Annual Report 2003 | 2004

Contents
Letter to our shareholders Highlights Financial highlights and key figures Managements review Knowledge and competences Shareholder information Corporate governance Corporate structure Board of Directors, Executive Board and Board of Management Financial review Risk management Managements statement and auditors report Accounting policies Cash flow statement Income statement for the financial year Balance sheet Assets Balance sheet Liabilities Statement of changes in equity, Group Statement of changes in equity, parent Notes Addresses Ambu in brief Mission
Ambu markets innovative diagnostic and life-supporting devices that provide genuine value and ultimately improve the quality of patient care.

3 4 5 6 16 18 20 22

23 24 28 30 31 36 37 38 39 40 41 42 50 51

Vision
Based on a deeper understanding of customers needs and behaviours we will constantly exceed their expectations and build strong, long-lasting relations.

AMBU 2003 | 2004

Letter to shareholders our shareholders

In the past year we came several steps closer to realising the objectives laid down in Strategy 2005. Strategy 2005 contains ambitious objectives for the development of Ambu, and recent years have therefore been characterised by major changes in all parts of the company. Development resources have been increased, while the development process has been profoundly reengineered. The production of Ambus products has been made more efficient, and considerable production capacity has been established in Denmark and China. The competences of the sales organisation have been strengthened and the marketing of Ambus products has been streamlined. The purpose of all these changes is to establish a position for Ambu as an international leader within selected business areas and in selected markets. FY 2003/04 was in many ways a test to see whether the new innovation model works and it does. The spring of 2004 saw the launch of three new products, and the entire process from idea to development, production and marketing has been based on this new model. One of the results is that the period from idea to finished product has been shortened considerably. The most important of the three new products is the Ambu Laryngeal Mask, a single-use laryngeal mask used to maintain breathing in fully anaesthetised patients. The laryngeal mask was first marketed in 1992/93 by a British company, and the original patents have expired. Ambu succeeded in modifying the original product to such an extent that it now meets an obvious market need. At the same time, the

new single-use product is a perfect addition to Ambus existing product portfolio, and the market potential is considerable. We expect the laryngeal mask to contribute considerably to growth in the coming years. Ambus very ability to develop innovative products is a precondition for the companys future success, and considerable importance consequently attaches to ensuring that the business model and company culture foster an innovative approach. We have launched a number of specific activities designed to encourage innovation. These activities include very close collaboration with customers, the establishment of internal knowledge centres, interdisciplinary team collaboration and an annual innovation day. In the autumn of 2004 we started preparing the strategy which will succeed Strategy 2005 and which is to lay down the framework for Ambus development in the coming years. The pillars of Strategy 2005 have proved sound, and in a number of ways the new strategy, which will be known as Strategy 2008, is expected to continue the strategic course charted by Strategy 2005. This does not mean, however, that we will not be setting ourselves new ambitious targets on the contrary. We will carefully consider the requirements which Ambu as a company will be expected to meet in the coming years as well as the main trends expected to prevail in our markets. Against this background we will decide on a course. Work on the new strategy is expected to be completed in the spring of 2005.

Kurt Erling Birk President & CEO

AMBU 2003 | 2004

Highlights

Revenue and EBITA margin

Ambu has in the past year come several steps closer to realising the objectives laid down in Strategy 2005 revenue and earnings are up, three new products were launched in the spring of 2004, the sales organisation has been enlarged and an ever-larger share of production is carried out in Asia. Revenue in FY 2003/04 totalled DKK 608.1m, corresponding to a 7.3% increase relative to the year-earlier level. Measured on the basis of unchanged exchange rates from 2002/03, revenue in 2003/04 would have totalled approx. DKK 629m. In local currencies, organic growth totalled 10.9%. EBITA increased by 4.4% to DKK 63.3m, up from DKK 60.7m last year. Adjusted for income from the divestment of subsidiaries and product areas in 2002/03, the increase came to 23.6%. Profit before tax totalled DKK 45.7m against the year-earlier level of DKK 34.4m, up 32.8%. Adjusted for income from the divestment of subsidiaries and product areas in 2002/03, the increase came to 87.4%.

EBITA

Revenue and profit are in line with the expectations announced at the beginning of the year. Cash flow from operating activities totalled DKK 54.8m in FY 2003/04 against DKK 63.1m last year, which is largely attributable to more funds being tied up in trade receivables.

The Board of Directors proposes that a dividend be declared of DKK 2 per share for FY 2003/04, amounting to an increase of 43% relative to 2002/03, and corresponding to 35% of the profit for the year. In FY 2004/05 consolidated revenue is expected to increase to the level of DKK 670m, corresponding to a growth rate of 10%. These expectations are based on an average USD exchange rate of 600. Against the backdrop of the expected growth in revenue, an improved product mix, continued improvements in production efficiency, but at the same time with prospects of rising sales and marketing costs, EBITA is expected to be in the range of DKK 85m in FY 2004/05. Profit before tax is forecast in the range of DKK 65m.

Profit for the year

In 2004/05 a cash flow from operating activities of DKK 60-70m is expected, up from 2003/04. Expectations as regards revenue and earnings are based on an average USD exchange rate of 600. A change in the USD exchange rate of 50 will result in a change in EBITA of approx. DKK 4m and a change in the profit before tax of approx. DKK 3m. In 2003/04, the average USD exchange rate was 612.

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Financial highlights and key figures

DKKm
Financial highlights Revenue Oper. profit before ord. depreciation and goodwill amortisation (EBITDA) Operating profit before amortisation of goodwill (EBITA) Operating profit (EBIT) Net financials Profit before tax (PBT) Profit for the year

1999/00
283 32 23 23 1 24 18

2000/01
406 37 20 16 0 16 12

2001/02
575 72 43 36 (8) 27 15

2002/03
567 90 61 52 (18) 34 26

2003/04
608 94 63 52 (6) 46 33

Total assets at year-end Equity at year-end Share capital

302 191 45

544 276 58

563 284 58

556 294 58

591 320 59

Investments in fixed assets and acquisitions Depreciation and amortisation, fixed assets Cash flows from operating activities Free cash flow

50 9 7 (45)

173 21 20 (148)

44 36 26 (16)

55 38 63 26

73 42 55 (14)

Average no. of employees Key figures

248

722

810

875

1.024

EBITDA margin, % 1) EBITA margin, % 2) Operating margin, % 3) Return on assets, % 4) Return on equity, % 5) Equity ratio, % 6) Profit per DKK 10 share 7) Equity value per share 8) Share price at year-end

11.3 8.1 8.1 7.6 8.9 63 3.92 42 48

9.2 5.0 3.9 2.9 5.1 51 2.32 48 42

12.4 7.5 6.2 6.3 5.4 50 2.60 49 36

15.9 10.7 9.2 9.4 9.0 53 4.51 51 61

15.5 10.4 8.6 8.8 10.8 54 5.72 54 108

1) EBITDA margin: Operating profit before ordinary depreciation and goodwill amortisation in % of revenue. 2) EBITA margin: Operating profit before goodwill amortisation in % of revenue. 3) Operating margin: Operating profit in % of revenue. 4) Return on assets: Operating profit in % of total assets. 5) Return on equity: Ordinary profit after tax rated to average equity. 6) Equity ratio: The proportion of total liabilities to equity at year-end. 7) Profit per DKK 10 share: The proportion of profit after tax to average no. of shares. 8) Equity value of shares: The proportion of total equity to no. of shares at year-end.

The key figures have been calculated in accordance with The Danish Society of Investment Professionals Recommendations and Financial Ratios. For share-related figures, see p. 19.

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Managements review

Ambu is currently undergoing a comprehensive process of development and change, and the objective for FY 2003/04 was to establish a strong position for Ambu within selected business areas. This objective has been fulfilled, and Ambu is furthermore expected to pursue the plans and strategies laid down in Strategy 2005 during the remainder of the strategy period. In the opinion of the management, FY 2003/04 and the results for the year are satisfactory. Important elements in Ambus strategy have been changing the entire process for the development of new products, increasing available development resources and a comprehensive streamlining of production. In the spring of 2004, three new products were launched: the Ambu Laryngeal Mask, a single-use laryngeal mask used for maintaining breathing in fully anaesthetised patients, the Ambu Neuroline Cup Electrode, a single-use cup electrode for measuring

electric activity in the brain so-called EEG measurements and the Ambu Blue Sensor MRX, which is a new ECG electrode primarily designed for use in connection with MR scans. The introduction of new products and the signing of contracts with several major purchasing organisations support expectations of future growth in revenue, and so as to meet the increasing demand for Ambus products, the past year has seen an expansion of production capacity in Denmark and China. Production in Malaysia is also being expanded. As part of the ongoing optimisation of production, a review of Ambus production strategy was carried out in the summer of 2004. The main elements in the production strategy are the continued existence of the three production plants in Penang, Malaysia, in Xiamen, China, and in Denmark, as well as an increase in production capacity in Asia so that by 2007/08 approx. 70% of revenue will be produced in Asia.

Strategy 2005 in brief

Strategy 2005 falls into three phases: 2002/03: Optimisation of one common business 2003/04: Establishment of a strong position within selected business areas 2004/05: Establishment of a position as an international leader within selected markets. The most important elements in Ambus strategy are: Intensified product development efforts including the development of more new products Concentration of resources on fewer business areas Intensified sales efforts via sales companies in Europe and the USA Continuous production optimisation Further development of customer relations. The objective is to build a basis for further growth and improved earnings, and the keyword is focus on core business. At the end of the strategy period in 2005, Ambu wishes to have achieved the following objectives: Revenue in the region of DKK 700-800m, exclusive of revenue added by any acquisitions An EBITA margin in the region of 13-15% An annual cash flow from operating activities before acquisitions in the region of DKK 60-70m.
Note: The outlook in Strategy 2005 was based on a USD exchange rate of more than 800.

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Today, more than 40% of revenue is produced in Asia, and production of the Ambu Laryngeal Mask thus commenced at the Xiamen plant. In the opinion of the management, Ambu in 2003/04 showed that the many activities launched to ensure future growth and increased earnings are now bearing fruit.

acquired in previous financial years in connection with product acquisitions. The goodwill balance for the product acquisition now stands at 0. There has thus been a positive development in profit, which lives up to the objectives set out in Strategy 2005, and profit is also in line with the expectations announced at the beginning of the year. Ambu maintains its expectations that the strategy objectives will be fulfilled by the end of the strategy period, with account being taken of the effect of developments in the USD exchange rate. Profit before tax totalled DKK 33.3m against the year-earlier level of DKK 26.0m, up 28.1%. Cash flow from operating activities totalled DKK 54.8m in FY 2003/04 against DKK 63.1m last year. The free cash flow in 2003/04 was negative in an amount of DKK -14.5m against DKK 26.4m last year, which is largely attributable to more funds being tied up in trade receivables. Proceeds from the divestment of product areas and subsidiaries positively affected cash flow by DKK 15.8 in 2002/03.

Financial performance in FY 2003/04

In FY 2003/04 revenue totalled DKK 608.1m, corresponding to a 7.3% increase relative to the yearearlier level. Measured on the basis of unchanged exchange rates from 2002/03, revenue in 2003/04 would have totalled approx. DKK 629m. In local currencies, organic growth totalled 10.9%. The growth in revenue reflects a growth in revenue within all business areas except Immobilization. Sales within Respiratory Care are up 24.6%, within Cardiology up 6.4% and within Neurology up 4.3%. Within Training sales are up 21.2%, while sales within Immobilization are down 11.8%. The above growth rates are based on revenue in local currencies. Reported in local currencies, revenue in the USA, which is Ambus largest single market, was up 17.8%, with Europe achieving revenue growth of 7.1%. Consolidated revenue generally developed as forecast under Strategy 2005, when ignoring the effects of the decline in the USD exchange rate. EBITA increased by 4.4% to DKK 63.3m, up from DKK 60.7m last year. Adjusted for non-recurring income in 2002/03 from the divestment of subsidiaries and product areas, the increase came to 23.6%. Developments in exchange rates had an adverse effect on EBITA of approx. DKK 4m. Profit before tax totalled DKK 45.7m against the year-earlier level of DKK 34.4m, up 32.8%. Adjusted for income from the divestment of subsidiaries and product areas, the increase came to 87.4%. The profit for the year before tax has been reduced by the extraordinary write-down by DKK 3.3m of goodwill

Global market developments

The medical device industry is still characterised by growth in overall demand, and this is expected to continue in the coming years. Market growth will be determined primarily by the ageing of the population, the emergence of new technologies and improved possibilities in relation to diagnosis and treatment. Within Ambus five business areas, demand is growing, while growth is also being affected by several other factors in addition to the above. Ambu is favoured by a general increase in the use of single-use articles. The increasing use of single-use articles is motivated, among other things, by a desire to reduce the risk of cross-infections, i.e. infections from patient to patient. This has had a positive effect on market growth within Ambus business areas. In a number of countries health costs are under pressure, and the health care sector is generally

AMBU 2003 | 2004

Innovation an integrated part of company culture Innovation and encouraging an innovative culture are essential if Ambu is to continue to be able to supply products which add real value for customers. As a company, Ambu must be innovative in its thinking, in the generation of new ideas and in its way of doing things. So as to encourage innovation, Ambu has established a formalised innovation process which comprises the identification, development and marketing of new products. The identification process is to increase our understanding of users, identify their needs and contribute to the establishment of relations which will provide the individual business areas with improved scope for assessing the suitability of new ideas. The development model includes guidelines on how to ensure the fulfilment of all relevant requirements, including statutory requirements. So as to ensure the systematic and coordinated launch of new products, a group is appointed for each individual development project and charged with ensuring that the agreed sales targets are achieved.

As a result of the increasingly important role played by the purchasing organisations, e-trade has come to be used more extensively in connection with the selection and purchasing of hospital articles. For example, Ambu has taken part in several large-scale Internet auctions, and an ever-larger share of orders from the US market is being handled via the Internet. Hospital purchasers are increasingly demanding complete e-trade solutions. This trend is boosting transparency, while also placing heavier demands on the ability of manufacturers to supply quality products at competitive prices.

