06/13/2006 - Süd-Chemie AG Annual General Meeting

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

on the occasion of the 66th Annual General Meeting held on 13 June 2006
in Haus der Bayerischen Wirtschaft, Munich

- The spoken word applies -

Dear Mr. Honorary Chairman, dear Mr. Chairman,
dear shareholders and shareholders´ representatives,
dear friends of Süd-Chemie,

I should also like to welcome you most warmly to Süd-Chemie AG´s 66th Annual General Meeting. I am delighted that so many of you have again made the effort to attend and that I am able to report on an impressive business performance.

First of all, I would like to give you an overview of the last financial year and also explain the ways in which our corporate strategy was implemented during 2005. Following this, I shall report on the latest business developments during the current year and at the end of my speech, will outline the key financial figures expected for the 2006 financial year.

As mentioned at the beginning, we can look back on a successful year for the Süd-Chemie Group in 2005. During last year, we took another major step forward towards our goal of achieving a sales volumes of €1.2 billion by 2010, based mainly on organic growth, along with considerably higher profitability and higher returns on our invested capital (ROIC). So far, our performance in 2006 indicates that the positive trend will continue.

But first let me turn to 2005.

With regard to the following information, please note that for the first time, the 2005 consolidated financial statements have been drawn up in compliance with International Financial Reporting Standards (IFRS) and the 2004 figures adjusted accordingly.

Compared with 2004, consolidated sales rose by €130 million in 2005 to reach €933 million, an increase of 16%. If the Performance Additives Business Unit and the Copisil business had not been sold to the US specialty chemical company, Rockwood Specialties Group, at the end of the year, the increase would have been even more striking, with sales exceeding €975 million.

We were able to improve the Group´s operating profit (EBIT) at an even faster rate than sales. This rose by €19.5 million, or almost 39%, to €70.0 million. Including the earnings contribution from discontinued activities, the EBIT would even have topped €74 million.

Compared with 2004, there was a strong boost in after-tax profits, the surplus of €58.6 million representing almost three times the 2004 figure. To a large extent, this is of course due to the sales proceeds from the business activities sold to Rockwood. However, the rise in profits from continuing operations of €12.5 million, or almost 71%, resulting in profits after tax of €30.2 million, underscores Süd-Chemie´s excellent performance.

Earnings per share from continuing operations increased from €1.50 to €2.55, which is equivalent to a rise of 70%.

This means that we exceeded the sales and earnings targets set for last year.

During 2005, we laid the foundations for raising future earnings to a sustained higher level. We would therefore also like our shareholders to participate in this excellent business performance. We, the Managing Board and the Supervisory Board, would like to propose that the dividend be increased by 61% from €0.62 to €1.00 per share. This marked rise compared with last year is intended to underline our confidence in the sustained profitability of Süd-Chemie. A dividend of €1.00 represents a total distribution of €11.8 million and on this basis, we would, after adjustment for extraordinary income from disposals, be distributing 20% of the consolidated after-tax profit for 2005 to you, our shareholders. The retained portion of the after-tax profits is to be invested in the ongoing, value-creating development of our core areas of activity.

That we are on the right track is also reflected in the rising value of our shares. In the course of last year, Süd-Chemie shares increased by almost 59%, outperforming both the DAX (+26%) and the Chemical Index (+34%). After starting the year at €29.00, the share price had climbed to €35.50 by 14 June 2005 in a generally buoyant market. This represented an increase of 22% compared with the starting price. Following an announcement published on 15 June 2005 by the US investment company One Equity Partners that it was aiming to acquire a majority holding in Süd-Chemie via SC-Beteiligungsgesellschaft mbH, the share price closed at €38.00. In the wake of the tender offer made by SC-Beteiligungsgesellschaft, the shares subsequently peaked at €47.75 on 15 July 2005. On 31 December 2005, our securities closed at €46.00. As a result, Süd-Chemie AG´s market capitalization increased by €193.5 million to €544.6 million.

Thanks to the excellent positioning of our business units in our core markets, we were able to significantly increase sales, earnings and profitability. At the same time, worldwide economic activity had an altogether positive influence on the business performance of the Süd-Chemie Group during 2005. The global economy continued to expand strongly, in spite of a worldwide increase in the prices of raw materials and energy, achieving a growth rate of almost 4.5%. International trade expanded even more strongly than the global economy, recording growth of 7.5%. Once again, the forces driving the global economy were the North American and Asian countries, led by the US and China, while Western Europe registered only below-average growth. The German economy again reported a comparatively weak performance, its moderate growth resulting solely from the increasing demand for exports.

