Biotest AG — Interim / Quarterly Report 2002

Feb 21, 2003

Biotest Aktiengesellschaft, Dreieich

Quarterly Report

as at September 30, 2002

The Biotest Group finds itself – as already mentioned on several occasions – in a period of new alignments with a series of structural amendments and a strategic capital expenditure programme with very long implementation times. These measures, together with limited production capacities and price reductions in export markets are leading to a temporary decline of profitability, despite sales growth.

Sales increase by 5 %

In the third quarter of the current financial year, sales growth also continued. After the first nine months, consolidated sales at EUR 198.3 million exceeded the corresponding level of the previous year's period by 5 %. Therefore the rise in sales is within our expectations.

In 2002, areas of growth are domestic markets and tender business in the Middle East. Domestic sales rose to EUR 61.8 million. This means an increase of 13.5 % in comparison to the corresponding period of the previous year. Due to this disproportionate growth of domestic business, the international share of group sales decreased slightly to 69 %.

Sales by division were as follows (at the beginning of the financial year 2002, the business with monoclonal antibodies by the affiliated company Diaclone SAS had been allocated to the business division Holding. The figures of the previous year were amended accordingly):

Business Division *	Q1/2001	Q1/2002	Q2/2001	Q2/2002	Q3/2001	Q3/2002
Pharmaceutical	42.4	45.2	46.1	41.9	39.1	41.4
Diagnostic	16.3	17.3	16.7	17.9	16.0	17.9
Medical Device	3.4	4.8	3.7	5.6	3.7	4.9
Holding	0.5	0.5	0.5	0.4	0.4	0.5
Group	62.6	67.8	67.0	65.8	59.2	64.7

* Values are in EUR million

In the first nine months of 2002, Pharmaceutical sales slightly increased by 0.7 % above last year's level. This was mainly due to the gratifying increase in domestic sales of 15.2 %. South America however did not reach the high sales volumes in the third quarter compared to the same period of the previous year. These fluctuations will reoccur due to the distinct share of tender business in international sales and the resulting geographical and temporary shifts.

After the third quarter, the Diagnostic division achieved a sales increase of 8.2 % in comparison to the same period of 2001. The impetus for growth came in particular from Europe. The trend of the second quarter of 2002 in the business field of Transfusion continued with a slight rise in sales with the fully automated blood grouping device TANGO and increasing sales of test kits and reagents for blood grouping and antibody detection (Erytype/Solidscreen).

The Medical Devices division continued its positive sales growth with an increase of more than 41 % to EUR 15.3 million. Regional growth was recorded in Europe. The rise was achieved by the sale of the products for pulse oximetry and the diagnosis of the oxygen concentration as well as the trade of bloodbags.

Operating profit of EUR 8.7 million

The operating profit in the first three quarters of 2002 was at EUR 8.7 million after EUR 17.9 million of the corresponding period in 2001. This corresponds to an EBIT margin of 4.4 %.

In the first nine months of 2002, the reasons for the decline of operating profits are reduced prices in international markets and changes in the structure of sales with a trend towards products with lower margins. The aforementioned high pre-operating costs during the process of reorganisation had a substantial influence on the operating profit. Other operating expenses increased with exceptional items such as provisions for income tax inspection and depreciation of foreign receivables. Financial expenses increased as well.

Net profit after minority interest is – EUR 0.9 million. Earnings per share reached – EUR 0.06 (previous year: EUR 0.85).

Financial position

Between the beginning of the year and the balance sheet date, the balance sheet total rose by EUR 30.0 million to EUR 383.3 million.

The non-current assets of EUR 148.7 million include, in contrast to the previously applied accounting principles of HGB, tangible assets of around EUR 29.5 million, which are finance lease assets. Non-current assets rose by EUR 13.7 million. Capital expenditure amounted to EUR 21.6 million. The highest proportion of this was due to the continuation of the scheduled large scale capital expenditure programme of Biotest Pharma GmbH. Depreciation on tangible and intangible assets were recorded at EUR 8.2 million.

Since the beginning of this year, trade receivables rose by EUR 5.2 million. This increase was mainly due to the Dreieich based companies of Biotest Pharma GmbH (+ EUR 3.0 million) and Biotest AG (+ EUR 0.7 million). The further increase in inventories is due to the closing date. For the expected sales growth of the Pharmaceutical business division in the fourth quarter, plasma and plasmafractionations were increasingly stored (Biotest Pharma GmbH of EUR 4.8 million and Biotest Italy of EUR 3.0 million). Furthermore there is a need for an adjustment of the inventory level to the dynamic sales growth in the Medical Device division (+ EUR 1.5 million). The temporary increase of current assets was mainly financed by short term borrowings.

At the balance sheet date, the equity ratio was at 33 % including on the face of the balance sheet reported finance lease assets and liabilities.

As a consequence of the increased inventory level of plasma, the cash outflow from operating activities was at EUR 10.6 million. The cash inflow from financing activities was EUR 8.5 million higher than the cash outflow of investing activities.

Changes in the companies consolidated

In the third quarter of 2002, the activities to optimise the portfolio progressed at a swift pace. A well-known investment bank has been charged with the task of managing the intended portfolio clearance. Biotest is confident that these disinvestments will be successfully undertaken in the financial year 2002.

