content · tourism is now the key elementin our portfolio.here,tui group gmbh, the leading company...

Content� 1 To our Shareholders

Management Report

� 4 Economic Situation

� 12 Financial Review

� 17 Risk Management

� 20 Research and Development

� 23 Prospects

Further Information

� 28 The Preussag Share

� 35 Personnel

� 38 Environmental Protection

Divisions and Sectors

� 41 Tourism

� 48 Logistics

� 53 Energy and Commodities

54 Energy

56 Trading

� 58 Building Engineering

Preussag in Figures

� 61 Five Years Summary

Financial Statements

� 62 Consolidated Profit and Loss Statement

� 63 Consolidated Balance Sheet

� 64 Development of Fixed Assets 1998/99

� 66 Development of Fixed Assets 1997/98

� 68 Segment Reporting

� 70 Development of Equity

� 71 Consolidated Cash Flow Statement

Notes on the Financial Statements

� 72 Notes on the Principles and Methods underlying the

Consolidated Financial Statements

� 89 Notes on the Consolidated Profit and Loss Statement

� 100 Notes an the Consolidated Balance Sheet

� 124 Notes on the Consolidated Cash Flow Statement

Auditors’ Statement

� 128

Boards of Preussag AG

� 129 Supervisory Board

� 131 Executive Board

� 132 Report of the Supervisory Board

Major Shareholdings

� 134

To our Shareholders 1

Successful Development

Dear shareholders,

The financial year 1998/99 was another year marked both by a welter

of new events and a great deal of success for Preussag. We have made

substantial headway in the realignment of our company to one of the

leading tourism and logistics groups in Europe.

General economic conditions in the essential markets for our business

activities were favourable and supported the positive development. As a

consequence, pre-tax profit exceeded the threshold of DM one billion

for the first time in the 75 years of Preussag’s history. The positive earn-

ings situation allows us to suggest the payment of an increased divi-

dend of DM 1.50 per share to you.

The consistent refocusing on services with an emphasis on tourism, a

growth industry, has led to a sustained increase in Preussag’s earnings

potential. An essential contribution was made by the swift expansion

of our tourism activities in the completed financial year.

In this respect, the acquisition of a majority shareholding in the Thomas

Cook Group, which commenced in December 1998, was the crucial step

on the way to being a pan-European tourism company. With Thomas

Cook, the number 3 in the United Kingdom, we are now also well posi-

tioned in the second largest travel market in Europe.

Still in December 1998, we had concluded an agreement on the takeover

of the First travel agency chain; in conjunction with the travel agencies

of Hapag-Lloyd and the TUI ReiseCenter outlets, it now forms the largest

travel sales organisation in Germany.

In June 1999, we then acquired the remaining shares of Westdeutsche

Landesbank and Deutsche Bahn in TUI, paving the way for a consistent

integration and optimal coordination of all tourism activities within one

entrepreneurial entity. It will start into the year 2000 under a new

name: TUI Group GmbH.

In parallel to the expansion of tourism, we implemented the strategic

withdrawal from plant engineering and shipbuilding. Our two plant

engineering groups and 25% of the shares in Howaldtswerke-Deutsche

Werft AG (HDW) were transferred to Babcock Borsig AG in exchange for

a 33.3% shareholding in the increased share capital of Babcock Borsig. In

addition, we sold 25% plus one share in HDW to Babcock Borsig and the

Swedish Celsius AB each.

Tourism is now the key element in our portfolio. Here, TUI Group GmbH,

the leading company in the tourism division, is a direct subsidiary of

Preussag. Apart from liner shipping and forwarding, Hapag-Lloyd, the

leading company in the logistics division, also takes over the invest-

ments in VTG-Lehnkering and Algeco. The other divisions in the new

Group structure are energy and commodities as well as building

engineering.

Tourism has allowed us to tap markets with strong growth rates. The

TUI Group, the European market leader in tourism, will expand this posi-

tion further over the next few years. On the one hand, it focuses on the

integration of the acquired companies. Its aim is to continue to increase

the earnings potential of our business by means of an optimal coordina-

tion of all stages of the tourism value chain – distribution, tour opera-

tors, airline, incoming agencies and hotels. On the other hand, we intend

to engage in selective investments in the individual stages of the value

chain, above all the airline and hotel sector, to generate additional

growth and to tap new source markets in Europe in order to also expand

regionally, focusing on France, Italy and Spain.

With our logistics division, we are actively engaged in another industry

growing all over the world. The increase in globalisation and the division

of labour in the key industries result in a rapid growth in demand for

customised logistics services. Our logistics division, newly formed in

Hapag-Lloyd, will take greater advantage of this trend in its key account

segments.

To our Shareholders 2

3 To our Shareholders

The focus of the strategy pursued by the energy sector is to develop

above all the oil and gas reserves, which doubled over the last years, and

hence to continue to enlarge its earnings potential. As in previous years,

the search for further production and field development projects will

concentrate on South America, Northern Africa and the Middle East.

Trading will focus on a consolidation of activities.

In building engineering, we pursue a set of distinct growth strategies.

With our highly competitive products for the building materials, heating

technology and fire protection sectors, we aim at gaining market shares

in Germany and tapping additional business and earnings potentials in

our neighbouring countries.

For the future development of Preussag, we will clearly place the focus

on the services sectors. They will soon account for two thirds both of

turnover and profit contribution. Apart from that, however, we will also

continue to develop the other sectors of our business; they are also prof-

itable and continue to make significant contributions to Group results.

We pursue value-oriented management for Preussag, your enterprise.

With the change to a services group, implemented within a short period

of time, we have paved the way for further increases in value. We intend

to take consistent advantage of this opportunity in the new year.

Economic Situation

Change improves profitsThe consistent refocusing on fast-growing services has led to a further sharpening of Preussag’s

profile and a sustained increase in the earnings potential. For the first time in the 75 years of

Preussag’s history, profit before tax has exceeded the threshold of DM 1 billion.

The key events with the greatest significance for Preussag’s future were the

expansion of the tourism business with the acquisition of the majority in the

Thomas Cook Group, the increase in the shareholding in Touristik Union Inter-

national to 100% and the takeover of the First travel agency chain on the one

hand and the withdrawal from plant engineering and shipbuilding as well as

the coal sector on the other. These events did not only determine Preussag’s

new structure but, as a consequence, also had a decisive impact on the earnings

situation.

� Economic climate improved

In the course of the financial year, the economic environment improved for most

Group companies. The world economy recovered and the cyclical differences

between the key economic areas gradually declined – whereas growth persisted

in North America, albeit less dynamically, the upward trends in Japan and Europe

accelerated considerably. The recovery process in the threshold countries in East

Asia and South America also progressed.

The tourism sector was relatively insensitive to cyclical fluctuations again, above

all in Germany. Market growth in this country significantly outperformed GDP

growth. The logistics sector initially continued to feel the repercussions of the

crisis in Asia; demand for transport services was not stimulated by the economy

until the end of the financial year. Business in the energy and commodities divi-

sion was characterised by lower raw material prices in the first half of the year;

the increase in prices for crude oil and non-ferrous metals then gave rise to a

clear upturn in the second half of the year. The building engineering division

saw its business characterised by persistently weak economic activities in the

construction industry.

� Financial statements based on IAS

International Accounting Standards (IAS) were applied for the financial state-

ments of the financial year 1998/99 for the first time. The financial statements

of 1997/98 were adjusted to IAS. This enables a direct comparison of the state-

ments. Figures of previous years which are not based on IAS were marked

specially.

4 Management Report

� Group turnover totalled DM 32.3 billion

Group turnover totalled DM 32.3 billion. Adjusted for divestments, it rose by 7%.

In the new structure of the Group, the composition of turnover again changed

considerably: 62% were now accounted for by services. Last year, this figure

stood at only 42%. Turnover leaped forward in particular in the tourism division.

At DM 14.0 billion, its turnover was about 50% higher than last year. This was

attributable to external growth from acquisitions and changes in the companies

included in the consolidated financial statements as well as internal growth.

Consequently, tourism accounted for 43% of Group turnover.

Around 18% of Group turnover was generated by the logistics division. In some-

times difficult market conditions, it achieved a turnover of DM 5.9 billion and

hence an increase of about 3%. The energy and commodities division accounted

for 27% of Group turnover. At DM 8.5 billion, turnover in this division was about

24% lower than last year. This was primarily due to the low non-ferrous metal

prices which caused a drop in turnover in the trading sector to DM 7.3 billion. De-

spite extremely low crude oil prices in the first half of the year, the energy sector

managed to achieve a turnover of DM 1.2 billion. The building engineering divi-

sion with its turnover of DM 3.5 billion grew, in spite of a weak economic envi-

ronment, and contributed a share of 11% to Group turnover. At DM 0.3 billion,

other companies accounted for 1%.

� Group turnover by divisions

1998/99 1997/98 ChangeDM mill. DM mill. %

Tourism 14,013.1 9,369.9 + 49.6

Logistics 5,896.6 5,729.5 + 2.9

Energy and commodities 8,535.0 11,192.7 1) - 23.7

Energy 1,242.7 1,476.8 1) - 15.9

Trading 7,292.3 9,715.9 - 24.9

Building engineering 3,490.9 3,417.0 + 2.2

Other companies/consolidation 337.4 411.6 - 18.0

Divested activities — 5,748.2 —

Total 32,273.0 35,868.9 - 10.0

1) excl. activities divested in the financial year 1998/99

� Growth in turnover in the European region

The changes in the Group structure also affected the regional distribution of

Group turnover. DM 7.7 billion were generated in Germany. Foreign turnover rose

to DM 24.6 billion, its share therefore accounted for 76% following 68% in the

previous year. At 61%, the largest portion of foreign turnover – as in previous

years – was achieved in the countries of the European Union. Business in North

Management Report 5

6 Management Report

Economic Situation

and South America amounted to 17% of foreign turnover. Central and Eastern

Europe accounted for 7%, Asia’s share was 15%; Africa only accounted for a minor

portion of foreign turnover.

� Group turnover by regions


Germany 7,644.7 11,573.5 - 33.9

EC (excl. Germany) 14,950.7 13,357.4 + 11.9

Rest of Europe 1,789.1 2,207.5 - 19.0

America 4,080.9 4,917.3 - 17.0

Other regions 3,807.6 3,813.2 - 0.1

Total 32,273.0 35,868.9 - 10.0

� Divisions generated a result of more than DM 1 billion

Preussag’s realignment and the resolute change to a services group is also

reflected by the development of the structure of results. Preussag’s divisions

generated results of DM 1.2 billion. At DM 601 million or about 50%, the tourism

division contributed the largest portion to these results.

� Group profits rose to DM 676 million

Despite the higher tax burden associated with the positive earnings situation

and the increase in amortisation of goodwill, Group profit for the year rose to

DM 676 million.

� Results by divisions and consolidated profits


Tourism 601.4 446.2 + 34.8

Logistics 271.8 199.8 + 36.0

Energy and commodities 329.3 303.3 1) + 8.6

Energy 252.7 207.3 1) + 21.9

Trading 76.6 96.0 - 20.2

Building engineering 179.1 219.4 - 18.4

Other companies/consolidation - 168.6 20.6 —

Divested activities — - 170.6 —

Results of the divisions 1,213.0 1,018.7 + 19.1

Amortisation of goodwill 170.1 81.7 + 108.2

Profit from ordinary business activities 1,042.9 937.0 + 11.3

Taxes 367.3 346.8 + 5.9

Group profit for the year 675.6 590.2 + 14.5


7 Management Report

Economic Situation

� Further structural changes

In the course of the financial year, Preussag consistently continued its concen-

tration on services by means of its investments in tourism, the complete with-

drawal from the coal sector and the transfer of the plant engineering sector and

the majority shareholding in the shipbuilding activities.

� Acquisition of majority shareholding in the Thomas Cook Group

In December 1998, Preussag initially acquired a 24.9% shareholding in the

British tourism and financial services group Thomas Cook. In early February

1999, the shareholders of the Thomas Cook Group and the Carlson Leisure Group

UK Ltd. agreed to combine the tourism activities of the two groups under

Thomas Cook Holdings Ltd. Following the approval of the EU Commission in

March 1999, the merger was effected. With effect from 1 July 1999, Preussag

increased its participation in Thomas Cook Holdings Ltd. to a majority share-

holding of 50.1%.

� Acquisition of the travel agency chains First and L’tur

Also in December 1998, Hapag Touristik Union GmbH acquired initially 80.1%

and subsequently, in February 1999, the remaining 19.9% of the shares in the

travel agency chain First. In February 1999, the acquisition of the majority in

L’tur Tourismus AG by Touristik Union International GmbH & Co. KG took effect,

thereby increasing its shareholding from 24.9% to a majority of 51%.

� TUI shareholding increased to 100%

With the acquisition of 25% of its shares from Deutsche Bahn and another

24.9% from Westdeutsche Landesbank, Touristik Union International GmbH &

Co. KG was completely taken over by the Preussag Group in July 1999. This paved

the way for a further integration of the tourism business and the combination

of all tourism activities in Hapag Touristik Union. With the beginning of the year

2000, Hapag Touristik Union has changed its name to TUI Group GmbH.

� Pooling of logistics in Hapag-Lloyd

The merger of the logistics activities of Lehnkering AG and Vereinigte Tanklager

und Transportmittel GmbH in the newly formed VTG-Lehnkering AG, resolved in

May 1998, was implemented in several stages. In the course of the restructuring

of the logistics division, Hapag-Lloyd AG will take over Preussag’s shareholdings

in VTG-Lehnkering AG and Algeco S.A. and therefore be the leading company in

the logistics division as per 1 October 1999.

� Concentration on the core business in the energy sector

The inclusion of Preussag Anthrazit GmbH in the newly founded Deutsche Stein-

kohle AG, agreed in the framework of the political agreement on coal mining,

was effected as per 1 January 1999. Moreover, in January 1999 Preussag Energie

GmbH transferred its 50.2% participation in the Deilmann-Haniel GmbH to the

Heitkamp Group with effect from 1 October 1999. The energy sector will subse-

quently focus on the exploration and production of crude oil and natural gas

and the associated technical services.

� Withdrawal from plant engineering and shipbuilding

In the course of the financial year, Preussag withdrew from plant engineering

and shipbuilding. This entailed several steps taken under company law. Follow-

ing the approval by the Annual General Meeting of Preussag AG on 31 March

1999, all shares in Preussag Noell GmbH and Preussag Wasser und Rohrtechnik

GmbH as well as 25% of the shares in Howaldtswerke-Deutsche Werft AG (HDW)

were transferred to Babcock Borsig AG. The transfer was made by a non-cash

contribution. In exchange, Preussag received new shares in Babcock Borsig AG,

created by a capital increase, so that Preussag has held a 33% shareholding in

Babcock Borsig AG ever since. Moreover, Babcock acquired another 25% plus one

share in HDW.

By contracts signed in September 1999, Preussag sold 25% of the shares plus one

share in HDW to the Swedish Celsius AB (pub) with effect of 1 October 1999 so

that its interest in the shipyard stands at 25% minus two shares. Furthermore

HDW takes over the Kockums Naval Systems shipyard from Celsius. These trans-

actions were approved by the EC Commission on 19 January 2000.

Following the withdrawal from plant engineering and shipbuilding, the building

engineering activities of the former technology sector remained within the

Group as a newly formed division encompassing the Fels Group, the Wolf Group,

Kermi GmbH and the Minimax Group.

� More personnel in the new Preussag

Preussag’s realignment has also led to a considerable change in the workforce

structure. By the end of the financial year, the Group companies employed

79,142 persons worldwide, around 19% more than last year. With 61%, the tourism

division represented the largest portion of the workforce. As a consequence, the

number of employees working for foreign companies also rose to 50,424 or 64%

of the workforce. 28,718 persons were employed in Germany, a decline of about

34%. This is primarily caused by the withdrawal from plant engineering and

shipbuilding as well as coal mining.

Management Report 8

9 Management Report

Economic Situation

� Strong growth in tourism

For the tourism division, the financial year 1998/99 was a significant year in two

aspects: strategically, it set the stage and commercially, it was very successful.

The acquisition of the majority in the British Thomas Cook Group facilitated entry

into the second largest travel market in Europe, while the integration of the

travel agency chain First and the last-minute company L’tur and a number of

additional activities along the tourism value chain facilitated the expansion of

the market position as the largest integrated tourism supplier in Europe.

Turnover in tourism totalled DM 14.0 billion and hence was about 50% higher

than last year. Results in the first full financial year of Hapag Touristik Union

(HTU) rose to DM 601 million. This was attributable both to the positive business

trend and the synergies from the integration of the value added stages, and the

new companies included in the financial statements for the first time. Consoli-

dation of the Thomas Cook Group was effected on the basis of intermediate

financial statements for the quarter from 1 July to 30 September 1999 of its

financial year 1999.

The growth trend in the European travel markets persisted. In Germany, the

HTU tour operators benefited from the persistently above-average growth in

demand for organised tours. Turnover and guest numbers grew more strongly

than the market, with particularly brisk demand in the high-quality and low-

price segments. Tour operators in the Netherlands and Belgium also recorded

considerable growth rates. Business in Switzerland, in contrast, was adversely

affected by the tight competitive situation right into the summer season. The

distribution network of the HTU Group, comprised of self-owned and franchise

travel agencies, took advantage of the positive market situation and generated

a higher turnover in mediated tours than last year. The airline business was also

successful in its first year of integration in the HTU Group. More passengers flew

with Hapag-Lloyd Flug than last year so that a further improvement in aircraft

capacity utilisation was achieved. The incoming agencies showed an overall

good performance. The hotel companies, above all RIU hotels, recorded a good

occupancy rate in hotel bed capacities.

� Moderate growth in the logistics division

The logistics division comprises the logistics activities of Hapag-Lloyd AG, the

VTG-Lehnkering Group and the Algeco Group. They generated a turnover of

DM 5.9 billion about 3% more than last year. At DM 272 million, the result of the

division stood above last year’s figure, a year that had benefited from the earn-

ings from the sale of a cruise ship. Some operative results improved considerably,

with varying trends to be observed in the profit contributions of the individual

sectors.

Management Report 10

Hapag-Lloyd’s logistics sector held its own well in a difficult economic environ-

ment. The effects of the crisis in Asia on liner shipping, which manifested them-

selves above all in the lack of parity in transports from and to the Far East and in

low freight rates, did not fade until the end of the financial year. Nevertheless,

Hapag-Lloyd Container Linie shipped 15% more standard containers than last

year. The improvement in results was also due to productivity increases and the

reduction in shipping system costs per container.

In its first year in a new structure, the VTG-Lehnkering Group continued on the

good results of the previous year. Although economic activities in its key account

segment, the chemical industry, were flat, the capacities in the newly formed

sectors rail and tank container logistics, bulk and special logistics and participa-

tions were well utilised in most areas.

The Algeco Group continued its growth in the mobile building hire business. It

benefited above all from the buoyant demand in France and Spain. Utilisation of

the mobile buildings park, considerably enlarged by new buildings, improved

again from an already good level.

� Crude oil prices affect business in the energy sector

Business in the energy sector was significantly influenced by the development

of crude oil prices. Following a decline to record lows of less than USD 10 per

barrel in the first half of the year, a continuous recovery began which led to an

increase in prices to almost USD 24 per barrel. Turnover in the sector dropped by

16% and reached DM 1.2 billion. Despite the improvements in prices in the sec-

ond half of the year, operative results were not kept at the previous year’s level

in full. The results of the division were improved by the earnings from the sale of

the uranium mining activities so that the contribution of the energy sector to

Group profits rose to DM 253 million.

Preussag Energie GmbH continued to expand its international crude oil produc-

tion in the core regions South America and North Africa. On the whole, its crude

oil production increased by 12% on the previous year. While domestic production

was reduced slightly at the beginning of the year due to low oil prices, produc-

tion abroad rose strongly. It accounted for 73% of overall production. Domestic

natural gas production was stable; Argentinean natural gas reserves were

swapped for oil reserves in the course of the restructuring of Deminex.

Demand for drilling services dropped considerably as a result of the low crude

oil prices. As a consequence, utilisation of the drilling and workover rigs of the

Deutag Group also declined in the course of the year. In contrast, the platform

services business in the British North Sea increased.

11 Management Report

� Weak non-ferrous metal markets curbed trading activities

The trading sector did not manage to continue on the positive trend of the

previous successful year because of the weak non-ferrous metal markets and

the import pressure on the American steel markets. Turnover dropped by 25%

to DM 7.3 billion, with prices playing a substantially bigger role than volume. As

a consequence, results dropped considerably to DM 77 million.

The financial year developed differently for the individual regions and sectors of

the AMC Group. While the trading sector improved owing to a good second half

of the year, the overall performance of metal processing and the distribution

and services sector went down this year. The long period of difficulties on the

American steel market considerably impaired the development of business for

the US steel service companies so that sales dropped by about 10%, given the

partly dramatic drop in prices. The Bergmann Group’s business initially suffered

considerably from the unfavourable trading conditions for copper and alumin-

ium but stabilised in the second half of the year.

� Building engineering characterised by weak level of economic activities

The companies of the building engineering division were affected differently by

the persistently weak level of economic activities in the construction industry.

At DM 3.5 billion, turnover grew by 2% on the previous year – primarily from

external growth. The tight competitive situation in some sectors led to a decline

in results to DM 179 million.

The Fels Group managed to keep its business fairly stable. This held true both for

its main product, Fermacell plasterboards, but also other building materials.

Demand for lime products rose in comparison to last year. The heating technol-

ogy business of the Wolf Group developed differently in the individual regions.

While it went down in Germany and Switzerland given a partial decline in the

market volume, it recorded slight growth in the French market. Growth was also

generated by the activities in Turkey in the first full financial year. Kermi GmbH’s

business in radiators and shower screens, supported by brisk demand abroad, per-

formed satisfactorily again. Due to persistently adverse market conditions, busi-

ness in mobile fire protection continued to be difficult for the Minimax Group.

Capacities in stationary fire protection, in contrast, were well utilised again.

Economic Situation

Financial Review

Financial statements according to IASFor the first time, the consolidated financial statements for the financial year 1998/99 were pre-

pared on the basis of the accounting standards set up by the International Accounting Standards

Committee (IASC). The accounting and valuation methods for the financial year 1997/98 were

adjusted accordingly.

� Accounting principles

With the preparation of the consolidated financial statements according to the

International Accounting Standards (IAS), the conditions for exemption from the

duty to prepare consolidated financial statements under German accounting

rules are met.

The conversion to IAS has given rise to a number of deviations from previously

applied accounting and valuation methods in several items in the balance sheet

and the profit and loss statement. These deviations are comprehensively out-

lined in the notes; they mainly affect the treatment of leased assets, the depre-

ciation of fixed assets, the valuation of the pension provision, the calculation of

deferred taxes and the valuation of tax savings from losses carried forward as

well as the realisation of revenues and profits according to completion stage.

Furthermore, goodwill from previous years has to be carried as assets.

� Asset and capital structure

30 Sept 1999 30 Sept 1999 30 Sept 1998 30 Sept 1998 DM mill. % DM mill. %

Fixed assets 15,194.0 51.0 11,496.3 57.2

Current assets 14,604.7 49.0 8,610.1 42.8

Assets 29,798.7 100.0 20,106.4 100.0

Shareholders‘ equity 5,316.3 17.8 3,903.2 19.4

Long-term liabilities 6,714.6 22.6 7,424.0 36.9

Short-term liabilities 17,767.8 59.6 8,779.2 43.7

Equity and liabilities 29,798.7 100.0 20,106.4 100.0

The acquisitions and divestments made have considerably changed some of the

balance sheet items. This was primarily due to the first-time inclusion of the

Thomas Cook Group in the consolidation and the withdrawal from consolidation

of plant engineering as well as the capital measures carried out in this year.

The balance sheet total rose by around 48% to DM 29.8 billion. On the assets

side, fixed assets increased by around 32% to DM 15.2 billion and current assets


by around 70% to DM 14.6 billion. The increase in fixed assets primarily resulted

from the additions associated with the acquisitions, both in goodwill and fixed

assets. Current assets mainly rose due to the first-time inclusion of the Thomas

Cook Group and its funds from the travellers cheque business in the annual

financial statements.

On the liabilities side, shareholders‘ equity rose by around 36% to DM 5.3 billion

and short-term liabilities increased by around 109% to DM 17.8 billion, while

long-term liabilities decreased by around 13% to DM 6.7 billion. The increase in

shareholders‘ equity was mainly attributable to the inflow of around DM 1.1 bil-

lion from the capital increase of e 39 million implemented in April 1999. The

decrease both in pension provisions but also other provisions was closely related

to the changes in the Group structure. The increase in liabilities is strongly attrib-

utable to the reporting of the liabilities from the travellers cheque business. In

addition, the issuance of the convertible bond totalling e 550 million in June

1999 gave rise to an increase in liabilities of around DM 1.0 billion. In November

1999, a liability of around DM 1.2 billion, which resulted from the transfer of the

majority interest in shipbuilding was settled.

� Cash flow statement

1998/99 1997/98 Change DM mill. DM mill. %

Cash flow from business activities 1,128.6 1,629.1 - 30.7

Cash flow from investment activities 3,352.8 - 2,275.7 + 247.3

Cash flow from finance activities 452.5 111.5 + 305.8

Change in funds 4,933.9 - 535.1 + 1,022.1

Funds at financial year-end 6,501.8 1,586.5 + 309.8

The flow of funds was strongly affected by the restructuring of the Group. Pay-

ments made for capital expenditure in fixed assets and financial investments

totalled DM 1.7 billion. Due to inflow of about DM 5.0 billion which mainly in-

cluded inflow of funds from first-time consolidation as well as from disposal of

assets, investment activities contributed positively to funds. The Group received

DM 0.5 billion from the finance activities. The essential cash inflows resulted

from the capital increase and the issuance of the convertible bond, outflow re-

sulted from the settlement of financial debts. From operating activities, DM 1.1

billion were received. At financial year-end, funds totalled DM 6.5 billion. A de-

tailed cash flow statement is provided in the annual financial statements.

For the long-term structuring of Group financing, Preussag AG took up a 7-year

corporate bond of e 750 million in October 1999, which generated an inflow of

around DM 1.5 billion.



Financial Review

� Total investments high again

The Group’s total investments were mainly characterised by the acquisition of

the majority in the Thomas Cook Group, the acquisition of the remaining out-

side shares in Touristik Union International, the takeover of the First Group and

the shareholding in Babcock Borsig AG. Additions to fixed assets increased by

55% on the previous year’s level and totalled DM 4.9 billion, around DM 1.7 bil-

lion of which were accounted for by tangible and other intangible assets, around

DM 2.2 billion by goodwill and around DM 1.0 billion by investments, mainly

from the first-time inclusion of companies in the consolidation, primarily in the

tourism division. Depreciation of fixed assets totalled DM 1.2 billion, of which

DM 1.0 billion related to tangible and other intangible assets, DM 181.1 million to

goodwill and DM 63.0 million to investments.

� Capital expenditure by divisions 1)


Tourism 690.2 423.1 + 63.1

Logistics 617.0 595.3 + 3.6

Energy and commodities 180.6 253.8 2) - 28.8

Energy 113.6 192.2 2) - 40.9

Trading 67.0 61.6 + 8.8

Building engineering 160.9 177.8 - 9.5

Other companies/consolidation 75.1 53.0 + 41.7

Divested activities — 128.2 —

1,723.8 1,631.2 + 5.7

1) incl. intangible assets without goodwill2) excl. activities divested in the financial year 1998/99

� Depreciation of tangible assets by divisions 1)


Tourism 290.2 163.5 + 77.5

Logistics 351.3 329.8 + 6.5

Energy and commodities 135.1 125.4 2) + 7.7

Energy 102.7 98.4 2) + 4.4

Trading 32.4 27.0 + 20.0

Building engineering 155.7 152.8 + 1.9

Other companies/consolidation 42.0 43.9 - 9.1

Divested activities — 158.2 —

974.3 974.4 0

1) incl. intangible assets without goodwill2) excl. activities divested in the financial year 1998/99

� Value added totalled DM 5.9 billion

The operating value added of the Group in its new structure totalled DM 5.9 bil-

lion. The change towards service-oriented activities also impacted the use of the

net value added: with 76.1%, the share used for the employees went down. With

6.2%, the creditors’ share was higher than last year, since the restructuring of the

Group generated a need for additional external funds, apart from an increase in

shareholders‘ equity. The tax share of 6.2% of the net value added reflected the

positive earnings situation. It also benefited the shareholders who will receive

4.4% for this financial year. A 7.1% share was retained by the Group to strengthen

its real-asset value.

� Value-added statement

1998/99 1998/99 1997/98 1997/98 DM mill. % DM mill. %

Source

Group gross income 34,940 100.0 38,154 100.0

Costs - 27,917 79.9 - 30,077 78.8

Gross value added 7,023 20.1 8,077 21.2

Depreciation - 1,144 3.3 - 1,056 2.8

Net value added 5,879 16.8 7,021 18.4

Distribution

Employees 4,473 76.1 5,753 82.0

Wages and salaries 3,628 61.7 4,535 64.6

Social security 658 11.2 942 13.4

Pensions and benefits 187 3.2 276 4.0

Public authorities 367 6.2 347 4.9

Creditors 364 6.2 331 4.7

Shareholders 259 4.4 229 3.3

Group 416 7.1 361 5.1

Net value added 5,879 100.0 7,021 100.0

� Financial statements of Preussag AG

The financial statements of Preussag AG for the financial year 1998/99 were

prepared in accordance with the rules of the German Commercial Code, with due

consideration of the supplementary regulations of the Companies’ Act, and were

given an unqualified audit certificate by the auditors PwC Deutsche Revision

Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Hanover. It is fully pub-

lished in the Federal Gazette (Bundesanzeiger) and deposited at the Commercial

Registers of the District Courts of Berlin-Charlottenburg, HRB 321, and Hanover,

HRB 6580. It may also be requested in print from Preussag AG or retrieved on

the web under http://www.preussag.de.



Financial Review

� Balance sheet of Preussag AG (summary)

(DM mill.) 30 Sept 1999 30 Sept 1998

Fixed assets 8,198.0 7,769.8

Tangible assets 148.3 152.6

Investments 8,049.7 7,617.2

Current assets 2,179.2 1,872.7

Receivables 2,162.7 1,263.1

Liquid funds 16.5 609.6

Prepaid expenses 33.0 1.6

Total assets 10,410.2 9,644.1

(DM mill.) 30 Sept 1999 30 Sept 1998

Shareholders‘ equity 4,509.0 3,109.7

Special non-taxed items 170.2 152.9

Provisions 1,260.4 1,036.9

Liabilities 4,470.6 5,344.6

Bonds 1,375.7 300.0

Other financial liabilities 546.3 480.4

Other liabilities 2,548.6 4,564.2

Total shareholders‘ equity and liabilities 10,410.2 9,644.1

� Profit and loss statement of Preussag AG (summary)

(DM mill.) 1998/99 1997/98

Other operating income 617.3 331.9

Personnel costs 110.3 98.3

Depreciation 9.0 8.9

Other operating expenses 531.2 495.4

Net income from investments + 607.0 + 812.6

Depreciation on investments 2.9 79.4

Net interest - 92.9 - 111.4

Profit from ordinary business activities + 478.0 + 351.1

Extraordinary result - 6.3 —

Taxes 212.1 62.3

Net profit for the year 259.6 288.8

� Net profit for the year and profit appropriation of Preussag AG

For the financial year 1998/99, Preussag AG reports a net profit for the year of

DM 259.6 million. Taking into account the profit brought forward of DM 0.7 mil-

lion, net profit available for distribution totals DM 260.3 million, available for the

payment of an increased dividend of DM 1.50 per no-par value share. Given a

dividend-bearing capital of DM 864.5 million, the profit distribution accounts for

DM 259.3 million; DM 1.0 million remain to be brought forward on new account.


Mastering business risksThe activities of the Preussag Group naturally entail varying business risks in the individual divi-

sions and economic regions. In order to identify and actively control these risks, Group-wide

reporting and control systems are used.

� Latent risks in the divisions

In tourism, holidaymakers‘ demand patterns play a significant role. Tour opera-

tors have to foresee the trends in destinations as accurately as possible and take

them into account in their capacity planning for the new season. In some desti-

nations, unexpected political events and natural disasters represent latent risks.

The commercial success of the logistics division depends partly on the economic

development in Asia and in a number of key industries such as the chemical in-

dustry. The future development of the energy and commodities division will be

strongly affected by external factors. Hence, for instance, it remains to be seen

whether the OPEC states will continue to exercise production discipline and thus

stabilise the oil price at the current high level. Other significant factors are non-

ferrous metal prices and the question as to whether a sustained balance of

demand and supply for base metals will emerge. For the building engineering

division, overall construction activities, particularly in Germany, are an impor-

tant factor determining the business trend.

� Risk management based on reporting and control systems

Handling business risks represents an inextricable part of the entrepreneurial

activities of Preussag’s management. The identification and active control of

these risks by means of Group-wide reporting and control systems are an inte-

gral management tool within the Preussag Group.

Apart from the avoidance of inappropriately high risks, the tools used in the

framework of risk management primarily serve to identify, assess and control

the risks inherent in business transactions and resulting from the conduct of

business. The design of these tools and the intensity of reporting depend on the

type of risk to be controlled. The tools are continuously checked and adjusted to

changing business environments. Essential risk management elements are

covered by guidelines applicable to all Group companies.

Risk Management

With the multi-stage, integrated planning and control system, Preussag’s man-

agement has a proven tool for the management of risks at its disposal. On the

basis of monthly statements and reports on divisions and Group companies,

deviations of actual from planned business developments are identified and

analysed so that performance risks may be recognised quickly and measures to

handle them may be taken. The supervisory board is included in this process via

regular, quarterly reports.

The core element of Preussag’s portfolio management is the Premium concept

(Preussag management information system for maximisation of the value of

the Group). This is a system aimed at value-oriented management, used for

operative and strategic portfolio control. Furthermore the system supplies data

for investment control and standardisation of the preparation of acquisition and

divestment decisions. Clearly defined, regularly checked goals and objectives are

used to measure economic success. Key figures in this respect are results before

tax and amortisation of goodwill and cash-flow in relation to the equity em-

ployed by the divisions.

