Annual Report 2007 (amended version) Technology. Life. for

Transcription

1 Annual Report 2007 (amended version) Technology for Life

2 THE DRÄGER GROUP AT A GLANCE Dräger Group Order intake million 1, , , ,933.9 Revenues million 1, , , ,819.5 EBITDA 1 million EBIT 2 before non-recurring expenses million in % of revenues (EBIT margin) % Non-recurring expenses million EBIT 2 million Result from discontinued operations million Net profit/loss million Minority interests in net profit/loss million Earnings per share after minority interests per preferred share per common share Equity million Equity ratio % Capital employed 3 million EBIT before non-recurring expenses/ capital employed (ROCE) % Net financial debt million Headcount as of December 31 9,706 9,687 9,949 10,345 Germany 4,378 4,325 4,433 4,590 Abroad 5,328 5,362 5,516 5,755 Cash dividend of Drägerwerk AG & Co. KGaA Preferred shares Common shares EBITDA = Earnings before net interest result, income taxes, depreciation, amortization and non-recurring expenses 2 EBIT = Earnings before net interest result and income taxes 3 Capital employed = Total assets less deferred tax assets, cash and cash equivalents and non-interest bearing liabilities 4 Proposed dividend

3 DRÄGER MEDICAL AND DRÄGER SAFETY AT A GLANCE Dräger Medical Order intake million 1, , , ,223.5 Revenues million 1, , , ,209.4 EBIT before non-recurring expenses million in % of revenues (EBIT margin) million Capital employed million EBIT before non-recurring expenses/ capital employed (ROCE) % Headcount as of December 31 5,859 5,856 6,051 6,077 Germany 2,424 2,419 2,492 2,432 Abroad 3,435 3,437 3,559 3,645 Dräger Safety Order intake million Revenues million EBIT 1 million in % of revenues (EBIT margin) % Capital employed million EBIT/capital employed (ROCE) % Headcount as of December 31 3,329 3,620 3,683 3,944 Germany 1,422 1,700 1,727 1,835 Abroad 1,907 1,920 1,956 2,109 1 No non-recurring expenses at Dräger Safety

4 Dräger Medical and Dräger Safety at a glance, Dräger worldwide p DRÄGER WORLDWIDE Production plants, sales and service organizations Europe Plymouth Blyth Best Hagen Lübeck Svenljunga Asia Beijing Shanghai Americas Pittsburgh Telford Andover Danvers Africa King William s Town The global success of the Dräger Group is underpinned by the close ties and ongoing communication we maintain with our customers. This is made possible by the worldwide network of our own sales and service companies in over 40 countries as well as representative offices in a total of 190 countries. Around 80 percent of revenues are now generated outside of Germany. Of the 10,345 employees within the Group, 5,755 work abroad (as of December 31, 2007). Dräger production plants Dräger sales and service organizations

5 Dräger. Technology for Life Dräger gives you the freedom to live, breathe and act. As an internationally leading medical and safety technology Group, Dräger combines pioneering innovations with sustained, long-term value creation for both people and the environment. Customer intimacy, highly qualified, valued employees, and outstanding, uncompromising quality enable Dräger to create world-class technology for life.

6 2 Contents p. 4 Always one step ahead Brampton, Ontario, Canada Dräger Infinity Delta XL p p. 6 p. 6 Life under pressure Kristiansand, Norway Dräger deep-sea diving system p p. 8 p. 36 Ventilation secured high in the sky Lee County, Florida, USA Dräger Oxylog 3000 p p. 10 Product supplement for the 2007 annual report p. 38 Rescuers can breathe easy Yanzhou, Shandong, China Dräger PSS BG 4 p p. 12 p. 44 Shutting down safely Burghausen, Germany Dräger X-am 2000 p p. 14 p The product supplement contains further information on several Dräger products and system solutions read all about them in this year s user stories.

7 Contents 3 CONTENTS SHAREHOLDER INFORMATION Interview with the Chairman of the Executive Board 11 The Executive Board 14 Report of the Supervisory Board 16 Report of the Joint Committee 25 Corporate governance report 27 The Dräger share 40 MANAGEMENT REPORT 2007 OF THE DRÄGER GROUP (AMENDED VERSION) Changes to the financial statements Important changes in fiscal year Group structure 51 Control systems 53 General economic conditions 54 Business performance of the Dräger Group 56 Business performance of Dräger Medical 62 Business performance of Dräger Safety 68 Business performance of Drägerwerk AG & Co. KGaA/other companies 72 Research and development 74 Personnel 75 Procurement, production and logistics 76 Environmental protection 78 Opportunities and risks relating to future development 80 Disclosures pursuant to Sec. 315 (4) HGB and explanations by the general partner 85 Subsequent events 89 Forecast 89 Forward-looking statements 90 GROUP FINANCIAL STATEMENTS 2007 OF THE DRÄGER GROUP (AMENDED VERSION) Consolidated income statement of the Dräger Group January 1 to December 31, Consolidated balance sheet of the Dräger Group as of December 31, Consolidated statement of recognized income and expenses of the Dräger Group 98 Consolidated cash flow statement of the Dräger Group 99 Notes Dräger Group Management compliance statement 169 Auditor s opinion 170 Forward-looking statements 172 Single entity financial statements 2007 of Drägerwerk AG & Co. KGaA (condensed) 173 The Company s Boards 176 Consolidated companies of the Dräger Group 178 Glossary 182 Imprint 186 Financial calendar 186 Review of key events in 2007 U5

