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Annual Report

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Annual Report

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Summary

2 0 0 32 0 0 3Key numbers 01

Chairman’s message 02

2003 operations report 03

Continuation of Partnership Policy 06

2003 Significant Events 06

2003 Financial Results 07

Company results 09

Investments and financing 13

Research and development 13

Transition to IFRS standards 13

2004 Outlook 14

5-year financial results highlights 14

Stock Market Performance 15

Executive Management Team 16

Report of the Chairman of the Board on the preparationand organization of the Board of Directors proceedings and oninternal control procedures 17

Balance sheet AIncome statement B

French language part

STEDIM S.A. Z.I. des Paluds - Avenue de Jouques - 13400 Aubagne - France - Tél. : (33) 04 42 84 56 00 - Fax : (33) 04 42 84 56 18www.stedim.com

1

Net Sales Net Profit-Group share

0

1,0

2,0

3,0

4,0

0,5

1,5

2,5

3,5

4,5

5,0

2.0

3.7

4.8

3.5

1999 2000 2001 2002 2003

3.1

Stockholders' equity Borrowings

0

10

15

5

20

25

30

1.7 1.0

17.721.5

25.827.5

1999 2000 2001 2002 2003

1.1

28.8

0

10

20

30

40

5

15

25

35

45

50

24,8

31.9

39.1 41.0

1999 2000 2001 2002 2003

41.1

24.8

0

2

3

1

4

5

6

7

8Operating cash flow

Investments

1.10.5

1.7

8.8

3.6

5.1

6.2

5.2

1999 2000 2001 2002 2003

3.9

5.6

Operating cash flowInvestments

Stockholders’ equityBorrowings

Key numbers (in euro millions)

Stock performances 2003 2002 2001

Number of shares 1 258 983 1 144 442 1 039 602base data adjusted for number of shares in 2003 (€ per share)

Earnings Per Share basic 2.43 2.75 3.79Net profit growth (11 %) (27%) 40%Cash Dividend 0.67 0.67 0.67Dividend distribution 28 % 24% 19%Average price for the year 44.80 63.63 80.98High price for the year 59.41 99.01 107.76Low price for the year 28.92 28.73 68.46Average daily trading volume 1 330 1 333 660Market capitalization at year-end (€ millions) 56 80 102

€

01 02 03 04 05 06 07 08 09 10 11 12 01 020

30

40

50

10

20

60

70

80

90

500

2000

2500

3000

1000

1500

0

2003 2004

03 04

Stockprice

Dear Shareholders,

When I reviewed our 2002 results one yearago and noted that 45% of our sales werein $US dollars, I commented that we couldlikely expect another depreciation of the$US dollar relative to the euro in 2003.This is precisely what occurred, to an evengreater extent than forecast by analysts,with the $US dollar dropping in value by19% against the euro in 2003.

This is the primary reason why our sales growth wasmarginal and our profitability was down, when measuredin euros. On a constant exchange rates basis, Group salesactually increased 8%, while operating profit rose 9%and after-tax profit jumped 31%. Despite this economicphenomenon, STEDIM remains a very healthy company,with borrowings only amounting to less than 4% ofequity. The Group looks forward to 2004 as a new phasein its development.

As we celebrate STEDIM’s 25th anniversary, a quickoverview of our situation indicates that we haveprogressively assembled an impressive array of solidstrengths: - concepts and products fully validated by our

pharmaceutical markets- a prestigious clientele and a strong image of leadership - a production capacity able to triple current activity

levels - quality human resources- a winning strategy.

Our Development Plan for the next 10 years is first andforemost based on the potential of thebiopharmaceutical market and on a few major accountsthat we are honored to serve as prefered suppliers,including AMGEN, GENENTECH, BIOGEN / IDEC, BAYER,SERONO, GSK, MERCK and AVENTIS. All our researchindicate that the production requirements for newgeneration medicines will increase four to six-fold overthe next 5 years. We naturally intend to exploit to themaximum this dynamism, as long as the single-use bagsystem that we have developed until now enjoys growingsuccess, while we open new fields of application for ourtechnology.

It is within this framework thatpartnerships already concluded withINTEGRATED BIO-SYSTEMS (freezing), PALLCorp, and PHARMADULE (turnkey facilities)will take on increased value. We shall ofcourse not limit ourselves to these threeagreements. At the beginning of 2004, wesigned a partnership agreement with

APPLIKON (Schiedam, Netherlands) for the developmentand commercialization of single-use bioreactors, forwhich STEDIM’s technology will be a core component.Other partnership agreements will be signed in 2004,which we will comment upon later. Together with ourown R&D activities, which benefit from increasedresources, these alliances will enable STEDIM to expandits offer on its market by evolving its products to high-added value, full turnkey systems.

Our organization has also adapted to new challenges thatwe have initiated. From 2004, our organization will bemarked by the evolution of our two major geographicregions, Europe and North America, in profit Centers. Theywill be supported and coordinated by Corporate functions,under the direction of Thierry FAVREAU, who your Board ofDirectors appointed as Directeur Général of STEDIM SA onJanuary 17, 2004.

It is under these dynamics that we begin a new cycle inour development. Our objective is to provide STEDIMwith a sufficient business size and the necessary meansto fulfill its legitimate ambitions.

Your Board of Directors will also propose to our GeneralMeeting of May 5, 2004 a maintained € 0.67 per sharecash dividend, with a tax credit. For the 4th consecutiveyear, a stock dividend will be proposed, effectiveJanuary 1, 2004, resulting in the distribution of onenew share for every ten existing shares held.

I wish to take this opportunity to thank you once againfor your loyalty.

Bernard LEMAÎTREChairman of the Board of Directors

Chairman’s message

2

Dear shareholders,

We have convened you to this Combined General Meeting inorder that we may report to you on the operations of theSTEDIM Group and its parent company, STEDIM SA, for thefiscal year ending December 31, 2003, and submit to you, foryour approval, STEDIM Group’s consolidated financialstatements and those of STEDIM SA.

In this regard, we recommend the distribution of a cashdividend per share of € 0.67.

Furthermore, you will be asked to ratify the appointment ofthree directors, the co-opting of one director and theappointment of three new directors.

We also ask that you approve the appointment of a newalternative independent auditor, the previous one havingresigned.

Finally, we shall also ask that you approve the distribution ofa stock dividend consisting of one new share for every existingten shares held.

