358578 en001 081 · corporate governance page 72 chart of the group page 78 annual accounts 2003...

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Financial calendar coverTessenderlo Group at a glance leafletKey figures leafletStrategy and assets leafletRecent acquisitions leaflet

Message from the chairman page 4

Management, control and leadership page 7

International presence page 8

Tessenderlo Chemie share and Investor Relations page 12

Markets and Applications page 20

Activity report per division• Inorganic Chemicals page 22• Fine Chemicals page 30• PVC & Compounds page 34• Plastics Converting page 40• Natural Organic Products page 46

Human Resources page 54

Environment and Safety page 56

Research and Development page 66

Corporate Governance page 72

Chart of the group page 78

Annual accounts 2003– consolidated page 82– NV page 110

General information– addresses page 118– index page 126

SUMMARY

Dyka PolskaJelcz-LaskowicePOLAND

The Plastics Converting division primarilyproduces PVC window profiles and plastic pipessystems. Besides consolidating its existingpositions, the division also wishes to boost itspresence in emerging markets, primarily inEastern Europe.

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MESSAGE FROM THE CHAIRMAN

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Gérard MarchandChairman

Dear Madam, dear Sir,

2003 was without doubt our group’s worst year for a long time. In addition to a par-ticularly difficult environment for chemicals in general, some of our major productswere also faced with specific problems.

The group’s turnover totalled 1,972 million EUR, up 2% on the previous year. Lowerprices in the Inorganic Chemicals and the PVC divisions, on top of a weak dollar had anegative impact on turnover. This was offset by the incorporation of the acquisitionsof the two new gelatin units.

Net profit decreased by 38.5%, largely due to the decline in animal feed phosphatesprices and a further deterioration in PVC margins.

The markets in which the Inorganic Chemicals division is involved were fairly gloomyin 2003. The increased supply of animal feed phosphates, together with a tail-off indemand in Europe, resulted in prices plummeting. This had a significant negativeimpact on the results.Caustic soda prices in Europe remained lower than global prices, despite balancedsupply and demand. This continued to weigh on results in the electrolysis businessunit.The market in sulphates for fertilisers remained stable, so partially offsetting the nega-tive effect of the fall in the dollar and high freight levels.The only positive trend was that for ferric chloride in Europe and liquid sulphur-con-taining fertilisers in the US.

PVC and VCM prices fluctuated considerably in 2003. Although prices returned toreasonable levels in the early part of the year, they fell back sharply in the secondquarter. The summer saw sound volumes as a result of companies involved in convert-ing replenishing stocks, and prices gradually improved in the fourth quarter. Since rawmaterial prices remained high throughout the year, margins fell significantly comparedto the previous year. As a result, 2003 was the third disappointing year in a row forPVC.

In Fine Chemicals, toluene derivatives suffered as a result of competition from Asia,exacerbated by the weak dollar. In a rather subdued market, this competitive pressuremeant it was not possible to pass on persisting high raw material prices. This divisionalso had a role to play in the deterioration in results, but to a lesser extent than theother divisions already referred to.

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‘Despite a difficult year, some important decisions for the group’s futuredevelopment have been taken in 2003.’

Gelatin business improved markedly, due to the sound performance by our European units and the very posi-tive contribution from the two American production units in their very first year in the group. This offset a de-cline in the by-products of animal origin business, which was hampered by the introduction of new regula-tions.

The Plastics Converting division continued to perform well, so making the most positive contribution to thegroup’s results.Pipe systems business expanded through the distribution network in Great Britain, and in Poland. Most of theexpansion in profiles occurred in Great Britain. We are continuing our efforts to boost profitability at our USproduction unit.

We significantly enhanced our position on the gelatin market in 2003, with the acquisition of two newplants, one in the US and the other in Argentina. We are the world’s third largest gelatin manufacturer, andnow have a diversified geographic presence. We also acquired the minority interests in our two subsidiaries,Fairbrook (Plastics Converting) in Great Britain and Taile (Fine Chemicals) in China, bringing our stake to100%.

Considering these sizeable investments, the group’s debt only increased moderately. This confirmed its capac-ity to generate cash flows, after deduction of recurrent investments, even in a very difficult year.

In the latter part of the year, we obtained the environmental permit for the new electrolysis unit atTessenderlo, which will enable us to begin this very significant investment.

In accordance with its dividend policy, and in spite of the decline in profit, the Board of Directors will submit aproposal to the Annual General Meeting to keep the net dividend at 0.85 EUR per ordinary share.

The Board would like to thank the 8,244 staff at all levels for their efforts on the group’s behalf.

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Adrien Carton de Wiart Eddy VandenbrielePhilippe PôletMatteusz Dubinski

Jozef Housen Gérard Marchand David PoyntonChristian Vrebosch

MANAGEMENT, CONTROL AND LEADERSHIP

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1. Board of Directors

Chairman Gérard Marchand

Directors Pierre-Louis BoutonnatPierre-François CoutureClaude NiedergangValère CroesPaul de MeesterBernard PacheThierry PiessevauxKarel PinxtenMarc Lambrechts († August 2003)

Statutory AuditorKPMG Klynveld Peat Marwick Goerdeler

Reviseurs d'Entreprises/Bedrijfsrevisoren

Permanent representative L. Ruysen

2. General management of Tessenderlo Group(on 31 December 2003)

Chairman of the Management Committee: Gérard Marchand

Member of the Management Committee: Matteusz DubinskiInorganic Chemicals division

Member of the Management Committee: Jozef HousenNatural Organic Products division

Member of the Management Committee: Philippe PôletPVC and Plastics Converting divisions

Member of the Management Committee: David Poynton*Fine Chemicals division

Secretary General: Adrien Carton de Wiart

Director IT, Organisation Development and Human Resources: Eddy Vandenbriele

Financial Director: Christian Vrebosch

* Pierre Ducuroir till 31.3.2003

Production units: 69

Sales offices in:

ArgentinaBelgiumChileCzech RepublicDenmarkFranceGermanyGreat BritainHungaryItaly

LebanonMexicoNetherlandsPeruPolandSpainSwitzerlandTurkeyUSA

INTERNATIONAL PRESENCE

CANADA 2

UNITED STATES 16

BRAZIL 2

ARGENTINA 1

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ITALY 3

CHINA 1

POLAND 2

FRANCE 23

GREAT BRITAIN 7

BELGIUM 7

NETHERLANDS 4

GERMANY 1

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The French plant Cousin-Tessier produces thermo-plastic elastomers and PVC compounds for cables,shoe soles and the automotive industry.Tessenderlo Group is the fifth largest producer ofPVC compounds in Europe.

Thermoplastiques Cousin-TessierTiffaugesFRANCE

TESSENDERLO CHEMIE SHARE AND INVESTOR RELATIONS

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Tessenderlo Chemie shares

Tessenderlo Chemie shares have been listed on the Brussels Stock Exchange since 17 August 1937. They are traded on the continuous market and are part of the ‘Next 150’ and ‘NextPrime’ indices.

On 31 December 2003, Tessenderlo Chemie NV’s capital was represented by27,113,352 shares without indication of nominal value (5,226,551 of which withVVPR strips). Bearer shares are issued in denominations of 1, 10, 50 and 100. At theend of 2003, 12,360,012 registered shares, including shares held by staff, wereentered in the share register.

Tessenderlo Chemie’s market capitalisation had increased to EUR 757,818,188 at theend of December 2003. The ‘velocity’ (the number of shares traded over twelvemonths compared with the total number of shares) within the Next 150 segment was23.07%, and the adjusted velocity within the BEL20 index was 43.17%.

The liquidity contract that guarantees support for trading in the shares and theirnegotiability is in its third year.

Tessenderlo Chemie shares are also represented on the American market, in the formof American Depository Receipts (ADR). Five ADR’s are equivalent to one TessenderloChemie share.

In the past year, the ordinary share price fluctuated between 24.13 EUR and 29.50 EUR. The closing price on 31 December 2003 was 27.95 EUR.

Beginning of 2004 Tessenderlo Chemie NV has been selected for inclusion in theKempen SNS Smaller European SRI Index. Membership is available to those companiesthat demonstrate defined standards and practise in the three areas of business ethics,human resources and the environment.

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Stock exchange data (consolidated accounts) on December 31

1999 2000 2001 2002 2003

Capital (millions EUR) 128.90 130.14 131 132 133Number of shares 29,137,316 29,232,548 29,347,124 26,975,013 27,113,352Own shares 1,178,454 2,473,639 2,473,639 0 0

Farthest pricesFixed ordinary share 38.50 / 52.85 29.75 / 55.45 20.55 / 32.20 23.00 / 35.00 24.13 / 29.5

Closing priceMarket continuous 51.50 31.65 26.60 28.6 27.95Average daily volume 27,400 23,845 17,556 24,097 24,120

Data per share*Value of shareholders' equity 23.68 25.49 26.39 27.57 27.93Consolidated net profit 2.49 3.38 2.41 2.62 1.6Net Cash flow 6.44 7.88 6.25 7.66 5.96Net dividend per ordinary share 0.72 0.85 0.85 0.85 0.85

Capitalisation at the end of year 1,500.6 925.2 780.6 771.5 757.8

* Without taking into account the own shares at the 31st december

94 95 96 97 98 99 00 01 02 03

0.85

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94 95 96 97 98 99 00 01 02 030

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Stock market capitalisation(millions EUR)

Net dividend per share(EUR)

Turnover

Stock market capitalisation

Shareholders' equity

94 95 96 97 98 99 00 01 02 03

71

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10

20

30

40

50

60

70

80

Gross dividend/net consolidated earnings (%)

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Capital structure

The company did not receive any statements involving acquisitions or transfersexceeding the disclosure limit in the past financial year.

A capital increase reserved for staff has been made every year since 1985. 138,339shares were subscribed in 2003. Taking account of the 414,312 registered sharesrecorded in the register, staff now comprises 1.52% of the total shareholder base.

On 6 November 2003, the second block of a bond loan with warrants was issuedfor the group’s senior executives. This loan has a term of seven years, and is repre-sented by 1,250 bonds of 25 EUR each, with 40 warrants attached. The interest rateis 4% per annum. Each warrant entitles the holder to purchase one share at the exer-cise price of 26.45 EUR.

The options issued in the form of a debenture loan, which can be taken up by thegroup’s senior executives, currently represent less than 0.5% of the total shares inissue.

Dividend

On 1 June 2004, the Annual General Meeting will be requested to approve a pro-posed net dividend of 0.85 EUR. This corresponds to a gross dividend of 1.1333 EUR.The net dividend for coupons with VVPR strips attached will be 0.9633 EUR.

The net dividend of EUR 0.85 means there is no change compared to the 2000, 2001and 2002 financial years.

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Financial information and investor relations

Providers of financial information publish information on Tessenderlo Group under the following codes:

– Bloomberg: TESB BB– Reuters: TESBt.BR– Datastream: B:TES– TBM: 23IT081– SEDOL: 4-884-006– ALPHA: TES

Tessenderlo Group has been publishing quarterly financial results for the past ten years. The publicationdates for 2004 are given in the ‘Financial Calendar’ on the inside of the front cover. These details – alongwith exhaustive information on the group – are also available on the website www.tessenderlogroup.com. Inaddition the possibility is offered to subscribe to a mailing list to receive Tessenderlo Group press releases bye-mail.

The half-yearly results are published in brochure form.

The Tessenderlo Chemie share price can be viewed on the group’s website at www.tessenderlogroup.com(see Corporate – Investor Relations – Stock Information) and on the Euronext website at www.euronext.com.

Analysts at the following financial institutions (listed in alphabetical order) monitor Tessenderlo Group’s per-formance: Bank Degroof, Bank de Maertelaere, Delta Lloyd Securities, Dexia Securities, Fortis Bank, HSBCDewaay Bank, ING Financial Markets, KBC Securities, Petercam, Puilaetco and Rabo Securities.

Every year, the financial managers – who are also responsible for investor relations – take part in a number ofevents for institutional and individual investors in Belgium and abroad. They are supported by the CorporateCommunication department. Between the various ‘roadshows’ (in cities such as Amsterdam, Geneva,London, Milan, Paris and Zurich), meetings with analysts and company visits for analysts and investors arearranged. The purpose of all these initiatives is to boost investor awareness of the group.

