English - Siegfried

Siegfried – when substance mattersAnnual Report 2006

Key figuresSiegfried Group 2006 2005 ChangeNet sales (CHF m.) 359.8 318.3 13.0%Net profit (CHF m.) 32.4 36.5 –11.3%Gross profit (CHF m.) 120.4 108.6 10.9%Operating expenses (CHF m.) 83.4 73.8 13.0%Operating profit (EBIT) (CHF m.) 41.1 42.9 – 4.3%Operating margin (EBIT) in percent 11.4 13.5Cash flow from operatingactivities (CHF m.) 53.7 47.6 12.8%Siegfried Holding Ltd. 2006 2005 ChangeNet profit (CHF m.) 18.7 27.8 – 32.6%Shareholder’s equity (CHF m.) 367.8 360.3 1.9%Total assets (CHF m.) 461.5 450.8 2.4%Equity as a % of total assets (percent) 79.6 79.9Share capital (CHF m.) 5.6 5.6Dividend (CHF m.) 2 11.8 11.8Dividend (CHF per share) 2 4.20 4.20EBITDA (CHF m.) 78.9 79.0 – 0.1%EBITDA margin (percent) 21.9 24.8Shareholders’ equity (CHF m.) 445.5 435.4 2.3%Total assets (CHF m.) 690.8 677.4 2.0%Equity as a % of total assets (percent) 64.5 64.3Capital expenditures (CHF m.) 35.8 29.6 20.9%Personnel expenses (CHF m.) 121.9 119.0 2.4%Employees (number) 1 967 913 5.9%1Annual average2According to a General Meeting request, on a maximum of 2 800 000shares ranking for dividend (dividends on treasury shares not paid to shareholders will be carried forward)

OverviewFor 2006, the Siegfried Group achieved consolidated salesof CHF 359.8 million, a 13% increase over the previous year.Gross profits increased by 10.9% to CHF 120.4 million, or33.5% of revenue. Operating profits of CHF 41.1 millionwere 4.3% below the 2005 results, due to the higherproceeds from real estate transactions undertaken in theprevious business year. Operating costs grew proportionalto revenue, including investments made in marketingand development; generic projects showing little potentialwere consistently depreciated. The goal of 12% marginswas almost achieved.Consolidated net profits decreased slightly by 11.3% toCHF 32.4 million.The Siegfried Group achieved revenue growth in all marketsegments.The Siegfried Division is taking a new, collaborative approachin the business of custom synthesis with Celgene, a U.S.pharmaceutical company. Celgene will take over a productionline in Zofingen (5% of the facility’s total capacity)and procures all other services (physical stages, quality andsafety systems) from Siegfried. The acquisition goals fornew projects were fully met in 2006; the custom synthesispipeline achieved a high level with most of the projectsfor active ingredients in the clinical phase III or alreadylaunched in the market by the customer.For the Siegfried Division, the first construction phase ofthe new pharmaceutical production facility in Malta wassuccessfully completed. The line began commercial productionin Q1/2007, and the second phase of constructionbegan. The technical upgrade of the chemical productionfacility in Zofingen continues; the crystallization operation(used in a key end stage in chemical production) wascompletely modernized.The Sidroga Division is now marketing its products directlyin Austria, where a daughter company was establishedin Vienna. This will ensure a successful introduction of theValverde line in the Austrian market; initial Valverdeproduct launches in the German market were successful,more will follow.The Board of Directors recommends that the GeneralMeeting of Shareholders approve an unchanged dividendof CHF 4.20 per share.The active ingredients for analgesics for the North Americanmarket (acquired with the Penick Corporation in 2005) weresuccessfully registered and validated. Commercial productionwill begin in the current year.For patentable technologies in the generics business,Siegfried has added an inhalation technology project;the corresponding patents were acquired in early 2007,and development labs were set up in Munich, Germany.

ContentsKey figuresOverviewChairman’s Letter 4Annual Report 10The Siegfried Division 10The Siegfried Division Pipeline 14The Sidroga Division 16Outlook 18Board of Directors and Corporate Officers 20Corporate Governance 24Foreword and general framework 25Structure of the Siegfried Group 26Shareholders 28Capital structure 29Board of Directors 30Operational Management 38Compensation, investments and loans 41Participatory Rights of Shareholders 42Control changes and defensive measures 44Auditors 44Information policy 45Report on “Safety – Health - Environment” 48Financial Statements Siegfried Group 58Editorial 58Consolidated Balance Sheet 60Consolidated Income Statement 61Consolidated Cash Flow Statement 62Consolidated Statement ofRecognized Income and Expense 63Notes to the Consolidated Financial Statements 64Significant accounting judgements and estimates 70Notes to the Consolidated Financial Statements 72Segment informationen 84Report of the Group auditors 85Five-year overview 2002–2006, consolidated figures 86Financial Statements Siegfried Holding Ltd. 90Balance Sheet of Siegfried Holding Ltd. 90Income Statement of Siegfried Holding Ltd. 91Notes to the Financial Statements of Siegfried Holding Ltd. 91Proposal for the appropriation of earnings 92Report of the statutory auditors 93Stock market data 94Share price development 95Publisher’s note 97Contents1

Sabrina BaumannChemical Lab Apprentice, ZofingenI’m in my second year as a chemical labapprentice, and the first lab apprenticeat Siegfried (and only one of three inSwitzerland!) specialized in galenicsanalysis. Right now I’m doing a fourmonthinternship at Spirig Pharma tolearn more about semi-solid dosageforms. There’s something new everyday, and I really enjoy being able tohelp in the development of newformulas. This can be anything frommixing a preparation for a cream orlotion to working in the process room.This is a completely germ-free areathat conforms to “good Manufac -turing Practice” guidelines, becauseany contamination could ruin thetest results. Soon I’ll get my ownproject to work on new productswith the development department.I can’t wait!I live on a farm in a small village(Hunzenschwil bei Suhr) with myparents and siblings. I grew up theresurrounded by cows, pigs and chickens,which is probably why I enjoynature and the outdoors. As soon asthe first snow falls, I’m off to themountains with my snowboard. Likemost Swiss, I learned to ski as a kidbecause my parents let me try snowboardingonly after I could ski. Todayeveryone snowboards – and meetsat the club afterwards.I’m an active person in my free timeand like to go running once or twicea week with colleagues. On theweekends I’m together with friends;whether it’s to play billiards or godancing. I love to dance. When I wasfive I started with classical ballet andlater, when my taste in music changedsomewhat, I also did jazz ballet, andnow street dance and hip-hop. I’vealso danced in stage productions witha dance company; the highlight was“Teddy’s Secret,” a story about live,love and the troubles of being young –it’s all about my world.3

Chairman’s LetterDear Shareholders,In 2006 the Siegfried Group managed to continue on its“course for growth”. This success applies not only to theGroup, but to both Divisions and all our business segmentsas well. The Siegfried Division, which comprises our pharmaceuticalactivities, opened a new production facility in Maltaand completely modernized the crystallization operation(a key end stage in chemical production) in Zofingen. During2006, the Sidroga Division founded a daughter companyin Austria to begin marketing its products in that countrydirectly.Overall, the Board of Directors and the Executive Managementare pleased with the results for the past business year.The ambitious growth goals were clearly met and surpassed,gross profits increased, and operating income barely missedour set goal of 12%. These results are all the more remarkableas the Siegfried Group made substantial investments inthe development and upgrading of our product portfolio,and in the development of future markets. In addition,generic projects lacking market potential were consistentlydepreciated.Growth was particularly strong in those business segmentsthat count as our core competencies: development, scalingup, and production of active pharmaceutical ingredients andthe corresponding intermediate products, as well as in thedevelopment and production of generics. The Siegfried Groupwill focus on these market segments for future success.In the development, scale-up, and production of activepharmaceutical ingredients we offer both custom synthesis(chemical synthesis of an ingredient for a single clientwith the corresponding patents) and the production of ourown pharmaceutical ingredients as multi-client products.Our custom synthesis activities grew in 2006, despite an industrystill struggling with overcapacity in Europe and NorthAmerica, thanks in part to our long-term relationships withnumerous large pharmaceutical companies. This resulted inSiegfried’s participation in the production of Tamilflu, the flumedication from Roche. Often, we were able to show ourflexibility and willingness to meet specific customer requirements,as with Tamilflu, where we were able to producethe necessary amount of the medication for Roche in a veryshort timeframe. For the up-and-coming U.S. company,Celgene, Siegfried developed an innovative collaborationmodel that will benefit both companies in the coming years.Close cooperation between our specialists and the customers’experts is crucial for us to leverage our strengths in4Chairman’s Letter

custom synthesis and shorten project lead times. In the comingyears, Siegfried will look increasingly to strategic partnerships,and also align our customer support and operatingprocedures with this strategy. Furthermore, we are strivingto gain the necessary critical mass to weather downturnsin customer research projects by widening our base ofcustomer projects. An initial step in this direction was takenby fulfilling our goal of 15 new projects for 2006. Currently,the Siegfried Division pipeline is at an all-time high.As part of our multi-client product offer, the Siegfried Divisionwill launch additional active ingredients used for analgesicsin the North American market (obtained two years ago withthe acquisition of the Penick Corporation) in 2007. With thegovernmental licensing and registration process now complete,these products will be produced in our Pennsville (NewJersey) facility in 2007. Customer orders have met expectationsand management is currently looking at expanding theproduct line of active ingredients for analgesics. Manufacturedin Pennsville, these products are classified as ‘controlledsubstances; the U.S. government closely monitors their productionand distribution. Imports are not allowed; these ingredientsmust be manufactured in the U.S. Siegfried has theexperience and necessary licenses to manufacture controlledsubstances for the U.S. market; previously we produced activeingredients for narcotics in Pennsville for decades.Despite a difficult market, Siegfried increased generics salesin 2006, achieving the second-best results (after the recordsetting2004 results). However, this success should notdisguise the fact that the global generics market remainsvolatile. Many of our competitors offer the developmentand production of generic products (in tablet form) andour biggest customers are making efforts to create in-housedevelopment and production capabilities. Our businessmodel (the development of registration dossiers for genericproducts and the production of finished products for ourcustomers) is under pressure, which has already led to thecancellation and depreciation of several projects in 2006.Our response to these challenges is twofold: First, we willenter new markets (Australia, New Zealand, EasternEurope, and the Middle East) with our classic generic products.Secondly, we are investing in new, demanding andpatentable technologies. Supplementing our service-basedbusiness model with technology will take time to realize.At the start of 2007 we constructed a development lab forinhalation technology in Munich, Germany; the necessarypatents were acquired in 2007.Our smallest business unit – Siegfried Biologics – for bio -logically produced active ingredients delivered solid results,including a milestone payment for an expired license project.Chairman’s Letter5

For 2006, the daughter company in Berlin-Kleinmachnowcontinues to work on a large contract, the facility’s developmentand production capacity as almost fully utilized.The Sidroga Division has reported pleasing growth ratesfor the past two years. The Board of Directors and ExecutiveManagement confirm that the investments in the Sidrogabrand and the development of innovative products havepaid off. The integration of the Valverde line is complete,and the products are enjoying notable success in the Swissmarket, with additional Valverde products to be launchedin Germany and Austria in the coming years. The foundingof a daughter company in Austria will enable us to marketour products in that country through our own organization,to strengthen our market leadership in medicinal teas, andsuccessively introduce Valverde products. The Division’srevenue growth is mostly due to increased sales in Germany,with sales in Switzerland stabilizing at a high level.The first-rate results of the Siegfried Group were possiblealso because of the unrelenting commitment of our peoplein both Divisions and at all our facilities. My sincere thanksgo to everyone for their terrific dedication and loyalty.I would also like to extend a special thank-you to our customers.Especially in the business of active pharmaceuticalingredients and the production of medications for genericscompanies, the partnership between the client andSiegfried is very close and based on a considerable levelof trust. That our customers have maintained this trustin Siegfried is especially gratifying, and we will continueto do every thing we can to meet their requirementsand wishes in the future.Our level of self-financing remains very high (64.5%) andgives the Siegfried Group the necessary entrepreneurialagility. The 10.9% growth in gross profits corresponds torevenue growth. Operating profits declined by 4.3%because of higher proceeds from real estate transactionsundertaken in 2005. Operating costs grew proportionalto revenue, including increased investments in marketingand development, and depreciation of unrealized genericprojects. These investments will contribute to the futuredevelopment of our company. Also, net profits declinedby 11.3%, as relatively high gains from currency exchangewere noted in 2005. Fortunately, operating cash flowfor 2006 was CHF 53.7 million. The capital expendituresof CHF 35.8 million, including completion of the firstconstruction phase of our new pharmaceutical productionfacility in Malta, and a complete upgrade of the crystallizationoperation in Zofingen was relatively high. As a supplierthat strives to meet the most stringent customer demands,6Chairman’s Letter

we are obligated to maintain our infrastructure at thehighest possible levels as well.We are thankful that Dr Bernard A. Siegfried agreed tostand for re-election (for another 3-year term) at the GeneralMeeting 2007. As a member of the Board of Directors ofour largest shareholder, the Camellia Group, he representsthat group’s interests on the Board of Directors of SiegfriedHolding AG.Important developments were initiated during 2006to ensure our future. Our commitment to our core com -petencies – “development, scale-up, and productionof active pharmaceutical ingre dients,” and “developmentand production of demanding generics” gives thecompany a clear profile and helps us focus our strengths.We are making great efforts to strengthen our positionin these core markets during the current business year.In view of the positive results, the Board of Directors recommendsthat the General Meeting of Shareholders approve anunchanged dividend of CHF 4.20 per share.Thank you for your continued support of our company.Dr Markus AltweggChairman of the Board of DirectorsChairman’s Letter7

Sabrina HellerLab Specialist, responsible for security and head of first-aid team, ZofingenAfter completing my training as achemical lab assistant I actually wantedto go into medicine. But then, overfour years ago, I heard about Siegfriedand I started to work in the chemicaldevelopment in Zofingen. When offeredthe chance, I was glad to go toour facility in Pennsville to work – andlearn about the U.S. and the Americans.Once I got back to my job inSwitzerland I decided to also get adegree as a lab specialist. I completedmy thesis at the beginning of this yearand, of course, I’m very curious to findout how I did.I now work in a new department, inSafety, Health & Environment (SHE).The job is perfect for an inquisitive personlike me, there’s always somethingnew to do. I have to make sure ourprotective gear is up-to-date and alsotake care of special requests, for example,finding special gloves when someoneis allergic to the ones we have.I also lead safety workshops to teachmy colleagues that it’s their own healththat’s on the line here. On otherdays I’m at the computer, updating ourSHE database, or researching improvedsafety equipment on the Internet.There’s always something to do!Where I grew up around Kassel I wasactive in emergency and first aidservices. My friends were all involved,so I spent almost every weekend atevents or in the ambulance. I’m oneof the fortunate few that can realizea childhood dream on the job.In addition to helping people I alsolove horse riding, or I did until a caraccident put an end to that. Naturally,I hope to get back in the saddle soon,to ride across the fields or jump overfences. For exercise and a change ofpace from the job, I do martial arts.Originally I did karate and today I dotai chi and kung fu. It’s fascinatingto get the flowing movements so theydon’t take a lot of effort, they justflow, along with the mental disciplinethat’s behind it all. This is all part ofmy fondness for Asian culture. If yousee where I live, it feels like the FarEast – in the kitchen too.Recently, I got a new and excitingresponsibility as head of the compan’sfirst-aid team. Not only does thisinvolve medicine, but being able tohelp people is something that’sfascinated me since I was a teenager.9

Annual ReportThe Siegfried DivisionThe Siegfried Division covers all pharmaceutical activities of theSiegfried Group and is organized into three business units servingthe global pharmaceutical industry. Siegfried Actives develops andmanufactures custom active pharmaceutical ingredients (APIs) forinnovator companies. This business unit also provides a range ofAPIs, primarily controlled substances, that serve multiple clients.Siegfried Generics develops and manufactures solid dosage forms,providing the required regulatory filings and approvals along withthe finished drug product. Siegfried Biologics develops and manufacturesbiological substances. Compliance, human resources andour divisional center deliver their expertise across all business units.2006 was clearly a year of growth for the Siegfried Division,with all areas of activity contributing to an approximately14% sales increase. Our gross margin and expensesgrew in line with sales. Other operating income droppedcompared to 2005, a year in which we benefited from aproperty sale, resulting in a slightly lower EBIT number for2006. At 12% of sales, our EBIT margin was within rangeof our 13% goal for the Siegfried Division, a good resultconsidering we were still short of our desired capacity utilizationlevel and wrote off a number of generic projects.Our vision is to be a world-class partner in developing andmanufacturing drugs that improve human life. In 2006 wemade good progress towards this goal. The world in whichpharmaceutical companies operate today is vastly differentfrom the one just a decade ago. Innovation still drivesgrowth. Companies still need to discover drugs that treatunmet medical conditions to prosper.However, efficiency now matters as well. The manage -ment challenge, of course, is that creating an organizationthat excels at both efficiency and innovation is extremelydifficult. There is considerable organizational experimen -tation underway in the pharmaceutical industry to tacklethis dilemma. Working closely with Celgene, one of theworld’s top biotech companies based on market capitalization,has allowed us to develop an innovative solution.By acquiring one of our manufacturing facilities in Zofingen,Switzerland, which accounts for 5% of the site’s totalcapacity, Celgene now has the capability to producemultiple drug substances and enhance strategic controlof their worldwide production. At the same time, they10 Annual Report

can tap into our site’s extensive expertise in quality management,scale-up and finishing steps, not to mention safetyand environmental issues, thereby benefiting from substantialeconomies of scale and enhanced reliability. Of course,such a partnership model requires a high degree of trustat all levels of both organizations, something we have beenprivileged to build up with Celgene over the many yearswe have worked together. We are confident that we willhave an opportunity to apply this model again for othercustomers.We are also intent on extending our service offering toglobal pharmaceutical companies that are scaling downtheir chemical capacity. This is partly a response to thefact that large pharmaceutical companies have had fewernew chemical entities approved in the past few yearswhile suffering from a surge in blockbuster drugs goingoff patent. However, this trend also reflects a growingawareness that outsourcing significant portions of theirchemical manufacturing will ultimately improve theirreturn on invested capital. In addition, they recognizethat there are numerous players to choose from andsufficient overcapacity to keep prices in check. In fact,the market for outsourced active pharmaceutical ingre -dients and intermediates is highly fragmented, with thelargest player accounting for only a 5% share.This situation is unlikely to change any time soon becauseLavoisier’s law, “nothing is lost, nothing is gained,all is transformed”, appears to apply not only to chemicalreactions but also to the facilities that trigger them. In 2006a number of our competitors were sold and this trend willcontinue in 2007. Our view is that as owners change andfacilities remain, not all service offerings will be consideredequal. Providers with a record of performance and stabilitywill be recognized as delivering the greatest value to theircustomers because the opportunity cost of a new productdelay, supply shortage or quality problem far exceeds theprice of the actual chemical ingredient.An indicator of the service level we strive to provide ourclients is illustrated by the outcome of the pre-approvalinspections we had with the US Food and Drug AdministrationFDA in 2006. One was held in Pennsville, New Jersey,the other in Zofingen, Switzerland. Both resulted in nowritten observations. This kept chemical manufacturingoff the critical path of our clients’ new drug applications.Our performance is recognized in the marketplace, whichis also indicated by the 15 new development projects wereceived in 2006, a record number for Siegfried.Our success in custom manufacturing has not blinded usto the fact that this is a volatile business, often dependenton factors outside our immediate control. Most newdrugs never make it to market. For the few that do, theinitial volume estimates will probably be wrong. There -fore, in addition to our pipeline of exclusive products, itis important that we continue to build our portfolio ofmulti-client products.Our primary focus in this segment is controlled substances,products subject to tight regulatory control because ofthe risk of diversion. We make a number of such productsin Zofingen. However, such products cannot be importedinto the United States and must be manufactured domestically.In May 2005 we acquired Penick Corporation, therebyallowing us to extend our portfolio to analgesics, in par -ticular, opiate derivatives. Over the past 18 months we havesubmitted a number of drug master files to the FDA andour customers are in the process of updating their drugfilings using our product. As they get FDA approval, we willapply for quotas with the Drug Enforcement Agency andstart shipping products. At the same time, we continue todevelop new products for our portfolio. We consider thisan attractive franchise and intend to build it up steadily overthe coming years.In 2006 our generics dossier business again deliveredstrong results. However, the generics industry is experiencingCorporate Annual Governance Report 11

apid change as significant price erosion fuels consolidationand large generics companies seek backward integration.Traditionally we have focused on projects that were demand -ing from a technical or patent point of view. These projectsare increasingly tackled by a diminishing customer basethat will only commit to one of our projects if their internaldevelopment fails. In addition, there will be fewer projectsto pursue as the drop-off in new drugs approved hitsthe generics industry. Against this backdrop we decidedto acquire the rights to an inhalation technology that weare confident can be industrialized at a very competitivecost per unit. Our intention is to initially use this platformto develop specific generic products. However, we willalso explore the possibility of leveraging this platform tosupport innovator companies. This is a long-term endeavorwhere we will see a ramp-up in investments as we meetsuccessive milestones. The initial response from customers,both generic and innovators, has been promising.Parallel to building a new technology platform, we com -pleted the first construction phase of our pharmaceuticallaunch facility in Malta and started a second phase formore demanding technologies. Initially, the focus will be onin-house products that are currently manufactured undercontract by third parties.Although small, our biologic activities delivered a solid performancethis past year. We received a milestone paymentfrom a project we out-licensed four years ago and expectadditional milestone payments in the coming years. Thanksto a large customer order, our mammalian cell facility inKleinmachnow is operating at close to capacity. However,at this time we do not plan to invest in additional capacity.Across all our fields of activity we want to further improveour operational efficiency. By tightly orchestrating activitiesacross functions we continue to optimize key processes.With this in mind, we integrated parts of compliance,purchasing and engineering into those entities where dayto-dayoperational decisions are made, allowing us tobreak down functional barriers and focus on the processesthemselves.With David Pulham, a former national expert at the FDA,who chairs our Compliance Board, and with Peter Kiechle,our Chief Compliance Officer, we have two industryexperts on board who help insure that quality and safetyremain front and center in our considerations. In fact, thisis the first year we have integrated our internal safety,health and environment (SHE) review into our annual report.The numbers show that we made good progress in 2006

as far as safety goes. There is room for improvement in ourenvironmental performance, although we are somewhatconstrained by our product mix.I have had the privilege of working the past ten years atSiegfried and the one constant, aside from acceleratedchange, is that substance matters. This substance includesthe institutional knowledge acquired and documentedby our employees over our 133 year history and the trustand collaborative spirit we’ve built up with our customers.My heartfelt thanks go to all Siegfried employees world -wide for helping us be a valued partner.Douglas C. GünthardtCEOAnnual Report13

