07/01/2005 - 65th Annual General Meeting of the Shareholders of Süd-Chemie AG, Munich, 1 July 2005

Speech by Dr. Günter von Au, Chairman of the Managing Board of Süd-Chemie AG

- The spoken word applies -

Dear Mr. Chairman,
dear Shareholders and Shareholders’ Representatives
dear Friends of Süd-Chemie,

I, too, should like to welcome you most warmly to Süd-Chemie AG´s Annual General Meeting. It gives me great pleasure that such a great number of you have found the way here.

The Süd-Chemie Group looks back on a successful fiscal year. We have paved the way toward a successful future. This is also evident in the year-to-date performance in 2005. But let us take a look at the fiscal year 2004 first:

- We boosted consolidated sales by €99.2 million to €862.2 million, an increase of 13%.

- The result of ordinary operations (EBIT) rose by €6.4 million or 14%, growing at an even higher rate than sales.

- Regarding the consolidated net income, we achieved an increase of €4.8 million to €19.8 million or 32%, in comparison with the previous year.

- Earnings per share rose from €1.17 to €1.58, an increase of 35%.

That means, we not only achieved our sales and earnings targets, but thanks to the excellent positioning of our business units in their core markets, even exceeded them, and significantly increased our profitability. This is all the more remarkable, as 2004 was not an easy year for Süd-Chemie. However the global economy in 2004 grew by 3,4%, especially powered by the strong economic growth in USA and Asia – especially in China. Nevertheless important markets in Europe and mainly in Germany were way behind expectations. The chemical industry had benefited from the overall dynamic global economy and was in the position to increase not only its turnover but also its production figures. However the chemical industry was nonetheless dominated by fierce competition and a high pressure on margins based on the drastically increased raw material cost. The increasing strength of the Euro also worked against Süd-Chemie.

Stable dividend at €0.62 per share

The Managing Board and Supervisory Board of Süd-Chemie AG are proposing that you pass a resolution keeping the dividend stable at €0.62 per share. This represents a total dividend of €7.3 million. In relation to the market price of €29.65 on December 31, 2004, the dividend yield is 2.1%. The distribution quota is 70% of the annual net income of Süd-Chemie AG and 37% of the annual net income of Süd-Chemie Group. The stable dividend policy of the past years – that is especially a dividend that is aligned with the long-term earnings development of Süd-Chemie – would thus be continued.

Disappointing share price development

The price development of Süd-Chemie AG’s stock in fiscal 2004 was disappointing. The stock could not profit from the brightening exchange environment at year-end. From the beginning of January to the end of December, the share price decreased by 10%, whereas, during the same period, the DAX and Chemical Index rose by 7% and 19% respectively. At the end of the fiscal year, the market capitalization of Süd-Chemie AG was reduced by €40 million to €351 million, given the status of €29.65 at the end of the year.

Since then the Süd-Chemie’s share has developed well. On June 14th, the day before the public announcement by the U.S. investment company One Equity Partners that they would buy shares, the stock was listed at €35.50. Yesterday, on 30 June 2005, the stock was listed at €41.20 with the trade volume still being small, the share price being driven at least partly by the announcement made by One Equity Partners that they want to invest in Süd-Chemie. Compared to the price as of 31 December 2004, this means an increase of 39%. In contrast with this development, the DAX and the chemical index since the beginning of the year have risen only by 8% resp. 11%.

Paving the way for future sales and earnings growth

Before I come to the details of the financial statements I would like to tell you about the highlights of fiscal 2004. We were not only able to maintain our international top positions, but even expand them further. In addition, we have taken action to increase our profitability.

In April we acquired their global trading activities in metallurgical additives from SKW Metallurgie AG. Hence, we are now the only full-service provider of foundry chemicals for iron castings in Europe. The companies acquired, SKW Gießerei-Technik GmbH & Co. KG in Hart (Deutschland) and Tecpro Corp. in Atlanta, Georgia, have been integrated into the Foundry Products and Specialty Resins Business Unit. By acquiring these distributors of foundry additives, the Business Unit rounded off its competence as a provider of solutions for the foundry and automotive industries, particularly in the sector of thin-walled iron casting. This technique is used for instance when manufacturing diesel engines.

