Annual Report 2005 - Investor Relations

2Annual Report 2005Report of the non-executive Board of DirectorsHeinrich C. Spoerry,Chairman of the non-executive Board of DirectorsLadies and Gentlemen2005 was an important year for Industrie-holding Cham. We set out to continueour focusing strategy and further in-crease the profitability of the operationalbusiness.By reducing our holding in Kardex AGto 6.5%, we took a further step towardsseparating Industrieholding Cham andKardex. The remaining Kardex shareswill be transferred to the shareholdersof Industrieholding Cham AG. Providedthe Annual General Meeting approvesthe respective proposals, during 2006Industrieholding Cham will be completelyseparated from its involvement inKardex.The development and operating resultsof the very different speciality papers andreal estate activities must be reviewedseparately.Cham Paper GroupIn financial year 2005, Cham Paper Groupgenerated revenue of CHF 407.8 million(2004 CHF 425.1 million). Net of the wallpaperbase business that was sold in2004, revenue increased by 2.4%.The sharp increases in raw material andenergy prices in the reporting year couldonly partly be passed on as higher sellingprices and with delay. The resulting deteriorationof margins eliminated the operationalprogress in the areas of development,production and sales. ChamPaper Group therefore suffered a sharpreduction in operating profit (EBIT) toCHF 8.5 million (2004 CHF 22.2 million).Net profit was CHF 1.7 million (2004CHF 6.5 million).Hammer Retex GroupIn the favourable real estate market inZug, the real estate division producedvery positive results. Hammer RetexGroup generated revenue of CHF 18.5million (2004 CHF 15.9 million). AtCHF 5.6 million, higher promotion profitsthan the previous year (2004 CHF3.1 million) resulted from sale of a furthertranche of land and gains on own constructionprojects. With an EBIT in financialyear 2005 of CHF 10.6 million (2004CHF 7.1 million), Hammer Retex Groupearned a profit of CHF 8.1 million (2004CHF 5.5 million).The Hammer Retex Group offers integralreal estate services from a single sourcefor the entire lifetime of a property. Formany years, this business model has enabledHammer Retex Group to differentiateitself from the competition andobtain competitive advantages. Thissuccessful strategy will also be pursuedin the years ahead.Industrieholding ChamIn the consolidated income statement ofIndustrieholding Cham, revenue of CHF426.4 million (2004 CHF 441.3 million)resulted in operating profit (EBIT) of CHF19.1 million (2004 CHF 29.2 million).We were able to compensate for thisunsatisfactory performance with apleasing financial result. This was mainlyderived from the accounting gain ofCHF 7.8 million realised on the sale ofKardex shares and is therefore a oneoffoccurrence.For the reporting year, IndustrieholdingCham earned a consolidated net profit ofCHF 17.6 million (2004 CHF 11.9 million).Accounting changeover to IFRSIn the annual financial statements for2005, the International Financial ReportingStandards (IFRS) have been appliedfor the first time. Detailed explanationsabout the effects of this change on thepresentation of the capital and incomesituation of Industrieholding Cham arecontained in a separate chapter of thefinancial report.

Industrieholding Cham 3The changeover has no material effecton Cham Paper Group. In the HammerRetex Group, investment properties andland reserves are now carried in the balancesheet at fair value which results ina higher balance sheet value. The applicationof these new reporting standardsis an important step towards improvingcomparability with other stock-exchangelisted real estate service companies.Annual General MeetingAt the 94th Annual General Meeting ofIndustrieholding Cham AG to be heldon April 28, 2006, the terms of officeof Michael Funk, Dr. René Furler andRolf Schweiger will expire. Dr. RenéFurler and Rolf Schweiger are puttingthemselves up for re-election for afurther three year term. At the sametime Michael Funk will be giving uphis position on the non-executiveBoard of Directors. As Chairman ofthe Board of Directors of HammerRetex AG, he will continue to advisethe real estate business on the realisationof significant current projects.I would like to thank Michael Funk forhis many years on the non-executiveBoard of Directors and for his commitment.In recent years he has made adecisive contribution to the developmentof important real estate projects.The non-executive Board of Directorswill propose the election of Jürg Müller(Kirchdorf BE) as its new memberto the Annual General Meeting. JürgMüller held key management positionsin his many years at the internationalpaper company M-real. From 2001to 2004 he successfully managed theturnaround of Zanders, BergischGladbach, a subsidiary of M-real.The non-executive Board of Directorsis planning to reorganise following theAnnual General Meeting. The positionof Chairman will be taken over byPhilipp Buhofer from Heinrich C.Spoerry. Heinrich C. Spoerry will remainon the Board.The non-executive Board of Directorsproposes to the Annual General Meetingof Industrieholding Cham that an unchangeddividend of CHF 5 per sharebe paid.The non-executive Board of Directorsalso proposes that treasury shares beretired and the nominal value be reducedby allocation of call options forthe purchase of Kardex shares. Thedetails are stated in the invitation andagenda for the Annual General Meeting.OutlookIn the current financial year of 2006,Cham Paper Group must increase itsoperating profit. This objective will bemet by the following initiatives:– Obtaining price increases– Continued emphasis on the dynamicnew innovation process– Exploitation of potentials resulting frominvestments made in previous years– Realisation of further cost reductionsthrough the entire value chain.Hammer Retex Group is still operatingin a favourable market environmentand has a healthy order backlog. Goodopportunities for land purchases andsmaller consolidation acquisitions willalso be utilised in the future.ThanksWe thank all our shareholders, customersand business partners for the trustthey place in us. Respect and thanks goalso to our employees whose personalcommitment will be decisive for the lastingsuccess of Cham Paper Group andHammer Retex Group.For the non-executive Board of DirectorsHeinrich C. Spoerry

4Annual Report 2005Industrieholding Cham consolidated key figures 2001 – 2005in CHF million 2005 2004 2003 2002 2001IFRS IFRS FER FER FERNet revenue 426.4 441.3 1 042.6 974.5 1 018.0EBITDA 47.8 59.0 98.5 98.3 53.0EBITDA margin 11.2% 13.4% 9.4% 10.1% 5.2%Operating profit (EBIT) 19.1 29.2 51.4 53.1 9.8EBIT margin 4.5% 6.6% 4.9% 5.5% 1.0%Profit/loss (–) for the year 17.6 11.9 12.7 23.8 –33.3Return on sales 4.1% 2.7% 1.2% 2.4% –3.3%Profit/loss (–) for the year before non-recurring items 1) 9.8 12.3 12.7 16.3 –15.1Return on sales before non-recurring items 2.3% 2.8% 1.2% 1.7% –1.5%Investments in fixed assets and development properties 51.6 39.1 27.2 31.6 62.6Employees FTE per 31.12. 996 1 077 3 011 3 114 3 240Net sales per employee TCHF 411 411 340 307 3331) Non-recurring items 2001: Amortisation deferred taxes, additional amortisation Cham Paper Group, provision for redundancy welfare plansNon-recurring items 2002: Accounting gain on sale of non-operating assets of Cham Paper GroupNon-recurring items 2004: Loss of the year discontinued businessNon-recurring items 2005: Gains from sales of 310 000 Kardex sharesGlossaryEBITDA margin EBITDA / net revenueEBIT marginEBIT / net revenueReturn on sales Profit/loss (–) for the year / net revenueFree cash flow Cash flow from operating activites +cash flow from investing activitiesEquity ratioIncluding minority interestsNet working capital Current assets . /. short-term liabilitiesNet interest-bearing liabilitiesDebt ratioCoverage ratioGearingEmployeesNet sales per employeeBank loans + other interest-bearing liabilities . /. cash and cashequivalents . /. securities . /. other interest-bearing current assetsNet interest-bearing liabilities / EBITDAEBIT/(interest expenses . /. interest earned)Net interest-bearing liabilities/shareholders’ equityFull-time equivalents (excluding trainees)Net revenue/average employees (full-time equivalents)Net revenuein CHF millionEBITin CHF millionProfit/loss (–) for the year beforenon-recurring itemsin CHF millionNet revenue per employeein TCHF1000800600400200001 02 03 04* 055040302020001 02 03 04* 051612840–4–8–12–1601 02 03 04* 0545040035030025020015010050001 02 03 04* 05* 2004 deconsolidation Kardex

Industrieholding Cham Industrieholding Cham 5in CHF million 2005 2004 2003 2002 2001IFRS IFRS FER FER FERCurrent assets 224.8 201.5 473.9 451.5 499.0Non-current assets 362.1 360.8 511.8 520.8 533.7Total assets 586.9 562.3 985.7 972.3 1 032.7Liabilities 268.6 269.0 569.1 572.7 655.5Share capital 80.6 80.6 80.6 80.6 80.6Shareholders’ equity (without minority interests) 318.3 293.3 296.0 282.9 258.7Minority interests 0.0 0.0 120.6 116.7 118.5Total liabilities and shareholders’ equity 586.9 562.3 985.7 972.3 1 032.7Equity ratio 54.2% 52.2% 42.2% 41.1% 36.5%Par value reduction / Gross dividend 11.0 3.6 3.6 0.0 0.0Net working capital 42.8 24.7 157.9 153.3 93.4Net interest-bearing liabilities 92.4 118.2 219.0 242.2 309.4Cash flow from operating activities 31.0 23.9 59.2 76.8 75.1Free cash flow 29.2 –34.2 35.6 83.1 –15.7Earnings per share in CHF 24.00 15.66 15.80 29.59 –41.32Assets/Liabilities and shareholders’ equityin CHF million1 2001 000800600400200Equity ratioin %605040302010001 02 03 04* 05Non-current assetsCurrent assetsShareholders’ equityLiabilities001 02 03 04* 05

6Annual Report 2005Cham Paper GroupThe main driver was the Chinese marketwhere we operate partly directly and partlythrough representatives. The decisionmade in 2004 to open our own office inShanghai has proved to be right.Cham Paper Group gainedfurther market shares in itscore business.Axel W. Wappler, CEOIn fiscal year 2005, Cham Paper Groupdeveloped positively in important marketsdespite a generally difficult environment.At CHF 407.8 million, group revenue was4.1% lower than the previous year. However,net of the disposal in 2004 of thewallpaper base business which had saleslast year of CHF 28.3 million, revenue in thecontinued product groups rose by 2.4%.Operating profit (EBIT) and net profit fellby comparison with the previous year.The main reasons were much higher rawmaterial and energy prices as well as technicalproblems at one of the productionplants. For the coming years we are optimisticthrough having increased ourmarket share in strategic business areasand sharply accelerated the innovationrate in the reporting year.In Europe, our main market, we increasedrevenue in the continued business by2.4%. In Asia, the increase was 19.2%.We cannot be satisfied with the developmentof the operating result or of thenet profit, both of which are substantiallylower than the previous year. Operatingprofit fell to CHF 8.5 million (2004 CHF22.2 million). Net profit declined to CHF1.7 million (2004 CHF 6.5 million). Thisdevelopment was mainly attributable totwo factors:– The prices for fuel and most oil-basedadditives increased during the reportingyear. The specific energy costsincreased by an average of 20%. Thishad a major impact on our energyintensiveindustry. Cost of pulp wentup by an average of 10% and thosefor additives by 4%. In an overall difficultmarket, it was not possible topass these price increases on to customersto their full extent.– At the Hunsfos mill in Norway, unexpectedtechnical problems arose whenreplacing the Yankee Cylinder of a papermachine. The difficulties causedinterruptions in production and higheroperating costs.

14Annual Report 2005Attractive products fordemanding applicationsAdhesa Unique – The new paper for high-quality labelsWhether for cosmetics, sweets or beverages: labels play an important part in buyingdecisions. Labels must stand out and realise a high level of repeat recognition. In 2005,with Adhesa Unique, Cham Paper Group developed and introduced to the marketa high-quality paper that allows our customers to fulfil exactly these requirements.Adhesa Unique is a one-side double coated self-adhesive paper. It affords outstandingprintability and allows label designers to create and design effects which appealnot only to the eye but also to the sense of touch. Hot-embossed printing enablesmetallic effects to be created. The finely ribbed surface of Adhesa Unique reflects thelight in various directions. This effect, as well as the brilliance of the colours, makes thelabel striking from all sides of the sales shelf – an effect greatly valued by designers. Theupper coating gives the grade a very fine, high-quality feel.Cham Paper Group developed Adhesa Unique in a very short space of time and inclose collaboration with customers and market researchers. This enabled us to successfullypresent a product that is not simply a print carrier but also, with its uniqueproperties, directly supports the demands of the customers.The immediate and clear success achieved with Adhesa Unique confirms the validityof our strategy. We shall intensify our marketing activities for this new product in 2006.This grade is manufactured at our Cham mill in Switzerland.

Cham Paper GroupProductsIndustrieholding Cham 15CarLux – Metallic effects for appealing packagingWhen it is a question of packaging products attractively, there is a need for papersthat create a metallic impression. Until now, paper usually had to be metallised in acostly process. With CarLux, a one side coated paper, Cham Paper Group now hasa product in its assortment that offers the customer an alternative technology. Thepaper‘s surface is designed so it can be printed very easily with metallic ink. This isnot only an attractive method of obtaining the metallic effect but for many customersalso reduces the processing costs. In terms of quality, CarLux is an important additionto the product segment of flexible packaging papers. It is positioned between the Hi-FiKraft Lux and Carcoat grades.The development of CarLux took place at the beginning of 2004. Our specialists succeededin designing a paper that combines a very low specific weight (down to40 g/m 2 ) with a high-quality coating. For the packaging industry this is a major benefit.Following a rigorous test phase with several customers, we already introduced CarLuxto the market in the second half of 2004. The acceptance was very positive. Key salesarguments in addition to the printability with metallic ink are outstandingly glossysurface, flexibility of application and stability of form. Sales increased rapidly in 2005and we expect them to grow further in 2006.The base paper for CarLux is produced at our Tenero mill in Switzerland and coatingis applied at the Carmignano mill in Italy.

16Annual Report 2005Cham Paper Group key figures 2001 – 2005in CHF million 2005 2004 2003 2002 2001IFRS IFRS FER FER FERNet revenue 407.8 425.1 416.3 413.2 446.1EBITDA 36.6 51.1 51.4 48.0 10.0EBITDA margin 9.0% 12.0% 12.3% 11.6% 2.2%Operating profit (EBIT) 8.5 22.2 26.7 24.0 –14.9EBIT margin 2.1% 5.2% 6.4% 5.8% –3.3%Profit/loss (–) for the year 1.7 6.5 7.2 15.8 –38.7Return on sales 0.4% 1.5% 1.7% 3.8% –8.7%Profit/loss (–) for the year before non-recurring items 1) 1.7 6.5 7.2 8.3 –21.7Return on sales before non-recurring items 0.4% 1.5% 1.7% 2.0% –4.9%Cash flow from operating activities 27.2 33.3 37.4 42.3 34.7Investments in fixed assets 25.3 26.1 16.1 16.2 26.5Free cash flow 4.7 6.0 21.2 32.9 12.11) Non-recurring items 2001: Amortisation deferred taxes, additional amortisation Cham Paper Group, provision for redundancy welfare plans.Non-recurring items 2002: Accounting gain on the sale of non-operating assets of Cham Paper Group.Net revenuein CHF millionEBITin CHF millionProfit/loss (–) for the yearbefore non-recurring itemsin CHF millionFree cash flowin CHF million500400300200100001 02 03 04 05302520151050–5–10–15–2001 02 03 04 051050–5–10–15–20–2501 02 03 04 053530252015105001 02 03 04 05

Cham Paper Group Industrieholding Cham 17in CHF million 2005 2004 2003 2002 2001IFRS IFRS FER FER FERCurrent assets 171.0 175.1 162.0 177.5 184.7Non-current assets 237.2 239.0 240.7 245.8 249.3Total assets 408.2 414.1 402.7 423.3 434.0Liabilities 244.9 251.1 246.4 274.0 322.6Share capital 130.0 130.0 130.0 130.0 110.0Shareholders’ equity 163.3 163.0 156.3 149.3 111.4Total liabilities and shareholders’ equity 408.2 414.1 402.7 423.3 434.0Equity ratio 40.0% 39.4% 38.8% 35.3% 25.7%Dividend 0.0 0.0 0.0 0.0 0.0Net working capital –2.2 –0.6 60.0 62.5 –23.5Net interest-bearing liabilities 134.6 138.0 144.5 164.6 215.5Debt ratio 3.7 2.7 2.8 3.4 21.6Coverage ratio 1.6 3.9 3.7 2.9 –1.1Gearing 0.8 0.8 0.9 1.1 1.9Employees FTE 953 1 034 1 031 1 041 1 073Net sales per employee in TCHF TCHF 411 412 402 391 404Assets/Liabilities and shareholders’ equityin CHF millionNet interest-bearing liabilitesin CHF millionNet working capitalin CHF million500400300200100001 02 03 04 0525020015010050001 02 03 04 05706050403020100–10–20–3001 02 03 04 05Non-current assetsCurrent assetsShareholders’ equityLiabilities

