Westag AG — Annual Report 2003

Apr 30, 2004

Financial Report 2003

Contents

4	Balance sheet
6	Fixed assets
9	Profit and loss account
10	Notes
20	Corporate Governance
22	Segmental reporting
23	Cash flow statement
24	Audit certificate
26	Management report

Balance sheet as of December 31, 2003

	Assets	Notes	Dec. 31, 2003	Dec. 31, 2002
			c	c '000
A.	Fixed assets	1
I.	Intangible assets
	Concessions, industrial property rights and
	similar rights and values, as well as licenses thereto
			204,495.79	399.6
	II. Tangible assets
	Land and leasehold rights and buildings, including buildings on third-party land		20,585,889.45	21,723.3
	Plant and machinery		15,955,139.00	18,077.0
	Other fixtures and fittings, tools and equipment		8,466,007.51	10,000.4
	Payments on account and tangible assets in course of construction		127,645.58	2,103.1
			45,134,681.54	51,903.8
	III. Financial assets Other loans		115,476.54	137.4
			45,454,653.87	52,440.8
	B. Current assets	2
I.	Inventories
	Raw materials and supplies Work in progress		14,213,581.00 3,694,256.00	13,848.7 4,098.2
	Finished goods and goods for resale		11,304,218.00	11,089.4
			29,212,055.00	29,036.3
	II. Accounts receivable and other assets
	Accounts receivable		15,789,969.64	14,995.9
	Other assets		586,379.69	869.3
			16,376,349.33	15,865.2
	III. Investments
	Own shares		120,282.00	99.0
	Other investment		9,211,800.00	234.6
			9,332,082.00	333.6
	IV. Cheques, cash on hand and cash in other bank accounts		8,122,230.75	9,338.2
			63,042,717.08	54,573.3
	C. Prepayments and accrued income	3	137,747.65	266.7
			108,635,118.60	107,280.8

Assets	Notes	Dec. 31, 2003	Dec. 31, 2002
		c	c '000
A. Capital stock	4
I. Subscribed capital
Ordinary shares		7,321,600.00	7,321.6
Preference shares		7,321,600.00	7,321.6
		14,643,200.00	14,643.2
II. Capital reserve		24,344,572.38	24,344.6
III. Revenue reserve Legal reserve		595,757.30	595.8
Reserve for own shares		120,282.00	99.0
Other revenue reserves		26,200,000.00	26,200.0
		26,916,039.30	26,894.8
IV. Net profit for the year		2,576,676.84	1,147.7
		68,480,488.52	67,030.3
B. Special item with an equity portion	5
		3,064,620.76	3,511.4
C. Accrued liabilities	6
Provisions for pensions and similar obligations		12,345,930.00	11,904.9
Provisions for taxation		1,656,200.00	38.1
Other provisions		8,926,759.00	8,665.7
		22,928,889.00	20,608.7
D. Liabilities	7
Due to banks		2,343,710.85	4,279.8
Advances from customers		156,640.52	575.8
Accounts payable		5,430,587.06	5,732.6
Other liabilities		6,230,181.89	5,542.2
		14,161,120.32	16,130.4
		108,635,118.60	107,280.8

Fixed asset development

(in c)		A. Gross values
		Jan. 01, 2003 Acquisition cost/ cost of production	Additions	Disposals	Book transfers	Dec. 31, 2003 Acquisition cost/ cost of production
I.	Intangible assets Concessions, industrial property rights and similar rights and
	values, as well as licenses thereto	902,794.38	199,745.45	131,391.05	0.00	971,148.78
		902,794.38	199,745.45	131,391.05	0.00	971,148.78
II.	Tangible assets Land and leasehold rights
	and buildings, including buildings on third-party land	45,506,003.78	79,822.36	0.00	0.00	45,585,826.14
	Plant and machinery	73,899,368.99	1,206,770.21	1,760,569.95	2,009,635.31	75,355,204.56
	Other fixtures and fittings, tools and machinery	57,767,134.86	2,247,590.54	1,892,087.60	0.00	58,122,637.80
	Payments on account and tangible assets in course of construction	2,103,132.12	34,148.77	0.00	- 2,009,635.31	127,645.58
		179,275,639.75	3,568,331.88	3,652,657.55	0.00	179,191,314.08
	III. Finanzanlagen Sonstige Ausleihungen	137,365.78	0.00	21,889.24	0.00	115,476.54
		137,365.78	0.00	21,889.24	0.00	115,476.54
	Anlagevermögen - Gesamt	180,315,799.91	3,768,077.33	3,805,937.84	0.00	180,277,939.40

B. Valuation adjustment C. Net values (A-B)
Jan. 01, 2003 Accumulated depreciation	Additions	Disposals	Write-ups	Accumulated depreciation as at Dec. 31, 2003	Net book value, year under review as at Dec. 31, 2003	Net book value, previous year as at Dec. 31, 2003
503,147.59	394,896.45	131,391.05	0.00	766,652.99	204,495.79	399,646.79
503,147.59	394,896.45	131,391.05	0.00	766,652.99	204,495.79	399,646.79
23,782,685.33	1,217,251.36	0.00	0.00	24,999,936.69	20,585,889.45	21,723,318.45
55,822,364.99	5,330,732.52	1,753,031.95	0.00	59,400,065.56	15,955,139.00	18,077,004.00
47,766,813.35	3,691,517.54	1,801,700.60	0.00	49,656,630.29	8,466,007.51	10,000,321.51
0.00	0.00	0.00	0.00	0.00	127,645.58	2,103,132.12
127,371,863.67	10,239,501.42	3,554,732.55	0.00	134,056,632.54	45,134,681.54	51,903,776.08
0.00	000	0.00	0.00	0.00	115,476.54	137,365.78
0.00	0.00	0.00	0.00	0.00	115,476.54	137,365.78
127,875,011.26	10,634,397.87	3,686,123.60	0.00	134,823,285.53	45,454,653.87	52,440,788.65