Due to the positive state of the global economy, the chemical industry also continued to expand during 2005, growing by almost 4%, although this was somewhat slower than in 2004 owing to the rising prices for energy and raw materials. The largest increases in production activity were recorded in Asia, Latin America and the Middle East. In the European Union and North America, production grew at a modest rate. Powered largely by the expanding export trade, substantial growth was however registered by the chemical industry in Germany.

One reason why our business developed so well lies in Süd-Chemie´s international positioning. There are only a few companies in Germany with a worldwide network like Süd-Chemie. In 2005, the share of foreign trade amounted to almost 80% of consolidated sales. During last year, we were therefore able to benefit significantly from the economic momentum in Asia and the Middle East, where sales climbed by €43.6 million to €220.8 million. This represented 23.7% of consolidated sales, 2.6 percentage points more than the previous year. By comparison, Europe´s share of total sales fell by 2.0 percentage points (to 48.2%).

This orientation is reflected in the international structure of Süd-Chemie´s workforce. Of the 5,120 people employed at 31 December 2005, twelve more than at the end of 2004, 3,680. i.e. 72% were working abroad. In line with the sales trend, the number of employees located in Asia and the Middle East rose by 85% last year to reach 1,373, almost 27% of the Group´s entire workforce. The number of employees in Germany increased by twenty to 1,440, mainly as a result of new recruits in the research and development sector. It is in particular highly-qualified activities that continue to be concentrated in Germany. Also worth noting is the fact that the sales growth generated in 2005 was realized without any significant increase in the number of staff.

In 2005, the Süd-Chemie Group successfully continued its dynamic business trend of recent years. Thanks to the positive economic environment, but above all to the strategic measures that were implemented according to plan, it was possible to achieve substantial growth in sales, earnings and profitability. The operating profit (EBIT) of €70.0 million generated by continuing operations in 2005 was €19.5 million or 38.6% higher than the previous year. This increase was largely the result of higher capacity utilization in the plants, along with cost reductions and increased productivity. By optimizing business processes, administration costs were also lowered, both in absolute terms and, more importantly, as a proportion of sales. The continuing rise in raw-material costs, notably in the case of copper, zinc, cobalt and nickel compounds, as well as preliminary products dependent on oil, had a negative impact on sales during the period under review which we were unable to pass these on in full to customers in the form of increased selling prices.

Although income from investments improved to -€0.3 million (2004: -€1.8 million) in 2005 following elimination of the deficit accruing from a loss-making holding in the US which was disposed of during last year, net interest income deteriorated by €0.9 million to -€20.2 million in the wake of higher interest payments. This gave rise to a result of ordinary operations (EBT) of €49.5 million in 2005, after €29.4 million in 2004. After deducting income taxes of €19.3 million, profit from continuing operations amounted to €30.2 million in 2005, up €12.5 million on 2004. Together with a profit of €28.4 million from discontinued operations, the Süd-Chemie Group generated profit after tax of €58.6 million in 2005, after €19.4 million in 2004. Compared with the previous year, after-tax profits tripled.

Since earnings increased faster than sales, Süd-Chemie was able to report higher profitability in 2005 - based on its EBITDA and more especially its EBIT margin. The EBIT margin improved from 6.3% in 2004 to 7.5% in 2005. Similar improvements in margins are expected for 2006 and 2007.

Both divisions benefited from the positive business performance in almost all market segments. At year-end, the Adsorbents Division included the business units Adsorbents and Additives, Performance Packaging, Foundry Products and Specialty Resins, as well as Pet Products. Together with activities in the carbonless copy-paper segment (Copisil), the Performance Additives Business Unit (rheology) was sold to the specialty chemicals enterprise Rockwood Specialties Group on 30 December 2005. As a result, account has no longer been taken of the trading figures for these activities. Compared with the previous year, sales in the four remaining business units increased by €61.2 million, i.e. by 13% to €531.7 million. The operating profit (EBIT) climbed from €35.1 million in 2004 to €39.6 million thanks to more favorable market conditions. A reduction in extraordinary costs and the positive impact of structural improvement measures, such as relocation of the loss-making North American business to Mexico and sale of the US site in Meigs, also contributed to this positive result.

