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Financial condition and capital expenditures

Changes in the statement of cash flows

Net operating cash flow in the first three months of 2012 amounted to €129 million, against €36 million in the prior-year period. With income before income taxes amounting to €249 million, the increase in net working capital compared to December 31, 2011 resulted in a cash outflow of €244 million. The corresponding cash outflow in the prior-year period was €301 million. The development in both periods was attributable to significantly higher raw material prices as well as a business-driven increase in inventories and receivables.

There was a €9 million net cash inflow for investing activities in the first three months of 2012, compared with a €19 million net cash outflow in the same period a year ago. Cash inflows in the reporting period mainly comprised receipts of €105 million from financial assets. These were mainly attributable to the sale of near-cash assets and were partially offset by the disbursements for the purchase of the 3.4% stake in BioAmber, Inc., United States. Cash outflows for purchases of intangible assets, property, plant and equipment totaled €92 million, which was €24 million more than in the prior-year period. Depreciation and amortization came to €88 million. Cash outflows for the acquisition of subsidiaries, less acquired cash and adjusted for subsequent purchase price adjustments, amounted to €9 million. The company acquired was Tire Curing Bladders, LLC, of Little Rock, United States.

Cash provided by financing activities came to €17 million, compared with net cash of €7 million used in financing activities in the first three months of 2011. Notable among these was the issuance of the Chinese off-shore renminbi bond, which has a volume of CNH 500 million, or €60 million, and matures in 2015. The proceeds generated from this bond were offset mainly by the repayment of financial liabilities.

Financing and liquidity

The principles and objectives of financial management discussed in the Annual Report 2011 remained valid during the first quarter of 2012. They are centered on a conservative financial policy built on long-term, secured financing.

Cash and cash equivalents increased by €155 million compared with the end of 2011, to €333 million. The €227 million of instant-access investments in money market funds, down from €350 million at the end of 2011, was reported under near-cash assets. The Group thus has retained a sound liquidity position.

Net financial liabilities totaled €1,503 million as of March 31, 2012, compared with €1,515 million as of December 31, 2011.

Net Financial Liabilities
     
€ million Dec. 31, 2011 March 31, 2012
     
Non-current financial liabilities 1,465 1,535
Current financial liabilities 633 604
less    
Liabilities for accrued interest (55) (76)
Cash and cash equivalents (178) (333)
Near-cash assets (350) (227)
  1,515 1,503

Financing instruments off the statement of financial position

As of March 31, 2012, we had no material financing items not reported in the statement of financial position, such as factoring, asset-backed structures or sale-and-lease-back transactions.

Significant capital expenditure projects

Significant capital expenditures in the Performance Polymers segment were related to the construction of the new butyl rubber facility in Singapore for the Butyl Rubber business unit. This facility is due on stream in the first quarter of 2013. Also in Singapore, the Performance Butadiene Rubbers business unit is building the world’s largest production facility for high-performance neodymium-catalyzed polybutadiene rubber (Nd-PBR), which will have an annual capacity of 140,000 tons. This facility is due on stream in the first half of 2015. In our Technical Rubber Products business unit, we are expanding production capacities for hydrogenated acrylonitrile butadiene rubber (HNBR) at the facilities in Leverkusen, Germany, and Orange, United States, by 40%. The expansions are scheduled for completion this year. At the site in Geleen, Netherlands, 50% of production will be converted to the innovative Keltan ACE technology during the current year. Our High Performance Materials (formerly Semi-Crystalline Products) business unit has begun producing high-tech plastics for the automotive industry at a new plant in Jhagadia, India. In addition, the business unit and U.S. chemical company DuPont are doubling the capacity of their joint compounding facility for polybutylene terephthalate (PBT) in Hamm-Uentrop, Germany. The new capacity should be available to the market later this year. Capacity expansions are also taking place for glass fibers at the Antwerp site.

The Advanced Intermediates segment’s Advanced Industrial Intermediates business unit is further expanding cresol production at its facility in Leverkusen. Completion is expected in mid-2013. In addition, menthol production is being expanded at the site in Krefeld-Uerdingen. This work is due for completion in the first half of 2012.

In the Performance Chemicals segment’s Rhein Chemie business unit, work is underway in Argentina to increase the production capacity for vulcanization bladders used in tire production, while a production facility for rubber additives and release agents is being built at the site in Lipetsk, Russia. The latter is scheduled to go on stream in the first half of 2013. In addition, a plant for release agents and additives has been commissioned in Jhagadia, India. Also in Jhagadia, the Material Protection Products business unit built a production plant for biocides. The Leather business unit is building a production facility for leather chemicals at the site in Changzhou, China. With an annual capacity of up to 50,000 tons, this plant will feature the latest technology and eco-friendly processes and is due on stream in the first half of 2013. A further investment relates to the construction of a CO2 concentration unit at the site in Newcastle, South Africa, which is scheduled to start up in the second half of 2013.

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