Annual Report 2006 - Evonik Industries

RAG BETEILIGUNGS-GROUP 

2006 ANNUAL REPORT 

This Report is not intended for distribution 

in the United States of America, Canada, Australia or Japan 

Etna, Sicily 

Crater Lake, Oregon 

Fujisan, Japan 

Hekla, Iceland 

Kilauea, Hawaii 

RAG, Essen 

Pico del Teide, Tenerife 

Pinatubo, Philippines 

Popocatépetl, Mexico 

Santorini, Greece 

Stromboli, Sicily 

*ACTIVE 

* 

Vesuvio, Italy

PENT-UP ENERGY RELEASES 

NEW FORCES. 

It takes a long time for pent-up energy to explode, but once it does, 

it releases a new force. RAG Beteiligungs-AG's planned IPO under a new name 

will bring a new force to capital markets.

Stromboli (926 m), Sicily 

Group Structure 

Technology 

Specialties 

Building 

Blocks 

Exclusive 

Synthesis & 

Catalysts 

Aerosil & 

Silanes 

Advanced 

Fillers & 

Pigments 

C4- 

Chemistry 

As of January 1, 2007 

RAG BETEILIGUNGS-GROUP 

CHEMICALS ENERGY REAL ESTATE 

Consumer 

Solutions 

Feed 

Additives 

Superabsorber 

Care & Surface 

Specialties 

Specialty 

Materials 

Coatings & 

Colorants 

High 

Performance 

Polymers 

Specialty 

Acrylics 

Methacrylates 

Energy 

Energy 

Real Estate 

Real Estate 

SHARED SERVICE CENTER

Key Figures 

2006 2005 

Sales € million 14,793 14,181 

EBITDA € million 2,280 2,107 

EBITDA margin % 15.4 14.9 

EBIT € million 1,234 1,108 

ROCE % 8.8 7.8 

Net income € million 1,045 195 

Total assets € million 21,043 23,750 

Equity ratio % 20.5 22.1 

Cash flow from operating activities € million 1,098 1,147 

Capital expenditures 1) € million 959 1,194 

Depreciation and amortization 1) € million 974 980 

Net financial debt € million 5,434 5,649 

Number of employees as of December 31 43,175 45,196 

1) Intangible assets; property, plant and equipment; investment properties

CONTENTS 

02 ACTIVE 

10 Foreword 

12 Management Report 

12 The RAG Beteiligungs-Group: Ready for the stock market 

14 Economic environment 

18 RAG Beteiligungs-Group operations 

23 Financial performance 

24 Cash flow 

28 Financial position 

29 Technology Specialties 

32 Consumer Solutions 

34 Specialty Materials 

36 Energy 

39 Real Estate 

40 Other operations 

43 Human resources 

46 Non-financial performance indicators 

47 Risk report 

52 Outlook 

54 Events after the balance sheet date 

57 Consolidated Financial Statements of 

RAG Beteiligungs-AG 

63 Notes to the Consolidated Financial Statements of 


117 Other Information 

01

02 

Releasing energy to effect change.* 

* POWER 

Pent-up energy rushes forth, altering the landscape. The sheer force that 

unleashes hidden potential can only surge straight ahead, effecting change, 

creating space for something new. It’s a force to be reckoned with.

ACTIVE 

Foreword 

Management Report 

Consolidated Financial Statements 

Notes 

Report of the Supervisory Board 

Corporate Bodies 

Major Shareholdings 

Piton de la Fournaise (2,631 m), Kapor crater, La Réunion 

03

04 

Creativity forges a new world and new values.* 

* STRUCTURE 

The forces of nature join together to form a backdrop of impressive beauty and 

transparency. While nature may leave things to chance, the new industrial group 

will take fate into its own hands when it goes public. The three business areas – Energy, 

Chemicals, and Real Estate – will stand for stable dividends and growth potential. 

The new company will create value for investors, employees, and customers.

ACTIVE 

Foreword 



Notes 




White calcium terraces, Pamukkale, Turkey 

05

06 

Ambitious goals.* 

* YIELD 

Once it erodes, lava turns into fertile topsoil, providing a basis upon which new life can flourish. 

But first the ground needs to be worked before it can bear fruit. The new RAG Beteiligungs-Group 

has created this sort of basis with attractive business areas aimed at market and technological 

leadership. Going public will accelerate growth of this young company.

ACTIVE 

Foreword 



Notes 




Tea plantation, Mount Fuji (3,776 m), Japan, Honshu island 

07

08 

Forging the future from enormous potential.* 

* CREATION 

When primeval forces are at work, an island can arise from nowhere. New territory. 

Thanks to its bold new strategic orientation, RAG Beteiligungs-AG has created 

the backdrop for a new company. Going public will put a face on this potential.

ACTIVE 

Foreword 



Notes 




Atolls of the Maldives 

09

10 

Ladies and Gentlemen, 

Over the past three years, we have completely restructured RAG Beteiligungs-AG. The 

move required resolve, persistence, and a dedicated adherence to our strategy. We streamlined 

our portfolio at a rapid pace and continued at high momentum to complete the 

reorganization of our corporate structure. RAG Beteiligungs-AG today is a different company 

than it was just a few years ago. It possesses both substance and energy. The industrial 

enterprise now has a clear profile, is growth oriented and is creating value – for its 

employees, its future shareholders and the state of North Rhine-Westphalia. Now we’re 

ready for the next step. Going public, and the direct access to the capital market that this 

will provide us, will fuel a new phase of profitable growth. 

The complete acquisition of Degussa in 2006 was a crucial step for our company. We 

were able to carry out the shareholder squeeze-out in the record time of just three and 

one-half months. Degussa’s sale of its Construction Chemicals activities to BASF and the 

sale of DBT GmbH to Bucyrus in the U.S. were other major milestones in an in-depth portfolio 

adjustment. These transactions embodied the best-owner principle, meaning that 

they were executed by mutual consent with the employee representatives. This bodes well 

for all employees, including those under the new owners. 

Concurrently, we have been creating the framework for a modern, efficient company. 

We will thus be able to reduce administrative costs significantly while structuring 

management and service processes much more effectively. Our group will become faster 

on its feet. The transformation of RAG Beteiligungs-GmbH into a publicly held company 

(NewCo), the staffing of the NewCo management board, and the transfer of staff to the 

new Corporate Center and Shared Service Center were pillars of our reorganization. Our 

new structure now stands. 

We were successful even during our last year of restructuring as the 2006 figures 

impressively demonstrate. Group sales climbed 4 percent to €14.8 billion. EBIT surpassed 

the billion euro mark, growing 11 percent to €1.2 billion despite the fact that Construction 

Chemicals, Saar Ferngas, and DBT were reported as discontinued operations and were 

not included in EBIT. We were also able to reduce net debt in the course of the year by 

approximately €200 million to €5.4 billion. Making it all the more remarkable is the fact 

that these figures already take into account the Degussa takeover. 

The next tasks await us on our path to the capital markets in the weeks and months 

to come: 

Establishing a foundation to deal with inherited coal mining liabilities of unlimited 

duration 

Renaming the industrial group 

Passing a coal mining financing law that will anchor the future of the German coal 

mining industry and thus guarantee the principle of social compatibility (i.e., no forced 

redundancies) 

Listing NewCo on the stock exchange

ACTIVE 

Foreword 



Notes 




From left to right: Dr. Alfred Oberholz (Chemicals), Dr. Klaus Engel (Chemicals), Dr. Alfred Tacke (Energy), Dr. Werner Müller (CEO), 

Ulrich Weber (Human Resources), Dr. Peter Schörner (Real Estate and Controlling), Heinz-Joachim Wagner (CFO) 

Our thanks go to all those involved in the political process, to the IG BCE trade 

union, and to our shareholders who have supported us along the way. We also thank 

our employees, whose commitment has brought the Group to where it is today. Our 

planned IPO is a bold signal that expresses optimism about the future – of our company, 

of all our employees and of the state of North Rhine-Westphalia. 

Dr. Werner Müller, Chairman of the Management Board 

11

12 

Combined Management Report 2006 

of the RAG Beteiligungs-Group and 


This management report is a combined Management Report of RAG Beteiligungs-AG 

and RAG Beteiligungs-Group. Due to the influence of the segments, statements made by 

the RAG Beteiligungs-Group regarding developments within these segments also apply 

to RAG Beteiligungs-AG. The consolidated financial statements were prepared in accordance 

with International Financial Reporting Standards (IFRS), and the separate financial 

statements of RAG Beteiligungs-AG were prepared in accordance with the provisions of 

the German Commercial Code (HGB). 

THE RAG BETEILIGUNGS-GROUP: READY FOR THE STOCK MARKET 

The goal is to float the RAG Beteiligungs-Group, which comprises the industrial activities 

of the RAG Group, on the stock market. In recent years, we have undertaken a radical program 

of strategic realignment. What used to be a heavily diversified group of companies 

has been transformed into a modern industrial enterprise, encompassing business areas in 

the promising fields of energy, chemicals, and real estate. An important milestone in this 

process was the takeover of Degussa in September 2006. In the course of strategic realignment, 

we have also divested ourselves of more than 480 companies that were operating in 

areas outside of our core target markets. The combined annual sales of these companies 

was in excess of €8 billion. More than one-quarter of these divestments were completed 

in fiscal 2006. Furthermore, we implemented Project “Sirius”, which involved a comprehensive 

review and optimization of all management and service processes within the Group, 

creating a flexible and powerful organization that is able to meet the challenges of 

international competition. 

Well positioned 

The Chemicals business area of the RAG Beteiligungs-Group encompasses the operations 

of Degussa. We are the global market leader in specialty chemicals and the third-largest 

German chemicals company. The chemicals operations are broken down into 12 business 

units, each of which is allocated to one of the three segments of Technology Specialties, 

Consumer Solutions, and Specialty Materials. These segments represent the strong core 

competencies of the Chemicals business area, and each brings together activities that 

have comparable business models and similar factors determining their strategic success. 

Our strategy is to achieve market leadership in all of our chemicals activities, an objective 

that we have already achieved in more than 80 percent of our activities. In addition to our 

strong customer focus, research and development are key elements in our bid to consolidate 

and build upon our global technological leadership. We already generate 20 percent

ACTIVE 

Foreword 



Notes 




of our sales in the Chemicals business area from products that are less than five years old. 

The Chemicals business area has production facilities in more than 27 countries. We intend 

to benefit in the medium term, in particular, from the strong growth in Asia, Eastern 

Europe, and Latin America. 

The Energy business area covers the activities of STEAG. This is an area in which we 

have been planning, building, and operating coal-fired power plants for nearly 70 years. 

The total installed electrical output is around 9,000 megawatts. We are Germany’s fifthlargest 

power generator and operate eight coal-fired power plants across the country as 

well as an additional three large-scale coal-fired power plants in Columbia, Turkey, and 

the Philippines. Our key competitive strengths are technological leadership in coal-fired 

electricity generation, decades of wide-range experience in the power generation industry, 

a strong international profile, and an excellent reputation for putting together complex 

project financing. We have also achieved a strong market position in the production of 

energy from biomass and biofuel as well as in geothermal energy. We are the global leaders 

in the use of mine gas for energy generation. Over the medium term, we aim to significantly 

strengthen our position in the power generation market. A key area in which we 

hope to achieve this is the planning, financing, construction, and operation of coal-fired 

power plants in Germany in line with the “Clean Competitive Electricity from Coal” (CCEC) 

concept, which aims to optimize the use of resources and generate substantial cost 

savings with exemplary efficiency. The laying of the foundation stone for the most modern 

coal-fired power station in Europe in November 2006 in Duisburg-Walsum represented 

a major step forward in this direction. 

The Real Estate business area encompasses the operations of RAG Immobilien. This 

business area focuses on leasing residential space to private households. With a total of 

more than 65,000 residential units housing more than 150,000 people, we are one of the 

largest providers of residential property in Germany. The high quality of our properties is 

one of our key competitive advantages, and our vacancy rates are well below the industry 

average. In the medium term, we plan to significantly expand this portfolio. We believe 

the market for high-quality residential property in the Rhine-Ruhr area offers excellent 

prospects, with industry forecasts anticipating long-term stable growth. We plan to round 

out our portfolio with further acquisitions in the attractive Rhineland corridor between 

Düsseldorf and Bonn. 

Successful completion of Degussa takeover 

Finalization of the Degussa takeover in 2006 represented a major step forward in focusing 

our business portfolio. In January 2006, RAG Projektgesellschaft mbH made a voluntary 

public offer to the shareholders of Degussa AG for their shares in the company. By the end 

of March 2006, RAG Projektgesellschaft mbH had acquired direct and indirect shares representing 

more than 95 percent of the share capital of Degussa AG and began transferring 

the shares of minority shareholders to the majority shareholder in return for adequate 

cash compensation pursuant to Section 327a of the German Stock Corporation Act 

(“shareholder squeeze-out”). The shareholder squeeze-out and conclusion of a control and 

profit and loss transfer agreement with RAG Projektgesellschaft mbH was resolved by the 

annual general meeting of Degussa AG held on May 29, 2006. Both resolutions took effect 

upon entry in the commercial register on September 14, 2006. Trading in Degussa AG 

shares was suspended at the close of trading on September 15, 2006. 

13

14 

Project “Sirius” creates lean and efficient Group structure 

In line with our objective of putting the RAG Beteiligungs-Group on the stock market, 

we initiated Project “Sirius” in the summer of 2005. The project focused on optimizing all 

management and service processes within the Group. We were able to complete this 

project in just 15 months. As a result, our Group has been managed by a strategic Corporate 

Center since January 1, 2007. Key employees from RAG Group headquarters and the 

head offices of Degussa, STEAG, RAG Immobilien, and RAG Coal International along with 

other Group companies were brought together in the new Corporate Center. At the same 

time, the top-level companies in the subgroups were transformed into GmbHs (private 

limited companies). The Corporate Center and the operating units are supported by RAG 

Service GmbH, to which all company-wide support services such as administrative and 

IT, purchasing, and payroll for RAG, Degussa, STEAG, RAG Immobilien, and RAG Coal International 

have been transferred. Around 4,700 employees were affected by the structural 

changes, all of whom were assigned new tasks and functions within the Group. The 

Group now has a much flatter structure with short decision-making routes between the 

operating businesses and the head office, resulting in greater transparency and 

significantly reduced administrative costs. 

ECONOMIC ENVIRONMENT 

The global economy 

The global economy continued its growth trajectory in 2006, although the regional 

centers of growth shifted. This was particularly true for the industrialized nations. The U.S. 

economy lost some of its momentum from previous years, and the Japanese economy 

remained at the moderate pace of expansion that began in the second quarter. In the 

eurozone, however, the economic upturn gained further ground. The competitive position 

of German companies improved perceptibly as a result of ongoing restructuring, which 

helped to drive growth and significantly improved the competitiveness of the German 

economy. 

The overall strength of the European economy pushed the euro to a new high against 

the U.S. dollar of USD 1.34 in December 2006 following a slight mid-year dip. Due to the 

persistent weakness of the Japanese yen (JPY), the euro also appreciated substantially 

against this currency over the course of the year, reaching a record high of JPY 157 at the 

end of December 2006. 

Producer prices rose by 5.5 percent in 2006. This was the strongest growth in 24 years, 

primarily as a result of rising energy prices, which increased on average by 16 percent. 

At the end of the year, the price of natural gas was almost 10 percent higher than at the 

beginning of 2006. Oil markets witnessed an abrupt turnaround in the summer. Prices fell 

from the high of USD 78 reached at the start of August to just USD 57 (Brent crude) at the 

end of October. The main reasons for this sharp drop in the price of oil were an amelioration 

of conditions at various crises points in the Middle East and the failure of the anticipated 

season of fierce hurricanes to materialize in the Gulf of Mexico. These factors caused the 

risk premium that had already been priced in by the market to decrease dramatically.

ACTIVE 

Foreword 



Notes 




The German economy continued to grow at a rapid pace, providing significant 

impetus to the eurozone as a whole. The gross domestic product (GDP) grew by 2.9 percent 

in real terms, while consumer prices rose only 1.7 percent. As in previous years, growth 

continued to be underpinned by strong export growth. Domestic demand also picked up 

considerably. In the construction sector, capital spending increased in 2006 for the first 

time in 10 years, and the economic growth increasingly benefited the labor market. 

Europe as a whole experienced dynamic economic growth. Domestic demand picked 

up dramatically on the back of the perceptible improvements in the labor market. The key 

driver was capital spending, particularly in the construction sector. GDP increased in 

Europe by 2.7 percent in real terms, while consumer prices rose 2.2 percent. Strong exports 

underpinned growth, mainly in the new member states of the European Union. In Russia, 

growth in real GDP is expected to be 6.5 percent for 2006. Due to the strong economic 

data in the eurozone, the European Central Bank raised interest rates on five separate 

occasions from 2.25 percent to the most recent rate of 3.5 percent in order to counter 

inflationary tendencies. 

Until the spring of 2006, the United States was one of the main engines driving global 

economic growth. As the year progressed, however, growth in the U.S. began to lose some 

of its momentum. In particular, a slight downturn in the real estate market had a curbing 

effect on the economy as a whole. Nonetheless, real GDP rose by 3.5 percent in the U.S. The 

increase in consumer prices was limited to 3.2 percent thanks to declining energy prices. 

In Japan, the economic recovery continued at a steady pace, while consumer prices 

saw further moderate growth. Production was driven by strong exports and steady 

domestic demand, which was underpinned primarily by high levels of corporate capital 

expenditures. Real GDP growth was 2.3 percent. The increase in producer prices reached a 

historically high level due to increases in the price of raw materials and commodities 

along with strong consumer demand. 

Asia’s emerging economies experienced strong expansion in 2006, although growth 

has declined slightly of late. Following rapid growth in the first half of the year, domestic 

demand cooled in most of the region’s major economies, while foreign trade – particularly 

within Asia – saw very strong growth. The smaller economies benefited the most from the 

robust growth in intra-regional trade. Overall, foreign trade remained a key growth factor 

for the region. China’s economy grew more strongly in 2006 than in the past 11 years, 

achieving double-digit growth rates once more. In China and Hong Kong, real GDP rose by 

10.7 percent in 2006, while an increase of 5.2 percent is expected for East Asian economies. 

In recent months, prices in Asia have reflected the slight increase in inflationary pressures, 

resulting in particular from higher commodity prices. 

15

16 

Growth momentum continued in Latin America in 2006, with real GDP forecast to 

increase by 4.3 percent. This growth has been driven by the strong domestic demand seen 

in most countries. As a leading producer of raw materials, Latin America has also benefited 

from the strong price increases in commodity markets. The inflation rate continued to fall 

and general economic conditions in the individual countries varied greatly. 

Sectors 

Germany’s chemical industry continued to grow in 2006 in the face of global economic 

growth. The upturn in domestic demand was particularly encouraging, driven primarily by 

industry and the construction sector. Overall sales revenues in the German chemical industry 

reached a level of €162 billion, while production of chemicals increased by 3.5 percent. 

Commodity prices and energy prices stagnated at a high level. The good performance of 

the chemicals industry enabled many companies in the sector to pass on most of the price 

rises in energy and commodities to customers. Further price increases were observed for 

primary chemicals in the petrochemicals sector. In contrast with the previous year, fine 

chemicals and specialty chemicals benefited particularly strongly from the healthy economic 

growth. Worldwide, the chemicals industry increased production by 4.2 percent. The 

growth rate in the EU was slightly lower at 3.6 percent. Asia experienced above-average 

growth in production of 6.5 percent. Growth in the U.S. was substantially below the global 

average at just 2 percent. 

Although the energy sector was depressed by the regulation of the German electricity 

supply business, the negative effect of this was more than offset by the increase in electricity 

and gas prices and the weather-driven boost in sales volumes at the beginning of 

2006. Energy consumption in Germany rose in 2006 by 1.2 percent to 493 million tce (tons 

of coal equivalent). Consumption of natural gas increased by 1.5 percent. The use of natural 

gas for power generation increased by a hefty 4 percent. Consumption of diesel and heating 

oil increased, while sales of petroleum fuels and naphtha for the chemical industry fell. 

Overall, oil remained by far the biggest source of energy, accounting for nearly 36 percent 

of the total. The use of coal increased in both the electricity generation industry and the 

steel industry, up 1.7 percent for the two industries combined. Coal covered 13 percent of 

the total primary energy requirement in Germany. Hydroelectric and wind power generation 

declined, but power generation from wood, biofuel, and other renewable energies 

increased. In total, renewable energies accounted for 5.3 percent of primary consumption, 

up 16 percent from the previous year. 

The German housing market has been experiencing something of a boom for the 

past few years. Increasing amounts of foreign capital have flowed into the sector since 

2004, and there is a growing trend toward the purchase of large blocks of residential housing. 

Over the past three years, approximately 550,000 homes have been acquired for a 

total amount of some €20 billion. For the most part, the sellers have been local municipal 

authorities and large companies. This illustrates the continuing trend for companies to 

focus on their core business and the growing use of property sales by local authorities to 

keep public sector finances in balance. Moreover, the fact that property prices in Germany

ACTIVE 

Foreword 



Notes 




fell by 2 percent between 1995 and 2005 while rising substantially in other European 

countries – in some cases by well more than 100 percent – is an argument in favor of 

investing in the German residential property market. The market as a whole is characterized 

by long tenancy periods (10 years on average), low vacancy rates, and a low level of 

new construction. 

Legal influences on the Group 

The new European policy on chemicals will take effect on June 1, 2007 in the form of the 

REACH directive (Registration, Evaluation, and Authorization of Chemicals). The Directive 

aims to improve safety in the handling of chemical substances with particularly dangerous 

properties. These types of substances are used by nearly all companies in the manufacturing 

sector. For the chemicals industry, this new EU legislation on the registration, evaluation, 

and authorization of chemicals is the most significant regulatory development for 

decades. REACH presents a tremendous challenge for the industry as its implementation 

involves substantial additional costs and greater bureaucracy. Nevertheless, we welcome 

this chemicals legislation as it allows us to plan our business with greater certainty. 

One particularly positive aspect is that our in-house expertise will be better protected. 

Implementing the Directive will, however, entail increased costs, primarily because of the 

more stringent authorization procedures and the introduction of the screening test for 

registration of substances that are toxic to reproduction. 

In the Kyoto Protocol, the signatory states committed to reduce their collective 

emission of greenhouse gases to an average of 5.2 percent below 1990 levels by the year 

2012. For EU countries, the objective of a preventive climate policy is to achieve an 

8 percent reduction. One policy instrument for working toward this objective is the issue 

of emissions rights. In 2005, a new market was created in Europe with the launch of emission 

trading, which allocated emission rights to companies that operate relevant industrial 

plants. These certificates are only valid in the initial allocation period (2005 to 2007). 

The current uncertainty about the future of emissions trading in the second allocation 

period (2008 to 2012), the recent fall in commodity prices, and the unusually warm winter 

in 2006 have pushed the price of emissions rights to a record low. At the beginning of 

2006, the price reached almost €30 on the Leipzig electricity exchange, but by December 

had fallen to €6.55 per certificate. Within the RAG Beteiligungs-Group, the Energy and 

Chemicals business areas, in particular, are subject to emission trading. As a major energy 

consumer, the Chemicals business area is also affected by the impact of emission trading 

on energy costs. 

17

18 

RAG BETEILIGUNGS-GROUP OPERATIONS 

The RAG Beteiligungs-Group operates in the attractive business areas of energy, chemicals, 

and real estate. Under its new operational structure, the operating business is now broken 

down into five segments: Technology Specialties, Consumer Solutions, Specialty Materials, 

Energy and Real Estate. 

Summary of business trends 

We enjoyed considerable success in fiscal 2006, expanding our core business activities in 

all regions. Sales rose by 4 percent to a total of €14.8 billion. EBIT improved by 11 percent to 

€1.234 billion, with the Chemicals business area making a major contribution based on 

higher sales volumes, high capacity utilization, and considerable success with cost-cutting 

measures. Earnings in the Chemicals business area continued to suffer, however, from further 

increases in the cost of energy and raw materials relative to the previous year, as it 

was only possible to pass on these cost increases to customers in the form of higher prices 

to a limited extent. The Energy and Real Estate business areas also produced good results, 

but did not match the results of the prior year, which had been enhanced by special items. 

Total profit before tax nearly tripled to €1.502 billion, primarily as a result of gains on 

the disposal of our Construction Chemicals activities. 

Strong global presence 

RAG Beteiligungs-Group operates around the world. In fiscal 2006, we generated 60 percent 

of our sales outside Germany, representing a year-on-year increase of 2 percentage 

points in the share of sales generated abroad. In Germany, sales increased slightly to 

€5.941 billion. Germany is our largest single market, accounting for 40 percent of total 

sales. Sales in the rest of Europe increased by 5 percent to €3.788 billion, or 26 percent of 

total sales. We also continued to grow our business in North America, achieving an 8 percent 

increase in sales to a total of €2.211 billion, or 15 percent of total sales. In Asia, our 

business activities experienced considerable growth. Due to the first-time consolidation 

of various companies, sales in Asia increased by 7 percent to €2.152 billion, likewise representing 

15 percent of total sales. We also achieved significant sales growth in Central and 

South America with a 14 percent increase in sales to a total of €469 million. 

RAG Beteiligungs-Group: Sales by region 

€ million 2006 2005 

Germany 5,941 5,896 

Rest of Europe 3,788 3,596 

North America 2,211 2,050 

Asia 2,152 2,006 

Central and South America 469 411 

Rest of world, consolidation 232 222 

External Group sales (continuing operations) 14,793 14,181

ACTIVE 

Foreword 



Notes 




The regional breakdown of employees as of December 31, 2006 reveals a similar 

picture: 66 percent of our employees (28,593 people) work in Germany. The decline of 

3 percentage points in the share of employees working in Germany compared with the 

previous year is a result of divestments made during the year. A total of 4,379 people 

were employed in the rest of Europe, equivalent to 10 percent of the total workforce (2005: 

11 percent). In North America, the number of employees fell by 14 percent to 3,691. The 

proportion of employees working in North America thus fell by 1 percentage point to 

9 percent. In Asia, the number of employees increased by 48 percent to 5,757, bringing the 

percentage of the workforce employed in Asia to 13 percent (2005: 9 percent). This was 

attributable in large part to the first-time consolidation of joint ventures in China. In Central 

and South America, the number of employees dropped by 7 percent to 469. 

RAG Beteiligungs-Group: Number of employees by region 


Germany 28,593 31,272 

Rest of Europe 4,379 4,929 

North America 3,691 4,294 

Asia 5,757 3,891 

Central and South America 469 506 

Rest of world 286 304 

Number of employees (continuing operations) 43,175 45,196 

Optimization of the business portfolio 

In the course of focusing on the identified growth areas, we continued optimizing our 

portfolio in fiscal 2006 and selectively expanding our core operations. In addition to the 

takeover of Degussa – our most significant acquisition in 2006 – we divested ourselves 

of various companies and acquired others. 

In the Chemicals business area, transfer of our Food Ingredients activities to Cargill, 

a U.S. firm in Minneapolis, which had been agreed in September 2005, was completed in 

April 2006 after all authorizations had been granted. The Water Chemicals business was 

also sold off in the spring of 2006 to another U.S. firm, Ashland Inc. We sold our Construction 

Chemicals activities to BASF AG, Ludwigshafen, effective July 1, 2006. Oxxynova GmbH 

& Co. KG, Marl, was sold to a subsidiary of the ARQUES Group, Starnberg, in October 2006. 

Raylo Chemicals Inc. in Canada and its Clover Bar location were sold to Gilead Sciences, 

Foster City, California. At the end of December 2006, we divested ourselves of the 

Industrial Chemicals business via two management buyouts. In China, we reinforced our 

Chemicals activities by investing in several joint ventures. 

In the Energy business area, our 76.9 percent share in Saar Ferngas AG was sold to 

RWE Energy AG, Dortmund, effective December 31, 2006. The transaction, which will take 

us out of the gas distribution business, has not yet been approved by cartel authorities, 

however. Furthermore, 49.9 percent of our 100 percent stake in SOTEC was sold to BKB AG 

Helmstedt, a 100 percent subsidiary of E.ON Kraftwerke GmbH with an option to sell the 

remaining shares in 2008. We also acquired shares in Elektrocieplownia Zdunska Wola 

Sp.z.o.o., Zdunska Wola, Poland, as part of our Zdunska Wola district heating project. 

19

20 

In the Real Estate business area, RIAG Gebäudemanagement GmbH was sold to GHH 

Facility Management Holding GmbH, Osnabrück, and the operations of RAG Gewerbeimmobilien 

GmbH (RGI) were sold to COVER Projektentwicklung GmbH, Düsseldorf, 

both effective January 1, 2007. Acquisitions included a large property portfolio in the 

Cologne area consisting of more than 300 apartments, also as of January 1, 2007. We had 

already begun adding to our portfolio in this region effective January 1, 2006, by taking 

over the 3.86 percent minority share in Rhein Lippe Wohnen GmbH held by Deutsche 

Annington Immobilien GmbH. 

We also disposed of various non-core activities in fiscal 2006. The Electronic Systems 

business, which included the STEAG HamaTech Group, was sold in January 2006. In 

addition, we divested ourselves of the Mining Technology and Coal Specialties businesses 

by selling our shares in DBT GmbH to Bucyrus International Inc., a strategic investor in 

Milwaukee, Wisconsin, USA, at the end of December 2006 and reaching agreement 

with a private investor to sell off Enerco Holding B.V. 

The discontinued operations include Construction Chemicals, Gas Distribution, and 

Mining Technology along with Food Ingredients. 

Research and development to ensure the future 

For a technology-driven industrial enterprise such as the RAG Beteiligungs-Group, research 

and development (R&D) are of critical importance to future viability. Our R&D activities 

are market driven. Particularly in the Chemicals business area, customer demands are 

taken into account as early as possible in the design phase of new products and applications. 

Distribution and marketing partners are included in this broad cooperation in all 

phases of research and development, increasing our chances of achieving successful innovations 

and shortening development cycles. 

All of our R&D efforts are aimed at maintaining and expanding on the technology 

leadership we have attained in many areas of specialty chemicals and in power plant technology. 

At the same time, advances in product and process quality are increasing efficiency 

and contributing to improving added value, thus securing our strong position in the global 

market. 

Our R&D activities can be divided into two categories. Strategic research focuses on 

establishing new businesses and developing future-oriented technology platforms. In the 

Chemicals business area this occurs via interdisciplinary research activities, led by Creavis, 

which concentrate on new technologies, applications, and system solutions for markets 

promising above-average growth in the future. The majority of our R&D funds, however, 

are invested in the individual segments in order to improve our products and applications.

ACTIVE 

Foreword 



Notes 




In the Chemicals business area, R&D expenditures in fiscal 2006 came to €304 million, 

an increase of approximately 3 percent over the previous year. More than 2,300 employees 

worked at more than 35 R&D locations all over the world. We increased our emphasis on 

cooperation with universities and other institutions, in which we invested some €10 million 

in 2006. Our patent applications increased by approximately 350 to nearly 20,000. Trademark 

registrations and trademark applications amounted to approximately 7,500. In 

comparison with Chemicals, activities in the Energy business area have much longer development 

cycles and lower R&D momentum. The number of patents in the Energy business 

area increased to around 200. We are currently researching new solutions in a total of 

14 projects. 

In the Chemicals business area, our strategic research involves four different concepts: 

Project houses, internal start-ups, research on individual topics, and science-to-business 

centers. We work on research topics of particular interest in our project houses, where 

interdisciplinary teams of scientists work together on projects having a time limit of three 

years. The project houses work in close collaboration with our business units and external 

partners such as academia, research institutes, and customers. The end result of the 

projects is commercialization within an existing business unit or as an internal start-up. By 

contrast, the science-to-business center concept is guided by the idea of an intragroup 

research company to facilitate the development of new business into finished products for 

end users. All activities and resources – from fundamental R&D and product development 

to pilot production – are combined under one roof in centers created especially for this 

purpose. These centers house not only the equipment, laboratories, and pilot installations 

we use for strategic development activities, they also serve as a common working environment 

for internal and external partners. This system ideally combines universities’ 

research capacities and industry’s practical expertise with the momentum and modern 

technology of start-up companies. 

The Nanotronics science-to-business center concentrates on developing system 

solutions for the electronics industry based on nanomaterials. In the “Solar Cells” project, 

flexible thin-layer solar cells are developed that have as much capacity as conventional 

solar cells but can be manufactured much more inexpensively due to continuous production 

processes.“Printable Electronics” focuses on the promising markets for radio frequency 

identification tags (RFID), a technology that will revolutionize global logistics processes in 

the near future. The “Transparent Conductive Films” project involves development of these 

films, which are the main components of flexible display applications and mobile information, 

communication, and entertainment products. What all of these projects have in 

common is that they use attractive “roll to roll” printing technologies, which enable 

considerable cost reductions in comparison with the lithographic printing procedures 

commonly used in the electronic industry. The nanotronics projects receive funding from 

the German State of North Rhine-Westphalia and are co-financed by the European Union. 

The objective of the new “Bio” science-to-business center is to expand on the 

Chemicals business area’s already strong position in the area of white biotechnology. 

The center benefits from advances in the field of bioprocesses already achieved in 

the Biotechnology and ProFerm project houses. White biotechnology is primarily based 

on achieving natural, biological resources using fermentation or enzymatic catalysis, 

offering economically and ecologically promising alternatives to conventional industrial 

21

22 

processing. White biotechnology is currently making enormous progress based on 

new findings in gene research and system biology in particular. This requires intensive 

interdisciplinary collaboration between chemists, molecular biologists, geneticists, 

microbiologists, information scientists, and process engineers. Together with universities 

and industrial partners, some 60 highly qualified employees will create new types of 

products manufactured using biotechnology in the fields of life sciences and cosmetics 

and develop new production processes based on renewable raw materials. The RAG 

Beteiligungs-Group is investing a total of €50 million in the “Bio” science-to-business 

center over a period of five years. The biotechnology projects also receive funding from the 

State of North Rhine-Westphalia and are co-financed by the European Union. 

Internal control system 

The internal control system of the RAG Beteiligungs-Group is based on an integrated, 

value-oriented system of performance ratios made up of cash flow figures, ROCE (return 

on capital employed), and value added. These internal management ratios serve to assess 

the financial success of individual activities as well as the Group as a whole. We gauge 

our progress against these ratios in aiming for the greatest possible growth in enterprise 

value, thus securing the continued existence of the company, making us attractive to 

investors, and securing our employees’ jobs. 

ROCE measures the return received on capital employed. It assesses whether enough 

returns are generated to pay for the costs of capital. If ROCE exceeds the costs of capital, 

value added is generated. ROCE is calculated by dividing EBIT by the capital employed. The 

value added results from the difference between ROCE and the costs of capital multiplied 

by capital employed. 

The costs of capital are computed using the capital asset pricing model (CAPM). We 

review the premises upon which this calculation is based on an ongoing basis. A calculation 

of the weighted average cost of capital for the RAG Beteiligungs-Group results in a 

figure of 8.0 percent before taxes. 

In 2006, we generated ROCE of 8.8 percent, which is more than the costs of capital as 

well as the ROCE for 2005 of 7.8 percent. The significant rise in EBIT was primarily responsible 

for this improvement. It should be noted that the capital employed includes the capital 

commitment from the takeover of Degussa. Accordingly, value added in the amount of 

€114.8 million resulted for 2006. 

For corporate management purposes, return on capital employed is supplemented 

by cash flow figures in order to optimize interest, taxes, and investments along with operating 

efficiency. Achieving positive cash flow over the long term has become one of our 

central objectives. The most significant cash flow figures are cash flow from operating 

activities and free cash flow. 

For more information on cash flow in 2006, please see page 27.

ACTIVE 

Foreword 


FINANCIAL PERFORMANCE 


Notes 




Sales trend 

Sales of the RAG Beteiligungs-Group rose by 4 percent to €14.8 billion. The three segments 

of the Chemicals business area contributed significantly to this growth. These segments 

were able to continue expanding in a favorable global economy. The Chemicals business 

area was also increasingly successful over the course of the year in passing on the considerable 

increases in the price of raw materials to customers. By contrast, sales in the Energy 

segment declined. Sales for the Real Estate segment remained basically unchanged. 