The Catalysts Division is made up of the three business units Catalytic Technologies, Energy and Environment and Water Treatment. Compared with 2004, sales rose by €68.9 million, or 20.7%, to €401.4 million, mainly as a result of the high demand for Süd-Chemie´s process catalysts. The highest growth rates were achieved by the Catalytic Technologies Business Unit in North America and Asia. It was possible to significantly expand our leading global positions in all market segments. As a result of this positive business performance, operating profit increased by €7.9 million compared with 2004 to reach €54.5 million. It was not always possible to pass on to customers the marked increases in the costs of raw materials and energy registered in 2005. However, we were able to successfully offset most of these higher purchasing costs by reviewing and improving internal production processes on an ongoing basis. In addition, a series of new, more efficient plants was commissioned, which also improved the cost situation.

Total assets in the Süd-Chemie Group rose by €55.7 million in 2005, or 7.2%, to €827.6 million. This increase, which fell considerably short of the 16.2% rise in sales, resulted from both an upturn in non-current assets and higher current assets in the form of working capital required for business activities. The share of total assets held as current assets amounted to 43.8%, after 41.9% in 2004. As a result of investments and currency effects, non-current assets rose by €39.2 million to €465.3 million, representing 56.2% of total assets at the closing date.

Equity increased by €58.0 million to €314.1 million, due mainly to disposal of the rheological additives business and the Copisil activities. Currency conversion factors also had a positive impact on equity, making it possible to offset at least some of the exchange losses not affecting liquid funds which had accumulated in previous years. The equity ratio showed a marked improvement, reaching 38.0% after 33.2% in 2004. It was possible to reduce our liabilities to banks, including the dollar-based private placement, by €55.8 million. This had a mitigating effect on the liability ratio as a proportion total equity and liabilities.

The gross cash flow rose by €50.2 million in 2005 to €113.2 million. This increase resulted mainly from the sale of our rheological and Copisil activities. The gross cash flow generated by continuing operations amounted to €77.2 million last year, after €58.3 million in 2004. The cash flow generated by ongoing activities in the areas of continuing operations rose significantly by €29.0 million to €83.2 million in 2005. In terms of sales, this represents a ratio of 8.9%. Purchases of property, plant and equipment and intangible fixed assets, as well as additional investments in company acquisitions, amounted to €68.7 million. This was offset by net proceeds of €65.6 million from the sale of business activities, so that the net cash used in investing activities amounted to -€3.1 million. Out of the free cash flow of €80.1 million available in 2005, dividend payments totaling €13.5 million were made to Süd-Chemie AG shareholders and to shareholders holding minority interests in subsidiary companies. €55.8 million were used to repay financial liabilities.

At 31 December 2005, lines of credit amounting to €541 million were available to Süd-Chemie. Only €216 million, including the dollar-based private placement issued in 2004, had been utilized at balance-sheet date. Equipped with these unused credit lines of €325 million, Süd-Chemie has the financial scope necessary to invest in the growth of its core areas of activity.

Süd-Chemie´s investment policy is based on clear principles, investment being geared specifically to areas that offer opportunities for above-average growth and also enhance the profitability and competitive strength of the entire Group. During last year, a total of €57.6 million were invested in property, plant and equipment and intangible fixed assets, the comparable 2004 figure amounting to €52.4 million. In terms of consolidated sales, this represents an investment ratio of 6.2% and based on the depreciation figures, a re-investment ratio of 137.8% after 125.7% in 2004. Investment in financial assets reached €3.5 million in 2005, focus being on the expansion of business facilities and capacities, as well as the modernization of production plants and further development our information systems in the direction of global business management.

Investment activity was concentrated on Germany with expenditure of €29.5 million, i.e. 51.2% of total investments, and on America with expenditure of €13.8 million, or 24.0% of total investments.

Let us now turn to Süd-Chemie´s strategy and its implementation during 2005.

In its core areas of activity, the Süd-Chemie Group holds prime market positions worldwide. Our customers rely on our innovative products, solutions and services. In this context, innovative ability, proximity to our markets and profitability are decisive factors contributing to our ongoing success with customers. Our strategic measures are therefore aimed at strengthening and expanding our core areas of activity by improving our innovative ability, focusing more strongly on our customers and their needs throughout the entire Group, enhancing efficiency on a long-term basis and optimizing our business portfolio. We are confident of the path we have chosen and expect to reach a sales volume of €1.2 billion by 2010, based on our own resources - as well as significantly improving profitability and achieving a return on invested capital (ROIC) that exceeds our cost of capital. In 2005, we achieved several strategically important interim goals along the way.

