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387 357 13 12 1999 Annual823 Report 232 448 23 453 4 298 22 374 35 37 333 20 34 7 10 993

473 33 298 2 1999 32 387 422 13 17

10

823

232 448 4 298 22 374

32 37

2150

1999

3 10 993 823 37

Annual Report 10

1999 993 387 422

VEBA 13

17 10

22 374

24 31 150 1999 3 45 550 309 22 194 VEBA Group Structure VEBA AG Düsseldorf, Germany, Capital: 81,307 million

Energy Chemicals Real-Estate Management Other Activities

PreussenElektra AG VEBA Oel AG Degussa-Hüls AG Viterra AG Hanover Gelsenkirchen Frankfurt am Main Essen Capital: DM1,250 million 100% Capital: DM488 million 100% Capital: 8399 million 64.7% Capital: DM350 million 100%

Energy. PreussenElektra is Germany’s • PreussenElektra Kraftwerke AG & Co. KG • VEBA Oil & Gas GmbH • Asta Medica AG • Viterra Wohnen AG • Stinnes AG second-largest utility and supplies roughly Hanover Essen Dresden Bochum Mülheim an der Ruhr Capital: DM500 million 100% Capital: DM697 million 100% Capital: DM100 million 100% Capital: DM0.5 million 100% Capital: DM371 million 65.5% one fifth of the country’s electricity. Its grid area covers one third of Germany. • PreussenElektra Kernkraft GmbH & Co. KG • VEBA Oil Supply and Trading GmbH • Stockhausen GmbH & Co. KG • Viterra Wohnpartner AG • VEBA Electronics LLC Hanover Hamburg Krefeld Bochum Santa Clara, California (USA) 100% PreussenElektra’s primary energy sources are Capital: DM400 million 100% Capital: DM6 million 100% Capital: DM84 million 99.9% Capital: DM5.05 million 100% coal and nuclear power. Our electricity sub- • VEBA Telecom GmbH • PreussenElektra Netz GmbH & Co. KG • Ruhr Oel GmbH • Röhm GmbH • Viterra Baupartner AG Düsseldorf sidiary is also active in the natural gas, water, Hanover Düsseldorf Darmstadt Bochum Capital: DM250 million 100% and district-heating distribution sectors. Capital: DM500 million 100% Capital: DM602 million 50% Capital: DM119 million 99.5% Capital: DM33.6 million 100% • MEMC Electronic Materials, Inc. VEBA Oel’s operations comprise the explora- • PreussenElektra Engineering GmbH • Aral AG • Oxeno Olefinchemie GmbH • VEBA Wohnen GmbH St. Peters, Missouri (USA) Gelsenkirchen Bochum Marl Gelsenkirchen-Buer Capital: US$508 million 71.8% tion and production of petroleum and natural Capital: DM22 million 100% Capital: DM300 million 98.9% Capital: DM35 million 100% Capital: DM15.3 million 83.66% gas as well as the refining and marketing of • Avacon AG • VEBA Wärmeservice GmbH • Phenolchemie GmbH & Co. KG • VEBA Urbana GmbH petroleum and petrochemical products. Via Helmstedt Gelsenkirchen Gladbeck Düsseldorf its Aral subsidiary VEBA Oel is Germany’s Capital: 8135 million 54.7% Capital: DM45.7 million 100% Capital: DM100 million 99.5% Capital: DM31.9 million 58.17% With more than 1,500 locations worldwide, number one service station operator. • e.dis Energie Nord AG • AFC Aviation Fuel Company mbH • Cerdec AG Keramische Farben • Deutschbau-Holding GmbH Stinnes ranks among the world’s premier Through VEBA Wärmeservice it is the Fürstenwalde an der Spree Hamburg Frankfurt am Main Eschborn distribution and logistics enterprises. German market leader in heating oil. Via its Capital: 8175 million 70.0% Capital: DM8 million 50% Capital: DM30 million 100% Capital: DM20 million 50% VEBA Electronics is one of the three largest Ruhr Oel shareholding VEBA Oel has • Schleswag Aktiengesellschaft • VEBA Erdöl-Raffinerie Emsland GmbH & Co.KG • Creavis Gesellschaft • WBRM-Holding GmbH distributors of electronic components Germany’s largest refinery system. Rendsburg Lingen für Technologie und Innovation mbH Essen Capital: DM200 million 65.3% Capital: 80.05 million 100% Marl Capital: 81 million 50% worldwide. Capital: DM0.1 million 100% Chemicals. Degussa-Hüls ranks among the • Pesag Aktiengesellschaft • VEBA Oel Verarbeitungs GmbH • Viterra Energy Services AG VEBA Telecom holds a stake in France’s Paderborn Gelsenkirchen • Infracor GmbH Essen world’s largest specialty chemicals enter- Capital: DM33 million 54.7% Capital: DM0.05 million 100% Marl Capital: DM7 million 100% Bouygues Telecom. prises. It commands numerous leading mar- Capital: DM45 million 100% • EWE Aktiengesellschaft • Viterra Sicherheit und Service GmbH MEMC is one of the world’s leading ket positions for products like feed additives, Oldenburg • Degussa-Hüls Antwerpen N.V. Essen manufacturers of silicon wafers and has superabsorbents, coating raw materials, Capital: DM300 million 27.4% Antwerp (Belgium) Capital: DM5 million 100% production facilities in the US, Asia, and hydrogen peroxide, industrial carbon black, Capital: BFR1,100 million 100% • Energie-Aktiengesellschaft • Viterra Gewerbeimmobilien GmbH Europe. silicic acids, phenol, and methacrylates. Mitteldeutschland EAM • Degussa-Hüls Corporation Essen Operations are divided into four reporting Kassel Ridgefield Park, New Jersey (USA) Capital: DM1 million 100% Capital: DM120 million 46.0% Capital: US$20,400 100% segments: Health & Nutrition, Specialty Products, Polymers & Intermediates, and • Thüga Aktiengesellschaft • Degussa-Hüls Ltda. Munich Guarulhos (Brazil) Performance Materials. Capital: DM320 million 56.5% Capital: BRL123 million 100% • Gelsenwasser AG • Allgemeine Gold- Real-Estate Management. With roughly Gelsenkirchen und Silberscheideanstalt AG 125,000 of its own housing units, another Capital: DM171.9 million 52.1% Pforzheim 50,000 via shareholdings, and numerous Capital: DM20 million 90.8% • Veag Vereinigte Energiewerke AG commercial properties, Viterra is one of Berlin • Degussa-Hüls Japan Co. Ltd. Germany’s foremost real-estate service Capital: 81,000 million 26.3% Tokyo (Japan) Capital: JPY495 million 100% companies. • Bewag Aktiengesellschaft Berlin • Degussa-Huls China Ltd. Capital: DM1,120 million 23.0% Hong Kong Capital: HKD1 million 100% • Hamburgische Electricitäts-Werke Aktiengesellschaft • Algorax Pty. Ltd. Hamburg Port Elizabeth (South Africa) Capital: DM460 million 15.4% Capital: ZAR1.8 million 55% • Electriciteitsbedrijf Zuid-Holland N.V. Voorburg (Netherlands) Capital: NLG20 million 100.0% • Sydkraft AB Malmö (Sweden) Capital: SEK1,910 million 20.7% • BKW FMB Energie AG Bern (Switzerland) Capital: CHF132 million 20.0% As of March 1, 2000 VEBA 1999

VEBA Group Financial Highlights

1995 1996 1997 1998 1999 1999 1998/1999 in millions of 88888DM % Sales 37,003 38,112 42,294 42,787 52,905 103,473 + 23.6

Income pretax income 1,961 2,268 2,543 2,392 3,953 7,731 + 65.3 net income 1,077 1,347 1,544 1,152 2,902 5,676 +151.9 after minority interests 979 1,257 1,437 1,196 2,668 5,218 + 123.1 Internal operating profit – 2,035 2,240 1,946 2,274 4,448 + 16.9 Return on equity after taxes1) in percent 11.4 13.3 13.5 10.4 20.4 – 10.02) Investments 4,971 4,491 8,111 4,225 7,017 13,724 + 66.1 Cash flow from operations 4,028 4,580 4,465 3,088 3,255 6,366 + 5.4 Shareholders’ equity 10,713 11,781 12,946 13,468 17,372 33,977 + 29.0 Total assets 34,641 36,771 41,208 43,069 52,384 102,454 +21.6 Employees at year-end3) 125,158 123,391 129,960 116,774 131,602 – + 12.7

Per share 88888DM US GAAP earnings 2.13 2.58 2.98 2.34 5.95 11.64 + 154.3 Cash dividend 0.87 0.97 1.07 1.07 1.25 2.44 + 16.8 Dividend including tax credit 1.24 1.39 1.53 1.53 1.79 3.50 +17.0 Book value4) 18.32 20.18 22.78 23.40 28.60 55.94 + 22.2 Cash flow from operations – 9.27 8.98 6.14 6.47 12.66 + 5.4

VEBA Group by Division 1999

Elec- Oil Chemicals Real- Distribu- Tele- Silicon Others Total tricity Estate Man- tion/ commu- Wafers agement Logistics nications 8 in millions Sales 7,719 11,778 14,632 1,145 16,872 108 651 – 52,905 Internal operating profit 1,505 78 475 184 267 – 180 – 214 159 2,274 Cash flow from operations 1,728 601 603 43 156 – 215 – 99 438 3,255 Investments 1,349 1,308 1,298 333 741 171 60 1,757 7,017 Employees at year-end 20,556 5,863 44,334 4,901 49,818 72 5,600 458 131,602

DM in millions Sales 15,097 23,036 28,618 2,239 32,999 211 1,273 – 103,473 Internal operating profit 2,944 153 929 360 522 – 352 – 419 311 4,448 Cash flow from operations 3,380 1,175 1,179 84 305 – 420 – 194 857 6,366 Investments 2,639 2,558 2,539 651 1,449 335 117 3,436 13,724

1) Net income divided by average shareholders’ equity, excluding minority interests. 2) Change in percentage points. 3) Excluding suspended working relationships and including all less than part-time employees as of 1996 (total). 4) Excluding minority interests. US GAAP Earnings per Share in 8

2.13 2.58 2.98 2.34 5.95

95 96 97 98 99

Dividend per Share in 8 It’s often the little things that make 0.87 0.97 1.07 1.07 1.25 life more enjoyable. VEBA does its part by supplying the basics. Electricity, natural gas, water, fuels, performance chemicals, and real- estate services. They all come together in our customers’ homes. 95 96 97 98 99 And what’s good for our customers is good for us: being able to offer multiple utility services from a single source creates exciting new com- petitive advantages for the Group. The Year in Review

February May October • Stinnes makes an offer to • VEBA and RWE sell the stake in • In accordance with the resolution purchase the remaining shares in the German cable-TV operator adopted at the last Annual Sweden’s BTL. The move repre- TeleColumbus they hold via VRT Shareholders’ Meeting, VEBA sents a consistent continuation (the new name for their Otelo shares are converted to bearer of Stinnes’s focus on logistics joint venture) to a Deutsche Bank shares without nominal value. services. After the tender period investment company for about The conversion has no effect on expires Stinnes holds nearly all of 8740 million. The deal is effec- the share price. BTL’s shares. tive as of July 1, 1999. • VRT concludes an agreement to • The merger of Degussa and Hüls sell its 60.25 percent sharehold- is entered into the Commercial June ing in E-Plus, the German mobile Register and is retroactively • In a first tranche VEBA floats telecoms company, to France effective as of October 1, 1998. 34.5 percent of Stinnes’s shares. Télécom. VEBA’s share of the To further focus the Group, VEBA 87.4 billion sale price amounts to March will divest Stinnes completely in 83.8 billion. Bell South, also an • VEBA divests its 10.2 percent the next few years. E-Plus shareholder, exercises its stake in Cable & Wireless, the UK preemption rights and will acquire telecoms company, and achieves July the E-Plus shareholding under a book gain of 81.3 billion. • PreussenElektra signs an agree- the same conditions worked out • PreussenElektra increases its ment to acquire Electriciteits- with France Télécom. shareholding to 20.6 percent and bedrijf Zuid-Holland, a Dutch its voting rights to 32.6 percent energy utility. December in Sydkraft, Sweden’s second- • VEBA Oel acquires the interests largest energy utility. September of the other Aral shareholders • VEBA and VIAG conclude an Mobil Oil and Wintershall at the April Agreement in Principle to merge turn of the year. The deal lifts • VEBA and RWE sell Otelo’s fixed- their companies and create a VEBA Oel’s Aral stake from 56 to line business to Mannesmann clearly structured business group roughly 99 percent. Arcor for 81.15 billion. focusing on its core energy and • To further streamline its portfolio • MEMC completes its planned specialty chemicals businesses. Degussa-Hüls sells the PVC capital increase in order to In both of these sectors the new maker Vestolit to a UK-led inves- implement financial restructuring. company will occupy premier tor group for more than 8150 VEBA had agreed to purchase positions in Germany and world- million. any unsubscribed shares. The wide. • VEBA sells its shareholding in Group’s stake in MEMC increases • In support of the merger VEBA Cablecom, the Swiss cable-TV to 71.8 percent. acquires a 10 percent stake in operator, to US-based NTL. VIAG from the Free State of VEBA’s share of the sale price Bavaria. These shares will not amounts to about 8870 million. participate in the share exchange, making the purchase similar to a preemptive share buy-back.

2 Contents

• Supervisory Board 4 • Report of the Supervisory Board 5 • Board of Management 7 • Letter to Our Shareowners 8 • The VEBA–VIAG Merger 12 • The VEBA Share 16 • Report of the Board of Management: • Review of Operations 18 • Additional Information: • CFROI by Segment 28 • Strategy and Investment Plan 30 • Group Divisions: • Electricity 34 • Oil 42 • Chemicals 46 • Real-Estate Management 54 • Distribution/Logistics 58 • Telecommunications 60 • Silicon Wafers 61 • Human Resources 62 • Environmental Protection 66 • Consolidated Financial Statements 67 • Mandates of Board Members 114 • Major Affiliated and Associated Companies 118 • VEBA Group: Ten-Year Highlights 120 • Financial Calendar 121

3 Supervisory Board

Honorary Chairman of the Supervisory Board Supervisory Board

• Dr. Günter Vogelsang • Hermann Josef Strenger • Dr. Klaus Liesen Düsseldorf Chairman of the Supervisory Chairman of the Supervisory Board, Bayer AG, Leverkusen Board, Ruhrgas AG, Essen Chairman • Herbert Mai • Hubertus Schmoldt Chairman, Gewerkschaft Öffent- Chairman of the Board of liche Dienste, Transport und Management, Verkehr, Stuttgart Industriegewerkschaft Bergbau, Chemie, Energie, Hanover • Dagobert Millinghaus Deputy Chairman Accounting and Administration Manager (kfm. Angestellter), • Ralf Blauth Mülheim an der Ruhr Industrial clerk (Industriekaufmann), Marl • Margret Mönig-Raane First Chair, Gewerkschaft Handel, • Dr. Rolf-E. Breuer Banken, Versicherungen, Spokesperson of the Board of Düsseldorf Management, Deutsche Bank AG, Frankfurt am Main • Dr. Henning Schulte-Noelle Chairman of the Board of • Dr. Gerhard Cromme Management, Allianz AG, Munich Chairman of the Board of Management, Thyssen Krupp AG, • Morris Tabaksblat Essen Chairman of the Administrative Board, Reed Elsevier plc, • Rainer Dücker Amsterdam, Holland Power plant worker, Lübeck • Kurt F. Viermetz • Henner Hecht-Wieber Member of the Board of Electrician, Düsseldorf Directors, J.P. Morgan & Co., Inc., New York • Wolf-Rüdiger Hinrichsen Accounting and Administration • Dr. Bernd W. Voss Manager (kfm. Angestellter), Member of the Board of Düsseldorf Management, Dresdner Bank AG, Frankfurt am Main • Ulrich Hocker General Manager, Deutsche • Dr. Peter Weber Schutzvereinigung für Director of the Legal Department, Wertpapierbesitz e.V., Düsseldorf Degussa-Hüls AG, Marl

• Dr. h.c. André Leysen • Kurt Weslowski Chairman of the Administrative Chemical worker, Gelsenkirchen Board, Gevaert N.V., Mortsel, Belgium

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Report of the Supervisory Board

The Supervisory Board monitored Report, the exchange ratio of VIAG Accepted Accounting Principles. and advised management during and VEBA shares, and the interim Furthermore, the auditors examined the financial year under review. Financial Statements as of Septem- VEBA AG’s early risk detection Management regularly informed us ber 30, 1999. We approved the system. This examination revealed about the progress of business and Merger Report. that the system is fulfilling its tasks. the financial status of the company. Other subjects discussed by the All members of the Supervisory We discussed oral and written Supervisory Board included the Board received the Financial State- Hermann J. Strenger reports submitted by the Board of financial situation and business ments, the Review of Operations, Chairman of the Management in depth at six meet- prospects of the major Group com- and the Auditor’s Reports. The Supervisory Board ings in 1999. We comprehensively panies, measures to enhance com- Supervisory Board’s Executive debated all measures subject to petitiveness and reinforce the busi- Committee and the Supervisory Supervisory Board approval. Between nesses’ market position, as well as Board itself at its meeting to ap- meetings, Supervisory Board mem- investment, financing, and person- prove the Financial Statements also bers received detailed information nel planning for 2000 through 2002. reviewed these documents in detail on major business transactions of During Supervisory Board meetings, with the auditors present. key importance for the further de- the Board of Management also We examined the Financial State- velopment of the Company. Further- regularly informed us about the use ments of VEBA AG, the Review of more, the Supervisory Board’s and scope of derivative financial Operations, and the proposal of the Executive Committee received oral instruments. Board of Management regarding reports submitted by the Board of In our meetings in April and May the appropriation of net income Management and discussed them we dealt in detail with the sale of available for distribution and agreed in depth at three sessions. The Otelo’s fixed-line business to the to these without any objections. We Chairman of the Supervisory Board Mannesmann Group and with the approved the Auditor’s Report. maintained constant contact with key aspects of VEBA’s strategic ori- We approved the Financial State- the Chairman of the Board of entation. In September and Decem- ments of VEBA AG prepared by the Management and was continuously ber the Board of Management Board of Management and also informed about all major business informed us fully about Preussen- the Consolidated Financial State- transactions as well as the develop- Elektra’s acquisition of EZH, the ments. The Financial Statements of ment of key financial figures. Dutch energy utility, the sale of the VEBA AG are thus adopted. We Reporting by the Board of 60.25 percent stake in E-Plus held approved the Consolidated Finan- Management focused particularly jointly with RWE, and VEBA Oel’s cial Statements. We agree with the on the planned merger with VIAG. acquisition of the remaining Aral Report of the Board of Manage- At two meetings in September we shares. ment and, in particular, with its were informed in detail about the PwC Deutsche Revision Wirt- statements concerning the future strategic background and the key schaftsprüfungsgesellschaft, development of the Company. points of the Agreement in Prin- Düsseldorf, the auditors approved We agree with the Board of ciple to merge the two companies, by the Annual Shareholders’ Management’s proposal for appro- and approved the latter. In Decem- Meeting and appointed by the priating net income available for ber we also dealt intensively with Supervisory Board, audited the distribution, which includes a divi- the Merger Report, the Valuation Financial Statements of VEBA AG dend payment of 81.25 per share and the Consolidated Financial for 1999. Statements as of December 31, 1999, as well as the combined Review of Operations, and submit- ted an unqualified opinion thereon. The auditors also reviewed and delivered an audit opinion on the Consolidated Financial Statements’ compliance with US Generally

5 Report of the Supervisory Board

On September 19, 1999, Alfred H. Helmut Mamsch, a member of Berson passed away at the age of VEBA AG’s Board of Management 73. Mr. Berson was a member of since 1993, will leave the Board by the Board of Management from mutual agreement as of March 31, 1981 to 1991 and during this period 2000. From 1993 to 1996 he was made a decisive contribution to key also Chairman of Raab Karcher development initiatives and major AG’s Board of Management and business transactions. With his from 1996 to 1998 was Chairman of balanced judgment, he was an Stinnes AG’s Board of Management. astute and valuable adviser who We wish to express our thanks to rendered exemplary service to him for his superb work and out- VEBA during a dynamic phase of standing achievements for the its development. We will not forget Group. him. The Supervisory Board thanks Alain D. Bandle, a member of the Boards of Management, the VEBA AG’s Board of Management Works Councils, and all the employ- since 1998, left the Board by mutual ees of VEBA AG and its affiliated agreement as of October 29, 1999. companies for their dedication and We wish to express our thanks to hard work. him for his excellent work and great commitment to VEBA. Düsseldorf March 29, 2000 The Supervisory Board

Hermann J. Strenger Chairman

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Board of Management

Board of Management Executive Vice Presidents

• Ulrich Hartmann • Wilhelm Bonse-Geuking • Gert von der Groeben From left to right Born in Berlin in 1938 Born in Arnsberg in 1941 Düsseldorf Manfred Krüper Member of the Board Member of the Board (since March 24, 1999) Alain D. Bandle Hans-Dieter Harig of Management since 1989 of Management since 1995 • Dr. Walter Hohlefelder Hans Michael Gaul Chairman of the Board Chairman and CEO Düsseldorf Wulf H. Bernotat of Management, VEBA Oel AG Düsseldorf (until March 31, 1999) Gunther Beuth Gelsenkirchen Ulrich Hartmann • Alain D. Bandle • Ulrich Hüppe Helmut Mamsch Born in Zurich in 1953 • Dr. Hans Michael Gaul Düsseldorf Wilhelm Bonse- Member of the Board Born in Düsseldorf in 1942 Geuking of Management since 1998 Member of the Board • Dr. Hansgeorg Köster Telecommunications of Management since 1990 Düsseldorf Düsseldorf Chief Financial Officer • Dr. Rolf Pohlig (until October 29, 1999) Düsseldorf Düsseldorf • Dr. Wulf H. Bernotat • Dr. Hans-Dieter Harig • Dr. August-Wilhelm Preuss Born in Göttingen in 1948 Born in Alt-Jassewitz in 1938 Düsseldorf Member of the Board Member of the Board of Management since 1998 of Management since 1988 Chairman of the Board of Chairman of the Board Management, Stinnes AG of Management, Mülheim an der Ruhr PreussenElektra AG, Hanover • Gunther Beuth • Dr. Manfred Krüper Born in Stolp in 1937 Born in Gelsenkirchen in 1941 Member of the Board Member of the Board of Management since 1998 of Management since 1996 Chairman of the Board of Group Human Resource Management, Viterra AG Management, Düsseldorf Essen • Helmut Mamsch Born in Bergen in 1944 Member of the Board of Management since 1993 Group Strategic Development Düsseldorf (until March 31, 2000)

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Letter to Our Shareowners

Dear Shareowners:

At our Extraordinary Shareholders’ Meeting on in this harsh competitive climate by accepting a tem- February 10, 2000, you gave the go-ahead to build a porary earnings reduction in our Electricity Division. European powerhouse by voting overwhelmingly in For 2000 we expect this decline to be more than favor of the VEBA-VIAG merger. The tie-up will lift offset by significantly improved operating earnings Ulrich Hartmann Chairman of the Board our core energy and specialty chemicals businesses in all of our other Divisions. of Managers and CEO into new dimensions. In both sectors the new Pretax income grew from 82.4 billion to roughly company will occupy premier positions that we intend 84.0 billion in 1999. Besides higher operating earnings, to rapidly enlarge. the sharp rise was fueled by substantial book gains The merger represents a consistent continuation from the disposal of our telecoms activities. Pretax of our successful Focus and Growth strategy. In the income for 1999 does not include the book gains last few years we have concentrated on high-growth totaling 84.3 billion from the sale of E-Plus and businesses and between 1993 and 1999 reduced the Cablecom. They take effect in 2000. These gains Group’s annual costs by 82.1 billion. alone will lift pretax income for 2000 above the prior year’s level. Record Operating Earnings and Dividend VEBA’s record earnings consolidated its position as In 1999 we reaped the initial rewards of these efforts. one of Europe’s financially strongest companies. Group internal operating profit climbed by about The Board of Management and the Supervisory Board 17 percent—from just under 82 billion to a record therefore propose that net income available for dis- 82.3 billion. We achieved this all-time high despite tribution be used to pay an increased cash dividend the fact that Electricity’s earnings came in almost of 81.25 (1998: 81.07) per share. Including the tax 20 percent behind the prior year’s record. Marked credit, entitled domestic shareowners will receive a earnings improvements in the other Divisions more total of 81.79 (1998: 81.53) per share—the highest than offset Electricity’s decline. dividend in VEBA’s history. This demonstrates that we have the strength to make it through the current lean period in the power Structures Further Optimized sector and to emerge with renewed strength from Though 1999 was understandably dominated by the today’s predatory competition. The electricity market preparations for our tie-up with VIAG, we never- is going through a shakeout, and we are growing at theless continued to optimize our current businesses. above-average rates. PreussenElektra increased its VEBA is entering the merger not only in excellent sales volume 4 percent in 1999, whereas the German financial shape, but also with further structural market as a whole expanded by just 1 percent. It is improvements. evident that we can only expand our market position PreussenElektra continued to become more inter- national by acquiring the Dutch utility EZH, giving it securing a foothold on Holland’s attractive electricity market. Our Electricity Division established itself as a

8 player in European power trading. It added new business. The rigorous cost-cutting measures initiated service offerings and marketing schemes to its proven at MEMC in the prior year began to take hold in 1999. model of sales partnerships with regional and munic- ipal utilities. Innovation Drives Growth We achieved a long-term goal when VEBA Oel At VEBA we know that today’s ideas are tomorrow’s obtained full management control of Aral. The move businesses. Our Group-wide innovation initiative gives our Oil Division complete strategic flexibility has helped us develop new products and services. and makes it an attractive partner for international E-commerce will be the focus of our innovation joint ventures and alliances. projects in 2000. Powerline communication (PLC) is In the Chemicals Division we successfully com- an exciting technology that combines electricity as pleted the integration of Degussa and Hüls and focused well as data and voice communications over a single its portfolio on the high-growth and largely non- line. The PLC project began under the wing of VEBA cyclical specialty chemicals segment. Degussa-Hüls Telecom and has given rise to a new company in is rapidly realizing the merger’s synergies. which PreussenElektra has a majority interest. Germany’s largest private provider of real-estate Oneline AG possesses highly advanced and field- services took the name Viterra in spring 1999. Clearly tested PLC technology that is scheduled to be ready aligned with four business units, the company combines for market this year. real-estate expertise and real-estate services. Viterra further extended its lead on the German market. Becoming a European Powerhouse Although we did not achieve our strategic objectives Our merger with VIAG is fueling additional growth in in the telecoms business, our shareholdings created our core businesses. The two companies’ energy and significant value. Since 1994 we invested a total of specialty chemicals operations complement each about 83.6 billion in telecoms. The disposal of our other superbly. The tie-up gives us the critical mass principal telecoms interests in 1999 already generated necessary to play a leading role in Europe’s energy a reflux of funds amounting to 88.9 billion—a sig- sector. Merging Bayernwerk and PreussenElektra will nificant gain. We still hold our valuable shareholding yield about 8700 million in synergies. These savings in Bouygues Telecom. are in addition to ongoing cost-cutting programs. The Last year we successfully launched Stinnes on the move also bolsters our position in the increasingly stock exchange. As planned, we will also divest our global chemicals business. remaining 65.5 percent stake in the global logistics Together we will aggressively exploit the competitive group. VEBA Electronics extended its presence on all opportunities in our core businesses and build a new key markets worldwide, particularly in its components powerhouse. The basic structure is already in place. And the finishing work is progressing quickly.

9 Letter to Our Shareowners

We have already passed key merger milestones. We industry. The merged company will have a new name still await the antitrust authorities’ approval, but we to underscore its global leadership. We propose to are confident that regulatory requirements will not call it E.ON. It is more than a new corporate name. alter the merger’s key points—or impair its synergetic From our shares to our energy group’s products and potential. services, E.ON will be the brand that earns us rapid Fast forward has been the slogan of our merger. recognition in Germany, Europe, and around the So right from the start we formed numerous project world. E.ON ideally identifies the new Group as a teams to quickly implement the merger and integrate competent and customer-oriented service provider the two companies. These teams are on schedule and of life’s essentials. making rapid progress. We have defined the organi- zational structure of the new holding company and of A Premier European Multi-Utility Offering the energy group as well as filled key management Electricity, Natural Gas, and Water positions. In Chemicals we are formulating a compre- Merging PreussenElektra and Bayernwerk to form hensive strategic plan that will lay the groundwork E.ON’s Energy Division represents an important initial for a successful future. step toward becoming a premier European multi-utility. Combining our electricity, gas, and water activities E.ON: a World-Class Business Group and implementing well-defined sales and marketing The new Group’s core businesses are clearly defined: strategies will enable us to expand our market share energy and specialty chemicals. In addition, VIAG in Europe. Our strengths lie in customized and Telecom enables us to participate in the telecoms economically priced products and services for all sector’s growth and value potential. We intend to customer segments. We intend to enlarge our float shares in VIAG Telecom at an appropriate time. presence on several power exchanges and become We will also retain the largely non-cyclical real-estate Europe’s leader in this growth segment. management business. We expect it to make a grow- Acquisitions and joint ventures—especially in neigh- ing contribution to Group earnings. We plan to exit boring European countries—offer additional opportuni- our other activities when the time is right. We will ties for sustained growth. Electricity stands at the invest the sales proceeds to fuel growth in our core forefront of our expansion plans, but we also intend businesses. to enlarge our natural gas and water activities. This We intend to seize the considerable opportunities created by the liberalization of Europe’s energy sector and to expand our global presence in the chemicals

10 will enable us to play an active role in further consoli- Creating value for you, our shareowners, will remain dating the European power market. At the same time our number-one priority. The deregulated European we will seize opportunities for profitable investments energy market offers substantial scope for entre- overseas. preneurial activity. These exciting opportunities are Via internal and external growth we plan to double not reflected in current market valuations. The the energy group’s sales within five years. uncertain future of electricity prices and the political debate on opting out of nuclear power continue to Global Player in Specialty Chemicals weigh on utilities’ share prices. But these factors will Merging Degussa-Hüls and SKW Trostberg will also soon become less significant. In the medium term lift our Chemicals Division into a new dimension. The we expect electricity prices to stabilize. And we are new company will rank among the premier global committed to protecting our rights to operate our players in specialty chemicals. Low production costs nuclear power stations—whether by consensus and outstanding expertise across numerous growth or by legal action. The fundamentals are unequivocal: segments will drive additional growth. In specialty E.ON will be a high-growth and highly profitable chemicals we intend to boost sales from today’s company with a clear structure and enormous 814 billion to more than 820 billion over the next financial strength. A company that will create con- five years. The new chemicals group will enlarge its siderable value for you, its shareowners. international operations, principally in North America and Asia. Yours sincerely,

E.ON: an Attractive Investment We have laid the groundwork for profitable growth. It will primarily be in our core businesses, but also in Telecommunications and Real-Estate Management. Ulrich Hartmann We expect that E.ON, your new company, will start work early this summer. Fast forward will remain our byword. We will not only keep pace with our highly dynamic markets. We will remain the pacesetter. E.ON harbors considerable potential, and the tie-up gives us the decisive key to unlock that potential. We also intend to make additional, cross-border moves.

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20 1999 3 The VEBA-VIAG Merger 10 993 387 422

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Ulrich Hartmann and Prof. 17 Wilhelm Simson, the CEOs of VEBA and VIAG, hold a press 10 conference in Munich to present their plan to create 823 a leading European On September 27, 1999, VEBA and VIAG announce their powerhouse. The same day 448 they fly to Frankfurt and then intention to merge to form the world’s largest publicly 4 on to London to discuss the 298 deal with institutional listed energy utility. With a clear focus and premier market 22 investors. All three gatherings 374 positions in its core energy and chemicals businesses, give the planned tie-up a very positive reception. Now 32 the new company will actively shape its liberalized markets. begins the highly detailed 37 The next three pages show some of the highlights of work of making the merger reality. the merger process. 1150 1999

3 10 993 823 Fast Forward 37 into the Future. 10 20 1999 3 Together. 10 993 387

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823 A button from a CD player 3 takes center stage as the 10 merger’s symbol: fast forward. 993 While working at a rapid pace 10 to implement the merger, 823 both companies continue to 35 optimize their current 823 businesses. VEBA and VIAG 35 keep their shareowners and the public informed about 20 the tie-up via print ads and 1999 internet reports. 3 12 10 13 993 Sonderthema engl. 12/13/14/15 E 28.03.2000 16:39 Uhr Seite 3

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1999 VEBA’s Hans Michael Gaul and Ulrich Hartmann and VIAG’s 3 Wilhelm Simson and Erhard 10 Schipporeit sign the Merger 993 Agreement. The document spells 823 out the details of the merger 37 and sets the share exchange ratio. The court-appointed merger 10 auditor confirms the ratio as true 20 and fair. 1999 An internal merger newspaper, 3 Fusionsreport, keeps employees 10 of both companies up to date 993 throughout the entire merger 387 process via interviews, 422 management statements, and background reports. 13

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448 4 352 66 283 1923 993 387 Shareowners and shareowner representatives discuss all 13 aspects of the merger at VEBA’s and VIAG’s 17 Extraordinary Shareholders’ 10 Meetings. Both companies’ 823 shareowners approve the 35 tie-up by an overwhelming majority. 20 1999 3 10 993 387 422

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14 17 15 10 The VEBA Share

Key Figures per Share Year-End Share Price in 9

1999 1999 1998 +/– 31.39 45.25 62.63 50.46 48.45 DM 8 8 % Year-end share price 94.76 48.45 50.46 – 4.0 US GAAP earnings 11.64 5.95 2.43 +154.3 Dividend 2.44 1.25 1.07 + 16.8 Cash flow from operations 12.66 6.47 6.14 + 5.4 1) Book value 55.94 28.60 23.40 + 22.2 95 96 97 98 99

1) Excluding minority interests.