18Annual Report 2005Hammer Retex GroupThe higher value of promotion profits relativeto the previous year resulted fromsales of land and profits on own constructionprojects. In total, in the reportingyear the group earned a consolidatednet profit of CHF 8.1 million (2004 CHF5.5 million).We gain competitive advantageby differentiating ourselvesfrom other marketplayers with an All-in-onebusiness model.Claude Ebnöther, CEOThe accounting changeover to IFRS hasa significant effect on the financial resultsof Hammer Retex. The annual revaluationsof the investment properties at fairvalue as well as the promotion profits arenow reported as revenue. The investmentproperties and land reserves are carriedin the balance sheet at fair value. On theother hand, land classified as developmentland on which projects are alreadybeing planned or realised is still carriedin the balance sheet at historical value.In the reporting year, in a favourable economicenvironment, Hammer RetexGroup generated revenue of CHF 18.5million (2004 CHF 15.9 million) and canreport operating profit (EBIT) of CHF10.6 million (2004 CHF 7.1 million). Theincrease was derived from higher promotionprofits and appreciation in valueof investment properties.Developments by divisionIn the reporting year, the various divisionsof Hammer Retex Group differed in theirdevelopment. In the investment propertiesdivision, rental income was lowerthan the previous year because of theneed to terminate leases on the propertiesthat were designated for demolitionor rebuilding in the Indukta (Zug) andHerrenmatt (Cham) projects. Indukta has32 lofts, Herrenmatt around 65 rentedapartments. Both projects are awaitingplanning approval. We expect the Herrenmattdevelopment to start contributinghigher rental income as from 2008.In the remaining portfolio, which consistsalmost entirely of residential properties,there are no vacancies and the apartmentsare still in great demand.In 2005, the property management divisionunderwent a phase of consolidationafter the strong growth of thepreceding years. In real estate sales,the order volume increased again.The general contracting division heldrevenue steady in an increasingly toughenvironment. Acquisition activities wereaffected by new players in the market

Hammer Retex GroupIndustrieholding Cham19and the trend to all-inclusive serviceofferings with a higher risk profile. Weare countering this trend by focusingmore on our own projects for whichwe are purchasing and developing thenecessary land. Revenue in this divisionwas negatively impacted by delays inreceiving planning permission for ourown construction projects and higherprovisions for general contractor risks.Market environmentIn 2005, the building industry and realestate market again proved itself to belargely independent of the overall economiccycle. It is stimulated by brisk activityin residential building construction.The demand for apartments is robust forboth rented and owner-occupied properties.The demand is driven by lowinterest rates and demographic developments.Although construction of residentialbuildings has greatly accelerated, mostmarkets for apartments are still sellers’markets.market knowledge from all the divisionscan flow into the projects according toneed.All-in-one business modelReconstruction– Cost-benefit analysis– Market analysis– Renovation– Implementationof tenancy lawPromotion– Analysis of location– Project development– Marketing– Sale of property– InvestorProperty management– Renting– Maintenance– Operation– AccountingRealisation– Planning– Approval– Financing– Construction managementIntegral real-estate managementWe gain competitive advantage by differentiatingourselves from other marketplayers with an All-in-one businessmodel. This offers integral real estate servicesfrom a single source for the entirelifetime of a property. With this customerfriendlyand market-oriented approach,Hammer Retex creates added valuethrough the entire value-creation process.A further advantage of the model is thatOutlookIn view of the good order situation, alldivisions of Hammer Retex Group canface the new business year with optimism.A number of projects were started in2005 which will not yet be completed inthe current year. We therefore expect promotionprofits to be lower in 2006.

20Annual Report 2005Property management«A property almost becomespart of me»Interview with Marianne SchiesserProperty Manager with HammerRetex GroupMs. Schiesser, why did youchoose this job?No two days are the same – theyoften turn out quite different than planned,because something unexpectedhappens in one of my properties. WhatI also find fascinating is that I have contactwith people who have such differentinterests, like tenants, building owners,and workmen. That makes it a very variedand challenging environment withlots of scope for tensions where I oftenhave to take the role of conflict solver.It is also exciting when I can coordinatelarge refurbishment projects that involvedozens of people.What you describe does not soundlike the daily routine of a propertyadministrator.It is not the same as it used to bewhen all that was involved in managinga property was fixing the rent and collectingit. We call what we do today propertymanagement. We aim to show theowner the possibilities that are open tohim.What exactly do you mean by that?Hammer Retex wants to be able tomanage a property over its entire life cycle.That way we can preserve its valueby taking appropriate measures and ensurethat it produces the desired yieldfor the owner. After a few years I knowa property inside out, it almost becomespart of me.What do you offer the customer– the property owner?We can handle all the commercialand technical work for him. That coverseverything from collecting the rent,calculating the heating costs, insurance,handing over the apartments, andaccounting, to renovations and refurbishments,which we plan and organise. Atsuch times I am a construction projectmanager.And what standards doesthe owner apply?He has to feel that we are lookingafter his property as if it were our own.The focus is on technical competence.It is also important for us to be reliableand for our management style to have aconsistent profile. And lastly, the ownermust be able to trust us – the chemistrymust be right.

Hammer Retex GroupInterviewIndustrieholding Cham 21And the yield?Of course, in the long term we haveto be able to secure the yield the ownerexpects.How has the market for propertymanagement changed in the lastfew years?The lawmakers have tightened theregulations that apply to us, for examplethe laws relating to renting. As aresult, private owners are increasinglylooking for professional assistance. Sincemortgage rates went down, we havealso been seeing a clear trend towardsowner-occupation.What do you prefer to manage, rentedproperties or owner-occupied?Both jobs are interesting. Rentedproperties are somewhat easier tomanage, since they mostly have onlyone owner. In owner-occupied apartments,each individual owner is a client.That can make matters complicated.One often hears of quarrels between theapartment owners. Such situations dooccur, but they should not be exaggerated.Usually it is only one or two ownersthat cause the problems. I always try totalk to them. I can usually sort the situationout by just applying common sense.Are there any other differencesbetween rented and owner-occupiedproperties?In rented properties we usually workwith part-time caretakers who live in thebuilding themselves – a classical solution.In such cases my job is to support thecaretakers when difficulties arise. Inowner-occupied apartments, we canpractically only use external companiesto do the building maintenance – andthen our job is to ensure the quality oftheir work.How will your job developin the next few years?We notice that changes in society– like the growing intolerance – createincreasing potential for conflict betweenresidents in individual buildings, or inhousing developments and their surroundings.We shall therefore have anincreasingly important role as a mediator.For me personally, that makes my workeven more interesting. I am looking forwardto maturing along with my properties.Marianne Schiesser, Property ManagerMarianne Schiesser (40) holds the SwissFederal Diploma in Property Managementand at Hammer Retex Group is responsiblefor about a dozen properties and developmentsthat include rented apartments,owner-occupied apartments, and singlefamilyhouses.The owner must feel that we are lookingafter his property as if it were our own.

22Annual Report 2005Attractive developments for the propertyportfolio today and tomorrowRütiweid, ChamAt Rütiweid, in Cham, Hammer Retex AG is constructing a mixed residential andcommercial development. It is being built on 23 430 m 2 of reserve land that wasre-zoned in 1990. Until 2007, in two phases ten apartment blocks each with nineapartments will be constructed. In a third phase, Hammer Retex AG will construct acommercial building with a floor area of 6 000 m 2 . This is planned to be completedin 2009. The investment volume for all the buildings together is around CHF 49million. The project development was organised as a competition in which thearchitectural firm axess Architects of Zug was the winner.The new development offers inexpensive residential property to potential purchasersand an attractive yield to investors. One half of the residential buildings will be soldto owner-occupiers and the other half to institutional investors. The commercial buildingwill be offered purely as an investment property.Rütiweid is an attractive residential and working area. With a bus stop close to thesite, the development is very well served by public transport. At Eizmoos it borderson the popular recreational area of Städtler Wald and to the south there is a magnificentview of the Prealps.

Hammer Retex GroupProjectsIndustrieholding Cham23Hammergut, ChamWhen the former Hammergut agricultural complex in Cham is rezoned, Hammer RetexAG plans to construct a development with apartments, offices and ateliers for completionin 2011. The investment volume is CHF 18 million. The estate has an areaof 15 000 m 2 with an estate office building as well as ten agricultural buildings andoutbuildings. The rezoning decision is expected to be taken in 2007 at a publicmeeting.For conversion of the estate ensemble, Hammer Retex AG and the municipality of Chamorganised a competition with submissions by teams from all over Switzerland. Thewinning project was submitted by the renowned EM2N Architects of Zurich. By combiningmodern architecture and historic substance, the firm’s project integrates oldand new, thereby continuing the history of the estate ensemble. In the new buildings,apartments with an area of 3 600 m 2 will be built. In the existing buildings, offices,ateliers, commercial rooms, and apartments will be built with a total area of 2 200 m 2 .They will be sold for owner-occupation.Conversion of Hammergut will allow residence in park-like, traffic-free surroundings.Parking lots are provided in an underground garage. The development is only tenminutes walk from the village centre and has very good public transport connections.

24Annual Report 2005Hammer Retex Group key figures 2001 – 2005in CHF million 2005 2004 2003 2002 2001IFRS IFRS FER FER FERNet revenue 18.5 15.9 12.8 11.3 11.4EBITDA 11.1 8.0 8.8 14.3 10.7EBITDA margin 60.0% 50.3% 68.8% 126.5% 93.9%Gain from promotion projects 5.6 3.1 3.6 9.5 5.4Operating profit (EBIT) 10.6 7.1 7.6 13.0 9.6EBIT margin 57.3% 44.7% 59.4% 115.5% 84.4%Profit for the year 8.1 5.5 5.8 10.3 7.3Return on sales 43.8% 34.6% 45.3% 91.3% 63.8%Cash flow from operating activities 3.6 –2.2 8.2 –5.3 14.3Investments in fixed assets 1) 26.3 12.1 3.9 1.1 13.7Free cash flow 4.7 –2.1 11.6 12.0 8.41) IFRS including investment and development propertiesNet revenuein CHF millionPromotion gainsin CHF millionProfit for the yearin CHF millionFree cash flowin CHF million252015105001 02 03 04 0510987654321001 02 03 04 0512108642001 02 03 04 05121086420–2–401 02 03 04 05

Hammer Retex GroupIndustrieholding Cham 25in CHF million 2005 2004 2003 2002 2001IFRS IFRS FER FER FERCurrent assets 24.3 24.2 27.1 27.0 15.4Non-current assets 93.6 89.8 63.0 64.0 69.5– of which non-current assets rented out 65.0 65.5 50.3 50.7 57.2Total assets 117.9 114.0 90.1 91.0 84.9Liabilities 26.5 26.6 25.9 27.6 29.6Share capital 4.5 4.5 4.5 4.5 4.5Shareholders’ equity 91.4 87.4 64.2 63.4 55.3Total liabilities and shareholders’ equity 117.9 114.0 90.1 91.0 84.9Equity ratio 77.5% 76.7% 71.3% 69.7% 65.1%Dividend 2.4 4.0 1.7 5.0 2.2Net working capital 15.8 17.8 18.4 17.5 6.8Net interest-bearing liabilities –6.8 –6.4 –9.4 –6.8 8.6Debt ratio –0.6 –0.8 –1.1 –0.5 0.8Coverage ratio 36.1 18.4 15.3 22.5 12.8Gearing –0.1 –0.1 –0.1 –0.1 0.2Employees FTE 41 41 38 36 32Net sales per employee TCHF 451 404 345 332 368Assets/Liabilities and shareholders’ equityin CHF millionNet interest-bearingassets (–)/liabilitesin CHF millionNet working capitalin CHF million14012010080604020001 02 03 04 051086420–2–4–6–8–1001 02 03 04 052018161412108642001 02 03 04 05Non-current assetsCurrent assetsShareholders’ equityLiabilities

26 Annual Report 2005

Industrieholding Cham 27ContentFinancial Report and Corporate GovernanceConsolidated Income Statement 28Consolidated Balance Sheet 29Consolidated Cash flow Statement 30Consolidated Shareholders’ Equity 31Comments on the consolidated financial statements 32Segment reporting 37Conversion from Swiss GAAP FER to IFRS 39Notes to the consolidated financial statements 42Affiliated companies 58Report of the auditors 59Financial statements of Industrieholding Cham AG 60Report of the statutory auditors 63Investment property, land reserves and development properties 64Report to the investment property 65Corporate Governance 66

28Annual Report 2005Consolidated Income Statement2005 2004 1)Note TCHF TCHFNet revenue 1 426 412 441 349Cost of goods sold 2 –370 402 –373 971Gross profit 56 010 67 378Administration and other operating expenses 3 –24 214 –23 696Marketing and selling expenses –14 247 –15 273Research and development expenses –3 358 –2 890Other operating income 4 3 990 3 441Gain on disposal of fixed assets 7 954 192Operating profit 19 135 29 152Financial income 8 8 221 676Financial expenses 9 –6 913 –7 535Exchange effect 10 1 545 –969Income from associates –3 242Profit for the year before tax 21 985 21 566Income taxes 11 –4 430 –9 231Profit for the year from continuing operations 17 555 12 335Loss for the year from discontinued operations 0 –433Profit for the year 17 555 11 9021) IFRS restatementEarnings per share continued business (in CHF) 2005 2004Weighted average of outstanding shares 731 473 759 993Earnings per share undiluted 24.00 16.23Earnings per share diluted 24.00 16.23Earnings per share (in CHF) 12Earnings per share undiluted 24.00 15.66Earnings per share diluted 24.00 15.66Par value reduction / Gross dividend per share 15 5

Industrieholding Cham 29Consolidated Balance SheetAssets 31.12.05 31.12.04 1)Note TCHF in % TCHF in %Cash and cash equivalents 13 47 696 22 089Securities 13 2 548 2 900Accounts receivable - Trade, services 14 74 019 78 701Inventories 15 83 415 83 559Other current assets 17 17 083 14 260Current assets 224 761 38.3 201 509 35.8Tangible fixed assets 19 238 680 239 563Investment property 20 65 028 64 689Development properties 21 24 202 19 242Intangible fixed assets 22 8 835 10 587Other financial assets 16 24 102 24 883Investments in associates 18 1 300 1 474Deferred tax assets 32 33 402Non-current assets 362 180 61.7 360 840 64.2Total assets 586 941 100.0 562 349 100.0LiabilitiesAccounts payable - Trade, services 61 735 56 847Short-term financial liabilities 23 86 356 79 585Current tax liabilities 2 178 5 197Short-term provisions 29 39 1 331Other short-term liabilities 24 31 628 33 812Short-term liabilities 181 936 31.0 176 772 31.4Long-term financial liabilities 25 56 774 64 413Other long-term liabilities 1 730 1 670Deferred tax liabilities 32 15 100 12 472Pension plan liabilities 33 11 356 11 515Long-term provisions 29 1 752 2 187Long-term liabilities 86 712 14.8 92 257 16.4Total liabilities 268 648 45.8 269 029 47.8Share capital 80 640 80 640Treasury shares –16 541 –18 076Retained earnings 254 194 230 756Shareholders’ equity 318 293 54.2 293 320 52.2Total liabilities and shareholders’ equity 586 941 100.0 562 349 100.01) IFRS restatement

