success through professionalism annual report 2004
TRANSCRIPT
Success through professionalismAnnual Report 2004
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2 Company report 2 Highlights in 20044 Letter to the stockholders6 The Executive Board—our key areas of focus8 Our staff
10 Dräger stock15 Corporate Governance
16 Report Dräger Medical22 Report Dräger Safety
30 Report of the Supervisory Board
34 Management report 2004 34 Group structureof the Dräger Group 36 General economic conditions
38 Transition to IFRSs40 Business performance of the Dräger Group46 Research and development47 Procurement, production and logistics48 Environmental protection50 Business performance of Dräger Medical54 Business performance of Dräger Safety58 Business performance of the holding company,
other companies, consolidation60 Risks to future development62 Subsequent events62 Outlook
63 Financial statements 2004 63 Income statement of the Dräger Groupof the Dräger Group January 1 to December 31, 2004
64 Balance sheet of the Dräger Groupas of December 2004
66 Statement of changes in equity67 Cash flow statement of the Dräger Group
68 Notes 2004 of the Dräger Group
118 Separate financial statements 2004 of Drägerwerk AG (short version)120 The Company’s Boards122 Major shareholdings
126 Index128 Imprint
See inside back cover for the glossary.
Content
The Dräger Group at a glance
Dräger Group 2002 2003 2003 2004 Change
vs. 2003
Under HGB Under HGB Under IFRSs Under IFRSs in %
Order intake € million 1,345.0 1,421.9 1,421.9 1,523.3 +7.1
Revenues € million 1,333.0 1,413.5 1,422.1 1,520.5 +6.9
EBITDA before non-recurring expenses1 € million 116.4 141.8 148.2 162.8 +9.9
EBIT before non-recurring expenses2 € million 71.9 96.4 94.8 117.2 +23.6
› in % of revenues (EBIT margin) in % 5.4 6.8 6.7 7.7 +14.9
Non-recurring expenses € million 5.6 32.4 37.1 22.3 –39.9
EBIT2 € million 66.3 64.0 57.7 94.9 +64.5
Result from discontinued operations € million 0.0 20.2 19.0 9.4 –50.5
Net profit /loss € million 19.8 37.8 34.0 47.3 +39.1
Minority interests in net profit € million 2.3 10.9 11.9 22.0 +84.9
Earnings per share after minority interests
› per common share € 1.35 2.09 1.71 1.96 +14.6
› per preferred share € 1.41 2.15 1.77 2.02 +14.1
Equity € million 170.1 499.2 443.3 477.3 +7.7
Equity ratio in % 20.1 41.7 33.4 33.5 +0.3
Capital employed3 € million 531.5 857.3 694.1 792.9 +14.2
EBIT before non-recurring expenses/
capital employed (ROCE) in % 13.5 11.2 13.7 14.8 +8.0
Net financial debt4 € million 189.3 36.7 138.7 218.3 +57.4
Headcount as of December 31 9,614 10,064 10,064 9,706 –3.6
Germany 5,551 5,099 5,099 4,378 –14.1
Abroad 4,063 4,965 4,965 5,328 +7.3
Cash dividend of Drägerwerk AG
Common stock € 0.29 0.34 0.34 0.39 +14.7
Preferred stock € 0.35 0.40 0.40 0.45 +12.5
1 EBITDA = Earnings before net interest result, income taxes, depreciation, amortization and result from discontinued operations2 EBIT = Earnings before net interest result, income taxes, and result from discontinued operations3 Capital employed = Balance sheet total less deferred tax assets, cash and cash equivalents and non-interest bearing liabilities4 Net financial debt = including receivables and liabilities from cash management systems
Dräger Medical and Dräger Safety at a glance
1 No non-recurring expenses at Dräger Safety
Segment performance 2002 2003 2003 2004 Change
vs. 2003
Under HGB Under HGB Under IFRSs Under IFRSs in %
Dräger Medical
Order intake € million 851.3 920.7 922.8 1,018.5 +10.4
Revenues € million 848.3 917.7 920.2 1,023.4 +11.2
EBIT before non-recurring expenses € million 76.6 91.4 85.3 94.2 +10.4
Capital employed € million 328.8 694.2 479.4 563.3 +17.5
EBIT before non-recurring expenses/revenues
(EBIT margin) in % 9.0 10.0 9.3 9.2 –1.1
EBIT before non-recurring expenses/capital employed
(ROCE) in % 23.3 13.2 17.8 16.7 –6.2
Headcount as of December 31 4,811 5,596 5,596 5,859 +4.7
Germany 2,513 2,463 2,463 2,424 –1.6
Abroad 2,298 3,133 3,133 3,435 +9.6
Dräger Safety
Order intake € million 469.8 487.1 487.1 510.0 +4.7
Revenues € million 471.1 477.4 477.3 503.0 +5.4
EBIT1 € million 41.3 39.7 36.5 40.9 +12.1
Capital employed € million 164.8 168.4 153.7 157.1 +2.2
EBIT/revenues (EBIT margin)1 in % 8.8 8.3 7.6 8.1 +6.6
EBIT/capital employed (ROCE)1 in % 25.1 23.6 23.7 26.0 +9.7
Headcount as of December 31 3,207 3,298 3,298 3,329 +0.9
Germany 1,464 1,474 1,474 1,442 –2.2
Abroad 1,743 1,824 1,824 1,887 +3.5
Financial diary
Annual accounts press conference, Lübeck April 28, 2005
Analysts’ meeting, Frankfurt/Main April 28, 2005
Conference call
Q1/2005 report May 12, 2005
Conference call
Annual stockholders’ meeting June 10, 2005
H1/2005 report August 11, 2005
Conference call
Q3/2005 report November 10, 2005
Conference call
Annual stockholders’ meeting June 2, 2006
Annual stockholders’ meeting May 11, 2007
Dräger. Still achieving success throughprofessionalism in 2004.
Dräger owes its success to the professionalism of all its employ-ees and managers, and this has been the case for 115 years now.Well-trained and highly committed employees, who observe thebasic principles of fair play and respect in their dealings with oneanother—these are the values that are prized by our customers,and that shape Dräger’s corporate identity. We will continue tostrengthen this identity in the future with a view to building uponour company’s standing in its global markets and ranking amongthe best of the best.
Technology for life is our guiding philosophy and vision, and alsodescribes our fields of activity—medical and safety technology—and their markets. Our products, our methods, our organization,and our skills all change with time and need to be adapted to theever-shifting conditions of our working environment.Yet one area where we demonstrate continuity is in our corestrengths: customer orientation, staff, innovation, and quality.
Company report2
Highlights in 2004
Dräger and Capgemini Germany sign IT outsourcing contract230 employees of the Dräger IT companies transfer to ITspecialist and partner Capgemini Germany.
Dräger Polytron monitors beverage productionOne of the largest manufacturers of caffeine-based softdrinks installs Dräger detection technology to monitor carbon dioxide in 52 of its production plants in the US andCanada.
With Dräger gas detectors in New York’s underworldNYC’s main energy supplier chooses Dräger MiniWarn gas detection instruments, allowing personnel to safelyenter confined spaces, pipes and shafts in which harmfulsubstances in gaseous form may be present.
Anniversary in Shanghai: 10 years of Dräger MedicalDräger Medical has enjoyed success in China since 1994.Production for China and other markets has been goingstrong there since 1996.
High level of participation in staff surveyMore than 82 percent of employees worldwide take part in the Group-wide staff survey conducted in January.
New soda lime plant commences productionWith its new automatic production plant for soda lime,Dräger Safety remains an important supplier of high-gradesoda lime for medical (anesthesia) devices, diving appa-ratus and respiratory protective equipment.
New sales structure in the USDraeger Medical, Inc., Dräger Medical’s US subsidiary,restructures its sales division. The switch from product-specific to portfolio selling in the critical care area, coupledwith a larger workforce, is helping boost customer loyaltyin the US.
Respiratory protective devices for Athens OlympicsThe Greek capital equips its fire departments with DrägerSafety respiratory protective equipment as part of its safety program for the Summer Olympics.
New subsidiaries in Chile and MexicoPreviously represented only by dealer-agents, Dräger Medical founds its own subsidiaries in Santiago de Chileand Mexico City in 2004.
Pioneering Solutions: new “fuel gauge” for sensorsThe way forward: the world’s first “Sensordiagnostics” system keeps users of Dräger gas monitoring systemscontinuously informed about the current status of their gaswarning system.
Prize for best business communicationFor the second time in succession, Dräger wins the German Prize for Business Communication.
Green light for Air-Shields acquisitionDräger Medical takes over the neonatal care business unitof Hill-Rom, Inc., which operated under the name Air-Shields, thereby bolstering its presence in the neonatalcare segment in the US.
AugustHelmets for THW disaster relief organization
MarchAnniversary in Shanghai
FebruaryDräger gas detection technology in New York’sunderworld
JanuaryDräger Polytron monitors beverage production
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Medica trade fair: Dräger Medical sets milestone fornetwork integration in hospitalsThe Infinity® OneNet from Dräger Medical allows hard-wired and wireless patient monitoring in existing networkstructures for the first time. Heidelberg University Hospitalsees the world’s first installation of the new system for thesimultaneous use of medical signal processing systemsand the hospital’s in-house IT solutions.
Dräger Safety Solutions make tunnels saferDräger supplies rescue systems for European tunnel projects from a single source: escape chambers for tunnelworkers, and rescue containers for fire and rescue trainsduring fire fighting and evacuation of train passengers following accidents in rail tunnels.
Dräger Medical to remain in LübeckFollowing a detailed analysis and intensive negotiations, a decision is taken in favor of a new knowledge-orientedcompany headquarters and flexible production facility forDräger Medical in Lübeck. The new building should beready in 2008.
Aid for flood victimsThe Dräger Group donates €50,000 in cash plus equip-ment worth a total of €85,000 to the disaster regions inSouth-East Asia.
Important service contract for hospital in Virginia, USAThe Inova Fairfax Hospital, a 725-bed emergency clinic,chooses a comprehensive service package from DrägerMedical, with complete servicing of all anesthesiamachines in the hospital’s 55 operating rooms.
Concord GmbH takes over Dräger ProTechThe sale of Dräger ProTech marks the successful con-clusion of a strategy designed to achieve focus on thecompany’s core business.
Disaster relief organization uses Dräger head protection systemsTHW, Germany’s disaster relief organization, orders27,000 HPS 4100 protective helmets from Dräger. Theplan is to equip all THW personnel with this helmet.
Strategist and entrepreneur of the yearTheo Dräger is named 2004 entrepreneur and strategistof the year: according to the jury, he has succeeded inachieving a symbiosis between publicly traded companyand family-run business.
Hospital-standard ventilation quality in the homeDräger Medical presents its new home ventilator “Camena” at the European Respiratory Society Congress.
XV Malente Symposium on youth and employmentAround 400 international experts discuss the global rise inyouth unemployment and develop visions for the future.
Training center for Bangkok airport fire departmentDräger Safety is commissioned to build a training centerfor the fire department of the new Bangkok InternationalAirport.
NovemberMedica trade fair with new solutionfor network integration
DecemberAid for flood victims in South-East Asia
September“Camena” offers hospital-standard ventilationquality in the home
OctoberDräger Safety Solutions make tunnels safer
DecemberDecision in favor of Lübeck
Dear Stockholders:
A year ago, in our Annual Report 2003, I reported that our company was oncourse and making excellent headway. To remain with this maritime image, I amhappy to say that we were able to maintain this course in 2004, as can be seenfrom our key business development figures for 2004:– Global sales of the Dräger Group climbed by 6.9 percent to over €1.5 billion,
the Dräger Medical subgroup exceeding the one billion mark for the firsttime and the Dräger Safety subgroup reaching the half billion mark.
– EBIT rose by around 24 percent to €117.2 million, with all areas of the com-pany contributing.
– The EBIT margin reached 7.7 percent.– The Group’s net profit increased to €47 million.– The return on capital employed (ROCE) was 14.8 percent.– Although during the year under review our preferred stock fell by 9 percent
to €43, it rose six-fold over the five-year period from January 1, 2000 toDecember 31, 2004.
– At the annual stockholders’ meeting, the Executive and Supervisory Boardswill propose that a dividend of €0.45 per preferred share and €0.39 percommon share be distributed.
We are pleased with the results we have achieved, but do not see this as anyreason to rest on our laurels. On the contrary—our markets are changing, andthe wind of global competition is whipping up. To maintain and build upon ourposition, we are concentrating on the following areas:
1. Focus on core areas of business: we have now concluded the program ofrestructuring we began in 2001. Dräger ProTech, a producer of individualparts and components, and the Dräger IT companies were sold, allowing theDräger Group to focus on its Dräger Medical and Dräger Safety subgroups.Dräger Medical has taken over the US firm Air-Shields with a view toexpanding its position in the field of perinatal care, while Dräger Safety hasalso strengthened its market and product position through company acqui-sitions.
2. Quality assurance: we have set ourselves the goal of remaining the undis-puted quality leader in our markets. Savings in our business processes willnot be made at the cost of quality.
3. Innovations: utilizing the knowledge and skills of our staff, we are constantlyhard at work fine-tuning our products and systems, placing particularemphasis on creating total solutions for the benefit of our customers.
Company report4
Letter to the stockholders
4. Reduction of costs: ever since 2001, we have been striving to lower our basecosts on a permanent basis, for example through the targeted use of IT atDräger Safety, and the consistent implementation of a platform strategy fornew product development at Dräger Medical. A further area of focus is theglobal standardization and optimization of our internal processes.
5. Internationalization: nowadays, we can only achieve above-average growthrates outside Germany. We are therefore expanding our business at the locallevel, either by investing in and setting up our own companies, or by collabo-rating with trading partners all over the world.
6. Our Lübeck site: at the end of 2004, we created the conditions for a newDräger Medical building to be established at our Lübeck headquarters. Thismeant that concrete planning of a knowledge-oriented company headquar-ters was able to get underway in early 2005. This should be ready for use atthe beginning of 2008.
As you can see, we are looking to the future. We are pursuing interesting pro-jects, working on innovative products, expanding our quality assurance and targeting even higher levels of customer satisfaction. At the same time, we areplanning and shaping the future of our company. This is also why we have chosen to entitle this year’s Annual Report “Success through professionalism”.
I would like to finish by thanking our highly motivated staff. At the same time, I would like to extend my thanks to you, our stockholders and business part-ners, for your confidence and trust in our work. We will do everything we can to ensure that Dräger remains a successful company in the future and that we deserve your support.
Theo DrägerExecutive Board Chairman of Drägerwerk AG
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Company report6
Theo DrägerBorn 1938Member of the Executive Board since 1970Chairman
“Creating value—that is the primary objective of the DrägerGroup. Value for customers and stockholders, for employ-ees and the company. Their long-term success is our goal,towards which our staff throughout the world work withdedication and competence.”
Dr.Wolfgang ReimBorn 1956Member of the Executive Board since 2000Dräger Medical
“Translating our knowledge of the challenges faced by ourcustomers into the innovations of tomorrow—this is thetask we have defined for ourselves. With the patient firmlyin our sights, our aim is to contribute to reducing clinicalprocess costs, while at the same time raising the standardof patient care. The key is products, services and inte-grated CareAreaTM solutions which help optimize clinicalprocesses at the acute point of care. This will allow us tocontinue to grow globally and improve our market position.”
Professor Albert JugelBorn 1948Member of the Executive Board since 1999Dräger Safety
“Competent advice, impressive products and comprehen-sive problem solutions from a single source—that is thestrategy followed at Dräger Safety. A company can onlyprepare itself for the future if it constantly adapts to marketconditions and customer requirements.”
Stefan DrägerBorn 1963Member of the Executive Board since 2003Corporate Functions
“Thoroughly professional employees, who observe thebasic principles of fair play and respect in their dealingswith one another—these are the values that are perceivedand prized by our customers. Our goal is to enhance thisreputation and, with the support of all our staff in the Safe-ty and Medical subgroups, to build upon our company’sstanding in its global markets and rank among the best ofthe best.”
Hans-Oskar SulzerBorn 1946Member of the Executive Board since 1997Finance
“The guiding principle behind our value-based style ofmanagement is our economic performance. Managers andstaff alike play their part in this, and share accordingly inthe company’s success.”
Ingo GenschBorn 1940Member of the Executive Board since 1984Corporate Personnel
“The Dräger Group’s path to the top is paved by our staff.Their knowledge and dedication are the prerequisites forour success. Dräger develops the potential of its employ-ees, utilizes their skills in order to make continuousimprovements in all areas, and rewards the contributionsmade by individuals and by the team as a whole to thecompany’s increasing value.”
The Executive Board—our key areas of focus
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The Executive Board (from left to right):Stefan Dräger, Ingo Gensch, Dr.Wolfgang Reim, Hans-Oskar Sulzer, Theo Dräger, Prof.Dr.Albert Jugel
Company report8
9,700 employees—broad-based professionalismThe Dräger Group is becoming increasingly international,and as such relies on well-qualified managers and staff.Our success as a company is determined to a large extentby our flexibility, our customer and service orientation, ourbusiness-like approach in word and deed, and the interna-tional outlook of every one of our employees. Facing up tothis challenge, even as we put in place restructuringprocesses and cost reduction programs, demands hardwork from us all.
Attractive jobs with international prospects and multifaceted challengesThe Dräger Group is able to offer its staff exciting jobs andprospects in many of the world’s countries. In 2004, onekey question for our staff, especially those employed inLübeck, was whether Dräger Medical would be able toremain at its traditional site. International competitive pres-sure is forcing us to change, and our answer is to build anew knowledge-oriented company headquarters withstreamlined processes and a flexible production facility. Bythe end of the year, we were able to reach the necessaryagreement with the union and employee representatives tosave the Lübeck site. The result included greater flexibilityof labor costs and working hours, for example by increas-ing the number of employees with 40-hour contracts,changing our company’s business hours and making it easier to employ up to 25 percent of the workforce as loanworkers and staff on fixed-term contracts.
In return, Dräger Medical will make available around 50 percent more apprenticeship positions, and has prom-ised to remain in Lübeck in the long term, investing tens ofmillions in structural improvements. The company’s goal is to complete the new Dräger Medical building in Lübeckby January 1, 2008.
More training and continuing educationWithin the framework of the “apprenticeship pact”, an ini-tiative of the German government to encourage more com-panies to offer training opportunities, Dräger played itspart in tackling the shortage of apprenticeships in 2004 by making additional positions available in Lübeck. Thecompany also intensified its cooperation with leading universities and other institutes of higher education: inaddition to its longstanding cooperation with the Nord-akademie Business School, Dräger also launched in 2004an in-service university degree in information technology in cooperation with the Hamburg-Harburg Technical Uni-versity. At an international level, cooperation continues with the Massachusetts Institute of Technology (MIT). Toensure the continuous selection, qualification and furtherdevelopment of upcoming young managers and top man-agement, Dräger introduced a target-group-oriented Man-agement Development Program in 2004. Together withfirst-class executive training partners, we select managersand keep their management knowledge up-to-date. Fur-thermore, a cooperation agreement was signed in 2004with a global provider in the area of vocational continuingeducation.
Staff satisfaction as a factor for successOur employees are very important to us. Their opinionscount. Our regular staff survey, which was last conductedGroup-wide at the beginning of the year, has been devel-oped still further to become an important strategic man-agement tool at Dräger. Over 82 percent of the globalworkforce took part in the survey—a figure that comparesvery favorably to other companies and reveals a high levelof commitment on the part of our staff. As for informationand communication, staff want to see even more trans-parency. In cases where individual areas were pinpointedfor action, our managers are being expected to introduceimprovements within their respective areas of responsi-bility.
Our staff
able to enter into partnership with an international high-flyer to handle our global IT infrastructure, as a result ofwhich some 600 staff found themselves with a new em-ployer. The final stage of this process was the transfer ofour Dräger ProTech GmbH business to the specialist firm Concord GmbH and the integration of our internalDräger Interservices logistics firm into the subgroups. In a parallel step, we consolidated our main fields of businessby taking over a number of international companies, bothat Dräger Medical and Dräger Safety. This development isclearly reflected in our staff structure—for the first time,more than half of the entire workforce of the Dräger Groupwas employed outside Germany as of year’s end.
From 2005, Dräger will regularly enter the “Great Placeto Work” competition and use standardized criteria to mea-sure its attractiveness for its staff against other excellentcompanies. The measurement will include evaluating thebenefits offered by the company, as well as a random sur-vey of employees. The competition has shown that attrac-tiveness as an employer goes hand in hand with businesssuccess—though this is nothing new for Dräger.
Providing for our employees in old age—a newdimension in pension plans at DrägerIn view of current economic, demographic and socialtrends, finding the right type of pension plan has becomeextremely important. This prompted us to restructure theretirement plans Dräger offers its staff. The advantages ofthe new scheme for 2005 are as follows: stability of value,income-linking and the flexibility to allow for deferred com-pensation. In addition, Dräger adds its own contribution to the employee’s payment, taking full advantage of thenew legal and social provisions. An annual account state-ment increases the transparency of the pension plan, andemployees can put together a package of benefits to suittheir particular life circumstances. As such, Dräger is alsoa pioneer in the area of company pension schemes.
More than half the workforce outside of GermanyIn 2004, we brought to conclusion our program of mea-sures designed to allow us concentrate on our core com-petencies of medical and safety technology. As part of thisprogram, we continued our spin-off activities last year, disposing of our IT companies. At the same time, we were
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Dräger employee in the production department
2000
2001
2002
2003
2004
10,064
9,706
9,614
9,262
9,072
5,099 4,965
4,378 5,328
5,551 4,063
5,576 3,686
5,673 3,399
Workforce trend within the Dräger Group, 2000–2004as of December 31 (discounting apprentices and interns)
Germany Abroad
Our results of operations improved further in 2004, layingthe foundations for building corporate value further in theyears to come. The year was yet another successful sequelto Dräger’s growth story. However, the Dräger stock pricedid not mirror this strong performance. Although the pricerose sharply during the year, Dräger preferred stock fellsome 9 percent year on year.
Inconsistent stock markets Following a brilliant 2003, the stock markets tended side-ways in 2004. Alongside the US dollar, high oil prices,fuelling concerns about global economic growth, were themain brakes on stock performance. Some of the majorinternational indices closed at higher levels than in theprior year, but single-digit growth was the maximum. Thepicture on the German stock market was mixed: the DAXrose 7.3 percent in 2004 (2003: up 37.1 percent), whilethe TecDAX fell by 3.9 percent (2003: up 50.9 percent).
Dräger stock consistently outperforms the marketWith equity investments, in particular, the mid-range andlong-term perspectives are what count. Dräger stock is anattractive, high-yield investment, a fact underlined by itsperformance over the past three years. The Dräger stockprice climbed 286 percent, outstripping all other bench-mark indices, whose performance was either markedlyweaker or even negative.
Dräger stock unable to keep up the previous year’s rally in 2004In the fiscal year, Dräger stock was unable to continue itsexcellent performance of prior years. At the end of 2004,the price of the stock was down 8.9 percent. The year gotoff to a shaky start before culminating in a new record highfor the preferred stock. Dräger stock was recommendedby a number of equity research analysts and received goodpress, boosting its price by 35.5 percent from €46.51 at
Company report10
Dräger stock
Dräger stock performance at compared with Jan. 1, Jan. 1, Jan. 1, Jan. 1, Jan. 1, Jan. 1,
Dec. 31, 2004 1999 2000 2001 2002 2003 2004
in %
Dräger-preferred stock 215.7 373.4 450.3 285.9 135.3 (8.9)
DAX (14.9) (37.0) (33.8) (17.5) 47.1 7.3
TecDAX (84.0) (89.9) (81.9) (54.8) 44.9 (3.9)
Prime Pharma & Healthcare 34.9 33.2 (5.4) 0.4 42.9 19.5
MSCI World Healthcare Equipment 42.0 82.9 18.1 26.1 47.2 18.5
HDAX (10.7) (32.2) (29.6) (13.9) 49.8 8.2
Pharma and Healthcare index increased by 19.5 percent(2003: up 19.6 percent), the Prime Medical Technologyindex rose by 14.6 percent (2003: up 86.7 percent), andthe MCSI World Healthcare Equipment & Services indexrecorded growth of 18.5 percent (2003: up 24.3 percent).
Liquid tradingA daily average of 38,600 Dräger shares were traded atGerman exchanges in the fiscal year (2003: approx.27,000), with a total of some 10 million shares changinghands. This represents a 43 percent increase in the aver-age daily trading volume (2003: up 35 percent). Accord-ing to Deutsche Börse, Dräger stock was one of the 11most traded TecDAX shares.
the beginning of the year to €63.00. The provisional fiscal2003 figures were published in March, and the forecast for2004 was adjusted at the same time to allow for currencyeffects. The stock price declined for a while before re-covering to €54.30 in April. In July and August, generallyailing markets saw the stock price fall to a calendar-yearlow of €38.03. The turnaround came in mid-August withthe release of six-month figures and the generally brightermood on the stock markets. Compared to its lowest price,Dräger stock rose by up to 33 percent, climbing to€50.60. At year-end, the weak dollar and the reducedsales and earnings forecast for Dräger Medical, revised atthe end of October, put a damper on performance. At theend of 2004, Dräger stock closed at €42.37.
Dräger preferred stock outperformed the industrybenchmark indices for the year as a whole: the Prime
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600
500
400
300
200
100
0
Dynamic price trendDräger preferred stock price trend 2002–2004 (indexed)
2002 2003 2004
Dräger
MSCI CDAX HDAX DAXTecDAX
Source: Reuters
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
Investor relations efforts intensifiedWe at Dräger believe that it is our duty to actively commu-nicate with investors and seek dialog with capital marketparticipants. Investors receive information “hot off thepress” and far more frequently than just on the compulsoryreporting season dates. This is an important part of ourtransparent, regular and coherent communication with thefinancial markets. We took a number of steps to intensifyour links with the financial community. These includedmeeting institutional investors at roadshows in variousfinancial centers in Germany, the UK, France, and Switzer-land to present the Dräger strategy and our growth oppor-tunities. We also participated in four investor conferenceswith well-known brokers. The Executive Board held manyone-on-one interviews with investors, and in 2004 manyinstitutional investors and analysts from Germany andabroad took the opportunity to visit Dräger and our cor-porate exhibition in Lübeck or talk to company represen-tatives at the international Medica fair.
Our investor relations efforts in the fiscal year focusedon communicating the strategic development of Dräger-werk AG to current and prospective shareholders andupdating the equity story. In the prior year, the companyhad already begun streamlining its activities to focus onDräger Medical and Dräger Safety and, as a result, gradu-ally shed its service companies. This process was broughtto a close with the sale of Dräger ProTech as of July 1,2004. Several acquisitions have also helped to strengthenthe Group’s product range and sales activities: DrägerMedical acquired Air-Shields to improve its neonatal busi-ness; Dräger Safety acquired the operations of the SouthAfrican breathing mask manufacturer Zenith Safety Prod-ucts Trust and, in the field of fire and emergency trainingsystems, Swede Survival Systems Inc., California, US,
and Fire Training Systems (FTS) Ltd., Ontario, Canada.This was also one of the main issues discussed in tele-phone conferences with investors and financial analysts in August and November to accompany the publication of the quarterly figures.
The warm response from institutional investors showsthat the Executive Board has succeeded in persuasivelyconveying the Dräger Group’s attractive investment profile.This is also reflected by the number of investment banksthat regularly publish studies on the company’s perform-ance. Since the prior year, HypoVereinsbank, BankhausLampe and MainFirst Bank have joined their ranks. Thefollowing banks regularly issue analyses of Dräger stock:
— Berenberg Bank— CA Cheuvreux— Commerzbank— Deutsche Bank— DZ Bank— equinet— Bankhaus Lampe— LBBW— Nord/LB— Sal. Oppenheim— SEB— WestLB— HVB— MainFirst Bank
Company report Dräger stock12
High-potential shareDräger stock is well known in German investment circlesas standing for both growth and solidity. The Group’s long-term prospects are promising. Our global presence in allimportant future markets, a clear strategic alignment, highlevels of innovation and committed staff are the keys to our success. They will help us bolster our market positionand enhance our corporate value in the long term.