RAG Beteiligungs-Group: Sales by segment 


Technology Specialties 4,806 4,264 

Consumer Solutions 2,453 2,240 

Specialty Materials 2,839 2,532 

Energy 2,574 2,765 

Real Estate 353 361 

Other operations, consolidation 1,768 2,019 

External Group sales (continuing operations) 14,793 14,181 

Earnings trend 

We increased EBIT by 11 percent to €1,234 million. The Technology Specialties and Consumer 

Solutions segments benefited from the price increases implemented, a rise in 

volume sales, and noticeable cost reductions to generate earnings well above last year’s 

level. The Specialty Materials segment slightly improved earnings amidst a corresponding 

increase in quantities sold. In the Energy segment, EBIT declined but remained at a high 

level due primarily to the sustained upward trend in power generation. The Real Estate 

segment experienced a decrease in EBIT as a result of special items from the sale of 

activities in the areas of land development and commercial real estate based on a change 

of focus to residential real estate in 2005. 

The net interest expense increased by €54 million to €479 million due to financing 

costs for acquisition of the remaining Degussa shares. 

Non-operating income from continuing operations amounted to – €702 million (2005: 

– €424 million). The income generated in the amount of €447 million was offset by 

expenses of €1,149 million. This income resulted primarily from the disposal of non-core 

activities, including Raylo (Fine Chemicals), the 49.9 percent stake in SOTEC, and the reversal 

of provisions. Significant expenses related to provisions recognized for partial retirement 

schemes and personnel cuts in connection with the Group-wide Project “Sirius”. 

Within the Chemicals business area, negative effects resulted from the “Degussa 2008” 

project along with additional restructuring projects, expenses relating to the disposal of 

non-core activities, and impairment losses. The loss of €424 million generated in 2005 was 

due to divestment of non-core activities and impairment losses on assets with indefinite 

useful lives in the Chemicals business area. 

23

24 

The pre-tax income from continuing operations of €53 million was less than the pretax 

income of €259 million achieved in 2005 due to non-recurring losses. 

Pre-tax income from discontinued operations improved considerably to €1,449 million, 

primarily due to gains from the sale of Construction Chemicals and Food Ingredients 

activities. This figure also includes the operating result from these two businesses until 

their disposal plus the operating result from the Mining Technology and Gas Distribution 

activities held for sale, which have not yet been divested. The previous year’s figure of 

€261 million mainly includes the operating result from the above activities. 

We nearly tripled our pre-tax profit to a total of €1,502 million (2005: €520 million) 

due largely to profit from discontinued operations. 

After subtracting the income tax expense of €351 million, net income after minority 

interests had also risen considerably to €1,045 million (2005: €195 million). The income tax 

rate fell to 23 percent (2005: 45 percent), given that the gains from the disposal of the 

divested activities were largely tax free. 

RAG Beteiligungs-Group: Reconciliation of EBIT to net income 


EBIT 1,234 1,108 

– Net interest expense – 479 – 425 

– Non-operating result (continuing operations) – 702 – 424 

= Profit before taxes (continuing operations) 53 259 

+ Profit before taxes (discontinued operations) 1,449 261 

= Profit before taxes (Group) 1,502 520 

– Income tax expense (continuing operations) – 10 – 183 

– Income tax expense (discontinued operations) – 341 – 49 

= Profit after taxes 1,151 288 

– Minority interests – 106 – 93 

= Net income (Group) 1,045 195 

FINANCIAL SITUATION 

Efficient financial risk management 

The RAG Beteiligungs-Group is exposed to financial risks as part of its normal business 

operations and the resulting financing activities. Our financial management is aimed 

at guaranteeing transparency, flexibility, and planning security in connection with risk 

management in order to limit market risks, liquidity risks, and credit risks to benefit enterprise 

value as well as the earnings power of the Group. Our main objective is to guarantee 

the solvency of the Group at all times. This aims to limit fluctuations in cash flow and 

earnings without having to forego opportunities resulting from favorable market developments.

ACTIVE 

Foreword 



Notes 




To reach this goal, we have established a systematic financing and risk management 

system consisting of internal guidelines that set out binding rules on action to be taken, 

responsibilities, and controls in accordance with acknowledged best practice. Financial risk 

management involves identifying and assessing all financial risk positions in the Group. 

Targeted measures are implemented to hedge risks on this basis. Risk management is 

undertaken centrally at RAG AG, which carried out all necessary functions for RAG Beteiligungs-AG 

until December 31, 2006. We pursue strict separation of the financial management 

and financial controlling functions as set forth in the Minimum Requirements for 

the Trading Activities of Credit Institutions (MaRisk) commonly applied to banks and the 

requirements of the German Control and Transparency in Business Act (KonTraG). 

Due to price fluctuations, all financial instruments of the Group are exposed to the 

possibility of impairment losses. In order to make a realistic assessment of this risk, valueat-risk 

and cash-flow-at-risk are determined on a regular basis. Value-at-risk and cashflow-at-risk 

quantify potential losses in market value of all non-derivative and derivative 

financial positions in the event of extreme changes in the underlying interest rates and 

exchange rates. 

Financial risk management is supported by Group-wide treasury management 

systems along with binding guidelines and principles. To mitigate financial risks, we enter 

into hedging transactions, which also include the use of derivatives to hedge underlying 

transactions. These derivatives are implemented exclusively for hedging purposes, i.e., only 

in connection with the corresponding underlying transactions arising from ordinary business 

activities that have a risk profile opposite to that of the hedging instrument. The 

derivative financial instruments employed are products common on the market such as 

currency forwards and currency options, interest rate and currency swaps, and options 

on swaps. 

Commodity risks result from changes in the market prices of purchased raw materials. 

The business areas of the RAG Beteiligungs-Group are responsible for commodity management. 

Procurement risks are identified, and effective measures to minimize risks are 

established. For example, price volatility is compensated by cost escalation clauses and 

swap transactions. 

Existing credit risks are systematically reviewed upon concluding a contract and then 

continuously monitored. In the course of analyzing creditworthiness, maximum limits are 

established for the respective contracting partners. This is essentially accomplished on the 

basis of ratings given by international rating agencies and our own internal credit reviews. 

Credit management also extends to derivative financial instruments, where a risk of 

default exists in the amount of the positive fair value. This risk factor is minimized by the 

high standards placed on the contracting partner with respect to creditworthiness. 

Detailed information on the derivative financial instruments used and their measurement 

and accounting treatment may be found in the notes to the consolidated financial 

statements under No. 16f (pages 94 and 95) and No. 22c (page 103). 

25

26 

Diversified financing structure 

In fiscal 2006, we agreed on a syndicated credit facility at market conditions with a group 

of German and international banks. The credit facility totals €5.25 billion and has a term of 

5 years. The agreements with the banks stipulate that certain financial ratios must be 

maintained, mainly with regard to debt in relation to EBITDA, capital cover, and interest 

cover. We had no trouble meeting these ratios in fiscal 2006. The financing package served 

to finance the acquisition of the 49.9 percent stake in Degussa. Shares in Degussa were 

provided as collateral for the credit. 

Intragroup cash and cash equivalents are concentrated in a cash pool at the level of 

RAG Beteiligungs-AG. To meet short-term financing requirements, the sum of €2.25 billion 

is available at RAG Beteiligungs-AG as a tranche of our syndicated credit facility with a 

term until 2011. The credit facility was not drawn on in 2006. Moreover, bilateral credit 

agreements totaling €600 million have been entered into for RAG Beteiligungs-Group, 

€400 million of which were concluded directly with RAG Beteiligungs-AG. These credit 

arrangements were not availed of in 2006. 

For the “Walsum 10” power plant project, STEAG-EVN Walsum 10 Kraftwerksgesellschaft 

mbH has taken out project financing amounting to €615 million at market 

conditions from a group of banks. As of December 31, 2006, approximately €60 million of 

this financing had been drawn on. The build up will take place over the term of the project. 

In August 2006, the Real Estate business area was granted a credit line of €600 million, 

which it utilized in full. 

As of December 31, 2006, RAG Beteiligungs-Group had net financial liabilities of 

€5.434 billion (2005: €5.649 billion). The main components of these liabilities are a credit in 

the amount of €879 million that is part of the syndicated credit facility of RAG Beteiligungs-AG, 

a capital market bond issued by Degussa in the amount of €1.25 billion maturing 

in December 2013, real estate financing in a total amount of €1.5 billion, and project 

financing in the Energy business area of €1.3 billion. 

RAG Beteiligungs-AG has no significant off-balance sheet financing instruments that 

could negatively impact current or future financial position, financial performance, cash 

flow, or other items. 

Capital expenditures 

Our investment activities are intended to expand on our good market positions and 

strengthen businesses and markets in which we see growth potential and opportunities 

for high returns. 

The total investment volume of the RAG Beteiligungs-Group rose significantly to 

approximately €4.5 billion in fiscal 2006. Most of this sum – €3.5 billion – was attributed 

to financial investments, including the takeover of Degussa, which accounted for €3.437 

billion.

ACTIVE 

Foreword 



Notes 


RAG Beteiligungs-Group: Capital expenditures of continuing operations 


Technology Specialties 227 238 

Consumer Solutions 160 232 

Specialty Materials 170 206 

Energy 229 270 


Other 95 137 

Capital expenditures1) 959 1,194 

thereof within Germany 647 700 

thereof international 312 494 

Financial investments 3,536 174 

Total capital expenditures 4,495 1,368 

1) Additions to intangible assets (excluding goodwill due to consolidation), property, 

plant and equipment, and investment properties 



Investments in intangible assets, property, plant and equipment, and investment 

properties decreased to €959 million from €1.194 billion in 2005. Investments focused on 

Germany, which accounted for 67 percent of total investments in property, plant and 

equipment. Capital spending in the Chemicals, Energy, and Real Estate business areas 

declined due to divestments in these areas. Our objective is to allocate capital resources 

optimally and invest in high-yield investment projects. 

Detailed information on the accounting treatment of intangible assets, property, 

plant and equipment, and investment properties may be found on pages 74 to 75 of the 

notes to the consolidated financial statements. 

Cash flow 

Cash flow from operating activities remained nearly constant in 2006, declining slightly to 

€1.098 billion from €1.147 billion in 2005. 

Net investment expense increased to €733 million in fiscal 2006 (2005: €452 million), 

primarily due to payments for acquiring long-term equity investments in the amount 

of €3.536 billion (2005: €174 million), which mainly related to the purchase of the Degussa 

shares. The cash outflow was countered by proceeds from disposals, which increased 

considerably to €3.524 billion (2005: €458 million). 

Cash flow from financing activities improved to – €232 million (2005: – €790 million). 

Financial liabilities increased to €4.552 billion (2005: €1.935 billion), chiefly due to financing 

the Degussa shares. These borrowings were offset by repayments of financial liabilities in 

the amount of €4.654 billion (2005: €2.448 billion). 

27

28 

Cash and cash equivalents increased to €444 million as of year-end 2006 (2005: 

€401 million). 

RAG Beteiligungs-Group: Cash flow statement for continuing operations 

(excerpt) 


Cash flow from operating activities 1,098 1,147 

Cash flow from investing activities – 733 – 452 

Cash flow from financing activities – 232 – 790 

Cash and cash equivalents as of December 31 444 401 

Please see page 62 in the notes to the consolidated financial statements for the 

complete cash flow statement. 

FINANCIAL POSITION 

Total assets of RAG Beteiligungs-Group declined by more than €2.7 billion to €21.0 billion, 

mainly as a result of the sale of Construction Chemicals and other activities. The maturity 

structure of the balance sheet remained essentially unchanged. The share of non-current 

assets in total assets amounted to 68 percent. Non-current assets are fully covered by 

long-term financing when the share of non-current assets in total assets equals 48 percent 

and the equity ratio is 21 percent. 

Non-current assets declined by €1.6 billion to €14.2 billion. The divestment of Construction 

Chemicals alone effected a decrease of €1.4 billion. An additional decline in 

assets of €1.6 billion resulted from other disposals, particularly Water Chemicals, Food 

Ingredients, and Raylo Chemicals. Another major factor in the decrease in non-current 

assets was the reclassification of non-current assets from the discontinued operations of 

Mining Technology and Gas Distribution to current assets in the amount of €1.3 billion. 

Recognition of goodwill of €1.8 billion from purchase of the Degussa shares had the opposite 

effect, as did recognition of the majority of internally generated intangible assets 

acquired in connection with acquisitions. 

Current assets declined by €1.1 billion to €6.8 billion due to the disposal of Construction 

Chemicals (€0.9 billion) and other activities (€2.0 billion). Reclassifications of assets 

from discontinued operations to non-current assets and disposal groups held for sale 

served to increase current assets. 

Equity declined by €0.9 billion to €4.3 billion, mainly as a result of the purchase of 

the minority interests in Degussa. The share of equity attributable to this transaction 

amounted to €1.6 billion. Nevertheless, the equity ratio remained nearly constant at 

21 percent (2005: 22 percent). 

Long-term debt declined by €1.0 billion to €10.2 billion. Of this amount, €0.5 billion 

was attributable to the disposal of the activities sold. Short-term debt declined by €0.8 

billion to €6.6 billion, primarily due to the divestment of Construction Chemicals (€0.4 

billion) and other activities (€0.6 billion). Reclassifications of long-term debt of disposal 

groups led to an increase in short-term debt of €0.8 billion.

ACTIVE 

Foreword 



Notes 




RAG Beteiligungs-Group: Balance sheet structure 

€ million 2006 2005 2006 2005 

Non-current 

assets 

Current assets 

14,240 

(68 %) 

6,803 

(32 %) 

15,860 

(67 %) 

7,890 

(33 %) 

4,320 

(21 %) 

10,169 

(48 %) 

6,554 

(31 %) 

5,249 

(22 %) 

11,123 

(47 %) 

7,378 

(31 %) 

Total assets 21,043 23,750 21,043 23,750 

TECHNOLOGY SPECIALTIES: THE SEGMENT AND ITS PERFORMANCE 

Equity 

Non-current 

liabilities 

Current 

liabilities 

Products manufactured in the Technology Specialties segment are processed primarily 

by companies in the pharmaceuticals, chemicals, plastics, rubber, and paper industries. 

These include organic specialty products and intermediate products that are important 

components in the synthesis of pharmaceuticals and agrochemicals as well as input 

materials for the plastics industry. Hydrogen peroxide, for instance, is an important bleaching 

and oxidation agent in the paper and pulp industry. Particle and filler systems based 

on carbon blacks and fumed silicas are used in particular in the tire industry for rubber 

reinforcement. The Technology Specialties segment comprises the five business units of 

Building Blocks, Exclusive Synthesis & Catalysts, C4-Chemistry, Aerosil & Silanes, and 

Advanced Fillers & Pigments. 

This segment bundles the specialty technologies of the RAG Beteiligungs-Group in 

organic and inorganic synthetic chemistry with expertise in particle and filler technologies. 

These are fields in which innovations occur rapidly. As a result, these technologies are 

utilized for new, future-oriented activities such as nanostructured materials and new 

processes for manufacturing solar silicon for photovoltaic installations. RAG Beteiligungs- 

Group is the world market leader with its special catalysts developed in-house for the production 

of biodiesel. Based on expertise in the production of hydrogen peroxide, a new 

and innovative process for producing propylene oxide – an important base product in the 

plastics industry – was developed jointly with a customer. 

Technology Specialties takes its cue from the industries that buy its products – 

responsiveness to customers is crucial both in production as well as in service and logistics. 

Consequently, numerous production facilities are operated accordingly in Europe, 

North and South America, and Asia. In the coming years, Technology Specialties expects to 

see sustained, above-average growth in the Asia-Pacific region. The outlook is also very 

promising in the Eastern European countries of the EU. 

29

30 

Significant rise in earnings 

Fiscal 2006 was very successful. Sales rose by 13 percent to €4.8 billion with quantities sold 

increasing significantly. EBIT rose to €460 million, surpassing the 2005 level by 49 percent. 

All five business units contributed to the earnings improvement. The Building Blocks business 

unit benefited from a perceptible rise in quantities sold as well as the success of cost 

reduction measures to contribute earnings well over the previous year’s level. In the Exclusive 

Synthesis & Catalysts business unit, earnings rose primarily as a result of appreciably 

lower expenses and depreciation and amortization due to restructuring measures and 

increased quantities sold. The C4-Chemistry business unit was able to pass on most of the 

significantly higher raw materials costs to customers, resulting in earnings over the previous 

year’s level. The Aerosil & Silanes business unit increased earnings considerably on 

the back of a noticeable rise in demand, high capacity utilization, and cost savings. The 

Advanced Fillers & Pigments business unit succeeded increasingly over the course of the 

year in adapting sales prices to rising raw materials and energy prices. Earnings improved 

markedly thanks to the significant increase in quantities sold and lower costs. 

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the Technology 

Specialties segment rose 19 percent to €829 million, with the EBITDA margin rising to 

17.3 percent. ROCE improved from 7.3 percent to 11.8 percent thanks to the good operating 

earnings trend and lower level of capital employed. It should be noted that these increases 

occurred in spite of the fact that the takeover of Degussa negatively impacted EBIT and 

ROCE, as a portion of the goodwill resulting from the acquisition was allocated to the 

Technology Specialties segment. 

Technology Specialties: Key financial indicators 


External sales 4,806 4,264 

EBITDA 829 696 

EBIT 460 309 

Capital employed (as of December 31) 3,886 4,212 


ROCE % 11.8 7.3 


Technology Specialties’ investments in property, plant and equipment decreased slightly 

to €227 million (2005: €238 million). Major projects involved expansion of manufacturing 

facilities in the Building Blocks business unit in order to increase production of hydrogen 

peroxide, a bleaching agent, to 70,000 tons per year in Barra do Riacho, Brazil. The Aerosil & 

Silanes business unit will be expanding production capacities at the Rheinfelden location 

until the end of 2007 due to increased demand for aluminum oxide. Aluminum oxide is

ACTIVE 

Foreword 



Notes 




used in the photographic paper, coatings, and chip industries, for example. Advanced Fillers 

& Pigments made good progress in expanding carbon black capacities. Capacity expansion 

was completed in Qingdao, China, and expansion of the carbon black plant in Paulina, 

Brazil, will be completed at the start of 2007. At the silica plant in Wesseling, several installations 

are being replaced as part of a modernization project that has been ongoing since 

2006 and will be completed in 2007. 

Technology Specialties: Capital expenditures 


Capital expenditures 1) 227 238 



Research and development 

The Building Blocks business unit has developed a new hydrogen peroxide-based product 

to fight microbes such as viruses, bacteria, algae, and plankton in ship ballast water. Called 

PERACLEAN® Ocean, this product is entering the next test phase, making it the first active 

substance to be granted approval for further testing in ship and land trials. 

The C4-Chemistry business unit is launching a new rapid gelling agent, isononyl 

benzoate (VESTINOL INB), on the market step by step. This softening agent will increase 

the productivity of our customers in the PVC processing industry, especially in the production 

of floor coverings. When used together with our main softening agent, Di-isononylphthalate 

(DINP, VESTINOL 9), this new agent will enable savings in formulation 

costs depending on the customer’s specific formulation. As opposed to competing 

products used today, INB has been proven to be non-toxic to reproduction. This agent is 

thus exempt from specific EU labeling requirements, making it a preferred alternative for 

our customers, particularly in view of future EU chemicals legislation (REACH). 

The Aerosil & Silanes business unit has developed a nanostructured indium tin oxide 

(ITO) called AdNano® ITO that was awarded Degussa’s in-house innovation award in 2006. 

AdNano® ITO combines transparency with electrical conductivity and absorption capacity 

for infrared radiation. One possible application is transparent films to reduce sun insolation 

through car and building windows and thereby produce efficient heat insulation. 

Introduction of new, dust-free aerosil granulates (AEROPERL®) will enable a broad spectrum 

of applications ranging from cosmetics to catalyst carriers in automotive catalytic 

converters. Complex, modern chips are structured in many layers, all of which must be 

absolutely even to avoid malfunction. Our newly developed nano-sized ceroxide meets the 

requirements of the next generation of chips in the manufacture of semiconductors. This 

substance is used in the critical step of chemical mechanical planarization (CMP) and 

enables the individual, highly sensitive layers to be polished to an extremely fine finish. 

31

32 

CONSUMER SOLUTIONS: THE SEGMENT AND ITS PERFORMANCE 

The Consumer Solutions segment primarily serves customers in the consumer goods 

industry in the areas of body care, hygiene and nutrition. It comprises three business units – 

Superabsorber, Care & Surface Specialties, and Feed Additives – which use customized 

substances and system solutions to produce shampoos that make hair smooth and glossy, 

skin-protecting and age-defying creams, environmentally-friendly detergents, superabsorbent 

diapers, and animal feedstuffs with optimum nutritional properties. 

The segment has extensive know-how in the area of applied interfacial and polymer 

chemistry, which it puts into practice for industrial applications such as stabilizing 

polyurethane foams or dosing crop protection products more economically. The high-quality 

specialty products and system solutions offered by Consumer Solutions often supply 

our customers’ products with the extra added value needed to convince consumers to buy 

their products. Intensive research and development and productive collaboration with 

customers are among the factors contributing to our strategic success. Where necessary, 

development partnerships closely link our business units with leading end producers. 

Consumer Solutions intends to considerably expand its activities in the future. Examples 

of our expansion include the world’s largest DL-methionine facility, which was put 

into operation in Antwerp in June 2006, along with the acquisition of the superabsorber 

business from Dow Chemicals and expansion of superabsorber capacities in Germany and 

the U.S. The Asian market is also of great significance, especially for the Feed Additives 

business, which involves the essential amino acids DL-methionine, L-lysine, L-threonine, 

and L-tryptophane for healthy and environmentally-friendly animal nutrition. 

Earnings improve substantially 

Sales in the Consumer Solutions segment rose by 10 percent to €2.453 billion. EBIT 

improved considerably to €191 million (2005: €71 million). The Superabsorber business unit 

reported higher earnings, compared to the previous year, based on increased quantities 

sold. Increased demand, improved capacity utilization, and ongoing rationalization measures 

led to a rise in earnings in the Care & Surface Specialties business unit. The Feed 

Additives business unit made increasing progress in adapting sales prices to the considerable 

rise in raw materials prices experienced already in the previous year while increasing 

quantities sold, thus generating greatly improved earnings. 

EBITDA in the Consumer Solutions segment rose by 50 percent to €374 million. 

The EBITDA margin increased accordingly to 15.2 percent. ROCE grew from 3.3 percent to 

8.8 percent based on the good operating earnings trend. It should be noted that the 

increases occurred in spite of the fact that the takeover of Degussa negatively impacted 

EBIT and ROCE, as a portion of the goodwill resulting from the acquisition was allocated 

to the Consumer Solutions segment.

ACTIVE 

Foreword 



Notes 


Consumer Solutions: Key financial indicators 




EBIT 191 71 



ROCE % 8.8 3.3 




Capital expenditures in the Consumer Solutions segment decreased by 31 percent in 2006 

to the current €160 million (2005: €232 million). The Superabsorber business unit expanded 

superabsorber capacities at the Krefeld location and at two locations in the U.S. as well as 

manufacturing capacities for acrylic acid, a raw material, at the plant in Marl. This business 

unit has thus positioned itself for significant increases in demand from the market while 

also securing backward integration of raw materials. Furthermore, the Superabsorber 

business was acquired from Dow Chemicals in the U.S. The purchase covers production 

facilities in Rheinmünster/Baden-Baden and a contract manufacturing agreement with 

Dow’s Midland, MN location. In addition, Dow will supply acrylic acid, a key raw material, 

to RAG Beteiligungs-Group under a long-term agreement. In the Feed Additives business 

unit, the world’s largest DL-methionine facility in Antwerp, Belgium, is now fully operational 

with an annual production capacity of 120,000 tons. The new plant procures all 

important preliminary products from integrated raw materials production to ensure the 

highest possible degree of production efficiency as well as uninterrupted supplies. 

Consumer Solutions: Capital expenditures 






The Care & Surface Specialties business unit has introduced more than 30 new products 

to the market. These include a new Wet Wipe concentrate that offers many advantages for 

the growing cosmetic tissue market, as the cosmetic oils produced are especially skinfriendly 

and simple to manufacture. The emulsifiers used are manufactured using sustainable 

raw materials. Care & Surface Specialties also focuses on identifying substances that 

positively affect age-related changes to the skin. In order to discover effective ingredients, 

we implement the DNA chip technology developed in cooperation with the University of 

Regensburg. This enabled us to find a new substance that has been proven to accelerate 

skin regeneration and reduce wrinkles. Research on ionic solvents – basic liquid chemicals 

with saline loading properties – has led to new fields of application ranging from fragrance 

33

34 

fixing to antistatic finishing of synthetics. The Care & Surface Specialties business unit 

received Degussa’s in-house innovation award for TEGOSPHERE®, a new method for encapsulating 

active ingredients that ensures that the substances are released onto the skin at 

exactly the right moment to improve absorption. 

SPECIALTY MATERIALS: THE SEGMENT AND ITS PERFORMANCE 

The materials manufactured by the Specialty Materials segment are used primarily for the 

industrial production of durable industrial goods and capital goods, especially in the automotive, 

construction, aviation and aerospace industries. Customers utilize our high-quality 

polymers as transparent plastics in the semi-finished products area, as resin and coating 

additives, and as structural components for demanding applications in automotive and 

aircraft construction. The Specialty Materials segment is made up of four business units: 

Coatings & Colorants, High Performance Polymers, Specialty Acrylics, and Methacrylates. 

The segment encompasses all business of the RAG Beteiligungs-Group involving highperformance 

materials, which hold leading competitive positions due to superior material, 

processing, and application competence. Many of the products are manufactured in a 

chemical production network on the basis of methyl methacrylate (MMA). The competitive 

advantages of this integrated production structure enables to systematically penetrate 

new application markets in specialized areas such as pharmaceutical polymers and optoelectronics. 

The business units focus on providing customer-specific solutions: The 

approach not only emphasizes innovative products and application technology, but also 

marketing and direct dialog with customers. 

Specialty Materials intends to continue expanding its global market position. A major 

integrated production network will be established by 2009 in Shanghai for this purpose. 

This world scale facility will use MMA at an annual capacity of around 100,000 tons to 

manufacture highly refined methacrylate specialty products and polymers. These are used 

as components for a variety of products such as LCD flat screens, scratch-resistant, noncorrosive 

coatings, high-quality adhesives, modern automotive interiors, and numerous 

plastics applications. The segment has for some time now operated in the high-growth 

Asian region as a major supplier of high-quality preliminary products that fulfill the 

highest of safety standards, such as background lighting for flat screens and transparent 

noise control walls. 

Significant increase in demand 

Specialty Materials grew sales by 12 percent to €2.839 billion, with quantities sold 

increasing considerably. EBIT increased 7 percent over the 2005 level to €250 million. The 

Coatings & Colorants business unit was increasingly able to adapt prices to the higher 

cost of raw materials. Earnings rose in comparison with the previous year amidst a significant 

rise in quantities sold. Strong demand led to a significant earnings increase in the 

High Performance Polymers business unit. Earnings in the Specialty Acrylics business unit 

also improved thanks to increased quantities sold and higher sales prices resulting from 

passing on the costs of raw materials, some of which had increased considerably. The 

Methacrylates business unit saw decreased earnings, however, as only some of the 

increases in raw materials costs could be passed on to customers.

ACTIVE 

Foreword 



Notes 




The Specialty Materials segment generated EBITDA of €455 million, a rise of 7 percent 

over 2005. The EBITDA margin decreased slightly to 16.0 percent. ROCE grew from 

8.8 percent to 9.4 percent as a result of the improvement in earnings. It should be noted 

that these increases occurred in spite of the fact that the takeover of Degussa negatively 

impacted EBIT and ROCE, as a portion of the goodwill resulting from the acquisition was 

allocated to the Specialty Materials segment. 

Specialty Materials: Key financial indicators 




EBIT 250 234 



ROCE % 9.4 8.8 


Investments in property, plant and equipment of the Specialty Materials segment 

decreased to €170 million (2005: €206 million). The Coatings & Colorants business unit has 

expanded its entire production line for isophorone chemicals at the Herne location, with 

the start of operation planned for 2007. This project entailed capital expenditures in the 

high double-digit million range. Isophorone and the products derived from it are used in 

many different areas. In a multi-step process, isophorone diamine and isophorone diisocyanate 

are derived from isophorone for use as solvent-free coatings for industrial flooring 

and for the manufacture of light-resistant and weather-resistant automotive coatings 

as well as high-quality car interiors. The base product, isophorone, is utilized as a special 

solvent. 

Specialty Materials: Capital expenditures 






The Coatings & Colorants business unit has developed a new type of colorant system 

called POLYTREND® that can be dosed in liquid form for dyeing plastics. This product was 

developed in response to customer requests for a simplified process and offers a 

previously unknown variety of colors. A total of 16 color-coordinated base colorants enable 

plastics to be dyed directly during extrusion processing or injection molding. 

New paint and coating raw materials now enable an emission-free alternative to 

thermal curing for coil coating: UV curing. Almost no solvents are released in the UV curing 

process, and it uses much less energy than thermal processes. 

35

36 

The High Performance Polymers business unit progressed with advances in its work 

on very high viscosity, melt-proof VESTAMID® extrusion molding materials based on a 

completely new technology platform, development of which began in 2005. Initial success 

was achieved with the launch of VESTAMID LX9020 for the crude oil industry. Substantial 

quantities of this innovative product have been sold since mid-year 2006 for the production 

of “umbilicals” – metal-sheathed conveyor lines extending from the ocean floor to the 

drilling platform. This business unit anticipates consumption to continue rising significantly 

over the next few years. 

The Specialty Acrylics business unit anticipates a high number of opportunities to 

apply its oil additives in new applications, on the basis of biodiesel produced from palm oil. 

Sales of biodiesel are increasing steadily due to rising oil prices and high demand. However, 

biodiesel made from palm oil exhibits very high pour points (+ 13°C), and therefore 

requires an essential additive for use in automobiles or machines. As the world market 

leader in pour-point depressants, the Specialty Acrylics business unit’s comprehensive 

experience will facilitate further product development in this area. New polymerization 

techniques for adhesives and additives allow customers to manufacture low-solvent and 

solvent-free formulas. The markets targeted are coatings and colorants, adhesives, and 

sealing compounds. 

ENERGY: THE SEGMENT AND ITS PERFORMANCE 

The Energy segment bundles commercial power and heat production activities with 

power plant-related services. The Energy segment is the market and technology leader in 

coal-fired electricity generation, it utilizes refinery byproducts for supplying energy, and is 

increasingly active in the field of renewable energies. The total installed electrical output 

is around 9,000 megawatts. Germany’s fifth-largest power generator operates eight coalfired 

power plants across the country as well as an additional three large-scale coal-fired 

power plants in Columbia, Turkey, and the Philippines. Long-term provision and supply 

contracts with key accounts secure sustained return on capital and stable earnings. 

This segment’s competence covers the entire value chain of coal-fired power plants, 

from planning and financing to construction and plant operation. Own in-house global 

coal trading activities ensure that fuel is procured at low cost. The Energy segment offers 

supply and disposal services for residues from power plants and industrial facilities. It also 

has a strong competitive position in contiguous technologies such as the production of 

energy from refinery byproducts, biomass, biofuel, and in geothermal energy generation. 

The segment is the global leader in the use of mine gas for energy generation, and plans 

to significantly expand this leading position over the medium term. 

In the next few years, two new coal-fired power generation units with installed 

capacities of 1,500 megawatts are to be built in collaboration with partners in Walsum and 

Herne. The plants will be constructed using the innovative CCEC concept. In addition, 

possibilities for developing further thermal power plant projects outside of Germany are 

being reviewed. Electricity and heat production in biomass and geothermal installations 

is another growth field that is being explored.

ACTIVE 

Foreword 



Notes 




Operating profit at high level 

Sales in the Energy segment amounted to €2.574 billion in 2006, falling below the record 

level of €2.765 billion achieved in 2005. This sales includes international coal trading 

activities amounting to €830 million (2005: €973 million). Additional electricity generation 

sales due to weather conditions and prices had a positive effect on segment sales. 

Although EBIT decreased by 4 percent to €393 million; lower than the record earnings generated 

in 2005, it remained at a high level, thanks in particular to electricity production. 

The Energy segment generated EBITDA of €495 million in 2006 (2005: €509 million). 

The EBITDA margin increased to 19.2 percent. ROCE improved slightly to 15.9 percent (2005: 

15.5 percent) due to a lower level of capital employed. 

Energy: Key financial indicators 




EBIT 393 411 



ROCE % 15.9 15.5 


Investment in property, plant and equipment decreased 15 percent to €229 million in fiscal 

2006 (2005: €270 million). In November 2006, the Energy segment put the Mindanao coalfired 

power plant into operation in the Philippines after a three-year construction period. 

The project volume totaled USD 305 million, most of which was attributable to prior years. 

This facility will supply electricity to the Philippine’s state energy supplier, the National 

Power Cooperation (NPC), over a period of 25 years. 

In June 2006, the Lünen biomass power generator was officially commissioned by 

STEAG Saar Energie AG (majority stakeholder) and REMONDIS GmbH & Co. KG. The plant, 

which has an installed capacity of 20 megawatts, was constructed in 18 months and will 

process approximately 135,000 tons of matured timber from the region each year. The 

project had an investment volume of more than €54 million. 

In November 2006, STEAG Saar Energie and Michelin Reifenwerk officially commissioned 

the new central power plant at Michelin’s Bad Kreuznach plant. The 10 million euro 

project was realized within 14 months. The plant has been able to lower its energy costs 

and carbon dioxide emissions substantially by installing a gas turbine and replacing steam 

boilers. STEAG Saar Energie has been contracted by Michelin to operate the plant for the 

next 12 years. 

Energy: Capital expenditures 





37

38 


The Energy segment’s R&D activities are aimed at ensuring a secure, economic, and environmentally-friendly 

supply of energy. To this end, the segment is involved in the German 

Federal Ministry of Economics and Technology R&D program, CO2 Reduction Technology 

(COORETEC), together with other power plant operators such as E.ON, RWE, Vattenfall, 

and EnBW as well as universities and major research centers. The program aims to reduce 

greenhouse gas emissions in the short to medium term by increasing efficiency and to 

develop and market technologies for cost-effective separation and storage of CO2 from 

exhaust gas (carbon capture and sequestration) in the long term. 

In order to further increase the efficiency of coal-fired power plants, it is necessary to 

raise steam temperatures to over 700°C. This can only be accomplished using nickel-based 

steel alloys. Examples of this type of research in connection with COORETEC involve studying 

the characteristics of nickel-based alloys such as strength and deformation behavior, 

corrosion and slag behavior, and the non-destructive testing of the alloys. The projects run 

for approximately four years beginning in 2006. 

Another project to increase efficiency and raise effectiveness that the segment is 

working on in collaboration with other partners is the COMTES 700 project subsidized by 

the Research Fund for Coal and Steel (RFCS) as a joint EU project. This project also aims 

to increase permissible steam temperatures to over 700°C. To accomplish this, the world’s 

largest testing facility incorporating components from new, high-capacity materials has 

been installed at the Scholven power plant and operated for more than 5,000 hours to 

date. The tests, which have been conducted in close cooperation with manufacturers, 

represent a milestone on the path to achieving a coal-fired power plant with an efficiency 

factor of more than 50 percent. The costs for a 700°C, 400 megawatt power plant are 

being calculated in a pre-engineering study supported by the State of North Rhine-Westphalia. 

The objective is to construct a demonstration facility between 2010 and 2012. 

The Energy segment is also developing resource-friendly concepts for power plants 

to enable secondary fuel burning and the use of biomass. In order to implement these 

types of facilities and take advantage of the economic benefits they offer, a competency 

network for fuel and power plant firing has been established. The Energy segment is a 

major player in this network of universities and industrial enterprises, contributing its own 

valuable expertise in hot gas purification gained in a project on pressurized pulverized coal 

combustion.

ACTIVE 

Foreword 



Notes 


REAL ESTATE: THE SEGMENT AND ITS PERFORMANCE 



The Real Estate segment focuses on residential real estate with an emphasis on leasing 

residential units to private households. The segment also actively manages its housing 

portfolio. A small portion of the housing portfolio is sold each year based on comprehensive 

analyses that take into account cost effectiveness, expected future maintenance 

expenses, regional focuses, and the state of repair of the buildings. The segment rounds 

out its activities with the development and construction of turn-key single family homes, 

duplexes, and condominiums to be sold to end users and investors. 

Nearly the entire housing portfolio is located in North Rhine-Westphalia. Significant 

locations are Essen as well as the regional companies in Dortmund, Duisburg, and 

Herzogenrath. With a total of more than 65,000 residential units, RAG Beteiligungs-Group 

is one of the largest residential property companies in Germany. The high quality of our 

properties is one of our key competitive advantages, and our vacancy rates are well below 

the industry average. 