The Siegfried Division PipelineThe Siegfried Division pipeline consists of three stages; anexplanation by business unit is given below.Business Unit Siegfried Actives/Custom synthesis:These projects follow the classic system of clinical studies(pre-clinical, clinical study phases I – III). Stage 1 of thepipeline includes projects that are either pre-clinical or clinicalstudy phase I. Phase II and III are stage 2 in the pipeline.Time and again, Siegfried receives active pharmaceuticalingredients projects that have already been launched in themarket, especially when the customer has insufficientproduction capacity or prefers to outsource productioncompletely; these projects are stage 3 in our pipeline.Business Unit Siegfried Actives/Multi-client-products:These projects are for internally developed out of patentactive pharmaceutical ingredients that can be offered tonumerous customers. In the U.S. these are usually controlledsubstances, where the Drug Enforcement Agency (DEA)closely monitors production and distribution. These projects

span two levels in the pipeline. Active pharmaceutical ingredientsstill in development and not yet registered (no DrugMaster File submitted) are stage 2 projects; projects in theregistration phase and ready for market launch are stage 3in the pipeline.Business Unit Siegfried Generics: Generics projects arestage 2 if the dossier has not yet been submitted to the regulatoryauthorities; after submission it is a stage 3 project.The Siegfried Division pipeline in 2006: There are54 projects in the Siegfried Division pipeline, an increaseof 15 projects compared to 2005.Siegfried Division pipelineNumber of projects35Due to strong growth in custom synthesis projects, stage 2developed very well. In addition, four new projects for controlledsubstances were added in USA. These projects willcome to market in 3 to 5 years. Stage 3 declined because ofvarious cancelled generics projects; the total of 20 projectsmeets our goals. Stage 1 projects tend to be high risk, withonly a 10% probability that they will survive to marketlaunch. These projects are usually done for establishedcustomers that prefer to implement an advanced chemicalprocess already at this early stage.302520151050stage 1 stage 2 stage 32005 2006Annual Report15

The Sidroga DivisionThe Sidroga Division develops and distributes high quality herbalmedications and health products, including medicinal and wellnessteas and, under the Valverde brand, natural medications in alternativedosage forms. Key markets are Germany, Switzerland and Austria.In 2006, Sidroga increased revenues by 8.40% toCHF 39.1 million; operating profits increased by 31.6%to CHF 2.1 million.After many years of managing the Austrian market throughan agency, Sidroga established a daughter company inVienna to handle this market directly. Our new companyenables us to handle Austria more intensively, and especiallyto prepare for the launch of the Valverde products.Revenues for our teas grew noticeably in Germany andremained at a high level in Switzerland. Austria also showeda growth trend that will accelerate over the coming years.Our Valverde line continued to grow in Switzerland and twonew products were successfully launched in the Germanmarket (adding to the three existing products). These productlaunches were a test run for further introductions toultimately harmonize the Valverde product offer range inGermany and Austria with Switzerland.Promising contacts were made and initial deliveries alreadycarried out to new markets (Eastern Europe and Asia) duringthe year under review. During 2007 we will gain more experiencein these markets to ensure our continued growth.Big changes are taking hold in Sidroga’s established saleschannels, pharmacies and (in Switzerland) drug stores,over the past years. Many pharmacies are joining togetherto collaborate in marketing. Germany is expected toadapt its pharmacy regulations in the near future to allowforeign ownership and chains. Sidroga has supplementedits pharmacy support organization by adding a Key Account16 Annual Report

Manager and a comprehensive customer telephone serviceteam. This professional and efficient organization guaranteesa customer oriented service for the pharmacies, even underthe rapidly changing market conditions. Initial feedback onour new system is promising.The maintenance and updating of our product offerremains an important focus. In 2006, Sidroga launchedfive new teas, and two new Valverde products, and a largenumber of innovative and attractive products are in thepipeline to be launched over the next three years. Theywill help increase Sidroga revenues and to further improveour profitability.Our success in 2006 is the result of a committed team. Mysincere thanks go to everyone – at home and in the field –in the Sidroga Division.Peter DegenCEO

OutlookThe revenues for active pharmaceutical ingredients willcontinue to grow for the Siegfried Division. Due to strongprice pressure and the increasing number of projectsbeing done internally by large customers, the sales forgeneric products will decline; both trends will roughlybalance each other out. The revenues for the SidrogaDivision will continue to grow about 10%. For 2007, weexpect, at a minimum, stable operating margins.18 Annual Report

Annual Report 19

Board of Directors and Corporate Officers(as of January 1, 2007)Board of DirectorsTerm of office runs until:Dr Markus Altwegg, BinningenChairman 2008Dr Thomas Staehelin, RiehenDeputy Chairman 2009Dr Bernard A. Siegfried, ZofingenHonorary Chairman 2007Susy Brüschweiler, Erlenbach ZHMember 2008Prof Dr Felix Gutzwiller, ZürichMember 2008Dr Felix K. Meyer, BinningenMember 200920 Annual Report

Corporate OfficesDouglas C. Günthardt, ZofingenCEO Siegfried DivisionPeter Degen, Biel-Benken BLCEO Sidroga DivisionDr Richard Schindler, Uetikon am SeeFinance and Group DevelopmentSecretary to the BoardPeter A. Gehler, SafenwilHead of the Chairman’s OfficeChief Communication OfficerAuditorPricewaterhouseCoopers AG, BaselBoard and Executive ManagementStanding, left to right:Peter Degen, Dr Felix K. Meyer,Dr Thomas Staehelin, Susy Brüschweiler,Dr Markus Altwegg, Dr Bernard A. Siegfried,Dr Richard Schindler, Prof Dr Felix Gutzwiller,Peter A. Gehler, Douglas C. GünthardtAnnual Report21

Adrian AzzopardiQuality Control Manager, MaltaMy job is on Malta, a sunny island inthe Mediterranean. I’m lucky that I canwork in a place that most people considera vacation resort. In May 2006,Siegfried set up a new facility in Hal Far,a seaport on the southern end of theisland. We’re building Siegfried inMalta and, as a young, growing company,we don’t have ‘tried and true’processes and experience to fall backon. It’s an exciting and demandingchallenge that brings up new issuesand people every day. I’m good atorganizing and communicating, whichis a good thing in my job as qualitycontrol manager for the entire lab area.In my free time I like to play soccer.If it’s not raining – it almost never rainsin Malta – my friends and I regularlymeet for a game, five on five, onSaturdays. I’m a big fan of the EnglishPremier League and Liverpool is myfavorite team.But the real center of my life – alongwith my job – is my family. I have ason, Nicolas, and I love being a father.We are expecting our second childin May, a girl or a boy, who knows?It will be a wonderful surprise for mywife and I.I was born and grew up here, andI’m proud to be 100% Maltese.Inhabited since the Stone Age, Maltais one of the most historic spots inEurope. The Phoenicians often usedthese three inhabited islands (Malta,Gozo and Comino) and three smaller,uninhabited islands and called them‘malet’, which means place of refugein their language.But not only the Phoenicians have lefttraces in Malta. The Greeks, Romans,Arabs, Spaniards, French, and theEnglish fought over our strategicallylocated republic – the imposingfortifications in the capital of Vallettabear witness to an eventful past.That’s why our language is a mix ofItalian, Spanish, French and English.Malta joined the EU three years agoand is the smallest member.23

Corporate Governance1 Table of contents2. Foreword and general framework3. Siegfried Group management structure4. Shareholders5. Capital structure6. Board of Directors7. Operational Management8. Compensation, investments and loans9. Participatory rights of shareholders10. Control changes and defensive measures11. Auditors12. Information policy24 Corporate Governance

2. Foreword and general frameworkRegarding corporate governance, the Siegfried Group takesan integrated approach and is fully committed to mutualtrust and clarity toward shareholders, employees, businessjournalists and financial analysts.Our experience with the SWX Swiss Exchange guidelines hasshown the importance of sustainable and long-term relationshipswith all shareholders and stakeholders, and a sensibleapplication of corporate governance instruments.Cooperate governance at Siegfried is based on the statutesof Siegfried Holding AG, the rules of procedure of theSiegfried Group, and the structure of the Group and thetwo Business Divisions, Siegfried and Sidroga. This reportdescribes the principles of management and control ofthe Siegfried Group. Corporate governance of the SiegfriedGroup substantially follows the “Swiss Code of Best Practice”of March 2002. As a medium-sized company with a stableshareholder structure, however, the Siegfried Group hasmade certain adjustments, as permitted within the frameworkof the guidelines for corporate governance of theSWX Swiss Exchange.Corporate governance of the Siegfried Group is regularlyreviewed and adapted by the Board of Directors.Corporate Governance25

3. Structure of the Siegfried Group3.1 Management structure of the Siegfried GroupBoard of DirectorsDr Markus AltweggChairmanChairman’s OfficePeter A. GehlerSecretary to the Board / CCOSidroga DivisionPeter DegenCEOSiegfried DivisionDouglas C. GünthardtCEOCFO / Corporate DevelopmentDr Richard SchindlerCFO26 Corporate Governance

3.2 Participation structure of Siegfried Holding AG1. Switzerland Currency Share Capital in LC Participation CommentsSiegfried Ltd, Zofingen CHF 20 000 000 100%Siegfried Biologics AG, Zofingen CHF 100’000 100%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%Sidroga Gesundheitsprodukte AG, Zofingen CHF 200'000 100%2. EuropeSiegfried GmbH, Munich EUR 25’000 100%Siegfried Biologics GmbH, D-Kleinmachnow EUR 69 000 100%Siegfried Generics (Malta) Ltd, Valletta EUR 100 000 100%Siegfried Deutschland Holding GmbH, EUR 1 790 000 100%Bad SäckingenSidroga GmbH, Bad Säckingen EUR 256 000 100% 75% held by SiegfriedDeutschland Holding GmbHSidroga Handels GmbH, Wien EUR 35 000 100% 100% held bySidroga Gesundheitsprodukte AG,ZofingenSiegfried Immobilien GmbH, Bad Säckingen EUR 52 000 100% 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 consolidatedPenick Holding Company, Pennsville USD 2 100%Penick Corporation, Pennsville USD 0 100%4. AsiaSCI Pharmtech Inc., Taiwan TWD 200 000 000 16.66% not consolidatedCorporate Governance27

4. Shareholders4.1 Major shareholdersThe following table describes the shareholder structure ofSiegfried Holding AG and lists shareholders reportingholdings of 3% or more of the voting rights of SiegfriedHolding AG In addition, the shareholdings of the Boardof Directors and of the Group Management are shown.The Camellia Group and the Siegfried Shareholders Grouphave granted each other the right of first refusal relative tothe sale of shares held by them.Shareholders Shares held as of 31.12.2006 % Shares held as of 31.12.2005 %With holdings over 3%Camellia Group 933 680 33.35 933 680 33.35(consisting of CamelliaHolding AG, Glarus;Affish Ltd, Linton)Siegfried Shareholders’ Group (consisting of 145 335 5.19 151 051 5.39descendants of Dr hc Hans Siegfriedand Sigamed AG, Zug)Tweedy, Browne Company LLC, New York 1 287 532 10.27 287 532 10.273V Asset Management AG, Zürich 2 89 000 3.18Total 1 455 547 51.99 1 372 263 49.01Board of Directors and Group ManagementBoard of Directors, non-executive 3 16 078 0.57 18 440 0.66Board of Directors, executive and Group Management 4 767 0.17 700 0.02Total 20 845 0.74 19 140 0.68OtherPublic shareholders 1 320 672 47.17 1 404 810 50.17Shares held by Siegfried Holding AG 2 936 0.10 3 787 0.14Total 1 323 608 47.27 1 408 597 50.31Grand total 2 800 000 100 2 800 000 1001By its own account, Tweedy, Browne LLC, New York held 10.27% of theshares of Siegfried Holding AG as of 12/31/2005. The Board of Directorsrecorded 3% of these shares as voting rights, the rest without voting rights.23% of these shares were registered as voting rights.3Excluding the shareholdings of Dr Bernard A. Siegfried, which are includedin the position “Siegfried Shareholders’ Group”.28 Corporate Governance

4.2 CrossholdingsThe Siegfried Group has not entered into any crossholdingswith other companies involving capital or voting.5. Capital structure5.1 CapitalThe share capital of Siegfried Holding AG is CHF 5 600 000and is divided into 2 800 000 fully paid-up registered shareswith a par value of CHF 2 each.5.2 Changes in capital during the past threereporting yearsThere were no changes in capital during the past threeyears.Corporate Governance29

6. Board of DirectorsThe tasks of the Board of Directors are governed by law andare set forth in the statutes and company regulations of theSiegfried Group.6.1 Members of the Board of DirectorsThe Board of Directors of Siegfried Holding AG comprises sixpersons. The members of the Board of Directors have nosignificant business relationships with Siegfried Holding AGor the Siegfried Group.The following table gives information about the name, age,position, date of entry and duration of term in office of themembers of the Board of Directors:Name Birthyear Position Entry Elected untilMarkus Altwegg 1941 Chairman, 2002 2008executiveThomas Staehelin 1947 Deputy Chairman, 1991 2009non-executiveBernard A. Siegfried 1934 Honorary Chairman 1977 2007and Member,non-executiveSusy Brüschweiler 1947 Member, 1999 2008non-executiveFelix Gutzwiller 1948 Member, 1999 2008non-executiveFelix K. Meyer 1953 Member, 2006 2009non-executiveSecretary to the Board of DirectorsPeter A. Gehler 1958 200030 Corporate Governance

6.2 ProfilesDr Markus Altwegg, ChairmanMarkus Altwegg (1941) was appointed to the Board ofSiegfried Holding AG in 2002 and appointed Chairman in2003. He was responsible for the worldwide operationsof Roche Group’s Vitamin & Fine Chemicals Division from1999 until his retirement in 2003. Prior to that he heldvarious positions within different departments at Rochesince 1968 and was appointed to the Executive Committeein 1986.He serves on the board of the Energiedienst Holding AG andthe private bank Sal. Oppenheim AG. Furthermore, he is amember of numerous industry associations and scientific andcharity organizations. He is the President of the Life Sciencecommittee of the Basel Chambers of Commerce and a boardmember of the Basel Museum of Art Foundation and theBasel Museum of Ancient Art Foundation.He has a Ph.D. in Economics from the University of Basel.Markus Altwegg is a Swiss citizen.Dr Thomas Staehelin, Deputy ChairmanThomas Staehelin (1947) was appointed vice chairman ofSiegfried Holding AG in 1999; prior to that he served as thecompany’s chairman from 1991 and 1998. Thomas Staehelinis a partner in Fromer, Schultheiss und Staehelin, a lawfirm in Basel. As a lawyer, he specializes in tax, corporate,contract and company 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 boardof the Association of Private Joint Stock Companies and amember of the Expert Committee on Financial Reporting(SWISS GAAP FER). Thomas Staehelin serves on the boardof directors of the following companies: Chairman of SwissportInternational AG, Kühne Holding AG, and Scobag AG,Deputy Chairman of Lenzerheide Bergbahnen AG, boardmember of Kühne & Nagel International AG, Lantal Textiles,Veillon Immobilière SA, and Inficon Holding. In some ofthese companies he also chairs the auditing committee.Thomas Staehelin is a Swiss citizen.Corporate Governance31

Dr Bernard A. Siegfried, Honorary ChairmanBernard A. Siegfried (1934) was chairman of SiegfriedHolding AG from 1998 to 2003. After furthering hisprofessional development in Mexico and the USA, hejoined the family-owned company in 1967. In 1977Bernard A. Siegfried was appointed Chief Executive Officer,and on 1 January 2001 he withdrew from all operativefunctions. In recognition of his services to the company,the Board of Directors appointed him Honorary Chairmanin 2003. He continues as a regular member of the Boardof Directors.Bernard A. Siegfried has a Ph.D. in Economics from theUniversity of St Gall in Switzerland. He is a member of theboard of directors of Camellia, PLC, Linton (UK).Bernard A. Siegfried is a Swiss citizen.Susy BrüschweilerSusy Brüschweiler (1947) was appointed to the board ofSiegfried Holding AG in 1999. A trained nurse, she con -tinued her education at the University of Neuchâtel, studyingeconomics and business management. From 1986 to 1990she directed the Bois-Cerf Nursing School in Lausanne,Switzerland; and from 1990 to 1994 she was headmistressof the School for Nursing Management in Aarau, Switzerland.In 1995 she joined the former SV-Service (marketleader in Swiss catering services) as CEO, transforming theassociation into the SV GROUP Inc., which she heads asCEO today.Susy Brüschweiler works with the International Committeeof the Red Cross (ICRC). Furthermore, she is a memberof the boards of Schweizerische Mobiliar Holding AG,Schweizerische Mobiliar Genossenschaft (insurance com -pany) and Movis AG. She serves on the Credit Suisse Groupadvisory board, and on the board and the board committeeof the Swiss Employers’ Association.Susy Brüschweiler is a Swiss citizen.32 Corporate Governance

Prof Dr med Felix GutzwillerFelix Gutzwiller (1948) joined the board of SiegfriedHolding AG in 1999. Since 1988 he is a professor andhead of the preventive medicine department at theUniversity of Zurich. In 1999 Felix Gutzwiller was electedto the Swiss National Assembly and appointed chairmanof the Free Democratic Party of Switzerland in 2005.Felix Gutzwiller completed his studies at the universities ofBasel, Harvard, and Johns Hopkins (USA).In addition to Siegfried Holding AG Felix Gutzwiller isalso on the boards of Rahn AG, Hirslanden Holding AG,Bank Clariden Leu AG, Winterthur Schweiz AG, andOsiris Therapeutics, Inc. He serves on the advisory boardof the Credit Suisse Group and is also on the board oftrustees of numerous charity, scientific and public healthfoundations. Felix Gutzwiller is a colonel in the Swiss Army.Felix Gutzwiller is a Swiss citizen.Dr Felix K. MeyerFelix K. Meyer (1953) joined the board of SiegfriedHolding AG in 2006. He worked for Ciba-Geigy AG (laterCiba Specialty Chemicals) from 1981–2004, and heldvarious positions in Switzerland and abroad, ultimately,as a Segment Manager and member of the board. Duringthis time he focused on issues of corporate strategy andmarketing, representing the company in joint ventures inEurope and Asia (China and Japan). Since 2004, FelixK. Meyer heads Baerlocher, a global specialty chemicalscompany with headquarters in Munich, Germany.Felix K. Meyer is president of the Board of Directors ofS.O.G.I.S. Industria Chimica S.p.A. (Italy) and member ofthe board of Lestar Quimica S.A. (Argentina).He received his Ph.D. in Chemical Engineering from theETH in Lausanne, Switzerland, and spent a year at StanfordUniversity (USA) as a Postdoctorate Fellow.Felix K. Meyer is a Swiss citizen.Corporate Governance33