Profit and loss account - financial year 2003

	Notes	2003	2002
		c	c '000
Sales revenues	8	162,787,637.36	162,722.7
In/decrease in finished goods inventories and work in process		- 471,227.00	- 770.3
Capitalised cost of self-constructed assets		152,951.15	414.9
Other operating income	9	2,672,502.02	3,153.4
Cost of materials a) Cost of raw materials, consumables and supplies, and of purchased materials b) Cost of purchased services	10	- 73,537,315.05 - 1,522,578.34	- 73,479.8 - 1,430.5
		- 75,059,893.39	- 74,910.3
Personnel expenses a) Wages and salaries b) Social security and other pension costs,	11	- 45,144,612.29	- 47,330.1
thereof in respect of old-age pensions		- 11,625,206.33	- 11,564.1
		- 56,769,818.62	- 58,894.2
Depreciation of intangible fixed assets and tangible assets	12	- 10,634,397.87	- 11,186.9
Other operating expense	13	- 19,026,480.92	- 18,399.8
Income from other investments and long-term loans	14	3,684.06	4.7
Other interest and similar income	14	301,720.84	182.3
Amortisation of investments classified as current assets	14	0.00	- 120.1
Interest and similar expenses	14	- 245,468.89	- 186.6
Results from ordinary activities		3,711,208.74	2,009.8
Extraordinary income Extraordinary expense		0.00 0.00	1,022.6 - 1,669.8
Extraordinary result	15	0.00	- 647.2
Taxes on income	16	- 1,630,232.54	336.2
Other taxes	17	- 289,922.72	- 125.7
Annual net profit		1,791,053.48	1,573.1
Previous year's appropriated retained earnings brought forward		806,898.76	61.3
Withdrawal from own share reserve		- 21,275.40	263.3
Transfer to other revenue reserves		0.00	- 750.0
Net profit for the year		2,576,676.84	1,147.7

Notes

Preliminary remarks

Westag & Getalit AG's annual accounts were prepared in accordance with HGB (German Commercial Code) and AktG (German Stock Corporation Act) regulations. The expenditure type of presentation was applied to the profit and loss account.

We notified Syntalit AG, Zug, Switzerland, of the fact that Westag & Getalit AG must be included in Syntalit AG's consolidated financial statements.

Accounting and valuation principles, currency translation

Accounts receivable, liabilities and payments on account denoted in foreign currencies were valued at the buying/selling rate applicable on the date of entry, unless a rise or decline in the exchange rate necessitated either a devaluation of the respective asset item or an upward revaluation of the respective liability. Losses arising in connection with exchange rate fluctuations that occurred before the balance sheet day were taken into account.

Accounting information

The presentation and the structure of the 2003 annual account comply with the German Commercial Code's statutory regulations. Insofar as any required information was not presented in the balance sheet or the profit and loss account, this information is supplied in the Notes.

The regulations of Section 58 of the German Stock Corporation Act on the advance transfer of part of the annual net profit to the revenue reserve were not applied in the 2003 annual accounts.

Information regarding valuation methods

The valuation methods did not change fundamentally from those used in 2002. The requirement to reinstate original values in accordance with Section 280 HGB also applied. Coverage involving forward exchange transactions, which serve exclusively to hedge our foreign raw material supplies, was converted at the hedging price.

Intangible assets

Intangible assets acquired against payment were valued at acquisition cost and written down according to the straight-line method. In this context, the useful life generally amounted to 3 years and in one minor individual case to 20 years.

Tangible assets

Tangible assets were valued at acquisition cost or cost of production minus depreciation. The extent of acquisition costs complies with Section 255 Par.1 HGB. The production costs associated with self-produced assets include the cost of material at acquisition cost, direct labour and prorate production overheads including depreciation. Depreciation is in line with the officially accepted useful life expectancy. With respect to factory, business, residential and other buildings, life expectancy mostly amounts to between 25 and 50 years, with respect to plant and machinery to up to 15 years and with respect to other fixtures and fittings, tools and equipment to between 3 and 10 years. Minor assets were fully written off during the year of acquisition and reported under disposals at the end of the same year. Buildings and other constructions were again depreciated at the usual rates (partially at the staggered

rates according to Section 7 Par. 5 EStG) using the straight-line method. Apart from minor sub-areas, in which the straight-line method was applied, movable assets were written down according to the declining balance method at the lawful maximum rates, insofar as fiscally admissible. The possibility to convert from the declining balance method to the straight-line method was used where this led to higher annual depreciation. In the case of movable assets involving additions during the first six months of the year, the full annual rate was allocated, while half the annual rate was allocated in the case of all other additions.

Financial assets

Interest-bearing loans and co-operative shares were reported at their nominal value.

Inventories

As during the previous years, raw materials and supplies as well as merchandise were valued at either acquisition cost or the lower replacement cost as at the balance sheet day. In accordance with fiscal code regulations, work in progress and finished goods were valued at production cost including both directly attributable costs and the cost of material, production overheads and depreciation. As usual, depreciation accounting for obsolescence, reduction in quality and other restricted utilisation possibilities was applied.

Accounts receivable and other assets

Accounts receivable and other assets were reported at either their nominal value or the lower current value as at the balance sheet day as a matter of principle. Depreciation or individual value adjustments were applied to accounts receivable and bills receivable to the extent required. A respective general allowance takes into account the general credit risk.

Securities

This item consists of fixed-interest securities and own shares which were valued either at the cost of acquisition or at the lower market price as at the balance sheet day.

Liquid funds

Cheques, cash on hand and cash in other bank accounts were reported at their nominal value or, in the case of foreign exchange balances, at acquisition cost or the lower buying price as at December 31, 2003.