The medium-term strategy of the Real Estate segment focuses on expanding the 

achieved position. The segment thus plans to supplement its portfolio with further 

acquisitions in the Rhineland corridor between Düsseldorf and Bonn that offer attractive, 

long-term value growth potential. We also plan to reduce the portfolio by approximately 

2.5 percent each year as part of portfolio optimization. 

Sales nearly constant 

Sales of the Real Estate segment fell by 2 percent from the previous year to €353 million. 

EBIT for fiscal 2006 decreased by 14 percent to €112 million in comparison with the previous 

year, since the figures for 2005 included special income from the sale of land and 

commercial real estate based on a change of focus to residential real estate. Expenses for 

reorganizing business processes had a negative impact in 2006. 

EBITDA for the Real Estate segment fell 10 percent to €155 million, and the EBITDA 

margin decreased to 43.8 percent. ROCE decreased from 7.7 percent to 6.5 percent based 

on an increase in capital employed. 

Real Estate: Key financial indicators 


External sales 353 361 


EBIT 112 130 



ROCE % 6.5 7.7 

39

40 


Capital expenditures in the Real Estate segment declined to €78 million in 2006, down 

from €111 million in 2005. The segment conducted a major investment project in the 

Cologne region in order to increase the Company’s presence in this attractive residential 

property market. Major real estate holdings consisting of more than 300 residences were 

purchased in this region at the close of 2006/start of 2007. 

Real Estate: Capital expenditures 





OTHER OPERATIONS 

The Group’s other continuing operations include tar refining activities and various other 

non-core activities as well as Degussa’s Corporate Center, the Creavis research company, 

and the service areas of Degussa. 

Other Operations: Key financial indicators 



EBITDA – 13 – 91 

EBIT – 96 – 211 

Sales from other continuing operations decreased to €1.768 billion in 2006 from 

€2.019 billion in 2005. The decline resulted from various divestments, in particular of the 

Bakelite Group and of STEAG HamaTech. EBIT improved to a loss of €96 million (2005: 

loss of €211 million). The good performance of the foreign tar refinery companies, which 

benefited from the rising trend in the aluminum and chemicals industry, as well as site 

services in Marl, was offset by higher costs for Degussa’s Corporate Center, expenses for 

various intragroup projects carried out by Degussa, and strategic research expenses.

ACTIVE 

Foreword 



Notes 


ECONOMIC SITUATION OF RAG BETEILIGUNGS-AG 



RAG Beteiligungs-AG, with registered offices in Essen, has a central, coordinating function 

in the RAG Beteiligungs-Group. RAG Beteiligungs-AG holds the shares in the companies 

belonging to the Group either directly or indirectly. In fiscal 2006, RAG Aktiengesellschaft 

(RAG AG), Essen, was the sole shareholder of RAG Beteiligungs-AG. RAG Beteiligungs-AG 

was created on October 11, 2006, when RAG Beteiligungs-GmbH was transformed into an 

AG (public limited company). In its initial session on September 14, 2006, the Supervisory 

Board of RAG Beteiligungs-AG appointed Dr. Werner Müller, Dr. Klaus Engel, Dr. Alfred 

Oberholz, Dr. Peter Schörner, Dr. Alfred Tacke, Ulrich Weber, and Heinz-Joachim Wagner to 

the Management Board of RAG Beteiligungs-AG with immediate effect and named 

Dr. Werner Müller Management Board Chairman. 

The separate financial statements of RAG Beteiligungs-AG were prepared in accordance 

with the accounting principles of the German Commercial Code (HGB). 

The financial performance of RAG Beteiligungs-AG was characterized by a significant 

rise in net investment income to €2.181 billion (2005: €264 million), primarily due to the 

high profits generated from the divestment of subsidiaries. Net interest income was considerably 

weaker, mainly as a result of borrowings to finance the Degussa takeover. Profit 

from ordinary activities reached a record level of €1.904 billion (2005: €260 million). After 

making allocations to reserves, profits of €221 million were transferred to RAG AG. 

RAG Beteiligungs-AG: Income Statement 


Net investment income 2,181 264 

Net interest expense – 208 – 59 

Other operating income 41 75 

Other operating expenses 46 12 

Write-downs of investments 64 10 

Profit from ordinary activities 1,904 260 

Taxes 

Profits transferred under a profit and loss 

74 0 

transfer agreement 221 102 

Net income 1,609 157 

Total assets of RAG Beteiligungs-AG more than doubled in the year under review, 

totaling €10.650 billion at year-end 2006 (2005: €4.960 billion). One reason for the 

increase was a restructuring of financial clearing in the Group. In December 2006, responsibility 

for financial clearing for the RAG Beteiligungs-Group was shifted from RAG AG to 

RAG Beteiligungs-AG. Since then, RAG Beteiligungs-AG has acted independently in the 

capital market, a situation which has contributed to the increase in receivables and other 

41

42 

assets to €2.791 billion (2005: €335 million) as well as in liabilities to €6.795 billion 

(2005: €2.675 billion). The takeover of Degussa by RAG Beteiligungs-AG and its subsidiaries 

essentially resulted in an increase in financial assets to €7.775 billion (2005: €4.606 billion). 

Equity increased in the amount of net income by €1.609 billion to €3.849 billion. This sum 

was taken to revenue reserves, with €47 million allocated to the statutory reserve and 

€1.562 billion to other revenue reserves. 

RAG Beteiligungs-AG: Balance Sheet 

Assets 

€ million Dec. 31, 06 Dec. 31, 05 

Non-current assets 7,775 4,606 

Financial assets 7,775 4,606 

Current assets 2,875 354 

Receivables and other assets 2,791 335 

Cash and cash equivalents 84 19 

Equity and liabilities 

10,650 4,960 


Equity 3,849 2,240 

Issued capital 466 466 

Capital reserve 720 720 

Revenue reserves 2,663 1,054 

Provisions 6 45 

Liabilities 6,795 2,675 

10,650 4,960 

Cash flow from operating activities decreased to – €37 million in fiscal 2006. The 

decline in comparison with 2005 resulted from a substantial increase in interest expense 

based on financing the Degussa purchase. Cash flow from investing and financing activities 

for 2006 was also heavily affected by acquisition of the remaining Degussa shares. 

RAG Beteiligungs-AG: Cash flow statement (excerpt) 


Cash flow from operating activities – 37 50 

Cash flow from investing activities – 3,233 568 

Cash flow from financing activities 3,335 – 599 

Cash and cash equivalents as of December 31 84 19

ACTIVE 

Foreword 


As in the previous year, RAG Beteiligungs-AG had no employees in fiscal 2006. All necessary 

functions were performed by employees of RAG AG in fiscal 2006. As of January 1, 

2007, employees were transferred to RAG Beteiligungs-AG, primarily from RAG, Degussa, 

STEAG, RAG Immobilien, and RAG Coal International. Since then, all management and control 

functions have been carried out by the Corporate Center of RAG Beteiligungs-AG. At 

the end of January 2007, RAG Beteiligungs-AG had 447 employees. 

HUMAN RESOURCES 


Notes 




The primary objective of Project “Sirius” was to create a modern, integrated industrial 

enterprise able to meet the requirements of the capital markets. Project “Sirius”, which 

focused on optimizing all management and service processes in the Group, affected some 

4,700 employees in various administrative units. The comprehensive restructuring of the 

Group presented human resources with great challenges. A wide variety of tasks were 

required, some of which extended into 2007. These included allocating employees within 

the new Group structure and creating standardized remuneration systems. We developed 

and implemented the entire restructuring process, including development of personnel 

policies in terms of change management, in a constructive partnership with our employee 

representatives and the industrial trade union for mining, chemicals, and energy. 

2006 Employee Survey: Ponder. Propose. Participate. 

Some 46,000 employees in 52 countries speaking a total of 16 languages were called upon 

to take part in the 2006 Employee Survey conducted under the slogan of “Ponder. Propose. 

Participate.” A total of 70 percent of those surveyed took the opportunity to express their 

opinions. Especially during a time of radical change, this high participation rate shows just 

how active our employees are in contributing to the restructuring process. 

Our employees consider the Group to be well-positioned for further development. 

They give us particularly good marks for technical competency, entrepreneurial activities, 

and our willingness and ability to implement changes. On the whole, the employees surveyed 

felt that the quality of management had improved in their specific working areas – 

an indication that the improvements called for in the last survey have taken effect. However, 

the process of strategic restructuring has led to some uncertainties. Some employees 

expressed a desire for improvements in opportunities, for employee development and 

their working conditions. 

We will study the results of the survey very carefully and initiate the appropriate 

measures, all of which should be devised by the spring of 2007 in order to be able to continue 

on our path toward a common identity. 

Taken as a whole, the results of the survey clearly indicate the areas in which the 

Group has already succeeded and those where there is still room for improvement. This 

knowledge is of incalculable value for a Group intent on actively shaping its future. 

43

44 

Employee profit sharing plans 

The concept of allowing employees to participate in the profits of a company is not new. 

Nonetheless, many German companies do not offer any such possibilities, a situation that 

has recently been the subject of political discussion. RAG Beteiligungs-AG is planning to 

introduce a nationwide employee profit sharing plan. This will allow our employees in Germany 

to participate directly in the financial success of the Group as well as promoting a 

basic understanding of concerns related to the capital markets. 

Incentive and compensation systems 

Profit and target based remuneration components are crucial elements of modern 

compensation systems. At present, a total compensation package is being developed that 

will reflect the individual achievements of our employees, the success of the Company 

and offering incentives for our staff to increase productivity and value added. This compensation 

will form a critical foundation for reaching our corporate goals. 

Company pension plans 

Individual responsibility is playing an increasingly central role in securing a high standard 

of living, even with respect to retirement. This is why the subject of retirement benefits 

and the selection of employer-financed retirement models is so important to employees. 

This issue is all the more crucial in consideration of the fact that statutory pension benefits 

are being steadily reduced. The RAG Beteiligungs-Group offers a broadly based retirement 

portfolio that allows employees to make selections based on their individual needs. 

For more information on defined benefit obligations with regard to company pension 

plans, please see No. 20 of the notes to the consolidated financial statements, pages 

98 to 100. 

Employee and management development 

In the course of restructuring the Group, decisions were made on the staffing of future 

management positions in the summer of 2006. This represented a milestone in systematic, 

Group-wide succession planning. 

In addition, the process of defining areas of responsibility for employees in executive 

positions was begun throughout the Group. This process is of crucial importance to the 

successful future of the Group and will affect all Group management tools such as 

employee reviews and target setting, forming a basis for lasting and successful employee 

and management development.

ACTIVE 

Foreword 



Notes 




Another element in preparing executive staff and employees in all Group functions to 

meet the challenges of the future is the Business Academy, which was initiated in 2006 in 

cooperation with the University of St. Gallen in Switzerland. The Business Academy offers 

a platform for discussing topics of strategic relevance to the Group. The Academy is based 

on the concept of an interactive network to convey experience and knowledge of best 

practices. 

Vocational training 

Vocational training is an important element in securing the future of the Company in 

all business areas. It also makes a major socio-political contribution to reducing unemployment 

among young people. Our ratio of apprentices to employees of approximately 

7.4 percent puts us in the lead among German industrial companies. In the summer of 

2006, we hired 730 young people at the start of their professional careers to fill our own 

human resources needs. In addition, some 30 apprentices were hired on behalf of third 

parties. 

Another 75 young people were offered the opportunity to work towards achieving 

the qualifications for a future apprentice position. In September 2006, we added another 

50 apprenticeships in response to the call from regional and federal governments to 

create more positions for trainees. 

All in all, in 2006 we offered career perspectives to some 2,590 young people. 

Workforce 

As of December 31, 2006, a total of 43,175 people were employed by the Group. The 

number of employees in continuing operations decreased by 2,021. The Group employed 

12,050 less people than at year-end 2005. The decline was mainly due to the disposal 

of Construction Chemicals and Food Ingredients, which reflected the comprehensive 

realignment and continued streamlining of the Group’s portfolio. 

RAG Beteiligungs-Group: Number of employees 





Energy 4,890 4,741 


Other operations 10,553 12,636 

Number of employees (continuing operations) 43,175 45,196 

45

46 

NON-FINANCIAL PERFORMANCE INDICATORS 

To ensure the long-term financial success of our enterprise, all relevant aspects of 

environmental protection, safety, and health must be given full consideration. Only 

through steady growth, in which social values are placed on an equal footing with 

financial aspects, will we be able to fulfill our social responsibilities. 

Occupational health and safety, environmental protection 

An integrated management approach forms the basis for sustained development of 

occupational health and safety as well as environmental protection. This approach must 

be implemented consistently in order to further the process of steady improvement and 

meet our high standards for modern occupational health and safety and protection of the 

environment. 

Based on the guidelines developed for the Group, we have developed a joint policy for 

occupational health and safety and environmental protection. The principles and guidelines, 

which are binding for the Group as a whole, illustrate the way in which we define our 

social and ecological responsibility. At the same time, these principles and guidelines offer 

a clearly defined scope of action for all responsible parties. 

In 2006, we began recording on-the-job accidents in accordance with international 

standards in order to improve transparency in the area of work safety. We hope to achieve 

more precise information on how accidents occur through this process. The frequency of 

accidents per one million working hours equaled 4.1 in fiscal 2006. This figure can not be 

directly compared with figures from prior years since previous figures involved on-the-job 

accidents resulting in an incapacity to work of more than 3 calendar days. 

Climate protection and emissions trading system 

We place great emphasis on a responsible approach to the environment and natural 

resources. The need to protect the global environment is particularly important in an 

industrial enterprise focusing on chemicals and energy, which is why we have underlined 

this approach in our environmental protection guidelines that are binding for the entire 

Group. 

In the Energy segment, the efficiency increases in fossil-fuel power plants and combined 

heat and power generation in particular are aimed at reducing CO2 emissions and 

utilizing scarce energy resources more efficiently. The segment is also active in the area of 

energy production from mine gas, biomass, and geothermal energy. Extracting energy 

from renewable resources contributes to reducing greenhouse gas emissions. In addition, 

the Energy segment develops and implements climate protection projects in the form of 

joint implementation projects in Eastern Europe and in accordance with clean development 

mechanisms in China.

ACTIVE 

Foreword 


Production in the three segments of the Chemicals business area is energy intensive 

and utilizes large quantities of raw materials. For this reason, production processes are 

continuously optimized, and resources are used sparingly. The Chemicals segments also 

contribute to climate protection by developing new products and technologies, for example 

on the basis of renewable raw materials. In the Real Estate segment, high priority is 

placed on optimizing the energy use of existing homes, and energy efficient construction 

is given precedence in new building projects. 

In the Technology Specialties, Consumer Solutions, Specialty Materials, and Energy 

segments, many of our plants are directly subject to EU directives regarding CO2 emissions. 

Most of the plants concerned are part of the Energy segment. In fiscal 2006, we 

emitted approximately 27.7 million tons of CO2 from plants subject to the Emissions 

Trading Directive. 

Health management 

RAG Beteiligungs-Group operates a modern occupational health management system. 

This system is able to respond to changing conditions such as demographic transformation 

and increasing sensitivity to potential health risks emanating from production 

and products, and its benefits go far beyond traditional health promotion, i.e., care of 

individual employees through Group medical services. Occupational health at the RAG 

Beteiligungs-Group is leading the way among German industrial companies. Our system 

is characterized by individual healthcare along with future-oriented, innovative health 

prevention measures. Our occupational health program is closely linked to scientific health 

research, which is carried out by our Institute for Industrial Science in collaboration with 

the Institute for Industrial Medicine, Social Medicine, and Social Hygiene of the University 

of Cologne hospital. 

RISK REPORT 


Notes 




The risk management system of RAG is based on the integration of the risk management 

process into existing planning, management, control, and reporting processes on all levels 

of the Group. This applies to both the consolidated financial statements of RAG Beteiligungs-Group 

and the separate financial statements of RAG Beteiligungs-AG. 

Risk strategy 

Risk management is a central component of our value-oriented corporate management 

and serves to deliberately safeguard existing and future profit potential through comprehensive 

risk and reward management. Our strategic corporate planning enables us to 

consider potential risks and rewards in our long-term corporate decisions and to gear our 

portfolio management as well as operating business planning toward these risks and 

rewards. We enter into business risks only when we are convinced that doing so will lastingly 

increase enterprise value and that any possible effects will remain manageable. We 

look to the risk-adjusted, segment-specific costs of capital as indicators, and we concentrate 

our business activities on our Group’s core competencies. We thus create a basis for 

responsible corporate conduct in the sense of finding a balance between the interests of 

limiting risks and the goal of adding value. 

47

48 

Development and organization of risk and reward management 

The objective of our risk management is to recognize risks and rewards early on, to assess 

their effects, and to introduce suitable risk prevention and hedging measures, including 

risk monitoring. We ensure that our targets are reached by implementing standards 

throughout the Group. The RAG Beteiligungs-Group has a Group-wide internal risk monitoring 

system. This system includes organizational risk hedging strategies and internal 

monitoring systems along with a Group internal audit team that acts in a monitoring and 

advisory capacity independent of specific processes. Risk management also involves independent 

regulations set out in binding guidelines that are implemented as part of the risk 

monitoring process. Essential elements of the monitoring process are Management Board 

meetings, dialog regarding targets, strategic and operational planning, preparation of 

investment decisions, and monthly management reporting. The results of risk inventories 

conducted at least once annually in the organizational units are incorporated into the 

planning process. The monthly reports serve to communicate current risks and rewards to 

the entire Group. In addition, any risks arising unexpectedly are communicated directly 

to the departments responsible outside of normal reporting channels. Risk management 

at RAG follows the principle that primary risk responsibility lies with the organizational 

unit, which as the risk owner is responsible for early detection, risk management, and risk 

communication. Within the organizational units, risk management agents are in charge of 

coordinating risk management activities and ensuring that risks are communicated to 

the next level. Risk management is rounded out by a risk committee and a Group working 

party for risk management that are coordinated by the risk management agent of the 

RAG Group, which assumed responsibility for this function as of December 31, 2006, also 

on behalf of the RAG Beteiligungs-Group. 

In fiscal 2006, the RAG Group’s internal audit department continued its review of the 

risk management systems of a number of organizational units of the RAG Beteiligungs- 

Group and established that statutory and corporate obligations were being met. In addition, 

the risk management system was included in the audit of the consolidated financial 

statements in accordance with procedures for publicly listed stock corporations. The 

audit found that the risk early warning system of the RAG Beteiligungs-AG is capable of 

identifying at an early stage any events that could jeopardize the continued existence 

of the Company. 

Risks relating to the market and competition 

Because of the nature of its activities, the RAG Beteiligungs-Group is exposed to constantly 

changing political, social, demographic, legal, and economic circumstances both in 

Germany and abroad. We counteract the risks arising from these circumstances by closely 

observing the political and economic climate, anticipating market developments, and 

consistently developing our portfolio in line with the Group strategy. One area in which 

risk is concentrated is indicated by the intense competition in the various market segments. 

In the Chemicals segments, in particular, competition from low-wage countries 

with aggressive pricing policies leads to major competitive pressure. We respond to this 

pressure by increasing regional diversification, expanding our production base, and tapping 

new markets in regions with high growth rates such as China and Eastern Europe. 

The affected operating business units also reduce competitive pressure by implementing

ACTIVE 

Foreword 



Notes 




measures to increase customer ties, particularly strategic research partnerships with 

customers, and by undertaking customer relationship management and improving cost 

positions as well as the services offered. In the Energy segment, adverse effects may result 

from the overall energy policy situation, which may entail legislative intervention for the 

purpose of market regulation and climate policy restrictions. Particularly worth mentioning 

in this context are future regulatory measures aimed at further reducing CO2 levels, 

although it should be noted that our own efforts already focus on reducing specific CO2 

emissions at our power plants by means of additional efficiency increases and innovative 

technologies. In the Real Estate segment, a strategy based on a combination of modernization, 

demolition, new construction, and the targeted acquisition of attractive housing 

stock is used to counter potential adverse effects on the sustainability and earnings power 

of the housing portfolio due to regional or demographic factors and take advantage of the 

continued profitable growth of this segment. We are counteracting the intense competition 

in the German real estate market, which has been exacerbated by foreign investors, 

by honing our profile as an alternative municipal partner and improving operating management 

of our residential portfolio. 

Risks relating to production and the environment 

As an industrial enterprise, the RAG Beteiligungs-Group is subject to risks arising from 

business interruption, quality issues, and unexpected technical difficulties as well as risks 

related to product safety, occupational health and safety, and the environment. Groupwide 

guidelines on project and quality management, product safety, occupational health 

and safety, and environmental protection ensure that risks are effectively reduced. Business 

interruption insurance has been taken out to cover the risk of production interruptions. 

In addition, all production processes are certified in accordance with international 

standards and constantly developed and improved, installations are carefully maintained, 

and employees receive suitable and advanced training. Sufficient accounting provisions 

have been made for any necessary rehabilitation of contaminated sites. As an enterprise 

with significant activities in the chemical industry that is aware of its responsibility, the 

RAG Beteiligungs-Group operates these processes in accordance with the global responsible 

care initiative of the chemical industry. 

Procurement risks 

Potential risks may also arise based on the availability of raw materials and energy as 

well as primary and intermediate products and dependence on their prices. The Chemicals 

business area is particularly dependent on crude oil prices and on exchange rates, which 

heavily influence both commodities prices as well as energy costs. We counter these risks 

by optimizing global purchasing activities and entering into long-term supply contracts 

wherever possible or finding alternative suppliers. Moreover, we investigate possibilities 

for using substitute raw materials in different production processes and are working on 

developing alternative production technologies. Should procurement costs rise despite 

49

50 

these measures, it is not always possible to pass them on directly to our customers due to 

competitive considerations. With respect to the power plant park operated by the Energy 

business area, the decreasing availability of German ballast coal poses a challenge that we 

are meeting by implementing appropriate process and plant-related measures as well as 

suitable procurement activities. 

Distribution and sales risks 

Certain operating units are dependent on key accounts. Any decline in demand from 

customer sectors serviced by the Chemicals business area or intensified competition from 

existing customers could negatively impact the chemicals business. We respond to these 

risks through ongoing monitoring of our markets, acquiring new customers, developing 

customer strategies, and making efforts to tap new applications and markets at an early 

stage. In the Energy business area, we see risk potential in the expiration of long-term 

electricity supply agreements, which, however, could quite likely entail opportunities for 

concluding beneficial follow-up contracts or subsequent marketing. 

Interest rate and currency risks 

In connection with its entrepreneurial activities, the RAG Beteiligungs-Group is exposed to 

interest rate and currency risks. Currency risks arise on the purchasing side based on raw 

materials procurement, and on the sales side based on end product sales. The goal of our 

currency management is to safeguard our operating business against fluctuations in 

earnings and cash flow due to exchange rate changes on currency markets. This applies to 

the U.S. dollar in particular. We use currency forward transactions and currency options to 

hedge the currency risk arising from a rise in the euro against the U.S. dollar, which would 

lead to more expensive exports to U.S. dollar regions. Interest rate management also aims 

to protect Group earnings from negative effects of fluctuations in market interest rates. 

The risk of interest rate changes is managed by utilizing primary and derivative financial 

instruments, particularly interest rate swaps and currency options, to achieve a ratio of 

fixed to variable interest rates based on suitable to cost-risk aspect considerations. 

To mitigate these risks, we enter into hedging transactions, in which derivative financial 

instruments are also employed. These derivatives are implemented exclusively for 

hedging purposes, i.e., only in connection with the corresponding underlying transactions 

arising from ordinary business activities that have a risk profile opposite to that of the 

hedging transaction. The type and scope of the underlying hedging transactions are 

governed in the Group’s binding financial guidelines. Both fixed contractual agreements 

as well as planned transactions are hedged. 

For a detailed explanation of interest rate and currency management as well as 

the use of derivative financial instruments, please see pages 106 to 107 of the notes to the 

consolidated financial statements. 

Liquidity risks 

Central liquidity risk management, which is centered around a Group-wide cash pool, has 

been established to control liquidity risks. Degussa has been included in full in RAG Beteiligungs-AG’s 

liquidity management since December 2006. The purpose of the central

ACTIVE 

Foreword 



Notes 




liquidity risk management system is to ensure that the necessary funds are available on 

time and in the required currency to finance the current operational business and to guarantee 

that the funds for current and future investments are available to all companies in 

the Group. Sufficient credit lines are available for unforeseen liquidity risks, among other 

things in the form of a revolving credit facility in the amount of €2.25 billion via RAG 

Beteiligungs-AG. 

Please see pages 106 to 107 of the notes to the consolidated financial statements for a 

detailed portrayal of liquidity risks and the management of these risks. 

Risks relating to acquisitions and divestments 

The long-term development of the RAG Beteiligungs-Group can be promoted by expanding 

individual businesses. Decisions made in this regard are implemented in particular by 

taking over suitable companies or by acquiring majority stakes in them. Potential companies 

are subjected to an intensive due diligence process in advance of the acquisition. 

These investigations center on strategic relevance, management quality, and development 

potential. New companies in the portfolio are systematically integrated into the Group 

and its existing risk management processes. In connection with value-oriented internal 

control processes and portfolio analysis, all operating business units are reviewed on an 

ongoing basis to determine their long-term profitability potential and their appropriateness 

with respect to Group strategy. The ensuing restructuring and divestment requirements 

are consistently and systematically implemented. Subsequent liability and warranty 

risks arising from divestments are subject to a systematic post-transaction management 

process. 

Legal risks 

Risks from litigation can never be completely ruled out. Especially in cases of divestment 

and acquisition, warranty claims may be made against the RAG Beteiligungs-Group. In its 

operating business, the Group is subject to liability risks arising from potential damage 

claims in connection with product liability, patents, tax law, competition regulations, cartel 

law, and environmental regulations on the one hand and through violation of statutory 

requirements on the other. For the controlled handling of such risks, we have developed a 

concept involving high quality and security standards. To protect against the financial 

consequences of damages that may nonetheless arise, insurance policies have been taken 

out to cover property damages, product liability, and other risks. Provisions have been 

recognized where necessary. 

Personnel risks 

The realization of strategic and operational goals in the organizational units depends on 

the knowledge and skills of our highly qualified specialists and executives. In order to 

secure appropriately qualified employees for future as well as current needs and establish 

lasting relationships with these employees, the RAG Beteiligungs-Group offers an 

attractive compensation system as well as systematic employee development programs 

with a variety of opportunities for professional and personal training and development. In 

addition, intensive contacts are maintained with universities and professional associations 

for the purpose of recruiting talented junior employees for the Company. 

51

52 

IT risks 

Guidelines and regulations applicable to the entire Company describe in detail how to 

handle data and use information systems securely. Internal communications also serve to 

sharpen all employees’ focus on the topic of IT security. The latest protection technologies 

are employed to guarantee the highest possible levels of data security. Adherence to these 

regulations is also expected from external service providers commissioned by the RAG 

Beteiligungs-Group. 

Other risks 

We have made additional preparations in the event of an outbreak of a new influenza 

pandemic as feared by the World Health Organization (WHO). Special pandemic plans 

have been developed at numerous locations, and their effectiveness has been tested in 

trial runs. These plans are continuously updated to reflect the current state of knowledge. 

Comprehensive information and training materials have been prepared for employees 

and made available on the Intranet, for example. 

Overall assessment of the risk position 

An assessment of the risk position has found that given the measures implemented as 

well as those planned, there are no existing risks that – either individually or in conjunction 

with one another – entail any effects that would endanger the existence of the RAG 

Beteiligungs-Group or RAG Beteiligungs-AG. 

OUTLOOK 

Conditions are favorable for a further good performance. The economy in the industrial 

nations is rising, and production is still increasing significantly. While the VAT increase and 

a flattening out of the world economy have slowed domestic demand in Germany and 

weakened exports, rapid improvement in the unemployment rate will positively impact 

demand. On the whole, there are numerous opportunities for a sustained upswing in 

Germany and a lasting reduction in the number of unemployed persons, driven by an 

upturn in the world economy. 

We plan to float RAG Beteiligungs-AG on the stock market under its new name as an 

integrated industrial enterprise boasting the attractive business areas of Chemicals, 

Energy, and Real Estate. In 2006, we made significant progress toward meeting this goal 

thanks to a number of crucial measures and decisions implemented. We intend to fulfill 

the remaining legal and organizational requirements for a successful IPO for our Company 

during the course of 2007. 

With its focus on the Chemicals, Energy, and Real Estate business areas, the RAG 

Beteiligungs-Group is well-positioned for the planned stock market flotation. In addition 

to innovations and an increase in commitments in the growth regions of Asia and Eastern 

Europe on the part of our Chemicals business area, we plan to increase concentration 

on high-margin transactions in the Energy and Real Estate business areas and expand our 

leading positions in these markets.

ACTIVE 

Foreword 



Notes 




Major optimization projects such as Project “Sirius” and “Degussa 2008” are still being 

implemented. Project “Sirius” is aimed at lowering administrative costs on a sustained 

basis by reducing personnel and materials costs.“Degussa 2008” pursues the primary goal 

of becoming even more involved in growth markets, offering customized solutions to 

customers in the areas of marketing, sales, and innovation, and further increasing the 

company’s competitive position by ensuring state of the art production and a high level 

of employee competency. 

The Chemicals business area will continue to benefit from the upward trend of 

the world economy. Our broad product portfolio, which includes a variety of applications, 

customers, and regions, affords us a stable basis for participating in the global upswing. 

We anticipate steady organic growth over the next few years from our own innovations as 

well as growth in the Asian and Eastern European regions. We will also make investments 

to increase our share of businesses with leading market positions, without compromising 

our financial objectives or return targets in the process. To optimize our business portfolio, 

we will continue to undertake small-scale acquisitions and divestments. Such activities 

represent a continuous process of adapting to changing conditions and serve to supplement 

our investment activities. We are also aiming to further increase our productivity by 

optimizing processes and structures. 

In the Energy business area, we began a comprehensive program of capital spending 

with the start of construction of Europe’s most modern coal-fired power plant at our 

Duisburg-Walsum location. We intend to be a major participant in the high demand for 

renewal and replacement at this German power plant park. Together with municipal 

utility companies, we are planning to construct another 750 megawatt power generation 

unit (“Herne 5” project). Construction is planned to start in the summer of 2008, with commissioning 

in the fall of 2011. The technical concept corresponds to that of “Walsum 10,” 

though this project will allow decoupling from district heating. Herne 5 will be marketed 

to municipal energy supply companies to a large extent. In addition, we intend to take 

advantage of opportunities to build power plants and supply energy for industrial enterprises. 

For the ROGESA project, which involves construction of an industrial power plant at 

the Dillinger Hütte facility in Saarland, a general contractor agreement was concluded 

with AE&E Inova. The start of construction is slated for the summer of 2007, with commissioning 

in May 2009. Blast furnace gas will be used to fuel the plant, which will have an 

installed output of 90 megawatts. 

Our Real Estate business area took strategic action in the year under review in preparation 

for fiscal 2007. The business area is anticipating a good overall business trend. Our 

objectives include increasing our property holdings by purchasing housing companies 

and housing inventories. These activities are intended to reinforce our portfolio through 

purchases of existing units and new construction projects as well as through investments 

in property expansion and conversion and to ensure the future viability of our business. 

Activities in the Real Estate business area will focus on selected locations within the Rhine 

corridor along with Ruhr area locations offering good perspectives. 

53

54 

The RAG Beteiligungs-Group has created the basis for positive development by undertaking 

extensive optimization and restructuring measures in recent years. In connection 

with portfolio optimizations, we disposed of a number of activities during the course of 

2006, for which reason we anticipate slightly lower sales in 2007. 

Transfer of management functions for the industrial activities of the RAG Group from 

RAG AG to RAG Beteiligungs-AG as of January 1, 2007 will effect an increase in personnel 

expenses in particular for the RAG Beteiligungs-Group. As a consequence, we expect EBIT 

to decline in 2007. 

A positive free cash flow is anticipated for fiscal 2007. Disposals of Mining Technology 

and Gas Distribution activities will contribute to this increase. 

In the Energy business area, planned increases in investment activity are expected to 

raise capital employed and have a slightly negative effect on overall ROCE. 

EVENTS AFTER THE BALANCE SHEET DATE 

Cornerstones of agreement on coal mining policy 

On February 7, 2007, the “Cornerstones of an Agreement on Coal Mining Policy between 

the German Government, the States of North Rhine-Westphalia and Saarland, RAG AG, 

and IG BCE” was signed, pursuant to which the German federal government and the states 

of North Rhine-Westphalia and Saarland have agreed to end coal mining subsidies by 

the end of 2018. The agreement pledges to avoid forced redundancies. In 2012, the German 

Bundestag will review the decision to end coal mining subsidies on the basis of a joint 

report prepared by the federal government and the state governments of North Rhine- 

Westphalia and Saarland. The review will consider aspects of economic viability, energy 

supply reliability, and other energy policy objectives. 

North Rhine-Westphalia will no longer contribute to the coal mining subsidies 

(current production) after 2014. The federal government will be exempted from the obligations 

to provide structural aid. RAG AG will provide the state of Saarland with structural 

aid in the amount of €100 million. 

The goal of the agreement reached is to end subsidized coal mining without having 

to resort to operational layoffs. To this end, early retirement plans, which are already 

accompanying the ongoing adjustment processes, will be continued until coal mining 

operations have ceased. 

The German federal government and the states of north Rhine-Westphalia and 

Saarland will until 2018 jointly provide the funds necessary to end subsidized coal mining 

without forced redundancies on the basis of existing model calculations and the results 

of an exert opinion on the costs for coal mine closures, existing environmental damage, 

and inherited coal mining liabilities of both limited and unlimited duration. This government 

funding is also a prerequisite for the entire equity holdings of RAG AG being used to 

finance inherited liabilities of unlimited duration. 

The subsidies will be regulated through legislation as well as a framework agreement 

between the German government and the states concerned.

ACTIVE 

Foreword 


The legislation to be presented by the federal government will stipulate the level of 

subsidies to be provided each year by the German government starting in 2009 until the 

mines are shut down. In 2007, RAG will receive a grant notice enumerating the subsidies 

for mine closures from 2009 until the end of 2012. This new grant notice will continue to 

limit subsidies when a certain price on the world market is exceeded (Kappungsgrenze) 

and allow for an economic price adjustment clause (Sprechklausel) to avoid underfunding, 

as did earlier notices. On the basis of this grant notice, RAG AG will adjust its mining 

operations to reflect an expected capacity of 12 million tons in 2012. 

To finance inherited liabilities of unliminted duration, the states of North-Rhine 

Westphalia and Saarland will make special arrangements with a private law foundation 

to be established by RAG in what is known as a “negative legacy” agreement (Erblastenvertrag). 

The proceeds from the flotation of the shareholdings of RAG AG will be added to 

the “negative legacy” agreement, which will be guaranteed by North-Rhine Westphalia 

and Saarland. The federal government will cover one-third of the states’ guarantees. 

The financing phase-out requires all current RAG shareholders to sell their shares in 

RAG AG to the foundation to be established by RAG for €1 each, without subjecting the 

public sector to any detrimental conditions. 

Decisions will be made on dissolution of the joint liability arrangement between 

RAG’s coal and industrial activities, on the method of realization of RAG Beteiligungs-AG – 

most probably through an initial public offering – and on maintaining a minority share in 

RAG Beteiligungs-AG’s shareholdings by the foundation, after an expert opinion has been 

made available on the value of the shareholdings and realization options. 

In our opinion, implementation of these cornerstones will ensure that the funds 

provided by the public sector and the realization of RAG Beteiligungs-AG will be sufficient 

to finance the phase-out process and to overcome the legacy inherited from RAG AG’s coal 

mining operations. 

In addition, this offers promising prospects for the RAG industrial enterprise and its 

nearly 45,000 employees, which, coupled with the planned public offering, will enable new 

growth potential. 

Based on the grant notice issued to RAG AG by the public sector approving subsidies 

for the years from 2006 to 2008, RAG AG is obligated to transfer funds of €150 million 

annually from its holding operations to its coal mining operations. RAG AG will ensure that 

in 2007 and 2008, this contribution will be rendered by RAG Beteiligungs-AG. 

Essen, March 8, 2007 


Notes 




This Report contains forward-looking statements that are based management’s current expectations, estimates, and 

projections on the basis of the information available at present. These statements are not guarantees of future performance 

and involve certain risks, uncertainties, and assumptions, which are difficult to predict. Actual future results and 

trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, such as if risks 

or uncertainties materialize or assumptions prove incorrect. 