High percentage of institutional investorsDräger did not make any changes to capital in the fiscalyear. The capital stock remains unchanged at €32,512 million, divided into 12,7 million bearer shares. Half of theshares are preferred stock listed for trading. The owner-ship structure is by and large the same as in the prior year.The common stock is owned either directly or indirectly bythe Dräger family. All of the preferred stock is in free float.According to a current survey, around 42 percent was heldby institutional investors in Switzerland (18 percent), theUK (15 percent), Germany (6 percent) and other countries(3 percent) in December 2004.
Earnings per shareThe net profit for the year after minority interests resultedin earnings per preferred share of €2.02 (2003: €1.77).Due to the lower dividend, the common stock was valued€0.06 lower. The minority interests in net profit increasedby some €10 million to €22 million in fiscal year 2004, as the joint venture partner Siemens AG participated in the full annual net profit of the Dräger Medical subgroupfor the first time in fiscal year 2004 (six months in the prioryear).
Dividend proposalThe Executive Board and the Supervisory Board will pro-pose to the stockholders’ meeting on June 10, 2005 to pay a dividend of €0.39 on common stock and €0.45 perpreferred share. In relation to the share price of €42.37 on December 31, 2004, the dividend yield comes to 1.06percent. Hence 20 percent of the net income less minorityinterests is distributed to shareholders.
13
Company report Dräger stock14
Dräger stock figures 2002 2003 2003 2004
HGB HGB IFRS IFRS
Shares
Number of shares pc. 12,700,000 12,700,000 12,700,000 12,700,000
› thereof common pc. 6,350,000 6,350,000 6,350,000 6,350,000
› thereof preferred pc. 6,350,000 6,350,000 6,350,000 6,350,000
Free-floating preferred stock in % 100 100 100 100
Trading figures
Average daily trading volume1 pc. 19,899 40,094 40,094 38,649
Annual high in € 20.10 49.32 49.32 63.00
Annual low in € 10.50 18.01 18.01 38.03
Stock price at December 31 in € 18.01 46.51 46.51 42.37
Market capitalization2 in € 228,727,000 590,677,000 590,677,000 538,099,000
Earnings figures as of December 31
Earnings per common share in € 1.35 2.09 1.71 1.96
Earnings per preferred share in € 1.41 2.15 1.77 2.02
Cash flow (from operating activities) per share in € 8.30 2.97 4.22 0.85
Equity per share in € 13.40 39.31 34.91 37.57
Price/equity ratio 1.3 1.2 1.3 1.1
Price/earnings ratio 13.1 21.9 26.7 21.3
Dividend figures
Dividend per common share3 in € 0.29 0.34 0.34 0.39
Dividend per preferred share3 in € 0.35 0.40 0.40 0.45
Dividend yield (preferred stock)
as of December 31 in % 1.94 0.86 0.86 1.06
Distribution ratio4 in % 23.24 17.52 21.24 20.09
1 All German stock exchanges (source: Deutsche Börse)2 Number of all shares/stock price at December 313 2004: Dividend proposed to the stockholders’ meeting4 Total dividends paid divided by consolidated net profit after minority interests
15
5. The consolidated financial statements were made pub-lic within the statutory time limit, but not within the peri-od recommended by 7.1.2 of the Code. Interim reportswere, and will be, made public in accordance with therecommendations of the Code (7.1.2 of the Code).Compliance with the time limit for the publication of theconsolidated financial statements has been planned fora later date.”
The reasons for the aforesaid exceptions from certain recommendations of the Code have largely been explainedin the declaration of conformity. For reasons of privacy, theExecutive and Supervisory Board members jointly votedagainst the disclosure of the remuneration paid to eachindividual Executive Board member.
Declaration of Conformity“The Executive and Supervisory Boards declare that, sub-ject to the exceptions listed below, Drägerwerk AG hasacted on the recommendations of the German CorporateGovernance Code Government Commission, as amendedon May 21, 2003, since the issuance of its previous decla-ration of conformity on December 20, 2003:
1. The Company will not appoint any corporate votingproxy for exercising the voting right of stockholders ontheir instructions at the annual meeting (2.3.3 clause 3 of the Code). The voting common stock is solelyowned directly or indirectly by the Dräger family and,therefore, it would be redundant to appoint any suchproxy for Drägerwerk AG’s stockholders.
2. The salaries of Executive Board members and remuner-ation of Supervisory Board members have not been,and will not be, disclosed for individual members (4.2.4and 5.4.5 of the Code). While the remuneration of theExecutive Board consists of fixed and variable compo-nents, it does not include any long-term incentives orrisk elements (4.2.3 of the Code).
3. An age limit for Executive Board members has notthroughout been specified in the underlying contracts,as proposed in 5.1.2 clause 2 of the Code. A provisionfor the age limit of Executive Board members wasadded to the Supervisory Board rules of procedure onFebruary 7, 2003.
4. No age limit has been specified for Supervisory Boardmembers either, nor will it be (5.4.1 of the Code). Inview of the knowledge, abilities and expert experiencerequired in 5.4.1 clause 1 of the Code, the specificationof an age limit does not appear recommendable.
Corporate Governance
Remote diagnosis for anesthesia machines and ventilators generates greater efficiency in clinicalprocesses, as demonstrated by the example of Remote Service at Daqin Oilfields General Hospital
REPORT Conquering distance
Covering an area of 9,627,343 square kilometers(3,717,137 miles), China is about the same size as the whole of Europe, and in terms of span comes in thirdbehind only Canada and the Russian Federation. The maximum distance from north to south is around 4,100km(2,563 miles).
Distance also plays an important role in day-to-day business at Dräger Medical Equipment (DME), Dräger’sChinese subsidiary headquartered in Shanghai. DrägerMedical has had its own branch here for ten years now,employing some 160 staff in sales and service and servingChina, Hong Kong and Taiwan. Shanghai Dräger MedicalInstrument (SDMI) is a production company likewise situated in Shanghai which employs a further 146 peoplewho produce anesthesia machines for the Asian market aswell as components and modules for other Dräger Medicaldevices.
The Middle Kingdom—a market with great potentialOne of the greatest challenges currently facing the Chinese public health system is to make medical care available to the 1.3 billion Chinese throughout the land—not only in the major metropolitan centers, but also in rural
areas. And of course, this has to be achieved with thesame pressure on costs that exists in other parts of theworld.
For companies like Dräger Medical this offers hugepotential for growth, as its integrated products and systemsolutions enable more efficient organization of clinicalprocesses.
Spread out all over China, the world’s most populouscountry, are around 17,000 hospitals, most in the majorcities, with the number constantly rising as a result oflarge-scale projects funded by both public and privateinvestors. Surgery and in some cases intensive care treat-ment is available in these hospitals, though intensive care units are not yet to be found in all the healthcare faci-lities nationwide.
By way of comparison, Germany has some 2,200 hospi-tals providing medical care to 82 million people, while theUS boasts around 5,000 hospitals for its population of 292 million.
The Chinese medical equipment market is worth app-rox. €3.6 billion and is growing at an annual rate of 15 to 18 percent (including diagnostic equipment, but no phar-maceutical products). In the area of acute point of caresolutions, the segment in which Dräger Medical is active, sales of around €250 million was achieved in 2003.
DrägerService: a pioneering role once againOver the past few years, Dräger Medical’s growth in Chinahas consistently outpaced that of the market. Having saidthat, the sale of devices and system solutions for individualtherapy applications is not the only area of focus—serviceis becoming increasingly important, too.
The motto of DrägerService® is to play a pioneeringrole. A company driven by innovation, Dräger Medical isthe only manufacturer worldwide to offer remote technicalservice of its therapy devices. In the fall of 2002, theRemote Service program was first installed in the Nether-lands, Belgium, UK, Spain and China.
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Large distances between hospitals and service technicians can result inequipment remaining out of service for significant periods of time. DrägerMedical developed a new Remote Service diagnostic program with the specific goal of improving this situation—after all, the efficient use of medicaldevices is of key importance. Dräger Medical is the only company in theworld to provide this type of remote technical service for its medical equip-ment. The concept of remote servicing is already known in the field of medical technology for imaging diagnostics and laboratory analysis, but todate has not been available for anesthesia machines and ventilators. Con-quering distance contributes to greater efficiency and customer satisfaction,particularly in a country as large as China.
Report Dräger Medical
Remote Service means that it is possible for the first timeto diagnose therapy devices at a distance and detect anytechnical problems instantly. It is hardly surprising that thisis increasingly attracting the interest of Chinese hospitalsin particular. Significant distances on the one hand and rising pressure on costs on the other are forcing people to ensure more efficient use of medical equipment.
For Dr. Jun Lee, Director of Anesthesiology at DaqinOilfields General Hospital, it is not only shortening serviceresponse times that is of fundamental importance: “Whatimpressed me above all was the accuracy with which errordiagnosis is possible with Remote Service. In the past itsimply took longer to correct problems. Nowadays, I get anaccurate appraisal of the device situation from the Drägerservice technician within five minutes at the latest, and canthen decide together with him what to do next.”
Just a few months ago, the 900-bed hospital in Daqindecided to sign up to the Remote Service program forequipment diagnosis in anesthesia and intensive care.
Andreas Frahm, General Manager of the ChineseDräger Medical subsidiaries DME and SDMI from 1999 tothe start of 2005, was the driving force for Dräger behindthe Remote Service program in China. “When we startedexplaining to hospitals five years ago how important it is to have service contracts for our life-support systems, wemet with skepticism. People were accustomed to settingup service contracts for computed tomography (CT) scan-ners by way of protecting their investment, but not in orderto improve device availability and clinical processes, nor to increase patient safety. But this has now changed!Although we are still in the early stages of this service inChina, the outlook is promising. Indeed, there is every signthat China will follow a similar development to Europe andthe US, where service represents a very important ele-ment.”
Conquering distance in minutes for greater efficiencyDevice errors can result in equipment downtime if prob-lems cannot be identified and corrected without delay.Major distances between the customer and the nearestservice technician only serve to exacerbate the situation.
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Dr. Jun Lee, Director of Anesthesiology in Daqin Oilfields General Hospital, downloads technical data from the Fabius CE anesthesia machine to the Remote
Service Box and a short while later sends the data off through a phone line to Dräger Medical’s Remote Call Server for analysis.
The hospital in Daqin, which has a population of 1.5 million (or 3 million including the outskirts), merged in fall 2004 with 26 other hospitals in the area to form
the largest hospital in the north-east of China, with a total of over 2,000 beds. Situated right in the middle of what used to be Manchuria, to the west of the
province of Heilongjiang, it provides medical care in all disciplines and serves at the same time as a teaching hospital that also pursues scientific research. It was
founded in the early 1960s, just a few years after the founding of the oil extraction city of Daqin, and today employs a staff of around 1,700.
What is the job of Remote Service? To decode data and convert it into informationEssentially, Remote Service visualizes device-related datasuch as the device status and the status of components,calibration values, operating hours, charge status of batteries, and much more, making this information use-able. To do this, the operator connects a special box(known as a Remote Service Box) to the medical device,which then instantly copies its technical data to the Re-mote Service Box. From there, the data are transmitteddown a phone line to the central Remote Call Server. Thistranslates the technical data into readily comprehensibledevice information, which is sent on to the local serviceorganization—in this case to Shanghai, Beijing and Harbin.However, before the data are sent from the server to thelocal service organization, they are checked against aninternational database which is updated daily and containsall the extensive experience of the global DrägerService®organization.
Once the technical information arrives, the service tech-nician in Harbin, a university town situated around twohours east of Daqin, may in cases of doubt talk to his col-leagues in the local service office in Beijing or in the Chinese headquarters in Shanghai. He clarifies the situa-tion by phone or e-mail with the hospital and advises whatshould be done—all just five minutes after the hospital sent off the data in the first place.
Quicker at the destination—high customer satisfactionThe Remote Service program, which is available for justabout all Dräger Medical products launched since 1993,allows Dräger Medical to find the solution to a technicalfault quickly and precisely, before the service technicianhas even had the chance to inspect the situation on site. If spare parts are needed, they can be ordered immediatelyin the Chinese headquarters. Delivery of the spare parts,and indeed of new medical devices, is handled by a logis-tics service provider in the Shanghai free trading zone ofWai Gao Qiao and takes place within 24 hours.
…20 Distanzen überwinden
Bildunterschriften
On the display of the Remote Service Box, Dr. Lee can follow the status
of the data transfer and receives further information about what to do next.
Dr. Lee and his staff at Daqin are particularly happyabout the quality of the products and the service, whichthey describe as reliable and quick. As a teaching hospitalfor the university town of Harbin, efficiency is especiallyimportant, and can generally only be achieved with innova-tive solutions, so the hospital continuously focuses on thelatest developments in medical technology. It comes as nosurprise, then, that Dr. Lee is planning in the year 2005 to test out Dräger Medical’s innovative Primus anesthesiasystem for himself.
When asked why Dr. Lee chose the Remote Serviceprogram for his hospital’s Dräger equipment, he is happyto explain: “Dräger devices have a life-supporting function.We therefore have an obvious interest in ensuring that ourtechnology for life is conscientiously serviced so that theequipment can do its job without any interruption. And thisbenefits us doctors just as much as it does our patients!”Daqin Oilfields General Hospital has worked with DrägerMedical for years, and in its 14 operating rooms, whichwere fully modernized in the year 2000, personnel rely onDräger anesthesia machines and appreciate the advan-tages offered by the company’s ergonomic ceiling supplyunits. The hospital is also more than satisfied with the ventilators used in its intensive care units.
Even though Dr. Lee, who is involved in and promotesthe exchange of ideas and experience at an internationallevel, only has a few months of experience in using the newservice, one thing is already clear: “Remote Service hasslashed our equipment downtime by 70 percent. Ultima-tely, this is time we now have at our disposal and whichotherwise would have been wasted on diagnosing prob-lems and finding solutions. This makes us much more efficient!”
21
The Remote Service program is able to identify the device error quickly and accurately. Within five minutes at
the most after data have been sent, Dr. Lee receives an e-mail telling him that the gas-conducting system has
a small leakage—without him having to send his service staff into action.
The Brunswick Fire Department Service Center as anexample of innovative total solutions and partnership in fire prevention
REPORT Pioneering Solutions for private-public-partnership
At the beginning, in the year 2000, it was clear that thefinancial resources available would not stretch to a new firestation in the south of the city with the necessary infra-structure. The new station would require a hose cleaningfacility, a workshop for the servicing, care and maintenanceof respiratory protective and gas detection equipment, anda training center. “The city’s officials had decreed that nonew debts were allowed, and that no loans could be takenout”, explains Carl-Heinz Beykuffer, Administrative Direc-tor of Brunswick Professional Fire Department. Chief FireOfficer Hans-Joachim Gressmann adds: “However, sincethe infrastructure of our main fire station dates back to the post-war years, something really needed to be done.So we asked ourselves what other ways there might be tofinance the urgently needed fire department service center.”
Both started putting out feelers in the private economy,holding informal talks with a number of potential partners—among them Dräger Safety—to establish whether therewas any general interest and, if so, what solutions industrycould propose. They succeeded in persuading the city toinvite nationwide tenders for the construction and opera-tion of a fire department service center. As Hans-JoachimGressmann says: “We were pleased that Dräger Safetysubmitted a bid, as we had noticed the company’s willing-ness even during the early idea-gathering stages to try tofind an innovative solution to our problem.” Dräger Safetygot through the qualifying rounds, and submitted a persua-sive concept which provided a good basis for further talks.The city began negotiations with the Lübeck firm, the outcome of which was a model that would prove profitableto both parties: Dräger Safety was to contribute the finan-cial resources needed to build the center, and would take
24
Budgetary constraints are increasingly forcing towns and municipalities to adopt a more business-oriented mentality,opening up opportunities for innovative forms of cooperation with private enterprises. In the city of Brunswick, a partnership has been established which to date is unique in Germany, with Dräger Safety helping Brunswick Fire Department to perform its duties. The company planned, built and financed Brunswick's new Fire DepartmentService Center (FSC), underlining with this pioneering achievement its role as a provider of total problem solutions. In addition, Dräger Safety is enabling the city of Brunswick to refinance its investment through the cooperation agreement.
Report Dräger Safety
25
Whether it’s a question of hose cleaning or servicing of gas detection and respiratory protective equipment,
the new Fire Department Service Center offers its technical services on a cross-regional level to other fire
departments, rescue and aid organizations, and customers from industry.
overall responsibility for construction. In addition, DrägerSafety would be responsible for the servicing and mainte-nance of the center for the contractually agreed upon termof 15 years, and for training personnel in the FSC. The center itself was to be used by the City of Brunswick FireDepartment on the basis of a hire purchase scheme.
The FSC gives Brunswick Professional Fire Depart-ment and the city’s 30 local fire departments a respiratoryprotection workshop and modern hose cleaning facility. In addition, a respiratory protection training gallery, a flash-over container and training facilities for firefighters areavailable.
PPP modelThe cooperation agreement between the fire departmentand Dräger Safety is based on a PPP model (public-pri-vate partnership), and covers marketing by Dräger Safetyof the wide spectrum of technical services and trainingseminars offered by the FSC. The profits generated by thecooperation agreement are used to refinance the city’sleasing costs. PPP models are used above all in situationswhere the public sector finds that it can perform its dutiesbetter or more cost-effectively by engaging private firms.
Pioneering achievementWhen the Fire Department Service Center was officiallyhanded over, Brunswick’s Mayor Friederike Harlfinger paidtribute to the pioneering spirit of the Lübeck company: “InDräger Safety from Lübeck we found a partner who is notonly a world-renowned company in the field of safety tech-nology, but also fulfilled all our expectations, even in thedifficult initial phase of the project. While contracts werebeing drawn up, it was already evident that Dräger Safetywas prepared to work together with the city to develop newapproaches and concepts and to take a fresh look at famil-iar ground and come up with new ideas and solutions, bothfor the city and for the company itself.” Gerd Zeisler, Drä-ger Safety Regional Manager for Europe, underlines thisby saying: “What we are witnessing here is a pioneeringachievement which for the first time combines the inter-ests and needs of the public sector in the fire departmentsegment with those of a private-sector company, givingrise to a profitable situation for both partners. This configu-ration was completely virgin territory for us, and there wereno examples of any similar problem solutions in Germanyupon which to base our work.”
…26
Infrastructure of the FSCThe infrastructure of the FSC includes the following:— Respiratory protection workshop with equipment
storage area, for care and servicing of the respiratoryprotective and gas detection equipment of the firedepartments, industrial firms and rescue organizations
— Modern respiratory protection training gallery withneighboring exercise and fitness area
— Flashover container in which firefighters can train theirresponse to fire under realistic conditions while wearingrespirators
— Modern hose cleaning facility with hose storage area
The new Dräger respiratory protection training gallery hasa lot more to offer than the old one at the main fire station.Firefighters are subjected to real stress and their physicaland psychological limits are tested in preparation for real-life situations. Wearing respirators, they have to find theirway through a maze of tunnels, pipes and slopes, testingtheir ability to cope in conditions of darkness, heat, smoke
and noise. They are monitored from a control panelthroughout the exercise by means of contact sensors andan infrared camera.
Things get pretty hot in the flashover container fromDräger Safety: instead of a simulation, the different stagesof a real fire in a confined space can be experienced at firsthand. At temperatures of over 300 °C and in conditions ofthick smoke, the firefighters in the container see for them-selves how a flashover develops and learn under controlledconditions how to respond correctly in such situations. Inthe exercise and fitness area they can improve their physi-cal condition using exercise bikes, treadmills, moving lad-ders and hammers. Under full medical supervision byDräger Safety, the firefighters are helped get into shapeready for their next mission, when they have to save livesand protect property.
What is more, to widen the range of training seminars onoffer from the Dräger Academy, we will be making theFSC’s many different courses available to other fire depart-ments and industrial companies, taking advantage of theexpertise of Brunswick Professional Fire Department.”
Win-win situation for both partnersCarl-Heinz Beykuffer describes cooperation during thefour-year project with the Lübeck specialist in total hazardmanagement as being founded on trust and partnership:“The chemistry between the two partners was good, andby the end of the project it was clear that we had achieveda win-win situation for both.” As Hans-Joachim Gressmannadds: “And what is more, we now have the very latest infrastructure and equipment at our disposal!”
The Fire Department Service Center in Brunswick is asuccess story of cooperation between partners with a pioneering spirit!
The state-of-the-art hose cleaning facility replaces theprevious 30-meter high hose drying tower and 30-meterlong cleaning bath. Now, cleaning and drying a hose is justa matter of minutes, instead of several days as in the past.Given that the Brunswick Fire Department has to washaround 1,000 hoses every year, this saves a great deal oftime and labor. The time gained can now be used to cleanthe hoses of other fire departments and disaster preven-tion organizations from the local region.
The cooperation agreement with the FSC gives DrägerSafety the chance to build upon its leading position as aprovider of services to fire departments and industry, aswell as to extend its portfolio of services. Morten Voss, Key Account Manager at Dräger Safety and project leader:“The efficiency of the FSC, combined with our flexiblelogistics concepts, allows us to make all our services avail-able at a cross-regional level on a large scale. For example,we could now be commissioned to clean all the fire hosesof a works fire department anywhere in Germany. Theadvantage for our customers is obvious—they get all theservices they need from a single company, and do not haveto maintain a capital-intensive infrastructure themselves.
27
It’s hot inside the Dräger flashover container:
at temperatures of over 300 °C, firefighters learn
how to respond correctly to the different stages of
a fire. The high point is the flashover itself.
Preparing for their next mission: medical supervision from Dräger Safety means that an individualized
training and fitness program can be defined for every member of the crew.
Report of the Supervisory BoardManangement report 2004 of the Dräger GroupFinancial statements 2004 of the Dräger GroupNotes 2004 of the Dräger GroupSeparate financial statements 2004 of Drägerwerk AG (short version)The Company’s BoardsMajor shareholdings
Report of the Supervisory Board30
Dear Stockholders,
In fiscal 2003, the Supervisory Board continued to advise the Executive Boardof Drägerwerk AG and monitor its conduct of business over the period. Wewere involved in all major Dräger decisions, and the Executive Board briefed usat regular intervals timely and comprehensively.
At five regular meetings and one extraordinary meeting, we dealt in detailwith, and discussed in depth with the Executive Board, the business and strate-gic developments at Drägerwerk AG, its subgroups, its German and foreignsubsidiaries, as well as the service companies directly held by Drägerwerk AG.Between meetings, the Executive Board reported to us in writing on develop-ments. The Chairman of the Supervisory Board obtained regular reports on allmaterial transactions and pending decisions. Important results were broughtto the plenary Supervisory Board’s attention.
The two Supervisory Board committees, i.e., the Steering Committee, whichis in charge of duties under the terms of Art. 27 (III) German CodeterminationAct (“MitbestG”) and staff issues, and the Audit Committee, met in 2004 onthree and four occasions, respectively.
Focal points of deliberationsWritten and oral reports to us focused on regularly taking cognizance of theGroup’s, its subgroups’ and individual subsidiaries’ revenues, results, net assetsand financial position, capacity utilization, as well as the workload and ordersituation, apart from specific events and their development. Ongoing varianceanalyses and rolled-forward estimates were submitted and discussed. The2005 budget was also duly presented. In the fiscal year, the Executive Boardprepared two reports on the Group’s risk position.
Our deliberations were based on the reports submitted. In connection withour supervisory duties, we attached particular importance to information aboutthe level of implementation of the 2004 budget approved by us, and also dis-cussed the short, medium and long-term development of the Group, its sub-groups and major subsidiaries and their product groups, including their cost andrevenue situation, as well as the Group’s risk and financial position. Weapproved the duly submitted budget for fiscal year 2005.
Report of the Supervisory Board
31
The deliberations of the Supervisory Board centered on the ExecutiveBoard’s plans for a new headquarters for Dräger Medical with alternative loca-tions in Germany and for production abroad, as well as the Dräger Group’sefforts toward focusing on the core business of the two subgroups, DrägerMedical and Dräger Safety, by selling Dräger ProTech GmbH and several ITcompanies. The impact of the location issue and the efforts to focus on thecore business were discussed, sometimes inciting differing opinions as to theeffects on employees and the Group.
Other key issues included the acquisition of Air-Shields and the integrationof the company in the Group’s operations, the change in sales structure atDräger Medical in the US, and the growth of the solution business through thetakeover of small, specialized units for Dräger Safety.
At a series of four meetings, the Audit Committee of the Supervisory Boarddiscussed the reporting system of Drägerwerk AG and the Dräger Group aswell as the risk reports in great depth. It looked in particular at measures toenhance security and transparency. In this context, discussion was focused onthe audit activities, programs and results of the internal audit department aswell as on the statutory audit, including the key audit areas addressed by theauditing firm.
High on the Audit Committee’s agenda was the attentive supervision of thefirst-time application of the International Financial Reporting Standards (IFRSs)to the consolidated financial statements as of December 31, 2004, and thepreparatory measures including impacts of the accounting changeover on theGroup’s net assets, financial position and results of operations.
32 Report of the Supervisory Board
Corporate governanceAt several meetings, the Supervisory Board discussed fundamental corporategovernance issues affecting the Dräger Group, whose standard practice has foryears satisfied many requirements of the German Corporate Governance Code.The outcome of our deliberations was that we formally resolved to issue a jointdeclaration with the Executive Board to the effect that Drägerwerk AG largelycomplies with the recommendations of the Code. Only a few changes to ourprevious practice were required to ensure conformity. The accordingly revisedSupervisory Board rules of procedure were adopted in January 2003. The dec-laration of conformity has been reproduced on page 15 of this annual report.We evaluated our work using a method we developed in fiscal 2003.
Financial statements as of December 31, 2004The statutory auditing firm elected by the annual stockholders’ meeting ofJune 11, 2004, Hamburg-based BDO Deutsche Warentreuhand Aktiengesell-schaft Wirtschaftsprüfungsgesellschaft, was engaged by the SupervisoryBoard to audit the annual financial statements for fiscal year 2004. Subject ofthe audit were the separate financial statements of Drägerwerk AG, prepared inaccordance with the German Commercial Code (“HGB”), as well as the con-solidated financial statements, prepared for the first time in accordance with theInternational Financial Reporting Standards (IFRSs), and the managementreports of both.
The auditing firm examined the separate financial statements of DrägerwerkAG, as well as the consolidated financial statements and management reportsof both the Company and the Group in accordance with the provisions of theGerman Commercial Code, and issued an unqualified audit opinion. The audit-ing firm confirmed that the IFRS consolidated financial statements and thegroup management report satisfy the conditions required for the Company’sexemption from its obligation to prepare financial statements in accordance withGerman law and that the Executive Board has introduced an efficient risk man-agement system in accordance with the relevant legal requirements.
The annual audit reports were submitted to the Supervisory Board members.Representatives of the statutory auditing firm attended the meetings of the AuditCommittee and the Supervisory Board on April 20, 2005, during which Dräger’sseparate and consolidated financial statements were deliberated. These represen-tatives reported on the conduct of the audit, explained various key points and wereavailable for additional information. At these meetings, the Executive Board eluci-dated the financial statements of Drägerwerk AG and the Dräger Group alongwith the risk management system.
Based on the conclusions drawn by the Audit Committee following its ownexamination, the Supervisory Board agrees with the audit opinion of the statutoryauditing firm on the separate and consolidated financial statements of DrägerwerkAG and the Dräger Group. Following our own final examination, we raise no objec-tions to the submitted sets of financial statements and management reports.
We approve the separate and consolidated financial statements of DrägerwerkAG as prepared by the Executive Board and submitted to us; Drägerwerk AG’sseparate financial statements are thus adopted. Moreover, we agree to the profitappropriation as proposed by the Executive Board.
Lübeck, April 20, 2005
Professor Dr.Dieter FeddersenSupervisory Board Chairman
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– Dräger Medical and Dräger Safety continue theirsuccess story
– Group EBIT up 23.6 percent to €117.2 million– Services and parts manufacturing fully outsourced
Group structure
Drägerwerk AG serves as the holding company for theDräger Group. Besides its shares in the subgroup parents,the Company now only holds a few equity investmentswhich do not form part of the two subgroups’ operations.
The sale of the IT companies and Dräger ProTechGmbH has concluded the Dräger Group’s efforts to focuson the core business of the two subgroups, Dräger Med-ical and Dräger Safety.