Secretary to the Board of Directors: Peter A. GehlerPeter A. Gehler (1958) has been Chief CommunicationOfficer of the Siegfried Group since 2000 and also head ofthe Chairman’s Office since 2002. As Chief CommunicationOfficer, he heads the Corporate Communications departmentof Siegfried Division. Prior to joining Siegfried, hewas a marketing and sales manager in the textile industry(1988–92) and an independent consultant for marketingand communications from 1992 until 1999, with clients inthe industry and in commerce.Peter A. Gehler studied business administration at theUniversity for Applied Sciences, St Gall and receivedhis MAS in Economics and Marketing from the Universityof Basel in 2006. He is a member of the board ofthe Zofingen Chamber of Commerce and Industry.Peter A. Gehler is a Swiss citizen.34 Corporate Governance

6.3 Linking directorates6.3.1 Corporate linking directoratesBernard A. Siegfried is a member of the Board of Directors ofCamellia, Plc, Linton. Since 2003 he represents the majorityshareholder Camellia Group and the Siegfried family on theBoard of Directors of Siegfried Holding AG.There is no other mutual representation between the boardsof Siegfried Holding Ltd and those of other listed companies.6.3.2 Linking directorates within the BoardAll directorates in other listed companies of the membersof the Board of Siegfried Holding AG are described underSection 6.2 Profiles.6.4 Election and period of officeThe Board of Directors of Siegfried Holding AG is elected bythe General Meeting of Shareholders and subsequently constitutesitself. Members of the board are elected for a periodof three years and can be reelected. Regulations specifythat members must retire from the Board of Directors at theGeneral Meeting of Shareholders following their 68 th birthday.A special ruling can be made for the chairperson or thehonorary chairperson.6.5 Internal organizationThe Board of Directors is responsible for supervision of theGroup and the Divisions. The Board determines groupstrategy, the allocation of resources and the structure of thegroup. It is also responsible for setting the organizationalstructure, accounting, financial control, and financial planning.To the extent it does not exercise these duties itself ordelegate them to the chairperson of the Board of Directors,the Board delegates management of the business to theDivision managers and to the CFO of the Siegfried Group.They are responsible for management of the two Divisions,for the rendering of accounts and controlling, and for allmatters not otherwise delegated to another company bodyby law, statutes or organizational regulations.Decisions are made by the entire Board of Directors. Fourcommittees assist them:– Audit & Finance– Human Resources– Nomination & Compensation– Products & MarketsThe responsibilities and competencies of the committees areset forth in the adjoining excerpt from the company regulationsof the Siegfried Group.During the business year, the Board of Directors met foreight regular sessions, an assessment meeting and a strategyseminar. All members of the Board of Directors (with oneexception) were present. The assessment meeting analyzedthe cooperation within the Board and evaluated how goalswere achieved.During the year, the Audit & Finance committee met fourtimes, the HR committee twice, the Nomination & Compensationcommittee three times, and the Products & Marketscommittee one time. The following table shows the compositionof the Board committees:Committee Chair MembersAudit & Finance Thomas Staehelin Susy BrüschweilerHuman Resources Susy Brüschweiler Felix K. MeyerNomination & Compensation Markus Altwegg Thomas StaehelinProducts & Market Felix Gutzwiller Felix K. Meyer6.6 Management information and control instrumentsInformation is based on monthly reporting that is structuredas follows: results for the Group and the Divisions arepresented in detail and compared with the budget and theprevious year’s results – including a results forecast for theCorporate Governance35

entire year. Monthly comments focus on any deviationsfrom plan, important business incidents, and key performanceindicators. A fully consolidated financial statementis prepared every quarter. A mid-range plan outlines thenext five years.The sharing of responsibilities between the Board and themanagement are described in the adjoining excerpt fromthe company regulations of the Siegfried Group.The results are discussed and evaluated with the DivisionCEOs and the CFO at the Board of Directors meetings.Excerpt from the company regulations of the Siegfried Group3.3.3 Committees appointed by the Board of DirectorsThe Board of Directors may appoint committees, at least for such topics aspersonnel (HR committee), products / market (Products & Markets committee),nomination and compensation (Nomination & Compensation committee) andaudit and finance (Audit & Finance committee). Such committees also determine,at an early stage, the risks in various business activities through contactwith the responsible authorities, and informing the Board of Directors. Theydo not have powers of decision, but do have a comprehensive right of informationas well issuing recommendations to the Board of Directors. They mayrequest items to be included on the agenda at the next meeting of the Boardof Directors, and report on their activities at the Board meetings. As a rule,two members of the Board shall be included on a committee, one of whomshall be the chairperson. The committees meet as often as is necessary, atleast, however, twice a year.The issues to be covered include:Human Resources– Personnel policies of the Group and the Divisions– Maintaining company know-how, training and continued education– Being an attractive employer– Parameters for negotiations between management and labor– Employee surveys and their evaluation– Talent promotion, management development– All pension plans and other social benefits provided bythe Group companiesProducts / markets– Pipelines– Supply structure, services, products– Market processing, instruments, geographic presence– Market coverage, market data, market evaluationNomination / compensation– Nominations to the Board, the Board of Directors’ committees,Division heads and Holding functions– Compensation policy of the Siegfried Group– Compensation recommendations for Board members,submitted to the entire Board– Setting the employment conditions and compensation for Division heads,Holding functions, and members of the Executive Management– Bonus systems and stock and option programsAudit / Finance– Accounting– External and internal auditing– Budget, medium-term and long-term planning– Financial planning– Monitoring management accounting controlling36 Corporate Governance

Excerpt from the company regulations of the Siegfried Group:The Siegfried Group (the Group) is structured in a management organizationand a legal organization. With regard to management responsibility and thechain of command, the management structure takes priority.2.1 The management structureThe top three levels of management (and their responsibilities) are defined inthe current regulations.The Board of Directors’ management level consists of the Board of Directorsof Siegfried Holding AG as the highest and only collective management levelat the Group level. The Board of Directors sees itself, in its function as Boardof Directors of Siegfried Holding AG, as simultaneously responsible for boththe overall management of the Group and for the Divisions. The Board ofDirectors, therefore, decides on the Group strategy, allocation of resources,and the Group structure. In addition, it is responsible for the structure of theorganization, its accounting, financial control and financial planning. Shouldthe Board of Directors, in accordance with the terms of these regulations,not execute these functions itself (and thereby to some extent carry out tasksof Group management), it delegates these functions to the Division heads.in carrying out his management duties in regular meetings held with theChairman and the Holding company organs. The Division head establishesthe management structure within the Division, which is subject to approvalby the Board of Directors or the Chairman.The Board may decide to supplement the management structure and hierarchyof the Group, in certain cases, through the creation of project teamsthat may include employees from various levels, divisions and companies.These project teams take priority over the normal management structurewithin the parameters of the project and up to the time when the projectteam is dissolved.The Chairman’s management level sees itself, together with the Holding functionsfinance and communications, as a coordinating and managing strategicinterface between the Board of Directors and the Division heads. The Chairmaninitiates, coordinates and monitors strategic processes within the Group,and articulates the strategic goals set by the Board of Directors (allocation ofresources is one of the tasks of the Board of Directors, see paragraph 2). Heconcludes agreements on goals with the Division heads, and monitors anddirects the success with which they are achieved.The Divisions’ management level consists of the Division CEO, who is responsiblefor the management and the results of the Division. He obtains supportCorporate Governance37

7. Operational ManagementThe CEOs of the Siegfried and Sidroga Divisions are respon -sible for managing the operations and performance ofthe Group’s companies within their Divisions. Subject tothe competencies and instructions of the Board of Directorsand/or its chairperson, the CEOs report to the Board ofDirectors and are responsible for implementing and achievingtheir corporate objectives and for management andcontrol of their Business Units and subsidiary companies(with responsibility for earnings and the balance sheet).7.1 Members of Group ManagementName Birthyear Position StartDouglas C. Günthardt 1959 CEO Division Siegfried 1996Peter Degen 1955 CEO Division Sidroga 2000Richard Schindler 1965 CFO Siegfried Group 2000The responsibilities of the Chief Financial Officer within hisarea are identical to those of a Division CEO, particularly insecuring the accounting, controlling, and reporting functionsand as treasurer at the Group level.The powers and tasks of the two CEOs and of the CFO areset forth in detail in the organizational regulations of theSiegfried Group.38Corporate Governance

7.2 ProfilesDouglas C. Günthardt, CEO, Siegfried DivisionDouglas C. Günthardt (1959) has served as CEO of theSiegfried Division since 2000. After joining the company in1996, he was Chief Financial Officer for four years. Priorto joining Siegfried, he worked for different internationalcompanies in financial management.Douglas C. Günthardt completed studies in Applied Mathe -matics at Harvard University followed by an MBA in Financeand Strategic Planning from Stanford University in California(USA) in 1984.He is a member of the board of directors of the Schweize -rische Gesellschaft für Chemische Industrie (SGCI).Peter Degen, CEO, Sidroga DivisionPeter Degen (1956) joined the company in 1999 and hasdirected the Sidroga Division since January 2001. Previously,he served in different positions in Switzerland and abroadfor Roche and later directed the pharmaceutical business ofDegussa in Latin America.Peter Degen earned a degree in Business Administrationat the Fachhochschule in Basel, specializing in Marketing.He later earned a Swiss federal diploma as controller.Peter Degen is a Swiss citizen.Douglas C. Günthardt is both a Swiss and US citizen.Corporate Governance39

Dr Richard Schindler, CFO, Siegfried Holding AGRichard Schindler (1965) was appointed Chief FinancialOfficer of the Siegfried Group in 2000. During the previousten years he held a management position with PricewaterhouseCoopersas an auditor and later in corporate finance.Richard Schindler earned a degree in Economics at theUniversity of Zurich and subsequently completed a doctoraldegree there. He is a Certified Swiss Accountant and alecturer on company valuation at the University of Zurich.Richard Schindler is a Swiss citizen.40 Corporate Governance

7.3 Management ContractsSiegfried Holding AG and the companies of the Group havenot concluded management contracts with any third parties.8.3 Compensation of former governing body membersDuring the 2006 business year, no compensation was paid toformer members of governing bodies.8. Compensation, investments and loans8.1 Contents and process used to set compensationand participationThe members of the Board of Directors are compensated atthe level set by the Board of Directors, as recommended bythe Board’s Nomination & Compensation committee.Siegfried Group managers receive compensation based onperformance, which can range from 5% to 60% of the basesalary. The actual component depends on the achievementof business targets within the particular area of responsibilityand individual objectives. Achievement of the businesstargets influences the variable component by a factor of 0(worst case) and up to a factor of 1.5 (best case). The factorsfor attaining personal goals lie between 0 and 1.5. The Nomination& Compensation committee sets the levels of compensationfor both CEOs and the corporate management.8.2 Compensation of current members ofgoverning bodiesMembers of the Board of Directors are paid CHF 50 000.00,the Chairman CHF 270 000.00, and the Vice-ChairmanCHF 60 000 per year. The total compensation paid to themembers of the Board of Directors is CHF 530 000.00(excluding all employer contributions to social security andcontribution for share purchase plan).8.4 Share purchase planIn August 2005 the Siegfried Group introduced a sharepurchase plan for all Swiss employees. They can invest up to10% of their income in this plan to buy Siegfried shares.Board of Director members can participate in the plan withtheir entire salary. The subscription rights are subject to a lockupperiod of three years. The company contributes a supplementof 32% of the employee’s amount. Employees mayopt out or adjust their investment amount in August of eachyear. Since September 2005, the investment amount set byeach employee is deducted from his or her salary.The first number of shares were acquired at the end ofFebruary and August 2006 and transferred to the desig -nated employee custodian accounts. CHF 81 244 wascontributed for participating members of the Board ofDirectors and CHF 20 917 for the Group managementin 2006.A total of 209 employees and all members of the Boardparticipated in the share purchase plan. The plan wasopened to Siegfried Group employees in the USA andGermany in August 2006.The total amount (including all bonuses and pension fundscontributions, excluding contributions to social security andshare purchase plan) paid to the three members of theGroup Management during the year under review amountedto CHF 1 763 686.Corporate Governance41

8.5 Distribution of shares in the 2006 business yearTogether with the shares distributed through share purchaseplan, no further Siegfried Holding AG shares were allottedto members of the Board of Directors, Group management,or to per sons associated with them during the 2006business year.8.6 Stock ownershipSee table under Section 4.1.8.7 Additional fees and compensationNo members of the Board of Directors, Group management,or persons associated with them billed either SiegfriedHolding AG or any of its Group companies for additionalservices during the 2005 business year for an amount thatis 50% or more than the regular compensation levels.8.8 Loans to corporate bodiesMembers of the Board of Directors or Group managementand/or persons closely associated with them are/were notpreviously involved in any business activities beyond theusual activities of Siegfried Holding AG or any of its Groupcompanies, or in other extraordinary business activities thatare essential to Siegfried Holding AG during the current orthe previous business year.As of 31 December 2006, Siegfried Holding AG and itsGroup companies have provided no guarantees, loans,advances or credits to members of the Board or Groupmanagement, or to any person associated with them.At the same time, advances amounting to CHF 40 000were due to members of the Group management.9. Participatory Rights of Shareholders9.1 Voting rights and proxyEach voting share registered at the General Meeting ofShareholders of Siegfried Holding AG is accorded one vote.Registered shareholders can choose to be represented bya legal representative or by another registered shareholder,which requires a written power of attorney.9.2 Statutory quorumsDecisions are made at the General Meeting of Shareholdersby absolute majority of the shares voted, unless otherwiserequired by law or the statutes. In a tie vote, the chairpersoncasts the deciding 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 transferof 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 aa non-cash capital contribution or asset acquisition, orfrom the granting of special privileges– Restriction or cancellation of stock options– Transfer of the company’s legal place of business– Company closure without liquidation8.9 Highest total compensationThe highest compensation for a Board member wasCHF 304 700 paid to Markus Altwegg (excluding employerscontribution to social security, including contribution forshare purchase plan).42 Corporate Governance

9.3 Calling a General Meeting of Shareholders andsetting the agendaThe calling of a General Meeting of Shareholders and settingof the agenda are subject to the applicable legal regulations.Shareholders with at least 250 000 shares with voting rights,amounting to a total nominal capital of CHF 500 000,are authorized to propose agenda items for the GeneralMeeting, when submitted at least 45 days prior to theGeneral Meeting of Shareholders. Siegfried Holding AGalso asks these stockholders if they intend to submit anyparticular agenda items.9.4 Entry into the share register/invitation to theGeneral Meeting of April 13, 2006For the General Meeting the Board of Directors has set adeadline (Thursday, April 5, 2007, 8:00 a.m.) to determinethe eligible shareholders. All participants must be registeredin the share register by this time. Admission tickets andvoting materials can be ordered with the reponse card (atSiegfried Holding AG, Share Register, c/o Nimbus AG, Postfach,CH-8866 Ziegelbrücke, Switzerland) before April 10,2007. Upon receipt of the response card, an admissionticket and the voting materials are sent to the shareholder.No entries will be made into the share register from April 5,8:00 a.m., 2007 until April 20, 2007. Shareholders whosell their shares prior to the General Meeting of Shareholdersforfeit their voting rights.– Registration requests are considered granted if the companyhas not denied them within 20 days after receipt.– Petitioners must declare in writing that they have acquiredthe shares in their own name and account.– The Board of Directors must deny the request if thepetitioner alone or together with associated personscontrols more than 3% of the voting rights after approval.– Upon presentation of relevant reasons, the Board ofDirectors may approve exceptions.– To the extent that federal regulations require that thecompany be controlled by Swiss citizens, the Board ofDirectors must deny the request if the registered foreigneralready controls over 10% of the voting rights or woulddo so after registration.No exceptions were granted during the reporting year.The invitation to the General Meeting and the proposalsof the Board of Directors can be viewed on the website ofSiegfried Holding AG.9.5 Limitations on transferabilityOnly persons entered in the share register can exercise theright to vote and the privileges related thereto. Registrationis subject to the following statutory restrictions:Corporate Governance43

10. Control changes anddefensive 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. Auditorsstatement of the Siegfried Group and for related services.In addition, PwC was paid CHF 111 000 for tax accountingand other services.11.3 Supervision and control instruments relatedto the auditPerformance, remuneration and independence are discussedand assessed annually by the Audit & Finance committee,which submits a report to the Board regarding retention orchange of the Group auditors and the company auditor. Eachyear the audit report is reviewed with the external auditors.11.1 Period of the contract and length of serviceof the lead auditorPricewaterhouseCoopers AG (PwC), Basel (or predecessororganizations) has been the auditor of Siegfried Holding AGsince 1920, and auditor of the Siegfried Group since 1922.The lead auditor, Dr M. Jeger, carried out the audits of bothmandates for the fourth time in the business year 2006.11.2 Audit fees and additional feesPwC billed the Siegfried Group CHF 229 000 during the2006 business year for services in connection with auditingof the financial statement of Siegfried Holding AG andof the Group companies and the consolidated financial44 Corporate Governance

12. Information policyThe Siegfried Group is committed to an open and consistentinformation policy. The media, financial analysts and otherinterest groups are kept up to date on important developmentsand events. Shareholders are informed semi-annuallyabout the state of the business and receive the annual reportand the semi-annual report upon request. All financial reports,media releases, important contacts, and current share pricecan be found at www.siegfried-holding.com. A news conferenceis held annually for the media and financial analysts.Siegfried Holding AG strictly observes the SWX SwissExchange’s duty of disclosure (ad hoc notification) regardingevents that could affect the stock price.In 2007, the company will inform about the course of businessas follows:– March 20, 2007: Publication of results of the 2006 businessyear at a media and analyst conference in Zofingen– August 16, 2007 (tentative): Publication of semi-annualfigures at a telephone conference at 09:30 a.m.– October 26, 2007 (tentative): Publication of businessfigures of the first nine months of the 2007 business yearCorporate Governance45

Dirk SartorBusiness Development Manager, ZofingenIt’s my job to help shape the future ofSiegfried, that is, to look for projectsthat are a good fit for us. By observingmarket developments and keeping aclose eye on the pipelines – everythingfrom start-ups to the “big pharma”companies – I jump into action whenI see a potential need for outsourcing.But thanks to our reputation in theindustry, we often get companies thatcome knocking on our door. I meetwith them, analyze their needs andnail down the technical issues so I canprepare a quote.This is called “New Business Development”.It also means that I’m on theroad a lot, all over the world, butmostly in Europe and Japan. I like totravel, even if it means not having alot of time with my family in Germany.When I’m not on the road, I work inZofingen during the week with a placein a village (Küngoldingen) close bywhere I can sleep. On the weekendsI’m at home with my wife and our twokids, Sebastian and Saskia.Traveling long distances is OK for me.I just need to be well organized andmake sure I’ve done as much as I canfor the family, as my wife ends upalone with the kids most of the time.We live on a farm in a beautiful areaclose to Heidelberg. We inherited itfrom my parents 10 years ago and hadit totally rebuilt; it’s a good place for meto relax and “recharge my batteries”.To get my mind off work, I like to beoutdoors, to take care of the fieldsand trees around the house. WhereI live is also perfect for mountain bikeriding, and hunting, which is a familytradition and one of my passions.I enjoy being out early in the morningand observing nature. It’s a fantasticfeeling to experience things that mostpeople (who are still asleep at thishour) seldom get to see.My passion for hunting carries overto my job as well, where I depend onmy instincts and intuition to find theright projects. Then you need patience,because it’s important to find theright moment to strike. When talkingto a customer I can sense if a projectis ready to be outsourced. It alwaysfeels great to see how a customertrusts me enough to talk about theirplans. I see myself as a partnerrather than a salesperson, and thecustomer does too; communicatingwell is important.I also enjoy being in touch withcolleagues in Zofingen and at ourPennsville facility. You have to bea bit of an individualist and idealist atmy job. I like to travel, but need theconnection to my family. I call themdaily when I’m on the road so that weare part of each other’s lives – despitethe physical distance. And I am verygrateful that my wife runs the home,otherwise I could never do this job.47

