05/09/2005 - Speech by Edgar Binnemann, Member of the Managing Board

Annual Press Conference of Süd-Chemie AG

Ladies and gentlemen,

I should also like to welcome you most warmly.

In spite of strong competition and high pressure on margins, especially in the wake of a steep rise in the cost of raw materials, as well as counter-productive currency fluctuations, Süd-Chemie was able to well exceed its 2004 sales figure, while increasing the operating result, net income and earnings per share at even higher rate.

Sales and earnings growth for the Süd-Chemie Group

During the last financial year, Süd-Chemie benefited from the dynamic economic environment. Compared with 2003, consolidated sales climbed by 13.0% to €862.2 million. This strong rise of €99.2 million was even more encouraging in view of the fact that adverse currency trends impacted sales by €22.3 million in 2004. Adjusted for currency fluctuations, Süd-Chemie Group sales would have risen by 15.9% compared with 2003. Initial consolidation of the global trading business in metallurgical additives for the foundry industry acquired from SKW Metallurgie AG led to a €77.7 million rise in sales. Adjusted for currency effects, organic growth amounted to €43.7 million or 5.7%. The Catalysts Division contributed 38.1% of total sales, generating €328.2 million, an increase of €2.5 million compared with 2003. In the Adsorbents Division, sales rose to €534.0 million, largely as a result of acquisitions. This represented an increase of €96.7 million or 22.1% compared with the previous year. I shall deal with the performance of the two divisions in more detail later in my speech.

As a result of several takeovers, Europe´s contribution to consolidated sales grew to 51.1% in 2004, with sales rising to €192.8 million in Germany. This represented 22.3% of total sales in 2004. The percentage of Group sales generated in America fell significantly from 25.6% in 2003 to 20.8% in 2004, while contributions from Asia and the Middle East, as well as Africa, declined marginally in each case to 20.9% and 6.4%.

Operating income

Operating income (EBIT) exceeded the previous year´s figure by €6.4 million or 14.3%, growing at an even faster rate than consolidated sales. This increased profitability resulted from rising royalties, higher capacity utilization and continuation of the multi-year efficiency enhancement project throughout 2004. With increasing success, the at times substantial rises in raw-material costs, notably for copper, zinc, cobalt and nickel compounds used in the production of catalysts, and for oil-related preliminary products required to manufacture resins, were passed on to customers in the course of the year in the form of higher selling prices. Reductions in overall administrative expenses resulting from the initial positive impact of the Group´s Free for Customers scheme also contributed to this improvement in earnings. Compared with 2003, the Group´s earnings before taxes (EBIT) recorded an increase of €6.1 million or 21.9%. Consolidated net income rose by 32% from €15.0 million in 2003 to €19.8 million in 2004. Earnings per share based on DVFA/SG again showed a marked increase in 2004 compared with the previous year, climbing from €1.17 to €1.58, which is equivalent to a rise of 35.0%.

Adsorbents Division

The Adsorbents Division comprises the Business Units Adsorbents and Additives, Performance Packaging, Foundry Products and Specialty Resins, Performance Additives and Pet Products. Mainly as a result of acquisitions, sales rose by €96.7 million to €534.0 million, of which €19.0 million accrued from the divisions´ organic growth. The Foundry Additives and Specialty Resins which, among other things, produces Süd-Chemie´s high-grade resins for cores, aimed mainly at customers in the automobile and heavy engineering industries, benefited from positive market growth. The operating result amounted to €23.0 million, after €23.9 million in 2003. In North America, bleaching-earth production was discontinued at the site in Meigs, USA and successfully relocated to Puebla in Mexico. This was also necessary in order to ensure that the quality of bleaching earth supplied to the North American market complied with the most stringent environmental regulations. Adjusted for this additional expenditure, the operating result would have risen by €4.0 million to €27.9 million.

Catalysts Division

The Catalysts Division comprises the three Business Units of Catalytic Technologies, Energy and Environment and Water Treatment. It was possible to increase sales by €2.5 million to €328.2 million. The operating result rose by €7.4 million to reach €28.0 million.

The Catalytic Technologies Business Unit, which is by far the largest unit in this division, closed the 2004 financial year on an extremely positive note. New areas of application were opened up by its three Industry Groups for chemicals, petrochemicals and refinery products, and their market presence expanded. Thanks to the Business Unit´s consistent focus on high-performance catalysts, the prices realized in the marketplace were able to largely offset the marked increase in raw-materials costs.

Customer investment in the refining and petrochemical sectors was centered primarily on the Middle East. As a result, Süd-Chemie decided to form a joint venture with a local partner in Qatar to manufacture catalysts for converting natural gas within the scope of gas-to-liquid (GTL) projects.

Furthermore, Süd-Chemie entered into a strategic partnership in the catalyst sector with one of the world´s leading styrene suppliers. In view of the broad basis of patented know-how available to each partner, the prime position held by Süd-Chemie in this global market will be strengthened even further. Mutual cooperation will offer an excellent platform for a large number of joint product innovations in this sector.

The significant increase in research and development expenditure recorded in recent years has meanwhile paid off. Around thirty percent of the catalysts launched onto the market were the result of new developments generated over the past three years. These now provide a basis for expanding the Business Unit´s already strong market position, leading to expectations of positive future earnings performance.