8 Always one step ahead N/79 46 W 11:42 a.m. 11 C

9 BRAMPTON, ONTARIO, CANADA p p. 6 in the accompanying product supplement The William Osler Health Centre, one of the largest medical care centers in Ontario, opened the Brampton Civic Hospital in the Greater Toronto Area in It is the biggest medical infrastructure project in Canada, with 650 beds and over 700 doctors. Dräger monitoring and information technologies ensure a continuous data flow; Dräger anesthesia solutions as well as warming therapy equipment improve the quality of care in both perioperative and perinatal care areas.

10 Life under pressure N/8 0 E 03:02 p.m. 12 C

11 KRISTIANSAND, NORWAY p p. 8 in the accompanying product supplement Professional divers in the Dräger deep-sea diving system. This is where the men start out in order to perform their work at depths of up to 300 meters. With the development of a new generation of deep-sea diving systems, Dräger has resurfaced as a specialist for deep-sea diving. Dräger was responsible for planning, designing, constructing and delivering a complete deep-sea diving system for the diving support vessel Bibby Topaz.

12 8 Shareholder information

13 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 9 SHAREHOLDER INFORMATION The Dräger Group is changing so that we can remain true to our principles. The successful change in legal form to a partnership limited by shares (KGaA) is an important move which increases the scope of our possible actions for the future. The turbulent year on the stock market that was 2007 also left its mark on the performance of the Dräger share. We are confident about the future, because change means innovation, and innovation is part of our Company s DNA.

14 10 Shareholder information Interview with the Chairman of the Executive Board 11 The Executive Board 14 Report of the Supervisory Board 16 Report of the Joint Committee 25 Corporate governance report 27 The Dräger share 40

15 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 11 A special year Willingness to change, our employees entrepreneurial way of thinking, and the necessary courage to take new paths is part of the DNA of our Company. In the future, this spirit will continue to help ensure that the Dräger name is synonymous with innovative technology that protects, supports, and saves lives the world over. Stefan Dräger Mr. Dräger, the Dräger share performed disappointingly in How do you plan to win back investors trust? Stefan Dräger: There is no question that share performance was far from satisfactory. But people who invest in Dräger are usually looking for long-term gain and are not focused on the short term. This means that both our investors and the Dräger family have the same goal: We want Dräger to achieve sustained and long-term success. As a listed family company we don t think in terms of quarters, but of decades. We operate in very attractive, high-growth markets and intend to greatly increase our future top and bottom-line growth. We started laying the foundations for this in 2007, and in 2008 we will devote all our energy to increasing the value of our Company. We have huge efficiency reserves and great potential which we want to leverage in the coming years. We will also invest more in research and development. I am convinced that our customers, and therefore our shareholders as well, stand to benefit as a result. Where else do you see the need to implement further changes? Stefan Dräger: Customer value is our key focus, which benefits both employees and customers. We intend to structure our entire organization around this. So together with the Supervisory Board, we have agreed on the next steps to give us more clout in the near, mid and long term. We need to invest first and foremost in three areas: as well as research and development we will focus on production and IT. We want our Corporate IT to be able to make an even greater contribution to improving our value-added processes and at the same time to leveraging cost-reduction potential. There are still latent economies of scope within the Group which we have not used intensely enough in the past. State-of-the-art technologies, the expansion of selective outsourcing strategies and the efficient use of common resources should contribute to substantial improvements in earnings. A second important point is, as I already mentioned, to intelligently boost our research and development. We must deliver our Medical division s