In North America, our adsorbents business was restructured. Bleaching-earth production was discontinued at Meigs (U.S.A.), and relocated to Puebla, our site in Mexico. Our site in Puebla was already providing a major part of the preliminary products for the local bleaching-earth production in Meigs, and is now supplying American customers directly from Mexico. The restructuring had become necessary to stop the losses, and to ensure that the quality of bleaching-earth supplied to the American market, complied with the most stringent environmental and quality regulations.

Another of last year’s highlights was an agreement to form a joint-venture company Süd-Chemie Qatar W.L.L. Beginning in 2007, this joint venture shall be producing catalysts for converting natural gas into high-grade petroleum products, such as diesel fuel and also primary and intermediate petrochemical products, based on gas-to-liquid (GTL) processes. In the years to come, natural gas will gradually replace oil as a primary product, and Qatar owns the world’s third-largest reserves of natural gas after Russia and Iran. The investment focus is increasingly shifting toward the Middle East, especially with regard to the petrochemical industry. In this joint-venture Süd-Chemie will hold a 65% majority share. Given the greatly increased and in future further increasing prices for crude oil, the demand for fuels and chemical products on the basis of natural gas will continue to rise. Süd-Chemie will benefit from the related rise in demand for catalysts and technological experience in this region.

With Free For Customers, we launched a Group-wide project to strengthen customer orientation and to increase efficiency. Not that I was worried about our customer orientation, as this past year the Group was once again awarded the Supplier Recognition Award, for its exceptional performance in the fields of product quality, on-time delivery and technical application services by Saudi Basic Industries Corporation (SABIC), one of the world’s leading petrochemical groups. But our customers are moving ahead very quickly, and we it is our claim and intention to provide them with the decisive competitive advantage they need. This philosophy is the basis for our success. Our products and services are the basis for the customers’ success in their businesses. As a result, within the scope of the „Free for customers“ project, we are now scrutinizing all Group processes and structures to pinpoint areas that can be simplified and standardized. Only activities that enhance either customer benefit or our own value added are to be continued. Since last September, project teams in Germany and abroad have been implementing numerous measures. The success is already visible in the lower level of administrative expenses. Initially, the program’s focus was on projects aimed at reducing the administrative activities and expenses. In the course of 2005 we have expanded the program to include measures concentrated directly on strengthening customer orientation.

To secure our positions as market leaders in the long term, we increased our expenditure on research and development by €1.8 million to €30.9 million, and especially invested in the most promising core businesses. In 2004, the number of patent applications could again be significantly increased. The marketability of our innovations is reflected in the fact that a high and continuously increasing share of 25% of our annual sales is achieved with products that are less then five years on the market. We always ensure that the research and development expenses at Süd-Chemie are aligned with our customers’ benefit and expectations.

In the past fiscal year, we set up a Central Strategic Research and Development Department in Heufeld, Moosburg and in future in Japan and the US. Its task is to discover new and cross-functional fields of activity for Süd-Chemie, without being involved in any daily business, and complementing the research activities within the business units. This unit works on the development of adjacent markets, or supports the entry of new products supports into markets, in which the Group is already present with its existing product line. This is the difference to the research and development work performed by the business units that, within the Süd-Chemie’s research network, focuses on potentially new applications for existing products, on the continued development and supplementation of the existing product line, and on new processes. In addition to pure research and development activities the newly formed unit also holds very close contact to internationally leading research and university institutes, such as the Fraunhofer Institutes and the Center for Solar Energy and Hydrogen Research at the Technische Universität München.

In fiscal 2004, Süd-Chemie laid the foundations essential for financing its earnings-oriented growth strategy. In October, a US-dollar-based private placement was issued as a basis to ensure the Group’s long-term financing, and the investor community was expanded to include renowned U.S. insurance companies. With this private placement, the Group is ensured of outside capital of US$140 million with maturities between seven and twelve years at extremely favorable conditions. The fact that the private placement was highly oversubscribed reflects Süd-Chemie’s excellent credit rating on the capital markets. Directly following the issue of the dollar-based private placement, a €200 million syndicated line of credit dating from 2000 was renewed for another five years.