Product development and new products

The objective of Ambus product development activities is to design products that enable Ambu to achieve a dominant position within its largest product areas: Respiratory Care, Cardiology and Neurology, i.e. ventilation products for artificial respiration, single-use electrodes for ECG tests and neurophysiological recordings. To achieve this, Ambus products must stand out from rival products in the market, adding real value for customers as well as users. As part of Strategy 2005, the entire development process has over the past couple of years been reengineered. At the same time the resources devoted to product development have been boosted considerably. The many initiatives have, among other things, led to the launch of three new products at the beginning of 2004. According to Strategy 2005, 20% of consolidated revenue must by 2005 be attributable to products developed in the period 2000-2005. In 2003/04, products developed after 2000 accounted for approx. 11% of revenue. The introduction of three new products in 1H 2004 and the subsequent introduction of more new products will ensure that this target is attained. The three new products launched are: the Ambu Laryngeal Mask, the Ambu Neuroline Cup Electrode and the Ambu Blue Sensor MRX.

increasing focus on costs. However, quite apart from the pressure on health costs, there is increasing focus in the health care sector on prevention and timely diagnosis as ways of reducing the duration of, or eliminating the need for, treatment. This development trend will support the demand for Ambus products in those business areas that relate to diagnostics and prevention. The growing focus on costs within the health care sector has led to general increases in the efficiency and optimisation of purchases of hospital articles, and in a number of countries more and more purchases are arranged through public tenders or purchasing organisations. This is a global trend, and it is therefore important to address the purchasing organisations directly and enter into agreements with them to achieve the desired market share within individual product areas. In the USA, considerable political pressure upon purchasing organisations (Group Purchasing Organizations) has made it possible for small businesses to obtain approval as suppliers, which has benefited Ambu.

AMBU 2003 | 2004

The Ambu Laryngeal Mask is a single-use laryngeal mask used to maintain breathing in fully anaesthetised patients. The laryngeal mask was originally developed by a British anaesthesiologist as an alternative to endotracheal intubation (insertion of a tube through the mouth or nose down into the airways). The product was first marketed in 1992/93 by a UK company, and the original patents have expired. The Ambu Laryngeal Mask adds value in the form of higher quality and user-friendliness, and Ambu has succeeded in modifying the original product to such an extent that it now meets an obvious market need. The Ambu Laryngeal Mask was introduced at the Congress of Anaesthesiology in Paris in April 2004 and has since been marketed in all markets where sales are handled by Ambus own sales subsidiaries as well as in the largest markets where sales are handled by distributors. Outstanding and resourceintensive sales efforts have been undertaken, and the product has been well received in all markets. The product has been tested by more than 1,000 anaesthesiologists, and feedback has shown that the product lives up to the requirements and wishes of the medical profession with regard to functionality and innovative thinking. The interest shown in the product is at the same time heightened by an increase in the demand for single-use masks, especially in the USA and the UK, as well as a general desire to see a transition to more modern ways of keeping the airways open in fully anaesthetised patients. The market potential for the Ambu Laryngeal Mask is deemed to be considerable. It is estimated that a minimum of 40 million general anaesthetics are performed each year in Europe and the USA, with estimated market growth being 8-10%. The laryngeal mask is used in 20-25% of cases, and in approx. 99% of cases reusable laryngeal masks are so far being used. If converted into single-use masks, this market is worth DKK 500-700m a year. Sales of the Ambu Laryngeal Mask are developing as expected, but have not contributed significantly to Ambus growth in the year of introduction. This is in line with expectations. Sales of the mask are expected to contribute to growth in the coming financial year with increasing sales over the financial year.

Which products should Ambu focus on? Before a new idea is developed and transformed into a new product, a number of basic requirements must be met. The product must offer potential of a certain size, there must be a significant overlap of technological competences in relation to existing products, and it must be possible to achieve substantial synergies in sales. A good example of a new product which made it through the needles eye is the Ambu Laryngeal Mask. The market potential for single-use laryngeal masks is considerable and growing. Ambu already possesses considerable competences within the manufacture of masks, spray-moulding and cleanroom production, and the product is sold to operating theatres where a number of other Ambu products are already being used.

Furthermore, Ambu has introduced a single-use cup electrode. The Ambu Neuroline Cup Electrode is designed for measuring electric activity in the brain so-called EEG measurements. EEGs are used, among other things, to diagnose epilepsy and brain damage. The Ambu Neuroline Cup Electrode is the first singleuse cup electrode for performing neurophysiological measurements. It is made from materials which ensure the clearest and most stable measuring signals in the market. At the same time, using the single-use electrode prevents cross-infection. A total of approx. 2.5 million EEGs are carried out annually in Europe and the USA, and the market is growing by 8-10% per year. A total of 20-25 electrodes are used per EEG measurement. Ninety-eight per cent of the market is made up of reusable electrodes, and converted into single-use electrodes, the market value in Europe and the USA corresponds to approx. DKK 300m. The Ambu Neuroline Cup Electrode has been introduced in both Europe and the USA. The product has been well received, and measuring properties are satisfactory. However, Ambu has observed that the transition from reusable electrodes to single-use electrodes has in many cases been slow as the shortterm effect is increasing costs for individual hospital departments.

AMBU 2003 | 2004

Continuous production optimisation Efficient production planning is a precondition for being able to supply competitive products, while at the same time generating satisfactory earnings. Ambu has in recent years moved more and more of its production to Malaysia and China. At the same time, major increases in efficiency have been achieved in production in Denmark. The aim is for approx. 70% of production to take place in Asia by 2007/08. Ambus experience with establishing production is Asia has been very positive. Production costs have been cut, while competences at the two production units in Malaysia and China have been upgraded markedly. Production of the new Ambu Laryngeal Mask commenced at the plant in China, and the production of other new products will also start up at the plants in Asia.

performed. Electrodes are used in every ten scans. The market in the USA and Europe is deemed to be worth approx. DKK 100m a year. In addition to the above products, work has gone into developing a number of new products for introducing in the course of 2004/05. These include an extension of the range of laryngeal masks, a new electrode for short-term monitoring and a neonatal electrode, new bags for artificial respiration and a new training product to support the marketing of the laryngeal mask.

Production
Ongoing optimisation and increasing efficiency in the production of Ambus products are preconditions for Ambu attaining an attractive position in the market and satisfactory earnings. As part of optimising production, a review of Ambus production strategy was carried out in the summer of 2004. The main elements in the production strategy are the continued existence of the three production plants in Denmark, China and Malaysia as well as an increase in production capacity in Asia so that by 2007/08 approx. 70% of revenue will be produced in Asia. The strategy thus involves the continued transfer of production to the production plants in China and Malaysia as well as the rationalisation of the remaining Danish production. As the only major production area, the automatic production of ECG electrodes will be maintained in Denmark as approx. 80% of these products are sold to the European market. In future, production of new products will, if possible, always commence at the production plant identified as the site of subsequent production. The introduction of new products has resulted in a need to expand production capacity in Denmark and China. The past year has thus seen an expansion of capacity at the plant in lstykke with a view to expanding capacity within ECG electrodes. In China, production capacity has at the same time been expanded to accommodate the production of new products and increase the production of existing products. Production of the Ambu Laryngeal Mask

Within the Cardiology business area, a new ECG electrode has been developed, which is primarily designed for use during MR scans, but which can also be used for X-ray examinations. The name of the electrode is the Ambu Blue Sensor MRX. MR scanning is an X-ray/radiological technique using magnetism, radio waves and computer technology to create images of anatomic structures. During the MR scan images are produced of the patients organs, bones, nervous system etc. The new MRX electrode has been developed because ordinary ECG electrodes are not directly suitable for use during MR scans. For example, the electrodes must not contain magnetic material which would be attracted to the scanner magnet. Consequently, the new electrode has been made from new materials. Any interruption of an MR scan would interfere with the comparability of the images generated, and it is thus important for the electrodes to remain in place throughout the scan. For this reason, a special adhesive technique has been used. The number of MR scanners is increasing rapidly. In 2003, a total of approx. 75 million MR scans were

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commenced at the plant in China in November 2003, and following the international introduction of this product, production capacity has been expanded further so as to allow Ambu to meet the increasing demand in the coming period. The transfer of the production of a number of needle products within Neurology to the production plant in Malaysia has commenced, and the aim is for the production of all needles of this type to take place there in future. The plan is also to start up the automatic production of ECG electrodes for the Asian market, for which reason a decision has been made to expand production capacity in Malaysia. As part of the endeavours to increase production efficiency, a number of activities have been undertaken with a view to optimising the entire value chain. This has, among other things, resulted in the improved control of logistics and purchasing functions. Logistics planning is based on a forecasting system which has so far helped to ensure the smooth production of new products, more efficient inventory management and high capacity utilisation. In step with the expansion of production in Asia, Ambus purchasing function has been internationalised with more and more purchases being made locally. The introduction of a new ERP system in the coming years will contribute to further integration of the value chain combined with greater efficiency.

Developments in business areas

Ambu has divided its activities into five business areas: Respiratory Care, Cardiology, Neurology, Training and Immobilization. The highest market growth occurred in Respiratory Care, Cardiology and Neurology, all of which are Ambus most important business areas. In 2003/04 Ambu recorded growth in revenue within these business areas.

Respiratory Care includes bags and masks for artificial ventilation of patients. The target groups for these products are primarily hospitals and secondarily ambulance services.
Ambu is an important player within Respiratory Care. With its wide product portfolio and favourable market position, Ambu is believed to have a good chance of achieving significant revenue growth in the hospital sector. Revenue within Respiratory Care in FY 2003/04 totalled DKK 201.2m, or 33.1% of consolidated revenue. Revenue growth in the year in review totalled 24.6% reported in local currencies and 18.5% reported in Danish kroner. The growth in revenue primarily reflects an increase in sales of single-use bags and single-use masks to US hospitals following the conclusion of agreements with several large

Divestment of activities
It follows from Strategy 2005 that Ambu should concentrate resources in the most profitable business areas. Consequently, we have in recent years seen the divestment of several product areas, and in 2003/04 CardioPump was sold. In September 2004 Ambu signed an agreement with ResQCor, USA, concerning the sale of CardioPump. Over a three-year transition period, Ambu will continue to manufacture and sell the CardioPump products. The sale of CardioPump is not expected to materially affect Ambus combined revenue and results.

Revenue by business area

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Close collaboration with customers In step with the stronger emphasis on product development, Ambu has intensified efforts to involve customers and users in key projects. This has been done primarily through the participation of doctors, nurses and rescue staff in the product development process and the establishment of specific user groups for major development projects. The user groups typically consist of internationally renowned doctors from Europe and the USA who meet regularly to test and evaluate Ambus product concepts. The results are regularly used in marketing and provide input to new product development projects. The proximity to Ambus market and customers is, and must continue to be, an integral part of the Groups product development and marketing activities, in this way allowing Ambu to always develop and supply the right products in the right quality.

ments are used for diagnostic purposes in relation to diseases of the motor apparatus, such as sclerosis and sleeping disorders. The product programme includes both surface electrodes and needle electrodes. The target groups for these products are neurological wards at hospitals and sleep labs. The neurology market is divided into a market for surface electrodes and a market for needle electrodes. The market for surface electrodes is a typical niche market with high margins, whereas the needle market is more competitive but with widely differing prices from one market to the next. Revenue within Neurology in FY 2003/04 totalled DKK 42.3m, or 7.0% of consolidated revenue. Reported in local currencies this represented an increase of 4.3%, but no increase in Danish kroner. The development in revenue has not lived up to expectations, which is partly attributable to problems with quality over the financial year. These problems with quality have now been addressed, but it takes time to restore confidence in the products.

purchasing organisations. At the same time, Ambu has won large orders in a number of countries.

Cardiology includes single-use electrodes for measuring the cardiac rhythm ECGs and for treating cardiac arrest defibrillation. The target groups for these products are primarily hospitals and secondarily ambulance services and private clinics.
This business area offers good growth potential for Ambu, as the companys electrodes represent the greatest added value for customers. This position is to form the basis of growing revenue and satisfactory earnings although the greatest potential for growth is within the volume segments, which are also the most price-sensitive segments. Revenue within Cardiology in FY 2003/04 totalled DKK 247.9m, or 40.8% of consolidated revenue. Reported in local currencies this represented an increase of 6.4%, and an increase of 5.1% in Danish kroner. Growth is seen particularly within sales of electrodes for resting ECGs.

Training covers manikins for basic and advanced first aid training. The target groups for these products are hospitals, ambulance services, relief organisations and the armed forces.
Revenue within Training in FY 2003/04 amounted to DKK 62.2m, corresponding to 10.2% of consolidated revenue. Revenue increased by 21.2% when reported in local currencies and by 19.3% when reported in Danish kroner.

Immobilization includes collars for neck and head support to prevent injuries or to protect patients already having sustained injuries. The target group for these products is almost exclusively ambulance services.
Revenue within Immobilization in FY 2003/04 totalled DKK 54.5m, or 8.9% of consolidated revenue. Reported in local currencies this represented a fall of 11.8%, and in Danish kroner a fall of 18.1%. When account is taken of the product areas divested in 2003/04, the fall in revenue represented 5.2% when reported in local currencies and 12.0% in Danish kroner.

Neurology includes single-use electrodes for measuring electric signals in muscles other than the heart muscle and for measuring brain activity. The measure-

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The product programme is sold almost exclusively in the US market where Ambu has a large market share.

Quality essential Ambus products are often used in critical situations, and product safety and accurate user information about the use of the products are therefore vital. For Ambu, quality is about choosing the right materials and planning production with a view to ensuring compliance with statutory requirements as well as Ambus own product safety and quality standards. Finally, it is also about ensuring that users of Ambus products know how to use them correctly. An extensive training programme is designed to ensure this. Ambu systematically gathers experience concerning products and production methods both externally and internally. The experience is used to constantly implement improvements and provides input for the development of new products and production methods.

