STYROLUTION COMBINED FINANCIAL REPORT - YEAR-END REPORT (JANUARY DECEMBER 2011)

Transcription

1 STYROLUTION COMBINED FINANCIAL REPORT - YEAR-END REPORT (JANUARY DECEMBER 2011) The following pro forma condensed combined financial information has been prepared for the year ended December 31, 2011 for Styrolution Group GmbH ( Styrolution or the Company ). The financial information has been derived from the audited interim financial information of the BASF Styrenics Business, the INEOS Styrenics Business and the INEOS ABS business for the period January 1, 2011 until September 30, 2011, plus the audited interim financial information of Styrolution Group GmbH for the period April 19, 2011 until December 31, 2011 and has been adjusted to reflect the Joint Venture Transaction and related financings. The information has been prepared as described in the notes to the audited interim financial information of Styrolution Group GmbH. Also as used herein, the BASF Styrenics Business, the INEOS Styrenics Business and the INEOS ABS Business shall have the meanings set in the Offering Memorandum. BASF SE and INEOS Holdings Limited are sometimes referred to herein as the Joint Venture Partners. The balance sheet of December 31, 2011, as set forth below, has been derived from the audited financial information of the Company. Comparable period financial information as of December 31, 2010 has been derived from the Offering Memorandum. For further details we refer to the Styrolution Offering Memorandum dated May 12, The unaudited pro forma condensed combined income statements for 2011 ended December 31, 2011 has been derived from the audited interim financial information of the BASF Styrenics Business, the INEOS Styrenics Business and the INEOS ABS Business for period January 1, 2011 until September 30, 2011, plus the audited interim financial information of Styrolution Group GmbH for the period April 19, 2011 until December 31, 2011 and has been adjusted to reflect the Joint Venture Transaction and related financings. Comparable prior-year period ended December 31, 2010 has been derived from the unaudited combined income statements of the BASF Styrenics Business, the INEOS Styrenics Business and the INEOS ABS Business, assuming that the Joint Venture Transaction, the repayment of certain indebtedness, and the issuance of the Notes occurred on January 1, This report assumes that Styrolution commenced its operations on January 1, 2010, though the Joint Venture Transaction was only consummated at October 1, The unaudited pro forma adjustments are based upon currently available information and assumptions that we believe to be reasonable. The pro forma adjustments and related assumptions are described in the accompanying notes presented on the following pages in Notes to the interim report. The unaudited pro forma condensed combined financial information has not been prepared in accordance with the requirements of Regulation S-X of the Securities Act or the Prospectus Directive. The unaudited pro forma condensed combined financial information has been prepared in accordance with German standard IDW RH HFA 1.004, Preparation of pro forma financial information. The interim report for the nine months ended September 30, 2011 and the balance sheet of December 31, 2010 is for informational purposes only and is not intended to represent or to be indicative of the consolidated results of operations or financial position that Styrolution would have reported had the Joint Venture Transaction been completed as of these dates and should not be relied upon as indicative of Styrolution s future consolidated results of operations or financial position. The actual results for that period may differ significantly from those reflected in the interim report for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the unaudited pro forma condensed combined interim financial information and actual amounts. 1

2 Styrolution Pro Forma Condensed Combined Balance Sheet All amounts (Millions ) December 31, 2011 December 31, 2010 (unaudited) Change in % Absolute change Intangible assets 1, , ,186.3 Property, plant and equipment Deferred tax assets Other receivables and miscellaneous long-term assets (76.3) (22.8) Long-term assets 2, ,555.7 Inventories (7.4) (37.0) Accounts receivable, trade (2.9) 21.3 Other receivables and miscellaneous short-term assets Cash and cash equivalents Assets held for sale Short-term assets 1, , Total assets 3, , ,973.5 Equity of shareholders 1, ,094.6 Non-controlling interests (18.4) (1.9) Owners' equity 1, ,092.7 Provisions for pensions and similar obligations (20.6) (11.1) Deferred tax liabilities Financial indebtedness (2.5) (11.8) Other liabilities and long-term provisions Long-term liabilities 1, Accounts payable, trade Tax liabilities (45.0) (10.7) Financial indebtedness Other liabilities and short-term provisions Liabilities held for sale Short-term liabilities 1, Total owners' equity and liabilities 3, , ,

