The HARTMANN Group Annual Report 2002

The HARTMANN GroupAnnual Report 2002

Brought to you by Global Reports

At a GlanceThe HARTMANN Group is an international player in thefields of medical and hygiene products for professional andprivate use. Our success is based on our in-depth medicalexpertise and the ongoing dialogue with our target groups.The well-established HARTMANN and KNEIPP brands formthe core of our product portfolio.

HARTMANN Groupin EUR million 2002 2001

IAS IASIncomeSales revenues1) 1,269.7 1,150.4of which outside Germany in % 56.3 55.6Income for the period 18.3 13.5Net return on sales in % 1.4 1.2Cost of materials 585.8 575.8Personnel expense 314.9 276.7EBIT DA 115.3 93.3Return on EBIT DA in % 9.1 8.1Depreciation on fixed assets 66.1 61.5EBIT 49.2 31.8Return on EBIT in % 3.9 2.8Cash flow 96.6 85.3Cash flow as a % of sales revenues 7.6 7.4Balance sheetBalance sheet total 957.1 986.8Long-term assets 468.4 492.3Investments in fixed assets 51.3 131.62)

Current assets 488.7 494.5Shareholders’ equity 391.3 387.7Equity-assets ratio in % 40.9 39.3ROE 4.7 3.5Noncurrent liabilities 308.4 312.2Current liabilities 232.2 262.4Employees as at Dec. 313) 9,636 9,857

1) Currency translation is made at the average rate for the year.

2) Of this figure, EUR 49.8 million results from the expansion in the scope of consolidation.

3) Excl. staffers on maternity leave and PAUL HARTMANN AG Board members.

Overview Management Report Business Units Regions Group Annual Financial Statements Additional Information


The Key HARTMANN Group Brands and Products


Therapeutic

Bandages

Operating

Theatre

Products

Incontinence

Management

Herbal

Medicines

Food

Supplements

Feminine

Hygiene

Diagnostics

Cotton Wool

Products

Wound

Management

First Aid



Body Care

Products

Baby Care

Medical Skin

Care

Patient Care

Products


Focus on SkinHARTMANN is the major brandin the HARTMANN Group port-folio. We invite you to join usover the following pages in exploring the philosophy of theHARTMANN brand and experi-encing the fascinating topic ofskin from our perspective. Afterall, what HARTMANN productsshare is a focus on skin.

We at HARTMANN are dedicatedto the health of, and care forskin. With our medical compe-tence, we help to heal, to protect, to care for skin and usethe skin for the purposes ofdiagnosis and therapy. Our prod-uct range reflects the many different aspects of skin. Thanksto different materials, surface textures and technologies, ourproducts fulfill a variety of indi-vidual requirements. And ourproduct portfolio is duly diverse.It ranges from plasters for firstaid to hydroactive wound dress-ings, from therapeutic bandagesto custom procedure trays, fromskincare to incontinence prod-ucts. In everything we do, wemake every effort to ensure thatpeople feel good in their skin.


OverviewFront At a Glancecover: The Key HARTMANN Group Brands

and Products16 Foreword by the CEO18 The HARTMANN Equity20 Focusing on Strong Brands

Management Report22 Economic Climate and Sector Trends23 Business 2002 at the HARTMANN Group26 Employees29 R&D31 Environmental Protection and Safety32 Supply Chain Management33 Risk Management34 HARTMANN Group Outlook

Business Units36 Medical38 Patient Care40 Consumer Products

Regions42 Central Europe45 West/Northwest Europe48 East Europe49 North Europe50 South Europe51 Regions outside Europe

Table of Contents



Group Annual Financial Statements54 Consolidated Income Statement55 Consolidated Balance Sheet56 Schedule of Changes in Group Equity58 Consolidated Cash Flow Statement59 Explanatory Notes to the Financial

Statements

Additional Information92 Report of the Supervisory Board93 Supervisory Board, Management Board,

Corporate Officers94 Glossary of Key Terms96 Key Financial Dates and ContactsBack HARTMANN Financial Figures –cover: A Five Year Comparison

Key Subsidiaries



Dermaplast plasters come with a

hydrophobic wound pad that

prevents them from sticking to the

wound. The embossed surface

structure means the plasters breathe

even better.

The skin is an immensely power-ful organ. Yet sometimes theskin requires assistance – andHARTMANN is at hand to helpwith innovative and carefullydeveloped products that supportthe skin in its vital tasks. Forexample, the line includes anespecially skin-friendly range ofplasters that are a valuable aidin treating smaller injuries. Theplasters are made of highly-developed materials to ensurethat they are able to meet avariety of requirements. In thisway, HARTMANN is always ableto provide the right product for every skin type and everymedical indication.

The skin – the human body s largest organ.


A powerful system with the inherent capacity


The Sorbalgon calcium alginate

dressings are made of an ultra-soft

compound fiber that can be easily

applied to the wound. The under-

lying basis: alginic acid, extracted

from brown seaweed. The fibres are

transformed into a gel to create a

microclimate that promotes the

healing process.

to renew and heal itself. Skin is a protective HARTMANN helps the skin healrapidly and without interruption.For example, we provide band-ages and dressings which act like a second skin covering thewound. Our products for hydro-active wound treatment aremade of intelligent materialswhich generate a microclimatedesigned to accelerate the heal-ing process. Moreover, carefullycoordinated system solutionsensure the wound is optimallytreated during all phases of thehealing process.


wrap, keeping body and soul together. Skin


Rolta pro is more than a conven-

tional padding bandage. It has an

outer layer of PE foam which gives

extra cushioning and is moisture-

resistant.

affords effective protection against cold and Skin is protection – and the skinneeds protection. Not onlyagainst the impact of germs,but against physical impairmentHARTMANN helps the skin stayintact. For example, with der-matologically-friendly paddingbandages which cushion theskin and also extract moisture –protecting the skin and prevent-ing any irritation.


heat, foreign bodies and germs, and against


Foliodress Comfort surgical gowns

are made of triple-layer polypropy-

lene non-woven, affording a reliable

barrier to germs while remaining

breathable and pleasant to the skin.

chemical substances. Skin interfaces betweenThe skin acts like a border patrol,controlling what enters andleaves the body. However, theskin gets severed during surgicalintervention, reducing its abilityto perform this function. Forthis reason, it is imperative toprotect the patient and operat-ing theatre personnel from contamination and infection.HARTMANN surgical productsmeet the very highest safetystandards. They are germ-proof,absorbent and especially non-abrasive.


the inside and the outside. Skin is a permeable


With a cloth-like non-woven top

layer and a breathable elasticated

waist band, the Molicare Mobile

incontinence pants offer maximum

protection, skin comfort and

discretion.

membrane that mirrors the soul. Skin is life.


We must care for our skin and treat it well.Skin requires great care toensure that skin stays healthyover the years. In the case ofincontinence, the skin isexposed to additional stress.HARTMANN helps counteractthis and makes available abroad range of incontinenceand healthcare products. In thisway, HARTMANN not only makesan important contribution tokeeping skin healthy, but alsoimproves the quality of life.


Bel Nature offers cosmetics on a

natural basis. The exclusive use

of high-grade cottonwool makes

the products especially soft and

absorbent.

In all of these areas, HARTMANN helps with


products that are close to the skin.HARTMANN is very familiar with all issues relating to the skin. Our in-depth medical expertise makes us a reliable partner, for professional and private users alike. In everything we do, we help people feel good in their skin.


Dear Shareholders and Friends of the CompanyIn 2002, the mood sobered the world over in the face of economic and geopolitical develop-ments. The normal course of business came under strain from an unprecedented number ofbankruptcies, the stock exchange downturn, and the crises in the Middle East. Consumerrestraint following the introduction of the euro led to sales and earnings collapsing in allareas of consumer products and especially among brand-name articles. Only discounters andretail brands managed to profit from this situation.

Under these difficult conditions, HARTMANN kept to its strategy and, thanks to itsfocus and expanding international reach favourably bucked the market trend. Consolidatedsales came to EUR 1.27 billion, or some ten percent up on the year. The challenge of inte-grating the KNEIPP, Conco, Vitamed and Sanimed companies acquired in 2001 was success-fully mastered overall. KNEIPP, which we took over when it was in financial difficulties, wasalready back in the black in the first full business year following the acquisition. HARTMANN-Conco in the United States saw stable business and as early as June 2002 was linked up toour SAP R/3 system. HARTMANN-Vitamed posted good profits and grew over 50 percent onthe prior year. At Sanimed, good headway was made with the necessary restructuring,although these took longer than scheduled.

For the first time, the consolidated annual financial statements for 2002 have beencompiled according to IAS, the International Accounting Standards. We have succeeded inlowering the Group’s net debt by EUR 21 million, with consolidated profit running at EUR 16 million, over 60 percent higher than last year. According to the German Commercial Code,consolidated net income for the year would have risen EUR 8 million to EUR 23 million. The improvement in operating profit (EBITDA) is particularly noteworthy, as it climbed a full 24 percent to EUR 115 million. This decidedly gratifying achievement was substantially supported by our “Fit for the Competition” campaign, in which employees were called on toidentify potential for savings.

In 2002, we continued to swiftly expand our international reach. New subsidiarieswere founded in Slovenia, Greece, Iran and Australia. By taking over Max Lorne S.A., theFrench manufacturer of orthoses and orthopaedic auxiliaries, we have advantageouslyexpanded the HARTMANN Group’s product range.

While the DAX, the German blue chip index, fell 43 percent in 2002, the HARTMANNequity held almost steady. At the beginning of the year, the share price was EUR 148 and itclosed the year at EUR 140.

The Company has taken on an extensive work load for the current year, some of thoseprojects have already been actualized. We are again targeting a sales increase that out-performs the market and we wish to continue to boost profits. On this basis, equity in HARTMANN will continue to be a wise investment choice.

I would like to thank the shareholders for their confidence in the Company and mythanks likewise go to all employees for their great efforts in 2002.

Prof. Ulrich Hemel

16 Overview Management Report Business Units Regions Group Annual Financial Statements Additional Information


The PAUL HARTMANN AG Management

Board (from l. to r.): Dr. Hans-Peter

Wagner, Dr. Thomas Wurster, Friedrich

Pohl, Prof. Ulrich Hemel (CEO)


The HARTMANN EquityIn 2002, HARTMANN bucked the sector trend and contin-ued its growth trend. The HARTMANN equity successfullyturned its back on the downward stock market trend andproved to be a stable investment with an attractive overallROI.

Share price clearly outperforms the MDAX and DAX 30On Dec. 31, 2002 the OTC price for HARTMANN shares was EUR 140 falling EUR 8 or 5.4percent below the 2001 year-end price. In other words, the share performed significantlybetter in 2002 than did the MDAX or DAX 30. While the DAX 30 rose from 4,200 points atthe beginning of the year under review to 4,500 points at the end of May 2002, dismaleconomic outlook caused it to plummet 33 percent to under 3,000 points by the end ofOctober. In contrast, the HARTMANN share was more stable fluctuating between EUR 171and 137.

After a public offering was considered, the price climbed to a year-high EUR 171 andheld steady for the remainder of the year at around EUR 150. In December, a large amountof trading led to a short-term stock price decline. With the start of 2003, however, the pricereturned to over EUR 150. All in all, the performance of the HARTMANN share testifies tothe capital market’s unchanged high level of trust in the Company. Indeed, in the past year,the trading volume has been stable.

Appropriate participation in company successGiven the current earnings position and the favorable future outlook, the PAUL HARTMANNAG plans to raise the dividend for the business year 2002 once again. The Supervisory Boardand Board of Management will propose to the 89th Ordinary General Meeting on 11 July, 2003that a dividend of EUR 2.90 be disbursed per share. This amounts to an increase of 1.7 per-cent on the previous year, when the dividend was EUR 2.85 per share. This proposal meansthat the dividend yield will amount to approx. 2.1 percent of the share price on 31December, 2002, as compared with 1.9 percent one year earlier.

In 2001, the appreciation on the share capital – the combination of stock price anddividend – came to EUR 14.81, which translates into a ROI of 10.9 percent in 2001. In 2002,the value fell to a loss of EUR 5.15, which corresponds to a negative return on investment of3.5 percent. However, when both periods are combined, capital appreciation is EUR 9.66which spells a total ROI of 7.1 percent calculated on the basis of the 2000 year-end price ofEUR 136. HARTMANN shareholders are, in other words, still among those few capitalinvestors who have managed to preserve their assets in the years 2001/2002 or even slightlyincrease them.

IR clearly improvedOn 12 July, 2002 the PAUL HARTMANN AG’s 88th Ordinary General Meeting for business2001 took place in Mergelstetten, nr. Heidenheim. Over 400 shareholders participated,representing more than 88 percent of the capital stock during voting.

In the year under review, relations with the business media and the national dailieswas clearly intensified. Journalists for their part, were particularly interested in the newstrategic direction and the dynamic expansion of the HARTMANN Group’s internationalreach.



Overview Management Report Business Units Regions Group Annual Financial Statements Additional Information 19

Switch to collective safe custody successfully implementedThe last quarter of 2002 was marked by preparations for a changeover in the type of custody accounts used for HARTMANN shares. Collective safe custody is now employed andthe process is expected to be completed in the first half of 2003. Much has changed in thefield of securities since PAUL HARTMANN became a public limited corporation in 1912 andthe first shares were issued in 1913. Technical advances and legal changes have opened upnew opportunities here, including the methods of safekeeping for shares. Today, collectivesafe custody accounts are the most common method, whereas for many years individualsecurities account were the only method of safekeeping registered shares.

The Articles of Incorporation were developed at the Gerneral Meeting in 1999,creating the necessary basis for a switch and it was resolved to exclude securitization ofshares. On 3 February 2003, collective safe custody became possible for HARTMANN shares.

This change also had an impact on the HARTMANN equity’s Securities IdentificationNumber. SIN 603 530, the number valid up until this point, was replaced with SIN 747 404.This change took effect from February 3, 2003 and is now the norm for OTC trading. On 22 April, 2003 the Deutsche Börse made a general changeover from SINs to the 12-digitISIN codes (International Securities Identification Number). The HARTMANN share’s standardISIN code is DE0007474041.

20

40

60

80

100

120

31.12.01 31.12.02

MDAX

DAX 30

HARTMANN-Aktieim Freiverkehr

31.12.00

HARTMANN sharein OTC trading

MDAX

DAX 30

Performance of HARTMANN shareIndex: 31 Dec., 2000 = 100

31 Dec., 00 31 Dec., 01 31 Dec., 02


Focusing on strong brandsConvincing brand management is a crucial factor for thefuture success of the HARTMANN Group. The Company hasprepared itself well for a changing healthcare market byrealigning the thrust of our predominant HARTMANN brandand by giving KNEIPP an even clearer profile.

HARTMANN brand strategy adopted in year under reviewA central component of our corporate strategy is to expand our core business with medicaland hygiene products. Long-term competitive success can be achieved only through acombination of innovative product offerings in the medical field, further internationalizationand a clear brand strategy. In addition, changes in market and target group structure, suchas new prescription standards or the trend toward self-medication in the Medical business,make it necessary to further clarify the meaning of the HARTMANN brand to our customers.In 2002, the new brand strategy was adopted and implemented in the company businessunits.

HARTMANN stands for medical expertise in skin contactIn the last decades, HARTMANN has built up a second strong pillar of operations with itshygiene products which is not covered by the traditional slogan „HARTMANN helps healing“.In addition, other product areas such as medical skin care or cosmetic cottonwool productsalso influence our customers’ perception of the brand.

By focusing on skin as the common denominator in all HARTMANN products, inconnection with our established medical expertise, we have defined a new brand identitywhich strengthens the positive image that HARTMANN has with our customers. Theadvantage is that this brand experience is valid for all our offerings. Our product rangemakes important contributions toward the health of skin, the body’s largest organ, byhelping maintain and care for healthy skin, and regenerating damaged skin. There are manypositive associations with skin, leading to a more intense emotional brand experience thanunder the previous brand identity. By consistently applying the new HARTMANN brandstrategy, synergies will arise in both R&D and in the worldwide marketing of our products:this will make a considerable contribution to enhancing our corporate value in the longterm.

Attractive brand characteristics give HARTMANN a clear identityAt workshops, in which employees from all areas of the Group and foreign subsidiaries participated, we have defined the brand characteristics that will serve as a the guideline for our future integrated marketing communication strategy. This will make the brandunmistakable in the eyes of trade buyers and end consumers alike.

The Company’s medical expertise forms a sound basis in this regard. Our productsexcel in terms of safety and in consistently high standards in all markets. All the same,HARTMANN is equally an intimate and personal brand: Many of our product offerings touchon intimate and emotionally delicate spheres. It is exactly because of this that we assignspecial value to dealing with people respectfully. The HARTMANN brand should be perceivedas warm and personal. Moreover, the brand wishes to stand for clever and creativesolutions. HARTMANN’s innovative abilities draw not only on our distinct expertise, but alsoon our determination and ability to always find a better solution.




The 2003 focus: giving the KNEIPP brand a clearer identityCareful market expansion based on the motto “Get healthy, stay healthy” is a significant element in the strategy of the HARTMANN Group en route to becoming a leading supplier inthe general healthcare and wellness field. KNEIPP plays a key role here in providing accessto health-conscious consumers. The brand enjoys a high level of recognition in individualEuropean markets as well as having the prime image of a traditional brand. We wish to participate in the ongoing high growth potential of the wellness market by continuing toclarify the brand identity. In the future, KNEIPP will stand for a contemporary, clearlystructured product range based on a naturopathic health concept.

At the end of the year under review, one of the first steps taken to realign the brandwas the introduction of the product series KNEIPP S·P·A. The high quality bath, skin andmassage oils with natural scent compositions were very well received by consumers andhave contributed to strengthening our position with retailers. This year, we hope to preparethe brand for launch in other European markets and in the United States by updating product lines and communicating a more youthful image.

Independent brand identities:

the HARTMANN and KNEIPP brand

mission statements.

HARTMANN makes it easier for people to feel good on theinside and outside. With our medical expertise we assist bothprofessional and private consumers in healing, protecting andcaring for the skin – and using it as a medium for diagnosisand therapy.

KNEIPP makes it easier for people to bring their physical andemotional well-being into harmony. Well-founded knowledgeon the effectiveness of natural substances forms the basis ofhigh-quality products which make a contemporary contribu-tion to actively maintaining health.


Economic climate and sector trendsBusiness in 2002 was characterized by a weak economicenvironment. GDP increased by 2.0 percent world-wide,with varying growth from region to region. In Germany, ourmost important sales market, economic growth amountedto a mere 0.2 percent.

2002 failed to produce the anticipated economic upswingWith GDP increasing only 0.2 percent, Germany recorded its lowest growth since reunifica-tion (excluding 1993). Consequently, the growth forecast for 2003 has since been adjusteddownwards to 0.5 percent. In 2002, private consumption, of special importance for ourConsumer Products business unit, actually slipped 0.6 percent from the 2001 figures. For2003, a mild increase of 0.6 percent in consumer spending, is expected.

In Euroland, the trend was somewhat more cheerful. GDP increased 0.8 percent andprivate consumption was up 0.6 percent. Given the heterogeneous trend in individual coun-tries, HARTMANN’s internationalization strategy is proving its value. In the current year, weagain wish to profit from the stronger growth rates in Europe.

The economic trend in the United States was significantly better with growth of 2.4percent. The low price of the dollar against the euro made export business more difficult,but led to a slight easing of purchasing prices for raw materials.

Medical market trends variedIn 2002, the market for medical consumer products grew some 7 percent to EUR 181 billion.The dominant US market recorded growth of 6 percent compared with the previous year. TheEuropean medical market accounted for a share of EUR 36 billion, of which roughly half wasin Germany. Other markets showing high consumption levels were France, Italy and GreatBritain and, outside Europe, the densely populated countries of Brazil, China and India.

Growth patterns for the individual product segments were varied. The demand for sur-gical products rose as a result of the increased number of hospital stays – a result of demo-graphic trends. The field of medical products for intensive care and nursing grew moderately,while bandaging products stagnated or even retracted in certain sub-segments.

Changes in the age pyramid characterize the trend for hygiene products.In 2002, the incontinence hygiene segment was once again a growth market and continuedto perform gratifyingly with double-digit growth. The incontinence briefs product categoryachieved above-average increases, while products for baby and feminine hygiene recordedclearly lower growth rates. In Germany, both categories dwindled slightly.




HARTMANN Group scores double-digit growth In 2002, the HARTMANN Group booked sales revenues totalling EUR 1.27 billion, an increaseof 10.4 percent on the prior year. Internal growth contributed 4.4 percent to this figure. The remaining 6.0 percent growth was achieved through further expansion and consolida-tion with the newly established subsidiaries in France, Greece, Slovenia, Australia and Iran,as well as the effects from acquisitions made in 2001.

The Patient Care business unit posted a gratifying sales increase of 18.3 percent, play-ing a considerable role in the growth of the HARTMANN Group. The Medical and ConsumerProducts business units achieved single-digit growth of 7.0 and 4.6 percent respectively. In the year under review, the Patient Care business unit accounted for the largest share (38.4 %) of total sales for the first time.

International business gains importanceIn 2002, we were able to further strengthen our market position, especially outside Germany.While in Germany, sales revenues rose 8.4 percent despite difficult market conditions, customersales by our foreign subsidiaries and through direct exports surged again, this time by 11.9percent. The share of total sales generated outside Germany increased to 56.3 percent.