Capital structure

Total assets in the Süd-Chemie Group rose during the year under review to reach €677.8 million, €29.3 million or 4.5% more than in 2003. This rise was considerably lower than the 13.0% rise in sales. As a result of acquisitions and in order to improve market supplies in the wake of rising demand for our products, the Group´s inventories rose by €34.2 million to €146.1 million in 2004. Trade receivables increased by €4.2 million to €153.8 million, due both to acquisitions and a marked upturn in deliveries made at year-end. The ratio of current assets to total assets amounted to 49.9%, after 46.3% the previous year, while the value of fixed assets declined by €8.3 million, mainly as a result of negative exchange-rate fluctuations.

Equity increased by €2.7 million. Once again, the impact of currency exchange-rates resulted in a €7.1 million reduction in equity in 2004, causing the Süd-Chemie Group´s equity ratio to fall to 33.0% after 34.1% in 2003.

The net financial debt, i.e. total liabilities to banks, including loans raised by way of the private placement in the US, less net cash, grew by €13.8 million in 2004 as a result of acquisitions to reach €260.2 million.

Private placement, credit facility

In the course of 2004, Süd-Chemie laid the foundations essential for financing its planned profit-oriented growth strategy.

In October, a dollar-based private placement was issued, enabling Süd-Chemie to strengthen its financial base by securing a long-term financing facility and add reputable American insurance companies to its list of investors. As a result, the Group gained access to borrowed funds of 140 million dollars at extremely favorable conditions for terms of between seven and twelve years. The fact that the private placement was greatly oversubscribed mirrors Süd-Chemie´s excellent credit rating on the capital market.

Directly following issue of the dollar-based private placement, a €200-million syndicated credit facility dating from 2000 was renewed for a further five years. Süd-Chemie now has adequate economic scope to finance its targeted growth, even in the medium to long term.

Capital expenditure

Süd-Chemie invested a total of €52.4 million in tangible and intangible assets during 2004, focusing on the manufacture of new products and new processes, increased production capacity and rationalization, as well as ongoing development of information systems for global business management. Capital expenditure exceeded depreciation by €4.9 million in 2004, compared with €3.2 million in 2003.

In both divisions, capital expenditure during the year 2004 focused on expanding business activities and manufacturing capacity, as well as modernizing production facilities.

Catalysts Division

In the Catalysts Division, a production plant for a new catalyst used in the manufacture of phthalic anhydride was completed within a very short time in Heufeld, Germany. Phthalic anhydride is used mainly as a softener in plastics and polyester resins.

The first stage of construction for a water treatment plant to reduce the nitrate levels in waste water accumulating during the production of catalysts was also successfully completed in Heufeld. The plant is due to be commissioned at the end of 2005 and will reduce the nitrate content of the treated water by up to 99%. This waste-water plant will open up new production opportunities for the site.

As part of the consolidation process in the sector of synthesis-gas catalysts, the production facilities for copper-zinc catalysts in Louisville, USA are to be modernized and capacities substantially increased. The first phase of this project was completed in 2004 and orders placed for installation of a state-of-the-art filtering and washing process.

Adsorbents Division

In the Adsorbents Division, the Chinese company Liaoning Süd-Chemie Redhill Bentonite Co., Ltd., acquired in 2002, began operation of a new production line for foundry bentonite. New silos and advanced facilities for automatic filling and packaging enabled the company to enlarge its product portfolio by offering paper and construction bentonites.

At the end of 2002, the engineering departments in both the Catalysts and Adsorbents Divisions were combined to form a central unit. In 2004, the new central Group department achieved its goal of improving utilization of existing know-how, also on an interdivisional basis, and subsequently increasing the profitability of capital expenditure in the long term. Based on this bundled engineering expertise, it was possible to increase Süd-Chemie´s technological lead. A number of production processes were optimized as a result of the momentum created by this knowledge pool, while investment projects were realized more quickly and more cost-effectively. Especially in the case of developing production processes and constructing production plants, better use can now be made of internal competencies, since similar mechanical and thermal process technology is often applied in both the Catalysts and Adsorbents Divisions.

And just a few words on the performance of Süd-Chemie shares. Their performance was disappointing in 2004, as the share prices failed to benefit from the brighter stockmarket climate prevailing towards the end of the year. Between the beginning of January and the end of December 2004, the price of Süd-Chemie shares fell by 10%. Over the same period, the DAX gained a good 7% and the C-DAX as much as 19%.

After a positive performance in 2003, Süd-Chemie shares started 2004 at €33.00. On 30 January, the price rose to €34.00. In a market environment generally dominated by moderate activity, the share value declined, reaching its ultimate 2004 low of €28.00 on 30 June. In the wake of a positive trend on the international capital markets which continued until year-end, Süd-Chemie shares were able to show a slight recovery. On 31 December, the shares closed at €29.65. As a result, the company´s market capitalization decreased by €40 million to €351 million compared with 2003.

An unchanged dividend of €0.62 per share will be proposed at the Annual General Meeting to be held on 1 July 2005. This represents a distribution of €7.3 million and, based on a share price of €29.65 at 31 December 2004, a yield of 2.1%. The distribution amounts to 70.2% of Süd-Chemie AG´s net income, continuing the company´s stable dividend policy of recent years.

In conclusion. it may be said that in 2004, Süd-Chemie took decisive steps towards achieving further profit-oriented growth. It was possible to significantly improve both profitability and capital productivity during 2004. We are now excellently equipped, both in view of our financial and balance-sheet situation, to approach the coming years with confidence.

I should like to thank you very much for your attention and hand you back to Dr. von Au.