The Dräger Group now boasts an efficient, market-oriented and transparent organizational structure. The sub-groups focus on specific customer groups and their needsand, with their globally formatted business processes, arein a position to act and react swiftly and flexibly. Thesesubgroups also benefit from all the advantages of groupmembership and, in many cases, the ability to share know-how in such aspects as taxes, legal issues, or basicresearch.
Dräger MedicalDräger Medical develops, produces, and markets medicalequipment, system solutions and services along the entirepatient process chain in the acute point of care (APOC)and home care sectors worldwide. Across all the Care-Areas, from Emergency Care, OR/Anesthesia and CriticalCare to Perinatal Care and Home Care, Dräger Medicalaccompanies patients wherever their vital functions needto be supported or monitored. With its APOC IT solutions,the Company provides a horizontal flow of data throughoutthe CareAreas and prepares documented data for userdecisions. Together with Siemens, Dräger Medical also
Management report 2004 of the Dräger Group Group structure34
Management report 2004 of the Dräger Group
Dräger SafetyThe business units of Dräger Safety are Personal Protec-tion Technology, Gas Detection Systems, and Dräger Safe-ty Solutions. The Company’s business objective is to pro-vide customers in industry, fire protection, mining or othersectors with comprehensive solutions to their problems.Its product range comprises devices, applications andservices that warn and protect people against contamin-ated or polluted air, allowing them to breathe even inextreme conditions. Whether industrial companies, firedepartments, mines or companies from other sectors,Dräger Safety’s customers put their trust in its hazardmanagement systems.
Dräger Safety has development and production facilitiesin Germany, the UK, the US, Sweden, South Africa, andChina.
devises IT solutions allowing data to flow from the acutepoint of care to the hospital’s own IT system. The objectiveis to improve patient care as well as help abate healthcarecosts by improving hospital processes.
Dräger Medical maintains sales and service locations inover 190 countries. Development and production facilitiesare based in Germany, the US, China, and the Nether-lands.
35
As of April, 2005
Dräger Medical AG&Co.KGaA65%
Dräger Safety AG&Co.KGaA100%
Subsidiaries and associates in Germany and abroad
Subsidiaries and associates in Germany and abroad
Subgroups
Drägerwerk AG
Other investments in Germany and abroad
General economic conditions
Global growth at varying speedsIn 2004, global economic growth was the strongest it hadbeen for many years. However, after a broad-based up-swing at the beginning of the year, rising oil and raw mate-rials prices, a weaker US dollar and an increase in the UScurrent account and trade deficit took the pace off growth.
The best GDP figures in 2004 came from the US andthe People’s Republic of China, which recorded increasesof 4.4 percent and 9 percent, respectively. Despite a diffi-cult second half, the Japanese economy saw GDP rise by2.6 percent year on year. Growth in the Southeast Asiancountries was less pronounced than in previous years.
Recording a 3.1 percent rise in GDP, the UK was thetop performing major European country, outstripped onlyby its eastern European neighbors, albeit at a loweraggregate level.
The euro area only managed a 2 percent increase, withGermany bringing up the rear at 1 percent, despite posi-tive export figures. The internal market failed to pick upspeed, as both structural weaknesses, brought to bear byglobalization and a weak US dollar, and social reforms,made consumers and investors reticent.
The US and Asia are also set to enjoy higher growthrates than Europe in 2005. The high level of debt andrising current account deficit in the US, however, pose agrowing risk to the US economy and to the world at large.The euro area should expect its currency to strengtheneven more against the US dollar.
Management report 2004 of the Dräger Group General economic conditions36
Industry trend: Dräger SafetyThe segment of the global safety technology market inwhich Dräger Safety operates and which represents amarket volume of €4 billion is showing signs of increasedconsolidation and tougher competition. Factors affectingmarket expectations include much greater safety con-sciousness and the launch of national safety programs,as well as greater environmental awareness. A customer-oriented approach, as well as innovation, new technologies,and the combination of planning, design, construction,and operator concepts are what is expected on the market.Dräger Safety is successfully responding to these demandsby offering what it heralds as “Pioneering Solutions”.
Industry trend: Dräger MedicalThe health sector in general and medical equipment inparticular, with a global volume of around €250 billion,continue to be among the markets of tomorrow. DrägerMedical’s relevant markets—acute point of care and homerespiration—represent a volume of some €17 billion. Ineuro terms, these markets are likely to have shrunk byaround 3 to 4 percent in 2004, whereas in dollar terms,slight growth of between 2 and 4 percent can be expected.The largest regional market remains the US, followed byEurope and Asia/Pacific.
These markets are shaped by demographic trends, i.e.a graying population, and hence rising demands on med-ical care combined with the potential for new innovationsin medical technology in the fields of preventive care, diag-nosis, and therapy. The financial situation of nations andregions, municipalities and other bodies responsible forhealthcare, however, is a constraining factor that exercisesheavy cost pressure on health sector suppliers. There isalso increasing consolidation on both the demand andsupply side.
37
Transition to IFRSs
The Dräger Group’s consolidated financial statements forfiscal year 2004 were prepared for the first time in accor-dance with International Financial Reporting Standards(IFRSs) and relevant supplementary provisions. The appli-cation of IFRSs affected the recognition of items as well asthe measurement of balance sheet items and hence alsothe equity and results of the Dräger Group. The DrägerGroup also switched to classifying its balance sheet accor-ding to the current/non-current distinction and its incomestatement using the cost of sales method.
The effects of reconciliation from HGB to IFRSs on theopening balance sheet as of January 1, 2003 and the finan-cial statements as of December 31, 2003, and hence onthe equity and results for fiscal year 2003 are presentedin the notes to the financial statements (see page 69 ff.of the annual report). The 2003 consolidated financialstatements provide the comparative figures for the 2004consolidated financial statements.
Along with the actual transition to IFRSs, the definitionof earnings before interest and taxes (EBIT) was alsoadjusted.
All the changes are shown in the reconciliation of EBITfor fiscal year 2003 (before non-recurring expenses):
Management report 2004 of the Dräger Group Transition to IFRSs38
Fiscal year 2003 Group Medical Safety Holding
company/
other
€ million € million € million € million
EBIT before non-recurring expenses (old definition) HGB 96.4 91.4 39.7 (34.7)
less interest income (2.9) (2.7) (0.8) 0.6
less other taxes (2.0) (1.4) (0.3) (0.3)
EBIT before non-recurring expenses (new definition) HGB 91.5 87.3 38.6 (34.4)
Interest expenses for pension provisions 7.6 1.5 1.0 5.1
Adjustments under IFRSs (4.3) (3.5) (3.1) 2.3
EBIT before non-recurring expenses IFRSs 94.8 85.3 36.5 (27.0)
Capital employed was also redefined in line with IFRSsand adjusted accordingly. The effects on capital employedas of December 31, 2003 are presented as follows:
39
Fiscal year 2003 Group Medical Safety Holding
company/
other
€ million € million € million € million
Capital employed (old definition) HGB 857.3 694.2 168.4 (5.3)
Deferred tax assets (12.1) (12.8) (5.4) 6.1
Cash and cash equivalents1 (186.2) (211.1) (12.2) 37.1
Capital employed (new definition) HGB 659.0 470.3 150.8 37.9
Non-current assets 23.0 1.5 (2.4) 23.9 2
Inventories 25.4 18.8 5.6 1.0
Receivables and other assets 16.3 10.1 7.5 (1.3)
Provisions (excl. pension provisions) 13.7 9.4 2.6 1.7
Other non-interest bearing liabilities (43.3) (30.7) (10.4) (2.2)
Capital employed (new definition) IFRSs 694.1 479.4 153.7 61.0
1 At Medical and Safety, this item includes receivables from cash management2 Of which €24.7 million relates to additions to non-current assets of real estate companies and €(0.8) million other
Management report 2004 of the Dräger Group Business performance of the Dräger Group40
2003 2003 2004
HGB IFRSs IFRSs
Order intake € million 1,421.9 1,421.9 1,523.3
Revenues by region
Germany € million 405.3 409.7 373.5
Rest of Europe € million 524.6 527.8 593.1
Americas € million 247.0 248.0 295.6
Asia/Pacific € million 159.2 159.2 177.3
Other € million 77.4 77.4 81.0
Total revenues € million 1,413.5 1,422.1 1,520.5
EBITDA before non-recurring expenses1 € million 141.8 148.2 162.8
Depreciation/amortization € million 45.4 53.4 45.6
EBIT before non-recurring expenses2 € million 96.4 94.8 117.2
Non-recurring expenses € million 32.4 37.1 22.3
EBIT2 € million 64.0 57.7 94.9
Capital employed3 € million 857.3 694.1 792.9
Investments € million 201.5 199.4 57.2
Net financial debt € million 36.7 138.7 218.3
EBIT before non-recurring expenses/revenues % 6.8 6.7 7.7
EBIT before non-recurring expenses/capital employed % 11.2 13.7 14.8
Net financial debt/EBITDA before non-recurring expenses Factor 0.3 0.9 1.3
Headcount as of December 31
Germany 5,099 5,099 4,378
Abroad 4,965 4,965 5,328
Total headcount 10,064 10,064 9,706
1 EBITDA=Earnings before net interest result, income taxes, depreciation, amortization and result from discontinued operations2 EBIT=Earnings before net interest result, income taxes, and result from discontinued operations3 Capital employed=Balance sheet total less deferred tax assets, cash and cash equivalents and non-interest bearing liabilities
Business performance of the Dräger Group
Revenues by region 2003 2003 2004 Change Change
HGB IFRSs IFRSs under IFRSs assuming
constant ex-
change rate
€ million € million € million % %
Germany 401.1 409.7 373.5 (8.8) (8.8)
Rest of Europe 527.8 527.8 593.1 12.4 12.8
Americas 248.0 248.0 295.6 19.2 27.3
Asia/Pacific 159.2 159.2 177.3 11.4 16.6
Other 77.4 77.4 81.0 4.7 4.3
1,413.5 1,422.1 1,520.5 6.9 9.1
41
Group revenues and order intake on the riseIn fiscal year 2004, Dräger Group revenues climbed6.9 percent to €1,520 million (2003: €1,422 million), thuscontinuing the trend of recent years despite the relativestrength of the euro against the dollar and other curren-cies. Assuming exchange rates had not changed, grouprevenues would have risen by as much as 9.1 percent.
Both subgroups, Dräger Medical and Dräger Safety,continued to grow. The sale of the internal service compa-nies in fiscal year 2004 and Dräger Aerospace in June2003 had very little effect on the year-on-year change ingroup revenues as these companies did not generate anysignificant revenues outside of the Dräger Group. On bal-ance, the disposal of these companies led to a €27 milliondrop in revenues in 2004.
Revenues 2003 2003 2004 Change Change
HGB IFRSs IFRSs under IFRSs assuming
constant ex-
change rate
€ million € million € million % %
Dräger Medical 917.7 920.2 1,023.4 11.2 13.7
Dräger Safety 477.4 477.3 503.0 5.4 7.1
Holding company, other companies, consolidation 18.4 24.6 (5.9)
1,413.5 1,422.1 1,520.5 6.9 9.1
Part of the increase in revenues at Dräger Medical dur-ing the fiscal year is attributable to the six months’ recogni-tion of the neonatology business acquired from Hill-Rom(Air-Shields) and full-year recognition (2003: six months)of the monitoring business arising from the joint venturewith Siemens.
From a regional perspective, it is clear that the DrägerGroup was able to strengthen and extend its position in theAmericas, Asia/Pacific and Europe (excluding Germany).The two subgroups, Medical and Safety, also maintainedtheir strong market position in Germany, the drop in grouprevenues resulting primarily from the aforementioned saleof companies.
The comments on the subgroups contain detailedexplanations of their sales trends.
The Dräger Group increased its order intake by 7.1 per-cent to €1,523 million (2003: €1,422 million). Net of cur-rency effects, orders increased by 9.3 percent in fiscal year2004.
Group result improves significantlyEBIT before non-recurring expenses was increased by23.6 percent in fiscal year 2004 to €117.2 million (2003:€94.8 million).
Due to an improved and rounded-off product range andincreased production efficiency, the Group’s increased rev-enues widened its gross margin. The Dräger Group alsokept other operating costs stable by continuing to optimizeits business processes. Dräger Medical and Dräger Safetycontributed equally to these improvements. The absoluterise in costs mainly reflects the full-year effect of the jointventure with Siemens, the additional costs of the unitsacquired in fiscal year 2004 and the costs of expandingthe sales organization in the US.
Non-recurring expenses dropped, the high level record-ed in the prior year resulting from the integration of thejoint venture with Siemens. Follow-up costs were alsoincurred for this project in 2004. These came in additionto expenses for acquiring Air-Shields and €10 million inpotential expenses in connection with the new buildingproject for Dräger Medical as a result of the underutiliza-tion of land and buildings leased over the long term. Over-
Management report 2004 of the Dräger Group Business performance of the Dräger Group42
43
all, non-recurring expenses fell to €22.3 million (2003:€37.1 million). At €9.4 million, income from the discontinu-ation of operations was much less than in the prior year(2003: €19.0 million). The sale of the IT companies andproduction company Dräger ProTech GmbH concludedthe restructuring of the Group in 2004.
The financial result improved from €(26.2) million in theprior year to €(24.9) million primarily due to an improvednet interest result.
Due to an improvement in earnings before taxes, in-come taxes increased to €33.3 million (2003: €18.0 mil-lion). By contrast, the tax load ratio—before inclusion of theresult from discontinued operations—fell to 46.8 percent(2003: 54.6 percent), as the ratio between the Group’staxable profit and non-tax effective expenses improved.
Fiscal year 2004 saw the Dräger Group’s net profitadvance 39 percent to €47.3 million (2003: €34.0million), thereby equaling 3.1 percent of revenues (2003:2.4 percent). €22.0 million of this net profit is attributableto minority interests (2003: €11.9 million), leaving theremaining €25.3 million (2003: €22.1 million) in resultafter minority interests attributable to Drägerwerk AGstockholders and producing earnings per share of €1.96(2003: €1.71) for common stockholders and €2.02 (2003:€1.77) for preferred stockholders.
Management report 2004 of the Dräger Group Business performance of the Dräger Group44
Net assets, equity and liabilitiesSignificant changes to the composition and presentation ofthe Group’s net assets, equity and liabilities resulted fromthe transition to IFRSs. The inclusion of real estate compa-nies, lower inventory allowances, deferred taxes, and otheritems noticeably increased the balance sheet total. By con-trast, equity decreased, particularly due to the reclassifica-tion of participation capital to non-current liabilities. Theapplication of IFRSs produces an equity ratio of around33 percent.
For a detailed presentation of the changes underIFRSs, please refer to Note 2 of the notes to the financialstatements on page 69 ff. of this annual report.
In fiscal year 2004, the Group’s net assets grew, mainlyas a result of the increase in inventories and trade receiv-
ables, predominantly at the subgroup Dräger Medical. Thelatter increase is primarily attributable to the provisionsmade for year-end business (inventories) and the substan-tial sales in the final quarter (receivables), yet also partlyto the acquisition of the Air-Shields business as of July 1,2004.
This increase in net assets was largely financed byincreasing liabilities to banks and by way of equity, whichhad grown as a result of the Group’s improved perform-ance. The additional liabilities to banks led to a rise in netfinancial debt to 1.3 times EBITDA (2003 IFRSs: 0.9),which still gives the Group plenty of financing leeway.
The €477.3 million in equity covers non-current assetsentirely. All inventories and around a quarter of tradereceivables are financed by non-current liabilities. Capital
Dec.31, 2003 Dec. 31, 2003 Dec. 31, 2004 Change
HGB IFRSs IFRSs IFRSs
€ million € million € million %
Balance sheet total 1,196.5 1,326.6 1,423.1 +7.3
Equity 499.2 443.3 477.3 +7.7
Equity ratio 41.7% 33.4% 33.5%
Capital employed 857.3 694.1 792.9 +14.2
Net financial debt 36.7 1 138.7 218.3 +57.4
1 Excluding €74.8 million participation capital
45
Cash flow statementThe development of net assets and results of operations isalso reflected in the cash flow statement. The fiscal yearsaw a net cash outflow of €6.8 million (see page 67 of theannual report), primarily from operating activities, whereinventories and trade receivables were increased and pro-visions decreased, as well as from investing activities.Financing activities were a source of cash, particularly theincrease in current liabilities to banks; at €178 million, cashand cash equivalents—including short-term securities of€20 million—were slightly below the level recorded in theprior year (2003: €186 million).
employed (consolidated assets excluding cash and cashequivalents and deferred taxes and minus non-interestbearing liabilities) also rose in line with the increase in theGroup’s net assets.
Investments in intangible assets in fiscal year 2004mainly relate to the addition of patents and goodwill fromacquisitions and software solutions; investments in proper-ty, plant and equipment concern broad-based measuresserving replacements and often the improvement ofprocesses in all areas of the Group.
Research and development
Investing in its technological future, the Dräger Groupspent a total of €103.8 million, or 6.8 percent of revenues(2003: €95.4 million, or 6.7 percent), on research anddevelopment (R&D). Development costs were not recog-nized in fiscal year 2004 as no further significant develop-ment costs were incurred once products were approved inthe key sales markets. This is a prerequisite specified bythe Dräger Group for the recognition of development costsas an asset.
The R&D departments of the subgroups employ789 people worldwide. They work closely with the 43 staffmembers of the Lübeck-based research department atDrägerwerk AG, who are engaged in product basics andresearching and developing promising new technologiesfor the subgroups.
Product innovations at Dräger Medical and DrägerSafety reflect the convergence of longstanding experiencein advance technology product development in the fields ofmicrosystems, nanomaterials, biotechnology, and IT. TheGroup’s strong affiliation with technology providers, re-search institutes and universities guarantees the high-techstandard of its products.
Dräger Safety’s R&D projects encompass miniaturizedelectrochemical and optical gas sensors, ion sensor spec-trometric techniques for identifying molecular componentsin the air, and the analysis of trace elements. Sensor net-works, secure wireless data communication and the inte-gration of data in superordinate communication andinformation systems are development issues in the areasof both personal protection and patient care. The R&Dprojects of Dräger Medical comprise knowledge-basedsystem solutions in the areas of anesthesia and criticalcare for treating and monitoring patients.
Dräger Medical spent €79.5 million, or 7.8 percent ofrevenues, on research and development (2003: €67.0 mil-lion, or 7.3 percent), and Dräger Safety €23.7 million, or4.7 percent of revenues (2003: €24.3 million, or 5.1 per-cent). Expenses incurred by Drägerwerk AG and notcharged to the projects of the subgroups amounted to€0.6 million (2003: €2.6 million).
In 2004, Dräger filed a total of 65 patent applicationsand three utility models with the German Patent andTrademark Office. Altogether, 49 new patent applicationswere submitted to international patent offices. Inventorsfrom the basic research department in Lübeck wereinvolved in almost 40 percent of the new applications filedin Germany.
Management report 2004 of the Dräger Group Research and development/procurement, production and logistics46
procurement, the standardization of parts and componentsin the pursuance of a platform strategy for our products isof key importance. The subgroups have production plantsin Germany, the US, the UK, Sweden, the Netherlands,China and South Africa.
The focus on storing products and parts in HUBs,which Dräger Medical and Dräger Safety already operatein Germany and the US, is another way of reducing capitalemployment, increasing availability and further improvingour shipments to customers.
Procurement, production and logistics
We are pressing ahead with our efforts to improve theprocurement process. By selling its last remaining groupsupplier, Dräger ProTech GmbH, the Dräger Group fur-ther decreased its level of vertical manufacturing.
Both subgroups are turning more and more towardglobal procurement, which also offers a way to reduce cur-rency risks through “natural hedges”. Pivotal issues, how-ever, include quality, reliability, price and the integration ofsuppliers and service providers in the Group’s businessprocesses. In order to realize the full potential of global
47
Environmental protection
Occupational health and safety issues are to be incorporat-ed in our universally applicable quality and environmentpolicies. This is because our endeavors in connection withthe DIN EN ISO 14001 environment certification of allDräger companies at the Lübeck site are not only aimed atcontinuously improving our environmental efforts. In anattempt to establish sustainable processes, we also attachparticular importance to maintaining the health of ouremployees in the workplace.
The founding of the Dräger waste management associ-ation in Lübeck, along with its approval by the authorities,is further testament to Dräger’s ability to deliver innovativesolutions. The association is a role model for Germany,offering its members professional waste management withan added legal guarantee and high standards in terms ofeco-friendly waste disposal. Five Lübeck-based companiesfrom the Dräger Group and seven other companies werequick to join the association.
Management report 2004 of the Dräger Group Environmental protection48
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Reduction in environmental load in relation to revenues
Solid waste
CO2 emissions
Water consumption
Energy consumption
A continuous decline in environmental load indices at the Lübeck site
as measured against revenues (in %, reference year 1995: 100%)
The successful modernization of the Group’s utilities isreflected in the environment figures recorded for each site.Heating energy consumption was reduced by a further15.5 percent in absolute terms; in some units, savings ofmore than 25 percent were made. With electricity con-sumption remaining stable, this led not only to a consider-able reduction in fuel costs, but also to a further reductionin CO2 emissions from the various sites, ultimately showingwhat an effective contribution the Group is making towardclimate protection.
Despite the large-scale success of its water-savingefforts in the prior year, the Group systematically moni-tored its key consumption areas and reduced water con-sumption in 2004 yet again by almost 7 percent.
49
Solid waste output of Dräger’s Lübeck site remained sta-ble at around 4,000 tons. As a result of systematic wastemanagement, the proportion of solid waste in need ofdisposal was reduced from 2.8 percent in the prior year toa mere 1.8 percent, i.e. Dräger puts more than 98 percentof its solid waste to good use, thereby making a key con-tribution to saving resources through materials recycling.
Management report 2004 of the Dräger Group Business performance of Dräger Medical50
2003 2003 2004
HGB IFRSs IFRSs
Order intake € million 920.7 922.8 1,018.5
Revenues by region
Deutschland € million 273.8 276.3 268.8
Rest of Europe € million 311.0 311.0 367.2
Americas € million 169.1 169.1 208.2
Asia/Pacific € million 106.8 106.8 118.4
Other € million 57.0 57.0 60.8
Total revenues € million 917.7 920.2 1,023.4
EBITDA before non-recurring expenses1 € million 108.4 103.0 114.9
Depreciation/amortization € million 17.0 17.7 20.7
EBIT before non-recurring expenses2 € million 91.4 85.3 94.2
Non-recurring expenses € million 27.5 32.1 12.3
EBIT2 € million 63.9 53.2 81.9
Capital employed3 € million 694.2 479.4 563.3
Investments € million 159.6 162.1 25.8
Net financial debt € million (163.3) (162.8) (127.6)
EBIT before non-recurring expenses/revenues % 10.0 9.3 9.2
EBIT before non-recurring expenses/capital employed % 13.2 17.8 16.7
Net financial debt/EBITDA before non-recurring expenses Factor (1.5) (1.6) (1.1)
Headcount as of December 31
Germany 2,463 2,463 2,424
Abroad 3,133 3,133 3,435
Total headcount 5,596 5,596 5,859
1 EBITDA=Earnings before net interest result, income taxes, depreciation and amortization2 EBIT=Earnings before net interest result and income taxes3 Capital employed=Balance sheet total less deferred tax assets, cash and cash equivalents including receivables
from cash management and non-interest bearing liabilities
Business performance of Dräger Medical
two months of acquiring the neonatology business unit ofHill-Rom Company Inc., known as Air-Shields (acquisitiondate: July 1, 2004), the business had been fully integratedin the subgroup’s operations and the product lines incor-porated into the Group’s own product portfolio. On a globalscale, this takeover, including the acquisition of 40,000Air-Shields incubators, enabled the subgroup to broadenits warming therapy product range and enter the neonatol-ogy segment in the US, a key market for Dräger.
An important step for the subgroup on its quest to glob-alize its operations and become a major world player wasthe addition of another 250 employees to its sales andservice teams. Besides shifting from a product-specific toan overall portfolio approach in its US sales activities, thesubgroup also established subsidiaries in Chile, Mexicoand Canada.
EBIT improves againDräger Medical closed fiscal year 2004 having achievedthe best operating result since the two subgroups wereformed. EBIT (earnings before interest, taxes and non-recurring expenses for M&A activities) came in at€94.2 million. Non-recurring expenses for M&A activitiesamounted to €12.3 million, clearly below the forecast€20 million. This enabled the subgroup to improve itsresult for the fourth consecutive year since its restructuringprogram in 2000. Year on year, EBIT rose by 10.4 percent(2003: €85.3 million).
Due to extensive investments in its future—increasedstaffing and restructuring of the sales and servicesteams—related sales time lags as well as tougher compe-tition and resulting changes in price structures, the EBITmargin was 9.2 percent, slightly below the prior year(2003: 9.3 percent).
Revenues up, market position bolsteredIn fiscal year 2004, Dräger Medical saw worldwide rev-enues climb to €1,023.4 million, 11.2 percent higher thanthe €920.2 million recorded in the prior year. Contributingto this rise were growing revenues in countries such asItaly (up 49.3 percent), France (up 24.8 percent), and theBenelux (up 20.4 percent), as well as a 26.6 percent risein revenues (in dollar terms) in the US.
The subgroup continued its successful globalizationstrategy in 2004. 74 percent of total business and 85 per-cent of equipment sales, for example, were sourced out-side of Germany. The increased significance of foreignbusiness was ultimately also evidenced by the fact that theUS remained the largest regional market for equipmentsales—as in 2003. Germany came in second again, fol-lowed by France (2003: fourth) and China (2003: third).
In addition to this positive development, the subgroupalso successfully bucked the global downtrend in medicaltechnology sales (in euro terms) in the acute point of care(APOC) sector to bolster and build up its competitive posi-tion. Although this market shrank overall by around 3 to 4percent in Germany, Dräger Medical increased its share.The same success was achieved in the rest of Europe,where the subgroup outstripped the 2 to 4 percent annualgrowth recorded in medical technology sales in the APOCsector, enjoying an 18 percent rise in revenues. In euroterms, markets in the dollar region (all countries with thedollar as their reference currency) shrank by around 5 per-cent, while Dräger Medical grew by around 15 percent.
These results are attributable both to the developmentof customer-oriented products and also to the six-monthand full-year consolidation of the Air-Shields and monitor-ing businesses, respectively, in fiscal year 2004. Within
51
The sound operating result was achieved by the sub-group both by further boosting its global business activitiesand by maintaining the pace of its restructuring measuresto develop into a process-oriented global player. The resultalso further improved the subgroup’s cost structures.
The absolute rise in costs mainly reflects the full-yeareffect of the joint venture with Siemens, the additionalcosts of the units acquired during the fiscal year and theexpansion of the sales organization in the US.
Success factor: global processesIn 2004, Dräger Medical continued its transformation intoa globally driven process organization with an improvedcost structure.
Endeavoring to launch products more quickly, reachlarger production runs in a shorter space of time, increasethe profitability of its products and further improve qualitycontrol, the subgroup introduced two processes to accom-pany the life cycle of its products: the innovation or devel-opment process and the newly created PLM or “ProductLifecycle Management” process, which encompasses themarket roll-out phase, the management of the productthroughout its life cycle, and the efficient phase-out of theproduct.
Furthermore, in addition to the globally implementedsales and service structure, the global installation of the“Order Fulfillment” business process, from customerorders right through to payments, was also virtually com-pleted, and the direct shipment of spare parts and ac-cessories to customers further enhanced.
More specifically, in terms of order-related productionand direct shipments to customers, the subgroup man-aged to increase the percentage of direct shipments frommanufacturer to customer to 80 percent in 12 countries.
This significantly shortened the flow of materials, almostcompletely removed the need for intermediate storage, fur-ther improved the cost structure, and reduced the averagedelivery time to 23 days.
The ever greater availability of spare parts around theglobe led to increased customer satisfaction. By establish-ing two new warehouses in Memphis, USA, and Dreieichnear Frankfurt/Main, Germany, the subgroup increasedthe worldwide turnover of spare parts by more than30 percent since the beginning of the project. In addition,relocations to within the vicinity of major airports led tomore efficient logistics, thereby offering customers a morecomprehensive service.
