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Higher sales – group loss resulting from special charges

Eglisau/Zurich, August 20, 2004

In the first half-year 2004, Forbo recorded Group sales of CHF 827.0 million, 4.4 % up on the previous year. The operating profit before a special depreciation charge of CHF 4.6 million is CHF 34.2 million (previous year: CHF 34.8 million), and CHF 29.6 million after the special depreciation charge. Including special charges of totally CHF 20.0 million Forbo’s Group loss is CHF 16.2 million (previous year: Group profit of CHF 14.2 million).

In the first half-year Forbo benefited from all in all slightly better trading conditions, reaching sales of CHF 827.0 million, a 4.4 % increase compared with the previous year. Especially the adhesives and the belting businesses contributed to this development with a sales plus of 6.7 and 5.1 %, respectively. The flooring business recorded a 2.4 % sales increase, but a slight decrease in local currencies. The existing overcapacities, particularly in the flooring and the belting businesses and the Dollar weakness against the Euro put pressure on the gross margin (31 %) which is somewhat below the previous year’s level.

The operating profit before depreciation and amortization (EBITDA) is CHF 79.2 million, CHF 2.2 million below the first half of 2003 due to lower gross margins and higher operating expenses. The operating profit (EBIT) of CHF 29.6 million contains a special depreciation charge on fixed assets of CHF 4.6 million made in the period under review. The lower operating profit, the clearly higher finance and tax expenses compared with the previous year, and value adjustments of a total of CHF 20.0 million led to a group loss of CHF 16.2 million (previous year: group profit of CHF 14.2 million).

Forbo has a good liquidity with some CHF 150 million cash and a freely available amount of about CHF 120 million under a medium term credit facility. The gearing (net debt/equity) at the end of June 2004 is 70.3%, 4 percentage points higher than at the end of 2003.

Development of businesses
The flooring business reached 2.4 % higher sales of CHF 377.0 million in the first half of 2004 resulting from currency translation. In terms of local currencies, sales decreased slightly by 0.4 %. While North America recorded double-digit sales growth, sales declined in some key markets of Western Europe, for instance in Germany and in Scandinavia. For reasons of overcapacities in production, the trading conditions for cushion vinyl remained difficult, especially in the retail business. In spite of restricted public spending and consequently difficult market conditions in the contract business, linoleum sales could be maintained on the previous year’s level thanks to strong sales growth in the USA. As a result of the still difficult market environment in Western Europe and the unfavorable development of the US Dollar against the Euro and the Swiss Franc, the operating profit (before special charges) declined by 17.0 % from CHF 23,5 million in the previous year to CHF 19.5 million.

The adhesives business showed a positive development in the period under review, with sales rising 6.7 % to CHF 296.5 million. This is essentially due to the successful conclusion of the integration of the American adhesives producer SWIFT and accelerated growth in the USA and parts of Europe. Besides, Forbo Adhesives recorded slightly better gross margins with new, higher value adding products. Raw material prices are still on a high level and could only be partly passed on to the customers in some segments. The fact that during the past half-year some customers shifted their activities to lower cost countries where Forbo Adhesives is not yet active, had a negative impact on profits. Before special charges, the operating profit increased by 31.6 % to CHF 17.9 million based on the all in all positive development.

The belting business recorded sales of CHF 153.5 million against CHF 146.0 million in the previous year meaning that the sales decline could be stopped. The belting business is heavily dependent on general plant construction and investments in traffic and transport systems. Continued market weakness and reluctant investment activities led to strong price pressure in the logistics market. A positive market mood is prevailing in China, however, there are already some signs of a slow-down of the growth trend. The still weak US Dollar made exports from Europe to the USA essentially more expensive, the currency-related extra cost of European products led to lower profits. To a lesser extent, this also holds true for China. The initiatives in the drive belt segment (Extremultus product line) show first signs of success but a sustainable increase in market shares will materialize only later. The operating profit of CHF 1.0 million (previous year: CHF 0.2 million) is still unsatisfactory.

Outlook
Provided that today’s positive economic development continues, Forbo is expecting slightly higher sales for the year 2004 to previous year. Operating profit before special charges is likely to be somewhat lower to previous year.

Forbo is a global producer of floorings, adhesives and beltings for drive, process and transport purposes. The company has approximately 5,600 employees and an international network of 30 production companies and 45 sales organizations in 30 countries.

Contact:

This. E. Schneider
Delegate of the Baord
Tel: +41 1 868 25 49
Fax: +41 1868 35 49


Gerold Zenger
Chief Financial Officer
Tel: +41 1 868 25 56
Fax: +41 1 868 35 56