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Financial condition and capital expenditures

Changes in the statement of cash flows

In the first nine months of 2013 there was a net cash inflow of €311 million from operating activities, against €424 million in the prior-year period. With income before income taxes amounting to €62 million, the increase in net working capital compared to December 31, 2012 resulted in a cash outflow of €56 million. The corresponding cash outflow in the prior-year period was €339 million. The development in the reporting period was mainly attributable to lower trade payables. Our targeted destocking had an offsetting effect. Changes in other assets and liabilities in the prior-year period included payments that had to be made to counterparties under roll-over hedges for intra-Group foreign currency loans due to the decrease in the value of the euro at that time. These payments did not affect earnings.

There was a €164 million net cash outflow from investing activities in the first nine months of 2013, compared with a net cash inflow of €17 million in the same period a year ago. The outflows mainly comprised purchases of intangible assets and property, plant and equipment totaling €398 million, against €381 million in the prior-year period. Depreciation and amortization amounted to €332 million. Cash inflows from the sale of financial assets came to €246 million. Cash outflows for the acquisition of subsidiaries, less acquired cash and cash equivalents, amounted to €15 million. The company acquired was PCTS Specialty Chemicals Pte. Ltd., Singapore.

Net cash used in financing activities came to €161 million, compared with €316 million in the first nine months of 2012. Cash outflows in the reporting period related mainly to interest payments and the dividend payment to LANXESS AG stockholders for fiscal 2012. Cash outflows in the prior-year period included the scheduled redemption of the Eurobond issued in 2005.

Financing and liquidity

The principles and objectives of financial management discussed in the Annual Report 2012 have remained valid during the current fiscal year. They are centered on a conservative financial policy built on long-term, secured financing.

Cash and cash equivalents decreased by €18 million compared with the end of 2012, to €368 million. The €150 million of instant-access investments in money market funds, down from €411 million at the end of 2012, were reported under near-cash assets. The Group’s liquidity position thus remains sound.

Net financial liabilities totaled €1,822 million as of September 30, 2013, compared with €1,483 million as of December 31, 2012.

Net Financial Liabilities
     
€ million Dec. 31, 2012 Sep. 30, 2013
     
Non-current financial liabilities 2,167 1,661
Current financial liabilities 167 723
less    
Liabilities for accrued interest (54) (44)
Cash and cash equivalents (386) (368)
Near-cash assets (411) (150)
  1,483 1,822

Financing instruments off the statement of financial position

As of September 30, 2013, LANXESS had no material financing items that were not reported in the statement of financial position, such as factoring, asset-backed structures or sale-and-lease-back transactions.

Significant capital expenditure projects

The capital expenditures for significant projects in the Performance Polymers segment in the first nine months of the year included those for the construction of the new butyl rubber facility in Singapore for the Butyl Rubber business unit. The plant entered its commissioning phase in the first quarter of 2013 and started production in the second quarter as planned. Also in Singapore, the Performance Butadiene Rubbers business unit is currently building the world’s largest production facility for neodymium-based performance butadiene rubber (Nd-PBR) with an annual capacity of 140,000 tons. This facility is due on stream in the first half of 2015. In Changzhou, China, our Keltan Elastomers business unit is constructing the world’s largest production plant for EPDM rubber. This plant, which will utilize the innovative Keltan ACE technology, is due to start up in 2015. Fifty percent of production at the site in Geleen, Netherlands, has been converted to the Keltan ACE technology. The High Performance Materials business unit is investing in a new world-scale plant for polyamide plastics at the site in Antwerp, Belgium. This facility will have an annual capacity of around 90,000 tons and is scheduled for completion in 2014. The capacity for glass fiber production, also in Antwerp, has been expanded. In addition, a new plant for compounding high-tech engineering plastics is under construction in Porto Feliz, Brazil. This facility is due to be completed later this year.

The Advanced Intermediates segment’s Advanced Industrial Intermediates business unit has expanded cresol production at the Leverkusen site.

The Performance Chemicals segment’s Inorganic Pigments business unit is building a plant in Ningbo, China, that will use state-of-the-art process technology to manufacture iron oxide red pigments. The Leather business unit has completed construction of a production plant for leather chemicals with an annual capacity of up to 50,000 tons at the site in Changzhou, China. This facility, featuring the latest technology and eco-friendly processes, came on stream in April 2013. A further investment related to the construction of a CO2 concentration unit at the site in Newcastle, South Africa, which was completed in the third quarter. The Rhein Chemie business unit has built a production facility for rubber additives and release agents at the site in Lipetsk, Russia. A production plant for vulcanization bladders has come on stream at Porto Feliz, Brazil. The Liquid Purification Technologies business unit is investing in a new production line for weakly acidic cation exchange resins and a state-of-the-art facility for food-grade filling and packaging at the Leverkusen site.

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