55

ACTIVE 

Foreword 



Notes 




Consolidated Financial Statements 2006 

of RAG Beteiligungs-AG 

(formerly RAG Beteiligungs-GmbH), Essen 


58 Income Statement 

59 Balance Sheet 

60 Statement of Changes in Equity 

62 Cash Flow Statement 

63 Notes to the Consolidated Financial Statements 

64 Segment Reporting 

66 Basis of Presentation 

66 New Financial Reporting Standards 

68 Adjustments of Previous Years’ Figures 

69 Scope of Consolidation 

70 Principles of Consolidation 

71 Currency Translation 

72 Accounting Policies 

81 Notes to the Non-Current Assets Held for 

Sale and Discontinued Operations 

84 Notes to the Income Statement 

89 Notes to the Balance Sheet 

108 Notes to the Cash Flow Statement 

109 Notes to the Segment Report 

113 Other Disclosures 

116 Disclosures in Accordance with National Requirements 

Other Information 

117 Auditor’s Report 

118 Report of the Supervisory Board 

120 Corporate Bodies and Offices Held 

124 Major Shareholdings 

57

58 

Consolidated Income Statement 


for the year ended December 31, 2006 

€ million Note 2006 2005 

Sales (3) 14,793.4 14,181.1 

Changes in inventories of finished goods and work in progress – 92.4 – 12.7 

Other own work capitalized 78.1 93.7 

Other operating income (4) 1,092.8 1,243.3 

Raw materials and consumables used (5) 7,740.8 7,360.3 

Personnel expense (6) 3,079.0 2,984.9 

Depreciation, amortization, and impairment losses (7) 1,508.4 1,307.8 

Other operating expenses (8) 3,086.6 3,249.5 

Profit before financial result and income tax expense (continuing operations) + 457.1 + 602.9 

Interest income (9) 145.4 78.4 

Interest expense (9) 624.2 503.2 

Result from investments accounted for using the equity method (10) + 50.0 + 70.1 

Other financial result (11) + 24.6 + 10.9 

Financial result – 404.2 – 343.8 

Profit before tax (continuing operations) + 52.9 + 259.1 

Income tax expense (12) 10.3 182.6 

Profit after tax (continuing operations) + 42.6 + 76.5 

Profit after tax (discontinued operations) (2) + 1,108.9 + 211.5 

Profit after tax 

thereof attributable to: 

+ 1,151.5 + 288.0 

Minority interests + 106.2 + 92.9 

Equity holders of RAG Beteiligungs-AG (net income) + 1,045.3 + 195.1 

Earnings per share (basic and diluted) in € (31) + 2.24 + 0.42

ACTIVE 

Foreword 



Notes 


Consolidated Balance Sheet 


as of December 31, 2006 



€ million Note Dec. 31, 2006 Dec. 31, 2005 

Intangible assets (13) 4,483.0 4,118.7 

Property, plant, and equipment (14) 5,605.3 6,630.9 

Investment properties (15) 1,630.5 1,656.7 

Investments accounted for using the equity method (16) 279.4 414.7 

Financial assets (16) 1,639.1 1,867.5 

Deferred tax assets (24) 496.7 1,086.2 

Other receivables (18) 106.6 85.2 

Non-current assets 14,240.6 15,859.9 

Inventories (17) 1,899.0 2,510.1 

Current tax assets (24) 95.0 96.9 

Trade receivables (18) 2,354.1 3,229.7 

Other receivables (18) 410.6 525.5 

Financial assets (16) 285.1 229.3 

Cash and cash equivalents (27) 444.3 400.9 

Non-current assets held for sale and disposal groups (1) 1,314.6 898.1 

Current assets 6,802.7 7,890.5 

Total assets 21,043.3 23,750.4 

€ million Note Dec. 31, 2006 Dec. 31, 2005 

Issued capital 466.0 466.0 

Reserves 3,404.6 2,766.0 

Equity attributable to equity holders of RAG Beteiligungs-AG 3,870.6 3,232.0 

Minority interests 449.2 2,017.3 

Equity (19) 4,319.8 5,249.3 

Provisions for pensions and similar obligations (20) 4,070.3 4,300.7 

Other provisions (21) 1,270.9 1,339.2 

Deferred tax liabilities (24) 961.4 1,494.3 

Current tax liabilities (24) 112.1 100.9 

Financial liabilities (22) 3,571.9 3,676.3 

Other payables (23) 182.7 211.2 

Non-current liabilities 10,169.3 11,122.6 

Other provisions (21) 1,310.0 1,752.6 

Current tax liabilities (24) 226.1 304.4 

Financial liabilities (22) 2,306.7 2,373.3 

Trade payables (23) 1,264.8 1,821.7 

Other payables (23) 588.9 874.4 

Liabilities of disposal groups (1) 857.7 252.1 

Current liabilities 6,554.2 7,378.5 

Total equity and liabilities 21,043.3 23,750.4 

59

60 

Consolidated Statement of Changes in Equity 


as of December 31, 2006 

€ million Note (19) 

Issued 

capital 

Balance as of January 1, 2005 466.0 

Capital increase/reduction 

Dividends 

Transactions with equity holders 


Other comprehensive income/loss (OCI) 

Total income recognized in equity 

Other changes 

Balance as of December 31, 2005 466.0 

Capital increase/reduction 

Dividends 

Transactions with equity holders 


Other comprehensive income/loss (OCI) 

Total income recognized in equity 

Other changes 

Balance as of December 31, 2006 466.0

ACTIVE 

Foreword 



Notes 




Reserves Equity Minority Equity 

Capital Accumulated Accumulated other comprehensive income/loss (OCI) attributable interests 

reserve profits to equity 

Availablefor-sale- 

Cash flow 

Revaluation 

reserve for 

successive 

Currency 

translation 

holders of 

RAG Beteili- 

gungs-AG 

securities hedges acquisitions adjustment 

722.5 1,859.6 17.0 46.1 31.5 – 139.9 3,002.8 1,966.6 4,969.4 

0.0 4.2 4.2 

– 69.8 – 69.8 – 183.1 – 252.9 

– 69.8 – 69.8 – 178.9 – 248.7 

195.1 195.1 92.9 288.0 

– 0.1 – 30.5 10.6 143.2 123.2 110.9 234.1 

195.1 – 0.1 – 30.5 10.6 143.2 318.3 203.8 522.1 

0.1 – 1.0 – 3.4 – 2.0 – 13.0 – 19.3 25.8 6.5 

722.6 1,983.9 13.5 15.6 40.1 – 9.7 3,232.0 2,017.3 5,249.3 

0.0 12.3 12.3 

– 235.0 – 235.0 – 73.0 – 308.0 

– 235.0 – 235.0 – 60.7 – 295.7 

1,045.3 1,045.3 106.2 1,151.5 

5.3 27.1 – 197.5 – 165.1 – 29.8 – 194.9 

1,045.3 5.3 27.1 0.0 – 197.5 880.2 76.4 956.6 

– 0.3 – 8.3 10.8 1.8 – 2.0 – 8.6 – 6.6 – 1,583.8 – 1,590.4 

722.3 2,785.9 29.6 44.5 38.1 – 215.8 3,870.6 449.2 4,319.8 

61

62 

Consolidated Cash Flow Statement 



€ million Note 2006 2005 

Profit before financial result and tax (continuing operations) + 457.1 + 602.9 

+/– depreciation, amortization, impairment losses/reversal of impairment losses + 1,460.8 + 1,240.0 

–/+ gains/losses on disposal of non-current assets – 131.4 – 251.5 

–/+ change in inventories – 78.9 – 113.3 

–/+ change in receivables and other assets + 482.7 – 65.5 

+/– change in provisions – 376.0 – 369.5 

+/– change in liabilities (excl. financial liabilities) – 389.7 + 479.3 

– interest paid – 225.2 – 316.3 

+ interest received + 58.1 + 41.1 

+ dividends received + 25.3 + 60.5 

– income taxes paid – 184.9 – 161.1 

Cash flow from operating activities (continuing operations) (25) + 1,097.9 + 1,146.6 

Intangible assets; property, plant and equipment; investment properties 

– cash payments for investments – 994.7 – 1,092.9 

+ cash receipts from disposals + 262.3 + 321.6 

Acquisitions, investments and loans 

– cash payments for investments – 3,535.8 – 174.3 

+ cash receipts from disposals + 3,524.0 + 458.2 

–/+ change in current securities and deposits + 11.2 + 35.5 

Cash flow from investing activities (continuing operations) (26) – 733.0 – 451.9 

+/– cash receipts/cash payments relating to capital contributions + 12.3 + 4.2 

– cash payments to minority interests – 73.0 – 183.1 

–/+ profit transfer of the previous year/dividends paid 1) – 69.8 – 98.6 

+ increase in financial liabilities + 4,552.3 + 1,935.2 

– repayment of financial liabilities – 4,654.0 – 2,447.9 

Cash flow from financing activities (continuing operations) – 232.2 – 790.2 

Change in cash and cash equivalents (continuing operations) + 132.7 – 95.5 

Cash and cash equivalents as of January 1 (total) 400.9 473.8 

– cash and cash equivalents as of January 1 (discontinued operations) – 92.7 – 67.8 

Cash and cash equivalents as of January 1 (continuing operations) 308.2 406.0 

+/– change in cash and cash equivalents (continuing operations) + 132.7 – 95.5 

+/– effect of exchange rates and other changes in cash and cash equivalents + 3.4 – 2.3 

Cash and cash equivalents as of December 31 (continuing operations) + 444.3 + 308.2 

+ cash and cash equivalents as of December 31 (discontinued operations) – + 92.7 

Cash and cash equivalents as of December 31 (as reported on the balance sheet) (27) 444.3 400.9 

1) Profit transfer/dividends paid without tax charge (stand-alone) – 102.3 – 98.6

ACTIVE 

Foreword 



Notes 




Notes to the Consolidated Financial Statements 

RAG Beteiligungs-Group 2006 

63

64 

Consolidated Segment Reporting 

RAG Beteiligungs-Group 


Business segments Note (28) 

Technology Specialties Consumer Solutions Specialty Materials 

€ million 2006 2005 2006 2005 2006 2005 

External sales 4,806.1 4,264.3 2,453.0 2,239.9 2,838.9 2,531.6 

Intersegment sales 335.5 301.1 83.9 82.5 37.3 45.1 

Total sales 

Result from investments accounted for using 

5,141.6 4,565.4 2,536.9 2,322.4 2,876.2 2,576.7 

the equity method 11.7 9.9 21.5 19.1 6.7 9.7 

Investments accounted for using the equity method 112.7 109.0 69.2 71.1 48.9 43.9 

EBITDA1) 829.4 695.9 373.9 249.1 454.9 425.7 

EBIT2) 460.4 309.3 190.9 70.6 249.9 234.4 

Capital employed (as of Dec. 31) 3,886.0 4,212.3 2,161.1 2,144.4 2,660.5 2,670.0 

ROCE (in %) 11.8 7.3 8.8 3.3 9.4 8.8 

EBITDA margin (in %) 17.3 16.3 15.2 11.1 16.0 16.8 

Capital expenditures 227.0 237.8 160.1 231.5 170.0 206.2 

Depreciation and amortization 341.7 360.6 181.3 158.5 204.2 189.6 

Other significant non-cash expenses 717.8 716.7 228.1 143.0 261.7 230.4 

Segment result – 37.9 94.3 98.4 39.4 175.2 279.0 

Segment assets 4,908.0 5,915.1 2,574.0 2,839.0 3,137.7 3,132.9 

Segment liabilities 1,981.0 1,997.2 712.6 745.7 1,176.9 1,157.3 

1) Adjusted for non-operating items of – €272.2 million (2005: – €143.2 million), cf. Note (30) 

2) Adjusted for non-operating items of – €701.9 million (2005: – €424.3 million), cf. Note (30) 

Geographical segments (regions) Note (29) 

Germany Rest of Europe 


Sales 5,941.0 5,896.2 3,788.5 3,596.2 

Segment assets 11,666.3 11,291.6 1,231.0 1,923.3 

Capital expenditures 647.1 700.2 83.9 194.2

ACTIVE 

Foreword 



Notes 




Energy Energy Real Estate Other, Group 

incl. Coal Trading excl. Coal Trading consolidation (continuing operations) 

2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 

2,574.4 2,765.4 1,744.4 1,792.7 353.2 361.2 1,767.8 2,018.7 14,793.4 14,181.1 

163.3 207.7 27.9 27.3 3.3 3.7 – 623.3 – 640.1 0.0 0.0 

2,737.7 2,973.1 1,772.3 1,820.0 356.5 364.9 1,144.5 1,378.6 14,793.4 14,181.1 

9.7 19.2 7.8 10.7 0.0 0.0 0.4 12.2 50.0 70.1 

50.1 58.1 50.1 46.0 0.0 0.0 – 1.5 132.6 279.4 414.7 

495.2 509.4 458.0 465.8 154.7 172.5 – 28.0 54.6 2,280.1 2,107.2 

392.8 411.3 357.5 377.8 111.9 129.9 – 172.3 – 47.3 1,233.6 1,108.2 

2,473.4 2,653.4 2,416.8 2,569.6 1,728.6 1,678.8 1,075.2 808.5 13,984.8 14,167.4 

15.9 15.5 14.8 14.7 6.5 7.7 8.8 7.8 

19.2 18.4 26.3 26.0 43.8 47.8 15.4 14.9 

229.2 270.3 228.2 261.5 77.5 110.8 94.7 137.3 958.5 1,193.9 

87.5 92.9 85.7 85.0 47.4 46.9 111.6 131.1 973.7 979.6 

263.2 442.5 211.6 386.6 135.9 59.8 899.5 1,161.0 2,506.2 2,753.4 

421.5 428.9 382.6 370.8 66.0 137.5 – 266.1 – 376.2 457.1 602.9 

2,351.1 2,733.9 1,968.0 2,164.0 1,874.7 1,841.6 1,812.5 1,221.4 16,658.0 17,683.9 

1,604.4 1,942.4 1,195.1 1,365.0 287.5 323.2 2,970.8 3,120.2 8,733.2 9,286.0 

North America Asia Central and Other, Group 

South America consolidation (continuing operations) 

2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 

2,211.2 2,049.8 2,152.5 2,005.5 468.6 411.4 231.6 222.0 14,793.4 14,181.1 

1,409.4 1,862.6 1,048.9 1,191.2 165.3 172.3 1,137.1 1,242.9 16,658.0 17,683.9 

92.7 74.4 108.1 212.9 24.9 7.8 1.8 4.4 958.5 1,193.9 

65

66 

BASIS OF PRESENTATION 

RAG Beteiligungs-AG (formerly RAG Beteiligungs-GmbH) was 

established on October 11, 2006 by means of a reorganization 

through a change of the legal form. RAG Beteiligungs-AG, a stock 

corporation as defined by German law, is a direct subsidiary of 

RAG Aktiengesellschaft, Essen. A control and profit and loss transfer 

agreement has been concluded between RAG Aktiengesellschaft 

(“RAG”) as the sole equity holder and RAG Beteiligungs-AG. 

RAG Beteiligungs-AG and its subsidiaries are included in the consolidated 

financial statements of RAG Aktiengesellschaft, which 

are published in the electronic Federal Gazette (elektronischer 

Bundesanzeiger). 

The registered offices of RAG Beteiligungs-AG are located at 

Rellinghauser Strasse 1 – 11, Essen, Germany. The Company is 

entered in the Commercial Register of the Local Court of Essen 

under No. 19474 (formerly Local Court of Essen, No. 5398). The 

business activities of the Company are described under “Notes to 

Segment Reporting.” 

These consolidated financial statements of RAG Beteiligungs-AG 

were prepared on a voluntary basis. As permitted by 

Section 315a (3) of the German Commercial Code (HGB), the 

consolidated financial statements have been prepared in accordance 

with International Financial Reporting Standards (IFRS) 

and comply with these standards. The IFRSs comprise the standards 

(International Financial Reporting Standards and International 

Accounting Standards) approved by the International 

Accounting Standards Board (IASB), London, and the interpretations 

of the International Financial Reporting Interpretations 

Committee (previously known as the Standing Interpretations 

Committee) as adopted by the EU. Additional disclosures were 

made under national requirements pursuant to Section 315a (1) 

of the German Commercial Code (HGB). 

These consolidated financial statements cover the fiscal 

year from January 1 to December 31, 2006 and have been prepared 

in euros. All amounts are quoted in millions of euros (€ million), 

unless stated otherwise. 

NEW FINANCIAL REPORTING STANDARDS 

Financial reporting standards that have already taken 

effect 

The IASB has revised or newly issued various standards and interpretations 

that are first required to be applied in fiscal 2006. 

RAG Beteiligungs-AG elected for early application of interpretation 

IFRIC 4 “Determining whether an Arrangement contains 

a Lease” before this standard took effect as of January 1, 2006. 

The following standards and interpretations are required to 

be applied for the first time in fiscal 2006: 

IFRS 6 “Exploration for and Evaluation of Mineral Resources;” 

Amendment to IAS 19 “Employee Benefits: Actuarial Gains and 

Losses, Group Plans and Disclosures;” 

Amendment to IAS 21 “The Effects of Changes in Foreign 

Exchange Rates: Net Investment in a Foreign Operation;” 

Amendments to IAS 39 “Financial Instruments: The Fair Value 

Option;”“Financial Instruments: Cash Flow Hedge Accounting of 

Forecast Intragroup Transactions;” 

Amendments to IAS 39/IFRS 4 “Financial Instruments/ 

Insurance Contracts: Financial Guarantee Contracts;” 

Amendment to IFRS 1/IFRS 6 “First-Time Adoption of 

IFRS/Exploration for and Evaluation of Mineral Resources;” 

IFRIC 5 “Rights to Interests arising from Decommissioning, 

Restorations and Environmental Rehabilitation Funds;” 

IFRIC 6 “Liabilities arising from Participating in a Specific 

Market – Waste Electrical and Electronic Equipment.” 

None of the financial reporting standards applied for the 

first time in fiscal 2006 had a material impact on the consolidated 

financial statements of RAG Beteiligungs-AG. 

Financial reporting standards not applied early 

The IASB adopted other financial reporting standards that were 

not yet required to be applied in fiscal 2006 and which RAG 

Beteiligungs-AG did not apply voluntarily before they took effect. 

In addition, the application of these new financial reporting 

standards requires their adoption by the European Union in its 

endorsement procedure: 

IFRS 7 “Financial Instruments: Disclosures;” 

IFRS 8 “Operating Segments;” 

Amendment to IAS 1 “Presentation of Financial Statements: 

Capital Disclosures;” 

IFRIC 7 “Applying the Restatement Approach under IAS 29 

Financial Reporting in Hyperinflationary Economies;” 

IFRIC 8 “Scope of IFRS 2;” 

IFRIC 9 “Reassessment of Embedded Derivatives;” 

IFRIC 10 “Interim Financial Reporting and Impairment;” 

IFRIC 11 “IFRS 2 – Group and Treasury Share Transactions;” 

IFRIC 12 “Service Concession Arrangements.” 

These (revised) standards and interpretations will be 

applied – insofar as relevant to the consolidated financial 

statements of RAG Beteiligungs-AG – for the first time on their 

effective dates. 

IFRS 7 introduces additional disclosure requirements with 

regard to financial instruments, requiring both qualitative and

ACTIVE 

Foreword 


quantitative disclosures related to the risk exposure resulting 

from financial instruments and management’s policies for diversifying 

such risks. The new standard replaces IAS 30, which is only 

required to be applied by financial institutions, as well as the 

existing disclosure requirements set out in IAS 32. The standard 

must be applied for fiscal years beginning on or after January 1, 

2007. Earlier application is encouraged. IFRS 7 will have consequences 

on the extent of reporting on financial instruments in 

the consolidated financial statements of RAG Beteiligungs-AG. 

IFRS 8 governs the disclosures related to business segments, 

products and services, and regions as well as customer relationships 

of the reporting entity. It replaces IAS 14. In accordance with 

IFRS 8, the structure of segment reporting must correspond to 

the internal structure that governs the reporting to key decisionmakers 

of the company (management approach). In contrast, 

IAS 14 prescribes that segment reporting must be structured in 

accordance with the source and nature of a company’s risks and 

rewards (risks and rewards approach). The standard must be 

applied for fiscal years beginning on or after January 1, 2009. 

Earlier application is permitted. IFRS 8 will have consequences on 

the type and extent of segment disclosures in segment reporting 

included the consolidated financial statements of RAG Beteiligungs-AG. 

The amendments to IAS 1 expand disclosure requirements 

to include information on the “economic” capital of an entity and 

the control of this capital by management. The amendments to 

IAS 1 must be applied for fiscal years beginning on or after January 

1, 2007. Earlier application is encouraged. The amendment will 

not have a material impact on the consolidated financial statements 

of RAG Beteiligungs-AG. 

IFRIC 7 contains instructions for applying IAS 29 when 

hyperinflation is identified for the first time. Accordingly, IAS 29 

should be applied as though it had always been applied. The 

interpretation must be applied for fiscal years beginning on or 

after March 1, 2006. Earlier application is encouraged. This interpretation 

is not currently relevant to the consolidated financial 

statements of RAG Beteiligungs-AG. 

IFRIC 8 stipulates that IFRS 2 also extends to those transactions 

in which the reporting entity receives no compensation 

or no equivalent compensation. This also relates to transactions 

in which the entity cannot clearly identify the goods or services 

received. The interpretation must be applied for fiscal years 

beginning on or after May 1, 2006. Earlier application is encouraged. 

The interpretation does not affect the consolidated 

financial statements of RAG Beteiligungs-AG. 

IFRIC 9 governs the time of the assessment as to whether 

an embedded derivative should be separated from the host 


Notes 




contract and reported separately in the financial statements as a 

stand-alone derivative. Subsequent reassessment of a contract 

is prohibited unless there is a change in the terms of the original 

contract that significantly modifies cash flows. The interpretation 

must be applied for fiscal years beginning on or after June 1, 

2006. Earlier application is encouraged. The effects of the interpretation 

on the consolidated financial statements of RAG 

Beteiligungs-AG are currently being reviewed. 

IFRIC 10 relates to provisions included in IAS 34, IAS 36, and 

IAS 39 on the reversal of impairment losses recognized for goodwill 

and certain financial assets. IFRIC 10 concludes that an entity 

shall not reverse an impairment loss recognized in a previous 

interim period, if the reasons for such impairment have ceased 

to exist by the reporting date of the related annual financial 

statements. The interpretation must be applied for fiscal years 

beginning on or after November 1, 2006. Earlier application is 

encouraged. The interpretation currently does not affect the 

consolidated financial statements of RAG Beteiligungs-AG. 

IFRIC 11 provides guidance on questions as to how IFRS 2 

should be applied to agreements on share-based payments in 

which the entity grants equity instruments of the relevant 

company itself or equity instruments of other group companies. 

The interpretation stipulates that, in the event a company grants 

its own equity instruments, such equity instruments should be 

accounted for as equity-settled transactions, regardless of the 

method in which the company acquires these equity instruments. 

In addition, the interpretation contains provisions governing 

when a share-based payment of a group company that grants 

equity instruments of the parent company for the purpose of 

receiving goods and services should be accounted for as cashsettled 

transactions and when these are considered equitysettled 

transactions. The interpretation must be applied for fiscal 

years beginning on or after March 1, 2007. Earlier application is 

permitted. This interpretation is not currently relevant to the 

consolidated financial statements of RAG Beteiligungs-AG. 

IFRIC 12 governs the accounting treatment of service 

concession agreements entered into by companies that offer 

public services – such as the building, operation and maintenance 

of roads, airports, prisons or energy distribution infrastructures – 

on behalf of local authorities. The interpretation must be applied 

for fiscal years beginning on or after January 1, 2008. Earlier application 

is permitted. The effects of the interpretation on the consolidated 

financial statements of RAG Beteiligungs-AG are currently 

being reviewed. 

67

68 

ADJUSTMENTS OF PREVIOUS YEARS’ FIGURES 

If the criteria for classification as a discontinued operation are 

met in accordance with IFRS 5 “Non-current Assets Held for Sale 

and Discontinued Operations,” such discontinued operation must 

be presented separately from the continuing operations in the 

income statement. The amounts presented for this discontinued 

operation for prior periods should be adjusted accordingly. 

In fiscal year 2006, RAG Beteiligungs-AG classified the 

Construction Chemicals, Gas Distribution, and Mining Technology 

activities as discontinued operations for the first time. Food 

Ingredients had been classified as a discontinued operation in 

fiscal 2005 (see Item 2 of these Notes). Therefore, only the prior 

year figures for Construction Chemicals, Gas Distribution, and 

Mining Technology had to be adjusted in the income statement: 

Income statement Dec. 31, 05 Change IFRS 5 Dec. 31, 05 

published Construc- Gas Mining adjusted 

tion Distri- Tech- 

€ million Chemicals bution nology 

Sales 18,060.7 – 1,967.2 – 1,158.3 – 754.1 14,181.1 

Changes in inventories of finished goods and work in progress + 51.5 – 18.7 – 0.1 – 45.4 – 12.7 

Other own work capitalized 93.8 – 0.1 93.7 

Other operating income 1,303.3 – 46.4 + 15.8 – 29.4 1,243.3 

Raw materials and consumables used 9,872.4 – 924.9 – 1,104.8 – 482.4 7,360.3 

Personnel expense 3,573.7 – 397.9 – 11.1 – 179.8 2,984.9 

Depreciation, amortization and impairment losses 1,413.7 – 81.4 – 8.2 – 16.3 1,307.8 

Other operating expenses 3,802.8 – 445.4 – 13.2 – 94.7 3,249.5 

Interest income 95.3 – 12.8 – 2.2 – 1.9 78.4 

Interest expense 546.7 – 35.0 – 3.1 – 5.4 503.2 

Result from investments accounted for using the equity method + 94.6 – 24.5 + 70.1 

Other financial result + 15.8 – 4.9 + 10.9 

Income tax expense 199.1 + 9.2 – 7.8 – 17.9 182.6 

Profit/loss after tax (continuing operations) + 306.6 – 169.8 – 26.0 – 34.3 + 76.5 

Profit/loss after tax (discontinued operations) – 18.6 + 169.8 + 26.0 + 34.3 + 211.5 

Profit/loss after tax + 288.0 + 0.0 + 0.0 + 0.0 + 288.0 

thereof attributable to: 

Minority interests + 92.9 + 92.9 

Equity holders of RAG Beteiligungs-AG (net income) + 195.1 + 195.1 

Cash flow in the cash flow statement for the previous year 

was also adjusted retroactively due to first-time application of 

IFRS 5. 

Cash flow statement Dec. 31, 05 Change IFRS 5 Dec. 31, 05 

published Construc- Gas Mining adjusted 

tion Distri- Tech- 

€ million Chemicals bution nology 

Cash flow from operating activities + 1,386.2 – 120.0 – 42.7 – 76.9 + 1,146.6 

Cash flow from investing activities – 523.1 + 44.0 + 14.0 + 13.2 – 451.9 

Cash flow from financing activities 

Change in cash and cash equivalents 

– 916.2 + 65.0 + 25.8 + 35.2 – 790.2 

(continuing operations) – 53.1 – 11.0 – 2.9 – 28.5 – 95.5

SCOPE OF CONSOLIDATION 

ACTIVE 

Foreword 


Information on the group of consolidated companies 

In addition to RAG Beteiligungs-AG, the consolidated financial 

statements include all significant German and foreign subsidiaries 

directly or indirectly controlled by RAG Beteiligungs-AG. 

Significant associates and joint ventures are accounted for using 

the equity method if significant influence can be exercised. Firsttime 

consolidation or deconsolidation is always carried out as of 

the date of acquisition or loss of control. 

All of the main subsidiaries included in the consolidated 

financial statements, and the enterprises accounted for using the 

equity method, are listed after the independent auditors’ report. 

The group of consolidated companies of RAG Beteiligungs- 

AG comprised a total of 326 (2005: 505) fully-consolidated companies 

as of the balance sheet date. A total of 26 (2005: 31) companies 

were accounted for under the equity method. 

Number of 2006 2005 

Consolidated companies 

RAG Beteiligungs-AG and fully 

consolidated subsidiaries: 

Germany 135 174 

International 

Investments accounted for using 

the equity method: 

191 331 

Germany 16 18 

International 10 13 

352 536 

In the year under review, 10 German subsidiaries and 12 

foreign subsidiaries were consolidated for the first time. A total 

of 167 subsidiaries, 133 of which were foreign, were sold. A total of 

21 subsidiaries, 9 of which were foreign, were merged. A further 

13 subsidiaries, 10 of which were foreign, left the group of consolidated 

companies. 

In addition, 3 associated German companies and one 

foreign associated company were accounted for using the equity 

method for the first time. One foreign associated company was 

sold. One additional foreign associated company was merged. 

Another 7 associated companies, 2 of which were foreign, were no 

longer accounted for using the equity method. 


Notes 




Purchases and sales of investments in subsidiaries 

The following significant investments or increases in investments 

in subsidiaries are worthy of mention: 

The term for acceptance of the voluntary public partial 

acquisition offer made by RAG Projektgesellschaft to the shareholders 

of Degussa AG (“Degussa”), Düsseldorf, for purchase of 

their shares at a price of €42 per share ran from January 27 to 

February 27, 2006. A total of 2.19 percent of the Degussa shares 

were acquired in connection with this offer. Additional Degussa 

shares were acquired outside of the offer, in particular the 

Degussa shares held by E.ON AG (E.ON), Düsseldorf, (42.86 percent), 

which were acquired at a price of €31.50 per share. The 

stake in Degussa held directly or indirectly by RAG Projektgesellschaft 

mbH exceeded the threshold of 95 percent required to 

initiate a shareholder squeeze-out. On May 29, 2006, the Degussa 

Shareholders’ Meeting resolved to squeeze out the remaining 

minority shareholders on the request of RAG Projektgesellschaft 

mbH and consented to concluding a control and profit and 

loss transfer agreement with RAG Projektgesellschaft mbH. The 

full acquisition of Degussa was finalized upon registration of 

the squeeze-out resolution in the Commercial Register on September 

14, 2006. The minority shareholders were granted a cash 

compensation amounting to €45.11 per share. Even the shareholders 

who had previously tendered their shares within the context 

of the public purchase offer received €45.11 per tendered 

Degussa share, taking into account amounts already received. A 

total of €3,436.8 million was paid for the Degussa shares in 

2006. After deducting the acquired minority interests of €1,611.5 

million, goodwill was capitalized in an amount of €1,825.3 million. 

The consideration agreed for further investments or 

increases in investments totaled €67.5 million. 

69

70 

The combined effect of the investments or increases in 

investments in subsidiaries on the balance sheet at the time of 

initial consolidation was as follows: 

Fair 

value Carrying 

€ million amount amount 

Non-current assets 

Current assets (excluding cash 

55.1 54.7 

and cash equivalents) 23.5 23.5 

Cash and cash equivalents 14.8 14.8 

Non-current liabilities 5.8 0.8 

Current liabilities 47.9 47.6 

Contingent liabilities 0.0 

Net assets 39.7 44.6 

Goodwill/negative goodwill 1,856.8 

Minority interests 1,607.8 

Cost (purchase price) 3,504.3 

The following significant sales of investments in subsidiaries 

should be noted: 

In February, RAG Beteiligungs-AG sold its Construction 

Chemicals activities to BASF Aktiengesellschaft, Ludwigshafen, 

for a net purchase price of €2.2 billion at a transaction value 

(including liabilities assumed) of more than €2.8 billion. The 

transaction was executed in July 2006. The effect of the disposal 

of the Construction Chemicals on the balance sheet at the time 

of deconsolidation was as follows: 

€ million 


Current assets 

1,388.7 

(excluding cash and cash equivalents) 794.7 

Cash and cash equivalents 77.2 

Non-current liabilities 236.8 

Current liabilities 360.9 

In March 2006, negotiations related to the sale of the 

Water Chemicals activities, which belonged to the Consumer 

Solutions segment, to the U.S. company Ashland Inc. were 

concluded successfully. The purchase price, including liabilities 

assumed, amounted to €120 million. The transaction was completed 

in the second quarter. 

In April 2006, the sale of the former Food Ingredients 

business to the U.S. company Cargill was completed after the 

anti-trust authorities had granted their approval. The sales 

agreement, in which a purchase price of €540 million was agreed 

upon, had been signed in September 2005. 

In June 2006, RAG Beteiligungs-AG (Technology Specialties 

segment) and Gilead Sciences, Inc., Foster City, California, USA, 

signed an agreement for the sale of Raylo Chemicals Inc., Canada. 

The gross purchase price amounted to €115 million. The business 

sold comprised the activities related to the exclusive synthesis 

of active ingredients and primary products of active ingredients 

for the pharmaceutical and bio-pharmaceutical industry. The 

transaction was completed in November 2006, and the company 

was subsequently deconsolidated. 

In addition to the disposals mentioned above, Oxxynova 

GmbH & Co. KG, Marl, RIAG Gebäudemanagement GmbH, Dortmund, 

the STEAG HamaTech Group, and the Industrial Chemicals 

business were also sold in 2006. 

The effect of the disposals of these subsidiaries on the 

balance sheet at the time of deconsolidation was as follows: 

€ million 


Current assets 

1,560.6 

(excluding cash and cash equivalents) 1,919.0 

Cash and cash equivalents 97.6 

Non-current liabilities 278.9 

Current liabilities 638.9 

PRINCIPLES OF CONSOLIDATION 

The financial statements of the German and foreign subsidiaries 

included in the consolidated financial statements have been 

prepared in accordance with uniform accounting policies. 

At the time of acquisition, equity is consolidated by offsetting 

the proportionately remeasured equity of the subsidiary 

against the investment carrying amount. The assets, liabilities, 

and contingent liabilities of the subsidiaries are therefore recognized 

at fair value. If shares are already held in a subsidiary prior 

to the transfer of control, the fair values of the assets, liabilities, 

and contingent liabilities may change depending on the timing 

of the pro-rated acquisition. Any change relating to the shares 

previously held is to be taken into account as a revaluation and 

recognized in the revaluation reserve as a special component of 

equity. The excess of the purchase price over the fair value of net 

assets acquired is reported on the balance sheet as goodwill. 

Negative goodwill is recognized immediately in income. Any

ACTIVE 

Foreword 


residual goodwill is recognized in the calculation of net disposal 

income as part of deconsolidation. 

To the extent that additional shares in an already fullyconsolidated 

company are acquired, the costs of acquiring such 

additional shares are offset against the related minority interests. 

Any remaining excess of the purchase price over the fair value of 

net assets acquired is reported on the balance sheet as goodwill. 

Since this type of transaction is not dealt with in any standard, 

the management decided to apply this accounting method after 

considering all circumstances. 

All intercompany income and expenses, gains and losses, 

and receivables and payables between the subsidiaries included 

in the consolidated financial statements have been eliminated. 

Any write-downs related to intercompany transactions in the 

individual financial statements have been reversed. 

The same principles of consolidation also apply to investments 

accounted for using the equity method, in which any 

goodwill on the balance sheet is recognized in the carrying 

amount of the investment. The financial statements for all significant 

investments accounted for using the equity method have 

been prepared in accordance with uniform accounting policies. 


Notes 


CURRENCY TRANSLATION 



In the separate financial statements of the subsidiaries, business 

transactions in a foreign currency are measured at the exchange 

rate at the time of initial recognition. Any exchange rate gains 

and losses arising on the valuation of monetary assets or liabilities 

in foreign currency up to the balance sheet date are recognized 

in income in other operating income and expenses. 

The functional currency translation method is used for the 

financial statements of foreign subsidiaries. In the consolidated 

financial statements, items for all foreign subsidiaries are 

translated from local currency to euros at exchange rates on the 

balance sheet date, because these enterprises operate their 

businesses independently in local currency. The same procedure 

is used for translating adjustments to the carrying amount of 

foreign enterprises accounted for using the equity method. 

Goodwill is translated as an asset of the financially independent 

foreign subunits using the closing rate. Sales and expenses are 

translated at average exchange rates in effect during the year. 

Differences compared to the prior-year currency translation as 

well as translation differences between income statement and 

balance sheet are recognized directly in equity and reported in 

accumulated other comprehensive income/loss. 

Currency translation has been based, among other things, 

on the following exchange rates: 

Annual average rates Closing rates 

1 € equals 2006 2005 Dec. 31, 06 Dec. 31, 05 

Australian Dollar (AUD) 1.66 1.63 1.67 1.61 

Pound Sterling (GBP) 0.68 0.68 0.67 0.68 

Brazilian Real (BRL) 2.74 3.03 2.82 2.76 

Renminbi Yuan (CNY) 10.02 10.21 10.28 9.52 

US Dollar (USD) 1.26 1.24 1.32 1.17 

Japanese Yen (JPY) 146.20 137.10 156.93 138.90 

The median of the exchange rates at the end of the past 

thirteen months is used as the annual average rate. 