Report on“Safety – Health – Environment”The Safety, Health and Environment (SHE) policy is key toour success. Our global SHE policy, drafted in 2006, sets themandatory guidelines for all Siegfried Division facilities.Safety awareness was an important topic, which wesupported with various campaigns in 2006. The resultsare encouraging: 1 ⁄3 fewer workdays were missed dueto accidents and all our goals of reducing workplaceaccidents were met.During 2006 we faced many SHE challenges. At the beginningof the year we implemented a customer’s multi-stageproduction process – in record time. At the end of the yearwe successfully concluded the official certification and commissioningof pharmaceutical production in Malta. During theyear, management pushed implementation of the SiegfriedSafety Program (SSP) at our Zofingen and Pennsville sites.In an effort to broaden our product range, Siegfried appliedfor a license to manufacture highly active ingredients, wherequality, GMP, employee safety and related measures play48 Report on “Safety – Health – Environment”

a key role. The inspection by Swiss Medic went well and weexpect the expanded license to be issued to our Zofingenfacility during the early part of 2007.We are on track to reduce the amount of wastewater andCO 2 emissions, and stabilize our energy use. However,it’s important to note that conservation measures are oftenmore difficult to implement that originally assumed dueto process regulations by customers and current GoodManufacturing Practice (cGMP) guidelines.and pharmaceutical industries, we are committed to respectand protect our environment. This is why annual bonuslevels for Siegfried Division management are determinedin part by attaining SHE goals.We take our commitment seriously.Douglas C. GünthardtCEO, Siegfried DivisionThis SHE 2006 report covers the details of our programacross all Siegfried business units, our facilities in Germany,Malta, Switzerland and the United States, and the SidrogaDivision (although SHE guidelines don’t play a decisive rolefor this marketing organization).We have set ambitious goals for the coming year as well.We will strive to reduce our consumption of resources andto achieve a sustainable reduction in workplace accidents.Safety in the workplace remains the central theme of ourSiegfried Safety Program. As co-signer of the ResponsibleCare Program and as a company active in the chemicalReport on “Safety – Health – Environment”49

Overview 2002–2006Key corporate figuresSiegfried Division net sales (CHF million)40030020010002002 2003 2004 2005 2006Number of employees Siegfried Group1200100080060040020002002 2003 2004 2005 2006Number of SHE audits2001501005002002 2003 2004 2005 200650 Report on “Safety – Health – Environment”

ResourcesTotal energy consumption (,000 giga joules)40030020010002002 2003 2004 2005 2006Industrial effluent / Zofingen & Pennsville (1000 m 3 )800Chemical wastes w/o effluent sludge (1000 tons)25600400200201510502002 2003 2004 2005 2006ZofingenPennsville02002 2003 2004 2005 2006CO 2 emissions (1000 m 3 )2015105VOC emissions (tons)1201008060402002002 2003 2004 2005 200602002 2003 2004 2005 2006Report on “Safety – Health – Environment”51

Resources2002–2006 overviewUnit 2002 2003 2004 2005 2006Total energy GJ 373 000 379 000 344 000 360 000 375 000Natural gas GJ 202 700 186 500 191 000 198 000 220 000Heating oil GJ 21 200 13 000 11 000 18 000 12 000Alternate fuels (solvents) TAR GJ 14 000 57 000 27 000 22 000 23 000Electricity GJ 129 000 119 000 110 000 117 000 122 000Water m 3 1 940 000 1 761 000 1 437 100 1 887 100 2 507 000CommentsThe five-year comparison shows that investing in modernproduction systems stabilizes energy consumption. Whencompared to the growth in sales, the use of some resourcesincreased, but remained lower than for the previous year.The stringent GMP standards demand a more comprehensiveclimate control for the production facilities, whichresulted in a stable level of electricity usage over the longterm.A noticeable level of new energy consumptionwas added with the new pharmaceutical production plantin Malta when it opened in mid-2006.Increased utilization levels at the Pennsville production sitecontributedto higher fossil fuel consumption. The intro -duction of a new, multi-stage synthesis process led to acompletely different exhaust gas composition in Zofingen,making technical upgrades of the TAR system necessary.Due to technical reasons, the internal use of waste solventsto generate energy was limited, and their use as an energyalternative to natural gas found only limited application.In summary, our goal to optimize alternative fuel sourceswas not met.introduction of new chemical processes (with substantialcooling demands) all led to a growing need for coolingwater. For these reasons we were unable to meet our“stabilized water consumption” goal.In 2006, electrically powered forklifts replaced the previousdiesel models, clearly improving the environmental andnoise pollution levels. In addition, modern heating / coolingsystems have replaced our direct water-cooling process.Goals 2007Zofingen and PennsvilleImplementation of further conservation projects:– Recycling optimization (solvents)– Utilizing further savings potential:Saving water in ZofingenSaving nitrogen in PennsvilleWater consumption increased by 10%, particularly in Zofingen.The start-up of additional compressor systems, the firstfull year of operation for the milling / mix systems, and the

EmissionsComparison: 2002 – 2006Unit 2002 2003 2004 2005 2006Chemical wastes w/o effluent sludge tons 16 800 13 500 10 900 13 400 19 300Industrial effluent / Zofingen m 3 349 600 412 400 330 000 504 000 676 000Industrial effluent Pennsville m 3 62 200 53 500 59 100 62 800 64 400CO 2 emissions tons 14 780 17 011 14 453 15 300 16 200VOC emissions tons 62 57 51 104 87CommentsOver 90% of our chemical waste is contaminated solvents.However, regulations controlling the production of activepharmaceutical ingredients (API) limit the recycling ofsolvents. Higher utilization levels at Zofingen and Pennsvilleand the introduction of new chemical production stagesin Zofingen contributed to a 20% overall increase in waste.In 2006, Zofingen used 1000 tons less solvents for in-houseenergy generation (due to technical reasons), which neededto be disposed of externally.The goal of recycling solvents was partially achieved. Thanksto an in-process recycling method, over 3000 tons ofsolvents were recycled for use in the production process.(TAR) and a (low emission) solvent exchange. Pennsvilleis the source of about 70% of the VOC emissions, whichincreased slightly due to the higher utilization levels ofthe facility.Goals 2007Zofingen and Pennsville– Reduction of refractory sewage– Reduction of VOC emissions through increased use ofa thermal air cleaning systemPennsville evaluated various recycling possibilities, includingthe recycling of solvents and sulfuric acid, the use of membranetechnology to clean absorbent liquids, and alternativedisposal methods for biological sludge from the ARA.A project to use contaminated sulfuric acid as a neutralizingagent to reduce overall acid consumption was initiatedtogether with an external ARA.Industrial effluent: The goal to reduce the amount of highlycontaminated industrial effluent was met; the five-yeartrend is clear. Thanks to various measures, the amount ofchemical wastes cleaned by biological purification wasreduced by 50%.Carbon dioxide: All facilities contributed to a reduction inCO 2 emissions, due mostly to reduced use of contaminatedsolvents to generate energy. Solvents have a higher carboncontent than natural gas and produce more CO 2 duringincineration.VOC: Zofingen managed to maintain a low level of VOCemissions with the use of a thermal emission control systemReport on “Safety – Health – Environment”53

Workplace accidentsComparison: 2002 – 2006Lost workday accidents per 1000 employees 2002 2003 2004 2005 2006Zofingen 30 16 15 18 13Pennsville 13 9 6 44 12CommentsBased on our SHE policy, the Zofingen and Pennsville siteintroduced mandatory performance parameters (KPIs)that include the number of workdays lost due to workplaceaccidents, the total number of lost workday accidents andsick days, and the implemented counter-measures. Eachsite submits monthly reports to management, and since2006 all management-level employees must meet accidentprevention goals as part of their bonus.An industry comparison shows our total number of workplaceaccidents to be above the average of the Swisschemical and pharmaceutical industry and stagnatingat this level. The Siegfried Safety Program was launchedin part to achieve a sustainable reduction in accidents.ZofingenA further important figure is the number of lost workdayaccidents per 1000 employees. The goal of “less than13 lost workday accidents per 1000 employees” was met.The most frequent accidents were falls, tripping or wounds,and most of the injuries were minor with only shortabsences. With a total of 134 lost days, our goal of “lessthan 200 lost days per 1000 employees” was also met.The total number of workplace accidents and sick dayswere 40 per 1000 employees, meeting exactly our goal.PennsvilleAll accident reduction goals were met, many of them bya large margin. Totals were: 12 lost workday accidents per1000 employees, with 53 lost days per 1000 employees.The accidents were usually minor, with absences averagingjust about one week. The total number of accidents was35 per 1000 employees, which is better than Zofingen.BerlinSiegfried Biologics achieved very positive results with onlya single workplace accident and a reduction of absenteedays from 18 to 5 days.Siegfried Safety Program“We want to create a culture that no longer acceptsaccidents.” This vision launched the long-term SiegfriedSafety Program (SSP) in late 2005.Raising the awareness for safety among every one ofour employees is the central element of this program. Thismeans realizing what safety means and being more alertto dangers. The noticeably reduced accident rate for 2006underlines the initial success of SSP.Last year, numerous safety campaigns were implementedin Pennsville and Zofingen. For example, dozens of teams,accompanied by a safety trainer and management, carriedout job-site inspections. On average, a SHE audit wasbeing done every other day. Quarterly projects were donetogether with SUVA (Swiss Accident Prevention Agency)for all employees. These included posting emergency exitroutes, improving job hygiene (such as skin and respiratoryprotective measures), and marking dangerous areas.Goals 2007Zofingen and Pennsville– Less than 11 lost workday accidents per 1000 employeesand less than 180 lost days due to accidentsper 1000 employees.– Less than 40 workplace accidents and sick daysin total per 1000 employees.– Quicker return to work after accidents throughintroduction of “intermediate” jobs.54 Report on “Safety – Health – Environment”

Total of workplace accidents per 1000 employeesChemie/Pharma Schweiz Siegfried Zofingen10090807060504030201001999 2000 2001 2002 2003 2004 2005 2006GlossaryARABU/1000 employeesChemical wastesComplianceCO 2 emissionsSewage treatment plantNumber of workplace accidents based on worktime lost, per 1000 employees.Includes contaminated solvents, filter residues,dis tillation residues, and other liquid and solidwastes.Complying with laws and regulations, maximumpermissible environmental levels.Amounts of CO 2 (t) that result from the combustionof fossil fuels (heating oil, solvents, natural gas).SHE auditSynthesisTARVOCSystematic internal evaluation (and documentation)of safety, health and environmental issues.A process to manufacture complex ingredients outof simple raw materials.Thermal emission control system to treat pollutantgases resulting from chemical production thatcontain solvents.Volatile, organic compounds that contribute tosmog and ozone generation.EnergyIncludes electricity, natural gas, heating oil, paper,wood, cardboard, and alternative fuels (solvents).GMPGood Manufacturing Practice: regulations that setsafety and quality parameters for the production ofpharmaceutical products.Industrial effluentEffluent from chemical processes and cleaningthat is collected in a proprietary sewage system.SustainableA development that meets the needs of the currentdevelopmentgeneration without endangering resources that willmeet the needs of future generations.RefractoryEffluent substances that decompose only veryslowly, or not at all.RecyclingRecirculating recyclable waste materials(by- and end products) back to the production andconsumption loops.Responsible CareA voluntary global initiative by the chemical industryto successively improve safety, health andenvironmental standards and publicize the results.Report on “Safety – Health – Environment” 55

Paul GauvreauProcess Development Chemist, PennsvilleAt work in Pennsville I am a ProcessDevelopment Chemist searching forimproved processes to manufactureSiefried products. Improved processesresult in lowered production coststhrough decreased production time,increased quality of product, increasedreliability of a process, or increasedsafety. Production safety is the mostimportant part of process develop -ment and is achieved by choosing thesafest chemicals possible along withthorough examination of chemicalreaction parameters. I have a Ph.D.in Organic Chemistry and haveenjoyed my work in pharmaceuticalsfor nine years, the past four yearswith Siegfried.After work I go home to my wife,two cats, and tropical plants. I builtthis greenhouse addition onto myhouse for the plants but my wife andthe cats like this room also. My wifeand I are active outdoors and enjoyhiking, bicycling, and kayaking. Wevisited Switzerland for one week andenjoyed our hiking in the mountains.We would like to return to Switzer -land again and I am hoping to accepta transfer to Zofingen. I am studyingGerman so that I can better understandthe Swiss culture.57

Financial Statements Siegfried GroupEditorialThe growth trend that began in 2005 has continued throughthe year under review. The Group realized a 13.0% increasein sales; the Siegfried Division, with +13.6%, was slightlyhigher than the Sidroga Division with an 8.4% growth insales. The growth in local currencies was 12.6%.The gross profit margin dropped slightly from 34.1% in 2005to 33.5%, due in part to the intense price pressure across allbusiness units of the Siegfried Division. Gross profit climbedby CHF 11.8 million to CHF 120.4 million. As in the previousyear, less than full utilization levels in chemical productionsqueezed gross margin. Our priority for the coming years isto increase production volume with new projects. The SidrogaDivision carried out selective price increases.The increase in gross profit contrast with a decline in theother operating income, from CHF 8.1 million in 2005 toCHF 4.0 million for the year under review. These incomesinclude services such as the operation of the regionalHAZMAT brigade, HAZMAT training, and general licensingfees. The difference is mainly due to a real estate transactionthat generated an income of CHF 4.3 million in 2005; andonly CHF 1.2 million for 2006.The operating profit (EBIT) declined because of the reducedincome from real estate transactions (see above) and oper -ating expenses that grew disproportionately (by CHF 1.8 millionto CHF 41.1 million) to sales, reducing the EBIT marginto 11.4% (2005: 13.5%) and falling just short of our 12%target. The Siegfried Division contributed a 12.2% EBIT margin;the Sidroga Division came in at 5.4%.As in the previous year, operating expenses were about 23%of sales, increasing proportional to sales by 12.2% fromCHF 74.3 million to CHF 83.4 million. Marketing and salesexpenses were 8.5% of sales. The Sidroga Division continuedto invest in strengthening the Valverde brand, and advertisedits Sidroga teas on Swiss TV. Marketing costs for the SiegfriedDivision remained stable. Research & Development costsremained at 8.6% of sales. The costs of CHF 30.3 millioninclude CHF 5.7 million (2005: CHF 1.1 million) in depre -ciation for cancelled projects from Siegfried Generics, aresult of the dynamic market conditions. Siegfried Genericsnow focuses primarily on projects with tangible competitiveadvantages.Administrative and general expenses increased byCHF 3.8 mil lion to CHF 22.1 million; half of this sum originatesfrom a legal case settled in 2005, which thusbrought in a credit of CHF 2.0 million. The tax rate was amodest 12.8% (2005: 14.4%). As in the previous year, aportion of the profit accrued in companies withadvantageous tax rates.Operating cash flow increased to CHF 53.7 million (+12.8%)(2005: CHF 47.6 million). In December 2006, Siegfriedsigned a cooperative agreement with a U.S. biotech com -pany, selling a production line (representing 5% of thetotal pro duction capacity for active ingredients in Zofingen).An initial payment of CHF 15.0 million was booked in theyear in review.Gross capital expenditures were CHF 42.0 million. Once theproduction license for our pharmaceutical productionfacility in Malta was issued, government subsidies of aboutCHF 6.2 million were also paid out, resulting in a net investmentvolume of CHF 35.8 million. During the year the netcurrent assets clearly increased (due to production cycles)and receded to 2005 levels by the end of 2006. The strongcash flow enabled a reduction of our net level of debt fromCHF 112.5 million to CHF 95.1 million.Total assets increased by CHF 13.4 million to a total ofCHF 690.8 million. This increase corresponds mainly to theshort-term rise in liquidity at the end of the year, whichrose to CHF 19.0 million (2005: CHF 7.6 million). There wereno notable changes in the balance sheet.58 Financial Statements Siegfried Group

Net profits declined from CHF 36.5 million to CHF 32.4 million.Unlike in the previous year, when the net profit wasimproved by foreign exchange gains of CHF 4.2 million, nosignificant exchange gains were recorded in 2006.In summary, the Siegfried Group achieved solid resultsdespite a difficult market situation. Our robust balance sheetand modest level of debt gives the company the necessaryflexibility for the future.Dr. Richard SchindlerCFOFinancial Statements Siegfried Group59

Consolidated Balance SheetDecember 31In 1000 CHFAssets Notes* 2006 2005Non-current assetsProperty, plant and equipment 2,11 354 338 367 907Intangible assets 3 62 660 63 374Financial and other non-current assets 4 6 658 6 334Deferred tax assets 5 11 880 11 982Total non-current assets 435 536 449 597Current assetsInventories 6 153 898 153 968Trade receivables 7 55 848 54 847Other current assets 8 20 447 11 315Derivative financial instruments 9 1 382 86Cash 10 18 964 7 619Total current assets 250 539 227 835Non-current assets held for sale 11 4 763 –Total assets 690 838 677 432Liabilities and EquityEquityShare capital 12 5 600 5 600Treasury shares 12 –7 565 - 2 856Reserves and retained earnings 12 447 490 432 459Equity available to shareholders of Siegfried Holding AG 445 525 435 203Minority interests 1,12 – 180Total equity 445 525 435 383LiabilitiesNon-current liabilitiesNon-current financial liabilities 13 114 030 120 109Non-current provisions 14 12 190 13 226Deferred tax liabilities 5 33 199 33 357Other non-current liabilities 15,18 3 536 3 468Non-current pension liabilities 18 5 697 6 191Total non-current liabilities 168 652 176 351Current liabilitiesTrade payables 22 360 18 716Current financial liabilities 13,23 – 5Other current liabilities 16 50 156 35 038Current pension liabilities 18 1 372 795Derivative financial instruments 9 – 2 016Current provisions 14 – 6 000Current income tax liabilities 2 773 3 128Total current liabilities 76 661 65 698Total liabilities 245 313 242 049Total liabilities and equity 690 838 677 432* The notes on pages 64 to 84 form an integral part of the Group Financial Statements.60 Financial Statements Siegfried Group

Consolidated Income Statementfor the year ended December 31In 1000 CHFNotes* 2006 2005Net sales 359 829 318 335Cost of goods sold – 239 410 – 209 762Gross profit 120 419 108 573Marketing and sales – 31 002 – 28 577Research and development – 30 271 – 26 985Administration and general overhead – 22 103 –18 242Other operating income 17 4 049 8 149Operating profit 41 092 42 918Financial income 19 1 438 597Financial expenses 19 – 6 251 – 5 059Exchange rate differences 19 873 4 203Profit before taxes 37 152 42 659Income taxes 5 – 4 760 – 6 125Net profit 32 392 36 534Thereof:- Siegfried Holding AG shareholders 32 392 36 534- Minority interests – –Earnings per share (CHF) 20 11.70 13.23Diluted earnings per share (CHF) 20 11.70 13.23* The notes on pages 64 to 84 form an integral part of the Group Financial Statements.Financial Statements Siegfried Group61

