05/24/2004 - Annual Press Conference, Süd-Chemie AG, 24 May 2004

Speech by Dr. Jürgen F. Kammer, Chairman of the Managing Board

Good morning, ladies and gentlemen,

I should like to welcome you most warmly to this year´s annual press conference at Süd-Chemie. I am pleased to be able to report on a successful business year in 2003. First of all, I would like to introduce to you Mr. Edgar Binnemann and Mr. Patrick Salchow. Mr. Binnemann has been a member of the Managing Board since July 2003 and was appointed Chief Financial Officer at the beginning of 2004. Mr. Salchow took over as head of the public relations department and of secretarial services for the Managing Board on 1 April this year.

With regard to the agenda for our press conference - after my introductory remarks on the 2003 financial year, Mr. Binnemann will be explaining in detail the 2003 financial statements for the Süd-Chemie Group. I shall subsequently report on the highlights of last year and provide a brief overview of current business developments during 2004. We shall then both be available to answer your questions and following the press conference, I should like to invite you to take some light refreshment.

Difficult market environment

Looking back at the outstanding events of the past year, the Iraq crisis springs to mind as the main regrettable occurrence. Even following the official end of the warfare, there are no prospects of the tension easing. On the contrary, the situation seems to have become more critical again in recent months. This smouldering conflict is giving rise to continuing uncertainty, with an adverse affect on global economic developments. In spite of all the initial forecasts, the strong economic recovery failed to materialise in 2003, although expansive monetary policies were in place in almost all industrialised countries. World economic growth reached 2.4%. The USA proved to be the economic driving force behind this growth with a gross domestic product of 3.1%, at the same time creating impetus for a strong upswing in Asia, especially in China. Economic momentum remained notably low in the euro zone, with a rise of only 0.5%. Bringing up the rear in Europe in 2003 was unfortunately Germany, where the well-known structural problems outweighed economic momentum. World trade expanded only moderately by 3.5%. In spite of an approximately 2% increase in production levels, the chemical industry was marked by the rising prices of raw materials and on the sales side, by keen price competition on the world market, coupled with low margins and considerable pressure on costs.

A successful year for Süd-Chemie in 2003

In 2003, Süd-Chemie was able to demonstrate yet again that it can hold its own, even in a difficult environment. We made considerable progress, strengthening our competitive position even further and achieving our sales and profit targets. Consolidated sales increased by €7.4 million to €763.0 million (2003: €755.6 million). Based on the exchange rates prevailing in 2002, sales would have risen by almost 9% to €820.8 million. In spite of a one-percent rise in sales, total assets decreased by 5% to €648.5 million. Thanks in particular to systematic inventory management, we achieved a marked improvement in the capital structure of the Group. Mr. Binnemann will be dealing with this positive development in more detail in a few moments. The result of ordinary operations (EBIT) rose by 11% to €44.6 million (2003: €40.2 million) and consolidated net income by 44% to €15.0 million (2003: €10.4 million).

Organisation structure directed more strongly towards customers

This positive Group trend was largely the result of the many successful measures introduced to improve performance at Süd-Chemie. Wherever we saw that adjustments were necessary, we acted quickly and resolutely. For instance, we recognised that greater orientation to customer needs offered a major opportunity and adapted the organisation structure of the Group accordingly. Whereas Süd-Chemie´s activities were divided among fourteen business units in 2001 and among ten in 2002, at the beginning of 2003, the number of business units was further reduced to eight. This entailed streamlining internal structures and shortening lines of communication. In the course of changing the Group structure to focus on markets and customers instead of on products, the division of business units into product groups was replaced by reorganisation into twenty-one industry groups, geared to serving Süd-Chemie´s main markets and supplemented by a new key account management structure. All processes from order intake to purchasing, production, logistics and after-sales service, are tailored to customer needs.