30Annual Report 2005Consolidated Cash flow Statement2005 2004 1) 2)TCHFTCHFOperating profit continued operations 19 135 29 152Operating profit discontinued operations 0 1 517Operating profit 19 135 30 669Depreciation and impairment 28 652 33 303Gains and losses on disposal of fixed assets –6 461 –3 464Other non-cash items –11 029 8 339Incr.(–) / decr. of remaining non-cash net working capital 12 492 –32 561Dividend received 501 55Interest received 208 137Interest paid –6 016 –6 277Income tax paid –6 448 –6 253Cash flow from operating activities 31 034 23 948Investment in securities 0 –68Disposal of securities 352 0Increase of assets –25 304 –27 108Decrease of assets 3 679 3 905Increase of investement property and development properties –26 259 –11 972Decrease of investment property and development properties 27 017 10 914Investment in intangible assets –479 –3 217Disposal of intangible assets 0 –29Increase of loans and long-term securities 0 136Decrease of loans and long-term securities 0 –9Investment in associates –5 0Disposal of financial assets 19 136 0Derived funds from disposal of subsidiaries 0 –30 721Cash flow from investing activities –1 863 –58 169Increase in bank loans 6 398 74 559Decrease in bank loans –8 508 –74 770Incr. / decr. (–) in other financial debts 27 –141Other changes in shareholders‘ equity 2 146 0Dividend payments –3 654 –3 638Cash flow from financing activities –3 591 –3 990Exchange effect on cash and cash equivalents 27 –34Change in cash and cash equivalents 25 607 –38 245Cash and cash equivalents at the beginning of the period 22 089 60 334Cash and cash equivalents at the end of the period 47 696 22 0891) IFRS restatement 2) Including discontinued operations until 13.5.2004

Industrieholding Cham 31Consolidated Shareholders’ EquityShare Capital Treasury Cumulative Reserves Retained Total Minority Totalcapital reserves shares translation on financial earnings interests (incl. minoritydifferences instruments interests)TCHF TCHF TCHF TCHF TCHF TCHF TCHF TCHF TCHFValue at 01.01.04 1) 80 640 78 047 –176 0 471 145 068 304 050 120 344 424 394Dividends 0 0 0 0 0 –3 638 –3 638 0 –3 638Increase treasury shares 0 0 –17 900 0 0 0 –17 900 0 –17 900Change in fair value(after tax):– Available-for-salesecurities 0 0 0 0 –2 573 0 –2 573 0 –2 573– Cash flow hedges 0 0 0 0 –604 0 –604 0 –604Realised in incomestatement (after tax):– Available-for-salesecurities 0 0 0 0 0 0 0 0 0– Cash flow hedges 0 0 0 0 2 335 0 2 335 0 2 335Change in scopeof consolidation 0 0 0 0 0 0 0 –120 344 –120 344Exchange differences 0 0 0 –252 0 0 –252 0 –252Profit for the year 0 0 0 0 0 11 902 11 902 0 11 902Value at 31.12.04 1) 80 640 78 047 –18 076 –252 –371 153 332 293 320 0 293 320Value at 01.01.05 80 640 78 047 –18 076 –252 –371 153 332 293 320 0 293 320Dividends 0 0 0 0 0 –3 654 –3 654 0 –3 654Decrease treasury shares 0 611 1 535 0 0 0 2 146 0 2 146Change in fair value(after tax):– Available-for-salesecurities 0 0 0 0 9 217 0 9 217 0 9 217– Cash flow hedges 0 0 0 0 –4 677 0 –4 677 0 –4 677Realised in incomestatement (after tax):– Available-for-salesecurities 0 0 0 0 1 209 0 1 209 0 1 209– Cash flow hedges 0 0 0 0 1 704 0 1 704 0 1 704Exchange differences 0 0 0 1 473 0 0 1 473 0 1 473Profit for the year 0 0 0 0 0 17 555 17 555 0 17 555Value at 31.12.05 80 640 78 658 –16 541 1 221 7 082 167 233 318 293 0 318 2931) IFRS restatementThe changes in shareholders’ equity resulting from the changeover to IFRS on 1.1.2004 are explained in a separate chapter.The fluctuations in financial instruments contain gains and losses on financial assets in the ‘available-for-sale’ category that are not recognised inthe income statement as well as changes in value from hedging transactions in association with a cash flow hedge (pulp swaps) that are alsonot recognised in the income statement.

32Annual Report 2005Comments on the consolidated financial statements1. Activity of the company3. Principles of consolidationIndustrieholding Cham AG, Sinserstrasse 67, 6330 Cham, Switzerland,is active in the fields of speciality paper (Cham Paper Group) and realestate (Hammer Retex Group).Internationally, the Cham Paper Group is an important manufacturerof high-quality speciality papers. The group has five paper millsin Switzerland, Italy, and Norway. It has an annual total capacity of260 000 tonnes of speciality papers for flexible packaging, self-adhesivepapers, labels, various technical-industrial applications, inkjet andtransfer printing.Hammer Retex Group is one of the leading real estate companies incentral Switzerland. In recent years it has become a major providerof real estate services in the areas of general contracting, real estatemanagement, real estate consultancy and real estate sales. In addition,it actively manages its own portfolio of real estate in Cham anddevelops zoned land reserves in step with the development of themarket.2. PrinciplesThese consolidated financial statements of Industrieholding Cham AGwere prepared in accordance with the International Financial ReportingStandards (IFRS) and comply with Swiss Corporation Law as well asthe financial reporting standards of the listing regulations of SWX SwissExchange.The non-executive Board of Directors of Industrieholding Cham approvedthis financial report on March 2, 2006. This financial report is subjectto approval by the Annual General Meeting on April 28, 2006.The consolidated financial statements are based on historical costsexcept for available-for-sale financial investments, derivative financialinstruments and investment properties which are carried in the balancesheet at fair value.Industrieholding Cham has not applied standards and interpretations thathave been published but were not effective as of the balance sheet date.Industrieholding Cham intends to apply these new standards and interpretationsfrom their effective date on. Except with regard to changes indisclosure (especially following IFRS-7 Financial Instruments: Disclosure)the group does not expect any significant effects.3.1 Scope of consolidationThe consolidated financial statements as of and for the period endingDecember 31, 2005, contain the annual financial statements ofIndustrieholding Cham AG and its consolidated subsidiaries. A list ofthe most important companies included in the consolidated financialstatements is contained in the section ‘Affiliated companies’ as ofDecember 31, 2005.3.2 Changes in the scope of consolidationThere were no changes to the scope of consolidation of IndustrieholdingCham in 2005.3.3 Method of consolidationCompanies of the group are consolidated if Industrieholding Cham AGdirectly or indirectly owns more than 50% of the voting rights or exercisescontrol by other means such as contractual agreements. Companiesare consolidated or deconsolidated from the date control istransferred. For consolidation of capital, the purchase method is used.The holdings of minority interests in consolidated shareholders‘ equityand in the consolidated profit for the year are reported separately. Allintercompany transactions and balances between group companiesare eliminated upon consolidation.Associated companiesCompanies in which Industrieholding Cham AG has only a significantinfluence (usually with voting rights between 20% and 50%) but doesnot exercise control over are carried in the balance sheet accordingto the equity method and reported as ‘Investments in associatedcompanies’.3.4 Translation of foreign currencyThe consolidated financial statements are presented in Swiss francs(CHF). The individual legal entities present their figures in the currency ofthe economic area in which the respective company is active (functionalcurrency).Transactions in foreign currency at the level of the individual companylevel are translated at the exchange rate applicable to the respectivetransaction. Exchange gains and losses on transactions in foreign currencyand from adjustments of holdings of foreign currency as of the balancesheet date are recognised in the income statement.The foreign subsidiaries currency is translated into the reporting currencyon the balance sheet date. The items in the balance sheet are translatedat the year-end exchange rate and the items in the income statementare translated at the average exchange rate for the year. The resultingexchange differences are recorded in shareholders’ equity and shouldthe company be sold, would be recognised in the income statement.

Comments on the consolidatedfinancial statementsIndustrieholding Cham 33The following exchange rates were used:Year-end rate for Average rate for yearbalance sheet for income statement2005 2004 2005 2004USD 1 1.31 1.13 1.25 1.24GBP 1 2.28 2.19 2.26 2.28NOK 100 19.42 18.67 19.34 18.45EUR 1 1.56 1.55 1.55 1.544. Principles of consolidation and valuation4.1 Use of estimated valuesPreparation of the consolidated financial statements in accordancewith IFRS requires values to be estimated and assumptions to bemade, which affect the amounts reported in the consolidated financialstatements and accompanying notes. These estimates are madeon the basis of the best available knowledge about the current activitiesand future transactions of the group. Actual results could differfrom those estimates.4.2 Recognition and reporting of incomeSales revenues consists of all revenue arising from the supply ofgoods and services after deduction of sales allowances such as discounts,other agreed reductions, value added tax and commissions.Revenues are always recognised on the date on which the goods orservices are delivered.4.3 Cash and cash equivalentsCash and cash equivalents consist of financial instruments with originalmaturities of three months or less (cash in hand, post office and bankdeposits, and money at call). They are valued at their nominal amount.Depending on whether they represent under- or over-financing, theamounts are classified in the balance sheet as ‘Other current asset’ or‘Short-term liabilities’. Anticipated losses are provisioned immediately.4.7 InventoriesInventories are valued in the balance sheet at the lower of purchaseor production cost and net realisable value. The costs are calculatedusing the average cost method. Costs of conversion are comprisedof raw and auxiliary material costs, direct labour costs, other directlyallocatable costs, and production overheads that are incurred in convertingmaterials into finished goods.4.8 Tangible fixed assetsTangible fixed assets are valued at historical costs less cumulative depreciation.Systematic deprecation is calculated by the linear methodover the useful life of the respective asset.Useful lifeYearsBuildings 25Machinery 10IT hardware 3Operating equipment 5Passenger vehicles 5Commercial vehicles 10Industrial vehicles 20Large items of equipment 20If tangible fixed assets consist of significant components that havedifferent useful lives, the components are depreciated separately.The costs of maintenance, repairs, and minor renewals are recognisedin the income statement immediately when incurred. Costs incurredwhich extend the original useful life of the asset are capitalised.4.4 SecuritiesMarketable securities classified as current assets consist of readilymarketable securities and term deposits with terms of 3 to 12 months.Securities are valued at fair value and fluctuations in value are recognisedin the income statement.4.5 ReceivablesTrade and other receivables are recognised at the original amount ofthe invoice less any necessary value adjustments.Leases of assets in which virtually all the risks and opportunities associatedwith ownership are transferred to the group are classified asfinance leases. Tangible fixed assets acquired by finance leases arecapitalised at the beginning of the leasing relationship at the discountedvalue of the future lease payments and subsequently depreciatedover the expected useful life. Depending on their duration, the leasingobligations excluding financing costs are recognised as short-term orlong-term liabilities.4.6 General contractor projectsCurrent general contractor (GU) project receivables are presented inthe balance sheet using the percentage of completion method whichrequires that the respective revenues from general contractor projectsare recognised according to the progress of the work. The respectivedegree of completion is determined by individual surveys of work.

34Annual Report 20054.9 Investment propertyInvestment properties are properties that are held mainly for the purposeof earning rental income. These are carried in the balance sheetat fair value. An external independent real estate valuer calculates thefair value using the discounted cash flow (DCF) method. After takinginto account any deferred taxes, changes in the fair value are recognisedin the income statement.Long-term land reserves on which no projects are planned in the nextthree to five years are also carried in the balance sheet at fair value.To calculate the fair value, a retrograde valuation method is used.Land reserves on which it is planned to realise a project in the nextthree to five years are reported as development properties.4.10 Development propertiesThe development properties include development reserves (landowned with project and site development) and buildings under construction.Development properties are valued at cost less any valueadjustments. Planning costs associated with projects that have notbeen started but whose realisation is expected are capitalised.If preliminary contracts with the future owners were signed at the startof construction, they are treated as buildings for third parties. A proportionof the gain is capitalised depending on the degree of completiondetermined by an individual survey of work. Interest expensesduring the construction phase are capitalised if the conditions ofIAS-23 are fulfilled.4.11 Financial assetsFinancial assets consist of investments and loans.Investments in third parties of a long-term nature are classified asfinancial assets available for sale and are measured at market value(stock market price). Changes in value are recognised in shareholders‘equity until such a financial instrument either undergoes impairmentor is sold. At the time of an impairment or sale, the cumulative gainor loss is reclassified and recognised in the income statement for thecorresponding period.4.13 Impairment of assetsAt each balance sheet date the group assesses whether there areany internal or external indications of impairment of assets.Tangible fixed assets, intangible assets, development propertiesShould such indications be present, the recoverable amount of theassets is estimated to determine whether there is any impairment. Ifthe carrying amount is greater than the recoverable amount, specialamortisation of the recoverable amount is charged to the incomestatement.Financial assetsShould there be a material and lasting change in the stock market value,the non-executive Board of Directors will assess the extent to whichspecial amortisation should be charged to the income statement.4.14 Financial liabilitiesFinancial liabilities are initially recorded in the balance sheet for thefirst time at the value of the cash flow less transaction costs. Afterthe first time, financial liabilities are measured and recognised atamortised cost. Financial liabilities are always recognised as shorttermexcept when the company has an unconditional right to delaytheir maturity by more than 12 months.Financial liabilities are recorded as of their settlement date.4.15 ProvisionsProvisions are created when a legal or de facto obligation has arisenfrom past events which will cause a cash outflow or reduction of theasset and can be reliably estimated. The provision is measured bythe current best estimate of the obligation. Long-term provisions arediscounted to their present value if the effect is material.Restructuring provisions require detailed approved plans that havebeen announced to the people affected. They are recognised in theincome statement at the date on which the company is legally orcommercially bound to make payment.Loans granted by companies are recorded at amortised cost. All purchasesand sales of financial assets are recognised on settlement date.4.12 Intangible assetsInternally generated intangible assets are capitalised provided that the criteriastated in IAS-38 are fulfilled. They are measured at cost. Amortisationis calculated on a straight-line basis over its estimated useful life.Useful lifeYearsSoftware and others 5Any impairments are recognised as amortisation and reported separately.4.16 Current and deferred income taxesThe consolidated financial statements contain income taxes thatare based on the taxable results of the subsidiaries and calculatedaccording to the local tax regulations.Deferred income taxes are recognised for all temporary differencesthat arise from different measurement principles according to groupinternalguidelines and local tax regulations. Measurement of thedeferred taxes takes place at the tax rates that apply or have beenannounced as of the balance sheet date. Deferred taxes are onlycapitalised if it appears probable that the taxable future profit will besufficient to realise the tax advantage of the loss carry-forward.

Comments on the consolidatedfinancial statementsIndustrieholding Cham354.17 Pension plansAll pension plans of Industrieholding Cham are treated as defined benefitplans according to the criteria of IAS-19. Independent actuariesevaluate these plans at regular intervals (every 1 to 3 years). Theliabilities and premium expenses are calculated according to theprojected unit credit method. With this method, for each contributionyear, the obligation is measured based upon the additionally acquiredrights to future pension payments.The change relative to earlier pension plan obligations is equallydistributed over the average remaining contribution years. Lossesdue to reduced benefits or settlement of pension obligations arerecognised when they occur. Actuarial losses outside the 10%corridors are distributed over the expected residual service life ofthe employees. Pension plan obligations are measured by discountingthe estimated future cash flows. The discount rate used is theinterest rate for government bonds of the respective currencies anddurations. Assets resulting from actuarial gains are only recognised inthe consolidated annual financial statements if they result in a futureeconomic benefit to the group in the form of repayments or lowerfuture contributions.4.18 Other long-term benefits for employeesOther long-term benefits for employees consist of delayed paymentswhich the group companies must make (e.g. long-service bonuses).The costs of these payments are periodically accrued and recognisedin personnel expenses and reported in the corresponding items of theincome statement. The obligation is recorded in the long-term liabilities.4.19 Derivative financial instrumentsDerivative financial instruments are initially recorded in the balancesheet at cost and subsequently remeasured at fair value. The methodof recognising the resulting gain or loss is dependent on the natureof the item being hedged.On the date a derivative contract is entered into, the group designatescertain derivatives as either (a) a hedge of the fair value of a recognisedasset or liability (fair value hedge) or (b) a hedge of a particularrisk associated with a recognised asset or liability, such as futureinterest payments on floating rate debt (cash flow hedge) or (c) ahedge of a firm commitment (cash flow hedge).For pulp derivatives, hedge accounting is used. For every pulp derivative,the relationship between the hedging transaction and thehedged position is documented when the transaction is enteredinto. Part of this documentation consists of the risk managementgoals and the relationship to the applicable risk management strategy.The effectiveness of the pulp derivative with regard to hedging thecash flow is tested/documented at the start and monitored regularlyover the entire duration of the contract.Pulp derivatives are always agreed in USD for a defined volume, withthe company paying a fixed price per thousand tonnes of pulp andreceiving in return an amount linked to the average NBSK-PIX-EUROPEindex.The pulp derivatives are periodically measured by the banks Nordeaand Goldman Sachs International which are also the counterparty.Derivative instruments for hedging foreign exchange or interest risksare recorded at market values. Changes in market value are recognisedin the income statement.5. Segment reportingFor its primary reporting format, Industrieholding Cham has chosenthe business segment. A business segment is a distinguishable componentof an enterprise that is engaged in providing an individualproduct or service, or a group of related products or services, andthat is subject to risks and returns that are different from those ofother business segments. In accordance with this definition, IndustrieholdingCham differentiates between the speciality paper and realestate segments.The secondary segmentation is regional and differentiates betweenthe four regions Europe, Americas (North and South), Asia, and Restof the World.6. Management of financial risks and fair valuesThe group is exposed to a number of financial risks that result, forexample, from changes in exchange rates, interest rates, liquidityrisks, and credit risks. The groupwide risk management philosophyfocuses on the uncertainties inherent in the international financial andraw material markets and aims to reduce the negative effects on theresults of the group to a minimum. Management of these risks isundertaken by the subsidiaries.6.1 Exchange rate risksAs a globally active group, Industrieholding Cham is exposed to anumber of risks associated with exchange rates. These risks, whichmainly affect the speciality papers business segment, relate primarilyto the USD, the EUR and the NOK, but also to the currencies of othercountries in the group regions Europe, North and Latin America, Africa,Middle East, Asia and Oceania.The subsidiaries hedge significant exchange rate risks on a rollingbasis according to the expected cash flows. The translation of localbalance sheets and income statements into the presentation currencycauses translation differences which the group does not activelyhedge in the market.