BackgroundFounded in October 1978 by Bernard Lemaître and BernardVallot, STEDIM really only began its commercial developmentin 1983. STEDIM created the market for Total ParenteralNutrition bags and has developed it successfully in France andinternationally, due to the exceptional quality of the plasticmaterial used to manufacture its EVA bags and its commercialdynamism. The first partnership agreements (with Pharmacia in 1984,followed by Baxter in 1987) in Total Parenteral Nutritionconsolidated STEDIM’s world leadership, which it stillmaintains in 2003, despite the fact that this niche market hasevolved little since the mid-1990s.From the end of the 1990s, STEDIM Group created a powerfulgrowth engine with its bag systems serving the biotechnologyindustry, then in its infancy phase, followed by thepharmaceutical industry, as a revolutionary alternative totraditional stainless steel and glass containers. After a dozenyears of market discovery and product development, thisbusiness took off and now accounts for nearly 79% of Groupsales.At the end of the 1990s, STEDIM completed the developmentof a new generation of bags for large volume storage anddelivery of injectable medication in hospitals, thereby creatinga third area of promising business activity

STEDIM Group has enjoyed a history of continuous salesgrowth:

Sales performance1980 € 0.2 million1990 € 6.0 million2000 € 30.5 million2003 € 41.1 million

The Group has always been profitable

Business modelSTEDIM’s business model is based on the following concept:the replacement of steel and glass containers, used by thepharmaceutical industry to produce liquid medications, withflexible plastic films, that is, bags that are perfectlycompatible with their contents.

These bags may have a capacity of a few milliliters when theycontain single doses of medications that can be injected intopatients or several liters for intensive intravenous nutritiontreatment. For biotechnology applications, STEDIM producedbags can have a capacity up to 3,000 liters, when they areused to feed large-scale production equipment. STEDIM is theonly operator in the world to offer such an extensive range ofplastic bags for the pharmaceutical-medical industry.

Another distinguishing feature of STEDIM’s operations lies inthe diversity of plastic films that make up the different rangesof bags. In fact, STEDIM has developed a very large range offilms, both single and multi-layer, with many manufactured in-house, enabling STEDIM to customize the performances of bagsto the specifications set by each customer or utilization type.

Bags developed by STEDIM are rarely standardized products.The requirements of its businesses lead the Company to createand produce complete systems equipped with tubes, complexconnectors and filters, with the bags constituting the heart ofthe system, which is customized according to each customer’sspecifications. In 2003, the number of different items producedby the Group at all of its production facilities was close to2,000.

2003 operations report

3

MarketsSince its creation, STEDIM has chosen to concentrate onselling to the pharmaceutical market through leadinglaboratories in each market segment.

In 2003, STEDIM was active in three major markets:

• Total Parenteral Nutrition

- STEDIM develops and produces mono and multi-chamberbags, which its customers resell directly to hospitals. Itscustomers are the leading Intravenous Solutions laboratories,such as Fresenius Kabi (Europe), Baxter (USA), B. Braun (USA)and JMS (Japan), as well as homecare service providers suchas Caremark (Europe) and Coram (USA) and wholesalers tohospitals, such as Tacy Medical (USA) and Delta Select(Germany).

Overall, STEDIM accounts for 50% of the EVA bags (non-PVC)market. This market has experienced little or no growth indeveloped countries, but more rapid growth in countries underdevelopment. STEDIM’s growth in this market must thereforearise from increased market share.

• Drug Delivery- In this market, the mission of bags developed by STEDIM isto constitute the definitive packaging through which newgeneration medications are injected. These bags mustgenerally have a capacity of between 30 milliliters and 1 liter,and support, once filled, a high temperature terminalsterilization (125 degrees Celsius, 30 to 45 minutes). This isparticularly the mission for the STEDIM 100 bag type, whosename is derived from the film code that forms its centralelement.

The market for this type of Drug Delivery is considerable, withthe market for North America and Europe alone estimated attens of millions of units in 2003, and potentially from 120 to130 million units for 2010, when a large number of injectablemedications, currently in the clinical trials phase, areexpected.

It is STEDIM’s mission to become a leading player in thisactivity.

• Biopharmacy

- Biopharmacy includes all pharmaceutical activities forhumans and animals, with medications development based onlife sciences. Many experts forecast that the potential for thisnew type of pharmacy is very promising, and that its share ofthe overall pharmaceutical market could increase from 10% in2003 to 50% in 2010. STEDIM’s role in this market is topropose and implement the replacement of traditional glassand steel containers, that are costly and reusable, by single-use, ready-to-use, sterile bags, that are much more cost-effective.

The bag-systems market has considerable potential, currentlyestimated at about € 1 billion, and enjoying a growth rate ofsome 10% per year. However, these systems only cover 7% ofthe replacement potential of traditional processes.

Currently, STEDIM supplies about 65% of the globalbiopharmaceutical bags market, including 75% of Europe’s needsand 50% of North America’s needs, implying a current marketsize of € 50 million to € 60 million. This shows the considerablegrowth opportunities for STEDIM in the coming years.

CompetitionSTEDIM’s competition varies with each market, reflecting thescale of know-how and the ambitions of the Group.

In Biopharmacy, the Group’s major competitors are Hyclone(Ficher Scientific Group), Chartermed, TC Tech, Newport Bioand Advanced Scientific. All are US-based, with only Hyclonehaving operations in Europe, with its own sales network andassembly unit located in the United Kingdom.

In Drug Delivery, the Group’s major competitors are Pactiv(Germany) and Technoflex (France). In this market, which isbarely in its infancy phase, STEDIM’s strong pharmaceuticalculture is an important asset that adds to the quality of itsproducts and the uniqueness of its manufacturing facilities.

In Total Parenteral Nutrition, STEDIM’s major competitors areeither based in North America (Baxter, Secure, Avail), Italy(Miramed, Diffuplast) or Spain (Bexen). Japanesemanufacturers exist, but they do not export outside the Asiaregion, given the price handicap.

STEDIM Group 2003 operations report

4

Total Parenteral Nutrition Drug Delivery Biopharmacy

Activities and geographic locations

STEDIM has a very strong international presence, with threeproduction facilities located in Aubagne (France), a satellitefacility located in M’Hamdia (Tunisia) and Concord (California,USA). These production facilities serve North America fromConcord, and Europe and the rest of the world from Aubagne.

Given the diversity of the markets researched and served bySTEDIM and their location throughout the world, it is essentialthat the Group extend its commercial resources laterally. TheGroup has set as its mission to optimally cover thedevelopment of the North America and Western Europebiopharmaceutical markets through eleven and nine majoraccount executives, respectively. The Group also operates salesoffices in Tokyo, and is represented by exclusive distributorsin South Korea, Australia and Cuba. Additionally, STEDIM isrepresented by a limited number of distributors in Europe(Germany, Switzerland), who serve highly targeted customers.

These commercial teams receive support at many levels: firstly,from a double marketing team for North America and Europerecently strengthened, and then from an engineeringapplications team, with a mission to provide technicalassistance to customers through its two-fold expertise inplastic bag technology and biotechnology. The other level ofsupport provided to the Group’s major account executivescomes from its own R&D, Quality Assurance, Regulatory Affairsand Production Engineering resources. This pyramid of skills,tailored to our customers, represents STEDIM’s driving force inthe conquest of markets.

Customers

Overall, STEDIM serves nearly 500 customers worldwide,including leading pharmaceutical companies such as Pfizer,Merck, Novartis, Glaxo Smithkline, Aventis, Astra Zeneca, EliLilly, Bayer and Baxter, and the most successful biotechnologycompanies, such as Amgen, Genentech, Serono, Biogen,Genzyme, Idec, and Chiron.