Today, Süd-Chemie is represented in all important regions of the world, having more or less completed its process of globalisation. Our employees include excellently-qualified chemists and experts from a wide range of disciplines, as well as a large number of young talented trainees from all parts of the world. Research and development operations have been restructured and expanded. State-of-the-art, process-oriented information technology is available to the majority of Group members and is continually being extended, refined and introduced to users. We are now in a better position than ever before to achieve sustained growth based primarily on our own resources.

Stable high dividend of €0.62

Süd-Chemie AG´s Managing and Supervisory Boards will be proposing that the shareholders approve an unchanged dividend of €0.62 per share at the Annual General Meeting on 25 June. This represents a total dividend of €7.3 million and a continuation of Süd-Chemie´s stable dividend policy of recent years.

Successful end to patents lawsuit

Before Mr. Binnemann and I deal in detail with the highlights of 2003, I would firstly like to report on the successful conclusion of the patents dispute with Southern Clay in the US.

In June 2003, we were able to make a positive announcement to our shareholders and partners. Following a successful verdict on our appeal by the Supreme Court in Washington D.C., the major part of the legal dispute with the American company, Southern Clay Products Inc., over an alleged patent infringement on the part of Süd-Chemie was brought to a close, a final out-of-court settlement being reached on the remaining part of the litigation. This ended a legal dispute which had lasted since February 2001 and involved claims of over US$80 million. Under the settlement, all members of the Süd-Chemie Group retain the right to use the globally-valid licence for an unlimited length of time.

Over the past three years, this lawsuit has taken up considerable resources at Süd-Chemie and its conclusion means that capacity can be released to help us reach our operating goals.

I should now like to pass you over to Mr. Binnemann.

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Thank you very much Mr. Binnemann for elaborating on the figures.

And now to the highlights of last year – which business activities were expanded, what were Süd-Chemie´s main focal points, where were we able to realise good ideas and innovative solutions?

As a company specialised in chemistry for surfaces comprising the finest-grained inorganic matter, our two divisions of Catalysts and Adsorbents occupy niche markets which, in view of their limited extent and their complexity, allow no scope for profitable servicing by the major chemical groups – markets calling for a high degree of specialisation in order to offer top-quality products at competitive prices. Thanks to our worldwide presence, we are in a position to market suitable solutions for these niches on a global scale.

Balanced growth

Today we hold excellent positions in our markets, being either the leading player or at least among the top three. To maintain this strong position, we are aiming for continuous and for the most part organic growth. Intensive research and marketable developments are however basic requirements for internal growth and last year, we were again able to file an increased number of patents. The fact that our innovations are indeed marketable is demonstrated by the constant high proportion of annual sales contributed by new products, namely 25%. As well as growing and increasing the value of the company on the basis of our own ability, we are also always on the look out for cooperation or acquisition opportunities which could create added value. We continued to pursue this established strategy last year with targeted purchases in fast-growing areas of activity. We also entered into a series of partnerships to supplement our range of products and services.

Partnerships and acquisitions expand strong position in 2003

In the Catalysts Division, we were able to strengthen our position in the field of petrochemicals by acquiring the former Linde subsidiary, Scientific Design Company in the USA. Together with Saudi Basic Industries Corporation (SABIC - one of the world´s largest petrochemical enterprises based in Saudi Arabia), we took over Scientific Design on a joint 50:50 basis and made our entry into the market for ethylene-oxide catalysts and process-technology licensing. Ethylene oxide is an intermediate used for instance in the manufacture of plastic bottles, polyester, antifreeze and polyurethane. This takeover has given us access to an attractive market segment with a potential of more than US$200 million.

By acquiring customer data, patents, know-how and the production range from Alsi-Penta Zeolithe GmbH, we have significantly increased our market lead in the sector of zeolite catalysts for refineries and for the petrochemical and air-purification industries. After only a short period of integration, a system for removing nitrous oxide, which damages the ozone layer, from the waste gas emitted by nitric-acid plants went into operation at the company AgroLinz in Austria.

We also signed a marketing agreement with W. C. Heraeus GmbH & Co. KG, a subsidiary of the precious-metal and technology company, Heraeus Holding GmbH. Heraeus´ precious-metal catalysts, which are used in the chemical and fine-chemical industries, are now exclusively marketed by Süd-Chemie in the US, Mexico and Canada.