� Reporting on the existence of dangerous risks established

With the commencement of the financial year 1998/99, an additional regular

reporting scheme was introduced in the wake of the implementation of the

regulations of the German Act on Control and Transparency in the Corporate

Sector (KonTraG); the purpose of this scheme is to identify any specific risk

potentials and other potentially vital risks in the individual Group companies.

By the end of the financial year, these reports have not identified any specific

risks threatening the continued existence of the companies.

In anticipation of the regulations set forth in the KonTraG, the risk management

systems have been reviewed by our auditors in the course of the annual audit of

the financial statements.

� Central financial management

Central bank and credit management has been installed for the Group’s finan-

cial sector. The individual financing categories and the rules to be complied with

for instance in the fields of project financing or foreign currency management

are defined by guidelines. In order to limit risks from changes in exchange or

interest rates for basic transactions, Preussag operates a Group-wide foreign

exchange and interest management system. Use is also made of derivative

financial instruments, which do not have an effect on the balance sheet per se.

Limits have been fixed for business transactions of this type, and they are regu-

larly checked. Moreover, this type of business is only concluded with banks with



Risk Management

a first-rate financial standing, and in the AMC Group for specific businesses also

with other business partners. The scope of the financial business as per balance

sheet date is given in the annual financial statements.

� Risk limitation by means of insurances

In order to cover potential damage and liability risks emerging from daily busi-

ness, insurances have been taken out with a view to ensuring that the financial

implications of potential risks can be ruled out or restricted. The scope of the

insurances is constantly checked and adjusted, if necessary. Although the insur-

ances do not guarantee complete protection, it is nevertheless to be assumed

that damages will not have impacts on the Group’s financial, earnings and

liquidity situation that might threaten its very existence.

Contingent liabilities of the Preussag Group have changed for several items due

to the changes in the business structure. This also applies to other financial lia-

bilities. Contingent liabilities from guarantees, bills and cheque guarantees have

risen. The guarantee liabilities which still exist from the divested plant engineer-

ing and shipbuilding here will be brought down and transferred in the wake of

the project implementation and in agreement with banks and principals. An

obligation to indemnify was given by Babcock Borsig AG in the event calls were

made. Contingent liabilities and other financial liabilities are listed in the annual


� Prepared for the turn to the new millennium

A central project coordination was entrusted with the control of the activities

launched to prepare the Group’s data processing and production systems for the

conversion to the year 2000. By the end of the financial year, all activities and

investments launched to ensure the functioning of business processes beyond

the turn to the new millennium had progressed in accordance with plans or had

already been completed.

� Continuous auditing activities

Apart from the tools described above, business transactions and operative pro-

cesses are additionally and continuously checked for compliance with regulations,

security and efficiency by the auditing departments of Preussag AG and the

Group companies in the framework of given auditing plans.

Innovation shapes the futureContinuous innovation is required to secure sustained economic success. Detecting customer

wishes, producing ideas to convert them to marketable products and services and engaging in

traditional research and development activities are required in order to be innovative and shape

the future.

Preussag’s expansion of business in the services sector has given rise to further

alterations in the contents of its innovation activities. Traditional research and

development activities are mainly performed in the energy and building engineer-

ing divisions, whose commercial success strongly depends on production

processes and physical product properties. In contrast, innovation processes in

the services divisions focus on the development and use of new information

technology systems and the implementation of new product concepts.

� Fewer technical protective rights – more trademarks

Preussag’s intellectual property ownership as manifested by its patents, protec-

tive rights and trademarks has also changed: technical protective rights are in-

creasingly replaced by trademarks. The trademarks used by the Group compa-

nies for competition purposes represent an enormous immaterial asset. The

number of trademarks in the Group increased by more than 300 trademark

rights, a development partly attributable to the acquisition of the Thomas Cook

Group. However, new trademarks were not just established in tourism but also

in the logistics division and in building engineering. On the whole, the Group

companies enjoy protection of their trademarks in more than 100 countries,

with the focus being placed on Europe. Apart from patents, utility models and

trademarks, the Group companies also deposited registered designs for their

products in Germany and a number of European countries. This illustrates the

increasing importance of sophisticated designs, even in marketing technical

products.

� Tourism – innovation creates customer loyalty

The TUI Group consistently implements the concept of vertical integration in

order to extend the tourism value chain within the group: it offers complete

packages of partial services usually delivered by independent companies. It there-

fore has a stronger influence on the quality of the services. Apart from the result-

ing positive synergies, this approach also allows to shape innovation processes

more purposefully – new trends and customer requests can be implemented

consistently and swiftly.


Research and Development

At around 70%, the predominant proportion of expenditure attributable to

innovation activities in the tourism division was used for the development of

products in the hotel sector. 15% were spent on future-oriented information

technologies. The development of new e-commerce applications, customer

retention instruments and distribution channels each accounted for 5% of the

expenses.

� Information technology increasingly important

In many sectors of the tourism division, the use of new information technolo-

gies has led to an improvement in operational procedures and decision-making

processes. Hence, e.g., forecast systems based on neuronal networks were intro-

duced for the airline and tour operator sectors. These systems are aimed at opti-

mising yield management in the tourism value chain and therefore generating a

sustained improvement in capacity utilisation. TUI Deutschland introduced a

complex information system in the form of a data warehouse providing product

and sales managers swiftly and easily with the relevant data to control their

activities.

� Extension of new distribution channels

The Internet is becoming a significant distribution channel for the future. With

its redesigned website under http://www.tui.de, the TUI Group has positioned

itself well. Products are offered in a user-friendly form and cover 90% of the

brochure products. Preparations are under way to establish call centres which,

complementing the Internet activities, will allow for round-the-clock bookings.

� New products along the tourism value chain

Continuous innovation and improvement activities are carried out in the con-

text of holiday tours in order to provide optimal customer service and support.

They include e.g. the newly designed travel documents and processes to reduce

waiting times for passengers checking in at airports. Apart from the ‘Rail and fly’

offer, the ‘Money back’ guarantee is another innovation on the German travel

market underlining the high quality level claimed by TUI products.

Hapag-Lloyd Flug works to improve its aircraft fleet in close cooperation with

manufacturers. Activities focus on reducing environmental pollution, reducing

fuel consumption and increasing ranges. Hapag-Lloyd Flug uses for instance

new winglets on its Boeing 737-800 aircraft, a technical innovation expected to

produce a 5 to 6% decrease in fuel consumption.



Research and Development

� Innovative solutions for logistics

The innovation process in the logistics division also focused on the integration

of new information technologies. Hapag-Lloyd Container Linie e.g. developed an

Internet-assisted application to retrieve transport information. This tool, initially

devised for internal applications, will be made available to customers in the near

future and represents another step on the path towards a paperless handling of

transports.

In the cruises sector, an innovative propulsion technology was developed for the

new cruise ship ‚Europa‘ in cooperation with the shipyard. Two propeller pods

with 360-degree rotation and integrated electric motors ensure top manoeuvra-

bility and virtually vibration-free propulsion.

� Optimisation of production technology in the energy sector

The energy sector again spent the predominant share of its research and devel-

opment expenses on the exploration of crude oil and natural gas reservoirs.

Technical development activities focused on a material designed to facilitate

work in drillings at high temperatures. Research activities also focused on the

crystallisation of rock salt in gas drillings. Here, early detection of the chemical

process may prevent an otherwise irreversible drop in production.

� Development of building engineering products

The Fels Group focused its research and development activities on improving

the properties of its products and production processes under ecological and

cost-related aspects. It successfully examined new materials for use in Fermacell

products and optimised the fireproofness of these products. The development

activities in the areas of dry mortar systems and porous concrete produced an

improvement in the thermal insulation properties of the products.

The Wolf Group engaged in product innovation to further develop its range of

products in heaters with condensation technology and burners. For a number of

product lines, the Group also constructed standardised platforms reducing pro-

duction costs and facilitating modular construction. A special emphasis was

placed on the design of the new ‘TopOne’ series of floor mounted oil and gas

boilers which were well received on the market, not least because of their inno-

vative design.

The research activities of the Minimax Group primarily concentrated on an opti-

misation of the costs and technical functions of sprinkler systems. In the detec-

tor technology area, a new compact fire alarm and extinguishing control system

was developed.

Prospects

Services for more growth The focus on services and the targeted expansion of tourism have produced a sustained increase

in Preussag’s earnings potential. Economic conditions in most important markets for our divi-

sions have developed favourably so that further growth may be achieved.

The forecasts for the development of business activities in the individual mar-

kets are predominantly positive. On the whole, the recovery of the world econ-

omy is expected to continue and spread. Growth will gradually slow down in the

United States, but a clear upturn in economic activities is observed in the Asian

as well as Central and Eastern European threshold countries following the end

of the economic and financial crises. For Western Europe – in particular Euroland –

an increase in growth rates has been forecast, with the German economy being

expected to develop somewhat more slowly than the rest of Europe.

� Tourism division well positioned on growing markets

Against the background of positive economic forecasts, the tourism industry is

expecting another year of growing demand. In the past, spending on holiday

tours grew more strongly than GDP. This shows that holidays play an important

role for Europeans. With its tourism division, Preussag is well positioned both in

Continental Europe and Great Britain to benefit from this development. Given

its growing business volume and the inclusion of the Thomas Cook Group in the

consolidated financial statements with a complete financial year, the tourism

division will render a significantly higher contribution to consolidated results.

The TUI Group continues to expand its integrated business with the value-

added stages of distribution, tour operator, airline, incoming agencies and hotel

companies. Acquisitions and cooperation projects are to enhance its presence in

the key source markets. For the destinations, the focus is on an expansion of

hotel capacities, an objective achievable via both the construction of new build-

ings and the conclusion of franchise and management contracts.

In the source market Central Europe covering Germany, Switzerland, Austria and

Poland, TUI Group tour operators expect medium average growth in demand for

all market segments after the strong growth rates of the past. The winter sea-

son and city and event trips profit from changes in people’s holiday behaviour,

manifesting themselves inter alia in an increase in the trend to second and third

holiday trips. These changes, however, also offer a special growth potential in

the low-price segment and the high-quality segment. Tour operators are plan-


ning to expand their brands and launch sales promotion campaigns within their

own travel agency organisation in order to produce above-average growth rates

for the source market Central Europe as well as Western Europe which comprises

the Netherlands and Belgium.

For the source market Central Europe, the Hapag-Lloyd airline ensures cost-effi-

cient captive flight capacities for the Group and also offers successfully services

to third parties. In addition, Hapag-Lloyd Flug plans to launch a targeted expan-

sion of the profitable single-seat business. In the course of the ongoing mod-

ernisation and aircraft fleet expansion programme, eight new Boeing 737-800

will be commissioned, so that a total of 32 aircraft will be available for the

summer season 2000.

In the source market UK/Ireland, the Thomas Cook Group initially standardised

its sales activities under the Thomas Cook brand. This was followed by a compre-

hensive reorganisation of the tour operator and airline business in autumn 1999,

placed on the market under the new innovative JMC brand. In order to optimise

its aircraft fleet, JMC Airline will decommission older models and charter three

Boeing 757 so that a total of 28 modern aircraft will be available for the summer

season 2000. On the British market, growth slowed down after several years of

steady increases; for the new financial year, demand is expected to stabilise. In

this context, the Thomas Cook Group plans to extend the leading role in the di-

rect sales business and grow continuously in the tour operator business.

� Logistics division concentrated under Hapag-Lloyd

For the logistics activities pooled under Hapag-Lloyd AG, a growth in demand is

to be anticipated as a result of the increasing recovery of the world economy.

Since this development is spreading, the increase in trade flows and therefore in

logistics services covers most regions in the world.

For international container shipping, a growth of around 4% has been forecast.

Here, Hapag-Lloyd Container Linie aims again at a clearly above-average volume

growth compared to the market. Capacities have been expanded by means of

the commissioning of four new ships, predominantly planned for use on the

Pacific routes which are becoming attractive again. Although the lack of parity

of transport flows will go down, freight rates in international marine shipping is

expected to stagnate, given the slow reduction in excess capacities. Rickmers-

Linie expects its project cargo business to recover in line with the gradual eco-

nomic upturn in Asia; however, freight rates in this sector will not change very

much either. Hapag-Lloyd Kreuzfahrten is expanding its business volume with

the cruise ship ‘Europa’. Pracht freight forwarders expect a good utilisation of



Prospects

their haulage branch and a number of positive effects from the restructuring

of their distribution branch. On the whole, the Hapag-Lloyd Group in its new

structure aims at improving results.

The VTG-Lehnkering Group intends to take advantage of the opportunities

offered by the increase in economic activities in the chemical industry and con-

sequently make better use of the synergies derived from the amalgamation of

its activities. A clear upward trend, above all in the bulk and special logistics

business, is becoming evident for the utilisation of inland waterway ships, tank

farms and the rolling stock. In the railway and tank container logistics sector,

moderate growth is to be expected in the hiring business. Higher growth rates

will be achieved in the haulage business, which has been strengthened by

means of a number of acquisitions at a European level. The recovery of business

will also be reflected by higher results.

Against the background of the sound economic situation in its key markets in

France and on the Iberian Peninsula, the Algeco Group plans to continue increas-

ing its mobile buildings park. It continues its regional expansion within Europe,

focusing on the activities in the Czech Republic and Poland which have been

successfully launched. The entry on the Spanish market and the expansion of

business in the Benelux countries will stimulate the new pallet logistics sector.

The growth of business and a persistently high utilisation of capacities are to

produce a further increase in results.

� Increase in production and crude oil prices in the energy sector

Preussag Energie GmbH continues to expand its international activities in the

core regions South America and North Africa. Apart from the development of the

fields in the existing foreign interests in Venezuela, Tunisia and Albania, it also

intends to use opportunities to acquire new reservoirs. For domestic crude oil

deposits, the focus is on the technical and operational optimisation of production.

In combination, these measures are intended to increase crude oil production

gradually to about 3 million tons per year by the year 2001. On the basis of ex-

isting contracts, sales in the natural gas business will also clearly rise by means

of an expansion of existing contracts. Given the planned increases in production

and the expected rise in crude oil and natural gas prices compared to the previ-

ous year, an increase in results is anticipated.

The Deutag Group continues the modernisation of its drilling rigs and extends

its range of services which so far has developed successfully above all in the off-

shore area. A considerable recovery in the demand for drilling services is to be

expected from rising crude oil prices. Accordingly, both capacity utilisation and

the earnings situation will improve.

� Better prospects for trading

Due to the stabilisation of the economy in Asia and the economic upturn in

Europe, the forecasts predict a continuation of the recovery of the non-ferrous

metal markets. This will benefit in particular the trading sector of the AMC Group.

However, distribution and metal processing also plan to expand, so that AMC

expects its results to increase.

The US steel service companies also expect a more favourable economic climate,

since the import pressure on the US steel market has subsided while demand

from domestic processing companies has continued to be good. An increase in

prices, above all for flat steel products, is expected to produce better results than

last year.

Given an improvement in market conditions, the Bergmann Group intends to

maintain its leading position in copper trading and expand its aluminium and

zinc trading business. After the difficulties experienced in the previous year,

Bergmann wants to achieve a positive result in the new financial year.

� Upturn in overall construction activities stimulates building engineering

The gradual improvement in overall construction activities in Germany will

stimulate the business of the building engineering companies, although to a

varying extent. However, the market continues to suffer from excess capacities,

so that the economic climate will initially continue to be difficult. Demand is

rising in the relevant foreign markets. On the whole, it is to be expected that

results of the division will rise.

Following the acquisition of three new lime plants, the Fels Group has expanded

its business in lime products; this will generate a clear increase in sales. In the

Fermacell sector, Fels wants to take more advantage of market opportunities

abroad to increase sales. The Group also plans to improve sales in the porous

concrete and dry mortar business.

In the heating technology sector, the Wolf Group expects another difficult year

for the German market. The Group wants to maintain its market position by

means of adopting measures in the production and distribution area. In France,

Chaffoteaux & Maury intend to further increase their market shares; another

important business sector will be exports. The companies in Switzerland want

to consolidate their position in a weak market. Based on its good position in the

Turkish market, the Baymak Group plans to expand to the neighbouring coun-

tries in the Near East.



Prospects

Kermi GmbH wants to continue expanding its market position in radiators and

shower screens with new products and productivity improvements. Since the

trend to high-quality products with a sophisticated design persists, the opportu-

nities to raise sales, above all in these product segments, are to be taken advan-

tage of both for radiators and shower screens.

The Minimax Group aims at retaining the market position and improving cost

structures in stationary fire protection by means of an optimisation of produc-

tion processes. Minimax has launched further cost-cutting measures to respond

to the persistently intense competition in the market for mobile fire protection.

� Development at the commencement of the financial year 1999/2000

The new financial year 1999/2000 has seen a promising start. The upward trend

in economic activities has continued, so that the economic climate has improved

for most Group companies. Group turnover was above the comparable level of

the previous year. This is primarily attributable to the acquisition of the Thomas

Cook Group.

In the tourism division, the start into the winter season has so far met expecta-

tions, although bookings of millennium tours have only been restrained and not

all source markets have recorded growth. Bookings for the summer season 2000,

sold since the beginning of November in Germany for the major tour operator

brands, were above last year’s figure in December 1999.

Business in the logistics division has developed steadily and grown slightly over

the previous year. The energy sector produced markedly better results than last

year. Crude oil prices played a significant role in this regard; they rose to more

than USD 20 per barrel whereas they stood at around USD 10 per barrel at this

time last year. In the trading sector, the recovery of business which started in the

last quarter of the previous financial year continued. In contrast, the companies

in the building engineering division only recorded partial improvements.

Against this background and in accordance with the latest information, a con-

solidated turnover of around DM 40 billion for the financial year 1999/2000 can

be expected. Apart from internal growth in all divisions, another essential factor

contributing to this result is the first-time full inclusion of the British tourism

business. In the wake of these developments, further improvements in results

are anticipated.

The Preussag Share

Significant increase in valuePreussag’s change to a services group has gone hand in hand with a rapid, fundamental revalua-

tion of the Preussag share by the financial markets. The resulting performance of the share price

has led to an increase of about 70% in Preussag‘s value within a year.

� Preussag share outperforms the DAX

The German stock market was not able to repeat the dynamic development of

the previous year. Apart from weak economic stimuli in Germany, another

essential cause were the repeatedly arising uncertainties over interest rate policy

measures adopted by the US Federal Reserve Board and the European Central

Bank. The German stock index (DAX) also failed to keep pace at an international

level. Whereas its American counterpart, the Dow Jones Index, achieved a new

all-time high after exceeding the threshold of 11,000 index points, the DAX with

its highest level of 5,652 index points remained about 10% below its all-time

high achieved in the previous year.

Due to the revaluation of the Preussag share by the financial markets, its price

development has clearly outperformed the DAX. This reflects the fact that

investors do not just honour the consistent implementation of the entrepreneur-

ial concept, but also the pace with which the Group’s realignment has pro-

gressed. Starting ate 28.07 at the beginning of the financial year, the price then

moved continuously upward and achieved an all-time high of e 59.25 in mid-July

1999. It subsequently fluctuated in line with the market and closed ate 47.30 at

the end of the financial year. With a value increase of around 70%, the Preussag

share substantially outperformed the DAX which rose by 15% in the same period.

� Preussag share price in relative comparison with the DAX (1998/99)

28 Further Information

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

60 e

55 e

50 e

45 e

40 e

35 e

30 e

8500

8000

7500

7000

6500

6000

5500

5000

4500

4000

� Considerable increase in trading in Preussag shares

Preussag‘s realignment and the capital measures implemented in the course of

the financial year attracted wide investor interest. The appealing price develop-

ment went hand in hand with active trading on all eight German stock exchanges

listing the Preussag share. On average, 557,485 shares were traded per day.

Foreign investors also had the possibility of trading Preussag shares off the floor

via the London SEAQ system.

� Development of the Preussag share prices

(Euro) 1994/95 1995/96 1996/97 1997/98 1998/99

Highest share price 24.08 22.60 29.45 39.32 59.25

Lowest share price 19.84 17.38 17.49 23.16 26.08

Share price at financial year-end 21.68 19.58 25.31 29.55 47.30

Book value 1) 10.74 2) 10.63 2) 10.53 2) 13.06 15.85

1) Equity per share2) Based on German accounting rules

� Preussag share represented in major indices

With its strong liquidity and a total market value of more than e 8.1 billion on

the balance sheet date, Preussag is one of the big German companies represent-

ed in the DAX. It carries a 1.05% weight in the calculation of the index. In addi-

tion, the Preussag share is also listed in a number of subindices in the German

stock market. At European level, the Preussag share is included in the DJ Euro

STOXX Index with a weighting of 0.23%, in the British FTSE Index Eurotop 300

with a weighting of 0.14%, and in a number of other subindices and industry

indices.

� High volume in trading in options

The number of options traded on Preussag shares in the European futures

exchange Eurex has increased again. In the completed financial year, around

162,300 Preussag options were traded; this represents an average volume of

about 13,500 contracts a month. In addition, 54 covered warrants were in circula-

tion on the balance sheet date. These warrants are covered by share portfolios

and entitle the holder to acquire shares already in circulation at a fixed price

from the issuing bank within the warrant exercise period.

� Conversion to no-par value shares and stock split-up finished

Following the resolution adopted by the Annual General Meeting on 31 March

1999, the previously par value shares were converted to no-par value shares. The

now no-par share evidences the ownership of a relative share in Preussag AG’s

subscribed capital. At the same time, a stock split-up was carried out at a 1:10

ratio. Previous shares with a par value of DM 50 were replaced by 10 no-par value

Further Information 29


The Preussag Share

share certificates. By these measures the subscribed capital was also converted

into Euro.

� Capital increase of E 39 million

On 31 March 1999, the Annual General Meeting created an authorised capital of

e 39 million and a contingent capital of another e 39 million, designated for

the issue of convertible bonds, to finance the strategic investments made or yet

to be made in the course of Preussag’s realignment.

Subsequently, the first step was taken in April 1999 when the subscribed capital

was increased by e 39 million by issuing 15,255,474 no-par value shares against

cash contribution. The new shares were offered to shareholders and holders of

warrants from the 1996/2001 bond attached with warrants at a ratio of 32:3 or

32:30, respectively, at a subscription price of e 39.00. This is a discount of about

22% from the stock exchange quotation of e 47.60 million determined at the

relevant cut-off date.

� Convertible bond of E 550 million issued

In a second step, convertible bonds totalling e 550 million maturing in 2004 were

offered to the shareholders and holders of warrants from the 1996/2001 bond

attached with warrants. The convertible bonds carry a coupon of 2.125%. They

may be converted to no-par value shares of Preussag AG or will be redeemed at

par in June 2004. Investors exhibited a keen interest in the convertible bond, a

trend also reflected by the 7.8-fold oversubscription of the issue volume.

� Option rights exercised and additional employee shares issued

The subscribed capital was increased by DM 22,592,950 from the exercise of

451,859 option rights from the bond attached with warrants issued in May 1996.

It rose by another DM 1,336,350 from the issue of employee shares. Including the

capital increase from April 1999, the subscribed capital totalled DM 864,496,320

at the end of the financial year 1998/99 and was evidenced by 172,899,264

no-par value shares.

As in previous years, employee shares on preferential terms were offered to those

eligible from the originally authorised capital of DM 10 million in October 1999.

41.4% of the workforce took advantage of this opportunity for long-term capital

formation. Consequently, the subscribed capital bearing dividend in the new fi-

nancial year 1998/99 rose by DM 1,744,900 million, and the number of shares

rose by 348,980.

� Stable shareholder structure

Preussag’s shareholder structure has not seen any major changes, although the

increased level of interest of foreign and institutional investors has led to an

increase in these groups‘ share in the subscribed capital compared to the time

before Preussag‘s change. We assume that at least 50% of the subscribed capital

is held by institutional investors and around 15% by private shareholders. GEV

Gesellschaft für Energie- und Versorgungswerte mbH, a subsidiary of West-

deutsche Landesbank, owns about a third of the subscribed capital. Regionally,

the majority of Preussag shares are held by German shareholders. Approximate-

ly a quarter of the shares are held by foreign investors, mainly in Great Britain,

the United States and Switzerland.

� Intensive investor relations activities

Preussag’s change to a services group with the new focus of activities on the

growth industry tourism and the capital measures introduced in the completed

financial year have produced a substantial increase in global investor interest in

Preussag. We have maintained steady contacts with our shareholders and

potential investors by means of regular reports on the development of our busi-

ness and up-to-date information on the large number of structural changes. In

this context, we also have to mention our press and analyst conferences, at

which we presented our balance sheet and interim reports. Several road shows

touring Germany, Great Britain, Switzerland, France, the Netherlands and the

United States provided comprehensive information on Preussag to investors on

the spot. In addition, we held numerous discussions with analysts following the

development of the Preussag share. An important medium for our investor

relations activities is the Internet, which makes our information available to all

market participants at the same time.

We will continue our open and intensive dialogue with the financial community

in the future. In this regard, transparency will be enhanced further with the con-

version of our accounting system to International Accounting Standards.

� Value-oriented management

As a holding, Preussag AG sees its major function as the value-oriented manage-

ment of its portfolio and therefore the safeguarding of a sustained increase in

the Group’s value. This value enhancement is a prerequisite for the safeguarding

of the future of our company, an appropriate return on the capital employed by

the investors and the long-term preservation and creation of jobs; it therefore

serves as a basis to ensure that Preussag will continue to play an appropriate

role within the social environment.



The Preussag Share

� Premium: the concept for development of the portfolio

The Premium concept (Preussag management information system for maximi-

sation of the value of the Group) introduced three years ago forms the basis to

control the value-oriented management. Its basic principles are:

– a clear segmentation of the Group’s activities,

– the incorporation of all segments in a closed controlling process,

– and a unified evaluation of all investment projects.

The Premium concept, an integrated control tool, covers the key areas of value-

oriented management, strategic and operative management control and forms

the platform for communication with the investors.

In the framework of a continuous and dynamic portfolio development, the value-

oriented control tools are used for acquisition and divestment analyses. Moreover,

the portfolio is controlled by fixing individual return targets for the individual

sectors and allocating financial resources to sectors with a high earnings poten-

tial with a view to sustaining the growth strategy. Operative control is comple-

mented by the continuous observation of the development of the corporate

values within the Group portfolio.

� Actual return ratios

An essential feature of analyses based on key figures is the current development

of the Group’s value, presented as return on equity. This figure reflects the capi-

tal employed by the individual sectors and relates the results from ordinary busi-

ness activities before amortisation of goodwill to the balance-sheet equity em-

ployed.

In the financial year 1998/99, the Preussag Group achieved a return on equity of

about 23%. The following picture emerges for the individual divisions: The

tourism and the energy and commodities divisions each generated a return on

equity of about 30%. The logistics division and the building engineering division

achieved a return on equity of about 15% each.

� Key return ratios 1998/99

Turnover Results by Return Equity Total Returndivision *) on sales capital on equity

DM mill. DM mill. % DM mill. DM mill. %

Tourism 14,013 601 4.3 1,995 15,993 30.1

Logistics 5,897 272 4.6 1,760 5,505 15.4

Energy and commodities 8,535 329 3.9 1,031 3,332 31.9

Energy 1,243 253 20.3 509 1,784 49.7

Trading 7,292 76 1.1 522 1,548 14.7

Building engineering 3,491 179 5.1 1,152 3,418 15.5

Others/Consolidation 337 - 168 — - 622 1,551 —

Group 32,273 1,213 3.8 5,316 29,799 22.8

*) Results before tax and amortisation of goodwill

In the course of the conversion of the accounting system to International

Accounting Standards and the consequent increase in equity compared to

German accounting principles, we have redefined our management ratios and

target figures. The medium-term objective is to achieve a return on equity of

25% for the Preussag Group.

The complete segment reporting is provided in the annual financial statements.

� Earnings per share according to IAS

Earnings per share is an important key figure for investors; it contains informa-

tion about the earnings power of the company and forms the basis for compar-

isons with other investment opportunities.

On the basis of the first-time reporting according to International Accounting

Standards, the Preussag Group achieved earnings per share of DM 3.48. This cal-

culation had to be based on the weighted average number of shares for the

financial year of 160,670,575. In the previous year, earnings per share according

to IAS were DM 3.31.

According to the current information, the bonds attached with warrants or con-

vertible bonds maturing in May 2001 and June 2004, respectively, will lead to

increases in the subscribed capital. Taking into account the resulting share dilu-

tion effect, earnings per share stand at DM 3.37, based on expected 165,661,914

shares.



The Preussag Share

� Preussag share with an attractive return

For the financial year 1998/99, Preussag AG shows a profit for the year of DM

259.6 million. Considering the retained profits brought forward of DM 0.7 mil-

lion, net profit for the year available for distribution stands at DM 260.3 million.

The sound earnings situation allows to propose the payment of an increased

dividend of DM 1.50 per share to the Annual General Meeting. Given the number

of 172,899,264 dividend-bearing shares at the end of the financial year, the re-

sulting dividend payouts account for DM 259.3 million; the remaining DM 1.0

million are to be carried forward on new account.

Since the dividend payment this year is to be based exclusively on the income

generated in Germany, the profit distribution carries a corporation tax credit of

DM 0.64 per share for German tax-paying shareholders. They receive a total of

DM 2.14 per share and hence a dividend yield of 3.9% based on the share price at

the beginning of the financial year, apart from the 70% increase in the value of

the share in the completed financial year.

� Development in earnings of the Preussag share

(DM) 1994/95 1995/96 1996/97 1997/98 1998/99

Earnings per share 2.85 1) 1.74 1) 2.40 1) 3.31 3.48

Dividend 1.20 1.20 1.20 1.20 1.50

Bonus - - - 0.30 —

Tax credit 0.26 0.26 0.51 0.51 0.64

1) Based on German accounting rules, earnings according to DVFA/SG

From a longer-term perspective, too, the Preussag share was an attractive invest-

ment again. Investors who invested DM 1,000 in Preussag shares ten years ago,

exercised their subscription rights and reinvested their dividend income, had a

portfolio worth DM 6,159 on the balance sheet date. They therefore gained an

average annual return of about 53%.

Personnel

More personnel in the GroupThe dynamic expansion of the tourism division and the withdrawal from plant engineering and

shipbuilding has led to further considerable alterations in Preussag‘s workforce structure. How-

ever, the orientation towards services also gave rise to an increase in the number of employees

to 79,142, which is 19% up on the previous year.

The significance of the new tourism activities for Preussag is also reflected by

the development of the headcount. In the course of the financial year, 34,435

new employees joined this division alone. The workforce in tourism grew by

11,289 from internal growth, the acquisition of the First Group and the incorpo-

ration of hotel participations in Spain. With the acquisition of the majority

shareholding in the Thomas Cook Group, another 23,146 tourism staff joined the

Group. On the other hand, almost 21,961 employees left the Group as a result of

the sale of activities; of these, 6,733 persons had previously worked in the coal

sector and 15,228 in plant engineering and shipbuilding.

� 64% of the workforce working abroad

The workforce structure was characterised by the international orientation of

the tourism business. At 50,424 or 64%, the vast majority of the workforce was

employed by foreign Group companies. The key regions in this respect were

Great Britain with 38%, the Mediterranean countries with 25% and North

America with 9% of the foreign workforce. German Group companies employed

28,718 persons, i.e. around 36% of the Group workforce. The share of foreign em-

ployees working in Germany dropped to about 4%. Of these, the largest group

came from EC countries with 40%, about 30% were of Turkish nationality.

� Personnel by division

30 Sept 1999 30 Sept 1998 Change%

Tourism 48,536 14,101 + 244.2

Logistics 8,956 9,095 - 1.5

Energy and commodities 6,796 6,714 1) + 1.2

Energy 3,481 3,333 1) + 4.4

Trading 3,315 3,381 - 2.0

Building engineering 13,500 13,269 + 1.7

Other companies 1,354 1,423 - 4.8

Divested activities — 21,961 —

79,142 66,563 + 18.9



� Personnel costs declined

Personnel costs declined by 22% to DM 4,473 million. The primary reason for this

was the change in Group structure. Wages and salaries accounted for DM 3,628

million, a decrease of 20% on the previous year. Social security contributions and

payments for pensions and assistance totalled DM 845 million. About 13,000

former employees or their dependants received pensions from Group companies.

In addition, approximately 23,600 employees had vested pension rights for

which DM 187 million were provided.

� Training and personnel development at a high level

Due to the strong expansion of international business and the realignment of

the Group, intensive personnel development measures are required. More than

4,000 employees participated in the 380 seminars offered by our seminar and

service programme in order to obtain additional qualifications and successfully

cope with the new requirements arising out of the restructuring of the Group.

Intensive technical courses and permanent courses in five foreign languages

enabled skilled staff and management functions to prepare for international

contacts and assignments.

Personnel development activities also focused on vocational training schemes

for young people. About 30% more training places were offered than last year

and currently around 1,700 young people participate in vocational training

schemes in Group companies. Apart from the traditional training locations in the

logistics, energy and building engineering sectors, a large number of new oppor-

tunities arose in tourism. Around 450 participants attained certificates last year;

most of them were given positions in the Group.

An important objective of personnel development is to fill management posi-

tions primarily from internal ranks. This target is based on our four-stage poten-

tial analysis scheme that we have developed and complemented in accordance

with our management principles. Our personnel development activities also

focused on coaching, facilitation and change management in Group companies.

� Company suggestion scheme activates ideas

The company suggestion scheme is increasingly turning into an ideas manage-

ment scheme which efficiently supports the employees‘ commitment to their

company. Good ideas raised by employees have again led to a considerable num-

ber of improvements of products and services this year. More than 900 sugges-

tions were submitted and honoured by premiums totalling DM 240,000.