Developments in individual markets

According to Strategy 2005, Europe and the USA are Ambus focus markets, and the financial year was characterised by activities launched to support a strengthening of Ambus position in these markets. Therefore we have seen an increase in both sales and marketing activities in the most important markets combined with a streamlining of sales efforts. Important elements in this streamlining process are the systematisation of the sales efforts, coordination and knowledge-sharing across the markets with a view to drawing as much as possible on the experience gained as well as a customer database developed by Ambu which is an important tool for the sales force. Within sales, focus is both on the ability to launch and sell new products and on the ability to identify new customers/customer segments. In a number of countries, including in particular the USA, Germany, France, Spain and Sweden, the purchasing organisations are becoming ever-more powerful. In view of the increasingly important role played by the purchasing organisations within the health care sector, it is extremely important for Ambu to be able to effectively cultivate and gain access to these organisations. This is regarded as a precondition for Ambu being able to achieve the desired growth in revenue. Ambu has therefore in recent years broadened its competences concerning the preparation and negotiation of large public and private tenders, and the company has succeeded in establishing collaboration with several important purchasing organisations. The growth in revenue in FY 2003/04 is primarily attributable to an increase in sales via this channel.

Ambu has in the past year sought to transfer sales competences and sales concepts from the more mature markets to the less mature markets, and this has resulted in very satisfactory growth in revenue in several markets. Ambus collaboration with major purchasing organisations has also contributed to boosting revenue. The largest markets in Europe are Germany, France and the UK. In Germany, which is Ambus largest European market, sales fell by 0.8% in 2003/04. The market was generally difficult because of intensifying focus on costs throughout the entire German health care sector. The new health sector reform has given rise to considerable uncertainty among many of Ambus customers, and prices are generally under pressure. The introduction of new products is expected to help support Ambus position in the German market. In France sales increased by 23.0% in 2003/04. The high growth is partly attributable to the conclusion of a number of large contracts within Training. Furthermore, Ambu has succeeded in increasing its market share within Cardiology. The objective for the next period is to carve out an even higher market share

Europe
In 2003/04 Ambu continued to strengthen its position in Europe, and the company has posted growth in revenue in all markets except Germany. The growth reflects increases in sales of products within all business areas.

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for it to accurately reflect Ambus strength within this business area. In the UK sales were up 13.4% when reported in local currency. The positive development in sales reported in pounds sterling was due mainly to increasing sales of Respiratory Care and Cardiology products. In the past year, there has been particular focus on sales of Respiratory Care products. In Ambus Spanish company sales were up 50.7%, while sales in Italy grew by 10.2% in local currencies. The increase in revenue in Spain is primarily attributable to the takeover of distribution rights from Ambus existing distributor. The Danish sales organisation is in charge of marketing and sales in the European markets where Ambu does not have its own subsidiaries with sales being effected either via distributors or directly to endcustomers. In the Nordic countries, where sales are primarily effected directly from Denmark, sales increased by 12% in 2003/04 in local currencies. The growth in revenue is primarily attributable to favourable developments in sales of Cardiology and Respiratory Care products. Sales via distributors in Europe have also developed favourably, up 15.6% in local currencies.

USA
The USA is the largest single market for Ambu. Reported in local currency, revenue increased by 17.8% in 2003/04, while revenue reported in Danish kroner increased by 4.8%. The increase in revenue is primarily attributable to favourable developments in sales of Respiratory Care and Cardiology products. Following the conclusion of agreements with some of the large American purchasing organisations in FY 2002/03, much work has been done to optimise sales from these agreements which are contributing materially to the growth in revenue in the American market. The agreements with the purchasing organisations cover mainly Respiratory Care products. Ambu is constantly striving to add new agreements, also within other product areas.

Other markets
In those markets where Ambu does not have its own sales subsidiaries, sales of Ambus products take place exclusively via distributors. In 2003/04, sales via distributors increased by 15.4% in local currencies, which is primarily attributable to increasing sales of Respiratory Care products.

Board resolutions and proposals to the Annual General Meeting

The Board of Directors proposes to the Annual General Meeting that a dividend be declared of DKK 2 per share for FY 2003/04, amounting to 35% of the profit for the year. The Board of Directors proposes to the Annual General Meeting that the profit for the year, DKK 33.3m, be distributed as follows:

Geographical breakdown of sales

Dividend, DKK 2 per share Retained earnings Total

11.8 21.5 33.3

Moreover, a proposal will be presented for the Board of Directors to be authorised to acquire treasury shares amounting to up to 10% of the share capital.

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AMBU 2003 | 2004

Outlook
The medico-technical industry is only to a limited extent affected by economic trends. Growth within the industry is thus expected to continue in the coming years, among other things as a result of the ageing population. In recent years Ambu has significantly improved its market position by means of increases in production efficiency, intensified R&D efforts, the upgrading of competencies and a strengthening of its sales organisation. Production efficiency will continue to improve in 2004/05, while the transfer of production to Ambus production plants in China and Malaysia will continue so as to safeguard Ambus competitive edge. On the basis of development activities in the past year, an array of important products were introduced in 2003/04, and more important launches are planned for 2004/05 within Respiratory Care, Cardiology and Neurology. The new products are intended to contribute to the planned growth in revenue. Following the introduction of the new products, the strengthening of the sales force and the intensive training of the sales force in the entire product programme, the foundation has been laid for achieving higher sales. The hospital market is believed to hold particular growth potential, both as a result of the launch of new products and because of the contracts signed with the purchasing organisations. The highest growth rates are expected in Respiratory Care, Cardiology and Neurology. Achieving the objectives for 2004/05 is, however, largely conditional upon the new products introduced in 2003/04 attaining, despite fierce competition, the market position which the management expects following their positive reception by the market. In FY 2004/05, consolidated revenue is expected to grow to a level of DKK 670m, corresponding to a growth rate of 10%. Against the backdrop of the expected growth in revenue, an improved product mix, continued improvements in production efficiency, but at the same time

with prospects of rising sales and marketing costs, EBITA is expected to increase from 10.4% in 2003/04 to a level of 13% in 2004/05. EBITA is thus expected to be in the region of DKK 85m. The profit before tax is expected to be approx. DKK 65m, up approx. 40% relative to 2003/04. Following the new products gradual penetration of the individual markets in the course of the coming financial year, the biggest increase in earnings will be seen in the last half of the financial year. Expectations as regards revenue and earnings are based on an average USD exchange rate of 600. A change in the USD exchange rate of 50 will result in a change in EBITA of approx. DKK 4m and a change in the profit before tax of approx. DKK 3m. In 2003/04, the average USD exchange rate was 612. In 2004/05, investments are expected to be on a par with 2003/04, i.e. in the region of DKK 66.5m. Investments will primarily be made in process equipment for the manufacture of new products, an expansion of production facilities in Malaysia and a new ERP system. In 2004/05, cash flow from operating activities of DKK 60-70m is expected, up from 2003/04. The free cash flow is also expected to be positive. Acquisitions are part of Ambus strategy. According to the criteria for acquisitions, candidates must be capable of becoming part of a consolidation process within the existing product programme, or they must give obvious synergies between existing and acquired products. At the end of 2003/04 Ambu started work on Strategy 2008 which is to succeed Strategy 2005. Strategy 2008 is expected to be completed in the spring of 2005.

Forward-looking statements Forward-looking statements, especially such as relate to future sales and operating profit, are subject to risks and uncertainties as various factors, many of which are outside Ambus control, may cause the actual development to differ materially from the expectations contained in this annual report. These factors include changes in health care, changes in the world economy and changes in exchange rates. See also the section on Risk management on pp. 28-29.

AMBU 2003 | 2004

15

Knowledge and competencies

Being a niche operator in the global market, Ambu needs to retain and develop unique competences to safeguard its long-term competitiveness. With a view to meeting the objectives contained in Strategy 2005, Ambu has decided to focus on the development of competences in the following areas:

use of Ambu products on the job and enables participants and trainers to exchange opinions and ideas.

Knowledge of product development

Ambu is highly dependent on its ability to develop innovative products, and the ability to innovate is closely linked to the ability to identify customer needs and translate these needs into new solutions and products that bring added value to customers. The innovation process has changed materially in the past couple of years, and focus is now on the generation of ideas followed by efficient launches. The aim is to ensure the shortest possible time to market for new products. In step with the stronger emphasis on product development, Ambu has intensified efforts to involve customers and users in key projects. This has been done primarily through the participation of doctors, nurses and rescue staff in the product development process and through the establishment of specific user groups for major development projects. Ambu has also increased the number of clinical trials comparing the performance of Ambu products with rival products. The findings of these trials provide regular input for marketing activities and for new product development projects. The purpose of this process is to develop differentiated products capable of bringing value to Ambus customers while also strengthening the Groups position as a supplier of quality products. The proximity to Ambus market and customers is, and must continue to be, an integral part of the Groups product development and marketing activities.

Knowledge of customer needs and the market

Ambus products are often used in critical situations. It is therefore important for Ambu to possess very accurate knowledge about the use of its products so as to be able to develop products to meet customer requirements in individual situations. Ambu engages in very close contact and dialogue with users, and the Group places great emphasis on forging closer relations with doctors, nurses and other health care professionals. Ambu regards the ability to enter into dialogue with end-users as an important competition parameter as dialogue plays an important role in improving products and product functionality as well as in generating ideas for new products. The Ambu Academy, which was established in 2004, plays an important role in connection with the training of employees and customers in the use of Ambus products. The Ambu Academy is also responsible for fostering closer ties between Ambu and its customers, thereby allowing Ambu to position itself as a leading knowledge centre within the individual business areas. Ambu also engages in in-hospital training. This type of training is arranged to instruct hospital staff in the

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Knowledge of technology and processes

Ambus production and production processes have undergone marked changes in recent years. Ambu has high-tech production facilities in both Denmark, China and Malaysia and continuously updates and broadens its knowledge of those production technologies that are deemed to form part of its core competences.

tion of knowledge, ideas and information, the intranet will gradually develop into a natural hub for many of Ambus working processes. Ambus future growth hinges upon its ability to attract and retain the right kind of employees with the right competences and knowledge, and this is reflected in Ambus ongoing efforts to ensure that its employees find their work stimulating and challenging both professionally and personally. At annual employee appraisal interviews, employees and managers meet to define the goals to be met. Based on the objectives, all employees know what they are expected to contribute to the fulfilment of the overall strategy. In the course of the past year, Ambus corporate values have been instilled across the entire organisation. The values are as follows: Taking charge Open-minded Team player Innovative

Employee development
To retain and enhance its competitiveness in the world market, it is vital that Ambu develops the competences and knowledge of its employees in a targeted and structured way, while at the same time making sure that the knowledge and competences thus accumulated are shared across the organisation. Knowledge-sharing is thus a daily obligation for all Ambu employees. To facilitate this process, Ambu has established interdisciplinary project teams where colleagues can engage in the mutual sharing of knowledge, while shedding light on projects from many different professional angles. In order to achieve maximum utilisation of Ambus knowledge and competences a corporate communication platform is used consisting of an intranet environment and several knowledge portals. The intranet solution forges closer links between head office, sales companies and production units, giving all employees access to information, communication and cooperation with their colleagues. Besides acting as a focal point for the contribution and dissemina-

The values are to serve as a basis for the continued development of Ambus culture and competences and support the realisation of the strategic objective of a clear positioning of Ambu in relation to competitors.

Geographical breakdown of employees

AMBU 2003 | 2004

17

Shareholder information

The Ambu share

At the ordinary general meeting held on 28 January 2004, it was decided to change the nominal value of the Ambu share from DKK 100 per share to DKK 10 per share. In March 2004, the Board of Directors decided to use its authorisation to increase the companys share capital by a total of 200,000 Class B shares of DKK 10 each through the issue of employee shares. In the period 19-23 April 2004 all employees could, subject to special terms, subscribe up to 50 shares of DKK 11 each and the rest for DKK 40 per share. A total of 129,601 Class B shares were subscribed in connection with the issue. At the end of the financial year, the share capital in Ambu consisted of a total of 5,893,191 shares of DKK 10 each, corresponding to a nominal share capital of DKK 58,931,910. The share capital is divided into 1,716,000 Class A shares and 4,177,191 Class B shares. Ambus Class B shares are listed on the Copenhagen Stock Exchange under ISIN code DK0010303619, shortname AMBU B, and will be included in the SmallCap+ index as from 1 December 2004. The opening price quoted for the Ambu share was 60, rising to a closing level at the end of the financial year of 108, an increase of 79%. In comparison, the Copenhagen Stock Exchanges index of health care

shares (CSE 35) and the SmallCap+ index increased by 30% and 29%, respectively, in the same period. As a result of the increase in share price in 2003/04, Ambus market capitalization (defined as the value of both Class A and Class B shares recognised at the price quoted for the Class B share) in late September 2004 totalled DKK 636m, up from DKK 349m a year earlier. In the course of the financial year, a total of 576,000 Class B shares were traded, corresponding to 14% of the total number of Class B shares at the end of the year.

Shareholders
In late September 2004, the total number of shareholders in Ambu A/S having arranged name registration of their holding was approx. 1,130, or 83% of the total share capital. As name registration enables Ambu to ensure the best possible communication with shareholders, all shareholders are encouraged to effect registration of their holding by contacting their bank. The following shareholders have filed ownership of 5% or more of the share capital or voting rights:

Shareholder

Share of share capital

Share of votes

Development in share price

Tove Hesse, Holte Inga Kovstrup, Fredericia Dorrit Ragle, Lyngby N.P. Louis Hansen Aps, Niv

% 12.4 10.9 9.7 10.3

% 27.6 27.1 26.8 2.8

As at 30 September 2004, members of Ambus Board of Directors and Executive Board owned a total of 2.3% of the share capital. As at 30 September 2004, Ambu held a total of 23,660 treasury shares, corresponding to 0.4% of the share capital.

Dividend
It follows from Ambus dividend policy that 30-40% of the profit is generally paid out as dividend. In view of the Groups profit performance in FY 2003/04 and

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AMBU 2003 | 2004

the outlook for 2004/05, the Board of Directors has decided to propose to the Annual General Meeting that a dividend be declared of DKK 2 per share, representing 35% of the profit for the year. Payment of the dividend for FY 2003/04 will be effected automatically via the Danish Securities Centre immediately after the Annual General Meeting.

contains up-to-the-minute, relevant information about Ambus performance, activities and strategy. Enquiries concerning Ambu from shareholders, analysts, investors, stockbrokers and others should be addressed to: Ambu A/S Baltorpbakken 13 DK-2750 Ballerup Contact: Executive Vice President - Finance Anders Arvai Telephone: +45 72 25 20 00 E-mail: aa@ambu.com

Investor relations
Ambu strives to maintain a high and uniform level of information to shareholders and other stakeholders. The Group wishes to engage in an active dialogue with shareholders, analysts, the media and the general public. Communication with stakeholders takes the form of regular stock exchange releases, investor presentations and individual meetings, the purpose being to ensure that the price quoted for the Ambu share is fair and reflects Ambus underlying values. The Groups website, www.ambu.com, is the primary source of information to stakeholders. It is updated regularly and

Annual General Meeting

The Groups Annual General Meeting will be held on 25 January 2005 at 4.30pm at The Black Diamond, Sren Kierkegaards Plads 1, 1221 Copenhagen K, Denmark.