At the beginning of 2003, we entered into a cooperation agreement with Choren Industries GmbH to manufacture fuels from renewable resources based on the so-called biomass-to-liquid (BTL) process. Choren Industries leads the field in the development, construction and operation of plants for the production of synthetic fuel from carbonised regenerative raw materials. To manufacture high-quality, synthetic fuel, biomass consisting mainly of recycled and waste wood or straw is converted into synthesis gas (CO + H2) and synthesised to create fuel. Based on an EU resolution, biogenous fuels should account for 5.75% of total fuel consumption by 2010, compared with less than one percent today. At the end of March, the EU Commission approved new tax concessions for biodiesel. In Germany, all types of biodiesel are now completely exempt from petrol tax. Our cooperation agreement in this future-oriented industry envisages the development and supply of catalysts to convert the synthesis gas gained from biomass into fuel, as well as the provision of process-engineering support. Süd-Chemie is therefore one of the prime creators of future sources of energy.

In the Adsorbents Division, we acquired the bentonite activities in France belonging to the French company Ceca S.A., a subsidiary of the French oil group Atofina S.A. In addition to one production site, the takeover also included trademarks and know-how. This acquisition strengthens our leading position on the bentonite market, especially in France. Bentonite is required for countless industrial applications, including for instance in the food and beverages sector to clarify edible oils, wine and fruit juices, in the foundry industry as a binding agent for moulding sand, in civil engineering as an additive for drilling mud and diaphragm walls, as well as for waste water treatment.

On the cutting edge of nanotechnological progress

Today, Süd-Chemie ranks among the leading players in the field of future-oriented technologies, for instance in nanotechnology which opens up new possibilities in many areas. Using materials in nanodimensions (1 nanometre = 1 billionth of a metre), the properties of countless products can be modified and surface structures created to order in sectors such as energy, environmental and medical technology. Products acquire optical, electrical and magnetic properties, reaching new and previously unattainable dimensions of hardness and strength.

With the aid of nanotechnology, Süd-Chemie has succeeded in opening up new fields of application for bentonite, a clay mineral that has been in use for over a hundred years. Bentonite is broken down into the most minute layers - one hundred nanometres long, but only one nanometre thick - and used as an additive, mainly in plastics. Until now, the plastics industry has in most cases used carbon fibre or fibreglass as additives to enhance the performance of its products. However, these standard commercial composites made from plastic plus for instance fibreglass, always represent a compromise. For example, greater rigidity can at present only be achieved by adding more filler, but at the same time this makes the material heavier and more brittle. Süd-Chemie is currently working on new plastic composites to facilitate lightweight automobile construction.

Our additive Nanofil®, which is already on the market, alters the thermal and mechanical properties of plastics quite significantly, depending on the mixture and concentration. It improves the flame-retardant properties of halogen-free cable insulation, at the same time increasing the elasticity of the plastic. Conventional cable coatings are filled with inorganic flame-retardants, so that cables lose some of their elasticity, becoming hard and brittle. They therefore wear quickly and split. The use of Nanofil® offers enhanced safety in the event of cable fires and makes cables less likely to split.

Together with the additional know-how in the field of fire-protection acquired from Alcan Aluminium UK Ltd. in 2003, the launch of Nanofil® opens up added future growth potential.

Acting as either stabilisers or fillers, nanocomposites will continue to change the plastics industry in the years to come, giving rise to increasingly lighter and higher-performance materials. At present, the plastics industry spends some €2.5 billion each year on fillers and reinforcing fibres, and the trend is rising. Based on its close cooperation with firms like DaimlerChrysler and Siemens, Süd-Chemie is in a good position to benefit from this potential. We are currently working on the development of scratch-resistant and self-cleaning surfaces.