Consolidated Cash Flow Statementfor the year ended December 31In 1000 CHFNotes* 2006 2005Profit before taxes 37 152 42 659Adjustments for:Depreciation of property, plant and equipment and intangible assets 37 797 36 093Change in provisions 14 – 7 021 – 5 049Other non cash items – 3 323 4 519Expenses for share-based payments 456 171Exchange rate differences 19 – 873 – 4 203Financial income 19 –1 438 – 597Financial expenses 19 6 251 5 059Net result on disposal of property, plant and equipment and intangible assets – 203 – 3 358Change in trade receivables – 530 – 14 398Change in other current assets – 3 830 – 4 099Change in inventories – 1 525 – 11 483Change in trade payables 3 783 2 182Change in other current liabilities – 1 616 9 739Payments out of provisions 14 – – 3 687Interest paid and bank charges – 6 212 – 4 511Income taxes paid – 5 174 – 1 423Cash flow from operating activities 53 694 47 614Purchase of property, plant and equipment – 42 057 – 30 377Proceeds from capital investment subsidies – 808Proceeds from disposal of property, plant and equipment 2,11 21 430 4 377Purchase of intangible assets – 1 522 – 11 272Acquisitions of subsidiaries – – 36 726Acquisition of minority interests 1 – 1 592 -Purchase of available-for-sale financial assets – 304 – 230Sale of available-for-sale financial assets 142 65Interest income 656 280Dividend received 208 231Cash flow from investing activities – 23 039 – 72 844Increase in non-current financial liabilities 13 – 63 931Redemption of non-current financial liabilities 13 – 3 000 – 40 000Redemption of current financial liabilities 13 – 5 – 203Purchase /disposal of treasury shares – 4 626 5 914Dividend paid – 11 633 – 9 631Cash flow from financing activities – 19 264 20 011Net increase/(decrease) in cash 11 391 – 5 219Cash at the beginning of the year 7 619 12 680Net effect of currency translation on cash – 46 158Cash at the end of the year 18 964 7 619* The notes on pages 64 to 84 form an integral part of the Group Financial Statements.62 Financial Statements Siegfried Group

Consolidated Statement of Recognized Income and Expensefor the year ended December 31In CHF million2006 2005Cash Flow Hedges– Gains / (losses) taken to equity 2.0 – 3.6– Transferred to income statement 0.8 – 0.8Available-for-sale financial assets– Gains/(losses) taken to equity – 0.5 –Actuarial gains/(losses) from defined benefit plans 0.2 9.9Exchange rate differences – 8.2 16.7Income taxes on items recorded in equity – 0.2 – 2.4Net income/(expense) recognized directly in equity – 5.9 19.8Net profit 32.4 36.5Total recognized income and expense 26.5 56.3Thereof:– Siegfried Holding AG shareholders 26.5 56.3– Minority interests – –Financial Statements Siegfried Group63

Notes to the Consolidated FinancialStatementsAccounting principlesGroup Financial Statements The Consolidated FinancialStatements of the Siegfried Group (Siegfried) complywith the International Financial Reporting Standards (IFRS)issued by the International Accounting Standards Board(IASB) and with International Accounting Standards (IAS)issued by its predecessor, the International AccountingStandards Committee (IASC), and the Interpretations of theStanding Interpretations Committee (SIC), as well as withthe following significant accounting policies. The ConsolidatedFinancial Statements are based on historical costs,except the revaluation of specific financial assets andliabilities such as derivative financial instruments and available-for-salefinancial assets. As described in the followingpolicies, these are assessed at fair value.The registered Siegfried shares are listed on the Swiss stockexchange (SWX).The Board of Directors approved the Consolidated FinancialStatements on March 12, 2007.Estimates and Valuations In compliance with IFRS, thecompilation of the Consolidated Financial Statementsrequires estimates, and the use of company-wide accountingand valuation procedures by management. Estimatesand assumptions for activities of key importance to theGroup Financial Statements, and those judged more complexand needing additional leeway are explained underthe Notes to the Consolidated Financial Statements. Actualresults may vary from the estimates.Revised accounting standards The following new andrevised standards and interpretations relevant for Siegfriedbecame effective on January 1, 2006:– Amendments to IAS 19 Employee Benefits– Amendments to IAS 39 Financial Instruments:Recognition and Measurement– Amendments to IAS 21 Effects of Changes in ForeignExchange Rates (early adoption in 2005)– IFRIC 4 – Determining whether an Arrangement contains aLeaseThe new and revised standards have no practical significancefor Siegfried, except as described below:IAS 19 (revised), Employee Benefits Siegfried adoptedthe revised IAS 19 effective January 1, 2006. Amongst otherchanges, the revised standard allows actuarial gains andlosses from defined benefit plans to be recorded directly toequity. The revised standard requires retrospective applicationat January 1, 2005.IAS 20 Accounting for Government Grants and Disclosureof Government Assistance From January 1, 2006on, Siegfried revised its accounting policies for GovernmentGrants in order to provide more relevant information onSiegfried’s financial position and performance. Up toDecember 31, 2005, Government Grants were presentedin the Balance Sheet by setting up the grant as deferredincome which was recognized as income over the usefullife of the asset. Since January 1, 2006, Government Grantsrelated to assets are deducted in arriving at the carryingamount of the asset. The grant is recognized as incomeover the life of the asset by way of a reduced depreciationcharge. The change in this accounting policy has beenapplied retrospectively as of January 1, 2005. It resulted ina reduction of Other non-current liabilities and of Property,Restated Balance Sheet at December 31, 2005In CHF million Group as IAS 19 (revised) IAS 20 (changed) Group (restated)published in 2005Non-current assets 449 689 1 509 – 1 601 449 597Current assets 227 835 227 835Total assets 677 524 1 509 – 1 601 677 432Equity 433 703 1 680 435 383Non-current liabilities 178 123 – 171 – 1 601 176 351Current liabilities 65 698 65 698Total liabilities 243 821 – 171 – 1 601 242 049Total liabilities and equity 677 524 1 509 – 1 601 677 43264 Financial Statements Siegfried Group

Restated Recognized Income and Expense 2005In CHF million Group as IAS 19 (revised) Group (restated)published in 2005Net income recognized directly in equity 12.6 7.2 19.8Net income recognized in income statement 36.5 – 36.5Total recognized net income 49.1 7.2 56.3plant and equipment of CHF 1.1 million respectively, and ina reduction of Other operating income and of the depreciationcharge of CHF 0.3 million in 2005. The change in accountingfor actuarial gains/losses had no effect on personnelexpenses in 2005.Future changes in IFRS Siegfried is currently assessingthe potential impact of the new and revised standards thatwill be effective from January 1, 2007. Siegfried does notexpect that the new and revised standards and interpre -tations will have a significant effect on Siegfried’s resultsand financial position, although they will expand financialstatement disclosure in certain areas, notably IFRS 7, FinancialInstruments: Disclosures, which Siegfried will implementin 2007. Siegfried is also in the process of evaluatingIFRS 8, Operating Segments, which will be effective fromJanuary1, 2009.Method and scope of consolidation The ConsolidatedFinancial Statements include the annual accounts of allSwiss and foreign companies in which Siegfried HoldingAG has a direct or indirect interest of more than 50%.Assets and liabilities, income and expenses are includedaccording to the full consolidation method. Minority interestsin the net assets and income of consolidated com -panies are recorded separately in the consolidated BalanceSheet and in the consolidated Income Statement. Investmentsin 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 with a voting rights share of20–50%.Group companies acquired or divested in the course of theyear under review are included in or excluded from theconsolidated accounts as of the date at which they werepurchased or sold.The individual financial statements on which the consoli -dated Financial Statements are based are drawn up inaccordance with accounting principles applied uniformlythroughout the Group. All internal Group accountsreceivables and payables, expenses and income and intercompanyprofits are eliminated in the consolidation. Theannual reporting period for all Group companies ends onDecember 31.Business combinations The acquisition of subsidiaries isreported according to the purchase method. The purchasecosts of an acquisition include the sum of the fair marketvalue of the acquired assets, current and contingent liabilities,and issued equity instruments on the acquisition date,including the directly attributable transactions costs of theacquisition. Goodwill is the excess of the acquisition costover the fair value of the identified net assets of the acquiredcompany. If the fair value of the net assets exceeds theacquisition costs, this surplus is credited to net profit.Segment reporting A reporting segment consists of agroup of assets or operating activities that producesproducts and services, with a risk and opportunity profilethat diverges from the rest of the company. A geographicsegment produces products and services for a particulareconomic environment that differs in its risks and opportunitiesfrom other environments.Foreign currency translations The positions of theBalance Sheets are valued on a functional currency basis.The Consolidated Financial Statements are denominatedin Swiss Francs. The functional currency of the Groupcompanies is the respective local currency. Balance sheetsstated in foreign currencies are translated at the year-endexchange rates, the corresponding income statement atthe sales-weighted average annual exchange rates, whichdo not differ significantly from the exchange rates pre -vailing on the transaction dates. The exchange rate differencesarising from the translation of the Financial Statementsare offset directly against equity. Exchange ratedifferences arising on intercompany loans that, in substance,form part of the net investment in that subsidiary,as well as financial liabilities that are designated as hedgesof these investments, are offset against equity. Inter -company loans are regarded as part of a net investmentin a subsidiary, if the settlement of these loans is neitherplanned nor likely to occur in the foreseeable future.Other exchange rate differences are included in theIncome Statement.Financial Statements Siegfried Group65

The exchange rates applied to the Group’s most importantforeign currencies are as follows:Balance SheetYear-end rates 2006 20051 USD 1.220 1.3161 EUR 1.610 1.559Income StatementAverage rates 2006 20051 USD 1.2492 1.25321 EUR 1.5752 1.5480Property, plant and equipment are valued at acquisitionor production cost less accumulated depreciation. Land isnot depreciated. Depreciation is charged on a straight-linebasis over the following estimated useful life of the assets:BuildingsMachinery and equipmentVehiclesEDP systems10–45 years8–15 years8–10 years3– 5 yearsThe useful lives of assets are evaluated at least once a yearand, if necessary, amended. Property, plant and equipmentare excluded from the Balance Sheet on retirement or whenno value in use can be expected. Gains or losses on disposalare recorded in the Income Statement. In determining therecoverable value for items of property, plant and equipment,expected future cash flows are discounted at their presentvalue. Maintenance and repair costs are recognized in theIncome Statement. No borrowing costs are capitalized inproperty, and supplementary purchase and production costsare only capitalized if a future economic benefit is expectedand the costs of the asset value can be reliably determined.All other repair and maintenance costs are recorded undernet profit in the financial year these costs are incurred.Leasing Leased Property, plant and equipment for whichthe significant risks and rewards are transferred to the Groupare disclosed as Financial Leases. All other lease agreementsare considered as Operating Leases. Financial leasing contractsare capitalized at the beginning of the leasing periodat the net present value of the minimum leasing payment.The corresponding liability is disclosed under Financial Liabilities(after deduction of the financing costs). The depreciationperiod for leased objects corresponds to the guidelinesfor the depreciation of property, plant and equipment (seeabove) or the period of the lease if shorter. Leasing rates aredivided into a depreciation and interest portion. The interestportion is charged at a constant rate (for the remainder ofthe liability) against financial expenses.Intangible assets Intangible assets consist of goodwillfrom acquisitions as well as purchased licenses, patents,trademarks, technology, client base and software and capitalizeddevelopment costs for Siegfried products. Goodwillfrom an acquisition is allocated to the cash-generating uniton the date of the acquisition, which benefit from futurecash flow as a result of the acquisition. Recorded in the localcurrency of the purchase, goodwill is the excess of the costof acquisition over the Group’s interest in the fair value ofidentifiable net assets acquired. Goodwill is carried in thelocal currency of the Group company which has performedthe purchase. Patents, licenses, trademarks and other intangibleassets not acquired through acquisitions are recordedat cost.Goodwill from acquisitions and Intangible Assets with indefiniteuseful lives are not amortized. These items are tested forimpairment at least once a year. Currently, this pertains onlyto capitalized goodwill resulting from acquisitions.All other intangible assets are regarded as having a finiteuseful life and are amortized on a straight-line basis overtheir estimated economic or legal life, whichever is shorter:Licenses, patentsTrademarks, technologyand client baseCapitalized development costsSoftwareThe shorter of economic or legal life,as a rule 5 to 20 yearsThe shorter of economic or legal life,as a rule 5 to 20 years10 years3–5 yearsImpairment tests are carried-out whenever there are indi -cations that these intangible assets may be impaired. If thecarrying amount is greater than the value in use, a reduc -tion in the amount of the difference is recorded as anexpense. Intangible assets also comprise capitalized devel -opment costs for Siegfried products. These costs are capitalizedaccording to the stage of the project. The capitalizeddevelopment costs are regularly assessed for «recoverability»and impaired if the recoverable amount is below thecarrying amount.Impairment of assets An assessment whether the value ofProperty, plant and equipment and other non-current assetswith finite useful life may be impaired is done if certainevents or changed circumstances incurred. When there isevidence that the recoverable amount of an asset is less thanits carrying amount, then the carrying amount is reduced tothe amount considered recoverable. The recoverable amountis the higher of the assets fair value less costs to sell andthe value in use. This reduction is reported as an impairmentloss. When an impairment loss arises the useful life of the66 Financial Statements Siegfried Group

asset in question is reviewed and, if necessary, the futuredepreciation charge is accelerated. The recoverability ofassets with an indefinite life, including Goodwill, is reviewedat least once a year.Financial assets Financial assets are classified into thefollowing categories:– Financial investments at «Fair value through profit andloss». These are acquired for the purpose of generating aprofit from short-term fluctuations in price. These includethe positive fair values of derivative financial instruments.– Loans and receivables. These contain loans and assets withfixed payments that are not listed on a capital market.With a due date of 12 months or less, they are classifiedas current assets; anything over that period is classifiedas a non-current asset. Loans and receivables are disclosedas Trade Receivables and non-current assets.– All other financial assets are classified as «available-for sale».All purchases and disposals of financial assets are recog nizedon the settlement date. All financial assets are initiallyrecorded at cost, including transaction costs, except for «fairvalue through profit and loss» assets (no transaction costs).Financial assets held for trading are valued at their fair value.Any value adjustments are recorded in financial income/expense of the reporting period. Available-for-sale financialassets are subsequently carried at fair value, with allunrealized changes in fair value recorded in equity. Whenthe available-for-sale financial assets are sold, impaired orotherwise disposed of, the cumulative gains and lossespreviously recognized in equity are transferred to financialincome /expenses for the current period. Loans and receiv -ables, as well as financial assets held-to-maturity are carriedafter initial recognition at amortized cost based on theeffective yield.At each balance sheet date financial assets are assessed forpossible impairment. If the carrying value exceeds the netrecoverable amount, the asset is impaired to the recoverableamount calculated on the basis of discounted future cashflows.Inventories Inventories are disclosed in the Balance Sheetat the lower of acquisition/production costs and net realizablevalue. Production costs comprise all manufacturing costsincluding an appropriate share of production overheads.Costs are assigned to inventory based on the «first-in firstout»method. Appropriate valuation allowances are madefor obsolete and slow-moving inventory items. Inter-com -pany profits on inventories of goods produced in the Groupare eliminated from net profit. This position also comprisesthe project costs, which are capitalized according to thestage of the project. Project earnings are only recognizedto the extent of recoverable costs; any recognized costoverrun is periodically recorded as a cost. The capitalizedproject costs for Generic Dossiers are regularly assessedfor «recoverability» and depreciated if the net realizableamount is below the carrying amount.Trade receivables Trade receivables are included at billedvalues after deducting allowances for doubtful accounts.Allowances for doubtful accounts are established basedupon the difference between the receivable nominal valueand the estimated net collectable amount. The amount ofthe respective estimated loss is recognized in the incomestatement as a deduction from gross sales. When a tradeaccount receivable becomes uncollectible, it is written offagainst the allowance for doubtful accounts.Other current assets Other current assets consist of advancepayments for deliveries of goods, prepayments andaccrued income and other amounts receivable. They are recordedat net realizable value.Cash Cash consists of cash, balances held in postal checkand bank accounts and short-term deposits with a maturityof three months or less from the date of acquisition. Cash isthe defined fund of the Consolidated Cash Flow Statement.Non-current assets held for sale Non-current assets areclassified as held for sale if their carrying amount will be recoveredprincipally through a sale transaction rather thanthrough continuing use. Non-current assets held for sale aremeasured at the lower of their carrying amount and fair valueless costs to sell.Equity A purchase of treasury shares by a Group company,including all costs (net after taxes), is recorded againstequity, until the shares are redeemed, issued again or sold.If treasury shares are issued or sold at a later date, the netreturn less transaction costs and income taxes is recorded inequity.Financial liabilities All financial liabilities are recorded undercurrent and non-current financial liabilities respectively.The non-current financial liabilities include all liabilities with aduration of more than one year. The current financial liabilitiesinclude all liabilities with a duration of less than one year,including the current portion of non-current financial liabilities.The valuation is made at the amortized cost.Provisions Provisions are calculated according to uniform,consistent operating criteria. They are intended to coveridentifiable risks of loss and payment liabilities. Provisions areFinancial Statements Siegfried Group67

ecorded if the Group has, as a result of a past event, apresent obligation (legal or constructive) that will probably(more likely than not) result in an outflow of economicresources and if a rea sonable estimate of that obligationcan be made. Provisions are discounted to their net presentvalue if there is a significant impact from interest effects.Increases in provisions due to interest effects are recorded asfinancial expenses. Possible obligations that are dependenton future events, or where no reasonable estimate of theobligation can be made, are not recorded, but disclosed ascontingent liabilitiesEmployee pension plans The expenses and defined benefitobligations for the material defined benefit plans andother long-term employee benefits are determined based ondifferent economic and demographic assumptions using theProjected Unit Credit Method. This takes into account insuranceyears up to the valuation date. The major assumptionsinvolved in the calculation are expectations about futuresalary increase, return on pension assets, turnover and lifeexpectancy. The valuation of the defined benefit obligationsfor the material benefit plans are carried out on an annualbasis by independent qualified actuaries. The last valuationfor the material benefit plans was performed as of December31, 2006. Valuation of pension assets is done annually,at market value. Current service costs are recorded in theIncome Statement for the period in which they occurred.Past-service costs are recognized immediately in the incomestatement, unless the changes to the pension plan areconditional on the employees remaining in service for aspecified period of time (the vesting period). In this case,the past- service costs are amortized on a straight-line basisover the vesting period. Differences in experiences andchanges in actuarial assumptions result in actuarial gainsand losses. The Group has adopted the policy to recognizethese actuarial gains and losses in the Statement ofRecognized Income and Expense in equity. Since the differencesmight be important, this method can have materialimpact on the Groups’ equity. The recognized assets arelimited to the present value of any economic benefitsavailable in the form of reductions in future contributionsto the plan.Other non-current employee benefits Other noncurrentemployee benefits represent amounts to beprovided by Group companies under deferred compen -sation arrangements mandated by certain jurisdictionsor regulations. At Siegfried these are mainly benefitsrelated to service anniversary awards. Benefit costs arerecognized on an accrual basis in the Income Statement,the related obligation as calculated by the actuary isrecognized in other non-current liabilities.Share-based payments The Siegfried Group imple men -ted an Employee Share Plan in September 2005 to allowemployees and the Board of Directors to buy shares at adiscounted rate (30% below market value). The share planis considered as an equity settled share-based paymentplan. The fair value of the shares corresponds to the fairvalue at the grant date. Costs for the employee share planare recorded as personnel expenses in the period in whichthe employee performed his services. The costs for theshares are adjusted to fair value on the grant date and alsobooked as personnel expenses.Profit-sharing / Bonus Plans Contractual obligations orliabilities from past business practices (factual commitments)for bonus entitlements and profit sharing are accrued for asa liability and an expense.Taxes Provisions are made for all tax liabilities at the balancesheet date, irrespective of the date on which they are payable.Provisions are made for deferred taxes on all temporarydifferences between amounts determined for tax purposesand those reported for Group accounting purposes at theactual local tax rates likely to be applied (liability method),except for those temporary differences related to entities,where the timing of their reversal can be controlled and it isprobable that the difference will not reverse in the foreseeablefuture. These differences are mainly due to the applicationof higher depreciations allowed for taxation purposesand to the formation of reserves on inventories and receivables.Deferred tax assets are recognized when it is probablethat future taxable profits will be available against whichthe deferred tax asset can be utilized. Changes in deferredtaxes are measured against net profit, unless the tax relatesto an item recognized under equity. No provisions are madefor deferred income taxes on potential future dividends resultingfrom retained earnings, as these sums are deemedpermanently reinvested.Net sales, other operating income and cost ofgoods sold Net sales represent amounts received andreceivable for goods and services supplied to customersafter deducting discounts and volume rebates andexcluding sales and value added taxes. Revenue from thesale of goods is recognized when the significant risks andrewards of ownership have been transferred to the buyer,usually upon shipment. Royalty income is recognizedon an accrual basis in accordance with the economicsubstance of the respective agreement and is reported aspart of other operating income. Cost of goods soldincludes the corresponding direct production costs andrelated production overhead of goods manufactured andservices rendered.68 Financial Statements Siegfried Group