71

72 

ACCOUNTING POLICIES 

Management judgments 

In the process of applying the Company’s accounting policies, 

management makes various judgments that do not represent 

estimates during the determination of the value of assets and 

liabilities. Judgments made by management may significantly 

affect the amounts recognized in the consolidated financial 

statements. 

The Management Board of RAG Beteiligungs-AG has made 

the following judgments that could significantly impact the 

financial position and financial performance of the RAG Beteiligungs-Group: 

(a) Property, plant and equipment and investment properties are 

measured at amortized cost: 

After recognition as an asset, the aforementioned assets are 

recognized at cost less any accumulated depreciation and any 

accumulated impairment losses. However, the option exists 

of carrying items of property, plant, and equipment at a revalued 

amount equal to their fair value on the date of the revaluation 

less any subsequent accumulated depreciation and subsequent 

impairment losses. Investment properties may also be carried 

at their fair value. 

If, for instance, RAG Beteiligungs-AG were to recognize its 

investment properties at fair value instead of at amortized cost, 

the total would be €1,234.3 million higher (2005: €684.5 million). 

(b) Capitalization of borrowing costs: 

Companies are given the option of capitalizing borrowing costs 

that are directly attributable to the acquisition, construction or 

production of a qualifying asset as part of the cost of that asset 

instead of recognizing them as an expense. 

RAG Beteiligungs-AG capitalized borrowing costs of €24.1 

million in fiscal 2006 (2005: €13.1 million). 

(c) Recognition of actuarial gains and losses for defined benefit 

pension plans: 

RAG Beteiligungs-AG reports actuarial gains and losses only if the 

balance of accumulated actuarial gains and losses not yet recognized 

in income exceeds the higher of the following amounts at 

the end of the prior reporting period: 10 percent of the present 

value of the defined benefit obligation or 10 percent of the fair 

value of the plan assets. Any amount exceeding the 10 percent 

threshold must be recognized in income over the expected 

average remaining working lives of the employees covered by the 

plan starting in the following year. 

If RAG Beteiligungs-AG were to include all actuarial gains 

and losses in income immediately, pension provisions would 

increase by €824.2 million (2005: €1,080.5 million). 

Assumptions and estimation uncertainty 

The preparation of the consolidated financial statements involves 

assumptions and estimates concerning the future. The actual circumstances 

in practice will of course rarely match the estimates 

that have been made. Adjustments to estimates are immediately 

recognized in income as soon as better information is available. 

Those estimates and assumptions that could involve a material 

risk in the form of an adjustment to the carrying amounts for 

assets and liabilities within the next fiscal year are shown below, 

in the Notes to the Income Statement and in the Notes to the 

Balance Sheet. 

(a) Value of goodwill 

A review of the value of intangible assets, particularly goodwill, 

requires making assumptions and estimates of future cash flows, 

annual growth rates, exchange rates, and discount rates. The 

related assumptions may be subject to changes which may lead 

to impairments in future periods. 

An increase in the corresponding discount rates due to 

changes in the capital markets by 10 percent does not require any 

further impairment. 

(b) Value of deferred tax assets 

Deferred tax assets may only be recognized to the extent it is 

probable that sufficient taxable profit will be available in the 

future. Deferred taxes are computed using the tax rates specified 

under current legislation that will be applicable to the period in 

which the temporary differences are likely to be reversed. If these 

expectations are not met, the carrying amount of the deferred 

tax assets must be reduced by recognizing an impairment charge 

in income.

ACTIVE 

Foreword 


(c) Measurement of provisions for pensions and similar obligations 

The measurement of provisions for pensions and similar obligations 

is based, among other things, on assumptions related to 

discount rates, long-term expected return on plan assets, future 

salary and pension increases, health care cost trend as well as 

mortality tables. These assumptions may deviate from actual 

data due to a change in economic conditions or a change in the 

market situation. 

A reduction of the discount rate used by one percentage 

point results in an increase of the present value of the defined 

benefit obligation by €1,331.0 million. Conversely, an increase 

in the discount rate by one percentage point results in a decline 

of the defined benefit obligation by €1,046.8 million. 

An increase in health care cost trends by one percentage 

point leads to an increase of the accumulated health care benefit 

obligation by €10.0 million and of the pension expenses by €1.0 

million. Conversely, a reduction of the cost trend by one percentage 

point leads to a reduction of the accumulated health care 

benefit obligation by €9.0 million and of the pension expenses by 

€1.0 million. 

(d) Measurement of other provisions 

Other provisions, in particular provisions for recultivation and 

environmental protection, litigation risks as well as restructuring 

are by nature subject to a high degree of estimation uncertainty 

in respect to the amount and timing of the obligations. The Company 

must in some cases make assumptions based on historical 

data with regard to the probability of occurrence of the obligation 

or future developments, such as the costs to be recognized 

for measuring an obligation. These assumptions may be subject 

to estimation uncertainty, especially in the case of non-current 

provisions. Furthermore, the amount of non-current provisions is 

particularly dependent on the market discount rate selected and 

its development. 

(e) Discounting of non-current receivables and liabilities 

The measurement of non-current receivables and liabilities 

bearing no interest or without market-based interest as well as 

of non-current other provisions is largely dependent on the 

discount rate selected and its development. In the RAG Beteiligungs-Group, 

interest rates staggered on the basis of currencies 

and remaining term to maturity are used. They correspond to the 

interest rates for industrial companies with top-notch credit 


Notes 




ratings. Non-current receivables and liabilities with a remaining 

term to maturity of more than 15 years are discounted at a 

uniform blended interest rate. The discount rates used within the 

RAG Beteiligungs-Group are as follows: 

Interest rate in % 

Years Euro USD GBP JPY 

1 4.07 5.34 5.54 0.74 

2 4.12 5.15 5.49 0.92 

3 4.12 5.08 5.47 1.09 

4 4.12 5.07 5.41 1.23 

5 4.12 5.09 5.36 1.36 

6 4.12 5.06 5.31 1.47 

7 4.14 5.08 5.25 1.57 

8 4.15 5.14 5.19 1.66 

9 4.17 5.11 5.14 1.73 

10 4.19 5.17 5.09 1.81 

11 4.20 5.19 5.05 1.87 

12 4.21 5.21 5.00 1.93 

13 4.23 5.23 4.96 1.98 

14 4.24 5.24 4.91 2.04 

15 4.26 5.26 4.87 2.09 

> 15 4.70 

Changes in interest rates may have material consequences on 

the level of the carrying amount of non-current receivables and 

liabilities. 

Revenue recognition 

Revenues received for the sales of goods and services in the 

ordinary course of business and other revenues are recognized as 

described below: 

(a) Sales revenue 

The Technology Specialties, Consumer Solutions and Specialty 

Materials segments generate their revenues mainly from the 

sale of specialty chemicals products to industrial customers for 

further processing. 

The Energy segment generates revenues mainly from 

planning, building and operating power plants as well as decentralized 

energy supply plants in Germany and foreign countries. If 

the customer retains substantially all risks and rewards incidental 

to ownership of the plants, the Company recognizes revenues 

from finance leases. In addition, commissions are generated 

73

74 

within the scope of worldwide coal trading with customers in 

the power generation industry, the iron and steel industry, and 

the heating market . 

The Real Estate segment comprises revenues generated 

from income from leasing and managing apartments, new 

construction of single and multi-family homes for third parties, 

and the sales of housing stock. 

The following revenue recognition procedure applies to all 

segments: 

The amount of sales revenue is agreed in writing between 

the parties involved. Sales revenues are measured at the fair 

value of the consideration received or the receivable, taking into 

account the amount of value-added tax, any trade discounts, and 

volume rebates. The general prerequisite for the recognition of 

revenue is that the amount of revenue and the amount of the 

related costs can be reliably determined. In addition, the inflow of 

economic benefits should be classified as reasonably probable. 

Revenue from the revenue of goods is recognized, subject to 

the general prerequisites, when a company has delivered products 

to a customer and the risks and rewards from the sales have 

been transferred to the customer. General risks in a sales transaction 

are accounted for with appropriate provisions on the basis 

of previous experience. 

Revenue from transactions involving the rendering of 

services is recognized, subject to the general prerequisites, when 

the stage of completion of the transaction can be reliably determined. 

Generally, such revenue is recognized in the fiscal year in 

which the service is provided. Where the performance of services 

covers more than one period, the revenue recognized is based 

on the proportion of the overall contracted service already performed. 

In a customer-specific construction contract whose 

completion date extends beyond the balance sheet date, revenue 

and expenses are recognized in accordance with the percentage 

of completion. The percentage of completion is calculated using 

the ratio of costs incurred up to the balance sheet date compared 

to the estimated overall contract costs. 

(b) Other revenues 

The requirement for the recognition of other revenues is that 

the amount of the revenues can be reliably determined and that 

the inflow of economic benefits can be classified as reasonably 

probable. 

Interest income is recognized pro rata temporis using the 

effective interest method. Revenues from royalties are deferred in 

accordance with the relevant agreements and are recognized pro 

rata temporis. Dividend income is recognized as soon as the right 

to receive the payment arises. 

Intangible assets 

Intangible assets acquired for a consideration are capitalized at 

cost. Intangible assets with finite useful lives are amortized. 

Intangible assets with indefinite useful lives are not amortized, 

but tested for impairment annually. The assessment with regard 

to the indefinite useful life also must be reviewed annually. 

(a) Goodwill 

Goodwill is subject to an annual impairment test and measured 

on the basis of historical cost less accumulated impairment 

losses. For the impairment test, goodwill is allocated to cash generating 

units (CGUs). CGUs are only aggregated to the extent they 

represent a single segment. Sometimes, business areas are 

defined as CGUs. In this case, the impairment test is performed 

on the basis of the business areas concerned. Subsequently, 

assets and overheads allocable to the superordinate holding 

structure are taken into account in the impairment test on the 

relevant segment level. 

(b) Patents, Licenses and Trademarks 

Patents, licenses and trademarks are measured at amortized cost. 

They are amortized over the estimated useful economic life of 

5 to 25 years on a straight-line basis. The useful economic life of 

some of the rights cannot be determined accurately because they 

are related to brands that may be exploited without restriction. 

The useful lives are reviewed annually to determine whether they 

may continue to be classified as indefinite. If the assessment of 

useful life has changed, with the useful life now considered as 

being definite, the carrying amount of the brand is amortized 

over the expected remaining useful life on a straight-line basis. 

Brands with an indefinite useful life are subjected to an annual 

impairment test. 

(c) Capitalized development costs 

Development costs are capitalized if they can be clearly assigned 

to a newly developed product or process that is technically

ACTIVE 

Foreword 


realizable and is intended for marketing or the enterprise’s own 

benefit. Capitalized development costs mainly relate to the development 

of new products and are amortized on a straight-line 

basis over their estimated economic useful life of 3 to 15 years. 

(d) Other intangible assets 

Other intangible assets mainly relate to acquired customer 

relationships. They are amortized over their expected useful life. 

The expected useful life was estimated based on general contractual 

provisions and previous experience, and mainly ranges 

between 2 and 11 years. In addition to the useful life, the amount 

of amortization takes into account the probability of continuing 

existence of the customer relationship in the form of a “churn 

rate.” 

Property, plant, and equipment 

Property, plant, and equipment is measured at historical cost of 

purchase or cost of conversion less depreciation and impairment 

losses. Cost of purchase includes expenditure directly attributable 

to the acquisition. Costs of conversion include direct costs as 

well as allocable material and production overheads, including 

depreciation. Costs resulting from decommissioning after the use 

of an item of property, plant, and equipment are included in the 

cost as of the date of purchase or conversion. In addition, the cost 

may also contain the transfer of gains or losses from cash flow 

hedges recorded in equity that were entered into in connection 

with the purchase of property, plant and equipment in foreign 

currencies as well as the costs of borrowing. 

Depreciation charges are recognized on a straight-line basis 

over the expected useful life of the asset: 

Useful eco- 

Years nomic life 

Buildings 5 – 50 

Plant and equipment 

chemical plants 5 – 25 

power plants and components thereof 12 – 50 

decentralized power supply 8 – 15 

other plant and equipment 3 – 25 

Furniture and office equipment 3 – 25 


Notes 




Expenses for general overhauling and major inspections 

(major repairs) are capitalized if it is probable that future benefits 

will flow from the existing asset. These expenses are depreciated 

over the period until the next major repair. Ongoing repairs and 

other maintenance are recognized in the period in which they are 

carried out. 

Expenses in connection with pre-planning and basic 

planning of investment projects are capitalized and depreciated 

over the useful life of the relevant investment project. 

If material portions of an item of property, plant, and 

equipment have different useful lives, these parts are accounted 

for and depreciated separately. 

Gains and losses from disposals are calculated as the 

difference between the net disposal proceeds and the carrying 

amount of the asset and are then recognized immediately in 

income (under other operating income and expenses). 

Investment properties 

Investment properties are real estate held as a financial 

investment to generate rental income or for purposes of capital 

appreciation. They are measured at amortized cost and are 

amortized on a straight-line basis over the useful life of the asset 

from 25 to 80 years. The fair value of investment properties is 

determined by internal professionals. In previous years, this was 

essentially performed on the basis of relevant property benchmarks 

or the gross rental method in accordance with the German 

Valuation Regulation (WertV) based on the future rental income 

that can be generated and sustained and market interest rates. In 

certain cases, the benchmark method was used instead where 

this can be justified. 

As of December 31, 2006, the investment properties 

allocated to the Residential Real Estate segment were valued for 

the first-time in accordance with the discounted cash flow (DCF) 

procedure by internal professionals. 

The DCF model maps future cash flows that determine 

the property value and represent an income-based property 

valuation, as is common for residential properties used for rental 

purposes. 

75

76 

Inventories 

Inventories are stated at the lower of cost or net realizable value. 

The cost of inventories of similar quality or intended for similar 

use is determined on a standardized basis using the first-in-firstout-method 

or the weighted-average-cost method. The costs of 

finished goods or work in progress include the costs of raw materials 

and supplies, direct personnel costs, other direct costs and 

overheads allocable to production (based on normal operating 

capacity). Inventory costs may also include gains or losses from 

qualifying cash flow hedges reclassified from equity in cases 

where the hedges were entered into for the purchase of raw 

materials as well as the costs of borrowing. 

Emission rights acquired for a consideration are stated at 

the lower of cost or net realizable value. Emission rights allocated 

at no charge are recognized at a memo value. Provisions for the 

obligation to grant emission rights are measured at the capitalized 

amount of any emission rights existing. If the obligation exceeds 

the amount of the capitalized rights, the surplus amount is 

measured at the average price for the three months immediately 

preceding the reporting date. 

If the reason for an impairment ceases to exist, the previously 

recognized impairment loss is reversed (written up), up to 

no more than historical cost. 

Provisions for pensions and similar obligations 

The measurement of provisions for pensions and similar obligations 

is carried out using the projected unit credit method for 

defined benefit obligations as specified in IAS 19. This method 

takes into account both the pensions and vested entitlements 

known to exist at the balance sheet date and also any future 

expected increases in salaries and pensions. The provisions are 

calculated using actuarial methods. The German companies carry 

out the calculation using the biometric base values in the 2005 G 

Klaus Heubeck mortality tables. Pension commitments outside of 

Germany are calculated according to country-specific accounting 

principles and parameters. The provisions are reduced by the fair 

value of the plan assets. Actuarial gains and losses result from 

the difference between the expected and actually calculated 

pension obligations as of the balance sheet date as well as from 

deviations of the expected from the actual fair value of plan 

assets, as determined at year-end. Actuarial gains and losses are 

recorded only if the balance of accumulated actuarial gains 

and losses not yet recognized in income exceeds the higher of the 

following amounts at the end of the prior reporting period: 

10 percent of the present value of the defined benefit 

obligation 

10 percent of the fair value of the plan assets. 

Any amount exceeding the 10 percent threshold must be 

amortized in income over the expected average remaining 

working lives of the employees covered by the plan starting in 

the following year. 

At year-end, the balance of the pension obligations is 

compared with plan assets using the fair value (funding status). 

The pension provisions are calculated by taking into account the 

asset ceiling with regard to the plan assets as well as after 

deducting the unrecognized actuarial gains and losses and past 

service costs. 

Defined contributions result in an expense in the period in 

which payment is made. Obligations from defined contribution 

plans exist under occupational pension commitments as well as 

state plans (statutory pension insurance). 

Other provisions 

If legal or constructive obligations to third parties exist as a result 

of past events and are likely to lead to an outflow of funds, then 

other provisions are created. In addition, a reliable estimate of the 

amount of the obligation must be possible. If there are a number 

of obligations of this type, the probability of outflow of economic 

resources is determined by considering all these obligations 

together as a whole. Restructuring provisions are only recognized 

when there is a constructive obligation due to a detailed formal 

plan and when the restructuring plan raises a valid expectation 

on the part of those affected that the restructuring measures will 

be actually executed. 

Provisions are reported at their settlement value and also 

take into account future increases in costs. Non-current provisions 

are discounted to present value. Current provisions, and the 

short-term element of non-current provisions, are not discounted. 

The provisions are adjusted over time to account for any 

new information obtained.

ACTIVE 

Foreword 


Performance-related remuneration 

Degussa’s Long-Term Incentive Plan is a performance-based 

remuneration system providing long-term incentives for 

members of the Management Board and other executives. The 

resulting obligations are determined in accordance with IAS 19 

“Employee Benefits” and recognized in income. 

Deferred taxes, income taxes 

For tax purposes, RAG Beteiligungs-AG is deemed a controlled 

company of RAG Aktiengesellschaft and it is not deemed a taxable 

entity pursuant to German tax laws. For the purposes of the 

IFRS consolidated financial statements, RAG Beteiligungs-AG has 

accounted for income taxes for the Company as if the Company 

were an independent operation and no fiscal entity agreement 

had been concluded with another company not included in the 

group of consolidated companies. This is in line with a substanceover-form 

method (stand-alone approach). The tax assets and tax 

liabilities recognized on the basis of the stand-alone approach 

are settled within the scope of the tax allocation procedure with 

the fiscal entity parent. Tax expenses and tax income resulting 

from the stand-alone approach not covered by the allocation 

procedure are recognized directly in equity. In addition, the RAG 

Beteiligungs-Group will apply the following procedure: 

Deferred taxes are created in accordance with IAS 12 to cover 

temporary differences between tax accounts and IFRS financial 

statements relating to the carrying amounts and measurement 

of assets and liabilities. Tax losses carried forward that can 

probably be used in the future are capitalized in the amount of 

the deferred tax asset. Deferred tax assets are always recognized 

on the basis that there is likely to be future taxable income 

against which the temporary differences can be reversed. To the 

extent that the realization of deferred tax assets is unlikely, their 

carrying amounts are subject to a valuation allowance. 

Deferred tax assets and liabilities are netted off, providing 

the company is entitled to set off actual tax liabilities and assets, 

and providing the deferred tax assets and liabilities relate to the 

same tax authority. 


Notes 




Actual income taxes for the current and earlier periods are 

measured at the amount of the expected payment to, or refund 

from, the tax authorities. 

Deferred taxes are computed using the tax rates specified 

under current legislation that are, or will be applicable, to the 

period in which the temporary differences are likely to be 

reversed. Deferred taxes for German companies continue to be 

computed using an overall tax rate of 39 percent. This includes 

German corporation tax at 25 percent, the solidarity surcharge of 

5.5 percent on corporation tax, and trade tax of 13 percent. For 

foreign companies, the respective national tax rates apply. These 

range from 19 percent in Slovakia and Poland to 35 percent in the 

USA. 

Actual taxes are measured using the company-related tax 

rates applicable on the balance sheet date. 

Financial instruments 

Contractual rights and obligations are accounted for as financial 

instruments which result in an inflow or outflow of financial 

assets or the issue of equity instruments. They are distinguished 

in non-derivative and derivative financial instruments. 

Financial instruments are measured upon initial recognition 

at cost, and subsequently at either amortized cost or fair value. 

The cost corresponds to the fair value of the consideration given 

or received, including transaction costs which can be directly 

attributed. They are calculated by discounting expected cash 

flows with the effective interest rate to the date of purchase 

(present value). The effective interest rate takes into account all 

allocable interest-type fees. Within the scope of subsequent 

measurement, the cost is measured with the effective interest 

rate. The basis for the fair value is the quoted or market price if 

the financial instrument is traded in a reasonably active market. 

If such a price is not available, prices of timely transactions are 

used. In all other cases, established measurement methods are 

used, such as comparisons with the market values of similar 

financial instruments, discounted cash flow analyses and option 

pricing models. 

(a) Non-derivative financial instruments 

In the RAG Beteiligungs-Group, non-derivative financial instruments 

that are reported as financial assets are classified either as 

“loans and receivables” or “available for sale.” These assets are initially 

recognized as of the settlement date. Financial assets are 

derecognized when the contractual rights to the cash flows have 

77

78 

lapsed or have been transferred and the Group has transferred 

substantially all risks and rewards incidental to ownership. The 

Group had no financial assets that were sold through securitization 

or repurchase agreements and that were still reported in the 

financial statements in whole or in part (continuing involvement). 

Non-derivative financial instruments which are reported 

as financial liabilities are classified as “at fair value through profit 

or loss” or “liabilities at amortized cost”. Financial liabilities are 

derecognized upon repayment, i.e. when the obligation has been 

settled or cancelled or has expired. 

In the following sections, the categories used within the 

Group are described: 

The category “loans and receivables” includes trade 

receivables, receivables from finance leases, and loans. Assets in 

this category are measured at amortized cost using the effective 

interest method. Non-current assets in this category bearing nonmarket 

interest rates are recognized at present value. Impairment 

losses are recognized if objective evidence based on historical 

data indicates that the settlement amounts due will not be fully 

recoverable on the normal terms. The amount of the impairment 

loss is measured as the difference between the carrying amount 

for the asset and the present value of estimated future receipts 

calculated using the effective interest rate. Impairment losses are 

taken to income. If the reason for an impairment loss ceases to 

exist, the related write-ups (i.e. reversals of impairment losses) 

are recognized in income, up to amortized cost. 

The category “available for sale” includes equity holdings 

that are not consolidated or accounted for using the equity 

method and other securities. Such available-for-sale assets are 

generally measured at fair value, including transaction costs 

directly attributable to the purchase of this financial asset. Assets 

for which a fair value does not exist or cannot be determined, e.g. 

in the case of unlisted equity securities, are reported at amortized 

cost. Changes in the fair value are recognized directly in equity 

(in accumulated other comprehensive income/loss), taking into 

account deferred taxes. A review is carried out as of each balance 

sheet date to assess whether objective evidence indicates that 

an impairment of a financial asset has occurred. A material or 

lasting shortfall in the fair value compared to the carrying 

amount is considered an indicator of impairment. With regard to 

equities, when the fair value is 30 percent below the carrying 

amount within a period of more than 12 months, this is considered 

an indicator of impairment. If such an indicator exists, losses 

recognized in accumulated other comprehensive income/loss are 

transferred from equity to the income statement. If the reason 

for an impairment loss ceases to exist, the related write-ups are 

generally recognized directly in equity. Only for debt securities 

attributable to this category are write-ups recognized in income, 

up to the amount of the original impairment losses. Write-ups 

are not recognized for equity investments and other financial 

assets for which a fair value may not be reliably determined. 

In the RAG Beteiligungs-Group, the category “at fair value 

through profit or loss” comprises only the portion of the Degussa 

bond hedged through a fair value hedge. Financial instruments 

of this category are recognized at each balance sheet date at fair 

value. Any gains or losses from changes in the fair value of such 

instruments must be recognized in income. The Group did not 

make use of the option to voluntarily classify financial instruments 

in this category (fair value option). 

The category “liabilities at amortized cost” includes trade 

receivables, bonds, loans, and receivables from finance leases, 

with the exception of the Degussa bond, part of which is categorized 

as “at fair value through profit or loss.” The liabilities are 

measured at amortized cost using the effective interest method. 

Liabilities without market-based interest rates are recognized at 

present value. 

(b) Derivative financial instruments 

Derivative financial instruments are primarily used to hedge risks 

related to foreign currencies, commodity prices, and interest 

rates. For this purpose, hedging instruments in the form of interest 

rate swaps, cross-currency swaps, options, currency forwards, 

and commodity futures are accounted for as derivative financial 

instruments. Upon initial recognition, such financial instruments 

are recognized at fair value as an asset or a liability. The initial 

recognition is performed as of the settlement date. Transaction 

costs, if any, are directly recognized in income. The fair value of 

derivatives generally is equivalent to the quoted or market price. 

If there is no active market, the fair value is determined on the 

basis of accepted calculation methods. The fair value of currency 

forward contracts is based on the forward price at the balance

ACTIVE 

Foreword 


sheet date. The market price of options is calculated using 

recognized option pricing models. Commodity derivatives are 

measured on the basis of spot prices and forward rates, and 

interest rate derivatives are measured by discounting future cash 

flows. Stand-alone derivative financial instruments are categorized 

as “at fair value through profit or loss.” 

Hedge Accounting is subject to certain criteria. In particular, 

hedge accounting requires detailed documentation of the hedge 

relationship and evidence of expected and the actual hedge 

effectiveness of between 80 percent and 125 percent. Hedge 

accounting must be discontinued when the criteria are no longer 

met. For cash flow hedges, hedge accounting must be discontinued 

if the occurrence of the forecast transaction is no longer 

probable. In this case, the amount recognized directly in equity 

in accumulated other comprehensive income/loss must be 

transferred to the income statement. 

Depending on the type of the hedging relationship, hedging 

instruments are measured as follows: 

The purpose of fair value hedges is to hedge the fair values 

of recognized assets and liabilities. Changes in the fair value 

of hedging instruments are recognized in the same income 

statement item as changes in the fair value of the hedged item, 

irrespective of the original accounting treatment related to the 

hedged item. These changes must relate to the hedged risk. If 

off-balance sheet, firm commitments are hedged, changes in the 

fair value of the firm commitment with respect to the hedged 

risk result in the recording of an asset or a liability with a corresponding 

amount recognized in income. Due to the procedure 

applied, the changes in the fair value of the hedged item and the 

hedging instrument offset each other in the income statement 

of the period in the case of an effective hedge. 

The purpose of cash flow hedges is to hedge the risk of 

volatility in the future cash flows of a recognized asset or liability 

or of a highly probable forecast transaction. Changes in the fair 

value of hedging instruments are taken directly to accumulated 

other comprehensive income/loss in relation to their effective 

portion. The ineffective portion of fair value changes is recognized 

in the income statement. Any amounts recognized in accumulated 

other comprehensive income/loss are taken to income as 


Notes 




soon as the underlying transaction also has an impact on income. 

These amounts are included in net interest income for interest 

rate hedges, in the related sales item for hedges of sales, and in 

cost of materials for purchase transactions. If the hedged future 

transaction is linked to a non-financial asset or liability, any gains 

or losses previously recognized in accumulated other comprehensive 

income/loss are included in the initial measurement of asset 

or liability cost. 

The purpose of hedges of a net investment is to hedge the 

foreign currency risk associated with equity investments with a 

foreign functional currency. Such hedges are treated as cash flow 

hedges. Gains or losses accounted for in accumulated other 

comprehensive income/loss are recognized in income on the 

sales of the foreign subsidiary. 

Derivative financial instruments included in other contracts 

or non-derivative financial instruments (embedded derivatives) 

are separated from the host contract, provided certain requirements 

are met, and accounted for as stand-alone derivatives. 

Impairment test 

An impairment test in accordance with IAS 36 “Impairment of 

Assets” is performed for non-current assets if there are indications 

that impairment has occurred, with few exceptions. Goodwill 

and other intangible assets with an indefinite useful life 

should be tested for impairment at least once a year. The test 

involves a comparison to establish the higher of fair value less 

costs to sell and value in use for each asset or cash generating 

unit (CGU). The fair value less costs to sell is determined on the 

basis of a market value. The value in use is determined, as in the 

previous year, using past values over a three-year medium-term 

planning period. This medium-term planning is based both on 

experience and on expectations with regard to future market 

development. The main economic data, such as growth of the 

gross domestic product and trends in interest rates, exchange 

rates, and commodity prices as well as market prices for CO2 

certificates, etc., underlying the medium-term planning were 

determined by RAG Beteiligungs-AG centrally and derived from 

market expectations. The risk-free interest rate applicable to all 

CGUs has been assumed to be 4.25 percent (2005: 4.1 percent). 

A growth discount has been assumed for the individual CGUs. 

79

80 

These CGU-specific growth rates have been derived from experience 

and future expectations. The long-term average growth 

rates for the relevant markets in which the CGUs operate are not 

exceeded. In addition, CGUs have been allocated an appropriate 

financial markets beta factor, determined by comparison with 

data of peer group companies. The parameter used are set out in 

items (7) and (13) in the notes. 

If the reason for an impairment loss ceases to exist, the 

related write-ups are recognized in income, except if goodwill is 

involved. 

Leasing 

A lease is an agreement whereby the lessor conveys to the lessee 

in return for a payment or series of payments the right to use 

an asset for an agreed period of time. The RAG Beteiligungs- 

Group is a party to operating leases and finance leases as both 

lessor and lessee. 

A lease is classified as a finance lease if it transfers 

substantially all the risks and rewards incidental to ownership of 

an asset. If RAG Beteiligungs-AG acts as the lessee in a finance 

lease, the assets are recognized in property, plant, and equipment 

at the lower of fair value or present value of the non-cancelable 

minimum lease payments. The obligation resulting from future 

lease installments is recognized as a liability at the discounted 

settlement value. If RAG Beteiligungs-AG is the lessor, assets held 

under a finance lease are not included in property, plant, and 

equipment, but presented as a receivable at an amount equal to 

the investment in the lease. 

Operating leases are any leases not classified as finance 

leases. Expenses and income from operating leases are 

recognized in the income statement in the period in which they 

are incurred. 

Non-current assets held for sale, disposal groups and 

discontinued operations 

Non-current assets are classified as held for sale if their carrying 

amount will be recovered principally through a sales transaction 

rather than through continuing use. The asset must be available 

for immediate sale in its present condition subject only to terms 

that are usual and customary for sales of such assets and its sale 

must be highly probable. If the related liabilities will be sold as 

part of the transaction, they are separately reported as liabilities 

of the disposal group. 

Non-current assets are no longer amortized, but are measured 

at the lower of the carrying amount and fair value less costs 

to sell. The profit or loss from the measurement and the sales of 

these assets is reported in income of the continuing operation, 

unless a discontinued operation is involved. 

A discontinued operation represents either a major line of 

business or geographical area of operation of the company that is 

being disposed of in its entirety or in part pursuant to a single 

plan, or a newly acquired subsidiary classified as held for sale. 

The profit or loss from the measurement, disposal and 

continuing operation of discontinued operations is reported in 

income separately from the continuing operations. 

Contingent liabilities and other financial commitments 

Unless they must be reported as part of a company acquisition, 

contingent liabilities represent possible or present obligations 

arising from past events, and for which an outflow of resources is 

not unlikely, but that are not recognized in the financial statements. 

Other financial commitments result from unencumbered 

pending legal transactions, continuous obligations, obligations 

imposed by public law, or other economic commitments that are 

not already reported under liabilities in the financial statements 

or contingent liabilities, providing they are material to an 

assessment of financial position.

ACTIVE 

Foreword 


NOTES TO THE NON-CURRENT ASSETS HELD FOR 

SALE AND DISCONTINUED OPERATIONS 

Non-current assets held for sale and groups of assets to be 

disposed of together in a single transaction as well as directly 

associated liabilities (disposal groups) must be stated separately 

from other assets and liabilities in the balance sheet. The 

amounts presented for these assets and liabilities for prior 

periods are not to be reclassified or re-presented. 

If a disposal group meets the criteria for classification as a 

“discontinued operation,” it must be presented separately from 

the continuing operations in the income statement. The amounts 

presented for these discontinued operations for prior periods are 

to be adjusted accordingly. 

Furthermore, the cash flows of these discontinued operations 

must be reported separately. 

(1) Non-current assets held for sale and disposal 

groups 

Based on the strategic restructuring of the RAG Beteiligungs- 

Group, various activities were planned for disposal and allocated 

to the assets held for sale and disposal groups. 

In a purchase agreement dated December 16, 2006, RAG 

Coal International AG and RBV Verwaltungs-GmbH sold 100 percent 

of their shares in DBT GmbH (DBT) which represents the 

mining technology operations. In a first step, the exchange-listed 


Notes 




company Bucyrus International Inc. Milwaukee, Wisconsin (USA) 

acquired all voting shares of DBT, corresponding to 49.9 percent 

of the entire share capital. Bucyrus will acquire the non-voting 

shares of DBT, corresponding to 50.1 percent of the entire share 

capital, at a fixed price in a forward sale. In the transitional 

period, the majority package will be held by Hamburg Trust. The 

net purchase price amounts to USD 731.0 million. Of that amount, 

USD 710.0 million will be paid in cash and USD 21.0 million in 

shares of the buyer. The transaction is valued at USD 831 million, 

taking into account the liabilities acquired. The sale is subject 

to approval by the German Antitrust Office and is expected to be 

completed in the first quarter of 2007. DBT offers complete 

system solutions for underground coal mining worldwide and is 

the global market leader in bracing equipment. 

In a purchase agreement dated November 2, 2006, RAG 

Saarberg Energiebeteiligungs GmbH sold 76.9 percent of its 

shares in Saar Ferngas AG, which represents the gas distribution 

activities, to RWE Energy AG. The purchase price amounted to 

€367.0 million. The sale is subject to approval by the German 

Antitrust Offices and has not yet been completed. Approval is 

expected in the first half of 2007. Saar Ferngas, a company of 

the Energy segment, procures, transports, stores, and delivers gas 

and is the market leader in Rhineland-Palatinate and Saarland. 

Furthermore, the strategic positions of various other 

non-core activities of the Group were examined in recent months 

and it was decided to plan for their sale. 

Balance Discontinued activities 

sheet Mining Gas 

Tech- Distrinology 

bution Other 

€ million Dec. 31, 06 

Intangible assets 48.2 3.5 44.7 – 

Property, plant and equipment 177.2 105.2 67.5 4.5 

Financial assets 232.5 11.2 221.2 0.1 

Current tax assets/deferred tax assets 45.2 26.3 8.3 10.6 

Inventories 446.9 418.8 25.0 3.1 

Trade receivables 311.3 132.5 164.4 14.4 

Other receivables 30.2 17.2 12.4 0.6 

Cash and cash equivalents 23.1 18.8 0.1 4.2 

Non-current assets held for sale and disposal groups 1,314.6 733.5 543.6 37.5 

81

82 


sheet Mining Gas 

Tech- Distrinology 

bution Other 


Total income/expense recognized in equity – 4.5 – 0.8 – 1.5 – 2.2 

Provisions 303.3 190.9 111.1 1.3 

Current tax liabilities/deferred tax liabilities 17.0 10.0 5.8 1.2 

Trade payables 190.1 58.1 123.7 8.3 

Other payables 347.3 324.7 22.2 0.4 

Liabilities of disposal groups 857.7 583.7 262.8 11.2 

Furthermore, the activities classified in the previous year as 

held for sale have now also been sold and are no longer reported 

as non-current assets held for sale or disposal groups. 

The Food Ingredients activities were sold by Degussa to 

Cargill, Minneapolis, MN (USA), in September 2005 subject to 

approval by the European anti-trust authorities, which was 

granted on March 29, 2006. The closing was on April 5, 2006. The 

purchase price was €540 million. 

Degussa signed a purchase agreement on March 30, 2006 

with Ashland Inc., Covington, KY (USA) for the Water Chemicals 

activities. Including the net financial liabilities to be assumed, 

the purchase price comes to €120 million. The transaction was 

completed in the second quarter of 2006. 

Electronics Systems primarily includes activities of the 

STEAG HamaTech Group, which was sold on January 27, 2006. 

