Content · Tourism is now the key elementin our portfolio.Here,TUI Group GmbH, the leading company...
Transcript of 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
1998/99 1997/98 ChangeDM mill. DM mill. %
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
1998/99 1997/98 ChangeDM mill. DM mill. %
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
1) excl. activities divested in the financial year 1998/99
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
12 Management Report
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.
Management Report 13
14 Management Report
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)
1998/99 1997/98 Change DM mill. DM mill. %
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)
1998/99 1997/98 Change DM mill. DM mill. %
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.
Management Report 15
16 Management Report
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.
17 Management Report
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
Management Report 18
19 Management Report
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
financial statements.
� 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.
20 Management Report
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.
Management Report 21
22 Management Report
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-
23 Management Report
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
Management Report 24
25 Management Report
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.
Management Report 26
27 Management Report
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
30 Further Information
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.
Further Information 31
32 Further Information
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.
Further Information 33
34 Further Information
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
1) excl. activities divested in the financial year 1998/99
35 Further Information
� 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.
Further Information 36
37 Further Information
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.
38 Further Information
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.
Further Information 39
� 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.
40 Further Information
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
1998/99 1997/98 ChangeDM mill. DM mill. %
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
1998/99 1997/98 ChangeDM mill. DM mill. %
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
Consolidated turnover 5,897 5,730 + 3
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.
Development of turnover and results
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.
Development of turnover and results
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
1998/99 1997/98 ChangeDM mill. DM mill. %
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.
Development of turnover and results
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.
Development of turnover and results
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.
Development of turnover and results
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.
Development of turnover and results
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.
Development of turnover and results
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
1998/99 1997/98 ChangeDM mill. DM mill. %
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
Consolidated turnover 3,491 3,417 + 2
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.
Development of turnover and results
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.
Building Engineering
� 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.
Development of turnover and results
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.
Development of turnover and results
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.
Development of turnover and results
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
(DM million) Notes 1998/99 1997/98
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)
64 Financial Statements 1998/99
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
Payments on account 220.0 0.0 2.0 130.9 5.1 - 134.4 213.4
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
Financial Statements 1998/99 65
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
2) Including disposals relating to changes in structure of consolidated companiesa) Intangible assets: 27.1b) Tangible assets: 1,996.1c) Investments: 51.0
66 Financial Statements 1998/99
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
Payments on account 6.7 0.0 1.5 3.9 6.1 - 2.1 3.9
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
Payments on account 38.7 0.0 344.9 165.8 13.8 - 315.6 220.0
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
1) Including disposals relating to changes in structure of consolidated companiesa) Intangible assets: 76.6b) Tangible assets: 6,928.9c) Investments: 215.8
� Development of Fixed Assets 1997/98
Financial Statements 1998/99 67
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
2) Including disposals relating to changes in structure of consolidated companiesa) Intangible assets: 58.7b) Tangible assets: 5,066.0c) Investments: 3.6
68 Financial Statements 1998/99
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
Financial Statements 1998/99 69
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
70 Financial Statements 1998/99
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
Financial Statements 1998/99 71
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
(DM million) Notes 1998/99 1997/98
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
72 Financial Statements 1998/99
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.
Financial Statements 1998/99 73
� 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.
74 Financial Statements 1998/99
Notes on the Principles and Methods
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.
Financial Statements 1998/99 75
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
financial statements.
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
of which in Germany 11 7 3 15
of which abroad 7 44 1 50
*) excl. Preussag AG
76 Financial Statements 1998/99
Notes on the Principles and Methods
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
Financial Statements 1998/99 77
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
financial statements.
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
of which in Germany 163 18 37 144
of which abroad 197 194 28 363
Companies valued at equity 65 31 21 75
of which in Germany 15 15 6 24
of which abroad 50 16 15 51
*) excl. Preussag AG
78 Financial Statements 1998/99
Notes on the Principles and Methods
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:
Financial Statements 1998/99 79
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
Notes on the Principles and Methods
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
Financial Statements 1998/99 81
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.