Innovation is the driving force behind Süd-Chemie´s growth. A constant flow of innovation in our core areas of activity is dependent on a technology platform that is subject to continuous development. To realize this, interdisciplinary know-how and target-oriented innovation management are just as essential as providing the financial resources necessary for expansion.

For this reason, Süd-Chemie considerably increased its investment in research and development last year. Compared with our strong sales growth, the research and development ratio showed an even steeper rise, recording significantly higher increases in those core areas of activity vital for our future growth.

In addition, we supplemented our know-how in the course of 2005 by acquiring external expertise in selected areas. For instance, know-how and equipment for coating novel, honeycombed metal-carriers with catalysts were taken over. This technology allows Süd-Chemie to expand its activities in the field of diesel emission control. In view of the increasingly stringent environmental regulations for diesel-powered vehicles due to be introduced over the next few years, the diesel-exhaust-catalyst sector represents a highly-promising growth market.

Besides this, we also acquired a majority holding in the Canadian company Phostech Lithium. This company´s know-how in the field of developing and producing lithium iron phosphate, which is used as a cathode material in lithium-ion batteries, represents a valuable extension of Süd-Chemie´s competence in this sector. Due to their wide range of applications in existing mobile-electronics markets, including mobile telephones, notebooks and digital cameras, as well as in new areas, such as hybrid-electric drives, there has been a sharp rise in the demand for lithium-ion batteries. Lithium iron phosphate will be the cathode material of the future in lithium-ion batteries, its properties being superior to lithium cobalt oxide which is still the most commonly-used cathode material.

On balance, the measures taken to increase Süd-Chemie´s innovative strength have been the right ones. There was another strong rise in the number of patents filed in 2005 and we were able to increase our technological lead in our core areas of activity.

It is the customer who ultimately decides on our success. Binding customers and promoting customer orientation is our second strategic goal. For this reason, we stepped up customer orientation during 2005 by introducing autonomous marketing operations and expanding key account management activities with the aim of "binding customers in the long term based on outstanding performance." New contract-based strategic partnerships were agreed with key accounts and existing partnerships expanded. Our consistent customer orientation is an acknowledged fact, as documented for instance by an award received last year from the South African company Sasol Synfuels, a subsidiary of the globally-active Sasol oil group. Süd-Chemie was nominated the second-best of some 1,300 suppliers for its exceptional performance in terms of product quality, on-time delivery and service.

This intensive market orientation is further strengthened by precisely-formulated growth strategies in important regions, such as the Middle East.

In order to make better use of regional sales potential, we have been expanding our presence in the Middle East since 2004. In Qatar, we intend to exploit the market opportunities offered by this region which, as far as the petrochemical industry is concerned, is undoubtedly the most dynamic in the world. This Gulf state has the world´s third-largest reserves of natural gas and has become the center of gas-liquefaction and petrochemical activities. By 2012, Qatar aims to become the leading exporter of liquid gas (gas-to-liquid), producing more than 70 million tons a year. Over the next five years, gas-to-liquid projects totaling more than $70 billion are due to be realized. Süd-Chemie will be supplying the catalysts needed for these gas-to-liquid processes.

Please allow me at this point to comment on Süd-Chemie´s long-term prospects. In its recently published World Energy Outlook, the International Energy Agency IEA forecast that the demand for energy will increase between at least 40% and 50% by 2030, with the emergent economies and large populations in Asian countries, headed by China and India, being the main source of this growing global demand. The major part of this rising demand will be met by fossil fuels, such as oil, coal and natural gas. Oil will probably continue to be the most important fuel, but only for about another fifty years, then there will be no more oil. According to the experts, natural gas is the most promising fuel of the 21st century. Large gas reserves are to be found in the Middle East and in Russia. Natural gas is of little relevance for the greenhouse effect and based on current estimates, reserves will last for at least another seventy years. We already offer the leading technology for liquefying gas to produce fuels, and also for converting gas into chemicals.

At the same time, we are the leading player in the coal-to-liquid sector, a process which also offers tremendous market potential, especially in countries with high coal deposits, such as China, India and the US.

Süd-Chemie´s technology is playing a major role in finding solutions to the approaching energy crisis and building up an industry based on sustainable energy. We shall help to offer ways to curb the demand for energy based on its more efficient use and to promote sustainable generation by using renewable energy. Just think of our lithium iron phosphate that will finally lead to a breakthrough for hybrid engines in cars.

In long-term scenarios, hydrogen plays an important role - especially in the transport sector, but also to an increasing extent in non-automotive applications. For decades, Süd-Chemie has led the world market for syngas catalysts which are used to produce hydrogen.

