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Financial condition and capital expenditures

Changes in the statement of cash flows

In the first six months of 2013 there was a net cash outflow of €67 million from operating activities, against a net inflow of €80 million in the prior-year period. With income before income taxes amounting to €42 million, the increase in net working capital compared to December 31, 2012 resulted in a cash outflow of €230 million. The corresponding cash outflow in the prior-year period was €434 million. The development in the reporting period was mainly attributable to higher receivables and lower payables. Changes in other assets and liabilities in the prior-year period related in part to 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 €51 million net cash inflow from investing activities in the first six months of 2013, compared with a net cash inflow of €202 million in the same period a year ago. Cash inflows comprised receipts of €315 million from financial assets, which were mainly attributable to the sale of near-cash assets. Cash outflows for purchases of intangible assets, property, plant and equipment totaled €252 million, which was €23 million more than in the prior-year period. Depreciation and amortization amounted to €218 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 €99 million, compared with €225 million in the first half of 2012. Cash outflows in the reporting period related mainly to interest payments and the dividend payment to LANXESS AG stockholders for fiscal 2012. In the prior-year period, outflows for the scheduled redemption of the Eurobond issued in 2005 were included.

Financing and liquidity

The principles and objectives of financial management discussed in the Annual Report 2012 remained valid during the first half of 2013. They are centered on a conservative financial policy built on long-term, secured financing.

Cash and cash equivalents decreased by €112 million compared with the end of 2012, to €274 million. The €97 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 €2,018 million as of June 30, 2013, compared with €1,483 million as of December 31, 2012.

Net Financial Liabilities
     
€ million Dec. 31, 2012 June 30, 2013
     
Non-current financial liabilities 2,167 1,681
Current financial liabilities 167 740
less    
Liabilities for accrued interest (54) (32)
Cash and cash equivalents (386) (274)
Near-cash assets (411) (97)
  1,483 2,018

Financing instruments off the statement of financial position

As of June 30, 2013, we 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

Capital expenditures in the Performance Polymers segment in the first half-year were related, for example, to the construction of the new butyl rubber facility in Singapore for the Butyl Rubber business unit. As planned, the plant entered its commissioning phase in the first quarter of 2013 and started production in the second quarter. 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. It is scheduled to start operating in the first half of 2015. In addition, at the site in Triunfo, Brazil, the production of emulsion styrene butadiene rubber (E-SBR) will be converted to solution styrene butadiene rubber (S-SBR). In Changzhou, China, our Keltan Elastomers business unit is erecting 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. This work was completed in the first half of 2013. Our High Performance Elastomers business unit is expanding production capacities for chloroprene rubber at the site in Dormagen, Germany. The High Performance Materials business unit is investing in a new world-scale plant for polyamide plastics at the site in Antwerp, Belgium. The facility will have an annual capacity of around 90,000 tons and is scheduled to be completed in 2014. The capacity of our glass fiber production operations, also based in Antwerp, is being expanded. In addition, a new plant for compounding high-tech plastics is being built in Porto Feliz, Brazil, with completion due later this year.

The Advanced Intermediates segment’s Advanced Industrial Intermediates business unit is expanding cresol production at the Leverkusen site. The facility is currently in the commissioning phase.

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 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. The facility, featuring the latest technology and eco-friendly processes, came on stream in April 2013. A further investment relates to the construction of a CO2 concentration unit at the site in Newcastle, South Africa, which is scheduled to start up in the second half of this year. The Rhein Chemie business unit is building a facility for rubber additives and release agents at the site in Lipetsk, Russia. Production is scheduled to start in the third quarter of 2013. Furthermore, a manufacturing plant for vulcanization bladders started up 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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