36Annual Report 20056.2 Interest rate risksChanges in market rates of interest expose the group to fluctuationsin financial costs and in the value of its debt portfolio. In view of thecurrent financing structure, the risk of fluctuating interest rates iscontrolled mainly via the relationship between the fixed and variableinterest-bearing net debt. In this connection, subsidiaries can enterinto interest swap agreements.7. Events after the balance sheet dateThe non-executive Board of Directors will propose to the AnnualGeneral Meeting a share capital reduction. For further informationrefer to the financial statements of Industrieholding Cham AG.6.3 Liquidity risksPrudent liquidity management ensures an adequate supply of cashand an appropriate capital structure through a corresponding numberof participating credit institutions. Corresponding to the dynamic natureof the business, it is the objective to maintain a flexible supplyof capital by utilising the agreed credit limits.6.4 Credit risksTo ensure adequate control of credit risk, the creditworthiness ofthe various customers is regularly verified. Credit risks and risksassociated with the default of a counterparty are monitored constantly.A large part of the customer receivables in the speciality papersbusiness segment is insured against default by the counterparty.The counterparty risk associated with financial instruments is distributedover various financial institutions. In view of the credit ratingsof these counterparties, the subsidiaries do not expect any defaults.At the end of the year there is no significant concentration of creditrisks with one single counterparty or group of counterparties. Themaximum credit risk is given by the carrying amount of the financialinstruments including derivative financial instruments.6.5 Estimating the fair value of financial instrumentsThe fair value of publicly traded derivatives and tradable securitiesavailable-for-sale is based on publicly quoted market prices on thebalance sheet date. The fair value of forward exchange contracts isdetermined by the forward exchange rate on the balance sheet date.To estimate the fair value of non-traded derivatives and other financialinstruments, the group depends on external valuations (e.g. of banks).It is assumed that the fair value of financial assets and liabilities witha residual life of less than one year is approximately equal to theamortised costs.

Industrieholding Cham 37Segment reporting by business activityIncome Statement Speciality Speciality Real Real Holding Holding Elimina- Elimina- Total Totalpapers papers estate estate tions tions2005 2004 2005 2004 2005 2004 2005 2004 2005 2004TCHF TCHF TCHF TCHF TCHF TCHF TCHF TCHF TCHF TCHFNet revenue – Third parties 407 774 425 128 18 389 15 891 249 330 0 0 426 412 441 349Net revenue – Intercompany 0 0 92 79 0 0 –92 –79 0 0Costs of goods sold –363 669 –366 107 –7 219 –8 221 486 357 0 0 –370 402 –373 971Gross profit 44 105 59 021 11 262 7 749 735 687 –92 –79 56 010 67 378Operating profit 8 480 22 186 10 600 7 091 54 –125 1 0 19 135 29 152Income from associates –3 242 0 0 0 0 0 0 –3 242Cash flow StatementCash flow from operating activities 27 246 33 290 3 625 –2 205 4 668 1 097 –4 505 –1 700 31 034 30 482Cash flow from investing activities –22 572 –27 283 1 105 135 19 604 –10 604 0 6 000 –1 863 –31 752Cash flow from financing activities –6 585 –5 170 502 –1 700 –2 013 –3 587 4 505 –4 300 –3 591 –14 757Balance Sheet at 31.12. Speciality Speciality Real Real Holding Holding Elimina- Elimina- Total Totalpapers papers estate estate tions tions2005 2004 2005 2004 2005 2004 2005 2004 2005 2004TCHF TCHF TCHF TCHF TCHF TCHF TCHF TCHF TCHF TCHFCurrent assets 170 990 175 125 24 290 24 195 30 243 8 064 –762 –5 875 224 761 201 509Non-current assets 237 200 238 981 93 626 89 807 160 499 161 197 –129 145 –129 145 362 180 360 840Total 408 190 414 106 117 916 114 002 190 742 169 261 –129 907 –135 020 586 941 562 349Short-term liabilities 173 197 175 733 8 478 6 408 1 023 506 –762 –5 875 181 936 176 772Long-term liabilities 71 693 75 416 18 007 20 184 3 012 2 657 –6 000 –6 000 86 712 92 257Shareholders’ equity 163 300 162 957 91 431 87 410 186 707 166 098 –123 145 –123 145 318 293 293 320Total 408 190 414 106 117 916 114 002 190 742 169 261 –129 907 –135 020 586 941 562 349The assets comprise:– Investments in assets, investmentproperty and developm. properties 25 269 26 054 26 290 12 116 4 4 0 0 51 563 38 174– Investments in intangible assets 479 3 167 0 0 0 0 0 0 479 3 167– Investments in associates 1 300 1 474 0 0 0 0 0 0 1 300 1 474Employees (FTE) at 31.12. 953 1 034 41 41 2 2 0 0 996 1 077The segment ‘Holding’ comprises Industrieholding Cham AG and Industrieverwaltungsgesellschaft Cham AG.The previous year‘s figures are for the continued business only.

38Annual Report 2005Segment reporting by geographic regionNet revenues from products 2005 2004and services by country TCHF in % TCHF in %Europe 344 756 81 354 874 81Americas 42 030 10 45 232 10Asia 25 947 6 27 403 6Rest of world 13 679 3 13 840 3Total 426 412 100 441 349 100Assets 31.12.05 31.12.04TCHF in % TCHF in %Europe 586 941 100 562 349 100Americas 0 0 0 0Asia 0 0 0 0Rest of world 0 0 0 0Total 586 941 100 562 349 100Investments in assets, investment property 2005 2004and development projects TCHF in % TCHF in %Europe 52 042 100 41 341 100Americas 0 0 0 0Asia 0 0 0 0Rest of world 0 0 0 0Total 52 042 100 41 341 100The previous year’s figures are for the continued business only.

Industrieholding Cham39Conversion from Swiss GAAP FER to IFRSIFRS-1 First-time adoption of IFRSIn accordance with IFRS-1, the following standards were adopted:Business combinationsIFRS-3 is applied retrospectively to business combinations prior to1.1.2004. In relation to the acquisition of Hans Schmidlin AG, theintangible assets were determined as per 1.10.2002 and amortisedover their useful life.Employee benefit plans (IAS-19)All accumulated actuarial gains and losses as of the date of thechangeover on 1.1.2004 are recognised in shareholders’ equity.Accumulated exchange differences CTA (IAS-21)Accumulated exchange differences as of the date of the changeoverare set to zero.Disposal group (IFRS-5)The termination of control of Kardex AG is carried in the balancesheet according to IFRS (see separate section).Restatement of Profit 2004TCHFProfit according to Swiss GAAP FER 4 8281) IFRS-3 Business combinations –2612) IFRS-5 Disposal group 5 9873) IAS-12 Deferred taxes –2464) IAS-19 Pension fund liabilities 8747) IAS-39 Derivative financial instruments –2368) IAS-40 Investment property 675Other 281Profit according to IFRS 11 902Restatement of Shareholders’ Equity 31.12.04 01.01.04TCHFTCHFShareholders’ Equity according to Swiss GAAP FER 265 952 295 9941) IFRS-3 Business combinations –587 –3262) IFRS-5 Disposal group 0 –16 2343) IAS-12 Deferred taxes –5 340 –4 8134) IAS-19 Pension fund liabilities –78 –9525) IAS-28 Investments in associated companies –228 –2286) IAS-32 Treasury shares 0 –1767) IAS-39 Derivative financial instruments 1 179 –6818) IAS-40 Investment properties 32 644 31 969Other –222 –503Shareholders’ Equity according to IFRS 293 320 304 050Restatement of Cash flow StatementThe fund of cash remains unchanged under IFRS. Since none of the deviations resulting from the changeover has an effect on cash, there isno deviation in the overall result of the consolidated cash flow statement. Reclassification of the development properties from current assetsto non-current assets results in a transfer from cash flow from operating activities to cash flow from investing activities.

40Annual Report 2005Notes to the restatement1) IFRS-3 Business combinationsUnder the application of IFRS-3, intangible assets were identified and recorded whereas under Swiss GAAP FER, these amounts had been previouslycapitalised as goodwill and amortised over their useful life. This relates to the acquisition of Hans Schmidlin AG which was acquired on1.10.2002. The goodwill of TCHF 1 534 that had been recorded under Swiss GAAP FER has now been classified as intangible assets (customerlist and contact network of the owner) and amortised over its expected useful life.2) IFRS-5 Disposal groupOn 13.5.2004, Industrieholding Cham exchanged Kardex shares for its own shares in a transaction with Tuxedo Invest AG. The decision to relinquishcontrol of Kardex had been previously decided in autumn 2003. The transaction meets the criteria under IFRS-5 to be classified and presentedas a disposal group. In view of this situation, in the IFRS opening balance as at 1.1.2004, Industrieholding Cham recorded the assets andliabilities of Kardex (including goodwill) as a disposal group in accordance with IFRS-5. Therefore, in the IFRS opening balance, the assets andliabilities of Kardex are classified as held-for-sale at the lower of its carrying amount or fair value less costs to sell. The effect of this revaluation ofTCHF 16 234 was recorded in shareholders’ equity in the opening balance sheet.The adjustment to the profit of TCHF 5 987 in 2004 is made up as follows:– Adjustment of the goodwill amortisation of Kardex AG and Industrieholding Cham AG (TCHF 455);– Elimination of the deconsolidation effect of the separation from Kardex AG (TCHF 5 532).3) IAS-12 Deferred income taxesDeferred taxes were already recognised under Swiss GAAP FER. New valuation methods under IFRS caused additional deferred tax assetsand liabilities.4) IAS-19 Pension fund liabilitiesUnder Swiss GAAP FER, Swiss and Italian benefit plans were treated as defined-contribution plans. The benefits of a defined-contribution plandepend on the contributions that were paid. According to IAS-19, such plans are handled as defined-benefit plans and an actuarial calculationwas performed as part of the changeover. Consequently, under IFRS, a liability resulting from pension obligations is recorded which would nothave been recorded under Swiss GAAP FER.5) IAS-28 Investments in associated companiesThe associated company Condino Energia S.r.I. is treated as an equity holding under both Swiss GAAP FER and IFRS. However, to be in accordancewith IFRS, the valuation methods were modified.6) IAS-32 Financial instruments: Disclosure and presentation (treasury shares)Under Swiss GAAP FER, as of 1.1.2004 treasury shares are recorded as an asset. Under IFRS, net treasury shares are reported in shareholders‘equity.7) IAS-39 Derivative financial instrumentsUnder Swiss GAAP FER, the market value of derivative financial instruments is only reported in the notes to the financial statements. Accordingto IAS-39, assets / liabilities are initially recorded at costs and thereafter measured at fair value. The resulting gains or losses are handled in differentways as follows:– If a transaction does not qualify as a hedging activity, the changes in the corresponding market value are recognised in the profit and loss statement.– If the transaction does qualify as a hedging activity, gains and losses are recognised in shareholders‘ equity in the correct period and only atthe time of recognising the underlying item as income or expense in the income statement.The difference resulting from conversion of shareholders‘ equity between Swiss GAAP FER and IFRS relates mainly to hedging instruments forpulp in the speciality papers segment.8) IAS-40 Investment propertiesUnder Swiss GAAP FER, investment properties are carried in the balance sheet at historical cost less accumulated depreciation. According toIAS-40, investment properties are now carried in the balance sheet at fair value.

Conversion from Swiss GAAP FERto IFRSIndustrieholding Cham41IFRS-5Disposal groupIndustrieholding Cham AG acquired 77 826 of its own shares that were held by Tuxedo Invest AG in return for 70 000 Kardex shares and paymentof TCHF 4 600. The exchange was based on a value of CHF 190 per Kardex share and CHF 230 per Industrieholding Cham share. As a result,Industrieholding Cham relinquished its controlling majority in Kardex AG.The decision to abandon control of Kardex was already taken in autumn 2003. The criteria according to IFRS-5 for recording of Kardex AG as adisposal group are fulfilled.In view of this situation, in the IFRS opening balance sheet as per 1.1.2004, Industrieholding Cham has recorded the assets and liabilities of Kardex(including goodwill) as a „disposal group“ according to IFRS-5. Therefore in the IFRS opening balance the assets and liabilities of Kardex are classifiedas held-for-sale at the lower of its carrying amount and fair value less costs to sell. The effect of this revaluation was recorded in shareholders‘equity in the opening balance sheet. The 2004 results were therefore not affected by the sale.Income Statement discontinued operations 2004As of 13.05.04TCHFNet revenue 210 208Cost of goods sold –163 067Operating expenses –46 179Financial expenses –1 581Loss for the year before tax –619Tax –990Minority interest in profit 1 176Loss for the year discontinued business –433Cash flow discontinued business 2004As of 13.05.04TCHFCash flow from operating activities –6 567Cash flow from investing activities –26 416Cash flow from financing activities 10 775Change in cash and cash equivalents discontinued business –22 208Effects on cash position discontinued business 2004As of 13.05.04TCHFCash and cash equivalents 26 121Other current assets 269 564Non-current assets 190 649Liabilities –326 149Net assets discontinued business 160 185Effect on cash position 2004As of 13.05.04TCHFCash payment for 20 000 shares of Industrieholding Cham AG –4 600Divested cash of Kardex –26 121Total –30 721

42Annual Report 2005Notes to the consolidated financial statements 2005Income Statement1 Net revenue 2005 2004TCHFTCHFNet revenue from speciality papers 407 774 425 128Net revenue from investment property 4 133 4 297Net revenue from general contracting 3 784 3 773Net revenue from sales and services 4 622 4 914Net revenue from promotions 5 507 3 127Revaluation of investment property 592 110Total 426 412 441 349Net revenue general contracting real estate - Third party 1 990 2 160Net revenue general contracting real estate - Own 1 794 1 613Total 3 784 3 773Net revenue from general contracting projectsfor third parties is made up as follows:Net revenue general contracting real estate - Third parties 24 445 23 243Expenses general contracting real estate - Third parties –22 455 –21 083Net revenue general contracting real estate - Third parties 1 990 2 1602 Cost of goods sold 2005 2004TCHFTCHFMaterial expenses –247 373 –241 118Personnel expenses –70 492 –74 967Depreciation –24 858 –26 273Other production expenses –31 455 –32 667Change in inventories 2 903 –53Property rental expenses - Real estate –603 –545Other production income 1 476 1 652Total –370 402 –373 971Other production income comprises revenues from invoicing freight and energy consumption.3 Administration and other operating expenses 2005 2004TCHFTCHFAdministration expenses –23 115 –21 897Other operating expenses –1 099 –1 799Total –24 214 –23 696

Notes to the consolidated financialstatements 2005Industrieholding Cham 434 Other operating income 2005 2004TCHFTCHFRental income speciality papers 167 145Insurance services 109 125Invoiced services 48 30Other operating income 3 666 3 141Total 3 990 3 441In 2004, Cham Paper Group entered into an agreement with Stora Enso for the transfer of technical know-how and marketing informationfor the production and marketing of wallpaper base. Other operating income in 2004 and 2005 mainly comprises the sale of intangibleassets associated with discontinuation of the wallpaper base business.5 Depreciation 2005 2004TCHFTCHFDepreciation on tangible fixed assets –26 421 –27 943Depreciation on intangible assets –2 231 –1 921Depreciation discontinued operations –0 –3 439Total –28 652 –33 3036 Personnel expenses 2005 2004TCHFTCHFWages and salaries –73 279 –77 186Employee benefit plan costs –9 077 –7 855Other social security costs –10 718 –12 001Other personnel expenses –1 490 –1 072Total –94 564 –98 114Employee benefit plan costs comprise defined-contribution contributions of TCHF 380 (2004 TCHF 494).Employees (FTE) 31.12.05 31.12.04Full-time employees (including temporary employees) 996 1 077Apprentices 39 40Total 1 035 1 1177 Gains and losses on disposal of fixed assets 2005 2004TCHFTCHFGains on disposal of fixed assets 1 163 238Losses on disposal of fixed assets –209 –46Total 954 192The gain of TCHF 1 163 relates mainly to land sold in Norway in 2005.