Employees

At September 30, 2002 the number of full-time employees in the group increased by 103 to 1,308 in comparison to the end of 2001. In the third quarter of 2002, 24 new jobs were created.

Approximately 30 % of the increase in staff was due to the setting-up of plasmapheresis centres, which are operated by the subsidiary Plasma Service Europe GmbH. The dynamic sales trend in the Medical Device division and the installation of new production facilities were accompanied by an equivalent growth in human resources for production and sales.

Outlook

After the first nine months of the financial year 2002, Biotest has achieved a constant sales growth of 5 %. For the fourth quarter of 2002, a similar growth rate is expected. Therefore we forecast for the entire financial year of 2002 an increase in sales of that size.

The earnings burden of the second quarter continued to be felt in the third quarter of 2002. Biotest does not expect a turnaround of the operating profit in the fourth quarter. The operating profit will be distinctly lower than that of 2001.

The net profit for 2002 will approximately break even as far as continued activities are concerned. Furthermore it will be influenced by positive and adverse effects of the portfolio optimisation. The realisation of the portfolio optimisation cannot precisely be forecasted.

Biotest Group Quarterly Statement as at September 30, 2002 (Abbreviated)

All values are in EUR million

Biotest Group Balance Sheet

4.8 142.4 1.5 148.7	4.2 130.1 0.7 135.0
141.9	129.8
71.2	66.0
9.9	8.9
8.8	11.8
231.8	216.5
2.8	1.8
383.3	353.3

Equity and liabilities
Equity attributable to shareholders of	128.0	131.5
Biotest AG
Minority interests	2.5	1.4
Provisions and accruals	61.3	54.1
Borrowings	157.4	124.9
Other liabilities	34.1	41.4
Total equity and liabilities	383.3	353.3

	7-9 2002	7–9 2001	1-9 2002	1–9 2001
Sales revenues	64.7	59.2	198.3	188.8
Cost of sales	- 38.0	- 30.3	- 108.0	- 96.8
Gross profit	26.7	28.9	90.3	92.0
Selling and distribution costs	- 14.5	- 14.3	- 48.4	- 45.8
Research and development costs	- 4.8	- 3.8	- 14.9	- 12.1
Administrative expenses	- 5.1	- 4.7	- 14.2	- 14.5
Other operating expenses	- 0.3	- 1.2	- 4.1	- 1.7
Profit from operations	2.0	4.9	8.7	17.9
Financial result	- 2.5	- 2.1	- 6.9	- 6.5
Profit before tax	- 0.5	2.8	1.8	11.4
Income tax expense	- 0.9	- 1.2	- 2.3	- 4.5
Profit after tax	- 1.4	1.6	- 0.5	6.9
Minority interest	-0.2	0.1	- 0.4	0.0
Net profit for the period	- 1.6	1.7	- 0.9	6.9
Earnings per share (in EUR)	- 0.15	0.20	- 0.06	0.85

Biotest Group Income Statement

Biotest Group Statement of Changes in Equity

	2002	2001
Equity attributable to shareholders of	131.5	128.9
Biotest AG (January 1)
Dividend for previous year	- 2.2	- 2.2
Net profit for the period	- 0.9	+ 6.8
Currency translation differences	- 0.4	+ 0.2
Equity attributable to shareholders of	128.0	133.7
Biotest AG (September 30)

Biotest Group Cash Flow Statement

	1–9 2002	1-9 2001
Cash flow used in operating activities	- 10.6	- 2.3
Cash flow used in investing activities	- 21.9	- 21.8
Cash flow from financing activities	+ 30.4	+ 30.3
Effects of changes in exchange rates	- 0.1	+ 0.1
Net change of cash and	- 2.2	+ 6.3
cash equivalents
Cash and cash equivalents at January 1	10.1	11.7
Cash and cash equivalents at Sept 30	7.9	18.0

Notes

• 1. The present report of the Biotest Group for the first nine months 2002 complies for the first time – with the International Accounting Standard 34.
• 1. The same accounting and valuation principles are applied as used for the preparation of the consolidated financial statements 2001 according to IAS.
• 1. This report is not audited.
• 1. Segmental reporting
• 4.1 Sales revenues

Business Division	1-9 2002	1-9 2001
Pharmaceutical	128.5	127.6
Diagnostic	53.1	49.0
Medical Device	15.3	10.8
Holding	1.4	1.4
Group	198.3	188.8

4.2 Profit from operations

Business Division	1-9 2002	1-9 2001
Pharmaceutical	+ 6.6	+ 15.4
Diagnostic	+ 1.9	+ 2.3
Medical Device	+ 0.3	+ 0.2
Holding	- 0.1	+ 0.0
Group	+ 8.7	+ 17.9

5. Staff

	Sep 30, 2002	Dec 31, 2001
Selling and distribution	392	370
Administration	148	142
Production	642	563
Research and development	126	130
Group	1,308	1,205

Biotest AG Landsteinerstr. 5, D-63303 Dreieich Postbox 10 20 40, D-63266 Dreieich Tel. 0 61 03/8 01-4 44 Fax 0 61 03/8 01-8 80 Internet: www.biotest.de