Personnel

� High health and safety standards

Apart from the quality of services and environmental protection, health and

safety is an essential Total Quality Management factor for the economic effi-

ciency of both production and services. Accordingly, the sustained protection of

the workforce from avoidable health strains and the promotion of their health

have to be targeted. In order to preserve the high health and safety standards

that have been achieved, responsible action by the management and the health

and safety officers is required, the role of the latter increasingly changing from

consulting to safety management. We have therefore developed health and

safety management systems which have already successfully been implemen-

ted in several Group companies. On the whole, our health and safety activities

have led to sustained improvements in the working environment of our staff.

This is also evidenced by the persistently declining trend in the number of acci-

dents at and on the way to work.

� Company-based health insurance funds with attractive contributions

The attractiveness of the health insurance funds Preussag BKK and Preussag

BKK Publik for our workforce was reflected by the persistent rise in membership

figures. In September 1999 the 50,000th member was accepted. Hence, the

number of members cared for rose by more than 1,500 compared to last year. As

before, their regionally staggered membership contributions of 12.8% or 11% are

below the average of statutory health insurance funds.

The health promotion programme run by the BKK was continuously expanded.

Hence, for instance, stroke prophylaxis will be implemented in conjunction with

the Deutsche Schlaganfallhilfe foundation in the future. Apart from that, the

implementation of health circles and company-level preventative measures will

continue to be core services.

� Acknowledgement

Preussag has successfully continued its development to a leading European

services group focusing on tourism in the financial year 1998/99. Thanks to the

high commitment and performance of all our employees and managerial staff,

this fundamental change was brought about within a short period of time.

We wish to express our sincere thanks for this. We would also like to thank the

elected workforce representatives in the companies and at Group level for their

objective and conscientious cooperation.


Environmental Protection

Sustainable developmentGlobalisation and sustainable development are inextricably linked. In this context, large compa-

nies such as Preussag play a key role for the concept of sustainable development. Economic, eco-

logical and social objectives have to be pursued simultaneously to allow this concept to become

an universally accepted model.

Preussag implements the model of sustainable development by means of coor-

dinated environmental protection activities in the Group. Thus, for instance,

high standards of integrated energy and environmental protection technology

for the production processes were implemented in the plants to contribute to a

clean environment via a reduction in the use of resources. This approach is not

just regarded as compliance with government regulations but also forms part

and parcel of entrepreneurial responsibility.

� Production plants reduce energy consumption and waste volume

Wolf GmbH may serve as an example; it implements this integrated approach

in the framework of its participation in the Agenda 21 process launched by the

United Nations. It managed to reduce energy consumption and the waste vol-

ume again. The recycling of process heat, the improvement of heating systems

and heat insulation and the use of comprehensive recycling schemes were

essential components of this success.

Preussag Energie GmbH has included local farmers in its activities for a biologi-

cal decontamination of soil polluted with carbon. Following a scientific survey

carried out in conjunction with the agricultural chamber, decontaminated soils

were deposited on farmland for the first time again. Consequently, the circle of

oil-contaminated agricultural soil via biological decontamination back to arable

land was closed – an active contribution towards the implementation of the

targets fixed by the Federal Soil Protection Act.

Preussag Energie GmbH also relies on environmentally sensitive technologies

when it comes to the efficient use of existing natural resources. Petroleum gas,

a side product of crude oil production, is now converted into electrical energy in

district combined heat and power stations instead of being burned off. The heat

produced is used for plant processes and the surplus of power generated is fed

into the public supply system.


� Sustainable development – a quality requirement in services

In the services sector, the Group companies understand the mandate of sustain-

able development as a quality requirement. Services provided by companies of

the Preussag Group have to meet high standards in terms of environmental

compatibility. In tourism in particular, they therefore serve both ecological and

economic objectives.

Clean water for instance is not only a requirement raised by environmental poli-

cy. Customers rightfully consider it an indispensable element of their holidays,

so that it is also part of the economic basis and hence a condition of commercial

success. The tourism division therefore operates a comprehensive reporting

system to record and document data and trends on the ecological compatibility

of the services.

In the holiday destinations, the tour operators of the TUI Group have been pio-

neers in terms of environmental protection for many years. Their commitment

extends from the control of the quality of water and beaches via water and

energy saving measures in the hotels up to practical projects on nature and

species conservation, reafforestation and the potential use of renewable

resources. One of the projects supported by TUI is the nature conservation pro-

ject ‘The desert lives’ initiated by the Foundation for European Natural Heritage

on Fuerteventura, one of the Canary Islands.

These activities also arouse international attention as shown by the fact that

the United Nations invited TUI to present its activities on the occasion of the

7th meeting of the sustainable development commission held in New York.

Other events have also clearly shown that expectations are high both in

Germany and abroad concerning the inclusion of the European market leader in

the dialogue on sustainable development in tourism.

� Technical progress strengthens the environment

In the airline sector, Hapag-Lloyd’s programmes have been very successful from

an ecological perspective. The consistent modernisation of the aircraft fleet pro-

duced a decrease in energy consumption, pollutant emissions, noise levels and

waste volumes. Kerosine consumption for instance was 3.4 litres per 100 seat

kilometres in 1987; this figure was down to 2.5 litres in 1998. Noise protection is

another area that has improved. For several years now, each individual aircraft

falls into the lowest noise protection category. Use of the new Boeing 737-800

model will lead to a further reduction in the noise level during take-off and

landing and to a considerable reduction in the noise carpet on the ground.


Environmental Protection

Hapag-Lloyd Kreuzfahrten participates in international projects on the sustain-

able development of marine shipping. Activities focused on this issue, in particu-

lar in the ecologically sensitive Arctic and Antarctic regions. With its ‘Bremen’,

‘Columbus’ and ‘Hanseatic’ cruise ships, it participates in the World Wildlife Fund

project ‘Testing of biocide-free anti-fouling agents for marine shipping’, also

supported by the Federal Environmental Foundation in Germany.

� Certification of environmental management continued

Numerous companies of the Group respond to the increase in company-level

environmental protection requirements with a certification of their environ-

mental management systems. Minimax GmbH, for instance, has started to

orient its mobile fire protection sector to the conditions for a certification in

accordance with the eco audit ISO 14001. The activities of both the Fels Group

and the logistics service provider VTG-Lehnkering AG have already been certified

according to this standard.

The W. & O. Bergmann Group, which has undergone the certification procedure

with all its branches and subsidiaries to be a specialised disposal company, took

advantage of new legal opportunities in waste legislation. This way, it managed

to document the high level of recycling in its plants.

All plants which were involved in certification activities in the completed finan-

cial year have realised that technical environmental protection standards are

high and that no major adjustments to the current standards were required

because of the efforts undertaken in the past.

� Ecological responsibility

Social and ecological developments are closely interrelated with economic per-

spectives. Preussag, a market leader in many areas and a company operating

globally, accepts the responsibility to orient its economic activities to the model

of sustainable development. At the same time it also consistently implements

its principles of value-oriented management. Orientation of economic activities

to the corporate value also requires the creation of a basis for a long-term

preservation and increase in this value. Ecological responsibility is therefore an

integral element of our management culture.

Apart from this fundamental principle, the employees are the key to converting

the model of sustainable development into innovative products and services

and feasible behavioural standards. The promotion of training, communication

and individual initiative help to develop an environment in which new ways of

thinking may prepare the ground for future developments.

41 Divisions

Tourism

Further strong growthIn the tourism division the financial year was a year of accelerated expansion and integration of

activities in the tourism value chain. The tourism group will start into the year 2000 under a new

name. TUI Group will be the family brand name for all tourism shareholdings and brands of the

Preussag Group.

Within a short period of time, the largest

integrated tourism group in Europe has

been combined in Hapag Touristik Union,

trading under the name of TUI Group

GmbH as per 1 January 2000. Its portfolio in

the key source markets and destinations

covers the entire tourism value chain; by

the end of the financial year they totalled

3,628 travel agencies, 39 tour operators,

62 aircraft, 18 incoming agencies and 172

hotels.

The tour operators are represented in

all markets segments in Germany with

renowned brands, for instance: TUI Schöne

Ferien!, airtours, 1-2-Fly and L’tur. With the

TUI ReiseCenter and the travel agencies of

First, Hapag-Lloyd and Thomas Cook they

have a strong distribution system. A large

number of passengers fly with the in-house

airline Hapag-Lloyd Flug. In the Nether-

lands and Belgium, too, the TUI Group has

strong brands: Arke, Holland International

and JetAir hold high market shares here.

In a large number of holiday destina-

tions, self-owned agencies take care of the

guests spending their holidays in contract-

based hotels or hotels owned by the TUI

Group, the RIU hotels, Grecotels, Grupotels,

Dorfhotels and Robinson Clubs.

In Great Britain, the Thomas Cook

Group has developed into the third largest

tourism service provider. The launching of

the new key brand JMC for the tour opera-

tor and flight sector by the winter season

1999 marked the beginning of a fundamen-

tal reorganisation of the tourism business.

Turnover in tourism


Hapag Touristik Union 14,372 10,816 + 33

Source market Central Europe 10,185 — —

Source market Western Europe 2,296 — —

Incoming agencies 648 — —

Hotel companies 750 — —

Business travel 493 — —

Thomas Cook Group 1) 2,213 — —

Total turnover 16,585 10,816 + 53

Internal turnover 2,572 1,446 + 78

Consolidated turnover 14,013 9,370 + 50

1) 1 July to 30 September 1999

Since the commencement of the financial

year 1998/99, HTU has exercised the opera-

tive management of the tourism division.

Apart from the expansion of business, its

core task is the integration and optimisa-

tion of the individual stages in the tourism

value chain. Its activities are structured into

the following six sectors:

– source market Central Europe

– source market Western Europe

– source market UK/Ireland

– incoming agencies/hotel contracting

– hotel companies

– business travel.

Thomas Cook represents the source market

UK/Ireland.

In its first financial year, the HTU Group

achieved a turnover of DM 14.4 billion and –

not least due to the continuous integration

process – a good result.

� Source market Central Europe

The source market Central Europe covers all

travel activities in Germany, Switzerland,

Austria and Poland. At DM 10.2 billion, this

sector achieved growth over last year’s

turnover and also increased its contribution

to consolidated profits.

Germany

With an increase in turnover to DM 7.6

billion and a 20% increase in the number of

guests to 6.1 million, the HTU tour opera-

tors with their respective brands achieved

above-average growth again.

The core brand TUI Schöne Ferien!

was particularly successful again. Both in

passenger numbers but also turnover, the

country and specialists programmes

achieved high growth rates. However, there

was also strong demand for the low-price

brand 1-2-Fly which managed to exceed the

previous year’s turnover and guest figures

by a third each, and for the supplier of up-

market and exclusive tours airtours whose

growth was partly attributable to the inte-

gration of the consolidator ATF. Special tour

operators such as TUI Events with tours to

extraordinary sporting or cultural events

and the specialist tour operator for Nor-

thern European countries, Wolters Reisen,

were also successful.

Since early 1999, HTU has held a 51%

interest in L’tur AG, European market leader

in last-minute package tours and flight

tickets. In the nine months of the abbrevi-

ated financial year 1999, L’tur developed

positively. The internet became an increas-

ingly important distribution channel.

HTU has continued to expand its pres-

ence in distribution by means of the inte-

gration of Hapag-Lloyd Reisebüro and the

acquisition of the First Group. With its

brands First, Hapag-Lloyd, TUI ReiseCenter,

Thomas Cook, L’tur and Discount Travel,

HTU has more than 1,100 travel agencies in

Germany. The self-owned travel agencies

generated a turnover of around DM 2.2

billion.

First travel agencies joined HTU at the

end of December 1998. Their incorporation

into the sales strategy and the orientation

to HTU products progressed well so that

the reference figures of the previous year

were exceeded.

Hapag-Lloyd Reisebüro also achieved

above-average growth in products of the

HTU tour operators. The decline in margins

caused by commission caps was largely off-

set by productivity increases.

Tourism

� Hapag Touristik Union (HTU)

42 Divisions

TUI ReiseCenter managed to increase the

distribution of HTU Group products even

further.

The business of Hapag-Lloyd Flug grew

with the charter market. With a total of 29

aircraft – 22 Boeing 737 and seven Airbus

A310 – it carried 5.8 million passengers,

around 11% more than last year. Hapag-

Lloyd Flug thus achieved a market share of

about 20% on mid-range tourist flights. The

airline increased its total turnover to DM 1.6

billion and contributed significantly to con-

solidated results again.

As before, the key destinations were

mainland Spain, the Balearic and Canary

Islands, Greece and Portugal. Destinations

in Egypt were put back on the flight sched-

ule. The weakening of demand for air tours

to Turkey was offset by channelling the

capacities into other destinations.

The fleet replacement programme was

continued with the commissioning of six

Boeing 737-800. In the new financial year,

another eight machines of this type will

replace older machines and complement

capacities.

Switzerland

In Switzerland, HTU increased its interest in

the two companies ITV Reisen AG and IVG

(Imholz Vertriebs AG) to almost 100%.

The business of ITV Reisen was charac-

terised by a sustained polarisation of the

tour operator market right into the sum-

mer season, which manifested itself in a

sales boycott of HTU products by the two

largest competitors. The cooperation agree-

ment with Kuoni, concluded in June 1999,

then changed the trend. Because of the

competitive situation, turnover and passen-

ger figures were slightly below last year’s

figures. Results were clearly improved by

means of targeted measures but continued

to be negative.

With its 60 travel agencies, IVG‘s turn-

over and results developed positively again.

Austria

In a stagnating market for air tours, TUI

Austria’s tour operator business grew both

in terms of passenger figures and turnover.

Terra Reisen – the largest Austrian tour

operator for land-based tourism – also man-

aged to slightly exceed last year’s figures

despite a tightening of competition.

Mediated turnover of TUI Reisecenter

Austria rose on the previous year, but

results did not follow this trend due to the

commission cuts effected by the tour oper-

ators. The incoming business benefited

from the increasing popularity of Austria as

a holiday destination.

Poland

The HTU Group has been represented in

Poland since 1998 with the TUI Polska tour

operator. In the first full year after its estab-

lishment, the company made good progress

and created a considerable market position.

Divisions 43

44 Divisions

� Source market Western Europe

The source market Western Europe covers

the HTU Group’s activities in the Nether-

lands and Belgium. Its turnover totalled

DM 2.3 billion. Results stood at the same

level as last year.

The Netherlands

TUI Nederland is the largest tour operator

in the Netherlands and represented in all

key market segments with several brands.

The tour operator business, led by Arke and

Holland International, benefited from the

favourable economic situation in the coun-

try and the growing market for organised

tours. In 1998/99, 1.3 million guests trav-

elled with TUI Nederland, about 9% more

than last year. Turnover grew even more

strongly. Despite the intensification of price

competition, the tour operators improved

their earnings position.

The travel agency sector increased its

mediated turnover by 6%. The destination

management sector, whose incoming busi-

ness is mainly focused on Amsterdam, also

achieved a higher turnover than last year.

Belgium

The Belgian tour operator JetAir continued

to enlarge its attractive programme and

grew more strongly than the market again.

In this financial year, more than 700,000

guests travelled with JetAir, an increase of

12% on the last year. Accordingly, both

turnover and results rose significantly.

The travel agency chain VTB-VAB Reizen

operates a network of 29 self-owned travel

agencies and leads the market for study

tours. Mediated turnover was 10% higher

than last year. The earnings situation also

continued to improve. With Belgium Inter-

national Travel, HTU operates another

strong travel agency chain in the Belgian

market, which also successfully operates in

the business travel segment.

� Incoming agencies

The HTU Group operates incoming agen-

cies in key destinations in 18 countries,

which cooperate with TUI Service to offer

local services and support for holiday-

makers. They support the tour operators‘

core business in the destinations and there-

fore contribute significantly to assuring the

quality of the programmes.

The incoming agencies cared for a total

of 4.9 million guests and generated a turn-

over of DM 648 million. On the whole, they

closed with good results again.

In the Ultramar Express Group operat-

ing in Spain and the Dominican Republic,

the incoming business fell slightly short of

the good results of last year because of

changes in customer structures. The special

tours and group tours sectors continued to

expand. Under the TUI Cars brand, the car

rental business was launched on the

Balearic and Canary Islands.

Airtour Greece expanded its business

activities strongly. The number of guests

alone rose by about 19%.

With Miltours, the largest Portuguese

agency, the HTU Group also has a strong

position in this destination. The incoming

business failed to achieve the same figures

as last year, characterised by special events

on the occasion of the World Exhibition

held in Lisbon. The remaining sectors, busi-

ness travel and conventions & incentives,

developed well.

Tourism

Due to a significant increase in the number

of bookings for Bulgaria, the incoming busi-

ness of Travel Partner Bulgaria also grew

strongly. The associated incoming agencies

on Cyprus, in Turkey, Egypt, Tunisia and

Morocco performed well again.

TUI Service AG is the central tour guide

organisation of the HTU Group. With its

more than 1,000 local tour guides, it looks

after the guests of ten tour operators and

brands in 110 destinations.

� Hotel companies

The HTU Group ran a total of 172 self-owned

hotels or hotels under management, lease

and franchising agreements with a total of

about 85,000 beds. The consolidated hotel

participations generated a turnover of DM

750 million and achieved good results.

Robinson Clubs

In the reporting year, Robinson, a premium

brand and the largest German provider of

club holidays, operated 25 clubs in eleven

countries with a capacity of 12,512 beds.

A total of 2.3 million overnight stays

were achieved. A significant rise in guest

figures was observed in particular in Egypt,

Greece, Austria, Spain, and Tunisia. Particu-

larly good occupancy rates were achieved

by the five-star-clubs Athénée Palace in

Tunisia and Alpenkönig in Austria, opened

in 1998, and the clubs Jandia Playa on

Fuerteventura and Daidalos on Kos. Clubs in

Turkey suffered from the tight political situ-

ation in the country.

Dorfhotel

In its seven hotel villages, most of which are

located in Carinthia, Dorfhotel has 2,775

beds. The popularity of Austria as a holiday

destination has grown again so that

Dorfhotel recorded a 7% increase in the

number of overnight stays.

Grecotel Group

The Grecotel Group operated 15 hotels with

8,277 beds in the four- and five-star cate-

gories on the Chalkidiki Peninsula in North

Greece, on the West Peleponnese and on

the islands Crete, Corfu, Mykonos, and

Rhodes. Grecotel managed to maintain its

good market position in these areas

because of its high quality standards. This is

also reflected by the number of overnight

stays which rose to 1.55 million.

Grupotel Dos S.A.

In January 1999, HTU bought a 50% share in

the Majorcan Grupotel Dos S.A. It owns

three hotels and manages another 29

hotels on the Balearic Islands in the frame-

work of management or franchise agree-

ments. The extraordinary popularity of the

Balearic Islands as a holiday destination

this year led to a rise in overnight stays to

more than 2.45 million.

RIU Group

The RIU Group operated 80 hotel facilities

with a total of 43,557 beds. Demand for RIU

hotels among holidaymakers was strong.

With more than 11.7 million overnight stays,

the reference figures of the previous year

were exceeded by more than 14%. An

above-average growth of turnover and

results was achieved.

Divisions 45

46 Divisions

The majority of RIU hotels are on Spanish

territory, including 16 hotels on the Balearic

Islands, 40 on the Canary Islands, and four

on mainland Spain. RIU also operates hotels

in Portugal, Tunisia, Cyprus, Bulgaria, the

Dominican Republic, on Cuba, in Mexico

and in Florida.

Iberotel

Under the Iberotel brand, two hotels were

operated in Turkey and six hotels in Egypt

with a total capacity of 3,989 beds.

Demand for tours to Turkey was clearly

weaker than expected. Egypt, in contrast,

was booked well again this year so that

occupancy rates in Iberotel-managed hotels

were very high in this country.

� Business travel

Since the beginning of the new financial

year, the business travel sector has operat-

ed within a new structure. Under HTU

Business Travel GmbH the Hapag-Lloyd

Geschäftsreise and First Travel Manage-

ment brands have been positioned as

national or international suppliers, respec-

tively.

Hapag-Lloyd Geschäftsreise

With an enlarged distribution network

Hapag-Lloyd Geschäftsreise has continued

to strengthen its competitive position.

Mediated turnover rose by about 18% on

the previous year. The acquisition of two

renowned consolidators tapped an addi-

tional business sector and contributed sig-

nificantly to the growth in turnover.

First Travel Management

The business travel sector of First Group

grew by means of the acquisition of new

customers and hence largely offset losses

caused by airline commission capping.

In the wake of the restructuring, HTU‘s

business travel activities in the Netherlands

and Belgium will be incorporated into the

First Travel Management organisation.

Business in the Netherlands was adversely

affected by commission capping. In Bel-

gium, on the other hand, the acquisition of

new key accounts generated growth.

The financial year 1999 was the year in

which the Thomas Cook Group strategically

set the stage for the future. The major

events were the acquisition of and merger

with the British tourism activities of

Carlson Companies, Inc. and the change in

the ownership structure given Preussag’s

acquisition of a majority shareholding.

Strategic reorientation

1999 also was the year in which Thomas

Cook reoriented and streamlined its busi-

ness portfolio and made major investments

in its core businesses.

The focus was on a comprehensive integra-

tion programme following the amalgama-

tion with the Carlson activities and cover-

ing travel agency distribution, tour opera-

tors and airlines, the new brand image of

JMC in the tourism sector and the further

development of the global & financial ser-

vices sector. This comprehensive restructur-

ing of the Thomas Cook Group caused

� Thomas Cook Group

Tourism

expenditure that will place a burden on

results for the financial year from 1 January

to 31 December 1999. Nevertheless, these

financial efforts contribute essentially to

Thomas Cook‘s good positioning in its mar-

kets for the future.

Source market UK/Ireland

Although the British market was charac-

terised by fierce competition and demand

virtually stagnated, the travel agency

organisation, the tour operators and the

airlines more or less developed as planned.

The tourism division grew considerably

as a result of the integration of the Carlson

activities. Hence, Carlson Worldchoice travel

agencies were changed to the Thomas

Cook brand and the Inspirations tour opera-

tor as well as the Caledonian airline were

included in the business organisation

which consequently comprises 743 self-

owned travel agencies and 33 aircraft. More-

over, the expansion of the direct selling

business led to a consolidation of market

leadership in the phone-based sales seg-

ment. Meanwhile, Thomas Cook operates

four call centres with more than 1,000 staff

in Great Britain.

Subsequently, in autumn 1999, the new

progressive main brand JMC (after James

Mason Cook, the son of company founder

Thomas Cook) was launched on the market,

starting the fundamental reorganisation of

the tourism business. The JMC brand covers

both the tour operator and the airline busi-

ness. It combines the airlines Flying Colours

and Caledonian under JMC Airline. JMC has

been positioned as an innovative, future-

oriented brand. The associated high quality

standard claimed and the positive reception

in the market are already reflected by the

good bookings for the 2000 summer

season.

International travel business

The Group’s business in Australia and Cana-

da was characterised by persistently diffi-

cult market conditions. The activities of

Thomas Cook India were not faced with a

particularly favourable economic and politi-

cal climate, either. Nevertheless, slight

increases were achieved. Strong growth has

been forecast, in particular for tourism in

India; Thomas Cook intends to take advan-

tage of this business opportunity.

Global & financial services

The financial services offered by the Thomas

Cook Group were pooled under the global

& financial services division this year. This

division is to operate more independently

in the future in order to strengthen its mar-

ket position and open up for partnerships.

In the course of the financial year, the

division selectively expanded its corporate

foreign exchange and retail exchange sec-

tors, both of which produced good results.

The volume of the travellers cheques busi-

ness dropped, as expected. Nevertheless,

efficient cost management helped to main-

tain the economic efficiency.

Divisions 47

48 Divisions

Logistics

Competencies pooledFaced with different economic settings, the newly formed logistics division grew steadily. Liner

shipping continued to be considerably affected by the crisis in Asia. The VTG-Lehnkering Group

kept utilisation at a good level, despite flagging economic activities in the chemical industry.

The Algeco Group recorded strong growth again.

Preussag‘s logistics activities have been

pooled in Hapag-Lloyd AG as per 1 October

1999. To this end, Hapag-Lloyd takes over

Preussag’s participations in VTG-Lehnkering

AG and Algeco S.A.

In the liner shipping sector, Hapag-Lloyd

Container Linie operates 20 self-owned con-

tainer ships and has a container capacity of

203,000 standard containers. In 2000, four

new self-owned container ships will be

brought into service. Moreover, Hapag-

Lloyd is a member of Grand Alliance, the

largest alliance in container shipping in the

world. Rickmers-Linie operates liner services

with self-owned and chartered multi-pur-

pose freighters.

With its five modern cruise ships, Hapag-

Lloyd Kreuzfahrten is the market leader

in the German market. The new ‘Europa’

commissioned in September 1999 has set

new standards in the luxury travel segment.

The business of Pracht Spedition + Logistik

covers both international truck transports

but also distribution services.

The VTG-Lehnkering Group with its rail

and tank container logistics as well as bulk

and special logistics sectors focuses on the

solution of complex transport needs, with

the chemical industry being the largest

customer segment.

The core business of the Algeco Group

is the mobile building hire business and the

construction of permanent modular build-

ings. In this sector it is the biggest supplier

in Europe focused in particular on business

in France, Spain and Germany. The new

pallet logistics business is growing strongly.

Turnover in logistics


Hapag-Lloyd Group 4,184 4,028 + 4

VTG-Lehnkering Group 1,719 1,765 - 3

Algeco Group 615 546 + 13

Total turnover 6,518 6,339 + 3

Internal turnover 621 609 + 2


49 Divisions

The Hapag-Lloyd AG will manage the logis-

tics division as of 1 October 1999. In the

financial year 1998/99, its logistics activi-

ties comprised liner shipping with Hapag-

Lloyd Container Linie and Rickmers-Linie,

Hapag-Lloyd Kreuzfahrten and Pracht

freight forwarders.

Hapag-Lloyd Container Linie

In 1999, the volume growth of 4% in the

international container transport market

fell short of the average growth rates of

previous years. This was primarily attribut-

able to the effects of the fading economic

crisis in the Asian region. The decline in

freight rates, observed for some time now,

persisted, with traffic to Asia being particu-

larly strongly affected.

The lack of parity in the flow of cargo to

and from the Far East continued to pose a

major challenge for container logistics. Tak-

ing a number of measures, Hapag-Lloyd

managed to limit the increase in costs for

the provision of empty containers. Apart

from the purchase and commissioning of

new containers in Asia, these measures

included the expansion of trans-Pacific and

inner-Asian transports.

In a difficult economic environment,

Hapag-Lloyd Container Linie increased its

transport volume to 1.5 million standard

containers, a 15% rise on last year’s refer-

ence volumes. The three profit centres

Europe, America and Asia/Australia con-

tributed to a varying extent to this result.

Despite a weakness in exports, the

transport volume handled in the European

region was 9% higher than last year. How-

ever, the growth in volume did offset the

decline in freight rates not just on the routes

to Asia but also on the North Atlantic routes.

The American region increased its trans-

port volume by 19%. Contrary to the market

trend, this growth was generated on the

routes to Asia where new market shares

were won.

The Asian/Australian region benefited

from the export efforts undertaken by the

Asian countries and shipped 18% more con-

tainers than last year. The positive develop-

ment of business in this region was also

supported by an increase in freight rates.

In contrast to the industry trend, Hapag-

Lloyd Container Linie closed the year at a

higher turnover and a clearly better operat-

ing result than last year. An essential factor

contributing to this result was the sustain-

ed increase in productivity and the contin-

ued decrease in shipping system costs per

container by means of cooperation within

the Grand Alliance.

Rickmers-Linie

Rickmers-Linie, covering the conventional

services, operated in a market characterised

by sustained difficulties. Project cargo, the

core business of the shipping line, was

affected even more strongly than container

transports by the repercussions of the crisis

in Asia. Rickmers adjusted to the develop-

ment of the cargo flows by increasing the

number of shipments from Asia to America

and Europe. Savings in shipping system and

bunker costs as well as attractive charter

rates, however, did not offset the decline in

freight rates. As a consequence, both turn-

over and operating result were lower than

last year.

� Hapag-Lloyd Group

Logistics

Hapag-Lloyd Kreuzfahrten

In the German-speaking region the market

for cruises continued to expand, but devel-

oped differently in the individual market

segments. Against this background, Hapag-

Lloyd Kreuzfahrten managed to consolidate

its leading market position. The sector ben-

efited from the product- and customer-ori-

ented organisational structure introduced

last year.

On 17 September 1999, the new ‘Europa’

started on its maiden voyage. With its posi-

tioning as a five-star luxury liner, it sets new

standards in cruises. Apart from the ‘Europa’,

four other cruise ships are operated under

the Hapag-Lloyd flag.

A turnover of just about the previous

year’s level was achieved. The operating

result improved considerably.

Pracht Spedition + Logistik

The situation on the market for freight for-

warding continued to be difficult. Never-

theless, Pracht’s haulage branch grew. This

was partly attributable to the additions to

its branch network. Total turnover, however,

was below the previous year’s figure. This

was mainly due to the sale of the German

Parcel service in which Pracht held an inter-

est as a franchisee. Moreover, the storage

and distribution business declined. As a con-

sequence, the operating result fell slightly

short of last year’s figure.

Development of turnover and results

On the whole, Hapag-Lloyd AG’s logistics

sector generated a total turnover of

DM 4.18 billion and hence a clear improve-

ment in results.

In its first financial year, VTG-Lehnkering

AG, established by the amalgamation of

the logistics activities of VTG Vereinigte

Tanklager und Transportmittel GmbH and

Lehnkering AG, performed well.

The activities of the newly formed

group are structured into rail and tank con-

tainer logistics and bulk and special logis-

tics as well as participations; the Group

hence offers complete logistics manage-

ment based on its own capacities. Its busi-

ness activities focus on the chemical, the

petrochemical and the mineral oil industry.

Rail and tank container logistics

The rail logistics sector benefited from a

steady demand in the individual market

segments. Hence, the hiring business in

specialised tank wagons was kept at its

high level. Utilisation was particularly good

in mineral oil and pressurised gas tank

wagons. However, utilisation of chemical

tank wagons also continued to be largely

stable despite the flagging economic situa-

tion in the chemical industry. Demand for

the large-volume goods wagons and flat

wagons of the Transwaggon Group was

brisk so that the wagon park was also well

utilised.

Following the takeover of the rail logis-

tics sector of IVG, VTG-Lehnkering operates

around 19,000 tank wagons and 8,000 spe-

cial goods wagons in the new financial year.

The 25% shareholding in ATG Autotrans-

portlogistic GmbH was sold to Deutsche

Bahn as per 1 January 1999.

� VTG-Lehnkering Group

Divisions 50

51 Divisions

The rail forwarding agency Transpetrol

performed satisfactorily. Its joint venture

with the Swiss federal railway led to an

expansion of its presence to the European

neighbouring countries.

In the tank container logistics sector,

Peacock‘s hire business developed steadily.

In contrast, the development of VOTG’s for-

warding business was unsteady. The trans-

port volume rose in continental and short

sea traffic with Southern European and

Scandinavian countries. Overseas business

was affected by the repercussions of the

economic crisis in Asia. Here, transports to

North America and the Far East suffered in

particular from the lack of parity in the

flow of cargo.

Bulk and special logistics

Business in the inland waterway shipping

sector was adversely affected by the cyclical

decline in the demand for transports.

Hence, a slight increase in the freight vol-

ume in dry goods ships did not compensate

for decreases in freight rates. In the chemi-

cal and mineral oil shipping sector, demand

did not recover until the end of the finan-

cial year. With the acquisition of Rhein-

Fracht GmbH, VTG-Lehnkering consolidated

its leading position in chemical transports.

The road cargo sector held its own in

the market in virtually all sectors despite

the weaker economic environment, so that

the specialised fleet was well utilised on

the whole. Owing to the takeover of the

Dutch tank wagon forwarder Van Ruiten,

the range of services on offer was enlarged

at European level.

In the special logistics sector, both hiring

and transshipment services in the tank

farms and warehouses for hazardous goods

were well utilised throughout the year.

Capacity utilisation in the distribution of

hazardous goods was also gratifying. Three

mineral oil tank farms of OmniTank were

sold to continue the concentration on the

chemical business and on strategically

important locations.

The seaport logistics and forwarding

sectors suffered from the decline in exports

in this industry which did not recover until

the end of the financial year.

Participations

In the maritime services sector, the busi-

ness of the tug fleets was faced with an

increase in competition. Tugging operations

in the North German ports in particular

were affected by a considerable drop in

prices. Utilisation of research ships and

piloting services was satisfactory.

The chemical services sector saw a non-

uniform development of the financial year.

The Dr. Schirm Group achieved a satisfacto-

ry utilisation of its capacities with the syn-

thesis, formulation and manufacturing of

agro-chemicals. Hago’s business in chemi-

cals for the construction industry, in con-

trast, continued to be characterised by

fierce competition.


At a total turnover of DM 1.72 billion, a

decrease of 3%, the VTG-Lehnkering Group

achieved satisfactory results again.

Logistics

The Algeco Group successfully closed the

financial year in all regions in which it oper-

ates. The mobile building hire business rose

strongly again. In order to be able to benefit

from the increase in demand, the mobile

buildings park was enlarged to more than

71,000 units. At financial year-end, the

number of mobile buildings available was

12% higher than last year. Moreover, the

positive market situation was also reflected

in the utilisation of capacities which rose

again.

Upturn in France

In France, Algeco S.A. as well as Somi and

Locabrie benefited both from the upturn in

demand from the construction industry

and from the growth within the industrial

and services sector. Alongside Home Sys-

tem S.A. with its special products in the

industrial buildings sector, they managed

to further strengthen their market position.

Growth in Spain

The Algeco Group recorded its strongest

regional growth on the Iberian Peninsula.

Business development was positive in all

sectors, above all in Spain, given the stable

economic situation. Additional business

was created in Spain by the provision of a

large number of mobile multi-purpose

buildings for schools by Alquimodul. The

regional presence was further consolidated

by the takeover of Ormo CMI S.L., which

holds a strong market position in Catalonia.

Improvements in Germany

Despite the persistently weak situation in

the construction industry, the companies

operating in Germany, MBM Mietsystem

für Bau und Industrie and Hada, managed

to increase their business volume and con-

siderably improve utilisation of their mobile

buildings parks compared to last year.