The transparency of its operations was further en-hanced by including global process figures in the internalcontrol system alongside purely financial data.
Success factor: innovation initiativeIn 2004, Dräger Medical forged ahead with its innovationinitiative by developing new products. The interplay of ther-apy, monitoring and information technology in the APOCsector and directly at the patient’s bedside has been en-hanced by the launch of the new IT platform Innovian™.This platform allows the most varied of data and informa-tion to be integrated in operating rooms and intensive careunits, i.e. data from patient monitors, anesthetic machinesand ventilators, as well as information and documentationfrom other IT systems (including x-rays and laboratoryreports).
Management report 2004 of the Dräger Group Business performance of Dräger Medical52
Additional solutions include the new Infinity®systemfor monitoring patients throughout their hospital stay, andthe Infinity Kappa XLT monitor, which was developedspecially for areas with limited space, such as operatingrooms. The monitor has a multi-display function, allowingcaregivers to view current vital signs and patient data aswell other relevant documentation and information.
Dräger Medical has responded to the growing signifi-cance of comprehensive clinical network solutions bydeveloping Infinity®OneNet, a new solution, in line withindustry standards, that for the first time allows hospitalsand clinics to integrate cable-based and wireless patientmonitoring systems into their existing network infra-structure.
Testament to Dräger Medical’s patient-oriented equip-ment technology and focus on quality and service is thenew home ventilator Camena, which for the first time offersclinical-quality ventilation at home and which is also suit-able for long-term ventilator patients.
53
Capital employedIn fiscal year 2004, the subgroup continued to improveasset management in its sales and service companies aswell as in its business units. Both inventory and receivablesturnover was boosted. However, due to the strong rev-enues generated in the final quarter, capital employedincreased in absolute terms as of the balance sheet date(December 31, 2004). Another reason for the increasewas the integration of Air-Shields. At 16.7 percent, theROCE (return on capital employed) was therefore slightlylower than the 17.8 percent of the prior year.
Headcount up around the globeThe number of employees at Dräger Medical increased by263 in fiscal year 2004. Total headcount worldwide—excluding trainees and apprentices—was therefore 5,859as of December 31 (2003: 5,596).
The increase is attributable to both the acquisition ofthe Air-Shields business and the additional staffing ofthe sales and service teams around the world. The num-ber of people employed abroad also rose year on year.While around 56 percent of staff at Dräger Medical wereemployed outside of Germany in 2003, this rose to58.6 percent in 2004. This confirmed the trend of the prioryear, where the workforce within Germany declined (downby 39) while elsewhere numbers rose (up by 302).
Management report 2004 of the Dräger Group Business performance at Dräger Safety54
2003 2003 2004
HGB IFRSs IFRSs
Order intake € million 487.1 487.1 510.0
Revenues by region
Germany € million 113.1 113.0 110.6
Rest of Europe € million 213.6 213.6 225.9
Americas € million 77.9 77.9 87.4
Asia/Pacific € million 52.4 52.4 58.9
Other € million 20.4 20.4 20.2
Total revenues € million 477.4 477.3 503.0
EBITDA1 € million 53.1 50.3 57.5
Depreciation/amortization € million 13.4 13.8 16.6
EBIT2 € million 39.7 36.5 40.9
Capital employed3 € million 168.4 153.7 157.1
Investments € million 24.4 24.7 21.6
Net financial debt € million 20.1 20.1 12.2
EBIT/revenues % 8.3 7.6 8.1
EBIT/capital employed % 23.6 23.7 26.0
Net financial debt/EBITDA before non-recurring expenses Factor 0.4 0.4 0.2
Headcount as of December 31
Germany 1,474 1,474 1,442
Abroad 1,824 1,824 1,887
Total headcount 3,298 3,298 3,329
1 EBITDA=Earnings before net interest result, income taxes, depreciation and amortization2 EBIT=Earnings before net interest result, income taxes3 Capital employed=Balance sheet total less deferred tax assets, cash and cash equivalents including receivables
from cash management and non-interest bearing liabilities
Business performance at Dräger Safety
Steps taken throughout the year to improve processesand reduce costs have borne fruit. Together with the mar-ket segment and customer focus of the subgroup, thesesteps have led to growth and secured earnings. Productinnovations, acquisitions, services tailored to specific targetgroups, and direct customer proximity have strengthenedthe subgroup’s market position.
With cost structures much improved and revenues ris-ing, earnings at the subsidiaries increased. Major mile-stones were achieved in the strategic goal of improvingbusiness process efficiency through strict, global processstandardization.
All regions contribute to growthIn terms of core business, all regions contributed to growthin fiscal year 2004.
Relative growth was particularly high in the Americasand the Asia/Pacific region. Despite the tough competitiveenvironment and the heavy burden of an unfavorable euroexchange rate, the subgroup enjoyed solid growth ratesin these regions.
The market position of the Company was strengthenedin the Americas, where order intake was up by 5.6 percent(adjusted for currency effects: 14.0 percent). The positiveperformance was again particularly bolstered by the sub-group’s core businesses. Along with projects to developand produce gas monitoring systems for major industrialcompanies, large orders for Dräger respiratory protectiveequipment by large fire departments and mining organi-zations also provided positive impetus. The biggest energysupplier in New York City decided to buy a whole newset of portable gas detection instruments from DrägerSafety.
Global market position extended againThe Dräger Safety subgroup’s 2004 revenues rose world-wide to €503.0 million, up 5.4 percent on the prior year’s€477.3 million. Assuming constant exchange rates, rev-enues increased by 7.1 percent on the prior year. Thisincrease is due to an overall positive performance—espe-cially in the subgroup’s core businesses. The result enab-led Dräger Safety to successfully defend its title as marketleader and even increase its lead. In the Americas, anincrease of 12.2 percent was recorded (adjusted for cur-rency effects: 21.0 percent); in Asia/Pacific, the Companysaw a 12.4 percent rise (adjusted for currency effects andexcluding the effects of SARS: 20 percent). In Europe,an overall increase in market share of 5.7 percent wasachieved, allowing the Company to also enhance its posi-tion in this region compared with the prior year.
Earnings climb more quickly than revenuesDräger Safety closed fiscal year 2004 with earnings beforeinterest and taxes (EBIT) of €40.9 million, which is equiv-alent to an EBIT margin of 8.1 percent of revenues. Thisputs EBIT 12.1 percent above that recorded in the prioryear. As such, the subgroup proved that it was continuingits success story and also realizing its long-term aim ofincreasing EBIT ahead of revenues, thereby generating afaster rate of bottom-line growth. Dräger Safety achievedthis despite the burden of several million euros due tothe strength of the euro zone currency.
55
In the Asia/Pacific region, order intake grew by 3.2 per-cent (adjusted for currency effects and excluding theeffects of SARS: 20 percent in the core businesses). Sta-tionary gas monitoring equipment and systems as well asrespiratory protective equipment for miners and firefighterswere also the main growth drivers in this region. The pro-duction plant in Beijing was extended further, and now,along with oxygen sensors, also assembles portable gasdetection instruments, as well as compressed-air andclosed-circuit breathing apparatus.
The subgroup also performed well in Europe in fiscalyear 2004, enjoying both top and bottom-line growthagainst the prior year. Overall, European order intake wasup by 5.3 percent. Order intake in Germany’s sluggishmarket was good, although not all orders were settled inthe fiscal year, mainly due to the state of the public coffers.Revenues from industry increased.
High level of investments and innovationAt €21.6 million, investments in intangible assets and prop-erty, plant and equipment in fiscal year 2004 remainedat the high level of the prior year. R&D expenditureamounted to €23.7 million (4.7 percent of revenues) andmainly related to the development of new products andservices. The subgroup’s efforts to increase its marketshare by launching innovative products were more suc-cessful than expected. Our new products, for example the
Alcotest 6510, a breathalyzer which combines 50 years ofexperience in breathalyzer technology with modern tech-nology and ergonomics to create a compact, user-friendlydevice, have outstripped expectations in almost all areas.This device is fast, precise and reliable. The electrochemi-cal measuring technique guarantees accuracy in line withprofessional requirements. The police need breathalyzersnot only to be accurate, but also easy and quick to use,features which are made possible by the ergonomic designof the device.
Dräger Safety also maintained its high level of invest-ment in production facilities, remaining an important sup-plier of high-grade soda lime by constructing a new auto-matic production plant for soda lime. Soda lime is neededto create a closed circuit for medical (anesthesia) devices,diving apparatus and respiratory protective equipment:CO2 is removed from the expelled air so that it can then bere-oxygenated and inhaled again.
Management report 2004 of the Dräger Group Business performance at Dräger Safety56
57
Portfolio enhancement and acquisitionsIn fiscal year 2004, Dräger Safety continuously enhancedits product, technology and service portfolio, thereby con-firming its role as a provider of system solutions for com-prehensive hazard management. This involved making anumber of acquisitions, including the US fire training sys-tem specialist Swede Survival Systems, and the Canadianfire simulator manufacturer Fire Training Systems. In SouthAfrica, the subgroup also took over the breathing maskmanufacturer Zenith Safety Products, increasing DrägerSafety’s presence in the region, especially in the miningindustry.
Dräger Safety Solutions a success on the marketAfter only one year in existence, the new business unitDräger Safety Solutions has already exceeded expecta-tions. This underpins the Company’s strategy to focus onits systems business. Due to the flourishing business indeveloping and constructing escape chambers and rescuetrains for the European tunnel industry, Dräger Safety hadto build a new production hall in order to guarantee opti-mum logistics and assembly.
Capital employedCapital employed rose proportionately less to €157.1 mil-lion (2003: €153.7 million). With EBIT amounting to€40.9 million, ROCE was 26.0 percent (2003: 23.7 per-cent).
Improvements continued to be made to production andorganization processes as scheduled. Endeavors to usea few locations (HUBs) to ship products directly to cus-tomers worldwide involved organizing delivery perform-ance more efficiently. A positive effect on capital employedalso came from the reduction in inventories, warehouses,and associated costs.
HeadcountAs of December 31, headcount at Dräger Safety (exclud-ing trainees and apprentices) was up 31 to 3,329 (2003:3,298). In Germany, the workforce was cut by 32; abroad,it increased by 63, mainly due to the first-time consolida-tion of the acquired companies.
Management report 2004 of the Dräger Group Business performance of the holding company, other companies, consolidation58
2003 2003 2004
HGB IFRSs IFRSs
Order intake € million 14.1 12.0 (5.2)
Revenues by region
Germany € million 14.2 20.4 (5.9)
Rest of Europe € million 3.2 3.2 0.0
Americas € million 1.0 1.0 0.0
Asia/Pacific € million 0.0 0.0 0.0
Other € million 0.0 0.0 0.0
Total revenues € million 18.4 24.6 (5.9)
EBITDA before non-recurring expenses1 € million (19.8) (5.1) (9.6)
Depreciation/amortization € million 14.9 21.9 8.3
EBIT before non-recurring expenses2 € million (34.7) (27.0) (17.9)
Non-recurring expenses € million 4.9 5.0 10.0
EBIT2 € million (39.6) (32.0) (27.9)
Capital employed3 € million (7.1) 61.0 72.5
Investments € million 17.5 12.6 9.8
Net financial debt € million 179.9 281.4 333.7
EBIT before non-recurring expenses/revenues % – – –
EBIT before non-recurring expenses/capital employed % – – –
Net financial debt/EBITDA before non-recurring expenses Factor – – –
Headcount as of December 31
Germany 1,162 1,162 512
Abroad 8 8 6
Total headcount 1,170 1,170 518
1 EBITDA=Earnings before net interest result, income taxes, depreciation, amortization and result from discontinued operations2 EBIT=Earnings before net interest result, income taxes and result from discontinued operations3 Capital employed=Balance sheet total less deferred tax assets, cash and cash equivalents and non-interest bearing liabilities
Business performance of the holding company, other companies, consolidation
After the IT companies and Dräger ProTech GmbHwere sold, other companies still comprised Dräger Inter-services GmbH and Dräger InTek GmbH as well as realestate companies for leased properties. As of January 1,2005, 70 percent of Dräger Interservices GmbH wastransferred to Dräger Safety and 30 percent to DrägerMedical Holding, as the company forms an integral part ofthe subgroups’ operations. Dräger InTek, which providesfacility services, maintenance and energy management forcompanies on the Dräger site in Lübeck, is to remain withDrägerwerk AG.
Drägerwerk AG performs services connected with its func-tion as a holding company. Alongside its strategic tasks,the Company also assumes responsibility for all legal andtax issues affecting the Group, as well as financing, publicrelations, financial market disclosure, basic human resour-ces issues, the consolidated financial statements, corpo-rate controlling, group audit, the coordination of projectsinvolving both subgroups and the management of its ownand any leased land and buildings, including lease agree-ments with Dräger Group companies and third parties.The basic research department at Drägerwerk AG is a keypartner of the subgroups’ own development departmentsand works closely with national and international researchbodies. All services provided directly by Drägerwerk AG togroup companies or third parties are charged at marketrates.
59
Risks to future development
In doing business, the Dräger Group is inevitably exposedto business risks. Responsibly handling the uncertaintiesof the global village is the purpose of the Dräger Group’srisk management system.
The risk management system comprises all tools formeasuring, managing and monitoring exposures andpotential risks. Based on the Group’s and subgroups’annually revised strategic plans and the resultant short andmedium-term planning, systematic controlling covers divi-sions, companies and regions, subgroups and the Groupthrough monthly or quarterly reports.
Risk management is rounded off by the activities ofGroup Internal Auditing, the statutory annual audit, andrisk reports that routinely detail twice annually (and addi-tionally as and when required) all economic, market andcurrency risks, the competitive position and environment,as well as risks specific to the divisions.
As a matter of course, Dräger Medical and Dräger Safe-ty submit their products and services to quality inspectionsand ongoing checks in accordance with stringent nationaland international standards and always with the specialquality and risk orientation of these sectors in mind.
The risk management procedures implemented atDrägerwerk AG fully meet the requirements of theGerman Act on Corporate Control&Transparency (“Kon-TraG”), ensuring particularly the early identification ofoperational and strategic risks.
The risk aspects and developments receiving primaryattention are:
Overall economic risksThe economies of most industrialized nations are charac-terized by a high degree of uncertainty about future devel-opments. In the US, the double deficit on governmentbudget and current account constitutes a risk factor, al-though the economy shows a constantly good rate of GDPgrowth. In many other industrialized nations, high levels ofgovernment debt hamper growth and implementation ofnecessary reforms. In addition to this, the continued weak-ness of the US dollar constitutes a serious risk for export-oriented euro zone companies. Continued growth can beexpected in the Asia/Pacific region.
Currency risks are first of all counteracted at the oper-ational level by selling and buying products and materialsin matching currencies (mainly US dollars), as well as bycurrency options and other foreign exchange hedges.
Industry and sector risksDräger Medical’s and Dräger Safety’s industries are con-sidered future-oriented but within each sector further con-solidation processes are expected that are likely to affectthe competitive structure. This in turn may mar Dräger’smarket position. Customer focus, innovations and, whereexpedient to business, active involvement in consolidationprocesses will help us cement and further expand ourmarket position.
Management report 2004 of the Dräger Group Risks to future development60
Financial risks and risks related to the use of financial instrumentsThe Dräger Group has equity of €477.3 million and anequity ratio of 33.5 percent. In addition to this, long-termparticipation capital, note loans (maturing between twoand five years), long-term bank loans (due within fouryears) and short-term credit facilities all provide a securesource of financing for the Group. In addition, cash andcash equivalents and securities of a total €178.2 millionallow for sufficient financial scope. However, going on theexperience of the last few years, the risk of receivable loss-es is extremely low given the customer structure of theDräger Group.
The interest rate risk inherent in outside financing iscontained by agreeing on fixed long and (partly hedged)short-term rates.
The currency risk from the increasingly strong euro iscounteracted by hedging the balance of planned purchas-es and sales and short-term items from the settlementof receivables and payables. Production in the US proveda particularly favorable factor by almost zeroing the net bal-ance of US dollar sales and purchases of Dräger Medical.
Marketable hedging instruments contracted with de-pendable banks as counterparties are the only financialderivatives we use.
Overall riskIn view of currently available information, the DrägerGroup’s continued existence as a going concern is notjeopardized.
Operational risksLeadership not only in technology but also in costs is ofparamount importance to market position and businesssuccess of the Dräger Group. This requires both a high-quality product portfolio in line with market requirementsand the ability to control operating processes, from devel-opment and maintenance of products on the market,through to sales and meeting orders.
The extended integration of external suppliers throughthe sale and transfer of the internal production and servicecompanies requires a high level of coordination with thesuppliers, who have to be reliably incorporated into theprocesses. To avoid the risks this entails, information pro-cesses are structured, the necessary internal and externalinterfaces in the global processes are optimized and theperformance of external partners is carefully reviewed.
Operating processes are continuously improved; theaction programs of recent years are proof that the DrägerGroup has faced up to and mastered these challenges.
61
Subsequent events
As of January 1, 2005, 70 percent of Dräger InterservicesGmbH was transferred to Dräger Safety AG&Co.KGaAand 30 percent to Dräger Medical Holding GmbH. As ofthe same date, Drägerwerk AG took over Dräger InTekGmbH from Dräger Interservices. This company serves asfacility manager for the premises in Lübeck.
After the executive board of the metalworkers’ unionIG Metall consented to the supplementary collective wageagreement securing the location of Dräger Medical onJanuary 18, 2005, plans to build new headquarters/pro-duction facilities for the Company in Lübeck are underway.
Outlook
In fiscal year 2005, Dräger expects the world economy tocontinue to develop uncertainly and difficult challengesin the markets of Dräger Medical and Dräger Safety. Inparticular, the positions of market participants will putpressure on the price structure for products in individualregions to varying extents. Dräger will therefore pressahead with the profitability and productivity enhancementprograms in both subgroups in fiscal year 2005. In particu-lar, this includes fine-tuning global business processes andincreasing efficiency, expanding customer relations andgrowth strategies with an innovative product range. ForDräger Medical, this includes the integration of therapy,monitoring and information technology and for DrägerSafety, the next steps toward becoming a comprehensiveservice provider for system solutions in hazard and riskmanagement.
Both subgroups intend to strengthen and develop theirmarket position in all regions. The US and the Asia/Pacificregion are expected to make the largest contribution togrowth of 5 to 7 percent. Dräger Medical in particular laidimportant groundwork in fiscal year 2004 by boostingsales in the US. Both subgroups plan to increase EBITahead of revenues.
Overall, the Dräger Group expects revenue growth of5 to 7 percent, with an increase in the EBIT and net profitof between 5 and 10 percent.
Management report 2004 of the Dräger Group Subsequent events/Outlook62
6363
Financial statements 2004 of the Dräger Group
Income statement of the Dräger Group Note 2004 2003
January 1 to December 31, 2004
€ thousand € thousand € thousand
Revenues 8 1,520,472 1,422,098
Cost of sales 9 (772,223) (746,371)
Gross profit 748,249 675,727
Research and development costs 10 (103,838) (95,376)
Marketing and selling expenses 11 (413,305) (386,599)
General administrative expenses 12 (134,935) (134,602)
(652,078) (616,577)
96,171 59,150
Net interest expense (23,607) (24,749)
Profit/loss from investments in associates 529 (517)
Profit/loss from other investments 137 0
Other financial result (1,981) (891)
Financial result 13 (24,922) (26,157)
Earnings before income taxes 71,249 32,993
Income taxes 14 (33,341) (18,021)
Result from discontinued operations 15 9,391 19,044
Net profit 47,299 34,016
Minority interests in net profit (21,953) (11,899)
Result after minority interests 25,346 22,117
Earnings per share 18
› per preferred share (in €) 2.02 1.77
› per common share (in €) 1.96 1.71
64 Financial statements 2004 of the Dräger Group
Balance sheet of the Dräger Group Note 2004 2003
as of December 31, 2004
€ thousand € thousand € thousand
Assets
Intangible assets 19 176,471 161,633
Property, plant and equipment 20 189,168 191,512
Non-current financial assets 21
Investments in associates 429 760
Other financial assets 5,043 5,873
Other non-current financial assets 24,898 11,987
Deferred tax assets 22 76,964 77,413
Non-current assets 472,973 449,178
Inventories 23 260,424 228,395
Current financial assets 24
Trade receivables 455,638 424,324
Other current financial assets 64,236 35,492
Current tax assets 25 11,891 2,971
Cash and cash equivalents 26 157,954 186,278
Current assets 950,143 877,460
Total assets 1,423,116 1,326,638
65
Note 2004 2003
€ thousand € thousand € thousand
Equity and liabilities
Capital stock 32,512 32,512
Additional paid-in capital 38,867 38,867
Reserves retained from earnings 173,889 156,450
Other comprehensive income (16,917) (13,267)
Group net earnings 5,334 4,699
Minority interests 28 243,598 224,064
Equity 27 477,283 443,325
Participation capital 29 74,797 74,797
Non-current provisions 30
Provisions for pensions and similar obligations 155,539 164,604
Other non-current provisions 19,821 15,007
Non-current interest-bearing loans 31 107,384 157,667
Other non-current financial liabilities 32 4,696 5,194
Deferred tax liabilities 33 16,667 16,966
Non-current liabilities 378,904 434,235
Short-term loans and liabilities to banks 34 214,071 92,028
Current provisions 35 129,455 144,153
Other current financial liabilities 36
Trade payables 98,840 84,770
Other current financial liabilities 91,078 103,090
Tax liabilities 37 33,485 25,037
Current liabilities 566,929 449,078
Total equity and liabilities 1,423,116 1,326,638
66 Financial statements 2004 of the Dräger Group
Statement of changes in equity Paid-in capital Earned equity Minority Equityinterests
Capital Additional Reserves Group net Other comprehensive incomestock paid-in capital retained from earnings
earnings
Currency Market translation valuationdifferences of derivative
hedginginstruments
€ thousand € thousand € thousand € thousand € thousand € thousand € thousand € thousand
January 1, 2003 32,512 38,867 40,219 4,064 0 0 6,325 121,987
Change in fair values (44) 1 (43)
Currency translation differences (19,230) (1,122) (20,352)
Group net profit 34,016 34,016
Minority interests in net profit (11,899) 11,899 0
Distributions (4,064) (1,968) (6,032)
Effects of joint venture with Siemens
› Reclassification into minority interests (103,401) 6,007 97,394 0
› Inclusion of the new activities 208,700 112,376 321,076
Transfer to reserves 17,418 (17,418) 0
Change in consolidated group/other (6,486) (841) (7,327)
December 31, 2003 32,512 38,867 156,450 4,699 (13,223) (44) 224,064 443,325
Change in fair values 13 0 13
Currency translation differences (3,663) (2,226) (5,889)
Group net profit 47,299 47,299
Minority interests in net profit (21,953) 21,953 0
Distributions (4,699) (3,146) (7,845)
Transfer to reserves 20,012 (20,012) 0
Change in consolidated group/other (2,573) 2,953 380
December 31, 2004 32,512 38,867 173,889 5,334 (16,886) (31) 243,598 477,283
67
Cash flow statement of the Dräger Group 2004 2003
€ thousand € thousand
Operating activities
Group net profit 47,299 34,016
+ Depreciation/amortization of non-current assets 45,426 54,667
– Decrease in provisions (2,677) (22,334)
–/+ Gain(–)/loss(+) from the disposal of non-current assets (3,568) 1,691
–/+ Increase(–)/decrease(+) in inventories (37,393) 22,871
– Increase in trade receivables (61,822) (64,554)
– Increase in other assets (20,739) (17,825)
+/– Increase(+)/decrease(–) in trade payables 14,773 (10,049)
+ Increase in other liabilities 29,487 55,192
Net cash flow provided by operating activities 10,786 53,675
Investing activities
– Cash outflow for investments in intangible assets (20,016) (16,028)
+ Cash inflow from the disposal of intangible assets 7,096 1,110
– Cash outflow for investments in property, plant and equipment (42,766) (51,380)
–/+ Cash outflow(–)/cash inflow(+) from disposals of property, plant and equipment (3,065) 8,160
– Cash outflow for investments in financial assets (938) (4,159)
+ Cash inflow from the disposal of financial assets 3,034 6,637
– Cash outflow from the acquisition of subsidiaries (23,228) 0
+ Cash inflow from the sale of subsidiaries 892 18,222
Net cash used in investing activities (78,991) (37,438)
Financing activities
– Distribution of dividends (4,699) (4,064)
+ Net balance of bank loans raised/redeemed and other liabilities to banks 76,219 (5,777)
– Net balance of bank loans raised/redeemed and other finance lease liabilities (7,284) (5,100)
+ Inflows from capital increases1 315 158,000
less minority interests 0 (8,991)
– Profit distributed to minority interests (3,146) (1,968)
Net cash provided by financing activities 61,405 132,100
Change in cash and cash equivalents in the fiscal year (6,800) 148,337
+/– Effect of exchange rates on cash and cash equivalents (1,511) (3,958)
+ Cash and cash equivalents at the beginning of the fiscal year 2 186,312 41,933
Cash and cash equivalents as of December 31 of the fiscal year2 178,001 186,312
1 Mainly the Siemens joint venture in 20032 Cash and cash equivalents include short-term securities
1 Basis of preparation of the consolidated financial statementsDrägerwerk AG, Lübeck, has prepared its consolidated financial statements for fiscal year 2004 forthe first time in accordance with the International Financial Reporting Standards (IFRSs) promul-gated by the International Accounting Standards Boards (IASB) and the interpretations of theInternational Financial Reporting Interpretations Committee (IFRIC).
In its consolidated financial statements for 2004, Drägerwerk AG applied all the IFRSs adoptedby the IASB as of December 31, 2004 on the basis of IFRS 1 (First-time Adoption of IFRSs). Theeffects of first-time adoption of IFRSs are presented in the reconciliation under “effects of transitionfrom HGB to IFRSs” in Note 2. January 1, 2003 was chosen as the date of transition. The prior-year figures for 2003 were restated accordingly.
The following standards and interpretations were applied before the date of compulsoryapplication:– IFRS 3—Business Combinations– IFRS 5—Non-current Assets Held for Sale and Discontinued Operations– IAS 1 (2004)—Presentation of Financial Statements – IAS 2 (2004)—Inventories – IAS 8 (2004)—Accounting Policies, Changes in Accounting Estimates and Errors – IAS 10 (2004)—Events After the Balance Sheet Date – IAS 16 (2004)—Property, Plant and Equipment – IAS 17 (2004)—Leases – IAS 19 (2004)—Employee Benefits – IAS 21 (2004)—The Effects of Changes in Foreign Exchange Rates – IAS 24 (2004)—Related Party Disclosures – IAS 27 (2004)—Consolidated and Separate Financial Statements – IAS 28 (2004)— Investments in Associates – IAS 32 (2004)— Financial Instruments: Disclosure and Presentation – IAS 33 (2004)— Earnings Per Share – IAS 36 (2004)— Impairment of Assets – IAS 38 (2004)—Intangible Assets – IAS 39 (2004)—Financial Instruments: Recognition and Measurement – IFRIC 1—Changes in Existing Decommissioning, Restoration and Similar Liabilities
Of the new standards and interpretations that have been issued but not applied in these financialstatements, IFRIC 4 (Determining whether an Arrangement contains a Lease) is relevant.
68 Notes 2004 of the Dräger Group
Notes 2004 of the Dräger Group
69
The requirements of Art. 292a German Commercial Code (“HGB”) required for the Company’sexemption from its obligation to prepare consolidated financial statements in accordance withGerman commercial law are met. Compliance with these requirements is assessed on the basis ofGerman Accounting Standard 1 (GAS 1) issued by the German Accounting Standards Committee(GASC). To ensure that the consolidated financial statements are equivalent to consolidated ac-counts prepared in accordance with the German Commercial Code, all disclosures and explanationsrequired by German commercial law above and beyond the provisions of the IFRSs are provided.
The consolidated financial statements were prepared in euros. Unless stated otherwise, all fig-ures are disclosed in thousands of euros (€ thousand). The balance sheet is classified according tothe current/non-current distinction; the income statement was prepared according to the cost ofsales method. Where certain items of the financial statements have been grouped with a view toenhancing the transparency of presentation, they are disclosed separately in these notes. Theseparate financial statements of the companies included in consolidation were prepared as of thebalance sheet date of the consolidated financial statements on the basis of uniform accountingpolicies.