Based on these examples, you can see that even today, our products are helping to shape the energy industry of the future.

Any company wishing to improve its customer orientation and enhance profitability must create the necessary free capacity, while at the same time minimizing costs. Optimizing corporate processes along the entire value chain is therefore a permanent, ongoing task.

This is exactly what we are accomplishing with our Group-wide scheme, Free for Customers which consists of projects aimed at streamlining business processes and reducing administration costs in all areas. This is followed by targeted rechanneling of surplus resources back into operational activities. Customer orientation cannot be implemented in a systematic manner unless business processes are continually improved.

In 2005, a large number of Free for Customers projects led to lasting improvements in efficiency, as well as cost reductions on a Group-wide scale. These involved for instance IT processes, quality control and central purchasing activities for strategically important raw materials and preliminary products. Furthermore, a long-term project was launched to lower the ratio of non-value-creating working capital. In this case, initial success is already reflected in the consolidated balance sheet at 31 December 2005. Many of the measures implemented will already result in significant cost-savings and have a positive impact on earnings during 2006.

The fourth goal towards which our strategy is directed is our business portfolio. We are focusing on a portfolio that will satisfy the demands of high growth and added value. In mid-2004, all fields of activity were reviewed to identify their strengths and weakness, growth potential and prospective value added. The result was clear cut. The varying growth prospects offered by each field of activity and the resources available to the Group called for concentration. Based on the criteria of growth potential, profitability, competitive positioning and product life-cycles, we clearly defined the core areas of operation in which we intend to rank among the best in the world. We are now concentrating on these core activities and seeking development opportunities outside the Group for operations no longer included.

One of the findings resulting from this portfolio analysis was an awareness that our rheological additives operations, bundled in the Performance Additives Business Unit, would never achieve more than average growth without a partner or substantial investment due to the fact that customers in the paint, coatings and cosmetics industries are increasingly purchasing rheological additives to optimize the flow properties of their end products from suppliers offering a full range. Süd-Chemie is neither able nor does it intend to offer such a range. For this reason, the business unit and the business with carbonless copy paper (Copisil) was sold to the American Rockwood Specialties Group. Due to the falling demand for copy paper, the Copisil business has been declining for several years.

In addition to rationalizing its Group structure last year, Süd-Chemie also paved the way for further profitable growth on a long-term basis. Formation of the joint venture Süd-Chemie Jinhai Catalyst has for instance opened up excellent prospects in the expanding market for polypropylene catalysts. This company, which is managed by Süd-Chemie as majority shareholder, develops and produces these catalysts in China for worldwide distribution. However, it is not only the low labor costs that attract us to China, but more especially the enormous market. Within a few years, the boom in its manufacturing industries will make China by far the largest chemical consumer in the world.

We also took over WD-Giesserei-Technik. The company produces cores used mainly by the automobile industry and its component suppliers to form cavities in castings. This takeover expands Süd-Chemie´s know-how in the foundry chemicals sector and significantly increases its leading position in the relevant European market in terms of both service and innovation.

Allow me to sum up the last financial year as follows. We achieved strong organic sales growth in a generally favorable economic environment. In our market segments, we were able to expand our positions and enhance our portfolio thanks to improved internal efficiency. All core areas of activity reported a positive earnings performance, which was all the more remarkable considering the highly negative impact of the dramatic rise in energy and raw-materials costs.

We now come to the 2006 financial year. First of all, I would like to outline developments during the course of the current year. We continue to adhere to our Group strategy and so far, have implemented this as follows in 2006.

In the field of innovation and technology, we shall be raising the level of investment in research and development yet again this year with a view to expanding our technology platform. More important than the amount of funds and resources is however their efficient application. We continue to ensure this efficiency by using a gate review process that systematically checks whether our research activities are the compatible with market trends, adjusting them if necessary in line with changing customer needs.

In terms of binding customers and customer orientation, our focus this year continues to be on Group-wide expansion of our key account management activities. Work is also underway on additional contract-based partnerships with key accounts, the aim being to secure market shares in the long term.

Valuable market shares have been gained through a joint venture with the Swiss company Plaspaq, which specializes in plastic packaging for the pharmaceutical industry. Together with Plaspaq, Süd-Chemie Schweiz was formed at the beginning of the year. Managed by Süd-Chemie as majority shareholder, this joint venture rounds off our leading positions in France and Great Britain by adding strong market positions in Germany, Austria and Switzerland. As a result, we have significantly enhanced our position to become a global partner for international pharmaceutical enterprises.