44Annual Report 20058 Financial income 2005 2004TCHFTCHFOther financial income and income from investments 8 008 525Interest income 213 151Total 8 221 676Other financial income and income from investments mainly comprises proceeds from the sale of a total of 310 000 Kardex sharesin November 2005.9 Financial expenses 2005 2004TCHFTCHFInterest expenses –5 993 –6 032Gains and losses on derivatives - Interest 423 –163Other financial expenses –1 343 –1 340Total –6 913 –7 53510 Exchange effect 2005 2004TCHFTCHFExchange gains and losses from operational transactions 1 035 –1 515Exchange gains and losses from financial transactions 388 541Gains and losses on derivatives - Currency 122 5Total 1 545 –96911 Income taxes 2005 2004TCHFTCHFCurrent income taxes– Taxes from the current year –5 256 –8 449– Taxes from previous years 1 068 0Deferred income taxes– Changes on the basis of temporary differences –242 –782Total –4 430 –9 231In financial year 2005, deferred taxes of TCHF –982 (2004 TCHF 532) were recognised through shareholders’ equity.

Notes to the consolidated financialstatements 2005Industrieholding Cham 45Reconciliation of tax rate 2005 2004TCHFTCHFProfit for the year before tax 21 985 21 566Taxes based on expected % tax rate 24.3% 32.8%Expected income taxes 5 333 7 069Effect of non-taxable revenue 0 –402Effect of non-taxable justified expense 31 41Effect of utilising loss carry-forwards not recognised in the balance sheet –891 –168Effect of non-capitalised current loss carry-forwards 1 196 3 639Effect of changing the tax rate 263 –86Effect of changing current taxes from previous years –1 068 0Other effects –434 –862Effective income taxes 4 430 9 231Effective income taxes as % of profit before taxes 20.2% 42.8%The weighted expected tax rate is derived from the expected tax rates applicable to the profits of the individual companies of thegroup. The reduction in the expected tax rate is a result of the weighting.12 Earnings per share 2005 2004Number of shares, CHF 100 parOutstanding shares per 01.01. 727 565 805 391Purchase treasury shares 0 –77 826Sale treasury shares 6 699 0Outstanding shares per 31.12. 734 264 727 565Weighted average of outstanding shares 731 473 759 993Number of treasury shares per 31.12. 72 136 78 835Profit for the year TCHF 17 555 11 902Earnings per share undiluted CHF 24.0 15.7Profit for the year continued business TCHF 17 555 12 335Earnings per share continued business undiluted CHF 24.0 16.2Par value reduction/dividend per share CHF 15 5The nominal share capital of TCHF 80 640 comprising 806 400 registered shares each with a nominal value of CHF 100, togetherwith the capital reserve of TCHF 78 658, form the paid-in capital.

46Annual Report 2005Balance Sheet13 Cash and cash equivalents and securities 2005 2004TCHFTCHFCash at banks and on hand 21 896 19 689Short-term time deposits 25 800 2 400Cash and cash equivalents 47 696 22 089Securities 2 548 2 900Total 50 244 24 98914 Accounts receivable – Trade, services 2005 2004TCHFTCHFAccounts receivable - Trade, services - Third party 76 701 81 323Allowance for doubtful accounts –2 682 –2 622Total 74 019 78 701Of which pledged / restricted 1 655 3 002Ceded customer balances of TCHF 10 116 (2004 TCHF 10 741) were offset against the advances received from the factoringcompanies of TCHF 8 093 (2004 TCHF 8 593). The net amount of TCHF 2 023 (2004 TCHF 2 148) is reported under other current assets.TCHF 77 447 of the receivables were insured (2004 TCHF 77 902).15 Inventories 2005 2004TCHFTCHFRaw materials 23 795 30 612Production supplies 3 910 4 502Semi-finished and finished goods 40 847 37 610Spare parts 9 875 9 163Trade merchandise 939 183Agriculture 10 10Prepayment to suppliers 4 039 1 479Total 83 415 83 559Of which pledged / restricted 10 715 10 078The values include impairment of TCHF –1 102 (2004 TCHF –615).16 Other financial assets 2005 2004TCHFTCHFLoans - Third party 502 836Investments 23 600 24 047Total 24 102 24 883The investments relate mainly to a 6.5% investment in Kardex AG (2004 12.03%) of TCHF 22 580 (2004 TCHF 23 091). In financialyear 2005, a dividend of TCHF 501 was received in the form of a reduction in nominal value with cash. In 2004, a dividend ofTCHF 264 was paid in cash.

Notes to the consolidated financialstatements 2005Industrieholding Cham4717 Other current assets 2005 2004TCHFTCHFNet receivables from customer - Real estate 2 935 579Current tax assets 2 876 1 116Prepaid expenses and accrued income 2 332 2 414Hedging assets – Cash flow and fair value hedge 11 2 659Other current assets 8 929 7 492Total 17 083 14 260Other current assets mainly comprise VAT credit balances and SUVA personnel balances. The net balances from ongoing generalcontractor projects of TCHF 2 935 (2004 TCHF 579) are made up as follows:Amounts of contract revenue recognised in period 56 064 73 798Amount of advance received –54 158 –75 7171 906 –1 919Gross amount due from customers for contract work as an asset 2 935 579Gross amount due to customers for contract work as a liability –1 029 –2 4981 906 –1 919The net liabilities of TCHF 1 029 (2004 TCHF 2 498) are reported in other short-term liabilities.18 Investments in associates 2005 2004TCHFTCHFSaetersdalen AS 132 316Condino Energia S.r.l. 1 168 1 158Total 1 300 1 474The associated companies are Condino Energia S.r.l. and Saetersdalen AS. The assets of Condino Energia S.r.l. consist mainly of acogeneration plant. The purpose of this company is to operate a cogeneration plant for the production of steam and electricitiy.Saetersdalen AS is a Norwegian company that mainly owns agricultural land. The capital outflow is not limited nor are there anycapital or contingent liabilities. Key figures from the balance sheet and income statement of the associated companies are as follows:Balance Sheet 31.12.05 31.12.04TCHFTCHFCurrent assets 1 570 2 275Non-current assets 10 458 10 369Total assets 12 028 12 644Short-term liabilities 1 926 2 078Long-term liabilities 6 616 6 554Shareholders’ equity 3 486 4 012Total liabilities and shareholders’ equity 12 028 12 644Income Statement 2005 2004TCHFTCHFIncome 238 1 271Expenses –286 –582Profit / Loss (–) –48 689

48Annual Report 200519 Tangible fixed assets Land and Machinery, Major Assets Totalbuildings equipment, production undervehicles machines constructionTCHF TCHF TCHF TCHF TCHFGross value at 01.01.04 196 648 339 010 220 298 11 427 767 383Additions 775 10 973 0 15 360 27 108Disposals –5 460 –4 069 –1 198 0 –10 727Transfers 3 394 4 789 4 667 –12 850 0Disposals of subsidiaries –69 355 –106 865 0 0 –176 220Exchange differences –330 –1 284 75 4 –1 535Gross value at 31.12.04 125 672 242 554 223 842 13 941 606 009Cumulative depreciation at 01.01.04 60 320 227 417 136 912 0 424 649Additions 4 249 16 127 10 457 0 30 833Disposals –3 019 –2 796 –1 198 0 –7 013Disposals of subsidiaries –14 448 –66 654 0 0 –81 102Exchange differences –124 –773 –24 0 –921Cumulative depreciation at 31.12.04 46 978 173 321 146 147 0 366 446Tangible fixed assets, net 01.01.04 136 328 111 593 83 386 11 427 342 734Tangible fixed assets, net 31.12.04 78 694 69 233 77 695 13 941 239 563Of which pledged / restricted 103 278Insurance value (insured at its current replacement value) 1 754 517Gross value at 01.01.05 125 672 242 554 223 842 13 941 606 009Additions 1 005 10 117 0 14 182 25 304Disposals –2 533 –1 200 –290 0 –4 023Transfers 487 7 822 11 251 –19 560 0Exchange differences 1 142 2 057 2 025 34 5 258Gross value at 31.12.05 125 773 261 350 236 828 8 597 632 548Cumulative depreciation at 01.01.05 46 978 173 321 146 147 0 366 446Additions 3 922 12 687 9 812 0 26 421Disposals –21 –1 121 –110 0 –1 252Exchange differences 280 1 150 823 0 2 253Cumulative depreciation at 31.12.05 51 159 186 037 156 672 0 393 868Tangible fixed assets, net 01.01.05 78 694 69 233 77 695 13 941 239 563Tangible fixed assets, net 31.12.05 74 614 75 313 80 156 8 597 238 680Of which pledged / restricted 120 069Insurance value (insured at its current replacement value) 1 676 645As the office building Hammertor is mainly used by Industrieholding Cham and Hammer Retex Group, it is reported within land and buildings of tangiblefixed assets.Prepayments of TCHF 660 (2004 TCHF 3 651), as well as other disbursements for current capital or building projects, are recorded as assets underconstruction. The respective amounts are only capitalised and classified into its appropriate asset category when an investment is completed or putinto operation. The carrying amounts of finance leases of TCHF 63 (2004 TCHF 85) are offset by liabilities of TCHF 32 (2004 TCHF 100).

Notes to the consolidated financialstatements 2005Industrieholding Cham 4920 Investment property Investment Land TotalpropertyreservesTCHF TCHF TCHFFair values 01.01.04 46 360 18 239 64 599Disposals –20 0 –20Positive changes in market values 0 700 700Negative changes in market values –590 0 –590Fair values 31.12.04 45 750 18 939 64 689Of which pledged / restricted 31 010Insurance value 49 549Fair values 01.01.05 45 750 18 939 64 689Disposals –42 –211 –253Positive changes in market values 0 720 720Negative changes in market values –128 0 –128Fair values 31.12.05 45 580 19 448 65 028Of which pledged / restricted 30 750Insurance value 51 386Fair values have been determined by an external independent real estate valuer (see expert opinion).21 Development properties Development Activated Property Totalland reserves planning undercostsconstructionTCHF TCHF TCHF TCHFCarrying amounts 01.01.04 11 568 60 4 212 15 840Additions 0 596 11 376 11 972Disposals 0 0 –8 570 –8 570Carrying amounts 31.12.04 11 568 656 7 018 19 242Of which pledged / restricted 671Carrying amounts 01.01.05 11 568 656 7 018 19 242Additions 10 068 748 15 443 26 259Disposals 0 –351 –20 948 –21 299Carrying amounts 31.12.05 21 636 1 053 1 513 24 202Of which pledged / restricted 671In property under construction, prepayments of TCHF 6 372 (2004 TCHF 3 703) have been netted off.

50Annual Report 200522 Intangible fixed assets Goodwill Licences Product Software Totaland patents development and othersTCHF TCHF TCHF TCHF TCHFGross value at 01.01.04 128 034 2 028 12 536 30 100 172 698Additions 0 2 48 3 167 3 217Disposals –6 0 0 35 29Disposals of subsidiaries –127 725 –2 024 –12 589 –9 110 –151 448Exchange differences –303 –6 5 –57 –361Gross value at 31.12.04 0 0 0 24 135 24 135Cumulative depreciation at 01.01.04 35 572 1 068 5 816 18 460 60 916Additions 0 62 346 2 062 2 470Disposals of subsidiaries –35 493 –1 126 –6 178 –6 930 –49 727Exchange differences –79 –4 16 –44 –111Cumulative depreciation at 31.12.04 0 0 0 13 548 13 548Intangible fixed assets, net 01.01.04 92 462 960 6 720 11 640 111 782Intangible fixed assets, net 31.12.04 0 0 0 10 587 10 587Gross value at 01.01.05 0 0 0 24 135 24 135Additions 0 0 0 479 479Exchange differences 0 0 0 10 10Gross value at 31.12.05 0 0 0 24 624 24 624Cumulative depreciation at 01.01.05 0 0 0 13 548 13 548Additions 0 0 0 2 231 2 231Exchange differences 0 0 0 10 10Cumulative depreciation at 31.12.05 0 0 0 15 789 15 789Intangible fixed assets, net 01.01.05 0 0 0 10 587 10 587Intangible fixed assets, net 31.12.05 0 0 0 8 835 8 835Software and others consists mainly of miscellaneous software applications for production control systems, accounting systems,personnel administration, sales information, and ERP (Enterprise Resource Planning).

Notes to the consolidated financialstatements 2005Industrieholding Cham5123 Short-term financial liabilities 2005 2004TCHFTCHFOther interest-bearing short-term liabilities - Third party 86 339 79 517Short-term liabilities from financial leasing 17 68Total 86 356 79 585Of which securitised 22 844 29 582The securitised credits are covered by loans of land and buildings, operational equipment, and various current assets.Short-term financial liabilities comprise the following:Nominal Fixed / Net carrying Net carryingEntity Currency amount variable Interest rate Maturity amount amount31.12.05 31.12.04TCHF TCHFHammer Retex Group: Mortgages CHF 4 000 fixed (2.15 – 4.8)% 2006 3 000 1 000Cham Paper Group: Consortium Credit CHF 40 000 variable LIB +2.15% 2006 – 2010 40 000 50 651Cham Paper Group: Consortium Credit EUR 7 000 variable LIB +2.15% 2010 10 900 0Cham Paper Group: Various Credits EUR 30 191 fix./variable EURIBOR+ 1) 2006 – 2010 25 213 19 143Cham Paper Group: Various Credits NOK 8 958 fixed (3.14 – 5.9)% 2006 – 2020 1 740 4 566Other financial liabilities Various fix./variable 5 486 4 157Total 86 339 79 517Of which amount of long-term loans with a remaining maturity less than one year 19 287 15 5501) EURIBOR+ (0.2 – 1.0)%On 19.9.2005, Papierfabriken Cham-Tenero AG extended the expiring credit contract until 30.9.2010, with a Swiss banking consortiumunder the lead management of UBS (Swiss Consortium). The credit has a maximum amount of TCHF 70 000 andis divided into an amortisable investment credit of TCHF 40 000 and a revolving working capital credit of TCHF 30 000. Theinterest rate is composed of the relevant LIBOR / EURIBOR for the respective interest period and an interest margin that is coupledwith the debt factor. The credit contract is tied to the attainment of periodically calculated financial key figures. As of 31.12.2005, theinterest rate was LIBOR + 2.15%. On 31.12.2005, one of the seven covenants was not met. The credit must therefore be classifiedas short-term, even though a bank waiver was already issued in February 2006. The credits also contain the short-term part of longtermliabilities.24 Other short-term liabilities 2005 2004TCHFTCHFOther short-term liabilities - Third party 5 363 5 265Payment from customers - Real estate 1 029 2 498Hedging liabilities - Cash flow and fair value hedges 1 725 1 576Accrued expenses and deferred income 23 511 24 473Total 31 628 33 812

52Annual Report 200525 Long-term financial liabilities 2005 2004TCHFTCHFUnsecured bank loans 27 589 27 608Secured loans 4 500 7 500Mortgages 24 670 29 273Long-term leasing liabilities 15 32Total 56 774 64 413Of which securitised 123 095 115 100Long-term financial liabilities comprise the following:Nominal Fixed / Net carrying Net carryingCompany Currency amount variable Interest rate Maturity amount amount31.12.05 31.12.04TCHF TCHFHammer Retex Gruppe: mortgages CHF 13 500 fixed 1.9 – 3.12% 2007 – 2010 10 500 13 500Cham Paper Group: various credits EUR 21 269 variable EURIBOR+ 1) 2008 – 2010 33 120 35 781Cham Paper Group: various credits NOK 13 568 fixed 3.6 – 6.0% 2007 – 2017 13 154 15 132Total 56 774 64 4131) EURIBOR+ (0.6 – 1.0%)Maturity structure 2005 2004TCHFTCHFMaturity between one and two years 18 595 25 676Maturity between two and three years 11 756 13 508Maturity between three and four years 12 583 8 695Maturity between four and five years 9 840 7 619Maturity after five years 4 000 8 915Total 56 774 64 413Secured loans are covered by land, buildings, operating equipment and other current assets.26 Finance leasing – Maturity date of leasing liabilities 2005 2004TCHFTCHFMaturity up to one year 17 68Maturity between one and five years 15 32Maturity longer than five years 0 0Total 32 100The leasing contracts relate mainly to vehicles and operational machinery at the Hunsfos mill in Norway.

