Forbo Holding Ltd Forbo International P 41 58 787 25 25 .
Forbo Annual Report 2008Forbo International SALindenstrasse 8CH-6340 BaarP 41 58 787 25 25F 41 58 787 20 25info@forbo.comflooring. bonding. movement.flooring. bonding. movement.Forbo Holding LtdLindenstrasse 8CH-6340 BaarForbo Annual Report 2008flooring. bonding. movement.
Financial calendarOrdinary General Meeting:April 24, 2009Letter to shareholders:August 18, 2009Media release on the results in the first half of 2009:August 18, 2009Publisher:Forbo Holding Ltd, BaarConcept and Design:Gottschalk Ash Int’lPhotos:Luxwerk, ZurichTypesetting, Litho and Printing:Neidhart Schön AG, ZurichOur Annual Report is publishedin German language and inan English language translation.
Forbo at a Glance
Strengthened global PresenceForbo is a leading producer of flooring systems, adhesives, as well aspower transmission and conveyor belt solutions. The company employs some 6,500 people and has an international network of 44 siteswith production and distribution as well as 51 pure sales organizations in a total of 35 countries worldwide. Forbo is headquartered inBaar in the canton of Zug, Switzerland.In 2008, Forbo strengthened its international market positionthrough two major acquisitions:– Bonar Floors in the Flooring Systems division– Transtex Belting, the lightweight PVC conveyor belt activities ofFenner Dunlop, in the Movement Systems divisionSystems· F14looringproduction facilities in 7 countries andsales companies in over 20 countriesSystems· B20ondingproduction facilities in 12 countries andsales companies in over 20 countriesSystems· M10ovementproduction facilities in 8 countries andsales companies in over 25 countries
Expanded product portfolioFlooring SystemsFlotexFlotex is a vinyl flooring manufacturedby a unique electrostatic flocking technique.It combines the best characteristics of acarpet with the features of a heavy-duty andlow-maintenance floor covering and has asmooth, velvety surface with the pleasantlysoft feel of a carpet. The Flotex collectionsconvince with their attractive designs suchas lively colors and shades as well as almostthree-dimensional visual appearance. TheSottsass special collection is the result ofa creative cooperation with the Italian designstudio Sottsass Associati. Flotex productsare manufactured at the Ripley (UK) andChâteau-Renault (F) sites and are usedmainly in public buildings, offices and hotels.Coral & NuwayCoral and Nuway are entrance mattingsystems that take care of cleaning and dryingshoes of whoever enters a building.CORAL textile floor covering systems catchdirt and absorb moisture in the entrancearea. They are manufactured at Krommenie(NL).NUWAY entrance matting systems aresystems for high-intensity entrance areas asfor example at airports, supermarketsand shopping centers. Nuway systems aremanufactured at Telford (UK).ChocflexChocflex is a vinyl floor covering providingindentation resistance and excellentsound insulation (19 dB); it is manufacturedat Château-Renault (FR).Westbond & TesseraWestbond and Tessera are carpet tiles fordemanding rooms and environments.A perfect extension to the existing Forboproduct portfolio, they make an ideal fitfor Forbo commercial floorings, especiallyin offices, hotels, leisure centers andpublic buildings.WESTBOND is a product line of uniquedesigner carpet tiles manufactured by aspecial process as fusion-bonded tiles.They are available in a range of attractivecolors and can be individually designedto the customer’s specifications. They aremanufactured at the Cottonwood (UK)site.Transtex BeltingThe acquisition of the lightweight PVCconveyor belting activities of Fenner Dunlopin North America has enabled the MovementSystems division to round off its productoffering for rip and tear-resistant conveyorbelts primarily used in the logistics andfood processing industry.In connection with this acquisition, moreover, Forbo concluded a distributionagreement for lightweight rubber beltingproducts manufactured by FennerDunlop.Stronger market presence in the USMovement SystemsThe TESSERA product line consists ofhigh-performance carpet tiles for the mostdemanding commercial interiors; theyare manufactured at Bamber Bridge (UK).