Research and development Research and developmentcosts include wages and salaries, cost of materials, depre -ciation of property, plant and equipment and overheads.Development costs for own products are capitalized asintangible assets. Development costs are only capitalized ifcorresponding criterias are met. Capitalized developmentcosts as part of projects are recorded under inventories (seeaccounting policies for Inventories). Research costs are notcapitalized but charged to the Income Statement in the periodduring which they incur.Borrowing costs All credit and financing costs are expensedin the period in which they are incurred.Dividends Dividends to shareholders are recorded as liabilitiesat the time the decision is made to pay a dividend.Public subsidies In conjunction with investment projects,some foreign companies of the Siegfried Group receive publicsubsidies, which are capitalized at their fair value only ifthere is a high probability that the conditions will be met.Government grants related to assets are deducted in arrivingat the carrying amount of the asset. The grant is recognizedas income over the life of a depreciable asset by way of a reduceddepreciation charge.Financial risk management Financial risk managementwithin the Group is governed by policies and guidelinesapproved by management. These policies cover foreignexchange risk, interest rate risk, market risk, credit risk andliquidity risk. Group policies also cover the investment ofexcess funds and the raising of debts. Both the invest -ment of excess funds and the raising of current and noncurrentdebts are centralized. Risk management strivesto minimize the potential negative effects of the Group’sfinancial position.Market risk Siegfried is exposed to market risks whichconsist mainly of foreign exchange risk, interest rate riskand market value risk.Foreign exchange risk Siegfried operates across the worldand is exposed to movements in foreign currencies affectingits net profit and financial position, as expressed in Swissfrancs. Siegfried continues to monitor its currency exposures,and when appropriate, uses forward contracts or swaps tohedge the foreign exchange risks. Specific net investmentsin Group compa nies are hedged through bank credits in thesame foreign currencies.Interest rate risk Interest rate risk arises from movementsin interest rates, which could have adverse effects onSiegfried’s net profit or financial position. Interest ratemovements can affect the market value of certain finan -cial assets, liabilities and instruments as described inthe following section on market risk. Within Siegfriedthe interest rate risk management is centralized. Financialinstruments such as interest rate swaps are used topartially hedge the interest rate risk by exchanging fixedand floating interest rates. These swaps have no significantinfluence on the financial position and operating resultsof the Group.Market value risks Changes in the market value of finan -cial assets, liabilities or financial instruments can affect thefinancial position or income of Siegfried. Financial noncurrentassets such as investments in subsidiaries are heldfor strategic reasons. The risk of loss in value is minimizedby thorough analysis before purchase and by continuouslymonitoring the performance and risks of the investments.Credit risk / Counter-party risk Credit risk arises fromthe possibility that the counter-party to a transaction maybe unable or unwilling to meet their obligations, causinga financial loss to Siegfried. Trade receivables are subjectto active risk management focusing on the monitoringand controlling of credit risks. Credit risks on other financialassets are controlled by a policy of limiting the exposureonly to partners with the highest credit ratings, by on-goingreview of credit ratings and by limiting individual aggregatebalances.Liquidity risk Group companies need to have sufficientaccess to cash to meet their obligations. The corporatefinance department manages the raising of current andnon-current debt. Besides the financing of operatingactivities, the strong creditworthiness of Siegfried allowsthe raising of funds for financing activities at favorableterms. The investment of excess liquidity is centralized.Derivative financial instruments To manage currencyand interest rate exposure, Siegfried uses forward exchangecontracts as well as interest rate and currency swaps.Derivative financial instruments are measured at their fairvalue. For qualifying cash flow hedges the portion of fairvalue changes that are determined to be an effective hedgeis recognized directly in equity, the remaining ineffectiveportion is reported in the financial result. Gains and losseson cash flow hedges that were initially recognized directlyin equity are transferred to the Income Statement in theperiod when the hedged transaction is recognized in theIncome Statement. Any changes in the fair value of otherfinancial instruments are recognized in the Income Statementof the related reporting period.Financial Statements Siegfried Group69

Significant accounting judgments andestimatesPreparing the Consolidated Financial Statements requiresa certain degree of discretionary decision-making bymanagement. The most important risk factors that couldlead to changes in assets and liabilities within a year arelisted below.Estimating the recoverability of Goodwill The annualimpairment test of the recoverability of Goodwill demandsestimates of the value in use of the cash-generating unitto which goodwill is allocated. This value in use is calculatedby estimating (with an appropriate discount rate to deter -mine present value) the expected future cash flows of thecash-generating unit. Goodwill recorded on the BalanceSheet on the closing date was CHF 28.4 million. Therecoverability of Goodwill depends mainly upon thesuccess of the Siegfried Division to implement its strategyfor controlled substances.Deferred tax assets As described in Note 5, the Group hascapitalized tax assets from tax losses of CHF 11.9 million andunrecognized tax losses and tax credits of CHF 69.2 million.Any substantial change in the financial position of one ofthe Group’s companies, especially in the USA, would enablethe use of additional tax losses carried forward. Otherwisethe recoverability of the tax assets would be at risk. Basedon the expected future taxable profit, management reviewsthe recoverability of deferred tax assets every year.Environmental provisions Provisions depend on obliga -tions to eliminate environmental pollution. Future reme -diation costs depend on the regulatory status and managementdecisions on future construction projects. Thesecosts are reduced or postponed if the construction projectsare not realized and the environmental provision amount(CHF 12.2 million) would be reduced as a consequence.Pensions and other post-employment benefits Manyof Siegfried’s employees participate in post-employmentbenefit plans. The calculations of the recognized assetsand liabilities from such plans are based upon statisticaland actuarial assumptions such as discount rates, futureincreases in salaries and future pension indexations. Inaddition, the actuaries use statistically based data for theirassumptions such as future withdrawals of participantsfrom the plan and estimates on life expectancy. Dueto changes in the market and economic conditions, theactuarial assumptions used may differ materially fromactual results. These differences could impact the assets orliabilities recognized in the Balance Sheet in future periods.70 Financial Statements Siegfried Group

Financial Statements Siegfried Group 71

Notes to the Consolidated Financial Statements1. Scope of consolidationThe consolidation includes the following companies:Share capitalSegment Activity in local currencies %Siegfried Ltd, Zofingen (CH) SF D/M/S 20 000 000 CHF 100Siegfried (USA), Inc., Pennsville, NJ, (USA) SF D/M/S 500 000 USD 100Penick Corporation, NJ, (USA) SF D/M/S 0 USD 100Siegfried Generics International AG, Zofingen (CH) SF S 2 000 000 CHF 100Siegfried Generics (Malta) Ltd., Valletta (MT) SF M/S 100 000 EUR 100Siegfried GmbH, Munich (D) SF D 25 000 EUR 100Siegfried Biologics AG, Zofingen (CH) SF D/S 100 000 CHF 100Siegfried Biologics GmbH, Kleinmachnow (D) SF D/M/S 69 000 EUR 100Sidroga AG, Zofingen (CH) SD D/S 1 000 000 CHF 100Sidroga GmbH, Bad Säckingen (D) SD D/S 256 000 EUR 100Sidroga Handels GmbH, Vienna (A) SD S 35 000 EUR 100Siegfried Holding AG, Zofingen (CH) SF F 5 600 000 CHF 100Siegfried Finance AG, Zofingen (CH) SF F 14 000 000 CHF 100Siegfried Dienste AG, Zofingen (CH) SF F 10 000 000 CHF 100Sigamed AG, Zug (CH) SF F 500 000 CHF 100Sidroga Gesundheitsprodukte AG, Zofingen (CH) SD F 200 000 CHF 100Siegfried Deutschland Holding GmbH,Bad Säckingen (D) SF F 1 790 000 EUR 100Siegfried Immobilien GmbH, Bad Säckingen (D) SF F 52 000 EUR 100Penick Holding Company, NJ, (USA) SF F 2 USD 100Siegfried BV, Amsterdam (NL) SF F 80 000 EUR 100SF: Siegfried,SD: Sidroga,D: Development,M: Manufacturing,S: Sales/Distribution,F: Financial, holding andproperty corporationsChanges in the scope of consolidation On February 24,2006 the Board of Directors exercised a call option inthe amount of CHF 1.6 million, to acquire all outstandingshares of Siegfried Biologics GmbH, Kleinmachnow(Germany), not yet held by Siegfried, resulting in 100%ownership of the Group (prior year: 75%). As a resultof the transaction Goodwill increased by CHF 1.4 millionand minorities were reduced by CHF 0.2 million to zero.Because a profit transfer agreement was already in placeafter the acquisition of 75% of the shares, the effect onthe Income Statement is minimal.In the year under review, Siegfried Biologics AG, Zofingen(CH), Siegfried GmbH, Munich (D), and Sidroga HandelsGmbH, Vienna (A), were incorporated. On December 4,2006 the former Funken AG, Zofingen (CH) was renamedto Sidroga Gesundheitsprodukte AG. The company is includedin the consolidation of the Sidroga Division in 2006.72 Financial Statements Siegfried Group

2. Property, plant and equipmentIn 1000 CHFLand and Machinery and Leased Assets under Totalbuildings equipment Assets constructionAcquisition costsAs of January 1, 2005 163 400 465 198 1 058 30 286 659 942Change in accounting policies – 240 –1 213 – – –1 453Exchange rate differences 5 627 10 966 11 248 16 852Change in consolidation scope – 499 – – 499Additions 619 5 237 – 23 713 29 569Disposals – 322 – 3 894 – – 101 – 4 317Transfers 10 880 16 650 – – 27 530 –As of December 31, 2005 179 964 493 443 1 069 26 616 701 092Exchange rate differences – 2 654 – 5 087 12 – 117 – 7 846Additions 4 084 2 728 – 28 944 35 756Disposals – 8 618 – 4 823 – – 725 – 14 166Transfers 3 324 21 359 – 1 081 – 23 602 –Non-current Assets held for sale – 2 151 – 8 886 – – – 11 037As of December 31, 2006 173 949 498 734 – 31 116 703 799Accumulated depreciationAs of January 1, 2005 74 501 219 703 341 1 724 296 269Change in accounting policies –16 – 371 – 387Exchange rate differences 1 650 5 397 4 – 7 051Depreciation charge 3 958 29 484 107 – 33 549Disposals –1 – 3 296 – – – 3 297Transfers 1 724 – – –1 724 –As of December 31, 2005 81 816 250 917 452 – 333 185Exchange rate differences – 907 – 3 004 5 – 3 906Depreciation charge 4 031 30 364 – – 34 395Disposals – 3 256 – 4 683 – – – 7 939Transfers 124 333 –457 – –Non-current Assets held for sale –1 551 – 4 723 – – – 6 274As of December 31, 2006 80 257 269 204 – – 349 461Net book value December 31, 2006 93 692 229 530 – 31 116 354 338Net book value December 31, 2005 98 148 242 526 617 26 616 367 907Insurance value on December 31, 2006 874 283Insurance value on December 31, 2005 856 961As of December 31, 2006 commitments for the purchase ofProperty, plant and equipment amounted to CHF 25.6 million(2005: CHF 12.8 million).In the reporting period, the disposals in the category land and buildingsinclude the sale of an administrative building in Bad Säckingen(D). The previous year included a property sale in Zofingen (CH).The Group companies Siegfried Biologics GmbH, Kleinmachnow (D)and Siegfried Generics Malta Ltd., La Valetta (MT) are entitled tocapital investment subsidies. Partially these government grants areattached to certain conditions such as minimal number of employeesor minimal duration of operating activity. The investment subsidiesare deducted directly from the acqui sition cost of the assets,they are recognized as income over the useful life of the depreciableasset by way of a reduced depre ciation charge. As of December 31,2006, capital investment subsidies in the amount of CHF 8.7 million(2005: CHF 2.3 million) were directly deducted from the acquisitioncost and CHF 1.0 million (2005: CHF 0.7 million) from accumulateddepreciation. Capital expenditures of the reporting period werereduced by CHF 6.3 million (2005: 0.8 million) and the depreciationcharge was reduced by CHF 0.3 million (2005: CHF 0.3 million).Financial Statements Siegfried Group73

3. Intangible assetsIn 1000 CHFTrademarks, CapitalizedLicenses, Technology, DevelopmentGoodwill Patents Client base costs Software Other TotalAcquisition costsAs of January 1, 2005 2 678 1 504 – – 3 694 40 7 916Exchange rate differences 2 711 1 415 852 83 43 1 5 105Change in consolidation scope 23 371 12 912 7 779 – – – 44 062Additions – – 9 131 1 667 474 – 11 272Disposals – – –20 –20As of December 31, 2005 28 760 15 831 17 762 1 750 4 191 41 68 335Exchange rate differences – 1 772 – 1 252 – 632 – 209 – 26 5 – 3 886Acquisition of minority interests 1 411 – – – – – 1 411Additions – 1 069 77 3 460 206 170 4 982Disposals – – 32 – – – 131 – – 163As of December 31, 2006 28 399 15 616 17 207 5 001 4 240 216 70 679Accumulated depreciationAs of January 1, 2005 – 434 – – 1 899 31 2 364Exchange rate differences – 19 24 3 27 – 73Depreciation charge – 608 924 59 950 3 2 544Disposals – – – – – 20 – – 20As of December 31, 2005 – 1 061 948 62 2 856 34 4 961Exchange rate differences – – 95 – 57 – 11 – 20 2 – 181Depreciation charge – 860 1 336 266 931 9 3 402Disposals – – 32 – – – 131 – – 163As of December 31, 2006 – 1 794 2 227 317 3 636 45 8 019Net book value December 31, 2006 28 399 13 822 14 980 4 684 604 171 62 660Net book value December 31, 2005 28 760 14 770 16 814 1 688 1 335 7 63 374Examination of Goodwill recoverability The capitalizedgoodwill of CHF 28.4 million will be monitored by themanagement for individual or multiple sites; it is allocated tothe following cash-generating units, all within the SiegfriedDivision.In 1000 CHF 2006 2005Zofingen, CH and Pennsville, USA,including the activities of Siegfried Divisioncompanies at the sites in Zofingen (CH)and Pennsville (USA), excludingSiegfried Biologics Ltd., Zofingen 24 035 25 931Kleinmachnow, D, including theactivities of Siegfried Biologics GmbH,Kleinmachnow (D) 4 364 2 82928 399 28 76074 Financial Statements Siegfried Group

The recoverability of capitalized Goodwill is assessed at leastonce a year or if there is indication for impairment. Theassessment of recoverability is calculated for the respectivecash-generating units. The recoverable amount is determinedon a value in use calculation using cash flow projections(Discounted Cash Flow method). The underlying discountrate, the annual growth rates and the estimated price andcost developments are the key assumptions in this context.In addition to the «risk free» interest rate, the discountrate incorporates a business-specific risk premium. Annualgrowth rates are based on market studies and managementestimates. Calculation models and experience are appliedto assess the development of sales prices and costs. Thevalue in use calculations are based on the latest mid-termplans approved by management and the Board of Directors.A discount rate of 9.1% was applied to the combined Zofingenand Pennsville sites. Annual growth rates of 2% wereassumed after the 5-year forecast period, which correspondsto the expected inflation rate. The tax-deductible accumu -lated losses were considered over a longer period of time.5. Income taxesIncome taxes in the consolidated Income StatementIn 1000 CHF 2006 2005Current income taxes 4 727 5 715Deferred income taxes 33 410Total 4 760 6 125Analysis of expected and actual (effective) income taxesIn the year under review several Group companies with aboveaverage tax rates posted taxable losses, while Group com -panies with below average tax rates realized taxable profits.Therefore the expected tax expense for the Group, whichis calculated by using the local tax rates applied to the profitor loss before taxes of each Group company, is significantlylower compared to the pre vious year. Based on an analysis ofthe tax losses and the tax credits, the tax effect of most ofthe tax losses of the current period was not recognized. Themain elements contributing to the difference between theexpected tax expense and the actual tax expense are:The impairment test for the Kleinmachnow site was alsobased on the current mid-term plans for the next 5 years,and market values where available. A discount rate of8% was applied and annual growth rates of 2% werecalculated after the 5-year forecast period, which correspondsto the expected inflation rate.No impairment resulted from these impairment tests.4. Financial and other non-current assetsIn 1000 CHF 2006 2005Available-for-sale financial assets 4 649 4 825Prepaid employee benefits 2 009 1 509Total Financial and other non-current assets 6 658 6 334In 1000 CHF 2006 200Expected tax expenses 520 7 033Effect of expenses not tax deductible 218 –Effect of unrecognized deferred tax losses 4 244 –Effect of different effective tax rates 129 – 99Effect of utilization of tax losses carried forward – – 931Effect of income not taxable – – 865Previous years’ adjustments and other items – 351 987Actual tax expenses 4 760 6 125Percent 12.8 14.4The weighted average tax rate used for the calculation of expectedtax expense is 1.4% (2005: 16.5%).Available-for-sale financial assets, which are measured atcurrent market value include an investment in a fund.Further investments of USD 0.8 million can still be calledby this fund. Liabilities and assets from pension plans aredescribed in note 18.Financial Statements Siegfried Group75

The deferred tax assets and liabilities in the Balance Sheet asof December 31, 2006 and 2005 comprise of the following:In 1000 CHF 2006 2005Deferred tax assetsTax losses carried forward realized within 12 month – –Tax losses carried forward realized after 12 month 11 880 11 982Total deferred tax assets 11 880 11 982Deferred tax liabilitiesProperty, plant and equipment 21 818 24 802Intangible assets 6 988 7 027Inventories 1 323 – 1 720Provisions 4 468 1 922Others – 1 398 1 326Total deferred tax liabilities 33 199 33 357Deferred tax assets Deferred tax assets are related toGroup companies in the USA and in Germany. The decreasecompared to prior year is mainly due to the change inforeign currency rates. CHF 9.7 million of the underlying taxlosses can be utilized over a period of 15 years or longerand CHF 2.2 million over a minimal period of 11 years. Basedon an analysis of the financial position and the expectedfuture taxable profits of the Group companies concerned,the deferred tax assets were estimated as recoverable.Deferred tax assets and tax credits not recognizedDeferred tax assets from temporary differences, and taxassets related to the carryforward of unused tax losses andtax credits are recognized to the extent that future taxableprofits will be available against which they can be utilized.The following unrecognized tax losses and tax credits areavailable to Siegfried:In 1000 CHF 2006 2005Unrecognized tax lossesand tax creditsWithin one year 865 –Between one and five years 24 953 17 335More than five years 43 403 32 175Total unrecognized tax lossesand tax credits 69 221 49 510Taxes on retained earnings of Group companiesAs of December 31, 2006, the total retained earningsof all Group companies were CHF 110.9 million (2005:CHF 109.9 million).In 1000 CHF 2006 2005Movements in recognizeddeferred income taxes, netDeferred tax liabilities,net, as of January 1 21 375 10 779Changes in consolidation scope – 8 809Charged to the Income Statement 33 410Charged to equity 192 2 430Exchange rate differences and other – 281 –1 053Deferred tax liabilities, as of December 31 21 319 21 3756. InventoriesIn 1000 CHF 2006 2005Raw materials 24 890 25 906Work in progress 74 822 72 101Finished products and trademerchandises 54 186 55 961Total Inventories 153 898 153 968Work in progress includes capitalized development costs ofservice projects of the Siegfried Division as well as capitalizedcosts for generic dossiers to be sold to third parties in thetotal amount of CHF 19.3 million (2005: CHF 10.0 million).The carrying amount of inventories includes valuationallowances of CHF 22.3 million (2005: 15.1 million)for slow-moving and obsolete inventory items. For theyear under review, write-off of inventory as part of theproduc tion costs of goods was CHF 5.7 million (2005:CHF 10.1 mil lion), and as part of development costsCHF 5.7 million (2005: CHF 1.1 million).The classification between work in progress and finishedproducts has been changed compared to the previous yearto provide more relevant information.7. Trade receivablesIn 1000 CHF 2006 2005Trade receivables 57 165 56 303Allowances for doubtful accounts –1 317 –1 456Total trade receivables 55 848 54 847During 2006 Siegfried recorded no costs relating toallowances for doubtful accounts (2005: CHF 1.1 million)76 Financial Statements Siegfried Group