VEBA Shares Decline Slightly in VEBA Share Portfolio Shows formance of European equities, the Line with Sector Marked Double-Digit Growth VEBA share’s performance for 1994 At 848.45, the VEBA share closed over Long Term through 1999 was below average. 1999 slightly lower than its year- Investors who purchased VEBA Long-term investors who pur- end 1998 price. VEBA shareowners shares for DM10,000 at the end of chased VEBA shares 10 years ago who reinvested their cash dividend 1994 and reinvested their cash divi- at year-end 1989 saw their invest- saw the value of their VEBA port- dends saw the value of their invest- ment more than triple in value. At folio slip by 2.1 percent. The VEBA ment rise to roughly DM19,500 by 12.3 percent, the VEBA share’s share thus marginally outperformed the end of 1999. The investment average annual increase outper- its European peer index, the Stoxx thus almost doubled over the five- formed its peer index, the C-DAX Utilities, which declined 2.8 per- year period. The 95 percent appre- Utilities, which climbed 11.2 percent cent. By comparison, German and ciation amounts to an annual per year over the same period. The European equity markets performed increase of 14.3 percent. Over the overall German stock market (DAX) very well overall in 1999. The DAX same period the DAX rose on aver- increased 14.5 percent annually index of Germany’s top 30 blue age 27.0 percent per year, the Euro from 1989 to 1999. chips was up 39.1 percent on the Stoxx 50 rose 33.2 percent annually, year, and the Euro Stoxx 50 climbed and VEBA’s peer European utility Dividend Increases to 81.25 48.6 percent. Both indices therefore index—the Stoxx Utilities—was up At the Annual Shareholders’ significantly outperformed VEBA 21.2 percent per annum. So com- Meeting, the Board of Management shares. pared with the strong overall per- and the Supervisory Board will pro- pose to increase the dividend from the previous year’s 81.07 to 81.25 for the 1999 financial year. Entitled Five-Year Total Return in Percent domestic shareowners also receive VEBA Share, DAX, Euro Stoxx 50, & Euro Stoxx Utilities a tax credit of 80.54. Including the tax credit, VEBA’s dividend has in- VEBA 300 DAX creased 10.3 percent per year over Euro Stoxx 50 260 the last five years. Stoxx Utilities 220 VEBA Shares Converted to Shares without Nominal Value 180 In the wake of the conversion of VEBA’s capital stock from deutsch- 140 marks to euros and in accordance 100 with the resolution adopted at the May 1999 Annual Shareholders’ 60

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0 Dec. 9495 96 97 98 99 –20

16 VEBA Share Key Figures per share 1995 1996 1997 1998 1999 1999 US GAAP earnings 8 2.13 2.58 2.98 2.34 5.95 DM 11.64 Cash flow from operations 8 – 9.27 8.98 6.14 6.47 DM 12.66 Dividend 8 0.87 0.97 1.07 1.07 1.25 DM 2.44 including tax credit 8 1.24 1.39 1.53 1.53 1.79 DM 3.50 Dividend declared 8 million 424 480 534 540 629 DMmillion 1,229

Share price: high 8 31.50 46.20 62.63 67.08 62.60 DM 122.43 low 8 25.28 31.44 44.89 41.36 41.60 DM 81.36 year-end 8 31.39 45.25 62.63 50.46 48.45 DM 94.76

Number of shares million 488.2 493.8 497.2 502.8 502.8 million 502.8 Market capitalization 8 billion 15.3 22.3 31.1 25.4 24.4 DMmillion 47.6

Book value1) 8 18.32 20.18 22.78 23.40 28.60 DM 55.94 Market-to- book-value ratio2) % 171 224 275 216 169 %169

VEBA share trading volume 3) 8 billion 36.5 52.6 102.6 22.2 21.1 DMbillion 41.3 DAX trading volume 8 billion 689.7 961.5 1,953.9 667.5 755.5 DMbillion1,477.0 VEBA Share % 5.3 5.5 5.3 3.3 2.8 % 2.8

1) Sharholders’ equity excluding minority interests. 2) Year-end share price expressed as a percentage of book value, excluding minority interests. 3) On all German stock exchanges (including XETRA); starting in 1998, figures are order book statistics and are thus not comparable with previous years.

Meeting, VEBA shares were con- rency as in Germany. We therefore To meet the global capital market’s verted in early October 1999 from applied for delistings, and in late rising demand for information, we shares with a nominal value to bearer October 1999 trading in VEBA shares again stepped up our IR activities shares without nominal value. The ended in Vienna and Amsterdam. in 1999. We have increased the conversion had no effect on the VEBA shares will continue to number of one-on-one meetings share price. Depository banks auto- trade on all German exchanges, the with investors and the number of matically converted their customers’ Swiss Exchange, and via ADRs on presentations to institutional inves- shares. the New York Stock Exchange. tors and analysts in and outside Germany. More and more investors Delistings in Vienna and Investor Relations Activities take part in our telephone confer- Amsterdam Further Enhanced ences. We invite you to visit us at Since the mid-1980s VEBA shares The objective of our investor rela- www.veba.com and to subscribe to were also listed on stock exchanges tions activities is to further reinforce our email service at in Vienna and Amsterdam. Compara- our shareowners’, potential investors’, [email protected]. tively few VEBA shares traded at and financial analysts’ confidence For 2000 we are expanding our these two exchanges. The introduc- in VEBA. By ensuring an ongoing internet offerings to provide our tion of the euro also meant that flow of open and comprehensive shareowners with more rapid they were trading in the same cur- information about our businesses’ access to more comprehensive current situation and outlook, we information. strive to enable the market to arrive at a fair valuation of our stock.

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• Merger with VIAG represents consistent 448 4 continuation of VEBA’s strategy 298 22 374

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20 1999 18 3 10 993 Review of OperationsReport of the Board of Management

VEBA Group Internal Operating Profit 8 in Millions 1999 1999 1998 +/– 2,240 1,946 2,274 in millions of DM 8 8 % Sales 103,473 52,905 42,787 + 23.6 Internal operating profit 4,448 2,274 1,946 + 16.9 Cash flow from operations 6,366 3,255 3,088 + 5.4 Investments 13,724 7,017 4,225 + 66.1 Employees at year-end 131,602 116,774 + 12.7 97 98 99

Merger with VIAG Represents • We further bolstered Consistent Continuation of PreussenElektra’s European mar- VEBA’s Strategy ket position by acquiring EZH, In 1999 we laid the groundwork for the Dutch power utility, and by the VEBA-VIAG merger. Our planned increasing our stakes in Sweden’s tie-up with VIAG represents a con- Sydkraft and Switzerland’s BKW. sistent continuation of our Focus • We obtained full management and Growth strategy. control of Aral as of the turn of Our management approach of the year 1999-2000. The move recent years has consistently been further expands VEBA Oel’s to enhance shareholder value over premier market position in the long term. Since 1993 we have Germany’s petroleum sector. It curtailed annual costs by 82.1 bil- also clears the way for our Oil lion, disposed of businesses with Division’s strategic realignment. 88.4 billion in sales, and more than • We successfully completed the halved the number of our business integration of Degussa and Hüls areas from over 60 to 30. It is from and further streamlined Chemicals’ this platform that we have set out portfolio. to grow. We have also clearly defined • We successfully floated an initial our key areas: energy and specialty tranche of Stinnes shares. chemicals are the Group’s core • Finally, we divested our telecoms businesses. Our tie-up with VIAG activities—and achieved consider- catapults us ahead in implementing able profits—as it had become this strategy. We are forging the evident that we were not going to world’s largest publicly listed energy achieve our strategic goal of service provider and the world’s becoming a major international largest specialty chemicals group. player. While intensively preparing for our merger with VIAG, we continued to optimize our businesses. In 1999 we again achieved significant structural improvements that strengthened our core activities.

19 Review of Operations1999 Business Performance

Group Sales Group Sales Increase to Distribution/Logistics’ sales were 853 Billion down 2.9 percent year-on-year. 8 in millions 1999 1998 +/– Group sales were up 23.6 percent Portfolio optimizing measures— % to 853 billion in 1999. The first- particularly the 1998 disposal of the Electricity 7,719 8,141 – 5.2 time full consolidation of Degussa- DIY and Sanitary Equipment/Heat- Oil 11,778 10,282 + 14.5 Hüls was the primary contributor to ing/Tiles units as well as the 1999 Chemicals 14,632 4,653 +214.5 the increase. Owing to the adjust- divestment of Stinnes Tire Service and Real-Estate Management 1,145 1,451 – 21.1 Distribution/Logistics 16,872 17,376 – 2.9 ment of the former Degussa’s BTL’s air and sea freight activities— Telecommunications 108 201 – 46.3 financial year, 1999 financials also reduced Stinnes’s sales 13.5 per- Silicon Wafers 651 683 – 4.7 include Degussa’s fourth quarter cent. Distinctly higher demand for Total External Sales 52,905 42,787 +23.6 1998 sales of roughly 81.8 billion. semiconductors enabled VEBA Sales outside Germany 26,099 16,466 + 58.5 Adjusted for this effect, Group Electronics to lift 1999 sales 34.5 per- sales came in about 19 percent cent. Adjusted for disposal effects, ahead of the previous year’s figure. Stinnes grew sales about 4 percent. Electricity’s sales were 5.2 percent Telecommunications’ reported Internal Operating Profit lower year-on-year despite higher sales include proportionate figures sales volumes. The keen competition from the fixed-line business and 8 in millions 1999 1998 +/– on Germany’s liberalized electricity cable-TV activities sold in 1999. % market made it necessary for us to As in the previous year, excess Electricity 1,505 1,875 – 19.7 make considerable price concessions, capacity on the wafer market led to Oil 78 235 – 66.8 particularly to regional distributors dramatic price declines. Despite a Chemicals 475 251 + 89.2 and large special-rate customers. 9 percent increase in sales volume, Real-Estate Management 184 149 + 23.5 Distribution/Logistics 267 144 + 85.4 Our Oil Division’s sales rose Silicon Wafers’ sales slipped 4.7 per- Telecommunications – 180 – 461 + 61.0 14.5 percent on slightly lower sales cent. Silicon Wafers – 214 – 240 + 10.8 volumes. Higher crude-oil and At 827 billion, the Group’s sales Others 159 – 7 – product prices inflated sales figures, in Germany were up 1.8 percent Total 2,274 1,946 +16.9 as did the 80.031 (6Pf) per liter year-on-year. Sales outside increase in Germany’s petroleum Germany climbed 58.5 percent to tax in effect since April 1, 1999. 826 billion. Euroland sales—exclud- Our chemicals business picked ing Germany—came in at 87 billion. up noticeably in the course of the year after a sluggish start early in Group to Enter Merger in Very 1999. The above-mentioned consoli- Good Financial Shape dation led to a 214.5 percent up- VEBA will enter the merger with surge in reported sales. Adjusted for VIAG in very good financial shape. this effect, 1999 sales in all four of The Group’s internal operating profit Chemicals’ reporting segments— —our most important key figure for Health & Nutrition, Specialty Products, managing the Company—increased Polymers & Intermediates, and about 17 percent in 1999 to 82.3 bil- Performance Materials—were on lion. Note 28 of the Consolidated par with the previous year’s levels. Financial Statements on page 111 Fourth quarter 1999 sales in some explains how we calculate internal cases topped the year-earlier quar- operating profit. ter by as much as 20 percent. At 81,505 million, Electricity’s Adjusted for the divestment of its internal operating profit came in personal security and service-station 19.7 percent behind the previous engineering units, Real-Estate year’s record showing. Preussen- Management’s sales came in rough- Elektra’s ongoing cost-manage- ly 3 percent higher. ment programs and its 3.9 percent increase in sales volume could only partially offset price cuts brought on by keener competition. Oil’s internal operating profit of 878 million was 66.8 percent below the level achieved in the previous

20 year owing to considerably shrunken Group Internal Operating Profit margins in the downstream busi- ness as well as to significant one- 8 in millions 1999 1998 +/– off charges and production startup % delays in the upstream sector. Group Internal Operating Profit 2,274 1,946 + 16.9 At 8475 million, Chemicals’ Net book gains 2,221 616 – Cost-control and marked 89.2 percent upsurge in restructuring measures – 464 – 463 – internal operating profit is due to Other non-operating earnings –379 83 – the first-time full consolidation of Foreign E&P taxes 301 210 – Degussa-Hüls. Its 1999 figures also Pretax Income 3,953 2,392 + 65.3 include Degussa’s fourth quarter Income taxes – 1,051 – 1,240 – 1998 internal operating profit of Income after Taxes 2,902 1,152 +151.9 866 million. Adjusted for these Minority interests – 234 44 – Group Net Income 2,668 1,196 +123.1 effects, Chemicals’ 1999 internal operating profit was distinctly below the previous year’s fine per- formance owing to weaker busi- ness early in 1999 resulting from cost-management measures MEMC The tax rate for 1999 was 27 per- the difficult economic climate. introduced in 1998. Despite higher cent compared with 52 percent in Real-Estate Management raised sales volume the company was 1998. its internal operating profit 23.5 per- able to reduce costs by about Group net income (after taxes cent to 8184 million. Principal fac- 8100 million. and minority interests) totaled tors were the positive performance Pretax income surged 65.3 per- 82.7 billion, up 123 percent over of Viterra’s real-estate services unit cent in 1999 to about 84 billion. the previous year. and the elimination of losses via This significant increase is the the 1998 disposal of the service result of considerably higher net Dividend Increased to 81.25 station engineering unit. book gains, particularly from the VEBA AG’s net income amounted Distribution/Logistics grew 1999 sale of our Cable & Wireless stake, to 8885 million. After transferring internal operating profit 85.4 per- Otelo’s fixed-line business, and our 8257 million to other retained earn- cent to 8267 million. Stinnes’s German cable-TV operator Tele- ings, 1999 net income available for Chemicals and Building Materials Columbus. We completely wrote off distribution totaled 8628 million. units in particular put in improved our 8123 million engagement in At the Annual Shareholders’ performances. The prior year’s Iridium’s satellite-based mobile Meeting on May 25, 2000, we will disposal of the DIY and Sanitary activities. The book gains from the propose that net income available Equipment/Heating/Tiles units disposal of E-Plus and Cablecom, for distribution be used to pay an positively impacted operating the Swiss cable-TV operator, will be increased dividend of 81.25 per earnings. The resurgent market for realized in the current financial share (81.07 per share). Together electronic components helped year because closing did not take with the tax credit of roughly 80.54 VEBA Electronics post a consider- place until early 2000. (80.46), entitled domestic share- ably higher internal operating profit. At 8464 billion, restructuring owners will receive a total of about Telecommunications markedly and cost-management expenditures 81.79 per share (81.53). curtailed its operating loss to primarily impacted Electricity and The full financial statements of 8180 million mainly via the disposal Chemicals. VEBA AG, with the unqualified of shareholdings with high startup Income taxes declined 15.2 per- opinion issued by the auditors, PwC losses. cent year-on-year to 81.1 billion. Deutsche Revision Aktiengesell- Our Silicon Wafers Division also schaft Wirtschaftsprüfungsgesell- cut its loss considerably despite schaft, Düsseldorf, will be pub- dramatic price declines. The improve- lished in the Bundesanzeiger and ment is attributable to the intensive filed in the Commercial Register of the Düsseldorf District Court, HRB 22 315. Copies are available on request from VEBA AG and at www.veba.com.

21 Review of OperationsInvestments and Financing

Financial Statements Investments Significantly products. Investments in financial of VEBA AG (Summary) Increased assets totaled 8349 million. 8 in millions The VEBA Group spent 82,526 million At 8333 million (8205 million), Balance Sheet Dec. 31, 1999 Dec. 31, 1998 (82,840 million) on property, plant, Real-Estate Management’s 1999 Property, plant, and equipment and 84,491 million investments markedly exceeded the and equipement 141 97 (81,385 million) on intangible assets. previous year’s level. They included Intangible assets 11,391 11,665 This includes 8381 million in the expenditures to acquire share- Fixed assets 11,532 11,762 spending at companies valued at holdings in the Berlin and Munich Receivables from affiliated companies 2,247 2,330 equity. At 87,017 million (84,225 metropolitan areas and—together Other receivables 322 79 million), total investments were with HypoVereinsbank—a majority Liquid funds 1,037 17 approximately 66 percent higher shareholding in WohnBau Rhein- Current assets 3,606 2,426 than the prior year’s level. Main. Investments in property, Total Assets 15,138 14,188 In 1999 Electricity invested plant, and equipment totaled 8169 Shareholders’ equity 7,621 7,275 81,349 million (81,442 million). million and investments in financial Reserves subject Investments in property, plant, and assets 8164 million. to special taxation 609 538 Provisions 2,017 1,215 equipment including intangible Distribution/Logistics’ 1999 capi- Liabilities to assets of 8593 million mainly served tal spending came to 8741 million— affiliated companies 4,847 4,548 to optimize power distribution. 27 percent more than in 1998. A Other liabilities 44 612 Investments in financial assets major share of this spending went Total Liabilities and amounted to 8756 million, primarily toward acquiring the remaining Shareholders’ Equity 15,138 14,188 to increase our stakes in Sweden’s shares in BTL, the Swedish logistics Sydkraft and Switzerland’s BKW. group. 8 in millions Capital expenditures in Oil of Following the sale of fixed-line Income Statement 1999 1998 81,308 million (8460 million) includ- and cable-TV operations, propor- Income from ed the purchase of Wintershall’s tionate investment in Telecommuni- equity interests 1,735 1,866 shares in Aral and the acquisition of cations totaled only 8171 million. Interest income (net) –60 –67 Erdöl-Raffinerie Emsland. In addition, With capital spending of 860 Other expeditures a further 8256 million (8253 million) million (8218 million), in 1999 we and income (net) 336 –84 Pretax income 2,011 1,715 was invested in the Ruhr Oel and again drastically reduced the Taxes –1,126 –780 Aral shareholdings. investment volume at Silicon Income after Taxes 885 935 Due to the first-time full consoli- Wafers. Net income transferred dation of Degussa-Hüls, 1999 VEBA AG’s 1999 investments in to retained earnings –257 – 395 investments in the Chemicals financial assets totaled approximate- Net Income Available Division increased to 81,298 million ly 81,714 million and were mainly to for Distribution 628 540 (8761 million). Investments in acquire 10 percent of VIAG’s capital property, plant, and equipment stock from the Free State of Bavaria. climbed to 8949 million. To bolster our leading market positions—par- VEBA Group Investments ticularly in specialty chemicals— we increased capacity for important 8 in millions 1999 1998 +/– % Electricity 1,349 1,442 – 6.4 Oil 1,308 460 + 184.3 Chemicals 1,298 761 + 70.6 Real-Estate Management 333 205 + 62.4 Distribution/Logistics 741 583 + 27.1 Telecommunications 171 360 – 52.5 Silicon Wafers 60 218 – 72.5 VEBA AG/Others 1,757 196 + 796.4 Total 7,017 4,225 + 66.1 Investments outside Germany 1,818 1,593 + 14.1

22 Total domestic investment amounted Statement of Cash Flows (Summary) to 85,199 million (82,632 million), while expenditures outside 8 in millions 1999 1998 Germany totaled 81,818 million Cash from operations 3,255 3,088 (81,593 million). Cash used for investing activities –1,712 – 2,273 Cash used for financing activities – 1,383 –861 Net Change in Liquid Funds + 160 – 46 Investments Fully Financed by Liquid Funds as of December 31 1,837 507 Internally Generated Cash Flow Group investments in 1999 resulted in cash outflows of 87,017 million. Accounting for: Foreign Exchange and Interest ratio increased slightly to 33.2 per- • proceeds received from fixed- Rate Management cent compared with 31.3 percent in asset disposals in the amount of VEBA pursues systematic and the previous year. 86,307 million and Group-wide foreign exchange and Long-term debt rose 82.7 billion • changes in other cash invest- interest rate management. Its to 820.7 billion, again owing mainly ments in current assets of objective is to limit the Group’s to the Degussa-Hüls consolidation. –81,002 million, exposure to exchange, interest rate, The following key figures demon- cash used for investing activities and commodity price fluctuations. strate that the VEBA Group im- totaled 81,712 million (1998: To this end we also use off-balance- proved its asset and capital struc- 82,273 million). sheet derivative financial instru- ture through the end of 1999: This financing requirement was ments. • Fixed assets are covered by fully funded by 83,255 million in As of December 31, 1999, the shareholders’ equity at 48.7 per- cash from operations. face value of foreign exchange cent (43.0 percent). The detailed Statement of Cash hedging transactions was 83,042 • Fixed assets are covered by long- Flows can be found in the Consoli- million; that of interest rate hedg- term capital at 106.7 percent dated Financial Statements section ing transactions, 81,923 million; (100.6 percent). of the Annual Report. and that of commodity derivatives, Standard & Poor’s and Moody’s Liquid funds (cash and other 8808 million. The market values of have rated VEBA since early 1995. current financial investments) transactions for which no hedge In 1999 S&P and Moody’s gave increased 81,330 million to 81,837 accounting was applicable totaled VEBA’s long-term bonds ratings of million. 86.9 million for foreign exchange, Aa2 and AA, respectively. VEBA’s At year-end 1999, VEBA had at 82.2 million for interest rate, and short-term bonds received ratings its disposal a total of 83.3 billion in –811.5 million for commodity hedg- of P-1 and A-1+, respectively. credit lines through banks, a ing transactions. These very good ratings underscore 81 billion long-term syndicated the Group’s sound financial loan facility, the 81 billion Asset and Capital Structure standing. Commercial Paper program, and Improved the 82 billion Euro Medium Term In 1999 the first-time full consolida- Note program. As of the balance- tion of Degussa-Hüls and invest- sheet date, these financing instru- ment activities led to a 84.4 billion ments were still unutilized. increase in fixed assets. With cur- rent assets also increasing by 84.9 billion, total assets rose by 89.3 bil- lion to 852.4 billion. Our equity

23 Review of OperationsGroup Balance Sheet & Risk Management

Consolidated Assets, Liabilities, and Shareholders’ Equity

1999 1998 8 in billions % 8 in billions % Fixed assets 35.7 68.1 31.3 72.7 Current assets 16.7 31.9 11.8 27.3

Assets 52.4 100.0 43.1 100.0

1999 1998 8 in billions % 8 in billions % Shareholders’ equity 17.4 33.2 13.5 31.3 Long-term liabilities 20.7 39.5 18.0 41.7 Short-term liabilities 14.3 27.3 11.6 27.0 Liabilities 52.4 100.0 43.1 100.0

Work Force Increases focus was on Asta Medica’s re- • On January 10, 2000, Preussen- Considerably Due to Degussa- search-intensive pharmaceuticals Elektra acquired EZH, a Dutch Hüls Merger business (pharmaceutical agents), energy utility. At year-end 1999 the VEBA Group Creanova’s specialty chemicals • VRT and Bell South concluded the employed 131,602 people world- activities (engineering plastics, sale and transfer agreement for wide—up 13 percent year-on-year. environmentally friendly coating the shares in E-Plus. The agree- This sharp increase is exclusively raw materials), Advanced Fillers ment was registered by a notary due to the inclusion of the merged and Pigments (high-performance public on January 26, 2000. Degussa-Hüls. In our other fillers for car and truck tires), and Closing took place on February Divisions, restructuring measures Fine Chemicals (special amino 10, 2000. led to staff declines of about 4,200, acids, biocatalysts, and greener • At VEBA’s Extraordinary Share- while disposals reduced the num- synthesis processes). holders’ Meeting on February 10, ber of employees by roughly 11,200. MEMC’s R&D focused on continu- 2000, 99.9 percent of the share- ing development of next-generation owners approved the merger with Research and Development: 300mm wafers. MEMC also intro- VIAG. Chemicals Further Strengthened duced new products in 1999 as • VIAG shareowners also approved The inclusion of the merged part of its effort to further tailor its the merger by a 99.5 percent Degussa-Hüls markedly increased product palette to its customers’ vote at VIAG’s Extraordinary the VEBA Group’s 1999 R&D spend- needs. Its 1999 R&D expenditures Shareholders’ Meeting on ing to 8583 million compared with were almost unchanged versus February 14, 2000. 8194 million in 1998. Degussa-Hüls 1998 on a dollar basis, but up about attracted the largest share with 8 percent to 880 million owing to 85 percent followed by MEMC at currency fluctuations. 14 percent. Degussa-Hüls’s R&D expendi- Major Events after the Close of tures totaled 8498 million, equiva- the 1999 Financial Year lent to 3.4 percent of its sales. The • As of January 1, 2000, VEBA Oel acquired the Aral shares held by subsidiaries of Mobil Oil, increas- ing its Aral stake to roughly 99 percent.

24 Risk Management System 1. Standardized documentation of • External business risks: During and Reporting risks and control systems. the normal course of business The requirements of the Control 2. Evaluation of risks according to VEBA’s subsidiaries are particu- and Transparency in Business Act the degree of severity and the larly susceptible to market risks (KonTraG), which came into effect probability of occurrence, and that are increased by ongoing on May 1, 1998, include obliging assessment of the effectiveness globalization and keener compe- the boards of management of public- of existing control systems. tition. The liberalization of the ly listed companies to establish risk 3. Analysis of the results and struc- European energy market exposes management systems. As part of tured disclosure in a risk report. in particular our Electricity their audit, the auditors of publicly The following important risk cate- Division to risks, but also creates listed companies assess whether gories exist within the VEBA Group new opportunities. We are active- the system will successfully fulfill and are thus also significant for ly shaping the vigorous competi- its tasks. This audit requirement VEBA AG: tive battle for customers from our applies to all financial years which • Operational risks: Our Electricity, strong position as a low-cost began after December 31, 1998. Oil, and Chemicals Divisions in generator. This sometimes means VEBA already underwent this audit particular operate technologically that we must grant considerable voluntarily in 1998. complex production facilities. price concessions. Our ongoing Even before KonTraG came into Operational failures or extended measures to reduce costs and effect the VEBA Group had an production downtimes could boost profitability are helping us effective risk management system negatively impact our earnings. strengthen our competitive posi- in place. We use an integrated The following are among the sig- tion. Nevertheless, a further system embedded into our busi- nificant measures we employ to intensification of competition will ness procedures. The system in- address these risks: for the near future negatively cludes our controlling processes, – Detailed operational and impact our Electricity Division’s Group-wide guidelines, data pro- procedural guidelines. earnings. cessing systems, and regular re- – Further refinement of our The VEBA Group fulfills its ports to the Board of Management production procedures and social and political responsibilities and Supervisory Board. In 1998 a technologies. and encourages intensive dia- Group-wide project was launched – Regular facility maintenance. logue with all groups involved in to analyze, aggregate, and docu- – Employee training programs. decision-making processes. We ment existing risks and control – Appropriate insurance want to use our expertise to systems at the Group level. The coverage. facilitate objective discussions of reliability of our risk management • Financial risks: During the normal politically controversial topics. system is checked regularly by the course of business VEBA is ex- The predominant issue for us internal audit and controlling posed to interest rate, commodity currently is the German govern- departments of our Divisions and of price, and currency risks. These ment’s plan to opt out of nuclear VEBA AG as well as by our inde- risks are hedged on a Group- energy. pendent auditors. The documentation wide basis. In cases where VEBA and evaluation of our system is intends to hedge these risks, the annually updated across the Group Company makes use of derivative in the following steps: financial instruments. These instruments are used solely for hedging purposes. Owing to our Financial Controlling and Corpo- rate Treasury Departments’ strict guidelines, the counterparty risk of financial transactions is insignifi- cant.

25 Review of OperationsOutlook

We are also focusing on the preca- Outlook Liberalization and globalization rious economic situation of Veag, In line with our Focus and Growth create exciting new opportunities. the energy utility based in eastern strategy, our core businesses are We will consistently exploit these Germany. Together with Veag’s energy (power, oil, natural gas, and opportunities and rapidly expand other shareholders we approved water) and specialty chemicals. the leading positions we hold in measures that will solve the com- These markets are subject to extra- our core businesses. We will also pany’s short-term liquidity prob- ordinarily swift and dynamic change. take steps to make our energy lems. The measures are designed Europe’s energy markets have been activities more international and to to stabilize Veag’s financial situation liberalized. The energy industry in cement our global market leader- by fully realizing the company’s Germany and Europe is undergoing ship in specialty chemicals. rationalization potential and by a process of massive concentration. We also plan to continue to combining its lignite production The chemicals industry is currently increase the value of our telecoms and lignite-based electricity gener- witnessing increasingly global com- (VIAG Telecom) and real-estate ation. They also include measures petition and structural changes activities. We will exit our other among the shareholders to lower along the value chain. businesses. The proceeds from the delivery terms of Veag’s electric- Merging VEBA and VIAG is the these disposals will primarily be ity procurement contracts with its right response to these challenges. used to reinforce our core activities. shareholders and to make available Together we will have the strength This is the final investment plan shareholder loans. Together with to play a leading role in shaping for the VEBA Group in its current Veag’s other shareholders and with the global competitive arena. form. We will present a joint plan political leaders we are also search- We anticipate that the merger will for the merged company after the ing for a solution to ensure the yield synergistic effects of roughly tie-up with VIAG is successfully company’s long-term commercial 8800 million per year—of which completed. We have planned existence. At this stage we are about 8700 million will be in the investments of 86.0 billion for unable to assess the situation’s energy group. These savings are in 2000. This figure includes the effects concretely. addition to our ongoing cost-man- acquisition of Mobil’s Aral shares agement programs totaling at least and of EZH, the Dutch utility. 8670 million per year. These per- Around 70 percent of planned manent savings will take effect in stages and be realized by 2002. In addition to the merger’s synergistic effects, one-off charges of roughly 8400 million and about 875 mil- lion in transaction costs will be associated with the tie-up.

26 investments is earmarked for income on divestment gains. Germany. The remaining funds will We anticipate that Distribution/ be targeted mainly at other Logistics will continue its positive European countries and America. earnings performance and that Ongoing cost-management mea- Silicon Wafers will again reduce sures will increase Electricity’s com- operating losses in 2000. We intend petitiveness. But we anticipate that to exit both these businesses. considerably fiercer competition Overall, we expect Electricity’s will cut further into margins in 2000 decline in operating earnings to be and that Electricity’s internal oper- more than offset by markedly ating profit for 2000 will fall distinct- improved internal operating profit ly below 1999 levels. at all our other Divisions. On the We anticipate that the positive whole, we thus anticipate that in effects from the integration of Aral 2000 VEBA’s business activities will and more favorable economic con- best 1999’s record internal operat- ditions will lead to a sharp increase ing profit. in Oil’s earnings. Including book gains from divest- We expect that in 2000 Chemicals ments—particularly those of E-Plus will post higher earnings year-on- and Cablecom—pretax income and year owing to the positive outlook net consolidated income for 2000 for chemicals markets and to the will come in considerably ahead of synergistic effects from the the record numbers posted in 1999. Degussa-Hüls merger. We look in particular for the real- estate services market to continue to grow as well as for Real-Estate Management to continue its posi- tive performance of the previous year and to again distinctly lift internal operating profit. In Telecommunications we again expect Bouygues Telecom to report a startup loss for 2000. But the loss will be more than offset by interest

27 Additional InformationCFROI by Segment

We monitor the success of our To determine the total amount of Oil’s CFROI decreased significantly business units periodically using capital invested in a business field, to 9.3 percent principally owing to cash flow return on investment cumulative depreciations on fixed dissatisfying earnings produced by (CFROI) as our key performance assets are added back to book refinery operations. Furthermore, indicator. CFROI is the ratio of values. When companies are ac- portions of the purchase price of EBITDA (earnings before interest quired, adjustments are made for the acquisition of additional shares expenses, taxes, depreciation, and cumulative depreciations existing in Aral had already been paid at amortization) to invested capital on the purchase date because, year-end although corresponding (gross investment basis). from VEBA’s point of view, invested earnings contributions could not The CFROI numerator and de- capital equals only the purchase yet be included in CFROI. nominator are determined before price plus assumed debt. Total As a result of the first-time full depreciation in order to prevent capital employed (= gross asset consolidation of Degussa-Hüls, fixed-asset age structures and value) is reduced by available pro- Chemicals’ return is up on the pre- depreciation policies from distort- visions and liabilities that are non- vious year at 11.2 percent. On a ing performance evaluation. interest-bearing. comparable basis, CFROI decreased Moreover, EBITDA is net of effects The following table shows the due to the difficult business climate arising from taxes and financial VEBA Group’s CFROI and how it is in the first six months. transactions. EBITDA represents derived. Group EBITDA and internal The increase in the return on the sustainable return on capital operating profit reached new all- capital in Real-Estate Management employed generated by operations. time highs in 1999. Nevertheless, to 9.4 percent is the result of One-off and rare effects are netted Group CFROI declined from 9.8 to measures to optimize the housing out of individual EBITDA compo- 9.3 percent owing to Oil’s and stock portfolio and the positive nents. These mainly include book Electricity’s weaker performances. CFROI performance achieved by gains and losses from divestments Our Electricity Division experi- the services unit. as well as restructuring and cost- enced a drop in EBITDA due to management expenses. electricity price reductions owing to keen competition. At 8.7 percent, its return is markedly lower than the record level posted a year earlier.

VEBA CFROI

8 in millions 1999 1998 Internal Operating Profit 2,274 1,946 Interest expenses charged against internal operating profit 377 334 Imputed interest expenses for provisions for pensions and nuclear waste management 429 485 Depreciation/amortization of intangible and fixed assets and associated and affiliated companies valued at equity 2,895 2,614 EBITDA 5,975 5,379

Total Assets 52,384 43,069 Cumulative depreciation/amortization of intangible and fixed assets and associated and affiliated companies valued at equity 34,960 29,667 Adjustment for cumulative depreciation of acquired companies – 3,627 –1,714 Gross Asset Value 83,717 71,022 Non-interest-bearing provisions1) – 8,290 –7,185 Non-interest-bearing liabilities2) – 8,419 – 7,767 Gross Investment Basis 67,008 56,070

Average Gross Investment Basis3) 64,219 54,901

CFROI 9.3% 9.8%

1) Includes all provisions except provisions for pensions and nuclear waste management. 2) Low-interest-bearing and non-interest-bearing financial liabilities in the Real-Estate Management and Oil Divisions and non-interest-bearing operating liabilities in accordance with Note 24 to the Consolidated Financial Statements as well as deferred income. 3) Calculated on a pro-forma basis to improve informational value in 1999 (full consolidation of Degussa-Hüls).

28 Position Electricity Oil Chemicals Real- Distribution/Logistics Tele- Silicon VEBA AG/ VEBA Estate Man- VEBA communi- Wafers Con- Group 8 in millions agement Stinnes Electronics cations solidation Internal operating profit 1,505 78 475 184 180 87 – 180 – 214 159 2,274 Interest expenses charged against internal operating profit 15601595891681562– 232377 Imputed interest expenses for provisions for pensions and nuclear waste management 209 33 126 11 23 6 0 12 9 429 Depreciation/amortization of intangible and fixed assets and associated and affiliated companies valued at equity 1,104 256 857 133 241 86 66 147 5 2,895 EBITDA 2,974 367 1,617 386 535 247 – 99 7 – 59 5,975 Average gross investment basis1) 34,111 3,926 14,483 4,130 4,490 2,139 1,725 1,842 – 2,627 64,219 Cash Flow Return 1999 8.7 9.3 11.2 9.4 11.9 11.5 – 5.7 0.4 – 9.3 on Investment in % 1998 11.3 15.4 9.1 8.6 10.6 8.9 – 11.1 – 2.1 – 9.8

1) Annual averages.

In the Distribution/Logistics increase in the capital base Division, both Stinnes and VEBA (especially in terms of working Electronics managed to lift CFROI capital), the return was up 2.6 per- markedly. The advance to 11.9 per- centage points to 11.5 percent. cent posted by Stinnes primarily In Telecommunications the capi- stems from considerable earnings tal base was lowered significantly improvements recorded by the while CFROI improved from –11.1 Building Materials and Chemicals percent to –5.7 percent—both units. In addition, the capital base mainly due to the divestment of was reduced as a result of loss-making shareholdings. portfolio-related measures. VEBA Silicon Wafers lifted CFROI to Electronics benefited from the 0.4 percent. Primary drivers were strong growth of the market for the improved cost position along semiconductors. Despite the with higher sales volume, which rose by roughly 9 percent. The per- sistent decline in wafer prices kept EBITDA from advancing further.