Now let’s look at the financial statements:

Compared to 2003, consolidated sales in 2004 increased by 13% to €862.2 million. The strong sales growth of €99,2 million is all the more encouraging, since in 2004 adverse currency trends impacted sales by €22.3 million. When adjusted for currency fluctuations, the sales of the Süd-Chemie Group would have risen by 16% compared with 2003. The initial consolidation of the global trading activities with metallurgical additives acquired from SKW Metallurgie AG led to a sales growth of €77.7 million. Adjusted for currency fluctuations, actual growth rose by €43.7 million or almost 6%.

Breaking down the consolidated sales in 2004, €534.0 million were earned by the Adsorbents Division, which is comprised of the business units adsorbents and additives, performance packaging, foundry products, and special resins, functional additives and pet products. The revenues of this division increased by €96.7 million compared to previous year, mostly a result of acquisitions. Organically, the sales of this division grew by €19.0 million. The catalyst division earned sales of €328.2 million in the past fiscal year, an increase by €2.5 million. This division is comprised of three business units: catalytic technology, energy and environment, and water treatment.

Süd-Chemie is present in all geographical regions of the world. Germany’s share in the consolidated sales rose in 2004 by 22%, which is mainly a result of acquisitions. Thus the share of Europe increased to 51%. The share of the U.S. was significantly reduced from 26% in 2003 to 21% in 2004. The regions Asia / Middle East and Africa contributed 21% and 6% respectively to consolidated sales.

With the strong rise of sales, the cost of goods sold compared to 2003 also rose significantly by €67.5 million to €551.3 million. Compared to the previous year, the gross profit increased by €31.7 million to €310.9 million. Sales and marketing expenses increased by €17.1 million to €146.8 million. This is primarily as a result of our acquisitions and the build-up of distribution activities in the growth regions of Asia and South America. While expenditure on research and development rose by €1.8 million to €30.9 million, the general administrative expenses decreased significantly by €5.3 million to €87.1 million. This drop is based on the first positive impulses of the Group program “Free for Customers.” The result of operations (EBIT) at €51.0 million exceeds the result of the previous year by 6,4 Mio. € or 14.3%, growing at an even higher rate than sales. The interest expenses contained in the interest result could be decreased by €1.3 million to €15.4 million as a result of lower refinancing costs. Consolidated pre-tax profit is €33.9 million, an increase of €6.1 million compared to the previous year. The consolidated net income rose from €15.0 million in the previous year to €19.8 million in 2004. The earning per share based on DVFA/SG in 2004 rose once again compared to the previous year from €1.17 to €1.58.

In spite of the weak economy in Germany, the sales of Süd-Chemie AG rose by €6.2 million to €233.4 million compared to the previous year. The significant decrease in cost of goods sold by €3.8 million to €158.2 million that was required to achieve the revenues is a result of the successful implementation of measures intended to increase productivity and decrease costs in the production areas and a result of an increase in capacity utilization. The result of operations (EBIT) of Süd-Chemie AG is €4.7 million. This reflects a significant rise by €6.3 million compared to the previous year’s result of € (1.6 million).

The financial results significantly decreased by €4.8 million to €6.4 million, the reason being lower investment revenues and higher interest expenses. The annual net income in 2004 is €10.4 million, compared to €9.5 million in 2003.

During the period, total assets of the Süd-Chemie Group rose to €677.8 million, an increase of €29.3 million or 4.5% compared to the previous year. This increase is significantly lower than the rise in sales of 13%. 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 during the period. 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 almost 50%, after being a little above 46% in the previous year. On the asset side, the value of fixed assets declined by €8.3 million, primarily because of the negative currency effects.

Equity increased by €2.7 million. Once again, negative currency effects resulted in a €7.7 million reduction in equity in 2004. Hence, the Group’s equity ratio fell to 33%, compared to 34.1% in the previous year.