Notes to the consolidated financialstatements 2005Industrieholding Cham 5327 Operating leasing – Maturity date of leasing payments 2005 2004TCHFTCHFDue in less than one year 275 283Due after one and up to five years 280 441Total 555 724Recognised as expense in the income statement:Total leasing payments 307 387The leasing contracts relate to two passenger vehicles at Hammer Retex Group, heavy goods vehicles, operational machines, and rentalof an external warehouse at the Hunsfos mill, and vehicles and a warehouse at the Cham mill in Switzerland.28 Derivative financial instruments Contract Positive Negative Contract values become due as follows:values replace- replace- Less than 3 – 12 1 – 5ment ment 3 months months yearsvalue valueTCHF TCHF TCHF TCHF TCHF TCHFDerivatives held for trading:Currency futures 42 436 0 277 39 062 3 374 0Interest rate futures 62 826 0 1 299 2 500 22 500 37 826Derivatives for cash flow hedges:Pulp swaps 73 598 2 659 0 9 323 26 712 37 563Total at 31.12.04 178 860 2 659 1 576 50 885 52 586 75 389Derivatives held for trading:Currency futures 26 110 11 31 22 380 3 730 0Interest rate futures 38 151 0 883 0 0 38 151Derivatives for cash flow hedges:Pulp swaps 62 646 0 810 13 399 32 236 17 011Total at 31.12.05 126 907 11 1 724 35 779 35 966 55 162

54Annual Report 200529 Provisions Pensions Guarantees Restruc- Other Totaland similar and turingsobligations warrantiesTCHF TCHF TCHF TCHF TCHFValue at 01.01.04 4 396 2 332 5 587 5 550 17 865Increase 23 217 0 423 663Utilisation 0 –22 –2 714 –779 –3 515Release –12 –73 0 –8 –93Disposal of subsidiaries –4 400 –1 003 –1 094 –4 907 –11 404Exchange differences –7 –6 14 1 2Value at 31.12.04 0 1 445 1 793 280 3 518Of which short-term 0 0 1 331 0 1 331Of which long-term 0 1 445 462 280 2 187Value at 01.01.05 0 1 445 1 793 280 3 518Increase 0 378 0 0 378Utilisation 0 –71 –1 857 –251 –2 179Exchange differences 0 0 64 10 74Value at 31.12.05 0 1 752 0 39 1 791Of which short-term 0 0 0 39 39Of which long-term 0 1 752 0 0 1 752Guarantees and Warranties:These comprise of guarantee provisions for real estate construction projects which fall due in the next 3 – 5 years.30 Contingent liabilities 31.12.05 31.12.04TCHFTCHFGuarantees, guarantee obligations, and liens in favor of third parties 568 1 114Total 568 1 11431 Purchase obligations 31.12.05 31.12.04TCHFTCHFContractual commitments for acquisitons of tangible fixed assets 1 113 1 099Contractual commitments for acquisitons of intangible fixed assets 66 47Contractual commitments for acquisitons of investment property 36 500 0Total 37 679 1 146In 2005, there is a purchase obligation in the Hammer Retex Group of TCHF 36 500 for a parcel of land in the Zug area. The precontractof the purchase contract has already been signed; execution of the final transaction depends on when planning approval is granted.

Notes to the consolidated financialstatements 2005Industrieholding Cham5532 Deferred tax assets and liabilities (–) 2005 2004TCHFTCHFCurrent assets –2 368 –3 124Non-current assets –12 100 –8 166Liabilities –599 –780Net liabilities –15 067 –12 070The balance sheet contains the following:Deferred tax assets 33 402Deferred tax liabilities –15 100 –12 472Net liabilities –15 067 –12 070Tax-loss carry-forwards Loss carry Tax effect Loss carry Tax effectforwardforward2005 2005 2004 2004TCHF TCHF TCHF TCHFTotal tax-loss carry-forwards 46 925 13 139 47 543 13 303Of which recognised as deferred tax assets 0 0 0 0Total tax-loss carry-forwards not recognised 46 925 13 139 47 543 13 303Expiring as follows:1 year 58 16 0 02 to 5 years 6 957 1 948 243 68Later 39 910 11 175 47 300 13 235

56Annual Report 200533 Pension plan liabilities Defined-benefit plans Other post-retirementbenefits2005 2004 2005 2004TCHF TCHF TCHF TCHFPresent value of funded obligations 96 166 89 394 0 0Fair value of plan assets 105 229 111 190 0 0Plan deficit/surplus (–) of funded obligations –9 063 –21 796 0 0Present value of unfunded obligations 8 655 8 047 2 626 2 823Unrecognised actuarial gains and losses (–) 165 71 –90 –88IAS-19 §58b 9 063 22 458 0 0Net liabilities/assets (–) from funded and unfunded plans 8 820 8 780 2 536 2 735Benefit costs (included in personnel expenses)Acquired benefit claims 5 118 4 695 51 70Interest on future benefit liabilities 3 454 3 403 133 136Expected yield on the capital –5 004 –4 892 0 0Recognised actuarial losses (gains) net 376 819 0 –154Unrecognised earlier benefit entitlements 172 0 0 211Subtotal 4 116 4 025 184 263Employee contributions –1 505 –1 540 0 0Total 2 611 2 485 184 263Net liabilities/assets (–) in the balance sheetTotal at 01.01. 8 780 9 064 2 735 2 945Pension expenses 2 611 2 485 183 263Employer contributions –1 995 –1 939 0 0Change in structure –398 –830 –492 –473Currency translation effect –178 0 110 0Total at 31.12. 8 820 8 780 2 536 2 735Actuarial assumptions – Defined-benefit plansDiscount rate as per 01.01.– Switzerland 3.0% 3.5%– Abroad 4.0% 4.5 – 5.0%Expected return on plan assets (Switzerland) 4.0% 4.5%Salary inflation rate– Switzerland 1.5% 2.0%– Abroad 2.5 – 3.0% 2.5 – 3.0%Expected remaining working lives (in years)– Switzerland 10 9– Abroad 15 15

Notes to the consolidated financialstatements 2005Industrieholding Cham 57Yield on the plan assets 2005 2004TCHFTCHFExpected yield on the plan assets (Switzerland) 5 004 4 892Actual yield on the plan assets (Switzerland) –2 726 3 541In the financial year, the actual yield on the plan assets was affected by the non-cash revaluation of the real estate.34 Transactions with related partiesRelated parties are the non-executive Board of Directors and the Executive Boards as defined in the Corporate Governance guidelines.Disclosure of the following compensation of the non-executive Board of Directors and the Executive Boards is made according tothe accrual principle (recognition in the correct period, independent of the payment stream).The compensation of the Executive Board members comprises of three components: base salary, bonus, and other compensation.The base salary is the employee’s compensation before deduction of employee’s social security contributions. The bonus is paid inthe form of cash or super-obligatory pension fund contributions. Other compensation comprises fixed amounts for expenses, andpayment in kind such as company cars.Compensation of the non-executive Board of Directors 2005 2004TCHFTCHFBase salary 234 329Other compensation 192 226Total 426 555In view of the difficult progress of business in speciality papers, the non-executive Board of Directors forewent payment of its base salaryin the fourth quarter and only received meeting fees. The reported compensation amounts include the normal fees paid to members of thenon-executive Board of Directors who retired in the respective year. Neither in the current period nor in the previous period were any separateseverance payments made to former members of the non-executive Board of Directors. In financial year 2004, land was sold to a memberof the non-executive Board of Directors.The transaction volume was TCHF 767 and the transaction was executed at market conditions.Additional fees and compensationIn financial year 2005, there were no payments to members of the non-executive Board of Directors of fees, or other compensation,whose amount equalled or exceeded half of the total regular compensation amount. In the previous year, an amount of TCHF 49 waspaid to the law firm Niederer Kraft & Frey, Zurich, in which Board member Dr. Peter R. Isler, who retired in May 2004, was a partner.Compensation of Executive Boards 2005 2004TCHFTCHFBase salary 2 414 2 647Bonus 296 278Other compensation 109 109Total 2 819 3 034The reported compensation includes regular fees paid to retiring members of Executive Boards. The slight increase in the bonusamount is due to a change in compensation. The bonus was increased but the base salary was reduced.Ownership of shares as of 31.12.2005 2004Members of the non-executive Board of Directors 150 383 152 083Members of the Executive Boards 30 180Total 150 413 152 263Loans to governing bodiesNeither in the financial year nor in the preceding period were there any outstanding loans to members of the Executive Boards or thenon-executive Board of Directors.

58Annual Report 2005Affiliated companies as of December 31, 2005Name of company Location Activity Currency Share Holdingcapital direct indirectin million in % in %Holding, finance companies and investmentsIndustrieverwaltungsgesellschaft Cham AG CH Cham ▲ CHF 0.05 100Kardex AG CH Zürich ▲ CHF 75.97 6.52Cham Paper GroupPapierfabriken Cham-Tenero AG CH Cham ■▲● CHF 130.0 100Papierfabrik Cham AG CH Cham ■▲ CHF 5.0 100Aerofiber AG CH Cham ▲ CHF 0.1 100Cartiera di Locarno S.A. CH Tenero ■▲ CHF 9.0 100Cham Paper Group Deutschland GmbH DE Dusseldorf ● EUR 0.0256 100Cham Paper Group (France) S.à.r.l. FR Paris ● EUR 0.0318 100Cham Paper Group (UK) Ltd. GB Tunbridge Wells ● GBP 0.01 100Cartiera di Carmignano S.p.A. IT Carmignano ■▲● EUR 15.0 100Saetersdalen AS NO Bykle ▲ NOK 0.102 33Hunsfos Fabrikker AS NO Vennesla ■▲● NOK 140.0 100Cham Paper Group (Atlantic) Inc. US King of Prussia ● USD 0.0002 80Condino Energia S.r.l. IT Condino ■▲ EUR 2.0 45Hammer Retex GroupHammer Retex AG CH Cham ■▲● CHF 4.00 100Valorit AG CH Cham ▲ CHF 0.50 100Hans Schmidlin AG CH Cham ●▲ CHF 0.10 100■ Research, development, production▲ Financing, real estate, services● Marketing, sales

Industrieholding Cham 59

60 Annual Report 2005Financial statements of Industrieholding Cham AGIncome Statement2005 2004Income TCHF TCHFInvestment income 4 000 1 700Other income 200 177Net income from financial investments 9 032 1 411Interest earned 186 87Gains on disposal of assets 120 0Total income 13 538 3 375ExpensesFinancial expenses 89 9Administration expenses 912 1 036Taxes 24 39Total expenses 1 025 1 084Profit for the year 12 513 2 291Balance Sheet31.12.05 31.12.04Assets TCHF in % TCHF in %Cash and cash equivalents and securities 29 362 7 377Treasury shares 16 541 18 076Receivables from group companies 56 5Prepayments and deferrals 202 237Current assets 46 161 24.5 25 695 14.4Investments 135 879 147 130Loans to group companies 6 000 6 000Land 1 1Non-current assets 141 880 75.5 153 131 85.6Total assets 188 041 100.0 178 826 100.0Liabilities and shareholders’ equityAccruals 869 810Liabilities to group companies 505 208Liabilities 1 374 0.7 1 018 0.6Share capital 80 640 80 640General legal reserve 58 220 58 220Reserves for treasury shares 16 541 18 076Free reserves 3 804 2 269Brought forward 14 949 16 312Profit for the year 12 513 2 291Shareholders’ equity 186 667 99.3 177 808 99.4Total liabilities and shareholders’ equity 188 041 100.0 178 826 100.0

Financial statements ofIndustrieholding Cham AGIndustrieholding Cham61Shareholders’ Equity General ReservesShare statutory for treasury Free Retained Totalcapital reserves shares reserves earningsTCHF TCHF TCHF TCHF TCHF TCHFValue at 01.01.03 80 640 80 765 176 26 224 15 138 202 943Profit for the year 0 0 0 0 4 812 4 812Value at 31.12.03 80 640 80 765 176 26 224 19 950 207 755Effect of merger 0 –22 545 0 –6 055 0 –28 600Value at 01.01.04 80 640 58 220 176 20 169 19 950 179 155Dividends 0 0 0 0 –3 638 –3 638Reserves for treasury shares 0 0 17 900 –17 900 0 0Profit for the year 0 0 0 0 2 291 2 291Value at 31.12.04 80 640 58 220 18 076 2 269 18 603 177 808Value at 01.01.05 80 640 58 220 18 076 2 269 18 603 177 808Dividends 0 0 0 0 –3 654 –3 654Reserves for treasury shares 0 0 –1 535 1 535 0 0Profit for the year 0 0 0 0 12 513 12 513Value at 31.12.05 80 640 58 220 16 541 3 804 27 462 186 667Outstanding shares ofIndustrieholding Cham AGShares Nominal value per share TCHFOpening capital at 01.01.05 806 400 100 80 640Closing capital at 31.12.05 806 400 100 80 640Treasury shares ofIndustrieholding Cham AGNumber Price per share TCHFValue at 01.01.04 1 009 175.0 176Change 77 826 230.0 17 900Value at 31.12.04 78 835 229.3 18 076Value at 01.01.05 78 835 229.3 18 076Change –6 699 320.5 –1 535Value at 31.12.05 72 136 229.3 16 5411)1) The gain on disposal of treasury shares of TCHF 611 is recorded in the profit for the year.In fiscal year 2005, 6 669 shares of Industrieholding Cham AG were sold at an average price of CHF 320.5 per share. On 13.5.2004, 70 000shares of Kardex AG were exchanged for 57 826 shares of Industrieholding Cham AG. A further 20 000 shares of Industrieholding Cham AGwere purchased by Tuxedo Invest AG. In both transactions, the price of the Industrieholding Cham shares was CHF 230.The subsidiaries did not own any shares of Industrieholding Cham AG.

