Siegfried Annual Report 2011 by BBF.CH

Annual Report 2011

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Overview

For 2011, the Siegfried Group reported pleasant results despite a challenging environment. The company returned to profitability, strengthened its market position, improved efficiency at high utilization levels and achieved important pre-conditions for profitable growth as part of our strategic efforts. Siegfried noted sales of CHF 328.1 million in 2011, a 4.4% increase (in Swiss francs) over 2010. Growth reached 15.6% in local currencies. Earnings of CHF 41.0 million (+11.9%) before interest, taxes, depreciation and amortization (EBITDA) represent an EBITDA margin of 12.5%. Siegfried reported a significant jump (+116%) in earnings before interest & taxes (EBIT) of CHF 11.6 million, which corresponds to 3.5% of sales. In exchange rate adjusted terms, Siegfried achieved an EBIT of 4.6%, and net profits of CHF 9.6 million. Other key figures were also positive; net current assets were held at a low level (CHF 123.1 million) and the 14.5% return on capital employed (ROCE) showed that satisfying results could be made at that level of investment. Cash flow at the end of 2011 was CHF 52.6 million. The Siegfried facilities all profited from a substantially improved order situation. Zofingen shifted large parts of its production to 24/7 work shifts. Malta significantly grew headcount in anticipation of an important upcoming production launch. Thanks to comprehensive cost control efforts, revenue growth had a corresponding effect on profitability. As part of our strategy implementation efforts, Siegfried management focused on three key areas in 2011 to help improve our competitive position: backward integration to Asia, entry into sterile filling capabilities and enhancement of our technology base. Zofingen and Malta invested in system upgrades to improve their production potential for high potency drugs. Zofingen outsourced waste disposal activities to EBM Waerme AG, Muenchenstein (Switzerland) in early 2011. Siegfried also negotiated an extensive land swap with the City of Zofingen and the municipal works department (StWZ Energie AG) to secure space for future expansion on property adjacent to the current site; this transaction was made possible by a trade of non-essential Siegfried properties. A letter of intent was signed in January 2012. The past year also saw numerous changes to Siegfriedâ&#x20AC;&#x2122;s executive management. Dr. Walter Kittl took over Technical Operations on June 1, Arnoud M. Middel was named Head of HR on September 1, and the Siegfried Group announced that Dr. Wolfgang Wienand, already Head of R&D, also took on a new position as Head of Strategy and M&A on November 1.

After 21 years on the Board of Directors, Dr. Thomas Staehelin, current Vice-President of the Board, will not stand for re-election at the General Meeting 2012. All Board members are up for re-election to another one-year term this year. The Board has no further nominations for the General Meeting. Thanks to the positive financial results, the Board of Directors recommends that the General Meeting of Shareholders approve a pay-out of CHF 1.â&#x20AC;&#x201C; per nominal share, to be paid for out of capital contributions.

Annual Report 2011

Key numbers

Siegfried Group

Net sales (million CHF) Gross profit (million CHF) Gross profit margin (%) EBITDA (million CHF) EBITDA margin (%) EBIT (operating income) (million CHF) EBIT margin (%) Net profit/loss (million CHF) Net profit/loss-margin in percentage Cash flow from operating activities before change in current assets (million CHF) Investment in property, plant, equipment and intangible assets

Shareholder’s equity (million CHF) Total assets (million CHF) Equity as a percentage of total assets Employees (number)

Annual Report 2011

2011

2010

Change CHF (LC)

328.1 65.4 19.9% 41.0 12.5% 11.6 3.5% 9.6 2.9%

314.4 54.5 17.3% 36.7 11.7% 5.4 1.7% –4.2 -1.3%

4.4% (15.6%) 20.2%

43.3

34.3

26.3%

15.9

13.0

22.1%

December 31, 2011

December 31, 2010

Change

369.7 448.0 82.5% 715

373.7 464.1 80.5% 696

–1.1% –3.5%

11.9% 116.6%

2.7%

Table of Contents

Letter from the Chairman & the CEO

People â&#x20AC;&#x201C; Markets â&#x20AC;&#x201C; Strategies

Corporate Governance

General framework

1 Structure of the Siegfried Group

2 Capital structure

3 Board of Directors

4 Executive Management

5 Compensation, investments and loans

6 Voting rights and proxy

7 Change of Control and defensive measures

8 Auditors

9 Information policy

Compensation report

1 Introduction

2 Compensation system

3 Responsibilities

4 Compensation of the Board of Directors

5 Compensation of the Executive Management in 2011

6 Contractual agreements, loans and additional contributions

Sustainability Report 2011

Introduction

Corporate Principles

Compliance

Safety, Health and Plant Security

Environmental protection

Siegfried as Employer

Annual Report 2011

Letter from the Chairman & CEO

Dear Shareholders,

Siegfried achieved notable results in 2011 despite a very difficult environment. The company returned to profitability, improved its market position, increased efficiency (at high utilization levels) and, as part of our strategic efforts, implemented important steps for profitable growth. Sales grew to CHF 328.1 million, an increase of 4.4% and in local currencies a 15.6% increase. This continues a three-year growth trend. Profitability continued to improve as well; earnings of CHF 41.0 million (+11.9%) before interest, taxes, depreciation and amortization (EBITDA) represent an EBITDA margin of 12.5%. Siegfried reported an EBIT (earnings before interest & taxes) profit of CHF 11.6 million, which is over twice as high as in 2010 (CHF 5.4 million). The EBIT margin was 3.5%. Net profit came in at CHF 9.6 million. The appreciation of the Swiss franc had a negative effect on Siegfried Group results, reducing sales by CHF 35.3 million, EBIT by CHF 5.1 million and diminishing the EBIT margin by about 1%. Siegfried is situated relatively well with a “natural hedge” – where costs and income are booked in the same currency – of 95% in Euros and 80% in US dollars. The Board of Directors and executive management continued to focus on cash management in 2011 with a free cash flow of CHF 27.7 million. Thanks to careful management of inventory and our accounts payable and receivables, net working capital were held to a low CHF 122.2 million. The company held net cash reserves of CHF 52.6 million at the end of 2011, which can be used to finance our strategic efforts. The 14.5% return on capital employed (ROCE) confirms that satisfactory results could be achieved at that level of investment.

Annual Report 2011

Well-positioned in the markets As a supplier and outsourcing partner to the Life Science industry, Siegfried gets the largest part of its revenue from the exclusive synthesis of active pharmaceutical ingredients and intermedias that are sold to pharmaceutical companies. Siegfried also produces and sells active pharmaceutical ingredients (with expired patents and distinct production/distribution regulations) to various customers. This portfolio, in particular, includes controlled substances (incl. opiates), such as methadone and nicotine, used in addiction treatments, and other substances that must meet strict guidelines. They are tightly controlled by regulatory agencies. Finally, Siegfried also provides finished drugs according to customer orders, mostly in solid dosage forms. Product development and licensing are often carried out with partners. Being able to offer both synthesis of active pharmaceutical ingredients and the development and production of finished drugs is an important market differentiator. In addition, we are an attractive provider of products set for market launch and prior to patent expiration, which also, along with our activities in controlled substances, helps dampen the inherent volatility of the outsourcing business. These capabilities allow Siegfried to profit from the growing outsourcing trend in the life science industry. There are two reasons for this trend: first, many blockbuster drugs are facing patent expiration over the coming years and drug companies have few equally promising products in the pipeline; second, regulators in almost every country are putting pressure on prices to help relieve strained budgets. The pharmaceutical companies with R&D activities and generics companies have responded with restructuring and efficiency improvements, rendering outsourcing an increasingly attractive and sustainable solution. Siegfried continued to improve its market position in 2011, underlined by the climbing success rate of our contract offers. Siegfried also gained the “preferred supplier” status with a further large pharmaceutical company. Novartis honored Siegfried with the coveted “Global Supplier Award 2011”. Despite the good news, the enormous

Gilbert Achermann, President of the Board of Directors,

Dr. Rudolf Hanko, CEO

price pressure characterizes the market, making it demanding for Siegfried â&#x20AC;&#x201C; with its current structure â&#x20AC;&#x201C; to remain competitive. In the area of exclusive synthesis, Siegfried produces important active pharmaceutical ingredients for its customers. In 2011, sales grew by 10% and in local currencies by more than 20% â&#x20AC;&#x201C; solid results in our industry. Because the pharmaceutical industry customer prefers to avoid supply bottlenecks and risks to company reputations, exclusive synthesis is based largely on long-term cooperative contracts, with a comprehensive focus on service, technical competence and a high compliance level. Siegfried is also able to align its own systems with the often complex and diverse customer systems. Activities for active pharmaceutical ingredients without patent protection (controlled substances) also showed pleasing growth in 2011. The portfolio continued to expand and led to a 10% growth in revenue, mainly due to positive results in our key European and US markets. Growth in local curren-

cies reached 20%. Two new products turned out to be very successful. After the success of opiate derivatives in Europe, demand in the US also increased noticeably. The highly regulated US market is based on a quota system administered by the Drug Enforcement Agency (DEA), making revenues dependent solely on the availability of quotas. Siegfried saw its sales for finished drugs drop by 18% (11% in local currencies) because previous revenue drivers had reached the end of their product life cycle and new products did not yet make up for the shortfall. The renewal of the portfolio, however, remains on schedule; sales of a new product doubled in 2011 and preparations for the market launch of a further product were completed on time; initial deliveries are set for 2012. High utilization rates at the facilities In Zofingen, utilization rates of the production systems increased considerably during 2011, with numerous systems switching to a 24/7 work shift.

Annual Report 2011

While system utilization was high, personnel rates were around 100% and laboratories were also fully booked. Siegfried looks for gains in flexibility, efficiency and cost transparency by outsourcing maintenance (facility management, security, supply and waste management) to Bilfinger Berger Industrial Services AG and EMB. Initial feedback on these efforts is positive; the expected level of savings was exceeded. In addition to better cost transparency, improved efficiency and more precise processes are now also possible. Efforts to consolidate the Zofingen facility continued; a letter of intent for a property swap with the city of Zofingen and the municipal works department was signed in 2012. The contract to finalize the exchange is expected for mid-year and will allow an expansion of the facility site. Siegfried traded properties separated from the facility by a main road. The Pennsville, New Jersey (USA) site successfully met several challenges in 2011, as our largest volume single product is produced there. On average, production systems ran 6 days per week. Siegfried will soon produce ‘green’ energy and save costs as well. The launch of a solar energy (3 megawatt) project gained remarkable publicity in New Jersey and could contribute around 25% of the site’s total energy needs, with 100% coverage possible during the summer. Malta is an attractive location for Siegfried for the production of finished drugs. Many companies in this industry have settled there in recent years, creating a positive effect on the local labor market; salaries and related costs remain moderate for an EU member country, and decision paths are short and manageable. The Siegfried team in Malta expanded significantly – from 56 to 72 full-time positions – to ensure the successful ramp-up of an important product launch. As the Siegfried competency center for the formulation of drugs, the Malta facility is also a key strategic strength. In summary, the Malta investments have paid off and will achieve critical mass in the current year. Siegfried introduced a new company claim – “Siegfried – expect more” – and a revised corporate design at the CPhl 2011 industry trade show

Annual Report 2011

in Frankfurt, Germany. Siegfried is convinced that our customers can expect more, thanks to our proven competencies, decades-long experience, significant flexibility and our proverbial reliability. The remarkable combination of long-standing chemical and pharmaceutical know-how is unique in our industry – and highlighted by the new claim and corporate design. Corporate value and return on capital employed clearly increased Shareholder value increased significantly in 2011. This value is calculated as EBITDA minus costs for the equity ownership plan (EOP) and multiplied by a margin-dependent multiple. Using this calculation, shareholder value at the end of 2011 was CHF 312 million, compared to 230 million the previous year, an increase of CHF 82 million, or a gain of about a third. Also, the return on capital employed (ROCE) – calculated as EBITDA minus EOP costs divided by the invested capital – increased considerably, from 10.4% to 14.5%, a 40% jump. These figures show that Siegfried is well on the way toward enhancing shareholder value and ROCE. Our declared goal is to further improve the company’s earnings potential for our operational activities and implement strategic measures to help grow these figures. Strategy implementation on track Shortly after the General Meeting, the Board of Directors called for a comprehensive strategy review, completed by mid-2011 that confirmed our “Transform” strategy. Further meetings focused on the ongoing implementation of this strategy. The strategy goals for Siegfried are clear; enable the continued strengthening of our competitiveness and sustainable profitable growth. One of the priorities is improving our technology base. Thanks to sizeable investments in Zofingen and Malta, Siegfried made substantial progress in this regard; systems to process high potency drugs were installed at both facilities. The new production line in Zofingen for the development of high potency drugs will be inaugurated in March after inspections by the Swiss regulatory authori-

Annual Report 2011

ties. The new systems meet all of the particularly extensive standards for product and personnel safety. Siegfried is now in the position to enter this very attractive niche market; high potency drugs are used primarily in cancer therapies. Siegfried is currently working on a backwards integration of Asia – a market with a lower cost base. This is an important step that Siegfried, as a mid-sized company, is looking to achieve with experienced partners. Despite various initiatives, no concrete agreements were reached in 2011. Negotiations proved to be demanding and drawn-out; a project was called off just before the contract was signed due to unrealizable conditions. Siegfried is currently working on other projects. The company secured a mainland presence with the acquisition of rights for a production site at an industrial park close to Shanghai, China. By working towards an improved cost structure, Siegfried will be able to offer high quality synthesis at a modest price to its customers. In addition, Siegfried will carry out pre-production stages that were previously supplied by third-party companies. This key strategic step, especially for Zofingen and Pennsville, will ensure that products that would have fallen away in the near future due to costs can now be maintained in our portfolio. The resulting, more attractive offer will result in a higher volume of contracts, which will profit all our facilities. Further, Siegfried is working to present its USP – offering competency in the synthesis of chemical active pharmaceutical ingredients and finished drugs – in a tangible market offer. For customers, this combination is especially interesting in the area of sterile filling. Siegfried plans to invest in the corresponding production systems, alone or together with partners. This is a top priority; the corresponding reviews are currently in process. Thanks to our employees Numerous changes in upper management were not the only story in 2011; there were big challenges at the operational level as well. The pleasing growth in order entry was managed by maintaining a stable level of fixed costs, which needed a high level of commitment and flexibility from all

Annual Report 2011

our employees. In addition to taking care of daily business, management was heavily involved in strategic projects (with the necessary travel time). We would like to take a moment to express our sincere thanks to all our employees for their enormous dedication, loyalty to the company and high level of availability. This commitment is the foundation for the continued success of the Siegfried Group. Board of Directors and Executive Management The 2011 General Meeting of Stockholders saw big changes for the Siegfried Holding AG Board of Directors. Gilbert Achermann succeeded Dr. Markus Altwegg as Chairman, Reto A. Garzetti, Dr. Beat In-Albon and Dr. Thomas Villiger replaced Susy Brueschweiler and Prof. Dr. Felix Gutzwiller, who both left the Board. There were also numerous changes to Siegfried’s Executive Management. Arnoud M. Middel replaced the long-standing HR Manager, Hanspeter Brun, who retired. Dr. Walter Kittl, previously the Pennsville (USA) site manager, took over Technical Operations from Dr. Hubert Stueckler, who will work on strategic priorities, mostly in China, until his retirement in mid-2012. Dr. Wolfgang Wienand, already Head of R&D, added a new position as Head of Strategy and M&A. In 2011, the Board of Directors met for six regular meetings and a strategy seminar. There were also numerous meetings of the Strategy,’ ‘Audit’ and ‘Human Resources’ Committees. Dr. Thomas Staehelin, current Vice-Chairman of the Board, will not stand for re-election. A member of the Board of Directors since 1991 – 1991–1998 as Chairman, 1998–2012 as Vice-Chairman – Thomas Staehelin made decisive contributions and actively accompanied many important phases during his tenure, acting as a calming influence, legal conscious and also a specialist for financial accounting and corporate governance. Siegfried profited enormously from his vast experience and know-how from his activities on important boards of directors and expert committees of key associations.

All other Board members are up for re-election to another one-year term. The Board has no further nominations for the General Meeting. Dr. Andreas Casutt is designated as the new ViceChairman. At this point we would like to thank the members of the Board and Executive Management for their immense commitment.

Outlook Despite the challenging market situation and continued price pressure, Siegfried expects sales in local currencies to develop in a stable manner in 2012. Our improved system utilization levels will have a positive effect on the current year and Siegfried expects further improvement in the operative results.

Recommendation for a dividend Thanks to the positive financial results, the Board of Directors recommends that the General Meeting of Shareholders approve a pay-out of CHF 1.â&#x20AC;&#x201C; per share, to be paid out of the capital contribution reserve.

Gilbert Achermann Chairman of the Board of Directors

Dr. Rudolf Hanko Chief Executive Officer

Annual Report 2011

People â&#x20AC;&#x201C; Markets â&#x20AC;&#x201C; Strategies Qualified employees are a precondition for innovative products and business success. Our customers, the environment and society as a whole are entitled to expect maximum performance from Siegfried. Four examples.

Annual Report 2011

Success for our customers

Annual Report 2011

Our contribution as a supplier of the life science industry

“Success for our customers” – is more than a passing comment. It is the pivotal point of Siegfried’s thoughts and actions, and it stands for the global strategy of the entire Siegfried Group. The pillars of Siegfried’s global group strategy at all of its locations worldwide are formed by its unique competence in chemistry and pharmaceutics, the production of patented active ingredients for the pharmaceutical industry, and the production of controlled, strictly regulated substances and ready-formulated drugs for the generics industry. Siegfried’s strategy applies as much to its subsidiary in Shanghai in the East as to its European production plants in Malta and Zofingen, and spreads across the Atlantic to Siegfried (USA) Inc. in Pennsville, New Jersey, in the West. Some 700 employees across the globe contribute and live up to this strategy every day. Figuratively, the sun never sets on the Siegfried universe.