16 12 Interview with the Chairman of the Executive Board new platform project Infinity Acute Care System on time. To do this we will need to invest in additional developer capacity with a promising return on investment. Medium term, we need to increase production capacity in the Medical division to be able to continue meeting market demands. We have already started preparing for this. We intend to significantly improve our efficiency in production processes and especially in logistics. All of this will contribute to high customer value, which is essential for a leading competitive position. So quality and efficiency will drive the strategy for the coming years? Stefan Dräger: Yes, definitely. Quality, combined with innovative strength, is what sets the Dräger brand apart from the competition. We have a lot of catching-up to do, not just in the production area. We plan to introduce a Group-wide regional concept to improve regional control, reduce multiple structures and leverage purchasing potential. In the future, the Executive Board will be organized according to functions to ensure that every key function involved in adding value receives the attention it deserves and has its interests represented on the Board. We will continue to develop our shared service strategy for administrative processes. This will reduce the workload for the operating units, we will be able to make much better use of economies of scope, and improved transparency will facilitate better cost control. What prompted you to consider these far-reaching changes? Stefan Dräger: If you look at our results of the past few years in detail, you will see a lingering cost problem for which we ourselves are responsible. This means, however, and this is the advantage, that we can also solve this problem ourselves. Due to the segregation of the divisions, over the past 15 years what used to be one Group headquarters has become three headquarters, with divisions which have been acting and have been managed completely independently of one another. This has led to all structures being in place threefold, which has generated considerably higher costs. We need to become lean and flexible again, reduce the paperwork for the subsidiaries and concentrate on our customers. What goals have you set yourself for the next few years? Stefan Dräger: One Dräger One Voice symbolizes an established, strong, efficient and thus future-oriented market position. As a listed family company, high expectations of our products go hand in hand with the principle of Technology for Life. A persistently successful company with great innovative strength and high growth requires a considerable amount of financial room to maneuver. And we want to achieve this. To remain at the top of a very competitive market and ensure the highest customer value possible, we need to invest a lot of time and money. But I am confident that this will be worth it for our customers, employees and shareholders. We have set ourselves even tougher goals than in the past. This is necessary to enable us to meet the demands of customers, employees and shareholders. In the mid term, the Dräger Group is aiming for an EBIT margin of 10 percent and a return on capital employed (ROCE) of 20 percent. Our long-term targets are much more ambitious: over 10 percent average revenue growth per year, an EBIT margin of more than 15 percent, an ROCE exceeding 25 percent and an equity ratio not below 35 percent. The keys to success which will enable us to achieve these goals are innovation, quality and efficiency. Our excellent employees, the strong Dräger brand and an IT-based, reliable management information system which facilitates timely manage-

17 Stefan Dräger Chairman of the Executive Board of Drägerwerk AG & Co. KGaA ment of the Company play a crucial role. I am confident that at the end of 2008 we will reap the first fruits of our strategic realignment. Products such as the Medical division s Infinity Acute Care System or the Safety division s tunnel rescue trains demonstrate that Dräger is positioning itself increasingly as a specialist for solutions to complex problems. What are the future plans for these product lines? Will they remain within their current divisions or will they become a third dimension? means leaving the confines of the established, standardized definitions of the medical and safety technology markets. However, such a step must always be well thought through. We need to assess the opportunities and risks. Willingness to change, our employees entrepreneurial way of thinking, and the necessary courage to take new paths is without a doubt part of the DNA of our Company. In the future, this spirit will continue to help ensure that the Dräger name is synonymous with innovative technology that protects, supports, and saves lives the world over. Stefan Dräger: For over 115 years, one of Dräger s strengths has been providing solutions to complex issues. In the first instance, our new structure will ensure that we devote more attention to our strengths again. Dräger produces Technology for Life. So there is untold potential in other markets which we have not tapped at all yet. We must think in terms of our strengths, even if this The interview was held by Stefan ten Doornkaat, lawyer, investor advocate and representative of institutional investors, Düsseldorf, Germany

18 14 The Executive Board The Executive Board Good, responsible corporate governance is one of the principles of Dräger s company culture. In 2007, the management team led by Stefan Dräger plotted the course for a realignment to face the challenges of the future. The pivotal focus is on safeguarding Drägerwerk AG & Co. KGaA and sustainably increasing the value of the Company. Stefan Dräger Born 1963, Chairman, member of the Executive Board since 2003 In my role as Chairman of the Executive Board and majority shareholder of Drägerwerk, I am responsible for designing a strategy to maintain and increase value together with my fellow members of the Executive Board. In 2007, we laid the foundations and we will continue to pursue this path. In doing so, we will be guided by the interests of our customers, our employees, our investors and the public. The different values that are important to these various stakeholder groups will be our points of reference. Prof. Dr. Albert Jugel Born 1948, Dräger Safety, member of the Executive Board since 1999 In 2007, the Safety division continued its successful performance of the past years. Continuous improvements in internal processes meant that new products were developed, produced and launched on time. Thanks to systematic global process standardization, cost savings targets were not only achieved but exceeded.

19 From left to right: Stefan Dräger, Prof. Dr. Albert Jugel, Dr. Ulrich Thibaut, Hans-Oskar Sulzer Dr. Ulrich Thibaut Born 1960, research and development, member of the Executive Board since 2007 Investing in research and development means investing in the future. Dräger had, and has, the energy, potential and ability to develop new solutions for our customers over and over again, as the many innovative milestones in our Company s history prove. Our research and development employees are the key to the Company s future. This means these units must cooperate closely with other Group functions such as marketing, IT and production. In other words: We need networks woven from knowledge, expertise and trust. Hans-Oskar Sulzer Born 1946, CFO, member of the Executive Board since 1997 Drägerwerk AG s change in legal form to a partnership limited by shares carrying the name Drägerwerk AG & Co. KGaA, which was adopted at the annual general meeting of the shareholders last year, took effect at the end of This was essential to enable the Group to determine its own future. The aim of the transformation is to broaden the financial and operating scope of the Group. It ensures we are prepared when decisions are made to expand or make acquisitions.