Business development was steady in

Belgium and Italy. In the medium term, the

Central European markets, primarily Poland

and the Czech Republic, will be increasingly

important.

Expansion in pallet logistics

The pallet logistics sector, in which Algeco

invested two years ago with the acquisition

of LPR Logistic Packaging Return, confirmed

its growth potential again in the completed

financial year. Within one year the pallet

stock was increased by 60%. Business

growth was particularly strong in the food

industry. In order to expand business to

other countries apart from France, LPR

Iberica S.A. was established in Spain, a step

immediately meeting with a positive mar-

ket response.


The Algeco Group increased its total turn-

over to DM 615 million, a rise of 13%, and

generated higher profits than last year.

� Algeco Group

Divisions 52

53 Divisions

Energy and Commodities

Difficult markets for oil and metalsThe persistent weakness of the international crude oil and non-ferrous metal markets had a consider-

able impact on business in the energy and commodities division. While the earnings situation consoli-

dated with the increase in crude oil prices in the course of the financial year, trading did not manage

to continue on the good results of last year.

The energy and commodities division

comprises the Group’s energy sector and

trading business.

After the withdrawal from coal mining

and from the participation in uranium min-

ing, the energy sector focuses on its core

business with crude oil and natural gas and

the associated services.

With reserves of about 570 million

barrels of oil equivalent, Preussag Energie

GmbH is one of the major German crude oil

and natural gas producers. On the basis of

its international commitment – primarily in

South America and North Africa – it con-

stantly expands production. Apart from

that, the construction and operation of

underground gas storage facilities is becom-

ing an increasingly important business

sector.

With its drilling and workover rigs, the

Deutag Group is a drilling contractor with a

presence in all major crude oil and natural

gas regions in the world and has estab-

lished itself successfully in the platform

servicing business.

The AMC Group, the W. & O. Bergmann

Group and the US steel service companies

form the trading sector. They are acknowl-

edged partners in the national and inter-

national trading business with a focus on

non-ferrous metals and products for the

steel processing industries.

Turnover of energy and commodities


Energy sector 1,497 1,769 - 15

Preussag Energie Group 604 634 - 5

Deutag Group 893 1,135 - 21

Trading sector 7,468 9,938 - 25

AMC Group 4,543 6,075 - 25

US steel service companies 1,565 1,919 - 18

W. & O. Bergmann Group 1,360 1,944 - 30

Total turnover 8,965 11,707 - 23

Internal turnover 430 514 - 16

Consolidated turnover 8,535 11,193 - 24

Prices on the international crude oil mar-

kets dropped dramatically in the first few

months of the financial year. An all-time

low of less than USD 10 per barrel gave way

to a recovery process resulting from pro-

duction restrictions in the OPEC countries

which led to a continuous increase in prices

to almost USD 24 per barrel by September.

The average price of North Sea oil Brent for

the financial year was USD 14.60 per barrel

and hence reached last year’s level.

Natural gas prices, which follow heating

oil prices with a time-lag, dropped consider-

ably during the year and, on an average,

were below the values of last year.

Crude oil production

Due to the low oil prices at the beginning

of the financial year, Preussag Energie

revised its investment programme and

postponed planned measures for a stabili-

sation of production, particularly in

Germany. Consequently, domestic crude oil

production was below last year’s volume,

despite the takeover of further syndicate

shares.

Another strong increase in crude oil pro-

duction was recorded abroad, for several

reasons: on the one hand, the production

base was expanded by means of the swap

of the participation in a gas field in Argenti-

na against additional shares in North Sea

oil reservoirs, carried out in the wake of the

physical partition of the real property of

Deminex. On the other hand, the increase

is attributable to the development pro-

gramme for the Venezuelan fields causing

an expansion of production capacities in

the country. In Tunisia and Syria, too, pro-

duction rose in comparison to last year.

Production on the mature fields in Egypt,

Ecuador and Qatar declined; this trend was

partly caused by the reservoirs.

On the whole, Preussag Energie pro-

duced 2.47 million tons of crude oil in the

financial year, an increase of about 12%

compared to last year.

Natural gas production

Domestic natural gas production, currently

accounting for about 95% of the natural

gas business, remained stable. Due to the

transfer of the participation in Argentina,

total production of 1.2 billion m3 (Vn) was

below the volume of the last year.

Exploration

In its exploration activities, Preussag

Energie was involved in several drillings in

Kazachstan, Tunisia, Ecuador and the North

Sea. The exploratory oil drilling in Ecuador

was successful. In the Tunisian concession

Kerkennah West, test activities following

the drillings completed last year proved the

economic viability of production of the

Chergui natural gas deposits.

Energy

� Preussag Energie GmbH

54 Divisions

Production and sales of Preussag Energie GmbH

1996/97 1997/98 1998/99

Crude oil production tons 2,128,300 2,202,300 2,470,300

Domestic tons 712,500 722,300 678,900

Abroad tons 1,415,800 1,480,000 1,791,400

Natural gas production mill. m3 (Vn) 1,477 1,455 1,199

Natural gas sales mill. kWh 13,390 13,588 12,152

Storage services

The expansion of the storage business

proceeded according to plan. The expanded

capacity at Fronhofen in Southern Germany

was available in time for the winter season.

The construction of a new natural gas stor-

age facility in the Hanover area was also

almost completed.

Kavernen Bau- und Betriebs-GmbH

Domestic business focused on orders for

the construction and expansion of natural

gas storage facilities in North Germany.

Activities abroad concentrated on explora-

tion and consultancy services for storage

and salt production plants on the Iberian

Peninsula and in the Middle East.


In view of the development of the crude oil

prices, Preussag Energie, including KBB,

achieved a total turnover of DM 604 million

and produced a satisfactory operating

result. Additional exceptional income came

from the sale of the uranium business.

The demand for drilling services followed

the development of prices on the crude oil

markets with a time-lag and with regional

variations. It started into the financial year

from a good level. In the spring of 1999, it

dropped substantially, following the pro-

duction restrictions of the OPEC countries

and the resulting adjustments of the explo-

ration and field development programmes.

The crude oil prices which clearly increased

again in the second half of the financial

year did not stimulate significantly the

international drilling contractor business

by the end of the financial year.

Drilling contractor business

Utilisation of the drilling and workover rigs

of the Deutag Group reflected the market

development. After a positive first half of

the year, utilisation decreased above all in

Continental Europe, Northern Africa and

the Near East. Capacities in these countries

had to be adjusted, whereas Deutag was

able to further expand its positions in the

South American market and on the

Caspian Sea.

Offshore services

The offshore business in the British North

Sea was considerably strengthened by the

takeover of the platform services business

of the Smedvig Group in Great Britain. In

the financial year, Deutag provided drilling

or production services on 14 offshore rigs.

Bentec GmbH Drilling & Oilfield-Systems

The weak demand for drilling rigs and repair

services caused a considerable decline

in utilisation at Bentec; comprehensive

reorganisation measures were taken to

counteract this trend. In September 1999,

the drilling rig built for the ‘Oseberg C’ plat-

form in the Norwegian North Sea was

delivered to the principal.


Total turnover of the Deutag Group stood

at DM 893 million. Results were negative as

a consequence of influences from the pro-

ject business.

� Deutag Group

Divisions 55

56 Divisions

The individual regions and sectors of the

AMC Group saw a non-uniform business

development. While the trading business

improved, companies in other sectors were

not able to continue on the positive trend

from the previous year.

Trading

Amalgamated Metal Trading Ltd. (AMT),

ring dealing member of the London Metal

Exchange, improved substantially over the

previous year. Following the difficult trad-

ing conditions of the first half of the finan-

cial year, the subsequent increase in non-

ferrous metal prices triggered brisk market

activities so that both principal trading and

income from commissions increased con-

siderably.

International trading in non-ferrous

metals and fine and industrial chemicals

developed steadily.

Distribution and merchanting

The steel service business of Wilkinson

Steel was adversely affected by the strong

decline in demand from the oil industry in

West Canada. Debro Steel, operating in East

Canada, increased sales but was not able to

compensate for the lower price level.

Debro Chemicals‘ trading activities in

chemicals benefited from brisk demand for

special and fine chemicals in Canada and the

sound business of its Atlantic Chemicals and

Pharmaceuticals Division. In the United

States,TR Metro and Cron Chemical per-

formed satisfactorily, although demand

decreased in their markets on the East Coast

and in the Southern states.

In Great Britain, the sluggish demand

from the metalworking industry adversely

affected William Rowland’s trading in spe-

cial metals. In contrast, Mountstar Metal’s

non-ferrous metal business, following a

weak start into the financial year, benefited

from the rise in non-ferrous metal prices.

Processing

Exchanger Industries followed on the posi-

tive trend from last year in its business in

equipment for the oil and gas industry. This

was attributable to the brisk demand from

the gas sector and the expansion of capaci-

ties implemented last year. National Con-

crete Accessories took advantage of the

positive level of economic activities in the

construction industry in parts of Canada

and improved its results.

Business of the Consolidated Alloys

Group varied regionally. While demand for

lead products was curbed through the com-

petitive pressure exerted on some customer

groups by Asian suppliers, market shares

were won in New Zealand whose construc-

tion industry recorded brisk business.

Despite the persistently difficult market

conditions, Keeling & Walker, the British tin

oxide producer, and its German subsidiary

Thermox held their business steady.

Tin production at Thaisarco in Thailand

increased over the previous year. On an

annual average, the tin price was 4% lower

than last year. The tin smelter made further

progress on its way towards a more effi-

cient utilisation of its capacities.


The AMC Group achieved a total turnover

of DM 4.54 billion. The decrease of 25% was

mainly attributable to the low non-ferrous

metal prices. On the whole, the results con-

tinued to be satisfactory.

� AMC Group

Trading

Following the good previous year, the US

steel service companies consolidated under

Preussag North America, Inc. (PNA) were

confronted with a number of negative mar-

ket trends in the course of this financial

year. Although the US economy grew, the

steel industry showed some weaknesses.

These were attributable to high consumer

inventory levels and comprehensive, cheap

imports producing a desequilibrium of sup-

ply and demand. The result was a dramatic

drop in prices in the first half of the year;

prices did not recover until the end of the

financial year.

Given these circumstances, the US steel

service companies were not able to sustain

their business volume and sold 2.22 million

tons of steel, about 10% less than last year.

Preussag International Steel Corp. saw a

restriction of its business potential in steel

trading as a result of the antidumping

agreements so that it recorded a decline in

sales. In contrast, however, its Infra-Metals

division, predominantly operating in the

steel service business on the East coast,

recorded slight improvements.

In the South, Delta Steel, Inc. and its Smith

Pipe and Steel Division saw their sales areas

adversely affected both by the general mar-

ket weakness and the partly dramatic capi-

tal spending cuts in the crude oil and min-

ing industry. Consequently, their business

was considerably lower than last year.

The business of the Feralloy Group,

operating seven branches in the large

industrial centres in the North West of the

United States, largely followed the market

trend. The decline in demand from the agri-

cultural machinery and rolling stock indus-

tries was offset by means of strong growth

in supplies to the automotive industry.


At DM 1.57 billion, total turnover of the PNA

Steel Service Group was 18% below the pre-

vious year’s figure as a result of the decline

in sales and the drop in prices. In spite of

unfavourable market conditions, the results

were nevertheless satisfactory.

Restrained demand, high inventories at the

London Metal Exchange and speculative

deals by investors characterised the situa-

tion on the non-ferrous metal markets over

several months. As a consequence, prices

– above all of copper and aluminium –

dropped considerably. A recovery did not

commence until the second half of the year

when prices partly returned to the previous

year’s level.

The economic development in the key

metalprocessing industries did not stimu-

late trading. Sales opportunities were

curbed above all by the sluggish demand

from the construction industry and

mechanical engineering. Accordingly, the

trading volume of the Bergmann Group

was lower than last year. Copper, copper

alloys, aluminium, and nickel were particu-

larly adversely affected.


Total turnover of the W. & O. Bergmann

Group dropped to DM 1.36 billion, both for

price and volume reasons. The results were

clearly negative.

� US Steel Service Companies

� W. & O. Bergmann Group

Divisions 57

58 Divisions

Building Engineering

Weak construction activitiesDespite the persistently weak overall construction activities in Germany, the companies of the building

engineering division performed satisfactorily on the whole. Sales of building materials were largely

kept stable; in heating technology, declines in Germany were cushioned by growth in activities abroad.

The companies combined in the building

engineering division operate in the building

materials sector, in heating and sanitary

technology as well as in fire protection.

Apart from its main product, Fermacell

plasterboards, the Fels Group produces

other high-quality building materials for

new buildings and the refurbishment

sector. With its ten plants in Germany and

one plant in the Czech Republic it is the

second largest producer of lime products

in Europe.

The Wolf Group offers a broad range of

products in heating and air-conditioning

technology. Its key products are heating

boilers, gas boilers and burners. With its

main brands Wolf, Elco, and Chaffoteaux &

Maury it occupies top ranks in the Euro-

pean heating technology market.

Kermi GmbH also operates in the heat-

ing technology sector with its production

of flat and design radiators. In the sanitary

technology sector, it produces a large vari-

ety of shower screen models.

The Minimax Group has produced fire

protection technology for stationary and

mobile fire protection for almost 100 years

now. It is one of the leading European sup-

pliers in this sector and is represented in

around 60 countries worldwide.

Turnover in building engineering


Fels Group 794 780 + 2

Wolf Group 1,736 1,592 + 9

Kermi GmbH 453 452 0

Minimax Group 927 912 + 2

Total turnover 3,910 3,736 + 5

Internal turnover 419 319 + 31


The Fels Group held its business largely

stable even though economic activities in

the construction industry were weak.

The market for plasterboards, the main

product of Fels, suffered from slack demand

and an intensification of competition. In

spite of this unfavourable environment,

sales of Fermacell plasterboards were close

to the volume of last year. The expansion of

the export business produced positive

effects.

In the lime products sector, Fels took

over three lime works located in Lower

Saxony, Brandenburg and Bavaria and

hence considerably expanded both its sales

area and its product range. Sales of uncal-

cined products exceeded last year’s volume.

Sales of calcined products remained stable;

here, the decline in demand from the steel

and building materials industry was com-

pensated for by means of the acquisition of

new customers and an increase in sales of

environmental protection products.

Sales in the porous concrete sector sta-

bilised. The demand for large-format modu-

lar blocks and reinforced system compo-

nents developed gratifyingly. However, the

fierce price competition continued.

Fels expanded its position in Salith dry

mortar systems in a stagnating market.

Sales rose in particular in the high-quality

product segment and in jointless floor

systems.


At DM 794 million, total turnover of the Fels

Group was 2% above previous year’s level.

The Group closed with satisfactory results

again.

Against the background of tightening com-

petition in its core markets, the Wolf Group

devoted the financial year to a realignment

of its production and sales organisation.

In Germany, sales to the building sector

as well as to the refurbishment sector stag-

nated. The surge in demand expected from

the new emission protection provisions

failed to materialise. With an innovative

product line Wolf managed to open up new

client segments in the boiler business. Sales

of products with condensation technology

rose again. In the air-conditioning sector

Wolf maintained its leading position.

Elco-Klöckner managed to preserve its

share in the declining market for burners.

Production and distribution structures in

the industrial engineering sector were

adjusted to the market trend.

Due to the weak construction business in

new buildings, the Swiss market continued

to decline so that the services and replace-

ment business increased in importance.

Following its restructuring, Elco Energie-

systeme expanded its business in this sec-

tor.

The French heating technology market

registered sound demand in the replace-

ment business and recorded a slight

growth. The competitive pressure contin-

ued to be intense, however. Nevertheless,

due to a successful product policy Chaffo-

teaux & Maury won market shares, above

all in wall heaters.

The export business of the Wolf Group

developed well overall. Sales of heaters and

air-conditioning equipment in particular

increased markedly.


� Fels Group

� Wolf Group

59 Divisions

In its first year of affiliation to the Wolf

Group, the Turkish Baymak Group develop-

ed well. In a difficult economic climate, it

achieved an above-average increase in turn-

over compared to the market and contin-

ued to extend its leading position.


At DM 1.74 billion, total turnover of the Wolf

Group was 9% above previous year’s level.

The results were satisfactory overall.

Against the background of the persistently

tense situation on the heating and sanitary

engineering market, Kermi performed well

in the financial year 1998/99.

In the heating technology sector, Kermi

managed to maintain its market position in

flat radiators, with business recovering

clearly in the second half of the year. This

market segment continued to be charac-

terised by massive price pressure. Demand

for high-quality design radiators was good

again so that sales rose. In both product

sectors, exports exceeded last year’s vol-

umes. Business in heating walls and con-

vectors which were newly included in the

product range developed more positively

than expected. In the sanitary technology

sector, the upward trend continued. Sales of

shower screens exceeded last year’s figures.

This was attributable to a large extent to

the increase in the share of real-glass prod-

ucts.

By means of its continuous optimisa-

tion of production processes, Kermi man-

aged to achieve further productivity im-

provements in all sectors.


At DM 453 million, Kermi’s total turnover

was slightly above last year‘s figure. Its

results were satisfactory again.

The weakness in economic activities in the

public and commercial building construc-

tion sectors, which are of importance for

the fire protection business, persisted.

Consequently, the competitive situation in

Germany, characterised by excess capacities

and price pressure, did not change consid-

erably. Despite the persistently difficult

market climate, the Minimax Group record-

ed higher incoming orders than last year

and increased its construction performance

by some 4%. This trend was attributable to

a large extent to the export business,

stimulated above all from the economic

growth in the neighbouring Western

European countries.

The engineering, production and assembly

capacities in stationary fire protection were

fully utilised as a consequence. Business in

mobile fire protection continued to be diffi-

cult but reached last year’s volume again.

In the European markets, the measures

taken to expand the fire protection busi-

ness produced the first positive results

which were reflected in an increase in the

proportion of business abroad in the

Group’s overall business.


At DM 927 million, the Minimax Group

achieved a 2% increase in total turnover.

However, results were lower than last year.

� Kermi GmbH

� Minimax Group

Divisions 60

61 Five Years Summary

Five Years Summary

Preussag Group

1994/95 1) 1995/96 1) 1996/97 1) 1997/98 1998/99

Consolidated companies 210 226 216 361 508

Total turnover DM mill. 29,598 28,327 30,451 39,185 36,450

Consolidated turnover DM mill. 26,353 25,044 26,658 35,869 32,273

Foreign turnover % 48 48 55 68 76

Results by division DM mill. 619 468 704 1,019 1,213

Profit before tax DM mill. 561 430 670 937 1,043

Tax DM mill. 212 156 273 347 367

Net profit for the year DM mill. 349 274 397 590 676

Earnings per share DM 2.85 2) 1.74 2) 2.40 2) 3.31 3.48

Cash flow per share DM 10.05 2) 7.58 2) 10.27 2) 10.66 7.02

Cash flow/turnover % 5.8 2) 4.6 2) 5.9 2) 4.5 3.5

Internal financing % 119.0 85.3 131.1 51.8 23.1

Fixed assets DM mill. 6,916 7,039 6,643 11,496 15,194

Current assets DM mill. 8,140 8,154 8,299 8,610 14,605

Shareholders’ equity DM mill. 3,345 3,171 3,135 3,903 5,316

Liabilities DM mill. 11,711 12,022 11,807 16,203 24,483

long-term DM mill. 4,538 4,979 4,766 7,424 6,715

short-term DM mill. 7,173 7,043 7,041 8,779 17,768

Balance sheet total DM mill. 15,056 15,193 14,942 20,106 29,799

Equity ratio % 22.2 20.9 21.0 19.4 17.8

Capital expenditure DM mill. 1,291 1,359 1,198 3,143 4,886

Goodwill DM mill. — — — 1,183 2,233

Tangible assets DM mill. 1,107 1,112 1,053 1,631 1,687

Investments DM mill. 184 247 145 329 966

Depreciation DM mill. 974 1,044 1,071 1,102 1,207

on goodwill DM mill. — — — 82 181

on tangible assets DM mill. 971 1,019 1,054 974 963

on investments DM mill. 3 25 17 46 63

Equity/fixed assets ratio % 114.0 115.8 118.9 98.5 79.2

Total employees 30 Sept 65,227 66,226 62,601 66,563 79,142

Domestic 30 Sept 55,517 53,603 49,563 43,428 28,718

Abroad 30 Sept 9,710 12,623 13,038 23,135 50,424

Personnel costs DM mill. 5,481 5,441 5,534 5,753 4,473

1) financial statements according to German accounting rules2) according to DVFA/SG

62 Financial Statements 1998/99

Consolidated Profit and Loss Statement

Income Statement (for the period from 1 October 1998 to 30 September 1999)

(DM million) Notes 1998/99 1997/98

Turnover (1) 32,273.0 35,868.9

Change in stocks of goods and other own work capitalised (2) + 82.5 - 324.6

Other operating income (3) 2,054.1 2,142.3

34,409.6 37,686.6

Cost of materials (4) 21,708.6 24,599.7

Personnel costs (5) 4,472.7 5,753.0

Depreciation (6) 974.3 974.4

Other operating expenses (7) 6,136.2 5,440.3

33,291.8 36,767.4

Operating result + 1,117.8 + 919.2

Financial result (8) + 95.2 + 99.5

Result by divisions + 1,213.0 + 1,018.7

Amortisation of goodwill (9) 170.1 81.7

Profit on ordinary activities + 1,042.9 + 937.0

Taxes (10) 367.3 346.8

Group profit for the year 675.6 590.2

Appropriation of Profits


Group profit for the year 675.6 590.2

Results attributable to minority interests (11) 117.0 84.1

Results attributable to shareholders of Preussag AG 558.6 506.1

Profit carried forward of Preussag AG 0.7 1.2

Transfers to revenue reserves 299.0 277.3

Profit available for distribution of Preussag AG 260.3 230.0

(DM) Notes 1998/99 1997/98

Earnings per share (12) 3.48 3.31

Diluted earnings per share 3.37 3.24

� Profit and Loss Statement of the Preussag Group

Financial Statements 1998/99 63

Consolidated Balance Sheet

Assets (DM million) Notes 30 Sept 1999 30 Sept 1998

Fixed assets

Goodwill (13) 3,610.6 1,472.0

Other intangible assets (14) 241.4 222.1

Fixed assets (15) 9,547.4 8,668.0

Investments (16) 1,794.6 1,134.2

15,194.0 11,496.3

Current assets

Inventories (17) 1,695.8 1,861.0

Receivables and other current assets

Trade accounts receivable (18) 3,692.1 3,824.4

Other receivables and assets (19) 1,981.3 1,110.1

Assets from future tax benefits (20) 237.7 113.3

5,911.1 5,047.8

Funds (21) 6,501.8 1,586.5

14,108.7 8,495.3

Prepaid expenses (22) 496.0 114.8

29,798.7 20,106.4

Shareholders’ equity and liabilities (DM million) Notes 30 Sept 1999 30 Sept 1998

Shareholders’ equity

Subscribed capital (23) 864.5 764.3

(Conditional capital 98,6)

Capital reserves (24) 2,824.8 1,575.5

Revenue reserves (25) 776.7 763.8

Net profit available for distribution (26) 260.3 230.0

Interest in equity of shareholders of Preussag AG 4,726.3 3,333.6

Minority interests in equity (27) 590.0 569.6

5,316.3 3,903.2

Provisions

Provisions for pensions and similar commitments (28) 1,593.5 2,229.4

Tax provisions and other provisions (29) 5,152.4 5,504.5

6,745.9 7,733.9

Liabilities (30)

Bonds 1,273.7 300.0

Liabilities to banks and other financial liabilities 5,147.5 3,125.2

Trade accounts payable 8,202.0 2,193.4

Other liabilities 2,776.4 2,758.4

17,399.6 8,377.0

Deferred income (31) 336.9 92.3

29,798.7 20,106.4

� Balance Sheet of the Preussag Group (as of 30 September 1999)


Development of Fixed Assets 1998/99

Cost of Acquisition or Manufacturing Costs

Balance Currency Changes Additions Disposals 1) Transfers BalanceAdjustment in Con-

(DM million) 1 Oct 1998 solidation 30 Sept 1999

Intangible assets

Exploration and drilling licences 27.1 0.0 0.0 0.0 0.0 0.0 27.1

Concessions, patentsand licences 401.7 - 1.2 37.8 54.1 46.7 7.7 453.4

Goodwill 1,580.2 0.8 103.6 2,232.9 7.3 0.0 3,910.2

Payments on account 3.9 0.0 0.0 6.8 0.2 - 2.3 8.2

Total 2,012.9 - 0.4 141.4 2,293.8 54.2 5.4 4,398.9

Tangible assets

Mineral rights 91.0 0.0 0.0 0.0 0.5 - 0.1 90.4

Real estate, land rights and buildings including buildings on third-party properties 4,182.8 35.3 557.1 144.0 933.8 53.8 4,039.2

Pits, mines and boreholes 690.0 0.0 0.0 37.1 111.0 14.7 630.8

Machinery and fixtures 4,392.0 18.0 165.7 138.7 1,593.3 92.1 3,213.2

Ships and wagons 4,059.5 14.1 39.7 328.2 280.1 45.0 4,206.4

Mobile buildings, containersand container trailers 1,668.1 - 0.1 0.0 140.2 69.4 2.0 1,740.8

Aircraft 1,762.7 7.6 120.3 300.7 104.1 44.4 2,131.6

Other plants andoffice equipment 1,822.0 52.1 986.1 321.3 650.1 - 4.1 2,527.3

Work in progress 130.2 2.7 26.9 85.2 15.9 - 118.8 110.3


Total 19,018.3 129.7 1,897.8 1,626.3 3,763.3 - 5.4 18,903.4

Investments

Shares in Group companies 290.8 4.2 53.8 64.9 103.5 - 4.3 305.9

Loans to Group companies 9.2 0.0 8.2 2.0 1.9 0.0 17.5

Shares in associated companies 659.5 - 7.8 298.6 830.9 412.1 - 81.1 1,288.0

Other shareholdings 165.3 7.1 183.4 46.2 74.8 85.4 412.6

Loans to other companies in which shareholdings are held 59.4 0.0 1.8 4.5 50.3 - 0.9 14.5

Securities 9.9 0.1 1.0 0.5 7.0 0.0 4.5

Other investments 110.0 0.5 29.2 17.3 35.0 0.9 122.9

Total 1,304.1 4.1 576.0 966.3 684.6 0.0 2,165.9

Fixed assets of the Preussag Group 22,335.3 133.4 2,615.2 4,886.4 4,502.1 0.0 25,468.2

1) Including disposals relating to changes in structure of consolidated companiesa) Intangible assets: 37.6b) Tangible assets: 2,832.1c) Investments: 498.0

� Development of Fixed Assets 1998/99


Depreciation Net Book Values

Balance Currency Changes Depreciation Disposals 2) Transfers Balance Balance BalanceAdjustment in Con- for the

1 Oct 1998 solidation Current Year 30 Sept 1999 30 Sept 1999 30 Sept 1998

27.1 0.0 0.0 0.0 0.0 0.0 27.1 0.0 0.0

183.5 0.8 24.6 43.8 36.4 3.9 220.2 233.2 218.2

108.2 0.2 15.0 181.1 4.9 0.0 299.6 3,610.6 1,472.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.2 3.9

318.8 1.0 39.6 224.9 41.3 3.9 546.9 3,852.0 1,694.1

18.7 0.0 0.0 0.0 0.5 0.0 18.2 72.2 72.3

1,675.0 6.9 74.9 111.8 490.5 1.5 1,379.6 2,659.6 2,507.8

486.0 0.0 0.0 26.0 76.4 0.0 435.6 195.2 204.0

3,050.4 10.0 62.5 175.0 1,276.3 1.8 2,023.4 1,189.8 1,341.6

2,359.9 6.5 15.8 152.4 270.8 - 0.5 2,263.3 1,943.1 1,699.6

889.8 0.0 0.0 107.7 60.1 0.0 937.4 803.4 778.3

584.6 6.6 98.0 103.3 44.7 0.0 747.8 1,383.8 1,178.1

1,285.9 30.8 512.8 242.8 515.4 - 6.7 1,550.2 977.1 536.1

0.0 0.0 0.0 0.5 0.0 0.0 0.5 109.8 130.2

0.0 0.0 0.0 0.0 0.0 0.0 0.0 213.4 220.0

10,350.3 60.8 764.0 919.5 2,734.7 - 3.9 9,356.0 9,547.4 8,668.0

69.6 1.3 37.8 45.0 9.8 0.0 143.9 162.0 221.2

4.4 0.0 5.0 0.0 0.5 0.0 8.9 8.6 4.8

32.8 0.0 47.6 12.6 27.0 0.0 66.0 1,222.0 626.7

20.6 3.7 170.9 3.7 65.4 0.0 133.5 279.1 144.7

23.8 0.0 0.0 0.4 23.6 - 0.2 0.4 14.1 35.6

0.2 0.0 0.0 0.0 0.1 0.0 0.1 4.4 9.7

18.5 0.0 0.0 1.3 1.5 0.2 18.5 104.4 91.5

169.9 5.0 261.3 63.0 127.9 0.0 371.3 1,794.6 1,134.2

10,839.0 66.8 1,064.9 1,207.4 2,903.9 0.0 10,274.2 15,194.0 11,496.3



Development of Fixed Assets 1997/98

Cost of Acquisition or Manufacturing Costs

Balance Currency Changes Additions Disposals 1) Transfers BalanceAdjustment in Con-

(DM million) 1 Oct 1997 solidation 30 Sept 1998

Intangible assets

Exploration and drilling licences 30.8 0.0 0.0 0.0 3.7 0.0 27.1

Concessions, patentsand licences 371.7 - 3.4 90.8 56.9 119.4 5.1 401.7

Goodwill 363.1 - 0.1 34.0 1,183.4 0.2 0.0 1,580.2


Total 772.3 - 3.5 126.3 1,244.2 129.4 3.0 2,012.9

Tangible assets

Mineral rights 91.3 0.0 0.0 0.0 0.3 0.0 91.0

Real estate, land rights and buildings including buildings on third-party properties 4,705.5 - 22.2 791.1 123.4 1,428.5 13.5 4,182.8

Pits, mines and boreholes 667.6 0.0 0.0 29.6 8.5 1.3 690.0

Machinery and fixtures 9,444.7 - 23.0 76.4 238.4 5,410.1 65.6 4,392.0

Ships and wagons 1,745.0 - 19.4 2,399.7 91.5 415.5 258.2 4,059.5

Mobile buildings, containersand container trailers 409.6 0.0 991.4 319.1 52.6 0.6 1,668.1

Aircraft 38.8 0.0 1,498.2 247.5 59.3 37.5 1,762.7

Other plants andoffice equipment 1,508.9 - 14.6 717.7 249.3 650.7 11.4 1,822.0

Work in progress 172.2 - 0.5 4.7 105.4 76.1 - 75.5 130.2


Total 18,822.3 - 79.7 6,824.1 1,570.0 8,115.4 - 3.0 19,018.3

Investments

Shares in Group companies 314.8 - 10.3 40.7 73.3 127.4 - 0.3 290.8

Loans to Group companies 33.9 0.0 0.6 0.0 25.3 0.0 9.2

Shares in associated companies 373.4 - 24.6 327.0 173.4 181.2 - 8.5 659.5

Other shareholdings 189.3 0.2 26.9 40.1 100.0 8.8 165.3

Loans to other companies in which shareholdings are held 1.4 0.0 55.8 4.5 2.3 0.0 59.4

Securities 8.4 0.0 0.8 0.7 0.0 0.0 9.9

Other investments 77.1 - 0.4 25.0 36.5 28.2 0.0 110.0

Total 998.3 - 35.1 476.8 328.5 464.4 0.0 1,304.1

Fixed assets of the Preussag Group 20,592.9 -118.3 7,427.2 3,142.7 8,709.2 0.0 22,335.3


� Development of Fixed Assets 1997/98


Depreciation Net Book Values

Balance Currency Changes Depreciation Disposals 2) Transfers Balance Balance BalanceAdjustment in Con- for the

1 Oct 1997 solidation Current Year 30 Sept 1998 30 Sept 1998 30 Sept 1997

30.8 0.0 0.0 0.0 3.7 0.0 27.1 0.0 0.0

174.9 - 1.5 69.4 47.7 107.3 0.3 183.5 218.2 196.8

23.4 - 0.1 2.9 82.2 0.2 0.0 108.2 1,472.0 339.7

0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.9 6.7

229.1 - 1.6 72.3 129.9 111.2 0.3 318.8 1,694.1 543.2

19.0 0.0 0.0 0.0 0.3 0.0 18.7 72.3 72.3

2,283.7 - 8.5 195.5 125.9 921.1 - 0.5 1,675.0 2,507.8 2,421.8

466.6 0.0 0.0 27.9 8.5 0.0 486.0 204.0 201.0

6,948.8 - 20.8 47.5 243.2 4,166.3 - 2.0 3,050.4 1,341.6 2,495.9

996.7 - 13.6 1,538.8 146.9 309.6 0.7 2,359.9 1,699.6 748.3

225.8 0.0 613.8 93.1 43.4 0.5 889.8 778.3 183.8

19.5 0.0 520.4 68.2 23.5 0.0 584.6 1,178.1 19.3

1,127.7 - 11.3 499.3 221.0 551.8 1.0 1,285.9 536.1 381.2

1.7 0.0 0.0 0.0 1.7 0.0 0.0 130.2 170.5

0.0 0.0 0.0 0.0 0.0 0.0 0.0 220.0 38.7

12,089.5 - 54.2 3,415.3 926.2 6,026.2 - 0.3 10,350.3 8,668.0 6,732.8

36.6 0.7 25.6 26.6 19.9 0.0 69.6 221.2 278.2

4.4 0.0 0.0 0.0 0.0 0.0 4.4 4.8 29.5

0.0 0.0 24.5 10.8 0.3 - 2.2 32.8 626.7 373.4

16.3 0.0 10.6 4.0 12.5 2.2 20.6 144.7 173.0

0.0 0.0 19.6 4.3 0.1 0.0 23.8 35.6 1.4

0.1 0.0 0.1 0.0 0.0 0.0 0.2 9.7 8.3

13.6 0.0 7.6 0.3 3.0 0.0 18.5 91.5 63.5

71.0 0.7 88.0 46.0 35.8 0.0 169.9 1,134.2 927.3

12,389.6 - 55.1 3,575.6 1,102.1 6,173.2 0.0 10,839.0 11,496.3 8,203.3



Tourism Logistics Energy Trading(DM million) 1998/99 1997/98 1998/99 1997/98 1998/99 1997/98 1998/99