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

The value of total assets of Süd-Chemie AG was €352.8 million or almost 11% more than the value in the previous year. Primarily as a result of our acquisitions as well as measures to optimize the Group-internal financing of subsidiaries, the fixed assets increased by €29.0 million to €269.9 million compared to the previous year. The inventories rose by €3.9 million to €33.5 million. Trade receivables and other current assets rose by €1.1 million to €48.4 million. The increase is a result of a high number of accounts receivable as of year-end, the reason being the corresponding number of orders. The equity ratio of Süd-Chemie AG decreased from 48.7% to 44.8%, primarily because of the increase in total assets.

With €63.6 million, the Cash Flow from the Group’s current activities remained considerably under the comparable value of the previous year (2003: €76.9 million). The main reasons are the acquisition and the additional business build-up of the former SKW as well as the upward movement in the catalyst business, which led to a significant increase of current assets.

In total, Süd-Chemie invested €52.4 million in fixed assets and intangible assets during the period, both in the manufacture of new products and processes and in expansion of capacities as well as streamlining, and in the further development of information systems for global business management. In 2004, the investments were €4.9 million above depreciation and amortization, compared to €3.2 million in the previous year.

As of December 31, 2004, the Süd-Chemie Group employed 5,108 employees Compared with 2003, the number of employees in 2004 increased by 126. The personnel increase resulted from the absorption of 28 employees from the SKW companies SKW Gießerei-Technik GmbH & Co. KG and Tecpro Corp., further changes within the consolidated companies, and in the personnel build-up in South Africa. In Germany, the Süd-Chemie Group employed a total of 1,420 employees as of December 31, 2004. At the cutoff date, Süd-Chemie AG reduced its employees in by 2, to 924 employees.

Conclusion regarding the fiscal year 2004

In summary, we can say that Süd-Chemie took essential steps forward regarding a profitable corporate growth. In 2004, profitability and capital productivity improved significantly.

Before I explain the strategic orientation of Süd-Chemie, and give an outlook regarding the current fiscal year, let me comment briefly on the discussion regarding capitalism:

The goal of any corporation is, and must be, to maintain and expand its competitive position in the markets in order to earn income. For corporations that are under competitive conditions, income is proof that, thanks to the capital and skills used, customers were convinced both of their performances and of the creation of added value. Only a corporation that achieves profits can in the long term secure the continuation of the corporation by investing and continuing to employ personnel, or hiring new employees. It is only with profits that a corporation can maintain jobs and contribute to welfare and progress in society. The government and politicians are obliged to set the surrounding conditions for corporations in a way that they operate as economically as possible and thus will be able to perform its social responsibility – including the creation of additional jobs.

Süd-Chemie’s strategy

Which strategy will Süd-Chemie use in future to satisfy its corporate targets? In our core markets, we are either the leading company, or at least among the top 3 of the market. We shall stabilize and expand these positions with a strategy that is based on four pillars: customer orientation and market penetration, sustained enhancement of the ability to innovate, ongoing process optimizations as well as co-operation agreements and targeted portfolio management. In doing so, we want to grow in both of our corporate divisions, adsorbents and catalysts. We expect sales to increase to €1 billion by 2007, and to €1.2 billion by 2010 – each without any changes in portfolio.

For this, we intend to target the needs of our customers even more. Since the beginning of this year, Süd-Chemie practices strategic customer marketing, relying particularly on lasting partnerships with key accounts. As a result of global consolidation, an increasingly larger share of sales is attributable to major customers with strong market positions. Accordingly, we increase our marketing and distribution efforts Group-wide, using, among other things a targeted key account management to better exploit the sales potential of our products and services.

Early on, Süd-Chemie accommodated the customers’ demand of proximity, and is therefore now present in each economically important region of the world. We shall expand our market positions in regions where our markets show high growth rates. Especially in the growth markets of Asia and the Middle East, we will have to position us even better. Japan, China and India already rank among the world’s largest chemical markets, and as early as 2010, China may be the largest chemical market in the world. I already highlighted the importance of the Middle East, particularly in the petrochemical and refinery sector. To remain indecisive means missing the boat, a major part of the economic opportunities. Proximity to the customer is the key to successful partnerships. Only proximity and an exact knowledge of markets, customers’ needs and wishes enable us to develop customer-specific and value-added solutions. Close contact to customers is an essential requirement for successful innovations.