STEDIM also serves major hospital suppliers such as Fresenius,Baxter, and B. Braun, major homecare service providers, suchas Coram, Caremark and Clinovia, and selected major medicalequipment and products distributors, such as Tacy Medical.

Group structure

STEDIM S.A.

STEDIM Inc. STEDIM S.A.R.L.

100 % 99.50 %

Aubagne(France)

Concord(California)

M'Hamdia(Tunisia)

STEDIM USA

STEDIMFRANCE

STEDIMTUNISIE

Sales offices

Distributors

2003 operations report

5

Depreciation of $US against the EuroDuring 2003, the $US depreciated by a significant 19%against the euro. This depreciation had a considerable adverseimpact on the Group’s consolidated financial results. STEDIMrealizes 41% of its sales in the United States, either directlyor through its subsidiary based in California. The depreciationof the $US had the following direct impact on sales growthand profitability performance:

2003 sales: € 41,1 million /constant $ basis € 44,3 million

2003 net profit: € 3,1M€ /constant $ basis € 4,6 million

Investments2003 and 2002 were two important years in terms ofinvestments, with the € 12.7 million spent in line with themedium term plans of STEDIM and the needs generated by itsgrowth.

Investments realized during these two years essentiallyconcerned: - the construction of manufacturing facility in Tunis

(2002: € 3 million)- construction of a new office building in Aubagne that houses

the Group’s head office (2002-2003: € 4.8 million)- the acquisition of a minority interest stake in the Group’s US

subsidiary, STEDIM Inc., to give it 100% ownership (2003:€ 0.1 million)

STEDIM’s objective is to continue to build a technologicalplatform around its “single-use” concept, thanks to internalinnovations and external technological alliances.

STEDIM is progressively equipping itself with the necessary meansto respond to the complete needs arising from the managementof very high value added fluids, which the biotechnology industryfaces today. This will enable STEDIM to consolidate its position asthe undisputed world leader in its market.

On February 3, 2004, STEDIM concluded an important partnershipagreement with the Dutch company APPLIKON DependableInstruments BV, for the design, production and sale ofbioreactors used in the research and production of therapeuticproteins. The hermetically-sealed reactor systems produced byAPPLIKON represent the global standard in this sector.

This agreement combines STEDIM’s expertise in thedevelopment and production of single-use bags with that ofAPPLIKON’s regarding the design and production of bioreactorsand their integrated control systems.

Continuation of Partnership Policy

2003 Significant Events

- revamping of Group information system with the acquisition ofan ERP (2002-2003 : € 1.1 million)

- industrial and office equipment purchases (2002-2003: € 3.7million)

These investments were fully financed by the Group’s operatingcash flows.

Group net borrowings amounted to € 1.1 million at December31, 2003, equivalent to 3.9% of equity.

Splitting of Chairman and Chief ExecutiveOfficer Functions2003 was marked by an extensive review of the Group’sorganizational structure in order to better respond to theambitious plan that STEDIM has set itself.

Accordingly, based on the proposal of its Chairman, BernardLEMAITRE, the Board of Directors meeting on January 27,2004 approved the splitting of the Chairman and ChiefExecutive Officer functions. Thierry FAVREAU was appointed asSTEDIM SA Chief Executive Officer, with Bernard LEMAITREretaining the position of Chairman of the Board of Directors.

STEDIM organization is now marked by the evolution of themajors geographic region in accountable profit centers. Theyare supported and coordinated by Corporate functions asFinances, R & D and Quality.

This partnership between APPLIKON and STEDIM will enablethe availability in the market of an innovative range of single-use bioreactors, equipped with all necessary controlinstruments that meet the most stringent requirements.

This partnership is in line with the following agreementsentered into in 2003 with:

- INTEGRATED BIOSYSTEMS INC (IBI): Association of IBI’scontrolled therapeutic proteins freeze-thaw technology withSTEDIM’s single-use bio-compatible bag technology.

- PALL CORP: Exclusive global licensing agreement for the useof the first aseptic connector developed by PALL, with STEDIMproducts

- PHARMADULE: Cooperation agreement between PHARMADULE,the world’s leading supplier of turnkey pharmaceuticalproduction module units, and STEDIM, in order to realizeproduction units with single-bag systems that STEDIM iscurrently developing, fully dedicated to serving the needs of thebiopharmaceutical and biotechnology industry.

6

Analysis of Group sales by business segmentBiotechnology Products sales in 2003 amounted to € 32.4million, accounting for 79% of Group sales.

This predominant share of Group sales arises from theconsistent dynamic growth of this business since its launch in1990, enjoying an average annual growth rate of 24% over thelast five years.

Group sales2003 sales were virtually unchanged on 2002, rising 0.2% to€ 41.1 million. On a constant exchange rate basis, salesincreased by 8%.The Group enjoyed a 5-year average annual sales growth rateof 14%.

Analysis of Group sales by geographic regionThe Group is structurally export-oriented, with 90% of its salesgenerated outside of France. The two major regional marketsfor the Group are North America, which account for 41% ofGroup sales, and Europe (including France), which account for47% of Group sales.

0

10

20

30

40

5

15

25

35

45

50

24.8

31.9

39.1 41.0

1999 2000 2001 2002 2003

41.1

47 %

41 %

12 %

NorthAmerica

CEE(France 11 %)

Others

56 %44 %

Europe &rest of worldNorth

America

Biotechnology products

2003 Financial Results

74 %

26 %

Ethical products

NorthAmerica

Europe &rest of world

(€M)

7

Profitability

Operating profit decreased to € 3.3 million from € 4.5 millionfor 2002. On a constant dollar exchange rate basis, it was €4.9 million.

In 2003, and despite the impact of the $US depreciation,STEDIM continued to implement its investment andrecruitment plan, which it initiated in 2002. Accordingly,operating expenses increased by 7%. With personnel costsrising 5% and amortization, deprecation and provision chargesincreasing by 26%.

The evolution of operating expenses is the direct consequenceof decisions made during the last three years in order toincrease production capacity and recruit talented employeesessential to the successful implementation of its DevelopmentPlan. This significant effort that STEDIM has committed itself toduring these last 3 financial years is now in its completionphase. Means are today in place to respond to the needsgenerated by the growth in the coming years.

The Group incurred a net finance cost of € 0.3 million,comprising € 0.2 million in interest charges and € 0.1 millionin net foreign exchange losses

The Group did not report any exceptional activity income orexpense.

In addition, the STEDIM Group reported no income tax for2003, with companies seeing their company profitabilitysignificantly impacted by the change in exchange rates.

Accordingly, the STEDIM Group saw its net profit decrease to€ 3.1 million from € 3.5 million for 2003. On a constantdollar exchange rate basis, the Group reported a net profit of€ 4.6 million.

Group Operating Profit

0

1,0

2,0

3,0

4,0

0,5

1,5

2,5

3,5

4,5

5,0

2.6

4.24.5

5,5

6,0

5.7

1999 2000 2001 2002 2003

3.3

(€M)

Group Net Profit

0

1,0

2,0

3,0

4,0

0,5

1,5

2,5

3,5

4,5

5,0

2.0

3.7

4.8

3.5

5,5

6,0

3.1

1999 2000 2001 2002 2003

(€M)

2003 Financial Results

8

STEDIM Inc. (Concord, Californie)

Founded in 1990, STEDIM Inc is a US registered company.This fully-owned subsidiary of STEDIM SA had a share capitalof € 3.9 million at December 31, 2003.