Core issues at Süd-Chemie: sparing use of resources and environmental protection

Ladies and gentlemen,

Süd-Chemie is a company whose core activities are directed towards sparing use of resources and protection of the environment. This self-assessment may surprise outsiders in view of the deep-seated public awareness of the chemical industry as a collective perpetrator of environmental damage and destruction. Since the beginning of the seventies, the chemical industry has registered tremendous losses in terms of public acceptance in Germany and Europe. Since then, it has been in a defensive position and suffered from a distorted image. The advantages that chemical products and processes offer to humans, animals and the environment are scarcely registered, but the disadvantages are highlighted all the more.

Chemistry has learnt its lesson from this loss of acceptance and has undergone a long transformation process. For many decades, it has been aware of its responsibility to all those involved - to the world´s inhabitants, to subsequent generations, to the environment and last, but not least to its employees - having made a commitment to sustainability and responsible care. The chemical industry of today can no longer be compared with the industry of the seventies.

The finite nature of resources, the rising pollution from CO2 emission, and especially its effects on the changing climate - these problems cannot be overcome without the chemical industry, which in fact plays a key role. Man´s awareness that supplies of fossil-based energy are limited and that the changing climate will have consequences has increased his desire to reduce consumption. And here I see a great opportunity for chemistry to now recover lost territory in terms of acceptance.

Efficient use of resources thanks to Süd-Chemie catalysts

As an example, Süd-Chemie´s catalysts help a large number of other industries to manufacture their products using significantly lower amounts of resources, catalysts being the key to efficient use of basic chemical materials. In the case of the gas-to-liquid (GTL) process, Süd-Chemie´s catalysts have set standards for the manufacture of fuel or chemical products from natural gas.

However, we not only help our customers to use finite resources sparingly and efficiently. In our own company, constant efforts are also being made to upgrade and improve processes, so that in the ideal case, pollution is reduced to zero.

Award for environmentally-benign innovation

Last year, we were able to record a major success. A team of staff members in the US, in Germany and in Italy succeeded in developing a solid catalyst which can be manufactured using 16 to 20 times less water than in conventional processes. An additional advantage is that no nitrate is released into the environment. The discharge of nitrate into water speeds up the growth of algae, which in turn leads to a lack of oxygen and to decomposition, ultimately upsetting the biological balance of the water. Solid catalysts are used in the production of hydrogen, clean fuels and other chemicals. This development was selected by the American environment authorities, the EPA, to receive the "Presidential Green Chemistry Challenge Award“. This prize has been awarded every year since 1996 to honour companies or private individuals using chemical processes to develop innovative applications for reducing environmental pollution.

We are delighted at the technological progress represented by this development and honoured by the award from the American President. Süd-Chemie is only the second German company, to be awarded this prize, which shows that there is not necessarily a conflict between chemistry and the environment and that enhancing protection of the environment, while improving the quality of life, is indeed not possible without new developments from the chemical industry. This success also highlights once again the close and constructive cooperation among our international teams, this time in the field of research and development.

Innovative solutions to protect the environment

Our catalysts also help to comply with the increasingly stricter constraints on air pollution caused by traffic. A unique capacity for storing hydrocarbons and reducing nitrous oxide makes zeolites an indispensable component in exhaust-gas catalysts for automobiles. In addition to the technical advantages in emission control, zeolites are also noted for their excellent environmental compatibility. As one of a large number of activities aimed at eliminating the harmful particulate matter occurring in diesel exhausts, Tokyo´s public transport authorities are currently fitting their buses with Süd-Chemie´s catalytic particulate filters to neutralise these pollutants. Extension of this concept to other major Japanese cities is also under consideration. We are already involved in similar projects in Mexico, Chile and Brazil.