29 Additional InformationStrategy and Investment Plan

Strategy and Investment Plan vices. Size matters in the competitive the leading players. VEBA intends arena of the future. The chemicals to resolutely exploit the opportuni- 8 in billions 2000–2002 % business is becoming increasingly ties brought on by market change. Electricity 2.8 21 global and demands greater The merger of PreussenElektra Oil 3.1 23 specialization. and VIAG’s Bayernwerk subsidiary Chemicals 3.7 28 Our tie-up with VIAG decisively will create one of Europe’s leading Real-Estate Management 1.2 9 improves our strategic position. energy service providers. We intend Distribution/Logistics 1.0 8 to grow internally by capturing Silicon Wafers 0.4 3 Together we will achieve new di- additional market share on the VEBA AG 1.0 8 mensions in both core businesses. Total 13.2 100 The merger will strengthen our basis of a clear marketing strategy, platform for further growth and low generation costs, and the real- boost our long-term profitability. ization of significant synergies. We We are the pacesetter in the con- plan to grow externally by making Merger with VIAG Represents solidation trend that is spreading acquisitions and entering joint ven- Important Growth across Europe’s energy sector. tures in major markets, particularly We have consistently refined our The VEBA-VIAG merger is a first, in neighboring European countries. Focus and Growth strategy. Our two important step toward achieving The main focus of our expansion core businesses are energy (elec- growth. Others will follow. Our stra- plans is the electricity sector, tricity, oil, natural gas, and water) tegic goals are clear. With our though we will also enlarge our gas and chemicals. We will concentrate power, gas, and water activities we and water activities. These markets our resources even more exclusively want to be one of the world’s premier offer attractive growth opportuni- on these businesses. Our superb multi-utilities. We want to further ties. And we can profit from jointly market positions and the promising enlarge our leading position in marketing electricity, gas, and market outlook create particularly specialty chemicals and in partic- water. good opportunities for profitable ular to expand internationally. The new energy group will occu- growth in these areas. py premier market positions and be The markets of our core energy Energy: Becoming a Leading a leading European powerhouse. It and chemicals businesses are European Powerhouse will also seek engagements outside going through a major shakeout. Europe that offer attractive growth The liberalized power sector is Electricity opportunities. witnessing a tough battle for mar- The liberalization of Europe’s elec- ket share. The keys to success are tricity markets has created new having the best cost position and growth opportunities and simulta- customer-centric products and ser- neously unleashed a wave of con- solidations. Companies with the best cost position and a customer- focused organization will emerge as

30 Oil Trostberg subsidiary will forge the and marketing of housing units), Active on Germany’s petroleum world’s leading specialty chemicals commercial investment and devel- market—Europe’s largest—, VEBA group. The merged company will opment, and real-estate services Oel has resolutely transformed itself play a leading role in reshaping the activities. Viterra’s largely non- from being a fuels producer to global specialty chemicals market. cyclical businesses will make steadi- being a service provider for mobility We will exploit growth opportuni- ly increasing contributions to Group and heating. The recent spate of oil ties—particularly in Asia and the earnings. We will also be able to industry mega-mergers has turned USA—to rapidly expand our fine leverage the real-estate sector’s up the competitive pressure sub- and specialty chemicals activities. increasing overlap with energy- stantially. VEBA Oel continues to These two markets are character- related services to further develop boost its long-term competitiveness ized by low cyclicality and high our core energy business. along the entire value chain via profitability. consistent cost cutting and restruc- We intend to substantially en- Distribution/Logistics turing. Following the fundamental hance profitability by optimizing our All five of Stinnes’s divisions— reorganization of the upstream sec- business portfolio, by managing Transportation, Chemicals, Building tor in 1998, VEBA Oel has achieved costs, and by stepping up the inte- Materials, Materials, and Full-Line complete strategic flexibility down- gration of our chemicals activities. Wholesaling—hold premier posi- stream by increasing its Aral stake The merged group’s broader tech- tions. This makes Stinnes ideally in late 1999. This makes the com- nology and R&D platform will help suited to outperform its competitors pany an attractive partner for stra- us boost the innovativeness that in the attractive growth market for tegic alliances and joint ventures. drives internal growth. logistics services. Stinnes will in Its entire petroleum marketing particular expand Transportation, business will be bundled and Other Activities Chemicals, and Materials on an expanded under the Aral brand international scale. In a first tranche name. Real-Estate Management we placed 34.5 percent of Stinnes’s As an integrated real-estate group, capital stock with private investors Chemicals: Expand Position Viterra will realize substantial value in mid-June 1999. We also intend to as Global Market Leader in reserves by actively managing its divest the remaining shares. Specialty Chemicals large real-estate portfolio. It will VEBA Electronics has cemented With premier positions in high-growth also focus on expanding its resi- its fine position as the world’s markets, Degussa-Hüls has a world- dential development (the building third-largest distributor of electronic wide presence. The VEBA-VIAG components. The ongoing integra- merger will further strengthen our tion of its subsidiaries has improved chemicals business. Joining the company’s cost structure and Degussa-Hüls and VIAG’s SKW

31 Additional InformationStrategy and Investment Plan

competitiveness. The business out- Silicon Wafers ing—89.6 billion—will be used to look for the next few years is very Extensive restructuring and cost- strengthen our core energy (power positive—particularly in the com- cutting measures have substantially and oil) and chemicals businesses. ponents business—, despite un- improved MEMC’s competitive The focus will be on protecting relenting pressure on margins. We position. Resurgent demand for and expanding our leading market are thus confident that we will be semiconductor products is reduc- positions. Around 70 percent of able to optimally divest VEBA ing excess capacity on the wafer planned investments is earmarked Electronics. market. Stable prices and market for Germany. The remaining funds consolidation form the basis for a will be targeted primarily at other Telecommunications return to profitable growth. Silicon European countries and America. Following the sale of the fixed-line wafers is no longer one of our core We will invest around 82.8 billion business to Mannesmann Arcor, we businesses. We intend to dispose in Electricity during the next three have concentrated on developing of our MEMC stake. years. These funds will principally our mobile telecoms activities. Our be devoted to internal growth, with planned merger with VIAG made it Investment Plan 2000–2002 the main focus being on projects necessary for the two companies to This is the final investment plan for in Germany. This plan does not dispose of one of their German the VEBA Group in its current form. include the cross-boarder moves mobile networks. This was E-Plus. We will present a joint plan for the that will be part of our joint strategy By selling our fixed-line and mobile merged company—particularly for with VIAG. telecoms operations at the right our core energy and chemicals Over the plan period 83.1 billion time we realized substantial value businesses—after the tie-up with will be invested in Oil. This amount for our shareowners. VIAG is successfully completed. includes the acquisition of Aral Following the VEBA-VIAG merger, We reduced the planning horizon shares from Mobil. In addition, the Telecommunications Division to three years owing to ever shorter around 8200 million of pro-rated will consist mainly of VEBA’s product life cycles and rapidly capital expenditure is planned for Bouygues Telecom stake and of changing markets and competitive the non-consolidated Ruhr Oel VIAG Telecom. The tie-up does not arenas. joint venture. In the upstream sec- change the current plans for de- VEBA plans to invest 813.2 bil- tor we will continue to implement veloping VIAG Telecom. Taking into lion over the next three years. our regional focus initiatives and to consideration value and financial Three fourths of our capital spend- achieve a more competitive cost aspects, we also intend to float position. Downstream, Aral will shares in our telecoms operations continue to expand its Eastern at an appropriate time in the near European network, particularly in future. Poland. It also plans to build more large service stations with ex- tended convenience store offerings. The international character of the

32 E&P business and the expansion of VEBA Investment Plan by Region Aral’s Eastern European network mean that more than one third of Oil’s capital expenditures will go 5% outside Germany. Other Regions 8709 million The total volume of capital expen- 3% ditures in our chemicals business Far East 8374 million 3% amounts to around 83.7 billion. Rest of America 8386 million 67% The main focus will be to expand 8% Germany 88,837 million the capacity of our largely non- NAFTA 81,031 million cyclical and high-growth specialty 7% chemicals activities. This includes Rest of Europe 8863 million enlarging Advanced Fillers and 7% Euroland 8982 million Pigments’ production capacity for intermediate products for the tire industry. Sivento plans to build new plants for Aerosil© production and to bolster its silanes activities. We plan to invest about 81 billion expenditure in the silicon wafer Almost half of all capital spending in Distribution/Logistics, of which business to around 80.4 billion. is earmarked for strengthening more than 70 percent will be outside The top priority is to achieve cost Chemicals’ businesses outside Germany. Stinnes is only included leadership in all wafer segments in Germany, particularly in America in the investment plans for 2000 order to ensure a sustained return and Asia. and 2001 owing to our intention to to profitability. At the same time we Real-Estate Management’s main divest it. The main goals in the next will defend our position as one of focus will be on optimizing its few years will be to improve the world’s leading wafer producers. housing stock. Its major investment efficiency and to further inter- projects include purchasing nationalize the group. Particular additional housing stock, taking focus will be on Transportation, stakes in real-estate ventures, and Chemicals, and Materials. More modernizing its existing housing than half of VEBA Electronics’ stock. We will invest a total of investment volume will be for a around 81.2 billion in Real-Estate series of minor acquisitions. Management, primarily in Germany. In the context of restructuring measures we have again substan- tially reduced the level of capital

33 34/35/46/47/54/55 E 28.03.2000 16:00 Uhr Seite 1

Not a morning person? Power from PreussenElektra can help you get started with hot coffee and toast. 18/36/42/48/56/67 E 28.03.2000 15:40 Uhr Seite 2

20 1999 3 10 993 387 422

13

17

10

823

• Internal operating profit below prior year’s record448 4 298 22 • Power trading off to successful start 374

32 • Electricity sales volume further increased 37 1150 1999

• European market position enlarged 3 10 993 823 • Markedly lower operating earnings expected 37

in 2000 due to keen competition 10 358 65 115 22 PreussenElektra generates, transmits, and 20 supplies electricity. Each morning power 1999 from our electricity subsidiary toasts bread 3 and brews coffee in one third of Germany’s 10 993 kitchens. PreussenElektra is also 387 increasingly active in the rest of Europe. It already has stakes in major electric 13 companies in the Netherlands, Sweden, and Switzerland. Proof that PreussenElektra is 17 seizing the opportunities offered by 10 Europe’s liberalized power market and 823 35 actively shaping its future. 20 1999 3 10 993 387 422

13

17

10

823 3 10 993 10 823 35 823 35

20 36 1999 3 10 993 EnergyElectricity

PreussenElektra AG, Hanover Internal Operating Profit 8 in Millions 1999 1999 1998 +/– 1,608 1,875 1,505 in millions of DM 8 8 % Sales 15,097 7,719 8,141 – 5.2 Internal operating profit 2,944 1,505 1,875 – 19.7 Cash flow from operations 3,380 1,728 2,235 – 22.7 Investments 2,639 1,349 1,442 – 6.4 Employees at year-end 20,556 21,936 – 6.3 97 98 99

Internal Operating Profit consumption was up slightly. The to greater precipitation and to the below Prior Year’s Record portion of aggregate energy renewed increase in the number of Competition on the liberalized elec- accounted for by nuclear power wind-driven power plants. But their tricity market heated up consider- advanced some 5 percent owing to share of total primary energy con- ably in 1999. PreussenElektra active- higher plant availability. Regenera- sumption was under 1 percent. ly seized the resulting opportunities tive energy sources produced Electricity consumption from the and captured new customers outside about 15 percent more power due public grid was slightly higher than its grid area even though this required making considerable price concessions. There were also par- 1999 German Primary Energy Consumption ticularly sharp price reductions on in Million Tons Coal Equivalent (MTCE)1) deliveries to regional utilities and large special-rate customers. As a result, sales dropped 5.2 percent in 2.5% 1999 despite a 3.9 percent increase Hydro, wind, other 12.3 MTCE

in sales volume. PreussenElektra’s 21.3% 39.4% ongoing cost-management pro- Natural gas 103.3 MTCE Oil 190.6 MTCE grams and higher sales volume could not offset price cuts brought 10.3% on by fiercer competition. Internal Lignite 50.1 MTCE operating profit thus came in 13.4% 13.1% 19.7 percent behind the previous Hard coal 65.0 MTCE Nuclear 63.2 MTCE year’s record performance.

Slight Decline in Primary Energy and Power Consumption German consumption of primary energy was down 1.8 percent year- 1999 Net Power Generation on German Public Grid1) on-year. Consumption of lignite declined slightly more than 3 per- cent. Due to the downturn in the 6.5% steel industry and the reduced use Hydro, oil, other 29.9 billion kWh of hard coal in the electricity sec- 7. 3 % tor, consumption of hard coal Natural gas 35.5 billion kWh decreased 7 percent. Natural gas 34.8% 25.9% Nuclear 159.5 billion kWh Lignite 118.9 billion kWh

25.5% Hard coal 116.7 billion kWh

1) Preliminary figures.

37 EnergyElectricity

Total Power Supplied in the previous year owing mainly will in future pay a grid access fee PreussenElektra Group to greater demand from trade and and thus help bear total network industry. Standard-rate customers costs. There will no longer be a in billion kWh 1999 1998 +/– again consumed less electricity distance component. % compared with the prior year due The new Agreement divides Inside the to warm weather. Germany into two trading zones in grid area order to cover high-voltage trans- Standard-rate Electricity Feed-In Law Reformed mission costs. PreussenElektra customers 13.2 13.6 – 2.9 Under Germany’s Electricity Feed- Netz along with the grid operators Industrial and commercial special- In Law, grid operators must provide of Veag, VEW, HEW, and Bewag rate customers 24.6 25.5 – 3.5 financial support to renewable are in the northern trading zone. Regional and munici- energy sources for up to 5 percent Bayernwerk, RWE, and EnBW are pal power utilities 43.8 43.1 + 1.6 of their electricity sales volume. In in the southern trading zone. If Outside the 1999 PreussenElektra’s feed-in bur- there is a greater net power flow grid area den came to 8230 million. In into one of the zones the traders in Industrial and February 2000 the Bundestag (Ger- the surplus zone pay a 80.0013 commercial special- rate customers 3.9 3.8 + 2.6 many’s lower house of parliament) (0.25Pf) per kWh transaction com- Neighboring passed an amendment to the ponent. There will be a similar fee utilities 20.9 20.2 + 3.5 Feed-In Law. Its key new element for power imports or exports from Traders 3.9 ––is the introduction of a country- the grids of Germany’s neighbors. Total Power Supplied 110.3 106.2 + 3.9 wide burden-sharing scheme for The European Commission is grid operators. If approved by the currently scrutinizing the new Bundesrat (Germany’s upper house Association Agreement as part of of parliament), the law will for the a separate antitrust review in first time distribute the burden of accordance with Article 82 of the environmentally friendly power EU Treaty. Based on current infor- generation across all German states mation we assume that the EU’s and provide significant relief for antitrust authorities will tolerate the PreussenElektra. However, another new Association Agreement until a hike in feed-in fees for renewable pan-European power transmission energy is also envisioned. This will policy is developed. raise the feed-in fee to 80.091 (17.8Pf) per kWh.

Electricity Transit Rules Adapted to Market Requirements The new Association Agreement (Verbändevereinbarung), which simplifies grid access, took effect on January 1, 2000. All grid users

38 Consensus Talks with German Eco-Tax Creates Competitive Primary Energy Sources: Government Still without Disadvantages Share of Own Generation1) Notable Results The 80.01 (2Pf) per kWh Electricity A total of four discussions have Tax introduced in 1999 will be in- percentages 1999 1998 been held with the German federal creased to a total of 80.02 (4Pf) Nuclear 45.9 40.8 government to achieve consensus per kWh by 2003. The legislation Hard coal 42.8 47.3 between state and industry on also foresees continuing the pref- Imported hard coal (21.6) (22.2) Lignite 7. 4 8.0 energy-related matters. The talks erential tax treatment of highly fuel- Natural gas/oil 2.1 2.3 have remained without notable efficient gas-fired power stations. The Hydroelectric and other 1.8 1.6 results. EU Commission declared that the 1) Includes jointly operated power stations. We are still interested in achieving tax relief amounted to an investment far-reaching consensus with the subsidy. The Commission has not federal government on energy issues. yet approved the subsidies. We also believe it would be wrong The tax relief measures could Power Station Capacity to phase out nuclear energy entirely. encourage large electricity custom- But efforts cannot be limited mere- ers to procure their own generation in MW Dec. 31, 1999 Dec. 31, 1998 +/– ly to finding mutual solutions regard- assets. Because Germany’s power % Hard coal/lignite 7,858 7,872 + 0.2 ing nuclear power plant operating market is open, the unequal treat- Nuclear 3,285 3,285 ± 0.0 lifetimes. Issues such as final storage ment of primary energy sources Oil/gas 2,891 2,895 – 0.2 sites, reprocessing, and transport creates additional competitive bur- Run-of-river/ must also be considered. dens for domestic energy utilities. pumped storage, We hope to bring these nego- The government’s plan to give pref- wind energy, other 980 948 + 3.4 tiations to a positive conclusion this erential tax treatment to municipal Group Power Stations 15,014 15,000 + 0.1 year. However, we do not intend to utilities operating combined heat Jointly operated power stations 2,543 2,530 + 0.5 reach consensus at all costs. We and power stations would further Total 17,557 17,530 + 0.2 stand on solid legal ground. We will distort competition. therefore demand in court to be compensated for damages if we are Power Trading Off to forced to exit the nuclear energy Successful Start business. PreussenElektra increased its elec- tricity sales volume about 4 percent in 1999, posting a record of 110.3 billion kWh. While deliveries to household customers declined, more electricity was delivered to regional and municipal power utili- ties. Larger volumes of electricity were also sold to power utilities and to special-rate customers out- side PreussenElektra’s grid area.

39 EnergyElectricity

PreussenElektra Group holds majority stakes in both. e.dis generation assets. More electricity Gas Distribution has concentrated its activities on was procured from jointly operated selling electricity to roughly 1.3 mil- power stations than in the previous in billion kWh 1999 1998 +/– lion customers in Mecklenburg- year. Increasing amounts of power % Vorpommern and Brandenburg. Its were purchased from third parties Households and grid area comprises 36,460 km2. with a view to optimizing electricity small consumers 16.8 17.3 – 2.9 Avacon offers electricity, gas, procurement. Domestic and foreign Trade and industry 14.9 11.5 + 29.6 water, and heating services to companies supplied 31.9 billion Gas utilities 16.5 9.6 + 71.9 Total 48.2 38.4 +25.5 about 1.1 million customers in its kWh, about 6 percent more than in grid area spanning 24,500 km2 and 1998. This for the first time includes focuses on Lower Saxony and affordable supplies acquired on the The liberalization of the electricity Saxony-Anhalt. Amsterdam and Oslo power market has enabled Preussen- exchanges. There was a 12.7 per- Elektra to capture new household Natural Gas Distribution up cent rise in electricity fed into the customers across Germany. On Markedly; Water Sales Volume grid from wind-driven power September 9, 1999, PreussenElektra Largely Unchanged plants. launched its attractive “Elektra Integrating Ferngas Salzgitter’s Direkt Family” and “Elektra Direkt operations into the newly established European Market Position Single” retail products tailored to Avacon increased PreussenElektra’s Enlarged the requirements of individual reported gas sales volume about By acquiring the Dutch electricity households. 26 percent to 48.2 billion kWh. By and heating utility Electriciteitsbe- In 1999 PreussenElektra’s stepped- contrast, district-heating deliveries drijf Zuid-Holland (EZH), Preussen- up energy trading activities helped remained below the previous year’s Elektra further enlarged its share of increase sales volume for the first level. the European market. The purchase time. Substantial amounts of elec- Cost-conscious water consumption agreement was signed in July 1999, tricity were delivered to domestic kept water sales volume on par and the 100 percent shareholding and foreign traders—including via with the prior year’s figure despite was transferred in January 2000. the power exchanges in Amster- the warm summer. The main player EZH is one of Holland’s four major dam and Oslo. PreussenElektra has in this sector is PreussenElektra’s power utilities and has a total been conducting spot trading Gelsenwasser subsidiary, Germany’s installed capacity of 1,770 MW. activities on the Scandinavian largest private water utility. Gelsen- The Dutch utility also founded its “NordPool” and Dutch “APX” power wasser supplied approximately own marketing company in the exchanges since spring 1999. As it 2.7 million residents in the Ruhr Netherlands in 1999. EZH.Elektra enlarged its electricity trading oper- and neighboring regions with will market electricity produced by ations, PreussenElektra introduced potable water in 1999. EZH to the Benelux countries. a high-performance trade and risk PreussenElektra has had a joint management system. Energy Procurement Optimized venture with Switzerland’s BKW Electricity requirements advanced FMB Energie (BKW) since 1996. It Tie-Up of Regional Utilities 3.6 percent to 115.0 billion kWh, of stepped up these activities in 1999 Completed which 56.9 percent (59.3 percent) and increased its shareholding in To meet the challenges of energy was covered by the company’s own BKW to 20 percent. As the energy sector competition, several regional sector becomes more international, utilities in eastern and western southern Europe’s markets take Germany merged in 1999 to form on increasing importance. So in two companies: Avacon and e.dis September 1999 PreussenElektra Energie Nord. PreussenElektra

40 established a marketing office in PreussenElektra’s Electricity Procurement in 1999 Italy in collaboration with BKW. Elektra Italia will mainly market imported electricity in Italy. PreussenElektra also opened a 27.7% marketing office in Poland. From other suppliers PreussenElektra Polska aims to market power generated in Poland to Polish clients. The new office is 56.9% also making preparations to trade Own production electricity within Poland and with Poland’s neighbors. 15.4% From jointly operated power stations Investments Down Year-on-Year Electricity’s investments totaled 81,349 million in 1999, down 6.4 per- cent compared with 1998’s 81,442 million. Spending on property, major highlights of 2000. We have focus on the Scandinavian and plant, and equipment including launched an integration project to Baltic regions. intangible assets amounted to jointly realign these businesses. We will capitalize on our ongoing 8593 million (1998: 8911 million). The measures are designed so that cost-management measures to Of this capital expenditure the merged energy group can increase competitiveness and con- 869 million went to power plants immediately take up operations in solidate our position on the liberal- and district heating facilities, 8466 its new guise. ized electricity market. But we million was earmarked for electrici- We will resolutely seize opportu- anticipate that considerably keener ty and district heating distribution nities for growth abroad, primarily competition will cut further into companies, 836 million for gas and in countries where we can leverage margins in 2000 and that Electricity’s waterworks facilities, and 822 million the synergies of our electricity internal operating profit for 2000 for other assets. At 8756 million, trading activities with our existing will fall markedly below 1999 levels. 1999 financial investments were on generation assets. We will also par with the previous year’s figure. continue to expand our position in The year’s major projects were the the gas and water businesses. acquisition of additional shares in In addition to acquisitions, we Sweden’s Sydkraft and Switzerland’s are placing mounting emphasis on BKW. our joint ventures and alliances in Europe because customers with Outlook activities in several countries Preparing and implementing the increasingly demand one-stop merger of PreussenElektra and shopping for electricity, gas, and VIAG’s Bayernwerk will be the heat. Bayernwerk’s operations— mainly in Hungary and the Czech Republic—optimally supplement our international portfolio with its

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• Acquisition of remaining Aral shares increases32 strategic flexibility 37 1150 • Service station network further expanded in 1999 3 Eastern European growth markets 10 993 823 • Sharp earnings upsurge expected in 2000 37 10 1999 2024 19997 3 10 993 387

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20 1999 3 42 10 993 EnergyOil

VEBA Oel AG, Gelsenkirchen Internal Operating Profit 8 in Millions 1999 1999 1998 +/– 274 235 78 in millions of DM 8 8 % Sales 23,036 11,778 10,282 + 14.5 Internal operating profit 153 78 235 – 66.8 Cash flow from operations 1,175 601 300 +100.3 Investments 2,558 1,308 460 +184.3 Employees at year-end 5,863 6,433 – 8.9 97 98 99

Internal Operating Profit in effect since April 1, 1999. At Positive despite Tough Market 83,802 million, the petroleum tax Conditions comprised 32 percent of 1999 At 878 million, Oil’s internal operat- sales. Excluding the petroleum tax, ing profit was markedly below the sales were roughly 22 percent level achieved in the previous year, higher at 87,976 million. but positive despite tough market conditions. The decline was owing Strategic Flexibility Considerably to shrunken margins in the down- Increased by Acquisition of stream business and to significant Remaining Aral Shares one-off charges and production In 1998 the reorganization of startup delays in the upstream sector. Deminex and the launch of VEBA 1999 was a difficult year for the Oil & Gas gave VEBA Oel complete entire petroleum industry. The flexibility in the upstream sector. In already unfavorable economic late 1999 VEBA Oel achieved the climate worsened. The price for a same breakthrough on the down- barrel of crude oil climbed from stream side. It acquired Mobil Oil’s US$10 in February to more than and Wintershall’s Aral stakes, lifting US$25 in December. The average its own Aral shareholding from 56 price for 1999 was US$18/barrel to roughly 99 percent. Aral will be compared with US$13/barrel in 1998. fully consolidated beginning in the But it proved impossible to pass on 2000 financial year. the entire increase to customers via VEBA Oel can now fully integrate higher product prices. As a result, Aral and manage it in line with its refinery margins collapsed. They own corporate strategy. It plans to were down on average more than bundle its entire petroleum retail 50 percent year-on-year and reached business—including its VEBA historic lows. Fuel and petrochemi- Wärmeservice heating-oil subsidi- cal margins also contracted appre- ary—under the Aral brand name. ciably. The demand for heating oil Achieving full management con- in 1999 likewise came in far behind trol of Aral will give VEBA Oel profit- 1998 levels. able growth in an attractive end- Sales rose 14.5 percent on slightly customer market. Additional earnings lower sales volume. Higher crude- improvements can be expected from oil and product prices inflated sales synergies, particularly in petroleum figures, as did the 80.031 (6Pf) per product marketing. Above all, VEBA liter increase in the petroleum tax Oel now has considerably greater flexibility to enter strategic partner- ships in order to enhance its mar- ket position in Europe.

43 EnergyOil

Exploration and Production Refining Hampered by whereas diesel sales volume was Streamlines Portfolio and Intro- Low Margins marginally higher. The heating oil duces Cost-Cutting Measures Our refining business was hampered business was down sharply owing Crude oil production by VEBA Oil & by extremely low refinery margins to warm winter weather. Gas (VOG) rose 3.3 percent to 52.4 and particularly by low demand for VEBA Oel acquired the Emsland million barrels. This results from heating oil. Average 1999 refinery refinery—with an annual crude-oil the first-time consolidation of share- margins slipped to less than US$7 refining capacity of 3.8 million holdings in Norway and Egypt. per metric ton—an historic low— metric tons—and petroleum market- Adjusted for this effect, production due to overcapacities worldwide. ing operations from Wintershall as dropped by 3 million barrels year- Margins were especially slim for part of the Aral deal. The acquisition on-year owing to Libya’s lower heating oil and diesel. creates additional potential for OPEC quotas and to maintenance VEBA Oel has been producing improvements such as synergistic work in the UK. Natural gas pro- new, environmentally friendlier effects and integrating VEBA Oel’s duction declined by 138 million m3 fuels at all its refineries since fourth and Wintershall’s marketing to 1.2 billion m3 because of reduced quarter 1999. These new fuels meet activities. demand at gas utilities in the UK the standards of the first stage of and The Netherlands as well as the EU’s Auto Oil Program. Begin- Petrochemicals Shows decreased production from mature ning in November 2001 VEBA Oel Marked Growth in the Core fields in Syria. will offer fuels with an even lower Olefin Business VOG took part in 26 (1998: 17) sulfur content that meet the Our petrochemical operations exploration wells in 1999, of which standards of the second stage of held their own in a tough business 12 (1998: 5) yielded hydrocarbons. the EU program. It has already climate. Slackening worldwide Proven crude oil and natural gas made initial capital expenditures demand for petrochemical products reserves rose at year-end by and begun converting its refineries. brought on by the Asian economic 181.6 million boe (barrels of oil Our refineries’ crude oil distillation crisis and the lag in passing on equivalent) to 654.4 million boe facilities operated slightly below higher crude oil prices to customers owing in part to the first-time con- the prior year’s throughput. Our resulted in lower margins. Petro- solidation of the reserves of VOG’s conversion plants’ capacity utili- chemicals nevertheless again shareholdings in Norway and zation was on par with the previous achieved distinctly positive operat- Egypt. Adjusted for this effect, year. Crude oil was supplied primarily ing earnings. reserves were up 149.2 million boe by VEBA Oil Supply & Trading, a Capacity expansion measures resulting from higher heavy oil subsidiary. In 1999 North Africa and boosted the sales volume of petro- reserves in Venezuela. the North Sea were again the most chemical products to a record A dry well in Venezuela and important supply regions. 4.3 million metric tons. Petrochemi- lower-than-expected reserves in At 31.8 million metric tons, sales cals achieved the most marked the UK made it necessary for VOG of petroleum products were down increase in its core olefin business, to take a write-down in the value 3.6 percent year-on-year. Sales with ethylene and propylene sales of its reserves. Combined with pro- volume in Germany fell by volumes up about 9 percent. Olefin duction declines, the write-down 4.3 percent in line with the market; plant availability was 100 percent in led to unsatisfactory upstream sales outside Germany sank 2.4 per- 1999. earnings despite higher oil prices. cent. The jet fuel business again In October 1999 Petrochemicals In 1999 VOG began to optimize its experienced vigorous growth. increased the annual capacity of portfolio and introduced additional Gasoline sales volume in 1999 was one of its olefin plants in Gelsen- cost-cutting measures in order to slightly lower than in 1998, kirchen by 75,000 metric tons or 17 combat the earnings situation, percent to a total of 515,000 metric fiercer competition, and resulting tons. The furnaces at Ruhr Oel’s cost pressure. Münchsmünster olefin plant were refitted in 1999. The improved facility makes it possible to expand annual ethylene capacity by 20,000 metric tons to 300,000 metric tons and at the same time meet the standards of the first stage of the EU’s Auto Oil Program.

44 Mobility Sees Higher Fuel Sales Heating Further Improves Aral and Ruhr Oel shareholdings, Volume despite Rising Prices Market Position in capital expenditures amounted Steeper crude oil prices and the End-Customer Segment to 81,564 million compared with repeated increase in the petroleum The heating oil business was hurt 8713 million in 1998. tax led to markedly higher fuel prices by considerably weaker demand. 8381 million was invested in the in 1999. Proportionately higher pro- Domestic heating oil sales volume upstream sector, particularly for a curement costs cut into gas station fell by 14.5 percent to 29.6 million heavy oil project in Venezuela and margins. German fuel consumption metric tons. The pending intro- to develop new fields in the British climbed by around 2 percent— duction of the eco-tax (Ökosteuer) and Dutch North Sea. despite higher prices—largely be- in April 1, 1999, led to stockpiling Our pro-rated investment budget cause of a 5 percent rise in diesel in the first quarter. But demand for Aral came to 8214 million. The sales. contracted substantially during priorities were optimizing Aral’s Aral’s 1999 combined domestic the remainder of the year owing to domestic network and expanding gasoline and diesel sales volume high heating oil prices and to mild its network in Eastern Europe. was on par with the previous year’s weather late in the year. level. The gasoline sales volume This also resulted in lower sales Outlook came in slightly behind the prior volume for VEBA Wärmeservice We expect the market conditions year’s performance. By contrast, the (VWS). But acquiring Westfalen for the oil industry to improve in diesel business posted a marked AG’s heating oil business as of 2000. We anticipate that crude oil increase. Aral is by far Germany’s April 1, 1999, and introducing new production will be higher and leading service station operator and product quality standards enabled average crude oil prices distinctly in 1999 consolidated its premier VWS to expand its market share, lower compared with year-end position. Aral achieved high operat- particularly in the end-customer seg- 1999. Refinery margins are likely to ing earnings despite the pressure ment. Overall, VWS’s sales volume improve substantially over the on margins. sank 21 percent to 3.7 million metric previous year’s lean numbers. But Aral further optimized its domes- tons. overcapacities in Europe will pre- tic network in 1999. The number of Higher heating oil margins only vent margins from reaching satis- service stations showed no major partially offset the precipitous factory levels. On the petrochemi- change at 2,381 (1998: 2,418). In decline in sales volume. The heat- cals side, we expect firm margins Eastern Europe’s growth markets ing services business also per- in the first half of 2000. the network was expanded by formed well short of expectations. Overall, we anticipate that more 30 new service stations, particularly Together with charges for the favorable economic conditions and in Poland where Aral now has restructuring of marketing opera- positive effects from the Aral inte- 75 service stations. Aral has an tions, these developments pushed gration will lead to a vigorous established market position in earnings below the previous year’s upsurge in earnings. We are also Hungary and the Czech Republic level. introducing targeted cost-cutting with 60 stations in each country. measures, particularly in the The service station market is in its Investments Distinctly Higher upstream and refining sectors. early stages in Slovakia where Aral Owing to Aral Acquisition Acquiring full control of Aral has had 10 stations at year-end 1999. At roughly 81,308 million, VEBA laid the groundwork for a strategic The convenience store business Oel’s 1999 investments were and structural reorientation. Part- continues to grow appreciably on 184 percent higher than in 1998. nerships and/or alliances will the back of additional product offer- The sharp increase results in part enhance VEBA Oel’s future perfor- ings and expanded Bistro services. from the acquisition of Winter- mance and competitiveness. shall’s Aral shareholding and the Emsland oil refinery in late 1999. Spending on fixed assets totaled 8401 million. VEBA Oel spent 8907 million on financial assets. Including the non-consolidated

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Toothpaste belongs on your brush, not in the sink. Silicic acids from Degussa-Hüls give toothpaste its creamy cling. 18/36/42/48/56/67 E 28.03.2000 15:44 Uhr Seite 4

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448 4 • Merger of Degussa and Hüls successfully implemented298 22 374

• Divestment of non-core activities continued 32 37 • Higher operating earnings expected in 20001150 1999

3 10 993 823 37 20 223 11 422 13

17 10 823 232 298 22 374 21 Our chemicals subsidiary makes more silicic 24 acid than any other producer in the world. 31 At twelve facilities in seven countries. Silicic 2150 acids boost the performance of a wide 1999 3 array of products we use every day. They 1999 make tires grip, seals watertight, 3450 computer chips error-free, and toothpaste 1999 creamy. It’s this kind of innovativeness that makes customers cling to Degussa- 10 Hüls. And that gives our chemicals group 1999 an edge over its competitors. 387 357 13

17 10 823 232 448 23 453 24 31 2150 1999 3 48 193 11 223 Chemicals

Degussa-Hüls AG, Frankfurt am Main Internal Operating Profit 8 in Millions 1) 1) 2) 1999 1999 1998 +/– 258 251 475 in millions of DM 8 8 % Sales 28,618 14,632 4,653 + 214.5 Internal operating profit 929 475 251 + 89.2 Cash flow from operations 1,179 603 574 + 5.1 Investments 2,539 1,298 761 + 70.6 Employees at year-end 44,334 18,737 + 136.6 97 98 99 1) Includes Degussa’s 4Q98 financials. 2) Hüls plus the former Degusa accounted for at equity.