Third-party turnover 14,013.1 9,369.9 5,896.6 5,729.5 1,242.7 2,587.7 7,292.3

Inter-segment turnover 7.2 8.7 6.2 17.4 0.1 1.4 - 0.1

Segment turnover 14,020.3 9,378.6 5,902.8 5,746.9 1,242.8 2,589.1 7,292.2

Segment operating result 497.7 336.6 306.2 206.1 110.2 112.2 101.8

of which expenses with no effect on cash (61.2) (0.0) (1.8) (10.5) (27.9) (23.4) (0.5)

Financial result 103.7 109.6 - 34.4 - 6.3 142.5 61.8 - 25.2

of which results fromassociated companies (37.4) (75.2) (- 1.9) (- 0.1) (- 24.3) (- 4.6) (4.2)

Result by divisions 601.4 446.2 271.8 199.8 252.7 174.0 76.6

Return on sales (%) 4.3 4.8 4.6 3.5 20.3 6.7 1.1

Segment assets 6,030.2 2,586.1 4,375.9 3,914.3 1,374.8 1,735.9 1,395.1

Interest-bearingassets and funds 6,757.0 1,392.2 1,073.3 1,359.7 345.0 816.1 120.6

of which book values ofassociated companies (312.3) (396.4) (13.0) (8.6) (0.0) (53.3) (12.0)

Assets by divisions 12,787.2 3,978.3 5,449.2 5,274.0 1,719.8 2,552.0 1,515.7

Segment liabilities 10,706.8 2,273.8 1,727.4 1,522.8 1,024.6 1,682.3 480.2

Interest-bearing liabilities 2,631.4 211.7 1,263.8 1,397.5 169.4 219.3 519.5

Liabilities by divisions 13,338.2 2,485.5 2,991.2 2,920.3 1,194.0 1,901.6 999.7

Tangible and intangible assets

Depreciation 290.2 163.5 351.3 329.8 102.7 144.7 32.4

of which non-scheduled (4.9) (5.6) (5.6) (4.2) (0.0) (0.1) (0.2)

Capital expenditure 690.2 423.1 617.0 595.3 113.6 240.2 67.0

Financing ratio (%) 42.0 38.6 56.9 55.4 90.4 60.2 48.4

Segment equity 1,995.4 1,147.7 1,760.3 1,725.7 508.6 643.2 521.9

Segment total capital 15,993.3 4,058.3 5,504.7 5,293.6 1,783.9 2,636.4 1,548.0

Segment equity ratio (%) 30.1 38.9 15.4 11.6 49.7 27.1 14.7

Segment total capital ratio (%) 4.2 11.6 6.8 5.6 15.5 7.2 7.5

Personnel at year-end 48,536 14,101 8,956 9,095 3,481 10,066 3,315

Germany EC (excl. Germany) Rest of Europe America(DM million) 1998/99 1997/98 1998/99 1997/98 1998/99 1997/98 1998/99

Consolidated turnover by customers 7,644.7 11,573.5 14,950.7 13,357.4 1,789.1 2,207.5 4,080.9

Consolidated turnover by domicile of companies 18,262.7 22,467.6 10,312.4 8,862.1 997.6 1,021.0 2,362.1

Segment assets 10,475.8 11,736.8 4,636.0 1,971.7 459.6 418.3 1,417.1

Tangible and intangible assets

Depreciation 695.6 767.6 201.0 119.0 25.5 33.2 30.6

Capital expenditure 1,295.7 1,328.1 333.2 188.4 23.6 38.8 58.8

Segment liabilities 6,322.8 9,115.7 6,374.9 1,063.8 322.4 423.4 2,939.3

Personnel at year-end 28,718 43,428 36,509 11,412 3,520 2,750 4,843

� Key Figures by Divisions and Sectors

� Key Figures by Regions

Segment Reporting


Trading Building Engineering Plant Engineering/Shipbuilding Others/Consolidation Group1997/98 1998/99 1997/98 1998/99 1997/98 1998/99 1997/98 1998/99 1997/98

9,715.9 3,490.9 3,417.0 4,637.3 337.4 411.6 32,273.0 35,868.9

0.1 1.7 4.0 20.0 - 15.1 - 51.6 0.0 0.0

9,716.0 3,492.6 3,421.0 4,657.3 322.3 360.0 32,273.0 35,868.9

121.5 204.9 251.5 - 209.7 - 103.0 101.0 1,117.8 919.2

(0.3) (0.0) (0.0) (2.6) (34.5) (14.7) (125.9) (51.5)

- 25.5 - 25.8 - 32.1 72.4 - 65.6 - 80.4 95.2 99.5

(10.2) (0.0) (0.1) (0.2) (2.0) (- 12.6) (17.4) (68.4)

96.0 179.1 219.4 - 137.3 - 168.6 20.6 1,213.0 1,018.7

1.0 5.1 6.4 - 2.9 3.8 2.8

1,417.9 2,743.9 2,603.7 2,232.7 1,335.6 1,183.1 17,255.5 15,673.7

106.3 257.6 367.0 2,489.8 195.3 -3,685.3 8,748.8 2,845.8

(8.3) (1.2) (1.2) (1.4) (883.5) (157.5) (1,222.0) (626.7)

1,524.2 3,001.5 2,970.7 4,722.5 1,530.9 -2 502.2 26,004.3 18,519.5

462.9 1,181.9 1,089.8 2,909.3 1,188.4 1 177.0 16,309.3 11,117.9

624.0 829.1 917.2 653.9 1,015.5 - 596.9 6,428.7 3,426.7

1,086.9 2,011.0 2,007.0 3,563.2 2,203.9 580.1 22,738.0 14,544.6

27.0 155.7 152.8 111.9 42.0 44.7 974.3 974.4

(0.0) (7.1) (18.8) (6.4) (0.1) (2.6) (17.9) (37.7)

61.6 160.9 177.8 80.2 75.1 53.0 1,723.8 1,631.2

43.8 96.8 85.9 139.5 55.9 84.3 56.5 59.7

459.6 1,152.4 1,027.0 942.6 - 622.4 -2,042.6 5,316.2 3,903.2

1,564.2 3,418.0 3,312.8 4,762.1 1,550.8 -1,521.0 29,798.7 20,106.4

20.9 15.5 21.4 - 14.6 22.8 26.1

9.0 6.7 7.9 - 1.9 5.3 6.8

3,381 13,500 13,269 15,228 1,354 1,423 79,142 66,563

America Other Regions Consolidation Group1997/98 1998/99 1997/98 1998/99 1997/98 1998/99 1997/98

4,917.3 3,807.6 3,813.2 32,273.0 35,868.9

3,053.3 338.2 464.9 32,273.0 35,868.9

1,248.2 283.7 283.8 - 16.7 14.9 17,255.5 15,673.7

32.9 20.2 20.3 1.4 1.4 974.3 974.4

69.3 12.5 6.6 1,723.8 1,631.2

435.7 394.8 120.4 - 44.9 - 41.1 16,309.3 11,117.9

4,540 5,552 4,433 79,142 66,563

Development of Equity


Subscribed Capital Revenue of which Profit Equity attri- Minority Totalcapital reserves reserves difference available butable to interests equity

of currency for distri- sharehol-adjust- bution ders of

(DM million) ments Preussag AG

Balance 1 Oct 1998 764.3 1,575.5 763.8 (- 108.1) 230.0 3,333.6 569.6 3,903.2

Capital increase 76.3 1,074.2 0.0 (0.0) 0.0 1,150.5 0.0 1,150.5

Issued employee shares 1.3 9.7 0.0 (0.0) 0.0 11.0 0.0 11.0

Exercised warrants 22.6 146.9 0.0 (0.0) 0.0 169.5 0.0 169.5

Issued convertible bonds 0.0 18.5 0.0 (0.0) 0.0 18.5 0.0 18.5

Payment of dividends 0.0 0.0 0.0 (0.0) - 229.3 - 229.3 - 37.2 - 266.5

Changes due to capitaland dividend payments 100.2 1,249.3 0.0 (0.0) - 229.3 1,120.2 - 37.2 1,083.0

Differences due to changes in the consolidation 0.0 0.0 - 293.4 (- 1.5) 0.0 - 293.4 - 65.4 - 358.8

Currency adjustments 0.0 0.0 7.3 (7.3) 0.0 7.3 6.0 13.3

Changes withouteffect on results 0.0 0.0 - 286.1 (5.8) 0.0 - 286.1 - 59.4 - 345.5

Transfers to revenue reserves 0.0 0.0 299.0 (0.0) - 299.0 0.0 0.0 0.0

Group profit for the year 0.0 0.0 0.0 (0.0) 558.6 558.6 117.0 675.6

Balance 30 Sept 1999 864.5 2,824.8 776.7 (- 102.3) 260.3 4,726.3 590.0 5,316.3

Subscribed Capital Revenue of which Profit Equity attri- Minority Totalcapital reserves reserves difference available butable to interests equity

of currency for distri- sharehol-adjust- bution ders of

(DM million) ments Preussag AG

Balance 1 Oct 1997 762.9 1,567.9 1,201.9 (- 58.2) 184.3 3,717.0 323.2 4,040.2

Issued employee shares 1.4 7.4 0.0 (0.0) 0.0 8.8 0.0 8.8

Exercised warrants 0.0 0.2 0.0 (0.0) 0.0 0.2 0.0 0.2

Other capital payments 0.0 0.0 0.0 (0.0) 0.0 0.0 0.3 0.3

Payment of dividends 0.0 0.0 0.0 (0.0) - 183.1 - 183.1 - 18.1 - 201.2

Changes due to capitaland dividend payments 1.4 7.6 0.0 (0.0) - 183.1 - 174.1 - 17.8 - 191.9

Differences due to changes in consolidation 0.0 0.0 - 664.6 (0.9) 0.0 - 664.6 184.1 - 480.5

Currency adjustments 0.0 0.0 - 50.8 (- 50.8) 0.0 - 50.8 - 4.0 - 54.8

Changes withouteffect on results 0.0 0.0 - 715.4 (- 49.9) 0.0 - 715.4 180.1 - 535.3

Transfer to revenue reserves 0.0 0.0 277.3 (0.0) - 277.3 0.0 0.0 0.0

Group profit for the year 0.0 0.0 0.0 (0.0) 506.1 506.1 84.1 590.2

Balance 30 Sept 1998 764.3 1,575.5 763.8 (- 108.1) 230.0 3,333.6 569.6 3,903.2

� Development of Equity 1998/99

� Development of Equity 1997/98


Consolidated Cash Flow Statement

(DM million) Notes 1998/99 1997/98 Change

Group profit for the year 675.6 590.2 85.4

Depreciation (+)/additions (-) to fixed assets 1,171.0 1,098.0 73.0

Other non-cash expenditure (+)/earnings (-) - 115.5 - 250.6 135.1

Interest expenditure 363.4 330.7 32.7

Profit (-)/loss (+) from disposals of fixed assets - 224.3 - 425.0 200.7

Increase (-)/decrease (+) in inventories - 42.1 416.8 - 458.9

Increase (-)/decrease (+) in receivables and other current assets 537.5 - 114.9 652.4

Increase (+)/decrease (-) in provisions 311.1 - 87.0 398.1

Increase (+)/decrease (-) in liabilities (excl. liabilities to banks) - 1,548.1 *) 70.9 - 1,619.0

Cash flow from business activities (32) 1,128.6 1,629.1 - 500.5

Payments received from disposalsof tangible and intangible assets 345.3 565.3 - 220.0

Payments made (-) for/payments received (+) from disposals of financial assets (incl. disposals due to changes in consolidation) - 30.1 1,110.1 - 1,140.2

Payments made for investmentsin intangible and tangible assets - 1,648.5 - 1,372.2 - 276.3

Payments received (+) from/payments made (-) for investments infinancial assets (incl. additions due to changes in consolidation) 4,686.1 - 2,578.9 7,265.0

Cash flow from investment activities (33) 3,352.8 - 2,275.7 5,628.5

Payments received from capital increasesand allowances by shareholders 1,393.4 9.3 1,384.1

Dividend payments of

Preussag AG - 229.3 - 183.1 - 46.2

Subsidiaries to other shareholders - 31.7 - 49.8 18.1

Payments received from the issue of loansand the raising of financial liabilities 1,782.8 1,560.6 222.2

Payments made for redemption of bonds and financial liabilities - 2,081.1 - 901.1 - 1,180.0

Payments made for interests - 381.6 - 324.4 - 57.2

Cash flow from finance activities (34) 452.5 111.5 341.0

Change in funds with cash effects 4,933.9 - 535.1 5,469.0


Flow of Funds (35)

Funds at the beginning of the period 1,586.5 2,137.4

Change in funds due to exchange rate fluctuations and other change in value - 18.6 - 15.8

Change in funds with cash effects 4,933.9 - 535.1

Funds at the end of the period 6,501.8 1,586.5

*) Cf. specific explanatory information on the inclusion of the Thomas Cook Group note (32)

� Cash Flow Statement


Notes on the Principles and Methods

Notes on the principles and methods underlying the consolidated financial statements

� Accounting principles

The consolidated financial statements of Preussag AG were prepared in accor-

dance with the binding accounting rules of the International Accounting Stan-

dards Committee (IASC) – the International Accounting Standards (IAS) as well as

the interpretations of the Standing Interpretations Committee (SIC) – applicable

at the balance sheet date, on the basis of the historical cost principle. In addition

to the binding IAS applicable for the financial year, IAS 17 (revised 1997) ‘Leases’,

IAS 19 (revised 1998) ‘Employee Benefits’, IAS 28 (revised July 1998) ‘Accounting

for Investments in Associates’ and IAS 36 ‘Impairment of Assets’ were already

implemented on a voluntary basis before they became operative. All require-

ments of each of the standards applied were completely fulfilled and gave rise

to the presentation of a true and fair view of the net worth, financial position

and results of the Preussag Group. The accounting and valuation as well as the

explanatory information and disclosures concerning the IAS consolidated finan-

cial statements for the financial year 1997/98 complied with the same rules and

principles as those applied in the financial year 1998/99.

The requirements of section 292a of the German Commercial Code (HGB) for an

exemption from the duty to prepare consolidated financial statements in accor-

dance with German accounting standards were met. According to the interpre-

tation of the Contact Committee of the European Commission, the consolidated

financial statements were in particular consistent with the European Community

Directive on Consolidated Financial Accounting (Directive 83/349/EC). In order to

ensure the equivalence with consolidated financial statements prepared under

the rules of the commercial law, the commercial-law disclosures and explanato-

ry information extending beyond the range of the IASC rules were presented in

their entirety. Hence, the Preussag Group has met the conditions for exemption

from the duty to prepare consolidated financial statements based on commer-

cial law.

The financial year of Preussag AG and its main subsidiaries covers the period

from 1 October of any year to 30 September of the subsequent year. The Execu-

tive Board of Preussag AG, registered by the commercial registers of the district

courts of Berlin-Charlottenburg and Hanover, is based in Hanover, Karl-Wiechert-

Allee 4.


� Effects and method of reconciliation to accounting records in accordance with the IASC rules

The application of the IAS led to the following main deviations from the com-

mercial-law accounting and valuation methods hitherto applied to the consoli-

dated financial statements as of 1 October 1997:

• Capitalisation and scheduled amortisation with an effect on results of good-

will from the acquisition of consolidated subsidiaries in the financial years

1995/96 and 1996/97, subject to compulsory reporting according to SIC 8;

• Recognition of leased tangible assets and of the resulting liabilities when the

commercial ownership in the tangible assets was attributable to the Preussag

Group in accordance with IAS 17;

• Retroactive conversion of scheduled depreciation of tangible assets as per the

date of acquisition or manufacturing from the declining balance method

hitherto applied to depreciation on a straight-line basis and from useful lives

largely determined by tax considerations to economic useful lives uniformly

applied throughout the Group;

• Reporting of the earnings and costs of orders according to completion stage

(Percentage of Completion Method) for construction contracts and services;

• Recognition of assets and liabilities from future income tax benefits or obliga-

tions in accordance with the liability method, applying the tax rates relevant

to the future distribution;

• Recognition of income tax savings from losses carried forward assessed as

realisable for the future;

• Reporting of corporate tax savings or charges that will occur in the event of

the future distribution of profits retained by German companies in previous

years;

• Valuation of the pension liabilities using the Projected Unit Credit Method on

the basis of future increases in salaries and pensions as well as other actuarial

assumptions;

• Recognition of provisions only to the extent to which liabilities to third parties

exist.

The first-time application of the IASC rules complied with the SIC 8 interpreta-

tion. Accordingly, the adjustment of the accounting and valuation methods to

IAS rules as per 1 October 1997 was carried out with no effect on results to the

benefit or at the expense of revenue reserves, as if the financial statements had

always been prepared in accordance with the IASC rules.



The first time application of the International Accounting Standards led to the fol-

lowing changes in equity as per 1 October 1997 compared to the Preussag Group’s

equity in the commercial balance sheet as per 30 September 1997 (DM million):

Shareholders’ equity according to commercial balance sheet as per 30 September 1997 3,135.1

Difference due to

Valuation of depreciable tangible assets on the basis of depreciation on a straight-line basis and unified economic lives applied throughout the Group + 1,834.0

Reporting of earnings and costs of orders by completion stage + 270.6

Valuation of the pension liabilities using the projected unit credit method and actuarial biometric assumptions - 358.0

Elimination of other provisions without liabilities to third parties + 173.9

Other accounting and valuation differences - 91.6

Tax effect on above differences due to IAS accounting and valuation *) - 22.2

Valuation of anticipated tax benefits from losses carried forward and of future decreases or increases in the tax burden in the event of the distribution of retained profits - 70.0

Total amount of accounting and valuation differences as per 1 October 1997 1,736.7

Capitalisation of goodwill from the acquisition of consolidated subsidiaries in the financial years 1995/96 and 1996/97 + 354.8

Reduction in goodwill for consolidated subsidiaries resulting from the change in the shareholders‘ equity of these subsidiaries caused by the IAS accounting and valuation differences - 1,186.4

Shareholders‘ equity on the basis of the IASC rules as per 1 October 1997 4,040.2

*) excl. deferred taxes at the date of acquisition of German subsidiaries

� Principles and methods of consolidation

The consolidated financial statements included all essential companies in which

Preussag AG was directly or indirectly able to govern the financial and operating

policies so as to obtain benefits for the Preussag Group companies from the

activity of these companies (subsidiaries). These companies were included in the

consolidated financial statements as from the date on which control was trans-

ferred to the Preussag Group. When the Preussag Group ceased to have this con-

trol, the corresponding companies left the consolidation.

All consolidated subsidiaries were included as per 30 September of any one year

with their annual/consolidated or interim financial statements prepared on the

basis of uniform accounting, valuation and consolidation methods, provided

with an audit certificate.

Even when taken together, the subsidiaries not included in the consolidated

financial statements were not significant for the presentation of a true and fair

view of the net worth, financial position and results of the Group. As a matter of

principle, shares in Group companies not included in the consolidation were

valued at cost of acquisition.


In the consolidated financial statements, shareholdings in companies in which

the Preussag Group was able to exert a significant influence over the financial

and operating decisions of these companies were valued at equity. Apart from

that, subsidiaries not included in the consolidation were also valued at equity in

individual cases in order to provide a comprehensive and up-to-date presenta-

tion of the results. The determination of the dates for the inclusion in and

removal from the group of companies valued at equity was analogous to the

principles applying to subsidiaries.

As a matter of principle, equity valuation was based on the respective last audit-

ed annual or consolidated financial statements; the financial statements did not

date back more than 12 months in any case.

Joint ventures were not included on the basis of proportionate consolidation but

valued at equity.

Information on the main indirect and direct subsidiaries and participations of

Preussag AG is listed in a separate annex to the notes. A complete list of share-

holdings has been deposited with the commercial registers of the district courts

of Berlin-Charlottenburg (HRB 321) and Hanover (HRB 6580); publication is dis-

pensed with if it might entail a considerable disadvantage for the Preussag

Group.

Basis of consolidation in the financial year 1997/98

In 1997/98, the consolidated financial statements included a total of 163 domes-

tic and 197 foreign subsidiaries apart from Preussag AG.

99 domestic and 168 foreign subsidiaries were not included in the consolidated


Breakdown and development of the group of consolidated companies*) and the

group of companies valued at equity in the financial year 1997/98:

Balance Additions Disposals Balance 30 Sept 1997 30 Sept 1998

Consolidated subsidiaries 215 182 37 360

of which in Germany 107 82 26 163

of which abroad 108 100 11 197

Companies valued at equity 18 51 4 65



*) excl. Preussag AG



Out of the additions to the group of consolidated companies, 155 subsidiaries

resulted from the acquisition of the Hapag-Lloyd and the TUI Group; another 9

companies were added from a Canadian Group operating in the energy sector.

Another 18 companies were included in the consolidation for the first time fol-

lowing the acquisition of shares, the establishment of hiving off of companies

and the start-up or expansion of business activities.

The cost of acquisition of the 99.58% share in the Hapag-Lloyd Group totalled

DM 2,796.3 million. The Hapag-Lloyd Group, which already held a 30% interest in

TUI Touristik Union International GmbH & Co. KG at the date of acquisition,

increased that stake by 20.1% to 50.1% in the course of the financial year 1997/98.

The cost of acquisition of that transaction totalled DM 502.5 million.

The profit and loss statement as well as the cash flow statement of the Hapag-

Lloyd Group was included in Preussag’s consolidated financial statements with

12 months, those of the TUI Group with 11 months.

The consolidation of the Hapag-Lloyd Group and the TUI Group gave rise to the

following major effects on the balance sheet and on the profit and loss state-

ment of the Preussag Group, excluding the cost of finance related to the acquisi-

tion of the Hapag-Llyod Group and the TUI Group and before amortisation of

goodwill:

prior to after Changeconsolidation of the Hapag-

(DM million) Lloyd Group and the TUI Group

Balance sheet as per 30 Sept 1998

Tangible assets 5,117.3 8,668.0 + 3,550.7

Current assets (excl. assets from future tax benefits) 6,233.7 8,382.0 + 2,148.3

Shareholders‘ equity 3,426.7 3,903.2 + 476.5

Provisions 6,137.3 7,733.9 + 1,596.6

Liabilities 5,747.2 8,377.0 + 2,629.8

Profit and loss statement 1997/98

Turnover 22,897.6 35,868.9 + 12,971.3

Cost of materials 15,413.8 24,599.7 + 9,185.9

Other operating expenses 3,331.5 5,440.3 + 2,108.8

Result from associated companies - 6.8 + 68.4 + 75.2

Result by divisions + 490.5 + 1,018.7 + 528.2

20 companies from former steel activities plus another 6 companies were

removed from consolidation following the sale of shares. The sale of the shares

in the companies from former steel activities and the associated real estate and

buildings produced a selling price of a total of DM 1,080.5 million. The other


eleven disposals mainly affected companies which had restricted their operat-

ing activities or were merged with other consolidated companies.

Apart from 55 shareholdings, ten subsidiaries were valued at equity as per

30 September 1998. Of the total of 51 companies valued at equity for the first

time, 45 associated companies were part of the TUI Group and four companies

were part of a Canadian group operating in the energy sector. The first-time con-

solidation of the TUI Group gave rise to an increase in shares in associated com-

panies of DM 321.2 million with no effect on results and of DM 75.2 million affect-

ing results, in particular because of the inclusion of proportionate annual results.

Removals from consolidation concerned three domestic and one foreign compa-

ny, following the sale of the subsidiary holding the participation.

Basis of consolidation in the financial year 1998/99

Following major acquisition and sale transactions, the group of consolidated

subisidiaries and the group of companies valued at equity changed substantially

in the financial year 1998/99 compared to the previous year.

In 1998/99, the consolidated financial statements included a total of 144 domes-

tic and 363 foreign subsidiaries apart from Preussag AG.

121 domestic and 139 foreign subsidiaries were not included in the consolidated


Breakdown and development of the group of consolidated companies*) and the

group of companies valued at equity in the financial year 1998/99:

Balance Additions Disposals Balance30 Sept 1998 30 Sept 1999

Consolidated subsidiaries 360 212 65 507



Companies valued at equity 65 31 21 75



*) excl. Preussag AG



Out of the additions to consolidation, 157 subsidiaries alone were attributable to

the acquisition of the Thomas Cook Holdings Group. In December 1998, Preussag

AG initially bought a 24.9% share in Thomas Cook Group Ltd. With effect from

1 January 1999, the activities of the Thomas Cook Group Ltd. and those of the

Carlson Leisure Group (UK) Ltd. were transferred to the Thomas Cook Group

Holdings Ltd. Of this newly established company Preussag AG held a 19.4%

share because of the contribution of the Carlson Leisure Group (UK) Ltd. As per

1 July 1999, this participation was increased to a 50.1% majority, creating the

power of control. The acquisition costs for the purchase of the Thomas Cook

Holdings Group totalled DM 826.2 million.

Further additions to consolidation were attributable to the acquisition of First

Reisebüro Management GmbH & Co KG (three companies) with commercial

effect from 31 December 1998, the takeover of the majority holding in L’tur

tourismus AG (three companies) at the end of December 1998, and the first-time

inclusion of the JetAir N.V. tour operator (seven companies) and the Portuguese

incoming agency Miltours S.A. (three companies). Moreover, the Spanish hotel

participation RIUSA II S.A., valued at equity in the financial year 1997/98, was

included in the consolidated financial statements for the first time because of

the factual commercial control exercised by TUI Group GmbH (previously Hapag

Touristik Union GmbH) since the financial year 1998/99.

Another three companies were newly included in the consolidation in the wake

of the takeover of all shares in a British Group operating in the energy sector

and the acquisition of two Turkish companies in the building engineering sector.

In the logistics sector, the additions to consolidation particularly concerned one

domestic company operating in inland waterway shipping and one Dutch tank

wagon forwarding company.

The inclusion of the profit and loss statement and the cash flow statement of

the Thomas Cook Holdings Group was effective as from 1 July 1999 and of the

group of First travel agencies as from 1 January 1999.

The consolidation of the Thomas Cook Holdings Group gave rise to the following

major effects on the balance sheet and on the profit and loss statement of the

Preussag Group, excluding the cost of finance related to the acquisition and

before amortisation of goodwill:


prior to after Changeconsolidation of the Hapag-

(DM million) Lloyd Group and the TUI Group

Balance sheet as per 30 Sept 1999

Tangible assets 9,004.9 9,547.4 + 542.5

Current assets (excl. assets from future tax benefits) 6,670.9 13,871.0 + 7,200.1

Provisions 5,880.1 6,745.9 + 865.8

Liabilities 10,385.0 17,399.6 + 7,014.6

Profit and loss statement 1998/99

Turnover 30,446.7 32,273.0 + 1,826.3

Other operating expenses 5,274.1 6,136.2 + 862.1

Financial result 51.7 95.2 + 43.5

The differences resulting from the other additions to the basis of consolidation

accounted for almost one percent of Group turnover and about 3.5% of the bal-

ance sheet total. In case of significant material increases in individual assets and

liabilities, the additions were separately outlined in the notes on the respective

balance sheet item.

The strategic realignment from production-intensive operating activities to a

stronger services orientation of the Group naturally led to considerable changes

in the level and composition of individual balance sheet items and income and

expense items.

The Preussag Group withdrew from the following sectors in the financial year

1998/99:

The shares in Preussag Noell GmbH and Preussag Wasser und Rohrtechnik

GmbH as well as 25% of the shares in Howaldtswerke-Deutsche Werft AG

(HDW) were transferred to Babcock Borsig AG as a non-cash contribution in

return for shares. In return, Preussag AG received almost a third of the shares in

Babcock Borsig AG. Moreover, the sale of another 25% plus one share in HDW to

Babcock Borsig AG was agreed in return for a cash-payment. Furthermore, all

shares in the Pipetronix Group were sold to a British company.

With these disposals, Preussag AG withdrew entirely from its previous plant

engineering and shipbuilding sector at the beginning of the financial year

1998/99. In the financial year 1997/98, this sector generated a segment operat-

ing result (before taxes on income) of DM -209.7 million at a turnover with third

parties of DM 4,637.3 million. The disposal of plant engineering and shipbuilding

led to a loss (after taxes on income) of DM 38.2 million for the Preussag Group in

the financial year 1998/99. Following the withdrawal from plant engineering

80 Finacial Statements 1998/99


and shipbuilding, a total of 35 companies, comprising 20 German and 15 foreign

companies, were removed from the consolidation. Since Preussag AG continued

to hold 49,99% of the shares in HDW and hence exert a material influence, the

companies of the HDW Group were valued at equity as per 30 September 1999.

The differences resulting from the withdrawal from plant engineering and ship-

building are presented under segment reporting on pages 84 to 85 and account-

ed for approx. 10 to 30 % for all major items of the previous year’s balance sheet

and profit and loss statement, unless stated otherwise for the individual items.

On 19 January 2000 the European Commission approved the sale of 25% of the

shares plus one share in HDW to the Swedish Celsius Group. Consequently, the

concluded agreements became effective as from 1 October 1999 and were

implemented on 21 January 2000. Accordingly, Preussag AG held a participation

of 25% less two shares in HDW at the beginning of the financial year 1999/2000.

With effect from 1 January 1999, Preussag Anthrazit GmbH was sold to RAG

Aktiengesellschaft. With this sale, Preussag withdrew from the coal mining sec-

tor. In the financial year 1997/98 Preussag Anthrazit GmbH generated a segment

operating result (before taxes on income) of DM -16.1 million at a turnover with

third parties of DM 458.2 million. Following the removal from the consolidation,

a loss (after taxes on income) of DM 11.3 million was generated for the Preussag

Group.

At the beginning of the financial year 1998/99, the 50.2% majority interest in

Deilmann-Haniel GmbH, a group of companies focusing on special mining activ-

ities, was sold to the Heitkamp Group.

For the financial year 1997/98, the Deilmann-Haniel Group generated a segment

operating result (before income tax) of DM + 14.0 million at a turnover with

third parties of DM 652.7 million. The sale of the Deilmann-Haniel Group led to a

gain on sale (before income tax) of DM 22.8 million. With the disposal of the

Deilmann-Haniel Group, a total of 16 German and foreign subsidiaries left the

consolidation.

Apart from 52 shareholdings, 23 subsidiaries were valued at equity as per

30 September 1999. 14 associated companies and 17 companies in which share-

holdings were held were valued at equity for the first time. The companies of

the HDW Group were included in the equity valuation for the first time on the

basis of their consolidated financial statements. Another 26 companies in the

tourism division were valued at equity for the first time, mainly on the basis of

the purchase of shares and the establishment of new companies. Due to the

addition of the Babcock Borsig Group, the book value of the companies valued at


equity was increased by the total of acquisition costs of DM 409.9 million. The

audited and approved consolidated financial statements of Babcock Borsig AG

as per 30 September 1999, presenting the main differences in the financial posi-

tion and results associated with the major acquisition transactions carried out

in 1998/99, had not been submitted by the date of termination of the prepara-

tion and auditing of Preussag‘s consolidated financial statements.

Five German and nine foreign companies left the equity valuation, in particular

due to the sale of the subsidiaries holding the participation. Moreover, seven

companies previously included on the basis of the equity method were fully

consolidated for the first time, primarily because of the power of control

obtained in the financial year 1998/99.

Foreign currency translation

The financial statements of the foreign subsidiaries were translated according

to the functional currency concept. As all companies operate predominantly

independently in financial, economic and organisational terms, the respective

functional currency corresponds to the currency of the country of incorporation

or residence of the company. Assets and liabilities as well as balance sheet notes

were translated at the mean exchange rate applicable at the balance sheet date

(closing rate); the items of the profit and loss statement and hence the profit for

the year shown in the profit and loss statement were translated at the annual

average rate.

For five Turkish and one Venezuelan subsidiary, operating in hyperinflationary

economies, the translation of the income and expense items corresponding to

the changed purchasing power conditions, including the result for the year, was

effected at the respective closing rate. Prior to translation at the closing rate, the

carrying amounts of the non-monetary balance sheet items of these companies

were adjusted to the changes in prices emerged in the financial year on the

basis of appropriate indices to measure the purchasing power. The purchasing

power gains or losses resulting from the indexing were recognised as interest

income or expenses in the income statement.

Goodwill arising from the capital consolidation of foreign subsidiaries was –

translated at historical rates – carried at cost and amortised.

The translation of the financial statements of foreign companies valued at equity

followed the same principles as those used for fully consolidated companies.



All differences resulting from the translation of the financial statements of for-

eign subsidiaries were carried with no effect on results and separately shown

under revenue reserves. These currency differences were recognised as income or

expense in the year in which foreign subsidiaries leave the consolidation. The

exchange rates of the currencies with a relevance for the translation of financial

statements of subsidiaries of the Preussag Group changed as follows compared

to the previous year:

Closing rate Average rate (DM) 30 Sept 1999 30 Sept 1998 1998/99 1997/98

1 Pound Sterling 3.02 2.84 2.90 2.95

1 US Dollar 1.83 1.68 1.78 1.78

1 Canadian Dollar 1.25 1.10 1.19 1.23

1 Australian Dollar 1.20 0.99 1.14 1.15

100 Swiss Francs 122.48 120.84 122.24 121.49

100 French Francs 29.82 29.82 29.82 29.84

100 Spanish Pesetas 1.18 1.18 1.18 1.18

100 Dutch Guilders 88.75 88.68 88.74 88.73

Consolidation methods

Capital consolidation was effected by offsetting the acquisition cost of the par-

ticipation against the interest in net equity at the date of acquisition, after

determining the fair values of the assets and liabilities of the subsidiary. Debit

differences resulting from this method were capitalised as goodwill and amor-

tised systematically with an effect on results for all purchases of companies

effected since 1 October 1995; debit differences from subsidiaries purchased

before that date continued to be offset against revenue reserves. As a matter of

principle, credit differences from capital consolidation were transferred to provi-

sions and systematically released in accordance with the development of the

results of the companies. No deferred taxes were recognised for the differences

over the tax balance sheet resulting from the accounting adjustment and deter-

mining of fair values of German companies, since these differences will definite-

ly not give rise to any tax effect for the Preussag Group due to the particularities

of the German corporate tax crediting system.