Annual Report 2011

In close contact with the authorities When the world west of Asia is still fast asleep, Ko-Lin Feng has long been up. She manages Siegfried’s Shanghai office in the city’s financial district and is responsible for sourcing and business development in Asia. Not that Ko-Lin Feng can easily be reached at her office; she often travels to visit her customers in one of the twelve markets in Asia or suppliers in China. A born Taiwanese, she is culturally familiar with the Asian continent, and thanks to studying mathematics at Yale University in the USA and professional experience in Europe, she is well-versed

with Western thinking. This is the perfect combination for Siegfried’s corporate activities in Asia. Wherever Ko-Lin Feng makes new contacts with customers or suppliers in the region, or whenever she meets with the authorities, her personal and professional background always represents a decisive advantage. This is especially true when government agencies become the customers as is the case for methadone in all Asian markets. “In such a case”, she says, “Siegfried acts less as a seller of API but more as an advisor and consultant to the customer to help build up their methadone program.” Ko-Lin

Annual Report 2011

Feng adds that “since we understand our markets and customers well, we know the progress of addiction treatment program in each market and the best approach to build our business in the particular local environment.” In a sense, KoLin Feng represents an important part of Siegfried’s strategy in building the Asian market by being a trustworthy partner of local authorities and customers working in the area of controlled substances. Production in a three-shift operation When Feng Ko-Lin’s workday slowly nears its end, Vittorio Giromini has been

Annual Report 2011

out and about on Siegfried business for a considerable time. Vittorio Giromini, the impeccably dressed Italian, is site manager of Siegfried’s Malta location. His workday starts at six in the morning when he checks his professional e-mails at home. “My brain at that time already works”, he says apologetically, “and I can’t help being an early bird.” As a result, when he sets foot on factory ground, he has taken care of his first tasks, which allows him to focus fully on what the day has in store. Vittorio Giromini talks enthusiastically about his job in Malta, and usually his arms gesticulate in support. He talks about Siegfried’s initial plans in 2004 of building a production plant on this Mediterranean island and how three years later the first products were manufactured there. These are exciting times for someone like him, because the plant has since grown continuously. In the beginning, he employed thirty staff members, today the workforce counts eighty and by next year the number may rise to about one hundred. Production is currently operating in three shifts producing 450 million drug tablets per year. Next year, Vittorio Giromini is convinced he will be able to introduce a 24-hour operation 7 days per week.

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Cost benefits are combined with above-average high productivity

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Siegfried is investing millions in expanding production in Malta because the location enjoys strategic importance for the company. “Cost advantages here are combined with above-average productivity”, says Vittorio Giromini while extending his arms. What else could be more exciting for a site manager? What is produced needs to be sold. Thomas Müller takes care of that. With a Ph.D. in chemistry, the Business Development manager at headquarters in Zofingen considers himself to be “not a typical scientist”. Also not a typical salesman, one could add. His silver-grey hair, athletic figure and open features exude the trust that customer relationships in the pharmaceutical industry are built on. In addition, Thomas Müller knows the company from different perspectives. As a former head of Chemical Development at Siegfried, he meets and negotiates with customers on equal terms. Customers, on the other hand, can rest assured that Thomas Müller will take their specific needs back to Siegfried where they will be translated into development projects. “I am a Siegfried ambassador toward the outside and a work provider toward the inside”. He carries out his work in a pleasantly laid-back manner that is evidence of

Annual Report 2011

healthy self-assurance. He knows that his role as a link between production and sales, production and development on the one hand and sales on the other side is important for corporate strategy. I sell myself and my know-how to current and new customers, much of it along existing personal connections”, he

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The customer receives exactly the product he needs, in the quality that he requires and at the time he wants it at

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explains, “but in the end I sell Siegfried’s competencies.” Sales activities on the other side of the Atlantic begin with a time difference of six hours to Swiss headquarters in Zofingen. Early in the morning, before work, Craig Douglas takes his young son to day nursery. Then he immerses himself in work. He manages one of the two sales teams at Siegfried’s USA headquarters.

Annual Report 2011

His team is responsible for Sales and Business Development of Siegfried’s Portfolio Products. Usually he steps into his office at 8:30 a.m., and then “no day is like the next”, as he says. He virtually sits at the interface between the inside and outside of Siegfried USA. Speed is decisive Siegfried founded Ganes Chemical Works in Pennsville, New Jersey, in 1937. The company produces standard active pharmaceutical ingredients. In 2005, Siegfried acquired Penick Corporation, the largest manufacturer in the USA of opiates such as morphine and codeine – in other words, strictly controlled substances. Today, the two companies form Siegfried USA. Outside: customers all over the United States. They consist of existing customers, that Craig Douglas cultivates, and new customers, which he has to find. He spends half of his working time traveling. As the link between the inside and the outside, his responsibility is to present customer needs to the company. Craig Douglas spends much of his time negotiating with customers, and this is where Siegfried USA’s significance for the group becomes visible.

Inside: Product Management. He sits down with interdisciplinary teams – production professionals, and quality and regulation experts – and as a result of these meetings customer needs are translated into reality. Production is the heart of the company According to Craig Douglas, “speed and flexibility” are the two factors that really count. For customers in generics production, speed is absolutely decisive: once a patent in the primary market expires, every producer aims to immediately supply a follow-up product. For Siegfried as a B2B producer, this requires a high degree of flexibility in production, especially the production of controlled substances of which Siegfried USA produces one hundred tons per year. After each work day, which may last 21 hours when traveling, he knows what really drives him: “I want to be part of a winning team.” Then he has a hearty laugh and adds: “And that’s what I am!”

Annual Report 2011

Professionalism of our employees

Annual Report 2011

Our contribution to the standards of a complex industry

They are the face of Siegfried. The DNA of the company, as human resources managers would say. Our most important capital, as the CEO will think. All of that is correct. While our employees’ combined core competencies may not appear

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We stand on a stage and present the company

’

in any balance sheet, they decide to a high degree on success or failure. The calling card of the company The profiles of our employees give testimony to much more than a thousand high-gloss brochures on strategy and per-

Annual Report 2011

formance could ever do – even if they represent only a small selection. So, let’s start – in Zofingen, at Siegfried’s headquarters. At the reception, Beatrice Hänggi and Esther Waeber share the position and take turns at staffing the desk. The official term for their function is “receptionist”, which requires a confident and open approach to people. They are both fashionably dressed and wear discreet makeup. “Everyone entering the reception is a Siegfried guest, and it is my responsibility to make these people feel comfortable”, says Beatrice Hänggi about her work. “I consider the reception to be the visiting card of our company.” The words cross her lips naturally, as if they personified her professional pride. Esther Waeber feels very similarly. “It’s as if we were standing on a stage presenting the company to our visitors”, she says. “Friendliness is important, but we also have to be efficient.”

Hardly surprising. In addition to welcoming guests and taking telephone calls, many things pass the reception desk. Such as the time registration of employees, updating entrance and withdrawal lists, managing the schedule for the “Forum” function room and keeping the notice board up-to-date. The most important aspect of their work, however, is greeting by name about one hundred Siegfried employees passing the reception desk to their offices every day, recognizing the needs of guests and helping them find solutions. “We”, says Beatrice Hänggi

also for her colleague Esther Waeber, “provide services for Siegfried’s guests and staff members.” Fabrizio Mero works only a few steps from the main reception in Zofingen. He wears an overall in Siegfried’s corporate blue, identifying him as a production employee. His workplace is in the production area, amidst factory sheds, where masonry from Siegfried’s founding days in the late 19th century stands next to stateof-the-art production buildings. A trained mechanic, Fabrizio Merzo joined Siegfried eighteen years ago. In this period, he

Annual Report 2011

worked his way up from production employee to chemical employee and finally to shift manager in TCR (technical chemical reactions). Here, in the production phase that he is responsible for as shift manager, different raw materials are processed and by means of various chemical reactions forged into an intermediate step used in the production of an anticonvulsant. He is joined by eight colleagues in his team, and it is of great importance to him that this team functions smoothly in a three-shift operation. A shift manager with professional pride As shift manager, he controls production processes and ensures that the company-wide rules of good manufacturing practice (GMP) are complied with and the production process is orderly and safe. Fabrizio Mero also ensures that his colleagues rotate tasks in the production

Annual Report 2011

process to keep them motivated and prevent routine setting in. Occasionally, he himself enjoys working on the machines, especially to solve problems. “Then,” he says, “I can apply my professional experience.” Fabrizio Mero acquired the other qualities required by a superior, or “leadership skills”, as human resources managers like to describe them, in continued education courses. “I enjoy meeting new challenges, and being a shift manager means being confronted with a new challenge every day.” He is not a man of big words – for him, deeds count. His achievements fill him with pride. And when he looks into the future, he hopes for more exciting challenges. This ambition shows two things: someone like Fabrizio Mero wants to advance professionally. And he is a production man. He feels happy here, in close proximity to the production plant. Knowing what figures stand for From production back to administration. She is young, communicative and – in an appealing way – self-assured. “Logic is my strength”, says Marianne Oberli, “I want to know what figures stand for.” Curiosity, coupled with a degree in business administration, has spurred on her career. A few months ago, Marianne Oberli was appointed head Corporate Accounting. The job is an Eldorado for someone who enjoys interpreting sums and numbers. Everything connected with figures passes her desk: consolidation of subsidiaries, tax issues, earnings statements, the drawing up of financial state-

ments, share-based payments, outsourcing. “It’s an incredible range”, she says, “and that is what fascinates me.” Like a detective, Marianne Oberli gathers figures to interpret them with a mercurial mind and cool logic. The finishing touches come when she has completed putting

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These accounting standards require the highest possible transparency

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together all the parts: the entire set of figures is then transferred into so-called IFRS (International Financial Reporting standards). “My Bible,” she says, “these accounting standards require the highest possible transparency, which is a challenge to every controller.” Figures don’t lie. Until they all correspond to IFRS stan-

dards, extensive discussions are necessary with the CFO, controllers and accountants. It doesn’t take a great deal of imagination to understand that in professional discussions this woman is on the same wavelength as her counterparts. It seems that Marianne Oberli knows the laws of logics but also trusts her common sense. Next to the younger Siegfried employees there are ones that have served the company for many years, in fact, employees who have worked their entire professional life for Siegfried. Not because they were not promoted or were ignored, but professionals who have continued to develop their skills across their working life. That is why they represent professionalism at the highest level. Beat Bucher is one of them. “I’m a special case”, he says with tongue in cheek. One thing is for sure: Beat Bucher joined Siegfried 33 years ago, was promoted laboratory manager, project manager and finally

Annual Report 2011

head Analytical Development Drug Products. He is responsible for twelve employees in his team. Together with this dozen co-workers he develops analysis regulations; carries out stability analyses to ensure that active ingredients do not develop decomposition products that could cause problems in the approval process; provides support for new pharmaceutical developments; manages own projects; and he writes project plans, stability reports and analysis reports for internal and external developers. “Always

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Human creativity is at the beginning of every chemical reaction

’

analysis, always chemistry”, is his comment on the work he performed the last three decades. And while he says it, laugh lines form on his face. When asked about what has changed most in this long period of time, Beat Bucher replies: “Regulations and controls have definitely increased worldwide. What has remained is the creativity that characterizes this job.” What he doesn’t say, but probably thinks, is that human creativity is always at the beginning of every new active ingredient intended for a new drug. Human creativity cannot be defeated by any regulation or control. That is probably the reason why Beat Bucher remains fascinated by his profession.

Annual Report 2011

Profound knowledge of export regulations Active ingredients unfold their effect only when the end product reaches the customer. Employees in Siegfried’s Customer Service department, such as Susanne Bertschinger, ensure that the product is correctly shipped. Susanne joined Siegfried ten years ago; in this time she worked her way up from clerical assistant to export specialist with Swiss federal certificate. When she talks about her work, she uses chosen, precise language. Precision is an important requirement for Susanne Bertschinger’s current work. She works in Customer Service Drug Products, a department responsible for a range of tasks starting with order confirmation by customers, invoicing and finally preparing finished products for shipping. This implies that Quality Assurance has released the product and the necessary packaging is available before export documents are completed and the product shipped to the customer. “All of this requires profound knowledge of export regulations and of a sometimes complex delivery chain”, says Susanne Bertschinger, “and a good working knowledge of SAP software is required.” And so is a good knowledge of value added tax. Siegfried is registered with an EU vat number in several European Union countries, and when products cross several frontiers the procedure can become very complicated for Customer Service. These are challenges that Susanne Bertschinger thrives on. For instance, when patent protection of a primary drug has

expired and the follow-up generic product is to be delivered the following day. Then, all cogs in the machinery have to work together. “Otherwise”, says Susanne Bertschinger, “business will suffer.”

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Protection of our environment

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Siegfriedâ&#x20AC;&#x2122;s contribution to a world worth living in

These two men arenâ&#x20AC;&#x2122;t big talkers. Their world consists of things scientific: facts and environmental protection. Walter Fiechter is head Safety, Health, Environment at Siegfried headquarters in Zofingen. His colleague, Hans-Rudolf Ruchti, is responsible for environmental protection and industrial hygiene. Itâ&#x20AC;&#x2122;s a wide field these two chemists are responsible for: waste air, waste water, waste and polluted sites. Waste air Harmful substances in the air current are measured. The resulting data form the basis for action. Substances not permitted in waste air are filtered out as close to their source as possible. Materials that cannot be eliminated are collected in a site-wide piping system connected with the thermal waste air purification plant in operation since the 1990s.

Annual Report 2011

Waste water Siegfried introduced a waste-water laboratory in 1979. Here, waste-water samples from various production processes are controlled in a simulated purification plant for biological degradability. Should a waste-water sample not comply with requirements, a suitable treatment method at source will be considered. The waste-water laboratory carries out a control function. On a daily basis, samples from different waste-water effluents are taken, analyzed and assessed for compliance with legal limit values. Pollution sites Official regulations govern the handling of contaminated areas. Certain parts of the factory site are considered polluted. In order to control the spread of ground pollution, groundwater is periodically controlled in accordance with a monitoring program. So far, samples taken have not

shown any reason for concern. However, any new construction activity on the site will require radical decontamination. Waste Substances considered to be hazardous waste are given special attention. Waste solvents, for instance, are distilled and, if possible, recycled. As a result, some 40% can be re-used in the production process. The remainder is used as waste-derived fuel for power generation. This process is precisely defined and regulated. “New production processes with new substances are challenging”, says Walter Fiechter. In such a case, the specialists look for possible ways of disposal as early as in the pre-production process – when the laboratory produces small trial quantities of a new pharmaceutical ingredient. The aim is to control the process of waste disposal in detail before the start of serial and mass production.

‘

New production processes with new substances are the real challenge

’

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Quality is an attitude

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Our contribution toward drug safety

At four in the morning, when the world is fast asleep, David Pulham hits the road jogging his customary five kilometers. At 6 a.m. he opens the door to his office in Pennsville, New Jersey, which he usually locks at around 5 p.m. This man is used to making the most of his day; after all, he holds a key position within the Siegfried Group. David is Director Compliance, Siegfried (USA), Corporate Counsel Compliance/Regulatory, and a member of the Corporate Compliance Committee. This committee assesses the compliance posture of the Group and takes relevant decisions. At Siegfried, quality is an attitude. Accordingly, compliance is stressed at all levels throughout the organization at all sites. Much of this is connected with Davidâ&#x20AC;&#x2122;s career. He has worked in the field of quality and regulatory affairs in the global pharmaceutical industry, and in this regard there is probably not much he has not been confronted

Annual Report 2011

‘ ’

A comprehensive management system for quality

with. For 27 years he was an investigator with the US Food and Drug Administration (FDA), which is responsible for the oversight of drugs in the United States. This powerful government agency reports to the Department of Health and Human Services in the US and performs inspections of pharmaceutical companies worldwide. The last 15 years of David’s FDA career, he was one of six National Expert Investigators out of the more than 1,000 investigators world-wide. During his time with FDA, David inspected Siegfried’s head office in Zofingen twice. After leav-

ing FDA, David was a pharmaceutical consultant for two years, assisting companies to comply with FDA rules and regulations.

A distinctive compliance culture Eleven years ago, David joined Siegfried, a company he knew well from his FDA inspections. David remembers clearly why he accepted the position with this reputable Swiss company. On the one hand, in addition to working in FDA and pharmaceutical consulting, he wanted to gain experience in the industry. It is no

Annual Report 2011

coincidence that this should be with Siegfried. According to David, “Siegfried impressed me very much, especially the people I worked with during my inspections.” In addition, he was particularly

‘

I have never seen a company with such an outstanding compliance record

’

impressed with Bernard A. Siegfried, grandson of the company founder and chairman of the company at that time, and now its honorary chairman. “An truly

Annual Report 2011

remarkable person”, says David, thus convincing him to join the company. Work at Siegfried was cut out for him and waiting. At the end of the 1990s, Siegfried had introduced a distinctive compliance culture that is now being expanded under David’s guidance. It is to be transferred into a comprehensive management system for quality applying to the entire value-added chain. “The idea is to implement the same high quality standards consistently and at every point of production in all of the Group’s locations worldwide”, says David, “thereby creating a uniform compliance community.” Quality conforms to very high standards In taking stock of his work at Siegfried and of his contribution to the company,

David can be proud of what he has achieved. While in the past eight years FDA inspectors have performed thirteen inspections of Siegfried sites to check on production and processes from a compliance perspective, the results have always been “No findings”, in other words, no negative observations. Similar results are reported for the more than 60 audits per year of Siegfried made by its customers. “Safety and quality across the entire supply, production and added-value chain, therefore, conform to very high standards”, says David. “In my 40 years in compliance, I have rarely seen a company with such an outstanding compliance record.” The Director of Compliance employs a beautiful metaphor when considering why this is the case at Siegfried. Imagine the reverse side of a mirror with

the following question on it: “Who is responsible for compliance?” In looking for an answer, the person concerned will instinctively turn over the mirror and see only one thing: his own face!