Prepayments and accrued income

This item includes, among others, a disagio.

Special items with an equity portion

These items include special items for investment subsidies as part of fixed assets, amounting to the subsidies received minus the prorate retransfer of these items. Provisions and valuation adjustments in accordance with fiscal provisions are also reported under this item. Insofar as the fiscal authorities require them to be reported in the commercial balance sheet, they have been valued at the officially accepted amounts.

Provisions for pensions and similar obligations

Pension provisions correspond to the full proportional value of our total pension obligations. They were reported in accordance with actuarial calculations on the basis of fiscal provisions using a 6 % interest rate. Deficits did not arise.

Other provisions

Provisions for taxes and other provisions take into account all recognisable risks and contingent liabilities.

Liabilities

Liabilities were accrued at their repayment amount.

Further information regarding individual annual account items

1.	The breakdown of the fixed asset items summarised in the balance sheet and their development
Fixed assets	throughout the financial year 2003 has been recorded in the respective notes to the balance sheet.
2. Current assets 2.1. Accounts receivable and other assets	Accounts receivable and other assets due in less than one year did not arise. The assets reported in the annual accounts include accrued interest amounting to C (previous year: C 20 thousand).	318 thousand
	In accordance with the authorisation issued by the August 25, 1998 Annual General Meeting, the
	company acquired own shares (preference shares) during the financial year 1999. Details are as follows:
2.2.
Own shares	Number/acquisition	111,992
	Number as of December 31, 2003	20,047
	Share in capital stock	0.35 %
	Acquisition date	December 1999
	Acquisition price (average)	C 13.21 per unit
	Price on December 31, 2003	C 6.00 per unit
3. Prepayments and accrued income	This annual account item includes a C 74 thousand disagio (previous year: C	144 thousand).
4. Equity capital 4.1. Subscribed capital	Due to the Annual General Meeting resolutions of August 24, 1999, the company's capital stock amounts to C 14,643,200.00 and consists of:

Bearer shares

Number of ordinary shares
Number of share certificates	Number of individual share certificates	Amount in c
12,250	2,450,000	6,272,000.00
14,000	280,000	716,800.00
13,000	130,000	332,800.00
	2,860,000	7,321,600.00
Number of preference shares
Number of share certificates	Number of individual share certificates	Amount in c
286,000	2,860,000	7,321,600.00
	2,860,000	7,321,600.00
Total number and amount of ordinary and preference shares

5,720,000 14,643,200.00

All of the company's shares are registered for trade and officially quoted at the Duesseldorf and Frankfurt stock exchanges. The ordinary shares are full voting shares while the preference shares are non-voting. Preference shareholders receive a preferred dividend of C 0.12 per preference share out of the net profit for the year. If the distributable net profit for the year is not sufficient to pay out a dividend of C 0.12 per preference share, the deficit must be paid, without interest, out of the net profit for the year generated during the subsequent years in such a way that the older deficits are paid before the newer ones and the preferred amounts payable for the year out of the same year's profit are paid subsequent to the repayment of all deficits. Subsequent to the distribution of a dividend of C 0.12 per ordinary share, the preference shareholders receive an extra dividend, which may not be paid retroactively, of C 0.06. Both preference and ordinary shareholders participate in a further distribution in the proportion of their prorate shares in the capital stock. The company reserves the right to issue further preference shares which, with

respect to a distribution of profit or of company assets, are either of equal rank or take priority over the existing non-voting preference shares. On August 24, 1999, the Annual General Meeting authorised the Management Board to increase the capital stock, with the Supervisory Board's approval, once or several times, by way of issuing new bearer shares and/or nonvoting preference shares by up to C 5,840,000.00 (approved capital I) in return for cash deposits. The shareholders are generally entitled to the usual subscription right. However, the Management Board has been authorised to exclude, with the Supervisory Board's approval, peak amounts from the shareholders' subscription rights. The board has furthermore been authorised to exclude the shareholders' subscription right up to a nominal value of C 300,000 in order to issue employee shares and to exclude the subscription right of holders of one type of shares to subscribe to shares of the other types while simultaneously issuing ordinary and preference shares and preserving the existing shareholder relationships within both share types.

In addition, further approved capital (capital II) exists which amounts to up to C 1,460,000.00. The Management Board has been authorised to increase, by August 23, 2004 and with the Supervisory Board's approval, the capital stock to said amount by way of issuing, once or several times, new nonvoting ordinary and/or preference shares in return for cash or noncash capital contributions. The board is furthermore entitled to exclude, with the Supervisory Board's approval, the shareholders' subscription right

a) insofar as the new shares' issue amount is not substantially lower than the market price, b) in order to acquire companies or participations if this is in the company's interest, c) insofar as this is required in order to offer ordinary shareholders exclusively new ordinary shares and preference shareholders exclusively nonvoting preference shares in equal proportions.

This authorisation also includes the entitlement to issue preference shares which, with respect to a distribution of profit or of company assets, are equal in rank with the existing nonvoting preference shares.

4.2. Revenue reserves Revenue reserves that are not governed either by law or by the articles of association, developed as follows:

As at January 01, 2003	26,200,000.00
+ Allocation in accordance with
Sect. 58 (2) AktG during the year under review	0.00
As at December 31, 2003	26,200,000.00

5.	Liabilities (in c '000)	2003	2002
Special item with an
equity portion	Special item with an equity portion
	Fixed asset value adjustment in acc. with Section 6b EStG	145	153
	Fixed asset value adjustment in acc. with Section 34 EStR	2	3
	Fixed asset value adjustment in acc. with Section 35 EStR	2,918	3,355
	Total	3,065	3,511

Due to a change in these provisions/valuation adjustments, the company's net profit for the year increased by approx. C 447 thousand

(previous year: C 515 thousand). The respective income tax burden amounts to approx. 45 %.

