Financial condition and capital expenditures

Changes in the statement of cash flows

In the first nine months of 2014 there was a net cash inflow of €388 million from operating activities, against a net inflow of €311 million in the prior-year period. With income before income taxes amounting to €187 million, the increase in net working capital compared to December 31, 2013 resulted in a cash outflow of €261 million. In the prior-year period, income before income taxes was €62 million and the cash outflow from the increase in net working capital was €56 million. The increase in net working capital in the reporting period was mainly due to higher inventories and trade receivables. As in the prior-year period, the changes in other assets and liabilities mainly resulted from the development of personnel provisions.

There was a €496 million net cash outflow from investing activities in the first nine months of 2014, against €164 million in the same period a year ago. The net cash outflow in the reporting period was mainly attributable to purchases of intangible assets and property, plant and equipment totaling €374 million, and of financial assets totaling €134 million. The net cash outflow in the prior-year period was largely the aggregate of outflows for purchases of intangible assets and property, plant and equipment totaling €398 million and inflows of €246 million from the sale of financial assets. Depreciation and amortization amounted to €302 million in the reporting period, against €332 million a year before. 

Net cash used in financing activities came to €47 million, compared with €161 million in the first nine months of 2013. The cash inflow of €433 million from the capital increase and €317 million in proceeds from new borrowings in the reporting period was partly offset, particularly by outflows of €646 million for the repayment of financial liabilities and by the dividend payment to LANXESS AG stockholders for fiscal 2013. Cash outflows in the prior-year period related mainly to interest payments and the dividend payment for fiscal 2012.

Financing and liquidity

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

Cash and cash equivalents decreased by €152 million compared with the end of 2013, to €275 million. This decrease resulted from factors including the repayment partly in cash of the €500 million Eurobond issued in 2009 that matured in the reporting period. The €241 million of instant-access investments in money market funds, up from €106 million at the end of 2013, were reported under near-cash financial assets. The Group’s liquidity position thus remains sound.

The capital increase resolved by the Board of Management on May 7, 2014 with the authorization of the Supervisory Board was completed on May 8, 2014 in an accelerated bookbuilding process. The additional 8,320,266 shares were placed with international institutional investors at a price of €52.00 per share, resulting in gross proceeds of €433 million. This capital measure strengthened the LANXESS Group’s equity and reduced net financial liabilities. 

Net financial liabilities totaled €1,445 million as of September 30, 2014, compared with €1,731 million as of December 31, 2013.

Net Financial Liabilities
 
€ million Dec. 31, 2013 Sep. 30, 2014
     
Non-current financial liabilities 1,649 1,780
Current financial liabilities 668 206
less    
Liabilities for accrued interest (53) (25)
Cash and cash equivalents (427) (275)
Near-cash assets (106) (241)
  1,731 1,445
  

Financing instruments off the statement of financial position

As of September 30, 2014, 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

Capital expenditures in the Performance Polymers segment included, among other projects, the construction of a new production facility for neodymium-based performance butadiene rubber (Nd-PBR) for our Performance Butadiene Rubbers business unit in Singapore. This facility is designed for an annual capacity of 140,000 tons and is due on stream in the first half of 2015. In Changzhou, China, our Keltan Elastomers business unit is constructing a production plant for synthetic ethylene-propylene-diene rubber (EPDM) with an annual capacity of up to 160,000 tons. Start-up of this plant, which will utilize the innovative Keltan® ACETM technology, is planned for 2015. In the third quarter of 2014, the High Performance Materials business unit inaugurated its facility for polyamide plastics at the site in Antwerp, Belgium, with an annual capacity of around 90,000 tons. In addition, the business unit is expanding its high-tech plastics plant in Gastonia, United States, to include a second production line. This new compounding facility will double the capacity from currently 20,000 to 40,000 tons per year. Production is scheduled to launch at the beginning of 2016. 

The Performance Chemicals segment’s Inorganic Pigments business unit is currently building a new facility for iron oxide red pigments in Ningbo, China, designed for an initial annual capacity of 25,000 tons. This plant will be expanded to include a mixing and milling facility for inorganic pigments with a capacity of 70,000 tons per year that can also process raw pigments from other LANXESS sites for the Asian market. The entire plant complex is scheduled for completion in the fourth quarter of 2015 and the start-up of production for the first quarter of 2016.