English - Siegfried

Siegfried – when substance mattersAnnual Report 2004

Key figuresSiegfried Group 2004 2003 ChangeNet sales (CHF m.) 321.4 366.2 - 12.3 %Net income (CHF m.) 16.4 53.3 - 69.3 %Operating income (CHF m.)before exceptional items 33.4 62.9 - 47.0%Operating income (CHF m.)after exceptional items 23.2 62.9 - 63.1%Operating margin (percent)before exceptional items 10.4 17.2Operating margin (percent)after exceptional items 7.2 17.2Cash flow fromoperating activities (CHF m.) 72.2 26.8 169.8 %EBITDA before exeptional items 66.6 94.3 - 29.4 %EBITDA margin (percent) 20.7 25.7Shareholders’ equity (CHF m.) 390.0 399.3 - 2.3 %Total assets (CHF m.) 585.8 644.9 - 9.2 %Equity as a % of total assets (percent) 66.6 61.9Capital expenditure (CHF m.) 26.3 68.8 - 61.7 %Personnel expenses (CHF m.) 121.6 125.4 - 3.0 %Employees (number) 1 968 1 041 - 7.0 %Siegfried Holding Ltd 2004 2003 ChangeNet income (CHF m.) 21.3 56.9 - 62.6 %Shareholders’ equity (CHF m.) 342.1 334.7 2.2 %Total assets (CHF m.) 396.1 407.0 - 2.7 %Equity as a % of total assets (percent) 86.4 82.2Share capital (CHF m.) 5.6 5.6 0.0 %Dividend (CHF m.) 9.8 14.0Dividend (CHF per share) 2 3.50 5.001Annual average2On maximum 2 800 000 shares ranking for dividend (dividends on treasuryshares not paid to shareholders will be carried forward)

ContentsChairman’s Statement 2Division reports 4Essentials in summary 7Board of Directors and Corporate Officers 8Divisions 11Siegfried Division 12Sidroga Division 15Outlook 16Financial report 17Special report on chemical production 21Chemical production at Siegfried 22Corporate Governance 2004 29Foreword and General corporate framework 31Structure of the Siegfried Group 32Shareholders 34Capital structure 35Board of Directors 35Group Management 42Compensation, investments and loans 44Participatory rights of Shareholders 46Control changes and defensive measures 48Auditors 48Information policy 49Financial Statements Siegfried Group 51Consolidated Balance Sheet 52Consolidated Income Statement 53Consolidated Shareholders’ Equity 53Consolidated Cash Flow Statement 54Summary of significant accounting policies 55Notes to the consolidated financial statements 60Segment information 67Group Auditors’ report 68Four-year overview 2001-2004 69Financial Statements Siegfried Holding Ltd 71Balance Sheet of Siegfried Holding Ltd 72Income Statement of Siegfried Holding Ltd 72Notes to thefinancial statements of Siegfried Holding Ltd 73Proposal for the distribution of earnings 74Auditors’ report 75Stock market data 76Publisher’s notes 77

2Dear Shareholders,The financial year 2004 was characterized by contrastingtrends in our different market sectors, especially for ourSiegfried Division, which comprises our pharmaceuticalactivities. Both the Siegfried Generics and Siegfried Biologicsbusiness units posted good results. But the market situation incustomer synthesis for our key Siegfried Actives business unitdid not improve during the year. Continued global overcapacityand an eroding US Dollar exchange rate delayed a recovery.Finally, the Food and Drug Administration (FDA) in the USAapproved only 18 newly developed chemical entities (NCE)during all of 2004, reinforcing depressed demand levels.Sales for our Sidroga Division, which develops and distributeshigh-quality natural products, especially medicinal and wellnessteas, grew during 2004. This trend will be strengthened withthe recent purchase of the «Valverde» line from Novartis.The Siegfried Group’s sales, operating income and net profitdeclined in 2004. Consequently, the Board of Directors andmanagement of both Divisions focused on laying the foundationsfor a successful future.The resulting reorganization, «Fit for Growth», included theSiegfried Division and all its business units, except for SiegfriedBiologics, currently in a ramp-up phase. During the initialphase, about 100 jobs were eliminated in Zofingen (Switzerland)and Pennsville (USA) to adjust to the current marketsituation. But additional jobs were also created in Marketingand the R&D department of Siegfried Actives to improvecustomer services and to efficiently manage the successfulcustomer synthesis pipeline. The second phase – now beingimplemented – is analyzing all processes throughout thecompany to identify productivity gains through streamlining orrestructuring measures.Siegfried Generics had a very successful year. This business unitspecializes in generic dossiers, and the production and marketintroduction of our clients’ generic products. With a pharmaceuticalproduction facility in Zofingen, Siegfried Genericscovers production bottlenecks through third party suppliers. Anew facility, being built in Malta by the Siegfried Group, willreduce dependence on suppliers and simplify logistics, and alsoprovides patent law advantages. Because of the inherent pricepressure of the generics market, Siegfried’s long-term goal is toassure ‘economies of scale’ through a continual increase incapacity to stay a leading service provider to the Europeangeneric drug industry.Our entry into the biotechnology field was successful. SiegfriedBiologics offers clinical trial batches of biotechnologically producedingredients, and the business unit’s production lines arerunning at full capacity. A new laboratory was opened inBerlin-Charlottenburg (Germany) on November 1, 2004 tomeet the increased demand. In 2005, the production facility inBerlin-Kleinmachnow will be upgraded to cGMP standards.

The Sidroga Division reported welcome progress in sales. TheBoard of Directors and Division management continued effortsto strengthen the brand and reinvest profits in new productdevelopments and promotion. The acquisition of the«Valverde» brand from Novartis (effective February 1, 2005) isa big step towards the strategic goal of adding further naturalhealth products to the popular Sidroga brand of medicinal andwellness teas. In addition to cost saving synergies in theadministrative areas and the distribution channels, Valverde willcontribute 15 % growth in sales for 2005.I want to extend my sincere thanks to all the employees inboth Divisions for their extraordinary efforts during achallenging year.Key financial parameters developed positively. Fired assetinvestments fell to CHF 26.3 million (2003: CHF 68.8 million)and free cash flow increased from CHF 26.8 million (2003) toCHF 72.2 million. Siegfried was able to pay back CHF 35 millionin loans during 2004 and reduced its overall debt to lessthan CHF 100 million by the end of the year. The level of selffinancinggrew to 66.6 %.Despite the reduced earnings, the Board of Directorsrecommends that the General Meeting of Shareholdersapprove a dividend of CHF 3.50 per share.During 2004, the Board of Directors and Siegfried Groupmanagement concentrated on setting the future direction ofthe company by identifying the considerable potential in all ourstrategic business sectors. Our focus on different segments ofthe Life Science market is proving successful, especially whenconsidering the inherent risks of the chemical pharmaceuticalsector. Over the years, the Siegfried Group has built upsignificant competencies across all business sectors. Comparedto the competition, we offer considerable experience andknow-how, especially in custom synthesis, our key businessactivity. These capabilities are extremely important in thescaling-up of complex ingredients, which also demands aconsiderable amount of staying power because of lengthydevelopment cycles and frequent dips in capacity utilization.The ability to effectively leverage future growth opportunitieswas enhanced in 2004 with the Siegfried Division’s leanstructures and quick processes, a result of the reorganization.The custom synthesis pipeline is in good shape, and ChemicalDevelopment is running at full capacity. We were able toimprove key customer relationships, and the Division has stateof-the-artfacilities. Substantial investments were made in ourGenerics and Biologics business units, and the Sidroga Divisionis set to profit from an acquisition with great potential.However, the targeted growth rates remain dependent on ourcore business – custom synthesis – and cannot be quicklyachieved. The inevitable capacity adjustments in the globalchemical-pharmaceutical industry will take time to happen.Neither is a significant increase in the introduction of newchemical ingredients expected in the short term. Still, weexpect growth to kick in during the second half of 2005, andstrengthen further in 2006.Thank your for your continued support of our company.3Dr. Markus AltweggChairman of the Board of Directors

Division reports4Siegfried DivisionThe three Business Units that make up the Siegfried Divisionposted markedly different results in 2004. The market forSiegfried Actives, our largest Business Unit, worsened whereasboth Siegfried Generics and Siegfried Biologics enjoyed solidgrowth. However, these positive developments could notcompensate for the downturn in the core business. Wetherefore focused our efforts during the year on stabilizing theDivision and laying the foundation for future growth.Our measures included a comprehensive reorganization ofSiegfried Actives, but also touched on key areas of SiegfriedGenerics. The primary goal of the reorganization – which isbeing carried out with the support of McKinsey & Company –is to secure the long-term profitability of the Division. Definingmore efficient structures and processes is part of ourreorganization. During this time we also found successors forthe retiring heads of the two largest Business Units.Siegfried ActivesThe global market for customer synthesis is still weighed downby considerable overcapacity. In addition, fewer new chemicalentities are being launched each year. Overcapacity in theEuropean and North American markets is easing, but it will takeyears before this shift takes on significance. In the meantimethe market for Siegfried Actives remains very competitive.Success in customer synthesis demands the highest reliability,speed and flexibility in meeting customer requirements.Siegfried Actives worked hard to enhance our capabilities inthese areas during the year. Additional account managers werehired to further strengthen customer relationships, and theDevelopment department – after recent investments in a stateof-the-artbuilding – was also enlarged. Compliance plays acrucial l part in the dedication we show our customers andcovers all aspects of our work. Lead by Dr. David C. Pulham, theSiegfried Compliance Board maintains up-to-date proceduresand guidelines that are implemented by Dr. Peter Kiechle, theChief Compliance Officer. Their work is an integral part of ourefforts to be a preferred outsourcing partner to innovativecompanies in the pharmaceutical industry.Key new people were appointed within Siegfried Actives duringthe year. Dr. Hubert Stückler, a marketing and industry expert,assumed responsibility for the Business Unit on December 1,2004. His predecessor, Dr. Max Widmer is retiring after 28 yearswith the company. In addition, Dr. Chris Kleiner, previously incharge of our Pennsville site, took over responsibility for allChemical Production at the beginning of 2005. His successor inPennsville is Tim Goodman. Dr. Regina Thiergardt assumedresponsibility for Chemical Development in Zofingen. Shesucceeds Dr. Hans Rudolf Marti, who is now Chief TechnologyOfficer for the Siegfried Division. As CTO, he evaluates newChemical Development projects and drives technologicalinnovation within the company.In 2004, Siegfried Actives transferred a key product to productionand won ten new development projects – both positivemilestones for the Division’s largest Business Unit. We expect areturn to growth in the second half of 2005.Siegfried GenericsDuring the financial year Siegfried Generics carried out thelargest product launch in its history, generating correspondingpositive results. This launch was extremely demanding, but alldeliveries were made on time to customers across Europe at therequired quality standards – further proof of the Business Unit’sexcellent skills and efficiency.The complexity of such launches underscores the importancefor the Business Unit of establishing for a new productionfacility in Malta. Given the island's advantageous patentsituation, the Malta facility will simplify the logistics of furtherproduct launches.The main challenge for Siegfried Generics is to prepare forincreased pricing pressure by quickly gaining in size andstrength. Potential success strategies may include theacquisition of generic dossiers and/or closer cooperation withcompanies following the same goals.Siegfried Generics also appointed a new head in 2004, with Dr.Axel Müller taking over responsibility on March 31st, 2004. Dr.Franz Radivojevich retired after guiding the Business Unit formany years.

Because of the extraordinary scale of the 2004 product launch,revenues for 2005 will drop off but remain at a higher level thanin years prior to 2004.Siegfried BiologicsThe Division’s smallest Business Unit again made a positiverevenue contribution in 2004. Siegfried Biologics continued toexpand in 2004; a new development lab was opened in Berlin-Charlottenburg, making it possible to initialize numerousprojects in parallel. The production facility in Berlin-Kleinmachnow/Potsdamis also being upgraded to allow commercialmanufacturing of biological entities under cGMP conditions.Only when we further expand the manufacturing capacity ofSiegfried Biologics can we expect a step-function increase inrevenue. The Business Unit will maintain a focus on attractivemarket niches and smaller production runs.OutlookThe Siegfried Division's three business units are active in fastevolving pharmaceutical markets. Our vision is «to be a worldclasspartner in developing and manufacturing drugs thatimprove human life». This demands a relentless drive tocontinuously improve our capabilities to best meet ourcustomers ever evolving needs – day in and day out.We took a big step in this direction in 2004.We are confident that our core business will return to growth inthe second half of 2005.Douglas C. Günthardt(CEO Siegfried Division)Sidroga DivisionThe Sidroga Division maintained its previous strategy andinvested consistently in the brand during 2004.This resulted in another year of sales growth, despite theGerman health reforms and consolidation of the over-thecounter(OTC) market. At the same time, our product portfoliowas expanded, and sales of «Passiflor» and «Efamol» grew asboth products established themselves in the market.Various medicinal, wellness and lifestyle teas were added to thetea product line. The «Lifestyle Line» appeals to youngerconsumers. The new «Tea Therapy» was also launched inAustria, Germany and Switzerland. Thanks to a new packagingdesign, consumers can more easily select the right Sidrogamedicinal teas, based on their therapeutic properties.In terms of the industry consolidation mentioned above, Sidrogacontinued to evaluate the acquisition of products or smallercompanies. The «Valverde» product line acquired from Novartison February 1, 2005 is the ideal complement to the strongSidroga line of medicinal teas. The well-established Valverdename enables the Division to introduce newly developed nonteaproducts to the market under the new brand. Valverdeoffers a range of natural medications with an emphasis ontreatments for sleep and nerve disorders.Two key managers were hired; Andrea Stoll took over as thenew Marketing Director on July 1, 2004; and Thomas Roth isthe new Distribution Manager for Switzerland, effective January1, 2005.Thanks to the Valverde acquisition, revenues in the current yearwill increase by 15 %. Division Management expects theaccompanying synergies in administration and distribution todeliver further improvements in our operating results.5Peter Degen(CEO Sidroga Division)