Share-related key figures

1) Profit per DKK 10 share: The proportion of profit after tax to average no. of shares. 2) Cash flow per DKK 10 share: The proportion of cash flows from ordinary operating activities to no. of shares at year-end. 3) Equity value of shares: The proportion of total equity to no. of shares at year-end. 4) Dividend per share: The proportion of dividend to no. of shares at year-end. 5) Pay-out ratio: Dividend declared as a percentage of profit for the year. 6) P/E ratio: Listed price/earnings per share.

1999/00 Profit per DKK 10 share, DKK 1) Cash flow per DKK 10 share, DKK 2) Equity value per share, DKK3) Share price at year-end Listed price/equity value Dividend per share, DKK 4) Pay-out ratio, % 5) P/E ratio 6) 3.92 1.54 42 48 1.1 1.00 26 12

2000/01 2.32 3.47 48 42 0.9 1.00 48 18

2001/02 2.60 4.51 49 36 0.7 1.00 38 14

2002/03 4.51 10.93 51 61 1.2 1.40 31 13

2003/04 5.72 9.30 54 108 2.0 2.00 35 19

The key figures are calculated in accordance with the definitions of the Danish Society of Financial Analysts.

Stock exchange releases 2003/04

9 December 2003 28 January 2004 30 March 2004 17 May 2004 4 June 2004 10 June 2004 27 August 2004 Earnings Release 2002/03 Annual General Meeting Employee share programme Report for 1H 2003/04 Employee share issue completed Financial calendar Report for 3Q 2003/04

Financial calendar 2004/05

25 January 2005 31 January 2005 22 February 2005 10 May 2005 30 August 2005 14 December 2005 Annual General Meeting Payment of dividend Report for 1Q 2004/05 Report for 2Q 2004/05 Report for 3Q 2004/05 Earnings Release 2004/05

AMBU 2003 | 2004

19

Corporate governance

Ambu endeavours to live up to high corporate governance standards. The Board of Directors considers on an ongoing basis the expediency of the overall framework and principles for the management of the Groups activities. These considerations include developments in Danish and international best practices within this area with the aim of constantly improving Ambus own standards. The objective is to ensure the best possible compliance with Ambus commitments to shareholders, customers, employees, public authorities and other stakeholders, and to support the creation of value in the long term.

Class B shares. Holders of Class A shares are descendants of the founder of the company and have ten votes per DKK 10 share, while holders of Class B shares have one vote per DKK 10 share. Class A shares are non-negotiable securities and as such are not quoted on the Copenhagen Stock Exchange. According to the Groups Articles of Association, a transfer of more than 5% of the total number of Class A shares at a price higher than that quoted for the Groups Class B share by the Copenhagen Stock Exchange at the time of transfer can take place only if the buyer offers all holders of Class A and Class B shares in the company to buy their shares at the same price. The holders of Class A shares have informed Ambu that a Shareholders Agreement was signed on 26 May 1987. The contents of this agreement are outlined in Ambus Prospectus from 1992. The Board of Directors has discussed the existing ownership structure with the holders of Class A shares. Both the holders of Class A shares and the Board of Directors have so far found that the current ownership structure has been expedient for all the companys stakeholders as it has helped create a sound framework for the implementation of the companys strategy. The Board of Directors therefore has no current intention of proposing a merger of the two share classes.

Shareholders and other stakeholders

The Ambu management desires and works actively to maintain a good flow of information to and dialogue with shareholders and other stakeholders. The company endeavours to ensure a high degree of openness in the communication of information about the companys development. The dialogue with shareholders and stakeholders takes the form of earnings reports and other releases from the company and via meetings with investors, analysts and the press. Furthermore, all shareholders are entitled to attend and vote at the general meetings which are the supreme governing body of the company, provided that they have obtained an admission card at least five days prior to the holding of the general meeting. The general meetings offer an official opportunity for shareholders to address questions directly to the Board of Directors and the Executive Board. Shareholders can also, subject to compliance with a certain deadline, submit resolutions for consideration by the ordinary general meeting. The summer of 2004 saw the launch of a new website which is designed to guarantee easy access to information about Ambu for all stakeholders. Quarterly reports and other announcements are made available on the website immediately after publication via the Copenhagen Stock Exchange. The website also contains information used in connection with investor presentations. Such materials are published in Danish and English.

Board of Directors
The duties of the Board of Directors are generally laid down by law. They include the handling of the overall management of Ambu and the formulation of objectives and strategies. The Board also has a duty to perform overall supervision of the Groups activities and to check that it is managed in a responsible manner and with due consideration being had to Danish legislation and the Articles of Association. The Board of Directors duties are defined in its Order of Business which is reviewed and amended as and when required, most recently in FY 2003/04. The Board of Directors is kept updated on corporate matters and receives monthly reports. At least once a year the Board of Directors considers the internal control systems with a view to ensuring

Share classes and voting rights

Ambus share capital is divided into Class A and

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AMBU 2003 | 2004

that they are expedient and adequate and in accordance with best practice within the area. According to the Groups Articles of Association, the Board of Directors shall have four to eight members elected by the Annual General Meeting. To this will be added board members elected in pursuance of the provisions of Danish legislation on employee directors. The Board currently has nine members of whom six were elected by the Annual General Meeting and three by the Groups employees. Board members elected by the Annual General Meeting sit for a term of two years and may be re-elected, the age limits for new appointments and re-elections being 65 and 70, respectively. No maximum term of office has been fixed for members of the Board of Directors. Employee directors sit for a term defined in pursuance of the provisions of the Danish Companies Act. The Board appoints a Chairman and a Vice-chairman from among its members. Information about the individual members of the Board of Directors is listed on page 23 in the present report. There has been no need for committees to be established under the Board of Directors. A total of five ordinary board meetings are held a year. The agendas for these meetings follow a fixed plan. Furthermore, the Board of Directors meets in between the ordinary meetings, as required. In addition to the ordinary meetings held in FY 2003/04, a strategy seminar was organised. Only one member of the Board of Directors has been prevented from attending one meeting. The Board of Management attends the meetings of the Board of Directors and has the right to speak, which ensures that the Board of Directors is kept informed of the companys operations in general.

In addition to the Executive Board, which currently consists of one person, Ambu has a Board of Management which is responsible for Sales, Marketing, R&D, Production, Business Development, Finance and Administration. The members of the Board of Management all operate under the title of Executive Vice President. The Board of Directors and the Executive Board have no overlapping membership, and none of the Board members elected by the Annual General Meeting are involved in the day-to-day management of the Group.

Evaluation of Boards
In 2003/04, an annual self-evaluation process was introduced with a view to improving the work of the Board of Directors and the Executive Board and thereby the companys performance in general. The first evaluation took place in connection with the end of the financial year and will lead to a strengthening of focus on business development and risk management. Furthermore, the introduction of more incentive schemes will be assessed.

Remuneration of Boards
Each member of the Board of Directors receives fixed annual remuneration, and the combined annual remuneration for the Board of Directors is approved by the Annual General Meeting in connection with the adoption of the Annual Report. In FY 2003/04, remuneration to the Board of Directors totalled DKK 1,075,000 of which the Chairman received DKK 225,000. The members of the Board of Directors are not covered by any incentive schemes or other bonus schemes. Remuneration for the Executive Board, which currently consists of the President & CEO only, is determined by the Board of Directors. The remuneration is fixed so as to reflect market levels and the results achieved. In 2003/04 the remuneration for the President & CEO consisted of a basic pay, including ordinary benefits such as free car and telephone as well as a performance bonus payable on the achievement of a number of targets stipulated in advance for the year. The terms of employment of the Executive Board are deemed to follow normal standards for a position of this kind.

Executive Board
The Executive Board is employed by the Board of Directors which also lays down the relevant terms of employment. The Executive Board is responsible for the day-to-day management of the Group, including the development of its activities, operations, earnings and its internal affairs. The Board of Directors assigns powers and responsibilities to the Executive Board in pursuance of the Board of Directors Order of Business and the provisions of the Danish Companies Act.

AMBU 2003 | 2004

21

Risk management
The Board of Directors supervisory responsibilities include the duty to ensure effective risk management, including the identification of material risks, the establishment of risk management systems and the formulation of a risk policy and exposure limits. The policies of operational and financial risk management are decided by the Board of Directors, and the regular reports to the Board of Directors include updates on significant risks. Please refer to page 28 of the Annual Report for a description of the most material risk factors. Group management is responsible for the ongoing risk management, including the mapping and assessment of the individual risks involved in Ambus business activities.

Audits
In pursuance of applicable rules governing Danish companies listed on the stock exchange, two independent firms of auditors are appointed to safeguard the interests of the shareholders and the general public. The framework within which the auditors perform their work including their remuneration, auditrelated tasks and tasks which are not audit-related are described in an agreement made between the Board of Directors and the auditors. The auditors report important information directly to the Board of Directors at the meetings and in the auditors records. The review of the annual report includes the most important accounting policies as well as a discussion of the auditors observations.

Corporate structure

Ambu A/S

Sales

Production

Ambu USA Ambu Germany Ambu France Ambu UK Ambu Italy Ambu Spain Ambu Japan Ambu Denmark Distributors

Ambu Ballerup Ambu lstykke Ambu China Ambu Malaysia

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AMBU 2003 | 2004

Board of Directors, Executive Board and Board of Management

Board of Directors
N.E. Nielsen, born 1948
Attorney-at-law Chairman of the Board of Directors Member of the Board since 1999 Chairman of the Board of Directors of: Amagerbanken Aktieselskab Charles Christensen Holding A/S Danish Supply Corporation A/S Dampskibsselskabet Torm A/S Gammelrand Skrvefabrik A/S GPV Industri A/S Mezzanin Kapital A/S National Industri A/S Preben Olsen Automobiler A/S Satair A/S Member of the Board of Directors of: Cimber Air A/S Danica-Elektronik A/S Kongskilde Industries A/S Weibel Scientific A/S and related companies

Torben Ladegaard, born 1953

Managing Director of FOSS Analytical A/S Member of the Board since 1999 Member of the Board of Directors of: Several FOSS companies In Vitro A/S

Jan Rasmussen, born 1940

Member of the Board since 2001 Member of the Board of Directors of: Express Fulfilment Services A/S

John Str, born 1951

President & CEO of Satair A/S Member of the Board since 1998 Member of the Board of Directors of: K.B. Holding af 1.8.1988 A/S

Executive Board
K.E. Birk, born 1948
President & CEO Joined Ambu in 1999 Member of the Board of Directors of: GPV Industri A/S Chairman of the Board of Directors of: Several subsidiaries in the Ambu Group Chairman of the Committee regarding grants for export promotion activities set up by the Danish Trade Council under the Ministry of Foreign Affairs.

Bjrn Ragle, born 1945

Vice-chairman of the Board of Directors Member of the Board since 1987 Chairman of the Board of Directors of: K.B. Holding af 1.8.1988 A/S Chairman of the Labour Market Council in the County of Frederiksborg

Brian Adamsen, born 1961

Warehouse Team Leader Member of the Board since 2002 Elected by the employees

Board of Management
K.E. Birk
President & CEO

Jrgen Hartzberg, born 1950

Head of Department, VKR Holding A/S Member of the Board since 1999

Anders Arvai

Holger F. Hougaard, born 1974

Warehouse Assistant Member of the Board since 1998 Elected by the employees Operations Assistant Member of the Board since 2002 Elected by the employees

Executive Vice President Finance

Chresten B. Christensen

Anne-Marie Jensen, born 1955

Executive Vice President Sales & International Marketing

Paul Berendt Petersen

Executive Vice President Purchasing, Logistics, IT, Business Systems & Business Development

Henrik Wendler

Executive Vice President R&D, Commercial Development, Process Development & Production

AMBU 2003 | 2004

23

Financial review

The 2003/2004 Annual Report has, in keeping with last year, been prepared in accordance with the Danish Financial Statements Act (rsregnskabsloven), Danish accounting standards and the requirements of the Copenhagen Stock Exchange with regard to the presentation of financial statements by listed companies.

Income statement
Revenue
Consolidated revenue was up 7.3% in 2003/04 from DKK 566.8m to DKK 608.1m. Measured at unchanged exchange rates, revenue rose by 10.9% relative to 2002/03. Changes in exchange rates had an adverse effect on revenue of DKK 20.5m. When corrected for exchange rate fluctuations, growth was highest in the US market, where revenue rose by 17.8%. Growth in Europe was 7.1%. Corrected for changes in exchange rates, revenue rose within Respiratory Care, Cardiology and Neurology by 24.6%, 6.4% and 4.3%, respectively. Revenue within Training was up 21.2%, while revenue within Immobilization and other products declined by 11.8%, due to the divestment of product areas and a refocus of sales efforts. The distribution of the 2003/04 revenue is as follows: Respiratory Care, 33.1%, Cardiology, 40.8%, Neurology, 7.04%, Training, 10.2%, Immobilization and other products, 8.9%. In keeping with previous years, revenue posted by sales companies is recognised at average exchange rates for the year. Exports accounted for 98% of the total revenue. Sales companies handled 74% of sales, the remaining 24% being handled by distributors. Europe, which constitutes the most important market, accounted for 62% of the total revenue, with the USA and other markets accounting for 28% and 10%, respectively.