In addition, parts of the Mining Technology operations were 

already sold in the first quarter of 2006. 


sheet Mining 

Electronic Tech- 

Chemicals Systems nology Other 


Intangible assets 198.4 194.0 4.3 0.1 – 

Property, plant and equipment 212.6 186.0 23.6 3.0 – 

Investment properties 0.0 – – – 0.0 

Financial assets 8.5 7.2 – 0.1 1.2 

Current tax assets/deferred tax assets 6.4 1.8 4.3 0.3 – 

Inventories 235.3 179.4 49.4 6.5 – 

Trade receivables 135.4 114.4 17.6 3.4 – 

Other receivables 44.8 41.2 3.3 0.3 – 

Cash and cash equivalents 56.7 36.6 0.5 19.6 – 

Non-current assets held for sale and disposal groups 898.1 760.6 103.0 33.3 1.2

ACTIVE 

Foreword 



Notes 


(2) Discontinued operations 




sheet Mining 

Electronic Tech- 

Chemicals Systems nology Other 


Total income/expense recognized in equity – 6.6 – 6.9 0.3 – – 

Provisions 82.7 65.7 7.8 9.2 – 

Current tax liabilities/deferred tax liabilities 50.6 47.4 0.6 2.6 – 

Financial liabilities 29.7 24.2 5.5 – – 

Trade payables 56.0 46.5 9.1 0.4 – 

Other payables 33.1 24.4 4.7 4.0 – 

Liabilities of disposal groups 252.1 208.2 27.7 16.2 0.0 

Impairment losses of €50.7 million (2005: zero) were 

recognized for non-current assets held for sale and disposal 

groups, €22.0 million of which was reported as depreciation and 

amortization and impairment losses and €28.7 million as other 

operating expenses. 

Construction Chemicals, Gas Distribution, Mining Technology, and 

Food Ingredients meet the criteria for classification as “discontinued 

operations,” whereby Food Ingredients was discontinued in 

2005. The profit/loss after tax expense from discontinued operations 

recognized in the income statement contains the current 

income from the actual operating activities of the operations as 

well as the proceeds from the disposal (including gains and losses 

from remeasurement) of these operations. 

The current profit/loss after tax is broken down among the 

discontinued operations as follows: 

Income statement 


Income 3,595.0 4,523.8 

thereof Construction Chemicals 1,110.0 2,045.2 

thereof Gas Distribution 1,422.1 1,174.3 

thereof Mining Technology 943.4 830.9 

thereof Food Ingredients 119.5 473.4 

Expenses 3,328.9 4,262.6 

thereof Construction Chemicals 985.3 1,884.6 

thereof Gas Distribution 1,365.0 1,140.5 


thereof Food Ingredients 

Profit/loss from discontinued 

107.2 458.8 

operations (before taxes) + 266.1 + 261.2 

Income tax expense 66.0 49.7 

thereof Construction Chemicals 48.9 – 9.2 

thereof Gas Distribution – 3.8 7.8 



Profit from discontinued operations 

3.9 33.2 

(after taxes) + 200.1 + 211.5 

83

84 

The proceeds from disposal after tax are broken down 

among the discontinued operations as follows: 

Income statement 


Income from the disposal of 

discontinued operations (before taxes) + 1,183.4 + 0.0 

thereof Construction Chemicals + 1,169.5 

thereof Gas Distribution 

thereof Mining Technology 

thereof Food Ingredients + 13.9 

Income tax expense 274.6 – 0.0 

thereof Construction Chemicals 295.2 

thereof Gas Distribution 

thereof Mining Technology 


Income from the disposal of 

– 20.6 

discontinued operations (after taxes) + 908.8 + 0.0 

The cash flows from operating activities, investing activities, 

and financing activities are broken down as follows among the 

discontinued operations: 

Cash flow statement 


Cash flow from operating activities + 50.8 + 267.6 

thereof Construction Chemicals – 30.0 + 120.0 

thereof Gas Distribution + 37.9 + 42.7 

thereof Mining Technology + 44.9 + 76.9 

thereof Food Ingredients – 2.0 + 28.0 

Cash flow from investing activities – 50.1 – 85.2 

thereof Construction Chemicals – 15.0 – 44.0 

thereof Gas Distribution – 11.5 – 14.0 

thereof Mining Technology – 23.6 – 13.2 

thereof Food Ingredients – – 14.0 

Cash flow from financing activities – 76.3 – 124.0 

thereof Construction Chemicals – 7.0 – 65.0 

thereof Gas Distribution – 31.3 – 25.8 

thereof Mining Technology – 38.0 – 35.2 


Change in cash and cash equivalents 

– + 2.0 

(discontinued operations) – 75.6 + 58.4 

NOTES TO THE INCOME STATEMENT 

(3) Sales 


Revenues from sales of goods 13,720.0 12,986.7 

Revenues from services 538.9 658.2 

Revenues from construction contracts 

Revenues from rental income 

23.9 15.5 

(investment properties) 318.4 319.6 

Revenues from finance leases 192.2 201.1 

14,793.4 14,181.1 

(4) Other operating income 


Income from the disposal of assets 

Income from the reversal of 

200.1 410.9 

provisions 342.0 278.0 

Income from the reversal of deferrals 

Income from the measurement 

of derivatives 

7.3 34.4 

(excluding interest rate derivates) 

Gains on currency translation of 

90.1 4.0 

monetary assets and liabilities 

Income resulting from the elimination 

120.5 205.5 

of negative goodwill 20.0 2.3 

Other income 312.8 308.2 

1,092.8 1,243.3 

Income from the disposal of assets mainly comprises €75.9 million 

(2005: €158.6 million) from the sale of property, plant, and 

equipment, and €110.9 million (2005: €251.3 million) from the sale 

of investments.

ACTIVE 

Foreword 


Furthermore, other income includes reversals of impairment 

losses on assets of €32.2 million (2005: €27.7 million. Pursuant to 

IAS 36 “Impairment of Assets,” €19.8 million (2005: €15.4 million) 

is distributed to the following segments/ cash generating units 

(CGUs): 

Reversal of impairment losses 


Technology Specialties – 2.1 

Consumer Solutions – 0.4 

Specialty Materials 0.0 0.5 

Energy 

Decentralized Energy Supply – 3.1 

Real Estate 

Residential Real Estate 

Land Development and 

19.7 8.6 

Commercial Real Estate 

Other 

0.1 0.3 

Other CGUs – 0.4 

19.8 15.4 


Notes 


(5) Raw materials and consumables used 

(6) Personnel expense 




Cost of raw materials and supplies 

and purchased goods 6,826.8 6,651.7 

Cost of services used 

Impairment losses on raw materials 

898.1 707.4 

and supplies and purchased goods 

Reversals of impairment losses on 

raw materials and supplies and 

16.6 3.8 

purchased goods – 0.7 – 2.6 

7,740.8 7,360.3 


Wages and salaries 2,484.6 2,421.7 

Social security contributions 376.4 403.2 

Pension expenses 186.4 134.4 

Other 31.6 25.6 

3,079.0 2,984.9 

The interest expense on the accrual of interest on pension 

provisions as well as the expected income from the plan assets 

are reported in the interest result, see item (9) in the Notes. 

(7) Depreciation, amortization, and impairment losses 

This item includes depreciation and amortization over the useful 

life of assets as well as impairment losses recognized as a result 

of impairment tests as set out in IAS 36 or IAS 39. 

Total thereof depreciation thereof impairment 

and amortization losses 


Intangible assets 419.6 308.4 227.3 249.7 192.3 58.7 

Property, plant and equipment 971.2 872.2 696.3 679.3 274.9 192.9 

Investment properties 69.8 55.2 50.1 50.6 19.7 4.6 

Financial assets, other receivables 47.8 72.0 – – 47.8 72.0 

1,508.4 1,307.8 973.7 979.6 534.7 328.2 

85

86 

(a) Impairment pursuant to IAS 36 

Impairment losses resulting from impairment tests pursuant to 

IAS 36 relate to the following cash generating units (CGUs): 

Impairment losses 

Risk-adjusted 

discount rate in % 


Technology Specialties 325.7 197.4 8.21 5.80 – 6.20 1) 

Consumer Solutions 58.9 0.0 8.85 – 

Specialty Materials 18.1 6.2 9.14 5.6 1) 

Energy 

Power 11.3 2.1 8.92 8.51 

Decentralized Energy Supply – 0.1 – 7.40 

Coal Trading – 2.5 10.69 13.69 

Real Estate 

Other 

Residential Real Estate 13.9 4.4 5.92 6.31 

Land Development and Commercial Real Estate 5.8 0.1 6.00 – 7.50 7.08 

Electronic Systems – 9.3 – – 

Tar Refining 3.0 3.0 9.93 9.73 

Construction Plastics – 0.5 – 5.60 – 6.00 1) 

Corporate/Services 46.8 29.4 4.00 – 6.20 1) 6.20 – 9.02 1) 

Other CGUs 3.4 1.2 – 11.09 

For the CGUs listed above, the recoverable amount was 

determined on the basis of value in use. 

Within the Technology Specialties, Consumer Solutions and 

Specialty Materials CGUs, impairment losses were recognized 

primarily for intangible assets, land and buildings, and plant and 

equipment that had been reported at a lower market value on 

the respective date of acquisition. 

Within the Power Generation CGU, the district heating 

plants were fully impaired. 

The impairment losses reported for the Real Estate CGU 

were for the most part incurred for land and buildings. These 

impairment losses are in connection with the introduction of 

a new discounted cash flow-based valuation method and the 

associated retailoring of the portfolio areas with the consequence 

of impairment losses and reversals of impairment losses, 

which largely offset one another in result. 

The impairment losses of the Corporate/Services CGU 

relate mainly to other investments. 

486.9 256.2 

1) Weighted Average Cost of Capital (WACC) after taxes. All other discount rates refer to WACC before taxes.

(b) Impairment pursuant to IAS 39 

Impairment losses on financial assets and other receivables, 

which are basically calculated pursuant to IAS 39, were attributable 

mainly to receivables at €28.4 million (2005: €29.5 million) 

and loans and other investments at €19.4 million (2005: €39.2 

million). 

(8) Other operating expenses 

ACTIVE 

Foreword 



Losses on the disposal of assets 41.4 179.9 

Rental expense on leases 76.2 89.8 

Repairs and maintenance expenses 

Losses on currency translation 

341.5 293.8 

of monetary assets and liabilities 

Losses on the measurement 

of derivatives (excluding interest rate 

158.9 121.5 

derivatives) 37.1 69.8 

Administrative expenses 408.2 426.6 

Selling expenses 569.1 529.7 

Miscellaneous tax expense 103.8 44.9 

Other expenses 1,350.4 1,493.5 

3,086.6 3,249.5 

Other operating expenses contain directly allocable operating 

expenses of €264.2 million (2005: €248.3 million) on investment 

properties that generate rental income. Expenses of €10.9 million 

(2005: €11.0 million) were incurred on investment properties that 

do not generate rental income. 

At €0.5 million (2005: €0.2 million), the ineffective portion of 

foreign exchange derivatives from cash flow hedges is reported 

in expenses from the measurement of derivatives. 


Notes 


(9) Interest result 




Income on securities and loans 

Interest and similar income from 

56.5 12.4 

interest-rate derivates 57.1 7.1 

Other interest-type income 31.8 58.9 

Interest income 145.4 78.4 

Interest expense on financial liabilities 250.6 193.6 

Interest expense on finance leases 

Interest and similar expense on 

13.5 19.1 

interest rate derivates 59.4 1.9 

Other interest-type expense 

Net interest expense for pension 

89.6 47.3 

benefit obligations 

Interest expenses on the accrual of 

179.5 200.9 

interest for other provisions 31.6 40.4 

Interest expenses 624.2 503.2 

– 478.8 – 424.8 

Borrowing costs of €24.1 million (2005: €13.1 million) were 

capitalized. The assumed interest rate for financing costs was 

based on the average loan interest rate in the period under 

review and was determined at 3 percent. 

The increase in interest expense on financial liabilities 

and other interest-type expense results from the financing of the 

purchase of the additional shares in Degussa in 2006. 

A total of €0.4 million of the interest income (2005: €0.0 

million) is attributable to the ineffective portion of cash flow 

hedges and €0.1 million (2005: €2.0 million) is attributable to fair 

value hedges. 

87

88 

(10) Result from investments accounted for using the 

equity method 


Profit/loss transferred 

Income from measurement using 

+ 0.2 + 8.6 

equity method 

Expenses from measurement using 

57.7 150.2 

equity method 4.3 94.6 

Impairment losses 3.6 – 

Reversal of impairment losses – 5.9 

+ 50.0 + 70.1 

(11) Other financial result 


Net income from other investments + 24.6 + 11.2 

Other financial income 0.0 0.2 

Other financial expense 0.0 0.5 

(12) Income tax expense 

Income taxes break down as follows: 

+ 24.6 + 10.9 


Current tax 8,3 157,0 

(thereof relating to other periods) (– 18,9) (27,0) 

Deferred tax 2,0 25,6 

(thereof relating to other periods) (14,5) (86,9) 

10,3 182,6 

The tax reconciliation shows the change from the expected 

income taxes to the effective income taxes on the income 

statement. Effective income taxes include actual income taxes 

and deferred taxes. Expected income taxes are based on an 

unchanged overall tax rate of 39 percent, comprising German corporation 

tax at 25 percent, the solidarity surcharge at 5.5 percent, 

and the average trade tax. 


Profit before income tax expense + 52.9 + 259.1 

Expected income taxes thereon 

Variances from differing rates of 

20.6 101.0 

municipal trade tax 5.8 4.4 

Variances from expected tax rate 

Changes in the valuation allowances 

on deferred tax assets, losses not 

affecting deferred taxes, and use of 

– 38.6 – 28.9 

loss carryforwards 

Changes to the tax rate and 

– 21.4 84.5 

tax legislation 59.4 0.2 

Non-deductible expenses 11.7 49.1 

Tax-free income 

Gain/loss on companies accounted 

– 40.1 – 51.4 

for using the equity method 

Non-deductible goodwill impairment 

– 19.5 – 36.9 

losses 13.5 0.0 

Other 

Effective income tax (current 

18.9 60.6 

income tax and deferred tax) 10.3 182.6 

Effective tax rate (in %) 19.5 70.5 

The deviations from the expected tax rate result from lower 

national tax rates of the foreign subsidiaries compared to the 

overall tax rate of 39 percent. The changes to the tax rate and tax 

laws are almost solely attributable to tax legislation in Turkey 

with impacts on the reporting of deferred taxes for the Iskenderun 

power plant company. The item “Other” contains outside basis 

difference and actual and deferred income taxes from previous 

periods.

NOTES TO THE BALANCE SHEET 

(13) Intangible assets 

ACTIVE 

Foreword 



Notes 




Patents, Capilicenses 

talized 

and develop- Other 

trade- ment intangible 

€ million Goodwill marks costs assets Total 

Historical cost 

Balance as of January 1, 2005 2,526.1 2,385.9 190.1 535.5 5,637.6 

Currency translation 2.6 16.6 0.1 5.5 24.8 

Additions from business combinations 17.4 0.1 4.1 21.6 

Other additions 23.4 31.6 1.7 4.8 61.5 

Disposals – 146.1 – 213.0 – 9.9 – 6.2 – 375.2 

Reclassifications 2.5 4.9 – 4.4 15.5 18.5 

Balance as of December 31, 2005 2,425.9 2,226.1 177.6 559.2 5,388.8 

Currency translation – 41.2 – 9.5 – 0.1 – 6.5 – 57.3 


Other additions 1,861.3 25.9 0.6 9.3 1,897.1 

Disposals – 929.9 – 511.5 – 36.0 – 39.8 – 1,517.2 

Reclassifications 0.3 9.2 1.2 -0.3 10.4 

Balance as of December 31, 2006 3,334.4 1,745.8 143.3 522.0 5,745.5 

Depreciation, amortization, and impairment losses 

Balance as of January 1, 2005 272.9 656.1 15.1 102.6 1,046.7 


Additions from business combinations 0.0 0.0 

Depreciation and amortization 168.8 17.2 106.7 292.7 

Impairment losses 0.0 29.1 25.2 4.4 58.7 

Reversal of impairment losses 0.0 0.0 

Disposals – 55.8 – 81.6 – 5.8 – 4.4 – 147.6 

Reclassifications 2.6 – 4.7 0.0 10.1 8.0 

Balance as of December 31, 2005 220.0 777.3 51.7 221.1 1,270.1 

Currency translation – 0.6 – 5.8 0.0 – 0.1 – 6.5 

Additions from business combinations 0.0 



Reversal of impairment losses 0.0 

Disposals – 110.3 – 285.9 – 7.5 – 27.1 – 430.8 

Reclassifications 5.7 0.3 – 0.1 5.9 

Balance as of December 31, 2006 143.6 756.1 70.4 292.4 1,262.5 

Carrying amounts as of December 31, 2005 2,205.9 1,448.8 125.9 338.1 4,118.7 

Carrying amounts as of December 31, 2006 3,190.8 989.7 72.9 229.6 4,483.0 

89

90 

The carrying amount of goodwill is apportioned to the following 

cash generating units (CGUs). 

Goodwill 

Growth 

discount in % 

€ million Dec. 31, 06 Dec. 31, 05 2006 2005 

Energy 394.8 392.4 0.7 0.7 

Gas Distribution – 46.4 – 1.0 

Decentralized Energy Supplies – 2.1 – 1.0 

Coal Trading – 0.0 1.0 1.0 

Construction Chemicals – 333.0 – 1.5 

Technology Specialties 1,174.3 597.6 1.5 1.5 

Consumer Solutions 604.3 301.7 1.5 1.5 

Specialty Materials 979.3 508.4 1.5 1.5 

Residential Real Estate 37.9 21.2 1.0 1.0 

Real Estate Services – 2.5 – 1.0 

Additional CGUs 0.2 0.6 0.5 – 1.0 1.0 – 1.5 

The goodwill attributable to the CGU Energy of €394.8 million 

results from earlier acquisitions of shares of STEAG AG, Essen. 

Goodwill of €2,757.9 million was apportioned to the CGUs Technology 

Specialties, Consumer Solutions, and Specialty Materials 

from the various acquisitions of Degussa shares. 

Patents, licenses and trademarks include trademarks having 

an indefinite useful economic life in the amount of €460.0 million 

(2005: €538.1 million). They are apportioned to the following 

segments: 

Trademarks with an indefinite useful economic life 


Trademark Degussa 173.2 173.2 

Construction Chemicals – 32.3 

Technology Specialties 120.4 153.3 

Consumer Solutions 40.0 41.5 

Specialty Materials 126.4 137.8 

460.0 538.1 

Trademarks with an indefinite useful economic life were 

lower than in 2005, primarily due to the sales of the Construction 

Chemicals segment, a reassessment of the useful economic life 

from indefinite to definite, and due to impairment losses. 

3,190.8 2,205.9 

Furthermore, this balance sheet item includes amortization 

of €0.4 million (2005: 0) on trademarks for which the estimation 

of the useful economic life was changed from indefinite to 

definite during the period under review. 

Capitalized development costs mainly refer to the purchase 

of Degussa shares and the ensuing disclosure of hidden reserves. 

They can be broken down according to the activities in Specialty 

Materials, Consumer Solutions and Technology Specialties. Expenditures 

for research and development, which were recognized as 

an expense, came to €308.5 million (2005: €305.0 million). 

The carrying amount of intangible assets whose title is 

restricted amounted to €0.1 million in 2005. 

As in 2005, there were no obligations relating to the 

acquisition of intangible assets.

ACTIVE 

Foreword 


(14) Property, plant and equipment 

Carrying amounts recognized on the basis of finance leases are as 

follows: land, land rights and buildings, €52.7 million (2005: €60.5 

million); plant and equipment, €50.7 million (2005: €39.0 million); 


Notes 




Other 

plant, Advance 

office payments 

Plant furniture and 

Land, land and and construcrights 

and equip- equip- tion in 

€ million buildings ment ment progress Total 


Balance as of January 1, 2005 4,204.2 14,081.6 1,620.0 686.7 20,592.5 


Additions from business combinations 8.1 101.4 1.9 0.2 111.6 

Other additions 198.1 456.6 191.7 646.3 1,492.7 

Disposals – 539.1 – 1,377.5 – 460.8 – 61.6 – 2,439.0 

Reclassifications 46.0 414.8 13.9 – 537.3 – 62.6 

Balance as of December 31, 2005 4,013.8 14,004.0 1,394.6 764.1 20,176.5 


Additions from business combinations 13.2 31.8 1.5 4.2 50.7 

Other additions 68.4 373.2 76.4 506.7 1,024.7 

Disposals – 661.5 – 1,268.3 – 304.7 – 42.2 – 2,276.7 

Reclassifications 101.5 388.3 24.8 – 660.3 – 145.7 

Balance as of December 31, 2006 3,481.7 13,326.1 1,178.8 551.1 18,537.7 


Balance as of January 1, 2005 2,024.6 10,673.6 1,266.1 17.8 13,982.1 





Reversal of impairment losses – 1.0 – 7.3 – 0.3 – 8.6 

Disposals – 311.4 – 1,136.0 – 365.3 – 16.7 – 1,829.4 

Reclassifications – 8.2 0.3 – 8.4 0.2 – 16.1 

Balance as of December 31, 2005 1,917.8 10,515.6 1,108.7 3.5 13,545.6 



Depreciation and amortization 88.5 544.0 86.0 0.1 718.6 


Reversal of impairment losses 0.0 0.0 

Disposals – 260.7 – 965.0 – 236.1 – 2.2 – 1,464.0 

Reclassifications 31.8 – 8.0 – 0.1 0.0 23.7 

Balance as of December 31, 2006 1,804.4 10,144.8 958.4 24.8 12,932.4 

Carrying amounts as of December 31, 2005 2,096.0 3,488.4 285.9 760.6 6,630.9 

Carrying amounts as of December 31, 2006 1,677.3 3,181.3 220.4 526.3 5,605.3 

other plant, office furniture and equipment, €3.1 million (2005: 

€5.3 million). 

91

92 

The carrying amount of property, plant, and equipment 

pledged as security for own liabilities amounted to €93.9 million 

(2005: €213.4 million). Another €159.8 million was subject to other 

restrictions on title (2005: €277.7 million). 

(15) Investment properties 

There are further obligations of €789.1 million relating to 

the acquisition of property, plant, and equipment (2005: €258.3 

million). 

Land, 

land 

€ million rights Buildings Total 


Balance as of January 1, 2005 409.9 2,306.1 2,716.0 

Currency translation 0.0 0.0 0.0 


Other additions 27.7 64.1 91.8 

Disposals – 28.2 – 66.8 – 95.0 

Reclassifications – 0.6 19.3 18.7 

Balance as of December 31, 2005 408.8 2,322.7 2,731.5 

Currency translation – 0.4 – 1.1 – 1.5 


Other additions 7.1 57.3 64.4 

Disposals – 14.4 – 32.4 – 46.8 

Reclassifications – 6.8 – 37.2 – 44.0 

Balance as of December 31, 2006 394.3 2,309.3 2,703.6 


Balance as of January 1, 2005 28.6 1,050.2 1,078.8 

Currency translation 0.0 0.0 


Depreciation and amortization 0.3 52.0 52.3 

Impairment losses 0.3 4.3 4.6 

Reversal of impairment losses – 0.7 – 10.9 – 11.6 

Disposals – 7.7 – 42.1 – 49.8 

Reclassifications – 4.1 4.6 0.5 

Balance as of December 31, 2005 16.7 1,058.1 1,074.8 

Currency translation – 0.7 – 0.7 

Business combinations 0.0 

Depreciation and amortization 0.4 49.7 50.1 

Impairment losses 2.1 17.6 19.7 

Reversal of impairment losses – 0.8 – 19.0 – 19.8 

Disposals – 2.3 – 22.9 – 25.2 

Reclassifications 0.0 – 25.8 – 25.8 

Balance as of December 31, 2006 16.1 1,057.0 1,073.1 

Carrying amounts as of December 31, 2005 392.1 1,264.6 1,656.7 

Carrying amounts as of December 31, 2006 378.2 1,252.3 1,630.5

ACTIVE 

Foreword 


The other additions contain retrospective costs of purchase of 

€16.8 million (2005: €9.6 million). The fair value of investment 

properties is €2,864.8 million (2005: €2,341.2 million). The increase 

in fair value results from the change of the underlying valuation 

method, see “Accounting Policies.” 

(16) Investments accounted for using the equity 

method, financial assets 

(a) Investments accounted for using the equity method 

The financial key figures for significant investments in associates 

accounted for using the equity method are summarized as 

follows with respect to the shares held by RAG Beteiligungs-AG: 


Notes 




The carrying amount of investment properties whose title is 

subject to restrictions as to disposition amounted to €1,235.5 million 

(2005: €1,249.1 million). 

There were further obligations of €3.2 million in 2005 relating 

to the acquisition of investment properties. Only contractual 

obligations exist over and above the statutory requirements for 

repairs, maintenance, and improvements on existing leases. 


thereof thereof 

with a with a 

term to term to 

maturity maturity 

of more of more 

Total than 1 year Total than 1 year 

Investments accounted for using the equity method 279.4 279.4 414.7 414.7 

Other investments 103.3 103.3 153.5 153.5 

Loans 331.2 192.9 326.2 234.5 

Securities and securities-type claims 27.2 11.8 115.6 89.9 

Receivables from finance leases 1,311.1 1,240.9 1,321.4 1,246.8 

Receivables from derivatives 146.3 90.2 171.8 142.8 

Other financial assets 5.1 – 8.3 – 


Non-current assets as of December 31 186.6 316.7 

Current assets as of December 31 257.8 339.8 

Non-current liabilities as of December 31 51.8 106.6 

Current liabilities as of December 31 217.0 270.6 

Income 88.0 383.6 

Expenses 40.7 307.5 

2,203.6 1,918.5 2,511.5 2,282.2 

The financial key figures for significant joint ventures 

accounted for using the equity method are summarized as 

follows with respect to the shares held by RAG Beteiligungs-AG: 


Non-current assets as of December 31 53.9 112.0 

Current assets as of December 31 27.9 37.6 

Non-current liabilities as of December 31 51.5 59.4 

Current liabilities as of December 31 6.8 35.6 

Income 51.5 154.2 

Expenses 45.3 143.1 

The disclosures for 2006 relate to the 80.0 percent stake in 

REG Raffinerie-Energie oHG, Cologne (power plant). Due to the 

absence of a voting majority, the company is only accounted for 

using the equity method. 

93

94 

(b) Other investments 

Other investments represent investments in unlisted equity 

securities and are accounted for at cost as it is not possible to 

reliably determine fair value. 

(c) Loans 

Loans are subject to interest rate risk, which can influence market 

value or future cash flows. They are accounted for at cost. Under 

the assumption a loan is measured at a risk-free interest rate 

according to the yield curve as of the reporting date, fair value for 

loans in the Group is €0.7 million higher than the carrying 

amount. 

(d) Securities and securities-type claims 

Securities and securities-type loans are subject to interest rate 

risk, which can influence market value or future cash flows. If no 

market price is available, they are measured at amortized cost. 

Listed securities are subject to market value risk. 

(e) Receivables from finance leases 

The transition from gross investment in leases to the present 

value of outstanding minimum lease payments and their due 

dates is set out as follows: 


Total Total 

Gross investment 2,914.1 2,706.1 

(thereof non-guaranteed residual value) (0.0) (169.7) 

due within 1 year 270.4 279.8 

due in 1 to 5 years 1,064.0 983.4 

due in more than 5 years 1,579.7 1,442.9 

Interest included therein 1,603.0 1,383.2 

Net investment 1,311.1 1,322.9 

Accumulated impairment losses 

Carrying amount of receivables 

– 1.5 

from finance leases 

less present value of non-guaranteed 

1,311.1 1,321.4 

residual values 

Present value of outstanding 

– 140.0 

minimum lease payments 1,311.1 1,181.4 


due in 1 to 5 years 374.3 366.8 

due in more than 5 years 866.6 740.0 

No conditional lease payments from finance leases were 

collected in 2006. As in 2005, no impairment losses were recognized 

on irrecoverable outstanding minimum lease payments. 

The receivables from finance leases comprise €794.9 million 

(2005: €930.7 million) relating to the lease agreement for 

the Iskenderun power plant in Turkey. The lease has a term of 

20 years and will end on November 22, 2019. A discount rate 

of 18.4 percent was applied in calculating the lease receivables. 

Furthermore, an amount of €173.7 million results for the first 

time from an agreement for the purchase of electrical power 

from the power plant in Mindanao in the vicinity of Cagayan de 

Oro, Philippines, which was commissioned in 2006. The lease 

agreement of STEAG State Power, Inc. Makati City, Philippines 

has a term of 25 years and will end on November 14, 2031. For the 

purpose of calculating the lease receivables, a discount rate of 

13.7 percent was applied. When the contract expires, the object 

of lease will be transferred to the lessee. 

Moreover, the receivables from finance leases comprise 

€202.7 million (2005: €216.8 million) relating to the lease agreement 

for the STEAG Leuna refinery power plant. The lease had 

an original term of 12 years and would have expired in November 

2008. In 2006, the lessee exercised the contractually agreed 

option to renew the lease for another 8 years until November 

2016. For the purpose of calculating the lease receivables, a 

discount rate of 10.0 percent was applied. 

(f) Receivables from derivatives 

Receivables from derivatives are broken down as follows: 


Total Total 

Receivables from foreign exchange 

derivatives 86.2 63.5 

Receivables from interest-rate derivatives 37.1 92.0 

Receivables from commodity derivatives 2.6 0.8 

Receivables from other derivatives 20.4 15.5 

146.3 171.8 

Receivables from other derivatives relate primarily to an 

embedded derivative in the form of a swap involving the price of 

coal and electricity in a long-term supply agreement. This item is 

offset in the amount of €14.0 million (2005: €13.1 million) from 

an energy supply agreement, accounted for under liabilities from 

other derivatives. Furthermore, a put option with a positive 

market value exists which relates to the sales of own shares in a 

joint venture. The nominal amount of the embedded derivatives 

is €84.8 million (2005: €66.0 million).

ACTIVE 

Foreword 


The following nominal values are hedged together with the 

liabilities from derivatives. In currency derivatives, the nominal 

volume corresponds to the hedged foreign currency volume 

translated into euros; in interest rate derivatives, it is the sum of 

the underlying transactions hedged over the term; and in commodity 

derivatives it is the hedge costs translated into euros. 

Depending on the type of the embedded derivative, the nominal 

volume of the embedded derivatives corresponds to one of the 

above definitions of nominal volume. 

Nominal volume of the derivative financial instruments: 

Where the preconditions for hedge accounting are met, 

interest rate, foreign exchange and commodity derivatives are 

reported as a fair value hedge, cash flow hedge or hedge of a 

net investment. Embedded derivatives do not regularly qualify 

for hedge accounting. 

The following significant hedging transactions were 

included in hedge accounting in the year under review: 

Fair Value Hedge Accounting: 

The €1.250 billion bond issued by Degussa AG in November 2003 

was hedged against fluctuations of the base interest rate until 

2013 at a volume of €750 million using receiver interest rate 

swaps. As of the balance sheet date, the fair value of the interest 

rate hedging instruments was €15.5 million. The effectiveness 

of the hedges was verified applying the cumulative dollar offset 

method and via the critical term match approach. Arising from 

the fair value hedge, expenses of €43.2 million from the market 

value of derivatives and €43.1 million from the market value of 

the bond were reported in interest income. 


Notes 






thereof with a thereof with a 

with a term to with a term to 

term to maturity term to maturity 

maturity of more maturity of more 

within than within than 

Total 1 year 5 years Total 1 year 5 years 

Foreign exchange derivatives 3,219.6 2,948.4 271.2 3,732.7 3,306.2 426.5 

Interest rate derivatives 2,669.8 121.9 2,547.9 2,230.3 663.9 1,566.4 

Commodity derivatives 81.9 79.1 2.8 2.0 2.0 – 

Other derivatives 84.8 – 84.8 100.0 – 100.0 

6,056.1 3,149.4 2,906.7 6,065.0 3,972.1 2,092.9 

Cash Flow Hedge Accounting: 

In the Energy segment, primarily interest payments from power 

plant project financing were hedged against interest rate 

changes until 2026 using interest rate swaps and interest rate 

caps; goods and input materials were hedged against price risks 

until 2007 using forward exchange contracts and commodity 

swaps The associated fair values of the interest rate derivatives 

are €8.6 million, the foreign exchange derivatives – €0.9 million 

and the commodity derivatives – €0.8 million. 

In the Chemicals business area, sales presently planned at 

approximately €460.0 million were hedged against currency 

fluctuations using forward exchange contracts. The fair value of 

the hedging instruments included in the hedge accounting was 

€13.9 million. Furthermore, planned purchases of raw materials 

were hedged against price fluctuations until 2007 using commodity 

swaps having a fair value of – €4.2 million. 

In addition, cash flow hedge accounting was used to hedge 

currency risks arising from foreign currency transactions in the 

other activities of the RAG Beteiligungs-Group. In these companies, 

the fair value of the hedging instruments is €3.4 million. In 

addition, 50 percent of the selling price of DBT was hedged using 

currency forwards having a fair value of €1.1 million. 

95

96 

On the Group level, swaptions were used to hedge interest 

rate changes from the planned borrowing of €500 million in 

the capital market. The transaction is expected to take place in 

August 2007 and will have a term of 5 years. The value fluctuations 

of the intrinsic value of the swaptions will be recognized 

directly in equity with no impact on earnings. As of the balance 

sheet date, the associated hedge reserve amounts to €1.3 million. 

In addition, €400 million of the borrowing from the revolving 

credit facility of RAG Beteiligungs-AG planned for June 2007 with 

a term of 4 years was hedged against rising market interest rates 

using swaptions in 2006. The borrowing is no longer expected 

due to the Group’s business development. The hedge accounting 

was terminated and an amount of €0.8 million was withdrawn 

from the hedge reserve and recognized in income. 

The effectiveness of the hedging relationships is verified 

applying the dollar offset method, the critical term match, the 

hypothetical derivatives method and sensitivity analyses. A total 

of €0.9 million was recognized in income as an ineffective portion 

from the measurement of cash flow hedges. 

Hedge of a net investment: 

In the international power plant projects in the Energy segment, 

the proportional equity of the company is hedged against the 

exchange rate risk using currency derivatives. The associated fair 

value of the hedging instruments is €50.9 million. In fiscal year 

2006, €2.9 million was withdrawn from the hedge reserve and 

recognized in income. In addition to these hedges, hedge reserves 

of €26.9 million exist from former hedging relationships in 

connection with subsidiaries in the United Kingdom. They are 

proportionally recognized in income and derecognized when, 

for example, the subsidiary is sold. The dollar offset method is 

applied to verify the effectiveness of the hedging relationships. 

(g) Collateral 

Financial assets pledged as security for own liabilities amounted 

to €714.6 million (2005: €716.9 million). In addition, €70.0 million 

(2005: €31.6 million) was pledged as security for guarantees 

furnished, and another €472.5 million (2005: €447.7 million) was 

subject to other restrictions on disposition. The majority of the 

secured assets relates to power plants used as collateral for loans 

from the project financing in connection with the finance leases. 

(17) Inventories 


Raw materials and supplies 527.8 643.0 

Work in progress 314.0 408.8 

Finished goods 1,057.2 1,458.3 

1,899.0 2,510.1 

The carrying amount of inventories pledged as security for own 

liabilities amounted to €31.9 million (2005: €41.7 million).

ACTIVE 

Foreword 


(18) Trade receivables, other receivables 

Receivables from construction contracts include €1.0 million 

(2005: €9.7 million) of costs incurred including contract margins. 

As in 2005, there were no progress billings with customers and 

withholdings thereon. 

As in 2005, receivables pledged as security for own liabilities 

amounted to €1.0 million. In addition, €0.7 million (2005: €0.8 million) 

was pledged as security for guarantees furnished, and 

another €26.9 million (2005: €135.9 million) was subject to other 

restrictions on disposition. 

(19) Equity 

(a) Issued capital 

The fully paid-up issued capital held by the sole shareholder RAG 

Aktiengesellschaft amounts to €466,000,000 as of the balance 

sheet date. It is divided into 466,000,000 bearer shares. 

(b) Capital reserve 

Capital reserves primarily include other capital reserves pursuant 

to Section 272 (2) no. 4 of the German Commercial Code. In 2005, 

they included reserves from the valuation of 585,600 outstanding 

stock option rights to management and employees of STEAG 

HamaTech AG, Sternenfels and its subsidiaries. The company was 

sold in early 2006. 

