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

Speech by Edgar Binnemann, Member of the Managing Board

Ladies and gentlemen,

I should also like to welcome you most warmly.

In spite of sustained weak economic activity in 2003, and the pressure on prices due to shifts in exchange rates, Süd-Chemie was still able to repeat its positive business performance of the two previous years.

Increased profitability

It was possible to achieve a significant increase in sales and, above all, in profitability, that is the sales to earnings ratio, in 2003.

Consolidated sales rose marginally by € 7.4 million to €763.0 million. Changes in exchange rates had a negative impact on the consolidated financial statements following the conversion of sales revenue invoiced in local currencies, and resulted in a €50.4 million reduction in sales in 2003. Adjusted for currency differences, sales would have risen by €57.8 million or 7.7%, of which an increase of €28.6 million, i.e. approximately half of the growth recorded following currency adjustments, would have been due to an increase in the number of companies consolidated.

€325.7 million or 42.7% of consolidated sales were attributable to the Catalysts Division, a rise of €18.3 million compared with 2002, and €437.3 million or 57.3% to the Adsorbents Division, a drop of €10.9 million.

The operating result rose by 10.9% to €44.6 million compared with 2002. This increase in profitability was mainly due to an improvement of 1.3% percentage points in the gross margin, which reached 36.6% as a result of measures taken to reduce the cost of goods sold, including reductions in purchase prices.

While research and development costs were increased by €0.8 million to €29.1 million, administrative expenses rose by €2.5 million to €92.4 million, due partly to non-recurring expenditure on reorganisation and a worldwide project to improve our purchasing performance.

Compared with the previous year, it was possible to improve the balance of other operating income and expenses by €2.8 million to €16.6 million. This rise was mainly a result of the positive court verdict and subsequent out-of-court settlement reached in the patents dispute against Southern Clay Products Inc., Gonzales, USA.

Due to the expanded scope of consolidation and the acquisitions made during the financial year, interest expense rose by €2.3 million to €17.8 million. Consolidated pre-tax profits amounted to €27.8 million, a rise of €6.0 million compared with 2002.

Consolidated net income rose to €15.0 million, after €10.4 million the previous year, representing a percentage increase of 44%. Compared with 2002, we were also able to significantly increase the earnings per share based on DVFA/SG to €1.17 in 2003, equivalent to a rise of €0.47 per share, or 67%.

Improved capital structure of the Group

During the year under review, we were able to further improve levels of capital commitment throughout the Group. While sales rose by 1%, total assets were down by €32.1 million, or 4.7%, to €648.5 million in the Süd-Chemie Group.

Coupled with currency-rate fluctuations, global measures undertaken to improve inventory management led to a notable reduction in stocks of €15.3 million or 12.0%. Fixed assets also decreased by €31.3 million. This drop resulted partly from shifts in currency rates and partly from a reduction in interests held in subsidiary companies due to expanding the scope of consolidation. Not even companies consolidated for the first time were able to compensate for this drop in fixed assets. On the other hand, receivables and other current assets increased by €9.9 million, owing to some extent to the changes in the scope of consolidation.

In spite of earnings-related growth, the Group´s equity decreased. This was mainly a result of converting the net assets of foreign Group companies at the rate prevailing on the closing date, which had changed compared with 2002. At 31 December, equity amounted to €221.3 million. The Süd-Chemie Group therefore reported an equity ratio of 34.1%, after 35.3% in 2002.

Increased cash flow

The cash flow from operating activities rose by €7 million from €69.9 million in 2002 to €76.9 million in 2003. This sufficed to finance not only the Group´s entire capital expenditure and acquisitions, but also to reduce the debts which had built up in previous years. It was possible to decrease net debts, namely total liabilities to banks less cash and cash equivalents, by €6.7 million to €246.4 million during 2003.