Prospects for fuel cells remain positive

A further example of our efforts in the environmental sector are our fuel-cell activities. In recent years, fuel cells have undergone a rather erratic development. At the end of the nineties, the euphoria and hopes surrounding this new technology were great. Many people saw fuel cells in cars as a quick solution to the problem of CO2 emission. Since at that stage, fuel cells were however unable to live up to these high expectations, most notably in the automobile sector, and several automobile manufacturers issued restrained forecasts on the use of this new technology, disappointment spread. Although at the end of the nineties, the first cars with fuel-cell drive were forecast to go into production in 2005, discussion now revolves around the end of this decade. As a result of this disappointment, we foresee a danger of losing sight of the very diverse potential applications of fuel cells, such as for heating houses, and the opportunities they offer for overcoming the CO2 problem.

In view of their unbeatable advantages, there is however no question of the future success of fuel cells as a source of power. Fuel cells enable the emission of carbon dioxide and nitrous oxide to be considerably reduced by using hydrogen a reactant gas. Hydrogen can act as a practical supplement for fossil-based sources of energy in the form of oil and coal, which still play a leading role. In my eyes, promoting the progress of this future-oriented technology is therefore of prime importance. Especially in Germany, the right course must be set at a political level, otherwise there is an imminent danger that on-going technological developments to reach market maturity will take place outside this country.

Well-positioned with catalysts for hydrogen production

Having developed new, high-performance catalysts for the production of hydrogen, Süd-Chemie has created an excellent technological platform for itself and expanded its involvement by cooperating on the development side with leading manufacturers of fuel-cell products and hydrogen filling-stations. As part of the current field trials with fuel-cell-driven vehicles, initial steps have been taken to create the necessary infrastructure for hydrogen supplies. For instance, a large number of hydrogen filling-stations have been set up around the world, including those in Madrid, Porto, Stuttgart and London, sponsored by the European Union as part of the C.U.T.E. project (Clean Urban Transport for Europe). These hydrogen filling-stations are equipped with Süd-Chemie catalysts.

Ladies and gentlemen,

let us now turn to the current year of 2004.

Following acquisition of SKW´s foundry technology, Europe´s sole provider of a full range of foundry chemicals for iron castings

As you will have seen from our press release, we acquired the worldwide foundry operations from the Degussa subsidiary, SKW Metallurgie AG, in April 2004, taking advantage of an opportunity that offered itself to round off our foundry activities. The foundry industry is one of the most important areas of application for bentonite products across the world. This acquisition expands our competence as a provider of solutions for the foundry and automobile industries, particularly in the sector of thin-walled iron casting, a technique used above all in the manufacture of diesel engines, where high pressure resistance must be achieved with as little weight as possible. As a result of this acquisition, Süd-Chemie is the only supplier in Europe to offer a full range of foundry chemicals for iron castings.

Rising sales and earnings in 2004

Finally, I would like to take a brief look at the outlook for 2004.

In spite of all the political and economic uncertainty (continually rising prices of energy and raw materials, currency markets, overheating in major national economies, terrorist attacks), the global economic situation is beginning to improve. More or less all economic research institutes are forecasting growth of over 3% for the global economy and an increase of some 8% in world trade. North America and Asia will remain the centres of key growth. However, forecasts also indicate that the euro countries, and above all Germany, will lag behind this worldwide upswing. Demand on Germany´s domestic market is not expected to show a sustained revival until the long overdue structural reforms have finally been put in place. The forces of economic recovery are however also very restrained in other euro countries. Activity in the chemical sector will gather momentum as global demand increases among its industrial customers, whereby here again, the main stimulus will come from Asia.

In view of this brighter outlook, demand should also recover in our key markets. In addition, our efficiency-enhancing and structural measures will have a positive impact on business performance in 2004. Reinforced marketing activities will lead to more intensive customer service. We therefore anticipate an improvement in sales and earnings for the current financial year, without taking into account the effects of any companies acquired or sold. Although Süd-Chemie made a slow start in january an february, business has developed as planned. I am convinced that Süd-Chemie will continue to reach its ambitious goals in the future - in the interest of its customers, its employees and its shareholders.

I should like to conclude by thanking you for your constructive cooperation and favourable reporting over the past twelve years. This is my last annual press conference. This time next year, my successor, Dr. Günter von Au, will be here to report on Süd-Chemie´s business performance.

Thank you for your attention.