Forbo Reports Net Income of CHF 73.1 Mn from the Sale of Industrial Adhesives

Difficult economic conditions - particularly in the euro zone, where governments made huge spending cuts ? impacted on the past business year and on Forbos performance. Despite a steep decline in demand from the public sector, the Group managed to hold sales close to the previous years level by expanding into new markets and market segments. Sales came to CHF 1,201.1 million, which was 0.2% (?1.1% in local currencies) lower than the previous year (CHF 1,203.8 million). After factoring out positive special items, earnings before depreciation and amortization (EBITDA) decreased by 15.0% to CHF 160.6 million (previous year: CHF 189.0 million). Adjusted net income from operations came to CHF 90.1 million (previous year: CHF 115.0 million) equivalent to a decrease of 21.7%. Net cash rose sharply to CHF 258.3 million (previous year: CHF 0.5 million) as a result of the sale of the industrial adhesives activity.

Challenging business year 2012

As expected, 2012 proved to be a very challenging business year owing to the difficult economic environment. Business conditions, in particular efforts to cut public spending and uncertainties in the markets, demanded even faster implementation of strategic projects. Since a major part of Forbos business is in Europe and is, directly or indirectly, dependent on public spending, the cost-cutting measures, especially in the euro zone, left their mark on the Groups results in the year under review. Government spending on schools, hospitals, retirement homes, and public buildings was cut massively, which led to a decrease in sales and earnings at Flooring Systems.

Net sales at previous years level

Forbo was able to offset a large part of these decreases by accelerating penetration efforts in new markets and market segments with innovative products and customer-specific services and by expanding the existing distribution channels.

In the corporate currency, Flooring Systems reported a decline in net sales of -1.4%, while Movement Systems posted a net sales gain of +3.1% in a very mixed market environment. Overall, the North/Central/South America region grew fastest (+5.7%) while sales in the Asia/Pacific and Africa region rose by +1.1%. Europe, however, posted a decline of -2.0% owing to the prevailing economic conditions.

Strategic initiatives and extraordinary income impact bottom line

In order to reduce Forbos dependence on public spending and to exploit the potential of growth markets, various strategic projects have been launched in recent years. The related expenses impacted on the companys profit.

The conversion of the most important pension plan in the Netherlands from a defined benefit to a defined contribution plan resulted, in accordance with applicable IFRS rules, in one-time extraordinary pretax gain of CHF 45.4 million. This had a significant effect both on the operating profit of the Flooring Systems division and on consolidated Group profit. This effect must, therefore, be neutralized when assessing operating profit.

Without factoring in this extraordinary gain, earnings before depreciation and amortization (EBITDA) decreased by 15.0% to CHF 160.6 million (previous year: CHF 189.0 million). The Groups operating profit (EBIT) declined by 21.3% from CHF 148.9 million the previous year to CHF 117.2 million. The EBITDA margin decreased from 15.7% to 13.4% year-on-year, and the EBIT margin was down from 12.4% to 9.8%.

Including the aforementioned special items, EBITDA rose by 9.1% to CHF 206.0 million (previous year: CHF 189.0 million) and EBIT increased by 9.3% to CHF 162.6 million (previous year: CHF 148.9 million). The EBITDA margin rose from 15.7% to 17.2% year-on-year, while the EBIT margin increased from 12.4% to 13.5%.

Group profit impacted by special factors

Adjusted net income from operations was CHF 90.1 million (previous year: CHF 115.0 million) equivalent to a decrease of 21.7%. This decline is explained by the difficult market conditions, the accelerated implementation of strategic initiatives (the expansion in growth markets and the broadening of the product portfolio) and a higher tax rate.

In addition, two non-recurring special factors had a major impact on Group profit: for one, the Group posted extraordinary net income of CHF 73.1 million stemming from the sale of the industrial adhesives activity, including synthetic polymers. For another, the conversion of the pension plan in the Netherlands resulted in extraordinary gain of CHF 34.0 million after tax.

This resulted in total Group profit of CHF 197.2 million in the year under review. In the previous year, Forbo had posted Group profit of CHF 146.5 million, which included extraordinary financial income of CHF 22.4 million after tax from the sale of Rieter shares. A year-on-year comparison of Group profit is therefore not very meaningful.

About Forbo

Forbo is one of the leading producer of floor coverings, building and construction adhesives, as well as power transmission and conveyor belt solutions. Forbo employs 5 000 people and has an international network of 24 sites with production and distribution companies, 6 assembly operations and 37 sales organizations in a total of 34 countries worldwide. Forbo is headquartered in Baar in the canton of Zug, Switzerland. In the year 2012 the Group generated net sales of CHF 1,201.1 million and a Group profit of CHF 197.2 million.