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Outlook

LANXESS anticipates that the modest economic momentum will persist in the fourth quarter, with the emerging economies providing only limited impetus. China’s economy is likely to achieve the planned rate of growth for the year. The currently tense economic situation in Europe is predicted to give way to a more stable environment. Growth in the U.S. is expected to remain moderate due to the ongoing budget uncertainty.

Other risk factors for economic development also remain substantial. Even if the situation in Europe is expected to ease, stability has not yet taken hold, and geopolitical conflicts continue to threaten economic development.

LANXESS predicts varying trends among the industry sectors. Automobile production will increase only slightly in the remaining months of 2013, driven mainly by demand in the U.S. and China. The recovery in the tire industry is expected to remain modest. We believe only the U.S. and Chinese construction sectors will develop rather more favorably in the fourth quarter, while the European construction industry should bottom out.

Against this backdrop, there will be only a slight increase in chemical production. In regional terms, most of the sector’s growth will take place in the U.S., China and Middle East. In Europe, production is expected to decline slightly.

We believe the agrochemicals business will continue its steady development in the months ahead.

As for our business in the fourth quarter, we expect the sluggish trend in demand to continue. The difficult market environment, especially for our business with the automotive and tire industries, is likely to persist. We are narrowing our earnings guidance for the full year 2013 and expect to post EBITDA pre exceptionals of between €710 million and €760 million. As in the past, this forecast does not reflect any further possible inventory devaluation as these are difficult to predict.

In the second half of the year, we introduced further measures, alongside our flexible asset management and rigorous cost discipline, to cushion the impact of the persistently difficult demand situation. The “Advance” program aims to generate annual savings of around €100 million from 2015 onward through efficiency enhancements, selective restructuring and portfolio adjustments.

The program’s implementation is expected to lead to headcount reductions of about 1,000 employees worldwide by the end of 2015. To this end, LANXESS has launched a voluntary separation program that includes early retirement packages and severance pay. In addition, employee and Board of Management compensation for the current fiscal year will be reduced by a certain percentage. All the measures are being implemented in consultation with the employee representatives.

Among the areas where targeted restructuring is underway is the Rubber Chemicals business unit in the Performance Chemicals segment. We have already closed a site of this unit in South Africa and transferred production capacity to Belgium.

Total exceptional charges of roughly €150 million will be taken for the “Advance” program in 2013 and 2014, including some €80 million in the current year.

As part of the portfolio adjustments, we will explore strategic options for certain non-core businesses that together account for roughly €500 million in sales and about €30 million in EBITDA pre exceptionals. These businesses employ roughly 1,000 people and include the Perlon Monofil product line of the High Performance Materials business unit, the accelerators and antioxidants of the Rubber Chemicals business unit and the nitrile butadiene rubber products of the High Performance Elastomers business unit. The affected sites are Brunsbüttel and Dormagen, Germany; Kallo, Belgium; La Wantzenau, France; Bushy Park, United States; Jhagadia, India; and Nantong, China. All options at these sites are being pursued on the basis of statutory regulations and local codetermination practices.

We will continue to prioritize our Group-wide growth strategy, which focuses on organic growth. However, in view of the challenging environment, we have reduced this year’s capital expenditure budget to around €600 million and are focusing on crucial strategic projects.

We will continue to work toward our mid-term earnings goal of €1.8 billion in EBITDA pre exceptionals in 2018, but consider the achievement of this target a greater challenge than before.

Forecasts Unchanged in the Reporting Period
   
Information in the Annual Report 2012 Page
   
Future organization and corporate structure 131 ff.
Future corporate objectives and strategy 131 ff.
Future production and products 132 ff.
Future sales markets and competitive position 132 ff.
Future research and development activities 119 ff., 132
Future financing 134 f.
Future dividend policy 135

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