Essentials in summaryFor the 2004 financial year Siegfried Group net sales dropped toCHF 321.4 million (2003: CHF 366.2 million), 10.2 % less whenmeasured in local currencies, and -12.3 % when measured inSwiss Francs. Consolidated net profits were CHF 16.4 million(2003: CHF 53.3 million), a 69.3 % drop from the previous year.Operating profits (before special items) decreased by 47 % toCHF 33.4 million (2003: CHF 62.9 million).The Siegfried Division contributed 90 % of Group sales withconsolidated sales of CHF 289.4 million (2003: CHF 336.0million). This represents a decline of 11.6 % measured in localcurrencies and 13.9 % in Swiss Francs. Operating profitdecreased by 45.3 % to CHF 33.3 million (2003: CHF 60.9million). Our activities in the market for active pharmaceuticalingredients (Siegfried Actives) suffered from a weakening USDollar exchange rate, global overcapacity in chemicalproduction, and an only modest number of approvals for newlydeveloped chemical substances. Both the Siegfried Generics andSiegfried Biologics business units continue to grow.The Sidroga Division achieved consolidated sales of CHF 32million in 2004 (+ 5.7 %; 2003: CHF 30.2 million), and anoperating profit of CHF 0.3 million (2003: CHF 2 million).Sales grew in Germany and Austria, and remained stable inSwitzerland.The Board of Directors recommends that the General Meetingof Shareholders approve a dividend of CHF 3.50 per share.7

Board of Directors and Corporate OfficersBoard of DirectorsTerm of office expires:Dr. Markus Altwegg, BinningenChairman 2005*Dr. Thomas Staehelin, RiehenVice Chairman 2006*Dr. Bernard A. Siegfried, ZofingenHonorary Chairman 2007*Peter Arbenz, WinterthurMember 2005*8Susy Brüschweiler, Erlenbach ZHMember 2005*Prof. Dr. Felix Gutzwiller, ZürichMember 2005** nominated for reelection at the General Meeting 2005Corporate Officers as of 1.1.2005The Board of Directors and theCorporate OfficersStanding, left to right: Douglas C.Günthardt, Dr. Bernard A. Siegfried,Dr. Markus Altwegg, Prof. Dr. FelixGutzwiller, Peter ArbenzSitting, left to right: Dr. RichardSchindler, Dr. Thomas Staehelin,Susy Brüschweiler, Peter DegenDouglas C. Günthardt,CEO Siegfried DivisionPeter Degen,CEO Sidroga DivisionDr. Richard Schindler,Finance and Group DevelopmentAuditorPricewaterhouseCoopers AG, Basel

Divisions11

The Siegfried DivisionThe Siegfried Division comprises the pharmaceutical activities ofthe Siegfried Group and has three Business Units describedbelow:– Siegfried Actives produces customized patented activepharmaceutical ingredients for multi-national pharmaceuticalcompanies and also offers standard products. 2004 wasdistinguished by very high global overcapacity in chemicalproduction, a persistently low rate of approvals for newlydeveloped chemical substances (NCE), and a weakening USDollar exchange rate. The reduced utilization of our productionfacilities could not be compensated. Management was forcedto eliminate 100 jobs in Zofingen and Pennsville; 20 employeeswere laid off. The ongoing process review and implementationof cost-saving measures in purchasing will take until 2006; thegoal of this reorganization is to achieve sustainable annualsavings of CHF 25 million, set to take effect next year.12

Dr. Hubert Stückler – a marketing expert – took over as Head ofSiegfried Actives on December 1, 2004. He succeeded Dr. MaxWidmer, who is retiring after 28 years with the company. Themanagement structure was also adjusted, and the expansion ofChemical Development was carried out after new systems wereinstalled in the previous years.Ten new development projects were won during the financialyear, and a majority of the newly developed ingredients areeither in the clinical phases II and I, or are ready for marketlaunch. The Development department is working at full capacityand a key production campaign was begun in Zofingen early2004. The Business Unit expects an increase in utilization by thesecond half of 2005.– Siegfried Generics produces finished dosage forms (genericproducts) and the corresponding registration documentation,which requires a high level of pharmacological expertise. ThisBusiness Unit performed very well, thanks to a key productlaunch at the beginning of the year. A similarly importantlaunch is not currently planned, sales for 2005 will be lowercompared to the previous year, but consolidated at a noticeablyhigher level over the long term.Dr. Axel Müller took over as the new Head of SiegfriedGenerics, succeeding Dr. Franz Radivojevich, who is retiring.Dr. Müller is an experienced manager with profound knowledgeof the generics market.Work was begun on a new production facility in Malta toexpand capacity and strengthen the Business Unit.13Delivery and storage of raw materialsdestined for production.

– Siegfried Biologics produces active biological ingredients forclinical trials and provides further biotechnology services. Investmentsin the Berlin (Germany) facilities were made during 2004;a new development lab was opened in Berlin-Charlottenburg inNovember, and the Board of Directors voted (in January 2005)to strengthen the production facility in Berlin-Kleinmachnow /Potsdam. The Business Unit made a positive contribution to ourresults for 2004.14Oeznur Bedir transports raw materialsto production.

The Sidroga DivisionSidroga develops and distributes high quality natural products.Since 2002, the product range has grown continuously with newmedicinal and health remedies in new dosage forms. Salesincreased by over 5 % during 2004, mostly in Germany andAustria, despite the drop in over-the-counter sales in Germanpharmacies after the enactment of health reform legislation.Sales in the Swiss market remained stable.As of February 1, 2005, the Siegfried Group acquired the«Valverde» brand from Novartis, strengthening the marketposition of the Sidroga Division. Valverde sells herbal medicationsin the German and Swiss markets and achieved sales ofapproximately CHF 6 million in 2004. The acquisitionencompasses the Valverde brand and all product rights. Sidrogacan incorporate new products under the brand (that do notaffect the tea products), and will also strive to leverage synergiesin administration and distribution.15

OutlookDuring the first half of the current year, Siegfried Division saleswill match sales of the second half of 2004, coming short of thestronger performance of the first half of 2004. Growth isexpected for the Division by the second half of 2005. TheSiegfried Actives Business Unit will contribute slightly higherresults for the year. After a record-setting 2004, the SiegfriedGenerics Business Unit expects a drop in sales, but consolidatedat a significantly higher level compared to past years.The Siegfried Biologics Business Unit will continue to strengthenthe site in Berlin, setting a path for future growth. Profitabilityfor the Division will improve in 2005, thanks to the ongoingreorganization measures.Sidroga Division operating results for 2005 will profit from theintegration of the new Valverde brand and synergies resultingfrom the acquisition. In addition, the launch of a new Sidroga«tea therapy» provides renewed stimulus for this productsegment. The Division’s financial performance for the currentyear includes 15 % growth in sales and improved operatingresults.Overall, the Board of Directors and Division Management expectfinancial results for 2005 to be comparable to the prior year,with improved operating results.16

Financial ReportSiegfried Group revenues for 2004 dropped by 12.3 % to CHF321.4 million. Sales for the Siegfried Division were down 13.9% (11.6 % in local currencies) and the Sidroga Division salesimproved by 5.7 % to CHF 32.0 million.The market situation for the Siegfried Division remainedturbulent during 2004. While sales of finished generic productsclimbed, Siegfried Actives posted a drop in sales. A key productlaunch scheduled for the second half of 2004 was delayed andother important products did not achieve the forecasted results.The revenue shortfalls necessitated a reorganization – mostlyheadcount and production system adjustments – resulting incharges of CHF 10.2 million.The gross profits for 2004 declined to CHF 99.9 million fromCHF 125.7 million in the previous year, and profit marginsdropped by 3.2 % to 31.1 %.17Automated transfer of solventsto Chemical Production.

After licensing fees in 2003 raised other operating income toCHF 13.1 million, the results of CHF 4.8 million for 2004 metexpectations. Marketing and sales costs increased from CHF26.8 million to CHF 28.9 million. With a stronger emphasis onmarketing, Division Management intends to increase thenumber of development projects and continually upgradecustomer service. R&D costs increased (from CHF 20.7 million toCHF 23.0 million), which also reflects the increased investmentsfor the development of new generic dossiers.The EBIT (before special items) weakened from CHF 62.9 millionto CHF 33.4 million, a drop of 47 %, and the EBIT margindropped to 10.4 %.The 12.7 % tax rate for 2004 was similar to the previous year(9.6 %). Losses in high tax areas resulted in tax credits andprofits on foreign income were partially taxed in low tax areas.A higher tax rate is expected for 2005.Compared to the previous year, administrative and general costswere substantially reduced. After special items, however, totalcosts rose from CHF 28.4 million to CHF 29.6 million.As a result of the lower revenues and reduced orders in 2004 atSiegfried Actives, the Siegfried Division began a comprehensivereorganization program, which will realize annual savings ofCHF 25.0 million (beginning in 2006), and already contributesCHF 20.0 million in savings for the current year. The reorganizationcosts reduced our financial results by CHF 10.2 million.Personnel measures accounted for half of these costs; externalsupport costs and asset impairments (as a result of cancelledinvestment projects) made up the other half.18Hydrogenation of an intermediateproduct in a high pressure reactor.

As targeted by the Board of Directors and the SiegfriedManagement, operative cash flow followed a positive trend;from CHF 26.8 million in 2003 to CHF 72.2 million in 2004 – anincrease of 170 %. Completion of the three-year «Avanti»investment program provided the Siegfried Group with modernproduction facilities and sufficient development capacity, and adrop in investment costs. As a result, fixed asset investments for2004 fell to CHF 26.3 million (2003: CHF 68.8 million) and wereused mainly for systems maintenance and completing the newmilling / blending plant.As a result, outstanding debt was reduced by CHF 35.0 millionto CHF 93.0 million and the self-financing rate grew by 4.7 %to 66.6 % overall.The consolidated net profits of CHF 16.4 million wereconsiderably lower than the previous year, but nonetheless metexpectations. In consideration of the positive growth in cashflow, the results enable payment of a substantial dividend.19Heinz Bossard uses the powdertransfer system to put a rawproduct into the reactor.

Special Report on Chemical Production21

Chemical Production at Siegfried(All photos published in this annual report were shot at theChemical Production facility in Zofingen, Switzerland).The Siegfried claim «When substance matters» pertains mainlyto chemical production, or the manufacture of active chemicalor pharmaceutical (API) ingredients. This substance is the key toSiegfried’s chemical production efforts – under regulatoryguidelines and current Good Manufacturing Practice (cGMP)standards – for its customers.Success depends on a combination of technology, chemicalprocessing, and system configuration. As a producer ofpatented ingredients for our customers with a wide range ofestablished and new active ingredients and classes ofingredients, Siegfried depends on the seamless interaction ofthese three production elements. The result is efficient andcustomer oriented custom synthesis.22Production of an ingredient in the reactor.The centrifuge and drying process stepsare unified in a single system.

TechnologyToday’s technological challenges are met by Siegfried’scapabilities. Recent investments in our production systems willensure our ability to ascertain feasibility of active ingredientsneeded by the market – today and in the future. Successfulproduction often demands a combination of challengingtechnical solutions. Recent examples show how important suchoptions are; for example, combining high-pressure hydrogenationwith high temperature reactions and solid / liquidseparation, including drying – all in a single system, a TitusCentrifuge Dryer. The ability to take on numerous technologicalchallenges in parallel and process them according to customerspecifications is certainly a distinctive feature of Siegfried.Chemical processingThe second important element is chemical processing, theproduction of the ingredient and its precursors. Siegfrieddistinguishes itself in this area not only through the know-howof its employees in Chemical Production, but also with thesupport of a professional and sophisticated ChemicalDevelopment team. The cooperation of operational andresearch chemists is key, because both the economic andregulatory aspects of production need to considered whenlooking for an optimal process.Academic networkAs the leading manufacturer of active ingredients, Siegfriedworks together with university and technical institutes – such asthe University of Zurich, the ETH Zurich (Federal TechnicalInstitute), and the Technical Institute Muttenz. This cooperationincludes technology discussions, process optimization, and newsynthesis procedures. Numerous students from these schoolscomplete their dissertations based on specific technologicalaspects found at Siegfried.23

Together with the University of Zurich, Siegfried also awards the«Siegfried Medal» every two years. The medal is given foroutstanding achievement for processes used in appliedchemistry.System configurationThe third important element for efficient production is thechoice and configuration of the production systems.Evaluations are carried out with the Planning department andinclude main systems (reactors, centrifuges, dryers) and auxiliarysystems (dosage systems, tanks, etc.).Every piece of hardware must be correctly integrated into theoverall production system to take account of the characteristicsof the applied technology as well as the general conditions ofthe chemical process. The basic amounts and the order amountto be produced determine the choice of system and correspondingboiler volume. In addition, parameters for choosing theright system may include security aspects, or customer specifications,which may influence optimization of the scaling upprocess and the «volume / time yield». With order amountsranging between 500 kilos and 400 tons, this can be a verydemanding challenge for the Planning and Chemical Productionteams.24Daniel Galeotti and Jakob Schwizgebelprepare a dryer for the next process step.