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The provisional calendar for 2004 is as follows:

20 March 2004 Investor event – VFB – in Antwerp (B)27 March 2004 Share day – Cash – in Brussels (B)27 and 28 April 2004 Midcap Event in London15 May 2004 Financial brunch – Investa – Euronext – in Liège/Luik (B)8 and 9 July 2004 Europlace in Paris22 and 23 September 2004 Midnext in Paris19 and 20 November 2004 Actionaria in Paris

Financial services

Financial services in respect of Tessenderlo Chemie shares are provided by thefollowing financial institutions: Bank Degroof, Deutsche Bank, Dexia, Fortis Bank, ING, KBC Bank and Petercam Beursvennootschap.

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28

30

32

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31-12-2002

14-01-2003

28-01-2003

11-02-2003

25-02-2003

11-03-2003

25-03-2003

08-04-2003

22-04-2003

06-05-2003

20-05-2003

03-06-2003

17-06-2003

01-07-2003

15-07-2003

29-07-2003

12-08-2003

26-08-2003

09-09-2003

23-09-2003

07-10-2003

21-10-2003

04-11-2003

18-11-2003

02-12-2003

16-12-2003

30-12-2003

Tessenderlo FTSE Chemicals DJ STOXX Chemicals

Tessenderlo Chemie vs. European peers (rebased)

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20

22

24

26

28

30

32

34

31-12-2002

14-01-2003

28-01-2003

11-02-2003

25-02-2003

11-03-2003

25-03-2003

08-04-2003

22-04-2003

06-05-2003

20-05-2003

03-06-2003

17-06-2003

01-07-2003

15-07-2003

29-07-2003

12-08-2003

26-08-2003

09-09-2003

23-09-2003

07-10-2003

21-10-2003

04-11-2003

18-11-2003

02-12-2003

16-12-2003

30-12-2003

06-01-2004

Evolution of the Tessenderlo Chemie share price

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100

94 95 96 97 98 99 00 01 02 03

180

260

340

420

Return with dividends reinvested (index = 100)

Source: Moneyline

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Tessenderlo KerleyCoffeyville plantUNITED STATES OF AMERICA

Tessenderlo Group is, through its American sub-sidiary Tessenderlo Kerley, the largest producer ofliquid sulphur-containing fertilisers worldwide.The group holds 55 percent of the Americanmarket for this type of high quality fertiliser.

MARKETS AND APPLICATIONS

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Tessenderlo Group: Bringing Chemistry to Life

Tessenderlo Group manufactures a range of products, which form an integral part ofour everyday lives – even though many consumers may not realise it. After all, behindthe often complicated chemical names one finds substances which are used in count-less applications, from animal feeds to antibiotics to the dashboards of cars. A little bitof Tessenderlo Group can also be found in chewing gum, perfumes, batteries, bloodbags, washing powders and window profiles – to mention just a few examples.

Below you will find an overview of the most important products and their applica-tions. The latter can be grouped into five markets:

Construction industry

PVC & Compounds: pipe systems, door and window profiles, facade cladding, telecommunications, cable insulation, floor covering, conservatories

Sodium sulphate and carbonate: glassZeolites: double-glazing

Agriculture

Ammonium and potassium thiosulphate: liquid fertilisers for large-scale cultivationCaustic potash: horticulture, fertilisers for irrigation systemsDi-calcium phosphate: animal feedGlycine and derivatives: animal feed, agrochemicalsPotassium sulphate: specialised fertilisers, which are especially

suited for flower, tobacco and fruit growingSulphuric acid: fertilisers

Industry

Acetates: antifreeze products for e.g. runwaysCaustic potash: batteries, textile treatmentCaustic soda: aluminium, rayonElectrolysis products: photography, leather tanning and water

treatment

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Ferric chloride: wastewater and potable water treatmentGelatin: photography, wine productionOrganic chlorine derivatives: paint, photographyPotassium bicarbonate: fire-extinguishing powderPotassium carbonate: glass, TV and computer screensSodium hydrosulphide and caustic soda: paper, pulpPVC and PVC compounds: dashboards, furniture, shoe soles, tarpaulins, electronics, cablesSulphuric acid: batteries, car windows, billiard balls

Health and hygiene

Chlorine: PVC, disinfectants, water treatmentGelatin: capsules for e.g. drugsOrganic chlorine derivatives: antibiotics, various pharmaceutical products for people, plants and

animals, perfumes, cosmetics, shampoo, UV resistant sun lotionsPharmaceutical intermediates: antibiotics, penicillinPotassium carbonate: shampoos, soapsPVC: blood bags, infusion bags and tubes, catheters, gloves, bottles for

shower and bath foamSodium hypochlorite: sanitizer, water treatment, bleachingSodium sulphate and caustic soda: detergents, soaps

Household

Animal fats: pet foodElectrolysis products: detergentsGelatin: foodstuffs such as dairy and ´light´ products, confectionery,

energy bars and drinksGlycine: foodstuffs, pet foodPotassium bicarbonate: baking powdersPVC: packaging films, tablecloths, shower curtains, garden furniture,

inflatable articles such as balls, swimming pools, boats and so onSodium hydrosulphide and caustic soda: detergentsZeolites: washing powders

INORGANIC CHEMICALS

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Matteusz Dubinski, director of the InorganicChemicals division

Activities and products

Tessenderlo Group’s Inorganic Chemicals division embraces the production of inor-ganic salts and alkaline bases obtained through electrolysis. It is characterised by anintegrated production process where the various end products and by-products areutilised internally in order to create maximum added value. The two fundamentalactivities of this process are the production of hydrochloric acid and chlorine.

Activities and products of the Inorganic Chemicals unit

The Inorganic Chemicals division plays a leading role in several markets worldwide.For example, the group is the second largest world producer of potassium sulphate,an especially well-suited fertiliser for use in dry areas, and for crops, flowers, tobacco,fruit and vegetables, that are highly sensitive to fertiliser quality. The group also playsa leading role in the market of sodium sulphate, found primarily in detergents.

A by-product of the production of sulphates is hydrochloric acid, of which theTessenderlo Group is the largest producer in the world.

The hydrochloric acid is marketed externally, but is also used internally in the produc-tion of phosphates, which have various applications in the animal feed and fertiliserindustries. The group occupies second place in the world market of phosphates foranimal feed. The range of phosphate products is very extensive allowing theTessenderlo Group to meet the requirements of almost all feed applications.

In addition, Tessenderlo Group is the world’s largest producer of liquid sulphur-containing fertilisers (such as ammonium thiosulphate). These are applied mainly in North America to supply needed sulphur to broad acre and speciality crops.

The other sulphur-containing derivatives: sodium sulphide, sodium hydrosulphide,ammonium bisulphide, ammonium thiosulphate and ammonium sulphide are used invarious processes within mining, photography, paper and leather tanning industries.

Another important product is zeolites, which have increasingly substituted phos-phates in washing powders.

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2003 2002

Turnover 534 611(millions EUR)

Ebitda 39 71(millions EUR)

Tangible investments 18 20(millions EUR)

Headcount 1,816 2,005

Activities and products of the electrolysis unit

The Tessenderlo Group’s electrolysis units produce 300,000 tonnes of chlorine annually. Most of this is usedinternally for the production of monovinyl chloride (VCM), which is the precursor of polyvinyl chloride (PVC),and for the chlorination of toluene and benzene.

The chlorine production also generates around 100,000 tonnes of caustic potash and more than 235,000tonnes of caustic soda annually. Caustic potash is mainly used in the production of potassium nitrate andpotassium phosphates, followed by applications for food and fertilisers, alkali batteries, de-icing products forairport runways, detergents and the chemical industry.

Caustic soda is used in water purification and the manufacture of soap and detergents. It is also used in thechemicals sector and in the aluminium and paper industries.

These basic products of the electrolysis units moreover have various derivatives with a wide range of appli-cations, from photography and the food sector to water treatment and ore extraction.

Alongside the classic electrolysis products, ferric chloride and aluminium chloride are also prepared on thebasis of chlorine, both indispensable in the rapidly expanding water treatment sector.

Turnover(millions EUR)

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700

‘Improving productivity and cutting production costs are still the key factors forsuccess, especially against an international backdrop involving new, formidablecompetitors, such as China. The division constantly focused on meeting thischallenge in the past year. If we continue our efforts, I firmly believe thatTessenderlo Group will, in the long run, be able to further strengthen itsposition.’

Inorganic Chemicals

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The most important production units (*)

Inorganic Chemicals

BELGIUM

The establishments of Tessenderlo Chemie in Ham and Tessenderlo annually processtwo million tonnes of raw materials, including sulphur, raw phosphate, potassiumchloride and sodium chloride. Tessenderlo Chemie in Ham produces a substantialshare of the calcium phosphates used in the animal feed industry. The process inwhich hydrochloric acid acts upon natural phosphate ores was developed by thisgroup. The line of phosphates for animal feed, which is produced in Belgium, issupplemented by the products of the Dutch and Italian establishments.

The Zeoline production unit in Engis, near Liège, produces zeolites in a joint venturewith Prayon (50/50).

EUROPE

The French subsidiary Aliphos in Alsace produces potassium carbonate and potas-sium di-carbonate, mainly for the production of cathode ray tubes.

The French subsidiary Produits Chimiques de Loos (PCL) in Loos, near Lille, pro-duces sodium sulphate and mineral chlorides (ferric, ammonium, zinc and aluminiumchloride).

Tessenderlo Chemie Rotterdam produces animal feed phosphates through thechemical reaction of purified phosphoric acid and a calcium, magnesium or ammo-nium source. The production is partly intended for export.

Tessenderlo Italia (Italphos) in Cologna Veneta also makes animal feed phosphateson the basis of purified phosphoric acid. The production is intended for the marketsin Italy and neighbouring countries.

(*) You can find a complete overview of the group’s production units and sales offices on page 118

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NORTH AMERICA

The American subsidiary Tessenderlo Kerley Inc. (TKI) is based in Phoenix, Arizona.TKI is the world’s largest producer of ammonium thiosulphate (THIO-SUL®, ATS) andpotassium thiosulphate (KTS®). TKI has 13 production plants in the United States.These plants are generally located near refineries whose acidic gases TKI processesinto liquid sulphur-containing fertilisers and derivatives, the vast majority of which(60%) are used in agriculture and the balance in process chemistry.

Electrolysis

BELGIUM

The establishment in Tessenderlo houses the group’s largest electrolysis unit, whereboth caustic soda and caustic potash are prepared. It has an annual capacity of250,000 tonnes of chlorine.

EUROPE

A second electrolysis unit is operational at PCL in Loos, France, with a total capacityof 18,000 tonnes of chlorine. It produces caustic potash and potassium hydroxideflakes.

Tessenderlo Italia in Pieve Vergonte, north of Milan, has a capacity of 40,000 tonnesof chlorine, most of which is intended for internal use.

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Trends and facts in 2003

Inorganic Chemicals

2003 saw the start of investments in projects that will become operational in variousunits in the course of 2004. These were as follows:

– At Tessenderlo Chemie in Tessenderlo (Belgium), production capacity for ferricchloride will increase by 25,000 tonnes between now and the middle of 2004;

– At PCL, in Loos (France), production capacity for ferric chloride will be increased by60,000 tonnes. This operation – which is to be finalised in mid-2004 – will alsoentail changes in the production process, involving the partial replacement of oneraw material – scrap – with iron oxide.

– At Tessenderlo Chemie in Ham (Belgium), new units for the production of hy-drosoluble potassium sulphate will come on line in late 2004. The current produc-tion of the Tessenderlo unit will then be transferred to Ham.

An action plan was launched in the Belgian units in Ham and Tessenderlo in 2002with a view to reducing fixed costs; it continued in 2003. This will make it possible toimprove profitability in the years ahead.

Among the units abroad, Tessenderlo Kerley continued to reap the rewards of diversi-fying into services to the oil industry, so becoming less dependent on the fertilisermarket.