Sales and Internal Operating year-earlier figures, in the third and Profit up Sharply fourth quarters we achieved Chemicals’ sharp 215 percent impressive improvements. increase in sales and 89 percent upsurge in internal operating profit Degussa-Hüls Merger are due to the first-time full con- Highlights 1999 solidation of Degussa-Hüls. Owing The merger of Degussa and Hüls to the adjustment of the former was entered into the Commercial Degussa’s financial year, Chemicals’ Register on February 1, 1999. The 1999 figures also include Degussa’s merger was effective as of Octo- fourth quarter 1998 sales of roughly ber 1, 1998. Degussa’s financial 81.8 billion and internal operating year had been from October 1 to profit of 866 million. Adjusted for September 30. In 1999 the merged this effect, Chemicals’ 1999 internal Degussa-Hüls had a curtailed operating profit was distinctly financial year that lasted from below the previous year’s good October 1 to December 31. In the showing. future, Degussa-Hüls’s financial The economic crises in Asia, year will, like VEBA’s, be the calen- Latin America, and Russia hurt the dar year. chemicals industry into the spring Chemicals successfully inte- of 1999. The prices of important grated both companies’ businesses. products skidded worldwide. The After combining overlapping busi- simultaneous increase in raw ma- ness areas, Degussa-Hüls has now terials prices exerted additional completed the link-up of its foreign earnings pressure on Germany’s sales organizations, thus guarantee- chemical companies. Thanks to ing a uniform market presence. resurgent foreign demand the Following the sale of the PVC manu- business climate for chemicals facturer Vestolit and the bundling improved perceptibly throughout of its precious-metals activities, the rest of 1999. Degussa-Hüls is organized into Our chemicals business improved 13 strategic business units that increasingly during the course of the year after a sluggish start early in 1999. While first-half 1999 sales and operating earnings were in some areas distinctly below the

49 Chemicals

Chemicals Sales (Excluding As part of its strategic realignment, operating profit improved due to Precious Metals Trading) in 1999 Degussa-Hüls sold the PVC the vigorous implementation of its manufacturer Vestolit, the chemicals restructuring programs and to its 8 in million 19991) 19982) +/– distributor Neuber, its 50 percent shift to a higher-margin product % stake in Ultraform and US-based palette. Despite the difficulties on Health and Nutrition 2,150 2,141 + 0.4 Ultraform Company, and Röhm Germany’s health-care sector, Asta Specialty Products 2,095 2,139 – 2.1 Enzyme. It also combined its Medica’s domestic businesses were Polymers and Intermediates 2,236 2,206 + 1.4 Precious Metals and Automotive strong earnings contributors along Performance Materials 3,354 3,410 – 1.6 Catalysts business units with with its operations in western Services 581 442 + 31.4 Cerdec AG’s ceramic paint and Europe and Brazil. In the wake of Total 10,416 10,338 + 0.8 coatings activities to form dmc2: its realignment, Asta Medica will in Degussa Metals Catalysts Cerdec. future focus on four business 1) Excludes the former Degussa’s 4Q98 financials. 2 2) Pro-forma calculation based on the full The move gives dmc greater flexi- areas: oncology/endocrinology, consolidation of Degussa. bility for joint ventures, strategic respiratory illnesses and allergies, alliances, and an eventual IPO. We special products, and health care. are examining various options for In addition, it will concentrate on comprise four reporting segments: divesting our Asta Medica subsidiary. its core markets in Europe, the US, Health & Nutrition, Specialty Prod- The following section on the per- and Brazil. ucts, Polymers & Intermediates, and formance of Degussa-Hüls’s report- Dental’s sales climbed 5 percent Performance Materials. It also has ing segments compares 1999 with despite the ongoing health-care a Services segment with extensive pro-forma figures for 1998. The reform debate and uncertainty over activities. 1999 figures do not include whether patients would be reim- The synergies from the Degussa- Degussa’s fourth quarter 1998 bursed for the cost of implants and Hüls merger are beginning to take financials. prostheses. Internal operating hold. By year-end 1999 Chemicals profit came in considerably higher had already stripped out 890 million Health & Nutrition Holds its Own than the prior year’s weak showing. in annual costs—half the planned despite Tough Business Climate Dental achieved this improvement savings measures. This had a 855 This segment consists of Asta primarily by restructuring its domes- million positive effect on earnings. Medica (pharmaceutical products), tic marketing organization, reduc- Before the tie-up we estimated that Feed Additives, Dental, and ing costs, and boosting efficiency. combining Degussa and Hüls Stockhausen (primarily superabsor- Lower prices led to an 8 percent would yield annual synergies of bents, flocculants, and skin protec- decline in sales at Feed Additives. 8180 million starting in 2002. This tion products). Internal operating profit came in figure is already accounted for by Asta Medica’s sales were off distinctly behind 1998’s strong per- concrete projects primarily involv- 2 percent year-on-year owing to formance. The Asian economic cri- ing purchasing and procurement, Russia’s economic crisis and the sis put considerable pressure on the integration of overlapping busi- devaluation of the Brazilian real. By sales prices. This was particularly nesses and regional organizations, contrast, Asta Medica’s internal true for this business unit’s main and facility infrastructure. The product, the essential amino acid merger’s savings potential was offset methionine. Degussa-Hüls is the in 1999 by one-off charges of only single-source supplier of 892 million. methionine, lysine, and threonine— the three most important amino

50 acids for animal nutrition. Ongoing supplier to the automotive, elec- Polymers & Intermediates expansion measures will enable tronics, textile, sporting goods, and Concentrates Portfolio on Degussa-Hüls to further strengthen telecoms sectors. The company is Specialty Products its leading position as a provider of the world’s leading supplier of In 1999 this reporting segment amino acids. colorants for building and industrial comprised Röhm (methacrylate Stockhausen lifted 1999 sales paints and is among the premier products), Vestolit (PVC), Oxeno 6 percent. Its internal operating producers of resins and crosslink- Olefinchemie, and Phenolchemie profit was also up. The superabsor- ing agents for the coatings and (phenol and acetone). bents business was particularly paint industries. By opening a new Röhm is one of the world’s successful. Stockhausen expanded production facility the company leading suppliers of methacrylate its position as the world’s largest cemented its position as the world- products like acrylic glass. Its 1999 producer of superabsorbents by wide leader in isophorone and iso- sales climbed 4 percent and its opening a new production facility phorone derivatives. internal operating profit was also in Krefeld, Germany. Superabsor- Industrial Chemicals’ sales slipped up year-on-year. Following its tie- bents are used for absorbing mois- 11 percent, while internal operating up with Degussa’s Agomer sub- ture in diapers and other hygiene profit in 1999 was far ahead of sidiary, Röhm’s portfolio spans a products. In water-treatment chemi- 1998’s showing. Its recent expansion wide range of specialty and standard cals, Stockhausen continued its strategy has paid off. Industrial methacrylate products. The merger global expansion program by open- Chemicals has strengthened its also offers considerable potential ing a flocculants production facility position as the world’s second- for cost synergies. in Russia. largest supplier of bleaching chemi- Vestolit’s sales declined. The PVC cals via acquisitions and capital manufacturer’s internal operating Specialty Products Further expenditures. Degussa-Hüls is also profit was distinctly lower year-on- Expands Core Businesses the world’s second-largest supplier year. To further optimize its portfo- The Specialty Products reporting of chemicals and system solutions lio, Degussa-Hüls sold Vestolit to a segment comprises three strategic for the mining industry. group of international investors. business units: Creanova (coating Fine Chemicals’ 1999 performance The sale is retroactively effective to raw materials, engineering plastics, was marked by the effects of the November 30, 1999. and colorants), Industrial Asian economic crisis. Lower prices Oxeno’s performance improved Chemicals, and Fine Chemicals. and sales volumes brought on by noticeably in the second half of Following a weak start in early fiercer competition led to a drop in 1999. But overall its earnings de- 1999 the demand for Creanova’s sales and operating earnings. Fol- clined compared with the previous products increased palpably from lowing the bundling of Degussa’s year’s good showing. Sales increased March on. Sales rose 6 percent and Hüls’s fine chemicals operations, 12 percent. In January 1999 Oxeno year-on-year, and internal operat- the merged company is among the increased its isononanol production ing profit improved distinctly. In leading fine chemicals suppliers for capacity from 40,000 to 140,000 engineering plastics Degussa-Hüls the life sciences industry. Degussa- tons per year in order to strengthen occupies leading positions in Hüls intends to further expand its position as the world’s second- attractive market segments as a this position via an extensive invest- largest supplier of this plasticizer ment program. Spending will be alcohol. Isononanol is inexpensive targeted at high-value-added to produce and offers many ad- agents and intermediate products vantages in applications. for the pharmaceutical and agro- chemical industries. These products are custom manufactured using processes developed in close co- operation with customers.

51 Chemicals

Phenolchemie again had higher businesses performed well in 1999. earnings declined compared with sales and sales volumes. Owing to Its chemical catalysts business was the previous year. Degussa-Hüls continued reduced margins, Phenol- very successful. Sivento was able acquired the remaining 30 percent chemie’s 1999 internal operating to expand its position in the spe- stake in Cerdec from Switzerland’s profit was far under 1998’s very cialty business. Ciba Spezialitätenchemie as of good performance. Additional phe- Advanced Fillers and Pigments March 17, 1999. Cerdec is now a nol capacity has led to increasing lifted its sales 16 percent year-on- wholly owned subsidiary. competition since early 1999. Phenol- year primarily owing to the first- chemie protected its position as the time inclusion of Seoul-based Korea Investments Targeted at Products worldwide market leader for phenol Carbon Black, acquired in 1998. with Promising Future and acetone and further expanded Internal operating profit came in Including the former Degussa’s its market share, particularly in on par with the previous year’s fourth quarter 1998 spending, America and the Far East. good showing. Most of Degussa- Degussa-Hüls invested a total of Hüls’s industrial carbon black com- 81,298 million in 1999 compared Performance Materials panies posted lower earnings with 8761 million in 1998. It expand- Globalizes Further for Growth because of considerably higher raw ed production capacity for impor- This reporting segment comprises materials costs. This development tant products in order to bolster its Sivento, Advanced Fillers and was partially compensated by Korea leading market positions, particular- Pigments, as well as Precious Carbon Black, which fully met our ly in specialty chemicals. To this Metals, Automotive Catalysts, and expectations in its first year of end it spent 8949 million on fixed Cerdec. The latter three business operations. The rubber silanes and assets that included: units were combined into dmc2 as precipitated silica businesses also • expanding existing production of January 1, 2000. performed encouragingly. facilities for feed additives in Lively demand enabled Sivento Precious Metals came close to Wesseling, for superabsorbents to boost 1999 sales 10 percent. matching 1998’s sales. Its 1999 in Krefeld and Greensboro (USA), Operating earnings declined com- internal operating profit topped the and for acrylic acid in Marl pared with 1998’s very good show- prior year’s figure. In Precious (completion date: late 2000) ing. Combining its fumed silica Metals, Degussa-Hüls is increas- • opening new facilities for (Aerosil©), silanes, and chemical ingly focusing its activities on engineering plastics in Marl, for catalysts units created new growth inorganic and organic precious- fine chemicals in Lülsdorf, and opportunities, especially in the area metals chemistry and on precious- for the coating raw material iso- of surface finishes. Sivento intends metals catalysts. phorone in Mobile (USA) (com- to form raw materials alliances with Automotive Catalysts expanded pletion date: early 2000) its large customers in order to its market position and grew sales • building new facilities for the protect its position as the world’s 24 percent. Operating earnings for plasticizer alcohol insonanol in premier producer of Aerosil©. These 1999 were below the previous year’s Marl and for phenol and acetone alliances include plans to build performance owing to additional in Mobile new production facilities. Sivento is R&D expenditures, startup costs • building a new facility for pure also the global leader in chloro- for new production capacity, and chlorosilanes and expanding an silanes and organosilanes. These the economic crisis in South existing Aerosil© facility in America. Rheinfelden as well as expanding Cerdec’s 1999 sales were up a precipitated silica production slightly year-on-year despite the site in Wesseling. poor business climate in Europe, especially for construction and chinaware ceramics. Operating

52 A substantial portion of the 8349 Outlook million of investments in financial We expect worldwide demand for assets is attributable to the our chemical products to continue increase in Degussa Bank’s loan to recover in 2000. The economies portfolio. of Asia and the EU will gain strength. The US economy’s vig- Research and Development orous growth rate could, however, Boosts Competitiveness subside somewhat this year. Degussa-Hüls spent 8498 million In 2000 we expect further opera- on R&D in 1999. This amounts to tional improvements in all reporting 3.4 percent of sales. 43 percent of segments owing to more positive this total went to Health & economic forecasts, new capacity Nutrition, 20 percent to Specialty for important products, and the Products, 7 percent to Polymers & synergy effects of the Degussa- Intermediates, 28 percent to Hüls merger. Overall, we anticipate Performance Materials, and 2 per- that Chemicals will post higher cent to Creavis. About 3,700 operating earnings as long as the Degussa-Hüls employees are active extraordinarily high prices for in R&D at 25 facilities worldwide. important raw materials return to Degussa-Hüls’s goal in R&D is to normal levels and as long as wage increase its long-term competitive- costs increase only moderately. ness. Developing new products and Degussa-Hüls’s growth strategy processes enables the company to combines consistent expansion of protect and expand its leading its core businesses with the stream- positions as well as tap new markets. lining of its non-core activities. In Molecular biology and genetics addition to growing internally, we form an important part of Degussa- will also look for opportunities to Hüls’s R&D program. These projects strengthen and expand our core are aimed at developing new pro- areas via acquisitions. We see par- duction processes for the B-vitamins ticularly good opportunities to in feed additives and at further expand Fine Chemicals, Advanced increasing high-performance bases Fillers and Pigments, and our silanic for amino acid production. Fine acid activities. Chemicals’ research includes work on biocatalytic systems for obtain- ing special amino acids as valuable intermediate products for the life sciences. Advanced Fillers and Pigments is developing new, highly dispersed silanic acids and new carbon blacks. These compounds increase tires’ stability and lower their roll resistance. This makes tires last longer and improves cars’ fuel con- sumption.

53 34/35/46/47/54/55 E 28.03.2000 16:07 Uhr Seite 5

Viterra makes life more comfortable for all a home’s occupants by offering attractive properties and innovative services. 18/36/42/48/56/67 E 28.03.2000 15:46 Uhr Seite 5

20 1999 3 10 993 387 422

13

17

10

823

• Internal operating profit up markedly 232 448 4 298 • Structural realignment implemented 22 374

32 • Regional diversification of housing stock consistently37 48 continued 387 422 • Further earnings increase anticipated for 200013 17

10

823 232

20 1999 3 10 993 387 422

13 448 20 1999 3 10 993 387

553

27 10 823 Over 400,000 people in Germany call 35 a Viterra apartment their home. 20 Our real-estate subsidiary also builds 1,500 1999 economically priced single-family homes 3 and town homes each year. And it has a full 10 range of real-estate services that include 993 metering, building security, and energy 387 saving heating plans. Viterra helps its 422 customers live comfortably, safely, and 13 economically. Which is why Viterra is Germany’s number one private real-estate 87 services company. 60

823 3 56 10 993 Real-Estate Management

Viterra AG, Essen Internal Operating Profit 8 in Millions 1999 1999 1998 +/– 134 149 184 in millions of DM 8 8 % Sales 2,239 1,145 1,451 – 21.5 Internal operating profit 360 184 149 + 23.5 Cash flow from operations 84 43 244 – 82.4 Investments 651 333 205 + 62.4 Employees at year-end 4,901 5,842 – 16.1 97 98 99

Internal Operating Profit up Deutschbau shareholding. Viterra majority stake in WohnBau Rhein- Markedly continues to optimize its housing Main’s 14,000 housing units in and Viterra lifted 1999 internal operating stock and sold 2,935 housing units around Frankfurt. Residential profit 23.5 percent to 8184 million. in 1999. Services’ 885 million in capital At 8156 million, Residential Invest- Residential Development builds spending is earmarked primarily for ment was the main earnings per- and markets town homes and the expansion of Energy Services. former. Sales were down 21.5 per- condominiums. Viterra has estab- cent year-on-year to 81,145 million, lished itself as one of Germany’s Outlook principally owing to the disposal of leading players in this segment. It For 2000 we expect continued the personal security and service- built 1,500 housing units in 1999. strong demand for economically station engineering units. Adjusted Residential Development’s internal priced private homes in Germany. for divestment effects, sales came operating profit was also up The same also goes for economi- in roughly 3 percent higher. distinctly. cally priced owner-occupied con- Residential Services is active in dominiums, depending on interest Structural Realignment metering services for water and rate trends. The construction of Implemented heat, security products and services, rental units continues to be un- The 1999 financial year saw the heat-contracting, and property attractive. The declining market for successful implementation of the management. It continues to grow. new rentals might thus bottom out 1998 merger of VEBA Immobilien This Viterra business unit lifted its in the states of the former West and Raab Karcher’s real-estate ser- internal operating profit on the back Germany. We look for the real- vice activities. The combined com- of increased overall demand for real- estate services market to continue pany renamed itself Viterra in spring estate services. to grow. Rising demand, particularly 1999 to reflect its reorientation. In Viterra’s newly formed Commer- in large urban areas, should posi- Viterra has four strategic business cial Real Estate unit, rental income tively impact commercial real-estate units: Residential Investment, Resi- and income from property sales development and sales. dential Development, Residential offset the startup costs of expand- In this climate we expect Viterra Services, and Commercial Real ing the property development busi- to continue its positive performance Estate. The new company combines ness and write-downs on existing of the previous year and to marked- real-estate expertise with real- properties. ly increase sales and internal estate services in growth markets. operating profit. With roughly 125,000 units of its Investments up Distinctly own and about 50,000 via share- Year-on-Year holdings, Viterra is Germany’s Viterra invested 8333 million in largest private owner of housing 1999, a distinct 62.4 percent more units. Residential Investment topped than in 1998. At 8190 million, Resi- last year’s operating earnings due dential Investment received the to higher returns on property sales lion’s share. Viterra continued its and to higher proceeds from its strategy of achieving a more regionally diversified housing stock by acquiring shareholdings in the Berlin and Munich metropolitan areas. Together with Munich’s Hypo-Vereinsbank, Viterra took a

57 Other ActivitiesDistribution/Logistics

• Sales and internal operating profit up markedly • Stinnes shares successfully floated • VEBA Electronics puts in gratifying performance • Further earnings improvements expected in 2000 Stinnes AG, Mülheim an der Ruhr VEBA Electronics LLC, St. Clara (USA) Internal Operating Profit 1999 1999 1998 +/– 8 in Millions in millions of DM 8 8 % 249 144 267 Sales 32,999 16,872 17,376 – 2.9 Internal operating profit 522 267 144 + 85.4 Cash flow from operations 305 156 334 – 53.3 Investments 1,449 741 583 + 27.1 Employees at year-end 49,818 55,185 – 9.7 97 98 99

Sales and Internal Operating 814.50 IPO price. By comparison, sluggish European chemicals mar- Profit up Year-on-Year the M-DAX rose only 4.4 percent ket in the first half of 1999 and the Distribution/Logistics sharply in- between mid-June and year-end. ongoing Asian economic crisis, creased 1999 sales and internal Chemicals put in a good perfor- operating profit compared with the Stinnes mance. In a difficult business cli- previous year. Sales were up distinct- mate Brenntag was able to in- ly in Stinnes’s core businesses. But Transportation Cements Strong crease sales and internal operating portfolio slimming measures like Position in European Overland profit distinctly. the disposal of the DIY, Sanitary Transport Equipment/Heating/Tiles, and Via its Schenker Group subsidiary, Building Materials Rallies Stinnes Tire Service units in 1998 Stinnes is one of the world’s lead- Building Materials rallied in 1999 and the divestment of BTL’s air and ing providers of integrated trans- after the considerable difficulties of sea freight activities in 1999 re- port and logistics services. Stinnes 1997 and 1998. The restructuring duced Stinnes’s sales 13.5 percent cemented its strong position in measures initiated in 1998 began to to 811,713 million. The logistics European overland transport by take effect and Building Materials group’s 1999 internal operating acquiring the remaining shares in returned to profitability in the profit climbed to 8180 million in Sweden’s BTL in April 1999. The second quarter of 1999. First quar- 1999 compared with 8125 million integration of Schenker’s and BTL’s ter losses were more than offset by in 1998. Distinctly higher demand activities has largely been com- earnings improvements in the for semiconductors enabled VEBA pleted. The sale of BTL’s air and remaining three quarters. Sales Electronics to lift 1999 sales to sea freight activities contributed to were down insubstantially owing to 85,159 million against 1998 sales of lowering Transportation’s sales Germany’s continued sluggish 83,837 million. At 887 million, the from 85,319 million in 1999 to construction market. electronics distributor’s 1999 internal 85,176 million in the year under re- operating profit was up distinctly view. Transportation’s 1999 internal Materials Posts Higher Internal compared with 1998’s 819 million. operating profit was burdened by Operating Profit despite Lower acquisition costs and goodwill Sales Stinnes Shares Successfully write-downs from its complete In early 1999 Stinnes combined its Floated takeover of BTL. Stinnes Interfer (steel trading) and In mid-June VEBA placed 34.5 per- Frank & Schulte (raw materials cent of Stinnes’s capital stock— Chemicals Puts In Gratifying trading) subsidiaries to form a new primarily with international institu- Performance business unit called Materials. tional investors—in a first tranche. Stinnes’s Brenntag subsidiary This unit’s 1999 sales sank appre- Stinnes’s shares trade on stock makes it one the world’s largest ciably compared with the previous markets in Frankfurt and Düssel- chemicals distributors. Despite a year owing principally to lower dorf. Stinnes has been included in world steel and steel-product the M-DAX, Germany’s stock index prices. Restructuring and cost- for medium-sized companies, since management programs largely December 20, 1999. At year-end Stinnes’s share price had risen to 821— about 45 percent above its

58 Distribution/Logistics Increasing Demand for Outlook Semiconductors We expect Distribution/Logistics’ 8 in millions 1999 1998 +/– After a very weak 1998, the world positive earnings performance to Sales % market for semiconductors recovered continue in 2000. Stinnes 11,713 13,540 – 13.5 in 1999. VEBA Electronics benefited Stinnes will benefit from its focus VEBA Electronics 5,159 3,837 + 34.5 from the market resurgence and on higher-margin businesses, from Total 16,872 17,377 – 2.9 grew sales considerably in its Elec- optimizations generated by its Internal Operating Profit Stinnes 180 125 + 44.0 tronic Components unit. Despite restructuring programs, and from VEBA Electronics 87 19 + 357.9 slightly weaker demand, Electronic an improved business climate. Total 267 144 + 85.4 Systems was again able to lift sales The logistics group anticipates of computer systems and periph- achieving a higher internal operat- enabled Materials to offset market erals. ing profit in 2000 than in 1999. woes and post a higher internal The previous year’s tendency VEBA Electronics again looks for operating profit year-on-year. toward the global distribution of distinctly higher demand at both electronic components gained Electronics Components and Full-Line Wholesaling Further further impetus from both the Electronics Systems. We therefore Enhances European Market customer and supplier sides. Man- expect an improved internal operat- Position ufacturers increasingly prefer to ing profit in 2000. Stinnes Intertec distributes techni- work with distributors who can dis- In line with its strategic reorien- cal and consumer goods like auto tribute their products via a com- tation, VEBA no longer counts parts, car-care products, electronic prehensive sales and service organi- Stinnes and VEBA Electronics installation materials, bicycle com- zation. VEBA Electronics has estab- among its core businesses. We will ponents, and tools. It further en- lished itself on all major markets in exit these businesses and create hanced its European market position order to profit from this trend. optimal value for our shareowners. in 1999. Despite the disposal of its car audio business, 1999 sales Investments Distinctly above climbed about 10 percent over the Prior Year’s Level prior year’s total of 8172 million. Distribution/Logistics’ investments Stinnes Intertec’s internal operating climbed 27.1 percent to 8741 million. profit bested the previous year’s Spending on fixed and intangible figure. assets amounted to 8295 million; 8446 million went to financial VEBA Electronics assets. Stinnes’s 8676 million in invest- Sales and Internal Operating ments were spent primarily to build Profit up Markedly up its international businesses, VEBA Electronics is one of the particularly to acquire the remain- world’s three largest distributors of ing shares in BTL. It also invested electronic components. It has to expand its international network facilities on all continents. VEBA by setting up new logistics centers Electronics’ 1999 sales were up in The Netherlands, Austria, and 34.5 percent. At 887 million, its the USA. internal operating profit was also VEBA Electronics invested markedly higher year-on-year. 865 million, principally to improve information systems and to expand its service organization.

59 Other ActivitiesTelecommunications

• Significant value realized in Telecommunications • Operating loss markedly reduced • Continued positive development in 2000 expected at Bouygues Telecom Internal Operating Profit VEBA Telecom GmbH, Düsseldorf 8 in Millions

1999 1999 1998 +/– 97 98 99 in millions of DM 8 8 % Sales 211 108 201 – 46.3 internal operating profit – 352 – 180 – 461 + 61.0 Cash flow from operations – 420 – 215 92 – Investments 335 171 360 – 52.5 Employees at year-end 8 1,965 – 99.6 - 233 - 461 - 180

Significant Value Realized in With significant investments loom- Operating Losses Markedly Telecommunications ing and Germany’s cable-TV market Reduced VEBA entered the telecoms sector ripe for consolidation, in May 1999 Telecommunications’ reported sales in 1994. In 1999 the Group took sig- we divested the stake in the include proportionate figures from nificant steps to realize the con- German cable-TV operator Tele- the fixed-line business and the siderable value it had created. After Columbus held via VRT, formerly cable-TV operator TeleColumbus. divesting its major interests, VEBA known as Otelo. The disposal of The marked improvement in inter- Telecom essentially now only TeleColumbus netted VEBA a book nal operating profit resulted mainly retains its 17.5 percent stake in gain of 8232 million and was from the disposal of activities with Bouygues Telecom, the French effective as of July 1, 1999. high startup losses. Fixed-line mobile communications operator. In October 1999 we concluded a startup losses only burdened 1999 The company put in a very good sales agreement with France Télé- internal operating profit for the first performance in 1999 and captured com for our E-Plus stake. VEBA’s three months. E-Plus’s startup 20 percent of the burgeoning mar- share of the sales price amounts to losses only affected earnings for ket for new subscribers in France. 83.8 billion. Bell South subse- the first six months owing to the It ended 1999 with more than quently exercised its preemption disposal. 3.2 million total subscribers. rights as an E-Plus shareholder for Bouygues Telecom continues to VEBA did not achieve its overall the same sale conditions. The dis- report high startup losses. We strategic goals in Telecommuni- posal of E-Plus became necessary in completely wrote off our roughly cations. But via disposals the advance of the Company’s upcoming 8123 million engagement in Company has realized significant merger with VIAG, which also has a Iridium’s satellite-based mobile value from its telecoms activities. It mobile telecom. The sale enabled activities owing to this company’s invested a total of 83.6 billion in VEBA to profit from E-Plus’s favorable poor business outlook. Telecommunications. By the middle value growth. The Group will not of 2000 VEBA will have had a reflux realize the estimated book gain of Outlook of funds amounting to 88.9 billion roughly 83.5 billion until 2000 We expect Bouygues Telecom to including the proceeds from its because E-Plus was not transferred continue to perform well and to E-Plus and Cablecom stakes. To to Bell South until early this year. participate in the vigorous growth this the future proceeds from In December 1999 VEBA con- of France’s mobile telecoms mar- Bouygues Telecom will be added. cluded an agreement for the dis- ket. The company’s increasing posal of its 32 percent shareholding number of subscribers will help it Fixed-Line and Mobile in Cablecom, the Swiss cable-TV to further improve operational earn- Communications Activities company. The estimated book gain ings. Divested of 8780 million will also be realized Overall, we expect Bouygues Otelo, our joint venture with RWE, in 2000. Telecom to report sharply reduced sold its fixed-line business to startup losses for 2000. The losses Mannesmann Arcor in early April. will be more than offset by interest High costs and slim margins (par- income from gains made via dis- ticularly in the private customer posals. segment) convinced us to withdraw from the fixed-line business. VEBA realized a book gain of 8392 mil- lion on the sale.

60 Other ActivitiesSilicon Wafers

• Higher sales volume and cost-management measures reduce operating loss • Investments distinctly reduced • Further earnings improvement expected in 2000 Internal Operating Profit MEMC Electronic Materials, Inc., St. Peters (USA) 8 in millions

1999 1999 1998 +/– 97 98 99 in millions of DM 8 8 % Sales 1,273 651 683 – 4.7 Internal operating profit – 419 – 214 – 240 + 10.8 Cash flow from operations – 194 – 99 100 – Investments 117 60 218 – 72.5 Employees at year-end 5,600 6,190 – 9.5 - 15 - 240 - 214

Operating Loss Reduced those with a diameter of more than Outlook Markedly in 1999 150mm and include epi wafers of MEMC expects further improve- MEMC Electronic Materials is one all diameters. Epi wafers have an ments in operating earnings in of the world’s leading manufac- additional layer of silicon. 2000. It will continue its vigorous turers of silicon wafers for the cost-cutting measures and aims to semiconductor industry. It has pro- VEBA Increases its MEMC Stake be the wafer industry’s cost-leader. duction facilities in the USA, Asia, MEMC increased its capital stock Silicon wafer prices have stabilized and Europe and is active in all by $200 million in March and April since late 1999. Moreover, MEMC major semiconductor markets. 1999 in order to implement financial should profit from the expected MEMC reduced its operating loss restructuring. VEBA participated in resurgence of the market for semi- 10.8 percent to 8214 million in 1999. the increase in line with its roughly conductors and wafers in 2000. The improvement is attributable to 53 percent stake and also pur- We intend to continue to boost higher sales volumes brought on by chased all unsubscribed shares. MEMC’s value and divest it at an the semiconductor industry’s in- VEBA now has a 71.8 percent appropriate time. VEBA is focusing creased wafer demand and to the stake in MEMC. on its energy and chemicals activi- intensive cost-management ties and no longer views silicon measures MEMC introduced in 1998. Investments Further Reduced wafers as a core business. These measures have already stripped Owing to adequate capacity, MEMC’s out roughly 8100 million in costs. 1999 spending was on projects that are essential for the company’s Overcapacity Continues to Hurt future performance. At 860 million, Wafer Market investments were down markedly All wafer manufacturers anticipated year-on-year and were earmarked increased demand and so in recent for introducing SAP software, con- years have added production ca- trolling and improving quality, and pacity. Demand did not develop as supporting cost-management pro- expected. This led to excess ca- grams. pacity and a dramatic price collapse. Despite higher sales volumes, Research and Development MEMC’s sales slipped 4.7 percent MEMC continued to develop the owing to considerably lower prices. 300mm generation of wafers. It also The share of sales represented by further tailored its product line to advanced wafers rose from 47 to its customers’ needs by introducing 52 percent. Advanced wafers are several new products in 1999. MEMC registered 62 patents world- wide compared with 50 in 1998 and 13 in 1995.

61 Additional InformationHuman Resources

Group Employees Personnel Costs 8 in Billions Dec. 31, 1999 Dec. 31, 1998 +/– 5.6 5.4 5.8 6.3 7.5 % Employees in Germany 82,012 77,554 + 5.7 Salaried staff 45,090 41,488 + 8.7 Wage earners 27,897 26,439 + 5.5 Trainees 6,075 5,800 + 4.7 Less than part time 2,950 3,827 – 22.9 Employees outside Germany 49,590 39,220 + 26.4 Total 131,602 116,774 + 12.7

95 96 97 98 99

Human Resource Management: Value-Oriented Remuneration InvestmentPlan Will Help A Strategic Component of Value for Top-Level Executives Employees Save for Their Future Creation VEBA has increased the variable The VEBA InvestmentPlan responds Group-wide strategic human component of executive pay in to the increasing need for employ- resource management makes an order to more clearly link it to the ees to supplement their retirement important contribution to boosting Company’s—and managers’ individ- income. The new plan offers shareholder value. It monitors and ual—performance. In 1999 we held employees bonuses for long-term directs human capital the way more meetings with top-level saving. All Group employees in value-oriented controlling monitors executives to set the performance Germany will be able to participate and directs financial capital. To targets. The executives’ targets in the InvestmentPlan in 2000. It achieve its goals, HR strategy must were set to ensure that their remu- supplements the SAR program for be consistently integrated into cor- neration is in line with the achieve- top-level executives and represents porate strategy. ment of their targets for corporate an extension of the employee share The central aim of our HR policy and individual performance. scheme. The latter continues to be is to help VEBA employees think VEBA’s new stock appreciation extremely popular: 66 percent of and act like entrepreneurs by giving rights (SARs) represent another Group employees in Germany them more responsibility and by important way to link executive pay purchased VEBA shares in 1999, fostering flexible and innovative to the Company’s performance. the program’s sixteenth year. work processes. The rapid changes SARs are indexed so that they can In addition to acquiring VEBA occurring in the Group underscore only be exercised when VEBA’s shares, the InvestmentPlan enables the need for HR to facilitate share price outperforms the Euro employees to invest in mutual employees’ adapting to their new Stoxx 50. Proceeds from exercising funds set up specially for VEBA. work environment. The following SARs are paid in cash, not in There will be two funds. The first is were the highlights of HR’s 1999 shares. Executives will be granted activities. new SARs each year. About 120 Board of Management members and top-level executives are cur- rently in the SAR program. We plan to extend value-oriented remuneration to a greater number of employees.

62 an international equity fund with InvestmentPlan a European focus. The second is a bond fund. Employees can make Employee regular monthly contributions to the Plan via payroll deduction, one- time investments, or both. There invests in are no fund management or depos- itory bank fees. The VEBA InvestmentPlan offers much more than discounted VEBA VEBA shares equity fund bond fund employee shares. It rewards long- employee shares term saving by giving employees an investment bonus. The bonus is tax-free premium individual payments individual payments individual payments paid on annual investments of up to 83,000 and increases the longer tax-free payroll plan payroll plan income the investment is held. By building on its employee share program to create the VEBA InvestmentPlan, VEBA is making a proactive contribution to the cur- VEBA InvestBonus rent public debate about the role of companies in helping their employ- ees invest for the future. rewards employee investments with

Company Pensions Combine Company Increased Performance Compo- nent with Cost-Effectiveness Government pension systems are undergoing major changes. That is why company pensions are be- coming increasingly important for • more flexibility by incorporating More Flexible Work Schedules ensuring employees’ financial the Group’s business perfor- In May 1999 VEBA launched security in old age. But traditional mance into its contribution to FlexWork. The program comple- pension plans often do not lend the plan ments the Group’s array of ongoing themselves to innovative HR poli- • improved calculability of com- part-time programs. It aims to pro- cies and also represent a consider- panies’ pension obligations mote part-time work—and thus able cost factor. • greater transparency by offering protect jobs—by enabling employ- In 1999 the VEBA Group moved employees pensions that are ees to create their own customized in a new direction by establishing a straightforward and easy to cal- work schedules. The scheme re- defined contribution plan. The culate. sponds to many employees’ desire scheme gives company pensions a The Group has also further expand- for greater flexibility in planning solid basis for the future. Its key ed its deferred compensation pro- and organizing their lives. And for features are: gram. Deferred compensation and the first time it gives employees a • an expanded performance com- the VEBA InvestmentPlan provide legal right to work between three- ponent based on annual pension employees with attractive quarters and full-time as well as an contributions instead of pension supplementary pension options. unlimited and unconditional right payments being linked exclusive- to return to full-time employment ly to an employee’s pre-retire- whenever they choose. ment salary level

63 Additional InformationHuman Resources

Executive Development Application of Net Added-Value within the VEBA Group Activities Stepped up VEBA has a Group-wide executive development program that was 19% expanded in 1999. Based on our Company (increase in Divisions’ own customized develop- retained earnings) ment schemes, it offers advanced 63% 4% Employees training and development that Creditors (interest) (personnel costs) includes achieving top qualification 5% standards. Shareholders An integral part of the program is (dividend) the extremely successful interna- 9% tional management seminar for Governments (taxes) Group executives held in coopera- tion with INSEAD, one of France’s premier business schools, since 1999 1998 1997. In 1999 we sent a group of 8 in millions %% VEBA’s high potentials to INSEAD. Employees Our Divisions also held numerous (personnel costs) 7,503 62.5 6,260 69.7 seminars for their managers in thereof: Wages and salaries (5,773) (46.1) (4,807) (53.5) cooperation with top business edu- Social security (1,006) (8.4) (871) (9.7) cators like the London Business Insurance pensions (724) (6.0) (582) (6.5) School, the University of St. Gallen, Creditors (interest) 549 4.6 334 3.7 and Germany’s Gracht Palace Governments (taxes) 1,050 8.8 1,240 13.8 executive program. Shareholders (dividend) 628 5.2 540 6.0 Growth- and performance-orient- Company (increase ed executive development requires in retained earnings) 2,274 18.9 613 6.8 Net Value-Added 12,004 100.0 8,987 100.0 a regular analysis of existing man- agement potential. The Divisions carry out an annual review process in addition to the annual meeting meet with senior Group executives Developing Employees and of VEBA’s Board of Management to analyze and discuss business High Potentials devoted to HR matters. The results strategy. This helps VEBA’s Board As with initial job training, VEBA constitute the basis for individual members gage the abilities of attaches major importance to con- development measures. The VEBA potential candidates for top-level tinual professional development, as Executive Forum is of particular management positions. is evidenced by our Divisions’ wide importance to the Group-wide de- VEBA’s Executive Management array of supplementary training velopment of management poten- System supports the Group’s suc- programs. tial. In the two-day Forum, members cession and career planning. The VEBA Campus, organized for the of VEBA’s Board of Management system is a database containing first time in 1999, is an exciting new background and development data program. It facilitates networking on Group executives. It represents an important tool for succession planning and filling management positions.