PeopleSiegfried offers its Chemical Production employees diversevocational training programs, mostly focused on departmentand interface management. Complementary courses includeoperation of the electronic operating systems, processsupervision, and security.Recently, Siegfried has also developed a «chemical productionspecialist»-retraining curriculum for skilled candidates workingin other professions. These retraining programs are very popularand confirm the attractiveness of a career in chemicalproduction. They also provide a source of much-neededproduction specialists.Basic Chemical Production dataLocations Zofingen PennsvilleEmployees 220 60Number of multi-purpose production units (3-5 reactors) 26 8Total reactor volume for chemical synthesis 320 m 3 150m 3Total Number of synthetic-chemical steps 210 30Ingredients (API) output* in tons 1 200 500* Output depends on the product mix (production process). Capacity data isbased on the product mix for 2005.Every year Siegfried also trains seven chemical productionapprentices.Dr. Chris KleinerHead Operations Actives25GlossaryAPIActive pharmaceutical ingredientNCENew chemical entity: Newly developed chemicalBasic amountAmount (in kilo or liters) that can be produced insubstancea reactor in a single run.Order amountAmount per campaign (in kilos or liters) allottedCampaignDefined sequence of individual preparations.to production by planning.Chemical analysisAnalysis procedure to test product characteristicsReactorBoiler for chemical reactionsChemical developmentDepartment that processes and optimizes a chemicalsequence and transfers it to commercial productionRegistrationSubmitting dossiers for the compulsory approval of aGenericsMedication with expired patent protectionmedication in different countriescGMPcurrent Good Manufacturing Practice: AmericanScale UpTransferring a process to larger capacity productionproduction regulations – now accepted and appliedsystemsglobally – to ensure the quality of medications,SynthesisConfiguration of an active ingredient from individualfoods and nutritional supplementselementsHigh-pressureChemical process that uses high pressure (50 toValidationTesting of a method system or processhydrogenation100 bar) to incorporate hydrogen in a molecule.Volume / Time YieldAmount that can be produced in a reactor ofHigh temperatureHigh temperature (up to 300° C) chemicaldifined size within a certain time.reactionprocess to transform molecules.HomogenizingIn conjunction with the milling/blending process,manufacture of a mixture of different grain sizesthat meets specifications.

Important Chemical Production interfaces26ControllingCustomerRegulatory authoritiesEngineeringChemical ProductionQuality** QA (Quality Assurance), QC (QualityControl), RA (Regulatory Affairs),SEH (Safety, Environment, Health)TrainingChemical DevelopmentProduction planning

Project sequence at Siegfried27Siegfried Activities CustomerManagementManagement meetingsStrategic discussionManagementKey Account ManagerCommercial aspects (pricing)Contractual aspectsMain contact personsOutsourcing ManagerClose collaboration and informationClose collaboration and informationProduct ManagerProject ManagementTelephone conferencesTechnical meetingReportsTechnical Project ManagerSpecialists- Chemical Development- Analytical Development- Production- Safety- Registration- Quality control- etc.Solution of technical detailsSpecialists- Chemical Development- Analytical Development- Production- Safety- Registration- Quality control- etc.

Corporate Governance 200429

1 Table of Contents2 Foreword and general framework 313 Structure of the Siegfried Group 324 Shareholders 345 Capital structure 356 Board of Directors 357 Group Management 428 Compensation, investments and loans 449 Participatory rights of Shareholders 4610 Control changes and defensive measures 4811 Auditors 4812 Information policy 49

2 Foreword and general framework With regard to corporate governance, the Siegfried Grouptakes an integrated approach. Siegfried is fully committed tomutual trust and clarity toward shareholders, employees,business journalists and financial analysts.Our experience with the SWX Swiss Exchange guidelines hasshown the importance of sustainable and long-termrelationships with all shareholders and stakeholders, and asensible application of corporate governance instruments.Corporate governance at Siegfried is based on the statutes ofSiegfried Holding Ltd, the rules of procedure of the SiegfriedGroup, and the structure of the Group and of the twoBusiness Divisions, Siegfried and Sidroga. This report describesthe principles for management and control of the SiegfriedGroup. Corporate governance of the Siegfried Groupsubstantially follows the «Swiss Code of Best Practice» ofMarch 2002. As a medium-sized company with a stableshareholder structure, however, the Siegfried Group has madecertain adjustments, as permitted within the framework of theguidelines for corporate governance of the SWX SwissExchange.Corporate governance of the Siegfried Group is regularlyreviewed and adapted by the Board of Directors.31

323 Structure of the Siegfried GroupBoard of DirectorsSiegfried GroupDr. Markus AltweggChairmanSiegfried DivisionDouglas C. GünthardtCEOSidroga DivisionPeter DegenCEOFinance / CorporateDevelopmentDr. Richard SchindlerCFOSystem preparation for millingand blending of an ingredient.

Participation structure of Siegfried Holding Ltd1. Switzerland Currency Share Capital in LW Participation CommentsSiegfried Ltd, Zofingen CHF 20 000 000 100 %Siegfried Generics International AG, Zofingen CHF 2 000 000 100 %Siegfried Finance AG, Zofingen CHF 14 000 000 100 %Siegfried Dienste AG, Zofingen CHF 10 000 000 100 %Sidroga AG, Zofingen CHF 1 000 000 100 %Sigamed AG, Zug CHF 500 000 100 %Funken AG, Zofingen CHF 200 000 100 %2. EuropeSiegfried Biologics GmbH, D-Kleinmachnow EUR 69 000 75 %Siegfried Generics (Malta) Ltd., Valletta EUR 100 000 100 %Siegfried Deutschland Holding GmbH, EUR 1 790 000 100 %Bad SäckingenSidroga GmbH, Bad Säckingen EUR 256 000 25 % 75 % held by SiegfriedDeutschland Holding GmbHSiegfried Immobilien GmbH, Bad Säckingen EUR 52 000 100 % held by SiegfriedDeutschland Holding GmbHSiegfried B.V., Amsterdam EUR 80 000 100 % Paid-in nominal capital:NLG 35 000 (20 %)3. North and Central AmericaSiegfried (USA), Inc., Pennsville USD 500 000 100 %Atlantis SA, Mexico MXN 3 000 000 20 % Not consolidatedSidroga Inc., West Palm Beach CHF 39 236 100 % In liquidation4. AsiaSCI Pharmtech Inc., Taiwan TWD 200 000 000 16.66 % Not consolidated 33

4 Shareholders4.1 Major shareholdersThe table on the right describes the shareholder structure ofSiegfried Holding Ltd and lists shareholders reporting holdingsof 3 % or more of the voting rights of Siegfried Holding Ltd.In addition, the shareholdings of the Board of Directors and ofthe Group's management are shown.4.2 CrossholdingsThe Siegfried Group has not entered into any crossholdings withother companies involving capital or voting.Together as a group, the Camellia Group and the Siegfried Shareholders’ Grouphave granted each other the right of first refusal relative to the sale of shares heldby them.1By its own account, Tweedy, Browne LLC, New York holds 10.27 % of the sharesof Siegfried Holding Ltd. 3 % of these shares are recorded in the share register asvoting shares. The remaining shares, as far as they are registered, have no votingrights.2This item consists of the following funds: CSAM Funds for CSIMF, CSAM Fundsfor CS Equity, CSAM Funds for CSSP, CSAM Funds for CSIF, CSAM Funds for CSEF.3 % of these shares are recorded in the share register as voting shares, theremaining share have no voting rights.3Not including shares held by Bernard A. Siegfried, which are included in the item«Siegfried Shareholders' Group».Shareholder structureShares held asShares held asShareholder of 31.12.2004 in % of 31.12.2003 in %with holdings over 3 %Camellia Group 933 680 33.35 933 680 33.35(consisting of CamelliaHolding AG, Glarus;Linton Park Plc, Linton;Affish Ltd, Linton)Siegfried Shareholders’ 183 243 6.54 206 305 7.36Group (descendants of-Dr. h.c. Hans Siegfriedand Sigamed AG, Zug)Tweedy, Browne, New York 1 287 532 10.27 175 693 6.27CS Asset Management Funds 2 90 373 3.23 - -Total 1 494 828 53.39 1 315 678 46.98Board of Directors and Group ManagementBoard of Directors 3 18 440 0.66 9 180 0.34Group Management 950 0.03 950 0.03Total 19 390 0.69 10 130 0.37OtherPublic shareholders 1 264 936 45.18 1 473 860 52.64Shares held by 20 846 0.74 332 0.01Siegfried Holding AGTotal 1 285 782 46.92 1 474 192 52.65Grand Total 2 800 000 100.00 2 800 000 100.0034

5 Capital structure5.1 CapitalThe share capital of Siegfried Holding is CHF 5 600 000 and isdivided into 2 800 000 fully paid-up registered shares with a parvalue of CHF 2 each.5.2 Changes in capital during the past three reportingyearsThe General Meeting of Shareholders of May 17, 2002 approvedthe par value repayment of CHF 20 per share instead of adividend and then a share split of 1 to 10.Share capital decreased correspondingly from CHF 11 200 000to CHF 5 600 000.6 Board of DirectorsThe tasks of the Board of Directors are governed by law and areset forth in the statutes of the Siegfried Holding Ltd andcompany regulations of the Siegfried Group.6.1 Members of the Board of DirectorsThe Board of Directors of Siegfried Holding Ltd comprises sixpersons. None of the members are executive members.The members of the Board of Directors have no significantbusiness relationships with Siegfried Holding Ltd or the SiegfriedGroup.35Fine milling of a coarse-grained active ingredient.

ProfilesThe following table gives information about the name, age,position, entry and duration of term in office of the members ofthe Board of Directors:Name Birthyear Position Started Elected untilMarkus Altwegg 1941 Chairman, 2002 2005*non-executiveThomas Staehelin 1947 Vice Chairman, 1991 2006*non-executiveBernard A. Siegfried 1934 Honorary Chairman 1977 2007*and Member,non-executivePeter Arbenz 1937 Member, 1993 2005*non-executiveSusy Brüschweiler 1947 Member, 1999 2005*non-executiveFelix Gutzwiller 1948 Member, 1999 2005*non-executiveSecretary to the Board of DirectorsPeter A. Gehler 1958 2000* nominated for reelection at the General Meeting 2005

6.2 ProfilesDr. Markus AltweggChairmanMarkus Altwegg (1941) was appointed to the Board ofSiegfried Holding Ltd in 2002 and appointed Chairman in 2003.He was responsible for the worldwide operations of RocheGroup’s Vitamin & Fine Chemicals Division from 1999 to 2003,until his retirement. Prior to that he held various positions indifferent departments at Roche and was appointed to theExecutive Committee in 1986.Markus Altwegg holds a degree in economics from BaselUniversity. He serves on the board of F. Hoffmann-La Roche AGand is a member of the competency advisory board of theEnergiedienst Holding AG. Furthermore, he is a member ofnumerous industry associations and scientific and charityorganizations. He is on the board of the Swiss ChemicalIndustry Association (SGCI), and the Basel Chambers ofCommerce (where he also serves on the managementcommittee), board member of the Kunstmuseum BaselFoundation, and a member of the Honorary Committee of theJohns Hopkins Bloomberg School of Public Health, Baltimore(USA).Dr. Thomas StaehelinVice ChairmanThomas Staehelin (1947) was appointed vice chairman ofSiegfried Holding Ltd in 1999; prior to that he served as thecompany’s chairman from 1991 and 1998. Thomas Staehelin isa partner in Fromer, Schultheiss und Staehelin, a law firm inBasel. As a lawyer, he specializes in tax, corporate, contract andcompany law.Thomas Staehelin is president of the Basel Chambers ofCommerce and a board member of the Swiss BusinessFederation (economiesuisse). He is a member of the board ofthe Association of Private Joint Stock Companies, is a memberof the Canton Basel City Tax Appeal Tribunal and a member ofthe Expert Committee on Financial Reporting (SWISS GAAPFER). Thomas Staehelin serves on the board of directors of thefollowing companies: chairman of Swissport International AGand of the Rothornbahn und Scalottas AG, board member ofKühne & Nagel International AG, Lantal Textiles, VeillonImmobilière SA, JRG Gunzenhauser AG and Inficon Holding AG,where he also chairs the auditing committee.Thomas Staehelin is Swiss citizen.Markus Altwegg is Swiss citizen.37

Dr. Bernard A. SiegfriedHonorary ChairmanBernard A. Siegfried (1934) was chairman of Siegfried HoldingLtd from 1998 to 2003. After furthering his professionaldevelopment in Mexico and the USA, he joined the familyownedcompany in 1967. In 1977 Bernard A. Siegfried wasappointed Chief Executive Officer, and on 1 January 2001 hewithdrew from all operative functions. In recognition of hisservices to the company, the Board of Directors appointed himHonorary Chairman in 2003. He continues as a regular memberof the Board of Directors.Bernard A. Siegfried holds a degree in economics from theUniversity of St. Gallen in Switzerland. He is a member of theboard of directors of Linton Park Plc.Bernard A. Siegfried is Swiss citizen.Peter ArbenzPeter Arbenz (1937) was appointed to the board of SiegfriedHolding Ltd in 1993. The former head of the Federal Office forRefugees established his own consulting company for strategydevelopment and corporate management in Winterthur in1993. Peter Arbenz is a graduate of the University of St. Galland the London School of Economics.A member of several boards of directors, he is chairman of ErniLicht-Technik AG; Parkhaus AG Winterthur; and Swiba AG. Heis a member of the board of Top Fifty AG, president of Helvetas,the Swiss Organization for International Cooperation, and onthe foundation board of the «Jungfrau-Aletsch-BietschhornUNESCO World Cultural Heritage» Foundation.Peter Arbenz is a Swiss citizen.38