Consolidation strategy bears fruitIn the year under review, we laid the foundation for profitable growth and thus forHARTMANN’s long-term future. The focus of activities lay in increasing earnings power whileat the same time focusing on core business.

In the year under review, we were able to significantly reduce the net debt load, whichhad increased due to the acquisitions made in 2001. At the same time, we assigned a highpriority to raising profitability among our subsidiaries. In 2002, KNEIPP-Werke closed theyear in the black for the first time due to onward integration into the HARTMANN Groupand the resulting synergies. We plan to utilize the growth potential in this product segmentthrough extensive measures to modernize the KNEIPP brand and significantly expanding ourmarket position in selected markets.

Business in 2002 for the HARTMANN GroupDespite difficult economic conditions, the HARTMANNGroup was able to continue its growth course in 2002. The consolidation strategy reaped profits. Bank liabilitieswere reduced by 10.7 percent and income for the periodunder review was 36.1 percent higher than the previousyear.

Share of total salesby business unit,in EUR million and percent

Medical 38.1 %

Consumer Products 23.3 %

Other 0.2 %

Patient Care 38.4 %

486.9484.1

296.12.7

Share of total salesby region,in EUR million and percent

Europe excl.Germany 47.6 %

Other regions outsideEurope 8.7 %

Germany 43.7 %

604.4554.4110.9


We recorded a positive trend in the traditional HARTMANN product fields. Weachieved decidedly double-digit growth with hydroactive wound dressings, therapeuticbandages, products for the operating theater, adhesive plasters and absorbent incontinenceproducts. In the Baby Hygiene sector, the market share held by Fixies dropped slightly.

Net debt clearly reduced in 2002In the year under review, the HARTMANN Group balance sheet total contracted 3.0 percentto EUR 957.1 million, owing first and foremost to a downturn in fixed assets by EUR 24.8million. In addition, liquid assets were reduced by EUR 9.5 million.

In 2002, HARTMANN Group shareholders’ equity increased 0.9 percent to EUR 391.3million. With an equity-assets ratio that has now risen to 40.9 percent, HARTMANNpossesses a sound platform for further growth. We took advantage of the free cash flow in the period under review to reduce net debt by EUR 21.5 million from the prior year to EUR 217.1 million at year’s end.

Earnings for the period 36.1 percent higher than previous yearWith sales revenues rising 10.4 percent to EUR 1.27 billion, Group cost of materials droppedstructurally by 3.1 percentage points to 46.0 percent of total output. The main reasons forthe positive news: lower purchasing prices and the strength of the euro against the USdollar as of second-half 2002. The pro-rated share of personnel expenses in sales revenueincreased from 24.1 percent to 24.8 percent. Despite the lower investment volume deprecia-tion increased slightly in absolute terms due to extraordinary items, yet decreased as an overall proportion of sales. Other operating expenses amounted to 23.4 percent of salesrevenues. This above-average increase arose here from exchange-rate losses, consultingcosts, insurance as well as rental and leasing costs. Liabilities rose on average for the yearand this led to higher interest expenses and had a negative impact on financial income. Net income for the period rose from the previous year’s figure of EUR 13.5 million to EUR18.3 million, up 36.1 percent. The net return on sales thus ran at 1.4 percent.

Moderate adjustment in investment volumeIn the year under review we followed a consolidation strategy with regard to investmentsand acquisitions. The primary goal: to press ahead with the integration of subsidiariesacquired in 2001 into the HARTMANN Group. We clearly reduced the total volume ofinvestments to EUR 51.3 million.


150

100

50

0

EBIT EBITDA

20012002

31.849.2

93.3115.3

HARTMANN Group EBIT and EBITDAin EUR million



In Germany, the investment focus was on expanding manufacturing capacities for cot-tonwool products in Düren, for incontinence products in Herbrechtingen and for therapeuticbandages in Wolfstein. In order to better manage marketing and sales activities, we instal-led comprehensive software to improve CRM. In France, we adjusted our logistics centres toaccomodate the expanded business volume and boosted production capacities for inconti-nence products and wound dressings. Investments in our companies in the Czech Republicand Switzerland were committed to modernization and capacity expansion.

Improved financial situation through favourable free cash flowThe consolidation strategy adopted in 2002 had a positive effect on the financial situation ofthe HARTMANN Group. Cash flow from operating activities, i.e., the inflow of resources fromcurrent business activities, having increased by EUR 54.7 million to EUR 91.7 million wasclearly above that of the previous year. A lower increase in working capital played a substan-tial role in this. Investing activities led to a cash outflow of EUR 43.8 million, EUR 12.5 mil-lion less than the year before. We utilized the remaining free cash flow to reduce financialliabilities. In 2002, financing activities resulted in an outflow of EUR 51.5 million followingan inflow of EUR 34.0 million the prior year. At the end of 2002, cash and cash equivalentstotalled EUR 40.4 million.

Cash flow,in EUR million

Cash flow

Change inworking capital

Cash flow foroperating activities

Netinvestments

Free cash flow

96.7

–5.0

91.7

–43.8

47.9

0 25 50 75 100


EmployeesA company can only be as good as its employees. This iswhy HARTMANN places such a high value on promotingachievements at work and has such a broad training pro-gram for junior staff. The Performance Management Systemconcept, geared to the Group’s goals, has proven its worthin practice and will now be gradually implemented in theHARTMANN Group.

The “Fit for Competition” campaign helped boost incomeIn the year under review, the ”Fit for Competition“ campaign ran at PAUL HARTMANN AG –with the aim of securing our earnings power and thus competitive edge. Employees werecalled upon to make suggestions for ways in which potential savings could be achieved.Furthermore, an interdisciplinary working group processed suggestions for boosting incomewhich have already led to savings in 2002 totalling EUR 15 million.

A key element of this initiative was the various adjustments in the area of humanresources. As well as a critical analysis of the planned personnel requirements, capacitymanagement measures were introduced; overtime and excess flexitime reduced, the numberof part-timers lowered, and internal personnel clearing adopted. The savings achieved in this way came to EUR 3.6 million.

Moderate personnel adjustments in the HARTMANN GroupAt the end of 2002, 9,636 employees were employed by the HARTMANN Group worldwide,221 fewer than the year before. The main reason was the decline in personnel in Germanyand at HARTMANN RICO in the Czech Republic as well as the closure of production at


Every employee contributes to

HARTMANN’s recognized medical

expertise: Expiration date and

packaging integrity are checked

during order processing.

12,000

9,000

6,000

3,000

0

Germany Europe World-wide

20012002

4,5944,508

8,6268,343

9,8579,636

HARTMANN Group payrollas at 31 Dec.



Biochemical Systems in Italy. A total of 98 new staff were taken on as a result of the found-ing of new distribution companies in Australia, Greece, Slovenia and Iran as well as thetake-over of Max Lorne and the Medical Service et Logistique by our French subsidiary.

At the end of the year, the HARTMANN Group employed 4,508 employees in Germany,86 fewer than the year before. While PAUL HARTMANN AG recorded a slight rise in payrollfollowing the take-over of the KNEIPP sales organization and the logistics for Italy andAustria, the total number of employees in our German subsidiaries decreased. The payrollwas also reduced marginally at Fixies GmbH, first established in 2002.

In the European subsidiaries, staff contracted by 197 to 3,835 at the end of the yearunder review. Increases in West/Northwest Europe and North Europe contrasted withdecreases in East and South Europe.

All in all, 1,293 staff were employed in regions outside Europe. A total of 62 hiringswere made, in particular in connection with production expansion in India and the strength-ening of sales organizations in Egypt and China.

Performance Management implemented worldwideIn the year under review, the Performance Management System (PMS), first introduced in apilot phase for management employees of PAUL HARTMANN AG and employees not subjectto collective wage agreements, was turned into a company-wide agreement. A survey carriedout with participants at the end of the year revealed that feedback was positive on targetmanagement and variable remuneration, as well as competence management, which wasadded in 2002. Since then, discussions have been held with the employee council aboutexpanding the PMS to include employees covered by collective wage agreements.

PMS was also swiftly implemented in the other HARTMANN geographic regions. In theyear under review, the management system was successfully introduced in a pilot phase inEast Europe. And preparations have been made to introduce the system in all Europeanregions as well as in subsidiaries in the Asia-Pacific region.

Enhancing staff competence through further trainingIn the face of rapidly changing markets, staff qualifications are an increasingly importantfactor helping shore up the future of our company. Lifelong learning at work enhances com-petence and achieving this with our staff is a high priority. Thus, in the year under review,we created Group-wide standards for goal-oriented personal development. The focus was onintroducing competence management within the PMS framework and developing processesto increase potential.

In 2002, we committed EUR 2 million to further training measures for staff throughoutthe Group. A total of 3,217 employees participated in the training program on a total of4,604 work days. The focus was on professional training, measures to develop personal skillsand improvement of foreign language skills.


Broad training program ensures young talent rises within the CompanyHARTMANN has a long tradition of training and promoting junior staff; this strategy formsan important mainstay in personnel development. In 2002, 262 young people participated inapprenticeships throughout the Group, up 27 from the year before. Furthermore, we gave 78interested school children the chance to learn about the 14 trained professions at HART-MANN in introductory training courses.

Company pension program at PAUL HARTMANN AG newly regulatedAgainst the backdrop of income gaps which are to be expected from the government pen-sion programs, additional personal provisions are gaining in importance. Therefore in theyear under review, we decided to restructure the voluntary company pension plan to includea modern and flexible capital component model. It replaces the HARTMANN Help program,which for more than 60 years has granted employees voluntary social benefits in the form ofa company pension plan. As part of the new HARTMANN model, employees have a dynamicincome provision component financed by the company. In addition, employees can financetheir own components in the form of remuneration conversion.

Caring about health issues starts

with your own body. The HARTMANN

fitness program offers a balance

between the working routine and

necessary physical activity.


R&DIn the year under review we successfully completed manyR&D projects and readied the products for launch. The factthat the different HARTMANN technology fields co-operatedintensely with one another led to synergies in the Medicaland Patient Care business units. Our focus was on inno-vative product concepts to help heal, protect and care forthe skin.

Projects in the field of wound management strengthen our traditional corecompetenceIn 2002, many projects again concentrated on further developing our product concepts forthe treatment of chronic wounds. We intensified our joint work with research institutes andbroadened the basis of our co-operation. We have made consistent use of the knowledgegained in the field of wound healing processes in order to further improve our hydroactivewound dressings.

A patented technology for producing innovative hydrogels enables us to make wounddressings which better support granulation thereby accelerating the healing process. Wepressed ahead with advances to the interactive TenderWet wound dressing pads – which isparticularly recommended for wound conditioning – so that it is easier to use the productsystems in medical practices. Lengthy microbiologic in-vitro tests aided research into the wayTenderWet works.

In the year under review, we attached high priority to continuing research projects inthe field of regenerative biomaterials. As a consequence, we have gained a deeper knowl-edge of blood clotting and the antibacterial effects of these natural substances.

Operating theatre programme optimized with improved material propertiesIn the past year, activities in the surgical product sector focused on improving material prop-erties. Our Foliodrape OR draping systems were fitted with a new fibre combination boastingbetter absorption and retention qualities. The surface material is especially lint-free and thus effectively guards against spreading germs. An innovative telescopic folding system wasdeveloped for the Foliodrape instrument table cover which can be unfolded by a single person in one step. The surgical gowns line which is offered under the Foliodress brand nowhas better barrier properties against liquids while still maintaining breathability.

Innovative incontinence products for optimal skin protectionIn the year under review, HARTMANN developed an innovative incontinence brief, MolicareMed, which is now ready to market. The special feature of this product is the combination ofa breathable foil backsheet and a soft inner top layer which is treated with Pantenol.Pantenol soothes the skin and has a moisturising effect. A study by an independent researchinstitute showed that Molicare Med reduced skin irritations in a short amount of time.

Another important area was the development of a super-absorbent material whichreduces and safely binds the smell of urine and faecal waste products. Optimized absorbentstructures take the high demands placed on incontinence products into account, regardingabsorbency, wearing comfort and discretion.



Perfect make-up removal with microfibre cottonwool padsUsing a microfibre developed especially for cosmetic purposes, HARTMANN has created aninnovative cottonwool pad which combines all of the desired properties in this product category: effective makeup removal, high material strength and a very soft surface texture.In consumer tests the cotton pads offered by the brand Bel Cosmetic, consistently receivedthe best marks.

Improved wearing comfort for Fixies baby diapersIn the Baby Hygiene range, activities focussed on optimizing the anatomical fit across theentire Fixies product range. We were successful in improving both wearing comfort andleakage protection. Newly developed elastic fastening systems additionally served toincrease the baby’s freedom of movement.

Intense scientific dialogue is the

principal element in our medical

expertise. Our specialist publications

are thus held in high esteem by

doctors, healthcare staff and

patients alike.



Environmental protection and safetyA successful safety and environmental protection manage-ment system optimizes product procurement processes.Thanks to the Group-wide introduction of the Health,Safety and Environment (HSE) Site Assessment system inthe year under review, safety and environment relatedplanning as well as control and monitoring tasks can beput into practice more effectively.

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HSE Site Assessment established throughout EuropeThe HSE Site Assessment system introduced in 2002 provides HARTMANN with a system forevaluating risks and assessing improvement potential concerning both occupational safetyand health and environmental protection. Conducting comprehensive, objective site assess-ments gives HARTMANN a leading edge over competitors. In 2002, HSE Site Assessmentswere conducted at 23 European production facilities. Additional production facilities andlogistics centres outside Europe will be included in the audit in 2003.

Central coordination in product safety issuesWithin the framework of our Company’s international gearing, and considering the increas-ing globalization of the markets, we set up a Group-wide coordination office for productsafety in the year under review. This means we can evaluate the safety of materials andproducts and consequently respond swiftly to customer queries regarding customer and environmental protection.

ERAQ concept realized in Europe, North America and Asia In 2002, we began to establish a regional network that enables us to deal decentrally withtasks related to Environment, Regulatory Affairs and Quality (ERAQ). Employees in a givengeographical office act as regional coordinators, serving as contacts for customers, authori-ties and the public, and work closely with departments throughout the Group.

Collaboration with universities and companies stepped up In collaboration with the chambers of industry and commerce and leading industrial compa-nies HARTMANN was responsible for creating a working group whose aims – within theframework of the Agenda 21 – are the transfer of know-how and the practical realization ofenvironmental management systems. A project conducted with Zittau/Görlitz and Pforzheimuniversities concentrated on producing an audit of all material and energy cycles involved inthe manufacture of incontinence products to determine the impact on the environment.

supplies mean we can assure

ourselves of the sustainability

of forestry with an ecological

orientation.


Supply Chain ManagementThe year 2002 saw prices for raw materials and commod-ities ease slightly. In order to achieve further cost-cuttingpotential, we have introduced measures to improve oursupply chain management system, and expanded ourEurope-wide logistics concept to other regions.

Easing purchasing prices impact favourably on earningsIn 2002, the continued weak economy together with a relatively strong euro led to reducedpurchasing prices for raw materials and commodities. In particular, there was a pronounceddrop in prices for cellulose which we use in our hygiene products.

Alongside these economic factors, further improvements to our internal workflow con-tributed to a favourable result. The global bundling of purchasing in keeping with the princi-ple of ”one material – one employee“, in addition to a staff training and upgrading pro-gramme accounted for over 40 percent of savings being achieved. In anticipation of expect-ed price rises in the current year, we have begun to secure the procurement of the mostimportant raw materials we particularly rely on by closing long-term contracts. By means offinancial market instruments, we aim to hedge as much as possible from cyclical marketvolatility.

Improved supply chain management system opens up further cost-saving potentialIn 2002, we initiated a project aimed at restructuring the supply chain management systemso as to lower inventories of raw materials and finished products while still maintaining ahigh order fulfillment capability. A first step we took was to decentralize responsibility forsales planning. We hope this will render our volume forecasting more accurate and alsoreduce the amount of capital tied down.

Successful implementation of the Euro-logistics conceptThe Euro-logistics concept, which involves cross-border networking of our warehouse loca-tions, was gradually expanded in the year under review. A key activity in this context was toincorporate South Europe, which is now supplied by central distribution warehouses. Thesemeasures fulfilled our expectations, i.e., they produced cost-savings yet maintained our abili-ty to deliver. Enlarging our Swedish warehouse site will mean we can expand this concept tosupply the North European region as well. Moreover, mindful of EU expansion in 2004, weare making concerted efforts to providing logistics services to East Europe.

Transportation costs still rising Freight costs continued to rise in 2002. One reason for this is the Europe-wide wave ofbankruptcies amongst haulage firms hit by the economic downturn. Other factors pushingup costs include the raising of Germany’s eco-tax and France’s restrictive laws on workinghours. Streamlining the internal workflow enabled us to offset the resulting price increases –but not in total. We likewise do not expect freight costs to ease during the current year.




Risk ManagementOwing to its global business activities, the HARTMANNGroup is prone to a large number of risks that directlyaffect its operations. A uniform Risk Management Systemenables timely identification and assessment of such risks,and the implementation of risk reduction measures.

Risk Management System refined furtherIn 2002, the corporate-wide uniform Risk Management System was expanded to includeother members of the HARTMANN Group. As of year-end, some 17 subsidiaries togetherwith their affiliated companies had been integrated into the system. Risk management offi-cers in the Company and its subsidiaries updated the broad risk reviews mid-year and atyear-end, and highlighted any significant changes. Specifically, they assessed the probabilityof the said risks occurring together with the anticipated level of exposure, and developedrisk reduction and prevention measures. Special emphasis was placed on so-called top risks,i.e. those that could jeopardize the Company’s continued existence. In addition to this internal revision, the Audit Committee which the Supervisory Board had appointed for thefirst time in 2002, scrutinized the Company’s risk management system.

Risks due to changes in market and competition conditions still highHARTMANN operates in markets which are all subject to the same strong international com-petition. However, our health policy department reviews market trends and changes to thelaws on an ongoing basis: in the highly varied health systems in place in the various nations.Indeed, our worldwide activities in this area are indispensable if we are to offset possiblerisks in individual markets.

HARTMANN still contends with sharp pricing in the consumer products business, a sit-uation further exacerbated by the sluggish economy in the year under review. Aside from ourongoing examination of cost-cutting opportunities and restructuring, we accord great priori-ty to measures aimed at enhancing our innovative strength and competitive edge. In 2002,we also implemented programmes to boost our brands. Finally, we will make acquisitionsand enter into strategic partnerships to secure the Company’s competitiveness.

Human resource risks prioritizedTo a great extent, HARTMANN’s success hinges on its ability to secure and retain qualifiedspecialists and managerial staff. An important factor in this context: shorter innovationcycles and increasingly international operating areas increase demand for the specialistknow-how of our staff. In 2002, we developed a broad spectrum of training programs andintroduced attractive compensation packages to attract and keep such staff.

High procurement, production and logistics risksNaturally, the procurement of goods and services involves risks in regard to price, qualityand ability to meet delivery deadlines. We counter these risks by monitoring the suppliermarket intensively and reaching contractual agreements in these areas with our suppliers.Audits based on international standards which constantly monitor workflow mitigate risksoccurring at production facilities and logistics centres.


HARTMANN Group outlookWe expect the world economy to pick up in the second halfyear at the earliest. Nonetheless, HARTMANN will continueits expansion both inside and outside Germany, and onceagain outperform the market. For the year 2003 theHARTMANN Group is targeting sales appreciably aboveEUR 1.3 billion.

International expansion essential for profitable growthWe seek to continue our expansion into heavily populated and strongly-capitalized nations.Our internationalization drive has proven to be an engine for growth, generating salesincreases of over 50 percent in some instances. By acquiring new subsidiaries in Norway,Rumania, Morocco and Algeria, HARTMANN is expanding both inside and outside Europe.As a result, the world payroll will rise to over 10,000.

Irrespective of the ongoing internationalization, HARTMANN still remains committedto Germany as a production base, and has borne this out with investments in tangible assetsin Heidenheim and Herbrechtingen, among other places. We also plan to expand productionfacilities in the Czech Republic and China.

One focus of financial investments in 2003 will be Italy. In March of this year HART-MANN acquired the firm D.A.S. Distributori Articoli Sanitari S.r.l. in Turin. Furthermore, weplan to bolster our external sales force for pharmacies in that country through the acquisi-tion of additional distribution companies.

Clearer focus on core business Alongside internationalization, a second vital element for sustained growth is the concentra-tion on our core business. We will streamline our product portfolio, paying greater attentionto customer needs and value management. In this context, HARTMANN has decided tocease production of blood sugar test strips. Accordingly, our Niedernhausen location (nearFrankfurt) which employs 34 staffers, will be spun off.

Enhanced transparency in Group management By adopting IAS reporting, HARTMANN is one of the first companies in the medical productsindustry to introduce international accounting standards. Furthermore, the installation ofSAP R/3 software at the Karl Otto Braun KG and Sanimed GmbH subsidiaries in Q1 2003marked the successful completion of key investments in new subsidiaries’ infrastructure andintegration. A value management project will have a substantial impact on Group capitalcosts management as of 2004.

In a further step designed to enhance Group transparency and management, Spanishadhesive plaster manufacturing company PAUL HARTMANN S.A. was rendered independentof the Laboratorios UNITEX-HARTMANN S.A. distribution firm. There are also several reloca-tion projects aimed at improving cost structures, one of which involves several product linesat the head office in Heidenheim.

The new year got off to a difficult start owing to an ever greater squeeze on prices for consumer products, especially in the diapers market. Nonetheless, after a satisfactory Q12003, we expect to meet our ambitious earnings target, on par with the previous year’s figure.