And, a corporation is only as good as its innovations. True to this principle, intensified research and marketable developments will continue to be Süd-Chemie’s key driver for its internal growth and appreciation. Our technological leadership in dynamic future markets can only be secured with high innovative strength. Markets and customers’ wishes are changing at breakneck speed. We must develop better and, above all, marketable solutions for our customers – also together with our customers. Customer orientation begins with research and development. In close cooperation, we will develop joint solutions for attractive markets. We shall intensify our dialog with universities and research institutes. Forming lasting partnership in a global research and education network has high priority. We shall increase our efforts to attract top international scientists to Süd-Chemie. We shall steadily raise our research and development ratio to a volume in the order of 4%, with the ratios in especially innovative fields having already risen considerably above this target percentage. In 2004 the ratio was a total of 3.6%. The investments will flow primarily into our fast-growing activities. Having set up the centralized Strategic Research Department, better overall use will be made of our innovation and technological potential. Whereas research departments in the business units shall concentrate on improving their product solutions and on contract research, the new central department shall be promoting cross-unit research projects and proposes new research directions related to our core competencies. The efficiency of our innovation processes has also been increased. A systematic innovation management ensures that new products or technologies are screened from the outset for the customer-benefit aspect and that only qualified projects will be selectively supported and developed to market maturity.

Directly linked with customer orientation is the task of optimizing our business processes, since ultimately increased efficiency in the form of better prices, better service or better product quality will be passed on to the customer. We need to be open for innovation, to critically analyzing existing structures and processes, and to adapt the organization accordingly. We shall further optimize our purchasing, production, and logistics structures, to reduce our administrative activities and to better employ the potential of our IT infrastructure.

The Group-wide project Free For Customers launched in 2004 is not only aimed at strengthening our customer orientation, but also at optimizing our business processes as well as reducing administrative activities and costs, thereby strengthening ongoing operations. Only if the operative units are freed from all unnecessary administrative tasks will they be able to exploit the full sales potential of our experience, our products and our services. All our employees and all Group companies are progressively becoming involved in this project. I am very confident that this project will become an integral part of our corporate culture, both at the national and the international level. The improvements from this project will secure our ambitious financial goals in the long term.

In addition to growth and appreciation on the basis of our own skills, we shall continue to support cooperation agreements and acquisitions that will strengthen our market positions in fast growing areas. A value-oriented corporate development also means that we opt out of activities that fail to meet the high demands made on our core activities. To use the growth and innovation potential of our core businesses in the best possible way makes it necessary to focus any and all financial and management resources on these areas. Therefore we are currently looking for alternatives regarding business units that are no longer part of our core business.

In conclusion to my presentation of our strategy, let me emphasize one more thing: In addition to all our strategic measures, there is a responsible financial management, because long-term financial fundamentals are the basis for sustained success. In the future, we shall focus on reducing the capital commitment within the current assets. A Group-wide project will aim at significantly reducing the capital committed to accounts receivables and inventories minus trade liabilities. The funds thus freed will then be available to finance our growth projects.

Dear Ladies and Gentlemen:

We wanted to achieve much in 2005 – and already in the first quarter we have reached important milestones. Our business units developed well in-line with their forecasts. In our core businesses, we could enter into important partnerships with key customers. Pursuant to the strategic principles outlined above, we focus on our fast growing core business in the current fiscal year.

