LANXESS AG Contact: Ingo Drechsler Corporate Communications Corporate Media Europe, Middle East, Africa 51369 Leverkusen Germany Phone +49 214 30-43790 Fax +49 214 30-50691 ingo.drechsler@lanxess.com

GPCA Forum Dubai, UAE Wednesday, December 8, 2010

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“The Innovation Payoff” Speech

Dr. Axel C. Heitmann

Chairman of the Board of Management of

LANXESS AG

(Please check against delivery)

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Good morning, ladies and gentlemen. I am delighted to be in the city of Dubai and to meet with so many distinguished colleagues from the chemical and petrochemical world. I have been asked to discuss the innovation payoff with you today, and I am sure you will agree that no subject is more fundamental to our industry. Innovation is what we are all about, it symbolizes who we are. We chemists are, by nature, explorers, inventors, creators – innovators. It is actually part of the strong Arabian heritage that all chemists share. Innovation in chemistry began in the eighth century, when Jabir ibn Hayyan – often called “the father of chemistry” – started experimenting with processes for producing acids, metals, dyes, inks and glass. We have been exploring ever since – and the result of all that exploration has been the modern, prosperous, technologically advanced world that is so evident here in Dubai.

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Today the basic purpose of innovation in the chemical industry is to help build a better world, help create more successful industries, help people live better lives. And these innovations must pay off, or we are not going to continue to succeed. So the question is not why do we innovate – but how do we innovate most effectively? The answer, of course, will be different for every chemical company.

I can only tell you how we approach innovation at LANXESS, and I hope that our message will resonate with you. As some of you know, LANXESS is a relatively young company. We were founded six years ago as a spinoff from Bayer. We decided early on to position LANXESS as a specialty chemical company focusing on plastics, rubber, specialty chemicals and intermediates. That focus has brought us considerable success. We currently employ roughly 14,500 people in 23 countries and have 42 production sites throughout the world.

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We have recovered rapidly and strongly from the sudden jolt that hit our industry during the recent financial crisis. Today we are on a path of accelerated growth and have set aggressive targets for the coming five years. With third quarter sales of 1.85 billion euros – up 35 percent year-on-year – we are on an excellent track. And our innovation strategy will play a major role in keeping us on track in the years to come. There are, of course, two basic parts to our innovation strategy – process innovation and product innovation. The overall goal of our process innovation is to produce more goods at lower cost using less energy – while minimizing impacts on the environment. The overall goal of our product innovation is to create real solutions to the specific needs of our industrial customers – and to do so profitably. In both cases our strategy is based on clearly focused, sharply targeted innovation. Today I will present examples of how our strategy of targeted innovation is driving growth at LANXESS. I will cover three areas: First, I will discuss how we structure our R&D in order to achieve our goals. I will then show how our process innovations improve production efficiency while addressing today’s cost and environmental challenges.

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Finally, I will discuss how four global megatrends are driving our product innovations.

Our R&D approach is based on a central corporate function that acts as an “innovation hub.” This corporate function works closely with our 13 business units and their R&D departments to make sure that all innovation efforts are coordinated, do not overlap, and are focused on specific, achievable goals. The central unit helps select and drive forward the most promising innovations. Overall, the R&D backbone of LANXESS comprises roughly 600 research specialists. By no means do we shy away from partnerships. Our R&D staffs – both at the business unit level and the corporate level – work closely with universities and research institutions in every country in which we operate. This not only broadens our research capacities, it exposes us to exceptional young minds that can bring fresh new perspectives to many of our projects. Our corporate customers are also our research partners, and I believe that working together on a specific customer problem is often the most efficient way to come up with the most effective solution.