Susy BrüschweilerSusy Brüschweiler (1947) was appointed to the board ofSiegfried Holding Ltd in 1999. A trained nurse, she continuedher education at the University of Neuchâtel, studying economicsand business management. From 1986 to 1990 shedirected the Bois-Cerf Nursing School in Lausanne, Switzerland;and from 1990 to 1994 she was headmistress of the School forNursing Management in Aarau, Switzerland. In 1995 she joinedthe former SV-Service (market leader in Swiss catering services)as CEO, and under her management the association wastransformed into the SV GROUP Inc., which she heads as CEOtoday.Susy Brüschweiler works with the International Committee ofthe Red Cross (ICRC). Furthermore, she is a member of theboards of Schweizerische Mobiliar Genossenschaft (insurancecompany) and Movis AG. She serves on the Credit Suisse Groupadvisory board, and on the board of the Swiss Employer’sAssociation.Prof. Dr. med. Felix Gutzwiller MDFelix Gutzwiller (1948) joined the board of Siegfried Holding Ltdin 1999. Since 1992 he is a professor and preventive medicinedepartment head at the University of Zurich. In 1999 FelixGutzwiller was elected to the Swiss National Assembly andappointed deputy chairman of the Free Democratic Party ofSwitzerland in 2002.Felix Gutzwiller completed his studies at the universities ofBasel, Harvard, and Johns Hopkins (USA).In addition to Siegfried Holding Ltd, Felix Gutzwiller is also onthe boards of Rahn AG, Hirslanden Holding AG, Bank HofmannAG and Osiris Therapeutics, Inc. He serves on the advisory boardof the Credit Suisse Group and is also on the board of trusteesof numerous charity, scientific and public health foundations.Felix Gutzwiller is a colonel in the Swiss Army.Felix Gutzwiller is Swiss citizen.Susy Brüschweiler is Swiss citizen.39

6.3 Linking directoratesBernard A. Siegfried is member of the Board of Directors ofLinton Park Plc. Since 2003 he represents the Camellia Groupand the Siegfried family on the Board of Directors of SiegfriedHolding Ltd.There is no other mutual representation between the boards ofSiegfried Holding Ltd and those of other listed companies.6.4 Election and period of officeThe Board of Directors of Siegfried Holding Ltd is elected by theGeneral Meeting of Shareholders and subsequently constitutesitself. Members of the board are elected for a period of threeyears and can be reelected. According to organizational regulations,a member must retire from the Board of Directors at theGeneral Meeting of Shareholders following his or her 68 thbirthday. A special ruling can be made for the chairperson orthe honorary chairperson.6.5 Internal organizationThe Board of Directors is responsible for supervision of theGroup and the Divisions. It determines group strategy, theallocation of resources and the structure of the group. It is alsoresponsible for setting the organizational structure, accounting,financial control, and financial planning. To the extent it doesnot exercise these duties itself or delegate them to thechairperson of the Board of Directors, the Board delegatesmanagement of the business to the Division managers and tothe CFO of the Siegfried Group. They are responsible formanagement of the two Divisions, for the rendering ofaccounts and controlling, and for all matters not otherwiserelegated to another company body by law, statutes ororganizational regulations.Decisions are made by the entire Board of Directors. Fourcommittees assist them:– Audit and Finance– Human Resources– Nomination & Compensation– Products & Market40The milled ingredient is homogenized in the mixer.

The Board of Directors met during the business year for eightregular sessions and a strategy seminar. The committees eachmet twice, and the Audit and Finance committee met threetimes.The following table shows the composition of the BoardsubcommitteesSubcommittee Chair MembersAudit and Finance Thomas Staehelin Susy BrüschweilerHuman Resources Susy Brüschweiler Peter ArbenzNomination & Compensation Markus Altwegg Thomas StaehelinProducts & Market Peter Arbenz Felix Gutzwiller6.6 Management information and control instrumentsInformation is based on monthly reporting that is structured asfollows: results for the Group, the Divisions, the business areasand the locations are presented in detail and compared with thebudget and the previous year's results – including a resultsforecast for the entire year. The monthly comments focus onany deviations from plan and important business incidents.A fully consolidated financial statement is prepared quarterly.A mid-range plan outlines the next five years.The results are discussed with the Division CEOs at the Board ofDirectors meetings41Ausdruck eines Chromatogramms:das Ergebnis einer der Analysemethoden.

7 Group ManagementThe CEOs of the Siegfried and Sidroga Division are responsiblefor managing the operations and performance of the Group'scompanies within their Divisions. Subject to the competenciesand instructions of the Board of Directors and/or its chairperson,the CEOs report to the Board of Directors and are responsiblefor implementing and achieving their corporate objectives andfor management and control of their Group Divisions andsubsidiary companies (with responsibility for earnings and thebalance sheet).The duties of the Chief Financial Officer are the same within hisarea of responsibility as those of a Divisional CEO, particularlyfor the operation of accounting, controlling, and reportingfunctions and as treasurer at the Group level.The powers and tasks of the two CEOs and of the CFO are setforth in detail in the organizational regulations of the SiegfriedGroup.7.1 Members of the Group ManagementName Birthyear Position StartPeter Degen 1955 CEO Sidroga Division 2000Douglas C. Günthardt 1959 CEO Siegfried Division 1996Richard Schindler 1965 CFO Siegfried Group 2000Douglas C. GünthardtChief Executive Officer, Siegfried DivisionDouglas C. Günthardt (1959) has served as CEO of the SiegfriedDivision since 2000. After joining the company in 1996, he wasChief Financial Officer for four years. Prior to joining Siegfried,he worked for different international companies in finance.Douglas Günthardt completed studies in applied mathematics atHarvard University followed by a Masters of BusinessAdministration degree in finance and strategic planning fromStanford University in California (USA) in 1984.He is a member of the board of directors of the SchweizerischeGesellschaft für Chemische Industrie (SGCI).42

Peter DegenChief Executive Officer, Sidroga DivisionPeter Degen (1956) joined the company in 2000 and hasdirected the Sidroga Division since January 2001. Previously, heserved in different positions in Switzerland and abroad forRoche and later directed the pharmaceutical business ofDegussa in Latin America.7.2 Management contractsSiegfried Holding Ltd and the companies of the Group have notconcluded management contracts with any third parties.Peter Degen completed a business studies program at theFachhochschule in Basel, specializing in marketing.He earned a (Swiss) federal diploma as controller.Dr. Richard SchindlerChief Financial Officer, Siegfried GroupRichard Schindler (1965) was appointed Chief Financial Officerof Siegfried Group in 2000. During the previous ten years heworked as a manager with PricewaterhouseCoopers in auditingand then in corporate finance.Richard Schindler completed studies in economics at theUniversity of Zürich and subsequently completed a doctoraldegree there. He is a Swiss Certified Accountant and a lecturerat the University of Zürich on company valuation.43At the control panel, Marko Milanovic moves theend product automatically from the system directlyinto the containers, where it is weighed.

448 Compensation, Investments and Loans8.1 Contents and process used to set compensation andparticipationThe members of the Board of Directors are compensated at thelevel set by the Board of Directors as mandated by the Board’sNomination and Compensation committee.Siegfried Group managers receive compensation based onperformance. The variable component ranges from 5 % to 60 %of the base salary. The actual component depends on theachievement of business targets within the particular area ofresponsibility and individual objectives. Achievement of thebusiness targets influences the variable component by a factor of0 (worst case) and up to a factor of 1.5 (best case). The factorsfor personal target attainment lie between 0 and 1.25. At therequest of the Nomination and Compensation committee, theBoard of Directors determines the compensation for both CEOsand the corporate management.8.2 Compensation of current members of governingbodiesMembers of the Board of Directors are paid CHF 50 000, theChairman CHF 170 000 and the Vice Chairman CHF 70 000per year. The entire compensation paid to the members of theBoard of Directors during the 2004 business year totaledCHF 497 200 (including all employer contributions to pensionsand excluding employer contributions to mandatory statepensions).The total amount (including all contributions to pension funds,excluding contributions to OASI) paid to the three members ofGroup Management during the year under review amounted toCHF 1 357 760.8.3 Compensation of former members of governingbodiesDuring the 2004 business year, no compensation was paid toformer members of governing bodies.8.4 Stock option planIn the spring of 2001 the Siegfried Group introduced an optionplan to permit the approximately 140 members of themanagement and Board of Directors to draw part of theirbonus in the form of options on Siegfried Holding Ltd stock.The claim can either be converted at par value into shares or,under certain conditions, into cash. The subscription rights aresubject to a lock-up period of three years expiring on 21 April2004 and a strike price of CHF 150. The management optionplan for 2001 was used by 85 authorized persons for a total of61 480 options. Sigamed AG placed 62 700 of its own shares inreserve as security.Participation in the option plan was voluntary. There is no newstock option plan in place.Wirkstoffe, bereit für die FreigabeanlalyteikIngredients, ready for the final check.

8.5 Distribution of shares in the 2004 business yearDuring the 2004 business year, no shares of Siegfried HoldingLtd were allotted to members of the Board of Directors or topersons associated with them.8.6 Stock ownershipSee table under paragraph 4.1.8.7 Additional fees and compensationDuring the 2004 business year, members of the Board ofDirectors and corporate management and/or personsassociated with them have received no fees or othercompensation for additional services to Siegfried Holding Ltdor to any of its Group companies reaching or exceeding halfof the regular compensation paid.8.8 Loans to corporate bodiesMembers of the Board of Directors or of CorporateManagement and/or persons closely associated with themare/were not previously involved in business activities beyondthe usual activities of Siegfried Holding Ltd or any of its Groupcompanies or in other unusual business activities that areessential to Siegfried Holding Ltd during the current or theprevious business year.As of 31 December 2004, Siegfried Holding Ltd and its Groupcompanies have provided no guarantees, loans, advances orloans to members of the Board of Directors or to CorporateManagement or to any person associated with them.8.9 Highest total compensationThe highest compensation for a Board member wasCHF 170 000 paid to Markus Altwegg.45

9 Participatory Rights of Shareholders9.1 Voting rights and proxyEach voting share registered at the General Meeting ofShareholders of Siegfried Holding Ltd is accorded one vote.Registered shareholders can choose to be represented by a legalrepresentative or by another registered shareholder. Therepresentative requires written power of attorney.9.2 Statutory quorumsDecisions are made at the General Meeting of Shareholders byabsolute majority of the shares voted, unless otherwise requiredby law or the statutes. In a tie vote, the chairperson casts thedeciding vote.At least a two-thirds majority of the shares voted and anabsolute majority of the share value is required for decisionsconcerning:– Amendment of the corporate purpose– Introduction of voting shares– Amendment of the provisions concerning the transferabilityof registered shares– Conversion of registered shares into bearer shares– An authorized or conditional increase in capital– An increase in capital from shareholder's equity, from anon-cash capital contribution or asset acquisition or from thegranting of special benefits– Restriction or cancellation of stock options– Transfer of the company's legal place of business– Dissolution of the company without liquidation9.3 Calling a general meeting of shareholders and settingthe agendaThe calling of a general meeting of shareholders and setting ofthe agenda are subject to the applicable legal regulations.46

9.4 Entries in the share register and invitation to theGeneral Meeting of Shareholders on April 15, 2005Shareholders with voting rights and recorded in the shareregister on April 8, 2005, will receive an invitation to the GeneralMeeting of Shareholders on April 15, 2005, together with theproposals of the Board of Directors. Upon return receipt of theresponse form, a ticket of admission together with the votingmaterials will be sent to the shareholder. No entries will be madeinto the share register from April 8, 2005 until April 22, 2005.Shareholders who sell their shares prior to the General Meetingof Shareholders are not entitled to vote.9.5 Limitations on transferabilityOnly persons entered in the share register can exercise the rightto vote and the privileges related thereto. Registration is subjectto the following statutory restrictions:– Registration requests are considered granted if they havenot been denied by the company within 20 days after receipt.– Petitioners must declare in writing that they have acquired theshares in their own name and account.– The Board of Directors must deny the request if the petitioneralone or together with associated persons would control morethan 3 % of the voting rights after approval.– Upon presentation of relevant reasons, the Board of Directorsmay approve exceptions.– To the extent that federal regulations require that the companybe controlled by Swiss citizens, the Board of Directorsmust deny the request if the registered foreigner alreadycontrols over 10 % of the voting rights or would do so afterregistration.No exceptions were granted during the reporting year.47Cleaning and recycling the steeldrums for production.

10 Control changes and defensive measures10.1 Duty to offerThere are no statutory regulations regarding opting out oropting up (Art. 22 BEHG).10.2 Control change clausesThere are no control change clauses.11 Auditors11.1 Period of the contract and length of service of thelead auditorPricewaterhouseCoopers AG (PwC), Basel (or predecessororganizations) has been the auditor of Siegfried Holding Ltdsince 1920 and group auditor of the Siegfried Group since1992. The lead auditor, Dr. M. Jeger, carried out the audits ofboth mandates for the second time in the business year 2004.11.2 Audit fees and additional feesPricewaterhouseCoopers billed the Siegfried Group CHF 247 000during the 2004 business year for services in connection withauditing of the financial statement of Siegfried Holding Ltdand of the Group companies and the consolidated financialstatement of the Siegfried Group and for related services. Inaddition, PricewaterhouseCoopers was paid CHF 111 236 fortax accounting and other services.11.3 Supervision and control instruments related to theauditPerformance, remuneration and independence are discussedand assessed annually by the Board of Directors' Audit andFinance committee, which submits a request to the Boardregarding retention or change of the Group auditors and thecompany auditor. Each year the audit report is reviewed withthe external auditors.48

12 Information policyThe Siegfried Group is committed to a policy of an open andcontiuous information. The media, financial analysts and otherinterest groups are kept up to date on important developmentsand events. Shareholders are informed semi-annually about thestate of the business and receive the annual report and thesemi-annual report upon request. All reports, communicationswith the media, other relevant data, and current stock price canbe found at www.siegfried-holding.com. A news conference isheld annually for the media and financial analysts.Siegfried Holding strictly observes the SWX Swiss Exchange'sduty of disclosure (ad hoc notification) regarding events thatcould affect the stock price.49The end product ist packed, loadedand delivered to the customer.