64 and Group-wide knowledge trans- skills. In 1999 the scheme gave 1999 Employees by Division fer by serving as a forum for top numerous college graduates the executives to meet and interact opportunity to embark on their Employees Dec. 31, 1999 Dec. 31, 1998 +/– with the Company’s high potentials. careers. % In 1999 VEBA stepped up its As part of the nationwide Initiative Electricity 20,556 21,936 – 6.3 recruiting activities at leading Euro- for Employment launched by BASF, Oil 5,863 6,433 – 8.9 Chemicals 44,334 18,737 + 136.6 pean universities and at career the Mining, Chemicals, and Energy Real-Estate Management 4,901 5,842 – 16.1 fairs for top university graduates Workers Union, and the Bertels- Distribution/Logistics 49,818 55,185 – 9.7 and MBAs. Our Group-wide Top mann Foundation, VEBA created a Telecommunications 72 1,965 – 96.3 Talent Program is designed to Düsseldorf network that supports Silicon Wafers 5,600 6,190 – 9.5 recruit outstanding management the development and implementa- VEBA AG/Other 458 486 – 5.8 talent over the next few years and tion of employment-promoting Total 131,602 116,774 + 12.7 to help them realize their potential measures at the regional level. Our via custom-tailored professional Divisions have been active in this development programs. The scheme initiative in other regional networks. representatives in a spirit of trust is also designed for high potentials and cooperation. from within the Group. VEBA-VIAG Merger: Key Challenge for HR Management Workforce Increases in VEBA Group Plays Active Role Planning and supporting the VEBA- Chemicals, Declines in Other via Job Initiatives VIAG merger process—including Divisions The VEBA employment initiative the tie-ups of the energy and The VEBA Group employed created in 1997 in cooperation with chemicals groups—will represent 131,602 people at year-end 1999— the Group Works Council was con- a key challenge for HR managers a 12.7 percent increase over the tinued in 1999. With about 5,600 and labor representatives in 2000. year-end 1998 figure of 116,774. The trainees in Germany, the VEBA Group The focus will be on: rise is primarily the result of the was able to maintain its training • implementing and monitoring merger of Degussa and Hüls. On- rate of 7 percent at the same high the required personnel adjust- going restructuring measures and level as in the previous year. Our ment processes and measures divestments again led to fewer objective is to maintain the Group’s • integrating the companies’ em- people working in the other Divi- percentage of trainees at this level ployees and corporate cultures sions. This is principally the result in the coming years. • harmonizing compensation of our telecoms disposals as well VEBA’s employment initiative schemes as well as HR and as the sale of Sanitary Equipment/ Venturing into New Working Worlds executive development systems. Heating/Tiles and Stinnes Tire is designed for secondary-school Special teams of HR managers Service. The Group continued to graduates who have not been able from both VEBA and VIAG have become more international in 1999. to find a trainee position. In 1999 been preparing and coordinating all The share of Company employees the program again enabled young activities and measures. They have working outside Germany increased people to accumulate valuable worked with both companies’ labor from 33.6 percent in 1998 employment experience. Our uni- to 37.7 percent in the year under versity graduate initiative focuses review. on young people with university training who have not yet found a job matching their training and

65 Additional InformationEnvironmental Protection

Environmental Protection Operating Costs 8 in Millions 1999 1999 1998 +/– 739 778 821 741 643 in millions of DM 8 8 % Investments 158 81 165 – 50.9 Operating costs1) 1,258 643 741 – 13.2

1) Includes capital service.

95 96 97 98 99

The VEBA Group invested 881 mil- Degussa-Hüls Releases First Viterra Promotes Energy-Saving lion in environmental protection in Joint Environmental Report at Home 1999. At roughly 8643 million, Degussa-Hüls released its first joint In 1999 Viterra Contracting GmbH operating costs incurred for envi- report on its environmental protec- modernized over 900 heat-produc- ronmental protection (including tion activities in June 1999, only tion units in Viterra’s housing units capital service) remained at a very five months after its merger. The in North Rhine-Westphalia—twice high level. report is based on data from 37 pro- as many as in 1998. The combined Environmental protection has duction facilities in 5 countries. The energy savings and CO2 reductions always been a top priority at VEBA. numbers were positive. Between achieved in these modernized In the past environmental protection 1994 and 1998 specific energy use facilities equals the exhaust emitted focused on reducing emissions at declined 12 percent and specific annually by 1,100 cars. power stations and production water use 13 percent. Viterra Baupartner AG built about facilities. Today it centers around Degussa-Hüls’s new silicon 1,200 energy-efficient homes in reducing energy consumption, tetrachloride production facility in 1999. These homes are 30 percent using energy more wisely, preserv- Bitterfeld, Germany, employs a closed more efficient than ordinary houses. ing the climate, and conserving material cycle. The facility is oper- natural resources. ated in conjunction with a customer’s Stinnes Expands neighboring quartz glass production Combi-Transportation PreussenElektra: a Highly site. The hydrogen chloride used to One of Stinnes’s central goals is to Energy-Efficient Power produce silicon tetrachloride is minimize the environmental impact Generator separated during the manufacture of its logistics operations. A key PreussenElektra has continually of quartz glass. Following an inter- component of its efforts is to shift boosted the energy efficiency of its mediate processing step, the traffic from road to rails. Combi- power stations in recent years. hydrogen chloride is then returned lifters, a freight railcar with a special Since 1990 it has increased the to the Degussa-Hüls facility. lifting mechanism for containers, capacity of its generation assets by are a technically advanced yet about 220 MW without additional VEBA Oel Converting to Higher simple way to link road and rail fuel requirements. Between 1990 Quality Fuels traffic. By purchasing 10 combi- and 2000 this prevented more than Since fourth quarter 1999 VEBA Oel lifters in 1999 Stinnes continued its 4 million tons of CO2 from entering has been producing new, environ- strategy of expanding combined the atmosphere. mentally friendlier fuels at all its road and rail transportation. PreussenElektra has completed refineries. These fuels meet EU its synergy house program to pro- guidelines. Beginning in early 2000 mote energy-efficient home con- motorists will be able to choose struction. Our electricity subsidiary high quality fuels with lower levels launched the scheme in 1995 along of benzol and sulfur. with 23 participating companies. A A tank maintenance program total of 413 synergy houses were was launched at the Gelsenkirchen built. The project was accompanied refinery. VEBA Oel will invest a by a scientific study analyzing the total of 828 million over the next homes’ energy consumption and ten years to equip its tanks with homeowners’ energy habits. double bottoms and leakage moni- toring systems.

66 18/36/42/48/56/67 E 28.03.2000 15:47 Uhr Seite 6

20 1999 3 10 Consolidated Financial Statements 993 387 422

13

17

10

823 e • Sales232 up 23.6 percent to 52,905 million 448 4 298 • Group22 internal operating profit up 16.9 percent 374

32 • Pretax37 earnings up 65.3 percent 48 387 422 • Consolidated21 Net Income up 123.1 percent 13

17 • US GAAP earnings per share up 154.3 percent to e5.95 10

823 232

20 1999 3 10 993 387 422

13 448 20 1999 3 10 993 387

553

27 10 823 35

20 1999 3 10 993 387 422 13 87

60

823 3 10 993 1999 67 22 56 115 Notes

Independent Auditor’s Report

We have audited the annual Consol- pany and evaluations of possible idated Financial Statements and misstatements are taken into the Group Management Report of account in the determination of VEBA AG, Düsseldorf/Berlin, which audit procedures. The effectiveness is combined with the Management of the internal control system and Report for the single financial state- the evidence supporting the disclo- ments, for the business year from sures in the books and records, the January 1, 1999 to December 31, annual financial statements and the 1999. The preparation of the annual Management Report are examined Consolidated Financial Statements primarily on a test basis within the and Group Management Report in framework of the audit. The audit accordance with German commer- includes assessing the financial cial law are the responsibility of the statements of companies included Company’s management. Our re- in the Consolidated Financial State- sponsibility is to express an opinion ments, the definition of the consol- on the annual Consolidated Finan- idated Group, the accounting and cial Statements and the combined consolidation principles used and Management Report based on our significant estimates made by audit. management, as well as evaluating We conducted our audit of the the overall presentation of the annual Consolidated Financial State- annual Consolidated Financial State- ments in accordance with §317 HGB ments and the combined Man- (“German Commercial Code”) and agement Report. We believe that the generally accepted standards our audit provides a reasonable for the audit of financial statements basis for our opinion. promulgated by the Institut der Our audit has not led to any Wirtschaftsprüfer in Deutschland reservations. (IDW). Those standards require In our opinion, the annual that we plan and perform the audit Consolidated Financial Statements such that misstatements materially give a true and fair view of the net affecting the presentation of the assets, financial position, and net assets, financial position and results of operations of the Group results of operations in the annual in accordance with German gener- Consolidated Financial Statements ally accepted accounting principles. in accordance with German gener- On the whole the combined Man- ally accepted accounting principles agement Report provides a suitable and in the Group Management understanding of the Group’s position Report are detected with reasonable and suitably presents the risks of assurance. Knowledge of the busi- future development. ness activities and the economic and legal environment of the Com-

Düsseldorf, March 14, 2000

PwC Deutsche Revision Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

Brebeck Wiegand Wirtschaftsprüfer Wirtschaftsprüfer (German Public Auditor) (German Public Auditor)

68 VEBA Group Consolidated Income Statement

8 in millions Notes 1999 1998 Sales (3) 52,905 42,787 Petroleum and electricity tax – 3,942 – 3,742 48,963 39,045 Costs of goods sold and services provided – 40,981 – 33,121 Gross Profit from Sales 7,982 5,924 Selling expenses –4,127 – 3,325 General and administrative expenses – 1,800 – 1,530 Other operating income (4) 4,411 2,868 Other operating expenses (5) – 2,810 – 1,855 Financial earnings (6) 297 310 Pretax Income 3,953 2,392 Income taxes (7) – 1,051 – 1,240 Net Income 2,902 1,152 Minority interests (8) – 234 44 Group Income (Attributable to VEBA) 2,668 1,196 Changes in retained earnings – 2,040 – 656 Consolidated Net Income Available for Distribution (Dividend of VEBA AG) 628 540

VEBA Group Consolidated Balance Sheet

Assets

8 in millions Dec. 31, 1999 Dec. 31,.1998 Intangible assets (11) 3,399 2,197 Property, plant and equipment (12) 18,382 16,354 Financial assets (13) 13,865 12,765 Fixed Assets 35,646 31,316 Inventories (14) 4,413 2,931 Receivables and other assets (15) 10,386 8,191 Liquid funds (16) 1,837 507 Current Assets 16,636 11,629 Prepaid Expenses (17) 102 124 52,384 43,069

Liabilities and Stockholders’ Equity

8 in millions Dec. 31, 1999 Dec. 31,.1998 Capital stock (18) 1,307 1,285 Additional paid-in capital (19) 2,197 2,219 Retained earnings (20) 10,250 7,723 Consolidated net income available for distribution 628 540 Minority interests (21) 2,990 1,701 Stockholders’ Equity 17,372 13,468 Provisions for pensions (22) 5,689 4,845 Other provisions (23) 14,179 12,956 Provisions 19,868 17,801 Financial liabilities 5,163 3,600 Other liabilities 9,580 7,841 Liabilities (24) 14,743 11,441 Deferred Income 401 359 52,384 43,069

69 Notes

Consolidated Statement of Cash Flows

8 in millions 1999 1998

Net income 2,668 1,196 Minority interests 234 –44 Net depreciation of fixed assets 3,165 2,829 Changes in provisions 524 298 Other non-cash items – 445 –170 Profits from disposition of fixed assets – 2,603 – 600 Changes in current assets and current liabilities Inventories –257 144 Receivables – 1,084 – 265 Liabilities 1,053 – 300 Cash Provided by Operating Activities 3,255 3,088 Proceeds from disposition of equity interests 5,142 898 Proceeds from disposition of other financial assets 486 394 Proceeds from disposition of intangible and other fixed assets 679 616 Purchases of equity interests – 3,515 – 849 Purchases of other financial assets –976 – 536 Purchases of intangible and other fixed assets – 2,526 – 2,840 Changes in other current financial investments – 1,002 44 Cash Used for Investing Activities –1,712 –2,273 Proceeds from the issuance of shares including capital increases from minority interests – 109 Cash dividends paid VEBA AG – 540 – 534 Minority shareholders –106 –88 Proceeds from the addition of financial liabilities 1,141 944 Repayment of financial liabilities –1,878 – 1,292 Cash Used for Financing Activities – 1,383 –861 Net Change in Liquid Funds 160 –46 Effect of foreign exchange rates on liquid funds 15 –55 Liquid funds at beginning of year 356 457 Liquid Funds at Year-End 531 356 Other current financial investments 1,306 151 Liquid Funds as Shown on the Balance Sheet 1,837 507

70 Consolidated Statements of Changes in Stockholders’ Equity

8 in millions Capital Additional Retained Un- Minority Total stock paid-in earnings appropriated interests capital profit January 1, 1999 1,285 2,219 7,723 540 1,701 13,468 Capital increase using corporate funds 22 – 22 – Dividend of VEBA AG for the previous year – 540 – 540 Net income transferred to retained earnings and minority interests 2,040 234 2,274 Proposed dividend of VEBA AG for the year under review 628 628 Differences from foreign currency translation 358 124 482 Other changes 129 931 1,060 December 31, 1999 1,307 2,197 10,250 628 2,990 17,372 January 1, 1998 1,271 2,125 7,397 534 1,619 12,946 Issuance of new shares from conditional capital through the exercise of option rights attached to the 1993/2000 option bond of VEBA International Finance B.V. 14 94 108 Dividend of VEBA AG for the previous year – 534 – 534 Net income transferred to retained earnings and minority interests 656 – 44 612 Proposed dividend of VEBA AG for the year under review 540 540 Differences from foreign currency translation – 256 – 54 – 310 Other changes – 74 180 106 December 31, 1998 1,285 2,219 7,723 540 1,701 13,468

71 Notes to the Consolidated Financial Statements

(1) Summary of Accounting, Valuation, and Consolidation Policies

Basis of Presentation

The Consolidated Financial State- effects of applying US GAAP on Had the amounts been calculated ments of VEBA AG have been pre- net income and stockholders’ equity for 1998 using the floating 8 to DM pared in accordance with generally are included in a reconciliation in exchange rate, they would differ accepted accounting principles in Note 2. Included in the amounts from the amounts provided. Germany (German GAAP) as pre- provided is the US GAAP impact scribed by the German Commercial regarding the accounting for mergers Code (HGB) and the German Stock based on book values under German Corporation Act (AktG). In line with GAAP. Furthermore, the Consoli- the ongoing internationalization of dated Financial Statements have the Company’s accounting and been supplemented to include disclosure policies, the VEBA additional information required Group Consolidated Financial State- under US GAAP. ments have also been prepared in The accounting, valuation, and compliance with US GAAP, as far consolidation methods applied in as permissible under German 1998 remain unchanged except as GAAP, since January 1, 1995, with discussed in Note 2. The VEBA the exception of mergers, where Consolidated Financial Statements the book-value method is generally are provided in euros (“8”) for the applied. first time due to the euro’s intro- In circumstances where the duction on January 1, 1999. All application of US GAAP is not per- figures are based on the official missible under German GAAP, the exchange rate of 81 = DM1.95583.

Auditors’ Report States Compliance with US GAAP

Compliance with applicable sures in the Notes to the Consolidat- Group’s auditor. The compliance accounting and valuation principles ed Financial Statements required is confirmed within the auditor’s as well as the mandatory disclo- by US GAAP were audited by the report.

Scope of Consolidation Number of Fully Consolidated Companies Domestic Foreign Total December 31, 1998 312 498 810 Additions 39 124 163 Disposals 56 81 137 December 31, 1999 295 541 836

Besides VEBA AG, the scope of panies whose combined impact on Additions of subsidiaries are primar- consolidation includes all material the Group’s net worth, financial ily attributable to the first-time full subsidiaries in which VEBA AG position, and results are insignificant consolidation of Degussa-Hüls. In directly or indirectly exercises control are valued at cost. 1998 Hüls was fully consolidated on through a majority of the stock- Changes to the scope of consoli- the basis of VEBA’s 99.8 percent holders’ voting rights. Majority- dation in 1999 are listed above. shareholding; Degussa was ac- owned companies in which VEBA Disposals are principally the result counted for using the equity method does not exercise full control due of divestments undertaken by Stinnes on the basis of VEBA’s 36.4-per- to limitations related to the powers and of mergers in the Electricity cent stake. The merger of Degussa of management are accounted for Division. and Hüls became retroactively under the equity method. Com- effective as of October 1, 1998,

72 when the merger was filed with the quired in the reporting period, Degussa-Hüls in 1998 would have Commercial Register on February 1, VEBA now holds a 64.7 percent resulted in the following changes 1999. The exchange ratio was one stake in Degussa-Hüls. to the 1998 VEBA Consolidated Degussa share for one share in the Because of the full consolidation Financial Statements: new entity. Including additional of Degussa-Hüls the 1999 financial shares representing 2.3 percent of statements are not fully comparable Degussa-Hüls’s share capital ac- to 1998. Full consolidation of

Unaudited pro-forma Change, 8 in millions figures Sales + 9,885 Net income (VEBA’s share) –20 Fixed assets +2,160 Current assets + 2,550 Minority interests + 900 Provisions + 1,400 Liabilities + 2,410

Stinnes’s initial public offering took TeleColumbus held by VRT was solidation and other significant place on June 14, 1999. In this first sold. The proceeds from the dis- shareholdings is disclosed on the tranche VEBA placed 34.5 percent posal totaled 8747 million. VRT is inside front cover of the annual of Stinnes’s capital stock amount- proportionally consolidated in the report. Pages 118 and 119 show the ing to 8380 million on the stock VEBA Consolidated Financial State- major joint ventures, subsidiaries market. ments. and associated companies along In 1999 Stinnes’s stake in BTL With the exception of the first- with the relevant shareholdings, increased to 98.7 percent as a time full consolidation of Degussa stockholders’ equity, sales and result of its tender offer to BTL’s as a result of its merger with Hüls, income. A list of VEBA Group share- shareholders. In 1998 BTL was fully overall comparability with the pre- holdings has been filed with the consolidated for the first time. vious year is not materially affected Commercial Register of the District Stinnes’s Sanitary Equipment/Heat- by changes in the scope of consoli- Court in Düsseldorf, HRB 22 315. ing/Tiles and Tire Service units, no dation. longer considered core businesses, Generally, associated companies were divested as of January 1, 1999. in which VEBA holds an equity stake VEBA’s stake in MEMC increased between 20 percent and 50 percent from 53.1 percent to 71.8 percent as are valued at equity. A total of 183 a result of the $200 million capital domestic and 48 foreign associated increase undertaken in March and and non-consolidated subsidiaries April 1999 to facilitate financial were valued at equity in 1999 restructuring. compared with 167 domestic and Otelo’s fixed-line business was 48 foreign companies in 1998. sold on April 1, 1999, for 81.15 bil- The primary reason for the change lion. Pursuant to a 1997 contractual in associated companies relates to agreement, the 22.5 percent inter- Degussa, which was valued using est in Otelo that corresponded to the equity method on the basis of the shareholding reacquired from VEBA’s shareholding before its Cable & Wireless in 1997 was trans- merger with Hüls. Furthermore ferred to RWE for 8617 million. RAG was also valued at equity for VEBA now holds a 51.25 percent the first time in 1999. stake in VR Telecommunications After acquiring additional shares (VRT), the new name for the joint and voting rights in Sydkraft, VEBA venture. RWE’s interest in VRT is now holds 20.7 percent of the 48.75 percent. Effective July 1, 1999, Swedish utility’s capital stock and the 100 percent shareholding in the 33.4 percent of its voting rights. German cable-television operator An overview of the scope of con-

73 Notes

Consolidation Policy

According to legal provisions, the assets are recognized as positive or with companies consolidated on a Consolidated Financial Statements negative goodwill, as applicable. proportionate basis are prepared include the financial statements of Goodwill is amortized over its esti- according to attributable stock- individual subsidiaries as well as mated useful life. Goodwill and holders’ equity. adjustments required to conform negative goodwill of different sub- Goodwill arising from companies consistently to the accounting poli- sidiaries are not offset against each valued at equity is calculated based cies of VEBA. other. Amortization of goodwill and on the same principles that are Capital consolidation is conducted negative goodwill is disclosed as applicable to fully consolidated in accordance with the book value other operating expenses or income, companies. To the extent possible method, which as applied by VEBA respectively. valuations are performed according is substantially equivalent to the Intercompany results, expenses to the Company’s uniform valuation purchase method according to US and income as well as receivables principles; intra-group profits are GAAP. The book value method and liabilities between the consoli- eliminated. offsets acquisition costs against dated companies are eliminated. attributable stockholders’ equity Deferred taxes are applied to con- held by the parent company at the solidation adjustments affecting net time of acquisition. Differences income, where applicable. between acquisition costs and at- The same consolidation policies tributable stockholders’ equity are apply to joint ventures consolidated wholly or partially allocated to the under the proportionate method. subsidiary’s assets and liabilities. Necessary consolidation adjust- Acquisition costs not allocated to ments arising from relationships

Currency Translation

The financial statements of the translated with average rates of the The following major currencies of foreign subsidiaries and the at- reporting period. The differences countries outside the Eurozone tributable stockholders’ equity of from the prior year’s translation of have experienced the exchange- foreign associated companies are assets and liabilities as well as rate fluctuations shown below: translated according to the func- differences between the balance tional currency method. Since sheet and the income statement do nearly all subsidiaries are economi- not affect income. VEBA’s share of cally independent, their balance such differences is included as a sheets are translated into euros at component of stockholders’ equity; the rates on the balance-sheet date the minority interests’ share is and their income statements are included in minority interests.

81, rate as of 81, annual the balance-sheet date average rate Currency ISO Code Dec. 31, 1999 Dec. 31, 1998 1999 1998 Swiss francs CHF 1.61 1.60 1.60 1.61 British pound GBP 0.62 0.70 0.66 0.67 Japanese yen JPY 102.73 134.84 121.32 145.05 Swedish krona SEK 8.56 9.45 8.81 8.84 US dollar USD 1.00 1.17 1.07 1.11

74 Summary of Significant Accounting Policies

Intangible Assets and Property, as well as goodwill reported within Property, plant and equipment are Plant and Equipment the subsidiaries’ individual financial valued at acquisition or production Acquired intangible assets are statements are amortized using the costs and depreciated over their valued at acquisition costs and straight-line method over their expected useful lives. amortized by the straight-line remaining useful lives for a period method over their useful lives. generally between 8 and 15 years. Goodwill from capital consolidation

Useful lives of property, plant and equipment Buildings 10 to 50 years Drillings 15 years Chemical plants and refineries 5 to 25 years Power plants Conventional plants up to 15 years Nuclear plants 19 years Equipment, fixtures, furniture and office equipment 3 to 25 years

The Company’s oil and natural gas the portion of undeveloped acreage other than temporary decreases in exploration and production activi- likely to be unproductive, are value, whenever events or changes ties are accounted for under the amortized over the period of explo- in circumstances indicate that the successful efforts method. Under ration. Other exploratory expendi- carrying value of an asset may not this method, costs for exploration tures, including geological and be recoverable. Low-value assets and production like productive geophysical (seismic) costs, other are depreciated in full in the year wells and development dry holes dry hole costs and annual lease of addition. are generally capitalized. These rentals, are expensed against ear- Repair and maintenance costs capitalized assets can be tangible nings as incurred. are recorded as expenses as in- or intangible in nature. Capitalized Immovable assets are amortized curred. Renewals and production assets of commercially productive according to the straight-line costs that extend the useful life of drillings are amortized on the basis method while movable assets are an asset are capitalized. of the units of production to the generally depreciated using the As of January 1, 1995, interest on extent that reserves are extracted declining-balance method. The debt is capitalized in the produc- or, except for certain immaterial change from the declining-balance tion costs of property, plant and properties, according to the de- method to the straight-line method equipment that is constructed over clining-balance method. Previously is made in the year in which the a certain period of time. Production capitalized costs of commercially amount of straight-line deprecia- costs are amortized over their unproductive drillings, based tion exceeds the sum determined useful lives commencing on the largely on historical experience, are by the declining-balance method. completion or commissioning date immediately expensed under the Additionally, write-downs are pro- of the item concerned. successful efforts method. Costs of vided as a result of anticipated

Financial Assets are primarily valued at the lower of only when other than temporary Shares in associated and non-con- acquisition costs or market values. decreases in value have occurred. solidated affiliated companies are Interest-bearing loans are valued generally valued according to the at face values; interest-free and equity method or, if immaterial, at low-interest loans are discounted acquisition cost. Accounting policies to their present values. of VEBA are also applied to associ- Securities are valued at acquisi- ated companies. Other investments tion costs. Write-downs are made

75 Notes

Current Assets while supplies are valued using the generally based on empirical values Inventories are stated at the lower average-cost method. Inventory from the past. Securities are stated of acquisition or production costs risks resulting from excess and at the lower of acquisition costs or or market values. Besides produc- obsolescence are taken into repurchase or market values. tion materials and wages, produc- account by adequate valuation tion costs contain proportionate allowances. material and production overhead Receivables and other assets are based on standard capacity. The stated at face values. Valuation costs of general administration, allowances are provided for identi- voluntary social benefits, pensions fiable individual risks for these and interest on borrowings are not items as well as long-term loans. capitalized. Raw materials, products Adequate lump-sum valuation and goods purchased for resale are allowances are provided to cover valued at LIFO or average cost the general credit risk; these are

Provisions and Liabilities deferred taxes for domestic compa- ably estimated. The estimated lia- Provisions for pensions are based nies are calculated based on a tax bility of the Company is not dis- on actuarial computations accord- rate of 52 percent in 1999 (1998: counted or reduced for possible ing to the projected unit credit 57 percent) on the basis of a reten- recoveries from insurance carriers. method. Obligations for post-retire- tion tax rate of 40 percent for cor- All identifiable risks and undeter- ment benefits at US subsidiaries porate income tax, a solidarity mined liabilities are included in the are also included in provisions for surcharge of 5.5 percent on corpo- calculation of other provisions. pensions. rate income tax, and the trade in- Liabilities are generally shown at Provisions for deferred taxes are come tax. Deferred taxes for foreign redemption value. calculated according to the liability companies are calculated at local method. Deferred tax assets and tax rates. liabilities are offset to the extent Environmental liabilities are possible. Due to the reduction of the accrued when it is probable that a retention tax rate by the German liability has been incurred and the Tax Relief Act 1999/2000/2002, amount of liability can be reason-

76 Derivative Financial Instruments combined to form micro hedges individual transaction as of the Derivative financial instruments are are valued separately at market balance-sheet date. Interest used for hedging purposes. Interest values as of the balance-sheet date exchange amounts are basically rate, interest rate/cross currency and aggregated to the portfolio’s considered with an effect on and cross currency swaps and for- overall market value. Derivative current results at the date of ward rate agreements as well as financial instruments used to hedge payment or accrual. Paid and currency forwards and options are planned underlying transactions are received option premiums are utilized to hedge interest rate and also adjusted to market value at the stated as other assets or other foreign exchange risks. Crude oil balance sheet date with the resulting liabilities and are not accounted swaps as well as refinery margin gain or loss recognized in the port- for until the time of maturity of hedging and petroleum product folios. According to accounting the individual option contracts. swaps are used to cover risks po- policies under German GAAP, a • Exchange traded oil and metal tentially ensuing from fluctuations portfolio with a negative valuation future contracts are valued indi- in crude oil and product prices. result gives rise to a provision for vidually at daily settlement prices Precious metals futures serve to pending losses; a positive market determined on the futures mar- hedge underlying transactions in value is disregarded. Market values kets that are published by their metals trading and to cover price of derivative financial instruments respective clearing centers. Paid risks of the product- and process- are calculated based on market initial margins are stated as other ing businesses. The Company quotations or actuarial computations assets. Variation margins re- uses these derivative financial on the basis of models commonly ceived or paid during the term instruments to hedge booked, used in the market. are stated under other liabilities pending, and planned underlying The following is a summary of or other assets, respectively. transactions. Booked transactions the treatment of utilized financial They are accounted for with an represent those that have already instruments in the Consolidated impact on earnings at settlement been recorded in the financial Financial Statements: or realization, respectively. statements. Pending transactions • Currency, crude oil, and precious are those for which there is a firm metals forwards, crude oil swaps, commitment that none of the par- as well as refinery margin and ties has yet fulfilled. Planned trans- product swaps are valued sepa- actions are those that are antici- rately at future rates or market pated to occur with a high possi- prices as of the balance-sheet bility in the future. date. These are pending trans- In principle, booked and pending actions and are in principle not underlying transactions as well included in the balance sheet as their respective hedges are and income statement until assigned to portfolios for valuation maturity. Valuation results at the purposes. Portfolios are set up for balance-sheet date are consid- each currency and, within each ered in the valuation of the port- currency, separately for currency folios. and interest rate instruments, as • Market prices for currency and well as according to commodity precious metals options are types. A refinery margin portfolio is determined by valuation methods set up containing margin deriva- commonly used in the market. tives for different products in order Paid and received option premi- to hedge the overall margin. In ums are stated as other assets or addition, particularly with regard to other liabilities and are not interest rate risk and price risk in accounted for until maturity. petroleum and precious metals, Valuation results at the balance- hedges are also assigned directly sheet date are assigned to port- to booked and pending underlying folios. transactions and proven petroleum • Marked values are determined reserves (micro hedges). for interest rate, interest rate/ Underlying transactions and de- cross currency, cross currency rivative financial instruments that swaps, forward rate agreements, are assigned to a portfolio but not and interest rate options for each

77 Notes

Consolidated Statement of comprised of undistributed earn- financial investments in the Con- Cash Flows ings from companies valued at solidated Statement of Cash Flows. The Consolidated Statement of equity. Effects of changes in the scope of Cash Flows is classified by operat- The Company’s liquid funds consolidation are shown in invest- ing, investing and financing activ- shown in the Consolidated State- ing activities and have been elimin- ities pursuant to the applicable ment of Cash Flows comprise only ated from the items in the three statement issued by the Institut der liquid funds and current securities classification areas. This also applies Wirtschaftsprüfer (German Institute with an original maturity of less to valuation changes due to ex- of Certified Public Accountants) than three months. Liquid funds change-rate fluctuations whose and the principles applied under and securities with an original impact on liquid funds is separately US GAAP. The separately disclosed maturity of more than three months disclosed. other non-cash items are mainly are disclosed under other current

Segment Information reporting organization that is used by the chief operating decision Segment reporting is in accordance by management for making operat- maker. FAS 131 also requires the with Statement of Financial ing decisions and assessing perfor- Company to provide information Accounting Standards (FAS) 131 mance is designated as the source about products and services, geo- “Disclosures about Segments of an of the Company’s reportable seg- graphic areas and major customers. Enterprise and Related Information.” ments; the measure of segment According to FAS 131, the internal profit or loss is the measure used

Use of Estimates may affect the reported amounts of reported amounts of revenues and The preparation of financial state- assets and liabilities and disclosure expenses during the reporting ments requires management to make of contingent amounts at the date period. Actual results may differ estimates and assumptions that of the financial statements and from those estimates.

(2) Significant Differences Between German and United States Generally Accepted Accounting Principles

The Consolidated Financial State- applied. The remaining differences GAAP. The differences affecting ments comply with US GAAP as far between German and US GAAP consolidated net income and stock- as permissible under German GAAP, only relate to valuation methods holders’ equity are as follows. with the exception of mergers, where which are required under US GAAP, the book-value method is generally but are not allowed under German

(a) Business Combinations On February 1, 1999, Degussa, in As for acquisitions through issu- German GAAP requires that merg- which Hüls had held a 36.4 percent ance of a subsidiary’s stock, US ers be accounted for in the finan- shareholding, was merged into GAAP applies the purchase method cial statements as of the date Hüls, in which VEBA had until that to the merger. The purchase price agreed upon in the merger contract. time held a 99.8 percent interest. for the increase in the Degussa The acquiring company can choose After the merger VEBA held 62.4 shareholding from 36.4 to 100 per- to assume the transferring legal percent of the merged Degussa- cent is based on the roughly 82.4 entity’s assets and liabilities by Hüls. In VEBA’s Consolidated German billion market value of 63.6 percent applying either the book-value GAAP Financial Statements the of Degussa’s shares. After the allo- method or the fair-value method. merger is accounted for using the cation to the fair values of assets Under US GAAP, the measurement book-value method. Degussa-Hüls and liabilities (mainly licenses, date is the date of the registration is fully consolidated in VEBA’s Con- patents, and brand names totaling in the Commercial Register. Assets solidated German GAAP Financial 8265 million) and acquired in pro- and liabilities assumed have to be Statements as of October 1, 1998, cess research and development accounted for at their fair values the date the merger took economic activities (in the amount of using the purchase method of effect. 8160 million), the remaining differ- accounting.

