Financial condition and capital expenditures

Changes in the statement of cash flows In the first three months of 2014 there was a net cash inflow of €9 million from operating activities, against a net outflow of €160 million in the prior-year period. With income before income taxes amounting to €38 million, the increase in net working capital compared to December 31, 2013 resulted in a cash outflow of €208 million. In the prior-year period, income before income taxes was €31 million and the cash outflow from the increase in net working capital was €285 million. The increase in net working capital in the reporting period was mainly due to higher trade receivables and inventories.

There was a €122 million net cash outflow from investing activities in the first three months of 2014, compared with a net cash inflow of €144 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 €108 million. The net cash inflow in the prior-year quarter was the aggregate of inflows of €235 million from financial assets, which were largely attributable to the sale of near-cash assets, and outflows of €93 million for purchases of intangible assets and property, plant and equipment. Depreciation and amortization in the reporting period amounted to €103 million.

Net cash provided by financing activities came to €89 million, compared with net cash of €19 million used in financing activities in the first three months of 2013. The cash inflow of €116 million in proceeds from new borrowings in the reporting period was partly offset by outflows of €20 million for the repayment of financial liabilities.

Financing and liquidity The principles and objectives of financial management discussed in the Financial Report 2013 remained valid during the first quarter of 2014. They are centered on a conservative financial policy built on long-term, secured financing.

Cash and cash equivalents decreased by €22 million compared with the end of 2013, to €405 million. The €123 million of instant-access investments in money market funds, up from €106 million at the end of 2013, was reported under near-cash assets. The Group’s liquidity position thus remains sound.

Net financial liabilities totaled €1,832 million as of March 31, 2014, compared with €1,731 million as of December 31, 2013.

Net Financial Liabilities
€ million Dec. 31, 2013 March 31, 2014
Non-current financial liabilities 1,649 1,578
Current financial liabilities 668 858
Liabilities for accrued interest (53) (76)
Cash and cash equivalents (427) (405)
Near-cash assets (106) (123)
  1,731 1,832

Financing instruments off the statement of financial position As of March 31, 2014, 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 included, among other projects, the construction of the world’s largest production facility for neodymiumbased performance butadiene rubber (Nd-PBR) with an annual capacity of 140,000 tons for our Performance Butadiene Rubbers business unit in Singapore. 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 synthetic EPDM rubber with an annual capacity of up to 160,000 tons. Start-up of this plant, which will utilize the innovative Keltan® ACE™ technology, is planned for 2015. The High Performance Materials business unit is investing in a facility for polyamide plastics at the site in Antwerp, Belgium, which will have an annual capacity of around 90,000 tons and is due on stream in the third quarter of 2014. In addition, a new compounding facility for high-tech engineering plastics has been constructed in Porto Feliz, Brazil, and will be commissioned in the second quarter of 2014.

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. Commissioning of this plant, in which LANXESS will use the optimized Penniman process for the first time, is planned for the first quarter of 2016.