2 Effects of transition to IFRSs
a) Reconciliation of equity
January 1, 2003 December 31, 2003
Equity under HGB (including minority interests) 170,133 499,182
Asset-backed securities (2,677) (2,618)
Recognition of internally developed software 2,983 2,607
Goodwill (3,214) 115
Valuation adjustment of components /
adjustment of depreciation (1,322) (1,653)
Recognition of finance leases 158 123
Inventory measurement 21,711 9,957
Adjustment of bad debt allowances 7,550 8,310
Deferred tax assets 71,449 100,682
Deferred tax liabilities (21,935) (52,030)
Revaluation/reversal of other provisions 1,828 2,033
Consolidation of real estate companies (11,484) (11,579)
Remeasurement of pension provisions (38,658) (36,675)
Other effects 262 (332)
Reclassification of participation capital (74,797) (74,797)
Equity under IFRSs (including minority interests) 121,987 443,325
Significant changes to items– Expenses for internally developed software were recognized as an asset in accordance with
IAS 38.– The differences in goodwill are mainly due to the different amortization rules under HGB and
IFRSs (impairment-only approach).– Effects on inventory measurement are attributable to a change in the methods used to
calculate inventory allowances. – The general bad debt allowance was fully eliminated for the purposes of the IFRS consolidated
financial statements.– Deferred tax assets and deferred tax liabilities changed due to deferred taxes recognized on
the new adjustments between the tax balance sheet and the IFRS financial statements andthe recognition of deferred taxes on loss carryforwards.
– Another effect on equity came from the elimination of intercompany profits for the consolidationof various real estate companies (special purpose entities—SPEs) under IFRSs.
– The remeasurement of pension provisions on the basis of IAS 19 by actuaries led to asignificant increase in these provisions.
– The participation capital was reclassified from equity to debt under the provisions of the IFRSs.
b) Reconciliation of balance sheets as of January 1 and December 31, 2003
70 Notes 2004 of the Dräger Group
January 1, 2003 HGB IFRSs Difference
Intangible assets 23,229 23,823 594
Property, plant and equipment 166,710 194,644 27,934
Financial assets 11,065 10,942 (123)
Inventories 213,030 253,101 40,071
Receivables and other assets
(including prepaid expenses and deferred charges) 376,002 388,816 12,814
Deferred tax assets 12,994 70,613 57,619
Cash in hand, bank balances 42,442 42,505 63
Assets 845,472 984,444 138,972
Equity 170,133 121,987 (48,146)
› thereof minority interests [6,028] [6,325] [297]
Participation capital 0 74,797 74,797
Pension provisions 129,026 160,653 31,627
Tax provisions 11,265 11,679 414
Other provisions 142,798 138,385 (4,413)
Liabilities (including deferred income) 392,250 447,692 55,442
Prepayments received 0 21,146 21,146
Deferred tax liabilities 0 8,105 8,105
Equity and liabilities 845,472 984,444 138,972
Significant changes to items– The difference in intangible assets is largely due to the different treatment of goodwill under
HGB and IFRSs. In addition, internally developed software was recognized as an asset underIFRSs.
– The increase in property, plant and equipment is chiefly attributable to the consolidation of thereal estate companies under IFRSs. In addition, the recognition of finance lease assets increased.
– Inventories increased due to the reclassification of prepayments received on account of ordersfrom inventories to a separate item on the liabilities side (gross disclosure). Equipment leasedout under operating leases was reclassified from inventories to other assets. The different meas-urement provisions for inventories under IFRSs also contributed significantly to the higherinventories.
– The higher receivables and other assets are mainly due to the reversal of general bad debtallowances.
– Deferred tax assets increased due to the new adjustments between the tax balance sheetand the IFRS financial statements and the deferred taxes recognized on loss carryforwards. Also,both deferred tax assets and deferred tax liabilities increased due to separate disclosure insome instances.
71
December 31, 2003 HGB IFRSs Difference
Intangible assets 159,129 161,633 2,504
Property, plant and equipment 169,544 191,512 21,968
Financial assets 8,208 6,633 (1,575)
Inventories 196,844 228,395 31,551
Receivables and other assets
(including prepaid expenses and deferred charges) 464,432 474,774 10,342
Deferred tax assets 12,124 77,413 65,289
Cash in hand, bank balances 186,213 186,278 65
Assets 1,196,494 1,326,638 130,144
Equity 499,182 443,325 (55,857)
› thereof minority interests [222,021] [224,064] [2,043]
Participation capital 74,797 74,797
Pension provisions 134,415 164,604 30,189
Tax provisions 12,332 13,358 1,026
Other provisions 160,620 145,802 (14,818)
Liabilities (including deferred income) 389,945 446,269 56,324
Prepayments received 21,517 21,517
Deferred tax liabilities 0 16,966 16,966
Equity and liabilities 1,196,494 1,326,638 130,144
72 Notes 2004 of the Dräger Group
– Please see the separate presentation under a) Reconciliation of equity for the differences inequity.
– The participation capital was reclassified from equity to debt under the provisions of the IFRSs.– The increase in pension provisions is principally attributable to the different recognition and
measurement criteria of IAS 19 compared to German commercial law.– Other provisions decreased mainly due to reclassification of various personnel obligations from
other provisions to liabilities. – The rise in liabilities is due to the consolidation of real estate companies under IFRSs as well as
the reclassification of personnel obligations from other provisions to liabilities. In addition, pre-payments received were reclassified from inventories to a separate item on the liabilities side.
c) Reconciliation of net profit
2003
Net profit under HGB (including minority interests) 37,807
Recognition/valuation adjustment of internally developed software (376)
Goodwill 666
Valuation adjustment of components/adjustment of depreciation (428)
Recognition of finance leases (35)
Inventory measurement (10,581)
Adjustment of bad debt allowances 978
Deferred tax assets 30,347
Deferred tax liabilities (25,122)
Revaluation/reversal of other provisions 599
Consolidation of SPEs 644
Remeasurement of pension provisions 1,365
Other effects (1,848)
Adjustments affecting net profit (3,791)
Net profit under IFRSs (including minority interests) 34,016
Please see our information under a) Reconciliation of equity for an explanation of significantchanges to items.
73
4 Effects of the change in the consolidated groupIn fiscal year 2004, Dräger Group companies acquired the following entities:– Draeger Safety Systems Inc., Pittsburgh, USA – Draeger Safety Systems Ltd., Ontario, Canada – Draeger Safety Zenith (Pty.) Ltd., King William’s Town, South Africa
Fiscal year 2004 also saw the acquisition by Dräger Medical Infant Care Inc., Hatboro, USA, of theAir-Shields activities in an asset deal.
The following assets and liabilities were acquired in these transactions:
Besides Drägerwerk AG, the consolidated financial statements comprise 37 German (2003: 39)and 95 foreign companies (2003: 84) in which Drägerwerk AG directly or indirectly holds themajority of voting rights, giving it the power to govern their financial and operating policies so as toobtain benefits from their activities.
Eight associates (2003: seven) over which Drägerwerk AG indirectly has a significant influenceare consolidated according to the equity method.
The consolidated group includes four real estate companies in the form of special purposeentities whose assets are attributable in substance to the Group (2003: four).
The consolidated group was extended in the fiscal year by the formation of eight new companiesand the acquisition of another four. In contrast, seven companies were sold and deconsolidated andtwo companies were merged.
The consolidated income statement for 2003 included on a time proportion basis three sold ormerged companies that were deconsolidated in 2003.
The significant companies of the Dräger Group as of December 31, 2004 are listed after thenotes. The list of Dräger shareholdings will be deposited with the Commercial Register of the LocalCourt of Lübeck under no. HRB 499.
3 Consolidated group
Non-current assets 4,467
Current assets 10,335
Less
Provisions 562
Non-current and current liabilities 1,610
Net assets excluding goodwill 12,630
Goodwill 11,529
Costs of purchase 24,159
Less
Acquired cash and cash equivalents 931
Net cash used for the acquisition 23,228
The new entities generated revenues of €20,787 thousand and a net loss of €88 thousand duringtheir period of affiliation to the Group.
74 Notes 2004 of the Dräger Group
As part of its efforts to focus the Dräger Group on the core business of the Dräger Medical andDräger Safety subgroups, Drägerwerk AG mainly sold the following companies in fiscal year 2004:– Dräger ProTech GmbH, Lübeck – Dräger Synematic GmbH, Lübeck– NORDAC Rechenzentrumsgesellschaft mbH, Lübeck– Dräger Information Technologies GmbH, Lübeck– Dräger Electronic Business Portals GmbH, Hamburg
In this context, the following assets and liabilities were transferred to various acquirers:
5 Consolidation principlesCapital consolidation is performed according to the purchase method. On first-time consolidation ofsubsidiaries, the identifiable assets and liabilities are measured at their fair values at the date ofacquisition. The excess of the cost of the investment over the acquirer’s interest in the net fair valueof the identifiable assets and liabilities is recognized as goodwill.
Goodwill is subject to an annual impairment test pursuant to IAS 36 (impairment-only approach).Any excess of the Group’s share in equity over the cost of the investment is recognized in profit orloss at the date of acquisition after reassessment.
Any minority interests in equity are shown in the consolidated balance sheet as such.When swapping or exchanging shares or in similar transactions, the fair value of the shares given
is attributed to the shares received. Any resulting step-ups in fair value are transferred to thereserves retained from earnings.
The cost of investments accounted for according to the equity method is adjusted to reflect theGroup’s share in net profit or loss for the period and dividend distributions. The goodwill is includedin the carrying amount of the investments. Impairments are accounted for separately.
Non-current assets 17,526
Current assets excluding cash and cash equivalents 28,362
Less
Provisions 15,413
Non-current and current liabilities 19,076
Net assets excluding goodwill 11,399
Sale price (less transferred cash and cash equivalents) 20,790
Less
Present value of outstanding purchase price installments (19,898)
Net cash provided by the sale 892
We also refer to our information on discontinued operations in Note 15.
75
Intercompany receivables and liabilities are netted. The carrying amount of assets from inter-company goods and services are adjusted for unrealized intercompany profits and losses; therefore,these assets are measured at group cost. For associates, elimination of intercompany profits andlosses is waived due to immateriality.
Internal revenues are eliminated. All other intercompany income and expenses are mutuallyoffset. Deferred tax assets or liabilities from consolidation entries that affect profit or loss are recog-nized whenever differences in tax expenses are expected to reverse in subsequent years.
Group net earnings agree with Drägerwerk AG’s distributable earnings. The portion of net profitnot destined for distribution and attributable to minority interests is transferred to reserves retainedfrom earnings. The additional paid-in capital of the Dräger Group and of Drägerwerk AG reflects thestock premiums earned from increases in capital. Paid-in capital and earned equity are disclosedseparately in the consolidated balance sheet.
6 Currency translationIn the separate financial statements of Drägerwerk AG and its subsidiaries, foreign currency transac-tions are translated at the mean exchange rate at the date of initial recognition. Exchange differ-ences from the settlement of monetary items in foreign currencies during the year and the measure-ment of open foreign currency positions at the rate at the balance sheet date are recognized inprofit or loss.
The foreign consolidated subsidiaries prepare their financial statements in the local currency inwhich they mainly operate (functional currency). These financial statements are translated into thegroup reporting currency, the euro, at the mean exchange rate at the balance sheet date (closingrate) for assets and liabilities and at the annual average rate for the items of the income statement.All resulting translation differences are included in a translation reserve in equity.
To account for the effects of inflation, the financial statements and comparative figures of foreignentities operating in a hyperinflationary environment and reporting in a currency of a hyperinflation-ary economy are restated in terms of the measuring unit current at the balance sheet date pursuantto IAS 29 using a general price index for the country in question. No significant subsidiary had itsregistered office in a hyperinflationary economy in the year under review and the prior year.
The currency translation differences recognized in profit or loss, other than currency translationdifferences from measurement of instruments at fair value pursuant to IAS 39, lead to income of€2,848 thousand.
The major group currencies and their exchange rates developed as follows:
Closing rate Average rate
December December
€1 = 31, 2004 31, 2003 2004 2003
US USD 1.36 1.26 1.25 1.14
UK GBP 0.71 0.70 0.68 0.69
Japan JPY 139.65 135.05 134.05 131.74
People’s Republic of China CNY 11.26 10.35 10.31 9.45
76 Notes 2004 of the Dräger Group
7 Accounting policiesThe separate financial statements of Drägerwerk AG and its consolidated German and foreignsubsidiaries as of December 31 of the fiscal year are prepared on the basis of uniform accountingpolicies and included in the consolidated financial statements. The following accounting policiesare applied:
Intangible assetsGroup-controlled intangible assets from which future economic benefits are expected to flow to theGroup and which can be reliably measured are recognized at cost less straight-line amortization overtheir expected useful lives.
Acquired and internally developed software not disclosed under inventories is recognized as aseparate asset unless it is an integral part of the related hardware. Costs incurred for the continuinguse of an existing software system are recognized as an expense (e.g. a new release).
Internal development costs are recognized as an asset if the asset’s future economic benefit issufficiently probable. However, due to the strict safety requirements for Dräger Group products, thismeans that the product must have already been approved for sale in the major markets. Until allcriteria for recognition as an asset are met, internal development costs and research costs areexpensed as incurred.
Intangible assets generally have a useful life of four years, patents and trademarks are amortizedover their term (11 years on average). Amortization is charged straight-line. A useful life of five yearsis used for development costs recognized as an asset.
Goodwill recognized as an intangible asset is disclosed at cost less accumulated impairmentlosses. Under IAS 36, amortization is no longer charged on a systematic basis.
Property, plant and equipmentItems of property, plant and equipment are stated at cost less accumulated depreciation and accu-mulated impairment losses.
The cost of purchase of an item of property, plant and equipment includes its purchase price andany costs directly attributable to bringing the asset to the location and condition necessary for it tobe capable of operating in the manner intended. The cost of conversion comprises all direct andoverhead costs, including depreciation, attributable to production. Borrowing costs are recognizedas an expense. Subsequent expenditure incurred after the assets have been put into operation, suchas repairs and maintenance and overhaul costs, are charged to income in the period in which thecosts are incurred. Whenever it is probable that the expenditure will result in future economic bene-fits in excess of the originally assessed standard of performance of the existing asset flowing to theCompany, the expenditure is recognized as an additional cost of property, plant and equipment.
Depreciation is computed on a straight-line basis over the following estimated useful lives:
– Buildings 20–40 years– Production plant and machinery 5–8 years– Other plant, factory and office equipment 2–15 years
77
Where significant parts of property, plant and equipment contain components with substantiallydifferent useful lives, such components are recorded separately and depreciated over their respec-tive useful lives.
The useful life and depreciation methods used for property, plant and equipment are reviewedannually to ensure that the method and period of depreciation are consistent with the expectedpattern of economic benefits from items of property, plant and equipment.
Assets under construction are stated at cost.
Impairment losses on intangible assets and property, plant and equipmentIf there are signs of impairment of intangible assets or property, plant and equipment at the balancesheet date, these items are subjected to an impairment test pursuant to IAS 36. If the carryingamount of the asset exceeds its recoverable amount (the higher of its value in use and net sellingprice), an impairment loss is charged. An impairment test is performed annually on goodwill andintangible assets with indefinite useful lives.
If the reasons for an impairment loss cease to apply, write-ups are performed, except in the caseof goodwill.
Financial assetsFinancial assets are investments in associates, other investments, securities, loans and other receiv-ables and other assets. Financial assets held for or due in more than 12 months are disclosed asnon-current financial assets.
Loans and receivables are recognized at amortized cost less any impairment losses anddiscounting.
Securities with fixed or determinable payments and fixed maturity that the Dräger Group has thepositive intent and ability to hold to maturity are classified as held-to-maturity investments andrecognized at amortized cost.
Investments in associates that are not accounted for according to the equity method due toimmateriality, other investments and securities and all other financial assets are classified as avail-able for sale and recognized at fair value, or if not determinable, at amortized cost. Unrealized gainsand losses from the change in fair value are recorded in equity, taking the tax effects into account.Changes in fair value are not recognized in profit or loss until the asset is permanently impairedor sold.
Derivative financial instruments that are not designated hedging instruments (hedge accounting)are classified as held for trading and recognized at fair value, or if not determinable, at amortizedcost. Gains and losses from the change in fair value are recognized in profit or loss.
InventoriesInventories comprise raw materials, consumables and supplies, work in process and finishedgoods and merchandise. They are measured at the lower of average cost and net realizable value.Cost comprises all direct and overhead costs for the conversion of inventories on the basis ofnormal capacity utilization. Borrowing costs are recognized as an expense.
Net realizable value is the estimated selling price in the ordinary course of business less theestimated costs of completion and the estimated costs necessary to make the sale. Unrealizableinventories are written off.
In significant cases, revenues and profits from customer contracts in process are recognizedaccording to the percentage of completion method.
Finished goods and merchandise comprise equipment leased out and demo equipment. Twopercent straight-line depreciation is charged monthly for the decrease in the net realizable value ofthese items.
Cash and cash equivalentsCash and cash equivalents comprise cash in hand and bank balances, including short-term deposits.
Participation capitalThe Dräger participation certificates are recognized as financial liabilities at amortized cost in accor-dance with IAS 39 in conjunction with IAS 32. As on termination by holders of series K and Dparticipation certificates, the average amount received is equal to the amount repayable, the amor-tized cost is equal to the amounts originally received. Drägerwerk AG does not intend to terminatethe participation certificates (also see Note 29).
The dividends paid to holders of participation certificates represent interest expense of theperiod in question.
Provisions for pensions and similar obligationsProvisions for pension obligations are calculated according to IAS 19 using the projected unit creditmethod allowing for future adjustments to salaries and pensions, and employee turnover. Theprovision was measured on the basis of pension reports. If the actuarial gains or losses, which mainlyarise due to the changes in actuarial parameters, exceed 10 percent of pension obligations at thebeginning of the fiscal year, the amount in excess of 10 percent is recognized in profit or loss overthe remaining period of service of the eligible employees.
The interest portions and expected returns on plan assets are disclosed on a net basis in interestexpenses.
Other provisionsA provision is recognized when, and only when, the entity has a present obligation as a result of apast event and it is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation, and a reliable estimate can be made of the amount of the obligation.Provisions are stated at the amount expected to be required to settle the obligation. Non-currentprovisions are discounted to the balance sheet date using appropriate market rates.
78 Notes 2004 of the Dräger Group
79
Other financial liabilitiesOther financial liabilities are disclosed at the amount repayable. Non-current liabilities that do notbear interest or bear interest at a rate substantially below market rates are disclosed at presentvalue. Premiums and discounts are allocated over the term of the liability using the effective interestmethod.
Deferred taxesDeferred taxes are recognized for differences between the IFRS financial statements and the taxbalance sheets of the consolidated companies as well as for consolidation entries and loss carry-forwards.
The deferred taxes are measured at the amount expected to be paid or recovered in subsequentfiscal years. Deferred tax assets are only recognized if it is sufficiently probable that they will be real-ized. Deferred tax assets and liabilities are only netted if they relate to the same taxation authority.
Leases
a) Finance leases
Dräger Group as lesseeAt inception of the lease, finance leases are recognized as assets and liabilities in the balance sheetat amounts equal at the inception of the lease to the fair value of the leased property or, if lower, atthe present value of the minimum lease payments. In calculating the present value of the minimumlease payments, the discount factor is the interest rate implicit in the lease if this is practicable todetermine. If this is not the case, the lessee’s incremental borrowing rate is used. Initial direct costsare included as part of the asset. Lease payments are apportioned between the finance charge andthe reduction of the outstanding liability. The finance charge is allocated to periods during the leaseterm so as to produce a constant periodic rate of interest on the remaining balance of the liabilityfor each period.
A finance lease gives rise to a depreciation expense for the capitalized asset as well as a financeexpense for each period. The depreciation policy for leased assets is consistent with that for corre-sponding depreciable assets which are owned by the entity.
Dräger Group as lessorAssets held under a finance lease are recognized in the balance sheets and presented as a receiv-able at an amount equal to the net investment (present value of the gross investment) in the lease.The recognition of finance income is based on a pattern reflecting a constant periodic rate of returnon the lessor’s net investment outstanding in respect of the finance lease. Initial direct costs arecapitalized and allocated as an expense over the term of the lease.
80 Notes 2004 of the Dräger Group
b) Operating leases
Dräger Group as lesseeLeases of assets under which substantially all the risks and rewards of ownership are effectivelyretained by the lessor are classified as operating leases. Lease payments under an operating leaseare recognized as an expense.
Dräger Group as lessorAssets subject to operating leases are presented in the balance sheets according to the nature ofthe asset. Lease income from operating leases is recognized in profit or loss on a straight-line basisover the lease term.
Derivative financial instrumentsThe Dräger Group uses derivatives to hedge currency and interest rate risks.
Derivatives are recognized at fair value. For derivatives that meet the hedge accounting criteria ofIAS 39, the changes in their fair value are recognized depending on the type of hedge. In a hedge ofthe exposure to changes in fair value of a recognized asset or liability (fair value hedge), the changesin the fair value of both the hedged item and the derivative are recognized in profit or loss. Changesin the fair value of the exposure to variability in future cash flows (cash flow hedges) are recognizeddirectly under equity, taking tax effects into account. These amounts are removed from equity whenthe hedged item is recognized in the balance sheet or in profit and loss.
Fair value of financial assets and liabilitiesWhere the fair value of financial assets and liabilities is disclosed or stated, it is derived from themarket or stock exchange value. In the absence of an active market, the fair value is determinedaccording to recognized methods of financial mathematics.
Use of estimates and assumptionsIn preparing the consolidated financial statements in accordance with IFRSs, assumptions andestimates have to be made which have an effect on the recognition of assets and liabilities, the dis-closure of contingent liabilities and the recognition of income and expenses. Actual amountsmay differ from these assumptions and estimates.
Significant accounting policies and consolidation methods that differ from German law– Development costs and internally developed software are recognized as an asset if their future
economic benefit is sufficiently probable.– Goodwill undergoes an annual impairment test according to the impairment-only approach.– The pension provisions are calculated according to IAS 19 based on the projected unit credit
method taking future salary and pension increases into account.
81
– Participation capital is disclosed as debt.– Non-current provisions are carried at their present value.– Deferred tax assets are calculated according to the temporary concept, with deferred tax assets
recognized for loss carryforwards that are expected to be used in the future.– Derivatives are recognized at fair value even if their cost is lower. The gains and losses on the
measurement of derivatives used to hedge balance sheet items (fair value hedges) are recog-nized immediately in profit or loss. The gains and losses on the measurement of derivatives usedto hedge future cash flows (cash flow hedges) are recognized directly under equity.
– Receivables and liabilities in foreign currencies are measured at the mean exchange rate at thebalance sheet date, contrary to the German imparity principle.
– No provisions for accrued expenses.– General bad debt allowances are not recognized.– Inventories are measured at net realizable value.– SPEs are included in consolidation.
8 Revenues
Notes to the income statement
Sales revenues are recognized when control, i.e. the risks and rewards incident to ownership, hasbeen transferred to the buyer, if the amount of income can be determined reliably and it is probablethat the economic benefit will flow to the entity. Revenues are net of sales deductions, if any.Revenues from services are recognized when the service has been rendered.
For the breakdown of revenues by business segment and geographical segment, see the tablesbelow.
A detailed segment report is provided in Note 41 of these notes.
Breakdown by segment in €million 2004 2003 Change
in %
Dräger Medical 1,023.4 920.2 +11.2
Dräger Safety 503.0 477.3 +5.4
Aerospace 0.0 10.6 –100.0
Segment revenues 1,526.4 1,408.1 +8.4
Internal revenues segments (12.0) (17.5) –31.4
Revenues other service companies 67.6 164.0 –58.8
Internal revenues other service companies (61.5) (132.5) –53.6
Revenues 1,520.5 1,422.1 +6.9
82 Notes 2004 of the Dräger Group
9 Cost of salesCost of sales comprises direct material, direct labor, special direct production costs, inventoryallowances, materials overheads, cost of warranties and other cost of sales.
The cost of sales also includes price differences, consumption variances, cost of underutilization,inventory variances, measurement differences and scrapping. Income from the reversal of previouslyimpaired inventories reduces the cost of sales.
Borrowing costs are not included in the cost of sales.
On transition from HGB to IFRSs, the income from the sale of licenses was recognized as revenuesin accordance with IFRSs. Under HGB, this amount was included under other operating income.
Research and development costs comprise all costs incurred during the research and developmentprocess, including registration costs, costs of prototypes and the costs of the first series, if they arenot capitalized as separate development costs.
10 Research and development costs
11 Marketing and selling expensesMarketing expenses comprise all costs associated with corporate marketing, product marketing andbusiness unit marketing, including expenses for advertising and trade fairs.
Selling expenses include the costs of sales management, logistics costs, unless they relate tothe sales depot or shipping, and the costs of the internal and external sales force, including ordersettlement. The costs of the sales companies are allocated to selling expenses, unless they belongto the cost of sales. Income arising in direct connection with the costs is netted.
Breakdown by region in €million (sales areas) 2004 2003 Change
in %
Germany 373.5 409.7 –8.8
Rest of Europe 593.1 527.8 +12.4
Americas 295.6 248.0 +19.2
Asia/Pacific 177.3 159.2 +11.4
Other 81.0 77.4 +4.7
Revenues 1,520.5 1,422.1 +6.9
83
12 General administrative expensesGeneral administrative expenses comprise the costs of administrative activities not related to otherfunctions. This includes in particular the cost of management, corporate controlling, legal andconsulting fees, audit fees, general infrastructure costs, etc. Income arising in direct connectionwith the costs is netted.
13 Financial result
2004 2003
Income from other long-term securities and loans 740 44
Interest income from bank balances 2,957 1,040
Income from interest hedges 29 169
Interest in lease payments 64 158
Other interest and similar income 708 1,668
Interest and similar income 4,498 3,079
Interest expenses from bank liabilities (11,726) (11,706)
Other interest and similar expenses (2,244) (2,621)
Expenses from interest hedges (189) (127)
Interest in lease payments (116) (410)
Interest portion of pension provisions (7,470) (7,310)
Dividend for participation certificates (6,360) (5,654)
Interest and similar expenses (28,105) (27,828)
Net interest expense (23,607) (24,749)
Income from investments in associates 529 292
Expense from investments in associates 0 0
Income from the disposal of associates 0 41
Write-ups and write-downs on investments in associates 0 (850)
Net income/expense from investments recognized
according to the equity method 529 (517)
Income from other investments 137 0
Expenses from other investments 0 0
Net income from other investments 137 0
Expenses from foreign exchange transactions (1,725) (552)
Profit/loss on net monetary position (599) 410
Profit/loss on the disposal of other financial assets and securities 844 (389)
Write-down of other financial assets (366) (372)
Write-up of securities 146 0
Other financial income 96 30
Other financial expenses (377) (18)
Other financial result (1,981) (891)
Financial result (24,922) (26,157)
General administrative expenses comprise the costs of administrative activities not related to otherfunctions. This includes in particular the cost of management, corporate controlling, legal andconsulting fees, audit fees, general infrastructure costs, etc. Income arising in direct connectionwith the costs is netted.
12 General administrative expenses
83
84 Notes 2004 of the Dräger Group
14 Income taxes
No income tax was incurred in connection with the discontinuation of operations (2003: €718 thou-sand). Moreover, the income tax expense does not include any expenses or income due to a changein accounting policy or the introduction of new standards.
Deferred tax expense includes taxes of €67 thousand (2003: €237 thousand) from the changein tax rates.
Payment of dividends to the stockholders of the parent companies does not have any income taxconsequences. A deferred tax liability of €1,994 thousand (2003: €2,118 thousand) was recognizedfor temporary differences in connection with retained profits of foreign subsidiaries.
The parent company’s tax rate was used as the expected tax rate. This has remained unchangedsince the prior year.