62 Annual Report 2005Proposal for appropriation of profits 2005 2004Registered shares at CHF 100 nominal TCHF TCHFAppropriation of profitsBrought forward from previous year 14 949 16 312Profit for the year 12 513 2 291Retained earnings 27 462 18 603Dividends 1) –3 671 –3 654Carried forward to new account 23 791 14 9491) No dividend is paid on own shares held by Industrieholding Cham AG.The non-executive Board of Directors proposes to the Annual General Meeting of 28.4.2006 in Cham that a dividend of TCHF 3 671(2004 TCHF 3 654) be distributed to the shareholders. This results in the following dividend per share for 2005:Cash dividend per share Gross Net 2)Registered share 5.00 3.252) After deduction of 35% withholding taxPar value reductionThe non-executive Board of Directors also proposes that the share capital of the company be reduced from TCHF 80 640 to TCHF 67 050 by:1) Retirement of 61 400 shares which are currently owned by the company.2) Reduction of the nominal value of the 745 000 remaining shares from CHF 100.00 nominal to CHF 90.00 nominal per share, with theamount of the reduction being paid out by assigning options on the purchase of Kardex shares of Kardex AG for exercise againstIndustrieholding Cham.Supplementary InformationNet income from financial investments 2005 2004TCHFTCHFInterest and dividend income 119 112Price and exchange gains 8 996 1 309Price and exchange losses –73 0Administration expenses –10 –10Total 9 032 1 411Notes to the financial statements(According to Swiss Civil Code Art. 663b)InvestmentsCompanies in which Industrieholding Cham AG holds investments are listed on page 58.Significant shareholders according to Swiss Civil Code Art. 663c(shareholding greater than 5%)In the share register of Industrieholding Cham AG on December 31, 2005, BURU Holding AG, Hagendorn; OZ Bankers AG, Pfäffikon;Marc Rich Finance GmbH, Baar; and Bestinver Gestion S.G.I.I.C. S.A., Madrid; are each listed with a shareholding that exceeds the5% limit. The holding of BURU Holding AG is 18.33%, of OZ Bankers AG 5.35%, of Marc Rich Finance GmbH 5.02%, and of BestinverGestion S.G.I.I.C. S.A. 5.00%.To the extent of company management‘s knowledge, there are no stockholder retainer contracts between significant shareholders ofthe company or any other agreements regarding holdings by them of registered shares in Industrieholding Cham AG or regarding theexercise of shareholders‘ rights.

Industrieholding Cham63

64Annual Report 2005Investment property, land reserves and development propertiesLong-term land reservesParcel FairLocation Property Owner area value RemarkCham Agricultural 1) HAR 123 349 1 480 Value according to Department of AgricultureCham Building zone HAR 25 023 9 200 Value estimated by Livit AG (DCF method)Cham Agricultural 1) IC 49 832 498 Value according to Department of AgricultureCham Land reserve 2) IC 24 495 8 270 Value estimated by Livit AG (DCF method)Total 222 699 19 448m 2TCHFLegend: 1) expected building land2)Cham NordInvestment propertyParcel Fair Rental Office/ Resi- Unoccu- DiscountLocation Property Owner area value income Commerc. dential pied ratem 2 TCHF TCHF in % in % in % in %Cham Investment properties Valorit 12 276 25 810 1 584 0% 100% 0% 4.3%Cham Investment properties HAR 44 096 16 870 1 088 1% 99% 0% 4.0 – 4.4%ZH/LU Investment properties HAR STEG 2 900 183 0% 100% 0% 4.3%Total 56 372 45 580 2 855Legend: STEG: Owner-occupiedDiscount rate: Residential 4.30%Commercial 4.40%Allotments 4.00%Fair value:Estimated by Livit AG (DCF method)Properties under construction / Development propertiesParcel Historical EstimatedLocation Property Owner area costs investment volume Remarksm 2 TCHF TCHFCham Rütiweid II (under constr.) HAR 7 276 1 912 17 400 Completion 2007 1)Baar Im Grund (under constr.) HAR 5 018 5 973 19 595 Completion 2006 2)Under construction 12 294 7 885 36 995Cham Herrenmatt HAR 11 228 818 24 630 Remains in ownership after compl.Cham Hammertor III HAR 6 137 2 338 open At planning phase 3)Cham Rütiweid commercial HAR 8 362 0 open At promotion and planning phaseCham Farmensemble Hammergut HAR 15 000 753 open Rezoning 2007 4)Cham Lorzenhof HAR 16 443 7 492 55 600 Consortium (50% stake)Zug Inducta HAR 4 325 5 762 18 906Risch Rischolago HAR 3 416 2 575 10 573Luzern Hauptstrasse HAR 5 639 1 898 13 260Development properties 70 550 21 636Legend:Carrying amount: Valuation at historical costs.1) includes 7 276 m 2 of land with carrying amount = 02) partly already sold3) includes 2 940 m 2 of land with carrying amount = 04) completion of rezoning expected 2007 subject to vote of municipal assembly

Industrieholding Cham 65

66Annual Report 2005Corporate GovernanceIntroductory remarksUnless stated otherwise, the informationIn compliance with the Corporate Gover- for financial 2005 presented in this reportnance Directive of the SWX Swiss Exchange,refers to the situation as at the balancethe Corporate Governance sheet date of December 31, 2005.Report describes the principles of managementand control at the highest corporateThe Corporate Governance report oflevel of Industrieholding Cham AG Industrieholding Cham AG is structuredand its main subsidiaries.according to the relevant SWX Directive.Group Structure as at December 31, 2005Industrieholding ChamChairman of the non-executive BoardMembersHeinrich C. SpoerryPhilipp BuhoferDr. René FurlerVice-Chairman of the non-executive Board Rolf SchweigerMichael FunkProf. Dr. Armin Seiler1. Group structure and shareholdersPage 58 contains a diagram showing thesubsidiary structure of IndustrieholdingCham AG as at December 31, 2005.Significant shareholdersAs at December 31, 2005, the share registerof Industrieholding Cham AG liststhe following shareholders with a capitalquota in excess of 5%:2005 2004in % in %BURU Holding AG 18.33 18.33OZ Bankers AG 5.35 --Marc Rich Finance GmbH 5.02 5.02Bestinver GestionS.G.I.I.C. S.A. 5.00 --Speciality PaperPapierfabriken Cham-Tenero AGCBD Heinrich C. SpoerryCEO Axel W. WapplerFinance and AdministrationPeter O. KnüselResearch and DevelopmentPeter StuderProduction and EngineeringHans Peter MüllerSales and MarketingMichael R. BethgePurchasing and ITDr. Giuseppe BardiniReal EstateHammer Retex AGCBD Michael FunkCEO Claude EbnötherGeneral ContractingClaude EbnötherProperty ManagementBruno KryenbühlCorporate ServicesAgeeth Walti-SlobSales and Marketingad interim Claude EbnötherThe number of shareholders enteredin the share register of IndustrieholdingCham AG is currently about 1 200persons.Industrieholding Cham AG is not awareof any shareholders’ agreements or otherarrangements between significant shareholdersof the company with regard toregistered shares of IndustrieholdingCham AG held by them or with regardto the exercise of shareholders’ rights.Cross-shareholdingsIndustrieholding Cham AG does not maintainany cross-shareholdings with othercompanies in excess of the 5% limit.

Corporate GovernanceIndustrieholding Cham 672. Capital structureThe nominal value of the share capitalof Industrieholding Cham AG is CHF80 640 000 which is divided into 806 400fully paid-up registered shares with a parvalue of CHF 100 each.All shareholders are entitled to the samedividend. There is no authorised or conditionalcapital nor are there any participationcertificates or bonus certificatesin circulation. Industrieholding Cham AGhas no outstanding convertible bondsor options. Detailed information regardingthe capital structure in the last threeyears is shown on page 61 of this report.Information for investorsNumber of dividend-bearing shares at December 31 2005 2004 2003 2002 2001Registered shares (CHF 100 par) 806 400 806 400 806 400 806 400 806 400Outstanding shares 734 264 727 565 805 391 805 391 806 400Weighted average of outstanding shares 731 473 759 993 805 391 805 391 806 400Per-share figuresEarnings per share CHF 24.00 15.66 15.80 29.59 –41.32Equity capital per share CHF 435.14 385.95 367.52 351.32 320.80Par value reduction / Gross dividend CHF 15.00 5.00 5.00 – –Market pricesHigh CHF 444 288 239 203 620Low CHF 289 211 149 110 161Year-end CHF 370 282 225 175 175P/E ratio CHF 15.4 18.0 14.2 5.9 n.a.Market capitalisation CHF million 272 205 181 141 141(Basis: Year-end price on the SWX Swiss Exchange)Traded volume293 659 registered shares of IndustrieholdingCham AG were traded in financial2005.TradingThe shares of Industrieholding Cham AGare traded in the main segment of theSWX Swiss Exchange in Zurich.Ticker symbol: INDNSecurity number (valor): 193185ISIN-Code:CH0001931853Trading currency: CHFBloomberg: INDN SW equityReuters:INDN.S

68Annual Report 2005F.l.t.r.:Philipp Buhofer, Dr. René Furler,Rolf Schweiger, Michael FunkHeinrich C. Spoerry,Prof. Dr. Armin Seiler3. The non-executive Board of DirectorsName, age, nationalityProfessional backgroundEducationActivities in governing and supervisory bodiesHeinrich C. Spoerry (born 1951, Swiss citizen)Since 1999 CEO SFS Group, Heerbrugg1986–1998 Elektrowatt/Siemens Building Technologies, Zurich1981–1986 SFS Group, Heerbrugg1979–1981 Boston Consulting Group, MunichMA University of St. Gallen, MSc MITCBD SFS Holding AG, HeerbruggBoard member, Mikron Holding AG, BielName, age, nationalityProfessional backgroundEducationActivities in governing and supervisory bodiesPhilipp Buhofer (born 1959, Swiss citizen)Since 1997 Independent businessman and company director1987–1997 EPA AG, Zurich1984–1987 Metro International, Baar, Düsseldorf and Hong Kong1978–1981 Professional pilot, South Carolina, Louisiana USAHigh School for Business & Administration, LucerneBoard member, Kardex AG, ZurichCBD, BURU Holding AG, HagendornCo-owner of DAX Holding AG, Zug, an industrial holding companyBoard member of various small/medium-sized companiesName, age, nationalityProfessional backgroundEducationActivities in governing and supervisory bodiesMichael Funk (born 1941, Swiss citizen)Since 1991 Independent businessman and company director1969–1990 Oerlikon-Bührle Group, ZurichMEng, FIT ZurichCBD, Kardex AG, ZurichCBD, Reppisch-Werke AG, DietikonVCBD, Cicor Technologies, BoudryBoard member of various small/medium-sized companiesName, age, nationalityProfessional backgroundEducationActivities in governing and supervisory bodiesDr. René Furler (born 1949, Swiss citizen)Since 2001 Chairman of the Executive Board of HG Commerciale, Zurich1999–2001 ZZ Wancor AG, Regensdorf1994–1999 Zürcher Ziegeleien AG (now Conzzeta), Zurich1985–1994 Hard AG, Volketswil1980–1984 Zürcher Ziegeleien AG (now Conzzeta), ZurichMEng, FIT ZurichMA University of ZurichDSc, FIT ZurichBoard member of various subsidiaries of HG Commerciale, ZurichBoard member, Alcover AG, ZugName, age, nationalityProfessional backgroundEducationActivities in governing and supervisory bodiesDr. Reinhard von Meiss (born 1940, Swiss citizen; Member until 3.5.2005)Since 2003 Independent consultant1979–2002 SIG Holding AG, Neuhausen1975–1979 Industrieholding Cham AG, ChamLL D, University of ZurichBoard member of various small/medium-sized companies

Corporate GovernanceIndustrieholding Cham69Name, age, nationalityProfessional backgroundEducationActivities in governing and supervisory bodiesPublic and political functionsRolf Schweiger (born 1945, Swiss citizen)Since 1975 Senior Partner of Schweiger Law Firm, ZugLL M, University of ZurichAttorney at Law and Notary PublicBoard member of various boards of directors of the Nutritec Group, HochdorfBoard member of various boards of directors of the Otto Beisheim Group, BaarBoard member, Roche Investment Center AG, RischBoard member of various property and other small/medium-sized companiesMember of the Swiss National CouncilName, age, nationalityProfessional backgroundEducationActivities in governing and supervisory bodiesProf. Dr. Armin Seiler (born 1939, Swiss citizen)Since 1983 Professor of Business Management, FIT Zurich1978–1983 Cham Paper Group, Cham1975–1977 Koenig AG, Dietikon1969–1974 McKinsey & Co, Zurich and ChicagoMEng (mech), FIT ZurichDr of Economics, University of ZurichBoard member, Tecan AG, MännedorfBoard member of various small/medium-sized companiesName Industrieholding Audit Compensation Papierfabriken HammerCham AG Committee Committee Cham-Tenero AG Retex AGBoard membersinceFunctionTerm expiresFunctionFunctionFunctionFunctionHeinrich C. Spoerry 1996 CBD 2008 M M CBDMichael Funk 1972 VCBD 2006 M CBDPhilipp Buhofer 2004 M 2007 Ch. MDr. René Furler 2000 M 2006 M MRolf Schweiger 1994 M 2006 M M MProf. Dr. Armin Seiler 2002 M 2008 Ch. MClaude Ebnöther 1992 CEOLegend: CBD = Chairman; VCBD = Vice-Chairman; Ch. = Chairperson; M = Member; CEO = Chief Executive OfficerThe non-executive Board of Directors of the wholly-owned subsidiaries of the main subsidiaries consists of members of the ExecutiveBoards of the respective main subsidiaries.

70Annual Report 2005Elections and terms of officeThe three-year-terms of office of the nonexecutiveBoard of Directors of IndustrieholdingCham AG are coordinated insuch a manner that at least one replacementor re-election becomes necessaryeach year. If replacement elections arenecessary during a term, the newly electedmember completes the term ofoffice of his/her predecessor (Art. 17of the Articles of Incorporation). Thereare no limitations on the number of termsof office which can be held by any onemember. Members of the non-executiveBoard of Directors who have reachedage 70 are required to submit theirresignation at the next General Meeting.The number of members of the nonexecutiveBoard of Directors is limitedto between five and seven.Independence of the non-executiveBoard of DirectorsBy virtue of their independence, themembers of the non-executive Boardof Directors assure effective corporategovernance. No member of the nonexecutiveBoard of Directors was amember of the Executive Board ofIndustrieholding Cham AG or any of itsmain subsidiaries in the last five years.Cross-involvementNo member of the non-executive Boardof Directors of Industrieholding Cham AGis represented on the non-executiveBoard of Directors of any listed companywith which Industrieholding Cham AG orits main subsidiaries maintain significantbusiness relationships.Organisation and functioning of thenon-executive Board of DirectorsThe non-executive Board of Directorsexercises ultimate direction, supervision,and control of the business.The Board of Directors meets as often asnecessary, but at least once quarterly. In2005 eight whole-day meetings were held.The meetings of the non-executive Boardof Directors of Industrieholding Cham AGare attended, as a rule, by the board members,the CEOs and CFOs of the mainsubsidiaries, and, depending on the agenda,by other members of the executivemanagement. When dealing with matterswhich relate only to IndustrieholdingCham AG, or which are especially confidential,only members of the non-executiveBoard of Directors are present.The non-executive Board of Directors ofIndustrieholding Cham AG delegates theoperational business in its entirety to thetwo CEOs of the main subsidiaries. Theoperational business comprises all businessmanagement tasks which are notreserved by law or the Articles of Incorporationfor the non-executive Board ofDirectors of Industrieholding Cham AG.The non-executive Board of Directorsconcentrates mainly on the tasks assignedto it under Art. 716a of the SwissCode of Obligations and is especiallyresponsible for the following:• definition of the organisation and strategicdirection of IndustrieholdingCham AG and its main subsidiaries,• definition of the accounting principlesof Industrieholding Cham AG andits main subsidiaries,• approval of the budgets of the mainsubsidiaries,• ultimate supervision of the company‘sbusiness activities and supervision ofthe business of its main subsidiaries,• appointment of the executive managementand authorised signatories,• approval of investments, divestments,acquisitions, establishments and financingof the main subsidiaries, and• making proposals to the GeneralMeeting, including presentation ofthe annual financial statements ofIndustrieholding Cham AG and theconsolidated financial statements.The separation of authority betweenthe non-executive Board of Directorsand the Executive Board is laid downin detail in the Organisational Rules ofthe company.Committees of the non-executiveBoard of DirectorsCertain responsibilities of the non-executiveBoard of Directors are delegatedto the Audit Committee and the Compensationand Nomination Committee.The committees of the non-executiveBoard of Directors report comprehensivelyto the non-executive Boardof Directors. Each of the two committeeshas as its chairman a memberelected by the non-executive Boardof Directors.