In February of 2005, we acquired a coating technology for catalytic purification of diesel exhausts from Wacker-Chemie GmbH for the Energy and Environment business unit that removes nitrogen from diesel exhausts. The market for diesel automobiles is very promising. Given their more efficient use of energy and their long life, diesel automobiles are gaining progressively more market share. In Germany and Europe, their share in new vehicle registrations climbs higher each year, to 44% in 2004. Even in the U.S., diesel automobiles are more and more in demand. With regard to driving dynamics and driving characteristics, they have hardly any disadvantages left, they made their entry into the premium class long ago. As you can see from the public discussion of the exhaust particle filter during the past months, the exhaust purification of diesel engines is an ever increasingly important criterion for automobile drivers when buying a new car. And in view of the tightening of emission control standards for diesel-powered automobiles and trucks, the market for diesel-exhaust catalysts will grow even more strongly. In co-operation with automobile manufacturers, we shall quickly advance this coating technology to the production stage, and subsequently play a large role in this growth market.

In April of 2005, we expanded our involvement in the field of lithium-ion-batteries by buying the Canadian Phostech Lithium Inc. company. Phostech Lithium is specializing on the development and production of lithium iron phosphate. We are convinced that together with Phostech, it will take us only a few years to grow into the leading producer of lithium iron phosphate worldwide. In addition to an increasing demand in already existing markets for mobile electronics, such as mobile phones, notebooks and digital cameras, particularly new markets, such as vehicles with hybrid-driven cars, boost the demand for lithium ion batteries. The hybrid-driven car, an engine combining an electric and an internal combustion engine will be the bridge to the era of hydrogen for the automotive industry. Toyota and Honda are the pioneers who have already launched hybrid cars serially; all the major automobile producers will follow no later than 2007/2008.

We also continue to be in a leading market position regarding catalysts for hydrogen generation. The serial production of fuel cell cars will not start before 2010 but we expect that other applications of fuel cell technology – such as in the heating of houses – will start considerably earlier. In view of its unbeatable advantages, the fuel cell as the energy supply of the future will become reality. According to today’s knowledge, hydrogen is the cleanest fuel and a reasonable supplementation of the fossil energy sources oil and coal – especially if seen in light of the rapid increase of the world population to approx. 9 billion people in 2050. And we will offer the catalysts necessary for their production. Süd-Chemie is equipped excellently for entry into the hydrogen economy.

Dear Ladies and Gentlemen,

On June 15, the U.S. investment company One Equity Partners (the “OEP”) announced – unexpectedly for us – its intent to participate in Süd-Chemie AG. OEP is part of the JPMorgan Chase Group. Via the SC-Beteiligungsgesellschaft, OEP intends to buy three share packages from AZ-SDC Vermögensverwaltungsgesellschaft mbH, from Allianz (19%), from Possehl Beteiligungsverwaltung GmbH (10%) and from BLB-Beteiligungsgesellschaft Jota mbH & Co. KG Nr. 3, that is, Bayerische Landesbank (10%), for €35 per share, and to acquire a simple majority of Süd-Chemie AG by making all other shareholders an offer to buy their shares as well for a price of €35. Please understand that we, the Managing Board of Süd-Chemie AG, will not speculate as to the motives or goals of OEP. In accordance with the period given in the Wertpapiererwerbs- und Übernahmegesetz (Stock Acquisition and Takeover Act), we shall comment on OEP’s offer after the complete records regarding the offer have reached us. Please understand that we do not intend to make any additional statements regarding the offer’s price – not even in the discussion that will follow soon.

Further increase of profitability in 2005

I would like to conclude my speech with an outlook regarding the current fiscal year. We shall continue to use our strong market positions to maintain our strategic path as outlined above, and to keep Süd-Chemie on its road to success. In our traditional markets Europe and U.S.A., we shall expand our top position even further. In particular, we will use our opportunities in the fast growing markets in Asia and the Middle East, and expand heavily.

Within a continuously strong but weakening expansion of the world economy, we expect for the current fiscal year an organic increase of consolidated sales to €900 million and an increase of the operative result (EBIT) by 10 – 20%. Free For Customer projects continue unabatedly to drive our internal measures for increasing performance and efficiency as well as to strengthen customer orientation. We shall continue to expand rapidly. Based on our strong global market positions and innovative strength, we have set ambitious targets for ourselves. On our own and without portfolio measures, we want to exceed sales of €1 billion with a significantly higher profitability until 2007 and sales of €1.2 billion until 2010. Accompany us on this road. I am very confident in the future of your company.

Thank you very much for your attention.