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Some of our most remarkable advances have involved finding innovative and highly efficient new processes for manufacturing established products. For instance, at our Brazilian site at Porto Feliz, where we produce inorganic pigments, we have built a cogeneration plant that generates both steam and energy from a local resource – bagasse, a sugarcane byproduct. This site now supplies its own energy in a virtually CO2-neutral process, reducing our climate gas emissions by 44 kilotons per year. The success of Porto Feliz inspired us to install similar facilities at many of our sites around the world. We recently opened a major such facility in Nagda, India. Our cogeneration plant there is fueled by soybean husks and will meet most of the power requirements of our Basic Chemicals plant there. We are also ensuring the long-term sustainability of our sites through process innovations that include debottlenecking and other efficiency measures that can reduce our consumption of inputs while maximizing our outputs.

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For example, one way in which we have achieved process efficiencies is by aligning our production processes for high-tech plastics at our Semi-Crystalline Products business unit with our business lines that produce the feedstocks that go into these plastics. We have progressively expanded our capacity to produce caprolactam and adipic acid to keep pace with both internal and external demand for these materials. We have also reduced our output of unwanted byproducts in the course of carrying out these efficiency improvements. In Germany, we cut our greenhouse gas emissions by an amazing 80 percent by developing the LARA project – a facility that neutralizes the nitrous oxide gas resulting from the production of adipic acid. The payoff for these process innovations is lower costs, more efficient production, and a cleaner environment.

When it comes to product innovations, we are in complete agreement with the late, noted economist Christopher Freeman, who undertook a major study of innovation in the chemical industry. In summarizing his study, he concluded – and I quote – “Successful firms pay more attention to markets than do failures. Successful innovators innovate in response to market needs, involve potential users in the development of the innovation and understand user needs better.”

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Understanding the needs of our customers and the markets we serve makes it possible to target our innovation efforts to those needs. That is the essence of our approach at LANXESS. So we routinely involve our end-users in developing product innovations. The great majority of our product innovations are designed to meet the needs of global megatrends, such as the rapid growth of mobility, the urgent need for clean water and reliable food supplies, and rapid urbanization. I am sure the citizens of Dubai are quite familiar with those trends. Certainly anyone who traveled here this morning by car or taxi does not need to be told about the problems of increased mobility. Over one million cars are now on the streets of Dubai. It is a story that is being repeated – to one extent or another – in India, China, Brazil and all of the emerging countries of the world. Obviously, to accommodate the extraordinary increase in vehicle traffic, there is a need, almost everywhere, for major infrastructure improvements. I know this is being taken very seriously here in Dubai, which has built not only an impressive road network but has just completed one of the most advanced metro systems in the world. But it also creates a need for lighter, safer and more fuel-efficient vehicles. And that is where our product innovations come in.

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We are helping carmakers build lighter cars that save fuel. Leading car companies are widely employing patented hybrid plastic-metal technology using our innovative glass fiber-reinforced polyamides to make cars lighter and safer. We have partnered with the automotive industry to develop “organo sheet” materials that allow carmakers to use plastics instead of aluminum for some major auto body parts. Plastic and plastic-metal hybrid parts can be used to reduce the weight of a passenger car by 30 percent when compared with traditional, all-metal construction methods. Our polyamides are now being used in a wide variety of parts, including pedals and pedal brackets, door handles and body reinforcement structures, and even in under-the-hood components like intake manifolds, cylinder head covers and oil pans. Other product innovations are making contributions to alternative fuel vehicles. For example, a new diesel additive, Baynox, serves as an important preservative in biofuels, extending their life dramatically. And our ion exchange resins are being used as a vital component in more efficient and practical new designs for fuel cell engines.

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!The second global megatrend we are focused on is the need for more clean water. The world’s population continues to grow as the world’s clean water decreases. Of course this has always been one of the most serious issues here in the Gulf region and in neighboring Arab states. The desalination plants that have been built here are one of the industrial wonders of the world. Today there are 35 desalination plants in the UAE, and that is why I now have nice, clean drinking water here at the podium – and why the golf courses, swimming pools and gardens of Dubai are always so beautiful. But obviously desalinated water is not a natural, sustainable resource. It is manmade, and it is costly. Desalination costs the UAE about 18 million dollars a day. One solution may be the huge, solar-powered desalination plant featuring ultra-high-concentrator photovoltaic technology being built by IBM and Saudi Arabia. Another may be the discovery of new natural water resources. A group of our fellow German scientists have been working for years to help Saudi Arabia find out how much groundwater remains stored between layers of rock beneath the Arabian Peninsula.