Very high hygiene standards apply

in the manufacture of medical skin

care products.


MedicalOwing to the mounting financing problems affectingvirtually all markets for medical products, pressure on ourMedical business unit increased still further in 2002.Though this has made for tougher operating conditions, the business unit performed excellently, generating above-average increases in sales and earnings.

HARTMANN presses ahead with internationalization of medical products businessScoring sales revenue of EUR 484.1 million, the Medical business unit made a significantcontribution to the success of the HARTMANN Group in 2002. The gratifying 7 percent salesrise was achieved almost exclusively through organic growth.

As in previous years, growth was primarily generated by business abroad: the amountof foreign sales rose to 63.6 percent of total sales. We succeeded in appreciably expandingour market position above all in the core European markets of Austria, Belgium, France andSpain. In Germany and Switzerland we maintained our excellent edge: in terms of marketcoverage (according to sales per inhabitant) these two nations still head the field. However,in terms of sales in relation to a nation’s spending on its health system, the HARTMANNcompanies in the Czech Republic and Slovakia lead the rankings.

We did not quite meet our sales targets in the regions outside Europe – these current-ly represent 11 percent of our global Medical business, and performed below-average in2002. The explanation for this can be found in internal sales shifts from the United States to Europe, and the loss of a key client by our HARTMANN-Conco subsidiary.

In the year under review, the Medical business unit booked segment income of EUR77.6 million from EUR 63.1 million in the prior year. Investments amounted to EUR 14.7million, some EUR 13.4 million lower than for 2001.

Market position for classic dressing material fortifiedNotwithstanding the further increase in pricing pressures world-wide, in 2002 we succeededin slightly expanding our business with traditional dressing material products such as textilewound dressings, bandages and plasters. We were also able to bolster our leading positionin the European market for wound treatment and dressing retention materials. This successcan largely be attributed to a comprehensive programme designed at enhancing productsupply procedures at our production sites in Europe and China.

By launching a new generation of hydrocolloid dressings, we once again succeeded inspearheading developments in the market segment for moist wound treatment, andachieved a good double-digit sales increase for the whole product group. In acquiring theFrench orthoses maker Max Lorne, the Medical business unit now possesses an attractiverange of products in this field. At the start of 2003, our launch of the new product rangeunder the Rhena brand got off to a successful start in the French market.

Strong growth in theater products and custom procedure traysGiven the demand for greater safety and economy, the market for disposable surgical prod-ucts is one of the few medical product areas to experience strong growth, especially inEurope. In 2002, HARTMANN once again outperformed its competitors, and gained furthermarket share in Europe with Foliodrape disposable surgical draping material as well asFoliodress operating theater clothing. In January 2003, the foundation stone was laid for the construction of a new sterilization plant at our Czech production site for Foliodrapeproducts, providing HARTMANN with the economic basis for further growth in this attractivesegment.


Medical business unitin EUR million

2002 2001

Sales revenue 484.1 452.7+7.0 %

inside Germany 176.3 175.1+0.7 %

outside Germany 307.8 277.6+10.9 %

Segment income 77.6 63.1+23.0 %

Investments 14.7 28.1–47.7 %


The highest growth rate (in %) in the Medical business unit in percentage terms wasscored by MediSet procedure sets. These sets for outpatient and home-care use posted agrowth rate in excess of 30 percent. Above all in France we have succeeded in continuingthe successful development of this segment.

Sluggish economy leads to poor OTC businessConsidering the tense economic situation prevailing on virtually all sales markets, businesswith first aid and self-diagnostic products fared satisfactorily in 2002. As regards businesswith pharmacists, Tensoval blood pressure monitors were second (in market share) for theentire European market, leading the markets in Belgium, France and Austria. Additions toour first aid ranges sold under the Dermaplast and Tiritas brands made for a noticeable salesimprovement.

Thanks to continuous improvements

to material properties HARTMANN

meets the high demands for prod-

ucts used in hydroactive wound

treatment.


Patient CareThe Patient Care business unit had a highly successful yearin 2002. A gratifying sales increase in core operations andinclusion of Sanimed sales made it the strongest-sellingbusiness unit in the HARTMANN Group for the first time.

Above-average sales and earnings growthOn balance, the Patient Care business unit achieved an 18.3 percent rise in sales revenue,netting EUR 486.9 million. In its classic core operations – namely our range of highly-absorbent incontinence products – we scored a growth rate of 10.4 percent. Sanimed, whichwas acquired in summer 2001, accounted for 7.9 percent of growth.

Despite continuing worldwide pricing pressures, the incontinence segment neverthe-less succeeded in clearly topping the previous year’s result – generating EUR 71.3 million.This can be attributed to several factors: further productivity increases and temporary easingof raw material prices; the rigorous pursuit of our quality policy, and our international brandstrength which we built up in recent years. The investment volume fell to EUR 15.6 million.

Market importance in core business further improved worldwideIn 2002, we succeeded in significantly boosting our market share for incontinence productsin almost all markets. We posted double-digit growth rates in West, East and North Europe,but also made pleasing progress in Australia, Japan and the United States. We realized thehighest absolute sales increases in Germany and France, thereby reinforcing our leadingposition in both countries in the relevant sales channels.


highly automated manufacturing

procedures and continuous quality

inspections ensure the high quality

of our absorbent incontinence

products.

Patient Care business unitin EUR million

2002 2001

Sales revenue 486.9 411.7+18.3 %

inside Germany 215.7 170.8+26.3 %



Investments 15.6 23.5–33.6 %



Regarding the individual product ranges, the all-in-one incontinence briefs sold underthe Molicare brand fared best. The premium products Molicare Mobile and Molicare Supergenerated growth rates that were well above average, and further increased its proportionof total Unit sales. There was also dynamic market development in products for slight incon-tinence that are offered under the Molimed, Confiance and LadyCare brands. We also scoredfirst successes with Menalind derm – the skincare programme introduced in April 2002 forpeople suffering from neurodermatitis and those with very dry skin.

Innovations as an engine for future growthInternational expansion makes it vital that we cater to market trends and individual cus-tomer requirements in product development and product design. Regarding incontinenceproducts, it is also essential to incorporate our medical expertise in patient skin care intoproduct development work.

An excellent example of this is the incontinence brief Molicare Med which was intro-duced in May 2002, especially for people with highly sensitive skin. The breathing backinglayer used in Molicare Med means less warmth is produced, while the non-woven surfacethat is close to the skin contains panthenol which has a soothing and moisturizing effect.We also proved convincingly that Molicare Med is highly effective against incontinence dermatitis by conducting a test involving 796 test persons with heavy incontinence.

An important focus of the HARTMANN R&D departments is the constant improvementof our incontinence product range with regard to absorbency, comfort and discretion. In2002, we began using an innovative, super absorbent material that absorbs unpleasantsmells in all incontinence products. This was a further milestone in raising market accept-ance.

Service concepts cater better to customers Our strategic realignment to meet the newly emerging structures in healthcare systems ledonce again in 2002 to a greater focus on the Patient Care business unit’s expanded range ofservices. Sanimed, for whom this was the first full calendar year in the HARTMANN Group,played an important role in this context. With its comprehensive spectrum of products andservices across the entire care chain through to the patient, Sanimed maintains excellent anddirect contact to all groups relevant to the health market. Although we are not yet satisfiedwith Sanimed’s earnings situation, we are confident it will improve over the mid term.

In 2002, we also swiftly expanded the specific service tools we offer for the more effi-cient application of incontinence products, as well as the HARTMANN training program formanagerial staff and specialists in inpatient care. The content of our customer magazine“HARTMANN-Pflegedienst” (Nursing services), which was previously published solely forhome-nursing staff, was adapted at the start of 2002 to also target inpatient nursing staff.The magazine now has almost 30,000 regular subscribers, making it one of the most widelyread specialist publications in the German health care industry. In France, the periodicalappears under the name “SoinsService”.


Consumer ProductsThe weak economy and lower consumer confidence, led tomarkedly lower demand on European core markets for thelines marketed by the Consumer Products business unit.Nevertheless, the business unit posted a sales increase in2002 – thanks to the acquisition of KNEIPP in autumn2001.

Highly successful integration of KNEIPPThe Consumer Products business unit raised sales revenue by 4.6 percent on the year, report-ing a total of EUR 296.1 million. KNEIPP accounted for 20.5 percent of the division’s sales.If we exclude these sales consolidated in 2002, then overall sales for the classic hygieneproduct ranges slipped by 6.9 percent.

The main reasons for consumer restraint: the introduction of the euro together withdiscussion throughout Europe about consequent prices increases, the gradual worsening ofthe economy, and continued uncertainty about the global political situation. There were onlya few winners in this tough market situation: the discount stores and private label products.In Germany, our core market, every second diaper bought is a private-label diaper.

On a positive note, the successful integration of the firm KNEIPP had a favourableimpact on the division’s earnings. Other factors that eased the difficult situation were syner-gies achieved primarily in distribution; further process improvements, not to mention moderate price falls in the raw materials we rely on for our hygiene products. However, the ongoing consolidation process at the retail level affected us adversely. Conditions for doing business came under growing pressure, and the situation was worsened by tougher price competition in the retail trade.

Notwithstanding difficult operating conditions, Consumer Products raised operatingincome by EUR 0.4 million to EUR 6.7 million in 2002, but profits remain unsatisfactory.Investments stood at EUR 11.1 million, or EUR 2.1 million up over previous year.

Better earnings for Fixies targetedHaving achieved double-digit growth figures for several years, we failed to meet our salestargets for baby hygiene products in the year under review. The reasons: the unremittingshift towards private label products but also extremely aggressive pricing policy by our maininternational competitor which we did not wish to follow. Nevertheless, we remain confidentwe can return to a growth phase by launching further product innovations and placinggreater emphasis on supplying private label products – also in the diaper field. The positivetrend for first quarter 2003 indicates our confidence is well-founded.

Uneven developments in cottonwool products and feminine hygieneIn 2002, we again maintained our position in the stagnating market for cottonwool prod-ucts. The launch of innovative cosmetic cotton pads in autumn 2002 stimulated our Belbrand business. This innovative product provides gentle yet thorough cleansing thanks to itsultra-fine microfibres. It has been very well received by both the retail trade and private con-sumers. Our cottonwool business also fared pleasingly in the French market where we hold aleading position in private label business.

With our feminine hygiene products offered under the Ria brand, we had to contendwith an extremely difficult year. Extreme battles over prices and market share resulted insales losses in the core markets of Eastern Europe.


Consumer Products business unitin EUR million

2002 2001

Sales revenue 296.1 283.0+4.6 %

inside Germany 161.2 164.7–2.2 %



Investments 11.1 9.0+23.3 %


KNEIPP achieves turn-around in first yearKNEIPP was back in the black in its very first full year as a member of the HARTMANN Group.This highly pleasing achievement can be attributed to the following factors: a streamlinedproduct range, comprehensive process improvements in production and distribution proce-dures, not to mention the introduction of a new product range under the KNEIPP S·P·Abrand in autumn 2002. Thanks to our new positioning of the brand and aggressive workingof the international markets, we anticipate further positive developments.

Market share expanded in first-aid kits for motor vehiclesThe weak state of the automobile industry in 2002 took its toll on our business with first-aidkits for motor vehicles. However, we were able to buck the trend and increase our marketshare once again. Roughly one in three first-aid kits for drivers on the German market ismade by HARTMANN.

Producing first-aid kits adapted to

individual automobile brands requires

exceptional manufacturing flexibility.


Central EuropeIn 2002, we scored gratifying growth in Germany, Austriaand Switzerland. Customer sales rose 9.1 percent to EUR 668.2 million. Our Medical and Patient Care businessunits made a substantial contribution to this figure.

Sales growth in Germany despite negative economic conditionsIn 2002, customer sales in the German market totalled EUR 554.4 million, amounting to an increase of 8.4 percent. The share of overall HARTMANN Group sales revenue accounted for by Germany dwindled to 43.7 percent.

The sales increase achieved in the fiscal year 2002 was largely fuelled by Medicalbusiness. Once again, our Patient Care business unit made an emphatic contribution toearnings, scoring clear double-digit growth. Despite restrictive prescription practices and theprice sensitivity of our customers, the Medical business unit performed gratifyingly. By con-trast, the general economic slump unfavorably impacted on sales in our Consumer Productsbusiness unit.

Position strengthened among private practice physicians and medical retailersThe business year 2002 was influenced by the ongoing discussion on further financialreforms within the German Healthcare System – to the detriment of spending. Despite thesetendencies, we successfully held our own in the market. We succeeded in fielding innovativeproducts and service concepts and thus expanded our market share in business withpharmacies, pharmaceutical wholesalers, specialized medical retailers and homecareservices.

During the year, we focused among other things on consolidating our position inhydroactive wound dressings. We were able to further solidify our position in the healthcaremarket with our product lines for doctors’ offices.

We achieved clear growth with our incontinence product systems, significantlyexpanding our position in the pharmacy market for patients with moderate to severeincontinence. That said, our Molimed pads are being recommended by an increasing numberof pharmacists as an adequate system to deal with slight incontinence. In the homecareservices segment, a trend is emerging in favour of suitable high quality products. In the yearunder review, our Molicare Mobile incontinence pants were once again well-received forcare for ambulant patients.

At the beginning of 2002, we were able to place our OTC range on a broader footingwith the introduction of our Menalind derm special care series. This product has beenspecially developed for neurodermatitis skin problems and was well accepted by consumersand pharmacists alike. Our KNEIPP range sold exclusively at pharmacies has profited fromthe expert consultation of pharmacists as well as improved distribution at these locations.

Polls of German nursing facilities confirm high customer satisfaction withHARTMANNBusiness with senior citizens homes and nursing homes did well. An increase in the numberof placements in these facilities helped boost our market position further. The productimprovements of our Molicare and Molimed incontinence products was met with greatcustomer interest. Molicare Med is especially developed for people with sensitive skin andwas enthusiastically received by nursing staff.

In 2002, we commissioned a broad-based client survey. In response to the poll,nursing staff and decision-makers in institutions expressed their high level of satisfactionwith our product and service offerings.


600

500

400

300

200

100

0

20012002

511.2554.4

+8.4 %

Customer sales in Germanyin EUR million


Growth in business with hospitals despite official “zero” growth policy2002 was marked by the ongoing tense financial situation in the German hospital market.The government imposed a zero-increase policy on healthcare spending. Due to theincreased number of admissions and higher personnel costs, aggregate spending on medicalsupplies decreased.

In the year under review, sales were above average for the industry, with improvedearnings despite unfavourable conditions. We were able to stabilize our market-leadingposition for surgical gloves. The backbone of growth was once again our surgical productranges. Innovative product solutions with our Foliodrape surgical draping sets and Foliodressclothing for use in operating theaters proved highly popular with customers. In inpatientcare, our incontinence products booked growth despite the decreasing average number ofdays spent in hospitals.

With the introduction of the diagnosis-oriented hospital financing system by imposinglump sums for diagnosis related groups (DRGs), which will be in effect as of 2004, hospitalswill be forced to price their services competitively. Consequently, we expect that hospitalpurchasing managers will opt to bundle orders. We intend to meet this development withnew forms of co-operation such as concluding budget contracts or offering advice inoptimizing product ranges and processes.

Consumer restraint in Germany put a strain on Consumer Products marketsBusiness in 2002 was characterized by general purchasing restraint among consumers as aresult of the weak economy, additionally fostered by a pessimistic view of the global politicalsituation as well as price increases in the wake of the euro’s launch. In the foodstuffbusiness, only discounters were able to notch up real increases. The importance of privatelabel products over established brand articles increased noticeably.

Specialist consultants and the

external sales force receive regular

training to familiarize them with

our products and the applications.


These factors hampered the performance of our Consumer Product brand labels andled to decreased sales of our Fixies diapers and the Ria brand feminine hygiene products. Inthe first aid segment, we managed to maintain our high-level market position in Germany.

The integration of the KNEIPP brand range into the HARTMANN Group sales networkin 2002 sparked initial synergies. In the second half, sales clearly revived owing to expandeddistribution. The KNEIPP S·P·A brand product line introduced at the end of the year is nowplaced in over 10,000 business locations.

Growth in Switzerland bolstered by hospital businessIn 2002, IVF HARTMANN AG booked customer sales of EUR 63.7 million, 5.1 percent up onthe year. Growth was accompanied by stable earnings on balance.

Hospital business was particularly dynamic, benefiting from above-average growth inFoliodrape surgical draping sets. Also, our MediSet brand custom procedure trays forinpatient care have gained ground.

In 2002, we continued to expand our favourable position in Swiss pharmacies. Thegradual growth of the Dermaplast brand range to a leading first-aid brand, helped toappreciably revive sales. Our wide range of hydroactive wound dressings continued to enjoyhigh acceptance among private practice physicians. In the inpatient and homecare segmentswe made gratifying progress with our incontinence products. In particular, the Moliform andMolicare product systems for the management of moderate and severe incontinence wereincreasingly popular among nursing personnel.

Consumer Products business also benefited from our traditionally strong marketplacement for cosmetic cottonwool products. In particular, the revamped Bel range was wellreceived by retailers and consumers alike.

Customer sales in Switzerland include not only IVF HARTMANN AG business, but alsodirect exports from Germany and sales of KNEIPP products in Switzerland.

HARTMANN present in Austria for 25 yearsPAUL HARTMANN Ges.mbH can look back on a successful jubilee year. The companymanaged to increase customer sales in Austria by 12.2 percent to EUR 32.8 million. Salesgrowth combined with consistent cost management led to clearly improved profits.

In 2002, growth was mainly driven by the clear improvement in our position with in-continence products in nursing care facilities. We were also able to expand distribution ofthis product segment in medical supply shops. Business with pharmacies focussed mainly onintroducing new OTC products. The expanded Dermaplast brand range, performed well atthese locations. Consumer Products business by our Austrian subsidiary was gratifyinglyboosted by the take-over of the KNEIPP brand distribution with retroactive effect as of Jan. 1, 2002.


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100

50

0

20012002

101.1113.9

+12.7 %

Customer sales in Switzerland andAustriain EUR million



Double-digit growth in our French company’s 30th yearOur French company can look back on a very successful business year. PAUL HARTMANNS.A., with its six subsidiary companies, raised customer sales by 17.2 percent to EUR 187.2million while once again improving profits. The Medical business unit accounted for the sin-gle largest part of this growth, expanding its leading position in pharmacies to contributesignificantly to this outcome. By taking over Max Lorne, the French orthoses manufacturer,we extended our expertise in the important product line of therapeutic bandages. The inno-vative program for support and immobilization bandages, sold under the Rhena brand name,was successfully launched in French pharmacies at the beginning of 2003.

The indication-based nursing procedure products marketed under the MediSet brandagain saw high growth rates for in- and outpatient care. In the hospital segment, weachieved gratifying growth rates with surgical procedure sets and sterilization products. Wewere able to fortify our strong position in senior citizen and nursing homes with our line ofincontinence products. The trend for Molicare Mobile incontinence pants was particularlyvibrant. Our hygiene products and, in particular, the successful placement of the KNEIPPproduct line contributed to gratifying expansion in Consumer Products sales.

Great Britain – across-the-board growthIn 2002, PAUL HARTMANN Ltd. increased sales 5.7 percent to EUR 31.3 million, with earn-ings seeing double-digit growth. Once again, the Home Delivery Service business for inconti-nence products played a key role. Expanding contracts, which are now starting to cover notonly patients receiving home-care but also deliveries to residents of elderly care and nursinghomes, further boosted business. HARTMANN-Direct, the Mail Order service to end-users,again reported high growth. The Medical business unit achieved clear growth with our rangeof bandages and modern wound care products, assisted by additional brands being includedon the British Drug Tariff List. In the hospital segment, our entry to the Operating TheaterProducts market commenced. We strengthened the position of our Fixies and Bel brands inthe Consumer Products sector, which is traditionally characterized by private label products.

Ongoing success in Belgian pharmacies and hospitalsOur Belgian subsidiary looks back on a successful year with profitable growth. Salesachieved by N.V. PAUL HARTMANN S.A. came to EUR 25.4 million, with Medical sales onceagain leading the way. Sales of wound management products and therapeutic bandagesincreased appreciably, while MediSet custom procedure trays have gained ground. Businesswith elderly care and nursing homes was dynamic due to increased sales of incontinenceand patient hygiene products. Sales of diagnostic products were likewise positive, enablingus to further expand our leading position in Belgian pharmacies in this segment.

West/Northwest EuropeIn the year under review, the West/Northwest Europe region once again proved to be an important HARTMANN Group growth engine, with customer sales surging 15.5 percent to EUR 289.6 million. Innovative product concepts such as Foliodrape, MediSet, Molicare Mobile and the KNEIPP brand range contributed to enhancing the portfolio.

300

200

100

0

20012002

250.9289.6

+15.5 %

Customer sales in West/NorthwestEuropein EUR million


Greater role in the Dutch marketPAUL HARTMANN N.V. continued its growth trend, lifting sales by 9.3 percent to EUR 13.7million. Our broad product range has proved a competitive advantage given that patientcare in the Netherlands is increasingly shaped by trans-sectoral treatments. In the yearunder review, system offerings for hydroactive wound management, incontinence hygieneand operating theater products benefited particularly from this trend. The procedure traysintroduced in 2002 were very favourably received in both in- and outpatient care. Businesswith pharmacies received a fresh stimulus through the introduction of the Dermaplastplaster series and continued to perform well. A reader survey undertaken by trade journal“Medisch Nieuws” revealed that HARTMANN offers innovative solutions for growing health-care needs with its products and service offerings and is considered the second best supplierin the sector after 3M and ahead of Johnson & Johnson.