20 16 Report of the Supervisory Board Report of the Supervisory Board The trust-based working relationship between the Executive Board and the Supervisory Board is a reflection of a corporate culture based on transparency and mutual respect. In fiscal year 2007, the Supervisory Board continued to pay close attention to the Dräger Group s economic situation and perspectives and to advise and continuously monitor the Executive Board and management. Dear Shareholders, The change in legal form of Drägerwerk AG to Drägerwerk AG & Co. KGaA took effect upon entry in the commercial register on December 14, This change has affected the future structure and activities of the Supervisory Board. Effects of the change in legal form on the Supervisory Board The Supervisory Board of the partnership limited by shares is essentially constituted in the same way as the supervisory board of a stock corporation. It is in particular obligated to oversee management of the Company by the general partner, Drägerwerk Verwaltungs AG. By law, the Supervisory Board of the partnership limited by shares is not normally authorized to appoint or remove the general partner, to adopt rules of procedure for the Company s management or to define a catalog of management transactions requiring approval (pursuant to Sec. 111 (4) Sentence 2 AktG [ Aktiengesetz : German Stock Corporation Act]). The decision on this catalog was assigned to the Joint Committee, which was set up as a voluntary, additional body. The Supervisory Board represents the Company in dealings between the Company and the general partner. Following the change in legal form, the Supervisory Board of the Company still comprises twelve members, of whom six are shareholder representatives and six are employee representatives. The members of the Supervisory Board all remained in office after the

21 Prof. Dr. Dieter Feddersen Chairman of the Supervisory Board change in legal form in accordance with Sec. 203 (1) UmwG ( Umwandlungsgesetz : German Law of Reorganizations). Joint Committee as an additional body Since the change in legal form, the Company has had an additional, voluntary body: the Joint Committee. It is made up of eight members, of whom four are appointed by the Supervisory Board of the Company and four by the Supervisory Board of the general partner. It is not the annual general meeting of the shareholders but the Joint Committee that decides on the approval of extraordinary management transactions by the general partner, which are specified in Sec. 23 (2) of the articles of association of the Company. On December 19, 2007, Professor Dr. Dieter Feddersen, Theo Dräger, Dr. Thomas Lindner and Gordon Riske were appointed to the Joint Committee by the Supervisory Board of the general partner, Drägerwerk Verwaltungs AG, whose members are the shareholder representatives on the Supervisory Board of the Company. Dr. Dietrich Schulz and Dr. Martin Posth are the shareholder representatives of Drägerwerk AG & Co. KGaA, and Siegfried Kasang and Thomas Rickers are its employee representatives. Professor Dr. Dieter Feddersen is the Chairman of the Joint Committee. Summary of the Supervisory Board s work In fiscal year 2007, the Supervisory Board continued to pay close attention to the Dräger Group s situation and perspectives, as well as to special matters. In this context, it

22 18 Report of the Supervisory Board advised and oversaw first the Executive Board of Drägerwerk AG, and later the Executive Board of the general partner (hereinafter collectively referred to as the Executive Board ) in the management of the business. The Supervisory Board was involved in all decisions of importance to the Company. The Executive Board regularly provided the Supervisory Board with up-to-date and comprehensive information both orally and in writing. At five regular meetings and one special meeting, the Supervisory Board dealt in detail with the business and strategic development of the Dräger Group, the subgroups and their German and foreign subsidiaries and closely advised the Executive Board on such matters. Between the meetings, the Executive Board provided the Supervisory Board with written information on business performance. The Chairman of the Supervisory Board obtained regular reports on all material transactions and pending decisions at least fortnightly. All meetings were, with a few exceptions, attended by all Supervisory Board members. No member took part in less than half of the Supervisory Board s meetings. Besides statutory rights and duties, supervisory activities are based on the rules of procedure for the Company s executive bodies as well as on the business policies and code of conduct in the Dräger Group. The Company thus ensures that the Executive Board and the Supervisory Board both adhere to the corporate governance and corporate compliance guidelines. At its meeting on December 19, 2007, the Supervisory Board adapted its rules of procedure to the legal requirements of a partnership limited by shares. The rules of procedure of the Executive Board of Drägerwerk AG became invalid when the change in legal form took effect. They were replaced by rules of procedure for the Executive Board of the general partner that it adopted on January 26, 2008 on approval by the Supervisory Board of the general partner. The Joint Committee adopted rules of procedure at its constituent meeting on December 19, Duties of the Supervisory Board committees As in prior years, to improve its efficiency the Supervisory Board set up an Executive Committee, which dealt with tasks defined in Sec. 27 (3) MitbestG ( Mitbestimmungsgesetz : German Codetermination Act) as well as personnel issues, and an Audit Committee. In addition, the Supervisory Board set up a Nomination Committee on September 26, This Committee is charged with proposing suitable candidates for election to the Supervisory Board. Based on these proposals, the Supervisory Board compiles election suggestions for the annual general meeting of the shareholders. Professor Dr. Dieter Feddersen and Theo Dräger sit on the Committee.