Composition of tax expense 2004 2003
Current tax expense (32,558) (21,378)
Deferred tax expense/income from temporary differences (1,544) (61)
Deferred tax expense from loss carryforwards 761 3,418
Deferred tax expense/income (783) 3,357
Income taxes (33,341) (18,021)
Reconciliation of expected income tax expense to 2004 2003
recognized income tax expense
Result from ordinary operations before income taxes 71,249 32,993
Result from discontinued operations before income taxes 9,391 19,762
Earnings before income taxes 80,640 52,755
Expected income tax expense (tax rate: 39.6%, 2003: 39.6%) (31,933) (20,891)
Reconciliation:
Other period effects (12) 3,315
Effect from different foreign tax rates 7,884 6,314
Tax effect of non-deductible expenses and tax-free income (4,619) 5,200
Recognition and measurement of deferred tax assets (4,945) (11,451)
Other tax effects 284 (1,226)
Recognized income tax expense (33,341) (18,739)
Income tax expense from ordinary operations (33,341) (18,021)
Income tax attributable to discontinued operations 0 (718)
Effective tax rate (%) overall 41.4 35.5
Effective tax rate (%) for continuing operations 46.8 54.6
85
The following deferred tax assets and deferred tax liabilities relate to recognition and measurementdifferences in the individual balance sheet items:
Deferred taxes are determined on the basis of the tax rates which, under the legislation in force,apply in the individual countries at the time of realization or which are expected.
The Dräger Group recognized deferred tax assets of €41,855 thousand (2003: €26,189 thou-sand) on corporate income tax loss carryforwards as of December 31, 2004. Of these, losscarryforwards of €40,071 thousand (2003: €25,891 thousand) can be used indefinitely, the othersexpire in a maximum of 10 years.
The income from the reversal of a previous valuation adjustment on deferred tax assets came to€2,846 thousand in fiscal year 2004 (2003: €3,898 thousand).
As of the balance sheet date, no deferred tax assets were recognized in the balance sheet forcorporate income tax loss carryforwards of €166,114 thousand (2003: €139,742 thousand) andtrade tax loss carryforwards of €113,001 thousand (2003: €68,373 thousand).
The deferred taxes recognized directly in equity during the period came to €12 thousand(2003: €1 thousand).
Deferred tax assets Deferred tax liabilities
2004 2003 2004 2003
Intangible assets 29,677 34,027 7,208 8,129
Property, plant and equipment 492 2,518 13,371 17,620
Other non-current financial assets 914 621 421 841
Inventories 3,313 3,721 8,785 9,393
Current financial assets 6,121 2,540 2,983 12,164
Pension provisions 11,219 13,377 57 710
Other non-current provisions 3,861 3,151 6 0
Other non-current financial liabilities 936 1,808 657 665
Current liabilities 16,509 25,791 7,387 5,125
Tax loss carryforwards after valuation adjustments 14,259 13,498 0 0
Valuation adjustments on deferred tax assets from
temporary differences (7,873) (8,886) 0 0
Gross amount 79,428 92,166 40,875 54,647
Netting (31,142) (42,986) (31,142) (42,986)
Deferred taxes from consolidation items 28,678 28,233 6,934 5,305
Carrying amount 76,964 77,413 16,667 16,966
86 Notes 2004 of the Dräger Group
15 Result from discontinued operationsIn fiscal year 2004, the Dräger Group discontinued the production of mechanical parts in connec-tion with focusing on the core business of the Dräger Medical and Dräger Safety subgroups byselling Dräger ProTech GmbH. Likewise, IT development and IT operations were discontinued withthe sale of Dräger Synematic GmbH, including its subsidiaries Dräger Electronic Business PortalsGmbH, Nordac Rechenzentrumsgesellschaft mbH and Dräger Information Technologies GmbH.The services will be provided by third parties in the future. All sold entities were allocated to othercompanies for reporting purposes.
As the services of all sold entities were mostly provided for group companies and were thusconsolidated, these measures did not have a significant effect on the income statement.
The carrying amounts of assets and liabilities of the operations discontinued in 2004 werecontained in the consolidated financial statements as follows:
At the date of As of December 31, 2004
deconsolidation
Non-current assets 17,526 20,101
Current assets 28,362 21,627
Total assets 45,888 41,728
Total liabilities (34,489) (40,225)
Net assets 11,399 1,503
2004
Operating activities (16,634)
Investing activities 17,526
Financing activities 0
Total cash flow 892
The sale generated proceeds of €20,790 thousand; the result from discontinued operations was€9,391 thousand.
The discontinued operations produced an operating result of €196 thousand.
Discontinued operations had the following effect on the cash flow statement in fiscal year 2004:
87
16 Personnel expenses/employees
17 Amortization of intangible assets and depreciation of property, plant and equipment
Personnel expenses 2004 2003
Wages and salaries 465,827 472,273
Social security taxes and related employee benefits 87,244 82,848
Pension expenses1 12,847 12,238
565,918 567,359
1 Excluding the interest portion, which is disclosed under interest expenses
Employees at the balance sheet date 2004 2003
Germany 4,378 5,099
Abroad 5,328 4,965
Total headcount 9,706 10,064
Production and customer service 5,105 5,706
Other 4,601 4,358
Total headcount 9,706 10,064
Headcount (average) 2004 2003
Germany 4,583 5,375
Abroad 5,198 4,654
Total headcount 9,781 10,029
Production and customer service 5,220 5,655
Other 4,561 4,374
Total headcount 9,781 10,029
2004 2003
Intangible assets 10,974 8,768
Property, plant and equipment 34,712 44,668
45,686 53,436
88 Notes 2004 of the Dräger Group
Discontinued operations increased earnings per common and preferred share by €0.74(2003: €1.50).
Drägerwerk AG has issued 1,413,425 participation certificates for which the holder receiveseither 10 common or preferred shares per certificate or 10 times the current stock market price ofpreferred stock upon termination. The factor 10 is due to the share split, which did not apply tothe participation certificates.
Diluted earnings per share do not have to be calculated, as Drägerwerk AG cannot offer shareswithout carrying out a capital increase or creating conditional or approved capital. Such a step,however, must be decided by the stockholders’ meeting rather than the Executive Board. Likewise,the possibility of acquiring treasury shares cannot lead to dilution due to the provisions governingthe use of such shares.
The participation certificate holders are not entitled to exchange their certificates for shares.Drägerwerk AG itself does not intend to make use of its right of termination.
18 Earnings/dividend per share
2004 2003
Net profit 47,299 34,016
Minority interests in net profit (21,953) (11,899)
Result after minority interests 25,346 22,117
€0.45 (2003: €0.40) cash dividend for 6,350,000 preferred shares 2,857 2,540
€0.39 (2003: €0.34) cash dividend for 6,350,000 common shares 2,477 2,159
Total dividend 5,334 4,699
Result after minority interests and dividends 20,012 17,418
› thereof attributable to 6,350,000 preferred shares 10,006 8,709
› thereof attributable to 6,350,000 common shares 10,006 8,709
Distribution of result after minority interests
for preferred shares 12,863 11,249
Dividends 2,857 2,540
50% of net profit after dividends 10,006 8,709
for common shares 12,483 10,868
Dividends 2,477 2,159
50% of net profit after dividends 10,006 8,709
Earnings per preferred share (in €) 2.02 1.77
Earnings per common share (in €) 1.96 1.71
89
19 Intangible assets
Notes to the consolidated balance sheet
December 31, 2003 Goodwill Patents, Software Lease Prepayments 2003 total
trademarks and assets made
licenses (finance lease)
Cost
January 1, 2003 13,872 5,627 41,426 1,164 1,175 63,264
Additions 120,470 17,222 7,728 51 1,939 147,410
Disposals 0 (54) (4,413) (853) (50) (5,370)
Reclassification 0 0 294 0 (106) 188
Change in consolidated group 0 0 (1,282) 0 0 (1,282)
Currency translation effects (595) (140) (489) (5) (4) (1,233)
December 31, 2003 133,747 22,655 43,264 357 2,954 202,977
Accumulated amortization
and impairment losses
January 1, 2003 8,555 1,668 28,347 871 0 39,441
Additions 0 3,279 5,342 147 0 8,768
Disposals 0 (54) (3,775) (853) 0 (4,682)
Write-up 0 0 0 0 0 0
Reclassification 0 0 169 0 0 169
Change in consolidated group 0 0 (1,268) 0 0 (1,268)
Currency translation effects (596) (163) (323) (2) 0 (1,084)
December 31, 2003 7,959 4,730 28,492 163 0 41,344
Net carrying amount 125,788 17,925 14,772 194 2,954 161,633
90 Notes 2004 of the Dräger Group
The additions in 2003 mainly refer to the goodwill from, and the patents added under, the transferof the “Electromedical Systems” division of Siemens Medical Solutions to Dräger Medical AG&Co.KGaA (hereinafter also referred to as the “joint venture”). The addition in fiscal year 2004mainly relates to purchased software.
Intangible assets with a cost of €10,912 thousand (2003: €5,491 thousand), fully amortized asof December 31, 2004, are still used in operations.
On transition to IFRSs, the Dräger Group made use of the option under IFRS 1 to disclose goodwillat the amount resulting after amortization and deduction directly from equity. At the same time,IAS 36 has been applied since fiscal year 2003. Accordingly, goodwill is no longer amortized on astraight-line basis over its useful life, but is written down whenever an impairment test indicates thatthe carrying amount of goodwill is higher than its recoverable amount (higher of value in use and netselling price). We used the discounted cash flow method based on the operational five-year planwithout assuming further growth in the subsequent period to review the goodwill of the individualcash generating units.
December 31, 2004 Goodwill Patents, Software Lease Prepayments 2004 total
trademarks and assets made
licenses (finance lease)
Cost
January 1, 2004 133,747 22,655 43,264 357 2,954 202,977
Additions 1,178 594 9,615 84 764 12,235
Disposals (1,286) (40) (753) 0 (220) (2,299)
Write-up 0 0 0 0 0 0
Reclassification 0 7,250 (4,189) (382) (2,771) (92)
Change in consolidated group 10,351 6,551 (5,837) 0 0 11,065
Currency translation effects 1,178 (1,173) (164) (2) (23) (184)
December 31, 2004 145,168 35,837 41,936 57 704 223,702
Accumulated amortization
and impairment losses
January 1, 2004 7,959 4,730 28,492 163 0 41,344
Additions 0 7,396 3,515 63 0 10,974
Disposals 0 (40) (670) 0 0 (710)
Write-up 0 0 0 0 0 0
Reclassification 0 3,393 (3,220) (175) 0 (2)
Change in consolidated group 0 0 (3,725) 0 0 (3,725)
Currency translation effects (235) (230) (182) (3) 0 (650)
December 31, 2004 7,724 15,249 24,210 48 0 47,231
Net carrying amount 137,444 20,588 17,726 9 704 176,471
91
20 Property, plant and equipment
December 31, 2003 Land, Production Other plant, Leased Prepayments 2003 total
equivalent titles plant and factory and assets made and
and buildings machinery office (finance lease) assets under
equipment construction
Cost
January 1, 2003 214,172 103,172 205,023 14,635 4,460 541,462
Additions 5,098 5,167 27,088 2,474 12,191 52,018
Disposals (7,746) (11,278) (23,539) (17) (267) (42,847)
Reclassification 553 876 1,419 0 (3,036) (188)
Change in consolidated group 2,197 (1,279) (3,481) 0 375 (2,188)
Currency translation effects (4,657) (3,515) (5,106) 0 (134) (13,412)
December 31, 2003 209,617 93,143 201,404 17,092 13,589 534,845
Accumulated depreciation
and impairment losses
January 1, 2003 100,240 87,494 154,231 4,853 0 346,818
Additions 7,368 6,300 26,303 4,568 129 44,668
Disposals (2,558) (10,141) (21,871) (34) 0 (34,604)
Write-up 0 0 0 0 0 0
Reclassification (38) (157) 26 0 0 (169)
Change in consolidated group 137 (1,967) (2,435) 0 0 (4,265)
Currency translation effects (2,220) (2,812) (4,081) (2) 0 (9,115)
December 31, 2003 102,929 78,717 152,173 9,385 129 343,333
Net carrying amount 106,688 14,426 49,231 7,707 13,460 191,512
The business segments form the basis for the cash generating units. No impairment loss wasrequired on the basis of the above plan. Even if the assumed growth rate were to drop by one per-cent p.a. and the discount rate were to increase by another two percent, no impairment loss wouldhave to be recognized. As of December 31, 2004, goodwill is made up of €135.1 million for DrägerMedical and €2.3 million for Dräger Safety and Drägerwerk AG.
92 Notes 2004 of the Dräger Group
21 Non-current financial assets
Buildings with a cost of €1,985 thousand (2003: €1,074 thousand) and factory and officeequipment with a cost of €46,334 thousand (2003: €39,275 thousand), fully depreciated asof December 31, 2004, are still used in operations.
The assets leased under finance leases mainly comprise IT hardware.For assets leased under operating leases, please see our information in Note 39.
December 31, 2004 Land, Production Other plant, Leased Prepayments 2004 total
equivalent plant and factory assets made and
titles and machinery and office (finance lease) assets under
buildings equipment construction
Cost
January 1, 2004 209,617 93,143 201,404 17,092 13,589 534,845
Additions 3,853 4,227 24,765 1,586 10,579 45,010
Disposals (1,542) (5,824) (19,677) (101) (297) (27,441)
Reclassification 7,783 5,016 2,111 392 (15,210) 92
Change in consolidated group 1,633 (17,547) (19,886) (15,002) 359 (50,443)
Currency translation effects (1,484) (1,180) (1,377) (208) (116) (4,365)
December 31, 2004 219,860 77,835 187,340 3,759 8,904 497,698
Accumulated depreciation
and impairment losses
January 1, 2004 102,929 78,717 152,173 9,385 129 343,333
Additions 7,383 4,353 22,253 708 15 34,712
Disposals (894) (5,399) (18,533) (133) (69) (25,028)
Write-up 0 0 0 0 0 0
Reclassification 788 57 (988) 220 (75) 2
Change in consolidated group (23) (16,739) (15,802) (8,652) 0 (41,216)
Currency translation effects (862) (1,047) (1,359) (5) 0 (3,273)
December 31, 2004 109,321 59,942 137,744 1,523 0 308,530
Net carrying amount 110,539 17,893 49,596 2,236 8,904 189,168
2004 2003
Investments in associates 429 760
Other financial assets 5,043 5,873
Financial assets 5,472 6,633
Other non-current financial assets 24,898 11,987
Non-current financial assets 30,370 18,620
93
Financial assets (including investments in associates)
December 31, 2003 Loans to Investments in Other Other Other 2003 total
associates associates investments long-term long-term
securities loans
Cost
January 1, 2003 1,736 7,854 217 739 2,706 13,252
Additions 0 182 0 144 3,785 4,111
Disposals (1,104) (5,432) 0 (2) (1,145) (7,683)
Change in consolidated group (76) (519) 0 3 79 (513)
Currency translation effects 0 0 0 0 (36) (36)
December 31, 2003 556 2,085 217 884 5,389 9,131
Accumulated impairment losses
January 1, 2003 867 1,190 0 105 147 2,309
Additions 0 1,039 0 2 368 1,409
Disposals (311) (904) 0 0 0 (1,215)
Write-up 0 0 0 (3) 0 (3)
Change in consolidated group 0 0 0 0 0 0
Currency translation effects 0 0 0 0 (2) (2)
December 31, 2003 556 1,325 0 104 513 2,498
Net carrying amount 0 760 217 780 4,876 6,633
December 31, 2004 Loans to Investments in Other Other Other 2004 total
associates associates investments long-term long-term
securities loans
Cost
January 1, 2004 556 2,085 217 884 5,389 9,131
Additions 0 164 2 71 424 661
Disposals (556) (3,055) (11) (120) (1,554) (5,296)
Change in consolidated group 0 2,566 184 0 0 2,750
Currency translation effects 0 0 0 (10) (4) (14)
December 31, 2004 0 1,760 392 825 4,255 7,232
Accumulated impairment losses
January 1, 2004 556 1,325 0 104 513 2,498
Additions 0 6 0 1 64 71
Disposals (556) 0 0 0 (163) (719)
Write-up 0 0 0 (11) (79) (90)
Change in consolidated group 0 0 0 0 0 0
Currency translation effects 0 0 0 0 0 0
December 31, 2004 0 1,331 0 94 335 1,760
Net carrying amount 0 429 392 731 3,920 5,472
94 Notes 2004 of the Dräger Group
22 Deferred tax assetsDeferred tax assets are explained in Note 14 (income taxes).
23 Inventories
The carrying amount of inventories written down to their net realizable value as of December 31,2004 is €39,138 thousand (2003: €40,632 thousand).
Impairment losses of €11,391 thousand (2003: €14,199 thousand) were charged on inventories inthe fiscal year and recognized in cost of sales.
Finished goods comprise equipment leased out and demo equipment lent to customers in theshort term worth €31,625 thousand (2003: €18,909 thousand). Their disclosure under inventoriessimplifies accounting when the customers take over the equipment outright, which is usually thecase. Appropriate allowances are made for wear and tear over the period of use.
Other non-current financial assets
Drägerwerk AG holds shares in eight companies over which it has indirect significant influence.These entities are included as associates in the consolidated financial statements according tothe equity method (over 20 percent).
2004 2003
Equipment leased out 5,356 4,375
Purchase price receivable from the sale of subsidiaries 14,000 3,500
Finance lease receivables (lessor) 1,107 1,536
Trade receivables 2,129 359
Positive fair values of derivatives 63 0
Other non-current assets 2,243 2,217
Other non-current assets, total 24,898 11,987
2004 2003
Finished products and merchandise 125,163 114,279
Work in process 45,850 55,105
Raw materials, consumables and supplies 88,603 58,546
Prepayments made 808 465
Total 260,424 228,395
The fair values are not substantially different from the carrying amounts.For an explanation of finance lease receivables, please refer to our information on recognition of
finance leases by the lessor (Note 39).
95
24 Current financial assets
Trade receivablesTrade receivables are disclosed at a high amount due to higher revenues in the final quarter.The risks associated with receivables are adequately accounted for by bad debt allowances of€16,876 thousand (2003: €16,090 thousand). All receivables are expected to be paid on time.
Since certain Dräger companies participate in an ABS (asset-backed security) program, thusreducing the trade receivables from non-group customers, the total balance of receivables asof December 31, 2004 declined by €10,671 thousand (2003: €14,416 thousand). However, IAS 39requires the receivables to be recognized at the amount at which the Dräger companies are stillexposed to changes in fair value, in keeping with the principle of substance over form. This isthe case for bonus accounts amounting to €4,887 thousand as of December 31, 2004 (2003:€6,192 thousand). Under IAS 39, a liability of the same amount is recognized, with part of thechange in value recognized in profit or loss. In fiscal year 2004, this change resulted in an expenseof €600 thousand (2003: income of €59 thousand).
Other current financial assetsFor the derivatives recognized as other financial assets, please refer to the table of derivatives in theDräger Group presented in Note 38.
For an explanation of finance lease receivables, please refer to our information on recognitionof finance leases by the lessor (Note 39).
2004 2003
Trade receivables
› from third parties 455,638 424,324
Other current financial assets
› Prepaid expenses and deferred charges 7,259 5,961
› Receivables from associates 2,754 2,969
› Notes receivable 1,973 1,920
› Receivables from employees 1,601 1,754
› Positive fair values of derivatives 3,825 1,273
› Finance lease receivables (lessor) 706 966
› Short-term securities 20,170 34
› Purchase price receivable from the sale of subsidiaries 10,500 0
› Other 15,448 20,615
64,236 35,492
Total 519,874 459,816
96 Notes 2004 of the Dräger Group
25 Current tax assets
26 Cash and cash equivalents
27 EquityFor the breakdown and movement details of equity in fiscal years 2003 and 2004, see the state-ment of changes in equity.
Capital stockThe capital stock of Drägerwerk AG remains unchanged at €32,512 thousand. The capital stockis divided into 6,350,000 no-par bearer shares each of common and non-voting preferred stock.All shares have been fully paid in. As before, the preferred shares are traded on the capital market.
Preferred shares have the same rights as those attached to common shares, other than votingrights. As compensation for the lack of voting rights, an advance dividend of €0.13 per preferredshare is distributed from net earnings. Then a dividend of €0.13 per common share is paid ifsufficient profits are available. Any profit in excess of this amount, if distributed, is allocated sopreferred shares receive €0.06 more than common shares.
If the profit is not sufficient to distribute the advance dividend for preferred shares in one or moreyears, the amounts are paid from the profit of subsequent fiscal years before a dividend is paid tocommon shares. If amounts in arrears are not paid in the next year along with the full preferreddividend for that year, the preferred stockholders have voting rights until the arrears have been paid.In the event of liquidation, the preferred stockholders receive 25 percent of net liquidation proceedsin advance. The remaining liquidation proceeds are distributed evenly to all shares.
Additional paid-in capitalThe additional paid-in capital originated from stock premiums from Drägerwerk AG’s (trans)forma-tion in 1970 and from capital increases in 1979, 1981 and 1991.
Reserves retained from earningsReserves retained from earnings comprise the earnings generated in the prior fiscal years and infiscal year 2004 by the companies included in the consolidated financial statements, where they arenot attributed to minority interests or paid as a dividend by Drägerwerk AG. The portion of groupearnings to be distributed as a dividend by Drägerwerk AG is disclosed under group net earningsrather than under this item.
Reserves retained from earnings were increased by a total of €105.3 million in fiscal year2003 without affecting profit or loss when Siemens AG acquired a 35 percent stake in DrägerMedical AG&Co.KGaA and thus in the Dräger Medical subgroup in return for contribution ofits “Electromedical Systems” division.
Cash and cash equivalents comprise cash in hand and balances at various banks in different curren-cies. Cash and cash equivalents amount to €1,657 thousand as of the balance sheet date (2003:€1,450 thousand) and are subject to restrictions, mainly as a result of restrictions on taking currencyout of the People’s Republic of China.
2004 2003
Current tax assets 11,891 2,971
97
Group net earningsThe amount proposed for distribution as a dividend by Drägerwerk AG is recognized as group netearnings in the consolidated financial statements (please see page 118 of the annual report).
28 Minority interestsThe minority interests mostly relate to the following subsidiaries.
29 Participation capital
No participation certificates were issued in 2004.
Other comprehensive income 2004 2003
Currency translation adjustment (16,886) (13,223)
Change in fair value of financial instruments in the available-for-sale category (19) (43)
Thereof tax effects (12) (1)
(16,917) (13,267)
Share in capital Share in profit / loss
2004 2003 2004 2003
Dräger Medical AG& Co.KGaA1 217,623 207,513 18,757 9,331
Draeger Kohden Japan Ltd. 1,267 1,110 318 590
Shanghai Dräger Medical Instrument Co. Ltd. 1,036 953 1,411 1,312
Carbamed AG 725 1,651 546 451
Dräger Medikal Ticaret ve Servis Limited
Sirketi 547 442 320 200
MSI Elektronik GmbH 238 236 35 41
Other 209 260 566 (26)
221,645 212,165 21,953 11,899
1 The P&L transfer agreement between Drägerwerk AG and Dräger Medical AG&Co.KGaA was effective for the last time in 2003. Siemens AG received an appropriate compensatory payment, which Drägerwerk AG recognized as an expense.
Number Par value Premium Disclosed Fair value Value
participation as of December
capital 31, 2004
€ € € € €
Series A
until June 1991 315,600 8,066,736.00 12,353,585.70 20,420,321.70 73.00 23,038,800.00
Series K
until June 27, 1997 105,205 2,689,039.80 1,758,718.44 4,447,758.24 72.25 7,601,061.25
Series D
since June 28, 1997 992,620 25,371,367.20 24,557,921.23 49,929,288.43 72.00 71,468,640.00
1,413,425 36,127,143.00 38,670,225.37 74,797,368.37 102,108,501.25
98 Notes 2004 of the Dräger Group
Drägerwerk AG does not intend to terminate the participation certificates.On termination by the participation certificate holder, the maximum amount repaid is the average
amount paid in for the series.Series K may be terminated for the first time as of December 31, 2021 with five years’ notice;
the period of termination thereafter is again five years. Series D may be terminated for the first timeas of December 31, 2026.
Series D participation certificates share in losses. The proportionate loss attributable to theparticipation capital is offset by future profits. The cases in which the minimum return is not paid arethe same as those in which the preferred dividend is not paid. As with the subsequent payment ofpreferred dividends, the dividend for participation certificates is paid in arrears.
The dividend for participation certificates is 10 times the preferred stock dividend, as the parvalue of the securities was originally identical, but the arithmetic par value of the preferred stock hassince been reduced to one tenth of the original par value.
For details, please refer to the terms and conditions of series A, K and D participation certificates.
30 Non-current provisions
Provisions for pensions and similar obligations
Defined benefit plansThe Dräger Group’s pension plans are mostly defined benefit plans as of December 31, 2004.Provisions for pension obligations and similar obligations have been accrued for benefits payable inthe form of old-age, disability and surviving dependent pensions. The amount of the obligation isdetermined using the projected unit credit method. The obligations are partly funded by plan assets.
Termination Termination Loss share Minimum Dividend for
right of right of partici- return participation
Drägerwerk AG pation certifi- certificates
cate holder
Series A Yes No No 1.30 Dividend on
preferred stock
x 10
Series K Yes Yes No 1.30 Dividend on
preferred stock
x 10
Series D Yes Yes Yes — Dividend on
preferred stock
x 10
2004 2003
Provisions for pensions and similar obligations 155,539 164,604
Other non-current provisions 19,821 15,007
Non-current provisions 175,360 179,611
99
Plan assets comprise land (97 percent) and other assets (three percent) (2003: land 64 percent,securities funds 34 percent and other assets two percent).
Dräger Medical Systems Inc., USA, accounts for a significant share of benefits paid from planassets, having decided to change from a defined benefit to a defined contribution pension plan.It therefore paid out most of its pension obligations tied up in plan assets to its employees andrequested them to use this payment toward a defined contribution plan organized by an externalpension fund.
The changes in the projected benefit obligation and plan assets are as follows:
2004 2003
Changes in the projected benefit obligation
Projected benefit obligation as of January 1 199,628 187,860
Service cost 2,741 2,701
Interest cost 8,568 8,668
Past service cost 269 0
Actuarial losses (+) 14,065 102
Benefits paid (19,979) (6,924)
Employee contributions 27 0
Transfer of obligations (187) 1,646
Changes due to deconsolidation (12,294) (1,787)
Currency changes 2,666 7,362
Projected benefit obligation as of December 31 195,504 199,628
Changes in plan assets
Fair value of plan assets as of January 1 35,485 37,545
Expected rate of return on plan assets 1,098 1,358
Actuarial losses (4) (2)
Employer contributions 15 663
Employee contributions 0 326
Benefits paid (12,702) (482)
Transfer of obligations (76) 0
Currency changes 2,538 (3,923)
Fair value of plan assets as of December 31 26,354 35,485
Funding status
Unrecognized actuarial losses (2003: gains) (13,611) 461
Pension provisions as of December 31 155,539 164,604
100 Notes 2004 of the Dräger Group
Defined contribution plansIn addition to the defined benefit plans described above, some companies in the Dräger Groupsponsor defined contribution plans based on local practices and regulations.
The cost of defined contribution plans came to €2,371 thousand in fiscal year 2004 (2003:€2,128 thousand).
Other non-current provisions
Pension expense is made up as follows:
The following actuarial assumptions were made in measuring the projected benefit obligation:
2004 2003
Current service cost 2,741 2,701
Interest expense on obligation 8,568 8,668
Expected return on plan assets (1,098) (1,358)
Net recognized actuarial gains (2003: losses) (4) 99
Past service cost 269 0
Total pension expense 10,476 10,110
2004 2003
Discount rate 4.75–5.25% 3.50–5.25%
Future wage and salary increases 1.00–3.50% 1.00–3.50%
Future pension increases 1.50–2.50% 0.50–3.50%
Average employee turnover 3.30–5.00% 5.00%
Balance Currency Change Com- Allocation Utilization Reversal Balance
as of difference in consoli- pounding as of
January dated December
1, 2004 group 31, 2004
Provisions for personnel and
social obligations 15,007 (29) (1,484) 0 5,817 (2,046) (307) 16,958
Provisions for uncertain liabilities 0 0 0 0 2,815 0 0 2,815
Tax provisions 0 0 0 0 48 0 0 48
15,007 (29) (1,484) 0 8,680 (2,046) (307) 19,821
Provisions for personnel and social obligations mainly concern obligations from preretirement part-time work agreements and long-service awards.