Surgical business stepped up in IrelandIn 2002, we further strengthened our favorable market position with incontinence products in Ireland. Intensifying customer relations with elderly care and nursing institutions con-tributed considerably to the double-digit growth. Business with hospitals in co-operationwith our Irish distribution partners also did well. Our line of Foliodrape products was wellreceived in operating theaters.



Manufacturing nursing procedure

trays to customer specifications

requires a high level of attention,

as pack contents have to be put

together in a precise order.


Varied trends in the Czech Republic and SlovakiaIn its 10th year, our largest subsidiary in the East European region, Czech HARTMANN RICOA.S., was confronted with the challenge of changing markets. The Patient Care and Medicalbusiness units contributed to the 7.8 percent increase in customer sales to EUR 35.8 million,leading to further improved earnings in the Group. However, consumer product salesreceded slightly.

In the predominant pharmacy business, customer relations were further developed dueespecially to our diagnostic products and the skin care series sold under the Menalind brand.We also solidified our position in the field of institutional care. Hospital business was markedby divergent trends. While the Foliodrape surgical draping program met with growing accep-tance, we faced stiffer competition with traditional dressing materials.

As in the other main markets in East Europe, Consumer Products business was characterized by an aggressive price policy in the trade and the growing importance of pri-vate label brands. As a result, the baby and feminine hygiene products experienced a slightdrop in sales. By contrast, we managed to further expand the distribution of cottonwoolcosmetic products.

Given a comparable trend in the Czech Republic in individual customer segments, the Slovakian HARTMANN-RICO S.R.O. posted gratifying growth of 9.3 percent, reaching EUR 14.5 million.

Above-average growth with Polish senior citizens’ and nursing homes In 2002, PAUL HARTMANN Polska Sp. z o.o. was confronted with the worsening of thefinancial situation in the Polish health care system. Nevertheless, our Polish subsidiaryscored a moderate 3.4 percent growth in sales to EUR 22.2 million. Once again, it wasprimarily business with nursing facilities which contributed most to this result.

Customer relations intensified in HungaryThe PAUL HARTMANN Hungária Kft booked customer sales totalling EUR 14.4 million, up a full 22.4 percent on the year. In particular, business with senior citizens’ and nursing homes was again buoyant. We clearly improved our position in hospitals and private practice physicians. Intensified marketing activities in pharmacies led to a further sales revival for our OTC product range. In particular, the KNEIPP brand range (introduced in the second half) proved very popular with consumers.

Russian subsidiary performs wellIn its 5th business year, PAUL HARTMANN OOO saw sales rocket over 50 percent. In collaboration with a nation-wide network of sales partners we solidified our position inhospitals and pharmacies. Alongside our incontinence products, our wound management product lines and surgical products were very well received. Over 400 medical professionalstook part in HARTMANN-sponsered training programs in Moscow and other major cities.

East EuropeDespite partially difficult market conditions in the countriesof East Europe, we were able to raise customer sales in the region by 11.7 percent to EUR 95.3 million. PatientCare and Medical business units made equally significantcontributions. In 2002, Consumer Products business provedto be more difficult.


100

50

0

20012002

85.395.3

+11.7 %

Customer sales in East Europein EUR million


North EuropeIn 2002, we again achieved solid growth in the region of North Europe. Customer sales in the region rose 13.7 percent to EUR 25.9 million. Business, which is traditionally dominated by incontinence products, was also stimulated in regional markets by our range of Medical products.

Gratifying business trend in Sweden with incontinence productsHARTMANN-ScandiCare AB was once again an engine for growth in the North Europeanregion. Customer sales soared 17.3 percent to EUR 12.5 million, surpassing our expecta-tions. Our products for incontinent patients played a significant role in this success, especial-ly Molimed and Molicare Mobile. Our hospital business led in particular by our adhesiveplaster range, booked gratifying gains. Our hydroactive wound dressings, Hydrocoll andSorbalgon also performed well.

Market position in Denmark held strongIn 2002, the PAUL HARTMANN A/S was among the strongest growth companies in theHARTMANN Group, posting clear double-digit sales trends. Despite the competitiveenvironment and aggressive prices for incontinence products, we were again able to achieve solid growth in this segment. Medical business performed well and benefited above all from the good response to our surgical drapes program in Danish hospitals.

Molicare Mobile drives growth in NorwayIn 2002, together with our sales partner in Norway, we succeeded in further expanding the distribution of our incontinence products in senior citizens’ and nursing homes. With thesuccessful introduction of our Molicare Mobile incontinence pants, we were able to build onthe success that this innovative product system has had in other North European countries.

Successful introduction of our OR theater range in Finland and the Baltic statesBusiness in Finland made satisfactory progress and was borne by growth in the field ofinstitutional care. Moreover, sales of our Medical products in hospitals was significantlyboosted by the successful introduction of Foliodrape, our surgical draping program. Businessin Lithuania, Latvia and Estonia performed similarly well and in the year under review veryfavourable double-digit sales growth was scored.


50

0

20012002

22.725.9

+13.7 %

Customer sales in North Europein EUR million


Profitable growth in Spanish marketWith sales up 6.9 percent to EUR 40.6 million, Laboratorios UNITEX-HARTMANN furtherfortified its position as the largest HARTMANN company in South Europe. Earnings herewere clearly higher than the year before. While the pharmacy business performed well particularly due to growth in therapeutic bandages and diagnostic products, growth in theprice-sensitive hospital sector and in institutional care did not come up to our expectations.

In Italy, group restructuring enhances client focusIn 2002, the priority in Italy was on profitable growth as well. PAUL HARTMANN S.p.A.boosted customer sales by 9 percent to EUR 13.4 million, with the hospital businessaccounting for the majority of the increase. Sales of Foliodrape surgical procedure sets andour bandages program were the most dynamic performers. Business with senior citizen andnursing homes benefited anew from growth in incontinence products.

At the beginning of the year we restructured our companies operating in the Italianmarket with the aim of further improving our client focus. While the B.S. BiochemicalSystems s.r.l. will intensify co-ordination activities, the Genesi s.r.l. will strengthenHARTMANN sales in North-Eastern Italy.

Double-digit growth in PortugalPAUL HARTMANN LDA can look back on another successful business year. We expanded ourleading position with incontinence products in senior citizen and nursing homes whichplayed a considerable role in our emphatic double-digit growth. The pharmacy business alsoperformed gratifyingly. In the hospital sector, we posted sales increases with hydroactivewound dressings and our OR theater program.

Opportunities arise from stabilization of countries in former YugoslaviaIn the year under review, political stability and economic recovery started to return to the Balkan countries. With the founding of PAUL HARTMANN Adriatic d.o.o. in Slovenia at the beginning of 2002, we recognize the potential in the countries that were formerly Yugoslavia.Sales activities focused predominantly on intensifying our customer relations with pharmaciesand care institutions.

Successful start for HARTMANN Greek subsidiaryIn its first year of business, PAUL HARTMANN Hellas A.E. reported very favorable business.Activities focused on establishing our Medical product range in pharmacies. Within thebroadly-based partnership program we launched, our OTC first aid lines and our diagnosticprogram proved popular with customers. In addition, we pushed ahead with tenders forGreek hospitals and expanded our range of offerings.

South EuropeBusiness in South Europe was satisfactory, with earnings improving clearly. Customer sales rose 5.9 percent to EUR 79.8 million. We intend to expand our commitment in the region through our new subsidiaries in Greece and Slovenia.


100

50

0

20012002

75.379.8

+5.9 %

Customer sales in South Europein EUR million


Regions outside EuropeIn 2002, we consistently pushed ahead with extending theHARTMANN Group’s international reach and founded newsubsidiaries in Australia and Iran. The gratifying sales trendfor regions outside Europe was primarily sourced in Africa,the Middle East and Oceania.

America

Business stabilized in United States with broader product rangeIn 2002, the integration of our HARTMANN Conco subsidiary, responsible for US Medicalbusiness, was successfully continued with a stronger sales organization. The introduction ofnew therapeutic bandages as well as our program for interactive wound care helpedstabilize our market position.

Marketing our incontinence products together with our US sales partner was impaired by a restrictive reimbursement program in this product segment. Due to expanded distribution in nursing institutions and hospitals, we nevertheless managed to boost customer sales.

Economic mood in Latin America cautiously optimistic Countries in Latin America hit the headlines during the financial year with economic andpolitical crises. Although the general shortage of hard currency had a negative effect onexports, we held our direct export at the previous year’s level. In the medium term we intendto significantly expand our market share on this subcontinent.

Africa and the Middle East

Growth in southern Africa clearly kindledOur South African subsidiary, HARTMANN-Vitamed (Pty) Ltd., can look back on a verysuccessful 2002. Sales and earnings trends lived up to our ambitious targets. Business wasbuttressed by clear growth by the Medical and Patient Care business units. Both our dressingmaterials and incontinence product ranges as well as our wide surgical product programwere increasingly well received in South African hospitals. We strengthened our salesorganization to take into account the growing importance of business with pharmacies andsupermarkets.

In the year under review, we transferred responsibility for covering the markets in the Sub-Saharan region to our South African company. Despite the partly unstable conditions in these countries, we recognize future opportunities here.

Gratifying business trend in EgyptNotwithstanding the economic crisis which persisted into the first half of 2002, PAUL HARTMANN Egypt S.A.E. realized double-digit sales growth and favourable profits. In the year under review, the Egyptian hospital market increased in importance as did the successful pharmacy business which is predominantly fueled by our hygiene and OTCproduct lines.


150

100

50

0

20012002

103.8110.9

+6.9 %

Customer sales outside Europein EUR million


Iranian potential identified earlyIn 2002, we succeeded in raising sales in Iran to a solid level. Establishing a local presencewith the foundation of PAUL HARTMANN Iran Kish LLC in February 2002, we positionedourselves early on to seize the opportunities afforded by the gradual opening of the country.We are satisfied with the results we achieved.

Exchange-rate trends impair further tapping of Middle East marketsIn 2002, our commitment in the Middle East was affected by the recovery of the euro which set in as of midyear. In general, customer sales were on a par with 2001. In the yearunder review, the National Medical Products Company Ltd. in Saudi Arabia, our traditionallydominant market in the Gulf region, posted slight sales gains. We recorded increases par-ticularly in the supply of incontinence products to hospitals and nursing homes.

Asia and Pacific

Hospital business dominates our engagement in ChinaIn 2002, China was again rated as one of the strongest growth markets in which theHARTMANN Group is active. Reinforcing the sales organization helped intensify customerrelationships in the focal regions along the heavily populated coastline. In the interior of thecountry, the Beijing metropolitan area is gaining in importance for us as well. In the yearunder review, we once again concentrated on hospital business, which bounced back thanksto our modern wound treatment assortment and broad bandages program. In addition, oursterile products made of absorbent cotton gauze in our production facility in Qingdao alsomet with growing customer interest in the local market.

In Hong Kong, we expanded our leading position in incontinence products; PAUL HARTMANN Asia-Pacific Ltd. achieved gratifying growth rates in business withpharmacies and nursing institutions. Additionally, the hospital sector is also gaining inimportance.

In 2002, Japan constituted the growth engine in the Asian regionIn the year under review we strengthened our commitment in Japan. The clear double-digitgrowth resulted predominantly from business with incontinence products in nursingfacilities.

Customer relations intensified in Singapore and MalaysiaDespite the deep-reaching recession, the PAUL HARTMANN Pte. Ltd. managed to solidify itsmarket position in Singapore. We scored clear growth in that country with our bandages lineand products for patient care. In the fiscal year 2002, preparations were made in Singaporeto penetrate the market in neighbouring Malaysia.



Stronger involvement in Oceania with presence in AustraliaIn the year under review, we made favorable progress in opening up the Australian and New Zealand markets. Our incontinence products, which were the main seller, once againreported double-digit growth. By establishing PAUL HARTMANN Pty. Ltd. in December 2002,we have taken the future growth potential into account with an extended product offering.

Indian subcontinent gains importanceIn 2002, we defined this subcontinent as one of our focal regions and made preparations to systematically enter the heavily populated countries of India, Pakistan and Bangladesh.We expect to report clear sales growth in the current year through stronger inclusion of ourfactory in Coimbatore, India and stepping up co-operation with our distribution partnersthere.

Through worldwide dialogue with

our customers, HARTMANN has set

the bar in the area of indication-

appropriate therapeutic products.



Consolidated Income Statement for Financial 2002

in EUR thousand Note 2002 2001

Sales revenues 1 1,269,749 1,150,358

Changes in inventories of finished goods and work in progress 2,659 20,638

Other own work capitalized 2,331 762

Other operating income 2 37,818 33,434

Cost of materials 3 585,821 575,819

Personnel expenses 4 314,937 276,666

Depreciation/amortization on intangible and tangible fixed assets 5 65,123 61,111

Other operating expenses 6 296,802 259,820

Earnings from operations 49,874 31,776

Financial loss 7 –15,340 –12,252

Income from interest in associated companies 7 279 424

Earnings from ordinary activities 34,813 19,948

Taxes on income and earnings 8 16,487 6,485

Earnings after tax (pro-rated for the period) 18,326 13,463

Income attributable to minority interests 9 –1,914 –3,364

Consolidated net income for the year 16,412 10,099

Earnings per share in EUR 10 4.62 2.84



Consolidated Balance Sheet as at Dec. 31, 2002

in EUR thousand Note 2002 2001

Assets

Long-term assets

Tangible assets 11 405,915 426,425

Intangible assets 12 49,800 50,519

Financial assets 4,348 5,461

Of which interest in associated companies 13 (2,103) (2,099)

Loans 516 3,002

Receivables and other assets 14 3,076 1,967

Deferred tax assets 15 4,732 4,959

468,387 492,333

Current assets

Inventories 16 230,943 235,661

Receivables and other assets 17 213,017 200,497

Claims for income tax refunds 17 2,508 6,629

Marketable financial securities 18 1,813 7,138

Cash and cash equivalents 19 40,416 44,570

488,697 494,495

Total assets 957,084 986,828

Liabilities

Shareholders’ equity and reserves 20

Subscribed capital 91,328 91,328

Additional paid-in capital 50,828 50,828

Revenue and other reserves 232,713 235,437

Own shares –31 –31

Retained earnings 16,412 10,099

391,250 387,661

Minority interests 21 25,189 24,500

Noncurrent liabilities

Financial liabilities 22 195,442 199,240

Deferred tax liabilities 23 35,910 34,134

Pension accruals 24 47,759 42,817

Accruals 25 27,546 28,704

Other liabilities 26 1,771 7,323

308,428 312,218

Current liabilities

Trade accounts payable and other liabilities 27 108,975 112,928

Income tax liabilities 27 10,507 7,673

Tax liabilities for other taxes 27 8,806 8,321

Financial liabilities 28 80,996 107,821

Pension accruals 29 2,230 3,769

Other accruals 30 20,703 21,937

232,217 262,449

Total liabilities 957,084 986,828



Schedule of Changes in Group Equity

in EUR thousand Subscribed Paid-in

Capital Capital

As at Jan. 1, 2001 91,328 50,828

Adjustments for exchange-rate differences 0 0

Added value according to IAS 39 not impacting on the Income Statement 0 0

Dividend payments 0 0

Allocations to reserves 0 0

Other changes 0 0

Consolidated net income 0 0

As at Dec. 31, 2001 91,328 50,828

As at Jan. 1, 2002 91,328 50,828

Adjustments for exchange-rate differences 0 0

Added value according to IAS 39 not impacting on the Income Statement 0 0

Dividend payments 0 0

Allocations to reserves 0 0

Other changes 0 0

Consolidated net income 0 0

As at Dec. 31, 2002 91,328 50,828



Own Revenue Reserves Consolidated Total

Shares Group revenue Added value Exchange-rate Net Income/Lossreserves pursuant to differences

IAS 39

–31 227,424 1,359 0 15,254 386,162

0 0 0 2,376 0 2,376

0 0 –935 0 0 –935

0 0 0 0 –9,988 –9,988

0 5,266 0 0 –5,266 0

0 –53 0 0 0 –53

0 0 0 0 10,099 10,099

–31 232,637 424 2,376 10,099 387,661

–31 232,637 424 2,376 10,099 387,661

0 0 0 –2,506 0 –2,506

0 0 –281 0 0 –281

0 0 0 0 –10,122 –10,122

0 –23 0 0 23 0

0 86 0 0 0 86

0 0 0 0 16,412 16,412

–31 232,700 143 –130 16,412 391,250



Consolidated Cash Flow Statement

in EUR thousand Dec. 31, 2002 Dec. 31, 2001

Earnings after taxes 18,326 13,463

Depreciation/amortization (+)/allocations (–) on tangible, intangible and financial assets 66,145 61,474

Other non-cash expenses (+)/income (–) –1,892 –899

Interest expense 16,979 15,372

Interest income –2,636 –3,483

Profit (–)/loss (+) on disposals of fixed assets –274 –617

Cash flow 96,648 85,310

Increase (–)/decrease (+) in inventories 2,713 –41,570

Increase (–)/decrease (+) in current and long-term receivablesand other assets –11,270 –21,281

Increase (+)/decrease (–) in current and noncurrent accruals 1,230 5,713

Increase (+)/decrease (–) in current and noncurrent liabilities(excl. financial liabilities) 2,352 8,834

Change in working capital –4,975 –48,304

Cash flow from operating activities 91,673 37,006

Payments from disposals, tangible and intangible assets 3,996 5,308

Payments from dividends on financial assets 117 313

Payments from interest 2,636 3,483

Increase (–)/decrease (+) in financial investments 5,325 16,461

Payments for investments in tangible and intangible assets –50,753 –57,972

Acquisition of Group member companies, less net cash acquired –4,935 –24,079

Other payments for/from financial assets –158 187

Cash flow for investing activities –43,772 –56,299

Free cash flow 47,901 –19,293

Payment for the PAUL HARTMANN AG dividend –10,122 –9,988

Payment for the dividend by Group member companies to minority interest –3,344 –2,999

Payment from taking up current and noncurrent financial liabilities 59,140 94,663

Payments for redemption of current and noncurrent financial liabilities –80,403 –32,646

Payment for interest –16,797 –15,072

Cash flow from/for financing activities –51,526 33,958

Net increase/decrease in cash and cash equivalents –3,625 14,665

Changes in cash and cash equivalents

Cash and cash equivalents at the beginning of the period 44,570 29,533

Changes in valuations/values recognized for cash and cash equivalentsowing to exchange-rate changes –529 372

Changes in cash and cash equivalents –3,625 14,665

Cash and cash equivalents at the end of the period 40,416 44,570


Explanatory Notes to the HARTMANN Group AnnualFinancial Statements

General remarks

PAUL HARTMANN AG is entered in the Commercial Register of the District Court ofHeidenheim/Brenz under file no. HRB 1090. The Company’s registered office is Heidenheim.The articles of incorporation are the version adopted on July 13, 2001. The name of theCompany is PAUL HARTMANN Aktiengesellschaft. The business year is the calendar year. The object of the Company is, as entered in the Commercial Register, to manufacture and/orsell all types of dressing materials, medical and dietary products, healthcare articles, baby-,body- and beautycare products, as well as related articles, technical items made of textilefibres and/or cellulose (e.g., cotton wools, wovens, knitted materials or non-wovens), adhe-sive tapes of all kinds, and auxiliaries for their use as well as related goods, OTC products forpharmacies, medical supply for hospitals and laboratories, and also all additional productsassociated with the above object.

The consolidated annual financial statements of PAUL HARTMANN AG have for thefirst time been prepared in line with the International Financial Reporting Standards (IFRS)including the International Accounting Standards (IAS) issued by the International AccountingStandards Board (IASB) as well as the interpretations of the International Financial Interpre-tation Committee (IFRIC) and the Standing Interpretations Committee (SIC). In the process,all standards and interpretations such as were mandatory for business 2002 were taken intoaccount to the extent that they are of relevance for the present consolidated annual financialstatements.

PAUL HARTMANN AG is availing itself of the option given in section 292a of HGB, theGerman Commercial Code, and is preparing and publishing annual financial statementsaccording to international accounting standards. The judgment whether said statementswere appropriate to exempt the Company from drawing up statements under HGB was madeon the basis of German Accounting Standard no. 1, as published by the GermanStandardization Council. Moreover, all figures and explanations required under Germancommercial law were disclosed, even if their statement was not binding under IFRS.

The balance sheet is sub-divided in line with IAS 1.53ff (rev. 1997) into long-term andcurrent items. The income statement has been prepared in line with the total cost method.The composition of the individual balance sheet and income statement items is outlined inthe explanatory notes.

The consolidated annual statements are prepared in part on the basis of estimates andassumptions that influence the figures given for the assets, liabilities and financial obliga-tions as at the balance sheet date as well as income and expense during the business year.Although these estimates and assumptions have been made with the greatest possiblecircumspection on the basis of all the information available, the actual figures may departfrom them.

Explanation of material deviations from German accounting law pursuant to section292a para. 2 no. 4b HGB

Material differences arise owing to the switchover to probably actual useful life and theswitchover in methods of amortization/depreciation.