78 ence between the purchase price sa-Hüls does not begin until this has been recognized in net income and the acquired share in Degussa’s date. The impact on net income in the amount of 8559 million. net equity is capitalized as goodwill resulting from the different treat- The differences between the and amortized over a period of ment is shown under (d) Equity book-value method under German 15 years. Under US GAAP, VEBA’s Valuation. In addition, the increase GAAP and the purchase method 36.4 percent stake in the former in stockholders’ equity resulting under US GAAP as well as the Degussa is accounted for using the from the difference between the effect resulting from the difference equity method until February 1, attributable stockholders’ equity of in measurement dates of Degussa- 1999, the date of the filing of the Degussa-Hüls after the merger and Hüls’s full consolidation are shown merger with the Commercial Regis- the attributable stockholders’ in the reconciliation. ter. The full consolidation of Degus- equity in Hüls before the merger

(b) Capitalized Interest costs is, however, required by US allowed under German GAAP. Pursuant to German Commercial GAAP. VEBA has implemented the For purposes of reconciliation to Code (HGB) regulations, it is per- valuation option provided by the US GAAP, interest is capitalized on mitted under certain circumstances, German Commercial Code to capi- debt apportionable to the construc- but not required, to capitalize talize interest in 1995 and capital- tion period of fixed assets through interest as a part of the historical izes interest costs in compliance 1994 and depreciated over the ex- cost of acquisition of assets that with US GAAP. Due to the histori- pected useful life of the qualifying are constructed or otherwise pro- cal cost principle, retroactive capi- asset. duced for an enterprise’s own use. talization of interest costs for the The capitalization of such interest financial years up to 1995 is not

(c) Valuation of Securities and trading securities. The Company’s effect within the reconciliation to Other Investments securities and other investments US GAAP on the stockholders’ Under German GAAP, securities are classified as available for sale equity for the financial years re- and other investments as well as and are therefore valued at market ported and no effect on net income long-term and current securities value on the balance-sheet date. for the years presented. are valued at the lower of acquisi- Under US GAAP, unrealized gains tion cost or market value on the and losses from these securities balance-sheet date. Under US GAAP, available for sale are excluded from long-term and current securities earnings and directly included in and other share investments are stockholders’ equity. classified into one of three catego- Stockholders’ equity has been ries: held-to-maturity securities, restated as of December 31, 1998. available-for-sale securities or This does not have a material

(d) Equity Valuation/Negative items based on information pro- under German GAAP if expected Goodwill vided by the company. expenses occur at the time the For purposes of reconciliation to Based on a change in circum- shareholding is acquired and/or on US GAAP, the financial statements stances, VEBA changes its basis consolidation for the first time, or if of associated companies accounted for estimating earnings for one it becomes apparent that it corre- for using the equity method have equity investee. This resulted in an sponds to a realized profit upon been adjusted using valuation prin- additional loss at the amount of the balance-sheet date. Under US ciples prescribed by US GAAP. To 837 million recorded in the current GAAP, negative goodwill is amor- the extent that certain equity inves- year. No retroactive restatement is tized according to schedule over its tees do not prepare consolidated required. expected useful life. US GAAP financial statements, an Negative goodwill from capital estimate is made of reconciling consolidation must be released

79 Notes

(e) Provisions for Pensions and vice costs. Additional minimum lia- Under German GAAP, accruals are Similar Liabilities bility in excess of the unrecognized established for the estimated num- In some group companies the prior service costs is charged ber of employees nearing retire- unfunded accumulated benefit obli- directly against stockholders’ equity. ment who are expected to elect a gation exceeds accrued pension Under US GAAP, the amount has government-subsidized early retire- provisions. In such cases, under US no impact on net income. Pursuant ment program. Under US GAAP, GAAP, provisions for pensions are to German GAAP regulations, the such accruals may only be estab- increased by an additional mini- funding of this additional minimum lished if the employee consents by mum liability which is accounted liability is immediately recorded in entering into a binding contractual for as an intangible asset not to the income statement of the current agreement. exceed the unrecognized prior ser- year.

(f) Deferred Taxes Under US GAAP, deferred taxes more likely than not that the de- Under German GAAP, deferred are provided for all temporary dif- ferred tax assets will not be realized. taxes are calculated based on the ferences between the Tax and Con- Stockholders’ equity was restated liability method for all timing differ- solidated Balance Sheet (temporary as of December 31, 1998. This did ences between valuation amounts concept). The temporary concept not have a material effect on the in the Tax and Consolidated Balance also applies to quasi-permanent stockholders’ equity of the financial Sheet. For quasi-permanent differ- differences. Under US GAAP, years reported and no effect on ences that are released over a very deferred taxes also are calculated net income for the financial years long period of time or only during for tax loss carryforwards and for shown in the reconciliation to the course of a company’s divest- accounting and valuation adjust- US GAAP. ment or liquidation, deferred taxes ments required under US GAAP. can only be recognized if the future Deferred taxes are calculated using reversal is probable. Deferred tax the liability method and are based assets are not recognized for tax on enacted tax rates. A valuation loss carryforwards. allowance is established when it is

(g) Other tives as of the balance-sheet date, Other differences in accounting and the treatment of initial public principles mainly include unrealized offerings and merger costs, stock gains from foreign currency trans- appreciation rights, and leasing lation, outstanding financial deriva- contracts.

(h) Minority Interests regarding minority interests and Under US GAAP, minority interests resulting from US GAAP adjust- are not included in net income or ments are therefore shown stockholders’ equity. Effects on separately. stockholders’ equity and net income

80 Reconciliation to US GAAP

1999 1998 Left is a summary of the significant Stockholders’ Net income Stockholders’ Net income adjustments to net income and 8 in millions equity equity stockholders’ equity which would Stockholders’ Equity/Net Income as be required for full compliance with Disclosed in the Consolidated US GAAP, but are disallowed under Financial Statements 17,372 2,902 13,468 1,152 Minority interests – 2,990 – 234 – 1,701 44 German GAAP. Stockholders’ Equity/Net Income US GAAP earnings per share are (Excluding Minority Interests) 14,382 2,668 11,767 1,196 based on the weighted average of US GAAP Adjustments outstanding common stock and Business combinations (a) 1,372 323 ––common stock equivalents. The Capitalized interest (b) 156 – 51 182 – 49 determination of common stock Valuation of securities and common stock equivalents and other investments (c) 596 – 2,210 – Equity valuation/ which form the basis for calculat- negative goodwill (d) 124 69 54 10 ing diluted EPS is as follows. Provisions for pensions and similar liabilities (e) 79 30 20 21 Deferred taxes (f) – 544 – 226 – 309 16 Other (g) 405 76 35 11 Minority interests (h) – 905 102 –104 – 31 Total Adjustments 1,283 323 2,088 – 22 US GAAP Stockholders’ Equity/ Net Income 15,665 2,991 13,855 1,174 US GAAP Basic Earnings per Share 85.95 82.34 US GAAP Diluted Earnings per Share 85.95 82.33

Determination of Weighted Number of Shares and Share Equivalents

1999 1998 Shares 502,797,780 501,259,780 Share equivalents – 1,005,134 Shares and Share Equivalents 502,797,780 502,264,914

81 Notes

Reporting Comprehensive Income

8 in millions 1999 1998 In addition to net income, compre- US GAAP Net Income 2,991 1,174 hensive income includes all changes Other Comprehensive in stockholders’ equity that do not Income, Net of Tax affect net income except those Foreign currency translation adjustments 358 – 256 resulting from investments by, and Unrealized holding gains and losses on securites and other distributions to, stockholders. investments 218 256 (after-tax benefit [expense] 1999: 8357 million and 1998: –8321 million) Less: reclassification adjustment for gains realized – 1,386 – 33 (after-tax benefit [expense] 1999: –843 million and 1998: –843 million) Minimum pension liability adjustment – – 20 (after-tax benefit [expense] 1999: –87 million and 1998: 827 million) Other Comprehensive Income – 810 – 53 Comprehensive Income 2,181 1,121

Other Accumulated Comprehensive Income Balances Year Ended December 31

Foreign Unrealized Minimum Other accu- currency gains pension mulated items on liability comprehen- securities adjust- sive 8 in millions ment income January 1, 1999 – 162 1,417 – 47 1,208 Current-period change 358 – 1,168 – – 810 December 31, 1999 196 249 – 47 398 January 1, 1998 94 1,194 – 27 1,261 Current-period change – 256 223 – 20 – 53 December 31, 1998 – 162 1,417 – 47 1,208

8 in millions 1999 1998 US GAAP equity before other accumulated comprehensive income 15,267 12,647 Other accumulated comprehensive income 398 1,208 Total US GAAP Equity 15,665 13,855

New US Accounting Standards of SFAS 133” was approved. It post- requirements. From today’s point of Not Yet Adopted pones the first-time application of view the impact on the Consolidated In June 1999, FAS No. 137, FAS No. 133 by one year. VEBA Financial Statements is expected to “Accounting for Derivative Financial intends to adopt this standard as of be immaterial. Instruments and Hedging Activi- January 1, 2001. This statement ties—Deferral of the Effective Date enhances accounting and disclosure

82 Notes to the Consolidated Income Statements

(3) Sales

8 in millions A detailed analysis of sales by divi- primarily from the real estate sec- 2000 665 sion and geographical region is tor, in the amount of 8605 million 2001 672 provided in the Segment Informa- (1998: 8608 million). 2002 680 tion under Note (28). Future revenues arising from 2003 687 Sales in the financial year include rental tenancy and leasing contracts 2004 694 3,398 petroleum and electricity taxes in total 83,398 million for the next the amount of 83,942 million (1998: five years and are due according to 83,742 million). Sales also include the table at left. revenues from the rental business,

(4) Other Operating Income

8 in millions 1999 1998 Left is a detail of other operating Miscellaneous other operating Gains from the disposal income. income includes a number of items of fixed assets 2,670 992 Gains from the disposal of fixed such as income from the reversal Release of provisions 406 295 assets are comprised primarily of of previously recorded impairments, Exchange-rate gains resulting from the deconsoli- income from rentals and licenses differences 346 144 Reimbursements of dation and/or the disposal of the as well as passed-on personnel incurred costs 135 244 shareholding in Cable & Wireless and administrative costs. Other trade income 124 88 (81,347 million), TeleColumbus, and Recoveries 79 41 VRT’s fixed-line business. In the Reimbursements and reporting period, income from the grants 55 189 release of provisions primarily re- Income from the lates to the release of accruals for reorganization of Deminex and the personnel costs and transactions in exchange of shares the ordinary course of business. BTL/Poseidon – 212 These provisions had to be released Amortization of negative because present circumstances goodwill from capital indicate that they are no longer consolidation – 144 probable. Miscellaneous 596 519 4,411 2,868

83 Notes

(5) Other Operating Expenses

8 in millions 1999 1998 Left is a detail of other operating Research and development costs 583 194 expenses. Additions to accruals 468 113 Other operating expenses include Amortization of goodwill from costs that cannot be allocated to capital consolidation 276 171 production, administration, or sel- Other passed-on expenses 217 79 Bad debt expense 188 160 ling costs. In the reporting period, Reorganization costs 163 268 in addition to the aforementioned, Exchange-rate differences 146 81 miscellaneous other expenses in- Losses from the disposal of clude among other items expenses fixed assets 139 109 resulting from financial instru- Miscellaneous 630 680 ments, expenses for exploration, 2,810 1,855 other taxes, rentals, leaseholdings, and ground rent.

(6) Financial Earnings

8 in millions 1999 1998 Income from equity interests in- Income from companies in which cludes goodwill amortization of share investments are held 70 115 companies valued at equity totaling thereof from affiliated companies 8133 million (1998: 8180 million) 814 million (1998: 821 million) as well as income resulting from Income from profit-and-loss-pooling agreements 10 10 the release of negative goodwill thereof from affiliated companies relating to companies accounted 83 million (1998: 83 million) for under the equity method in the Income from companies accounted amount of 8154 million (1998: 8129 for under the equity method 684 558 million). Included in financial earn- thereof from affiliated companies ings are losses from an equity 85 million (1998: 83 million) investee amounting to 863 million Losses from companies accounted for under the equity method – 303 – 333 that are covered by the amortization thereof from affiliated companies of negative goodwill. To entrance –8103 million (1998: –8171 million) the true and fair presentation, write- Losses from profit-and-loss-pooling downs of interests are included in agreements –13 –4 income from equity interests since thereof from affiliated companies 1999. The prior year’s figures are –82 million (1998: –81 million) reclassified accordingly. Write-downs of investments –14 –19 Income from Equity Interests 434 327 Net interest income includes an Income from long-term securities addition to the provision for inter- and long-term loans 201 156 est expense arising from tax re- Other interest and similar income 234 17 2 quirements in the amount of 8164 thereof from affiliated companies million. Interest expense is reduced 83 million (1998: 81 million) by capitalized interest on debt Interest and similar expenses – 548 – 334 totaling 856 million (1998: 856 mil- thereof from affiliated companies –83 million (1998: –81 million) lion). Interest Income (Net) –113 –6 Write-downs of financial assets and long-term loans –24 –11 297 310

84 (7) Income Taxes

Income taxes including deferred 8 in millions 1999 1998 taxes are as follows. Current taxes Domestic corporate income tax 1,473 756 Domestic trade tax on income 518 314 Foreign income tax 393 274 2,384 1,344 Deferred taxes – 1,333 – 104 1,051 1,240

The increase in domestic corporate tax treatment of provisions for The effective tax rate in 1999 income tax and trade tax on income nuclear waste disposal. Deferred was 26.6 percent compared with is mainly due to provisions for tax assets increased significantly 51.8 percent in 1998. The table possible burdens resulting from the as a result of temporary differences below is a reconciliation to the German Tax Relief Act 1999/2000/ resulting from the accounting for current 40 percent statutory tax 2002 and the German Internal provisions for nuclear waste dis- rate (1998: 45 percent). Revenue Service’s more stringent posal for financial reporting and legal interpretation regarding the tax purposes.

1999 1998 8 in millions %% Corporate income tax (1999: 40% and 1998: 45%) 1,581 40.0 1,077 45.0 Credit for dividend distributions – 135 – 3.4 – 116 – 4.8 German trade tax on income net of federal tax benefit 394 10.0 183 7.7 Foreign tax-rate differential 85 2.2 – 105 – 4.4 Changes in the tax rate – 121 – 3.1 – 23 – 0.9 Tax effect on: Tax-free income – 760 –19.2 – 73 – 3.2 Temporary differences and losses for which no tax benefit was recorded 13 0.3 333 13,9 Net operating loss utilization – 137 – 3.6 – 53 – 2.2 Income from associated companies valued at equity –64 – 1.6 –3 –0.1 Change in goodwill and negative goodwill from capital consolidation 130 3.3 35 1.5 Income from deconsolidation 6 0.2 – 66 – 2.8 Other 59 1.5 51 2.1 Income Taxes/ Effective Tax Rate 1,051 26.6 1,240 51.8

85 Notes

Income before income taxes is attributable to foreign and domes- tic locations as shown below.

8 in millions 1999 1998 Domestic 3,533 2,345 Foreign 420 47 3,953 2,392

Deferred income-tax assets and with US GAAP are summarized liabilities calculated in accordance below.

8 in millions 1999 1998 Deferred tax assets Intangible assets – 51 Accruals and liabilities 2,455 597 Net operating loss carryforwards 876 1,298 Other 203 132 3,534 2,078 Valuation allowance – 351 – 593 Deferred tax assets 3,183 1,485 Deferred tax liabilities Intangible assets 230 – Fixed assets 3,209 2,449 Investments 412 737 Deferred tax liabilities 3,851 3,186 Net Deferred Tax Liability under US GAAP 668 1,701

The difference between deferred stockholders’ equity according to allowance has been provided for tax liabilities under US GAAP total- US GAAP. the portion of the deferred tax ing 8668 million (1998: 81,701 mil- Based on past results of subsidi- asset for which these criteria have lion) and deferred tax liabilities of aries and expectations of similar not been met. 8124 million under German GAAP performance in the future, the tax- Tax-loss carryforwards at year- (1998: 81,392 million) is shown in able income of these subsidiaries end are as follows. the reconciliation (see Note 2) in will likely be sufficient to fully re- the amount of –8544 million (1998: cognize the net deferred asset relat- –8309 million) as an adjustment to ed to these subsidiaries. A valuation

8 in millions 1999 1998 Domestic loss carryforwards Corporate income tax 395 793 Trade tax on income 1,758 1,499 Foreign loss carryforwards 903 681

Domestic tax losses can be carried Undistributed earnings of consoli- 8404 million in 1998. Deferred tax forward indefinitely. Foreign loss dated foreign subsidiaries expected liabilities related to these profits carryforwards have various expira- to be reinvested indefinitely were not calculated because this is tion periods. amounted to 8315 million in the not practicable. year under review compared with

86 (8) Minority Interests in Net Income

Minority shareholders participate in million (1998: 8173 million) and the profits of the consolidated losses amounting to 890 million companies in the amount of 8324 (1998: 8217 million).

(9) Other Information

The following tables show signifi- Material Costs cant expenses contained in the 8 in millions 1999 1998 operating areas of production, Costs of raw materials and supplies sales and administration, and other and purchased goods 27,264 20,622 Costs of purchased services 5,523 5,888 operating expenses. 32,787 26,510

Personnel Costs 8 in millions 1999 1998 Wages and salaries 5,773 4,807 Social security contributions 1,006 871 Pension costs and other employee benefits 724 582 thereof pension costs (714) (580) 7,503 6,260

Stock-Based Compensation

As of the balance-sheet date, the In July 1999, Stinnes granted 3.4 mil- recognized option-pricing models. VEBA Group had various stock- lion SARs to about 260 top-level The SARs were priced using the based compensation plans includ- executives—including all members following weighted-average assump- ing stock appreciation rights (“SARs”) of Stinnes AG’s Board of Manage- tions: expected volatility of VEBA within VEBA AG and Stinnes and a ment—as part of their compensation. shares of 24.9 percent, of the Euro stock option program within MEMC. The Executive Committee of VEBA Stoxx 50 of 18.23 percent; correlation All plans are accounted for in AG’s and Stinnes AG’s Supervisory of the share price and the index’s accordance with Financial Board determined the number of performance of 0.57; expected exer- Accounting Standards No. 123 SARs to be granted to the members cise term and effective life of four “Accounting for Stock-Based of the respective company’s Board years; risk-free interest rate of Compensation.” of Management. The Executive Com- 3.5 percent and an expected dividend mittees of the major Group compa- yield of approximately 2.0 percent. Stock Appreciation Rights nies’ Supervisory Boards determined Due to the lack of historical experi- The following information applies to the number of SARs to be granted to ence at the time of grant and a directly both stock appreciation programs the members of these companies’ comparable entity, the assumptions within VEBA AG and Stinnes. Dif- Boards of Management. The Boards used for calculating the value of ferences regarding Stinnes’ program of Management of the relevant com- Stinnes’s SARs have been developed are provided in parentheses or are panies determined the number of based on the assumptions used for otherwise indicated. SARs granted to the remaining VEBA’s SARs. VEBA AG and Stinnes indepen- qualified executives. For both plans, the compensation dently decided to introduce SAR The SARs were granted based on to be received from the exercise of programs in March 1999. VEBA AG the market price on January 4, 1999 SARs is paid in cash and is calcula- granted 1 million SARs, retroactive (the average market price between ted as the difference between the to the beginning of 1999, to approxi- June 28 and July 9, 1999). The VEBA (Stinnes) stock price and the mately 120 top-level executives weighted average fair value of options respective companies’ indexed stock worldwide—including all members granted was 87. 21 ( 8 2.01) on the price multiplied by the number of of VEBA AG’s Board of Manage- date of grant. The value of VEBA’s SARs to be exercised. The above- ment—as part of their compensation. SARs was calculated by using mentioned VEBA (Stinnes) stock

87 Notes

price equals the average quotation divided by the performance of the The SARs granted under both of the last six months before exercise. applicable index at the date of programs are non-transferable. The calculation considers possible grant: 4,376.82 (3,921.05). Under certain conditions they can dilution effects from capital changes The SARs granted under both be exercised before the exercise and dividend payments that have programs have a term of five years. date in the case of termination of occurred between grant and exer- Qualified executives can exercise employment; otherwise they are cises. To calculate the respective all or a portion of the SARs granted canceled. In the current reporting company’s indexed stock price, the to them on pre-determined exer- period, 30,000 SARs were can- respective company’s stock price cise dates in 2002 and 2003 (be- celed as a result of termination of at the date of grant—854.67 tween July 2002 and 2004). SARs employment. (815.28)—is multiplied by the ratio not exercised by the final exercise Below is a summary of the VEBA of the average Euro Stoxx 50 date on November 3, 2003 and Stinnes stock plan activity for (M-DAX) performance during the (May 3, 2004), will automatically 1999. last six months prior to exercise be considered as exercised.

VEBA SARs Stinnes SARs Outstanding at beginning of year Granted 1,037,000 3,447,800 Exercised – – Cancelled – 30,000 Outstanding at year-end 1,037,000 3,417,800 SARs exercisable at year-end – –

There was no compensation cost Stock Option Plan recognized regarding VEBA AG’s MEMC has an Equity Incentive Plan SAR program in 1999 as the differ- (the Plan) that provides for the ence between the VEBA stock price award of incentive and non-quali- as defined above at December 31, fied stock options, restricted stock 1999, and the indexed stock price and performance shares. Total was negative 87.61. Total compensa- shares authorized for grant under tion cost under German GAAP the Plan are 3,597,045. The exercise recognized in 1999 with regards to price of each option equals the Stinnes’s SAR program amounted to market price of MEMC’s common 814 million. The impact of the dif- stock at the date of the grant, and ferent accounting treatments under each option’s maximum term is German GAAP and US GAAP is 10 years. reflected in Note 2 (g). The difference Total compensation cost in 1999, in the Stinnes’s stock price as defined 1998, and 1997 recognized for options above at December 31, 1999, and the granted under the Plan based on indexed stock price was 84.13. The the fair value at the grant dates weighted-average expected life of consistent with the alternative the options is 3 (3.5) years. method set forth under Statement of Financial Accounting No. 123, “Accounting for Stock-Based Compensation” was 81.9, 83.2, and 82.3.

88 Employees In the period under review the Because of the disposal of VRT’s Telecommunications have low breakdown by division of the aver- fixed-line business as of April 1, informational value. As of Decem- age number of employees, includ- 1999, and of TeleColumbus as of ber 31, 1999, VRT employed a ing trainees and interns as well as July 1, 1999, average figures in total of 107 people. part-time and less than part-time employees, is shown as right. The employee headcount for the Employees 1999 1998 year under review includes 576 em- Electricity 20,888 22,126 Oil 6,042 6,560 ployees (1998: 1,950) apportionable Chemicals 44,853 18,856 to VEBA through VRT companies Real-Estate Management 4,683 13,461 consolidated on a proportionate Distribution/Logistics 49,703 62,095 basis in Telecommunications. Telecommunications 594 1,967 Silicon Wafers 5,704 6,794 Others 463 478 132,930 132,337 thereof trainees/interns (5,962) (6,188) thereof part-time and less-than- part-time employees (10,987) (10,383)

Taxes Other than Income Taxes Taxes other than income taxes total 859 million (1998: 863 million), resulting principally from property tax and real-estate transfer tax in the current period.

(10) Income and Expenses Not Related to the Financial Year

Income and expenses not related to Income related to other financial recognized to account for prior the financial year represent items years amounted to 8353 million years’ contingencies in which impacting the current year’s results (1998: 8394 million) and derives management currently considers due to changes in facts and cir- primarily from the release of provi- the risk of loss to be both probable cumstances related to events of sions and refunds. Expenses relat- and estimable. prior years. They are largely in- ed to other years total 8349 million cluded in other operating income (1998: 8364 million). These ex- and expenses. penses mainly represent provisions

89 Notes

Notes to the Consolidated Balance Sheet

(11) Intangible Assets

8 in millions Licenses Goodwill Goodwill Advance Total from financial from capital payments statements consolidation Acquisition Costs Balance on January 1, 1999 1,014 363 1,967 50 3,394 Exchange rate differences 49 27 69 1 146 Change in scope of consolidation 181 137 12 – 1 329 Additions 111 14 508 33 666 Disposals 309 36 54 10 409 Transfers 13 – 1 900 – 5 907 Balance on December 31, 1999 1,059 504 3,402 68 5,033 Accumulated Depreciation Balance on January 1, 1999 353 136 682 26 1,197 Exchange rate differences 15 8 8 2 33 Change in scope of consolidation 99 7 – 25 – 1 80 Additions 180 37 280 3 500 Disposals 199 24 33 2 258 Transfers 6–76–82 Balance on December 31, 1999 454 164 988 28 1,634 Net Book Value on December 31, 1999 605 340 2,414 40 3,399 Net Book Value on December 31, 1998 661 227 1,285 24 2,197

(12) Property, Plant and Equipment

8 in millions Real estate, Mine Technical Other equip- Advance Total leasehold development equipment, ment, fixtures, payments rights and costs, mines, plant and furniture and and buildings and drillings machinery office construction equipment in progress Acquisition and Production Costs Balance on January 1, 1999 9,876 829 29,774 2,576 1,284 44,339 Exchange rate differences 196 18 497 48 83 842 Change in scope of consolidation 1,361 – 20 2,887 604 158 4,990 Additions 299 5 798 366 1,089 2,557 Disposals 357 5 605 474 45 1,486 Transfers 127 – 8 667 38 – 838 – 14 Balance on December 31, 1999 11,502 819 34,018 3,158 1,731 51,228 Accumulated Depreciation Balance on January 1, 1999 3,983 518 21,525 1,925 34 27,985 Exchange rate differences 43 35 285 27 2 392 Change in scope of consolidation 623 – 19 2,015 466 – 3,085 Additions 350 56 1,641 350 21 2,418 Disposals 142 34 455 394 3 1,028 Transfers – 61 – 13 45 23 – – 6 Balance on December 31, 1999 4,796 543 25,056 2,397 54 32,846 Net Book Value on December 31, 1999 6,706 276 8,962 761 1,677 18,382 Net Book Value on December 31, 1998 5,893 311 8,249 651 1,250 16,354

Property, plant, and equipment tion period in 1999 in the amount of includes the capitalized interest on 856 million (1998: 856 million). debt apportionable to the construc-

90 8 in millions 1999 1998 The adjacent table provides an Electricity 844 934 analysis of additions to property, Oil 402 423 plant and equipment, and Chemicals 998 732 intangible assets by division. Real-Estate Management 248 178 Distribution/Logistics 515 543 Telecommunications 27 167 Silicon Wafers 49 194 Others 140 32 3,223 3,203

(13) Financial Assets

8 in millions Shares in Long-term Shares in Other Loans to Long-term Loans related Other Total affiliated loans to associated share associated securities to banking long-term companies affiliated companies investments and other operation loans companies companies Acquisition Costs Balance on January 1, 1999 543 457 6,599 2,640 835 1,796 – 596 13,466 Exchange rate differences – 1 104 13 33 – – 3 154 Change in scope of consolidation 78 – 117 46 3 13 576 6 839 Additions 54 92 869 1,726 48 363 430 82 3,664 Disposals 69 2 370 1,443 78 200 286 87 2,535 Transfers 3 – – 698 – 146 – 56 – – 4 – 893 Balance on December 31, 1999 609 548 6,621 2,836 785 1,972 720 604 14,695 Accumulated Depreciation Balance on January 1, 1999 109 1 413 43 99 1 – 35 701 Exchange rate differences 1 – – – – – – – 1 Change in scope of consolidation 40 – – 1 8 – 1 – 3 51 Additions 62 – 79 70 7 19 – 13 250 Disposals 11 – 65 2 1 – – 18 97 Transfers 1 – – 72 – 5 – – – – – 76 Balance on December 31, 1999 202 1 354 114 105 21 – 33 830 Net Book Value on December 31, 1999 407 547 6,267 2,722 680 1,951 720 571 13,865 Net Book Value on December 31, 1998 434 456 6,186 2,597 736 1,795 – 561 12,765

91 Notes

Shares in Affiliated and Associated Companies Accounted for under the Equity Method

Earnings Data 1999 1998 The summarized financial informa- 8 in millions tion at left displays condensed Sales 38,208 38,883 information related to the Com- Net income 392 341 pany’s affiliated and associated companies that are accounted for VEBA portion of net income 196 141 Adjustments to conform with VEBA using the equity method. accounting and valuation policies and amortization/release of goodwill and negative goodwill 133 84 Investment in Companies which are Accounted for under the Equity Method 329 225

Balance Sheet Data Dec. 31, 1999 Dec. 31, 1998 8 in millions Fixed assets 51,526 39,680 Current assets and prepaid expenses 22,287 13,147 Accruals 25,691 14,776 Liabilities and deferred income 30,883 23,339 Net assets 17,239 14,712

VEBA share in equity 4,741 4,084 Adjustments to conform with VEBA accounting and valuation policies and effects of equity valuation 1,791 2,460 Investment in Companies which are Accounted for under the Equity Method 6,532 6,544

The statements for the year under The Company’s share of undistrib- Application of the equity method review reflect the first-time equity uted earnings of affiliated and to additions to investments in asso- valuation of RAG. As a result of the associated companies included in ciated and affiliated companies full consolidation of Degussa-Hüls, consolidated retained earnings is resulted in goodwill of 847 million the statements no longer contain 8596 million. Dividends collected (1998: 815 million). Negative the earnings and balance-sheet by VEBA from these companies are goodwill resulting from the first- data from the shareholding in 8324 million in 1999 compared time application of the equity Degussa accounted for under the with 8331 million in 1998. method and allocated to equity equity method in 1998. amounted to 8624 million (1998: 87 million).

Other Financial Assets 1999 1998 Securities Available for Sale Book Market Unrealized Book Market Unrealized 8in millions values values profits values values profits Fixed-term securities 332 333 1 229 257 28 Mutual funds 1.617 1,974 357 1,563 1,886 323 Other shareholdings and securities 2,724 2,955 231 2,601 4,456 1,855 4,673 5,262 589 4,393 6,599 2,206

The Company’s 10 percent stake in term securities are summarized VIAG acquired from the Free State above. of Bavaria on October 07, 1999, is The disposals of securities avail- reported under other shareholdings able for sale generated proceeds in and securities. the amount of 83,024 million The book and market values of (8236 million) and capital gains in the other investments and long- the amount of 81,429 million (1998: 865 million).

92 8 in millions Book value Market value Less than 1 year 72 71 Between 1 and 5 years 222 223 More than 5 years 38 39 332 333

Maturities of fixed-term securities as of December 31, 1999, are shown above.

Long-term loans are shown below.

1999 1998 8 in millions Interest rate Maturity 8 in millions Loans to affiliated companies 547 up to 7.2% up to 2035 456 Loans to other associated Companies 680 up to 6.1% up to 2007 736 Loans related to banking operations 720 up to 6 % up to 2009 – Other loans 571 up to 8.75% up to 2010 561 2,518 1,753

As a result from other than tempo- (1998: 8178 million). In the report- rary decreases in value, fixed ing period they primarily related to assets were subject to write-downs write-downs of financial assets in in the amount of 8262 million the Telecommunications Division.

(14) Inventories

8 in millions 1999 1998 Raw Materials and Supplies by Division Electricity 472 459 Oil 162 105 Chemicals 458 107 Silicon Wafers 53 44 Other 36 40 1,181 755 Work in Progress 317 138 Finished Products by Division Oil 147 61 Chemicals 807 421 Silicon Wafers 49 55 Other 22 27 1,025 564 Goods Purchased for Resale 1,862 1,461 Advance Payments 28 13 4,413 2,931

Work in progress is shown together Inventories in the amount of primarily from the first-time inclusion with finished products because 8875 million (1998: 8407 million) of the precious metals stocks’ mar- they are combined for the purpose are valued according to the LIFO ket valuation. of valuation by the LIFO method. method. The difference between Raw materials and supplies con- valuation according to LIFO and tain utilities’ fuel inventories in the higher replacement costs is amount of 896 million (1998: 8458 million (1998: 816 million). 892 million) and crude oil supplies The difference in comparison with of 896 million (1998: 855 million). the previous year’s figure results

93 Notes

(15) Receivables and Other Assets

1999 1998 8 in millions with a remaining with a remaining term of more term of more than 1 year than 1 year Accounts receivable trade 6,306 3 4,336 1 Affiliated companies 122 2 64 – Associated companies and other share investments 1,352 9 1,035 103 Reinsurance claim due from Versorgungskasse Energie Mutual Insurance Fund 542 517 511 402 Receivables from banking operations 202 61 –– Other assets 1,862 200 2,245 68 10,386 792 8,191 574

The reinsurance claim due from the from fixed asset disposals of Versorgungskasse Energie (VVaG) 8290 million (1998: 8340 million). Mutual Insurance Fund partially The VRT shareholding held for covers pension obligations to sale, which was included in other PreussenElektra employees. assets in 1998, was sold to RWE In the year reported, other assets as of July 1, 1999. primarily consist of tax-refund claims of 8562 million (1998: 8317 million), short-term loans of 8409 million (1998: 898 million), unbilled receiv- ables from services and deliveries to third parties and receivables

(16) Liquid Funds

8 in millions 1999 1998 Securities 271 157 Cash and cash equivalents 1,566 350 1,837 507

Cash and cash equivalents include checks, cash on hand, and balances on Bundesbank accounts and at other banking institutions.

94 1999 1998 Securities Book values Market values Unrealized Book values Market values Unrealized 8 in millions gains gains Fixed-term maturities 248 250 2 149 152 3 Investment Funds 10 10 – ––– Other 13 18 5 891 271 278 7 157 161 4

The securities’ book and market The disposal of securities available prior year (1998: 811 million), no values are shown above. for sale generated sales proceeds capital gains from disposals were in the amount of 833 million (1998: recorded in the reporting period. 8275 million). Compared with the

8 in millions Book values Market value In 1999, 360,360 shares of VEBA 850.94. The difference between Less than 1 year 128 128 stock (0.08 percent of VEBA’s out- the purchase price and resale price 1 to 5 years 116 118 standing stock) were purchased on of the employee shares issued has More than 5 years 4 4 the stock market at an average price been charged to personnel expenses. 248 250 of 854.39 per share for employees Maturities of fixed-term securities within the Group. These shares as of December 31, 1999, are shown were sold to employees at prefer- above. ential prices between 827.02 and

(17) Prepaid Expenses

This item includes debt discounts in the amount of 81 million (1998: 82 million).

(18) Capital Stock

At the 1999 Annual Stockholders’ It was also resolved to establish In 1996, additional authorized capi- Meeting it was resolved to convert conditional capital of up to 850 tal totaling DM100 million was the capital stock from DM to euros. million to issue bonds with conver- approved for the issuance of new The euro-denominated capital stock sion or option rights on shares of shares in exchange for cash. This will be increased by 821,892,114.01 VEBA Aktiengsellschaft until May capital expires on May 22, 2001. to 81,307,274,228.00 using corporate 26, 2004. This conditional capital The Board of Management is funds by converting a portion of can exclude stockholders’ sub- empowered to decide on the exclu- additional paid-in capital. scription rights. sion of stockholders’ subscription The capital stock was reclassified The 1998 Annual Stockholders’ rights. At the 1999 Annual Stock- such that a DM5 nominal share Meeting approved authorized holders’ Meeting it was resolved to was replaced by a share without capital of DM250 million for the convert this amount to 850 million. nominal value. New shares were issuance of new shares in exchange In compliance with Article 21 of not issued. The capital stock now for cash with stockholders’ sub- Germany’s Securities Trading Act consists of 502,797,780 bearer scription rights and authorized (WphG), Allianz AG informed shares without nominal value. These capital of DM250 million for the VEBA AG’s Board of Management amendments were filed with the issuance of new shares in exchange on May 11, 1995, that it holds more Commercial Register of the Düssel- for capital contributions excluding than 10 percent of VEBA AG’s dorf District Court HRB 22315 stockholders’ subscription rights. capital stock. on August 20, 1999, and with that Both capital amounts expire on of the Berlin-Charlottenburg May 13, 2003. At the 1999 Annual District Court 93 HRB 1647 on Stockholders’ Meeting it was September 3, 1999. resolved to convert these amounts to 8125 million each.

