English - Siegfried

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