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Corporate Governance General Framework

Regarding corporate governance, the Siegfried Group is fully committed to stable and long-term relationships with all shareholders and stakeholders and to provide the necessary transparency. Corporate governance at Siegfried is based on the guidelines of the Swiss Code of Obligations (OR / Art. 663bbis and Art. 663c), rules and information about corporate governance of the Swiss Exchange (SIX) and the â&#x20AC;&#x153;Swiss Code of Best Practice for Corporate Governance.â&#x20AC;? Compensation for the Board of Directors and Executive Management is reported in a separate compensation report on page 64. In accordance with the Transparency law (Art. 663bbis and Art. 663c of the Swiss Code of Obligations) compensation and stock ownership by the members of the Board of Directors and Executive Management are also disclosed in the notes of the statutory financial statements of Siegfried Holding AG.

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1 Structure of the Siegfried Group

1.1 Management structure of the Siegfried Group Board of Directors Gilbert Achermann Chairman of the Board of Directors

Dr. Rudolf Hanko* Chief Executive Officer

Corporate Center Peter Gehler* Head Corporate Center, Secretary to the BoD

Corporate Compliance David Pulham Corporate Counsel Compliance/Regulatory

Human Resources Arnoud Middel* Head Human Resources Global

Finance

Research & Development

Business Development & Sales

Technical Operations

Michael H체sler* Chief Financial Officer

Dr. Wolfgang Wienand* Head Research & Development,Head Strategy and M & A

Marianne Sp채ne* Head Business Development & Sales

Dr. Walter Kittl* Head Technical Operations

* Member of the Excecutive Management

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1.2 Participation structure of Siegfried Holding AG 1. Switzerland Siegfried Ltd, Zofingen Siegfried International AG, Zofingen Siegfried Finance AG, Zofingen Sigamed AG, Zug

Currency

Share Capital in LC

Participation

CHF CHF CHF CHF

20 000 000 2 000 000 14 000 000 500 000

100.00% 100.00% 100.00% 100.00%

2. Europe Siegfried GmbH, Munich Siegfried Malta Ltd., Valletta Siefried Deutschland Holding GmbH, Loerrach

EUR EUR

25 000 100 000

100.00% 100.00%

EUR

1 790 000

100.00%

3. North and Central America Siegfried (USA), Inc., Pennsville Penick Holding Company, Pennsville Penick Corporation, Pennsville

USD USD USD

500 000 2 â&#x20AC;&#x201C;

100.00% 100.00% 100.00%

Comments

4. Asia

SCI Pharmatech Inc., Taiwan Alpine Dragon Pharmaceuticals Ltd., Huangyang, Gansu Province, China Siegfried Hong Kong Ltd.

TWD

491 662 690

15.64%

CNY HKD

10 542 708 1

49.00% 100.00%

Listed on Taiwan Stock Exchange Code 4119

Annual Report 2011

1.3 Shareholders Major shareholders The shareholders listed in the following table have reported holdings of 3% or more of the voting rights of Siegfried Holding AG as of December 31, 2011, based on the reports according to Article 20 of the Swiss Federal Act on Stockbroking

and Securities Trading, and Article 9ff of the bylaws of the Federal Stock Exchanges and Securities Trading regulators (BEHV-FINMA), and/or the Siegfried Holding AG share registry. In addition, the holdings of the Board of Directors and of the Group Management are shown.

Number Participation Number of shares in % of shares as of 31.12.2011 as of 31.12.2011 as of 31.12.2010

With holdings over 3% Rainer Marc Frey, Freienbach 459 235 4 Tweedy Browne Company LLC (TBC LLC), New York, USA 374 767 8 SE Swiss Equities AG, Zurich 313 850 6 Kreissparkasse Biberach, Biberach, Germany (Bayerninvest Kapitalgesellschaft mbH, München and LBBW Asset Management Investment GmbH, Stuttgart.) 128 168 10 Thomas Schmidheiny (BIH SA, Neuchâtel) <3% Total 1 276 020 Board of Directors and Group Management Board of Directors, non-executive Executive Management Total Others Public Shareholders Shares held by Siegfried Group Total Grand total 1 2

5 6

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41 135 34 225 75 360

2 265 945 182 675 12 2 448 620 3 800 000

Conversion rights (number of Participation Participation underlying in % in % 1 2 3 voting rights) as of 31.12.2010 as of 31.12.2010

12.09 4

379 500 5

2 860 5

13.66 5

12.95

9.86 8 8.26 6

269 531 9 343 000 7

92 460 9 122 500 7

12.93 9 16.63 7

9.20 11.71

3.79 10 4.11 11 –

3.62 2.56 40.04

3.37 <3% 33.58

106 106 10 75 000 11 1 173 137

1.08 0.90 1.98

59.63 4.81 12 64.44 100.00

31 289 28 659 59 948

1 585 342 110 983 13 1 696 325 2 929 410

From mandatory convertible notes (see Section 2.5). Reported acquisition postions, including reported conversion rights, on the basis of the share capital registred in the commercial register on the date of the notification. Shares only (not including conversion rights), on the basis of the issued share capital of 5’858’820 (2’929’410 registered shares with a nominal value of CHF 2 each) as of December 31, 2010. According to share register of Siegfried Holding AG. According to notification of May 27, 2011 Rainer Marc Frey reported holdings of 12.63%, and Mai 12, 2011 of 16.12%. The notification of May 27 was necessary because, in the meantime, Siegfried Holding AG had adjusted the company’s stock capital as recorded in the commercial registry. According to notification of April 28, 2010. According to notification of June 15, 2011. According to a separat notification, the acquisition group consisting of SE Swiss Equities AG and Frederike Knapp-Voith was dissolved. On May 12, 2011, this group reported holdings of 13.88%. According to notification of April 22, 2010. According to this notification, SE Swiss Equities AG and Frederike Knapp-Voith created an acquisition group, which was dissolved (according to notification of June 15, 2011). According to notification of May 27, 2011. Tweedy Browne company LLC reported holdings of 12.79% on May 13, 2011. The notification of May 27 was necessary because, in the meantime, Siegfried Holding AG had adjusted the company’s stock capital as recorded in the commercial registry.

9 10

40 000 257 820

1 740 1 460 3 200

– – –

1.07 0.98 2.05

609 570 — 13 609 570 870 590

– – – –

54.12 3.79 57.91 100.00

According to a notification of April 30, 2010. According to share register of Siegfried Holding AG. The holdings of December 31, 2010, draws upon notification of October 3, 2009. There have not been notifications in the years 2010 and 2011. According to notification from April 24, 2010. According to notification from May 27, 2011, Thomas Schmidheiny (BIH SA) went below the 3% hurdle. He reported holdings of 3.47% on May 12, 2011. The notification of May 27 was necessary because, in the meantime, Siegfried Holding AG had adjusted the company’s stock capital as recorded in the commercial registry. As per December 31, 2011. On May 11, 2011 Siegfried Holding AG reported holdings of 4.04% and the break-up of all sales positions (due to conversion of the mandatory convertible notes; see Corporate vernance, Section 2.5). On June 15, 2011 Siegfried Holding AG reported falling below the 3% threshold, on August 17, 2011 holdings of 3.07% were reported. As per December 31, 2010.

As of December 31, 2011, 2,204 shareholders were registered in the Siegfried Holding AG share Number of shareholders

1–10 11–100 101–1000 1001–10000 10001–100000 100001–1000000

registry, holding 75.0% of the total share capital. The share holdings include:

Shareholders

266 942 802 158 32 4 2 204

12.07 42.74 36.39 7.17 1.45 0.18 100.00

1 656 52 299 267 516 487 689 918 557 1 122 992 2 850 709

0.06 1.84 9.38 17.11 32.22 39.39 100.00

n.a.

949 291 3 800 000

n.a.

Treasury shares and non-registered shares Total shares The equity holdings by segment as of December 31, 2011 include: Major shareholders as of December 31, 2011 divided into segments

Important shareholders (over 3%) Private individuals Institutional shareholders Treasury shares and non-registered shares

Shareholders

4 2 020 180 n.a. n.a.

1 276 020 746 459 828 212 949 309 3 800 000

33.58 19.64 21.80 24.98 100.00

1.4 Crossholdings The Siegfried Group has not entered into any crossholdings with other companies involving capital or voting.

Annual Report 2011

2 Capital Structure

2.1 Capital The share capital of Siegfried Holding AG recorded in the commercial registry is CHF 7,600,000 (as of December 31, 2011) and is divided into 3,800,000 fully paid-up nominal shares with a par value of CHF 2 per share. Each nominal share authorizes the holder to exercise one vote at the General Meeting, and is allotted an annual dividend (depending on the Board of Directors resolution). There are no priority claims. The Siegfried Holding AG statutes make provision for authorized capital (see section 2.2). 2.2 Authorized capital The Siegfried Holding AG General Meeting of Shareholders, held on April 14, 2010, approved an amendment to create authorized capital of CHF 2.8 million, divided into 1.4 million shares (par value: CHF 2 per share). Of these, 1,000,000 nominal shares (par value: CHF 2 per share) were distributed by December 31, 2011, leaving a remainder of CHF 800,000 in authorized capital, divided into 400,000 nominal shares (par value: CHF 2 per share). Of the original 1.4 million nominal shares originating from authorized capital, 1,050,000 nominal shares were created for discretionary use or for mandatory exchanges of conversion rights or option privileges in connection with bond/debt securities or other financial market instruments issued by Siegfried Holding AG or an affiliated company. Holders of conversion rights or option privileges may acquire new shares; purchase by stockholders is not allowed. The Board of Directors sets the conditions for the conversion and/or option conditions, and is also authorized to limit or eliminate stockholdersâ&#x20AC;&#x2122; primary subscription rights when issuing bonds, debt securities or other financial instruments that are combined with conversion rights and option privileges â&#x20AC;&#x201C; if the subscription is intended for financing (or refinancing) of acquisitions, corporate divisions or new investments and/or the emission takes place in national or international capital markets. If the Board decides to neither directly or indirectly allow primary subscription rights, (i) bond/debt securities, other financial

Annual Report 2011

instruments and new shares are to be issued at normal market conditions and (ii) conversion and option rights may be exercised up to seven years after the emission date. The purchase of shares through conversion or option rights, including any subsequent transfer of shares, is subject to the restrictions listed under Article 5 in the statutes (see Section 2.4). All of the 1,050,000 nominal shares (based on authorized capital) described above were used to secure the mandatory convertible notes (see Section 2.5); of these, 1,000,000 shares were issued due to conversions of mandatory convertible notes into shares (see Section 2.5). Of the original 1.4 million nominal shares based on authorized capital, 350,000 shares were created for distribution to members of the Board, Group and subsidiary company employees. Company shareholders are excluded from any primary subscription or purchase rights. Any allotment of shares or related purchase rights to members of the Board and/or employees (of the Group or subsidiary companies) follow the regulation(s) set by the Board and take performance, function, responsibilities and productivity criteria into account. Shares or purchase rights issued to members of the Board and/or employees (of the Group or subsidiary companies) can be issued at a price lower than the current stock market valuation. Acquisition of shares as part of the employee stock option plan and any subsequent transfers of shares follow the restrictions described in Article 5 of the statutes (see Section 2.4); the 350,000 nominal shares of authorized capital described therein secure in particular the employee stock option plan and equity ownership plan offered to members of the Board, Executive Management and Management (see Section 5.2), and if need be, to other shareholding plans for members of the Board and/or employees (of the Group or subsidiary companies). As of January 1, 2012, equity ownership plan (EOP 2012) was offered to level 3 and 4 Management. 2.3 Changes in capital In 2011, authorized capital was used to issue 870,590 nominal shares with a par value of CHF 2

per share, leaving CHF 800,000 in authorized capital, divided into 400,000 nominal shares with a par value of CHF 2 per share. As of December 31, 2011, the actual Siegfried Holding AG share capital amount distributed was CHF 7,600,000, divided into 3,800,000 fully paid nominal shares with a par value of CHF 2 per share (see Section 2.1). The capital increases based on authorized capital enacted in 2010 and 2011 were confirmed with a revision of the statutes on March 9, 2011 and May 18, 2011 and also recorded in the commercial registry. In 2010, 129,410 nominal shares with a par value of CHF 2 per share were issued out of authorized capital confirmed by revisions in the statutes in the same year (see Section 2.2). As of December 31, 2010, authorized capital of CHF 2,541,180 remained, divided into 1,270,590 nominal shares with a par value of CHF 2 per share. As of December 31, 2010, the actually distributed share capital was CHF 5,858,820, divided into 2,929,410 fully paid nominal shares with a par value of CHF 2 per share. There were no changes in capital in 2009.

CHF 80 million, with each note valued at CHF 800. The primary subscription rights of current shareholders were largely granted. The notes were distributed at 100% of the issue price. The mandatory convertible note had a 5% p.a. coupon with a contract period of one year. The notes were converted into nominal shares of Siegfried Holding AG on the designated maturity date (May 5, 2011) at a conversion price of CHF 80. The conversion ratio was CHF 800/conversion price, converting the mandatory convertible notes into 1 million nominal shares of Siegfried Holding AG. The mandatory convertible notes were underwritten by 1,050,000 nominal shares from the authorized capital of Siegfried Holding AG (see Section 2.2). Up to the conversion date, the mandatory convertible notes were reported as borrowed capital. At the time of conversion, an amount equal to the par value of a nominal share of Siegfried Holding AG was allocated to share capital and the surplus amount (minus interest payments) to the reserve of cash contributions.

2.4 Limitations on transferability and registration Only persons entered in the share registry can exercise the right to vote and related privileges. Registration is subject to the following statutory restrictions: – Registration requests are considered granted if the company has not denied them within 20 days after receipt. – Petitioners must declare in writing that they have acquired the shares in their own name and account. – The statutes do not allow any special conditions for nominee registrations. 2.5 Mandatory convertible notes On May 5, 2010, Siegfried Holding AG issued 5% mandatory convertible notes in the amount of

Annual Report 2011

3 Board of Directors

The Board of Directors of Siegfried Holding AG comprises seven persons. During the three years previous to 2011, none of the members of the Board held an Executive Management position within the Siegfried Group or a Siegfried Group company, nor have they had a significant business

relationship with Siegfried Holding AG or the Siegfried Group. The following table gives information about the name, position, age and date of entry and duration of term in office of the members of the Board of Directors:

3.1 Members of the Board of Directors Name

Year of birth

Position

Entry

Elected until

Gilbert Achermann Dr. Thomas Staehelin Dr. Andreas Casutt Reto A. Garzetti Dr. Beat In-Albon Dr. Felix K. Meyer Dr. Thomas Villiger

1964 1947 1963 1960 1952 1953 1951

Chairman, non-executive Vice-Chairman, non-executive Member, non-executive Member, non-executive Member, non-executive Member, non-executive Member, non-executive

2011 1991 2010 2011 2011 2006 2011

2012 2012 2013 2012 2012 2012 2012

Honorary Chairman Dr. Bernard A. Siegfried

1934

Secretary to the Board of Directors

2000

Secretary

Peter A. Gehler

3.2 Profiles

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1958

Gilbert Achermann

Dr. Thomas Staehelin

Chairman

Vice-Chairman

Gilbert Achermann (1964) joined the Board of Siegfried Holding AG in 2011 as Chairman. He is a member of the Board of Directors of the Straumann Holding AG, since 2009, and Chairman since April 2010. He began as CFO of the Straumann Group in 1998 and took over as CEO in 2002, a position he maintained until March 2010. Previously, he worked for UBS for 13 years in investment banking. Gilbert Achermann holds an MBA from the IMD Lausanne (Switzerland) and a business economics degree from the University for Applied Sciences of St. Gall (Switzerland). He also serves on the Board as Vice-Chairman of the Moser Group AG and was recently nominated for a position on the Board of Bank Julius Bär AG. He is on the Foundation Board of the International Team for Implantology (ITI), an independent academic network, and a member of the Board for International Cooperation of Canton Basel-City. Gilbert Achermann is a Swiss citizen.

Thomas Staehelin (1947) was appointed ViceChairman of Siegfried Holding AG in 1999; previously he served as Chairman of the Board from 1991-1998. Thomas Staehelin is a partner at FROMER Law & Notary, a law firm in Basel. As a lawyer, he specializes in tax, corporate, and contract law. Thomas Staehelin completed his studies in jurisprudence at the University of Basel (Switzerland), where he also completed his Ph.D. Thomas Staehelin is chairman of the Basel Chambers of Commerce and a Board member of the “economiesuisse” Swiss business federation. He is the Chairman of the Board of the Association of Private Joint Stock Companies and a member of the Expert Committee on Financial Reporting (SWISS GAAP FER). Thomas Staehelin serves as Chairman on the Boards of Directors of the following companies: Swissport International AG, Kühne Holding AG, Lantal Textiles and Scobag Private Bank AG, and as Board member of Kühne & Nagel International AG and Inficon Holding AG. In a few of these companies he also chairs the Auditing Committee. Thomas Staehelin is a Swiss citizen.