In the wake of the removal from consolidation with an effect on results, the

results generated by the subsidiaries during the period of inclusion in the Group

results were adjusted to the results in the individual financial statements of the

parent company. In the case of a disposal of goodwill acquired before 1 October

1995 in companies leaving the consolidation, the offsetting against revenue

reserves with no effect on results effected in the past was annulled. Minority

interests in the net assets of the subsidiary leaving the consolidation did not

affect the profit from the removal from consolidation and were therefore

disposed of with no effect on profits.


As a matter of principle, the essential associated companies in the Group and a

number of individual non-consolidated subsidiaries were valued at equity as per

the date of acquisition and shown under shares in associated companies in the

development of fixed assets. Concerning the treatment of remaining differ-

ences, the principle applied in capital consolidation was also applied to the com-

panies valued at equity, with goodwill reported in equity valuation. The share of

these companies in the results for the year including amortisation of goodwill

was shown under the Group’s results from shareholdings. Differing consolida-

tion and valuation methods in the individual or consolidated financial state-

ments of associated companies underlying the equity valuation were retained

unless they were fundamentally incompatible with the IASC‘s accounting rules

or unless the necessary information for uniform accounting or revaluation was

not known or not available.

Intragroup receivables and liabilities or provisions were offset. If the conditions

for a consolidation of third-party liabilities were met, this consolidation method

was applied.

Internal turnover and other intercompany income as well as the corresponding

expenses were eliminated unless they were to be shown as changes in stocks or

own work capitalised. Intercompany profits from intra-group deliveries or ser-

vices – unless they were immaterial – were eliminated with effect on results,

with deferred taxes taken into account. Intercompany losses were eliminated

unless the future benefit flowing from the assets was exceeded. Intragroup

deliveries and services were usually provided in conformity with market condi-

tions. Intercompany profits from deliveries to and from companies valued at

equity were eliminated on the basis of the same principles when the corre-

sponding facts were known.

� Accounting and valuation principles

The financial statements of the subsidiaries included in the Preussag Group

were prepared in accordance with uniform accounting and valuation principles.

The valuation in the consolidated financial statements was not determined by

tax regulations but solely by the commercial presentation of the net worth and

financial position as set up by the rules of the IASC.

As a matter of principle, turnover and other operating income was reported

upon rendering of the service or delivery of the assets and hence upon transfer

of the risk. For construction contracts and services, the turnover was recognised

in accordance with the percentage of completion.



As a rule, dividends were reported when the legal claim had arisen. Interest

income and expenses were reported for the proportionate period of time.

The cost of funds arising in conjunction with the issue of shares, conversion

options or warrants were offset against the capital reserves provided for the

issuance with no effect on results.

Assets were capitalised when all material opportunities and risks related to the

ownership were attributable to the Preussag Group. The valuation of assets was

effected at acquisition or manufacturing costs. The cost of finance was not

capitalised.

Receivables and other current assets were reported at their respective principal

value or at their net present value, if lower. Concerning these items, all identifi-

able individual risks and the general credit risk supported by empirical informa-

tion were accounted for by means of an appropriate value discounts. In the indi-

vidual financial statements, hedged foreign currency receivables and liabilities

were valued at the rate of exchange at the forward hedging transaction date.

Unhedged currency items were valued at the closing rate. The currency differ-

ences resulting from the translation of unhedged foreign currency receivables

and liabilities were reported under cost of materials when they had arisen in the

wake of normal operating processes, or under other operating expenses and

income when they were attributable to other facts.

Derivative financial instruments were combined with the associated transac-

tions to form valuation units and did not have an impact on the results for the

year in this scope. When in exceptional cases the agreed payments from the

concluded hedging transactions exceeded the income or expenses resulting

from the operating activities at financial year-end, future losses were anticipat-

ed as per the balance sheet date; anticipated profits were not taken into

account. Option premiums paid for the hedging of current operating activities

were capitalised and were charged to expenses as per the date or time of exer-

cise or use – by the time of expiry at the latest.

The results from price hedging instruments for airline fuel were shown under

cost of materials upon maturity.

Provisions were formed for third-party contingencies the occurrence of which

would probably lead to a future outflow of resources. They were carried at the

anticipated settlement amount, taking into account all related identifiable risks,

and were not offset against indemnification claims. Pension provisions were

valued using the Projected Unit Credit Method in accordance with IAS 19

(revised 1998).


As a rule, liabilities were carried at the repayable amounts. In the issue of finan-

cial instruments comprising both a liability and an equity element in the form of

conversion options or warrants, the financial resources received for the respec-

tive component were reported in accordance with their character. In this regard,

the loan was reported at the value which would have been achieved by the issue

of this liability without the equity element on the basis of current market condi-

tions. Consequently, the amount transferred to capital reserves – with deferred

taxes taken into account – corresponded to the fair value of the conversion

options or warrants at the date of issuance.

In accordance with IAS 12 (revised 1996), the accounting and valuation of deferred

taxes followed the liability method on the basis of the tax rate applicable at the

date of realisation. Apart from the expected tax benefits relating to losses car-

ried forward, deferred taxes were reported for increases or decreases in corpora-

tion tax in the event of the distribution of the profits retained by German com-

panies.

The preparation of the consolidated financial statements was based on a num-

ber of assumptions and estimates which had an effect on the value and presen-

tation of the reported assets and liabilities, income and expenses as well as con-

tingent liabilities. The assumptions and estimates mainly related to the fixing of

uniform economic lives, the valuation of construction contracts, the accounting

and valuation of provisions and the realisability of future tax savings. The actual

values may deviate from the assumptions and estimates made in individual cas-

es. The effects of changes were included in income statements by the time new

information was available .

� Notes on the accounting and valuation methods deviating from German law

In accordance with SIC 8, the first-time application of accounting and valuation

policies on the basis of the IASC rules was carried out as if these rules had

always been applied. The effect of this adjustment on shareholders‘ equity was

transferred to revenue reserves with no effect on results. Due to this conversion

method, the valuation in the balance sheet as per 1 October 1997 was not identi-

cal with that of the consolidated financial statements as per 30 September 1997

pursuant to commercial law.

In accordance with IAS 12, the accounting and valuation of deferred taxes follow-

ed the liability method rather than the German Commercial Code. Tax savings

from future losses carried forward assessed as realisable were carried in the bal-

ance sheet, as were future tax savings and charges resulting in the case of divi-

dend payments from the profits retained by German companies in previous

years.



In the case of construction contracts and services, revenues and profits were

realised in accordance with completion stage. Under commercial law, profits

were realized at the time of completion and acceptance or upon completion of

contract.

Whereas liabilities were carried at the repayable amounts under commercial

law, the funds flown in from the issue of the conversion option and the convert-

ible bond were valued at fair value in accordance with IASC rules. Unlike under

commercial law, the costs arising in conjunction with the issue of shares and

subscription rights were treated with no effect on profits.

Furthermore, in contrast to German law, self-constructed assets were recog-

nised, long-term unhedged foreign exchange receivables and liabilities existing

outside ordinary business activities were valued at the mean rate at the balance

sheet date, and no provisions for omitted maintenance activities to be caught

up within three months were formed.

� Notes on the segments

Explanations on the segments

The segmentation of the Preussag Group into four divisions with a total of five

sectors reflected the Group’s internal control and reporting structure. In the

financial years 1997/98 and 1998/99, the strategic realignment of the Group

was driven ahead, with the change effected above all in 1997/98.

In segment reporting, the business activities of the Preussag Group are attrib-

uted to the divisions in line with the new Group structure: tourism, logistics,

energy and commodities and building engineering. The sole criterion for the

classification of the individual groups of companies was their economic affilia-

tion to the divisions and sectors.

In the tourism division, the largest integrated tourism group in Europe was

created under the leadership of TUI Group GmbH. Its activities comprise all

value-added stages of the holiday tour business, distribution via travel agencies,

tour operation, transport based on company-owned airlines as well as care and

support at the holiday destination via incoming agencies and company-run

hotels. The segment data for the financial year 1998/99 cover the Thomas Cook

Holdings Group, included for the first time for the period from 1 July to 30 Sep-

tember 1999. Apart from the holiday tour business, the companies of the

Thomas Cook Holdings Group were also operative in global financial services,

above all by means of the world-wide sale of travellers cheques.


The logistics division, covering the companies of the Hapag-Lloyd Group, the

VTG-Lehnkering Group and the Algeco Group, provided transport services for

container shipping but also special transport and service activities for the chem-

ical industry and the mineral oil industry. This sector also focused on the hiring

out of mobile buildings and pallets.

The energy and commodities division comprises the energy and the trading sec-

tor. The range of services offered by the energy sector ranged from the explo-

ration and production of crude oil and natural gas, the construction and opera-

tion of underground storage facilities to the provision of services in the drilling

contractor business. The energy sector embraced the companies of the Preussag

Energie Group and the Deutag Group in the financial year 1998/99; in the previ-

ous year, it also included the companies of the Deilmann-Haniel Group and

Preussag Anthrazit.

The trading sector covered national and international trading in non-ferrous

metals and products for the steel processing industry. In addition, several com-

panies of the AMC Group produced tin as well as products for the oil, construc-

tion and ceramics industry. Apart from the AMC Group, the companies of the

W. & O. Bergmann Group and the US steel service companies formed the trading

sector.

The building engineering division was comprised of the companies of the Fels

Group, the Wolf Group and the Minimax Group as well as Kermi GmbH. The

activities of these companies focused on the production and distribution of

products for the building materials, heating engineering and fire protection

market.

Due to the changes in the Group structure, the companies of the plant engi-

neering and shipbuilding sector, disinvested in the financial year 1998/99, were

presented in a separate segment. Plant engineering activities focused on sys-

tems and mechanical engineering, energy and environmental engineering and

process engineering. Moreover, engineering, construction and servicing services

for pipeline and pipe production were offered. Shipbuilding focused on the pro-

duction of merchant and naval ships and ship components.

As Preussag AG, the holding company of the Preussag Group, did not exercise

any operative business itself, it was shown as a separate reporting unit in combi-

nation with other activities which were not allocatable to the individual sectors

and with consolidations of relationships between the segments under ‘others/

consolidation’.



Notes on the segment data

The definition of terms for the individual segment data corresponded to the

control basis for value-oriented management in the Preussag Group.

As a rule, inter-segment turnover was generated in line with customary market

conditions as applied in business with third parties.

The segment operating result was determined before amortisation of goodwill

and before consideration of the financial result.

Depreciation was only related to the segmental fixed assets and did not com-

prise any amortisation of goodwill from the acquisition of consolidated sub-

sidiaries.

The result of the companies valued at equity also included the amortisation of

the goodwill of these companies in order to provide an accurate presentation of

the results from investments of the sectors in the framework of the internal

control of the Group.

The segment assets and liabilities were comprised of the assets or liability

required for the operation, excluding interest-bearing assets and liabilities as

well as taxes.

Capital expenditure covered additions of tangible and intangible assets, exclud-

ing the goodwill arising from the acquisition of shares.

Interest-bearing assets and funds as well as interest-bearing liabilities were used

for the generation of the financial result and the funding of the operating and

investment activities.


Notes on the Consolidated Profit and Loss Statement

(1) Turnover

As a matter of principle, turnover was recognised when the service had been

rendered or the goods or merchandise had been delivered. For construction con-

tracts and services, the turnover was recognised in accordance with IAS 11 or IAS

18 on the basis of the completion stage (Percentage of Completion Method). In

this regard, the completion stage per contract was determined either by the

ratio of accrued costs to expected overall costs (Cost to Cost Method) or by the

physical completion stage of the construction process. For touristic services, the

completion stage was measured by the ratio of the length of the holiday already

spent at the holiday destination to the length of the entire trip. As a rule, for all

other services the beginning and the complete performance of the service fell

into the same accounting period. In accordance with the IASC rules, profits from

the Percentage of Completion Method were only realised when the outcome of

a construction contract or service could be estimated reliably. In estimating the

results of construction contracts and services, all identifiable risks were taken

into consideration.

In the reporting period, a total turnover of DM 19,832.4 million (previous year:

DM 20,600.9 million) was achieved with construction contracts and services.

The application of the Percentage of Completion Method compared to the Com-

pleted Contract Method applied under commercial law reduced total turnover

by DM 39.3 million (previous year: increase in turnover of DM 718.2 million). The

realisation of results according to completion stage led to a change in the pre-

tax results for the year of DM -2.2 million (previous year: DM + 64.3 million) com-

pared to the reporting of profits according to the Completed Contract Method.

The application of the Percentage of Completion Method gave rise to an increase

in receivables from construction contracts and services of DM 100.4 million (pre-

vious year: DM 591.1 million) to a total of DM 2,480.5 million (previous year: DM

2,658.5 million). Advance payments received from customers totalled DM 1,739.7

million (previous year: DM 5,010.6 million) prior to offsetting against receivables;

after the set-off, total advance payments received for construction contracts and

services were carried as DM 1,299.5 million (previous year: DM 1,912.5 million).

The decrease in turnover, the resulting profits and receivables and the advance

payments received from customers caused by the application of the Percentage

of Completion Method was essentially attributable to the sale of plant engi-

neering and shipbuilding.

Notes on the consolidated profit and loss statement



Group turnover by business activity

(DM million) 1998/99 1997/98

Touristic services 13,738.9 9,369.9

Customised construction contracts,services and production of goods 9,704.7 15,371.2

Trading in merchandise 7,918.3 10,303.8

Leasing and tenancy 870.7 809.0

Income from patent and licensing agreements and other income 40.4 15.0

Total 32,273.0 35,868.9

In the framework of segment reporting, consolidated turnover, broken down

into sectors and regions, is presented on pages 84 and 85.

(2) Change in stocks of goods and other own work capitalised

(DM million) 1998/99 1997/98

Reduction in stocks of finished goods and work in progress - 31.1 - 420.2

Other own work capitalised 113.6 95.6

Total + 82.5 - 324.6

The decreasing significance of changes in stocks for the income situation was

attributable to the Group’s increasing services orientation.

(3) Other operating income

(DM million) 1998/99 1997/98

Book profits from the sale of fixed assets and current assets 834.9 619.9

Release of provisions 352.6 720.2

Income from ongoing charging of costs 114.0 103.1

Income from leasing and tenancy contracts,licensing and patent agreements 51.4 67.3

Other income 701.2 631.8

Total 2,054.1 2,142.3

The income attributable to the withdrawal from sectors is explained under

other disclosures on the profit and loss statement. The reduction in income due

to the release of provisions was due to the removal of plant and shipbuilding

from the consolidation.


(4) Cost of materials

(DM million) 1998/99 1997/98

Cost of raw materials,consumables and supplies 9,036.6 12,757.7

Cost of purchased merchandise 12,672.0 11,842.0

of which for touristic services (8,305.8) (6,411.8)

Total 21,708.6 24,599.7

The cost of outside touristic services mainly consisted of hotel and transporta-

tion expenses.

(5) Personnel costs

(DM million) 1998/99 1997/98

Wages and salaries 3,627.7 4,534.9

Social security contributions,pension costs and benefits 845.0 1,218.1

of which pension costs (187.0) (276.1)

Total 4,472.7 5,753.0

Pension costs mainly embraced additions to the pension provisions. Interest costs

included in the additions to the pension provisions were shown in this item.

The decline in personnel costs mainly resulted from the disposal of the plant

engineering and shipbuilding companies, which were characterised by a higher

payload in comparison with the new Group structure.

Breakdown of pension costs for defined benefit pension plans:

(DM million) 1998/99 1997/98

Current service cost 41.5 117.7

Interest cost 91.2 129.0

Amortisation of the difference between actual pension obligation and pension provision in the balance sheet — 1.8

Expenses and income from release,reduction or lump-sum compensation of pension claims - 0.3 —

Total 132.4 248.5

The clear decrease in current service cost in the financial year was attributable

to the disposal of promised pension benefits for German employees with vested

rights to future pension payments from the plant engineering and shipbuilding

sector and from the Deilmann-Haniel Group. The remaining pension commit-

ments for the Preussag Group mainly related to current pensions for former

employees.



(6) Depreciation

(DM million) 1998/99 1997/98

Scheduled depreciation*)of intangible and tangible assets 956.4 936.7

Non-scheduled depreciation ofintangible and tangible assets 17.9 37.7

Total 974.3 974.4

*) excl. amortisation of goodwill from the acquisition of consolidated subsidiaries

Scheduled depreciation was based on the uniform economic lives, outlined on

pages 116 and 118.

Non-scheduled depreciation was effected when the recoverable amount that

will flow to the Group will be lower than the book value. The recoverable

amount corresponds to the higher of an asset’s net selling price and its value in

use. The value in use was determined on the basis of the present value of the

future payment flows attributable to the asset. In the financial year 1998/99,

non-scheduled depreciation mainly related to aircraft, technical plants and

buildings.

(7) Other operating expenses

(DM million) 1998/99 1997/98

Commissions for touristic services 1,341.3 1,011.9

Research and development, environmental protection and advertising expenses 700.2 304.5

Losses from the disposal of fixed assets and current assets 650.5 189.9

Contributions, charges, fees and consultancy expenses (as well as expenses fromfinancial and monetary transactions) 612.7 590.1

Administrative expenses 565.3 333.3

Leasing, rent and patent expenses 539.7 429.7

Outside services and non-operating material expenses 482.2 516.0

Creations of other provisions 403.4 670.7

Distribution costs 338.1 526.9

Other operating expenses 502.8 867.3

Total 6,136.2 5,440.3

The commissions for touristic services mainly comprised travel agency commis-

sions and commissions passed on from insurances to cover travel contract can-

cellation costs and rose in particular due to the first-time inclusion of the

Thomas Cook Holdings Group.


The losses resulting from the withdrawal from sectors were presented under

other disclosures concerning the profit and loss statement.

Following the same procedure as last year, utilisation of provisions created and

charged to other operating expenses is shown under the respective cost

account. The reversal of amounts left over from these provisions has been offset

against additions to provisions in the current year. In the previous year, the

expenses for additions to other provisions included significant amounts used to

create provisions for contract risks in plant engineering and shipbuilding.

(8) Financial result

(DM million) 1998/99 1997/98

Income from participations 86.6 161.0

of which from Group companies (7.4) (97.1)

Income from profit transfer agreements 183.5 18.3


Results from associated companies + 17.4 + 68.4

of which from Group companies (- 2.6) (- 4.6)

Expenses relating to loss taken over 7.9 3.1

of which to Group companies (0.0) (3.0)

Net income from investments + 279.6 + 244.6

Depreciation on investments and marketable securities 71.9 36.8

Income from other securities and loans comprised in investments 26.5 12.4


Other interest and similar income 224.4 210.0


Interest and similar expenses 363.4 330.7


Net interest - 112.5 - 108.3

Total + 95.2 + 99.5

The decrease in income from shareholdings mainly resulted from a dividend in

the logistics division recognised last year.

Income from profit transfer agreements included the transfer of profits and

losses of associated companies. The increase in income from profit transfer agree-

ments was mainly due to the profit transfer of HDW shown in 1998/99 for the

first time and the high profits from the sale of the uranium mining group

recognised in the financial year 1998/99.



The results from associated companies also included the amortisation of good-

will on the companies valued at equity. The decline in results were primarily

attributable to the disposal of the uranium mining group and the first-time con-

solidation of a Spanish hotel participation, valued at equity in the previous year.

Depreciation on investments and marketable securities include DM 54.5 million

(previous year: DM 32.1 million) of non-scheduled depreciation. The increase in

depreciation on investments was mainly related to the withdrawal from plant

engineering. Last year, depreciation on investment book values was mostly relat-

ed to distribution payments.

The indexing of the financial statements of foreign subsidiaries based in hyper-

inflationary economies led to the realisation of purchasing power gains total-

ling DM 14.1 million from the change in the purchasing power parities of these

countries; they were recorded under interest income and expenses.

(9) Amortisation of goodwill

Scheduled amortisation of goodwill from the acquisition of consolidated sub-

sidiaries was conducted over a period of 5 to a maximum of 20 years in the light

of the strategic importance of the acquisition of the company and a number of

other factors impacting the economic life. In the case of additions during the

financial year, the amortisation of goodwill was effected for a proportionate

period of time. The amortisation of goodwill from the acquisition of business

operations was included in the ‘depreciation’ item (cf. note 6).

Just as last year, no non-scheduled amortisation of goodwill was effected.

(10) Taxes

Breakdown of tax expenses

(DM million) 1998/99 1997/98

Current taxes on income

in Germany 346.0 210.5

abroad 96.3 75.2

Income from deferred taxes 148.5 3.4

Taxes on income 293.8 282.3

Other taxes 73.5 64.5

Total 367.3 346.8


Taxes on income mainly related to profits from ordinary activities after deduc-

tion of other taxes. Amortisation of goodwill only led to a reduction in tax

charges to the extent to which corresponding goodwill was also reported and

amortised for tax purposes in the wake of accrual or merger operations or sup-

plementary balance sheets prepared for trading partnerships. The German com-

panies of the Preussag Group had to pay an average trade tax of approx. 17% of

the taxable trading profit, which was deductible in the computation of the cor-

poration tax. The corporation tax rate for retained profits was 40% (previous

year: 45%), for distributed profits 30%, as before, plus a solidarity surcharge on

corporation tax of 5.5%, as last year. As in 1997/98, deferred taxes were calculat-

ed across the board at an average tax rate of 43% for German companies, based

on the corporation tax rate for distributed profits. The computation of foreign

taxes on income was based on the laws and regulations applicable in the re-

spective countries. The income tax rates applicable to foreign companies varied

from 22% to 50%.

In accordance with IAS 12 (revised 1996), the computation of deferred taxes

followed the liability method. Accordingly, expected future tax savings and

charges were reported for temporary differences between the book values

reported in the consolidated financial statements and the tax base of assets and

liabilities.

Tax savings from the use of losses carried forward which were assessed as real-

isable in the future were capitalised. Deferred tax claims and tax charges on tax-

related equity created under staggered corporation tax rates in Germany and

available for future distributions were recognised as assets or liabilities, respec-

tively, at the level of the difference over the distribution rate. The valuation of a

deferred tax asset for future tax savings took account of the probability of the

expected decrease in the tax burden. Deferred tax assets from a Norwegian

company and in the previous year also from an English company were not

reported, since the expected tax benefit will probably not be realisable.



The following deferred tax assets and liabilities reported in the balance sheet

were attributable to differences in the accounting and valuation of the individ-

ual balance sheet items:

30 Sept 1999 30 Sept 1998(DM million) Assets Liabilities Assets Liabilities

Intangible and tangible assets 584.9 760.7 646.8 860.0

Investments 19.7 2.9 2.7 8.4

Current assets 43.6 128.9 28.8 152.5

Pension provisions 148.2 1.2 188.8 0.9

Other provisions 142.8 97.2 125.9 159.3

Other items 124.6 779.4 126.1 825.9

Total 1,063.8 1,770.3 1,119.1 2,007.0

Breakdown of losses carried forward

(DM million) 30 Sept 1999 30 Sept 1998

German losses carried forward:

Corporation tax 186.8 320.3

Trade tax 354.0 248.1

Foreign losses carried forward 515.8 477.4

While domestic losses carried forward were not subject to any restrictions,

foreign losses carried forward frequently met with specific national timing re-

strictions and restrictions in the use of profits from ordinary activities, which

were taken into account accordingly in the valuation. Hence, losses carried for-

ward in the United States of America expire after 15 years; in the United King-

dom, losses from capital assets are not to be used for profits from ordinary busi-

ness activities. Potential tax savings totalling DM 93.0 million (previous year:

DM 139.8 million) were not capitalised since the benefit of the underlying losses

carried forward was probably not to be realised.

The use of losses carried forward for which no asset was reported for the poten-

tially resulting tax savings in previous years led to a reduction in the tax burden

of DM 5.6 million (previous year: DM 10.1 million) for the financial year 1998/99.


Development of capitalised tax savings from losses carried forward realisable

in the future:

(DM million) 1998/99 1997/98

Capitalised tax savings from losses at the beginning of the financial year 157.0 83.1

Changes in the basis of consolidation and exchange adjustment 22.7 52.1

Use of losses carried forward - 15.1 - 37.2

Value adjustment of capitalised tax savings from losses carried forward - 2.4 —

Capitalisation of tax savingsfrom losses carried forward 22.6 59.0

Capitalised tax savings from losses at financial year-end 184.8 157.0

The actual income tax expense of DM 293.8 million (previous year: DM 282.3 mil-

lion) was DM 123.1 million (previous year: DM 92.9 million) less than the expect-

ed income tax expense of DM 416.9 million (previous year: DM 375.2 million)

that would result if the domestic income tax rate were applied to the Group’s

annual results.

Reconciliation of expected to actual income tax expenses

(DM million) 1998/99 1997/98

Group profit for the year before taxes on income 969.4 872.5

Anticipated expenditure for taxes on income (tax rate 43%) 416.9 375.2

Difference between actual and anticipated tax rates - 71.9 - 19.7

Tax portion for:

tax-exempt income - 314.5 - 247.6

non-tax-deductible expenses 281.3 89.7

temporary differences and lossses for which no deferred taxes were recorded 9.1 43.0

tax expenses and income unrelated to accounting period - 60.7 - 21.5

other deviations 33.6 63.2

Actual expenditure for taxes on income 293.8 282.3

The difference between actual tax rates and the German tax rate (43%) was

mainly due to the fact that taxation of the results from merchant ship operation

did not depend on the level of profits and that lower tax rates were applied to

the results of foreign subsidiaries.



(11) Results attributable to minority interests

(DM million) 1998/99 1997/98

Profit due to minority interests 125.8 124.5

Loss attributable to minority interest - 8.8 - 40.4

Total 117.0 84.1

Annual results attributable to minority interests primarily related to interests in

several consolidated subsidiaries of the TUI GROUP in the tourism division as

well as in VTG-Lehnkering AG (previously Lehnkering AG) and Algeco S.A. in the

logistics division. The increase of results attributable to minority interests result-

ed from the first-time inclusion of the Thomas Cook Holdings Group.

(12) Earnings per share

In accordance with IAS 33, undiluted earnings per share were determined as the

ratio of the Group’s net profit for the year due to the shareholders of Preussag

AG to the weighted average number of no-par value shares*) outstanding during

the financial year.

A dilution of earnings per share occurs when the average number of shares is

increased by means of adding the issue of potential shares from the warrants

and conversion options issued by Preussag AG. As a rule, warrants and conver-

sion options have a dilutive effect on earnings if they lead to the issue of shares

at a price below the average stock market price of the share.

Number of shares for the computation of undiluted and diluted earnings

per share in accordance with IAS 33:

1998/99 1997/98

Weighted average number of shares 160,670,575 152,795,789

Number of non-exercised option rightswith dilution effect 4,991,339 3,300,848

Weighted average number of sharesupon consideration of the dilution effect 165,661,914 156,096,637

*) In the interests of comparability the number of shares for the financial year 1997/98 was adjusted to the number of shares resulting from the resolution adopted by the Annual General Meeting of 31 March 1999 to convert into no-par shares.

The dilution effect of non-exercised warrants was calculated on the basis of a

subscription price per share of DM 37.50 and an average share price of DM 87.95

in the financial year (previous year: DM 59.25). In 1998/99, the conversion options

did not additionally increase the dilution effect from warrants.


Earnings per share

1998/99 1997/98

Group profit for the year due to Preussag shareholders (DM million) 558.6 506.1

Undiluted earnings per share (DM) 3.48 3.31

Diluted earnings per share (DM) 3.37 3.24

� Further information on the consolidated profit and loss statement

In the Group, expenses of DM 1,012.3 million (previous year: DM 819.3 million)

were attributable to other financial years. On the other hand, the Group had an

income of DM 994.1 million (previous year: DM 880.4 million) from prior periods

including income tax benefits as a result of the profits from prior periods

amounting to DM 50.5 million (previous year: DM 101.7 million tax expense).

Both expenses and income were predominantly included in other operating

expenses or other operating income, respectively. In the financial year 1998/99,

the withdrawal from plant engineering and shipbuilding, coal mining and spe-

cial mining activities led to book profits or losses, respectively, totalling DM -23.2

million included in other operating income or expenses; in the previous year, the

discontinuation of sectors – in particular the sale of the steel activities and the

related real estate – generated total book profits of DM 335.0 million. In the

financial year 1998/99, the tax burden on profits resulting from the discontinua-

tion of sectors totalled DM 13.9 million (previous year: DM 134.2 million).

The overall research and development expenses of the Group totalled DM 31.3

million (previous year: DM 67.1 million) and – just as last year provided that the

basis for capitalisation did not exist – were mainly recognised as expenses in the

year in which they were incurred. The reduction observed in comparison with

the year 1997/98 was mainly attributable to the sale of plant engineering and

shipbuilding and the stronger services orientation of the Preussag Group.


Notes on the Consolidated Balance Sheet

(13) Goodwill

The development of capitalised goodwill from the acquisition of companies for

the financial year and the previous year is outlined under development of fixed

assets on pages 80/81 and 82/83 respectively.

Goodwill acquired since 1 October 1995 was capitalised and subjected to sched-

uled depreciation on a straight-line basis over the respective economic life. Debit

differences arising from the capital consolidation for companies purchased

before that date continued to be offset against revenue reserves in accordance

with SIC 8. The additions to goodwill in the financial year 1998/99 mainly result-

ed from the acquisition of the remaining shares in TUI and from the first-time

inclusion of the Thomas Cook Holdings Group and several other purchase trans-

actions in the tourism division.

(14) Other intangible assets

The development of the individual items of other intangible assets for the

financial year and the previous year is outlined under development of fixed

assets on pages 80/81 and 82/83 respectively.

Purchased other intangible assets were valued at their acquisition cost and sub-

jected to scheduled depreciation on a straight-line basis over their anticipated

economic life. Development costs and own work were capitalised when it was

probable that the costs would give rise to future economic benefits for the

Group and the costs could be measured reliably. The manufacturing cost of self-

constructed assets was determined on the basis of direct costs and appropriate

indirect costs and depreciation. The book value of development costs and self-

constructed assets totalled DM 34.0 million as per 30 September 1999 (previous

year: DM 18.6 million). The costs were depreciated in the same way as purchased

assets.

Economic lives of other intangible assets

Economic life

Concessions, industrial property rights and similar rights in principle up to 20 years

of which software up to 10 years

Capitalised development costs 3 - 5 years

Write-ups were effected when the reasons for non-scheduled depreciation

effected in previous years ceased to exist.

No material restraints on property or disposal existed.

Notes on the consolidated balance sheet


(15) Tangible assets

The development of the individual tangible asset items for the financial year

and the previous year is outlined under development of fixed assets on pages

80/81 and 82/83 respectively.

Breakdown of tangible assets at book values


Mineral rights, pits, mines and boreholes 267.4 276.3

Real estate and buildings 2,659.6 2,507.8

Machinery and fixtures 1,189.8 1,341.6

Transport vehicles and mobile buildings 4,130.3 3,656.0

Other plants and office equipment 977.1 536.1

Work in progress and payments on account 323.2 350.2

Total 9,547.4 8,668.0

Following removals from the consolidation, the increase in real estate and build-

ings was primarily attributable to the first-time inclusion of RIUSA II S.A. Conse-

quently, the net book value of the hotels increased from DM 89.4 million to DM

348.9 million.

Tangible assets were valued at acquisition or manufacturing cost, less scheduled

depreciation and – in individual cases – non-scheduled depreciation. Investment

grants received were shown as reductions in the acquisition and manufacturing

costs. When the reasons for non-scheduled depreciation effected in previous

years ceased to exist, corresponding write-ups were effected.

The manufacturing costs of own work capitalised were valued on the basis of

direct costs, appropriate indirect costs and depreciation. The cost of finance for

the manufacturing period was not included.

Tangible assets with a limited economic life were depreciated on the basis of

scheduled straight-line depreciation, unless a different depreciation method

was required in individual cases because of the actual development of the eco-

nomic life. For aircraft, residual values of up to 20% were taken into account in

the determination of depreciation, for ships and – in well-founded cases – for

technical plants and machinery, scrap values were carried as residual income.

Drillings were valued in accordance with the internationally customary ‚Success-

ful Effort Method‘, according to which only economically successful drillings are

capitalised and always depreciated on a straight-line basis or as a function of

production. Economically unsuccessful drillings and exploration drillings were

immediately recognised as expenses of the period.



Low-value assets (with acquisition or manufacturing costs of less than DM 800)

were written off in full in the year of acquisition and shown as disposals.

Scheduled depreciation was mainly based on the following economic lives:

Tangible assets Economic life

Buildings up to 50 years

of which hotels 25 years

Machinery and fixtures up to 40 years

of which tank farms up to 25 years

Ships and wagons up to 30 years

of which container ships 23 years

Aircraft and spare parts for aircraft up to 18 years

Plants and office equipment up to 10 years

The cost related to repairs or maintenance of tangible assets were recognised as

expenses. Replacement and renewal costs were recognised as subsequent man-

ufacturing costs when they led to an essential extension of the economic life or

a substantial improvement or a major change in the use of the tangible asset.

In accordance with IAS 17, leased tangible assets in which the Preussag Group

companies carried all the risks and rewards incident to ownership of the asset

(finance lease) were valued at the cost of acquisition that would have been

incurred if the asset had been purchased. Scheduled depreciation was effected

over the economic life or the lease term, if shorter, on the basis of the deprecia-

tion method applicable to comparable purchased or manufactured assets. The

payment obligations arising from future lease payments were carried as liabili-

ties, with no consideration of future interest expenses. In the framework of

finance leasing, tangible assets of a book value of DM 522.9 million (previous

year: DM 501.4 million) were reported at the balance sheet date, in particular for

buildings and transport vehicles.