8. Other current assetsIn 1000 CHF 2006 2005Other receivables 16 260 5 675Prepaid expenses 4 187 5 640Total other current assets 20 447 11 315Other current assets include receivables related to capitalinvestment subsidies of CHF 6.4 million, Value AddedTax of CHF 3.0 million (2005: CHF 3.6 million), as well asa receivable from a real estate sale of CHF 4.9 million.Prepaid expenses include prepaid insurance premiums ofCHF 1.4 million (2005: CHF 1.4 million) and miscellaneousprepayments and accruals.9. Derivative financial instrumentsThe principles of Siegfried’s financial risk management aredescribed in the accounting principles. Within the framework ofthese principles, Siegfried uses derivative financial instrumentsto hedge foreign exchange and interest rate risks. The contractvalue discloses the outstanding transaction volume.Positive NegativeContract value fair value fair valueIn 1000 CHF 2006 2005 2006 2005 2006 2005Derivative financialinstrumentsForeign currencyswaps 17 592 51 777 727 – – 2 016Interest rate swaps 75 000 55 000 655 86 – –All currency swaps relate to hedging of transactions in 2007.They are settled within 6 months and qualify as Cash FlowHedges. The portion of fair value changes that is determinedto be an effective hedge is recognized directly in equity, theremaining ineffective portion is reported in the financialresult. After expiration of the currency swap contracts theyare recorded in the Income Statement. By using interestrate swaps Siegfried has converted CHF 75.0 million ofvariable interest rate debt to fixed interest rate debt (2005:CHF 55.0 million). The fixed interest rates vary between2.9 and 3.1% (2005: 3.1% and 3.4%) as of December 31,2006, and the most important variable interest rate is LIBOR6 months with 2.1% at Balance Sheet date.In 2005, a Group loan of USD 32 million was designatedto hedge an internal loan, which is considered a hedgeof the net investment in the Penick Holding Company. Theexchange rate gain of CHF 3.1 million (2005: loss ofCHF 4.1 million) resulting from the translation into CHFat the balance sheet date was recorded in Equity.10. CashCash balances of CHF 19.0 million (2005: CHF 7.6 million)are primarily current accounts with banks. Cash defines thefund for the Consolidated Cash Flow Statement. The initialpayment from Celgene of CHF 15.0 million has led to theincrease in cash.11. Non-current assets held for saleSiegfried has signed a long-term cooperation agreementwith Celgene and sold an active pharmaceutical ingredient(API) manufacturing asset to the US- based pharmaceuticalcompany in the total amount of CHF 55.5 million. In afirst phase Celgene will use that asset to produce the APIfor their Revlimid product. The capacity sold corresponds toapproximately 5% of the total API production capacityof Siegfried at the Zofingen site. With the acquired assetCelgene has the capability to produce multiple drug sub -stances. Interim and finishing steps that can not be pro -duced in the asset are manufactured by Siegfried at arm’slength conditions.Celgene was able to implement their manufacturingstrategy at short notice and benefits from the locationwithin an existing infrastructure.CHF 15 million were paid in December 2006 as an initialpayment. During the period of the first 5 years, beginningin 2007, Celgene will pay CHF 4.1 million annually. By theend of year 5 Celgene has the right to hand back the assetto Siegfried for an amount of CHF 1. If Celgene does nothand back the asset annual payments of CHF 4 million aredue for the next 5 years.The initial payment is booked as a current liability andshown in the Cash Flow Statement as proceeds from anasset sale. The expected resulting net profit from the assetsale will be recognized in the first half year of 2007,following the completion of the pending obligations fromSiegfried in relation with the asset sale. Payments ofCHF 4 million after the date of the hand-back option aredeemed to be a market value for Celgene’s advantageof a presence at an integrated site. Such annual paymentstherefore will be recognized as income from serviceswhen due.Financial Statements Siegfried Group77

12. Consolidated Statement of Changes in EquityIn CHF million Capital Valuesurplus fluctuations Cumulative TotalShare- Treasury and legal of financial Retained translation Siegfried Minority- Totalcapital shares reserves*) instruments*) earnings*) adjustments*) Holding interests EquityAs of January 1, 2005 5.6 – 8.8 20.0 2.0 407.6 – 38.5 387.9 0.2 388.1Changes in – 5.5 – 5.5 – 5.5accounting policiesAs of January 1, 2005 restated 5.6 – 8.8 20.0 2.0 402.1 – 38.5 382.4 0.2 382.6Total recognizedincome and expense – – – – 4.1 43.7 16.7 56.3 – 56.3Dividends – 9.6 – 9.6 – 9.6Employee Share Plan 0.2 0.2 0.2Appropriation of earnings 1.2 –1.2 –Change in treasury shares 5.9 5.9 5.9As of December 31, 2005 5.6 – 2.9 21.2 – 2.1 435.2 – 21.8 435.2 0.2 435.4Total recognized – – – 2.1 32.6 – 8.2 26.5 – 26.5income and expenseDividends –11.6 – 11.6 –11.6Employee Share Plan – – –Appropriation of earnings 0.3 – 0.3 –Change in treasury shares – 4.7 0.1 – 4.6 – 4.6Change in minority interests – 0.2 – 0.2As of December 31, 2006 5.6 – 7.6 21.5 0.0 456.0 – 30.0 445.5 – 445.5*) In the Group’s Consolidated Balance Sheet these items are combined as reserves and retained earnings.The Siegfried Group share capital remains unchanged atCHF 5.6 million and divided into 2 800 000 registered shares(par value CHF 2). Treasury shares are deducted directly fromEquity. As of December 31, 2006 the Group held 41752treasury shares (2005: 18 103). Thereof 2936 (2005: 3787)shares are reserved for the Employee Share Plan.13. Non-current financial liabilitiesIn 1000 CHF 2006 2005Loans from banks 114 030 120 109Lease contract liabilities 5Total interest-bearing liabilities 114 030 120 114Less: current portion of non-current liabilities - – 5Total non-current financial liabilities 114 030 120 109Maturity and average interest rates Average interest rate in %In 1000 CHF 2006 2005 2006 20052006 5 7.12007 120 109 2.720082009201020112012 114 030 4.6Total 114 030 120 114Variable interest rate bank loans of CHF 75.0 million (2005:CHF 55.0 million) were fixed with interest rate swaps; theremaining non-current financial liabilities are subject to interestrate risks.78 Financial Statements Siegfried Group

The financial liabilities are denominated in the followingcurrencies:In 1000 CHF Total CHF EUR USDAs of December 31, 2006Bank loans 114 030 75 000 39 030Total 114 030 75 000 39 030As of December 31, 2005Bank loans 120 109 78 000 42 109Lease contract liabilities 5 5Total 120 114 78 000 5 42 109In August 2006 the credit line of the syndicated bank loanwas increased from CHF 160 million by CHF 40 million toCHF 200 million. This credit line was arranged to secureplanned capital expenditures and the financing of expectedgrowth. As of December 31, 2006, CHF 114.0 million(2005: CHF 120.1 million) of the credit line has been drawn.The decrease of CHF 6.1 million comprises repaymentsof CHF 3.0 million and foreign currency differences ofCHF 3.1 million. The syndicated bank loan will be due forrepayment in 2012. Siegfried has the right to draw upto CHF 30.0 million in additional debt capital outsidethis facility.14. ProvisionsIn 1000 CHF Environ- Project Othermental risks provisions TotalStatement of changesAs of December 31, 2005 11 666 6 000 1 560 19 226Payments –Additions, interest 524 524Releases (unused provisions) - 6 000 - 1 545 - 7 545Exchange rate differences - 15 - 15December 31, 2006 12 190 - - 12 190Environmental provisions Siegfried produces chemicalsat various locations. As part of the manufacturing process,undesirable incidents may arise, that result in an obligationto remedy pollutant effects on the environment. Suchobligations are recognized in the period when they becomeapparent. A provision is recorded if it is expected that theobligation results in an outflow of economic resources in themedium term and if a reasonable estimate of that obligationcan be made. By their nature the amounts and timing ofany outflows are difficult to predict. In connection withplanned construction projects, environmental investigationswere performed. Possible remediation obligations ofCHF 12.2 million were provided for. The start of the plannedconstruction projects is anticipated within the next 3 years,a first stage is set by the end of 2007/beginning 2008.Management reviews the provisions annually, based onregulatory changes or changes in planned investments.The provision for project risks was reversed after the agreedmilestones were achieved in 2006, and the realized incomefrom the project was recorded in net sales.Other provisions cover other operational risks. In thereporting period CHF 1.6 million in unused provisions werereversed, as on the one hand a change in the market ledto a new assessment of a risk and on the other hand aprovision could be reversed as a consequence of a sale ofreal estate.Financial Statements Siegfried Group79

15. Other non-current liabilitiesIn 1000 CHF 2006 2005Other non-current employee benefits 3 220 3 091Other non-current liabilities 316 377Total Other non-current liabilities 3 536 3 468Other non-current employee benefits represent obligationsunder deferred compensation arrangements related toservice anniversary awards and retirement compensations.16. Other current liabilitiesIn 1000 CHF 2006 2005Other liabilities 10 064 5 736Prepayments 2 632 2 261Accrued expenses and deferred income 37 460 27 041Total other current liabilities 50 156 35 038Other current liabilities include refunds to customers, valueadded tax liabilities and other liabilities. Accrued expensesand deferred income include CHF 15.0 million deferredincome related to the asset sale to Celgene, goods receivedbut not yet invoiced, sales commissions, accrued salary andsocial costs and miscellaneous items.17. Other operating incomeIn 1000 CHF 2006 2005Gain from disposal of real estate 1 225 4 335Royalty income 316 1 459Income from fire fighting courses 953 802Other income 1 555 1 553Total other operating income 4 049 8 14918. Employee benefits and personnelexpensesIn 1000 CHF 2006 2005Wages and salaries 93 758 87 295Pension costs – defined contribution plan 1 849 1 718Pension costs – defined benefit plan 5 051 6 656Other long-term employee benefit costs 304 584Social security and other personnel costs 20 921 22 764Total personnel expenses 121 883 119 017Pension plans and other non-current employeebenefits Siegfried operates various employee benefitplans in and outside of Switzerland for employees thatsatisfy the participation criterions. Among these plansare defined benefit plans and defined contribution plansthat cover the majority of employees for death, disabilityand retirement. There are also plans for jubilee benefitsor other year of service dependent plans which qualify asplans for other non-current employee benefits.Benefits are usually dependent on one or more factorssuch as the number of years the employee was covered inthe plan, age, pensionable salary and to some extent onthe accumulated old age capital. The assets of the fundedpension plans are held within separate foundations orinsurances and may not revert to the employer.Defined Benefit Plans and other non-current employeebenefits plans Siegfried applies retrospectively as of1.1.2005 the option to recognize actuarial gains andlosses in equity. This change resulted as of 1.1. 2005 inan increase in the net liability of CHF 7.1 million.The following amounts have been recorded in the profitand loss account as personnel expenses:Employee benefits expenseOther long-termPension Plans employee benefitsIn CHF million 2006 2005 2006 2005Current service cost 7.1 5.9 0.3 0.3Interest on obligation 7.7 7.8 0.1 0.1Expected return onplan assets – 9.9 -9.0 0.0 0.0Termination benefits 0.0 -0.5 0.0 0.0(Gains) or losses dueto curtailments 0.0 1.7 0.0 0.1Amortization of unvestedpast service cost 0.2 0.2 0.0 0.0Recognized actuarial(gains) or losses – – – 0.1 0.1Others 0.0 0.6 0.0 0.0Total, included inemployee benefits expenses 5.1 6.7 0.3 0.6Actual return on plan assets 17.4 28.8The average number of employees (calculated in numberof full-time positions) for 2006 was 967 (2005: 913).80 Financial Statements Siegfried Group

The following amounts are recognized in equity in theStatement of Recognized Income and Expense for thepension plans.Statement of Recognized Income and ExpensePension PlansIn CHF million 2006 2005Opening recognized (gains) / losses – 2.8 7.1Actuarial (gains) / losses during the year – 4.3 9.9Asset (gains) / losses – 7.5 – 19.8Variation of asset ceiling 11.6 0.0Exchange differences on foreign plans 0.0 0.0Closing recognized (gains) / losses – 3.0 – 2.8Changes in the present value of the definedbenefit obligationOther non-currentPension Plans employee benefitsIn CHF million 2006 2005 2006 2005Opening definedbenefit obligation 255.1 236.6 3.1 2.8Current service cost 7.1 5.9 0.3 0.3Plan participants’ contributions 2.8 2.7 0.0 0.0Interest on obligation 7.7 7.8 0.1 0.1Benefit payments and net transferalsthrough pension assets – 9.7 – 10.3 0.0 0.0Benefit payments by employer – 0.2 – 0.3 – 0.2 -0.3Actuarial (gains)/losses – 4.3 9.9 – 0.1 0.1Termination benefits 0.0 – 0.5 0.0 0.0Curtailments / Settlements 0.0 1.8 0.0 0.1Others 0.0 0.6 0.0 0.0Exchange rate differenceson foreign plans – 0.4 0.9 0.0 0.0Closing definedbenefit obligation 258.1 255.1 3.2 3.1Changes in the fair value of plan assetsPension PlansIn CHF million 2006 2005Opening fair value of plan assets 247.2 221.7Plan participants’ contributions 2.8 2.7Contributions by employer 5.0 3.6Benefit payments and net transferalsthrough pension assets – 9.7 – 10.3Expected return on plan assets 9.9 9.0Actuarial gains/(losses) 7.5 19.8Exchange rate differences on foreign plans – 0.3 0.7Closing fair value of assets 262.4 247.2The pension assets on December 31, 2006 include sharesof Siegfried with a market value of CHF 2.6 million (2005:CHF 2.3 million). The assets do not include any propertyoccupied by, or other assets used by, Siegfried.Expected employer contributions and expectedbenefit payments by the employer for 2007 amountto CHF 5.4 million for defined benefit plans andCHF 0.3 million for other non-current benefits. Theemployer contributions of CHF 3.9 million as disclosedin the annual report of fiscal year 2005 consist ofCHF 3.6 million employer contributions paid to planswith separate assets and CHF 0.3 million benefitpayments directly paid by the employer.Amount recognized in the Balance SheetThe net position of pension obligations in the balance sheetcan be summarized as follows:Other non-currentPension Plans employee benefitsIn CHF million 2006 2005 2006 2005Present value offunded obligation 252.8 250.2 0.0 0.0Fair value of plan assets – 262.4 – 247.2 0.0 0.0Under– /(Over-)fundingof funded obligations – 9.6 3.0 0.0 0.0Present value ofunfunded obligations 5.3 4.9 3.2 3.1Unrecognized past service costs – 2.2 – 2.5 0.0 0.0Unrecognized prepaidpension cost 11.6 0.0 0.0 0.0Net liability,as of December 31 5.1 5.4 3.2 3.1Amounts in the Balance SheetLiabilities 7.1 6.9 3.2 3.1Assets – 2.0 -1.5 0.0 0.0Net liability,as of December 31 5.1 5.4 3.2 3.1Financial Statements Siegfried Group81

The following principal assumptions form the basis for theactuarial calculation:Other non-currentIn % Pension Plans employee benefitsCalculation of definedbenefit obligationsValuation date 31.12. 2006 2005 2006 2005Discount rate 3.10 3.11 3.00 3.00Future salary increases 2.56 2.57 2.50 2.50Future pension indexations 0.60 0.60Calculation of expenses 2006 2005 2006 2005Discount rate 3.09 3.34 3.00 3.25Expected return on plan assets 4.07 4.0719. Financial resultTotalTotalIn 1000 CHF 2006 2005Interest income 661 280Other financial income 777 317Financial income 1 438 597Interest expenses – 6 042 – 4 910Other financial expenses – 209 -149Financial expenses – 6 251 – 5 059Exchange rate differences 873 4 203The arranger fee for the renewal of the syndicated bank loanis charged to expenses over the duration of the facility.The pension assets are composed of the following essentialasset classes:Asset classes pension plansValuation date 31.12. 2006 2005in % in %Equities 37 38Bonds 31 29Real estate 16 17Others including cash 16 16The following table shows how the actual development ofobligations and assets for the benefit plans deviates fromtheir expected development.Valuation date 31.12. in CHF million 2006 2005 2004Defined benefit obligation 258.1 255.1 236.6Fair value of assets – 262.4 – 247.2 – 221.7Under– / (Over-)funding – 4.3 7.9 14.9Experience adjustments on plan liabilities 6.4 – 0.8 1.2Experience adjustments on plan obligations 7.5 19.8 – 2.6Defined Contribution Plans Siegfried sponsors definedcontribution plans in Switzerland and in the USA. Thepension expense for these plans is CHF 1.8 million in 2006and CHF 1.7 million in 2005.20. Earnings per shareEarnings per share are calculated by dividing net profit ofCHF 32.4 million (2005: CHF 36.5 million) by the weightedaverage number of shares outstanding (2006: 2769055shares; 2005: 2 762 034 shares). Treasury shares are deductedin calculating the weighted average number of sharesoutstanding. There are no equity instruments outstanding todilute the amounts disclosed.21. Dividend per shareThe dividend paid in 2006 for the previous year wasCHF 11.6 million (CHF 4.20 per nominal share). A dividend ofCHF 4.20 per share for 2006 (total: CHF 11.8 million) will beproposed to the Annual General Meeting on April 13, 2007.The share dividend liability is not recorded in these FinancialStatements.22. Commitments and contingenciesThe operations of the Group companies continue to beexposed to risks from political, legal, fiscal and regulatorydevelopments including those related to environmentalprotection. The nature and frequency of these developmentsand events, which are not covered by insurance, are notpredictable. Possible obligations that are dependent onfuture events, are disclosed as contingent liabilities. As ofDecember 31, 2006, contingent liabilities amount toCHF 223.4 million (2005: CHF 179.2 million). They mainlyinclude guarantees related to the syndicated bank credit -facility of CHF 200 million dated August 16, 2006.82 Financial Statements Siegfried Group

Contingent liabilities for additional purchase price paymentsand royalty payments in connection with the acquisition of thePenick companies are as follows:If annual sales of the acquired products exceed USD 30 millionprior to 2013, an additional payment of USD 14 million is dueto the seller. Royalty payments of 5% are due on annual salesexceeding USD 45 million until 2014. It is not expected thatthese sales limits will be exceeded.23. Maturity of rental and lease paymentsIn 1000 CHF 2006 2005Operating Finance Operating Financeleasesleases leases lleases2006 239 52007 636 3462008 540 2682009 476 5222010 168 28Later 10Total payments 1 830 – 1 403 5Less interest -Total finance lease liabilities 524. Transactions with related partiesAs the parent company, Siegfried Holding AG directly orindirectly owns all investments in the Siegfried Group. TheCamellia Group is the largest shareholder, with interestsof 33.35% in Siegfried Holding AG. During 2006 there wereno transactions between the two groups.The companies belonging to the Siegfried Group are listedunder «Scope of consolidation» (Note 1). All transactionsbetween the Group companies have been eliminated aspart of the consolidation process and are not described inthis note.For the reporting year, the members of the Board ofDirectors were paid a total of CHF 0.5 million (2005:CHF 0.5 million).At the end of the year CHF 40000 were receivable fromthe three members of executive management, otherwisethere were no outstanding receivables or liabilities fromtransactions with related parties.The expense related to the Employee share plan was forthe Board of Directors CHF 83000 (2005: CHF 27000)and for the executive Management CHF 21000 (2005:CHF 7000).No benefits were paid out to departing Board members orexecutive management. No further post employmentbenefits were paid to former executive management andmembers of the Board of Directors.Fromer, Schultheiss and Staehelin (where Dr ThomasStaehelin is a partner) billed the Siegfried Group CHF 20000(2005: CHF 105000) for legal services. No further paymentswere made to the members of the Board of Directors orthe executive management.25. Subsequent eventsNo events requiring disclosure occurred between the balancesheet date and the date of the audit report.26. Employee Share PlanThe total costs for the Employee Share Plan in 2006amounted to CHF 0.5 million (2005: CHF 0.2 million). In thereporting period, 7996 shares have been purchased from theplan. The total funds accumulated as of December 31, 2006entitle plan participants to receive 3 404 shares.Compensation of the members of the Board ofDirectors and executive management In 2006, the threemembers of executive management were paid a total ofCHF 1.8 million (2005: CHF 1.4 million), including employercontributions to pensions of CHF 0.2 million (2005:CHF 0.1 million) and excluding employer contributions tomandatory state pensions.Financial Statements Siegfried Group83