3 Styrolution Unaudited Pro Forma Condensed Combined Income Statement For the Year Ended December 31, 2011 and 2010 All amounts (Millions ) Change in % Absolute Change Sales 6, , Cost of sales (5,923.6) (5,672.7) (4.4) (250.9) Gross profit (18.4) (141.1) Selling expenses (321.7) (346.8) General and administrative expenses (77.6) (58.6) (32.4) (19.0) Research and development expenses (11.8) (11.2) (5.4) (0.6) Other operating income (expenses) (29.2) (3.1) (841.9) (26.1) Income from operations (46.4) (161.7) Interest income (36.4) (0.4) Interest expense (49.9) (48.6) (2.7) (1.3) Other finance income (expenses) (5.8) (0.2) (2,800.0) (5.6) Financial result (55.0) (47.7) (15.3) (7.3) Income before taxes and non-controlling interests (56.2) (169.0) Income taxes (41.8) (80.3) Income before non-controlling interests (59.2) (130.5) Non-controlling interests (0.2) (2.4) Net income (58.9) (128.3) Other financial information EBITDA Special items EBITDA before exceptionals (1) Depreciation and amortization (30.6) (129.9) 22.7 (17.6) (229.0) (40.3) (22.0) (89.6) (107.8) (76.0) (41.8) (31.8) (1) EBITDA represents income from operations plus depreciation of property, plant and equipment and amortization of intangible assets. EBITDA before exceptionals represents EBITDA less exceptional charges. Although EBITDA and EBITDA before exceptionals should not be considered substitute measures for profit and net cash flow from operating activities, we believe that they provide useful information regarding our ability to meet future debt service requirements. EBITDA and EBITDA before exceptionals may not be comparable to similarly titled measures used by other companies. 3

4 Styrolution Unaudited Pro Forma Condensed Combined Income Statement, showing Pro Forma Adjustments For the Year Ended December 31, 2011 All amounts (Millions ) BASF Styrenics Business YTD 30-9 INEOS Styrenics Business YTD 30-9 INEOS ABS Business YTD 30-9 Group GmbH financials till Combined figures audited financials Pro Forma Adjustments 2011 (unaudited) Styrolution Pro Forma 2011 (unaudited) Sales 2, , , ,683.2 (132.7) 6,550.5 Cost of sales (2,559.8) (1,616.4) (558.8) (1,326.9) (6,061.9) (5,923.6) Gross profit Selling expenses (144.7) (66.2) (37.5) (73.3) (321.7) - (321.7) General and administrative expenses (27.0) (6.9) (24.0) (19.7) (77.6) - (77.6) Research and development expenses (7.5) (1.3) - (3.0) (11.8) - (11.8) Other operating income (expenses) (8.9) (6.9) (3.8) (14.4) (34.0) 4.8 (29.2) Income from operations (44.8) Interest income (3.9) 0.7 Interest expense (0.6) (5.0) (1.5) (31.9) (39.0) (10.9) (49.9) Other finance income (expenses) (1.2) 0.8 (6.7) 4.0 (3.1) (2.7) (5.8) Financial result (1.8) (4.2) (6.9) (24.6) (37.5) (17.5) (55.0) Income before taxes and non-controlling interests (69.4) (7.1) Income taxes (45.2) (4.2) (13.3) 1.8 (60.9) 19.1 (41.8) Income before non-controlling interests (67.6) Non-controlling interests (0.2) (0.2) - (0.2) Net income (67.8) Other financial information EBITDA Special items EBITDA before exceptionals (1) Depreciation and amortization (2.5) (39.5) (25.5) (1.5) (42.3) (108.8) 1.0 (107.8) (1) EBITDA represents income from operations plus depreciation of property, plant and equipment and amortization of intangible assets. EBITDA before exceptionals represents EBITDA less exceptional charges. Although EBITDA and EBITDA before exceptionals should not be considered substitute measures for profit and net cash flow from operating activities, we believe that they provide useful information regarding our ability to meet future debt service requirements. EBITDA and EBITDA before exceptionals may not be comparable to similarly titled measures used by other companies. 4