At the balance sheet date, the book value of the tangible assets subject to own-

ership restraints totalled DM 144.6 million (previous year: 183.2 million), of which

DM 130.2 million (previous year: 39.7 million) were pledged as collateral.

In 1998/99, write-ups of DM 1.2 million were effected for tangible assets in the

Group, just as last year. The write-ups mainly affected real estate and buildings

and were recognised as other operating income.


(16) Investments

The development of the individual investment items for the financial year and

the previous year is outlined on pages 80/81 and 82/83 respectively.

Breakdown of investments


Shares 162.0 221.2

Loans 8.6 4.8

Group companies 170.6 226.0

Shares in companies valued at equity 1,222.0 626.7

Shares 279.1 144.7

Loans 14.1 35.6

Shareholdings 293.2 180.3

Securities 4.4 9.7

Other investments 104.4 91.5

Total 1,794.6 1,134.2

Shares in Group companies and shareholdings as well as other investments

were valued at the cost of acquisition or the lower fair value or market value.

Non-interest or low-interest loans were discounted to their present values, other

loans were reported at principal value. The interest rates for loans varied from

2.0% p.a. to 9.75% p.a., just as last year.

For companies valued at equity, proportionate changes in equity with an effect

on results were shown under additions and disposals, and amortisation of good-

will was carried under depreciation. Following the first-time equity valuation of

shares, goodwill in the financial year 1998/99 totalled DM 33.5 million (previous

year: DM 21.3 million). Despite the full consolidation of seven companies in the

tourism division that were valued at equity in the previous year, the book value

of shares in companies valued at equity rose due to the first-time equity valua-

tion of the HDW Group and of Babcock Borsig AG.

Write-ups of DM 35.2 million (previous year: DM 3.3 million) were effected for

investments. The write-ups on investments mainly affected shareholdings of

Preussag AG.

The book value of investments subject to ownership restraints totalled DM 31.5

million (previous year: DM 50.0 million).



(17) Inventories


Raw materials and supplies 321.3 421.2

Work in progress 217.0 388.4

Finished goods and merchandise 870.5 963.6

Advance payments made 339.0 540.8

1,747.8 2,314.0

./. Advance payments received 52.0 453.0

Total 1,695.8 1,861.0

Raw materials and supplies as well as merchandise were valued at the cost of

acquisition or the lower fair value.

Work in progress and finished goods were valued at the cost of manufacturing

or the lower fair value. Manufacturing costs included the direct cost of materials

and production, special direct production costs and production-related propor-

tions of the indirect cost of material and production; for foreign companies they

also included appropriate indirect cost surcharges. The cost of finance for the pro-

duction period, pension costs and voluntary social benefits were not included.

Individual value discounts were effected for all inventories when the income

probably to be realised from the sale or use of the stocks was lower than the

book value of the stocks. The lower fair value was based on the sales revenues

expected to be realisable less the costs to be incurred before the sale. When the

reasons leading to a devaluation of the inventories ceased to exist, a reinstate-

ment of original values was carried out. Of all the inventories, DM 160.5 million

(previous year: DM 176.5 million) were carried at fair value. In the Group, no sig-

nificant write-ups of stocks were recognised, just as last year.

Coal inventories were carried at manufacturing cost or the lower fair value deter-

mined in accordance with the guidelines set up by the Federation of Mining

Companies in the Ruhr Area. In the financial year 1998/99, no coal inventories

were included in the consolidated financial statements due to the disposal of

Preussag Anthrazit.

Advance payments received were deducted from inventories when they were

attributable to specific construction contracts with a low contract value in indi-

vidual cases.

As a matter of principle, like inventory items were dealt with on the basis of the

LIFO method. Apart from that, inventories were valued on the basis of the


average valuation method. For inventories valued on the basis of the LIFO

method, the difference, primarily in comparison with average valuation, was

DM 33.6 million (previous year: DM 75.7 million).

(18) Trade accounts receivable


from third parties 3,602.9 3,614.9

from Group companies 54.6 63.7

from companies in which shareholdings are held 34.6 145.8

3,692.1 3,824.4

Trade accounts receivable included a total of DM 5.8 million (previous year:

DM 261.3 million) for receivables with a remaining term of more than one year.

Appropriate value discounts were effected for all identifiable single risks, the

general credit risk supported by empirical values and for special country risks.

(19) Other receivables and assets

30 Sept 1999 30 Sept 1999 30 Sept 1998 30 Sept 1998Remaining Remainingterm more term more

(DM million) than 1 year Total Total than 1 year

Other receivables from Group companies 5.4 47.1 85.4 1.0

from loans (5.4) (30.4) (65.4) (0.9)

other receivables (—) (16.7) (20.0) (0.1)

Other receivables from companies in whichshareholdings are held 7.0 356.3 50.0 9.8

from loans (—) (305.9) (1.2) (—)

other receivables (7.0) (50.4) (48.8) (9.8)

Other receivables 12.4 403.4 135.4 10.8

Income tax refund claims — 7.9 8.0 6.5

Interest deferral 7.0 88.8 31.9 —

Receivables from loansto third parties 1.4 17.6 26.2 9.8

Receivables from members of the boards 0.5 1.8 0.7 0.3

Other current assets 336.0 1,461.8 907.9 174.2

Other current assets 344.9 1,577.9 974.7 190.8

Total 357.3 1,981.3 1,110.1 201.6

Just as last year, no material restraints on ownership or disposal existed for

other receivables and assets reported in the financial statements.



(20) Assets from future tax benefits

Assets from future tax benefits comprised deferred tax assets from temporary

differences between the accounting values carried in the consolidated balance

sheet and taxable values as well as the tax savings from loss carryforwards

assessed as realisable in the future. Corporation tax reduction claims resulting

from tax-based equity available for distribution were also carried. Deferred tax

claims in a territory with taxing power were offset against deferred tax liablities

in the same territory whenever maturities matched. Deferred tax assets and

expected tax savings from future realisable loss carryforwards are outlined in

detail under note 10. Assets from future tax benefits totalling DM 112.4 million

(previous year: DM 85.5 million) had a remaining term of more than one year.

(21) Funds


Securities comprised in current assets 3,692.3 145.9

Bank deposits 2,340.2 1,350.8

Cheques, cash-in-hand, balances with Bundesbank (German Central Bank) 469.3 89.8

Liquid funds 2,809.5 1,440.6

Total 6,501.8 1,586.5

The securities valued at the lower of cost or market value in the Group mainly

comprised fixed-interest listed securities with interest rates of 5.0% p.a. to 9.0%

p.a. (previous year: 3.5% p.a. to 6.0% p.a.) and in the preceding year in particular

shares in specialised funds callable at short notice. About half of the fixed-inter-

est, highly fungible securities had a remaining term of up to one year, and about

20% had a remaining term of up to two years. The increase in securities mainly

resulted from changes in the consolidation. The inclusion of the Thomas Cook

Holdings Group in particular led to an increase in securities of DM 3,62 billion,

representing the investment of the financial resources resulting from the sale of

travellers cheques mainly required to honour these cheques. A partial amount of

DM 1.45 billion out of these funds was pledged as collateral for the settlement

of obligations from the redemption of travellers cheques.

The fair value of the securities totalled DM 3,693.5 million as per balance sheet

date (previous year: DM 151.9 million).


(22) Prepaid expenses



Discount 0.2 0.2 0.5 0.2

Other prepaid expenses 7.3 495.8 114.3 0.8

Total 7.5 496.0 114.8 1.0

Other prepaid expenses comprised above all deferred expenses for regular

inward flights performed after the balance sheet date as well as expenses for

lease and maintenance.

Shareholders‘ equity

The development of the Preussag Group’s shareholders‘ equity for the years

1998/99 and 1997/98 is presented in the equity schedule on page 86. The effects

of the first-time preparation of the financial statements on the basis of the IASC

standards on the Preussag Group’s equity as per 30 September 1997 are outlined

on page 90.

(23) Subscribed capital

In order to facilitate the introduction of the Euro with regard to the adjustments

of the par values of the shares and the capital stock, the Annual General Meeting

held on 31 March 1999 resolved to convert the par-value shares to no-par value

shares, each representing an identical share in the capital stock. Each previous

share with a par value of DM 50.00 was replaced by ten no-par value shares, pre-

vious shares with a par value of DM 100.00 were replaced by 20 no-par value

shares. The proportionate share in the capital stock attributable to each individ-

ual share therefore now is DM 5.00. Furthermore, the Annual General Meeting

resolved to convert the shareholders‘ equity and the conditional and authorised

capital to the Euro at the official exchange rate of DM 1.95583 per Euro. In the

interests of comparability, the number of shares for the year 1997/98 was

adjusted accordingly; the information for the current financial year and the pre-

vious year continued to be given in DM.

In comparison to the previous year, the breakdown of the subscribed capital of

Preussag AG, registered at the commercial registers of Berlin/Charlottenburg

and Hanover, was as follows:

No-par value shares with an accounting par value of DM 5.00 per share30 Sept 1999 30 Sept 1998

Number of shares outstanding 172,899,264 152,851,930

Subscribed capital (in DM) 864,496,320.00 764,259,650.00

Subscribed capital (in Euro) 442,009,949.74 390,759,754.17



In the financial year 1998/99, the number of issued shares rose by 20,047,334

shares, comprising 15,255,474 shares resulting from a capital increase, 4,518,590

shares from the exercise of warrants and 273,270 shares from the issue of

employee shares.

GEV Gesellschaft für Energie- und Versorgungswerte mbH, Dortmund, a sub-

sidiary of Westdeutsche Landesbank Girozentrale, Düsseldorf/Münster, holds

more than 25% of the subscribed capital of Preussag AG.

Conditional capital

Following a resolution adopted by the Annual General Meeting of 24 March 1994,

a conditional capital of DM 45.0 million was created for the issue of bonds

attached with warrants. Due to the exercise of 451,859 warrants from the bond

attached with warrants issued in April 1996, the subscribed capital rose by DM

22,592,950.00 (e 11,551,591.91; previous year: DM 26,100.00) on the previous year.

The conditional capital was reduced accordingly. 447,087 warrants (previous

year: 898,946), for which a conditional capital of DM 22.4 million (e 11.4 million;

previous year: DM 44.9 million) existed, were not exercised yet.

In addition, the Annual General Meeting resolved on 31 March 1999 to create an

additional conditional capital of DM 76.3 million (e 39.0 million) for the issue of

conversion options in conjunction with the issue of bearer bonds. Based on that

resolution, Preussag AG issued a convertible bond of DM 1,075.7 million (e 550.0

million) in June 1999. Since 17 June 1999, that convertible bond has been admit-

ted to trading on the stock exchange. By the balance sheet date, no conversion

options had been exercised.

Development of the conditional capital

Conditional Availment in the Increase Conditional capital as per current as of AGM capital as per

financial year resolution of(DM ‘000) 1 Oct 1998 31 March 1999 30 Sept 1999

Non-exercised option rights 44,947 (451,859) 1) 22,593 2) — 22,354

Convertible bond — (0) 1) 0 2) 76,278 76,278

Total 44,947 (451,859) 22,593 76,278 98,632

1) number of exercised option rights and conversion options2) Increase in subscribed capital

Authorised capital

Following a resolution adopted by the Annual General Meeting of 31 March

1999, an authorised capital of DM 76.3 million (e 39.0 million) was created. At

the same time, the authorisation granted by the Annual General Meeting of 21

March 1996 to increase the capital stock by up to DM 50.0 million was revoked.


The authorised capital for the issue of employee shares, also created by the

Annual General Meeting of 21 March 1996, was retained.

The authorised capital (DM 76.3 million) was fully used in April 1999 to issue new

individual share certificates for cash contributions.

The offer to subscribe to employee shares covered both active and former

employees of Preussag AG and its Group companies. The shares were offered to

the eligible group of persons at the beginning of the financial year 1998/99 at a

price of DM 40.50*). In the course of the financial year, 273,270 (previous year:

271,910) employee shares were taken up. Correspondingly, the subscribed capital

rose by DM 1,366,350.00 (e 698,603.66; previous year: DM 1,359,550.00); the

remaining authorised capital dropped accordingly to DM 6,002,650.00

(e 3,069,106.21; previous year: DM 7,369,000.00).

*) In the interest of comparability both, the share price and the number of subscribed employee shares were calculated on basis of no-par value shares.

(24) Capital reserves

The capital reserves of the Preussag Group exclusively included share premiums

from the issue of shares and amounts generated in the issue of bonds for con-

version options and warrants to purchase stocks in Preussag AG, but no alloca-

tions from consolidated results. In the course of the financial year, DM

1,074.2 million (previous year: none) from the capital increase, DM 146.9 million

(previous year: DM 0.2 million) from the exercise of warrants from the bond

attached with warrants, DM 18.5 million (previous year: none) from the issue of

conversion options and DM 9.7 million (previous year: DM 7.3 million) from the

subscription of employee shares were allocated to capital reserves. In accor-

dance with the IASC rules, the funding costs for the issue of conversion options

of DM 29.5 million and for the capital increase by means of the issue of new

shares for cash contributions of DM 14.4 million were offset against the trans-

fers to capital reserves resulting from these transactions. Following the issue of

conversion options, deferred taxes of DM 43.6 million were offset against capital

reserves with no effect on results.

(25) Revenue reserves

Pursuant to commercial-law reporting requirements, revenue reserves consisted

solely of other revenue reserves. They comprised allocations from the results of

the current or previous financial years, differences arising from the currency

translation of the financial statements of foreign subsidiaries with no effect on

results, offset in particular against debit differences from the capital consolida-

tion of subsidiaries purchased before 30 September 1995. The memorandum of

association of Preussag AG did not contain any provisions pertaining to the for-

mation of reserves.



Revenue reserves included differences arising from the translation of foreign

currency totalling DM -102.3 million (previous year: DM -108.1 million).

(26) Net profit available for distribution

In accordance with German commercial law, the results of the financial state-

ments of Preussag AG were the authoritative basis for dividend payments to

Preussag AG’s shareholders. Net profit available for distribution reported in

Preussag‘s consolidated financial statements was identical with the figure

carried in the financial statements of Preussag AG. The reconciliation of Group

profit for the year to profit available for distribution of Preussag AG is outlined

in the profit and loss statement of the Preussag Group.

A proposal will be submitted to the Annual General Meeting of Preussag AG to

use Preussag AG‘s profit available for distribution for the payment of a dividend

of DM 1.50 per no-par individual share (previous year: DM 1.20 plus a bonus of

DM 0.30). The amount of DM 1.0 million (previous year: DM 0.7 million) remain-

ing after the deduction of the dividend total of DM 259.3 million will be carried

forward on new account. The tax credit for German tax-paying shareholders

associated with the dividend payment was DM 0.64 per share (previous year:

DM 0.51).

(27) Minority interests in equity

Minority interests in equity mainly related to the TUI Group in the tourism divi-

sion – acquisition of the remaining shares in TUI KG in 1998/99 – in the financial

year 1997/98 and to the newly acquired Thomas Cook Holdings Group in the

financial year 1998/99. Other noteworthy minority interests existed in the logis-

tics sector for the Algeco Group and the VTG-Lehnkering Group (previously

Lehnkering Group) in the two financial years.

(28) Provisions for pensions and similar commitments

A number of pension schemes based on defined contribution plans or defined

benefit plans were operated for the employees. The promised retirement bene-

fits depended on the legal, tax-related and economic situation in each individual

country and were usually based on the employees‘ length of service and pay lev-

el. Whereas defined contribution plans were financed via external funds as a

matter of principle, funded systems existed for defined benefit plans by means

of the formation of provisions and the investment of funds outside the company.

German employees enjoyed benefits from a statutory defined contribution plan

paying pensions as a function of employees‘ income and the contributions paid

in. A number of additional industry pension organisations existed for companies


of the Preussag Group. Upon payment of contributions to the state and private

pension insurance institutions, the company was not obliged to pay any other

benefits. Current contribution payments were recognised as an expense for the

respective period. In the financial year 1998/99, the pension costs for all defined

contribution plans for the Preussag Group totalled DM 251.1 million (previous

year: DM 370.4 million).

Provisions for pensions and similar commitments


Pension provisions 1,586.8 2,074.9

Similar commitments 6.7 154.5

Total 1,593.5 2,229.4

The provisions for pension costs were formed on the basis of promised pension,

invalidity and surviving dependents‘ benefits. Provisions were exclusively

formed for defined benefit schemes under which the company guarantees

employees a certain pension level. Provisions for similar commitments covered

in particular promised early retirement and temporary assistance benefits and

last year also payment-in-kind benefits. Following the disposal of Preussag

Anthrazit GmbH and the Deilmann-Haniel Group, only minor payment-in-kind

commitments existed in Preussag AG in the financial year 1998/99. Pension pro-

visions were almost exclusively related to promised benefits for German compa-

nies, whereas in foreign subsidiaries the corresponding benefits were predomi-

nantly fund-based. Approx. 31% of the pension provisions in the financial year

1997/98 related to the plant engineering and shipbuilding sector, the Deilmann-

Haniel Group and Preussag Anthrazit.

Actuarial calculations and assumptions formed the basis of the valuation of the

pension commitments. The commitments under defined benefit plans were cal-

culated in accordance with the internationally customary Projected Unit Credit

Method, taking into account expected future increases in salaries and pensions.

Fundamental actuarial assumptions used for German subsidiaries

(p.a.) 1998/99 1997/98

Assumed rate of interest 5.5 % 6.0 %

Salary increases 2.0 % - 3.0 % 2.0 % - 2.75 %

Pension increases 1.0 % - 1.5 % 1.5 % – 2.0 %

Turnover rate 2.0 % 2.0 %

The biometric probabilities published in November 1998 (Heubeck-Richttafeln

1998) were already used for the valuation of the pension provisions as per 1

October 1997 and accounted for without effect on results in the framework of

the conversion of accounting to the IASC rules.



The actuarial calculations for foreign companies were based on specific assump-

tions for the respective countries. The major fund-based defined benefit pension

commitments abroad were based on expected salary increases of 4.0% p.a. to

5.0% p.a. and expected returns on the funds‘ assets of 5.0% p.a. to 7.0% p.a.

Reconciliation of the projected unit credit value to provision formed in the

balance sheet:


Actual projected unit credit value of all pension benefit entitlements 2,905.1 2,453.0

Fair value of the externally managed funds 1,287.0 378.1

Net projected unit credit value 1,618.1 2,074.9

Difference caused by changes in actuarial assumptions and past payment obligations - 31.3 —

Provisions carried in the balance sheet 1,586.8 2,074.9

The difference of DM 31.3 million which had not yet been charged to expenses

by the balance sheet date will be recognised ratably over the residual service life

of the active workforce and accordingly transferred to pension provisions. Due

to the first-time valuation of promised pension benefits in accordance with the

IASC rules, no differences caused by changes in actuarial assumptions existed in

the previous year.

A breakdown of overall pension costs is presented under note 5 on page 107.

Promised benefits under defined benefit plans which were not funded via provi-

sions were funded via externally managed funds. This type of funding of pro-

mised retirement benefits was predominantly operated by foreign subsidiaries.

Ratio of funds‘ assets to pension obligations

Funds with cover shortage Funds with surplus cover (DM million) 30 Sept 1999 30 Sept 1998 30 Sept 1999 30 Sept 1998

Fair value of funds‘ assets 768.1 19.3 518.9 358.8

Present value of the pension benefit entitlements 809.8 25.5 334.9 302.2

Cover shortage or surplus cover - 41.7 - 6.2 + 184.0 + 56.6

The Thomas Cook Holdings Group operated a large number of defined benefit

pension plans funded via external pension funds. Additional promised retire-

ment benefits granted by foreign companies were primarily operated by compa-

nies of the AMC Group, the Algeco Group and the Elco Group. When the present

value of a promised pension benefit was not covered by funds‘ assets, a provi-


sion for the resulting potential commitment was formed with effect on results.

In the event of an excess cover, future contributions to the funds‘ assets charged

to expenses were adjusted accordingly.

(29) Tax provisions and other provisions

Development of provisions in the financial year 1998/99

Type of provisions Opening Change in Utilisation Release Addition Closingbalance the basis of balance

as per consolidation 1) as per(DM million) 1 Oct 1998 30 Sept 1999

Tax provisions 1,457.0 - 121.8 190.8 230.8 641.6 1,555.2

of which provisions for current taxes on income (486.5) (9.1) (87.5) (23.5) (107.2) (491.8)

of which provisions for deferred taxes (844.3) (- 119.6) (—) (192.8) (227.5) (759.4)

Other provisions

Personnel costs 838.9 - 183.6 397.6 40.9 492.4 709.2

Typical operating risks 553.4 - 34.9 17.4 12.8 30.5 518.8

Outside touristic services 202.8 214.6 385.6 19.8 405.7 417.7

Other provisions 2,452.4 - 548.9 860.1 405.7 1,313.8 1,951.5

Total 5,504.5 - 674.6 1,851.5 710.0 2,884.0 5,152.4

1) as well as transfers and exchange adjustment

Development of provisions in the financial year 1997/98

Type of provisions Opening Change in Utilisation Release Addition Closingbalance the basis of balance

as per consolidation 1) as per(DM million) 1 Oct 1997 30 Sept 1998

Tax provisions 1,117.9 564.5 467.6 151.3 393.5 1,457.0

of which provisions for current taxes on income (639.1) (43.3) (438.9) (54.1) (297.1) (486.5)

of which provisions for deferred taxes (373.1) (518.4) (—) (90.2) (43.0) (844.3)

Other provisions

Personnel costs 837.3 - 11.5 582.7 47.7 643.5 838.9

Typical operating risks 676.1 - 106.9 22.3 23.7 30.2 553.4

Outside touristic services 0 114.9 96.4 7.6 191.9 202.8

Other provisions 2,118.7 418.9 1,221.1 534.6 1,670.5 2,452.4

Total 4,750.0 979.9 2,390.1 764.9 2,929.6 5,504.5

1) as well as transfers and exchange adjustment

Tax provisions

Tax provisions comprised provisions for current and deferred taxes on income

and for other taxes. Current income tax provisions – provided they existed in the

same territory with taxing power and were like provisions in terms of nature

and maturity – were offset against the corresponding tax refund claims.

Deferred tax liabilities are outlined under note 10 on page 111.



Other provisions

Provisions for typical operating risks were formed in particular for recultivation

and waste disposal commitments.

Provisions for outside touristic services related to travel agency commissions,

unused hotel vouchers and other service provider commitments in the tourism

division.

Just as last year, the interest rate for accounting purposes applied in the valua-

tion of provisions for anniversary bonuses carried under personnel costs was

5.5% p.a. as a matter of principle.

Other provisions mainly included provisions for supplier invoices not yet receiv-

ed, for risks from invoiced orders and for guarantees, warranties and liability

risks. Provisions for outstanding purchase invoices existed in particular in con-

tainer shipping.

Other provisions included an amount of DM 885.0 million (previous year: DM

874.6 million) for risks and liabilities from the delivery of goods and the provi-

sion of services and an amount of DM 135.5 million (previous year: DM 114.7 mil-

lion) for environmental protection. Other provisions included an amount of

DM 117.2 million (previous year: DM 113.2 million) for anticipated losses related to

incomplete contracts.

Maturities of tax and other provisions



Tax provisions 994.5 1,555.2 1,457.0 948.6

of which provisions for current taxes on income (328.5) (491.8) (486.5) (313.7)

of which provisions for deferred taxes (489.2) (759.4) (844.3) (587.3)

Other provisions

Personnel costs 164.4 709.2 838.9 151.8

Typical operating risks 471.5 518.8 553.4 511.0

Outside touristic services — 417.7 202.8 —

Other provisions 428.0 1,951.5 2,452.4 900.0

Total 2,058.4 5,152.4 5,504.5 2,511.4


(30) Liabilities

30 Sept 1999 30 Sept 1998Remaining term Remaining

up to more than term more (DM million) 1 year 1 to 5 years 5 years Total Total than 1 year

Debt 3,490.5 2,548.5 382.2 6,421.2 3,425.2 1,898.5

Bonds — 1,273.7 — 1,273.7 300.0 300.0

Liabilities to banks 1,422.0 648.5 177.5 2,248.0 2,237.1 961.4

Liabities on bills drawn 17.9 — — 17.9 19.6 5.3

Liabilities from finance leasing contracts 58.6 331.0 179.3 568.9 531.9 484.1

Debt to Group companies 33.3 22.4 0.4 56.1 69.1 16.3

Debt to companies in whichshareholdings are held 1,958.7 272.9 25.0 2,256.6 267.5 131.4

Trade accounts payable 8,192.6 9.1 0.3 8,202.0 2,193.4 31.6

to third parties 8,143.8 9.1 — 8,152.9 2,149.3 31.3

to Group companies 34.7 — 0.3 35.0 16.9 0.3

to companies in which shareholdings are held 14.1 — — 14.1 27.2 —

Other liabilities 2,569.9 168.8 37.7 2,776.4 2,758.4 853.3

to Group companies 107.7 — — 107.7 80.2 3.2

to companies in which shareholdings are held 13.0 33.8 — 46.8 69.7 0.3

other liabilities 1,024.0 48.0 37.7 1,109.7 910.1 98.0

of which from taxes (189.3) (—) (—) (189.3) (201.6) (0.4)

(of which from taxes on income) (2.4) (—) (—) (2.4) (3.3) (—)

of which relating tosocial security (147.4) (0.3) (—) (147.7) (134.6) (0.3)

of which to employees (42.5) (12.4) (1.2) (56.1) (81.8) (10.5)

of which to members ofthe executive bodies (3.0) (—) (—) (3.0) (1.3) (—)

of which from interest deferral (6.5) (0.1) (—) (6.6) (1.2) (—)

of which other liabilities (635.3) (35.2) (36.5) (707.0) (489.6) (86.8)

Liabilities from bills accepted 58.6 0.3 — 58.9 44.7 0.6

Advance payments received 1,366.6 86.7 — 1,453.3 1,653.7 751.2

Total 14,253.0 2,726.4 420.2 17,399.6 8,377.0 2,783.4

Bonds included the bond attached with warrants issued by Preussag AG in 1996

with an issue volume of DM 300.0 million and maturing on 17 May 2001 (interest

rate 5.75% p.a.). The outstanding warrants entitle holders to purchase 4,470,870

(previous year: 8,989,460) no-par value shares in Preussag AG with an account-

ing value of DM 5.00 at a subscription price of DM 37.50 per share. Preussag AG

held a conditional capital for the exercise of the warrants.

In addition, Preussag AG issued a convertible bond of e 550.0 million

(DM 1,075.7 million) maturing on 17 June 2004 in the financial year 1998/99.



The convertible bond with an interest rate of 2.125% p.a. entitles their holders to

convert each per convertible bond of a par value of e 1,000.00 (DM 1,955.83)

into 15.9128 shares. As a matter of principle, the conversion option may be exer-

cised any time between 1 July 1999 and 28 May 2004. The outside capital com-

ponent of the convertible bond was valued at its present value based on an

interest rate in line with market conditions and was increased by the interest

portion of the period in accordance with the internationally customary ‘Effective

Interest Method’ as per the balance sheet date.

The liabilities from finance leasing contracts were carried without consideration

of future tax expenses. The total of all future payments from finance leasing

contracts was DM 699.3 million.

Reconciliation of future leasing payments to liabilities from finance leasing

contracts:

Up to 1 year 1 to 5 years More(DM million) than 5 years

Total of future leasing payments 97.5 394.1 207.7

Interest portion 38.9 63.1 28.4

Liabilities from finance leasing contracts 58.6 331.0 179.3

Liabilities to banks were predominantly based on variable interest rates and

were broken down as follows:

Original loan Loan Term Interest rate p.a. Book values*) as per principal in ‘000 currency 30 Sept 1999 30 Sept 1998

currency units in ‘000 DM in ‘000 DM

28,000 DEM 07/97 – 09/01 3.45 – 3.83% 28,176 28,010

89,600 DEM 12/93 – 09/01 6M LIBOR + 0.45% 22,400 33,600

1,000,000 DEM 04/96 – 04/03 3M LIBOR + 0.08% 300,715 501,788

20,000 DEM 02/96 – 02/04 6.04% 11,308 13,750

87,500 DEM 05/98 – 05/06 5.05% 76,563 89,131

100,000 DEM 05/98 – 05/06 5.15% 87,500 101,860

62,500 DEM 06/98 – 06/06 4.95% 54,688 63,459

125,000 DEM 06/98 – 06/06 4.95% 109,375 126,925

200,000 FRF 04/97 – 04/00 3M EURIBOR + 0.23% 59,633 59,640

200,000 FRF 04/97 – 04/00 3M EURIBOR + 0.25% 59,633 11,928

200,000 FRF 04/97 – 04/00 3M EURIBOR + 0.25% 44,725 26,838

100,000 FRF 04/97 – 04/00 3M EURIBOR + 0.23% 29,816 29,820

100,000 USD 07/98 – 07/00 3M LIBOR + 0.25% 185,211 169,819

34,000 USD 08/95 – 09/00 6.45% 12,469 22,848

Total 1,082,212 1,279,416

*) The book values also included the associated interest deferrals as per balance sheet date.


The interest spread of liabilities to banks ranged from 3.17% p.a. to 6.45% p.a.

(previous year: 3.45% p.a. to 7.5% p.a.).

Of the total of all liablities of the previous year, DM 700.6 million had a remain-

ing term of more than five years.

Liabilities secured by mortgages, assignments as security or similar rights


To banks 241.0 257.5

To non-banks 42.8 49.8

Total 283.8 307.3

(31) Deferred income

30 Sept 1999 30 Sept 1998up to 1 year more than more than

(DM million) 1 year Total Total 1 year

Investment subsidies 3.8 15.8 19.6 23.1 18.9

Other deferred income 299.0 18.3 317.3 69.2 1.3

Total 302.8 34.1 336.9 92.3 20.2

Government grants to promote investments (investments grants) were shown

under deferred income and recognised with an impact on results for a propor-

tionate period of time in line with the economic life of the corresponding assets;

in the financial year 1998/99, they totalled DM 4.0 million (previous year:

DM 4.8 million).

� Contingent liabilities


Liabilities on bills 51.0 76.7

Liabilities under guarantees,bill and cheque guarantees 3,905.8 451.1

Liabilities under warranties 373.8 53.1


Contingent liabilities connected with theprovision of collateral for third-party liabilities 3.1 2.4

Total 4,333.7 583,3

Contingent liabilities were carried at the maximum level of potential availment

at the balance sheet date.

Liabilities under warranties were all contractual liabilities to third parties going

beyond the typical business and industry and not to be classified as guarantees.



Following the withdrawal from plant engineering and shipbuilding, the guaran-

tees and warranties taken over in previous years in particular by Preussag AG on

behalf of the companies of the former plant engineering and shipbuilding sec-

tor which mainly served the settlement of ongoing business transactions and

still existed at the balance sheet date were shown at the amounts as per

30 September 1999. In the event of claims raised by creditors, Babcock Borsig AG

has assumed an indemnity obligation to Preussag AG.

Contingent liabilities connected with the provision of collateral for third-party

liabilities related to assets used to collateralise third-party liabilities.

� Litigation

Neither Preussag AG nor any of its subsidiaries were involved in pending or fore-

seeable court or arbitration proceedings which might have a significant impact

on its economic position or had such impact in the past two years. Furthermore,

the respective subsidiaries had formed appropriate provisions or expected ade-

quate insurance benefits to cover for potential financial strains from court or

arbitration proceedings. The financial position will therefore probably not be

affected by such charges.

Other financial commitments

Nominal values of other financial commitments

30 Sept 1999 30 Sept 1998Remaining term of Remaining term

more than of more(DM million) up to 1 year 1 to 5 years 5 years Total Total than 1 year

Order commitment in respectof capital expenditure 1,079.7 726.0 — 1,805.7 2,471.2 1,495.3

Anti-pollution measures 3.0 4.6 1.0 8.6 20.5 16.0

Commitments from lease, tenancy and leasing contracts 1,024.9 2,635.3 1,105.2 4,765.4 1,414.3 1,141.5

Other financial commitments 115.9 149.4 0.6 265.9 449.2 164.8

Total 2,223.5 3,515.3 1,106.8 6,845.6 4,355.2 2,817.6

The total of other financial commitments included DM 0.1 million of commit-

ments to Group companies only in the previous year.

The decrease in order commitments in respect of capital expenditure of DM

665.5 million was mainly attributable to the aircraft purchased in the financial

year 1998/99 and the MV ‘Europa’ commissioned in September 1999.

Other financial commitments from lease, tenancy and leasing contracts exclu-

sively related to lease contracts in which the risks and rewards incident to

ownership of the leased assets (so-called operating lease) – in accordance with

the IASC rules – did not lie with the Preussag Group companies. The significant


increase in these commitments in comparison to the previous year mainly

resulted from the first-time inclusion of the Thomas Cook Holdings Group. Most

of the leasing contracts related to aircraft and to rental of travel shops and

exchange offices.

The remaining other financial commitments mainly included amounts for oblig-

ations from orders already placed, commitments in connection with leased land

clean-up and renovation, payment obligations and obligations in connection

with shareholdings.

The Preussag Group companies were jointly and severally liable for participa-

tions in civil-law partnerships for which profit and loss transfer agreements

with subsidiaries existed, for participations in joint ventures and for participa-

tions as general partner in partnerships.

� Financial instruments

Financial instruments are contractual claims or obligations that will lead to an

outflow or inflow of financial assets or to the issue of equity rights. Apart from

the primary financial instruments shown in the balance sheet, they also com-

prise derivative claims or obligations derived from other financial instruments.

Primary financial instruments

The valuation of the primary financial instruments recognised in the balance

sheet is outlined in the explanatory information on the respective item.

Fair value of primary financial instruments

The fair value is the amount for which financial instruments could be exchanged,

sold or purchased, or a liability settled, between knowledgeable, willing parties

in an arm’s length transaction at the balance sheet date. The fair values of the

securities shown under investments totalling DM 4.4 million (previous year: DM

10.5 million) and under current assets totalling DM 3,693.5 million (previous

year: DM 151.9 million) corresponded to the stock prices as a rule. Other funda-

mental differences between book value and fair values did not exist for primary

financial instruments.