1. Provisions Other provisions include amounts relating to queries, guarantee obligations, bonuses, outstanding vacation obligations, partial retirement, royalties, anniversary benefits, severance pay, environmental protection measures,

contributions to social insurance against occupational accident, time credits, other contributions and charges and other items of an indeterminate amount. These provisions fully take into consideration all discernible risks.

7. Liabilities

Liabilities are broken down according to their residual term as follows:

Liabilities (in C '000)	2003	2002
Liabilities due in less than 5 years
Due to banks	781	1,872
Liabilities due between 1 and 5 years
Due to banks	1,250	2,140
up to 1 year
Due to banks	312	268
Advances from customers	157	576
Accounts payable	5,431	5,732
Other liabilities	6,230	5,542
	12,129	12,118
Summe Verbindlichkeiten	14,161	16,130

Liabilities (in c '000)	2003	2002
Following amounts are included in the other liabilities
Taxes	2,234	1,799
Social security liabilities	1,463	1,455

Notes to the profit and loss account

1. Sales revenue

in c '000	2003	2002
Breakdown according to regions, in c '000
Domestic	137,434	138,698
Abroad	25,354	24,025
Total	162,788	162,723

1. Other operating income

The income generated by the retransfer of the special item with an equity portion is composed as follows:

in c '000	2003	2002
Fixed asset value adjustment
in accordance with Section 34 EStR	1	1
in accordance with Section 6b EStG	8	8
in accordance with Section 35 EStR	438	506
Total	447	515

10.	in c '000	2003	2002
Cost of material
	Cost of material
	Cost of raw materials, consumables
	and supplies, and of purchased materials	73,537	73,480
	Cost of purchased services	1,523	1,430
	Total	75,060	74,910

11. Personnel expenses/staff

The company's personnel expenses include pension costs amounting to thousand C 1,627 thousand (previous year: C 1,450 thousand).

Number of staff (annual average)	2003	2002
Number of staff (excl. trainees)
Employees	321	337
Industrial employees	894	976
Total	1,215	1,313

12. Depreciation	The depreciation item does not include any non-scheduled depreciation.
13. Other operating expenses	Other operating expenses do not include any data that are subject to the duty to report.
14. Interest result	The interest result includes income from other investments and long-term financial investments as well as interest income and expenses.
15. Extraordinary result	The extraordinary income of the previous year included the book profit from the sale of the Sperrholz Koch GmbH subsidiary. The previous year's extraordinary expenses consisted of expenses which arose in connection with the staff cuts implemented in the context of the restructuring measures.

16.

Taxes on income can be broken down as follows:

Taxes on income

c '000 Results from ordinary activities 1,630 Extraordinary result 0 Taxes on income 1,630

17.	c '000	2003	2002
Other taxes
	Other taxes	290	126

Other information c '000 2003 2002

Contingencies Contingencies Bill commitments 57 189

The other financial obligations amount to a total of c 1,891 thousand (previous year: c 991 thousand).

18.3. Executive bodies

Management board Pedro Holzinger Managing Director Director Central Division

Rheda-Wiedenbrück

Dierk Knechtel (until Jul. 31, 2003) Director Doors/Frames Division Rheda-Wiedenbrück

Dr. Michael Paulitsch Director Plywood/Shuttering Division Warendorf

Thorsten A. Spengler Director Central Division Gütersloh

Edmund Volmer Director Laminates/Elements Division Wadersloh

Supervisory board

Hans Georg Ahrens Lawyer and notary public Hanover Chairman *

Hubert Stretz Engineering graduate Guetersloh Vice Chairman

Ronald Jeffries Businessman London/Great Britain

Franz-Josef Knapp** Chairman of the works council Rheda-Wiedenbrück

Dietmar Lewe** Wood processing mechanic Rietberg

Klaus Pampel Managing Director of Hüttenes-Albertus Chemische Werke GmbH Meerbusch

* Hans Georg Ahrens is also Chairman of the supervisory board of 12 Ghosts AG, Hanover ** Employee representative

18.4.		2003	2002
Supervisory board		c	c
and management
board remuneration	Total Supervisory Board compensation	52,500.00	52,500.00
	Total Management Board compensation	958,331.42	939,588.05
	Total compensation received by former Management
	Board members and their surviving dependants	116,894.76	114,681.55
	Pension reserves for former Management Board
	members and their surviving dependants	801,048.00	810,368.00

18.2

18.

18.1.

Other financial obligations

19. Corporate Governance Kodex

Westag & Getalit AG has issued the compliance declaration regarding the recommendations made by the German Corporate Governance Code government commission that is required under Section 161 AktG and has given shareholders access to this declaration via the internet.

Proposal regarding the appropriation of The 2003 net profit for the year amounts to C 2,576,676.84 and is composed as follows:

the annual net profit		c
	Annual net profit 2003	1,791,053.48
	Previous year's appropriated retained earnings brought forward	806,898.76
	Transfer to own share reserve	- 21,275.40
	Net profit for the year	2,576,676.84

We submit to the Annual General Meeting the following proposal regarding the appropriation of the net profit for the year:

	c
Distribution of a dividend of
c 0,28 per ordinary share	800,800.00
c 0,34 per preference share	972,400.00
Residual profit to be brought forward to new account	803,476.84
Net profit for the year	2.576.676,84

The above amounts will be updated on the day of the general shareholders meeting in line with the numbers of own shares.

Each type of share consists of 2,860,000 no par shares minus 20,047 preference shares which are held as own shares.

Rheda-Wiedenbrück, March 4, 2004

Westag & Getalit Aktiengesellschaft Management Board

Holzinger Dr. Paulitsch Spengler Volmer

Corporate Governance

Westag & Getalit AG complies with the requirements of the German Corporate Governance Code with a few exceptions.