The various markets in which the division is active were generally rather lacklustre in2003:

– Due to increased supply and a fall in demand in Europe, sales of phosphates ofmineral origin to animal feed producers were down. In the first half of the year,production was boosted – principally in the Mediterranean area – by the advent ofnew manufacturers and increased capacity among the existing operators. Thistrend was initially reflected in fiercer competition and a sharp fall in prices in Spain;this trend subsequently spread throughout Europe in the second half of the year,and prices here plummeted. There was a parallel tail-off in demand for phosphates,including in the Benelux countries, where there was an outbreak of bird flu in2003. In addition, Europe lost some of its competitiveness in the poultry sector,and is having to cope with ongoing relocation of manufacture of animal products;

– As concerns potassium sulphate, which is used in fertiliser production, it was pos-sible to limit the negative impact of the depreciation in the dollar by obtainingsupplies of potassium chloride from other sources, with many contracts priced in

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dollars. The prices of other raw materials (sulphur and sulphuric acid) rose, and itwas difficult to pass these increases on in sales prices;

– The sodium sulphate market remained stable; sales were at the same level as in2002, but prices were still generally unsatisfactory. Only part of the rise in rawmaterial prices could be passed on. What is more, this market is traditionally sub-ject to significant fluctuations, with detergent manufacturers changing their for-mulae frequently;

– In the field of liquid sulphur-containing fertilisers, the positive trend in sales ofammonium thiosulphate (ATS) continued in 2003.

Electrolysis

In late 2003, Tessenderlo Chemie in Tessenderlo obtained an environmental permit forthe construction of a new electrolysis unit. The project includes closing down the old-est electrolysis unit and replacing it with a new unit using membrane technology,called Ely III. The platform’s total chlorine production capacity will increase from250,000 tonnes to 400,000 tonnes. As a result, the new membrane technology willaccount for three quarts of production. Ely III will become operational in the middle of2006: (See ‘Environment and Safety’ for more information on the discharge permitsgranted to Tessenderlo Chemie at the same time as the environmental permit).

A notable feature is that PCL, at Loos in France, increased its production of potassiumhydroxide flakes by 8%.

The alkali division had a difficult year on the price front:

– Caustic soda prices fell in the first nine months of the year. Following a slightupturn in the fourth quarter, prices started to fall again at the beginning of 2004.This situation prompted the company to optimise use of its principal raw material,electricity;

– Caustic potash prices were also under pressure, but price falls were limited.

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Strategy and prospects

Prospects for 2004

In the first half of 2004, prices for phosphates went up. However, it is not certain thatthese increases will suffice to offset the imbalance built up over time.

Despite keeping to the same strategy for supplies of potassium chloride, margins forpotassium sulphate will remain under pressure in 2004. This is due to both theongoing depreciation of the dollar and the very marked increase in marine freightfuelled by the sharp upturn in Chinese trade. It is difficult to pass on the impact ofthese two factors in prices to customers.

Electricity price trends will be an increasing source of concern. After falling in the ini-tial stages of the liberalisation of the energy markets, 2003 saw substantial increasesand this trend looks set to continue in 2004. The Belgian taxation plan, which wasamended in early 2004, even with a less negative impact on major industrial usersthan was initially suggested, will have an important impact on the costs.The market trend towards tailoring operations to stock-market performance is in-creasing price volatility, and hence uncertainty too. More sophisticated methods ofmanaging this resource will be required in future.

In short, 2004 is likely to be another difficult year for the inorganic chemicals divi-sion. Raw material prices, which are subject to cyclical trends, are once more on theup. The weak dollar and the fact that higher raw material prices tend to take sometime to filter through into sales prices are the two major challenges facing the divi-sion, more especially with regard to potassium sulphate.

The Competition Directorate General of the European Commission is since the begin-ning of 2004, investigating compliance in the market for feed phosphates with exist-ing competition law. The company awaits the conclusions of this investigation.

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Strategy

As mentioned above, Tessenderlo Group will have to face a number of different challenges with regard to itssulphate and phosphate activities:

– Stagnating demand on the European fertiliser market;– Rising prices for raw materials;– A lower dollar;– A loss of outlets due to the rise of new products and producers in countries with low production costs.

It is precisely for these reasons that the group must continue to improve productivity and further decreaseproduction costs in order to strengthen its sites in Limburg.

The major investment in a new electrolysis unit, Ely III, also has these aims in mind.In the future, Ely III will benefit the whole of Tessenderlo Group’s integrated production system in West Lim-burg. The ability to produce more chlorine increases the flexibility of Tessenderlo Chemie Tessenderlo,Tessenderlo Chemie Ham and the Limburgse Vinyl Maatschappij (LVM). This will allow the various productgroups to coordinate their production rates better than ever before.

An important milestone was passed when the environmental permit was obtained for Ely III in Tessenderlo.The new electrolysis unit, which involves investment of 150 million euro, highlights Tessenderlo Group’s ambi-tion of enhancing its position in the caustic potash market.

As previously mentioned, the group is also working on boosting its production of ferric chloride inTessenderlo (Belgium) and Loos (France). These two units are among Europe’s major production centres, andcover markets where demand for products for water treatment is still rising. In order to increase its produc-tion capacity, the group is to give priority to re-examining the processes used in its manufacturing units.

FINE CHEMICALS

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David Poynton, director of the FineChemicals division


The Fine Chemicals division of Tessenderlo Group is based on three major businessunits: organic chlorine derivatives, intermediates intended for the pharmaceutical andperfume industries, and glycine. For several specialities Tessenderlo Group holds aleading position on the world market.

Organic chlorine derivatives

Tessenderlo Group produces more than 100,000 tonnes of benzene and toluenederivatives, as well as a number of products derived from these, such as benzylalcohol, benzaldehyde, phenylacetic acid and benzoyl chloride.

The processes applied in the various production units allow Tessenderlo Group todeliver products of extremely highly purity, which meet the requirements of industriessuch as pharmaceuticals, parapharmaceuticals, photography, the perfume industryand fine chemicals in general.

Intermediates for the pharmaceutical and perfume industries

Tessenderlo Group produces organic intermediates and active substances for pharma-ceutical applications and the perfume industry. Two factories, in particular Calaire inFrance and Farchemia in Italy, produce intermediates for antibiotics, and are privilegedsuppliers to the major international pharmaceutical companies. Tessenderlo FineChemicals in the United Kingdom specialises in synthetic products for the perfumeindustry. These three sites use raw materials produced within Tessenderlo Group, andthereby reap the rewards of the synergies that exist within the integrated group.

Glycine and its derivatives

Tessenderlo Group is the only European manufacturer of glycine. With a yearly pro-duction capacity of 5,000 to 6,000 tonnes, Tessenderlo Group is also a major worldplayer in the glycine market.

Because of its properties as an antioxidant, preservative and sweetener, glycine hasmany applications in both foodstuffs and animal feed. It is also used in pharmaceuti-cals and agrochemicals.

2003 2002




Headcount 997 1,067

Fine Chemicals Turnover(millions EUR)

94 95 96 97 98 99 00 01 02 03

261

0

50

100

150

200

250

300

31


Organic chlorine derivatives

Chemielim in the Dutch city of Maastricht produces benzyl alcohol and benzyl acetate. These products areobtained from benzyl chloride produced at the factory in Tessenderlo.

Lianyungang Taile Chemical Factory in Taile, China, is the leading producer of benzyl chloride and ben-zaldehyde in China.

Tessenderlo Chemie in Tessenderlo, Belgium, produces benzyl chloride and certain derivatives. The factoryalso has an important pilot unit where industrial processes can be refined. Small campaigns of products canbe manufactured before scale-up at some point in the future.

In Pieve Vergonte, north of Milan, Tessenderlo Italia specialises in aromatic chlorine products, which areused mainly in the manufacture of agrochemicals and pharmaceuticals.

In the United Kingdom, Tessenderlo UK in Widnes produces benzyl alcohol and chlorotoluenes, togetherwith various organo-chlorine derivatives.

(*) In alphabetical order by business unit. You can find a complete overview of the group’s production units and sales offices on page 118

‘Leveraging our technology and market positions across our production unitswill create new opportunities for growth within the division.’

32

Intermediates for the pharmaceutical and perfume industries

In Calais, France, Calaire synthesises fine chemicals for the pharmaceutical industry.Here, for instance, phenylacetic acid – an intermediate for the production of antibi-otics – is manufactured from benzyl chloride produced at Tessenderlo.

In Loos, near Lille, Chemilyl produces oxalyl chloride and derivatives for the finechemicals and pharmaceutical industries.

In Treviglio, near Bergamo (Italy), Farchemia produces numerous intermediates andactive substances for the pharmaceutical industry.

Tessenderlo Fine Chemicals in Leek, United Kingdom, produces products destinedfor the industrial sectors of flavour and fragrance, tobacco and pharmaceuticals. Onceagain the raw materials originates primarily from other factories within TessenderloGroup.

Glycine

Tessenderlo Chemie in Tessenderlo (B) is the only producer of glycine and derivativesin Europe, and a major player on the world market.


A number of the markets the Fine Chemicals division of Tessenderlo Group servescontinued to experience difficult trading conditions. In the organic chlorine sectorsevere increases in the price of both toluene and benzene depressed margins, asthese increases could not be passed on. Chinese competition in particular has resultedin downward pressure on selling prices.

Within the pharmaceutical intermediates, the loss of sales of some intermediatesfor the generic market has been somewhat balanced by the higher growth of a keyintermediate for a patented pharmaceutical, for which the group has a worldwideleadership.

A product, used in the manufacture of aluminium bodied cars, has moved from thedevelopment stage to regular production at the Tessenderlo Fine Chemicals facility.

33

As far as glycine is concerned, Tessenderlo Group continued to face extremely low prices from Chinese pro-ducers. This had an impact on profitability. Cost reduction measures have been implemented.

Tessenderlo Group acquired the remaining shares in its Chinese manufacturing unit in Taile to become its soleshareholder.

Investments were made in the various sites to increase the flexibility of some production units and to enablethe manufacture of new derivatives.

At Tessenderlo UK restructuring continued in order to optimise the production of chlorotoluenes within thegroup. In the Widnes facility the company commissioned up a new production unit for the manufacture ofbenzyl alcohol, a non toxic additive used in paints and fragrances and consumed in many other industrialprocesses. The new unit, which boasts state of the art manufacturing technology, is the first major invest-ment by Tessenderlo Group in the Widnes facility since its acquisition in 2001.


Tessenderlo Group will continue to expand production at the existing sites, where it has facilities for the treat-ment of residual substances, and to expand its activities in derivatives of its key raw materials.

As in the past, it will examine opportunities to provide outsourcing facilities to both the pharmaceutical andthe aroma chemical industries. The business units will be supported by the central research laboratories andthe on-site technical teams, in both new product introductions and improvements and extensions of ourexisting techniques and processes.

Tessenderlo Group continues to seek acquisitions that will create substantial synergies with the current pro-duction units.

PVC & COMPOUNDS

34

Philippe Pôlet, director of the PVC andCompounds division


The PVC & Compounds division includes the vinyl chloride monomer (VCM), polyvinylchloride (PVC) and compounds business units.

VCM

The most important raw materials for producing VCM are chlorine or hydrochloricacid and ethylene. Chlorine and hydrochloric acid are produced by the InorganicChemicals division on the same site and delivered via an internal pipeline system tothe Limburgse Vinyl Maatschappij (LVM). This allows road transport to be avoided.Ethylene is delivered via the pipeline grid of Aethylen Rohrleitung Gesellschaft (ARG).Chlorine is produced in the group’s electrolysis units, while hydrochloric acid is a by-product of the production of sulphates. In this way, a unique integration of rawmaterials is achieved.

The annual VCM production capacity of Tessenderlo Group amounts to 550,000tonnes.

PVC

The polymerisation of VCM to PVC is performed at two locations: in the Netherlandsand France. These two plants are among the largest in Europe. With a total capacityof 450,000 tonnes, Tessenderlo Group is the sixth largest producer in the EuropeanPVC market.

PVC, as it is produced by LVM within Tessenderlo Group, is one of the most versatileplastic resins in the world. The possible applications are extremely broad ranging fromplastic pipe systems, window and door profiles and flexible and hard films, to sheath-ings for cables and wires. In addition, LVM, in close collaboration with TessenderloGroup’s Plastics Converting division, is working on developing new grades for cutting-edge technological applications in, for example, the car industry and the electronicssector.