Cash flow statement

Cash flows from operating activities amonted to DKK 54.8m against DKK 63.1m last year. The reason for the fall is the fact that the improved results were offset by an increased binding of liquidity primarily in trade receivables. The increased binding of liquidity in trade receivables should be seen in the context of the increased growth as well as a large revenue in the last two months of the financial year. Cash flows from investing activities comprise acquisitions of property, plant and equipment as well as intangible assets and totalled DKK -69.2m net in 2003/04 against DKK -36.8m last year. Acquisitions of fixed assets, including buildings and production equipment, rose to DKK 62.6m in 2003/04 from DKK 52.6m in 2002/03. The divestment of product areas has created a positive cash flow of DKK 2.2m, while the purchase of goodwill etc. totalled DKK 8.8m. In 2003/04, the free cash flow was negative at DKK -14.5m against DKK 26.4m the year before, down DKK 40.9m. The divestment of subsidiaries in 2002/03 resulted in a positive liquidity contribution of DKK 15.8m. The total change in cash and cash equivalents totalled DKK 11.2m, which can be attributed to the negative free cash flow of DKK -14.5m, a reduction of the long-term debt of DKK 4.7m and payment of dividend of DKK 8.0m less the short-term debt increase of DKK 11.0m and the sale of shares amounting to DKK 5.0m.

Gross profit
Gross profit increased by 8.5% from DKK 281.2m to DKK 305.2m, measured at current exchange rates. Thus, the gross profit ratio rose from 49.6% to 50.2%. Adjusted for changes in exchange rates compared with 2002/03, gross profit was up 12.6%. The production overheads share of revenue was larger in 2003/04 than the year before, whereas the contribution ratio has improved considerably. The larger contribution ratio can be attributed to increased sales of products with a favourable market position and larger contribution ratios. Production efficiency has improved, and a larger share of Ambus

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AMBU 2003 | 2004

products is manufactured in Asia, which also contributed to the increase in the total contribution ratio.

Costs
Consolidated costs in respect of sales, development, management and administration are DKK 12.4m above the 2002/03 level, corresponding to a 5.4% increase. Other income, including the divestment of product areas and, in 2002/03, also the divestment of subsidiaries, has decreased by DKK 9.0m from DKK 11.2m in 2002/03 to DKK 2.2m in 2003/04. Costs in respect of sales and marketing as well as management and administration totalled DKK 226.7m against DKK 213.7m last year. An important reason for this increase in sales, marketing, management and administration costs is the allocation of extra resources to the sales companies with a view to exploiting the current market potential, marketing new products and improving the basis of future growth. Product development costs accounted for 3.6% of revenue against 4.0% last year. Other income, including proceeds from the divestment of the CardioPump product area, totalled DKK 2.2m compared to an income of DKK 11.2m last year, originating from the divestment of a product area and a subsidiary. Measured at the same exchange rates as last year, total costs before deduction of other income totalled DKK 251.6m in 2003/04 against DKK 231.7m the year before, representing an increase of DKK 19.9m, of which DKK 13.1m is attributable to increased resources in the sales companies, DKK 2.3m to increased costs in the foreign production companies and DKK 4.5m to increased costs in the parent.

The EBITA margin, defined as the operating profit or loss before amortisation of goodwill in relation to revenue, was 10.4% in 2003/04 against 10.7% in 2002/03. The decrease can be attributed to the decrease in income from divestments of product areas and subsidiaries. EBITA rose to DKK 63.3m in 2003/04 from DKK 60.7m last year, corresponding to an increase of DKK 2.6m. When corrected for changes in exchange rates totalling DKK 4.1m and changes in other income totalling DKK 9.0m, EBITA has increased to DKK 65.2m from DKK 49.5m, corresponding to an increase of 15.7m or 31.7%.

Financial expenses
Net financial expenses of the Group totalled DKK 6.6m in 2003/04 against DKK 17.9m the year before. This decrease is primarily due to lower translation adjustments, resulting in an income of DKK 4.4m in 2003/04 against DKK -8,5m in 2002/03. After translation adjustments, net financials increased by DKK 1.6m compared with last year.

Profit before tax

Profit before tax totalled DKK 45.7m in 2003/04 against DKK 34.4m in 2002/03, up 32.8%. Adjusted for income from the divestment of subsidiaries and product areas, the increase came to 87.4%. Profit for the year before tax was reduced by the extraordinary

EBITDA and EBITA margin

EBITDA and EBITA

The EBITDA margin, defined as the operating profit or loss before depreciation and goodwill amortisation in relation to revenue, was 15.5% in 2003/04 against 15.9% last year. When corrected for changes in other income, the EBITDA margin has increased to 15.1% against 13.9% last year.

AMBU 2003 | 2004

25

write-down of DKK 3.3m in respect of goodwill acquired in previous financial years in connection with product acquisitions. The goodwill balance for the product acquisition now stands at 0.

Profit for the year

Net profit for the year totalled DKK 33.3m against DKK 26.0m last year.

Subsidiaries Tax
Tax on profit for the year totalled DKK 12.4m or 27.1% of the profit before tax compared with DKK 8.4m or 24.4% of the profit before tax last year. The reason for the tax rate being lower than 30 is primarily the effect of earnings in countries with a tax rate below 30, exploitation of tax losses in respect of previous years and the deduction of non-deductible amortisation of goodwill. Profit before tax in subsidiaries totalled DKK 35,8m against DKK 24.0m last year. Changes in exchange rates have had an adverse effect of approx. DKK 3m on the above profit before tax in subsidiaries. All sales companies have posted profits with the exception of the sales company in Italy, which recorded a loss of DKK 0.5m.

Balance sheet
At the end of the financial year, the balance sheet total amounted to DKK 591.1m, corresponding to an increase of DKK 35.1m compared with the previous financial year. The change is primarily attributable to the items mentioned in the comments on the cash flow statement.

Capital structure

Fixed assets
Intangible asset investments for the year totalled DKK 22.6m in the form of the purchase of goodwill from the former Spanish distributor totalling DKK 8.2m and investments of DKK 14.4m in development projects. Development projects representing a value of DKK 7.3m were completed and acquired in 2003/04. Depreciation and amortisation of intangible assets, including goodwill, totalled DKK 14.0m against DKK 10.9m the year before. Investments in property, plant and equipment for the year totalled DKK 52.7m, of which DKK 29.0m reflects investments made by the parent, mainly in production capacity, production equipment for newlydeveloped products and production and office equipment. The remaining DKK 23.7m was invested by companies outside Denmark, mainly in production premises and production equipment. Depreciation of property, plant and equipment totalled DKK 28.2m against DKK 26.3m last year.

Interest-bearing net debt

26

AMBU 2003 | 2004

Inventories
Inventories decreased from DKK 104.4m to DKK 103.2m. Changes in exchange rates resulted in a decrease of DKK 2.6m. Measured at unchanged exchange rates, inventories rose by DKK 1.4m.

Long-term liabilities other than provisions

Total long-term debt at year-end totals DKK 124.9m, of which DKK 25.2m falls due in the coming financial year. In FY 2003/04, long-term loans of DKK 20m were obtained.

Trade receivables
Consolidated trade receivables totalled DKK 131.8m at year-end, up DKK 14.6m compared with year-end 2002/03. Adjusted for the effect of exchange rates, trade receivables increased by DKK 16.0m. The growth in trade receivables is higher than the organic growth in revenue, which is mainly due to a high revenue in the last months of the financial year.

Short-term liabilities other than provisions

Short-term liabilities other than provisions less long-term debt totalled DKK 145.0m at year-end, corresponding to an increase of DKK 14.6m, which is primarily due to the increased use of bank creditdrawing facilities.

Other commitments
Ambu A/S has signed a 15-year operating lease for the Group head office and production premises in Ballerup, the term to maturity being 12 years.

Liquidity
Consolidated cash and cash equivalents totalled DKK 7.7m at year-end, down DKK 11.2m compared with last year. To this should be added unutilised bank credit-drawing facilities of DKK 95.1m at year-end.

Other factors
Acquisitions
The Group has applied the transitional provisions of Danish Accounting Standard 18 on acquisitions in respect of companies acquired prior to 1 October 2000. If applied to earlier acquisitions, it is estimated that the provisions would have caused a reduction of DKK 1.4 m in the consolidated profit for 2003/04, and that total assets and equity would have been DKK 8.4m higher as at 30 September 2004.

Equity
The 2003/04 increase in equity is attributable solely to the profit for the year, the capital increase resulting from the issue of employee shares and the value adjustment of non-settled forward exchange contracts and options. Translation adjustments in respect of investments in sales companies and dividend paid for 2002/03 have been deducted from equity.

Investments and depreciation (exclusive of goodwill)

AMBU 2003 | 2004

27

Risk management

Ambus business activities involve an array of commercial and financial risks. The Group strives to counteract and reduce these risks to the widest possible extent insofar as they are risks that can be impacted by the Groups own actions. Some of the companys risk factors are described below. The description may, however, not be exhaustive, and the risk factors that may adversely affect the companys future growth, activities, financial position and results are not listed in order of priority.

with the required qualifications and of foreign exchange risks. In step with the growth in revenue, the company performs ongoing assessments of production capacity, and production units are expanded regularly to ensure that the necessary capacity is available. Ambus products are most often used in critical situations, and product quality is vital to the companys future commercial success. With a view to meeting user needs and minimising patient risks, risk assessments, clinical trials and process validation are carried out in connection with product development. Ambu lives up to the FDA and CE requirements, for which reason the company considers these standards on a regular basis.

Commercial risks Product development

Ambus possibilities of fulfilling its objective of achieving a dominant position within the selected business areas and in the selected markets depend on its ability to develop products that are unique and of a high quality. Ambu works in a targeted way to improve existing products and develop new ones. Thus, considerable investments are made in product development and the marketing of new products on an ongoing basis, which will be of limited value if such products are not successful in the market.

Trademarks and branding The company logo and name create coherence between the company and its products and render the company easily recognisable to its customers and stakeholders. The Ambu name is included in all product names, and the active branding of products is to help prevent plagiarisation of the companys products. A branding strategy and a branding manual have been prepared to ensure uniform branding by all group companies.
It is company policy to patent products with a high market value, which are essential to the future growth of Ambu. Within the medico-technical sector, different opinions often exist as to whether a given product is patented or not.

Competition and market conditions Hospitals and rescue services increasingly purchase medico-technical products through purchasing organisations and via public tenders. At the same time, there is a general demand for higher efficiency within the health care sector. Such structural changes are putting pressure on the prices of all medico-technical products. At the same time, low-priced copy products are often being introduced in the market.
To meet its financial objectives, Ambu must position its products in a manner which ensures that price is not the only determining sales parameter. In order to minimise its commercial risks, Ambu has relocated production to China and Malaysia and optimised the automated production processes in Denmark. This will reduce production costs and improve the companys ability to respond to future price competition.

Production and quality Ambus production plants are situated in Denmark, China and Malaysia. The location of the companys production units was based on a risk assessment, which included, among other things, an assessment of the risk of natural disasters, of the political climate, of the possibilities of attracting employees

Insurance The companys insurance policy lays down the overall framework for the extent and management of insurance risks. The insurance policy contains guidelines for the Groups hedging and insurance matters, based on a risk management model comprising the stages of risk definition, risk analysis, risk assessment, risk limitation, risk financing and risk follow-up.

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AMBU 2003 | 2004

Insurance matters are assessed on an ongoing basis in cooperation with one of the largest international insurance consultancy companies. In addition to statutory insurance cover, the company has taken out product liability and operating loss insurance. Property, operating equipment and inventories are covered on an all-risk basis at replacement cost.

companys net debt as at 30 September 2004, which partly carries a fixed and partly a floating rate of interest, a 1% increase in the general interest rate level will cause an increase of approx. DKK 0.8m in the Groups annual interest expenses before tax.

Financial risks Foreign currency risks

Approx. 85% of the consolidated revenue is invoiced in foreign currencies, but some of the companys purchases of materials are in the same foreign currencies. The most important invoicing currencies are Euro, US dollars and pounds sterling. Furthermore, a number of net assets are stated in these currencies. In order to maintain competitive production prices and eliminate long-term foreign currency risks, Ambu has relocated production to countries where costs are incurred in currencies in which Ambu already has a currency income. Similarly, some of the long-term financing is arranged in currencies in which Ambu has currency income. Wide fluctuations in the exchange rates of the companys major currencies will nevertheless affect both its financial position and its competitiveness. To hedge the short-term currency risk on its current cash flows, Ambu has laid down a currency policy which focuses on hedging open positions and the estimated net cash flow for the next six months or so. At year-end, the portfolio of forward exchange contracts and options for hedging future cash flows represented a total value of DKK 78m. Ambu only engages in commercially justified foreign currency hedging and never in foreign currency hedging of a speculative nature.

Debtor risks Sales of Ambu products to customers worldwide are settled partly by letter of credit or prepayment from distributors, partly on open-account terms. Debtor insurance has been taken out in countries where it is deemed necessary.
Sales through the sales companies are normally settled on open-account terms. The development in the sales companies debtors is closely monitored. Provisions are made for bad debts on the basis of an individual assessment of the risk. No material changes were made during the financial year with regard to provisions for bad debts.

Environment
In the performance of its activities, Ambu endeavours to assess and reduce the impact on the environment and to contribute both directly and indirectly to a sustainable environment. Ambu has incorporated environmental considerations across the entire life cycle of its products, covering all stages from development via production, distribution and use to the disposal of waste products. The company strives to reduce the environmental impact of its production processes by minimising the consumption of raw materials and power as well as emission levels. Ambus direct impact on the environment is modest. The most important environmental effects in relation to production relate to the consumption of energy and raw materials and the waste resulting therefrom. PVC is used in some Ambu products, but waste products are disposed of through licensed waste processing operators. The company focuses on environmentally sensible solutions in the heating and cooling of its buildings as well as its power and water consumption. The plants in Denmark fall under the provisions of Danish legislation on the protection of the environment, and the plants in China and Malaysia follow the same environmental guidelines as the plants in Denmark. Ambu is not party to any cases or disputes involving environmental issues. Ambu is not covered by the rules on environmental approval, nor does it fall under the Danish act on the presentation of green accounts. AMBU 2003 | 2004 29

Interest risks Ambus net interest-bearing debt, calculated as debt to credit institutions and banks less cash and cash equivalents, were increased during the year from DKK 153.1m to DKK 170.7m. Based on the

Managements statement and auditors report

Managements statement
On this day, the Board of Directors and the Executive Board have considered and approved the annual report of Ambu A/S for the financial year 1 October 2003 to 30 September 2004. The annual report has been presented in accordance with the Danish Financial Statements Act (rsregnskabsloven), Danish accounting standards a . In our opinion, the accounting policies applied are expedient, thus ensuring that the annual report gives a true and fair view of the Groups and parents assets and liabilities and financial position as at 30 September 2004, the results of their operations and the consolidated cash flows for the financial year 1 October 2003 to 30 September 2004. The annual report is submitted for adoption by the Annual General Meeting. Ballerup, 6 December 2004

Executive Board
K.E. Birk President & CEO

Board of Directors
N.E. Nielsen Chairman Jrgen Hartzberg Holger F. Hougaard Bjrn Ragle John Str

Torben Ladegaard Anne-Marie Jensen

Jan Rasmussen Brian Adamsen

Auditors report prepared by the companys independent auditors To the shareholders of Ambu A/S
We have audited the annual report of Ambu A/S for the financial year 1 October 2003 to 30 September 2004. The preparation and presentation of the annual report is the responsibility of the companys management. Our responsibility is to express an opinion on the annual report based on our audit.