101
31 Non-current interest-bearing loans
The fair values are not substantially different from the carrying amounts.Note loans may be terminated when the equity ratio, net of deferred tax assets and liabilities, falls
below 16 percent and net financial debt is five times the result from ordinary operations beforedepreciation and amortization. As of December 31, 2004, these ratios were 30.60 percent and 1.63,respectively.
Interest terms and conditions for the long-term interest-bearing loans are as follows:
The variable interest rates are partly hedged. Please see our information on derivatives (Note 38).None of the liabilities shown in the consolidated balance sheet are collateralized by mortgages on
land and buildings or assignment as security.
2004 2003
1 to 5 years Over 5 years Total 1 to 5 years Over 5 years Total
Non-current liabilities to banks 22,806 0 22,806 37,667 0 37,667
Note loans 84,578 0 84,578 95,000 25,000 120,000
107,384 0 107,384 132,667 25,000 157,667
Currency Fixed/variable Interest Amount
interest rate repayable
Liabilities to banks
€ variable 3.04–3.629 13,000
€ fixed 4.50–6.320 8,609
JPY fixed 0.940 1,217
22,826
Note loans
€ variable 3.950 35,000
€ fixed 5.25–5.500 50,000
85,000
107,826
102 Notes 2004 of the Dräger Group
33 Deferred tax liabilitiesDeferred tax liabilities are explained in Note 14 (income taxes).
34 Short-term loans and liabilities to banks
Interest terms and conditions for the short-term interest-bearing loans and liabilities to banks are asfollows:
The fair values are not substantially different from the carrying amounts.For an explanation of finance lease liabilities, please refer to our information on recognition of
finance leases by the lessee (Note 39).
32 Other non-current financial liabilities
2004 2003
1 to 5 years Over 5 years Total 1 to 5 years Over 5 years Total
Finance lease liabilities (lessee) 1,406 19 1,425 3,527 0 3,527
Other non-current liabilities 2,376 895 3,271 1,097 570 1,667
3,782 914 4,696 4,624 570 5,194
2004 2003
Liabilities to banks 179,355 92,028
Note loans 34,716 0
214,071 92,028
Currency Fixed/variable Interest rate Amount
interest repayable
Liabilities to banks
€ variable 2.69–3.350 132,719
€1 variable 3.04–4.180 7,000
€ fixed 4.50–6.350 5,911
USD variable 3.33–3.960 28,602
JPY variable 1.35–1.775 4,038
Other variable 1,094
179,364
Note loans
€ variable 3.947 35,000
214,364
1 Current portion of long-term loans
103
Provisions for personnel and social obligations were mainly recognized to cover preretirementpart-time work, long-service awards and bonuses.
The warranty provision was measured by reference to the warranty claims made in the past.In addition to the warranty provision, obligations in the normal course of business were mainly
covered by provisions for customer bonus accounting, sales commissions, audit of financial state-ments, litigation costs and risks, rent obligations and purchase guarantees.
The decrease is largely due to the drop in tax provisions and in provisions for other obligations inthe normal course of business.
35 Current provisions
The variable interest rates are partly hedged. Please also see our information on derivatives(Note 38).
36 Other current financial liabilities
Balance Currency Change Allocation Utilization Reversal Balance
as of difference in consoli- as of
January dated December
1, 2004 group 31, 2004
Tax provisions 13,358 (144) (541) 5,202 (9,943) (168) 7,764
Provisions for personnel and social obligations 53,374 (423) (1,417) 39,071 (35,776) (2,977) 51,852
Warranty provision 19,107 (298) 283 7,933 (3,229) (1,757) 22,039
Provisions for other obligations in the
normal course of business 58,314 (416) (1,386) 47,800 (42,248) (14,264) 47,800
144,153 (1,281) (3,061) 100,006 (91,196) (19,166) 129,455
2004 2003
Trade payables
› to third parties 98,840 84,770
Other current financial liabilities
› Deferred income 14,066 9,825
› Prepayments received 17,102 21,517
› Liabilities to associates 1,379 936
› Finance lease liabilities (lessee) 753 4,362
› Negative fair values of derivatives 464 93
› Other liabilities to employees and for social security 28,511 24,605
› Dividend for participation certificates 6,360 5,654
› Other liabilities 22,443 36,098
91,078 103,090
Total 189,918 187,860
104 Notes 2004 of the Dräger Group
37 Tax liabilities
As an international business, the Dräger Group is exposed to various market risks.Derivatives are used to hedge the currency and interest exposure of current and forecast trans-
actions. Derivatives may only be transacted with banks of prime standing. Please see our commentsin the management report for more information on risk management.
Like the hedged items, derivatives are recognized at fair value and resulting gains and losses arerecognized in profit or loss as part of the financial result.
The following positions were held as of the balance sheet date:
38 Derivative financial instruments
For the derivatives recognized as other financial liabilities, please refer to the table of derivatives inthe Dräger Group presented in Note 38.
For an explanation of finance lease liabilities, please refer to our information on recognition offinance leases by the lessee (Note 39).
2004 2003
Liabilities for taxes 33,485 25,037
Notional volume Fair value
Positive Negative
December 31, 2003
Currency hedges 79,131 1,250 93
Interest caps 71,581 2 0
Interest swaps 9,000 21 0
159,712 1,273 93
December 31, 2004
Currency hedges 112,776 3,796 339
Interest caps 55,790 63 0
Interest swaps 59,000 29 125
227,566 3,888 464
The positive fair values of the derivatives are disclosed as current and non-current assets, thenegative fair values as current financial liabilities.
The currency hedges cover selected foreign currency cash flows from operating activities overthe next 12 months. The interest hedges have terms of up to five years.
Currency hedging mainly relates to operations in US dollars, pounds sterling and Swiss francs.
Credit riskThe maximum exposure to credit risk is represented by the carrying amount of each financial asset,including derivatives, in the balance sheet. Because counterparties to derivatives consist of a largenumber of prime financial institutions, the Group does not expect any counterparties to fail to meettheir obligations. Consequently, the Group considers that its maximum exposure is reflected by theamount of trade receivables and other current assets, net of valuation adjustments recognized atthe balance sheet date.
105
39 Leasing
Lessee—finance leasesProperty leased by the Dräger Group includes intangible assets, machinery and equipment. Themost significant obligations assumed under the lease terms, other than the rental paymentsthemselves, are the upkeep of the facilities and equipment, insurance and taxes on capital. Leaseterms generally range from one to five years with options to renew at varying conditions. The Grouphad no finance leases with contingent payments in the fiscal year or the prior year.
For a list of assets used under finance leases, please see our explanations in connection withthe statement of non-current assets in Notes 19 and 20.
Future minimum lease payments for the above finance leases are as follows:
2004 2003
Not later than one year 846 4,485
Later than one year and not later than five years 1,497 4,059
Later than five years 20 0
Total minimum lease payments 2,363 8,544
Not later than one year 753 4,362
Later than one year and not later than five years 1,406 3,527
Later than five years 19 0
Present value of minimum lease payments 2,178 7,889
Interest portion contained in future minimum lease payments 185 655
No future income from non-cancelable subleases was expected as of the balance sheet date, as inthe prior year.
Lessee—operating leasesDrägerwerk AG and its subsidiaries have various operating lease agreements for buildings,machinery, offices and other facilities and equipment. Most leases contain renewal options. Someof the leases contain escalation clauses and provide for contingent rents based on percentages ofrevenues derived from assets held under operating leases. Lease conditions do not containrestrictions concerning dividends, additional debt or further leasing.
Lease expenses comprise the following:
106 Notes 2004 of the Dräger Group
2004 2003
Basic lease costs 24,446 23,770
Contingent costs 56 335
Income from subleases (362) (185)
24,140 23,920
2004 2003
Not later than one year 22,329 27,650
Later than one year and not later than five years 32,560 40,319
Later than five years 14,960 18,525
Total 69,849 86,494
Future minimum lease payments under non-cancelable operating leases are as follows:
Also see Note 40 for other financial obligations from rental and leasing arrangements.
Total expected future minimum income from subleases under non-cancelable operating leasesamounts to €897 thousand as of December 31, 2004 (2003: €45 thousand).
Lessor—finance leaseThe Dräger Group’s main finance leases relate to medical equipment and marine technologyproducts of the Dräger Safety subgroup.
Receivables from future lease payments outstanding are shown below:
107
2004 2003
Not later than one year 741 996
Later than one year and not later than five years 1,113 1,694
Later than five years 225 376
Total gross investment in finance leases 2,079 3,066
Not later than one year 706 966
Later than one year and not later than five years 948 1,291
Later than five years 159 245
Present value of minimum lease payments outstanding
as of the balance sheet date 1,813 2,502
Unearned finance income 266 564
2004 2003
Equipment 11,738 9,054
Accumulated depreciation (6,382) (4,679)
Net carrying amount 5,356 4,375
As in the prior year, bad debt allowances for uncollectible minimum lease payments were notrequired as of December 31, 2004.
Lessor—operating leasesThe Dräger Group’s main operating leases relate to medical equipment and products of the DrägerSafety subgroup.
The lessor fully depreciates the cost of purchase of the leased assets over the term of the lease.Hence there is no residual value risk for the Dräger Group. A minor positive fair value, if any, can beexpected to remain at the end of the leases.
The following table shows the assets leased out under operating leases:
108 Notes 2004 of the Dräger Group
No loans were used under the guaranties in 2003.
40 Contingent liabilities and other financial obligations
Future minimum lease payments outstanding under non-cancelable operating leases are as follows:
As in the prior year, no contingent rents were recognized in profit or loss in fiscal year 2004.
Other financial obligations
a) Rental and leasing arrangementsFor other financial obligations from rental and leasing arrangements, please refer to our informationin Note 39 (lessee—operating leases).
b) Purchase obligationsAs part of the sale of the IT companies, Drägerwerk AG, Dräger Medical AG&Co.KGaA and DrägerSafety AG&Co.KGaA agreed with an IT services company to purchase IT services to the value of€96.65 million for the entire Dräger Group until February 2009. This volume is within the usualrequirements of the Dräger Group.
As a result of outstanding orders, the Group has obligations to purchase intangible assets of€549 thousand (2003: €487 thousand) and items of property, plant and equipment of €7,072 thou-sand (2003: €6,500 thousand) as of December 31, 2004.
2004 2003
Not later than one year 2,721 4,606
Later than one year and not later than five years 409 143
Later than five years 0 0
3,130 4,749
Contingent liabilities 2004 2003
Contingent liabilities from the issue and transfer of notes 0 187
Contingent liabilities from guaranties 0 3,188
Contingent liabilities under warranty / indemnity contracts 1,522 8,961
1,522 12,336
109
c) Put option of Siemens AGFor the stake held by Siemens AG in Dräger Medical AG&Co.KGaA, Siemens AG holds a putoption under which Drägerwerk AG or Dräger Medical Holding GmbH is obligated to repurchase theentire Siemens-held stake and which is exercisable for the first time in 2007 (or 2006 in the case ofdisagreement on the business plan and annual budget). If and when this put option is exercised, therepurchase price payable by Dräger Medical Holding GmbH is determined in a specific appraisalprocedure laid down in detail to account for the economic development of the joint venture. Depend-ing on the specific details of this development, the repurchase price due to Siemens correspondsproportionately to (i) 7.5 to 9 times the average EBITDA of the then current and two preceding fis-cal years, after deducting the net financial debt or (ii), if the joint venture shows an equally specifiedbusiness downtrend, the higher proportionate amount of six times the average EBITDA of the thenpreceding, current and three succeeding fiscal years, also after deducting the net financial debt, orthe joint venture’s carrying amount.
The price will be payable as follows: upfront payment at a defined amount, i.e., at up to—depend-ing on any outside finance (where required) being available—2.5 times the average EBITDA of thethen current and two preceding fiscal years after deducting the net financial debt, as well as in upto 10 annual installments of the residual principal plus interest. Each such annual installment shallequal 50 percent of the joint venture’s net earnings for that year. In the event that the repurchaseprice is based on six times the average EBITDA of future fiscal years, the upfront payment amountsto 25 percent of the purchase price, the remaining price neither carrying interest nor being duewithin a defined term. The put option may not be exercised (i) as long as a listing procedure initiatedby either party is still pending or (ii) if notice to terminate the joint venture has been given.
d) LitigationCompanies of the Dräger Group are involved in litigation and claims in connection with theirbusiness activities as of December 31, 2004. The Executive Board believes that the outcome ofsuch litigation and claims will not have a material adverse effect on the Company’s net assets,financial position or results of operations.
Notes 2004 of the Dräger Group110
41 Segment report
Performance of the segments
Order intake € million
Revenues € million
› thereof intersegment revenues € million
EBITDA before non-recurring expenses1 € million
› Depreciation and amortization € million
› Impairment losses € million
EBIT before non-recurring expenses2 € million
Non-recurring expenses € million
EBIT2 € million
Net profit € million
› thereof profit / loss from investments in associates € million
Result after minority interests € million
Earnings per share
› per common share €
› per preferred share €
Capital employed3 € million
Assets4 € million
› thereof investments in associates € million
Liabilities5 € million
Net financial debt6 € million
Investments € million
Non-cash expenses7 € million
EBIT before non-recurring expenses/revenues %
EBIT before non-recurring expenses/capital employed %
Net financial debt/EBITDA before
non-recurring expenses Factor
Headcount as of December 31
Germany
Abroad
111
Dräger Medical Dräger Safety Holding company, Dräger Group
other companies,
consolidation
2004 2003 2004 2003 2004 2003 2004 2003
1,018.5 922.8 510.0 487.1 (5.2) 12.0 1,523.3 1,421.9
1,023.4 920.2 503.0 477.3 (5.9) 24.6 1,520.5 1,422.1
2.3 6.5 9.7 10.5 (12.0) (17.0) 0.0 0.0
114.9 103.0 57.5 50.3 (9.6) (5.1) 162.8 148.2
20.7 17.7 16.6 13.8 8.3 21.9 45.6 53.4
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
94.2 85.3 40.9 36.5 (17.9) (27.0) 117.2 94.8
12.3 32.1 0.0 0.0 10.0 5.0 22.3 37.1
81.9 53.2 40.9 36.5 (27.9) (32.0) 94.9 57.7
47.3 34.0
0.6 (0.5)
25.3 22.1
1.96 1.71
2.02 1.77
563.3 479.4 157.1 153.7 72.5 61.0 792.9 694.1
790.0 706.0 267.0 247.9 111.0 109.0 1,168.0 1,062.9
0.0 0.0 0.4 0.3 0.5 0.5 0.9 0.8
198.2 205.4 99.7 85.3 35.9 40.2 333.8 330.9
(127.6) (162.8) 12.2 20.1 333.7 281.4 218.3 138.7
25.8 162.1 21.6 24.7 9.8 12,6 57.2 199.4
69.7 99.2 34.3 35.1 39.6 26.8 143.6 161.1
9.2 9.3 8.1 7.6 7.7 6.7
16.7 17.8 26.0 23.7 14.8 13.7
(1.1) (1.6) 0.2 0.4 1.3 0.9
5,859 5,596 3,329 3,298 518 1,170 9,706 10,064
2,424 2,463 1,442 1,474 512 1,162 4,378 5,099
3,435 3,133 1,887 1,824 6 8 5,328 4,965
The business activities of Dräger Medical and Dräger Safety are discussed in detail in the management report. Services rendered between the two subgroups follow the arm’s length principle.
1 EBITDA = Earnings before net interest result, income taxes, depreciation, amortization and result from discontinued operations2 EBIT = Earnings before net interest result, income taxes, and result from discontinued operations3 Capital employed = Balance sheet total less deferred tax assets, cash and cash equivalents and non-interest bearing liabilities4 Assets excluding tax assets and interest-bearing assets. Addition of the items deferred tax assets (€76.9 million), short-term securities
and cash and cash equivalents (€178.2 million in total) gives total assets or the balance sheet total for the Group for 2004.5 Liabilities excluding pension provisions, tax liabilities and interest-bearing liabilities6 Net financial debt = including receivables and liabilities from cash management systems7 Depreciation of inventories, losses from bad debt allowances, allocations to provisions
Notes 2004 of the Dräger Group112
Segment performance by region
Revenues by region € million
Germany € million
Rest of Europe € million
Americas € million
Asia/Pacific € million
Other € million
Revenues by region € million
› Excluding tax assets and interest-bearing assets
Germany € million
Rest of Europe € million
Americas € million
Asia/Pacific € million
Other € million
Revenues by region € million
› Intangible assets and property, plant and equipment
Germany € million
Rest of Europe € million
Americas € million
Asia/Pacific € million
Other € million
113
Dräger Medical Dräger Safety Holding company, Dräger Group
other companies,
consolidation
2004 2003 2004 2003 2004 2003 2004 2003
1,023.4 920.2 503.0 477.3 (5.9) 24.6 1,520.5 1,422.1
268.8 276.3 110.6 113.0 (5.9) 20.4 373.5 409.7
367.2 311.0 225.9 213.6 0.0 3.2 593.1 527.8
208.2 169.1 87.4 77.9 0.0 1.0 295.6 248.0
118.4 106.8 58.9 52.4 0.0 0.0 177.3 159.2
60.8 57.0 20.2 20.4 0.0 0.0 81.0 77.4
790.0 706.0 267.0 247.9 111.0 109.0 1,168.0 1,062.9
252.4 370.6 98.8 88.0 105.9 101.9 457.1 560.5
334.7 193.1 109.0 109.2 6.2 9.4 449.9 311.7
150.5 95.1 36.1 30.7 (0.2) (0.1) 186.4 125.7
44.7 39.5 19.6 18.4 0.3 (1.5) 64.6 56.4
7.7 7.7 3.5 1.6 (1.2) (0.7) 10.0 8.6
25.8 162.1 21.6 24.7 9.8 12,6 57.2 199.4
10.2 147.4 11.3 14.6 9.6 12,6 31.1 174,6
6.0 9.9 8.3 8.1 0.1 0.0 14.4 18.0
8.1 2.7 0.7 1.0 0.0 0.0 8.8 3.7
1.3 1.5 1.2 0.9 0.1 0.0 2.6 2.4
0.2 0.6 0.1 0.1 0.0 0.0 0.3 0.7
114 Notes 2004 of the Dräger Group
42 Notes to the cash flow statementPlease see page 67 of this report for the cash flow statement. Cash flows from operating activitiesinclude interest of €9,626 thousand and income taxes of €25,434 thousand.
For the effects of the acquisition and sale of subsidiaries, please refer to the information providedon the change in the consolidated group in Note 4.
Note 15 comments on the cash flows from discontinued operations.
The members of the Executive and Supervisory Boards of Drägerwerk AG and their membershipsare presented on page 120 f. of the annual report.
Executive Board remunerationThe remuneration of Executive Board members consists of fixed and variable portions linked toannual corporate performance. Drägerwerk AG’s Executive Board members receive a variablecompensation that is pegged to the Group’s net profit, yet if they concurrently chair a subgroupmanagement board, their compensation is mainly pegged to subgroup EBT and only to a minordegree to the Group’s net profit.
For fiscal year 2004, the remuneration of Executive Board members totaled €6,457,594.67(2003: €5,551,675.20), breaking down into €1,688,234.67 of fixed (2003: €1,885,675.20) and€4,769,360.00 of variable compensation (2003: €3,666,000).
€1,067,803.08 was paid to former members of the Executive Board and their surviving depen-dants. A total €10,362,627.00 provides for the accrued pension obligations to former ExecutiveBoard members and their surviving dependants.
Supervisory Board remunerationAt the Drägerwerk AG annual stockholders’ meeting on June 10, 2005, a total Supervisory Boardfee of €378,500 will be submitted for voting. The basic remuneration of €21,400 for each memberbreaks down into a fixed fee of €10,000 and a dividend-related compensation of €11,400, the latterbeing the product of €600 for each €0.01 above a preferred dividend of €0.26, on the basis of adividend of €0.45 per preferred share as proposed for the year under review.
According to Art. 12(1) of Drägerwerk AG’s bylaws, the total remuneration is distributed amongthe members of, as resolved by, the Supervisory Board. To date, the Supervisory Board has adoptedthe following principles for fee distribution:
Its chairman is entitled to four times, any vice-chairman two times, the other members of thePresidential Committee 1.5 times, the fee, the Audit Committee members receiving an additional€1,000.00 each. Moreover, a total per diem of €3,960 is paid.
In the opinion of the German tax authorities, the premium for a consequential loss liabilityinsurance policy and legal expense insurance for economic loss claims is not part of the SupervisoryBoard’s remuneration.
43 Total remuneration of, and Dräger stock owned by, the Executiveand Supervisory Boards, as well as additional information relating to the German Corporate Governance Code
115
In addition, the following fees were paid to Supervisory Board members: for legal consultancyin the fiscal year, €0.00 to Prof. Feddersen (2003: law firm of White & Case, Feddersen,€467,520.70) and another €102,300.00 (2003: €102,000.00) to Dr.Christian Dräger for generaladvisory services. These amounts do not include VAT.
Certain Supervisory Board members received an additional aggregate €76,800.00 (2003:€60,081) for their membership in supervisory boards of subsidiaries.
Preferred stock owned by the Executive and Supervisory BoardsAs of December 31, 2004, the board members of Drägerwerk AG directly or indirectly held a totalof 57,184 preferred shares (Executive Board), equivalent to 0.45 percent of the total, and 139,792preferred shares (Supervisory Board), equivalent to 1.10 percent of the total and including Dr.Christian Dräger’s preferred stock portfolio of 139,640 shares (1.0995 percent of the total).
Altogether, 97.87 percent of Drägerwerk AG’s common stock is held via Dr.Heinrich DrägerGmbH and the same percentage of voting rights is attributable to Executive Board member StefanDräger under the terms of Art. 22(1)(1) German Securities Trading Act (“WpHG”).
Directors’ dealingsMembers of the Executive and Supervisory Boards did not buy or sell any Dräger preferred stock infiscal year 2004.
Related party transactionsBusiness was transacted in 2004 with the following related enterprises that are part of the wide-spread shareholding portfolio of the Dräger family, including Executive Board members StefanDräger and Theo Dräger: Dräger GmbH, Dräger Objekt Finkenstrasse GmbH&Co.KG and DrägerObjekt Lachswehrallee GmbH&Co.KG have leased various real properties to Drägerwerk AGwhich are located close to the latter’s Moislinger Allee head office. Rentals totaled €1,596 thousandin 2004 (2003: €1,580 thousand). Now that a number of companies of the Dräger Medical sub-group will be moving into a new building in 2008, it is currently expected that it will not be possibleto continue using all of the land and buildings leased over the long term. Drägerwerk AG hasrecognized a provision of €10 million for this eventuality.
Furthermore, Dräger Objekt Möhringen GmbH&Co. KG has leased realty to Drägerwerk AG,earning €595 thousand in 2004 (2003: €593 thousand). Services were rendered for companiesand foundations related to the Dräger family for €76 thousand (2003: €81 thousand).
In addition, Herbert Rehn GmbH generated revenues of €2.0 million (2003: €2.2 million) fromglass products and installation contracts. This resulted in receivables of €53 thousand (2003: €25 thousand) from Dräger Group companies. All transactions were conducted at arm’s lengthterms and conditions.
Corporate governance declarationDrägerwerk AG’s declaration of conformity under the terms of Art. 161 German Stock CorporationAct (“AktG”) has been issued and made available to the stockholders (see page 15 of this annualreport).
116 Notes 2004 of the Dräger Group
44 Subsequent eventsIn connection with a project looking into the future of the Lübeck location for the companies of theDräger Medical subgroup currently based there, it was decided on December 16, 2004 that thecompanies would remain in Lübeck, provided that the competent bodies of the metalworkers’ unionIG Metall consent to the agreements made and the City of Lübeck and State of Schleswig-Holsteinmeet their commitments.
On January 18, 2005, the executive board of IG Metall consented to the agreements of December16, 2004.
Lübeck, March 30, 2005
Drägerwerk AGThe Executive Board
Theo DrägerStefan DrägerIngo GenschAlbert JugelWolfgang ReimHans-Oskar Sulzer
Forward-looking statementsThis annual report contains statements concerning the future development of the Dräger Group andits companies, as well as economic and political trends. These statements are estimates based on allinformation available to date. If the underlying assumptions do not materialize, or if further riskssurface, actual results may differ from current expectations. We therefore do not give any warrantyfor such statements.
117
Auditor’s opinionWe have audited the consolidated financial statements, comprising the balance sheet, income state-ment, cash flow statement, statement of changes in equity and notes to the financial statementsprepared by Drägerwerk Aktiengesellschaft for the fiscal year from January 1, 2004 to December31, 2004. The preparation and content of the consolidated financial statements are the responsibilityof the Company’s Executive Board. Our responsibility is to express an opinion whether the consoli-dated financial statements are in accordance with International Financial Reporting Standards(IFRSs) based on our audit.
We conducted our audit of the consolidated financial statements in accordance with Germanauditing regulations and generally accepted standards for the audit of financial statements promul-gated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and performthe audit such that it can be assessed with reasonable assurance whether the consolidated financialstatements are free of material misstatements.
The evidence supporting the amounts and disclosures in the consolidated financial statementsare examined on a test basis within the framework of the audit. The audit includes assessing theaccounting principles used and significant estimates made by the Executive Board, as well asevaluating the overall presentation of the consolidated financial statements. We believe that ouraudit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements give a true and fair view of the net assets,financial position, results of operations and cash flows of the Group for the fiscal year in accordancewith IFRSs.
Our audit, which also extends to the group management report prepared by the Executive Boardfor the fiscal year from January 1, 2004 to December 31, 2004, has not led to any reservations. Inour opinion, on the whole the group management report together with the other disclosures in theconsolidated financial statements provides a suitable understanding of the Group’s position andsuitably presents the risks to future development.
In addition, we confirm that the consolidated financial statements and the group managementreport for the fiscal year from January 1, 2004 to December 31, 2004 satisfy the conditions requiredfor the Company’s exemption from its obligation to prepare consolidated financial statements and agroup management report in accordance with German law.
Hamburg, April 11, 2005BDO Deutsche WarentreuhandAktiengesellschaftWirtschaftsprüfungsgesellschaft
Dyckerhoff RohardtWirtschaftsprüfer Wirtschaftsprüfer
118 Separate financial statements 2004 of Drägerwerk AG (short version)
Separate financial statements 2004 of Drägerwerk AG(Short version)
Income statement of Drägerwerk AG 2004 2003
January 1 to December 31, 2004
€ thousand € thousand
Other operating income 44,796 37,194
Personnel expenses (26,819) (21,506)
Amortization of intangible assets and depreciation of property, plant and equipment (4,725) (3,359)
Other operating expenses (44,581) (46,476)
Income from investments 21,387 16,146
Write-down of financial assets and short-term securities (359) (3,693)
Net interest expense (9,785) (8,946)
Result from ordinary operations (20,086) (30,640)
Extraordinary result (1,869) 97,919
Income taxes 1 (6)
Other taxes (648) (228)
Profit before distribution for participation capital (22,602) 67,045
Distribution for participation capital (6,360) (5,654)
Net loss/profit (28,962) 61,391
Profit brought forward from prior year 56,692 0
Net earnings 27,730 61,391
Drägerwerk AG discloses a net loss of €29.0 million for fiscal year 2004 (2003: net profit of €61.4 million). The negative result is due to the fact that no dividend income was received fromDräger Medical AG&Co.KGaA in fiscal year 2004 after the end of the P&L transfer agreementwith this company as of December 31, 2003. After offsetting the profit brought forward with thenet loss, Drägerwerk AG reports net earnings of €27.7 million.
The Executive and Supervisory Boards of Drägerwerk AG will propose to distribute a cashdividend of €5.3 million (€0.39 per common share, €0.45 per preferred share) and carry forwardthe balance.
A dividend of 10 times the preferred stock dividend will be paid for participation certificates sincetheir arithmetic par value is 10 times that of a preferred share. Based on the proposed dividend, thedividend for participation certificates will be €4.50 per certificate.