82 Financial Statements 1998/99
Notes on the Principles and Methods
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.
Financial Statements 1998/99 83
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.
84 Financial Statements 1998/99
Notes on the Principles and Methods
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).
Financial Statements 1998/99 85
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.
86 Financial Statements 1998/99
Notes on the Principles and Methods
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.
Financial Statements 1998/99 87
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’.
88 Financial Statements 1998/99
Notes on the Principles and Methods
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.
Financial Statements 1998/99 89
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
90 Financial Statements 1998/99
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.
Financial Statements 1998/99 91
(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.
92 Financial Statements 1998/99
Notes on the Consolidated Profit and Loss Statement
(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.
Financial Statements 1998/99 93
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
of which from Group companies (5.3) (4.2)
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
of which from Group companies (0.4) (0.5)
Other interest and similar income 224.4 210.0
of which from Group companies (6.1) (10.1)
Interest and similar expenses 363.4 330.7
of which to Group companies (13.6) (11.4)
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.
94 Financial Statements 1998/99
Notes on the Consolidated Profit and Loss Statement
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
Financial Statements 1998/99 95
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.
96 Financial Statements 1998/99
Notes on the Consolidated Profit and Loss Statement
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.
Financial Statements 1998/99 97
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.
98 Financial Statements 1998/99
Notes on the Consolidated Profit and Loss Statement
(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.
Financial Statements 1998/99 99
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.
100 Financial Statements 1998/99
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
Financial Statements 1998/99 101
(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
(DM million) 30 Sept 1999 30 Sept 1998
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.
102 Financial Statements 1998/99
Notes on the Consolidated Balance Sheet
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.
Financial Statements 1998/99 103
(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
(DM million) 30 Sept 1999 30 Sept 1998
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).
104 Financial Statements 1998/99
Notes on the Consolidated Balance Sheet
(17) Inventories
(DM million) 30 Sept 1999 30 Sept 1998
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
Financial Statements 1998/99 105
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
(DM million) 30 Sept 1999 30 Sept 1998
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.
106 Financial Statements 1998/99
Notes on the Consolidated Balance Sheet
(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
(DM million) 30 Sept 1999 30 Sept 1998
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).
Financial Statements 1998/99 107
(22) Prepaid expenses
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
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
108 Financial Statements 1998/99
Notes on the Consolidated Balance Sheet
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.
Financial Statements 1998/99 109
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.
110 Financial Statements 1998/99
Notes on the Consolidated Balance Sheet
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
Financial Statements 1998/99 111
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
(DM million) 30 Sept 1999 30 Sept 1998
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.
112 Financial Statements 1998/99
Notes on the Consolidated Balance Sheet
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:
(DM million) 30 Sept 1999 30 Sept 1998
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-
Financial Statements 1998/99 113
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.
114 Financial Statements 1998/99
Notes on the Consolidated Balance Sheet
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
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
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
Financial Statements 1998/99 115
(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.
116 Financial Statements 1998/99
Notes on the Consolidated Balance Sheet
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.
Financial Statements 1998/99 117
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
(DM million) 30 Sept 1999 30 Sept 1998
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
(DM million) 30 Sept 1999 30 Sept 1998
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
of which to Group companies (3.4) (5.5)
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.
Notes on the Consolidated Balance Sheet
118 Financial Statements 1998/99
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
Financial Statements 1998/99 119
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.
Notes on the Consolidated Balance Sheet
120 Financial Statements 1998/99
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.
Financial Statements 1998/99 121
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-
Notes on the Consolidated Balance Sheet
122 Financial Statements 1998/99
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.
Financial Statements 1998/99 123
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
124 Financial Statements 1998/99
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
Financial Statements 1998/99 125
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-
126 Financial Statements 1998/99
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
Financial Statements 1998/99 127
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
Building Engineering
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