This company was created to extend and strengthen STEDIM’spenetration efforts in the North American pharmaceuticalmarkets at the end of the 1980’s. It is today a full profitcenter, with its own commercial, technical, administrative andmanufacturing capabilities.

STEDIM Inc has two major objectives for North America: thepromotion of ethical products (intravenous nutrition and drugdelivery) and biotechnology products. While ethical productsbags for sale in the US are produced by STEDIM France, STEDIMInc itself manufactures biotechnology bags based on bag-chambers supplied to it by STEDIM France’s Aubagneproduction facility. This arrangement was necessitated by thismarket’s trait, whereby each customer, and even each user,sets bag-systems specifications that are specific to its workingenvironment. The nature of this customized business requiresthat customers be served by local production facilities,reflecting the decision to locate STEDIM Inc’s plant inCalifornia.

STEDIM Inc operates a modern production facility covering anarea of 2,800 m2, comprising office space of 400 m2, a class10,000 clean room of 400 m2 and a logistics area of 2,000 m2.Taking into account the expected evolution of the market inthe United States, STEDIM Inc seized the opportunity todouble the surface area of its facilities to 5,000 m2.Led by its President, Christopher Rombach, STEDIM Incemploys a workforce of 55, of which 16 are employed in salesand marketing, and comprising 14 managers, 8 supervisors, 14employees and 19 operatives.

0

4

8

12

2

6

10

14

16

1999 2000 2001 2002

8.511.4

13.314.9

16.3

2003

Sales performances $US millons

Investments and financing

STEDIM Inc realized investments of € 0.1 million in 2003,primarily concerning computer hardware and productionequipment.

These investments were entirely self-financed. STEDIM Inc didnot borrow any funds during 2003 from banks or from theGroup parent company, STEDIM SA, and had no financial debtsat year-end.

Company results

STEDIM Inc realized 2003 fiscal year sales of $US 16.3 million,up 9% over 2002, with an average annual increase of 18%over the last five years. On a Euro basis, STEDIM Inc realized sales of € 14.4 million,compared to € 15.6 million for 2002.

1914

148

OperativesManagers

Supervisors

Workforce

Employees

9

STEDIM SARL (M’Hamdia – Tunisia)

Founded in 2000, STEDIM SARL is a Tunisian registeredcompany. 99.5%-owned by STEDIM SA since January 1, 2002,STEDIM SARL had a share capital of Tunisian Dinar (TD)200,000 at December 31, 2003. This company was establishedto fulfill the following important objectives of the STEDIMGroup:

• Develop a production capacity capable of absorbing thegrowing needs of the Group until 2010, in addition to theexcess capacity already available at the Aubagne andConcord facilities.

• Achieve production cost reductions due to a low-cost qualityworkforce, a particularly important point for products likeintravenous nutrition bags that are subject to strongcompetition.

• Diversify the STEDIM Group’s production sites in order toreduce related concentration risks, thereby providingcustomers and stockholders with greater security.

Since its recent creation, STEDIM SARL has focused most of itsactivity on the production of intravenous nutrition products inaddition to the production of some biotechnology products.The production of these products requires high frequencysealing, manual assembly and automated packaging works.STEDIM SARL realized 2003 fiscal year sales of € 7.8 million,up 59% over the previous fiscal year.

Company results

0

2

4

6

1

3

5

7

8

2002 2003

4.9

7.8

Sales

Workforce

57

39

2

Plantworkers

Managers

Technicians andsupervisors

STEDIM SARL is now organized as a profit center. In order toachieve this, the M’Hamdia site was progressively structuredby its Managing Director, Sami Ben Dhiaf, who reports toSTEDIM SA’s Industrial and Logistics Director. At December 31,2003, STEDIM SARL employed a workforce of 71, comprising 2managers, 6 technicians and supervisors, 57 plant workers and3 office employees.

Located on a 23,000 m2 property, STEDIM SARL’s productionfacility covers an area of 4,000 m2, including one class 10,000clean room covering 850 m2. The production building surfacearea may be tripled if necessary.

M’Hamdia achieved normal production activity in 2003,significantly contributing to Group profitability thanks to thequality of its workforce and management.


STEDIM SARL made investments of € 0.1 million in 2003,primarily concerning production equipment.

STEDIM SARL has no borrowings from financial institutions.It has availed itself of a € 0.5 million advance from theGroup’s parent company, STEDIM SA.

(€M)

Employees

10

The STEDIM SA workforce reflects gender harmony on both ajob category and functional basis, reflecting its commitmentto gender equality, by ensuring equal opportunities.

Company results

STEDIM SA (Aubagne – France)

STEDIM SA is the Group’s parent company, and holder of itsstake in STEDIM Inc and STEDIM SARL. STEDIM SA is also theheart of the STEDIM Group and its principal center of activity.It also acts as the Group’s head office, exercising corporatefunctions, with Finance and Strategy considered as key.

STEDIM SA also operates the Group’s principal productionfacility and is responsible for its European commercial andexport activities, with those of North America managed bySTEDIM Inc.

STEDIM SA operates a production facility covering 13,000 m2

in area, including two 10,000 class clean rooms covering atotal surface area of 3,000 m2 and featuring a highlyintegrated production process: film extrusion and lamination,injection molding, bag sealing, automated and manualassembly and packaging and sterilization operations.

STEDIM SA also houses all of the support functions required byits non-US operations, as well as those serving all of theSTEDIM Group: Research and Development, StrategicMarketing, Finances, Quality and Regulatory Affairs

Human Resources

Workforce

The company employed a workforce of 237 in 2003, comparedto 254 for 2002.

The numbers of managers increased by 11, while the numbersof supervisors and operatives and employees decreased by 4and 24, respectively.

In 2003, the company employed 7 persons on fixed termcontracts, with none employed on this basis at year-end. In2002, the company employed 12 persons on a fixed termcontract basis.

This evolution in workforce reflects the Aubagne operationsincreasing orientation towards providing support for itssubsidiaries and its greater focus on technical expertise andinnovation.

Organization of workweekThe workweek for STEDIM SA employees was reorganized,effective January 1, 2001, following an agreement reachedwith personnel within the framework of the 35 Hour Workweeklaw. Each category of employee thus benefits from additionalrest days, determined according to the nature of their mission,the weekly work schedules in place and constraints arisingfrom job assignments.

Professional trainingA company enjoying strong growth, STEDIM SA has developedan ambitious training program over many years, enabling aconstant adaptation of its human resources to new challengesarising from the evolution of the company. In 2003, training programs focused on the following themes: - continuation of the 2002 program initiated concerning

general and project management training, with the objectiveof developing workgroup skills and competencies on cross-functional matters

- computer and language training- quality assurance and safety technical training in order to

achieve action plans focusing on production processoptimization.