95 Notes

(19) Additional Paid-in Capital

Additional paid-in capital results to 82,197 million compared with funds when the capital stock was exclusively from share issuance December 31, 1998, due to the converted from DM to euros. premiums. It dropped 822 million capital increase using corporate

(20) Retained Earnings

8 in millions 1999 1998 Other retained earnings include the Legal reserves 45 45 difference resulting from the cumu- Other retained lative conversion from the local cur- earnings 10,205 7,678 rency of foreign subsidiaries’ finan- 10,250 7,723 cial statements in the amount of 8196 million (1998: –8162 million).

(21) Minority Interests

8 in millions 1999 1998 Minority interests in stockholders’ Electricity 1,490 1,339 equity and net income or losses of Chemicals 961 7 the consolidated subsidiaries is Real-Estate Management 32 17 attributable to the divisions as at Distribution/Logistics 411 218 left. Telecommunications – 5 6 Silicon Wafers 100 114 Other 1 – 2,990 1,701

(22) Provisions for Pensions

8 in millions 1999 1998 In general, pension plans are based in a higher liability valuation com- Projected Benefit on length of service. Benefits for pared with the valuation determined Obligation at salary plans are generally based on using the discount value method January 1 5,263 4,994 compensation during the final according to Article 6a of the Ger- Service cost 121 101 years of employment and years of Interest cost 360 319 man Income Tax Act, which results Business combinations 795 68 service, while hourly plans are in minimum valuations for German Prior service costs 37 14 based upon a fixed benefit rate in financial reporting purposes. Actuarial gains (–)/losses – 14 68 effect on the retirement date and The change in the projected Exchange-rate years of service. Performance-linked benefit obligation is shown in the differences 60 – 21 benefit obligations—for which the table on the left. Pensions paid – 365 – 280 Company guarantees a certain level Projected Benefit of benefit—are provided for Obligation at December 31 6,257 5,263 through a provision for pensions. Pension plans and their respec- tive costs are determined using the projected unit credit method in accordance with US GAAP as de- fined by SFAS No. 87, “Employers’ Accounting for Pensions,” whereby current pensions and remuneration prevailing on the balance-sheet date as well as future increases in these parameters are included in the valuation. Generally, this results

96 An additional amount of 830 mil- side insurance carrier, as well as lion (1998: 8132 million) was in- for other pension obligations. The curred for defined contribution pen- change in plan assets is shown sion plans in which the Company below. pays fixed contributions to an out-

8 in millions 1999 1998 Plan Assets at January 1 188 144 Actual return on plan assets 29 12 Company contributions 13 3 Business combinations 74 62 Exchange-rate differences 37 –14 Pensions paid – 17 – 19 Plan Assets at December 31 324 188

The funded status of all defined benefit pension plans based on the projected benefit obligation (PBO) is as follows.

8 in millions 1999 1998 Funded status 5,933 5,075 Unrecognized actuarial loss – 284 – 331 Unrecognized prior service cost – 59 – 10 Unfunded accrued benefit cost 5,590 4,734 Additional minimum liability 99 111 Provisions for Pensions Disclosed on the Balance Sheet 5,689 4,845

According to German GAAP, the Provisions for pensions of domestic additional minimum liability has subsidiaries determined in compli- been expensed to the income state- ance with US GAAP (exluding the ment in the amount of 899 million additional minimum liability) are (1998: 8111 million). Under US 8470 million (1998: 8380 million) GAAP, however, it is accounted for higher than the provisions deter- as an intangible asset of 828 mil- mined according to Sec. 6a of the lion (1998: 80 million) and directly German Income Tax Act. Provisions charged against stockholders’ equity for pensions shown on the balance without having an effect on net sheet also include obligations of income in the amount of 871 mil- US companies arising from post- lion (1998: 8111 million). The ac- retirement health-care benefits in cumulated benefit obligation and the amount of 840 million (1998: fair values of plan assets for pension 867 million). plans that have an additional mini- mum liability are 81,654 million (1998: 81,531 million) and 8251 (1998: 8115), respectively.

97 Notes

Based on actuarial computations, the total net periodic pension cost is comprised of the following.

8 in millions 1999 1998 Service cost 121 101 Interest cost 360 319 Expected return on plan assets – 23 – 15 Prior service costs 7 5 Amortization of gains (–)/losses 13 38 Net Periodic Pension Cost 478 448

The chemical industry’s mortality the expected average number of tables (“PK-Chemie 1996 R”) are years of service beginning in 1998. used throughout the domestic affil- Actuarial value of the domestic iated companies to determine the subsidiaries were computed with actuarial values of obligations official tables based on the follow- beginning on December 31, 1997. ing assumptions. These tables have lower death and invalidity probabilities than the pre- viously used tables by Klaus Heu- beck from 1983. The related addi- tional cost of funding provisions for pensions is to be amortized over

Dec. 31, 1999 Dec. 31, 1998 Discount rate 6.25 % 6.0 % Projected salary increases (non-vested) 2.75 % 2.5 % Projected pension increases 1.25% 1.0 %

98 (23) Other Provisions

Other provisions break down as listed below.

8 in millions 1999 1998 Provisions for nuclear waste management 5,889 5,771 Provisions for taxes 2,696 2,766 thereof for deferred taxes 8124 million (1998: 81,392 million) Provisions for personnel costs 1,373 1,041 Provisions for outstanding trade invoices 821 662 Provisions for environmental remediation 496 408 Provisions for reclamation 17 5 182 Miscellaneous 2,729 2.126 14,179 12,956

Provisions for Nuclear Waste Management

Provisions for nuclear waste man- ing will be returned to Germany to out operation, closure and mainte- agement include costs for nuclear be stored in an authorized storage nance of the facility, dismantling fuel reprocessing, the disposal of facility. and removal of both the nuclear waste resulting from reprocessing, The accrual for the costs of spent and non-nuclear portions of the nuclear power plant decommission- nuclear fuel reprocessing includes plant, conditioning, and temporary ing, and the disposal of low-level the costs for all components of the and final storage of contaminated nuclear waste. reprocessing requirements includ- waste. The provisions for nuclear waste ing the costs of transportation of The expected decommissioning management stated above are net spent fuel to the reprocessing and storage costs are based upon of advance payments of 8681 mil- firms, of fuel reprocessing, and of studies performed by independent lion (1998: 8691 million). The outbound transportation of nuclear third parties and are updated con- advance payments are prepay- waste. The stated cost estimates tinuously. The accrual is provided ments to the nuclear fuel reproces- are based primarily upon existing over 19 years. sors, to other waste-management contracts. All cost estimates are The accrual for the costs of the companies as well as to govern- continually updated. disposal of low level nuclear waste mental authorities relating to repro- The accrual is provided over the covers all cost of conditioning and cessing facilities for spent fuel rods period in which the fuel is consum- final storage of low level waste and the construction of permanent ed to generate electricity. which is generated in the operations storage facilities. The requirement The liability for the nuclear portion of the facilities. for spent nuclear fuel reprocessing of nuclear plant decommissioning For all facilities in Germany and disposal/storage is based on is based on civil law (Atomgesetz), accruals for the costs of nuclear laws prescribed by the Federal while the liability for the non- fuel reprocessing, of nuclear plant Republic of Germany (Atomgesetz). nuclear portion depends upon decommissioning, and of the dis- Operators may either recycle or legally binding civil and public reg- posal of low level nuclear waste are permanently dispose of nuclear ulations as well as voluntary agree- calculated using similar methods. waste. ments. In addition to its consolidated PreussenElektra has entered into After cessation of energy produc- nuclear power plants, Preussen- contracts with two European fuel tion, the nuclear inventory will be Elektra owns shares of three asso- reprocessing firms, BNFL in Great removed from the power plant. The ciated companies which also oper- Britain and Cogema in France, for entire plant then will either be im- ate nuclear power facilities. These the reprocessing of all spent nuclear mediately dismantled and removed associated companies are account- fuel. The contract terms are through completely or sealed for a certain ed for under the equity method. 2005, with an option of a 10-year period of time (approximately extension. The radioactive waste 30 years) before final removal. which results from the reprocess- The accrual for the costs of nuclear plant decommissioning in- cludes the expected costs for run-

99 Notes

Other

Provisions for taxes consist mainly Of the provisions for reclamation, Additionally, the plans, mainly in of corporate income taxes, includ- 890 million (1998: 898 million) is the Electricity and Oil divisions, ing the solidarity surcharge, trade for potential damages arising from include the elimination of certain tax on income, foreign income former hard coal mining activities positions by providing early retire- taxes, and deferred taxes. Provi- and 885 million (1998: 884 million) ment benefits for employees meet- sions for deferred taxes primarily from lignite mining. ing the requirements set forth in relate to temporary differences Miscellaneous provisions cover the applicable plan. These plans from the adjustments of individual numerous other risks and include are also expected to run through financial statements to the provisions for tax related interest the middle of the next decade. accounting policies as applied by expense, restructuring, demolition Accruals for the cost of early retire- VEBA. The decrease in provisions and dismantling obligations, pend- ment are accrued when corre- for deferred taxes in the current ing losses from unsettled trans- sponding collective or shop agree- year principally relates to the actions, and guarantees. ments are entered into or an em- offsetting of existing deferred tax Other provisions include 89,577 ployee formally accepts the plan. liabilities against deferred tax million (1998: 88,933 million) which Provisions for restructuring in assets recognized due to temporary are long-term in nature. 1999 are shown below. differences in connection with the Provisions for personnel costs treatment of nuclear provisions in and other provisions include provi- the tax and commercial balance sions for restructuring and cost- sheet. Deferred taxes are mainly of management programs. The various a long-term nature. cost-management programs, which Provisions for personnel ex- are already underway, affect almost penses primarily cover provisions all divisions. The plans primarily for vacation pay, early retirement focus on the reduction of personnel benefits, anniversary obligations costs by eliminating positions and and other deferred personnel costs. offering early retirement benefits. Provisions for outstanding trade The plans include two major com- invoices represent the recognition ponents: severance and early retire- of a liability for cost of products or ment costs. Both plans call for a services received or rendered for series of post-retirement payments which a related invoice has not to the employee. been received. Plans implemented in recent Provisions for environmental years to reduce the labor force, pri- remediation refer primarily to land marily in Chemicals and Oil, were reclamation, rehabilitating conta- for the most part fully implemented minated sites, redevelopment and by the end of 1999. The Company water protection measures, bore- expects the amount accrued for hole sealing, clearing mining fields, severance payments to be fully and recultivating landfills. utilized by the middle of the next decade.

8 in millions Balance Additions Amounts Other Balance The other changes in the amount of paid in Changes 850 million principally refer to Dec. 31, 1998 1999 1999 Dec. 31, 1999 changes in the scope of consolida- Severance payments 249 1298632324 Early retirement plans 136 51 73 29 143 tion. Other 46 58 16 – 11 77 431 238 175 50 544

100 Restructuring expenses are includ- general administrative expenses ed in the income statement as part and other operating expenses. They of the cost of goods sold and ser- are as follows. vices provided, selling expenses,

8 in millions 1999 1998 Restructuring expenses in the Severance payments 129 25 financial year under review primar- Early retirement plans 51 36 ily result from the Oil and Chemical Impairments – 91 Divisions. Other 58 6 238 158

(24) Liabilities

1999 1998 The utilization of the outstanding 8 in millions Total With a remaining term of Total With a Commercial Papers in the amount remaining of 8306 million shown under other term of up to 1 to 5 over more financial liabilities in 1998, was fully 1 year years 5 years than 1 year repaid in 1999. As of December 31, Option bonds 266 266 – – 266 266 1999, other financial liabilities Bank loans 3,685 788 1,429 1,468 2,822 2,072 mainly include bearer bonds of the Liabilities related to Degussa Bank. banking operations 991 505 202 284 –– A total of 81,444 million (1998: Bills payable 10 10 – – 206 1 Other 81,508 million) in liabilities is se- financial liabilities 211 29 159 23 306 – cured by mortgages on real estate, Financial Liabilities 5,163 1,598 1,790 1,775 3,600 2,339 thereof 8966 million (1998: 81,046 Accounts payable 3,339 3,328 11 – 2,363 14 million) by mortgage loans taken Affiliated companies 187 187 – – 101 – by the Real-Estate Management Associated and Division. other companies 2,181 2,132 3 46 2,027 49 8480 million in financial liabili- Capital expenditure grants 343 24 93 226 351 320 ties (1998: 8447 million) are non- Construction grants interest bearing and low-interest from energy customers 1,338 98 370 870 1,268 1,137 liabilities granted to companies in Advance payments 215 172 43 – 209 60 the Real-Estate Management Divi- Other liabilities 1,977 1,734 76 167 1,522 271 sion and the Oil Division. They are thereof taxes (335) (335) – – (245) – attributable to low-interest loans thereof social security for the construction of subsidized contributions (153) (153) – – (98) – Operating Liabilities 9,580 7,675 596 1,309 7,841 1,851 housing with an interest rate below 14,743 9,273 2,386 3,084 11,441 4,190 2 percent and to non-interest bear- ing German government loans for petroleum and natural gas explora- tion. 8 7,537 million in operating liabilities are non-interest bearing (1998: 86,962 million).

101 Notes

Financial Liabilities

The option bond with a nominal Interest at a rate of 6 percent is value of US$300 million is repayable payable annually. VEBA has given on April 6, 2000. It was issued in its unconditional and irrevocable 1993 by VEBA International Finance guarantee for the due payments of B.V., a wholly-owned subsidiary of principal and interest. The option VEBA, each in an amount of period expired on April 6, 1998. US$5,000, with 28 warrants attached, Bank loans are summarized redeemable for VEBA shares. below.

1999 1998 8 in millions Interest rate Maturity 8 in millions Bank loans secured by mortgages on real estate 449 0.5 %–7.5 % through 2040 736 Bank loans secured by mortgages on real estate 825 7.6 %–19.5% through 2040 629 Other secured bank loans 193 0.5 %–19.5 % through 2040 62 Unsecured bank loans, drawings on credit lines, short-term loans 2,218 0.5 %–19.5 % through 2040 1,395 3,685 2,822

Bank loans with interest rates below may only charge rents that are Interest payments to banks amount- market levels were mainly taken by below prevailing market rates. Due ed to 899 million in 1999 compared Real-Estate Management to finance to these conditions such loans are with 8131 million in 1998. its rented real estate. As part of these shown at nominal value on the Bank loans had the maturities financing agreements, this Division balance sheet. shown below as of December 31, 1999.

8 in millions 2000 788 2001 385 2002 455 2003 275 2004 314 thereafter 1,468 3,685

In addition to the drawings on to one year and variable interest 81 billion in Commercial Paper and credit lines shown above, at year- rates up to 0.25 percent above the 82 billion in Medium Term Notes end 1999 VEBA AG had committed London Interbank Offered Rate are also available to the Company and available credit lines of 83,254 (LIBOR). In addition, a seven-year, for financing purposes. They have million at domestic and foreign 81,022 million syndicated credit not been utilized as of the balance- banks for financing purposes. These line facility with an interest rate of sheet date. lines of credit at domestic and up to 0.125 percentage point above foreign banks have maturities of up Euribor. The entire amount was fully available at the end of 1999.

102 Capital Expenditure and Construction Grants

Capital expenditure grants that do recognized in other operating in- hook-ups according to generally not yet affect earnings are paid pri- come based upon the depreciable binding link-up terms. The grants marily by customers in the Elec- lives of the related asset or con- are non-refundable and generally tricity Division for capital expendi- tract term. recognized as sales according to tures made on their behalf, while Construction grants are paid by the duration of the relevant con- VEBA retains these assets. The customers of the Electricity Division tracts. grants are non-refundable and for costs of new electricity and gas

Contingent Liabilities

8 in millions 1999 1998 Contingent liabilities on bills of exchange 6 11 Contingent liabilities from guarantees 389 267 Contingent liabilities from warranties 99 75 Contingent liabilities from granting collateral on behalf of third parties 129 57 Other contingent liabilities 22 72 645 482

Contingent liabilities as listed As of December 31, 1999, long-term Long-term contractual obligations above have not been accrued as contractual obligations exist to have also been entered into by the the risk of losses is not considered purchase fixed quantities of elec- Electricity Division in connection probable. tricity from both jointly operated with the reprocessing and storage Contingent liabilities also exist power plants and other utilities. of spent fuel elements. Respective according to Sec. 24 of the Private The purchase price of electricity prices are based on prevailing Limited Liability Companies Act for from jointly operated power plants market conditions. outstanding contributions of co- is determined by the supplier’s pro- Purchase commitments for the shareholders to the capital of duction cost plus a profit margin remaining term of the aforemen- various companies. These amounts that is generally calculated on the tioned long-term contractual obliga- relate to future capital contributions basis of an agreed return on capi- tions total 811,836 million and required to be made by other co- tal. Among other utilities are pri- split up as follows: stockholder parties for which the marily operators of wind-driven Company could be held liable, power plants to whom a regulated should the required co-shareholders remuneration at fixed minimum fail to meet their obligation. prices must be paid in accordance with the Electricity Feed-In Law.

8 in million 2000 947 2001 939 2002 921 2003 938 2004 912 thereafter 7,179 11,836

There also exist additional custom- ary long-term fuel procurement contracts.

103 Notes

Other Financial Obligations

8 in millions 2000 282 2001 229 2002 187 2003 158 2004 128 thereafter 581 1,565

Obligations arising from rental, ten- sures, commitments to grant cred- tracted but not yet effective invest- ancy and leasing agreements are its as well as contracted but not ments in financial assets result due as above. yet effective investments in finan- primarily from purchase price Expenses arising from such con- cial assets total 82,559 million commitments related to the acqui- tracts that are reflected in the (1998: 8464 million). Included in sition of certain Mobil Oil subsid- Income Statement amount to 8367 the commitments to grant credits is iaries, which own 28 percent in million (1998: 8580 million). a conditional obligation to grant Aral and of the 87.4 percent stake Other financial obligations which subordinated loans in the amount in EZH (see Note 29). primarily relate to commitments for of 8256 million (1998: 8293 mil- capital expenditures on expansion lion), thereof 8128 million (1998: and environmental protection mea- 8258 million) to E-Plus. The con-

(25) Litigation and Claims

Various legal actions, governmental tainties, their outcome cannot be would not materially affect the investigations, proceedings, and ascertained. Although the amount Company’s consolidated financial claims are pending or may be insti- of liability at December 31, 1999 position. tuted or asserted in the future with respect to these matters can- against the Company. Since litiga- not be ascertained, management tion is subject to numerous uncer- believes that the resulting liabilities

(26) Information on the Consolidated Statement of Cash Flows

The Consolidated Statement of Payments for acquisitions of sub- The deconsolidation of sharehold- Cash Flows precedes the notes. sidiaries amounted to 81,600 mil- ings and business units resulting The financing requirements lion (1998: 8543 million). Liquid from divestments led to reductions for investments net of disposals funds acquired herewith amounted of 8972 million related to assets (81,712 million) were fully covered to 83 million (1998: 855 million). and 8467 million related to provi- by cash from operations (83,255 These acquisitions rendered assets sions and liabilities. Liquid funds million). In total cash used for amounting to 81,969 million (1998: divested herewith amounted to financing activities—to distribute 81,561 million) as well as provi- 88 million. dividends and to repay financial sions and liabilities totaling 8577 Non-cash investing activities in liabilities—amounted to 81,383 million (1998: 8973 million). the amount of 8360 million in 1999 million. Liquid funds increased by Because the Degussa sharehold- mainly relate to the merger of 8160 million in the year under ing was acquired already in 1997, Degussa and Hüls. Due to the dif- review. only Degussa’s liquid funds of ferent treatment of the merger of Cash provided by operating 8391 million as of the date of the Degussa and Hüls under US GAAP activities includes interest pay- first-time full consolidation were to (see Note 2) the non-cash activi- ments of 8342 million (1998: 8242 be considered in the Consolidated ties under US GAAP would amount million); income-tax payments net Statement of Cash Flows besides to 82.4 billion. of refunds amounted to 81,356 mil- the cash inflows and outflows re- lion (1998: 81,316 million). corded in the period under review.

104 (27) Derivative Financial Instruments

During the normal course of busi- of derivative financial instruments used instruments with sufficient ness, VEBA is exposed to currency, to eliminate or limit these risks. For market liquidity. interest rate, and commodity price hedging purposes, exclusive use is risks. The Company also makes use made of established and commonly

Currency and Interest Rate Derivatives

On the balance-sheet date, hedging match the amounts and terms of the plans, calculates market-price and transactions cover risks in interest respective underlying transactions. counterparty risks, and evaluates and exchange rates arising from VEBA’s Corporate Treasury, financial transactions. The Finance transactions that include booked, which is also responsible for enter- Controlling Department reports at pending, and planned deliveries, ing into derivative foreign exchange regular intervals on the Group’s services, and other business trans- and interest rate contracts, acts as market-price and counterparty actions (underlying transactions). a service center for the Company risks. Those Group’s subsidiaries Derivative instruments held by the and not as a profit center. With the which make use of external hedg- Company are used for hedging and Company’s approval, the currency ing transactions have similar orga- not for trading purposes. and interest rate risks of Group nizational arrangements. In line with VEBA’s hedging companies are hedged with exter- A computerized reporting and policy, portfolio hedge transactions nal parties. The Company is infor- controlling system for treasury can be entered into for periods of med at regular intervals about the activities has been developed and up to twelve months at a time to scope of underlying and hedging implemented throughout the Group. cover currency risks. Portfolio hedge transactions via the computerized This allows for the systematic and transactions represent a number of reporting and controlling system consistent detection and analysis of individual underlying transactions implemented throughout the Group. all the Company’s overall financial that have been grouped together The range of action, responsibil- and market risks in the area of and hedged as an individual unit. ities, and financial reporting pro- currencies and interest rates. The As of December 31, 1999, currency cedures are outlined in detail in the system is also used to determine, hedges were conducted especially Company’s internal guidelines. To analyze, and monitor the Com- for the US dollar, British pound, and ensure efficient risk management, pany’s short- and long-term financ- Swedish krona. the Treasury, Back Office, and ing and investment requirements. Macro-hedging transactions can Finance Controlling Departments In addition, the deployed systems be concluded for periods of up to are organized as strictly separate guarantee continuous and up-to- five years to cover interest rate units. Standard software is em- date analysis of market and coun- risks. For micro-hedging purposes, ployed in processing business trans- terparty risks ensuing from con- any adequate term is allowed for actions. The Finance Controlling cluded short- and long-term de- individual hedges of foreign ex- Department ensures continuous posits and hedging transactions. change and interest rates. However, and independent risk management. these transactions must perfectly It prepares operational financial

Currency and Interest Rate Market Risks

With respect to derivatives, market business day from derivative posi- As a means of monitoring market risks contain the positive and tions that are not hedge-accounted risks, including those cases with negative changes in the net asset is calculated based on empirical extreme market price fluctuations, value that result from price fluctu- standard deviations and using a a stress test is performed on deriv- ations on various financial markets. confidence interval of 99 percent. ative positions at regular intervals In line with international banking Correlations between individual and in line with the recommenda- standards, market risk has been instruments within a single currency tions issued by the Bank for Inter- calculated with the value-at-risk are accounted for; the risk of a national Settlements (BIS). Finan- method on the basis of the Risk- portfolio is generally lower than the cial derivatives by transaction and Metrics data published regularly by sum of its individual risks. Correla- maturity as of December 31, 1999, RiskMetrics Group. The maximum tions between currencies are dis- are listed in the following table. potential loss within the following regarded.

105 Notes

Financial Derivatives for Hedging Foreign Currency and Interest Rate Risks as of December 31, 1999

8 in millions Total volume of Market risk of financial derivatives derivative financial instruments (portion outside hedge accounting) Nominal Market Value- Nominal Market Value- Risk acc. to (Remaining maturities) value value1) at-risk value value1) at-risk stress-test FX forward transactions Buy up to 1 year 423.8 6.7 4.6 185.2 8.3 1.9 5.8 more than 1 year 14.4 1.0 0.3 –––– Sell up to 1 year 2,506.3 – 47.1 26.9 327.2 – 0.1 4.6 13.7 more than 1 year 26.0 – 4.0 0.6 –––– FX currency options Buy up to 1 year 23.1 – 0.4 0.0 23.1 – 0.4 0.0 0.0 more than 1 year ––––––– Sell up to 1 year 48.7 – 0.9 0.1 48.7 – 0.9 0.1 0.3 more than 1 year ––––––– Sutotal/Portfolio 3,042.3 – 44.7 24.7 584.2 6.9 6.2 18.6 Cross currency swaps up to 1 year 297.6 35.3 4.9 –––– 1 year to 5 years 562.0 – 65.0 11.8 –––– more than 5 years 102.3 – 5.2 3.4 –––– Interest rate/cross currency swaps up to 1 year 1.9 0.3 0.0 –––– 1 year to 5 years ––––––– more than 5 years ––––––– Subtotal/Portfolio 963.8 – 34.6 14.2 0.0 0.0 0.0 0.0 Interest rate swaps fixed-rate payer up to 1 year 90.3 – 0.3 0.1 35.7 0.0 0.0 0.0 1 year to 5 years 261.2 – 0.9 0.4 72.9 1.1 0.3 0.9 more than 5 years 229.5 – 0.6 1.8 19.9 1.1 0.1 0.3 fixed-rate receiver up to 1 year 26.6 0.1 0.0 –––– 1 year to 5 years 27.6 0.6 0.0 –––– more than 5 years ––––––– Subtotal/Portfolio 635.2 – 1.1 2.2 128.5 2.2 0.4 1.2 Forward rate agreements Buy up to 1 year 151.8 0.0 0.0 –––– 1 year to 5 years ––––––– more than 5 years ––––––– Sell up to 1 year 151.8 0.1 0.0 –––– 1 year to 5 years ––––––– more than 5 years ––––––– Subtotal/Portfolio 303.6 0.1 0.0 0.0 0.0 0.0 0.0 Interest rate options Buy up to 1 year ––––––– 1 year to 5 years ––––––– more than 5 years ––––––– Sell up to 1 year 19.9 0.0 0.0 19.9 0.0 0.0 0.0 1 year to 5 years ––––––– more than 5 years ––––––– Subtotal/Portfolio 19.9 0.0 0.0 19.9 0.0 0.0 0.0 Total/Portfolio 4,964.8 – 80.3 41.1 732.6 9.1 6.6 19.8

1) Market value deviation from nominal value.

106 The market risk excluding hedge those financial derivatives that are The market risk of currency for- accounting shows the outstanding not assigned to a balance sheet wards, options, interest rate swaps nominal volumes and market values item or a pending purchase or sales and options under hedge account- of financial derivatives after hedging contract. These items occur when ing for the 1999 financial year and correlations are assigned between planned payments are hedged. To a as of December 31, 1998, are listed hedging contracts and booked and large extent interest rate derivatives below. pending transactions as of the are hedge-accounted with under- balance-sheet date. They represent lying balance-sheet transactions.

Sep. 30, 1999 Jun. 30, 1999 Mar. 31, 1999 Dec. 31, 1998 8 in millions Nominal Market Value- Nominal Market Value- Nominal Market Value- Nominal Market Value- (Remaining maturities) value value1) at-risk value value1) at-risk value value1) at-risk value value1) at-risk FX forward transactions Buy up to 1 year 252.9 1.2 3.0 161.2 2.4 1.9 292.8 2.6 3.1 277.7 – 3.8 3.3 more than 1 year –––––––––––– Sell up to 1 year 463.6 23.2 5.3 353.7 9.1 5.1 633.2 9.4 6.1 647.8 1.9 8.4 more than 1 year –––––––––––– FX currency options Buy up to 1 year 78.5 – 1.0 0.1 115.2 0.6 0.4 60.2 0.7 0.1 ––– more than 1 year –––––––––––– Sell up to 1 year 101.0 0.6 0.3 143.7 – 1.6 0.6 116.0 – 1.6 0.4 ––– more than 1 year – – – – – – 13.0 0.0 0.1 ––– Subtotal/Portfolio 896.0 24.0 7.8 773.8 10.5 6.4 1,115.2 11.1 7.0 925.5 – 1.9 5.6 Interest rate swaps fixed-rate payer up to 1 year 55.1 – 0.1 0.3 56.6 – 0.4 0.0 42.2 – 0.5 0.0 ––– 1 year to 5 years 68.4 0.6 0.2 70.3 0.5 0.4 81.1 – 1.0 0.3 ––– more than 5 years 18.8 0.7 0.0 19.4 0.7 0.2 18.6 – 0.2 0.2 ––– Subtotal/Portfolio 142.3 1.2 0.5 146.3 0.8 0.6 141.9 – 1.7 0.5 0.0 0.0 0.0 Interest rate options Sell up to 1 year 18.8 – 0.1 0.1 19.4 – 0.1 0.1 18.6 – 0.6 0.1 ––– 1 year to 5 years –––––––––––– more than 5 years –––––––––––– Subtotal/Portfolio 18.8 – 0.1 0.1 19.4 – 0.1 0.1 18.6 – 0.6 0.1 0.0 0.0 0.0 Total/Portfolio 1,057.1 25.1 8.4 939.5 11.2 7.1 1,275.7 8.8 7.6 925.5 – 1.9 5.6

1) Market value deviation from nominal value.

A sensitivity analysis was per- value by 876 million (1998: 847 change in the market value of formed on the Group’s short- and million) on the balance-sheet date. these assets would amount to long-term capital investments and The market risk according to the 8325 million (1998: 8470 million). borrowings including interest rate value-at-risk model amounts to derivatives. For instance, a 100 ba- 844 million (1998: 816 million). sis-point shift in the interest rate Other equity interests and se- structure curve would change the curities are also based on market interest rate portfolio’s market prices. A 10 percent hypothetical

107 Notes

Commodity Derivatives

Furthermore, the businesses of cer- Hedging transactions involving oil- For gold, silver, and other precious tain subsidiaries are exposed to related derivatives cover the risk of metals, derivatives are used to risks resulting from fluctuations in fluctuating prices for petroleum hedge price risks resulting from the the prices of raw materials and and petroleum products arising product and processing busi- commodities. Hedging transactions from production, refining, and dis- nesses. Over-the-counter hedging of notable scope are only con- tribution. Pursuant to the guidelines transactions are utilized in addition cluded in the Oil Division and pre- of the divisions affected, macro- to metals transactions at commodi- cious metals trading. Electricity price hedging transactions can be con- ty exchanges. An immaterial vol- hedges were also used to a very cluded to cover up to a full year of ume of the hedge instruments in limited extent for the first time in production. In certain cases, it is metals is contracted in order to use 1999. There were no outstanding permissible to conclude appropri- expected price fluctuations. hedging transactions in the Elec- ate forward transactions to hedge tricity Division on the quarterly bal- longer-term underlying trans- ance-sheet dates. Exclusive use is actions. made of established and commonly Congruent derivatives can be used instruments with sufficient used to hedge open positions in oil market liquidity. The counterparties or oil-product trading on a case to these transactions are financial by case basis. These items have institutions and trading companies individual volumes with short terms that satisfy VEBA’s credit rating and are directly related to the criteria. underlying transaction.

108 Total Volume of Oil- and Metal-Related Financial Derivatives during the 1999 Financial Year and as of December 31, 1998

Dec. 31, 1999 Sep. 30, 1999 Jun. 30, 1999 Mar. 31, 1999 Dec. 31, 1998 8 in millions Nominal Market Nominal Market Nominal Market Nominal Market Nominal Market (Remaining maturities) value value1) value value1) value value1) value value1) value value1) Crude oil swaps Buy up to 1 year 33.2 3.4 51.6 4.2 27.2 2.5 53.9 2.8 103.6 – 25.7 more than 1 year ––––30.3 3.0 29.1 – 0.3 0.0 0.0 Sell up to 1 year 188.2 – 20.8 95.0 – 29.6 130.9 – 23.0 145.2 – 2.6 190.3 51.2 more than 1 year ––––30.9 – 2.4 29.7 0.9 20.7 0.4 Subtotal/Portfolio 221.4 – 17.4 146.6 – 25.4 219.3 – 19.9 257.9 0.8 314.6 25.9 Refinery margin and petroleum product swaps up to 1 year 220.3 – 5.2 186.4 0.8 176.9 14.3 138.5 11.8 147.8 11.7 more than 1 year 11.0 1.5 27.5 – 0.3 24.7 – 1.7 – – –– Subtotal/Portfolio 231.3 – 3.7 213.9 0.5 201.6 12.6 138.5 11.8 147.8 11.7 Exchange-traded oil future contracts Buy up to 1 year 15.2 0.1 14.1 – 0.7 17.0 1.2 17.2 2.3 –– more than 1 year –––––––––– Sell up to 1 year 52.9 – 0.5 7.2 0.2 25.2 – 1.8 34.6 – 6.5 –– more than 1 year –––––––––– Subtotal/Portfolio 68.1 – 0.4 21.3 – 0.5 42.2 – 0.6 51.8 – 4.2 0.0 0.0 Total/Portfolio Oil-Related Financial Derivatives 520.8 – 21.5 381.8 – 25.4 463.1 – 7.9 448.2 8.4 462.4 37.6 OTC precious metal future contracts Buy up to 1 year 128.0 5.2 125.9 2.8 55.0 0.2 40.5 0.7 –– more than 1 year –––––––––– Sell up to 1 year 56.7 – 10.3 65.8 – 7.5 95.4 – 6.3 55.0 – 12.1 –– more than 1 year 2.5 0.2 1.9 – 0.3 1.3 0.0 – – –– Subtotal/Portfolio 187.2 – 4.9 193.6 – 5.0 151.7 – 6.1 95.5 – 11.4 0.0 0.0 Precious metal options Buy up to 1 year 0.5 0.0 – – 13.0 0.0 – – –– more than 1 year –––––––––– Sell up to 1 year 3.0 0.0 2.3 0.0 2.4 0.0 – – –– more than 1 year –––––––––– Subtotal/Portfolio 3.5 0.0 2.3 0.0 15.4 0.0 0.0 0.0 0.0 0.0 Exchange traded metal future contracts Buy up to 1 year 11.2 0.4 3.1 0.1 8.7 0.1 8.9 0.2 –– more than 1 year –––––––––– Sell up to 1 year 85.1 – 4.6 63.5 – 3.6 55.6 – 0.5 40.4 0.8 –– more than 1 year ––2.1– 0.2–––––– Subtotal/Portfolio 96.3 – 4.2 68.7 – 3.7 64.3 – 0.4 49.3 1.0 0.0 0.0 Total/Portfolio Metal-Related Financial Derivatives 287.0 – 9.1 264.6 – 8.7 231.4 – 6.5 144.8 – 10.4 0.0 0.0 Total/Portfolio Oil- and Metal-Related Financial Derivatives 807.8 – 30.6 646.4 – 34.1 694.5 – 14.4 593.0 – 2.0 462.4 37.6

1) Market value deviation from nominal value. 109 Notes

The market value of commodity prices would cause the market hedging conditions involving hedging transactions for which value of commodity hedging trans- booked or pending underlying VEBA has not established hedge actions to change by 811 million transactions. accounting is –811.5 million. (1998: 823 million). These are com- A 10 percent change in under- modity hedging transactions for lying raw material and commodity which VEBA has not established

Counterparty Risk from the Use of Derivative Financial Instruments

Counterparty risk addresses poten- future contracts with a nominal credit checks and monitor credit- tial losses that may arise from the value of 8164.4 million as of worthiness on an ongoing basis. In non-fulfillment of contractual obli- December 31, 1999, bear no counter- general, collateral for derivative gations by individual counterpar- party risk. Derivative transactions transactions is neither provided nor ties. With respect to derivative are generally executed on the basis received. transactions, counterparty risk until of standard agreements that allow In summary, derivatives have the maturity is restricted to the replace- all outstanding transactions with following lifetime and credit struc- ment cost incurred by covering contracting partners to be offset. ture as of December 31, 1999. the open position should a counter- Counterparties only include finan- party default. Only transactions cial institutions that satisfy VEBA’s with a positive market value for credit rating criteria. The Divisions VEBA are exposed to this risk. involved in oil- and metal-related Exchange traded oil and metal forwards also perform thorough

Rating of Total up to 1 year 1 to 5 years more than 5 years Counterparties Nominal Counterparty Nominal Counterparty Nominal Counterparty Nominal Counterparty 8 in millions value risk value risk value risk value risk Standard & Poor’s and/or Moody’s AAA and Aaa 761.0 4.0 546.5 1.9 66.7 1.0 147.8 1.1 AA+ and Aaa or AAA and Aa1 through AA– and Aa3 2,820.3 51.7 2,010.1 49.0 682.4 2.7 127.8 0.0 AA– and A1 or A+ and Aa3 110 through A or A2 1,694.2 18.3 1,505.1 14.5 132.9 3.4 56.2 0.4 Other 332.7 8.7 310.0 8.0 22.7 0.7 0.0 0.0 Total 5,608.2 82.7 4,371.7 73.4 904.7 7.8 331.8 1.5

110 (28) Segment Information

The Company’s reportable seg- Internal operating profit is the gains and losses from large divest- ments are presented in line with most important internal key figure ments and restructuring expenses. the Group’s internal organizational at VEBA in terms of earnings and Depreciation of fixed assets, and reporting structure organized serves as an indicator of a busi- income from companies accounted according to products and services. ness’s long-term earnings power. for under the equity method, and The reportable segments are Elec- Internal operating profit is adjusted interest income have been adjusted tricity, Oil, Chemicals, Real-Estate pre-tax income (after foreign taxes to exclude non-operating expenses Management, Distribution/Logistics, related to exploration and produc- and income and may therefore Telecommunications, and Silicon tion). Pretax income is adjusted - deviate from earnings reported in Wafers. Both the holding company primarily to exclude material non- the consolidated statement of in- and effects from consolidation are operating income and expenses come. included in the item “Other/Con- which are unusual (as defined by Reconciliation of internal operat- solidation.” VEBA Group) or infrequent. These ing profit to income before income adjustments primarily include book taxes is as follows.

