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Please find below all Forbo media releases listed by year.
- In 2003, sales of CHF 1,599 million were achieved and thus 4 % more than in the previous year
- Cash distribution of CHF 8.00 per share by way of a tax favorable reduction of the nominal value
- Operating profit (EBIT) of CHF 60 million
- Free cash flow of CHF 89 million
- Net debt further reduced by 22 % to CHF 379 million
- Solid balance sheet with an equity ratio of 37 %
Zurich/Eglisau, March 23, 2004
In the business year 2003, the Forbo Group had to struggle with adverse economic conditions in important core markets coupled with an unfavorable exchange rate development of the US Dollar. However, the market positions could be maintained to a large extent and in some regions the positions could be improved in local currency terms. However, the profitability is unsatisfactory and did not meet our expectations. With an equity ratio of 37 % the Group is on a solid financial basis and discloses a free cash flow of CHF 89 million. For these reasons, the Board of Directors will propose to the Annual General Meeting on April 27, 2004 a cash distribution of CHF 8.00 (previous year: CHF 22.00) per registered share by way of reducing the nominal value which is a tax favorable form of payment.
Development of sales
Sales rose to CHF 1,599 million or 4 % compared with the previous year when sales amounted to CHF 1,531 million. In local currency the increase is 7 %. The sales growth is almost completely the result of the acquisitions made in 2002. All in all, the sales development in Western Europe was unsatisfactory. Positive exceptions are France and Southern Europe for the flooring and adhesives businesses, and Germany for belting. Eastern Europe, North America and especially Asia remained on a growth course in all three businesses.
The Forbo Group has a solid market position in its three core businesses. Economically speaking, the result achieved in the course of the year did not meet our expectations. The main reason for this result is the global economic situation which was characterized also in 2003 by substantial and declining investments in public buildings, offices and production plants – investments that are critical for our business. Additional factors were the uncertainties over the Iraq war and the SARS lung disease in Asia. The disappointing economy was coupled with strong pressure on sales prices especially in Germany, the Netherlands, Great Britain, Scandinavia, and Switzerland. The weak demand in the important core markets of Forbo had a significant impact on sales and profit. Additionally, the Group suffered from a very unfavorable exchange rate of the US Dollar during this time.
The decline in high-margin markets had a significant impact on the profit. In addition, the US Dollar weakness left its marks as the Forbo Group generates a considerable sales percentage in North America and Asia on the basis of exports from the Euro currency zone. Substantial overcapacities reinforced the intense competition resulting in fiercer competition. Higher raw material prices for adhesives were another negative cost factor. After higher amortization of goodwill due to acquisitions, the operating profit (EBIT) amounted to CHF 60 million, clearly below the previous year’s result (CHF 88 million). Lower EBIT combined with higher financial expenses and a higher tax rate led to an unsatisfactory Group profit of only CHF 16 million (previous year: CHF 43 million).
Strong free cash flow and financial situation
Progress in the management of working capital and a reluctant investment activity led to a free cash flow of CHF 89 million. As a result and in connection with the weak US Dollar, which had a positive impact, the Group’s net debt could be reduced from CHF 485 million to CHF 379 million. The gearing (net debt as a percentage of equity capital) totaled 66 % (previous year: 82 %). The equity ratio amounted to 37 % equal to the previous year and thus was on an adequate level in connection with a high liquidity of CHF 189 million (previous year: CHF 152 million).
Cash distribution by reducing the nominal value of the share
The Board of Directors proposes to the Annual General Meeting a cash distribution of CHF 8.00 (previous year: CHF 22.00) per registered share by way of reducing the nominal value which is a tax favorable form of payment. Based on the 2003 year-end share price, the Forbo share still offers a yield of 2.3 %. The resulting total distribution amounts to CHF 11 million.