Basis of opinion
We conducted our audit in accordance with Danish accounting standards. Those standards require that we plan and perform the audit to obtain assurance that the annual report is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the annual report. An audit also includes assessing the accounting policies applied and significant estimates made by the management, as well as evaluating the overall presentation of the annual report. We believe that our audit provides a reasonable basis for our opinion. Our audit did not give rise to any qualifications.

Opinion
In our opinion, the annual report gives a true and fair view of the Groups and parents assets and liabilities and financial position as at 30 September 2004, the results of their operations and the consolidated cash flows for the financial year 1 October 2003 to 30 September 2004 in accordance with the Danish Financial Statements Act (rsregnskabsloven), Danish accounting standards and the requirements of the Copenhagen Stock Exchange with regard to the presentation of financial accounts by listed companies. Copenhagen, 6 December 2004 KPMG C. Jespersen Statsautoriseret Revisionsinteressentskab J. Skovbk Johansen State-authorised Public Accountant Grant Thornton Statsautoriseret Revisionsaktieselskab Sv. rjan Jensen State-authorised Public Accountant

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AMBU 2003 | 2004

Accounting policies

The 2003/04 annual report has been prepared in accordance with the Danish Financial Statements Act (rsregnskabsloven), Danish accounting standards and the requirements of the Copenhagen Stock Exchange with regard to the presentation of financial statements by listed companies. The annual report has been prepared in accordance with the provisions of the Danish Financial Statements Act (rsregnskabsloven) on Class D companies. The accounting policies have been applied consistently with last year. The company has chosen to apply the international accounting standards, IAS/IFRS, as the basis for its financial reporting as of the 2005/06 financial year. The company has carried out a preliminary investigation to identify the areas which are to be adjusted in order for the company to comply with the IAS/IFRS standards including the increased disclosure requirements. It is expected that the company will be able to comply with the increased disclosure requirements using the existing reporting systems.

On recognition and measurement, account is taken of losses and risks arising before the time at which the annual report is presented and proving or disproving matters arising on or before the balance sheet date. Income is recognised in the income statement as earned, including value adjustments of financial assets and liabilities measured at fair value or amortised cost. Furthermore, recognition will be made of costs incurred in order to achieve the earnings of the year, including depreciation, amortisation, write-downs and provisions, as well as reversals resulting from a change in the accounting estimation of amounts previously recognised in the income statement.

Consolidated financial statements

The consolidated financial statements are prepared on the basis of the financial statements of the parent and subsidiaries in which Ambu A/S, directly or indirectly, holds more than 50% of the voting rights or otherwise has a controlling influence. Enterprises in which the Group holds between 20% and 50% of the voting rights and has a considerable, but not controlling, influence are considered to be associates. Associates are consolidated on a pro rata basis in the consolidated financial statements. Consolidation is made by adding like items. Intercompany sales, costs, dividends and accounts are eliminated in consolidation. Non-realised profits on inventories purchased from group companies are reversed. The carrying amount of the parents shareholdings in subsidiaries is set off against equity in the subsidiaries. All financial statements used for consolidation are prepared in accordance with the accounting policies of the Group. Income statements of foreign companies are translated into Danish kroner at the average exchange rates for the year, whereas balance sheets are translated at the exchange rates quoted on 30 September 2004.

Basis of recognition and measurement

Assets are recognised in the balance sheet when it is likely that future economic benefits will flow to the Group and the value of such assets can be measured reliably. Liabilities are recognised in the balance sheet when they are likely to occur and can be measured reliably. The first time they are recognised, assets and debts are measured at cost. Subsequently, assets and debts are measured as described below for each individual accounting item. Certain financial assets and liabilities are measured at amortised cost, applying a constant effective rate of interest over the term of the assets and liabilities. Amortised cost is computed as original cost less any repayments and less/plus accumulated amortisation of the difference between cost and nominal value.

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31

Not all financial statements of subsidiaries are audited by the parents auditors or their international associates. Group reporting and the audit thereof are performed in accordance with guidelines laid down by the parent and its auditors. Newly-acquired enterprises are included in the consolidated financial statements as from the date of acquisition. Comparative figures are not restated for newly-acquired, divested or closed-down enterprises. Consolidated goodwill is computed as the difference between the aquisition cost and the equity value of the newly-acquired enterprise at the time of acquisition, computed on the basis of the fair value of assets and liabilities acquired and in accordance with the accounting policies of the Group. The computation of consolidated goodwill includes provisions for costs in the acquired companies, the payment of which was decided and announced at the time of acquisition. Consolidated goodwill acquired before 1 October 2000 was amortised in full against equity in the year of acquisition.

date. Exchange rate adjustments arising from the translation of the equity of foreign subsidiaries at the beginning of the year using the exchange rates applicable at the balance sheet date and the translation of income statement items from average exchange rates to the exchange rates applicable at the balance sheet date are recognised directly in equity. The exchange rate adjustment of balances with independent foreign subsidiaries which are considered part of the total investment in the subsidiary is recognised directly in equity.

Derivative financial instruments

On initial recognition, derivative financial instruments are recognised in the balance sheet at cost and are subsequently measured at fair value. Positive and negative fair values of derivative financial instruments are included in other receivables and other payables, respectively. Changes in the fair value of derivative financial instruments classified as and fulfilling the criteria for hedging the fair value of a recognised asset or liability are recognised in the income statement together with any changes in the fair value of the hedged asset or liability. Changes in the fair value of derivative financial instruments classified as and fulfilling the conditions for hedging future assets or liabilities are recognised as receivables or payables as well as in equity. Income and expenses relating to such hedging transactions are transferred from equity on realisation of the hedged item and recognised in the same item as the hedged item.

Foreign currency translation

On initial recognition, transactions denominated in foreign currencies are translated using the exchange rate applicable at the date of transaction. Exchange rate differences between the exchange rate applicable at the date of transaction and the exchange rate at the date of payment are recognised in the income statement as a financial item. Receivables, liabilities other than provisions and other monetary items denominated in foreign currencies are translated at the exchange rates applicable at the balance sheet date. The difference between the exchange rate applicable at the balance sheet date and the exchange rate applicable at the date on which the receivable or liability occurred or was recognised in the most recent financial statements is recognised in the income statement as financial income or financial expenses. On recognition of foreign subsidiaries and associates which are independent units, income statement items are translated at an average exchange rate for the month, and balance sheet items are translated at the exchange rates at the balance sheet

Cash flow statement

The cash flow statement shows the consolidated cash flows for the year divided into cash flows from operating activities, investing activities and financing activities for the year as well as changes in cash and cash equivalents at the beginning and end of the year. The liquidity effect of the acquisition and divestment of enterprises is shown separately under cash flows

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AMBU 2003 | 2004

from investing activities. In the cash flow statement, cash flows relating to acquired enterprises are recognised as from the date of acquisition. Cash flows from operating activities are reported indirectly and comprise profit or loss for the year adjusted for non-cash operating items, changes in working capital, financial items paid and corporate income tax paid. Cash flows from investing activities comprise payments in connection with the acquisition and divestment of enterprises as well as the purchase and sale of intangible assets, property, plant and equipment and investments. Cash flows from financing activities comprise payments to and from shareholders, the arrangement and repayment of long-term liabilities other than provisions and changes in short-term liabilities other than provisions. Cash and cash equivalents comprise cash plus the portfolio of listed securities.

Accruals are made for costs and interest. Both realised and unrealised exchange rate gains and losses relating to bank balances and receivables are recognised as financial income and financial expenses.

Depreciation
The amortisation of intangible assets and the depreciation of property, plant and equipment is according to the straight-line method over the expected useful lives of the assets. The basis of amortisation/depreciation is cost comprising acquisition price and acquisition costs less any residual value. The estimated useful lives of fixed assets in Denmark and abroad are: Goodwill 10-20 years Development costs 5 years Rights 1-8 years Buildings 10-25 year Technical plant and machinery 2-10 years Fixtures and fittings, tools and equipment 3-5 years Minor new acquisitions are not capitalised, but are expensed in the income statement.

Income statement
The income statement is classified by function in vertical format. The individual cost functions (Production, Sales, Development and Management and Administration) show the costs attributable to such cost functions in the form of materials and costs, wages and salaries and their share of the overall costs and depreciation/amortisation.

Tax
Corporate income tax is expensed in an amount corresponding to the tax liability on the estimated taxable income for the year and providing for any changes in deferred tax as recognised in the balance sheet. The company is jointly taxed with some of its subsidiaries. Taxation is provided at 30%.

Balance sheet
The balance sheet is presented in account form on the following basis of valuation:

Income and expenses

Revenue comprises the sale of goods less sales commissions and cash discounts. Income from the sale of goods is recognised if delivery and invoicing were effected prior to the end of the financial year. Revenue in foreign currencies in the parent is recognised at the exchange rate applicable at date of transaction. Any current patent and product development costs that do not meet the criteria for capitalisation are expensed in the income statement.

Intangible assets Goodwill

Goodwill is amortised according to the straight-line method over the estimated useful life to be determined by the management on the basis of its experience within the individual business areas. The maximum amortisation period is 20 years, the longest period being applicable to strategically

AMBU 2003 | 2004

33

acquired enterprises with a strong market position and a long-term earnings profile. The carrying amount of goodwill is estimated on an ongoing basis and is written down to the recoverable amount via the income statement, if the carrying amount is higher than the expected future net income from the enterprise or activity to which the goodwill relates.

Intangible assets are written down to the lower

of recoverable amount and carrying amount. An annual impairment test will be performed for each individual asset or group of assets.

Property, plant and equipment are measured

at cost less depreciation and write-downs. Fixed assets manufactured by the company itself are recognised in direct costs plus production overheads without the addition of interest.

Development projects Development costs comprise costs, wages and salaries and amortisation directly and indirectly attributable to the companys development activities.
Development projects that can be clearly defined and identified, and for which it is possible to state the technical rate of utilisation, sufficient resources and a potential, future market or development opportunity in the enterprise, and for which the intention is to produce, market or use the project, are recognised as intangible assets, provided that it is possible to perform a reliable calculation of the cost and provided that there is sufficient security that future earnings will cover the costs of production, sales and administration as well as the actual development costs. Other development costs are expensed in the income statement as incurred. Capitalised development costs are measured at cost less the lower of accumulated amortisation and recoverable amount. Upon completion of the development activity, development costs are amortised according to the straight-line method over the estimated useful life. The amortisation period is usually five years.

Shareholdings in subsidiaries and investments in associates are recognised in accordance

with the equity method whereby shareholdings are valued at the parents share of the such companies equity value plus goodwill and less intra-group profits. The share of profits from subsidiaries less amortisation of goodwill is recognised in the parents income statement for the same financial year.

Inventories
Raw materials are measured at the lower of cost and net realisable value. Work in progress and finished goods are recognised at the value of materials consumed and labour costs plus production overheads (IPO). IPO additions are calculated as the share of production process costs which cannot be attributed to the actual consumption of materials and direct production wages.

Receivables are measured at amortised cost less

individual write-downs.

Securities are measured at fair value at the

balance sheet date.

Equity Dividend
Proposed dividend is recognised as a liability at the time of its adoption by the Annual General Meeting (the time of declaration). Expected dividend payable for the year is shown as a separate item under equity.

Rights Rights in the form of distribution rights and licences etc. are measured at cost less accumulated amortisation. Rights are amortised according to the straight-line method for the duration of the agreement period, the maximum period being, however, eight years.

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AMBU 2003 | 2004

Treasury shares Acquisition costs and consideration as well as dividend on treasury shares are recognised directly in retained earnings under equity. Profits and losses on sales are thus not recognised in the income statement.

Financial liabilities
Mortgage debt is recognised at the time of the arrangement of such loans and is shown as proceeds received less transaction costs incurred. In subsequent periods, the financial liabilities are recognised at amortised cost, corresponding to the capitalised value by application of the effective interest rate, so that the difference between the proceeds and the nominal value is recognised in the income statement for the duration of the loan term. Other liabilities other than provisions, including trade payables, amounts owing to group enterprises and associates as well as other debt, are measured at amortised cost.

Corporate income tax and deferred tax

Current tax liabilities and current tax receivables are recognised in the balance sheet as tax computed on the basis of the taxable income for the year, adjusted for tax on previous years taxable income and tax paid on account. Deferred tax is measured according to the balancesheet liability method on the basis of all temporary differences between carrying amount and tax base of assets and liabilities. Deferred tax assets, including the tax value of tax losses to be carried forward, are recognised at expected usable value through a set-off against tax on future earnings or against deferred tax liabilities within the same legal tax entity. Adjustment is made of deferred tax in relation to eliminations made as regards unrealised intra-group profits and losses. Deferred tax is measured on the basis of the taxation rules and tax rates which, pursuant to the legislation in force on the balance sheet date, will apply in the individual countries at the time the deferred tax is expected to become payable as current tax. Changes in deferred tax resulting from changes in tax rates are recognised in the income statement.

Segment information
The company is a supplier of medico-technical products for the global market and does not find it relevant to divide this market into segments, as both sales channels, customer types, sales organisations and product structures are identical for all important markets. Furthermore, production processes as well as the internal control and reporting structures are identical. As in previous years, information is provided by main product groups and geographical areas.