Financial assets and available-for-sale securities have been sub-divided into four categories:financial investments held for trading purposes, those available for sale, and those heldthrough to final maturity, as well as loans granted and receivables. The first two categoriesof financial assets and the derivative financial instruments are carried at the fair value as atDec. 31, 2002. Thus, unlike German commercial law, it may also be necessary to discloseinformation on the figure by which the value exceeds the original purchase costs.

Foreign-currency receivables and liabilities are converted into euro at the Dec. 31, 2002exchange rate.

Tangible and intangibleassets

Financial assets, marketable securities andfinancial derivatives

Foreign currency translation




While under German commercial law it is optional whether to include material, manufactur-ing and administration overheads, such overheads are mandatory for statements under IAS to the extent that they shall be attributed to the manufacturing process. A devaluationof inventories is only permissible in the case of value impairments owing to sales marketconditions.

According to IAS 12, deferred taxes shall be computed with regard to the balance sheet. Inother words, unlike German commercial law in principle deferrals shall be established for alltemporary differences arising for timing reasons as at the balance sheet date. According toIAS, the tax impact of tax loss carryforwards that will serve to reduce a later tax load shallbe capitalized.

The criterion for deferring leasing relationships is assignment of the opportunities and risksconnected with the leasing object. Under German commercial law there are no bindingregulations for the balance-sheet treatment of leasing contracts, which is why in most casesaccountants rely on fiscal law. Unlike the German practise, the definitions given in IAS 17lead more frequently to a leased object being carried by the lessee as an asset.

According to IAS 19, pension accruals shall be valued by the projected unit credit method,factoring in future increases in wages, salaries and pension. Unlike German commercial law,the accrual posted, after considering planned assets, need not necessarily correspond to theactuarial obligation owed.

According to IAS, accruals may not be set up for expenses. Long-term accruals shall be discounted under IAS to the extent that the interest effect has a material impact.

The shares in PAUL HARTMANN AG held by the HARTMANN Group shall be carried as areduction in shareholders’ equity.

Minority interests shall be posted separately from shareholders’ equity.

The elimination of the options under German commercial law on inclusion of companies tobe statutorily included in the consolidation has led to a change in the latter.

The elimination of the options under German commercial law on immediate deduction of thedifferences from the first-time inclusion in the consolidation from the additional paid-incapital has led to material capitalization of goodwill.

Valuation of inventories

Deferred taxes

Leasing

Pension accruals

Accruals

Own shares

Minority interests

Change in the scope ofconsolidation

Change in goodwill



Reconciliation of shareholders’ equity to IAS

in EUR thousand

Shareholders’ equity according to HGB as at Dec. 31, 2000 269,074

Change in useful lives and depreciation methods fortangible and intangible assets used by HARTMANN 141,862

Different valuation for financial instruments 1,630

Capitalization of overheads under inventories 22,354

Impact of deferred taxes –34,311

Different treatment of leasing contracts 4,368

Changed valuation of pension accruals and the like –8,567

Changed valuation of other accruals 11,791

Changes in capital consolidation –22,622

Other 583

Shareholders’ equity according to IAS as at Jan. 1, 2001 386,162

Accounting and valuation policies

The following describes the essential accounting and valuation policies used when preparingthe present annual financial statements.

SubsidiariesAll subsidiaries have been fully included in the consolidation. Subsidiaries are defined asthose companies in which the Group holds more than half the voting rights or for otherreasons is able to control their financial and business policies. This also includes special-purpose entities. When assessing whether the Group controls another company, theexistence and impact of potential voting rights that can be exercised at any time or are convertible has been considered.

Subsidiaries are included in the consolidated annual financial statements as of thepoint in time when the Group was potentially able to control them and are removed fromthe consolidation as of the end of that controlling relationship. The acquisition method isused for the acquisition of subsidiaries. Purchase costs are then derived from the marketvalue for assets acquired, share outstanding or debts taken up at the point in time of theacquisition plus the costs directly attributable for the acquisition. The positive differencebetween the acquisition cost and the fair value of the identifiable assets and liabilitiesacquired is then carried as goodwill.

All intra-Group transactions and balances as well as non-realized profits from intra-Group transactions are eliminated. Non-realized losses from intra-Group transactions arelikewise eliminated, unless the loss constitutes a substantial indicator for a value impairmentof the assets assigned.

Should it be necessary, the accounting and valuation of subsidiaries are adjusted inorder to guarantee uniform application of Group accounting and valuation methods. A list of fully consolidated subsidiaries is included under Note 35 below.

Scope and principles ofconsolidation



Associated companiesConsolidation of associated companies is accomplished by the equity method. An associatedcompany is defined as a company in which the Group holds 20-50% of the voting rights orhas a material interest, without controlling it. Unrealized profits from transactions betweenthe Group and its associated companies are eliminated in line with the stake the Groupholds in the associated company in question. Unrealized losses are likewise eliminatedunless the loss represents a material indicator for the value impairment of the asset assigned.The book value of the participation in associated companies contains the goodwill lessdeduction of cumulated depreciation. Accounting using the equity method is terminated ifthe book value of the shares in the associated companies has fallen to zero, unless theGroup has assumed additional financial obligations or guarantees on behalf of the associated companies.

Functional currency and reporting currencyThe items contained in the annual financial statements of each group member company arereported in the currency that best reflects the economic reality of the underlying events andcircumstances with relation to the particular company (functional currency). The consoli-dated annual financial statements are presented in euro as the reporting currency, which islikewise the functional currency for PAUL HARTMANN AG.

Business transactions in foreign currencyBusiness transactions in foreign currency are translated at the exchange-rate on the date ofthe transaction. Profits and losses from settling such transactions as well as from translationof monetary assets and liabilities are booked to the income statement.

Profits and losses from foreign currency translation also contain exchange-rate differ-ences from bonds and other monetary assets that are valued at the fair value. Exchange-rate differences from non-monetary items, such as rights to equity held for trading purposes,are entered at the fair value in the profits or losses for the valuation. Exchange-rate differ-ences from available-for-sale non-monetary assets are if necessary booked to shareholders’equity under the reserve for new valuations.

Translation of Group member company annual financial statementsThe items in the income statement, with the exception of depreciation/amortization andincome from writing back foreign subsidiaries’ accruals are translated into the Group report-ing currency at the average exchange rate for the business year. Translation of depreciation/amortization and income from writing back accruals is effected at the average exchange rateon Dec. 31. Balance sheet items are translated at the exchange rate on Dec. 31. Currencydifferences arising from the translation of net investments in these companies as well asfrom liabilities and other financial instruments used to hedge these are entered under share-holders’ equity and not booked to the income statement. If a foreign Group member com-pany is sold, the cumulative exchange-rate differences are factored into the income state-ment as part of the profit/loss on the sale.

The goodwill and adjustments to assets/liabilities to the fair value such as arise fromthe acquisition of foreign companies are translated at the historical exchange rate.

Foreign currency translation



Tangible assets are posted at purchasing or manufacturing cost, less cumulative depreciation.There are no material mining or recultivation obligations. Scheduled depreciation is chargedon a straight-line basis for each asset on the basis of the purchasing or manufacturing cost.

Estimated useful lives:Buildings 25-40 yearsMachinery and mechanical plant 10-15 yearsOperating and business equipment, vehicles 3-15 years

The profits/losses resulting from disposals of assets are calculated as the difference betweenthe proceeds from the sale and the book value and then booked as income/expense.Financing costs are not capitalized as a part of the purchasing or manufacturing cost.

GoodwillGoodwill is the positive difference between acquisition costs and the fair value of theGroup’s share in the net assets of a subsidiary or associated company at the point in time of the acquisition. The goodwill that arises on the acquisition of a subsidiary on or after Jan. 1, 1995 is booked to intangible assets. Goodwill that arises from associated companiesacquired on or after Jan. 1, 1995 is contained in the book value of the participation in the respective company. Goodwill that arose from the acquisition of a subsidiary prior to Jan. 1, 1995 has been netted completely against shareholders’ equity. This goodwill was not retrospectively capitalized and written down.

Amortization on goodwill is charged on a straight-line basis over the estimated usefuleconomic life of the company. The useful life is calculated at the point in time of theacquisition and considers factors such as existing market share, growth potential and otherfactors that play a role in the company acquired. Goodwill that results from strategicacquisitions to increase market share for a product or a geographical region are writtendown over a period of a maximum of 15 years.

A negative difference arises if the sum of the fair value of the Group share in the netassets exceeds the purchase price. A negative difference is booked to the same item in thebalance sheet as is goodwill. The sum for the negative difference which results fromexpected future losses and expenses planned by the Group as part of the acquisition andsuch as can be defined reliably but cannot be depicted as identifiable debt are entered inthe period or periods in the income statement when the future losses or expenses are thenposted. The remaining negative difference, which shall not exceed the fair value of the non-monetary assets acquired, is booked to the income statement and spread across the periodfor the weighted average remaining useful life of the asset. A negative difference whichexceeds the fair value of these assets is booked to the income statement immediately.

Tangible assets

Intangible assets



R&DExpenses for research activities are immediately booked as an expense. Outlays that havebeen incurred for development projects and relate to the design or testing of new productsare carried as intangible assets to the extent that we can expect that they will offer us afuture economic benefit. Other development costs are immediately reported as expenses.

Other intangible assetsExpenses for patents, trademarks and licenses acquired are capitalized and amortizationcharged on a straight-line basis across their useful life, whereby the period shall not exceed20 years.

Tangible and intangible assets, including goodwill, are subjected to an impairment testshould there be evidence that their value may have been impaired. A value impairment isthen carried on a par with the figure by which the book value of the assets exceeds thecurrent recoverable amount. The recoverable amount is defined as the higher of net sellingprice and value in use. Should it not be possible to define the recoverable amount for indi-vidual assets, then the assets shall be bundled into the smallest possible cash-generatingunit to which it can be assigned.

The financial investments held by the Group are sub-divided into the following categories:– financial assets held for trading purposes– financial investments held until maturity– financial assets available for sale– loans granted and receivables.

The financial instruments are classified on date of acquisition on the basis of theintended purpose and this is reviewed at regular intervals.

Those financial assets are categorized as loans granted and receivables as result frommaking cash, goods or services directly available to a debtor, such as loans to associatedcompanies: Financial investments acquired primarily in order to realize a profit from short-term price changes are carried as financial assets held for trading purposes. Financialinvestments with a fixed repayment date where the management decides or is able to decideto hold them until final maturity are classified as financial investment held until maturity. All other financial assets such as financial investments held for an indefinite period of timeare defined as financial asset available for sale.

All other purchases and sales of financial investments are booked on the date whencontrol of the asset is acquired, i.e. the date on which the asset is delivered. Transactioncosts incurred on acquisition are included under purchase costs.

Financial investments held until maturity as well as loans granted and receivables arevalued subsequently at the ongoing acquisition cost in line with the effective interestmethod. A value impairment is charged if the book value of the financial asset exceeds therecoverable amount for it.

Value impairments on long-term assets

Financial investments (financial assets, loans and securities)



Assets held for trading purposes and financial assets available for sale are carried atthe fair value. Unrealized profits/losses resulting from changes in the fair value of financialassets available for sale are entered in a separate item under shareholders’ equity afterfactoring their fiscal impact and are not booked to the income statement. Reclassification tothe income statement occurs at the point in time of their sale or should their value be foundto be impaired. Unrealized gains/losses from the valuation of financial instruments held fortrading purposes are entered in the income statement in the period in which they arise.

Loans granted and receivables as well as financial assets available for sale are postedunder long-term assets, unless the point at which they mature is less than 12 months afterthe respective balance-sheet date or management intends to sell the financial asset within12 months of said date.

Neither in the past business year or in the year before it did the Group have financialinvestments held till final maturity in its portfolio.

A Group member company as lesseeLeased tangible assets whereby the Group bears essentially all the opportunities and risksassociated with ownership of the leased object are classified as finance leases. Tangibleassets from finance leases are posted at the beginning of the lease at the lower of fair valuefor the leased object and the cash value of the minimum lease payments. The correspondingleasing obligations are carried at the same value as liabilities. Each lease payment is dividedinto the repayment portion of the remaining debt and the financing costs in order to allowfor steady interest for the duration of the lease. The interest portion of the lease payments isentered in the income statement. Depreciation shall be charged for tangible assets fromfinance leases that are capitalized for the useful economic life of the asset or for the shorterlease term if it is not duly certain whether ownership of the asset will then be assigned tothe lessee.

Leases in which the essential risks and opportunities associated with ownership of the leased object remain with the lessor are classified as operating leases. Payments foroperating leases are distributed on a straight-line basis across the lease term, factoring inincentives for the lessor, and then entered in the income statement.

Inventories are valued at the lower of purchase or production cost and net selling value.Purchase or production costs are defined on the basis of sliding-scale average prices.Purchase or production costs for finished and unfinished goods include raw materials, production labour, other direct costs and overheads attributable to the product based onnormal capacity utilization. It does not include financing costs. The net selling value is theestimated sales revenue to be achieved in the normal course of business less costs for production and selling costs.

Leased assets

Inventories



Trade receivables are carried at the amount originally invoiced less an estimated valueadjustment for doubtful accounts receivable. These value adjustments are based on a reviewof all outstanding sums as at year-end and figures seen in the past. Unrecoverable receiv-ables are written off as soon as the payment has been defaulted.

Liquid assets are recognized at purchase cost. For the purposes of the cash flow statement,liquid assets include cash, bank balances on call and other current highly-liquid financialinvestments with an original remaining term of a max. of three months. Overdraft loans areentered in the balance sheet under current liabilities.

To the extent that corporate acquisitions are not involved, external costs that can beattributed directly to the issue of new shares are netted against shareholders’ equity afterconsidering their fiscal impact. The dividends for ordinary shares are deducted from theshareholders’ equity in the period in which their distribution is resolved.

If PAUL HARTMANN AG or one of its subsidiaries should acquire shares in PAULHARTMANN AG, the performance paid including attributable transaction costs is deductedfrom shareholders’ equity after considering their fiscal impact. If such shares are later sold or re-issued, the performance received is re-included under shareholders’ equity.

Financial liabilities are entered the first time as the sum of the figure received less trans-action costs. In following periods, financial liabilities are on principle carried at ongoing discounted acquisition cost in keeping with the effective interest rate method. Differencesbetween the acquisition cost and the sum repayable are thus spread across the term of the loan and allocated to the income statement.

Deferred taxes are recognized in line with the liability method for temporary differences thatarise between differences in the taxable book value of assets and liabilities and their bookvalue in the annual financial statements prepared according to IAS. The key temporarydifferences arise from the depreciation on tangible assets, the valuation of securities,derivative financial instruments and pension accruals, as well as in the case of corporateacquisitions from differences between the attributable values of the assets acquired andtheir fiscal value. Moreover, deferred tax assets are carried for fiscal tax losses that can becarried forward.

The tax rates applicable on the respective balance sheet date or have been factuallyresolved as at that date are used when calculating tax deferrals.

Deferred tax assets are only carried on the scale on which presumably a future taxload will be available to net temporary differences or as can be used as tax loss carriedforward to recover tax.

Tax deferrals are formed for temporary differences from holdings in subsidiaries andassociated companies unless the date at which the temporary differences cease can be controlled and it is probable that the temporary differences will not cease to apply in thenear future.

Trade receivables

Liquid assets

Shareholders’ equity

Financial liabilities

Deferred taxes



Pension obligationsThe Group has concluded a series of contribution-based and performance-oriented provisionplans worldwide. The assets allocated for these plans are usually paid in to independentasset-management funds.

The contribution-based pension approvals are as a rule covered by payments by theemployees and the corresponding Group member company, respectively considering therecommendation of independent qualified actuarial mathematicians.

Pension outlays for performance-linked pension approvals are defined on the basis of the projected unit credit method. Total costs for these approvals are spread across theincome statement for the period of the labour performed in return by the employee. Thepension obligation is valued at the cash value of the probable future disbursements on thebasis of actuarial expert reports. The discount rates taken are the interest rates for first-classindustrial bonds, which have a comparable maturity period to the obligation in question.Actuarial profits/losses are distributed across the employees’ average remaining number ofservice years to the extent that at the beginning of a business year this exceeds 10 % of thehigher sum from the pension obligation or the fair value of the planned assets at this pointin time. Allocations from Group member companies to contribution-based pension plans areentered in the income statement in the periods to which they belong.

Part-time employment in pre-pension ageStaff members have been guaranteed transitional provisions for the period as of terminationof the employment contract through to commencement of statutory old-age provisions. The benefits approved depend on the wage/salary immediately prior to retiring from theCompany.

Long-service awardsIn line with the works agreement of Nov. 12, 1993, PAUL HARTMANN AG grants a cash gift,a present and three days extra leave for 25-, 40- and 50-year long-service anniversaries. The accrual has been set up on the basis of actuarial computations. Interest rates were usedcomparable with those utilized to calculate the pension obligations.

Government investment subsidies for tangible assets are carried as a reduction in the pur-chase or production cost and accounted for in the income statement via the lower planneddepreciation for the useful life of the tangible assets. Tax-free investment grants are carriedas deferred tax liabilities under other liabilities and distributed on a straight-line basis in theincome statement across the probable useful service life of the relevant assets.

Accruals are recognized if the Group has a statutory or factual obligation from past events,fulfilment of which is associated with the outflow of resources and the size of which can bereliably estimated. If management expects that a payment obligation will be reimbursed bythird parties, for example under the terms of an insurance contract, the reimbursement claimis accounted for as an independent asset to the extent that reimbursement is as good ascertain.

Guarantee obligationsThe Group carries an accrual for the repair or replacement of goods which came underguarantee obligations as at the balance sheet date. This accrual is established on the basisof experience in prior years as regards the repair and replacement of business assets.

Pension obligations andother employee benefits

Investment subsidies and investment grants for tangible assets

Accruals



Accruals for pending lossesThe Group posts an accrual for pending losses if the expected earnings from the contract are less than the unavoidable costs for fulfilment of the obligation from the contract. This isthe case, for example, if an accrual for obligations from a rental contract that cannot beterminated is set up for a rental object no longer required. The accrual is established on thescale of the cash value of future rental payment and factoring in the estimated income fromrental going forward or, if less, the scale of costs for terminating the contract.

Accruals for restructuringThese accruals essentially cover contractual penalties for terminating rental and leasing con-tracts and employee benefits and are recognized in the period in which the Group’s paymentobligation arises either factually or legally. Accruals for employee benefits are not carrieduntil after agreement with the corresponding employee representatives, whereby said agree-ment shall describe in detail the conditions for termination of an employment contract andthe number of employees affected, or after individual employees have been informed ofthese conditions. No accrual is set up for the costs of future activities. All long-term assetsthat cannot be used any longer for their original intended purpose are reclassified as currentassets and posted at the lower of book value and probable net selling value.

Sales revenues are entered if the goods have been supplied and accepted by the customer orthe service rendered. Sales revenues are posted excluding turnover taxes and price discountsand following elimination of intra-Group sales.

Derivative financial instruments are initially recognized at their purchase cost and thereafterat their fair value. Although these transactions constitute hedging transactions that aremeaningful in business terms in the sense of the definition given in the HARTMANN Grouprisk management guidelines, the rules on accounting for hedge transactions as laid out inIAS 39 are not applied. Changes in the fair value of the derivative financial instruments aretherefore immediately booked to income statement.

The fair value of publicly-listed derivatives and financial assets held to maturity or availablefor sale is based on the exchange-listed prices on the balance sheet date. The fair value ofinterest rate swaps is assumed to be cash value of the expected future cash flows. The fairvalue of forward exchange transactions is defined by referring to forward rates available inthe market on the balance sheet date.

The Group uses various methods when defining the fair value of non-traded derivativesand other financial instruments. The assumptions made are based on market conditions asat the relevant balance sheet date. In the case of long-term balance-sheet liabilities, wedraw on market prices on the stock market or brokers’ offering prices for identical or similarinstruments. Other financial instruments are valued by means of various techniques, such asoption price models or the discounted cash flow method.

For financial assets and liabilities with a remaining term of less than one year, thenominal values less possible expected payment defaults approximates the fair value. The fairvalue for financial liabilities to be stated in the explanatory notes entered is defined by dis-counting at current market interest rates the future, contractually agreed payment flows thatthe Group would have received for comparable financial instruments.

Realized sales revenue

Derivative financial instruments and hedging transactions

Definition of fair value



Explanatory Notes to the Financial Statements

1 Segment reporting

Segment reporting byprimary segment (business segment)

Medical Patient Consumer Other GroupCare Products

in EUR thousand 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001

Sales revenue 484,147 452,672 486,866 411,660 296,054 282,995 2,682 3,031 1,269,749 1,150,358

Segment result 77,587 63,061 71,272 44,846 6,735 6,336 155,594 114,243

./. overheads 105,720 82,467

= Operating result 49,874 31,776

./. financial result 15,061 11,828

Of which: Result frominterest in associatedcompanies (279) (424)

= Income from ordinary activities 34,813 19,948

./. taxes on income 16,487 6,485

= after-tax profits 18,326 13,463

./. minority interests 1,914 3,364

= Consolidated net income for the year 16,412 10,099

Segment assets 355,525 350,811 291,309 299,720 216,889 216,960 863,723 867,491

+ shares in associatedcompanies 2,103 2,099

+ assets not assignableto segments 91,258 117,238

= Group assets 957,084 986,828

Segment liabilities 101,893 115,334 62,290 67,067 56,479 65,250 220,662 247,651

+ liabilities not assignable to segments 319,983 327,016

= Group liabilities 540,645 574,667

Segment investments 14,705 28,080 15,602 23,525 11,121 9,046 41,428 60,651

+ investments notassignable to segments 8,167 19,739

= Group investments 49,595 80,390

Scheduled and extra-ordinary amortization/depreciation 15,313 16,420 22,627 19,403 14,068 12,860 13,115 12,428 65,123 61,111

Of which: extraordinaryamortization/depreciation 835 132 3,382 700 9 40 4,226 872

Non-cash expenses 2,135 6,609 336 6,649 426 4,104



Segment reporting by secondarysegment (geographical segment)

Group

in EUR thousand 2002 2001

Central Europe 668,245 612,311

West/Northwest Europe 289,613 250,852

East Europe 95,337 85,341

North Europe 25,852 22,730

South Europe 79,785 75,323

Regions outside Europe 110,917 103,801

Segment sales by customer’sgeographical location 1,269,749 1,150,358




North Europe 6,023 6,266

South Europe 40,650 40,503


Segment assets by geographical region 957,084 986,828




North Europe 104 413

South Europe 1,013 926


Segment investments bygeographical distribution of assets 49,595 80,390

Segment reporting has been provided in line with IAS 14. In keeping with our internalorganizational and reporting structure, the primary segmenting is by Group businesssegment, the secondary segmenting by geographical region.