2003 2002


Ebitda -2 15(millions EUR)


Headcount 796 748

PVC & Compounds Turnover(millions EUR)

94 95 96 97 98 99 00 01 02 03

341

0

50

100

150

200

250

300

350

400

35

Compounds

The heading ‘compounds’ covers various ready-to-use PVC mixtures as well as mixtures of thermoplastic elas-tomers, which are intended primarily for the injection moulding and extrusion markets. They are mainly usedin the construction industry, the automotive sector and shoe manufacturing. The PVC division has an overallcapacity of 155,000 tonnes of compounds per annum, making Tessenderlo Group the fifth largest producerin Europe.

PVC and compounds are sold via an international network consisting of the division’s own sales offices andlocal specialized agents, who work on an exclusive basis with LVM for PVC and compounds.

‘After three poor years in a row, markets and prices seem to be finallyimproving. However, past experience has shown that we must remain cautious.For this reason, we have to continue to focus on improving our productivity. If,in addition, we can ensure that customers receive quality products and service,there are grounds for hoping that the future will be brighter.’

36


VCM

Tessenderlo Group’s unit for producing VCM, the Limburgse Vinyl Maatschappij(LVM) in the Belgian town of Tessenderlo, has a capacity of 550,000 tonnes of VCMper year. It is the largest in Europe.

PVC

LVM Limburg in Beek, the Netherlands, processes VCM into PVC. The VCM is deliv-ered via the world’s longest VCM pipeline for this kind of transport. LVM Limburg hasa capacity of 225,000 tonnes per annum.

The Société Artésienne de Vinyle (SAV) in Mazingarbe, France, also polymerisesVCM into PVC, again with a capacity of 225,000 tonnes. The VCM is delivered fromTessenderlo via block trains.

Compounds

In addition to its activities in the plastics converting sector, the company, Plastival, inClerval, France also manufactures Marvyflo®, a compound used for car dashboards,on behalf of LVM.

Saplast in Strasbourg, France, and its subsidiary Europolymers have a compoundingcapacity of around 75,000 tonnes on an annual basis. Saplast exclusively producesPVC compounds in granulated form or as a premix for hard and flexible applications,primarily in the construction sector and for cable production.

TCT Polska in the Polish town of Sochaczew, near Warsaw, produces 10,000 tonnesof PVC compounds per annum.

(*) In alphabetical order by business unit. You can find a complete overview of the group’s production units and sales offices on page 118

37

The production of Technicompound, based in Doué-la-Fontaine (near Nantes), will be transferred to thegroup’s other compound-manufacturing units during 2004. Technicompound produces 15,000 tonnes ofready-to-use PVC compounds and thermoplastic elastomers annually. These are intended mainly for the injec-tion moulding and extrusion markets.

In Tiffauges, also in France, the subsidiary Thermoplastiques Cousin-Tessier specialises in PVC compoundsand thermoplastic elastomers for the automotive industry, the construction sector and shoe manufacturing.Its capacity is 55,000 tonnes per year.


VCM and PVC

Overall, the European markets remained volume-wise at the same level as in 2002, although the situationvaried significantly from one month to the next.

PVC and VCM prices fluctuated considerably in 2003, chiefly as a result of geopolitical factors.

Prices reached reasonable levels in the early part of the year. This was because customers were building upstocks in front of the threat of war in Iraq. Although this boosted demand, it also prompted higher rawmaterial prices. As a result of this hoarding frenzy, PVC and VCM prices went into freefall in the second quar-ter, with the official end of hostilities in Iraq. However, raw material prices remained high. Stocks had to bereplenished again in July and August, while prices dropped. After that, prices started increasing gradually,resulting in break-even only in the fourth quarter.

38

In 2003, Tessenderlo Group continued its strategy of investing in order to boost pro-ductivity:

– There was further progress in the mid to long-term plan for VCM, which relates tosafety and the modification of existing installations to bring them in line with therequirements of the Flemish environmental legislation, VLAREM;

– In the PVC business line, the third production line at Société Artésienne de Vinyle(SAV) in Mazingarbe was switched to closed reactor technology. One of the advan-tages of this is that it is much more environmentally friendly.

All in all, 2003 was the third disappointing year in a row for PVC and VCM, despitethe healthy outlook at the end of 2002. The disappointing figures were mainly attrib-utable to the very poor second and third quarter results.

Compounds

Generally speaking, compounds markets in Western Europe weakened. Demand forshoe compounds also decreased, as a result of increasing imports of finished shoesfrom Asia.

However, the division strengthened its position in the automotive sector – in the nichemarket of dashboard skins and airbag covers – in 2003. PVC is becoming very popularagain in the automotive sector, and this has led to it being used for luxury modelssuch as the Porsche Cayenne and Volkswagen Phaeton. Sales of Marvyflo® were upconsiderably.

Following the takeover of the French Saplast in July 2002, investments were under-taken in 2003 to adapt equipment to Tessenderlo Group’s high standards in respect ofsafety, productivity and ecological soundness.

Rang

e Ro

ver

39


VCM and PVC

Judging from the figures for the early part of 2004, the outlook for VCM and PVC activities appears to haveimproved again after three poor years. Prices began to rise in the fourth quarter of 2003, and the trend in theearly part of 2004 has also been generally positive. In global market terms, production capacity appears tohave lagged behind market expansion, suggesting that capacity utilisation should increase throughout theworld in 2004.

In the coming years, LVM will further expand its position as a specialist in the area of suspension PVC.

In the future, Tessenderlo Group will also strive within the PVC division to maintain the highest possible pro-ductivity, combined with constant improvement in the quality of its products. At the same time, the groupwants to offer its customers top-quality service, which satisfies all of their needs.

Compounds

The optimisation and rationalisation of the industrial organisation, which started in 2003 following the acqui-sition of Saplast and Europolymers, will continue in 2004. The division will start to feel the positive impact ofthis in 2005.

The commercial departments at subsidiaries Saplast and Thermoplastiques Cousin-Tessier were fully amalga-mated on 1 January 2004. This will ensure an optimum response to customer wishes and requirements,which will in turn contribute to better results.

PLASTICS CONVERTING

40


For nearly twenty years, Tessenderlo Group has resolutely pursued a downstream inte-gration policy. With this objective, in Europe and the United States of America wehave taken over several PVC converters holding numerous patents and registeredtrademarks. These companies produce mainly pipes and fittings for water supply anddrainage systems, as well as pipe systems for (inter alia) gas and telecommunications.In addition, all kinds of PVC profiles for building (such as door and window profiles)are also produced. Besides PVC, these companies are also converting other raw mate-rials, including polyethylene and polypropylene.

The construction and renovation sectors represent almost the entire turnover ofTessenderlo Group’s Plastics Converting division.

The most important establishments (*)

Profiles

Chelsea Building Products (CBP), in Oakmont in the USA, is one of the main Ameri-can manufacturers of PVC door and window profiles.

Tessenderlo Group is also present in Canada via Dynaplast-Extruco, a subsidiary ofthe Wymar Group which specialises in PVC window profiles and other profiles forvarious sectors.

In Great Britain, Fairbrook holds a leading position on the PVC profiles market.Under the brand name Eurocell Profiles, Fairbrook produces window and door pro-files. Foamed profiles, which are used as roofing components and façade cladding,are marketed as Eurocell Building Plastics. Under the name HL Plastics, Fairbrookcustom-produces profiles for a wide range of sectors, including the building and fur-niture industries.

In collaboration with the Brazilian company Medabil Plasticos, the subsidiary MedabilTessenderlo was set up in Brazil, where it specialises in manufacturing and marketingPVC profiles. Medabil Tessenderlo is introducing PVC window profiles to the SouthAmerican markets.

(*) In alphabetical order by business unit. You can find a complete overview of the group’s establishments andsales offices on page 118

2003 2002





Plastics Converting Turnover(millions EUR)

94 95 96 97 98 99 00 01 02 03

523

0

100

200

300

400

500

600

41

In Clerval (France), Plastival makes window and door profiles, along with profiles for fences, façade claddingand various industrial applications.

Again in France, Profex, a subsidiary of the Wymar Group, markets window profiles produced by Wymar inBelgium.

The Wymar Group in Oeselgem (Belgium) produces PVC profiles for windows and doors and continues itsdevelopment towards Eastern Europe notably in Poland, Hungary, Romania and the Czech Republic.

Plastic pipe systems

The Dutch company Dyka BV in Steenwijk manufactures PVC pipes and fittings.

Dyka Plastics in Overpelt (Belgium) is a manufacturer of PVC and polyethylene pipes for the construction in-dustry and civil engineering.

Dyka Polska in Jelcz Laskowice (Poland) makes PVC pipes, and also polyethylene and polypropylene pipes.

John Davidson Pipes is one of the UK’s leading distributors of plastic pipe systems, with some twenty de-pots throughout the country.

In France, the subsidiary Sotra-Seperef has two establishments. In Sainte-Austreberthe, PVC materials aremanufactured for the construction and drilling markets. The unit in Quincieux produces a range of PVC andpolyethylene pipes for water supply and drainage. This range is supplemented by all kinds of accessories, andis primarily intended for the public works sector.

42


Profiles

Wymar had a good year, in both the Benelux countries and Eastern Europe. Volumesin the Benelux countries matched those in 2002. In Russia, demand stabilised afterfalling in 2002, and sales increased in the other Eastern European countries, especiallyPoland. The French commercial subsidiary, Profex, also recorded sound growth.

Early in the year, Plastival (also in France) suffered as a result of the sluggishness in theconstruction sector. However, following a recovery in the second half of the year, theresults for 2003 as a whole were quite respectable.

In the UK, Fairbrook managed to continue its growth, thanks partly to the expansionof its distribution network. The success of profiles for use in the construction of con-servatories continued unabated. Sales of other new products first launched in 2002also accelerated satisfactorily.

Chelsea Building Products (CBP) came under pressure – especially in the first half ofthe year – as a result of the poor economic climate in the United States, which wasexacerbated by the war in Iraq. In addition, the company is mainly active in the north-eastern US, which experienced an unusually long and severe winter. The situation im-proved in the second half of the year but, in spite of this, CBP only achieved modestresults for 2003 as a whole. The new range of products launched on the US marketwas well received, but sales were lower than expected.

2003 was a comparatively poor year in Brazil due to the general economic downturn.

43

Conclusion: 2003 was a good year for profiles, mainly thanks to the European market, which more thanmade up for the ongoing difficulties in America. Sales figures in Europe remained buoyant or increased fur-ther, despite the weak construction sector.

Plastic pipe systems

Demand for plastic pipe systems in Belgium and the Netherlands bottomed out in 2003. There were evensigns of a slight upturn in the second half of the year. The closure of the plant at Goor in the Netherlands in2002 resulted in higher profitability in the Benelux countries.

Dyka Polska, which took over part of Goor’s production, continued to expand its distribution network. Salesfigures increased in line with expectations.

2003 was a good year for pipe systems in the UK. The amalgamation of the business of Dyka UK and JohnDavidson Pipes Ltd was finalised, thus resulting in the optimum synergy. John Davidson Pipes also tookadvantage of the buoyant UK construction market to further its expansion.

Although sales dipped slightly in France, Tessenderlo Group succeeded in maintaining prices at the 2002levels. Nevertheless, prices were still too low to generate adequate profitability. Competition among manu-facturers striving to maintain their market share continued in 2003. France remains a very difficult marketdue to low prices and the highly concentrated distribution system.

Overall, the plastic pipe systems business line was able to maintain its results at the 2002 level. At the sametime, profitability improved due to cost-cutting measures.

In conclusion, turnover in the Plastics Converting division was slightly higher than in 2002, while the 2003results were quite identical to the ones of the previous year.

44

Investments totaled 34 million EUR in 2003, as against 29 million EUR in the previ-ous year:

– At Eurocell Profiles, a division of Fairbrook, a new extrusion unit is built on the sitein Alfreton (UK). It will come on line in late 2004. This will mean Eurocell Profilesincreasing its production and storage capacity;

– Wymar International invested in a new PVC-profiles production line for frames anddoors with more effective thermal and acoustic insulation. Production capacity hasalso been increased. With this investment, Wymar wishes to consolidate its marketshare in the Benelux countries and France and boost its presence in the emergingmarkets in Eastern Europe;

– In the United States, Chelsea Building Products is continuing to update its productrange, more especially in respect of new builds and renovations.