Other provisions include estimated costs of

restructuring etc. On acquisition of enterprises, provisions for costs of restructuring the acquired enterprise are included in the calculation of the acquisition costs and, hence, in goodwill, insofar as such provisions were decided and announced at the time of acquisition at the latest.

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35

Cash flow statement

Group
DKK 000 Profit for the year Adjustments Changes in working capital Cash flows from operating activities before financial items Interest income and similar items Interest expenses and similar items Cash flows from ordinary operating activities Corporate income tax paid Cash flows from operating activities Purchase of fixed assets Acquisitions and divestment of product areas Sale of fixed assets Cash flows from investing activities Free cash flow Raising of long-term debt Repayment of long-term debt Changes in short-term bank debt Sale of employee shares Sale of treasury shares Dividend paid Cash flows from financing activities Changes in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Note A: Adjustments Depreciation Amortisation of goodwill Sale of product areas and goodwill Interest and similar items, net Tax on profit for the year Note 2003/04 33,288 59,030 (17,420) 74,898 4,401 (10,971) 68,328 (13,562) 54,766 (66,526) (6,655) 3,946 (69,235) (14,469) 20,000 (24,722) 11,043 4,579 402 (8,036) 3,266 (11,203) 18,950 7,747 2002/03 26,008 52,762 13,641 92,411 1,217 (19,105) 74,523 (11,345) 63,178 (55,363) 15,800 2,801 (36,762) 26,416 0 (15,830) (8,181) (5,764) (29,775) (3,359) 22,309 18,950

A B

31,145 11,061 (2,153) 6,570 12,407 59,030

29,266 8,381 (11,178) 17,888 8,405 52,762

Note B: Changes in working capital Changes in inventories Changes in receivables Changes in trade payables etc.

(836) (21,727) 5,143 (17,420)

1,129 (7,368) 19,880 13,641

Note C: Acquisitions and divestment of product areas Fixed assets Inventories Receivables Goodwill and divestment of product areas Short-term debt

0 0 0 (6,655) 0 (6,655)

2,336 3,571 1,053 11,178 (2,338) 15,800

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AMBU 2003 | 2004

Income statement
1 October - 30 September

Group
DKK 000 Revenue Production costs Gross profit Cost of sales Development costs Management and administration Other operating income Operating profit before amortisation of goodwill (EBITA) Amortisation of goodwill Operating profit (EBIT) Profit of subsidiaries (before tax) Profit of associates (before tax) Financial income Financial expenses Profit before tax (PBT) Tax PROFIT FOR THE YEAR 6 7 7 4 5 2 2 2, 3 19 Note 1 2 2003/04 608,103 (302,875) 305,228 (133,297) (17,349) (93,409) 2,153 63,326 (11,061) 52,265 4,401 (10,971) 45,695 (12,407) 33,288 2002/03 566,806 (285,627) 281,179 (123,236) (17,939) (90,500) 11,178 60,682 (8,381) 52,301 1,217 (19,105) 34,413 (8,405) 26,008

Parent
2003/04 443,360 (316,540) 126,820 (39,538) (16,322) (48,895) 2,153 24,218 (7,207) 17,011 35,774 (499) 4,721 (11,312) 45,695 (12,407) 33,288 2002/03 410,099 (278,032) 132,067 (34,719) (16,782) (47,439) 3,130 36,257 (6,867) 29,390 23,979 (1,492) 618 (18,082) 34,413 (8,405) 26,008

Distribution of profit Dividend to shareholders, DKK 2 per share Retained earnings 11,786 21,502 33,288 8,069 17,939 26,008

AMBU 2003 | 2004

37

Balance sheet
30 September
Assets DKK 000 Fixed assets Intangible assets Completed development projects Rights Goodwill Development projects in progress Note 8 14,690 220 121,134 16,034 152,078 9 65,820 70,937 12,874 16,137 165,768 57,422 59,705 13,521 15,364 146,012 45,198 57,013 6,120 15,024 123,355 46,494 51,663 6,602 15,364 120,123 10,453 255 124,022 8,851 143,581 14,690 0 121,134 16,034 151,858 10,453 0 120,168 8,851 139,472

Group
30.09.04 30.09.03

Parent
30.09.04 30.09.03

Property, plant and equipment Land and buildings Plant and machinery Other fixtures and fittings, tools and equipment Prepayments and plant under construction

Investments Investments in subsidiaries Receivables from subsidiaries Investments in associates

7 7

0 317,846

0 289,593

100,583 5,022 9,077 114,682 389,895

76,718 5,355 9,129 91,202 350,797

Total fixed assets

Current assets Inventories Inventories Receivables Trade receivables Receivables from subsidiaries Receivables from associate Other assets and receivables Prepaid corporate income tax Deferred tax asset Deposits and prepayments

11

103,168

104,383

38,691

62,939

13 12

131,779 23,611 0 3,146 3,810 162,346

117,221 21,206 0 2,381 2,304 143,112

36,519 84,811 1,435 1,812 0 0 1,463 126,040

29,443 106,769 1,007 1,920 0 0 662 139,801

Cash Cash and cash equivalents Total current assets TOTAL ASSETS

7,748 273,262 591,108

18,950 266,445 556,038

0 164,731 554,626

0 202,740 553,537

38

AMBU 2003 | 2004

Balance sheet
30 September
Liabilities DKK 000 Equity Share capital Share premium Net revaluation according to the equity method Proposed dividend Retained earnings Total equity Provisions Provisions for deferred tax Total provisions 10 Note

Group
30.09.04 30.09.03

Parent
30.09.04 30.09.03

58,932 108,841 11,786 140,580 320,139

57,636 105,558 8,069 122,854 294,117

58,932 108,841 34,211 11,786 106,369 320,139

57,636 105,558 12,525 8,069 110,329 294,117

12

1,126 1,126

1,964 1,964

1,126 1,126

1,964 1,964

Liabilities other than provisions Long-term liabilities other than provisions Credit institutions Short-term liabilities other than provisions Current portion of long-term liabilities Bank debt Accounts payable Amounts owed to subsidiaries Corporate income tax Other debt Total liabilities other than provisions TOTAL LIABILITIES

14

99,582

104,968

98,987

103,189

14

13

25,270 53,541 26,109 2,980 62,361 269,843 591,108

24,605 42,498 30,822 2,457 54,607 259,957 556,038

24,220 46,483 20,945 2,913 341 39,472 233,361 554,626

23,694 47,026 25,550 30,839 2,192 24,966 257,456 553,537

Charges Contingent liabilities Related parties Foreign currency

15 16 17 18

AMBU 2003 | 2004

39

Statement of changes in equity

Group
DKK 000 Share capital 57,636 Share premium 105,558 Retained earnings 114,986 Proposed dividend 5,764 (5,764) 29 26,008 89 54 (10,243) (8,069) 57,636 1,296 105,558 3,283 (8,069) 33 402 33,288 (54) 94 (4,251) (11,786) 58,932 108,841 140,580 122,854

Total 283,944 (5,764) 29 26,008 89 54 (10,243) 294,117 4,579 (8,069) 33 402 33,288 (54) 94 (4,251) 320,139

Equity as at 1 October 2002 Distributed dividend Dividend, treasury shares Sale of treasury shares Profit for the year Value adjustment Non-settled forward exchange contracts, beginning of year Non-settled forward exchange contracts, end of year Translation adjustments Foreign subsidiaries Proposed dividend Equity as at 30 September 2003 Capital increase Distributed dividend Dividend, treasury shares Sale of treasury shares Profit for the year Value adjustment Non-settled forward exchange contracts, beginning of year Non-settled forward exchange contracts, end of year Translation adjustments Foreign subsidiaries Proposed dividend Equity as at 30 September 2004

8,069 8,069

11,786 11,786

40

AMBU 2003 | 2004

Statement of changes in equity

Parent
DKK 000 Share capital Equity as at 1 October 2002 Distributed dividend Dividend, treasury shares Sale of treasury shares Profit for the year Value adjustment Non-settled forward exchange contracts, beginning of year Non-settled forward exchange contracts, end of year Translation adjustments Foreign subsidiaries Proposed dividend Equity as at 30 September 2003 Capital increase Distributed dividend Dividend, treasury shares Sale of treasury shares Profit for the year Value adjustment Non-settled forward exchange contracts, beginning of year Non-settled forward exchange contracts, end of year Translation adjustments Foreign subsidiaries Proposed dividend Equity as at 30 September 2004 57,636 1,296 105,558 3,283 (8,069) 33 402 7,351 (54) 94 (4,251) (11,786) 58,932 108,841 34,211 106,369 11,786 11,786 57,636 Share premium 105,558 Net revaluation according to the equity method 24,336

Retained earnings 90,650

Proposed dividend 5,764 (5,764)

Total 283,944 (5,764) 29 26,008 89 54 (10,243) 294,117 4,579 (8,069) 33 402 33,288 (54) 94 (4,251) 320,139

(1,568)

29 27,576 89 54

(10,243) (8,069) 12,525 110,329 8,069 8,069

25,937

AMBU 2003 | 2004

41

Notes
Group
DKK 000 2003/04 2002/03

Parent
2003/04 2002/03

Note 1. Revenue
Sales in Denmark Sales abroad Total revenue Revenue by business area Respiratory Care Cardiology Neurology Training Immobilization Other Total revenue Revenue by geographical region North America Europe Other markets Total revenue 14,290 593,813 608,103 13,414 553,392 566,806 14,290 429,070 443,360 13,414 396,685 410,099

201,230 247,892 42,292 62,166 37,282 17,241 608,103

169,860 235,940 42,334 52,101 44,249 22,322 566,806

166,552 378,268 63,283 608,103

158,921 353,191 54,694 566,806

Note 2. Staff expenses and depreciation/amortisation

Staff expenses are included in functionalised costs as follows: Production costs Cost of sales Development costs Management and administration Total staff expenses Staff expenses comprise: Wages and salaries Remuneration, Executive Board Remuneration, Board of Directors Pension Social security costs Total staff expenses Average number of employees Depreciation, amortisation and write-down of intangible assets and property, plant and equipment are included in functionalised costs as follows: Production costs Cost of sales Development costs Management and administration Total depreciation, amortisation and write-down

81,166 77,744 13,542 45,926 218,378

88,312 72,057 12,209 41,212 213,790

70,512 19,476 12,692 25,825 128,505

79,015 18,420 11,169 22,561 131,165

191,322 3,318 1,075 8,718 13,945 218,378 1,024

186,986 2,481 1,075 10,264 12,984 213,790 875

115,135 3,318 1,075 7,185 1,792 128,505 380

116,855 2,481 1,075 9,024 1,730 131,165 369

21,495 950 3,615 5,085 31,145

18,041 1,221 3,610 6,394 29,266

17,874 178 3,615 3,121 24,788

15,841 265 3,608 3,561 23,275

42

AMBU 2003 | 2004

Notes
Group
DKK 000 2003/04 2002/03

Parent
2003/04 2002/03

Note 3. Fee to auditors appointed by the Annual General Meeting

Total fee, KPMG Total fee, Grant Thornton Total fee, others Total fee Share of fee for non-audit services, KPMG Share of fee for non-audit services, others 1,347 90 426 1,863 276 261 1,932 70 344 2,346 721 169 540 90 0 630 140 0 799 70 0 869 439 0

Note 4. Financial income

Interest income from loans to subsidiaries Interest income Foreign exchange gain, net 0 4,401 4,401 1,217 0 1,217 0 0 4,721 4,721 176 442 0 618

Note 5. Financial expenses

Interest expenses to subsidiaries Interest expenses Foreign exchange loss, net 10,971 0 10,971 10,572 8,533 19,105 0 11,312 0 11,312 0 9,635 8,447 18,082

Note 6. Tax
Current tax Adjustment, previous years Deferred tax Tax in group enterprises which comprises: Tax on profit from ordinary activities Tax on extraordinary profit Tax on profit for the year Tax on changes in equity Total tax for the year Tax on profit for the year comprises: Tax liability of 30% on profit for the year Adjustment, previous years Adjustment of computed tax in foreign group enterprises in relation to 30%, including retaxation Tax effect of: Non-deductible amortisation of goodwill Other non-deductible costs Adjustment, sale of shares in Germa AB 13,719 (3,238) 1,926 0 12,407 12,407 0 12,407 0 12,407 9,111 (58) (648) 0 8,405 8,405 0 8,405 0 8,405 3,960 (3,048) 1,867 9,628 12,407 12,407 0 12,407 0 12,407 2,600 91 779 4,935 8,405 8,405 0 8,405 0 8,405

13,709 (3,238) (1,446) 3,318 64 0 12,407

10,324 (58) (3,504) 2,514 68 (939) 8,405

13,709 (3,238) (1,446) 3,318 64 0 12,407

10,324 91 (3,653) 2,514 68 (939) 8,405

AMBU 2003 | 2004

43

Notes
Shares subsidiaries

DKK 000

Associate

Note 7. Investments
Acquisition price, beginning of year Additions Acquisition price, end of year Value adjustment, beginning of year Revaluation for the year Translation adjustment Amortisation and write-down of goodwill Value adjustment, end of year Carrying amount as at 30 September 64,192 2,180 66,372 12,525 29,525 (3,985) (3,854) 34,211 100,583 10,345 0 10,345 (1,216) (52) 0 0 (1,268) 9,077

Investments in subsidiaries
Wholly-owned subsidiaries Reg. office Ambu Inc. Ambu S.A.R.L Ambu Ltd. Ambu (Deutschland) GmbH Ambu S.r.l Ambu S.L Ambu Sdn. Bhd. Agepharm SA Ambu (China) Ltd. Ambu Japan KK Ambu of 2003 Sdn. Bhd. Associate, equity interest of 50% Ejendomsselskabet Sdr. Ringvej 49 Intra-group mark-up on inventories in subsidiaries Goodwill Carrying amount as at 30 September Denmark 2001 DKK 18,000,000 (20,356) 0 100,583 9,077 USA France UK Germany Italy Spain Malaysia France China Japan Malaysia Estab. 1983 1989 1991 1992 1992 1993 1995 1996 1998 2000 2003 Share capital nominal USD 250,000 EUR 170,245 GBP 1,000 EUR 51,129 EUR 68,200 EUR 67,313 MYR 2,400,000 EUR 160,071 RMB 6,623,760 JPY 20,000,000 MYR 1,300,000 Equity 30.09.04 43,848 13,474 8,758 18,176 2,915 1,943 10,837 (1,921) 19,801 1,062 2,046 Equity interest 30.09.04

