ANNUAL REPORT 2002 THE GROUP AT A GLANCE 2001 2002 IAS IAS Sales Total Euro million 975.2 977.5 Germany Euro million 330.7 296.3 Abroad Euro million 644.5 681.2 Foreign quota in per cent 66 70 Operating result (EBIT) Euro million 27.0 27.0 Results for the year Euro million 9.6 10.3 Investments in tangible and intangible fixed assets Euro million 54.3 66.1 Depreciation Euro million 58.9 58.7 Cash flow from operating activities Euro million 40.0 71.1 Employees (average) Germany 4,003 4,021 Abroad 6,830 6,913 Total 10,833 10,934 Dividends per individual preference-share certificate Euro 0.55 0.55 per individual ordinary-share certificate Euro 0.50 0.50 After converting the accounting to IAS we have reduced the overview to two years due to limited comparability of the figures up to the year 2000. Consolidated Sales Operating Result (EBIT) (in Euro Million) (in Euro Million) Germany Abroad 1,000 40 500 20 0 0 2001 2002 2001 2002 Investment and Average Number of Depreciation (in Euro Million) Persons Employed (Group) Depreciation Investment Germany Abroad 100 10,000 50 5,000 0 0 2001 2002 2001 2002 LIST OF CONTENTS Supervisory Board Annual Report 02 Members of the Supervisory and Executive Boards 03 Executive Board Annual Report 04 Expanding Core and Content of the Villeroy & Boch Brand 08 Villeroy & Boch AG and Group Management Report 10 The Share 20 Employees 22 Bathroom, Kitchen and Tile Division 24 Tableware Division 30 Wellness Division 34 Project Business Division 38 Consolidated Financial Statements of Villeroy & Boch AG 41 Major Group Companies 82 Company Calendar 84 SUPERVISORY BOARD ANNUAL REPORT and Audit Committee were newly formed by the Supervisory Board and their members elected. The Staff Committee convened twice in the year 2002. Subjects of discussion were the appointment of a new Executive Board member, the extension of an existing member's contract, and also bonus pay- ments made to the Executive Board. In September 2002, the Supervisory Board issued its audit assignment to KPMG Deutsche Treu- hand-Gesellschaft AG Wirtschaftsprüfungsgesell- schaft – the auditing company elected at the Share- holders' General Meeting. The Villeroy & Boch AG annual financial statements, the consolidated financial statements of 31.12.2002 and also the integrated Management Report have been audited by the statutory auditor and issued with an unqual- ified audit certificate. At the Supervisory Board Meeting in March 2003, the financial statements were discussed in the presence of the auditor. Based on the final result of our own audits, no grounds were found for objection. The annual Supervisory Board Chairman: financial statements of 31.12.2002 have, therefore, Peter Prinz Wittgenstein been approved. The Supervisory Board endorses the Executive Board's proposal regarding appro- During the financial year 2002, the Supervisory priation of the net retained profit. Board duly discharged those duties for which it is The Supervisory Board has made proposals for the responsible according to the law and the Memo- new election of Supervisory Board members and randum and Articles of Association. In the course the auditor in accordance with the criteria laid of four Supervisory Board meetings and monthly down in the Corporate Governance principles and reporting, it was regularly informed by the Exec- in doing so, obtained the statement of the proposed utive Board – in writing and verbally – about the auditor in compliance with subsection 7.2.1 of the development of business. In addition, all essential principles. The Supervisory Board will regularly matters relating to corporate policy and develop- monitor observance of the Corporate Governance ment were co-ordinated in mutual talks between principles and their efficiency. the Supervisory Board Chairman and the Exec- The Supervisory Board would like to thank both utive Board Chairman. the Executive Board and all employees for their Discussions in the year under review concentrated dedication and great commitment during the finan- in particular on the appointment of Mr Ralf Mock cial year 2002. as the new Executive Board member for the Tableware Division, the merger of the Tile Divi- Mettlach. March 2003 sion with that of Bathroom and Kitchen, formation of the new Project Business Division, adoption of the Corporate Governance principles and prepara- tion of the rules of internal procedure for the Ex- ecutive Board, the Supervisory Board and also the Audit, Investment and Staff Committees. Within the scope of implementing the Corporate Peter Prinz Wittgenstein Governance principles, an Investment Committee Supervisory Board Chairman 2 SUPERVISORY AND EXECUTIVE BOARD MEMBERS The Supervisory Board The Executive Board Karl Gustaf Ratjen, Königstein Wendelin von Boch-Galhau, Honorary member of the Supervisory Board Losheim-Britten Chairman Peter Prinz Wittgenstein, Düsseldorf Tableware Division (from 01.03. till 31.08.2002) Chairman a) Messe Frankfurt GmbH Management Consultant Gerling-Konzern Allgemeine Versicherungs-AG Former member of the Executive Board of Mannesmann AG, (since April 