23 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 19 Following the change in legal form to Drägerwerk AG & Co. KGaA, all the functions of the Executive Committee were taken over by the Supervisory Board of Drägerwerk Verwaltungs AG. The Supervisory Board of the Company is not authorized to appoint or remove the general partner or its management. For this reason, no Executive Committee was set up or continued to exist at Drägerwerk AG & Co. KGaA after the change in legal form. The Audit Committee and the Nomination Committee are still in place with the same members and substantially the same areas of responsibility. Since 2007, the Audit Committee has not only convened in connection with the financial statements but generally also when the other Supervisory Board meetings take place. The CFO always participates in these meetings. The Audit Committee cooperates on an ongoing basis with the internal audit department and the statutory auditors. Representatives of both the auditors of the financial statements and the internal audit department attend all Audit Committee meetings. When necessary, the CFOs of the subgroups also participate. Since the last meeting of 2007, the Head of Corporate Controlling has also attended in his capacity as the person responsible for structuring and organizing corporate compliance activities. As part of the cooperation, the Chairmen of the Supervisory Board and the Audit Committee have already set audit priorities for the internal audit program. The Audit Committee intensively discussed the financial and risk reports of the Company and the Dräger Group in three meetings. In particular, it dealt with changes to International Financial Reporting Standards (IFRSs) and their implications for the Dräger Group s financial reporting. Moreover, the Audit Committee also explored the audit activities of the internal audit department, its audit programs and the results of the audits in detail and assessed them based on their own review. The Committee also carefully investigated the audit by the statutory auditors and their audit priorities and results. The Committee informed the Supervisory Board in detail about this work. Individual meetings were also held during the year with the Chairman of the Supervisory Board and the Audit Committee and the auditors on audit-related matters. The Executive Committee convened five times in fiscal year 2007 during the period in which it was in office. The Nomination Committee did not meet in fiscal year The Chairman of the Supervisory Board, who was also the Chairman of the Executive Committee, regularly informed the plenary Supervisory Board and the Chairman of the Audit Committee about the results of recent activities.

24 20 Report of the Supervisory Board Focal points of deliberations Written and oral information provided to us by the Executive Board focused on the Group s, its subgroups and individual Group companies revenues, earnings, net assets and financial position, capacity utilization and order situation, in addition to specific events and their development. The Executive Board also provided ongoing variance analyses and revised estimates for the fiscal year, which the Supervisory Board discussed. Updated strategic plans, the mid-term plan derived therefrom and the budget for fiscal year 2008 were the basis for discussions. In fiscal year 2007, the Executive Board prepared, as scheduled, two reports on the Group s risk position which formed the basis for our discussions and reviews. These risk reports are part of the risk early warning system in accordance with Sec. 91 (2) AktG ( Aktiengesetz : German Stock Corporation Act). Our discussions on the reports and the presentations by the statutory auditors led to the conclusion that the system is capable of identifying trends in good time that could jeopardize the Company s ability to continue as a going concern. Our supervisory activities concentrated in particular on the achievement of the 2007 budget approved by us. We also discussed the short, medium and long-term development of the Group, its subgroups and major Group companies, their product groups, cost and revenue situation and the Group s risk and financial position. The Supervisory Board approved the budget submitted for fiscal year 2008 at its meeting on January 26, With the Dräger Group having focused on the core business of the subgroups in prior years, our deliberations centered in particular on the further development of the Group. This includes more extensive use of Shared Services, which now include Corporate IT, Corporate Communications, Training section of the Corporate Human Resources. Further structural improvements are currently under discussion. The business performance of Dräger Medical in the US also remained in our focus. Collaboration between Group companies has in some cases been changed radically. The Supervisory Board discussed product development issues in detail, in particular the Infinity Acute Care System and the possibility of speeding up the launch of certain components. In fiscal year 2007, the Supervisory Board continued to focus on the changing competitive environment for both subgroups and its effects on the growth potential and market prices in the various regions.

25 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 21 High on the agenda were the preparations for and implementation of the transformation of Drägerwerk AG into a partnership limited by shares, which was approved in the annual annual general meeting of the shareholders on May 11, 2007 and entered in the commercial register of the local court of Lübeck on December 14, Prior to the registration, there was an action by a shareholder to set aside the resolution on the change in legal form or, alternatively, have it declared null and void, and the Company initiated court approval proceedings pursuant to Secs. 16 (3), 198 (3) UmwG which led to clearance to register the new legal form. The new legal form is thus effective. The rescission proceedings against the Company, represented by the Executive Board and/ or the general partner and the Supervisory Board, ended on January 21, 2008 when the plaintiff withdrew the action. Equally important to the Dräger Group was the agreement with Siemens on the buyback of a 10 percent limited partner s stake in Dräger Medical AG & Co. KG by Dräger Medical Holding GmbH. This acquisition was agreed in connection with the revision of Siemens contractual put right. The Chairman of the Supervisory Board was informed in a timely manner about both projects and passed this information on to other members. The Supervisory Board deliberated intensively on both matters. In connection with the rules on auditors responsibility to consider fraud in an audit of financial statements (ISA 240), the Chairman of the Supervisory Board discussed the set of rules for Drägerwerk AG & Co. KGaA s administration with the statutory auditors. In discussions with members of the Executive Board, the Head of the Legal Department and the Head of the Tax Department, the Supervisory Board satisfied itself that these internal standards and policies were applied. No significant objections or incidents were identified. The legality and propriety of the Company s actions were thus not called into question. To improve the clarity of the structure of the many corporate compliance activities within the Dräger Group, the Company has started to build up a further improved compliance organization. The Supervisory Board was informed regularly by the Executive Board on the progress and satisfied itself of the efficiency of the organization. Three transactions requiring approval were submitted to the Supervisory Board, which it approved following a review of the Executive Board s submissions. Corporate governance The Supervisory Board regularly deals with the application and enhancement of corporate governance principles within the Dräger Group. In particular, we looked at the revised German Corporate Governance Code. We found that common practice at Drägerwerk AG conforms with numerous provisions of the Code with only a few changes to our prac-