The complete financial statements of Drägerwerk AG, with an unqualified opinion from theauditor, will be published in the Federal Gazette and deposited with the Commercial Register inLübeck. A printed copy may be requested from Drägerwerk AG or a copy downloaded on theinternet at www.draeger.com.
119
2004 2003
€ thousand € thousand
Equity and liabilities
Capital stock 32,512 32,512
Additional paid-in capital 38,867 38,867
Reserves retained from earnings 160,477 160,477
Net earnings 27,730 61,391
Participation capital—par value: €36,127 thousand 74,797 74,797
Equity 334,383 368,044
Provisions for pensions and similar obligations 71,246 67,133
Other provisions 30,490 24,514
Total provisions 101,736 91,647
Liabilities to banks 232,895 168,159
Trade payables 4,986 2,536
All other liabilities 126,904 195,255
Total liabilities 364,785 365,950
Total equity and liabilities 800,904 825,641
Balance sheet of Drägerwerk AG as of December 31, 2004 2004 2003
€ thousand € thousand
Assets
Intangible assets 1,919 440
Property, plant and equipment 42,318 39,796
Financial assets 614,182 608,636
Fixed assets 658,419 648,872
Trade receivables 395 782
All other receivables and other assets 58,148 44,284
Total receivables and other assets 58,543 45,066
Securities 20,035 30
Cash and cash equivalents 63,485 131,497
Current assets 142,063 176,593
Prepaid expenses and deferred charges 422 176
Total assets 800,904 825,641
The Company’s Boards36
The Company’s Boards
Uwe BohmWorks Council member ofDräger Medical AG&Co. KGaA, Lübeck
Siegfrid KasangWorks Council Chairman of Dräger Medical AG&Co. KGaA, LübeckGroup Works Council Chairman of the Dräger Medical subgroupOther supervisory board membership:Dräger Medical AG&Co. KGaA, Lübeck(Vice-Chairman)
Dr. Thomas LindnerManagement Chairman of Groz-Beckert KG, AlbstadtOther supervisory board memberships: Talanx AG, HanoverHDI Haftpflichtverband der Deutschen Industrie VAG,Hanover
Walter NeundorfOfficer of Dräger Medical AG&Co. KGaA, Lübeck
Dr.Martin PosthPresident of Asien-Pazifik-Forum Berlin e.V., BerlinOther supervisory board membership:Berlinwasser International AG, Berlin
Waltraud RickeUnion secretary of the metalworkers’ unionIG Metall Lübeck/Wismar, Lübeck
Thomas Rickers1st Delegate of the metalworkers’ union IG Metall’sLübeck/Wismar office, LübeckOther supervisory board membership:Dräger Medical AG&Co. KGaA, Lübeck
Supervisory Board of Drägerwerk AG
ChairmanProf.Dr.Dieter FeddersenLawyer, Frankfurt/MainOther supervisory board memberships:Membership of statutory supervisory boards:Deutsche Beteiligungs AG, Frankfurt/Main (Chairman),until March 18, 2004Dräger Medical AG&Co. KGaA, LübeckSAI Automotive AG, Frankfurt/Main (Chairman),until February 17, 2004Tarkett Sommer AG, Frankenthal (Chairman)Sauerborn Trust AG, Bad Homburg,until December 7, 2004Membership of comparable German or foreign boards:Gesellschaft für Industriebeteiligungen Dr. Joachim Schmidt AG&Co. Holding-Kommandit-gesellschaft, Berlin (Chairman of the Board of Directors)
Vice-ChairmanWerner GustäbelGroup Works Council Chairman of Drägerwerk AG, LübeckOther supervisory board membership:Dräger Medical AG&Co. KGaA, Lübeck
Additional Vice-ChairmanDr.Christian DrägerBusinessman, LübeckOther supervisory board memberships:Dräger Medical AG&Co. KGaA, LübeckDräger Safety AG&Co. KGaA, Lübeck
37
Gordon RiskeCEO of Deutz AG, CologneOther supervisory board membership:ISRA Vision Systems AG, Darmstadt
Dr.Dietrich SchulzBusinessman, LübeckOther supervisory board memberships:Jungheinrich AG, Hamburg (Chairman), until June 2, 2004L.Possehl&Co. mbH, Lübeck (Chairman),until September 28, 2004Süd-Chemie AG, Munich(Vice-Chairman),Ad Capital AG, Stuttgart
Executive Board of Drägerwerk AG
Theo DrägerChairman (CEO)Supervisory board memberships:Dräger Medical AG&Co. KGaA, Lübeck (Chairman)Dräger Medical Verwaltungs AG, Lübeck (Chairman)Dräger Safety AG&Co. KGaA, Lübeck (Chairman)Dräger Safety Verwaltungs AG, Lübeck (Chairman)Dräger ProTech GmbH, Lübeck, until June 30, 2004Dr. Jens Ehrhardt Kapital AG, PullachL.Possehl&Co. mbH, Lübeck (advisory board)Sparkasse zu Lübeck, Lübeck
Stefan DrägerCentral FunctionsVice-Chairman since March 1, 2005Supervisory board memberships:Dräger Medical AG&Co. KGaA, LübeckDräger ProTech GmbH, Lübeck, until June 30, 2004
Ingo GenschCorporate PersonnelSupervisory board memberships:Dräger ProTech GmbH, Lübeck (Chairman),until June 30, 2004Dräger Medical Verwaltungs AG, LübeckDräger Safety AG&Co. KGaA, LübeckDräger Safety Verwaltungs AG, Lübeck
Prof.Dr.-Ing. Albert JugelSafetyCEO of Dräger Safety Verwaltungs AG, Lübeck(General partner of Dräger Safety AG&Co. KGaA)Supervisory board memberships:C-H-Reynolds Luchterhand AG, Frankfurt/Main(Chairman) until April 5, 2004
Dr.Wolfgang ReimMedicalCEO of Dräger Medical Verwaltungs AG, Lübeck(General partner of Dräger Medical AG&Co. KGaA)Supervisory board membership:Dräger Medical Deutschland GmbH (Chairman)
Hans-Oskar SulzerFinance (CFO)Supervisory board memberships:Dräger Medical Verwaltungs AG, LübeckDräger Safety AG&Co. KGaA, LübeckDräger Safety Verwaltungs AG, LübeckDräger ProTech GmbH, Lübeck, until June 30, 2004
Major shareholdings122
Major shareholdings
Name and registered office Share capital Shareholding
in LCU thousand in %
Germany Dräger Medical AG& Co. KGaA, Lübeck 78,968 € 65
Dräger Safety AG& Co. KGaA, Lübeck 25,739 € 100
Dräger Medical Holding GmbH, Lübeck 100 € 100
Dräger Medizin System Technik GmbH, Lübeck 1,023 € 100
I+D-Gesellschaft für Organisationsentwicklung und Beratung
im Gesundheits- und Sozialwesen mbH, Lübeck 895 € 100 2
Dräger TGM GmbH, Lübeck 767 € 100 2
MSI Elektronik GmbH, Hagen 625 € 90
Dräger Safety ISS GmbH, Lübeck 307 € 100
Dräger Interservices GmbH, Lübeck 256 € 100
Dräger InTek GmbH, Lübeck 250 € 100
DrägerDive Vertriebs & Service GmbH, Lübeck 100 € 100
MAPRA Assekuranzkontor GmbH, Lübeck 51 € 49 1
Dräger Consulting& Management GmbH, Lübeck 51 € 100 2
DrägerForum GmbH, Lübeck 26 € 100
Dräger Medical Deutschland GmbH, Lübeck 2,000 € 100 2
Dräger KB GmbH, Lübeck 26 € 100 1
Dräger ANSY GmbH, Lübeck 5,000 € 100 2
Dräger Electronics GmbH, Lübeck 2,000 € 100
Fachklinik für Anästhesie und Intensivmedizin
Vahrenwald GmbH, Lübeck 26 € 100
Dräger Medical Verwaltungs AG, Lübeck 1,000 € 100
Dräger Safety Verwaltungs AG, Lübeck 1,000 € 100
Dräger Medical ANSY GmbH, Lübeck 500 € 100 2
IMH International Medical Holding GmbH, Lübeck 25 € 100
Dräger 1.Verwaltungsgesellschaft mbH, Lübeck 25 € 100 2
FIMMUS Grundstücks-Vermietungs GmbH, Lübeck 25 € 100
Dräger Finance Services GmbH&Co. KG,
Bad Homburg v. d.Höhe 511 € 95
ACF Grundstücksverwaltungsgesellschaft mbH& Co.
Objekt Finkenberg KG, Eschborn 51 € 98
OPTIO Grundstücks-Verwaltungsgesellschaft mbH& Co.KG,
Grünwald 26 € 98
DEGESUDO Grundstücksverwaltungsgesellschaft mbH& Co.
Immobilien-Vermietungs KG, Eschborn 3 € 100
HAMUS Grundstücks-Vermietungsgesellschaft mbH& Co.
Objekt Lübeck KG, Düsseldorf 10 € 100
123
Name and registered office Share capital Shareholding
in LCU thousand in %
Europe
Austria Dräger Medical Austria GmbH, Vienna 2,000 € 100 2
Dräger Safety Austria GmbH, Vienna 500 € 100
Belgium Dräger Medical Belgium NV, Wemmel 1,503 € 100 2
Dräger Safety Belgium NV, Wemmel 789 € 100
Safety& Rental Services NV, Lanklaar-Dilsen 125 € 99.98
Bulgaria Draeger Bulgaria EOOD, Sofia 705 BGN 100 2
Dräger Safety Bulgaria EOOD, Sofia 500 BGN 100
Croatia Dräger Croatia d.o.o., Zagreb 4,182 HRK 100 2
Dräger Safety d.o.o., Zagreb 2,300 HRK 100
Czech Republic Dräger Medical s.r.o., Prague 18,314 CZK 100 2
Dräger Safety s.r.o., Prague 29,186 CZK 100
Denmark Dräger Safety Danmark A/S, Herlev 5,000 DKK 100
Dräger Medical Danmark A/S, Allerod 4,100 DKK 100 2
France Dräger Médical SAS, Antony Cedex 8,000 € 100 2
Draeger Safety France SAS, Strasbourg Cedex 1,470 € 100
AEC SAS, Antony Cedex 70 € 100 2
Hungary Dräger Safety Hungaria Kft., Budapest 66,300 HUF 100
Dräger Medical Hungary Kft., Budapest 94,800 HUF 100 2
Ireland Draeger Medical Ireland Ltd., Dublin 25 € 100 2
Italy Draeger Medical Italia S.p.A., Corsico-Milano 7,400 € 100 2
Draeger Safety Italia S.p.A., Corsico-Milano 1,033 € 100
Servizi Diversificati Draeger S.p.A., Corsico-Milano 1,020 € 100 2
Netherlands Dräger ST-Holding Nederland B.V., Zoetermeer 10,819 € 100
Dräger Medical B.V., Best 1,460 € 100 2
Dräger Beheer B.V., Zoetermeer 454 € 100
W.S.P. Safety Equipment B.V., Rotterdam 18 € 100
W.S. Poppeliers Brandblusmaterialen B.V., Rotterdam 18 € 100
Safety Service Center B.V., Rotterdam 18 € 100
Dräger Finance B.V., Zoetermeer 11 € 100
Dräger MT-Holding Nederland B.V., Zoetermeer 18 € 100 2
Dräger Safety Nederland B.V., Zoetermeer 18 € 100
Dräger Medical Netherlands B.V., Zoetermeer 18 € 100 2
Norway Dräger Safety Norge AS, Oslo 1,129 NOK 100
Dräger Medical Norge AS, Drammen 371 NOK 100 2
1 These companies are treated as associates as defined by IAS 28.2 Siemens AG holds an indirect 35 percent stake in these companies through Dräger Medical AG & Co. KGaA.
Major shareholdings124
Name and registered office Share capital Shareholding
in LCU thousand in %
Europe (continued)
Poland Dräger Polska Sp.zo.o., Bydgoszcz 4,655 PLN 100 2
Romania Dräger Medical Romania SRL, Bucharest 2,054,500 ROL 100 2
Dräger Safety Romania SRL, Bucharest 10,153,250 ROL 100
Russia Draeger Medizinskaja Technika ooo, Moscow 100 RUB 100 2
Serbia Draeger Tehnika d.o.o., Belgrade 21,385 CSD 100 2
Slovakia Dräger Slovensko s.r.o., Piestany 18,000 SKK 100 2
Slovenia Dräger Slovenija d.o.o., Ljubljana-Crnuce 82,372 SIT 100
Spain Dräger Medical Hispania SA, Madrid 3,606 € 100 2
Dräger Safety Hispania SA, Madrid 2,404 € 100
Sweden Dräger Safety Sverige AB, Svenljunga 6,000 SEK 100
Dräger Medical Sverige AB, Bromma 2,000 SEK 100 2
ACE Protection AB, Svenljunga 100 SEK 100
Electromedical Stockholm AB, Solna 100 SEK 100 2
Switzerland Dräger Beteiligungen AG, Zug 25,000 CHF 100 2
Carbamed AG, Liebefeld-Bern 3,000 CHF 70 2
Dräger Safety Schweiz AG, Dietlikon 1,000 CHF 100
Dräger Finanz AG, Zug 500 CHF 100
Turkey Draeger Medikal Ticaret ve Servis Limited Sirketi, Istanbul 1,270,000,000 TRL 67 2
UK Draeger Safety UK Ltd., Blyth 7,589 GBP 100
Draeger Medical Ltd., Hemel Hempstead 1,990 GBP 100 2
Draeger PLMS Ltd., Plymouth 805 GBP 100
Draeger Medical UK Ltd., Hemel Hempstead 4,296 GBP 100 2
Africa
South Africa Dräger South Africa (Pty.) Ltd., Bryanston 4,000 ZAR 100
Dräger Medical South Africa (Pty.) Ltd., Johannesburg 1 ZAR 100 2
Dräger Safety Zenith (Pty.) Ltd., King Williams Town 1 ZAR 100
Americas
Brazil Dräger do Brasil Ltda., São Paulo 27,021 BRL 100
Dräger Industria e Comércio Ltda., São Paulo 8,132 BRL 100 2
Canada Draeger Canada Ltd., Mississauga, Ontario 900 CAD 100
Draeger Medical Canada Inc., Richmond Hill, Ontario 2,000 CAD 100 2
Dräger Safety Systems Ltd., Napanee, Ontario 630 CAD 100
Chile Dräger Medical Chile Ltda., Santiago 1,284,165 CLP 100 2
125
Name and registered office Share capital Shareholding
in LCU thousand in %
Americas (continued)
Mexico Draeger Safety S.A. de C.V., Queretaro 50 MXN 100
Dräger Medical Mexico S.A. de C.V., Mexico D.F.D. 50 MXN 100 2
US Draeger Medical, Inc., Telford 480 USD 100 2
Draeger Safety, Inc., Pittsburgh 400 USD 100
Draeger Safety Diagnostics, Inc., Durango 1 USD 100
Draeger Medical Systems, Inc., Danvers 1 USD 100 2
Draeger Medical Infant Care, Inc., Hatboro 1 USD 100 2
Draeger Interservices, Inc., Pittsburgh 40 USD 100
Dräger Safety Systems, Inc., Pittsburgh 788 USD 100
Asia/Australia
People’s Republic Shanghai Dräger Medical Instrument Co., Ltd., Shanghai 22,185 CNY 67.5 2
of China Beijing Fortune Draeger Safety Equipment Co., Ltd., Beijing 15,238 CNY 96.2
Dräger Medical Equipment (Shanghai) Co., Ltd., Shanghai 3,311 CNY 100 2
Draeger Medical Asia Pacific Ltd., Hong Kong 5,000 HKD 100 2
Draeger Medical Hong Kong Limited, Wanchai 500 HKD 100 2
India Joseph Leslie Drager Mfg., Pvt. Ltd., Mumbai 2,500 INR 36 1
Indonesia PT Draegerindo Jaya, Jakarta 3,384,000 IDR 100
Japan Draeger Medical Japan Ltd., Tokyo 549,000 JPY 100 2
Draeger Safety Japan Ltd., Tokyo 81,000 JPY 100
Draeger Kohden Japan Ltd., Tokyo 100,000 JPY 51 2
Saudi-Arabia Draeger Arabia Co. Ltd., Riyadh 2,000 SAR 51 2
Singapore Draeger Safety Asia Pte. Ltd., Singapore 3,800 SGD 100
Draeger Medical South East Asia Pte. Ltd., Singapore 1,200 SGD 100 2
South Korea Draeger Medical Korea Co. Ltd., Seoul 2,100,000 KRW 75.5 2
Taiwan Draeger Safety Taiwan Co. Ltd., Hsinchu City 5,000 TWD 100
Draeger Medical Taiwan Ltd., Taipei 10,000 TWD 100 2
Thailand Draeger Medical (Thailand) Ltd., Bangkok 3,000 THB 100 2
Draeger Safety (Thailand) Ltd., Bangkok 5,000 THB 100
Australia Draeger Safety Pacific Pty. Ltd., Notting Hill 5,875 AUD 100
Draeger Medical Australia Pty. Ltd., Notting Hill 3,800 AUD 100 2
As of December 31, 2004
1 These companies are treated as associates as defined by IAS 28.2 Siemens AG holds an indirect 35 percent stake in these companies through Dräger Medical AG & Co. KGaA.
AAcquisitions 45, 55, 57Amortization 40, 50, 54, 58, 67, 76 f., 83, 87, 101,
107, 110 f., 118Annual stockholders’ meeting 4, 13 ff., 32, 88, 114,
inside front coverAssociates 30, 35, 122 ff.Auditor’s opinion 117 f.
BBalance sheet 38, 40, 44, 50, 54, 58, 64 ff., 69 ff., 74 ff.,
85, 87, 89, 96 f., 104 f., 117 ff.
CCapital employed 39 f., 44 f., 50, 53 f., 57 f., 110 f.Cash and cash equivalents 61, 73 f., 119Cash flow 80 f., 91Communication 8, 12, 46, 59Consolidated balance sheet 65, 74 f., 89, 96 f., 101Consolidated financial statements 31 ff., 38, 63, 68 ff.,
73, 76, 80, 86, 94 ff., 117Consolidation 37, 41, 57 f., 61, 66, 69 ff., 79 ff., 85 f.,
89 ff., 99, 111, 113 f.Corporate governance 15, 32, 114 f.Corporate identity 1, 23 ff.Currency translation 66, 75, 89 ff.Currency translation effects 89 ff.
DDepreciation 40, 50, 54, 58, 67, 76 f., 83, 87, 101,
107, 110 f., 118Distributions 14, 66 f., 74 f., 96 f., 118Dividend for participation certificates 78, 83, 98,
103, 118Dividends 4, 13 f., 67, 78, 83 f., 88, 96 ff., 103, 106,
114, 118
EEarnings– Group 38, 40 ff., 62 f., 66, 72, 75, 83 ff., 110 ff., 118– Medical 50 f., 110 ff.– Safety 54 f., 110 ff.– Service companies 81EBIT 4, 34, 38, 40, 42, 44, 50 f., 54 f., 57 f., 109 ff.EBIT margin 4, 51, 55EBITDA 40, 44, 50, 54, 58, 109 ff.Environmental protection 48Equity 14, 38, 44 f., 61, 65 f., 69 ff., 74 f., 77, 80 f., 85,
90, 96 f., 101, 117, 119Equity ratio 44, 61, 101Executive Board 4, 6 f., 12 f., 15, 30 ff., 62, 88, 109,
114 ff., 118, 121Expenses 25, 38, 40, 42 f., 46, 50, 54, 56, 58, 70, 75f.,
78, 80, 82 ff., 87, 103, 106, 110, 118
GGroup net profit 66, 96
HHeadcount 5, 8 f., 13, 31, 40, 46, 48, 50 f., 53 f., 57 f., 78,
87, 95, 99 f., 103, 110
IIFRSs 31 f., 38 ff., 44, 68 ff., 79 f., 82, 90, 117Income statement 38, 63, 69, 73, 75, 81, 86, 117 f.Innovation 1, 5 f., 13, 19, 37, 46, 52, 55 f., 61, 64 f., 68Interest cost /expense 78, 99 f.Interest risk 61Internationalization 5, 8 f.Interservices 9, 59, 62, 122, 125Inventories 39, 44 f., 64, 67, 70 ff., 76, 78, 81 f.,
85, 94, 111Investments 5, 36, 40, 45, 50 f., 54, 56, 58, 67,
77, 79, 86, 107, 110 ff.Investor relations 12
Index126
Index
RRegions– Germany 5, 9, 13, 35 f., 40 ff., 47 f., 50 ff., 56 ff.,
82, 87, 110 ff., 122– Europe 36 f., 40 ff., 50 f., 54 ff., 82, 112 f., 123 f.– Americas 40 ff., 50, 54 f., 58, 82, 112 f., 124 f.– Asia/Pacific 36 f., 40 ff., 50, 54 ff., 58, 62,
82, 112 f., 125Research and development 46, 56, 63, 76, 82Reserves retained from earnings 65, 74 f., 96, 119Return 4, 10, 13 f.Revenues– Group 40 ff.– Medical 50 ff.– Safety 54 ff.Risk management 32 f., 60, 62, 104ROCE 4, 53
SSales and marketing 63, 67, 82Securities 45, 61, 67, 77, 83, 93, 95, 98, 111, 118 f.Segment report 81, 110Separate financial statements of Drägerwerk AG
32 f., 118Service companies 12, 41, 61, 81Stock 4, 10 ff., 43, 63, 88, 96, 98, 110, 114 f., 118Stock market value 80Stockholder structure 13Strategy 5, 12, 47, 57, 62Subsequent events 62Subsidiaries 30, 35, 122 ff.Supervisory Board 4, 13, 15, 30 ff., 114 f., 118, 120 f.Suppliers 47, 61Sustainability 48
TTax load ratio 43TecDax 10 f.Training 8
LLiabilities 40, 44 f., 50, 54, 58, 61, 65, 67, 70 ff.,
75, 78 ff., 80 ff., 83, 95, 100 ff., 108, 110 f., 119Logistics 9, 21, 27, 47, 57, 82
MManagement report of the Dräger Group 34 ff.
NNet assets, equity and liabilities 44Net earnings 33, 65 f., 75, 96 f., 109, 118 f.Net financial debt 44, 101, 109Net profit 4, 13 f., 43, 62 f., 67, 72, 75, 88, 110, 114, 118Non-current assets 39, 45, 67, 70 f., 76 f., 118 f.Nordac 74, 86Notes of the Dräger Group 68 ff.Notes to the consolidated financial statements 68
OObjectives 4 ff., 74Order intake 40 ff., 50, 54 ff., 58, 110Outsourcing 9, 34
PParticipation capital 44, 61, 65, 69 ff., 78, 81, 97 f., 118 f.Participation certificates 44, 61, 65, 69 ff., 78, 81, 83,
88, 97 f., 103, 118 f.Patents 45 f., 76, 89 f.Personnel expenses 87, 118Portfolio 51, 57, 61Procurement, production and logistics 47Production 9, 31, 42 f., 46 f., 52, 56 f., 61, 86 f.Property, plant and equipment 45, 56, 64, 71, 76 f., 85,
87, 91, 108, 112, 118 f.Provisions 39, 45, 65, 67, 69 ff., 78, 80 f., 83, 85,
98 ff., 103, 111, 119
127
Imprint128
Imprint
Drägerwerk AGCorporate CommunicationsMoislinger Allee 53/5523542 Lübeck, Germanywww.draeger.com
Concept and designGroothuis, Lohfert, Consorten|glcons.de
ReproductionsPeter Maus GmbH, Ahrensburg
PR part translated byChris Cave, Berlin
Printed byDräger+Wullenwever pm GmbH&Co.KG, Lübeck
PhotosDeutsche Presse-Agentur GmbH, HamburgMichael Haydn, EichedeAxel Kirchhof, HamburgBerhold Litjes, DüsseldorfAndré Reinke, HamburgEd Seeder, Heerhugowaard (NL)
Glossary
Capital employed—GroupBalance sheet total less deferred tax assets, cash and cashequivalents and non-interest bearing liabilities.
Capital employed—subgroupsBalance sheet total less deferred tax assets, cash and cashequivalents including receivables from cash management,and non-interest bearing liabilities.
Cash flow from investing activitiesNet cash used in, or provided by, investments/divestments.
Cash flow from operating activitiesNet cash used in, or provided by, current operations unlessattributable to investments, divestments or financing.
Cash flow statementShows the flows of cash and cash equivalents provided by,or used in, a company’s operating, investing and financingactivities within a defined period.
Corporate governanceThe responsible governance and control of a company withthe sustained creation and addition of shareholder value inmind.
DebtOutside capital as opposed to equity: the balance sheettotal less equity.
Deferred taxesFuture tax benefits and burdens whose amount and timingis uncertain. They arise when the carrying amounts in thecommercial balance sheet and tax balance sheet differ, butthe differences will reverse over time (temporary differen-ces). After the recognition of deferred taxes, the effectivetax expense from the tax balance sheet is adjusted to thedivergent result in the commercial balance sheet. In addi-tion, deferred taxes are recognized for the future utilizationof tax loss carryforwards, if it is highly probable that theycan be used to offset profits.
DerivativesInstruments whose value is mainly derived from a specifiedprice and price fluctuations/expectations of an underlyingasset (e.g. shares, foreign currency, interest securities).
Dräger FoundationEstablished in 1974 by Dr.Heinrich Dräger, the DrägerFoundation's activities continue its founder’s social com-mitment, especially the promotion of science and research.
EBITEarnings before net interest result, income taxes, andresult from discontinued operations.
EBIT marginRatio of EBIT to revenues.
EBITDAEarnings before net interest result, income taxes, deprecia-tion, amortization and result from discontinued operations.
EquityFunds paid in or contributed to the company by owners,plus retained earnings.
Equity ratioThe equity ratio is the ratio of equity to total capital. Themore equity a company has, the better its creditworthi-ness, as a rule, and the greater its financial stability andindependence from external lenders.
Equity storyComprehensive presentation of corporate performance.
Free cash flow (before dividends)Cash flow from operating activities less that from investingactivities.
GoodwillExcess of the price paid for an acquired company over theacquirer's share in its net assets.
HedgingOptions, forwards or futures that hedge (a significant por-tion of) interest, currency, price and other risks to whichthe underlying transaction is exposed.
IFRSsInternational Financial Reporting Standards. See page 38f.for more information.
Net financial debtFinancial liabilities less financial assets and cash and cashequivalents.
OutsourcingTransfer of certain corporate functions to specializedservice companies.
Participation certificatesDebenture that generally grants a share in net profits orliquidation proceeds, especially for stock corporations andlimited liability companies, rather than conferring an equityinterest, as does a share. Participation certificates arenegotiable but are not shares. The holder does not havethe right to vote at the annual stockholders’ meeting, butthe profit participation usually exceeds the return on fixed-interest securities. Under HGB, participation certificatesare recognized in equity, under IFRSs, they are disclosedin debt.
ROEReturn on equity: profit (net profit) divided by recognizedequity. The ratio indicates the return on the stockholders'capital.
Risk managementSystematic approach to identifying and evaluating potentialrisks and selecting and implementing steps to addresssuch risks.
ROCEReturn on capital employed: EBIT divided by capitalemployed.
Statutory auditA legally prescribed examination of a company (or partthereof) by independent auditors for compliance withdefined standards and regulations.
TecDAXThe German index for listed technology equities; coversthe 30 biggest Prime Standard technology stocks belowthe DAX at the Frankfurt Stock Exchange.
Dräger worldwide.
Dräger is represented in over 190 countries on all the world’s continents, with its own companies in more than 40 countries: sales/distribution and service companies, and development and production plants.
Dräger production plants
Dräger sales/distribution and service organizations
Lübe
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Best
Sven
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Telfo
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Beijing
Shan
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Blyth
Pittsb
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Danve
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King W
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Hatboro
Plymou
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Hagen
Drägerwerk AGMoislinger Allee 53/5523542 Lübeck, Germanywww.draeger.com
Corporate CommunicationsPhone (+49-451)882-22 01Fax (+49-451)882-39 44
Investor RelationsPhone (+49-451)882-26 85Fax (+49-451)882-32 96
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