Swiss Forbo had to master a difficult 2015
In the 2015 business year Forbo had to deal with major challenges. The strong Swiss franc had a discernible impact on the company’s results. The generally subdued business performance in the first half of 2015 did not change appreciably in the second half of the year. In the year under review, the two divisions reported divergent results
Movement Systems again increased sales and earnings considerably, whereas Flooring Systems could not match the previous year’s results even on a currency-adjusted basis, despite increased marketing activities and new offerings in the product portfolio.
In the wake of the Swiss National Bank discontinuing its euro minimum exchange rate in January 2015, both sales and earnings in the corporate currency were strongly impacted by exchange rates. The Swiss franc, which firmed significantly against most of the currencies important for Forbo’s business such as the euro, the pound sterling and the Japanese yen, clearly left its mark when local currency results were translated into the corporate currency. The foreign currency translation effect shaved a good CHF 100 million off sales and about CHF 18 million off operating profit (EBIT).
Despite these challenging conditions, Forbo’s two divisions both expanded their already attractive product portfolios by adding new innovations, invested further in the development of high-end products, and continued to strengthen its distribution channels, especially in growth markets. Owing to the ongoing situation on the foreign exchange markets, Forbo initiated a series of additional cost optimization measures in order to partially offset the impact of the strong Swiss franc by an even better operating performance.
Challenging conditions in core markets that are crucial for the business of Flooring Systems led to a slight decline in sales, and the geographic weighting of business operations exacerbated the negative currency impact. All regions contributed to the solid growth at Movement Systems. The division’s strong presence in growth markets was a major factor in the positive performance. In local currency terms, Flooring Systems reported a slight sales decrease of 1.1%, while Movement Systems generated an encouraging sales increase of 6.7%. Net sales of the Group as a whole were up 1.1%, a slight increase over the previous year.
Overall, sales in local currencies in the Asia/Pacific and Africa region showed the strongest growth, which came to +6.2 %, while North, Central and South America grew +2.8 %, and Europe recorded a slight sales decline of 0.5 % amid very mixed market conditions.
Adjusted for currency effects, earnings increased slightly. In addition to focusing on efficiency gains and continuous optimization of processes and procedures, Forbo initiated a number of measures designed to ensure future growth.
The Flooring Systems division expanded its broad portfolio with new designs and embossing, launched the establishment of production for a new product group – homogeneous vinyl floor coverings – and targeted distribution channels for further growth. The Movement Systems division, too, again launched a number of technologically demanding developments with added value for customers; in addition, the range of services was increased and optimized and additional production capacity was created.
The Flooring Systems division posted net sales of CHF 791.3 million (previous year: CHF 884.6 million). This corresponds to a decrease of 1.1 % in local currencies; owing to the negative impact of currency fluctuations, the decrease in the corporate currency came to 10.5 %. The division accounts for 69.5 % of Group sales. By expanding the product portfolio for specific applications in the private sector, Flooring Systems posted encouraging growth figures in various customer segments, especially for shop fittings, hotels, and catering and leisure services as well as in the manufacturing industry. These gains were eroded, however, by weaker demand in important core markets. In addition, public sector investment is still weak. Despite measures on the cost side, the strong Swiss franc combined with a slight downturn in sales impacted negatively on operating profit (EBIT), which declined by 11.0 % to CHF 109.8 million (previous year: CHF 123.4 million). The EBIT margin came to 13.9 % (previous year: 14.0%), slightly below the previous year by 0.1 percentage points.
The Movement Systems division generated net sales of CHF 347.8 million (previous year: CHF 342.2 million), reflecting a substantial year-on-year increase of 6.7 % in local currency terms. In the corporate currency, however, adverse currency effects pared this growth back to 1.6 %. The division accounts for 30.5 % of Group sales. All regions contributed to this encouraging upturn in sales. Even the more traditional, saturated markets reported market share gains. This performance, coupled with consistently executed operational activities designed to improve global processes across the board, again had a very positive impact on operating profit (EBIT), which climbed to CHF 42.9 million (previous year: CHF 37.0 million). This is equivalent to a significant increase of 15.9 %. The EBIT margin came to 12.3 % (previous year: 10.8 %), a year-on-year increase of 1.5 percentage points.
Outlook for 2016: Forbo expects market conditions to remain demanding and challenging in the 2016 business year. Economic and political circumstances can change quickly. However, Forbo will stick to its strategy and will continue to expand both its global presence and its product range.
Thanks to the good strategic positioning the Group has achieved, and barring any change in the foreign exchange situation, Forbo anticipates a slight increase in net sales and Group profit from continuing operations in 2016.