Annual Report 2011

Dr. Andreas Casutt

Reto A. Garzetti

Member

Andreas Casutt (1963) joined the Board of Siegfried Holding AG in 2010. A partner of the Niederer Kraft & Frey law firm in Zurich since 2002, Andreas Casutt specializes in corporate law, contract law, mergers & acquisitions and stock exchange law. In addition, he is a Board member of various privately held companies. Andreas Casutt studied in Zurich (Switzerland) and absolved an LL.M. program at the University of Michigan, Ann Arbor (U.S.A.). Andreas Casutt is a Swiss citizen.

Reto Garzetti (1960) joined the Board of Siegfried Holding AG in 2011. He is a partner and Vice-Chairman of the Board of SE Swiss Equities AG, an investment consulting firm. He is also on the Boards of Southeastern Technologies Inc. and Setech Inc. (both USA), and AGI AG and Meili Peter Architects AG (both Switzerland) and other privately held companies. Reto Garzetti studied business administration at the University of Zurich (Switzerland) with a major in banking/business & securities law, graduating with the equivalent of a Masterâ&#x20AC;&#x2122;s degree in 1986. Reto Garzetti is a Swiss and Italian citizen.

Annual Report 2011

Dr. Beat In-Albon

Dr. Felix K. Meyer

Member

Dr. Beat In-Albon (1952) was elected to the Board of Siegfried Holding AG in 2011. He was a member of Executive Management at the SGS Group in Geneva, Switzerland from 2007 until January 2012 and was responsible for the Industrial Services department. During the previous 20 years he worked for the Lonza Group, lastly as a member of Executive Management and Head of the Organic Fine & Performance Chemicals Division. Since February 2012 he is an independent Corporate Consultant. He completed his studies in 1983 at the University of Fribourg (Switzerland) with a Ph.D. in economics. Beat In-Albon is a Swiss citizen.

Felix K. Meyer (1953) joined the Board of Siegfried Holding AG in 2006. He worked for CibaGeigy AG (later Ciba Specialty Chemicals) from 1981-2004, and held various positions in Switzerland and abroad, ultimately, as a Segment Manager and member of Executive Management. From 2004-2010, Felix K. Meyer was CEO and advisory Board member at Baerlocher, a global specialty chemicals company with headquarters in Munich, Germany. During his career in the chemicals industry, he represented his employers in numerous joint ventures in Europe, Asia and South America. In 2010 he joined FKM Management Services GmbH as director (and partner), supporting clients in the areas of strategy, international business development and Management coaching. He received his Ph.D. in chemical engineering from the ETH Lausanne (Switzerland) and spent a year in Stanford University (U.S.A.) as a post-doctoral fellow. Felix K. Meyer is a Swiss citizen.

Annual Report 2011

Dr. Thomas Villiger Member Thomas Villiger (1951) joined the Board of Siegfried Holding AG in 2011 and has been a independent corporate consultant since 2010. From 1986-2010, he worked for the Mepha Group, from 1997 as CEO. In addition, he worked in various functions for Sandoz in Basel (Switzerland) from 1980-86, including two years in Japan. He is a member of the Board of Dolder AG, Reofin Invest AG and Sigvaris Holding AG. He completed his studies with a Ph.D. in chemistry at the ETH Zurich (Switzerland) in 1979. Thomas Villiger is a Swiss citizen.

Annual Report 2011

3.3 Linking directorates 3.3.1 Corporate linking directorates Currently, there is no other mutual representation between the Boards of Siegfried Holding AG and those of other listed companies. 3.3.2 Linking directorates within the Board All directorates of the members of the Board of Siegfried Holding AG in other listed companies are described under Section 3.2 “Profiles”. 3.4 Election and terms in office The Board of Directors of Siegfried Holding AG is elected by the General Meeting of Shareholders and subsequently constitutes itself. Members of the Board are elected in a staggered sequence. A resolution passed at the General Meeting of May 24, 2011 reduced terms for Board members to a single year, which does not apply to previously appointed Board members serving out their terms. Reelection is allowed. Regulations specify that members must retire from the Board at the General Meeting of Shareholders following their 68th birthday. A special ruling can be made for the Chairman or the Honorary Chairman. 3.5 Internal organization The Board of Directors is responsible for supervision of the Group and Divisions. The Board determines Group strategy, the allocation of resources and the Management structure of the Group. It is also responsible for setting the organizational

structure, accounting, financial control, and financial planning. To the extent it does not exercise these duties itself or delegate them to the Chairman of the Board of Directors, the Board delegates management of the business to the CEO of the Siegfried Group. Decisions are made by the entire Board of Directors. Three Committees assist them: – Audit Committee – Human Resources Committee – Strategy Committee The responsibilities and competencies of the Committees are set forth on page 52 in the appendix of the Siegfried Group company regulations. The committees of the Board of Directors evaluate important issues prior to Board meetings. The Chairman of the Board, the CEO and CFO, the responsible Executive Management members and the Secretary to the Board attend these meetings. The Committee submits recommendations on the pending issues to the Board. During the business year, the Board of Directors met for six meetings, a strategy seminar and a special meeting. In addition, numerous teleconferences were held. A majority of the Board was always present. During the year, the Audit Committee met four times, the HR Committee twice, and the Strategy Committee four times. The following overview shows the composition of the Board Committees:

Committee

Chair

Members

Audit Human Resources Strategy

Thomas Staehelin Gilbert Achermann Thomas Villiger

Reto Garzetti, Thomas Villiger Andreas Casutt, Felix K. Meyer Beat In-Albon, Felix K. Meyer

Annual Report 2011

3.6 Executive Management information and control instruments Information is based on monthly reporting that is structured as follows: revenues and company earnings for the Group are presented in detail and compared with the budget and the previous yearâ&#x20AC;&#x2122;s results â&#x20AC;&#x201C; including a financial forecast for the entire year. Quarterly comments focus on any deviations from plan, important business incidents, and key performance indicators. A five-year plan is outlined as part of the mid-term outlook. The IKS internal control system and risk Management (described in detail on pages 20-26 of the Financial Statements) are additional aspects of the information and control instruments. The results are discussed and evaluated with the CEO and CFO at the Board of Directors meetings.

Excerpt from the company regulations of the Siegfried Group 3.3.3 Committees appointed by the Board of Directors The Board of Directors may appoint committees, at least for such topics as personnel (HR Committee), business development and strategy (Strategy Committee), and auditing and finance (Audit Committee). Such Committees do have a comprehensive right of information as well as issuing recommendations to the Board of Directors but no powers of decision (except SC HR: decisions on compensation for the CEO and Executive Management). They may request items to be included on the agenda at the next Board of Directors meeting, and report on their activities at the Board meetings. As a rule, three members of the Board shall be included on a Committee, one of whom shall be Chairperson. The Committees meet as often as is necessary, at least, however, twice a year. The issues to be covered include: a)Human Resources: All human resources issues, in particular personnel policies and attractiveness as an employer, maintaining company know-how, training and continued education, all pension plans and other social benefits. Questions concerning nominations to the Board of Directors, Board Committees, CEO and CFO, Siegfried Group compensation policy, including compensation proposals for the Board of Directors as proposed to the Board. Questions concerning bonus payments and stock option plans as well as setting employment conditions and compensation for the CEO and members of Executive Management b)Strategy: All questions concerning strategy, market and market performance, marketing, services products and pipelines, regional presence, M&A activities c) Auditing/finances: All issues concerning accounting, external and internal auditing, risk Management, budget, medium-term and long-term planning, financial planning, legal.

Annual Report 2011

4 Executive Management

The Chief Executive Officer (CEO) is responsible for managing the operations and performance of the Siegfried Group and business areas. Subject to the competencies and instructions of the Board of Directors and/or the Chairman, the CEO reports to the Board and is responsible for implementing and

achieving corporate objectives and for Management and control of the Group companies (responsibility for earnings and the balance sheet). The powers and tasks of the CEO are set forth in detail in the Siegfried Group company regulations.

4.1 Members of Executive Management Name

Year of birth

Dr. Rudolf Hanko Peter A. Gehler Michael H체sler Arnoud M. Middel Dr. Walter Kittl Marianne Sp채ne Dr. Wolfgang Wienand

4.2 Management Contracts Siegfried Holding AG and the Group companies have not concluded Management contracts with any third parties. 4.3 Profiles

Annual Report 2011

Position

1955 Chief Executive Officer 1958 Head Corporate Center 1972 Chief Financial Officer 1971 Head Human Resources 1956 Head Technical Operations 1962 Head Business Development & Sales Head Research & Development, 1972 Head Strategy and M&A

Start In current position since

2009 2000 2009 2011 2008 2004

2009 2010 2009 2011 2011 2010

2010

2010 / 2011

Dr. Rudolf Hanko

Peter A. Gehler

CEO

Head Corporate Center and Secretary to the Board of Directors

Rudolf Hanko (1955) took over as CEO of Siegfried in May 2009. Prior to Siegfried, he worked in the chemical-pharmaceutical industry in various Management positions, at Evonik Industries AG (Germany) as Head of Custom Synthesis & Amino Acids. Rudolf Hanko also headed the pharmaceutical Division of Bayer AG as Head of Chemical Research and as General Manager of the Fine Chemicals Division. Rudolf Hanko received his Ph.D. in chemistry from the University of Goettingen (Germany) and completed post-doctoral studies at the Max Planck Institute (Germany). Rudolf Hanko is a German citizen.

Peter Gehler (1958) is Head Corporate Center since 2010 and Secretary to the Board of Directors since 2002. He is responsible for internal and external communications, facility management and the Project Management Office (PMO). He was a marketing and sales manager in the textile industry (1988-1992) and an independent consultant for marketing and communications from 1992 until 1999 prior to joining Siegfried. Peter Gehler graduated from the University for Applied Sciences, St Gall (Switzerland) with a business administration degree (major in marketing); in 2006 he received his Masterâ&#x20AC;&#x2122;s degree in economics and marketing from the University of Basel (Switzerland). He is a member of the Board of Directors of the Aargau Chamber of Commerce & Industry (AIHK), and Chairman of the Zofingen Regional Chamber of Commerce & Industry (WRZ). Since 2008, he is also advisor to the Neue Aargauer Bank (NAB) and is involved in various charity organizations in Canton Aargau. Peter Gehler is a Swiss citizen.

Annual Report 2011

Michael Huesler

Dr. Walter Kittl

Chief Financial Officer

Head Technical Operations

Michael Huesler (1972) joined Siegfried as Chief Financial Officer in 2009. He completed his studies in economics in 1997 at the University of Basel (Switzerland) and worked at PricewaterhouseCoopers as an economic planner until 2000. From 2000-2005 he was corporate controller and finally, Head of Corporate Controlling at Straumann Holding AG. In addition, he completed his studies as a Certified IFRS Accountant in 2004. Michael Huesler was CFO and member of the Executive Management at Bachem Holding AG from 2005-2009. Michael Huesler is a Swiss citizen.

Walter Kittl (1956) took over as Head of Technical Operations for Siegfried in May 2011 and appointed to the Executive Management. Prior to Siegfried, he worked at DSM Chemie Linz and at F. Hoffmann-La Roche, where he was Head of Chemical Production in Basel (Switzerland). He studied at the University of Linz (Austria), where he graduated with a Ph.D. in chemistry. Walter Kittl is an Austrian citizen.

Annual Report 2011

Arnoud M. Middel

Marianne Späne

Head Human Resources

Head Business Development & Sales

Arnoud Middel (1971) joined the Siegfried Group in September 2011 as Head of Human Resources. Previously, he worked for various companies in Human Resources, ultimately Head of HR Switzerland and Global Headquarters for Syngenta in Basel (Switzerland). He is a member of the advisory Board of the European Master in Strategic HR Management (EMSHRM) at the Bocconi University in Milan (Italy). Arnoud Middel completed his studies in biology and biochemistry at the University of Basel (Switzerland). Arnoud Middel is a Dutch citizen.

Marianne Späne (1962) joined Siegfried in 2004 and took over as Head of Business Development & Sales for the Siegfried Group in March 2010. She headed the Siegfried Generics Division from 20082010 and was previously responsible for the Classical Generics business unit. Between 2004 and January 2008, Marianne Späne managed the Business Development department and the Supply Chain for Generics. Prior to joining Siegfried, she worked in logistics, business development and as site manager for Boucheron, a cosmetics company. Later, she switched to the pharmaceutical industry and joined the Pharma Division of Schweizerhall as Head of the Sales and Marketing Department. Subsequently, she joined Aceto, a U.S. company, where she developed European expansion strategies. Marianne Späne holds degrees in finance, business administration and marketing from the Kaufmännische Führungsschule KFS in Basel and the Marketing & Business School in Zurich MBSZ (both Switzerland). Marianne Späne is a German citizen.

Annual Report 2011

Dr. Wolfgang Wienand Head Research & Development and Head of Strategy and M&A Wolfgang Wienand (1972) took over as Head of R&D in August 2010 and was also appointed to the new position of Head of Strategy and M&A in December 2011. Previously in various managerial positions for Evonik Industries in Hanau and Munich (both Germany), Shanghai (China) and finally in Frankfurt (Germany), he focused on fine chemicals and contract synthesis for the pharmaceutical industry. During this time, he was responsible for strategic and operative development activities in the areas of homogenous and bio-catalysis. He studied chemistry at the Friedrich-Wilhelms University in Bonn (Germany) and graduated with a Ph.D. in organic and bioorganic chemistry in 2002 from the University of Cologne (Germany). Wolfgang Wienand is a German citizen.

Annual Report 2011

5 Compensation, Investments and Loans

5.1 Contents and negotiation process for compensation and participation programs See pages 64-67 of the Compensation Report. 5.2 Equity Ownership Plan (EOP) for the Board of Directors, Executive Management and Management See pages 68-71 of the Compensation Report and page 48-49 of the financial statements (appendix to the consolidated financial statement of the Siegfried Holding AG). 5.3 Compensation of the members of the Board of Directors and Executive Management See page 72 of the Compensation Report and page 65-66 of the financial statements (appendix to the consolidated financial statement of the Siegfried Holding AG). 5.4 Allocation of shares during 2011 As part of his compensation package, a member of the Executive Management received 2,400 shares of Siegfried Holding AG in 2011, with a lock-up period of 3 years. No further Siegfried Holding AG shares were allotted to any other members of the Board of Directors, Group Management, or to persons associated with them during the 2011 business year. Share allocations as part of the Equity Ownership Plan (EOP) are listed on pages 67-68 in the Compensation Report and on pages 72-75 of the financial statements (appendix to the consolidated financial statement of the Siegfried Holding AG).

5.6 Additional fees and compensation No members of the Board of Directors, Group Management, or persons associated with them have received any additional compensation from either Siegfried Holding AG or any Group companies for additional services during the 2011 business year. 5.7 Loans to members of the Board of Directors, Executive Management and other persons Members of the Board of Directors and Executive Management and/or closely associated persons are/were not previously involved in any business activities beyond the normal activities of Siegfried Holding AG or any Group companies, or in other extraordinary business activities that are essential to Siegfried Holding AG during 2011 or 2010. As of December 31, 2011, Siegfried Holding AG and Group companies provided no guarantees, loans, advances or credits to members of the Board or Executive Management, or to any person associated with them. 5.8 Period of notice The period of notice for Executive Management members of Siegfried Holding AG is six months.

5.5 Share ownership Ownership of shares by members of the Board of Directors and Executive Management is listed on page 75 of the compensation report, page 67 of the financial statements and in Section 1.3 of the Corporate Governance Report.

Annual Report 2011

6 Shareholder Rights

6.1 Voting rights and proxy Each voting share registered at the General Meeting of Shareholders of Siegfried Holding AG is accorded one vote. Registered shareholders can be represented by a legal representative or by another registered shareholder, which requires a written power of attorney. Voting at the General Meeting of Shareholders is decided by absolute majority of the shares voted. If no absolute majority is reached in the first round of voting, a simple majority is decisive in the second round; a tie vote is decided by drawing lots. At least a two-thirds majority of the shares voted and an absolute majority of the represented share value is required for decisions concerning: – Amendment of the corporate purpose – Introduction of voting shares – Amendment of the provisions concerning the transfer of nominal shares – Conversion of nominal/registered shares into bearer shares – An authorized or conditional increase in capital – An increase in capital from shareholder’s equity, from a non-cash capital contribution or asset acquisition, or from the granting of special privileges – Restriction or cancellation of stock options – Transfer of the company’s legal place of business 6.2 Calling a General Meeting of Shareholders and setting the agenda The calling of a General Meeting of Shareholders and setting of the agenda are subject to the applicable legal regulations. Shareholders with at least 250,000 shares with voting rights, amounting to a total nominal value of CHF 500,000 are authorized to propose agenda items when submitted at least 45 days prior to the General Meeting of Shareholders. Siegfried Holding AG also inquires if these stockholders intend to submit any particular agenda items.

Annual Report 2011

6.3 Entry into the share register / invitation to the General Meeting of April 20, 2012 The Board of Directors has set a deadline (Friday, April 13, 2012, 8:00 a.m.) to determine eligibility of the shareholders and for participants to register in the share registry. Admission tickets and voting materials can be ordered from Siegfried Holding AG, Share Register, c/o Nimbus AG, Postfach, CH8866 Ziegelbruecke (Switzerland) by April 16, 2012. Upon receipt of the request, an admission ticket and the voting materials are sent to the shareholder. No entries will be made into the share registry from April 13, 2012, 8 a.m. until April 25, 2012. Shareholders who sell their shares prior to the General Meeting of Shareholders forfeit their voting rights. The invitation to the General Meeting, the minutes of the previous General Meeting, and the proposals of the Board of Directors can be viewed on the website of Siegfried Holding AG (www.siegfried.ch).

