FINANCIAL ANALYSIS

At Viterra, the operating profit is used for internal management purposes and as an indicator of the sustained earning power of our business activities. The operating profit is obtained by adjusting the pre-tax result from operating activities for extraordinary effects. The second most important measure of earnings is EBITDA. It shows the operating result before interest, tax, depreciation and amortisation. It gives a better picture of the operational situation, particularly of the more recent acquisitions, Deutschbau, WohnBau Rhein-Main and Frankfurter Siedlungsgesellschaft, compared with the branches in the Ruhr area and Viterra Development. The financing costs of these company acquisitions and relevant depreciation and amortisation – which are much higher due to the carrying of real estate effectively at market values – are adjusted for in EBITDA. The operating results are by contrast considerably affected by these expenses.

The two key figures, operating profit and EBITDA, are not determined on the basis of a special US GAAP accounting standard but are to be seen as additional to the other earnings figures reported under US GAAP and give a better understanding of the development of the Group's results. In the following these non-GAAP financial measures are reconciled to the figures reported under US GAAP and are explained in more detail.

GROUP KEY FIGURES	2003	2002*	Change
	€ million	€ million	%
Sales	1,084.6	1,214.1	–10.7
Group operating profit	294.8	203.1	45.1
+ depreciation affecting operating profit	187.0	172.1	8.7
+ net interest income affecting operating profit **	161.2	183.8	–12.3
EBITDA	643.0	559.0	15.0

* After adjustment for discontinued operations
** Including share of interest from long-term provisions

Sales fell due to lower income from housing management following further apartment sales

SALES	2003	2002*	Change
	€ million	€ million	%
Branches in the Ruhr area	467.7	522.8	–10.5
Viterra Rhein-Main	117.8	134.4	–12.3
Deutschbau	262.8	267.4	–1.7
Viterra Development	149.1	80.2	85.9
Others/Consolidation	87.2	209.3	–58.3
Total	1,084.6	1,214.1	–10.7

* After adjustment for discontinued operations

In the core business segment, residential real estate, sales of the Ruhr area branches, Viterra Rhein-Main and Deutschbau all showed the same pattern of development.

Sales of the Ruhr area branches fell by 10.5 % to € 467.7 million. Here the lower income from housing management following the sharp rise in apartment sales had a negative impact. The number of apartments sold in 2003 jumped by 44 % to 11,060 units.

Viterra Rhein-Main also saw sales decrease by 12.3 % to € 117.8 million mainly as a result of the transfer of the management of 1,100 apartments in Berlin and eastern Germany to Deutschbau as well as apartment sales.

The subsidiary Deutschbau managed to increase its income from housing management, largely due to the takeover of 1,100 apartments in Berlin and eastern Germany from Viterra Rhein-Main. Nevertheless, sales fell slightly overall by 1.7 % to € 262.8 million. The figure for 2002 contained higher income from the sale of stock held for resale.

In the project development segment, Viterra Development's sales rose sharply by 85.9 % to € 149.1 million. This jump was largely attributable to the takeover of the apartment development activities from Viterra Baupartner at the beginning of 2003.

Sales in the “Others/Consolidation” segment plunged by 58.3 % to € 87.2 million. This substantial decline was mainly due to the cessation of Viterra Baupartner's business operations at the end of 2003. Viterra Baupartner's sales fell by 62 % to € 81.5 million. They came mainly from the sale of owner-occupied houses and plots of land not sold the previous year. In 2003, we managed to sell all 168 remaining units.

Operating profit well up on previous year's figure

OPERATING PROFIT	2003	2002*	Change
	€ million	€ million	%
Branches in the Ruhr area	289.8	247.2	17.2
Viterra Rhein-Main	0.1	–8.0	>100
Deutschbau	26.7	11.7	>100
Viterra Development	3.5	–11.9	>100
Others/Consolidation	–25.3	–35.9	29.3
Total	294.8	203.1	45.1

* After adjustment for discontinued operations

The branches in the Ruhr area improved their operating profit by 17.2 % to € 289.8 million. This rise was mainly due to the sharp increase in apartment sales by 44 % to 11,060 apartments and the resultant lower depreciation charge. A fall in income from property management and higher expenses resulting from the early repayment of mortgages on apartments sold had a negative impact.