Development by Businesses
The flooring business recorded sales of CHF 729 million in the business year 2003 compared with CHF 736 million in the previous year. This corresponds with 46 % (previous year: 48 %) of total Group sales. Sales of the linoleum product group were CHF 362 million and declined by 2 % in local currency. The main reason of the decrease is the hesitant building and investment activities of the public sector, representing an important customer group. A positive development was observed in France. The trend is also positive in Germany and Southern Europe. This was in contrast to fairly sharp decreases in Great Britain, Benelux and Scandinavia. North America continues to be on a growth course. Sales of the vinyl product group achieved CHF 309 million, which is, in local currency terms, a decline of 1 %. A significant increase was achieved in France. Strong sales were also recorded in Southern and Eastern Europe, as well as in Asia. Sales of vinyl via retail showed a clearly declining trend in Germany and the Benelux countries. The flooring business with an operating profit (EBIT) of CHF 54 million (previous year: CHF 64 million) is still contributing the largest part of the profit to the Forbo Group.
The adhesives business recorded sales of CHF 573 million. The sales increase is mainly due to the acquisition of the Swift adhesives business. As a result, sales in local currencies rose by 22 %. Adjusted by Repoxit AG which was divested at the beginning of 2003 and which achieved sales of approximately CHF 16 million, the increase in local currency amounted to 26 %. About 40 % of the adhesives business’ total sales are accounted for by the North American market; 45 % of total sales are realized in the four major European sales regions, i.e. Benelux, Germany, Southern Europe, and France. In North America, Southern Europe, and France, growth could be generated in spite of the difficult economic climate. The operating profit (EBIT) was at CHF 31 million (previous year: CHF 38 million).
The global business with belts for power transmission, conveyor and processing applications, which is heavily dependent on plant construction and investments in transport infrastructure, continued to suffer from an unfavorable economic climate. This business achieved sales of CHF 297 million. In local currency, sales rose by 1 %. Sales could be increased only in Germany, in Southern and Eastern Europe. In America and Asia, markets and sales followed a clear upward trend in local currencies. However, this favorable trend was thwarted completely by the weak US Dollar so that sales in fact decreased in both regions after currency translation into Swiss Francs. The earning power of the belting business was, with CHF 1 million EBIT, not satisfactory (previous year CHF 11 million).
The unsatisfactory profit development over the last two years and the difficult market conditions have caused the Board of Directors to verify the strategies and operational processes of the Group and to initiate necessary changes. For this purpose, the Board of Directors of the Forbo Group has appointed the 52 year old This E. Schneider the new President of the Executive Board effective March 4, 2004. This E. Schneider has successfully made the Selecta Group the European market leader. At the Annual General Meeting on April 27, 2004 Schneider will also be proposed for election to the Board of Directors. The Board of Directors and Werner Kummer (56), who has been the CEO of the Forbo Group since 1998, have mutually agreed to end his assignment. Werner Kummer will continue to be at Forbo’s disposal in the transition period. In addition, there have been changes in the Board of Directors. Karl Janjöri (69), Chairman of the Board of Directors since 1998 and Member since 1986, has decided to step down. As his successor the Board of Directors has appointed Dr. Willy Kissling (59) who has previously been Vice Chairman.
At the beginning of the year 2004, there are more signs for optimism. The indicators for the economies in the USA and in Asia are pointing upwards. However, there is still uncertainty as to the development in the European economic region that accounts for two thirds of Forbo’s total sales. Key topics such as unemployment, public finances, taxes, and financing of social insurance schemes are slowing down a quick recovery. The Dollar weakness continues to have a negative impact on European producers. Also, fierce competition and overcapacities will increase the price pressure in the future.
For the current year it is our goal to stop the unsatisfactory profit development and to create a solid basis for enhancing our profitability. In today’s economic climate it is imperative that we take the necessary steps immediately to improve our earnings situation.
Forbo is a global manufacturer of floor coverings, adhesives and conveyor, processing and transportation belts. The Group employs over 5.600 people worldwide and has an international network of 30 production companies and 45 sales organizations in 17 countries.
Head of Corporate Communications
Tel: + 41 1 868 25 69
Fax: + 41 1 868 35 69
Chief Financial Officer
Tel: + 41 1 868 25 25
Fax: + 41 1 868 25 26