7 Control Changes and Defensive Measures

7.1 Compulsory bidding There are no statutory regulations regarding opting out or opting up (Art. 22 and 32 BEHG).

The EOP 2012, inaugurated on January 1, 2012 for Management level 3 and 4 employees, foresees similar change of control clauses.

7.2 Change of control clauses The Equity Option Plan (EOP) for the Board of Directors, Executive Management and upper Management (see Section 5.2) contains change of control clauses that stipulate: – Distribution of the first or second portion of leverage shares can be accelerated in the case of an unfriendly public offer, if the party making the offer exceeds the marginal value limit as defined by Article 32 of the Swiss Federal Act on Stockbroking and Securities Trading (BEHG). Distribution is carried out on the day the public offer becomes binding. A goal of 100% is assumed (using the multiplier 3 on a scale of 04.5) when calculating the number of leverage share to be distributed. Immediately afterwards, the EOP is automatically liquidated (incl. possible blackout periods). – In the case of an acquisition by the Siegfried Group, where a substantial part of the payment is made in shares of the Siegfried Holding AG and the payee exceeds the marginal value limit as defined by Article 32 BEHG, the EOP should be secured as far as possible. However, a prerequisite is that the strategic goals of the EOP remain unchanged. Any amendments by the EOP administrator should be limited to changes necessary because of applicable laws or admission of new EOP participants. – In other change of control cases, the EOP administrator has the right to amend the plan requirements while securing, as far as possible, expectations of the plan participants and taking into account the criteria defined by the EOP.

Annual Report 2011

8 Auditors

8.1 Contract duration and lead auditor term length Auditor for Siegfried Holding AG since 1920 is PricewaterhouseCoopers AG (PwC), Basel (or predecessor organizations). The lead auditor, Gerd Tritscher, carried out the audits of both mandates for the second time in 2011. Election of the auditor is carried out annually by the General Meeting of Shareholders. 8.2 Audit fees PwC billed the Siegfried Group CHF 370,000 for services in connection with auditing of the financial statement of Siegfried Holding AG and of the Group companies and the consolidated 2011 financial statement of the Siegfried Group. 8.3 Additional fees For tax consulting and other services during 2011, PwC billed the Siegfried Group CHF 205,000 in additional fees. Further costs for tax consulting and other services by other auditors amounted to CHF 8,000.

Annual Report 2011

8.4 Supervision and control instruments related to the audit The Audit Committee of the Board evaluates and discusses the performance, fees and independence of the auditor every year. It reports to the Board and proposes a motion at the General Meeting on the election (or re-election) of the auditor company and lead auditor. The contract is awarded based on a budget presented to the Audit Committee by the auditor company. There is an agreement with PwC that the lead auditor is regularly rotated to ensure the necessary independence. The auditor company regularly attends the meetings of the Audit Committee; there were four meetings in 2011. The auditor presents detailed auditing reports, which are also distributed to the Board. Assignments for PwC AG that go beyond the auditing mandate are subject to approval by the Head of the Audit Committee.

9 Information Policy

The Siegfried Group is committed to an open and consistent information policy. The media, financial analysts and other interest groups are continuously informed about important developments and events. Shareholders are informed semiannually on the state of the business and receive the annual report and the semi-annual report upon request. The annual report, minutes of the previous General Meeting, media releases, important information and the current share price can be found at www.siegfried.ch. A news conference is held annually for the media and financial analysts. Siegfried Holding strictly observes the mandatory disclosure policies of the SIX Swiss Exchange (ad hoc notification) regarding events that could affect the stock price. In 2012, the company will inform about the course of business as follows: â&#x20AC;&#x201C; March 6, 2012: Publication of results for the 2011 business year at a media and analyst conference in Zofingen (media) and Zurich (financial analysts) â&#x20AC;&#x201C; April 20, 2012: General Meeting of Shareholders â&#x20AC;&#x201C; August 30, 2012 (tentative): Publication of semi-annual results for 2012

Annual Report 2011

Compensation report

Siegfried operates a compensation system, which is transparent, competitive and comprehensible. Both the fixed and variable compensation elements are geared to sustain added value and business success. With the Equity Ownership Plan (EOP) Siegfried has created for management, Executive Management and the Board of Directors an instrument, which ensures for the long-term harmonization of the risks and interests of all stakeholders and contributes to an enduring performance culture, to loyalty and to entrepreneurial thought and action.

1 Introduction This Compensation report describes the compensation system, the general principles applied, the individual compensation elements and the responsibilities in fixing the compensation of employees, management and the Board of Directors. In addition the report contains detailed information about the compensation of the Board of Directors and the Executive Management of the Siegfried Group. The Compensation report follows the requirements of article 663bbis and article 663c of the Swiss Code of Obligations (CO), the guideline concerning information about Corporate Governance of the SIX Swiss Exchange and the Swiss Code of Best Practice for Corporate Governance. In compliance with article 663bbis and article 663c CO the compensation paid to the Board of Directors and the Executive Management and the shareholdings of members of the Board of Directors and of the Executive Management are also disclosed in the Compensation report on pages 72–74 and in the Notes to the audited financial statements of Siegfried Holding AG on page 64.

Annual Report 2011

2 Compensation system Compensation principles The Siegfried Group’s goal is to offer employees at all grades a transparent, competitive performance-related compensation system geared towards sustained added value. The compensation system and the underlying principles serve in particular to: – coordinate the interests of employees, Executive Management, the Board of Directors, shareholders and other stakeholders – to link compensation to sustained performance and promote entrepreneurial action – to recruit highly qualified, talented and successful employees and to bind them to the company – to reward individual loyalty and sustained contributions and excellence The Siegfried compensation system links the performance of the individual and the success of the company for the long-term. This link is one of the most important elements for a differentiated assessment of the individual performances of all employees and the leadership qualities of the management. All employees, including managers, are therefore covered by a formalized performance assessment process. This process is based on clear guiding principles, which serve the purpose of matching individual goals, functional targets (departmental targets) and business targets, creating performance incentives and promoting the development of the individual. For the management there also exists a Performance Commitment Plan, in which the goals are divided into business targets and functional targets and individual targets and, depending on the management grade, are differently weighted. The variable compensation elements are impacted by the individual’s annual performance assessments The annual base salary, the fixed element of the overall compensation, is determined on the basis of individual professional experience and education and competences. It is based on benchmarks for overall compensation of similar positions in compa-

rable companies in the national market. Sex, origin and similar criteria are not relevant. The compensation of Executive Management is also compared with the data of other relevant companies, which are specially chosen to create an optimal comparison basis of national and international labour markets that are relevant for Siegfried in the competition for qualified managers. Taking into account these data, the company’s results and individual performance, the Human Resources Committee of the Board of Directors (HR Committee) determines the appropriate compensation framework for the members of the Executive Management. The compensation of the Board of Directors is fixed by the Board of Directors on a motion of the HR Committee. At the level of employees and management the benchmark figures are gathered and updated annually by our partner CEPEC. At the level of Executive Management and Board of Directors the compensation is reviewed from case to case and as necessary. Compensation structure The compensation elements described in this Compensation report concern primarily the employees in Switzerland. In principle most of the elements are dealt with in a standard fashion at all locations, but because of legal or regulatory requirements or because of different market conditions differences may arise. Compensation components Three components are relevant for the Siegfried Group’s total compensation approach: – fixed compensation – annual base salary – variable compensation – annual performancebased bonus and long-term share ownership programmes – market-conform fringe benefits An employee’s individual total compensation mix depends on the function, the job profile and the location. The variable compensation share depends on the management level and the higher the level, the greater it is. It is largest for the members of the Executive Management.

Fixed compensation The fixed compensation is as a rule paid monthly in cash as base salary and compensates the employee for his expected contribution in a specific function. The amount of the base salary reflects the following factors: – Level and extent of responsibility – Skills, experience and performance of the individual – Level or grade, to which the position is allocated – External market value of the position The annual base salary also serves as the basis for the variable compensation. In order to ensure that they are appropriate, the annual base salaries are reviewed annually at 1 April; the review considers factors, such as comparisons, market changes, economic and labour market considerations and the performance assessment process. Variable compensation The variable compensation comprises the annual performance-based bonus. It represents the variable part of the total compensation for the Executive Management and the management. The contractually agreed bonus potential for the relevant management level is fixed as a percentage of the annual base salary and is reviewed periodically. For the members of the Executive Management and the employees in senior management, depending on the management level, a larger or smaller part of the annual performance-based bonus is paid in shares, subject to a restriction in period (see below Equity Ownership Plan). The intent of this share-based compensation is to motivate the Executive Management and the senior management to loyal and entrepreneurial thought and sustainable action. In this way the compensation of the decision takers is linked to the interests of the shareholders and value created for the long-term. With the performance-based bonus as a variable compensation component the relevant employees can participate in the success of the company and are also rewarded for their individual performance. In an annual process the specific financial targets are set and approved by the HR Committee of the

Annual Report 2011

Board of Directors. The business targets relevant for the year under review (financial targets) are based on the plan amounts for the Siegfried Group’s corresponding year. As a rule they include measures, such as Enterprise Value, ROCE, EBITDA, Networking Capital in % of turnover, etc. The sectoral measurement values (functional targets) for the individual employees are formulated by the competent member of the Executive Man-

agement, the individual targets by the immediate supervisor in a performance dialogue. Depending on the extent to which the functional and individual targets are achieved, the performance-based bonus actually paid varies between 0%–175%. I.e. the contractually defined bonus potential multiplied by the three percentages of target achievement relevant for the applicable year give the bonus actually payable for the relevant year.

Example for the calculation of the target achievement of a member of the middle Management with a bonus potential of 10% of the annual base salary Target category

Weighting

Achievement

Target achievement

Business targets 30% 90% 27% Functional targets 40% 125% 50% Personal targets 30% 110% 33% Overall target achievement 110% Effective bonus: Bonus potential (10%) x Overall target achievement (110%) = Effective bonus 11% The performance-based bonuses are paid out, only if the performance targets laid down – individual, functional and business targets – have been achieved. Depending on the applicable programmes, as already mentioned, the performancebased bonus is paid in cash or shares. Details of the various ownership programmes are set out later in this Compensation report.

Annual Report 2011

Fringe benefits Fringe benefits are chiefly retirement pensions and insurance against disability, death and illness. They provide security for employees and their families in connection with retirement, illness, incapacity and death. The form and amount of such fringe benefits are governed by the circumstances, legislation and regulations specific to the location.

Compensation components / Compensation-mix CEO and Chairman and other members Upper other members of Executive to lower of the board Management management

Employees

Description

Yes

Market conform compensation to recruit and retain highly qualified specialists â&#x20AC;&#x201C; cash payment for all employees. For board members cash and shares

Performance-based bonus

Yes

Performance-based compensation for Management and Executive Committe in cash and/or in shares

Equity Ownership Plan (Long term Incentive)

Yes

Share ownership plan for board members, Executive Management and management, long-term and geared to sustainable business success

Employee Share Purchase Plan (ESPP)

Yes

Instrument to promote identification with the company for purchase of shares at a 30% discount. Participation possible for all employees, who do not participate in the EOP.

Fixed compensation Annual base salary/base fee

Variable compensation

Total compensation structure of the annual compensation of board members, Executive Management and management

CEO

Other members of Executive Management

Upper management

Middle management

Lower management

100%

40%

35%

20%

10%

Of which dependent on business result

50%

40%

30%

20%

Of which dependent on individual target achievement

50%

60%

70%

80%

70%

40%

30%

20%

Chairman and other members of the board

Fixed compensation (annual base salary) Variable compensation (in % of annual base salary)

Fixed compensation satisfied in shares Variable compensation satisfied in shares

Annual Report 2011

Equity Ownership Plan (EOP) for the Board of Directors, Executive Management and Management At the beginning of June 2010 the Equity Ownership Plan 2010 or EOP 2010 was introduced for the members of the Board of Directors, the Executive Management and the senior management. The EOP was presented to the General Meeting of Siegfried Holding AG on 24 May 2011 as part of the Compensation report in a consultative vote. The report was supported by an overwhelming majority of the General Meeting, with a Yes vote of about 97 per cent. The aim of this long-term share-based compensation tool is to permit the members of the Board of Directors, the Executive Management and the senior management a greater participation in Siegfried Holding AG and to establish a link between the total compensation and the performance of Siegfried Holding AG. In this way the EOP makes a direct contribution to strengthening entrepreneurial thought and action and thus to aligning the contributions of the employees concerned more closely with the interests of the shareholders. The EOP 2010 requires of Directors, members of Executive Management and of managers concerned a substantial financial commitment, which is provided out of private funds. If the objectives required are not achieved, the plan involves personal financial risk. The funds invested in the form of restricted shares are also not available to plan participants for several years. In addition they bear the Siegfried share price risk themselves. Following the core idea of harmonizing the risks and interests between management and shareholders, on a motion of the Executive Management the Board of Directors decided to offer middle and lower management the opportunity to participate in a similarly structured share ownership plan (Equity Ownership Plan 2012 or EOP 2012; together with EOP 2010 referred to as EOP). In contrast to EOP 2010, participation at these two management levels is voluntary. EOP 2010 became effective on 1 June 2010 and EOP 2012 on 1 January 2012. The EOP will terminate in spring 2016 with the allocation of the final

Annual Report 2011

tranche of Leverage Shares (see below) and with the expiry of the last restricted in period in spring 2019. The EOP contains three components: – Initial Shares, which can be purchased with a starting investment by the Director, the member of Executive Management or the management employee. – Bonus Shares, which result from the payment of part of the director’s fee or of the performancebased bonus of the member of Executive Management or of the management employee in restricted shares (that is Bonus Shares). – Allocation of Leverage Shares in the years 2014 and 2016, if specifically defined performance goals are achieved in the years 2013 and 2015. The three components of the EOP are linked to one another as follows: – Participation in the plan enables the purchase of restricted Initial Shares. – With participation in the plan part of the annual performance-based bonus is paid in restricted Bonus Shares. – Leverage Shares are allocated to plan participants, only if targets are achieved, and – The number of Initial Shares and Bonus Shares purchased and allocated determines in addition to the period of plan participation and achieving specific goals the number of Leverage Shares allocated.

In detail the EOP looks as follows: Initial Shares On joining the plan, a plan participant can purchase Initial Shares up to a defined maximum amount. The purchase price per Initial Share is CHF 80. Every board member was able at the commencement of the plan to invest a defined maximum amount of CHF 300 000, the members of Executive Management 40% to 100% of their annual base salary. The senior management could invest at most 50%, the middle management at most 25% and the junior management at most 15% of their annual base salary in Initial Shares. Initial Shares are restricted for 4 years (EOP 2010) and 3 years (EOP 2012). On joining after the corresponding EOP came into effect, the maximum investment in Initial Shares is reduced. From 1 January 2013 (EOP 2010) and from 1 July 2012 (EOP 2012) purchase of Initial Shares is no longer possible. Bonus Share Every board member is paid, for the years 2010 to 2014, 80% of the base fee in Bonus Shares. At the level of Executive Management for the years 2010 to 2014, 70% of the effective annual performance-based bonus is paid in Bonus Shares, at the level of senior management 40%. Plan participants in middle management are for the years 2012 to 2015 paid 30% of the annual performance-based bonus in Bonus Shares, plan participants in junior management 20%. The number of Bonus Shares allocated is given in that the above mentioned share of the directorâ&#x20AC;&#x2122;s fee or of the performance-based bonus is divided by the share price fixed in the plan of CHF 80. All Bonus Shares are restricted in for three years.

end of March 2016 (second allocation) Leverage Shares will be allocated. The Initial Shares and Bonus Shares purchased and allocated form the basis for the allocation of the Leverage Shares. On the first allocation the plan participant will be allocated at the end of March 2014 for each Initial Share and Bonus Share purchased or allocated under the EOP before the end of December 2013 (EOP 2010) and the end of March 2014 (EOP 2012) â&#x20AC;&#x201C; depending to the extent the targets were achieved â&#x20AC;&#x201C; per target between 0 and 1.5 Leverage Shares (EOP 2010) and between 0 and 1 Leverage Shares (EOP 2012). On the second allocation the plan participant will be allocated at the end of March 2016 for every Bonus Share acquired after the cut-off date relevant for the first allocation per target between 0 and 1.5 Leverage Shares (EOP 2010) and between 0 and 1 Leverage Shares (EOP 2012). Overall, per allocation period, this gives a leverage of between 0 and 4.5 shares for the EOP 2010 and between 0 and 2 for the EOP 2012. The Leverage Shares of the first and second allocation are locked in, as to 50 % each, for one or two years after allocation. There will be an allocation of Leverage Shares at the respective allocation date, only if the relevant plan participant is still in the employment of the Siegfried Group at the allocation date (exceptions: early withdrawal following retirement, death / disability, if plan participation was at least 12 months) and the lock in provisions were observed.