26 22 Report of the Supervisory Board tices having to be made. The declaration of conformity has been reproduced on page 29 of this annual report. We evaluated our supervisory work again in 2007 and took up noteworthy impulses from the self-assessment. Single entity and Group financial statements as of December 31, 2007 The statutory auditors elected by the annual general meeting of the shareholders, Hamburg-based BDO Deutsche Warentreuhand Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, were engaged by the Supervisory Board to audit the financial statements for fiscal year Subject of the audit were the single entity financial statements of Drägerwerk AG & Co. KGaA, prepared in accordance with the German Commercial Code ( Handelsgesetzbuch : HGB), as well as the Group financial statements, prepared in accordance with IFRSs, and the management reports of both Drägerwerk AG & Co. KGaA and the Dräger Group. The auditors examined the single entity financial statements of Drägerwerk AG & Co. KGaA prepared in accordance with the provisions of the German Commercial Code, the IFRS Group financial statements, as well as the management reports of both Drägerwerk AG & Co. KGaA and the Group, and issued an unqualified audit opinion. The auditors confirmed that the Group financial statements prepared in accordance with IFRSs and the group management report conform with IFRSs as adopted by the EU. It was confirmed that both management reports contain the supplementary disclosures pursuant to Secs. 289 (4) and 315 (4) HGB ( Handelsgesetzbuch : German Commercial Code) and that the Executive Board has implemented an efficient risk management system. The members of the Supervisory Board carefully examined the single entity and Group financial statements and accompanying management reports as well as the audit reports. Representatives of the statutory auditors attended the Audit Committee s meeting on March 6, 2008 during which Dräger s single entity and Group financial statements were deliberated on as well as the Supervisory Board s meeting on March 7, 2008 to discuss the financial statements. These representatives reported on the performance of the audit and were available to provide additional information. At these meetings, the Executive Board elucidated the single entity financial statements of Drägerwerk AG & Co. KGaA and the Group financial statements along with the risk management system. On the basis of the audit reports on the single entity and Group financial statements and the management report, the Audit Committee came to the conclusion that both sets of financial statements with their respective management reports give a true and fair view of the net assets, financial position and results of operations in accordance with the applicable financial reporting framework. To do so, the Audit Committee deliberated on significant asset and liability items and their valuation as well as the presentation of the results of

27 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 23 operations and the development of certain key figures. The Chairman of the Audit Committee reported on the discussions to the Supervisory Board. Further questions by members of the Supervisory Board led to a more detailed discussion of the results. The Supervisory Board came to the conclusion that the proposed dividend is fitting considering the net assets, financial position and results of operations, despite the drop in earnings in fiscal year The liquidity of the Company and the interests of the shareholders have been taken into account in equal measure and the decision does not impede the Company s conservative accounting policies. There were no reservations concerning the efficiency of management s actions. The fact that the Chairman and additional Vice-Chairman of the Supervisory Board of Drägerwerk AG & Co. KGaA are also members or Chairman of the Supervisory Boards of the Dräger Medical and Dräger Safety subgroup parents was a considerable advantage during the review of the Group financial statements. In this capacity, they also review the financial statements of Dräger Medical AG & Co. KG and Dräger Safety AG & Co. KGaA and of the two subgroups. Based on the conclusions drawn by the Audit Committee following its own preliminary review and its own examination, the Supervisory Board agrees with the audit conclusion reached by the statutory auditors on the single entity and Group financial statements and management reports of Drägerwerk AG & Co. KGaA. Following our own final examination, we raise no objections to the submitted sets of financial statements and management reports. We reviewed and approved the single entity financial statements of Drägerwerk AG & Co. KGaA prepared by the general partner and the Group financial statements of Drägerwerk AG & Co. KGaA as well as the management reports submitted to us. The financial statements of Drägerwerk AG & Co. KGaA must be approved by the annual general meeting of the shareholders. We agree with the recommendation made by the general partner to approve the financial statements of Drägerwerk AG & Co. KGaA. This also applies to the general partner s proposal concerning the appropriation of net earnings. Conflicts of interests There were no conflicts of interests involving members of the Executive and Supervisory Boards, which must be disclosed to the Supervisory Board without delay and about which the annual general meeting of the shareholders must be informed.

