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|  | 06/25/2004 - Annual General Meeting of Süd-Chemie AG, Munich, 25 June 2004
Speech by Dr. Günter von Au, Member of the Managing Board
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- The spoken word applies -
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Mr. Chairman,
Dr. Kammer,
shareholders,
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I too would like to welcome you most warmly to our Annual General Meeting.
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I have meanwhile been with Süd-Chemie for three years. Since the very beginning, I have been captivated by this learning company. One can identify a learning company by the way it communicates, its organisation, the measures it takes to adapt, by the ability of its employees to initiate learn processes and implement them on an on-going basis, by its philosophy and last, but not least by its approach to tradition. Today, I am taking over the chair in a company that is excellently qualified to effectively cope with the challenges presented by a global society that is changing at a continually increasing speed. I am firmly convinced that we will succeed in this mission.
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Dr. Kammer, the fact that today Süd-Chemie is poised to take a further leap forward must be credited largely to you. Even though success is always the result of teamwork, both on the Managing Board and throughout the entire Group, very special thanks and appreciation are due to you. By setting decisive strategic courses and instilling into Süd-Chemie its vision and values which are so important for the Group, you have created fertile ground on which future success will flourish. Please rest assured that also for me, tradition and continuity represent not only values, but tradition and continuity also represent key factors for success.
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You have made it very easy for me to quickly familiarise myself with the company and have provided support whenever I really needed it. I have found working together with you very pleasurable. You are handing over Süd-Chemie in excellent shape, for which I should like to thank you most sincerely.
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Following Dr. Kammer´s review of the past twelve years and the 2003 financial year, you are no doubt interested in the future development of our company and the concrete steps envisaged by the Managing Board.
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Süd-Chemie´s strategic policy
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2002 and 2003 were not easy years for companies in the chemical industry and the prospects for 2004 are also rather subdued. Although production volumes continue to rise (2004 estimate: 3%), margins will however remain low. Companies aiming for profitable growth are able to rely less and less on the economic environment. Activity must therefore be concentrated on the targeted development of one´s own company. Today, Süd-Chemie is a Group operating on a global scale with a clear focus on its eight business units in the two divisions of Catalysts and Adsorbents. Our products and services form the basis of our customers´ business success. We lead the market in the areas where our products are used. This is an excellent platform which we intend to use more strongly in the future than we have done in the past. We shall of course be concentrating particularly on those areas of activity offering above-average growth opportunities, in which we have for the most part excellent know-how and already hold leading market positions. Our goal is however to realise long-term profitable growth in all business units and we intend to achieve this based on a strategic policy of organic growth, joint ventures and acquisitions, as well as enhanced efficiency.
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Our strategic focus is clearly on organic growth. By utilising our strengths, we may expect a notable surge of growth in the mid-term. We are excellently prepared in areas offering future potential, such as energy, nanotechnology, environmental technology, water treatment and intelligent packaging. We are currently increasing our Group-wide marketing and sales efforts, also by intensifying our key-account management activities, with a view to exploiting even further the sales potential offered by our products and services among new and existing customers.
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The future development of new products and services, as well as novel technology for the manufacture of both new and existing products, will continue to form an essential part of Süd-Chemie´s value-adding process. The watchword for the future will be innovation. In some areas, new product and service launches are imminent. Innovation is the driving force behind competitive ability and growth, and is therefore indispensable for our success on tomorrow´s markets. In the long term, only innovative companies can react quickly and adequately to scientific progress and social change, enabling them to succeed in dynamic markets. The foundations for our future success have been laid this year by restructuring our international research and development activities. We are now able to make more intensive, more systematic and more targeted use of our know-how base to develop new, improved and above all marketable solutions, both for our customers and together with our customers. Cooperation with customers, not only on the sales side, but also in the area of development work, as well as with universities and research institutes, is to be expanded even further. High priority will be given to forming lasting partnerships with our customers. Furthermore, we intend to appreciably increase expenditure on innovation, while significant growth impetus is also expected from several acquisitions and joint ventures entered into in recent years, since these transactions were geared more to increasing our know-how than to gaining market shares.
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In addition to increasing growth and adding value on the basis of our own ability and know-how, we shall remain on the lookout for value-enhancing cooperation and acquisition opportunities. We shall make selected purchases in fast-growing areas of operation, providing that the conditions justify the acquisition. We shall not however lose sight of the limits of what is feasible - Süd-Chemie´s financial security will always continue to be the key factor in all our considerations. Moreover, we shall in future enter into partnerships which supplement both our range of products and services and our know-how. We shall however concentrate solely on those areas of activity in which we either already enjoy clear competitive advantages or have a good chance of attaining such advantages in the foreseeable future.
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In line with this strategy, we took over the worldwide foundry activities from SKW Metallurgie AG, a Degussa subsidiary, in April 2004, using this opportunity to round off our range of foundry products. The foundry industry is one of the most important global areas of application for bentonite products. This acquisition enhances our competence in solving problems for the foundry and automobile industries, especially 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.
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At the beginning of June 2004, we signed the relevant contracts, together with the Qatari company Petrochemical Development Co., for the formation of the joint venture, Süd-Chemie Qatar. Subject to the approval of the Supervisory Board, this company will be producing catalysts to convert natural gas mainly into high-grade petroleum products, such as diesel fuel, within the scope of gas-to-liquid projects. Qatar has the third-largest reserves of natural gas in the world, after Russia and Iran. Süd-Chemie will manage the company, based on its majority share. By producing catalysts in Qatar, we are responding to the shift in investment focus towards the Middle East, especially in the petrochemical industry. In this region, there is an increasing demand for catalysts used in gas-to-liquid (GTL) processes to convert natural gas into high-quality petroleum products, such as diesel fuel, but also into primary and intermediate petrochemical products. We are the world´s leading supplier of catalysts for GTL processes.