Leverage Shares Depending on whether business targets established in the EOP for the first planning period (targets defined as per 31 December 2013) and the second planning period (targets defined as per 31 December 2015) are achieved in whole or part, at the end of March 2014 (first allocation) and the

Annual Report 2011

Overview of the allocation of Leverage Shares per objective for an Initial Share or Bonus Share

purchased or allocated in the corresponding planning period:

Overview of the allocation of leverage shares (number of shares per target and acquired Initial/Bonus share)

Board members

0-73% target achievement 74%-99% target achievement 100% target achievement > 115% target achievement 1 2 3

CEO and other members of Executive 1 Management

0 0.40/050 3 0.80/1.00 3 1.20/1.50 3

Upper 1 Management

0 0.50 1.00 1.50

Middle and lower 2 management

0 0.50 1.00 1.50

0 0.50 0.75 1.00

Under the EOP 2010 for the three defined targets (see below) Leverage Shares are allocated Under the EOP 2012 for the two defined targets (see below) Leverage Shares are allocated For the Board of Directors on the leverage on the base fee there is a discount

Value based performance targets The performance targets contained in the EOP, which are applicable for the allocation of Leverage Shares, are geared towards an enduring increase in the Enterprise Value. The pre-defined performance targets for both allocation periods cover the increase in the Enterprise Value and the Return on Capital Employed â&#x20AC;&#x201C; ROCE. Enterprise Value is defined as EBITDA without costs of compensation for the EOP multiplied by a multiple dependent on the margin. This multiple in turn is comprised of 45*EBITDA margin. ROCE is defined as EBITDA without share-based compensation under the EOP divided by the capital

employed. Starting from the ratios at the time the EOP was introduced; both ratios must be significantly increased over the duration of the plan. Leverage Shares will not even be allocated until, for Enterprise Value, a target achievement of 75% is reached and, for ROCE, an achievement of 73%. If the achievement is less than these amounts, no Leverage Shares will be allocated. The table below shows the starting and target achievement figures for 2010 and 2011 and the EOP plan amounts for Enterprise Value (EV) and Return on Capital Employed (ROCE) relevant for the allocation of Leverage Shares.

EOP plan amounts

Enterprise Value (EV) Return on Capital Employed (ROCE)

Initial value 2009

2010

101 6.1%

230 10.4%

For the Board of Directors, the Executive Management and the senior management, in addition relevant as a business target defined in the EOP 2010 is the achieving and realiz ation of prescribed strategic objectives. In each of the allocation periods at least one strategic measure must be realized.

Annual Report 2011

2011

EOP target value 2013

EOP target value 2015

312 14.5%

600 15.0%

800 17.0%

Employee Share Purchase Plan (ESPP) The ESPP enables employees in all locations to become a shareholder in Siegfried by purchasing Siegfried shares at a privileged price. The shares can be purchased twice a year in May and November at a discount of 30% to the defined purchase price and are subject to a restriction period of three

years. The defined purchase price is equivalent to the average price of the Siegfried share over the 6 months prior to the purchase. Employees may invest at most 10% of their annual base salary in the ESPP. Participants in the EOP are excluded from participation in the ESPP. Employee pension plans and other long-term employee benefits The Group operates in Switzerland and abroad a number of pension plans for employees, who meet the relevant criteria for admission. They include both defined benefit and defined contribution plans, which cover most of the Groupâ&#x20AC;&#x2122;s employees against the risks of death, disability and retirement. In addition there exist plans for anniversaries or other benefits dependent on years of service. The amount of the pension benefits depends on the number of insured years, age, the insured salary and the capital accumulated. The assets of the funded pension plans are held in separate foundations or by insurances and cannot flow back to the employer. Further information about the pension plans can be found in Note 21 to the audited financial statements on page 43.

3 Responsibilities The Board of Directors nominates the members of the HR Committee, determines its responsibilities and approves its decisions concerning the Groupâ&#x20AC;&#x2DC;s compensation. The HR Committee is competent for designing the compensation system for the companyâ&#x20AC;&#x2122;s Directors and top management. It evaluates the compensation principles and systems and ensures that the compensation paid by the company is based on market-conform and performance-based criteria. At least once a year the HR Committee reports to the Board of Directors on the compensation procedures and on the compensation of managers and, if necessary, proposes changes in the compensation system.

Annual Report 2011

4 Compensation of the Board of Directors The members of the Board of Directors receive an annual fee, consisting of a base fee for the appointment as Director and additional fees for individual functions as Chairman, Deputy-

Chairman or Chair of a Committee of the Board. 80 % of the base fee is paid in Siegfried shares as Bonus Shares under the EOP 2010. In addition inconvenience compensation is paid in the form of lump-sum expenses approximating the effective outlays.

Compensation structure Board of Directors

Base fee Chairman/Deputy-Chairman Chair of committee Expenses Total

Chairman

Vice-Chairman

Ordinary member Chair of committee

Ordinary member

210 000 90 000 20 000 20 000 340 000

70 000 20 000 20 000 10 000 120 000

70 000 0 20 000 10 000 100 000

70 000 0 0 10 000 80 000

Compensation of the Board of Directors and of former Directors in 2011 (as tax values): Function

Compensation cash

Gilbert Achermann (from May 24, 2011) Chairman Dr. Thomas Staehelin Deputy chairman Dr. Andreas Casutt Member Reto Garzetti (from May 24, 2011) Member Dr. Beat In-Albon (from May 24, 2011) Member Dr. Felix K. Meyer Member Dr. Thomas Villiger (from May 24, 2011) Member

152 000 54 000 14 000 14 000 14 000 14 000 34 000

159 817 53 272 53 272 53 272 53 272 53 272 53 272

36 366 7 360 5 116 5 116 5 116 5 116 5 320

348 183 114 632 72 388 72 388 72 388 72 388 92 592

– – – 296 000

– – – 479 449

– – – 69 510

– – – 844 959 1

Board of Directors

Share-based Expenditure for payment social security

Total 2011

Acting Board of Directors December 31, 2011

Former Board members December 31, 2011

Dr. Markus Altwegg (until May 24, 2011) Susy Brüschweiler (until May 24, 2011) Dr. Felix Gutzwiller (until May 24, 2011) Total 1

Annual Report 2011

Chairman Member Member

The compensation of the Board of Directors shows annualized figures.

Function

Compensation cash

Dr. Markus Altwegg Chairman Dr. Thomas Staehelin Deputy chairman Susy Brüschweiler Member Dr. Felix Gutzwiller Member Dr. Felix K. Meyer Member Dr. Andreas Casutt (from April, 14 2010) Member

50 000 12 000 10 000 10 000 10 000 10 000

205 391 50 506 40 085 39 590 42 079 39 590

12 131 3 844 3 080 3 050 3 203 3 050

267 522 66 350 53 165 52 640 55 282 52 640

– – 102 000

– – 417 241

– – 28 358

– – 547 599 1

Board of Directors

Share-based Expenditure for payment social security

Total 2010

Acting Board of Directors December 31, 2010

Former Board members December 31, 2010

Dr. Bernard A. Siegfried Honorary Chairman (until April 14, 2010) and member Malcolm Perkins (until April 14, 2010) Member Total 1

The compensation of the Board of Directors shows annualized figures.

In the year under review, Markus Altwegg was Chairman of the Board from 1 January until the General Meeting on 24 May 2011. At the General Meeting Gilbert Achermann was elected as the new Chairman of the Board. At the same meeting Susy Brüschweiler and Felix Gutzwiller retired from the Board. They were replaced on the Board by Reto Garzetti, Dr. Beat In-Albon and Dr. Thomas Villiger. The former Directors, who stood for re-election, were confirmed in office. Loans to Board members In 2011 no loans were granted to a member of the Board of Directors.

Annual Report 2011

5 Compensation of the Executive Management in 2011 In 2011 the members of the Executive Management, including the CEO, received salaries, bonuses and other compensation elements in accordance with the compensation principles set out on page 64. In addition inconvenience compensation was paid in the form of lump-sum expenses approxi-

Executive Management

Highest individual compensation: Rudolf Hanko (CEO) Other members of the Executive Management Total compensation Executive Management

Executive Management

Highest individual compensation: Rudolf Hanko (CEO) Other members of the Executive Management Total compensation Executive Management

Compensation Compensation cash fixed cash variable

Annual Report 2011

Share-based payment Expenditure for variable social security

Total 2011

565 000

87 124

368 134

124 230

1 144 488

1 892 236

329 299

580 880

376 701

3 179 116

2 457 236

416 423

949 014

500 931

4 323 604

Share-based payment Expenditure for variable social security

Total 2010

Compensation Compensation cash fixed cash variable

574 004

112 880

290 695

105 236

1 082 815

1 925 026

483 410

460 796

322 023

3 191 255

2 499 030

596 290

751 491

427 259

4 274 070

As a result of the different valuation approach following tax principles, in comparison with IFRS there results a different personnel cost for the share-based compensation for the Board of Directors and the Executive Management. As displayed in the table above, the share-based compensation of the bonus 2011 for the Board of Directors and Executive Management together amount at tax values to CHF 1.4 million, under IFRS the corresponding accrual is CHF 1.8 million. In addition, under IFRS, CHF 4.9 million was accrued for the leverage shares (EOP) to be allocated in 2014 and 2016 (see Note 22 to the Consolidated Financial Statements). For tax purposes the expense for the Leverage Shares will not be recognized until final allocation and therefore will not be considered as part of the compensation until then.

mating the effective outlays. The compensation of the Executive Management is conclusively determined by the HR Committee (HRC) of the Board of Directors. The highest total compensation was received in 2011 by the CEO. The following tables show the compensation of the Executive Management at tax values:

Shareholdings of the Board of Directors and of the Executive Management The non-executive members of the Board of Directors and persons related to them held at 31 December 2011 a total of 41 135 registered shares in Siegfried Holding AG (2010: 31 289). This represents 1.1% of the total share capital of Siegfried Holding AG (2010: 1.1%). The members of Executive Management (including related persons) held at the same date 34 225 registered shares (2010: 28 659), i.e. 0.9% of the share capital of Siegfried Holding AG (2010: 1.0%).

December 31, 2011 Function

Number of shares

of which 1 blocked

Chairman Deputy chairman Member Member Member Member Member

13 750 12 763 4 920 3 750 1 500 4 452 –

3 750 5 060 4 250 3 750 1 500 4 081 –

CEO CFO CCO Head Technical Operations Head HR Head Business Development & Sales Head Strategy & M&A and Head Research & Development

13 231 4 475 4 180 3 114 1 500 4 881

12 641 4 445 4 159 3 114 1 500 4 397

2 844

Number of shares

of which 1 blocked

Board of Directors

Gilbert Achermann Dr. Thomas Staehelin Dr. Andreas Casutt Reto Garzetti Dr. Beat In-Albon Dr. Felix K. Meyer Dr. Thomas Villiger Executive Management

Dr. Rudolf Hanko Michael Hüsler Peter A. Gehler Dr. Walter Kittl Arnoud Middel Marianne Späne Dr. Wolfgang Wienand 1

Number of blocked shares from Equity Ownership Plan (EOP) and Employee Share Plan

December 31, 2010

Board of Directors

Function

Dr. Markus Altwegg Dr. Thomas Staehelin Susy Brüschweiler Dr. Felix Gutzwiller Dr. Felix K. Meyer Dr. Andreas Casutt

Number of Mandatory Convertible 2 Notes

Chairman Deputy chairman Member Member Member Member

102 – 10 20 25 17

10 031 11 583 531 1 192 3 702 4 250

5 598 4 603 293 886 3 627 3 750

CEO CFO Head HR CCO Head Business Development & Sales Head Technical Operations Head Research & Development

59 3 40 – 24 20 –

8 709 3 339 3 579 3 387 3 434 3 711 2 500

8 709 3 339 3 229 3 387 3 319 3 519 2 500

Executive Management

Dr. Rudolf Hanko Michael Hüsler Hanspeter Brun Peter A. Gehler Marianne Späne Dr. Hubert Stückler Dr. Wolfgang Wienand 1 2

Blocked shares from Equity Ownership Plan (EOP) and Employee Share Plan One note equals to 10 shares of Siegfried Holding AG

Annual Report 2011

6 Contractual agreements, loans and additional contributions The employment contracts of the members of Executive Management and of the CEO foresee a notice period of 6 months. The appointments of the Directors are not subject to notice periods and terminate ordinarily on expiry of the term of office. The employment contracts and related agreements do not contain clauses providing for settlements («golden parachutes» or «handshakes» or comparable understandings) in respect of their termination. The EOP contains provisions concerning change of control, according to which: – in the event of an unfriendly public purchase offer, under which the bidder exceeds the limit of Art. 32 of the Federal Act on Stock Exchanges and Securities Trading (SESTA), – depending on the timing – the allocation of the first or second tranche of Leverage Shares is accelerated. The allocation takes place on the date, on which the purchase offer becomes unconditional. In this case, for the calculation of the number of Leverage Shares to be allocated, a target achievement of 100% is assumed (see also table on page 70). If this case occurs, the plan is then immediately and automatically wound up (including any restriction periods); – in the event of an acquisition by the Siegfried Group, under which a significant part of the purchase price is satisfied by the delivery of shares in Siegfried Holding AG, and as a result the recipient exceeds the limit of Art. 32 SESTA, the EOP is to be maintained to the greatest possible extent. This is, however, conditional on the strategic objectives defined in the EOP not being changed. Changes to the EOP by the Plan Administrator are to be restricted to changes that are necessary because of the applicable law or because of the admission of new plan participants; – in other cases of a change of control the Plan Administrator is entitled to change the terms of the plan while preserving as far as possible the rights of the plan participants and taking into consideration various criteria laid down in detail in the EOP.

Annual Report 2011

The members of the Board of Directors and of the Executive Management of Siegfried Holding AG and persons related to them are not, and were not, in the year under review and in the preceding financial year involved in transactions outside the normal business activity of Siegfried Holding AG or of one of its group companies or in other transactions unusual in form or substance, but important for Siegfried Holding AG or one of its group companies. At 31.12.2011 Siegfried Holding AG and its group companies hold no securities, No loans, advances or credits have been granted to members of the Board of Directors or the Executive Management of Siegfried Holding AG or to persons related to them.

Annual Report 2011

Sustainability Report 2011

Introduction

Corporate Principles

“Sustainability” is more than a buzzword in the life science industry. Regulatory authorities, customers and users closely watch the activities of every company in this market. Sustainability is a central competitive and reputation factor for Siegfried, and carries a high economic value. We take the expectations of all stakeholders for transparency and honesty seriously. The Board of Directors and Group management contributed to the report, and they will continue to implement improvements to ensure a high standard of information. Within the range of relevant sustainability topics, Siegfried focuses on Compliance and Quality, Safety, Health and Environment (SHE), and our responsibility as an employer. As a relatively modest sized company in the life science industry, Siegfried has little influence in how the ingredients produced at our facilities are used and consequently, has little contact with the end user. This limits our scope of action. Siegfried offers a capability unique in our market: the development and production of active ingredients and dosage forms under one roof. Both competencies are based on the same compliance system. The combination of synthesis and formulation represents an attractive market opportunity for the long-term viability of the company and the jobs. These strengths form the key element of our new “Transform” strategy. It will also become evident with the significant infrastructure investments that are planned.

Siegfried as a competitive player – We intend to remain an independent company. – We strive for market leadership in clearly defined market segments – by differentiating ourselves from the competition and gaining a sustainable competitive advantage through the intelligent use of our resources. – We want to be seen as a service-oriented company; targeted development of technology and know-how serve to enhance our ties to the customer.

Annual Report 2011

Siegfried as a profitable company – We strive for profit rather than sales growth; especially by sustainably increasing our return on investment. – We intend to grow from an internationally active company to a global operation. Siegfried as an employer – We want to be an attractive employer for highly motivated and talented people that are resultsoriented, self-motivated, and work efficiently in a team. – We strive to avoid risks to the health and wellbeing of our employees. Code of Conduct In 2008, Siegfried introduced a Code of Conduct policy that specifies our most important policies, such as the role of the employee in ensuring the success of the company, how to deal with conflicts of interest, honesty and trust, bribery and corruption. The Code was distributed to every employee and is part of the introductory program for new employees and valid for all Siegfried sites. See: http://www.siegfried.ch/about-siegfried/ about-us/code-of-conduct/

Corporate governance The Siegfried Group takes an integrated approach to corporate governance and is committed to mutual trust and clarity toward shareholders, employees, journalists and financial analysts. Corporate governance at Siegfried is based on the statutes of Siegfried Holding AG, the rules of procedure of the Siegfried Group, and the structure of the Group. The corporate governance report in this annual report describes the principles of management and control of the Siegfried Group. See: http://www.siegfried.ch/about-siegfried/ corporate-responsibility/corporate-principles/ Structural foundation The Board of Directors and Executive Management are the highest institutions responsible for the implementation and maintenance of all sustainability policies and guidelines. The Compliance Committee, along with the Chief Compliance Officer, is responsible for the implementation of compliance and quality standards, and for the area of Safety, Health and Environment. The Secretary to the Board of Directors supervises the Code of Conduct. About the report Whenever possible and relevant, this report is based on the guidelines of the Global Reporting Initiative (GRI). If not noted elsewhere, the comments made in this report are valid for the entire Siegfried Group, exclusive of its holdings in Taiwan and China. The Sustainability Report is part of the annual report; important amendments will be published on our website at www.siegfried.ch. Links to the website locations are listed throughout the annual report. Any questions and comments about the report can be submitted to the Secretary to the Board of Directors: Peter A. Gehler, Head Corporate Center c/o Siegfried Holding AG Tel: +41 62 746 11 44 peter.gehler@siegfried.ch

Compliance Siegfried is committed to quality oriented management and ongoing improvement of all company processes and activities. Our quality policy is an integral part of the corporate policy. The results of customer audits and regulatory inspections, in particular by the U.S. Food & Drug Administration (FDA) and the Swiss Health Authority (Swissmedic) confirm our capabilities. Policies Siegfried has an overall quality management system throughout the value chain. Based on the procedures set by ISO 9001 (quality management) and ISO 14001 (environmental management) www.iso.org, it covers the following international guidelines: – Current Good Manufacturing Practice (cGMP) http://ec.europa.eu/enterprise/sectors/healthcare/ human-use or www.fda.gov/cdrh/comp/gmp.html – International Conference on Harmonization (ICH), defines standards by pharmaceutical authorities and industry associations in the U.S., Europe, and Japan www.ich.org – Guidelines of the World Health Organization (WHO) www.who.int The Compliance Committee (ComCom), comprised of Executive Management (ExeCom), all site managers and the corresponding quality managers, meets every month on behalf of the CEO and under the direction of the Chief Compliance Officer, Dr. Peter Kiechle, to discuss quality issues at Siegfried. Decisions on quality topic are made by the ComCom, which also approves Siegfried’s guidelines. At the end of 2011, the Siegfried Group had 27 guidelines, dealing mainly with quality issues but also areas of finance, safety, health and environment (SHE), and pharmacovigilance, communications and employee conduct (Code of Conduct).