At € 0.1 million, the operating result of Viterra Rhein-Main was well up on the previous year's figure of - € 8.0 million. The main factor was the positive influence on results from lower interest expense relating to the financing of the acquisition of the shares in WohnBau Rhein-Main and Frankfurter Siedlungsgesellschaft. The 2.7 % increase in apartment sales to 1,000 units and lower selling expenses also had a positive impact. By contrast, operating profit was hit by the transfer of the management of 1,100 apartments to Deutschbau.

Deutschbau more than doubled its operating profit to € 26.7 million in 2003. This jump was mainly attributable to higher profits from apartment sales and lower interest expense. Apartment sales rose by 8.6 % to 1,309 units.

Viterra Development considerably improved its operating result by € 15.4 million to € 3.5 million, particularly through the sale of the Rudnα logistics park. The takeover of the apartment development activities from Viterra Baupartner also had a positive effect. By contrast, value adjustments performed as part of portfolio optimisation had a negative impact.

The operating result of the “Others/Consolidation” segment increased by 29.3 % to - € 25.3 million. € 13.9 million of this improvement was due to lower interest expense and depreciation. By contrast, higher expenses, particularly in connection with former Group activities, had a negative impact. This effect could not be entirely offset by the lower loss incurred in connection with Viterra Baupartner, whose activities were ceased at the end of 2003.

EBITDA up by 15 %

EBITDA	2003	2002*	Change
	€ million	€ million	%
Branches in the Ruhr area	392.0	348.4	12.5
Viterra Rhein-Main	69.3	72.2	–4.0
Deutschbau	152.6	144.3	5.7
Viterra Development	64.9	26.4	>100
Others/Consolidation	–35.8	–32.3	–10.8
Total	643.0	559.0	15.0

* After adjustment for discontinued operations

The substantial increase in apartment sales boosted EBITDA of the branches in the Ruhr area. It was well up on the previous year's figure, rising sharply by 12.5 % to € 392.0 million.

At Viterra Rhein-Main, EBITDA fell slightly by 4 % to € 69.3 million. Here, the effect of the transfer of management of 1,100 apartments to Deutschbau was felt.

By contrast, Deutschbau increased EBITDA by 5.7 % to € 152.6 million. The crucial factors here were higher profits from the sale of apartments as well as higher rental income as a result of the takeover of management of 1,100 apartments from Viterra Rhein-Main.

Viterra Development managed to more than double EBITDA to € 64.9 million, mainly through the sale of the Rudnα logistics park.

EBITDA reported under “Others/Consolidation” fell by 10.8 % to - € 35. 8 million.

Reconciliation

CONSOLIDATED NET INCOME	2003	2002*	Changes
	€ million	€ million	%
Operating profit	294.8	203.1	45.1
Non-operating result	0.0	–62.8	–
Income from operating activities
before tax	294.8	140.3	>100
Income taxes	48.9	4.4	>100
Minority interests	–13.0	–9.9	–31.3
Result from continuing operations	330.7	134.8	>100
Result from discontinued operations	691.7	58.3	>100
Result from the initial application of SFAS 142	0.0	–28.8	–
Consolidated net income	1,022.4	164.3	>100

* After adjustment for discontinued operations

As well as operating profit, the result from operating activities before taxes increased by € 154.5 million to € 294.8 million, mainly as 2002 had contained once-off winding-up costs in relation to Viterra Baupartner shown under non-operating result. The result from continuing operations also rose to € 330.7 million partly due to an improved tax result.

The high level of consolidated net income is due to the proceeds from the sale of Viterra Energy Services AG and Viterra Contracting GmbH amounting to € 653.2 million, which are shown under the result from discontinued operations. After deduction of taxes and income due to minority shareholders, these activities generated results of € 38.5 million in the period up to their sale.

Investments mainly in the core business, residential real estate

INVESTMENTS	2003	2002*	Change
	€ million	€ million	%
Branches in the Ruhr area	51.3	87.9	–41.6
Viterra Rhein-Main	58.5	278.1	–79.0
Deutschbau	8.4	5.7	45.8
Viterra Development	4.3	4.4	–2.9
Others/Consolidation	1.9	1.8	5.6
Total	124.4	377.9	–67.1

* After adjustment for discontinued operations

Viterra invested less in 2003 than originally planned as many of the apartments available for purchase did not fit in with our strategy. At € 124.4 million, investments were down approx. 67 % on the previous year's figure, which contained € 273.2 million for the acquisition of an 86.3 % stake in FSG.

