Interim Report H1 2008

Business Trends and Economic Situation

INTERIM GROUP MANAGEMENT REPORT
as of June 30, 2008

Business Trends and Economic Situation

Economic environment The economic environment in the first half of 2008 remained generally favorable for LANXESS, although there were a number of negative factors, such as the weakness of some currencies and steep increases in the price of raw materials and energy. The North American market suffered the adverse effects of declining demand, particularly in its construction and automotive sectors, while growth in the emerging economies of the Asia-Pacific region, Central and Eastern Europe and Latin America remained robust. Despite a slight clouding of the economic horizon in Germany, the country’s chemical industry continued to benefit from the stimulus provided by exports. Global chemicals output was somewhat higher than in the previous year.

Sales The LANXESS Group posted a very gratifying performance in the second quarter of 2008 in an increasingly challenging market environment. Sales, at €1,765 million, were up 2.2% from the prior-year period. Adjusted for portfolio changes and negative currency effects, especially from the U.S. dollar, operational sales growth amounted to 14.0%. Price adjustments occasioned by the higher cost of raw materials drove sales up 7.3%, while substantial volume growth gave sales a 6.7% boost. The 6.0% negative portfolio effect resulted from the divestiture of the Lustran Polymers business unit and the Borchers group in the previous year. This was offset by the first-time consolidation of the Brazilian Petroflex group effective April 1, 2008.

Looking at the first half, sales decreased by 4.0% to €3,300 million year on year. After adjusting for portfolio and currency effects, LANXESS increased its sales by 11.1%. Positive price effects increased sales by 5.6%, while solid volume growth spurred by brisk demand resulted in a 5.5% improvement.

Prices were raised in all of the Group’s segments to compensate for the sharp rise in raw material and energy costs. LANXESS also succeeded in increasing volumes across all segments thanks to healthy demand and additional production capacity.

The largest sales gains, both for the quarter and the half year, took place in the Performance Polymers segment, where growth was driven by the acquisition of the Petroflex group and by significant price and volume increases. Volume growth factored heavily into the sales increase in the Advanced Intermediates segment, as did the higher prices in the segment’s Basic Chemicals business unit. Adjusted for currency effects, sales in this segment rose by double digits, both in the second quarter and in the first half. Sales in the Performance Chemicals segment were flat with the previous year. Adjusted for negative currency effects and on an operational basis, prices in this segment, too, increased while volumes gained slightly. The sales figures for the Other/Consolidation segment in the prior-year quarter and first six months of 2007 have been restated to include the amounts attributable to the former Engineering Plastics segment.