Corporate Governance Industrieholding Cham 71Audit CommitteeThe Audit Committee assists the nonexecutiveBoard of Directors in performingits duties of ultimate financialcontrol of the company and in managingits interactions with the auditors.The main tasks of the Audit Committeeare:• review of the annual financial statementsand the Annual Report,• review of the adequacy and effectivenessof the accounting,• review of the risk management processesapplied by IndustrieholdingCham AG,• evaluation of financing matters,• periodic review of the adequacy ofthe financial reporting,• evaluation and selection of externalauditors to be nominated for electionby the General Meeting,• review of the interactions betweenthe subsidiaries and the externalauditors, and• review of the contractual conditionsand scope of the external audit.Depending on the matter being discussed,representatives of the externalauditors and of the management areinvited to the meetings of the AuditCommittee.In the Audit Committee, Prof. Dr. ArminSeiler serves as chairman and HeinrichC. Spoerry and Rolf Schweiger serve asmembers. In 2005, the Audit Committeeheld three half-day meetings.Compensation and NominationCommitteeThe Compensation and NominationCommittee is responsible for mattersrelating to fees as well as the generalpersonnel policy of IndustrieholdingCham AG and its main subsidiaries.The main tasks of the Compensation andNomination Committee are:• determination of the principles ofcompensation for the ExecutiveBoard and the non-executive Boardof Directors,• financial compensation of the nonexecutiveBoard of Directors and ofthe Executive Board,• planning of succession within theExecutive Boards and the nonexecutiveBoard of Directors,• evaluation of the performance ofthe CEOs,• evaluation of the performance ofthe Chairman,• periodic review of the pension fundand participation in important changesto systems.In 2005, the Compensation and NominationCommittee held three half-daymeetings.Information and controlinstrumentsThe non-executive Board of Directors isinformed by the main subsidiaries regardingthe state and progress of theirbusiness at monthly intervals. At quarterlyintervals, projections are made toassess the feasibility of meeting thebudget.The CEOs have a duty to inform thenon-executive Board of Directors immediatelyshould events take place whichcould significantly impair the progressof business.By virtue of their professional background,the members of the Audit Committee aresufficiently qualified in relation to mattersof financial management.In the Compensation and NominationCommittee, Philipp Buhofer servesas chairman and Heinrich C. Spoerryand Dr. René Furler serve as members.

72Annual Report 20054. Executive BoardThere is no separate Executive Board at the level of Industrieholding Cham AG.The members of the Executive Boards of the main subsidiaries are therefore listedbelow.F.l.t.r.:Axel W. Wappler, Peter O. Knüsel,Dr. Giuseppe Bardini, Michael R. Bethge,Hans Peter Müller, Peter Studer,Claude Ebnöther, Bruno Kryenbühl,Ageeth Walti-SlobCham Paper GroupName, age, nationalityProfessional backgroundEducationActivities in governing and supervisory bodiesAxel W. Wappler (born 1960, Swiss citizen)Since 2002 CEO Cham Paper Group, Cham2001–2002 Cham Paper Group, Cham1999–2001 Swissmetal Group, Dornach1998–1999 KPCL-Germany, Selb1989–1997 Timcal AG, Sins and Cleveland, USA1986–1989 Metro International AG, BaarMA (Economics), University of St. GallenBoard Member, Association of Swiss Pulp, Paper and Cardboard Manufacturers (ZPK),ZurichMember of the Interest Group for Energy-Intensive Industries (IGEB), ZurichBoard Member, Zug Industrial Association (ZIV), ZugName, age, nationalityProfessional backgroundEducationPeter O. Knüsel (born 1950, Swiss citizen)Since 1996 CFO Cham Paper Group, Cham1981–1996 Eurodis Group, Regensdorf1978–1981 Escor Group, BaselDiploma in Financial Control, SIB ZurichName, age, nationalityProfessional backgroundEducationActivities in governing and supervisory bodiesDr. Giuseppe Bardini (born 1948, Italian citizen)Since 1997 General Manager Cartiera di Carmignano S.p.A., Carmignano1986–1997 Saffa SpA-Sarrio SA., Milan1984–1986 BI-Invest S.p.A. (Bonomi Group), Milan1977–1983 McKinsey & Co., Cleveland (USA) and Milan1973–1976 GEA, MilanMBA MIT Sloan School of Management, Cambridge, USADr. Eng, Technical University of MilanMember of the Board, Association of Italian Paper Manufacturers (Assocarta), MilanPresidente, Condino Energia S.r.l., CondinoName, age, nationalityProfessional backgroundEducationMichael R. Bethge (born 1961, German citizen)Since 1.9.2003 Vice Director Sales & Marketing, Cham Paper Group, Cham2001–2003 Cham Paper Group, Cham1998–2000 Avery Dennison, Painesville (USA)1993–1998 Robert Linnemann GmbH & Co. KG, Sassenberg1981–1993 Jackstädt GmbH, WuppertalDiploma in Industrial Management, IHK Wuppertal-Solingen-RemscheidDiploma in Purchasing & Materials Management, BME Frankfurt / IHK CologneDiploma in Marketing Management, Academy of Management & Administration, Bochum

Corporate GovernanceIndustrieholding Cham73Name, age, nationalityProfessional backgroundEducationActivities in governing and supervisory bodiesHans Peter Müller (born 1944, Swiss citizen)Since 2002 Managing Director Hunsfos Fabrikker AS, VenneslaSince 1999 Director of Production & Engineering, Cham Paper Group, Cham1971–1999 Papierfabriken Cham-Tenero AG, ChamMEng, University of Applied Science, MunichBoard member, Swiss Accident Insurance Fund (SUVA), LucerneName, age, nationalityProfessional backgroundEducationPeter Studer (born 1968, Swiss citizen)Since 16.08.04 Vice Director Research & Development, Cham Paper Group, Cham2000–2004 Kimberly-Clark, Balsthal and Reigate (UK)1996–2000 Department of Defence, Civil Protection & Sports (VBS), Bern1995–1996 MPA (Sihl), BernBSc (chem.), University of Applied Science, BurgdorfMBA, University of Applied Science, BernHammer Retex GroupName, age, nationalityProfessional backgroundEducationOfficial functions, political officesClaude Ebnöther (born 1949, Swiss citizen)Since 1980 CEO Hammer Retex Group and Delegate of the Board of Directors,Hammer Retex AG, Cham1974–1980 Ortobau GU, ZurichReal estate agentMember of the Security Committee of the municipalities of Kilchberg and RüschlikonName, age, nationalityProfessional backgroundEducationBruno Kryenbühl (born 1952, Swiss citizen)Since 1992 Member of the Executive Board, Hammer Retex AG, Cham1975–1992 Retex AG, Zug1973–1975 Fitrag AG, ZugSwiss Chartered Real Estate AgentIndustrieholding Cham AGName, age, nationalityProfessional backgroundEducationAgeeth Walti-Slob (born 1967, Swiss citizen)Since 2002 Head of Corporate Services and Secretary to the Board of Directors of IndustrieholdingCham AG, Cham2000–2002 PricewaterhouseCoopers, Zurich1991–2000 Unilever (Switzerland) AG, ZugMA, University of St. GallenResponsibilities of the Executive BoardsThe main responsibilities of the Executive Boards are:• ongoing implementation of the business strategy determined by the non-executive Board of Directors,• external representation of the company and its constituent bodies,• implementation of changes within the organisation to optimise the consolidated results, and• the promotion of internal and external communication.

74Annual Report 20055. Compensation, shareholdings,loansCompensation principlesThe compensation principles of IndustrieholdingCham AG are designed to attractqualified managers who can contributesignificantly to the success of the company.The selected methods of compensationare directed towards fostering aperformance-oriented culture and creatingsustainable shareholder value.Compensation of active membersof governing bodiesThe members of the non-executive Boardof Directors receive for their work compensationwhich is proposed by theCompensation and Nomination Committeeand approved by the entire nonexecutiveBoard of Directors. The compensationof members of the non-executiveBoard of Directors comprisesa base salary and meeting fees. Themeeting fees of Industrieholding ChamAG vary for the members depending ontheir functions in the committees.In the reporting year 2005, the total ofall compensation for the members ofthe non-executive Board of Directors ofIndustrieholding Cham AG (gross salaryincluding fixed expenses and beforededuction of employee’s social securitycontributions) was CHF 426 326.In view of the difficult state of businessin the speciality papers segment, theBoard of Directors waived payment oftheir basic fee in the fourth quarter andonly received meeting fees.The compensation of members of theExecutive Boards consists of a basesalary and a performance-related payment.The total compensation and thetargets for the performance-related componentare set each year by the Compensationand Nomination Committee.The base salary comprises a gross salary(compensation before deduction of employee’ssocial security contributions)and fixed expenses.The additional performance-related components(bonuses) depend on the financialsuccess achieved by the company,as well as the attainment of personalgoals, and are paid in the form of money,non-cash benefits or supplementary nonobligatorypension fund contributions.In 2005, the total of all compensation forthe members of the Executive Boards– according to the Accrual Principal –amounted to CHF 2 819 049.Compensation of former membersof the non-executive Board ofDirectors and Executive BoardIn 2005, a payment of CHF 88 241 wasmade to a former member of a governingbody.Share ownership by members of thenon-executive Board of Directorsand Executive BoardsOn December 31, 2005, members of thenon-executive Board of Directors helda total of 150 383 shares (including147 783 shares held by BURU Holding),and members of the Executive Boardsa total of 30 shares, in IndustrieholdingCham AG.Additional fees and paymentsIn financial year 2005, no members ofthe non-executive Board of Directorsreceived fees, or other payments, whosevalue was equal to, or greater than, halfof their normal compensation.Loans and severance payments tomembers of governing bodiesIn financial 2005, no loans were grantedto members of the non-executive Boardof Directors or Executive Boards, and noloans to such persons were outstandingon December 31, 2005. Nor were anyseverance payments made to membersof the non-executive Board of Directorsor Executive Boards in the reporting year.Highest total remunerationThe highest total remuneration paid toa member of the non-executive Boardof Directors of Industrieholding ChamAG for 2005 was CHF 101 167 (grosssalary).

Corporate GovernanceIndustrieholding Cham756. Shareholders’ participation rightsFollowing below are extracts from theArticles of Incorporation of IndustrieholdingCham AG. The complete Articlesof Incorporation can be downloaded fromthe website athttp://www.iccham.com/e/statuten.htmlLimitation on voting rightsArt. 7 Para. 3 (Transfer of RegisteredShares): The non-executive Board ofDirectors can only refuse to make anentry in the share register with the rightto vote• if, and for as long as, acceptance ofthe applicant as a shareholder withvoting rights could hinder the companyin providing the evidence ofSwiss control required by Swiss federallaw, especially the Federal Lawon the Acquisition of Real Estate bynon-residents, or• if the applicant, despite being requestedby the company to do so,does not expressly declare himself/herself to be acquiring the sharesin his/her own name and on his/herown account.All persons entered in the share registeras shareholders with voting rights areentitled to participate in the GeneralMeeting. Voting rights can be transferredby written proxy to other shareholderswith voting rights entered in theshare register.Statutory quorumsAccording to Art. 15 of the Articles of Incorporation,a decision by majority of atleast two-third of the votes representedat the General Meeting is required for:• changing the purpose of the company,• relocation of the company‘s registeredoffice,• the introduction of voting shares,• an authorised or conditional increasein capital,• an increase in the capital from shareholders‘equity in return for a non-cashcapital contribution or for the acquisitionof assets and the granting ofspecial privileges,• limitation or annullment of subscriptionrights,• acquisition of another company bymerger, or• dissolution of the company.Convocation of the GeneralMeetingConvocation of a General Meetingis governed by Art. 699 of the SwissCode of Obligations.AgendaShareholders who represent shareswith a nominal value of at least onemillion Swiss francs may make writtenrequests for proposals to be placed onthe agenda. Such proposals must besubmitted to the non-executive Boardof Directors at least sixty days beforethe General Meeting.Entry in the share registerAs a rule, shareholders can be enteredin the share register up to one week beforethe General Meeting.7. Change of control and defencemeasuresIndustrieholding Cham AG has nochange-of-control clauses in place applicableto members of the non-executiveBoard of Directors or members of theExecutive Boards of the main subsidiaries.There are no statutory rules regardingopting-out or opting-up (Swiss StockExchange Law BEHG Art. 22).8. AuditorsErnst & Young have been the statutoryauditors and Group auditors since 1977.Thomas Huwyler has been the LeadAuditor responsible for IndustrieholdingCham AG since the financial statementsfor 1999. In accordance with the requirementto ensure independence bychanging the Lead Auditor every sevenyears, Thomas Huwyler will be replacedby Christian Schibler in 2006.

76 Annual Report 2005Corporate Governance Industrieholding ChamWithin the scope of their auditing activities,the auditors inform the AuditCommittee of their findings and submitproposals for improvements. The AuditCommittee evaluates the auditors‘ performance,remuneration, and independence,and reviews the results of theaudit. The Audit Committee reports tothe non-executive Board of Directorsand submits proposals regarding selection,scope, and fees for the audit. Infinancial 2005, the auditors attendedall three half-day meetings of the AuditCommittee.Auditors’ remunerationThe following fees were invoiced infinancial 2005:TCHFOrdinary audits 382Other services 315Total 6979. Communication policyPrinciplesThe information policy pursued byIndustrieholding Cham AG seeks tocreate transparency for investors andthe financial markets so as to achievea fair market value for the shares ofIndustrieholding Cham AG.To attain these objectives, IndustrieholdingCham AG bases its financial reportingand disclosure on the following principles:• Transparency: Disclosure aims to improveunderstanding of the economicfactors that influence the companyand its business results.• Consistency: Disclosure shall be consistentand provide a basis for comparisonwithin and between reportingperiods.• Clarity: Information shall be presentedas clearly as possible so that the readercan obtain a clear picture of thestate and progress of the business.• Relevance: To avoid an excessiveflood of information, information isonly disclosed if it is important forthe stakeholders of IndustrieholdingCham AG or is required by the lawor Articles of Incorporation.MethodsIndustrieholding Cham AG providesquarterly information on the course ofbusiness and ad hoc information oncurrent events. As a listed company,Industrieholding Cham AG is legally requiredto communicate facts that arerelevant for the share price (Art. 72 of theListing Regulations, ad hoc publication).All publications are made available to allshareholders simultaneously so that theyall have equal access to information.All publications, from the Letter to Shareholdersto media releases, are madeavailable at www.iccham.com under„Investor Relations“ in both German andEnglish. Industrieholding Cham AG maintainscontact with the capital market viathe annual media and analysts conference.In addition, meetings are held duringthe year with individual or several institutionalinvestors and analysts.All publications can be ordered by sendingan e-mail to info@iccham.com orwriting to Industrieholding Cham AG,Investor Relations, Sinserstrasse 67,6330 Cham, Switzerland.Subscriptions to publications can alsobe ordered through the website underInvestor Relations/Current Publications.Contact for investors and mediaAgeeth Walti-SlobSinserstrasse 676330 ChamSwitzerlandPhone +41 41 785 18 80Fax +41 41 785 18 87E-mail walti.ageeth@iccham.com

AddressesKey dates 2006Industrieholding ChamIndustrieholding Cham AGHammertor, Sinserstrasse 67, CH-6330 ChamPhone +41 41 785 18 88, Fax +41 41 785 18 87Internet www.iccham.comE-mail info@iccham.comAgeeth Walti-Slob, Head of Corporate ServicesMedia release: Results 2005April 6, 2006Media, analystsMedia and analysts conferenceApril 6, 2006Media, analystsCham Paper GroupPapierfabriken Cham-Tenero AGFabrikstrasse, CH-6330 ChamPhone +41 41 785 33 33, Fax +41 41 785 31 50Internet www.champaper.chE-mail mail.cham@cham-group.comAxel W. Wappler, Chief Executive OfficerMedia release: Revenue Q1 2006April 28, 2006Media, analystsAnnual General MeetingApril 28, 2006Shareholders, mediaLetter to Shareholders: Results first-half 2006August 3, 2006Shareholders, media, analystsHammer Retex GroupHammer Retex AGHammertor, Sinserstrasse 67, CH-6330 ChamPhone +41 41 785 18 51, Fax +41 41 780 90 81Internet www.hammerretex.chE-mail info@hammerretex.chClaude Ebnöther, Chief Executive OfficerMedia release: Revenue Q3 2006October 31, 2006Media, analystsThe group publishes Annual Reports in English andGerman. The German version is legally binding.EditorIndustrieholding Cham AG, ChamConcept and DesignPeter Bütikofer & Company, ZurichFella Design GmbH, ZurichTricom AG, ZurichTranslationRobert Jones, MeggenPhotosChristian Höfliger, NänikonArchive Industrieholding Cham AGPrintingDruckerei Feldegg AG, Zollikerberg

Industrieholding Cham AGHammertorSinserstrasse 67CH-6330 ChamPhone +41 41 785 18 88Fax +41 41 785 18 87Internet www.iccham.comE-mail info@iccham.com