At Westag & Getalit AG, the relationships between the Management Board, the Supervisory Board and the company's shareholders have traditionally been characterised by responsibility and transparency. The company not only complies with all statutory requirements but also applies additional corporate governance regulations.

Westag & Getalit AG therefore appreciates the adoption of the Corporate Governance Code by the Commission of the same name installed by the Federal Government. We consider this to be an important step towards the further development of the legal provisions and the practice of corporate governance and control in Germany. We are confident that the Code will help make the system of corporate governance more easily comprehensible particularly to foreign investors in Germany.

The Management Board and the Supervisory Board of Westag & Getalit AG have decided to comply with the recommendations of the German Corporate Governance Code and have issued the following declaration of conformity pursuant to Section 161 of the German Stock Corporation Act:

"Westag & Getalit AG complies with the recommendations made by the German Corporate Governance Code Commission, subject to the following exceptions:

1. The D&O insurance taken out by Westag & Getalit AG for the members of the Management Board and the Supervisory Board does not include a deductible (Clause 3.8 (2) of the Code).

2. In the Notes to the Consolidated Financial Statements, the compensation of the members of the Management Board is reported in individualised form and not subdivided according to fixed, performance-related and long-term incentive components (Clause 4.2.4 of the Code).

3. The company's Articles of Association do not provide for the compensation of the members of the Supervisory Board to reflect the exercising of the chair and membership in committees (Clause 5.4.5, paragraph 1, phrase 3 of the Code).

4. Payments made or advantages extended by the company to the members of the Supervisory Board for services provided individually, in particular advisory or agency services, are not listed separately in the Notes to the Consolidated Financial Statements (Clause 5.4.5, paragraph 3, phrase 2 of the Code).

5. The compensation of the members of the Supervisory Board does not take into account the economic situation and performance of the company (Clause 5.4.5, paragraph 1, phrase 2 of the Code).

6. Given that Westag & Getalit AG does not hold any equity investments, the company does not establish consolidated financial statements, which means that, under current legislation, the company is not required to prepare its financial statements to international standards. Westag & Getalit plans to apply international accounting standards as soon as the respective legal foundation has been laid (presumably in 2005) Clause 7.1.1 to 7.1.4 of the Code)."

The German declaration of conformity is available to shareholders at

www.westag-getalit.de/corporate-governance.

In accordance with Clause 4.2.3 of the German Corporate Governance Code, we provide the following additional information on the basic principles of the compensation scheme for our Management Board members:

The compensation of the Management Board members includes fixed and variable components. The variable components for the Board members responsible for the production divisions result from a combination of the respective division's annual profit and that of the whole company. The annual profit is the annual net profit less a potential loss carried forward from the previous year and the amounts to be allocated to open reserves under the applicable laws and the Articles of Association. The variable component for the Board members in charge of the central division is exclusively determined by the company's annual profit. To provide incentives for a maximum annual profit, the profit share rises at a disproportionate rate when certain profit levels are exceeded. The percentage of the variable component of the total compensation varies depending on the annual profit generated. The Supervisory Board has the right to limit the variable component in case of unforeseen, extraordinary developments.

There are no agreements with the Management Board members regarding the granting of company shares, stock options or similar schemes. The Supervisory Board is convinced that the above compensation scheme for the Management Board takes appropriate account of the tasks of the respective Board members, their personal achievements, the performance of the full Management Board and the economic situation and the performance of the company.

Segmental reporting

Segment	Jan. 1 to Dec. 31, 2003	Jan. 1 to Dec. 31, 2002
Domestic Sales	137,434	138,698
Result before taxes on income	3,126	1,751
Exports
Sales	25,354	24,025
Result before taxes on income	295	- 514
Total for Westag & Getalit AG
Sales Result before taxes on income	162,788 3,421	162,723 1,237

Statement of changes in equity

	Subscribed capital	Capital reserve	Revenue reserve	Net profit for the year	Gesamt
As at Jan. 1, 2002	14,643	24,345	26,408	2,393	67,789
Withdrawal from own share reserve			- 263	263	0
Transfer to other reserve			750	- 750	0
Dividend				- 2,332	- 2,332
Annual net profit				1,573	1,573
As at Dec. 31, 2002	14,643	24,345	26,895	1,147	67,030
As at Jan. 1, 2003	14,643	24,345	26,895	1,147	67,030
Withdrawal from own share reserve
Transfer to other reserve			21	- 21	0 0
Dividend				- 341	- 341
Annual net profit				1,791	1,791
As at Dec. 31, 2003	14,643	24,345	26,916	2,576	68,480

Cash flow statement 2003

Cash flow statement 2003	2003	2002
	c '000	c '000
Annual net profit	1.791	1.573
Depreciation of intangible assets and tangible assets	10.634	11.187
Extraordinary income	0	(1.023)
In/decrease in long-term provisions	441	317
In/decrease in special item with an equity portion	(446)	(515)
Cash flow in acc. with DVFA/SG (sub total)	12.420	11.539
Earnings contributions as a result of fixed asset disposals	(60)	(167)
In/decrease in inventories	(176)	4.647
In/decrease in accounts receivable and other assets	(511)	3.974
In/decrease in prepayments and accrued income	128	(73)
In/decrease in other provisions	1.879	88
In/decrease in deferred income	0	(6)
In/decrease in short-term liabilities	(33)	(3.463)
Cash flow generated from current business activities	13.647	16.545
Payments for investments made in intangible assets and tangible assets	(3.768)	(10.015)
Deposits arising from the disposal of intangible assets and tangible assets	159	341
Deposits arising from divestments	0	2.301
In/decrease in loans	22	21
Cash flow generated from investment activities	(3.587)	(7.352)
In/decrease in due to banks	(1.936)	0
In/decrease in investments	(8.999)	263
Dividend payments	(341)	(2.332)
Cash flow from financing activities	(11.276)	(2.069)
In/decrease in financial resources affecting payments
(Total cash flow)	(1.216)	7.124
Financial resources as at January 01	9.338	2.214
Financial resources as at December 31	8.122	9.338