8 in millions 1999 1998 Internal Operating Profit 2,274 1,946 Net book gains 2,221 616 Restructuring expenses/ cost management programs – 464 – 463 Other non-operating earnings – 379 83 Foreign exploration and production income taxes 301 210 Income before Income Taxes 3,953 2,392

Net book gains in the reporting tax treatment of provisions for period primarily comprise gains of nuclear waste disposal. Due to the the disposal of the shareholding in sale contract regarding VEBA's Cable & Wireless plc (81,347 mil- interest in E-Plus in 1999, for which lion), the TeleColumbus group, and closing took place on February 10, VRT’s fixed-line business. They 2000, other non-operating earnings are offset by the expense resulting also include E-Plus's operating from the complete write off of the losses accounted for using the Corporation’s engagement in Iridium. equity method since July 1, 1999. Restructuring and cost-manage- Due to the high tax burden, state- ment expenses principally relate to ments on pretax income in VEBA regional distribution companies in Oel’s upstream sector are not of Electricity and expenses associated great significance. Internal operat- with the Degussa-Hüls merger. ing profit for the Oil Division is Other non-operating earnings in therefore stated net of foreign E&P the year under review include ex- taxes; this procedure deviates from penses stemming from the additions the method applied to determine to provisions for tax-related interest internal operating profit in other expenses resulting from the Ger- segments. These taxes must be man Tax Relief Act 1999/2000/2002 added back when reconciling from as well as the German Internal internal operating profit to pretax Revenue Services’ more stringent income. legal interpretation regarding the

111 Notes

Segment Information Electricity Oil Chemicals Real-Estate Distri- Tele- Silicon Holding/ Total by Division Manage- bution/ communi- Wafers Others 8 in million ment Logistics cations External sales1) 1999 7,719 11,778 14,632 1,145 16,872 108 651 – 52,905 1998 8,141 10,282 4,653 1,451 17,376 201 683 – 42,787 Intersegment sales2) 1999 5,164 3,164 4,396 119 1,251 9 249 – 14,352 1998 5,609 2,830 1,656 207 493 12 189 – 10,996 Total sales 1999 12,883 14,942 19,028 1,264 18,123 117 900 – 67,257 1998 13,750 13,112 6,309 1,658 17,869 213 872 – 53,783 Depreciation/amortization 1999 1,109 257 770 133 317 100 148 100 2,934 and write-downs 1998 1,215 158 377 140 336 274 150 73 2,723 Earnings from companies accounted for under 1999 505 14 18 9 10 – 193 – 11 72 424 the equity method 1998 439 – 10 48 13 9 – 268 – 34 2 199 Interest income 1999 147 18 – 51 – 53 – 135 32 – 60 160 58 1998 201 25 22 – 61 – 137 17 – 39 – 33 – 5 Internal operating profit 1999 1,505 78 475 184 267 – 180 – 214 159 2,274 1998 1,875 235 251 149 144 – 461 – 240 – 7 1,946 Capital expenditures Companies accounted for under the 1999 273 – 12 52 1 43 – – 381 equity method 1998 124 – 1 13 20 1 24 – 183 Other financial assets 1999 483 907 337 112 445 101 11 1,714 4,110 1998 407 36 170 37 192 196 – 164 1,202 Other fixed assets 1999 593 401 949 169 295 27 49 43 2,526 1998 911 424 590 155 371 163 194 32 2,840 Total capital 1999 1,349 1,308 1,298 333 741 171 60 1,757 7,017 expenditures 1998 1,442 460 761 205 583 360 218 196 4,225 Total assets 1999 23,898 5,295 9,734 3,395 7,971 901 1,603 – 413 52,384 1998 22,700 3,292 4,120 3,702 7,644 2,414 1,473 – 2,276 43,069

1) External sales include petroleum and electricity taxes of 83,942 million (1998: 83,742 million). 2) Intersegment sales are priced at market prices.

Geographic Segmentation

The regional segmentation of exter- nal sales, internal operating profit, and fixed assets is as follows.

Geographic Segment Germany Euroland Rest of USA Other Total Information Europe 8 in millions External sales by destination 1999 26,806 6,549 5,945 8,688 4,917 52,905 1998 26,320 4,594 4,292 5,092 2,489 42,787 by operation 1999 32,453 5,046 2,593 8,123 4,690 52,905 1998 28,347 4,992 2,689 4,791 1,968 42,787 Internal operating profit 1999 1,875 49 142 73 135 2,274 1998 2,036 – 76 102 – 163 47 1,946 Long-lived assets 1999 13,425 700 1,234 1,963 1,060 18,382 1998 12,894 567 998 1,337 558 16,354

Information on Major Customers

Excluding Germany, VEBA’s cus- customers and the variety of busi- tomer structure did not result in any ness activities, there are no cus- major concentration in any given tomers whose business volume is geographical region or business material compared with the Com- area. Due to the large number of pany’s total business volume.

112 (29) Subsequent Events

• As of January 1, 2000, VEBA Oel January 27, 2000. EZH will be extinguishment of shareholder acquired subsidiaries of Mobil Oil fully consolidated in 2000. loans in the amount of 81 billion. which own 28 percent of Aral’s According to EZH’s financial VEBA’s share in both amounts is shares. VEBA’s interest in Aral, statements for the year ended 51.25 percent. The contingent accounted for at equity in the December 31, 1999, in accordance liability obligation to grant sub- current year, will be fully consol- with Dutch GAAP sales amount- ordinated shareholder loans idated in the 2000 financial year. ed to 8491 million and net in- mentioned in note 24 therefore In the year under review Aral’s come to 822 million. no longer exists. unaudited sales were 810,641 • VRT and Bell South concluded • At VEBA’s Extraordinary Stock- million and its unaudited consol- the sale and transfer agreement holders’ Meeting on February 10, idated net income was –817 mil- for the shares in E-Plus which 2000, 99.9 percent of the VEBA lion. was registered by a notary public stockholders approved the merg- • As of January 10, 2000, Preussen- on January 26, 2000. Closing took er with VIAG. VIAG stockholders Elektra acquired an 87.4 percent place on February 10, 2000, where also approved the merger by a shareholding of EZH, a Dutch the agreed-on sale price became 99.5 percent vote at VIAG’s energy utility. The remaining due and was paid. The sale price Extraordinary Stockholders’ 12.6 percent was acquired on is 87.4 billion in addition to the Meeting on February 14, 2000.

(30) Supervisory Board and Board of Management

Provided that the Annual Stock- Total payments to retired members of Management totaling 80.2 mil- holders’ Meeting of VEBA AG on of the Board of Management lion had been completely repaid. May 25, 2000, approves the pro- and their beneficiaries amount to The contractual interest rate on posed dividend, total remuneration 87.4 million. these loans was 5.5 percent per of the members of the Supervisory Provisions of 839.5 million have year with a term of 6 years. Board amounts to 81.8 million and been provided for the pension obli- The members of the Supervisory that of the members of the Board gations of VEBA to retired mem- Board and the Board of Manage- of Management, including com- bers of the VEBA Board of Manage- ment are listed on pages 4 and 7. pensation for the performance of ment and their beneficiaries. duties at subsidiaries, amount to As of December 31, 1999, loans 89.6 million. granted to members of the Board

Düsseldorf, March 10, 2000

The Board of Management

Hartmann Bernotat Beuth Bonse-Geuking

Gaul Harig Krüper Mamsch

113 Mandates of Board Members

Information on Additional Mandates Carried by Members of VEBA AG’s Supervisory Board

Hermann Josef Strenger Dr. Rolf-E. Breuer Ulrich Hocker Chairman of the Supervisory Board, Spokesperson of the Board General Manager, Bayer AG of Management, Deutsche Schutzvereinigung für Chairman Deutsche Bank AG Wertpapierbesitz e.V. • Bayer AG (Chairman) • Deutsche Börse AG (Chairman) • Brau und Brunnen AG • Commerzbank AG • Deutsche Lufthansa AG • Concordia Bau und Boden AG • Degussa-Hüls AG • Münchener Rückversicherungs- (Chairman) • Linde AG Gesellschaft AG • DSL Holding AG • Siemens AG • Gerresheimer Glas AG • Agfa-Gevaert N.V. (Chairman) • Compagnie de Saint-Gobain S.A. • Karstadt Quelle AG Hubertus Schmoldt • Landwirtschaftliche Rentenbank • Gartmore Capital Strategy Fonds Chairman of the • Phoenix Mecano AG Industriegewerkschaft Bergbau, Dr. Gerhard Cromme Chemie, Energie Chairman of the Board Dr. h.c. André Leysen Deputy Chairman of Management, Chairman of the Thyssen Krupp AG Administrative Board, • Bayer AG Gevaert N.V. • Buna Sow Leuna • Thyssen Krupp Industries AG Olefinverbund GmbH (Chairman)1 • Agfa-Gevaert AG (Chairman) • RAG Coal International AG • Allianz Versicherungs-AG • Bayer AG • RAG Aktiengesellschaft • Deutsche Telekom AG Ralf Blauth • Ruhrgas AG • Philipp Holzmann AG Industrial Clerk • Volkswagen AG • Schenker AG • Degussa-Hüls AG • ABB AG • Agfa-Gevaert N.V. • Suez Lyonnaise des Eaux S.A. • Cobepa N.V. • Thomson-CSF S.A. • Gevaert N.V. (Chairman) • The Budd Company2 • GIB Group N.V. • Tessenderlo Chemie N.V. Rainer Dücker • Vlaamse Uitgeversmaatschappij Power Plant Worker N.V. • PreussenElektra AG As of December 31, 1999 • PreussenElektra Netz Verwal- tungs-GmbH • Supervisory Board mandates in accor- dance with Sec. 100, Para. 2 of the German Stock Corporation Act (AktG)

• Membership in com- parable domestic and foreign supervisory bodies of commercial enterprises

1 Exempted Group mandate

2 Other Group mandate

114 Dr. Klaus Liesen Dr. Henning Schulte-Noelle Dr. Bernd Voss Chairman of the Supervisory Board, Chairman of the Board Member of the Board Ruhrgas AG of Management, of Management, Allianz AG Dresdner Bank AG • Allianz AG (Chairman) • Deutsche Bank AG • Allianz Lebensversicherungs-AG • Deutsche Hypothekenbank • Mannesmann AG (Chairman)1 Frankfurt-Hamburg AG1 • Preussag AG • Allianz Versicherungs-AG (Chair- • Dresdner Bauspar AG1 • Ruhrgas AG (Chairman) man)1 • Oldenburgische Landesbank AG • Volkswagen AG (Chairman) • BASF AG (Chairman)1 • Beck GmbH & Co. KG • Dresdner Bank AG • Continental AG • Linde AG • Deutsche Schiffsbank AG Herbert Mai •MAN AG • Karstadt Quelle AG Chairman of the Gewerkschaft • Mannesmann AG • Preussag AG Öffentliche Dienste, Transport • Münchener Rückversicherungs- • Quelle AG und Verkehr Gesellschaft AG • Stinnes AG • Siemens AG • Varta AG • Deutsche Lufthansa AG • ThyssenKrupp AG • Volkswagen AG • AGF S.A.2 • Wacker Chemie GmbH Dagobert Millinghaus • Elvia Versicherungen AG2 • Reuschel & Co. (Chairman)2 Accounting and Administration • Fireman’s Fund Inc.2 Manager • RAS S.p.A.2 Dr. Peter Weber • Stinnes AG Director of the Legal Department, Morris Tabaksblat Degussa-Hüls AG Margret Mönig-Raane Chairman of the • Degussa-Hüls AG First Chair, Administrative Board, Gewerkschaft Handel, Banken und Reed Elsevier plc • Wohnungsgesellschaft Hüls mbH Versicherungen • Reed Elsevier plc. (Chairman) Kurt Weslowski • Deutsche Bank AG • Aegon N.V. Chemical Worker • TNT Post Group N.V. • VEBA Oel AG Kurt F. Viermetz • VEBA Oel Verarbeitungs GmbH Member of the Board of Directors, J. P. Morgan & Co., Inc. • Bayerische Hypo- und Vereins- bank AG (Chairman) • Hoechst AG • Grosvenor Estate Holdings • J.P. Morgan & Co., Inc.

115 Mandates of Board Members

Mandates Carried by Members of VEBA AG’s Board of Management

Ulrich Hartmann Dr. Wulf H. Bernotat Wilhelm Bonse-Geuking Chairman and CEO Member of the Board Member of the Board of Management of Management • Degussa-Hüls AG (Chairman)1 Chairman of the Board Chairman of the Board • PreussenElektra AG (Chairman)1 of Management of Stinnes AG of Management of VEBA Oel AG • Stinnes AG (Chairman)1 • VEBA Oel AG (Chairman)1 • Brenntag AG (Chairman)1 • PreussenElektra Kraftwerke AG1 • Viterra AG (Chairman)1 • Schenker AG (Chairman)1 • VEBA Wärmeservice GmbH 1 (Chairman)1 • Deutsche Lufthansa AG • Stinnes Interfer AG (Chairman) • Hochtief AG • Stinnes Corporation (Chairman)2 • VEBA Oel Verarbeitungs GmbH 1 • IKB Deutsche Industriebank AG (Chairman) • Münchener Rückversicherungs- Gunther Beuth • Aral AG Gesellschaft AG (Chairman) Member of the Board • VEBA Oil & Gas GmbH (Chair- • RAG Aktiengesellschaft (Chair- 2 of Management man) man) Chairman of the Board • HDI Haftpflichtverband der Deut- of Management of Viterra AG • Henkel KGaA schen Industrie • Viterra Baupartner AG (Chair- • Petrolera Cerro Negro S.A. Alain D. Bandle man)1 Member of the Board • Viterra Energy Services AG of Management (Chairman)1 Telecommunications • Viterra Wohnen AG (Chairman)1 (until October 29, 1999) • Viterra Wohnpartner AG (Chair- 1 • E-Plus Mobilfunk GmbH (Chair- man) man) • Deutschbau Wohnungsgesell- schaft mbH • Bouygues Telecom S.A. • LEG Landesentwicklungs- • VEBA Telecom GmbH gesellschaft mbH 2 (Chairman) • Rheinische Hypothekenbank AG • Deutschbau Holding GmbH • VEBA Assekuranz Vermittlungs-GmbH2 • Westdeutsche ImmobilienBank As of December 31, 1999, or the date of • Westfälische Provinzialversiche- retirement from rung the Board of Manage- ment.

• Supervisory Board mandates in accord- ance with Sec. 100, Para. 2 of the German Stock Corporation Act (AktG)

• Membership in com- parable domestic and foreign supervisory bodies of commercial enterprises

1 Exempted Group mandate

2 Other Group mandate

116 Dr. Hans Michael Gaul Dr. Hans-Dieter Harig Dr. Manfred Krüper Member of the Board Member of the Board Member of the Board of Management of Management of Management Chief Financial Officer Chairman of the Board Group Human Resource Manage- of Management ment • Degussa-Hüls AG1 of PreussenElektra AG • PreussenElektra AG1 • Viterra AG1 • Stinnes AG1 • Avacon AG (Chairman)1 • VEBA Oel AG1 • VEBA Oel AG1 • Gelsenwasser AG (Chairman)1 • RAG Aktiengesellschaft • Viterra AG1 • PreussenElektra Kraftwerke AG • RAG Immobilien AG (Chairman)1 • Victoria Lebensversicherungs AG • Allianz Versicherungs-AG 1 • Victoria Versicherung AG • DKV AG • Schleswag AG (Chairman) 1 • E-Plus Mobilfunk GmbH • Thüga AG (Chairman) • VEBA Telecom GmbH2 • RAG Aktiengesellschaft • Bewag Aktiengesellschaft • VAW aluminium AG • Energie-Aktiengesellschaft Mit- Helmut Mamsch • Volkswagen AG teldeutschland Member of the Board • MEMC, Inc.2 • EWE Aktiengesellschaft of Management • Hamburgische Electricitäts-Wer- Group Corporate Strategy • VEBA Assekuranz Vermittlungs- 2 ke AG GmbH (Chairman) • Degussa-Hüls AG1 2 • Veag Vereinigte Energiewerke AG • VEBA Corporation 2 (Chairman) • Commerzbank AG • VEBA Electronics, Llc. • Kali und Salz Beteiligungs AG • VEBA Telecom GmbH2 • BKW FMB Energie AG • Readymix AG • VR Telecommunications • PreussenElektra Kernkraft Ver- • SGE Deutsche Holding GmbH GmbH & Co. waltungs-GmbH (Chairman)2 • Steag AG • PreussenElektra Netz Verwal- tungs-GmbH2 • Logica PLC • Sydkraft AB (Chairman) • MEMC, Inc. (Chairman)2 • Uranit GmbH • VEBA Corporation (Chairman)2 • VEBA Electronics, Llc. (Chair- man)2 • VEBA Telecom GmbH2

117 Major Shareholdings

Name Location Share in acc. with § 16 Stockholders’ Earnings1) Sales 1) German Stock Corporation Act Equity 1) % 8 8 8 I. Affiliated Companies in millions in millions in millions Electricity PreussenElektra AG Hanover 100.0 2,254.0 269.62) 3,060.7 Avacon AG Helmstedt 54.7 492.3 157.9 1,786.1 Braunschweigische Kohlen-Bergwerke AG Helmstedt 99.9 202.8 28.42) 211.5 e. dis. Energie Nord AG Fürstenwalde an der Spree 70.0 687.1 49.4 1,213.4 Gelsenwasser AG Gelsenkirchen 52.1 206.4 22.7 219.4 Kernkraftwerk Brokdorf GmbH Hamburg 80.0 230.1 23.02) 390.3 PreussenElektra Kernkraft GmbH & Co. KG Hanover 100.0 204.5 93.2 1,122.4 PreussenElektra Kraftwerke AG Hanover 100.0 114.5 109.12) 887.2 PreussenElektra Kraftwerke AG & Co. KG Hanover 100.0 255.6 119.5 766.0 PreussenElektra Netz GmbH & Co. KG Hanover 100.0 255.6 186.6 629.0 Schleswag AG Rendsburg 65.3 323.9 29.2 948.1 Thüga AG Munich 56.5 788.2 72.1 191.4 PreussenElektra Scandinavia AB S, Malmö 100.0 819.9 27.7 4.0 Oil VEBA Oel AG Gelsenkirchen-Buer 100.0 671.5 27.02) 9,229.8 VEBA Oel VEG GmbH Gelsenkirchen-Buer 100.0 20.5 5.82) 149.3 VEBA Oil & Gas GmbH Essen 100.0 444.1 70.12) 603.9 VEBA Oil Libya GmbH Gelsenkirchen-Buer 100.0 134.0 3.02) 348.3 VEBA Wärmeservice GmbH Gelsenkirchen-Buer 100.0 33.3 0.22) 1,702.8 VEBA Oil & Gas UK Ltd. UK, London 100.0 342.6 80.7 235.7 Chemicals Degussa-Hüls AG Frankfurt am Main 64.7 2,309.5 191.6 5,100.4 Allgemeine Gold- und Silberscheideanstalt AG Pforzheim 90.8 34.3 3.9 213.0 Asta Medica AG Dresden 100.0 154.1 13.32) 315.5 Cerdec AG Keramische Farben Frankfurt am Main 100.0 58.2 2.0 105.7 Degussa Bank GmbH Frankfurt am Main 100.0 40.9 9.72) 14.1 Oxeno Olefinchemie GmbH Marl 100.0 38.6 17.32) 432.7 Phenolchemie GmbH & Co. KG Gladbeck 99.5 69.0 10.2 584.4 Röhm GmbH Darmstadt 99.5 187.4 27.42) 729.9 Stockhausen GmbH & Co. KG Krefeld 99.9 144.7 33.6 353.5 Creanova Inc. USA, Somerset, NJ 100.0 181.3 11.1 376.3 Degussa-Hüls Antwerpen N.V. B, Antwerp 100.0 56.0 14.1 304.0 Degussa-Hüls Corporation3) USA, Ridgefield Park, NJ 100.0 800.7 49.1 2,647.0 Degussa-Hüls Ltda. BR, Guarulhos 90.9 75.5 11.3 190.4 Real-Estate Management Viterra AG Essen 99.9 666.7 24.22) 405.8 VEBA Wohnen GmbH Gelsenkirchen-Buer 100.0 37.3 8.32) 49.2 Viterra Baupartner AG Bochum 100.0 22.3 7.02) 156.1 Viterra Energy Services AG Essen 100.0 12.8 – 2.72) 30.0 Distribution/Logistics Stinnes Aktiengesellschaft Mülheim an der Ruhr 65.5 808.2 92.9 1,531.7 Brenntag AG & Co. OHG Chemievertrieb Mülheim an der Ruhr 100.0 82.8 8.72) 412.9 Stinnes Interfer Beteiligungs-AG & Co. OHG Essen 100.0 66.8 18.12) 1,090.2 Stinnes Intertec GmbH & Co. OHG Mülheim an der Ruhr 100.0 14.6 3.42) 138.8 Brenntag S.A. F, Chassieu 100.0 52.7 6.0 305.8 BTL AB S, Göteborg 100.0 263.2 – 28.8 0.3 Raab Karcher Bouwstoffen B.V. NL, Breda 100.0 28.9 7.0 275.5 Schenker BTL-AB S, Göteborg 100.0 45.9 40.2 935.1 Schenker-BTL AG A, Vienna 100.0 29.5 10.1 350.2 Stinnes Corporation USA, Tarrytown, NY 100.0 138.2 19.5 1,019.6 VEBA Electronics GmbH Düsseldorf 100.0 598.1 – 12.6 – EBV-Elektronik GmbH Kirchheim 100.0 69.9 2.4 489.5 VEBA Electronics Beteiligungs GmbH Essen 100.0 577.1 – 2.4 – VEBA Electronics US Holding GmbH Düsseldorf 100.0 371.9 0.0 – EBV Electronics Holdings Inc. USA, Wilmington, DE 100.0 248.9 – – Insight Electronics LLC USA, San Diego, CA 100.0 85.8 23.8 767.2 VEBA Electronics LLC USA, Wilmington, DE 100.0 431.4 – 0.9 – VEBA Electronics UK PLC UK, Salford 100.0 123.2 – 2.4 – Wyle Electronics. Inc. USA, Irvine, CA 100.0 184.5 – 19.7 1,809.7

1) These figures comply with the financial statements prepared in accordance with the specific generally accepted accounting principles of each country and do not reflect the amounts included in the Consoli- dated Financial Statements. Stockholders’ equity and earnings are translated at the year-end current rate, and sales are translated at the average rate of the year. 2) Profit- and loss-pooling agreement (earnings before pooling). 118 3) Joint venture, prorata consolidated. Name Location Share in acc. with § 16 Stockholders’ Earnings1) Sales 1) German Stock Corporation Act Equity 1) % 8 8 8 Others in millions in millions in millions E-Plus Mobilfunk GmbH Düsseldorf 60.3 –1,745.1 – 177.7 1,214.8 VEBA Telecom GmbH Düsseldorf 100.0 1,248.5 – 42.42) – VR Telecommunications GmbH & Co.3) Norderfriedrichskoog 51.2 2,347.6 836.1 116.5 MEMC Electronic Materials. Inc. USA, St. Peters, MO 71.8 767.6 – 100.9 132.3 MEMC Southwest. Inc. USA, Sherman, TX 80.0 270.0 – 23.1 163.3 VEBA Corporation USA, New York, NY 100.0 1,379.1 32.9 –

II. Associated Companies4) Electricity Bewag AG Berlin 23.0 1,897.5 151.9 1,994.8 Energie-Aktiengesellschaft Mitteldeutschland Kassel 46.0 189.5 16.1 834.9 Erdgas Mitteldeutschland GmbH Kassel 26.0 30.8 4.7 151.7 Erdgas Schwaben GmbH Augsburg 48.0 47.5 8.4 146.6 Erdgas Südbayern GmbH Munich 25.0 45.4 5.9 250.1 Erdgas Südsachsen GmbH Chemnitz 49.0 112.7 5.1 194.2 EWE Aktiengesellschaft Oldenburg 27.4 463.4 41.4 1,924.7 Fränkisches Überlandwerk AG Nuremberg 61.2 101.0 12.5 427.6 Freiburger Energie- und Wasserversorgungs-AG Freiburg 35.9 66.5 18.22) 223.5 Gasag Berliner Gaswerke AG Berlin 13.0 434.5 – 45.7 431.2 Gemeinschaftskernkraftwerk Grohnde GmbH Emmerthal 50.0 153.4 10.72) 212.5 Hamburgische Electricitäts-Werke AG Hamburg 15.4 631.9 83.5 1,397.0 Hein Gas Hamburger Gaswerke GmbH Hamburg 28.1 160.5 22.5 629.3 Kernkraftwerk Krümmel GmbH Hamburg 50.0 102.3 10.22) 228.6 Kernkraftwerke Lippe-Ems GmbH Lingen 12.5 465.5 50.62) 519.3 Lausitzer Braunkohle AG Senftenberg 30.0 803.6 8.2 827.6 Mainova Aktiengesellschaft Frankfurt am Main 24.3 374.9 2.8 1,002.2 rhenag Rheinische Energie AG Cologne 41.9 214.9 16.1 75.2 Städtische Werke Magdeburg GmbH Magdeburg 29.0 120.5 5.6 205.7 Stadtwerke Hannover AG Hanover 12.0 255.5 39.02) 629.5 swb AG Bremen 22.5 242.6 33.4 643.9 Überlandwerk Unterfranken AG Würzburg 40.1 108.7 11.6 365.7 Veag Vereinigte Energiewerke AG Berlin 26.3 2,099.1 – 2,443.1 BKW FMB Energie AG CH, Bern 20.0 161.4 18.6 684.2 Graningeverkens AB S, Bollstabruk 13.3 311.1 36.9 240.8 Sydkraft AB S, Malmö 20.7 2,200.9 309.4 177. 6 Oil Aral AG Bochum 70.9 168.7 12.72) 3,464.0 Ruhr Oel GmbH Düsseldorf 50.0 368.3 – 994.0 Chemicals Norddeutsche Raffinerie AG Hamburg 10.0 233.7 23.9 1,135.4 Polymer Latex GmbH & Co. KG Marl 50.0 112.3 11.5 321.6 TFL Ledertechnik GmbH & Co. KG Darmstadt 50.0 68.5 4.8 203.5 Cyro Industries USA, Rockaway, NJ 50.0 149.8 25.1 227.2 Nippon Aerosil Co.. Ltd. J, Tokyo 50.0 30.4 4.3 63.4 Real-Estate Management Deutschbau-Holding GmbH Frankfurt am Main 50.0 713.7 – 24.1 – WBRM-Holding GmbH Essen 50.0 84.9 – 7.5 – Others RAG Aktiengesellschaft Essen 39.2 481.8 0.0 6,196.0 VIAG AG Munich 10.0 4,558.0 223.9 – Bouygues Telecom S.A. F, Velizy-Villacoublay 17.5 710.5 – 394.1 593.4 Cablecom Holding AG CH, Frauenfeld 32.0 115.6 29.0 351.5 Posco Hüls Co. Ltd. ROK, Chonan 40.0 111.7 – 10.6 148.2 Taisil Electronic Materials. Inc. RC, Hsin-Chu 45.0 195.8 – 10.7 88.6

1) These figures comply with the financial statements prepared in accordance with the specific generally accepted accounting principles of each country and do not reflect the amounts included in the Consoli- dated Financial Statements. Stockholders’ equity and earnings are translated at the year-end current rate, and sales are translated at the average rate of the year. 2) Profit- and loss-pooling agreement (earnings before pooling). 3) Joint venture, prorata consolidated. 4) Mainly previous year’s figures, unless profit- and loss-pooling agreement exists. 119 VEBA Group: Ten-Year Highlights

1990 1991 1992 1993 19941) 1995 1996 1997 1998 1999 Sales 8 million 27,912 30,424 33,448 33,924 36,451 37,003 38,112 42,294 42,787 52,905 thereof domestic percent 71.2 74.5 73.3 71.7 71.6 70.0 68.6 65.3 61.5 50.7 foreign percent 28.8 25.5 26.7 28.3 28.4 30.0 31.4 34.7 38.5 49.3

Income before income taxes 8 million 1,291 1,329 954 779 1,304 1,961 2,268 2,543 2,392 3,953 after income taxes 8 million 618 625 533 518 807 1,077 1,347 1,544 1,152 2,902 after minority interests 8 million 561 560 463 422 698 979 1,257 1,437 1,196 2,668 Internal operating profit 8 million 2,035 2,240 1,946 2,274 US GAAP earnings per share 8 – – – – 1.78 2.13 2.58 2.98 2.34 5.95 Total dividend 8 million 252 277 284 323 373 424 480 534 540 628 Dividend per share 8 0.56 0.61 0.61 0.66 0.77 0.87 0.97 1.07 1.07 1.25

Assets Fixed assets 8 million 14,444 15,732 17,092 18,000 20,955 23,268 25,326 29,802 31,316 35,646 Current assets 8 million 9,108 8,922 9,632 10,398 10,809 11,373 11,445 11,406 11,753 16,738 thereof: liquid funds 8 million (2,120) (1,548) (1,447) (1,878) (2,145) (2,128) (2,541) (652) (507) (1,837) Total assets 8 million 23,552 24,654 26,724 28,398 31,764 34,641 36,771 41,208 43,069 52,384

Liabilities and Stockholders’ Equity Stockholders’ equity 8 million 7,336 7,719 8,027 8,464 9,254 10,713 11,781 12,946 13,468 17,372 thereof: capital stock 8 million (1,146) (1,154) (1,183) (1,242) (1,242) (1,248) (1,262) (1,271) (1,285) (1,307) (thereof: minority interests) 8 million (627) (671) (739) (750) (1,019) (1,770) (1,816) (1,618) (1,701) (2,990) Provisions 8 million 9,050 9,879 11,056 12,097 14,368 15,930 16,285 17,003 17,801 19,868 Financial liabilities 8 million 3,170 2,894 2,989 2,700 1,999 1,803 1,880 3,315 3,600 5,163 Other liabilities 8 million 3,996 4,162 4,652 5,137 6,143 6,195 6,825 7,944 8,200 9,981 Total liabilities and stockholders’ equity 8 million 23,552 24,654 26,724 28,398 31,764 34,641 36,771 41,208 43,069 52,384

Cash Flow/Investments Cash flow from operations 8 million – 2,638 3,061 3,311 3,927 4,028 4,580 4,465 3,088 3,255 Investments 8 million 2,379 3,179 3,114 2,684 4,797 4,971 4,491 8,111 4,225 7,017

Employees (Dec. 31)2) 106,877 116,979 129,802 128,348 126,875 125,158 123,391 129,960 116,774 131,602

Financial Ratios Equity ratio percent 31.1 31.3 30.0 29.8 29.1 30.9 32.0 31.4 31.3 33.2 Long-term capital in percent of property, plant and equipment percent 118.2 114.4 110.4 113.1 107.8 108.7 106.5 98.6 100.4 106.9 Return on equity after taxes percent 8.5 8.1 6.5 5.6 8.7 11.4 13.3 13.5 10.4 20.4 Net financial position (liquid funds minus financial liabilities) 8 million – 1,050 – 1,346 – 1,542 – 821 146 325 661 – 2,663 – 3,093 – 3,326 Cash flow from operations in percent of sales percent – 8.7 9.2 9.8 10.8 10.9 12.0 10.6 7.2 6.2

1) After accounting adjustments for US GAAP. 2) Excluding suspended working relationships and including less than part-time employees as of 1996 (total).

120 Financial Calendar

May 11, 2000 Interim Report: January–March 2000

May 25, 2000 2000 Annual Shareholders’ Meeting, 10am, Grugahalle, Essen

May 26, 2000 Dividend Payment

August 17, 2000 Interim Report: January–June 2000

November 15, 2000 Interim Report: January–September 2000

March 27, 2001 Annual Press Conference, Annual Analyst Conference

May 18, 2001 2001 Annual Shareholders’ Meeting

More information on VEBA is available from:

Corporate Communications VEBA AG Bennigsenplatz 1 40474 Düsseldorf Germany

+49 (211) 4579-367 (t) +49 (211) 4579-532 (f) [email protected] www.veba.com

Art direction: Hesse Designstudios

Photo contributions: Christian von Alvensleben Bayer AG (p. 5) Michael Dannenmann (pp. 7 and 8) Lisa Farkas-Uhde (pp.12–15) Wolfram Scheible (p. 14)

Typesetting: Lettern Partners, Düsseldorf

Lithography: Junck Reprotechnik, Düsseldorf

Printing: Druckerei Bachem, Cologne

The German version of this Annual Report is legally binding.

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