9,077

44

AMBU 2003 | 2004

Notes
Completed development projects Development projects under construction

DKK 000

Rights

Goodwill

Total

Note 8. Intangible assets

Group Acquisition price, beginning of year Addition in connection with acquisition Additions in the year Disposals in the year Transferred in the year Acquisition price, end of year Amortisation, beginning of year Write-down Reversal upon sale Amortisation for the year Amortisation, end of year Carrying amount, end of year Amortisation period

14,165 635 0 (363) 6,654 21,091 3,712 0 (218) 2,907 6,401 14,690 5 years

1,179 0 0 0 0 1,179 924 0 0 35 959 220 10 years

143,976 8,173 0 0 0 152,149 19,954 3,290 0 7,771 31,015 121,134 10-20 years

8,851 0 13,837 0 (6,654) 16,034 0 0 0 0 0 16,034 -

168,171 8,808 13,837 (363) 0 190,453 24,590 3,290 (218) 10,713 38,375 152,078 -

Parent Acquisition price, beginning of year Addition in connection with acquisition Additions in the year Disposals in the year Transferred in the year Acquisition price, end of year Amortisation, beginning of year Reversal upon sale Amortisation for the year Amortisation, end of year Carrying amount, end of year Amortisation period 14,165 635 0 (363) 6,654 21,091 3,712 (218) 2,907 6,401 14,690 5 years 0 0 0 0 0 0 0 0 0 0 0 10 years 137,336 8,173 0 0 0 145,509 17,168 0 7,207 24,375 121,134 10-20 years 8,851 0 13,837 0 (6,654) 16,034 0 0 0 0 16,034 160,352 8,808 13,837 (363) 0 182,634 20,880 (218) 10,114 30,776 151,858 -

AMBU 2003 | 2004

45

Notes
Plant plants machinery Other fixtures and fittings, tools and equipment Prepayments and plants under construction

DKK 000

Land and buildings

Total

Note 9. Property, plant and equipment

Group Acquisition price, beginning of year Translation adjustment Additions in the year Disposals in the year Transferred in the year Acquisition price, end of year Depreciation, beginning of year Translation adjustment Reversal upon sale Depreciation for the year Depreciation, end of year Carrying amount, end of year Depreciation period 90,123 (463) 11,319 (1,763) 3,401 102,617 32,701 (66) (282) 4,444 36,797 65,820 10-25 years 152,735 (727) 7,082 (8,969) 21,393 171,514 93,030 (241) (9,437) 17,225 100,577 70,937 2-10 years 38,622 (304) 4,942 (10,448) 3,779 36,591 25,101 (203) (7,660) 6,479 23,717 12,874 3-5 years 15,364 0 29,346 0 (28,573) 16,137 0 0 0 0 0 16,137 237,674 (1,494) 52,689 (21,180) 0 267,689 91,662 (510) (17,379) 28,148 101,921 165,768 -

Parent Acquisition price, beginning of year Additions in the year Disposals in the year Disposal, subsidiaries Transferred in the year Acquisition price, end of year Depreciation, beginning of year Reversal upon sale Depreciation for the year Depreciation, end of year Carrying amount, end of year Depreciation period

76,636 0 (1,763) 0 3,401 78,274 30,142 (282) 3,216 33,076 45,198 10-25 years

140,857 717 (8,873) (1,733) 21,393 152,361 89,194 (8,828) 14,982 95,348 57,013 2-10 years

25,042 0 (6,275) 0 3,779 22,546 18,440 (5,697) 3,683 16,426 6,120 3-5 years

15,364 28,233 0 0 (28,573) 15,024 0 0 0 0 15,024 -

257,899 28,950 (16,911) (1,733) 0 268,205 137,776 (14,807) 21,881 144,850 123,355 -

According to the public land assessment of 1 January 2003, the value of the property located at Rugmarken 10, lstykke, Denmark, amounts to DKK 40,200,000. The property is recognised at DKK 45,198,000.

46

AMBU 2003 | 2004

Notes
Note 10. Share capital and treasury shares
The share capital as at 30 September 2004 comprises: Class A shares, 1,716,000 of DKK 10 each. Class B shares, 4,177,191 of DKK 10 each. In the 2000/01 nancial year, the share capital was increased by 1,221,090 Class B shares in connection with acquisitions. During the nancial year, the company has issued employee shares through a capital increase of 129,601 Class B shares at a favourable price. During the nancial year, 5,000 treasury shares have been sold.

DKK 000 Treasury shares 1 October Additions Disposals Class B treasury shares as at 30 September

Number of shares 2003/04 2002/03

Nominal value (DKK 000) 2003/04 2002/03

In % of share capital 2003/04 2002/03

28,660 (5,000) 23,660

28,660 0 28,660

287 (50) 237

287 0 287

0.50% (0.08%) 0.40%

0.50% 0.00% 0.50%

DKK 000

30.09.04

Group

30.09.03

30.09.04

Parent

30.09.03

Note 11. Inventories

Raw materials and consumables Work in progress Manufactured goods 36,711 5,587 60,870 103,168 38,364 4,215 61,804 104,383 21,762 3,967 12,962 38,691 34,401 3,467 25,071 62,939

DKK 000

30.09.04

Group

30.09.03

30.09.04

Parent 30.09.03

Note 12. Provisions for deferred tax

Deferred tax as at 1 October Addition from merger Translation adjustment Deferred tax for the year Change in respect of previous years Deferred tax as at 30 September Deferred tax relates to: Intangible assets Property, plant and equipment Current assets Provisions Liabilities other than provisions Tax losses to be carried forward Deferred tax comprises: Deferred tax asset Deferred tax (417) 0 132 2,004 (3,741) (2,022) 306 0 181 (556) (348) (417) 1,964 0 0 1,867 (2,705) 1,126 (1,661) 2,846 0 779 0 1,964

3,774 1,699 (5,636) (1) (139) (1,717) (2,020) (3,146) 1,126

4,299 1,365 (4,790) 0 (135) (1,156) (417) (2,381) 1,964

3,774 1,570 (4,218) 0 0 0 1,126 0 1,126

4,299 1,159 (3,494) 0 0 0 1,964 0 1,964

AMBU 2003 | 2004

47

Notes
Group Parent 30.09.03

DKK 000

30.09.04

30.09.03

30.09.04

Note 13. Corporate income tax

Corporate income tax payable as at 1 October Addition from merger Translation adjustment Paid ( )/received during the year Adjustment in respect of previous years Tax on prot for the year 2,457 0 (201) (13,562) 567 13,719 2,980 6,641 0 (406) (11,345) (1,509) 9,076 2,457 2,192 0 0 (5,468) (343) 3,960 341 (443) 3,045 0 (3,101) 91 2,600 2,192

Loan

Maturity

Fixed/floating

Interest

2003/04

Group

2002/03

2003/04

Parent

2002/03

Note 14. Credit institutions

DKK 2014 DKK 2014 DKK 2014 DKK 2014 DKK 2015 DKK 2018 EUR 2008 EUR 2009 EUR 2010 EUR Total credit institutions as at 30 September Weighted average effective rate of interest Fixed Fixed Fixed Floating Fixed Floating Fixed Fixed Fixed Fixed 7.1% 7.1% 7.1% 2.9% 6.7% 4.0% 4.8% 6.6% 4.7% 0.0% 4.7% 3,249 2,250 4,000 20,000 1,223 10,935 70,000 11,550 1,157 488 124,852 3,591 2,486 4,421 0 1,334 11,518 90,000 13,533 1,807 883 129,573 3,249 2,250 4,000 20,000 1,223 10,935 70,000 11,550 0 0 123,207 3,591 2,486 4,421 0 1,334 11,518 90,000 13,533 0 0 126,883

DKK 25,270,000 of the total debt falls due within 1 year, and 25,734,000 falls due after 5 years. The company has short-term bank debt of DKK 53,541,000 carrying a oating rate of interest.

Note 15. Charges

Security has alue of DKK 25,383,000 secured upon property with a carrying amount of DKK 45,198,000. As security for debt and the repayment thereof, DKK 4,498,000 has been deposited in Xiamen International Bank, China.

48

AMBU 2003 | 2004

Notes
Group Parent

DKK 000

2003/04

2002/03

2003/04

2002/03

Note 16. Contingent liabilities and security

Contingent liabilities (operating lease) Amounts due within 0-1 years Amounts due within 1-5 years Amounts due after 5 years 10,976 34,754 54,016 99,746 10,288 29,372 43,378 83,038 6,100 22,559 37,814 66,473 5,535 21,307 42,301 69,143

Security Guarantees and security provided

28,263 28,263 128,009

30,811 30,811 113,849

26,674 26,674 93,147

26,947 26,947 96,090

Total contingent liabilities and security

Operating leases have been entered into with a lease period of up to 15 years, being non-terminable on the part of both parties. The leases are normally extendable for a minimum of one year at a time, and the lease payments are normally xed throughout the term of the lease. The lease commitment has been calculated on the basis of the payments falling due over the term of the lease.

Note 17. Related parties

Ambus related parties with signicant inuence include subsidiaries and associates, as described in note 7, as well as members of the companys Board of Directors, Executive Board, senior employees and members of their families. Related parties further include enterprises in which the above-mentioned persons have a signicant interest. During the year, no transactions, except for intra-group transactions eliminated in the consolidated nancial statements and managements remuneration, have been carried out with the Board of Directors, Executive Board, senior employees, major shareholders or other related parties.

AMBU 2003 | 2004

49

Notes
Note 18. Forward exchange contract and options
As part of the hedging of recognised and non-recognised transactions, Ambu uses forward exchange contracts and options. Forward exchange contracts recognised Hedging of recognised transactions primarily comprises receivables and liabilities other than provisions.

Foreign currency

Payment/ maturity

Receiv- Liabilities other ables than provisions

Hedged

Net position

USD translated into DKK 000 GBP translated into DKK 000

< 1 year < 1 year

63,534 4,982 68,516

27,270 496 27,766

36,264 4,486 40,750

0 0 0

Apart from currency risks in relation to investments in subsidiaries, no material currency risks are incumbent on the balance sheet of the parent. Expected future transactions In order to hedge future net cash ows, primarily comprising the sale and purchase of goods, the following contracts have been entered into.

Foreign currency

Period

Contract value 2003/04 2002/03

Recognised in equity 2003/04 2002/03

Forward exchange contracts Options

0-9 months 0-9 months

17,991 19,431 37,422

18,676 0 18,676

(234) 328 94

54 0 54

Note 19. Other operating income

Other operating income comprises proceeds on the sale of product rights and shares in subsidiaries.

50

AMBU 2003 | 2004

Ambu in brief
Ambu develops, produces and markets diagnostic and life-supporting devices to hospitals and rescue services. The Group has five business areas: Respiratory Care, Cardiology, Neurology, Training and Immobilization. The most important business areas are Respiratory Care, Cardiology and Neurology, and the most important products in these areas are ventilation products for artificial respiration and single-use electrodes for ECG recordings and neurophysiological examinations. Ambu offers unique, innovative products of a high quality, and the Group has a favourable market position in its chosen focus areas. Ambus products are sold worldwide. Exports account for 98% of sales, and sales are handled via Ambus foreign subsidiaries or via distributors. Headquartered in Denmark, the Group has production facilities in Ballerup and lstykke in Denmark, in Xiamen, China, and in Penang, Malaysia. Ambu has just over 1,000 employees of whom just under 400 are employed in Denmark and just over 600 abroad. Ambu is listed on the Copenhagen Stock Exchange.
Editors Ambu A/S Photos Ambu A/S and Morten Jerichau Design and production Boje & Mobeck

Addresses
Denmark
Tel.: +45 72 25 20 00 E-mail: ambu@ambu.com Internet: www.ambu.com

Germany
Ambu GmbH Strassheimer Strasse 1 61169 Friedberg Tel.: +49 6031 7374-0 Fax: +49 6031 7374-20

Italy
Ambu S.r.l Via Lombardia 7 20060 Vignate (MI) Tel.: +39 0295 360 415 Fax: +39 0295 360 477

China
Ambu Ltd. Unit AB, 3/F, No. C. Warehouse & Process Complex Building Xiang Yu F.T.Z. Xiamen Tel.: +86 592 602 5212 Fax: +86 592 602 5390

Ambu A/S
Baltorpbakken 13 2750 Ballerup Fax: +45 72 25 20 50 Rugmarken 10 3650 lstykke Fax: +45 72 25 20 55

France
Ambu S.A.R.L Airspace Rue Gagarine 33185 Le Haillan Tel.: +33 55 792 3150 Fax: +33 55 792 3159

Spain
Ambu S.L Nunez de Balboa 120, 7 izg. 28006 Madrid Tel.: +34 90 217 0641 Fax: +34 90 217 0639

Malaysia
Ambu Sdn. Bhd. Lot 159, Jalan Sungei Keluang Bayan Lepas FIZ, Phase 1 11900 Penang Tel.: +60 464 28 990 Fax: +60 464 48 932

USA
Ambu Inc. 6740 Baymeadow Drive Glen Burnie, MD 21060 Tel.: +1-410-768-6464 Fax: +1-410-768-3993

UK
Ambu Ltd. Burrel Road St. Ives Cambridgeshire PE27 3LE Tel.: +44 1 480 498 403 Fax: +44 1 480 498 405

Japan
Ambu KK 2-4-21 Nishikamakura 248-0035 Kamakura-shi Kanagawa Prefecture Tel.: +81-467-39-1570 Fax: +81-467-39-1571

AMBU 2003 | 2004

51

Ambu A/S Baltorpbakken 13 DK-2750 Ballerup Denmark T +45 72 25 20 00 F +45 72 25 20 50 www.ambu.com

AMBUS BUSINESS AREAS R E S P I R AT O R Y C A R E CARDIOLOGY NEUROLOGY TRAINING I M M O B I L I Z AT I O N

AMBU 2003 | 2004

496 1020 01 - 12.2004