(c) Accumulated profits 

Accumulated profits contains the profit achieved in the current 

fiscal year and retained earnings from previous years. The profit 

corresponds to the Group profit after tax reported on the income 


Notes 






with a with a 





Trade receivables 2,354.1 – 3,229.7 – 

Receivables from construction contracts 1.0 – 9.7 1.9 

Miscellaneous tax receivables 90.3 8.1 82.7 0.9 

Advances to suppliers 54.3 0.8 34.5 5.6 

Miscellaneous other receivables 264.4 32.0 389.8 54.2 

Prepaid expenses 107.2 65.7 94.0 22.6 

2,871.3 106.6 3,840.4 85.2 

statement for the year under review that is attributable to the 

equityholders of RAG Beteiligungs-AG. In accordance with the 

German Joint Stock Corporation Act (AktG), the distribution of 

profits is subject to a restriction and an amount of €151.4 million 

(2005: €95.9 million) is correspondingly held in the statutory 

reserve. Retained earnings (including net income of the current 

fiscal year) comprise a further amount of €2,634.5 million (2005: 

€1,888.0 million). Of that amount, €2.7 million (2005: €16.6 million) 

relates to reserves pursuant to the company’s Articles of 

Incorporation. The reserves may only be released to fulfill their 

intended purpose. 

(d) Accumulated Other Comprehensive Income/Loss (OCI) 

The accumulated other comprehensive income/loss (OCI) comprises 

gains and losses that are accounted for directly in equity. 

The reserve from the measurement of available-for-sale securities 

contains remeasurement gains and losses not recognized in 

income resulting from the change in the market value of financial 

instruments that are only expected to be temporary. In 2005, 

the net change in available-for-sale securities resulted in gains 

from disposal of €2.1 million that were taken to income. The 

hedge reserve (see also item 16 f in the Notes) comprises net 

gains or losses from changes in the market value of the effective 

portion of cash flow hedges. The change in the hedge reserve 

includes – €2.7 million (2005: €16.6 million) accounted for as part 

of the acquisition costs for an underlying transaction. The net 

change also includes a profit of €8.9 million (2005: loss of €1.7 

million) that was recognized in income. The revaluation reserve 

for the successive acquisition of Degussa shares increased 

by €10.6 million in 2005 due to consolidation of a Degussa 

97

98 

subsidiary that had previously been accounted for using the 

equity method. After €2.0 million was released to accumulated 

profits, the revaluation reserve still amounted to €38.1 million as 

of the balance sheet date. The cumulative translation adjustment 

contains the exchange differences from the financial statements 

of foreign companies. 

(e) Minority interests 

The proportions of issued capital and reserves of consolidated 

subsidiaries not attributable to equity holders of RAG Beteiligungs-AG 

are reported under minority interests. 

(20) Provisions for pensions and similar obligations 

Provisions for pension obligations are accrued to cover benefit 

plans for pensions, invalidity and support for surviving dependents. 

The benefit obligations vary depending on the legal, tax and 

financial circumstances in the country in which the company 

operates. The amount of the obligations normally depends on the 

length of service and the salary of the employees concerned. 

At approximately 97.5 percent (2005: 95.3 percent), the 

majority of the provisions for pensions recognized as of the 

balance sheet date were attributable to Germany. 

In German companies, occupational pension schemes are 

predominantly on the basis of defined benefit plans. The defined 

benefit plans in Germany are primarily financed by provisions 

and by the assets of the pension funds. 

Foreign companies may run both defined contribution plans 

and defined benefit plans. 

In addition to the expected return on plan assets as 

weighted averages, the premises on which the actuarial calculation 

of the obligations is based are shown below: 

Group Germany 

Percent 2006 2005 2006 2005 

Discount rate as of December 31 4.60 4.39 4.50 4.25 

Future increases in remuneration 2.73 2.75 2.51 2.47 

Future increases in pensions 1.54 1.58 1.50 1.50 

Expected return on plan assets as of December 31 5.31 5.51 5.00 5.00 

Health care cost trend 8.91 9.94 – – 

The expected return on plan assets is determined based 

on public capital market studies and forecasts as well as internal 

historical data for each group of assets.

ACTIVE 

Foreword 


The present value of the defined benefit obligation changed 

as follows: 


Defined benefit obligation 

as of January 1 8,494.2 7,612.8 

Current service cost 144.2 137.9 

Interest cost 347.7 366.0 

Employee contributions 40.2 13.7 

Actuarial gains/losses – 184.6 889.0 

Benefits paid – 406.4 – 398.9 

Past service cost 8.3 – 2.8 

Additions from business combinations 16.4 – 195.0 

Reclassifications as per IFRS 5 – 384.0 – 17.0 

Curtailments – 0.2 – 

Settlements – – 1.6 

Currency translation 


41.9 90.1 

as of December 31 8,033.9 8,494.2 

The fair value of the plan assets changed as follows: 


Fair value of the plan assets 

as of January 1 3,114.8 2,973.9 

Expected return on plan assets 164.1 161.5 

Employer contributions 99.7 80.0 

Employee contributions 13.4 13.7 

Actuarial gains/losses 13.6 50.3 

Benefits paid – 150.2 – 141.3 

Additions from business combinations 8.2 – 79.1 

Reclassifications as per IFRS 5 – 104.5 – 


Fair value of the plan assets 

– 21.2 55.8 

as of December 31 3,137.9 3,114.8 

In the year under review, the actual return on plan assets 

came to €177.8 million (2005: €211.8 million). 

Next year, we expect to incur employer contributions of 

€66.4 million. 


Notes 




The experience adjustments for defined benefit obligations 

and for the plan assets are as follows: 


Experience-based adjustments for 

defined benefit obligations 

Experienced-based adjustments 

46.7 63.9 

for plan assets – 13.6 – 50.3 

The funded status, which is defined as the difference 

between the defined benefit obligation and the fair value of the 

plan assets, is reconciled with the pension provisions shown in 

the balance sheet as follows: 


Present value of the defined 

benefit obligation 8,033.9 8,494.2 

Fair value of the plan assets 3,137.9 3,114.8 

Funding status 4,896.0 5,379.4 

Unrecognized past service cost – 1.5 + 3.9 

Actuarial gain (+)/loss (–) 

Other changes 

– 824.2 – 1,080.5 

(including asset ceiling) – – 2.1 

Pension provisions 4,070.3 4,300.7 

As of the reporting date, €4,496.2 million (2005: €4,744.2 

million) of the defined benefit obligations were not covered and 

€3,453.6 million (2005: €3,613.1 million) were covered by assets 

partially or in full. In addition, the defined benefit obligations 

include health care obligations amounting to €84.1 million (2005: 

€136.9 million). 

Of the €3,137.9 million (2005: €3,144.8 million) total fair 

value of the plan assets as of the balance sheet date, 26.0 percent 

(2005: 30.55 percent) was attributable to equities, 65.2 percent 

(2005: 65.35 percent) to fixed income, 4.6 percent (2005: 2.2 percent) 

to real estate and 4.2 percent (2005: 1.9 percent) to other 

assets. As of the balance sheet date, no portion (2005: €2.0 million) 

was attributable to own shares in subsidiaries included in the 

consolidated financial statements as well as owner-occupied 

property. 

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100 

Pension provisions changed as follows in 2006: 


Pension provision as of January 1 4,300.7 4,414.0 

Net expense recognized in income 

Pension payments, employer and 

350.0 322.7 

employee contributions – 328.9 – 320.3 

Changes in the consolidated group 

Reclassifications in accordance 

5.0 – 141.2 

with IFRS 5 – 240.3 – 

Other changes – 1.8 



– 16.2 23.7 

as of December 31 4,070.3 4,300.7 

The pension provisions on the balance sheet also include 

concessionary fuel allowances in Germany and entitlements to 

medical services by retirees of the American companies. 

The actuarial loss was €824.2 million (2005: €1,080.5 million), 

falling outside of the permitted corridor. Calculation of the 

corridor and amortization is undertaken for each plan included. 

(21) Other provisions 

Other provisions relate to the following: 

The total expense for defined benefit plans breaks down as 

follows: 


Current service cost 140.8 127.1 

Interest cost 340.5 355.4 

Expected return on plan assets – 161.0 – 154.5 

Amortization charges 

Losses from plan adjustments 

29.5 84.3 

and curtailments 0.1 – 0.8 

Effect of asset ceiling 0.1 – 88.8 

Net pension expense 350.0 322.7 

Of the total expense, €8.4 million (2005: €1.0 million) was 

attributable to preventive medicine benefits. 

The interest expense and the expected income from the 

plan assets are reported in interest income; the other amounts 

are reported in personnel expenses as pension expenses. 

A total of €15.9 million (2005: €12.6 million) was paid into 

defined contribution plans of the foreign companies; this is also 

reported in personnel expenses as pension expenses. 

Furthermore, €154.5 million (2005: €165.6 million) has been 

paid into government defined contribution plans (statutory 

pension insurance) in Germany and abroad. They are reported as 

social security contributions in personnel expenses. 


thereof thereof thereof thereof 

with a with a with a with a 

term to term to term to term to 

maturity maturity maturity maturity 

within of more within of more 

Total 1 year than 5 year Total 1 year than 5 year 

Personnel 1,079.7 493.5 119.4 1,048.8 519.5 119.9 

Environmental protection and recultivation 314.7 51.9 96.6 332.2 42.1 50.1 

Restructuring 122.5 64.1 12.3 125.4 54.2 16.2 

Other obligations 1,064.0 700.5 86.4 1,585.4 1,136.8 71.1 

2,580.9 1,310.0 314.7 3,091.8 1,752.6 257.3

ACTIVE 

Foreword 


In the year under review, provisions changed as follows: 

Provisions in respect to personnel are created for a number 

of different reasons. These include provisions for vacation entitlements 

and days off, occupational health checks and bonuses and 

performance-related pay. 

Provisions for environmental protection and recultivation 

are created as a result of contractual terms, or conditions imposed 

by authorities or the law. Obligations include biological soil 

reclamation and site decontamination for chemical operations. 


Notes 




Environmental 

protection, Other 

reculti- Restruc- obliga- 

€ million Personnel vation turing tions 

Balance as of January 1, 2006 1,048.8 332.2 125.4 1,585.4 

Additions 643.2 26.5 52.8 642.7 

Amounts utilized – 493.1 – 17.8 – 37.8 – 646.9 

Amounts reversed – 30.7 – 22.4 – 13.7 – 286.4 

Reclassifications – 95.1 0.2 – 4.2 – 124.5 

Currency translation – 6.3 – 2.1 – 0.3 – 9.9 

Interest adjustments 18.5 0.7 1.3 – 0.8 

Changes in the consolidated group – 5.6 – 2.6 – 1.0 – 95.6 

Balance as of December 31, 2006 1,079.7 314.7 122.5 1,064.0 

Provisions for restructuring are based on any restructuring 

measures to be implemented. Restructuring measures are 

defined as a program planned and controlled by the company to 

materially alter one of the company’s fields of activity or the way 

in which this activity is carried out. Provisions for restructuring 

may only be created for the costs that can be directly attributed 

to the restructuring. These costs include: severance packages, 

redundancy and early retirement payments, costs for the termination 

of contracts, dismantling obligations, the costs of biological 

soil reclamation, rental expenses for unused facilities and all 

other expenses solely attributable to the closure or the processing 

of the restructuring program. 

Other obligations are essentially provisions for the 

following items: 

Dismantling 

Selling Other obliga- 

€ million activities taxes tions 

Balance as of January 1, 2006 274.5 34.5 87.5 

Additions 151.0 71.6 9.1 

Amounts utilized – 117.0 – 11.8 – 3.8 

Amounts reversed – 36.4 – 0.9 – 10.5 

Reclassifications – 4.2 0.9 – 6.1 

Currency translation – 3.1 – 0.1 0.0 

Interest adjustments – 4.3 0.1 0.6 

Changes in the consolidated group – 91.1 – 0.1 0.1 

Balance as of December 31, 2006 169.4 94.2 76.9 

101

102 

(22) Financial liabilities 



with a with a 





Bonds 1,265.7 1,265.2 1,456.1 1,304.2 

Liabilities to banks 3,858.1 2,051.8 3,257.3 2,067.4 

Loans from non-banks 110.4 70.7 116.5 83.4 

Liabilities from finance leases 140.1 130.0 150.0 139.2 

Liabilities from derivatives 35.6 11.5 109.1 44.9 

Liabilities from finance bills 0.1 – 0.8 – 

Other interest-bearing liabilities 468.6 42.7 959.8 37.2 

(a) Bonds, liabilities to banks 

The amount under bonds is mainly comprised of a bond issued by 

Degussa with a nominal amount of €1,250.0 million maturing 

in 2013 and an annual coupon of 5.125 percent. The bond is 

recognized at the issuing price of 98.99 percent; the discount is 

credited over the term of the bond using the effective interest 

method. 

Liabilities to banks include a syndicated credit facility for 

€879.0 million. The interest on the loans draws on the syndicated 

credit facility is based on EURIBOR corresponding to the loans 

draw plus a margin. 

Bonds and liabilities to banks are subject to interest rate 

risk, which can influence market value or future cash flows. As of 

the balance sheet date, the market price of the bond was €1,232.1 

million. The fair values of the other liabilities are nearly identical 

to the carrying amounts. Interest rate hedges are entered in for 

significant variable interest-bearing liabilities. The interest rate 

risk of the bond is hedged by a fair value hedge of €750.0 million. 

In 2006, RAG Beteiligungs-AG entered into a syndicated 

credit facility for €2,250 million which runs until 2011. It had not 

been drawn on as of the reporting date and serves to cover shortterm 

borrowing requirements. The Company also has bilateral 

credit lines in the amount of €600 million, most of which have 

not been drawn on. 

With respect to its financial liabilities, the Group has not 

violated payment agreements. Shares in consolidated subsidiaries 

are pledged to secure loans in the amount of €1.479 billion. 

5,878.6 3,571.9 6,049.6 3,676.3 

(b) Liabilities from finance leases 

Liabilities from finance leases are recognized if the leased asset is 

in the beneficial ownership of the Group and is capitalized under 

property, plant, and equipment. The reconciliation of future 

minimum lease payments to their present values and due dates 

is as follows: 


Total Total 

Future minimum lease payments 243.3 279.4 


due in 1 to 5 years 92.5 97.3 

due in more than 5 years 127.7 157.4 

Interest included therein 

Present value of future minimum 

lease payments (liabilities under 

103.2 129.4 

finance leases) 140.1 150.0 


due in 1 to 5 years 53.6 52.9 

due in more than 5 years 76.4 86.3

ACTIVE 

Foreword 


(c) Liabilities from derivatives 

Liabilities from derivatives are broken down as follows: 


Total Total 

Liabilities from foreign exchange 

derivatives 9.2 51.8 

Liabilities from interest rate derivatives 1.7 43.2 

Liabilities from commodity derivatives 8.6 0.1 

Liabilities from other derivatives 16.1 14.0 

35.6 109.1 

See item (16 f) in the Notes for information on liabilities 

from derivatives. 

(23) Trade payables, other payables 

Liabilities from construction contracts include €0.1 million 

(2005: €0.2 million) of costs incurred including contract margins, 

€2.1 million of which was billed to customers in 2005. 


Notes 




(d) Financing structure 

As of December 31, 2006, the financial liabilities were structured 

as follows: 

Interest 

Maturity duration 

in in 

Years € million € million 

2007 2,306.7 3,472.6 

2008 256.0 241.0 

2009 211.0 225.0 

2010 199.0 214.0 

2011 148.0 236.0 

> 2011 2,757.9 1,490.0 

5,878.6 5,878.6 



with a with a 





Trade payables 1,264.8 – 1,821.7 – 

Payables from construction contracts 0.1 – 1.9 0.2 

Miscellaneous tax liabilities 94.3 – 137.8 0.0 

Customer advances received 162.2 12.4 295.3 8.8 

Miscellaneous other liabilities 315.2 13.6 403.3 15.5 

Deferred income 199.8 156.7 247.3 186.7 

2,036.4 182.7 2,907.3 211.2 

103

104 

(24) Deferred taxes, current tax 

Deferred tax and current tax reported on the balance sheet are 

broken down as follows: 



with a with a 





Deferred tax assets 496.7 336.0 1,086.2 781.6 

Current tax assets 95.0 – 96.9 – 

Deferred tax liabilities 961.4 839.7 1,494.3 1,309.4 

Current tax liabilities 338.2 112.1 405.3 100.9 

In accordance with IAS 1, the current elements of deferred 

taxes are reported on the balance sheet under non-current assets 

and liabilities. 

Deferred taxes have been posted in relation to the following 

items: 

The reduction in both deferred tax assets and liabilities 

primarily resulted from the reclassification of the discontinued 

operations Construction Chemicals, Gas Distribution, and Mining 

Technology. In addition, changed tax legislation in Turkey led to 

Deferred tax assets Deferred tax liabilities 


Assets 

Intangible assets 20.0 32.7 512.9 757.2 

Property, plant, and equipment and investment properties 468.5 675.0 766.9 874.1 

Financial assets 26.1 37.1 373.3 488.7 

Inventories 110.6 110.1 85.5 84.0 

Receivables and other assets 34.7 67.3 49.5 93.6 

Liabilities 

Provisions 622.6 691.0 71.8 118.0 

Liabilities 107.6 177.3 40.2 107.1 

Special tax allowance reserves (in accordance with local law) – 0.0 45.9 64.3 

Loss carried forward 218.1 311.2 – – 

Tax credits 9.7 56.7 – – 

Consolidation 20.6 21.9 25.7 30.6 

Other 54.7 142.0 31.4 36.0 

Deferred taxes (gross) 1,693.2 2,322.3 2,003.1 2,653.6 

Valuation allowances – 154.8 – 76.8 – – 

Netting – 1,041.7 – 1,159.3 – 1,041.7 – 1,159.3 

Deferred taxes (net) 496.7 1,086.2 961.4 1,494.3

ACTIVE 

Foreword 


a reduction of the deferred tax assets and liabilities for the 

Iskenderun power plant company. 

No deferred tax assets were recognized for temporary 

differences amounting to €219.4 million as it is unlikely that 

sufficient taxable income will be available in future for their 

realization. 

Deferred tax liabilities of €32.3 million (2005: €41.7 million) 

have been credited to accumulated other comprehensive 

income/loss. Of this amount, €57.8 million (2005: €28.9 million) 

was attributable to currency translation adjustments, and 

€23.6 million was charged (2005: €12.8 million credited) to hedge 

reserves. 

In addition to tax loss carry forwards to which deferred 

taxes have been assigned, there are loss carry forwards that 

cannot be utilized and to which no deferred taxes have been 

assigned. See the table below for details: 


Total Total 

Corporation income tax 1,085.5 822.3 

Municipal trade tax 1,564.5 1,022.3 

Foreign taxes 405.3 499.5 

Tax credits – 5.5 

3,055.3 2,349.6 

Time-limit breakdown for the utilization of German and 

foreign loss carry forwards: 


Notes 




Corporation income tax Local tax Tax credits 


Up to 1 year – – – – – – 

2 to 5 years 1.5 – – – – – 

6 to 9 years – – – – – – 

More than 9 years 404.5 492.4 – – – – 

Unrestricted 1,084.8 829.4 1,564.5 1,022.3 – 5.5 

105

106 

Financial risk management 

As an enterprise operating at an international level, the RAG 

Beteiligungs-Group is always exposed to financial risks. An 

important objective of company policy is to limit market, liquidity 

and default risks to the enterprise value and the performance of 

the Group in order to hold cash flow and income fluctuations 

largely in check without missing out on opportunities presented 

by positive market developments. To this end, a systematic 

financial and risk management was established. The risk position 

was controlled centrally at the level of RAG Aktiengesellschaft, 

which carried out all necessary functions for RAG Beteiligungs- 

AG until December 31, 2006. 

Derivative financial instruments are used to reduce financial 

risks. They are solely associated with the corresponding underlying 

transactions arising from the original business activity that 

have a risk profile opposite to the hedging transaction. The 

instruments themselves are marketed products such as forward 

exchange transactions and options, interest rate and currency 

swaps, currency forwards and options on swaps. 

(a) Market risk 

Market risk can basically be broken down into currency, interest 

rate and commodity risks: 

Currency risks arise on the purchasing side through the 

purchase of commodities and on the sales side through the sales 

of end products. The objective of currency management is to 

hedge the operational business against income and cash flow 

fluctuations due to price changes in the foreign exchange 

markets. The majority of the currency risks result from the price 

development of the euro in relation to the US dollar (USD). 

About 75 percent of the proportion of Group sales in USD or 

in currencies moving in close step with the USD is hedged on the 

production side in the USD area. The remaining currency risk consists 

of the sales risk in the export business with the USD area 

and is hedged by currency forwards and currency options. 

The objective of interest rate management is to protect the 

Group net income against negative impacts from market interest 

rate fluctuations. Risk is controlled through the use of original 

and derivative financial instruments, in particular interest rate 

swaps and interest rate caps. Taking cost-risk aspects into 

account, this results in an appropriate proportion of fixed interest 

rates (interest rate locked in longer than one year) and variable 

interest rates (interest rate locked in less than one year). The 

hedge of the net borrowing requirements through fixed interest 

rates is 44 percent as of December 31, 2006. 

The concepts of cash flow at risk and value at risk (VaR) 

were applied in measuring the market risks in the interest and 

currency area. The former refers to the current interest payments 

that are subject to an interest rate risk as well as outstanding 

payments in foreign currency that are in turn subject to a 

currency risk. The parameter VaR indicates the maximum loss 

arising from original and derivative financial instruments for one 

month based on a given probability. The development of this risk 

measure is observed monthly and reported to the Chief Financial 

Officer. 

VaR is calculated on a one-month horizon with a confidence 

interval of 99 percent. The calculation is performed using a 

Monte Carlo simulation of the risk variables. (interest rates and 

currencies). 

The risk positions analyzed for the calculated VaR are 

primarily financial liabilities (e.g. loans) and fixed interest rate 

investments. Added to this are financial derivatives such as 

options that have a time-related current value. Financial liabilities 

in foreign currency which are offset by sales in the same currency 

are not taken into account. 

In principle, VaR is a theoretical construct which has to 

function under numerous assumptions. If they do not entirely 

correspond with reality, inaccuracies in the risk measurement 

are unavoidable. For the model used by RAG Beteiligungs-AG, this 

applies primarily to the normal distribution assumption for the 

risk variables and for the assumed one-month horizon. 

As of December 31, 2006, the value for VaR from foreign 

currency positions amounts to €25.4 million and €43.8 million 

from interest positions. Due to diversification effects between 

interest rate and currency risks, the total VaR in the Group 

amounts to €47.2 million.

ACTIVE 

Foreword 


Commodity risks result from market price changes of 

purchases of commodities. The business units of the RAG Beteiligungs-Group 

are responsible for commodity management. They 

determine the procurement risks and take effective risk-minimizing 

measures. Price volatilities are, for example, evened out by 

price escalator clauses and swap transactions. The availability 

and the price dependence of raw materials, primary and intermediate 

products are of great significance for the Group’s price situation. 

In this connection, the dependence of significant commodity 

prices on exchange rates and the crude oil price is important 

to the Group. The Group reduces the price and acquisition risks in 

procurement markets through worldwide purchasing activities 

and optimized procedures for the purchase of additional, immediately 

available quantities of raw materials. In addition, the use 

of substitute raw materials is examined for various manufacturing 

processes and work is carried out to develop alternative 

production technologies. 

In addition to the increased costs for raw materials, recent 

significant rises in energy prices in particular have impacted the 

Group’s production costs. Derivative financial instruments were 

used in 2006 to hedge procurement price risks. 

(b) Liquidity risk 

Liquidity risk is controlled by centralized financial planning which 

ensures that the necessary funds to finance the current operational 

business and to guarantee that the funds for current and 

future investments in all companies in the Group are available 

on time and in the required currency at optimal costs. As part of 

liquidity risk management, the Group companies are responsible 

for the ongoing determination of their liquidity requirements. 

Liquidity planning is performed on a monthly rolling basis over a 

period of 15 months. Whenever legally possible and economically 

feasible, the existing liquidity is pooled though central cash 

management. Central liquidity risk management brings about 

cost-effective borrowing and advantageous financial equalization. 

Unutilized credit lines of greater than €2,850.0 million, 

including a revolving credit facility of €2,250.0 million are available 

for liquidity hedging. 


Notes 




(c) Default 

Default risks are initially examined in detail on conclusion of the 

agreement and then monitored on an ongoing basis so that it is 

possible to react promptly to a worsening of the creditworthiness 

of a contracting partner. The initial review of default risk includes 

the consideration of the contracting partner’s rating and the 

company’s own credit reviews. In the case of banks, the review 

includes their deposits in deposit insurance systems. In the case 

of export orders, the political risk is first analyzed in order to form 

a total risk consisting of political and economic risk. In the course 

of analyses of creditworthiness, maximum limits are established 

for the respective contracting partners. This is essentially accomplished 

on the basis of ratings of international rating agencies 

and our own internal credit reviews. For export financing the contracting 

partners must at least have an investment grade rating. 

Creditworthiness management also extends to derivatives 

where a risk of default exists in the amount of the positive fair 

value. This risk is minimized by the high requirements expected 

of the contracting partner with respect to creditworthiness. Only 

marketable instruments having adequate market liquidity are 

used for this purpose. Therefore, significant default risks do not 

exist in this area. 

107

108 

NOTES TO THE CASH FLOW STATEMENT 

The cash flow statement is broken down into cash flows from 

operating, investing and financing activities. It shows the net 

change in cash and cash equivalents from continuing operations. 

Interest paid as well as interest and dividends received are 

attributed to the operating activity, dividends paid to financing 

activity. 

(25) Cash flow from operating activities 

The cash flow from operating activity is calculated using the 

indirect method. The profit before financial result and income tax 

expense of the continuing operations is adjusted for the effects 

of non-cash expenses and income for items to be allocated to 

investing or financing activities. In addition, the changes in the 

amounts reported in the balance sheet are calculated and 

included in income. 

(26) Cash flow from investing activities 

Cash flows from investing activities relate to cash inflows and 

outflows from the acquisition and disposal of subsidiaries. 

The cash payments for acquisitions, investments, and loans 

include €3,436.8 million for the acquisition of the Degussa stock. 

Furthermore, a total of €42.5 million (2005: €132.6 million) was 

paid for the acquisition of subsidiaries consolidated for the first 

time. This amount involves an outflow of cash and cash equivalents 

of €36.5 million (2005: €122.2 million). The acquisitions 

resulted in cash and cash equivalents acquired of €14.8 million 

(2005: €12.5 million). 

The total price of subsidiaries sold amounted to €3,443.0 

million (2005: €335.4 million), €3,439.7 million of which was 

settled by cash and cash equivalents (2005: €328.4 million). The 

disposals involved an outflow of cash and cash equivalents of 

€97.6 million (2005: €60.2 million). 

(27) Cash and cash equivalents 

The cash and cash equivalents of €444.3 million (2005: €400.9 

million) correspond to the cash and cash equivalents available as 

of the balance sheet date. 

Cash and cash equivalents include credit balances at banks 

(term to maturity < 3 months) together with checks and cash on 

hand. The carrying amount of cash and cash equivalents pledged 

as collateral amounted to €75.0 million (2005: €81.5 million).

ACTIVE 

Foreword 


NOTES TO THE SEGMENT REPORT 

The section on segment reporting shows the financial position 

and performance of the RAG Beteiligungs-Group broken down by 

business segment and region. 

(28) Reporting by business segment 

The segment reporting takes into account the Group’s internal 

reporting and organizational structures and its grouping of similar 

products and services. In the course of the strategic restructuring 

of the RAG Beteiligungs-Group in preparation for the IPO, the 

management structure for reporting purposes will be changed as 

of January 1, 2007. The segment reporting is already based on the 

future reporting structure. The new industrial enterprise will be 

subdivided into the segments Technology Specialties, Consumer 

Solutions, Specialty Materials, Energy, and Real Estate. 

(a) Technology Specialties 

The Technology Specialties segment bundles the specialty 

technologies of the RAG Beteiligungs-Group in organic and inorganic 

synthetic chemistry as well as the expertise in particle 

and filler technology. The products are then processed primarily 

by companies of the pharmaceuticals, chemical, plastics, rubber, 

and paper industries. These include organic specialties and intermediate 

products that are important components in the synthesis 

of pharmaceuticals and agrochemicals as well as input materials 

for the plastics industry. Hydrogen peroxide, for instance, is a 

significant bleaching and oxidizing agent for the paper and pulp 

industry. Particle and filler systems based on carbon blacks and 

silica from this segment are used in particular in the tire industry 

for rubber reinforcement. 

(b) Consumer Solutions 

The Consumer Solutions segment has extensive know-how in 

the area of applied interfacial and polymer chemistry, primarily 

serving customers in the consumer goods industry in the areas of 

body care, hygiene and nutrition. The products of this segment 

are customized substances and system solutions which produce 

shampoos to make hair smooth and glossy, skin-protecting and 

age-defying creams, environmentally-friendly laundry detergents, 

super-absorbent diapers, and premium feeds for livestock. 


Notes 




(c) Specialty Materials 

The Specialty Materials segment encompasses all business of the 

RAG Beteiligungs-Group involving high-performance materials, 

which hold leading competitive positions due to superior material, 

processing, and application competence. Many of the products 

are manufactured in a chemical production network on the 

basis of methyl methacrylate. This segment’s materials are used 

primarily for the industrial production of durable industrial goods 

and capital goods, especially in the automotive, construction, 

aviation and aerospace industries. Customers utilize our highquality 

polymers as transparent plastics in the semi-finished 

products area, as resin and coating additives, and as structural 

components for demanding applications in automotive and 

aircraft construction. 

(d) Energy 

The Energy segment bundles commercial power and heat production 

activities with power plant-related services. The Energy 

segment is the market and technology leader in coal-fired 

electricity generation, it utilizes refinery byproducts for supplying 

energy, and is increasingly active in the field of renewable energies. 

The total installed electrical output is around 9,000 megawatts. 

Germany’s fifth-largest power generator operates eight 

coalfired power plants across the country as well as an additional 

three large-scale coal-fired power plants in Columbia, Turkey, and 

the Philippines. This segment’s competence covers the entire 

value chain of coal-fired power plants, from planning and financing 

to construction and plant operation. Own in-house global 

coal trading activities ensure that fuel is procured at low cost. The 

Energy segment offers supply and disposal services for residues 

from power plants and industrial facilities. It also has a strong 

competitive position in contiguous technologies such as the 

production of energy from refinery byproducts, biomass, biofuel, 

and in geothermal energy generation. The segment is the global 

leader in the use of mine gas for energy generation. 

(e) Real Estate 

The Real Estate segment focuses on residential real estate with 

an emphasis on leasing residential units to private households. 

The segment also actively manages its housing portfolio. A small 

portion of the housing portfolio is sold each year based on comprehensive 

analyses that take into account cost effectiveness, 

expected future maintenance expenses, regional focuses, and 

the state of repair of the buildings. The segment rounds out its 

109

110 

activities with the development and construction of turn-key 

single family homes, duplexes, and condominiums to be sold to 

end users and investors. Nearly the entire housing portfolio is 

located in North Rhine-Westphalia. Significant locations are 

Essen as well as the regional companies in Dortmund, Duisburg, 

and Herzogenrath. With a total of more than 65,000 residential 

units, RAG Beteiligungs-Group is one of the largest residential 

property companies in Germany. 

(f) Other, consolidation 

“Other, consolidation” includes the Group activities that are not 

assigned to a segment or the Corporate Center. In addition, it 

includes effects from intercompany elimination. Continuing operations 

that were no longer among the core activities were reclassified 

from the segments to “Other, consolidation.” The segment 

data of the previous year were adjusted accordingly. The changes 

of the previous year’s values under “Other, consolidation” were 

primarily related to the reclassification of land development/ 

commercial real estate and real estate services out of the Real 

Estate segment. The significant segment data attributable to 

this for 2005 are shown below: 

€ million 2005 

Sales 87.3 

Segment results (continuing operations) – 35.9 

Segment assets (as of December 31) 227.1 

Segment liabilities (as of December 31) 82.1 

(29) Reporting by geographical segment 

The definition of segments by region follows geographical 

criteria that are explained in detail below. 

(30) Notes to the segment data 

The segment data are derived from the consolidated data of the 

companies included in each segment as well as the consolidation 

effects that have arisen on the level of RAG Beteiligungs-AG and 

can be assigned to the segment. This relates primarily to goodwill 

and hidden reserves and charges together with any resulting 

effect on income. The segment data are explained below: 

External sales represents the sales generated by the segments 

with counterparties outside the RAG Beteiligungs-Group. 

Sales generated between business segments are shown as intersegment 

sales. Inter-segment sales are billed as if they were to 

third parties. Sales by region is segmented in accordance with the 

location of the customer. 

The Company’s internal control variable is return on capital 

employed (ROCE). It is determined by comparing the performance 

variable EBIT (earnings before interest and taxes) with capital 

employed. Capital employed is recognized at the value of the 

reporting date for determining the key figures. 

The Management Board considers EBIT in particular as a 

suitable standard for measuring the operating performance of 

each segment as it contains the significant variables that the 

management of the particular segment can influence. EBIT shows 

earnings before interest and taxes, adjusted for non-operating 

items. The non-operating result recognizes business transactions 

that are rarely of significance for purposes of internal control 

after their occurrence and are important for the assessment of 

financial performance. 

In the year under review, the non-operating result came 

to – €701.9 million compared to – €424.3 million in 2005. Income 

of €446.6 million was offset by expenses of €1,148.5 million. 

The income resulted primarily from the disposal of non-core 

activities, including Water Chemicals, the Raylo fine chemicals 

activities, the 49.9 percent interest in SOTEC as well as the 

release of provisions for operations sold. Significant expenses 

related to provisions for part-time retirement and the staff reduction 

in connection with the Group-wide project “Sirius”, charges 

from the project “Degussa 2008” and additional restructuring 

projects within the Chemicals business area, losses from the sale 

of non-core activities as well as impairments in the Chemicals 

business area. Among other things, the 2005 value of – €424.3 

million was influenced by charges related to the divestment of 

non-core activities due to impairment losses in the Chemicals 

business area. 

In determining EBITDA, EBIT is adjusted for depreciation/ 

amortization, impairment losses and reversals of impairment 

losses which are not already a component of the non-operating 

result. The EBITDA margin is derived from the ratio of EBITDA to 

sales.

ACTIVE 

Foreword 


The reconciliation shown below represents the relation 

between the internal control variables EBITDA and EBIT and the 

external performance variables segment result and profit/loss 

before income expense of the continuing operations: 


EBITDA 

+/– depreciation, amortization, 

impairment losses/reversal of 

+ 2,280.1 + 2,107.2 

impairment losses 

+/– depreciation, amortization, 

impairment losses/reversal of 

impairment losses related to 

– 1,476.2 – 1,280.1 

non-operating activities + 429.7 + 281.1 

= EBIT + 1,233.6 + 1,108.2 

+/– non-operating result 

+/– result of investments accounted 

– 701.9 – 424.3 

for using the equity method – 50.0 – 70.1 

+/– other financial result – 24.6 – 10.9 

= Segment result + 457.1 + 602.9 

+/– financial result – 404.2 – 343.8 

= Profit before tax 

(continuing operations) + 52.9 + 259.1 

Capital employed is calculated by first determining the sum 

of intangible assets, property, plant and equipment, investments, 

investment properties, inventories, trade receivables, and other 

non-interest bearing assets and subtracting from this sum the 

non-interest-bearing provisions, trade payables, and other noninterest 

bearing liabilities and deferred tax liabilities. 

Capital expenditures relates to additions to intangible 

assets (excluding goodwill arising from business combinations), 

property, plant and equipment, and investment properties in 

the period under review. Additions resulting from changes in the 

scope of consolidation are not included. Capital expenditures by 

region is segmented in accordance with the location of the company. 

Depreciation and amortization relate to intangible assets, 

property, plant and equipment, and investment properties. 

Other non-cash expenses mainly include impairment losses 

on segment assets, allocations to provisions, expenses arising 

from accounting using the equity method, and the reversal of 

prepaid expenses. 


Notes 




The segment result corresponds to profit/loss before 

financial profit/loss and income tax expense of the continuing 

operations. 

Segment assets comprise intangible assets, property, plant 

and equipment, investment properties, inventories, and noninterest-bearing 

receivables (excluding receivables relating to 

tax assets). In addition, the segment assets include amounts for 

the sale of non-current assets held for sale and disposal groups, 

if they can be allocated to the continuing operations. Assets by 

region are segmented in accordance with the location of the 

company. 