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Focus on growth regions
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Today, the Süd-Chemie Group is represented in all important economic regions of the world, having more or less completed its process of globalisation. To ensure that Süd-Chemie maintains its leading positions in all areas of activity in the long term, market shares must be increased further in those countries offering high growth potential. Sustained success depends essentially on a company´s innovative ability and its market presence. We must grow where our business is growing. Süd-Chemie reacted at an early stage to the shift in the chemical industry´s key focus, having expanded its presence both in Asia´s booming markets (particularly in China and India) and in the Middle East in recent years. The high proportion of total sales generated in the Asian and Middle Eastern regions, namely 22 percent and still rising, substantiates our claim of being well-positioned on the most important growth markets. By 2010, China will rank at least among the three leading chemical markets worldwide, if it does not already hold first place. India is well on the way to achieving the same fast, sustained growth as China. The importance of the Middle East, especially in the petrochemical sector, has just been mentioned. Our local production facilities not only promise steady progress for these regions based on state-of-the-art technology, but also provide Süd-Chemie with direct access to up-and-coming markets. In this case, proximity to the customer is the key to future business. Without specific knowledge of the customer´s needs and wishes, we cannot develop successful products and services. And since these needs and wishes can vary considerably in different regions, market presence is absolutely essential in each case.
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Efficiency-enhancing measures
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To achieve lasting success, we must be receptive for new impulses and critically question existing structures and processes. In view of this, the third pillar of our strategy is the continual improvement of internal processes aimed at achieving an on-going increase in productivity. A start is being made in the following areas: reduction of our administration activities and consequently of the related costs, optimisation of our IT systems and targeted action in loss-making subsectors.
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The FREE for Customers project launched in March 2004 focuses on the two areas of process optimisation and cutting administrative costs. In order to strengthen our operating units, we are currently reviewing all internal processes to identify possibilities for improvement, since these units will be not be in a position to exploit the full sales potential of our know-how, our products and our services until they are freed from all unnecessary administrative tasks. This project is already well underway. In the course of our appraisal of the status quo, numerous processes were analysed in our Group companies and scope for action identified. Based on these findings, project goals are currently being set and measures drawn up for achieving these goals. By no later than the end of July, this action landscape will have been defined. Our administrative processes will then be successively optimised, whereby this reduction in bureaucracy will also be accompanied by cost-savings in the administrative sector. The positive impact of the project results on sales and earnings will already be felt during the second half of 2004, although their long-term effect will be much more important.
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To enable us to react more flexibly and more efficiently to rising customer demands, we are linking up our research, purchasing, production and sales units to form one single network using state-of-the art information technology. This will allow us to optimise the entire supply chain from order intake to delivery to the customer. With the aid of this Logistic Monitoring System (LMS), we were already able to significantly reduce stock levels during 2003, yet also increase delivery reliability and shorten delivery times. The improvement potential in this sector is however by no means exhausted.
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Economic outlook for 2004
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In spite of all the political and economic uncertainties, (further increases in the prices of energy and raw materials, currency markets, overheating of major national economies, terrorist attacks), the global economic situation is improving. Almost all economic research institutes are forecasting around 4% growth for the global economy and a more than 8% increase in world trade. Developments in North America and Asia remain indicative of the global economic trend. However, the forecasts also show that the euro countries, especially Germany, will lag behind this worldwide upswing. Germany is finding it difficult to overcome the phase of stagnation prevailing over the past three years, its structural problems weighing too heavily to allow a sustained recovery. The forces of economic revival are however also very restrained in other euro countries. In short, the global economy is booming and Europe is lagging behind. Activity in the chemical sector will gather momentum as global demand increases among its industrial customers, with the main stimulus coming from Asia and the Middle East. However, margins will tend to remain low and the pressure on costs high in the face of keen price competition.
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Süd-Chemie´s outlook for 2004
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In view of this brighter outlook, demand should also recover in our key markets. In addition, our efficiency-enhancing and restructuring measures will have a positive impact on business performance in 2004. Reinforced marketing activity will lead to more intensive customer service. Although during January and February, Süd-Chemie made a slow start to the new year, business has since developed in line with budget. We therefore anticipate an improvement in the business performance of the Süd-Chemie Group. Sales will increase by some 8% and the capital structure will continue to improve. The operating result (EBIT) will grow proportionately faster by at least 10%. These figures include the foundry technology take over from SKW. Süd-Chemie will again continue its stable dividend policy for the year 2004. We have every reason to view the future with optimism.
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Conclusion
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Finally, I should like to second Dr. Kammer´s thanks to our staff who represent our greatest growth potential. During 2003, they showed how great their performance capabilities actually are, having laid the foundations for a successful future. They deserve respect and recognition.
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Dear shareholders, I am firmly convinced that Süd-Chemie will continue to show the same successful development in the future as you have been accustomed to in the past. We shall continue to achieve our ambitious targets and utilise our innovative potential even more than before - in the interests of our customers, our employees and last, but not least our shareholders. Please continue to accompany us along this road.
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Thank you very much for your attention.
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