Financial Statements Siegfried Group51

Consolidated Balance SheetDecember 31In 1 000 CHFAssets Notes* 2004 2003Non-current assetsProperty, plant and equipment 2 363 673 378 601Intangible assets 3 5 552 6 067Financial assets 4 4 488 4 507Deferred tax assets 5 10 563 15 423Current assets384 276 404 598Inventories 6 133 585 151 773Trade receivables 7 40 071 58 136Other current assets 8, 9 14 987 15 685Securities 225 245Cash 10 12 680 14 441201 548 240 280Total assets 585 824 644 878Liabilities and shareholders’ equityEquityShare capital 11 5 600 5 600Reserves and retained earnings 393 194 403 481Treasury shares 12 - 8 818 - 9 734389 976 399 347Minority interests 180 43252LiabilitiesNon-current liabilitiesLong-term financial liabilities 13 93 013 93 220Long-term provisions 14 20 645 19 712Deferred income tax liabilities 5 23 651 30 053Long-term pension liabilities 20 4 190 4 319141 499 147 304Current liabilitiesAdvance payments 805 -Trade payables 16 395 17 209Short-term financial liabilities 15 207 35 287Other short-term liabilities 16 28 059 35 866Short-term provisions 14 8 703 9 43354 169 97 795Total liabilities 195 668 245 099Total liabilities and shareholders’ equity 585 824 644 878* The notes on pages 55 to 67 form an integral part of the Group Financial Statements.

Consolidated Income Statementfor the year ended December 31In 1 000 CHFNotes 1 2004 2003Net sales 17 321 361 366 269Cost of goods sold - 221 501 - 240 533Gross profit 99 860 125 736Other operating income 18 4 822 13 143Marketing and sales - 28 882 - 26 814Research and development - 23 035 - 20 727Administration, general overhead and exceptional items 21 - 29 555 - 28 406Operating income 23 210 62 932Financial expenses, net 22 - 4 438 - 3 713Income before taxes 18 772 59 219Income taxes 5 - 2 379 - 5 669Income before minority interests 16 393 53 550Minority interests 0 - 212Net income 16 393 53 338Earnings per share 23 6.01 19.54Diluted earnings per share 23 6.01 19.541The notes on pages 55 to 67 form an integral part of the Group Financial Statements.Shareholders’ EquityIn Mio. CHFCapitalFluctuations in va-Treasury surplus and Translation- lue of financial RetainedShare capital shares legal reserves 1 adjustments 1 instruments 1 earnings 1 TotalAt Dec. 31, 2002 5.6 - 13.1 18.3 - 14.6 1.8 369.7 367.7Dividend 2002 - 14.0 - 14.0Appropriation of earnings 1.6 - 1.6 0.0Net income 2003 53.3 53.3Fair value adjustments on financial instruments 0.4 0.4Change in treasury shares 3.4 0.5 3.9Translation adjustment - 12.0 - 12.0At Dec. 31, 2003 5.6 - 9.7 19.9 - 26.6 2.2 407.9 399.3Dividend 2003 - 13.9 - 13.9Appropriation of earnings 0.1 - 0.1 0.0Net income 2004 16.4 16.4Fair value adjustments on financial instruments 2 - 0.2 - 0.2Change in treasury shares 0.9 - 0.6 0.3Translation adjustment - 11.9 - 11.9At Dec. 31, 2004 5.6 - 8.8 20.0 - 38.5 2.0 409.7 390.05311 In the Group’s consolidated balance sheet these items are combined as reserves and retained earnings.2CHF 0.2 mio. is related to cash flow hedges and CHF - 0.4 mio. to fair value adjustments on available-for-sale financial instruments.

Consolidated Cash Flow Statementfor the year ended December 31In 1 000 CHFNotes* 2004 2003Net income 16 393 53 338Adjustment for: Depreciation and impairment 34 984 31 381Change in provisions and other non cash items 2 838 - 2 413Minority interests - 212Foreign exchange gain and gain on securities 908 284Interest expense (net) 3 308 3 434Net loss on disposal of fixed assets and intangibles 215 437Income taxes 2 379 5 669Payments out of provisions - 4 641 - 3 535Change in trade and other current assets receivables 18 759 - 26 569Change in inventories 16 479 - 12 044Change in trade payables 72 - 14 735Change in other payables - 13 149 5 640Interest paid - 3 854 - 3 727Income taxes paid - 2 513 - 10 617Cash flow from operating activities 72 178 26 75554Purchase of property, plant and equipment - 26 339 - 68 759Proceeds from sales of fixed assets and investments 739 11Purchase of intangible assets - 195 - 82Proceeds from sales of intangible assets - 500Acquisitions of subsidiaries - - 4 148Purchase/sale of securities 20 363Change in financial assets - 407 144Interest and dividends received 757 1 175Cash flow from investing activities - 25 425 - 70 796Change in short-term interest-bearing liabilities - 35 080 1 693Change in long-term interest-bearing liabilities - 203 35 858Purchase/sale of treasury shares 629 3 410Dividend paid - 13 900 - 13 985Cash flow from financing activities - 48 554 26 976Net effect of currency translation on cash 40 - 70Net increase / (decrease) in cash - 1 761 - 17 135Cash beginning of the year 14 441 31 576Cash end of the year 12 680 14 441* The notes on pages 55 to 67 form an integral part of the Group Financial Statements.

Summary of significant accounting policiesAccounting policies The consolidated financial statementscomply with the International Financial Reporting Standards(IFRS) formulated by the International Accounting StandardsBoard (IASB) and with International Accounting Standards (IAS)and interpretations formulated by its predecessor organizationthe International Accounting Standards Committee (IASC), aswell as with the following significant accounting policies. Theconsolidated financial statements have been approved by theboard of directors on March 7, 2005.Revised accounting standards As of January 1, 2004, theSiegfried Group has revised its Accounting Policy for IntangibleAssets and for Impairment of Assets (IFRS 3, IAS 36 / 38 rev.).Since the beginning of 2004 Goodwill from acquisitions andIntangible Assets with indefinite useful lives are no longeramortized. In each reporting period, theses items are reviewedfor impairment. Following the current policy, the value of theseitems is additionally assessed when, based on certain events orchanged circumstances, there are indications that these assetsmay be impaired.Reclassification Certain prior year balances have beenreclassified to conform with current year presentation. Thereclassifications apply to Property, Plant and Equipment,Intangible Assets, Securities, Financial Assets, Provisions and toShareholders' Equity.Method and scope of consolidation The consolidatedfinancial statements include the annual accounts of all Swissand foreign companies in which Siegfried Holding Ltd. has adirect or indirect interest of more than 50 %. Assets and liabilities,revenues and expenditures are included in full according tothe full consolidation method. Minority shareholders’ interestsin the net assets and income of consolidated companies are recordedseparately in the consolidated balance sheet and in theconsolidated profit and loss account.Investments in associated companies are accounted for by theequity method. These are companies over which the Groupexercises significant influence, but which it does not control.This is normally the case when the Group owns more than20 % of the voting rights of the company.Group companies acquired or divested in the course of the yearunder review are included in or excluded from the consolidatedaccounts as of the month in which they were purchased or sold.The individual financial statements on which the consolidatedaccounts are based are drawn up in accordance withaccounting principles applied uniformly throughout the Group.All intragroup accounts receivable and payable, expenses andincome, and intercompany profits, are eliminated.Foreign currency translation The consolidated financialstatements are denominated in Swiss francs. Balance sheetsstated in foreign currencies are translated at the year-endexchange rates, the corresponding income statement at thesales-weighted average annual exchange rates. The exchangerate differences arising from this are offset directly againstconsolidated shareholders’ equity. Exchange differences arisingon intercompany loans that, in substance, form part of the netinvestment in that subsidiary are offset against consolidatedshareholders' equity.This is usually the case if the settlement of these loans is neitherplanned nor likely to occur in the foreseeable future. Otherexchange rate differences are included in the income statement.The exchange rates applied to the Group's most importantforeign currencies are as follows:Balance sheetChangeYear-end rates 2004 2003 in %1 USD 1.132 1.245 - 9.11 EUR 1.543 1.559 - 1.0Income statementChangeAverage rates 2004 2003 in %1 USD 1.2461 1.3457 - 7.41 EUR 1.5433 1.5232 1.3Financial assets Financial assets are classified into thefollowing categories:– Financial investments «held for trading». These are acquiredprincipally for the purpose of generating a profit fromshort-term fluctuations in price.– Financial investments held to maturity. These are investmentswith a fixed term, which the company has the positive intentand ability to hold to maturity.– Financial instruments originated by the company. Thesecomprise loans and receivables created by the company.– Financial instruments available-for-sale, which include allfinancial instruments not assignable to one of the abovementionedcategories.All financial assets are initially recorded at cost, including transactioncosts. All purchases and sales of financial assets are recognizedon the settlement date. Financial assets held for tradingare valued at their market value. Any value adjustmentsare recorded in financial income/expense of the reportingperiod. Available-for-sale financial assets are subsequently carriedat fair value, with all unrealized changes in fair value recordedin equity. When the available-for-sale financial assets aresold, impaired or otherwise disposed of, the cumulative gainsand losses previously recognized in equity are included in financialincome/expense for the current period.At each balance sheet date financial assets are assessed forpossible impairment. If the carrying value exceeds therecoverable amount, the asset is depreciated (recognized as animpairment loss) to the recoverable amount calculated on thebasis of discounted future cash flows.55

56Financial risk management Financial risk management withinthe Group is governed by policies and guidelines approved bysenior management. These policies cover foreign exchange risk,interest rate risk, market risk, credit risk and liquidity risk. Grouppolicies also cover the investment of excess funds and theraising of debt. Both, the investment of excess funds and theraising of short- and long-term debt are centralized.Foreign exchange risk The Group operates world-wide and isexposed to movements in foreign currencies affecting its netincome and financial position, as expressed in Swiss francs. TheGroup continues to monitor its currency exposures, and whenappropriate, uses forward contracts to hedge the foreignexchange risks.Interest rate risk Interest rate risk arises from movements ininterest rates, which could have adverse effects on the Group'snet income or financial position. In addition, interest ratemovements can affect the market value of certain financialassets, liabilities and instruments as described in the followingsection on market risk. Within the Group the interest rate riskmanagement is centralized. Financial instruments such asinterest rate swaps are used to partially hedge the interest raterisk.Market risk Changes in the market value of financial assets,liabilities, or financial instruments can affect the capital orincome of the Group. Financial long-term assets such as equityinvestments are held for strategic reasons and securities are heldfor fund management purposes. Securities are held for cashmanagement purposes. The risk of loss in value is minimized byanalysis before purchase and by continuously monitoring theperformance and risks of the investments.Credit risk Credit risk arises from the possibility that thecounterparty to a transaction may be unable or unwilling tomeet their obligations causing a financial loss to the Group.Trade receivables are subject to an active risk managementfocusing on the monitoring and controlling of credit risks.Credit risks on other financial assets are controlled by a policyof limiting the exposure to high quality counterparties, by ongoingreview of credit ratings and by limiting individualaggregate balances.Liquidity risk Group companies need to have sufficientavailability of cash to meet their obligations. The corporatefinance department manages the raising of short- and longtermdebt. Besides the financing of operating activities, thestrong creditworthiness of the Group allows the raising offunds for financing activities at favourable terms.Derivative financial instruments To manage currency andinterest exposures, the Group uses forward exchange contractsas well as interest rate and currency swaps. Derivative financialinstruments are first recognized at cost and subsequentlyremeasured to their fair value. For qualifying cash flow hedgesthe portion of fair value changes that is determined to be aneffective hedge is recognized directly in equity, the remainingineffective portion is reported in the financial result. Gains andlosses on cash flow hedges that were initially recognized directlyin equity are transferred to the income statement in the periodwhen the hedged transaction is recognized in the incomestatement. Any changes in the fair value of other financialinstruments are recognized in the income statement of thereporting period.Fixed assets Fixed assets are valued at acquisition orproduction cost less accumulated depreciation. Land is notdepreciated. Depreciation is charged on a straight-line basisover the following estimated useful life of the assets:BuildingsProperty, plant and equipmentFurniture, fixtures and vehiclesEDP equipment10–45 years10–15 years4–10 years3–5 yearsFixed assets are excluded from the balance sheet on retirementor when no further useful value can be expected. Gains orlosses arising from this are taken to the income statement. Indetermining the recoverable amount of items of property, plantand equipment, expected future cash flows are discounted totheir present value. Maintenance and repair costs arerecognized in the income statement. No borrowing costs arecapitalized in property, plant and equipment.Intangible assets Intangible assets consist of goodwill fromacquisitions as well as licences, patents, software, trademarksand similar rights purchased from third parties. Goodwill isrecorded as the excess of the cost of acquisition over theGroup's interest in fair value of identifiable net assets acquired.Patents, licences, trademarks and other intangible assets areinitially recorded at fair value.As of January 1, 2004, the Siegfried Group has revised itsAccounting Policy for Intangible Assets (IFRS 3) and forImpairment of Assets (IAS 36 / 38 rev.). Since the beginning of2004 Goodwill from acquisitions and Intangible Assets withindefinite useful lives are no longer amortized. These items arereviewed for impairment in each reporting period. At presentonly Goodwill is designated as an intangible asset with anindefinite useful live.All other intangible assets are regarded as having a finite usefullive and are amortized on a straight-line basis over theirestimated economic or legal live, whichever is shorter:Patents, licences, trademarks and otherIntangible AssetsSoftwareThe shorter of economic or legal live,up to a maximum of 20 years3–5 yearsThe value of these items is additionally assessed when, based oncertain events or changed circumstances, there are indicationsthat these assets may be impaired.