Audit certificate

We have audited the annual accounts of Westag & Getalit AG, including the accounting and the annual report, for the financial year starting on January 01 and ending on December 31, 2003. According to the German Commercial Code, the company's legal representatives are responsible for the preparation of these documents. It is our responsibility to form an opinion, based on our audit, on the annual accounts, including the accounting and the annual report. We have conducted our audit in accordance with Section 317 of the HGB, based on the Principles of Proper Auditing laid down by the "Institut der Wirtschaftsprüfer in Deutschland e. V. (IDW)" auditing standards. According to this, the audit is to be planned and carried out in such a way that misrepresentations and infringements that significantly affect the picture of the financial and earnings position as given in the annual accounts and the annual report, prepared with due regard to the Principles of Proper Bookkeeping, are detected with a sufficient degree of certainty. Knowledge of the business activities and the economic and legal environment of the company as well as expectations of possible errors are taken into account when the audit procedure is laid down. During the audit, the effectiveness of the accounting-related internal control system as well as the proof for statements made in the

accounting, annual accounts and the annual report are evaluated on the basis of sample audits. The audit includes an evaluation of the accounting and consolidation principles applied, as well as an appraisal of the legal representatives' principal judgements and an assessment of the overall presentation of the annual accounts and the annual report. In our opinion, our audit forms a sufficiently reliable basis for our evaluation.

No objections were raised in response to our audit.

It is our conviction that the annual accounts, with due regard to the Principles of Proper Bookkeeping, convey a correct picture of the company's financial and earnings position. In general, the annual report presents a true and fair view of the group's position and gives a fair representation of the risks concomitant with future development.

Hanover, March 5, 2004 Peters & Partner GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft

Matthias Heinz Auditor

Elke Reil Auditor

Management Report

Clearly improved result before income taxes on stable sales.

Business development in 2003

In the past year, we were unfortunately faced with a further decline in construction activity. Incoming orders in the German construction sector - one of the main indicators for Westag & Getalit AG's business trend - were down 13.2% on the previous year. In this difficult industry environment, Westag & Getalit AG's sales, at c 162.8 million, held steady from the previous year (c 162.7 million). A slight decline in domestic sales of 1.0% to c 137.4 million was offset by a steady increase in international sales to c 25.4 million (previous year: c 24.0 million).

Our export share rose from 14.8% to a gratifying 15.6%.

As in the previous year, the situation within Westag & Getalit AG was quite disparate. Our Plywood/Shuttering division (sales -4.3%) and Doors/Frames division (sales -1.1%), which are strongly reliant on the construction sector, were hit hardest by the weak construction activity. Strong fluctuations in capacity utilisation led to short-time working in both divisions, mainly in the first half of the year. Thanks to numerous activities - especially due to strong growth in exports and sales of mineral based products - our Laminates/Elements division was even able to boost its sales by 2.9% against the general trend. It is particularly gratifying to see that all three divisions posted a positive operating result in the past fiscal year. This was not least due to strict cost-cutting programmes implemented within each division, which more than offset the decline in prices. We are nevertheless concerned about the pressure on prices that has intensified in the past months, with batch sizes declining at the same time and increasingly high demands made on our service resources.

Sales performance of the divisions A million

At c 24.2 million, this division's sales were down 4.3% on the previous year. The division continued its policy of deliberately foregoing unprofitable orders and contracts. The poor order situation was partly compensated for through product and market initiatives. At the same time, strict cost management helped the division post a positive result. Thanks to our broad product range, our service and our lively development activities, we were able to differentiate ourselves from our competitors. Synergies with the Laminates/Elements division enabled us to develop a clear competitive advantage due to our high flexibility; for instance, we continued to refine our product range in 2003, occupying attractive niches, especially with products that are not-construction related. The export share rose moderately to 26.0% (previous year 25.3%).

Doors/Frames

After the very difficult year 2002, we were able to more or less stabilise our sales at the reduced level in the past fiscal year, despite the continued decline in the doors market and an average capacity utilisation of only 70% in the total German doors industry. The division's sales amounted to c 71.0 million (previous year c 71.7 million). We were very successful in streamlining our internal processes and improving our on-time delivery rates. Substantial savings in personnel expenses and the cost of materials allowed the division to improve its results despite reduced revenues per door. The strong oversupply in the market and the growing volumes produced by some suppliers have led to a sometimes ruinous price war, which makes it doubtful whether all door manufacturers will survive. Price-based selling is increasingly becoming the main strategy. Unfortunately, the weak demand in the contract sector persists. On the other hand, our joint sales activities with the Laminates/Elements division in the DIY-store segment has led to strong growth. Our product innovations of the year 2002 (RK-P three-sided round-edged door, WESTALACK® white lacquered door) achieved a strong increase in sales in 2003. A newly developed door (Avantgarde), which "sinks" flush into the frame, is the perfect combination of modern design and technical sophistication.

A wide range of products, constant innovation and reliability make Westag & Getalit AG a powerful partner in the doors and frames sector also in the future.

Our export sales rose by 9.1% to c 5.8 million (previous year c 5.3 million), while the export share climbed from the previous year's 7.4% to 8.2%. Given that we see clear growth opportunities for the future in the export sector, we will make substantial investments in this segment in 2004 in order to offer the local markets even better service and support and to participate more strongly in international economic growth.