With its worldwide responsibility for wound management products, bandages and dressings, adhesive plasters, surgical products and diagnostics, the Medical business unitrepresents the traditional core competence of the HARTMANN offerings. The Patient Careproduct lines sold worldwide stand out for differentiated product systems for incontinencecare. Supplementary products for treatment and patient care as well as a comprehensivepackage of services round out the offerings for target groups in hospital and outpatient/homecare facilities. The Fixies diapers, Ria pantyliners and Bel cottonwool product groups arehandled by HARTMANN’s Consumer Goods business unit, which makes it one of the mostimportant manufacturers of personal hygiene articles in Europe. With the acquisition of theKneipp-Werke in 2001, the Consumer Goods segment has been placed on a broader footing.

Overhead costs that cannot be assigned to segments refer to various service functionsperformed in 2001 and 2002. As of 2003, costs for the service units will be passed on to thebusiness units in keeping with internal service performance agreements, thus improvingassignability of such outlays. Overhead costs include the impact of consolidation measures.There are no intra-segment services rendered at the primary level. Investment refer to long-term assets with no financial asset component.



2 Other operating income

3 Cost of materials

4 Personnel expense

5 Amortization/deprecia-tion on tangible andintangible assets


Income from writing back accruals 3,927 4,364

Income from the disposal of fixed assets 2,000 2,286

Exchange-rate gains 12,396 11,086

Income from compensation for damagesand other reimbursements 956 1,095

Other operating income 18,539 14,603

37,818 33,434

Other operating income essentially contains refunds, income from sales of securities, subsi-dies and investment grants received.


Costs of materials 571,116 561,669

Services bought in 14,705 14,150

585,821 575,819


Wages and salaries 255,809 224,660

Social-security contributions and outlays for welfare support 50,376 44,223

Pension obligations:contribution-oriented pension approvals 422 335

Pension obligations –performance-pegged pension approvals (see. Item 24) 3,685 3,567

Other employee benefits 4,645 3,881

314,937 276,666

In 2002, the average Group payroll was 9,396 employees, as against 8,924 one year before.In addition, in business 2002 274 staff were trainees, compared with 175 one year earlier.

See items 11 and 12




Book losses for fixed assets 1,735 1,351

Book losses for current assets 3,809 1,109

Ongoing exchange-rate losses 16,734 8,277

Exchange-rate losses not yet realized 4,669 5,217

Freight outward 73,084 66,430

Advertising and ad cost subsidies 60,312 59,405

Maintenance, repairs, cleaning 20,703 17,753

Rental and leasing 17,985 13,031

Waste disposal costs 4,867 4,920

Charges, contributions, consultancy 20,087 14,683

Travel and hospitality expenses 15,145 14,045

Other taxes 4,964 5,545

Other operating expenses 52,708 48,054

296,802 259,820

A comparison of the two years highlights the impact of the expansion in the scope of consolidation in 2001 and 2002. Crucial and important companies were added in second-half 2001, meaning that the other operating expense for them was included in the figures for 2001 on a pro-rated basis.


Interest and similar expenses –16,967 –15,223

Interest expense to companies in which a participatinginterest is held and associated companies 0 –149

Amortization on companies in whicha participating interest is held –1,010 –363

Amortization on other financial assets –12 0

–17,989 –15,735

Interest income 2.593 3,374

Income from participating interests andassociated companies 35 77

Interest from long-term securities classified as fixed assets 8 32

Income from companies in which a participatinginterest is held and from profit by associated companies 292 424

2,928 3,907

Total financial loss –15,061 –11,828

6 Other operating expenses

7 Net financial profit/loss



18 Taxes on income

19 Minority interests

10 Earnings per share


Actual tax expense 15,833 7,696

Deferred tax expense (see item 15) 527 –1,431

Taxes on income attributable tointerest in associated companies 127 220

Income-tax expense reported 16,487 6,485

Reconciliation of expected andreported tax expense

EBT 34,813 19,948

Tax expense given a tax rate of

38.6 % (2001: 38.6 %) 13,438 7,700

Impact of different tax rates in other countries –2,337 –1,884

Income exempt from tax –5,363 –5,500

Non-tax-deductible operating expenses 1,355 950

Non-creditable foreign taxes 184 513

Additions and reductions for trade tax –47 2,022

Tax impact of changes in the value adjustmentfor loss carryforwards –1,660 –2,046

Tax impact of amortization on goodwill 1,815 469

Differences in taxation of partnerships –1,170 –1,381

Corporation tax reduction owing to disbursement –1,687 –9

Impact of consolidation on taxes 6,462 7,908

Benefits of tax loss carryforwards 460 –1,468

Other 5,037 –789

Income tax expense reported 16,487 6,485

In order to calculate the expected tax expense, for business 2002 we have likewise assumeda corporation tax rate of 25 % (see item 15). The impact of changes in the tax rate is pre-sented in the statement of reconciliation.

See item 21

In order to arrive at the undiluted figure for EPS, the profits for the period attributable to shareholders is divided by the number (weighted average) of ordinary shares outstanding in the year. Ordinary shares held by Group member companies were not included here.

EPS is calculated as follows:

2002 2001

Profit for the period attributableto the shareholders (in EUR thousand) 16,412 10,099

Unit shares eligible for dividend payment (see item 20) 3,551,742 3,551,742

EPS in euro 4.62 2.84

The undiluted EPS is the same as the diluted EPS.



Explanatory Notes to the Consolidated Balance Sheet

Real Technical Operating Advance Totalestate plant and payments

and and business andbuildings machinery equip- work in

ment process

in EUR thousand

Net book valueas at Jan. 1, 2001 157,564 145,996 76,154 6,352 386,066

Currency translation/reclassifications 6,827 1,117 1,066 –5,974 3,036

Net book value 164,391 147,113 77,220 378 389,102

Acquisition of subsidiaries 34,050 4,918 3,767 3,199 45,934

Additions 3,554 16,661 13,360 17,106 50,681

Disposals –1,986 –2,167 –1,836 –1 –5,990

Reclassifications 4,365 4,039 1,110 –9,514 0

Extraordinary depreciation –72 0 –53 0 –125

Scheduled depreciation –8,363 –26,845 –17,969 0 –53,177

Net book valueas at Dec. 31, 2001 195,939 143,719 75,599 11,168 426,425

Purchase orproduction cost 300,321 385,694 221,431 11,172 918,618

Cumulative depreciation –104,382 –241,975 –145,832 –4 –492,193


Net book valueas at Jan. 1, 2002 195,939 143,719 75,599 11,168 426,425

Currency translation/reclassifications –2,290 –884 –58 –559 –3,791

Net book value 193,649 142,835 75,541 10,609 422,634

Acquisition of subsidiaries 152 115 489 0 756

Additions 5,563 14,955 12,714 4,713 37,945

Disposals –767 –827 –958 115 –2,437

Reclassifications 730 8,309 388 –9,438 –11

Extraordinary depreciation –844 –7 0 0 –851

Scheduled depreciation –8,843 –25,709 –17,569 0 –52,121


Purchase orproduction cost 302,499 401,560 228,548 6.003 938,610

Cumulative depreciation –112,859 –261,889 –157,943 –4 –532,695


11 Tangible assets



In business 2002, government investment subsidies were received for the acquisition of real estate and the erection of buildings totalling EUR 43 thousand (2001: EUR 268 thousand) and have been booked as reducing purchase/production costs for the respective assets.

Allocation include assets totalling EUR 1,075 thousand (2001: EUR 2,783 thousand) rented under finance lease contracts, whereby the Group is the lessee.

Extraordinary depreciation is spread across the Group business units as outlined in the segment reporting (see item 1 above). The recoverable amount, i.e., the higher of utility value and net selling price was defined at the level of the unit generating the respective means of payment, i.e., the individual business field. The net selling price was taken as the recoverable amount on the basis of a study of market prices for comparable assets.

Of these, the following tangible assets were used in the framework of finance leases:

Real Estate Technical Operating Totaland plant and and

buildings machinery businessequipment

in EUR thousand

Purchase orproduction cost 14,512 91 5,533 20,136

Cumulative depreciation –5,400 –64 –1,872 –7,336

Net book valueas at Dec. 31, 2001 9,112 27 3,661 12,800

Purchase orproduction cost 14,512 84 7,065 21,661

Cumulative depreciation –5,872 –61 –3,608 –9,541

Net book valueas at Dec. 31, 2002 8,640 23 3,457 12,120

Liabilities owed to banks are secured by tangible assets, essentially real estate loans, with a book value of EUR 35.6 million, as against EUR 43.9 million one year earlier. In addition, the usual agreements on retention of title obtain.



Concessions, Goodwill Advance Totallicences and payments

similar rights

in EUR thousand

Net book valueas at Jan. 1, 2001 12,811 14,429 111 27,351

Currency translation/reclassifications –88 136 0 48

Net book value 12,723 14,565 111 27,399

Acquisition of subsidiaries 1,050 256 0 1,306

Additions 10,336 18,347 1,026 29,709

Disposals –26 –57 –3 –86

Extraordinary depreciation –16 –731 0 –747

Scheduled depreciation –5,124 –1,938 0 –7,062

Net book valueas at Dec. 31, 2001 18,943 30,442 1,134 50,519

Purchase orproduction cost 43,168 43,097 1,134 87,399

Cumulative depreciation –24,225 –12,655 0 –36,880

Net book valueas at Dec. 31, 2001 18,943 30,442 1,134 50,519

Net book valueas at Jan. 1, 2002 18,943 30,442 1,134 50,519

Currency translation/reclassifications 260 –13 –216 31

Net book value 19,203 30,429 918 50,550

Acquisition of subsidiaries 0 127 0 127

Additions 4,939 6,470 241 11,650

Disposals –225 –134 –28 –387

Reclassifications 316 0 –305 11

Extraordinary depreciation 0 –3,375 0 –3,375

Scheduled depreciation –5,941 –2,835 0 –8,776

Net book valueas at Dec. 31, 2002 18,292 30,682 826 49,800

Purchase orproduction cost 48,273 49,850 826 98,949

Cumulative depreciation –29,981 –19,168 0 –49,149

Net book valueas at Dec. 31, 2002 18,292 30,682 826 49,800

12 Intangible assets



13 Shares in associatedcompanies

Extraordinary depreciation primarily refers to the goodwill in Sanimed GmbH owing to changed earnings trends at that company. The recoverable amount entered is the cash value of expected future payment surpluses. Here, an interest rate of 10.0 % has been assumed for the calculation, with 8.5 % perpetuity assumed as of 2008 ff., after factoring in a growth discount of 1.5 %.

Additions include assets of EUR 0 thousand, as against EUR 271 thousand the prior year rented in the framework of finance lease contracts with the Group as lessee.

Development costs mainly include R&D expenses incurred internally. These relate to projects where we can assume with due certainty that the expenses will be covered by future payment inflows. Development costs capitalized in 2002 of EUR 656 thousand are entered under concessions, licenses and similar rights.

The concessions, licenses and similar rights used in the framework of finance leases are as follows:

in EUR thousand

Purchase or production cost 271

Cumulative depreciation –82

Net book value as at Dec. 31, 2001 189

Purchase or production cost 271

Cumulative depreciation –186

Net book value as at Dec. 31, 2002 85


Status as at Jan. 1 2,099 1,988

Share in earnings before taxes 440 518

Share in taxes on income –127 –220

Share in after-tax profits 313 298

Other changes –309 –187

Status as at Dec. 31 2,103 2,099

Full amortization has already been charged on the goodwill for the associated companies.

Registered company office Stake held

Roth Grundstücksgesellschaft mbH Germany 30 %

The National Medical Products Co. Ltd. Saudi Arabia 20 %

Medical Service und Logistik GmbH Germany 50 %

Farmaban S.A. Spain 20 %

In 2002, the capital of Medical Service und Logistik GmbH was increased by EUR 150 thousand. The participation in Röntgentechnik Pollmann GmbH which was carried with thebook value of EUR 25 thousand, was sold at this book value as well.




Other long-term receivables from companies in which a participating interest is held and associated companies 193 193

Long-term receivables from third parties 2,883 1,774

3,076 1,967

The long-term receivables have been posted at the nominal value after factoring in default risk, which essentially amounts to discounted purchase costs. The book value corresponds to the fair value.

For business 2001, on the basis of a corporation tax rate of 25 %, the solidarity surcharge of 5.5 % on the income tax bill, and an average trade tax rate of 12.25 %, after considering the creditability of the trade tax for the corporation tax, the tax rate came to 38.6 %. As at Dec. 31, 2002, in principle the same tax rates applied. Given the Flood Victims Solidarity Act of Sept. 19, 2002, however, the corporation tax rate will be 26.5 % as a result of the tempo-rary differences and fiscally deductible losses that will probably reverse in the 2003 tax peri-od or can probably be exploited in said period. The tax rate for computing these deferred taxes is therefore essentially 40 %. This increase in the tax deferrals will not be applied in the HARTMANN Group as the existing loss carryforwards make it appear improbable that the increased tax rate will apply.

Trend for tax deferrals(Net sum for deferred tax liabilities after deduction of deferred tax assets)


Status as at Jan. 1 29,175 33,671

Tax deferrals in the income statement 527 –1,431Tax deferrals on items under shareholders’ equity– Valuation of securities available for sale –177 –935– Exchange-rate differences –1,048 491– Other tax deferrals 2,701 –2,621

Status as at Dec. 31 31,178 29,175

Tax deferrals for tax loss carryforwards are considered to the degree that their use is proba-ble in light of future taxable earnings. The losses can in large part unconditionally be carried forwards and in individual countries in which the HARTMANN Group is active they can actu-ally be carried forward for several years.

14 Receivables and otherlong-term assets

15 Tax deferrals


0


Trend for deferred tax assets and liabilities priorto netting of items against the same IR office


Deferred tax liabilities

Fixed assets 46,713 37,115

Current assets 4,150 4,624

Accruals 1,877 2,768

Liabilities 4,153 1,094

56,893 45,601

Deferred tax assets

Fixed assets 885 925

Current assets 2,150 1,607

Accruals 6,116 6,607

Liabilities 11,468 4,767

Tax savings from realizable losscarryforwards capitalized 5,096 2,520

25,715 16,426

31,178 29,175

Deferred tax assets and liabilities are netted if there is a legal claim to netting the actual tax receivables and tax liabilities and the deferred taxes have arisen with the same IR office.

Entry in the consolidated balance sheet after netting


Deferred tax assets –4,732 –4,959

Deferred tax liabilities 35,910 34,134

31,178 29,175

As a rule, the tax deferrals have a term of over 12 months. Given current changes in legisla-tion, the proposed dividend for business 2002 (see item 38) does not lead to tax relief. The same is true for the fiction of a possible complete disbursement of retained earnings.


Raw materials and auxiliaries 66,651 67,898

Work in process 22,205 25,186

Finished goods and merchandise 126,591 121,452

Finished goods at net selling price 15,033 20,501

Advance payments for inventories 463 624

230,943 235,661

Inventories totalling EUR 1,851 thousand, as against EUR 1,277 thousand one year earlier, were pledged as collateral for loans.

16 Inventories




Trade accounts receivable from third parties 194,248 182,005

Value impairment for unrecoverable anddoubtful receivables –10,437 –8,858

Total accounts receivable 183,811 173,147

Trade accounts receivable from companies in which a participating interest is held and associated companies 535 682

Value impairment for unrecoverable and doubtful receivables –4 –7

Total accounts receivable 531 675

Bills receivable 11,210 9,038

Advance payments 1,010 276

Refund claims for taxes on income 2,508 6,629

Refund claims for other taxes 4,121 5,907

Forward exchange transactions (see item 31) 165 466

Prepaid expenses 2,854 2,609

Other receivables from associated companies 808 0

Other receivables from third parties 8,507 8,379

31,183 33,304

215,525 207,126

Receivables and other assets 213,017 200,497

Refund claims for taxes on income 2,508 6,629

215,525 207,126

A possible accumulation of credit risk in connection with trade receivables is largely avoided thanks to the Group’s large customer base and the use of several distribution channels. The customers come from a variety of geographical regions. The value impairments charged are based on Group experience in the past with the recoverability of receivables. A default risk over and beyond the lump-sum impairment is not included under consolidated trade accounts receivable. The item for prepaid expenses relates to transitory deferrals in particu-lar for advertising and sales promotion measures. EUR 0.7 million (2001: EUR 1.5 million) of trade receivables have a term of more than one year.

17 Receivables and other current assets




Fair value as at Jan. 1 7,138 23,598

Added value for the business year not impacting on the income statement 10 22

Additions 193 0

Disposals –5,528 –16,482

Fair value as at Dec. 31 1,813 7,138

Financial assets available for sale, essentially Bunds and Pfandbriefe, are recognized at the fair value on Dec. 31 of the respective year. For all financial assets, the fair value is calculat-ed by a comparison with the market price for similar financial assets or on a DCF basis for the particular asset.

Financial assets available for sale include pfandbriefs with a book value of EUR 1,377 thousand, the same figure as the prior year. Last year, the item also included a Bund with a book value of EUR 5,060 thousand. Fixed interest rate was 6 % and 7.5 % (due Aug. 28,2003 and Aug. 2, 2004). From disposals of financial assets available for sale of the addedvalue not impacting on income a net figure of EUR 287 thousand was realized, as againstEUR 947 thousand one year earlier.


Current accounts and cash 40,401 43,686

Current term deposits 15 884

40,416 44,570

The subscribed capital of PAUL HARTMANN AG remains unchanged at EUR 91,327,569.38. It is sub-divided into 3,572,424 unit shares. Of these, 20,682 units with a book value of EUR 31 thousand are held as own shares by PAUL HARTMANN AG. The additional paid-in capital of EUR 50.8 million stems from the premium on the increases in PAUL HARTMMAN AG capi-tal. The revenue and other reserves contain the revaluation reserve pursuant to IAS 39 of EUR 143.7 thousand (2001: EUR 424.2 thousand), which related to the sale of available financial investments.


Status as at Jan. 1 24,500 22,631

Exchange-rate differences 133 284

Changes in the scope of consolidation –698 747

Changes owing to the capital increase, changes in quotas and other items 2,015 0

Share in the net income of subsidiaries 1,914 3,364

Dividends paid –2,675 –2,526

Status as at Dec. 31 25,189 24,500

18 Financial assets available for sale

19 Liquid assets

20 Shareholders’ equity

21 Minority interests



Financial liabilities are carried at discounted purchase cost. The book value amounts essen-tially to the fair value.


Current financial liabilities

Current liabilities owed to banks 78,279 104,587

Current liabilities from capitalized lease agreements 1,932 1,706

Current liabilities for employee participation 785 1,528

80,996 107,821

Long-term financial liabilities

Long-term liabilities owed to banks 181,095 185,766

Long-term liabilities from capitalized lease agreements 10,397 10,252

Long-term liabilities for employee participation 3,950 3,222

195,442 199,240

Total financial liabilities 276,438 307,061

Remaining term of long-term financial liabilities(excl. finance leases)

1 – 5 years 154,266 155,303

more than 5 years 30,779 33,685

185,045 188,988

Financial liabilities contain secured liabilities such as liabilities under lease agreements and bank liabilities of EUR 35.6 million, as against EUR 43.9 million one year earlier. Bank liabi-lities are in part collateralized by Group real estate, buildings or inventories. Liabilities under lease agreements are likewise secured, as the leased object is assigned to the lessor in the event of non-fulfilment of the contract.