28 24 Report of the Supervisory Board/Report of the Joint Committee Board members Two new members joined the Executive Board in fiscal year Dr. Ulrich Thibaut took over the research and development function. We wish him every success in this position. Dr. Volker Pfahlert took over the Dräger Medical division. By mutual agreement, he left the Company as of December 31, 2007 to take up a new professional challenge. The decision is a result of differing opinions on the strategic direction of the Dräger Medical division. Stefan Dräger had taken over leadership of the Dräger Medical division until August 31, 2007, and he resumed this position as from January 1, Lübeck, Germany, March 7, 2008 Professor Dieter Feddersen Supervisory Board Chairman

29 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 25 Report of the Joint Committee Dear Shareholders, Since the change in legal form to that of a partnership limited by shares took effect on December 14, 2007, the Company has had a Joint Committee as an additional, voluntary body. It is not the annual general meeting of the shareholders but the Joint Committee that decides on the approval of extraordinary management transactions by the general partner, as specified in Art. 23 (2) of the articles of association of the Company. Substantially the same transactions and measures require the approval of the Company s Joint Committee with different thresholds as used to require the approval of the Supervisory Board of Drägerwerk AG. The Joint Committee comprises eight members. Four of the members of the Joint Committee are members of the Supervisory Board of the general partner. They are appointed to the Joint Committee by the Supervisory Board of the general partner based on a resolution that must be passed to this effect. The Supervisory Board of the general partner appoints one of the appointed members as Chairman of the Joint Committee. The other four members of the Joint Committee are members of the Supervisory board of the Company. Two of them are representatives of the shareholders of the Company and two are employee representatives. The members of the Supervisory Board of the Company are appointed to the Joint Committee by the Supervisory Board of the Company based on a resolution that must be passed to this effect. The appointment of the employee representatives is based on recommendations made by the employee representatives on the Supervisory Board of the Company. On December 19, 2007, Dr. Dietrich Schulz and Dr. Martin Posth were appointed to the Joint Committee from the Supervisory Board of the Company as shareholder representatives, and Siegfried Kasang and Thomas Rickers as employee representatives. On December 19, 2007, Professor Dr. Dieter Feddersen, Theo Dräger, Dr. Thomas Lindner and Gordon Riske were appointed to the Joint Committee from the Supervisory Board

30 26 Report of the Joint Committee/Partnership limited by shares of the general partner Drägerwerk Verwaltungs AG. Professor Dr. Dieter Feddersen was appointed the Chairman of the Joint Committee. The Joint Committee convened for the first time and for its only meeting in fiscal year 2007 on December 19, It constituted itself and adopted rules of procedure. There were no other resolutions to be approved by the Joint Committee in the fiscal year. Lübeck, Germany, March 7, 2008 Professor Dieter Feddersen Chairman of the Joint Committee

31 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 27 Corporate governance report The Dräger Group attaches great importance to corporate governance. The German Corporate Governance Code is still being applied following the change in legal form of the stock corporation Drägerwerk AG to Drägerwerk AG & Co. KGaA, a partnership limited by shares. The recommendations of the German Corporate Governance Code Government Commission are applied with only a few exceptions. The Dräger Group attaches great importance to corporate governance. To emphasize this, we will continue to apply the German Corporate Governance Code which is only aimed at stock corporations even after the transformation of Drägerwerk AG into Drägerwerk AG & Co. KGaA. Partnership limited by shares A partnership limited by shares (KGaA) is a company with a separate legal personality where at least one partner is fully liable to the company s creditors (general partner) and the remaining shareholders have a financial interest in the capital stock, which is divided into shares, without being personally liable for the company s liabilities (limited shareholders) (Sec. 278 (1) AktG [ Aktiengesetz : German Stock Corporation Act]). Hence it is a hybrid between a stock corporation and a limited partnership, with a greater emphasis on the stock corporation side. As is the case in a stock corporation, a partnership limited by shares has a two-tier management and oversight structure by law. The general partner manages the company and its operations, and the supervisory board oversees the company s management. Significant differences compared to a stock corporation are the existence of a general partner, which manages operations, the absence of an executive board, and the restriction of the rights and obligations of the supervisory board. The supervisory board is not responsible for appointing the general partner or its management bodies or for determining their contractual conditions, whereas in a stock corporation it appoints the executive board. In a partnership limited by shares, the supervisory board is not legally authorized to adopt rules of procedure for the company s management or a catalog of transactions requiring approval. There are also differences relating to the annual general meeting of the shareholders. Certain of its resolutions must be approved by the general partner (Sec. 285 (2) AktG), in particular the resolution to approve the financial statements (Sec. 286 (1) AktG). Many of the recommendations of the German Corporate Governance Code (hereinafter also referred to as the Code ), which is designed for stock corporations, can thus only be applied by analogy to a partnership limited by shares.