In terms of financial liabilities, the fair value of the bond attached with warrants

issued in 1995/96 and of the convertible bond issued in the financial year

1998/99 – based on the respective stock market price at the balance sheet date

– totalled DM 1,354.8 million (previous year: DM 309.8 million); the stock price of

the convertible bond also included a valuation of the conversion option associat-

ed with the bond. Based on an interest rate consistent with the market situa-

tion, the fair value of the outside capital component of the convertible bond

totalled DM 923.3 million as per the balance sheet date.



Currency and interest risk

The value of primary financial instruments may change due to changes in

exchange rates (currency risk).

Business transactions conducted by companies of the Preussag Group generat-

ed income and expenses in foreign currencies, which, however, were not always

matched by expenses or income in the same currency with identical amounts

and maturities. To that extent, the Preussag Group was exposed to exchange

rate risks. These risks mainly related to payments in US dollar, in particular in the

tourism and logistics divisions, energy and commodities division and in the pre-

vious year also to plant engineering and shipbuilding.

An interest risk, i.e. potential fluctuations in the value of a financial instrument

caused by changes in market interest rates existed above all for long-term fixed-

interest receivables and liabilities.

As a matter of principle, the Preussag Group companies faced these risks by using

derivative financial instruments. Both listed and unlisted instruments were used.

Currency and interest hedging transactions were only concluded with first-rate

banks – or, for business reasons, with other metal traders in one of the sub-

groups – in the framework of internally fixed and constantly checked limits.

Currency hedging transactions were always based on an underlying transaction.

An exception was the hedging strategy of the TUI Group which took account of

the specific business trend in the industry. Accordingly, the foreign currency

required for the expected bookings for the next two touristic seasons was

hedged by corresponding forward currency deals or option contracts.

These deals were concluded decentrally by the individual Group companies or

sub-groups and Preussag AG. In the framework of currency hedging, the compa-

nies of the Preussag Group transacted nettings for the foreign exchange rev-

enues and expenditure of the same currency and the same maturity. Currency

hedging transactions with banks were subsequently conducted for the resulting

shortage or excess.

There was a strict separation – as far as achievable by means of commercial

rules – between the functional areas of trading, settlement and control.


Derivative financial instruments

Nominal volumes and fair values as per 30 September 1999

Nominal volume Total Fair valuesRemaining term of

more than(DM million) up to 1 year 1 to 5 years 5 years

Swaps 27.1 284.1 — 311.2 37.3

Other hedging instruments 18.2 505.1 — 523.3 25.7

Interest rate hedging instruments 45.3 789.2 — 834.5 63.0

Forward transactions 2,648.0 214.5 3.9 2,866.4 27.5

Option contracts 1,153.6 2.2 — 1,155.8 36.3

Interest rate/currency swaps 43.6 42.1 — 85.7 - 0.9

Swaps 66.7 — — 66.7 —

Currency hedging instruments *) 3,911.9 258.8 3.9 4,174.6 62.9

Nominal volumes and fair values as per 30 September 1998

Nominal volume Total Fair valuesRemaining term of

more than(DM million) up to 1 year 1 to 5 years 5 years

Swaps 630.0 488.5 — 1,118.5 41.6

Other hedging instruments — 667.6 — 667.6 - 8.5

Interest rate hedging instruments 630.0 1,156.1 — 1,786.1 33.1

Forward transactions 5,340.6 666.1 — 6,026.7 - 80.4

Option contracts 246.5 388.8 — 635.3 38.4

Interest rate/currency swaps — 137.1 14.2 151.3 - 1.0

Swaps 138.6 — — 138.6 - 5.2

Currency hedging instruments *) 5,745.7 1,192.0 14.2 6,951.9 - 48.2

*) Primarily, payments in USD and to a considerably lesser extent in Greek drachmae were hedged by means of derivative currency instruments.

The nominal amounts corresponded to the total of all purchase or sale amounts

or the contract values of the transactions. The fair values related to the redemp-

tion values at the balance sheet date.

Other interest hedging instruments included zero cost collars and interest limi-

tation contracts. The interest/currency swaps not clearly attributable to any one

hedging category were shown separately under currency hedging instruments.

The interest spread of interest hedging instruments ranged from 2.53% p.a. to

8.57% p.a. (previous year: 4.05% p.a. to 7.78% p.a.).

The decline in the volume of the currency hedging instruments existing as per

30 September 1999 in comparison to the preceding balance sheet date was pri-

marily based on the disposal of the plant engineering and shipbuilding compa-



nies, many of which used US dollar as their invoicing currency, and the fixing of

exchange rates for the currencies of the member states of the European Mone-

tary Union.

Credit risk

The credit risk in primary financial instruments resulted from the risk of failures

by counterparties to discharge their contractual payment obligations.

The maximum credit risk exposure was mainly reported by means of the total of

the fair values of the primary financial assets, irrespective of existing collateral,

but taking into account any legally enforceable possibilities to offset financial

assets and liabilities. A concentration of credit risks may arise from exposures to

a single debtor or to groups of debtors having similar characteristics. Since the

Preussag Group operated in many different business areas in a diversified

manner, significant credit risk concentrations of receivables from and loans to

certain debtors or groups of debtors were not to be expected simply because of

the Group structure. No significant specific concentration of credit risks related

to trade account receivables existed for individual countries.

The maximum credit risk in connection with the conclusion of derivative finan-

cial instruments was the total of all positive fair values from the instruments

from which claims to contracting partners existed, since in the case of default

by the contracting partners asset losses of the same amount would incur.

Due to the decentralised conclusion of derivative financial instruments with

different first-rate debtors, no significant concentration of credit risks were to be

expected.

� Aircraft fuel hedging instruments

Apart from interest and currency hedging instruments, the airlines of the

Preussag Group also used price hedging instruments for future aircraft fuel

quantities required in order to hedge external risks impacting operating activi-

ties. These aircraft fuel hedging instruments exclusively covered fixed-price and

option deals.


Aircraft fuel hedging instruments

Nominal volumes and fair values

As per 30 September 1999 Remaining term of Total Fair valuesmore than

(DM million) up to 1 year 1 to 5 years 5 years

Fixed-price contracts 129.6 11.6 — 141.2 23.2

Purchase options/target range options 44.7 — — 44.7 8.7

As per 30 September 1998 Remaining term of Total Fair valuesmore than

(DM million) up to 1 year 1 to 5 years 5 years

Fixed-price contracts 65.0 — — 65.0 0.9

Purchase options/target range options — — — — —

The fair value used for aircraft fuel hedging instruments was calculated on basis

of the price of comparable contracts at financial year-end.

The increase in aircraft fuel hedging instruments as per 30 September 1999

when compared to the previous financial year-end resulted in particular from

the first-time inclusion of the Thomas Cook Holdings Group. The Thomas Cook

Holdings Group exclusively used fixed-price contracts and call options to hedge

the price of aircraft fuel.

Notes on the Consolidated Cash Flow Statement


For the financial year 1998/99 and for the previous year, the cash flow statement

of the Preussag Group showed the flow of funds on the basis of a separate pre-

sentation of cash in- and outflow from business activities, investments and

finance. The effects resulting from changes in consolidation were eliminated.

(32) Cash inflow from business activities

Due to the specific characteristics typical of the travel business, the inclusion of

the Thomas Cook Holdings Group for the period from 1 July to 30 September

1999 led to a reduction in cash inflow from operating activities by a total of DM

500.5 million. The liabilities for touristic services generated prior to 1 July at the

beginning of the summer season were reduced with the completion of the holi-

day tours. If the Thomas Cook Holdings Group had not been included, the Group’s

cash inflow from operating activities would have been almost twice as high.

The cash inflow from operating activities included interest received. In the

financial year 1998/99, interest totalling DM 203.3 million was received (previ-

ous year: DM 146.7 million). The increase in interest received was mainly due to

the income from the financial services business of the Thomas Cook Holdings

Group. In the financial year 1998/99, income tax payments led to total cash out-

flows of DM 164.0 million (previous year: DM 116.1 million).

(33) Cash inflow/outflow from investments

The cash payments to acquire tangible and intangibe assets or the cash receipts

from corresponding sales, respectively, did not match the additions or disposals

shown under the development of fixed assets, which related to the goodwill

acquired from capital consolidation apart from non-cash transactions and dis-

posals. The outflow of funds for investments included – offset against the effect

of the additions to consolidation on funds – the cash payments for the acquisi-

tion of shares in subsidiaries, most of which were comprised in the consolidated

balance sheet as goodwill and as assets and liabilities in the consolidated finan-

cial statements in the framework of the consolidation. In the financial year

1998/99, the high level of funds of the Thomas Cook Holdings Group, included in

the consolidation for the first time, led to an overall increase in funds.

In the financial year 1998/99, cash payments totalling DM 2.3 billion (previous

year: DM 2.4 billion) were made for acquisitions and divestments of subsidiaries.

The disposal of the shares in Preussag Noell GmbH and Preussag Wasser und

Rohrtechnik as well as 25% of the shares in HDW was conducted on a non-cash

basis in return for shares in Babcock Borsig AG. The sale of another 25% plus one

share in HDW did not entail cash effects in the financial year 1998/99 yet. In

Notes on the consolidated cash flow statement


addition, non-cash investments were primarily made in the logistics division by

means of finance leasing.

(34) Cash inflow from finance

In addition to the outflow of funds due to the payment of dividends in the

financial year, the flow of funds from finance included in particular the inflows

from the capital increase of Preussag AG implemented in April 1999 aimed at

funding the acquisition of shares as well as inflows from the raising of external

funds. The increase in inflows of external funds resulted primarily from the issue

of the convertible bond. The payments received from capital increases are shown

unreduced by the cost for fund raising. Interest payments made for external

funds totalled DM 349.3 million (previous year: DM 272.2 million).

(35) Development of funds

Funds comprised all liquid funds, i.e. cash in hand, cheques, federal bank and

bank deposits and securities under current assets, all of which could be sold at

short notice; DM 1.45 billion of the funds were not freely disposable (cf. note 21).

The impact of the changes in consolidation on the flow of funds and fund

movements due to exchange rate fluctuations were shown separately.

� Personnel on an annual average (excluding apprentices)

1998/99 1997/98

Industrial workers 13,639 26,715

Employees 44,034 37,387

Total 57,673 64,102

In the year under review, the total number of employees working for the Hapag-

Lloyd Group and the TUI Group companies was 27,655, a significant figure in

terms of the average number of employees. The headcount for the financial year

1998/99 also included the proportionate annual average accounting for the

4,418 employees working for the Thomas Cook Holdings Group; as per 30 Sep-

tember 1999, the Thomas Cook Holdings Group employed 23,146 persons.

The number of employees for the financial year 1997/98 included 14,779 employ-

ees working in plant engineering and shipbuilding.

� Related parties

Apart from the subsidiaries included in the consolidated financial statements,

Preussag AG maintained indirect or direct relationships with a large number of

Group companies not included in the consolidation and associated companies

in exercising its ordinary business activities. All related parties controlled by the

Preussag Group or over which the Preussag Group was able to exercise a signifi-


cant influence are listed in the list of shareholdings, comprising information of

the interest held, equity and the result for the year by sectors. The list of share-

holdings has been deposited with the commercial registers of the district courts

of Berlin-Charlottenburg and Hanover.

A large number of related, non-consolidated Group companies did not exercise

any operating activities any longer due to the discontinuation of their business

operation or served as a general partner without capital contribution to consoli-

dated subsidiaries in the legal form of a limited partnership.

Apart from pure equity participations exclusively serving net worth appreciation

by means of investments, the related parties also included Group participations

that also delivered goods or provided services for Preussag Group companies in

the framework of their business purpose. These transactions mainly included

sales services rendered in conjunction with the entry in foreign markets for the

building engineering and logistics divisions and the trading sector, and – to a

lesser extent – general centralised services for all divisions of the Preussag

Group. In the energy sector, participations with other shareholders from exter-

nal companies operating in this sector existed – as was customary in the trade –

in order to secure and use crude oil pipelines and sell crude oil and natural gas.

Production and supplier services provided by related parties played a minor role.

The logistics division in particular held participations in companies hiring out

tangible assets to consolidated subsidiaries. Due to the commercial ownership

held by companies of the Preussag Group, the leased tangible assets and the

corresponding liabilities from these finance leasing conditions were reported in

the consolidated balance sheet in accordance with the IASC rules.

In the tourism division, there were only very few business transactions with

associated companies in which shareholdings were held; they were tour opera-

tors, making use of services of the touristic value chain of the Preussag Group

such as transportation, accomodation and catering as well as care and support,

and the Group’s travel agencies provided sales-related services for them. Apart

from that, incoming agencies over which a material control may be exerted ren-

dered service and support services for guests of Group-owned tour operators at

the holiday destination. Apart from hotels owned, the Preussag Group compa-

nies also concluded lease and management contracts in order to use hotel ser-

vices offered by related parties.

Due to its direct equity participation, Westdeutsche Landesbank Girozentrale,

Düsseldorf/Münster met the formal conditions for a related party of Preussag

AG in accordance with IAS 24 (reformatted 1994). Westdeutsche Landesbank did

not pursue any entrepreneurial objectives with its participation, and therefore

did not participate in the financial or operating policy decisions of Preussag AG.

All business transactions with related parties were executed on the basis of con-

ditions similar to those in trading with third parties, upon assessment on the

basis of international price comparison methods in accordance with IAS 24

(reformatted 1994).

The type and level of all claims and liabilities of the Preussag Group resulting

from these transactions are listed in the explanatory information on the corre-

sponding asset and liability items in the notes to the consolidated financial

statements. The income and expenses resulting from the capital participations

and funding were carried under financial result as a whole and presented in the

framework of segment reporting, which also showed the result from associated

companies separately by division. Due to the type and scope of related party

transactions, further disclosures were not required for an understanding of the

effects of these transactions on the earnings situation of the Preussag Group.

Total remuneration of the members of the Executive Board of Preussag AG in

the financial year 1998/99 amounted to DM 10.097 million for their work for the

Group (previous year: DM 10.234 million). For members of the Executive Board

pension provisions totalled DM 13.533 million (previous year: DM 10.003 million)

at balance sheet date. Total remuneration of the members of the Supervisory

Board amounted to DM 2.490 million (previous year: DM 2.221 million).

Pension provisions for former members of the Executive Board or their depen-

dants amounted to DM 71.489 million (previous year: DM 72.556 million) at the

balance sheet date. During the past financial year, these persons received a total

of DM 5.978 million (previous year: DM 5.001 million).

The members of the Supervisory Board and the Executive Board are listed sepa-

rately on pages 145 to 147.

Hanover, January 2000

The Executive Board

Frenzel

Feuerhake Schultze Stodieck


128 Auditors’ Statement

Auditors’ Statement

Eichner

Wirtschaftsprüfer

Schilling

Wirtschaftsprüfer

� Auditors’ statement

We have audited the consolidated financial

statements prepared by Preussag Aktiengesell-

schaft, comprised of balance sheet, profit and loss

statement, change in equity statement, cash flow

statement and notes, for the financial year from

1 October 1998 to 30 September 1999. The Execu-

tive Board is responsible for the preparation and

for the contents of the consolidated financial

statements. It is our responsibility to assess on the

basis of our audit whether the consolidated finan-

cial statements conform with the International

Accounting Standards (IAS).

We conducted our audit of the consolidated fi-

nancial statements on the basis of German audit-

ing rules and the generally accepted auditing stan-

dards issued by the German Auditors‘ Institute

(IDW), complemented by the International Stan-

dards on Auditing (ISA). Accordingly, the audit is to

be planned and implemented so as to give reason-

able assurance in ascertaining whether the consol-

idated financial statements are free from material

misstatements. In determining the audit activities,

information on the business activities and the eco-

nomic and legal position of the Group as well as

expectations concerning potential errors are taken

into account. In the framework of the audit, the

documents used as evidence for the valuation and

information given in the consolidated financial

statements are assessed on a test basis. The audit

includes an assessment of the accounting princi-

ples applied and the significant estimates and

judgements made by the legal representatives as

well as an assessment of the overall adequacy of

the presentation of information in the consolidat-

ed financial statements. We consider that our au-

dit gives us reasonable grounds for our opinion.

In our opinion, the consolidated financial state-

ments, in conformity with the IAS, present a true

and fair view of the net worth, financial position

and results of the Group and of the payment flows

in the financial year.

Our audit, which also covered the combined

management report of the Group and of Preussag

AG prepared by the Executive Board for the finan-

cial year from 1 October 1998 to 30 September

1999, has not given rise to any objections. In our

opinion, on the whole, the Group management re-

port provides a true and fair view of the situation

of the Group and a proper presentation of the risks

of the future development. We also confirm that

the consolidated financial statements and the

Group management report for the financial year

from 1 October 1998 to 30 September 1999 meet

the conditions for an exemption of the Group from

the duty to prepare consolidated financial state-

ments and a Group management report under

German law.

Hanover, 31 January 2000

PwC Deutsche Revision

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

Boards 129

Supervisory Board

Dr. Friedel NeuberChairman of the Executive Board of Westdeutsche LandesbankGirozentraleDüsseldorfChairman

Dipl.-SoziologeHorst Schmitthenner

Member of the Executive Board of the Trade Union for the Metal IndustryFrankfurt/MainDeputy Chairman(until 30 November 1999)

Herbert BareselShipbuilderKiel(until 30 September 1999,Member of the Presiding Committee since 11 November 1998)

Peter ErmlichMinerRecklinghausen(until 4 June 1999)

Uwe KleinClerkHamburg(Member of the Presiding Committee since 10 November 1999)

Dr. Dietmar KuhntChairman of the Executive Board of RWE AGEssen

Dr. Klaus LiesenChairman of the Supervisory Boardof Ruhrgas AGEssen

Werner StegmaierSenior Service EngineerStuttgart(Member of the Presiding Committee since 1 July 1999)

Rainer BarcikowskiHead of the Branch Office of theExecutive Board of the Trade Unionfor the Metal IndustryDüsseldorf

Dr. Gerold BezzenbergerSolicitor and Notary Public,Member of the Executive Board ofDeutsche Schutzvereinigung fürWertpapierbesitz e.V.Berlin

Dr. Jürgen DeilmannManaging Director of Deilmann Montan GmbHBad Bentheim

Dr. Heinz DürrEntrepreneurBerlin

Jan KahmannMember of the Executive Board ofthe Trade Union for Public Services,Transport and TrafficStuttgart(since 3 December 1999)

Martina Kirchhof-HarloffHead of the Legal Departmentof Preussag Noell GmbHWürzburg(until 10 September 1999)

Fritz KollorzMember of the Executive Board ofthe Trade Union for Mining, Energyand Chemical IndustriesHanover

Dr. Jürgen KrumnowMember of the Board of Advisersof Deutsche Bank AGFrankfurt/Main

Heinz LookLocksmithSuddendorf(since 10 June 1999)

Joachim LossackClerkMarienberg

Dipl.-Kfm. Hans Henning OffenDeputy Chairman of the ExecutiveBoard of Westdeutsche LandesbankGirozentraleDüsseldorf

Dr. Günther SaßmannshausenHanover

Norbert SchmidtManaging Director of LehnkeringMineralstoffe GmbH Duisburg(until 30 September 1999,Member of the Presiding Committee until 10 November 1998)

Gerhard SchneiderClerkSehnde(since 28 October 1999)

Dipl.-Math. Olaf SeifertHead of the Central ControllingDepartment of Hapag TouristikUnion GmbHHanover(since 28 October 1999)

Johann SitzbergerForemanPlattling(since 28 October 1999)

Dr. Bernd W. VossMember of the Executive Board of Dresdner Bank AGFrankfurt/Main

Presiding Committee

� Members of the Supervisory Board

130 Boards

Supervisory Board

� Other board memberships of the Supervisory Board *)

Dr. Friedel Neuber(Chairman)a) Babcock Borsig AG 1)

Deutsche Bahn AGDouglas Holding AGHapag-Lloyd AGHapag Touristik Union GmbHRWE AG 1)

Thyssen Krupp AGb) AXA-UAP S.A.

Bank Austria AG

Dipl.-SoziologeHorst Schmitthenner(Deputy Chairman)a) Salzgitter AG 2)

Rainer Barcikowskia) EKO Stahl GmbH 2)

Mannesmann AG

Herbert Baresela) Howaldtswerke-Deutsche

Werft AG

Dr. Gerold Bezzenbergera) IVG Holding AG

Lahmeyer AGTESSAG Technische Systeme &Services AG

Dr. Jürgen Deilmanna) Braunschweigische

Maschinenbauanstalt AG 1)

Dr. Heinz Dürra) Alp Transit Gotthard AG 2)

Bankgesellschaft Berlin AGBenteler AGDürr AG 1)

Krone GmbH 1)

Mannesmann AGStinnes AG

b) Carl-Zeiss-StiftungLandesbank Baden-Württemberg

*) Information refers to 30 September1999 or the date of resignation from the Supervisory Board

1) Chairman2) Deputy Chairmana) Membership in Supervisory Boards

required by lawb) Membership in comparable Supervisory

Boards of domestic and foreign companies

Peter Ermlich a) Deilmann-Haniel GmbH

Jan Kahmanna) Bremer Straßenbahn AG 2)

Bremer Versorgungs- und Verkehrsgesellschaft mbH 2)

PreussenElektra AGStadtwerke Bremen AG

Martina Kirchhof-Harloffa) Preussag Noell GmbH

Uwe Kleina) –

Fritz Kollorza) DSK Anthrazit Ibbenbüren GmbH 2)

RAG Aktiengesellschaft 2)

STEAG AG 2)

STEAG Walsum Immobilien AG 2)

Vereinigte Energiewerke AG 2)

Dr. Jürgen Krumnowa) Metallgesellschaft AG

Mobil Oil AG 1)

Phoenix AGSchering AGSchmalbach-Lubeca AGVIAG AGVolkswagen AG

b) Peek & Cloppenburg KGSchiffshypothekenbank zu Lübeck AG 1)

Dr. Dietmar Kuhnta) Allianz Versicherungs-AG

Dresdner Bank AGHapag-Lloyd AGHeidelberger Druckmaschinen AG 1)

HOCHTIEF AG 1)

Lahmeyer AG 1)

Metallgesellschaft AGRheinbraun AG 1)

RWE-DEA AG für Mineraloel und Chemie 1)

RWE Energie AG 1)

RWE Umwelt AG 1)

Dr. Klaus Liesena) Allianz AG 1)

Deutsche Bank AGMannesmann AGRuhrgas AG 1)

Veba AGVolkswagen AG 1)

b) Beck GmbH & Co. KG

Heinz Looka) Preussag Energie GmbH

Volksbank Obergrafschaft e.G.

Joachim Lossacka) –

Dipl.-Kfm. Hans Henning Offena) Basler AG 2)

Deutsche Shell AGGildemeister AGKaufhof Warenhaus AGKaufring AG 2)

RWE Energie AGThyssen Krupp Materials & Services AGTrienekens AGWest LB (Europa) Holding AG 2)

b) AKA AusfuhrkreditgesellschaftmbHBanque d’OrsayWestKA WestdeutscheKapitalanlageges. mbH 1)

WestLB International S.A.

Dr. Günther Saßmannshausena) Braunschweigische

Maschinenbauanstalt AGDeutsche Shell AGHeraeus Holding GmbH 1)

Preussag Energie GmbHVAW Aluminium AGVolkswagen AG

Norbert Schmidta) –

Gerhard Schneidera) Hapag Touristik Union GmbH

Dipl.-Math. Olaf Seiferta) –

Johann Sitzbergera) Kermi GmbH

Werner Stegmaiera) Minimax GmbH 2)

Dr. Bernd W. Vossa) Continental AG

Deutsche Hypothekenbank Frankfurt-Hamburg AG 2)

Deutsche Schiffsbank AGDresdner Bauspar AG 2)

Karstadt AGOldenburgische Landesbank AG 1)

Quelle AGStinnes AGVarta AGVeba AGVolkswagen AG

b) Bankhaus Reuschel & Co. 1)

Boards 131

Executive Board

� Members of the Executive Board

� Other board memberships of the Executive Board *)

� Divisional Executives

Dr. Michael Frenzel Chairman

Rainer FeuerhakeFinance and Accounting

Dr. Wolfgang SchultzePersonnel and Legal Affairs

Dr. Helmut StodieckControlling

*) Information refers to 30 September 1999

1) Chairman2) Deputy Chairmana) Membership in Supervisory Boards

required by lawb) Membership in comparable Supervisory

Boards of domestic and foreign companies

Dr. Michael Frenzel Chairmana) AXA-Colonia Versicherungs AG

Continental AGDeutsche Hypothekenbank AGHapag-Lloyd AG 1)

Hapag Touristik Union GmbH 1)

IVG AGPreussenElektra AGTU Holding GmbH 1)

VTG-Lehnkering AG 1)

VTG Vereinigte Tanklager undTransportmittel GmbH 1)

b) Algeco S.A. 2)

Thomas Cook Holdings Ltd.1)

Creditanstalt AGEXPO 2000 Hannover GmbHNorddeutsche LandesbankKreditanstalt für WiederaufbauPreussag North America, Inc.1)

Rainer Feuerhakea) Babcock Borsig AG

Hapag-Lloyd AGHapag Touristik Union GmbHHowaldtswerke-Deutsche Werft AGWolf GmbH 1)

b) Amalgamated Metal Corporation PLCMetaleurop S.A. 1)

Preussag Finance B.V. 1)

Preussag North America, Inc.Thomas Cook Holdings Ltd.Westdeutsche Immobilienbank

Dr. Wolfgang Schultzea) ECI Elektro-Chemie GmbH

Fels-Werke GmbHHapag Touristik Union GmbH

b) Preussag BKK 1)

Dr. Helmut Stodiecka) Babcock Borsig AG

Hapag Touristik Union GmbHPreussag Energie GmbH

b) Amalgamated Metal Corporation PLC 1)

W.&O. Bergmann GmbH & Co. KGPreussag North America, Inc.

Dr. Ralf Corsten Tourism(since 1 July 1999)

Dr. Klaus-Jürgen JuhnkeLogistics(until 30 September 1999)

Günter KrallmannEnergy

Klaus LinnebachPlant Engineering and Shipbuilding(until 31 August 1999)

Jens SchneiderBuilding Engineering

Harold SherTrading

Bernd WredeLogistics

Claus WülfersTourism(until 30 June 1999)

132 Report of the Supervisory Board

Report of the Supervisory Board

� Report of the Supervisory Board

During the financial year 1998/99, the Supervisory Board supervised and advised

the management of the Company. The Supervisory Board was kept informed reg-

ularly about current business development and the position of the Company by

the Executive Board on the basis of comprehensive written and verbal reports.

In the course of four regular meetings the Supervisory Board was involved in all

important company affairs and discussed them with the Executive Board. The

consultation processes concentrated on the economic situation of the Company,

the short-term and medium-term budget and the further development of the

Group, in particular the expansion of the tourism division and the sale of plant

engineering and shipbuilding to Babcock Borsig AG or to the Swedish Celsius AB

(pub), respectively. Special issues concerning the expansion of tourism were the

acquisition of a majority shareholding in the British Thomas Cook Group, the

acquisition of the First travel agency chain and the take-over of the remaining

shares in Touristik Union International. Another subject of the deliberations was

the concentration of the tourism activities in Hapag Touristik Union GmbH and

of the logistics division in Hapag-Lloyd AG as well as the resultant Group organi-

sation into the four divisions tourism, logistics, energy and commodities, and

building engineering.

The capital measures to finance the structural changes in the Group suggested

by the Executive Board were comprehensively debated. Following the creation of

an authorised capital of e 39 million and a conditional capital of e 39 million by

the Annual General Meeting held on 31 March 1999, the Supervisory Board delib-

erated and passed the resolutions required for the implementation of a capital

increase and the issue of a convertible bond. Furthermore, it agreed on the issue

of a corporate bond.

Business transactions which required the consent of the Supervisory Board

according to the law or the Articles of Association or were of particular impor-

tance were discussed in detail prior to passing the corresponding resolutions.

The Presiding Committee of the Supervisory Board met to prepare decisions to

be taken by the Supervisory Board at the balance sheet meeting.

The financial statements of Preussag AG and the consolidated financial state-

ments for the financial year ending on 30 September 1999 as well as the joint

management report relating to both Preussag AG and the Group for the finan-

cial year 1998/99 submitted by the Executive Board were audited by PwC

Deutsche Revision Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Hanover,

appointed by the Annual General Meeting on 31 March 1999. The auditors found

that the legal requirements had been complied with and issued their unquali-

fied audit certificate.

Report of the Supervisory Board 133

The auditors also audited and confirmed the conformity of the accounting, valu-

ation and consolidation in the consolidated financial statements with the Inter-

national Accounting Standards (IAS). Furthermore, the auditors audited the early

risk detection system operated by Preussag AG in accordance with the Act on

Control and Transparency in the Corporate Sector (KonTraG).

The financial statements, management report and the auditors‘ reports were

presented to all members of the Supervisory Board. Representatives of the audi-

tors attended the balance sheet meetings of the Presiding Committee and the

Supervisory Board and provided information.

The Supervisory Board approves, after examination, the results of the audit. It

has also examined the financial statements and the consolidated financial

statements as well as the management reports of the company and the Group.

Following the final examination, the Supervisory Board has no objections and

approves the financial statements, which were thereby adopted. After examina-

tion, the Supervisory Board concurs with the Executive Board’s proposal for the

appropriation of the distributable profit.

Mr. Peter Ermlich, Mr. Herbert Baresel and Mr. Horst Schmitthenner retired from

the Supervisory Board and the Presiding Committee of the Supervisory Board

with effect from 4 June 1999, 30 September 1999 and 30 November 1999,

respectively. Furthermore, Mrs. Kirchhof-Harloff retired from the Supervisory

Board with effect from 10 September 1999 and Mr. Norbert Schmidt with effect

from 30 September 1999. The Supervisory Board wishes to thank the retired

members for the many years of constructive cooperation.

At its meetings held on 1 July 1999 and 10 November 1999, respectively, the

Supervisory Board elected Mr. Werner Stegmaier and Mr. Uwe Klein as members

of the Presiding Committee of the Supervisory Board.

By order of the Hanover District Court, Mr. Heinz Look was appointed member

of the Supervisory Board on 10 June 1999, Mr. Gerhard Schneider, Mr. Olaf Seifert

and Mr. Johann Sitzberger on 28 October 1999, and Mr. Jan Kahmann on

3 December 1999.

The Supervisory Board

Hanover, February 2000

Dr. Friedel Neuber

Chairman

134 Major Shareholdings

Major Shareholdings

Companies

Nominal Result for Shareholding (%)share capital the year 1)

in ’000 in ’000 total indirect

Tourism

Hapag Touristik Union GmbH, Hanover 2) DM 300,000 * 99.6 99.6

TUI Deutschland GmbH, Hanover DM 15,000 3) 35,136 99.6 99.6

Travel Unie International Nederlande N.V., Rijswijk NLG 20,000 17,915 90.6 90.6

Hapag-Lloyd Geschäftsreise GmbH, Bremen DM 20,000 * 99.6 99.6

Hapag-Lloyd Reisebüro GmbH, Bremen DM 20,000 * 99.6 99.6

FIRST Reisebüro Management GmbH & Co. KG, Düsseldorf 4) DM 46,000 5) 99.6 99.6

Robinson Club GmbH, Hanover DM 10,050 1,295 99.6 99.6

RIUSA II S.A., Palma de Mallorca ESP 200,000 6,149,257 49.8 49.8

Hapag-Lloyd Fluggesellschaft mbH, Langenhagen DM 85,000 * 99.6 99.6

The Thomas Cook Group Ltd., Peterborough 4)6) GBP 110,000 21,874 50.1 50.1

Logistics

Hapag-Lloyd AG, Bremen and Hamburg DM 135,000 108,490 99.6 —

Hapag-Lloyd Container Linie GmbH, Hamburg 7) DM 50,000 * 99.6 99.6

VTG-Lehnkering AG, Duisburg and Hamburg DM 104,500 30,330 79.7 79.7

ALGECO S.A., Paris/Mâcon FRF 47,783 88,464 67.0 67.0

Energy and Commodities

Preussag Energie GmbH, Lingen DM 150,000 * 100.0 —

Deutsche Tiefbohr-AG, Bad Bentheim DM 63,400 * 100.0 100.0

Amalgamated Metal Corporation PLC, London GBP 16,908 3,688 99.4 99.4

Amalgamated Metal Trading Ltd., London GBP 6,000 283 99.4 99.4

Premetalco, Inc., Rexdale CAD 21 9,890 99.4 99.4

W. & O. Bergmann GmbH & Co. KG, Düsseldorf DM 60,000 5) 100.0 —

Feralloy Corp., Chicago USD 2,000 3,476 100.0 100.0

Delta Steel, Inc., Houston USD 2,000 34 100.0 100.0


FELS-WERKE GmbH, Goslar DM 40,000 * 100.0 —

Wolf GmbH, Mainburg DM 80,000 * 100.0 —

Elco Energiesysteme AG, Vilters CHF 1,000 8,329 100.0 100.0

Chaffoteaux et Maury S.A., Chatou FRF 78,347 48,070 100.0 100.0

Kermi GmbH, Plattling DM 30,000 * 100.0 —

Minimax GmbH, Bad Oldesloe DM 40,700 * 100.0 —

Other Companies

Salzgitter Grundstücks- undBeteiligungsgesellschaft mbH, Salzgitter DM 139,700 * 100.0 —

Preussag Immobilien GmbH, Salzgitter DM 48,050 5,735 100.0 100.0

Babcock Borsig AG, Oberhausen 8) DM 268,252 3) 150,158 33.3 —

Howaldtswerke-Deutsche Werft AG, Kiel DM 140,000 * 50.0 —

* Profit transfer agreement1) According to local laws 5) Result is distributed to shareholder2) TUI GROUP GmbH since 27 Dec 1999 6) Consolidated financial statements as of 31 Dec 19983) In Euro 7) Abbreviated financial year4) Divergent financial year 8) According to financial statements as of 30 Sept 1998

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