Remaining term of liabilities for finance leases


up to 1 year 1,932 1,706

1 – 5 years 6,275 2,602


12,329 11,958

Liabilities for finance leases(minimum lease payments)

up to 1 year 3,002 2,516

1 – 5 years 6,526 6,391


13,706 13,628

Interest portion included –1,377 –1,670

Cash value of financial liabilities(minimum lease payments) 12,329 11,958

Weighted effective interest rate as at Dec. 31

Bank liabilities 4.40 % 4.53 %

Liabilities for finance leases 4 – 5 % 4 – 5 %

22 Financial liabilities



See item 15

Composition of the sums carried in the balance sheet


Cash value of obligations financed through a relief fund 13,872 22,407

Fair value of the assets of the relief fund –10,171 –13,642

3,701 8,765

Cash value of obligations not financed externally 37,742 34,491

Actuarial profits/losses not entered 4,893 –813

Expense for service years to benetted retroactively not entered 1,582 0

Other 2,071 4,143

46,288 37,821

Balance sheet pension liabilities 49,989 46,586

Composition of the sums carried in the income statement

Ongoing expense for service years 1,656 1,538

Interest expense 2,824 2,689

Expected income from budgeted assets –796 –746

Actuarial net losses carried –7 78

Expense for service years to be netted retroactively 0 7

Other 8 1

Total expense (entered under personnel expense) 3,685 3,567

Change in the liabilities carried in the balance sheet

Status as at Jan. 1 46,586 41,375

Foreign currency translation 32 0

Total expense 3,685 3,567

Pension payments and contributions to funds –2,097 –2,499

Partial assignment of assets to relief fund 3,854 0

Other –2,071 4,143

Status as at Dec. 31 49,989 46,586

Composition of liabilities carried

Payment probably within 12 months after Dec. 31 2,230 3,769

Payment probably more than 12 months after Dec. 31 47,759 42,817

Liability charged in the balance sheet 49,989 46,586

Key actuarial assumptions

in percent 2002 2001

Weighted discount rate 5.70 5.10

Expected income from budgeted assets 5.75 – 6.00 3.00 – 6.00

Future salary increases 0.50 – 5.00 0.50 – 4.50

Future pension increases 1.50 – 3.00 1.50 – 3.00

23 Deferred tax liabilities

24 Pension accruals



in EUR thousand Accruals Accruals Threatened Other Totalfor distri- for per- losses from accruals

bution sonnel pendingactivities activities transactions

Status as at Dec. 31, 2001 23,462 15,730 5,596 5,853 50,641

Foreign currency translation –4 –85 –22 –107 –218

Addition from expansion inthe scope of consolidation 0 62 0 59 121

Allocations 712 12,921 51 2,595 16,279

Write-backs –1,539 –221 –1,430 –737 –3,927

Added interest 0 12 0 0 12

Entries in theincome statement –827 –12,712 –1,379 1,858 12,364

Consumption –866 –8,739 –2,027 –3,027 –14,659

Status as at Dec. 31, 2002 21,765 19,680 2,168 4,636 48,249

Accruals by probable drawing


more than one year 27,546 28,704

within one year 20,703 21,937

48,249 50,641

Accruals for distribution activitiesThese accruals mainly cover existing or future potential obligations from warranties, guarantees and licenses.

Accruals for personnel activitiesThe accruals for personnel activities relate mainly to obligations for pre-pension short time,holiday entitlement and flexi-time balances outstanding, gratifications and long-serviceawards.

Threatened losses from pending transactionsThis accrual relates substantially to the threat of losses from hedging transactions forcellulose as well as product development activities.

Other accrualsThis item consists primarily of risks from exchange-rate fluctuations and other discerniblerisks relating to production and financing.

25 Accruals




between 1 – 5 years 1,536 7,323

more than 5 years 235 0

1,771 7,323


Trade accounts payable to third parties 62,205 66,785

Liabilities owed to associated companies 327 207

Other liabilities as part of social security agreements 9,198 7,855

Liabilities for taxes on income 10,507 7,673

Liabilities for other taxes 8,806 8,321

Prepayments received 184 369

Other liabilities 37,061 37,712

128,288 128,922

Of the trade accounts payable, EUR 5 thousand (2001: EUR 0 thousand) are due in morethan one year. Other liabilities consist primarily of creditor debts, liabilities for personnelactivities, derivative instruments and costs of licenses.

See item 22

See item 24

See item 25

Other Explanatory Notes

Due to the nature of its operations, the HARTMANN Group is exposed to a series of financialrisks such as the impact of changes in market prices for types of equity capital and outsidecapital, fluctuations on the foreign-exchange markets and in interest rates. The Group’s riskmanagement system focuses on the unpredictability of the financial markets and endeavorsto minimize the negative impact on Group earnings. In order to hedge against certain risks,the Group makes use of specific financial derivatives such as forward exchange transactionsor interest swaps.

Risk management is handled by the central Group treasury department in keeping withthe guidelines authorized by the Board of Management. This department identifies financialrisks, evaluates them and, in close cooperation with the individual operating units, hedgesagainst them. On the basis of the stipulations set out by the Board, written guidelines areformulated for general risk management and for special areas such as, for example, foreign-exchange risks, interest-rate risks, risks relating to raw materials, the use of financialderivatives and the investment of surplus liquidity.

26 Remaining term of otherlong-term debt

27 Trade accounts payableand other debt

28 Financial liabilities(current items)

29 Pension accruals(current items)

30 Other accruals

31 Financial instrumentsand financial riskmanagement



Currency riskThe HARTMANN Group is a global player and therefore exposed to exchange-rate risks forvarious currencies. The Group treasury department is responsible for securing the positionsheld in each currency. It performs this duty by taking up loans in foreign currencies and concluding external forward exchange contracts.

The Group hedges at least 50 % of its future net-US dollar requirement for the follow-ing 12 months. This includes foreign-exchange risks from contractual obligation denominat-ed in US dollars for the purchase of raw materials.

Interest-rate riskGroup earnings and operating cash flow are largely impervious to interest-rate changes. TheHARTMANN Group does not hold any material assets subject to interest. It is the Group’sobjective to conclude at least 50 % of loans at a fixed interest rate. As at year-end 2002,the figure was in fact 69 %. In part, the Group concludes loans at variable interest rate andutilizes interest swaps in order to hedge against volatility in future interest payments. Theinterest swaps enable the Group to take up long-term loans at variable interest and trans-form them into loans with fixed rates. As part of these interest swaps, the Group agrees withother parties to settle the difference between the contractually agreed interest rates and thevariable interest rates at fixed points in time, usually on a quarterly basis. The differencesettled is calculated on the basis of the agreed nominal figure.

Default riskDefault risk for financial assets entails the danger of default by contractual partners. In principle, the theoretically maximum default risk is the book value of the assets less possibleliabilities toward the same contractual partners. The Group has put procedures in place tomake certain that goods and services are only sold to customers with the right credit ratings.Financial derivatives and other financial transactions are only concluded with partners whohave prime credit ratings. The Group has not accumulated a significant volume of defaultrisk.

Liquidity riskCircumspect liquidity management must involve ensuring availability of due levels of liquidi-ty, marketable securities and adequate credit lines as well as the ability to liquidate marketpositions. The central treasury department has secured due flexibility in financing above allthrough adequate credit lines in keeping with the dynamic growth of the HARTMANN busi-ness units.

Fair value of financial derivatives


Contracts with the positive fair value:forward exchange transactions 0 79

Interest caps 33 0

Interest forex swaps 132 387

165 466

of which current 132 79

of which long-term 33 387



Contracts with a negative fair value


Forward exchange transactions –1,735 –307

Raw-material swaps –1,316 0

Interest-rate swaps –48 –57

–3,099 –364

of which current –1,784 –307

of which long-term –1,315 –57

As at Dec. 31, 2002 the Group carried contingent debt in the form of bank guarantees andsimilar obligations from ordinary operating activities, of which we assume that they will notresult in material payment obligations.


Guarantees 19 175

Warranty contracts 7,469 821

Total sum of future minimum lease paymentsfrom non-terminable operating lease contracts


up to 1 year 6,604 5,438

1 – 5 years 9,321 10,977


26,554 28,359

The cash flow statements show how HARTMANN Group cash flows in the course of thereporting year as a result of cash inflows and outflows. It sets out the cash flows by operating, investing and financing activities.

Income tax payments in business 2002 led to a net cash outflow of EUR 7,694 thousand, compared with EUR 9,182 thousand one year earlier.

In financial 2002, through the conclusion of lease contracts, a total of EUR 1,705thousand was invested, down from EUR 3,054 one year earlier.

32 Uncertain future events

33 Liabilities fromoperating lease con-tracts (with a Groupcompany as lessor)

34 Statements on the cashflow statement

Nominal volume of financial derivatives

in EUR thousand Dec. 31, 2002 Dec. 31, 2001

remaining term remaining termup to 1 1 – 5 more than total up to 1 1 – 5 more than total

year years 5 years year years 5 years

Forward exchange transactions 40,561 40,561 10,870 10,870

Interest caps 7,669 7,669

Interest-foreign exchange swaps 3,804 3,804 8,804 8,804

Raw-material swaps 942 36,146 37,088

Interest-rate swaps 5,624 5,624



stakein %

Central Europe

DE J.H. Ziegler GmbH & Co. KG 100.0

Watte- und Verbandstoffe Verwaltungsgesellschaft mbH 100.0

J.H. Ziegler Beteiligungs GmbH 100.0

PAUL HARTMANN AG & Co. Logistikzentrum Süd OHG 98.0

Karl Otto Braun KG 60.0

Hans Braun GmbH 60.0

Novamar GmbH 60.0

Sanimed GmbH 60.0

NOGE Gesellschaft für Medizinprodukte und-dienstleistungen mbH 60.0

Medka GmbH 60.0

Sanimed Krankenhausbedarf GmbH 60.0

DIG Dienstleistungen im Gesundheitswesen GmbH 60.0

Medicus Handelsvertretungs GmbH 36.01)

Fixies GmbH 100.0

Kneipp-Werke Kneipp-Mittel-Zentrale GmbH & Co. KG 80.0

Sebastian Kneipp Gesundheitsmittel-Verlag GmbH 80.0

Kneipp-Werbe-Agentur u. Vertriebs GmbH 80.0

Kneipp Verwaltungsgesellschaft mbH 80.0

HARTMANN Konsumgüter GmbH 100.0

CH Vlesia AG 60.0

IVF HARTMANN AG 60.0

Kistler AG 60.0

IVF Maschinenfabrik 60.0

Kneipp GmbH 80.0

AT PAUL HARTMANN Ges.mbH 100.0

West/Northwest Europe

FR PAUL HARTMANN S.A. 100.0

Laboratoires PAUL HARTMANN S.A.R.L. 100.0

HYGIENE PARTNERS S.A.R.L. 100.0

STERIMA S.A. 100.0

Les Bandes Somos S.A. 60.0

Medical Service et Logistique SAS 60.0

Kneipp France S.A.R.L. 100.0

Max Lorne S.A. 100.0

Orthosport S.A.R.L. 100.0

GB PAUL HARTMANN Ltd. 100.0

Hygiene Partners LLP 80.0

BE N.V. PAUL HARTMANN S.A. 100.0

NL PAUL HARTMANN B.V. 100.0

PAUL HARTMANN Finance B.V. 100.0

Kneipp Nederland B.V. 80.0

1) Entry relates to a participation in which a majority controlling interest is held at all levels.

35 Portfolio holdings


stakein %

East Europe

CZ HARTMANN-RICO A.S. 100.0

SK HARTMANN-RICO S.R.O. 100.0

PL PAUL HARTMANN Polska Sp. z o.o. 100.0

HU HARTMANN-RICO Hungária Kft. 100.0

RU PAUL HARTMANN OOO 100.0

North Europe

SE HARTMANN-ScandiCare AB 100.0

DK PAUL HARTMANN A/S 100.0

South Europe

ES PAUL HARTMANN S.A. 100.0

Laboratorios UNITEX-HARTMANN S.A. 100.0

IT PAUL HARTMANN S.p.A. 100.0

B.S. Biochemical Systems s.r.l. 100.0

Genesi s.r.l. 60.0

PT PAUL HARTMANN LDA 100.0

SI PAUL HARTMANN Adriatic d.o.o. 100.0

GR PAUL HARTMANN Hellas A.E. 100.0

Regions outside Europe

North America

US PAUL HARTMANN Corp. 100.0

HARTMANN-Conco, Inc. 100.0

Kneipp Corporation of America, Inc. 80.0

CA PAUL HARTMANN Inc. 100.0

Africa and the Middle East

DZ Laboratoires PAUL HARTMANN S.A.R.L. 51.0

ZA HARTMANN-Vitamed (Pty) Ltd. 70.0

EG PAUL HARTMANN Egypt S.A.E. 99.7

IR PAUL HARTMANN Iran Kish LLC 80.0

Asia and the Pacific Rim

CN PAUL HARTMANN Qingdao Medical Devices Co. Ltd. 98.5

PAUL HARTMANN Shanghai Trade Co. Ltd. 100.0

PAUL HARTMANN Guangzhou Trade Company Ltd. 100.0

HK PAUL HARTMANN Asia-Pacific Ltd. 100.0

IN KOB Medical Textiles Private Ltd. 60.0

SG PAUL HARTMANN Pte. Ltd. 100.0

AU PAUL HARTMANN Australia Pty. Ltd. 100.0



Business 2001 was influenced among other things by three key acquisitions. In total, sevenfully consolidated companies or part-groups were acquired.

Of these, the acquisition of the KNEIPP and Sanimed groups as well as of Conco in theUnited States was of major significance. The Sanimed Group consists of the firms SanimedGmbH, Sanimed Krankenhausbedarf and DIG Dienstleistungen im Gesundheitswesen GmbH;a 60 %-stake in it was acquired as at Aug. 1, 2001 through NOGE Gesellschaft für Medizin-produkte und -dienstleistungen. As at Sept. 1, 2001 we acquired 80 % of the capital stockof the KNEIPP Group, which is made up of, Kneipp-Werke Kneipp-Mittel-Zentrale GmbH & Co.KG, Sebastian Kneipp Gesundheitsmittel Verlag, Kneipp-Werbe-Agentur u. Vertriebs GmbH,Kneipp Nederland B.V., Kneipp (Switzerland) GmbH, Kneipp Austria Naturheilmittel GmbH,Kneipp Corporation of America, Inc., Kneipp France S.A.R.L., Kneipp Verwaltungs GesellschaftmbH. All shares in the Conco Medical Company were acquired as at Jan. 1, 2001.

With effect from Jan. 1, 2003 the Group has acquired all the stock of Kneipp InternationalGmbH, Germany, and of D.A.S. Distributori Articoli Sanitari S.r.l., Italy.

It will be proposed to the General Meeting of July 11, 2003 that a dividend be disbursed ofEUR 2.90 per unit share. A total of 3,551,742 units hold dividend entitlements. The profitsthus disbursed come to EUR 10,300,051.80. This dividend is posted in the current consoli-dated annual financial statements as a component of shareholders’ equity. The dividend liability is entered in business 2003. Last year’s dividend amounted to EUR 10,122,464.70(EUR 2.85 per share).

Emoluments of the members of the Board of Management and the Supervisory BoardIn keeping with the Articles, the Supervisory Board of PAUL HARTMANN AG received totalremuneration of EUR 262 thousand.

Total emoluments of Management Board members for financial 2002 came to EUR2,258 thousand, and to EUR 2,290 thousand at the Group level.

A total of EUR 8.4 million has been allocated to accruals to cover pension obligationsfor former members of the Board and their descendants; the ongoing contributions came toEUR 620 thousand.

The consolidated annual financial statements were released on March 31, 2003 for presen-tation to the Supervisory Board.

PAUL HARTMANN AG

Prof. Dr. Dr. Hemel Pohl Dr. Wagner Dr. Wurster


36 Company acquisitions

37 Events after the balance-sheet date

38 Dividend per share

39 Transactions withfriends

40 Release of theconsolidated annualfinancial statements



We have duly examined the consolidated annual financial statements of PAUL HARTMANNAG, Heidenheim, including the income statement, the balance sheet, the schedule ofchanges in equity, the cash flow statement and the explanatory notes for the year endingDec. 31, 2002. According to the IAS/IFRS, the Board of Management of the Company isresponsible for the preparation and contents of the consolidated annual financial statementsand for the Group management report. It is our task, on the basis of our examination, toexpress an opinion on whether the consolidated annual financial statements conform withIAS/IFRS.

We have examined the consolidated annual financial statements pursuant to the GermanCommercial Code and in line with the principle issued by the Institut der Wirtschaftsprüfer(IDW) for due German audits. They state that the examination shall be planned and conduct-ed in such a way as to identify with due certainty any material inaccuracies in the consoli-dated annual financial statements. As part of the examination, documentation for the valuesand statements given in the consolidated annual financial statements are assessed on thebasis of random checks. The examination also includes a judgement on the accounting prin-ciples used and the key assessments made by the Company’s Board of Management not tomention an appreciation of the overall presentation of the consolidated annual financialstatements. We are of the opinion that our examination provided a duly certain basis for ourjudgement. It is our opinion that on the basis of our examination the consolidated annualfinancial statements concur with IAS/IFRS and provide a true and fair picture of the assets,financial and earnings position of the Group and cash flow in business 2002.

Our examination, which in line with German auditing principles also covered the Groupmanagement report prepared by the Company’s Board of Management for the business yearJan. 1 through Dec. 31, 2002, led to no objections.

In our opinion, the Group management report provides a true and fair picture of the Group’sposition and accurately describes the risks innate in future developments.

Moreover, we confirm that the consolidated annual financial statements and Group manage-ment report for the business year Jan. 1 through Dec. 31, 2002 fulfill the requirements toexempt the Company from preparing consolidated annual financial statements and a Groupmanagement report under German law.

Stuttgart, April 15, 2003

PwC Deutsche Revision AktiengesellschaftWirtschaftsprüfungsgesellschaft

Gehle BäderCertified public auditor Certified public auditor

Audit opinion



Report of the Supervisory Board

The Supervisory Board regularly consulted the Board of Management and reviewed manage-ment activities during business 2002. At four joint meetings and on the basis of written and oral reports submitted by the Board of Management, the Supervisory Board has closely con-cerned itself with the Company’s economic position, the course of business and business strategy, risk management and other fundamental issues relating to corporate planning and development. All measures that according to the Articles of current legislation required the Supervisory Board’s approval were closely discussed and presented to the members for resolution. The chairman of the Supervisory Board was continually informed of all important items of business as well as on the key financial figures as regards Group sales and earnings trends. The Supervisory Board discussions focused in particular on the planned foundation of new subsidiaries as well as on the Company’s acquisitions strategy in general. Moreover, we closely debated the Company’s investment policy and corporate planning.

The PAUL HARTMANN AG annual financial statements as at Dec. 31, 2002 as preparedin accordance with the German accounting standards laid out in HGB, the GermanCommercial Code, and the consolidated annual financial statements, compiled for the firsttime in keeping with IAS, were duly audited by PwC Deutsche Revision AktiengesellschaftWirtschaftsprüfungsgesellschaft, Stuttgart, and an unqualified opinion issued on them. Inrelation to the 2002 annual financial statements, the PAUL HARTMANN AG SupervisoryBoard for the first time established an audit sub-committee – in line with item 5.3.2 of theGerman Corporate Governance Code. The audit sub-committee supplemented the compre-hensive examination by the auditors conducted by the latter under their own authority,defined additional audit focal points and prepared the meeting convened to approve theannual financial statements. The reports on the audits were forwarded to all members of the Supervisory Board in due time prior to the meeting. The auditors attended the meeting convened to approve the balance sheet on May 8, 2003 and reported on the key findings of their examination.

We exhaustively discussed the documentation for the annual financial statements. TheSupervisory Board concurs with the results of the audit and approves the 2002 PAUL HART-MANN AG annual financial statements, the consolidated annual financial statements as wellas the management report, all of which were prepared by the Board of Management. Theannual financial statements are thus considered adopted. The Supervisory Board has agreedto the proposal by the Board of Management on the application of the retained earnings forfinancial 2002.

Hans Kahlich, Chief Financial Officer of the Company since 1984, retired at the end of2002 after almost 40 years with HARTMANN. At a special festive occasion, the SupervisoryBoard, the Board of Management and representatives of other groups thanked him for hissterling services to the Company. As of the end of the General Meeting on July 12, 2002 Dr. Hans-Peter Wagner replaced Hans Kahlich as Chief Financial Officer, having been appoint-ed an ordinary member of the Board of Management as at May 1, 2002.

The Supervisory Board would like to thank the Board of Management and all theHARTMANN Group staff for their strong efforts during 2002. The period of office of the present Supervisory Board will come to an end with the General Meeting of July 11, 2003. I would like to thank all the members for their dedication and constructive support for theCompany over the last five years. My special thanks to those who are retiring from the Boardas of the General Meeting.