Net sales by divisionsChange on previous yearCHF m2008in %in local currencies in %in %892.93.39.846.5Bonding Systems654.6– 14.3– 8.834.1Movement Systems371.2– 1.34.319.41,918.7– 4.31.7100.0Flooring SystemsTotalMovement SystemsFlooring SystemsBonding SystemsEmployees by divisionsNumber2008Change on pre vious year in %in %Flooring Systems3,04724.046.4Bonding Systems1,390– 9.721.2Movement Systems2,0854.131.8410.00.66,5638.7100.0Corporate FunctionsTotalCorporate FunctionsMovement SystemsFlooring SystemsBonding Systems
Financial Overview GroupIncome statementNet sales2008200720082007CHF mCHF mEUR m2)EUR m2)1,918.72,004.01,209.01,218.2Flooring Systems892.9864.4562.6525.2Bonding Systems654.6763.7412.5464.3Movement 4.9EBIT117.1162.473.898.716.0110.710.167.3CHF mCHF mEUR m2)EUR m2)Total assets1,837.81,405.21,158.0854.2Operating assets1,516.21,201.6955.4730.5Shareholders’ equity584.4713.1368.2433.5Net debt404.541.6254.925.3CHF mCHF mEUR m2)EUR m2)Cash flow from operating activities159.8165.3100.7100.5Cash flow from investing activities– 406.176.6– 255.946.6Free cash flow– 246.388.7– 155.253.9%%10.711.1EUR2)EUR2)Group profitBalance sheetCash flow statementKey ratiosROS (EBITDA / net sales)7.713.5Equity ratio (shareholders’ equity / total assets)ROA (EBIT / operating assets)31.850.7Gearing (net debt / shareholders’ s (as of December 31)Details per shareEarnings (undiluted)EquityPar value reductionStock market capitalization (as of December .1CHF mCHF mEUR m2)EUR m2)435.01,717.0274.11,043.81) Proposal of the Board of Directors to the Ordinary General Meeting.2) EUR values translated at the annual average rate of CHF 1.587 / 1 EUR (2008) and CHF 1.645 / 1 EUR (2007).
Annual Report 2008Contents Annual Report 20082Forbo – the first 80 years3To our Shareholders6Forbo Group:weaker demand and special charges depress earnings11Three divisions – three areas of competence12Flooring Systems:strategic extension of the product portfolio18Bonding Systems:a demanding year24Movement Systems:market presence in the US strengthened30Group Structure31Executive Board35Corporate Governance56The Forbo ShareForbo Group Financial Report60Consolidated Income Statement61Consolidated Balance Sheet62Consolidated Cash Flow Statement63Consolidated Statement ofRecognized Income and Expenses64Group Accounting Policies77Notes110Group Companies114Report of the Statutory Auditor116Consolidated Income Statements 2004 – 2008117Consolidated Balance Sheets 2004 – 2008Financial Statements of Forbo Holding Ltd119Income Statement120Balance Sheet121Notes to the Financial Statements128Proposal for Appropriation of Available Earnings129Report of the Statutory Auditor
yearsyearsyearsyearsyearsyearsFollowing the diversification in the 1960s, the Annual General Meeting of May 3, 1974 decided to change the company’s name from Continentale Linoleum-Union to Forbo. It was anexcellent choice because the name is unique, sounds pleasant in all languages and is easyto pronounce. Forbo was the designation used by the Swedish Group company for its walland roofing elements. Originally, the name came from a joint venture between the twocompanies Forshaga and rsyearsyearsyearsIn the immediate wake of the merger, these continental linoleum manufacturers saw theirbusiness flourish. The measures to streamline the business bore fruit, and factory turnoverrose. But the world recession that began in 1929 very soon struck the European continentwith its full force. The company later experienced difficult times during World War Two,especially when the French production plant was bombarded in 1944. Although there wereno fatalities among staff, the factory suffered considerable damage. Following the depression and war years, the company diversified, initially within the flooring business, addingvinyl floor coverings and carpets to the range. In 1973, it started to build up a separateadhesives division and in 1994 it acquired the Siegling Group, a globally operating businessin conveyor, processing and flat