1 | Sales

Sales are recognized when goods are delivered or services performed, and the risk incident to the goods or services is transferred. Discounts, customer bonuses and rebates are deducted from sales. A further breakdown of sales and their development by division and region can be found in the segment reporting.

2 | Cost of goods sold

This item comprises the cost of internally produced goods and the purchase price of merchandise sold. The cost of internally manufactured goods includes directly attributable costs such as the cost of direct materials, direct labor, and energy costs, as well as production overheads, including depreciation of production facilities. In accordance with IAS 2 (Inventories), adequate write-downs on inventories were made.

3 | Marketing and selling expenses

Marketing and selling expenses comprise the cost of marketing, the sales organization and distribution logistics. This item also includes write-downs of trade receivables. Marketing expenses for advertising, trade marketing, and similar items amounted to €1,307 million (previous year: €1,301 million).

4 | Research and development expenses

In accordance with IAS 38 (Intangible Assets), research and development expenses comprise the cost of research and of product and process development, including expenses for third-party services. Development expenditures are expensed fully in the period in which they occur, as the risks up through market launch mean that the criteria for capitalization are not fulfilled.

5 | General and administrative expenses

This item comprises the personnel expenses and other costs of administration, as well as the cost of external services that are not allocated internally to other functions.

6 | Other operating income

Miscellaneous other income includes income from license agreements, prior-period income, income from the reversal of valuation allowances on receivables and other miscellaneous income.

7 | Other operating expenses

Miscellaneous other expenses include provisions for risks and other miscellaneous expenses.

8 | Interest income (net)

The interest expense on pension and other entitlements acquired in previous years is netted against any return on plan assets and the amortization of unrecognized actuarial gains and losses. This results in net interest income in the amount of €4 million (previous year: €4 million).

9 | Other financial income/expense (net)

Other financial income primarily comprises exchange gains on financial items denominated in foreign currencies. Other financial expense consists of exchange losses on such financial items.

10 | Taxes on income

Taxes on income comprise the taxes paid or owed on income in the individual countries, as well as deferred taxes. Income tax expense including deferred taxes can be broken down as follows:

Taxes on income include tax refunds attributable to prior periods in the amount of €1 million (previous year: tax payments of €3 million).

Deferred taxes result from temporary differences between the carrying amounts in the tax accounts of the Group companies and the carrying amounts in the Group balance sheet. Deferred taxes are measured using the balance sheet liability method on the basis of the tax rates expected to be enacted in the individual countries when the temporary differences reverse. These rates are based on the legislation in force at the balance sheet date.

With an effective tax rate of 39.7 %, the actual tax expense is €16 million above the expected tax expense. The expected tax rate is calculated as the weighted average of the tax rates of the individual Group companies, and amounts to 36.5 % (previous year: 35.2%).

The change in this tax rate is due largely to the higher profit before tax generated in Germany, where higher tax rates increase the weighted average. The following table shows the reconciliation from expected to actual tax expense:

11 | Minority interests

€7 million of profit after tax is attributable to minority interests (previous year: €7 million). These minority interests relate to shareholdings in Nivea-Kao Co., Ltd., Japan, PT. Beiersdorf Indonesia, Beiersdorf India Limited, and Bode Chemie GmbH & Co., Hamburg.

12 | Earnings per share

Earnings per share for 2003 amounted to €3.50 (previous year: €3.37). The number of shares remained unchanged in the year under review (84 million shares). As there are no outstanding financial instruments that can be exchanged for shares, there is no dilution.

13 | Other disclosures

Cost of materials
The cost of raw materials and supplies, and of purchased goods and services, amounted to €1,192 million (previous year: €1,205 million).

Personnel expenses

Employees
The breakdown of employees by function is as follows:

A breakdown of employees by Beiersdorf Group segment can be found in the segment reporting.

Value-added calculation