Impairment of assets When, based on certain events orchanged circumstances, there are indications that an asset maybe impaired, an assessment of the value of fixed assets andother non-current assets, including goodwill and otherintangible assets, will be performed. When there is evidencethat the recoverable amount of an asset is less than its carryingamount, then the carrying amount is reduced to the amountconsidered being recoverable based on the present value ofestimated future cash flows. This reduction is reported as animpairment loss. When an impairment loss arises, the useful lifeof the asset in question is reviewed and, if necessary, the futuredepreciation/amortisation charge is accelerated.Inventories Inventories are included in the balance sheet atthe lower of acquisition/production cost or net realizable value.Production costs comprise all costs of manufacture including anappropriate share of production overheads. Costs are assignedto inventory on the basis of the first-in first-out method.Appropriate valuation allowances are made for obsolete andslow-moving inventory items. Intercompany profits oninventories of goods produced in the Group are eliminated fromnet income.Trade receivables Trade receivables are included at netrealizable value after deducting allowances for doubtfulaccounts. Allowances relate mainly to overdue receivables.Other current assets Other current assets consist of advancepayments for deliveries of goods, prepayments and accruedincome and other amounts receivable. They are recorded at netrealizable value. Other current assets include also positivereplacement values of derivative financial instruments.Securities Securities include short-term investments as well asshort-term deposits with maturity dates between 3 and 12months. The securities portfolio is included in the balancesheet at market value. Valuation adjustments are included infinancial expenses or financial income of the relevant period.Cash Cash consists of cash, balances held in postal check andbank accounts, and short-term deposits with a maturity of threemonths or less from the date of acquisition. This definition is alsoused for the consolidated cash flow statement.Liabilities All interest-bearing liabilities are recorded underlong-term and short-term liabilities respectively. The long-termliabilities include all liabilities with a duration of more than oneyear. The short-term liabilities include all liabilities with aduration of less than one year including the current portion oflong-term liabilities.Provisions Provisions are calculated according to uniform,consistent operating criteria. They are intended to coveridentifiable risks of loss and payment liabilities. Provisions arerecorded if the Group has a present obligation (legal or constructive)that will result in an outflow of economic resourcesand if a reasonable estimate of that obligation can be made.Possible obligations that are dependent on future events, orwhere no reasonable estimate of the obligation can be made,are not recorded, but disclosed as contingent liabilities. 57

Taxes Provisions are made for all tax liabilities as at the balancesheet date, irrespective of the date on which they are payable.Provisions are made for deferred taxes on all temporary differencesbetween amounts determined for tax purposes andthose reported for Group accounting purposes at the actuallocal tax rates likely to be applied (comprehensive liabilitymethod). These differences are mainly due to the application ofthe reducing-balance method of depreciation allowed fortaxation purposes, and to the formation of inventory reserves.Deferred tax assets are recognized when it is probable thattaxable profits will be available against which the deferred taxasset can be utilized. Deferred tax liabilities are recognized forall undistributed profits unless it is probable that the temporarydifference will not reverse in the foreseeable future.Employee benefits After retirement, the Group's formeremployees receive pensions in accordance with applicable lawsand customs in the respective countries in which the Groupoperates. The present value of the Group's benefit obligationsand service costs are determined using the methods andassumptions prescribed by the International Financial ReportingStandards. These obligations are covered by retirement fundsand provisions recorded in the balance sheet.shipment. Royalty income is recognized on an accrual basis inaccordance with the economic substance of the agreement andis reported as part of other operating income. Cost of goodssold includes the corresponding direct production costs andrelated production overhead of goods manufactured andservices rendered.Research and development Research and development costsinclude wages and salaries, cost of materials, depreciation offixed assets and overheads. The business activity of SiegfriedGenerics includes the development of generic dossiers for saleto customers. Development costs for generic dossiers are onlycapitalized if several requirements are met. Capitalizeddevelopment costs are regularly tested for impairment. Researchcosts are not capitalized, but charged to the income statementin the period during which they are incurred.Borrowing costs All credit and financing costs are expensed inthe period in which they are incurred.58Revenues, other income and cost of goods sold Salesrepresent amounts received and receivable for goods suppliedto customers after deducting discounts and volume rebates andexcluding sales and value added taxes. Revenue from the sale ofgoods is recognized when the significant risks and rewards ofownership have been transferred to the buyer, usually upon

Notes to the consolidated financial statements1. Consolidated companiesThe consolidation includes the following operating companies:Segment Activity Share capital %Siegfried Ltd, Zofingen (CH) SF D/M/S 20 Mio. CHF 100Siegfried (USA), Inc., Pennsville, NJ, (USA) SF D/M/S 0.5 Mio. USD 100Siegfried Generics International AG, Zofingen (CH) SF S 2 Mio. CHF 100Siegfried Biologics GmbH, Kleinmachnow (D) SF D/M/S 0.1 Mio. EUR 75Sidroga AG, Zofingen (CH) SD S/D 1 Mio. CHF 100Sidroga GmbH, Bad Säckingen (D) SD S/D 0.3 Mio. EUR 100SF: Siegfried, SD: Sidroga,D: Development, M: ManufacturingS: Sales/DistributionIn addition, the consolidation comprises the following companies: Siegfried Holding AG, Zofingen (CH), Siegfried Finance AG,Zofingen (CH), Siegfried Dienste AG, Zofingen (CH), Sigamed AG, Zug (CH), Siegfried Deutschland Holding GmbH, Bad Säckingen(D), Siegfried Immobilien GmbH, Bad Säckingen (D), Siegfried Generics (Malta) Ltd., Valletta (MT), Siegfried BV, Amsterdam (NL),Funken AG, Zofingen (CH).2. Property, plant and equipmentIn 1 000 CHF60Land and Machinery and Leased Assets underbuildings equipment assets construction TotalAt costAt Dec. 31, 2003 164 140 430 035 1 069 53 222 648 466Exchange rate differences - 3 459 - 6 635 - 11 - 87 - 10 192Additions 1 263 3 226 - 21 850 26 339Disposals - 578 - 4 093 - - - 4 671Transfers 2 034 42 665 - - 44 699 -At Dec. 31, 2004 163 400 465 198 1 058 30 286 659 942Accumulated depreciationAt Dec. 31, 2003 71 606 197 542 239 478 269 865Exchange rate differences - 982 - 3 182 - 3 - - 4 167Additions 3 859 28 599 105 - 32 563Impairments - - - 1 724 1 724Disposals - 59 - 3 657 - - - 3 716Transfers 77 401 - - 478 -At Dec. 31, 2004 74 501 219 703 341 1 724 296 269Net book value Dec. 31, 2004 88 899 245 495 717 28 562 363 673Insurance value on Dec. 31, 2003 842 700Insurance value on Dec. 31, 2004 859 163As of December 31, 2004, commitments for the purchase of items of property, plant and equipment amounted to CHF 9.3 mio.(2003: CHF 7.7 mio.).

3. Intangible assetsIn 1 000 CHFAt costLicenses,Patents Goodwill Software Other TotalAt Dec. 31, 2003 1 507 3 115 3 710 41 8 373Exchange rate differences - 3 - - 25 - 1 - 29Additions - 186 9 - 195Transfers - 623 - 623At Dec. 31, 2004 1 504 2 678 3 694 40 7 916Accumulated depreciationAt Dec. 31, 2003 236 623 1 420 27 2 306Exchange rate differences - - - 15 - 1 - 16Additions 198 - 494 5 697Transfers - - 623 - - 623At Dec. 31, 2004 434 0 1 899 31 2 364Net book value Dec. 31, 2004 1 070 2 678 1 795 9 5 552Net book value Dec. 31, 2003 1 271 2 492 2 290 14 6 067Since January 1, 2004, Goodwill from acquisitions is no longer amortized. The amount of accumulated amortization of Goodwillwas deducted from its cost value.4. Financial assetsIn 1 000 CHF 2004 2003Investment in SCI Pharmtech, Inc., Taoyuan, Taiwan 3 894 4 320Burril Life Sciences Capital Fund, San Francisco 594 187Total 4 488 4 5075. Income taxesIn 1 000 CHF 2004 2003Current taxes 5 278 3 894Deferred taxes - 2 899 1 775Total 2 379 5 669Actual (effective) income tax The expected tax expense forthe Siegfried group is calculated by using the local tax rateapplied to the income or loss before taxes of each group company.As a result of internal reorganizations, certain subsidiariesrealized taxable losses in their local accounts as of December 31,2004. Based on an in-depth analysis of the available loss carryforwards,the realized losses were not fully recognized as taxasset.In the previous year, the 16.66 % share in SCI Pharmtech wascarried at cost as no market value was available. After theinitial public offering in January 2004, the investment is carriedat its market value. The carrying amount of Burril Life SciencesCapital Fund corresponds to the present payments. Furtherinvestments of USD 0.975 mio. can be called up by this Fund inthe future.The main elements contributing to the difference between theexpected tax expense and the actual tax expense are:In 1 000 CHF 2004 2003Expected tax expense / (-income) - 3 635 16 080Percent - 19.4 27.2Unrecognized tax losses 7 308 -Different effective tax rates - 1 308Utilization of loss carryforwards - - 9 135Income not taxable - - 496Previous years' and other items 14 - 780Actual tax expense 2 379 5 669Percent 12.7 9.6The deferred tax assets and liabilities in the balance sheet as ofDecember 31, 2004 and 2003 comprise of the following:61In 1 000 CHF 2004 2003Deferred tax assetsTax loss-carry forwards 10 563 15 423Total deferred tax assets 10 563 15 423Deferred tax liabilitiesFixed assets 24 696 24 402Inventory - 398 4 704Provisions 268 1 927Other - 915 - 980Total deferred tax liabilities 23 651 30 053

62Deferred tax assets Deferred tax assets are related to Groupcompanies in the USA and in Germany. The balance was reducedby CHF 4.8 million in 2004 due to the partial utilization of theloss carryforwards and as a result of the decrease in theUSD/CHF exchange rate. The underlying tax losses can beutilized over a period of 15 years or longer.Deferred tax assets not recognized Deferred tax assetsrelating to the carryforward of unused tax losses are recognizedto the extent that it is probable that future taxable profit will beavailable against which the unused tax losses can be utilized.The Group has unrecognized possible tax assets available ofCHF 12.9 million (previous year: CHF 12.6 million). Thereof CHF1.9 million will expire within the next 7 years, the remainingportion of possible tax assets of CHF 11.0 million will expireafter 15 years or later.6. InventoriesIn 1 000 CHF 2004 2003Raw materials 21 355 36 297Work in process 5 761 3 525Finished products and trade merchandise 106 469 111 951Total 133 585 151 773The carrying amount of inventories includes valuationallowances of CHF 6.2 million (2003: CHF 11.5 million) forslow-moving and obsolete inventory items.7. Trade receivablesIn 1 000 CHF 2004 2003Receivables 41 583 58 580Provision for doubtful receivables - 1 512 - 444Total 40 071 58 1368. Other current assetsIn 1 000 CHF Contract Positive Negativevalue market value market valueForeign exchange2004 2003 2004 2003 2004 2003Foreign currency swaps 24 020 24 900 2 442 2 200 - -All currency swaps relate to the hedging of transactions in theyear 2005, they will be settled within the next 12 months. Theyare qualifying as cash flow hedges. The portion of fair valuechanges that is determined to be an effective hedge is recognizeddirectly in equity, the remaining ineffective portion isreported in the financial result. By the use of interest rate swapsthe Group has converted variable interest rate debt in theamount of CHF 55.0 million to fixed interest rate debt (previousyear in the amount of CHF 35.0 million).10. CashLiquid assets of CHF 12.7 million (previous year: 14.4 million)are invested mainly in short-term time deposits with a maturitydate of three months or less from the date of acquisition. Cashand cash equivalents are used for the consolidated cash flowstatement.11. Share capitalAfter a capital reduction and share split in 2002, theshare capital amounts to CHF 5.6 million. It is subdividedinto 2 800 000 registered shares of CHF 2 nominal value each.12. Treasury sharesIn the Group’s consolidated balance sheet, treasury shares aredirectly deducted from equity. As of December 31, 2004, theGroup held 57 632 treasury shares (previous year: 63 842).Details of the composition of share capital and treasury stocktransactions are given in the notes to the financial statements ofSiegfried Holding Ltd (page 73).13. Long-term liabilitiesIn 1 000 CHF 2004 2003Development projects 3 993 4 971Other receivables 3 879 7 907Prepaid expenses and accrued income 4 673 607Derivative financial instruments (see Note 9) 2 442 2 200Total 14 987 15 685In 1 000 CHF 2004 2003Loans from banks 93 000 127 960Liabilities from lease contracts 220 547Subtotal 93 220 128 507Less: current portion of long-term liabilities - 207 - 35 287Total 93 013 93 220Other current assets include receivables related to Value AddedTax of CHF 2.4 million. Prepaid expenses include prepaid insurancepremium and miscellaneous prepayments and accruals.9. Derivative financial instrumentsThe principles of the Group's financial risk management aredescribed in the summary of significant accounting policies.Within the framework of these principles the Group usesderivative financial instruments to hedge foreign exchange andinterest rate risks.Maturity and average interest rates Average interest rate in %In 1 000 CHF 2004 2003 2004 20032004 - 35 287 - 4.82005 207 214 7.1 7.12006 93 013 93 006 2.3 2.0Total 93 220 128 507In 2002 a syndicated bank loan with a credit line of CHF 160million was raised to secure planned capital expenditures andthe financing of expected growth. As of December 31, 2004,CHF 93 million (2003: CHF 93 million) of the credit line hasbeen drawn. The bank credit line will expire on November 30,2006. From the bank loans outside this basket, CHF 35.3 millionwas repaid in 2004.