Remuneration paid in 2003Management € 3,0 millionTechnicians and supervisors € 1,5 millionOffice staff € 0,1 millionPlant workers € 2,2 millionTotal € 6,8 million

•Profit sharing plan

Wishing to share the achievement of set objectives with itsemployees, STEDIM SA concluded in 2002 a profit sharing planfor the next three years, taking into account the realization ofcompany business performance targets (operating profit), aswell as the achievement of specific objectives relating toproduct quality, customer service, work organization andsafety improvements.Contributions to the profit sharing plan in 2003 amounted to€ 82 thousand.

107

64

59 7

Operators (including 1handicapped

employee)Managers

Employees

Workforce

Supervisors andtechnicians

11

0

10

20

30

5

15

25

35

20.926.1

30.7 33.335.5

1999 2000 2001 2002 2003

(€M)

Investments and Financing

STEDIM SA, the parent company, made investments of € 3.7million in 2003, primarily arising from the:

-completion of the construction of the office building inAubagne

-acquisition of industrial equipment -current development of a new information system

These investments were entirely self-financed.

5-year company financial results highlights (in €) 2003 2002 2001 2000 1999Share capital at December 31 year-endShare capital 3,839,898 3,490,548 3,170,786 2,875,930 2,812,201Number of shares in circulation 1,258,983 1,144,442 1,039,602 942,928 922,033

Fiscal year resultsSales (ex-VAT) 35,469,912 33,279,001 30,694,063 26,139,533 20,934,965Profit before depreciation, amortization and provision charges, profit sharing plan contributions and income tax 3,084,170 1,715,521 2,092,380 2,185,469 863,318

Income tax 8,695 2,265 417,491 297,285 147,144Employee profit sharing plan contributions 0 0 86,373 67,222 17,901Net profit 747,757 360,703 896,637 1,097,158 227,373

Dividend distribution (proposed distribution for 2003) 843,519 766,835 696,533 518,610 461,017

Earnings and Dividend Per ShareEarnings Per Share – after tax and profit plan contributions but before depreciation, amortization and provision charges 2.44 1.50 1.53 1.93 0.94Dividend Per Share 0.59 0.32 0.86 1.16 0.25

Earnings Per Share - final 0.67 0.67 0.67 0.55 0.50

PersonnelWorkforce size 237 254 41 32 24Payroll expense 7,154,337 5,622,903 1,870,383 1,297,165 933,909

Social security charges 3,434,241 2,584,214 923,165 591,566 436,478

Company results

2003 SalesSTEDIM SA realized 2003 fiscal year sales of € 35.5 million,up 4% over 2002, with an average annual increase of 14%over the last five years.

Environmental ProtectionSTEDIM develops and manufactures flexible single-usecontainers from plastic materials for the bio-pharmaceuticalindustry. The majority of the production is realized from non-PVCplastics, enabling their recycling after use. The production activity is centered on plastics transformationprocesses, such as film extrusion, injection of molded parts,sealing of films and assembly. These production techniques donot impact on the environment, as they do not discharge anynoxious waste into the atmosphereAs well, all of the production is realized in a controlledatmosphere. Thus, all aspects of production are undertaken ina class 10,000 (1) clean room, resulting in near sterileinstallation cleanliness(1) A 10,000 class clean room tolerates a maximum presence of 10,000 particles of 0.5micron per cubic foot.

The cost of 2003 electricity consumption was € 260 thousand,and primarily concerned clean rooms’ air treatment. The cost of 2003 water consumption was € 20 thousand andprimarily concerned green spaces watering. Finally, STEDIM SA did not cause any noise pollution in itsenvironment. Given its low levels of energy consumption, STEDIM SA did notinitiate any measures to reduce its exposure. On the other hand, STEDIM SA did not initiate any measuresleading to an environmental assessment or certification, asnone of its operations cause any harm to the environment.The company does not have any in-house services or budgetsfor environmental protection. It has not established anyprovisions or guarantees for environmental risks.Finally, as all of the company’s subsidiaries undertake thesame production activities, they also were not exposed toadverse environmental impact risks.

12


Group investments in 2003 amounted to € 3.9 million, comparedwith € 8.8 million for 2002.

2003 investments comprised: • 0.8 million relating to the completion of the construction of a

new office building that will house the Group’s head office(2002: € 4 million);

• 1.0 million relating to the installation and start-up of a newinformation system that will become operational at the end of2004;

• 2.0 million relating to the industrial and office equipmentinvestments;

• 0.1 million relating to the acquisition of a minority intereststake in the Group’s US subsidiary, STEDIM Inc.

These investments were fully financed by the Group’s operatingcash flows, which amounted to € 5.6 million for 2003.Group net borrowings remained virtually unchanged, risingfrom € 1.0 million to € 1.1 million at December 31, 2003,amounting to 3.9% of equity.

Resarch & Development

Transition to IFRS standards

Group research and development activities are focused oncomplete systems for its customers, the pharmaceuticallaboratories, who are seeking turnkeysolutions for their new generationtherapeutic products manufacturing andpackaging operations. These systemsinclude single-use plastic bags, STEDIM’score business, which has progressivelybeen equipped with functionalities andauxiliary products, providing them withthe ease-of-use and versatility sought bycustomers. • Regarding its Ethical Products

business, STEDIM focuses its researchand development activities on newmaterials and new functionalities. In addition to the sub-division into mono-chamber and multi-chamber bags, eachresearch area’s goal is to satisfy the particular specificationsof each of its customers.

• Regarding its Biotechnology Products business, the latter’stwo major product ranges, FLEXEL 3D® and FLEXBOY® have

been gradually complemented byaccessories necessary to offer their usersa complete ready-to-use solution.

• This approach leads STEDIM to threefocal points in the area ofdevelopment:

- internal developments focusing on bagproducts and their manufacturingprocesses

- sub-contracted developments- partnership/cooperation developments

The best approach is determined based on strategic planningneeds and the matching of expected results with internalcapabilities, reflecting the Group’s pragmatic thinking.

In application of this regulation and in accordance with IFRS 1“First time adoption of International Financial ReportingStandards ”, the consolidated accounts of STEDIM Group for thefiscal year-ending December 31, 2005 will be prepared inaccordance with IFRS standards, and will include 2004comparative financial statements prepared under the same basis. In order to publish comparative information, STEDIM willpresent an opening Balance Sheet at January 1, 2004, thestarting point for the application of IFRS standards, and thedate on which the impact relating to the transition will berecorded, primarily into equity. In addition, the majordivergences arising from this change in accounting base willbe identified and commented upon. In this context, STEDIM put into place in November 2003 aIFRS standards conversion project, in order to identify themajor divergences in accounting methods and to prepare anopening Balance Sheet at January 1, 2004, in accordance withstandards applicable in 2005. This analysis will only bedeemed complete with the publication by the IASB of the lastawaited standards and their approval by the European Union.