Strategy

The strategy of the Plastics Converting division primarily includes:

– Consolidation of existing positions;– Improvement of profitability;– Promotion of internal growth;– Strengthening the presence on emerging markets, primarily in Eastern Europe;– A focus on acquisitions. In each case, companies which might qualify for takeover

are evaluated strictly on their own merits and on their potential synergies with theother companies within Tessenderlo Group. The emphasis here is on the profilessector, without ruling out the possibility of takeovers in the pipes and fittings mar-ket.

45

Through investments, the division wishes to:

– Closely track market trends, anticipating these as far as possible;– Remain at the cutting edge technologically;– Develop instruments to ensure growth on emerging markets.

Prospects

As far as profiles are concerned, the situation in America is expected to improve, with higher volumes in boththe US and Brazil. In Europe, too, there are clear signs of further market expansion.

The markets for plastic pipe systems look set to stabilise again in 2004.

Tessenderlo Group has every confidence that 2004 will be a better year than 2003 for the entire division. Thisoptimism is justified by:

– The positive trend on the profiles market;– The new range of profiles marketed by Wymar since early 2004;– Updating of the product range in the United States, which will bear fruit in 2004;– Growing economic optimism, which is having an especially positive impact on the construction sector.

The early part of 2004 has already provided confirmation of these positive forecasts.

NATURAL ORGANIC PRODUCTS

46

Jozef Housen, director of the NaturalOrganic Products division


The Natural Organic Products division of Tessenderlo Group is the world’s third largestproducer of a full range of high-quality gelatins based on various raw materials.Approximately two thirds of the production is used for the food industry, while theremaining part is divided between the pharmaceutical and photographic industries.

In addition, Tessenderlo Group plays a role in the collection and treatment of animalby-products.

A third, lesser-known activity is the formulation and production of ingredients for thefood products industry.

Gelatin

Gelatin is produced by hydrolysing collagen from by-products of slaughterhouses,more specifically, the bones and skins of pigs and cattle. After degreasing, the bonesare demineralised with hydrochloric acid, resulting in collagen in the form of ossein (a basic raw material for the production of gelatin), which is then rinsed and treatedwith acid or lime. For pigskins and cattle hides, a similar process is applied from thehydrolysis stage onwards.

Gelatin is an extremely pure product. To illustrate: the required purity standards areten to one hundred times stricter than those for baby milk, regardless of whether thegelatin will be used in products for human consumption or not. That is why thestrictest criteria are used in:

– The selection of the raw materials: all gelatin is exclusively produced from pigskins,cattle hides or bones coming from healthy animals which, after official and internaltesting, are declared fit for human consumption;

– The production process: this combines immersion in an acid bath with soaking in alime solution (only for bone gelatin), followed by UHT sterilisation of the purifiedgelatin solution at 140° C.

Gelatin has various applications, all of which are based on the typical characteristicsof gelatin, namely gel strength, viscosity and purity:

– Food industry: for the production of sweets, desserts, milk products, jellies, ‘low-calorie’ products, tinned meats, energy bars and drinks, meat preservatives andwine clarification;

47

– Pharmaceutical and parapharmaceutical industries: for the production of hard and soft capsules;– Photography: gelatin is used to bind the photoactive silver compounds, and used as well in the various

layers of films, photographical paper and paper of inkjet printers;– Micro-encapsulation: microscopic capsules which can contain (for example) ink for photocopying paper,

or vitamins which are mixed in animal feed.

By-products of animal origin

Through its French subsidiary Caillaud, Tessenderlo Group plays a major role in the collection and treat-ment of animal by-products. The annual capacity amounts to 950,000 tonnes.

Caillaud is active in two specific sectors:

– As a rendering plant, it handles the collection and treatment of risk waste, which is primarily used as anenergy source by the cement industry. This activity accounts for 36% of the turnover, and is a publicservice, for which Caillaud is paid by the French State;

– The valorisation of animal materials, originating from animals that are fit for human consumption, into• degreased bones for the production of gelatins;• proteins and animal fats for use in pet food;• fats for the soap industry and lipochemistry;• frozen processed animal by-products for the production of ‘moist’ pet food.

2003 2002





Natural Organic Products Turnover(millions EUR)

94 95 96 97 98 99 00 01 02 03

313

0

50

100

150

200

250

300

350

‘The acquisition of the two American units has made Tessenderlo Group a fully-fledged global operator on the gelatin market. Although both factories onlybelonged to the group for nine months, they made a significant contribution to the results in 2003, which is an outstanding performance.’

48

Food ingredients

A third activity of the Natural Organic Products division is the formulation and produc-tion of food ingredients. These are composed according to the individual needs of thecustomer. They are offered in solid and liquid form, for both ‘sweet’ and ‘savoury’applications, which include:

– Seasoning mixes;– Ingredients containing sugars, proteins and starches, etc.;– Prepared sauces in powder form;– Aromas in liquid form;– Sweet blends for the production of bavarois, pastry, ice cream, etc.;– Salty blends with flavourings for the preparation of meat products.


Gelatin

In Belgium, PB Gelatins in Vilvoorde makes acid gelatin from pigskins and pig bones.In the bone-degreasing installation, pig bones are stripped of all fat. They are thenfurther processed into ossein in the ‘acidulation’ and ‘liming’ units.

PB Gelatins GmbH, based in Nienburg, Germany, and PB Gelatins UK, based inTreforest, Wales, processes the ossein from Vilvoorde into gelatin. In Nienburg, gelatinis also prepared from cattle hides and pigskins.

In Argentina, PB Leiner Argentina, which is located close to Santa Fe, manufacturesgelatin from cattle hide.

PB Leiner USA in Davenport, Iowa, produces gelatin from pigskin.

By-products of animal origin

In France, Caillaud has 12 treatment units (4 carcass disposal plants and 8 plants forthe valorisation of animal materials) and 28 collection centres.

(*) In alphabetical order by business unit. You can find a complete overview of the group’s production units andsales offices on page 118

49

Food ingredients

Also in France, PB Gelatins France in Fürdenheim, near Strasbourg, produces seasoning blends for the foodsector.


The Natural Organic Products division’s performance last year was in line with that in 2002. The lower figuresfor by-products of animal origin were offset by increased gelatin operations.

PB Gelatins posted significantly better figures, due to the acquisition of two production units, one in theUnited States and the other in Argentina, in early 2003. They were both part of the gelatin division of Good-man-Fielder, an Australian company. The units in Davenport (US) and Santa Fe (Argentina) have a capacity of10,000 tonnes and 5,000 tonnes of gelatin respectively. The gelatin produced is used in the food and phar-maceutical industries. The plants in the USA and Argentina were rapidly incorporated into the group, and soimmediately made a positive contribution to the results.

With this takeover, Tessenderlo Group has strengthened its position as the third biggest supplier on theinternational market, with a 12% share of global production. Thanks to the factories in North and SouthAmerica, PB Gelatins is now active on all world markets, and can meet the requirements of customers whoneed a worldwide supply of gelatin.

In the wake of the BSE crisis in Europe, there has been increased demand for gelatin produced from pigskin.In order to be able to accommodate this increase, the capacity of pigskin gelatin production was reinforcedon the Nienburg site in Germany in early 2003.

Most gelatin markets also displayed positive growth trends in 2003:

– The food gelatin market, which is not much affected by economic conditions, experienced slight growth,from 2 to 3%. It became more difficult to sell gelatin with low gelling properties (the so-called ‘Bloomvalue’) because of the ban on the use of cattle gelatin in the micro-encapsulation of vitamins for cattlefeed;

– Demand for hard capsules for medicines also underwent rapid growth in 2003. Here, there has been aclear move away from cattle-derived gelatin to gelatin obtained from other raw materials, mainly pigskinsand pig bones;

– Despite the increasing success of digital photography, the photographic market for PB Gelatins continuedto display slight growth, particularly in the photographic paper sector;

50

– Sales of soft capsules, on the other hand, remained at the low levels seen in 2002.Soft capsules are mainly used to encapsulate food supplements, and in specificapplications such as bath pearls and ‘paintballs’, and these markets are extremelysensitive to the economic climate.

2003 was a very eventful year for raw materials used in the manufacture of gelatin.Prices of cattle hides were already under pressure in the first quarter. This is a conse-quence of the leather industry gradually moving out of Europe, resulting in higherprices. The price of pigskins and bones also rose in the fourth quarter.

For Caillaud, the 2003 financial year was once more marked by ongoing changes inlegislation, which had an impact on volumes and operating conditions. For instance,new hygiene rules were introduced for the collection and processing of animal by-products. The consequences of reforms in European agricultural policy are also start-ing to affect developments in the stock-breeding sector.

In France, government aid to rendering plants and abattoirs for processing their ani-mal by-products is gradually being scaled back. These subsidies ceased entirely on1 January 2004. As a result, Caillaud was forced to increase its charges for services toabattoirs during the year.

In the meantime, the French authorities appear to be scaling down the excessivehealth regulations. Nevertheless, there is still far more pressure on stock-breedingenterprises in France than in other European Union countries.

Legislation on environmental protection is becoming stricter.

All of this meant that Caillaud group’s 2003 results were significantly down on previ-ous years. But the group has constantly endeavoured to adapt its operations in linewith the new legislation, and by making the investment required for this purpose. Inlate spring, a new factory for the production of dry pet food started up in Javené. TheMontcoutant production unit was closed at the end of 2003.

51


PB Gelatins’ sales of gelatin are expected to increase further in 2004, especially in the field of food gelatinand hard capsules.

The ongoing low dollar-euro exchange rate will continue to have a limited impact. Both American companiesproduce mainly for their home market, so they are not affected by the weaker dollar.

An isolated case of BSE (mad cow disease) came to light in North America towards the end of 2003, but thisdid not affect Tessenderlo Group’s gelatin operations in America. The unit in Davenport manufactures gelatinfrom pigskin, and the Santa Fe unit from cattle hides which, it is certain, cannot transmit BSE.

Production of gelatin from pigskin in Nienburg, Germany, will also continue to increase in 2004 (see also‘Trends and facts in 2003’).

In the meantime, the programme for tightening up hygiene standards has progressed further. As a result oftraining courses and investments, the rules in respect of risk analysis relating to food safety – the HACCPrules – have been applied even more rigorously.

Since the takeover of the two American units, PB Gelatins can now claim to be a fully-fledged global opera-tor of the gelatin market. It will continue to build on this role in the future. PB Gelatins is also endeavouringto improve its market competitiveness, by striving for even higher gelatin quality levels and by improving itssales service where possible.

In 2004, Caillaud will continue its efforts to ensure strict compliance with regulations. These efforts are alsoaimed at developing the level of specialisation in its operations, in the field of safe processing of hazardouswaste and in upgrading by-products from healthy animals.

With a number of commercial initiatives, services to abattoirs and manufacturers of animal food derived fromanimal by-products will be further extended. In particular, Caillaud will ensure that production capacity is tai-lored to global trends in volumes handled, and that it is spread as effectively as possible over the various sec-tors in which the group is involved.

This will entail total investments of 24.3 million EUR in 2004.

4

PB Leiner ArgentinaSanta FeARGENTINA

With the acquisition of PB Leiner USA and PBLeiner Argentina, Tessenderlo Group strengthensits position as third largest producer of gelatinworldwide. The group accounts for 12 percent ofthe world gelatin production.

HUMAN RESOURCES

54

Employment

At the end of 2003, staff numbers at Tessenderlo Group had increased to 8,244.In spite of the Focus restructuring programme affecting the units in Limburg, involv-ing a loss of jobs in Tessenderlo Chemie and LVM during the year, the group’s totalheadcount increased by 310.

As in previous years, the Plastics Converting division accounted for some of thisincrease. The impact of the closure of Dyka BV in Goor (the Netherlands) was morethan offset by the expansion in business, especially at Fairbrook in the UK.

However, the gelatin activity recorded the highest increase in personnel. This wasentirely due to the takeover of production units in the US and Argentina in early2003.

Social relations

Negotiations on a number of Collective Labour Agreements (CLAs) were held inBelgium during the year.

In the foreign subsidiaries, extensions to the existing CLAs were negotiated withoutany major problems. In late 2003, early 2004, another five-year agreement was nego-tiated at PB Leiner USA, thus successfully rounding off the integration process follow-ing the acquisition.

Human Resources Policy

Investment in staff training, both at technical level and in management and leader-ship skills, continued unabated in 2003.

Focus is increasingly put on non-statutory benefits such as pensions and insurances.

