Key events influencing the company’s business

Fiscal 2013 was characterized by ongoing pressure to consolidate public budgets in many European countries and recurring uncertainty surrounding the development of public spending in the United States associated with the debt ceiling. In addition, expansionary monetary policies resulted in some marked shifts in exchange rates for the currencies of relevance to world trade: the euro, the U.S. dollar and the Japanese yen.

In the industrialized countries, efforts to consolidate public budgets and a certain degree of private spending restraint held back growth in some customer industries, such as automotive and tires. In turn, this had a knock-on effect on industrial production in the emerging economies.

The market environment impacted fundamental price structures, especially in our Performance Polymers segment. In principle, the decline in procurement costs for key raw materials, especially butadiene, resulted in corresponding adjustments to our selling prices. Pricing underwent additional structural changes as new suppliers entered the market and established suppliers expanded existing capacities for certain products, causing shifts in the previous supply situation. The regional differences in price trends for butadiene and the strong depreciation of the Japanese yen against the euro and the U.S. dollar gave Japanese and other Asian manufacturers competitive advantages during 2013. This led to some increases in the supply of rubber products from Asia, which resulted in additional price pressure in all regions. The EPDM rubber business underwent structural changes: Expanding production capacities increased the pressure on prices while our competitive situation worsened compared with that of U.S. producers who have access to cheaper raw materials and energy supplies thanks to shale gas extraction in the United States. In addition, production costs in the reporting year were impacted by start-up costs in the Butyl Rubber business unit associated with our butyl rubber plant in Singapore and in connection with new capacities in other business units of the segment.

Steady demand for agricultural products stabilized volume sales of our products for agrochemicals.

The development in the automotive and tire industries also impacted business performance in the Performance Chemicals segment. However, the broad customer diversification of this segment cushioned these effects.

All regions saw sales declines. The Asia-Pacific region proved the most robust with a low-single-digit percentage decrease compared to the other regions. After adjustment for currency and portfolio effects, North America recorded the strongest business contraction.

The changes in the competitive environment resulted in a negative impact on anticipated cash flows at the time our consolidated financial statements were prepared. In some of our business units, these cash flows no longer reflected the carrying amounts at that time. As a result, impairment testing in the reporting year led to impairment charges of €257 million, which were recorded in other operating expenses as exceptional charges with no impact on EBITDA. Our Keltan Elastomers and High Performance Elastomers business units (Performance Polymers segment) recognized impairment charges of €174 million and €54 million, respectively, while our Rubber Chemicals business unit (Performance Chemicals segment) posted a figure of €29 million. Other write-downs totaled €22 million, of which €13 million were recorded as exceptional charges.