-end, with CHF 39.9 million accounted for by the currency translation of the US Private Placement. The credit conditions
agreed with the lenders were adhered to. The gearing (net debt/equity) was 32.9 % at the end ofJune (end of 2004: 22.6 %).

Summary of consolidatedbalance sheet
Bilanzübersicht

30.6.2005
m CHF

31.12.2004
m CHF

30.6.2004
m CHF

Long-term assets

620.7

612.2

774.4

Tangible assets

437.8

443.5

536.0

Intangible assets

150.5

143.0

156.1

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

32.4

25.7

82.3

Current assets

964.2

904.4

761.3

Inventories

281.8

255.2

265.8

Accounts receivable, prepaid expenses and deferred charges

367.7

302.4

347.4

Marketable securites, cash and cash equivalents

314.7

346.8

148.1

1 584.9

1 516.6

1 535.7

Shareholders’ equity

583.2

578.6

561.1

Long-term liabilities

611.6

569.8

626.7

Long-term financial debt

499.7

459.7

525.3

Employee benefit obligations, provisions and deferred taxes

111.9

110.1

101.4

Current liabilities

390.1

368.2

347.9

Trade payables

129.8

108.8

128.5

6.9

18.1

17.4

Other current liabilities and accrued expenses

253.4

241.3

202.0

Total shareholders’ equity and liabilities

1 584.9

1 516.6

1 535.7

Total assets

Short-term financial debt

1)
Summary of consolidated
cash flow statementÜbersicht ErfolgsrechnungFirst six months
2005
m CHF

First six months
2004
m CHF

Cash flow from operating activities

–8.9

10.6

Cash flow from investing activities

–13.5

–22.0

Cash flow from financing activities

–13.9

–29.4

Decrease in cash and cash equivalents

–36.3

–40.8

Translation differences

4.2

–0.4

Cash and cash equivalents at January 1

346.8

169.8

Cash and cash equivalents at June 30

314.7

128.6

First six months
2005
m CHF

First six months
2004
m CHF1)
Summary of consolidated
statement of changes
in shareholders’ equityÜbersicht Erfolgsrechnung

Shareholders’ equity at January 1

578.6

572.5

Group loss

–6.1

–16.2

Changes in treasury shares

–1.6

1.0

Fair value adjustments financial instruments–2.710.5

Translation differences

15.0

–6.7

Shareholders’ equity at June 30

583.2

561.1

Notes to the consolidated half-year results

The unaudited half-year report as of 30 June 2005, with the exception of the following notes,
was prepared in accordance with the accounting principles described in the 2004 Annual Report
and the International Accounting Standard 34 on interim reports.
Effective 1 January 2005, the International Accounting Standard Board (IASB) implemented
various International Financial Reporting Standards (IFRS) or revised existing International
Accounting Standards (IAS) (the “IASB Improvement Project”) leading to the followingchanges to the accounting principles:
IFRS 2: Share-based payment
The introduction of IFRS 2 Share-based payment resulted in a change to the accounting prin-ciples of share-based transactions. Until 31 December 2004, the allocation of share options
to employees did not result in an expense in the profit and loss account. However, effective
1 January 2005 the expense must be shown in the profit and loss account. As the group does
not maintain any significant share option plans, the recorded expense according to IFRS 2 is notmaterial. This also applies to the retrospective view of the first half-year 2004.
IFRS 3: Business combinations
According to IFRS 3, the amortization of goodwill has no longer been admissible since 1 January

2005. Instead of the goodwill amortization, the value of goodwill positions is reviewed annually by means of an impairment test. IFRS 3 stipulates the prospective application of the standard.
Retrospective application of the standard to the first half-year 2004 would have had the effectthat amortizations worth CHF 4.1 million would not have been recorded.
IAS 21: The effects of changes in foreign exchange rates
This standard revised in 2004 stipulates that exchange differences arising on group loans qualified
as net investment in the group company concerned may be recorded under equity as a currencytranslation difference only if the loan is maintained in the functional currency of one of the loanparties.
Until 1 January 2005, all the exchange differences arising on group loans that were economicallyqualified as equity were booked as currency translation differences directly to equity. The effect of
this adjustment did not lead to any significant changes of the net financial expense in the period
from January to June 2005.
IAS 38: Intangible assets
The amortization of intangible assets classified as of indefinite useful life according to the revised
IFRS standard has not been admissible since 1 January 2005. By analogy with the treatment ofgoodwill, the value of intangible assets classified as of indefinite useful life is subject to an annualimpairment test. Had this standard been applied in the first half-year 2004, amortizations worth
CHF 1.3 million would have become void in the income statement.

The effect of the remaining adjusted standards and new standards to be applied has no significant
influence on the half-year accounts.
The scope of consolidation did not change in the period under review.