belts. As of the 1980s in particular, the company diversified further into areas such as wall coverings, coated textiles, laminates and windows. Thefocus on the current three divisions was initiated in the late syearsyearsyearsyearsyearsyearsyearsyearsyearsIn a milestone decision for industrial history, three firms, the Deutsche Linoleum-Werke AGin Berlin, Germany, the Swedish company Linoleum-Aktiebolaget Forshaga in Gothenburgand the Swiss company Linoleum AG in Giubiasco agreed in 1928 to establish a holding company. It was their response to the fast-changing market situation for linoleum floor coverings on the European continent. Two years after the new company was founded, two furtherfirms joined the Union: the French manufacturer Société Anonyme Rémoise du Linoléum inReims and the Dutch firm N.V. Nederlandsche Linoleumfabriek in yearsyearsyearsyearsThe year 2008 marked an important anniversary forForbo. In February 1928, three of continental Europe’sleading linoleum manufacturers founded the Continentale Linoleum-Union in the canton of Zurich, layingthe foundation for today’s globally operating sThe picture shows the Forshaga factory in Gothenburg in 1896 – one of the productionsites of the three founding yearsyearsyearsyearsyearsyearsyearsyearsForbo – the first 80 yearsyearsyears2
3To our ShareholdersDear Ladies and Gentlemen,Following an extraordinarily successful business year in 2007 with the best result ever inForbo’s history, the company continued to report prospering sales and strong earnings in thefirst half of 2008. As of the second half of the year and especially in the fourth quarter of2008, however, the global financial crisis and the economic downturn impact e d negativelyon a wide range of industries. Key markets for Forbo such as construction and the auto motive industry as well as the capital goods sector were particularly hard hit. Forbo has astrong presence in these industries directly or indirectly. Many of Forbo’s cus tomers facedvast problems in these difficult circumstances. The downturn has caused a huge globalslump in demand. The recession has particularly strong struck key Forbo markets such asthe United States. Despite the good results in the first three quarters, the economy’s tailspin had a negative impact on Forbo’s sales and earnings for 2008 as a whole.Selective acquisitions strengthen market positionOutstanding enhancement of the product portfolioAgainst this increasingly difficult environment, Forbo succeeded in making two importantacquisitions in 2008. The purchase of Bonar Floors enabled Forbo to complement its FlooringSystems product portfolio in the strategically important commercial floorings business inEurope. The second acquisition, Transtex Belting (the lightweight PVC conveyor belt activitiesof Fenner Dunlop), strengthens and expands the market presence of Movement Systemsin strategically significant market segments in North America.Currencies had a strong negative impact on salesSales almost at the previous year’s level despite a steep fall in the fourth quarterSales were stable on the whole until the third quarter of 2008, but fell considerably in thecourse of October and then slumped further as of November. The trend was exacerbatedin December when Forbo’s customers had to shut down factories and introduce forcedvacation and short-time work. Consolidated net sales converted into Swiss francs came toCHF 1,918.7 million, just below the previous year’s level of CHF 2,004.0 million. Forbo’s ac quisition-driven growth due to the takeover of Bonar Floors and Transtex Belting was 3.6 %.The negative impact of currency translations was 6.0 %. Exchange rate trends especiallyin the high-volume US dollar and euro zones plus the weakening of the pound sterling causeda sharp drop in sales reported in Swiss francs. Fortunately, despite this challenging envi ronment, Flooring Systems and Movement Systems managed to increase net sales in localcurrencies after adjustment for acquisitions.