32 28 Partnership limited by shares/declaration of conformity DRÄGERWERK AG & CO. KGAA Stefan Dräger GmbH 100% Drägerwerk Verwaltungs AG Executive Board Oversight and appointment of the Executive Board Supervisory Board of Drägerwerk Verwaltungs AG General partner 0% Management/Representation Decision on actions requiring approval Appointment Joint Committee Drägerwerk AG & Co. KGaA Appointment Oversight Supervisory Board of Drägerwerk AG & Co. KGaA Limited shareholders The sole general partner of Drägerwerk AG & Co. KGaA is Dräger Verwaltungs AG, which does not hold an equity interest and is a wholly-owned company of Stefan Dräger GmbH. Drägerwerk Verwaltungs AG manages the operations of Drägerwerk AG & Co. KGaA and represents it. It does so through its Executive Board, which has the same members as the Executive Board of the former Drägerwerk AG apart from one member, who left the Company following the change in legal form for reasons not related to this change. Stefan Dräger GmbH appoints the six members of the Supervisory Board of Drägerwerk Verwaltungs AG. They are currently identical to the shareholder representatives on the Supervisory Board of the former Drägerwerk AG. The Supervisory Board of Drägerwerk Verwaltungs AG does not have any employee representatives. It appoints the Executive Board of Drägerwerk Verwaltungs AG. The Supervisory Board of Drägerwerk AG & Co. KGaA, which has 12 members, still has half of its members elected by employees. Its chief purpose is to oversee the management by the general partner. It cannot appoint or remove the general partner or its Executive Board. Nor is it authorized to define a catalog of management transactions for the general partner which require the approval of the Supervisory Board. Moreover, it is not the Supervisory Board but the annual general meeting of the shareholders that must approve the financial statements of Drägerwerk AG & Co. KGaA. Pursuant to Art. 23 of the Company s articles of association, a Joint Committee has been set up as a voluntary, additional body. It comprises eight members. Four members each are appointed by the Supervisory Boards of Drägerwerk Verwaltungs AG and Drägerwerk AG & Co. KGaA. The Supervisory Board of Drägerwerk

33 Interview The Executive Board Report of the Supervisory Board Joint Committe Corporate governance The Dräger share 29 AG & Co. KGaA must appoint two shareholder representatives and two employee representatives. The Joint Committee decides on the extraordinary management transactions by the general partner which require approval as set out in Art. 23 (2) of the articles of association of Drägerwerk AG & Co. KGaA. Declaration of conformity The joint declaration of conformity by the general partner and the Supervisory Board of Drägerwerk AG & Co. KGaA was discussed and approved in the meeting of the Supervisory Board of the Company on December 19, It states that the recommendations of the German Corporate Governance Code Government Commission were applied with only a few exceptions. The following declaration was published on December 19, 2007: The general partner, represented by its Executive Board, and the Supervisory Board declare that Drägerwerk AG, and, since the change in legal form to a partnership limited by shares took effect on December 14, 2007, Drägerwerk AG & Co. KGaA acted on the recommendations of the German Corporate Governance Code Government Commission, as amended on June 12, 2006, from the date of issue of its previous declaration of conformity on December 20, 2006 until July 20, 2007, and that since July 21, 2007, it has acted on the recommendations as amended on June 14, This applies subject to the following exceptions: 1. The Executive Board of Drägerwerk AG has not appointed any corporate voting proxy for exercising the voting right of shareholders on their instructions at the annual general meeting of the shareholders (2.3.3 clause 3 of the Code). The general partner of Drägerwerk AG & Co. KGaA will not appoint one in the future either. The voting (limited) capital stock is solely owned directly or indirectly by the Dräger family and, therefore, it would be redundant to appoint any such proxy for the Company s shareholders. 2. The annual addition to pension provisions or pension funds for members of the Executive Board of Drägerwerk AG or of the general partner was and is not disclosed expressly in the remuneration report in the case of benefit plans (4.2.5 clause 2 sentence 2 of the Code). It can be calculated, however, as the difference between the total of the pension provisions disclosed for these members of the Executive Board in this and the prior fiscal year. 3. Until the Supervisory Board meeting on December 19, 2007, the rules of procedure for the Supervisory Board did not provide for the Audit Committee of the Supervisory Board to deal with compliance issues (5.3.2 of the Code). By the date of the meeting on September 26, 2007, the Supervisory Board had not established a nomination committee (5.3.3 of the Code). 4. No age limit has been specified for Supervisory Board members, nor will it be (5.4.1 of the Code). In view of the knowledge, abilities and professional experience required in sentence 1 of the Code, the specification of an age limit does not appear appropriate. 5. The remuneration of Supervisory Board members was not, and will not be, individually disclosed (5.4.7 clause 3 of the Code). The reasons for the aforesaid exceptions from certain recommendations of the Code are largely explained in the declaration of conformity. In addition, the departures are explained as follows: In the future, the annual additions to pension provisions or pension funds for members of the Executive Board of the general partner will be disclosed separately in the remuneration report. The Company strives to implement changes to the Code in a timely manner. The Nomination Committee was, for example, established in the first Supervisory Board meet-