Laminates/Elements

The Laminates/Elements division generated sales of c 64.1 million, making it the only division to post higher sales compared to the previous year (+ 2.9%).

This success was supported by growth achieved thanks to GetaCore®, our new acrylic-bound mineral, reduced exposure to the construction sector as well as a clear increase in exports. The division's result shows a positive development. In 2004, we will continue to refine our product range in order to increase our lead over the competition. Despite constantly declining batch sizes, we again achieved a delivery rate in excess of 99%, which provided

us with important competitive advantages. We are currently working on promising product innovations which should enable us to give an effective response to the continued price erosion. In 2003, we were again able to increase our export share (from 19.8% in the previous year to 20.7%). In the export segment, we have selectively strengthened our sales team and focused on our direct neighbour markets. This approach will be continued in 2004.

Export

In 2003, we began to concentrate on a few selected markets and expand our export team. This approach has started to bear fruit, as we increased our export sales by 5.5% from c 24.0 million to c 25.4 million. This export growth helped us offset the reduction in domestic sales. Even though construction activity in the EU continued to decline and there was a lack of large-scale projects in 2003, our export strategy was successful. We see substantial upward potential in the export segment, in which we will continue to invest heavily in 2004.

Particularly strong growth was achieved in the UK, Switzerland and France in 2003.

Results

Numerous cost-cutting measures taken in 2003 allowed our company to raise the result before taxes on income from c 1.2 million in the previous year to c 3.4 million. This is all the more gratifying as we were - and continue to be - exposed to unprecedented price pressure. Almost all the restructuring measures launched already in 2002 took full bottom-line effect in 2003.

Our strict cost management efforts focused on personnel expenses, the cost of materials andoverheads. Last year, we were unfortunate

Result before taxes on income

ly faced with some cost increases that were partly beyond our control such as increases in energy/electricity prices (+ c 644 thousand), insurance (+ c 346 thousand) and contributions to the social insurance against occupational accidents (+ c 90 thousand). This shows that we will have to continue to address our overheads in order to keep at least our other operating expenses at a constant level. The biggest success was achieved with regard to personnel expenses, which, expressed as a percentage of sales, were reduced to below 35%, thus reversing the year-long upward trend. The annual net profit amounted to c 1.8 million (previous year c 1.6 million); the relatively moderate increase compared to the result before taxes on income is mainly due to the fact that the previous year's figure included a tax refund and reflected the tax exemption of the extraordinary income from the sale of our Sperrholz Koch subsidiary. 2003 DVFA/SG earnings per share amounted to c 0.32 (previous year: c 0.11).

Value added

During the year under review, Westag & Getalit AG's net value added amounted to c 60.7 million (previous year c 62.3 million). This figure corresponds to 37.4% of the gross performance, compared to 38.4% in 2002. The percentage decline over the previous year was mainly due to the fact that personnel restructurings had a dampening effect. The decline also shows, however, that services which we used to provide internally in the past have been outsourced wherever this made sense from a financial viewpoint. The almost negligible percentage of value added that is attributable to lenders (c 0.2 million during the year under review) is a sign of our company's strong balance sheet structure.

Staff

The above-mentioned staff reductions clearly improved our overall cost structure. At the end of the year, we employed 1,253 people, 54 less than in the previous year. While the ratio of personnel expenses to sales had increased

steadily in the four previous years, it declined for the first time in 2003, from 36.2% to 34.9%. Personnel expenses were reduced by c 2.1 million in absolute terms, even though social security and pension costs continued to increase. Personnel expenses also benefited from savings resulting from short-time work. As in the previous year, we were again challenged in 2003 to keep the right balance between productivity and costs despite insufficient capacity utilisation, small batch sizes and even shorter delivery times.

Based on our clearly improved cost situation, the main priority of our efficient organisation will now be to generate additional sales and win additional market share.

Besides staff cuts, we achieved cost savings by further reducing residual vacation claims and overtime and by introducing a setoff procedure with respect to negotiated wage and salary increases. The ratio of personnel expenses to sales declined steadily in the course of the year.

Despite the staff restructuring, we increased the level of training and made our organisation even more responsive and effective. A

Number of staff As at December 31

total of 140 people participated in training activities in the past fiscal year. Moreover, we strengthened our organisation selectively and invested in key positions. Our customers can thus rest assured that Westag & Getalit AG's competent and motivated staff will meet the requirements of the market. Westag & Getalit is a renowned provider of commercial and technical traineeships and apprenticeships. As of the end of 2003, we employed 49 trainees and apprentices, while 17 young people successfully completed their training in the past year. As a company, we are committed to meeting our social responsibilities and offer appropriate training opportunities to young people.

Balance sheet structure

Westag & Getalit AG's very strong balance sheet structure continued to improve in the past fiscal year. With total assets slightly increased, the equity ratio rose from 62.5% in 2002 to 63.1% on December 31, 2003. While liquid funds declined from c 9.3 million to c 8.1 million, it should be noted that part of our liquid funds have been replaced with investments classified as current assets, which exclusively consist of excellently rated bonds totalling c 9.2 million, which may be sold at any time. Free liquid funds thus totalled c 17.3 million, compared to c 9.6 million on December 31, 2002. Moreover, a c 1.8 million loan was redeemed in 2003, which also helped us reduce our liabilities from c 16.1 million to c 14.2 million.

Capital expenditure

As in the previous year, we reduced our original capital budget of c 7.4 million due to insufficient capacity utilisation. Actual capital expenditure totalled c 3.8 million, compared to c 10.0 million during the previous year, and focused on efficiency-enhancing measures as well as on those areas that are required for the production of new, innovative products. We would like to point out that the decline in capital expenditure over the previous year has affected neither our performance nor our ability to innovate. The single most important investment projects included the reconstruction of a press for contract doors, a plant for the application of hot melt adhesives and the over-laying of doors, own resin production facilities as well as additions to capacity in the mineral materials segment, as well as the optimisation of the co-generation plant and new SAP hardware based on servers running Windows 2000. Some investment projects originally planned for 2003 will probably be implemented in 2004.