4Operating profit impacted by sales development and extraordinary chargesCost-cutting measures prevented further margin erosionThe sharp decline in sales as of the fourth quarter of 2008, combined with rising credit risks,impairments as well as provisions for structural adjustments resulted in a lower EBIT thanthe previous year. The additional cost-cutting measures introduced towards the year-endonly went part way to compensating for the impact resulting from the decline in sales.This led to an operating profit (EBIT ) of CHF 117.1 million (previous year: CHF 162.4 million).The EBIT margin in 2008 thus came to 6.1 % (previous year: 8.1 %). Operating profit beforedepreciations and amortizations (EBITDA) stood at CHF 205.8 million, below the 2007 figureof CHF 221.9 million.Net income reduced by additional special chargesImpairments on securities and higher net financial expense additionally depress the resultOwing to the economic crisis, which has struck both Rieter divisions with full force, Forbohas had to take an impairment charge on its industrial participation in Rieter, which wasacquired with a view to exploiting synergies resulting from a potential cooperation. Thisvalue adjustment has reduced net income by CHF 79.2 million before tax. Other net financialexpense increased owing to the higher debt and came to CHF 16.5 million (previous year:CHF 7.6 million).Consolidated net income came to CHF 16.0 million (previous year: CHF 110.7 million).Strong balance sheetStrategic investmentsVarious strategic investments and the buyback of the company’s own shares increased netdebt to CHF 404.5 million at year-end 2008.Strengthening the balance sheetFor Forbo, a strong balance sheet in a prolonged economic downturn is a significant com petit i ve advantage. Selected asset categories were revalued at fair values in accordancewith the applicable IFRS accounting standards. The use of the revaluation model makes theactual asset situation of the Group more transparent.Proposals to the Ordinary General MeetingPar value repayment of CHF 3.90In view of the decline in net income compared to the previous year as well as the tougheconomic conditions expected to prevail in 2009, the Board of Directors proposes to theOrdinary General Meeting a cash payout of CHF 3.90 per share. As in the previous year,this distribution is to take the form of a reduction in par value.Share buyback programOwing to the deterioration in economic conditions and the uncertain future, the Board ofDirectors proposes to the Ordinary General Meeting that the 213,152 shares of the companywhich were bought back through the second trading line should not yet be destroyed.Accordingly, the Board of Directors proposes that it should be authorized to resell theseshares or to use them either as a means of payment for acquisitions or as underlyingsecurity for convertible and option rights.
5Change in the Board of DirectorsThe period of office of Dr. Rudolf Huber ends on the date of the 2009 Ordinary GeneralMeeting. He has decided not to stand for re-election anymore. The Board of Directorsthanks him for the valuable contribution for the benefit of Forbo Group. The Board ofDirectors will propose to the Ordinary General Meeting the election of Mr. Vincent Studer,member of the Executive Board of the auditing and accountancy company T & R AGand former partner of Ernst & Young, in his place as a member of the Board of Directors.Outlook for 2009A challenging yearForbo does not anticipate a soon recovery of the markets and believes that 2009 will besignificantly more challenging than 2008.Given the uncertain outlook for the world economy and the difficult market conditions,Forbo at this point in time refrains from making concrete forecasts regarding sales andearnings trends for the 2009 business year.Thank youOur thanks for your commitment and trustOn behalf of the Board of Directors and the Executive Board, we thank our employees fortheir great commitment, for their outstanding performance and for the necessary flexibility they have shown in their everyday work, with which they have contributed to thecompany’s success also in a difficult environment.We thank all our partners for the close working relationship and the trust they show inForbo. In particular we would like to express our gratitude to our shareholders and our loyalcustomers.Baar, March 2009Dr. Albert GnägiChairman of the Board of DirectorsThis E. SchneiderDelegate of the Board of Directors and CEO
6Forbo Group: weaker demand andspecial charges depress earningsAfter a record result in 2007, Forbo increased sales and earnings inthe first half of 2008 too. However, as of the third quarter of 2008some markets were reporting weaker demand, which then slumpedstrongly especially in the last months of the year, as the full forceof the global downturn made itself felt. Group net sales translatedinto Swiss francs came to CHF 1,918.7 million, which fell just shortof the previous year’s level. Exchange rates had a negative impact of6 % on sales. F
Château-Renault (F) sites and are used mainly in public buildings, offices and hotels. . EUR values translated at the annual average rate of CHF 1.587/1 (2008) and CHF 1.645/1 (2007). Financial Overview Group. Contents Annual Report 2008 2 Forbo – the first 80 years . Annual Report 2008. years years years years years years years years .
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