The segment assets are reconciled with total assets as 

follows: 


Segment assets 16,658.0 17,683.9 

+ adjustments of segment assets 

in previous year – 2,687.1 

+ deferred taxes 496.7 1,086.2 

+ current tax assets 95.0 96.9 

+ investments accounted for 

using the equity method 279.4 414.7 

+ other investments 103.3 153.5 

+ loans 331.2 326.2 

+ securities and securities-type 

claims 27.2 115.6 

+ receivables from finance leases 1,311.1 1,321.4 

+ other financial assets 5.1 8.3 

+ cash and cash equivalents 444.3 400.9 

+ non-current assets held for 

sale and disposal groups 1,314.6 898.1 

– non-current assets held for 

sale and disposal groups 

(included in segment assets) – 22.6 – 259.3 

= Total assets 21,043.3 23,750.4 

111

112 

Segment liabilities comprise provisions and non-interest- 

bearing liabilities (excluding tax liabilities). Moreover, the segment 

liabilities contain amounts for liabilities of a disposal group if 

they can be allocated to the continuing operations. The liabilities 

can be reconciled with total assets as follows: 


Segment liabilities 8,733.2 9,286.0 

+ adjustments of segment liabilities 

in previous year – 1,201.2 

+ equity 4,319.8 5,249.3 

+ deferred taxes 961.4 1,494.3 

+ current tax liabilities 338.2 405.3 

+ bonds 1,265.7 1,456.1 

+ liabilities to banks 3,858.1 3,257.3 

+ loans from non-banks 110.4 116.5 

+ liabilities under finance leases 140.1 150.0 

+ other financial liabilities 468.7 960.6 

+ liabilities of the disposal groups 857.7 252.1 

– liabilities of the disposal groups 

(included in segment liabilities) – 10 – 78.3 

= Total equity and liabilities 21,043.3 23,750.4 

In contrast to the previous year, solely the continuing 

operations are shown in the segment reporting. The total segment 

data for 2005 was adjusted to reflect the new form of presentation. 

Amounts reclassified from the segment assets and segment 

liabilities for the adjustment of the previous year’s figures 

for the discontinued operations Construction Chemicals, Gas 

Distribution, and Mining Technology are shown separately in 

the corresponding reconciliation to total assets. 

Segment result of the discontinued operations 

The table below reconciles the segment results of the discontinued 

operations to their profit/loss after income tax expense. 

The segment result corresponds to profit/loss before financial 

profit/loss and income tax expense. 


Construction Chemicals + 1,304.5 + 182.8 

Gas Distribution + 33.8 + 5.3 

Mining Technology + 72.0 + 55.7 

Food Ingredients 

Segment result 

+ 27.9 + 18.6 

(discontinued operations) + 1,438.2 + 262.4 

Financial result + 11.3 – 1.2 

Income tax expense 

Profit after income tax 

340.6 49.7 

(discontinued operations) + 1,108.9 + 211.5 

The Food Ingredients business is part of the Consumer 

Solutions segment. The remaining discontinued businesses are 

not allocated to any particular segment.

OTHER DISCLOSURES 

ACTIVE 

Foreword 


(31) Earnings per share 

Basic earnings per share as reported on the income statement 

reflects net income divided by the weighted average number of 

shares outstanding. Net income is defined as total net profit for 

the year after profits attributable to minority interests and 

including the result from discontinued operations. Earnings per 

share may be diluted by potential common shares. 

Number of shares 2006 2005 

Weighted average number 

of shares outstanding (basic) 

Potentially diluting common 

466,000,000 466,000,000 

shares 

Weighted average number 

– – 

of shares outstanding (diluted) 466,000,000 466,000,000 



(continuing operations) 


+ 42.6 + 76.5 

(discontinued operations) 

Profit after tax attributable 

+ 1,108.9 + 211.5 

to minority interests 

Profit after tax attributable 

to equity holders of 

+ 106.2 + 92.9 


Basic and diluted earnings 

per share in EUR 

from continuing 

+ 1,045.3 + 195.1 

operations 

from discontinued 

+ 0.09 + 0.17 

operations + 2.38 + 0.45 

minority interests 

Earnings per share (basic 

and diluted) in € attributable 

to equity holders of RAG 

+ 0.23 + 0.20 

Beteiligungs-AG (net income) + 2.24 + 0.42 


Notes 




Performance-related remuneration 

In addition to base remuneration and short-term incentives, the 

remuneration of the RAG Beteiligungs-Group contains the longterm 

incentive plan (LTI Plan) for executives of the Degussa subgroup. 

The Degussa LTI plan is recognized as a non-current remuneration 

component by applying IAS 19 “Employee Benefits.” 

As a component of this plan, Degussa offers its executives 

performance options. By availing themselves of these options, 

they participate in the performance of the Company and thus in 

its long-term corporate success. The value of these options is 

not tied to the value of the Company’s stock price but instead is 

calculated based on defined key business figures. 

The key figures ROCE and EBITDA (as EBITDA outperformance 

compared to a peer group of specialty chemicals companies) 

were selected as measurement variables for the Degussa LTI plan. 

113

114 

The Degussa LTI plan is offered to the members of the 

Management Board of Degussa (until 2005) and to around 190 

Degussa executives. The scope of participation in the LTI plan is 

based on the number of performance options allocated, which is 

determined by the Supervisory Board Steering Committee of 

Degussa for the members of the Management Board or by the 

Management Board for the eligible executives. 

The number of performance options allocated under the 

Degussa LTI plans for 2003 to 2006 is shown below: 

2006 2005 2004 

LTI-Plan 

2003 

Balance as of January 1 0 1,093,551 1,020,442 643,778 

Issued 808,042 0 0 0 

Exercised 0 0 0 0 

Lapsed 21,700 205,400 191,700 122,129 

Balance as of December 31 786,342 888,151 828,742 521,649 

A term of five years was set for each of the Degussa LTI 

plans for 2003 to 2006. The five-year term of the LTI plan is 

broken down into an initial two-year waiting period within which 

the performance options may not be exercised and a three-year 

exercise period including four exercise windows. 

For the performance options to be exercised, a specific ROCE 

target value for Degussa must first be exceeded. If ROCE exceeds 

this exercise hurdle, the number of exercisable performance 

options changes in relation to the ROCE value achieved. The calculation 

formula to be used is determined based on the capital 

costs of the Degussa subgroup (WACC – weighted average cost of 

capital) and must be redefined annually for each plan. 

The value of the exercisable performance options is calculated 

based on EBITDA performance. The value for Degussa must 

at least correspond to the average EBITDA performance of the 

peer group companies in order for the performance options to 

retain their value. If this threshold is exceeded, the value of the 

performance options changes as a function of the EBITDA outperformance 

achieved by Degussa compared to the peer group. 

The provision for the LTI plan comes to €10 million in the 

year under review (2005: €5 million). The underlying economic 

data made it impossible to exercise options in the reporting year 

for the LTI plans for 2003 and 2004 and thus no payments were 

made. The beneficiaries of the LTI plan for 2003 were eligible to 

exercise for the first time in 2005. The resulting payment was €16 

million, of which approximately 7 percent was paid to members 

of the Management Board of Degussa. 

Related parties 

Over and above the subsidiaries included in the consolidated 

financial statements, the RAG Beteiligungs-Group also maintains 

relationships with related parties. All material relationships 

under corporate law with subsidiaries, associates and related 

companies are included in the list of major shareholdings after 

the Independent Auditors’ Report. 

Related parties with which the RAG Beteiligungs-Group 

maintains business relationships are significant associates and 

joint ventures of the RAG Beteiligungs-Group, RAG Aktiengesellschaft 

as sole shareholder of RAG Beteiligungs-AG, affiliated 

companies of RAG Beteiligungs-AG in the RAG Group and the following 

shareholders of RAG Aktiengesellschaft that can exert a 

significant influence, together with selected group companies: 

E.ON AG, RWE AG, and ThyssenKrupp AG.

ACTIVE 

Foreword 


The value of transactions between the RAG Beteiligungs- 

Group and these companies was as follows: 

The receivables as of the balance sheet date relate for the 

most part to supplies of coal and electricity and financial relationships 

with RAG. The liabilities mainly consist of deferred 

income from the settlement of contractual adjustments relating 

to the purchase of electricity and liabilities from the supply of 

coal and electricity as well as liabilities from financial relationships 

with RAG. In addition, receivables and liabilities from the 

supply of gas were included in the previous year. 

Furthermore, RAG Beteiligungs-AG acquired am additional 

42.68 percent of the shares in Degussa from E.ON., see Notes 

regarding “Scope of Consolidation.” 

The sole shareholder RAG Aktiengesellschaft centrally 

provides management, control and administrative services for 

RAG Beteiligungs-AG, the charges for which are not passed on to 

RAG Beteiligungs-AG. Based on the total costs incurred by RAG in 

the past, the amount estimated for this purpose comes to €110.7 

million. 


Notes 




RAG Affiliated Equity holders of 

Beteiligungs-Group RAG AG companies RAG AG 

€ million 2006 2005 2006 2005 2006 2005 2006 2005 

Goods and services supplied 139.3 831.8 322.3 451.6 10.4 50.6 1,365.2 1,284.1 

Goods and services received 41.6 137.2 308.3 264.6 5.8 96.3 248.2 1,214.6 

Other income 1.6 0.9 3.9 23.8 1.3 5.4 8.2 23.7 

Other expense – – 148.1 129.1 – 4.3 0.2 0.2 

Receivables as of December 31 62.6 119.5 149.1 151.6 – 4.2 174.2 256.2 

Liabilities as of December 31 55.6 55.0 531.8 1,217.7 9.1 32.3 95.2 212.0 

Related parties include the management members who are 

directly or indirectly competent and responsible for the planning, 

management, and monitoring of the Company’s activities as well 

as their family members. In the RAG Beteiligungs-Group, these 

parties have included the Management Board and Supervisory 

Board of RAG Beteiligungs-AG (formerly the management and 

advisory council of the former RAG Beteiligungs-GmbH) since 

September 14, 2006 as well as the other management of the RAG 

Beteiligungs-Group. Other management consists of the Management 

Board and managing directors of subgroup parent companies. 

The managing directors of the former RAG Beteiligungs- 

GmbH are senior executives of RAG Aktiengesellschaft and 

received no separate payments from the Company for their 

activity. 

The advisory council of RAG Beteiligungs-GmbH received 

€0.1 million (2005: €0.1 million) for its activity. 

The following payments were made to the Management 

Board and the Supervisory Board of RAG Beteiligungs-AG and the 

other management of the RAG Beteiligungs-Group: 

Management Board 

members of Other 

RAG Beteiligungs-AG management 


Current benefits due 5.2 – 15.5 13.4 

Post-employment benefits 13.1 – 27.8 37.0 

Termination benefits – – 13.1 3.1 

LTI Plan as of December 31 – – – 1.1 

115

116 

Post-employment benefits include pension obligations 

at the present value of the defined benefit obligations. Pension 

benefits earned in the year under review (current service cost) 

amounted to €2.8 million (2005: €2.1 million). 

Apart from the relationships stated above, the RAG Beteiligungs-Group 

maintained no other significant relationships with 

related parties. 

Contingent Liabilities and Other Financial 

Commitments 

The RAG Beteiligungs-Group recorded the following contingent 

liabilities as of the balance sheet date: 


Obligations from the issue and 

transfer of bills of exchange – 0.2 

Obligations from guarantees 198.3 363.7 

Liabilities on warranties 209.3 257.7 

407.6 621.6 

Legal liabilities exist for investments in general partnerships, 

collectively owned enterprises, and as the general partner 

in limited partnerships. 

The following additional financial obligations also exist: 

The nominal values of obligations in relation to future 

minimum lease payments on assets leased under operating 

leases are due as follows: 


Due within 1 year 57.6 71.3 

Due in 1 – 5 years 265.9 203.8 

Due in more than 5 years 161.9 157.2 

485.4 432.3 

In the period under review, payments on operating leases 

of €76.4 million (2005: €111.0 million) were recognized in income. 

This sum included contingent rental payments of €0.1 million 

(2005: €0.0 million). 

Events after the balance sheet date 

The publication of these consolidated financial statements was 

approved by the Management Board of RAG Beteiligungs-AG on 

the date of signing. 

DISCLOSURES IN ACCORDANCE WITH NATIONAL 

REQUIREMENTS 

Disclosures pursuant to Section 313 (2) and 313 (4) of 

the German Commercial Code (HGB) 

The disclosures with respect to the shareholdings of RAG Beteiligungs-AG 

and of the RAG Beteiligungs-Group are not made in 

the Notes but rather in a separate list. This list indicates which of 

these companies have availed themselves of the exemptions 

allowed by Section 264(3) of the HGB with respect to the disclosure 

of annual financial statements and the preparation of the 

notes to the accounts and the management report. 

Number of employees pursuant to Section 314 (1) No. 4 

of the HGB 

The number of employees as an average for the year in the 

continuing operations was as follows: 





Energy 4,798 4,795 


Other 11,402 13,484 

In addition, an average number of 7,701 persons (2005: 

13,522) were employed in the discontinued operations. 

Compensation of the Supervisory Board and Management 

Board pursuant to Section 314 (1) no. 6 of the HGB 

The managing directors of the former RAG Beteiligungs-GmbH 

are senior executives of the sole shareholder RAG Aktiengesellschaft 

and receive no separate payments from the Company for 

their activity; see also the Notes pertaining to “Related Parties.” 

The remuneration paid to the Advisory Council totaled 

€76,983.33 in 2006. 

The remuneration paid to the Management Board of RAG 

Beteiligungs-AG in 2006 totaled €5,150,457.54. 

No remuneration was paid to the Supervisory Board in 2006. 

Essen, March 8, 2007 


The Management Board 

43,715 45,145 

Dr. Müller Dr. Engel Dr. Oberholz Dr. Schörner 

Dr. Tacke Wagner Weber

Auditor’s Report 

Auditor’s Report 

ACTIVE 

Foreword 


“We have audited the consolidated financial statements 

prepared by the RAG Beteiligungs-AG, Essen, comprising the 

balance sheet, the income statement, statement of changes 

in equity, cash flow statement and the notes to the consolidated 

financial statements, together with the group management 

report, which is combined with the management report of the 

parent company, for the business year from January 1 to December 

31, 2006. The preparation of the consolidated financial 

statements and the combined management report in accordance 

with the IFRSs, as adopted by the EU, and the additional requirements 

of German commercial law pursuant to Section 315a (1) 

HGB (“Handelsgesetzbuch”: German Commercial Code) are 

the responsibility of the parent company’s Board of Managing 

Directors. Our responsibility is to express an opinion on the consolidated 

financial statements and on the combined management 

report based on our audit. 

We conducted our audit of the consolidated financial statements 

in accordance with Section 317 HGB and German generally 

accepted standards for the audit of financial statements promulgated 

by the Institut der Wirtschaftsprüfer (Institute of Public 

Auditors in Germany) (IDW). Those standards require that we 

plan and perform the audit such that misstatements materially 

affecting the presentation of the net assets, financial position 

and results of operations in the consolidated financial statements 

in accordance with the applicable financial reporting framework 

and in the combined management report are detected with 

reasonable assurance. Knowledge of the business activities and 

the economic and legal environment of the Group and expectations 

as to possible misstatements are taken into account in the 

determination of audit procedures. The effectiveness of the 

accounting-related internal control system and the evidence supporting 

the disclosures in the consolidated financial statements 

and the combined management report are examined primarily 

on a test basis within the framework of the audit. The audit 

includes assessing the annual financial statements of those 

entities included in consolidation, the determination of the 


Notes 


entities to be included in consolidation, the accounting and 

consolidation principles used and significant estimates made by 

the Parent Company´s Board of Managing Directors, as well as 

evaluating the overall presentation of the consolidated financial 

statements and the combined management report.We believe 

that our audit provides a reasonable basis for our opinion. 

Our audit has not led to any reservations. 

In our opinion based on the findings of our audit the consolidated 

financial statements comply with the IFRSs as adopted by 

the EU and the additional requirements of German commercial 

law pursuant to Section 315a (1) HGB and give a true and fair view 

of the net assets, financial position and results of operations of 

the Group in accordance with these requirements. The combined 

management report is consistent with the consolidated financial 

statements and as a whole provides a suitable view of the 

Group’s position and suitably presents the opportunities and 

risks of future development.” 

Duesseldorf, March 9, 2007 

PricewaterhouseCoopers 

Aktiengesellschaft 

Wirtschaftsprüfungsgesellschaft 



Dr. Vogelpoth Sprinkmeier 

Wirtschaftsprüfer Wirtschaftsprüfer 

117

118 


Dr. Wulf H. Bernotat, Chairman 

Ladies and Gentlemen, 

During the past fiscal year, the Supervisory Board maintained 

continuous dialog with the Management Board of RAG Beteiligungs-AG 

and advised and monitored the Management Board in 

its management of the Group. The Supervisory Board was 

apprised of the Group’s performance and of strategic and operational 

issues in the development of the Group at two Supervisory 

Board meetings. The Management Board also provided us with 

written reports on business performance and on issues of particular 

interest. The Supervisory Board has been directly involved in 

all decisions requiring its consent and has made such decisions 

after a period of intensive review. 

The Chairman of the Supervisory Board was informed in 

detail and without delay of events of material importance to the 

performance of the business and the management of the Group, 

both in the context of and outside of Supervisory Board meetings. 

The Steering Committee supported the Supervisory Board in 

the preparation of its work, as did the Finance and Capital Expenditures 

Committee. Discussions during the past fiscal year were 

dominated by the ongoing positioning of the Group to meet 

capital market requirements. The Group achieved major milestones 

in optimizing its portfolio with the complete acquisition 

of Degussa AG, disposal of the Construction Chemicals business 

by Degussa AG, and finding an investor for DBT GmbH. Project 

“Sirius”, which involved changes to the corporate and Group

organization, was the subject of intense discussions at Supervisory 

Board meetings. The resulting Group restructuring was completed 

in the year under review, paving the way for significant 

gains in efficiency. All of the steps in this process were carried out 

in close coordination with the Supervisory Board. 

PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, 

Düsseldorf, has audited the annual financial 

statements of RAG Beteiligungs-AG, the consolidated 

financial statements, and the combined management report of 

RAG Beteiligungs-AG and the Group and endorsed them with an 

unqualified audit opinion pursuant to Section 322 of the German 

Commercial Code (HGB). The audit engagement for the annual 

financial statements also included an audit of risk management 

procedures voluntarily requested by the Supervisory Board. The 

financial statements, the combined management report, and the 

auditors’ reports have been supplied to all members of the 

Supervisory Board. The financial statements were discussed in 

great detail in the financial review meeting of the Supervisory 

Board. The auditor reported on the material findings of the audit 

at the financial review meeting. We concur with the findings 

of the auditor and raise no objections to the reports. The Supervisory 

Board has approved the annual financial statements and 

the consolidated financial statements. The annual financial 

statements for 2006 have thus been ratified. 

The Supervisory Board wishes to thank the members of 

the Management Board and the employees and works council 

members of RAG Beteiligungs-AG and its affiliated companies 

for their hard work and dedication. We would particularly like to 

thank all employees celebrating service anniversaries in the year 

under review as well as those employees who retired in 2006 for 

their many years of service to the Company. Together with the 

Management Board, we remember all those employees who 

passed away during the year and convey our deepest sympathies 

to their families and friends. 

The Supervisory Board 

Essen, March 2007 

Dr. Wulf H. Bernotat, Chairman 

ACTIVE 

Foreword 



Notes 




119

120 

Corporate Bodies and Offices Held 

SUPERVISORY BOARD OF RAG BETEILIGUNGS-AG 

Dr. Wulf H. Bernotat, Duesseldorf 

Chairman 

Chairman of the Management Board of E.ON AG 

a) Allianz AG 

Bertelsmann AG 

E.ON Energie AG (Chair) 

E.ON Ruhrgas AG (Chair) 

Metro AG 

RAG Aktiengesellschaft (Chair) 

b) E.ON US Investments Corp. (Chair) 

E.ON Nordic AB (Chair) 

E.ON Sverige AB (Chair) 

E.ON UK plc (Chair) 

Hubertus Schmoldt, Hanover 

First Deputy Chairman 

Secretary General of the Mining, Chemical and Energy 

Industrial Union (IG BCE) 

a) Bayer AG 

Deutsche BP AG 

DOW Olefinverbund GmbH 

E.ON AG 

RAG Aktiengesellschaft 

Fritz Kollorz, Recklinghausen 

Deputy Chairman 

Former Member of the National Executive of the Mining, 

Chemical and Energy Industrial Union (IG BCE) 

a) DSK Anthrazit Ibbenbüren GmbH 


STEAG Aktiengesellschaft 

TUI AG 

Vattenfall Europe AG 

Vattenfall Europe Generation Verwaltungs-AG 

Ludwig Ladzinski, Bottrop 


Chairman of the Working Group of Works Councils 

in the RAG Group and 

Chairman of the General Works Council of 

Deutsche Steinkohle AG 

a) RAG Aktiengesellschaft 

Dr.-Ing. Ekkehard D. Schulz, Duesseldorf 


Chairman of the Management Board of ThyssenKrupp AG 

a) AXA Konzern AG 

Bayer AG 

MAN Aktiengesellschaft (Chair) 


RWE AG 

ThyssenKrupp Elevator AG (Chair) 

ThyssenKrupp Services AG (Chair) 

ThyssenKrupp Technologies AG (Chair) 

Jan Zilius, Cologne 


Member of the Management Board of RWE AG 

a) Harpen AG (Chair) 


RWE Dea AG (Chair) 

RWE Energy AG

Martin Becker, Großrosseln 

ACTIVE 

Foreword 


Deputy Chairman of the Works Council of the Saar Mine, 


Berthold A. Bonekamp, Essen 


a) Berlinwasser Holding AG 


RheinEnergie AG 

RWE Rhein-Ruhr AG (Chair) 

RWE Westfalen-Weser-Ems AG (Chair) 

STEAG Aktiengesellschaft* 

b) Berliner Wasserbetriebe AöR 

RWE Energy Nederland B.V. 

RWE Npower Holdings plc 

STOEN S.A. (Chair) 

V´ychodoslovenská energetika, a. s. 

Klaus Brandner, MdB, Berlin 

SPD spokesman on the economy and employment in the 

German Bundestag 


Dr. Ludger Diestelmeier, Essen 

Managing Director of the administrative company 

RAG Beteiligung mbH 

Dr. Hans Michael Gaul, Duesseldorf 

Member of the Management Board of E.ON AG 

a) Allianz Versicherungs-AG 

Degussa AG* 

DKV Deutsche Krankenversicherung AG 

E.ON Energie AG 

E.ON Ruhrgas AG 


STEAG Aktiengesellschaft* 

VOLKSWAGEN AG 

b) E.ON Nordic AB 

E.ON Sverige AB 

Ralf Giesen, Hanover 

Secretary of the Board of the Mining, 

Chemical and Energy Industrial Union (IG BCE) 

a) Altana AG 



Notes 




Dietmar Hexel, Berlin 

Member of the Managing Board of the German 

Confederation of Trade Unions (Deutscher Gewerkschaftsbund) 

a) Georgsmarienhütte Holding GmbH 


b) DGB Vermögenstreuhandgesellschaft mbH 

Wolfgang Junge, Hamm 

Chairman of the Works Council of the Ost Mine 


Dr. Manfred Krüper, Duesseldorf 

Member of the Management Board of E.ON AG 

(until November 30, 2006) 

a) Degussa AG* 

E.ON Energie AG 

equitrust Aktiengesellschaft (Chair) 


VICTORIA Lebensversicherung AG 

VICTORIA Versicherung AG 

b) E.ON North America, Inc. (Chair) 

Dr. Norbert Lammert, MdB, Berlin 

President of the German Bundestag 


b) Kultur Ruhr GmbH 

Ruhrfestspiele Recklinghausen GmbH 

Ingrid Matthäus-Maier, Frankfurt 

Speaker of the Management Board of KfW 

Bankengruppe (effective October 1, 2006) 

a) Deutsche Post AG 

Deutsche Telekom AG 


Salzgitter Mannesmann Handel GmbH 

121

122 

Prof. h.c. (CHN) Dr. Ulrich Middelmann, Duesseldorf 

Deputy Chairman of the Management Board of ThyssenKrupp AG 

a) Commerzbank AG 

E.ON Ruhrgas AG 

LANXESS AG 

LANXESS Deutschland GmbH 


ThyssenKrupp Elevator AG 

ThyssenKrupp reinsurance AG (Chair) 

ThyssenKrupp Stainless AG (Chair) 

ThyssenKrupp Steel AG (Chair) 

b) Hoberg & Driesch GmbH (Chair) 

ThyssenKrupp Acciai Speciali Terni S.p.A. 

ThyssenKrupp (China) Ltd. 

ThyssenKrupp Risk and Insurance Services GmbH (Chair) 

Elvira Rohde, Essen 

Chair of the Group Works Council of RAG 

Aktiengesellschaft (until December 31, 2006) 


Dr. Klaus Sturany, Dortmund 


a) Commerzbank AG 

Hannover Rückversicherung AG 

Heidelberger Druckmaschinen AG 


RWE Energy AG 

RWE Power AG 

RWE Systems AG (Chair) 

b) Österreichische Industrieholding AG 

RWE Npower Holdings plc 

Gerald Weiss, MdB, Berlin 

Chairman of the Committee on Labor and 

Social Issues of the German Bundestag 

a) RAG Aktiengesellschaft

ACTIVE 

Foreword 


MANAGEMENT BOARD OF RAG BETEILIGUNGS-AG 

Dr. Werner Müller, Muelheim a. d. Ruhr 

Chairman 

a) Degussa AG (Chair) 

Deutsche Bahn AG (Chair) 

Deutsche Steinkohle Aktiengesellschaft (Chair) 

STEAG Aktiengesellschaft (Chair) 

b) g.e.b.b. Gesellschaft für Entwicklung, Beschaffung 

und Betrieb mbH (Chair) 

Stadler Rail AG 

Dr. Klaus Engel, Muelheim a.d. Ruhr 

b) Degussa International AG (President) 

Personalstiftung of Degussa International AG 

Degussa CEE GmbH (Chair) 

Dr. Alfred Oberholz, Marl 

a) Oxeno Olefinchemie GmbH (Chair) 

b) Degussa Antwerpen NV (Chair) 

Degussa Brasil Ltda. 

Degussa (China) Co., Ltd. (Chair) 

Degussa Corp. 

Degussa Taiwan Ltd. (Chair) 

Dr. Peter Schörner, Bochum 

a) Degussa AG 

Deutsche Steinkohle Aktiengesellschaft 

STEAG Aktiengesellschaft 

b) RAG BILDUNG GmbH 

Dr. Alfred Tacke, Essen 

a) Saar Ferngas AG (Chair) 

STEAG Saar Energie AG (Chair) 


Notes 




Heinz-Joachim Wagner, Bad Nauheim 

b) Degussa Brasil Ltda. (Chair) 

Degussa Corp. (Chair) 

Pensionskasse Degussa VvaG 

Degussa Bank GmbH 

WestLB 

B. Metzler Seel. Sohn & Co. Holding AG 

B. Metzler Seel. Sohn & Co. KGaA 

Ulrich Weber, Krefeld 

a) Degussa AG 

Deutsche Montan Technologie GmbH (Chair) 

Deutsche Steinkohle Aktiengesellschaft 

HDI Privat Versicherung AG 

HDI Industrie Versicherung AG 

HDI Service AG 

STEAG Saar Energie AG 

Saar Ferngas AG 

b) RAG BILDUNG GmbH (Chair) 

a) Membership on other statutory 

supervisory boards (on December 31, 2006) 

b) Membership on comparable German and foreign 

supervisory bodies of business enterprises 

(on December 31, 2006) 

* until December 31, 2006 

Degussa AG, as of January 2, 2007 Degussa GmbH 

STEAG AG, as of January 2, 2007 STEAG GmbH 

123

124 


Equity 1) RAG Beteiligungs-AG share including 

holdings pursuant to Section 16 AktG 

As of December 31, 2006 Direct Indirect Total 

I. Consolidated companies 

Other companies 

Germany 

€ million % % % 

1. RAG Immobilien Holding GmbH, Essen 168.0 100.00 100.00 

2. RAG Projekt-Beteiligungs-GmbH & Co. KG, Essen 343.3 99.00 99.00 

3. RAG Projektgesellschaft mbH, Essen 6,514.1 100.00 100.00 

4. RBV Verwaltungs-GmbH (formerly RB Verwaltungsgesellschaft 

für die Beteiligung an der Rütgerswerke mbH), Essen 251.9 100.00 100.00 

Subgroup RAG IMMOBILIEN 

Germany 

5. RAG Immobilien GmbH (formerly RAG Immobilien AG), Essen 121.5 5.00 95.00 100.00 

6. Aachener Bergmannssiedlungsgesellschaft mbH, Herzogenrath 29.5 100.00 100.00 

7. EBV GmbH, Herzogenrath 30.1 100.00 100.00 

8. Gesellschaft für Wohnen Datteln mbH, Datteln 23.1 73.40 73.40 

9. Lünener Wohnungs- und Siedlungsgesellschaft mbH, Lünen 36.0 100.00 100.00 

10. Montan-Grundstücksgesellschaft mbH, Essen 36.6 100.00 100.00 

11. RAG Immobilien Management GmbH 

(formerly RH Immobilien GmbH), Essen 1.1 100.00 100.00 

12. RAG Wohnimmobilien GmbH, Essen 42.5 100.00 100.00 

13. Rhein Lippe Wohnen GmbH, Duisburg 169.2 100.00 100.00 

14. Siedlung Niederrhein GmbH, Dinslaken 56.5 100.00 100.00 

15. Walsum Immobilien GmbH, Duisburg 24.5 94.90 94.90 

16. Wohnbau Auguste Victoria GmbH, Marl 35.1 100.00 100.00 

17. Wohnbau Westfalen Beteiligungs-GmbH, Essen 85.5 100.00 100.00 

18. Wohnbau Westfalen GmbH, Dortmund 138.1 100.00 100.00 

19. Wohnungsbaugesellschaft mbH „Glückauf“, Moers 52.7 100.00 100.00 

Subgroup STEAG 

Germany 

20. STEAG AG, Essen 509.9 5.10 94.90 100.00 

21. RAG Saarberg Energiebeteiligungsgesellschaft mbH, 

Saarbrücken 209.2 100.00 100.00 

22. RAG Saarberg GmbH, Saarbrücken 468.1 94.90 94.90 

23. RAG Trading GmbH, Essen 35.0 100.00 100.00 

24. RAG Verkauf GmbH, Essen 0.5 51.00 51.00 

25. Saar Ferngas AG, Saarbrücken 140.2 76.88 76.88 

26. SOTEC GmbH, Saarbrücken 20.5 50.10 50.10 

27. STEAG Entsorgungs-GmbH, Dinslaken 34.0 100.00 100.00 

28. STEAG Fernwärme GmbH, Essen 20.5 100.00 100.00 

29. STEAG Saar Energie AG, Saarbrücken 40.9 100.00 100.00 

International 

30. Compañia Eléctrica de Sochagota S.A.E.S.P., Tunja 108.3 51.00 51.00 

31. Iskenderun Enerji Üretim ve Ticaret Anonim Sirketi, Ankara 895.0 51.00 51.00

ACTIVE 

Foreword 



Notes 








32. STEAG State Power, Inc., Makati City 75.7 89.00 89.00 

Subgroup RAG Coal International 

Germany 

33. RAG Coal International GmbH 

(formerly RAG Coal International AG), Essen 333.5 100.00 100.00 

34. DBT GmbH, Lünen 53.7 100.00 100.00 

35. RAG Coal International Verwaltungs GmbH, Essen 18.7 100.00 100.00 

36. RÜTGERS Chemicals GmbH (formerly RÜTGERS Chemicals 

Aktiengesellschaft), Castrop-Rauxel 61.1 100.00 100.00 

37. Rütgers GmbH, Essen 457.0 100.00 100.00 

38. RÜTGERS Rail Verwaltungs GmbH, Essen 49.7 100.00 100.00 

39. SAGumex GmbH, Essen 25.6 100.00 100.00 

International 

40. DBT America Inc., Houston 35.6 100.00 100.00 

41. DBT Australia LAD Pty., Argenton 19.2 100.00 100.00 

42. Enerco Holding B.V., Buchten 21.5 100.00 100.00 

43. Mars Laminate Systems Corp. 

(formerly Isola Holdings USA Corp.), Wilmington – 0.3 100.00 100.00 

44. VFT Belgium N.V., Zelzate 30.4 100.00 100.00 

Subgroup Degussa 

Germany 

45. Degussa AG, Düsseldorf 2,739.3 0.58 99.42 100.00 

46. Degussa Initiators GmbH & Co. KG, Pullach 7.3 100.00 100.00 

47. Goldschmidt GmbH, Essen 127.0 100.00 100.00 

48. Oxeno Olefinchemie GmbH, Marl 38.6 100.00 100.00 

49. Röhm GmbH (formerly Röhm GmbH & Co. KG), Darmstadt 168.2 100.00 100.00 

50. RohMax Additives GmbH, Darmstadt 31.2 100.00 100.00 

51. Stockhausen GmbH, Krefeld 127.4 100.00 100.00 

International 

52. Cyro Industries Inc., Rockaway 147.2 100.00 100.00 

53. Degussa (China) Co., Ltd., Peking 62.8 100.00 100.00 

54. Degussa Amalgamation Ltd., Milton Keynes 798.1 100.00 100.00 

55. Degussa Antwerpen N.V., Antwerp 130.0 99.99 99.99 

56. Degussa Brasil Ltda., São Paulo 96.6 100.00 100.00 

57. Degussa Canada Inc., Burlington 47.4 100.00 100.00 

58. Degussa Corporation, Parsippany 1,289.1 100.00 100.00 

59. Degussa Japan Co., Ltd., Tokyo 69.5 100.00 100.00 

60. Degussa UK Holdings Ltd., London 144.6 100.00 100.00 

61. Goldschmidt Chemical Corp., Hopewell – 6.9 100.00 100.00 

62. Laporte Speciality Organics Limited, Milton Keynes 625.6 100.00 100.00 

63. Nippon Aerosil Co., Ltd., Tokyo 47.3 80.00 80.00 

64. RohMax USA, Inc., Horsham 32.8 100.00 100.00 

65. Stockhausen Inc., Greensboro 47.0 100.00 100.00 

125

126 




II. Joint ventures (accounted for using the equity method) 


Germany 


66. Pfalzgas GmbH, Frankenthal 41.4 50.00 50.00 

67. REG Raffinerie-Energie oHG, Köln 5.6 80.00 80.00 

III. Associates (accounted for using the equity method) 


Germany 

68. Fernwärmeversorgung Niederrhein GmbH, Dinslaken 33.2 26.00 26.00 

69. Kraftwerk Bexbach Verwaltungsgesellschaft mbH, Bexbach 24.2 33.33 33.33 

International 

70. ARKAD Deniz Tasimaciligi A.S., Istanbul 25.0 48.90 48.90 

IV. Joint ventures (not accounted for using the equity method) 


Germany 

71. Kraftwerk Voerde STEAG-RWE oHG, Voerde 6.4 75.00 75.00 

V. Associates (not accounted for using the equity method) 


Germany 

72. energis GmbH Dienstleistungen für Energie und Umwelt, 

Saarbrücken 132.3 26.12 26.12 

73. Ferngas Nordbayern GmbH, Nürnberg 8.8 20.00 20.00 

74. SpreeGas Gesellschaft für Gasversorgung und 

Energiedienstleistung mbH, Cottbus 20.6 31.10 31.10 

75. Stadtwerke GmbH Bad Kreuznach, Bad Kreuznach 56.9 24.52 24.52 

76. Stadtwerke Trier Versorgungs GmbH, Trier 47.6 24.90 24.90 

1) Amounts originally denominated in foreign currencies have been translated at the closing rates prevailing in December

Publication Credits 

Publisher 


Rellinghauser Straße 1–11 

45128 Essen, Germany 

E-Mail: info@rag.de 

www.rag.de 

Contact 

Communications and Management Board Office 

Telephone + 49 (0) 201-177 38 99 

Fax + 49 (0) 201-177 29 11 

Investor Relations 

Telephone + 49 (0) 201-177 20 89 

Fax + 49 (0) 201-177 20 97 

investor.relations@rag.de 

Design and layout 

Kuhn, Kammann & Kuhn AG, Cologne, Germany 

Photography 

Vulkanarchiv, Bochum, (cover, p. 2, p. 4) 

Getty Images (p. 6) 

Corbes (p. 8) 

Claudia Kempf, Wuppertal (p. 10) 

Translation 

Gehlert GmbH, Legal and Financial Translations, 

Frankfurt am Main, Germany 

Typesetting 

Zerres GmbH, Leverkusen, Germany 

Printing and lithography 

Laupenmühlen Druck GmbH & Co. KG, Bochum, 

Germany 

127


Rellinghauser Straße 1–11 

45128 Essen 

Germany 

E-Mail: info@rag.de 

www.rag.de

Annual Report 2006 - Evonik Industries

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