This IFRS conversion project will be led by the Group’s FinanceDepartment, which will direct the whole project in order toensure that standard accounting polices are implementedthroughout the GroupThe first phase of this project has as its objective thediagnosis of the divergences between the new standards andthe Group’s actual practices. It will be followed by theimplementation of an information system and process in 2004,in particular a new consolidation package, for use in 2005.IFRS standards training initiatives were realized throughout2003, focusing on IFRS conversion project personnel. Traininginitiatives will be intensified throughout 2004, notably withregard to finance and accounting staff. As regards information systems, the implementation of an ERPsystem is currently in process, integrating the IFRS standardsconversion project. STEDIM has identified, to date, a certainnumber of training needs (financial statements format,establishing parameters for required source data). Nevertheless,the information systems specifications will only be able to befinalized when all accounting principles and options applicationmodalities have been approved by the Group.

13

5-Year Financial Results Highlights

In addition, STEDIM is committed to pursuing its partnershipagreements policy with companies whose policies andstrategies are complementary to its own. The Group is aimingfor a rapid penetration of single-use bag systems in thepharmaceutical sector. The recently signed agreement withAPPLIKON for the development and sale of single-usebioreactors reflects this policy.

The success of this strategy will enable STEDIM to enjoysustained sales growth over the very long-term.

STEDIM has a positive outlook for 2004, after a 2003 fiscalyear which saw the Company not fully reach its financialobjectives. STEDIM is expected to continue to enjoy sustainedgrowth, despite uncertainties linked to its geopoliticalenvironment and the Euro/$US exchange rate.

On the basis of an exchange rate of € 1 = $US 1.25, theCompany is forecasting sales growth of about 6%, enabling asignificant improvement in operating profitability. Growthshould exceed 10% on a constant exchange rate basis.

2004 Outlook

Group Consolidated Financial Results

(€ thousands) 2003 2002 2001 2000 1999

Sales 41 068 40 968 39 077 31 863 24 847

Operating profit 3 320 4 508 5 658 4 470 2 729

Profit before minority interest 3 103 3 471 4 775 3 772 2001

Net profit 3 064 3 461 4 770 3 747 1990

Investments 3 889 8 849 1 740 1 124 489

Cash flow from operations 5 589 5 247 6 154 5 114 3592

Net financial assets/(borrowings)

-1 125 - 1 005 + 4 335 + 2 384 - 1653

Shareholders’ Equity 28 804 27 458 25 837 21 521 17691

Total Workforce 363 380 269 310 226Managers 80 62 62 53 48Technicians 76 76 61 55 47Office employees and plant workers 207 242 146 202 131

Ratios

Operating profit to sales 8,1 % 11,0% 14,5% 14,0% 11,0%

Net profit to sales 7,5 % 8,5% 12,2% 11,8% 8,0 %

Investments to operating cash flow 69,6 % 168,6% 28,3% 22,0% 13,6%

Net profit to equity 10,6 % 12,6% 18,5% 17,4% 11,2%

Net debt to equity 3,9 % 3,7% 0% 0% 9,3%

Earnings Per Share (2003 base) (€) 2,43 2,75 3,79 2,98 1,58

14

Background

1994 : Listing on the Second Market of the ParisStock Exchange

January 1996 : Increase in common stock arising from theissue of 104,776 new shares (common stock – FRF 2 million, sharepremium – FRF 24 million)

April 1997 : Distribution of one new share for everyexisting 10 shares held

July 2001 : Distribution of one new share for everyexisting 10 shares held

December 2001 : Listing of STEDIM on the Next Prime Index ofthe Euronext Stock Exchange



Dividends• Proposed dividend distributions by the Board of Directors to

the General Meeting of May 5, 2004:

- Cash dividend of € 0.67 per share (with € 0.33 tax credit)- Stock dividend: 1 new share for each 10 held at January

1, 2004.

Ventuno Investimenti

VL Finance

Public51 %

40 %

9 %

Shareholders

VL Finance SA, STEDIM’s Group holding company, holds 51% ofSTEDIM SA’s common stock and 67% of its voting rights.Ventuno Investimenti holds 9% of STEDIM SA’s common stockand 6% of its voting rights.

Options granted Options exercised Unexercised options

Number Unit Price Previous Acquired Potential€ years 2003 rights(2) rights (2) (3)

EGM of 24/08/94 26,157 (1) 18.98 (1) 23,277 - 2,880 n/a

EGM of 23/06/00 (1) -

BOD of 02/08/00(1) 11,554 47.25 (1) 968 - 7,446 3,140

BOD of 28/09/01(1) 11,611 65.65 - - 5,811 5,800

BOD of 18/09/02(1) 4,525 47.25 - - - 452

BOD of 18/09/02(1) 1,772 65.65 - - - 195

BOD of 14/11/02(1) 2,000 37.30 1,760

BOD of 09/09/03(1) 4,000 43.44 4,000

Subtotal 35,462 - 968 - 13,257 21,175

Total 61,619 - 24,245 - 16,137 21,175(1) Conditions adjusted for the impact of previous common stock increases

(2) Number of options issued, taking cancellations into account

(3) Number set aside for the realization of future objectives

Stock options

Stock Market Performance

Financial information

Presentation of STEDIM and regular update on financial newsInternet www.stedim.com

15

Board of Directors

Bernard LEMAITRE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ChairmanBernard VALLOT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Vice-ChairmanMaria-Dolores LEMAITRE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .DirectorVentuno Investimenti (Gérard PLUVINET) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Director

Independant Auditors

Jérôme MAGNAN : Ernst and Young Alternate : Patrick GOUNELLEJean-Pierre LITTARDI Alternate : Fabrice BARRABES

Executive Board

Bernard LEMAITRE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ChairmanBernard VALLOT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Vice-ChairmanThierry FAVREAU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chief Executive OfficerLaurence CHAULIAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chief Financial OfficerChristopher ROMBACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .STEDIM Inc. President

Management Committee Europe

Thierry FAVREAU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chief Executive OfficerLaurence CHAULIAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chief Financial OfficerPriscilla BORRELLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Human Resources DirectorAlain DOUSSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Manufacturing & Logistics DirectorJacques MELER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sales & Marketing DirectorChristian NEUMANN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bio-Process Development DirectorAndrew SETTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Quality Assurance and Regulatory Affairs Director

Management Committee North America

Christopher ROMBACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .STEDIM Inc. PresidentJeffrey MITCHELL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Finance ManagerDavid BELOMY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Director of SalesWilliam BAILEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Production ManagerFelicia ADLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Quality Systems ManagerTrishna RAY CHAUDHURI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technical Services ManagerRobert SMITH-McCOLLUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Director of Marketing

Board of Directors and Management

16

Report of the Chairman of the Board on the preparationand organization of the Board of Directors proceedings and oninternal control procedures

17

In accordance with Article L-225-37 of the Commercial Code, theChairman of the Board of Directors gives an account in the presentreport, of the preparation and organization of the work undertakenby the Board, as well as the internal control procedures adoptedby the Company.