As already mentioned, boosting productivity is a continuous task. We shall again be carrying out a large number of Free for Customers projects in 2006, having begun by optimizing maintenance operations in our German plants. Subsequently, the improvement measures are to be implemented throughout the Group.

Our ambitious goals cannot be reached without strong market positions in promising areas of activity. Which is why we intend to continue expanding our leading positions with all our strength - also via targeted acquisitions and co-operation agreements. At the same time, our focus will remain on our strengths and on practicing active portfolio and investment management. However, concentrating on one´s own strengths also means recognizing one´s own weaknesses and resolutely parting with business operations that no longer offer future potential, in order to release valuable resources and capital.

Another result of the portfolio analysis conducted in mid-2004 was recognition of the fact that we were unable to manage the restructured and once again profitable Pet Products Business Unit with the competence required in the retail trade. In addition to processing bentonite for cat litter, the product portfolio also includes an increasing range of nutritional supplements and care products for cats, dogs and rodents. In the form of Capiton AG, we have meanwhile found an opportunity for this peripheral business to develop outside the Süd-Chemie Group, which we were no longer able to offer. Bentonite sales have been secured based on long-term supply agreements.

Following sale of the Pet Products Business Unit, the Süd-Chemie Group now comprises six core areas of activity. This is the Group structure we have been working towards since undertaking our portfolio analysis in 2004 and it is the structure with which we aim to tackle the challenges of the future. Our starting position is excellent and our prospects most promising.

Our strategic course and our business performance are reflected on the capital market. In a moderate, and recently extremely nervous trading environment, there has been a further marked increase in the price of our shares. Starting at €46.00 on 2 January, yesterday on 12 June 2006, Süd-Chemie shares cost €55.65. This represents an increase of 21%. Both the DAX and the Chemical Index have shown a significantly weaker performance since the beginning of the year, decreasing by 1% and 5% respectively.

As you all know, Süd-Chemie became a take-over target for One Equity Partners, a US financial investor. Via SC-Beteiligungsgesellschaft, One Equity Partners secured a total of 39.18% of Süd-Chemie´s shares. However, the take-over of a majority share failed to materialize, the tender offer of €35.00 per Süd-Chemie share closing with the transfer of only 845 shares (0.007%). Looking at the trend in the share prices, it was a wise decision not to sell your shares. I am pleased that you believed Süd-Chemie was capable of achieving more. One Equity Partners obviously also believes that Süd-Chemie is capable of more, otherwise it would not have purchased the shares. I am confident that we will not only hold our own against the competition, but also significantly improve our market position. Especially in future-oriented fields, Süd-Chemie has a great deal to offer. We shall not falter in our resolve to continue along the course we have now embarked upon to add sustained value to your Süd-Chemie. Continue to put your trust in us.

So what can we expect from the full financial year of 2006? Business got off to a good start.

Although the global economic upswing will maintain its high level throughout 2006, it will weaken marginally in the face of continuing rises in the prices of raw materials and energy and moderately climbing interest rates. The leading economic research institutes are again expecting global economic growth of 4.5% in 2006, with world trade increasing by about 8%. The forces driving the world economy will continue to be North America and Asia. Economic growth in the euro zone should accelerate, due largely to the higher economic output forecast for Germany. Economic uncertainty could arise as a result of large increases in the cost of raw materials and developments on the energy markets.

Production output in the chemical industry will continue to increase by just under 4% in 2006. Although the production of chemicals in Germany is likely to grow by no more than 2.5%, production in the European Union (EU 25) is expected to rise by 3%. Asia and the Middle East will continue to register healthy growth rates of 6% and 8%. After a weak year in 2005, North American chemical production will be back on track with a more expansive growth rate of almost 3%.

The Süd-Chemie Group has made a very good start to the new financial year. We are expecting a further increase in consolidated sales from continuing activities of at least 5%, while the operating profit (EBIT) will again register an even higher growth rate of not less than 10%. We shall be pushing ahead unremittingly with internal measures to increase performance and efficiency and also strengthen customer orientation.

Your Süd-Chemie is right on course. The Group is excellently positioned and is well on target along the road to its set goal. By 2010, an organic increase in sales to over €1.2 billion will be reached, coupled with constantly rising profitability and an ROIC that exceeds the cost of capital. Nor will we be reducing this sales target in spite of parting with sales worth some €100 million by selling the two business units Performance Additives and Pet Products.

We would like you to follow this course together with us. I am extremely confident about the future of your company.

Thank you for your attention.