Segment informationPrimary reporting format – Business DivisionsAs of December 31, 2006, the Siegfried Group is divided up into two Divisions:a) The Siegfried Division comprises the pharmaceutical activities of the Group, which produces patented active pharma -ceutical ingredients for multinational pharmaceutical corporations, standard active ingredients, finished products and thecorresponding registration dossiers.b) The Sidroga Division encompasses the development of medicinal teas and phyto-pharmaceuticals.Siegfried Sidroga GroupFigures in CHF million 2006 2005 2006 2005 2006 2005Net sales to third parties 320.7 282.2 39.1 36.1 359.8 318.3Operating profit/segments 39.0 41.3 2.1 1.6 41.1 42.9Net financial result – 3.9 – 0.3Profit before taxes 37.2 42.6Income taxes – 4.8 – 6.1Net profit 32.4 36.5Other informationSegment assets 645.8 637.6 26.5 23.0 672.3 660.6Unallocated assets 18.5 16.8Total assets 690.8 677.4Segment liabilities 88.8 80.8 6.5 5.4 95.3 86.2Unallocated liabilities 150.0 155.8Total liabilities 245.3 242.0Investments 40.1 31.4 0.6 9.4 40.7 40.8Depreciation 37.0 35.4 0.8 0.7 37.8 36.1Employees (number) 914 866 53 47 967 913The segment assets include: property, plant and equipment, intangible assets, inventories, trade receivables and operational cash.Tax assets and financial assets are excluded.The segment liabilities include operational liabilities. Tax liabilities and financial liabilities are excluded.Segment investments include additions to fixed assets and intangible assets, in 2006 they include CHF 3.4 million of non-cashcapitalized development costs.Secondary reporting format – Geographic segment Siegfried is active in three main regions. The most important productionfacilities are located in Switzerland and the USA. The key markets are Western Europe and USA.Europe USA Other areas GroupFigures in CHF million 2006 2005 2006 2005 2006 2005 2006 2005Net sales to third parties 1 263.1 224.0 87.9 88.4 8.8 5.9 359.8 318.3Operating profit 36.0 30.4 4.3 11.0 0.8 1.5 41.1 42.9Assets 2 534.9 516.5 137.4 144.1 672.3 660.6Unallocated assets 18.5 16.8Total assets 690.8 677.4Investments 2 30.4 35.5 10.3 5.3 40.7 40.8Employees 2 (number) 797 757 170 156 967 9131By market location, 2 By facility location84 Financial Statements Siegfried Group

Report of the Group auditorsto the General Meeting of Siegfried Holding Ltd.,ZofingenAs auditors of the Group, we have audited the consolidatedfinancial statements (balance sheet, income statement,cash flow statement, statement of recognized income andexpense and notes/pages 60 to 84) of the Siegfried Groupfor the year ended December 31, 2006.These consolidated financial statements are the responsibilityof the 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 Swiss AuditingStandards and with the International Standards on Auditing,which require that an audit be planned and performed toobtain reasonable assurance about whether the consolidatedfinancial statements are free from material misstatement.We have examined on a test basis evidence supporting theamounts and disclosures in the consolidated financial statements.We have also assessed the accounting principlesused, significant estimates made and the overall consolidatedfinancial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.In our opinion, the consolidated financial statements givea true and fair view of the financial position, the resultsof operations and the cash flows in accordance with theInternational Financial Reporting Standards (IFRS) andcomply with Swiss law.We recommend that the consolidated financial statementssubmitted to you be approved.PricewaterhouseCoopers AGDr M. JegerAuditor in chargePh. SpeckBasel, March 12, 2007Financial Statements Siegfried Group85

Five– year overview 2002–2006, consolidated figures2006 2005 2004 2003 2002Net sales CHF m. 359.8 318.3 321.4 366.2 399.0Change vs. previous year Percent +13.0 – 0.9 – 12.3 – 8.2 +13.2Operating profit (EBIT) 1 CHF m. 41.1 42.9 33.4 1 62.9 75.4Change vs. previous year Percent – 4.3 +28.7 – 47.0 – 16.5 +70.1Operating profit margin Percent 11.4 13.5 10.4 17.2 18.9EBITDA 1 CHF m. 78.9 79.0 66.6 1 94.3 101.9Change vs. previous year Percent – 0.1 +18.6 – 29.4 – 7.5 +26.9EBITDA margin Percent 21.9 24.8 20.7 25.7 25.5Net profit CHF m. 32.4 36.5 16.4 53.3 56.2Change vs. previous year Percent – 11.3 +122.9 – 69.3 – 5.1 + 81.1Cash flow from operating activities CHF m. 53.7 47.6 72.2 26.8 82.9Change vs. previous year Percent 12.8 – 34.1 +169.8 – 67.7 +38.5As % of net sales 14.9 15.0 22.5 7.3 20.8Total assets CHF m. 690.8 677.4 585.8 644.9 590.7Change vs. previous year Percent +2.0 +15.6 – 9.2 +9.2 +5.9Equity CHF m. 445.5 435.4 388.1 399.3 367.7Change vs. previous year Percent +2.3 +12.2 – 2.9 +8.6 +7.7Current assets CHF m. 250.5 227.8 201.3 240.3 221.3Change vs. previous year Percent +10.0 +13.2 – 16.1 +8.7 +3.6Non– current assets CHF m. 435.5 449.6 384.5 404.6 369.4Change vs. previous year Percent – 3.1 +16.9 – 5.0 +9.5 +7.3Current liabilities CHF m. 76.7 65.7 54.2 97.8 63.7Change vs. previous year Percent +16.7 +21.3 – 44.6 +53.4 +6.2Non– current liabilities CHF m. 168.7 176.4 143.6 147.3 159.2Change vs. previous year Percent – 4.4 +22.8 – 2.5 – 7.5 +1.8Capital expenditures CHF m. 35.8 29.6 26.3 68.8 77.0Change vs. previous year Percent +20.9 +12.5 – 61.7 – 10.7 – 13.0As % of net sales 9.9 9.3 8.2 18.8 19.3Depreciation charge /Impairment CHF m. 37.8 36.1 35.0 31.4 26.5Change vs. previous year Percent +4.7 +3.1 +11.5 +18.3 – 26.3As % of net sales 10.5 11.3 10.9 8.6 6.6Personnel expenses CHF m. 121.9 119 128.5 125.4 123.4Change vs. previous year Percent +2.4 – 7.4 +2.5 +1.6 +5.3As % of net sales 33.9 37.4 40.0 34.2 30.9Employees 2 Number 967 913 968 1 041 1 019Change vs. previous year Percent +5.9 – 5.7 – 7.0 +2.2 +0.9Sales per employee CHF 372 000 349 000 332 000 352 000 392 000Change vs. previous year Percent +6.6 +5.0 – 5.7 – 10.2 +12.312004 excluding CHF 10.2 million in restructuring costs, 2 Annual average86 Financial Statements Siegfried Group

Financial Statements Siegfried Group 87

Rita van EckDirector of Human Resources, PennsvilleI work for Siegfried (USA), Inc. locatedin Pennsville, New Jersey. I have beenwith Siegfried for almost sixteen years,and spent the latter half of that timeas the Director of Human Resources.Since I am in the people business,no wo days are alike, which is whatI enjoy the most in this position.I came from the Netherlands to theUSA as a young woman in 1974,and while working full time, I wentto university at night and obtaineda Masters Degree in Public Healthfrom the New Jersey State Universityof Medicine and Dentistry. Beforecoming to Siegfried though, I workedin the safety and health field for agood number of years as well as inthe business world as a stockbroker.However, at the end of a hectic day, itis good to go home and relax in frontof the fire place during the colderdays or on our porch in the backyardwhen the days are longer and warmer.And at night, when the sky is clearand the light pollution is at a minimum,I search the heavens for planets,comets, nebulae, or galaxies withmy telescope. Taking in the vastnessand beauty of the observableUniverse always puts everything inmy life and on this small planet Earthin perspective.My personal interests cover a widerange of subjects. I really enjoy readinganything from history and philosophyto mystery books. My partner, Chuck,and I love to experience new culturesand try different food and wines. Wehave become avid globe trotters andenjoy visiting ancient sites, far awaycities and buildings and wonders ofnature. In addition, we like to ski, playa round of golf, or go for long walkswith our dog, Jacques.89

Financial Statements Siegfried Holding Ltd.Balance Sheet of Siegfried Holding Ltd.In CHFAssets 31.12.06 31.12.05Non-current assetsFixed assets 113 234 80 540Investments in subsidiaries and affiliates 148 464 202 148 364 202Loans to subsidiaries 309 487 897 299 498 882Total non-current assets 458 065 333 447 943 624Current assetsOther accounts receivable 2 963 52 507Other accounts receivable from subsidiaries 569 018 609 501Prepaid expenses 2 132 597 1 358 662Securities 680 228 694 975Cash and cash equivalents 65 964 107 451Total current assets 3 450 770 2 823 096Total assets 461 516 103 450 766 720In CHFLiabilities and shareholders’ equity 31.12.06 31.12.05Shareholders’ equityShare capital 5 600 000 5 600 000Legal reservesOrdinary reserves 2 800 000 2 800 000Reserves for treasury shares 7 564 437 10 364 437 2 855 983 5 655 983Free reserves 331 993 715 320 702 170Retained earningsBalance carried forward 682 853 502 210Net profit 18 743 205 19 426 058 27 813 219 28 315 429Total shareholders’ equity 367 384 210 360 273 582LiabilitiesFinancial liabilities to third parties 64 030 400 67 108 800Financial liabilities to subsidiaries 15 092 728 9 514 495Other liabilities 1 341 808 38 317Deferred charges 3 796 505 3 961 074Provisions 9 870 452 9 870 452Total liabilities 94 131 893 90 493 138Total liabilities and shareholders’ equity 461 516 103 450 766 72090 Financial Statements Siegfried Holding Ltd.

Income Statement of Siegfried Holding Ltd.In CHFIncome 2006 2005Income from subsidiaries 6 100 000 13 000 000Financial income 21 798 347 13 814 517Management service fees 9 994 052 7 970 155Extraordinary income 402 400 1 519 483Total profit 38 294 799 36 304 155ExpensesPersonnel and other administrative expenses 3 477 499 2 366 986Financial expenses 14 877 031 5 505 468Taxes 1 193 678 596 853Provisions and depreciation 3 386 21 629Total expenses 19 551 594 8 490 936Net income 18 743 205 27 813 219Notes to the Financial Statements of SiegfriedHolding Ltd. (In accordance with Art. 663 b and cof the Swiss Code of Obligations)Guarantees and securities: CHF 223.4 million(2005: CHF 179.2 million).Insurance value of fixed assets: CHF 0.2 million(2005: CHF 0.2 million).All subsidiaries of significance for an assessment of theGroup’s financial position and earnings are listed onpage 72.Shareholders representing more than 3% of the votesincluded in the shareholders’ register are: The CamelliaGroup (consisting of Camellia Holding Ltd., Glarus, andAffish Ltd., Linton) holds an interest of 33.35%, andthe Siegfried Shareholder Group (consisting of the heirsof Dr hc Hans Siegfried and Sigamed AG, Zug) 5.19%.These Groups have entered into agreements entitling eachother with preemption rights for shares which the otherGroup may wish to sell.According to its own statement, Tweedy, Browne CompanyLLC, New York, USA, holds an interest of 10.27% and3V Asset Management AG, Zurich, 3,17% of the shares ofSiegfried Holding Ltd. 3% of these shares are registeredwith voting rights, the remaining shares – as far as notified –without voting rights.As security for the utilized portion of the syndicated bankloan, Siegfried Holding Ltd. has assigned receivables fromsubsidiaries in favor of the consortium banks. As of December31, 2006, CHF 64.0 million (2005: CHF 67.1 million) ofthe credit line have been drawn.Treasury shares During the reporting period, SiegfriedHolding Ltd. and one of its subsidiaries have purchased andsold Siegfried shares at market prices, resulting in a netincrease of 23 649 shares:NumberAverageCHF of shares priceAt January 1, 2005 57 632 153.0Purchases Jan.– Dec. 05 5 350 155.4Sales Jan.– Dec. 05 44 879 150.3At December 31, 2005 18 103 157.8Purchases Jan.– Dec. 06 36 330 187.5Sales Jan.– Dec. 06 12 681 172.5At December 31, 2006 41 752 181.2General information Siegfried Holding Ltd. holds directlyor indirectly all subsidiaries of the Siegfried Group. TheFinancial Statements of Siegfried Holding Ltd. are preparedin accordance with Swiss company law.Balance SheetNon-current assets Investments in subsidiaries and affiliatesinclude those companies in which Siegfried Holding Ltd.has an interest of more than 50% and the minority interestin SCI Pharmtech Inc., Taoyuan, Taiwan. Investments insubsidiaries an affiliates are valued at acquisition cost lessaccumulated depreciation. Investments have increasedas Siegfried Biologics AG was founded in the year underreview. Long-term loans to affiliates were used for thefinancing of capital expenditures and other operationalactivities.Current assets Prepaid expenses include the arranger feefor the renewal of the syndicated bank loan, which ischarged to expense over the duration of the loan, as wellas the accrual accounting for several items of income.Financial Statements Siegfried Holding Ltd.91

Securities are stated at the lower of cost or market valueon the balance sheet date. The decrease in Securities isdue to sales of treasury shares by Siegfried Holding Ltd.Proposal for the appropriation of earnings The Board ofDirectors proposes the following appropriation of earningsto the General Meeting of Shareholders:Shareholders’ equity The share capital of CHF 5.6 millioncomprises 2 800 000 registered shares of CHF 2 nominalvalue each.Ordinary reserves are unchanged at CHF 2.8 million.CHF 16.0 million were credited to free reserves fromprevious year’s appropriation of retained earnings. Outof the free reserves, CHF 4.7 million were transferredto treasury share reserves, reflecting the acquisition valueof 23 649 own shares bought in the reporting period.Liabilities Siegfried Holding Ltd. has drawn downCHF 64.0 million (2005: CHF 67.1 million) out of thesyndicated bank loan of the Siegfried Group witha credit line of CHF 200 million. In August 2006 thematurity date of the syndicated bank loan was extendedby five years up to 2012.In CHF 2006 2005Net profit 18 743 205 27 813 219Balance carried forward 682 853 502 210Total earnings available forappropriation 19 426 058 28 315 429Gross dividend of CHF 4.20per registered share of CHF 2p.v. on max 2 800 000 registeredshares qualifying for dividend 1 11 760 000 11 632 576Allocation to free reserves 7 000 000 16 000 000Total appropriation 18 760 000 27 632 576Balance to be carried forward 1 666 058 682 8531Dividends not paid out on treasury shares will be carried forward to newaccount.Deferred charges include the deferrals and accruals ofvarious income and expense items. Provisions includeaccrued income taxes, accruals for operational risks andaccruals of a general nature.Income Statement The income from subsidiaries in theamount of CHF 6.1 million (2005: CHF 13.0 million)comprises dividends received.Financial income consists mainly of interest received onloans to subsidiaries, foreign exchange gains on loans tothird parties and to affiliates and, to a lesser extent, ofincome from the securities portfolio. Management servicefees relate to services provided to subsidiaries.Financial expenses include interest on the syndicated bankloan and on loans from subsidiaries and exchange losseson loans to foreign subsidiaries.The extraordinary income is a result of a release ofvaluation allowances on loans to subsidiaries.Including the balance from the previous year ofCHF 0.7 million and the net profit for the year ofCHF 18.7 million, the total available earnings forthe year amount to CHF 19.4 million.92 Financial Statements Siegfried Holding Ltd.

Report of the statutory auditorsto the General Meeting of Siegfried Holding Ltd., ZofingenAs statutory auditors, we have audited the accountingrecords and the financial statements (balance sheet, incomestatement and notes/pages 90 to 92) of Siegfried HoldingLtd. for the year ended December 31, 2006.These financial statements are the responsibility of the Boardof Directors. Our responsibility is to express an opinion onthese financial statements based on our audit. We confirmthat we meet the legal requirements concerning professionalqualification and independence.Our audit was conducted in accordance with Swiss AuditingStandards, which require that an audit be planned andperformed to obtain reasonable assurance about whetherthe financial statements are free from material misstatement.We have examined on a test basis evidence supportingthe amounts and disclosures in the financial statements.We have also assessed the accounting principles used,significant estimates made and the overall financial statementpresentation. 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 earningscomply with Swiss law and the company’s articles of incorporation.We recommend that the financial statements submitted toyou be approved.PricewaterhouseCoopers AGDr M. JegerAuditor in chargePh. SpeckBasel, March 12, 2007Financial Statements Siegfried Holding Ltd.93

Stock market data2006 2005 2004 2003 2002Registered shares of CHF 2 2 800 000 2 800 000 2 800 000 2 800 000 2 800 000Dividend bearing capital CHF 5.6 5.6 5.6 5.6 5.6Gross dividend per registered share CHF 4.20 2 4.20 3.50 5.00 5.00Total dividend paid CHF 11 760 000 2 11 760 000 9 800 000 14 000 000 13 914 000Market prices, registered share high CHF 211.0 165.4 171.5 176.0 172.5low CHF 161.0 138.0 135.0 139.0 131.0Year-end CHF 183.0 164,5 141,1 156.0 154.0Gross yield per registered share high % 2.6 3.0 2.6 3.6 3.8low % 2.0 2.5 2.0 2.8 2.9Consolidated net profit perregistered share 1 CHF 11.70 13.23 6.01 19.54 20.70Consolidated operating cash flow perregistered share 1 CHF 19.39 17.36 26.9 9.8 30.54Consolidated equity and reserves perregistered share 1 CHF 160.89 157 142 146 135P/E ratio (year-end) 1 15.6 12.4 23.4 8.0 7.4Market capitalization at year-end CHF million 512 461 395 436 4311Calculated on the weighted average number of shares outstanding, deducting treasury shares.2As per the proposal to the General Meeting of Shareholders.Siegfried shares are traded on the SWX Swiss stock exchange:Sec. no. 239 546Stock symbols Reuters SFZZnTelekursSFZNTransfer restrictions: the Company’s Articles of Incorporationsate that no person or entity shall be registered with theright to vote for more than 3% of the registered sharecapital as set forth in the Commercial Register.94 Financial Statements Siegfried Holding Ltd.

Share price developmentPeriod from 1.1.2002 to 31.12.200670%22552%20033%17514%150–5%125–24%100–43%20022003 2004 2005 200675Siegfried NSMIFinancial Statements Siegfried Holding AG95

Cautionary statement regarding forward-looking statementsThis Annual Report contains certain forward-looking statements identified bywords such as ‘believes’, ‘expects’, ‘anticipates’, ‘projects’, ‘intends’, ‘should’,‘seeks’, ‘estimates’, ‘future’ or similar expressions or by discussion of, amongother things, strategy, goals, plans or intentions. Various factors may causeactual results to differ materially in the future from those reflected in forwardlookingstatements contained in this Annual Report, among others: (1) pricingand product initiatives of competitors; (2) legislative and regulatory developmentsand economic conditions; (3) delay or inability in obtaining regulatoryapprovals or bringing products to market; (4) fluctuations in currency exchangerates and general financial market conditions; (5) uncertainties in thediscovery, development or marketing of new products or new uses of existingproducts, including without limitation negative results of clinical trials or researchprojects, unexpected side-effects of pipeline or marketed products; (6)increased government pricing pressures; (7) interruptions in production; (8)loss of or inability to obtain adequate protection for intellectual propertyrights; (9) litigation; (10) loss of key executives or other employees; and (11)adverse publicity and news coverage.The statement regarding earnings per share growth is not a profit forecastand should not be interpreted to mean that Siegfried’s earnings or earningsper share for 2007 or any subsequent period will necessarily match or exceedthe historical published earnings or earnings per share of Siegfried.96 Financial Statements Siegfried Holding AG

Publisher’s noteThis annual report is also available inGerman, being the original version.Annual General Meeting of ShareholdersFriday, April 13, 2007, 11 a.m.in the Stadtsaal, ZofingenSiegfried Holding AGUntere Brühlstrasse 4CH - 4800 ZofingenPhone + 41 62 746 11 11Fax + 41 62 746 11 03www.siegfried-holding.comEditor:Peter A. GehlerMarcel GremaudIdea, Concept and Layout:Seiler Communications AG, ZurichPhotos:Dan Cermak, ZurichAlbert Zimmermann, ZurichMarkus Senn, BielPrint:NZZ Fretz AG, SchlierenPublisher’s note97