Annual Report 2011

Inspections and audits As is customary in the pharmaceutical industry, all Siegfried sites are constantly monitored, through inspections (by regulatory authorities), audits (by customers at Siegfried, or by Siegfried at suppliers), and internal audits. Customer and supplier audits are planned weeks and months in advance, inspections and internal audits can occur without notice. In general, regulatory inspections are carried out: – In the U.S. by the Food and Drug Administration (FDA), and by the Drug Enforcement Administration (DEA) when narcotics are involved – In Switzerland by Swissmedic, which has inspections carried out by Regional Inspectorate Northwest Switzerland (RHI) and the American FDA; in 2011, the Korean Food and Drug Administration (KFDA) carried out an inspection for the first time in Zofingen – In Malta by the Medicines Authority Malta (MAM) and the American FDA – In Germany by the regional authorities Since 2002, the FDA has issued clear “No Action Indicated” approvals for our sites; all licenses have been approved or renewed, respectively. http://www.siegfried.ch/competences/compliance/ compliance-history/?L=ifxxbfjbapuds Undergoing hundreds of successful inspections and audits over the past years allowed Siegfried to measure itself against other companies’ systems and regulatory demands – and draw instructive conclusions about our application of the guidelines. The results confirm our quality management system and provide a persuasive argument with our customers.

Annual Report 2011

2012 is expected to be another intense year for inspections: – For Siegfried Drug Products in Switzerland by Swissmedic / RHI – For Malta by the Medicines Authority Malta (MAM) – For Siegfried Drug Substances in the U.S. by the FDA and DEA – For Siegfried Drug Substances in Switzerland by the FDA, Swissmedic/RHI, and possibly the Japanese Pharmaceuticals and Medical Devices Agency (PMDA) Customer audits will continue to take place frequently in 2012. Qualifying suppliers and service providers Often, raw materials, pharmaceutical excipients and packaging materials, components for active ingredients and, less often, active ingredients are purchased from foreign manufacturers and suppliers. Siegfried is responsible for the qualification of such manufacturers and suppliers and maintains a corresponding audit system that meets binding quality standards. This is done through manufacturer and supplier questionnaires, ongoing quality control of the materials and also audits at the manufacturing site. Our manufacturers are located mainly in Europe, India, China and Taiwan. For Southeast Asia, we rely in addition on our colleagues from the Siegfried Shanghai office. The same quality standards must also be applied and upheld among our service providers, such as external laboratories, specialized external technicians at the Siegfried sites, or engineering services. Quality demands and quality certificates The number of inspections and certificates / statements carried out by the pharmaceutical industry continues to grow. This is due to increased quality awareness and quality requirements as well as accidents, counterfeiting, and sub-standard mixtures. In addition to the traditional analysis certificates (with information on appearance, content, purity, physical characteristics and the GMP-con-

form manufacturing of our products, data and certificates are now also needed for: – Genotoxic impurities – Heparin adulteration – Presence of genetically modified components – Presence of TSE / BSE – Presence of melamine – Presence of benzene – Presence of phthalate etc. Cooperation with public officials Siegfried works closely with the American FDA to prevent product piracy to ensure safety for the end user. Siegfried provides material, certificates, chemical process documentation, analytical methods, primary packaging material and labels to the FDA to aid in comparisons with potentially counterfeit products. In 2011, Siegfried delivered comprehensive documentation and materials to the FDA’s Forensic Institute in Cincinnati, Ohio, to help in the fight against counterfeiting of Siegfried products. Pharmacovigilance (reporting system for pharmacological side effects) The ongoing and systematic surveillance of drug safety is done not only during clinical testing, but also after registration to identify, evaluate, and understand any undesirable side effects, and implement necessary risk minimizing measures. The Siegfried registration team in Munich, Germany, is responsible for these issues and registered with the regulatory authorities. Inquiries about undesirable side effects (ca. 1–2 annually) are usually made by our customers (customer complaint) and not by the end user, as Siegfried is not recognizable to the end user as a producer. Customer satisfaction Siegfried is a service-oriented company that focuses on the customer and cultivates close, longterm relationships. The Siegfried customer complaint system (mandated by law for the pharmaceutical industry) processes all inquiries and complaints. All questions and complaints are systematically registered, whether justified or not, and

evaluated. The type and number of complaints are recorded and the individual cases are evaluated and discussed on a monthly basis by a Quality Committee under the direction of the local quality assurance manager. If necessary, changes are implemented. The Compliance Committee is consulted on critical or strategic issues. The results of the investigation, or at least intermediate reports, are sent to the customer within 30 days. Our goal is to cultivate a quality system that eliminates customer complaints. Despite the pronounced increase in the number of customer audits, the number of observations resulting from audits has dropped by almost half over the past few years and remains stable at that level. On average, Siegfried receives a customer audit every week in Zofingen. Quality contracts with customers The obligatory quality agreements between Siegfried and our customers are a growing challenge. Customer requirements continue to grow, which can include an increasing amount of data and documents to be supplied by Siegfried, or tighter deadlines are set, or even the integration of specific customer standards is required. With over 100 active customer accounts, running numerous quality management systems simultaneously is not practical. For Siegfried, this means maintaining a sophisticated quality management system that meets a range of customer demands. Goals and outlook Our very high Good Manufacturing Practice (GMP) standards and reputation for quality are recognized around the world. Siegfried is well aware that it’s better to maintain high standards than have to revive a compromised company image. All our facilities work hard to uphold these standards and to continue to be recognized as a dependable and quality conscious partner. Despite this pressure, it is essential that Siegfried remains quick, flexible, and customer-friendly to continue delivering “made in Switzerland” quality.

Annual Report 2011

Safety, Health Introduction safety, health and plant security The Safety, Health and Environment (SHE) guidelines are a priority and a central element of our corporate mission. These guidelines help our employees and specialist teams strive to improve safety and minimize adverse environmental effects. Approximately 2.5% of our global personnel works full-time in SHE areas. They are responsible for the risk management of processes, plants and the workplace, as well as implementation of environmental regulations. A team of subject matter experts, engineers and chemists works closely together and is in constant contact with other sites and partner companies. As a chemical-pharmaceutical company and leading provider of controlled substances, Siegfried puts great emphasis on plant security. Working closely with professional service partners, technical specialists monitor the factory area and supervise the companyâ&#x20AC;&#x2122;s central alarm system around the clock. The total costs and investments in Safety & Health are considerable. In 2011, we were able to successfully complete several projects. For example, modernization of the control systems improved production safety and the renovation of production areas and R&D labs led to improved workplace ergonomics and hygiene. Policies & Guidelines As a member of the Science Industries Switzerland (previously: Swiss Society of the Chemical Industry / SGCI), Siegfried co-signed the Responsible CareÂŽ program in 1992 along with numerous other Swiss chemical companies. Based on these principles, our internal SHE guidelines were adapted and completed. As part of the Siegfried quality management system, ISO 14001 was successfully introduced and certified in 1998. Our Pennsville production site qualified for the SOCMA ChemStewardÂŽ program in 2006. During that year, our various programs and systems were unified in a global SHE policy and implemented at all sites. This policy describes the Siegfried SHE philosophy to our employees, third-party companies, customers,

Annual Report 2011

shareholders, regulatory authorities, and the public. In 2009, SHE policies at Siegfried were documented in a Code of Conduct that is mandatory for every employee. For further information: http://www.siegfried.ch/competences/compliance/ safety-health-environment/ Safety and health Risk management Siegfried introduced comprehensive procedures for all aspects of chemical process development to ensure efficient and safe chemical processes, both key elements of process development. All chemical procedures undergo a safety and environmental analysis during process development and production launch. Our internal safety lab has well-trained specialists and the newest measurement instruments for physical and thermal substance testing. Flammability, danger of explosion, and performance of reactions during normal operation and in case of accidents are tested and evaluated. The findings are summarized in a process safety & environmental report. A team of development, production and SHE experts initially tests and evaluates all safety and environmental parameters and issues as part of a process risk analysis. As part of the precautionary accident measures, the process systems and the chemical substances they handle undergo a comprehensive risk analysis. The results are summarized in a report and reviewed by the regulatory authorities during their annual inspection. Siegfried maintains emergency response teams in Zofingen to respond to explosions, fires or chemical incidents. The Zofingen HAZMAT (hazardous materials) and firefighting teams have over 100 volunteers from Siegfried and Swissprinters (an adjacent company). As mandated by the canton, this new organization is also the official HAZMAT response team for incidents outside our facility. The helpful cooperation with the local and cantonal police continued in 2011.

Workplace safety We want to promote a company culture with zero tolerance for accidents. The Siegfried Safety Program was launched in 2006 around the world to realize this vision and raise safety awareness among every employee. The Zofingen production site (including Siegfried, third-party companies and service providers) actively participated in the safety program. Despite these efforts, the accident quota did not meet expectations in 2011, with all production sites reporting a negative accident rate due to a slight increase in accidents resulting in workdays lost. Making the wearing of helmets compulsory in 2008 once again proved sensible and effective, as head injuries were substantially reduced since then. An “Alarm & First Aid” safety campaign accompanied by training for about 10% of the Zofingen staff will ensure a quick and efficient first aid for accidents. These efforts resulted in a distinct 60% drop in lost workdays; serious eye injuries were also avoided in 2011 thanks to mandatory protective eyewear and the site-wide availability of eye rinse stations. “Lifting Loads” was the safety focus during the past year, with the safety team launching an awareness campaign for lifting device maintenance and testing, including maximum loads for storage racks and attachment points. Because of recurring forklift accidents, logistics specialists organized an internal “refresher course”. Over 160 production

employees were able to get practical training by running forklifts through a training course. Maintaining a safe and accident-free flow of traffic on the Zofingen site demands caution and respect from all: pedestrians, bicyclists, forklift operators, automobile and truck drivers. Improved signage across the facility should bring further improvement and reduced speeds. Audits During 2011, national and international regulatory agencies, insurance companies, and various customers inspected the Siegfried facilities, which was an additional challenge for the Safety & Health department. The inspectors and customers certified that Siegfried has a well-integrated risk and environmental management system. For example, the plant fire brigade met all building insurance requirements during the inspections. Around-theclock operational readiness is guaranteed. No irregularities were noted during two risk analyses carried out by HDI Gerling, an insurance company. Zofingen met all liability compliance guidelines; Pennsville was certified with a good safety system and adequate fire protection. A system of internal audits and safety walkabouts in Zofingen and Pennsville has established itself since 2005. The audit teams suggested over 450 corrective measures for Zofingen alone (85% were implemented in 2011).

Workplace accidents with lost workdays: 2007–2011 Workplace accidents with lost workdays per 1,000 employees

Zofingen (incl. partner companies) 1 Pennsville Malta 2 Lost workdays per 1,000 employees

Zofingen (incl. partner companies) 1 Pennsville Malta 1 2

2011

2010

2009

2008

2007

15 (19) 19 33

10 0 0

9 0 0

10 11 0

11 11 0

2011

2010

2009

2008

2007

69 (78) 84 217

196 0 0

104 0 0

68 17 0

47 155 0

Third-party and partner companies with permanent staff Our Malta facility noted two workplace accidents with resulting absences, a rate of 33 accidents per 1,000 employees (Malta employs about 60 people).

Annual Report 2011

In 2011, all our sites noted an increase in workplace accidents and absences. While both Malta and Pennsville had no lost workday accidents and absences in 2010, last year the rates climbed to 33 (Malta) and 19 (Pennsville) workplace accidents with lost workdays per 1000 employees, similar to the rate (19) in Zofingen, clearly missing our goal of less than 8 lost workday accidents. The total number of lost workdays for all three sites was in the range of 78 – 217 lost workdays per 1,000 employees, missing our goal of 125 lost workdays. As in 2010, last year saw all three sites avoid any serious injuries with long-term absences. The sharp drop (60%) in lost workdays in Zofingen, an average of 4 lost workdays per accident, underlines efforts to quickly rehabilitate – and reintegrate – injured personnel. Such cost-saving options are in the interest of the employees, the employer, and the insurer. The workplace accident and lost workday totals for Zofingen include all personnel, including the staff of third-party and partner companies with permanent staff under contract at the facility. Approximately 25% of the accidents originated with the employees of these companies. The number of workplace accidents and sick days in Zofingen dropped by 10% over the previous year. Our rate of 36 accidents per 1,000 employees is close to the Swiss chemical and pharmaceutical industry norm (2010: 33). As Siegfried has a first aid capability but no on-site MD, injuries require treatment outside the facility. These treatments are covered by SUVA and reported in the insurer’s statistics as accidents; the severity of the accident is not recorded. Health Together with the “Lungenliga Switzerland,” a national respiratory awareness organization, Siegfried carried out an anti-tobacco campaign (“Smoke less, live more, do more”) to raise awareness among all employees. The Lungenliga presented its range of stop smoking sessions and experts discussed nicotine replacement products with attendees. The event also featured a popular presentation by Dr. Felix Gutzwiller, a well-known

Annual Report 2011

health advocate and Siegfried Board member. Over 10% of the Zofingen employees attended this event – a clear success. The galenical development labs underwent a total renovation to improve workplace hygiene for the handling of highly active ingredients. Closed substance handling and multi-level containment systems protect staff from excessive contamination. The changing rooms, workplace and lavatories are all separated by an airlock system of double doors. In addition, workplaces are equipped with a ventilation system to enhance freedom of movement to employees dressed in protective suits and to provide improved working conditions. Decontamination zones and defined changing areas help minimize substance contamination. A workplace hygiene expert answers questions about workplace hygiene; workplace evaluations and classification of production systems are also monitored. When necessary, technical, organizational, and personnel (TOP) measurements ensure a safer workplace. The effectiveness of these protective measures is monitored by our in-house SHE lab; the results are summarized in a systems evaluation registry. The correct use of protective equipment at the workplace is constantly trained. Our in-house workplace safety department constantly evaluates new protective articles used in various applications and skin care products; the resulting information is documented in an internal “personal safety catalog” and made available to all employees on our intranet. Rapid and correct first aid to injured staff was the focus of our first aid training. Guided by first aid experts, over 50 participants practiced how to handle chemical burns, regular burns and toxic contamination, as well as the correct emergency alarm procedures. As part of the in-house fire department, a paramedic team is available around the clock to respond to emergencies. This past year a few dozen employees took advantage of the annual flu vaccination campaign (at no charge). Medical consultations and (SUVA-mandated) check-ups for about 200 employees were carried

out again this year by the Institute for Workplace Medicine (ifa Baden). Activities such as soccer, tennis, hiking, target shooting and bowling are offered to all employees by the Siegfried Sports Club to promote fitness. Goals & outlook The activities and goals for our SHE program for 2012 include: – Less than 125 lost workdays resulting from workplace accidents (per 1,000 employees) – Less than 33 accidents (per 1,000 employees) – Quick reintegration of injured employees through interim “light duty” work – Information campaigns to promote health awareness and reduce accidents – Optimize in-house health management efforts – Modernize fire alarm monitoring and building evacuation procedures in Zofingen – Coordinate the information systems for hazardous materials across all facilities – Revise the safety and environmental training concepts in Zofingen – Implement evaluation software upgrades for process safety analysis (based on kinetic modeling)

Environmental protection Corporate environmental protection Siegfried invests substantial resources in efforts to minimize the environmental effects of our business. General observations Because the amount of final and intermediate products generated from year to year fluctuate considerably, the final totals don’t tell the whole story. The most important figures for total energy consumption, water consumption, CO2 emissions and waste at Siegfried show an increase over the previous year. Emissions of volatile organic compounds (VOCs), which dropped significantly, are the exception. It is helpful to compare all these totals with our increased production totals to better see overall falling trends for energy consumption, water consumption, CO2 emissions and waste as well. The use of fuel oil has dropped continually over the past year and in 2011, for the first time, it was replaced completely by significantly cleaner natural gas and alternative fuel sources. VOC emissions have continued to drop over the past years and are now at a very low level. The past year noted an almost 50% drop compared to the previous year. However, CO2 emissions have remained stable, fluctuating between 14,500 and 16,000 tons annually. 2011 showed a gross increase in emissions, but a lower net level when compared to production totals for the year. We are currently working on a concept to further reduce CO2 emissions. Due to lower CO2 emissions compared to 1990 levels, Zofingen sold 1,300 tons of CO2 reduction credits to the “Climate Cents” (Klimarappen) Foundation. http://klimarappen.ch/ Water consumption trends are similar to CO2 emissions; a gross increase in consumption for 2011, but a lower net level when compared to production totals for the year. While the amount of wastewater generated remained constant, there was a sharp increase in the amount of cooling water over the year. There are plans to draw up a concept to reduce cooling water consumption.