Balance sheet structure

c million

Research and development

The purpose of our research and development activities is to constantly improve our products, optimise our processes, develop new products and product variants and open up new market segments. In the past fiscal year, a new floor panel for use in industrial assembly was developed for the Plywood/Shuttering division. This panel is not only non-abrasive and available in a wide range of different designs but is also highly conductive. This prevents electrostatic charging of the assembly floor and the respective consequences, for instance when installing airbags in the auto industry.

In the Doors/Frames division, new variants were added to many product groups such as our round-edged doors, sound insulating acoustic doors and white lacquered doors. Our Avantgarde doors represent an entirely new type of door. A precise cost breakdown provided detailed insight into the value generation process, leading to considerable cost savings. With so many product innovations introduced in recent years, last year's R&D activities in the Laminates/Elements division focused on optimising processes and improving existing products. In our lab, we developed our own acrylic resins for the production of mineral materials, which will replace the resins previously purchased. This has not only entailed substantial quality improvements and greater flexibility but also reduced the cost of materials. Melamine resins with higher flexional strength have been developed especially for products with tight radii such as certain kitchen worktops and our round-edged doors. The resulting improved post-forming properties have reduced the reject rate and enabled further cost savings. Newly developed products include a metal-gloss GetaCore® board, which is marketed under the name "Star".

Relationships with affiliated companies

According to information supplied by Syntalit AG in April 2002, Syntalit still holds the majority of our company's ordinary shares (73.8 %). Since then, we have received no notification of a change in shareholdings subject to reporting requirements. With regard to our relationships with affiliated companies, we would like to point out that we did not conduct any legal

Capital expenditure and depreciation A million

Investments Depreciation

transactions with Syntalit AG. The respective report required under Section 312 AktG (German Stock Corporation Act) concludes with the following declaration: "Transactions which are subject to reporting requirements did not take place."

Risk management

Westag & Getalit AG considers risk management to be an essential element of successful business management. We understand risk management to include the co-ordination of a large number of measures that we use to initially identify and subsequently remove or limit the effects of risks that all companies face in dynamically changing markets.

The main risk we have been facing for several years now is the slump in the construction and building supply industry. This crisis in the construction industry directly translates into a constant decline in demand and growing pressure on margins, which we are not in a position to fully offset. Accounting for the risk of a further decline in demand on all entrepreneurial levels is one of our highest priorities. The adjustments we have carried out with respect to staff capacities and the cost structure of sourced goods and services have been mentioned before. At the same time, we have implemented a large number of measures in order to achieve a better sales performance than the market as a whole, while keeping prices at a mutually acceptable level. Apart from expanding our exports and introducing product innovations, these measures also cover our extensive range of services, which provides us with clear competitive advantages. In response to the growing number of bankruptcies, also among our customers, we operate a consistent receivables management system. Appropriate credit insurance of most of our accounts receivable plays an important role in this context. In addition, we use the customer ratings prepared by our credit insurer with a view to responding to critical developments even faster than in the past . A risk that we cannot easily quantify are the extended guarantee periods introduced under the German Law of Obligations Reform Act in the past year. We have accounted for this risk by raising our respective provisions in the financial statements for 2002. To cover our elementary risks, we have taken out an updated fire and business interruption insurance. We are also insured against machine downtime and high water. For financial reasons, we have not taken out an insurance against breakdown of the electronic data processing system. To protect our IT infrastructure against technical errors or other malfunctions, our central IT system is backed up by an additional system in a new second computing centre. In case of a breakdown of the mainframe, the back-up system will step in without any

material interruption.

Management report - Outlook

Based on an optimised cost structure, Westag & Getalit AG aims to increase its market share by expanding its exports, launching new product lines and offering new services.

The economy in 2004

Even though some economic optimists have identified signs of the long-awaited economic upswing, Westag & Getalit AG is only moderately optimistic. We expect the current fiscal year to be another challenging year. The price war fought at retail level has a direct impact on manufacturers. We consider it doubtful that consumers will spend more money on consumer goods and reduce their savings ratio. Germany continues to suffer from a backlog of reforms, which makes it impossible for the German population to predict what further cutbacks they will be facing. We do not expect the spending climate to brighten before this question is resolved. We do see good prospects, however, within the EU and in the world market which will form the basis for our export strategy in 2004.

Outlook for Westag & Getalit AG

The general economic environment in Germany remains characterised by uncertainty. Accordingly, our domestic sales projections are quite conservative. In the export segment, however, we expect sales to increase significantly due to substantial upfront investments in the sales organisations in individual export markets. Our aggressive cost management policy will be continued.

Clearly increased electricity prices and a further rise in insurance premiums mean that we will have to cope with cost increases which we cannot influence directly.

In Germany, we expect our reorganised DIY store sales team to provide important stimulation. Our efficient product range in conjunction with a sophisticated marketing strategy and exemplary logistics mean we can offer this customer group a service package that is perfectly customised to their specific requirements.

Capital expenditure

Investments of c 10.4 million have been budgeted for 2004. As in 2003, our investment activities will not focus on additions to capacity but on efficiency and quality-enhancing measures and investments in new products.

Results

With the negative sales trend halted in the past fiscal year, we project a moderate increase in sales for 2004. With regard to income, this year's sales price level is an important unknown quantity. As we do not expect the price trend to turn around in the short term, we do not project a further increase in profit.

However, we expect our positive results trend to continue to the extent that the environment for construction investment improves, with Westag & Getalit AG capitalising on its export opportunities.