A start was made on implementing the SAP-HR module in the Belgian units ofTessenderlo Chemie and LVM. The fact that information is more easily accessibleshould mean more effective personnel policy in the long run.

Capital increase reserved for staff

For the fifteenth consecutive year, Tessenderlo Group made acapital increase reserved exclusively for group employees in 2003.

The new shares were offered at a 20% discount. The take-up ratewas more than 92%. Compared with 2002, the number of sharesincreased by 35%, while there was little change in the number ofemployees participating.

55

Employment per division Employment per country

0

500

1000

1500

2000

2500

3000

122

262

8 2

163

1344

560

604

252

101

79

370

0

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3000

1853

796997

1816

2761

94 95 96 97 98 99 00 01 02 030

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5975

2186

1972

Abroad

Belgium

Sales (millions EUR)

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Evolution of the consolidated data Belgium and abroad for the employment and sales*

*Since 2003 the sales offices have beenconsolidated

ENVIRONMENT AND SAFETY

56

Sustainable enterprise with care for human beings andthe environment

Manufacturing in a way that bears responsibility for the environment, the safety andhealth of employees and the general population is a fundamental condition for all ofTessenderlo Group’s industrial activities.

Tessenderlo Group subscribes to the ‘Responsible Care’ obligation the chemical in-dustry has assumed throughout the world to deal responsibly and carefully with theenvironment, safety and health. Within the parameters of this ‘sustainable enterprise’principle, the group undertakes to do everything necessary in order to:

– Further reduce the impact of its activities on environment and health;– Guarantee the safety and health of employees, suppliers and local residents;– Strictly observe the legal guidelines, and where possible take additional measures;– Strive to achieve further waste reduction, and process the waste in accordance

with legal standards and in a safe and environmentally-friendly manner;– Use natural resources and energy as efficiently as possible;– Conduct an open and honest dialogue with the government and other involved

parties.

Thus, Tessenderlo Group works in accordance with the ‘Best Available Techniques’principle. Thanks to constant consultation between the environment department, the laboratories and the production and maintenance departments, the productionprocesses are constantly adapted to the latest technological knowledge. Each year the group allocates substantial resources for this purpose.

However, the development of environmentally-friendly and sustainable techniques,and the optimisation of the installations, are only feasible if each employee is closelyinvolved in the environmental policy. Tessenderlo Group therefore also invests in tar-geted training programmes for its employees, so that the ‘Best Available Techniques’are carefully used on a day-to-day basis.

Tessenderlo Group is also aware of the social role that it has to fulfil, and is thereforeundertaking a variety of initiatives in relation to the local community in the areasaround the different branches. Tessenderlo Group considers it important to developgood cooperation with educational institutions. Numerous visits to TessenderloChemie in Tessenderlo and Ham (Belgium) take place every year. In many cases, thevisitors are students from schools in the surrounding area. A visit gives them the op-portunity to get to know the world of chemistry and its wide-ranging applications ineveryday life, and also the group’s efforts in the area of the environment. Overall,

57

75 groups visited the units in West Limburg between 2000 and 2003. Tessenderlo Chemie employees also siton local education advisory committees, in order to promote collaboration between educational institutionsand the business community.

Tessenderlo Group is also actively involved in the ‘Chemistry and Youth’ project run by Fedichem, the Federa-tion of the Belgian Chemical Industries. As part of this project, some twenty company employees visit schoolsto provide students with information on day-to-day life and employment opportunities in the company. A to-tal of 32 lectures were given in 2003.

In addition, Tessenderlo Chemie supports a variety of charitable and cultural initiatives in the local community.In its support of sports clubs, it attaches particular importance to the commitment these clubs show to youngpeople.

Environmental protection: a matter of ongoing efforts (*)

In the last 10 years, Tessenderlo Group has invested more than 160 million EUR in environmental projects inthe various units. Thanks to these investments, the treatment processes were further optimised. This led toa significant improvement in waste water quality, and a constant reduction in atmospheric emissions. Majoradvances have also been made in the areas of soil and noise pollution. In addition, solid waste is beingremoved in an ecologically responsible manner.

After sharply curtailing channeled atmospheric emissions over the past few decades, attention has increas-ingly focused on non-channelled emissions in recent years. Fugitive emissions at Limburgse Vinyl Maatschap-pij (LVM) were further reduced through effective measurement and a targeted maintenance programme.

The pollutants that are present in water are largely removed by the treatment methods applied. At theTessenderlo Group companies in West Limburg, the effluent quality remains comparable to that of seawater,due to the presence of salts. But even here there have been favourable reports in recent years, to the effectthat the impact of the salt discharges on the quality of the river water remains limited. Experts from the Uni-versity of Antwerp have done extensive research on the fish stocks in the Nete River. This demonstrates that

(*) The results of Tessenderlo Group’s environmental efforts in West Limburg are set forth in detail in our environment report, which is publishedon a regular basis, and which can also be consulted on our website: www.tessenderlogroup.com. Visitors to the site will also find tables andgraphs of the most recent environmental measurements.

58

the discharge of these salty effluents has no impact on the fish population in theNete. Both above and below the mouth of the Laak – which carries the salty waterinto the Nete – one finds equal numbers of healthy freshwater fish.

In collaboration with the government and external experts, a number of soil clean-upprojects are under way in Tessenderlo and Ham (Belgium). Clean-up measures are cur-rently being implemented at the Tessenderlo Chemie site in Ham.

The PVC and Plastics Converting divisions constantly strive to inform the public andthe media about PVC’s favourable environmental aspects. In 1995, Tessenderlo Groupsigned the ‘Voluntary Charter’ for the production of VCM and suspension PVC. Underthis charter, the participating companies undertake that, in all production activities,they will observe environmental standards, which are stricter than the locally or na-tionally applicable regulations.

In accordance with the charter, Tessenderlo Group subscribed to the so-called ‘Volun-tary Commitment’ in March 2000. This involves all parties involved in the PVC chain:producers of PVC, plasticisers and stabilisers, and PVC converters. The ‘VoluntaryCommitment’ contains formal and verifiable objectives relating to the entire PVC lifecycle. In October 2001, the original ‘Voluntary Commitment’ was improved followingconsultation with the European Commission. This resulted in the publication of ‘Vinyl2010’. Tessenderlo Group is helping to realise the objectives by financing ‘Vinyl 2010’projects, such as the recycling of post-use PVC. The group is also actively involved insetting up national collection and recycling systems for PVC waste.

Following the publication of its Green Paper on ‘Environmental Issues of PVC’ in2000, the European Commission has yet to take an official stance. The PVC industrysees the ‘Voluntary Commitment’ (Vinyl 2010) as the most feasible answer to thequestions posed in the Green Paper, and anticipates that this will be confirmed by theCommission.

59

Facts in 2003

In late December, the Flemish Minister of the Environment, granted Tessenderlo Chemie an environmentaland discharge permit:

– The environmental permit means that a start can be made on constructing the new Ely III electrolysis unitin Tessenderlo. The unit will manufacture chlorine using advanced membrane technology, which has manyenvironmental benefits. For instance, it does not use mercury cells, and consumes less electricity. Threequarters of the total chlorine production in Tessenderlo will be switched to this new technology. The newunit will also mean improvements in terms of safety and mobility. For instance, supplies of salt for Ely IIIwill not be transported by lorry between Ham and Tessenderlo, but by a pipeline;

– Tessenderlo Chemie’s discharge permit has been updated. It stipulates that the basic quality for fresh sur-face water in the Laak and the Winterbeek must be achieved by 2011 at the latest. An in-depth study willexamine all possible scenarios (See also ‘Prospects and strategy’).

In 2003, it was ascertained that the banks of the Laak and the Winterbeek had been polluted as a result ofearlier discharges, between 1920 and 1986, for which Tessenderlo Chemie complied with the discharge stan-dards. A solution is to be found in consultation with the government.

COD* Concentration in mg/l,annual average TCT/LVMeffluent

Nitrogen Concentration inmg/l, TCT/LVM effluent

94 95 96 97 98 99 00 01 02 030

6

12

18

24

6

94 95 96 97 98 99 00 01 02 03

35

0

50

100

150

200

* COD: Chemical Oxygen Demand

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The Environmental Inspection department of Aminal, the Flemish environmentalagency, carried out an investigation into the possibility of reducing industrial wastewater at Tessenderlo Chemie in Ham (TCH), along with a potential reduction in saltdischarges. The study concluded that:

– The processing at TCH has already been improved to such an extent that waterconsumption has been cut to a minimum;

– A further reduction in discharges is technically possible, but this is not economicallyviable.

In 2003, a preparatory soil survey was undertaken for LVM, the aim being to obtainan accurate picture of the present situation with regard to soil and groundwater pol-lution, and to prepare potential clean-up measures.

Together with the University of Ghent, LVM is working on a project for using newenvironmentally-friendly technology in cleaning up soil and water with the help ofbacteria. Investigators from the university succeeded in isolating a bacterium in soilsamples that rapidly breaks down the dichloroethane in the presence of oxygen, with-out producing any undesirable by-products. The practical feasibility of this discovery isbeing further examined along with the Flemish Waste Company (OVAM).

In October 2003, PB Gelatins in Vilvoorde decided to invest more than a million euroin order to further reduce the odour nuisance affecting those living in the vicinity. Thisdecision followed a study by the Flemish Institute for Technological Research (VITO)commissioned by Aminal’s Environmental Inspection department. The investment willprincipally involve covering the extraction hoods in the waste purification station, ex-tending the extraction installations and treating of the exhaust air. All these measureswill be finalised by the middle of 2004.

As far as the PVC division is concerned, the publication of the third progress reportin April 2003 is an essential part of the PVC industry’s ‘Voluntary Commitment’. Thereport details the progress with regard to the proposed goals and projects. Indepen-dent verification by Det Norske Veritas (DNV) will boost confidence among the partiesinvolved. It demonstrates that the PVC industry intends to cooperate openly with allparties concerned.

61

Focus on energy at Tessenderlo Group

The recent developments in European legislation on energy have not gone unnoticed at Tessenderlo Group,especially with regard to the implementation of the policy on climate change as of 2005 (EU directive forgreenhouse gas emission allowance trading) and the step-by-step liberalisation of the gas and electricitymarkets (since the year 2000).

Tessenderlo Group has had an effective energy-reduction policy in place at its various production sites for anumber of years. This policy is primarily focused on two areas: using the absolute minimum amount ofenergy in manufacturing processes with the use of Best Available Technology and aggressively procuringenergy in the newly-opened markets.

Energy consumption

Various Tessenderlo Group divisions consume large quantities of energy. The largest consumers within thegroup are located in Belgium.In the electrolysis units, especially those in Tessenderlo, electrical energy is used in the production of chlorineand caustic soda.The most significant use of fossil fuels involves consumption of natural gas at Limburgse Vinyl Maatschappij(LVM), and fuel oil consumption in sulphate production.The fine chemicals division and LVM also use considerable quantities of steam for distillation processes.In view of the substantial quantity of energy and the corresponding production costs that are involved, anactive policy of energy savings has been initiated wherever feasible.Heat is recycled in a number of different processes, either directly through product integration or through theexchange of steam.In sites where there is surplus steam – Tessenderlo Chemie Ham, for instance – this is converted into elec-tricity.Where the local steam consumption profile permits, co-generation of steam and electricity is used (at SAV inFrance, for example).The Pieve Vergonte site in Italy generates its own electricity with its recently upgraded hydro-electric powerstations.

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Energy and climate policy

The Flemish production sites of Tessenderlo Group have signed an energy efficiencybenchmarking covenant in September 2003. These units account for the over-whelming majority of energy consumption.

Under this covenant, these sites have committed themselves to being among theworld-wide leaders in economical energy consumption, at the latest by 2012.

The energy consumption of these sites is monitored by external benchmarking studiesand independent audits. The government will use these controlled studies as a basisfor implementation of the climate policy, such as allocation of CO2 emission rightsand energy duties. This will determine the industry’s economic potential for CO2 sav-ings, and will distribute the burdens equally. It will allow the utilisation of existingenergy-efficient production capacity and for energy-efficient expansion of industry.

