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Report of the Board of Directors<br />
Dear Shareholders<br />
4 5<br />
After extraordinary acquisition-driven growth the previous year, 2005 was a period of con-<br />
solidation and reinforcement of our reputation at a high level. Sluggish construction activity<br />
in key markets, signs of which became apparent early in the year under review, slowed busi-<br />
ness, especially in Heating Technology and Sanitary Equipment, our largest division. Despite<br />
the considerable effort and expense required to integrate the previous year’s acquisitions and<br />
restructure and integrate the kitchens business, the group managed to increase sales almost<br />
10 percent. However, profit growth was not quite on this scale owing to sharp rises in pur-<br />
chasing costs and margin pressure. Even so, AFG Arbonia-Forster-Holding AG managed to<br />
maintain organic growth above the market average in all segments, and gain further market<br />
share.<br />
The year under review was also the first time the group derived the full benefit of<br />
its new, cost-efficient and long-term financing strategy, for which the foundations had been<br />
laid the previous year. It was thus possible to increase group profits by around 4 percent to<br />
CHF 51.5 million, despite a significant rise in the cost of materials. This has prompted the<br />
Board of Directors to move that this year’s Annual General Meeting approve a dividend of<br />
CHF 7.00 on bearer shares and CHF 1.40 on registered shares, unchanged from last year.<br />
Innovation makes all the difference<br />
With the exception of the Heating Technology and Sanitary Equipment Division, which suffered<br />
the effects of stagnant building and fitting activity in Germany, all divisions developed<br />
in line with the high expectations. AFG’s Arbonia-Forster-Holding AG dual strategy involves<br />
focusing on the traditional activities and products of a construction industry supplier. At the<br />
same time, it has defined its fields of business in such a way as to ensure that fluctuations<br />
(especially economic swings) are balanced out among divisions with different cycles. This<br />
strategy paid off in 2005. It also became clear that in weak or saturated markets it is the<br />
ability to innovate that makes the crucial competitive difference. Unavoidable personnel<br />
adjustments and innovative products played a key role in compensating for a decline in sales<br />
and earnings in the Heating Technology and Sanitary Equipment Division.<br />
The ability to develop innovative products, coupled with strict cost management,<br />
also contributed to the success of all the other divisions. In this way Steel Technology was able<br />
to continue with successful moves to shift its focus from low-margin products to higher<strong>added</strong>-value<br />
applications of its knowledge of materials and processing. It continues to<br />
concentrate its efforts on the automobile industry, an attractive growth market and of Forster<br />
precision steel tubing.<br />
A growing market combined with innovative products developed and successfully<br />
commercialised by EgoKiefer AG (Windows and Doors Division) in recent years enabled this<br />
division to record the best results in its history. EgoKiefer AG was also able to further grow<br />
market share. However, the very competitive environment meant that in some cases margins<br />
came under pressure. Demand for EgoKiefer products had already exceeded available
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