5 Styrolution Unaudited Pro Forma Condensed Combined Income Statement, showing Pro Forma Adjustments For the Year Ended December 31, 2011 All amounts (Millions ) Combined figures Elimination intra-joint venture transactions Financing INEOS Styrenics Marl location Purchase Price Adjustments Tax effects Styrolution Pro Forma 2011 Notes A B C D E Sales 6,683.2 (132.7) 6,550.5 Cost of sales (6,061.9) (5,923.6) Gross profit Selling expenses (321.7) (321.7) General and administrative expenses Research and development expenses Other operating income (expenses) (77.6) (77.6) (11.8) (11.8) (34.0) 4.8 (29.2) Income from operations Interest income 4.6 (3.9) 0.7 Interest expense (39.0) (10.9) (49.9) Other finance income (3.1) (2.7) (5.8) (expenses) Financial result (37.5) - (17.5) (55.0) Income before taxes and noncontrolling interests (17.5) Income taxes (60.9) 19.1 (41.8) Income before non-controlling interests (17.5) Non-controlling interests (0.2) (0.2) Net income (17.5) Other financial information EBITDA (0.4) Special items EBITDA before exceptionals (1) (0.4) Depreciation and amortization (108.8) 1.0 (107.8) (1) EBITDA represents income from operations plus depreciation of property, plant and equipment and amortization of intangible assets. EBITDA before exceptionals represents EBITDA less exceptional charges. Although EBITDA and EBITDA before exceptionals should not be considered substitute measures for profit and net cash flow from operating activities, we believe that they provide useful information regarding our ability to meet future debt service requirements. EBITDA and EBITDA before exceptionals may not be comparable to similarly titled measures used by other companies. 5

6 NOTES TO THE YEAR-END REPORT JANUARY DECEMBER Historical Financial Information The selected historical condensed combined financial information presented as of and for the year ended December 31, 2011 has been derived from: the audited combined interim financial statements of the BASF Styrenics Business for the period ended September 30, 2011; the audited combined interim financial statements of the INEOS Styrenics Business for the period ended September 30, 2011; the audited combined interim financial statements of the INEOS ABS Styrenics Business for the year ended December 31, 2011; the audited consolidated financial statements of Styrolution Group GmbH for the period April 19, 2011 until December 31, All audited combined interim financial statements of BASF Styrenics Business, INEOS Styrenics Business and INEOS ABS Business and the audited consolidated financial statements of Styrolution Group GmbH have been published on the investor relation website of the Company. 2. Pro forma adjustments Styrolution financial information has been included in our unaudited pro forma condensed combined interim financial information for the calendar year 2010 and the first nine months of 2011 on the basis of IFRS. The pro forma adjustments for these periods are described in Note A E. Note A Elimination of intra-joint Venture Transactions Adjustments have been made to eliminate intercompany balances and activity between the BASF Styrenics Business, the INEOS Styrenics Business and the INEOS ABS Business for 2010 and the nine months ended September 30, Note B Financing B New financing and payment to BASF SE Historical adjustments for the period up to September 30, 2011 have been recorded for the financing. The financing was pro forma adjusted for the historical period to reflect 720 million of debt to be incurred by the Company which was used for the payment of 600 million to BASF SE and/or its affiliates, shown as a reduction to owners equity of 600 million and additional cash of 100 million. All related costs to this financing are included in the pro forma financials. As from the fourth quarter of 2011 the actual financing and related finance costs are shown. The financing of Styrolution is through the issuance of Senior Secured Notes of 480 million, a Trade Receivables Securitization Facility (limit 500 million) and ancillary lines for instruments such as guarantees and letters of credit (no balance sheet impact) with an assumed average utilization of 20 million for fiscal year The terms of such financing are set out in further detail in the Offering Memorandum. 6