Heidenheim, May 8, 2003On behalf of the Supervisory Board

Dr. Karl Heinz WeissChairman

Dr. Karl Heinz Weiss

Chairman of the Supervisory Board

of PAUL HARTMANN AG



Supervisory Board, Management Board, Corporate Officers

Honorary Chairman of HARTMANN

Dr. Friedrich-Wilhelmv. Seydlitz-KurzbachUlm

Supervisory Board

Dr. Karl Heinz WeissAttorney-at-LawMunichChairman

Rudolf Neidlein*Authorized representative of IG-MetallHeidenheimDeputy Chairman

Dr. Jürgen Engel-Bock*EconomistBeverungen

F.-Jürgen HeckmannAttorney-at-LawStuttgart

Klaus Hitzler*Industrial businessmanSteinheim

Klaus-Jürgen Klug*BusinessmanKamen-Methler

Dr. Karl-Otto KünkeleAttorney-at-LawTettnang

* elected employee representatives

Max MaierBank director (retd.)Heidenheim

Rainer NeumannMember of the Board ofR+V VersicherungsgruppeWiesbaden

Wolfgang Schwarz*Full-Time Chairman of the Group Works CouncilHeidenheim

Walter StannerManging Director ofWASTA-WildspezialbetriebImport Export GmbH & Co. KGHohenschwangau

Günter Zech*Full-Time member of theWorks Council Nattheim

Board of Management

Prof. Dr. Dr. Ulrich HemelTheologianEconomistChief Executive Officer

Hans KahlichGraduate in commerceuntil Dec. 31, 2002

Friedrich PohlGraduate in businessadministration

Dr. Hans-Peter WagnerGraduate in commerceAs of May 1, 2002

Dr. Thomas WursterGraduate in engineeringGraduate in commerce

Corporate Officers

Dieter BuschmannMedical business unit

Dr. Werner CasperInternational Coordination/Business Development

Krzysztof-Daniel MalowaniecStrategic Development

Dr. Wolfgang NeumannIntegrated Supply Chain Management

Christian NiewolikPatient Care business unit

Kurt RöthelStrategic Marketing andCorporate Communications

Dietmar WöhrmannConsumer Products business unit



Home delivery | transporting directly to thedoor those products a patient needs for care athome

Hydro-active wound treatment | the use ofmoist, semi-permeable wound dressings for theaccelerated treatment of chronic or infectedwounds. Also referred to as interactive or moisttherapy

Incontinence | inability to consciously hold backurine or stool, and to exercise control over urina-tion or bowel movements

Medical products | serve the diagnosis, preven-tion, treatment, monitoring and alleviation of ill-nesses and disorders

Medical skin care | products for the cleansing,care and protection of the skin for patients withspecific skin ailments

Modern wound management | does not relyon conventional gauze-based products but aboveall for chronic and problem wounds favourshydro-active dressings that address each healingphase. Dressings based on gel, collagen orsuper-absorbent material accelerate the healingprocess, and often result in the wound healingcompletely

Neurodermatitis | a kind of chronic skin diseasewith pruritic inflammation. It is characterized byepisodes of itching and lichenification on theskin. The disease has a chronic course with fre-quent relapses. It is believed by some authoritiesto be a psychogenic disorder

Orthoses | orthoses are devices which are fittedto the outside of the body to support a weaknessor correct a deformity (such as surgical collar, legbraces, etc.). They are categorized as orthopaedic/technical auxiliaries which constrain the move-ment of the torso or limb, in certain cases evenimmobilizing these

OTC (over the counter) | non-prescription phar-maceutical products and business with them

Outpatient and home care | care for patientsat home as opposed to care for patients in hospi-tals or at nursing facilities

Performance management system | instru-ment for the goal-oriented planning, control andimprovement of individual staff and executiveperformance. This approach also includes therealization of corporate objectives and businessstrategies

Renewable biomaterials | raw materials thatgrow again after cropping, for example chitosan –which is extracted from the shells of crustaceans– keratins and collagens

Superabsorbers | substances capable of per-manently absorbing and storing many times theamount of their own weight in fluid

Supply chain management (SCM) | integratingthe organization of all essential information andgoods flows in order to coordinate the manage-ment of logistics and production processes in asupply chain

Systems offer | provision of products and servic-es tailored to the specific need of the customer

Therapeutic bandages | are bandages which,unlike ready-to-use body shaping supports, haveto be wound around the injured part of body. As part of the treatment, they support the areaof the body that is diseased, provide compressionor relief, or immobilize it

Wound conditioning | preparation of a woundentailing lost tissue prior to onward treatment,above all cleansing of the wound

Glossary

A – Z of Specialist Terms

Absorbent core | central component of anyincontinence product worn close to the body,e.g., a pad or pants. The absorbent core consistsmainly of cellulose and a superabsorber and isintegrated into a foil covering

Agenda 21 | program of action for the 21st

century resolved by over 170 governments in1992 at the United Nations Conference on theEnvironment and Development in Rio de Janeiro;divided into 40 chapters it covers all the keypolitical areas to focus on ecological and sus-tainable development

Audit | inspection of a company in line with pre-defined criteria

Baby hygiene | our core range comprising dis-posable diapers and training pants. The Fixiesspectrum also includes baby underpads forchanging diapers and breast pads

Chronic wounds | are problematic wounds thatheal with great difficulty. Essentially the term isused for decubitus ulcers, leg ulcers and “diabeticfeet”, as they are known

Combi-sets | customized surgical sets for specif-ic operations containing all the necessary dress-ing materials, draping material and other items

Custom procedure trays | are a compilation ofmedical products (e.g., disposables and/orreusables) designed to offer the mix of productsroutinely used in a particular surgical procedureto make it run more efficiently

Dermatides | inflammatory skin reactions, oftencaused by external influences

DRG | diagnosis-related groups, invoicing forhospital services according to standardized lumpsums per case, to be introduced in Germany as of2004

Feminine hygiene | our range under the Riabrand comprises pantyliners, sanitary towels andtampons, and is complemented by Ria LadyCare– hygiene pads with extra-high absorbency



Earnings from ordinary activities | earningsprior to extraordinary expenses and income aswell as taxes

EBIT | earnings before interest and taxes

EBITDA | earnings before interest and taxes,depreciation and amortization

Equity method | valuation method used forinterests held in associated companies based onthe proportion of the stake of the company’sshareholders’ equity held and the proportionateshare in that company’s net income for the year

Equity ratio | ratio of equity capital to totalassets

Fair value | the amount for which an asset couldbe exchanged between knowledgeable, willingparties in an arm’s length transaction. In thissense, fair value can be understood as market orcurrent value

Financial derivatives | financial instruments,such as options, futures, interest swaps andforeign-exchange swaps that generate rights andobligations, such that the financial risks of theunderlying original financial instruments can betransferred between the parties to the contractas separate rights and obligations

Fully-consolidated companies | companiesthat are fully incorporated into the consolidatedaccounts with all their assets, liabilities, expensesand earnings. When calculating consolidated netincome for the year any minority interests arededucted from the net income for the year

Goodwill | entire sum a buyer is willing to paywhen acquiring an enterprise, factoring in futureearnings expectations, over and above the valueof the individual assets of the enterprise and lessdebts

IFRS (International Financial ReportingStandards) | The IFRS are issued by anindependent international accounting board theIASB, appointed by professional associationsinterested in accounting matters, with the goalof creating transparent and comparableaccounting standards that can be used by enter-prises and organizations worldwide

Income for the period | after-tax profits

Indirect reduction in sales revenues | allreductions in earnings which cannot be directlyattributed to customer invoices, e.g., rebates andcash discounts

International Accounting Standard (IAS) |accounting methods stipulated by theInternational Accounting Standards Committeeand based on US and British accountingprinciples

Intra-Group sales | sales generated throughbusiness with a Group member, as opposed tocustomer sales

Material interest | the possibility to influencethe financial and corporate decision-making of acompany in which an interest is held, withoutbeing able to control these decisions (interest of20 – 50 %)

MDAX | contains the 50 Prime Standard listedcompanies from classic sectors of industry thatfollow on from the 30 listed in the DAX stockindex in terms of trading volume and marketcapitalization

Net income for the period | net income for thereporting period

Net return on sales | ratio of income for theperiod to sales revenues

Prepaid expenses/income or deferredcharges | payments made or received in advanceduring the reporting period but which relate to atime after the period in question

Return on equity | ratio of net income for theyear to equity capital

Sales revenues | gross sales revenues minusdirect and indirect reductions of proceeds

Scope of consolidation | those companies in agroup included in the consolidated accounts

Segment profit | measure of a segment’s pro-fitability. It is the product of segment income lesssegment expense

Segment reporting | disclosure of informationon the assets, financial and earnings positions ofthe individual segments. This enables insightsinto the trend for the individual segments andtheir contribution to Group earnings

Subsidiary | fully-consolidated and affiliatedcompany

Tax deferrals | item arising to account fortiming differences between the tax bill accordingto the AG/Group annual financial statementsprepared according to IAS for tax purposes andthe commercial reporting statements

Total-cost method | structuring the profit andloss account according to type of expense orrevenue

Treasury management | Group-wide manage-ment of cash and foreign-exchange flows as wellas financial risk transactions

A – Z of Financial Terms

Additional paid-in capital | capital paid in overand above the reserves set up according to lawand the statutes and formed from reinvestedprofits

Associated company | an enterprise in whichthe investor has significant influence and whichis neither a subsidiary nor a joint venture of theinvestor

Balance sheet total | sum of the assets or thesum of shareholders’ equity and outside capital

Cash and cash equivalents | all cash resourcesand assets that can be swiftly converted intocash, i.e., liquid funds and available-for-salefinancial assets

Cash flow | inflows and outflows of cash andcash equivalents

Cash flow from financing activities | coversall gross cash receipts and cash payments thatresult in changes in the size and composition ofthe equity capital and the borrowings of anenterprise

Cash flow from investing activities | covers all gross cash receipts and cash payments that relate to the acquisition and disposal of long-term assets and other investments not includedin cash equivalents

Cash flow from operating activities | primarilycovers sales-related activities including allactivities that cannot be classified as investing orfinancing activities

Consolidated at equity | associated companiesthat are evaluated using the equity method

Consolidated income | income for the periodless minority interests

Control | is the power to govern the financialand operating policies of an enterprise so as toobtain benefits from its activities

Customer sales | sales with customers outsidethe Group as opposed to intra-Group sales

DAX 30 | tracks the performance of the 30German blue chips in the Prime Standardsegment that are largest in terms of tradingvolume and market capitalization


Financial Dates

Press conference presenting the annual financial statements Stuttgart, June 25, 2003

Annual General Meeting Heidenheim, July 11, 2003

Dividend disbursement July 14, 2003

Published by

PAUL HARTMANN AG, Heidenheim, Germany

Contacts

Investor Relations desk

Erika SchäferMartina Kuhn

Phone +49/73 21/36-1105Fax +49/73 21/36-36 06E-mail: [email protected]

Public Relations desk

Joe MüllerMargarete Krämer

Phone +49/73 21/36-1312Fax +49/73 21/36-36 50E-mail: [email protected]

The PAUL HARTMANN AG Annual Report is available in German, English and French. All versions are also available on the Internet and can be downloaded from our Web site atwww.hartman.info.

Key Financial Dates and Contacts




HARTMANN Financial Figures A Five Year Comparison

HARTMANN Group

in EUR thousand 1998 1999 2000 2001 2001 2002 2002

HGB HGB HGB HGB IAS HGB4) IAS

Earnings

Sales revenue1) 754,286 829,631 957,690 1,150,358 1,150,358 1,269,749 1,269,749

of which outside Germany in % 48.2 50.3 53.1 55.6 55.6 56.3 56.3

Income for the period (IAS)Net income for the year (HGB) 23,279 24,690 17,712 18,007 13,463 25,284 18,326

Net return on sales in % 3.1 3.0 1.8 1.6 1.2 2.0 1.4

Cost of materials 360,879 404,063 456,525 575,364 575,819 590,056 585,821

Personnel expense 169,279 185,543 233,840 282,422 276,666 319,881 314,937

EBITDA 75,064 83,323 77,514 91,230 93,311 106,657 115,301

Return on EBITDA in % 10.0 10.0 8.1 7.9 8.1 8.4 9.1

Depreciation onfixed assets 42,219 42,598 50,388 55,561 61,474 55,421 66,145

EBIT 32,852 40,732 27,129 35,866 31,837 51,235 49,156

Return on EBIT in % 4.4 4.9 2.8 3.1 2.8 4.0 3.9

Cash flow 63,467 72,421 66,466 55,5165) 85,310 81,9155) 96,648

Cash flow in % of sales revenues 8.4 8.7 6.9 4.8 7.4 6.5 7.6

Balance sheet

Balance sheet total 470,497 547,905 614,934 764,935 986,828 738,523 957,084

Investment in fixed assets 51,255 69,259 98,291 103,280 131,6082) 45,017 51,340

Shareholders’ equity 273,158 281,687 269,074 245,577 387,661 252,238 391,250

Equity-assets ratio in % 58.1 51.4 43.8 32.1 39.3 34.2 40.9

Return on equity 8.5 8.8 6.6 7.3 3.5 10.0 4.7

Employees3) 5,115 6,040 7,723 8,924 8,924 9,396 9,396

1) Currency translation was effected at the average exchange rate for the year.

2) Of this figure, EUR 49,832 thousand results from the fixed assets taken on with expansion of the scope of consolidation.

3) Average payroll for the year.

4) The financial statements were prepared according to HGB for the last time in 2002 to enhance comparability.

5) Calculated and presented so as to be comparable with IAS, the figures were EUR 81,525 thousand for 2001 and EUR 95,060 thousand for 2002.


Key HARTMANN Subsidiaries by Region

Central Europe

DE

Karl Otto Braun KG

Lauterstraße 50

67751 Wolfstein

Phone +49/63 04/7 40

Fax +49/63 04/7 43 90

MD: Dr. Gerhard Braun

Kneipp-Werke

Kneipp-Mittel-Zentrale

GmbH & Co.KG

Steinbachtal 43

97082 Würzburg

Phone +49/9 31/8 00 20

Fax +49/9 31/8 00 21 97

MD: Holger Wolf

Sanimed GmbH

Bismarckstraße 101

10625 Berlin

Phone +49/30/31 10 15 50

Fax +49/30/31 10 15 55

MD: Dr. Karl-Ulrich Schellhaas

AT

PAUL HARTMANN Ges.mbH

IZ-NÖ-SÜD, Straße 3

2355 Wiener Neudorf

Phone +43/22 36/64 63 00

Fax +43/22 36/64 63 017

MD: Friedrich Thomasberger

CH

IVF HARTMANN AG

Victor-von-Bruns-Straße

8212 Neuhausen

Phone +41/52/6 74 31 11

Fax +41/52/6 72 74 41

MD: Dr. Rinaldo Riguzzi

West/Northwest Europe

Regional Director:

Jean-Paul Brunstein

BE

N.V. PAUL HARTMANN S.A.

1, Avenue Paul Hartmann

1480 Saintes

Phone +32/2/3 91 44 44

Fax +32/2/3 91 44 45

MD: Francis Mathot

FR

PAUL HARTMANN S.A.

18, rue des Goumiers

67730 Châtenois

Phone +33/3 88/82 43 43

Fax +33/3 88/82 43 99

MD: Michel Kuehn

GB

PAUL HARTMANN Ltd.

Unit P2, Parklands

Heywood Distribution Park

Pilsworth Road

Heywood/Lancashire OL10 2TT

Phone +44/17 06/36 32 00

Fax +44/17 06/36 32 01

MD: Roger Keith Styles

NL

PAUL HARTMANN B.V.

Sperwerstraat 90

6541 SH Nijmegen

Phone +31/2 43 72 36 10

Fax +31/2 43 77 82 84

MD: Rudolf Marinus Krouwel

East Europe

Regional Director:

L’ubomír Páleník

CZ

HARTMANN-RICO A.S.

Masarykovo nám. 77

66471 Veverská Bíty `ska

Phone +4 20/5 49/42 31 11

Fax +4 20/5 49/42 34 44

MD: L’ubomír Páleník

HU

HARTMANN-RICO Hungária Kft.

Budapark, Paul Hartmann u. 8

2051 Biatorbágy

Phone +36/23/53 09 00

Fax +36/23/53 09 05

MD: László Hornyák

PL

PAUL HARTMANN Polska Sp. z o.o.

ul. Partyzancka 105/127

95-200 Pabianice

Phone +48/42/2 25 22 60

Fax +48/42/2 15 74 78

MD: Grazyna Zeromska-Tiszler

RU

PAUL HARTMANN OOO

Kozhevnicheskaya str. 7-1

Moskwa 115114

Phone +7/0 95/7 95 08 74

Fax +7/0 95/7 96 99 60

MD: Jury Wiktorowitsch Kalabin

SK

HARTMANN-RICO S.R.O.

Vl `ckova 18

81106 Bratislava

Phone +4 21/2/52 49 27 04

Fax +4 21/2/52 49 21 25

MD: L’ubomír Páleník

North Europe

Regional Director:

Bengt Gustafson

DK

PAUL HARTMANN A/S

Huginsvej 1 F

3400 Hillerød

Phone +45/48/22 04 00

Fax +45/48/22 04 01

MD: Bengt Gustafson

SE

HARTMANN-ScandiCare AB

Depågatan 2

33421 Anderstorp

Phone +46/3 71/58 74 00

Fax +46/3 71/58 74 44

MD: Bengt Gustafson

South Europe

Regional Director:

Jorge Corti Reverter

ES

Laboratorios

UNITEX-HARTMANN S.A.

Polígono Industrial Pla d’en Boet II

c/Carrasco i Formiguera, 48

Apartado 17

08302 Mataró

Phone +34/93/7 41 71 00

Fax +34/93/7 41 71 11

MD: Juan Antonio Ferreiro


GR

PAUL HARTMANN Hellas A.E.

A. Papandreou & Sava Lasaridi 15

16675 Glyfada/Athina

Phone +30/2 10/8 98 66 30

Fax +30/2 10/8 98 66 40

MD: Dr. Panos Koronakis

IT

PAUL HARTMANN S.p.A.

Via della Metallurgia, 14 - ZAI 2

37139 Verona

Phone +39/0 45/8 18 24 11

Fax +39/0 45/8 51 07 33

MD: Dr. Alessandro Balboni

PT

PAUL HARTMANN LDA

Av. Severiano Falcão, 22 - 2°

2685-378 Prior Velho

Phone +3 51/21/9 40 99 20

Fax +3 51/21/9 40 99 29

MD: José Manuel Toscano De Mendonça

SI

PAUL HARTMANN Adriatic d.o.o.

Letali`ska cesta 3c

1000 Ljubljana

Phone +3 86/1/5 48 45 81

Fax +3 86/1/5 48 45 89

MD: Raimund Koch

Regions outside Europe

North America

Regional Director:

Jacques M. Lemmetti

CA

PAUL HARTMANN Inc.

100, Wellington Street West 2000

Toronto, Ontario

M5K 1E7

Phone +1/9 05/6 8127 06

Fax +1/9 05/6 8164 37

MD: Jacques M. Lemmetti

US

HARTMANN-Conco, Inc.

481, Lakeshore Parkway

Rock Hill, SC 29730

Phone +1/8 03/3 25 76 00

Fax +1/8 03/3 25 76 06

MD: Jacques M. Lemmetti



Latin America

Regional Director:

Dr. Werner Casper

West Africa

Regional Director:

Jean-Paul Brunstein

DZ

Laboratoires

PAUL HARTMANN S.A.R.L.

Villa No 10,

Lotissement communal No 3

Rouiba

Algeria

Phone +2 13/21/85 53 30

Fax +213/21/85 68 83

MD: Mohamed Achaibou

MA

PAUL HARTMANN S.A.R.L.

7, rue Ibn El Jaouzi

20100 Casablanca

Phone +2 12/22/48 39 23

Fax +2 12/22/48 39 01

MD: Adil Mesfioui

Africa/Arabia

Regional Director:

Werner Benz

EG

PAUL HARTMANN Egypt S.A.E.

96, Bahr El-Azzam Street

Nile Diamond Tower

Giza/Cairo 12515

Phone +20/2/5 73 09 13

Fax +20/2/5 73 73 13

MD: Eman George

IR

PAUL HARTMANN Iran Kish LLC

No. 24, Kish Trade Center

Kish Island

Phone +98/76 44 42 48 67

Fax +98/76 44 42 48 67

MD: Dr. Alireza Behshadfar

SA

The National Medical

Products Co. Ltd.

Second Industrial City

Al Kahrj Road

P.O. Box 7681

Riyadh 11472

Phone +9 66/1/4 98 16 66

Fax +9 66/1/4 98 56 07

MD: Fahad Al Moammar

ZA

HARTMANN-Vitamed (Pty) Ltd.

14, Milkyway Avenue

Linbro Business Park

P.O. Box 4088

Sandton 2128

Phone +27/11/6 08 22 40

Fax +27/11/6 08 23 25

MD: Folkmar Geyer

Indian Subcontinent

Regional Director:

Werner Benz

East Asia

Regional Director:

Dr. Werner Casper

CN

PAUL HARTMANN (Qingdao)

Medical Devices Co., Ltd.

184, Zhushan Road, Jiaonan

Qingdao 266400

Phone +86/5 32/6 18 18 47

Fax +86/5 32/6 18 21 21

MD: Chun Ling Wang

PAUL HARTMANN (Shanghai)

Trade Co., Ltd.

Rm. 703, Shenergy Int. Building

1, Fuxing Road (M)

Shanghai 200021

Phone +86/21/33 07 02 22

Fax +86/21/53 58 03 70

MD: Chun Ling Wang

Southeast Asia

Regional Director:

Hans-Ulrich v. Lützau

HK

PAUL HARTMANN

Asia-Pacific Ltd.

16/F Unit 1608 Kerry Cargo Centre

55 Wing Kei Road

Kwai Chung NT

Hong Kong

Phone +8 52/27 96 09 19

Fax +8 52/27 96 76 10

MD: Hans-Ulrich v. Lützau

SG

PAUL HARTMANN Pte. Ltd.

51, Penjuru Road # 03-00

Freight Links Express

Logisticentre

Singapore 609143

Phone +65/2 62 30 37

Fax +65/8 96 50 38

MD: SiChai Wong-Bailey

Oceania/Pacific

Regional Director:

Werner Benz

AU

PAUL HARTMANN Pty. Ltd.

34-38A, McEvoy Street

Waterloo

NSW 2017

Phone +61/2 96 98 92 11

Fax +61/2 93 19 57 17

MD: David Clarke


PAUL HARTMANN AGPaul-Hartmann-Straße 1289522 HeidenheimP.O. Box 14 2089504 HeidenheimGermanyPhone +49/73 21/36-0Fax +49/73 21/36-36 36www.hartmann.info (6

03) 0

87 3

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The HARTMANN Group Annual Report 2002

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