Comments on the businesses
Sales and results first half-year

Flooring
business

Adhesives
business

Beltingbusiness

Corporateand consol.
m CHF

Total

m CHF

m CHF

m CHF

Net sales 2005

370.8

302.7

155.9

829.4

Net sales 2004

377.0

296.5

153.5

827.0

m CHF

Change in % actual

–1.6

2.1

1.5

0.3

Change in % currency adjusted

–0.8

4.0

3.7

1.8

Operating profit (EBIT) 2005 *7.2

17.4

2.8

–12.0

Operating profit (EBIT) 2005 before special charges *

20.0

19.1

3.4

–12.0

30.5

Operating profit (EBIT) 2004

17.7

15.1

1.0–4.2

29.6

Operating profit (EBIT) 2004 before special charges

19.5

17.9

1.0

–4.2

34.2

* The operating profit was influenced positively by the impairment of fixed assets in 2004 and the disallowance of amortizationof goodwill and other intangible assets through IFRS.

Development by businesses and geographical regions

The flooring business achieved sales of CHF 370.8 million or 1.6 % less than in the first half of2004. Sluggish investment by the public sector again caused a sales decline in some Europeanmarkets, notably Germany. In the USA, however, a buoyant building market and increasing interest in ecological products helped boost sales of linoleum, which is based on natural raw materials. Unlike the residential market, the PVC commercial business showed positive growth. All inall, the new cushion vinyl collections have been well received in the marketplace. The productportfolio in the residential area was streamlined in parallel with a far-reaching new product offensive. In line with the portfolio streamlining, production of cushion vinyl in Kirkcaldy, Scotland,
was discontinued as of June 30, 2005. This move will allow the reduction of overcapacities and better
utilization of the existing site in Coevorden, the Netherlands. Higher raw material prices could
partly be offset by cost savings. The operating profit (EBIT) before special charges at CHF 20.0 million is CHF 0.5 million higher than in the previous year as a result of the lower depreciation offixed assets.
The adhesives business increased sales by 2.1 % to CHF 302.7 million compared with the firsthalf of the previous year. Whereas the European markets stayed at the previous year’s level,
the US business and exports to Asia showed a positive development all in all. The policy of strict
orientation to strategic market segments initiated last year showed its first positive effects. In
particular, sales of adhesives used in the automotive industry for interior trim increased at an
above-average rate. Adhesives for building applications and the synthetic polymers productgroup also recorded sales growth. These semi-finished products are used in various industries.
Since June 1, 2005, Forbo Adhesives has been represented in Turkey with its own sales organization. Steep price increases for raw materials could only partly be passed on, and pressure on
margins was therefore intensified. This impacted the operating profit (EBIT) before specialcharges. At CHF 19.1 million, it is above the previous year’s result of CHF 17.9 million as a resultof goodwill amortization and amortization of other intangible assets (CHF 4.2 million) thatare no longer admissible.
In the first half-year 2005, the belting business recorded a sales plus of 1.5 % to CHF 155.9 million (previous year: CHF 153.5 million). Sales on all continents contributed to the growth. Salesgrowth was particularly strong in the USA. In Asia, the markets were on a positive trend, but theyremained below expectations with regard to returns. Except for some European countries, there
are early signs that investments in industrial projects are picking up slightly – mainly in the logistics area – benefiting the OEM business. Business with end consumers is good. The shift of theproduct mix in the direction of higher-value drive belts is being intensified further. East Europeanmarkets are being opened up, and a local fabrication center is being established. The operating
profit (EBIT) before special charges and lower depreciation of assets is CHF 3.4 million, meaningthat it is still unsatisfactory (previous year: CHF 1.0 million).

15.4

Relocation of the company’s head office to BaarIn the context of the ongoing reorganization it is Forbo’s intention to relocate the Group’s headoffice to Baar near Zug within the next 12 months.
Employees

Forbo employed some 5 562 people at the end of June 2005, 35 less than at year-end 2004.
Outlook

Assuming that today’s positive market environment continues, Forbo expects, for the entire business year, slightly higher sales than in the previous year and a positive result before specialcharges. The profit-enhancement measures resumed following the auctioning process will have apositive effect in the second half-year at the earliest. The announced need for special charges
of some CHF 40 million can be maintained, with CHF 30 million being allocated to 2005 andCHF 10 million to 2006.

With kind regards

Dr. Albert Gnägi
Chairman of the Board of Directors

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

Forbo Holding AG
Eglisau/Zurich August 23, 2005

Stock exchange information

Issued and outstanding shares

30.6.2005

2 633 897

Market prices

Half-year highCHF 265.00

Half-year low

CHF 233.00

30.6.2005

CHF 240.00

30.6.2005

m CHF 632

Stock market capitalization

Dates

Media release on the first three quarters of 2005: October 25, 2005
Annual results media conference: March 21, 2006
Presentation to financial analysts: March 21, 2006
Annual General Meeting of Shareholders: April 28, 2006

Interim report according to the Listing Rules