14. ProvisionsIn 1 000 CHFRestruc- Environ- Project- Patent- Otherturing mental risks risks provisions TotalShort term provisions 6 289 - - 2 414 8 703Long term provisions - 11 207 6 000 - 3 438 20 645Total 6 289 11 207 6 000 - 5 852 29 348Statement of changesAt Dec. 31, 2003 600 12 190 6 000 2 000 8 355 29 145Costs incurred - 2 737 - - - 2 147 - 4 884Addition 10 150 525 - 3 237 13 912Reversal - 1 724 - 1 508 - 2 000 - 3 490 - 8 722Exchange rate differences - 103 - 103At Dec. 31, 2004 6 289 11 207 6 000 - 5 852 29 348Provisions for restructuring are discussed in note 21.Environmental The Group produces chemicals at various locations. As part of the manufacturing process, undesirable incidentsmay arise that result in an obligation to remediate detrimental effects on the environment. Such obligations are recognized in theperiod when the obligation becomes obvious. A provision is recorded if the obligation will result in an outflow of economicresources in the medium term and if a reasonable estimate of that obligation can be made. In connection with plannedconstruction projects environmental reviews were performed. In total, obligations for environmental remediation of CHF 11.2million were provided for. The planned construction projects were not released in 2004, but are still expected to occur within thenext 5 years. Management reviews annually the adequacy of the recorded provisions based on changes in legal requirements or onchanges in planned construction projects. The obligations are discounted using a 4.5 % discount rate.Project risks The provision for project risks relates to prepayments from customers for projects. A provision is recorded if there isuncertainty about the realization of the corresponding revenues. The deferred income will be realized on the achievement ofcertain contractual milestones over the next years.The other provisions are covering product-, patents-, and other operational risks in the aggregate amount of CHF 5.9 million.The accuracy and the changes of these provisions is regularly reviewed as part of the internal monthly reporting process. Forproduction risks, the amount provided for agrees to the inventory value. In the case of legal-, patent- and other risks, an estimationof the obligation and probable outflows of resources is performed. On average, the outflow of economic resources related to otherprovisions is expected within the next two years.63

6415. Short-term liabilitiesIn 1 000 CHF 2004 2003Current portion of long-term liabilities 207 35 287Total 207 35 287The Group’s short term liabilities are denominated in thefollowing currencies and bear interest at the following averagerates:Outstanding amount in 1 000 CHF Average interest rate in %2004 2003 2004 2003CHF - 25 003 n/a 4.0EUR 207 324 7.1 7.1USD - 9 960 n/a 6.7Total 207 35 28716. Other accounts payableIn 1 000 CHF 2004 2003Current income taxes and other liabilities 9 044 5 030Short term pension liability 562 2 288Accrued expenses and deferred income 18 453 28 548Total 28 059 35 866Accrued liabilities include goods received but not yet invoiced,sales commissions, accrued salary and social costs andmiscellaneous items.17. Net salesNet sales per division were as follows:In Mio. CHF 2004 2003Siegfried Division 289.4 336.0Sidroga Division 32.0 30.2Total Group 321.4 366.2LocalCHF currencyChange in % in %Siegfried Division - 13.9 - 11.6Sidroga Division 5.7 4.8Total Group - 12.3 - 10.218. Other operating incomeRoyalty income amounted to CHF 2.6 million (2003: CHF 9.4million). In the previous year, a one-time license revenue of USD6 million was included. Further other operating incomecomprises a compensation payment from a legal case andincome from services rendered in the areas of education andpublic events.Adjusted for full-time positions the average number of staffemployed in the year 2004 was 968 (2003: 1 041).Social security and other personnel expenses increased due tothe restructuring costs. The restructuring costs are explained inNote 21.20. Employee benefitsThe Group operates several pension plans, including definedbenefit and defined contribution plans, in accordance with localregulations and practices. These plans cover the majority of theGroup's employees and provide benefits in the events of death,disability, retirement, or termination of employment. There aresome plans to which the employees are required to makecontributions and earn matching contributions from the Group;others are financed in full by the Company. The funding policy ofall these plans is consistent with local government and taxrequirements. The Group has, however, several plans which,pursuant to local government and tax requirements, are notfunded. As a result of the valuation method as prescribed underInternational Financial Reporting Standards (IFRS) and of theselected actuarial assumptions, the Group's pension funds showan underfunding. The unrecognized losses arose mainly from thepoor performance of the stock exchange in the previous years.The recognition of losses outside the 10 % corridor will not leadto material supplemental expenses during 2005. Based on a localactuarial valuation, the pension fund of Siegfried Ltd Zofingen isoverfunded by approximately 18 % as of December 31, 2004.This overfunding does not consider the necessary investmentfluctuation reserve as defined in the investment strategy.Defined benefit plans The retirement benefits are based onyears of service, age and salary. The cost and obligations ofthese defined benefit plans were calculated using the projectedunit credit method which reflects the service rendered up tothe date of valuation and incorporates assumptions onemployees' projected salaries. The latest actuarial calculationwas done as at December 31, 2004. Current service costs arecharged to income in the periods in which the services arerendered. Actuarial gains or losses in excess of the 10 %corridor are amortized systematically over a period thatcorresponds to the expected future service of participatingemployees.The restructuring of the group resulted in a curtailment gain ofCHF 3.2 million (previous year: CHF 2.0 million) and in anexpense for termination benefits of CHF 3.6 million (previousyear: CHF 4.3 million).19. Personnel expensesin 1 000 CHF 2004 2003Wages and salaries 87 733 94 120Social security and other personnel expenses 33 847 31 249Total 121 580 125 369

Net periodic pension expense includes the followingcomponents for 2004 and 2003:The effective weighted averages of the principal actuarialassumptions at balance sheet date are as follows:In Mio. CHF 2004 2003Service cost on benefits earned 8.9 8.8Interest cost on plan liabilities 9.0 8.6Expected return on plan assets (10.9) (10.1)Amortization of unrecognized loss or (gain) 0.1 0.1Amortization of prior service cost 0.2 0.2Recognized net actuarial loss or gain due tounrecognized prepaid pension cost 0.0 1.2Curtailment gain (3.2) (2.0)Termination benefits 3.6 4.3Employee contributions (2.8) (3.0)Net periodic pension expense 4.9 8.1The decrease in the net periodic pension cost is mainly relatedto lower costs compared to prior year for the restructuring ofthe group which is described in note 21.In % 31.12.04 31.12.03Discount rate 3.34 3.89Expected long-term return on assets 4.56 5.05Rate of increase in future compensation levels 2.56 3.52Annual increase in pension 0.61 1.47The actual return on plan assets amounts to CHF 8.2 millionand CHF 16.8 million in 2004 and 2003, respectively. Thepension plan assets include shares of the Siegfried Group with afair value of CHF 3.4 million and CHF 3.5 million in 2004 and2003 respectively.Defined contribution plans The Siegfried Group sponsorsdefined contribution plans in Switzerland and the USA. Thepension expense for these plans is CHF 1.8 million and CHF 1.5million in 2004 and 2003 respectively.The funded status of the pension plans is as follows:In Mio. CHF 31.12.04 31.12.03Present value of funded obligations 232.4 235.9Fair value of plan assets (221.7) (217.1)Underfunding 10.7 18.8Present value of unfunded obligations 4.2 4.2Unrecognized actuarial gain / (loss) (7.1) (13.5)Unrecognized prior service cost (2.7) (2.9)Net liability recognized in balance sheet 5.1 6.6The following table sets forth the movement of the net liabilityas recognized in the balance sheet year-end 2004:In Mio. CHF 2004 2003Net liability as of 1.1. 6.6 3.9Net periodic pension expense 4.9 8.1Company contributions (6.3) (5.6)Exchange differences on foreign plans (0.1) 0.2Net liability recognized inbalance sheet as of 31.12. 5.1 6.6Pension liabilities recognized in the balace sheet:In Mio. CHF 2004 2003Long-term pension liabilities 4.2 4.3Short-term pension liabilitiesas part of other short-term liabilities 0.6 2.3Short-term pension liabilitiesas part of provisions for restructuring 0.3 0.0Total 5.1 6.621. Exceptional itemsIn consequence of a decrease in sales and reduced orders theSiegfried division was reorganized. The restructuring programwill result in yearly cost savings of CHF 25 million, whereof CHF20 million will incur already in the year 2005. The effect of therestructuring on the income statement in 2004 was CHF 10.2million before taxes. Half of these costs are personnel costs withthe other half consisting of costs for external support and assetimpairments as a result of discontinued investment projects.The provisions for restructuring are based on a binding socialplan, which was communicated to the employees. Theprovisions of CHF 6.3 million disclosed in note 14 includepersonnel costs and project costs related to the restructuring.22. Financial result, netIn 1 000 CHFTotalTotal2004 2003Interest income 288 332Income from securities and financial investments 1 469 843Financial income 1 757 1 175Interest expenses - 3 596 - 3 766Other financial expenses - 222 - 45Financial expenses - 3 818 - 3 811Exchange rate differences - 2 377 - 1 077Total - 4 438 - 3 713In the reporting period, SCI Pharmtech, Inc. (previously SiegfriedChemicals Inc.), Taoyuan, was quoted at the Taiwanese stockexchange. After the initial public offering possible obligationsrelated to this former subsidiary lapsed. The reversal of thecorresponding provision resulted in a financial income of CHF 1million. The investment is carried at its market value in thebalance sheet (Note 4, page 61).65

23. Earnings per shareEarnings per share are calculated by dividing net income of CHF16.4 million by the weighted average number of sharesoutstanding (total 2 728 426 shares). Treasury shares arededucted in calculating the weighted average number of sharesoutstanding. There were no equity instruments outstandingwhich would dilute the amounts disclosed.24. Commitments and contingenciesAs of December 31, 2004, contingent liabilities amount to CHF177.6 million (2003: CHF 177.7 million). Contingent liabilitiesmainly include guarantees related to the syndicated bank creditfacility of CHF 160 million dated June 13, 2002. The guaranteesinclude assignments of receivables from intercompanies in thebooks of Siegfried Holding Ltd and Siegfried Finance Ltd in thetotal amount of CHF 93 million as of December 31, 2004(2003: CHF 93 million). The corresponding intercompany loanshave been eliminated in consolidation and are therefore notreflected in the consolidated Balance Sheet.28. Stock option planIn spring 2001 the Siegfried Group introduced an option planfor the management and Board of Directors that permitted thenearly 140 management employees and the board of directorsto draw part of their bonus or fee in the form of options onSiegfried Holding Ltd Stock. The base price of an optioncorresponded to the market price at the time of issue and wasCHF 25. One free option was granted for each three optionssubscribed. The part of the bonus that was drawn in form ofoptions as well as the free options granted were recognized aspersonnel expenses in the income statement in the year 2001.On April 21, 2004, the participants of the stock option planwere entitled to draw the shares at a share price of CHF 150.Alternatively the shares could be offered to the Siegfried Groupat a share price of CHF 171. In the year 2004 no income relatedcosts were incurred from the stock option plan.6625. Maturity of rental and lease paymentsIn 1 000 CHFOperatingleasesFinanceleases2005 179 2142006 97 142007 80 -2008 25 -later 183 -Total payments 564 228Less interest - 8Total finance lease borrowings 22026. Transactions with related partiesThere were no material transactions with related, unconsolidatedparties.27. Subsequent eventsAs of February 1, 2005 Siegfried Group took over the Valverdeproducts line from Novartis Consumer Health. Under the trademarkValverde products are sold in Switzerland, Germany andSpain. Valverde achieved sales of about CHF 6 million in 2004.Siegfried will integrate the new product line into the SidrogaDivision. The acquisition contains the trademark Valverde andthe corresponding product rights, however no personnel orfacilities are included. The Siegfried Group sees thereforesynergies in the areas of administration and distribution.

Segment informationBy activitiesFigures in Mio. CHFSiegfried Sidroga Group2004 2003 2004 2003 2004 2003Net sales 289.4 336.0 32.0 30.2 321.4 366.2ResultOperating income per segment before exceptional items 1 33.3 60.9 0.3 2.0 33.6 62.9./. Exceptional items 1 - 10.2 - 10.2 0Operating income segments 23.1 60.9 0.3 2.0 23.4 62.9Non-allocated expenses -0.2 0.0Operating income group 23.2 62.9Other informationSegment assets 547.5 606.3 23.0 18.4 570.5 624.7Segment liabilities 94.6 107.4 7.8 6.9 102.4 114.3Capital expenditure 26.2 68.5 0.1 0.3 26.3 68.8Depreciation 32.7 30.2 0.3 0.3 33.0 30.5Employees 921 995 47 46 968 1 041By geographical regionsFigures in Mio. CHF Europe America Other regions Group2004 2003 2004 2003 2004 2003 2004 2003Net sales to third parties 2 207.9 221.7 105.0 141.0 8.5 3.5 321.4 366.2Operating income per segmentbefore exceptional items 2 41.4 51.1 - 9.2 10.6 1.2 1.2 33.4 62.9./. Exceptional items 1 - 10.2 - 10.2 0Operating income 2 31.2 51.1 - 9.2 10.6 1.2 1.2 23.2 62.9Operating assets 3 464.2 460.1 106.3 164.6 570.5 624.7Capital expenditure 3 23.0 57.3 3.3 11.5 26.3 68.8Employees 3 795 833 173 208 968 1 041671see Note 21 for explanations of exceptional items2by location of market3by location of production or service facilityThe Divisions Siegfried and Sidroga are described from page 11 onward.

