Letter to Stockholders

Ladies and Gentleman

2013 was a challenging year for LANXESS. It was characterized by a weak market environment, especially in Europe. Above all, volatile raw material prices and increasing competition continued to have a negative impact on our business development. For this reason, we posted an EBITDA pre exceptionals of €735 million for the fiscal year. This was within the range of €710 million to €760 million forecasted in the third quarter but well below the result achieved in 2012, our record year.

Following changes in the competitive environment for our rubber business, impairment testing in the fourth quarter led to impairment charges of €257 million. As a result, a net loss of €159 million was posted for the reporting year.

In response to the changed business environment, LANXESS supplemented its proven flexible asset management and strict cost discipline by initiating the Advance program of additional cost-cutting measures, some of which have already been implemented. Through efficiency enhancements, targeted restructuring and portfolio adjustments, we are aiming to achieve annual savings of around €100 million from 2015. Of the total costs of €150 million budgeted for the Advance program, €110 million were already incurred in 2013.

In addition, we have focused on key strategic projects, reducing our cash outflows for capital expenditures to €624 million in the reporting year. We continue to drive forward our three major investment projects in Singapore, China and Belgium. For now therefore, 2014 will be the last year with cash outflows for capital expenditures at the same high level as in fiscal 2013.

Despite the net loss posted in 2013, we are maintaining our consistent dividend policy. We therefore intend to propose to the Annual Stockholders’ Meeting that a dividend per share of €0.50 be paid, a reduction over the prior year. For 2014, we expect the market situation for synthetic rubber products to remain challenging in light of the competitive and capacity situations. Exchange rates are likely to continue their volatile development, especially against the U.S. dollar. The same applies to raw material costs, although their development is expected to be at a comparatively moderate level. As 2013 was impacted by one-time effects such as raw material-related inventory devaluations and increased start-up costs, we are anticipating an improvement in EBITDA for 2014, even if selling prices remain at a low level. We currently expect that we can achieve EBITDA pre exceptionals of between €770 million and €830 million.

As an international specialty chemicals group, we bear a major responsibility toward people and the environment. Our entrepreneurial activities reflect this sense of responsibility, which is also a key component of our strategy. It therefore followed that, in 2013, we again reaffirmed our commitment to the principles of the world’s largest corporate responsibility initiative, the Global Compact.

The decisive factor in our corporate success is the support of our employees worldwide. On behalf of the Board of Management, I would like to thank them for their dedication, professionalism and achievement throughout the very challenging past year. I also want to express my gratitude to all of our customers, business partners and not least, you, our stockholders, for your continued confidence and support.

Kind regards,

Bernhard Düttmann
(Chief Financial Officer)