In 2003, external auditors carried out energy studies in the different TessenderloGroup production units in Flanders.These studies were submitted to the verification bureau and several have now beenapproved. They form the basis for an energy efficiency plan, which will documentthe actions to be undertaken by the various sites, to become or remain a worldwideleader at the latest by 2012.

As a consequence, Tessenderlo Group has a very clear view of its current energy pro-file, as well as the path that will be followed in the near future.

The recent decision for building a new electrolysis unit in Tessenderlo, based on mem-brane technology (ELY III) will contribute to realising the energy policy of TessenderloGroup.

Energy procurement

As a result of the phased liberalisation in the various member states of the EuropeanUnion, Tessenderlo Group will purchase more than 90% of its electricity and gas onthe open market in 2004. Tessenderlo Group will be managing these purchaseslocally, with centralised support.

63

Belgium, and also Italy, still form a relatively protected price zone with regard to electricity, due to the limitedcompetition possibilities. It is therefore difficult to view the present situation as a genuine single Europeanmarket.

Tessenderlo Group would like the regulators to oversee an improvement in the way the market operates. InBelgium, governments were called upon for allocating the additional costs of their energy policy even andfairly among the various market operators.

Prospects and strategy

Tessenderlo Group strives to limit the impact of its activities on the environment as much as possible, anddoes indeed go further than the law requires in this respect. Great efforts will also be made in the future toadapt the installations to the current state of technology, and to reduce atmospheric emissions and effluentdischarges to the feasible minima.

For instance, a study will be carried out into discharges in 2004, in accordance with the discharge permitapproved in late December 2003. This study will be broadly based and will consider the various dischargescenarios, ranging from solutions within the production process to the impact of alternative discharges. Thestudy may form the basis for a lasting solution to the problem of salt discharges. The study will be finalisedby the end of 2004, so that measures can be implemented by 2011.

As concerns the pollution along the banks of the Laak and the Winterbeek, which was largely the result ofhistorical discharges, Tessenderlo Chemie is prepared to cooperate in further soil and groundwater surveys. Inrecent years, Tessenderlo Chemie has shown on numerous occasions that it is prepared to assume its respon-sibilities in respect of the environment, and also wishes to cooperate in cleaning up some of the industrialdamage from the past.

At LVM, attention will focus on further reducing fugitive emissions, and clean-up measures relating to soiland groundwater pollution will be prepared.

Finally, with regard to PVC, Tessenderlo Group will continue, together with the PVC industry, to work towardsrealising the objectives laid down in the ‘Voluntary Commitment’. The annual progress reports are evidenceof this. The PVC industry is thus endeavouring to give the European Union a clear signal in relation to itsefforts in the field of sustainable development.

64

Safety

Recent achievements and ongoing efforts

Since 1997, the safety policy for Tessenderlo Group’s Belgian sites has been reworkedinto a structured and dynamic safety management system, which also aims to furtherreduce the number of accidents and incidents in coming years.

All accidents can be prevented. That is why not only accidents involving lost workingdays are systematically studied, but also all incidents and treatments are analysed, sothat the necessary prevention measures can be taken. Wherever necessary, the lessonslearned are communicated to the sister companies. At each site, the reporting ofnear-accidents is also encouraged. After all, that is a key element for a ‘learning or-ganisation’. In the table on the facing page you will find statistics on the accidents inthe group’s Belgian establishments.

Each company has an annual safety action plan, which is deduced from a five-yearGlobal Prevention Plan, and supplemented with improvement actions for controllingspecific risks.

A European ‘Seveso’ directive aimed at protecting human beings and the environ-ment against the consequences of incidents involving hazardous substances is ineffect in a number of Tessenderlo Group companies. In practice, additional require-ments have been laid down for safety reports and the safety management system.The supervisory authorities perform regular audits, and frequently inspect and verifyinstallations and safety measures. The dynamic approach to safety within these groupcompanies is positively evaluated.

In the event of an incident, all employees must know what action to take. With thatobjective in mind, annual exercises are held to test readiness. Sometimes the exercisesare held in collaboration with external emergency services. The training and educationprogrammes are – just like the resources provided for the intervention teams – tai-lored to the specific accident scenarios of each plant.

The Belgian Tessenderlo Group sites have also signed a cooperation agreement withthe government project ‘Belintra’. This is a Belgian structured system for assistancefrom the chemical sector in the event of accidents involving the transport of haz-ardous products. Tessenderlo Chemie cooperates with the official emergency services,and if necessary provides specialised personnel and equipment.

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At the West Limburg platforms, a control and prevention system is in place to prevent road accidents.Hauliers are subjected to systematic checks relating to possible infringements of European legislation inthe area of the transport of hazardous goods by road (so-called ‘ADR legislation’). Tessenderlo Chemie alsoprovides ADR training programmes for both its own employees and external workers.

Facts in 2003

Thanks to its strict prevention measures, Tessenderlo Group was once again spared from any serious acci-dents in 2003. There was a sharp fall in the frequency of industrial accidents causing stoppage at all theBelgian sites (see graph).

Nor were there any major losses. In 2003, significant efforts were undertaken to increase the safety levels inthe various Tessenderlo Group units.

The leaders of the internal intervention teams of the ‘Seveso’ companies – TCT and LVM – were given specialtraining in industrial fire prevention.

The rate of breaches of the ADR regulations by hauliers was 2.76%, which means that Tessenderlo Chemie’sperformance is better than the national average.

Frequency Rate of WorkAccidents in Belgium

0

9

18

27

3636

.3010

.26

14.45

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8.86

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2003

RESEARCH AND DEVELOPMENT

66

The total research and development budget, including the salaries of some 300 em-ployees, is almost 27.4 million EUR. Targeted investments guarantee modern, well-equipped laboratories and pilot laboratories, enabling Tessenderlo Group to manageits future direction independently.

The research undertaken within Tessenderlo Group is largely directed from the re-search laboratories in Tessenderlo (B). There, around 140 people work on continuousoptimisation of the existing processes, in order to reinforce the group’s market posi-tion.

In addition, a number of new processes are being studied for the production of newderivatives for the group, which are complementary to the existing range. This work iscarried out in collaboration with smaller research groups located abroad, primarily inGreat Britain, France and Italy.

The largest share of the budget is devoted to highly pragmatic applied research, andto technical assistance to the sales and production departments. With that objectivein mind, Tessenderlo Group possesses a number of pilot laboratories, which canquickly and flexibly produce sizeable quantities of new products. By quickly movingbeyond the phase of laboratory research and offering commercial quantities, we canrespond very effectively to market demands.

Basic research is conducted largely in co-operation with universities and researchcentres at home and abroad. This work on new technologies will, over the mediumterm, augment the range of techniques at the group’s disposal. This research focuseson hydrogenation, gas phase reactions and enzymatic reactions. These technologieswill permit Tessenderlo Group to further evolve in the direction of end products with ahigher added value. Further basic research into the nature and stability of the suspen-sion during the polymerisation of PVC should allow PVC production to be more effec-tively managed and greater consistency to be achieved.

The following were points of special consideration within the various divisions in2003:

67

Inorganic Chemicals

In order to minimise variations in production quality, the research team, together with the quality controlunit, has introduced an on-line system of statistical process control in all the inorganic divisions of the WestLimburg platforms. In the long run, this will increase operational safety and help reduce production costs. Itwill also contribute towards the consolidation of inorganic operations in this area.Ongoing targeted research into phosphates for livestock feed that is more easily digestible (‘bio-availability’)should enable Tessenderlo Group to meet increasingly stringent customer requirements.

A new process for manufacturing ferric chloride – using alternative, cheaper raw materials – has beenfinalised in the pilot laboratory. This will entail investment in one of the subsidiaries in 2004.

R&D Expenditures in 200327,4 millions EUR

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Fine Chemicals

In 2003, major efforts were focused on improving the quality of chlorinated toluenederivatives in the UK and tailoring products more closely to market requirements. Thishas a dual advantage. Firstly, a number of customers can be served direct from thesubsidiary in Widnes (England). Secondly, the new benzyl alcohol unit in Widnes,which came on line in early 2004, can rely on supplies of the best possible raw mate-rial precursor from the Widnes site. This operation progressed very quickly thanks toresearch and production being closely coordinated. At the same time, a feasibilitystudy was undertaken to ascertain whether a number of other smaller-volume chlori-nated products with higher added value, could be manufactured in the existingWidnes unit. Some of these will be produced as early as 2004.

A less common method for producing benzaldehyde from chlorinated intermediariesmade the product range more balanced, gearing it more effectively to market condi-tions. This immediately opened up the possibility of manufacturing a new series ofacid chlorides, without the need for major investment. The quality of the benzalde-hyde in the UK is more in line with that from Tessenderlo, providing opportunities forUK customers to be supplied direct from Widnes.

A new hydrodehalogenation unit, the technique for which was developed in the labo-ratory, was successfully launched in Italy. The research team firmly believes that theequipment's output can be further boosted. This will allow a number of wastestreams to be processed in an ecologically sound manner, which will also result inreduced consumption of raw materials. The same technique is also being used toachieve the best possible balance between chlorinated products and market demand.

In addition, work continued on developing a number of aromatic substances in 2003.Pilot production of these will start in 2004. It should be possible for these high-gradeperfume additives to be produced on an industrial scale in the near future.

In 2003, a number of new active ingredients, or their intermediates, were once againbrought into production in the pharmaceutical subsidiaries Farchemia (Italy) andCalaire Chimie (France). Some of these are being developed in-house, whilst othersare being entrusted to Tessenderlo Group by the pharmaceutical companies. Minoradjustments resulted in more efficient processes or higher output.

Finally, the division's pilot installations were extended last year, in order to increasetheir scope of application.

69

Natural Organic Products

New formulae have been developed in food applications, especially in the field of speciality gelatins. Thesehave been offered to a number of customers for further development of market-ready products.

Tests have been started on specific cosmetic applications.

The first phase of the laboratory trials relating to the use of less traditional raw materials for gelatin has beenfinalised.

Initial production tests relating to an alternative formula for the manufacture of hydrolysates were carried outat the Nienburg production unit. Along with a number of refinements to existing production and applicationsformulae, this should result in quality which fulfils the high requirements in terms of optical and organolepticproperties. The first exchange of know-how with PB Leiner USA, the American subsidiary, concerning produc-tion of hydrolysates is already starting to bear fruit.

Development of hydrolysates for pharmaceutical applications (plasma expander) has been put into productionfollowing a series of pilot tests. Customers can now proceed with certification of their end product. Thiscalled for the development of new methods of analysis. In addition, the quality and research team providedthe production and sales department with the requisite support and technical advice. This was essential to beable to take advantage of the permanent changes in the field of quality requirements and legislation.

2003 was marked by the further introduction of new gelatin qualities to a European producer of photo-graphic materials. The gelatin manufactured by PB Gelatins was also successfully used in paper for thenewest inkjet printers.The gelatin division is also focusing attention on the quality standards for by-products such as fat and bonemeal. By optimising some production parameters, market outlets were safeguarded and even extended.

PVC and Compounds

In the past year, productivity in the PVC units increased considerably, without any additional investment. Pro-duction costs were reduced by using new, more efficient, cheaper polymerisation additives. Close collabora-tion between the various research and production teams resulted in productivity increasing by almost 10%and the additive costs for each kilogram of PVC being reduced.

All of this was only possible as a result of thorough preparatory work in the pilot installations and support inthe labs for practical research and product development, during both preparation and implementation. Con-sistent product quality was a crucial concern in this.

70

A significant improvement in respect of environmental and safety aspects wasachieved by means of the phased introduction of new techniques for reactors and useof a more efficient polymerisation killer.

The amalgamation of the fundamental and applied research departments should re-sult in scientific acumen and practical knowledge being more readily available.

Centralising the PVC compound operations has inevitably had consequences for theresearch team. The emphasis has been on technical support to a broader range ofcustomers, with more product types. The training of new sales staff was given top pri-ority. Major achievements included coated fabrics and sealant profiles for frames(Marvylex® compounds with rubber-like properties).

The number of car models using Tessenderlo Group’s PVC dashboard compound con-tinues to increase. Sales of Marvyflo® increased for the fourth consecutive year. Thiswas mainly due to new car models being launched. Colours that are light, critical anddifficult to produce are gaining in popularity, which calls for developing better colour-ings.

These developments, which occurred in close collaboration with car manufacturers,were in line with customer requirements. They are intended to continue to push backthe frontiers for the use of PVC in car interiors.