With the aim of achieving a higher return on capital, the levels of committed capital are being systematically lowered throughout the Süd-Chemie Group. In 2003, a large number of measures were successfully implemented to reduce inventories without limiting delivery capacity. One major step was the introduction of the Logistic Monitoring System (LMS) to enhance reporting activities. LMS ensures monitoring and control of all stock items at extremely short notice in those companies linked to the reporting system. 60% of total Group sales are already integrated into LMS, which will be expanded further in the course of 2004.

High level of capital expenditure

After completing extension of the Heufeld plant in 2003 to become Süd-Chemie´s most advanced catalyst research and production centre, it was possible to substantially reduce capital expenditure on tangible and intangible assets throughout the Group. Reaching €52.3 million, the volume of capital expenditure was significantly lower than the previous year´s figure of €75.7 million. However, it still exceeded depreciation by 6.5%. Capital expenditure during the period under review focused on expanding capacity and modernising production plants.

In order to meet the rising demand for speciality catalysts, for instance in the sector of new mega-methanol plants which are currently being erected at several locations around the world, pelleting capacity for this type of catalyst was increased at the Heufeld production facilities.

In the Adsorbents and Additives Division, the mills for manufacturing paper and construction bentonites were replaced by more advanced and more efficient specialised mills to cater for rising demand. The automated state-of-the-art filling and packaging line provides added flexibility in meeting customers´ individual transport and packaging requirements.

In Jianping, China, bentonite-activation facilities were expanded at Liaoning Süd-Chemie Redhill Bentonite Co., which was acquired in 2002, and a new dryer and grinding plant installed in order to satisfy the soaring demand for bentonite products in the Chinese foundry industry.

At its Belen site in the USA, the Performance Packaging Business Unit invested in high-speed canister-printing equipment, along with the relevant peripherals. This rotogravure web-fed press will lead to a considerable increase in capacity. Further more, twenty packaging machines were replaced by 3-Sanko multi-line, high-performance packaging equipment. This will lead to substantial cost savings, as well as reducing complexity and maintenance problems.

Employees

At December 31, 2003, 4,982 people were employed by the Süd-Chemie Group. This represented an increase of 563 in 2003 due to changes in the scope of consolidation. The largest additions were in China, with 158 employees at Panjin Süd-Chemie Liaohe Catalyst Co., Panjin and 143 employees at Liaoning Süd-Chemie Redhill Bentonite Co., Jianping, as well as in the USA with 77 employees at Scientific Design Company, Inc., Little Ferry, and 66 Gimborn employees in the Czech Republic, Hungary and Russia.

Positive performance by Süd-Chemie shares

Just a few words on the performance of Süd-Chemie´s shares. In recent years, Süd-Chemie shares have demonstrated their sustained stability. In 2003, they again performed better that the relevant German stock-exchange indices. After falling sharply at the beginning of the year, the shares rallied strongly in an increasingly brighter stockmarket environment, climbing 50% between the beginning of January and the end of December 2003. The value of the DAX rose a good 37% over the same period, while the C-DAX gained no more than 13%. At 31 December 2003, the shares stood at €33.00. Compared with 2002, this represented a significant increase in Süd-Chemie´s market capitalisation from a good €272 million to almost €391 million.

A long-term view of the performance of Süd-Chemie shares highlights this sustained stability. Gaining 106% since 1993, they have performed considerably better the either the DAX or the C-DAX, which recorded growth rates of only 75% and 97% over the same period.

Furthermore, Süd-Chemie has consistently increased its dividend distributions since 1993 and plans to continue to do so in the future. As you have already heard from Dr. Kammer, we will be proposing a dividend of €0.62 per share for the 2003 financial year at the annual general meeting.

In conclusion, it may be said that Süd-Chemie continued to make good progress in 2003, in spite of the difficult economic environment. It was possible to improve both earnings capacity and capital productivity during last year. We are now well-equipped in both financial and balance-sheet terms to face the coming years with confidence.

Thank you very much for your attention and I hand you back to Dr. Kammer.