7 The deferred financing fees of 14.2 million as of December 31, are shown as deduction of financial indebtedness (long- and short-term). Note C Elimination INEOS Styrenics Marl location The Styrolution joint venture partners decided not to take over the INEOS Styrenics entity located in Marl, Germany. Although INEOS Styrenics Marl will not be transferred to Styrolution, it supplies Styrolution under a new tolling agreement. The adjustment of 0.6 million in cost of sales reflects the decreased depreciation charge, partly offset by additional costs of the tolling agreement for the first nine months of No pro forma adjustments were made to the Styrolution Group GmbH accounts. Note D Purchase Price Adjustments Applying IFRS 3, Business Combinations, the Company chose to apply fair value purchase price allocation on October 1, 2011, when the Company commenced operations. The unaudited consolidated financials at December 31, 2011 have been affected by the fair value allocation on October 1, The unaudited pro forma condensed combined balance sheet prior to December 2011 reflects the combined financial information of the BASF Styrenics Business, the INEOS Styrenics Business and the INEOS ABS Business at their carrying value. The impact of the purchase price allocation is described in the balance sheet section. An assessment was made for the fair value adjustment of the inventories and employee benefits In the audited financials these adjustments will be shown as an equity adjustment to the opening balance of Styrolution. For the purpose of comparison, the Company has reversed this two-off equity impacts into the profit and loss statement. The amount of the inventory step up on October 1, 2011 was a positive gross profit impact of 5.0 million. The employee benefit impact was a positive impact of 4.8 million. Note E Tax effects The tax effect represents all pro forma adjustments with an impact on income before taxes. These pro forma tax adjustments are calculated using an estimated tax rate of 27% (based on Quarter 3, 2011 combined figures) for the first nine months of No pro forma adjustments were made to the Styrolution Group GmbH accounts. 7

8 FORWARD-LOOKING STATEMENTS The following includes forward-looking statements, within the meaning of the US securities laws, based on our current expectations and projections about future events, including: the cyclical nature of our businesses and their sensitivity to changes in supply and demand; raw material availability and costs, as well as supply arrangements, including arrangements with principal feedstock suppliers; the highly competitive nature of our principal industries; current or future environmental requirements, including those related to greenhouse gas and other air emissions, and the related costs of maintaining compliance and addressing liabilities; currency fluctuations and economic downturns in the countries in which we operate; our ability to implement our business and cost reduction strategies; our ability to successfully integrate our businesses and realize anticipated synergies and cost savings; and our substantial indebtedness following the consummation of the Joint Venture Transaction may affect our ability to service our outstanding indebtedness, which would likely impact the way we operate our business. All statements other than statements of historical facts included in this report including, without limitation, statements regarding our future financial position, risks and uncertainties related to our business and the notes, strategy, capital expenditures, projected costs and our plans and objectives for future operations, may be deemed to be forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties. Words such as believe, expect, anticipate, may, intend, will, should, estimate and similar expressions or the negatives of these expressions are intended to identify forward-looking statements. In addition, from time to time we or our representatives, acting in respect of information provided by us, have made or may make forward-looking statements orally or in writing and these forward-looking statements may be included in but are not limited to press releases (including on our website), reports to our security holders and other communications. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 8

9 Presentation of the Styrolution 2011 business results of operation For presentations and analysis of the business results we refer to the quarterly published MD&A s and investor relation presentations of the Company. Critical accounting estimates Styrolution s reported financial condition and results of operations are sensitive to accounting policies, assumptions and estimates that underlie the preparation of its financial information. The accounting policies of the BASF Styrenics Business, the INEOS Styrenics Business and the INEOS ABS Business are set out in the Offering Memorandum. Subsequent Events On March 19, 2012, the Company announced the termination of tolling agreements with INEOS concerning the styrenics plant of INEOS in Marl, Germany. Supply of polystyrene and styrene from Marl is expected to continue through the fourth quarter of As a result of the termination of the agreement, the Company will accelerate payments of approximately 28 million under the contract which was identified as an unfavorable contractual agreement in accounting for the business combination. The Company has initiated a tender offer to purchase the non-controlling interest in Styrolution ABS (India) Limited. The first phase of the offer was completed and did not result in a complete purchase of all outstanding shares. The Company considers a second offer to obtain a 100 % ownership. If the Company did not succeed it could be obliged to increase the non-controlling interest to 25 % of all shares of that subsidiary. Contingencies and Legal Proceedings Like Styrolution s competitors, the Company is and may from time to time be involved in proceedings or litigation arising in the ordinary course of business. Management does not believe that the ultimate resolution of these matters will materially affect Styrolution s financial condition or results of operations. 9