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But without question, it will be chemical innovation that offers the most realistic hope for solving the water problem here in the Gulf States and throughout the drier parts of the world. At LANXESS we have dedicated many of our innovation efforts to developing transformative advances in the recycling and reuse of water, preventing water pollution, removing pollutants from contaminated water, and purifying existing water resources. We are investing in a new production facility at our Bitterfeld site in Germany that will enable LANXESS to offer a new class of water treatment products – advanced membrane filtration technology – in 2011. High-performance ion exchange resins from our Lewatit family of products are also playing an important role in resolving water issues. As you may know, ion exchange resins can be used to remove toxic impurities from drinking water. They also play a vital role in industrial processes in which vast amounts of water can be saved through recycling. Lewatit products, along with our Ionac resins, also have a broad range of applications in wastewater treatment in the metal-processing industry, as well as in treating groundwater. We are stepping up our global activities in this area. Just last week, we inaugurated a new ion exchange resins plant in Gujarat, India. It will supply products that produce ultrapure water for the semiconductor and pharmaceutical industries, for industrial water treatment, for food production and for power generation.

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The third megatrend we are working on right now is agriculture. With food imports to the Middle East topping 25 billion US dollars, the future of agriculture in the region – and the need to secure reliable supplies of food – has become a hot topic. This topic is also on LANXESS’ agenda. As the world’s population keeps racing upward, grain production must continue to grow. We offer a wide range of products to help the agricultural industry increase production and protect crops. Underlying challenges to the food supply are increasing, and LANXESS offers the industry many products that address these needs. Our Saltigo business unit is a leading supplier of precursors for crop protection chemicals and is now boosting capacity to meet growing demand from a wide array of customers in the agrochemical sector. Our Functional Chemicals and Basic Chemicals business units also work with the industry. Among their many products are numerous important building blocks for the vital agrochemicals that have been safeguarding and expanding the global food supply.

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The fourth megatrend that we are focused on is accelerating urbanization. One only has to step outside to see the most awesome example of the urbanization megatrend. New cities are springing up everywhere. They are becoming bigger and taller. They cannot usually rival Dubai’s Burj Khalifi, and none can claim that 11.5 percent of their GDP goes into construction, as is the case in Abu Dhabi. But urban construction is rapidly increasing in India, Brazil, Russia, and in emerging countries throughout the world. China is creating dozens of new cities as I speak. Urban populations are expected to increase by 40 percent in the next 10 years. We have many customers in the construction industry, and we work closely with them to develop the specific chemical products that will give them the edge in winning their bids on major projects. Many of our innovations in material protection products are targeted for infrastructure projects, such as water and sewage systems, stadiums and high-rise buildings. And by developing new grades of our Bayferrox inorganic pigments, we are making the cities of the world more colorful. Most structures, roadways and bridges today are made of concrete, and our inorganic pigments make dull concrete colorful and inviting. It is in such demand today that our plant in Germany, the largest of its kind in the world, has been breaking all production records this year.

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Ladies and gentlemen, innovation will always be the key to the future at LANXESS. But I hope I have made it clear that we are very hard-nosed about innovation. We know that to pay off, it must be targeted at the specific needs of specific customers in specific markets. I am convinced that kind of targeted innovation will always pay off if it is treated as a fundamental aspect of corporate strategy and is fully understood by every key player in the company. I know that it has paid off for us at LANXESS – and I am certain it will help us achieve our very substantial growth targets. Thank you.

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Forward-Looking Statements. This news release may contain forward-looking statements based on current assumptions and forecasts made by LANXESS AG management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.