Preparation and organization of the work undertakenby the Board of Directors

Board of DirectorsThe Board of Directors comprises 4 Directors• Mr Bernard LEMAITRE, Chairman• Mr Bernard VALLOT, Vice-Chairman• Mme Maria-Dolores LEMAITRE, Director• Ventuno Investimenti represented by Mr Gérard PLUVINET,DirectorOther mandates held by the Directors are as follows:• Bernard LEMAITRE, Chairman and CEO of VL Finance• Bernard VALLOT, CEO of VL Finance• Gérard PLUVINET, President of 21 Centrale Partners

A meeting of the Board of Directors is called by the Chairman asrequired by the business.It meets at least twice a year to consider and approve the halfyear and full year financial statements.In 2003, the Board of Directors met 3 times. On January 27,2004, the Board of Directors met and, on the proposal of theChairman, decided to split the functions of Chairman and ChiefExecutive Officer.This decision created a change to the Group’s governing bodies,with the establishment of an Executive Board, chaired byBernard LEMAITRE, the Chairman of the Board of Directors.Each Director received attendance fees of € 4,662 for 2003.Gross annual remuneration received by the Group’s salariedDirectors was as follows:Bernard LEMAITRE : € 88 633Bernard VALLOT : € 54 528

Executive BoardThe Executive Board comprises:• Bernard LEMAITRE, the Chairman of the Board of Directors• Bernard VALLOT, the Vice-Chairman of the Board of Directors• Thierry FAVREAU, the Chief Executive Officer• Laurence CHAULIAC, the Chief Financial Officer• Christopher ROMBACH, the President of Stedim Inc..

The Executive Committee meets once a month. It reviews theGroup’s monthly results and follows up on the progress made inthe implementation of the Group’s strategic and operationaldevelopment.

Management CommitteeThe Management Committee is chaired by Thierry FAVREAU,the CEO.It includes all senior European management, the President ofStedim Inc and its Finance Manager, and acts as a steeringgroup.It was set up in 2003 and meets once a month. Its mission isto direct the Group’s business by managing geographic profitcenters, accountable for their performance.

Chairman’s Internal control Objectives

The internal control objectives of STEDIM are:- To anticipate risks likely to endanger the assets of STEDIMand its survival- To ensure that management acts and the completion oftransactions, as well as personnel behavior, are within theframework defined by senior management, applicable law andregulations and by the core values, standards and internalcode of conduct of the business.- To ensure that the accounting and financial information, aswell as management information provided to legal entities,fairly reflects the operations and results achieved by STEDIM.- To anticipate risks inherent in the business, errors or fraud,particularly in the accounting and financial area.

Analysis of specific risks

STEDIM operates in the pioneering market of Biotechnology. STEDIM brings a novel concept to the management of fluidswith a very high added value, in the production processes ofthe Bio-pharmaceutical industry. Also, certain products madeby STEDIM are in direct contact with patients in hospital orwho are being cared for at home.Research and Development, Innovation and the Production ofproducts are such sensitive areas that risk cannot be accepted.As a result, and from its beginning, STEDIM has adopted everybehavior, procedure, rule and organizational system thatprovides quality control. It is part of the Total QualityManagement approach and meets the ISO 9001 version 2000standard. The other risks to which STEDIM is exposed are those facingall businesses that design, produce and sell heavily in exportmarkets. Taking account of the strong Quality culture atSTEDIM, these risks were considered and led to the Qualitymanagement model created by the business.

Summary of the internal control process systems

An organization set up following the operational processesof STEDIM

The identification of processes within STEDIM provides a clearview of how the Company operates and provides the controltool to the Chief Executive Officer, as well as to seniormanagement.The processes fall into 3 categories.

- Achievement This relates to all steps in the product life cycle, theidentification of customer needs until their satisfaction:design, sell, plan / procure, purchase, store , produce, control,send

- Support functionsThese contribute to the achievement by providing humanresources. Innovate, Manage the infrastructure and equipment,Qualify – Control, Manage regulatory affairs, Manage thedocumentary system, Organize and manage the informationsystems, Manage Human Resources, Manage the Accountingand Finances

- ManagementThis contributes to the determination of strategy, objectives,and processes to provide continuous improvement: implement– improve, direct operations, measure – evaluate – control,communicate


Document architecture

The documentation of STEDIM ‘s management systemcomprises: the processes, a quality manual, procedures,instructions, operating methods, standard forms, listsprotocols, reports, specifications, terms of reference.

All these documents, as well as reports made to the meetings,management reports, and financial statements packs comprisethe documents used to manage the internal control process.

COMMUNICATE MEASUREIMPROVEMANAGE

CONTROL STORE

PURCHASE

DESIGN

MANUFACTURE

SHIPPLAN

SELL

QUALIFYVALIDATE FINANCIAL CONTROL

MANAGE THEINFORMATION SYSTEM

MANAGE HUMANRESOURCES

DOCUMENTATIONMANAGEMENT

EQUIPMENTFACILITIES

REGULATORYAFFAIRS

DEVELOP

18

The major players in managing the Quality Control Systemand Internal Control

Responsibility and authorityAll positions and responsibilities have been defined to

provide an optional definition of the organization. Thesepositions are also described in the organizational andfunctional organigrams.

In addition, each position carries a specific description,which gives a precise definition of the function. These jobdescriptions are revised periodically by DepartmentalManagement and finally Senior Management, to ensure thatthese documents are consistent with the evolution of thebusiness.

Quality Manager in Senior Management The quality manager represents senior management in the

area of QualityHe ensures that all processes are defined, followed up,

controlled and maintainedHe reports to his manager the performance of quality

managementHe checks and reports every incident that calls into

question the quality of products or services offered by STEDIM.The Quality Manager is the “Vigilant Party” as regards theauthorities.

Internal Control Manager in Senior Management The Chief Financial Officer represents Senior Management in

the implementation of an Internal Control System.She ensures that processes are defined, to enable the

regular and accurate reflection of all flows or commitmentsthat have financial consequences in the parent company andconsolidated financial statements of the STEDIM Group.

She issues every financial report to measure theperformance and to describe the net assets of STEDIM.

She reports every incident or breakdown of which she isaware that could have an impact on the content and quality offinancial information provided and draw attention to thepreservation of STEDIM’s assets.

Resource Management

The Senior Management of STEDIM determines and providesthe necessary resources to manage the organization.

Human Resources STEDIM recognizes the importance of human resources withinits organization and has set up an extended and evolvingprogram to manage human resources. These principles are based on the following four mainheadings: skills management, awareness programs for newrecruits to the values of the business, training, personalqualifications.

In 2003, STEDIM established, published and shared its valueswith its personnel. These are: Excellence, Respect and Loyalty,Pride, Teamwork and Entrepreneurial Spirit. These values aredirected at satisfaction of customers, shareholders and allthose who work with STEDIM.

InfrastructuresThe buildings and equipment were specially designed to meetthe quality requirements of STEDIM and to fully meet allstandards and regulations that apply.

Work EnvironmentThe work environment was designed to ensure and maximizethe comfort and safety of everyone, while meeting the needsof production and the management of products for thepharmaceutical industry and medical applications.