2002) Düsseldorf a) Mannesmann-Röhrenwerke AG Manfred Finger, Rehlingen b) Gottfried Schultz GmbH & Co. Finance and Personnel (Chairman of the Administrative Board) Peter von der Lippe, Rosemarie Gattuso*, Mettlach 1st Vice-Chairwoman Petite-Rosselle/France Chairwoman of Works Council at the Faiencerie Bathroom and Kitchen Division (until 30.06.2002) Mettlach/Merzig Bathroom, Kitchen and Tile Division (since 01.07.2002) b) within the Group: Villeroy & Boch Magyarország Rt. Luitwin Gisbert von Boch-Galhau, Mettlach 2nd Vice–Chairman Entrepreneur Ralf Mock, Königstein a) Deutsche Bank Saar AG (until 29.05.2002) Tableware Division (since 01.09.2002) Gerling-Konzern Globale Rückversicherungs-AG b) Groupe Jacques Parisot (until 30.04.2002) Philippe Schaus, Luxembourg within the Group: Tableware Division Villeroy & Boch Magyarország Rt. (Chairman) (Deputy Executive Board Member) (until 28.02.2002) Josef Balle*, Merzig Chairman of the Fliesenwerke Saar Works Council Dr. Bernard Wientjes, Ommen/The Netherlands Gisela Hannack*, Hanover Wellness Division Head of the Business Management Department of the b) Wientjes Kunststoffen Holding bv IG Bergbau, Chemie, Energie, Hanover Richard Zimmermann, Mettlach Walter Raber*, Nalbach Tile Division (until 30.06.2002) Head of Tableware Division Controlling Project Business Division (since 01.07.2002) Ina Rauls*, Perl Deputy Chairwoman of the Sanitärfabrik Mettlach Works Council Antoine de Schorlemer, Luxembourg Businessman b) Automobile Club du Grand Duché de Luxembourg SOS-Interfonds Kilian von der Tann, Tann/Rhön Lawyer Claude Villeroy de Galhau, Wallerfangen Bachelor of Commerce b) Japan Pacific Fund Luxembourg Japacic (SICAV) Emmanuel Villeroy de Galhau, Paris Head of “Mergers and Acquisitions” at L’Oréal, Paris Gerd Zibell*, Gau-Odernheim Land District Head of the Industrial Union, Bergbau, Chemie, Energie, for the Länder Rhineland Palatinate /Saarland, * Statutory employees' representative in Mainz a) membership in other supervisory boards to be legally formed in terms a) RAG Saarberg AG of § 125 AktG b) membership of comparable domestic and foreign business enterprise BASF AG control councils in terms of § 125 AktG 3 EXECUTIVE BOARD ANNUAL REPORT Dear shareholders and business associates, ly lower than that in the previous financial year (Euro 15.2 million). We were, therefore, unable to In this report, we shall once again be informing achieve our original targets, but – given the ex- you of a financial year, whose course was so com- tremely negative economic environment – never- pletely different from that forecasted by trade and theless attained a good result. economic experts. The underlying economic con- The year under review saw a further increase in the ditions in the financial year 2002 consequently degree of diversification. Owing to the acquisition deteriorated even further than those already report- of Acomo in Belgium and Villeroy & Boch Well- ed for 2001. Growth forecasts in Germany were ness Italia, sales in the Wellness Division rose by repeatedly adjusted downwards during the course almost 48 % and currently total Euro 107.1 mil- of the year, but world-wide economic growth was lion. This relatively new Division, therefore, alread- also clearly below the level which had been ex- y accounts for 11 % of Group sales, a percentage pected at the start of the year. which should see a further clear increase in future Our company's direct industrial environment in years, owing to above-average structural growth particular experienced an extremely negative and – midterm – as a result of further acquisitions. trend. The propensity to consume in Germany Having accounted for more than 60 % at the start reached its lowest point for the last twenty years, of the eighties, the low-earning Tile Division's with the GFK [society for consumer research] sales share reported a backward trend in the year indicator registering almost 40 points below its 2002, when it secured a mere 27.5 %. Against the normal level. A similar decline was also reported background of difficult market conditions and an by the construction industry, which showed a intentionally maintained strategy of high and me- backward trend for the eighth year in succession. dium pricing, sales declined by 10 %, bringing the “Teuro” discussions [implying general price in- total to Euro 268.6 million and yielding yet again creases as a result of Euro introduction] during the an unsatisfactory result. The Tile Division's con- first quarter and the tiresome debate on taxes and siderably diminished share of total sales in recent increases in duty during the fourth quarter, follow- years has, however, led to an improved distribu- ing the Bundestag elections, proved to be factors tion of risk in the corporate portfolio. which dampened consumer demand. These facts, Reporting a slight drop in sales of 1.5 % to a total coupled with the state of insecurity on the employ- of Euro 305.3 million in the year 2002, the ment market, led to an increase in the propensity to Bathroom and Kitchen Division suffered a deteri- save, at the cost of consumption.