Plastics Converting

The collaboration between PVC operations and the subsidiaries involved in plasticsconverting should, in the long term, mean a better understanding of the conversiontechniques and the development of formulae with more potential applications.

The PVC industry has committed itself to a voluntary undertaking to phase out lead inPVC mixtures. Against this backdrop, new stabilisers for PVC in formulae for frameprofiles, tubes and seals were tested for properties and conversion potential. Industrialtests will optimise the usability of these products.

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Control laboratories and quality

Targeted research helps guarantee that Tessenderlo Group remains strong. Modern, well-equipped and effi-cient control laboratories are an indispensable tool in this effort. During the past year, work continued in thecentral control laboratory on introducing so-called ‘Good Laboratory Practices’ (GLP) and the ISO 9001 –2000 quality standards.Prompt cross-border communication between the various control laboratories remains an indispensable partof this effort.

In 2003, the control laboratories concentrated their efforts on increasing efficiency. The Laboratorium Infor-matica Managementsysteem (LIMS information system), which had already been introduced in the environ-mental control laboratory and meant another major step towards increased efficiency and quality, will nowalso be used for production analysis and analyses for the subsidiaries. At the same time, further automationwas achieved by linking up analytical devices to LIMS, so that it is now possible for a range of devices totransfer results automatically.

In early 2003, Tessenderlo Group’s environmental control laboratory was awarded ISO 17025 certification byBeltest for the implementation of emission measurements. This means international recognition of thegroup’s technical competence. This quality system will be expanded to cover water analysis.

In addition, the environmental control laboratory’s methods for measuring water and emissions have beenapproved under the VLAREM legislation; this applies to all subsidiaries that are required to comply with thislegislation.

During the past year, the quality department assisted several departments in developing, implementing ormaintaining a quality management system based on the internationally recognised EN-ISO 29 000 standard,and in obtaining the required product certification. All current systems were adapted in line with the new ISO9001 – 2000 standards before the cut-off date of 15 December 2003. As required by the standard, all re-search and development operations were included in the quality management systems.

The integration of ‘Good Manufacturing Practices’ (GMP) into our quality systems and the implementation ofrisk analyses relating to food safety (HACCP) offer further quality guarantees, which are highly appreciated bycustomers.

At PB Gelatins, the EDQM certificates – which are indispensable for pharmaceutical gelatins – were updated.Steps were taken to also achieve this for the subsidiaries in North and South America that were taken overduring 2003.

CORPORATE GOVERNANCE

72

Transparent management

In compliance with the recommendations of the BSX market authorities and theBelgian Corporate Governance Commission, Tessenderlo Group seeks to optimise theadministration and management of its operations in accordance with the principles of´corporate governance´. These entail that a company be managed in an ethicallyresponsible manner. This is a fundamental condition for optimal use of the financialresources, which the shareholders furnish to the company.

Establishing rules for organisation and functioning makes the decision-makingprocess within the Board of Directors and the various committees more transparent.At the same time, this ensures that the interests of the shareholders, and those of allparties who, directly or indirectly, are involved with the company – the so-called´stakeholders´ – are taken into account.

Meeting this objective is also a matter of the inherent quality of the information pro-vided, which is considered an essential element of the corporate communication.

Based on the financial agenda, which is presented at each annual General Meeting,the consolidated financial results, together with an activity report from the group´svarious divisions, are distributed in the form of a press release. This is simultaneouslypublished on the Tessenderlo Group website: www.tessenderlogroup.com.

The annual reports of the General Meeting are sent to all shareholders holding regis-tered shares, as well as to all investors and other interested parties. The annualreports can also be consulted on the website: www.tessenderlogroup.com.

Remuneration policy for the members of the Board of Directors and theManagement Committee

The remuneration of the members of the Board of Directors consists mainly of fees,which have been unchanged for each board member since the year 2000. For the2003 financial year, fees amount to a total of 506,416 EUR. No loans or guaranteeshave been granted to any board members by any group companies.

The remuneration of the members of the Management Committee consists of both afixed element and a variable element, which is dependent either on the results of thegroup or on individual performance, and on average this can represent 20% of thefixed remuneration. These directors also participate in a stock option scheme. Withinthis framework, a total of 19,400 warrants, each entitling the holder to subscribe for

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one new share, have been granted to the members of the Management Committee in 2003. All of theseelements have been approved by the Remuneration Committee.

The Board of Directors

In accordance with article 15 of the company´s articles of association, the Board of Directors must be madeup of a minimum of three members who are appointed by the General Meeting of Shareholders. They servea six-year term of office.

The composition of the Board of Directors

The Tessenderlo Group Board of Directors is composed as follows (situation at the end of December 2003):

– Chairman, executive director: Gérard Marchand (appointment ends June 2004)

– Non-executive directors, representatives of the main shareholder:

• Pierre-Louis Boutonnat (appointment ends June 2007);• Pierre-François Couture (appointment ends June 2006);• Claude Niedergang (appointment ends June 2007).

– Independent non-executive directors

• Valère Croes (appointment ends June 2009);• Paul de Meester (appointment ends June 2007);• Thierry Piessevaux (appointment ends June 2007);• Karel Pinxten (appointment ends June 2007);• Bernard Pache (appointment ends June 2007);• Marc Lambrechts († August 2003).

The Board of Directors is supported by the Secretary General, Adrien Carton de Wiart.

The position of statutory auditor is fulfilled by Klynveld Peat Marwick Goerdeler (KPMG), represented by LudoRuysen. Besides the compensation of his mandate, the statutory auditor received for special assignments anamount on the order of 60,359 EUR within SA Tessenderlo Chemie.

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The rules governing the composition and activities of the Board ofDirectors

The Board of Directors is authorised to take all actions, which are necessary or usefulfor the realisation of the company´s objectives, with the exception of matters that ex-clusively require decisions to be taken by the General Meeting, as stipulated either bythe law or by the company´s articles of association. The company is validly repre-sented by the chairman of the Board of Directors or by two directors acting jointly.

The Board of Directors is currently composed of nine members. In accordance withthe terms of the law of August 2nd, 2002 and confirmed by the General Meeting ofJune 3rd, 2003, independent directors sit on the Board as well as representatives ofthe main shareholder, the French group Entreprise Minière et Chimique (EMC, miningand chemicals group).

The Board may only validly deliberate or take decisions when a quorum of at leastone-half of the directors are present or represented. The Board passes its resolutionsby a simple majority vote of the members present or represented. In the event of a tievote, the vote of the Chairman is deciding.

The Board of Directors met five times during the financial year 2003.

In addition to the presence of independent directors on the Board of Directors, anumber of committees also ensure the proper functioning and autonomy of theBoard. These committees are composed exclusively of non-executive directors.

Since 1999, the Board of Directors has been working with three specialised commit-tees:

– the Audit Committee;– the Nomination Committee;– the Remuneration Committee.

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The Audit Committee

The Audit Committee is made up of four members, three of whom are independent directors. It is supportedby the secretary to the Board of Directors.

The members of the committee are:

– Valère Croes (chairman);– Claude Niedergang;– Thierry Piessevaux;– Marc Lambrechts.

The task of the Audit Committee is to assist the Board of Directors in exercising supervision over the follow-ing matters:

– financial information which is released to the shareholders and the staff and, more generally, any financialinformation which is made public;

– the internal audit and the internal control system, as well as the existing or new control procedures;– the external audit.

In the course of its work, the Audit Committee consults the appropriate company executives, i.e. the financialdirector, the corporate controller of the group, the internal auditor and the statutory auditor.

The committee meets at least twice a year in order to examine the half-yearly and annual accounts, as well aswhenever circumstances so require.

In 2003 the Audit Committee met three times.

The Nomination Committee

The Nomination Committee was formed to advise the Board of Directors on proposed appointments to besubmitted for approval to the General Meeting, as well as proposals concerning the replacement of directorsthrough co-option.

The committee is made up of three members:

– Pierre-François Couture;– Paul de Meester;– Marc Lambrechts.

The Nomination Committee meets whenever circumstances so require.

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The Remuneration Committee

The Remuneration Committee is responsible for making proposals concerning theremuneration for the executive and non-executive directors, and for providing recom-mendations on the group´s remuneration policy towards its principal managers. Thecommittee is made up of three non-executive directors:

– Valère Croes;– Paul de Meester;– Karel Pinxten.

The Remuneration Committee met once during the 2003 financial year.

The Management Committee (*)

The Board of Directors has entrusted the day-to-day management ofthe company to one of its members, Gérard Marchand, who is alsothe chairman of the Management Committee.

In addition to the chairman, the Management Committee has fourmembers:

– Matteusz Dubinski, Inorganic Chemicals division;– Jozef Housen, Natural Organic Products division;– Philippe Pôlet, PVC and Plastics Converting divisions;– David Poynton, Fine Chemicals division.(**)

The monthly meetings of the Management Committee are also attended by:

– Adrien Carton de Wiart, Secretary General;– Eddy Vandenbriele, director IT, Organisation Development and Human Relations;– Christian Vrebosch, director Finance.

Like the group´s most important executives, the members of the Management Com-mittee receive a fixed remuneration. In addition, they receive a variable bonus basedon their individual performance and the results of the group.

(*) Also see the photo on page 6

(**) Pierre Ducuroir till March 31st, 2003

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The dividend policy

The dividend policy remains unchanged. In other words: one-third of the net consolidated profit average ispaid out as dividend, with the balance devoted to financing the expansion of the group. However, this policycan be adjusted in order to ensure that the dividend grows or at least remains stable.

The allocation proposed to the General Meeting for the financial year 2003 represents 71% of the consoli-dated profit. This corresponds to a net dividend per share of 0.85 EUR (as in 2002). By way of comparison:the dividends, which were distributed for the financial year 2002 amounted to 44% of the net consolidatedprofit.

WYMARINTL(BE)

IMMOWATRO

(BE)

TESSENDERLOPARTICIP

(BR)

MEDABIL(BR) 50%

LVMHOLD(NL)

PB LEINERARGENTINA

(AR)

TCROTTERDAM

(NL)

DYKA BV(NL)

DYKA UK(GB)

LVMLIMBURG

(NL)

PBG UK(GB)

TESSENDERLOHOLDING UK

(GB)

FAIRBROOK(GB)

TESSENDERLOFINE

CHEMICALS(GB)

TESSENDERLOUK

(GB)

DYNAPLASTEXTRUCO(CA) 33%

PROFEX(FR)

TESSENDERLO CHEMIE NV

LEGEND

HOLDING

INORGANIC CHEMICALS

NATURAL ORGANICPRODUCTS

FINE CHEMICALS

PVC & COMPOUNDS

PLASTICS CONVERTING

TEFIPAR(FR)

S.A.V.(FR)

SAPLAST(FR)

PC LOOS(FR)

CALAIRECHIMIE

(FR)

PLASTIVAL

(FR)

CHEMILYL(FR)

SOTRA-SEPEREF

(FR)

CAILLAUD(FR)

THERMO-

PLASTIQUES

COUSIN-TESSIER

(FR)

PBG FRANCE(FR)

TECHNI-COMPOUND

(FR)

ALIPHOS(FR)

TESSENDERLOPARTICIP

(IT)

TESSENDERLO

ITALIA(IT)

TESSENDERLOUSA(US)

PB LEINERUSA(US)

CHELSEA B.P.(US)

TESSENDERLOKERLEY

(US)

JUPITERSULPHUR(US) 50%

TESSENDERLODAVISON

CHEMICALS(US) 50%

ALKEMIN(US) 49%

LVM(BE)

TCI(BE)

CHEMIELIM(NL)

TAILE(CN)

FARCHEMIA(IT)

PBG GmbH(DE)

TCT POLSKA(PL)

DYKAPLASTICS

(BE)

DYKAPOLSKA

(PL)

ZEOLINE(BE) 50%

TERELUX(LU)

TESSENDERLO GROUP

5

The plant in Lianyungang is the most importantChinese producer of benzyl chloride and ben-zaldehyde, primarily used in the pharmaceuticalindustry. The Fine Chemicals division holds 30 per-cent of the world market of a key intermediatefor the production of penicillin.

Taile Chemical FactoryLianyungangCHINA

358578 en001 081 · corporate governance page 72 chart of the group page 78 annual accounts 2003...

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