Annual Report 2011

The total amount of waste increased by 16% over 2011. Due to significantly higher production volumes, the amount of waste solvents increased, even though the amount of reclaimed solvents also grew considerably. The ratio of internally reclaimed solvents to waste solvents was improved again in 2011 to 0.38. The amount of waste delivered to an external recycling facility increased by 6%, representing a 15% share of total waste. Solvents are classified as waste by Siegfried and are tabulated in our overall waste production. In 2011, Siegfried Pennsville worked with a solar energy partner to launch a solar power project. The goal is to generate cheap electricity at our US facility, which will have a positive effect on our bottom line.

A photovoltaic system, in simple terms, is made up of solar panels that convert sunlight into electricity. Our system uses “tracker” panels that tilt throughout the day to best capture the sun’s rays – from early morning to late afternoon. Compared to stationary panels, tracker solar panels substantially increase the total amount of power produced. A large portion of Siegfried Pennville’s energy needs can be met with solar systems, which, during peak summer hours, may even generate most of the site’s energy requirements. The installation of the solar system will start in 2012. As usual, a 2011 VOC balance sheet was created for Zofingen and sent to local authorities and the declaration of the SwissPRTR (Swiss Register for Pollutant Emissions & Transfers) was updated. see: http://www.prtr.ch/

Energy consumption Total energy Natural gas Heating oil Alternate fuels (solvents) TAR Electricity

2011

2010

2009

2008

2007

Unit

389 100 210 200 3 900 33 400 131 000

377 700 194 200 6 800 32 900 130 800

378 300 198 700 5 900 29 900 131 500

362 500 183 000 7 400 34 400 124 800

385 800 187 500 22 000 29 400 132 500

GJ GJ GJ GJ GJ

Compared to the previous year, total energy consumption for all three facilities (Zofingen, Pennsville and Malta) increased slightly by 3% in 2011. Zofingen was the main contributor to the increase, with a 4.2% jump, while Pennsville noted a modest 1.3% increase. The growth in energy consumption in Zofingen – thanks to a 40% increase in production volumes – was achieved through a 9.8% jump in natural gas usage and a 5.4% climb in electricity. By eliminating a heating boiler, heating oil consumption was reduced by 50%. Diesel oil usage was 12.9% lower as diesel-powered vehicles are replaced by electric vehicles.

Annual Report 2011

Pennsville switched from heavy fuel oil to extra light heating oil, which led to a substantial increase in the consumption of lighter oil. Overall, this switch is an environmental gain. Natural gas consumption also increased, by 5.8%, but electricity demand dropped by 6.4%. Production volumes increased by 35% over 2010; energy consumption per unit of production (intermediate and final products) increased significantly, which is due mainly to a different product mix. Our goal to reduce electricity by 3% in Zofingen was not achieved; instead, demand increased over 2011. The charts below provide the numbers from our facilities in Switzerland, the USA and Malta.

Emissions CO2 emissions VOC emissions

2011

2010

2009

2008

2007

Unit

15 900 15

15 400 28

15 300 26

15 000 39

15 800 48

Tons Tons

The CO2 emissions for 2011 were 500 tons higher than in the previous year, an increase of 3.3%. Both Zofingen and Pennsville contributed to this increase. The higher CO2 emissions are directly related to high energy consumption. Larger amounts of natural gas were not offset by a drop in heating oil demand in Zofingen. Additionally, heating oil consumption grew in Pennsville. Zofingen was able to sell 1,300 tons in CO2 reduction

credits to the “Climate Cents” (Klimarappen) Foundation, 200 tons more than in 2010. VOC emissions (hydrocarbons) dropped considerably over the year, they were 45% lower than in 2010. This emission reduction was made possible by improved availability of the thermal exhaust filter system in Zofingen, a different product mix in Zofingen and an almost 50% drop in emissions in Pennsville, where heavy fuel oil was eliminated as an energy source.

Water consumption Siegfried Group Zofingen Pennsville

2011

2010

2009

2008

2007

1 951 000 1 847 000 100 900

1 700 000 1 583 000 113 400

1 992 000 1 887 000 104 700

1 790 000 1 679 000 104 700

1 586 000 1 490 000 91 100

Unit

m3 m3 m3

TOC emissions Siegfried Group Zofingen Pennsville

2011

2010

2009

2008

2007

Unit

525 438 87

432 342 90

650 528 122

532 415 116

521 431 90

Tons Tons Tons

Last year saw a big jump in water consumption, due to increased demand in Zofingen. Pennsville actually noted an 11% drop in demand over the previous year, including a drop in both industrial waste water and sewage. Higher demand in Zofingen was due to higher utilization rates of the production systems, leading to a temporary switch from a 5-day shift to a 7-day shift. We clearly missed our goal to reduce water consumption to 2007 levels. However, water consumption actually came in 7 – 16% lower per unit of production (of final and intermediate products) than 2007 levels if the total production volume for 2011 is included.

The clearest increase for water in Zofingen was for cooling water, as levels for waste water and sewage remained stable compared to 2010. The waste water pollutants (organic carbon or TOC) increased by 28% in Zofingen, and fell by 3.5% in Pennsville, resulting in a total increase of 21.5% in TOC for all facilities. The total increase in TOC levels looks more positive if correlated to the higher production totals for the year – translating into a drop of 4.5%.

Annual Report 2011

Waste Total amount of waste 1 Chemical waste Waste for external recycling 1

2011

2010

2009

2008

2007

Unit

14 000 13 200 2 180

12 100 11 200 2 050

15 300 14 200 1 840

13 200 12 400 1 820

12 100 11 200 1 370

Tons Tons Tons

Without sewage sludge

The total amount of waste increased by 16%, or 1,900 tons compared to 2010, but still below 2008 levels. The levels of generated waste are directly related to the respective product mix. Due to quality issues, certain products prohibit the reuse of solvents. Almost all waste types increased in 2011, especially for waste solvents, the largest single waste category. The acid wastes in Pennsville also

increased considerably, which was due to the expanded production of an old product. The amount of generated waste looks more positive if the increased production volume for 2011 is considered; waste actually decreased by 13%. A further positive statistic is the increase of materials â&#x20AC;&#x201C; by 130 tons â&#x20AC;&#x201C; that were processed at an external recycling center, a 6.4% increase.

Recycled solvents Siegfried Group Zofingen Pennsville

2011

2010

2009

2008

2007

Unit

4 230 4 100 131

2 960 2 860 107

2 240 1 906 336

3 160 2 880 280

2 230 1 880 350

Tons Tons Tons

The amount of solvents recycled internally in 2011 grew by 1,200 tons, a 43% increase. Both Zofingen and Pennsville increased their levels of recycled solvents by over 2010, a contribution to saving valuable resources. The ratio of recycled sol-

vents to externally incinerated waste solvents increased from 32% to 38%. This improvement appears even more impressive when the 2006 level of 21% is considered.

Waste solvents Siegfried Group Zofingen Pennsville

2011

2010

2009

2008

2007

Unit

11 000 8 950 2 070

9 300 7 300 2 000

12 500 9 900 2 600

11 900 10 100 1 740

10 500 8 380 2 130

Tons Tons Tons

In 2011, the amount of waste solvents increased by 19% to 1,700 tons. Both Zofingen and Pennsville increased their levels of waste solvents. Again, when considering the overall increase

Annual Report 2011

in production volumes, these levels represent the lowest in the previous five years. Fines and non-monetary penalties Siegfried had no fines levied in the SHE area.

Goals and outlook For 2012, Siegfried will strive to limit total water and energy consumption to current levels. In addition, the levels should also be held at current levels when calculated per unit of production. These goals also apply to CO2 emissions and waste. Specific goals include: – Complete the CO2 emission reduction concept – Analysis to reduce cooling water usage in Zofingen – Implement quarterly evaluation reports for key environmental data

Siegfried as Employer Our employees Our motto, “expect more”, is a commitment not only to our customers and suppliers, but especially to our employees. Our success as a company is due in large part to the efforts and know-how of our employees, their excellent performance, creative solutions and willingness to innovate for our customers – day in and day out. Siegfried is dedicated to creating a positive work environment to help our employees master complex contracts and future challenges – and increasingly stringent regulatory guidelines. We offer challenging jobs and responsibilities that best promote the personal and technical development of our employees – and allow them to profit from the success of our company. At the end of 2011, about 713 people (full-time jobs) around the world worked at Siegfried. An attractive workplace – a Siegfried goal Well-qualified, experienced and motivated employees are crucial for success in the chemical and pharmaceutical industries. The quality of our employees defines the quality of our services and who we are as a company. It is a Siegfried priority to be recognized as an attractive and reliable employer in all our markets – to find, develop and keep talented and motivated people. A careful selection process and a long-term commitment are key; lost know-how is difficult to replace and the ramp-up phase for new employees is significantly longer than in other industries.

Annual Report 2011

Key performance indicators Employees as of December 31

Zofingen/Switzerland Pennsville/USA Malta Munich/Germany Total Group Full-time employees Part-time employees Apprentices / number of apprentices of the total stock

2011

2010

Total of which Production Total of which Production Total Total

482.3 175.4 157.6 72.0 72.0 3.5

492.0 177.1 155.0 77.0 46.0 3.5

Total

715.4

696.5

FTE / % FTE / %

664.0 51.4

92.8% 7.2%

649.5 45.5

93.3% 6.5%

Number / %

34.0

4.8%

37.0

5.3%

Diversity Female employees Male employees Women upper managment Male upper management Women middle managment Male middle managmenrt

FTE / % FTE / % FTE / % FTE / % FTE / % FTE / %

181.8 533.6 4.8 25.0 63.3 153.7

25.4% 74.6% 0.7% 3.5% 8.8% 21.5%

179.1 516.4 6.5 26.0 65.4 153.1

25.7% 74.1% 0.9% 3.7% 9.4% 22.0%

Demographics Employees up to age 30 Employees between age 30 and age 50 Employees above age 50 Average age of employees

FTE / % FTE / % FTE / % Years

125.3 404.5 185.6

17.5% 56.5% 25.9% 42.0

97.8 406.0 191.7

14.0% 58.3% 27.5% 42.0

Attrition rate Exits / Attrition rate female employees Exits / attrition rate male employees Total turnover rate

FTE / % FTE / % FTE / %

15.7 35.7 51.4

2.2% 5.0% 7.2%

18.1 47.8 65.9

2.6% 6.9% 9.5%

2.0 3 420.0

0.0% 79.8%

0.0 3 551.0

0.0% 82.8%

219.3

5.1%

119.1

2.8%

645.4 4 286.6 6.0

15.1% 100.0% 2.7%

617.3 4 287.4 6.2

14.4% 100.0% 2.8%

Lost working days due to accidents and sickness Lost working days due to work related illness Number of days Lost working days due to illnes Number of days Lost working days work related accidents / quota of days lost Number of days / % Lost working days not work related accidents / quota of days lost Number of days / % Total lost working days Number of days / % Lost working days per FTE Ă&#x2DC; day per FTE / %

Annual Report 2011

Success factor – sustainable investment in personnel The sustainable and entrepreneurial aspects of our business determine our thinking and actions. The same principles guide employee development. It’s important to us to have qualified people willing to take on management, technical and project careers. An individually tailored training program is discussed and planned during the annual performance review between employee and supervisor. Such a program ensures a training curriculum that meets industry, job and employee needs. Siegfried’s goal is to be able to recruit talented people – especially managers and leaders – internally. Leadership – results-oriented, open and respectful The quality of management is crucial for the success of the company and for positive levels of employee satisfaction and motivation. Our management follows clear goals and provides coaching to help employees respond entrepreneurially to meet ambitious job goals. Siegfried cultivates an entrepreneurial approach to help our people to better manage and even pro-actively shape the coming changes in our markets. Communication – transparency & openness create clarity & acceptance Clear and open information communicated at the right time can enhance the employee’s understanding of our strategy and the acceptance of management decisions. Informational events and workshops are held at regular intervals to discuss the daily business and other important topics. This promotes the dialog and information exchange between employees and management. Compensation – fair, market-driven and performance-based Individual performance determines compensation. The Siegfried compensation policy considers individual and technical capabilities as well as overall performance. Salary guidelines focus on performance, and encourage an entrepreneurial mind-

set and behavior. For further details see the compensation report on page 64. Work-life balance Achieving the best possible work-life balance is a key strategic goal for our personnel policy. We believe that well-adjusted employees are successful employees. Key elements are the possibility of flexible work hours (or “flex time”), 24 – 33 vacation days per year (depending on age), part-time employment options, maternity and paternity leave, the possibility of unpaid leave of absence (arranged with management), day care services in Zofingen (with a neighboring company), etc. Building the next generation Young people at Siegfried gain a solid career foundation in our apprenticeship program. The program also makes an important contribution toward building the next generation of qualified employees. At our Zofingen site alone, there were 34 apprentices in training in 2011: 11 chemical technologists 15 lab specialists (synthetic and analytical) 5 business apprentices 3 logisticians In addition to technical education, we also promote team spirit, social skills, and self-confidence for apprentices. The fact that over half of our apprentices usually choose to stay with Siegfried after completing their training confirms the value of our efforts. Diversity and equal opportunity Working in a multi-cultural environment, Siegfried is a globally active company in an international market. Diversity enriches our company and discrimination based on gender, race or ethnic origin, religion, worldview or disability is not tolerated. Our regulations (“Respectful and Responsible Toward Each Other”) inform how victims and witnesses can respond to discrimination and how we support them. We strive to prevent sexual harassment and mobbing at the workplace; various

Annual Report 2011

trusted internal and external representatives are designated as contacts. The Siegfried Code of Conduct and country-specific regulations set high expectations for employee behavior within the company. Partnership with employee representatives At Siegfried, every employee has the right to participate in a general labor contract. We have a long tradition, in Switzerland and in the U.S.A., of cooperation â&#x20AC;&#x201C; through direct, transparent and constructive dialog â&#x20AC;&#x201C; with elected employee representatives. Monthly meetings provide a platform for discussions about Group developments, workplace-related measures and maintaining consensus on benefits. Social responsibilities As a responsible economic player and employer, Siegfried is involved in social, cultural and sports events across Switzerland, with a particular focus on the Zofingen (Aargau) region. Siegfried dedicates a considerable annual budget to sponsor Swiss social projects, culture and sports organizations in the region, and youth employment programs. The company is a member of Swiss Chemical Pharmaceutical Society (SGCI) and the Swiss Society for Health Policy. An executive manager is also a Board member of the Aargau Chamber of Industry & Commerce and President of the Zofingen Regional Economic Association (WRZ). In partnership with the University of Zurich, Siegfried sponsors the biennial Siegfried Medal as part of the international Siegfried Symposium. The award recognizes outstanding research in the field of chemical process development.

Annual Report 2011

Cautionary statement regarding forward-looking statements This Annual Report contains certain forward-looking statements identified by words such as “believes”, “expects”, “anticipates”, “projects”, “intends”, “should”, “seeks”, “estimates”, “future” or similar expressions or by discussion of, among other things, strategy, goals, plans or intentions. Various factors may cause actual results to differ materially in the future from those reflected in forwardlooking statements contained in this Annual Report, among others: (1) pricing and product initiatives of competitors; (2) legislative and regulatory developments and economic conditions; (3) delay or inability in obtaining regulatory approvals or bringing products to market; (4) fluctuations in currency exchange rates and general financial market conditions; (5) uncertainties in the discovery, development or marketing of new products or new uses of existing products, including without limitation negative results of clinical trials or research projects, unexpected side-effects of pipeline or marketed products; (6) increased government pricing pressures; (7) interruptions in production; (8) loss of or inability to obtain adequate protection for intellectual property rights; (9) litigation; (10) loss of key executives or other employees; and (11) adverse publicity and news coverage. The statement regarding earnings per share growth is not a profit forecast and should not be interpreted to mean that Siegfried’s earnings or earnings per share for 2012 or any subsequent period will necessarily match or exceed the historical published earnings or earnings per share of Siegfried.

Publisher’s note This Annual Report is also available in German, being the original version. Annual General Meeting of Shareholders Friday, April 20, 2012, 10 a.m. in the Stadtsaal, Zofingen Siegfried Holding AG Untere Brühlstrasse 4 CH-4800 Zofingen Phone + 41 62 746 11 11 Fax + 41 62 746 11 03 www.siegfried.ch Editor: Peter A. Gehler Marianne Oberli-Abderhalden Idea, Concept, Layout: BBF AG, Basel Photos: Marion Nitsch, Zurich Roger Resele, Gelterkinden Julian Salinas, Basel Markus Senn, Winterthur Albert Zimmermann, Zurich Production: MDD Management Digital Data AG, Lenzburg Print: Swissprinters Zürich AG, Schlieren

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Headquarters U.S.A Production facility for APIs and controlled substances

Group Headquarters Development and production facilities for APIs, intermediates and drug products

Pharmaceutical production facility

Sourcing and Asia Business Development

Production facility for intermediates and APIs

33 Industrial Park Road Pennsville, NJ 08070 U.S.A.

Untere BrĂźhlstrasse 4 %* <QĆ&#x201A;PIGP Switzerland

HHF070 Hal Far Industrial Estate Hal Far BBG 3000 Malta

31B, Pu Fa Tower 588 South Pudong Road Shanghai 200120 China

186-2, Hai-Hu-Tsun Lu-Chu-Hsiang 338 Taoyuan Taiwan

Tel. +1 877 763 8630 Fax +1 856 678 8201 www.siegfried-usa.com info@siegfried-usa.com

Tel. +41 62 746 1111 Fax +41 62 746 1204 www.siegfried.ch info@siegfried.ch

Tel +356 222 777 11 Fax +356 222 777 01 www.siegfried.ch info@siegfried.ch

Tel +86 21 5876 5019 Fax +86 21 5840 4753

Tel +886 3 354 1700 Fax +886 3 354 3137