Our core business, residential real estate, accounted for the majority of investments in 2003. They included the purchase of further shares in FSG (€ 49.2 million) as well as the acquisition of land under long leaseholds (€ 29.3 million). Overall, we invested € 74.2 million in property, plant and equipment (59.6 %) and € 50.2 million in financial assets (40.4 %).

In 2003, capital expenditure by the branches in the Ruhr area mainly focused on the acquisition of land under long leaseholds. At € 51.3 million, it was 41.6 % down on the previous year's figure as less modernisation work was carried out.

At Viterra Rhein-Main, investments fell by 79 % to € 58.5 million. Of this figure, € 49.2 million went into the purchase of the remaining shares in FSG. The higher figure for 2002 contained the acquisition of the 86.3 % stake in FSG (€ 273.2 million).

Deutschbau increased the amount spent on upgrading its residential properties in 2003. This was the main reason why investments rose overall by € 45.8 % to € 8.4 million.

In the project development segment, Viterra Development's capital expenditure decreased slightly by 2.9 % to € 4.3 million. Most of the investments went into the Rudnα logistics park project.

Group balance sheet structure

GROUP BALANCE SHEET STRUCTURE	2003			2002
	€ million		%	€ million		%
Fixed assets	4,722.1		77.1	5,085.1		74.9
Current assets	1,363.4		22.3	1,130.8		16.6
Assets of discontinued operations	0.0		0.0	501.7		7.4
Deferred taxes and prepaid expenses	35.4		0.6	76.0		1.1
TOTAL ASSETS	6,120.9		100.0	6,793.6		100.0
Stockholders’ equity	996.8		16.3	1,402.1		20.6
Minority interests	377.0		6.2	384.9		5.7
Provisions	511.5		8.3	453.2		6.7
Liabilities	3,251.9		53.1	3,362.6		49.5
Liabilities of discontinued operations	0.0		0.0	357.1		5.3
Deferred taxes and deferred income	983.7		16.1	833.7		12.2
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	6,120.9		100.0	6,793.6		100.0

The sale of the discontinued services operations (Viterra Energy Services and Viterra Contracting) led to another substantial change in the balance sheet structure in 2003. These two divestments reduced total assets by € 550.6 million. However, the capital-to-assets ratio fell from 20.6 % to 16.3 % mainly as a result of the elimination of substantial intergroup results. In the coming years, their recognition will have the opposite effect with a corresponding influence on equity ratios.

The cover ratio of long-term assets was also affected by the change in equity. Of the long-term assets, 20.3 % are covered by equity (2002: 26.5 %). Including the long-term borrowed capital, this cover ratio is 95.9 % (2002: 103.2 %).

Information on the statements of cash flows

STATEMENTS OF CASH FLOWS	2003	2002*
	€ million	€ million
Cash provided by operating activities of continuing operations	458.6	367.0
Cash provided by/used for investing activities of continuing operations	873.9	–239.4
Cash used for financing activities of continuing operations	–1,281.2	–164.8
Change in liquid funds of continuing operations	51.3	–37.2
Liquid funds at beginning of year	18.0	71.2
Liquid funds of discontinued operations at beginning of year	0.0	–15.8
Changes in current financial investments at year-end	2.9	2.7
Effects of foreign exchange rates on liquid funds	0.0	–0.2
Liquid funds on December 31 as shown in the balance sheet	72.2	20.7

* After adjustment for discontinued operations

The effect of the changes in the balance sheet on the cash flow provided by operating activities needs to be adjusted to eliminate the effects of changes in the group of consolidated companies, currency translations as well as changes due to the separate disclosure of discontinued operations. Therefore, direct reconciliation with the corresponding changes in the published consolidated balance sheets is not possible.

The statement of cash flows for 2003 and 2002 shown above only relates to cash flows from continuing operations. Therefore, the figures for the previous year have been adjusted accordingly.

The very successful business performance in 2003 is also reflected in the cash provided by operating activities. It is well up on the figure for 2002 at € 458.6 million. The increase is mainly due to the cash realisation of increases in the value of portfolios sold. This also confirms the success of our trading strategy.

The cash provided by operating activities together with the proceeds from the sale of Viterra Energy Services made it possible for Viterra to not only repay loans in 2003 but also invest funds with an E.ON Group company. Part of the money invested was assigned to E.ON and offset against the liability arising from the profit-and-loss transfer. Thus the transfer of profit already affected cash in the current financial year. The funds remaining as a financial investment were shown under cash generated from investing activities.

Disclaimer