Control of procedure application

External Audit

STEDIM invites many of its customers to audit its infrastructure.These audits are an important source of evaluating thebusiness. Beyond customer satisfaction, these audits alsoprovide benchmarking, leading to improvements to be made toprovide better customer satisfaction.Also, STEDIM and its subsidiaries satisfy the obligations forexternal audit of its financial statements and procedures, inaccordance with the law and regulations in force.

Quality Internal Audit

STEDIM regularly carries out quality internal audits to verifythat the process is working properlyThese are scheduled over a period of 12 to 24 months and thisis approved by the Management Committee that ensurescoverage of the entire process.


19

Auditors are appointed by the Management Committee from alist of qualified auditors (by an external organization, byexperience or as a tutor), ensuring their independence fromthe sector being audited.These are 4 phases to the audit: preparation, audit visit, auditreport, follow upA summary table of audit reports is presented for managementreview as an indicator of the relevance and efficiency of thesystem.

Supervision and process measurementAll processes are supervised by the departments to which theybelong. The Quality department must check that thissupervision is carried out properly.

Data analysisIn order to demonstrate the relevance of the system and itseffectiveness, the following data are collected regularly andanalyzed:- Non conformity- Customer complaints- Audit results- Report of previous management reviews- Corrective and preventive action

Continuous improvementThe scheduling system for continuous improvement actionsplans (CIAP) enables all steps to be summarized centrally.The CIAP system enables a continuous improvement actionplan that prevents the reappearance of internal non conformityand customer complaints, and responds to differences noted ininternal and external audit reports.A decision-making committee, called the CIAP workgroup,defines the priorities from among all the proposed actionplans. It comprises representatives of the Industrial, Financial,Quality, Production, Technical and Maintenance Departments.Its mission is to approve the priority action plans that requireresources, and then allocate the necessary resources (humanand financial).

Financial Information: Established internal controlprocedures

Accounting OrganizationSTEDIM S.AAll accounting is carried out at the registered office by theAccounting and Consolidation Department. The managerreports to the Chief Financial Officer.The general accounting is in analytical form and kept usingpurchased software.

STEDIM Inc.

STEDIM Inc. is organized in the same way as its parentcompany: accounting is in-house using purchased software.

STEDIM SARL

STEDIM SARL, which is purely a production unit, has a reducedadministrative department. In order to guarantee the principleof separation of duties, the basic premise of Internal Control, allthe accounting work is carried out by the parent companySTEDIM S.A in accordance with Tunisian accounting standards.

Internal control procedures application to the presentationand processing of accounting and financial information

• Intangible assets

Software costs comprise the licenses, development and start-up costs. Costs are capitalized following approval byManagement Control of the costs incurred in the variousphases of the project.

Brands and patents are recorded at their registration cost.Research and development costs are not capitalized.

• Property, plant and equipment

Land and buildings are carried at their historic cost ofacquisition. Plant and equipment is the responsibility of theIndustrial and Logistics Management.

Acquisitions are recorded on the basis of an invoice, anownership transfer or own work capitalized, evaluated byIndustrial Management and approved by Management Control.The asset register is reviewed annually to eliminate assets nolonger in use.

• Inventories

Inventories are physically checked, valued and possiblywritten down in accordance with Group rules.


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• Accounts receivable

An account receivable arises directly from sales invoicing.Settlement of these balances is subject to a reminder andrecovery procedure designed to control the number of daysoutstanding. Where necessary, balances are written down inaccordance with Group rules.

• Tax liabilities

Every Group company is responsible for the calculation,recording and management of taxes. Every month, theconsolidation department calculates the deferred taxes andrecords them in the consolidated financial statements.

• Provisions for liabilities and charges

Every Group company is responsible for the calculation,recording and management of taxes. Every month, theconsolidation department calculates the deferred taxes andrecords them in the consolidated financial statements.

• Provisions for liabilities and charges

Risks are covered by provisions recorded by each Groupcompany from the month that the probability is consideredlikely. These risks are followed up and analyzed by GroupFinancial Management. Provisions for exchange risks arecalculated every month and recorded for every company withan exposure. These are recorded in the monthly financialstatements.

• Financial debt

The parent company of the Group controls the financial debt.It generates the Group financing plan and manages the Grouptreasury as well as its financial requirements. It also managesthe exchange risk with a chart that is updated daily.

Organization of internal accounting and financialinformationEvery Group company issues a monthly report with itsfinancial statements, whose format and content are defined bythe parent company, STEDIM SA.

Every month, STEDIM prepares a monthly report on itsconsolidated results. These are measured against the previousyear and the budget. They are re-estimated every month toprovide the best estimate of the year end position and arecompared to the budget.

Management Control, which supervises the budget procedure,makes an in-depth analysis every month of differences withthe operating staff.

Every quarter, STEDIM prepares a full set of consolidatedfinancial statements. Whilst focused on profits, there is adetailed analysis of the balance sheet items:

• non current assets and progress on investments

• total inventories and related provision

• working capital requirements

At the same time, a monthly chart discloses the control overaccounts receivable and the forecast treasury position. Thesereports, issued by the Group Chief Financial Officer, arepresented to and commented on by the Group ExecutiveCommittee every month.


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(euro thousands)

ASSETS 2003 2002

Current assetscash and bank deposits 2 255 2 690short term investments 626 10accounts receivable 6 740 8 044other current receivables 1 023 1 844inventories 8 180 7 475prepaid taxes & expenses 650 1 081

Total (1) 19 474 21 144

Fixed assetslong term investments 50 54Goodwill 44 0tangible assets 20 224 19 416intangible assets 377 227

Total (2) 20 695 19 697

Total ( 1+2) 40 169 40 841

(non audited)

(euro thousands)

LIABILITIES & STOCKHOLDERS' EQUITY 2003 2002

Current liabilitiesaccounts & notes payable 3 862 5 687accrued liabilities 3 258 3 791short term borrowings 0 0

Total (1) 7 120 9 478

Long term liabilitieslong term debts 4 006 3 705other non-current liabilities 218 177minority interest in subsidiaries 21 23

Total (2) 4 245 3 905

Stockholders’ equitycommon stock 3 840 3 491share premium 2 614 3 092retained earnings 20 812 18 322net profit for the financial year 3 064 3 461translation adjustment (1 526) (908)

Total (3) 28 804 27 458

Total (1+2+3) (non audited) 40 169 40 841

(non audited)

CONSOLIDATED BALANCE SHEET

A

(euro thousands) 2003 2002

net sales 41 068 40 968

cost of goods sold (20 296) (22 725)

gross profit 20 772 18 243

selling, general and administration expenses (17 453) (13 735)

profit from operation 3 319 4 508

net financial income (expense) (265) (258)

profit before extraordinary items and profit sharing 3 054 4 250

net extraordinary income (expense) (2) 77

employee profit sharing plane contributions 0 0

profit before taxes 3 052 4 327

income taxes 51 (856)

goodwill amortization (22) 0

net profit 3 081 3 471

minority interest (17) (10) (5)

Net profit -group share 3 064 3 461

(non audited)

CONSOLIDATED INCOME STATEMENT

B

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