Group Auditors’ reportTo the General Meeting of Shareholders of Siegfried HoldingLtd, ZofingenAs auditors of the Group, we have audited the consolidatedfinancial statements (balance sheet, income statement, cashflow statement, statement of changes in equity and notes,pages 52 to 67) of the Siegfried Group for the year ended 31December 2004.These consolidated financial statements are the responsibility ofthe Board of Directors. Our responsibility is to express anopinion on these consolidated financial statements based onour audit. We confirm that we meet the legal requirementsconcerning professional qualification and independence.Our audit was conducted in accordance with auditing standardspromulgated by the Swiss profession and with InternationalStandards on Auditing, which require that an audit be plannedand performed to obtain reasonable assurance about whetherthe consolidated financial statements are free from materialmisstatement. We have examined on a test basis evidencesupporting the amounts and disclosures in the consolidatedfinancial statements.We have also assessed the accountingprinciples used, significant estimates made and the overallconsolidated financial statement presentation. We believe thatour audit provides a reasonable basis for our opinion.68In our opinion, the consolidated financial statements give a trueand fair view of the financial position, the results of operationsand the cash flows in accordance with the International FinancialReporting Standards (IFRS), and comply with the Swiss law.We recommend that the consolidated financial statementssubmitted to you be approved.Basel, March 7, 2005PricewaterhouseCoopers AGDr. M. JegerPh. Speck

Four-year overview 2001–2004, consolidated figures2001 2002 2003 2004Net sales CHF m. 352.6 399.0 366.2 321.4Change vs. previous year Percent + 13.9 + 13.2 - 8.2 - 12.3Net income CHF m. 31.0 56.2 53.3 16.4Change vs. previous year Percent + 233.7 + 81.1 - 5.1 - 69.3Cash flow from operating activities CHF m. 59.8 82.9 26.8 72.2Change vs. previous year Percent + 189.1 + 38.5 - 67.7 + 169.8As % of sales 17.0 20.8 7.3 22.5Total assets CHF m. 557.7 590.7 644.9 585.8Change vs. previous year Percent + 9.4 + 5.9 + 9.2 - 9.2Shareholders’ equity CHF m. 341.3 367.7 399.3 390.0Change vs. previous year Percent + 14.4 + 7.7 + 8.6 - 2.3Current assets CHF m. 213.6 221.3 240.3 201.5Change vs. previous year Percent + 8.8 + 3.6 + 8.7 - 16.1Non-current assets CHF m. 344.2 369.4 404.6 384.3Change vs. previous year Percent + 9.8 + 7.3 + 9.5 - 5.0Current liabilities CHF m. 60.0 63.7 97.8 54.2Change vs. previous year Percent - 21.4 + 6.2 + 53.4 - 44.6Non-current liabilities CHF m. 156.4 159.2 147.3 141.5Change vs. previous year Percent + 15.7 + 1.8 - 7.5 - 3.969Capital expenditures fixed assets CHF m. 88.6 77.0 68.8 26.3Change vs. previous year Percent + 49.4 - 13.0 - 10.7 - 61.7As % of sales 25.1 19.3 18.8 8.2Depreciation/Impairment CHF m. 36.0 26.5 31.4 35.0Change vs. previous year Percent + 41.6 - 26.3 + 18.3 + 11.5As % of sales 10.2 6.6 8.6 10.9Personnel expenses CHF m. 117.2 123.4 125.4 121.6Change vs. previous year Percent + 17.9 + 5.3 + 1.6 - 3.0As % of sales 33.2 30.9 34.2 37.8Employees 1 Number 1 010 1 019 1 041 968Change vs. previous year Percent + 4.2 + 0.9 + 2.2 - 7.0Sales per employee CHF 349 000 392 000 352 000 332 000Change vs. previous year Percent + 9.1 + 12.3 - 10.2 - 5.71Annual average

Financial Statements Siegfried Holding Ltd71

Balance Sheet of Siegfried Holding LtdIn CHFAssets 31.12.04 31.12.03Non-current assetsFixed assets 102 379 104 669Equity holdings 161 364 202 175 997 006Loans to affiliates 229 451 878 229 101 417Total non-current assets 390 918 459 405 203 092Current assetsOther accounts receivable 107 389 43 249Other accounts receivable from affiliates 165 917 0Accrued income 1 585 574 1 245 984Securities 3 160 324 416 957Cash 117 071 41 469Total current assets 5 136 275 1 747 659Total assets 396 054 734 406 950 751In CHF72Liabilities and shareholders’ equity 31.12.04 31.12.03Shareholders’ equityShare capital 5 600 000 5 600 000Legal reserveOrdinary reserve 2 800 000 2 800 000Treasury stock reserve 8 817 630 11 617 630 9 577 982 12 377 982Free reserve 302 740 522 258 980 171Available earningsBalance carried forward 845 147 798 298Net earnings for the year 21 290 652 22 135 799 56 947 269 57 745 567Total shareholders’ equity 342 093 951 334 703 720LiabilitiesFinancial liabilities third parties 40 000 000 40 000 000Financial liabilities to affiliates 1 437 743 14 169 904Other liabilities 1 257 455 1 431 497Deferred items 1 390 271 2 705 132Provisions 9 875 314 13 940 498Total liabilities 53 960 783 72 247 031Total liabilities and shareholders’ equity 396 054 734 406 950 751Income Statement of Siegfried Holding LtdIn CHFIncome 2004 2003Income from investments 22 500 000 39 700 000Financial income 13 327 483 15 733 788Management service fees 8 316 936 9 025 313Total income 44 144 419 64 459 101ExpensesPersonnel and other administrative expenses 2 379 098 3 717 233Financial expenses 2 455 483 2 266 459Taxes 72 047 1 520 101Provisions and depreciation 17 947 139 8 039Total expenses 22 853 767 7 511 832Net income 21 290 652 56 947 269

Notes to the financial statements of Siegfried Holding Ltd(in accordance with Art. 663 b and c of the Swiss Code ofObligations)Guarantees and securities: CHF 178.9 million(previous year: CHF 214.4 million).Insurance value of fixed assets: CHF 219 000(previous year: CHF 219 000).All equity interests of significance for an appraisal of theGroup’s financial position and earnings are listed on page 60.Shareholdings representing more than 3 % of the votesincluded in the shareholders’ register are: The Camellia Group(consisting of Camellia Holding Ltd., Glarus, and Affish Ltd.,Linton) holds an interest of 33.35 % and combined with theSiegfried Shareholder Group (consisting of the heirs of Dr. h.c.Hans Siegfried and Sigamed AG, Zug) 39.89 %. These Groupshave entered into agreements entitling first right of refusal topurchase any shares which either group may wish to sell.Tweedy, Browne Company LLC, New York, USA, holdsaccording to its own statement an interest of 10.27 % of theshares of Siegfried Holding AG. 3 % of these shares areregistered with voting rights, the remaining shares – as far asnotified - without voting rights.Various CS Asset Management Funds hold together 3.23 %Siegfried shares, 3 % of these shares are registered with votingrights, the remaining shares without voting rights.As security for the utilized portion of the syndicated bank loan,Siegfried Holding AG has assigned receivables fromintercompanies in favour of the consortium banks. As ofDecember 31, 2004, CHF 40.0 million of the credit line hasbeen drawn.Treasury stockDuring the reporting period, Siegfried Holding Ltd. and anaffiliated company have purchased and sold Siegfried shares atmarket prices, resulting in a net decrease of 6 210 shares:Number of sharesAverage price CHFAt January 1, 2003 87 570 150.1Purchases Jan.–Dec. 03 37 042 151.1Sales Jan.–Dec. 03 60 770 157.8At December 31, 2003 63 842 150.0Purchases Jan.–Dec. 04 19 750 158.7Sales Jan.– Dec. 04 25 960 141.0At December 31, 2004 57 632 153.0General informationSiegfried Holding Ltd holds directly or indirectly all equityinterests of the Siegfried Group. The financial statements ofSiegfried Holding Ltd are prepared in accordance with theprovisions of Swiss company law and accepted businessprinciples.Balance sheetNon-current assets Equity holdings include those companiesin which Siegfried Holding Ltd has an interest of more than50% and the minority interest in SCI Pharmtech Inc., Taoyuan,Taiwan. Equity holdings are stated at acquisition cost lessqualifying reserves. Equity holdings have decreased due to therecording of a valuation allowance. Long-term loans to affiliateswere used for the financing of capital expenditures and otheroperational activities.Current assets Accrued income includes the accrualaccounting for several items of income. Securities are stated atthe lower of cost or market value on the balance sheet date.The increase in securities is due to purchases of treasury sharesby Siegfried Holding Ltd.Shareholders’ equity The share capital of CHF 5.6 millioncomprises 2 800 000 registered shares of CHF 2 nominal valueeach.Legal reserves are unchanged at CHF 2.8 million. CHF 43.0million were credited to free reserves from previous year'sappropriation of retained earnings. Out of the treasury stockreserve CHF 0.8 million was transferred to free reserves,reflecting the acquisition value of 6 210 own shares sold in thereporting period.Liabilities Siegfried Holding Ltd has drawn down CHF 40.0million out of the syndicated bank loan of the Siegfried Groupwith a credit line of CHF 160 million. The syndicated bank loanwill mature on November 30, 2006.Deferred items include the deferrals and accruals of variousincome and expense items. Provisions include accrued anddeferred income taxes, accruals for operational risks andaccruals of a general nature.Provisions consist of accrued income taxes, provisions of ageneral nature and for business risks.73

Income statementThe income from investments in the amount of CHF 22.5million (2003: CHF 39.7 million) comprises of dividends fromaffiliates.Financial income consists mainly of interest received on loans toaffiliates, foreign exchange gains on loans to third parties andto affiliates and, to a lesser extent, of income from the securitiesportfolio. Management service fees relate to services providedto affiliates.Financial expenses include interest on the syndicated bank loanand on loans from affiliates and exchange losses on loans toforeign affiliates.Including the balance from the previous year of CHF 0.8 millionand the net earnings for the year of CHF 21.3 million, the totalavailable earnings for the year amount to CHF 22.1 million.Proposal for the appropriation of earningsThe Board of Directors proposes to the General Meeting ofShareholders the following appropriation of the availableearnings as consisting of:In CHF 2004 2003Net income of the year 21 290 652 56 947 269Balance carried forward from previous year 845 147 798 298Total earnings availablefor appropriation 22 135 799 57 745 567Gross dividend of CHF 3.50 per registeredshare of CHF 2 p.v. on max. 2 800 000registered shares qualifying for dividend 1 9 800 000 13 900 420Allocation to the free reserve 12 000 000 43 000 000Total appropriation 21 800 000 56 900 420Balance to be carried forward 1 335 799 845 1471Dividends not paid out on treasury shares will be carried forward to newaccount. In the previous year, 2 780 084 shares were qualifying for dividend,CHF 845 147 were carried forward to new account.74

Auditors’ reportTo the General Meeting of Shareholders of Siegfried HoldingLtd, ZofingenAs statutory auditors, we have audited the accounting recordsand the financial statements (balance sheet, income statementand notes, pages 72 to 74) of Siegfried Holding Ltd for the yearended 31 December 2004.These financial statements are the responsibility of the board ofdirectors. Our responsibility is to express an opinion on thesefinancial statements based on our audit. We confirm that wemeet the legal requirements concerning professionalqualification and independence.Our audit was conducted in accordance with auditing standardspromulgated by the Swiss profession, which require that anaudit be planned and performed to obtain reasonable assuranceabout whether the financial statements are free from materialmisstatement. We have examined on a test basis evidencesupporting the amounts and disclosures in the financialstatements. We have also assessed the accounting principlesused, significant estimates made and the overall financialstatement presentation. We believe that our audit provides areasonable basis for our opinion.In our opinion, the accounting records and financial statementsand the proposed appropriation of available earnings complywith the Swiss law and the company's articles of incorporation.75We recommend that the financial statements submitted to yoube approved.Basel, March 7, 2005PricewaterhouseCoopers AGDr. M. JegerPh. Speck

Stock market data2000 2001 2002 2003 2004Registered shares of CHF 2 1 280 000 280 000 2 800 000 2 800 000 2 800 000Dividend bearing capital CHF m. 11.2 11.2 5.6 5.6 5.6Gross dividend per registered share 1 CHF 12.50 0 2 5.00 5.00 3.50 4Total dividend paid CHF 3 500 000 0 2 13 914 000 14 000 000 9 800 000 4Market prices, registered share high CHF 1 620 1 570 172.5 176.0 171.5low CHF 1 289 1 075 131.0 139.0 135.0Year-end CHF 1 480 1 320 154.0 156.0 141.1Gross yield per registered share high % 1.0 1.2 3.8 3.6 2.6low % 0.8 0.8 2.9 2.8 2.0Consolidated net earnings per registered share 3 CHF 3.41 11.37 20.70 19.54 6.01Consolidated operating cash flowper registered share 3 CHF 7.58 21.92 30.54 9.80 26.9Consolidated equity and reserves perregistered share 3 CHF 109 125 135 146 143P/E ratio (year-end) 3 43.5 11.6 7.4 8.0 23.4Market capitalization at year-end CHF m. 414 370 431 436 3951Up to 2001 the nominal value per registered share was CHF 40, since the reduction in the nominal value and the share split in 2002, the nominal value is CHF 22Instead of a dividend a reduction in the nominal value of CHF 20 per share was performed in 2002.3Calculated on the weighted average number of shares outstanding, deducting treasury shares. 2000 and 2001 are adjusted to CHF 2 nominal value.4Proposed by the board of directors.Share price developmentPeriod from 1.1.2000 to 31.12.2004200©Swissquote+ 45 %180+ 27 %76160+ 9 %140- 9 %120- 28 %100Siegfried NSPI80January 00 November 00 September 01 July 02 May 03 March 04- 46 %- 64 %Siegfried shares are traded on the SWX Swiss stock exchange:Sec. no. 239 546Stock symbols Reuters SFZZnTelekursSFZN

Publisher’s notes77This annual report is also available inGerman, being the original version.Annual General Meeting of ShareholdersFriday, April 15, 2005, 11 a.m.in the Stadtsaal, ZofingenSiegfried Holding LtdUntere Brühlstrasse 4CH - 4800 ZofingenPhone + 41 62 746 11 11Fax + 41 62 746 11 03www.siegfried-holding.comEditor:Peter A. GehlerTranslation:Peter KrausLayout:Jolanda AbplanalpPhotos:Albert Zimmermann, ZürichMaja Beck, RothristLithos and Printing:Offsetdruck Goetz AG, Geroldswil